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Rules and Regulations Federal Register

29877 

Vol. 75, No. 103 

Friday, May 28, 2010 

FEDERAL HOUSING FINANCE 

AGENCY 

12 CFR Part 1291 

RIN 2590–AA04 

Affordable Housing Program 

Amendments: Federal Home Loan 

Bank Mortgage Refinancing Authority 

AGENCY: Federal Housing Finance 

Agency. 

ACTION: Final rule. 

SUMMARY: Section 1218 of the Housing 

and Economic Recovery Act of 2008 

(HERA) requires the Federal Housing 

Finance Agency (FHFA) to permit the 

Federal Home Loan Banks (Banks) until 

July 30, 2010, to use Affordable Housing 

Program (AHP) homeownership setaside funds to refinance low- or 

moderate-income households’ mortgage 

loans. On August 4, 2009, FHFA 

adopted an interim final rule that 

amended its AHP regulation to 

authorize the Banks to provide AHP 

direct subsidies through their members 

under their homeownership set-aside 

programs to assist low- or moderateincome households who qualify for 

refinancing assistance under eligible 

federal, state and local targeted 

refinancing programs, including the 

Hope for Homeowners Program and the 

Administration’s Making Home 

Affordable Refinancing Program. The 

interim final rule also enhanced the 

ability of the Banks to respond to the 

mortgage crisis by providing greater 

flexibility to accelerate their future 

annual statutory AHP contributions for 

use in their AHP homeownership setaside programs in the current year, and 

by permitting the Banks to adopt 

multiple housing needs under their 

Second District Priority scoring criterion 

under the AHP competitive application 

program. 

FHFA invited comments on the 

interim final rule and has taken all 

comments into consideration. Based on 

the comments received and the 

considerations discussed in the 2009 

interim final rule, FHFA is adopting the 

interim final rule as a final rule, with 

the following changes. The final rule 

provides the Banks with greater 

flexibility to manage the timing of the 

counseling required for households, and 

gives the Banks discretion to permit 

members to determine, prior to 

counseling, whether a household could 

qualify, in conjunction with AHP 

subsidy, for refinancing under an 

eligible targeted refinancing program, or 

to refer households directly to eligible 

targeted refinancing programs for such 

determinations. The final rule also 

permits a Bank, in its discretion, to 

allow members to enroll households in 

the AHP refinancing set-aside program 

prior to counseling. In all cases, the 

household must obtain the counseling 

prior to disbursement of the AHP 

subsidy on behalf of the household. The 

final rule also permits a Bank to commit 

AHP subsidies under its set-aside 

refinancing program to members by the 

sunset date of July 30, 2010, where a 

Bank’s set-aside operating procedure is 

to commit subsidies to members rather 

than directly to households. In order to 

accommodate this change as well as the 

earlier enrollment of, and commitment 

of AHP subsidy to, households, and 

determinations of whether households 

could qualify for an eligible targeted 

refinancing program, the final rule 

extends the date by which households 

must have submitted applications for 

refinancing to an eligible targeted 

refinancing program from July 30, 2010 

to December 31, 2010, which are 

subsequently approved by the eligible 

targeted refinancing program. In 

addition, the final rule makes the 

payment of counseling costs for assisted 

households an eligible use of AHP 

subsidy under the set-aside refinancing 

program where the costs have not been 

covered by another source, including 

the counseling organization, a funding 

source, or the member. 

DATES: The final rule is effective on May 

28, 2010. 

FOR FURTHER INFORMATION CONTACT: 

Nelson Hernandez, Senior Associate 

Director, Housing Mission and Goals, 

202–408–2819, 

Nelson.Hernandez@fhfa.gov; Charles E. 

McLean, Jr., Associate Director, Housing 

Mission and Goals, 202–408–2537, 

Charles.McLean@fhfa.gov; or Melissa L. 

Allen, Senior Program Analyst, 202– 

408–2524, Melissa.Allen@fhfa.gov, 

Federal Housing Finance Agency, 1625 

Eye Street, NW., Washington, DC 20006; 

or Sharon B. Like, Associate General 

Counsel, 202–414–8950, 

Sharon.Like@fhfa.gov, Federal Housing 

Finance Agency, 1700 G Street, NW., 

Washington, DC 20552. The telephone 

number for the Telecommunications 

Device for the Hearing Impaired is 800– 

877–8339. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. HERA 

Effective July 30, 2008, Division A of 

HERA, Public Law No. 110–289, 122 

Stat. 2654 (2008), created FHFA as an 

independent agency of the Federal 

Government. HERA transferred the 

supervisory and oversight 

responsibilities over the Federal 

National Mortgage Association (Fannie 

Mae), Federal Home Loan Mortgage 

Corporation (Freddie Mac) (collectively, 

Enterprises), the Banks, and the Bank 

System’s Office of Finance, from the 

Office of Federal Housing Enterprise 

Oversight (OFHEO) and the Federal 

Housing Finance Board (FHFB), 

respectively, to FHFA. FHFA is 

responsible for ensuring that the 

Enterprises and the Banks operate in a 

safe and sound manner, including being 

capitalized adequately, and carry out 

their public policy missions, including 

fostering liquid, efficient, competitive, 

and resilient national housing finance 

markets. The Enterprises and the Banks 

continue to operate under regulations 

promulgated by OFHEO and FHFB until 

such regulations are superseded by 

regulations issued by FHFA. See HERA 

at sections 1302, 1312, 122 Stat. 2795, 

2798. 

