Federal Register / Vol. 62, No. 50 / Friday, March 14, 1997 / Rules and Regulations 12073

1See 12 U.S.C. 1430(a)(1)–(4). Other acceptable

real estate related collateral includes, but is not

limited to: privately issued mortgage-backed

securities other than those eligible under category

1; second mortgage loans, including home equity

loans; commercial real estate loans; and mortgage

loan participations. See 12 CFR 935.9(a)(4)(ii). The

aggregate amount of outstanding advances secured

by such collateral may not exceed 30 percent of a

FHLBank member’s GAAP capital. See 12 U.S.C.

1430(a)(4); 12 CFR 935.9(a)(4)(iii).

2Congress enacted the Native American Housing

Assistance and Self Determination Act of 1996 in

October 1996. See Pub. L. 104–330, 101 Stat. 4016

(Oct. 26, 1996). The Act authorizes Indian tribes to

establish TDHEs to run their housing programs. See

id. sec. 102(c)(4)(K), 110 Stat. 4025. TDHEs include

all existing Indian Housing Authorities as well as

other entities created by Indian tribes to provide

assistance for affordable housing for tribal members.

See id. sec. 4(21), 110 Stat 4021.

(d) Each written agreement will only

be valid for one year (If the written

agreement is not specifically renewed

the following year, insurance coverage

for subsequent crop years will be in

accordance with the printed policy);

and

(e) An application for a written

agreement submitted after the sales

closing date may be approved if, after a

physical inspection of the acreage, it is

determined that no loss has occurred

and the crop is insurable in accordance

with the policy and written agreement

provisions.

Signed in Washington, DC, on March 6,

1997.

Kenneth D. Ackerman,

Manager, Federal Crop Insurance

Corporation.

[FR Doc. 97–6520 Filed 3–13–97; 8:45 am]

BILLING CODE 3410–08–P

FEDERAL HOUSING FINANCE BOARD

12 CFR Part 935

[No. 97–18]

Advances to Nonmembers

AGENCY: Federal Housing Finance

Board.

ACTION: Final rule.

SUMMARY: The Board of Directors of the

Federal Housing Finance Board

(Finance Board) is amending its

regulation on Federal Home Loan Bank

(FHLBank) advances to nonmembers.

The rule establishes uniform eligibility

requirements and review criteria for

determining whether an entity may be

certified as a nonmember mortgagee

eligible to receive FHLBank advances

and devolves responsibility for making

that determination from the Finance

Board to the FHLBanks. The Finance

Board also is revising the definition of

the term ‘‘state housing finance agency’’

(SHFA) to include all tribally designated

housing entities (TDHEs). The rule is

part of the Finance Board’s continuing

effort to devolve management and

governance responsibilities to the

FHLBanks and is consistent with the

goals of the National Homeownership

Strategy and the Regulatory Reinvention

Initiative of the National Performance

Review.

EFFECTIVE DATE: The final rule will

become effective April 14, 1997.

FOR FURTHER INFORMATION CONTACT:

Christine M. Freidel, Associate Director,

Financial Management Division, Office

of Policy, 202/408–2976; Laura K. St.

Claire, Financial Analyst, Financial

Management Division, Office of Policy,

202/408–2811; or, Janice A. Kaye,

Attorney-Advisor, Office of General

Counsel, 202/408–2505, Federal

Housing Finance Board, 1777 F Street,

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

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

Section 10b of the Federal Home Loan

Bank Act (Bank Act) establishes the

requirements for access by nonmember

mortgagees to FHLBank advances. See

12 U.S.C. 1430b. In order to be certified

as a nonmember mortgagee, an entity

must: (1) Be approved by the

Department of Housing and Urban

Development (HUD) as a ‘‘mortgagee’’

under title II of the National Housing

Act; (2) be chartered under law and

have succession; (3) be subject to the

inspection and supervision of a

governmental agency; and (4) lend its

own funds as its principal activity in the

mortgage field. Id. 1430b(a).

Under section 10b(a) of the Bank Act,

advances to nonmember mortgagees are

not subject to the general collateral

requirements of section 10(a) of the

Bank Act. Id. Instead, a FHLBank may

make advances to nonmember

mortgagees only upon the security of

mortgages insured by the Federal

Housing Administration (FHA) of HUD

under title II of the National Housing

Act. Id. The amount of any advance may

not exceed 90 percent of the unpaid

principal of the collateral pledged as

security for the advance. Id.

The Bank Act imposes less restrictive

collateral requirements on certain

advances to nonmember mortgagees that

are SHFAs. Id. 1430b(b). Under section

10b(b) of the Bank Act, advances to

SHFA nonmember mortgagees that

facilitate mortgage lending to low- or

moderate-income individuals and

families (meeting the income

requirements in section 142(d) or 143(f)

of the Internal Revenue Code, generally

up to 115 percent of the area median

income) need not be secured by FHAinsured mortgage loans if the advances

otherwise meet the requirements of

section 10(a) of the Bank Act and any

real estate collateral pledged to secure

the advances is comprised of single- or

multi-family residential mortgages. Id.

1430b(b), 1430(a); 26 U.S.C. 142(d),

143(f). Under section 10(a), the four

categories of collateral are eligible to

secure advances to members are: (1)

Fully disbursed whole first mortgage

loans on improved residential real

property that are not more than 90 days

delinquent or securities representing a

whole interest in such mortgages; (2)

securities issued, insured, or guaranteed

by the United States government or any

agency thereof; (3) deposits of a

FHLBank; and (4) other real estate

related collateral if such collateral has a

readily ascertainable value and the

FHLBank can perfect its interest

therein.1

In October 1996, the Finance Board

published for comment a proposed rule

that would transfer the authority to

certify an entity as a nonmember

mortgagee eligible to receive FHLBank

advances from the Finance Board to the

FHLBanks subject to uniform review

criteria for determining compliance

with statutory and regulatory eligibility

requirements. See 61 FR 52727 (Oct. 8,

1996). The 60-day public comment

period closed on December 9, 1996. See

id. The Finance Board received a total

of 12 comments in response to the

proposed rule, 6 from FHLBanks, 4 from

trade associations, and 1 each from a

certified SHFA nonmember mortgagee

and a federal agency. All of the

commenters generally supported the

Finance Board’s proposal. Specific

comments are discussed in Part II of the

SUPPLEMENTARY INFORMATION.

II. Analysis of Public Comments and

the Final Rule

A. Definitions

The final rule amends the definition

of the term ‘‘state housing finance

agency’’ that appears in § 935.1 to

include TDHEs 2 established under both

tribal and state law as SHFAs. This will

permit every TDHE nonmember

mortgagee that makes mortgage loans to

low- and moderate-income members of

the Indian community to take advantage

of the more flexible collateral

requirements for securing advances to

SHFA nonmember mortgagees. See

supra part I; 12 U.S.C. 1430b(b). Each of

the eight commenters addressing this

issue expressly supported inclusion of

all TDHEs in the definition and it is

being adopted as proposed. A trade

association commenter suggested that

entities other than SHFAs should not be
12074 Federal Register / Vol. 62, No. 50 / Friday, March 14, 1997 / Rules and Regulations

eligible for certification as nonmember

mortgagees. However, because section

10b of the Bank Act clearly sets forth

two classes of nonmember mortgagees,

one composed of SHFAs and one

composed of non-SHFAs, see 12 U.S.C.

