59262 Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Rules and Regulations 

1The Horizontal Review is available on the 

Housing Programs page of the Finance Board’s Web 

site: http://www.fhfb.gov/Default.aspx?Page=47. 

2Letters from 2 of the Banks also incorporate the 

comments of those Banks’ respective Affordable 

Housing Advisory Councils. 

FEDERAL HOUSING FINANCE BOARD 

12 CFR Part 951 

[No. 2006–17] 

RIN 3069–AB26 

Affordable Housing Program 

Amendments 

AGENCY: Federal Housing Finance 

Board. 

ACTION: Final rule. 

SUMMARY: The Federal Housing Finance 

Board (Finance Board) is amending its 

Affordable Housing Program regulation 

to remove prescriptive requirements, 

clarify certain operational requirements, 

provide additional discretionary 

authority in certain areas, remove 

certain authorities, and otherwise 

streamline and reorganize the 

regulation. 

DATES: The final rule is effective on 

January 1, 2007. 

FOR FURTHER INFORMATION CONTACT: 

Charles E. McLean, Associate Director, 

Office of Supervision, mcleanc@fhfb.gov 

or 202–408–2537; Sylvia C. Martinez, 

Senior Advisor, Office of Supervision, 

martinezs@fhfb.gov or 202–408–2825; 

Melissa L. Allen, Program Analyst, 

Office of Supervision, allenm@fhfb.gov 

or 202–408–2524; or Sharon B. Like, 

Senior Attorney Advisor, Office of 

General Counsel, likes@fhfb.gov or 202– 

408–2930. You can send regular mail to 

the Federal Housing Finance Board, 

1625 Eye Street, NW., Washington DC 

20006. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Section 10(j)(1) of the Federal Home 

Loan Bank Act (Bank Act) requires each 

Federal Home Loan Bank (Bank) to 

establish an affordable housing program 

(AHP), the purpose of which is to enable 

Bank members to provide subsidized 

financing for long-term, low- and 

moderate-income, owner-occupied and 

affordable rental housing. See 12 U.S.C. 

1430(j)(1). The AHP has played an 

important role in facilitating Bank 

support of their members’ efforts to 

meet the housing needs of their 

communities. The strength of the AHP 

lies in its capacity to leverage additional 

public and private resources for 

housing. Since the inception of the 

program in 1990, the Banks have 

awarded more than $2.5 billion in AHP 

subsidies to assist nearly 472,000 

housing units. Seventy percent of the 

units receiving AHP subsidies were for 

very low-income households. AHP 

subsidies have proven effective in 

financing projects that present 

underwriting challenges, such as 

projects for the homeless and special 

needs populations, which may include 

persons with disabilities and the 

elderly. The AHP also has been used 

effectively in conjunction with LowIncome Housing Tax Credits (LIHTC or 

tax credits), which are important 

funding sources for rental housing for 

very-low income households. 

The AHP also serves as an important 

resource for low- or moderate-income 

homeowners and first-time homebuyers. 

From 1990 through 2005, the program 

assisted in the financing of over 126,000 

owner-occupied units under the Banks’ 

competitive application programs, and 

over 47,000 units under their 

homeownership set-aside programs. 

Some of the units address specific 

housing needs, such as expanding 

homeownership opportunities for 

underserved households. 

II. Proposed Rule 

The Finance Board’s regulation 

implementing the AHP provisions of the 

Bank Act is codified at 12 CFR part 951. 

The regulation generally has reflected a 

prescriptive approach, which was 

appropriate for rules implementing a 

newly created program. As the program 

has matured, the Finance Board 

periodically has revised the AHP 

regulation, to provide greater authority 

to the Banks in managing their 

individual programs and codify lessons 

learned through oversight of the Banks’ 

operation of their programs. The 

Finance Board believes, based in part on 

its review of the AHP on a System-wide 

level, Report of the Horizontal Review of 

the Affordable Housing Programs of the 

Federal Home Loan Banks (March 15, 

2005) (Horizontal Review), that there are 

a number of areas in which it can revise 

the regulation to provide for additional 

enhancement of the program.1

Accordingly, on December 28, 2005, the 

Finance Board published proposed 

amendments to the AHP in the Federal 

Register for a 120-day comment period, 

which closed on April 27, 2006. See 70 

FR 76938 (Dec. 28, 2005). The Finance 

Board received a total of 59 comment 

letters on the proposed rule, 

representing 61 commenters.2

Commenters included: All 12 Banks; 4 

Bank Affordable Housing Advisory 

Councils; 3 Bank members; 13 trade 

associations; 9 not-for-profit housing 

developers; 5 housing advocacy and 

assistance organizations; 3 State housing 

finance agencies; 3 for-profit housing 

developers; 3 community development 

financial institutions; 3 individuals; 2 

wholesale financial intermediary and 

assistance organizations; and 1 

secondary market entity for home 

purchase and rehabilitation mortgages. 

The Finance Board has considered all of 

the comments it received on the 

proposed rule, and has determined to 

adopt a final rule amending the AHP, 

with a number of revisions to the 

proposed rule, as further discussed 

below. Comments received that were 

relevant to the issues raised in the 

proposed rule are discussed below. 

Comments that raised issues beyond the 

scope of the proposed rule are not 

addressed in this final rule, but may be 

considered by the Finance Board at a 

future date. 

III. Analysis of the Final Rule 

As discussed in the SUPPLEMENTARY

INFORMATION section of the proposed 

rule, the amendments to the AHP 

regulation are intended to address the 

following principal changes. 

1. The final rule incorporates 

additional definitions into the 

regulation at § 951.1. These definitions 

establish the precise meaning of key 

terms that are used in the regulation. 

2. The final rule reorganizes the 

regulatory text so that operational 

provisions relating to the competitive 

application program and the 

homeownership set-aside program, 

respectively, are fully contained within 

separate sections of the regulation. 

Section 951.5 addresses the competitive 

application program, while § 951.6 

addresses the homeownership set-aside 

program. The reorganization is intended 

to make it easier for program sponsors 

and other interested parties to 

understand the individual operation of 

the competitive application and 

homeownership set-aside programs. 

3. The final rule authorizes the Banks, 

in their discretion, to provide AHP 

direct subsidies under the competitive 

application program for eligible projects 

and households involving both the 

lending of the subsidy and subsequent 

re-lending of subsidy principal and 

interest repayments by a revolving loan 

fund. This change is intended to expand 

the eligible means of supporting 

affordable housing through the program. 

4. The final rule specifies the 

conditions under which a Bank, in its 

discretion, may provide AHP subsidy 

under the competitive application 

program to loan pools. This change is 

intended to provide additional clarity 

for Banks that may wish to use such 


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funding vehicles to support affordable 

housing through the program. 

5. The final rule eliminates the 

existing discretionary authority for a 

Bank to prohibit applications for AHP 

subsidy for projects located outside a 

Bank’s district. This change is in 

response to the expansion of interstate 

banking, which has resulted in many 

Bank members operating in markets 

outside a Bank’s district boundaries. 

However, in response to comments 

received, the final rule retains the 

current discretionary scoring preference 

for in-district projects under the First 

District Priority, and continues to allow 

a Bank to adopt such a scoring 

preference under its Second District 

Priority. 

6. In response to comments received, 

the final rule retains the Banks’ current 

authority to draw on AHP funds from 

the subsequent year to fund the current 

year’s AHP, but limits the amount that 

may be drawn to an amount up to the 

greater of $2 million or 20 percent of the 

Bank’s annual required AHP 

contribution for the current year, which 

the Bank would deduct from the annual 

required AHP contribution for the 

subsequent year. This change responds 

to the fact that Banks have, at times, 

found this authority to be useful for 

addressing housing needs in their 

districts. 

7. The final rule removes provisions 

in the regulation that would increase 

annually the maximum allowable dollar 

amount of a Bank’s allocation to its 

homeownership set-aside program, and 

maximum allowable dollar amount 

drawn on the subsequent year’s 

allocation under a Bank’s 

homeownership set-aside and 

competitive application program, based 

on the annual inflation rate. This change 

addresses the potential for inflation to 

increase the allocation of AHP 

contributions to the homeownership setaside program relative to the 

competitive application program. 

8. The final rule replaces certain 

prescriptive monitoring requirements in 

the current regulation, which detail 

specific monitoring and control 

processes with which a Bank must 

comply, with broadly stated monitoring 

objectives to be accomplished through 

the Bank’s adoption and 

implementation of written monitoring 

policies for its competitive application 

and homeownership set-aside programs. 

These principal changes relative to 

the current rule, and other provisions of 

the final rule, including significant 

changes from the proposed rule, are 

discussed in greater detail below. 

A. Definitions: § 951.1 

Consistent with the proposed rule, the 

final rule revises certain of the existing 

AHP definitions and defines a number 

of other terms that are used throughout 

the regulation. See 12 CFR 951.1. New 

definitions are discussed below in the 

context of specific regulatory 

requirements. The more substantive 

changes are described below. 

Affordable. Consistent with the 

proposed rule, the final rule revises the 

existing definition of ‘‘affordable’’ by 

adding a reference, consistent with the 

AHP statutory term, to ‘‘rent charged to 

a household,’’ which is defined to mean 

the rent that is actually paid by the 

household occupying the unit. See 12 

U.S.C. 1430(j)(13)(D). The change 

clarifies the existing regulatory 

language, which could be read to mean 

the amount of rent charged by the owner 

for the unit, which would be greater 

than the rent actually paid by the 

occupants if the occupants receive 

financial assistance for rent payments 

from other sources. One commenter 

supported the proposed revision, noting 

that the change acknowledges an 

important distinction between unit rent 

and the household’s rent payment. 

The final rule also adds a new 

paragraph (2) to address rents charged 

for units that are subsidized with lowincome housing assistance under the 

Department of Housing and Urban 

Development (HUD) Section 8 program, 

see 42 U.S.C. 1437f, as well as rents 

under other assistance programs that are 

charged in the same way as under the 

Section 8 program. This provision is 

intended to clarify that rents charged to 

a household under such programs will 

be deemed to be ‘‘affordable’’ for AHP 

purposes, even if the rent increases after 

initial occupancy, if the rent complied 

with the AHP definition of ‘‘affordable’’

upon initial household occupancy and 

thereafter the household continues to be 

assisted through the program. This 

provision is applicable for purposes of 

the annual adjustment of targeting 

commitments after initial occupancy 

under § 951.7(a)(5) of the final rule 

(which is re-designated from current 

§§ 951.10(d) and 951.11(b)). 

The proposed rule would have 

applied this paragraph (2) only to the 

Section 8 program. Several commenters 

supported the change, with 1 

commenter adding that the United 

States Department of Agriculture 

(USDA) Rural Rental Assistance 

Program, at 7 CFR part 3560, charges 

rents in the same way as Section 8, and 

recommending that rents under that 

program be included in the AHP 

provision. The Finance Board believes 

that the commenter’s suggestion has 

merit, and that the provision should 

include not only rents under the USDA 

program, but rents under any other 

assistance program that are charged in 

the same way as under the Section 8 

program. Accordingly, the final rule 

adopts the proposed language as 

expanded to include rents under other 

assistance programs that are charged in 

the same way as under the Section 8 

program. 

AHP project. Consistent with the 

proposed rule, the final rule adds a new 

definition—‘‘AHP project’’—that applies 

to both owner-occupied and rental 

projects that have been awarded or have 

received AHP subsidy through the 

competitive application program. This 

is intended to codify existing practice 

and clarify that the term ‘‘project’’ does 

not apply to direct subsidies, i.e., grants, 

to households made pursuant to the 

homeownership set-aside program. The 

term applies to both single-family and 

multifamily projects. Consistent with 

the proposed rule, the final rule also 

makes conforming changes to the 

definitions of ‘‘owner-occupied project’’

and ‘‘rental project.’’ Several 

commenters supported the proposed 

changes. 

Low- or moderate-income household 

and very low-income household. 

Consistent with the proposed rule, the 

final rule amends the household-size 

adjustment provisions in paragraph (3) 

of the existing definition of ‘‘low- or 

moderate-income household’’ (and 

similarly for the definition of ‘‘very lowincome household) by changing the 

household-size adjustment from an 

optional to a mandatory requirement, 

provided that if the source for the area 

median income data has no 

methodology to adjust the household 

income limit for household size, the 

Bank is not required to make such an 

adjustment. The existing regulation 

defines ‘‘low- or moderate-income 

household’’ to mean a household that 

has an income of 80 percent or less of 

the median income for the area, with the 

income limit adjusted for family (i.e., 

household) size, in a Bank’s discretion, 

in accordance with the methodology of 

the applicable median income standard. 

The change in the final rule is intended 

to bring the AHP into conformance with 

other federal programs that adjust for 

household size. Several commenters 

supported the proposed change, stating 

that it would ensure consistency when 

the AHP is used with other federal 

programs. 

As discussed below, the final rule, 

consistent with the proposed rule, also 

relocates certain provisions of the 

existing definitions relating to when a 


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3See, e.g., Finance Board Regulatory 

Interpretation 2000–RI–04 (May 26, 2000) (available 

in the FOIA Reading Room on the Finance Board 

Web site at http://www.fhfb.gov/ 

Default.aspx?Page=59&ListYear=2000&

ListCategory=8#8\2000). 

household’s income must be 

determined, to §§ 951.5(c)(1)(i) and (ii) 

and 951.6(c)(2)(i) for the competitive 

application program and the 

homeownership set-aside program, 

respectively. 

Median income for the area. 

Consistent with the proposed rule, the 

final rule removes the language ‘‘for 

purposes of that entity’s housing 

programs’’ in the existing definition of 

‘‘median income for the area,’’ which 

will enable the Finance Board to 

approve, upon a Bank’s request, median 

income standards from sources, such as 

the U.S. Census Bureau, that publish 

median income data but do not have 

their own housing programs. The 

existing definition lists a number of 

median income standards that a Bank 

may adopt for purposes of determining 

household income eligibility. See 12 

CFR 951.1. The regulation also provides 

that a Bank may request Finance Board 

approval for use of a 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. One 

commenter supported the change, citing 

the additional flexibility it would 

provide. 

Owner-occupied project and rental 

project. The final rule adopts the 

proposed amendments to the existing 

definitions of ‘‘owner-occupied project’’

and ‘‘rental project’’ by clarifying that 

they apply only to the competitive 

application program, and by deleting 

language requiring the project to involve 

‘‘the purchase, construction, or 

rehabilitation’’ of owner-occupied 

housing or rental housing, respectively. 

That requirement is relocated to the 

provisions addressing the eligibility 

requirements for the use of AHP 

subsidy, at § 951.5(c)(1)(i) and (ii). No 

commenters addressed these technical 

changes. 

The proposed rule also would have 

added manufactured housing to the 

types of owner-occupied housing, and 

emergency shelters and single-room 

occupancy (SRO) housing as types of 

rental housing, which are explicitly 

referenced in the rule. In all cases, these 

types of housing have been eligible 

under the AHP since its inception, and 

the proposed rule sought to clarify this 

fact in the proposed language. However, 

some commenters misunderstood the 

proposed changes as indicating that 

these types of housing currently are not 

eligible for AHP funding. Based on the 

comments, the Finance Board has 

determined that the eligibility of 

manufactured housing should be further 

clarified as eligible for all AHP funding, 

including owner-occupied and rental 

projects under the competitive 

application program and owneroccupied units under the 

homeownership set-aside programs. 

Accordingly, the final rule adds the 

term ‘‘manufactured housing’’ not only 

to the definition of ‘‘owner-occupied 

project’’ but also to the definition of 

‘‘rental project’’ and to the provision on 

eligible uses of AHP direct subsidy 

under the homeownership set-aside 

program (§ 951.6(c)(4)). However, as 

noted by 1 commenter, whether 

manufactured housing is treated as an 

owner-occupied unit or a rental project 

depends on the actual use of the AHP 

subsidy.3

Several commenters suggested that 

the Finance Board restrict the types of 

manufactured housing that would be 

eligible housing under the AHP, for 

example, by requiring that the housing 

be on a permanent foundation. The 

Finance Board recognizes the benefits of 

placing a manufactured home on a 

permanent foundation. However, the 

Finance Board is not adopting such a 

requirement, because the various types 

of manufactured housing provide 

different and significant sources of 

affordable housing stock, including 

temporary shelters during an emergency 

following a natural disaster. 

Retention period. The final rule 

revises the proposed definition of 

‘‘retention period’’ to provide that, in 

the case of rehabilitated units that 

currently are occupied by the owner and 

do not involve a closing, the retention 

period shall commence on the date 

established by the Bank in its AHP 

Implementation Plan. 

The proposed rule would have 

provided that the retention period 

commenced on the date of completion 

of the rehabilitation. One commenter 

supported the proposal, while a number 

of commenters opposed it, pointing out 

that it can be difficult to determine with 

specificity the date that rehabilitation of 

an already owner-occupied unit is 

complete. The comments indicated that 

Banks have adopted different dates for 

the commencement of the retention 

period, based on local rehabilitation and 

real estate practices, and suggested that 

the Banks be given the discretion to 

establish the date. The Finance Board 

finds merit in the commenters’

suggestions and, consequently, has 

revised the language in the final rule to 

require a Bank to specify in its AHP 

Implementation Plan the date that the 

retention period commences for 

rehabilitated units that are currently 

occupied by the owner and do not 

involve a closing. 

Sponsor. Consistent with the 

proposed rule, the final rule amends the 

existing definition of ‘‘sponsor’’ by 

requiring a Bank to define in its AHP 

Implementation Plan the terms 

‘‘ownership interest’’ and ‘‘integrally 

involved,’’ which are part of the 

definition of ‘‘sponsor.’’ Under the 

existing definition, a Bank must 

consider a ‘‘sponsor’’ to include any 

entity that has an ownership interest in 

a rental project, regardless of how small 

or temporary such ownership interest is. 

Requiring a Bank to define ‘‘ownership 

interest’’ in its AHP Implementation 

Plan would allow the Bank to address 

concerns that some rental project 

sponsors may manipulate ownership 

interests in order to receive points as 

not-for-profit sponsors under the 

competitive application program’s 

scoring system. Several commenters 

agreed that the proposal would address 

concerns about sponsors that are only 

nominally or initially involved in a 

project. Commenters concurred with the 

Finance Board that the proposal would 

allow the Banks to address projects that 

attempt to ‘‘game’’ the scoring system by 

using minimally involved not-for-profit 

sponsors to get points under the scoring 

criterion for sponsorship by a not-forprofit or government entity. 

Consistent with the proposed rule, the 

final rule also expands the definition of 

‘‘sponsor’’ to include revolving loan 

funds or entities that operate loan pools. 

Those terms are used for purposes of 

implementing amendments to the 

competitive application program rules 

that address revolving loan funds and 

loan pools, respectively. 

Subsidy. The final rule adopts the 

proposed revisions to the existing 

definition of ‘‘subsidy.’’ Specifically, the 

provisions specifying the dates as of 

which the amount of the subsidy is to 

be determined are deleted, and the 

substance of those provisions is 

incorporated into § 951.5(c)(12), which 

sets forth the eligibility requirements 

relating to the competitive application 

program. In addition, the term 

‘‘homeownership set-aside funds’’ is 

removed from the definition of 

‘‘subsidy’’ because homeownership setaside funds are direct subsidies, which 

are included within the definition of 

‘‘subsidy.’’ No commenters addressed 

these technical changes. 

B. Required Annual AHP Contributions; 

Allocation of Contributions: § 951.2 

Required annual contribution: 

§ 951.2(a). Under the Bank Act, each 


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Bank annually must contribute to its 

AHP an amount equal to the greater of 

10 percent of the Bank’s previous year’s 

net income or such prorated amount as 

is required to assure that the aggregate 

contribution of the 12 Banks is no less 

than $100 million. 12 U.S.C. 

1430(j)(5)(C); 12 CFR 951.2. The pro rata 

allocation method has not been needed 

since the Banks’ annual contributions 

based on the 10 percent of income 

formula have exceeded $100 million. 

Nonetheless, consistent with the 

proposed rule, § 951.2(a)(2) of the final 

rule revises the existing provision to 

clarify that if the pro rata allocation 

method is used in any future year, the 

required annual contribution for any 

Bank shall not exceed its net earnings 

for the previous year. This primarily is 

intended as a safety and soundness 

measure to avoid the possibility that a 

Bank might otherwise be required to 

contribute an amount in excess of its 

income, thereby reducing its regulatory 

capital. Several commenters supported 

the change. 

Net earnings of a Bank: § 951.1. 

Consistent with the proposed rule, 

§ 951.1 of the final rule revises the 

existing definition of ‘‘net earnings of a 

Bank’’ to clarify existing practice with 

respect to how a Bank’s earnings are 

defined for purposes of calculating its 

required AHP contribution. See 12 CFR 

951.1. Each Bank must present its 

financial statements in accordance with 

Generally Accepted Accounting 

Principles in the United States (GAAP). 

The application of Statement of 

Financial Accounting Standards No. 

150, Accounting for Certain Financial 

Instruments with Characteristics of Both 

Liabilities and Equity (SFAS 150), 

requires the Banks to classify capital 

stock subject to a mandatory redemption 

request as a liability on the statement of 

condition and requires that they treat 

the dividends on capital stock subject to 

a mandatory redemption request as 

interest expense on the statement of 

income. The Bank Act provisions 

related to the AHP provide that each 

Bank shall make an annual contribution 

equal to 10 percent of its net earnings 

for the previous year after reduction for 

any payment required under 12 U.S.C. 

1441b (the Resolution Funding 

Corporation obligations) and before 

declaring any dividend. 12 U.S.C. 

1430(j)(8). Because the Bank Act 

requires that the AHP contribution be 

calculated before the declaration of 

dividends, net earnings for purposes of 

calculating the AHP contribution should 

not be reduced by any dividend 

declaration, including those associated 

with mandatorily redeemable stock, 

even though those dividends are treated 

as interest expense in the calculation of 

GAAP net income. One commenter 

supported the change. 

Allocation of contributions: § 951.2(b). 

Consistent with the proposed rule, the 

final rule relocates the allocation of 

contributions provisions for the 

competitive application program and 

homeownership set-aside program in 

existing § 951.3(a) to § 951.2(b), as they 

relate to the requirements for AHP 

contributions, which are set forth in 

§ 951.2. No comments addressed this 

technical change. 

AHP subsidies are disbursed through 

a Bank’s competitive application 

program and its homeownership setaside program. Under the existing 

regulation, a Bank may set aside 

annually up to the greater of $3 million 

or 25 percent of its annual required AHP 

contribution to provide funds to 

members through its homeownership 

set-aside programs. See 12 CFR 

951.3(a)(1)(i). If member demand in a 

given year exceeds the AHP subsidy 

amount available for that year, a Bank 

may allot (or accelerate) additional 

amounts from the subsequent year’s 

AHP contribution, up to the greater of 

$3 million or 25 percent of the Bank’s 

annual required AHP contribution for 

the following year, to the current year’s 

homeownership set-aside program. 

In addition to those amounts, under 

the current regulation, a Bank may set 

aside annually up to the greater of $1.5 

million or 10 percent of its annual 

required AHP contribution to fund a 

homeownership set-aside program to be 

used solely to provide financial 

assistance to first-time homebuyers. See 

12 CFR 951.3(a)(1)(ii). If member 

demand for that homeownership setaside program exceeds the amount of 

available AHP subsidy for a particular 

year, a Bank may allot an additional 

amount from the subsequent year’s AHP 

contribution, up to the greater of $1.5 

million or 10 percent of the Bank’s 

annual required AHP contribution for 

the subsequent year, to the current 

year’s first-time homebuyer set-aside 

program. Under the competitive 

application program, a Bank currently 

may allot up to the greater of $3 million 

or 25 percent of its annual required AHP 

contribution for the subsequent year, to 

the current year’s competitive 

application program. These maximum 

allowable dollar amounts are adjusted 

annually by the Finance Board to reflect 

any percentage increase in the 

preceding year’s Consumer Price Index 

(CPI). See 12 CFR 951.3(a)(1)(iii), (a)(2). 

Removal of CPI adjustment 

provisions. Consistent with the 

proposed rule, the final rule removes 

the existing provision authorizing an 

annual CPI adjustment of the caps on 

the dollar amounts, including amounts 

allotted from the subsequent year, that 

may be allocated to the homeownership 

set-aside programs, principally because 

it has the potential over time to increase 

disproportionately the amounts 

allocated to the homeownership setaside programs versus the competitive 

application program. See 12 CFR 

951.3(a)(1)(iii). In addition, the 

provision authorizing a CPI adjustment 

of any amount allotted from the 

subsequent year under the competitive 

application program, as provided under 

existing § 951.3(a)(2), is eliminated. 

Several commenters supported the 

changes, with 1 commenter stating that 

the changes are needed to ensure some 

parity between the homeownership setaside and competitive application 

programs. 

Consolidation of separate 

homeownership set-aside program 

authorities: § 951.2(b)(2). Consistent 

with the proposed rule, § 951.2(b)(2) of 

the final rule retains the maximum 

allowable aggregate allocation of AHP 

dollars to the homeownership set-aside 

programs, i.e., the greater of $4.5 million 

or 35 percent of a Bank’s annual 

required AHP contribution, but 

eliminates the first-time homebuyer setaside program authority as a separate 

and distinct authority. See 12 CFR 

951.3(a)(1). The final rule replaces the 

existing separate first-time homebuyer 

set-aside program provision with a 

requirement that at least one-third of a 

Bank’s aggregate annual 

homeownership set-aside allocation be 

targeted for first-time homebuyers, 

which reflects a comparable 

commitment to first-time homebuyers. 

The Finance Board understands that 

most of the Banks currently dedicate a 

substantial portion of their general 

homeownership set-aside allocation to 

first-time homebuyers before allocating 

funds under the separate 

homeownership set-aside authority that 

specifically targets first-time 

homebuyers. Therefore, the Finance 

Board believes the change will simplify 

the regulation without causing a 

material change in the allocation of 

homeownership set-aside funds to firsttime homebuyers. 

A number of commenters supported 

the change. One commenter requested 

clarification on whether one-third of 

any amount allocated and not actually 

disbursed by a Bank for its 

homeownership set-aside programs in a 

given year must be targeted to first-time 

homebuyers. Consistent with current 

practice, the ‘‘allocation’’ language in 

the rule makes clear that the one-third 


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59266 Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Rules and Regulations 

requirement applies to the amount 

allocated and not to the amount actually 

disbursed. 

Several commenters suggested that 

the one-third allocation include 

households displaced by natural 

disasters, rather than be limited to firsttime homebuyers. The Banks may use 

their remaining allocation of 

homeownership set-aside funding to 

assist households displaced by natural 

disasters. In addition, a Bank may 

request a waiver from the Finance Board 

to use its first-time homebuyer 

allocation for other purposes. 

Additional funding authority: 

§ 951.2(b)(3). Section 951.2(b)(3) of the 

final rule revises the proposal by 

providing that a Bank may draw on AHP 

funds from the subsequent year to fund 

the current year’s AHP, up to an amount 

equal to the greater of $2 million or 20 

percent of the Bank’s annual required 

AHP contribution for the current year. 

The Bank would deduct the amount 

from the annual required AHP 

contribution for the subsequent year. 

The proposed rule would have removed 

the 2 existing provisions authorizing 

such allotment for the competitive 

application and homeownership setaside programs. See 12 CFR 

951.3(a)(1)(i) and (ii) and (a)(2). The 

Banks have not often used this 

authority, although 1 or 2 Banks may do 

so in a year. The existing authority may 

present operational difficulties because 

it may require the Banks to project 

future earnings in order to determine 

how much they may allot to the current 

year, and these projections may fall 

short. Basing the authority on the 

known amount of the current year’s 

contribution eliminates uncertainty 

about the maximum permissible amount 

that the Bank may allot from the 

subsequent year’s required AHP 

contribution to the current year’s AHP 

funding levels. 

A number of commenters supported 

eliminating this authority from the 

homeownership set-aside and 

competitive application programs, citing 

operational difficulties. However, a 

Bank and its Advisory Council stated 

that the Bank has not found the 

authority to be difficult to administer. A 

number of other commenters favored 

retaining the authority, stating that it 

has been an important tool for the Banks 

to meet housing demand and to respond 

to the need for emergency owneroccupied housing and rehabilitation 

following natural disasters. Commenters 

also noted that some Banks have used 

the authority to ensure some minimum 

availability of AHP funding when 

reduced Bank earnings cause a 

significant decrease in AHP 

contributions in a given year. Several 

commenters suggested that the Finance 

Board retain the authority provision but 

further limit the amount of AHP funds 

that may be allotted from the 

subsequent year. 

Based on the comments, the Finance 

Board recognizes that the authority may 

be helpful for Banks in responding to 

housing needs in their districts and the 

need for emergency housing and 

rehabilitation following natural 

disasters, but believes that the authority 

should be limited in scope and 

calculated based on the current year’s 

required AHP contribution to minimize 

potential operational and compliance 

difficulties with the subsequent year’s 

allocation requirement. A Bank could 

request a waiver from the Finance Board 

of the funding limits in the event that 

those limits are not sufficient to address 

specific housing needs in the Bank’s 

district. Consequently, the final rule 

allows a Bank to allot AHP funds from 

the subsequent year to fund the current 

year’s AHP, up to an amount equal to 

the greater of $2 million or 20 percent 

of its annual required AHP contribution 

for the current year, which the Bank 

would deduct from its annual required 

AHP contribution for the subsequent 

year. 

