Affordable Housing Program Amendments, 11344-11390 [2018-04745]

Agencies

• FEDERAL HOUSING FINANCE AGENCY

[Federal Register Volume 83, Number 50 (Wednesday, March 14, 2018)]
[Proposed Rules]
[Pages 11344-11390]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-04745]



[[Page 11343]]

Vol. 83

Wednesday,

No. 50

March 14, 2018

Part III





Federal Housing Finance Agency





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12 CFR Parts 1290 and 1291





Affordable Housing Program Amendments; Proposed Rule

Federal Register / Vol. 83 , No. 50 / Wednesday, March 14, 2018 / 
Proposed Rules

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FEDERAL HOUSING FINANCE AGENCY

12 CFR Parts 1290 and 1291

RIN 2590-AA83


Affordable Housing Program Amendments

AGENCY: Federal Housing Finance Agency.

ACTION: Proposed rule.

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SUMMARY: The Federal Housing Finance Agency (FHFA) is issuing notice 
and providing an opportunity for the public to comment on proposed 
amendments to its regulation on the Federal Home Loan Banks' (Banks) 
Affordable Housing Program (AHP or Program). The proposed amendments 
would provide the Banks additional authority to allocate their AHP 
funds; authorize the Banks to establish special competitive funds that 
target specific affordable housing needs in their districts; provide 
the Banks authority to design and implement their own project selection 
scoring criteria, subject to meeting certain FHFA-prescribed outcome 
requirements; remove the requirement for retention agreements for 
owner-occupied units; further align the project monitoring requirements 
with those of other federal government funding programs; clarify the 
provisions on remediating AHP noncompliance; clarify certain 
operational requirements; and streamline and reorganize the regulation.

DATES: Written comments must be received on or before May 14, 2018.

ADDRESSES: You may submit your comments on the proposed rule, 
identified by regulatory information number (RIN) 2590-AA83, by any one 
of the following methods:
     Agency Website: 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 [email protected] to ensure timely receipt by FHFA. 
Include the following information in the subject line of your 
submission: Comments/RIN 2590-AA83.
     Hand Delivered/Courier: The hand delivery address is: 
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA83, 
Federal Housing Finance Agency, Eighth Floor, 400 Seventh Street SW, 
Washington, DC 20219. Deliver the package at 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-AA83, Federal 
Housing Finance Agency, Eighth Floor, 400 Seventh Street SW, 
Washington, DC 20219. Please note that all mail sent to FHFA via U.S. 
Mail is routed through a national irradiation facility, a process that 
may delay delivery by approximately two weeks. For any time-sensitive 
correspondence, please plan accordingly.

FOR FURTHER INFORMATION CONTACT: Ted Wartell, Manager, Office of 
Housing and Community Investment, 202-649-3157, [email protected]; 
Marcea Barringer, Senior Policy Analyst, Office of Housing and 
Community Investment, 202-649-3275, [email protected]; Marshall 
Adam Pecsek, Senior Counsel, Office of General Counsel, 202-649-3380, 
[email protected]; or Sharon Like, Managing Associate General 
Counsel, Office of General Counsel, 202-649-3057, [email protected]. 
These are not toll-free numbers. The mailing address is: 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 rule and will 
take all comments into consideration before issuing a final rule. A 
list of FHFA's requests for comments on specific issues appears in 
Section V. Please identify the specific request for comment to which 
you are responding by its request number. Copies of all comments will 
be posted without change, and will include any personal information you 
provide such as your name, address, email address, and telephone 
number, on the FHFA website at https://www.fhfa.gov. In addition, copies 
of all comments received will be available for examination by the 
public through the electronic rulemaking docket for this proposed rule 
also located on the FHFA website.

II. Background

A. Overview of Current Program

    The Federal Home Loan Bank Act (Bank Act) requires each Bank to 
establish an affordable housing program, the purpose of which is to 
enable Bank members to provide subsidies for long-term, low- and 
moderate-income, owner-occupied and affordable rental housing.\1\ The 
Banks may provide AHP subsidies to finance: Homeownership by families 
with incomes at or below 80 percent of area median income (AMI); and 
the purchase, construction, or rehabilitation of rental housing, at 
least 20 percent of the units of which will be occupied by and 
affordable for very low-income households.\2\ ``Affordable for very 
low-income households'' is defined to mean that rents charged to 
tenants for units made available for occupancy by low-income families 
shall not exceed 30 percent of the adjusted income of a family whose 
income equals 50 percent of AMI, with adjustment for family size.\3\ 
FHFA's regulation implementing the Bank Act's AHP requirements is set 
forth at 12 CFR part 1291.
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    \1\ 12 U.S.C. 1430(j)(1).
    \2\ 12 U.S.C. 1430(j)(2).
    \3\ 12 U.S.C. 1430(j)(13)(D).
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    The AHP has played an important role in facilitating the Banks' 
support of their members' efforts to meet the affordable housing needs 
of their communities. Between 1990 and 2016, the Banks awarded 
approximately $5.4 billion in AHP subsidies to assist the financing of 
over 827,000 housing units through two programs--the Competitive 
Application Program and the Homeownership Set-Aside Program. From 1990 
to 2016, the Banks awarded approximately $4.4 billion under the 
Competitive Application Program, assisting over 660,000 units, 71 
percent of which were for very low-income households. From 1995 to 
2016, the Banks awarded almost $1 billion under the Homeownership Set-
Aside Program, assisting the financing of approximately 167,000 owner-
occupied units.\4\ AHP subsidies have proven effective in funding 
projects that present underwriting challenges, such as projects for the 
homeless and special needs populations, including persons with 
disabilities and the elderly. One strength of the AHP is its capacity 
to leverage additional public and private resources for affordable 
housing. For example, the AHP has been used effectively by project 
sponsors with a number of different federal and state funding sources, 
including Low-Income Housing Tax Credits (LIHTC or tax credits), an 
important funding source for rental housing for very low-income 
households.
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    \4\ The Competitive Application Program began in 1990, and the 
Homeownership Set-Aside Program began in 1995.
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B. AHP Regulatory History

    FHFA and one of its predecessor agencies, the Federal Housing 
Finance Board (Finance Board), have engaged in

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numerous rulemakings over the years to revise, clarify, and streamline 
the AHP requirements as the program has evolved and housing markets 
have changed. In the early years of the Program, the Finance Board 
designed the AHP regulation to address affordable housing needs from a 
national policy perspective. The regulation contained scoring criteria 
(referred to as ``regulatory priorities'') that represented specific 
housing needs existing in all of the Bank districts that the Finance 
Board viewed as national policy priorities. The Banks would review and 
forward the AHP applications to the Finance Board's Board of Directors, 
who would approve eligible applications in accordance with the 
regulation's competitive scoring system. Subsequent AHP rulemakings 
progressively devolved specific approval and governance authorities to 
the Banks in order to enhance the ability of the Banks to address 
specific affordable housing needs in their respective districts. 
Highlighted among these regulatory amendments are the following:
     1995--The rule authorized the Banks to establish 
Homeownership Set-Aside Programs to provide grants for households 
purchasing or rehabilitating homes. The Finance Board increased the 
maximum permissible annual funding allocation for these optional 
programs several times after 1995.
     1997--The rule transferred approval authority over the AHP 
applications from the Finance Board to the Banks. The rule also 
substantially modified the scoring system, including establishing five 
regulatory priorities selected by the Finance Board, and allowing the 
Banks greater input in selecting scoring criteria and scoring points 
allocations based on their district housing needs. This included 
authority to select ``Bank First District Priority'' scoring criteria 
(from a list of specific housing needs identified in the regulation) 
and a ``Bank Second District Priority'' scoring criterion (a specific 
district housing need identified by the Bank), which together accounted 
for a maximum of 50 scoring points out of 100. The regulation also 
established specific initial and long-term project monitoring 
requirements.
     2006--The rule provided the Banks with more discretion to 
establish project monitoring and other requirements and authorized the 
use of AHP subsidies with revolving loan funds and loan pools.
     2009--The rule expanded the Banks' authority to target 
specific affordable housing needs in their districts by allowing the 
Banks to identify and include multiple district housing needs under 
their Bank Second District Priority scoring criterion.
    The AHP regulation currently authorizes the Banks to establish and 
administer two programs: A mandatory Competitive Application Program; 
and an optional Homeownership Set-Aside Program. Each Bank generally is 
required to allocate annually at least 65 percent of its required 
annual AHP contribution to its Competitive Application Program.\5\ 
Under the Competitive Application Program, Bank members apply to the 
Banks for AHP subsidies on behalf of project sponsors, which are 
typically nonprofit affordable housing developers, but may include for-
profit organizations. The regulation requires the Banks to develop and 
implement a Competitive Application Program scoring system subject to 
requirements in the regulation, which serves as a tool for evaluating 
and selecting the project applications that will receive a limited 
supply of AHP subsidies. During the 28 years that the Programs have 
operated, the demand for the AHP subsidies has always exceeded the 
amount available. In 2016, the Banks approved, on average, 43 percent 
of applications received. In total, the Banks awarded $283.4 million in 
AHP subsidies under their Competitive Application Programs in 2016 to 
help finance the purchase, construction, or rehabilitation of 25,530 
rental and owner-occupied housing units.
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    \5\ Where a Bank allocates the alternative maximum amount of 
$4.5 million to its Homeownership Set-Aside Program, the Bank may 
allocate less than 65 percent of its total AHP funds to its 
Competitive Application Program.
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    The regulation also provides that each Bank may allocate annually 
up to the greater of $4.5 million or 35 percent of its required annual 
AHP contribution to fund its Homeownership Set-Aside Program. Under 
this program, members apply to the Banks for AHP subsidies, which are 
provided to low- or moderate-income homebuyers or homeowners for the 
purchase or rehabilitation of homes. In 2016, the Banks provided 
members a combined total of $85.5 million through their Homeownership 
Set-Aside Programs, which assisted 13,555 low- or moderate-income 
homebuyers or homeowners.

C. Bank and Stakeholder Input

    In accordance with FHFA's five-year regulatory review plan, FHFA 
published a Notice of Regulatory Review in the Federal Register in 2013 
requesting comment on FHFA's existing regulations for purposes of 
improving their effectiveness and reducing their burden.\6\ In 
response, the Banks jointly submitted a letter to FHFA commenting on 
the AHP and other FHFA regulations.\7\ Addressing the AHP regulation, 
the letter argued that prescriptive, outdated, or ambiguous provisions 
of the regulation created inefficiencies and uncertain risk exposures, 
and recommended that FHFA review the regulation and consider 
clarifications and enhancements to further empower the Banks in the 
management of their Programs.
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    \6\ See 78 FR 23507 (April 19, 2013).
    \7\ See Comment Letter from 12 Banks to FHFA, dated June 18, 
2013.
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    In response to the Banks' recommendations, FHFA undertook a 
comprehensive review of the AHP regulation, including AHP issues on 
which FHFA had provided regulatory guidance. To further inform the 
review, FHFA held a number of discussions separately or jointly with 
the Banks' Community Investment Officers (CIOs), the Bank Presidents' 
Housing Committee, leadership of the Banks' Affordable Housing Advisory 
Councils, and other AHP stakeholders including Bank member institutions 
and representatives of several national and regional nonprofit housing 
organizations. The Banks and stakeholders uniformly expressed support 
for the AHP, viewing the program's affordable housing mission favorably 
and acknowledging its longstanding reputation as a well-managed program 
and the critical role it plays in affordable housing initiatives 
throughout the country.
    At the same time, the CIOs and stakeholders offered a number of 
specific recommendations to improve the operation of the AHP. The 
recommendations were directed largely at (1) expanding the Banks' 
authority to allocate their AHP funds; (2) providing the Banks 
authority to devise their own project selection methods, including the 
use of non-competitive processes; (3) clarifying the requirements for 
determining a project's need for AHP subsidy; (4) aligning the project 
monitoring requirements with those of other major funding sources; (5) 
clarifying the Banks' authorities to resolve project noncompliance; (6) 
clarifying certain operational requirements; and (7) codifying FHFA 
regulatory guidance in the regulation. Although a majority of the CIOs 
and stakeholders expressed the view that the existing regulatory 
requirements for scoring AHP applications limit a Bank's ability to 
effectively target specific housing needs within its district, others 
stated that the project scoring system

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provides the Banks sufficient scoring flexibility and does not need 
revision.
    After reviewing all of the specific recommendations, FHFA 
determined that a number of the recommended changes are already 
permissible under the current regulation and, therefore, do not require 
regulatory amendments. A number of other recommendations are clearly 
impermissible under the Bank Act and, therefore, cannot be authorized 
in the AHP regulation without statutory amendments. The remaining 
recommendations generally require revisions to the AHP regulation. FHFA 
analyzed these recommendations to determine whether they were 
appropriate from a policy standpoint and consistent with the statutory 
requirements. FHFA also considered the impact that adopting these 
recommendations would have on populations in greatest need of 
affordable housing assistance, the AHP's reputation as a well-managed 
program, and FHFA's ability to supervise, examine, and monitor the 
Banks' Programs. Based on FHFA's analyses of the recommendations and 
its review of the Programs, FHFA is proposing to amend the AHP 
regulation as further discussed below.
    The proposed rule would authorize the Banks to develop and 
implement an ``outcome-based approach'' for administering their 
competitive application programs (the proposed General Fund and any 
Targeted Funds established by a Bank discussed below). This approach 
would differ significantly from the existing project selection scoring 
process, which requires Banks to allocate a majority of the points for 
scoring applications to several pre-determined housing needs 
priorities. Instead, the proposed rule would require each Bank to 
design and implement its own system to address specific housing needs 
in its district. However, the scoring system would need to result in 
the Bank awarding a majority of its AHP funds to certain regulatory 
priorities established by FHFA as well as the housing priorities 
specified in the Bank Act. The Banks would be required to support their 
reasons for choosing specific housing needs with empirical data in 
their Targeted Community Lending Plans.
    FHFA is also proposing to provide the Banks additional flexibility 
to allocate their total annual AHP funds. The Banks would be authorized 
to allocate a portion of their total annual AHP funds to a maximum of 
three competitive Targeted Funds that enhance the Banks' ability to 
target specific affordable housing needs within their districts that 
are unmet, have proven difficult to address through the existing 
Competitive Application Program, or align with objectives identified in 
the strategic plans adopted by each Bank's board of directors. The 
amount each Bank could allocate to its Targeted Funds would be limited 
to a maximum of 40 percent of the Bank's total annual AHP funds. The 
Banks would be required to establish and support the need for the 
Targeted Funds in their Targeted Community Lending Plans.
    In addition, the proposed rule would increase the percentage of 
total annual AHP funds that the Banks could allocate to their 
noncompetitive Homeownership Set-Aside Programs. The current regulation 
authorizes each Bank to allocate annually up to the greater of 35 
percent of its total annual AHP funds or $4.5 million to fund its 
Homeownership Set-Aside Programs. The proposed rule would increase the 
maximum allocation percentage to 40 percent, while retaining the 
alternate $4.5 million threshold. To account for high-cost areas and 
high rehabilitation costs, as well as housing price appreciation since 
the last time the set-aside percentage threshold was increased, the 
maximum set-aside grant that a Bank could provide to a household would 
increase from $15,000 to $22,000 and would be subject to annual 
increases according to FHFA's Housing Price Index.
    FHFA is also proposing to further align the AHP project monitoring 
requirements with those of other government funding programs. The 
proposed rule would remove certain back-up documentation requirements 
for the initial monitoring of AHP projects that have received LIHTC 
funding. It would also remove certain back-up documentation 
requirements for initial and long-term monitoring of AHP projects that 
have received funding under other federal government programs, which 
would be specified in FHFA guidance.
    FHFA is also proposing to clarify the responsibilities of the 
various parties in the event of AHP noncompliance.

III. Analysis of the Proposed Rule

Reorganization of Regulatory Text

    To provide greater clarity for users of the AHP regulation and to 
take into account the proposed new provisions, the proposed rule would 
reorganize the current regulation. Existing and new regulatory sections 
would be grouped under new Subpart headings according to similar 
subject matter, which would result in renumbering of most sections of 
the current regulation. In addition, the numbering of the sections 
would not be consecutive from Subpart to Subpart in order to reserve 
room within Subparts for the addition of new sections in the future, as 
necessary. Specific organizational changes are discussed below under 
the applicable regulatory amendments.

Subpart A--General

Proposed Sec.  1291.1 Definitions
    Proposed Sec.  1291.1 would retain most of the definitions 
currently in Sec.  1291.1. The proposed rule would revise some of the 
definitions and add definitions, which are discussed below in the 
context of the related regulatory amendments.
    In addition, the proposed rule would make the following technical 
changes:
     A definition of ``AHP'' would be added, which means the 
Affordable Housing Program required to be established by the Banks 
pursuant to 12 U.S.C. 1430(j) and this part.
     The definition of ``Homeownership Set-Aside Program'' 
would include a reference that establishment of such a program is in 
the Bank's discretion and is a noncompetitive program.
     The definition of ``net earnings of a Bank'' would be 
revised by removing the requirement to deduct the Bank's annual 
contribution to the Resolution Funding Corporation, as the Banks are no 
longer required to make annual contributions to the Resolution Funding 
Corporation.\8\
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    \8\ 12 U.S.C. 1441b.
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     In the definition of ``rental project,'' the term 
``manufactured housing'' would be changed to ``manufactured housing 
communities,'' which more accurately describes this type of housing in 
the context of rental projects.
     References to the ``competitive application program'' 
would be changed to the General Fund and any Targeted Funds established 
by the Bank. References to the ``homeownership set-aside programs'' 
would be capitalized and would highlight that they are discretionary 
and noncompetitive.

Subpart B--Program Administration and Governance

Proposed Sec.  1291.10 Required Annual AHP Contribution
    Consistent with current Sec.  1291.2(a), proposed Sec.  1291.10(a) 
would contain the Bank Act requirement that each Bank contribute 
annually to its AHP 10 percent of its net income for the preceding 
year, subject to a minimum annual combined contribution by all of the 
Banks of $100 million.\9\
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    \9\ See 12 U.S.C. 1430(j)(5)(C).

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Proposed Sec.  1291.11 Temporary Suspension of AHP Contributions
    Existing Sec.  1291.11 on the temporary suspension of AHP 
contributions would not be changed.
Proposed Sec.  1291.12 Allocation of Required Annual AHP Contribution
    Proposed Sec.  1291.12 would revise existing Sec.  1291.2(b) 
governing the required and permissible allocations of the Banks' 
required annual AHP contributions. Section 1291.2(b)(1) currently 
requires each Bank to allocate annually to its Competitive Application 
Program that portion of its required annual AHP contribution that is 
not set aside by the Bank to fund Homeownership Set-Aside Programs. 
Section 1291.2(b)(2) provides that each Bank may allocate annually, in 
the aggregate, up to the greater of $4.5 million or 35 percent of its 
annual required AHP contribution to Homeownership Set-Aside Programs. 
Therefore, a Bank generally is required to allocate at least 65 percent 
of its required annual AHP contribution to its Competitive Application 
Program depending on the amount of AHP funds it allocates, if any, to 
Homeownership Set-Aside Programs.\10\
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    \10\ As noted earlier, where a Bank allocates the alternate 
maximum amount of $4.5 million to its Homeownership Set-Aside 
Programs, the Bank may allocate less than 65 percent of its total 
AHP funds to its Competitive Application Program.
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    The proposed rule would revise the required and permissible annual 
maximum AHP funding allocations as follows:
    (1) General Fund--A Bank must allocate annually at least 50 percent 
of its required annual AHP contribution to a General Fund (a mandatory 
competitive application program but with significant changes from the 
current Competitive Application Program, as further discussed below);
    (2) Homeownership Set-Aside Programs--A Bank may allocate annually, 
in the aggregate, up to the greater of $4.5 million or 40 percent of 
its required annual AHP contribution to Homeownership Set-Aside 
Programs (the same optional Homeownership Set-Aside Programs as in the 
current regulation but with proposed changes discussed below);
    (3) Targeted Funds--A Bank may allocate annually, in the aggregate, 
up to 40 percent of its required annual AHP contribution to a maximum 
of three Targeted Funds (a new type of optional competitive application 
program discussed below).
    If a Bank chooses not to establish Homeownership Set-Aside Programs 
or Targeted Funds in a given year, it would allocate 100 percent of its 
required annual AHP contribution to its General Fund. If a Bank chooses 
to allocate the maximum 40 percent to Homeownership Set-Aside Programs, 
it could allocate up to 10 percent for Targeted Funds (after allocating 
the required 50 percent for the General Fund). If a Bank chooses to 
allocate the maximum 40 percent to Targeted Funds, it could allocate up 
to 10 percent for Homeownership Set-Aside Programs (after allocating 
the required 50 percent for the General Fund).
    The proposed rule would provide that a Bank's board of directors 
may not delegate to a committee of the board, Bank officers, or other 
Bank employees the responsibility for adopting the policies for its 
General Fund and any Targeted Funds and Homeownership Set-Aside 
Programs established by the Bank. The purpose of this provision is to 
encourage increased engagement in the AHP and increased integration of 
the Banks' low-income housing and community development activities and 
issues, as well as Advisory Council input, into the overall strategic 
planning of the Bank. FHFA anticipates the board committee's work to 
remain largely the same as it is currently, but also for the full board 
to have more engagement with the board committee's recommendations. The 
full board could still delegate limited responsibilities to the board 
committee for non-strategic types of AHP issues that a board committee 
is well suited to address within the parameters of its delegation of 
authority, such as project modification requests for AHP subsidy 
increases.
    The reasons for the proposed AHP funding allocations are discussed 
below.
    Allocation to General Fund. The proposed rule would reduce the 
minimum percentage of a Bank's required annual AHP contribution that 
must be allocated annually to the General Fund to 50 percent. All 
projects would be eligible to apply for AHP subsidies under the General 
Fund, as under the current Competitive Application Program. FHFA 
believes that the Banks should be required to continue administering a 
competitive application program that attracts numerous applications 
that address a broad array of affordable housing needs. The proposed 50 
percent threshold would still ensure that at least half of the AHP 
funds are made available to address a broad spectrum of affordable 
housing needs within the Bank district, while enabling a Bank to 
simultaneously target additional specific affordable housing needs in 
its district through allocation of up to an additional 40 percent of 
the total AHP funds to Targeted Funds or Homeownership Set-Aside 
Programs. FHFA considered whether to allow the Banks complete 
discretion regarding the allocation of their AHP funds but rejected 
this approach for the reasons in the discussion of proposed Sec.  
1291.25.
Allocation to Homeownership Set-Aside Programs
    Maximum permissible AHP funding allocation. FHFA is proposing to 
increase the maximum percentage allocation amount for the Homeownership 
Set-Aside Program from 35 to 40 percent, and to retain the alternative 
maximum allocation amount at $4.5 million.
    The Homeowner Set-Aside Programs have helped expand homeownership 
opportunities for very low-, and low- or moderate-income households 
since 1995. From 1995 through 2016, the programs provided approximately 
$953 million in grants, supporting approximately 167,000 households. In 
2016, the 11 Banks, in the aggregate, allocated approximately 27 
percent of their total annual required AHP contributions to 
Homeownership Set-Aside Programs. A number of Banks consistently 
allocate the maximum permissible amount of 35 percent or $4.5 million. 
For example, in 2016, four Banks allocated 35 percent, and one Bank 
allocated $4.5 million. In 2015, six Banks allocated the maximum 
permissible amount. FHFA considered whether to eliminate or raise the 
maximum permissible allocation amounts because the demand for set-aside 
funds has far exceeded the amount the Banks are currently authorized to 
allocate to these programs.
    Authorizing the Banks to allocate more funds to Homeownership Set-
Aside Programs would enable the Banks and their members to meet more of 
the demand for set-aside funds and to provide more assistance to low- 
or moderate-income homebuyers and homeowners, including first-time 
homebuyers, than occurs under the Competitive Application Program. The 
current regulation allows Banks to establish more than one 
Homeownership Set-Aside Program. A number of Banks establish multiple 
Homeownership Set-Aside Programs each year to address the homeownership 
needs of different populations, such as military veterans or disaster 
victims. The proposed changes to the regulation would enable the Banks 
to serve even more low- or moderate-income homebuyers and homeowners.

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    The Homeownership Set-Aside Programs not only assist low- or 
moderate-income households by providing grants for home purchase or 
rehabilitation, but assist Bank members by providing them a way to 
access a wider customer base and originate new mortgages for low- or 
moderate-income households. Member participation in the program can 
result in new potential household customers and increased goodwill for 
Bank members. Members' participation in the AHP, including the 
Homeownership Set-Aside Program, also enables them to receive favorable 
consideration under the federal Community Reinvestment Act. Increasing 
the maximum permissible percentage allocation could result in more 
opportunities for members to fulfill those obligations.
    In addition, the lack of a competitive scoring process and minimal 
monitoring requirements at subsidy disbursement make the Homeownership 
Set-Aside Programs easy to administer and cost-effective. Further, no 
long-term monitoring is required because the AHP-assisted households 
currently are only subject to five-year retention agreements governing 
the sale or refinancing of the home, although determining and managing 
the repayments of AHP subsidies by households who sell or refinance 
their homes during the five-year period entails some administrative 
responsibilities on the Banks and members. As discussed below, FHFA is 
proposing to remove the requirement for retention agreements on owner-
occupied units.
    Increasing the maximum percentage amount for the Homeownership Set-
Aside Program would enable the Banks to allocate less funds to their 
Competitive Application Programs, resulting potentially in less funding 
of rental projects, which are funded under those programs. However, in 
light of the significant demand for set-aside funds, which exceeds the 
current maximum percentage amount, FHFA believes that increasing this 
amount would be a reasonable approach to address the demand. As noted 
above, one of the main goals of the proposed rule is to enhance the 
Banks' ability to target specific housing needs in their districts 
through the AHP. Each Bank would weigh the specific homeownership and 
rental housing needs in its district and determine what the appropriate 
relative funding allocations should be for those needs under its AHP.
    FHFA is not proposing to remove the maximum permissible allocation 
limits for the Homeownership Set-Aside Program because this could 
result in the Banks allocating all of their annual AHP funds to the 
Homeownership Set-Aside Program, which would be contrary to the 
statutory intent that both homeownership and rental projects be funded. 
The proposed rule would continue to require that the Banks allocate the 
majority of their total annual AHP funds (at least 60 percent under the 
proposed rule) to competitive application programs--the proposed 
General Fund and any Targeted Funds, which are likely to be targeted to 
more types of housing needs including rental housing. This may ensure 
that a significant percentage of AHP funds continue to support rental 
projects.\11\ FHFA believes that it is extremely important that a 
substantial portion of AHP funds continue to assist in the development 
of rental housing for lower income households given the need for more 
affordable rental housing throughout the nation.
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    \11\ A Bank would be required to allocate at least 50 percent of 
its total annual AHP funds to its General Fund, and may allocate up 
to 40 percent of its total annual AHP funds to Homeownership Set-
Aside Programs. If the Bank allocates the maximum 40 percent to the 
latter programs, then it has 10 percent remaining for allocation to 
its General Fund and any Targeted Funds. That amounts to 60 percent 
if only a General Fund is established, or 60 percent total for both 
the General Fund and any Targeted Funds established.
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    FHFA is proposing to retain the existing alternative maximum 
allocation amount of $4.5 million because it has enabled smaller Banks, 
as well as some larger Banks with lower earnings, to provide more funds 
than would be permissible under the maximum percentage limit to their 
Homeownership Set-Aside Programs to address district housing needs. For 
these Banks, $4.5 million may be greater than 35 or 40 percent. FHFA 
analyzed the impact that a proposed increase from 35 to 40 percent 
would have on each Bank, using each Bank's annual total AHP funding 
allocations for 2016 and 2017, to determine whether revisions to the 
$4.5 million limit would be necessary in conjunction with the 
percentage increase. FHFA found that the proposed increase from 35 to 
40 percent would not have altered the Banks' need for, or use of, the 
$4.5 million maximum during those two years. Accordingly, FHFA is not 
proposing an increase in the $4.5 million maximum.
    One-third first-time homebuyer allocation requirement. The current 
regulation also requires that at least one-third of a Bank's aggregate 
annual funding allocation to its Homeownership Set-Aside Programs be to 
assist first-time homebuyers. The proposed rule would make a technical 
revision to clarify that the one-third allocation requirement applies 
to the amount of set-aside funds ``allocated'' by the Bank for first-
time homebuyers, not the amount of set-aside funds actually used by 
them, because the Bank cannot control whether sufficient numbers of 
first-time homebuyers ultimately request set-aside funds in a given 
year. If an insufficient number of first-time homebuyers request set-
aside subsidies, a Bank would not be considered in violation of the 
allocation requirement as long as it allocated the required amount.
    In addition, the proposed rule would make a substantive revision to 
the one-third allocation requirement to allow the Banks to include 
owner-occupied rehabilitation as a permissible use within the one-third 
allocation. FHFA considered whether to eliminate the one-third first-
time homebuyer allocation requirement, which would enable Banks, in 
their discretion, to provide additional set-aside funds to households 
for owner-occupied rehabilitation. While the Banks currently may 
establish specific Homeownership Set-Aside Programs for owner-occupied 
rehabilitation using some or all of the remaining two-thirds set-aside 
funding allocation, eliminating the one-third first-time homebuyer 
allocation would enable allocation of even more set-aside funds for 
owner-occupied rehabilitation. A substantial need for owner-occupied 
rehabilitation funds exists in many Bank districts, and demand is 
likely to increase as the country's population ages.\12\ Expanding the 
scope of the one-third allocation requirement to include owner-occupied 
rehabilitation could facilitate additional funding for home repairs and 
accessibility modifications for households including the elderly, 
persons with disabilities, and military veterans.
---------------------------------------------------------------------------

    \12\ Housing America's Older Adults, Harvard Joint Center for 
Housing Studies, September 2, 2014. https://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/jchs-housing_americas_older_adults_2014-ch4.pdf.
---------------------------------------------------------------------------

    While FHFA recognizes the substantial need for more funds for 
owner-occupied rehabilitation for low- or moderate-income households, 
it is also important that all Banks continue to support the entry of 
first-time homebuyers into the homeownership market. The national 
homeownership rate has fallen from its peak of 69.2 percent at the end 
of 2004 to 63.9 percent as of September 30, 2017.\13\ The

[[Page 11349]]

significant need for funding for first-time homebuyers is demonstrated 
by the fact that the Banks consistently have exceeded the one-third 
allocation requirement for first-time homebuyers since 1995, the year 
Homeownership Set-Aside Programs were first authorized by regulation. 
The 11 Banks have provided more than 80 percent of their set-aside 
funds each year to first-time homebuyers. In 2016, approximately 90 
percent of the households receiving set-aside funds were first-time 
homebuyers.
---------------------------------------------------------------------------