1430b, the suggestion would be contrary

to the Bank Act and the Finance Board

has not adopted it in the final rule.

The Finance Board received two

responses to a specific request for

comments regarding the inclusion of

other groups in the definition of SHFA.

One commenter noted its belief that the

definition as written is sufficiently

broad to cover the Department of

Hawaiian Homelands, a Hawaii state

agency with responsibility for

administering the Hawaiian Homes

Commission Act on behalf of Native

Hawaiians. Without additional detailed

information, the Finance Board cannot

determine whether a particular entity

meets the requirements of the SHFA

definition. Under the final rule, the

Banks would make this determination at

the time an entity applies for

certification as a nonmember mortgagee.

The other commenter suggested

including certain nonprofit community

development financial institutions

(CDFIs) in the SHFA definition. The

Finance Board based its definition of

SHFA on the meaning given that term

for purposes of other provisions in the

Bank Act. As defined elsewhere in the

Bank Act, the term SHFA requires the

entity to be a government

instrumentality. See id. 1441a(c)(9)(P),

1441a–1(1). Accordingly, the Finance

Board’s definition of SHFA requires an

entity to be a government

instrumentality. Since nonprofit CDFIs

are not government instrumentalities,

they cannot be certified as SHFA

nonmember mortgagees. However,

nonprofit CDFIs that meet the eligibility

requirements currently may be certified

as nonmember mortgagees.

B. Advances to the Savings Association

Insurance Fund

The Finance Board received no

comments on § 935.20 and is adopting

the section as proposed. Section 935.20,

which implements section 31(k) of the

Bank Act, see id. 1431(k), provides that

an FHLBank may make advances to the

Federal Deposit Insurance Corporation

for the use of the Savings Association

Insurance Fund under certain

circumstances and subject to specific

conditions.

C. Scope

Section 935.21 provides that advances

to nonmember mortgagees generally are

subject to subpart A of part 935, which

governs advances to FHLBank members.

See 12 CFR 935.1–935.19. A trade

association commenter suggested that

the final rule prevent the FHLBanks

from applying requirements, terms, and

conditions to nonmember mortgagees

that are not also applied to members.

The Finance Board believes that this

provision should achieve that result.

One exception to this general

requirement relates to the non-qualified

thrift lender (non-QTL) provisions of the

Finance Board’s advances regulation.

See id. § 935.13. Since the statutory

limit on aggregate FHLBank lending

applies only to advances to non-QTL

members, see 12 U.S.C. 1430(e)(2)

(emphasis added), and nonmember

mortgagees are not FHLBank members,

advances to nonmember mortgagees

need not be included in the aggregate

limit on advances to non-QTLs. A trade

association commenter strongly

supported this provision as offering

assurance that nonmember mortgagees

would not limit non-QTL members’

access to advances.

D. Nonmember Mortgagee Eligibility

Requirements

1. Eligibility Criteria

Section 935.22(a) authorizes the

FHLBanks to make advances to an entity

that is not a member of the FHLBank if

the FHLBank certifies the entity as a

nonmember mortgagee. Section

935.22(b) sets forth the eligibility

requirements an entity must meet in

order to be certified as a nonmember

mortgagee. In addition to the four

statutory eligibility criteria discussed in

part 1 of the SUPPLEMENTARY

INFORMATION, to ensure the safety and

soundness of the FHLBanks, the

Finance Board has incorporated a

financial condition criterion that

requires an applicant’s financial

condition to be such that an FHLBank

may safely lend to it. This is the same

financial condition criterion that applies

currently to applicants for membership

in an FHLBank. See id. 1424(a)(2)(B); 12

CFR 933.6(a)(4). The Finance Board

received no comments on these

provisions and is adopting them

without change from the proposal.

2. Review Criteria

Section 935.22(c) establishes uniform

review criteria the FHLBanks must

apply to determine whether an

applicant meets the eligibility

requirements for certification as a

nonmember mortgagee. If an applicant

fulfills each criterion to the satisfaction

of the FHLBank to which it has applied,

it will be deemed to meet the eligibility

requirements. Conversely, failure to

fulfill each criterion to the satisfaction

of the FHLBank will render the

applicant ineligible, subject to appeal to

the Finance Board, to be certified as a

nonmember mortgagee.

Under § 935.22(c)(1), an applicant is

deemed to meet the requirement that it

be approved under title II of the

National Housing Act if it submits a

current HUD Yearly Verification Report

or other documentation issued by HUD

stating that the applicant is an approved

FHA mortgagee.

Under § 935.22(c)(2), an applicant is

deemed to meet the requirement that it

be a chartered institution having

succession if it provides evidence

satisfactory to the FHLBank that it is a

government agency, or is chartered

under state, federal, local, tribal, or

Alaska Native village law as a

corporation or other entity that has

rights, characteristics, and powers

similar to those granted a corporation.

An FHLBank commenter noted that

satisfactory evidence, such as statutory

and regulatory materials, is usually

readily available to the FHLBanks, and

therefore suggested that the final rule

require an applicant to provide only a

citation to, rather than copies of,

appropriate documents. For that reason,

and to reduce the paperwork burden

imposed on nonmember mortgagee

applicants, the Finance Board has

deleted the requirement that an

applicant provide ‘‘documentary’’

evidence in the final rule. Of course, if

an FHLBank should require copies of

statutes, regulations, or other relevant

documents, it has authority to require

their submission under § 935.23(c)(1).

See infra. In any case, an FHLBank must

include copies of all documents upon

which it relied in making its

certification decision as part of the

certification file required under

§ 935.23(c)(3). See infra.

Under § 935.22(c)(3), an applicant is

deemed to meet the requirement that it

be subject to the inspection and

supervision of some governmental

agency if it provides evidence

satisfactory to the FHLBank that,

pursuant to statute or regulation, it is

subject to the inspection and

supervision of a federal, state, local,

tribal, or Alaska Native village

governmental agency. Satisfactory

evidence generally consists of a citation

to, or copies of, relevant statutory and

regulatory materials. For the same

reasons as discussed above for

§ 935.22(c)(2), the Finance Board has

deleted the requirement that an

applicant provide ‘‘documentary’’

evidence in the final rule.

In order to establish an appropriate

standard for the FHLBanks to determine

whether an applicant meets the
Federal Register / Vol. 62, No. 50 / Friday, March 14, 1997 / Rules and Regulations 12075

inspection and supervision requirement,

the Finance Board recast the illustrative

examples in the proposal as standards

for meeting the inspection and

supervision requirements. The rule

provides that an applicant will be

deemed to meet the subject to

inspection by a governmental agency

requirement if there is a statutory or

regulatory requirement that the

applicant’s books and records be

audited or examined periodically by a

governmental agency or an external

auditor. This audit factor was listed as

an example of inspection by a

governmental agency in the proposed

rule. The rule provides that an applicant

will be deemed to meet the supervision

by a governmental agency requirement

if the governmental agency has statutory

or regulatory authority to remove an

applicant’s officers or directors for

malfeasance or misfeasance or otherwise

exercise enforcement or administrative

control over actions of the applicant.

This removal factor was identified as an

example of supervision by a

governmental agency in the proposed

rule.