B. The Banks’ Affordable Housing 

Program 

Section 10(j) of the Federal Home 

Loan Bank Act (Bank Act) requires each 

Bank to establish an affordable housing 

program, the purpose of which is to 

enable a Bank’s members to finance 

homeownership by households with 

incomes at or below 80 percent of the 

area median income (AMI) (low- or 

moderate-income households), and to 

finance the purchase, construction or 

rehabilitation of rental projects in which 

at least 20 percent of the units will be 

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1One letter represented the comments of both a 

Bank and that Bank’s Advisory Council. 

occupied by and affordable for 

households earning 50 percent or less of 

AMI (very low-income households). See 

12 U.S.C. 1430(j)(1) and (2). The Bank 

Act requires each Bank to contribute 10 

percent of its previous year’s net 

earnings to its AHP annually, subject to 

a minimum annual combined 

contribution by the 12 Banks of $100 

million. See 12 U.S.C. 1430(j)(5)(C). 

Section 1218 of HERA amended section 

10(j) by adding a new section 10(j)(2)(C) 

which requires FHFA to allow the 

Banks until July 30, 2010, to use AHP 

homeownership set-aside funds to 

refinance low- or moderate-income 

households’ first mortgage loans on 

their primary residences. See 12 U.S.C. 

1430(j)(2)(C). The Director of FHFA 

must establish the percentage of setaside funds eligible for this use by 

regulation. 

The AHP regulation authorizes a 

Bank, in its discretion, to set aside a 

portion of its annual required AHP 

contribution to establish 

homeownership set-aside programs for 

the purpose of promoting 

homeownership for low- or moderateincome households. See 12 CFR 1291.6. 

Under the homeownership set-aside 

programs, a Bank may provide AHP 

direct subsidy (grants) to members to 

pay for down payment assistance, 

closing costs, and counseling costs in 

connection with a household’s purchase 

of its primary residence, and for 

rehabilitation assistance in connection 

with a household’s rehabilitation of an 

owner-occupied residence. See 12 CFR 

1291.6(c)(4). Currently, a Bank may 

allocate up to the greater of $4.5 million 

or 35 percent of its annual required AHP 

contribution to homeownership setaside programs in that year. 

C. AHP Refinancing Initiative, Proposed 

Rule and October 2008 Interim Final 

Rule 

In January 2008, FHFB waived certain 

homeownership set-aside program 

provisions of the AHP regulation to 

allow the Federal Home Loan Bank of 

San Francisco (San Francisco Bank) to 

establish a temporary pilot program to 

provide AHP direct subsidy to enable 

eligible households with subprime or 

nontraditional loans held by a San 

Francisco Bank member or its affiliate to 

refinance or restructure the loans into 

affordable, long-term fixed-rate 

mortgages. See FHFB Resolution No. 

2008–01 (Jan. 15, 2008). The authority 

expired on December 31, 2009, without 

funds being committed. 

In April 2008, FHFB published a 

proposed rule that would have extended 

the temporary authority to use AHP setaside funds for mortgage refinancing or 

restructuring to all 12 Banks. See 73 FR 

20552 (Apr. 16, 2008). FHFB received 

36 comments on the proposal. 

Commenters who supported use of AHP 

funds for refinancing recommended 

flexibility in the rules governing use of 

the funds so that the Banks and their 

members would be able to assist a 

greater number of borrowers in distress, 

including allowing the use of AHP setaside funds in conjunction with other 

federal, state or local mortgage 

refinancing programs. 

Before FHFB took final action on the 

proposed amendments to the AHP 

regulation, section 1218 of HERA added 

section 10(j)(2)(C) to the Bank Act. Title 

IV of Division A of HERA also required 

establishment of the Hope for 

Homeowners Program, a temporary 

mortgage refinancing program under the 

Federal Housing Administration (FHA), 

which will expire on September 30, 

2011. To implement the requirements of 

section 1218 of HERA, on October 17, 

2008, FHFA published an interim final 

rule (2008 interim final rule), which 

added new § 1291.6(f) to the AHP 

homeownership set-aside regulation 

authorizing the Banks, in their 

discretion, to temporarily establish an 

AHP set-aside refinancing program. See 

73 FR 61660 (Oct. 17, 2008). 

Specifically, § 1291.6(f) authorized the 

Banks to provide AHP direct subsidy to 

their members to assist in the 

refinancing of low- or moderate-income 

homeowners’ mortgage loans under the 

Hope for Homeowners Program through 

the use of AHP subsidy to reduce loan 

principal and pay FHA-approved 

closing costs. By linking the use of the 

AHP subsidy with the Hope for 

Homeowners Program, FHFA intended 

to leverage and enhance the 

effectiveness of each program, ensure 

that the full range of federal assistance 

to affected homeowners was available 

quickly, and provide the flexibility that 

the Banks and their members need to 

make the AHP refinancing program 

successful. 

FHFA received 40 comments on the 

2008 interim final rule. Thirteen 

commenters generally supported the use 

of AHP subsidies for refinancing 

households with unaffordable 

mortgages, but recommended a number 

of changes to the rule. The other 27 

commenters opposed the use of AHP 

subsidies for refinancing, citing the 

ongoing, critical need for AHP 

homeownership set-aside subsidies to 

assist home purchases. 

D. August 2009 Interim Final Rule 

Based on public comments received 

on the 2008 interim final rule, and in 

light of continuing adverse conditions of 

the mortgage market, FHFA determined 

that in order for the AHP set-aside 

refinancing program to be implemented 

successfully for the benefit of the 

intended households, the scope of the 

program authority should be broadened 

and the Banks should have greater 

flexibility in implementing the program. 

Accordingly, on August 4, 2009, FHFA 

published an interim final rule (2009 

interim final rule) that authorized the 

Banks to provide AHP direct subsidy to 

their members to assist in the 

refinancing of low- or moderate-income 

homeowners’ mortgage loans under 

eligible targeted refinancing programs 

through the use of AHP subsidy to 

reduce loan principal and pay closing 

costs. See 74 FR 38514 (Aug. 4, 2009). 

