41812 Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations

It is hereby found and determined

that thirty days’ notice of the effective

date hereof is impractical, unnecessary

and contrary to the public interest in

that:

(a) The suspension is necessary to

reflect current marketing conditions and

to assure orderly marketing conditions

in the marketing area, in that such rule

is necessary to permit the continued

pooling of the milk of dairy farmers who

have historically supplied the market

without the need for making costly and

inefficient movements of milk;

(b) This suspension does not require

of persons affected substantial or

extensive preparation prior to the

effective date; and

(c) Notice of proposed rulemaking

was given interested parties and they

were afforded opportunity to file written

data, views or arguments concerning

this suspension. Two comments

supporting the current suspension and

opposing the revised proposed

suspension, one comment supporting

the revised proposed suspension, and

one comment opposing the proposed

suspension were received.

Therefore, good cause exists for

making this order effective less than 30

days from the date of publication in the

Federal Register.

List of Subjects in 7 CFR Part 1126

Milk marketing orders.

For the reasons set forth in the

preamble, 7 CFR Part 1126 is amended

as follows:

PART 1126—MILK IN THE TEXAS

MARKETING AREA

1. The authority citation for 7 CFR

part 1126 continues to read as follows:

Authority: 7 U.S.C. 601–674.

§ 1126.7 [Suspended in part]

2. In § 1126.7(d) introductory text, the

words ‘‘during the months of February

through July’’ and the words ‘‘under

paragraph (b) or (c) of this section’’ are

suspended.

3. In § 1126.7(e) introductory text, the

words ‘‘and 60 percent or more of the

producer milk of members of the

cooperative association (excluding such

milk that is received at or diverted from

pool plants described in paragraphs (b),

(c), and (d) of this section) is physically

received during the month in the form

of a bulk fluid milk product at pool

plants described in paragraph (a) of this

section either directly from farms or by

transfer from plants of the cooperative

association for which pool plant status

under this paragraph has been

requested’’ are suspended.

§ 1126.13 [Suspended in part]

4. In § 1126.13(e)(1), the words ‘‘and

further, during each of the months of

September through January not less than

15 percent of the milk of such dairy

farmer is physically received as

producer milk at a pool plant’’ are

suspended.

5. Section 1126.13(e)(2) is suspended.

6. In § 1126.13(e)(3), the sentence

‘‘The total quantity of milk so diverted

during the month shall not exceed onethird of the producer milk physically

received at such pool plant during the

month that is eligible to be diverted by

the plant operator;’’ is suspended.

Dated: July 29, 1997.

Michael V. Dunn,

Assistant Secretary, Marketing and

Regulatory Programs.

[FR Doc. 97–20458 Filed 8–1–97; 8:45 am]

BILLING CODE 3410–02–U

FEDERAL HOUSING FINANCE BOARD

12 CFR Part 960

[No. 97–44]

RIN 3069–AA28

Amendment of Affordable Housing

Program Regulation

AGENCY: Federal Housing Finance

Board.

ACTION: Final rule.

SUMMARY: The Federal Housing Finance

Board (Finance Board) is amending its

regulation governing the operation of

the Affordable Housing Program (AHP

or Program). Among the significant

changes made by the final rule are:

transfer of approval authority for AHP

applications from the Finance Board to

the Federal Home Loan Banks (Banks);

modification of the competitive scoring

process under which AHP subsidies are

allocated among housing projects;

establishment of specific standards and

retention periods for monitoring of

AHP-assisted housing projects; and

clarification and expansion of the types

of remedies available in the event of

noncompliance with AHP requirements.

The final rule is in furtherance of the

Finance Board’s continuing effort to

devolve management and governance

authority to the Banks. It also is

consistent with the goals of the

Regulatory Reinvention Initiative of the

National Performance Review.

DATES: The final rule is effective on

January 1, 1998. Compliance with

§ 960.3(b) shall begin on September 3,

1997.

FOR FURTHER INFORMATION CONTACT:

Richard Tucker, Deputy Director,

Compliance Assistance Division, (202)

408–2848, or Diane E. Dorius, Associate

Director, Program Development

Division, (202) 408–2576, Office of

Policy; or Sharon B. Like, Senior

Attorney-Advisor, (202) 408–2930, or

Brandon B. Straus, Senior AttorneyAdvisor, (202) 408–2589, Office of

General Counsel, Federal Housing

Finance Board, 1777 F Street, N.W.,

Washington, D.C. 20006.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

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

Loan Bank Act (Act) requires each Bank

to establish a Program to subsidize the

interest rate on advances to members of

the Federal Home Loan Bank System

(Bank System) engaged in lending for

long-term, low- and moderate-income,

owner-occupied and affordable rental

housing at subsidized interest rates. See

12 U.S.C. 1430(j)(1). The Finance Board

is required to promulgate regulations

governing the Program. See id. The

Finance Board’s existing regulation

governing the operation of the Program

is set forth in part 960 of the Finance

Board’s regulations. See 12 CFR part

960. The Program has been operating

successfully for approximately seven

years.

As a result of the Finance Board’s and

the Banks’ experience in administering

the Program, on January 10, 1994, the

Finance Board issued a notice of

proposed rulemaking, which was

published in the Federal Register, that

proposed changes to improve operation

of the Program. See 59 FR 1323 (Jan. 10,

1994). The Finance Board received over

100 comment letters. During the

following 18-month period, the Finance

Board was without a quorum and was

unable to take action on the proposed

rule.

On September 25, 1995, the Finance

Board published a final rule amending

the AHP regulation to permit the Banks

to set aside of portion of their required

annual AHP contributions to fund

homeownership set-aside programs to

provide downpayment and closing cost

assistance to low-and moderate-income

homebuyers. See 60 FR 49327 (Sept. 25,

1995). On November 1, 1995, the

Finance Board published for comment a

proposal to amend the existing AHP

regulation to authorize the Banks, in

their discretion, to establish limits on

the maximum amount of AHP subsidy

that may be requested per member, per

project application, or per project unit,

for a given funding period. See 60 FR

55487 (Nov. 1, 1995) (Subsidy Limits

Proposal). The Finance Board received
Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations 41813

25 comment letters on the Subsidy

Limits Proposal.

Given the passage of time since the

1994 and 1995 notices of proposed

rulemaking, and the additional

experience of the Finance Board and the

Banks in overseeing and administering

the Program, the Finance Board issued

a new comprehensive proposal to revise

the Program, which was published in

the Federal Register on November 8,

1996, with a 90-day period for public

comment. See 61 FR 57799 (Nov. 8,

1996). The Finance Board received over

270 comments on the proposed rule.

Commenters included: all of the Banks

and their Advisory Councils; Bank

members; not-for-profit organizations;

trade associations; a member of

Congress; a federal agency; state and

local government agencies; and others.

II. Analysis of the Final Rule

A. In General

The final rule makes changes to a

number of the aspects of the Program

that were highlighted in the notice of

proposed rulemaking, including: (1)

Scoring and approval of AHP

applications for funding; (2) retention of

AHP-assisted housing; (3) monitoring of

AHP-assisted housing; (4) and remedies

for noncompliance with AHP

requirements. These changes are

intended to provide clearer standards

for operation of the Program and reduce

regulatory burden, while continuing to

identify and prevent misuse of AHP

subsidies. Many of the changes codify

successful practices developed by the

Banks in implementing the Program.

The amendments also should make the

Program more responsive to low- and

moderate-income housing needs in each

of the twelve Bank Districts (Districts),

increase efficiency in the administration

of the Program, and enhance

coordination of the Program with other

housing programs whose funds are used

in conjunction with AHP subsidies.

The final rule also reorganizes and

streamlines the text of the regulation.

The structure of the final rule is

significantly revised from that of the

proposed rule in order to, among other

things: (1) separate Program standards

from procedures; (2) integrate the

provisions governing the Banks’

homeownership set-aside programs with

corresponding provisions governing the

Banks’ competitive application

programs; (3) clarify the roles of the

Banks, members, and other parties

involved in the Program; and (4)

identify the kinds of agreements that

must be in place in order to ensure

compliance with Program requirements.

The Finance Board is making these

changes in the larger context of

devolving to the Banks the authority to

make final funding decisions for AHP

projects. Decentralization of funding

decisions under the Program is

consistent with the Finance Board’s

ongoing efforts to transfer to the Banks

those functions performed by the

Finance Board that are related to Bank

management and governance. Further,

the Finance Board believes that, in light

of the Banks’ seven years of experience

evaluating and processing AHP

applications, the Banks are prepared to

take on this new authority. A large

majority of comments on the proposed

rule supported the transfer of approval

authority for AHP applications from the

Finance Board to the Banks. The

Finance Board will continue to exercise

its supervisory oversight role through

examinations of each Bank’s Program.

B. Effective Dates and Existing AHPAssisted Projects

1. Dates

In order to provide the Banks

sufficient time to prepare to administer

the Program under the revised AHP

regulation, the provisions of the final

rule will become effective on January 1,

1998. However, compliance with

§ 960.3(b) shall begin on September 3,

1997. As further discussed below,

§ 960.3(b) requires each Bank to adopt

an AHP implementation plan setting

forth key policies and procedures

governing the Bank’s Program.

2. Application of the Final Rule to

Existing AHP-Assisted Projects

Section 960.16 of the final rule makes

clear that the provisions of the final rule

apply to all existing AHP-assisted

projects. Existing agreements between

Banks, members, sponsors, or owners

regarding such parties’ AHP obligations

may have language that automatically

incorporates any changes to the AHP

regulation that may be adopted from

time to time by the Finance Board.

Section 960.16 of the final rule makes

clear that where existing agreements do

not provide for automatic conformity

with AHP regulatory changes, the

requirements of section 10(j) of the Act

and the provisions of the AHP

regulation, as amended, are

incorporated into such agreements by

operation of law.

The final rule may require Banks,

members, sponsors, and owners to

change their behavior prospectively to

meet new regulatory requirements.

However, the changes made by the final

rule are not intended to affect the

legality of actions taken prior to the

effective date of the final rule.

C. Definitions—§ 960.1

Changes to individual definitions in

the final rule generally are discussed in

later sections of this SUPPLEMENTARY

INFORMATION section in the context of

specific regulatory requirements, with

the exception of the following

definitions discussed here.

1. ‘‘Subsidized advance’’ and ‘‘Subsidy’’

The final rule carries forward the

provision of the proposed rule defining

‘‘subsidized advance’’ as ‘‘an advance to

a member at an interest rate reduced

below the Bank’s cost of funds, by use

of a subsidy.’’ The proposed rule

defined ‘‘subsidy,’’ for purposes of

determining the amount of the interest

rate subsidy incorporated in a

subsidized advance, as ‘‘the net present

value of the interest revenue foregone

from making a subsidized advance at a

rate below the Bank’s cost of funds,

determined as 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.’’ The

definition of ‘‘subsidy’’ in the final rule

makes clear that the amount of the

interest rate subsidy in a subsidized

advance is determined as of the earlier

of the two dates mentioned above.

The notice of proposed rulemaking

requested comments on whether the

interest rate subsidy incorporated in a

subsidized advance should be defined

by reference to a Bank’s market advance

rate, rather than the Bank’s cost of

funds. This would allow a Bank to use

AHP subsidies to pay its regular

advance mark-up where AHP subsidy is

delivered to a project through a

subsidized advance, which may

eliminate a perceived disincentive to

the Banks to make subsidized advances,

versus direct subsidies. A number of

commenters stated that the form in

which AHP subsidies are delivered to

projects, i.e., subsidized advances

versus direct subsidies, is determined

by the financing structures used by

proposed projects, not by the

preferences of Banks in funding such

projects. Consequently, allowing Banks

to use AHP subsidies to pay their

regular advance mark-up would not

affect the level of subsidized advances

made by Banks and would use more

AHP subsidies to produce the same

amount of affordable housing. The

Finance Board finds merit in these

arguments. Therefore, the final rule

carries forward the reference to a Bank’s
41814 Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations

‘‘cost of funds’’ in the definition of

‘‘subsidy.’’

2. Definitions of ‘‘Median Income for the

Area,’’ ‘‘Low-and Moderate-Income

Household,’’ and ‘‘Very Low-Income

Household’’

a. Median Income Standards and

Family Size-Adjustments.

(i) Statutory Standards

Under section 10(j)(2)(A) of the Act,

members are to use AHP subsidies to

finance owner-occupied housing for

‘‘families with incomes at or below 80

percent of the median income for the

area.’’ See 12 U.S.C. 1430(j)(2)(A).

Section 10(j)(13)(A) of the Act contains

a corresponding definition of ‘‘low-or

moderate-income household’’ as a

household that has an income of ‘‘80

percent or less of the area median.’’ See

id. § 1430(j)(13)(A).

Under section 10(j)(2)(B) of the Act,

members are to use AHP subsidies

generally to finance rental housing for

‘‘very low-income households.’’ See id.

§ 1430(j)(2)(B). Section 10(j)(13)(B) of

the Act defines the term ‘‘very lowincome household’’ as a household that

has an income of ‘‘50 percent or less of

the area median.’’ See id.

§ 1430(j)(13)(B).

The Act does not define ‘‘median

income for the area’’ or ‘‘area median.’’

To date, the Finance Board has

interpreted these terms to refer to the

measure of median income for an area

as determined and published by the

Secretary of the Department of Housing

and Urban Development (HUD) for

approximately 2,700 metropolitan

statistical areas (MSAs), counties, and

nonmetropolitan statistical areas,

including adjustments for various local

conditions as well as for family size. See

42 U.S.C. 1437a(b)(2); 12 CFR 960.1(h).

In practice, this required the use of

income limits published by HUD

corresponding to 80 percent and 50

percent, respectively, of the median

income for a particular area, adjusted for

family size.

(ii) Proposed Regulatory

Amendments.

On November 5, 1993, the Finance

Board published for comment a

proposal to amend the AHP regulation

to redefine the AHP income limits

without certain adjustments

incorporated in the HUD income limits.

See 58 FR 58988 (Nov. 5, 1993). This

proposal also was part of the Finance

Board’s January 10, 1994 proposal. See

59 FR 1323 (Jan. 10, 1994).

The November 8, 1996 proposed rule

continued to require the use of HUD

income limits, including adjustments

for family size, in determining

household eligibility under the Program.

The notice of proposed rulemaking

requested comments on the definitions

in the proposed rule and, alternatively,

on allowing: (1) Median income to be

established using any reliable source for

current area information and to be

determined for counties and other

applicable state and local subdivisions

as well as MSAs; (2) any adjustment for

family size to be made in conformance

with the requirements of the lead or

controlling funding source or program

for the project; and (3) the use of

whatever median income standard and

adjustment is being used by the

sponsoring or funding entity for the

project, provided that the standard is

from a legitimate state or federal source

that regularly provides such information

on income.

(iii) Final Regulatory Standards

While a number of commenters

supported using HUD income limits on

the ground that they are readily

understood and available, there also was

significant support for: (1) the use of

median income standards, including

any family-size adjustments, established

using any reliable source for current

area income data determined for

counties and other applicable state and

local subdivisions as well as MSAs; or

(2) the use of whatever median income

standard and adjustment is being used

by the sponsoring or funding entity for

the project, provided that the standard

is from a legitimate state or federal

source that regularly provides such

information on income.

While the Finance Board favors some

measure of flexibility on the issue of

income limits for households

participating in AHP-assisted projects, a

prerequisite for any income eligibility

standard is that it is based on data that

are accepted as accurate and reliable

and are readily available. The Finance

Board wishes to avoid adopting an

income eligibility standard that

increases the risk of after-the-fact

discrepancies between a particular

income eligibility standard and the

actual incomes of households benefiting

from AHP subsidies, which ultimately

may lead to repayment of the subsidies.

In light of the support among

commenters for the use of measures of

median income and family-size

adjustments other than those used by

HUD in its housing programs, the final

rule adds a definition of ‘‘median

income for the area,’’ and amends the

definitions of ‘‘low-or moderate-income

household’’ and ‘‘very low-income

household’’ to permit the use of

additional median income standards

and their corresponding adjustments for

family size.

In the case of owner-occupied

projects, ‘‘median income for the area’’

means: (1) The median income for the

area, as published annually by HUD; (2)

the applicable median family income, as

determined under the mortgage revenue

bond program set forth in 26 U.S.C.

143(f) and published by a State agency

or instrumentality; (3) the median

income for the area, as published by the

United States Department of Agriculture

(USDA); or (4) the 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, that has been

approved by the Board of Directors of

the Finance Board for use under the

AHP.

The final rule expressly includes

reference to the median income

published by the USDA in order to

make clear that the Finance Board

supports the use of the AHP by

members in rural areas in order to meet

homeownership needs in those areas.

Under the Internal Revenue Code,

household eligibility for mortgage

financing provided by qualifying

mortgage revenue bonds is based on the

‘‘applicable median family income,’’

which is the greater of: (1) The area

median gross income for the area in

which a residence is located; or (2) the

statewide median gross income for the

State in which the residence is located.

See 26 U.S.C. 143(f)(4). The ‘‘applicable

median family income’’ is based on

income data published by HUD. See

Rev. Proc. 97–26, 1997–17 I.R.B 17.

Under the mortgage revenue bond

program, the applicable median family

income may be adjusted depending on

whether the residence being financed is

in a targeted versus a non-targeted area

and whether the residence is in a high

housing cost area. See 26 U.S.C.

143(f)(3), (5). Adjustments also are made

for family size. See id. section

143(f)(6)(A). It should be noted that for

purposes of the AHP, the applicable

median family income may be adjusted

for family size, but shall not be adjusted

based on the location of a residence in

a targeted area or a high housing cost

area, see id. section 143(f)(3), (5),

because in targeted areas and high

housing cost areas, the mortgage

revenue bond program does not use the

‘‘applicable median family income’’ as

the basis for household income

eligibility. In targeted areas, ‘‘applicable

median family income’’ is adjusted by a

factor of 120 percent based solely on the

location of the residence in a targeted

area. See id. section 143(f)(3).

Consequently, the baseline measure of

area median income in targeted areas is

120 percent of the ‘‘applicable median
Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations 41815

family income,’’ rather than simply the

‘‘applicable median family income.’’ As

discussed above, the Act requires that

the AHP income limit be based on 80

percent of some measure of the ‘‘median

income for the area.’’ Since the mortgage

revenue bond program does not use the

‘‘applicable median family income’’ as a

measure of median income for targeted

areas, use of that program’s income

limits for targeted areas would not be

permissible under the Act.

Similarly, in cases where the income

limit under the mortgage revenue bond

program is adjusted above the

‘‘applicable median family income’’ for

high housing cost areas, see id. section

143(f)(5), use of the adjusted income

limit would not be permissible under

the Act. In sum, the Finance Board

believes that using the ‘‘applicable

median family income,’’ as determined

under the mortgage revenue bond

program for residences in non-targeted

areas, is consistent with the

requirements of the Act and is a viable

alternative to the use of income limits

used under HUD’s housing programs

because it is based on data that are

accepted as accurate and reliable and

are readily available from state agencies

and instrumentalities that publish

income limits for purposes of their

mortgage revenue bond programs.

