[Federal Register Volume 75, Number 103 (Friday, May 28, 2010)]
[Rules and Regulations]
[Pages 29877-29883]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-12793]



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

[[Page 29877]]



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.

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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 set-aside 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 
moderate-income 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 set-
aside 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, 
<a href="/cdn-cgi/l/email-protection#a1efc4cdd2cecf8fe9c4d3cfc0cfc5c4dbe1c7c9c7c08fc6ced7"><span class="__cf_email__" data-cfemail="d59bb0b9a6babbfb9db0a7bbb4bbb1b0af95b3bdb3b4fbb2baa3">[email protected]</span></a>; Charles E. McLean, Jr., Associate Director, 
Housing Mission and Goals, 202-408-2537, <a href="/cdn-cgi/l/email-protection#9eddf6ffecf2fbedb0d3fdd2fbfff0def8f6f8ffb0f9f1e8"><span class="__cf_email__" data-cfemail="adeec5ccdfc1c8de83e0cee1c8ccc3edcbc5cbcc83cac2db">[email protected]</span></a>; or 
Melissa L. Allen, Senior Program Analyst, 202-408-2524, 
<a href="/cdn-cgi/l/email-protection#8bc6eee7e2f8f8eaa5cae7e7eee5cbede3edeaa5ece4fd"><span class="__cf_email__" data-cfemail="642901080d1717054a250808010a24020c02054a030b12">[email protected]</span></a>, Federal Housing Finance Agency, 1625 Eye 
Street, NW., Washington, DC 20006; or Sharon B. Like, Associate General 
Counsel, 202-414-8950, <a href="/cdn-cgi/l/email-protection#782b10190a1716563411131d381e101e19561f170e"><span class="__cf_email__" data-cfemail="24774c45564b4a0a684d4f4164424c42450a434b52">[email protected]</span></a>, 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

[[Page 29878]]

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 set-aside 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 moderate-income 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 set-aside 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 set-aside 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 set-aside 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 Sec.  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, Sec.  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 
set-aside 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.
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    \1\ One letter represented the comments of both a Bank and that 
Bank's Advisory Council.
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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

[[Page 29879]]

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: Sec.  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 Sec.  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 set-
aside 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: Sec.  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 Sec.  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 set-aside 
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: Sec.  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

[[Page 29880]]

amendments. This provision is unchanged in the final rule.

D. General AHP Refinancing Program Authority; Retention Agreements: 
Sec.  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 Sec.  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 set-aside refinancing program be subject to an AHP five-
year retention agreement in accordance with Sec.  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 set-aside 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 set-aside refinancing program. One 
commenter opposed the retention agreement requirement for the AHP set-
aside 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 set-aside 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: Sec.  1291.6(f)(2)

    As discussed above, the 2009 interim final rule amended Sec.  
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.
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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.
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    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: Sec.  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

[[Page 29881]]

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, Sec.  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 set-aside 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: Sec.  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 mortgage-revenue 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, Sec.  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.
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    \3\ Requiring 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).
---------------------------------------------------------------------------

H. Household Counseling: Sec.  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 set-aside program and commit AHP 
subsidy.
    Much of the NFMC counseling is one-on-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.
---------------------------------------------------------------------------

    \4\ The 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.
---------------------------------------------------------------------------

    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 set-aside 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 in-person counseling for rural 
households.

[[Page 29882]]

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 set-aside refinancing program without knowing whether such 
households could obtain refinancing through an eligible targeted 
refinancing program. FHFA also recognized that the AHP set-aside 
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 set-aside 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, Sec.  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: Sec.  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 Sec.  
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 member-
basis, 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 
Sec.  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: Sec.  1291.5(d)(5)(vii)

    The 2009 interim final rule amended Sec.  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

[[Page 29883]]

housing crisis by allowing the AHP competitive application program to 
complement the efforts of the AHP set-aside 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.

0
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

0
1. The authority citation for part 1291 continues to read as follows:

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


Sec.  1291.2  [Amended]

0
2. Amend Sec.  1291.2(b)(2)(i) by removing the phrase ``paragraph (f) 
of this section,'' and adding in its place ``Sec.  1291.6(f),''.

0
3. Revise Sec.  1291.6(f)(3), (f)(5), and (f)(6) to read as follows:


Sec.  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 loan-to-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 set-aside 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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