Federal Register / Vol. 62, No. 153 / Friday, August 8, 1997 / Notices 42793

FEDERAL HOUSING FINANCE BOARD

[97–N–6]

Pilot Mortgage Program Proposed by

the Federal Home Loan Bank of Seattle

AGENCY: Federal Housing Finance

Board.

ACTION: Notice.

SUMMARY: The Federal Housing Finance

Board (Finance Board) is requesting

public comment prior to its

consideration of a proposal by the

Federal Home Loan Bank of Seattle

(FHLBank of Seattle) to initiate a pilot

mortgage purchase program. The

Finance Board will review and consider

all comments prior to taking action on

the proposal. The FHLBank of Seattle is

proposing to invest up to $25 million

total in Federal Housing Agency (FHA)-

insured loans originated by its members

and non-member mortgagees to

affordable housing developers and local

government agencies. The loans would

finance rent-to-own programs for lowand moderate-income households

wishing to become homeowners. The

FHLBank of Seattle has identified a

credit need for the program and

anticipates that the program can provide

more favorable pricing than would

otherwise be available while preserving

the Bank’s and System’s triple-A rating.

DATES: Comments must be received in

writing on or before September 8, 1997.

ADDRESSES: Individuals wishing to

submit comments should provide

written comments by mail to: Elaine L.

Baker, Secretary to the Board, Federal

Housing Finance Board, 1777 F Street,

N.W., Washington, D.C. 20006.

Comments will be available for public

inspection at this address.

FOR FURTHER INFORMATION CONTACT:

Greg Goggans, Senior Financial Analyst,

Office of Policy, (202) 408–2878, or Roy

S. Turner, Jr., Attorney-Advisor, (202)

408–2512, Office of General Counsel,

Federal Housing Finance Board, 1777 F

Street, N.W., Washington, D.C. 20006.

SUPPLEMENTARY INFORMATION:

I. Background

The Federal Home Loan Bank Act

(Bank Act) provides that the part of the

assets of each Federal Home Loan Bank

(Bank) except reserves and amounts

provided for at 12 U.S.C. 1431(g)) not

required for advances to members, may

be utilized for certain types of

investments. This includes, to such

extent as the Bank may deem desirable

and subject to such regulations,

restrictions, and limitations as may be

prescribed by the Finance Board, such

securities in which fiduciary and trust

funds may be invested under the laws

of the State in which the Bank is

located. See 12 U.S.C. 1431(h). The

Finance Board implements the

investment provisions of the Bank Act

through the Financial Management

Policy (FMP).

The FMP establishes a framework

within which the Banks are allowed to

implement prudent and responsible

financial management strategies that

assist them in accomplishing their

mission, and in generating income

sufficient to meet their financial

obligations, in a safe, sound, and

profitable manner. Section II of the FMP

specifies certain types of assets as

permissible investments to the extent

they are specifically authorized under

12 U.S.C. 1431(g), 1431(h), or 1436(a) of

the Bank Act, or to the extent a Bank has

determined that they are securities in

which fiduciary or trust funds may be

invested under the laws of the state in

which the Bank is located. Investments

that support housing and community

development are permitted, provided

that the Bank:

Ensures the appropriate levels of expertise,

establishes policies, procedures, and

controls, and provides for any reserves

required to effectively limit and manage risk

exposure and preserve the triple-A rating of

the Bank and the Federal Home Loan Bank

System:

Ensures that its involvement in such

investment activity assists in providing

housing and community development

financing that is not generally available, or

that is available at lower levels or under less

attractive terms;

Ensures that such investment activity

promotes (or at the very least, does not

detract from) the cooperative nature of the

System;

Provides a complete description of the

contemplated investment activity (including

a comprehensive analysis of how the above

three requirements are fulfilled) to the

Finance Board; and

Receives written confirmation from the

Finance Board, prior to entering into such

investments, that the above investment

eligibility standards and requirements have

been satisfied.

II. Pilot Proposal

The FHLBank of Seattle proposes

investing up to a total of $25 million in

FHA-insured loans originated by its

members and non-member mortgagees

to Housing and Urban Development

(HUD)-eligible public and private nonprofit organizations such as affordable

housing developers and local

government agencies. The purpose of

the loans will be to finance rent-to-own

programs for low- and moderate-income

households. The loans will be 15- to 30-

year, fully amortizing, fixed-rate

mortgages that are FHA-insured under

Section 203 of the Federal Housing Act.