By linking the use of the AHP subsidy 

with eligible targeted refinancing 

programs, including the Hope for 

Homeowners Program and the 

Administration’s Home Affordable 

Refinance Program (HARP), FHFA 

intended to leverage and enhance the 

effectiveness of each program, ensure 

that the full range of federal, state and 

local government assistance to affected 

homeowners was available quickly, and 

provide the flexibility that the Banks 

and their members need to make the 

AHP refinancing program successful. 

Five Banks are offering refinancing setaside programs as authorized under the 

2009 interim final rule. 

FHFA received 11 comment letters on 

the 2009 interim final rule, representing 

12 commenters.1 Commenters included: 

seven Banks; one Bank Advisory 

Council; and four trade associations. All 

12 commenters supported the expanded 

use of AHP subsidies provided under 

the rule. All five Banks that are offering 

refinancing set-aside programs 

commented on the 2009 interim final 

rule. FHFA did not receive any 

comments that generally opposed the 

rule. The Analysis of the Final Rule 

section, below, discusses the comments 

expressed on particular subjects. 

E. HERA Section 1201 

Section 1201 of HERA requires the 

FHFA Director to consider the 

differences between the Banks and the 

Enterprises in rulemakings that affect 

the Banks with respect to the Banks’ 

cooperative ownership structure, 

mission of providing liquidity to 

members, affordable housing and 

community development mission, 

capital structure and joint and several 

liability. See 12 U.S.C. 4513(f). In 

preparing the final rule, the Director 

considered these factors and determined 

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that the rule is appropriate, particularly 

because the rule implements a statutory 

provision of the Bank Act that applies 

only to the Banks. See 12 U.S.C. 1430(j). 

FHFA did not receive any comments on 

whether these factors should result in a 

revision of the rule as it relates to the 

Banks. 

II. Analysis of the Final Rule 

A. Definition of Eligible Targeted 

Refinancing Program: § 1291.1 

The 2009 interim final rule provided 

that a household’s loan is eligible to be 

refinanced with AHP direct subsidy if 

the loan is secured by a first mortgage 

on an owner-occupied unit that is the 

primary residence of the household, and 

the loan is refinanced under an ‘‘eligible 

targeted refinancing program.’’ An 

‘‘eligible targeted refinancing program’’ 

is defined in § 1291.1 as a program 

offered by the Department of Housing 

and Urban Development (HUD), U.S. 

Department of Agriculture (USDA), 

Fannie Mae, Freddie Mac, a state or 

local government, or a state or local 

housing finance agency (HFA) for the 

limited purpose of refinancing first 

mortgages on primary residences for 

households that cannot afford or are at 

risk of not being able to afford their 

monthly payments, as defined by the 

program, in order to prevent foreclosure. 

This provision expanded the eligible 

targeted refinancing programs to include 

these other eligible targeted refinancing 

programs, in addition to the Hope for 

Homeowners Program included in the 

2008 interim final rule. 

Ten commenters specifically 

supported expanding the refinance setaside eligibility to include these 

additional eligible targeted refinancing 

programs. No commenters opposed the 

expansion of the refinance set-aside 

authority to include these additional 

eligible targeted refinancing programs, 

and no commenters addressed the 

definition of ‘‘eligible targeted 

refinancing program.’’ Three 

commenters reiterated their comments 

on the 2008 interim final rule that FHFA 

should allow AHP subsidy to be used to 

restructure or refinance mortgages 

originated by members and purchased 

by the Banks for their Mortgage 

Partnership Finance and Mortgage 

Purchase Program portfolios. One 

commenter reiterated its previous 

comment on the 2008 interim final rule 

that members should also be able to use 

AHP subsidies to refinance loans in 

their portfolios with their own funds, 

within guidelines to be set by the Bank. 

Like the 2008 and 2009 interim final 

rules, the final rule does not authorize 

the use of AHP subsidy in conjunction 

with such private refinancing outside of 

eligible targeted refinancing programs 

for the reasons discussed in the 2009 

interim final rule. One commenter 

suggested that the authority should be 

expanded to assist other troubled loan 

restructuring and modification 

initiatives; however, HERA authorizes 

AHP subsidies to be used for 

refinancing only. This temporary 

authority does not extend to use of the 

subsidies to assist in restructuring or 

modifying troubled loans without 

refinancing them into a new loan. 

One commenter expressed concern 

that the regulation does not permit a 

Bank member to refinance its own 

mortgages that it has originated, even 

though it permits a member to refinance 

another member’s mortgages. The 2009 

interim final rule did not preclude a 

member from using AHP subsidy to 

assist households that have mortgages in 

the member’s portfolio to be refinanced 

through an eligible targeted refinancing 

program. For example, a member that is 

a participating lender in a state HFA’s 

bond program that is an eligible targeted 

refinancing program would be able to 

originate a mortgage under that bond 

program to refinance a mortgage in its 

own portfolio. However, as discussed in 

the 2009 interim final rule, FHFA 

rejected using AHP subsidy to assist 

members that are privately refinancing 

loans, whether in their portfolios or not, 

because of the regulatory, administrative 

and operational burdens of safeguarding 

the households and the AHP subsidies 

in such transactions. 

B. Funding Allocation: § 1291.2(b)(2)(i) 

The AHP regulation permits a Bank, 

in its discretion, to set aside annually, 

in the aggregate, a maximum of the 

greater of $4.5 million or 35 percent of 

its annual required AHP contribution to 

provide funds to members participating 

in homeownership set-aside programs, 

including mortgage refinancing 

programs established under § 1291.6(f). 