Three commenters addressed the

inspection and supervision requirement.

A trade association commenter asked

the Finance Board to include expressly

legislative audits to meet the inspection

requirement and removal by the

governor to meet the supervision

requirement. To accomplish the same

end, a FHLBank commenter suggested

defining the term ‘‘governmental

agency’’ broadly to include the

legislature and the governor. In response

to these comments and to afford greater

flexibility, the Finance Board has added

a definition of the term ‘‘governmental

agency’’ for purposes of this paragraph

that includes the governor, legislature,

and any other component of a federal,

state, local, tribal, or Alaska Native

village government with authority to act

for or on behalf of that government. The

third commenter asked whether a

specific lender consortium that is

examined jointly by federal and state

financial institution regulators satisfies

the supervision and inspection

requirement. Without additional

detailed information, the Finance Board

cannot determine whether a particular

entity meets the requirement. Under the

final rule, the Banks would make this

determination at the time an entity

applies for certification as a nonmember

mortgagee.

Under § 935.22(c)(4), an applicant is

deemed to meet the mortgage activity

requirement if it provides documentary

evidence satisfactory to the FHLBank

that it lends its own funds as its

principal activity in the mortgage field.

A financial statement that includes

mortgage loan assets and their funding

liabilities generally will provide

adequate documentary evidence. Since

this type of financial information is not

readily available to the FHLBanks, the

requirement for an applicant to submit

documentation remains in the final rule.

For purposes of this requirement, the

Finance Board considers the purchase of

whole mortgage loans tantamount to

‘‘lending’’ an applicant’s funds. In the

case of a federal, state, local, tribal, or

Alaska Native village government

agency, the Finance Board considers

appropriated funds to be an applicant’s

‘‘own funds.’’ An applicant will be

deemed to satisfy this requirement even

though the majority of its operations are

unrelated to mortgage lending if its

mortgage activity conforms to the

regulatory criteria. A trade association

commenter expressly supported the

provision, stating that an applicant that

acts principally as a broker for others

making mortgage loans, or whose

principal activity is to make mortgage

loans for the account of others, does not

meet this requirement.

Under § 935.22(c)(5), an applicant is

deemed to meet the financial condition

requirement if the FHLBank determines

that advances may be extended safely to

the applicant. In order to make that

determination, the final rule requires an

applicant to submit its most recent

regulatory audit or examination report

and external audit report. The Finance

Board added a requirement to submit

these specific financial documents in

the final rule because a FHLBank

commenter pointed out that applicants

for FHLBank membership generally

must submit such documents as part of

their membership application, see 12

CFR 933.11, and that the information

provided is often critical to analysis of

an applicant’s financial condition. The

Bank also can require the applicant to

submit additional documentary

evidence, such as financial or other

information.

3. State Housing Finance Agencies

In addition to meeting the eligibility

requirements in § 935.22(b), any

applicant seeking to take advantage of

the more flexible collateral requirements

for advances used to facilitate

residential or commercial mortgage

lending to certain low- and moderateincome families or individuals, must

provide evidence satisfactory to the

FHLBank that it is a SHFA as defined

in § 935.1. See supra part II(A). Under

§ 935.22(d), satisfactory evidence

generally consists of a copy of, or a

citation to, the statutory and/or

regulatory provisions outlining the

applicant’s structure and

responsibilities. For the same reasons as

discussed above for § 935.22(c)(2), the

Finance Board has deleted the

requirement that an applicant provide

‘‘documentary’’ evidence in the final

rule.

E. Nonmember Mortgagee Applications

1. Devolution

As part of the Finance Board’s

continuing effort to devolve

management and governance

responsibilities to the FHLBanks,

§ 935.23(a) authorizes the FHLBanks to

approve or deny all applications for

certification as a nonmember mortgagee,

subject to the requirements of the Bank

Act and Finance Board regulations.

Although all six commenters addressing

this issue expressly supported

devolution of decision making authority

to the FHLBanks, one trade association

commenter suggested delaying

devolution until the FHLBanks have

some experience in administering the

final rule. Since the basis for the review

criteria in the final rule is the standards

previously applied by the FHLBanks

and the Finance Board, no delay in

devolution is required.

Four FHLBank commenters requested

the authority to delegate application

approvals to a committee of the

FHLBank’s board of directors, the

FHLBank president, or a senior officer

who reports directly to the president

other than an officer responsible for

business development. This would be

consistent with the Finance Board’s

membership regulation and such

authority is included in the final rule.

See 12 CFR 933.3(a). Also consistent

with the membership regulation, the

final rule requires that only the

FHLBanks’ board of directors may deny

certification as a nonmember mortgagee.

2. Application Process

The remainder of § 935.23 sets forth

the procedures for submission and

review of nonmember mortgagee

applications. Section 935.23(b) requires

an applicant to submit an application

that satisfies the requirements of the

Bank Act and this subpart to the

FHLBank of the district in which the

applicant’s principal place of business,

as determined in accordance with 12

CFR 933.18, is located.

To ensure expeditious action on

applications for certification as a

nonmember mortgagee, § 935.23(c)(1)

requires a FHLBank to act on an

application within 60 calendar days of

the date the FHLBank deems the

application complete. To make certain

that the time period provided for review
12076 Federal Register / Vol. 62, No. 50 / Friday, March 14, 1997 / Rules and Regulations

3The statement in the preamble to the proposed

rule regarding acceptance of deposits from

nonmember mortgagees was not meant to preclude

a FHLBank from accepting deposits under section

11(e)(2) of the Bank Act for the purpose of

providing correspondent banking services, provided

that the nonmember mortgagee is an institution

eligible to make application to become a FHLBank

member. See 12 U.S.C. 1431(e)(2).

is not unduly restrictive, an application

is deemed complete, thus triggering the

60-day time period, only after the

FHLBank has obtained all required

information and any other information

it considers necessary to process the

application. The rule permits the

FHLBank to stop the 60-day period if it

determines during the review process

that additional information is necessary

to process the application. The

FHLBank must restart the 60-day time

period where it stopped upon receiving

the additional required information. The

FHLBank must notify applicants in

writing when the 60-day time period

begins, stops, and starts again. One

FHLBank commenter pointed out that

under a parallel provision in the

Finance Board’s membership regulation,

written notices are not required and

requested similar treatment in this

regulation. See 12 CFR 933.3(c). Written

notice is necessary in order to provide

an appropriate record for appellate and

compliance review, therefore, the

Finance Board is adopting the written

notice requirement as proposed.

Further, the Finance Board intends to

clarify its membership regulation by

including a written notice requirement

in any future amendment.

Section 935.23(c)(2) requires the

board of directors of the FHLBank, a

duly delegated committee of the

FHLBank’s board of directors, the

FHLBank president, or a senior officer

who reports directly to the FHLBank

president other than an officer with

responsibility for business development

to approve, or the board of directors of

the FHLBank to deny, each application

for certification as a nonmember

mortgagee by a written decision

resolution that states the grounds for the

decision. In the proposed rule, the

FHLBanks could not delegate

certification approvals. As stated above,

see supra part II(E)(1), the final rule

prohibits delegation only of certification

denials. The FHLBank must provide a

copy of the decision resolution to the

applicant and the Finance Board within

three business days of the date of the

decision on an application.

