Acquired Member Assets, 78689-78699 [2015-31660]
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Federal Register / Vol. 80, No. 242 / Thursday, December 17, 2015 / Proposed Rules
committee of the board of directors of a
covered bank should review and
approve the recovery plan at least
annually and as needed to address any
changes made by management.
Dated: December 10, 2015.
Thomas J. Curry,
Comptroller of the Currency.
[FR Doc. 2015–31658 Filed 12–16–15; 8:45 am]
BILLING CODE 4810–33–P
FEDERAL HOUSING FINANCE BOARD
12 CFR Part 955
FEDERAL HOUSING FINANCE
AGENCY
12 CFR Parts 1201 and 1268
RIN 2590–AA69
Acquired Member Assets
Federal Housing Finance
Board; Federal Housing Finance
Agency.
ACTION: Notice of proposed rulemaking;
request for comment.
AGENCY:
The Federal Housing Finance
Agency (FHFA) is proposing
amendments to the existing Acquired
Member Assets (AMA) regulation,
which applies to the Federal Home Loan
Banks (Banks). In particular, FHFA
proposes to remove from the regulation
requirements based on ratings issued by
a Nationally Recognized Statistical
Ratings Organization (NRSRO), as
required by the Dodd-Frank Wall Street
Reform and Consumer Protection Act
(Dodd-Frank Act). Additionally, FHFA
proposes to transfer the AMA regulation
from the former Federal Housing
Finance Board (Finance Board)
regulations to FHFA’s regulations.
FHFA also proposes to reorganize the
current regulation and to modify and
clarify a number of provisions in the
regulation.
SUMMARY:
FHFA must receive written
comments on or before April 15, 2016.
ADDRESSES: You may submit your
comments, identified by Regulatory
Information Number (RIN) 2590–AA69,
by any of the following methods:
• Agency Web site: www.fhfa.gov/
open-for-comment-or-input.
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments. If
you submit your comment to the
Federal eRulemaking Portal, please also
send it by email to FHFA at
RegComments@fhfa.gov to ensure
timely receipt by the agency. Please
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DATES:
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include Comments/RIN 2590–AA69 in
the subject line of the message.
• Courier/Hand Delivery: The hand
delivery address is: Alfred M. Pollard,
General Counsel, Attention: Comments/
RIN 2590–AA69, Federal Housing
Finance Agency, 400 Seventh Street
SW., Eighth Floor, Washington, DC
20219. Deliver the package to the
Seventh Street entrance Guard Desk,
First Floor, on business days between 9
a.m. and 5 p.m.
• U.S. Mail, United Parcel Service,
Federal Express or Other Mail Service:
The mailing address for comments is:
Alfred M. Pollard, General Counsel,
Attention: Comments/RIN 2590–AA69,
Federal Housing Finance Agency, 400
Seventh Street SW., Eighth Floor,
Washington, DC 20219.
FOR FURTHER INFORMATION CONTACT:
Christina Muradian, Principal Financial
Analyst, Christina.Muradian@fhfa.gov,
202–649–3323, Division of Bank
Regulation; or Thomas E. Joseph,
Associate General Counsel,
Thomas.Joseph@fhfa.gov, 202–649–
3076 (these are not toll-free numbers),
Office of General Counsel, Federal
Housing Finance Agency, 400 Seventh
Street SW., Washington, DC 20219. The
telephone number for the
Telecommunications Device for the
Hearing Impaired is 800–877–8339.
SUPPLEMENTARY INFORMATION:
I. Comments
FHFA invites comments on all aspects
of the proposed regulation. After
considering all comments, FHFA will
develop a final regulation. FHFA will
post without change copies of all
comments received on the FHFA Web
site at https://www.fhfa.gov, and will
include any personal information you
provide, such as your name, address,
email address, and telephone number.
FHFA will make copies of all comments
timely received available for
examination by the public on business
days between the hours of 10 a.m. and
3 p.m., at the Federal Housing Finance
Agency, 400 Seventh Street SW., Eighth
Floor, Washington, DC 20219. To make
an appointment to inspect comments,
please call the Office of General Counsel
at 202–649–3804.
II. Background
A. Creation of the Federal Housing
Finance Agency
Effective July 30, 2008, the Housing
and Economic Recovery Act of 2008
(HERA) 1 created FHFA as a new
independent agency of the federal
government. HERA transferred to FHFA
1 Public
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78689
the supervisory and oversight
responsibilities of the Office of Federal
Housing Enterprise Oversight (OFHEO)
over the Federal National Mortgage
Association (Fannie Mae), the Federal
Home Loan Mortgage Corporation
(Freddie Mac) (collectively,
Enterprises), and of the Finance Board
over the Banks and the Bank System’s
Office of Finance. Under the legislation,
the Enterprises, the Banks, and the
Office of Finance continue to operate
under regulations promulgated by
OFHEO and the Finance Board until
such regulations are superseded by
regulations issued by FHFA.2
B. Dodd-Frank Act Provisions
Section 939A of the Dodd-Frank Act
requires federal agencies to: (i) Review
regulations that require the use of an
assessment of the creditworthiness of a
security or money market instrument;
and (ii) to the extent those regulations
contain any references to, or
requirements regarding credit ratings,
remove such references or
requirements.3 In place of such creditrating based requirements, the DoddFrank Act instructs agencies to
substitute appropriate standards for
determining creditworthiness. The new
law further provides that, to the extent
feasible, an agency should adopt a
uniform standard of creditworthiness
for use in its regulations, taking into
account the entities regulated by it and
the purposes for which such regulated
entities would rely on the
creditworthiness standard.
On November 8, 2013, FHFA
promulgated a final rule removing
references to credit ratings in certain
regulations governing the Banks; this
rule became effective on May 7, 2014.4
That rulemaking removed references to
credit ratings in FHFA regulations
related to Bank investments, standby
letters of credit, and liabilities.5 When
those rule amendments were proposed,
FHFA stated that it would undertake
separate rulemakings to remove NRSRO
references and requirements contained
in the Banks’ capital regulations and in
the regulations governing the Banks’
AMA programs.6 In this rulemaking,
FHFA is proposing to remove the
references to NRSRO credit ratings in
2 See
12 U.S.C. 4511, note.
15 U.S.C. 78o–7 note.
4 See Final Rule, Removal of References to Credit
Ratings in Certain Regulations Governing the
Federal Home Loan Banks, 78 FR 67004 (Nov. 8,
2013).
5 See 12 CFR parts 1267, 1269, and 1270.
6 See Proposed Rule, Removal of References to
Credit Ratings in Certain Regulations Governing the
Federal Home Loan Banks, 78 FR 30784, 30786
(May 23, 2013).
3 See
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the current AMA regulation. FHFA will
separately address removal of credit
ratings from the capital regulation in a
future rulemaking.
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C. The Bank System
The eleven Banks are wholesale
financial institutions organized under
the Federal Home Loan Bank Act (Bank
Act).7 The Banks are cooperatives; only
members of a Bank may purchase the
capital stock of a Bank, and only
members or certain eligible housing
associates (such as state housing finance
agencies) may obtain access to secured
loans, known as advances, or other
products provided by a Bank.8 Each
Bank is managed by its own board of
directors and serves the public interest
by enhancing the availability of
residential credit through its member
institutions.9 Any eligible institution
(generally a federally insured depository
institution or state-regulated insurance
company) may become a member of a
Bank if it satisfies certain criteria and
purchases a specified amount of the
Bank’s capital stock.10 As governmentsponsored enterprises, federal law
grants the Banks certain privileges. In
light of those privileges, the Banks
typically can borrow funds at spreads
over the rates on U.S. Treasury
securities of comparable maturity that
are narrower than those available to
most other entities. The Banks pass
along a portion of their funding
advantage to their members and housing
associates—and ultimately to
consumers—by providing advances and
other financial services at rates that
would not otherwise be available to
their members. Among those financial
services are the Banks’ AMA programs,
under which the Banks provide
financing for members’ housing
activities by purchasing mortgage loans
that meet the requirements of the AMA
regulation.
D. Acquired Member Assets
On July 17, 2000, the Finance Board
adopted a final AMA regulation, which
remains in effect.11 Neither the Finance
Board nor FHFA has amended the
regulation since its adoption. The
current rule authorizes the Banks to
acquire certain loans (principally
conforming residential mortgage loans)
from their members and housing
associates as a means of advancing their
7 See
12 U.S.C. 1423, 1432(a).
12 U.S.C. 1426(a)(4), 1430(a), 1430b.
9 See 12 U.S.C. 1427.
10 See 12 U.S.C. 1424; 12 CFR part 1263.
11 See Final Rule, Federal Home Loan Bank
Acquired Member Assets, Core Mission Activities,
Investment and Advances, 65 FR 43969 (July 17,
2000) (hereinafter ‘‘Final AMA Rule’’).
8 See
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housing finance mission, and prescribes
the parameters within which the Banks
may do so. In adopting the rule, the
Finance Board noted that AMA was
functionally equivalent to the business
of making advances. It allowed members
and housing associates to use eligible
assets to access liquidity for further
mission-related lending, while the
member or housing associate
maintained its exposure to all or a
material portion of the credit risk
associated with the AMA loans sold to
a Bank.12 The members or housing
associates of a Bank, or members or
housing associates of another Bank
(pursuant to an arrangement between
the Bank acquiring the AMA and the
Bank in which the participating
financial institution is a member), that
are authorized to sell mortgage loans to
the Bank through its AMA program
generally are referred to as participating
financial institutions.
The core of the current AMA rule,
which remains unchanged in the
proposed rule, establishes a three-part
test for a loan to qualify as AMA. First,
the asset requirement establishes that
assets must be conforming whole
mortgage loans, certain interests in such
loans, whole loans secured by
manufactured housing, certain state or
federal housing finance agency (HFA)
bonds, and certain other assets
enumerated in the rule. Second, assets
must meet a member-nexus requirement
whereby a Bank must acquire the AMA
assets from a participating financial
institution or another Bank. In either
case, the assets acquired by a Bank must
be originated or held for a valid
business purpose by a participating
financial institution (or an affiliate
thereof). Finally, to meet the credit risksharing requirement, a Bank must
structure its AMA products such that a
substantial portion of the associated
credit risk is borne by a participating
financial institution. Specifically,
participating financial institutions must
provide sufficient credit enhancement
on the assets sold so that the AMA
purchased by a Bank is equivalent to an
asset rated at least investment grade by
an NRSRO or such higher rating as
required by the Bank.
Banks currently offer two AMA
programs—Mortgage Partnership
Finance (MPF) and Mortgage Purchase
Program (MPP). FHFA has authorized
other mortgage products outside of the
AMA rule that are not subject to the
requirements of the rule. These
products, as structured by the Bank,
generally are conduit programs that
allow eligible members to access the
12 Id.
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secondary mortgage markets but do not
result in a Bank holding the mortgages
on its balance sheet. Non-AMA products
currently offered by some Banks are
MPF Xtra and MPF Direct.
III. The Proposed Rule
A. Highlights of the Proposed Rule
The proposed rule would re-organize
current 12 CFR part 955 and re-adopt it
as part 1268 of FHFA’s regulations.
More significantly, as required by the
Dodd-Frank Act, it would remove and
replace references to, or requirements
based on, ratings issued by an NRSRO.
It would provide Banks greater
flexibility in choosing the models they
can use to estimate the credit
enhancement required for AMA loans.
Additionally, the proposed rule would
add a provision allowing a Bank to
authorize the transfer of mortgage
servicing rights to any institution,
including a non-member of the Bank
System. The proposal would remove
provisions allowing the use of private
supplemental mortgage insurance (SMI)
in the required member credit
enhancement structure. Finally, the
proposal would delete some obsolete
provisions from the current rule, and
clarify certain other provisions.
B. Proposed Changes
As already noted, Section 939A of the
Dodd-Frank Act requires federal
agencies to review regulations that
require an NRSRO assessment of the
creditworthiness of a security or money
market instrument, or that includes any
references to or requirements related to
credit ratings issued by NRSROs. The
Dodd-Frank Act further requires the
removal of such references or
requirements. The AMA rule currently
establishes a number of requirements
based on NRSRO ratings, which the
proposed rule would remove or amend
consistent with the Dodd-Frank Act
mandate. In addition to the proposed
changes related to credit ratings, FHFA
is proposing other changes that would
re-organize, modify, and clarify certain
provisions of the current regulation.
1. Definitions Section Proposed § 1268.1
In the definitions section (current
§ 955.1 and proposed § 1268.1), FHFA
proposes to modify the definition of
‘‘expected losses’’ to remove a reference
to NRSROs. As discussed more fully
below, FHFA would also make other
changes to the definition of ‘‘expected
losses’’ to account for the fact that a
Bank would have more modelling
options under the proposed rule for
calculating the required credit
enhancement. Also, as discussed more
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fully below, FHFA would add to the
rule a definition for ‘‘investment
quality’’ to implement changes needed
to remove references in the current rule
to specific NRSRO credit ratings.
FHFA proposes to add to new
§ 1268.1 definitions for the terms ‘‘AMA
product,’’ ‘‘AMA program,’’
‘‘participating financial institution,’’
and ‘‘pool.’’ FHFA intends for these
newly defined terms to help simplify
and clarify other provisions in the rule
and avoid use of repetitive, descriptive
language in those provisions. It also
proposes to amend slightly the
definition of ‘‘AMA’’ in § 1201.1 to
mean ‘‘assets acquired in accordance
with, and satisfying the applicable
requirements of, part 1268 of this
chapter [XII], or any successor thereto.’’
2. Authorization for Acquired Member
Assets Section Proposed § 1268.2
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FHFA is proposing to amend the
language in the current authorization
provision (current 12 CFR 955.2) and to
reorganize it into separate sections as
proposed §§ 1268.2 through 1268.5.
Under the proposed rule, § 1268.2
generally would authorize a Bank to
invest in AMA subject to the
requirements of parts 1268 and 1272 of
FHFA’s regulations. FHFA is also
proposing to include in this new
authorization section a ‘‘grandfather’’
provision that would allow a Bank to
continue to hold any AMA loans that
the Finance Board or FHFA previously
authorized for purchase, even if the loan
would not meet the requirements of the
proposed rule. This proposed provision,
set forth at § 1268.2(b), would cover
loans that were authorized for purchase
by rule, order, or other agency action
such as waiver of particular
requirements so a Bank to purchase the
loan.13 It would assure that a Bank
could continue to hold any legacy loans,
including those that no longer meet the
credit enhancement or other
requirements in the proposed rule. It
would replace the current provision that
allows a Bank to continue to purchase
and hold loans that had been authorized
under the Finance Board’s and FHFA’s
former Financial Management Policy
even if the credit enhancement structure
13 For example, on August 5, 2011, FHFA waived
the ratings requirement for SMI providers in the
current regulation to allow Banks to continue to buy
loans that used SMI as part of the credit
enhancement structure, even though no SMI
provider met the ratings requirement. This
grandfather provision would allow the Banks that
bought loans pursuant to that waiver to continue to
hold those loans even if FHFA changes the credit
enhancement provision to no longer allow SMI, as
it proposed to do in this rulemaking.
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did not meet the current AMA rule.14
While the proposed grandfather
provision would not authorize
continued purchase of AMA that do not
comply with the proposed rule, FHFA
believes that all currently active AMA
products would meet the requirements
in proposed part 1268.
FHFA proposes to move the loan type,
member nexus, and credit enhancement
requirements found in current 12 CFR
955.2 to §§ 1268.3, 1268.4, and 1268.5.
As discussed below, FHFA is also
proposing to make other changes to
these provisions.