Accordingly, as applied to the AHP, in

the case of a one- or two-person

household, the income limit would be

80 percent of the ‘‘applicable median

family income,’’ and for households

with three or more members, the income

limit would be 80 percent of 115

percent of the ‘‘applicable median

family income.’’ See id. section

143(f)(1), (6)(A).

Under the final rule, a Bank may

request approval of the Board of

Directors of the Finance Board to use a

measure of median income for AHPassisted owner-occupied projects other

than those used by HUD, the USDA, or

a state mortgage revenue bond program.

Such requests will receive prompt

consideration by the Board of Directors.

However, prior to requesting approval of

an alternative median income standard,

a Bank must amend its AHP

implementation plan to permit the use

of that standard, conditioned on Board

of Directors approval. This is intended

to ensure that a Bank receives input

from its Advisory Council prior to

proposing a new median income

standard for use under the AHP.

For purposes of rental projects, the

final rule defines ‘‘median income for

the area’’ as: (1) The median income for

the area, as published annually by HUD;

or (2) the 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, that has been

approved by the Board of Directors of

the Finance Board for use under the

AHP.

While the Finance Board wishes to

provide the opportunity for the use of

measures of median income in addition

to those used by HUD for rental projects,

the Finance Board wishes to address

such alternatives on a case-by-case

basis. A large majority of rental projects

receiving AHP subsidies are otherwise

required to use the income limits

published by HUD for its housing

programs because these projects have

received funds from HUD or have been

allocated federal Low-Income Housing

Tax Credits. Consequently, there

appears to be less need for flexibility at

this time with regard to income limits

for rental projects. Nonetheless, in view

of the potential for an increasing flow of

funds to rental housing from bonds and

other state and local programs, the final

rule permits the Banks to seek approval

of alternative measures of median

income for AHP-assisted rental projects

under the same procedures that apply

for owner-occupied projects, discussed

above.

In cases where a Bank chooses to

permit the use of more that one median

income standard (and its corresponding

family-size adjustments), such standards

must be available to all proposed

projects in the Bank’s District.

Accordingly, the definition of ‘‘median

income for the area’’ expressly states

that a Bank may select a median income

standard or standards from which all

projects may choose for purposes of the

AHP. Furthermore, under section

960.3(b)(1)(i) of the final rule, a Bank

must set forth in its AHP

implementation plan the applicable

median income standard or standards,

adopted by the Bank consistent with the

definition of ‘‘median income for the

area.’’ Two members of the Board of

Directors of the Finance Board have

requested that agency staff gather data

regarding the impact as of the end of

1998 of the increased flexibility in the

area median income standards.

b. Timing of Household Income

Qualification.

The final rule incorporates in the

definitions of ‘‘very low-income

household’’ and ‘‘low-or moderateincome household’’ provisions

governing the time at which a

household’s income should be

examined to determine whether it meets

the income eligibility requirements for

AHP-assisted housing.

The final rule provides that in the

case of owner-occupied projects, this

determination is to be made at the time

the household is qualified by the

sponsor (or member, in the case of a

homeownership set-aside program) for

participation in the project. This is a

change from the proposed rule, which

required that the determination be made

no earlier than the date on which the

application for subsidy funding the

project is submitted to the Bank for

approval. Several commenters requested

this change in order to allow project

sponsors more flexibility in qualifying

households. Commenters identified a

number of programs, such as sweatequity programs, that qualify

households prior to the deadline

established by the proposed rule. Under

the final rule, households may be

qualified at any time, but in all cases,

sponsors must have adequate

documentation to verify income

eligibility.

The final rule also revised the

provisions of the proposed rule

governing the timing of household

income qualification for rental projects

to take into account situations where

there are current occupants in units

receiving AHP assistance. The final rule

provides that where rental projects

involve the purchase or rehabilitation of

units with current occupants, the

income qualification determination is to

be made at the time the purchase or

rehabilitation is completed.

3. Definition of ‘‘Affordable’’

The final rule provides that

‘‘affordable’’ means that the rent

charged to a household for a unit that

is committed to be affordable in an AHP

application does not exceed 30 percent

of the income of a household of the

maximum income and size expected,

under the commitment made in the

AHP application, to occupy the unit

(assuming occupancy of 1.5 persons per

bedroom or 1.0 person per unit without

a separate bedroom). This language

clarifies that only those units that are

committed to be affordable in an AHP

application are subject to the 30

percent-of-income limitation. The

revised definition also replaces the

reference in the proposed rule to a

household’s ‘‘monthly housing costs’’

with a reference to the ‘‘rent’’ charged

for the unit. This change was made to

exclude utility costs from the

affordability calculation where these

costs are not part of the rent for a unit.

D. Operation of Program and Adoption

of AHP Implementation Plan—§ 960.3

1. Program Operation

The proposed rule provided that each

Bank’s Program shall be governed solely
41816 Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations

by the requirements set forth in 12

U.S.C. 1430(j) and part 960, and

prohibited a Bank from adopting any

additional substantive AHP

requirements, except as expressly

provided in part 960. This was intended

to make clear that the AHP regulation is

to ‘‘occupy the field’’ with regard to

substantive requirements governing the

Program. The final rule omits this

general prohibition and identifies

specific areas where the Banks are

prohibited from imposing additional

substantive Program requirements,

namely optional and mandatory

eligibility requirements and scoring

criteria.

A significant number of commenters

objected to the proposed language on

the ground that it would reduce the

Banks’ ability to adopt Program

requirements in addition to those in the

AHP regulation in order to address what

the Banks have characterized as special

circumstances in their Districts. While

the Finance Board agrees that the Banks

should have discretion in making

decisions regarding Program

implementation in order to meet

regional needs, the Finance Board has a

legal mandate to exercise independent

judgment, in light of the public interest,

as to the purpose of the AHP and the

standards needed to effect that purpose.

The Act makes clear that the authority

to adopt regulations governing the AHP

rests with the Finance Board. See 12

U.S.C. 1430(j) (1) and (9). In order to

address concerns about flexibility, the

Finance Board has attempted to provide

the Banks discretion in those areas of

the Program that, over the past seven

years, have shown a need for flexibility.

2. Allocation of AHP Contributions

Section 960.3(a) of the final rule

consolidates provisions of the proposed

rule related to the allocation of a Bank’s

required annual AHP contribution to its

competitive application program and

homeownership set-aside program or

programs. Section 960.3(a)(1) of the

final rule provides that a Bank, after

consultation with its Advisory Council,

may set aside annually, in the aggregate,

up to the greater of $1.5 million or 15

percent of its annual required AHP

contribution to provide funds to

members participating in the Bank’s

homeownership set-aside program or

programs. This is a change from the

proposed rule, which limited

homeownership program set-aside

amounts to the greater of $1 million or

10 percent of a Bank’s required annual

AHP contribution. A number of

commenters supported an increase in

the maximum set-aside amount in light

of the high demand for such funds.

Moreover, the Finance Board has

approved funding as high as $1.5

million for one Bank’s set-aside

program. The final rule continues to

permit a Bank to allocate funds from the

subsequent year in instances where

demand for funds in the current year

exceeds that year’s set-aside amount.

Section 960.3(a)(2) of the final rule

provides that the portion of a Bank’s

required annual AHP contribution that

is not set aside to fund homeownership

set-aside programs shall be provided to

members through the Bank’s

competitive application program.

3. AHP Implementation Plans

The proposed rule required each

Bank’s board of directors to adopt an

AHP implementation plan and any

amendments to the plan by December 1

of each year, after providing its

Advisory Council a reasonable period of

time to review the plan and any

amendments and provide its

recommendations. Section 960.3(b) of

the final rule carries forward this

requirement generally, but omits a

specific deadline for adoption of the

plan. Once a Bank’s board of directors

has adopted its plan, or any

amendments, the Bank must submit the

plan or amendments to the Finance

Board and the Bank’s Advisory Council

at least 60 days prior to distributing

requests for applications for AHP

subsidies for the funding period in

which the plan, or amendments, will be

effective. A Bank’s implementation plan

is the vehicle through which the Bank

determines the standards for its

Program, consistent with the

requirements of the final rule. Section

960.3(b)(1) of the final rule identifies

Bank procedures and other information

that must be included in a Bank’s

implementation plan. Compliance by

the Bank with its implementation plan

will provide the basis for Finance Board

examination of the Bank’s

implementation of its Program.

4. Conflicts of Interest Policies

Section 960.3(c) of the final rule

consolidates provisions of the proposed

rule that required the boards of directors

of the Banks to adopt conflicts of

interest policies governing Bank

directors and employees and Advisory

Council members. The proposed rule

required each Bank to have a policy

providing that a Bank director, officer,

or employee or an Advisory Council

member who has a personal interest in,

or who is a director, officer or employee

of an organization involved in, a project

that is the subject of a pending or

approved AHP application, may not

participate in or attempt to influence the

evaluation, approval, funding,

monitoring, or any remedial process for

such project under the Program.

Section 960.3(c) of the final rule

contains two substantive changes to the

proposed language. First, the reference

to a ‘‘personal interest’’ of a party in a

project is replaced with a reference to a

‘‘financial interest’’ of a party or that

party’s ‘‘family member.’’ A ‘‘family

member’’ is defined in § 960.1 as any

individual related to a person by blood,

marriage or adoption. This change is

intended to respond to comments

requesting clarification of the scope of

the intended prohibition in this

provision.

Second, the final rule no longer

prohibits an interested Advisory

Council member from being involved in

decisions of the Bank regarding the

evaluation, funding, monitoring or any

remedial process for a project that is the

subject of a pending or approved AHP

application. As some commenters

pointed out, many Advisory Council

members, who by law are drawn from

community and not-for-profit

organizations, may in many cases be

integrally involved in projects that are

the subject of pending or approved AHP

applications. Consequently, Advisory

Council members often must work with

the Banks in resolving issues related to

the evaluation, funding, monitoring, and

compliance of such projects. This is

reflected in the revised language of the

final rule.

E. Advisory Councils—§ 960.4

Section 960.4 of the final rule carries

forward the provisions of the proposed

rule governing Advisory Councils, with

the following changes. First, § 960.4(d)

of the final rule provides that Advisory

Council members may be appointed to

serve for up to three consecutive threeyear terms. The proposed rule permitted

a maximum of two consecutive threeyear terms. Some commenters suggested

that there be no term limit for Advisory

Council members in order to allow the

Banks to benefit from the experience

and familiarity with the Program that

Advisory Council members develop the

longer they serve on an Advisory

Council. The Finance Board believes

permitting Advisory Council members

to serve for up to nine consecutive years

will promote this goal.

Second, the final rule omits the

proposed requirement that a Bank allow

Advisory Council members to examine

AHP applications under the Bank’s

competitive application program from

prior funding periods. Some

commenters opposed this provision on

the ground that it would provide

Advisory Council members who, in
Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations 41817

many cases, are associated with

organizations that have projects in a

Bank’s competitive application program,

access to information that may give

them an unfair competitive advantage.

Accordingly, this provision is deleted,

but § 960.4(f)(2) of the final rule retains

the proposed requirement that a Bank

comply with requests from its Advisory

Council for summary information

regarding AHP applications from prior

funding periods. Access to this

information will aid Advisory Council

members in evaluating how a Bank’s

scoring guidelines affect the allocation

of AHP subsidies among different types

of housing projects.

The notice of proposed rulemaking

requested comments on the role,

selection, and compensation of

Advisory Council members.

Commenters supported the Advisory

Councils’ expanded role in providing

recommendations on the Banks’ AHP

implementation plans. Commenters also

generally supported expanding the role

of Advisory Councils to include

providing advice on ways in which the

Banks can better carry out their housing

finance and community investment

mission. Sections 960.3(b)(3) and

960.4(f)(1) of the final rule, respectively,

retain these provisions of the proposed

rule.

Section 960.4(b) of the final rule

carries forward the proposed provision

requiring the Banks to appoint Advisory

Council members giving consideration

to the size of the Banks’ District and the

diversity of low- and moderate-income

housing needs and activities within the

District. While the Finance Board does

not believe that there should be absolute

limits on the membership of any one

group on the Advisory Councils, the

Finance Board wishes to ensure a

diversity of viewpoints so that no one

group consistently has a dominant voice

on an Advisory Council. Accordingly,

the proposed rule required the Banks to

draw Advisory Council members from a

diverse range of organizations, provided

that representatives of no one group

constitute an undue proportion of the

membership of an Advisory Council.

Commenters generally supported this

provision. Therefore, § 960.4(c) of the

final rule carries forward the proposed

provision without change.

Section 960.4(g) of the final rule

carries forward the proposed

requirement, which also is a

requirement of the existing regulation,

that a Bank 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. In addition, the final rule

requires a Bank to pay Advisory Council

members’ travel expenses, including

transportation and subsistence, for each

day devoted to attending meetings

requested by the Finance Board. The

Finance Board believes that meetings

with Finance Board representatives

provide an important forum for

Advisory Council members to

communicate their views to the agency.

Consequently, where the Finance Board

requests such meetings, it is appropriate

for the Banks to reimburse the

transportation and subsistence expenses

of those Advisory Council members

who attend.

Several commenters suggested that

the Banks be required to pay fees to

Advisory Council members for

attending such meetings. While this is

not required by the final rule, nothing

precludes the Banks, in their discretion,

from paying such fees.

F. Minimum Eligibility Standards for

AHP Projects—§ 960.5

1. In General

As part of the reorganization of the

structure of the proposed rule, those

provisions of the proposed rule that

constitute minimum eligibility

standards for AHP projects have been

consolidated into a single section in the

final rule, as described below.

2. Homeownership Set-Aside Programs

Under the existing regulation, Banks

must establish their homeownership setaside programs in accordance with the

specific requirements set forth therein,

unless they obtain Finance Board

approval to establish ‘‘nonconforming’’

programs. See 12 CFR 960.5(g). The

proposed rule revised the existing

regulation to allow the Banks more

flexibility in establishing their

homeownership set-aside programs,

including the program eligibility

requirements, without having to obtain

prior Finance Board approval.

Section 960.5(a) of the final rule sets

forth the minimum eligibility standards

for a Bank’s homeownership set-aside

programs. The final rule carries forward

the proposed eligibility standards with

the following changes. First, under

§ 960.5(a)(3), the maximum amount of

funds available per household is

increased from $5,000 to $10,000.

Several commenters suggested this

change in order to serve lower income

homebuyers in high cost areas.

Second, § 960.5(a)(4) of the final rule

includes rehabilitation by current

homeowners as an eligible use of

homeownership set-aside funds. The

language of the proposed rule limited

the use of homeownership set-aside

funds to home purchases. As indicated

in the SUPPLEMENTARY INFORMATION

section of the proposed rule, the

Finance Board intended to allow

homeownership set-aside funds to be

used also for rehabilitation by current

homeowners. See 61 FR 57799, 57813

(Nov. 8, 1996).

Third, the Finance Board received a

number of comments suggesting that

homeownership set-aside funds be

permitted to be used for homebuyer

counseling costs, which was prohibited

by the proposed rule. Sections 960.5

(a)(4) and (a)(7) of the final rule permit

homeownership set-aside funds to be

used to pay for counseling costs where:

(i) Such costs are incurred in connection

with counseling of homebuyers who

actually purchase an AHP-assisted unit;

(ii) the cost of the counseling has not

been covered by another funding source,

including the member; and (iii) the

homeownership set-aside funds are

used to pay only for the amount of such

reasonable and customary costs that

exceeds the highest amount the member

has spent annually on homebuyer

counseling costs within the preceding

three years. The Finance Board believes

that if homeownership set-aside funds

are to be used for counseling costs, they

should be used to expand the pool of

resources available for counseling,

rather than replace existing sources of

funding. These provisions are intended

to prevent homeownership set-aside

funds from being used to pay for

counseling that, in the absence of such

funds, customarily would be financed

by members participating in a

homeownership set-aside program.

Fourth, § 960.5(a)(8) of the final rule

requires homeownership set-aside funds

to be drawn down and used by eligible

households within a period of time

specified by the Bank in its AHP

implementation plan. This parallels a

similar requirement for a Bank’s

competitive application program, as

discussed further below, and is

currently a requirement in several of the

Banks’ existing homeownership setaside programs.

Fifth, the final rule omits the

requirement that any program eligibility

criteria adopted by a Bank be consistent

with the National Homeownership

Strategy coordinated by HUD. The

minimum eligibility requirements set

forth in the final rule ensure that

homeownership set-aside funds are

provided to households for uses that are

consistent with the National

Homeownership Strategy. Therefore, the

explicit reference to the Strategy is

omitted in the final rule.
41818 Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations

3. Competitive Application Program

Section 960.5(b) of the final rule sets

forth the minimum eligibility standards

for a Bank’s competitive application

program. The final rule carries forward

the provisions of the proposed rule,

with the following changes regarding

project feasibility and need for subsidy,

and timing of subsidy use. As discussed

below, the final rule also omits the

maximum subsidy requirement in the

proposed rule, which provided that no

AHP-subsidized household in a project

could pay less than 20 percent of its

gross monthly income toward monthly

housing costs (the 20 percent

requirement).

a. Project Feasibility and Need for

Subsidy.

Section 960.5(b)(2) of the final rule

consolidates standards regarding project

feasibility and need for subsidy that

appeared in several different sections of

the proposed rule. Many commenters

objected to those provisions of the

proposed rule requiring the Banks to

adopt project cost guidelines and to

evaluate the reasonableness of the

interest rates and charges involved in

financing from funding sources other

than members. Commenters stated that

such requirements are duplicative of

efforts undertaken by members and

other funding sources and are

unnecessarily burdensome for the

Banks.

The proposed rule was intended to

codify the current practices of many of

the Banks in evaluating project

feasibility and need for subsidy. Due to

the time constraints of the application

process, members often do not provide

the level of project review necessary to

determine project feasibility and the

need for AHP subsidy. Consequently,

the Finance Board believes it is in the

best interest of the Program for the

Banks to have and carry out an

independent duty to scrutinize each

proposed project to determine whether

the requested subsidy is necessary for

the financial feasibility of the project, as

currently structured. Section

960.3(b)(1)(iii) of the final rule requires

the Banks to include in their AHP

implementation plans feasibility

guidelines for determining whether

proposed projects comply with these

standards.

The Finance Board is sensitive to the

challenge of developing project

feasibility guidelines during the

transition to operation under the

regulatory changes made by this final

rule. The Finance Board intends to

create a special process under which a

Bank may, at its option, obtain prior

review and approval by the Finance

Board of its initial project feasibility

guidelines in order to ensure that they

are consistent with the requirements of

the final rule.