See 12 CFR 1291.2(b)(2)(i). The 2009 

interim final rule amended the 2008 

interim final rule to require that at least 

one-third of a Bank’s aggregate annual 

set-aside allocation, including any setaside allocation for a mortgage 

refinancing program, be targeted for 

first-time homebuyers. See id. As 

discussed in the 2009 interim final rule, 

in the current market where many 

existing homeowners are unable to sell 

their homes and purchase move-up 

homes because their mortgages exceed 

their homes’ value, efforts to promote 

new home purchases could contribute 

to recovery and stabilization of the 

housing market. Ensuring that at least 

some portion of AHP set-aside subsidies 

are available for home purchase 

assistance is also consistent with 

HERA’s establishment of Federal 

funding for the Neighborhood 

Stabilization Program (NSP), which 

provides funding to state and local 

government programs for purchasing, 

rehabilitating and renting or selling 

foreclosed properties. See HERA 

sections 2301 through 2305. A number 

of state HFAs are using NSP and 

mortgage-revenue bond funds to assist 

first-time homebuyers in purchasing 

these foreclosed properties. 

Three commenters specifically 

supported applying the first-time 

homebuyers allocation requirement to a 

Bank’s aggregate set-aside allocation, 

including allocations for both 

homeownership and set-aside 

refinancing programs. No commenters 

opposed this provision. The final rule 

does not change this provision. 

C. Acceleration of Future AHP 

Contributions: § 1291.2(b)(3) 

Under the Bank Act, a Bank must 

contribute at least 10 percent of its prior 

year’s net earnings to its current year’s 

AHP. See 12 U.S.C. 1430(j)(5)(C). The 

2009 interim final rule increased the 

maximum amount that a Bank, in its 

discretion, may reallot (i.e., accelerate) 

from the subsequent year’s required 

annual AHP contribution for use in the 

current year, to the greater of $5 million 

or 20 percent of the Bank’s required 

annual AHP contribution for the current 

year. See 12 CFR 1291.2(b)(3). As 

discussed in the 2009 interim final rule, 

this provision was intended to address 

the fact that the Banks’ earnings 

potential in the near future is uncertain 

and more unpredictable than in 

previous years because of market 

instability. The enhanced ability to 

account for accelerated funds from 

future required AHP contributions 

would facilitate the Banks making some 

amount of AHP funding available in the 

current year during the housing market 

and economic crisis even when they are 

uncertain about the amount of the 

subsequent year’s earnings. In addition, 

because of the uncertainty of future 

earnings and the possibility that a Bank 

may find itself in the same situation of 

having little or no required AHP 

contribution in the subsequent year, the 

2009 interim final rule allowed a Bank 

to credit the amount of the accelerated 

contribution against required AHP 

contributions over one or more of the 

subsequent five years. Four commenters 

specifically supported the amendments 

to the provision for accelerating future 

AHP contributions for use in the current 

year. No commenters opposed the 

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2 In addition, pursuant to HERA, the household 

must have an income at or below 80 percent of 

AMI, and the household’s loan being refinanced 

must be a first mortgage on an owner-occupied unit 

that is the household’s primary residence. 

amendments. This provision is 

unchanged in the final rule. 

D. General AHP Refinancing Program 

Authority; Retention Agreements: 

§ 1291.6(f)(1) 

Section 1291.6(f)(1) authorizes a 

Bank, in its discretion, to establish a 

homeownership set-aside program for 

the use of AHP direct subsidy by its 

members to assist in the refinancing of 

a household’s mortgage loan that meets 

the requirements in § 1291.6, except for 

certain specified provisions, as well as 

with the requirements of part 1291. The 

2009 interim final rule required that a 

household assisted under the AHP setaside refinancing program be subject to 

an AHP five-year retention agreement in 

accordance with § 1291.6(c)(5). As 

discussed in the 2009 interim final rule, 

under the Banks’ current AHP 

competitive application and home 

purchase set-aside programs, AHP 

retention agreements, which may be 

subordinate liens or other forms of 

legally enforceable agreements, are used 

in conjunction with all types of 

mortgage financing provided by all 

federal, state and local agencies, 

including other FHA programs. Because 

the AHP regulation requires that AHP 

subsidy be repaid only from any net 

gain from the sale or refinancing of the 

home, the AHP repayment requirement 

should not interfere with any 

appreciation or equity sharing 

requirements of the eligible targeted 

refinancing programs. Requiring AHP 

retention agreements for the AHP setaside refinancing program also 

maintains consistency between the 

refinancing program and all other AHP 

programs, which are subject to the 

retention agreement requirement. 

Six commenters specifically 

supported the requirement for AHP 

retention agreements under the AHP setaside refinancing program. One 

commenter opposed the retention 

agreement requirement for the AHP setaside refinancing program because the 

retention agreement, which also applies 

to the AHP homeownership set-aside 

and competitive application programs, 

allows a household, under certain 

circumstances, to subsequently 

refinance and take out equity without 

repaying the AHP subsidy. FHFA does 

not see a reason to treat households 

obtaining AHP assistance under the setaside refinancing program differently 

from households obtaining AHP 

assistance under the homeownership 

set-aside or competitive application 

programs with respect to the retention 

agreement requirements. 

Accordingly, the final rule retains the 

AHP retention agreement requirement 

for the set-aside refinancing program. 

E. Eligible Loans: § 1291.6(f)(2) 

As discussed above, the 2009 interim 

final rule amended § 1291.6(f)(2) to 

permit the use of AHP subsidy to assist 

households that need the subsidy in 

order to refinance their mortgages under 

eligible targeted refinancing programs. 

To be eligible for AHP refinancing 

assistance, a household must meet the 

terms of refinancing established by the 

eligible targeted refinancing program, 

such as the mortgage debt-to-income 

ratio, loan-to-value ratio, payment 

history, type of original loan (e.g., 

subprime or nontraditional), and 

reasons for delinquency.2 The 

requirements and standards of the other 

eligible targeted refinancing programs 

included in the 2009 interim final rule 

protect borrowers and the integrity of 

the AHP. Three commenters specifically 

supported this approach, which is 

unchanged in the final rule. 