    \13\ Quarterly Residential Vacancies and Homeownership, Third 
Quarter 2017, October 31, 2017, U.S. Census Bureau. https://www.census.gov/housing/hvs/files/currenthvspress.pdf.
---------------------------------------------------------------------------

    Accordingly, rather than eliminating the one-third first-time 
homebuyer allocation requirement, the proposed rule would expand the 
scope of the requirement to include households for owner-occupied 
rehabilitation. While the proposed change could allow a Bank to 
allocate its entire one-third allocation to households for owner-
occupied rehabilitation, FHFA believes this is highly unlikely in light 
of the Banks' record of allocating most of their set-aside funds to 
first-time homebuyers. Notably, in 2016, the Banks allocated only 10 
percent of their total set-aside funds for owner-occupied 
rehabilitation. The proposed change could encourage Banks to increase 
their set-aside funding allocations for owner-occupied rehabilitation, 
while continuing their support for first-time homebuyers.
    The proposed rule would also provide that a Bank's board of 
directors may not delegate to a committee of the board the 
responsibility for adopting its Homeownership Set-Aside Program 
policies, for the reasons discussed earlier.
    Allocation to Targeted Funds. Proposed Sec.  1291.12(c)(1) would 
provide the Banks with a new authority to allocate annually, in the 
aggregate, up to 40 percent of a Bank's required annual AHP 
contribution to a maximum of three Targeted Funds established by the 
Bank. Targeted Funds would be administered through a competitive 
application scoring process developed by each Bank, pursuant to the 
requirements in proposed Sec.  1291.25. The purpose of the Targeted 
Funds is to enable a Bank to target specific affordable housing needs 
within its district that are either unmet, have proven difficult to 
address through the existing Competitive Application Program, or align 
with objectives identified in the Bank's strategic plan. Proposed Sec.  
1291.12(c)(2) would require the Banks to transfer any uncommitted 
Targeted Fund amounts to the General Fund for awards to alternates in 
the General Fund in the same calendar year.
    Permitting the Banks to establish Targeted Funds would help address 
challenges the Banks experience when trying to target specific 
affordable housing needs within their districts, especially in a single 
AHP funding period. Banks report that the existing regulatory scoring 
requirements can affect their efforts to fully address affordable 
housing needs within their districts. For example, Banks have indicated 
that they would like greater ability to target the affordable housing 
needs of specific geographic areas or populations, or to act in 
response to a disaster. The use of Targeted Funds focused on a specific 
geographic area or population or in response to a disaster could serve 
this purpose.
    FHFA's regulations require each Bank's board of directors to adopt 
a strategic business plan that describes how its business activities 
will achieve its mission. The regulations require that each plan 
describe how the Bank will maximize activities that further the Bank's 
housing finance and community lending mission.\14\ The Banks would be 
able to use Targeted Funds to improve their ability to address their 
strategic objectives related to affordable housing.
---------------------------------------------------------------------------

    \14\ 12 CFR 1239.31.
---------------------------------------------------------------------------

    The current regulation already provides the Banks a degree of 
flexibility to address multiple housing priorities within a given AHP 
funding period. The Banks can allocate up to 50 points out of a total 
of 100 under the Bank First and Second District Priorities to emphasize 
multiple housing needs in their districts. However, some Banks have 
indicated that they find it difficult to allocate points, test, adjust, 
and balance the different scoring criteria in a manner that enables 
them to award subsidies to multiple housing priorities in the same 
funding period. Establishing a Targeted Fund with a dedicated funding 
allocation, for example, to a particular housing need, would guarantee 
that projects serving that housing need receive awards pursuant to the 
competitive process under that Fund, while other projects would receive 
awards under the competitive General Fund, thereby serving multiple 
housing needs in the same funding period.
    FHFA believes that the use of Targeted Funds would be appropriate 
provided they are operated pursuant to a competitive scoring process to 
ensure a transparent and objective process for awarding funds. FHFA 
also believes that limitations should be imposed on the size of the 
Targeted Funds to ensure that funds continue to be available to address 
a broad spectrum of affordable housing needs within each district under 
the General Fund. Accordingly, the proposed rule would authorize each 
Bank to allocate annually up to 40 percent of its total annual AHP 
funds to Targeted Funds subject to a phase-in period.
    FHFA is mindful that the use of Targeted Funds could introduce new 
risks to the Banks given the targeted nature of each Fund. Proposed 
Sec.  1291.20(c)(1) would require the Banks adopt and implement 
controls for ensuring that each Targeted Fund is designed to receive 
sufficient numbers of applicants for the amount of AHP funds allocated 
to the Targeted Fund to facilitate a genuinely competitive scoring 
process so that specific project sponsors or members are not specially 
advantaged. To further address the potential new risks, proposed Sec.  
1291.20(b) would authorize each Bank to establish initially only one 
Targeted Fund, but would enable the Bank to increase the number of its 
Targeted Funds to a maximum of three pursuant to a phase-in period. In 
addition, as provided in proposed Sec.  1291.13(a) and (b), a Bank 
would not be allowed to establish or administer a Targeted Fund unless 
at least 12 months have passed since the publication of the Targeted 
Community Lending Plan and the Bank identifies in the Plan the 
affordable housing needs to be addressed by that Targeted Fund. This 
advance notice would help ensure that the Targeted Fund is designed in 
an open and objective manner to generate sufficient interest for 
holding a competitive scoring funding round. The advance notice also 
may serve to encourage potential sponsors to consider developing 
projects that address the affordable housing needs set by the Targeted 
Fund and submit applications to the Fund.
    Although FHFA is not proposing that the Banks' Targeted Community 
Lending Plans be subject to approval by FHFA, FHFA may request that the 
Banks submit an advance copy to FHFA before releasing it to the public. 
This would provide FHFA an opportunity to review the Plans and provide 
comments as needed, particularly in the initial years of the Funds. 
Proposed Sec.  1290.6(c) would also require that the Targeted Community 
Lending Plans be published on the Banks' public websites, consistent 
with current practice at most Banks.
    The Banks would identify in their Targeted Community Lending Plans 
the specific affordable housing needs, supported by empirical data, 
that the Targeted Funds will address. The Banks' AHP Implementation 
Plans would describe how the Targeted Funds will address these housing 
needs

[[Page 11350]]

through the specific funding allocations and scoring criteria.
    FHFA specifically requests comments on the benefits and risks of 
allowing the Banks to establish Targeted Funds. FHFA also requests 
comments on whether the proposed allocation of 40 percent of total 
annual AHP funds to Targeted Funds is an appropriate percentage, or 
whether the percentage should be higher or lower.
    Acceleration of funding. Current Sec.  1291.2(b)(3) containing the 
discretionary authority for a Bank to accelerate future required annual 
AHP contributions to its current year's Program would move unchanged to 
proposed Sec.  1291.12(d) except for certain clarifying technical 
edits.
Proposed Sec.  1291.13 Targeted Community Lending Plan; AHP 
Implementation Plan
    Targeted Community Lending Plan. The Banks' boards of directors 
currently are required to adopt Targeted Community Lending Plans as 
part of their community support programs under FHFA's Community Support 
regulation. These Plans are focused largely on targeted economic 
development needs in the Banks' districts. As discussed, the proposed 
rule would amend Sec.  1290.6(a)(5) of the Community Support regulation 
\15\ to require the Banks to include in their Plans market research on 
affordable housing needs in their districts, and their identification 
and assessment of those affordable housing needs that are significant. 
The Banks would be required to specify, from among those identified 
needs, the affordable housing needs they will address through their 
funding allocations and scoring criteria under their General Funds and 
any Bank Targeted Funds and Homeownership Set-Aside Programs, as 
further discussed under the AHP Implementation Plans below. The 
identified needs to be addressed through the Banks' General Funds and 
Homeownership Set-Aside Programs must be included in their Targeted 
Community Lending Plans at least six months before the beginning of the 
Plan year.
---------------------------------------------------------------------------

    \15\ See 12 CFR 1290.6(a)(5).
---------------------------------------------------------------------------

    In addition, the proposed rule would amend the Community Support 
regulation to provide that a Bank's board of directors may not delegate 
to a committee of the board, Bank officers, or other Bank employees the 
responsibility to adopt or amend the Targeted Community Lending Plan as 
previously discussed.
    The proposed rule would also make technical changes to the language 
in Sec.  1290.6(a)(5) to clarify the Plan requirements.
    The proposed changes discussed above would ensure that the Targeted 
Community Lending Plans are results-oriented and useful to FHFA in 
assessing the Banks' progress towards addressing the housing challenges 
of low- or moderate-income households in their districts. The proposed 
changes would increase the emphasis on accountability and results in 
the Targeted Community Lending Plans.
    FHFA specifically requests comments on the benefits of the proposed 
expansion of the contents of the Targeted Community Lending Plans and 
their linkage to the AHP Implementation Plans. In addition, FHFA 
requests comments on whether the proposed expansion of the contents of 
the Targeted Community Lending Plans will impede the Banks' ability to 
respond to disasters through the AHP.
AHP Implementation Plan
    Requirements for each Fund. The current provision containing the 
requirements for the Banks' AHP Implementation Plans would move from 
Sec.  1291.3 to proposed Sec.  1291.13(b). Currently, each Bank must 
include in its AHP Implementation Plan its requirements for its 
Competitive Application Program, including its scoring methodology, and 
any Homeownership Set-Aside Programs. The proposed rule would require a 
Bank to include those requirements in its AHP Implementation Plan for 
its General Fund and any Targeted Funds established by the Bank. For a 
Targeted Fund, a Bank would also be required to include in its AHP 
Implementation Plan controls that ensure the Targeted Fund is designed 
to receive sufficient numbers of applicants for the amount of AHP funds 
allocated to the Fund to facilitate a genuinely competitive scoring 
process, as required in Sec.  1291.20(c)(1).
    Linkage to Targeted Community Lending Plan. The proposed rule would 
require that a Bank include in its AHP Implementation Plan the specific 
funding allocation amounts for its General Fund and any Bank Targeted 
Funds and Homeownership Set-Aside Program, including how the one-third 
allocation for the Homeownership Set-Aside Program will be apportioned 
with respect to first-time homebuyers and households for owner-occupied 
rehabilitation. The Banks' scoring criteria for each Fund must flow 
logically from the analyses and identified housing needs in the Banks' 
Targeted Community Lending Plans, which should lead ultimately to AHP 
awards meeting those housing needs.
    Applications to multiple Funds. The proposed rule would require a 
Bank to include in its AHP Implementation Plan the Bank's policy on how 
it will decide under which Fund to approve a project that applies to 
more than one Fund and is competitive under all of them, pursuant to 
Sec.  1291.24(d).
    Optional Bank district eligibility requirements. Consistent with 
the existing requirement in Sec.  1291.5(c)(15), the proposed rule 
would also provide in the AHP Implementation Plan section of the 
regulation (proposed Sec.  1291.13(b)(7)) that a Bank must include in 
its AHP Implementation Plan any optional Bank district eligibility 
requirements adopted by the Bank pursuant to proposed Sec.  1291.24(c).
    Re-use of repaid AHP direct subsidy. The requirement in current 
Sec.  1291.3(a)(7) for a Bank to include in its AHP Implementation Plan 
its requirements for re-use of repaid AHP direct subsidy, if adopted by 
the Bank pursuant to current Sec.  1291.8(f)(2), would be removed. 
Repayment of subsidy under Sec.  1291.8(f)(2) depends upon an AHP-
assisted household selling its home during the AHP five-year retention 
period, as required under the AHP owner-occupied retention agreement. 
As elaborated below under the Agreements section, FHFA is proposing to 
remove the owner-occupied retention agreement requirement. Therefore, 
there would be no repayment of subsidy by the household and Sec.  
1291.8(f)(2) would become moot.
    Retention agreements. As noted above, because FHFA is proposing to 
remove the owner-occupied retention agreement requirement, the Banks' 
requirements for such retention agreements would no longer be required 
to be included in the AHP Implementation Plan. The Banks' retention 
agreement requirements for rental projects would continue to be 
included in the AHP Implementation Plan.
    No delegation. Current Sec.  1291.3(a) prohibits a Bank's board of 
directors from delegating to Bank officers or other Bank employees the 
responsibility to adopt, and make any amendments to, the AHP 
Implementation Plan. The proposed rule would also provide that the 
Bank's board of directors may not delegate these responsibilities to a 
committee of the board.
Proposed Sec.  1291.14 Advisory Councils
    The current provisions addressing the membership and duties of the 
Banks'

[[Page 11351]]

Advisory Councils would move from Sec.  1291.4 to proposed Sec.  
1291.14, with several clarifications.
    Representatives from for-profit organizations. The Bank Act 
requires that each Bank appoint an Advisory Council of persons drawn 
from ``community and not-for-profit organizations'' actively involved 
in providing or promoting low- and moderate-income housing in its 
district.\16\ Consistent with long-standing agency guidance, the 
proposed rule would clarify that ``community organizations'' may 
include for-profit organizations.
---------------------------------------------------------------------------

    \16\ See 12 U.S.C. 1430(j)(11).
---------------------------------------------------------------------------

    Recommendations on Bank Targeted Community Lending Plans. FHFA's 
Community Support regulation requires the Banks to consult with their 
Advisory Councils and other groups in developing and implementing their 
Targeted Community Lending Plans. See 12 CFR 1290.6(a)(5)(iii). 
Proposed Sec.  1291.14(d)(1)(ii)(A) would include the parallel 
requirement for the Advisory Councils to provide recommendations to the 
Banks on their Targeted Community Lending Plans, and any amendments 
thereto.
    No delegation. The proposed rule would clarify that a Bank's board 
of directors may delegate to a committee of the board, but not to Bank 
officers or other Bank employees, the responsibility to appoint persons 
as members of the Advisory Council. However, for the reasons discussed 
above, the proposed rule would provide that a Bank's board of directors 
may not delegate to a committee of the board, Bank officers, or other 
Bank employees the responsibility to meet with the Advisory Council at 
the quarterly meetings required by the Bank Act.\17\
---------------------------------------------------------------------------

    \17\ 12 U.S.C. 1430(j)(11).
---------------------------------------------------------------------------

Proposed Sec.  1291.15 Agreements
    Current Sec.  1291.9 governing the AHP contractual agreements that 
must be in place between the Banks and members, and between the members 
and project sponsors or project owners, would move to proposed Sec.  
1291.15. The proposed rule would make a number of changes and 
clarifications to the provisions in this section, as discussed below.
    Notice to Bank of LIHTC project noncompliance. Current Sec.  
1291.9(a)(5)(ii) requires that members' AHP agreements with project 
sponsors state that such parties shall meet the AHP project monitoring 
requirements. The AHP monitoring requirements do not require the Banks 
to conduct monitoring of AHP projects that received LIHTCs during the 
AHP 15-year retention period. Nor are LIHTC project sponsors required 
to send reports to the Banks of LIHTC noncompliance. Noncompliance with 
LIHTC income-targeting and rent requirements is the same as or 
substantially equivalent to noncompliance with AHP income-targeting and 
rent requirements. Although LIHTC project noncompliance is rare, 
instances of noncompliance with LIHTC income-targeting or rent 
requirements can occur during the AHP retention period, which would 
mean that the projects' incomes or rents likely are also in 
noncompliance with similar AHP requirements. However, the noncompliance 
would not come to the attention of a Bank during the AHP retention 
period because it is not monitoring the projects.
    To address the possibility of such noncompliance by LIHTC projects, 
proposed Sec.  1291.15(a)(5)(ii) would require the members' AHP 
agreements with LIHTC project sponsors to include a provision requiring 
the sponsors to agree to provide prompt written notice to the Bank if 
the project is in noncompliance with the LIHTC income-targeting or rent 
requirements at any time during the AHP 15-year retention period. A 
corresponding requirement that the Bank review such LIHTC project 
noncompliance notices received from project sponsors during the AHP 
retention period would be included in proposed Sec.  1291.50(c)(1)(ii).
    FHFA specifically requests comments on the practicality of this 
requirement, and whether it should also be required of project sponsors 
in the event of noncompliance by projects with the income-targeting or 
rent requirements of the government housing programs discussed under 
Monitoring below.
    Owner-occupied retention agreements. The proposed rule would 
eliminate the requirement in current Sec.  1291.9(a)(7) for a retention 
agreement under which AHP-assisted households must repay AHP subsidy to 
the Bank if they sell or refinance their homes under certain 
circumstances during the AHP five-year retention period. The proposed 
rule would also make conforming changes to remove references to the 
owner-occupied retention agreements elsewhere in the regulation.
    The owner-occupied retention agreement provides, specifically, that 
in the event of a sale or refinancing of the home by the AHP-assisted 
household during the five-year retention period, an amount equal to a 
pro rata share of the AHP subsidy that financed the purchase or 
rehabilitation of the unit, reduced for every year the household owned 
the unit, shall be repaid by the household to the Bank from any net 
gain realized upon the sale or refinancing, unless:
    (A) The unit was assisted with a permanent mortgage loan funded by 
an AHP subsidized advance;
    (B) the unit is sold to a very low-, or low- or moderate-income 
household; or
    (C) following a refinancing, the unit continues to be subject to a 
deed restriction or other legally enforceable retention agreement or 
mechanism described in this paragraph.
    The purpose of the retention agreement is to discourage 
``flipping'' of the home by requiring households to repay AHP subsidy 
if they sell the home during the AHP retention period, unless one of 
the exceptions applies. The AHP provides subsidies which enable very 
low- and low- or moderate-income households to purchase or rehabilitate 
their homes and reap the benefits of wealth creation from 
homeownership. The AHP subsidy is not intended to be used by investors 
or landlords to purchase or rehabilitate and quickly sell homes to take 
advantage of rapidly appreciating housing prices in a neighborhood. The 
AHP retention agreement requirement is consistent with the retention 
agreement requirements of other government housing programs, such as 
HUD's HOME Investment Partnerships Program (HOME), for households 
receiving subsidy for purchasing or rehabilitating owner-occupied 
units.
    FHFA recognizes the moral hazard risk that may be associated with 
using subsidy intended to provide housing to low- or moderate-income 
households to flip properties. However, homes purchased by AHP-assisted 
households, by virtue of their low prices, are not typically located in 
neighborhoods with rapidly appreciating housing prices that would 
encourage flipping, especially given the low amount of AHP subsidy 
provided to the households--averaging $6,311 per household in 2016--
although exceptions may exist. Most AHP-assisted households do not sell 
their homes during the five-year retention period and, if they do, they 
usually sell to another low- or moderate-income household or have no 
net gain, so the retention agreement does not apply in most situations, 
making its value questionable. Moreover, the underlying policy of the 
AHP has always been that the purpose of the AHP subsidy is to enable 
low- or moderate-income households to receive the benefits of 
homeownership including appreciation in the value of their homes and, 
thus, to minimize any AHP subsidy repayments. Repayments of AHP subsidy 
may be a financial burden on the households.

[[Page 11352]]

    The Banks have also cited the administrative burdens on themselves 
and their members of having to obtain and track repayments of generally 
very small amounts of subsidy, obtaining the documentation to calculate 
whether there is a ``net gain'' on the sale, and determining whether 
the subsequent purchaser is a low- or moderate-income household. In 
particular, the Banks have noted the complications of trying to 
determine the net gain where a household used the AHP subsidy to 
rehabilitate its home without an accompanying purchase.
    These considerations appear to outweigh the potential for deterring 
rare instances of flipping. Accordingly, FHFA is proposing to eliminate 
the retention agreement requirement for owner-occupied units. FHFA 
specifically requests comments on whether a retention agreement of some 
duration is necessary or desirable to ensure that AHP funds are being 
used for the statutorily-intended purposes and whether there are viable 
ways to deter potential flipping and address moral hazard risks other 
than through retention agreements (e.g., a prohibition against flipping 
in the AHP subsidy documentation). FHFA also requests comments on 
whether the proposed increase in the maximum permissible grant to 
households from $15,000 to $22,000 under the Homeownership Set-Aside 
Program, discussed below, should impact this decision.
    If, based on the comments received and other relevant factors, FHFA 
decides to retain an owner-occupied retention agreement requirement in 
the final rule, FHFA is raising a number of issues below for 
consideration.
    Notice to the Bank. FHFA requests comments on whether a retention 
agreement, if retained in the final rule, should require that notice of 
a sale or refinancing be provided to both the Bank and its designee 
(typically the member), rather than to one or the other. This would 
facilitate Program operations by giving the Bank simultaneous notice. 
Also, it could facilitate repayment of AHP subsidy to the Bank in cases 
where a member subsequently fails and is subject to receivership 
actions by other federal agencies. Some Banks already require notice to 
the Bank.
    AHP subsidy repayment calculation. FHFA requests comments on what 
subsidy repayment method should be required, if a retention agreement 
requirement is retained in the final rule. The current regulation 
requires the household to repay a pro rata portion of the subsidy from 
any net gain (unless an exception applies), but does not define ``net 
gain.'' A majority of the Banks calculate the net gain as the sales 
price minus the original purchase price, purchaser and seller paid 
costs, and capital improvement costs, and then apply the pro rata 
repayment requirement. Other Banks calculate the subsidy repayment 
amount using net proceeds identified on the Closing Statement, 
deducting the outstanding senior mortgage debt from the sales price, 
but adding the full amount of the AHP subsidy originally provided to 
the household. The calculation does not credit the household with its 
investments (principal payments, down payment, and substantive capital 
improvements), meaning there are always net proceeds (i.e., the amount 
of the AHP subsidy).
    FHFA reviewed the subsidy repayment requirements of other 
government housing programs and, in particular, HUD's HOME Investment 
Partnership Program (HOME). One approach under this program calculates 
net proceeds as the sales price minus outstanding superior debt and 
seller paid costs, with the household recovering its entire investment 
first from the net proceeds, the Bank then recovering the subsidy on a 
pro rata basis, and any remaining net proceeds returned to the 
household. FHFA requests comments on the merits and disadvantages of 
this approach and the net gain approach discussed above from the 
standpoint of the AHP-assisted households and the Banks, and whether 
there are other subsidy repayment approaches FHFA should consider if a 
retention agreement requirement is retained in the final rule.
    Proxies for determining that a subsequent purchaser is low- or 
moderate-income. FHFA also requests comments on what approaches should 
be specified in the retention agreement, if retained in the final rule, 
that would provide a reasonable basis to assume that the subsequent 
purchaser of an AHP-assisted unit is likely to be low- or moderate-
income, including proxies that could serve this purpose. The subsequent 
purchaser of an AHP-assisted unit is not receiving any AHP subsidy and, 
therefore, has no reason or obligation to provide income documentation 
to the Bank or member indicating whether it is low- or moderate-income. 
This has made it difficult for the Banks and their members to determine 
subsequent purchaser incomes in order to apply the subsidy repayment 
exception.
    FHFA requests comments on what proxies would be reasonable for 
assuming a subsequent purchaser's income, including the following: 
Certification from the subsequent purchaser or a third party that the 
subsequent purchaser's income is at or below the low- or moderate-
income limit; evidence that the subsequent purchaser is receiving 
direct homebuyer assistance from another government program with 
household income targeting requirements substantially equivalent to 
those of the AHP; purchase price of the AHP-assisted unit is less than 
the median home price in the area; the AHP-assisted unit is located in 
a census tract or block group where at least 51 percent of the 
households are low- or moderate-income; or Federal Housing 
Administration (FHA) or other underwriting standards indicate that the 
income required to purchase the AHP-assisted unit at the purchase price 
is low- or moderate-income.
    AHP subsidy repayment exception for $1,000 amount. FHFA also 
requests comments on whether there should be an exception to subsidy 
repayment in the retention agreement, if retained in the final rule, 
where the amount of AHP subsidy subject to repayment, after calculating 
the net proceeds or net gain, is $1,000 or less.
    As discussed above, maintaining a subsidy repayment requirement in 
the retention agreement could help deter potential, but rare, flipping 
during the retention period. Setting a de minimis threshold of $1,000 
may promote the goal of deterring flipping, while at the same time not 
financially burdening low- or moderate-income borrowers who may opt to 
sell their homes during their retention periods. It would also reduce 
the administrative obligations of the Banks and members associated with 
calculating and collecting pro rata shares of the AHP subsidies.
    Termination of AHP subsidy repayment obligation. FHFA also requests 
comments on whether, if a retention agreement requirement is retained 
in the final rule, the rule should clarify that the obligation to repay 
AHP subsidy to a Bank shall terminate not only after any event of 
foreclosure, but also after transfer by deed in lieu of foreclosure, 
assignment of an FHA mortgage to HUD, or death of the owner(s) of the 
unit, which would be consistent with agency guidance.
    Retention agreements for rental projects. The AHP 15-year retention 
agreement requirement for rental projects in current Sec.  1291.9(a)(8) 
would be retained in proposed Sec.  1291.15(a)(7), with several 
proposed changes discussed below. Current Sec.  1291.9(a)(8) provides 
that if a rental project is sold or refinanced during the 15-year 
retention period, the full amount of the

[[Page 11353]]

AHP subsidy must be repaid to the Bank, unless the project continues to 
be subject to a retention agreement incorporating the income-
eligibility and affordability restrictions committed to in the AHP 
application for the duration of the retention period, or the households 
are relocated under certain circumstances specified in the regulation. 
The requirement to repay the full amount of AHP subsidy, instead of a 
pro rata amount, is intended to discourage rental projects from being 
sold before the end of the retention period and converted to projects 
with market rate rents that low- or moderate-income households can no 
longer afford.
    Notice to the Bank. As with owner-occupied agreements discussed 
above, FHFA requests comments on whether the retention agreement for 
rental projects should require that notice of a sale or refinancing of 
the rental project during the AHP 15-year retention period be provided 
to both the Bank and its designee, rather than to one or the other. 
This would facilitate Program operations by giving the Bank 
simultaneous notice, and could facilitate repayment of AHP subsidy to 
the Bank in cases where a member subsequently fails and is subject to 
receivership actions by other federal agencies.
    Transfer or assignment. Proposed 1291.15(a)(7) would clarify that 
the retention agreement would apply not only to a sale of the rental 
project, but also to a transfer or assignment of title or deed, during 
the retention period, as these forms of conveyance are the functional 
equivalent of sales.
    Project sponsor qualifications. Current Sec.  1291.5(c)(10) 
provides that a project sponsor must be qualified and able to perform 
its responsibilities as committed to in the AHP application. Proposed 
Sec.  1291.21(b) on eligible applicants would clarify that a project 
sponsor includes all affiliates and team members such as the general 
contractor.
    In addition, the proposed rule would add a requirement in the 
Agreements section at proposed Sec.  1291.15(b)(2) that the Bank's AHP 
subsidy application or other related form include project sponsor 
qualifications criteria that evaluate the ability of the project 
sponsor (including all affiliates and team members such as the general 
contractor) to perform the responsibilities committed to in the AHP 
application. The project sponsor qualifications section of the form 
would be required to include a requirement for the project sponsor to 
provide certifications or respond to specific questions about whether 
the project sponsor (and affiliates and team members such as the 
general contractor) have engaged in misconduct as defined and imputed 
in FHFA's Suspended Counterparty Program regulation,\18\ or as defined 
by the Bank. The Bank's AHP subsidy disbursement or other related form 
would also be required to include a requirement for similar 
certifications or questions for the project sponsor to complete prior 
to each disbursement of AHP subsidy.
---------------------------------------------------------------------------

    \18\ 12 CFR part 1227.
---------------------------------------------------------------------------

    The purpose of these requirements is to enable a Bank to identify 
any misconduct by the project sponsor so that the Bank can determine 
whether it should accept the AHP application or approve requests from 
the sponsor for disbursement of AHP subsidy. The proposed rule would 
provide that the project sponsor's affiliates and team members such as 
the general contractor must also meet the project sponsor qualification 
requirements in order for the project sponsor to be eligible for AHP 
subsidy.
    The Suspended Counterparty Program regulation defines ``covered 
misconduct'' generally to mean a conviction or administrative sanction 
imposed by a federal agency involving fraud, embezzlement, theft, 
conversion, forgery, bribery, perjury, making false statements or 
claims, tax evasion, obstruction of justice, or any similar offense, in 
connection with a mortgage, mortgage business, mortgage securities, or 
other lending product. For AHP project sponsor qualifications purposes, 
a Bank may choose to define ``covered misconduct'' more broadly to also 
include, for example, convictions or administrative sanctions imposed 
by a state agency, pending investigations, noncompliance by the project 
sponsor (and affiliates and team members such as the general 
contractor) with other funders' requirements, pending claims, pending 
litigation, settlements of criminal or administrative charges, or 
criminal activity involving financial transactions more generally.
    Application to existing AHP projects and units. Current Sec.  
1291.9(c) on the application of AHP regulatory amendments to existing 
AHP projects would move to proposed Sec.  1291.15(c). Under this 
section, the provisions of the AHP regulation, as they may be amended 
from time to time, are deemed incorporated into all agreements between 
Banks, members, project sponsors, and project owners receiving AHP 
subsidies. However, no amendment to the regulation affects the legality 
of actions taken prior to the effective date of the amendment. Thus, if 
the owner-occupied retention agreements are eliminated in the final 
rule, households that currently have such agreements would no longer be 
subject to them upon the effective date of the final rule. Where 
households repaid AHP subsidy prior to the effective date of the final 
rule, they would not be entitled to a refund of their payments because 
the final rule would not have retroactive effect.
Proposed Sec.  1291.16 Conflicts of Interest
    Current Sec.  1291.10 addressing conflicts of interest by Bank 
directors, Bank employees and Advisory Council members would move 
unchanged to proposed Sec.  1291.16.

Subpart C--General Fund and Targeted Funds

Proposed Sec.  1291.20 Establishment of Programs
    General Fund. Proposed Sec.  1291.20 would replace existing Sec.  
1291.5(a) by requiring that instead of establishing a Competitive 
Application Program, each Bank would be required to establish a General 
Fund pursuant to the requirements of this part.
    Targeted Funds. Proposed Sec.  1291.20(b) would provide that a Bank 
may establish, in its discretion, a maximum of three Targeted Funds 
pursuant to the requirements of this part.
    To address the risks of Targeted Funds, given their targeted 
nature, the proposed rule would include phase-in requirements for the 
Funds. Specifically, unless otherwise directed by FHFA, a Bank would be 
permitted to establish:
    (1) One Targeted Fund;
    (2) Two Targeted Funds to be administered concurrently, provided 
that the Bank administered at least one Targeted Fund in any preceding 
year; or
    (3) Three Targeted Funds to be administered concurrently, provided 
that the Bank administered at least two Targeted Funds in any preceding 
year.
    In addition, as discussed under the funding allocation provisions 
in proposed Sec.  1291.12(c)(1) above, the allocations to Targeted 
Funds would be subject to phase-in requirements.
    Eligibility requirements. As discussed earlier, proposed Sec.  
1291.20(c)(1) would require the Bank to adopt and implement controls, 
as specified in its AHP Implementation Plan, for ensuring that each 
Targeted Fund is designed to receive sufficient numbers of applicants 
for the amount of AHP funds allocated to the Targeted Fund to 
facilitate a genuinely competitive scoring process.