In order to provide an appropriate

record for consideration of certification

denial appeals and for determination by

Finance Board examiners of a

FHLBank’s compliance with statutory

and regulatory requirements, the

Finance Board has added a new

§ 935.23(c)(3) that requires a FHLBank

to maintain a certification file for each

applicant. At a minimum, the

certification file must include all

documents submitted by the applicant

or otherwise obtained or generated by

the FHLBank concerning the applicant,

all documents the Bank relied upon in

making its certification determination,

including copies of statutes and

regulations, and the decision resolution.

The FHLBank must retain the

certification file for at least three years

after the date of its decision to approve

or deny certification or the date the

Finance Board resolves any appeal,

whichever is later. The Finance Board’s

membership rule includes a similar

recordkeeping requirement. See 12 CFR

933.2(c).

To ensure that the FHLBanks apply

the nonmember mortgagee eligibility

requirements and review criteria

uniformly and fairly and treat similarly

situated applicants in a consistent

manner, § 935.23(c)(4) establishes a

process by which applicants may appeal

FHLBank certification denials to the

Finance Board. This provision appeared

at § 935.23(c)(3) in the proposed rule.

Within 90 calendar days of the date of

a FHLBank’s certification denial, an

applicant may submit a written appeal

to the Finance Board with a copy to the

FHLBank. The appeal must include the

FHLBank’s decision resolution and a

statement of the basis for the appeal

with sufficient facts, information,

analysis, and explanation to support the

applicant’s position. The FHLBank

whose action has been appealed must

submit to the Finance Board a complete

copy of the applicant’s certification file

as well as any relevant new materials it

receives while the appeal is pending.

The rule authorizes the Finance Board

to request any additional information or

supporting arguments it may require to

decide the appeal. The Finance Board

must make its decision within 90

calendar days of the date the applicant

files an appeal.

F. Advances to Nonmember Mortgagees

Section 935.24 establishes the terms

and conditions under which a FHLBank

may make advances to a nonmember

mortgagee. Under § 935.24(a), a

FHLBank may lend only to a

nonmember mortgagee whose principal

place of business is located in the

FHLBank’s district.

1. Collateral Requirements in General

Section 935.24(b) sets forth the

collateral requirements for advances to

nonmember mortgagees. Pursuant to

section 10b(a) of the Bank Act, 12 U.S.C.

1430b(a), and § 935.24(b)(1) of the final

rule, a FHLBank may make advances to

any nonmember mortgagee upon the

security of FHA-insured mortgages,

including securities representing a

whole interest in a pool of FHA-insured

mortgages, if the nonmember mortgagee

provides evidence satisfactory to the

FHLBank that the securities are backed

solely by qualifying mortgages.

2. SHFA Collateral Requirements

Section 935.24(b)(2) implements the

less restrictive collateral requirements

applicable to advances to a SHFA

nonmember mortgagee, the proceeds of

which will be used to facilitate mortgage

lending that benefits certain low- and

moderate-income individuals or

families. See supra part I; 12 U.S.C.

1430b(b). Under § 935.24(b)(2)(i), a

FHLBank may secure qualifying

advances with: the collateral described

in § 935.24(b)(1); collateral eligible

under categories 1 or 2 of Bank Act

section 10(a), 12 U.S.C. 1430(a)(1)–(2),

as described in 12 CFR 935.9(a)(1) or (2);

or, collateral eligible under category 4 of

Bank Act section 10(a), 12 U.S.C.

1430(a)(4), as described in 12 CFR

935.9(a)(4), provided that such collateral

is comprised of mortgage loans on oneto-four or multi-family residential

property and the acceptance of such

collateral will not increase the total

amount of advances outstanding to the

SHFA secured by such collateral beyond

30 percent of its GAAP capital, as

computed by the FHLBank. A FHLBank

commenter recommended that the rule

specifically include as acceptable

collateral for SHFA advances, collateral

pledged by a FHLBank member to

secure its obligations under a standby

letter of credit issued for the benefit of

a FHLBank that makes a SHFA

nonmember mortgagee advance. The

current Finance Board regulation

concerning collateral for advances does

not address this type of collateral. See

12 CFR 935.9. The Finance Board plans

to consider this issue as part of a future

rulemaking concerning FHLBank

advances.

The proposed rule asserted that SHFA

nonmember mortgagees would not have

any Bank Act section 10(a) category 3

collateral available to secure FHLBank

advances since a FHLBank may accept

deposits only from FHLBank members,

other FHLBanks, or other

instrumentalities of the United States.

See 12 U.S.C. 1430(a)(3), 1431(e)(1); 61

FR 52731. Three FHLBank commenters

found this interpretation of the Bank

Act overly restrictive. For the following

reasons, the Finance Board agrees.3

Section 10b(b) of the Bank Act
Federal Register / Vol. 62, No. 50 / Friday, March 14, 1997 / Rules and Regulations 12077

authorizes the FHLBanks to accept

collateral that meets the requirements of

section 10(a) to secure qualifying

advances to SHFA nonmember

mortgagees. See 12 U.S.C. 1430b(b).

Section 10(a) of the Bank Act includes

specifically deposits in a FHLBank as

acceptable collateral. See id. 1430(a).

The Finance Board believes that there is

statutory authority to allow SHFA

nonmember mortgagees to secure

qualifying advances with cash collateral

in the form of FHLBank deposits.

Accordingly, the Finance Board has

added a new paragraph,

§ 935.24(b)(2)(B), authorizing the

FHLBanks to accept deposits in a

FHLBank as security for SHFA

nonmember mortgagee advances.

Pursuant to the FHLBanks’ incidental

authority to do all things necessary to

carry out the provisions of the Bank Act,

see 12 U.S.C. 1431(a), (e)(1), and to

facilitate acceptance of such collateral,

the rule permits the FHLBanks to

establish cash collateral accounts for

SHFA nonmember mortgagees. This

interpretation is consistent with the

restriction on acceptance of deposits by

the FHLBanks contained in section

11(e)(1) of the Bank Act, see id.

1431(e)(1), since the SHFA nonmember

mortgagee will use the cash collateral

account at the FHLBank only to secure

advances and not to take advantage of

FHLBank deposit programs, i.e., SHFA

nonmember mortgagees will not be able

to use a FHLBank as a substitute for a

commercial bank.

If a SHFA nonmember mortgagee

wishes to pledge other than FHAinsured collateral, § 935.24(b)(2)(ii)

requires it to certify first in writing to

the FHLBank that it will use the

proceeds of the advance so secured to

facilitate qualifying mortgage lending.

The final rule clarifies that qualifying

mortgage lending includes both

residential and commercial mortgage

lending. A trade association commenter

expressly supported this provision

because it will allow SHFA nonmember

mortgagees to help small businesses and

promote economic development efforts.

3. Terms and Conditions for Advances

Section 935.24(c) outlines the terms

and conditions for advances to

nonmember mortgagees. Under

§ 935.24(c)(1), a FHLBank may exercise

its discretion to determine whether, and

on what terms, it will make advances to

nonmember mortgagees. Section

935.24(c)(2) addresses advance pricing.