Section 1291.6(c)(2)(i) of the existing 

AHP regulation requires a Bank or 

member to determine a household’s 

income eligibility at the time the 

member enrolls the household in the 

AHP homeownership set-aside program. 

Consistent with this requirement, the 

2009 interim final rule provided that the 

Bank or member must determine that 

the household is at or below 80 percent 

of AMI at the time of enrollment in the 

AHP set-aside refinancing program. In 

addition, consistent with the AHP 

homeownership set-aside and 

competitive application programs, the 

2009 interim final rule did not establish 

specific requirements for how a Bank 

should calculate a household’s income. 

Thus, a Bank may make its own 

calculation of total household income, 

or may use the eligible targeted 

refinancing program’s calculation of 

total household income. In this way, a 

Bank or member may rely on the total 

household income provided by the 

eligible targeted refinancing program 

regardless of when that program 

calculated the amount. 

Four commenters specifically 

supported the provisions on calculation 

of household income, and no 

commenters opposed them. The final 

rule does not change these provisions. 

F. Eligible Uses of AHP Subsidy: 

§ 1291.6(f)(3) 

1. Reduction in Outstanding Loan 

Principal Balance 

The 2009 interim final rule permitted 

use of the AHP subsidy to reduce the 

outstanding loan principal balance to 

the eligible targeted refinancing 

program’s maximum loan-to-value ratio 

even if this results in the household 

having a mortgage debt-to-income ratio 

below the program’s maximum 

mortgage debt-to-income ratio. The 

maximum amount of AHP subsidy that 

may be provided for the refinancing is 

the least amount that results in the loan 

meeting both the program’s maximum 

loan-to-value ratio and maximum 

mortgage debt-to-income ratio. See 12 

CFR 1291.6(f)(3). The 2009 interim final 

rule also made a technical change to 

clarify that the applicable program 

underwriting debt-to-income ratio is the 

mortgage debt-to-income ratio. Three 

commenters specifically supported the 

amendment, which is unchanged in the 

final rule. 

2. Loan Closing Costs 

To maintain consistency with the 

AHP home purchase set-aside program, 

the 2009 interim final rule removed 

language in the 2008 interim final rule 

that restricted eligible closing costs 

under the set-aside refinancing program 

to FHA-approved closing costs. Two 

commenters specifically supported this 

change, and no commenters opposed it. 

The provision is unchanged in the final 

rule. 

In addition, to maintain consistency 

with the AHP home purchase set-aside 

program, the 2009 interim final rule 

made applicable to the set-aside 

refinancing program the current 

requirement of the AHP home purchase 

set-aside program that the rate of 

interest, points, fees and any other 

charges for all loans made in 

conjunction with the AHP subsidy 

cannot exceed a reasonable market rate 

of interest, points, fees and other 

charges for loans of similar maturity, 

terms and risk. See 12 CFR 1291.6(c)(7). 

FHFA received no comments 

specifically addressing this provision, 

which is unchanged in the final rule. 

3. Counseling Costs 

The final rule includes a new 

provision that makes the payment of 

counseling costs for assisted households 

an eligible use of AHP subsidy under 

the set-aside refinancing program. In 

requiring counseling under the National 

Foreclosure Mitigation Counseling 

(NFMC) program, the 2009 interim final 

rule did not also authorize the use of 

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3Requiring a household to obtain a new mortgage 

through the member is one of several types of 

optional household eligibility requirements that a 

Bank may establish under the AHP home purchase 

set-aside program. See 12 CFR 1291.6(c)(2)(iii). 

4The 2008 Consolidated Appropriations Bill 

established and funded the NFMC program to assist 

households seeking refinancing or restructuring of 

their mortgages in order to avoid foreclosure. See 

Public Law No. 110–161. The NFMC program, 

under the auspices of the Congressionally chartered 

NeighborWorks America, comprises an array of 

counseling groups including NeighborWorks’ 

partner organizations, the Homeownership 

Preservation Foundation, HUD’s HOPE NOW 

counseling coalition, the National Urban League, 

USA Cares (military assistance), and state and local 

housing finance agency counseling programs. 

AHP subsidies to pay for these 

counseling costs because counseling 

under the NFMC program is free to the 

households and, therefore, AHP subsidy 

is not needed to pay for the counseling. 

However, NFMC counselors may charge 

a household for the cost of obtaining its 

credit report from a third party. Because 

the household’s credit report is an 

integral part of foreclosure mitigation 

counseling and qualification of the 

household for an eligible targeted 

refinancing program, the cost of the 

credit report would be an eligible 

counseling cost under the AHP. In 

addition, it is possible that other 

counseling services used by state and 

local governments or HFAs for their 

eligible targeted refinancing programs, 

as authorized by this regulation, may 

charge the households for counseling. 

Consequently, in order to accommodate 

such cases, the final rule permits the use 

of AHP subsidy to pay for such 

counseling costs. This provision is also 

consistent with similar authorization 

under the AHP home purchase set-aside 

and competitive application programs. 

Accordingly, § 1291.6(f)(3)(iii) of the 

final rule permits the use of AHP 

subsidy to pay for counseling costs to 

the household under the refinancing setaside program where the costs are 

incurred in connection with counseling 

of homeowners that actually refinance 

their homes with AHP assistance under 

the AHP set-aside refinancing program, 

and the cost of the counseling has not 

been covered by another source, 

including the counseling organization, a 

funding source, or the member. 

G. Eligible Lender Participants: 

§ 1291.6(f)(4) 

The 2009 interim final rule permitted 

any member, rather than only members 

that are FHA-approved lenders, to 

obtain AHP direct subsidy for the 

purpose of refinancing an eligible loan. 