[[Page 11354]]

    In addition, as under the current regulation, a Bank would not be 
authorized to adopt additional eligibility requirements for the General 
Fund and any Targeted Funds established by the Bank except as 
specifically authorized in the regulation.
Proposed Sec.  1291.21 Eligible Applicants
    Member applicants. The eligibility requirement for member 
applicants in existing Sec.  1291.5(b)(2) would move unchanged to 
proposed Sec.  1291.21(a), with the exception that the reference to the 
Competitive Application Program would be replaced with references to 
the General Fund and any Targeted Funds established by the Bank.
    Project sponsor qualifications. The eligibility requirements in 
existing Sec.  1291.5(c)(10) for project sponsors applying for AHP 
funds in conjunction with members would move to proposed Sec.  
1291.21(b), with the addition of the proposed documentation 
requirements discussed in the Agreements section above under proposed 
Sec.  1291.15(b)(2). The purpose of these requirements is to enable a 
Bank to identify any misconduct by the project sponsor so that the Bank 
can determine whether it should accept the AHP application or approve 
requests from the sponsor for disbursement of AHP subsidy. The proposed 
rule would provide that the project sponsor's affiliates and team 
members such as the general contractor must also meet the project 
sponsor qualification requirements for the project sponsor to be 
eligible for AHP subsidy.
Proposed Sec.  1291.22 Funding Periods; Application Process
    The funding period and application process requirements in existing 
Sec.  1291.5(b)(1), (b)(3), and (b)(4) would move unchanged to proposed 
Sec.  1291.22.
Proposed Sec.  1291.23 Eligible Projects
    Eligibility requirements. Proposed Sec.  1291.23 would be a new 
section setting forth the eligibility requirements for AHP projects, 
but comprising a number of existing provisions related to what 
constitutes an eligible project in current Sec.  1291.5(c). This 
section would include the eligibility requirements for owner-occupied 
and rental housing projects, project feasibility, timing of AHP subsidy 
use, retention agreements for rental projects, and compliance with fair 
housing laws. The existing eligibility requirement for a five-year 
retention agreement for owner-occupied projects in Sec.  
1291.5(c)(9)(i) would be removed, as discussed earlier.
    Tenant income qualification in rental projects. FHFA considered 
altering the requirement in current Sec.  1291.5(c)(1)(ii) for tenant 
income qualification in rental projects that are occupied at the time 
of the application for AHP subsidy. Under the current provision, for 
rental projects that are not occupied at the time of application and 
are approved for AHP subsidy, the households must have incomes meeting 
the income targeting commitments in the approved AHP application upon 
initial occupancy of the rental units. For projects involving the 
purchase or rehabilitation of rental housing that are occupied at the 
time of AHP application, the households must have incomes meeting the 
income targeting commitments in the approved AHP application at the 
time of the AHP application. The purpose of qualifying current 
occupants' incomes at the time of AHP application is to discourage 
displacement of occupants whose incomes are higher than the income 
commitments in the approved AHP application.
    FHFA considered allowing occupied projects to satisfy income 
targeting commitments at initial occupancy as with unoccupied projects. 
This change would increase the chances of occupied projects scoring 
successfully under the AHP where they target lower incomes than the 
current income mix of the occupants in the project. This could 
encourage more AHP subsidy awards for preservation of affordable rental 
housing through purchase or rehabilitation, which is an important 
housing priority in many areas. It would also account for tenant moves 
during the renovation process and the fact that new residents at 
different income levels may occupy the project at initial occupancy, 
when the rehabilitation is complete.
    At the same time, FHFA is concerned that such a change could 
encourage displacement of current occupants whose incomes exceed those 
committed to in the approved AHP application because the project 
sponsor must meet its income targeting commitments. To mitigate this 
concern, proposed Sec.  1291.23(a)(2)(ii) would provide that, in order 
for the project to satisfy the income targeting commitments at initial 
occupancy, the project must have a relocation plan for those occupants 
not meeting the income targeting commitments that is approved by one of 
the project's primary funders. In the absence of a relocation plan, the 
households in the project must satisfy the income targeting commitments 
at the time of AHP application, as required in the current regulation.
    FHFA specifically requests comments on how to encourage 
preservation of rental projects through the AHP while discouraging 
displacement of current occupants with higher incomes, including 
whether the proposed requirement for a relocation plan approved by the 
primary funder is reasonable.
Proposed Sec.  1291.24 Eligible Uses
    Eligible uses of AHP subsidy. Proposed Sec.  1291.24 would group 
together a number of provisions in current Sec.  1291.5(c) related to 
the eligible uses of AHP subsidy. These include the use of the AHP 
subsidy for purchase, construction, or rehabilitation of owner-occupied 
or rental housing, the need for AHP subsidy determination, reasonable 
project costs determinations, reasonable financing costs 
determinations, eligible counseling costs, eligible refinancing, 
optional Bank district eligibility requirements, and calculation of the 
AHP subsidy.
    Prohibited uses of AHP subsidy. Proposed Sec.  1291.24 would also 
include the prohibited uses of AHP subsidy set forth in current Sec.  
1291.5(c)(16). These prohibited uses are certain prepayment fees, fees 
for Bank cancellation of a subsidized advance commitment, and 
processing fees charged by members for providing AHP direct subsidies 
to a project.
    Proposed Sec.  1291.24(b)(4) would add that, consistent with 
current practice, capitalized reserves, periodic deposits to reserve 
accounts, operating expenses, and supportive services expenses are not 
eligible uses of AHP subsidy.
    Need for AHP subsidy. The need for AHP subsidy eligibility 
requirement in current Sec.  1291.5(c)(2) would move to proposed Sec.  
1291.24(a)(3), with clarifying changes. The current regulation requires 
that to be eligible for AHP subsidy, rental projects must demonstrate: 
(1) A need for the AHP subsidy; (2) developmental and operational 
feasibility; and (3) cost reasonableness. The regulation states that 
the estimated sources of funds for a project must equal its estimated 
uses of funds, as reflected in the project's development budget. Where 
the project's uses of funds exceed its sources of funds, the difference 
demonstrates a funding gap and a need for AHP subsidy.
    Some stakeholders have pointed to the regulatory language, as well 
as preamble language from an earlier AHP rulemaking, to support their 
contention that, for rental projects, the Banks are only required to 
review the project's development budget and not its operating pro forma 
in determining its need for AHP subsidy. However, long-standing policy 
and practice has been that the Banks review both the project

[[Page 11355]]

development budget and the operating pro forma in determining the 
project's need for AHP subsidy.
    As a policy matter, it is important for the Banks to review a 
rental project's operating pro forma as well as its development budget. 
The Bank must review the project's development budget to confirm a 
funding gap between the sources and uses of funds. The Bank must review 
the project's operating pro forma to assess the reasonableness of cash 
flow. A debt coverage ratio or cash flow amount that exceeds the Bank's 
feasibility standards can indicate that the project does not need the 
full amount of AHP subsidy requested, especially in cases where the 
primary funder's requirements or special project circumstances do not 
explain or justify the excess.
    The following discussion clarifies how the Banks should evaluate 
under the proposed rule that a project's cash flow and costs are 
reasonable, and how the Banks should perform the need for subsidy 
analysis in cases where (1) capitalized reserves exceed a Bank's 
project cost guidelines; (2) supportive services are provided; and (3) 
the cash flow or debt coverage ratio exceeds a Bank's project cost 
guidelines.
    Capitalized Reserves in Projects' Development Budgets. Development 
budgets frequently include capitalized reserves, although AHP subsidy 
may not be used to fund such reserves under the Bank Act and AHP 
regulation. At reasonable levels, capitalized reserves are appropriate 
to ensure that projects remain viable throughout their AHP 15-year 
retention periods. Project development budgets must incorporate all 
capitalized costs, including reserves.
    When capitalized reserves exceed the project cost guidelines 
established by a Bank, the Bank must evaluate the reasonableness of 
these reserves. Such analysis includes assessing whether the 
capitalized reserves are required by the project's primary funders. 
However, the Bank has the discretion to determine that the reserves are 
not reasonable even if they are required or permitted by a project's 
primary funders.
    In very rare instances with non-LIHTC projects, a Bank may allow a 
project to exceed the Bank's project cost guidelines for capitalized 
reserves even when the primary funders do not require additional 
reserves. For LIHTC projects, the limited partnership agreement 
typically serves as the final determinant on the maximum allowable 
amount of capitalized reserves.
    Supportive Services Expenses in Operating Pro Formas. AHP subsidy 
may not fund supportive services expenses under the Bank Act and AHP 
regulation. As part of the project application review, FHFA expects the 
Banks to require a separate supportive services budget that captures 
income and expenses for all supportive services activities to ensure 
they can be reasonably offered. However, for projects where a 
government entity provides operating subsidies that fund both housing 
operating costs and supportive services and these operating subsidies 
cannot be readily bifurcated, the supportive services income and 
expenses should be captured in the project's operating pro forma.
    When a project expects to pay for supportive services expenses from 
cash flow, the supportive services budget should indicate project cash 
flow as the income source. A Bank must review the supportive services 
budget to determine whether there is adequate income to pay for the 
supportive services.
    Cash Flow and Its Impact on Need for AHP Subsidy. In instances 
where a project's operating pro forma reflects cash flow or a debt 
coverage ratio that exceeds the Bank's feasibility guidelines, the Bank 
must assess whether the excess cash flow could have reasonably been 
used for debt service on a larger loan and thereby could supplant part, 
or all, of the AHP subsidy. FHFA acknowledges that it is difficult for 
a completed affordable housing project to obtain an increase in its 
debt commitments. In such cases, the Bank should determine if the 
project continues to require the full amount of the AHP subsidy and 
recapture subsidy as appropriate. A project may exceed a Bank's 
feasibility guidelines for cash flow or debt coverage ratio when the 
underwriting guidelines of the primary funder of the project require 
higher thresholds and the Bank concurs that the requirements are 
reasonable or when reasonable written support from the project sponsor 
demonstrates that circumstances require additional cash flow or a 
higher debt coverage ratio to maintain the operational viability of the 
project.
    In summary, FHFA proposes to clarify in the regulation that the 
Banks must base the need for AHP subsidy determination for rental 
projects on both the project's development budget and its operating pro 
forma. This will help ensure that projects will not be over-subsidized 
through AHP funds.
    Sponsor-provided permanent financing to homeowners. The 
requirements in current Sec.  1291.5(c)(2)(ii) for sponsor-provided 
permanent financing would move unchanged to proposed Sec.  
1291.24(a)(3)(ii). The regulation provides that when a Bank determines 
the need for AHP subsidy in homeownership projects where the sponsor 
extends permanent financing to the homebuyer, the sponsor's cash 
contribution (which is included in the project's cash sources of funds) 
shall include the present value of any payments the sponsor is to 
receive from the buyer, including any cash down payment from the buyer, 
plus the present value of any purchase note the sponsor holds on the 
unit. If the note carries a market interest rate commensurate with the 
credit quality of the buyer, the present value of the note equals the 
face value of the note. If the note carries an interest rate below the 
market rate, the present value of the note shall be determined using 
the market rate to discount the cash flows.
    Some stakeholders requested that FHFA remove this provision, citing 
the complexity of the calculation. Others suggested that the sponsors 
should be treated like revolving loan funds under the regulation, as 
their financing model essentially operates as a revolving loan fund. As 
further discussed below under proposed Sec.  1291.29, FHFA is 
considering undertaking a separate rulemaking for revolving loan funds, 
which could include sponsor-provided permanent financing. FHFA 
specifically requests comments on whether the current AHP requirements 
for sponsor-provided permanent financing are reasonable, including 
whether the sponsors have a need for AHP subsidy in light of their 
particular financing model, and whether the current method in the 
regulation for determining their need for AHP subsidy understates or 
overstates the amount of AHP subsidy needed. FHFA also requests 
comments on whether sponsors using this financing model should be 
considered revolving loan funds and, if so, whether they should be 
subject to current or different AHP revolving loan fund requirements.
    Optional Bank district eligibility requirements--maximum subsidy 
limits. Proposed Sec.  1291.24(c) would retain the provision in current 
Sec.  1291.5(c)(15) allowing a Bank, in its discretion, to adopt a 
requirement that the amount of AHP subsidy requested for a project does 
not exceed limits established by the Bank as to the maximum amount of 
AHP subsidy available per member, per project, or per project unit in a 
single AHP funding period, with several proposed changes. Any such 
eligibility requirements adopted by a Bank would be required to be 
included in its AHP Implementation Plan.
    Maximum subsidy limit per member each year. The proposed rule would 
remove the reference to ``per member

[[Page 11356]]

each year'' as unnecessary because it can be factored into the subsidy 
limit per member in a single AHP funding period, especially as no Bank 
currently conducts more than one AHP funding period per year.
    Maximum subsidy limit per project sponsor. The proposed rule would 
revise the regulation to allow a Bank to adopt a maximum subsidy limit 
per project sponsor in a single AHP funding period. A Bank might choose 
to establish such a limit in order to provide opportunities for smaller 
or less experienced project sponsors to compete successfully for AHP 
subsidies. On the other hand, a project sponsor limit could prevent 
worthy projects developed by larger, more experienced sponsors from 
receiving AHP subsidy. FHFA specifically requests comments on the 
potential advantages and disadvantages of allowing the Banks to impose 
a maximum subsidy limit per project sponsor.
    Number of maximum subsidy limits per Fund. Consistent with agency 
guidance for the Competitive Application Program, the proposed rule 
would provide that a Bank may establish only one maximum AHP subsidy 
limit per member, per project, or per project unit for the General Fund 
and for each Targeted Fund, which shall apply to all applicants to the 
specific Fund. This would also apply to the proposed maximum subsidy 
limit per sponsor. The purpose of this requirement is to ensure 
consistency, clarity, and a level playing field for all applicants to a 
specific Fund, and reduce administrative burden for the Banks in trying 
to determine different subsidy limits for different regions or types of 
projects.
    The proposed rule would further provide that the maximum AHP 
subsidy limit per project or per project unit may differ for each Fund. 
This is intended to allow the Banks to create maximum subsidy limits 
for each Fund that address the specific characteristics of project 
applicants for that Fund. For instance, a Bank may want to establish a 
higher maximum subsidy limit per project for a Targeted Fund focused on 
certain geographies or development types in light of differences in 
housing development costs, such as high-cost areas or projects where 
most units contain three or more bedrooms to accommodate larger 
households.
    Applications to multiple Funds--subsidy amount. Proposed Sec.  
1291.24(d) would provide that if an AHP application for the same 
project is submitted to more than one Fund in the same AHP funding 
period, each application must be for the same amount of AHP subsidy. 
This would ensure that the project demonstrates the same need for 
subsidy in each application. If the project sponsor applied for a 
different amount of subsidy in each application, it would raise 
questions about whether the project would be over-subsidized if awarded 
the higher amount of subsidy.
Proposed Sec.  1291.25 Scoring Methodology
    Bank scoring methodology. The proposed rule would revise current 
Sec.  1291.5(d) by removing the required scoring framework specified in 
the regulation, with its mandatory scoring criteria, minimum scoring 
points allocations and related definitions, and requiring each Bank to 
devise its own scoring methodology. Each Bank's scoring methodology 
would be required to set forth competitive application scoring 
criteria, related definitions and point allocations under a 100-point 
scale for the Bank's General Fund and any Targeted Fund. The Bank would 
be required to score applications received for a particular Fund 
pursuant to the applicable scoring methodology for that Fund.
    The Bank's scoring methodology may be different for each Fund. The 
Bank's scoring criteria for each Fund must be justified in the Bank's 
Targeted Community Lending Plan and specified in its AHP Implementation 
Plan. The Bank would need to design its scoring criteria and point 
allocations to ensure that the Bank will meet the outcome requirements 
for the statutory and regulatory priorities under proposed Sec.  
1291.48, as further discussed below. Each scoring methodology may 
include scoring criteria addressing specific affordable housing needs 
in the Bank's district (Bank district priorities) that differ from the 
affordable housing needs specified under the statutory and regulatory 
priorities, as long as the outcome requirements specified in proposed 
Sec.  1291.48 are achieved.
    FHFA considered whether to allow the Banks complete discretion to 
determine how to allocate and award their AHP funds by removing the 
scoring criteria for the current Competitive Application Program and 
the current minimum and maximum AHP funding allocation requirements for 
that program and the Homeownership Set-Aside Program. While such 
discretion might enable the Banks to better target specific affordable 
housing needs in their districts, it is not included in the proposed 
rule for several reasons.
    First, it would allow a Bank to allocate and approve all of its AHP 
funds through noncompetitive processes. In contrast, the current 
regulation requires each Bank generally to award at least 65 percent of 
its total AHP funds through the Competitive Application Program,\19\ 
which helps ensure access to the limited pool of AHP funds available 
each year for a wide variety of applicants. Second, it would allow a 
Bank to allocate all of the AHP funds for only one purpose, such as 
homeownership or rental housing, which would be inconsistent with the 
statute which requires that both homeownership and rental housing be 
funded.\20\ Third, it would contravene the statutory requirement that 
FHFA establish priorities for the use of the AHP funds, as only the 
Banks would be establishing such priorities.\21\
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    \19\ As discussed previously, if a Bank with lower earnings 
allocates the alternative maximum amount of $4.5 million to its 
Homeownership Set-Aside Programs, it may allocate less than 65 
percent of its total AHP funds through its Competitive Application 
Program.
    \20\ 12 U.S.C. 1430(j).
    \21\ 12 U.S.C. 1430(j)(9)(B).
---------------------------------------------------------------------------

    In-district projects. The proposed rule would retain the option 
under the Bank First District Priority in current Sec.  
1291.5(d)(5)(vi)(L) for a Bank to adopt in its scoring methodology a 
scoring criterion for housing located in the Bank's district, but would 
provide at proposed Sec.  1291.25(c) that a Bank shall not use the 
scoring criterion as a way to exclude all out-of-district projects from 
its General Fund. This provision strengthens the statement in the 
preamble to the 2006 AHP final rule that a Bank should not use the 
scoring criterion in this way by explicitly prohibiting it in the 
regulation.
    Scoring tie-breaker policy. The proposed rule would require the 
Banks to establish scoring tie-breaker policies to address the 
possibility of two or more applications receiving identical scores in 
the same AHP funding period where there is insufficient AHP subsidy to 
approve all of the tied applications. The proposed requirements for the 
scoring tie-breaker policies are consistent with guidance FHFA has 
provided to the Banks.
Proposed Sec.  1291.26 Approval of AHP Applications
    Approvals generally. Consistent with the application approval 
requirements in the current regulation, the proposed rule would provide 
generally that a Bank's board of directors shall approve (i.e., award) 
applications for AHP subsidy under the General Fund and any Bank 
Targeted Funds that meet all of the applicable AHP eligibility 
requirements, in descending order

[[Page 11357]]

starting with the highest scoring application until the total funding 
amount for the particular AHP funding period, except for any amount 
insufficient to fund the next highest scoring application, has been 
approved.
    Alternates. As under the current Competitive Application Program, 
for the General Fund, the Bank's board of directors would be required 
to approve at least the next four highest scoring applications as 
alternates, but in a change from the current regulation, would be 
required to fund those alternates within one year of approval if any 
previously committed AHP subsidies become available. This is intended 
to ensure that Banks award AHP funds to alternates in the General Fund 
as opposed to selecting alternates but transferring AHP funds from the 
General Fund to the Bank's Homeownership Set-Aside Program or Targeted 
Funds instead. The Banks may need to consider selecting more than four 
alternates under their General Fund in order to be able to fully commit 
any uncommitted funds that transfer from their Targeted Funds to their 
General Fund. For any Bank Targeted Funds, the Bank may, in its 
discretion, approve alternates.
    As discussed above under the scoring tie-breaker policies in 
proposed Sec.  1291.25(d), and consistent with current FHFA guidance to 
the Banks, where there is insufficient AHP subsidy to approve all tied 
applications, the Bank must approve a tied application as an alternate 
if it does not prevail under the scoring tie-breaker methodology, or if 
it is tied with another application but requested more subsidy than the 
amount of AHP funds that remain to be awarded.
    Applications to multiple Funds--approval under one Fund. The 
proposed rule would provide that if an application for the same project 
is submitted to more than one Fund at a Bank in an AHP funding period 
and the application scores high enough to be approved under each Fund, 
the Bank shall approve the application under only one of the Funds, 
which the Bank shall select pursuant to the Bank's policy established 
in its AHP Implementation Plan. For example, a Bank's policy could 
provide that any project that is competitive in multiple Funds will be 
approved under the General Fund.
    Re-ranking of scored applications and alternates. To satisfy the 
outcome requirements for the statutory and regulatory priorities in 
proposed Sec.  1291.48, a Bank would be permitted to deviate from the 
normal descending ranking selection order only to the minimum extent 
necessary by re-ranking scored applications and alternates meeting the 
outcome requirements above the lowest scoring applications and 
alternates not meeting the outcome requirements. A Bank would be 
required to describe the possibility of re-ranking in its AHP 
Implementation Plan.
    FHFA specifically requests comments on possible approaches for re-
ranking applications to meet the outcome requirements while at the same 
time maximizing the extent to which the highest scoring applications 
are approved.
    No delegation. The proposed rule would provide that a Bank's board 
of directors may not delegate to a committee of the board the 
responsibility to approve or disapprove the AHP subsidy applications 
and alternates under the Bank's General Fund and any Targeted Funds, 
for the reasons discussed above.
Proposed Sec.  1291.27 Modifications of Approved AHP Applications
    The provisions for modifications of approved AHP applications would 
be moved from current Sec.  1291.5(f) to proposed Sec.  1291.27, and 
would include a number of clarifying and other changes.
    Approval of modifications. The proposed rule would provide that if 
the requirements for a modification (other than a request for AHP 
subsidy increase) are satisfied, the Bank must approve the modification 
request. This a change from the current regulation which allows for 
Bank discretion in approving a modification request. One of the 
requirements for approving a modification is that the project, as 
modified, must rescore successfully in its original AHP funding period. 
If a project rescores successfully and other modification requirements 
are satisfied, there should be no reason for the Bank to fail to 
approve the modification.
    Cure of noncompliance. The proposed rule would add a requirement 
that before a Bank may approve a modification request, it must have 
first requested that the project cure any AHP noncompliance, and 
subsequent to the request, the cure was unsuccessful within a 
reasonable period of time. This is consistent with the proposed new 
``waterfall'' provisions for remedying project noncompliance discussed 
in the Remedial Actions for Noncompliance section. The proposed 
waterfall provision would provide that in the event of project 
noncompliance, a project must first attempt to cure the noncompliance 
within reasonable period of time before the Bank may consider approving 
a project modification or recapturing AHP subsidy from the project.
    Rescoring of application. The current regulation includes a 
requirement that the application, as reflective of the changes 
requested, must continue to score high enough to have been approved in 
the funding period in which it was originally scored and approved by 
the Bank. Questions have arisen as to what it means to score high 
enough where a Bank also approved applications as alternates during the 
original funding period. The proposed rule would clarify that the 
application must continue to score as high as the lowest ranking 
alternate that was not just selected as an alternate but approved for 
funding by the Bank in the application's original funding period.
    Good cause. The current regulation also requires that there be good 
cause for a modification, with the Bank's analysis and justification 
for the modification documented in writing. The proposed rule would 
clarify that remediation of project noncompliance is not, in and of 
itself, good cause for a modification. There must be some other 
reasonable justification for the modification, such as a change in 
market conditions, or loss of a major employer in the community, that 
makes it difficult to find households at the incomes committed to in 
the project's AHP application to occupy the targeted units in the 
project. Otherwise, there would be less of an incentive to cure 
noncompliance if project sponsors knew they could simply request a 
modification of the project terms to no longer be in noncompliance.
    The proposed rule would also make technical changes to the language 
to clarify any ambiguity about the requirement that requests for 
subsidy increase modifications must also meet the requirements for 
approval in paragraph (a) of this section.
Proposed Sec.  1291.28 Procedures for Funding
    The procedures for AHP funding would carry over from existing Sec.  
1291.5(g) to proposed Sec.  1291.28 with two proposed changes.
    Notification under subsidy re-use programs. Current Sec.  
1291.5(g)(6) requiring project sponsor notification to the Bank and 
member of the reuse of repaid AHP direct subsidy where the Bank has 
authorized a subsidy re-use program under Sec.  1291.8(f)(2) would be 
removed. Subsidy re-use programs would no longer be operable if subsidy 
repayment obligations are removed in conjunction with discontinuation 
of the owner-occupied retention agreements.

[[Page 11358]]

    Bank board duties and delegation. Current Sec.  1291.5(h) 
addressing Bank board duties and delegations would be removed as the 
duties and delegations would be addressed elsewhere in the proposed 
rule.
Proposed Sec.  1291.29 Lending and Re-Lending of AHP Direct Subsidy by 
Revolving Loan Funds
    Current Sec.  1291.5(c)(13) addressing the requirements for lending 
and re-lending of AHP direct subsidies by revolving loan funds would 
move to proposed Sec.  1291.29, with proposed changes related to the 
proposed elimination of the owner-occupied retention agreement 
requirement and other issues discussed below.
    The authority for the Banks to provide AHP direct subsidies to 
revolving loan funds for purposes of lending and re-lending was added 
in the AHP regulation in 2006. The revolving loan fund provisions were 
designed for distinct projects in specific locations, or for pipelines 
of expected projects meeting specific criteria that the revolving loan 
fund anticipates funding and that would be specified in its AHP 
application. Under the regulation, the revolving loan fund may be 
scored on the specific criteria it establishes in its AHP application 
for its pipeline of projects, without having to actually identify 
specific projects in the AHP application.
    These types of revolving loan funds that were expected to be able 
to participate in the AHP either no longer exist or have evolved into 
different financing models. Current revolving loan funds are financing 
programs that utilize interest and principal payments on current loans 
to make new loans. The sources and uses of revolving loan funds are 
typically hypothetical in nature, based on future lending expectations, 
and the prospective households requiring assistance are yet to be 
determined. Revolving loan funds have faced challenges meeting certain 
AHP eligibility requirements, such as the subsidy repayment requirement 
under the five-year owner-occupied retention agreement, and receiving 
sufficient numbers of points under certain scoring criteria to receive 
an AHP award for purposes of lending and re-lending the grant. 
Revolving loan funds have received AHP grants for use as a one-time 
pass-through to identified projects, not for lending and re-lending of 
the subsidy to such projects or anticipated future projects.
    To address these challenges, FHFA is considering undertaking a 
separate rulemaking on the current AHP revolving loan funds provisions. 
FHFA requests comments on the current AHP revolving loan fund 
provisions and how the financing mechanisms of revolving loan funds 
could be used successfully with AHP subsidies. FHFA specifically 
requests comments on why certain AHP scoring criteria have been 
difficult to meet, how the AHP retention periods could be satisfied, 
how AHP subsidy would be repaid in the event of project noncompliance, 
and how the revolving loan fund can demonstrate a need for the AHP 
subsidy. FHFA also requests comments on whether and how the proposed 
outcome requirements for the statutory and regulatory priorities 
discussed under proposed Sec.  1291.48 might facilitate use of AHP 
subsidies by revolving loan funds.
    The proposed rule would eliminate the requirement for retention 
agreements for all owner-occupied units, including those funded by 
revolving loan funds. FHFA specifically requests comments on the 
potential positive or negative impacts of eliminating the owner-
occupied retention agreement requirement for revolving loan funds.
Proposed Sec.  1291.30 Use of AHP Subsidy in Loan Pools
    Current Sec.  1291.5(c)(14) addressing the requirements for use of 
AHP subsidies in loan pools would move to proposed Sec.  1291.30, with 
the proposed change to remove the requirement for owner-occupied 
retention agreements in current paragraph Sec.  1291.5(c)(14)(iii).
    The authority for the Banks to provide AHP subsidy to loan pools 
was added in the AHP regulation in 2006. The regulation establishes 
specific conditions under which a Bank may provide AHP subsidies under 
its Competitive Application Program for the origination of first 
mortgage loans or rehabilitation loans with subsidized interest rates 
to AHP-eligible households through a purchase commitment by an entity 
that will purchase and pool the loans.
    FHFA is not aware that any loan pools meeting these conditions have 
applied for AHP subsidy since the regulatory authority was added in 
2006. FHFA is also unaware of any loan pools of this type currently 
existing in the housing market. Therefore, FHFA is considering removing 
the loan pool provisions from the regulation. FHFA specifically 
requests comments on whether there are loan pools currently operating 
in the market that meet the conditions in the regulation, how the loan 
pools are addressing current housing market needs, and the potential 
positive or negative impacts of eliminating the owner-occupied 
retention agreement requirement for loan pools.

Subpart D--Homeownership Set-Aside Programs

Proposed Sec.  1291.40 Establishment of Programs
    The current provision addressing Bank establishment of 
Homeownership Set-Aside Programs would move from Sec.  1291.6(a) to 
proposed Sec.  1291.40. The proposed rule would emphasize that these 
programs are optional by adding that a Bank may establish such programs 
``in its discretion.'' The proposed rule would also include a 
requirement that a Bank's justifications for establishing such programs 
be included in its Targeted Community Lending Plan, as provided in 
proposed Sec.  1291.13(a).
Proposed Sec.  1291.41 Eligible Applicants
    The proposed rule would move the current provision on applications 
from members unchanged from Sec.  1291.6(b) to proposed Sec.  1291.41.
Proposed Sec.  1291.42 Eligibility Requirements
    The provisions in current Sec.  1291.6(c) on eligibility 
requirements would move to proposed Sec.  1291.42, with several 
proposed changes discussed below.
    Adoption of additional eligibility requirements. FHFA has provided 
informal guidance to Banks about the extent to which the Banks may 
adopt eligibility requirements under their Homeownership Set-Aside 
Programs beyond those set forth in this section. Consistent with the 
guidance, the proposed rule would clarify that the Banks may not adopt 
additional eligibility requirements under their Homeownership Set-Aside 
Programs except those related to household eligibility, pursuant to 
proposed Sec.  1291.42(b)(3).
    One-third allocation requirement--first-time homebuyers and owner-
occupied rehabilitation. As discussed in the funding allocation section 
under proposed Sec.  1291.12(b) above, the current regulation requires 
that at least one-third of a Bank's annual Homeownership Set-Aside 
Program funding allocation be for first-time homebuyers. The proposed 
rule would authorize the Banks to include first-time homebuyers and 
households receiving set-aside funds for owner-occupied rehabilitation 
in the one-third allocation. Conforming language for households 
receiving set-aside funds for owner-occupied rehabilitation would be 
added in this section of the proposed rule.