With regard to a project’s estimated

sources of funds, § 960.5(b)(2)(i) of the

final rule carries forward provisions of

the proposed rule and makes clear that

such sources must include estimates of

the market value of in-kind donations

and volunteer professional labor or

services committed to the project, but

not the value of sweat-equity. This

provision is intended to allow sponsors

that build housing using donations of

labor and material to account for such

sources of funds in their development

budgets. Sweat-equity is excluded from

a project’s funding sources in order to

avoid requiring the purchaser of a home

who provides labor in the construction

of the home to pay for the value of his

or her own labor.

The proposed rule provided that AHP

subsidies may be used to pay only for

the customary and standard costs

typically incurred, at fair market prices,

to purchase, construct, or rehabilitate

AHP-eligible housing. At the time of

disbursement, the Bank was required to

obtain a current independent appraisal

of property sold to a project where a

member had a ‘‘direct or indirect

interest’’ in the property or project. In

response to requests from several

commenters, the final rule clarifies the

proposed language referring to a ‘‘direct

or indirect interest’’ of a member in the

property or project. Section

960.5(b)(2)(ii)(B) of the final rule

provides that the purchase price of

property or services sold to a 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 market value as of

the date the purchase price for the

property or services was agreed upon. In

the case of real estate owned property

sold to a project by the member, 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, as reflected in

an independent appraisal of the

property performed within six months

prior to the date the purchase price for

the property was agreed upon.

Several commenters suggested that

the value of property may be enhanced

where the property is proposed to be

used for affordable housing receiving

subsidized financing. In addition, there

may be other factors related to the

proposed use of a property for

affordable housing that affect the

property’s valuation. The Finance Board

believes that it may be appropriate to

take such factors into account in

determining the market value of a

property. As discussed above, the final

rule provides for property to be valued

either ‘‘as-is’’ or ‘‘as rehabilitated,’’

whichever is appropriate under the

circumstances. However, the Finance

Board believes that any valuation

judgments related to a property’s use for

affordable housing should be reflected

in an appraisal of the property.

Consequently, to the extent that a

property’s proposed use for affordable

housing affects the property’s value, this

factor should be reflected in the

appraisal of the property in order to be

considered in determining the

property’s market value for purposes of

the AHP.

b. Timing of Subsidy Use.

The proposed rule provided that a

project must be likely to be completed

within a reasonable period of time.

Section 960.5(b)(3) of the final rule

provides that the AHP subsidy must be

likely to be drawn down by a project or

used by the project to procure other

financing commitments within 12

months of the date of approval of the

application for subsidy financing the

project. This reflects the requirement of

the existing regulation and current

practice.

c. Prepayment Fees.

There may be situations where, due to

declining interest rates, it would be

advantageous to a project to prepay its

loan from a member and refinance the

project. However, prepayment of the

member’s loan may trigger prepayment

of the Bank’s subsidized advance by the

member, a prepayment fee for the

member, and, thus, a prepayment fee for

the project. It has been suggested that

the project be permitted to allocate the

remaining AHP subsidy incorporated in

the advance to pay for the member’s

prepayment fee. This, in turn, would

permit the member to forego charging

the project a prepayment fee, making

refinancing less costly.

The proposed rule prohibited the use

of AHP subsidies for such prepayment

fees on the ground that funding such

fees is an unproductive use of AHP

subsidies and does not meet the

statutory requirement that AHP

subsidies be used to finance housing.

Clearly, however, where a project agrees

to continue to comply with the terms of

the application for the AHP subsidy

after using the subsidy to pay for a

prepayment fee, the purpose of the

Program is met and the project is able

to obtain a stronger financial position.

Consequently, § 960.5(b)(4)(i) of the

final rule permits the use of AHP

subsidies to pay for prepayment fees
Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations 41819

imposed by a Bank on a member for a

prepayment of a subsidized advance, if,

subsequent to such prepayment, the

project will continue to comply with the

terms of the application for the subsidy,

as approved by the Bank, and the

requirements of the AHP regulation for

the duration of the original retention

period, and any unused subsidy is

returned to the Bank and made available

for other AHP projects.

d. Counseling Costs.

The notice of proposed rulemaking

requested comments on whether AHP

subsidies should be permitted to be

used to pay for counseling costs

generally, and whether AHP subsidies

should be used to pay only for

counseling for homebuyers,

homeowners, or tenants of AHP-assisted

units. Section 960.5(b)(5) of the final

rule, which carries forward the

proposed provision, permits AHP

subsidies to be used to pay for costs

incurred in connection with counseling

of homebuyers as long as: (1) The

counseling is provided to a household

who actually purchases an AHP-assisted

unit; and (2) the cost of the counseling

has not been covered by another

funding source, including the member.

While many commenters supported the

proposed provision, there was no

consensus among commenters on this

issue. The Finance Board believes that

if AHP subsidies are to be used for

counseling costs, they should be used to

expand the pool of resources available

for counseling, rather than replace

existing sources of funding. The Finance

Board wishes to prevent AHP subsidies

from being used to pay for counseling

that, in the absence of the AHP subsidy,

would customarily be financed by

another source of funding for a project.

e. Refinancing.

Section 960.5(b)(6) of the final rule

carries forward the proposed

requirement that if a project uses AHP

subsidies to refinance an existing singlefamily or multifamily mortgage loan, the

equity proceeds of the refinancing must

be used only for the purchase,

construction, or rehabilitation of AHPeligible housing. Several commenters

suggested that the final rule should

permit the use of AHP subsidies to

refinance existing projects in cases

where no equity is taken out of the

project and the refinancing results in a

lower debt service cost for the project.

Such use of AHP subsidies would be

contrary to the Act, because there would

be no resulting purchase, construction,

or rehabilitation of AHP-eligible

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

f. Project Sponsor Qualifications.

Section 960.5(b)(8) of the final rule

provides that a project’s sponsor must

be qualified and able to perform its

responsibilities as committed to in the

AHP application. Section 960.1 of the

final rule carries forward the definition

of ‘‘sponsor’’ in the proposed rule and,

in response to comments, clarifies that

in the case of rental projects, ‘‘sponsor’’

includes an organization whose

ownership of a project is in the form of

a partnership interest.

g. Use of AHP Subsidies for Loan

Guarantees.

Several commenters suggested that

the final rule permit the use of AHP

subsidies for loan guarantees or other

financial mechanisms to make

affordable housing feasible. Although

the Finance Board did not request

comments on this issue and has not

authorized the use of AHP subsidies for

loan guarantees in the final rule, the

Finance Board does find these

comments of interest and will review

how such guarantees might work under

the AHP.

h. Pre-Development Expenses.

The final rule omits the language in

the proposed rule expressly prohibiting

the use of AHP subsidies for predevelopment expenses. The proposed

rule prohibited the use of AHP subsidies

for pre-development expenses not yet

incurred by a proposed project as of the

date the AHP application is submitted

to the Bank. This language was intended

to make clear that a Bank could not

provide AHP subsidies for the sole

purpose of determining the feasibility of

housing.

The final rule omits this language

because the requirement in § 960.5(b)(2)

that projects be feasible in order to

receive AHP subsidy effectively

incorporates this prohibition. Proposed

projects that meet the requirements of a

Bank’s feasibility guidelines may

include pre-development expenses as

project costs in their AHP applications.

Several commenters supported the

use of AHP subsidies for the sole

purpose of determining the feasibility of

housing. The Finance Board believes

that this use of funds will not result in

the actual purchase, construction, or

rehabilitation of housing, as required by

the statute. Further, since the inception

of the Program, demand for AHP

subsidies for feasible projects has

significantly exceeded available funds.

Thus, if AHP subsidies were to be

approved for the sole purpose of

determining the feasibility of housing,

potentially significant amounts of

subsidies that currently go toward

completing projects might instead be

paying for activities that never result in

the financing or production of housing.

i. District Eligibility Requirements.

Section 960.5(b)(10) of the final rule

carries forward the provisions in the

proposed rule governing District

eligibility requirements, which were

referred to as ‘‘District threshold

requirements’’ in the proposed rule. The

notice of proposed rulemaking included

an extensive discussion of the salient

arguments in favor of and against the

proposed District eligibility

requirements. See 61 FR 57799, 57807–

57809 (Nov. 8, 1996). The comments

received by the Finance Board on these

provisions either supported or objected

to the proposal on many of the grounds

discussed in the notice of proposed

rulemaking. There was no consensus on

two of the three optional District

eligibility requirements. Although there

was more prevalent opposition to the

third requirement—that the member

have used a Bank credit product in the

past 12 months—the Finance Board

feels that members and sponsors will

have some influence on an individual

Bank’s decision regarding this option.

Consequently, the Finance Board is

finalizing the District eligibility

provisions, as proposed, which provide

the Banks with discretion to determine

whether to adopt these eligibility

requirements.

j. The 20 percent Requirement.

The final rule omits the provision in

the proposed rule known as ‘‘the 20

percent requirement,’’ which provided

that households who own or rent AHPassisted units shall pay no less than 20

percent of their gross monthly income

towards monthly housing costs. The

proposed rule carried forward

provisions of the existing regulation and

added some exceptions to the 20

percent requirement. Commenters

generally supported the additional

exceptions in the proposed rule and

suggested the adoption of several other

exceptions. The 20 percent requirement

was intended to implement the

maximum subsidy limitation

requirement contained in section

10(j)(9)(F) of the Act. See 12 U.S.C.

1430(j)(9)(F).

In light of the fact that most projects

come within the exceptions to the 20

percent requirement, the Finance Board

believes that the 20 percent requirement

no longer is an effective means of

implementing the statutory maximum

subsidy limitation. Further, the

requirements in the final rule regarding

project feasibility and need for subsidy

are intended to implement this statutory

requirement.

G. Procedure for Approval of

Applications for Funding—§ 960.6

As part of the reorganization of the

structure of the proposed rule, the final
41820 Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations

rule consolidates and streamlines the

proposed provisions governing funding

periods, application requirements, and

scoring and approvals of applications

under a Bank’s competitive application

program. The final rule also integrates

and streamlines provisions in the

proposed rule governing funding under

a Bank’s homeownership set-aside

programs.

1. Program Administration

Section 960.6(b)(1) of the final rule

carries forward the proposed provisions

permitting a Bank to accept applications

for funding under its competitive

application program during a specified

number of funding periods each year, as

determined by the Bank. The notice of

proposed rulemaking requested

comments on whether the Banks should

be permitted to accept AHP applications

on a rolling basis, and, if so, how

applications would be scored under

such a process. Of those commenters

who addressed this issue, the majority

opposed the acceptance of applications

on a rolling basis. The Finance Board

believes that a competitive process has

worked well and has decided to

maintain the AHP as a competitive

program. Further, those commenters

who supported funding on a rolling

basis offered no way to score

applications fairly under such a process.

The final rule omits the proposed

provision requiring a Bank to notify

members and other interested parties of:

the amount of subsidy offered annually

and in each funding period; District

eligibility requirements; scoring

guidelines; and application due dates.

The final rule also omits the provisions

of the proposed rule specifying the

information required to be included in

AHP applications. These changes are

consistent with the Finance Board’s

intent to streamline the AHP regulation

and to devolve to the Banks those

aspects of the Program involving day-today administration. Accordingly,

§ 960.6(b)(2) of the final rule provides

that a Bank shall require applicants for

AHP subsidies under the Bank’s

competitive application program to

submit information sufficient for the

Bank to determine that a proposed AHP

project meets applicable eligibility

requirements and to evaluate the

application pursuant to the regulatory

scoring criteria.

2. Acceptance of Applications from

Nonmembers

Sections 960.6(a) and (b)(1) of the

final rule add provisions authorizing a

Bank, in its discretion, to accept

applications for funding under both its

homeownership set-aside programs and

its competitive application program

from institutions with pending

applications for membership in the

Bank. This is intended to give the Banks

greater flexibility in accommodating

new members that desire to participate

in the AHP before the membership

application process has been completed.

As discussed further below, an

institution must be a member prior to

actually receiving AHP subsidies.

3. Scoring of Applications

a. In General.

The notice of proposed rulemaking

requested comments on all aspects of

the proposed scoring provisions and on

ways in which the scoring system could

be simplified, such as by creating

discrete scoring categories containing

criteria required by the Act, criteria

established by the Finance Board, and

criteria established by the Banks. A

number of commenters generally

supported the scoring provisions as

proposed and suggested limited

changes. Some commenters suggested

that the Finance Board permit the

Banks, in consultation with their

Advisory Councils, to establish their

own scoring systems. Other commenters

recommended that the scoring system

be simplified, and that the Banks be

given greater flexibility in adopting

scoring criteria and allocating points

among the criteria. Commenters stated

that such changes would improve the

Program’s operating efficiency and

enable the Banks to tailor their scoring

systems to the needs of their Districts.

While the existing scoring process

generally has worked well over the past

seven years of the Program’s operation

and is familiar to Program users, the

Finance Board agrees with commenters

that a simpler and more flexible scoring

system should improve operating

efficiency and enhance the

responsiveness of the Program to local

District needs. Accordingly,

§ 960.6(b)(4) of the final rule revises the

scoring system in the proposed rule to

incorporate greater simplicity and

flexibility, as discussed below.

b. Revised Scoring System.

(i) Elimination of Two-Tiered Priority

Scoring Process.

The proposed rule established six

priority categories, and required the

Banks to allocate 60 of a total 100 points

among those categories, with at least 8

points allocated to each category. In

addition, the proposed rule established

4 scoring objectives categories, and

required the Banks to allocate the

remaining 40 points among these

categories, with the targeting objective

category receiving at least 8 points.

Applications meeting at least two of the

six priorities were considered priority

applications and, as a group, were to be

scored before applications meeting

fewer than two of the priorities. Priority

applications then were to be scored

against each other based on the extent

to which they met the priorities and the

scoring objectives.

The final rule eliminates this twotiered system of scoring priority

applications before non-priority

applications. Instead, § 960.6(b)(4) of the

final rule establishes nine scoring

criteria categories, and requires a Bank

to score all applications for projects

meeting the minimum eligibility

requirements according to the nine

criteria. Section 960.6(b)(4)(ii) requires a

Bank to allocate 100 points among the

nine scoring criteria, which incorporate

the scoring priorities and objectives of

the proposed rule with revisions as

discussed below. At least 5 points must

be allocated to each scoring criterion

except for targeting, which must be

allocated at least 20 points. Section

960.6(b)(4)(i) provides that a Bank shall

not adopt additional scoring criteria or

point allocations, except as specifically

authorized under paragraph (b)(4).

(ii) Designation of Variable-and

Fixed-Point Criteria.

The proposed rule designated each

proposed priority category as either a

fixed-point or a variable-point criterion.

Fixed-point criteria are those which

cannot be satisfied in varying degrees

and are either satisfied, or not. Variablepoint criteria are those where there are

varying degrees to which an application

can satisfy the criterion. Section

960.6(b)(4)(iii) of the final rule requires

each Bank to make the designation of

criteria as either fixed or variable. The

targeting criterion and the subsidy-perunit criterion must be designated as

variable-point criteria. When

determining the extent to which

competing projects satisfy a variablepoint criterion, a Bank must award

points to projects in a uniform and

consistent manner. The nine scoring

criteria are discussed below.

(iii) Donated Government-Owned or

Other Properties Criterion.

Section 960.6(b)(4)(iv)(A) of the final

rule revises the scoring criterion in the

proposed rule for projects using

government-owned property to provide

scoring credit for projects using a

significant proportion of units or land

donated or conveyed for a nominal price

by the federal government or any agency

or instrumentality thereof, or by any

other party. The expansion of this

criterion to include units or land owned

by other parties responds to a number

of commenters who pointed out that the

stock of available federal government
Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations 41821

properties continues to decrease. The

criterion also has been revised to

encourage the donation of property for

AHP projects, which should reduce the

costs of financing such housing

(iv) Not-For-Profit Organization or

Government Entity Sponsor Criterion.

Section 960.6(b)(4)(iv)(B) of the final

rule revises the scoring criterion in the

proposed rule for projects sponsored by

a not-for-profit organization or

government entity by expanding the list

of government entities to include Native

American Tribes, Alaskan Native

Villages, and the government entity for

Native Hawaiian Home Lands, which

are comparable to state or local

government entities.

(v) Targeting Criterion.

Section 960.6(b)(4)(ii) of the final rule

revises the proposed rule by increasing

the required minimum allocation of

points for the targeting scoring criterion

from 8 to 20. This change is intended to

promote the funding of projects that

commit to the targeting objective, which

the Finance Board views is an important

goal of the Program.

Section 960.6(b)(4)(iv)(C)(1) of the

final rule carries forward the proposed

requirement that an application for a

rental project shall be awarded the

maximum number of points available

under the targeting 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. The final rule clarifies that

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.

The purpose of this targeting

provision is to reduce the emphasis in

the existing regulation on funding

projects that are occupied solely by very

low-income households. There was

support among commenters for this

goal, although commenters had different

views as to whether 60 percent is the

appropriate ceiling for mixed-income

targeting. Several commenters opposed

reducing the current bias against mixedincome housing in the AHP scoring

system. The Finance Board believes that

mixed-income housing projects should

be competitive under the Program.

Mixed-income housing promotes

economic integration, which supports

the long-term financial feasibility of a

project and the empowerment of lower

income residents.

The notice of proposed rulemaking

requested comments on ways in which

the targeting criterion could be

structured so that it is more closely

compatible with the monitoring

requirements for AHP projects. Several

commenters supported coordinating the

targeting criterion with project

monitoring requirements, and suggested

that points under the targeting criterion

should be awarded to projects based on

targeting commitments made to funding

sources other than the Banks. Section

960.6(b)(4)(iv)(C)(1) of the final rule

adopts this approach as an option for

the Banks in structuring their Programs.

The final rule provides that in order to

facilitate reliance on monitoring by a

federal, state, or local government entity

providing funds or allocating federal

Low-Income Housing Tax Credits to a

proposed project, a Bank, in its

discretion, may score each project

according to the targeting commitments

made by the project to such entity, and

the Bank shall include such scoring

practice in its AHP implementation

plan.

Section 960.6(b)(4)(iv)(C)(3) of the

final rule provides that a Bank, in its

discretion, may score owner-occupied

projects and rental projects separately

under the targeting criterion. This is a

change from the proposed rule, which

required separate scoring. The purpose

of allowing separate scoring is to offset

what may be an inherent bias in the

targeting criterion in favor of rental

projects, which, in general, have more

units targeted to very-low income

households than do owner-occupied

projects. The final rule permits the

Banks to determine whether separate

scoring is appropriate for the targeting

criterion.

(vi) Community Development

Criterion and Empowerment Criterion.