3. Asset Requirement Section Proposed
§ 1268.3
a. Renaming Section
FHFA is proposing to rename this
section from the current ‘‘loan type
requirement’’ to ‘‘asset requirement’’
because not all of the interests this
section authorizes for purchase are
technically loans. Specifically, HFA
bonds and certificates representing
interests in whole loans, which the
current rule authorizes, are better
classified as securities.
b. Asset Types
Current 12 CFR 955.2(a) sets forth the
types of assets that are permissible as
AMA. Proposed § 1268.3(a)(1) and (2)
are substantively unchanged from the
existing rule and set forth the asset
types that are eligible for purchase as
AMA. The proposed rule, as does the
current regulation, allows the
acquisition of whole loans that are
eligible to secure advances to members
under FHFA’s advances regulation (part
1266). These assets include: (1) Fully
disbursed, whole first mortgage loans on
improved residential real property not
more than 90 days delinquent; (2)
mortgages or other loans, regardless of
delinquency status, to the extent that
the mortgage or loan is insured or
guaranteed by the United States or any
agency thereof, or otherwise is backed
by the full faith and credit of the United
States, and such insurance, guarantee,
or other backing is for the direct benefit
of the holder of the mortgage or loan; (3)
other real estate-related collateral
provided that such collateral has a
readily ascertainable value, can be
reliably discounted to account for
liquidation and other risks, can be
liquidated in due course, and that the
Bank can perfect a security interest in
such collateral; and (4) when acquired
14 FHFA terminated the Financial Management
Policy on June 20, 2012, when its revised
investment rule (12 CFR part 1267) took effect. See
Final Rule: Federal Home Loan Bank Investments,
76 FR 29147, 29151 (May 20, 2011).
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from community financial institution
(CFI) members or their affiliates, small
business loans, small farm loans, small
agri-business loans, or community
development loans, in each case fully
secured by collateral other than real
estate, or securities representing a whole
interest in such secured loans, provided
that such collateral has a readily
ascertainable value, can be reliably
discounted to account for liquidation
and other risks, and can be liquidated in
due course.
c. Restrictions on Certain Loans
FHFA is proposing to adopt as
§ 1268.3(a)(1) the current regulation
provision that excludes from AMA
those single-family mortgages where the
loan amount exceeds the conforming
loan limits established pursuant to 12
U.S.C. 1717(b)(2). This limit is
consistent with the limits imposed on
the Enterprises. As noted when the
Finance Board first adopted the AMA
rule, it intended this provision to
prohibit purchase of jumbo loans and to
create a level playing field with the
Enterprises concerning the types of
loans that a Bank can purchase.15
As a point of clarification, FHFA
confirms that under the amended rule,
loans on properties located in
designated ‘‘high-cost areas,’’ where the
conforming loan limit is adjusted in
accordance with the criteria established
in 12 U.S.C. 1717(b)(2), would remain
eligible for purchase as AMA as long as
the loan value is within the adjusted
conforming loan limit. The criteria in 12
U.S.C. 1717(b)(2), as currently enacted,
allows that the conforming loan limits:
may be increased by not to exceed 50 per
centum with respect to properties located in
Alaska, Guam, Hawaii, and the Virgin
Islands. Such foregoing limitations shall also
be increased, with respect to properties of a
particular size located in any area for which
115 percent of the median house price for
such size residence exceeds the foregoing
limitation for such size residence, to the
lesser of 150 percent of such limitation for
such size residence or the amount that is
equal to 115 percent of the median house
price in such area for such size residence.
FHFA specifically requests comments
as to any issues regarding a Bank’s
purchase of loans as AMA in designated
high-cost areas as well as any issues
related to whether the rule should
continue to limit AMA loans to those
that meet the conforming loan limits
more generally.
FHFA is proposing to add language to
§ 1268.3(a)(3) and (b) to restrict a Bank
from purchasing as AMA any home
mortgage loans made to any directors,
15 See
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officers, employees, attorneys, or agents
of a Bank or of the selling institution
unless the board of directors of the Bank
has specifically approved such purchase
by resolution.16 This restriction is
statutory with regard to home mortgages
used as collateral for advances.17 The
proposed change would extend the
restriction to AMA purchases. Loans
made to such persons pose the same or
greater risk when purchased by a Bank
as when taken as collateral for advances.
The restriction would be implemented
by citing to 12 CFR 1266.7(f) of the
FHFA regulations, which is the
provision that implements the statutory
restriction with regard to advances.18
FHFA does not propose to apply the
restriction to HFA bonds, given that
FHFA does not apply the restriction to
securities allowed as collateral for
advances under part 1266 of this
chapter.
d. Manufactured Housing Loans
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The current AMA regulation allows
the purchase of manufactured housing
loans regardless of whether such
housing constitutes real property under
state law, and FHFA is not proposing
changes to this provision (proposed as
§ 1268.3(b)). FHFA recognizes that the
Enterprises also may purchase
manufactured housing loans that are
chattel loans under the Federal National
Mortgage Association Charter Act and
the Federal Home Loan Mortgage
Corporation Act. In addition, under its
advances regulation, FHFA considers
chattel loans on manufactured housing
to be residential housing finance assets
for purposes of the long-term advances
proxy test, and allows Banks to extend
long-term advances to members for the
purchase or funding of such loans.19
Other FHFA regulations, however,
treat chattel loans on manufactured
housing differently from loans on real
property. For example, in 2010, FHFA
adopted a change to the definition of
‘‘mortgage’’ as used in the Enterprise
housing goals regulations with the result
that purchases of chattel loans on
manufactured housing would not
qualify for credit under the housing
goals.20 FHFA adopted the same
16 This restriction would also apply with regard
to an interest in whole loans under proposed
§ 1263.3(d), given that such interest must be in
loans that otherwise meet the requirements of
proposed § 1263.3(a) or (b) for the interest to qualify
as AMA.
17 12 U.S.C. 1430(b).
18 12 CFR 1266.7(f)
19 See 12 CFR 1266.1 and 1266.3.
20 See Final Rule: Enterprise Housing Goals;
Enterprise Book-entry Procedures, 75 FR 55892,
55896–895 (Sept. 14, 2010). FHFA continued this
exclusion in its most recently adopted Enterprise
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definition of ‘‘mortgage’’ in the Bank
housing goals regulations so chattel
loans on manufactured housing also do
not qualify for credit under Bank
housing goals.21 In its proposed
Enterprise duty to serve regulations,
FHFA similarly proposed that it would
consider only manufactured housing
loans titled as real property toward the
Enterprises’ duty to serve underserved
markets.22
FHFA is also concerned that chattel
loans display a higher level of default
risk, and present greater credit and
operational risks, than other mortgage
loans authorized for purchase under the
AMA regulation. Given these concerns
and the differences in how some current
FHFA regulations treat chattel loans,
FHFA specifically requests comment as
to whether it should continue to
authorize the purchase of manufactured
housing loans as AMA if relevant state
law considers the loans as chattel loans.
e. Certificates Representing Interests in
Whole Loans
Proposed § 1268.3(d) is a new
provision. It would bring into the rule
text the authority for Banks to acquire
as AMA certain certificates representing
interests in whole loans. When the
Finance Board adopted the current
AMA rule, it noted, in response to
comments, that the rule allowed the
Banks to buy structured products as
AMA, provided the products met
certain identified conditions. The
proposed language would adopt in the
rule text the conditions that were set
forth in this discussion. Currently, this
authority is set forth in a discussion in
the SUPPLEMENTARY INFORMATION of the
Federal Register release adopting the
current regulation.23 The Finance Board
approved one AMA product under this
authority (in December 2002), which is
now inactive. By moving the preamble
language to the rule text, FHFA would
clarify that such programs are possible
under the amended regulation and bring
all relevant authority into the rule text.
FHFA continues to believe that under
the circumstances in proposed
§ 1268.3(d), the use of a third party to
securitize the whole loans would merely
represent a vehicle to invest in certain
types of AMA under more favorable
terms and should, therefore, be
permitted under the rule. However, if
housing goals rule. See 12 CFR 1282.1 (definition
of ‘‘mortgage’’).
21 See Final Rule: Federal Home Loan Bank
Housing Goals, 75 FR 81096, 81100 (Dec. 27, 2010).
22 See Proposed Rule: Enterprise Duty to Serve
Underserved Markets, 75 FR 32099, 32101–105
(June 7, 2010). FHFA has not yet adopted this
proposed rule as a final rule.
23 Final AMA Rule, 65 FR at 43974, 43977.
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the certificates have been created as a
security initially available to investors
generally, they will not be considered to
qualify as AMA under § 1268.3(d).24
4. Member or Housing Associate Nexus
Requirement Section Proposed § 1268.4
FHFA is proposing to reorganize as
§ 1268.4(a) and (b) the member nexus
requirements currently found at 12 CFR
955.2(b). The proposed rule would
continue to impose the requirement that
for a loan to be eligible for purchase as
AMA, the participating financial
institution would have either to
originate or issue the assets or have held
them for a valid business purpose. The
‘‘valid business purpose requirement’’
in the current regulation accounts for
the fact that a member may acquire
loans from a non-member during the
normal course of business and then sell
those loans to the Bank. It excludes any
loans that merely pass from a nonmember through a member to a Bank,
with the intent of extending the benefits
of membership to the non-member.25
The reference in the proposed rule to
assets issued ‘‘through, or on behalf of
the participating financial institution’’
also carries over from the current
regulation. As under the current
regulation, the provision would allow
HFA bonds issued by an underwriter for
the participating financial institution to
qualify as AMA.26
Proposed § 1268.4(b) would adopt
without substantive change current
special requirements in 12 CFR
955.2(b)(2)(ii) that apply when a Bank
purchases HFA bonds as AMA from a
housing associate of another Bank.
Under this provision, a Bank may
acquire initial-offering taxable HFA
bonds from out-of-district associates,
provided the Bank in whose district the
HFA is located (local Bank) has a right
of first refusal to purchase, or negotiate
the terms of, a particular bond issue. If
the local Bank refuses, or does not
respond within three days, the HFA
may then offer the bonds to an out-ofdistrict Bank. The Finance Board
adopted this approach to preserve the
integrity of the Bank Districts, while at
the same time preventing any one Bank
from denying an HFA in its District
from financing that another Bank is
willing to provide.27
24 Id.
25 See Proposed Rule: Federal Home Loan Bank
Acquired Member Assets, Core Mission Activities,
Investments and Advances, 65 FR 25676, 25681
(May 3, 2000) (hereinafter 2000 Proposed AMA
Rule).
26 Id.
27 See Final AMA Rule, 65 FR at 43975.
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5. Credit Risk-Sharing Requirement
Section Proposed § 1268.5
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a. General Requirement
FHFA is proposing to reorganize as
§ 1268.5 the credit risk-sharing
requirements currently found at 12 CFR
955.2(c) and 955.3. FHFA proposes to
re-adopt several of the credit risksharing provisions without substantive
changes, including the requirement that
all AMA loans carry a credit
enhancement. Proposed § 1268.5(c) also
generally would maintain the design
requirement for the credit enhancement
structure that helps ensure that the
participating financial institution
retains an economic incentive to reduce
actual losses that is both material in
amount and early enough in the
structure to be meaningful.28 Thus, the
proposed rule would continue to
prohibit any AMA product that removes
the participating financial institution’s
incentive to reduce actual credit losses.
As discussed below, the proposed
rule also would change some of the
credit risk-sharing provisions to remove
references to NRSRO ratings, as required
by the Dodd-Frank Act. Proposed
§ 1268.5(e) would set forth the
requirements for the Bank’s use of a
methodology and model for calculating
the credit enhancement obligation that
is not necessarily tied to one used by an
NRSRO. Additionally, FHFA is not
proposing to re-adopt current provisions
that allow the use of private SMI or pool
insurance as part of the credit
enhancement structure. Consequently,
FHFA is proposing to remove provisions
from the current regulation requiring
eligible SMI providers to maintain
specific NRSRO ratings.
b. Determining Credit Enhancements on
AMA Pools
The proposed rule would modify 12
CFR 955.3(a) of the current regulation,
and re-adopt it as proposed
§ 1268.5(b)(1). FHFA’s proposed
modification to this provision would
remove current requirements based on
NRSRO ratings and methodologies in
accordance with the Dodd-Frank Act.
Otherwise, FHFA continues to believe
the credit risk-sharing approach in the
current regulation is valid. The
principles underlying the AMA
regulation establish that risks are borne
by those entities best suited to manage
them. Therefore, the credit risk-sharing
requirements provide that participating
financial institutions selling mortgages
must retain a substantial portion of the
credit risk, given their expertise in
underwriting mortgages. In requiring the
28 Id.
at 43967- 98.
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participating financial institution to
have ‘‘skin in the game,’’ the rule
provides them an incentive to sell highquality loans to the Banks and the
opportunity to benefit financially from
good underwriting practices.
To ensure that participating financial
institutions bear a material portion of
the credit risk, existing § 955.3(a)
currently requires a participating
financial institution that sells AMA
loans to a Bank to enhance the pool to
be equivalent to an asset rated at least
the fourth highest credit grade rating
from an NRSRO (i.e., to be at least
investment grade) or to a higher rating
required by the Bank. The provision
also requires the Bank to make a
determination of the amount of the
required credit enhancement using a
methodology that is confirmed in
writing by an NRSRO to be equivalent
to one used by the NRSRO in rating a
comparable pool of assets.
Proposed § 1268.5(a)(1) would amend
the current provision to remove the
requirement that AMA loans be
enhanced to a specific rating that is
equivalent to one issued by an NRSRO.
Under the proposed amendment, a
participating financial institution must
credit enhance AMA loans to at least
‘‘investment quality.’’
FHFA proposes to define the term
‘‘investment quality’’ in the AMA
regulation by reference to the definition
of that term adopted by FHFA in the
Bank investment regulation (12 CFR
part 1267). That definition reads:
Investment quality means a determination
made by the Bank with respect to a security
or obligation that, based on documented
analysis, including consideration of the
sources for repayment on the security or
obligation: (1) There is adequate financial
backing so that full and timely payment of
principal and interest on such security or
obligation is expected; and (2) There is
minimal risk that the timely payment of
principal or interest would not occur because
of adverse changes in economic and financial
conditions during the projected life of the
security or obligation.29
Under proposed § 1268.5(b)(1), the
Bank could specify as part of the terms
and conditions for a particular AMA
product that a participating financial
institution provide a credit
enhancement greater than that needed
to enhance the loan or pool to
investment quality. The enhancement
would need to be defined in relation to
a model and methodology of the Bank’s
choosing, subject to conditions
established in § 1268.5(e) of the
proposed rule. If a Bank chooses to
continue to use the same NRSRO model
29 12
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it currently uses, it would not
necessarily need to alter the credit
enhancement levels it currently
requires, unless FHFA directs it to do so
or its estimated enhancement levels
otherwise would not comply with the
rule. For example, a Bank would need
to increase credit enhancement levels if
it determined that the credit
enhancement currently estimated by its
NRSRO model was not sufficient for an
asset or pool of assets to be ‘‘investment
quality’’ under the proposed definition
of that term.
In addition, the proposed rule carries
over requirements in the current
regulation that a Bank’s authority to
hold AMA assets is specifically
contingent on the Bank complying with
FHFA’s New business activity (NBA)
regulation (12 CFR part 1272).30 If the
terms and conditions for a Bank’s new
AMA product or a modification to an
existing AMA product triggered the
requirements of the NBA rule, the Bank
would need to file an NBA notice.
FHFA would expect the Bank to provide
a clear explanation in the notice of how
the new or modified product’s credit
risk-sharing structure meets the AMA
credit enhancement requirements, and
how the Bank would calculate that
obligation.
As now is the case under the current
regulation, proposed § 1268.5(c), at least
with respect to loans that would not be
insured or guaranteed by the U.S.
government, would continue to require
the participating financial institution
providing the credit enhancement to
bear the direct economic consequences
of actual credit losses on the assets from
the first dollar of loss up to expected
losses or immediately following
expected losses but in an amount equal
to or exceeding expected losses.31
Consistent with previous Finance Board
statements, the participating financial
institution itself would be required to
bear the economic responsibility of the
expected credit losses, as required by
proposed § 1268.5(c), to ensure
participating financial institution
involvement and to ensure that the
participating financial institution bears
the consequences of the credit quality of
the asset or pool. The participating
financial institution could not transfer
30 See
Proposed § 1268.2.
is discussed below, FHFA is proposing to
change requirements in the current regulation for
government insured or guaranteed loans so that
members or housing associates would no longer
have to bear responsibility for unreimbursed
servicing expenses up to the amount of expected
losses for the loan to qualify as AMA.
31 As
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this responsibility to an affiliate or nonmember entity.32
While the current regulation defines
‘‘expected losses’’ as the base loss
scenario in the methodology of an
NRSRO applicable to a particular AMA
asset, the proposed definition would
refer to the loss given the expected
future economic and market conditions
in the model or methodology used by
the Bank to calculate the credit
enhancement for an AMA product
under proposed § 1268.5. This change
accounts for the fact that the proposed
rule would no longer require a Bank to
use an NRSRO model and would
accommodate the potential for a Bank to
adopt a model that applies a
methodology that differs from that used
in the Banks’ current models.
Otherwise, FHFA believes that this
proposed change would not alter what
is currently required by the AMA rule;
nor is this change intended to alter how
a Bank would calculate ‘‘expected
losses’’ if it continued to use its current
model. Therefore, as under the current
regulation, the proposed rule would
require a member to provide a credit
enhancement against losses for all nongovernment insured or guaranteed loans
at least equal to the expected losses
calculated by the credit enhancement
model used by the Bank whether this
enhancement is positioned in the first
loss position or immediately following
the first loss.