As discussed in the 2009 interim final 

rule, relatively few Bank members are 

FHA-approved lenders and many Bank 

members participate in HFA mortgagerevenue bond programs and are Fannie 

Mae- and Freddie Mac-approved sellers/ 

servicers. AHP assistance should be 

available to households based on their 

qualifications, regardless of whether the 

member providing the AHP subsidy is 

FHA-approved. In addition, requiring 

members to be FHA-approved is too 

restrictive since the rule permits the use 

of the AHP subsidy with other eligible 

targeted refinancing programs in 

addition to FHA’s Hope for 

Homeowners Program. One commenter 

specifically supported this change, and 

no commenters were opposed. The final 

rule does not change this provision. 

The 2009 interim final rule also 

removed the requirement in the 2008 

interim final rule that a Bank must 

consult with its Advisory Council before 

determining that a household may use 

a lender other than a member of the 

Bank. In addition, § 1291.6(f)(4) of the 

2009 interim final rule permitted the 

Banks the discretionary authority to 

require a household to obtain its 

refinancing loan through a member 

participating as a lender in the eligible 

targeted refinancing program that is 

providing the new mortgage to the 

household.3 Three commenters 

specifically supported these changes, 

and no commenters opposed them. 

These changes are retained in the final 

rule. 

H. Household Counseling: § 1291.6(f)(5) 

Section 1291.6(f)(5) of the 2009 

interim final rule required that, prior to 

enrollment in an AHP set-aside 

refinancing program, a household 

seeking AHP assistance must obtain 

counseling for foreclosure mitigation 

which would include whether the 

household qualifies for refinancing by 

an eligible targeted refinancing program, 

through the NFMC program or other 

counseling program used by a state or 

local government or HFA.4 By using the 

counseling requirement as a gateway, 

Bank members would be able to manage 

enrollments and commitments of AHP 

subsidies to households that would be 

able to use the subsidies. Households 

determined by a counseling 

organization to qualify for refinancing 

under an eligible targeted refinancing 

program would then be referred to 

participating Bank members, who 

would enroll the households in the AHP 

set-aside refinancing program upon 

determination of their AHP income 

eligibility at the time of enrollment. If 

households contacted a Bank member 

directly, the member would refer the 

households to an NFMC program 

participant, or to a state or local 

government or HFA counseling 

program, which would determine 

whether the households were eligible to 

have their loans refinanced through an 

eligible targeted refinancing program 

before the member would enroll the 

households in the AHP refinancing setaside program and commit AHP 

subsidy. 

Much of the NFMC counseling is oneon-one, during which a counselor can 

determine if a household’s loan can be 

refinanced by one of the eligible 

targeted refinancing programs and 

whether AHP subsidy will be needed in 

order for the household to obtain the 

refinancing. A primary purpose of the 

2009 interim final rule amendment was 

to ensure that the household receives 

counseling on a variety of available 

refinancing options that are suitable for 

that household. For example, a lender, 

such as an FHA lender or Fannie Mae/ 

Freddie Mac seller/servicer, may be able 

to determine if a household is eligible 

for refinancing under HARP, but is not 

likely to know if the household has 

other options if it is not eligible for 

HARP. Even if the household could not 

qualify for an eligible targeted 

refinancing program or would not be 

eligible for AHP assistance, the NFMC 

program participant would be able to 

review the household’s individual 

circumstances and identify other 

refinancing options that could assist the 

household. Consequently, under the 

2009 interim final rule, when a 

household contacts a member directly, 

the member would refer the household 

to the NFMC program participant or 

other state or local government or HFA 

counseling program participant, to 

determine the household’s eligibility for 

refinancing. 

In the 2009 interim final rule, FHFA 

specifically requested comment on 

whether a household should be required 

to obtain counseling for foreclosure 

mitigation including counseling on 

whether the household qualifies for 

refinancing by an eligible targeted 

refinancing program, prior to enrollment 

in the AHP set-aside refinancing 

program. Six commenters specifically 

supported the counseling requirement, 

but three of these commenters expressed 

concern about the requirement that the 

household obtain the counseling and a 

determination of whether the household 

can qualify for an eligible targeted 

refinancing program prior to being 

enrolled by a member in the AHP setaside refinancing program. One of these 

commenters recommended that 

counseling be required prior to the 

transfer of AHP subsidies committed to 

the household, rather than prior to 

enrollment. Two of the commenters also 

expressed concerns about access to inperson counseling for rural households. 

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29882 Federal Register / Vol. 75, No. 103 / Friday, May 28, 2010 / Rules and Regulations 

One commenter recommended that 

rural households or households with 

limited access to counseling be referred 

by members directly to eligible targeted 

refinancing programs for eligibility 

determinations until such counseling 

can be made available to the household. 

The 2009 interim final rule did not 

require in-person counseling because 

the NFMC program provides one-on-one 

counseling, often by telephone through 

a toll-free number accessible to rural 

households, which FHFA deemed to be 

sufficient in lieu of in-person 

counseling. 

One commenter opposed the 

requirement that a household obtain the 

counseling and determination of 

whether the household qualifies for an 

eligible targeted refinancing program 

through the NFMC program. This 

commenter supported allowing Bank 

members to provide the counseling to 

determine if a household could qualify 

for refinancing under an eligible 

targeted refinancing program. In 

establishing the counseling requirement 

in the 2009 interim final rule, FHFA 

was concerned that it would be 

administratively unworkable for 

members to enroll, and commit AHP 

subsidy to, any number of households 

seeking assistance from the AHP setaside refinancing program without 

knowing whether such households 

could obtain refinancing through an 

eligible targeted refinancing program. 

FHFA also recognized that the AHP setaside refinancing program is designed to 

assist households that could not 

otherwise qualify for an eligible targeted 

refinancing program on their own 

without some amount of AHP subsidy. 