Section 960.6(b)(4)(iv)(E) of the final

rule eliminates the proposed mandatory

community development scoring

criterion and replaces it with a

mandatory scoring criterion for projects

promoting empowerment. The proposed

rule had a more limited version of the

empowerment criterion as an optional

District priority. Under

§ 960.6(b)(4)(iv)(F)(2) of the final rule,

the community development criterion is

now an optional District priority.

Several commenters suggested that the

community development criterion is

inherently biased against rural projects

and, therefore, should not be a

mandatory criterion in a Bank’s scoring

system. Commenters also favored a

mandatory criterion for empowerment,

consistent with the existing regulation.

The Finance Board agrees that

promoting empowerment is a valuable

aspect of projects and should be

maintained as a mandatory criterion.

(vii) First and Second District

Priorities.

Section 960.6(b)(4)(iv)(F) of the final

rule carries forward the provision of the

proposed rule requiring a Bank to select

a District priority, as recommended by

the Bank’s Advisory Council and set

forth in the Bank’s AHP implementation

plan, from a set of criteria listed in the

AHP regulation. A number of

commenters suggested that the Banks

should be allowed to select criteria in

addition to those listed in the proposed

rule. Section 960.6(b)(4)(iv)(G) of the

final rule provides for this by permitting

a Bank to adopt a second District

priority for projects meeting a housing

need in the Bank’s District, as defined

and recommended by the Bank’s

Advisory Council and set forth in the

Bank’s AHP implementation plan.

Further, under the Act, the Finance

Board has a statutory mandate to

promulgate regulations that specify

priorities for the use of AHP subsidies.

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

Consequently, the Finance Board may

not, consistent with the statute, allow

the Banks to have total discretion to

determine priorities under the Program.

Nonetheless, the Finance Board believes

that the final rule provides the Banks

with a large measure of discretion in

this area by providing a relatively wide

range of choices for the Banks’ two

District priorities. In addition, the final

rule revises the proposed rule by

allowing a Bank to adopt multiple

criteria under its first District priority,

as long as the total points available for

meeting the criteria do not exceed the

total points allocated to the priority. The

final rule makes clear that a Bank’s

second District priority need not be

chosen from the list of permissible

criteria for the Bank’s first District

priority.

The final rule omits from the list of

optional District priorities in

§ 960.6(b)(4)(iv)(F) the priority for

projects with retention periods in excess

of the minimum retention period

required under the project eligibility

standards in § 960.5(b)(7) of the final

rule. Awarding points to projects for

committing to retention periods longer

than the minimum would require that

such projects be monitored in excess of

the minimum required retention period.

In light of changes in the monitoring

requirements, which are discussed

further below, that are intended to

permit the Banks to rely on monitoring
41822 Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations

by other parties for most rental projects,

the priority for projects with longer

retention periods is no longer feasible.

Section 960.6(b)(4)(iv)(F)(4) of the

final rule carries forward the proposed

optional District priority for projects

involving member financial

participation (excluding the passthrough of AHP subsidy), such as

providing market rate or concessionary

financing, fee waivers, or donations. In

the notice of proposed rulemaking, the

Finance Board requested comments on

whether this should be a mandatory

scoring criterion or a project eligibility

standard, and on whether a member

should be deemed to meet such a

scoring criterion based on the member’s

record of affordable housing lending

activities apart from its lending under

the Program.

Although members have played a

critical role in the Program, their

participation has not generally involved

lending their own funds. Where a

member lends its own funds to a

project, it is more likely to underwrite

the project for financial feasibility and

monitor the project for AHP

compliance. Greater member financial

involvement in projects also builds

member affordable housing lending

capacity and expertise.

A number of commenters objected to

making member financial participation

a project eligibility standard or a

mandatory scoring criterion because

some projects may not require or be able

to sustain additional debt. Requiring

projects to have loans from a member

may create a bias against projects

serving lower income households,

which often cannot support debt service

because rents are too low. Further,

smaller members, which may not have

the capacity to finance a project loan,

waive fees or donate funds, may be

effectively precluded from participating

in the Program. The Finance Board

believes these arguments have merit.

However, the Banks should be

permitted to determine whether

promoting some measure of member

financial participation through the

scoring system is appropriate in the

Bank’s District. Consequently, the final

rule retains member financial

participation as an optional District

priority.

Commenters stated that favoring

projects based on a member’s record of

affordable housing lending activities

apart from its lending under the

Program is inappropriate because the

member’s lending record is not directly

relevant to the evaluation of a particular

application for AHP subsidy, and a fair

evaluation of a member’s affordable

housing record would be difficult to

accomplish. The Finance Board agrees

that this would present practical

difficulties in Program administration

and, therefore, has not included this

criterion in the final rule.

(viii) Community Involvement

Criterion.

Section 960.6(b)(4)(iv)(F)(10) of the

final rule revises the proposed rule by

removing community involvement as a

mandatory scoring criterion and

including it as an optional District

priority in lieu of the proposed sweatequity priority, which is incorporated in

this priority. The final rule also deletes

the proposed language allowing a Bank

to give scoring credit under this

criterion to projects receiving

commitments of funds from local

sources. This change was made because

the criterion is intended to promote inkind donations to projects.

(ix) Subsidy-Per-Unit Criterion.

Section 960.6(b)(4)(iv)(H) of the final

rule carries forward the provisions in

the proposed rule governing the

subsidy-per-unit criterion, with the

exception that a Bank, in its discretion,

may determine whether owner-occupied

projects and rental projects should be

scored separately under this criterion.

There may be an inherent bias in the

subsidy-per-unit criterion in favor of

rental projects, which, in general, have

lower amounts of subsidy per unit than

do owner-occupied projects. Therefore,

as under the targeting criterion, the final

rule permits the Banks to determine

whether separate scoring is appropriate

for this criterion.

The subsidy-per-unit criterion, in

effect, favors projects with a shallower

subsidy. A Bank may de-emphasize this

effect and promote deeper subsidies per

unit by allocating as few as five points

to this criterion. The notice of proposed

rulemaking requested comments on

whether this gives the Banks adequate

flexibility in applying the subsidy-perunit criterion in their Districts. A

number of commenters supported

allowing the Banks to determine the

number of points to allocate to the

subsidy-per-unit criterion.

H. Modifications of Applications Prior

to Project Completion—§ 960.7

Section 960.7 of the final rule

incorporates several revisions to

provisions in the proposed rule

governing modifications of AHP

applications under a Bank’s competitive

application program prior to project

completion. First, the definition of

‘‘project modification’’ in the proposed

rule is incorporated into the terms of

§ 960.7, and clarified to refer to

modifications occurring prior to final

disbursement of funds to the project

from all funding sources.

Second, the final rule omits the

provisions of the proposed rule

specifying the information required to

be included in requests for

modifications. This change is consistent

with the Finance Board’s intent to

streamline the AHP regulation and to

devolve to the Banks those aspects of

the Program involving day-to-day

administration.

Third, § 960.7(a)(3) of the final rule

revises the modification standards in

the proposed rule by making all

proposed modifications subject to a

‘‘good cause’’ requirement and

permitting the Banks to determine

whether a ‘‘good cause’’ showing has

been made in individual cases. The

proposed rule required the Banks to

approve modifications not involving

subsidy increases as long as a project

continued to meet eligibility

requirements and to score high enough

to have been approved in the funding

period in which it was originally scored

and approved by the Bank. The purpose

of this change is to give the Banks

flexibility to determine on a case-bycase basis whether changes from a

project’s original AHP commitments are

justified.

Fourth, the final rule omits the

provision in the proposed rule

prohibiting a Bank’s board of directors

from delegating to Bank officers or other

Bank employees the authority to

approve requests for modifications not

involving a subsidy increase. A number

of commenters supported this change,

which conforms the final rule to the

Banks’ current practices.

Section 960.7(a)(2) of the final rule

carries forward the requirement that, in

order to receive a pre-completion

modification, a project must continue to

score high enough to have been

approved in the funding period in

which it was originally scored and

approved by the Bank. The Finance

Board wishes to make clear that where

modifications are requested for

applications that were scored and

approved for funding prior to January 1,

1998, the application shall be rescored

according to the scoring requirements in

effect for the funding period in which

the application was approved.

I. Procedure for Funding—§ 960.8

Section 960.8 of the final rule

incorporates several substantive

revisions to provisions in the proposed

rule governing disbursement of AHP

subsidies under a new section entitled

‘‘Procedure for Funding.’’

First, in light of the new provisions in

§ 960.6 permitting a Bank to accept AHP
Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations 41823

applications from institutions with

pending applications for membership,

§ 960.8(a)(1) of the final rule makes

explicit that a Bank may disburse AHP

subsidies only to institutions that are

members of the Bank at the time they

request a draw-down of subsidy. Section

960.8(a)(2) also provides that if an

institution with an approved

application for AHP subsidy fails to

obtain or loses its membership in the

Bank, the Bank may disburse subsidies

to a member of such Bank to which the

institution has transferred its obligations

under the approved application, or the

Bank may disburse subsidies through

another Bank to a member of that Bank

that has assumed the institution’s

obligations under the approved

application.

Second, the provisions in the

proposed rule governing disbursement

of homeownership set-aside funds are

consolidated into § 960.8(b), and a new

provision is added in § 960.8(b)(1)

requiring a Bank to cancel an

application for homeownership setaside funds and make the funds

available for other applicants or for

other AHP-eligible projects if the funds

are not drawn down and used by

eligible households within the period of

time specified by the Bank in its AHP

implementation plan. This is consistent

with current Bank practices and

parallels the requirement for the Banks’

competitive application programs. A

new provision also is added in

§ 960.8(b)(2)(iii), which states that, prior

to disbursement of homeownership setaside funds for counseling purposes, a

Bank must require the member to certify

that: (i) The funds will be used for

counseling of homebuyers who actually

purchase an AHP-assisted unit; (ii) The

cost of the counseling has not been

covered by another funding source,

including the member; and iii) the funds

will be used to pay for only the amount

of such reasonable and customary costs

that exceeds the highest amount the

member has spent annually on

homebuyer counseling costs within the

preceding three years.

Third, the final rule omits the

requirement in the proposed rule that a

Bank obtain, and maintain in its project

file, documents sufficient to

demonstrate compliance with AHP

requirements prior to making

disbursements of AHP subsidy,

including an independent, current

appraisal provided by the member

indicating the fair market value of the

property or project if the member has a

direct or indirect interest in such

property or project. This change is

consistent with the Finance Board’s

intent to streamline the AHP regulation.

The Banks are in the best position to

determine what kinds of documents

must be maintained for purposes of the

Bank’s own recordkeeping and in order

to support Bank decisions in the context

of examinations by the Finance Board.

The issue related to the use of AHP

subsidies in projects involving real

estate owned property provided by a

member is specifically addressed in

§ 960.5(b)(2)(ii) of the final rule, which

is discussed above.

Fourth, § 960.8(c)(3) of the final rule

revises the provisions in the proposed

rule governing changes in a project’s

approved AHP subsidy amount where a

Bank provides a direct subsidy to write

down the principal amount prior to

closing or the interest rate on a loan

provided by a member to a project. The

final rule permits Banks not to increase

the subsidy amount where market

interest rates rise between the time the

subsidy initially is approved by the

Bank and the time the lender commits

to the interest rate to finance the project.

Several Banks objected to the proposed

provision, which made such a subsidy

increase mandatory, on the ground that

subsidy increases should be subject to a

process of negotiation between Banks,

members, and projects in order to

ensure that such increases are justified.

By making such subsidy increases

optional, the final rule is consistent

with the current practices of some of the

Banks.

Fifth, the final rule omits the language

in the proposed rule requiring the Banks

to ensure that AHP subsidies are passed

on to the ultimate borrower, and that the

preponderance of AHP subsidies is

ultimately received by very low-and

low-or moderate-income households.

These requirements, including the

provisions for matched repayment

schedules for Bank subsidized advances

and member loans, are implemented

through § 960.13 of the final rule

governing agreements between Banks

and members.

Sixth, the final rule omits the

requirement in the proposed rule that

each Bank must ensure that the terms of

any member’s participation in a

transaction benefiting from an AHP

subsidy are fair to the Program.

Commenters objected to this

requirement on the grounds that it is too

vague and will discourage member

participation in the Program.

Commenters also suggested this

requirement is duplicative of other

Program requirements intended to

ensure that AHP subsidies are properly

used.

Seventh, § 960.5(b)(2)(iii) of the final

rule incorporates the provision in the

proposed rule requiring each Bank to

ensure that the rate of interest, points,

fees and any other charges for all loans

financing an AHP project do not exceed

a market rate of interest, points, fees,

and other charges for loans of similar

maturity, terms, and risk. The final rule

also requires a Bank to determine that

AHP subsidy is necessary for the

financial feasibility of a project, as

currently structured.

Eighth, the provisions in the proposed

rule governing the lending of direct

subsidies, matched repayment

schedules, and prepayment fees charged

by the Banks are implemented in a

revised form through § 960.13 of the

final rule governing agreements between

Banks and members.

In the case of the matched repayment

schedule requirement, § 960.13(c)(1) of

the final rule provides that the term of

a 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. This is a change from the

proposed rule, which required the

principal repayments received by the

member to be paid over to the Bank.

According to commenters, the language

in the proposed rule was too restrictive,

because it referred to the actual

principal repayments received by

members and omitted mention of a

member’s independent obligation to

repay an advance, without regard to the

amount of principal repayments

received by the member. Consequently,

the language of the final rule is revised

to clarify that the scheduled, rather than

the actual, principal repayments must

be equal, in a 12-month period.

J. Modifications of Applications After

Project Completion—§ 960.9

Section 960.9 of the final rule adds a

new provision permitting members to

obtain modifications to approved AHP

applications under a Bank’s competitive

application program after a project has

been completed, as long as the

modification does not require an

increase in the amount of AHP subsidy

provided to the project. In order for a

project to obtain additional AHP

subsidy after completion, such subsidy

must be approved pursuant to a Bank’s

competitive application program. Under

the proposed rule, modifications were

available only prior to project

completion.

Section 960.9 of the final rule

provides that after final disbursement of

funds to a project from all funding

sources, a Bank, in its discretion, may
41824 Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations

approve in writing a modification to the

terms of an approved application for

subsidy funding the project, other than

an increase in the amount of subsidy, if

there is or will be a change in the

project that materially affects the facts

under which the application was

originally scored and approved under

the Bank’s competitive application

program, provided that: (1) The project

is in financial distress or is at

substantial risk of falling into such

distress; (2) the project sponsor or

owner has made best efforts to avoid

noncompliance with the terms of the

application for subsidy and AHP

requirements; (3) the project,

incorporating any material changes,

would meet Program eligibility

requirements; and (4) 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. The Finance

Board wishes to make clear that where

modifications are requested for

applications that were scored and

approved for funding prior to January 1,

1998, the application shall be rescored

according to the scoring requirements in

effect for the funding period in which

the application was approved.

Section 960.9 is added in response to

comments from the Banks requesting

that the final rule include an alternative

to addressing compliance issues through

the AHP remedial process. See also

§ 960.12. Members, project sponsors,

and project owners should use the

modification process, where possible, as

a means of addressing existing or

potential AHP compliance issues on

their own initiative rather than waiting

for such issues to be brought to light and

addressed through the remedial process.

K. Monitoring Requirements—§ 960.10

and § 960.11

1. In General

Section 10(j)(9)(C) of the Act requires

the Finance Board to issue regulations

ensuring ‘‘that advances made under

[the] program will be used only to assist

projects for which adequate long-term

monitoring is available to guarantee that

affordability standards and other

requirements of [section 10(j) of the Act]

are satisfied.’’ See 12 U.S.C.

1430(j)(9)(C).

The existing AHP regulation requires

each Bank to monitor member and

project compliance with AHP

requirements, but does not establish

specific procedures, standards or

documentation to assist the Banks in

meeting that requirement. See 12 CFR

960.7(b), (c). Sections 960.6(b) and (c) of

the existing regulation require members

to file annual reports and certifications

on the use of AHP subsidies. See id.

§ 960.6(b), (c).

In the absence of specific regulatory

guidance, over the seven years that the

Program has been in operation, the

Banks have attempted to comply with

their monitoring obligations by

developing their own individual

approaches to monitoring. This practice

has led to uncertainty about the

sufficiency of any one monitoring

procedure. In addition, some members

consider the certification and reporting

requirements of the existing regulation

to be too burdensome. In the notice of

proposed rulemaking, the Finance

Board proposed to establish clear,

uniform monitoring procedures and

standards that take into account the

costs of monitoring relative to the

benefits, and reduce the overall

monitoring burden, including

eliminating the annual reporting and

certification requirement for members

under the existing regulation. The

Finance Board’s proposal was based on

the principles that: (1) Monitoring a

project closely in its initial stages of

development will ensure that less

monitoring is necessary in the project’s

later stages of operation; (2) the degree

of monitoring of AHP-assisted projects

should be directly related to the amount

of AHP subsidy funding such projects;

and (3) the Banks should be permitted

to rely, to the extent feasible, on

monitoring by other funding sources.

A number of commenters stated that

the various monitoring requirements in

the proposed rule should be omitted or

that the Banks should be permitted to

develop their own monitoring

procedures. As discussed above, the

lack of clear and consistent standards

may actually contribute to a more

burdensome monitoring scheme, and

the Finance Board intends to prevent

this by setting standards in the

regulation. In addition, the Finance

Board believes that the final rule

provides the Banks with additional

flexibility by permitting them to rely on

long-term monitoring by other entities

for a majority of AHP-assisted rental

projects.

2. Restructuring of the Monitoring

Provisions

The final rule separates the section of

the proposed rule governing monitoring

into two sections governing initial

monitoring requirements and long-term

monitoring requirements, respectively.

In addition, provisions on monitoring

standards have been separated from

provisions requiring that parties’

obligations to comply with monitoring

standards be implemented by specific

agreements. The provisions related to

monitoring agreements are incorporated

in § 960.13(b)(4) of the final rule.

3. Initial Monitoring Requirements

As discussed above, the proposed

provisions governing project monitoring

were based, in part, on the principle

that monitoring a project closely in its

initial stages of development will ensure

that less monitoring is necessary in the

project’s later stages of operation.

Commenters generally supported this

approach. Section 960.10 of the final

rule carries forward the proposed

provisions governing monitoring in the

initial stages of project development,

with the following substantive changes.

First, § 960.10(a)(2)(ii)(C) of the final

rule clarifies that documentation

maintained by rental project owners

must include documentation of project

habitability to support the owner’s

habitability certification to the Bank and

the member. In response to requests for

clarification from commenters, § 960.1

of the final rule makes clear that

‘‘habitable’’ means suitable for

occupancy, taking into account local

health, safety, and building codes. This

definition is consistent with that used

for purposes of monitoring projects

receiving federal Low-Income Housing

Tax Credits.