The provision in the proposed rule

requiring the FHLBanks to apply pricing

criteria other than cost and credit risk to

nonmember mortgagee advances in the

same manner as they apply those

criteria to member advances was

intended to make clear that the

FHLBanks must treat all of their

member and nonmember borrowers

equally. One commenter thought the

rule should expressly require the

FHLBanks to price advances to SHFA

nonmember mortgagees, given their

public purpose, at the same rate as

member advances. To ensure equal

treatment, the final rule specifically

applies the advance pricing

requirements applicable to member

advances to nonmember mortgagee

advances. Accordingly, paragraph

(c)(2)(i) requires a FHLBank to price

advances to nonmember mortgagees in

accordance with the requirements of

§ 935.6(b), the advance pricing

requirements for member advances. It

provides that the term ‘‘member’’ as

used in § 935.6(b), also means

‘‘nonmember’’ for purposes of this

section. Paragraph (c)(2)(ii) of the final

rule requires a FHLBank to apply the

pricing criteria that appear in

§ 935.6(b)(2), including credit and other

risks of lending to a particular borrower

and other reasonable differential pricing

criteria, equally to all of its member and

nonmember borrowers. The pricing

criteria that appeared in the proposed

rule are included in § 935.6(b).

The Finance Board proposed deleting

the current requirement that

nonmember mortgagee advances be

priced to compensate a FHLBank for the

lack of a capital stock investment in the

FHLBank by the nonmember mortgagee.

See 12 CFR 935.22(e)(2)(B)(ii); 61 FR

52731. The preamble to the proposed

rule stated that such compensation was

unnecessary since the additional

earnings achieved through advances not

supported by capital should enhance a

FHLBank’s return on equity. Seven

commenters addressed this issue. Two

commenters supported the proposal

because the compensation mark-up

strongly discourages nonmember

mortgagees from using FHLBank

advances. Four commenters

recommended deletion of the

requirement and replacement with a

provision giving the FHLBanks

discretion to adjust nonmember

mortgagee advance prices by either

requiring a compensating balance or

including compensation for the lack of

a capital stock investment as a

reasonable pricing differential criteria in

§ 935.24(c)(3)(iii). One commenter

believed that the requirement should

remain in the rule.

The comments advocating a special

mark-up on nonmember mortgagee

advances generally highlighted three

concerns. The first concern was that the

added leverage associated with

nonmember mortgagee advances creates

additional risk for which members

should be compensated. For the

following reasons, the Finance Board

finds this argument to be unpersuasive.

In order for nonmember lending to have

a material impact on a FHLBank’s

leverage, the amount of advances

outstanding to nonmember mortgagees

would have to increase significantly

over current levels. For example,

advances to nonmember mortgagees at

the FHLBank with the largest volume of

such advances outstanding at the end of

1996 represented 0.1 percent of the

FHLBank’s total assets and 2 percent of

its capital. In addition, fully secured

nonmember mortgagee advances involve

minimal credit risk. Therefore, the

mark-up necessary to compensate

members for any increased risk resulting

from greater leverage would almost

certainly be de minimis.

The second concern expressed

generally by commenters was that,

depending upon the relationship

between the return paid on FHLBank

stock, a member’s alternative

investments, and the cost of debt, a

nonmember mortgagee might have a

financial advantage from FHLBank

borrowings that would allow it to

compete for mortgages with members.

For the following reasons, the Finance

Board finds this argument to be

unpersuasive. On the basis of the strong

growth in voluntary membership since

1990, it appears that FHLBank dividend

rates generally exceed the alternative

investment rates available to members.

For example, the average FHLBank

dividend rate in 1996 was 120 basis

points over the average one-year

Treasury security and, since fourth

quarter 1989, only two FHLBanks on

eight occasions have paid a quarterly

dividend rate below the average federal

funds rate. Accordingly, investing in

FHLBank stock typically should not put

a member at a competitive disadvantage

relative to nonmember mortgagees.

The third concern advanced by

commenters in support of a

compensation mark-up is that funding

nonmember mortgagee advances may be

more expensive to the extent that the

cost of debt is higher than the mixture

of debt and equity used to fund member

advances. This argument also is

unpersuasive. With few exceptions,

FHLBank debt has been less expensive

than equity, thus, advances funded

solely with debt should be less

expensive than those funded with a mix

of equity and debt. In addition, under

§ 935.24(c)(2)(i), the FHLBanks must

price a nonmember mortgagee advance

to cover the funding, operating, and
12078 Federal Register / Vol. 62, No. 50 / Friday, March 14, 1997 / Rules and Regulations

administrative costs associated with

making the advance.

After consideration of the comments,

the Finance Board has determined that,

given the current financial operations of

the FHLBanks, there do not appear to be

compelling economic circumstances to

justify an additional compensation

mark-up on nonmember mortgagee

advances. Further, eliminating the

mark-up should enhance the FHLBanks’

statutory housing finance mission by

providing more attractively priced funds

to entities that specialize in affordable

housing finance. Accordingly, the lack

of a capital stock investment in a

FHLBank by a nonmember borrower is

not an acceptable other risk or

differential pricing factor. If a FHLBank

is able to show in a particular case that

it will suffer financial hardship as a

result of lending to a nonmember

mortgagee, and is able to quantify the

harm, it may request a regulatory

waiver. See 61 FR 64613 (Dec. 6, 1996),

codified at 12 CFR 902.6.

Two commenters asked the Finance

Board to clarify whether a FHLBank is

required or has discretion to allow a

nonmember mortgagee to participate in

a FHLBank’s Community Investment

Program (CIP). Both commenters

thought that the FHLBanks should grant

SHFA nonmember mortgagees access to

advances at CIP rates. Section 10(i) of

the Bank Act requires each FHLBank to

‘‘establish a program to provide funding

for members to undertake communityoriented mortgage lending.’’ See id.

1430(i)(1) (emphasis added). Since the

final rule gives the FHLBanks discretion

in pricing nonmember mortgagee

advances, the FHLBanks could make

advances at CIP rates available to

nonmember mortgagees. However,

because section 10(i)(1) requires

establishment of a CIP only for

members, the FHLBanks are not

required to do so. The Finance Board

plans to consider this issue as part of a

future rulemaking concerning CIP

advance programs.

Section 935.24(c)(3) limits the

principal amount of any advance made

to a nonmember mortgagee to 90 percent

of the unpaid principal of the mortgage

loans or securities pledged as security

for the advance. This limit does not

apply to advances made to SHFA

nonmember mortgagees for the purpose

of facilitating qualifying low- and

moderate-income mortgage lending. A

trade association commented that a

principal reason limiting nonmember

borrowing is that most FHLBanks value

nonmember mortgagee collateral at

levels below the 90 percent limit. The

Finance Board believes that the

FHLBanks should develop the technical

capacity to evaluate more precisely the

risks of multi-family mortgages. This

potentially will lower the overcollateralization factor assigned to such

collateral.

4. Transaction Accounts

A FHLBank commenter suggested that

the rule be revised to include authority

for the FHLBanks to establish

transaction accounts with nonmember

mortgagees in order to facilitate the

funding of advances. Since the

FHLBanks have incidental authority to

establish limited purposes deposit

accounts, see supra part II(F)(2), the

Finance Board has added a new

paragraph § 935.24(d) to provide the

suggested authorization.

5. Ineligibility

Under certain circumstances certified

nonmember mortgagees may become

ineligible to receive FHLBank advances.