C. AHP Implementation Plan: § 951.3 

Adoption of Plan: § 951.3(a). 

Consistent with the proposed rule, 

§ 951.3(a) of the final rule reorganizes 

and streamlines requirements for a 

Bank’s AHP Implementation Plan to 

conform them to amendments to other 

parts of the AHP regulation. See 12 CFR 

951.3(b). The changes to the specific 

program operating requirements for 

AHP Implementation Plans are 

discussed elsewhere in this preamble in 

the context of the particular operating 

requirements. The final rule also adopts 

the proposed requirement that the AHP 

Implementation Plan include the Banks’

retention agreement requirements. 

A number of commenters supported 

the changes to the requirements for the 

AHP Implementation Plan, but 

expressed concern that they would 

require a Bank to include all of its 

policies and procedures in its Plan, 

which would make for a cumbersome 

document and complicate the Bank’s 

process for amending the policies and 

procedures. The Finance Board intends 

that a Bank’s program requirements, 

such as its scoring guidelines, but not its 

implementing operating procedures, be 

included in the Plan. A Bank may 

reference its operating procedures in the 

Plan so that AHP participants will be 

aware of their existence and make them 

available upon request. 

Notification of Plan amendments: 

§ 951.3(c). Section 951.3(c) of the final 

rule adopts the proposed requirement 

that a Bank notify the Finance Board 

within 30 days of amending its AHP 

Implementation Plan. Several 

commenters supported the change. 

Public access: § 951.3(d). Section 

§ 951.3(d) of the final rule adopts the 

proposed requirement that a Bank make 

the amended AHP Implementation Plan 

publicly available through its Web site 

within 30 days after adoption of the 

amendments. Under the current rule, 

the Bank must submit all amendments 

to the Finance Board and make its AHP 

Implementation Plan available to 

members of the public upon request. 

See 12 CFR 951.3(b)(4), (b)(5). Making 

the AHP Implementation Plan available 

through the Banks’ Web sites is 

intended to provide the public with 

easy access to important information 

about the AHP, as well as to promote 

greater transparency and accountability 

in the program. A number of 

commenters supported the change as 

increasing transparency and 

accountability and noted that most of 

the Banks have now placed their AHP 

Implementation Plans on their Web 

sites. 

D. Advisory Councils: § 951.4 

The final rule makes a number of 

revisions to the existing provisions 

addressing the Advisory Councils of the 

Banks, many of which are intended to 

clarify, but not change the substance of, 

the existing rule. See 12 CFR 951.4. The 

provisions that have a substantive effect 

are described below. 

Terms of Advisory Council members: 

§ 951.4(b). Section 951.4(b) of the final 

rule adopts the proposed requirement 

that each Bank adopt policies governing 

the appointment process for Advisory 

Council members. In addition, the final 

rule requires each Bank to appoint 

Advisory Council members to terms of 

3 years, except that a Bank may appoint 

members for terms of 1 or 2 years as a 

transitional measure solely for purposes 

of achieving the necessary staggering of 

the 3-year terms. 

Proposed § 951.4(b) would have 

required each Bank to appoint members 

to terms of ‘‘up to’’ 3 years. This 

proposal was intended to enhance the 

effectiveness of the Advisory Councils 

by lessening the likelihood that the 

terms of more than one-third of the 

Advisory Council members will expire 

in any 1 year, by allowing the Banks to 

appoint as a transitional measure some 

individuals to terms of 1 or 2 years as 

a means of ensuring an appropriate 

balance of experience and service 

among members of the Advisory 


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Council as a whole while achieving 

appropriate staggering of terms. Under 

the current rule, the Banks must appoint 

members of the Advisory Council to 3- 

year terms. See 12 CFR 951.4(d). 

A number of commenters supported 

the proposal, stating that it would allow 

for better balance of expiring terms and 

provide greater continuity of the 

Advisory Council membership. Other 

commenters raised concerns that the 

proposal would allow the Banks as a 

routine matter to appoint Advisory 

Council members to terms of 1 year and 

2 years in addition to 3 years, creating 

positions of unequal power and 

resulting in greater turnover and loss of 

members with AHP knowledge and 

expertise. The Finance Board’s intent in 

proposing the change was to allow the 

Banks the flexibility to appoint 

members to shorter terms when 

necessary as a transitional measure to 

reconfigure the staggering of the 3-year 

terms on the Advisory Councils. 

Although the Banks originally set 

staggering of the 3-year terms beginning 

in January 1998, when the current AHP 

regulation became effective, the Banks 

have found it necessary to reset the 

staggering from time to time. The 

Finance Board has acted on a number of 

Bank requests, through waivers or noaction letters, to allow the Banks to 

readjust staggering by appointing some 

members to terms of less than 3 years. 

The Finance Board recognizes the 

concerns of the commenters, but also 

recognizes the need of the Banks for 

flexibility to stagger the Advisory 

Council member terms. Consequently, 

the language is revised in the final rule 

to provide that Advisory Council terms 

shall be for 3 years, except that a Bank 

may appoint members for terms of 1 or 

2 years as a transitional measure solely 

for purposes of achieving the necessary 

staggering of the 3-year terms. 

Election of officers: § 951.4(c). 

Consistent with the proposed rule, 

§ 951.4(c) of the final rule imposes on 

the Advisory Council an affirmative 

obligation to elect certain officers, 

which is intended to ensure that each 

Advisory Council has in place a 

chairman and vice chairman. The 

current rule permits, but does not 

require, election of such officers. See 12 

CFR 951.4(e). Several commenters 

supported the change. 

Duties: Meetings with the Banks: 

§ 951.4(d)(1)(ii). Consistent with the 

proposed rule, § 951.4(d)(1)(ii) of the 

final rule revises the duties of the 

Advisory Council principally by adding 

a list of specific matters on which the 

Advisory Council must provide 

recommendations to the Bank’s board of 

directors. See 12 CFR 951.4(f)(1). Those 

matters include: The relative allocation 

of AHP subsidies between the 

competitive application and 

homeownership set-aside programs; the 

AHP Implementation Plan; eligibility 

criteria for each program; scoring 

criteria and related definitions for the 

competitive application program; and 

any priority criteria for the 

homeownership set-aside program. A 

number of commenters supported the 

changes, stating they would strengthen 

communication among the Bank’s 

board, the Advisory Council, and the 

public. 

Annual Advisory Council analysis; 

public access: § 951.4(d)(3). Section 

951.4(d)(3)(i) of the final rule adopts the 

proposed extension of the deadline by 

which the Advisory Council must 

submit its annual analysis of the Bank’s 

low- and moderate-income housing and 

community lending activity to the 

Finance Board from March 1 to May 1. 

See 12 CFR 951.4(f)(3). The proposed 

change in the due date was intended to 

respond to requests received from some 

of the Advisory Councils, which meet at 

least quarterly, for additional time after 

the end of each calendar year to prepare, 

review, and approve their report. A 

number of commenters supported the 

change in the due date, with 1 

commenter stating that it would offer 

the Advisory Council a better 

opportunity to summarize the 

accomplishments of the year. 

Section 951.4(d)(3)(ii) of the final rule 

adopts the proposed requirement that 

each Bank publish the Advisory Council 

analysis on its publicly available Web 

site within 30 days of its submission to 

the Finance Board. Making the Advisory 

Councils’ analyses available to the 

public through the Banks’ Web sites is 

intended to promote greater 

transparency and accountability in the 

Banks’ AHP and in the work of the 

Banks’ Advisory Councils. A number of 

commenters supported the change, 

stating that it would increase 

transparency and accountability. 

No delegation: § 951.4(f). Section 

951.4(f) of the final rule prohibits a 

Bank’s board of directors from 

delegating to Bank officers or other Bank 

employees its responsibility for 

appointing Advisory Council members 

and meeting with the Advisory Council 

at the quarterly meetings required by the 

Bank Act. See 12 U.S.C. 1430(j)(11). 

This provision is intended to ensure 

that each board of directors fulfills its 

statutory obligations with regard to its 

interaction with the Advisory Council 

and is consistent with findings of the 

Finance Board’s Horizontal Review, 

which indicated that in general the 

Bank boards could improve their 

interactions with their Advisory 

Councils. See 12 U.S.C. 1430(j)(11); 

Horizontal Review at 23. 

Several commenters supported the 

proposal, stating that it would improve 

the Bank board’s understanding of 

affordable housing issues. A Bank and 

its Advisory Council opposed the 

proposal, believing it would add to the 

duties and responsibilities of the Bank’s 

board and apply to Advisory Council 

meetings beyond the quarterly meetings 

with the Bank’s board that are required 

by the Bank Act. It was not the Finance 

Board’s intent to prohibit Bank staff 

from meeting with the Advisory 

Councils at times other than the Bank 

boards’ quarterly meetings with the 

Advisory Councils. Consequently, the 

language is revised in the final rule to 

clarify that the prohibited delegation 

applies only to the statutorily-required 

quarterly meetings between the Banks’

boards and their Advisory Councils. 

E. Competitive Application Program: 

§ 951.5 

Consistent with the proposed rule, the 

final rule consolidates existing 

regulatory provisions governing the 

operation of the competitive application 

program into a single section of the AHP 

rule—§ 951.5. Under the current 

regulation, some of those provisions are 

located in different sections of the 

regulation. A number of commenters 

supported the proposed reorganization, 

streamlining, and consolidation of the 

regulatory provisions. Commenters 

stated that these technical revisions 

would be helpful for the Banks, 

members, and sponsors in 

understanding the specific requirements 

of the competitive application and 

homeownership set-aside programs. The 

principal revisions to the existing 

regulatory structure are described 

below. 

Removal of optional nonmember 

applicants provision: § 951.5(b)(2). 

Consistent with the proposed rule, 

§ 951.5(b)(2) of the final rule eliminates 

the current discretionary authority for a 

Bank to accept AHP applications from 

institutions that are not members of the 

Bank, but that have applied for 

membership. See 12 CFR 951.6(b)(1). A 

trade association opposed the proposed 

change, stating that the AHP offers an 

incentive for nonmember institutions to 

join the Banks and the current 

regulatory provision remains an 

important membership recruitment tool 

for the Banks. The Finance Board notes 

that the AHP would remain a 

membership recruitment tool under the 

final rule as the institution can apply for 

AHP funds once it is a member. 


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4 1999–RI–03 is available in the FOIA Reading 

Room on the Finance Board Web site at http:// 

www.fhfb.gov/ 

Default.aspx?Page=59&ListCategory=8#8. 

A Bank opposed the proposal, stating 

that where a member that intends to 

submit AHP applications on behalf of 

sponsors is merged into a nonmember, 

and the nonmember intends to apply for 

Bank membership, the proposal would 

prohibit the nonmember from 

continuing the process of submitting to 

the Bank the AHP applications for those 

sponsors for an imminent funding 

round. The Bank noted that this would 

result in the AHP activities of the 

nonmember being prohibited for as 

much as 180 days. See 12 CFR 

925.24(b). The Finance Board believes 

that such an event would be rare, and 

the Bank has alternatives to address the 

matter so that the sponsors could 

compete for funding at that time, such 

as by assisting the sponsors in 

identifying another member to submit 

the application. 

Eligibility requirements: § 951.5(c). 

Consistent with the proposed rule, 

§ 951.5(c) of the final rule sets out the 

eligibility requirements that apply in 

connection with the receipt of AHP 

subsidies under the competitive 

application program. 

Timing of household incomeeligibility determination: § 951.5(c)(1). 

Consistent with the proposed rule, the 

final rule relocates the current 

provisions on timing of household 

income eligibility from the definitions 

of ‘‘low- or moderate-income 

household’’ and ‘‘very low-income 

household’’ in § 951.1 to § 951.5(c)(1). In 

addition, consistent with the proposed 

rule, the final rule incorporates into this 

section, without change, the 

requirements in the existing definitions 

of ‘‘owner-occupied project’’ and ‘‘rental 

project’’ that the AHP subsidy be used 

for the purchase, construction, or 

rehabilitation of owner-occupied or 

rental housing. 

Need for subsidy: § 951.5(c)(2). The 

final rule permits a Bank, in its 

discretion, to permit a project’s sources 

of funds to include or exclude the 

estimated market value of in-kind 

donations and voluntary professional 

labor or services (excluding the value of 

sweat equity), provided that the 

project’s uses of funds also include or 

exclude, respectively, the value of such 

estimates. The existing regulation 

requires that, for purposes of 

determining a project’s eligibility, the 

project must demonstrate a need for the 

subsidy, based on its estimated total 

sources and uses of funds. See 12 CFR 

951.5(b)(2). The proposed rule would 

have maintained this requirement, but 

would have eliminated a related 

requirement that the estimated sources 

and uses of funds analysis include 

estimates of the market value of in-kind 

donations and volunteer professional 

labor or services (excluding the value of 

sweat equity) as sources of funds. See 12 

CFR 951.5(b)(2)(i)(B). By focusing the 

analysis on cash sources and uses, the 

sponsor can streamline the analysis, as 

non-cash contributions are exactly offset 

by the amount of non-cash expenses 

they cover and, therefore, cancel out of 

the comprehensive sources and uses of 

funds analysis. For example, a 

contribution of materials (in-kind) is a 

source that reduces the need for cash 

payments by exactly its value. The 

Finance Board stated in the 

SUPPLEMENTARY INFORMATION section of 

the proposed rule that experience since 

1998 indicated that estimates of noncash costs generally do not affect the 

amount of subsidy needed for a project, 

and that eliminating this requirement 

also would obviate the need for 

Regulatory Interpretation 1999–RI–03 

(Jan. 26, 1999),4 which already had 

eliminated this requirement for self-help 

homeownership projects involving such 

non-cash costs. 

One commenter opposed the 

proposal, stating that if estimates of 

non-cash costs generally do not affect 

the amount of subsidy needed for a 

project, then it should not matter 

whether or not a project includes noncash sources and uses in its 

development budget, and the rule 

should leave it to the Bank’s discretion 

whether the development budget may 

include such items. This commenter 

stated that sponsors must make these 

estimates as line items in their budgets 

for funding from certain federal 

programs such as Low-Income Housing 

Tax Credits and Community 

Development Block Grants, and the 

regulation should not require them to do 

separate budgets for the AHP. The 

Finance Board finds the comment 

persuasive. Accordingly, the final rule 

provides a Bank with the discretion to 

determine whether estimates of market 

value of in-kind donations and 

voluntary professional labor or services 

(excluding the value of sweat equity) 

may be a required component in 

determining a project’s source of funds 

along with the identical value included 

as a use of funds. 

Section 951.5(c)(2)(ii) of the final 

regulation also includes a requirement 

for how a self-help homeownership 

sponsor that provides permanent 

financing must account for the value of 

cash payments that it will receive from 

the purchaser of the home when 

determining the sponsor’s cash sources 

of funds. Several commenters were 

concerned that rescinding 1999–RI–03 

also would remove a provision relating 

to the determination of cash sources of 

funds for such sponsors. The Regulatory 

Interpretation provides that, in 

performing the cash sources and uses of 

funds analysis, the sponsor’s cash 

contribution must include the present 

value, rather than the face value, of any 

payments the sponsor is to receive from 

the homebuyer, i.e., any cash down 

payment from the buyer plus the 

present value of any below-market 

purchase note the sponsor holds on the 

unit. If such a note carries a market 

interest rate commensurate with the 

credit quality of the borrower (market 

rate), the present value of the note 

equals the face value of the note. If the 

note carries an interest rate below the 

market rate, the present value of the 

note can be determined using the 

market rate to discount the cash flows. 

The commenters stated that, without 

the provision in 1999–RI–03, such 

sponsors would be required to include 

the face value of the mortgage payments 

received rather than the discounted 

amount, which would result in the 

development budget for these types of 

projects showing cash sources of funds 

in excess of cash uses, i.e., no need for 

AHP subsidy, thereby making such 

projects ineligible to receive AHP 

subsidy. The Finance Board concurs 

that the provision related to the use of 

the net present value should continue to 

apply to sponsor-financed self-help 

housing, and the final rule codifies the 

1999–RI–03 provision in 

§ 951.5(c)(2)(ii). 

The final rule also adopts the 

proposal that would make the need for 

subsidy requirement independent of the 

project developmental and operational 

feasibility requirements. These 

feasibility requirements are separate 

assessments and, therefore, should not 

be linked to the need for subsidy 

requirement. The Finance Board stated 

in the SUPPLEMENTARY INFORMATION

section of the proposed rule that this 

change also may have the effect of more 

competition by smaller projects and 

projects with higher production or 

operating costs, such as projects with 

services or more common space, and 

several commenters agreed that this 

could be a result of the proposed 

change. 

Project costs: § 951.5(c)(3). Section 

951.5(c)(3)(i) of the final rule adopts the 

proposed clarification that the 

determination of project costs is a 

separate eligibility requirement, and 

removes an existing requirement that 

project costs be ‘‘customary’’ and 


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determined according to ‘‘industry 

standards’’ in accordance with the 

Bank’s project feasibility guidelines. See 

12 CFR 951.5(b)(2)(ii). In lieu of that 

requirement, a Bank is still required to 

establish feasibility and cost guidelines 

as a basis for evaluating project costs, 

but must determine whether an 

individual project’s costs are reasonable 

by taking into account the geographic 

location of the project, development 

conditions, and other non-financial 

household or project characteristics, 

such as housing for the elderly or for 

persons with disabilities, which affect 

the project’s costs. The changes are 

intended to make the eligibility review 

process more adaptive to projects such 

as those serving special needs 

populations, and other projects that may 

require special architectural features or 

other amenities appropriate to their 

location. 

Several commenters supported the 

proposal as providing additional 

flexibility for a Bank to assess project 

costs based on the characteristics of 

individual projects, taking into 

consideration factors that could increase 

costs in determining whether a project’s 

costs are reasonable. Some commenters 

stated, however, that the proposed 

language could be read to require a 

Bank’s feasibility guidelines to reflect a 

variety of characteristics for different 

project types. This was not the intent of 

the proposal. Accordingly, the language 

in the final rule is reworded to state that 

the Bank’s feasibility guidelines 

themselves need not include 

characteristics for different project 

types. 

As discussed above under Need for 

Subsidy, the proposed rule would have 

eliminated the existing provision in 

§ 951.5(b)(2)(i)(B) that requires, for 

purposes of a Bank’s sources and uses 

of funds analysis, that the Bank include 

as sources of funds estimates of the 

market value of in-kind donations and 

volunteer professional labor or services 

(excluding the value of sweat equity) 

committed to the project. See 12 CFR 

951.5(b)(2)(i)(B). Several commenters 

objected that removal of this provision 

would result in payment of a lower 

developer’s fee where the fee is 

calculated as a percentage of the 

project’s total development costs, as the 

total development costs amount would 

be lower. One commenter stated that 

this consequence would be particularly 

difficult for small, not-for-profit housing 

producers, especially in rural areas, that 

rely on income from the developer’s fee 

for their continuing operations. 

Commenters stated that the Banks 

should be given discretion to include inkind donations and volunteer 

professional labor or services as part of 

total development costs in the budget. 

The Finance Board believes the 

comments have merit. Accordingly, 

§ 951.5(c)(3)(i)(B) of the final rule allows 

a Bank to include estimates of the 

market value of in-kind donations and 

volunteer professional labor or services 

(excluding the value of sweat equity) in 

total development costs for purposes of 

calculating the developer’s fee. The 

Bank would continue to be required to 

determine, after calculating the fee, that 

it is a reasonable fee pursuant to the 

Bank’s project cost guidelines, as 

required by § 951.5(c)(3)(i)(A) of the 

final rule. 

Project feasibility: § 951.5(c)(4). 

Consistent with the proposed rule, 

§ 951.5(c)(4) of the final rule separates 

the 2 aspects of project feasibility—

developmental feasibility of a project 

and, in the case of rental housing, 

operational feasibility of the project over 

time—and defines the terms. These 2 

types of project feasibility are not 

differentiated in the existing rule. 

Section 951.5(c)(4)(i) requires that a 

project be developmentally feasible, 

which is defined as the likelihood that 

the project will be completed and 

occupied, based on relevant factors 

contained in the Bank’s project 

feasibility guidelines, including the 

project’s development budget, market 

analysis, and the sponsor’s experience 

in providing the requested assistance to 

households. Section 951.5(c)(4)(ii) 

requires that a rental project be 

operationally feasible, which is defined 

as the ability of the project to operate in 

a financially sound manner, in 

accordance with the Bank’s project 

feasibility guidelines, as projected in the 

project’s operating pro forma. 

A Bank and its Advisory Council 

supported the proposal, stating that it 

would allow the Banks more flexibility 

in addressing project needs based on a 

variety of factors that can influence 

development costs and operational 

budgets. 

Financing costs: § 951.5(c)(5). 

Consistent with the proposed rule, the 

final rule makes a technical change by 

relocating the provision regarding 

interest rates, points, fees, and other 

charges for loans financing the project 

from existing § 951.5(b)(2)(iii) to 

§ 951.5(c)(5) of the final rule. See 12 

CFR 951.5(b)(2)(iii). The final rule also 

clarifies that this provision applies to 

loans made for the project in 

conjunction with the AHP subsidy. 

Refinancing: § 951.5(c)(8). Section 

951.5(c)(8) of the final rule adopts a 

proposed technical change regarding the 

use of AHP subsidies in connection 

with a refinancing of a project. See 12 

CFR 951.5(b)(6). The change clarifies 

that refinancing is permitted only if it 

generated equity proceeds and if the 

proceeds are used to purchase, 

construct, or rehabilitate eligible 

housing units. The change also clarifies 

that the requirement regarding use of 

the equity proceeds applies only to an 

amount of equity proceeds that is at 

least equal to the amount of AHP 

subsidy in the project. No comments 

addressed this technical change. 

Project sponsor qualifications: 

§ 951.5(c)(10). Consistent with the 

proposed rule, § 951.5(c)(10)(ii) and (iii) 

of the final rule revises existing 

§ 951.5(b)(8) by requiring a Bank to 

adopt written policies regarding the 

project sponsor qualifications for 

revolving loan funds and loan pools. 

See 12 CFR 951.5(b)(8). These issues are 

discussed separately below under the 

sections addressing use of the AHP 

subsidy by revolving loan funds and 

loan pools. 

Calculation of AHP subsidy: 

§ 951.5(c)(12). Consistent with the 

proposed rule, § 951.5(c)(12) of the final 

rule, which relates to the calculation of 

the AHP subsidy, incorporates, without 

change, the existing provisions 

regarding the time at which the 

calculation of subsidy is to be made, 

which currently is included as part of 

the definition of ‘‘subsidy’’ in § 951.1. 

No comments addressed this technical 

change. 

Lending and re-lending of AHP direct 

subsidy by revolving loan funds: 

§ 951.5(c)(13). General requirements: 

Consistent with the proposed rule, the 

final rule authorizes a Bank, in its 

discretion, to provide AHP direct 

subsidy under its competitive 

application program for eligible projects 

and households involving both the 

lending of the subsidy and subsequent 

lending of subsidy principal and 

interest repayments by a revolving loan 

fund. The final rule further provides 

that both the initial loans made by the 

revolving loan fund, as well as any 

subsequent loans made with amounts 

received from repayments of the initial 

loans, would have to meet AHP 

eligibility requirements, as applicable 

depending on whether the subsidy is 

used for initial lending or for 

subsequent lending, as discussed below. 

The revolving loan fund also would 

have to assure that the initial loans are 

made to projects and households that 

meet the commitments made in the 

approved AHP application, and that 

they will be met for the full AHP 

retention period. In order to exercise 

this authority, a Bank would have to 

consult with its Advisory Council and 

then adopt written policies governing 


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59270 Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Rules and Regulations 

the disbursement of the AHP direct 

subsidy through this type of entity. 

A number of commenters supported 

allowing the Banks to provide AHP 

direct subsidy to revolving loan funds as 

proposed, stating that it could maximize 

the impact of the direct subsidy because 

using loans rather than grants allows the 

financial benefit of the subsidy to be 

leveraged many times over. One 

commenter stated that it would meet a 

need for small, flexible-term loans for a 

broad range of purposes. Another 

commenter stated that it would benefit 

rural areas that are losing affordable 

housing, as revolving loan funds are 

better able to match the capital needs of 

smaller scale, scattered-site 

development efforts typical in rural 

areas. 

Other commenters opposed the 

proposal, stating that it would be 

unworkable because of difficulties with 

scoring, monitoring and compliance. A 

commenter stated that lending the AHP 

direct subsidy would erode the value of 

the AHP grants. Several commenters 

stated that revolving loan funds charge 

interest or fees that increase project 

costs, thereby effectively reducing the 

amount of AHP subsidy passing through 

to the project, and projects that cannot 

support debt service would not be able 

to benefit from revolving loan funds 

using direct subsidy as loan principal 

instead of grants. The Finance Board 

acknowledges these potential concerns, 

but notes that under the regulation no 

Bank would be obligated to accept 

applications from a revolving loan fund. 

The authority in the rule is permissive, 

not mandatory. The Finance Board 

believes that revolving loan funds can 

provide opportunities for the benefits of 

the AHP to reach harder-to-serve 

populations, such as those in rural areas 

or those with special needs. By allowing 

revolving loan funds to lend and re-lend 

direct subsidy, the regulation will 

enable entities specializing in 

community development lending to 

leverage additional funds for lowincome borrowers, or bring added value 

to the services provided by not-for-profit 

corporations and local governments, 

and provide technical assistance that 

can contribute to project success and 

help develop capacity of small, not-forprofit housing producers. 

As noted previously, § 951.1 of the 

final rule expands the definition of 

‘‘sponsor’’ to specify revolving loan 

funds in the list of eligible sponsors. 

Section 951.1 of the final rule defines a 

‘‘revolving loan fund’’ as a capital fund 

established to make mortgage or other 

loans whereby loan principal is repaid 

into the fund and re-lent to other 

borrowers. Commenters questioned 

whether members would qualify as 

revolving loan funds under the rule, 

noting that if members could not 

qualify, the rule would give revolving 

loan funds an unfair competitive 

advantage over members in access to 

AHP funds. Members are eligible to 

apply for AHP subsidy as revolving loan 

funds if they meet the definition of 

‘‘revolving loan fund’’ and the project 

sponsor qualifications requirement in 

the final rule. 

The Finance Board notes that 

revolving loan funds currently can and 

do apply as sponsors under the 

competitive application program for 

AHP subsidy for funding specified 

projects. Under § 951.5(c)(13)(i) of the 

final rule, in a Bank’s discretion, a 

revolving loan fund would be able to 

apply for direct subsidy to lend to a 

specified or an unspecified project (or 

projects) meeting the requirements of 

the competitive application program 

and to re-lend repayments of that 

subsidy to subsequent projects that meet 

certain minimum eligibility 

requirements. A number of commenters 

stated that it was not clear how an 

application for an unspecified project 

could meet the eligibility requirements 

for project feasibility and project costs. 

To address these issues, § 951.5(c)(13)(i) 

and (ii) of the final rule provides that an 

application for an unspecified project to 

be funded through a revolving loan fund 

must include the revolving loan fund’s 

criteria for lending of the subsidy, 

including its project cost and project 

feasibility guidelines, which the Bank 

will evaluate according to the AHP 

eligibility requirements, including the 

Bank’s project cost and project 

feasibility guidelines. See § 951.5(c)(3) 

and (c)(4) of final rule. Pursuant to 

§ 951.7(a)(1) of the final rule, upon 

initial monitoring of the actual project(s) 

funded with the initial lending of 

subsidy, the Bank will have to 

determine that the actual project costs 

were reasonable in accordance with the 

Bank’s project cost guidelines, and that 

the subsidy was needed in accordance 

with § 951.5(c)(2). 

Section 951.5(c)(13)(ii) of the final 

rule provides that a Bank shall review 

an application from a revolving loan 

fund to evaluate the project or criteria 

for the initial lending of the subsidy, as 

applicable, pursuant to the Bank’s 

scoring guidelines. Some commenters 

questioned how an application for an 

unspecified project(s) could be scored 

against other applications for projects. 

Under § 951.5(c)(13)(i), an application 

with nonspecific project(s) would have 

to propose how the project(s) will meet 

various applicable scoring criteria and, 

if approved, the revolving loan fund 

would have to ensure that the actual 

project or projects eventually funded 

with the initial lending of subsidy 

would meet those scoring criteria. If, 

upon initial monitoring of the project, 

the Bank found that the project did not 

meet the scoring criteria and could not 

be modified under § 951.5(f), then the 

revolving loan fund would have to 

repay the AHP subsidy to the Bank. 

Many revolving loan funds operating for 

the purpose of financing housing for 

very low- and low- or moderate-income 

households either restrict their funding 

to projects with certain requirements, 

such as housing for the elderly, or have 

a pipeline of potential projects. 

Consequently, the Finance Board 

believes that an application can be 

scored based on the proposed 

characteristics of an unspecified project. 

An application with unspecified 

project(s) must still meet the eligibility 

requirement in § 951.5(c)(6) that the 

project must be likely to begin drawing 

down some or all of the AHP subsidy or 

use it to procure other financing 

commitments within 12 months of the 

date of the application’s approval. The 

Finance Board does not intend that 

approved AHP subsidy lay idle for 

significant periods of time. 