Second, §§ 960.10(c)(1)(ii) and

(c)(2)(ii) of the final rule provide that for

owner-occupied and rental projects,

respectively, a Bank must review project

documentation at project completion to

determine that a project’s actual costs

were reasonable and customary in

accordance with the Bank’s project

feasibility guidelines, and that the

subsidies provided to the project were

necessary for the financial feasibility of

the project, as currently structured. This

is consistent with the current practice of

many of the Banks, which conduct

closing audits for projects. Several

commenters objected to this provision

on the ground that it may discourage the

use of AHP subsidies as ‘‘first-in’’

money for a project. The concern is that

subsequent funders may be hesitant to

commit funds to a project if AHP

subsidies received by the project are

subject to repayment in cases where a

review of the project at completion

reveals excess costs, and thus

oversubsidization.

The Finance Board believes that

requiring projects receiving AHP

subsidies to demonstrate that their costs

are customary and reasonable is

essential to ensuring that such subsidies

are used in accordance with a project’s

application for funding and the

requirements of the AHP regulation. The
Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations 41825

use of AHP subsidies as ‘‘first-in’’

money can be analogized to an equity

investment. While an equity investor

assumes some risk by providing ‘‘firstin’’ money, no equity holder would

allow use of its investment in a project

for excessive costs. Similarly, under the

final rule, AHP subsidies that serve as

‘‘first-in’’ money will remain in a project

as long as the costs incurred by the

project are reasonable and customary.

Therefore, while the final rule in no way

is intended to prevent AHP subsidies

from being used as ‘‘first-in’’ money, the

final rule provides for safeguards against

misuse of such subsidies, consistent

with the requirements of other funding

sources.

Third, § 960.10(d) of the final rule

makes clear that for purposes of

determining compliance with the

targeting commitments in an AHP

application, such commitments shall be

considered to adjust annually according

to the current median income data.

4. Long-Term Monitoring Requirements

Section 960.11 of the final rule

governing long-term monitoring

requirements after project completion

applies solely to rental projects, because

owner-occupied projects are not subject

to ongoing household income

requirements, and transfers of

ownership are monitored through deed

restrictions. Of the 3,704 existing AHPassisted projects, 1,752 are owneroccupied projects. Therefore, almost

half of all existing AHP-assisted projects

are subject to deed restrictions in lieu of

long-term monitoring. In addition,

§§ 960.11 (a)(1) and (a)(2) of the final

rule make the changes discussed below

to the proposed provisions governing

the long-term monitoring requirements

for rental projects to allow greater

reliance on monitoring by third parties.

a. Reliance on Monitoring by a

Federal, State or Local Government

Entity.

The proposed rule provided that for

projects receiving $500,000 or less of

AHP subsidies, a Bank could rely on

monitoring by a housing credit agency

providing federal Low-Income Housing

Tax Credits to the project if: (1) The

income targeting requirements, the rent

requirements, and the retention period

monitored by the housing credit agency

are the same as, or more restrictive than,

those committed to in the AHP

application; (2) the housing credit

agency agrees to inform the Bank of

instances where tenant rents or incomes

are found to be in noncompliance with

the rent and income targeting

requirements being monitored by the

housing credit agency or where the

project is not in a habitable condition;

(3) the Bank does not have information

that monitoring by such housing credit

agency is not occurring or is inadequate;

and (4) the Bank makes reasonable

efforts to investigate any complaints

received about the project.

The notice of proposed rulemaking

requested comments on whether the

proposed provisions permitting the

Banks to rely on monitoring by other

parties could be expanded to include

government entities other than housing

credit agencies. Comments also were

requested on ways in which the

targeting scoring objective in the

proposed rule could be modified, or

whether it should be eliminated, so that

the income targeting and rent

requirements for AHP projects would be

compatible with those required and

monitored by other government housing

entities.

Commenters identified several other

entities that undertake monitoring for

program standards that are similar, and

in some cases identical, to those under

the AHP. However, it was not apparent

from the comments that there are any

government entities that monitor for

compliance with requirements identical

to those under the AHP on a consistent

basis.

A number of commenters suggested

that the Banks should be permitted to

rely on monitoring by other entities that

provide funding to a project even if the

targeting, rent, and retention

commitments monitored by the other

entity do not match those made by the

project under the AHP. However, the

integrity of the Program’s competitive

application process depends upon

projects being held to the commitments

that they make in order to receive AHP

subsidies. Further, project sponsors or

owners may have a reduced incentive to

comply with these commitments over

the long term where they have the

knowledge that they will not be

monitored according to those

commitments.

The final rule attempts to resolve the

conflict discussed above by permitting

the Banks to evaluate projects under the

AHP scoring process according to the

targeting commitments made by a

project to a government entity providing

funds to the project. As discussed

previously, § 960.6(b)(4)(iv)(C)(1) of the

final rule provides that in order to

facilitate reliance on monitoring by a

federal, state, or local government entity

providing funds or allocating federal

Low-Income Housing Tax Credits to a

project, a Bank, in its discretion, may

score each project according to the

targeting commitments made by the

project to such entity.

In accordance with this change,

§ 960.11(a)(1) of the final rule expands

the extent to which a Bank may rely on

post-completion monitoring by

government entities providing funds to

a project. The final rule provides that for

those projects that receive funds from,

or are allocated federal Low-Income

Housing Tax Credits by, a federal, state,

or local government entity, a Bank may

rely on the monitoring by such entity

after project completion if: (1) The

income targeting requirements, the rent

requirements, and the retention period

monitored by such entity for purposes

of its own program are the same as, or

more restrictive than, those committed

to in the AHP application; (2) the entity

agrees to inform the Bank of instances

where tenant rents or incomes are found

to be in noncompliance with the

requirements being monitored by the

entity or where the project is not

habitable; and (3) the entity has

demonstrated and continues to

demonstrate to the Bank 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.

This is a change from the proposed

rule which, as discussed above, limited

reliance on third-party monitoring to

monitoring conducted by housing credit

agencies. In addition, the proposed rule

limited such reliance to projects

receiving $500,000 or less in AHP

subsidies. The final rule also omits the

requirements in the proposed rule that

in cases where a Bank relies on a

housing credit agency to monitor a

project, the project owner annually must

provide a list of tenant rents and

incomes to the Bank and certify that

they are accurate and in compliance

with the rent and income targeting

commitments made in the AHP

application.

b. Reliance on Monitoring of AHP

Application Commitments By a

Contractor.

Section 960.11(a)(2) of the final rule

also adds a new monitoring option for

the Banks that is intended to expand the

ability of the Banks to rely on postcompletion monitoring by government

entities providing funds to a project,

where the government entity has

different income targeting, rent, and

retention requirements from those

committed to by the project under the

AHP.

Section 960.11(a)(2) provides that, for

those projects that receive funds from,

or are allocated federal Low-Income

Housing Tax Credits by, a federal, state,

or local government entity that monitors

for income targeting requirements, rent

requirements, or retention periods
41826 Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations

under its own program that are less

restrictive than those committed to in

the project’s AHP application, a Bank,

in its discretion, may rely on the

monitoring by such entity if: (1) The

entity agrees to monitor the income

targeting requirements, the rent

requirements, and the retention period

committed to in the AHP application;

(2) the entity agrees to inform the Bank

of instances where tenant rents or

incomes are found to be in

noncompliance with the requirements

committed to in the AHP application or

where the project is not habitable; and

(3) the entity has demonstrated and

continues to demonstrate to the Bank its

ability to carry out such monitoring, and

the Bank does not have information that

such monitoring is not occurring or is

inadequate.

c. Long-Term Monitoring

Requirements Where Reliance on

Government Entities Or Contractors Is

Not Permitted.

Under the final rule, where a Bank is

not permitted to rely on postcompletion monitoring by a federal,

state, or local government entity, the

Bank, members, and project owners

must monitor projects in accordance

with the requirements of § 960.11(a)(3)

of the final rule. Section 960.11(a)(3)

carries forward provisions in the

proposed rule, and makes the following

changes in order to reduce monitoring

costs for Banks, members, and project

owners. First, the final rule omits the

requirement that a project owner

annually must provide a list of tenant

rents and incomes to the Bank.

Second, the final rule omits the

provision in the proposed rule requiring

the owner of a rental project to certify

to the member and the Bank that the

owner regularly informs households

applying for and occupying AHPassisted units of the address of the Bank

that provided the AHP subsidy to

finance the project. The final rule also

eliminates the requirement that the

Bank investigate complaints about the

project. These changes have been made

in response to several comments

objecting to the above provisions on the

ground that they place the Banks in the

middle of landlord-tenant disputes,

which is not an appropriate role for the

Banks.

Third, under § 960.11(a)(3)(ii) of the

final rule, for rental projects receiving

$500,000 or less in AHP subsidy from a

member, the member must perform

exterior visual inspections of projects

and certify to the Bank at least once

every three, rather than two, years that

the project appears to be suitable for

occupancy.

Fourth, under § 960.11(a)(3)(iii)(B)(3)

of the final rule, for rental projects

receiving over $500,000 in AHP

subsidy, a Bank must perform an on-site

review of project documentation for a

sample of the project’s units at least

once every two years, rather than

annually, to verify compliance with the

rent and income targeting commitments

made in the AHP application and

project habitability.

Section 960.11(a)(3)(iv) of the final

rule makes clear that a Bank, in its

discretion, may hire consultants or

outside contractors to perform the

Bank’s ongoing long-term monitoring

activities as the Bank’s agents, for

example, if the Bank determines that

this is more cost-effective than having

its own employees administer the

Bank’s monitoring responsibilities.

d. Annual Adjustment of Targeting

Commitments.

As under the provisions governing

initial monitoring requirements,

§ 960.11(b) of the final rule makes clear

that for purposes of determining

compliance with the targeting

commitments in an AHP application,

such commitments shall be considered

to adjust annually according to the

current median income data.

L. Remedial Actions for

Noncompliance—§ 960.12

1. In General

Section 960.12 of the final rule revises

the structure of the proposed rule

governing remedies for noncompliance

with AHP requirements by separating

provisions on compliance standards

from provisions requiring that

compliance standards be implemented

by specific agreements. The proposed

provisions on compliance standards

governing Banks, members and project

sponsors and owners are retained and

clarified in § 960.12, while provisions

related to compliance agreements are

incorporated in § 960.13 of the final

rule.

2. Project Foreclosure

A number of commenters requested

clarification on the liability of members

and project owners where a project goes

into foreclosure prior to the end of the

retention period. Section 960.12 of the

final rule makes a party’s liability for

repayment of AHP subsidies contingent

upon that party’s action or omission

resulting in noncompliance with AHP

requirements. Therefore, if, due to

circumstances that are not the result of

an action or omission of the member

and project sponsor or owner, a project

goes into foreclosure prior to the end of

the project’s retention period, the

sponsor or owner is not liable for

repayment of subsidies, and the member

is required to recover and repay to the

Bank only that amount that the member

can recover through reasonable

collection efforts, by exercising its legal

rights against the project.

3. Degree of Culpability

Commenters also suggested that a

project sponsor’s or owner’s liability to

repay AHP subsidies should apply to

cases of fraud or gross mismanagement

but not simple negligence. The Finance

Board believes that determinations as to

degrees of culpability are best made on

a case-by-case basis. This is reflected in

§ 960.12(c)(2) of the final rule, which

permits Banks and members to settle

claims for noncompliance taking into

account factors such as the degree of

culpability of the parties involved.

4. Provision for Members, Sponsors, and

Owners to be Parties to Enforcement

Proceedings

Section 960.12(d) of the final rule

adds a new provision permitting a Bank,

in its AHP implementation plan, to

provide for a member, project sponsor,

or project owner to enter into a written

agreement with a Bank under which

such member, sponsor, or owner

consents to be a party to any

enforcement proceeding initiated by the

Finance Board regarding the repayment

of AHP subsidies received by such

member, sponsor, or owner, or the

suspension or debarment of such

parties, provided that the member,

sponsor, or owner has agreed to be

bound by the Finance Board’s final

determination in the enforcement

proceeding. Under such an agreement, a

member, sponsor, or owner who

consents to be subject to a final

determination of the Finance Board will

have the same rights and remedies as a

Bank in seeking review of such a

determination.

5. Suspension and Debarment

Section 960.12(f)(2) of the final rule

revises the provision in the proposed

rule governing suspension and

debarment of members and project

sponsors and owners from participation

in the Program by clarifying that

suspension or debarment by the Finance

Board is implemented through an order

upon a Bank.

6. Procedure for Finance Board Action

Section 960.12(h) of the final rule

clarifies that, except in cases where a

Bank is seeking prior Finance Board

review of a settlement agreement with a

member, any actions taken by the

Finance Board pursuant to section
Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations 41827

960.12 shall be subject to the Finance

Board’s Procedures for Review of

Disputed Supervisory Determinations.

Copies of these procedures are available

from the Finance Board upon request.

M. Agreements—§ 960.13

1. In General

As discussed previously, § 960.13 of

the final rule generally describes the

kinds of agreements Banks must have in

place with members in order to

implement the various standards set

forth in the final rule, including

standards governing monitoring,

retention, and repayment of subsidies.

This section also describes special

provisions that must be in place where

members receive subsidized advances

and direct subsidies, respectively. The

final rule is not intended to prescribe

the form of agreements between Banks

and members or whether such

agreements consist of one agreement or

several separate agreements. Nor is a

Bank precluded from making entities in

addition to members, such as project

sponsors or owners, parties to such

agreements.

2. Retention Agreements

Sections 960.13(c) (4) and (5) and (d)

(1) and (2) of the final rule incorporate

and carry forward the provisions of the

proposed rule governing retention of

owner-occupied and rental projects.

Section 960.1 of the final rule carries

forward the provisions of the proposed

rule defining the retention period as five

years from closing for an AHP-assisted

owner-occupied unit, and 15 years from

the date of project completion for an

AHP-assisted rental project. A number

of commenters supported these

retention periods. Some commenters

supported other retention periods

ranging from 3 to 25 years in the case

of owner-occupied units, and 5 to 30

years in the case of rental projects. In

light of the significant support for the

proposed retention periods, the final

rule retains the proposed retention

periods.

The notice of proposed rulemaking

requested comments on whether

repayment of AHP subsidy should be

required in all cases of refinancing by

the homeowner prior to the end of the

retention period of an AHP-assisted

unit, rather than just in cases where the

homeowner fails to ensure that the unit

continues to be subject to a retention

mechanism after the refinancing.

Refinancing may allow the owner of an

AHP-assisted unit, in effect, to take the

subsidy out of the unit prior to the end

of the five-year retention period, which

may be perceived as a windfall to the

owner. However, homeowners,

generally, can take advantage of lower

interest rates by refinancing their unit,

and households that purchase AHPassisted units should not be denied this

opportunity. As long as the owner of an

AHP-assisted unit ensures that after the

refinancing, the unit continues to be

subject to the initial AHP retention

requirement, the goal of the Program is

met.

Several commenters supported

permitting refinancing without penalty,

while others suggested various

permutations of repayment

requirements in this situation. The

Finance Board continues to believe that

households that have AHP-assisted

units should be allowed to benefit from

appreciation in the value of their homes,

through refinancing or otherwise, to the

same extent as other homeowners, as

long as AHP retention requirements are

satisfied. Therefore, § 960.13(d)(1)(iii) of

the final rule carries forward the

proposed provision on this issue, but

makes this provision parallel with

§ 960.13(d)(1)(ii), which provides for

pro rata repayment of the AHP subsidy

upon sale of an AHP-assisted unit,

unless the unit continues to be subject

to the initial AHP retention

requirement.

The notice of proposed rulemaking

also requested comments on whether an

owner of an AHP-assisted rental project

should be required to repay the entire

amount of AHP subsidy, versus a pro

rata share, where the project is sold

prior to the end of the retention period

and the subsequent owner fails to agree

in writing to comply with the incomeeligibility and affordability restrictions

committed to in the AHP application.

This requirement may serve to

discourage the conversion of AHPassisted rental projects into projects that

charge market rents, prior to the end of

the retention period. Several

commenters supported requiring full

repayment of subsidy where an AHPassisted rental project is converted to

market-rate housing. Despite good

arguments on both sides of the issue, the

Finance Board, as a matter of policy, has

decided to retain this requirement in the

final rule as a disincentive for project

conversion prior to the end of the

retention period. Therefore, §§ 960.13

(c)(5)(iii) and (d)(2)(iii) of the final rule

carry forward the proposed provisions

on this issue.

3. Termination of Income-Eligibility and

Affordability Restrictions Upon

Foreclosure

Sections 960.13 (c)(5)(iv) and

(d)(2)(iv) of the final rule add a

requirement that Banks include in their

agreements with members a provision

that the income-eligibility and

affordability restrictions applicable to

an AHP-assisted rental project may

terminate upon foreclosure or upon

transfer in lieu of foreclosure. This

change was made in response to

requests from commenters for

clarification on this issue.

4. Lending of Direct Subsidies

For various tax reasons, sponsors

prefer to structure projects involving

federal Low-Income Housing Tax

Credits so that AHP direct subsidies are

loaned to the project. This use of direct

subsidies raises the question whether

the direct subsidies, which are grants,

are being passed on to the ultimate

recipients, as required under section

10(j)(9)(E) of the Act, since they may be

repaid by the recipients. See 12 U.S.C.

1430(j)(9)(E).

The proposed rule reflected an

attempt to accommodate the needs of

sponsors and the statutory requirement

governing the pass-through of AHP

subsidies. It provided that a member or

a sponsor may lend a direct subsidy in

connection with an AHP-assisted rental

project involving federal Low-Income

Housing Tax Credits, provided that all

payments by the borrower are deferred

until the end of the loan term and no

interest is charged. Upon repayment of

the loan, the entire amount of the direct

subsidy had to be repaid to the Bank.

Commenters stated that the proposed

provisions did not adequately reflect the

way that rental project financing is

structured in all cases. For instance,

members or sponsors may charge

interest on direct subsidies lent to

projects and may not require deferral of

repayments. Section 960.13(d)(3) of the

final rule is intended to broaden the

language of the provisions of the

proposed rule in order to make the final

rule compatible with these financing

structures. It provides that if a member

or a project sponsor lends a 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. The final rule also no longer

limits lending of direct subsidies solely

to situations involving projects

receiving federal Low-Income Housing

Tax Credits. This requirement is to be

implemented through inclusion in

agreements between Banks, members,

and project sponsors.

5. Transfer of AHP Obligations Where a

Member Loses Its Membership In the

Bank

Section 960.13(b)(5) of the final rule

provides that the member must make
41828 Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations

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.

Under § 960.13(c)(6), 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

upon prepayment or orderly liquidation

by the nonmember of the subsidized

advance. Under § 960.13(d)(4), 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.

III. Regulatory Flexibility Act

The final rule applies only to the

Banks, which do not come within the

meaning of ‘‘small entities,’’ as defined

in the Regulatory Flexibility Act (RFA).