The proposed rule at § 1268.5(c)(1)(ii)
would also continue to require the
participating financial institution to
secure fully its credit enhancement
obligation in parallel with the
requirement for advances to members
under part 1266 of this chapter. This
provision addresses the concern that a
Bank might be exposed to credit risk if
the member were not able to comply
with its contractual credit enhancement
obligation.
The proposed rule would not change
the requirement that a Bank determine
the necessary credit enhancement on a
pool at the earlier of 270 days from the
date of the Bank’s acquisition of the first
loan in a pool or the date at which the
pool reaches $100 million in assets.
This provision continues to be relevant
in that it addresses safety and
soundness concerns that could arise if a
Bank did not timely perform the credit
enhancement determination on large
pools formed over extended periods.
This provision ensures the Bank uses its
model early enough in the process to
determine that the contracted amount of
the credit enhancement is sufficient to
32 See 2000 Proposed AMA Rule, 65 FR at 25683;
see also, Final AMA Rule, 65 FR 43976.
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credit enhance the pool to the level
consistent with the terms and
conditions of the specific AMA
product.33
The proposed rule would also
continue to require that the credit
enhancement must be for the life of the
asset or pool. This requirement would
exclude, for example, structures that
would comply with the credit rating
requirement in the first year, but would
then scale back the amount of the
member’s credit enhancement in future
years so the pool is no longer credit
enhanced to the level consistent with
the terms and conditions of the AMA
product.34
The current regulation at 12 CFR
955.3(b) and (c) set forth specific
requirements for a Bank to obtain the
NRSRO verifications with regard to the
adequacy of the credit enhancement
structure and Bank’s use of the NRSRO
model for estimating the required
enhancement in each AMA product.
Given that under the proposed rule
FHFA would no longer require a Bank
to use NRSRO models, these
requirements would become obsolete,
and FHFA is proposing to remove them.
In their place, FHFA is proposing
§ 1268.5(b)(2), which would require a
Bank to document the basis for its
conclusion that the contractual credit
enhancement required for a particular
pool is sufficient to meet the required
credit enhancement obligation for a
particular AMA product, given the
Bank’s chosen model’s relevant stress
scenarios. This information will help
FHFA monitor the Banks’ use of their
models and the adequacy of the specific
credit enhancement structures used in
each AMA product.
c. Transfer of Credit Enhancement
Obligation
The proposed rule would modify
current 12 CFR 955.3(b)(1) and re-adopt
it as § 1268.5(c)(2). This section would
establish the acceptable forms a member
may use to provide the credit
enhancement for AMA loans, subject to
certain limitations. The proposed rule
would clarify that a participating
financial institution, ‘‘with the approval
of the Bank,’’ may choose to transfer its
credit enhancement obligation to its
insurance affiliate (but only where the
insurance is positioned after the
participating financial institution bears
losses in an amount at least equal to
expected losses) or to another
participating financial institution. The
Bank could give this permission either
by establishing the required form of
33 See
34 See
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credit enhancement in the terms of a
particular AMA product, or by
providing specific approval for the
transfer. The proposed change is
consistent with how the AMA
regulations are currently applied, and
with current Bank practice with regard
to AMA product structures and
permissible transfers of the credit
enhancement obligations.
d. Credit Quality of Mortgage Insurers—
Supplementary Mortgage Insurance
Current 12 CFR 955.3(b) of the AMA
regulation allows a member to meet part
of its credit enhancement obligation
through the purchase of SMI, provided
that the insurer is rated not lower than
the second highest credit rating
category. The proposed rule would
remove the option to use SMI as part of
the credit enhancement structure. While
the current AMA regulation addresses
use of SMI as part of the credit
enhancement structure and minimum
criteria for providers of such insurance,
it does not address borrower-funded
primary mortgage insurance (PMI) or set
minimum criteria for providers of PMI.
Instead, the rule allows a Bank to set the
minimum criteria for PMI providers.
Nothing in the proposed rule alters this
approach with respect to PMI. FHFA
will continue to review the Banks’
assessments of PMI providers through
the annual examination process.
The main reason for proposing to
remove the option to use SMI in the
credit enhancement structure is the fact
that during the recent financial crisis,
no private insurance company
maintained the second highest credit
rating as required by the current AMA
regulation. FHFA had to waive the rule
requirement for the products that relied
on SMI for existing business and
required the Banks with only products
that relied on SMI to develop alternate
structures for new business in their
programs. Given that the Banks have
alternate AMA structures and products
that do not rely on SMI and that private
mono-line insurers could face similar
problems if another financial crisis were
to arise, FHFA is proposing to remove
these provisions. FHFA also believes
that eliminating the use of SMI from
authorized credit enhancement
structures remains consistent with the
intent of the AMA regulation to require
participating financial institutions to
bear the direct economic consequences
of the credit risk associated with AMA
loans and not transfer such risk to third
parties.
For similar reasons, FHFA also
proposes to eliminate the provision in
12 CFR 955.3(b) that authorizes the use
of pool level insurance as part of the
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credit enhancement structure where
such insurance covers that portion of
the credit enhancement obligation
related to geographic concentration or
pool size. As discussed in more detail
below, however, the proposed rule
would still allow a participating
financial institution to use U.S.
government insurance or guarantees to
meet credit enhancement requirements.
FHFA specifically requests comments
regarding the use and importance of
SMI or private pool insurance as part of
an allowable credit enhancement
structure. In particular, FHFA solicits
comments on what type of requirement
could replace the specific credit rating
requirement for private insurance
providers if it were to retain these
insurance options as part of the credit
enhancement structure. Additionally,
FHFA requests comments on how a
Bank might evaluate the claims-paying
ability of an insurer in the absence of a
specific credit rating requirement.
Finally, FHFA requests comment on
whether, if it were to adopt in the AMA
regulation specific minimum
requirements for providers of SMI and
pool insurance, such requirements also
should apply to PMI providers.
e. U.S. Government Insurance or
Guarantee
The proposed rule would modify
current 12 CFR 955.3(b)(1)(ii)(A) and (B)
with regard to the use of U.S.
government insurance or guarantees as
part of the credit enhancement and readopt the provision as § 1268.5(d). The
proposed provision would clarify that a
participating financial institution may
provide all or a portion of the required
credit enhancement by having the loan
insured or guaranteed by an agency or
department of the U.S. government.
Unlike the current regulation, however,
the new, proposed language would not
require government insured or
guaranteed loans to meet the specific
credit enhancement structure
requirements (wherein the member
bears the first dollar of losses for a loan
or pool up to the amount of expected
losses or bears losses immediately
following expected losses in an amount
that equals or exceeds expected
losses).35
As already noted, the purpose of the
credit enhancement structure
requirement was to ensure that
participating financial institutions,
‘‘when responsible for such losses, [had]
incentive to seek ways to achieve better
than expected performance [for the
loans sold as AMA].’’ 36 As the Finance
35 See
12 CFR 955.3(b)(1)(ii) and (b)(2).
36 Final AMA Rule, 65 FR at 43977.
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Board explained, in order for a
participating financial institution to
meet this structure requirement with
respect to government insured or
guaranteed loans, given that losses
eventually would be covered by the
government insurance or guarantee, the
participating financial institution would
have to bear the economic responsibility
of all unreimbursed servicing expenses,
up to the amount of expected losses.37
As a result, the member’s credit
enhancement obligation for AMA
government loans is tied closely to its
servicing obligations. This link limits a
participating financial institution’s
ability to transfer mortgage-servicing
rights for the AMA government loans to
non-participating financial institutions.
In addition, FHFA does not believe
that requiring a member to retain an
obligation to cover unreimbursed
servicing rights for AMA government
loans provides an additional incentive
to improve underwriting in order to
achieve better than expected loan
performance. To qualify for government
insurance or guarantee, members will
already be underwriting loans to
standards imposed by the relevant
government agency or department.
Further, government insurance and
guarantee will usually cover any losses
experienced on the loan. Therefore, this
requirement does not necessarily
provide additional protection to the
Bank beyond that provided by the
government insurance or guarantee.
Thus, FHFA is proposing in
§ 1268.5(d) to remove the requirement
that U.S. government insured or
guaranteed loans meet the specific
structure requirement now set forth in
proposed § 1268.5(c). Proposed
§ 1268.5(d) would continue to require
the credit enhancement provided by
government insurance or guarantee be
maintained for the entire period a Bank
owns the AMA government loan. The
proposed rule would not necessarily
require that a Bank member maintain
the insurance or guarantee. Instead, the
Bank would have to ensure that the
participating financial institution or
another entity maintains the insurance
or guarantee for as long as the Bank
owns the loan. For example, a Bank
might require any entity that acquires
the mortgage servicing rights to a loan
to maintain the insurance. FHFA
believes increasing the flexibility
allowed in transferring mortgageservicing rights under this proposed
change would prove beneficial for many
smaller or medium sized members.
37 Id. (explaining how government insured loans
meet the credit enhancement requirements of the
AMA rule).
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These members, in particular, might
wish to sell their AMA government
loans into AMA government products
but may lack the ability to perform the
servicing obligations now required by
the AMA regulation. In addition, given
changes in the mortgage industry, Banks
may find it increasingly difficult to find
member institutions to meet the
servicing obligations for AMA
government loans. Banks may need the
flexibility to transfer such obligations to
non-member institutions in order to
continue to offer the product to a wide
cross section of its members. The
current regulation does not allow such
flexibility with respect to government
insured or guaranteed loans.
f. Model and Methodology Validation
Proposed § 1268.5(e) would set forth
the specific requirements applicable to
a Bank’s use of a model and
methodology for estimating the required
member credit enhancements for AMA
loans that a participating financial
institution sells to a Bank. Specifically,
it would require a Bank to: (1) Validate
its model and methodology at least
annually and make the results available
upon request by FHFA (proposed
§ 1268.5(e)(1)); (2) institute and
maintain a process for monitoring
model performance that would include
tracking, back-testing, benchmarking,
and stress testing a model and its results
(proposed § 1268.5(e)(2)) and be
otherwise consistent with applicable
FHFA model guidance; (3) inform FHFA
prior to making any material changes to
the model and methodology (proposed
§ 1268.5(e)(3)); and (4) promptly change
its model and methodology as directed
by FHFA (proposed § 1268.5(e)(4)).
The requirements of proposed
§ 1268.5(e) are generally consistent with
the requirements governing the Bank’s
market risk capital models (12 CFR
932.5(c)) and have been added here for
safety and soundness reasons. FHFA
also expects a Bank to have policies and
procedures commensurate with the
complexity of the model and
methodology, including, but not limited
to, a governance structure, oversight by
its board of directors, as well as formal
controls. Effective model risk
management should entail a
comprehensive approach in identifying
risk throughout the model lifecycle and
should be consistent with any
applicable FHFA guidance.
As proposed, the rule would allow a
Bank to institute changes in its model
immediately upon notifying FHFA.
FHFA, however, would review a Bank’s
model and methodology for estimating
credit enhancements as part of the
annual examination process, as well as
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through its on-going off-site monitoring
program. If FHFA found that the model
or the Bank’s use of the model were
inadequate or did not result in a credit
enhancement that would reasonably
protect a Bank against risk of loss as
required under the proposed rule, FHFA
would use authority in the proposed
rule to direct the Bank to make changes
to the model. FHFA could also use other
authorities, such as its authority to issue
cease-and-desist orders, to require the
Bank to make necessary changes to its
model, or AMA products, to address any
violations of the regulation or unsafe or
unsound practices. FHFA believes that
this proposed approach would allow a
Bank sufficient flexibility to make
timely changes to its credit
enhancement model in response to
technological or market developments
while still allowing FHFA adequate
oversight of the Bank’s use of its credit
enhancement model.
While the proposed new provisions
would no longer require a Bank to use
an NRSRO model for estimating the
required credit enhancement, nothing in
the proposed rule would prohibit a
Bank from continuing to use its existing
NRSRO model. However, use of all
models, including a currently used
model, would be subject to the
requirements of proposed § 1268.5(e).
6. Servicing Section Proposed § 1268.6
FHFA proposes to add new § 1268.6
to address the servicing of AMA loans.
This provision incorporates current
FHFA positions, as set forth in a recent
regulatory interpretation, on the rights
of the Banks to allow for transfer of
mortgage servicing rights from the
participating financial institution that
originally sold the AMA loans at
issue.38 Thus, proposed § 1268.6 would
clarify that a Bank can allow for a
transfer of servicing rights to any
institution, including a non-Bank
System member. However, any transfer
of mortgage servicing rights may only
occur as long as it does not result in the
AMA loan failing to meet any
requirements of the rule, including the
credit enhancement requirement. In
particular, because proposed § 1268.5(c)
would require that the credit
enhancement on an AMA loan not
insured or guaranteed by the U.S.
government continue to be held by a
participating financial institution for the
life of the loan, the transfer of servicing
cannot result in the transfer of any
portion of the credit enhancement
obligation to a non-Bank System
member. However, as already discussed,
38 See Regulatory Interpretation, 2015–RI–01
(June 23, 2015).
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changes proposed in § 1268.5(d) would,
if adopted, allow the Banks to transfer
servicing of government insured or
guaranteed AMA loans to non-member
institutions, an action that is not
necessarily allowed under current
regulations.
Proposed § 1268.6 also would require
the approval of the Banks that have any
ownership interest in the loans prior to
the transfer of the servicing obligation.
Finally, the proposed provision would
provide that the Banks have in place
policies and procedures that ensure the
transfer of servicing would not
negatively affect the credit enhancement
on the loans in question or substantially
increase the Bank’s exposure to risk.
FHFA would expect such policies and
procedures specifically to address
transfers to non-Bank System member
servicers given that in the case of
default on an obligation to the Bank, a
Bank may enjoy more rights against a
member than it would against a nonmember. For example, the Bank Act
provides enhanced status with regard to
a Bank’s lien on member assets, and the
Bank’s membership agreement may
allow the Bank to take certain actions
against a member in the case of a breach
of an obligation that would not be
available against a non-member.39 In
addition, FHFA would expect policies
and procedures to include contingency
plans to address a case in which a large
servicer fails or is otherwise unable to
continue to service a Bank’s AMA
portfolio.
7. Risk-Based Capital Requirements
The current regulation at 12 CFR
955.6 established the risk-based capital
requirements for AMA, based on
NRSRO ratings. These risk-based capital
requirements, however, applied only so
long as a Bank had not converted to the
Gramm-Leach-Bliley Act capital
structure and was not yet subject to the
risk-based capital requirements in 12
CFR part 932.40 Given that all Banks
have converted their capital structures
and are now subject to the AMA credit
and market risk charges established by
12 CFR part 932 of the current capital
regulations, this section has no
continuing applicability, and FHFA
proposes to remove it.
39 See,
e.g., 12 U.S.C. 1430(c) and (e).
adopting the current AMA regulations, the
Finance Board noted that the AMA capital
requirements in § 955.6 were ‘‘interim risk based
capital requirements’’ and when the Finance
Board’s new Gramm-Leach-Bliley Act capital
requirements became effective with respect to a
Bank, the Bank would need to hold capital for AMA
based on those new requirements. Final AMA Rule,
65 FR at 43979 (July 17, 2000).
40 In
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8. Other Sections—§§ 1268.7 and 1268.8
Proposed §§ 1268.7 and 1268.8 would
adopt without substantive change 12
CFR 955.4 and 955.5 of the current
regulation. These provisions address,
respectively, reporting requirements for
AMA and administrative transactions
and agreements between Banks
involving AMA.
IV. Consideration of Differences
Between the Banks and the Enterprises
When promulgating regulations
relating to the Banks, section 1313(f) of
the Federal Housing Enterprises
Financial Safety and Soundness Act of
1992 (Safety and Soundness Act)
requires the Director of FHFA (Director)
to consider the differences between the
Banks and the Enterprises 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.41 The Director also may
consider any other differences that
FHFA deems appropriate. The changes
proposed in this rulemaking apply only
to the Banks. Many of the proposed
amendments are necessary to
implement requirements under the
Dodd-Frank Act; a number of others are
technical or conforming in nature.
FHFA, in preparing this proposed rule,
considered the differences between the
Banks and the Enterprises as they relate
to the above factors and requests
comments from the public about
whether these differences should result
in any revisions to the proposed rule.