Section 951.5(c)(13)(iv) of the final 

rule also provides that payments of 

interest on the lending of the AHP direct 

subsidy must be used by the revolving 

loan fund in accordance with the 

requirements for subsequent lending of 

AHP direct subsidy in that section. 

Some commenters opposed allowing 

interest earned on the lending of the 

AHP subsidy to be used for general 

operating support of the revolving loan 

fund or the sponsor, and the Finance 

Board concurs. Under § 951.13(d)(3) of 

the current AHP regulation, a member 

or sponsor that lends AHP direct 

subsidy to a project must pay any 

repayments of principal and payments 

of interest forthwith to the Bank for use 

by other AHP-eligible projects. See 12 

CFR 951.13(d)(3). Requiring a revolving 

loan fund to return interest payments to 

its lending fund and use them for AHPeligible purposes in accordance with the 

subsequent lending provisions is 

consistent with this existing 

requirement. In addition, § 951.9(a)(9) of 

the final rule revises existing 

§ 951.13(d)(3) to provide for an 

exception to the requirement that 

repayments of principal and payments 

of interest must be paid to the Bank in 

the case of lending and re-lending of 

direct subsidy by a revolving loan fund. 

Initial lending of AHP direct subsidy: 

§ 951.5(c)(13)(iii): Section 

951.5(c)(13)(iii)(A) of the final rule 

provides that, once its application is 


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approved, a revolving loan fund may 

lend direct AHP subsidy to 1 or more 

projects or households, as needed to use 

the full amount of subsidy approved, 

that meet the eligibility criteria of 

§ 951.5(c) and the commitments made in 

the approved AHP application. Like all 

other approved projects, the project or 

projects funded as part of the revolving 

loan fund’s initial lending of the AHP 

direct subsidy are subject to AHP 

retention agreements, and to initial and 

long-term monitoring, as applicable 

according to whether the housing is 

owner-occupied or rental. The revolving 

loan fund may re-lend subsidy principal 

and interest repayments received in 

accordance with the ‘‘subsequent 

lending’’ requirements described below. 

Section 951.5(c)(13)(iii)(B) of the final 

rule provides that if an initial-lending 

project or owner-occupied unit is not in 

compliance with the commitments in 

the approved AHP application, or is 

sold or refinanced prior to the end of the 

applicable AHP retention period, the 

required amount of AHP subsidy must 

be repaid to the revolving loan fund in 

accordance with §§ 951.8 and 951.9 of 

the final rule. The revolving loan fund 

must re-lend such repaid subsidy, 

excluding the amounts of AHP subsidy 

principal already repaid to the revolving 

loan fund, to another project or owneroccupied unit meeting the initial 

lending requirements for the remainder 

of the retention period. For example, if 

an initial-lending rental project is sold 

after 8 years and the buyer does not 

commit to maintain the AHP incometargeting and affordability 

commitments, then the revolving loan 

fund must re-lend the repaid subsidy to 

another eligible project meeting the 

initial lending requirements that will 

have a retention period of 7 years in 

order to complete the full 15-year 

retention period required for an initiallending rental project. In this case, the 

amount of subsidy that must be used for 

another initial-lending project does not 

include the amounts of AHP subsidy 

principal already repaid to the revolving 

loan fund. 

Subsequent lending of AHP subsidy 

principal and interest repayments: 

§ 951.5(c)(13)(iv): Section 

951.5(c)(13)(iv)(B) of the final rule 

provides that subsequent lending of 

AHP subsidy principal and interest 

repayments must be for the purchase, 

construction, or rehabilitation of owneroccupied units for households with 

incomes at or below 80 percent of the 

median income for the area, or of rental 

projects where at least 20 percent of the 

units are occupied by and affordable for 

households with incomes at or below 50 

percent of the median income for the 

area, and must meet all other eligibility 

requirements in § 951.5(c). Section 

951.5(c)(13)(iv)(C) provides that a Bank 

may, in its discretion, require the 

revolving loan fund’s subsequent 

lending of AHP subsidy principal and 

interest repayments to be subject to 

retention period, monitoring, and 

recapture requirements as defined by 

the Bank in its AHP Implementation 

Plan. A number of commenters 

expressed concerns about the revolving 

loan fund sponsor having to monitor 

revolved payments of AHP subsidy over 

the long-term retention period. Some 

commenters stated that the monitoring 

requirements would be extremely 

difficult or unworkable, and would be 

different than those applicable under 

the final rule for projects that do not 

involve revolving loan funds. 

Commenters recommended various 

approaches to the monitoring of the 

revolved subsidy, including that: The 

Bank have flexibility to determine 

whether to require monitoring over a 

long-term period (as proposed); the 

sponsor be allowed to commingle the 

AHP funds with its other funds but be 

required to separately account for the 

AHP funds through an annual A–133 

type audit; the Bank be allowed to 

monitor the performance of the 

revolving loan fund rather than the 

individual households or properties; 

and the monitoring period be limited to 

5 years or until the AHP direct subsidy 

is rolled over twice. The Finance Board 

recognizes the potential problems that 

monitoring for subsequent lending of 

the repaid subsidy could entail. As 

discussed above, only projects funded 

with the revolving loan fund’s initial 

lending of subsidy would be subject to 

the monitoring requirements applicable 

to all projects under the competitive 

application program. The Bank, in its 

discretion, may decide what, if any, 

monitoring, retention, or recapture 

requirements should apply to 

subsequent lending of the repaid AHP 

subsidy. 

Section 951.5(c)(13)(iv)(A) of the final 

rule also provides that a revolving loan 

fund, in its discretion, may provide part 

or all of the AHP subsidy principal and 

interest repayments as nonrepayable 

grants to eligible projects under the 

‘‘subsequent lending’’ requirements. 

Under § 951.5(c)(13)(v), the revolving 

loan fund must return to the Bank any 

AHP subsidy that will not be used for 

AHP-eligible purposes. 

Several commenters wanted to ensure 

that the Finance Board or the Banks 

would not set the interest rate that a 

revolving loan fund could charge for 

lending the AHP direct subsidy. The 

final rule does not set the interest rates 

that a revolving loan fund can charge; 

however, a revolving loan fund’s 

interest rates must be reasonable and 

comply with the financing costs 

requirement of § 951.5(c)(5). 

Revolving loan fund sponsor 

qualifications: § 951.5(c)(10(ii): 

Consistent with the proposed rule, 

§ 951.5(c)(10)(ii) of the final rule 

provides that, pursuant to written 

policies adopted by a Bank’s board, a 

revolving loan fund sponsor that 

intends to use the AHP subsidy in 

accordance with this section must: 

(i) Provide audited financial statements 

that its operations are consistent with 

sound business practices; and (ii) 

demonstrate the ability to re-lend AHP 

subsidy repayments on a timely basis 

and track the use of the AHP subsidy. 

Several commenters recommended that 

the regulation give priority to 

community development financial 

institutions as qualified revolving loan 

fund sponsors, because of their 

experience and controls and reporting 

systems for the lending of funds. 

Another commenter suggested that a 

revolving loan fund sponsor should 

have to have a minimum of 2 years’

experience successfully operating a 

revolving loan fund in order to be 

considered an eligible sponsor. The 

Finance Board does not believe it is 

appropriate to give preference in the 

regulation to any particular type of 

sponsor or indicator of experience. The 

AHP is a competitive application 

process and, during the application 

review process, a Bank must evaluate a 

sponsor’s experience in determining 

whether the sponsor has the 

qualifications to be eligible to 

participate in the competitive 

application process. Those sponsors that 

can demonstrate such qualifications will 

be eligible to participate in the 

competitive application process. 

Other issues: Several commenters also 

recommended that the Banks be allowed 

to fund revolving loan funds as a 

separate set-aside, rather than under the 

competitive application program, and 

that the Banks be allowed to establish 

the governing policies for their 

revolving loan fund programs. The 

Finance Board does not believe that it 

is appropriate to set aside AHP funds for 

specific types of sponsors. The AHP is 

primarily a competitive program that 

awards funds based on the merits of the 

application, regardless of sponsorship. 

Under the final rule, AHP funds 

disbursed through a revolving loan fund 

may not be used for purposes, such as 

to pay for operating costs, that are 

unrelated to the purchase, construction, 

or rehabilitation of housing. Several 

commenters stated that AHP subsidy 


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should be able to be used for operating 

costs, citing the more intensive 

servicing needed for higher-risk, lowincome loans. A commenter proposed 

that revolving loan funds be able to use 

interest earned on lending the AHP 

direct subsidy and on short-term 

investment of the AHP subsidy for 

servicing and related functions and 

investments. The Finance Board 

believes that use of AHP subsidy for 

operating costs and investment of the 

subsidy would not be consistent with 

the requirement in the Bank Act that 

AHP subsidy only be used for the 

financing of purchase, construction, or 

rehabilitation of affordable housing and, 

as discussed above, that interest earned 

on the lending of the subsidy should 

also be used for AHP-eligible purposes. 

See 12 U.S.C. 1430(j)(2). 

Some commenters also stated that 

revolving loan funds should be allowed 

to lend AHP subsidy to fund 

predevelopment costs for rental 

housing, or short-term construction 

loans. The Finance Board notes that 

lending for short-term construction 

loans is an eligible use of AHP subsidy, 

provided that the resulting housing 

complies with the AHP retention 

requirements. The Finance Board has 

determined that predevelopment costs 

are not an eligible use of AHP subsidy 

if no eligible housing is produced as a 

result. Under the AHP, a project that 

meets the eligibility requirements, 

including developmental and 

operational feasibility requirements, 

may include previously incurred 

predevelopment costs in its uses of 

funds. 

Three years after promulgation of the 

new revolving loan fund authority, the 

Finance Board intends to conduct a 

program review of the use of the 

authority to determine how the program 

is working and to address any issues 

that have arisen. 

Use of AHP subsidy in loan pools: 

§ 951.5(c)(14). General requirements: 

Consistent with the proposed rule, 

§ 951.5(c)(14) of the final rule specifies 

the conditions under which a Bank, in 

its discretion, may provide AHP 

subsidies under its competitive 

application program for the origination 

of first mortgage loans or rehabilitation 

loans with subsidized interest rates to 

AHP-eligible households through a 

purchase commitment by an entity that 

will purchase and pool the loans. The 

final rule also allows a loan pool 

sponsor to use repaid AHP subsidy 

resulting from prepayments of a loan in 

the pool for the origination of another 

AHP-assisted loan as substitution for the 

prepaid loan in the pool, rather than 

requiring the return of the AHP subsidy 

to the Bank, as is required under the 

current regulation. Because of this new 

reuse authority, the Finance Board has 

determined that each Bank should have 

the discretion to determine whether to 

fund AHP applications for loan pools 

under its competitive application 

program. The Bank would determine 

whether there is a market need for such 

funding in its district as part of its 

determination whether to permit 

funding of applications for loan pool 

sponsors. In order to make available the 

loan pool authority under its 

competitive application program, a 

Bank would have to consult with its 

Advisory Council and then adopt 

written policies governing the 

disbursement of the AHP subsidy 

through this type of funding 

arrangement. 

A number of commenters generally 

supported the use of AHP subsidy by 

loan pool sponsors, stating that greater 

use of secondary market operations 

could help sponsors provide 

homeownership to more low-or 

moderate-income households in their 

communities. Commenters also 

supported the discretionary nature of 

the proposal. Other commenters 

opposed the proposal, citing a number 

of reasons, including that loan pools 

may not be addressing a specific market 

need. The Finance Board notes that loan 

pool entities are already eligible 

sponsors for AHP-assisted projects 

provided that the loan originations 

through the purchase commitments 

meet the requirements of the current 

AHP regulation. However, prepayments 

of loans prior to the end of the retention 

period required that AHP subsidy be 

returned to the Bank in accordance with 

the retention agreements. One Bank 

stated that it has received applications 

for AHP subsidy from a loan pool 

sponsor in its district, but was unsure 

how loan pool operations could meet 

the AHP requirements, especially when 

loans in the pool prepaid. The Finance 

Board believes that loan pools can 

facilitate the origination of AHPsubsidized home purchase mortgage 

loans, owner-occupied rehabilitation 

loans, and rental property loans for 

eligible households. Consequently, 

consistent with the proposed rule, the 

final rule specifies the criteria that the 

Finance Board has determined meet the 

requirements of the AHP, especially in 

the areas of retention, eligible uses, need 

for subsidy, pass through of the subsidy 

to the ultimate borrower, and 

substitution of prepaid loans. 

Loan pool sponsor qualifications: 

§ 951.5(c)(10)(iii): As noted previously, 

§ 951.1 of the final rule specifically 

includes in the definition of ‘‘sponsor’’

entities that operate loan pools in the 

list of eligible sponsors. Consistent with 

the proposed rule, § 951.1 of the final 

rule defines a ‘‘loan pool’’ as a group of 

AHP-eligible loans that are purchased, 

pooled, and held in trust. Consistent 

with the proposed rule, and in light of 

the new authority to reuse repaid 

subsidy for new AHP-assisted loans to 

substitute in the loan pools, 

§ 951.5(c)(10)(iii) of the final rule 

provides that, pursuant to written 

policies adopted by a Bank’s board, a 

project sponsor that operates a loan pool 

must: (i) Provide evidence of sound 

asset/liability management practices; 

(ii) provide audited financial statements 

that its operations are consistent with 

sound business practices; and 

(iii) demonstrate the ability to track the 

use of the AHP subsidy. Several 

commenters recommended that only 

loan pool sponsors that have previously 

received AHP funds should be 

considered eligible sponsors. For the 

same reasons discussed above under 

Revolving Loan Funds, the Finance 

Board does not believe it is appropriate 

to give preference in the regulation to 

particular types of sponsors or 

indicators of experience. However, a 

Bank may take into consideration a 

sponsor’s experience in determining its 

qualifications and the eligibility of the 

project to participate in the AHP 

competitive application process. 

Commenters also questioned whether 

members could qualify as loan pool 

sponsors under the rule, noting that if 

members could not qualify, the 

proposed rule could give secondary 

market entities an unfair competitive 

advantage over members that are 

engaged in originating loans for their 

portfolios or for sale. The Finance Board 

believes that members, like any other 

entity, should be eligible to apply for 

AHP subsidy as loan pool sponsors if 

they meet the definition of ‘‘loan pool’’

sponsor and the project sponsor 

qualifications requirement in the final 

rule. 

Eligibility requirements; forward 

commitment: § 951.5(c)(14)(i), (ii)(A): 

The final rule adopts a number of 

proposed provisions intended to ensure 

that AHP subsidies disbursed through a 

loan pool sponsor actually benefit AHPeligible households. Specifically, 

§ 951.5(c)(14)(i) provides that the loan 

pool’s use of the AHP subsidy must 

meet the requirements of § 951.5(c)(14), 

and shall not be used for the purpose of 

providing liquidity to the originator or 

holder of the purchased loans, or paying 

the loan pool’s operating or secondary 

market transaction costs. The loan pool 

sponsor must purchase the loans 

pursuant to a forward commitment that 


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conforms to the approved AHP 

application. Subsequent purchases of 

loans to substitute for repaid loans in 

the pool also must be made pursuant to 

the terms of the approved AHP 

application. The use of a forward 

commitment ensures that the loan 

originators will originate the end loans 

in accordance with the requirements of 

the sponsor’s approved AHP application 

and the requirements of the AHP, such 

that each end loan will have the 

prescribed interest rate and term and be 

subject to a retention agreement and that 

each household will meet the incomeeligibility commitments in the approved 

AHP application. 

The Finance Board requested 

comment in the proposed rule on 

whether it is preferable to establish by 

regulation a time limit, to be specified 

in the forward commitment, within 

which a project sponsor would have to 

expend the full amount of the AHP 

subsidy and, if so, the duration of that 

time limit, or whether to allow a Bank 

to establish the time limit as part of its 

AHP Implementation Plan, as proposed. 

Several commenters stated that the Bank 

should have the discretion to establish 

the time limit, noting that different time 

limits may be appropriate depending on 

the type, complexity, and specific 

funding needs of the loan pool, as well 

as legal and regulatory factors that may 

affect the pool. The Finance Board 

recognizes the need for some flexibility 

in this regard. The time limit should 

reflect the loan pool sponsor’s market 

volume, considering the size and 

capacity of the network of originators 

that the loan pool sponsor uses to 

produce the AHP-assisted loans. 

However, the Finance Board believes 

that the time period should be no longer 

than 1 year because the use of the 

subsidy is interest-rate sensitive. 

Accordingly, the final rule allows a 

Bank to determine the time limit, to be 

specified in the forward commitment, 

for use of the AHP subsidy, provided 

that such limit may not exceed 1 year 

from the date of approval of the AHP 

application. 

Section 951.5(c)(14)(ii)(B) of the final 

rule provides that, as an alternative to 

using a forward commitment, a loan 

pool sponsor may purchase an initial 

round of loans that were not originated 

pursuant to an AHP-specific forward 

commitment, provided that the entities 

from which the loans were purchased 

are required to use the proceeds from 

these purchases within the time limits 

specified in the Bank’s AHP 

Implementation Plan, which shall not 

exceed 1 year from the date of approval 

of the AHP application. The proceeds 

must be used by such entities for loans 

with terms in the approved AHP 

application and subject to AHP 

retention agreements. 

Retention agreements and other 

requirements: § 951.5(c)(14)(iii): Section 

951.5(c)(14)(iii) of the final rule requires 

that each AHP-assisted owner-occupied 

unit and rental property receiving AHP 

direct subsidy or a subsidized advance 

shall be subject to the requirements for 

monitoring and remedial action for 

noncompliance in the final rule, as well 

as the requirement for an AHP 5-year or 

15-year retention agreement, 

respectively. The proposed rule 

inadvertently omitted the requirement 

for such a retention agreement in the 

case of loans financed with the proceeds 

of a subsidized advance. Consistent 

with the proposed rule, 

§ 951.9(a)(7)(ii)(A) of the final rule 

eliminates current § 951.13(c)(4)(i)(B), 

such that households receiving 

permanent mortgage loans through the 

use of a subsidized advance would not 

have to repay any AHP subsidy in the 

case of a refinancing of the owneroccupied unit prior to the end of the 

retention period. However, the final rule 

continues to require such households to 

have retention agreements in place, 

because the retention agreement 

contains the requirements for notice to 

the Bank of any sale or refinancing of 

the unit. Several commenters favored 

not requiring a retention agreement for 

owner-occupied units assisted with 

subsidized advances, and recommended 

that a retention agreement also not be 

required where owner-occupied units 

are assisted with direct subsidies. The 

Finance Board believes that households 

funded with AHP-assisted mortgage 

loans and rehabilitation loans whose 

origination was funded by a loan pool 

sponsor should be subject to the same 

requirements as households receiving 

AHP-assisted loans or direct subsidies 

from other sponsors. 

Use of AHP subsidy as interest-rate 

buy down: § 951.5(c)(14)(iv): Section 

951.5(c)(14)(iv) of the final rule provides 

that where AHP direct subsidy is being 

used to buy down the interest rate of a 

loan or loans from a member or other 

lender, the loan pool sponsor must use 

the full amount of the AHP direct 

subsidy to buy down the interest rate at 

the time of closing on such loan or loans 

to achieve the permanent below-market 

interest rate on the loan as specified in 

the approved AHP application. 

Other issues: A number of 

commenters recommended that the 

Banks be allowed to fund loan pools as 

a separate set-aside, rather than under 

the competitive application program, 

and that the Banks be allowed to 

establish the governing policies for their 

loan pool programs. As discussed above 

under Revolving Loan Funds, the 

Finance Board does not believe that it 

is appropriate to set aside AHP funds for 

specific types of sponsors such as loan 

pool sponsors. The AHP is primarily a 

competitive program that funds projects 

based on their individual merits, 

regardless of sponsorship. 

The Finance Board requested 

comment in the proposed rule on 

whether, in addition to loans for AHPassisted owner-occupied units, rental 

housing loans should be eligible under 

the AHP loan pool authority, and if so, 

what kinds of loans and activities, 

consistent with the AHP requirements, 

should be eligible. Several commenters 

stated generally that rental housing 

loans should be eligible under the loan 

pool authority, with 1 commenter 

stating that this would help maximize 

the Bank’s ability to meet housing needs 

in its district. The Finance Board 

recognizes that there may not be a 

sizable market at the current time for 

purchase and pooling of rental housing 

loans. Nevertheless, the Finance Board 

does not want to foreclose the potential 

use of AHP subsidy for this purpose 

should such opportunities arise. 

Accordingly, the final rule allows rental 

housing loans to be eligible under the 

AHP loan pool authority. 

Out-of-district projects eligibility 

requirement: § 951.5(c)(15). Consistent 

with the proposed rule, § 951.5(c)(15) of 

the final rule removes the existing 

provision that allows a Bank, in its 

discretion, to require as an eligibility 

requirement that a project receiving 

AHP subsidy must be located in the 

Bank’s district. See 12 CFR 

951.5(b)(10)(i)(B). In addition, proposed 

§ 951.5(c)(17) would have prohibited a 

Bank from establishing an eligibility 

requirement that a project receiving 

AHP subsidy must be located in the 

Bank’s district. This provision is 

unnecessary and is omitted from the 

final rule, as a Bank in any case may not 

adopt additional eligibility requirements 

not specifically authorized under the 

AHP regulation. See the further 

discussion of the out-of-district projects 

issue below, under AHP Projects 

Outside the District. 

Removal of discretionary minimum 

Bank credit product usage requirement. 

Consistent with the proposed rule, the 

final rule removes the existing provision 

that authorizes a Bank, in its discretion, 

to require its members to have used a 

minimum amount of the Bank’s other 

credit products within the previous 12 

months as a condition to applying for 

additional amounts of AHP subsidy. See 

12 CFR 951.5(b)(10)(i)(C). A number of 

commenters opposed elimination of this 


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discretionary authority, stating that 

members who use a Bank’s credit 

products contribute to the Bank’s 

earnings, thereby generating more funds 

for the AHP, and a credit product usage 

requirement can be an incentive to 

encourage borrowing by members. The 

Finance Board believes that AHP 

funding should be provided, without 

restriction, to projects that score highest 

under a Bank’s competitive application 

scoring criteria without regard to a 

member’s Bank credit product usage. 

Accordingly, the final rule eliminates 

the authority. 

Discretionary homebuyer or 

homeowner counseling requirement: 

§ 951.5(c)(15)(ii). Section 951.5(c)(15)(ii) 

of the final rule adopts the proposed 

provision authorizing a Bank, in its 

discretion, to require homebuyer or 

homeowner counseling as an eligibility 

requirement for owner-occupied 

projects under the competitive 

application program. Under such a 

requirement, a Bank could limit AHP 

subsidies to owner-occupied projects 

that provide this resource for low- or 

moderate-income households. Such 

counseling, particularly for first-time 

homebuyers, can contribute to 

successful long-term homeownership, 

which the Finance Board has recognized 

in supporting such counseling for lowor moderate-income households 

receiving home purchase assistance 

under the AHP homeownership setaside program. See 12 CFR 

951.5(a)(2)(ii); see also discussion of 

counseling below under 

Homeownership Set-Aside Program. 

A number of commenters supported 

allowing the Banks to require 

homeownership counseling as an 

eligibility requirement for 

homeownership projects under the 

competitive application program, with 

some commenters stating that the 

Finance Board should go further by 

making homeownership counseling 

mandatory under the competitive 

application program. However, several 

commenters pointed out that there are 

situations, such as rehabilitation of 

currently owner-occupied units or 

homeownership for households that are 

not first-time homebuyers, such as 

disaster victims, in which it is 

unnecessary or impractical to require 

counseling. It is for this reason that the 

Finance Board also proposed to make 

the currently mandatory counseling 

requirement under the homeownership 

set-aside program discretionary for 

households that are not first-time 

homebuyers (see § 951.6(c)(2)(iii)). The 

Finance Board does not believe that it 

is appropriate to mandate counseling for 

all projects under the competitive 

application program, nor was such a 

proposal noticed for comment in the 

proposed rule. Nevertheless, the Banks, 

in their discretion, may require 

homebuyer or homeownership 

counseling, such as counseling for firsttime homebuyers. 

Several commenters also suggested 

that the Finance Board set minimum 

standards for homeownership 

counseling. The Finance Board believes 

that the Banks have better knowledge of 

what counseling is available in their 

districts and, under the final rule, the 

Banks have the discretion to set 

minimum counseling requirements. The 

Finance Board does not believe that it 

is appropriate to set national 

requirements in the rule that may create 

challenges in delivery for some local 

jurisdictions. 

Several commenters also 

recommended that the Finance Board 

permit the use of AHP funds for 

counseling even when the counseled 

household does not purchase an AHPassisted unit. The Finance Board 

believes that allowing this would not be 

consistent with the statutory 

requirement that AHP funds be used for 

the purchase, construction, or 

rehabilitation of eligible housing. See 12 

U.S.C. 1430(j)(2). 

Prohibited use of AHP subsidy: 

prepayment fees: § 951.5(c)(16)(i). 

Section 951.5(c)(16)(i) of the final rule 

revises the current provision by 

allowing a project to use AHP subsidy 

to pay prepayment fees imposed by a 

Bank on a member if the member 

prepays a subsidized advance, provided 

that: (i) The project is in financial 

distress that cannot be remedied 

through a project modification pursuant 

to § 951.5(f); (ii) the prepayment of the 

subsidized advance is necessary to 

retain the project’s affordability and 

income targeting commitments; (iii) 

subsequent to such prepayment, the 

project will continue to comply with the 

terms of the approved AHP application 

and the requirements of the AHP 

regulation for the duration of the 

original retention period; (iv) any 

unused AHP subsidy is returned to the 

Bank and made available for other AHP 

projects; and (v) the amount of AHP 

subsidy used for the prepayment fee 

may not exceed the amount of the 

member’s prepayment fee to the Bank. 

The existing provision does not include 

the restrictions in (i), (ii), and (v) above. 

See 12 CFR 951.5(b)(4)(i). The proposed 

rule would have prohibited AHP 

subsidy from being used for prepayment 

fees under all circumstances. 

One commenter supported 

elimination of the authority, stating that 

AHP subsidy should be used only for 

purchase, construction, or rehabilitation 

of housing, as required by the Bank Act. 

A number of other commenters opposed 

elimination of the authority, citing 

potential adverse consequences for 

ongoing project retention and 

affordability. A Bank stated that when a 

project is in financial distress and 

cannot maintain the AHP debt service, 

sale of the project or injection of 

additional equity or grant funds and 

subsequent repayment of the 

outstanding AHP subsidized advance 

may be its only recourse, with 

prepayment of the AHP subsidy 

allowing the project to be feasible 

provided it agrees to continue to meet 

the AHP requirements. The Bank 

asserted that such use of the AHP 

subsidy constitutes use of the subsidy 

for purchase, construction, or 

rehabilitation, as required by the Bank 

Act. Other commenters stated that the 

proposal appears to place members 

using AHP subsidized advances at a 

disadvantage over members using direct 

subsidies, by placing a greater burden 

on members that would likely pass 

some or all of the burden on to 

homeowners, project owners, and 

sponsors, thereby having a potentially 

chilling effect on member participation 

in the AHP. A Bank stated that the 

proposal would limit members’ use of 

AHP subsidized advances because of the 

increased exposure to prepayment fees, 

and noted that subsidized advances 

provide long-term benefits to members 

and projects. The commenters also 

stated that prepayment fees are a 

customary part of financing costs for the 

purchase, construction, or rehabilitation 

of housing and, therefore, should be 

allowed as an eligible use of AHP 

subsidy. 

Based on the comments, the Finance 

Board believes that in the limited 

circumstances where a project is in 

financial distress that cannot be 

remedied through a project modification 

pursuant to § 951.5(f), and prepayment 

of the AHP subsidized advance is 

necessary to retain the project’s 

affordability and income targeting 

commitments, the AHP subsidy should 

be able to be used to pay the 

prepayment fee. Subsequent to 

prepayment, the project would have to 

continue to comply with the terms of 

the approved AHP application and the 

requirements of the AHP regulation for 

the duration of the original retention 

period, and any unused AHP subsidy 

would have to be returned to the Bank 

and made available for other AHP 

projects. In addition, the amount of AHP 

subsidy used for the prepayment fee 

may not exceed the amount of the 


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Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Rules and Regulations 59275 

5 2005–NAL–01 is available in the FOIA Reading 

Room on the Finance Board Web site at http:// 

www.fhfb.gov/Default.aspx?Page=59&

ListYear=2005&ListCategory=7#72005. 

member’s prepayment fee to the Bank. 

Accordingly, the final rule allows AHP 

subsidy to be used for prepayment fees 

under these limited circumstances. 

Changes to the scoring system: 

§ 951.5(d). Section 951.5(d)(1) and (2) of 

the final rule retains the current 

provisions that require each Bank to 

adopt written scoring guidelines for its 

competitive application program, and to 

allocate 100 points among 9 scoring 

criteria. See 12 CFR 951.6(b)(4). The 

proposal would not have made any 

substantive changes to those criteria, 

except for those relating to disaster areas 

and out-of-district projects, but 

proposed a number of technical 

revisions to the current rules and 

codification of certain staff 

interpretations. 