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

accordance with section 605(b) of the

RFA, see id. section 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.

IV. Paperwork Reduction Act

As part of the notice of proposed

rulemaking, the Finance Board

published a request for comments

concerning proposed changes to the

collection of information in the existing

AHP regulation, see 61 FR 57799,

57819–57820 (Nov. 8, 1996), which

previously was approved by the Office

of Management and Budget (OMB) and

assigned OMB control number 3096–

0006. The revised collection of

information was submitted to OMB for

review in accordance with section

3507(d) of the Paperwork Reduction Act

of 1995, 44 U.S.C. 3507(d). The Finance

Board also submitted to OMB for its

approval an analysis of the proposed

changes to the collection of information

resulting from the proposed rule. The

Finance Board received one comment

on the proposed changes. The

commenter suggested that the reporting

and recordkeeping burden of the

information collection may be

understated on the grounds that it is not

based on current hour and cost

estimates and does not take into account

the monitoring requirements in the

proposed rule. The Finance Board based

the hour and cost burden estimates for

the information collection on current

information available at the time the

estimates were made. Further, the

Finance Board’s analysis of the

information collection on file at OMB

specifically sets forth hour and cost

burden estimates for those aspects of the

information collection related to

monitoring. The Finance Board

continues to believe that the burden

estimates are accurate.

OMB has assigned a control number

3096–0006 and approved the revised

information collection without

conditions with an expiration date of

December 31, 1999. Potential

respondents are not required to respond

to the collection of information unless

the regulation collecting the information

displays a currently valid control

number assigned by the OMB. See 44

U.S.C. 3512(a).

Although the final rule does not

substantively or materially modify the

approved information collection, it

provides additional options in

complying with long-term monitoring

requirements, which may, in some

cases, reduce the reporting and

recordkeeping burden on respondents.

The estimated annual reporting and

recordkeeping hour burden is:

a. Number of respondents—7462.

b. Total annual responses—9949.

Percentage of these responses collected

electronically—0%

c. Total annual hours requested—

64,274.

d. Current OMB inventory—33,067.

e. Difference—31,207.

The estimated annual reporting and

recordkeeping cost burden is:

a. Total annualized capital/startup

costs—0.

b. Total annual costs (O&M)—0.

c. Total annualized cost requested—

$2,117,450.00.

d. Current OMB inventory—0.

e. Difference—$2,117,450.00.

Comments concerning the

information collection may be

submitted to the Finance Board in

writing at the address listed above and

to the Office of Information and

Regulatory Affairs of OMB, Attention:

Desk Officer for Federal Housing

Finance Board, Washington, DC 20503.

List of Subjects in 12 CFR Part 960

Credit, Federal home loan banks,

Housing, Reporting and recordkeeping

requirements.

Accordingly, the Finance Board

hereby revises part 960 of chapter IX,

title 12, Code of Federal Regulations to

read as follows.

PART 960—AFFORDABLE HOUSING

PROGRAM

Sec.

960.1 Definitions.

960.2 Required annual AHP contributions.

960.3 Operation of Program and adoption of

AHP implementation plan.

960.4 Advisory Councils.

960.5 Minimum eligibility standards for

AHP projects.

960.6 Procedure for approval of

applications for funding.

960.7 Modifications of applications prior to

project completion.

960.8 Procedure for funding.

960.9 Modifications of applications after

project completion.

960.10 Initial monitoring requirements.

960.11 Long-term monitoring requirements.

960.12 Remedial actions for

noncompliance.

960.13 Agreements.

960.14 Temporary suspension of AHP

contributions.

960.15 Affordable Housing Reserve Fund.

960.16 Application to existing AHP

projects.

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

§ 960.1 Definitions.

As used in this part:

Act means the Federal Home Loan

Bank Act, as amended (12 U.S.C. 1421

et seq.).

Advance means a loan to a member

from a Bank that is:

(1) Provided pursuant to a written

agreement; (2) Supported by a note or

other written evidence of the member’s

obligation; and

(3) Fully secured by collateral in

accordance with the Act and part 935 of

this chapter.

Affordable means that the rent

charged to a household for a unit that

is committed to be affordable in an AHP

application does not exceed 30 percent

of the income of a household of the

maximum income and size expected,

under the commitment made in the

AHP application, to occupy the unit

(assuming occupancy of 1.5 persons per

bedroom or 1.0 person per unit without

a separate bedroom).

AHP or Program means the Affordable

Housing Program established pursuant

to 12 U.S.C. 1430(j) and this part.

Bank means a Federal Home Loan

Bank established under the authority of

the Act.

Board of Directors means the Board of

Directors of the Finance Board.

CIP means a Bank’s Community

Investment Program established under

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

1430(i)).

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.
Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations 41829

Direct subsidy means an AHP subsidy

in the form of a direct cash payment, but

does not include homeownership setaside funds.

Family member means any individual

related to a person by blood, marriage or

adoption.

Finance Board means the agency

established as the Federal Housing

Finance Board.

Habitable means suitable for

occupancy, taking into account local

health, safety, and building codes.

Homeless household means a

household made up of one or more

individuals, other than individuals

imprisoned or otherwise detained

pursuant to state or federal law, who:

(1) Lack a fixed, regular, and adequate

nighttime residence; or

(2) Have a primary nighttime

residence that is:

(i) A supervised publicly or privately

operated shelter designed to provide

temporary living accommodations

(including welfare hotels, congregate

shelters, and transitional housing for the

mentally ill);

(ii) An institution that provides a

temporary residence for individuals

intended to be institutionalized; or

(iii) A public or private place not

designed for, or ordinarily used as, a

regular sleeping accommodation for

human beings.

Homeownership set-aside funds

means funds provided to a member by

a Bank pursuant to a Bank’s

homeownership set-aside program.

HUD means the Department of

Housing and Urban Development.

Low-or moderate-income household.

(1) Owner-occupied projects. For

purposes of an owner-occupied project,

low-or moderate-income household

means a household which, at the time

it is qualified by the sponsor for

participation in the project, has an

income of 80 percent or less of the

median income for the area.

(2) Rental projects. (i) In general. For

purposes of a rental project, low-or

moderate-income household means a

household which, upon initial

occupancy of a rental unit, has an

income at or below 80 percent of the

median income for the area.

(ii) Housing with current occupants.

In the case of projects involving the

purchase or rehabilitation of rental

housing with current occupants, low-or

moderate-income household means an

occupying household which, at the time

the purchase or rehabilitation is

completed, has an income at or below

80 percent of the median income for the

area.

(3) Family-size adjustment. The

income limit for low-or moderateincome households may be adjusted for

family size in accordance with the

methodology of the applicable median

income standard.

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. (1)

Owner-occupied projects. A Bank shall

identify in its AHP implementation plan

one or more of the following median

income standards from which all owneroccupied projects may choose for

purposes of the AHP:

(i) The median income for the area, as

published annually by HUD;

(ii) 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;

(iii) The median income for the area,

as published by the United States

Department of Agriculture; or

(iv) The 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, and approved by the

Board of Directors, at the request of a

Bank, for use under the AHP.

(2) Rental projects. A Bank shall

identify in its AHP implementation plan

one or more of the following median

income standards from which all rental

projects may choose for purposes of the

AHP:

(i) The median income for the area, as

published annually by HUD; or

(ii) The 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, and approved by the

Board of Directors, at the request of a

Bank, for use under the AHP.

(3) Procedure for approval. Prior to

requesting approval by the Board of

Directors of a median income standard,

a Bank shall amend its AHP

implementation plan to permit the use

of such standard, conditioned on Board

of Directors approval. Requests for

approval of median income standards

shall receive prompt consideration by

the Board of Directors.

Member means an institution that has

been approved for membership in a

Bank and has purchased capital stock in

the Bank in accordance with §§ 933.20

and 933.24 of this chapter.

Net earnings of a Bank means the net

earnings of a Bank for a calendar year

after deducting the Bank’s pro rata share

of the annual contribution to the

Resolution Funding Corporation

required under sections 21A or 21B of

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

before declaring any dividend under

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

Owner-occupied project means a

project involving the purchase,

construction, or rehabilitation of owneroccupied housing, including

condominiums and cooperative

housing, by or for very low-or low-or

moderate-income households.

Owner-occupied unit means a unit in

an owner-occupied project.

Rental project means a project

involving the purchase, construction, or

rehabilitation of rental housing,

including transitional housing for

homeless households and mutual

housing, where at least 20 percent of the

units in the project are occupied by and

affordable for very low-income

households.

Retention period means:

(1) 5 years from closing for an AHPassisted owner-occupied unit; and

(2) 15 years from the date of project

completion for a rental project.

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

(1) Has an ownership interest

(including any partnership interest) in a

rental project; or

(2) Is integrally involved in an owneroccupied 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.

State means a state of the United

States, the District of Columbia, Guam,

Puerto Rico, or the U.S. Virgin Islands.

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 shall equal the net

present value of the interest foregone

from making the loan below the lender’s

market interest rate (calculated as of the

date the AHP application is submitted

to the Bank, and subject to adjustment

under § 960.8(c)(3));

(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, 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
41830 Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations

its asset/liability management system, or

otherwise; or

(3) Homeownership set-aside funds.

Very low-income household. (1)

Owner-occupied projects. For purposes

of an owner-occupied project, very lowincome household means a household

which, at the time it is qualified by the

sponsor for participation in the project,

has an income at or below 50 percent of

the median income for the area.

(2) Rental projects. (i) In general. For

purposes of a rental project, very lowincome household means a household

which, upon initial occupancy of a

rental unit, has an income at or below

50 percent of the median income for the

area.

(ii) Housing with current occupants.

In the case of projects involving the

purchase or rehabilitation of rental

housing with current occupants, very

low-income household means an

occupying household which, at the time

the purchase or rehabilitation is

completed, has an income at or below

50 percent of the median income for the

area.

(3) Family-size adjustment. The

income limit for very low-income

households may be adjusted for family

size in accordance with the

methodology of the applicable median

income standard.

§ 960.2 Required annual AHP

contributions.

Each Bank shall contribute annually

to its Program the greater of:

(a) 10 percent of the Bank’s net

earnings for the previous year; or

(b) 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.

§ 960.3 Operation of Program and

adoption of AHP implementation plan.

(a) Allocation of AHP contributions.

(1) Homeownership set-aside programs.

Each Bank, after consultation with its

Advisory Council, may set aside

annually, in the aggregate, up to the

greater of $1.5 million or 15 percent of

its annual required AHP contribution to

provide funds to members participating

in the Bank’s homeownership set-aside

programs, pursuant to the requirements

of this part. In cases where the amount

of homeownership set-aside funds

applied for by members in a given year

exceeds the amount available for that

year, a Bank may allocate up to the

greater of $1.5 million or 15 percent of

its annual required AHP contribution

for the subsequent year to the current

year’s homeownership set-aside

programs. A Bank may establish one or

more homeownership set-aside

programs pursuant to written policies

adopted by the Bank’s board of

directors. A Bank’s board of directors

shall not delegate to Bank officers or

other Bank employees the responsibility

for adopting such policies.

(2) Competitive application program.

That portion of a Bank’s required annual

AHP contribution that is not set aside to

fund homeownership set-aside

programs shall be provided to members

through a competitive application

program, pursuant to the requirements

of this part.

(b) AHP implementation plan. (1)

Adoption of plan. Each Bank’s board of

directors shall adopt a written AHP

implementation plan which shall set

forth:

(i) The applicable median income

standard or standards, adopted by the

Bank consistent with the definition of

median income for the area in § 960.1;

(ii) The requirements for any

homeownership set-aside programs

adopted by the Bank pursuant to

paragraph (a)(1) of this section;

(iii) The Bank’s project feasibility

guidelines, adopted consistent with

§ 960.5(b)(2);

(iv) The Bank’s schedule for AHP

funding periods;

(v) Any additional District eligibility

requirement, adopted by the Bank

pursuant to § 960.5(b)(10);

(vi) The Bank’s scoring guidelines,

adopted by the Bank consistent with

§ 960.6(b)(4);

(vii) The Bank’s time limits on use of

AHP subsidies and procedures for

verifying compliance upon

disbursement of AHP subsidies

pursuant to § 960.8; and

(viii) The Bank’s procedures for

carrying out its monitoring obligations

under §§ 960.10(c) and 960.11.

(2) No delegation. A Bank’s board of

directors shall not delegate to Bank

officers or other Bank employees the

responsibility for adopting the AHP

implementation plan, or any subsequent

amendments thereto.

(3) Advisory Council review. Prior to

adoption of the Bank’s AHP

implementation plan, and any

subsequent amendments thereto, the

Bank shall provide its Advisory Council

an opportunity to review the plan and

any subsequent amendments, and the

Advisory Council shall provide its

recommendations to the Bank’s board of

directors.

(4) Submission of plan to the Finance

Board. A Bank shall submit its initial

AHP implementation plan, and any

amendments, to the Finance Board and

the Bank’s Advisory Council at least 60

days prior to distributing requests for

applications for AHP subsidies for the

funding period in which the plan, or

amendments, will be effective.

(5) Public Access. A Bank’s initial

AHP implementation plan, and any

subsequent amendments, shall be made

available to members of the public,

upon request.

(c) Conflicts of interest—(1) Bank

directors and employees. 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) Advisory Council members. 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.

(3) No delegation. A Bank’s board of

directors shall not delegate to Bank

officers or other Bank employees the

responsibility to adopt conflicts of

interest policies.

(d) Reporting. Each Bank shall

provide such reports and

documentation concerning its Program

as the Finance Board may request from

time to time.

§ 960.4 Advisory Councils.

(a) In general. Each Bank’s board of

directors shall appoint an Advisory

Council of from 7 to 15 persons who

reside in the Bank’s District and are

drawn from community and not-forprofit organizations actively involved in

providing or promoting low- and

moderate-income housing in the

District.

(b) Nominations and appointments.

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. The Bank’s

board of directors shall appoint

Advisory Council members giving

consideration to the size of the Bank’s
Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations 41831

District and the diversity of low- and

moderate-income housing needs and

activities within the District.

(c) Diversity of membership. In

appointing the Advisory Council, a

Bank’s board of directors shall ensure

that the membership includes persons

drawn from a diverse range of

organizations, provided that

representatives of no one group shall

constitute an undue proportion of the

membership of the Advisory Council.

(d) Terms of Advisory Council

members. The Bank’s board of directors

shall appoint Advisory Council

members to serve for no more than three

consecutive terms of three years each,

and such terms shall be staggered to

provide continuity in experience and

service to the Advisory Council.

(e) Election of officers. Each Advisory

Council may elect from among its

members a chairperson, a vice

chairperson, and any other officers the

Advisory Council deems appropriate.

(f) Duties.—(1) Meetings with the

Banks. Representatives of the board of

directors of the Bank shall meet with the

Advisory Council at least quarterly to

obtain the Advisory Council’s advice on

ways in which the Bank can better carry

out its housing finance and community

investment mission, including, but not

limited to, advice on the low- and

moderate-income housing and

community investment 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.

(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 report to the Finance

Board. Each Advisory Council shall

submit to the Finance Board annually

by March 1 its analysis of the low- and

moderate-income housing and

community development activity of the

Bank by which it is appointed.

(g) 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.

§ 960.5 Minimum eligibility standards for

AHP projects.

(a) Homeownership set-aside

programs. A Bank’s homeownership setaside programs must meet the following

requirements:

(1) Homeownership set-aside funds

must be provided to members pursuant

to allocation criteria established by the

Bank;

(2) Members must provide

homeownership set-aside funds only to

households that:

(i) Are low-or moderate-income

households, as defined in § 960.1;

(ii) 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;

and

(iii) Meet such other eligibility criteria

that may be established by the Bank,

such as a matching funds requirement

or criteria that give priority for the

purchase or rehabilitation of housing in

particular areas or as part of a disaster

relief effort;

(3) Members must provide

homeownership set-aside funds to

households as a grant, in an amount up

to a maximum of $10,000 per

household, as established by the Bank,

which limit shall apply to all

households;

(4) Households must use

homeownership set-aside funds to pay

for downpayment, closing cost,

counseling, or rehabilitation assistance

in connection with the household’s

purchase or rehabilitation of an owneroccupied housing unit, including a

condominium or cooperative housing

unit, to be used as the household’s

primary residence;

(5) A housing unit purchased or

rehabilitated using homeownership setaside funds must be subject to a

retention agreement described in

§ 960.13(d)(1);

(6) If a member is providing mortgage

financing to a participating household,

the member must provide financial or

other incentives in connection with

such mortgage financing, and the rate of

interest, points, fees, and any other

charges by the member must not exceed

a reasonable market rate of interest,

points, fees, and other charges for a loan

of similar maturity, terms, and risk;

(7) Homeownership set-aside funds

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;

(ii) The cost of the counseling has not

been covered by another funding source,

including the member; and

(iii) The homeownership set-aside

funds are used to pay only for the

amount of such reasonable and

customary costs that exceeds the highest

amount the member has spent annually

on homebuyer counseling costs within

the preceding three years; and

(8) Homeownership set-aside funds

must be drawn down and used by

eligible households within the period of

time specified by the Bank in its AHP

implementation plan.

(b) Competitive application program.

Projects receiving AHP subsidies

pursuant to a Bank’s competitive

application program must meet the

eligibility requirements of this

paragraph (b).

(1) Owner-occupied or rental housing.

A project must be either an owneroccupied project or a rental project, as

defined, respectively, in § 960.1.

(2) Project feasibility and need for

subsidy—(i) Sources and uses of funds.

The project’s estimated uses of funds

must equal its estimated sources of

funds, as reflected in the project’s

development budget. A project’s sources

of funds must include:

(A) Estimates of funds the project

sponsor intends to obtain from other

sources but which have not yet been

committed to the project; and

(B) Estimates of the market value of

in-kind donations and volunteer

professional labor or services committed

to the project, but not the value of

sweat-equity.

(ii) Project costs—(A) In general.

Project costs, as reflected in the project’s

development budget, must be

reasonable and customary, in

accordance with the Bank’s project

feasibility guidelines, in light of:

(1) Industry standards for the location

of the project; and

(2) The long-term financial needs of

the project.

(B) 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 for the property or

services was agreed upon. In the case of

real estate owned property sold to a

project by a member providing AHP

subsidy to a project, or property sold to

the project upon which the member

holds a mortgage or lien, the market

value of such property is deemed to be

the ‘‘as-is’’ or ‘‘as-rehabilitated’’ value of

the property, whichever is appropriate,

as reflected in an independent appraisal

of the property performed within six

months prior to the date the purchase

price for the property was agreed upon.

(iii) Operational feasibility and need

for subsidy. The project must be
41832 Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations

operationally feasible, in accordance

with the Bank’s project feasibility

guidelines, based on relevant factors

including, but not limited to, applicable

financial ratios, geographic location of

the project, needs of tenants, and other

non-financial project characteristics.