Section 935.24(e)(1) requires a

nonmember mortgagee that applies for

an advance to agree first in writing that

it will promptly notify the FHLBank of

any change in its status as a nonmember

mortgagee. Section 935.24(e)(2) permits

a FHLBank, from time to time, to require

a nonmember mortgagee to provide

evidence that it continues to satisfy all

of the statutory and regulatory eligibility

requirements. If the FHLBank

determines that the nonmember

mortgagee no longer meets the eligibility

requirements, § 935.24(e)(3) prohibits

the FHLBank from extending a new

advance or renewing an existing

advance until the entity provides

evidence satisfactory to the FHLBank

that it is in compliance with such

requirements. The Finance Board

received no comments regarding these

provisions and is adopting them

without change from the proposal.

III. Regulatory Flexibility Act

The rule largely implements statutory

requirements binding on all FHLBanks,

nonmember mortgagee applicants, and

certified nonmember mortgagees. The

Finance Board is not at liberty to make

adjustments in the requirements to

accommodate small entities. The

Finance Board has not imposed any

additional regulatory requirements that

will have a disproportionate impact on

small entities. Thus, in accordance with

the provisions of the Regulatory

Flexibility Act, the Board of Directors of

the Finance Board hereby certifies that

this final rule will not have a significant

economic impact on a substantial

number of small entities. 5 U.S.C.

605(b).

IV. Paperwork Reduction Act

As part of the notice of proposed

rulemaking, the Finance Board

published a request for comments

concerning the collection of information

contained in §§ 935.22 through 935.24

of the proposed rule. See 61 FR 52731.

The Finance Board received no

comments regarding the collection of

information. The Finance Board also

submitted an analysis of the information

collection to the Office of Management

and Budget (OMB) for review in

accordance with section 3507(d) of the

Paperwork Reduction Act of 1995. See

44 U.S.C. 3507(d). OMB assigned a

control number, 3069–0005, and

approved the information collection

without conditions with an expiration

date of November 30, 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 id.

3512(a). The final rule does not

substantively or materially modify the

approved information collection. The

title, description of need and use, and

a description of the information

collection requirements in the final rule

are discussed in parts I and II of the

SUPPLEMENTARY INFORMATION.

The following table discloses the

estimated annual reporting and

recordkeeping burden:

The estimated annual reporting

and recordkeeping hour burden

is:

a. Number of respondents ........... 10

b. Total annual responses ............ 10

Percentage collected electronically ............................ 0

c. Total annual hours requested .. 100

d. Current OMB inventory ........... 100

e. Difference ................................. 0

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 ...................................... 6,250

d. Current OMB inventory ........... 6,250

e. Difference ................................. 0

Any comments concerning the

information collection should be

submitted to Elaine L. Baker, Executive

Secretary, Federal Housing Finance

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

D.C. 20006, and the Office of

Information and Regulatory Affairs of

the Office of Management and Budget,

Attention: Desk Officer for Federal

Housing Finance Board, Washington,

D.C. 20503.
Federal Register / Vol. 62, No. 50 / Friday, March 14, 1997 / Rules and Regulations 12079

List of Subjects in 12 CFR Part 935

Credit, Federal home loan banks,

Reporting and recordkeeping

requirements.

Accordingly, the Board of Directors of

the Federal Housing Finance Board

hereby amends part 935, chapter IX,

title 12 of the Code of Federal

Regulations, as follows:

PART 935—ADVANCES

1. The authority citation for part 935

is revised to read as follows:

Authority: 12 U.S.C. 1422a(a)(3),

1422b(a)(1), 1426, 1429, 1430, 1430b, and

1431.

2. Section 935.1 is amended by

revising the definition of ‘‘State housing

finance agency’’ to read as follows:

§ 935.1 Definitions.

* * * * *

State housing finance agency or SHFA

means:

(1) A public agency, authority, or

publicly sponsored corporation that

serves as an instrumentality of any state

or political subdivision of any state, and

functions as a source of residential

mortgage loan financing in that state; or

(2) A legally established agency,

authority, corporation, or organization

that serves as an instrumentality of any

Indian tribe, band, group, nation,

community, or Alaska Native village

recognized by the United States or any

state, and functions as a source of

residential mortgage loan financing for

the Indian or Alaska Native community.

* * * * *

3. Subpart B is revised to read as

follows:

Subpart B—Advances to Nonmembers

Sec.

935.20 Advances to the Savings Association

Insurance Fund.

935.21 Scope.

935.22 Nonmember mortgagee eligibility

requirements.

935.23 Nonmember mortgagee application

process.

935.24 Advances to nonmember

mortgagees.

Subpart B—Advances to Nonmembers

§ 935.20 Advances to the Savings

Association Insurance Fund.

(a) Authority. Upon receipt of a

written request from the FDIC, a Bank

may make advances to the FDIC for the

use of the SavingsAssociation Insurance

Fund. The Bank shall provide a copy of

such request to the Board.

(b) Requirements. Advances to the

FDIC for the use of the Savings

Association Insurance Fund shall:

(1) Bear a rate of interest not less than

the Bank’s marginal cost of funds, taking

into account the maturities involved

and reasonable administrative costs;

(2) Have a maturity acceptable to the

Bank;

(3) Be subject to any prepayment,

commitment, or other appropriate fees

of the Bank; and

(4) Be adequately secured by

collateral acceptable to the Bank.

§ 935.21 Scope.

With the exception of § 935.13, and

except as otherwise provided in

§ 935.20 and § 935.24, the requirements

of subpart A of this part apply to this

subpart.

§ 935.22 Nonmember mortgagee eligibility

requirements.

(a) Authority. Subject to the

provisions of the Act and this subpart,

a Bank may make advances to an entity

that is not a member of the Bank if the

Bank has certified the entity as a

nonmember mortgagee.

(b) Eligibility requirements. A Bank

may certify as a nonmember mortgagee

any applicant that meets the following

requirements:

(1) The applicant is approved under

title II of the National Housing Act (12

U.S.C. 1707, et seq.);

(2) The applicant is a chartered

institution having succession;

(3) The applicant is subject to the

inspection and supervision of some

governmental agency;

(4) The principal activity of the

applicant in the mortgage field consists

of lending its own funds; and

(5) The financial condition of the

applicant is such that advances may be

safely made to it.

(c) Satisfaction of eligibility

requirements—(1) HUD approval

requirement. An applicant shall be

deemed to meet the requirement in

section 10b(a) of the Act and paragraph

(b)(1) of this section that it be approved

under title II of the National Housing

Act if it submits a current HUD Yearly

Verification Report or other

documentation issued by HUD stating

that the Federal Housing Administration

of HUD has approved the applicant as

a mortgagee.

(2) Charter requirement. An applicant

shall be deemed to meet the

requirement in section 10b(a) of the Act

and paragraph (b)(2) of this section that

it be a chartered institution having

succession if it provides evidence

satisfactory to the Bank, such as a copy

of, or a citation to, the statutes and/or

regulations under which the applicant

was created, that:

(i) The applicant is a government

agency; or

(ii) The applicant is chartered under

state, federal, local, tribal, or Alaska

Native village law as a corporation or

other entity that has rights,

characteristics, and powers under

applicable law similar to those granted

a corporation.