Variable-point scoring: 

§ 951.5(d)(3)(ii): Section 951.5(d)(3)(ii) 

of the final rule adopts the proposal to 

retain the provisions relating to fixedpoint and variable-point scoring criteria, 

but makes technical changes to the 

latter, the effect of which is to codify a 

current staff interpretation that allows a 

Bank to implement variable-point 

scoring criteria either through a fixed 

scale or on a scale relative to the other 

applications that are to be scored in the 

same funding round. See 12 CFR 

951.6(b)(4)(iii). Several commenters 

supported the proposal, with 1 

commenter stating that the flexibility 

ensures that a Bank can meet effectively 

the housing needs in its district. 

Removal of optional income-targeting 

scoring provision for projects receiving 

government funds or tax credits: 

§ 951.5(d)(5)(iii)(A): Consistent with the 

proposed rule, § 951.5(d)(5)(iii)(A) of the 

final rule removes a provision of the 

existing regulation that allows a Bank, 

in its discretion, to score rental projects 

according to the targeting commitments 

made by the project to a government or 

tax credit allocating entity that provides 

funds or tax credits, respectively, to the 

project. See 12 CFR 951.6(b)(4)(iv)(C)(1). 

That provision is no longer necessary 

because of the changes to the rule, 

located at § 951.7(a)(2) and (a)(3), 

discussed further below, that allow a 

Bank, in its discretion, to rely for AHP 

long-term monitoring purposes on 

monitoring by government or tax credit 

monitoring entities, and the new riskbased monitoring authority that will 

enable a Bank to adopt risk-based 

monitoring requirements for such 

projects even if the projects’ targeting 

commitments differ from those of the 

government or tax credit allocating 

entity. This does not preclude a project 

from using the targeting commitments of 

another housing program when 

applying for AHP subsidy, even when 

the project intends to exceed such 

targeting commitments in practice. No 

comments addressed elimination of this 

scoring provision. 

Owner-occupied project incometargeting scoring: § 951.5(d)(5)(iii)(B): 

Section 951.5(d)(5)(iii)(B) of the final 

rule adopts the proposed language 

clarifying regulatory practice relating to 

the scoring criterion for income 

targeting in owner-occupied projects. 

The provision clarifies that a Bank may 

determine in its AHP Implementation 

Plan how to award scoring points on a 

declining scale, taking into 

consideration the percentages of units 

and targeted income levels. One 

commenter supported the change. 

Disaster areas and displaced 

households scoring criterion: 

§ 951.5(d)(5)(vi)(E). Section 

951.5(d)(5)(vi)(E) of the final rule adopts 

the proposed language permitting a 

Bank to award scoring points for 

applications that would finance housing 

located in a federally declared disaster 

area, as well as for applications that 

would finance housing for low-or 

moderate-income households that have 

been displaced from a federally declared 

disaster area due to a disaster, 

irrespective of the household’s current 

residential location. The current 

regulatory provision on disaster area 

scoring permits the Banks to award 

scoring points only to the financing of 

housing located in federally declared 

disaster areas. See 12 CFR 

951.6(b)(4)(iv)(F)(5). Because disasters 

may displace families from their homes, 

as in the case of Hurricane Katrina in 

2005, the Finance Board believes that 

this scoring criterion should be 

expanded to address such situations. A 

number of commenters supported the 

change, stating that it would be 

consistent with other federal initiatives. 

One Bank recommended that the 

Finance Board eliminate incomeeligibility requirements for displaced 

households, or codify in the regulation 

its No-Action Letter 2005–NAL–01 

(Sept. 9, 2005),5 which temporarily 

suspended income-eligibility 

requirements for existing AHP rental 

projects that provide vacant units for 

households displaced by Hurricane 

Katrina. However, the AHP incomeeligibility limits are required by the 

Bank Act, and suspension of these 

limits only should be done on a case-bycase basis in extraordinary 

circumstances. 

AHP projects outside the district: 

§§ 951.5(d)(5)(vi)(L), 951.5(d)(5)(vii). 

Consistent with the proposed rule, the 

final rule rescinds the Bank’s existing 

discretionary authority to prohibit 

applications to fund projects located 

outside a Bank’s district. However, in 

contrast to the proposed rule, the final 

rule retains, at § 951.5(d)(5)(vi)(L), the 

Bank’s current discretionary authority to 

give a scoring preference under the First 

District Priority to applications to fund 

projects located in the Bank’s district. In 

addition, under § 951.5(d)(5)(vii) of the 

final rule, a Bank continues to have the 

discretion to adopt a Second District 

Priority for in-district projects. 

Under the current regulation, a Bank, 

in its discretion, may deny 

consideration of applications to the 

AHP competitive application program 

from members proposing to fund 

projects located outside a Bank’s 

district. See 12 CFR 951.5(b)(10)(i)(B). 

Another provision of the current 

regulation permits a Bank to give 

scoring point preference to applications 

proposing to finance housing located 

within the Bank’s district. See 12 CFR 

951.6(b)(4)(iv)(F)(12). The proposed rule 

would have eliminated both provisions. 

In addition, proposed § 951.5(d)(5)(vii) 

would have prohibited a Bank from 

adopting as its Second District Priority 

a scoring preference for projects located 

in the Bank’s district. See 12 CFR 

951.6(b)(4)(iv)(G). 

The Bank Act does not set up the AHP 

as a geographically targeted program. 

Rather, it requires each Bank to 

establish a program to provide 

subsidized funding to its members. See 

12 U.S.C. 1430(j)(1). The existing 

discretionary authority to prohibit 

applications for out-of-district projects 

was adopted at a time when all Bank 

members generally conducted business 

only within the boundaries of a state 

within the Bank’s district. As a result of 

interstate branching, however, many 

members now do business in 

communities outside their Bank district. 

The authority to restrict AHP projects to 

the Bank’s district, if exercised, would 

limit a member’s ability to support 

otherwise eligible AHP projects in 

certain of the communities that it serves 

solely because those communities are 

located outside the Bank’s district 

boundaries. This restriction also could 

disadvantage communities served by 

financial institutions that move their 

headquarters to a state located in a 

different Bank district. The Finance 

Board believes that a Bank should not 

prohibit applications for AHP projects 

simply because the projects are located 

outside the Bank’s district, so long as 


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they are in communities in which a 

member does business. 

In addition, the existing authority in 

the current AHP regulation has not been 

extensively invoked by the Banks. In 

2004, only 1 Bank prohibited the use of 

AHP funds for out-of-district projects, 

and only 2 Banks elected to give scoring 

preference to in-district projects. Nor 

has there been a significant outflow of 

AHP funds as a result of member 

financing of projects outside the district. 

Of over 10,000 AHP projects funded 

since the beginning of the program in 

1990, approximately 300 projects, or 3.0 

percent, have been located outside a 

Bank’s district. 

A number of commenters supported 

elimination of the 2 provisions, stating 

that the proposal recognized the 

changing nature of member operations 

resulting from interstate mergers and 

acquisitions, and would allow members 

to obtain the benefits of the AHP for 

their entire market areas. Some 

commenters pointed out that the 

proposal would enable developers and 

communities to continue established 

relationships with financial institutions 

even when mergers and acquisitions 

result in a change in the Bank district 

of which the institution is a member. 

Other commenters opposed elimination 

of the 2 provisions, citing a number of 

reasons, including increased monitoring 

costs, less familiarity with out-of-district 

projects and their market areas, and the 

concern that large, multiregional 

members would have access to more 

projects outside of the district that could 

compete for funds more effectively than 

projects in the district, putting local, 

state-chartered members at a 

disadvantage. Several Banks stated that 

their Advisory Councils and members 

preferred to keep the district’s resources 

within the district where they can help 

meet local needs, especially when other 

resources for affordable housing may be 

less available to local projects. 

The remaining commenters on the 

proposal stated that they would not 

object to requiring the Banks to permit 

applications for out-of-district projects, 

provided the regulation retained the 

current discretionary scoring preference 

for in-district projects under the First 

District Priority. These commenters 

stated that this discretionary scoring 

priority preserves a geographic balance 

by spreading projects across and among 

the different Bank districts, and 

eliminating the priority may eventually 

divert projects from districts with fewer 

or smaller members to districts with 

large, multibillion dollar members. A 

trade association representing local 

member institutions encouraged the 

Finance Board to continue to permit the 

Banks to provide some scoring points 

for in-district projects for at least a 

portion of their AHP funds, to ensure 

that those members that do not operate 

out-of-district have access to some share 

of AHP funds. 

The Finance Board continues to 

believe that the Banks should not be 

authorized to prohibit applications for 

AHP funding for out-of-district projects, 

because the AHP should be available to 

all members and each Bank has 

members with branches located outside 

the district boundaries. However, the 

Finance Board is persuaded by the 

comments that there is merit in 

retaining the current discretionary 

authority for the Banks to give scoring 

preference to in-district projects. 

Consequently, the final rule eliminates 

the existing discretionary authority to 

prohibit out-of-district projects, but 

retains the existing discretionary scoring 

criterion for in-district projects under 

the First District Priority. The final rule 

also retains the existing language in the 

Second District Priority, thereby 

allowing a Bank, in its discretion, to 

adopt a scoring preference for in-district 

projects under that scoring category. 

However, the Finance Board intends 

that a Bank should not use the scoring 

criteria as a way to exclude out-ofdistrict projects from the competitive 

application program. 

Modifications of approved AHP 

applications: § 951.5(f). Section 951.5(f) 

of the final rule adopts the proposed 

codification of current practice by 

adding a requirement that a Bank must 

document in writing its analysis and 

justification for any modification of a 

previously approved project. See 12 

CFR 951.7(a). One commenter 

supported the proposed language. 

Progress towards use of AHP 

subsidies: § 951.5(g)(2). Section 

951.5(g)(2) of the final rule requires each 

Bank to establish and implement 

policies, including time limits, for 

determining whether progress is being 

made towards draw-down and use of 

AHP subsidies by approved projects, 

and whether to cancel an AHP 

application approval for lack of such 

progress. Progress requirements must be 

included in the Bank’s AHP 

Implementation Plan. 

Affordable housing projects often may 

encounter delays due to changes in 

funding, legal requirements, community 

challenges, or other events. These 

delays may affect the ability of a project 

to progress towards its scheduled drawdown and use of the AHP subsidy. The 

current regulation requires a Bank to 

specify a time period in its AHP 

Implementation Plan for the draw-down 

and use of the AHP subsidy. If a project 

does not do so within such period, the 

Bank must cancel its approval of the 

application. See 12 CFR 951.8(c)(1). The 

rigidity of this requirement sometimes 

has impaired the ability of the Banks to 

determine whether the delays are 

significant enough to affect a particular 

project’s ability to draw down and use 

the subsidy. While the Banks have 

extended the time period for certain 

projects in an effort to take into account 

such delays, the current cancellation 

requirement limits a Bank’s ability to 

manage this process. 

The final rule gives the Banks greater 

capacity to manage this process by 

requiring them to adopt policies that 

address how they will make such 

determinations. Several commenters 

supported the change as providing 

increased flexibility. 

Compliance upon disbursement: 

§ 951.5(g)(3). Section 951.5(g)(3) of the 

final rule adopts the proposed 

requirement that a Bank establish and 

implement policies for determining, 

prior to initial disbursement of AHP 

subsidy, and prior to each subsequent 

disbursement if the need for AHP 

subsidy has changed, that the project 

meets the applicable eligibility 

requirements and all obligations 

committed to in the approved AHP 

application. The final rule also states 

that if a Bank cancels any AHP 

application approvals due to failure to 

meet the eligibility requirements, the 

Bank shall make the AHP subsidies 

available for other AHP-eligible projects. 

The Bank’s requirements must be 

included in its AHP Implementation 

Plan. 

Under the current regulation, a Bank 

must verify compliance with eligibility 

requirements and application 

commitments prior to each 

disbursement of AHP subsidy. See 12 

CFR 951.8(c)(2). The requirement to 

repeatedly verify project compliance 

during every stage of the disbursement 

process may be more than is necessary 

to ensure compliance with the rules, 

and effectively precludes a Bank from 

using its best judgment to determine 

whether the circumstances of a 

particular AHP project warrant repeated 

verification of compliance with the 

rules. The change gives the Banks 

greater latitude in determining when it 

is appropriate to verify compliance prior 

to disbursing AHP funds. Several 

commenters supported the change as 

providing additional Bank discretion to 

establish appropriate compliance 

procedures. 

Bank board of directors duties and 

delegation: § 951.5(h). The final rule 

consolidates provisions of the current 

and proposed rules addressing the Bank 


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board of directors’’ various duties 

regarding establishment and 

implementation of the competitive 

application program requirements in 

one section, § 951.5(h). Specifically, 

§ 951.5(h)(1) states that a Bank’s board, 

after consultation with its Advisory 

Council, shall be responsible for 

adoption of the AHP Implementation 

Plan, and for approving or disapproving 

the applications for AHP subsidy. 

Section 951.5(h)(2) reiterates that the 

Bank’s board may not delegate these 

responsibilities to Bank officers or other 

Bank employees. No comments 

addressed these changes. 

F. Homeownership Set-Aside Program: 

§ 951.6 

The final rule adopts the proposed 

reorganization of the existing regulation, 

generally by combining various 

homeownership set-aside program 

provisions into one section, located at 

§ 951.6. A number of commenters 

supported these technical changes, 

stating that they would be helpful for 

the Banks, members, and sponsors in 

understanding the different 

requirements of the competitive 

application and homeownership setaside programs. 

Removal of optional nonmember 

applicants provision: § 951.6(b). 

Consistent with the proposed rule, 

§ 951.6(b) of the final rule eliminates the 

existing provision permitting a Bank, in 

its discretion, to accept applications for 

homeownership set-aside program 

subsidies from an institution that is not 

a member of the Bank, but which has 

pending an application for membership. 

See 12 CFR 951.6(a). Thus, an applicant 

would have to be a member of the Bank 

at the time that it submits an AHP 

application. The rationale for this 

revision was discussed above in 

connection with a similar amendment 

for the competitive application program. 

Timing of household incomeeligibility determination; reservation of 

set-aside funds; qualification of 

students: § 951.6(c)(2)(i), (e)(2). Timing 

of household enrollment: 

§ 951.6(c)(2)(i): Section 951.6(c)(2)(i) of 

the final rule provides that a 

household’s income eligibility is to be 

determined at the time the member 

enrolls the household in the Bank’s 

homeownership set-aside program, with 

the time of enrollment by the member 

to be defined by the Bank in its AHP 

Implementation Plan. The existing 

regulation has been interpreted by some 

Banks as requiring that the household’s 

income qualification for purposes of the 

AHP be determined at the time that the 

household is qualified for a mortgage 

loan. See 12 CFR 951.1 (definition of 

‘‘low- or moderate-income household’’); 

951.5(a)(2)(i). Such an interpretation has 

posed problems for certain households 

participating in empowerment 

programs, such as multi-year job 

training or savings or welfare-to-work 

programs, that are designed to assist 

very low- and low- or moderate-income 

households accumulate assets over a 

number of years, including households 

that might not otherwise qualify for a 

mortgage loan. The problem has been 

that by the time the household 

completes such a program and can 

qualify for a mortgage loan, the 

household may no longer qualify as 

low- or moderate-income as required 

under the AHP homeownership setaside program. 

In response to the concern that 

participants in empowerment programs 

be able to depend on receipt of 

anticipated closing cost or down 

payment assistance when they are ready 

to purchase a home, such as offered by 

homeownership set-aside funding, 

§ 951.6(c)(2) of the proposed rule would 

have provided that the household’s 

income eligibility be determined at the 

time the household is enrolled by the 

member and the Bank in the 

homeownership set-aside program. This 

was intended to clarify that once a 

household is enrolled in an 

empowerment program, the household’s 

income eligibility for the 

homeownership set-aside program is 

assured. This clarification was intended 

to be consistent with the belief that such 

assurance is important to achieving the 

purpose of such programs to prepare 

households for homeownership. 

This provision in the proposed rule, 

however, caused some confusion among 

commenters, because the process of 

‘‘enrollment’’ was not described in the 

rule. Several commenters pointed out 

that under some existing Bank 

homeownership set-aside programs, 

members and Banks enroll households 

at different times; e.g., a member may 

enroll a household for participation in 

the homeownership set-aside program at 

the member level, but not notify the 

Bank of the household’s participation 

until the household has met the 

requirements of the Bank’s 

homeownership set-aside program, such 

as saving for a specified period or 

receiving homeownership counseling. 

This process recognizes that any 

number of households enrolled by the 

member will not complete the program 

before completing program 

requirements, and minimizes the 

administrative requirements of 

processing them at the Bank level. 

The Finance Board wants to ensure 

that a Bank may allow a household to 

enroll with a member, even though the 

household may not meet the 

requirements of the Bank’s 

homeownership set-aside program for a 

number of years because the household 

is participating in an empowerment 

program. The Finance Board believes 

the individual Bank should establish the 

policies for enrollment of households by 

members in the Bank’s homeownership 

set-aside program. Accordingly, the 

final rule provides that income 

eligibility is to be determined as of the 

date the household is enrolled by the 

member in the Bank’s homeownership 

set-aside program, with the time of 

enrollment by the member defined by 

the Bank in its AHP Implementation 

Plan. 

Reservation of set-aside subsidies: 

§ 951.6(e)(2): In the past, the Finance 

Board generally has considered a 

household to be enrolled in the AHP 

homeownership set-aside program at the 

time the member or the Bank reserves 

the set-aside funds for the household so 

that the funds will be available when 

the household closes on its home 

purchase. While such a process might 

ensure that the set-aside funds will be 

available when all program 

requirements have been met for 

households participating in job-training 

or other empowerment programs, such a 

process could result in many years 

elapsing between the time of enrollment 

of the households in the 

homeownership set-aside program and 

the disbursement of the set-aside funds 

to that household. Such a delay is 

inconsistent with the intent of 

§ 951.6(e)(3), which requires progress to 

be made towards draw-down and use of 

the AHP direct subsidies by eligible 

households pursuant to the 

requirements in the Bank’s policies. 

The homeownership set-aside 

program requires careful administration 

by a Bank and the participating member 

and should be subject to reasonable 

Bank policies on the reservation and 

timely use of AHP subsidy. In those 

cases in which members enroll 

households that may take a number of 

years to complete the program 

requirements, the Bank should not 

reserve funds for these households at 

the time of enrollment by the member 

in the homeownership set-aside 

program, but should anticipate the 

timing of disbursement and manage 

future set-aside allocations based on 

that. The Finance Board believes that, in 

managing future set-aside allocations, it 

would be reasonable for a Bank to 

reserve set-aside funds up to 2 years in 

advance of the Bank’s time limit for the 

draw-down and use of the funds by the 

household. The Bank should reserve 


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such funds from the set-aside allocation 

of the year in which the Bank makes the 

reservation. For example, a household 

enrolling with a member at the same 

time it enrolls in the Family Self 

Sufficiency (FSS) Program has 5 years in 

which to complete the requirements of 

the FSS. In this case, a member may 

enroll a household in 2006, but the 

Bank should not reserve 2006 set-aside 

funds for the household. Rather, the 

Bank should anticipate funding that 

household from a future year’s set-aside 

allocation, with such future reservation 

of funds being no more than 2 years 

prior to the expected disbursement to 

the household. In this case, the Bank 

could reserve funds from its 2009 setaside allocation for a household that has 

until 2011 to complete its FSS 

requirements and purchase its home. It 

is expected that the Bank will work with 

members that enroll such households in 

order to determine whether households 

are likely to meet the FSS requirements 

in fewer than 5 years and to manage the 

reservation of funds to accommodate 

such households. This provision will 

not affect the operations of the current 

homeownership set-aside programs of 

most of the Banks, which already 

require a household to draw down the 

AHP subsidy within 24 months or less 

of enrollment in their homeownership 

set-aside programs. 

Accordingly, § 951.6(e)(2) of the final 

rule provides that a Bank must establish 

and implement policies for reservation 

of set-aside subsidies for households 

enrolled in the Bank’s homeownership 

set-aside program. These must provide 

that set-aside subsidies be reserved no 

more than 2 years in advance of the 

Bank’s time limit in its AHP 

Implementation Plan for draw-down 

and use of the funds by the households 

and the reservation of subsidies be made 

from the set-aside allocation of the year 

in which the Bank makes the 

reservation. 

Qualification of students: It is the 

Finance Board’s expectation that Bank 

policies for the homeownership setaside program will be designed to assist 

AHP income-eligible households who, 

but for receipt of the AHP subsidy, 

would not be able to afford to purchase 

or rehabilitate a home. This would 

preclude qualification of students with 

part-time or no income while in school 

who ordinarily would have a reasonable 

prospect for a substantial increase in 

income exceeding the AHP incomeeligibility limit upon entering the 

workforce full-time. 

Several commenters appeared to 

misunderstand the manner in which 

this principle was expressed in the 

SUPPLEMENTARY INFORMATION section of 

the proposed rule, believing that it was 

intended to address households already 

in the workforce with low- or moderateincomes that a Bank would have to 

determine were ‘‘temporary.’’ Rather, 

this principle refers to a potential 

misuse of AHP funds available through 

the homeownership set-aside program, 

in which member institutions qualify 

students as income-eligible based on 

part-time or no income, but who have a 

reasonable expectation or knowledge 

that, upon graduation, the student will 

have income substantially above the 

AHP income limit. For example, a 

member should not qualify a full-time 

law school student with little or no 

income, knowing that the student 

already has secured a position with a 

law firm upon graduation that will pay 

considerably more than the AHP income 

limit of 80 percent of the area median 

income. This principle is not intended 

to apply to households participating in 

empowerment programs, such as multiyear job training or savings or welfareto-work programs, that are designed to 

assist very low- and low- or moderateincome households accumulate assets 

over a number of years. 

Homebuyer or homeowner 

counseling: § 951.6(c)(2)(ii), (c)(2)(iii). 

Section 951.6(c)(2)(ii) of the final rule 

retains the existing requirement that 

first-time homebuyers must complete a 

homebuyer or homeowner counseling 

program in order to be eligible for 

homeownership set-aside assistance, but 

§ 951.6(c)(2)(iii) revises the existing 

requirement by authorizing a Bank to 

decide, in its discretion, whether to 

require households that are not firsttime homebuyers to complete a 

homebuyer or homeowner counseling 

program in order to be eligible for 

homeownership set-aside assistance. 

Under the existing regulation, all 

households receiving AHP 

homeownership set-aside funds must 

complete a homeowner or homebuyer 

counseling program. See 12 CFR 

951.5(a)(2)(ii). At its inception, the 

homeownership set-aside program was a 

home-purchase program for first-time 

homebuyers only. As a result, the 

Finance Board required each assisted 

household to obtain homebuyer 

counseling in order to obtain AHP 

assistance. The Finance Board later 

amended the homeownership set-aside 

authority to permit the Banks to use 

homeownership set-aside funds to 

finance housing other than for first-time 

homebuyers, such as rehabilitation of 

already owner-occupied units or 

homeownership for disaster victims, 

and required that each assisted 

household obtain homebuyer or 

homeowner counseling. As a practical 

matter, not all households will require 

such counseling. Moreover, there are 

some areas of the country in which 

counseling may not be readily available, 

and the quality of the counseling also 

may vary. Accordingly, the proposed 

rule would have made counseling for all 

households receiving set-aside funds 

under the homeownership set-aside 

program an optional requirement for the 

Bank. 

A number of commenters concurred 

with the Finance Board that it is 

unnecessary or impractical to require 

counseling for households that are not 

first-time homebuyers. Other 

commenters generally opposed the 

proposal, emphasizing that 

homeownership counseling is critical to 

a household’s short-term and long-term 

success in avoiding foreclosure. While 

the Finance Board continues to believe 

that it is not appropriate to mandate 

homebuyer or homeowner counseling 

for all households under the 

homeownership set-aside program, the 

Finance Board concurs with 

commenters that counseling is 

important for first-time homebuyers. 

Accordingly, § 951.6(c)(2)(ii) of the final 

rule retains the existing requirement 

that first-time homebuyers must 

complete a homebuyer or homeowner 

counseling program in order to be 

eligible for homeownership set-aside 

assistance, but § 951.6(c)(2)(iii) allows a 

Bank to determine, in its discretion, 

whether to require households that are 

not first-time homebuyers to complete a 

homebuyer or homeowner counseling 

program in order to be eligible for 

homeownership set-aside assistance. 

Financial or other concessions: 

§ 951.6(c)(6). Bank discretionary 

authority: Section 951.6(c)(6) of the final 

rule provides that a Bank may, in its 

discretion, require members and other 

lenders to provide financial or other 

concessions, as defined by the Bank in 

its AHP Implementation Plan, to 

households in connection with 

providing the AHP direct subsidy or 

financing to the household. 

Under existing § 951.5(a)(6), a 

member that provides mortgage 

financing to a participating household 

under the homeownership set-aside 

program also must provide financial or 

other incentives to that household in 

connection with the mortgage financing. 

See 12 CFR 951.5(a)(6). The existing 

requirement may place small members, 

such as those located in rural areas, at 

a disadvantage compared with larger 

members, which may have more 

financial and market resources, and may 

place a number of members at a 

disadvantage compared with 

nonmember lenders, which do not have 


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to provide any financial or other 

concessions to the borrowing 

household. The Finance Board 

requested comment in the proposed rule 

on whether the authority to require 

member financial or other concessions 

to households should be mandatory or 

discretionary for the Banks. Most 

commenters addressing this issue 

preferred that the Banks have 

discretionary authority, stating that a 

mandatory requirement could place 

smaller, community, and rural members 

at a disadvantage vis-a`-vis larger 

members with the resources to provide 

concessions and with nonmembers that 

do not have to provide concessions to 

the household. The Finance Board 

agrees that a mandatory requirement 

could disadvantage smaller, community, 

and rural members, and that each Bank 

is in the best position to determine 

whether such a requirement is 

appropriate for the members in its 

district. Accordingly, in contrast to the 

proposed rule, the final rule makes the 

authority to require member financial or 

other concessions discretionary for the 

Banks. 

Bank establishment of concessions: 

The current regulation does not 

prescribe or define the types of financial 

or other concessions the member must 

provide, leaving it to the member’s 

discretion to determine what kind of 

concessions meet the requirement. 

Under the proposed rule, each Bank, 

rather than the member, would establish 

the specific types of financial incentives 

or other assistance that the member 

would have to provide in order to meet 

the requirement for providing financial 

or other concessions to the households. 

The Finance Board requested comment 

in the proposed rule on whether the 

regulation itself should specify 

particular financial or other concessions 

that a member must provide to 

households, such as matching funds or 

member-provided financing. Several 

commenters generally supported having 

the Bank establish the specific types of 

eligible financial or other concessions 

that the member must provide to the 

homebuyers. Accordingly, consistent 

with the proposed rule, the final rule 

provides for the Bank to establish the 

specific types of financial or other 

concessions that members must provide 

to households. 

Some commenters also stated that the 

wording of the proposal could be 

interpreted to mean that the Banks must 

provide financial concessions to the 

members to participate in the 

homeownership set-aside program. As 

discussed above, this was not the intent 

of the proposed language. The language 

is reworded in the final rule to clarify 

that the concessions are to be provided 

by the members to the households, not 

by the Bank to the members. 

In reviewing the comments, the 

Finance Board concluded that the word 

‘‘incentives’’ used in the proposed rule 

in connection with the member 

requirements created confusion, because 

these are not intended to encourage 

households to use the homeownership 

set-aside program. Access to AHP down 

payment and closing cost assistance is 

the incentive for household 

participation in the program. The term 

‘‘concessions’’ more accurately 

describes the types of reduced costs or 

fee waivers provided by the member in 

order to meet the requirements of this 

provision. Accordingly, the final rule 

uses the word ‘‘concessions’’ rather than 

the word ‘‘incentives.’’

The proposed rule also would have 

removed the existing requirement that a 

member provide financial or other 

concessions if it is providing mortgage 

financing to a participating household. 

This proposal was intended to level the 

playing field among members offering 

homeownership set-aside assistance, 

and to help avoid situations in which 

the member might require the 

household to obtain a mortgage loan 

from another lender in order to avoid 

having to provide financial or other 

concessions to the household. The 

proposal also was intended to provide 

the homebuyers additional 

opportunities to benefit from financial 

concessions, whether or not they are 

getting their mortgage loans from the 

member. As discussed above, 

commenters generally supported 

allowing Bank discretion in the 

establishment of member financial or 

other concessions. The Finance Board 

believes that the Banks are in the best 

position to determine whether the 

existing requirement would be 

appropriate in their respective districts. 

Accordingly, consistent with the 

proposed rule, the final rule does not 

require a member providing mortgage 

financing to a participating household 

to also provide financial or other 

concessions to the household in 

connection with the mortgage financing. 

Bank discretionary authority to 

require concessions from nonmembers: 

The Finance Board also requested 

comment in the proposed rule on 

whether the regulation should require 

all originators of mortgage loans to 

households receiving homeownership 

set-aside funding to provide financial or 

other concessions in connection with 

their mortgage financing, irrespective of 

whether the originator is a member or 

nonmember. The proposed rule would 

have applied this requirement only to 

members. Several commenters stated 

generally that requiring nonmembers, as 

well as members, to provide financial or 

other concessions would level the 

playing field. Other commenters 

objected to putting members in the 

position of having to monitor 

nonmembers and their concessions for 

adherence to Bank guidelines, which 

they stated could discourage members 

from participating in the AHP, and 

raises issues regarding how to enforce 

such requirements again nonmembers. 