V. Paperwork Reduction Act
The information collection, entitled
‘‘Federal Home Loan Bank Acquired
Member Assets, Core Mission Activities,
Investments and Advances’’ contained
in current 12 CFR part 955 of the
regulations that would be transferred to
12 CFR part 1268 by this proposed rule
has been assigned control number 2590–
0008 by the Office of Management and
Budget (OMB). The proposed rule if
adopted as a final rule would not
substantively or materially modify the
current, approved information
collection.
VI. Regulatory Flexibility Act
The Regulatory Flexibility Act (5
U.S.C. 601 et seq.) requires that a
regulation that has a significant
economic impact on a substantial
number of small entities, small
businesses, or small organizations must
include an initial regulatory flexibility
analysis describing the regulation’s
41 See
E:\FR\FM\17DEP1.SGM
12 U.S.C. 4513.
17DEP1
Federal Register / Vol. 80, No. 242 / Thursday, December 17, 2015 / Proposed Rules
impact on small entities. FHFA need not
undertake such an analysis if the agency
has certified the regulation will not have
a significant economic impact on a
substantial number of small entities. 5
U.S.C. 605(b). FHFA has considered the
impact of the proposed rule under the
Regulatory Flexibility Act.
FHFA certifies that the proposed rule,
if adopted as a final rule, is not likely
to have a significant economic impact
on a substantial number of small entities
because the regulation is applicable
only to the Banks, which are not small
entities for purposes of the Regulatory
Flexibility Act.
List of Subjects
12 CFR Part 955
Community development, Credit,
Federal home loan banks, Housing,
Reporting and recordkeeping
requirements.
12 CFR Part 1201
Administrative practice and
procedure, Federal home loan banks,
Government-sponsored enterprises,
Office of Finance, Regulated entities.
Authority and Issuance
For reasons stated in the
SUPPLEMENTARY INFORMATION,
and under
the authority of 12 U.S.C. 1430, 1430b,
1431, 4511, 4513, 4526, FHFA proposes
to amend subchapter G of chapter IX
and subchapters A and D of chapter XII
of title 12 of the Code of Federal
Regulations as follows:
CHAPTER IX—FEDERAL HOUSING
FINANCE BOARD
Subchapter G—[Removed and Reserved]
1. Subchapter G, consisting of part
955 is removed and reserved.
■
CHAPTER XII—FEDERAL HOUSING
FINANCE AGENCY
Subchapter A—Organization and
Operations
Lhorne on DSK5TPTVN1PROD with PROPOSALS
PART 1201—GENERAL DEFINITIONS
APPYING TO ALL FEDERAL HOUSING
FINANCE AGENCY REGULATIONS
2. The authority citation for part 1201
continues to read:
■
Authority: 12 U.S.C. 4511(b), 4513(a),
4513(b).
3. Amend § 1201.1 by revising the
definition of ‘‘Acquired member assets
or AMA’’ to read as follows:
15:08 Dec 16, 2015
*
*
*
*
Acquired member assets or AMA
means assets acquired in accordance
with, and satisfying the applicable
requirements of, part 1268 of this
chapter, or any successor thereto.
*
*
*
*
*
Subchapter D—Federal Home Loan Banks
4. Part 1268 is added to subchapter D
to read as follows:
■
PART 1268—ACQUIRED MEMBER
ASSETS
Sec.
1268.1 Definitions.
1268.2 Authorization for acquired member
assets.
1268.3 Asset requirement.
1268.4 Member or housing associate nexus
requirement.
1268.5 Credit risk-sharing requirement.
1268.6 Servicing.
1268.7 Reporting requirements for acquired
member assets.
1268.8 Administrative transactions and
agreements between Banks.
§ 1268.1
Acquired member assets, Credit,
Federal home loan bank, Housing,
Nationally recognized statistical rating
agency.
■
Jkt 238001
Definitions.
*
Authority: 12 U.S.C. 1430, 1430b, 1431,
4511, 4513, 4526.
12 CFR Part 1268
VerDate Sep<11>2014
§ 1201.1
Definitions.
As used in this part:
Affiliate means any business entity
that controls, is controlled by, or is
under common control with, a member.
AMA product means an AMA
structure defined by a specific set of
terms and conditions that comply with
this part.
AMA program means a Bankestablished program to buy mortgage
loans that meet the requirements of this
part, which may comprise multiple
AMA products.
Expected losses means the loss given
the expected future economic and
market conditions in the model or
methodology used by the Bank under
§ 1268.5 and applicable to an AMA
product.
Investment quality has the meaning
set forth in § 1267.1 of this chapter.
Participating financial institution
means a member or housing associate of
a Bank that is authorized to sell
mortgage loans to its own Bank through
an AMA program, or a member or
housing associate of another Bank that
has been authorized to sell mortgage
loans to the Bank pursuant to an
agreement between the Bank acquiring
the AMA product and the Bank of
which the selling institution is a
member or housing associate.
Pool means a group of assets acquired
under a given master commitment or
similar agreement.
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Sfmt 4702
78697
Residential real property has the
meaning set forth in § 1266.1 of this
chapter.
§ 1268.2 Authorization for acquired
member assets.
(a) General. Each Bank is authorized
to invest in assets that qualify as AMA,
subject to the requirements of this part
and part 1272 of this chapter.
(b) Grandfathered transactions.
Notwithstanding paragraph (a) of this
section, a Bank may continue to hold as
AMA assets that were previously
authorized by the Federal Housing
Finance Board or FHFA for purchase as
AMA, provided that the assets were
purchased, and continue to be held, in
compliance with that authorization.
§ 1268.3
Asset requirement.
Assets that qualify as AMA shall be
limited to the following:
(a) Whole loans that are eligible to
secure advances under § 1266.7(a)(1)(i),
(a)(2)(ii), (a)(4), or (b)(1) of this chapter,
excluding:
(1) Single-family mortgage loans
where the loan amount exceeds the
limits established pursuant to 12 U.S.C.
1717(b)(2);
(2) Loans made to an entity, or
secured by property, not located in a
state; and
(3) Loans that would not be eligible to
serve as collateral for an advance under
§ 1266.7(f) of this chapter;
(b) Whole loans secured by
manufactured housing, regardless of
whether such housing qualifies as
residential real property, unless such
loan would not be eligible to serve as
collateral for an advance under
§ 1266.7(f) of this chapter;
(c) State and local housing finance
agency bonds; or
(d) Certificates representing interests
in whole loans if:
(1) The loans qualify as AMA under
paragraphs (a) or (b) of this section and
meet the nexus requirements of
§ 1268.4; and
(2) The certificates:
(i) Meet the credit enhancement
requirements of § 1268.5;
(ii) Are issued pursuant to an
agreement between the Bank and a
participating financial institution to
share risks consistent with the
requirements of this part; and
(iii) Are acquired substantially by the
initiating Bank or Banks.
§ 1268.4 Member or housing associate
nexus requirement.
(a) General provision. To qualify as
AMA, any assets described in § 1268.3
must be acquired in a purchase or
funding transaction only from:
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Federal Register / Vol. 80, No. 242 / Thursday, December 17, 2015 / Proposed Rules
(1) A participating financial
institution, provided that the asset was:
(i) Originated or issued by, through, or
on behalf of the participating financial
institution, or an affiliate thereof; or
(ii) Held for a valid business purpose
by the participating financial
institution, or an affiliate thereof, prior
to acquisition by the Bank; or
(2) Another Bank, provided that the
asset was originally acquired by the
selling Bank consistent with this
section.
(b) Special provision for housing
finance agency bonds. In the case of
housing finance agency bonds acquired
by a Bank from a housing associate
located in the district of another Bank
(local Bank), the arrangement required
by the definition of ‘‘participating
financial institution’’ in § 1268.1
between the acquiring Bank and the
local Bank may be reached in
accordance with the following process:
(1) The housing finance agency shall
first offer the local Bank right of first
refusal to purchase, or negotiate the
terms of, its proposed bond offering;
(2) If the local Bank indicates, within
a three-day period, it will negotiate in
good faith to purchase the bonds, the
housing finance agency may not offer to
sell or negotiate the terms of a purchase
with another Bank; and
(3) If the local Bank declines the offer,
or has failed to respond within the
three-day period, the acquiring Bank
will be considered to have an
arrangement with the local Bank for
purposes of this section and may offer
to buy or negotiate the terms of a bond
sale with the housing finance agency.
Lhorne on DSK5TPTVN1PROD with PROPOSALS
§ 1268.5
Credit risk-sharing requirement.
(a) General credit risk-sharing
requirement. For each AMA product,
the Bank shall implement and have in
place at all times, a credit risk-sharing
structure that:
(1) Requires a participating financial
institution to provide the credit
enhancement necessary to enhance an
eligible asset or pool to the credit
quality specified by the terms and
conditions of the AMA product,
provided, however, that such credit
enhancement results in the eligible asset
or pool being at least investment
quality, as defined in § 1268.1; and
(2) Meets the requirements of this
section.
(b) Determination of necessary credit
enhancement. (1) At the earlier of 270
days from the date of the Bank’s
acquisition of the first loan in a pool, or
the date at which the pool reaches $100
million in assets, the Bank shall
determine the total credit enhancement
necessary to enhance the asset or pool
VerDate Sep<11>2014
15:08 Dec 16, 2015
Jkt 238001
to at least investment quality and to be
consistent with the terms and
conditions of a specific AMA product.
The enhancement shall be for the life of
the asset or pool. The Bank shall make
this determination for each AMA
product using a model and methodology
that the Bank deems appropriate,
provided, however, that the Bank’s use
of the model and methodology complies
with to the requirements and conditions
of paragraph (e) of this section.
(2) A Bank shall document its basis
for concluding that the contractual
credit enhancement required from each
participating financial institution with
regard to a particular asset or pool will
equal or exceed the credit enhancement
level specified in the terms and
conditions of the AMA product and
determined in accordance with
paragraph (b)(1) of this section.
(c) Credit risk-sharing structure.
Under any credit risk-sharing structure,
the credit enhancement provided by the
participating financial institution shall
meet the following requirements:
(1) The participating financial
institution that is providing the credit
enhancement required under this this
paragraph (c) shall in all cases:
(i) Bear the direct economic
consequences of actual credit losses on
the asset or pool:
(A) From the first dollar of loss up to
the amount of expected losses; or
(B) Immediately following expected
losses, but in an amount equal to or
exceeding the amount of expected
losses; and
(ii) Fully secure its credit
enhancement obligation subject to
§ 1266.7 of this chapter; and
(2) The participating financial
institution also may provide all or a
portion of the credit enhancement, with
the approval of the Bank, by:
(i) Contracting with an insurance
affiliate of that participating financial
institution to provide an enhancement,
but only where such insurance is
positioned in the credit risk-sharing
structure so as to cover only losses
remaining after the participating
financial institution has borne losses as
required under paragraph (c)(1)(i) of this
section;
(ii) Contracting with another
participating financial institution in the
Bank’s district to provide a credit
enhancement consistent with this
section, in return for compensation; or
(iii) Contracting with a participating
financial institution in another Bank’s
district, pursuant to an arrangement
between the two Banks, to provide a
credit enhancement consistent with this
section, in return for compensation.
PO 00000
Frm 00022
Fmt 4702
Sfmt 4702
(d) U.S. government insured or
guaranteed loans. Instead of the
structure set forth in paragraph (c) of
this section, a participating financial
institution also may provide the
required credit enhancement by
purchasing loan-level insurance that is
issued by an agency or department of
the U.S. government or is a guarantee
from an agency or department of the
U.S. government, provided that the
government insurance or guarantee
remains in place for as long as the Bank
owns the loan.
(e) Appropriate methodology for
calculating credit enhancement. A Bank
shall use a model and methodology for
estimating the amount of credit
enhancement for a pool of AMA subject
to the following requirements and
conditions:
(1) The Bank shall validate its model
and methodology for calculating the
credit enhancement for AMA pools at
least annually, or more often if
necessary, and make the results of such
validation available to FHFA upon
request;
(2) The Bank shall institute and
maintain a process to monitor the
performance of its model to include
tracking, back-testing, bench-marking,
and stress testing the model and the
results it produces, and the Bank shall
make information gathered from
monitoring the model available to FHFA
upon request;
(3) The Bank shall inform FHFA prior
to making any material changes to an
approved model and methodology,
providing a description of the changes
that the Bank intends to make and its
reasons for doing so; and
(4) The Bank promptly shall make any
FHFA-directed changes to its model and
methodology.
§ 1268.6
Servicing.
(a) Servicing of AMA loans may be
transferred to and performed by any
institution, including an institution that
is not a member of the Bank System,
provided that the loans, after such
transfer, continue to meet all
requirements to qualify as AMA under
§§ 1268.3, 1268.4 and 1268.5.
(b) The transfer of mortgage servicing
rights and responsibilities must be
approved by the Bank or Banks that own
the loan or a participation interest in the
loan.
(c) A Bank shall have in place policies
and procedures to ensure that the
transfer of mortgage servicing rights
does not negatively affect the credit
enhancement on the loans in question
or substantially increase the Bank’s
exposure to risk.
E:\FR\FM\17DEP1.SGM
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Federal Register / Vol. 80, No. 242 / Thursday, December 17, 2015 / Proposed Rules
§ 1268.7 Reporting requirements for
acquired member assets.
Each Bank shall report information
related to AMA in accordance with the
instructions provided in the Data
Reporting Manual issued by FHFA, as
amended from time to time.
§ 1268.8 Administrative transactions and
agreements between Banks.
(a) Delegation of administrative
duties. A Bank may delegate the
administration of an AMA program to
another Bank whose administrative
office has been examined and approved
by FHFA, or previously examined and
approved by the Federal Housing
Finance Board, to process AMA
transactions. The existence of such a
delegation, or the possibility that such
a delegation may be made, must be
disclosed to any potential participating
financial institution as part of any
AMA-related agreements signed with
that participating financial institution.
(b) Termination of Agreements. Any
agreement made between two or more
Banks in connection with any AMA
program may be terminated by any party
after a reasonable notice period.
(c) Delegation of Pricing Authority. A
Bank that has delegated its AMA pricing
function to another Bank shall retain a
right to refuse to acquire AMA at prices
it does not consider appropriate.
Dated: December 10, 2015.
Melvin L. Watt,
Director, Federal Housing Finance Agency.
[FR Doc. 2015–31660 Filed 12–16–15; 8:45 am]
BILLING CODE 8070–01–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 39
[Docket No. FAA–2015–6544; Directorate
Identifier 2014–NM–198–AD]
RIN 2120–AA64
Airworthiness Directives; Saab AB,
Saab Aeronautics (Formerly Known as
Saab AB, Saab Aerosystems)
Airplanes
Federal Aviation
Administration (FAA), DOT.
ACTION: Notice of proposed rulemaking
(NPRM).
Lhorne on DSK5TPTVN1PROD with PROPOSALS
AGENCY:
We propose to supersede
Airworthiness Directive (AD) 2012–24–
06 for certain Saab AB, Saab
Aeronautics (formerly known as Saab
AB, Saab Aerosystems) Model 340A
(SAAB/SF340A) and SAAB 340B
airplanes. AD 2012–24–06 requires
SUMMARY:
VerDate Sep<11>2014
15:08 Dec 16, 2015
Jkt 238001
replacing the stall warning computer
(SWC) with a new SWC, which provides
an artificial stall warning in icing
conditions, and modifying the airplane
for the replacement of the SWC. Since
we issued AD 2012–24–06, a
determination was made that airplanes
with certain modifications were
excluded from the AD applicability and
are affected by the identified unsafe
condition and the SWC required by AD
2012–24–06 contained erroneous logic.
This proposed AD would add airplanes
to the applicability, and would add
requirements to replace the existing
SWCs with new, improved SWCs and
modify the airplane for the new
replacement of the SWC. We are
proposing this AD to prevent natural
stall events during operation in icing
conditions, which could result in loss of
control of the airplane.
DATES: We must receive comments on
this proposed AD by February 1, 2016.
ADDRESSES: You may send comments by
any of the following methods:
• Federal eRulemaking Portal: Go to
https://www.regulations.gov. Follow the
instructions for submitting comments.
• Fax: 202–493–2251.
• Mail: U.S. Department of
Transportation, Docket Operations, M–
30, West Building Ground Floor, Room
W12–140, 1200 New Jersey Avenue SE.,
Washington, DC 20590.
• Hand Delivery: U.S. Department of
Transportation, Docket Operations, M–
30, West Building Ground Floor, Room
W12–140, 1200 New Jersey Avenue SE.,
Washington, DC, between 9 a.m. and 5
p.m., Monday through Friday, except
Federal holidays.