The requested AHP subsidy must be

necessary for the financial feasibility of

the project, as currently structured, and

the rate of interest, points, fees, and any

other charges for all loans financing the

project must not exceed a market rate of

interest, points, fees, and other charges

for loans of similar maturity, terms, and

risk.

(3) Timing of subsidy use. 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

subsidy funding the project.

(4) Prepayment, cancellation, and

processing fees. The project must not

use AHP subsidies to pay for:

(i) Prepayment fees imposed by a

Bank on a member for a subsidized

advance that is prepaid, unless,

subsequent to such prepayment, the

project will continue to comply with the

terms of the application for the subsidy,

as approved by the Bank, and the

requirements of this part for the

duration of the original retention period,

and any unused subsidy is returned to

the Bank and made available for other

AHP projects;

(ii) Cancellation fees and penalties

imposed by a Bank on a member for a

subsidized advance commitment that is

canceled; or

(iii) Processing fees charged by

members for providing direct subsidies

to a project.

(5) 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.

(6) Refinancing. If the project uses

AHP subsidies to refinance an existing

single-family or multifamily mortgage

loan, the equity proceeds of the

refinancing must be used only for the

purchase, construction, or rehabilitation

of housing units meeting the eligibility

requirements of this paragraph (b).

(7) Retention—(i) Owner-occupied

projects. The project’s AHP-assisted

units are or are committed to be subject

to a retention agreement described in

§ 960.13 (c)(4) or (d)(1).

(ii) Rental projects. AHP-assisted

rental projects are or are committed to

be subject to a retention agreement

described in § 960.13 (c)(5) or (d)(2).

(8) Project sponsor qualifications. A

project’s sponsor must be qualified and

able to perform its responsibilities as

committed to in the application for

subsidy funding the project.

(9) Fair housing. The project, as

proposed, must comply with any

applicable fair housing law

requirements and demonstrate how the

project will be affirmatively marketed.

(10) District eligibility requirements.

(i) A project receiving AHP subsidies

may be required by a Bank to meet one

or more of the following additional

eligibility requirements adopted by a

Bank’s board of directors, after

consultation with its Advisory Council:

(A) A requirement that the amount of

subsidy requested for the project does

not exceed limits established by the

Bank as to the maximum amount of

AHP subsidy available per member each

year; or per member, per project, or per

project unit in a single funding period;

(B) A requirement that the project is

located in the Bank’s District; or

(C) A requirement that the member

submitting the application has made use

of a credit product offered by the Bank,

other than AHP or CIP credit products,

within the previous 12 months.

(ii) District eligibility requirements

must apply equally to all members.

§ 960.6 Procedure for approval of

applications for funding.

(a) Homeownership set-aside

programs. A Bank shall accept

applications for homeownership setaside funds from members and may, in

its discretion, accept applications from

institutions with pending applications

for membership in the Bank. The Bank

shall approve applications in

accordance with the Bank’s criteria

governing the allocation of funds.

(b) Competitive application

program—(1) Funding periods; amounts

available. A Bank shall accept

applications for funding under its

competitive application program from

members and may, in its discretion,

accept applications from institutions

with pending applications for

membership in the Bank. A Bank may

accept applications for funding during a

specified number of funding periods

each year, as determined by the Bank.

The amount of subsidies offered in each

funding period shall be comparable.

(2) Submission of applications. A

Bank shall require applicants for AHP

subsidies to submit information

sufficient for the Bank to:

(i) Determine that the proposed AHP

project meets the eligibility

requirements of § 960.5(b); and

(ii) Evaluate the application pursuant

to the scoring criteria in paragraph (b)(4)

of this section.

(3) Review of applications for project

eligibility. A Bank shall review

applications to determine that the

proposed AHP project meets the

eligibility requirements of § 960.5(b).

(4) Scoring of applications—(i) In

general. A Bank shall score only those

applications meeting the eligibility

requirements of § 960.5(b). A Bank shall

not adopt additional scoring criteria or

point allocations, except as specifically

authorized under this paragraph (b)(4).

A Bank shall adopt written guidelines

implementing the scoring requirements

of this paragraph (b)(4).

(ii) Point allocations. A Bank shall

allocate 100 points among the nine

scoring criteria identified in paragraph

(b)(4)(iv) of this section. The scoring

criterion identified in paragraph

(b)(4)(iv)(C) of this section shall be

allocated at least 20 points. The

remaining scoring criteria shall be

allocated at least five points each.

(iii) Satisfaction of scoring criteria. A

Bank shall designate each scoring

criterion as either a fixed-point or a

variable-point criterion. Variable-point

criteria are those where there are

varying degrees to which an application

can satisfy the criteria. The number of

points that may be awarded to an

application for meeting a variable-point

criterion will vary, depending on the

extent to which the application satisfies

the criterion, compared to the other

applications being scored. A Bank shall

designate the scoring criteria identified

in paragraphs (b)(4)(iv) (C) and (H) of

this section as variable-point criteria.

The application(s) best achieving each

variable-point criterion shall receive the

maximum point score available for that

criterion, with the remaining

applications scored on a declining scale.

Fixed-point criteria are those which

cannot be satisfied in varying degrees

and are either satisfied, or not. An

application meeting a fixed-point

criterion shall be awarded the total

number of points allocated to that

criterion.

(iv) Scoring criteria. An application

for a proposed project may receive

points based on satisfaction of the nine

scoring criteria set forth in this

paragraph (b)(4)(iv).

(A) Use of donated governmentowned or other properties. The creation

of housing using a significant

proportion of units or land donated or

conveyed for a nominal price by the

federal government or any agency or
Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations 41833

instrumentality thereof, or by any other

party.

(B) 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.

(C) Targeting. The extent to which a

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

households.

(1) 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. In order to facilitate

reliance on monitoring by a federal,

state, or local government entity

providing funds or allocating federal

Low-Income Housing Tax Credits to a

proposed project, a Bank, in its

discretion, may score each project

according to the targeting commitments

made by the project to such entity, and

the Bank shall include such scoring

practice in its AHP implementation

plan.

(2) Owner-occupied projects.

Applications for owner-occupied

projects shall be awarded points based

on the percentage of units in the project

to be provided to households with

incomes at or below 80 percent of the

median income for the area. Points shall

be awarded on a declining scale, with

projects having the highest percentage

of units targeted to households with the

lowest percentage of median income for

the area awarded the highest number of

points.

(3) Separate scoring. For purposes of

this scoring criterion, applications for

owner-occupied projects and rental

projects may be scored separately.

(D) Housing for homeless households.

The creation of transitional housing,

excluding overnight shelters, for

homeless households permitting a

minimum of six months occupancy, or

the creation of rental housing reserving

at least 20 percent of the units for

homeless households.

(E) 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 decisionmaking 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.

(F) First District priority. The

satisfaction of one of the following

criteria, or one of a number of the

following criteria, as recommended by

the Bank’s Advisory Council and

adopted by the Bank’s board of directors

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:

(1) Special needs. The creation of

housing in which at least 20 percent of

the units are reserved for occupancy by

households with special needs, such as

the elderly, mentally or physically

disabled persons, persons recovering

from physical abuse or alcohol or drug

abuse, or persons with AIDS;

(2) Community development. The

creation 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;

(3) First-time homebuyers. The

financing of housing for first-time

homebuyers;

(4) 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;

(5) Disaster areas. The financing of

housing located in federally declared

disaster areas;

(6) Rural. The financing of housing

located in rural areas;

(7) Urban. The financing of urban infill or urban rehabilitation housing;

(8) Economic diversity. The creation

of housing that is part of a strategy to

end isolation of very low-income

households by providing economic

diversity through mixed-income

housing in low- or moderate-income

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

with housing opportunities in areas

where the median household income

exceeds 80 percent of the median

income for the area;

(9) 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;

(10) Community involvement.

Demonstrated support for the project by

local government, community

organizations, or individuals other than

as project sponsors through the

commitment by such entities or

individuals of donated goods and

services, or volunteer labor;

(11) Lender consortia. The

involvement of financing by a

consortium of at least two financial

institutions; or

(12) In-District projects. The creation

of housing located in the Bank’s District.

(G) Second District priority—defined

housing need in the District. The

satisfaction of a housing need in the

Bank’s District, as defined and

recommended by the Bank’s Advisory

Council and adopted by the Bank’s

board of directors and set forth in the

Bank’s AHP implementation plan. The

Bank may, but is not required to, use

one of the criteria listed in paragraph

(b)(4)(iv)(F) of this section, provided it

is different from the criterion or criteria

adopted by the Bank under paragraph

(b)(4)(iv)(F) of this section.

(H) AHP subsidy per unit. 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. For purposes of this scoring

criterion, applications for owneroccupied projects and rental projects

may be scored separately.

(I) 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.

(5) Approval of applications—(i)

Approval by Bank’s board. The board of

directors of each Bank shall approve

applications in descending order
41834 Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations

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.

The board of directors also shall

approve at least the next four highest

scoring applications as alternates and,

within one year of approval, may fund

such alternates if any previously

committed AHP subsidies become

available.

(ii) No delegation. A Bank’s board of

directors shall not delegate to Bank

officers or other Bank employees the

responsibility to approve or disapprove

AHP applications.

§ 960.7 Modifications of applications prior

to project completion.

(a) Modification procedure. Prior to

final disbursement of funds to a project

from all funding sources, a Bank, in its

discretion, may approve in writing a

modification to the terms of an

approved application for subsidy

funding the project if there is or will be

a change in the project that materially

affects the facts under which the

application was originally scored and

approved under the Bank’s competitive

application program, provided that:

(1) The project, incorporating any

such changes, would meet the eligibility

requirements of § 960.5(b);

(2) 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

(3) There is good cause for the

modification.

(b) Modifications involving a subsidy

increase. 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.

§ 960.8. Procedure for funding.

(a) Disbursement of subsidies to

members. (1) A Bank may disburse AHP

subsidies only to institutions that are

members of the Bank at the time they

request a draw-down of subsidy.

(2) If an institution with an approved

application for AHP subsidy fails to

obtain or loses its membership in a

Bank, the Bank may disburse subsidies

to a member of such Bank to which the

institution has transferred its obligations

under the approved application, or the

Bank may disburse subsidies through

another Bank to a member of that Bank

that has assumed the institution’s

obligations under the approved

application.

(b) Homeownership set-aside

programs—(1) Time limit on use of

subsidies. If homeownership set-aside

funds are not drawn down and used by

eligible households within the period of

time specified by the Bank in its AHP

implementation plan, the Bank shall

cancel the application for funds and

make the funds available for other

applicants for homeownership set-aside

funds or for other AHP-eligible projects.

(2) Member certification upon

disbursement. Prior to disbursement of

homeownership set-aside funds by a

Bank to a member, the Bank shall

require the member to certify that:

(i) The funds received from the Bank

will be provided to a household meeting

the eligibility requirements of

§ 960.5(a)(2);

(ii) If the member is providing

mortgage financing to the household,

the member will provide financial or

other incentives in connection with

such mortgage financing, and the rate of

interest, points, fees, and any other

charges by the member will not exceed

a reasonable market rate of interest,

points, fees, and other charges for a loan

of similar maturity, terms, and risk; and

(iii) Funds received from the Bank for

homebuyer counseling costs will be

provided according to the requirements

of § 960.5(a)(7).

(c) Competitive application

program—(1) Time limit on use of

subsidies. If AHP subsidies approved for

a project under a Bank’s competitive

application program are not drawn

down and used by the project within the

period of time specified by the Bank in

its AHP implementation plan, the Bank

shall cancel its approval of the

application for the subsidies and make

the subsidies available for other AHPeligible projects.

(2) Compliance upon disbursement of

subsidies. A Bank shall verify prior to

its initial disbursement of subsidies for

an approved project, and prior to each

disbursement thereafter, that the project

meets the eligibility requirements of

§ 960.5(b) and all obligations committed

to in the approved application.

(3) Changes in approved AHP subsidy

amount where a direct subsidy is used

to write down prior to closing the

principal amount or interest rate on a

loan.—(i) Change in subsidy amount. If

a member is approved to receive a 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 subsidy required to maintain the debt

service cost for the loan decreases from

the amount of 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

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 may, in its

discretion, increase the subsidy amount

accordingly.

(ii) Reconciliation of AHP fund. 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.

§ 960.9 Modifications of applications after

project completion.

Modification procedure. After final

disbursement of funds to a project from

all funding sources, a Bank, in its

discretion, may approve in writing a

modification to the terms of an

approved application for subsidy

funding the project, other than an

increase in the amount of subsidy

approved for the project, if there is or

will be a change in the project that

materially affects the facts under which

the application was originally scored

and approved under the Bank’s

competitive application program,

provided that:

(a) The project is in financial distress,

or is at substantial risk of falling into

such distress;

(b) The project sponsor or owner has

made best efforts to avoid

noncompliance with the terms of the

application for subsidy and the

requirements of this part;

(c) The project, incorporating any

material changes, would meet the

eligibility requirements of § 960.5(b);

and

(d) 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.

§ 960.10 Initial monitoring requirements.

(a) Requirements for project sponsors

and owners—(1) Owner-occupied

projects. (i) During the period of

construction or rehabilitation of an

owner-occupied project, the project

sponsor must report to the member

semiannually on whether reasonable
Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations 41835

progress is being made towards

completion of the project.

(ii) Where AHP subsidies are used to

finance the purchase of owner-occupied

units, the project sponsor must certify

annually to the member and the Bank,

until all approved AHP subsidies are

provided to eligible households in the

project, that those households receiving

AHP subsidies during the year were

eligible households, and such

certifications shall be supported by

household income verification

documentation maintained by the

project sponsor and available for review

by the member or the Bank.

(2) Rental projects. (i) During the

period of construction or rehabilitation

of a rental project, the project owner

must report to the member

semiannually on whether reasonable

progress is being made towards

completion of the project.

(ii) Within the first year after project

completion, the project owner must:

(A) Certify to the member and the

Bank that the services and activities

committed to in the AHP application

have been provided in connection with

the project;

(B) Provide a list of actual tenant rents

and incomes to the member and the

Bank and certify that:

(1) The tenant rents and incomes are

accurate and in compliance with the

rent and income targeting commitments

made in the AHP application; and

(2) The project is habitable; and

(C) Maintain documentation regarding

tenant rents and incomes and project

habitability available for review by the

member or the Bank, to support such

certifications.

(b) Requirements for members—(1)

Owner-occupied projects. (i) During the

period of construction or rehabilitation

of an owner-occupied project, the

member must take the steps necessary to

determine whether reasonable progress

is being made towards completion of the

project and must report to the Bank

semiannually on the status of the

project.

(ii) Within one year after

disbursement to a project of all

approved AHP subsidies, the member

must review the project documentation

and certify to the Bank that:

(A) The AHP subsidies have been

used according to the commitments

made in the AHP application; and

(B) The AHP-assisted units are subject

to deed restrictions or other legally

enforceable retention agreements or

mechanisms meeting the requirements

of § 960.13(c)(4) or (d)(1);

(2) Rental projects. (i) During the

period of construction or rehabilitation

of a rental project, the member must

take the steps necessary to determine

whether reasonable progress is being

made towards completion of the project

and must report to the Bank

semiannually on the status of the

project.

(ii) Within the first year after project

completion, the member must review

the project documentation and certify to

the Bank that:

(A) The project is habitable;

(B) The project meets its income

targeting commitments; and

(C) The rents charged for incometargeted units do not exceed the

maximum levels committed to in the

AHP application.

(c) Requirements for Banks—(1)

Owner-occupied projects. Each Bank

must take the steps necessary to

determine, based on a review of the

documentation for a sample of projects

and units within one year of receiving

the certifications described in paragraph

(b)(1)(ii) of this section that:

(i) The incomes of the households that

own the AHP-assisted units did not

exceed the levels committed to in the

AHP application at the time the

households were qualified by the

sponsor to participate in the project;

(ii) The AHP subsidies were used for

eligible purposes, the project’s actual

costs were reasonable and customary in

accordance with the Bank’s project

feasibility guidelines, and the subsidies

were necessary for the financial

feasibility of the project, as currently

structured; and

(iii) The AHP-assisted units are

subject to deed restrictions or other

legally enforceable retention agreements

or mechanisms meeting the

requirements of § 960.13(c)(4) or (d)(1).

(2) Rental projects. Each Bank must

take the steps necessary to determine

that:

(i) Within the first year after

completion of a rental project, the

services and activities committed to in

the AHP application have been

provided in connection with the project;

and

(ii) The AHP subsidies were used for

eligible purposes, the project’s actual

costs were reasonable and customary in

accordance with the Bank’s project

feasibility guidelines, and the subsidies

were necessary for the financial

feasibility of the project, as currently

structured.

(d) Annual adjustment of targeting

commitments. For purposes of

determining compliance with the

targeting commitments in an AHP

application, 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

remains affordable, as defined in

§ 960.1, for the household occupying the

unit.

§ 960.11 Long-term monitoring

requirements.

(a) Rental projects. For purposes of

monitoring a rental project, Banks,

members, and project owners shall carry

out their long-term monitoring

obligations pursuant to one of the three

methods set forth in this paragraph (a).

(1) Reliance on monitoring by a

federal, state or local government entity.

For those projects that receive funds

from, or are allocated federal LowIncome Housing Tax Credits by, a

federal, state, or local government

entity, a Bank may rely on the

monitoring by such entity if:

(i) The income targeting requirements,

the rent requirements, and the retention

period monitored by such entity for

purposes of its own program are the

same as, or more restrictive than, those

committed to in the AHP application;

(ii) The entity agrees to inform the

Bank of instances where tenant rents or

incomes are found to be in

noncompliance with the requirements

being monitored by the entity or where

the project is not habitable; and

(iii) The entity has demonstrated and

continues to demonstrate to the Bank 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.

(2) Reliance on monitoring of AHP

application commitments by a

contractor. For those projects that

receive funds from, or are allocated

federal Low-Income Housing Tax

Credits by, a federal, state, or local

government entity that monitors for

income targeting requirements, rent

requirements, or retention periods

under its own program that are less

restrictive than those committed to in

the project’s AHP application, a Bank,

in its discretion, may rely on the

monitoring by such entity if:

(i) The entity agrees to monitor the

income targeting requirements, the rent

requirements, and the retention period

committed to in the AHP application;

(ii) The entity agrees to inform the

Bank of instances where tenant rents or

incomes are found to be in

noncompliance with the requirements

committed to in the AHP application or

where the project is not habitable; and

(iii) The entity has demonstrated and

continues to demonstrate to the Bank its

ability to carry out such monitoring, and

the Bank does not have information that
41836 Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations

such monitoring is not occurring or is

inadequate.