The terms of the proposal, which have

not yet been considered by the Finance

Board and are subject to change as part

of the review process, are set out below.

Borrowers (non-profit organizations

and local government agencies) will

enter into ‘‘lease to own’’ arrangements

with low- and moderate-income

households wishing to become

homeowners. A portion of each lease

payment will be set aside until a

sufficient amount is accumulated to

make the 3 percent down-payment

required for an FHA-insured loan. At

that point, the tenant(s), if qualified

under FHA program guidelines, will

assume the mortgage. FHA insurance

will be maintained throughout the life

of the loan.

The loans will be originated by the

FHLBank of Seattle’s members and nonmember mortgagees, that have been

certified by HUD as Direct Endorsement

Underwriters. The originators or other

designated program participants will

service the loans and must be HUDFHA-approved or Government National

Mortgage Association (GNMA)-

approved servicing agents.

According to the proposal, all risk

associated with these loans are

manageable. All loans will be

underwritten to FHA standards and the

FHA will guarantee the principal

repayment of each loan. The FHLBank

of Seattle will sign a loan purchase and

servicing agreement with each program

participant. The originators will service

the loan or contract with a FHLBank of

Seattle-approved loan servicer. The

servicer will handle all assignments or

foreclosure activities, and assume

responsibility for any shortfall in

interest income. The servicer will

absorb any interest losses. The servicing

agreement will require the servicer to

recover any expenses, such as

foreclosures, from FHA. The agreement

will include a buy-back clause for any

loan determined to be ineligible for FHA

insurance and/or not in compliance

with State and Federal housing

regulations. The FHLBank of Seattle

will periodically review financial

statements of all servicers and will

monitor whether servicers remain in

good standing with HUD.

The FHLBank of Seattle believes that

because of these risk management

efforts, losses are not probable and

estimable and reserves are therefore

unnecessary under generally accepted

accounting principles. The Finance

Board has final authority as to what

reserves, if any, may be required for this

program.

Interest-rate risk management will be

handled the same as a pass-through
42794 Federal Register / Vol. 62, No. 153 / Friday, August 8, 1997 / Notices

1Single-Family pools for GNMA I securities are

required to be $1 million or more while such pools

for GNMA II securities have a minimum of

$250,000. Loans placed into GNMA I securities may

not vary by more than 50 basis points in rate

whereas loans securitized into GNMA II securities

may vary by 50 to 150 basis points in rate. The

small pool size and the broader range enables more

loans to fit into the GNMA II pools.

security with a mix of consolidated

obligations and other asset/liability

management tools. Liquidity risk will be

mitigated by the relatively small size of

the pilot.

The FHLBank of Seattle will purchase

the loans at a price/yield equivalent to

that quoted for loans securitizing GNMA

I securities instead of the lower price/

yields for loans securitizing GNMA II

securities. The FHLBank of Seattle

indicates that the FHA-insured loans

that will be purchased under the

program are normally securitized into

GNMA II securities instead of GNMA I

securities because of the low volume of

such loans, longer time to originate, and

wider range of interest rates.1

The proposal also notes that the pilot

will assist in providing financing under

more attractive terms than are generally

available. Program participants may sell

such loans for immediate delivery to

FHLBank of Seattle instead of

accumulating a pool of loans required to

securitize a GNMA security. This

reduces the cost to the lender since it no

longer has to hold the loans and hedge

the interest rate risk associated with the

loans until such time as sufficient

quantity is accumulated for GNMA

pooling. The lender may request from

the FHLBank of Seattle a forward

commitment of up to six months on a

loan rate. Additionally, the FHLBank of

Seattle will pay a servicing fee of 50

basis points to the servicer (lender)

instead of the 44 basis points paid by

GNMA (net of a 6 basis points fee for

insurance).

The FHLBank of Seattle also believes

that the pilot advances the mission of

the Bank System because the pilot will

stimulate more lending for lease-to-own

programs. According to the FHLBank of

Seattle, lease-to-own programs are

costly for lenders to develop because of

the low mortgage amounts as well as the

higher costs associated with

underwriting loans to non-profits and

local housing agencies compared to

loans to families/individuals. The

FHLBank of Seattle intends to work to

reduce the amount of time and hence

the cost of underwriting the loans by

providing technical advice to lenders

and borrowers. In addition, origination

of these types of loans for sale to the

FHLBank of Seattle creates an

opportunity for member and

nonmember mortgagees to transact

Community Reinvestment Act-eligible

lending at more favorable rates.