For service information identified in
this proposed rule, contact Saab AB,
Saab Aeronautics, SE–581 88,
¨
Linkoping, Sweden; telephone +46 13
18 5591; fax +46 13 18 4874; email
saab2000.techsupport@saabgroup.com;
Internet https://www.saabgroup.com.
You may view this referenced service
information at the FAA, Transport
Airplane Directorate, 1601 Lind Avenue
SW., Renton, WA. For information on
the availability of this material at the
FAA, call 425–227–1221.
Examining the AD Docket
You may examine the AD docket on
the Internet at https://
www.regulations.gov by searching for
and locating Docket No. FAA–2015–
6544; or in person at the Docket
Management Facility between 9 a.m.
and 5 p.m., Monday through Friday,
except Federal holidays. The AD docket
contains this proposed AD, the
regulatory evaluation, any comments
received, and other information. The
PO 00000
Frm 00023
Fmt 4702
Sfmt 4702
78699
street address for the Docket Operations
office (telephone 800–647–5527) is in
the ADDRESSES section. Comments will
be available in the AD docket shortly
after receipt.
FOR FURTHER INFORMATION CONTACT:
Shahram Daneshmandi, Aerospace
Engineer, International Branch, ANM–
116, Transport Airplane Directorate,
FAA, 1601 Lind Avenue SW., Renton,
WA 98057–3356; telephone 425–227–
1112; fax 425–227–1149.
SUPPLEMENTARY INFORMATION:
Comments Invited
We invite you to send any written
relevant data, views, or arguments about
this proposed AD. Send your comments
to an address listed under the
ADDRESSES section. Include ‘‘Docket No.
FAA–2015–6544; Directorate Identifier
2014–NM–198–AD’’ at the beginning of
your comments. We specifically invite
comments on the overall regulatory,
economic, environmental, and energy
aspects of this proposed AD. We will
consider all comments received by the
closing date and may amend this
proposed AD based on those comments.
We will post all comments we
receive, without change, to https://
www.regulations.gov, including any
personal information you provide. We
will also post a report summarizing each
substantive verbal contact we receive
about this proposed AD.
Discussion
On November 21, 2012, we issued AD
2012–24–06, Amendment 39–17276 (77
FR 73279, December 10, 2012). AD
2012–24–06 applies to certain Saab AB,
Saab Aerosystems Model 340A (SAAB/
SF340A) and SAAB 340B airplanes. AD
2012–24–06 was prompted by reports of
stall events during icing conditions
where the natural stall warning (buffet)
was not identified. AD 2012–24–06
requires replacing the stall warning
computer (SWC) with a new SWC,
which provides an artificial stall
warning in icing conditions, and
modifying the airplane for the
replacement of the SWC. We issued AD
2012–24–06 to prevent natural stall
events during operation in icing
conditions, which, if not corrected,
could result in loss of control of the
airplane.
Airplanes with certain modifications
were excluded from the applicability of
AD 2012–24–06, Amendment 39–17276
(77 FR 73279, December 10, 2012).
Since we issued AD 2012–24–06, we
have determined that those
modifications for airplanes identified in
the applicability of AD 2012–24–06 are
now subject to the identified unsafe
E:\FR\FM\17DEP1.SGM
17DEP1
Agencies
[Federal Register Volume 80, Number 242 (Thursday, December 17, 2015)]
[Proposed Rules]
[Pages 78689-78699]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-31660]
=======================================================================
-----------------------------------------------------------------------
FEDERAL HOUSING FINANCE BOARD
12 CFR Part 955
FEDERAL HOUSING FINANCE AGENCY
12 CFR Parts 1201 and 1268
RIN 2590-AA69
Acquired Member Assets
AGENCY: Federal Housing Finance Board; Federal Housing Finance Agency.
ACTION: Notice of proposed rulemaking; request for comment.
-----------------------------------------------------------------------
SUMMARY: The Federal Housing Finance Agency (FHFA) is proposing
amendments to the existing Acquired Member Assets (AMA) regulation,
which applies to the Federal Home Loan Banks (Banks). In particular,
FHFA proposes to remove from the regulation requirements based on
ratings issued by a Nationally Recognized Statistical Ratings
Organization (NRSRO), as required by the Dodd-Frank Wall Street Reform
and Consumer Protection Act (Dodd-Frank Act). Additionally, FHFA
proposes to transfer the AMA regulation from the former Federal Housing
Finance Board (Finance Board) regulations to FHFA's regulations. FHFA
also proposes to reorganize the current regulation and to modify and
clarify a number of provisions in the regulation.
DATES: FHFA must receive written comments on or before April 15, 2016.
ADDRESSES: You may submit your comments, identified by Regulatory
Information Number (RIN) 2590-AA69, by any of the following methods:
Agency Web site: www.fhfa.gov/open-for-comment-or-input.
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments. If you submit your
comment to the Federal eRulemaking Portal, please also send it by email
to FHFA at RegComments@fhfa.gov to ensure timely receipt by the agency.
Please include Comments/RIN 2590-AA69 in the subject line of the
message.
Courier/Hand Delivery: The hand delivery address is:
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA69,
Federal Housing Finance Agency, 400 Seventh Street SW., Eighth Floor,
Washington, DC 20219. Deliver the package to the Seventh Street
entrance Guard Desk, First Floor, on business days between 9 a.m. and 5
p.m.
U.S. Mail, United Parcel Service, Federal Express or Other
Mail Service: The mailing address for comments is: Alfred M. Pollard,
General Counsel, Attention: Comments/RIN 2590-AA69, Federal Housing
Finance Agency, 400 Seventh Street SW., Eighth Floor, Washington, DC
20219.
FOR FURTHER INFORMATION CONTACT: Christina Muradian, Principal
Financial Analyst, Christina.Muradian@fhfa.gov, 202-649-3323, Division
of Bank Regulation; or Thomas E. Joseph, Associate General Counsel,
Thomas.Joseph@fhfa.gov, 202-649-3076 (these are not toll-free numbers),
Office of General Counsel, Federal Housing Finance Agency, 400 Seventh
Street SW., Washington, DC 20219. The telephone number for the
Telecommunications Device for the Hearing Impaired is 800-877-8339.
SUPPLEMENTARY INFORMATION:
I. Comments
FHFA invites comments on all aspects of the proposed regulation.
After considering all comments, FHFA will develop a final regulation.
FHFA will post without change copies of all comments received on the
FHFA Web site at https://www.fhfa.gov, and will include any personal
information you provide, such as your name, address, email address, and
telephone number. FHFA will make copies of all comments timely received
available for examination by the public on business days between the
hours of 10 a.m. and 3 p.m., at the Federal Housing Finance Agency, 400
Seventh Street SW., Eighth Floor, Washington, DC 20219. To make an
appointment to inspect comments, please call the Office of General
Counsel at 202-649-3804.
II. Background
A. Creation of the Federal Housing Finance Agency
Effective July 30, 2008, the Housing and Economic Recovery Act of
2008 (HERA) \1\ created FHFA as a new independent agency of the federal
government. HERA transferred to FHFA the supervisory and oversight
responsibilities of the Office of Federal Housing Enterprise Oversight
(OFHEO) over the Federal National Mortgage Association (Fannie Mae),
the Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively,
Enterprises), and of the Finance Board over the Banks and the Bank
System's Office of Finance. Under the legislation, the Enterprises, the
Banks, and the Office of Finance continue to operate under regulations
promulgated by OFHEO and the Finance Board until such regulations are
superseded by regulations issued by FHFA.\2\
---------------------------------------------------------------------------
\1\ Public Law 110-289, 122 Stat. 2654
\2\ See 12 U.S.C. 4511, note.
---------------------------------------------------------------------------
B. Dodd-Frank Act Provisions
Section 939A of the Dodd-Frank Act requires federal agencies to:
(i) Review regulations that require the use of an assessment of the
creditworthiness of a security or money market instrument; and (ii) to
the extent those regulations contain any references to, or requirements
regarding credit ratings, remove such references or requirements.\3\ In
place of such credit-rating based requirements, the Dodd-Frank Act
instructs agencies to substitute appropriate standards for determining
creditworthiness. The new law further provides that, to the extent
feasible, an agency should adopt a uniform standard of creditworthiness
for use in its regulations, taking into account the entities regulated
by it and the purposes for which such regulated entities would rely on
the creditworthiness standard.
---------------------------------------------------------------------------
\3\ See 15 U.S.C. 78o-7 note.
---------------------------------------------------------------------------
On November 8, 2013, FHFA promulgated a final rule removing
references to credit ratings in certain regulations governing the
Banks; this rule became effective on May 7, 2014.\4\ That rulemaking
removed references to credit ratings in FHFA regulations related to
Bank investments, standby letters of credit, and liabilities.\5\ When
those rule amendments were proposed, FHFA stated that it would
undertake separate rulemakings to remove NRSRO references and
requirements contained in the Banks' capital regulations and in the
regulations governing the Banks' AMA programs.\6\ In this rulemaking,
FHFA is proposing to remove the references to NRSRO credit ratings in
[[Page 78690]]
the current AMA regulation. FHFA will separately address removal of
credit ratings from the capital regulation in a future rulemaking.
---------------------------------------------------------------------------
\4\ See Final Rule, Removal of References to Credit Ratings in
Certain Regulations Governing the Federal Home Loan Banks, 78 FR
67004 (Nov. 8, 2013).
\5\ See 12 CFR parts 1267, 1269, and 1270.
\6\ See Proposed Rule, Removal of References to Credit Ratings
in Certain Regulations Governing the Federal Home Loan Banks, 78 FR
30784, 30786 (May 23, 2013).
---------------------------------------------------------------------------
C. The Bank System
The eleven Banks are wholesale financial institutions organized
under the Federal Home Loan Bank Act (Bank Act).\7\ The Banks are
cooperatives; only members of a Bank may purchase the capital stock of
a Bank, and only members or certain eligible housing associates (such
as state housing finance agencies) may obtain access to secured loans,
known as advances, or other products provided by a Bank.\8\ Each Bank
is managed by its own board of directors and serves the public interest
by enhancing the availability of residential credit through its member
institutions.\9\ Any eligible institution (generally a federally
insured depository institution or state-regulated insurance company)
may become a member of a Bank if it satisfies certain criteria and
purchases a specified amount of the Bank's capital stock.\10\ As
government-sponsored enterprises, federal law grants the Banks certain
privileges. In light of those privileges, the Banks typically can
borrow funds at spreads over the rates on U.S. Treasury securities of
comparable maturity that are narrower than those available to most
other entities. The Banks pass along a portion of their funding
advantage to their members and housing associates--and ultimately to
consumers--by providing advances and other financial services at rates
that would not otherwise be available to their members. Among those
financial services are the Banks' AMA programs, under which the Banks
provide financing for members' housing activities by purchasing
mortgage loans that meet the requirements of the AMA regulation.
---------------------------------------------------------------------------
\7\ See 12 U.S.C. 1423, 1432(a).
\8\ See 12 U.S.C. 1426(a)(4), 1430(a), 1430b.
\9\ See 12 U.S.C. 1427.
\10\ See 12 U.S.C. 1424; 12 CFR part 1263.
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D. Acquired Member Assets
On July 17, 2000, the Finance Board adopted a final AMA regulation,
which remains in effect.\11\ Neither the Finance Board nor FHFA has
amended the regulation since its adoption. The current rule authorizes
the Banks to acquire certain loans (principally conforming residential
mortgage loans) from their members and housing associates as a means of
advancing their housing finance mission, and prescribes the parameters
within which the Banks may do so. In adopting the rule, the Finance
Board noted that AMA was functionally equivalent to the business of
making advances. It allowed members and housing associates to use
eligible assets to access liquidity for further mission-related
lending, while the member or housing associate maintained its exposure
to all or a material portion of the credit risk associated with the AMA
loans sold to a Bank.\12\ The members or housing associates of a Bank,
or members or housing associates of another Bank (pursuant to an
arrangement between the Bank acquiring the AMA and the Bank in which
the participating financial institution is a member), that are
authorized to sell mortgage loans to the Bank through its AMA program
generally are referred to as participating financial institutions.
---------------------------------------------------------------------------
\11\ See Final Rule, Federal Home Loan Bank Acquired Member
Assets, Core Mission Activities, Investment and Advances, 65 FR
43969 (July 17, 2000) (hereinafter ``Final AMA Rule'').
\12\ Id. at 43974.
---------------------------------------------------------------------------
The core of the current AMA rule, which remains unchanged in the
proposed rule, establishes a three-part test for a loan to qualify as
AMA. First, the asset requirement establishes that assets must be
conforming whole mortgage loans, certain interests in such loans, whole
loans secured by manufactured housing, certain state or federal housing
finance agency (HFA) bonds, and certain other assets enumerated in the
rule. Second, assets must meet a member-nexus requirement whereby a
Bank must acquire the AMA assets from a participating financial
institution or another Bank. In either case, the assets acquired by a
Bank must be originated or held for a valid business purpose by a
participating financial institution (or an affiliate thereof). Finally,
to meet the credit risk-sharing requirement, a Bank must structure its
AMA products such that a substantial portion of the associated credit
risk is borne by a participating financial institution. Specifically,
participating financial institutions must provide sufficient credit
enhancement on the assets sold so that the AMA purchased by a Bank is
equivalent to an asset rated at least investment grade by an NRSRO or
such higher rating as required by the Bank.
Banks currently offer two AMA programs--Mortgage Partnership
Finance (MPF) and Mortgage Purchase Program (MPP). FHFA has authorized
other mortgage products outside of the AMA rule that are not subject to
the requirements of the rule. These products, as structured by the
Bank, generally are conduit programs that allow eligible members to
access the secondary mortgage markets but do not result in a Bank
holding the mortgages on its balance sheet. Non-AMA products currently
offered by some Banks are MPF Xtra and MPF Direct.
III. The Proposed Rule
A. Highlights of the Proposed Rule
The proposed rule would re-organize current 12 CFR part 955 and re-
adopt it as part 1268 of FHFA's regulations. More significantly, as
required by the Dodd-Frank Act, it would remove and replace references
to, or requirements based on, ratings issued by an NRSRO. It would
provide Banks greater flexibility in choosing the models they can use
to estimate the credit enhancement required for AMA loans.
Additionally, the proposed rule would add a provision allowing a Bank
to authorize the transfer of mortgage servicing rights to any
institution, including a non-member of the Bank System. The proposal
would remove provisions allowing the use of private supplemental
mortgage insurance (SMI) in the required member credit enhancement
structure. Finally, the proposal would delete some obsolete provisions
from the current rule, and clarify certain other provisions.
B. Proposed Changes
As already noted, Section 939A of the Dodd-Frank Act requires
federal agencies to review regulations that require an NRSRO assessment
of the creditworthiness of a security or money market instrument, or
that includes any references to or requirements related to credit
ratings issued by NRSROs. The Dodd-Frank Act further requires the
removal of such references or requirements. The AMA rule currently
establishes a number of requirements based on NRSRO ratings, which the
proposed rule would remove or amend consistent with the Dodd-Frank Act
mandate. In addition to the proposed changes related to credit ratings,
FHFA is proposing other changes that would re-organize, modify, and
clarify certain provisions of the current regulation.
1. Definitions Section Proposed Sec. 1268.1
In the definitions section (current Sec. 955.1 and proposed Sec.
1268.1), FHFA proposes to modify the definition of ``expected losses''
to remove a reference to NRSROs. As discussed more fully below, FHFA
would also make other changes to the definition of ``expected losses''
to account for the fact that a Bank would have more modelling options
under the proposed rule for calculating the required credit
enhancement. Also, as discussed more
[[Page 78691]]
fully below, FHFA would add to the rule a definition for ``investment
quality'' to implement changes needed to remove references in the
current rule to specific NRSRO credit ratings.
FHFA proposes to add to new Sec. 1268.1 definitions for the terms
``AMA product,'' ``AMA program,'' ``participating financial
institution,'' and ``pool.'' FHFA intends for these newly defined terms
to help simplify and clarify other provisions in the rule and avoid use
of repetitive, descriptive language in those provisions. It also
proposes to amend slightly the definition of ``AMA'' in Sec. 1201.1 to
mean ``assets acquired in accordance with, and satisfying the
applicable requirements of, part 1268 of this chapter [XII], or any
successor thereto.''
2. Authorization for Acquired Member Assets Section Proposed Sec.
1268.2
FHFA is proposing to amend the language in the current
authorization provision (current 12 CFR 955.2) and to reorganize it
into separate sections as proposed Sec. Sec. 1268.2 through 1268.5.