The Finance Board believes that 

households would benefit from 

additional opportunities to receive 

financial or other concessions from 

nonmember lenders, and that the Banks 

are in the best position to determine 

whether such a requirement would be 

appropriate in their respective districts. 

Accordingly, the final rule provides the 

Banks with discretionary authority to 

require lenders other than members to 

provide financial or other concessions 

in conjunction with their lending to 

households receiving AHP assistance 

under the homeownership set-aside 

program. 

Bank discretionary authority to 

establish member preferences. In 

addition, the Finance Board requested 

comment in the proposed rule on 

whether the Banks should have to 

establish preferences for member 

priority access to homeownership setaside funds, such as a preference for a 

member working in partnership with a 

not-for-profit sponsor assisting first-time 

homebuyers to qualify for a mortgage 

loan. One commenter supported 

requiring the Banks to give priority to 

members that provide financial 

assistance to not-for-profit sponsors for 

program development, especially for 

homeownership counseling assisting 

first-time homebuyers, stating that notfor-profit participation in 

homeownership programs is key to 

households’ long-term success in 

keeping their homes. Another 

commenter supported a preference for 

members working with not-for-profit 

sponsors that have a long-term 

commitment to the creation of 

affordable housing. The Finance Board 

believes that the Banks are in the best 

position to determine whether such 

preferences for members would be 

appropriate in their respective districts. 

Accordingly, the final rule does not 

require the Banks to establish particular 

preferences for members. 

Financing costs: § 951.6(c)(7). 

Consistent with the proposed rule, 

§ 951.6(c)(7) of the final rule provides 

that the rate of interest, points, fees, and 

any other charges for all loans made in 

conjunction with the AHP direct 


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subsidy shall not exceed a reasonable 

market rate of interest, points, fees and 

other charges for loans of similar 

maturity, terms, and risk. 

Under the existing regulation, the 

requirement applies only to situations 

in which the member provides the 

financing, but not if a third party does 

so. See 12 CFR 951.5(a)(6). The existing 

language has the potential to create 

opportunities for using AHP funds in 

conjunction with the origination of 

loans with interest rates, points, fees, 

and other charges that exceed a 

reasonable market rate, if the loans are 

originated by a nonmember. In order to 

avoid that possibility, § 951.6(c)(7) of 

the proposed rule would have revised 

the regulation to state that charges that 

are used directly or indirectly in 

conjunction with the AHP direct 

subsidy must not exceed a reasonable 

market rate. That revision is consistent 

with the statutory requirement that 

Finance Board regulations must ‘‘ensure 

that subsidies provided by Banks to 

member institutions under this program 

are passed on to the ultimate borrower.’’

See 12 U.S.C. 1430(j)(9)(E). 

The majority of commenters on this 

issue supported extending application 

of the provision to nonmembers, stating 

that this would help guard against the 

imposition of excessive financing costs 

on low- or moderate-income households 

by a third-party lender. A Bank and its 

Advisory Council opposed the proposal 

on the basis that it would require 

members to regulate other lenders even 

though the members are not making the 

loans. The Finance Board believes that 

any member that receives AHP subsidy 

and passes it through to another lender 

has a responsibility to assure that the 

lender is not imposing excessive 

financing costs on the household 

receiving the AHP subsidy. Under 

§ 951.8(b)(1) of the final rule, the 

member would be liable to the Bank for 

repayment of the amount of any 

excessive financing costs imposed by 

the lender if imposition of these costs 

resulted from the member’s actions or 

omissions. 

Cash back to household: § 951.6(c)(9). 

Section 951.6(c)(9) of the final rule 

provides that a member may provide 

cash back to a household at closing on 

the mortgage loan in an amount not 

exceeding $250, as determined by the 

Bank in its AHP Implementation Plan, 

and a member must use any AHP 

subsidy exceeding such amount that is 

beyond what is needed at closing for 

closing costs and the approved mortgage 

amount as a credit to reduce the 

principal of the mortgage loan or as a 

credit toward the household’s monthly 

payments on the mortgage loan. 

The Finance Board’s Horizontal 

Review identified problems in the 

operations of the homeownership setaside programs at some of the Banks. 

Although those problems were limited 

to a few situations, the proposed rule 

sought to address them by clearly 

identifying ineligible uses of AHP setaside funds. A number of commenters 

supported the proposal, but pointed out 

that implementing the prohibition on 

cash backs to households could pose an 

unnecessary administrative burden if 

the terms of the loan and the loan 

documents would need to be changed at 

closing. These commenters 

recommended that the final rule allow 

a de minimis amount of cash back at 

closing to the household. The Finance 

Board believes that the comments have 

merit, and accordingly, the final rules 

provides for a de minimis amount of 

cash back of up to $250 per household, 

as determined by the Bank in its AHP 

Implementation Plan. 

Some commenters were concerned 

that the proposal would prevent the use 

of any of the AHP subsidy to reimburse 

the household for closing costs paid 

outside of closing or for rehabilitation 

work that is part of the closing. The 

Finance Board has always allowed AHP 

subsidy to be used to reimburse 

households that have paid some out-ofpocket closing costs prior to the actual 

closing, and the final rule does not 

prevent that. However, the Finance 

Board does not believe that AHP 

subsidy should reimburse a household 

for any down payment, or earnest 

money or deposit applied to the down 

payment, especially where the Bank 

awards AHP subsidy based on a match 

of the household’s own down payment 

savings. The prohibition on cash back to 

the household does not apply to cash 

that is being placed in escrow or paid 

to a third party for purposes of planned 

rehabilitation of the property after 

closing, for example, as would be 

reflected on a HUD–1A closing 

statement. However, a Bank could not 

provide AHP subsidy directly to the 

household for improvements that are 

not part of the home purchase. 

Some commenters also were 

concerned that requiring excess AHP 

subsidy to be used to reduce the loan 

principal would result in an 

administrative burden at closing 

because loan documents including the 

note and lender’s check, and other 

required consumer disclosures, would 

have been prepared prior to closing. In 

requiring that any amount of AHP 

subsidy in excess of what is needed at 

closing be applied as a credit to reduce 

the principal of the mortgage loan, the 

Finance Board does not intend that the 

lender have to recalculate the mortgage 

amount and terms and generate new 

consumer disclosures at closing. Rather, 

the additional AHP subsidy may be 

applied as a credit to the outstanding 

principal following execution of the 

note and thereby increase the 

household’s equity in the home. In this 

way, the additional AHP subsidy would 

decrease the amount of principal 

outstanding on the original note without 

affecting the monthly payments and, 

thereby, not creating an administrative 

burden at closing. This does not 

preclude the permanent lender from 

applying the additional AHP subsidy as 

additional down payment and revising 

the loan terms and consumer 

disclosures accordingly, either prior to 

or at closing. The final rule also 

provides that, in the alternative, the 

excess AHP subsidy may be applied as 

a credit toward the household’s monthly 

payments on the mortgage loan. 

Procedure for funding: § 951.6(e). 

Reservation of homeownership set-aside 

subsidies: § 951.6(e)(2). As discussed 

above under Reservation of Set-Aside 

Subsidies, § 951.6(e)(2) of the final rule 

addresses requirements for Bank 

reservation of homeownership set-aside 

subsidies for households enrolled in the 

Bank’s homeownership set-aside 

program. 

Progress towards use of AHP direct 

subsidy: § 951.6(e)(3): For reasons 

similar to those discussed above under 

the competitive application program, 

§ 951.6(e)(3) of the final rule, consistent 

with the proposed rule, requires a Bank 

to establish and implement policies, 

including time limits, for determining 

whether progress is being made towards 

draw-down and use of homeownership 

set-aside funds by eligible households, 

and whether to cancel AHP application 

approvals for lack of such progress. See 

12 CFR 951.8(b)(1). The Bank’s 

requirements adopted pursuant to this 

paragraph (e)(3) shall be included in its 

AHP Implementation Plan. One Bank 

expressed concern that this proposal 

could require the Bank to track 

homebuyers’ progress toward closing on 

a home between the time of the 

household’s enrollment and the end of 

the time period for draw-down and use 

of the subsidy, and that doing so would 

create unnecessary administrative costs 

of reporting each homebuyer’s status. 

The Finance Board’s intent in proposing 

the change was not to require tracking 

of a household’s progress in meeting the 

requirements of the homeownership setaside program during the period prior to 

the end of the Bank’s time limit 

specified in its AHP Implementation 

Plan, but to allow the Banks greater 

flexibility for dealing with a household 


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that has not used the assistance by the 

end of the time period, rather than 

having to cancel the commitment of 

homeownership set-aside funds to the 

household at that time. Another Bank 

stated that, in the case of a 

homeownership set-aside program in 

which the Bank reserves a portion of 

homeownership set-aside funds for use 

by an individual member, the provision 

should apply to the member’s progress 

in drawing down its homeownership 

set-aside allocation. The Finance Board 

believes that a Bank’s method for 

members’ access to the homeownership 

set-aside funds, either through lumpsum allocation or first-come, first-serve 

according to its qualified household 

customers, is irrelevant to the 

underlying purpose of this provision, 

which is the household’s draw-down 

and use of the subsidy. 

G. Monitoring: § 951.7 

Consistent with the proposed rule, the 

final rule replaces prescriptive 

monitoring provisions in the existing 

regulation with more broadly stated 

monitoring objectives that are intended 

to allow the Banks more latitude in 

determining the type and frequency of 

reports and certifications that are best 

suited for monitoring a particular 

project’s compliance with its AHP 

application commitments and the AHP 

regulation. The final rule also 

reorganizes the proposed monitoring 

provisions to provide greater clarity. 

Monitoring Requirements for the 

Competitive Application Program: 

§ 951.7(a). Initial monitoring policies: 

§ 951.7(a)(1): Adoption and 

implementation: § 951.7(a)(1)(i): Section 

951.7(a)(1)(i) of the final rule adopts the 

proposed requirement that a Bank adopt 

and implement written policies for 

monitoring of each AHP owneroccupied and rental project under its 

competitive application program prior 

to, and within a reasonable period of 

time after, project completion. The 

Bank’s requirements for initial 

monitoring shall be included in its AHP 

Implementation Plan. Specifically, a 

Bank’s monitoring policies must enable 

it to determine, at a minimum, whether: 

the project is making satisfactory 

progress toward completion; the 

completed project is making satisfactory 

progress towards occupancy by eligible 

households; and the completed project 

meets the commitments made in the 

approved AHP application and is 

otherwise in compliance with 

applicable AHP requirements within a 

reasonable period of time after project 

completion. Consistent with the 

proposed rule, the final rule removes 

the existing requirement that the Banks 

must monitor project habitability, and 

also removes the definition of 

‘‘habitable’’ from the existing 

definitions. See 12 CFR 951.1; 

951.10(a)(2)(ii)(B)(2), (c)(2). 

A number of commenters supported 

the monitoring proposal, citing its 

increased flexibility and the likelihood 

that it would result in streamlined 

procedures. Several commenters 

specifically supported removing the 

existing requirement to monitor ‘‘project 

habitability.’’ Some commenters 

recommended that the regulation define 

‘‘reasonable period of time’’ in order to 

avoid differing interpretations. The 

Finance Board believes that such 

determinations are best made by the 

Banks based on the types of projects to 

be monitored. Some commenters also 

requested that the Finance Board review 

and approve the Banks’ policies for 

initial monitoring. The Finance Board 

intends to review the Banks’ initial 

monitoring policies as a part of its 

examination program. 

Back-up and other project 

documentation; sampling plan: 

§ 951.7(a)(1)(ii), (a)(1)(iii): Section 

951.7(a)(1)(ii) of the final rule adopts the 

proposed requirement that a Bank’s 

monitoring policies include 

requirements for Bank review of backup project documentation regarding 

household incomes and rents 

maintained by the project sponsor or 

owner, and requirements for 

maintenance and Bank review of other 

project documentation in the Bank’s 

discretion. Several commenters 

supported the proposal, provided the 

regulation allows the Banks to use 

project sampling for initial monitoring, 

rather than having to conduct initial 

monitoring of each project. Section 

951.7(a)(1)(iii) of the final rule prohibits 

a Bank from using a sampling plan to 

select the projects to be monitored, but 

allows a Bank to use a reasonable riskbased sampling plan to review the backup project documentation. Section 

951.7(a)(1)(iii) reflects the importance of 

determining that all completed projects 

are starting out on a solid basis and in 

compliance with the commitments 

made in their approved AHP 

applications and the AHP regulation. 

Reliance on long-term tax credit 

monitoring for rental projects: 

§ 951.7(a)(2): Consistent with the 

proposed rule, § 951.7(a)(2) of the final 

rule provides that for completed AHP 

rental projects that have been allocated 

tax credits, a Bank may, in its 

discretion, for purposes of long-term 

AHP monitoring, rely on the monitoring 

by the state-designated housing credit 

agency administering the tax credits of 

the income targeting and rent 

requirements applicable under the 

LIHTC program. The Bank would not 

need to obtain and review reports from 

such agency or otherwise monitor the 

projects’ long-term AHP compliance. 

Under the existing regulation, in the 

case of AHP rental projects that receive 

tax credits, a Bank may rely on the 

monitoring conducted by the 

government entity providing the tax 

credits, provided that: (i) The income 

targeting, rent, and retention period 

requirements monitored by such entity 

for its own program are the same as, or 

more restrictive than, those committed 

to in the approved AHP application; (ii) 

the entity agrees to provide monitoring 

reports to the Bank on any rent, income 

and project habitability noncompliance; 

and (iii) the entity demonstrates 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. See 12 

CFR 951.11(a)(1). The existing 

regulation also provides that if the 

income targeting, rent, and retention 

period requirements monitored by such 

entity for its own program are less 

restrictive than those committed to in 

the approved AHP application, a Bank 

may rely on the monitoring conducted 

by such entity only if the entity agrees 

to monitor the project for compliance 

with the AHP standards and provide 

monitoring reports to the Bank on any 

rent, income and project habitability 

noncompliance. See 12 CFR 

951.11(a)(2). 

The LIHTC, which often is used by 

projects that receive some form of AHP 

subsidy, has 2 elective eligibility 

standards related to the units in the 

project and the income of the 

households occupying the units: (1) 20 

percent of the units must be occupied 

by households with incomes at or below 

50 percent of the area median income; 

or (2) 40 percent of the units must be 

occupied by households with incomes 

at or below 60 percent of the area 

median income. See 26 U.S.C. 42(g)(1). 

The Bank Act imposes similar limits on 

the use of AHP subsidies for rental 

housing, i.e., eligible rental projects 

must have at least 20 percent of the 

units occupied by households with 

incomes at or below 50 percent of the 

area median income. See 12 U.S.C. 

1430(j)(2)(B). Because this AHP incomeeligibility standard is identical to the 

first tax credit income-eligibility 

standard, for AHP-assisted tax credit 

projects that employ the first standard, 

the current AHP regulation permits a 

Bank to accept the project monitoring 

that is conducted by the government 

agencies providing the tax credits for 

their own programs. 


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With respect to AHP-assisted tax 

credit projects that employ the second 

standard, under which 40 percent of the 

units must be occupied by households 

with incomes at or below 60 percent of 

the area median income, the current 

AHP regulation allows a Bank to rely on 

monitoring conducted by the 

government entity administering the tax 

credits only if the entity also monitors 

the project for compliance with the AHP 

income-eligibility standard. See 12 CFR 

951.11(a)(2). Because this tax credit 

income-eligibility standard differs from 

the AHP income-eligibility standard, 

under the existing AHP regulation a 

Bank must have an agreement with the 

government entity to conduct its 

monitoring of the AHP project for 

compliance with the AHP standard. 

Such additional monitoring entails 

additional costs to the Bank, which a 

number of the Banks have contended is 

not an effective means of monitoring the 

project, as it is largely duplicative of 

existing monitoring conducted by other 

parties. A number of AHP users also 

have contended that this level of 

monitoring is superfluous and adds 

unnecessary burdens to the project. 

As discussed in the SUPPLEMENTARY

INFORMATION section of the proposed 

rule, after reviewing several studies on 

the performance of the LIHTC, the 

Finance Board has concluded that the 

overwhelming majority of these tax 

credit projects—irrespective of their 

income eligibility standard—meet the 

AHP income-eligibility standard in a 

substantively equivalent manner. A 

1997 General Accounting Office study 

found that 75 percent of households in 

tax credit projects had incomes under 

50 percent of the area median income, 

which would be well within the AHP 

requirement that 20 percent of units be 

occupied by households with incomes 

at or below 50 percent of the area 

median income. Other subsequent 

studies, such as those prepared by Abt 

Associates for HUD, and one by Ernst 

and Young, have reached similar 

conclusions regarding the targeting of 

tax credit projects to very low-income 

households. Noncompliance with the 

income-eligibility requirements by tax 

credit projects is relatively rare, as it 

would lead to adverse tax consequences 

for investors in such projects. In 

addition, the length of the retention 

periods for AHP rental projects and tax 

credit projects is the same, and the 

affordability standard for tax credit 

projects, i.e., the rent requirement, is 

substantively equivalent to the AHP rent 

requirement that the rents charged may 

not exceed 30 percent of the targeted 

household income. See 12 U.S.C. 

1430(j)(2)(B), (j)(13)(D); 26 U.S.C. 

42(g)(2). 

All commenters on this proposal 

strongly supported allowing a Bank to 

rely on the long-term monitoring 

performed by the tax credit agency, 

usually a state housing finance agency, 

and thereby exclude these rental 

projects from the Bank’s long-term 

monitoring plan. Commenters 

supported the reduction in duplicative 

monitoring as easing the administrative 

burdens on project owners, members, 

and Banks, without sacrificing project 

accountability and quality. Commenters 

noted that other funding sources often 

are involved in AHP projects at a much 

higher funding level, and that state 

agencies are more than capable of 

providing high quality monitoring. 

Other commenters stated that the 

proposal would make the AHP more 

compatible with the LIHTC program. 

Some commenters suggested that the 

Finance Board clarify whether each 

Bank must make a determination that 

the compliance profiles for income 

targeting, affordability, and retention 

under the LIHTC program are 

substantively equivalent to those under 

the AHP. Commenters interpreted the 

conditional language ‘‘provided that the 

compliance profiles of the AHP and the 

LIHTC program continue to be 

substantively equivalent’’ in the 

proposed rule as requiring the Banks to 

make a determination whether the 

standards are satisfied before the Bank 

could rely on LIHTC monitoring. As 

discussed above, in the SUPPLEMENTARY

INFORMATION section of the proposed 

rule, the Finance Board has made the 

determination, based on studies of the 

occupancy and rents of LIHTC projects, 

that these standards currently are being 

met. The Banks, therefore, will not need 

to make such a determination with 

respect to AHP-assisted LIHTC projects. 

The final rule clarifies this point by 

eliminating the conditional language 

‘‘provided that the compliance profiles 

of the AHP and the LIHTC program 

continue to be substantively 

equivalent.’’

Some commenters also requested 

clarification whether any initial 

monitoring requirements continue to 

apply to AHP-assisted LIHTC projects. 

Under the final rule, all of the initial 

monitoring requirements continue to 

apply to AHP-assisted LIHTC projects. 

Reliance on other long-term 

governmental monitoring for rental 

projects: § 951.7(a)(3): Section 

951.7(a)(3) of the final rule provides 

that, for completed AHP rental projects 

that received funds from federal, state, 

or local government entities other than 

under the LIHTC, a Bank may, in its 

discretion, for purposes of long-term 

AHP monitoring, rely on the monitoring 

by such entities of the income targeting 

and rent requirements applicable under 

their programs, provided the Bank can 

show that: (i) The compliance profiles 

regarding income targeting, rent, and 

retention period requirements of the 

AHP and the other programs are 

substantively equivalent; (ii) the entity 

has demonstrated and continues to 

demonstrate its ability to monitor the 

project; (iii) the entity agrees to provide 

reports to the Bank on the project’s 

incomes and rents for the full 15-year 

AHP retention period; and (iv) the Bank 

reviews the reports from the monitoring 

entity to confirm that they comply with 

the Bank’s monitoring policies. 

In the case of AHP rental projects that 

receive governmental funds other than 

tax credits, the existing regulation 

applies the same requirements for 

reliance on monitoring by the 

government entity providing the funds 

as are applicable for AHP rental projects 

receiving tax credits under the existing 

regulation, as discussed above. See 12 

CFR 951.11(a)(1), (a)(2). The proposed 

rule would have included requirements 

similar to the existing requirements for 

reliance on monitoring by other 

government entities, and would have 

provided that the income targeting, rent, 

and retention period requirements for 

the other programs be substantively 

equivalent to those of the AHP. The 

final rule provides that it is the 

compliance profiles regarding income 

targeting, rent, and retention period 

requirements of the AHP and the other 

programs that must be substantively 

equivalent. 

A majority of commenters on the 

proposal supported allowing the Banks 

to rely on other non-LIHTC 

governmental monitoring as proposed. 

Several commenters noted, however, 

that without determinations by the 

Finance Board that certain programs, 

such as those administered by HUD, are 

substantively equivalent to the AHP, 

Banks would be reluctant to make the 

determinations themselves and, 

therefore, would not take advantage of 

this provision. At this time, the Finance 

Board does not have data available to it 

that would allow it to make 

determinations that the compliance 

profiles with respect to income 

targeting, rent, and retention period 

requirements of any other government 

housing programs other than the federal 

LIHTC program currently are 

substantively equivalent to those of the 

AHP. Accordingly, a Bank will need to 

make such determinations if it wishes to 

rely on the monitoring by such other 

government programs. 


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Long-term monitoring policies for 

rental projects: § 951.7(a)(4). Adoption 

and implementation: § 951.7(a)(4)(i): 

Consistent with the proposed rule, 

§ 951.7(a)(4)(i) of the final rule provides 

that in cases where a Bank does not rely 

on monitoring by a federal, state, or 

local government entity pursuant to 

§ 951.7(a)(2) or (a)(3), a Bank must 

establish and implement written 

policies for risk-based monitoring of 

completed AHP rental projects, 

commencing in the second year after 

project completion and continuing for 

the full 15-year retention period. The 

Bank’s requirements for long-term 

monitoring under this section shall be 

included in its AHP Implementation 

Plan. The monitoring policies must 

enable the Bank to determine, at a 

minimum, whether household income 

and rents comply with the respective 

commitments made in the approved 

AHP applications. 

The current regulation requires the 

Banks to select from 1 of 3 approved 

methods for long-term monitoring of 

rental projects: (1) Monitoring by a 

federal, state, or local government entity 

in connection with a project that also is 

receiving tax credits or funds from that 

entity, subject to certain other limits 

stated in the rule; (2) monitoring by the 

Bank, its members, and project owners; 

or (3) monitoring by a third party 

contractor that carries out the Bank’s 

monitoring obligations under the longterm monitoring requirements of 

existing § 951.11(a)(3)(iii). See 12 CFR 

951.11(a). The existing regulation 

contains prescriptive procedural 

requirements for projects monitored by 

the Banks, their members, and project 

owners under the second and third 

options. It requires a Bank to review 

project documentation from various 

parties and verify compliance with rent, 

income, and project habitability 

requirements according to a schedule 

based on the amount of AHP subsidy 

received by a project, such that projects 

receiving greater amounts of subsidy 

have more stringent and frequent 

monitoring requirements. See 12 CFR 

951.11(a)(3)(iii). Such prescriptive 

monitoring requirements do not 

necessarily promote accurate 

assessments of program effectiveness or 

take into account the true risks to the 

Bank’s AHP. The existing monitoring 

requirements may fail to capture 

adequately the operational risk, location 

risk, or other relevant performance 

factors affecting the Bank’s AHP project 

portfolio. The prescriptive nature of the 

regulation implies that the particular 

approach to monitoring that is 

embodied in the regulation is the 

optimal approach for such matters, 

irrespective of the risk characteristics 

that may be associated with a particular 

AHP project or the compliance record of 

the participating member, sponsor, or 

project owner. 

A number of commenters specifically 

supported the proposal’s increased 

flexibility, risk-based scheme, and 

sampling authority. Some commenters 

stated that monitoring costs could be 

reduced for in-district projects under 

the proposal, without increasing the 

Bank’s compliance, financial, or 

reputation risk. A Bank and its Advisory 

Council opposed the proposal in its 

entirety, stating that the current 

regulatory monitoring requirements 

have served the intended purposes, and 

changes in those requirements are not 

necessary or appropriate. The 

commenters stated that monitoring 

objectives could vary from Bank to 

Bank, which could cause confusion 

among members, sponsors and project 

owners that use AHP funds in multiple 

districts. Several commenters objected 

to the reference in the SUPPLEMENTARY

INFORMATION section of the proposed 

rule to ‘‘outcome-based’’ monitoring, 

stating that it may be inconsistent with 

the risk-based monitoring requirement 

and could result in numerous Finance 

Board examination findings. In order to 

avoid confusion in this regard, the final 

rule does not use this term. A Bank 

suggested that long-term monitoring not 

be required to commence until the third 

year after project completion. Another 

commenter suggested that the rule 

retain the current monitoring 

requirement for projects receiving AHP 

subsidy over $500,000. Under the 

monitoring provisions of the final rule, 

a Bank would have the discretion to 

include such requirements. Some 

commenters also requested that the 

Finance Board review and approve the 

Banks’ long-term monitoring policies. 

The Finance Board intends to review 

the Banks’ long-term monitoring 

policies as a part of its examination 

program. 

The final rule does not include the 

proposed requirement that the Bank 

monitor the populations served by the 

project over the long-term retention 

period. A number of commenters 

opposed the proposed requirement, 

pointing out that the annual project 

owner certification requirement does 

not include a requirement to certify 

compliance with targeted population 

commitments, referring only to incomes 

and rents of the project households, and 

targeted populations are not subject to 

long-term monitoring under the current 

regulation. The Finance Board finds 

merit in these comments, and also notes 

that inclusion of this requirement would 

complicate providing housing for 

households displaced by disasters. 

Accordingly, the final rule does not 

require that populations served by the 

projects be subject to long-term 

monitoring. 

Consistent with the proposed rule, the 

final rule also removes the existing 

requirement that the Banks monitor 

project habitability for the full AHP 

retention period. See 12 CFR 

951.11(a)(3). Several commenters 

supported removing the requirement to 

monitor project habitability. 

Annual project owner certifications; 

backup and other project 

documentation: § 951.7(a)(4)(ii): Section 

951.7(a)(4)(ii) of the final rule adopts the 

proposed requirement that the Bank’s 

monitoring policies include 

requirements for: (i) Bank review of 

annual certifications by project owners 

to the Bank that household incomes and 

rents comply with the commitments 

made in the approved AHP application; 

(ii) Bank review of back-up project 

documentation regarding household 

incomes and rents maintained by the 

project owner; and (iii) maintenance 

and Bank review of other project 

documentation in the Bank’s discretion. 

Several commenters supported 

requiring the Banks to establish written 

requirements for back-up 

documentation from members and 

project owners. A Bank and one of its 

members opposed the annual project 

owner certification requirement, stating 

that obtaining the certifications is a 

labor-intensive process that has little or 

no positive influence on long-term 

compliance. The Finance Board believes 

that the annual project owner 

certification, which is retained from the 

current rule, remains an important tool 

under the new risk-based long-term 

monitoring for ensuring that the project 

has regular contact with the Bank. See 

12 CFR 951.11(a)(3)(i). The Finance 

Board notes that the rule only requires 

that the project owner provide such a 

certification to the Bank, and this 

requirement does not involve the 

member unless the Bank chooses to do 

so in its monitoring plan. 

Risk factors and other monitoring; 

risk-based sampling plan: 

§ 951.7(a)(4)(iii): Consistent with the 

proposed rule, § 951.7(a)(4)(iii) of the 

final rule requires a Bank’s written 

policies to take into account risk factors 

such as the amount of AHP subsidy in 

the project, type, size, and location of 

the project, sponsor experience, and any 

monitoring of the project provided by a 

federal, state, or local government 

entity. The final rule further provides 

that a Bank may use a reasonable, riskVerDate Aug<31>2005 15:02 Oct 05, 2006 Jkt 211001 PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 E:\FR\FM\06OCR2.SGM 06OCR2

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59284 Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Rules and Regulations 

based sampling plan to select the rental 

projects to be monitored under this 

section, and to review the annual 

project owner certifications, back-up, 

and any other project documentation. 

The risk-based sampling plan and its 

basis shall be in writing. 

Several commenters suggested that 

the Finance Board provide more 

detailed guidance on the monitoring 

requirements, including defining 

‘‘reasonable risk-based sampling plan.’’

One Bank requested clarification 

whether the Bank must select its sample 

of rental projects from different types of 

rental projects, and whether the sample 

must be statistically valid. The final rule 

does not specifically require these 

standards, but Finance Board examiners 

will review the Bank’s sampling plans 

to ensure that they are reasonable. 

Several commenters also stated that the 

Banks should be able to use a risk-based 

sampling model to select not only the 

rental projects, but also the specific 

units in the projects, to be sampled. The 

language under the proposed and final 

rules allows for such risk-based 

sampling of units as well as projects. 