Finally, the FHLBank of Seattle

believes that its proposal would

enhance the cooperative nature of the

System because the loans will be

originated by members and approved

non-member mortgagees of the

FHLBank of Seattle. In addition, the

FHLBank of Seattle will only purchase

such loans directly from these

originators and thereby provide a

secondary market outlet for them.

Members have informed the FHLBank of

Seattle that the lack of a secondary

market outlet has impeded them from

making this type of loan. The proposal

indicates that the pilot will therefore

enhance the flow of credit to an underserved segment of the mortgage market.

Dated: August 1, 1997.

William W. Ginsberg,

Managing Director.

[FR Doc. 97–20815 Filed 8–7–97; 8:45 am]

BILLING CODE 6725–01–M

FEDERAL MARITIME COMMISSION

Notice of Agreement(s) Filed

The Commission hereby gives notice

of the filing of the following

agreement(s) under the Shipping Act of

1984.

Interested parties can review or obtain

copies of agreements at the Washington,

DC offices of the Commission, 800

North Capitol Street, N.W., Room 962.

Interested parties may submit comments

on an agreement to the Secretary,

Federal Maritime Commission,

Washington, DC 20573, within 10 days

of the date this notice appears in the

Federal Register.

Agreement No.: 202–011284–030.

Title: Equipment Interchange

Discussion Agreement.

Parties:

A.P. Moller-Maersk Line

American President Lines

Hapag-Lloyd Container Linie GmbH

Kawasaki Kisen Kaisha, Ltd.

Mitsui O.S.K. Lines, Ltd.

Neptune Orient Lines, Ltd.

Nippon Yusen Kaisha Line

Orient Overseas Container Line, Inc.

Orient Overseas Container Line (UK)

Ltd.

P&O Nedlloyd B.V.

P&O Nedlloyd Limited

Sea-Land Service, Inc.

Synopsis: The proposed Amendment

modifies the authority of the Agreement

to include discussion of matters within

the scope of EIDA which were pending,

or decided by other carrier agreements

to which one or more of the members

is a party. The authority is further

modified to authorize the members to

meet with the owners or operators of

inland equipment depots, equipment

pools or inland terminals to discuss and

agree upon the terms, conditions and

procedures related to the use of such

facilities, as well as joint leases, joint

contracts and joint purchase of such

facilities. The Amendment also modifies

Article 7 of the Agreement to create an

Associate Membership, which permits

new members to join the Agreement and

participate in all discussions and

agreements, with the exception of free

time and detention charges. Article 8 is

modified to state what matters the

Associate Members may vote upon.

Agreement No.: 202–011375–031.

Title: Trans-Atlantic Conference

Agreement.

Parties:

Atlantic Container Line AB

Cho Yang Shipping Co. Ltd.

Sea-Land Service, Inc.

A.P. Moller-Maersk Line

P&O Nedlloyd B.V.

Hapag-Lloyd Container Linie GmbH

Mediterranean Shipping Co., S.A.

DSR–Senator Lines

Pol-Atlantic

Orient Overseas Container Line (UK)

Ltd.

Transportacion Maritima Mexicana,

S.A. de C.V.

Neptune Orient Lines Ltd.

Hyundai Merchant Marine Co., Ltd.

P&O Nedlloyd Limited

Nippon Yusen Kaisha

Tecomar S.A. de C.V.

Hanjin Shipping Co., Ltd.

Synopsis: The proposed modification

provides that Agreement parties are not

precluded from sharing vessels with and

or chartering space to or from vessel

operating common carriers that are not

Agreement parties, and that parties with

related companies that offer non-vessel

operating common carrier service in the

trade pursuant to independent tariffs,

shall not be obligated to ship only with

Agreement parties. The modification

also specifies that the parties are not

authorized to coordinate sailing

schedules, except when necessary for ad

hoc, sporadic or emergency movements.

Agreement No.: 203–011584.

Title: NYKNOS/HUAL Rate

Discussion and Voluntary Rate

Adherence Agreement.

Parties: NYKNOS (East/West) Joint

Service (FMC No. 207–011441) HoeghUgland Auto Liners A/S

Synopsis: The proposed Agreement

would permit the parties to meet,

discuss, and agree upon rates, terms,

and conditions of service in the trade