[[Page 11359]]

    Maximum grant amount. Current Sec.  1291.6(c)(3) states that 
members may provide set-aside grants to households in an amount up to a 
maximum of $15,000 per household, as established by the Bank in its AHP 
Implementation Plan, which limit shall apply to all households. The 
proposed rule would authorize the Banks to provide up to $22,000 per 
household, subject to automatic annual upward adjustment in accordance 
with FHFA's Housing Price Index (HPI).
    The purpose of the proposed increase in the subsidy limit is to 
respond to increases in the costs associated with buying or 
rehabilitating homes in high cost areas, as well as the high costs of 
certain types of rehabilitation generally. It would also bring the 
subsidy limit in line with changes in the HPI since 2002, when the 
$15,000 subsidy limit was established in the regulation. For example, 
the HPI shows that $15,000 in January 2002 has approximately the same 
buying power as $21,500 today.\22\ The proposed rule would also clarify 
that a Bank may establish a different maximum subsidy per household 
limit for each Homeownership Set-Aside Program it establishes.
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    \22\ See FHFA HPI, https://www.fhfa.gov/DataTools/Downloads/pages/house-price-index.aspx.
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    Many of the Banks have set their subsidy limits below $15,000, with 
a number of Banks at $5,000. In 2016, the average set-aside grant per 
household was $6,311. Several stakeholders recommended that FHFA 
increase the subsidy limit due to increases in the costs associated 
with buying or rehabilitating homes in high cost areas, which in some 
areas are substantially higher than the rest of the country. Banks 
located in high cost areas are more likely to take advantage of a 
higher subsidy limit because of the higher costs in their districts.
    Increasing the subsidy limit could also have a significant impact 
on housing rehabilitation in all districts. The demand for 
rehabilitation is likely to increase as the country's population 
ages.\23\ Expenses for certain types of rehabilitation, such as 
replacing a roof, windows, doors, or HVAC system, or installing a 
wheelchair ramp, often exceed $15,000. The older a home, the more 
likely it needs repairs and systems replaced. According to the U.S. 
Census Bureau, 18.7 percent of all housing units in the United States 
were built before 1950 and are, therefore, more likely to require 
rehabilitation.\24\ A higher subsidy limit would increase the Banks' 
ability to address high costs associated with buying and rehabilitating 
homes. While lower subsidy limits help ensure that more households have 
access to set-aside subsidies, the households may need to find 
additional sources of funds to help them pay for the full costs 
associated with buying or rehabilitating a home.
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    \23\ Housing America's Older Adults, Harvard Joint Center for 
Housing Studies, September 2, 2014. https://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/jchs-housing_americas_older_adults_2014-ch4.pdf.
    \24\ See U.S. Census Bureau, 2015 American Community Survey, 
https://www.census.gov/programs-surveys/ahs/.
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    Bank adoption of the proposed higher subsidy limit could result in 
fewer households receiving set-aside subsidies, but Banks could choose 
to offset this by increasing the maximum amount of AHP funds they 
allocate to their set-aside programs from 35 to 40 percent, as would be 
permitted under the proposed rule. In addition, most Banks have 
established subsidy limits below the current $15,000 limit. Thus, FHFA 
believes that an increase in the subsidy limit to $22,000 is not likely 
to result in a significant overall reduction in the number of 
households assisted by the Banks under their set-aside programs.
    The proposed rule would provide that the $22,000 subsidy limit 
would be subject to an automatic annual upward adjustment only, in 
accordance with the HPI. As noted above, the current $15,000 subsidy 
limit was established in the regulation in 2002. The regulation does 
not provide for an automatic HPI adjustment. Increasing the subsidy 
limit to $22,000 would reflect increases in the HPI since that time. 
Rather than periodically revise the subsidy limit by regulation to 
account for future housing price increases, the proposed rule would 
provide for automatic HPI upward adjustments to the subsidy limit. The 
subsidy limit would adjust upward, but not downward, in response to 
changes in the HPI. In the event of a decrease in the HPI, the subsidy 
limit would remain at its then-current level until the HPI increased 
above the subsidy limit, at which point the subsidy limit would adjust 
to that higher level. FHFA would notify the Banks annually of the 
maximum subsidy amount based on the HPI.
    FHFA specifically requests comments on any potential positive and 
negative impacts of increasing the subsidy limit from $15,000 to 
$22,000, including whether the subsidy limit should be higher or lower. 
FHFA also requests comments on use of the HPI to automatically adjust 
the subsidy limit upward over time, and whether other housing price 
adjustment indices would be preferable and why.
Proposed Sec.  1291.43 Approval of AHP Applications
    Current Sec.  1291.6(d) would move unchanged to proposed Sec.  
1291.43. It provides that a Bank shall approve applications for AHP 
direct subsidy under its Homeownership Set-Aside Program in accordance 
with the Bank's criteria governing the allocation of funds.
Proposed Sec.  1291.44 Procedures for Funding
    Current Sec.  1291.6(e) on the procedures for funding would move 
unchanged to proposed Sec.  1291.44.

Subpart E--Outcome Requirements for Statutory and Regulatory Priorities

Proposed Sec.  1291.48 Outcome Requirements for Statutory and 
Regulatory Priorities
    The current regulation's point-based project selection system 
serves as a means of ensuring that project awards reflect housing 
priorities established by the Bank Act.\25\ The regulation achieves 
prioritization of these statutory priorities by requiring each Bank, in 
developing its 100-point scoring system, to allocate at least 5 points 
each to two statutory priorities--a combined 10 points minimum.\26\ The 
Bank Act also requires that FHFA establish priorities for the use of 
the AHP funds.\27\ To implement this requirement, the current 
regulation includes five regulatory priorities addressing specific 
housing needs, with each such scoring criterion required to receive a 
minimum of 5 points, except for one scoring criterion receiving a 
minimum of 20 points--a combined 40 points minimum. The remaining 
maximum of 50 points are allocated by the Banks to priority housing 
needs in the Banks' district that are selected by the Banks.
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    \25\ 12 U.S.C. 1430(j)(3).
    \26\ 12 CFR 1291.5(d)(5)(i), (ii).
    \27\ 12 U.S.C. 1430(j)(9)(B).
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    There are a number of benefits associated with the current scoring 
system. It establishes a degree of uniformity among various scoring 
criteria that all of the Banks must include, thereby prioritizing 
certain pressing affordable housing needs existing throughout the 
country, and facilitating project sponsors' applications for AHP 
subsidy at multiple Banks. In addition, it provides flexibility for the 
Banks in how they allocate the points beyond the required minimums to 
target specific housing needs in their districts, the ability to

[[Page 11360]]

choose which types of populations to target within certain scoring 
criteria, and the ability to include other district housing needs 
selected by the Banks, which may be allocated up to half of all points.
    After considering input from Bank CIOs and stakeholders, FHFA 
believes that the Banks may be able to more effectively target specific 
housing needs in their districts through a more flexible scoring 
system. FHFA considered how to incorporate in the regulation greater 
flexibility for the Banks to design their own scoring systems, while at 
the same time to ensure that FHFA is establishing priorities for the 
use of the AHP funds as required by the statute. FHFA believes that the 
proposed rule would achieve an appropriate balance between these two 
objectives by authorizing the Banks to design their own scoring 
systems, subject to each Bank's AHP awards under its scoring system 
meeting specific outcome requirements established by FHFA in the 
regulation. The Banks would be required to demonstrate satisfaction of 
the outcome requirements each year. FHFA notes that comparable housing 
programs (e.g., HUD's HOME Investment Partnerships Program and Housing 
Opportunities for Persons with HIV/AIDS) are administered pursuant to 
outcome-based evaluation criteria. The proposed AHP outcome 
requirements are further discussed below.
Statutory Priorities for Government Properties and Project Sponsorship
    Proposed Sec.  1291.48(a) would require that, each year, each Bank 
must award at least 55 percent of the total AHP funds allocated to its 
General Fund and any Bank Targeted Funds to projects that meet the 
priority for the use of donated or conveyed government-owned or other 
properties (``government properties priority''), or the priority for 
projects sponsored by a not-for-profit organization or government 
entity (``project sponsorship priority''). These priorities, which 
correspond to those established by the Bank Act,\28\ would be retained 
unchanged from current Sec.  1291.5(d)(5)(i), (ii). While certain 
projects may meet both of these priorities, any awards counted towards 
meeting one of the priorities could not also be counted towards meeting 
the other priority, in order not to distort the calculation of the 55 
percent.
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    \28\ 12 U.S.C. 1430(j)(3)(B), (C).
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    Under the proposed standard, a Bank could satisfy the outcome 
requirement if it awarded 55 percent or more of total funds to projects 
meeting one of the priorities, and none to the other priority. FHFA 
considered requiring a Bank to award a specified minimum percentage of 
total funds to each priority. However, in the Program's experience, a 
relatively limited number of projects satisfy the government properties 
priority. During the period 2012 through 2016, for example, only 2.5 
percent of total AHP funds were awarded to projects that used 
properties meeting the government properties priority. Most AHP 
projects currently meet the project sponsorship priority. Accordingly, 
FHFA expects that the overwhelming majority of projects that would 
satisfy the proposed outcome requirement would do so by meeting the 
project sponsorship priority.
    FHFA also considered requiring a Bank to award at least 55 percent 
of its required annual AHP contribution (which includes the funds 
allocated not only to its General Fund and any Bank Targeted Funds but 
also to any Bank Homeownership Set-Aside Programs) to these two 
statutory priorities. FHFA anticipates that most Banks will take 
advantage of the opportunity to expand their allocations of AHP funds 
to their Homeownership Set-Aside Programs if the proposed increase in 
the annual set-aside allocation from 35 to 40 percent is adopted in the 
final rule. However, grant recipients under the Homeownership Set-Aside 
Program are households, not project sponsors, and therefore cannot meet 
the project sponsorship priority. In addition, the households generally 
do not purchase government properties. Thus, funds awarded under 
Homeownership Set-Aside Programs generally could not be counted towards 
meeting these statutory priorities. To enable the Banks to take full 
advantage of the proposed higher set-aside allocation, the proposed 
rule would limit this proposed outcome requirement to 55 percent of 
total funds allocated to the General Fund and any Bank Targeted Funds.
Statutory Priority for Purchase of Homes by Low- or Moderate-Income 
Households
    Proposed Sec.  1291.48(b) would require that, each year, each Bank 
must award at least 10 percent of its annual required AHP contribution 
to low- or moderate-income households, or to projects targeting such 
households, for the purchase by such households of homes under any or 
some combination of the Bank's General Fund, any Bank Targeted Funds, 
and any Bank Homeownership Set-Aside Programs. This is consistent with 
the priority in the Bank Act for the purchase of homes by low- or 
moderate-income families (``home purchase priority'').\29\
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    \29\ 12 U.S.C. 1430(j)(3)(A).
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    Based on the Banks' widespread use of Homeownership Set-Aside 
Programs since their authorization, the home purchase priority has been 
consistently prioritized by the Banks, and FHFA expects this to 
continue given the continuing and significant demand by households for 
set-aside funds for home purchases. However, because the establishment 
of Homeownership Set-Aside Programs is optional for the Banks, and 
under the proposed regulatory priorities outcome requirements discussed 
below, a Bank would have discretion not to choose home purchase as a 
housing need in its scoring system, the proposed rule would require 
that at least 10 percent of a Bank's annual required AHP contribution 
be awarded to home purchases by low- or moderate-income households.
    FHFA specifically requests comments on whether 10 percent of a 
Bank's annual required AHP contribution constitutes sufficient 
prioritization for the home purchase priority or whether the percentage 
should be higher or lower.
Regulatory Priority for Very Low-Income Targeting for Rental Units
    The proposed rule would establish an outcome requirement for a 
regulatory priority for very low-income targeting for rental units. 
Proposed Sec.  1291.48(c) would provide that, each year, each Bank must 
ensure that at least 55 percent of all rental units in rental projects 
receiving AHP awards under the Bank's General Fund and any Bank 
Targeted Funds are targeted to very low-income households (households 
with incomes at or below 50 percent of AMI). Targeting for very low-
income renters is prioritized in the current regulation through the 
income-targeting scoring criterion.\30\ The proposed rule would 
maintain a priority for such households through this proposed income-
targeting outcome approach.
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    \30\ 12 CFR 1291.5(d)(5)(iii).
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    FHFA specifically requests comments on the utility of this proposed 
outcome approach, including whether the proposed 55 percent threshold, 
applicability solely to rental units, and income-targeting at 50 
percent of AMI are appropriate.

[[Page 11361]]

Regulatory Priorities for Underserved Communities and Populations; 
Creating Economic Opportunities; and Affordable Housing Preservation
    Proposed Sec.  1291.48(d) would establish outcome requirements for 
three regulatory priorities for housing needs that FHFA considers 
current and pressing throughout the country. These regulatory 
priorities are underserved communities and populations; creating 
economic opportunities; and affordable housing preservation. The 
proposed outcome requirements for these regulatory priorities would 
satisfy the statutory requirement that FHFA establish priorities for 
the use of the AHP funds. Each regulatory priority would comprise a 
number of specified housing needs identified by FHFA, some of which are 
in the current regulation. FHFA could also identify other specific 
housing needs under the regulatory priorities by separate guidance, as 
new housing needs arise.
    The proposed rule would provide that, every year, each Bank shall 
ensure that at least 55 percent of the Bank's required annual AHP 
contribution is awarded under the Bank's General Fund and any Bank 
Targeted Funds to projects that, in the aggregate, meet at least two of 
the three regulatory priorities by meeting one or more of the specified 
housing needs included under the regulatory priority, and awarding at 
least 10 percent of the funds to projects meeting each of such 
regulatory priorities. If an awarded project meets more than one of the 
regulatory priorities, it may be counted towards meeting only one of 
them. If an awarded project meets more than one specified housing need 
under a regulatory priority, it may be counted towards meeting only one 
of those housing needs. In addition, an award to a project may not be 
counted towards meeting a regulatory priority unless the specified 
housing need that it meets is identified in the Bank's Targeted 
Community Lending Plan as an affordable housing need the Bank indicated 
it would address through its AHP scoring criteria.
    The specified housing needs proposed under each regulatory priority 
are described below.
1. Underserved Communities and Populations
Housing for Homeless Households
    The current regulation includes housing for homeless households as 
a mandatory scoring criterion. The proposed rule would retain this 
housing need under this proposed regulatory priority, but increase the 
minimum threshold for the number of units reserved for homeless 
households from 20 to 50 percent to encourage projects dedicated to 
serving the needs of homeless households. FHFA specifically requests 
comments on whether this proposed increase is appropriate.
Housing for Special Needs Populations
    The current regulation includes housing for special needs 
populations as one of the eligible housing needs under the Bank First 
District Priority. The proposed rule would retain this housing need 
under this proposed regulatory priority, with the following changes. 
The proposed rule would include only projects that provide supportive 
services or access to supportive services for the specific special 
needs populations being served.
    These populations have special needs associated with their 
particular life circumstances that could be addressed by targeted 
supportive services. Research by the Corporation for Supportive Housing 
estimates that 1.1 million homes are required for people with special 
needs, not including the need for units for households experiencing 
homelessness.\31\ The proposed rule also would increase the minimum 
threshold for the number of units reserved for households with a 
specific special need from 20 to 50 percent to encourage projects 
dedicated to serving these populations. FHFA specifically requests 
comments on whether this proposed increase is appropriate.
---------------------------------------------------------------------------

    \31\ https://www.csh.org/wp-content/uploads/2016/10/Total-10-12-16.pdf.
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    The proposed rule would continue to include the elderly, persons 
recovering from physical abuse or alcohol or drug abuse, persons with 
AIDS, persons with disabilities, and housing that is visitable by 
persons with physical disabilities who are not occupants of such 
housing as special need populations. The proposed rule would expand the 
list of special needs populations to include formerly incarcerated 
persons; victims of domestic violence, dating violence, sexual assault 
or stalking; and unaccompanied youth. These populations could 
particularly benefit from housing with supportive services targeted to 
address their specific needs.
    In addition, the proposed rule would update the reference to 
``persons with AIDS'' to ``persons with HIV/AIDS'' to more closely 
align it with common nomenclature and in recognition of the fact that 
persons with HIV experience comparable housing needs to persons with 
AIDS. The term ``mentally or physically disabled persons'' in the 
current regulation would similarly be updated to ``persons with 
disabilities,'' to reflect more commonly acceptable terminology.
Housing for Other Targeted Populations
    The proposed rule would also include housing for other targeted 
populations under this proposed regulatory priority. In contrast to 
housing for special needs populations, this housing need would include 
housing that does not necessarily provide supportive services or access 
to supportive services, as there are specific populations in need of 
housing who may not require such services. The proposed rule would 
include as other targeted populations--agricultural workers, military 
veterans, persons with disabilities, Native Americans, multi-
generational households, and households requiring large units. The 
proposed rule would set the minimum threshold for the number of units 
reserved for such targeted populations at 50 percent to encourage 
projects dedicated to serving the needs of these populations. FHFA 
specifically requests comments on whether the proposed minimum 50 
percent threshold is appropriate.
    The inclusion of agricultural workers and Native Americans would 
align with other FHFA goals and programs, specifically, FHFA's Duty to 
Serve regulation that applies to Fannie Mae and Freddie Mac, under 
which agricultural workers and Native Americans are identified as high-
needs rural populations.\32\ Agricultural workers face significant 
housing challenges due in large part to their low income levels.\33\ 
Migrant and seasonal agricultural workers often have difficulty finding 
adequate housing and are likely to live in over-crowded conditions.\34\ 
Native Americans also have significant housing needs. According to the 
U.S. Interagency Council on the Homeless, nearly one in

[[Page 11362]]

five people residing on tribal lands live in overcrowded conditions. 
Native Americans also disproportionally live in shelters relative to 
their population size.\35\
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    \32\ See generally, 12 CFR part 1282.
    \33\ Sixteen percent of workers earned less than $10,000 from 
agricultural employment during the previous calendar year, 33 
percent had earnings of $10,000 to $19,999, 22 percent earned 20,000 
to 29,999, and eight percent earned $30,000 or more. Sixteen percent 
of respondents reported no income from agricultural employment the 
previous year. See https://www.doleta.gov/naws/pages/research/docs/NAWS_Research_Report_12.pdf.
    \34\ Crowding is often an issue within agricultural worker 
housing, as an estimated 31 percent of non-dormitory/barrack-style 
farmworker housing units are crowded--meaning there is more than one 
occupant per room, excluding bathrooms. This estimate is over six 
times the national rate of crowded housing units. Agricultural 
workers and their families are also more likely to encounter 
pesticide-related environmental hazards when compared to other 
populations. https://www.ruralhome.org/storage/documents/farmworkers.pdf.
    \35\ https://www.usich.gov/resources/uploads/asset_library/Expert_Panel_on_Homelessness_among_American_Indians%2C_Alaska_Natives%2C_and_Native_Hawaiians.pdf.
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    Persons with disabilities would be included as other targeted 
populations in recognition of the benefits that features such as 
wheelchair-accessibility and enhancements for people with visual or 
hearing impairments can provide so that persons with disabilities can 
live independently.
    Military veterans would be included as other targeted populations 
due to their significant housing needs. The Veterans Administration's 
January 2017 Point in Time counted over 40,000 veterans who were 
experiencing homelessness on a single night in January 2017. Further, 
there has been a 1.5 percent increase in the estimated number of 
homeless veterans nationwide since 2016.\36\
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    \36\ https://www.va.gov/HOMELESS/pit_count.asp.
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    Households requiring large units would be included as other 
targeted populations in light of the scarcity of affordable 3-, 4- and 
5-bedroom unit apartments required to adequately house large 
households, for example, families with more than three children or with 
several related adult members.
    Finally, multi-generational households would be included as other 
targeted populations because of their special housing needs. For 
example, grandparents raising grandchildren may benefit from housing 
that includes features of elderly projects (such as handrails in 
bathrooms and hallways) as well as features of family housing (such as 
outdoor play spaces).
Housing in Rural Areas
    The current regulation includes housing in rural areas as one of 
the eligible housing needs under the Bank First District Priority, and 
the Banks have discretion to define ``rural area.'' The proposed rule 
would retain this housing need under this regulatory priority, but 
would define ``rural area'' according to the definition in FHFA's Duty 
to Serve regulation in order to align with other FHFA goals and 
programs.\37\ Rural populations generally experience significant and 
particularized housing needs. According to data in the Housing 
Assistance Council's Rural Data Portal, the poverty rate for 
individuals in rural areas is 17.7 percent, compared to 15.4 percent 
for individuals in the United States as a whole.\38\ The Harvard Joint 
Center for Housing Studies' report, America's Rental Housing 2017, 
notes that despite the fact that housing costs tend to be lower in 
rural areas, 40 percent of rural renters across the country are cost 
burdened.\39\
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    \37\ 12 CFR 1282.1.
    \38\ https://www.ruraldataportal.org/search.aspx.
    \39\ https://www.jchs.harvard.edu/americas-rental-housing.
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Rental Housing for Extremely Low-Income Households
    The proposed rule would include rental projects in which at least 
20 percent of the units are reserved for extremely low-income 
households under this proposed regulatory priority. A definition of 
``extremely low-income household'' would be added in Sec.  1291.1 to 
mean a household with an income at or below 30 percent of AMI. 
According to HUD's 2017 Worst Case Housing Needs Report to Congress, 
households at the extremely low-income level have severe challenges in 
obtaining affordable housing. The report notes that only 38 of every 
100 affordable units are available for extremely low-income renters, 
and that the vacancy rate for units affordable to renters with 
extremely low incomes was less than 4 percent.\40\
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    \40\ See https://www.huduser.gov/portal/sites/default/files/pdf/Worst-Case-Housing-Needs.pdf.
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    This housing need would be measured in dollars awarded to AHP 
projects in which at least 20 percent of the units are reserved for 
extremely low-income households to conform to the other housing needs 
under this proposed regulatory priority, which are also measured in 
dollars. In contrast, the regulatory priority in proposed Sec.  
1291.48(c) for very low-income targeting for rental units, described 
above, would be measured in the number of rental units reserved for 
very low-income households. FHFA specifically requests comments on 
whether the proposed 20 percent minimum threshold for units reserved 
for extremely low-income households is appropriate.
2. Creating Economic Opportunity
Promotion of Empowerment
    The current regulation includes promotion of empowerment as a 
mandatory scoring criterion. The proposed rule would retain this 
housing need under this proposed regulatory priority, with the 
following changes. The proposed rule would add to the list of 
empowerment services--child care; adult daycare services; afterschool 
care; tutoring; health services; and workforce preparation and 
integration.
    The current regulation includes daycare as an eligible empowerment 
service. The proposed rule would replace daycare with child care, which 
encompasses daycare but is broader in that it includes programs offered 
not only during the day but outside of work hours and during summers, 
and programs that target older children. Residents of AHP projects may 
benefit from having such programs for their children depending on their 
work schedules and other commitments, thereby enabling them to work and 
improve their economic situations. Where child care programs are 
education-based, they may enhance the future economic opportunities of 
the children residing in AHP projects.
    The proposed rule would add adult daycare services as an eligible 
empowerment service. These services can assist residents in AHP 
projects who may be caring for parents, or adult children with 
disabilities, who require supervised care so that the residents may 
work outside of the home.
    Afterschool care would be added as an eligible empowerment service 
in recognition of the benefits of supervised afterschool programs for 
children and teens residing in AHP projects. For example, these 
programs may increase younger residents' future economic opportunities 
by assisting with schoolwork, encourage interest in the arts or 
community service, or teach job skills. Further, adult residents may 
benefit from the knowledge that their children are supervised in the 
hours before they return from work.
    Tutoring would be included as an eligible empowerment service in 
light of the benefits that supplemental academic assistance may provide 
to children and teens for educational attainment. Tutoring may also be 
beneficial to adult residents who require tutoring in basic remedial 
education or English for limited-English-proficiency residents, for 
example, in order to obtain or retain work.
    Health services would be added as an eligible empowerment service 
based on the research demonstrating the benefits of integrating health 
services into affordable housing, thereby enabling residents to stay 
healthy and continue to work. For example, early findings from a three-
year research study by the Center for Outcomes Research and Education 
and Providence Health and Services in 145 affordable housing projects 
in Oregon found that integration of health care services (including 
access to healthy food, health care, nutrition counseling, and mental 
and behavioral health services) led to a

[[Page 11363]]

12 percent decrease in health costs per resident per month.\41\
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    \41\ See https://www.nhchc.org/wp-content/uploads/2016/06/linking-health-and-housing-improving-resident-health-and-reducing-health-care-costs-through-affordable-housing-saul.pdf.
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    Finally, workforce preparation and integration services would be 
included as eligible empowerment services because of the benefit that 
these programs may yield to residents to obtain and retain work. 
Workforce integration services may help residents with disabilities 
obtain and retain jobs. Workforce preparation may assist residents with 
no previous work experience in obtaining skills helpful to securing a 
job, such as interviewing techniques or other communication techniques, 
and skills necessary to retain work, such as conflict resolution 
strategies.
Residential Economic Diversity
    The current regulation includes economic diversity as one of the 
eligible housing needs under the Bank First District Priority. The 
proposed rule would retain this housing need as empowerment, but would 
refer to it as ``residential economic diversity'' to align with the 
usage in FHFA's Duty to Serve regulation and would define it in 
accordance with the Duty to Serve definition and FHFA's Duty to Serve 
Evaluation Guidance.
3. Affordable Housing Preservation
Affordable Rental Housing Preservation
    The current regulation does not include any scoring criteria 
specifically for affordable rental housing preservation, but some Banks 
have included this housing need under their Bank Second District 
Priority. The proposed rule would include this housing need under the 
this proposed regulatory priority, and would include the specific 
affordable rental housing preservation programs and housing needs 
identified in FHFA's Duty to Serve regulation in order to align with 
related FHFA goals and programs. These are:
    (a) Rental housing with energy or water efficiency improvements;
    (b) Section 8. The project-based and tenant-based rental assistance 
housing programs under section 8 of the U.S. Housing Act of 1937; \42\
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    \42\ 42 U.S.C. 1437f.
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    (c) Section 236. The rental and cooperative housing program for 
lower income families under section 236 of the National Housing Act; 
\43\
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    \43\ 12 U.S.C. 1715z-1.
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    (d) Section 221(d)(4). The housing program for moderate-income and 
displaced families under section 221(d)(4) of the National Housing Act; 
\44\
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    \44\ 12 U.S.C. 1715l.
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    (e) Section 202. The supportive housing program for the elderly 
under section 202 of the Housing Act of 1959; \45\
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    \45\ 12 U.S.C. 1701q.
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    (f) Section 811. The supportive housing program for persons with 
disabilities under section 811 of the Cranston-Gonzalez National 
Affordable Housing Act; \46\
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    \46\ 42 U.S.C. 8013.
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    (g) McKinney-Vento Homeless Assistance. Permanent supportive 
housing projects subsidized under Title IV of the McKinney-Vento 
Homeless Assistance Act; \47\
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    \47\ 42 U.S.C. 11361, et seq.
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    (h) Section 515. The rural rental housing program under section 515 
of the Housing Act of 1949; \48\
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    \48\ 42 U.S.C. 1485.
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    (i) Low-income housing tax credits. Low-income housing tax credits 
under section 42 of the Internal Revenue Code of 1986; \49\ and
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    \49\ 26 U.S.C. 42.
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    (j) Other comparable state or local affordable housing programs.
Affordable Homeownership Preservation
    The current regulation does not include scoring criteria 
specifically for affordable homeownership preservation, but some Banks 
have included this housing need, e.g., housing with energy efficiency 
features, under their Bank Second District Priority. The proposed rule 
would include this housing need under this proposed regulatory 
priority, and would specify certain affordable preservation programs 
that are included in FHFA's Duty to Serve regulation--shared equity 
homeownership programs and owner-occupied housing with energy or water 
efficiency improvements.
    FHFA specifically requests comments on whether the three proposed 
regulatory priorities--underserved communities and populations, 
creating economic opportunities, and affordable housing preservation--
constitute significant housing priorities that should be included in 
the regulation, or whether other housing priorities should be included. 
FHFA also requests comments on whether the specified housing needs 
identified under each regulatory priority, or other specific housing 
needs, should be included in the regulation.
Annual Report
    Proposed Sec.  1291.48(e) would require each Bank to submit an 
annual report to FHFA demonstrating the Bank's compliance with the 
outcome requirements.
Proposed Sec.  1291.49 Determination of Compliance With Outcome 
Requirements; Notice of Determination
    Under proposed Sec.  1291.49, the Director of FHFA would be 
required to determine annually each Bank's compliance with the outcome 
requirements for the statutory and regulatory priorities under proposed 
Sec.  1291.48. Proposed Sec.  1291.49 would establish procedures, 
including time periods, for the compliance determination process. These 
procedures would include issuance of a notice of preliminary 
determination, an opportunity for the Bank to respond, and issuance of 
a final determination and whether compliance was feasible, taking into 
consideration market and economic conditions and the financial 
condition of the Bank. These proposed procedures are generally 
analogous to those in the Enterprise Housing Goals regulation.\50\
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    \50\ 12 CFR 1282.21.
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Requests for Comments on Current Regulatory Scoring System
    As discussed above, in determining whether to revise the current 
AHP regulatory scoring system, FHFA considered how the current 
mandatory and discretionary scoring criteria address housing priorities 
established by FHFA and impact the Banks' ability to address specific 
housing needs in their districts. FHFA requests comments on whether the 
Banks have sufficient flexibility under the current scoring system to 
target specific housing needs in their districts, including awarding 
subsidy to address multiple housing needs in a single AHP funding 
period. If they do, FHFA requests comments on whether the current 
regulatory scoring system should be maintained without change, or 
whether any of the current mandatory scoring criteria and minimum 
required point allocations should be modified to reflect other specific 
housing needs. FHFA also requests comments on whether the Bank First 
and Second District Priorities should be combined and the list of 
housing needs in the Bank First District Priority eliminated. FHFA 
notes that the Banks do not currently allocate the full 45 points 
available to their Bank Second District Priority, and they include 
multiple housing needs under this Priority, resulting in no one housing 
need effectively receiving priority under the current scoring system.