Monitoring Requirements for the 

Homeownership Set-Aside Program: 

§ 951.7(b). Adoption and 

implementation: § 951.7(b)(1): 

Consistent with the proposed rule, 

§ 951.7(b)(1) of the final rule requires a 

Bank to adopt and implement written 

monitoring policies for determining 

compliance with the requirements of its 

homeownership set-aside programs. See 

12 CFR 951.8(b)(2). The Bank’s 

requirements for monitoring under its 

homeownership set-aside programs 

shall be included in its AHP 

Implementation Plan. A Bank and its 

Advisory Council supported the 

proposal. 

Member certifications; back-up and 

other documentation: § 951.7(b)(2): 

Section 951.7(b)(2) of the final rule 

retains the existing requirement that a 

Bank review certifications by members 

to the Bank, prior to disbursement of the 

AHP subsidy, that the subsidy will be 

provided in compliance with all 

applicable eligibility requirements of 

the homeownership set-aside program. 

See 12 CFR 951.8(b)(2). The Bank’s 

monitoring policies also must include 

requirements for the Bank to review 

back-up documentation regarding 

household incomes maintained by the 

member, and maintenance and Bank 

review of other documentation in the 

Bank’s discretion. 

Sampling plan: § 951.7(b)(3): Section 

951.7(b)(3) of the final rule provides that 

a Bank may use a reasonable sampling 

plan to select the households to be 

monitored, and to review the back-up 

and any other documentation, but not 

the member certifications. One Bank 

requested clarification whether the 

Bank’s sampling plan may be risk-based, 

and whether the sample must be 

statistically valid. Unlike sampling 

under the competitive application 

program, sampling under the 

homeownership set-aside program may 

not be risk-based, because there is no 

basis on which to vary risk of 

noncompliance when grants are 

provided through members directly to 

households for home purchase or 

rehabilitation assistance. The final rule 

does not specifically require that the 

sample be statistically valid, but 

Finance Board examiners will review 

the Bank’s sampling plans to ensure that 

they are reasonable. 

H. Remedial Actions for 

Noncompliance: § 951.8 

Reorganization and streamlining. 

Consistent with the proposed rule, 

§ 951.8 of the final rule reorganizes and 

streamlines the language in the existing 

regulation regarding remedial actions 

for noncompliance with the 

commitments made in the approved 

AHP application and the AHP 

regulation, in order to eliminate 

redundancy and provide greater clarity. 

See 12 CFR 951.12. No commenters 

addressed these technical revisions. 

Repayment of AHP subsidy by project 

sponsor or owner: § 951.8(b)(2). Section 

951.8(b)(2) of the final rule adopts the 

proposed provision allowing a Bank to 

determine whether a project sponsor or 

owner must repay AHP subsidies 

directly to the Bank or to the member, 

which would then repay the Bank, in 

the event that the project fails to comply 

with any AHP requirements. Under the 

existing regulation, project sponsors or 

owners are required to repay AHP 

subsidies to the member, which in turn 

is required to repay the subsidies to the 

Bank. See 12 CFR 951.12(b). The change 

will give the Banks greater flexibility in 

managing how AHP subsidies are 

required to be repaid in the event of 

AHP noncompliance. Several 

commenters supported the change, with 

one commenter noting that it would 

allow for a more efficient repayment 

process. 

Finance Board approval of 

settlements: § 951.8(d)(2). Consistent 

with the proposed rule, § 951.8(d)(2) of 

the final rule allows a Bank to obtain 

approval from ‘‘the Finance Board’’ to 

settle a disputed claim regarding an 

AHP subsidy, which will allow Finance 

Board staff to approve the Bank’s 

proposed settlements relating to the 

AHP subsidy. The existing regulation 

requires a Bank to obtain approval from 

the Board of Directors of the Finance 

Board for such settlements. See 12 CFR 

951.12(c)(2)(ii). Several commenters 

supported the proposal, with 1 

commenter noting that it would allow 

AHP claims to be settled more 

efficiently. 

Bank reimbursement of AHP fund: 

§ 951.8(e)(1). Section 951.8(e)(1) of the 

final rule adopts the proposed new 

provision requiring a Bank to reimburse 

its AHP fund in the amount of any AHP 

subsidies (plus interest, if appropriate) 

misused as a result of the Bank’s actions 

or omissions, even without a Finance 

Board order to do so. Where 

noncompliance with AHP requirements 

is the result of a Bank’s actions or 

omissions, the Bank should reimburse 

its AHP fund without the Finance Board 

having to order it to do so as under the 

existing regulation. See 12 CFR 

951.12(c)(3). 

One commenter objected to the 

proposal, stating that even in the case of 

misuse of funds resulting from Bank 

error, the Bank should not have to 

automatically reimburse the AHP fund. 

Instead, the Bank’s board should be 

required to make an affirmative 

determination whether or not it must 

reimburse its AHP fund. If Finance 

Board examiners objected to the board’s 

decision, then the full Board of 

Directors of the Finance Board could 

order the reimbursement after notice 

and a hearing. The Finance Board 

believes that the Bank already has 

ample opportunity to negotiate the 

amount of reimbursement through the 

examination process and discussions 

with the Finance Board. 

Parties to enforcement proceedings. 

Consistent with the proposed rule, the 

final rule removes existing § 951.12(d), 

which allows a Bank, in its discretion, 

to enter into a written agreement with 

a member, project sponsor, or project 

owner under which such member, 

sponsor or owner consents to be a party 

to any Finance Board enforcement 

proceeding regarding the repayment of 

AHP subsidies received by such party, 

or to suspension or debarment of such 

party, provided that such party has 

agreed to be bound by the Finance 

Board’s final determination in the 

enforcement proceeding. See 12 CFR 

951.12(d). A Bank opposed removal of 

the provision, stating that without the 

provision, third parties would not 

willingly consent to enter into such an 

agreement. However, such agreements 

are voluntary under the existing 

regulation, and regulatory authorization 

is not necessary for a Bank to enter into 

such an agreement. 

Re-use of repaid AHP direct subsidies 

in same project: § 951.8(f)(2). Section 


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951.8(f)(2) of the final rule adopts the 

proposed language clarifying that a 

Bank must consult with its Advisory 

Council in determining whether to 

allow the re-use of AHP direct subsidies 

in the same project, as is authorized 

under this section. See 12 CFR 

951.12(e)(2). That provision also 

clarifies that a Bank’s board of directors 

shall not delegate to Bank officers or 

other Bank employees the responsibility 

to adopt any Bank policies on re-use of 

repaid AHP direct subsidies in the same 

project under this section. No comments 

addressed these technical revisions. 

I. Agreements: § 951.9 

Section 951.9 of the final rule adopts 

proposed revisions to the existing 

regulation, which requires each Bank to 

have in place with each member that 

receives AHP subsidies a written 

agreement that includes certain 

provisions set out in the regulation. See 

12 CFR 951.13. The revisions are 

intended to eliminate redundancy and 

provide greater clarity. No comments 

addressed these specific technical 

revisions. 

Notification of member: § 951.9(a)(1). 

Consistent with the proposed rule, 

§ 951.9(a)(1) of the final rule adds a 

provision requiring the AHP agreements 

to acknowledge that the member has 

been notified of the AHP requirements 

and all Bank policies relevant to the 

member’s approved AHP application. 

Several commenters supported the 

proposal, but requested clarification that 

the AHP agreements may include 

references to the Bank’s detailed 

policies and procedures, as they may be 

amended from time to time, rather than 

be required to include the actual 

policies and procedures themselves. 

Commenters pointed out that the Banks 

otherwise would have to change the 

AHP agreements every time the policies 

or procedures were modified. The 

proposal was not intended to require the 

AHP agreements to include the Bank’s 

detailed policies and procedures. The 

rule requires only that the agreement 

include a provision stating that the 

member has been notified of the Bank’s 

policies. 

Monitoring agreements: § 951.9(a)(5). 

Consistent with the proposed rule, 

§ 951.9(a)(5) of the final rule revises the 

existing provisions relating to 

monitoring agreements in order to 

conform them to the changes made 

elsewhere to the substantive monitoring 

requirements. See 12 CFR 951.13(b)(4). 

The final rule also revises the proposal 

that would have required the Banks’

agreements with their members to set 

forth the members’ specific monitoring 

responsibilities, as required under the 

Banks’ monitoring policies. Instead, the 

final rule allows the Banks to reference 

their monitoring policies in the 

monitoring agreements. A number of 

commenters opposed requiring 

inclusion of the Banks’ specific 

monitoring policies and procedures in 

their monitoring agreements, as the 

Banks revise their monitoring policies 

and procedures with some regularity, 

which could require frequent 

modifications to the agreements. 

Commenters suggested that the Banks be 

allowed to reference the applicable 

monitoring policies and procedures, as 

they may be amended from time to time, 

in the monitoring agreements. The 

Finance Board agrees that the Banks 

should not have to modify their 

monitoring agreements every time they 

revise their monitoring policies or 

procedures. Accordingly, the final rule 

revises the proposal by removing the 

language ‘‘(and set forth in the 

agreement).’’

In addition, the final rule adopts the 

proposed provision that the agreements 

shall require the member to have in 

place an agreement with each project 

sponsor and project owner setting forth 

the specific monitoring responsibilities 

of those sponsors and owners, as 

required under the Banks’ monitoring 

policies, but with the revision that the 

Bank’s monitoring policies would not 

have to be included in such agreement. 

One commenter stated that a member 

should not be required to maintain a 

separate monitoring agreement with 

each project sponsor and owner, as this 

would increase the cost and 

administrative burden of participating 

in the program. The commenter stated 

that it supports the format currently 

used at some Banks, where all parties 

execute a single agreement. The 

language in the rule is consistent with 

the language in the current regulation 

and, as drafted, does not prohibit all 

parties from executing one agreement. 

Refinancing of owner-occupied units: 

§ 951.9(a)(7)(ii)(A). Consistent with the 

proposed rule, § 951.9(a)(7)(ii)(A) of the 

final rule revises existing 

§ 951.13(c)(4)(i)(B) by providing that, in 

the case of a refinancing prior to the end 

of the 5-year retention period of a 

permanent mortgage loan that was 

funded by an AHP subsidized advance, 

the household does not have to repay 

the AHP subsidy it already used in the 

unit. See 12 CFR 951.13(c)(4)(i)(B). The 

final rule still requires that such 

households have retention agreements 

in place, because of the agreements’

requirements for notice to the Bank of 

any sale or refinancing of the unit. 

The existing regulation requires the 

household to repay the full amount of 

the AHP subsidy received (i.e., the value 

of the interest rate subsidy for the time 

the household has been paying on the 

mortgage loan) from any net gain 

realized upon the refinancing, unless 

the unit continues to be subject to a 

retention agreement. The change is 

consistent with the existing regulatory 

provision providing that a household 

subsidized with AHP direct subsidy that 

refinances an owner-occupied unit must 

repay only the amount of AHP subsidy 

that has not been used (i.e., the subsidy 

required to be repaid is reduced for 

every year the household owned the 

unit). See 12 CFR 951.13(d)(1)(iii). In 

addition, the change should help 

remove a possible deterrent to 

refinancing by households that seek to 

make their units more affordable or 

obtain equity for purposes of their 

economic betterment. No comments 

specifically addressed this change. 

Relocation of households in rental 

projects: § 951.9(a)(8)(iii)(B). Section 

951.9(a)(8)(iii)(B) of the final rule 

revises the proposal and the existing 

regulation by providing that, in the case 

of a sale or refinancing of an AHPassisted rental project prior to the end 

of the retention period, a Bank may, in 

its discretion, determine not to require 

repayment of the AHP subsidy to the 

Bank if, due to the exercise of eminent 

domain, or for expansion of housing or 

services, the households are relocated to 

another property that is made subject to 

a deed restriction or other legally 

enforceable retention agreement or 

mechanism incorporating the incomeeligibility and affordability restrictions 

committed to in the approved AHP 

application for the remainder of the 

retention period. This new authority is 

consistent with the current regulatory 

provision allowing sale of a project to 

another owner without requiring 

repayment of the subsidy, where the 

new owner agrees to maintain the 

income-eligibility and affordability 

requirements for the remainder of the 

retention period. Currently, the AHP 

regulation treats these situations as a 

sale that requires the repayment of the 

entire amount of AHP subsidy, thereby 

releasing the project from its AHP 

commitments and making the AHP 

subsidy available for other AHP-eligible 

projects, unless the property continues 

to be subject to a deed restriction or 

other legally enforceable retention 

agreement or mechanism incorporating 

the income-eligibility and affordability 

restrictions committed to in the 

approved AHP application for the 

remainder of the retention period. See 

12 CFR 951.13(c)(5)(iii), 

951.13(d)(2)(iii). Allowing project 


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sponsors to transfer the AHP subsidies, 

along with the corresponding incomeeligibility and affordability 

commitments, to another property will 

result in the retention of the affordable 

units for the duration of the original 

retention period and ensure that 

existing tenants are not adversely 

affected. 

The proposed rule would have 

required a Bank to allow the relocation 

of tenants without repayment of AHP 

subsidy where the retention agreement 

is maintained. A number of commenters 

recommended that the relocation 

authority be at the discretion of a Bank 

in order to prevent abuse, and that it not 

be a regulatory authorization for 

sponsors of rental projects to relocate at 

their option and in all circumstances. 

Some commenters were concerned that 

the proposal could encourage owners to 

relocate tenants to less desirable 

properties in order to develop the 

subject property for market use, or allow 

a noncompliant owner to delay or 

escape repayment of misused subsidy. 

The Finance Board agrees that providing 

the Banks with discretion on whether to 

approve a project relocation could 

prevent abuses of the type raised by the 

commenters, and the final rule makes 

the authority discretionary rather than 

mandatory. In addition, in response to 

the comments, the final rule specifically 

includes the exercise of eminent domain 

and expansion of housing or services as 

the limited circumstances under which 

the authority may be used. 

Agreements between Banks and 

project sponsors or owners: § 951.9(b). 

As discussed above, § 951.8(b)(2) of the 

final rule allows a Bank to determine 

whether to require a project sponsor or 

owner to repay AHP subsidies directly 

to the Bank in the event of 

noncompliance, in contrast to the 

existing regulation which requires 

project sponsors or owners to repay 

AHP subsidies to the member, which in 

turn repays the subsidies to the Bank. 

Under § 951.9(b) of the final rule, 

consistent with the proposed rule, if a 

Bank intends to require project sponsors 

or project owners to repay AHP 

subsidies directly to the Bank, the Bank 

first must have in place an agreement 

with each project sponsor and project 

owner in which the party agrees to 

repay the AHP subsidies directly to the 

Bank. A Bank and its Advisory Council 

requested clarification whether a triparty agreement would be permissible 

under this provision. The language in 

the rule is consistent with the language 

in the current regulation and, as drafted, 

does not prohibit all parties to execute 

a single agreement. 

Application to existing AHP projects 

and units: § 951.9(c). Consistent with 

the proposed rule, § 951.9(c) of the final 

rule streamlines the language in existing 

§ 951.16, which addresses the 

application of the regulation to existing 

AHP projects, and relocates the 

provision to this section. See 12 CFR 

951.16. A Bank requested clarification 

whether this provision continues to 

apply to units funded under the 

homeownership set-aside program as 

well as to competitive application 

projects, as the heading in the proposed 

rule referred to ‘‘projects’’ and not units. 

This provision is intended to apply to 

both projects and units under both 

programs. Accordingly, the language in 

the final rule clarifies this by including 

references to units where appropriate. 

J. Conflicts of Interest: § 951.10 

Consistent with the proposed rule, 

§ 951.10 of the final rule relocates the 

provisions governing the adoption of 

conflict of interest policies from existing 

§ 951.3(c) to this section. See 12 CFR 

951.3(c). The final rule also adds new 

provisions that prohibit Bank directors 

or employees, Advisory Council 

members, and their family members, 

from engaging in the conflicts of interest 

prohibited by the Bank’s conflict of 

interest policies. Section 951.10(c) 

prohibits a Bank’s board of directors 

from delegating to Bank officers or other 

Bank employees its responsibility to 

adopt the conflict of interest policies. 

Several commenters supported the 

changes. 

K. Temporary Suspension of AHP 

Contributions: § 951.11 

Section 951.11 of the final rule adopts 

the proposal to remove various 

procedural requirements in existing 

§ 951.14, leaving these decisions to the 

discretion of the Finance Board in the 

event an application is received from a 

Bank for a temporary suspension of its 

required annual AHP contribution. See 

12 CFR 951.14. In addition, certain of 

the information required to be provided 

by the Banks is readily obtainable by the 

Finance Board without the necessity of 

a regulatory requirement. One 

commenter supported the changes. 

L. Affordable Housing Reserve Fund: 

§ 951.12 

Section 951.12 of the final rule adopts 

the proposal to remove the requirements 

in existing § 951.15 that a Bank report 

by January 15th of each year the amount 

of any unused and uncommitted AHP 

funds from the prior year that will be 

deposited in an Affordable Housing 

Reserve Fund (Reserve Fund), and that 

the Finance Board notify the Banks of 

the total amount of funds, if any, 

available in the Reserve Fund. See 12 

CFR 951.15. The Finance Board has 

never had to establish a Reserve Fund 

and does not expect to do so in the 

future, given the high demand for AHP 

funds that has always exceeded the 

amount of AHP funds available. In 

addition, information on the amount of 

any unused and uncommitted AHP 

funds would be readily obtainable by 

the Finance Board without such a 

regulatory mandate. One commenter 

supported the proposal. 

IV. Paperwork Reduction Act 

Elsewhere in this issue of the Federal 

Register, the Finance Board is 

publishing a notice concerning the 

information collection entitled 

‘‘Affordable Housing Program (AHP)’’. 

The Finance Board is submitting the 

information collection to the Office of 

Management and Budget for review and 

approval of a 3 year extension of the 

OMB control number, 3069–0006, 

which is due to expire on July 31, 2007. 

V. Regulatory Flexibility Act 

The final rule applies only to the 

Banks, which do not come within the 

meaning of small entities for purposes 

of the Regulatory Flexibility Act (RFA). 

See 5 U.S.C. 601(6). Therefore, in 

accordance with section 605(b) of the 

RFA, 5 U.S.C. 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. 

List of Subjects in 12 CFR Part 951 

Community development, Credit, 

Federal home loan banks, Housing, 

Reporting and recordkeeping 

requirements. 

■ For the reasons stated in the preamble, 

the Finance Board hereby revises 12 

CFR, chapter IX, part 951, to read as 

follows: 

PART 951—AFFORDABLE HOUSING 

PROGRAM 

Sec. 

951.1 Definitions. 

951.2 Required annual AHP contributions; 

allocation of contributions. 

951.3 AHP Implementation Plan. 

951.4 Advisory Councils. 

951.5 Competitive application program. 

951.6 Homeownership set-aside programs. 

951.7 Monitoring. 

951.8 Remedial actions for noncompliance. 

951.9 Agreements. 

951.10 Conflicts of interest. 

951.11 Temporary suspension of AHP 

contributions. 

951.12 Affordable Housing Reserve Fund. 

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


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§ 951.1 Definitions. 

As used in this part: 

Affordable means that: 

(1) The rent charged to a household 

for a unit that 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 persons per 

unit without a separate bedroom); or 

(2) The rent charged to a household, 

for rental units subsidized with Section 

8 assistance under 42 U.S.C. 1437f or 

subsidized under another assistance 

program where the rents are charged in 

the same way as under the Section 8 

program, if the rent complied with this 

§ 951.1 of this part at the time of the 

household’s initial occupancy and the 

household continues to be assisted 

through the Section 8 or another 

assistance program, respectively. 

AHP project means a single-family or 

multifamily housing project for owneroccupied or rental housing that has been 

awarded or has received AHP subsidy 

under the competitive application 

program. 

Competitive application program 

means a program established by a Bank 

under which the Bank awards and 

disburses AHP subsidy through a 

competitive application scoring process 

pursuant to the requirements of § 951.5 

of this part. 

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. 

Direct subsidy means an AHP subsidy 

in the form of a direct cash payment. 

Eligible household means a household 

that meets the income limits and other 

requirements specified by a Bank for its 

competitive application program and 

homeownership set-aside programs, 

provided that: 

(1) In the case of owner-occupied 

housing, the household’s income may 

not exceed 80 percent of the median 

income for the area; and 

(2) In the case of rental housing, the 

household’s income in at least 20 

percent of the units may not exceed 50 

percent of the median income for the 

area. 

Eligible project means a project 

eligible to receive AHP subsidy 

pursuant to the requirements of this 

part. 

Family member means any individual 

related to a person by blood, marriage, 

or adoption. 

Funding period means a time period, 

as determined by a Bank, during which 

the Bank accepts AHP applications for 

subsidy. 

Homeownership set-aside program 

means a program established by a Bank 

under which the Bank disburses AHP 

direct subsidy pursuant to the 

requirements of § 951.6 of this part. 

Loan pool means a group of mortgage 

or other loans meeting the requirements 

of this part that are purchased, pooled, 

and held in trust. 

Low- or moderate-income household 

means a household that has an income 

of 80 percent or less of the median 

income for the area, with the income 

limit adjusted for household size in 

accordance with the methodology of the 

applicable median income standard, 

unless such median income standard 

has no household size adjustment 

methodology. 

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 means 

one or more of the following median 

income standards as determined by a 

Bank, after consultation with its 

Advisory Council, in its AHP 

Implementation Plan: 

(1) The median income for the area, 

as published annually by HUD; 

(2) The median income for the area 

obtained from the Federal Financial 

Institutions Examination Council; 

(3) 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; 

(4) The median income for the area, 

as published by the United States 

Department of Agriculture; or 

(5) The median income for an 

applicable definable geographic area, as 

published by a federal, state, or local 

government entity, and approved by the 

Finance Board, at the request of a Bank, 

for use under the AHP. 

Multifamily building means a 

structure with 5 or more dwelling units. 

Net earnings of a Bank means the net 

earnings of a Bank for a calendar year 

after deducting the Bank’s annual 

contribution to the Resolution Funding 

Corporation required under section 21B 

of the Act (12 U.S.C. 1441b), and before 

declaring or paying any dividend under 

section 16 of the Act (12 U.S.C. 1436). 

For purposes of this part, ‘‘dividend’’

includes any dividends on capital stock 

subject to a redemption request even if 

under GAAP those dividends are treated 

as an ‘‘interest expense.’’

Owner-occupied project means, for 

purposes of the competitive application 

program, one or more owner-occupied 

units in a single-family or multifamily 

building, including condominiums, 

cooperative housing, and manufactured 

housing. 

Owner-occupied unit means a 

dwelling unit occupied by the owner of 

the unit. Housing with 2 to 4 dwelling 

units consisting of one owner-occupied 

unit and one or more rental units is 

considered a single owner-occupied 

unit. 

Program means the Affordable 

Housing Program established pursuant 

to this part. 

Rental project means, for purposes of 

the competitive application program, 

one or more dwelling units for 

occupancy by households that are not 

owner-occupants, including overnight 

and emergency shelters, transitional 

housing for homeless households, 

mutual housing, single-room occupancy 

housing, and manufactured housing. 

Retention period means: 

(1) Five years from closing for an 

AHP-assisted owner-occupied unit, or 

in the case of rehabilitation of a unit 

currently occupied by the owner where 

there is no closing, 5 years from the date 

established by the Bank in its AHP 

Implementation Plan; and 

(2) Fifteen years from the date of 

project completion for a rental project. 

Revolving loan fund means a capital 

fund established to make mortgage or 

other loans whereby loan principal is 

repaid into the fund and re-lent to other 

borrowers. 

Single-family building means a 

structure with 1 to 4 dwelling units. 

Sponsor means a not-for-profit or forprofit organization or public entity that: 

(1) Has an ownership interest 

(including any partnership interest), as 

defined by the Bank in its AHP 

Implementation Plan, in a rental project; 

(2) Is integrally involved, as defined 

by the Bank in its AHP Implementation 

Plan, 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; 

(3) Operates a loan pool; or 

(4) Is a revolving loan fund. 

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 must equal the net 


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present value of the interest foregone 

from making the loan below the lender’s 

market interest rate; or 

(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. 

Very low-income household means a 

household that has an income at or 

below 50 percent of the median income 

for the area, with the income limit 

adjusted for household size in 

accordance with the methodology of the 

applicable median income standard, 

unless such median income standard 

has no household size adjustment 

methodology. 

Visitable means, in either owneroccupied 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. 

§ 951.2 Required annual AHP 

contributions; allocation of contributions. 

(a) Annual AHP contributions. Each 

Bank shall contribute annually to its 

Program the greater of: 

(1) 10 percent of the Bank’s net 

earnings for the previous year; or 

(2) 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, except that the required 

annual AHP contribution for a Bank 

shall not exceed its net earnings in the 

previous year. 

(b) Allocation of contributions. Each 

Bank, after consultation with its 

Advisory Council and pursuant to 

written policies adopted by the Bank’s 

board of directors, shall allocate its 

annual required AHP contribution as 

follows: 

(1) Competitive application program. 

Each Bank shall allocate annually that 

portion of its annual required AHP 

contribution that is not set aside to fund 

homeownership set-aside programs 

under paragraph (b)(2) of this section, to 

provide funds to members through a 

competitive application program, 

pursuant to the requirements of this 

part. 

(2) Homeownership set-aside 

programs. (i) Allocation amount; firsttime homebuyers. A Bank, in its 

discretion, may set aside annually, in 

the aggregate, up to the greater of $4.5 

million or 35 percent of the Bank’s 

annual required AHP contribution to 

provide funds to members participating 

in homeownership set-aside programs 

established by the Bank, provided that 

at least one-third of the Bank’s aggregate 

annual set-aside allocation to such 

programs shall be to assist first-time 

homebuyers, pursuant to the 

requirements of this part. 

(ii) No delegation. A Bank’s board of 

directors shall not delegate to Bank 

officers or other Bank employees the 

responsibility for adopting its 

homeownership set-aside program 

policies. 

(3) Additional funding. A Bank may 

allot to its current year’s Program from 

its annual required AHP contribution 

for the subsequent year, an amount up 

to the greater of $2 million or 20 percent 

of its annual required AHP contribution 

for the current year. 

§ 951.3 AHP Implementation Plan. 

(a) Adoption; no delegation. Each 

Bank, after consultation with its 

Advisory Council, shall adopt a written 

AHP Implementation Plan, and shall not 

amend the AHP Implementation Plan 

without first consulting its Advisory 

Council. The Bank’s board of directors 

shall not delegate to Bank officers or 

other Bank employees the responsibility 

to consult with the Advisory Council 

prior to adopting or amending the AHP 

Implementation Plan. The AHP 

Implementation Plan shall set forth, at 

a minimum: 

(1) The applicable median income 

standard or standards adopted by the 

Bank consistent with the definition of 

median income for the area in § 951.1 of 

this part; 

(2) The Bank’s requirements for its 

competitive application program 

established pursuant to § 951.5 of this 

part; 

(3) The Bank’s requirements for its 

homeownership set-aside programs, if 

adopted by the Bank pursuant to § 951.6 

of this part; 

(4) The Bank’s requirements for 

funding revolving loan funds, if adopted 

by the Bank pursuant to § 951.5(c)(13) of 

this part; 

(5) The Bank’s requirements for 

funding loan pools, if adopted by the 

Bank pursuant to § 951.5(c)(14) of this 

part; 

(6) The Bank’s requirements for 

monitoring under its competitive 

application program and any Bank 

homeownership set-aside programs, 

pursuant to § 951.7 of this part; 

(7) The Bank’s requirements, 

including time limits, for re-use of 

repaid AHP direct subsidy, if adopted 

by the Bank pursuant to § 951.8(f)(2) of 

this part; and 

(8) The retention agreement 

requirements for projects and 

households under the competitive 

application program and any Bank 

homeownership set-aside programs, 

pursuant to § 951.9(a)(7) and (a)(8) of 

this part. 

(b) Advisory Council review. Prior to 

the amendment of a Bank’s AHP 

Implementation Plan, the Bank shall 

provide its Advisory Council an 

opportunity to review the document, 

and the Advisory Council shall provide 

its recommendations to the Bank’s 

board of directors for its consideration. 

(c) Notification of Plan amendments 

to the Finance Board. A Bank shall 

notify the Finance Board of any 

amendments made to its AHP 

Implementation Plan within 30 days 

after the date of their adoption by the 

Bank’s board of directors. 

(d) Public access. A Bank shall 

publish its current AHP Implementation 

Plan on its publicly available Web site, 

and shall publish any amendments to 

the AHP Implementation Plan on the 

Web site within 30 days after the date 

of their adoption by the Bank’s board of 

directors. 

§ 951.4 Advisory Councils. 

(a) Appointment. (1) Each Bank’s 

board of directors shall appoint an 

Advisory Council of 7 to 15 persons 

who reside in the Bank’s District and are 

drawn from community and not-forprofit organizations that are actively 

involved in providing or promoting lowand moderate-income housing, and 

community and not-for-profit 

organizations that are actively involved 

in providing or promoting community 

lending, in the District. 

(2) 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. 

(3) The Bank’s board of directors shall 

appoint Advisory Council members 

from a diverse range of organizations so 

that representatives of no one group 

constitute an undue proportion of the 

membership of the Advisory Council, 

giving consideration to the size of the 

Bank’s District and the diversity of lowand moderate-income housing and 

community lending needs and activities 

within the District. 