(3) Long-term monitoring by the

Banks, members, and project owners. In

cases where a Bank does not rely on

monitoring by a federal, state, or local

government entity pursuant to

paragraphs (a)(1) or (a)(2) of this section,

the Bank, members, and project owners

shall monitor rental projects according

to the requirements in this paragraph

(a)(3).

(i) Requirements for project owners. In

the second year after completion of a

rental project and annually thereafter

until the end of the project’s retention

period, the project owner must:

(A) Certify to the Bank that:

(1) The tenant rents and incomes are

in compliance with the rent and income

targeting commitments made in the

AHP application; and

(2) The project is habitable; and

(B) Maintain documentation regarding

tenant rents and incomes and project

habitability available for review by the

Bank, to support such certifications.

(ii) Requirements for members. For

rental projects receiving $500,000 or

less in AHP subsidy from a member,

during the period from the second year

after project completion to the end of

the project’s retention period, the

member must certify to the Bank at least

once every three years, based on an

exterior visual inspection, that the

project appears to be suitable for

occupancy.

(iii) Requirements for Banks—(A)

Certifications received by the Bank.

Each Bank shall review certifications

provided by project owners and

members regarding tenant rents and

incomes and project habitability.

(B) Review of project documentation.

Each Bank shall review documentation

maintained by the project owner

regarding tenant rents and incomes and

project habitability to verify compliance

with the rent and income targeting

commitments in the AHP application

and project habitability, according to the

following schedule:

(1) $50,001 to $250,000. For projects

receiving $50,001 to $250,000 of AHP

subsidies, the Bank must review project

documentation for a sample of the

project’s units at least once every six

years;

(2) $250,001 to $500,000. For projects

receiving $250,001 to $500,000 of AHP

subsidies, the Bank must review project

documentation for a sample of the

project’s units at least once every four

years; and

(3) Over $500,000. For projects

receiving over $500,000 of AHP

subsidies, the Bank must perform an onsite review of project documentation for

a sample of the project’s units at least

once every two years.

(C) Sampling plan. A Bank may use

a reasonable sampling plan to select the

projects monitored each year and to

review the project documentation

supporting the certifications made by

members and project owners.

(iv) Monitoring by a contractor. A

Bank, in its discretion, may contract

with a third party to carry out the

Bank’s monitoring obligations set forth

in paragraph (a)(3)(iii) of this section.

(b) Annual adjustment of targeting

commitments. For purposes of

determining compliance with the

targeting commitments in an AHP

application, 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

remains affordable, as defined in

§ 960.1, for the household occupying the

unit.

§ 960.12 Remedial actions for

noncompliance.

(a) Repayment of subsidies by

members—(1) Noncompliance by

member. A member shall repay to the

Bank the amount of any subsidies (plus

interest, if appropriate) that, as a result

of the member’s actions or omissions, is

not used in compliance with the terms

of the application for the subsidy, as

approved by the Bank, and the

requirements of this part, unless:

(i) The member cures the

noncompliance within a reasonable

period of time; or

(ii) The circumstances of

noncompliance are eliminated through a

modification of the terms of the

application for the subsidy pursuant to

§§ 960.7 or 960.9.

(2) Noncompliance by project

sponsors or owners—(i) Duty to recover

subsidies. A member shall recover from

the sponsor of an owner-occupied

project or the owner of a rental project

and repay to the Bank the amount of any

subsidies (plus interest, if appropriate)

that, as a result of the sponsor’s or

owner’s actions or omissions, is not

used in compliance with the terms of

the application for the subsidy, as

approved by the Bank, and the

requirements of this part, unless:

(A) The sponsor or owner cures the

noncompliance within a reasonable

period of time; or

(B) The circumstances of

noncompliance are eliminated through a

modification of the terms of the

application for the subsidy pursuant to

§§ 960.7 or 960.9.

(ii) Limitation on duty to recover

subsidies. The member shall not be

liable to the Bank for the return of

amounts that cannot be recovered from

the project sponsor or owner through

reasonable collection efforts by the

member.

(b) Repayment of subsidies by project

sponsors or owners. A sponsor of an

owner-occupied project and the owner

of a rental project shall repay to the

member the amount of any subsidies

(plus interest, if appropriate) that, as a

result of the sponsor’s or owner’s

actions or omissions, is not used in

compliance with the terms of the

application for the subsidy, as approved

by the Bank, and the requirements of

this part, unless:

(1) The sponsor or owner cures the

noncompliance within a reasonable

period of time; or

(2) The circumstances of

noncompliance are eliminated through a

modification of the terms of the

application for the subsidy pursuant to

§§ 960.7 or 960.9.

(c) Requirements for Banks—(1) Duty

to recover subsidies. A Bank shall

recover from a member:

(i) The amount of any subsidies (plus

interest, if appropriate) that, as a result

of the member’s actions or omissions, is

not used in compliance with the terms

of the application for the subsidy, as

approved by the Bank, and the

requirements of this part; and

(ii) The amount of any subsidies

recovered by a member from the

sponsor of an owner-occupied project or

the owner of a rental project pursuant to

the requirements of paragraph (a)(2) of

this section.

(2) Settlements. A Bank may enter

into an agreement or other arrangement

with a member for the purpose of

settling claims against the member for

repayment of subsidies. If a Bank enters

into a settlement that results in the

return of a sum that is less than the full

amount of any AHP subsidy that is not

used in compliance with the terms of

the application for the subsidy, as

approved by the Bank, and the

requirements of this part, the Bank may

be required by the Finance Board to

reimburse its AHP fund in the amount

of any shortfall under paragraph (c)(3) of

this section, unless:

(i) 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 noncomplying parties

and the extent of the Bank’s recovery

efforts); or
Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations 41837

(ii) The Bank obtains a determination

from the Board of Directors 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 noncomplying parties

and the extent of the Bank’s recovery

efforts).

(3) Reimbursement of AHP fund. The

Finance Board may order a Bank to

reimburse its AHP fund in an

appropriate amount upon determining

that:

(i) As a result of the Bank’s actions or

omissions, AHP subsidy is not used in

compliance with the terms of the

application for the subsidy, as approved

by the Bank, and the requirements of

this part; or

(ii) The Bank has failed to recover

AHP subsidy from a member pursuant

to the requirements of paragraph (c)(1)

of this section, and has not shown such

failure is reasonably justified,

considering factors such as the extent of

the Bank’s recovery efforts.

(d) Parties to enforcement

proceedings. A Bank, in its AHP

implementation plan, may provide for a

member, project sponsor, or project

owner to enter into a written agreement

with a Bank under which such member,

sponsor, or owner consents to be a party

to any enforcement proceeding initiated

by the Finance Board regarding the

repayment of AHP subsidies received by

such member, sponsor, or owner, or the

suspension or debarment of such

parties, provided that the member,

sponsor, or owner has agreed to be

bound by the Finance Board’s final

determination in the enforcement

proceeding.

(e) Use of repaid subsidies. Amounts

repaid to a Bank pursuant to this section

shall be made available for other AHPeligible projects.

(f) Suspension and debarment—(1) At

a Bank’s initiative. A Bank may suspend

or debar a member, project sponsor, or

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 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 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

application for AHP subsidy or the

requirements of this part.

(g) 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.

(h) Finance Board actions under this

section. Except as provided in

paragraph (c)(2)(ii) of this section,

actions taken by the Finance Board

pursuant to this section shall be subject

to the Finance Board’s Procedures for

Review of Disputed Supervisory

Determinations.

§ 960.13 Agreements.

(a) Agreements between Banks and

members. A Bank shall have in place

with each member receiving a

subsidized advance or direct subsidy an

agreement or agreements containing the

provisions set forth in this section.

(b) General provisions—(1) Subsidy

pass-through. The member shall pass on

the full amount of the AHP subsidy to

the project, or household in the case of

homeownership set-aside funds, for

which the subsidy was approved.

(2) Use of subsidy—(i) Use of subsidy

by the member. The member shall use

the AHP subsidy in accordance with the

terms of the member’s application for

the subsidy, as approved by the Bank,

and the requirements of this part.

(ii) Use of subsidy by the project

sponsor or owner. The member shall

have in place an agreement with the

sponsor of an owner-occupied project

and each owner of a rental project in

which the sponsor or owner agrees to

use the AHP subsidy in accordance with

the terms of the member’s application

for the subsidy, as approved by the

Bank, and the requirements of this part.

(3) Repayment of subsidies in case of

noncompliance—(i) Noncompliance by

the member. The member shall repay

subsidies to the Bank in accordance

with the requirements of § 960.12(a)(1).

(ii) Noncompliance by a project

sponsor or owner—(A) Agreement. The

member shall have in place an

agreement with the sponsor of an

owner-occupied project and each owner

of a rental project in which the sponsor

or owner agrees to repay AHP subsidies

in accordance with the requirements of

§ 960.12(b).

(B) Recovery of subsidies. The

member shall recover from the project

sponsor or owner and repay to the Bank

any subsidy in accordance with the

requirements of § 960.12(a)(2).

(4) Project monitoring—(i) Monitoring

by the member. The member shall

comply with the monitoring

requirements of §§ 960.10(b) and

960.11(a)(3)(ii).

(ii) Monitoring by the project sponsor.

The member shall have in place an

agreement with the sponsor of an

owner-occupied project in which the

sponsor agrees to comply with the

monitoring requirements of

§ 960.10(a)(1).

(iii) Monitoring by the project owner.

The member shall have in place an

agreement with the owner of a rental

project in which the owner agrees to

comply with the monitoring

requirements of §§ 960.10(a)(2) and

960.11(a)(3)(i).

(5) Transfer of AHP obligations to

another member. The member will

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.

(c) Special provisions where members

obtain subsidized advances—(1)

Repayment schedule. The term of the

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.

(2) Prepayment fees. Upon a

prepayment of the subsidized advance,

the Bank shall charge a prepayment fee

only to the extent the Bank suffers an

economic loss from the prepayment.

(3) Treatment of loan prepayment by

project. If all or a portion of the loan or

loans financed by a subsidized advance

are prepaid by the project to the

member, the member may, at its option,

either:

(i) 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

(ii) 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.
41838 Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations

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

ensure that an owner-occupied unit

financed by a loan from the proceeds of

a subsidized advance 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; and

(ii) In the case of a refinancing prior

to the end of the retention period, the

full amount of the interest rate subsidy

received by the owner, based on the pro

rata portion of the interest rate subsidy

imputed to the subsidized advance

during the period the owner occupied

the unit prior to refinancing, shall be

repaid to the Bank from any net gain

realized upon the refinancing, unless

the unit continues to be subject to a

deed restriction or other legally

enforceable retention agreement or

mechanism described in this paragraph

(c)(4).

(5) Retention agreements for rental

projects. The member shall ensure that

a rental project financed by a loan from

the proceeds of a subsidized advance 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

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

interest rate subsidy received by the

owner, based on the pro rata portion of

the interest rate subsidy imputed to the

subsidized advance during the period

the owner owned the project prior to the

sale or refinancing, shall be repaid to

the Bank, unless 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 AHP

application for the duration of the

retention period; and

(iv) The income-eligibility and

affordability restrictions applicable to

the project may terminate upon

foreclosure or upon transfer in lieu of

foreclosure.

(6) Transfer of AHP obligations 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 upon

prepayment or orderly liquidation by

the nonmember of the subsidized

advance.

(d) Special provisions where members

obtain direct subsidies—(1) Retention

agreements for owner-occupied units.

The member shall ensure that an owneroccupied unit financed by the proceeds

of a direct subsidy is subject to a deed

restriction or other legally enforceable

retention agreement or mechanism

requiring that:

(i) The Bank or its designee is to be

given notice of any sale or refinancing

of the unit occurring prior to the end of

the retention period;

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

end of the retention period, an amount

equal to a pro rata share of the direct

subsidy, reduced for every year the

seller owned the unit, shall be repaid to

the Bank from any net gain realized

upon the sale of the unit after deduction

for sales expenses, unless the purchaser

is a low-or moderate-income household;

and

(iii) In the case of a refinancing prior

to the end of the retention period, an

amount equal to a pro rata share of the

direct subsidy, reduced for every year

the occupying household has owned the

unit, shall be repaid to the Bank from

any net gain realized upon the

refinancing, unless the unit continues to

be subject to a deed restriction or other

legally enforceable retention agreement

or mechanism described in this

paragraph (d)(1).

(2) Retention agreements for rental

projects. The member shall ensure that

a rental project financed by the proceeds

of a direct subsidy 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

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, an amount equal to the

full amount of the direct subsidy shall

be repaid to the Bank, unless 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 AHP application for the duration

of the retention period; and

(iv) The income-eligibility and

affordability restrictions applicable to

the project may terminate upon

foreclosure or upon transfer in lieu of

foreclosure.

(3) Lending of direct subsidies. If a

member or a project sponsor lends a

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.

(4) Transfer of AHP obligations 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.

§ 960.14 Temporary suspension of AHP

contributions.

(a) Application for temporary

suspension—(1) Notification to Finance

Board. If a Bank finds that the

contributions required pursuant to

§ 960.2 are contributing to the financial

instability of the Bank, the Bank shall

notify the Finance Board promptly, and

may apply in writing to the Finance

Board for a temporary suspension of

such contributions.

(2) Contents. A Bank’s application for

a temporary suspension of contributions

shall include:

(i) The period of time for which the

Bank seeks a suspension;

(ii) The grounds for a suspension;

(iii) A plan for returning the Bank to

a financially stable position; and

(iv) The Bank’s annual financial

report for the preceding year, if

available, and the Bank’s most recent

quarterly and monthly financial

statements and any other financial data

the Bank wishes the Finance Board to

consider.

(b) Board of Directors review of

application for temporary suspension—

(1) Determination of financial

instability. In determining the financial

instability of a Bank, the Board of

Directors shall consider such factors as:

(i) Whether the Bank’s earnings are

severely depressed;

(ii) Whether there has been a

substantial decline in the Bank’s

membership capital; and
Federal Register / Vol. 62, No. 149 / Monday, August 4, 1997 / Rules and Regulations 41839

(iii) Whether there has been a

substantial reduction in the Bank’s

advances outstanding.

(2) Limitations on grounds for

suspension. The Board of Directors shall

disapprove an application for a

temporary suspension if it determines

that the Bank’s reduction in earnings is

a result of:

(i) A change in the terms of advances

to members which is not justified by

market conditions;

(ii) Inordinate operating and

administrative expenses; or

(iii) Mismanagement.

(c) Board of Directors decision. The

Board of Directors’ decision shall be in

writing and shall be accompanied by

specific findings and reasons for its

action. If the Board of Directors

approves a Bank’s application for a

temporary suspension, the Board of

Directors’ written decision shall specify

the period of time such suspension shall

remain in effect.

(d) Monitoring. During the term of a

temporary suspension approved by the

Board of Directors, the affected Bank

shall provide to the Board of Directors

such financial reports as the Board of

Directors shall require to monitor the

financial condition of the Bank.

(e) Termination of suspension. If,

prior to the conclusion of the temporary

suspension period, the Board of

Directors determines that the Bank has

returned to a position of financial

stability, the Board of Directors may,

upon written notice to the Bank,

terminate the temporary suspension.

(f) Application for extension of

temporary suspension period. If a

Bank’s board of directors determines

that the Bank has not returned to, or is

not likely to return to, a position of

financial stability at the conclusion of

the temporary suspension period, the

Bank may apply in writing for an

extension of the temporary suspension

period, stating the grounds for such

extension.

§ 960.15 Affordable Housing Reserve

Fund.

(a) Reserve Fund—(1) 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

§ 960.2, 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 must be

deposited in the Affordable Housing

Reserve Fund.

(2) Use or commitment of funds.

Approval of applications for AHP

subsidies sufficient to exhaust the

amount a Bank is required to contribute

pursuant to § 960.2 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:

(i) The next highest scoring AHP

application in the Bank’s final funding

period of the year for its competitive

application program; or

(ii) Pending applications for funds

under the Bank’s homeownership setaside programs.

Such insufficient amounts shall be

carried over for use or commitment

during the following year.

(b) Annual statement. By January 15

of each year, each Bank shall provide to

the Finance Board a statement

indicating the amount of unused and

uncommitted funds from the prior year,

if any, which will be deposited in the

Affordable Housing Reserve Fund.

(c) Annual notification. By January 31

of each year, the Finance Board shall

notify the Banks of the total amount of

funds, if any, available in the Affordable

Housing Reserve Fund.

§ 960.16 Application to existing AHP

projects.

The requirements of section 10(j) of

the Act and the provisions of this part,

as amended, are incorporated into all

agreements between Banks, members,

sponsors, or owners receiving AHP

subsidies. 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.

By the Board of Directors of the Federal

Housing Finance Board.

Dated: June 25, 1997.

Bruce A. Morrison,

Chairman.

[FR Doc. 97–20046 Filed 8–1–97; 8:45 am]

BILLING CODE 6725–01–U

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. 97–NM–149–AD; Amendment

39–10100; AD 97–16–08]

RIN 2120–AA64

Airworthiness Directives; Fokker

Model F28 Mark 0100 Series Airplanes

AGENCY: Federal Aviation

Administration, DOT.

ACTION: Final rule; request for

comments.

SUMMARY: This amendment adopts a

new airworthiness directive (AD),

applicable to certain Fokker Model F28

Mark 0100 series airplanes. This action

requires a one-time inspection to detect

fatigue cracking of the hinges of the

cargo doors, and repair, if necessary.

This amendment is prompted by reports

indicating that, during inspections of

the cargo door area, fatigue cracking of

hinges of the cargo doors was detected.

The actions specified by the proposed

AD are intended to detect and correct

such cracking, which could result in

structural failure of the cargo doors, and

consequent rapid decompression of the

airplane and possible separation of the

cargo doors from the airplane during

flight.

DATES: Effective August 19, 1997.

The incorporation by reference of

certain publications listed in the

regulations is approved by the Director

of the Federal Register as of August 19,

1997.

Comments for inclusion in the rules

docket must be received on or before

October 3, 1997.

ADDRESSES: Submit comments in

triplicate to the Federal Aviation

Administration (FAA), Transport

Airplane Directorate, ANM–103,

Attention: Rules Docket No. 97–NM–

149–AD, 1601 Lind Avenue, SW.,

Renton, Washington 98055–4056.

The service information referenced in

this AD may be obtained from Fokker

Services B.V., Technical Support

Department, P.O. Box 75047, 1117 ZN

Schiphol Airport, The Netherlands. This

information may be examined at the

FAA, Transport Airplane Directorate,

1601 Lind Avenue, SW., Renton,

Washington; or at the Office of the

Federal Register, 800 North Capitol

Street, NW., suite 700, Washington, DC.

FOR FURTHER INFORMATION CONTACT: Tim

Dulin, Aerospace Engineer,

Standardization Branch, ANM–113,

FAA, Transport Airplane Directorate,

1601 Lind Avenue, SW., Renton,