[[Page 11364]]

Subpart F--Monitoring

Proposed Sec.  1291.50 Monitoring Under General Fund and Targeted Funds
    The Bank Act requires the AHP regulation to ensure that adequate 
long-term monitoring is available to guarantee that affordability 
standards and other AHP requirements are satisfied.\51\ The Bank Act 
also requires the AHP regulation to coordinate AHP activities with 
other Federal or federally-subsidized affordable housing activities to 
the maximum extent possible.\52\ The current regulation's requirements 
for long-term monitoring of AHP rental projects are based on those 
statutory provisions.
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    \51\ 12 U.S.C. 1430(j)(9)(C).
    \52\ 12 U.S.C. 1430(j)(9)(G).
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    Specifically, the current regulation requires the Banks to adopt 
written policies for monitoring projects and households awarded AHP 
subsidies under both the Competitive Application Program and 
Homeownership Set-Aside Programs.
    For initial monitoring under the Competitive Application Program, 
the regulation requires the Banks to monitor owner-occupied and rental 
projects prior to, and within a reasonable period after, project 
completion by:
     Reviewing documentation to determine whether AHP 
eligibility requirements have been satisfied, services and activities 
committed in the approved AHP application have been provided, and AHP 
retention agreements are in place; and
     Reviewing back-up project documentation (such as rent 
rolls and households' W-2 forms) on a risk-based sampling basis, of 
household incomes and rents maintained by the project sponsors to 
verify that the household incomes and rents comply with the commitments 
in the approved AHP applications. In practice, for initial monitoring, 
the Banks review the project sponsor documentation and rent rolls at 
initial monitoring, and review other back-up documentation on a risk-
basis.
    For long-term monitoring under the Competitive Application Program, 
the regulation generally requires the Banks to monitor completed AHP 
rental projects commencing in the second year after project completion 
to determine, at a minimum, whether household incomes and rents comply 
with the income targeting and rent commitments in the approved AHP 
applications during the AHP 15-year retention period by:
     Reviewing annual project owner certifications of household 
incomes and rents for compliance with the AHP application commitments, 
which may be reviewed on a risk-based sampling basis; and
     Reviewing back-up project documentation for incomes and 
rents, including project rent rolls, maintained by the project owner, 
which may also be reviewed on a risk-based sampling basis pursuant to 
the Bank's risk-based sampling plan.

In practice, for long-term monitoring, the Banks review all of the 
annual project sponsor certifications but review the rent rolls and 
other back-up documentation on a risk basis.
    The regulation provides that a Bank's written monitoring policies 
must take into account risk factors such as the amount of AHP subsidy 
in the project, type of project, size of project, location of project, 
sponsor experience, and any monitoring of the project provided by a 
federal, state, or local government entity.
    The regulation permits the Banks to develop and implement 
reasonable sampling plans to monitor rental projects that receive 
subsidies under the Competitive Application Program as well as 
households that receive subsidies under the Homeownership Set-Aside 
Program. The regulation permits the Banks to use the sampling plans to 
monitor back-up documentation of household incomes and rents. The 
regulation does not permit the use of sampling plans for monitoring 
member certifications under the Homeownership Set-Aside Program.
    The regulation makes some exceptions to the long-term monitoring 
requirements for certain types of AHP rental projects. Specifically, 
for AHP projects that also receive LIHTC, the Banks may rely on the 
long-term monitoring of LIHTC household incomes and rents performed by 
state-designated housing credit agencies that administer LIHTC, and the 
Banks do not have to review any monitoring documentation.
    The regulation also makes an exception to the long-term monitoring 
requirements for AHP rental projects that received funds from federal, 
state, or local government entities provided the Bank is able to 
demonstrate the following: (1) The compliance profile of the program is 
substantively equivalent to AHP requirements; (2) the governmental 
entity has the ability to monitor the project; (3) the governmental 
entity agrees to provide reports to the Bank on the project's incomes 
and rents for the full AHP 15-year retention period; and (4) the Bank 
reviews the reports from the governmental entity to confirm compliance 
with its monitoring policies. However, this monitoring option has not 
proved feasible for the Banks.
    Initial monitoring of AHP projects receiving LIHTC. The proposed 
rule would retain the initial monitoring requirement that the Banks 
review certifications from LIHTC project sponsors that the residents' 
incomes and the rents comply with the income-targeting and rent 
commitments in the approved AHP application. The proposed rule would 
also include a requirement, consistent with Bank practice, that the 
Banks review the project's rent rolls. However, the proposed rule would 
remove the requirement that the Banks review other back-up 
documentation on incomes and rents at initial monitoring for LIHTC 
projects. The proposed rule would also streamline the LIHTC monitoring 
provisions for greater conciseness.
    In 2016, 51 percent of AHP projects received LIHTC allocations, 
comprising 62 percent of total AHP competitive funds awarded. The 
current regulation has allowed the Banks to rely on the long-term 
monitoring of LIHTC projects by state-designated housing tax credit 
allocation agencies since 2006 because the LIHTC income, rent, and 
long-term retention period requirements are the same as or 
substantially equivalent to those of the AHP, and because LIHTC 
projects rarely go out of compliance with those requirements. As noted 
by some stakeholders, the same analysis for long-term monitoring of 
LIHTC projects could be applied to initial monitoring of LIHTC projects 
and, therefore, the Banks should also be permitted to rely at initial 
monitoring upon the income and rent monitoring performed by the state-
designated tax credit allocation agencies.
    The initial rationale for allowing the Banks to rely on monitoring 
of LIHTC projects by the state-designated tax credit allocation 
agencies continues to hold true--the LIHTC income, rent, and long-term 
retention period requirements are substantially equivalent to those of 
the AHP, the state-designated tax credit allocation agencies monitor 
the projects, and LIHTC projects rarely go out of compliance with the 
income and rent requirements.\53\ Further, multiple

[[Page 11365]]

parties retain a strong incentive to monitor LITHC projects for income 
and rent compliance.
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    \53\ A minimum of 40 percent of units in an LIHTC project must 
be affordable to tenants earning 60 percent of AMI, or a minimum of 
20 percent of units in an LIHTC project must be affordable to 
tenants earning 50 percent of AMI. However, the vast majority of 
LIHTC units serve residents at 50 percent of AMI or below. A HUD 
report published in December 2016, Data on Tenants in LIHTC Units as 
of December 31, 2014, indicates that the median income for LIHTC 
households was $17,152. Of all LIHTC units, 81 percent serve 
households at 50 percent of AMI or below, while 11 percent serve 
households between 50.1 percent and 60 percent of AMI. See https://www.huduser.gov/portal/publications/LIHTCTenantReport-2014.html. 
Further, LIHTC projects rarely go out of compliance, with analysis 
showing that the average LIHTC investor has realized 98 percent of 
its promised credits, and a cumulative foreclosure rate for 9 
percent credits between 1986 and 2014 at 0.04 percent. See A 
CohnReznick Webinar, The Low Income Housing Tax Credit Program at 
Year 30: A Performance Update, January 21, 2016. Slides 24 and 35. 
https://ahic.org/images/downloads/Research_and_Education/cohnreznick_lihtc_performance_study.pdf. Finally, LIHTC carries more 
stringent retention requirements than the AHP. LIHTC projects must 
remain affordable for an initial 15-year retention period, and an 
additional 15-year extended use period.
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    LIHTC project owners bear responsibility for ensuring that their 
projects comply with the program's income, rent, and retention period 
requirements. The owners face severe consequences for noncompliance, 
which serve as a substantial deterrent to noncompliance. Because LIHTC 
investors cannot receive the benefits of the tax credits for units that 
are not in compliance, LIHTC project owners guarantee to their 
investors that their projects remain in compliance, or must repay 
investors the amount of tax credits lost plus any penalties or interest 
levied by the Internal Revenue Service.
    LIHTC projects are monitored not only by the state-designated tax 
credit allocation agencies, but also annually by the LIHTC project 
owners and LIHTC investors. LIHTC project owners must certify the 
income of each household at move-in, and must re-certify the income of 
each household annually.
    As noted above, the Banks currently may review LIHTC back-up 
documentation at initial monitoring on a risk basis. Given the low 
risks of noncompliance by LIHTC projects, the Banks can establish 
review schedules for the back-up documentation that are not especially 
burdensome. For example, a Bank might choose to review LIHTC back-up 
documentation once or twice during the project's 15-year AHP retention 
period. Although the administrative burden on the project sponsors to 
provide, and the Banks to review, LIHTC back-up documentation may not 
be significant, FHFA believes that eliminating this monitoring 
requirement would benefit the Banks and project sponsors by reducing 
their administrative costs.
    Notice Requirement for LIHTC Project Noncompliance during AHP 
Retention Period. Notwithstanding the infrequent instances of LIHTC 
project noncompliance, in the event of such noncompliance during the 
AHP 15-year retention period, a Bank likely would not become aware of 
the noncompliance because the Banks do not monitor LIHTC projects 
during the retention period. FHFA is proposing to add a requirement, as 
discussed under proposed Sec.  1291.15(a)(5)(ii) above, that members' 
monitoring agreements with project sponsors and owners require such 
parties to provide prompt written notice to the Bank if the LIHTC 
project goes out of compliance with the applicable LIHTC income-
targeting or rent requirements during the AHP 15-year retention period. 
The proposed rule would add a corresponding requirement in the 
monitoring section of the regulation that the Banks must review LIHTC 
project noncompliance notices received from project sponsors or owners 
during the AHP 15-year retention period. In this way, the Banks would 
become aware of any noncompliance and could take remedial actions with 
respect to the project.
    The proposed rule would not require that the Bank's AHP agreement 
with the member or project sponsor or owner include a provision for the 
project sponsor or owner to send written notice of noncompliance with 
other government programs to the Banks. As discussed below, the Banks 
would be receiving other information that would help inform them of 
potential or actual project noncompliance. The Banks would be required 
to obtain information from project sponsors or owners on their 
projects' compliance with these other government programs, as well as 
the projects' on-going financial viability (``enhanced 
certifications''), which the Banks obtain currently but to varying 
degrees. The Banks would also continue to review annual project sponsor 
certifications. In addition, the noncompliance rates for projects under 
these other government programs are low.
    Initial and long-term monitoring of AHP projects funded by certain 
other government programs specified in FHFA guidance. The proposed rule 
would also provide that, for AHP projects funded by certain other 
government programs specified in separate FHFA guidance, the Banks 
would only be required to review project sponsor certifications and 
rent rolls, and not any other back-up documentation, at initial 
monitoring. For long-term monitoring, the Banks would only be required 
to review annual project sponsor certifications on incomes and rents, 
and would not be required to review any back-up documentation for 
incomes and rents, including rent rolls. FHFA would include in the 
guidance only government programs that have the same or substantially 
equivalent rent, income, and retention period requirements as the AHP, 
very low occurrences of noncompliance with those requirements, and 
where the monitoring entity has demonstrated and continues to 
demonstrate its ability to monitor the program. The proposed rule would 
specify that other compatible government programs, for monitoring 
purposes, will be set forth in FHFA guidance. FHFA will employ the 
guidance to remain current with federal program developments.
    The FHFA guidance initially would specify the following federal 
government programs as eligible for this reduced monitoring:
    [cir] HUD Section 202 Program for the Elderly;
    [cir] HUD Section 811 Program for Housing the Disabled;
    [cir] USDA Section 515 Rural Multifamily Program; and
    [cir] USDA Section 514 Farmworker Multifamily Program.
    Stakeholders requested that FHFA allow the Banks to rely upon the 
income qualification tests performed by USDA Rural Development and HUD-
funded projects at initial monitoring. Further, stakeholders requested 
that FHFA allow a Bank, in its discretion, for purposes of long-term 
monitoring, to rely upon the monitoring conducted by HUD and USDA Rural 
Development, as the Banks are currently allowed to rely on the 
monitoring of the agency administering LIHTC.
    In 2016, approximately two-thirds of AHP projects received funding 
from other federal programs. FHFA analyzed the extent to which AHP 
projects also receive subsidies from HUD and USDA programs to determine 
the extent to which Banks could conceivably rely on HUD and USDA 
monitoring for these projects. In 2016, 26 percent of AHP projects 
received HOME Investment Partnerships Program (HOME) financing, 8 
percent received Community Development Block Grant (CDBG) funds, and 12 
percent received other federal financing, including from USDA. FHFA 
then analyzed HUD and USDA programs to determine which programs have 
substantially equivalent rent, income, and retention requirements to 
the AHP, very low noncompliance rates, and where the monitoring entity 
has demonstrated and continues to demonstrate its ability to monitor 
the program. These programs are further discussed below.
    HUD Section 202 and 811 Programs. The income, rent and retention 
period standards for HUD's Section 202 Program for the Elderly and 
Section 811

[[Page 11366]]

for Housing the Disabled meet or exceed the AHP standards.\54\ Further, 
HUD monitors eligibility for rental assistance on an annual basis, and 
has demonstrated and continues to demonstrate its ability to monitor 
the programs. The Banks have indicated to FHFA that in their 
experience, there are very low or no instances of noncompliance with 
AHP-funded Section 202 or Section 811 projects. Congress has not 
appropriated capital advances for the Sections 202 and 811 programs 
since 2011. Thus, the proposed reduction in monitoring would only apply 
to Section 202 and 811 projects in the Banks' existing portfolios or to 
Section 202 or 811 projects seeking rehabilitation funding.
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    \54\ Section 811 projects are funded by a capital advance that 
requires a project to be occupied only by very low-income persons 
with disabilities (at or below 50 percent of AMI). Section 202 
projects must be occupied by low- or very low-income elderly people. 
In 2017, 98% of households in Section 811 units had incomes at or 
below 50 percent of AMI. See https://www.huduser.gov/portal/datasets/assthsg.html. Residents of Section 202 and 811 programs pay 
30 percent or less of their monthly adjusted income for rent. These 
requirements are the same, and in some cases more stringent, than 
the AHP's 30 percent of income standard for rents. See Section 811 
Supportive Housing for Persons with Disabilities Handbook (4571.2) 
https://www.hud.gov/sites/documents/45712C1HSGH.PDF and HUD Handbook 
4571.3. In both the Section 202 and 811 programs, the affordability 
term is 40 years. HUD has demonstrated the ability to monitor both 
Section 202 and Section 811 projects. The low default rates in both 
these programs are indicative that that HUD's monitoring has been 
effective. See 811 Operating Costs Needs, Ken Lam, Jill Khadduri, 
March 2007, https://www.huduser.gov/portal/publications/pubasst/Sec_202_811.html, and Brauner, Bill, (2016) A First Look at 
Supportive Housing for the Elderly (Section 202) Housing in 
Massachusetts and Haley, Barbara and Robert Gray (June, 2008) 
Section 202 Supportive Housing for the Elderly: Program Status and 
Performance Measurement, https://www.huduser.gov/portal/publications/sec_202_1.pdf.
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    USDA Section 515 and 514 Programs. There are some differences in 
the income-eligibility and rent requirements between the Section 515 
rural multifamily projects and Section 514 farmworker multifamily 
projects and those of the AHP. However, in practice, the household 
incomes served and rents are substantially similar to the AHP 
standards.\55\ Further, USDA has demonstrated and continues to 
demonstrate its ability to monitor the programs.\56\ USDA 514 and 515 
projects have low delinquency rates,\57\ and the Banks have indicated 
to FHFA that in their experience, there are very low or no instances of 
noncompliance with AHP-funded Section 515 and 514 projects. An 
additional argument in favor of aligning the AHP with USDA's monitoring 
is that this might encourage more USDA-funded projects to apply for AHP 
funds, thus increasing the proportion of rural families served by the 
AHP.
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    \55\ While incomes in Section 515 projects may go up to 80 
percent of AMI plus $5,500 and incomes in Section 514 projects may 
rise to 80 percent of AMI, in actuality household incomes are much 
lower. In 2015, 92 percent of households in Section 515 and 514 
projects had very low incomes, and the average rent for units in all 
states is below the 50 percent of AMI adjusted rent level. Tenants 
pay basic rent or 30 percent of adjusted income, whichever is 
greater. USDA Section 521 Rental Assistance subsidy can be used to 
limit tenants' payments to 30 percent of their income. Tenants may 
receive rent subsidies from other sources as well. Most tenants pay 
no more than 30 percent of their income in rent (88 percent of 
Section 515 households, and 97 percent of Section 514 households in 
2016). See 7 CFR 3560.203. A USDA report published in December 2016, 
Results of the 2016 Multi-Family Housing Annual Fair Housing 
Occupancy Report, found that in FY 2016, 92.3 percent of units were 
occupied by very low-income households--a percentage consistent with 
past years. In Section 514 projects 77.1 percent of units were 
occupied by very low income households, and 19.73 percent of units 
were occupied by low income households. See https://www.ruralhome.org/storage/documents/rd_obligations/mfh-occupancy/occupancymfh2016.pdf. The standard term for an initial Section 515 
loan is 30 years with a 50-year amortization period. The term for 
subsequent (made to an existing Section 515 project for subsequent 
rehabilitation or repairs to the project) and loans for special 
types of properties, such as manufactured housing, may be made for a 
shorter term based on the project's expected useful life; and, the 
loans are amortized over 50 years.
    \56\ USDA field staff performs careful monitoring of Section 515 
and 514 projects, including on-site physical inspections, on-site 
tenant file review and management review, annual project budget 
review, and project financial statement review. All reviews are 
performed by USDA area office staff.
    \57\ USDA Section 515 and 514 projects perform well: Section 515 
projects had a 2.4 percent delinquency rate for the ten years ending 
2014, while Section 514 projects had a 3.4 delinquency rate. See 
Statement of Tony Hernandez, Administrator Before the Subcommittee 
on Housing and Insurance Committee on Financial Services. May 19, 
2015. https://www.rd.usda.gov/files/testimony/USDA_Rural%20Housing_May%2019_15.pdf.
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    FHFA also reviewed HUD's HOME Program, CDBG Program, Rental 
Assistance Demonstration Program, Housing Trust Fund, and Project-Based 
Rental Assistance (PBRA) Section 8 Program, as well as single-family 
mortgage revenue bond financing programs. FHFA found that each program 
has some standards that differ from the AHP in income, rent or 
retention periods, varying monitoring practices around the country, or 
a lack of available data on the projects' noncompliance rates (in the 
case of the PBRA Section Program). Therefore, relying on the monitoring 
of these other government funding programs is not currently feasible 
for the AHP.
    Because the income, rent, and retention period standards, 
monitoring practices, and compliance profiles of government housing 
subsidy programs may change over time, FHFA is proposing to include a 
list of federal government programs that currently meet the 
requirements discussed above in separate guidance, which FHFA could 
occasionally revise in the event that programs' requirements become 
compatible or incompatible with the AHP requirements, or new programs 
are established that have compatible requirements.
    The proposed monitoring changes would create a modest decrease in 
the Banks' administrative responsibilities by expanding their ability 
to rely on other government programs for both initial and long-term 
monitoring. The Banks currently have an average of 260 AHP rental 
projects per Bank to monitor, although the monitoring is reduced 
significantly by the Banks' ability to conduct long-term monitoring of 
the projects on a risk-basis.
    FHFA specifically requests comments on whether the proposed 
reductions in the Banks' monitoring responsibilities are reasonable, 
taking into consideration the risks of noncompliance and the costs of 
project monitoring. FHFA also requests comments on whether data is 
available on the noncompliance rates of projects funded under the PBRA 
Section 8 Program.
    Enhanced long-term monitoring certifications. Proposed Sec.  
1291.50(c)(1) would codify existing Bank best practices that require 
submission by project sponsors of annual project certifications that 
include not only the required household income and rent information, 
but also information on the on-going financial viability of the 
project, such as whether the project is current on property taxes and 
loan payments, its vacancy rate, or whether it is in compliance with 
its commitments to other funding sources.
    During long-term monitoring, the Banks are only required to monitor 
projects for compliance with the household income-targeting and rent 
commitments in their AHP applications. Reviewing income and rent 
information alone limits the ability of the Banks to determine whether 
projects are experiencing operational challenges or in danger of 
foreclosure. Thus, in addition to obtaining household income and rent 
information, Banks have, to varying degrees, been requesting additional 
information from project sponsors in order to discover project issues 
before they escalate. This additional information enables the Banks to 
work with other funders to address project concerns and any 
noncompliance, including attempting remediation through workout 
strategies or recovery of AHP subsidy for noncompliance. It also 
mitigates the risk

[[Page 11367]]

that Banks may be less aware of noncompliance by AHP projects that are 
also funded by the federal programs for which FHFA may determine 
through guidance that the Banks may reduce their long-term monitoring. 
The proposed change may slightly increase the monitoring requirement 
for project sponsors and the Banks that are not currently requiring 
such enhanced certifications.
    Accordingly, the proposed rule would require the Banks to obtain 
such ``enhanced'' annual certifications from project sponsors during 
the AHP 15-year retention period that include information on the 
ongoing financial viability of the project.
Proposed Sec.  1291.51 Monitoring Under Homeownership Set-Aside 
Programs
    The current monitoring provisions for the Homeownership Set-Aside 
Program would move from Sec.  1291.7(b) to proposed Sec.  1291.51. The 
requirement to monitor compliance with the owner-occupied retention 
agreement requirement would be removed because FHFA is proposing to 
eliminate this requirement.

Subpart G--Remedial Actions for Noncompliance

    The current provisions addressing remedial actions for AHP 
noncompliance in Sec.  1291.8 would move to proposed Subpart G, and 
each type of noncompliance--project sponsor or owner, member, or Bank--
would be included in a separate section so that the responsibilities 
and potential liabilities of each party are clear. Substantive changes 
would also be made regarding the order in which certain remedial 
actions must be taken.
    Subpart G would also include a new section addressing remedies for 
Bank noncompliance with the proposed outcome requirements for the 
statutory and regulatory priorities, including housing plans and 
reimbursement of the AHP fund.
    The proposed changes are discussed below.
Proposed Sec.  1291.60 Remedial Actions for Project Noncompliance
    Proposed Sec.  1291.60 would address AHP project noncompliance. The 
language would be revised and streamlined to provide greater clarity on 
the scope of the section and the responsibilities of the various 
parties. The proposed rule would also make substantive changes by 
establishing an order of remedial steps that a Bank would be required 
to follow before recovering AHP subsidy. The proposed rule would 
clarify factors for Bank consideration in determining whether to settle 
for less than the full amount of AHP subsidy due. These changes are 
discussed below.
    Scope. Proposed Sec.  1291.60 would apply to noncompliance by an 
AHP-assisted project with its AHP application commitments and the 
requirements of the regulation, including any use of AHP subsidy by the 
project sponsor or owner for purposes other than those committed to in 
the AHP application. Consistent with the current regulation, the 
proposed rule would clarify that this section would not apply to 
individual AHP-assisted households, or to the sale or refinancing by 
such households of their homes, as there is no ongoing Bank monitoring 
of households once they purchase their homes, and sale or refinancing 
during the AHP five-year retention period is not considered 
noncompliance.
    Elimination of project noncompliance. The current regulation 
provides for three types of remedies for project noncompliance without 
mandating the order in which they must be attempted--cure of the 
noncompliance; project modification; and recovery of AHP subsidy or 
settlement. Because the objective of the AHP is to provide affordable 
housing for eligible households for the duration of the AHP retention 
period, recovery of AHP subsidy should be the last resort. Accordingly, 
the proposed rule would require that certain remedial actions be 
attempted before subsidy is recaptured, as discussed further below.
    Cure. The project sponsor or owner would first be required to cure 
the project noncompliance within a reasonable period of time. Banks 
generally follow this practice currently. For example, if a project has 
a certain number of households with incomes exceeding the AHP 
application's income-targeting commitments, cure would be achieved by 
renting the next available vacant units to that number of income-
eligible households. If the noncompliance is cured, then no AHP subsidy 
would be required to be repaid by the project sponsor or owner to the 
Bank.
    Project modification. If the project noncompliance cannot be cured 
within a reasonable period of time, the Bank would be required to 
determine whether the circumstances of the noncompliance could be 
eliminated through a project modification under proposed Sec.  1291.27. 
If so, then the Bank would be required to approve the modification, and 
the project sponsor or owner would not be required to repay AHP subsidy 
to the Bank.
    Under proposed Sec.  1291.27(a), a modification must be approved by 
the Bank if the project, as modified, meets all of the modification 
requirements in that section, including that there is good cause for 
the modification that is not solely eliminating the noncompliance, and 
that the project rescores as high as the lowest ranking alternate 
approved for funding by the Bank in the project's original AHP funding 
period. In the above example, if the project sponsor or owner were not 
able to find enough households meeting its income-targeting commitments 
to occupy the next available vacant units, the Bank would determine 
whether the project could be modified to target those units to higher 
income (but still AHP income-eligible) households by rescoring the 
project based on the number of units to be targeted to the higher 
incomes. If the project rescored successfully, then the project would 
be modified, thereby eliminating the circumstances of the 
noncompliance, and no subsidy recovery would be required.
    Reasonable collection efforts, including settlement. If the 
circumstances of a project's noncompliance cannot be eliminated through 
a cure or modification, the Bank, or the member if delegated the 
responsibility, would be required to first make a demand on the project 
sponsor or owner for repayment of the full amount of the subsidy not 
used in compliance with the commitments in the AHP application or the 
requirements of the regulation. This is intended to ensure that the 
Banks attempt to recover all of the subsidy due before considering 
settlements. The proposed rule would clarify that if the noncompliance 
is occupancy by over-income households, the amount of AHP subsidy due 
is calculated based on the number of units in noncompliance, the length 
of the noncompliance, and the portion of the AHP subsidy attributable 
to the noncompliant units.
    If the demand for repayment of the full amount of subsidy due is 
unsuccessful, then the member, in consultation with the Bank, would be 
required to make reasonable efforts to collect the subsidy from the 
project sponsor or owner. Members have this role under the current 
regulation. The proposed rule would clarify that members would carry 
out these efforts in consultation with the Bank, consistent with 
current practice.
    Under the current regulation, reasonable collection efforts may 
include settlement for less than the full amount of subsidy due, taking 
into account the facts and circumstances of the noncompliance, 
including the

[[Page 11368]]

degree of culpability of the noncomplying parties and the extent of the 
Bank's recovery efforts. The proposed rule would clarify that the facts 
and circumstances to consider also include the financial capacity of 
the project sponsor or owner, assets securing the AHP subsidy, and 
other assets of the project sponsor or owner.
    As under the current regulation, the proposed rule would require 
that a settlement be supported by sufficient documentation showing that 
the sum agreed to be repaid is reasonably justified, based on the facts 
and circumstances of the noncompliance discussed above. FHFA 
specifically requests comments on whether those facts and circumstances 
are appropriate for consideration during reasonable collection efforts, 
and whether there are other factors that should be considered as well.
    The proposed rule would eliminate current Sec.  1291.8(d)(2), which 
provides Banks the option to seek prior approval from FHFA of a 
proposed subsidy settlement. Since inception of this option, only one 
Bank has used it and for two similar cases. The Banks may enter into 
subsidy settlements, in their discretion, provided the settlements are 
supported by reasonable justifications. The Banks have made these types 
of business decisions for many years without seeking prior FHFA 
approval. Moreover, the proposed rule would further clarify the factors 
the Banks should consider in deciding whether to settle with the 
project sponsor or owner. Accordingly, there is no need to retain this 
prior approval provision in the regulation.
Proposed Sec.  1291.61 Recovery of Subsidy for Member Noncompliance
    Proposed Sec.  1291.61 would address member noncompliance, which is 
currently addressed in Sec.  1291.8(b)(1). As under the current 
regulation, if a member uses AHP subsidy for purposes other than those 
committed to in the AHP application or the requirements of the 
regulation, the Bank would be required to recover from the member the 
amount of subsidy used for such impermissible purposes.
Proposed Sec.  1291.62 Bank Reimbursement of AHP Fund
    Current Sec.  1291.8(e), which addresses circumstances where a Bank 
would be required to reimburse its AHP fund, would move to proposed 
Sec.  1291.62, with no substantive changes.
Proposed Sec.  1291.63 Suspension and Debarment
    Current Sec.  1291.8(g) addressing suspension or debarment of 
members, project sponsors, or project owners would move unchanged to 
proposed Sec.  1291.63.
Proposed Sec.  1291.64 Use of Repaid AHP Subsidies for Other AHP-
Eligible Projects and Households
    Proposed Sec.  1291.64 would include current Sec.  1291.8(f)(1), 
which provides that AHP subsidy repaid to a Bank under the AHP 
regulation must be made available by the Bank for other AHP-eligible 
projects. The proposed rule would clarify that the repaid subsidy may 
also be made available by the Bank for AHP-eligible households.
    The proposed rule would remove the provision in current Sec.  
1291.8(f)(2) providing for re-use of repaid AHP direct subsidies in the 
same project because it applies where AHP subsidy is repaid by a 
household due to sale or refinancing of the home to a household that is 
not low- or moderate-income household during the retention period, and 
FHFA is proposing to eliminate this subsidy repayment requirement in 
connection with elimination of the owner-occupied retention agreement 
requirement.
Proposed Sec.  1291.65 Remedial Actions for Bank Noncompliance With 
Outcome Requirements
    Proposed new Sec.  1291.65 would provide that if the Director of 
FHFA determines that a Bank has failed to comply with an outcome 
requirement for the statutory and regulatory priorities and compliance 
was feasible, the Director may require the Bank to take actions to 
remedy the noncompliance, including but not limited to, reimbursement 
by the Bank of its AHP fund for the difference in the amount of AHP 
funds required to be awarded to meet the outcome requirement and the 
amount the Bank actually awarded, or implementation of a housing plan. 
A housing plan would describe the specific actions the Bank would take 
to comply with the outcome requirements for the next calendar year. The 
proposed procedures, including time periods, for submission, review and 
approval of a proposed housing plan, are generally analogous to those 
under the Enterprise Housing Goals regulation.\58\
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    \58\ 12 CFR 1282.21.
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Proposed Sec.  1291.66 Transfer of Program Administration
    The proposed rule would move current Sec.  1291.8(h), which 
addresses transfer of a Bank's Program to another Bank in the event of 
mismanagement of its Program, to proposed Sec.  1291.66 with no 
changes.
Removal of Obsolete Provision
    The proposed rule would rescind current Sec.  1291.8(i) because the 
provision refers to a now-repealed Finance Board regulatory provision 
that was intended to establish a formal process for review by the Board 
of Directors of the Finance Board of certain types of supervisory 
decisions, which FHFA opted not to adopt.\59\ Though it is not directly 
comparable to the repealed Finance Board provision, FHFA's Ombudsman 
regulation provides an avenue for the Banks to present complaints and 
appeals to the agency about their regulation or supervision.\60\
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    \59\ 12 CFR 907.9.
    \60\ See 12 CFR part 1213.
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Subpart H--Affordable Housing Reserve Fund

Proposed Sec.  1291.70 Affordable Housing Reserve Fund
    Current Sec.  1291.12 addressing the requirements for an Affordable 
Housing Reserve Fund would move to proposed Sec.  1291.70. In the 28 
years of the Program, there has never been cause for the agency to 
establish an Affordable Housing Reserve Fund because the demand for AHP 
funds at each Bank has always exceeded the amount available, and no 
Bank has failed to use or commit in full its required annual AHP 
contribution.
    The proposed rule would revise the current provision by requiring 
that amounts remaining unused or uncommitted at year-end would be 
deemed to be used or committed if, in combination with AHP funds that 
have been returned to the Bank or de-committed from canceled projects, 
they are insufficient to fund the next highest scoring AHP applications 
in the Bank's final funding period of the year for its General Fund 
first and then for any Targeted Funds established by the Bank.