The nature of the AHP set-aside 

refinancing program, where AHP 

subsidy would be used for principal 

reduction, is such that a household 

needing AHP subsidy cannot qualify for 

refinancing under an eligible targeted 

refinancing program without the AHP 

subsidy. Consequently, where a 

household is seeking refinancing 

eligibility information directly from an 

eligible targeted refinancing program, a 

representative of that eligible targeted 

refinancing program, if unaware of the 

potential assistance of the AHP 

refinancing set-aside program, would 

likely tell the household that it does not 

qualify for refinancing under that 

program, thereby ending the 

household’s efforts to refinance. An 

NFMC program counselor would be 

aware of the availability of the AHP setaside refinancing program and have the 

capacity to sit down with an individual 

household to determine whether and 

how the household would be able to 

qualify under an eligible targeted 

refinancing program’s eligibility and 

underwriting requirements if it had 

AHP or other subsidy assistance. 

Nevertheless, FHFA recognizes that 

members may be prepared to accept the 

responsibility of working with 

individual households to identify 

available alternative eligible targeted 

refinancing programs and their 

respective eligibility and underwriting 

requirements, and to go through the 

process of calculating whether AHP 

subsidy assistance would allow the 

households to qualify for one of these 

eligible targeted refinancing programs. 

Consequently, § 1291.6(f)(5)(ii) of the 

final rule permits a Bank, in its 

discretion, to allow its members to refer 

potential household applicants for AHP 

assistance directly to an eligible targeted 

refinancing program for a determination 

on the households’ eligibility for 

refinancing under that program, or to 

allow its members to determine, prior to 

counseling, whether household 

applicants for AHP assistance could 

qualify, in conjunction with AHP 

subsidy, for refinancing under available 

eligible targeted refinancing programs. 

At the same time, the final rule 

continues to require that the household 

obtain foreclosure mitigation counseling 

through an NFMC program or other 

counseling program used by a state or 

local government or HFA. Nevertheless, 

the final rule permits a Bank, in its 

discretion, to allow members to enroll 

households in the AHP set-aside 

refinancing program prior to counseling. 

In all cases, the household must obtain 

the counseling prior to disbursement of 

the AHP subsidy on behalf of the 

household. 

I. Sunset Date: § 1291.6(f)(6) 

The 2009 interim final rule provided 

that the Banks’ authority to commit 

AHP subsidy for refinancing terminates 

after July 30, 2010, which is the 

expiration date of the two-year period in 

section 1218 of HERA. FHFA further 

stated that it may consider an extension 

of the sunset date in the future should 

program experience appear to justify 

such an extension. 

Three commenters supported an 

extension of the sunset date, with one 

commenter suggesting September 30, 

2011 to coincide with the sunset date 

for the Hope for Homeowners Program 

(see HERA, section 1402(a) (National 

Housing Act sec. 257(r))), one 

commenter suggesting at least December 

31, 2010, and one commenter suggesting 

no specific date. Of the five Banks that 

are offering a refinancing set-aside 

program, two did not address the sunset 

date, two supported FHFA’s leaving 

open the possibility of an extension, and 

one supported an extension to 

December 31, 2010. 

The final rule retains the sunset date 

of July 30, 2010 in § 1291.6(f)(6). 

However, the final rule makes two 

changes in order to accommodate 

operational procedures. First, under the 

homeownership set-aside program, 

Banks may commit available AHP 

subsidies in one of two ways. Some 

Banks commit AHP subsidies under 

their set-aside programs on an 

individual household basis as each 

household is enrolled by a member. 

Other Banks operate their 

homeownership set-aside programs 

using a model in which the Bank 

commits AHP subsidies on a memberbasis, with the Bank committing a 

specified amount of AHP subsidies to an 

individual member which that member 

then uses to commit to individual 

households as the member enrolls them. 

The final rule amends § 1291.6(f)(6) to 

recognize both operational models for 

set-aside commitments by providing 

that a Bank may commit AHP subsidy 

to members or households under its 

AHP set-aside refinancing program until 

July 30, 2010. 

Second, in light of the amendment 

permitting Banks to commit AHP 

subsidies to specific members up until 

the sunset date and in order to 

accommodate amendments in the final 

rule that allow the Banks more 

flexibility in permitting their members 

to enroll, and commit AHP subsidies to, 

households prior to counseling, or to 

determine whether households could 

qualify for an eligible targeted 

refinancing program, the final rule 

extends the date by which households 

must have submitted applications for 

refinancing to an eligible targeted 

refinancing program from July 30, 2010 

to December 31, 2010. The final rule 

also clarifies that a member may use 

committed subsidy for a loan submitted 

to an eligible targeted refinancing 

program prior to December 31, 2010, 

that is approved subsequent to 

December 31, 2010. 

J. Competitive Application Program— 

Second District Priority Scoring 

Criterion: § 1291.5(d)(5)(vii) 

The 2009 interim final rule amended 

§ 1291.5(d)(5)(vii) of the AHP regulation 

to permit a Bank to establish one or 

more housing needs in the Bank’s 

district under the Second District 

Priority scoring criterion, which is used 

in scoring applications under the AHP 

competitive application program. The 

amendment was intended primarily to 

provide more flexibility in the Banks’ 

capacity to respond to the current 

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Federal Register / Vol. 75, No. 103 / Friday, May 28, 2010 / Rules and Regulations 29883 

housing crisis by allowing the AHP 

competitive application program to 

complement the efforts of the AHP setaside refinancing program and other 

targeted refinancing programs for 

foreclosure prevention and HERA’s NSP 

for the disposition of foreclosed 

properties. FHFA specifically requested 

comments on whether this scoring 

change benefits the AHP competitive 

application program. 

Eight commenters specifically 

supported this amendment, citing the 

importance of the additional flexibility 

for the Banks to use their competitive 

application programs to address a 

variety of housing needs in their 

respective districts. FHFA received no 

comments opposing this amendment, 

which is unchanged in the final rule. 