Under the proposed rule, Sec. 1268.2 generally would authorize a
Bank to invest in AMA subject to the requirements of parts 1268 and
1272 of FHFA's regulations. FHFA is also proposing to include in this
new authorization section a ``grandfather'' provision that would allow
a Bank to continue to hold any AMA loans that the Finance Board or FHFA
previously authorized for purchase, even if the loan would not meet the
requirements of the proposed rule. This proposed provision, set forth
at Sec. 1268.2(b), would cover loans that were authorized for purchase
by rule, order, or other agency action such as waiver of particular
requirements so a Bank to purchase the loan.\13\ It would assure that a
Bank could continue to hold any legacy loans, including those that no
longer meet the credit enhancement or other requirements in the
proposed rule. It would replace the current provision that allows a
Bank to continue to purchase and hold loans that had been authorized
under the Finance Board's and FHFA's former Financial Management Policy
even if the credit enhancement structure did not meet the current AMA
rule.\14\ While the proposed grandfather provision would not authorize
continued purchase of AMA that do not comply with the proposed rule,
FHFA believes that all currently active AMA products would meet the
requirements in proposed part 1268.
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\13\ For example, on August 5, 2011, FHFA waived the ratings
requirement for SMI providers in the current regulation to allow
Banks to continue to buy loans that used SMI as part of the credit
enhancement structure, even though no SMI provider met the ratings
requirement. This grandfather provision would allow the Banks that
bought loans pursuant to that waiver to continue to hold those loans
even if FHFA changes the credit enhancement provision to no longer
allow SMI, as it proposed to do in this rulemaking.
\14\ FHFA terminated the Financial Management Policy on June 20,
2012, when its revised investment rule (12 CFR part 1267) took
effect. See Final Rule: Federal Home Loan Bank Investments, 76 FR
29147, 29151 (May 20, 2011).
---------------------------------------------------------------------------
FHFA proposes to move the loan type, member nexus, and credit
enhancement requirements found in current 12 CFR 955.2 to Sec. Sec.
1268.3, 1268.4, and 1268.5. As discussed below, FHFA is also proposing
to make other changes to these provisions.
3. Asset Requirement Section Proposed Sec. 1268.3
a. Renaming Section
FHFA is proposing to rename this section from the current ``loan
type requirement'' to ``asset requirement'' because not all of the
interests this section authorizes for purchase are technically loans.
Specifically, HFA bonds and certificates representing interests in
whole loans, which the current rule authorizes, are better classified
as securities.
b. Asset Types
Current 12 CFR 955.2(a) sets forth the types of assets that are
permissible as AMA. Proposed Sec. 1268.3(a)(1) and (2) are
substantively unchanged from the existing rule and set forth the asset
types that are eligible for purchase as AMA. The proposed rule, as does
the current regulation, allows the acquisition of whole loans that are
eligible to secure advances to members under FHFA's advances regulation
(part 1266). These assets include: (1) Fully disbursed, whole first
mortgage loans on improved residential real property not more than 90
days delinquent; (2) mortgages or other loans, regardless of
delinquency status, to the extent that the mortgage or loan is insured
or guaranteed by the United States or any agency thereof, or otherwise
is backed by the full faith and credit of the United States, and such
insurance, guarantee, or other backing is for the direct benefit of the
holder of the mortgage or loan; (3) other real estate-related
collateral provided that such collateral has a readily ascertainable
value, can be reliably discounted to account for liquidation and other
risks, can be liquidated in due course, and that the Bank can perfect a
security interest in such collateral; and (4) when acquired from
community financial institution (CFI) members or their affiliates,
small business loans, small farm loans, small agri-business loans, or
community development loans, in each case fully secured by collateral
other than real estate, or securities representing a whole interest in
such secured loans, provided that such collateral has a readily
ascertainable value, can be reliably discounted to account for
liquidation and other risks, and can be liquidated in due course.
c. Restrictions on Certain Loans
FHFA is proposing to adopt as Sec. 1268.3(a)(1) the current
regulation provision that excludes from AMA those single-family
mortgages where the loan amount exceeds the conforming loan limits
established pursuant to 12 U.S.C. 1717(b)(2). This limit is consistent
with the limits imposed on the Enterprises. As noted when the Finance
Board first adopted the AMA rule, it intended this provision to
prohibit purchase of jumbo loans and to create a level playing field
with the Enterprises concerning the types of loans that a Bank can
purchase.\15\
---------------------------------------------------------------------------
\15\ See Final AMA Rule, 65 FR at 43974.
---------------------------------------------------------------------------
As a point of clarification, FHFA confirms that under the amended
rule, loans on properties located in designated ``high-cost areas,''
where the conforming loan limit is adjusted in accordance with the
criteria established in 12 U.S.C. 1717(b)(2), would remain eligible for
purchase as AMA as long as the loan value is within the adjusted
conforming loan limit. The criteria in 12 U.S.C. 1717(b)(2), as
currently enacted, allows that the conforming loan limits:
may be increased by not to exceed 50 per centum with respect to
properties located in Alaska, Guam, Hawaii, and the Virgin Islands.
Such foregoing limitations shall also be increased, with respect to
properties of a particular size located in any area for which 115
percent of the median house price for such size residence exceeds
the foregoing limitation for such size residence, to the lesser of
150 percent of such limitation for such size residence or the amount
that is equal to 115 percent of the median house price in such area
for such size residence.
FHFA specifically requests comments as to any issues regarding a
Bank's purchase of loans as AMA in designated high-cost areas as well
as any issues related to whether the rule should continue to limit AMA
loans to those that meet the conforming loan limits more generally.
FHFA is proposing to add language to Sec. 1268.3(a)(3) and (b) to
restrict a Bank from purchasing as AMA any home mortgage loans made to
any directors,
[[Page 78692]]
officers, employees, attorneys, or agents of a Bank or of the selling
institution unless the board of directors of the Bank has specifically
approved such purchase by resolution.\16\ This restriction is statutory
with regard to home mortgages used as collateral for advances.\17\ The
proposed change would extend the restriction to AMA purchases. Loans
made to such persons pose the same or greater risk when purchased by a
Bank as when taken as collateral for advances. The restriction would be
implemented by citing to 12 CFR 1266.7(f) of the FHFA regulations,
which is the provision that implements the statutory restriction with
regard to advances.\18\ FHFA does not propose to apply the restriction
to HFA bonds, given that FHFA does not apply the restriction to
securities allowed as collateral for advances under part 1266 of this
chapter.
---------------------------------------------------------------------------
\16\ This restriction would also apply with regard to an
interest in whole loans under proposed Sec. 1263.3(d), given that
such interest must be in loans that otherwise meet the requirements
of proposed Sec. 1263.3(a) or (b) for the interest to qualify as
AMA.
\17\ 12 U.S.C. 1430(b).
\18\ 12 CFR 1266.7(f)
---------------------------------------------------------------------------
d. Manufactured Housing Loans
The current AMA regulation allows the purchase of manufactured
housing loans regardless of whether such housing constitutes real
property under state law, and FHFA is not proposing changes to this
provision (proposed as Sec. 1268.3(b)). FHFA recognizes that the
Enterprises also may purchase manufactured housing loans that are
chattel loans under the Federal National Mortgage Association Charter
Act and the Federal Home Loan Mortgage Corporation Act. In addition,
under its advances regulation, FHFA considers chattel loans on
manufactured housing to be residential housing finance assets for
purposes of the long-term advances proxy test, and allows Banks to
extend long-term advances to members for the purchase or funding of
such loans.\19\
---------------------------------------------------------------------------
\19\ See 12 CFR 1266.1 and 1266.3.
---------------------------------------------------------------------------
Other FHFA regulations, however, treat chattel loans on
manufactured housing differently from loans on real property. For
example, in 2010, FHFA adopted a change to the definition of
``mortgage'' as used in the Enterprise housing goals regulations with
the result that purchases of chattel loans on manufactured housing
would not qualify for credit under the housing goals.\20\ FHFA adopted
the same definition of ``mortgage'' in the Bank housing goals
regulations so chattel loans on manufactured housing also do not
qualify for credit under Bank housing goals.\21\ In its proposed
Enterprise duty to serve regulations, FHFA similarly proposed that it
would consider only manufactured housing loans titled as real property
toward the Enterprises' duty to serve underserved markets.\22\
---------------------------------------------------------------------------
\20\ See Final Rule: Enterprise Housing Goals; Enterprise Book-
entry Procedures, 75 FR 55892, 55896-895 (Sept. 14, 2010). FHFA
continued this exclusion in its most recently adopted Enterprise
housing goals rule. See 12 CFR 1282.1 (definition of ``mortgage'').
\21\ See Final Rule: Federal Home Loan Bank Housing Goals, 75 FR
81096, 81100 (Dec. 27, 2010).
\22\ See Proposed Rule: Enterprise Duty to Serve Underserved
Markets, 75 FR 32099, 32101-105 (June 7, 2010). FHFA has not yet
adopted this proposed rule as a final rule.
---------------------------------------------------------------------------
FHFA is also concerned that chattel loans display a higher level of
default risk, and present greater credit and operational risks, than
other mortgage loans authorized for purchase under the AMA regulation.
Given these concerns and the differences in how some current FHFA
regulations treat chattel loans, FHFA specifically requests comment as
to whether it should continue to authorize the purchase of manufactured
housing loans as AMA if relevant state law considers the loans as
chattel loans.
e. Certificates Representing Interests in Whole Loans
Proposed Sec. 1268.3(d) is a new provision. It would bring into
the rule text the authority for Banks to acquire as AMA certain
certificates representing interests in whole loans. When the Finance
Board adopted the current AMA rule, it noted, in response to comments,
that the rule allowed the Banks to buy structured products as AMA,
provided the products met certain identified conditions. The proposed
language would adopt in the rule text the conditions that were set
forth in this discussion. Currently, this authority is set forth in a
discussion in the SUPPLEMENTARY INFORMATION of the Federal Register
release adopting the current regulation.\23\ The Finance Board approved
one AMA product under this authority (in December 2002), which is now
inactive. By moving the preamble language to the rule text, FHFA would
clarify that such programs are possible under the amended regulation
and bring all relevant authority into the rule text. FHFA continues to
believe that under the circumstances in proposed Sec. 1268.3(d), the
use of a third party to securitize the whole loans would merely
represent a vehicle to invest in certain types of AMA under more
favorable terms and should, therefore, be permitted under the rule.
However, if the certificates have been created as a security initially
available to investors generally, they will not be considered to
qualify as AMA under Sec. 1268.3(d).\24\
---------------------------------------------------------------------------
\23\ Final AMA Rule, 65 FR at 43974, 43977.
\24\ Id.
---------------------------------------------------------------------------
4. Member or Housing Associate Nexus Requirement Section Proposed Sec.
1268.4
FHFA is proposing to reorganize as Sec. 1268.4(a) and (b) the
member nexus requirements currently found at 12 CFR 955.2(b). The
proposed rule would continue to impose the requirement that for a loan
to be eligible for purchase as AMA, the participating financial
institution would have either to originate or issue the assets or have
held them for a valid business purpose. The ``valid business purpose
requirement'' in the current regulation accounts for the fact that a
member may acquire loans from a non-member during the normal course of
business and then sell those loans to the Bank. It excludes any loans
that merely pass from a non-member through a member to a Bank, with the
intent of extending the benefits of membership to the non-member.\25\
---------------------------------------------------------------------------
\25\ See Proposed Rule: Federal Home Loan Bank Acquired Member
Assets, Core Mission Activities, Investments and Advances, 65 FR
25676, 25681 (May 3, 2000) (hereinafter 2000 Proposed AMA Rule).
---------------------------------------------------------------------------
The reference in the proposed rule to assets issued ``through, or
on behalf of the participating financial institution'' also carries
over from the current regulation. As under the current regulation, the
provision would allow HFA bonds issued by an underwriter for the
participating financial institution to qualify as AMA.\26\
---------------------------------------------------------------------------
\26\ Id.
---------------------------------------------------------------------------
Proposed Sec. 1268.4(b) would adopt without substantive change
current special requirements in 12 CFR 955.2(b)(2)(ii) that apply when
a Bank purchases HFA bonds as AMA from a housing associate of another
Bank. Under this provision, a Bank may acquire initial-offering taxable
HFA bonds from out-of-district associates, provided the Bank in whose
district the HFA is located (local Bank) has a right of first refusal
to purchase, or negotiate the terms of, a particular bond issue. If the
local Bank refuses, or does not respond within three days, the HFA may
then offer the bonds to an out-of-district Bank. The Finance Board
adopted this approach to preserve the integrity of the Bank Districts,
while at the same time preventing any one Bank from denying an HFA in
its District from financing that another Bank is willing to
provide.\27\
---------------------------------------------------------------------------
\27\ See Final AMA Rule, 65 FR at 43975.
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[[Page 78693]]
5. Credit Risk-Sharing Requirement Section Proposed Sec. 1268.5
a. General Requirement
FHFA is proposing to reorganize as Sec. 1268.5 the credit risk-
sharing requirements currently found at 12 CFR 955.2(c) and 955.3. FHFA
proposes to re-adopt several of the credit risk-sharing provisions
without substantive changes, including the requirement that all AMA
loans carry a credit enhancement. Proposed Sec. 1268.5(c) also
generally would maintain the design requirement for the credit
enhancement structure that helps ensure that the participating
financial institution retains an economic incentive to reduce actual
losses that is both material in amount and early enough in the
structure to be meaningful.\28\ Thus, the proposed rule would continue
to prohibit any AMA product that removes the participating financial
institution's incentive to reduce actual credit losses.
---------------------------------------------------------------------------
\28\ Id. at 43967- 98.
---------------------------------------------------------------------------
As discussed below, the proposed rule also would change some of the
credit risk-sharing provisions to remove references to NRSRO ratings,
as required by the Dodd-Frank Act. Proposed Sec. 1268.5(e) would set
forth the requirements for the Bank's use of a methodology and model
for calculating the credit enhancement obligation that is not
necessarily tied to one used by an NRSRO. Additionally, FHFA is not
proposing to re-adopt current provisions that allow the use of private
SMI or pool insurance as part of the credit enhancement structure.
Consequently, FHFA is proposing to remove provisions from the current
regulation requiring eligible SMI providers to maintain specific NRSRO
ratings.
b. Determining Credit Enhancements on AMA Pools
The proposed rule would modify 12 CFR 955.3(a) of the current
regulation, and re-adopt it as proposed Sec. 1268.5(b)(1). FHFA's
proposed modification to this provision would remove current
requirements based on NRSRO ratings and methodologies in accordance
with the Dodd-Frank Act. Otherwise, FHFA continues to believe the
credit risk-sharing approach in the current regulation is valid. The
principles underlying the AMA regulation establish that risks are borne
by those entities best suited to manage them. Therefore, the credit
risk-sharing requirements provide that participating financial
institutions selling mortgages must retain a substantial portion of the
credit risk, given their expertise in underwriting mortgages. In
requiring the participating financial institution to have ``skin in the
game,'' the rule provides them an incentive to sell high-quality loans
to the Banks and the opportunity to benefit financially from good
underwriting practices.
To ensure that participating financial institutions bear a material
portion of the credit risk, existing Sec. 955.3(a) currently requires
a participating financial institution that sells AMA loans to a Bank to
enhance the pool to be equivalent to an asset rated at least the fourth
highest credit grade rating from an NRSRO (i.e., to be at least
investment grade) or to a higher rating required by the Bank. The
provision also requires the Bank to make a determination of the amount
of the required credit enhancement using a methodology that is
confirmed in writing by an NRSRO to be equivalent to one used by the
NRSRO in rating a comparable pool of assets.
Proposed Sec. 1268.5(a)(1) would amend the current provision to
remove the requirement that AMA loans be enhanced to a specific rating
that is equivalent to one issued by an NRSRO. Under the proposed
amendment, a participating financial institution must credit enhance
AMA loans to at least ``investment quality.''
FHFA proposes to define the term ``investment quality'' in the AMA
regulation by reference to the definition of that term adopted by FHFA
in the Bank investment regulation (12 CFR part 1267). That definition
reads:
Investment quality means a determination made by the Bank with
respect to a security or obligation that, based on documented
analysis, including consideration of the sources for repayment on
the security or obligation: (1) There is adequate financial backing
so that full and timely payment of principal and interest on such
security or obligation is expected; and (2) There is minimal risk
that the timely payment of principal or interest would not occur
because of adverse changes in economic and financial conditions
during the projected life of the security or obligation.\29\
---------------------------------------------------------------------------
\29\ 12 CFR 1267.1 (defining ``investment quality'').