(b) Terms of Advisory Council 

members. Pursuant to policies adopted 

by the Bank’s board of directors, 

Advisory Council members shall be 

appointed by the Bank’s board of 

directors to serve for terms of 3 years, 

which shall be staggered to provide 

continuity in experience and service to 

the Advisory Council, except that 

Advisory Council members may be 

appointed to serve for terms of 1 or 2 


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years solely for purposes of 

reconfiguring the staggering of the 3- 

year terms. No Advisory Council 

member may be appointed to serve for 

more than 3 full consecutive terms. An 

Advisory Council member appointed to 

fill a vacancy shall be appointed for the 

unexpired term of his or her predecessor 

in office. 

(c) Election of officers. Each Advisory 

Council shall elect from among its 

members a chairperson, a vice 

chairperson, and any other officers the 

Advisory Council deems appropriate. 

(d) Duties. (1) Meetings with the 

Banks. (i) The Advisory Council shall 

meet with representatives of the Bank’s 

board of directors at least quarterly to 

provide advice on ways in which the 

Bank can better carry out its housing 

finance and community lending 

mission, including, but not limited to, 

advice on the low- and moderateincome housing and community lending 

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. 

(ii) The Advisory Council’s advice 

shall include recommendations on: 

(A) The amount of AHP subsidies to 

be allocated to the Bank’s competitive 

application program and any Bank 

homeownership set-aside programs; 

(B) The AHP Implementation Plan 

and any subsequent amendments 

thereto; 

(C) The scoring criteria, related 

definitions, and any additional optional 

District eligibility requirements for the 

competitive application program; and 

(D) The eligibility requirements and 

any priority criteria for any Bank 

homeownership set-aside programs. 

(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 analysis; public access. (i) 

Each Advisory Council annually shall 

submit to the Finance Board by May 1 

its analysis of the low- and moderateincome housing and community lending 

activity of the Bank by which it is 

appointed. 

(ii) Within 30 days after the date the 

Advisory Council’s annual analysis is 

submitted to the Finance Board, the 

Bank shall publish the analysis on its 

publicly available Web site. 

(e) 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. 

(f) No delegation. A Bank’s board of 

directors shall not delegate to Bank 

officers or other Bank employees the 

responsibility to appoint persons as 

members of the Advisory Council, or to 

meet with the Advisory Council at the 

quarterly meetings required by the Act 

(12 U.S.C. 1430(j)(11)). 

§ 951.5 Competitive application program. 

(a) Establishment of program. A Bank 

shall establish a competitive application 

program pursuant to the requirements of 

this part. 

(b) Funding periods and application 

process. (1) Funding periods. A Bank 

may accept applications for AHP 

subsidy under its competitive 

application program during a specified 

number of funding periods each year, as 

determined by the Bank. 

(2) Eligible applicants. A Bank shall 

accept applications for AHP subsidy 

under its competitive application 

program only from institutions that are 

members of the Bank at the time the 

application is submitted to the Bank. 

(3) Submission of applications. Except 

as provided in paragraph (c)(13)(i) of 

this section, a Bank shall require 

applications for AHP subsidy to contain 

information sufficient for the Bank to: 

(i) Determine that the proposed AHP 

project meets the eligibility 

requirements of paragraph (c) of this 

section; and 

(ii) Evaluate the application pursuant 

to the scoring guidelines adopted by the 

Bank pursuant to paragraph (d) of this 

section. 

(4) Review of applications submitted. 

Except as provided in paragraph 

(c)(13)(ii) of this section, a Bank shall 

review the applications for AHP subsidy 

to determine that the proposed AHP 

project meets the eligibility 

requirements of paragraph (c) of this 

section, and shall evaluate the 

applications pursuant to the Bank’s 

scoring guidelines adopted pursuant to 

paragraph (d) of this section. 

(c) Minimum eligibility requirements. 

Projects receiving AHP subsidies 

pursuant to a Bank’s competitive 

application program must meet the 

following eligibility requirements: 

(1) Owner-occupied or rental housing. 

The AHP subsidy shall be used 

exclusively for: 

(i) Owner-occupied housing. The 

purchase, construction, or rehabilitation 

of an owner-occupied project by or for 

very low-income or low- or moderateincome households. A household must 

have an income meeting the income 

targeting commitments in the approved 

AHP application at the time it is 

qualified by the project sponsor for 

participation in the project. 

(ii) Rental housing. The purchase, 

construction, or rehabilitation of a rental 

project, where at least 20 percent of the 

units in the project are occupied by and 

affordable for very low-income 

households. A household must have an 

income meeting the income targeting 

commitments in the approved AHP 

application upon initial occupancy of 

the rental unit, or for projects involving 

the purchase or rehabilitation of rental 

housing that already is occupied, at the 

time the application for AHP subsidy is 

submitted to the Bank for approval. 

(2) Need for subsidy. (i) The project’s 

estimated sources of funds shall equal 

its estimated uses of funds, as reflected 

in the project’s development budget. 

The difference between the project’s 

sources of funds and uses of funds is the 

project’s need for AHP subsidy, which 

is the maximum amount of AHP subsidy 

the project may receive. A Bank, in its 

discretion, may permit a project’s 

sources of funds to include or exclude 

the estimated market value of in-kind 

donations and voluntary professional 

labor or services (excluding the value of 

sweat equity), provided that the 

project’s uses of funds also include or 

exclude, respectively, the value of such 

estimates. 

(ii) A project’s cash sources of funds 

shall include any cash contributions by 

the sponsor, any cash from sources 

other than the sponsor, and estimates of 

funds the project sponsor intends to 

obtain from other sources but which 

have not yet been committed to the 

project. In the case of homeownership 

projects where the sponsor extends 

permanent financing to the homebuyer, 

the sponsor’s cash contribution shall 

include the present value of any 

payments the sponsor is to receive from 

the buyer, which shall include any cash 

down payment from the buyer, plus the 

present value of any purchase note the 

sponsor holds on the unit. If the note 

carries a market interest rate 

commensurate with the credit quality of 

the buyer, the present value of the note 

equals the face value of the note. If the 

note carries an interest rate below the 

market rate, the present value of the 

note shall be determined using the 

market rate to discount the cash flows. 

(iii) A project’s cash uses are the 

actual outlay of cash needed to pay for 

materials, labor, and acquisition or other 

costs of completing the project. Cash 

costs do not include in-kind donations, 

voluntary professional labor or services, 

or sweat equity. 

(3) Project costs. (i) In general. (A) 

Taking into consideration the 

geographic location of the project, 

development conditions, and other nonfinancial household or project 


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characteristics, a Bank shall determine 

that a project’s costs, as reflected in the 

project’s development budget, are 

reasonable, in accordance with the 

Bank’s project cost guidelines. 

(B) For purposes of determining the 

reasonableness of a developer’s fee for a 

project as a percentage of total 

development costs, a Bank may, in its 

discretion, include estimates of the 

market value of in-kind donations and 

volunteer professional labor or services 

(excluding the value of sweat equity) 

committed to the project as part of the 

total development costs. 

(ii) 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 was agreed upon. In 

the case of real estate owned property 

sold to a project by a member providing 

AHP subsidy to the 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 ‘‘asrehabilitated’’ value of the property, 

whichever is appropriate. That value 

shall be 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 6 months prior to the date the 

Bank disburses AHP subsidy to the 

project. 

(4) Project feasibility. (i) 

Developmental feasibility. The project 

must be likely to be completed and 

occupied, based on relevant factors 

contained in the Bank’s project 

feasibility guidelines, including, but not 

limited to, the development budget, 

market analysis, and project sponsor’s 

experience in providing the requested 

assistance to households. 

(ii) Operational feasibility of rental 

projects. A rental project must be able 

to operate in a financially sound 

manner, in accordance with the Bank’s 

project feasibility guidelines, as 

projected in the project’s operating pro 

forma. 

(5) Financing costs. The rate of 

interest, points, fees, and any other 

charges for all loans that are made for 

the project in conjunction with the AHP 

subsidy shall not exceed a reasonable 

market rate of interest, points, fees, and 

other charges for loans of similar 

maturity, terms, and risk. 

(6) Timing of AHP subsidy use. Some 

or all of 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 

AHP subsidy funding the project. 

(7) 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. 

(8) Refinancing. The project may use 

AHP subsidies to refinance an existing 

single-family or multi-family mortgage 

loan, provided that the refinancing 

produces equity proceeds and such 

equity proceeds up to the amount of the 

AHP subsidy in the project shall be used 

only for the purchase, construction, or 

rehabilitation of housing units meeting 

the eligibility requirements of this 

paragraph (c). 

(9) Retention. (i) Owner-occupied 

projects. Each AHP-assisted unit in an 

owner-occupied project is, or is 

committed to be, subject to a 5-year 

retention agreement described in 

§ 951.9(a)(7) of this part. 

(ii) Rental projects. AHP-assisted 

rental projects are, or are committed to 

be, subject to a 15-year retention 

agreement described in § 951.9(a)(8) of 

this part. 

(10) Project sponsor qualifications. (i) 

In general. A project’s sponsor must be 

qualified and able to perform its 

responsibilities as committed to in the 

application for AHP subsidy funding the 

project. 

(ii) Revolving loan fund. Pursuant to 

written policies adopted by a Bank’s 

board of directors, a revolving loan fund 

sponsor that intends to use AHP direct 

subsidy in accordance with 

§ 951.5(c)(13) of this part shall: 

(A) Provide audited financial 

statements that its operations are 

consistent with sound business 

practices; and 

(B) Demonstrate the ability to re-lend 

AHP subsidy repayments on a timely 

basis and track the use of the AHP 

subsidy. 

(iii) Loan pool. Pursuant to written 

policies adopted by a Bank’s board of 

directors, a loan pool sponsor that 

intends to use AHP subsidy in 

accordance with § 951.5(c)(14) of this 

part shall: 

(A) Provide evidence of sound asset/ 

liability management practices; 

(B) Provide audited financial 

statements that its operations are 

consistent with sound business 

practices; and 

(C) Demonstrate the ability to track 

the use of the AHP subsidy. 

(11) 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. 

(12) Calculation of AHP subsidy. (i) 

Where an AHP direct subsidy is 

provided to a project to write down the 

interest rate on a loan extended by a 

member, sponsor, or other party to a 

project, the net present value of the 

interest foregone from making the loan 

below the lender’s market interest rate 

shall be calculated as of the date the 

application for AHP subsidy is 

submitted to the Bank, and subject to 

adjustment under paragraph (g)(4) of 

this section. 

(ii) Where an AHP subsidized 

advance is provided to a project, the net 

present value of the interest revenue 

foregone from making a subsidized 

advance at a rate below the Bank’s cost 

of funds shall be 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 its asset/ 

liability management system, or 

otherwise. 

(13) Lending and re-lending of AHP 

direct subsidy by revolving loan funds. 

Pursuant to written policies established 

by a Bank’s board of directors after 

consultation with its Advisory Council, 

a Bank, in its discretion, may provide 

AHP direct subsidy under its 

competitive application program for 

eligible projects and households 

involving both the lending of the 

subsidy and subsequent lending of 

subsidy principal and interest 

repayments by a revolving loan fund, 

provided the following requirements are 

met: 

(i) Submission of application. (A) An 

application for AHP subsidy under this 

paragraph (c)(13) shall include the 

revolving loan fund’s criteria for the 

initial lending of the subsidy, 

identification of and information on a 

specific proposed AHP project if 

required in the Bank’s discretion, the 

revolving loan fund’s criteria for 

subsequent lending of subsidy principal 

and interest repayments, and any other 

information required by the Bank. 

(B) The information in the application 

shall be sufficient for the Bank to: 

(1) Determine that the criteria for the 

initial lending of the subsidy, the 


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specific proposed project if applicable, 

and the criteria for subsequent lending 

of subsidy principal and interest 

repayments, meet the eligibility 

requirements of paragraph (c) of this 

section; and 

(2) Evaluate the criteria for the initial 

lending of the subsidy, and the specific 

proposed project if applicable, pursuant 

to the scoring guidelines established by 

the Bank pursuant to paragraph (d) of 

this section. 

(ii) Review of application. A Bank 

shall review the application for AHP 

subsidy to determine that the criteria for 

the initial lending of the subsidy, the 

specific proposed project if applicable, 

and the criteria for subsequent lending 

of subsidy principal and interest 

repayments, meet the eligibility 

requirements of paragraph (c) of this 

section, and shall evaluate the criteria 

for the initial lending of the subsidy and 

the specific proposed project, if 

applicable, pursuant to the scoring 

guidelines established by the Bank 

pursuant to paragraph (d) of this 

section. 

(iii) Initial lending of subsidy. (A) The 

revolving loan fund’s initial lending of 

the AHP subsidy shall meet the 

eligibility requirements of this 

paragraph (c), shall be to projects or 

households meeting the commitments 

in the approved application for AHP 

subsidy, and shall be subject to the 

requirements of §§ 951.7(a) and 951.9 of 

this part, respectively. 

(B) If a project or owner-occupied unit 

funded under this paragraph (c)(13)(iii) 

is in noncompliance with the 

commitments in the approved AHP 

application, or is sold or refinanced 

prior to the end of the applicable AHP 

retention period, the required amount of 

AHP subsidy shall be repaid to the 

revolving loan fund in accordance with 

§§ 951.8 and 951.9 of this part, and the 

revolving loan fund shall re-lend such 

repaid subsidy, excluding the amounts 

of AHP subsidy principal already repaid 

to the revolving loan fund, to another 

project or owner-occupied unit meeting 

the initial lending requirements of this 

paragraph (c)(13)(iii) for the remainder 

of the retention period. 

(iv) Subsequent lending of AHP 

subsidy principal and interest 

repayments. (A) AHP subsidy principal 

and interest repayments received by the 

revolving loan fund from the initial 

lending of the AHP direct subsidy shall 

be re-lent by the revolving loan fund in 

accordance with the requirements of 

this paragraph (c)(13)(iv), except that 

the revolving loan fund, in its 

discretion, may provide part or all of 

such repayments as nonrepayable grants 

to eligible projects in accordance with 

the requirements of this paragraph 

(c)(13)(iv). 

(B) The revolving loan fund’s 

subsequent lending of AHP subsidy 

principal and interest repayments shall 

be for the purchase, construction, or 

rehabilitation of owner-occupied 

projects for households with incomes at 

or below 80 percent of the median 

income for the area, or of rental projects 

where at least 20 percent of the units are 

occupied by and affordable for 

households with incomes at or below 50 

percent of the median income for the 

area, and shall meet all other eligibility 

requirements of this paragraph (c). 

(C) A Bank may, in its discretion, 

require the revolving loan fund’s 

subsequent lending of subsidy principal 

and interest repayments to be subject to 

retention period, monitoring, and 

recapture requirements as defined by 

the Bank in its AHP Implementation 

Plan. 

(v) Return of unused AHP subsidy. 

The revolving loan fund shall return to 

the Bank any AHP subsidy that will not 

be used according to the requirements 

in this paragraph (c)(13). 

(14) Use of AHP subsidy in loan 

pools. Pursuant to written policies 

established by a Bank’s board of 

directors after consultation with its 

Advisory Council, a Bank, in its 

discretion, may provide AHP subsidy 

under its competitive application 

program for the origination of first 

mortgage or rehabilitation loans with 

subsidized interest rates to AHP-eligible 

households through a purchase 

commitment by an entity that will 

purchase and pool the loans, provided 

the following requirements are met: 

(i) Eligibility requirements. The loan 

pool sponsor’s use of the AHP subsidies 

shall meet the requirements under this 

paragraph (c)(14), and shall not be used 

for the purpose of providing liquidity to 

the originator or holder of the loans, or 

paying the loan pool’s operating or 

secondary market transaction costs. 

(ii) Forward commitment. (A) The 

loan pool sponsor shall purchase the 

loans pursuant to a forward 

commitment that identifies the loans to 

be originated with interest-rate 

reductions as specified in the approved 

application for AHP subsidy to 

households with incomes at or below 80 

percent of the median income for the 

area. Both initial purchases of loans for 

the AHP loan pool and subsequent 

purchases of loans to substitute for 

repaid loans in the pool shall be made 

pursuant to the terms of such forward 

commitment and subject to time limits 

on the use of the AHP subsidy as 

specified by the Bank in its AHP 

Implementation Plan and the Bank’s 

agreement with the loan pool sponsor, 

which shall not exceed 1 year from the 

date of approval of the AHP application. 

(B) As an alternative to using a 

forward commitment, the loan pool 

sponsor may purchase an initial round 

of loans that were not originated 

pursuant to an AHP-specific forward 

commitment, provided that the entities 

from which the loans were purchased 

are required to use the proceeds from 

the initial loan purchases within time 

limits on the use of the AHP subsidy as 

specified by the Bank in its AHP 

Implementation Plan and the Bank’s 

agreement with the loan pool sponsor, 

which shall not exceed 1 year from the 

date of approval of the AHP application. 

The proceeds shall be used by such 

entities to assist households that are 

income-eligible under the approved 

AHP application during subsequent 

rounds of lending, and such assistance 

shall be provided in the form of a 

below-market AHP-subsidized interest 

rate as specified in the approved AHP 

application. 

(iii) Each AHP-assisted owneroccupied unit and rental project 

receiving AHP direct subsidy or a 

subsidized advance shall be subject to 

the requirements of § 951.7(a), 951.8, 

and 951.9, respectively, of this part. 

(iv) Where AHP direct subsidy is 

being used to buy down the interest rate 

of a loan or loans from a member or 

other party, the loan pool sponsor shall 

use the full amount of the AHP direct 

subsidy to buy down the interest rate on 

a permanent basis at the time of closing 

on such loan or loans. 

(15) Optional District eligibility 

requirements. A Bank may require a 

project receiving AHP subsidies to meet 

one or more of the following additional 

eligibility requirements adopted by the 

Bank’s board of directors and included 

in its AHP Implementation Plan after 

consultation with its Advisory Council: 

(i) AHP subsidy limits. A requirement 

that the amount of AHP 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; 

or 

(ii) Homebuyer or homeowner 

counseling. A requirement that a 

household must 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. 

(16) Prohibited uses of AHP subsidies. 

The project shall not use AHP subsidies 

to pay for: 


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(i) Certain prepayment fees. 

Prepayment fees imposed by a Bank on 

a member for a subsidized advance that 

is prepaid, unless: 

(A) The project is in financial distress 

that cannot be remedied through a 

project modification pursuant to 

§ 951.5(f) of this part; 

(B) The prepayment of the subsidized 

advance is necessary to retain the 

project’s affordability and income 

targeting commitments; 

(C) Subsequent to such prepayment, 

the project will continue to comply with 

the terms of the approved AHP 

application and the requirements of this 

part for the duration of the original 

retention period; 

(D) Any unused AHP subsidy is 

returned to the Bank and made available 

for other AHP projects; and 

(E) The amount of AHP subsidy used 

for the prepayment fee may not exceed 

the amount of the member’s prepayment 

fee to the Bank. 

(ii) Cancellation fees. Cancellation 

fees and penalties imposed by a Bank on 

a member for a subsidized advance 

commitment that is canceled. 

(iii) Processing fees. Processing fees 

charged by members for providing AHP 

direct subsidies to a project. 

(d) Scoring of applications. (1) In 

general. A Bank shall establish written 

scoring guidelines setting forth the 

Bank’s AHP competitive application 

program scoring criteria and related 

definitions and point allocations, and 

implementing other applicable 

requirements pursuant to this paragraph 

(d). A Bank shall not adopt additional 

scoring criteria or point allocations, 

except as specifically authorized under 

this paragraph (d). 

(2) Point allocations. (i) A Bank shall 

allocate 100 points among the 9 scoring 

criteria identified in paragraph (d)(5) of 

this section. 

(ii) The scoring criterion for targeting 

identified in paragraph (d)(5)(iii) of this 

section shall be allocated at least 20 

points. 

(iii) The remaining scoring criteria 

shall be allocated at least 5 points each. 

(3) Fixed point and variable point 

scoring criteria. A Bank shall designate 

each scoring criterion as either a fixedpoint or a variable-point criterion, 

defined as follows: 

(i) Fixed-point scoring criteria are 

those which cannot be satisfied in 

varying degrees and are either satisfied 

or not, with the total number of points 

allocated to the criterion awarded by the 

Bank to an application meeting the 

criterion; and 

(ii) Variable-point criteria are those 

where there are varying degrees to 

which an application can satisfy the 

criteria, with the number of points that 

may be awarded to an application for 

meeting the criterion varying, 

depending on the extent to which the 

application satisfies the criterion, based 

on a fixed scale or on a scale relative to 

the other applications being scored. A 

Bank shall designate the targeting and 

subsidy-per-unit scoring criteria 

identified in paragraphs (d)(5)(iii) and 

(d)(5)(viii), respectively, of this section, 

as variable-point criteria. 

(4) Satisfaction of scoring criteria. A 

Bank shall award scoring points to 

applications for proposed projects based 

on satisfaction of the scoring criteria 

adopted by the Bank pursuant to 

paragraph (d)(5) of this section. 

(5) Scoring criteria. An application for 

a proposed project may receive scoring 

points based on satisfaction of the 

following 9 scoring criteria: 

(i) Use of donated or conveyed 

government-owned or other properties. 

The financing of housing using a 

significant proportion, as defined by the 

Bank in its AHP Implementation Plan, 

of: 

(A) Land or units donated or 

conveyed by the federal government or 

any agency or instrumentality thereof; 

or 

(B) Land or units donated or conveyed 

by any other party for an amount 

significantly below the fair market value 

of the property, as defined by the Bank 

in its AHP Implementation Plan. 

(ii) 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. 

(iii) Targeting. The extent to which a 

project provides housing for very lowand low- or moderate-income 

households, as follows: 

(A) 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. 

(B) Owner-occupied projects. 

Applications for owner-occupied 

projects shall be awarded points based 

on a declining scale to be determined by 

the Bank in its AHP Implementation 

Plan, taking into consideration 

percentages of units and targeted 

income levels. 

(C) Separate scoring. For purposes of 

this scoring criterion, applications for 

owner-occupied projects and rental 

projects may be scored separately. 

(iv) Housing for homeless households. 

The financing 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 6 

months occupancy, or the creation of 

permanent owner-occupied housing 

reserving at least 20 percent of the units 

for homeless households, with the term 

‘‘homeless households’’ as defined by 

the Bank in its AHP Implementation 

Plan. 

(v) 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 decision making 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. 

(vi) First District priority. The 

satisfaction of one of the following 

criteria, or one of a number of the 

following criteria, adopted by the Bank 

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: 

(A) Special needs. The financing 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 

financing of housing that is visitable by 

persons with physical disabilities who 

are not occupants of such housing; 

(B) Community development. The 

financing 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; 


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(C) First-time homebuyers. The 

financing of housing for first-time 

homebuyers; 

(D) 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; 

(E) Disaster areas and displaced 

households. The financing of housing 

located in federally declared disaster 

areas, or for households displaced from 

federally declared disaster areas due to 

a disaster; 

(F) Rural. The financing of housing 

located in rural areas; 

(G) Urban. The financing of urban 

infill or urban rehabilitation housing; 

(H) Economic diversity. The financing 

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 lowor 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; 

(I) 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; 

(J) 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; 

(K) Lender consortia. The 

involvement of financing by a 

consortium of at least 2 financial 

institutions; or 

(L) In-District projects. The financing 

of housing located in the Bank’s District. 

(vii) Second District priority: defined 

housing need in the District. The 

satisfaction of a housing need in the 

Bank’s District, as defined by the Bank 

in its AHP Implementation Plan. The 

Bank may, but is not required to, use 

one of the criteria listed in paragraph 

(d)(5)(vi) of this section, provided it is 

different from the criterion or criteria 

adopted by the Bank under such 

paragraph. 

(viii) AHP subsidy per unit. (A) 

Amount of subsidy. The extent to which 

a project proposes to use the least 

amount of AHP subsidy per AHPtargeted 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. 

(B) Separate scoring. For purposes of 

this scoring criterion, applications for 

owner-occupied projects and rental 

projects may be scored separately. 

(ix) 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. 

(e) Approval of AHP applications. (1) 

A Bank shall approve applications for 

AHP subsidy in descending order 

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. 

(2) The Bank also shall approve at 

least the next 4 highest scoring 

applications as alternates and, within 1 

year of approval, may fund such 

alternates if any previously committed 

AHP subsidies become available. 

(f) Modifications of approved AHP 

applications. (1) Modification 

procedure. If, prior to or 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: 

(i) The project, incorporating any such 

changes, would meet the eligibility 

requirements of paragraph (c) of this 

section; 

(ii) 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 

(iii) There is good cause for the 

modification, and the analysis and 

justification for the modification are 

documented by the Bank in writing. 

(2) AHP subsidy increases; no 

delegation. 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. 

(g) Procedure for funding. (1) 

Disbursement of AHP subsidies to 

members. (i) A Bank may disburse AHP 

subsidies only to institutions that are 

members of the Bank at the time they 

request a draw-down of the subsidies. 

(ii) If an institution with an approved 

application for AHP subsidy loses its 

membership in a Bank, the Bank may 

disburse AHP subsidies to a member of 

such Bank to which the institution has 

transferred its obligations under the 

approved AHP application, or the Bank 

may disburse AHP subsidies through 

another Bank to a member of that Bank 

that has assumed the institution’s 

obligations under the approved AHP 

application. 

(2) Progress towards use of AHP 

subsidy. A Bank shall establish and 

implement policies, including time 

limits, for determining whether progress 

is being made towards draw-down and 

use of AHP subsidies by approved 

projects, and whether to cancel AHP 

application approvals for lack of such 

progress. If a Bank cancels any AHP 

application approvals due to lack of 

such progress, the Bank shall make the 

AHP subsidies available for other AHPeligible projects. 

(3) Compliance upon disbursement of 

AHP subsidies. A Bank shall establish 

and implement policies for determining, 

prior to its initial disbursement of AHP 

subsidies for an approved project, and 

prior to each subsequent disbursement 

if the need for AHP subsidy has 

changed, that the project meets the 

eligibility requirements of paragraph (c) 

of this section and all obligations 

committed to in the approved AHP 

application. If a Bank cancels any AHP 

application approvals due to 

noncompliance with eligibility 

requirements of paragraph (c) of this 

section, the Bank shall make the AHP 

subsidies available for other AHPeligible projects. 

(4) Changes in approved AHP subsidy 

amount where a direct subsidy is used 


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59294 Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Rules and Regulations 

to write down prior to closing the 

principal amount or interest rate on a 

loan. If a member is approved to receive 

AHP direct subsidy to write down prior 

to closing the principal amount or the 

interest rate on a loan to a project, and 

the amount of AHP subsidy required to 

maintain the debt service cost for the 

loan decreases from the amount of AHP 

subsidy initially approved by the Bank 

due to a decrease in market interest 

rates between the time of approval and 

the time the lender commits to the 

interest rate to finance the project, the 

Bank shall reduce the AHP subsidy 

amount accordingly. If market interest 

rates rise between the time of approval 

and the time the lender commits to the 

interest rate to finance the project, the 

Bank, in its discretion, may increase the 

AHP subsidy amount accordingly. 

(5) AHP outlay adjustment. If a Bank 

reduces the amount of AHP subsidy 

approved for a project, the amount of 

such reduction shall be returned to the 

Bank’s AHP fund. If a Bank increases 

the amount of AHP subsidy approved 

for a project, the amount of such 

increase shall be drawn first from any 

currently uncommitted or repaid AHP 

subsidies and then from the Bank’s 

required AHP contribution for the next 

year. 

(6) Project sponsor notification of 

reuse of repaid AHP direct subsidy. 

Prior to disbursement by a project 

sponsor of AHP direct subsidy repaid to 

and retained by such project sponsor 

pursuant to a subsidy re-use program 

authorized by the Bank under 

§ 951.8(f)(2) of this part, the project 

sponsor shall provide written notice to 

the member and the Bank of its intent 

to disburse the repaid AHP subsidy to 

a household satisfying the requirements 

of this part and the commitments made 

in the approved AHP application. 

(h) Bank board duties and delegation. 

(1) Duties. A Bank’s board of directors, 

after consultation with its Advisory 

Council, shall be responsible for: 

(i) Adoption of the AHP 

Implementation Plan required pursuant 

to § 951.3 of this part; and 

(ii) Approving or disapproving the 

applications for AHP subsidy pursuant 

to § 951.5(e) of this part. 

(2) No delegation. The Bank’s board of 

directors shall not delegate to Bank 

officers or other Bank employees the 

responsibilities set forth in paragraph 

(h)(1) of this section. 

§ 951.6 Homeownership set-aside 

programs. 

(a) Establishment of program. A Bank 

may establish one or more 

homeownership set-aside programs 

pursuant to the requirements of this 

part. 

(b) Eligible applicants. A Bank shall 

accept applications for AHP direct 

subsidy under its homeownership setaside programs only from institutions 

that are members of the Bank at the time 

the application is submitted to the Bank. 

(c) Minimum eligibility requirements. 

A Bank’s homeownership set-aside 

programs shall meet the following 

eligibility requirements: 

(1) Member allocation criteria. AHP 

direct subsidies shall be provided to 

members pursuant to allocation criteria 

established by the Bank in its AHP 

Implementation Plan. 