IV. List of Specific Requests for Comments

    In addition to requesting comments on the entire proposed rule, 
FHFA is listing below, for ease of reference, the specific requests for 
comments included throughout the preamble above. Please identify the 
specific request for

[[Page 11369]]

comment to which you are responding by its request number.

Subpart B--Program Administration and Governance

    1. What are the benefits and risks of allowing the Banks to 
establish Targeted Funds?
    2. Is the proposed allocation of 40 percent of total AHP funds to 
Targeted Funds an appropriate percentage, or should the percentage be 
higher or lower?
    3. Would the proposed expansion of the contents of the Targeted 
Community Lending Plans impede the Banks' ability to respond to 
disasters through the AHP?
    4. What are the benefits of the proposed expansion of the contents 
of the Targeted Community Lending Plans and their linkage to the AHP 
Implementation Plans?
    5. Is the requirement that members' AHP agreements with LIHTC 
project sponsors include a provision requiring the sponsors to provide 
prompt written notice to the Bank if the project is in noncompliance 
with the LIHTC income-targeting or rent requirements at any time during 
the AHP 15-year retention period practical, and should it also be 
required of project sponsors in the event of noncompliance by their 
projects with the income-targeting or rent requirements of the 
government housing programs discussed under the Monitoring section?
    6. What are the advantages and disadvantages of an AHP owner-
occupied retention agreement, would eliminating it impact FHFA's 
ability to ensure that AHP funds are being used for the statutorily 
intended purposes, and are there ways to deter flipping other than a 
retention agreement?
    7. Should the proposed increase in the maximum permissible grant to 
households from $15,000 to $22,000 under the Homeownership Set-Aside 
Program impact the decision on whether to eliminate the retention 
agreement?
    8. Should the current provision in retention agreements requiring 
that notice of a sale or refinancing during the retention period be 
provided to either the Bank or its designee (typically the member) be 
revised to require that the notice be provided to both the Bank and its 
designee if a retention agreement requirement is retained in the final 
rule?
    9. Should the AHP retention agreement, if retained in the final 
rule, require the AHP-assisted household to repay AHP subsidy to the 
Bank from any net proceeds on the sale or refinancing of the home or 
from the net gain?
    10. What are the merits and disadvantages of the net proceeds and 
net gain calculations from the standpoint of the AHP-assisted 
households and the Banks, and are there other subsidy repayment 
approaches FHFA should consider, if the AHP retention agreement 
requirement is retained in the final rule?
    11. What approaches would provide a reasonable basis to assume that 
the subsequent purchaser of an AHP-assisted unit is likely to be low- 
or moderate-income, including proxies that could serve this purpose?
    12. What proxies would be reasonable for assuming a subsequent 
purchaser's income, including the following or others: Certification 
from the subsequent purchaser or a third party that the subsequent 
purchaser's income is at or below the low- or moderate-income limit; 
evidence that the subsequent purchaser is receiving direct homebuyer 
assistance from another government program with household income 
targeting requirements substantially equivalent to those of the AHP; 
the purchase price of the AHP-assisted unit is less than the median 
home price in the area; the AHP-assisted unit is located in a census 
tract. or block group where at least 51 percent of the households are 
low- or moderate-income; or FHA or other underwriting standards 
indicating that the income required to purchase the AHP-assisted unit 
at the purchase price is low- or moderate-income?
    13. Should there be an exception to the AHP subsidy repayment 
requirement in the AHP retention agreement, if retained in the final 
rule, where the amount of AHP subsidy subject to repayment, after 
calculating the net proceeds or net gain, is $1,000 or less?
    14. If the AHP retention agreement is retained in the final rule, 
should the rule clarify that the obligation to repay AHP subsidy to a 
Bank shall terminate not only after any event of foreclosure, but also 
after transfer by deed in lieu of foreclosure, assignment of an FHA 
mortgage to HUD, or death of the owner(s) of the unit?

Subpart C--General Fund and Targeted Funds

    15. How should preservation of rental projects be encouraged 
through the AHP while discouraging displacement of current occupants 
with higher incomes than those targeted in the AHP application 
submitted to the Bank for approval, and is the proposed requirement for 
a relocation plan approved by the primary funder reasonable?
    16. Are the current AHP requirements for sponsor-provided permanent 
financing reasonable, do the sponsors have a need for AHP subsidy in 
light of their particular financing model, and does the current method 
in the regulation for determining their need for AHP subsidy understate 
or overstate the amount of AHP subsidy needed?
    17. Should sponsors using the sponsor-provided permanent financing 
model be considered revolving loan funds and, if so, should they be 
subject to the current or different AHP revolving loan fund 
requirements?
    18. What are the potential advantages and disadvantages of allowing 
the Banks to impose a maximum subsidy limit per project sponsor?
    19. What are possible approaches for re-ranking applications to 
meet the outcome requirements while at the same time maximizing the 
extent to which the highest scoring applications are approved?
    20. Are the current AHP revolving loan fund provisions reasonable, 
and how could the financing mechanisms of revolving loan funds be used 
successfully with AHP subsidies?
    21. Why have certain AHP scoring criteria for revolving loan funds 
been difficult to meet, how would AHP subsidy be repaid in the event of 
project noncompliance, and how can a revolving loan fund demonstrate a 
need for the AHP subsidy?
    22. Would the proposed outcome requirements for the statutory and 
regulatory priorities facilitate use of AHP subsidies by revolving loan 
funds, and if so, how?
    23. What are the potential positive or negative impacts of 
eliminating the owner-occupied retention agreement requirement for 
revolving loan funds?
    24. Are there loan pools currently existing in the market that meet 
the conditions in the current regulation, how are the loan pools 
addressing current housing market needs, and what are the potential 
positive or negative impacts of eliminating the owner-occupied 
retention agreement requirement for loan pools?

Subpart D--Homeownership Set-Aside Programs

    25. Are there any potential positive and negative impacts of 
increasing the subsidy limit per household from $15,000 to $22,000, and 
should the subsidy limit be higher or lower?
    26. Is the proposed use of FHFA's Housing Price Index to 
automatically adjust the subsidy limit upward over time appropriate, or 
are there other housing price adjustment indices that would be 
preferable and why?

[[Page 11370]]

Subpart E--Outcome Requirements for Statutory and Regulatory Priorities

    27. Does the proposed outcome requirement of 10 percent of a Bank's 
total AHP funds constitute prioritization for the home purchase 
priority, or should the percentage be higher or lower?
    28. What is the utility of the proposed outcome approach to income 
targeting, and are the proposed 55 percent threshold, its applicability 
solely to rental units, and income-targeting at 50 percent of AMI 
appropriate?
    29. Is the proposed increase in the minimum threshold from 20 to 50 
percent for the number of units reserved for homeless households 
appropriate?
    30. Is the proposed increase in the minimum threshold from 20 to 50 
percent for the number of units in a project reserved for households 
with a specific special need appropriate?
    31. Is the proposed 50 percent minimum threshold for the number of 
units in a project reserved for other targeted populations appropriate?
    32. Is the proposed 20 percent minimum threshold for the number of 
units in a project reserved for extremely low-income households 
appropriate?
    33. Do the three proposed regulatory priorities described in 
proposed Sec.  1291.48--underserved communities and populations, 
creating economic opportunities, and affordable housing preservation--
constitute significant housing priorities that should be included in 
the regulation, or should other housing priorities be included?
    34. Should the specific housing needs identified under each 
regulatory priority be included, or are there other specific housing 
needs that should be included?
    35. Do the Banks have sufficient flexibility under the current 
scoring system to target specific housing needs in their districts, 
including awarding subsidy to address multiple housing needs in a 
single AHP funding period?
    36. Should the current regulatory scoring system be maintained 
without change?
    37. Should any of the current mandatory scoring criteria and 
minimum required point allocations be modified to reflect other 
specific housing needs?
    38. Should the current Bank First and Second District Priorities be 
combined and the list of housing needs in the Bank First District 
Priority eliminated?

Subpart F--Monitoring

    39. Are the proposed reductions in the Banks' monitoring 
requirements reasonable, taking into consideration the risks of 
noncompliance and the costs of project monitoring?
    40. Is data available on the noncompliance rates of projects funded 
under the PBRA Section 8 Program?

Subpart G--Remedial Actions for Noncompliance

    41. Are the facts and circumstances described in proposed Sec.  
1291.60 appropriate for consideration by a Bank during reasonable 
subsidy collection efforts, and are there other factors that should be 
considered as well?

V. Consideration of Differences Between the Banks and the Enterprises

    Section 1313(f) of the Federal Housing Enterprises Financial Safety 
and Soundness Act of 1992 requires the Director of FHFA, when 
promulgating regulations relating to the Banks, to consider the 
differences between the Banks and the Enterprises (Fannie Mae and 
Freddie Mac) as they relate 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. The proposed rule would apply only to the Banks. 
It would amend the current regulation to provide additional authority 
to the Banks regarding certain Program operations, streamline project 
monitoring requirements, clarify various parties' responsibilities 
regarding noncompliance, and clarify certain operational requirements. 
There is no direct Enterprise-specific analog to the Banks' AHP. In 
preparing this proposed rule, the Director considered the differences 
between the Banks and the Enterprises as they relate to the above 
factors, and determined that the rule is appropriate. FHFA requests 
comments regarding whether differences related to those factors should 
result in any revisions to the proposed rule.

VI. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq., 
requires that Federal agencies, including FHFA, consider the impact of 
paperwork and other information collection burdens imposed on the 
public. Under the PRA, no agency may conduct or sponsor, and no person 
is required to respond to, an information collection unless it displays 
a currently valid Office of Management and Budget (OMB) control number. 
Existing part 1291 contains a number of requirements that constitute 
collections of information under the PRA. These collections have been 
approved by OMB and assigned OMB control number 2590-0007 (entitled 
``Affordable Housing Program''), which expires on March 31, 2020. As 
detailed below, the proposed rule would modify some of the information 
collection requirements in part 1291 and would make other changes to 
the regulation requiring FHFA to revise the burden estimates approved 
by OMB when the control number was last renewed in early 2017. FHFA 
intends to submit the revised information collection to OMB for review 
and approval of a three-year extension of the control number.

A. Comments on Paperwork Burden Requested

    FHFA is soliciting comments on: (1) Whether the collection of 
information is necessary for the proper performance of FHFA functions, 
including whether the information has practical utility; (2) the 
accuracy of FHFA's estimates of the burden of the collection of 
information; (3) ways to enhance the quality, utility and clarity of 
the information collected; and (4) ways to minimize the burden of the 
collection of information on Bank members, project sponsors, and 
project owners, including through the use of automated collection 
techniques or other forms of information technology.
    You may submit written comments on the information collection 
requirements on or before May 14, 2018 and should direct them to the 
Office of Information and Regulatory Affairs of the Office of 
Management and Budget, Attention: Desk Officer for the Federal Housing 
Finance Agency, Washington, DC 20503, Fax: (202) 395-3047, Email: 
[email protected]. Please also submit copies of comments on 
information collection issues to FHFA, identified by ``Proposed 
Collection; Comment Request: `Affordable Housing Program (RIN 2590-
AA83)' '' by any of the methods listed above in the ADDRESSES section.

B. Background

    Part 1291 requires the Banks to collect various types of 
information relating to their AHPs from their members and (both 
directly and indirectly) from AHP project sponsors and owners. Those 
information collection requirements fall into six categories: (1) AHP 
Competitive Applications; (2) compliance submissions for approved 
Competitive Application projects at AHP subsidy disbursement; (3) 
modification requests for approved Competitive Application projects; 
(4) initial monitoring submissions for approved Competitive Application 
projects; (5) long-term monitoring submissions for approved Competitive 
Application projects; and (6) Homeownership Set-Aside Program 
applications and certifications. As revised by the proposed rule, the 
collections of information under part

[[Page 11371]]

1291 would continue to fall into the foregoing six basic categories, 
but would be somewhat modified as described below.
    The proposed rule would eliminate the existing requirement that 
each Bank establish a Competitive Application Program. As revised, part 
1291 would instead require each Bank to establish a General Fund, and 
authorize each Bank to establish up to three Targeted Funds (subject to 
a phase-in period), each of which would be subject to a competitive 
application process similar to that required for the Banks' Competitive 
Application Programs under the current regulation. Projects funded 
under the Banks' General Fund and any Targeted Funds established would 
be subject to requirements regarding subsidy disbursements, 
modification requests, and initial and long-term monitoring that are 
similar to those that currently apply to their Competitive Application 
Programs. Thus, the descriptions of the first five of the six 
information collection categories, which relate to the Banks' 
Competitive Application Programs, would be modified to refer instead to 
the Banks' General Funds and Targeted Funds. The description of the 
sixth category, relating to the Banks' Homeownership Set-Aside 
Programs, would remain the same.

C. Burden Estimates for Respondents

    FHFA has analyzed each of the six categories of information that 
would be collected under part 1291, as revised by the proposed rule, in 
order to estimate the hour burdens that the collection would impose 
upon Bank members and AHP project sponsors and owners annually over the 
three years following the effective date of the final rule. Based on 
that analysis, FHFA estimates that the total annual hour burden will be 
127,605. This represents an increase of 11,855 hours over the estimate 
of 115,750 made in connection with the most recent renewal of the OMB 
control number. This increase is attributable to an expected increase 
in the number of AHP competitive applications received by the Banks due 
to some of the proposed revisions, as well as an expected increase in 
the number of AHP competitive projects and Homeownership Set-Aside 
direct subsidies approved because of anticipated higher required annual 
AHP contributions arising from projected higher Bank incomes. On 
balance, the proposed rule would not increase information collection 
burdens on a per-submission basis.
    The method FHFA used to determine the annual hour burden for each 
category of information collected is explained in detail below. Set 
forth for each category are: (1) A summary of the existing information 
collection requirement, including the types of respondents and 
frequency of collection; (2) a short description of the manner in which 
the proposed regulatory amendments would affect the requirement and the 
associated burden estimates; (3) the need for and use of the 
information to be collected; and (4) the new annualized hourly burden 
estimates, as compared to the estimates made in the PRA submissions 
that are the basis for the current clearance.
1. Competitive Applications for AHP Subsidy Under General Funds and 
Targeted Funds
    (a) Existing requirement: Each Bank must establish a Competitive 
Application Program under which the Bank accepts applications for AHP 
subsidies submitted by its members on behalf of non-member entities 
having a significant connection to the projects for which subsidy is 
being sought (project sponsors or owners).\61\ Each Bank accepts 
applications for AHP subsidy under its Competitive Application Program 
during a specified number of funding periods each year, as determined 
by the Bank.\62\ The Bank must score each application according to an 
AHP regulatory and Bank-specific scoring methodology, and approve the 
highest scoring projects within that funding period for AHP 
subsidy.\63\
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    \61\ See 12 CFR 1291.5.
    \62\ See 12 CFR 1291.5(b)(1).
    \63\ See 12 CFR 1291.5(d).
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    (b) Effect of proposed rule: The proposed rule would allow the 
Banks substantially more flexibility to devise their own competitive 
application scoring criteria for selecting the projects to be approved 
for AHP subsidies under their General Fund and any Targeted Funds 
established. In revising the scoring criteria for their General Funds, 
the Banks would likely also revise their application requirements to 
reflect the new criteria. In addition, Banks that establish one or more 
Targeted Funds would likely also develop application requirements for 
each of those Funds that are different from both their current 
competitive application requirements and the General Fund application 
requirements they would establish under the revised regulation. Because 
of the greater flexibility the Banks would have under the proposed 
rule, it is not possible at this point to determine precisely how the 
Banks' competitive application processes would change or to estimate 
with any accuracy the effect that any such changes would have on the 
average amount of time needed to complete the competitive application 
process.
    The proposed rule would, to a minor extent, require the Banks to 
obtain from Bank members and project sponsors and owners applying for 
AHP subsidies certain information when evaluating AHP applications that 
they are not expressly required to evaluate under the current 
regulation. Under the proposed rule, the Banks would be required to 
obtain from all AHP applicants information needed to evaluate whether 
the project sponsor (including all affiliates and team members such as 
the general contractor) is able to perform the responsibilities 
committed to in the AHP application, as well as information needed to 
provide assurance that those parties have not engaged in certain types 
of misconduct. The proposed rule would also require the Banks to obtain 
from applicants for rental project subsidies the project's operating 
pro forma (in addition to the project's development budget, which is 
expressly required under the current regulation) for use in confirming 
the need for the AHP subsidy. FHFA anticipates that these submission 
requirements may be met with materials that have already been prepared 
for other purposes and that, therefore, they will not materially add to 
the time required to prepare an AHP competitive application.
    To the extent that Banks choose to establish Targeted Funds, as 
would be permitted under the proposed rule, they could see an increase 
in AHP applications in connection with projects that would be unlikely 
to be approved under the existing scoring criteria for their 
Competitive Application Programs. Based on this expectation, FHFA 
estimates that the number of AHP competitive applications received by 
the Banks annually would increase by 10 percent--from 1,350 to 1,485--
over the estimates made in FHFA's most recent submissions to OMB for 
the information collection requirements under part 1291.
    (c) Use: The Banks would use the information collected during the 
competitive application process to determine whether projects for which 
Bank members and project sponsors and owners are seeking subsidies 
under the Banks' General Funds and Targeted Funds satisfy the 
applicable regulatory requirements and score highly enough in 
comparison with other applications submitted during the same funding 
period to be approved for AHP subsidies.
    (d) Revised burden estimates: For the reasons stated above, FHFA is 
increasing its estimate as to the average

[[Page 11372]]

number of competitive applications for AHP subsidies that Bank members, 
on behalf of project sponsors and owners, would submit to the Banks 
annually from 1,350 to 1,485. The estimate for the average preparation 
time for each application would remain at 24 hours. Thus, FHFA's 
estimate for the total annual hour burden on members and project 
sponsors and owners in connection with the preparation and submission 
of applications under the Banks' General Funds and Targeted Funds is 
35,640 hours (1,485 applications x 24 hours).
2. Compliance Submissions for Approved General Fund and Targeted Fund 
Projects at AHP Subsidy Disbursement
    (a) Existing requirement: The current regulation provides that, 
prior to each disbursement of AHP subsidy for a project approved under 
a Bank's Competitive Application Program, the Bank must confirm that 
the project continues to meet the AHP regulatory eligibility 
requirements, as well as all commitments made in the approved AHP 
application.\64\ As part of this process, Banks typically require that 
the member and project sponsor provide documentation demonstrating 
continuing compliance.
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    \64\ See 12 CFR 1291.5(g)(3).
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    (b) Effect of proposed rule: The proposed rule would add a 
requirement that, prior to each AHP subsidy disbursement, Banks obtain 
and review certifications and other information needed to provide 
assurance that the project sponsor (including all affiliates and team 
members such as the general contractor) have not engaged in certain 
types of misconduct since providing similar information at the 
application stage or in connection with a prior subsidy disbursement. 
FHFA anticipates that these additional requirements will not materially 
add to the time required to prepare a compliance submission.
    (c) Use: The Banks would use the compliance submissions to 
determine whether projects approved under their General Funds and 
Targeted Funds continue to meet the applicable requirements and to 
comply with the commitments made in the approved AHP applications each 
time subsidy is disbursed.
    (d) Revised burden estimates: FHFA is increasing its estimate as to 
the annual average number of compliance submissions made by Bank 
members, on behalf of project sponsors and owners, from 700 to 715 to 
reflect anticipated higher amounts of funds being available for the AHP 
due to higher projected Bank incomes (and therefore more projects 
approved). The estimate for the average preparation time for each 
submission would remain at 1 hour. Thus, FHFA's estimate for the total 
annual hour burden on members and project sponsors and owners in 
connection with the preparation and submission of these compliance 
submissions for projects approved under the Banks' General Funds and 
Targeted Funds is 715 hours (715 submissions x 1 hour).
3. Modification Requests for Approved General Fund and Targeted Fund 
Projects
    (a) Existing requirement: The current regulation permits a Bank to 
approve a modification to the terms of an approved competitive 
application that would change the score that the application received 
in the funding period in which it was originally scored and approved, 
had the changed facts been operative at that time. In order to be 
considered for a modification: (i) The project, incorporating the 
changes, must continue to meet the regulatory eligibility requirements; 
(ii) the application, as reflective of the changes, must continue to 
score high enough to have been approved in the funding period in which 
it was originally scored and approved; and (iii) there must be good 
cause for the modification, and the analysis and justification for the 
modification must be documented by the Bank in writing.\65\ Banks 
typically require the member and project sponsor or owner requesting a 
modification to provide a written analysis and justification as part of 
their modification request.
---------------------------------------------------------------------------

    \65\ See 12 CFR 1291.5(f).
---------------------------------------------------------------------------

    (b) Effect of proposed rule: The proposed rule would add a 
requirement that before a Bank may approve a modification request, it 
must have first requested that the project cure any AHP noncompliance 
and that the cure was unsuccessful after a reasonable period of time. 
FHFA estimates that this revision will result in about five percent 
fewer approved AHP projects requesting modifications. The proposed rule 
would have no effect on the amount of time needed to prepare and submit 
a modification request and any supporting materials.
    (c) Use: The Banks would use the information submitted to determine 
whether requests for modifications of approved projects under their 
General Funds and Targeted Funds meet the regulatory requirements for 
approval.
    (d) Revised burden estimates: FHFA is decreasing its estimate as to 
the annual average number of modification requests made by Bank 
members, on behalf of project sponsors and owners, from 300 to 290. 
This takes into account both the estimated five percent decrease in the 
percentage of approved projects requesting modifications arising from 
the effects of the proposed rule and an estimated two percent increase 
in the number of approved projects due to higher projected Bank income. 
The estimate for the average preparation time for each submission would 
remain at 2.5 hours. Thus, FHFA's estimate for the total annual hour 
burden on members and project sponsors and owners in connection with 
the preparation and submission of these modification requests is 725 
hours (290 requests x 2.5 hours).
4. Initial Monitoring Submissions for Approved General Fund and 
Targeted Fund Projects
    (a) Existing requirement: The current regulation requires generally 
that a Bank monitor each owner-occupied and rental project receiving 
AHP subsidy under its Competitive Application Program prior to and 
after project completion. For initial monitoring, a Bank must determine 
whether the project is making satisfactory progress towards completion, 
in compliance with the commitments made in the approved AHP 
application, Bank policies, and the AHP regulatory requirements. 
Following project completion, the Bank must determine whether 
satisfactory progress is being made towards occupancy of the project by 
eligible households, and whether the project meets the regulatory 
requirements and the commitments made in the approved AHP 
application.\66\
---------------------------------------------------------------------------

    \66\ See 12 CFR 1291.7(a)(1).
---------------------------------------------------------------------------

    (b) Effect of proposed rule: In the case of approved projects that 
also receive funding through LIHTCs, the proposed rule would retain the 
initial monitoring requirement that project sponsors certify to the 
Banks that the residents' incomes and the rents comply with the income-
targeting and rent commitments in the approved AHP application. The 
proposed rule would also include a requirement, consistent with Bank 
practice, that the Banks obtain and review the project's rent rolls, a 
type of back-up documentation. However, the proposed rule would remove 
the requirement that the Banks obtain and review other back-up 
documentation on incomes and rents, such as W-2 forms, at initial 
monitoring for LIHTC projects, which they are currently required to 
review on a risk basis.

[[Page 11373]]

    The proposed rule would also provide that, for AHP projects funded 
by certain other government programs specified in separate FHFA 
guidance, the Banks would be required to obtain and review only project 
sponsor certifications and rent rolls at the initial monitoring stage. 
For such projects, the Banks would not be required to review any back-
up documentation for incomes and rents, as is generally required at the 
initial monitoring stage.
    FHFA estimates that these proposed revisions would decrease the 
average amount of time needed for Bank members and project sponsors or 
owners to prepare and submit materials related to the initial 
monitoring of approved projects by ten percent.
    (c) Use: The Banks would use the information collected in 
connection with their initial monitoring of approved General Fund and 
Targeted Fund projects to determine whether the projects are making 
satisfactory progress towards completion, and following project 
completion, are making satisfactory progress towards occupancy of the 
project by eligible households, in compliance with the commitments made 
in the approved AHP applications, Bank policies, and the regulatory 
requirements.
    (d) Revised burden estimates: FHFA is increasing its estimate as to 
the annual average number of submissions related to the initial 
monitoring of in-progress and recently completed AHP projects from 500 
to 510, which reflects an estimated two percent increase in the number 
of approved projects due to projected higher Bank incomes. FHFA is 
decreasing its estimate for the average preparation time for each 
submission from 5 hours to 4.5 hours, which reflects the effects of the 
proposed rule, as described above. Thus, FHFA's estimate for the total 
annual hour burden on members and project sponsors and owners in 
connection with the preparation and submission of documentation 
required for initial monitoring of the Banks' General Fund and Targeted 
Fund projects is 2,295 hours (510 submissions x 4.5 hours).
5. Long-Term Monitoring Submissions for Approved General Fund and 
Targeted Fund Projects
    (a) Existing requirement: The current regulation requires that for 
long-term monitoring of rental projects, subject to certain exceptions, 
a Bank must determine whether, during the 15-year retention period, the 
household incomes and rents comply with the income-targeting and rent 
commitments made in the approved AHP application.\67\ A Bank must 
obtain and review appropriate documentation maintained by the project 
sponsor or owner.
---------------------------------------------------------------------------

    \67\ See 12 CFR 1291.7(a)(4).
---------------------------------------------------------------------------

    (b) Effect of proposed rule: The proposed rule would implement a 
number of changes to streamline certain aspects of the long-term 
monitoring process. Under the proposed rule, as under the current 
regulation, project sponsors or owners of LIHTC projects would not be 
required to submit compliance reports for such projects to the Bank 
during the AHP retention period. The proposed rule, however, would add 
a requirement that the members' AHP agreements with project sponsors 
and owners include a provision requiring the party to notify the Bank 
if a LIHTC project is noncompliant with the LIHTC income-targeting or 
rent requirements at any time during the AHP 15-year retention period. 
The proposed rule would also provide that, for AHP projects funded by 
certain other government programs, the Banks would be required to 
review only project sponsor certifications each year during the long-
term retention period. The Banks would not be required to review any 
back-up documentation for incomes and rents, including rent rolls, for 
those projects, as they are generally required to do on a risk basis.
    The proposed rule would codify existing Bank best practices that 
require submission by project sponsors of annual project certifications 
during the AHP 15-year retention period that include not only the 
required household income and rent information, but also information on 
the ongoing financial viability of the project, such as whether the 
project is current on property taxes and loan payments, its vacancy 
rate, or whether it is in compliance with its commitments to other 
funding sources.
    FHFA estimates that the net effect of the above-described revisions 
would be to decrease the average amount of time needed for Bank members 
and project sponsors or owners to prepare and submit materials related 
to the long-term monitoring of approved projects by ten percent.
    (c) Use: The Banks would use the information collected as part of 
their long-term monitoring to determine whether during the 15-year 
retention period, completed rental projects under their General Funds 
and Targeted Funds continue to comply with the household income-
targeting and rent commitments made in the approved AHP applications.
    (d) Revised burden estimates: FHFA is increasing its estimate as to 
the annual average number of submissions related to the long-term 
monitoring of completed AHP rental projects from 4,800 to 4,900, which 
reflects an estimated two percent increase in the number of approved 
projects due to projected higher Bank incomes. FHFA is decreasing its 
estimate for the average preparation time for each submission from 3 
hours to 2.7 hours, which reflects the effects of the proposed rule, as 
described above. Thus, FHFA's estimate for the total annual hour burden 
on members and project sponsors and owners in connection with the 
preparation and submission of documentation required for long-term 
monitoring of completed rental projects approved under the Banks' 
General Funds and Targeted Funds is 13,230 hours (4,900 submissions x 
2.7 hours).
6. Homeownership Set-Aside Program Applications and Certifications
    (a) Existing requirement: The current regulation authorizes each 
Bank, in its discretion, to allocate up to the greater of $4.5 million 
or 35 percent of its annual required AHP contribution to establish 
Homeownership Set-Aside Programs for the purpose of promoting 
homeownership for low- or moderate-income households.\68\ Under these 
Homeownership Set-Aside Programs, a Bank provides to its members AHP 
direct subsidies, which are provided by the members to eligible 
households as grants to pay for down payment, closing cost, counseling 
cost, or rehabilitation assistance in connection with the household's 
purchase of a primary residence or rehabilitation of an owner-occupied 
residence.\69\ Prior to the Bank's disbursement of a direct subsidy 
under its Homeownership Set-Aside Program, the member must provide a 
certification that the subsidy will be provided in compliance with all 
applicable regulatory eligibility requirements.\70\
---------------------------------------------------------------------------

    \68\ See 12 CFR 1291.2(b)(2); 1291.6.
    \69\ See 12 CFR 1291.6(c)(4).
    \70\ See 12 CFR 1291.7(b)(2).
---------------------------------------------------------------------------

    (b) Effect of proposed rule: The proposed rule would increase the 
maximum permissible percentage allocation amount for each Bank's 
Homeownership Set-Aside Program from 35 to 40 percent of the Bank's 
annual required AHP contribution, while retaining the existing 
alternative maximum permissible allocation amount of $4.5 million. In 
addition, the proposed rule would increase the maximum permissible 
direct subsidy amount that a Bank could provide to a

[[Page 11374]]

household from $15,000 to $22,000, which would be adjusted annually to 
reflect increases in FHFA's Housing Price Index. While adoption of the 
proposed higher subsidy limit could result in fewer households 
receiving set-aside subsidies, Banks could choose to offset this by 
increasing the maximum amount of AHP funds they allocate to their 
Homeownership Set-Aside Programs from 35 to 40 percent. Notwithstanding 
that the Banks would be authorized to adopt a higher subsidy limit than 
is permitted under the current regulation, FHFA expects that most Banks 
will continue to establish lower subsidy limits in order to serve a 
greater number of households. Accordingly, FHFA anticipates that the 
proposed regulatory revisions may cause the Banks to provide a higher 
number of set-aside subsidies annually.
    None of the proposed revisions would affect the amount of time 
needed for a Bank member to prepare a Homeownership Set-Aside Program 
application or monitoring certification.
    (c) Use: The Banks would use the information collected in 
connection with their Homeownership Set-Aside Programs to determine 
whether applications for direct subsidy under those programs were 
approved, and the direct subsidies disbursed, in accordance with the 
regulatory requirements.
    (d) Revised burden estimates: FHFA is increasing its estimate as to 
the annual average number of applications and required certifications 
for AHP direct subsidies under the Banks' Homeownership Set-Aside 
Programs from 13,000 to 15,000 to reflect anticipated higher amounts of 
funds being available for the AHP due to projected higher Bank incomes, 
in addition to the effect of the proposed increase--from 35 to 40 
percent--in the percentage of their AHP contributions that the Banks 
may allocate to their Homeownership Set-Aside Programs. The estimate 
for the average preparation time for each submission would remain at 5 
hours. Thus, FHFA's estimate for the total annual hour burden on 
members in connection with the preparation and submission of 
Homeownership Set-Aside Program applications and certifications is 
75,000 hours (15,000 applications/certifications x 5 hours).