(3) Inspection and supervision

requirement. An applicant shall be

deemed to meet the inspection and

supervision requirement in section

10b(a) of the Act and paragraph (b)(3) of

this section if it provides evidence

satisfactory to the Bank, such as a copy

of, or a citation to, relevant statutes and/

or regulations, that, pursuant to statute

or regulation, the applicant is subject to

the inspection and supervision of a

federal, state, local, tribal, or Alaska

native village governmental agency. An

applicant shall be deemed to meet the

inspection requirement if there is a

statutory or regulatory requirement that

the applicant be audited or examined

periodically by a governmental agency

or by an external auditor. An applicant

shall be deemed to meet the supervision

requirement if the governmental agency

has statutory or regulatory authority to

remove an applicant’s officers or

directors for cause or otherwise exercise

enforcement or administrative control

over actions of the applicant. For

purposes of this paragraph (c)(3), the

term ‘‘governmental agency’’ includes

the governor, legislature, and any other

component of a federal, state, local,

tribal, or Alaska native village

government with authority to act for or

on behalf of that government.

(4) Mortgage activity requirement. An

applicant shall be deemed to meet the

mortgage activity requirement in section

10b(a) of the Act and paragraph (b)(4) of

this section if it provides documentary

evidence satisfactory to the Bank, such

as a financial statement or other

financial documents that include the

applicant’s mortgage loan assets and

their funding liabilities, that it lends its

own funds as its principal activity in the

mortgage field. Lending funds includes,

but is not limited to, the purchase of

whole mortgage loans. In the case of a

federal, state, local, tribal, or Alaska

Native village government agency,

appropriated funds shall be considered

an applicant’s own funds. An applicant

shall be deemed to satisfy this

requirement notwithstanding that the

majority of its operations are unrelated

to mortgage lending if its mortgage

activity conforms to this requirement.

An applicant that acts principally as a

broker for others making mortgage

loans, or whose principal activity is to

make mortgage loans for the account of

others, does not meet this requirement.

(5) Financial condition requirement.

An applicant shall be deemed to meet

the financial condition requirement in
12080 Federal Register / Vol. 62, No. 50 / Friday, March 14, 1997 / Rules and Regulations

paragraph (b)(5) of this section if the

Bank determines that advances may be

safely made to the applicant. The

applicant shall submit to the Bank

copies of its most recent regulatory

audit or examination report, or external

audit report, and any other documentary

evidence, such as financial or other

information, that the Bank may require

to make the determination.

(d) State housing finance agencies. In

addition to meeting the requirements in

paragraph (b) of this section, any

applicant seeking access to advances as

a SHFA pursuant to § 935.24(b)(2) shall

provide evidence satisfactory to the

Bank, such as a copy of, or a citation to,

the statutes and/or regulations

describing the applicant’s structure and

responsibilities, that the applicant is a

state housing finance agency as defined

in § 935.1.

(e) Ineligibility. Except as otherwise

provided in this subpart, if an applicant

does not satisfy the requirements of this

subpart, the applicant is ineligible to be

certified as a nonmember mortgagee.

(The Office of Management and Budget

approved the information collection

requirements contained in this section and

assigned control number 3069–0005 with an

expiration date of November 30, 1999)

§ 935.23 Nonmember mortgagee

application process.

(a) Authority. The Banks are

authorized to approve or deny all

applications for certification as a

nonmember mortgagee, subject to the

requirements of the Act and this

subpart. A Bank may delegate the

authority to approve applications for

certification as a nonmember mortgagee

only to a committee of the Bank’s board

of directors, the Bank president, or a

senior officer who reports directly to the

Bank president other than an officer

with responsibility for business

development.

(b) Application requirements. An

applicant for certification as a

nonmember mortgagee shall submit an

application that satisfies the

requirements of the Act and this subpart

to the Bank of the district in which the

applicant’s principal place of business,

as determined in accordance with part

933 of this chapter, is located.

(c) Application process—(1) Action on

applications. A Bank shall approve or

deny an application for certification as

a nonmember mortgagee within 60

calendar days of the date the Bank

deems the application to be complete. A

Bank shall deem an application

complete, and so notify the applicant in

writing, when it has obtained all of the

information required by this subpart

and any other information it deems

necessary to process the application. If

a Bank determines during the review

process that additional information is

necessary to process the application, the

Bank may deem the application

incomplete and stop the 60-day time

period by providing written notice to

the applicant. When the Bank receives

the additional information, it shall again

deem the application complete, so

notify the applicant in writing, and

resume the 60-day time period where it

stopped.

(2) Decision on applications. The

Bank or a duly delegated committee of

the Bank’s board of directors, the Bank

president, or a senior officer who

reports directly to the Bank president

other than an officer with responsibility

for business development shall approve,

or the board of directors of a Bank shall

deny, each application for certification

as a nonmember mortgagee by a written

decision resolution stating the grounds

for the decision. Within three business

days of a Bank’s decision on an

application, the Bank shall provide the

applicant and the Board with a copy of

the Bank’s decision resolution.

(3) File. The Bank shall maintain a

certification file for each applicant for at

least three years after the date the Bank

decides whether to approve or deny

certification or the date the Board

resolves any appeal, whichever is later.

At a minimum, the certification file

shall include all documents submitted

by the applicant or otherwise obtained

or generated by the Bank concerning the

applicant, all documents the Bank relied

upon in making its determination

regarding certification, including copies

of statutes and regulations, and the

decision resolution.

(4) Appeals. Within 90 calendar days

of the date of a Bank’s decision to deny

an application for certification as a

nonmember mortgagee, the applicant

may submit a written appeal to the

Board that includes the Bank’s decision

resolution and a statement of the basis

for the appeal with sufficient facts,

information, analysis, and explanation

to support the applicant’s position.

Appeals shall be sent to the Federal

Housing Finance Board, 1777 F Street,

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

copy to the Bank.

(i) Record for appeal. Upon receiving

a copy of an appeal, the Bank whose

action has been appealed shall provide

to the Board a complete copy of the

applicant’s certification file maintained

by the Bank under paragraph (c)(3) of

this section. Until the Board resolves the

appeal, the Bank shall promptly provide

to the Board any relevant new materials

it receives. The Board may request

additional information or further

supporting arguments from the

applicant, the Bank, or any other party

that the Board deems appropriate.

(ii) Deciding appeals. Within 90

calendar days of the date an applicant

files an appeal with the Board, the

Board shall consider the record for

appeal described in paragraph (c)(4)(i)

of this section and resolve the appeal

based on the requirements of the Act

and this subpart.

(The Office of Management and Budget

approved the information collection

requirements contained in this section and

assigned control number 3069–0005 with an

expiration date of November 30, 1999)

§ 935.24 Advances to nonmember

mortgagees.

(a) Authority. Subject to the

provisions of the Act and this subpart,

a Bank may make advances only to a

nonmember mortgagee whose principal

place of business, as determined in

accordance with part 933 of this

chapter, is located in the Bank’s district.