(2) Eligible households. Members 

shall provide AHP direct subsidies only 

to households that: 

(i) Have incomes at or below 80 

percent of the median income for the 

area at the time the household is 

accepted for enrollment by the member 

in the Bank’s homeownership set-aside 

program, with such time of enrollment 

by the member defined by the Bank in 

its AHP Implementation Plan; 

(ii) Complete a homebuyer or 

homeowner counseling program 

provided by, or based on one provided 

by, an organization experienced in 

homebuyer or homeowner counseling, 

in the case of households that are firsttime homebuyers; and 

(iii) Are first-time homebuyers, in the 

case of households receiving funds 

pursuant to the first-time homebuyer 

requirement in § 951.2(b)(2) of this part, 

and meet such other eligibility criteria 

that may be established by the Bank in 

its AHP Implementation Plan, such as a 

matching funds requirement, 

homebuyer or homeowner counseling 

requirement for households that are not 

first-time homebuyers, or criteria that 

give priority for the purchase or 

rehabilitation of housing in particular 

areas or as part of a disaster relief effort. 

(3) Maximum grant amount. Members 

shall provide AHP direct subsidies to 

households as a grant, in an amount up 

to a maximum of $15,000 per 

household, as established by the Bank 

in its AHP Implementation Plan, which 

limit shall apply to all households. 

(4) Eligible uses of AHP direct 

subsidy. Households shall use the AHP 

direct subsidies to pay for down 

payment, closing cost, counseling, or 

rehabilitation assistance in connection 

with the household’s purchase or 

rehabilitation of an owner-occupied 

unit, including a condominium or 

cooperative housing unit or 

manufactured housing, to be used as the 

household’s primary residence. 

(5) Retention agreement. An owneroccupied unit purchased or 

rehabilitated using AHP direct subsidy 

shall be subject to a 5-year retention 

agreement described in § 951.9(a)(7) of 

this part. 

(6) Financial or other concessions. 

The Bank may, in its discretion, require 

members and other lenders to provide 

financial or other concessions, as 

defined by the Bank in its AHP 

Implementation Plan, to households in 

connection with providing the AHP 

direct subsidy or financing to the 

household. 

(7) Financing costs. The rate of 

interest, points, fees, and any other 

charges for all loans made in 

conjunction with the AHP direct 

subsidy shall not exceed a reasonable 

market rate of interest, points, fees, and 

other charges for loans of similar 

maturity, terms, and risk. 

(8) Counseling costs. The AHP direct 

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. 

(9) Cash back to household. A 

member may provide cash back to a 

household at closing on the mortgage 

loan in an amount not exceeding $250, 

as determined by the Bank in its AHP 

Implementation Plan, and a member 

shall use any AHP direct subsidy 

exceeding such amount that is beyond 

what is needed at closing for closing 

costs and the approved mortgage 

amount as a credit to reduce the 

principal of the mortgage loan or as a 

credit toward the household’s monthly 

payments on the mortgage loan. 

(d) Approval of AHP applications. A 

Bank shall approve applications for 

AHP direct subsidy in accordance with 

the Bank’s criteria governing the 

allocation of funds. 

(e) Procedure for funding. (1) 

Disbursement of AHP direct subsidies to 

members. (i) A Bank may disburse AHP 

direct subsidies only to institutions that 

are members of the Bank at the time 

they request a draw-down of the 

subsidies. 

(ii) If an institution with an approved 

application for AHP direct subsidy loses 

its membership in a Bank, the Bank may 

disburse AHP direct subsidies to a 

member of such Bank to which the 

institution has transferred its obligations 

under the approved AHP application, or 

the Bank may disburse AHP direct 

subsidies through another Bank to a 

member of that Bank that has assumed 

the institution’s obligations under the 

approved AHP application. 


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(2) Reservation of homeownership setaside subsidies. A Bank shall establish 

and implement policies for reservation 

of homeownership set-aside subsidies 

for households enrolled in the Bank’s 

homeownership set-aside program. The 

policies shall provide that set-aside 

subsidies be reserved no more than 2 

years in advance of the Bank’s time 

limit in its AHP Implementation Plan 

for draw-down and use of the subsidies 

by the household and the reservation of 

subsidies be made from the set-aside 

allocation of the year in which the Bank 

makes the reservation. 

(3) Progress towards use of AHP direct 

subsidy. A Bank shall establish and 

implement policies, including time 

limits, for determining whether progress 

is being made towards draw-down and 

use of the AHP direct subsidies by 

eligible households, and whether to 

cancel AHP application approvals for 

lack of such progress. If a Bank cancels 

any AHP application approvals due to 

lack of such progress, it shall make the 

AHP direct subsidies available for other 

applicants for AHP direct subsidies 

under the homeownership set-aside 

program or for other AHP-eligible 

projects. 

§ 951.7 Monitoring. 

(a) Competitive application program. 

(1) Initial monitoring policies for owneroccupied and rental projects. (i) 

Adoption and implementation. 

Pursuant to written policies established 

by a Bank, the Bank shall monitor each 

AHP owner-occupied and rental project 

under its competitive application 

program prior to, and within a 

reasonable period of time after, project 

completion to determine, at a minimum, 

whether: 

(A) The project is making satisfactory 

progress towards completion, in 

compliance with the commitments 

made in the approved AHP application, 

Bank policies, and the requirements of 

this part; 

(B) Following completion of the 

project, satisfactory progress is being 

made towards occupancy of the project 

by eligible households; and 

(C) Within a reasonable period of time 

after project completion, the project 

meets the following requirements, at a 

minimum: 

(1) The AHP subsidies were used for 

eligible purposes according to the 

commitments made in the approved 

AHP application; 

(2) The household incomes and rents 

comply with the income targeting and 

rent commitments made in the 

approved AHP application; 

(3) The project’s actual costs were 

reasonable in accordance with the 

Bank’s project cost guidelines, and the 

AHP subsidies were necessary for the 

completion of the project as currently 

structured; 

(4) Each AHP-assisted unit of an 

owner-occupied project and rental 

project is subject to AHP retention 

agreements that meet the requirements 

of § 951.9(a)(7) or (a)(8), respectively, of 

this part; and 

(5) The services and activities 

committed to in the approved AHP 

application have been provided in 

connection with the project. 

(ii) Back-up and other project 

documentation. The Bank’s written 

monitoring policies shall include 

requirements for: 

(A) Bank review of back-up project 

documentation regarding household 

incomes and rents maintained by the 

project sponsor or owner; and 

(B) Maintenance and Bank review of 

other project documentation in the 

Bank’s discretion. 

(iii) Sampling plan. The Bank shall 

not use a sampling plan to select the 

projects to be monitored under this 

paragraph (a)(1), but may use a 

reasonable risk-based sampling plan to 

review the back-up project 

documentation. 

(2) Reliance on long-term tax credit 

monitoring for rental projects. For 

completed AHP rental projects that have 

been allocated federal Low-Income 

Housing Tax Credits (tax credits), a 

Bank may, in its discretion, for purposes 

of long-term AHP monitoring under its 

competitive application program, rely 

on the monitoring by the statedesignated housing credit agency 

administering the tax credits of the 

income targeting and rent requirements 

applicable under the Low-Income 

Housing Tax Credit Program, and the 

Bank need not obtain and review reports 

from such agency or otherwise monitor 

the projects’ long-term AHP compliance. 

(3) Reliance on other long-term 

governmental monitoring for rental 

projects. For completed AHP rental 

projects that received funds other than 

tax credits from federal, state, or local 

government entities, a Bank may, in its 

discretion, for purposes of long-term 

AHP monitoring under its competitive 

application program, rely on the 

monitoring by such entities of the 

income targeting and rent requirements 

applicable under their programs, 

provided that the Bank can show that: 

(i) The compliance profiles regarding 

income targeting, rent, and retention 

period requirements of the AHP and the 

other programs are substantively 

equivalent; 

(ii) The entity has demonstrated and 

continues to demonstrate its ability to 

monitor the project; 

(iii) The entity agrees to provide 

reports to the Bank on the project’s 

incomes and rents for the full 15-year 

AHP retention period; and 

(iv) The Bank reviews the reports 

from the monitoring entity to confirm 

that they comply with the Bank’s 

monitoring policies. 

(4) Long-term monitoring policies for 

rental projects. (i) Adoption and 

implementation. In cases where a Bank 

does not rely on monitoring by a federal, 

state, or local government entity 

pursuant to paragraphs (a)(2) or (a)(3) of 

this section, pursuant to written policies 

established by the Bank, the Bank shall 

monitor completed AHP rental projects 

under its competitive application 

program, commencing in the second 

year after project completion to 

determine, at a minimum, whether 

during the full 15-year retention period, 

the household incomes and rents 

comply with the income targeting and 

rent commitments, respectively, made 

in the approved AHP applications. 

(ii) Annual project owner 

certifications; backup and other project 

documentation. A Bank’s written 

monitoring policies shall include 

requirements for: 

(A) Bank review of annual 

certifications by project owners to the 

Bank that household incomes and rents 

are in compliance with the 

commitments made in the approved 

AHP application; 

(B) Bank review of back-up project 

documentation regarding household 

incomes and rents maintained by the 

project owner; and 

(C) Maintenance and Bank review of 

other project documentation in the 

Banks’ discretion. 

(iii) Risk factors and other monitoring. 

(A) Risk factors; other monitoring. A 

Bank’s written monitoring policies shall 

take into account risk factors such as the 

amount of AHP subsidy in the project, 

type of project, size of project, location 

of project, sponsor experience, and any 

monitoring of the project provided by a 

federal, state, or local government 

entity. 

(B) Risk-based sampling plan. A Bank 

may use a reasonable, risk-based 

sampling plan to select the rental 

projects to be monitored under this 

paragraph (a)(4), and to review the 

annual project owner certifications, 

back-up, and any other project 

documentation. The risk-based 

sampling plan and its basis shall be in 

writing. 

(5) Annual adjustment of targeting 

commitments. For purposes of 


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determining compliance with the 

targeting commitments in an approved 

AHP application for both initial and 

long-term AHP monitoring purposes 

under a Bank’s competitive application 

program, such commitments shall be 

considered to adjust annually according 

to the current applicable median income 

data. A rental unit may continue to 

count toward meeting the targeting 

commitment of an approved AHP 

application as long as the rent charged 

to a household remains affordable, as 

defined in § 951.1 of this part, for the 

household occupying the unit. 

(b) Homeownership set-aside 

programs: Monitoring policies. (1) 

Adoption and implementation. 

Pursuant to written policies adopted by 

a Bank, the Bank shall monitor 

compliance with the requirements of its 

homeownership set-aside programs, 

including monitoring to determine, at a 

minimum, whether: 

(i) The AHP subsidy was provided to 

households meeting all applicable 

eligibility requirements in § 951.6(c)(2) 

of this part and the Bank’s 

homeownership set-aside program 

policies; and 

(ii) All other applicable eligibility 

requirements in § 951.6(c) of this part 

and the Bank’s homeownership setaside program policies are met, 

including that the AHP-assisted units 

are subject to retention agreements 

required under § 951.6(c)(5) of this part. 

(2) Member certifications; back-up 

and other documentation. The Bank’s 

written monitoring policies shall 

include requirements for: 

(i) Bank review of certifications by 

members to the Bank, prior to 

disbursement of the AHP subsidy, that 

the subsidy will be provided in 

compliance with all applicable 

eligibility requirements in § 951.6(c) of 

this part; 

(ii) Bank review of back-up 

documentation regarding household 

incomes maintained by the member; 

and 

(iii) Maintenance and Bank review of 

other documentation in the Bank’s 

discretion. 

(3) Sampling plan. The Bank may use 

a reasonable sampling plan to select the 

households to be monitored, and to 

review the back-up and any other 

documentation received by the Bank, 

but not the member certifications 

required in paragraph (b)(2) of this 

section. The sampling plan and its basis 

shall be in writing. 

§ 951.8 Remedial actions for 

noncompliance. 

(a) Recovery of AHP subsidies. A Bank 

shall recover the amount of any AHP 

subsidies (plus interest, if appropriate) 

that are not used in compliance with the 

commitments made in the approved 

application for AHP subsidy and the 

requirements of this part, if the misuse 

is the result of the actions or omissions 

of the member, the project sponsor, or 

the project owner. 

(b) Responsible party for repayment of 

AHP subsidies. Except as provided in 

paragraph (c) of this section: 

(1) If the member causes the AHP 

subsidies to be misused through its 

actions or omissions, the member shall 

repay the AHP subsidies to the Bank. 

(2) If the project sponsor or owner 

causes the AHP subsidies to be misused 

through its actions or omissions, the 

following shall apply, as determined by 

the Bank in its discretion: 

(i) The member shall recover the AHP 

subsidies from the project sponsor or 

owner and repay them to the Bank; or 

(ii) The project sponsor or owner shall 

repay the AHP subsidies directly to the 

Bank. 

(c) Recovery not required. Recovery of 

the AHP subsidies is not required if: 

(1) The member, project sponsor, or 

project owner cures the noncompliance 

within a reasonable period of time; 

(2) The circumstances of 

noncompliance are eliminated through a 

modification of the terms of the 

approved application for AHP subsidy 

pursuant to § 951.5(f) of this part; or 

(3) The member is unable to collect 

the AHP subsidy after making 

reasonable efforts to collect it. 

(d) Settlements. A Bank may settle a 

claim for AHP subsidies that it has 

against a member, project sponsor, or 

project owner for less than the full 

amount due. If a Bank enters into such 

a settlement, the Finance Board may 

require the Bank to reimburse its AHP 

fund in the amount of any shortfall 

under paragraph (e)(2) of this section, 

unless: 

(1) The Bank has sufficient 

documentation showing that the sum 

agreed to be repaid under the settlement 

is reasonably justified, based on the 

facts and circumstances of the 

noncompliance (including the degree of 

culpability of the non-complying parties 

and the extent of the Bank’s recovery 

efforts); or 

(2) The Bank obtains a determination 

from the Finance Board that the sum 

agreed to be repaid under the settlement 

is reasonably justified, based on the 

facts and circumstances of the 

noncompliance (including the degree of 

culpability of the non-complying parties 

and the extent of the Bank’s recovery 

efforts). 

(e) Reimbursement of AHP fund. (1) 

By the Bank. A Bank shall reimburse its 

AHP fund in the amount of any AHP 

subsidies (plus interest, if appropriate) 

misused as a result of the actions or 

omissions of the Bank. 

(2) By Finance Board order. The 

Finance Board may order a Bank to 

reimburse its AHP fund in an 

appropriate amount upon determining 

that: 

(i) The Bank has failed to reimburse 

its AHP fund as required under 

paragraph (e)(1) of this section; or 

(ii) The Bank has failed to recover 

AHP subsidy from a member, project 

sponsor, or project owner pursuant to 

the requirements of paragraph (a) of this 

section, and has not shown that such 

failure is reasonably justified, 

considering factors such as the extent of 

the Bank’s recovery efforts. 

(f) Use of repaid AHP subsidies. (1) 

Use of repaid AHP subsidies in other 

AHP-eligible projects. Except as 

provided in paragraph (f)(2) of this 

section, amounts of AHP subsidy, 

including any interest, repaid to a Bank 

pursuant to this part shall be made 

available by the Bank for other AHPeligible projects. 

(2) Re-use of repaid AHP direct 

subsidies in same project. (i) 

Requirements. AHP direct subsidy, 

including any interest, repaid to a 

member or project sponsor under a 

homeownership set-aside program or 

the competitive application program, 

respectively, may be repaid by such 

parties to the Bank for subsequent 

disbursement to and re-use by such 

parties, or retained by such parties for 

subsequent re-use, as authorized by the 

Bank, in its discretion, after 

consultation with its Advisory Council, 

in its AHP Implementation Plan, 

provided all of the following 

requirements are satisfied: 

(A) The member or the project 

sponsor originally provided the AHP 

direct subsidy as down payment, 

closing cost, rehabilitation, or interest 

rate buy down assistance to an eligible 

household to purchase or rehabilitate an 

owner-occupied unit pursuant to an 

approved AHP application; 

(B) The AHP direct subsidy, including 

any interest, was repaid to the member 

or project sponsor as a result of a sale 

by the household of the unit prior to the 

end of the retention period to a 

purchaser that is not a low-or moderateincome household; and 

(C) The repaid AHP direct subsidy is 

made available by the member or project 

sponsor, within the period of time 

specified by the Bank in its AHP 

Implementation Plan, to another AHPeligible household to purchase or 

rehabilitate an owner-occupied unit in 


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the same project in accordance with the 

terms of the approved AHP application. 

(ii) No delegation. A Bank’s board of 

directors shall not delegate to Bank 

officers or other Bank employees the 

responsibility to adopt any Bank 

policies on re-use of repaid AHP direct 

subsidies in the same project pursuant 

to paragraph (f)(2)(i) of this section. 

(g) Suspension and debarment. (1) At 

a Bank’s initiative. A Bank may suspend 

or debar a member, project sponsor, or 

project owner from participation in the 

Program if such party shows a pattern 

of noncompliance, or engages in a single 

instance of flagrant noncompliance, 

with the terms of an approved 

application for AHP subsidy or the 

requirements of this part. 

(2) At the Finance Board’s initiative. 

The Finance Board may order a Bank to 

suspend or debar a member, project 

sponsor, or project owner from 

participation in the Program if such 

party shows a pattern of 

noncompliance, or engages in a single 

instance of flagrant noncompliance, 

with the terms of an approved 

application for AHP subsidy or the 

requirements of this part. 

(h) Transfer of Program 

administration. Without limitation on 

other remedies, the Finance Board, 

upon determining that a Bank has 

engaged in mismanagement of its 

Program, may designate another Bank to 

administer all or a portion of the first 

Bank’s annual AHP contribution, for the 

benefit of the first Bank’s members, 

under such terms and conditions as the 

Finance Board may prescribe. 

(i) Finance Board actions under this 

section. Except as provided in 

paragraph (d)(2) of this section, actions 

taken by the Finance Board under this 

section are reviewable under § 907.9 of 

this chapter. 

§ 951.9 Agreements. 

(a) Agreements between Banks and 

members. A Bank shall have in place 

with each member receiving an AHP 

subsidized advance or AHP direct 

subsidy an agreement or agreements 

containing, at a minimum, the following 

provisions, where applicable: 

(1) Notification of member. The 

member has been notified of the 

requirements of this part as they may be 

amended from time to time, and all 

Bank policies relevant to the member’s 

approved application for AHP subsidy. 

(2) AHP subsidy pass-through. The 

member shall pass on the full amount of 

the AHP subsidy to the project or 

household, as applicable, for which the 

subsidy was approved. 

(3) Use of AHP subsidy. (i) Use of 

AHP subsidy by the member. The 

member shall use the AHP subsidy in 

accordance with the terms of the 

member’s approved application for the 

subsidy and the requirements of this 

part. 

(ii) Use of AHP subsidy by the project 

sponsor or owner. The member shall 

have in place an agreement with each 

project sponsor or project owner in 

which the project sponsor or project 

owner agrees to use the AHP subsidy in 

accordance with the terms of the 

member’s approved application for the 

subsidy and the requirements of this 

part. 

(4) Repayment of AHP subsidies in 

case of noncompliance. (i) 

Noncompliance by the member. The 

member shall repay AHP subsidies to 

the Bank in accordance with the 

requirements of § 951.8(b)(1) of this 

part. 

(ii) Noncompliance by a project 

sponsor or owner. (A) Agreement. The 

member shall have in place an 

agreement with each project sponsor or 

project owner in which the project 

sponsor or project owner agrees to repay 

AHP subsidies to the member or the 

Bank in accordance with the 

requirements of § 951.8(b)(2)(i) or 

(b)(2)(ii) of this part, respectively (as 

applicable). 

(B) Recovery of AHP subsidies. The 

member shall recover from the project 

sponsor or project owner and repay to 

the Bank any AHP subsidy in 

accordance with the requirements of 

§ 951.8(b)(2)(i) of this part (if 

applicable). 

(5) Project monitoring. (i) Monitoring 

by the member. The member shall 

comply with the monitoring 

requirements applicable to it, as 

established by the Bank in its 

monitoring policies pursuant to § 951.7 

of this part. 

(ii) Agreement. The member shall 

have in place an agreement with each 

project sponsor and project owner, in 

which the project sponsor and project 

owner agree to comply with the 

monitoring requirements applicable to 

such parties, as established by the Bank 

in its monitoring policies pursuant to 

§ 951.7 of this part. 

(6) Transfer of AHP obligations. (i) To 

another member. The member shall 

make 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. 

(ii) To a nonmember. 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, 

and where the member received an AHP 

subsidized advance, the nonmember 

assumes such obligations until 

prepayment or orderly liquidation by 

the nonmember of the subsidized 

advance. 

(7) Retention agreements for owneroccupied units. The member shall 

ensure that an AHP-assisted owneroccupied unit 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 or refinancing 

of the unit prior to the end of the 

retention period, an amount equal to a 

pro rata share of the AHP 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 or 

refinancing, unless: 

(A) The unit was assisted with a 

permanent mortgage loan funded by an 

AHP subsidized advance; 

(B) The unit is sold to a very low-, or 

low- or moderate-income household; or 

(C) Following a refinancing, the unit 

continues to be subject to a deed 

restriction or other legally enforceable 

retention agreement or mechanism 

described in this paragraph (a)(7); and 

(iii) In the case of a direct subsidy, 

such repayment of AHP subsidy shall be 

made: 

(A) To the Bank. If the Bank has not 

authorized re-use of the repaid AHP 

subsidy or has authorized re-use of the 

repaid subsidy but not retention of such 

repaid subsidy by the member or project 

sponsor pursuant to § 951.8(f)(2) of this 

part, or has authorized retention and reuse of such repaid subsidy by the 

member or project sponsor pursuant to 

such section and the repaid subsidy is 

not re-used in accordance with the 

requirements of the Bank and such 

section; or 

(B) To the member or project sponsor. 

To the member or project sponsor for 

reuse by such member or project 

sponsor, if the Bank has authorized 

retention and re-use of such subsidy by 

the member or project sponsor pursuant 

to § 951.8(f)(2); and 

(iv) The obligation to repay AHP 

subsidy to the Bank shall terminate after 

any foreclosure. 


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(8) Retention agreements for rental 

projects. The member shall ensure that 

an AHP-assisted rental project is subject 

to a deed restriction or other legally 

enforceable retention agreement or 

mechanism requiring that: 

(i) The project’s rental units, or 

applicable portion thereof, must remain 

occupied by and affordable for 

households with incomes at or below 

the levels committed to be served in the 

approved AHP application for the 

duration of the retention period; 

(ii) The Bank or its designee is to be 

given notice of any sale or refinancing 

of the project occurring prior to the end 

of the retention period; 

(iii) In the case of a sale or refinancing 

of the project prior to the end of the 

retention period, the full amount of the 

AHP subsidy received by the owner 

shall be repaid to the Bank, unless: 

(A) The project continues to be 

subject to a deed restriction or other 

legally enforceable retention agreement 

or mechanism incorporating the 

income-eligibility and affordability 

restrictions committed to in the 

approved AHP application for the 

duration of the retention period; or 

(B) If authorized by the Bank, in its 

discretion, the households are relocated, 

due to the exercise of eminent domain, 

or for expansion of housing or services, 

to another property that is made subject 

to a deed restriction or other legally 

enforceable retention agreement or 

mechanism incorporating the incomeeligibility and affordability restrictions 

committed to in the approved AHP 

application for the remainder of the 

retention period; and 

(iv) The income-eligibility and 

affordability restrictions applicable to 

the project shall terminate after any 

foreclosure. 

(9) Lending of AHP direct subsidies. If 

a member or a project sponsor lends 

AHP 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, unless the direct 

subsidy is being both lent and re-lent by 

a revolving loan fund pursuant to 

§ 951.5(c)(13) of this part. 

(10) Special provisions where 

members obtain AHP subsidized 

advances. (i) Repayment schedule. The 

term of an AHP 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. 

(ii) Prepayment fees. Upon a 

prepayment of an AHP subsidized 

advance, the Bank shall charge a 

prepayment fee only to the extent the 

Bank suffers an economic loss from the 

prepayment. 

(iii) Treatment of loan prepayment by 

project. If all or a portion of the loan or 

loans financed by an AHP subsidized 

advance are prepaid by the project to 

the member, the member may, at its 

option, either: 

(A) Repay to the Bank that portion of 

the advance used to make the loan or 

loans to the project, and be subject to a 

fee imposed by the Bank sufficient to 

compensate the Bank for any economic 

loss the Bank experiences in reinvesting 

the repaid amount at a rate of return 

below the cost of funds originally used 

by the Bank to calculate the interest rate 

subsidy incorporated in the advance; or 

(B) Continue to maintain the advance 

outstanding, subject to the Bank 

resetting the interest rate on that portion 

of the advance used to make the loan or 

loans to the project to a rate equal to the 

cost of funds originally used by the 

Bank to calculate the interest rate 

subsidy incorporated in the advance. 

(b) Agreements between Banks and 

project sponsors or owners. A Bank 

shall have in place an agreement with 

each project sponsor or project owner, 

in which the project sponsor or project 

owner agrees to repay AHP subsidies 

directly to the Bank in accordance with 

the requirements of § 951.8(b)(2)(ii) of 

this part (if applicable). 

(c) Application to existing AHP 

projects and units. The requirements of 

section 10(j) of the Act (12 U.S.C. 

1430(j)) and the provisions of this part, 

as amended, are incorporated into all 

agreements between Banks, members, 

project sponsors, and project owners 

receiving AHP subsidies under the 

competitive application program, and 

between Banks, members and unit 

owners under the homeownership setaside program. To the extent the 

requirements of this part are amended 

from time to time, such agreements are 

deemed to incorporate the amendments 

to conform to any new requirements of 

this part. No amendment to this part 

shall affect the legality of actions taken 

prior to the effective date of such 

amendment. 

§ 951.10 Conflicts of interest. 

(a) Bank directors and employees. (1) 

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) 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, an AHP project such that 

he or she is subject to the requirements 

in paragraph (a)(1) of this section, such 

person 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. 

(b) Advisory Council members. (1) 

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. 

(2) 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, an AHP project such that 

he or she is subject to the requirements 

in paragraph (b)(1) of this section, such 

person shall not participate in or 

attempt to influence decisions by the 

Bank regarding the approval for such 

project. 

(c) No delegation. A Bank’s board of 

directors shall not delegate to Bank 

officers or other Bank employees the 

responsibility to adopt the conflict of 

interest policies required by this 

section. 

§ 951.11 Temporary suspension of AHP 

contributions. 

(a) Request to Finance Board. If a 

Bank finds that the contributions 

required pursuant to § 951.2(a) of this 

part are contributing to the financial 

instability of the Bank, the Bank may 

apply in writing to the Finance Board 

for a temporary suspension of such 

contributions. 

(b) Board of Directors review. (1) In 

determining the financial instability of a 

Bank, the Board of Directors shall 

consider such factors as: 

(i) Severely depressed Bank earnings; 

(ii) A substantial decline in Bank 

membership capital; and 

(iii) A substantial reduction in Bank 

advances outstanding. 


cprice-sewell on PROD1PC66 with RULES2
Federal Register / Vol. 71, No. 194 / Friday, October 6, 2006 / Rules and Regulations 59299 

(2) Limitations on grounds for 

suspension. The Board of Directors shall 

not suspend a Bank’s annual AHP 

contributions if it determines that the 

Bank’s reduction in earnings is due to: 

(i) A change in the terms of advances 

to members that is not justified by 

market conditions; 

(ii) Inordinate operating and 

administrative expenses; or 

(iii) Mismanagement. 

§ 951.12 Affordable Housing Reserve 

Fund. 

(a) Deposits. If a Bank fails to use or 

commit the full amount it is required to 

contribute to the Program in any year 

pursuant to § 951.2(a) of this part, 90 

percent of the unused or uncommitted 

amount shall be deposited by the Bank 

in an Affordable Housing Reserve Fund 

established and administered by the 

Finance Board. The remaining 10 

percent of the unused and uncommitted 

amount retained by the Bank should be 

fully used or committed by the Bank 

during the following year, and any 

remaining portion shall be deposited in 

the Affordable Housing Reserve Fund. 

(b) Use or commitment of funds. 

Approval of applications for AHP 

subsidies from members sufficient to 

exhaust the amount a Bank is required 

to contribute pursuant to § 951.2(a) of 

this part shall constitute use or 

commitment of funds. Amounts 

remaining unused or uncommitted at 

year-end are deemed to be used or 

committed if, in combination with AHP 

subsidies that have been returned to the 

Bank or de-committed from canceled 

projects, they are insufficient to fund: 

(1) The next highest scoring AHP 

application in the Bank’s final funding 

period of the year for its competitive 

application program; 

(2) Pending applications for funds 

under the Bank’s homeownership setaside programs; and 

(3) Project modifications approved by 

the Bank pursuant to the requirements 

of this part. 

(c) Carryover of insufficient amounts. 

Such insufficient amounts as described 

in paragraph (b) of this section shall be 

carried over for use or commitment in 

the following year in the Bank’s 

competitive application program or 

homeownership set-aside programs. 

Dated: September 13, 2006. 

By the Board of Directors of the Federal 

Housing Finance Board. 

Ronald A. Rosenfeld, 

Chairman. 

[FR Doc. 06–8492 Filed 10–5–06; 8:45 am] 

BILLING CODE 6725–01–P 


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