VII. Regulatory Flexibility Act

    The Regulatory Flexibility Act \71\ 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 
impact on small entities. Such an analysis need not be undertaken if 
the agency has certified that the regulation will not have a 
significant economic impact on a substantial number of small 
entities.\72\ FHFA has considered the impact of the proposed rule under 
the Regulatory Flexibility Act. The General Counsel of 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 applies to the Banks, which are not 
small entities for purposes of the Regulatory Flexibility Act.
---------------------------------------------------------------------------

    \71\ 5 U.S.C. 601 et seq.
    \72\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

List of Subjects

12 CFR Part 1290

    Banks and banking, Credit, Federal home loan banks, Housing, 
Mortgages, Reporting and recordkeeping requirements.

12 CFR Part 1291

    Community development, Credit, Federal home loan banks, Housing, 
Low- and moderate-income housing, Mortgages, Reporting and 
recordkeeping requirements.

    For the reasons stated in the preamble, FHFA proposes to amend 
parts 1290 and 1291 of Title 12 of the Code of Federal Regulations as 
follows:

PART 1290--COMMUNITY SUPPORT REQUIREMENTS

0
1. The authority citation for part 1290 is revised to read as follows:

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

0
2. Amend Sec.  1290.6 by revising paragraph (a)(5) and adding 
paragraphs (c) and (d) to read as follows:


Sec.  1290.6   Bank community support programs.

    (a) * * *
    (5) Include an annual Targeted Community Lending Plan, approved by 
the Bank's board of directors and subject to modification. The Bank's 
board of directors shall not delegate to a committee of the board, Bank 
officers, or other Bank employees the responsibility to adopt or amend 
the Targeted Community Lending Plan. The Targeted Community Lending 
Plan shall:
    (i) Reflect market research conducted in the Bank's district;
    (ii) Describe how the Bank will address identified credit needs and 
market opportunities in the Bank's district for targeted community 
lending;
    (iii) Be developed in consultation with (and may only be amended 
after consultation with) its Advisory Council and with members, housing 
associates, and public and private economic development organizations 
in the Bank's district in developing and implementing its Targeted 
Community Lending Plan;
    (iv) Establish quantitative targeted community lending performance 
goals; and
    (v) Describe how the Bank will address identified significant 
affordable housing needs in its district through its Affordable Housing 
Program, reflecting:
    (A) Market research conducted or obtained by the Bank on affordable 
housing needs in the Bank's district;
    (B) Identification and assessment of significant affordable housing 
needs in the Bank's district, supported by empirical data; and
    (C) Specification, from among the identified affordable housing 
needs, of the specific affordable housing needs the Bank will address 
through its funding allocations and scoring criteria under its General 
Fund and any Bank Targeted Funds and Homeownership Set-Aside Programs, 
as set forth in its AHP Implementation Plan pursuant to 12 CFR 
1291.13(b).
* * * * *
    (c) Public access. A Bank shall publish its current Targeted 
Community Lending Plan on its publicly available website, and shall 
publish any amendments to its Targeted Community Lending Plan on the 
website within 30 days after the date of their adoption by the Bank's 
board of directors. Publication of the Targeted Community Lending Plan 
on the website shall be at least six months before the beginning of the 
Plan year.
    (d) Notification of Plan amendments to FHFA. A Bank shall notify 
FHFA of any amendments to its Targeted Community Lending Plan within 30 
days after the date of their adoption by the Bank's board of directors.

PART 1291--FEDERAL HOME LOAN BANKS' AFFORDABLE HOUSING PROGRAM

0
3. Revise part 1291 to read as follows:

PART 1291--FEDERAL HOME LOAN BANKS' AFFORDABLE HOUSING PROGRAM

Subpart A--General
Sec.
1291.1 Definitions.

[[Page 11375]]

Subpart B--Program Administration and Governance
1291.10 Required annual AHP contribution.
1291.11 Temporary suspension of AHP contributions.
1291.12 Allocation of required annual AHP contribution.
1291.13 Targeted Community Lending Plan; AHP Implementation Plan.
1291.14 Advisory Councils.
1291.15 Agreements.
1291.16 Conflicts of interest.
Subpart C--General Fund and Targeted Funds
1291.20 Establishment of programs.
1291.21 Eligible applicants.
1291.22 Funding periods; application process.
1291.23 Eligible projects.
1291.24 Eligible uses.
1291.25 Scoring methodology.
1291.26 Approval of AHP applications.
1291.27 Modifications of approved AHP applications.
1291.28 Procedures for funding.
1291.29 Lending and re-lending of AHP direct subsidy by revolving 
loan funds.
1291.30 Use of AHP subsidy in loan pools.
Subpart D--Homeownership Set-Aside Programs
1291.40 Establishment of programs.
1291.41 Eligible applicants.
1291.42 Eligibility requirements.
1291.43 Approval of AHP applications.
1291.44 Procedures for funding.
Subpart E--Outcome Requirements for Statutory and Regulatory Priorities
1291.48 Outcome requirements for statutory and regulatory 
priorities.
1291.49 Determination of compliance with outcome requirements; 
notice of determination.
Subpart F--Monitoring
1291.50 Monitoring under General Fund and Targeted Funds.
1291.51 Monitoring under Homeownership Set-Aside Programs.
Subpart G--Remedial Actions for Noncompliance
1291.60 Remedial actions for project noncompliance.
1291.61 Recovery of subsidy for member noncompliance.
1291.62 Bank reimbursement of AHP fund.
1291.63 Suspension and debarment.
1291.64 Use of repaid AHP subsidies for other AHP-eligible projects 
and households.
1291.65 Remedial actions for Bank noncompliance with outcome 
requirements.
1291.66 Transfer of Program administration.
Subpart H--Affordable Housing Reserve Fund
1291.70 Affordable Housing Reserve Fund.

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

Subpart A--General


Sec.  1291.1  Definitions.

    As used in this part:
    Affordable means that:
    (1) The rent charged to a household for a unit that is to be 
reserved for occupancy by a household with an income at or below 80 
percent of the median income for the area, does not exceed 30 percent 
of the income of a household of the maximum income and size expected, 
under the commitment made in the AHP application, to occupy the unit 
(assuming occupancy of 1.5 persons per bedroom or 1.0 persons per unit 
without a separate bedroom); or
    (2) The rent charged to a household, for rental units subsidized 
with Section 8 assistance under 42 U.S.C. 1437f or subsidized under 
another assistance program where the rents are charged in the same way 
as under the Section 8 Program, if the rent complied with this 
definition at the time of the household's initial occupancy and the 
household continues to be assisted through the Section 8 or another 
assistance program, respectively.
    AHP means the Affordable Housing Program required to be established 
by the Banks pursuant to 12 U.S.C. 1430(j) and this part.
    AHP project means a single-family or multifamily housing project 
for owner-occupied or rental housing that has been awarded or has 
received AHP subsidy under a Bank's General Fund and any Targeted Funds 
established by the Bank.
    Cost of funds means, for purposes of a subsidized advance, the 
estimated cost of issuing Bank System consolidated obligations with 
maturities comparable to that of the subsidized advance.
    Direct subsidy means an AHP subsidy in the form of a direct cash 
payment.
    Eligible household means a household that meets the income limits 
and other requirements specified by a Bank for its General Fund and any 
Targeted Funds and Homeownership Set-Aside Programs established by the 
Bank, provided that:
    (1) In the case of owner-occupied housing, the household's income 
may not exceed 80 percent of the median income for the area; and
    (2) In the case of rental housing, the household's income in at 
least 20 percent of the units may not exceed 50 percent of the median 
income for the area.
    Eligible project means a project eligible to receive AHP subsidy 
pursuant to the requirements of this part.
    Extremely low-income household means a household that has an income 
at or below 30 percent of the median income for the area, with the 
income limit adjusted for household size in accordance with the 
methodology of the applicable median income standard selected from 
those enumerated in the definition of ``median income for the area,'' 
unless such median income standard has no household size adjustment 
methodology.
    Family member means any individual related to a person by blood, 
marriage, or adoption.
    Funding period means a time period, as determined by a Bank, during 
which the Bank accepts AHP applications for subsidy under the Bank's 
General Fund and any Targeted Funds established by the Bank.
    General Fund means a program required to be established by a Bank 
under which the Bank approves (i.e., awards) applications for AHP 
subsidy through a competitive application scoring process developed by 
the Bank and disburses the subsidy, pursuant to the requirements of 
this part.
    Homeownership Set-Aside Program means a program established by a 
Bank, in its discretion, under which the Bank approves (i.e., awards) 
applications for AHP direct subsidy through a noncompetitive process 
developed by the Bank and disburses the subsidy, pursuant to the 
requirements of this part.
    Loan pool means a group of mortgage or other loans meeting the 
requirements of this part that are purchased, pooled, and held in 
trust.
    Low- or moderate-income household means a household that has an 
income of 80 percent or less of the median income for the area, with 
the income limit adjusted for household size in accordance with the 
methodology of the applicable median income standard selected from 
those enumerated in the definition of ``median income for the area,'' 
unless such median income standard has no household size adjustment 
methodology.
    Low- or moderate-income neighborhood means any neighborhood in 
which 51 percent or more of the households have incomes at or below 80 
percent of the median income for the area.
    Median income for the area means one or more of the following 
median income standards as determined by a Bank, after consultation 
with its Advisory Council, in its AHP Implementation Plan:
    (1) The median income for the area, as published annually by HUD;
    (2) The median income for the area obtained from the Federal 
Financial Institutions Examination Council;

[[Page 11376]]

    (3) The applicable median family income, as determined under 26 
U.S.C. 143(f) (Mortgage Revenue Bonds) and published by a state agency 
or instrumentality;
    (4) The median income for the area, as published by the United 
States Department of Agriculture; or
    (5) The median income for an applicable definable geographic area, 
as published by a federal, state, or local government entity, and 
approved by FHFA, at the request of a Bank, for use under the AHP.
    Multifamily building means a structure with five or more dwelling 
units.
    Net earnings of a Bank means the net earnings of a Bank for a 
calendar year before declaring or paying any dividend under section 16 
of the Bank Act (12 U.S.C. 1436). For purposes of this part, 
``dividend'' includes any dividends on capital stock subject to a 
redemption request even if under GAAP those dividends are treated as an 
``interest expense.''
    Owner-occupied project means, for purposes of a Bank's General Fund 
and any Targeted Funds established by the Bank, one or more owner-
occupied units in a single-family or multifamily building, including 
condominiums, cooperative housing, and manufactured housing.
    Owner-occupied unit means a dwelling unit occupied by the owner of 
the unit. Housing with two to four dwelling units consisting of one 
owner-occupied unit and one or more rental units is considered a single 
owner-occupied unit.
    Program means the Affordable Housing Program established pursuant 
to this part.
    Regulatory priority means underserved communities and populations, 
creating economic opportunity, or affordable housing preservation, as 
described in Sec.  1291.48(d)(1), (d)(2), or (d)(3), respectively.
    Rental project means, for purposes of a Bank's General Fund and any 
Targeted Funds established by the Bank, one or more dwelling units for 
occupancy by households that are not owner-occupants, including 
overnight and emergency shelters, transitional housing for homeless 
households, mutual housing, single-room occupancy housing, and 
manufactured housing communities.
    Retention period means fifteen years from the date of completion 
for a rental project.
    Revolving loan fund means a capital fund established to make 
mortgage or other loans whereby loan principal is repaid into the fund 
and re-lent to other borrowers.
    Single-family building means a structure with one to four dwelling 
units.
    Sponsor means a not-for-profit or for-profit organization or public 
entity that:
    (1) Has an ownership interest (including any partnership interest), 
as defined by the Bank in its AHP Implementation Plan, in a rental 
project;
    (2) Is integrally involved, as defined by the Bank in its AHP 
Implementation Plan, in an owner-occupied project, such as by 
exercising control over the planning, development, or management of the 
project, or by qualifying borrowers and providing or arranging 
financing for the owners of the units;
    (3) Operates a loan pool; or
    (4) Is a revolving loan fund.
    Statutory priority means use of donated or conveyed government-
owned or other properties, project sponsorship by a not-for-profit 
organization or government entity, or purchase of homes by low- or 
moderate-income households, as described in Sec.  1291.48(a)(1), 
(a)(2), or (b), respectively.
    Subsidized advance means an advance to a member at an interest rate 
reduced below the Bank's cost of funds by use of a subsidy.
    Subsidy means:
    (1) A direct subsidy, provided that if a direct subsidy is used to 
write down the interest rate on a loan extended by a member, sponsor, 
or other party to a project, the subsidy must equal the net present 
value of the interest foregone from making the loan below the lender's 
market interest rate; or
    (2) The net present value of the interest revenue foregone from 
making a subsidized advance at a rate below the Bank's cost of funds.
    Targeted Fund means a program established by a Bank, in its 
discretion, under which the Bank approves (i.e., awards) applications 
for AHP subsidy through a competitive application scoring process 
developed by the Bank and disburses the subsidy, pursuant to the 
requirements of this part.
    Very low-income household means a household that has an income at 
or below 50 percent of the median income for the area, with the income 
limit adjusted for household size in accordance with the methodology of 
the applicable median income standard selected from those enumerated in 
the definition of ``median income for the area,'' unless such median 
income standard has no household size adjustment methodology.
    Visitable means, in either owner-occupied or rental housing, at 
least one entrance is at-grade (no steps) and approached by an 
accessible route such as a sidewalk, and the entrance door and all 
interior passage doors are at least 2 feet, 10 inches wide, offering 32 
inches of clear passage space.

Subpart B--Program Administration and Governance


Sec.  1291.10  Required annual AHP contribution.

    Each Bank shall contribute annually to its Program the greater of:
    (a) 10 percent of the Bank's net earnings for the previous year; or
    (b) That Bank's pro rata share of an aggregate of $100 million to 
be contributed in total by the Banks, such proration being made on the 
basis of the net earnings of the Banks for the previous year, except 
that the required annual AHP contribution for a Bank shall not exceed 
its net earnings in the previous year.


Sec.  1291.11  Temporary suspension of AHP contributions.

    (a) Request to FHFA. If a Bank finds that the contributions 
required pursuant to Sec.  1291.10 are contributing to the financial 
instability of the Bank, the Bank may apply in writing to FHFA for a 
temporary suspension of such contributions.
    (b) Director review.--(1) In determining the financial instability 
of a Bank, the Director shall consider such factors as:
    (i) Severely depressed Bank earnings;
    (ii) A substantial decline in Bank membership capital; and
    (iii) A substantial reduction in Bank advances outstanding.
    (2) Limitations on grounds for suspension. The Director shall not 
suspend a Bank's annual AHP contributions if it determines that the 
Bank's reduction in earnings is due to:
    (i) A change in the terms of advances to members that is not 
justified by market conditions;
    (ii) Inordinate operating and administrative expenses; or
    (iii) Mismanagement.


Sec.  1291.12  Allocation of required annual AHP contribution.

    Each Bank, after consultation with its Advisory Council and 
pursuant to written policies adopted by the Bank's board of directors, 
shall meet the following requirements for allocation of its required 
annual AHP contribution.
    (a) General Fund. Each Bank shall allocate annually at least 50 
percent of its required annual AHP contribution to provide funds to 
members through a General Fund established and

[[Page 11377]]

administered by the Bank pursuant to the requirements of this part.
    (b) Homeownership Set-Aside Programs. A Bank may, in its 
discretion, allocate annually, in the aggregate, up to the greater of 
$4.5 million or 40 percent of its required annual AHP contribution to 
provide funds to members participating in Homeownership Set-Aside 
Programs established and administered by the Bank pursuant to the 
requirements of this part, provided that at least one-third of the 
Bank's aggregate annual set-aside allocation to such programs is 
allocated to assist first-time homebuyers or households for owner-
occupied rehabilitation.
    (c) Targeted Funds.--(1) Phase-in requirements for funding 
allocations. Unless otherwise directed by FHFA and subject to the 
phase-in requirements for the number of Targeted Funds in Sec.  
1291.20(b), a Bank may, in its discretion, allocate annually, up to:
    (i) 20 percent, in the aggregate, of its required annual AHP 
contribution to any Targeted Funds;
    (ii) 30 percent, in the aggregate, of its required annual AHP 
contribution to any Targeted Funds, provided that it allocated at least 
20 percent, in the aggregate, of its required annual AHP contribution 
to one or more Targeted Funds in any preceding year; or
    (iii) 40 percent, in the aggregate, of its required annual AHP 
contribution to any Targeted Funds, provided that it allocated at least 
30 percent, in the aggregate, of its required annual AHP contribution 
to one or more Targeted Funds in any preceding year.
    (2) Transfer of uncommitted funds. A Bank shall transfer any 
uncommitted Targeted Fund amounts to its General Fund for awards to 
alternates under the General Fund in the same calendar year.
    (d) Acceleration of funding. A Bank may, in its discretion, 
accelerate to its current year's Program from future required annual 
AHP contributions an amount up to the greater of $5 million or 20 
percent of its required annual AHP contribution for the current year. 
The Bank may credit the amount of the accelerated contribution against 
required AHP contributions under this part 1291 over one or more of the 
subsequent five years.
    (e) No delegation. A Bank's board of directors shall not delegate 
to a committee of the board, Bank officers, or other Bank employees the 
responsibility for adopting the Bank's policies for its General Fund 
and any Bank Targeted Funds and Homeownership Set-Aside Programs.


Sec.  1291.13   Targeted Community Lending Plan; AHP Implementation 
Plan.

    (a) Targeted Community Lending Plan. Pursuant to the requirements 
of 12 CFR 1290.6(a)(5)(v), a Bank's annual Targeted Community Lending 
Plan adopted under its community support program shall, among other 
things, identify the significant affordable housing needs in its 
district that will be addressed through its General Fund and any Bank 
Targeted Funds and Homeownership Set-Aside Programs, as set forth in 
its AHP Implementation Plan.
    (b) AHP Implementation Plan. Each Bank's board of directors, after 
consultation with its Advisory Council, shall adopt a written AHP 
Implementation Plan, and shall not amend the AHP Implementation Plan 
without first consulting its Advisory Council. The Bank's board of 
directors shall not delegate to a committee of the board, Bank 
officers, or other Bank employees the responsibility for such prior 
consultations with the Advisory Council or the responsibility for 
adopting or amending the AHP Implementation Plan. The AHP 
Implementation Plan shall set forth, at a minimum:
    (1) The applicable median income standard or standards adopted by 
the Bank consistent with the definition of median income for the area 
in Sec.  1291.1.
    (2) For the General Fund established by the Bank pursuant to Sec.  
1291.20(a), the Bank's requirements for the General Fund, including the 
specific funding allocation pursuant to Sec.  1291.12(a), the Bank's 
scoring criteria, including its scoring tie-breaker policy, adopted 
pursuant to Sec.  1291.25(d), and the possibility of re-ranking scored 
applications and alternates pursuant to Sec.  1291.26.
    (3) For each Targeted Fund established by the Bank, if any, 
pursuant to Sec.  1291.20(b), the Bank's requirements for the Targeted 
Fund, including the specific funding allocation pursuant to Sec.  
1291.12(c), the Bank's scoring criteria, including its scoring tie-
breaker policy, adopted pursuant to Sec.  1291.25(d), the possibility 
of re-ranking scored applications and alternates pursuant to Sec.  
1291.26, and the controls adopted pursuant to Sec.  1291.20(c)(1).
    (4) The Bank's policy on how it will decide under which Fund to 
approve a project that scores high enough to be approved under multiple 
Funds, pursuant to Sec.  1291.26(d).
    (5) For each Homeownership Set-Aside Program established by the 
Bank, if any, pursuant to Sec.  1291.40, the Bank's requirements for 
the program, including the specific funding allocation, how the one-
third allocation requirement is apportioned with respect to first-time 
homebuyers and households for owner-occupied rehabilitation pursuant to 
Sec.  1291.12(b), and the Bank's application and subsidy disbursement 
methodology.
    (6) The Bank's retention agreement requirements for rental projects 
under its General Fund and any Bank Targeted Funds pursuant to Sec.  
1291.15(a)(7).
    (7) Any optional Bank district eligibility requirements adopted by 
the Bank pursuant to Sec.  1291.24(c).
    (8) The Bank's requirements for funding revolving loan funds, if 
adopted by the Bank pursuant to Sec.  1291.29;
    (9) The Bank's requirements for funding loan pools, if adopted by 
the Bank pursuant to Sec.  1291.30;
    (10) The Bank's requirements for monitoring under its General Fund 
and any Bank Targeted Funds and Homeownership Set-Aside Programs 
pursuant to Sec. Sec.  1291.50 and 1291.51.
    (c) Advisory Council review. Prior to the amendment of a Bank's AHP 
Implementation Plan, the Bank shall provide its Advisory Council an 
opportunity to review the document, and the Advisory Council shall 
provide its recommendations to the Bank's board of directors for its 
consideration.
    (d) Notification of Plan amendments to FHFA. A Bank shall notify 
FHFA of any amendments made to its AHP Implementation Plan within 30 
days after the date of their adoption by the Bank's board of directors.
    (e) Public access. A Bank shall publish its current AHP 
Implementation Plan on its publicly available website, and shall 
publish any amendments to the AHP Implementation Plan on the website 
within 30 days after the date of their adoption by the Bank's board of 
directors.


Sec.  1291.14  Advisory Councils.

    (a) Appointment.--(1) Each Bank's board of directors shall appoint 
an Advisory Council of 7 to 15 persons who reside in the Bank's 
district and are drawn from community and not-for-profit organizations 
that are actively involved in providing or promoting low- and moderate-
income housing, and community and not-for-profit organizations that are 
actively involved in providing or promoting community lending, in the 
district. Community organizations include for-profit organizations.
    (2) Each Bank shall solicit nominations for membership on the 
Advisory Council from community and not-for-profit organizations 
pursuant to a nomination process that is as broad

[[Page 11378]]

and as participatory as possible, allowing sufficient time for 
responses.
    (3) The Bank's board of directors shall appoint Advisory Council 
members from a diverse range of organizations so that representatives 
of no one group constitute an undue proportion of the membership of the 
Advisory Council, giving consideration to the size of the Bank's 
district and the diversity of low- and moderate-income housing and 
community lending needs and activities within the district.
    (b) Terms of Advisory Council members. Pursuant to policies adopted 
by the Bank's board of directors, Advisory Council members shall be 
appointed by the Bank's board of directors to serve for terms of three 
years, which shall be staggered to provide continuity in experience and 
service to the Advisory Council, except that Advisory Council members 
may be appointed to serve for terms of one or two years solely for 
purposes of reconfiguring the staggering of the three-year terms. No 
Advisory Council member may be appointed to serve for more than three 
full consecutive terms. An Advisory Council member appointed to fill a 
vacancy shall be appointed for the unexpired term of his or her 
predecessor in office.
    (c) Election of officers. Each Advisory Council shall elect from 
among its members a chairperson, a vice chairperson, and any other 
officers the Advisory Council deems appropriate.
    (d) Duties--(1) Meetings with the Banks.--(i) The Advisory Council 
shall meet with representatives of the Bank's board of directors at 
least quarterly to provide advice on ways in which the Bank can better 
carry out its housing finance and community lending mission, including, 
but not limited to, advice on the low- and moderate-income housing and 
community lending programs and needs in the Bank's district, and on the 
use of AHP subsidies, Bank advances, and other Bank credit products for 
these purposes.
    (ii) The Advisory Council's advice shall include recommendations 
on:
    (A) The Bank's Targeted Community Lending Plan, and any amendments 
thereto, adopted by the Bank pursuant to 12 CFR 1290.6(a)(5)(iii);
    (B) The amount of AHP funds to be allocated to the Bank's General 
Fund and any Bank Targeted Funds, and the amount of AHP funds to be 
allocated to any Bank Homeownership Set-Aside Programs, including the 
apportionment of the funds between first-time homebuyers and households 
for owner-occupied rehabilitation under the one-third allocation 
requirement in Sec.  1291.12(b);
    (C) The AHP Implementation Plan and any subsequent amendments 
thereto;
    (D) The Bank's scoring criteria, related definitions, and any 
additional optional district eligibility requirements for the Bank's 
General Fund and any Bank Targeted Funds; and
    (E) The eligibility requirements and any priority criteria for any 
Bank Homeownership Set-Aside Programs.
    (2) Summary of AHP applications. The Bank shall comply with 
requests from the Advisory Council for summary information regarding 
AHP applications from prior funding periods.
    (3) Annual analysis; public access--(i) Each Advisory Council 
annually shall submit to FHFA by May 1 its analysis of the low- and 
moderate-income housing and community lending activity of the Bank by 
which it is appointed.
    (ii) Within 30 days after the date the Advisory Council's annual 
analysis is submitted to FHFA, the Bank shall publish the analysis on 
its publicly available website.
    (e) Expenses. The Bank shall pay Advisory Council members' travel 
expenses, including transportation and subsistence, for each day 
devoted to attending meetings with representatives of the board of 
directors of the Bank and meetings requested by FHFA.
    (f) No delegation. A Bank's board of directors may delegate to a 
committee of the board, but not to Bank officers or other Bank 
employees, the responsibility to appoint persons as members of the 
Advisory Council. A Bank's board of directors may not delegate to a 
committee of the board, Bank officers, or other Bank employees the 
responsibility to meet with the Advisory Council at the quarterly 
meetings required by the Bank Act (12 U.S.C. 1430(j)(11)).


Sec.  1291.15   Agreements.

    (a) Agreements between Banks and members. A Bank shall have in 
place with each member receiving an AHP subsidized advance or AHP 
direct subsidy an agreement or agreements containing, at a minimum, the 
following provisions, where applicable:
    (1) Notification of member. The member has been notified of the 
requirements of this part as they may be amended from time to time, and 
all Bank policies relevant to the member's approved application for AHP 
subsidy.
    (2) AHP subsidy pass-through. The member shall pass on the full 
amount of the AHP subsidy to the project or household, as applicable, 
for which the subsidy was approved.
    (3) Use of AHP subsidy--(i) Use of AHP subsidy by the member. The 
member shall use the AHP subsidy in accordance with the terms of the 
member's approved application for the subsidy and the requirements of 
this part.
    (ii) Use of AHP subsidy by the project sponsor or owner. The member 
shall have in place an agreement with each project sponsor or project 
owner in which the project sponsor or project owner agrees to use the 
AHP subsidy in accordance with the terms of the member's approved 
application for the subsidy and the requirements of this part.
    (4) Repayment of AHP subsidies in case of noncompliance.--(i) 
Noncompliance by the member. The member shall repay AHP subsidies to 
the Bank in accordance with the requirements of Sec.  1291.61.
    (ii) Noncompliance by a project sponsor or project owner.--(A) 
Agreement. The member shall have in place an agreement with each 
project sponsor or project owner in which the project sponsor or 
project owner agrees to repay AHP subsidies to the member or the Bank 
in accordance with the requirements of Sec.  1291.60.
    (B) Recovery of AHP subsidies.--(i) Noncompliance by the member. 
The member shall recover from the project sponsor or project owner and 
repay to the Bank AHP subsidy in accordance with the requirements of 
Sec.  1291.60 (if applicable).
    (5) Project monitoring--(i) Monitoring by the member. The member 
shall comply with the monitoring requirements applicable to it, as 
established by the Bank in its monitoring policies pursuant to 
Sec. Sec.  1291.50 and 1291.51.
    (ii) Agreement. The member shall have in place an agreement with 
each project sponsor and project owner, in which the project sponsor 
and project owner agree to comply with the monitoring requirements 
applicable to such parties, as established by the Bank in its 
monitoring policies pursuant to Sec.  1291.50, which shall also include 
agreeing to provide prompt written notice to the Bank if the project 
also received tax credits under the Low-Income Housing Tax Credit 
Program and the project is in noncompliance with the income targeting 
or rent requirements applicable under the Low-Income Housing Tax Credit 
Program at any time during the AHP 15-year retention period.
    (6) Transfer of AHP obligations--(i) To another member. The member 
shall make best efforts to transfer its obligations under the approved

[[Page 11379]]

application for AHP subsidy to another member in the event of its loss 
of membership in the Bank prior to the Bank's final disbursement of AHP 
subsidies.
    (ii) To a nonmember. If, after final disbursement of AHP subsidies 
to the member, the member undergoes an acquisition or a consolidation 
resulting in a successor organization that is not a member of the Bank, 
the nonmember successor organization assumes the member's obligations 
under its approved application for AHP subsidy, and where the member 
received an AHP subsidized advance, the nonmember assumes such 
obligations until prepayment or orderly liquidation by the nonmember of 
the subsidized advance.
    (7) Retention agreements for rental projects. The member shall 
ensure that an AHP-assisted rental project is subject to a deed 
restriction or other legally enforceable retention agreement or 
mechanism requiring that:
    (i) The project's rental units, or applicable portion thereof, must 
remain occupied by and affordable for households with incomes at or 
below the levels committed to be served in the approved AHP application 
for the duration of the retention period;
    (ii) The Bank and its designee is to be given notice of any sale, 
transfer, assignment of title or deed, or refinancing of the project 
during the retention period;
    (iii) In the case of a sale, transfer, assignment of title or deed, 
or refinancing of the project by the owner during the retention period, 
the full amount of the AHP subsidy received by the owner shall be 
repaid to the Bank, unless:
    (A) The project continues to be subject to a deed restriction or 
other legally enforceable retention agreement or mechanism 
incorporating the income-eligibility and affordability restrictions 
committed to in the approved AHP application for the duration of the 
retention period; or
    (B) If authorized by the Bank, in its discretion, the households 
are relocated, due to the exercise of eminent domain, or for expansion 
of housing or services, to another property that is made subject to a 
deed restriction or other legally enforceable retention agreement or 
mechanism incorporating the income-eligibility and affordability 
restrictions committed to in the approved AHP application for the 
remainder of the retention period; and
    (iv) The income-eligibility and affordability restrictions 
applicable to the project shall terminate after any foreclosure.
    (8) Lending of AHP direct subsidies. If a member or a project 
sponsor lends AHP direct subsidy to a project, any repayments of 
principal and payments of interest received by the member or the 
project sponsor must be paid forthwith to the Bank, unless the direct 
subsidy is being both lent and re-lent by a revolving loan fund 
pursuant to Sec.  1291.29(d).
    (9) Special provisions where members obtain AHP subsidized 
advances.--(i) Repayment schedule. The term of an AHP subsidized 
advance shall be no longer than the term of the member's loan to the 
project funded by the advance, and at least once in every 12-month 
period, the member shall be scheduled to make a principal repayment to 
the Bank equal to the amount scheduled to be repaid to the member on 
its loan to the project in that period.
    (ii) Prepayment fees. Upon a prepayment of an AHP subsidized 
advance, the Bank shall charge a prepayment fee only to the extent the 
Bank suffers an economic loss from the prepayment.
    (iii) Treatment of loan prepayment by project. If all or a portion 
of the loan or loans financed by an AHP subsidized advance are prepaid 
by the project to the member, the member may, at its option, either:
    (A) Repay to the Bank that portion of the advance used to make the 
loan or loans to the project, and be subject to a fee imposed by the 
Bank sufficient to compensate the Bank for any economic loss the Bank 
experiences in reinvesting the repaid amount at a rate of return below 
the cost of funds originally used by the Bank to calculate the interest 
rate subsidy incorporated in the advance; or
    (B) Continue to maintain the advance outstanding, subject to the 
Bank resetting the interest rate on that portion of the advance used to 
make the loan or loans to the project to a rate equal to the cost of 
funds originally used by the Bank to calculate the interest rate 
subsidy incorporated in the advance.
    (b) Agreements between Banks and project sponsors or project 
owners.--(1) A Bank may have in place an agreement with each project 
sponsor or project owner, in which the project sponsor or project owner 
agrees to repay AHP subsidies directly to the Bank in accordance with 
the requirements of Sec.  1291.60.
    (2) Project sponsor qualifications. A Bank's AHP subsidy 
application form or other related document must include project sponsor 
qualification criteria that evaluate the ability of the project sponsor 
(including all affiliates and team members such as the general 
contractor) to perform the responsibilities committed to in the 
application. The application form or other related document shall 
include a requirement for the project sponsor to provide certifications 
or respond to specific questions about whether the project sponsor (and 
affiliates and team members such as the general contractor) have 
engaged in misconduct as defined in FHFA's Suspended Counterparty 
Program regulation (12 CFR part 1227), or as defined by the Bank. A 
Bank's AHP subsidy disbursement form or other related form shall 
include a requirement for similar certifications or questions for the 
project sponsor to complete prior to each disbursement of AHP subsidy.
    (c) Application to existing AHP projects and units. The 
requirements of section 10(j) of the Bank Act (12 U.S.C. 1430(j)) and 
the provisions of this part, as amended, are incorporated into all 
agreements between Banks, members, project sponsors, and project owners 
receiving AHP subsidies under the General Fund and any Bank Targeted 
Funds, and between Banks, members and unit owners under any Bank 
Homeownership Set-Aside Programs. To the extent the requirements of 
this part are amended from time to time, such agreements are deemed to 
incorporate the amendments to conform to any new requirements of this 
part. No amendment to this part shall affect the legality of actions 
taken prior to the effective date of such amendment.