III. Effective Date 

Pursuant to the Administrative 

Procedures Act, FHFA for good cause 

finds that the effective date of the final 

rule should not be delayed for 30 days 

and that the final rule should become 

effective on May 28, 2010. See 5 U.S.C. 

553(d)(3). Section 1218 of HERA 

requires that FHFA’s regulations 

authorize the use of AHP set-aside 

subsidy for mortgage refinancing for a 

two-year period commencing on July 30, 

2008, with a resulting sunset date of 

July 30, 2010. The final rule retains the 

substance of FHFA’s August 4, 2009 

interim final rule currently in effect, 

while amending the regulation to allow 

the Banks to make administrative 

changes to the AHP set-aside 

refinancing program designed to 

facilitate household participation in the 

program. Making the final rule effective 

immediately will enable the Banks to 

expedite implementation of these 

program administrative changes. A 30- 

day delayed effective date could 

adversely impact households who, as a 

result of the flexibility of the program 

administrative changes, could have 

received the AHP subsidy commitment 

needed to qualify for an eligible targeted 

refinancing program or closed on their 

refinancing mortgage during the 30-day 

period. 

IV. Paperwork Reduction Act 

The final rule does not substantively 

or materially modify the approved 

information collection entitled 

‘‘Affordable Housing Program (AHP),’’ 

which is assigned control number 2590– 

0007 by the Office of Management and 

Budget (OMB). See http://www.fhfa.gov/ 

webfiles/13095/ 

AHP_Data_Reporting_Instructions.pdf. 

Consequently, FHFA has not 

submitted any information to OMB for 

review under the Paperwork Reduction 

Act of 1995. See 44 U.S.C. 3501 et seq. 

V. Regulatory Flexibility Act 

Because no notice of proposed 

rulemaking is required for this final 

rule, the provisions of the Regulatory 

Flexibility Act do not apply. See 5 

U.S.C. 601(2) and 603(a). Moreover, 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. See id. sec. 

601(6). 

List of Subjects in 12 CFR Part 1291 

Community development, Credit, 

Federal home loan banks, Housing, 

Reporting and recordkeeping 

requirements. 

■ For the reasons stated in the preamble, 

the Interim Final Rule amending 12 CFR 

part 1291, published at 74 FR 38514 

(Aug. 4, 2009), is adopted as final with 

the following changes: 

PART 1291—FEDERAL HOME LOAN 

BANKS’ AFFORDABLE HOUSING 

PROGRAM 

■ 1. The authority citation for part 1291 

continues to read as follows: 

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

§ 1291.2 [Amended] 

■ 2. Amend § 1291.2(b)(2)(i) by 

removing the phrase ‘‘paragraph (f) of 

this section,’’ and adding in its place 

‘‘§ 1291.6(f),’’. 

■ 3. Revise § 1291.6(f)(3), (f)(5), and 

(f)(6) to read as follows: 

§ 1291.6 Homeownership set-aside 

programs. 

* * * * * 

(f) * * * 

(3) Eligible uses of AHP direct 

subsidy. Members may provide the AHP 

direct subsidy to: 

(i) Reduce the outstanding principal 

balance of the loan by no more than the 

amount necessary for the new loan to 

qualify under both the maximum loanto-value ratio and the maximum 

household mortgage debt-to-income 

ratio required by the eligible targeted 

refinancing program; 

(ii) Pay loan closing costs; or 

(iii) Pay for counseling costs only 

where: 

(A) Such costs, including the cost of 

the homeowner’s credit report, are 

incurred in connection with counseling 

of homeowners that actually refinance 

their homes with AHP assistance under 

the AHP set-aside refinancing program; 

and 

(B) The cost of the counseling has not 

been covered by another source 

including the counseling organization, a 

funding source, or the member. 

* * * * * 

(5) Counseling.—(i) Except as 

provided in paragraph (f)(5)(ii) of this 

section, prior to enrollment in an AHP 

set-aside refinancing program 

established under this paragraph (f), a 

household must obtain counseling 

through the National Foreclosure 

Mitigation Counseling program or other 

counseling program used by a state or 

local government or housing finance 

agency, for foreclosure mitigation 

including counseling on whether the 

household qualifies, in conjunction 

with AHP subsidy, for refinancing 

under an eligible targeted refinancing 

program. 

(ii) Optional requirements. A Bank, in 

its discretion, may permit its members, 

prior to such counseling, to take any of 

the following actions in paragraphs 

(f)(5)(ii)(A) through (C) of this section, 

provided that, in all cases, the 

household obtains such counseling 

prior to disbursement of the AHP 

subsidy on behalf of the household: 

(A) Enroll households in the AHP setaside refinancing program; 

(B) Refer households directly to an 

eligible targeted refinancing program to 

determine eligibility for refinancing 

under the eligible targeted refinancing 

program; or 

(C) Determine whether a household 

could qualify, in conjunction with AHP 

subsidy, for refinancing under an 

eligible targeted refinancing program. 

(6) Sunset.—(i) This paragraph (f) 

shall expire on July 30, 2010. 

(ii) A Bank may commit AHP subsidy 

to members or households under its 

AHP set-aside refinancing program until 

July 30, 2010. 

(iii) A member may use the AHP 

subsidy committed by a Bank pursuant 

to paragraph (f)(6)(ii) of this section for 

a loan submitted to an eligible targeted 

refinancing program on or before 

December 31, 2010 that is subsequently 

approved for refinancing under such 

program. 

Dated: May 21, 2010. 

Edward J. DeMarco, 

Acting Director, Federal Housing Finance 

Agency. 

[FR Doc. 2010–12793 Filed 5–27–10; 8:45 am] 

BILLING CODE 8070–01–P 

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