Under proposed Sec. 1268.5(b)(1), the Bank could specify as part
of the terms and conditions for a particular AMA product that a
participating financial institution provide a credit enhancement
greater than that needed to enhance the loan or pool to investment
quality. The enhancement would need to be defined in relation to a
model and methodology of the Bank's choosing, subject to conditions
established in Sec. 1268.5(e) of the proposed rule. If a Bank chooses
to continue to use the same NRSRO model it currently uses, it would not
necessarily need to alter the credit enhancement levels it currently
requires, unless FHFA directs it to do so or its estimated enhancement
levels otherwise would not comply with the rule. For example, a Bank
would need to increase credit enhancement levels if it determined that
the credit enhancement currently estimated by its NRSRO model was not
sufficient for an asset or pool of assets to be ``investment quality''
under the proposed definition of that term.
In addition, the proposed rule carries over requirements in the
current regulation that a Bank's authority to hold AMA assets is
specifically contingent on the Bank complying with FHFA's New business
activity (NBA) regulation (12 CFR part 1272).\30\ If the terms and
conditions for a Bank's new AMA product or a modification to an
existing AMA product triggered the requirements of the NBA rule, the
Bank would need to file an NBA notice. FHFA would expect the Bank to
provide a clear explanation in the notice of how the new or modified
product's credit risk-sharing structure meets the AMA credit
enhancement requirements, and how the Bank would calculate that
obligation.
---------------------------------------------------------------------------
\30\ See Proposed Sec. 1268.2.
---------------------------------------------------------------------------
As now is the case under the current regulation, proposed Sec.
1268.5(c), at least with respect to loans that would not be insured or
guaranteed by the U.S. government, would continue to require the
participating financial institution providing the credit enhancement to
bear the direct economic consequences of actual credit losses on the
assets from the first dollar of loss up to expected losses or
immediately following expected losses but in an amount equal to or
exceeding expected losses.\31\ Consistent with previous Finance Board
statements, the participating financial institution itself would be
required to bear the economic responsibility of the expected credit
losses, as required by proposed Sec. 1268.5(c), to ensure
participating financial institution involvement and to ensure that the
participating financial institution bears the consequences of the
credit quality of the asset or pool. The participating financial
institution could not transfer
[[Page 78694]]
this responsibility to an affiliate or non-member entity.\32\
---------------------------------------------------------------------------
\31\ As is discussed below, FHFA is proposing to change
requirements in the current regulation for government insured or
guaranteed loans so that members or housing associates would no
longer have to bear responsibility for unreimbursed servicing
expenses up to the amount of expected losses for the loan to qualify
as AMA.
\32\ See 2000 Proposed AMA Rule, 65 FR at 25683; see also, Final
AMA Rule, 65 FR 43976.
---------------------------------------------------------------------------
While the current regulation defines ``expected losses'' as the
base loss scenario in the methodology of an NRSRO applicable to a
particular AMA asset, the proposed definition would refer to the loss
given the expected future economic and market conditions in the model
or methodology used by the Bank to calculate the credit enhancement for
an AMA product under proposed Sec. 1268.5. This change accounts for
the fact that the proposed rule would no longer require a Bank to use
an NRSRO model and would accommodate the potential for a Bank to adopt
a model that applies a methodology that differs from that used in the
Banks' current models. Otherwise, FHFA believes that this proposed
change would not alter what is currently required by the AMA rule; nor
is this change intended to alter how a Bank would calculate ``expected
losses'' if it continued to use its current model. Therefore, as under
the current regulation, the proposed rule would require a member to
provide a credit enhancement against losses for all non-government
insured or guaranteed loans at least equal to the expected losses
calculated by the credit enhancement model used by the Bank whether
this enhancement is positioned in the first loss position or
immediately following the first loss.
The proposed rule at Sec. 1268.5(c)(1)(ii) would also continue to
require the participating financial institution to secure fully its
credit enhancement obligation in parallel with the requirement for
advances to members under part 1266 of this chapter. This provision
addresses the concern that a Bank might be exposed to credit risk if
the member were not able to comply with its contractual credit
enhancement obligation.
The proposed rule would not change the requirement that a Bank
determine the necessary credit enhancement on a pool at the earlier of
270 days from the date of the Bank's acquisition of the first loan in a
pool or the date at which the pool reaches $100 million in assets. This
provision continues to be relevant in that it addresses safety and
soundness concerns that could arise if a Bank did not timely perform
the credit enhancement determination on large pools formed over
extended periods. This provision ensures the Bank uses its model early
enough in the process to determine that the contracted amount of the
credit enhancement is sufficient to credit enhance the pool to the
level consistent with the terms and conditions of the specific AMA
product.\33\
---------------------------------------------------------------------------
\33\ See Final AMA Rule, 65 FR at 43975.
---------------------------------------------------------------------------
The proposed rule would also continue to require that the credit
enhancement must be for the life of the asset or pool. This requirement
would exclude, for example, structures that would comply with the
credit rating requirement in the first year, but would then scale back
the amount of the member's credit enhancement in future years so the
pool is no longer credit enhanced to the level consistent with the
terms and conditions of the AMA product.\34\
---------------------------------------------------------------------------
\34\ See id. at 43976.
---------------------------------------------------------------------------
The current regulation at 12 CFR 955.3(b) and (c) set forth
specific requirements for a Bank to obtain the NRSRO verifications with
regard to the adequacy of the credit enhancement structure and Bank's
use of the NRSRO model for estimating the required enhancement in each
AMA product. Given that under the proposed rule FHFA would no longer
require a Bank to use NRSRO models, these requirements would become
obsolete, and FHFA is proposing to remove them.
In their place, FHFA is proposing Sec. 1268.5(b)(2), which would
require a Bank to document the basis for its conclusion that the
contractual credit enhancement required for a particular pool is
sufficient to meet the required credit enhancement obligation for a
particular AMA product, given the Bank's chosen model's relevant stress
scenarios. This information will help FHFA monitor the Banks' use of
their models and the adequacy of the specific credit enhancement
structures used in each AMA product.
c. Transfer of Credit Enhancement Obligation
The proposed rule would modify current 12 CFR 955.3(b)(1) and re-
adopt it as Sec. 1268.5(c)(2). This section would establish the
acceptable forms a member may use to provide the credit enhancement for
AMA loans, subject to certain limitations. The proposed rule would
clarify that a participating financial institution, ``with the approval
of the Bank,'' may choose to transfer its credit enhancement obligation
to its insurance affiliate (but only where the insurance is positioned
after the participating financial institution bears losses in an amount
at least equal to expected losses) or to another participating
financial institution. The Bank could give this permission either by
establishing the required form of credit enhancement in the terms of a
particular AMA product, or by providing specific approval for the
transfer. The proposed change is consistent with how the AMA
regulations are currently applied, and with current Bank practice with
regard to AMA product structures and permissible transfers of the
credit enhancement obligations.
d. Credit Quality of Mortgage Insurers--Supplementary Mortgage
Insurance
Current 12 CFR 955.3(b) of the AMA regulation allows a member to
meet part of its credit enhancement obligation through the purchase of
SMI, provided that the insurer is rated not lower than the second
highest credit rating category. The proposed rule would remove the
option to use SMI as part of the credit enhancement structure. While
the current AMA regulation addresses use of SMI as part of the credit
enhancement structure and minimum criteria for providers of such
insurance, it does not address borrower-funded primary mortgage
insurance (PMI) or set minimum criteria for providers of PMI. Instead,
the rule allows a Bank to set the minimum criteria for PMI providers.
Nothing in the proposed rule alters this approach with respect to PMI.
FHFA will continue to review the Banks' assessments of PMI providers
through the annual examination process.
The main reason for proposing to remove the option to use SMI in
the credit enhancement structure is the fact that during the recent
financial crisis, no private insurance company maintained the second
highest credit rating as required by the current AMA regulation. FHFA
had to waive the rule requirement for the products that relied on SMI
for existing business and required the Banks with only products that
relied on SMI to develop alternate structures for new business in their
programs. Given that the Banks have alternate AMA structures and
products that do not rely on SMI and that private mono-line insurers
could face similar problems if another financial crisis were to arise,
FHFA is proposing to remove these provisions. FHFA also believes that
eliminating the use of SMI from authorized credit enhancement
structures remains consistent with the intent of the AMA regulation to
require participating financial institutions to bear the direct
economic consequences of the credit risk associated with AMA loans and
not transfer such risk to third parties.
For similar reasons, FHFA also proposes to eliminate the provision
in 12 CFR 955.3(b) that authorizes the use of pool level insurance as
part of the
[[Page 78695]]
credit enhancement structure where such insurance covers that portion
of the credit enhancement obligation related to geographic
concentration or pool size. As discussed in more detail below, however,
the proposed rule would still allow a participating financial
institution to use U.S. government insurance or guarantees to meet
credit enhancement requirements.
FHFA specifically requests comments regarding the use and
importance of SMI or private pool insurance as part of an allowable
credit enhancement structure. In particular, FHFA solicits comments on
what type of requirement could replace the specific credit rating
requirement for private insurance providers if it were to retain these
insurance options as part of the credit enhancement structure.
Additionally, FHFA requests comments on how a Bank might evaluate the
claims-paying ability of an insurer in the absence of a specific credit
rating requirement. Finally, FHFA requests comment on whether, if it
were to adopt in the AMA regulation specific minimum requirements for
providers of SMI and pool insurance, such requirements also should
apply to PMI providers.
e. U.S. Government Insurance or Guarantee
The proposed rule would modify current 12 CFR 955.3(b)(1)(ii)(A)
and (B) with regard to the use of U.S. government insurance or
guarantees as part of the credit enhancement and re-adopt the provision
as Sec. 1268.5(d). The proposed provision would clarify that a
participating financial institution may provide all or a portion of the
required credit enhancement by having the loan insured or guaranteed by
an agency or department of the U.S. government. Unlike the current
regulation, however, the new, proposed language would not require
government insured or guaranteed loans to meet the specific credit
enhancement structure requirements (wherein the member bears the first
dollar of losses for a loan or pool up to the amount of expected losses
or bears losses immediately following expected losses in an amount that
equals or exceeds expected losses).\35\
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\35\ See 12 CFR 955.3(b)(1)(ii) and (b)(2).
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As already noted, the purpose of the credit enhancement structure
requirement was to ensure that participating financial institutions,
``when responsible for such losses, [had] incentive to seek ways to
achieve better than expected performance [for the loans sold as AMA].''
\36\ As the Finance Board explained, in order for a participating
financial institution to meet this structure requirement with respect
to government insured or guaranteed loans, given that losses eventually
would be covered by the government insurance or guarantee, the
participating financial institution would have to bear the economic
responsibility of all unreimbursed servicing expenses, up to the amount
of expected losses.\37\ As a result, the member's credit enhancement
obligation for AMA government loans is tied closely to its servicing
obligations. This link limits a participating financial institution's
ability to transfer mortgage-servicing rights for the AMA government
loans to non-participating financial institutions.
---------------------------------------------------------------------------
\36\ Final AMA Rule, 65 FR at 43977.
\37\ Id. (explaining how government insured loans meet the
credit enhancement requirements of the AMA rule).
---------------------------------------------------------------------------
In addition, FHFA does not believe that requiring a member to
retain an obligation to cover unreimbursed servicing rights for AMA
government loans provides an additional incentive to improve
underwriting in order to achieve better than expected loan performance.
To qualify for government insurance or guarantee, members will already
be underwriting loans to standards imposed by the relevant government
agency or department. Further, government insurance and guarantee will
usually cover any losses experienced on the loan. Therefore, this
requirement does not necessarily provide additional protection to the
Bank beyond that provided by the government insurance or guarantee.
Thus, FHFA is proposing in Sec. 1268.5(d) to remove the
requirement that U.S. government insured or guaranteed loans meet the
specific structure requirement now set forth in proposed Sec.
1268.5(c). Proposed Sec. 1268.5(d) would continue to require the
credit enhancement provided by government insurance or guarantee be
maintained for the entire period a Bank owns the AMA government loan.
The proposed rule would not necessarily require that a Bank member
maintain the insurance or guarantee. Instead, the Bank would have to
ensure that the participating financial institution or another entity
maintains the insurance or guarantee for as long as the Bank owns the
loan. For example, a Bank might require any entity that acquires the
mortgage servicing rights to a loan to maintain the insurance. FHFA
believes increasing the flexibility allowed in transferring mortgage-
servicing rights under this proposed change would prove beneficial for
many smaller or medium sized members. These members, in particular,
might wish to sell their AMA government loans into AMA government
products but may lack the ability to perform the servicing obligations
now required by the AMA regulation. In addition, given changes in the
mortgage industry, Banks may find it increasingly difficult to find
member institutions to meet the servicing obligations for AMA
government loans. Banks may need the flexibility to transfer such
obligations to non-member institutions in order to continue to offer
the product to a wide cross section of its members. The current
regulation does not allow such flexibility with respect to government
insured or guaranteed loans.
f. Model and Methodology Validation
Proposed Sec. 1268.5(e) would set forth the specific requirements
applicable to a Bank's use of a model and methodology for estimating
the required member credit enhancements for AMA loans that a
participating financial institution sells to a Bank. Specifically, it
would require a Bank to: (1) Validate its model and methodology at
least annually and make the results available upon request by FHFA
(proposed Sec. 1268.5(e)(1)); (2) institute and maintain a process for
monitoring model performance that would include tracking, back-testing,
benchmarking, and stress testing a model and its results (proposed
Sec. 1268.5(e)(2)) and be otherwise consistent with applicable FHFA
model guidance; (3) inform FHFA prior to making any material changes to
the model and methodology (proposed Sec. 1268.5(e)(3)); and (4)
promptly change its model and methodology as directed by FHFA (proposed
Sec. 1268.5(e)(4)).
The requirements of proposed Sec. 1268.5(e) are generally
consistent with the requirements governing the Bank's market risk
capital models (12 CFR 932.5(c)) and have been added here for safety
and soundness reasons. FHFA also expects a Bank to have policies and
procedures commensurate with the complexity of the model and
methodology, including, but not limited to, a governance structure,
oversight by its board of directors, as well as formal controls.
Effective model risk management should entail a comprehensive approach
in identifying risk throughout the model lifecycle and should be
consistent with any applicable FHFA guidance.
As proposed, the rule would allow a Bank to institute changes in
its model immediately upon notifying FHFA. FHFA, however, would review
a Bank's model and methodology for estimating credit enhancements as
part of the annual examination process, as well as
[[Page 78696]]
through its on-going off-site monitoring program. If FHFA found that
the model or the Bank's use of the model were inadequate or did not
result in a credit enhancement that would reasonably protect a Bank
against risk of loss as required under the proposed rule, FHFA would
use authority in the proposed rule to direct the Bank to make changes
to the model. FHFA could also use other authorities, such as its
authority to issue cease-and-desist orders, to require the Bank to make
necessary changes to its model, or AMA products, to address any
violations of the regulation or unsafe or unsound practices. FHFA
believes that this proposed approach would allow a Bank sufficient
flexibility to make timely changes to its credit enhancement model in
response to technological or market developments while still allowing
FHFA adequate oversight of the Bank's use of its credit enhancement
model.
While the proposed new provisions would no longer require a Bank to
use an NRSRO model for estimating the required credit enhancement,
nothing in the proposed rule would prohibit a Bank from continuing to
use its existing NRSRO model. However, use of all models, including a
currently used model, would be subject to the requirements of proposed
Sec. 1268.5(e).
6. Servicing Section Proposed Sec. 1268.6
FHFA proposes to add new Sec. 1268.6 to address the servicing of
AMA loans. This provision incorporates current FHFA positions, as set
forth in a recent regulatory interpretation, on the rights of the Banks
to allow for transfer of mortgage servicing rights from the
participating financial institution that originally sold the AMA loans
at issue.\38\ Thus, proposed Sec. 1268.6 would clarify that a Bank can
allow for a transfer of servicing rights to any institution, including
a non-Bank System member. However, any transfer of mortgage servicing
rights may only occur as long as it does not result in the AMA loan
failing to meet any requirements of the rule, including the credit
enhancement requirement. In particular, because proposed Sec.
1268.5(c) would require that the credit enhancement on an AMA loan not
insured or guaranteed by the U.S. government continue to be held by a
participating financial institution for the life of the loan, the
transfer of servicing cannot result in the transfer of any portion of
the credit enhancement obligation to a non-Bank System member. However,
as already discussed, changes proposed in Sec. 1268.5(d) would, if
adopted, allow the Banks to transfer servicing of government insured or
guaranteed AMA loans to non-member institutions, an action that is not
necessarily allowed under current regulations.