(b) Collateral requirements—(1)

Advances to nonmember mortgagees. A

Bank may make an advance to any

nonmember mortgagee upon the

security of the following collateral:

(i) Mortgage loans insured by the

Federal Housing Administration of HUD

under title II of the National Housing

Act; or

(ii) Securities representing a whole

interest in the principal and interest

payments due on a pool of mortgage

loans insured by the Federal Housing

Administration of HUD under title II of

the National Housing Act. A Bank may

only accept as collateral the securities

described in this paragraph (b)(1)(ii) if

the nonmember mortgagee provides

evidence that such securities are backed

solely by mortgages of the type

described in paragraph (b)(1)(i) of this

section.

(2) Certain advances to SHFAs. (i) In

addition to the collateral described in

paragraph (b)(1) of this section, a Bank

may make an advance to a nonmember

mortgagee that has satisfied the

requirements of § 935.22(d) for the

purpose of facilitating residential or

commercial mortgage lending that

benefits individuals or families meeting

the income requirements in section

142(d) or 143(f) of the Internal Revenue

Code (26 U.S.C. 142(d) or 143(f)) upon

the security of the following collateral:

(A) The collateral described in

§ 935.9(a)(1) or (2).

(B) The collateral described in

§ 935.9(a)(3). Solely for the purpose of

facilitating acceptance of such

collateral, a Bank may establish a cash

collateral account for a nonmember
Federal Register / Vol. 62, No. 50 / Friday, March 14, 1997 / Rules and Regulations 12081

mortgagee that has satisfied the

requirements of § 935.22(d).

(C) The real estate related collateral

described in § 935.9(a)(4), provided that

such collateral is comprised of mortgage

loans on one-to-four family or

multifamily residential property and the

acceptance of such collateral will not

increase the total amount of advances

outstanding to the SHFA secured by

such collateral beyond 30 percent of its

GAAP capital, as computed by the Bank.

(ii) Prior to making an advance

pursuant to this paragraph (b)(2), a Bank

shall obtain a written certification from

the nonmember mortgagee that it shall

use the proceeds of the advance for the

purposes described in paragraph

(b)(2)(i) of this section.

(c) Terms and conditions—(1)

General. Subject to the provisions of

this paragraph (c), a Bank, in its

discretion, shall determine whether, and

on what terms, it will make advances to

a nonmember mortgagee.

(2) Advance pricing. (i) A Bank shall

price advances to nonmember

mortgagees in accordance with the

requirements for pricing advances to

members set forth in § 935.6(b).

Wherever the term ‘‘member’’ appears

in § 935.6(b), the term shall be

construed also to mean ‘‘nonmember

mortgagee.’’

(ii) A Bank shall apply the pricing

criteria identified in § 936.5(b)(2)

equally to all of its member and

nonmember mortgagee borrowers.

(3) Limit on advances. The principal

amount of any advance made to a

nonmember mortgagee may not exceed

90 percent of the unpaid principal of the

mortgage loans or securities pledged as

security for the advance. This limit does

not apply to an advance made to a

nonmember mortgagee under paragraph

(b)(2) of this section.

(d) Transaction accounts. Solely for

the purpose of facilitating the making of

advances to a nonmember mortgagee, a

Bank may establish a transaction

account for each nonmember mortgagee.

(e) Loss of eligibility—(1) Notification

of status changes. A Bank shall require

a nonmember mortgagee that applies for

an advance to agree in writing that it

will promptly inform the Bank of any

change in its status as a nonmember

mortgagee.

(2) Verification of eligibility. A Bank

may, from time to time, require a

nonmember mortgagee to provide

evidence that it continues to satisfy all

of the eligibility requirements of the Act

and this subpart.

(3) Loss of eligibility. A Bank shall not

extend a new advance or renew an

existing advance to a nonmember

mortgagee that no longer meets the

eligibility requirements of the Act and

this subpart until the entity has

provided evidence satisfactory to the

Bank that it is in compliance with such

requirements.

(The Office of Management and Budget

approved the information collection

requirements contained in this section and

assigned control number 3069–0005 with an

expiration date of November 30, 1999)

By the Board of Directors of the Federal

Housing Finance Board.

Dated: February 19, 1997.

Bruce A. Morrison,

Chairperson.

[FR Doc. 97–6260 Filed 3–13–97; 8:45 am]

BILLING CODE 6725–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. 96–NM–117–AD; Amendment

39–9964; AD 97–06–07]

RIN 2120–AA64

Airworthiness Directives; Dornier

Model 328–100 Series Airplanes

Equipped With Burns Aerospace

Corporation Passenger Seats

AGENCY: Federal Aviation

Administration, DOT.

ACTION: Final rule.

SUMMARY: This amendment adopts a

new airworthiness directive (AD),

applicable to certain Dornier Model

328–100 series airplanes, that requires

modification of the restraining systems

of certain passenger seats by replacing

anchor point fasteners with fasteners

that are able to withstand required 16g

load conditions. This amendment is

prompted by a report indicating that the

restraining systems on these seats failed

to meet 16g test load requirements

during dynamic testing. The actions

specified by this AD are intended to

prevent the fasteners from failing, which

could result in release of the seat

restraint and consequent injury to

passengers.

DATES: Effective April 18, 1997.

The incorporation by reference of

certain publications listed in the

regulations is approved by the Director

of the Federal Register as of April 18,

1997.

ADDRESSES: The service information

referenced in this AD may be obtained

from Dornier Luftfahrt GmbH, P.O. Box

1103, D–82230 Wessling, Germany. This

information may be examined at the

Federal Aviation Administration (FAA),

Transport Airplane Directorate, Rules

Docket, 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:

Connie Beane, Aerospace Engineer,

Standardization Branch, ANM–113,

FAA, Transport Airplane Directorate,

1601 Lind Avenue, SW., Renton,

Washington 98055–4056; telephone

(206) 227–2796; fax (206) 227–1149.

SUPPLEMENTARY INFORMATION: A

proposal to amend part 39 of the Federal

Aviation Regulations (14 CFR part 39) to

include an airworthiness directive (AD)

that is applicable to certain Dornier

Model 328–100 series airplanes was

published in the Federal Register on

December 13, 1996 (61 FR 65494). That

action proposed to require removal of

the anchor point fasteners on Burns

Aerospace Corporation commuter seat

models JB6.8–1–22 and JB6.8–2–42

passenger seats. It proposed replacing

the fasteners with new ones which will

ensure that the restraining system for

these seats is able to withstand the

required 16g test load conditions.

Interested persons have been afforded

an opportunity to participate in the

making of this amendment. No

comments were submitted in response

to the proposal or the FAA’s

determination of the cost to the public.

Conclusion

The FAA has determined that air

safety and the public interest require the

adoption of the rule as proposed.

Cost Impact

The FAA estimates that 36 Dornier

Model 328–100 airplanes of U.S.

registry will be affected by this AD, that

it will take approximately 1 work hour

per seat to accomplish the required

actions, and that the average labor rate

is $60 per work hour. There are

normally 30 seats per airplane. Required

parts will be provided by the

manufacturer at no cost to operators.

Based on these figures, the cost impact

of the AD on U.S. operators is estimated

to be $64,800, or $1,800 per airplane.

The cost impact figure discussed

above is based on assumptions that no

operator has yet accomplished any of

the requirements of this AD action, and

that no operator would accomplish

those actions in the future if this AD

were not adopted.

Regulatory Impact

The regulations adopted herein will

not have substantial direct effects on the

States, on the relationship between the

national government and the States, or

on the distribution of power and

responsibilities among the various