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\38\ See Regulatory Interpretation, 2015-RI-01 (June 23, 2015).
---------------------------------------------------------------------------
Proposed Sec. 1268.6 also would require the approval of the Banks
that have any ownership interest in the loans prior to the transfer of
the servicing obligation. Finally, the proposed provision would provide
that the Banks have in place policies and procedures that ensure the
transfer of servicing would not negatively affect the credit
enhancement on the loans in question or substantially increase the
Bank's exposure to risk. FHFA would expect such policies and procedures
specifically to address transfers to non-Bank System member servicers
given that in the case of default on an obligation to the Bank, a Bank
may enjoy more rights against a member than it would against a non-
member. For example, the Bank Act provides enhanced status with regard
to a Bank's lien on member assets, and the Bank's membership agreement
may allow the Bank to take certain actions against a member in the case
of a breach of an obligation that would not be available against a non-
member.\39\ In addition, FHFA would expect policies and procedures to
include contingency plans to address a case in which a large servicer
fails or is otherwise unable to continue to service a Bank's AMA
portfolio.
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\39\ See, e.g., 12 U.S.C. 1430(c) and (e).
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7. Risk-Based Capital Requirements
The current regulation at 12 CFR 955.6 established the risk-based
capital requirements for AMA, based on NRSRO ratings. These risk-based
capital requirements, however, applied only so long as a Bank had not
converted to the Gramm-Leach-Bliley Act capital structure and was not
yet subject to the risk-based capital requirements in 12 CFR part
932.\40\ Given that all Banks have converted their capital structures
and are now subject to the AMA credit and market risk charges
established by 12 CFR part 932 of the current capital regulations, this
section has no continuing applicability, and FHFA proposes to remove
it.
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\40\ In adopting the current AMA regulations, the Finance Board
noted that the AMA capital requirements in Sec. 955.6 were
``interim risk based capital requirements'' and when the Finance
Board's new Gramm-Leach-Bliley Act capital requirements became
effective with respect to a Bank, the Bank would need to hold
capital for AMA based on those new requirements. Final AMA Rule, 65
FR at 43979 (July 17, 2000).
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8. Other Sections--Sec. Sec. 1268.7 and 1268.8
Proposed Sec. Sec. 1268.7 and 1268.8 would adopt without
substantive change 12 CFR 955.4 and 955.5 of the current regulation.
These provisions address, respectively, reporting requirements for AMA
and administrative transactions and agreements between Banks involving
AMA.
IV. Consideration of Differences Between the Banks and the Enterprises
When promulgating regulations relating to the Banks, section
1313(f) of the Federal Housing Enterprises Financial Safety and
Soundness Act of 1992 (Safety and Soundness Act) requires the Director
of FHFA (Director) to consider the differences between the Banks and
the Enterprises 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.\41\ The Director also may consider any other
differences that FHFA deems appropriate. The changes proposed in this
rulemaking apply only to the Banks. Many of the proposed amendments are
necessary to implement requirements under the Dodd-Frank Act; a number
of others are technical or conforming in nature. FHFA, in preparing
this proposed rule, considered the differences between the Banks and
the Enterprises as they relate to the above factors and requests
comments from the public about whether these differences should result
in any revisions to the proposed rule.
---------------------------------------------------------------------------
\41\ See 12 U.S.C. 4513.
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V. Paperwork Reduction Act
The information collection, entitled ``Federal Home Loan Bank
Acquired Member Assets, Core Mission Activities, Investments and
Advances'' contained in current 12 CFR part 955 of the regulations that
would be transferred to 12 CFR part 1268 by this proposed rule has been
assigned control number 2590-0008 by the Office of Management and
Budget (OMB). The proposed rule if adopted as a final rule would not
substantively or materially modify the current, approved information
collection.
VI. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that
a regulation that has a significant economic impact on a substantial
number of small entities, small businesses, or small organizations must
include an initial regulatory flexibility analysis describing the
regulation's
[[Page 78697]]
impact on small entities. FHFA need not undertake such an analysis if
the agency has certified the regulation will not have a significant
economic impact on a substantial number of small entities. 5 U.S.C.
605(b). FHFA has considered the impact of the proposed rule under the
Regulatory Flexibility Act.
FHFA certifies that the proposed rule, if adopted as a final rule,
is not likely to have a significant economic impact on a substantial
number of small entities because the regulation is applicable only to
the Banks, which are not small entities for purposes of the Regulatory
Flexibility Act.
List of Subjects
12 CFR Part 955
Community development, Credit, Federal home loan banks, Housing,
Reporting and recordkeeping requirements.
12 CFR Part 1201
Administrative practice and procedure, Federal home loan banks,
Government-sponsored enterprises, Office of Finance, Regulated
entities.
12 CFR Part 1268
Acquired member assets, Credit, Federal home loan bank, Housing,
Nationally recognized statistical rating agency.
Authority and Issuance
For reasons stated in the SUPPLEMENTARY INFORMATION, and under the
authority of 12 U.S.C. 1430, 1430b, 1431, 4511, 4513, 4526, FHFA
proposes to amend subchapter G of chapter IX and subchapters A and D of
chapter XII of title 12 of the Code of Federal Regulations as follows:
CHAPTER IX--FEDERAL HOUSING FINANCE BOARD
Subchapter G--[Removed and Reserved]
0
1. Subchapter G, consisting of part 955 is removed and reserved.
CHAPTER XII--FEDERAL HOUSING FINANCE AGENCY
Subchapter A--Organization and Operations
PART 1201--GENERAL DEFINITIONS APPYING TO ALL FEDERAL HOUSING
FINANCE AGENCY REGULATIONS
0
2. The authority citation for part 1201 continues to read:
Authority: 12 U.S.C. 4511(b), 4513(a), 4513(b).
0
3. Amend Sec. 1201.1 by revising the definition of ``Acquired member
assets or AMA'' to read as follows:
Sec. 1201.1 Definitions.
* * * * *
Acquired member assets or AMA means assets acquired in accordance
with, and satisfying the applicable requirements of, part 1268 of this
chapter, or any successor thereto.
* * * * *
Subchapter D--Federal Home Loan Banks
0
4. Part 1268 is added to subchapter D to read as follows:
PART 1268--ACQUIRED MEMBER ASSETS
Sec.
1268.1 Definitions.
1268.2 Authorization for acquired member assets.
1268.3 Asset requirement.
1268.4 Member or housing associate nexus requirement.
1268.5 Credit risk-sharing requirement.
1268.6 Servicing.
1268.7 Reporting requirements for acquired member assets.
1268.8 Administrative transactions and agreements between Banks.
Authority: 12 U.S.C. 1430, 1430b, 1431, 4511, 4513, 4526.
Sec. 1268.1 Definitions.
As used in this part:
Affiliate means any business entity that controls, is controlled
by, or is under common control with, a member.
AMA product means an AMA structure defined by a specific set of
terms and conditions that comply with this part.
AMA program means a Bank-established program to buy mortgage loans
that meet the requirements of this part, which may comprise multiple
AMA products.
Expected losses means the loss given the expected future economic
and market conditions in the model or methodology used by the Bank
under Sec. 1268.5 and applicable to an AMA product.
Investment quality has the meaning set forth in Sec. 1267.1 of
this chapter.
Participating financial institution means a member or housing
associate of a Bank that is authorized to sell mortgage loans to its
own Bank through an AMA program, or a member or housing associate of
another Bank that has been authorized to sell mortgage loans to the
Bank pursuant to an agreement between the Bank acquiring the AMA
product and the Bank of which the selling institution is a member or
housing associate.
Pool means a group of assets acquired under a given master
commitment or similar agreement.
Residential real property has the meaning set forth in Sec. 1266.1
of this chapter.
Sec. 1268.2 Authorization for acquired member assets.
(a) General. Each Bank is authorized to invest in assets that
qualify as AMA, subject to the requirements of this part and part 1272
of this chapter.
(b) Grandfathered transactions. Notwithstanding paragraph (a) of
this section, a Bank may continue to hold as AMA assets that were
previously authorized by the Federal Housing Finance Board or FHFA for
purchase as AMA, provided that the assets were purchased, and continue
to be held, in compliance with that authorization.
Sec. 1268.3 Asset requirement.
Assets that qualify as AMA shall be limited to the following:
(a) Whole loans that are eligible to secure advances under Sec.
1266.7(a)(1)(i), (a)(2)(ii), (a)(4), or (b)(1) of this chapter,
excluding:
(1) Single-family mortgage loans where the loan amount exceeds the
limits established pursuant to 12 U.S.C. 1717(b)(2);
(2) Loans made to an entity, or secured by property, not located in
a state; and
(3) Loans that would not be eligible to serve as collateral for an
advance under Sec. 1266.7(f) of this chapter;
(b) Whole loans secured by manufactured housing, regardless of
whether such housing qualifies as residential real property, unless
such loan would not be eligible to serve as collateral for an advance
under Sec. 1266.7(f) of this chapter;
(c) State and local housing finance agency bonds; or
(d) Certificates representing interests in whole loans if:
(1) The loans qualify as AMA under paragraphs (a) or (b) of this
section and meet the nexus requirements of Sec. 1268.4; and
(2) The certificates:
(i) Meet the credit enhancement requirements of Sec. 1268.5;
(ii) Are issued pursuant to an agreement between the Bank and a
participating financial institution to share risks consistent with the
requirements of this part; and
(iii) Are acquired substantially by the initiating Bank or Banks.
Sec. 1268.4 Member or housing associate nexus requirement.
(a) General provision. To qualify as AMA, any assets described in
Sec. 1268.3 must be acquired in a purchase or funding transaction only
from:
[[Page 78698]]
(1) A participating financial institution, provided that the asset
was:
(i) Originated or issued by, through, or on behalf of the
participating financial institution, or an affiliate thereof; or
(ii) Held for a valid business purpose by the participating
financial institution, or an affiliate thereof, prior to acquisition by
the Bank; or
(2) Another Bank, provided that the asset was originally acquired
by the selling Bank consistent with this section.
(b) Special provision for housing finance agency bonds. In the case
of housing finance agency bonds acquired by a Bank from a housing
associate located in the district of another Bank (local Bank), the
arrangement required by the definition of ``participating financial
institution'' in Sec. 1268.1 between the acquiring Bank and the local
Bank may be reached in accordance with the following process:
(1) The housing finance agency shall first offer the local Bank
right of first refusal to purchase, or negotiate the terms of, its
proposed bond offering;
(2) If the local Bank indicates, within a three-day period, it will
negotiate in good faith to purchase the bonds, the housing finance
agency may not offer to sell or negotiate the terms of a purchase with
another Bank; and
(3) If the local Bank declines the offer, or has failed to respond
within the three-day period, the acquiring Bank will be considered to
have an arrangement with the local Bank for purposes of this section
and may offer to buy or negotiate the terms of a bond sale with the
housing finance agency.
Sec. 1268.5 Credit risk-sharing requirement.
(a) General credit risk-sharing requirement. For each AMA product,
the Bank shall implement and have in place at all times, a credit risk-
sharing structure that:
(1) Requires a participating financial institution to provide the
credit enhancement necessary to enhance an eligible asset or pool to
the credit quality specified by the terms and conditions of the AMA
product, provided, however, that such credit enhancement results in the
eligible asset or pool being at least investment quality, as defined in
Sec. 1268.1; and
(2) Meets the requirements of this section.
(b) Determination of necessary credit enhancement. (1) At the
earlier of 270 days from the date of the Bank's acquisition of the
first loan in a pool, or the date at which the pool reaches $100
million in assets, the Bank shall determine the total credit
enhancement necessary to enhance the asset or pool to at least
investment quality and to be consistent with the terms and conditions
of a specific AMA product. The enhancement shall be for the life of the
asset or pool. The Bank shall make this determination for each AMA
product using a model and methodology that the Bank deems appropriate,
provided, however, that the Bank's use of the model and methodology
complies with to the requirements and conditions of paragraph (e) of
this section.
(2) A Bank shall document its basis for concluding that the
contractual credit enhancement required from each participating
financial institution with regard to a particular asset or pool will
equal or exceed the credit enhancement level specified in the terms and
conditions of the AMA product and determined in accordance with
paragraph (b)(1) of this section.
(c) Credit risk-sharing structure. Under any credit risk-sharing
structure, the credit enhancement provided by the participating
financial institution shall meet the following requirements:
(1) The participating financial institution that is providing the
credit enhancement required under this this paragraph (c) shall in all
cases:
(i) Bear the direct economic consequences of actual credit losses
on the asset or pool:
(A) From the first dollar of loss up to the amount of expected
losses; or
(B) Immediately following expected losses, but in an amount equal
to or exceeding the amount of expected losses; and
(ii) Fully secure its credit enhancement obligation subject to
Sec. 1266.7 of this chapter; and
(2) The participating financial institution also may provide all or
a portion of the credit enhancement, with the approval of the Bank, by:
(i) Contracting with an insurance affiliate of that participating
financial institution to provide an enhancement, but only where such
insurance is positioned in the credit risk-sharing structure so as to
cover only losses remaining after the participating financial
institution has borne losses as required under paragraph (c)(1)(i) of
this section;
(ii) Contracting with another participating financial institution
in the Bank's district to provide a credit enhancement consistent with
this section, in return for compensation; or
(iii) Contracting with a participating financial institution in
another Bank's district, pursuant to an arrangement between the two
Banks, to provide a credit enhancement consistent with this section, in
return for compensation.
(d) U.S. government insured or guaranteed loans. Instead of the
structure set forth in paragraph (c) of this section, a participating
financial institution also may provide the required credit enhancement
by purchasing loan-level insurance that is issued by an agency or
department of the U.S. government or is a guarantee from an agency or
department of the U.S. government, provided that the government
insurance or guarantee remains in place for as long as the Bank owns
the loan.
(e) Appropriate methodology for calculating credit enhancement. A
Bank shall use a model and methodology for estimating the amount of
credit enhancement for a pool of AMA subject to the following
requirements and conditions:
(1) The Bank shall validate its model and methodology for
calculating the credit enhancement for AMA pools at least annually, or
more often if necessary, and make the results of such validation
available to FHFA upon request;
(2) The Bank shall institute and maintain a process to monitor the
performance of its model to include tracking, back-testing, bench-
marking, and stress testing the model and the results it produces, and
the Bank shall make information gathered from monitoring the model
available to FHFA upon request;
(3) The Bank shall inform FHFA prior to making any material changes
to an approved model and methodology, providing a description of the
changes that the Bank intends to make and its reasons for doing so; and
(4) The Bank promptly shall make any FHFA-directed changes to its
model and methodology.
Sec. 1268.6 Servicing.
(a) Servicing of AMA loans may be transferred to and performed by
any institution, including an institution that is not a member of the
Bank System, provided that the loans, after such transfer, continue to
meet all requirements to qualify as AMA under Sec. Sec. 1268.3, 1268.4
and 1268.5.
(b) The transfer of mortgage servicing rights and responsibilities
must be approved by the Bank or Banks that own the loan or a
participation interest in the loan.
(c) A Bank shall have in place policies and procedures to ensure
that the transfer of mortgage servicing rights does not negatively
affect the credit enhancement on the loans in question or substantially
increase the Bank's exposure to risk.
[[Page 78699]]
Sec. 1268.7 Reporting requirements for acquired member assets.
Each Bank shall report information related to AMA in accordance
with the instructions provided in the Data Reporting Manual issued by
FHFA, as amended from time to time.
Sec. 1268.8 Administrative transactions and agreements between Banks.
(a) Delegation of administrative duties. A Bank may delegate the
administration of an AMA program to another Bank whose administrative
office has been examined and approved by FHFA, or previously examined
and approved by the Federal Housing Finance Board, to process AMA
transactions. The existence of such a delegation, or the possibility
that such a delegation may be made, must be disclosed to any potential
participating financial institution as part of any AMA-related
agreements signed with that participating financial institution.
(b) Termination of Agreements. Any agreement made between two or
more Banks in connection with any AMA program may be terminated by any
party after a reasonable notice period.
(c) Delegation of Pricing Authority. A Bank that has delegated its
AMA pricing function to another Bank shall retain a right to refuse to
acquire AMA at prices it does not consider appropriate.
Dated: December 10, 2015.
Melvin L. Watt,
Director, Federal Housing Finance Agency.
[FR Doc. 2015-31660 Filed 12-16-15; 8:45 am]
BILLING CODE 8070-01-P