Sec.  1291.16   Conflicts of interest.

    (a) Bank directors and employees.--(1) Each Bank's board of 
directors shall adopt a written policy providing that if a Bank 
director or employee, or such person's family member, has a financial 
interest in, or is a director, officer, or employee of an organization 
involved in, a project that is the subject of a pending or approved AHP 
application, the Bank director or employee shall not participate in or 
attempt to influence decisions by the Bank regarding the evaluation, 
approval, funding, monitoring, or any remedial process for such 
project.
    (2) If a Bank director or employee, or such person's family member, 
has a financial interest in, or is a director, officer, or employee of 
an organization involved in, an AHP project such that he or she is 
subject to the requirements in paragraph (a)(1) of this section, such 
person shall not participate in or attempt to influence decisions by 
the Bank regarding the evaluation, approval, funding, monitoring, or 
any remedial process for such project.

[[Page 11380]]

    (b) Advisory Council members.--(1) Each Bank's board of directors 
shall adopt a written policy providing that if an Advisory Council 
member, or such person's family member, has a financial interest in, or 
is a director, officer, or employee of an organization involved in, a 
project that is the subject of a pending or approved AHP application, 
the Advisory Council member shall not participate in or attempt to 
influence decisions by the Bank regarding the approval for such 
project.
    (2) If an Advisory Council member, or such person's family member, 
has a financial interest in, or is a director, officer, or employee of 
an organization involved in, an AHP project such that he or she is 
subject to the requirements in paragraph (b)(1) of this section, such 
person shall not participate in or attempt to influence decisions by 
the Bank regarding the approval for such project.
    (c) No delegation. A Bank's board of directors shall not delegate 
to Bank officers or other Bank employees the responsibility to adopt 
the conflict of interest policies required by this section.

Subpart C--General Fund and Targeted Funds


Sec.  1291.20   Establishment of programs.

    (a) General Fund. A Bank shall establish a General Fund pursuant to 
the requirements of this part.
    (b) Targeted Funds.--(1) Number of Funds. A Bank may establish, in 
its discretion, a maximum of three Targeted Funds pursuant to the 
requirements of paragraph (b)(2) of this section, the phase-in funding 
allocation requirements in Sec.  1291.12(c)(1), and any other 
applicable requirements of this part. A Bank may not establish or 
administer a Targeted Fund unless at least 12 months have passed since 
the publication of the Targeted Community Lending Plan in which the 
Bank identifies the specific housing needs to be addressed by that 
Targeted Fund.
    (2) Phase-in requirements for number of Funds. Unless otherwise 
directed by FHFA, a Bank may establish:
    (i) One Targeted Fund;
    (ii) Two Targeted Funds to be administered concurrently, provided 
that the Bank administered at least one Targeted Fund in any preceding 
year; or
    (iii) Three Targeted Funds to be administered concurrently, 
provided that the Bank administered at least two Targeted Funds in any 
preceding year.
    (c) Eligibility requirements.--(1) A Bank shall adopt and implement 
controls, which shall be included in its AHP Implementation Plan, for 
ensuring that each Targeted Fund is designed to receive sufficient 
numbers of applicants for the amount of AHP funds allocated to the 
Targeted Fund to enable the Bank to facilitate a genuinely competitive 
scoring process.
    (2) A Bank may not adopt additional eligibility requirements for 
its General Fund and any Targeted Funds except as specifically 
authorized in this part.


Sec.  1291.21   Eligible applicants.

    (a) Member applicants. A Bank shall accept applications for AHP 
subsidy under its General Fund and any Bank Targeted Funds only from 
institutions that are members of the Bank at the time the application 
is submitted to the Bank.
    (b) Project sponsor qualifications--(i) In general. A project 
sponsor, including all affiliates and team members such as the general 
contractor, must be qualified and able to perform its responsibilities 
as committed to in the application for AHP subsidy funding the project.
    (ii) Revolving loan fund. Pursuant to written policies adopted by a 
Bank's board of directors, a revolving loan fund sponsor that intends 
to use AHP direct subsidy in accordance with Sec.  1291.29 shall:
    (A) Provide audited financial statements that its operations are 
consistent with sound business practices; and
    (B) Demonstrate the ability to re-lend AHP subsidy repayments on a 
timely basis and track the use of the AHP subsidy.
    (iii) Loan pool. Pursuant to written policies adopted by a Bank's 
board of directors, a loan pool sponsor that intends to use AHP subsidy 
in accordance with Sec.  1291.30 shall:
    (A) Provide evidence of sound asset/liability management practices;
    (B) Provide audited financial statements that its operations are 
consistent with sound business practices; and
    (C) Demonstrate the ability to track the use of the AHP subsidy.


Sec.  1291.22   Funding periods; application process.

    (a) Funding periods. A Bank may accept applications for AHP subsidy 
under its General Fund and any Bank Targeted Funds during a specified 
number of funding periods each year, as determined by the Bank.
    (b) Submission of applications. Except as provided in Sec.  
1291.29(a), a Bank shall require applications for AHP subsidy to 
contain information sufficient for the Bank to:
    (1) Determine that the proposed AHP project meets the eligibility 
requirements of this part; and
    (2) Evaluate the application pursuant to the scoring methodology 
adopted by the Bank pursuant to Sec.  1291.25.
    (c) Review of applications submitted. Except as provided in Sec.  
1291.29(b), a Bank shall review the applications for AHP subsidy to 
determine that the proposed AHP project meets the eligibility 
requirements of this part, and shall evaluate the applications pursuant 
to the Bank's scoring methodology adopted pursuant to Sec.  1291.25.


Sec.  1291.23  Eligible projects.

    Projects receiving AHP subsidies pursuant to a Bank's General Fund 
and any Bank Targeted Funds must meet the following eligibility 
requirements:
    (a) Owner-occupied or rental housing. The AHP subsidy shall be used 
exclusively for:
    (1) Owner-occupied housing. The purchase, construction, or 
rehabilitation of an owner-occupied project by or for very low-income 
or low- or moderate-income households, where the housing is to be used 
as the household's primary residence. A household must have an income 
meeting the income targeting commitments in the approved AHP 
application at the time it is qualified by the project sponsor for 
participation in the project;
    (2) Rental housing. The purchase, construction, or rehabilitation 
of a rental project, where at least 20 percent of the units in the 
project are occupied by and affordable for very low-income households.
    (i) Projects that are not occupied. For a rental project that is 
not occupied at the time the AHP application is submitted to the Bank 
for approval, a household must have an income meeting the income 
targeting commitments in the approved AHP application upon initial 
occupancy of the rental unit.
    (ii) Projects that are occupied. For a rental project involving 
purchase or rehabilitation that is occupied at the time the AHP 
application is submitted to the Bank for approval, a household must 
have an income meeting the income targeting commitments in the approved 
AHP application at the time of such submission. If the project has a 
plan approved by one of its primary funders to relocate the households 
not meeting the income targeting commitments, a household must have an 
income meeting the income targeting commitments upon initial occupancy 
of the rental unit.
    (b) Project feasibility--(1) Developmental feasibility. The project 
must be likely to be completed and occupied, based on relevant factors 
contained in the Bank's project

[[Page 11381]]

feasibility guidelines, including, but not limited to, the development 
budget, market analysis, and project sponsor's experience in providing 
the requested assistance to households.
    (2) Operational feasibility of rental projects. A rental project 
must be able to operate in a financially sound manner, in accordance 
with the Bank's project feasibility guidelines, as projected in the 
project's operating pro forma.
    (c) Timing of AHP subsidy use. Some or all of the AHP subsidy must 
be likely to be drawn down by the project or used by the project to 
procure other financing commitments within 12 months of the date of 
approval of the application for AHP subsidy funding the project.
    (d) Retention agreements for rental projects. AHP-assisted rental 
projects are, or are committed to be, subject to a 15-year retention 
agreement as described in Sec.  1291.15(a)(7).
    (e) Fair housing. The project, as proposed, must comply with 
applicable federal and state laws on fair housing and housing 
accessibility, including, but not limited to, the Fair Housing Act, the 
Rehabilitation Act of 1973, the Americans with Disabilities Act of 
1990, and the Architectural Barriers Act of 1969, and must demonstrate 
how the project will be affirmatively marketed.


Sec.  1291.24   Eligible uses.

    (a) Eligible uses of AHP subsidy. AHP subsidies shall be used only 
for:
    (1) Owner-occupied housing. The purchase, construction, or 
rehabilitation of owner-occupied housing.
    (2) Rental housing. The purchase, construction, or rehabilitation 
of rental housing.
    (3) Need for AHP subsidy--(i) Review of project development budget 
and operating pro forma--(A) In the case of an owner-occupied project, 
a Bank shall review the project's development budget in determining its 
need for AHP subsidy. The project's estimated sources of funds must 
equal its estimated uses of funds, as reflected in the project's 
development budget. The difference between the project's sources of 
funds and uses of funds is the project's need for AHP subsidy, which is 
the maximum amount of AHP subsidy the project may receive.
    (B) In the case of a rental project, a Bank shall review both the 
project's development budget and operating pro forma in determining its 
need for AHP subsidy. Where the project's uses of funds exceed its 
sources of funds, the difference demonstrates a funding gap and 
provides support for the project's need for AHP subsidy, provided that 
the project's cash flow and costs are reasonable. This is the maximum 
amount of AHP subsidy that the project may receive.
    (C) A Bank, in its discretion, may permit a project's sources of 
funds to include or exclude the estimated market value of in-kind 
donations and voluntary professional labor or services (excluding the 
value of sweat equity), provided that the project's uses of funds also 
include or exclude, respectively, the value of such estimates.
    (ii) Cash sources of funds. A project's cash sources of funds shall 
include any cash contributions by the sponsor, any cash from sources 
other than the sponsor, and estimates of funds the project sponsor 
intends to obtain from other sources but which have not yet been 
committed to the project. In the case of homeownership projects where 
the sponsor extends permanent financing to the homebuyer, the sponsor's 
cash contribution shall include the present value of any payments the 
sponsor is to receive from the buyer, which shall include any cash down 
payment from the buyer, plus the present value of any purchase note the 
sponsor holds on the unit. If the note carries a market interest rate 
commensurate with the credit quality of the buyer, the present value of 
the note equals the face value of the note. If the note carries an 
interest rate below the market rate, the present value of the note 
shall be determined using the market rate to discount the cash flows.
    (iii) Cash uses. A project's cash uses are the actual outlay of 
cash needed to pay for materials, labor, and acquisition or other costs 
of completing the project. Cash costs do not include in-kind donations, 
voluntary professional labor or services, or sweat equity.
    (4) Project costs.--(i) In general.--(A) Taking into consideration 
the geographic location of the project, development conditions, and 
other non-financial household or project characteristics, a Bank shall 
determine that a project's costs, as reflected in the project's 
development budget, are reasonable, in accordance with the Bank's 
project cost guidelines.
    (B) For purposes of determining the reasonableness of a developer's 
fee for a project as a percentage of total development costs, a Bank 
may, in its discretion, include estimates of the market value of in-
kind donations and volunteer professional labor or services (excluding 
the value of sweat equity) committed to the project as part of the 
total development costs.
    (ii) Cost of property and services provided by a member. The 
purchase price of property or services, as reflected in the project's 
development budget, sold to the project by a member providing AHP 
subsidy to the project, or, in the case of property, upon which such 
member holds a mortgage or lien, may not exceed the market value of 
such property or services as of the date the purchase price was agreed 
upon. In the case of real estate owned property sold to a project by a 
member providing AHP subsidy to the project, or property sold to the 
project upon which the member holds a mortgage or lien, the market 
value of such property is deemed to be the ``as-is'' or ``as-
rehabilitated'' value of the property, whichever is appropriate. That 
value shall be reflected in an independent appraisal of the property 
performed by a state certified or licensed appraiser, as defined in 12 
CFR 564.2(j) and (k), within 6 months prior to the date the Bank 
disburses AHP subsidy to the project.
    (5) Financing costs. The rate of interest, points, fees, and any 
other charges for all loans that are made for the project in 
conjunction with the AHP subsidy shall not exceed a reasonable market 
rate of interest, points, fees, and other charges for loans of similar 
maturity, terms, and risk.
    (6) Counseling costs. Counseling costs, provided:
    (i) Such costs are incurred in connection with counseling of 
homebuyers who actually purchase an AHP-assisted unit; and
    (ii) The cost of the counseling has not been covered by another 
funding source, including the member.
    (7) Refinancing. Refinancing of an existing single-family or 
multifamily mortgage loan, provided that the refinancing produces 
equity proceeds and such equity proceeds up to the amount of the AHP 
subsidy in the project shall be used only for the purchase, 
construction, or rehabilitation of housing units meeting the 
eligibility requirements of this part.
    (8) Calculation of AHP subsidy.--(i) Where an AHP direct subsidy is 
provided to a project to write down the interest rate on a loan 
extended by a member, sponsor, or other party to a project, the net 
present value of the interest foregone from making the loan below the 
lender's market interest rate shall be calculated as of the date the 
application for AHP subsidy is submitted to the Bank, and subject to 
adjustment under Sec.  1291.28(d).
    (ii) Where an AHP subsidized advance is provided to a project, the 
net present value of the interest revenue foregone from making a 
subsidized advance at a rate below the Bank's cost of funds shall be 
determined as of the earlier of the date of disbursement of the

[[Page 11382]]

subsidized advance or the date prior to disbursement on which the Bank 
first manages the funding to support the subsidized advance through its 
asset/liability management system, or otherwise.
    (b) Prohibited uses of AHP subsidy. AHP subsidy may not be used to 
pay for:
    (1) Certain prepayment fees. Prepayment fees imposed by a Bank on a 
member for a subsidized advance that is prepaid, unless:
    (i) The project is in financial distress that cannot be remedied 
through a project modification pursuant to Sec.  1291.27;
    (ii) The prepayment of the subsidized advance is necessary to 
retain the project's affordability and income targeting commitments;
    (iii) Subsequent to such prepayment, the project will continue to 
comply with the terms of the approved AHP application and the 
requirements of this part for the duration of the original retention 
period;
    (iv) Any unused AHP subsidy is returned to the Bank and made 
available for other AHP projects; and
    (v) The amount of AHP subsidy used for the prepayment fee may not 
exceed the amount of the member's prepayment fee to the Bank;
    (2) Cancellation fees. Cancellation fees and penalties imposed by a 
Bank on a member for a subsidized advance commitment that is canceled;
    (3) Processing fees. Processing fees charged by members for 
providing AHP direct subsidies to a project; or
    (4) Reserves and certain expenses. Capitalized reserves, periodic 
deposits to reserve accounts, operating expenses, or supportive 
services expenses.
    (c) Optional Bank district eligibility requirements. A Bank may 
require a project receiving AHP subsidies to meet one or more of the 
following additional eligibility requirements adopted by the Bank's 
board of directors and included in its AHP Implementation Plan after 
consultation with its Advisory Council:
    (1) AHP subsidy limits. A requirement that the amount of AHP 
subsidy requested for the project does not exceed limits established by 
the Bank as to the maximum amount of AHP subsidy available per member, 
per project sponsor, per project, or per project unit in a single AHP 
funding period. A Bank may establish only one maximum subsidy limit per 
member, per sponsor, per project, or per project unit for the General 
Fund and for each Targeted Fund, which shall apply to all applicants to 
the specific Fund, but the maximum subsidy limit per project or per 
project unit may differ for each Fund; or
    (2) Homebuyer or homeowner counseling. A requirement that a 
household must complete a homebuyer or homeowner counseling program 
provided by, or based on one provided by, an organization recognized as 
experienced in homebuyer or homeowner counseling, respectively.
    (d) Applications to multiple Funds. If an application for the same 
project is submitted to multiple Funds in an AHP funding period, each 
application must be for the same amount of AHP subsidy.


Sec.  1291.25   Scoring methodology.

    (a) Scoring methodology. A Bank shall establish a written scoring 
methodology for its General Fund and each Targeted Fund it establishes, 
and shall score applications received for a particular Fund pursuant to 
the scoring methodology for that Fund. The scoring methodology may be 
different for each Fund. The scoring methodology shall set forth the 
Bank's competitive application scoring criteria, related definitions 
and point allocations, and shall reflect the affordable housing needs 
that the Bank identified in its Targeted Community Lending Plan would 
be addressed under its Funds. The Bank shall design its scoring 
methodology for the General Fund and each Targeted Fund to ensure that 
the Bank will meet the outcome requirements for the statutory and 
regulatory priorities in Sec.  1291.48. The scoring methodology may 
include scoring criteria adopted by the Bank to address specific 
affordable housing needs in the Bank's district (Bank district 
priorities) that differ from the housing needs specified under the 
statutory and regulatory priorities in Sec.  1291.48, as long as the 
outcome requirements specified in Sec.  1291.48 are achieved.
    (b) Point allocations. A Bank shall allocate 100 points among its 
scoring criteria for its General Fund and for each Targeted Fund.
    (c) In-district projects. If a Bank adopts a scoring criterion 
under its General Fund for housing located in the Bank's district, the 
Bank shall not allocate points to the scoring criterion in such a way 
as to exclude all out-of-district projects from its General Fund.
    (d) Scoring tie-breaker policy. A Bank shall establish a scoring 
tie-breaker policy to address the possibility of two or more 
applications to a Fund having identical scores in the same AHP funding 
period and there is insufficient AHP subsidy to approve all of the tied 
applications. A Bank shall meet the following requirements in 
establishing its scoring tie-breaker policy:
    (1) The Bank shall consult with its Advisory Council prior to 
adoption of its policy;
    (2) The Bank shall adopt the policy in advance of an AHP funding 
period and include it in its AHP Implementation Plan;
    (3) The policy shall include the methodology used to break a 
scoring tie, which may differ for each Fund, and which shall be drawn 
from the particular Fund's scoring criteria adopted in the Bank's AHP 
Implementation Plan;
    (4) The scoring tie-breaker methodology shall be reasonable, 
transparent, verifiable, and impartial;
    (5) The scoring tie-breaker methodology shall be used solely to 
break a scoring tie and may not affect the eligibility of the 
applications, including financial feasibility, or their scores and 
resultant rankings;
    (6) The Bank shall approve a tied application as an alternate 
pursuant to Sec.  1291.26(c) if the application does not prevail under 
the scoring tie-breaker methodology, or if the application is tied with 
another application but requested more subsidy than the amount of AHP 
funds that remain to be awarded; and
    (7) The Bank shall document in writing its analysis and results for 
each use of the scoring tie-breaker methodology.


Sec.  1291.26   Approval of AHP applications.

    (a) Approval of applications. Except as provided in paragraphs (c), 
(d), and (e) of this section, a Bank's board of directors shall approve 
applications for AHP subsidy under its General Fund and any Bank 
Targeted Funds that meet all of the applicable AHP eligibility 
requirements in this part, in descending order starting with the 
highest scoring application until the total funding amount for the 
particular AHP funding period, except for any amount insufficient to 
fund the next highest scoring application, has been approved.
    (b) Alternates. For the General Fund, the Bank's board of directors 
also shall approve at least the next four highest scoring applications 
as alternates and, within one year of approval, must approve such 
alternates for funding if any previously committed AHP subsidies become 
available. For any Bank Targeted Funds, the Bank may, in its 
discretion, approve alternates.
    (c) Tied applications. Where two or more applications to a Fund 
have identical scores in the same AHP funding period and there is 
insufficient AHP subsidy to approve all of the tied

[[Page 11383]]

applications, a Bank shall approve the tied application that prevails 
under the Bank's scoring tie-breaker methodology in its policy adopted 
pursuant to Sec.  1291.25(d). The Bank must approve a tied application 
as an alternate if it does not prevail under the scoring tie-breaker 
methodology, or if it is tied with another application but requested 
more subsidy than the amount of AHP funds that remain to be awarded 
under the Fund.
    (d) Applications to multiple Funds. If an application for the same 
project is submitted to more than one Fund at a Bank in an AHP funding 
period and the application scores high enough to be approved under each 
Fund, the Bank shall approve the application under only one of the 
Funds pursuant to the Bank's policy established in its AHP 
Implementation Plan.
    (e) Re-ranking of scored applications and alternates. To satisfy 
the outcome requirements of Sec.  1291.48, a Bank may deviate from the 
ranking order after scoring applications and alternates under this 
section, but only to the minimum extent necessary by re-ranking scored 
applications and alternates meeting the outcome requirements above the 
lowest scoring applications and alternates not meeting the outcome 
requirements. A Bank shall describe the possibility of re-ranking in 
its AHP Implementation Plan.
    (f) No delegation. A Bank's board of directors may not delegate to 
a committee of the board, Bank officers, or other Bank employees the 
responsibility to approve or disapprove the AHP subsidy applications 
and alternates under the Bank's General Fund and any Bank Targeted 
Funds.


Sec.  1291.27   Modifications of approved AHP applications.

    (a) Modification procedure. Except as provided in paragraph (b) of 
this section for modification requests for AHP subsidy increases, if, 
prior to or after final disbursement of funds to a project from all 
funding sources, in order to remedy noncompliance or receive additional 
subsidy, there is or will be a change in the project that would change 
the score that the project application received in the funding period 
in which it was originally scored and approved, had the changed facts 
been operative at that time, a Bank shall approve in writing a request 
for a modification to the terms of the approved application, provided 
that:
    (1) The Bank first requested that the project cure any 
noncompliance and the cure was not successful after a reasonable period 
of time;
    (2) The project, incorporating any such changes, would meet the 
eligibility requirements of this part;
    (3) The application, as reflective of such changes, continues to 
score as high as the lowest ranking alternate that was approved for 
funding by the Bank in the AHP funding period in which the application 
was originally scored and approved by the Bank; and
    (4) There is good cause for the modification, which may not be 
solely remediation of noncompliance, and the analysis and justification 
for the modification are documented by the Bank in writing.
    (b) AHP subsidy increases; no delegation.--(1) AHP subsidy 
increases. A Bank's board of directors may, in its discretion, approve 
or disapprove requests for modifications involving an increase in AHP 
subsidy in accordance with the requirements of paragraph (a) of this 
section.
    (2) No delegation. The authority to approve or disapprove requests 
for modifications involving an increase in AHP subsidy shall not be 
delegated by the Bank's board of directors to Bank officers or other 
Bank employees.


Sec.  1291.28   Procedures for funding.

    (a) Disbursement of AHP subsidies to members.--(1) A Bank may 
disburse AHP subsidies only to institutions that are members of the 
Bank at the time they request a draw-down of the subsidies.
    (2) If an institution with an approved application for AHP subsidy 
loses its membership in a Bank, the Bank may disburse AHP subsidies to 
a member of such Bank to which the institution has transferred its 
obligations under the approved AHP application, or the Bank may 
disburse AHP subsidies through another Bank to a member of that Bank 
that has assumed the institution's obligations under the approved AHP 
application.
    (b) Progress towards use of AHP subsidy. A Bank shall establish and 
implement policies, including time limits, for determining whether 
progress is being made towards draw-down and use of AHP subsidies by 
approved projects, and whether to cancel AHP application approvals for 
lack of such progress. If a Bank cancels any AHP application approvals 
due to lack of such progress, the Bank shall make the AHP subsidies 
available for other AHP-eligible projects.
    (c) Compliance upon disbursement of AHP subsidies. A Bank shall 
establish and implement policies for determining, prior to its initial 
disbursement of AHP subsidies for an approved project, and prior to 
each subsequent disbursement if the need for AHP subsidy has changed, 
that the project meets the eligibility requirements of this part and 
all obligations committed to in the approved AHP application. If a Bank 
cancels any AHP application approvals due to noncompliance with 
eligibility requirements of this part, the Bank shall make the AHP 
subsidies available for other AHP-eligible projects.
    (d) Changes in approved AHP subsidy amount where a direct subsidy 
is used to write down prior to closing the principal amount or interest 
rate on a loan. If a member is approved to receive AHP direct subsidy 
to write down prior to closing the principal amount or the interest 
rate on a loan to a project, and the amount of AHP subsidy required to 
maintain the debt service cost for the loan decreases from the amount 
of AHP subsidy initially approved by the Bank due to a decrease in 
market interest rates between the time of approval and the time the 
lender commits to the interest rate to finance the project, the Bank 
shall reduce the AHP subsidy amount accordingly. If market interest 
rates rise between the time of approval and the time the lender commits 
to the interest rate to finance the project, the Bank, in its 
discretion, may increase the AHP subsidy amount accordingly.
    (e) AHP outlay adjustment. If a Bank reduces the amount of AHP 
subsidy approved for a project, the amount of such reduction shall be 
returned to the Bank's AHP fund. If a Bank increases the amount of AHP 
subsidy approved for a project, the amount of such increase shall be 
drawn first from any currently uncommitted or repaid AHP subsidies and 
then from the Bank's required AHP contribution for the next year.


Sec.  1291.29  Lending and re-lending of AHP direct subsidy by 
revolving loan funds.

    Pursuant to written policies established by a Bank's board of 
directors after consultation with its Advisory Council, a Bank, in its 
discretion, may provide AHP direct subsidy under its General Fund or 
any Bank Targeted Funds for eligible projects and households involving 
both the lending of the subsidy and subsequent lending of subsidy 
principal and interest repayments by a revolving loan fund, provided 
the following requirements are met:
    (a) Submission of application.--(1) An application for AHP subsidy 
under this section shall include the revolving loan fund's criteria for 
the initial lending of the subsidy, identification of and information 
on a specific proposed AHP project if required in the Bank's 
discretion, the revolving loan fund's

[[Page 11384]]

criteria for subsequent lending of subsidy principal and interest 
repayments, and any other information required by the Bank.
    (2) The information in the application shall be sufficient for the 
Bank to:
    (i) Determine that the criteria for the initial lending of the 
subsidy, the specific proposed project if applicable, and the criteria 
for subsequent lending of subsidy principal and interest repayments, 
meet the eligibility requirements of Sec.  1291.23; and
    (ii) Evaluate the criteria for the initial lending of the subsidy, 
and the specific proposed project if applicable, pursuant to the 
scoring methodology established by the Bank pursuant to Sec.  
1291.25(a).
    (b) Review of application. A Bank shall review the application for 
AHP subsidy to determine that the criteria for the initial lending of 
the subsidy, the specific proposed project if applicable, and the 
criteria for subsequent lending of subsidy principal and interest 
repayments, meet the eligibility requirements of Sec.  1291.23, and 
shall evaluate the criteria for the initial lending of the subsidy and 
the specific proposed project, if applicable, pursuant to the scoring 
methodology established by the Bank pursuant to Sec.  1291.25(a).
    (c) Initial lending of subsidy.--(1) The revolving loan fund's 
initial lending of the AHP subsidy shall meet the eligibility 
requirements of paragraph (a) of this section, shall be to projects or 
households meeting the commitments in the approved application for AHP 
subsidy, and shall be subject to the requirements in Sec. Sec.  1291.15 
and 1291.50, respectively.
    (2) If a project funded under this paragraph (c) is in 
noncompliance with the commitments in the approved AHP application, or 
is sold or refinanced prior to the end of the applicable AHP retention 
period, the required amount of AHP subsidy shall be repaid to the 
revolving loan fund in accordance with Sec. Sec.  1291.15(a)(8) and 
1291.60, and the revolving loan fund shall re-lend such repaid subsidy, 
excluding the amounts of AHP subsidy principal already repaid to the 
revolving loan fund, to another project meeting the initial lending 
requirements of this paragraph (c) for the remainder of the retention 
period.
    (d) Subsequent lending of AHP subsidy principal and interest 
repayments--(1) AHP subsidy principal and interest repayments received 
by the revolving loan fund from the initial lending of the AHP direct 
subsidy shall be re-lent by the revolving loan fund in accordance with 
the requirements of this paragraph (d), except that the revolving loan 
fund, in its discretion, may provide part or all of such repayments as 
nonrepayable grants to eligible projects in accordance with the 
requirements of this paragraph (d).
    (2) The revolving loan fund's subsequent lending of AHP subsidy 
principal and interest repayments shall be for the purchase, 
construction, or rehabilitation of owner-occupied projects for 
households with incomes at or below 80 percent of the median income for 
the area, or of rental projects where at least 20 percent of the units 
are occupied by and affordable for households with incomes at or below 
50 percent of the median income for the area, and shall meet all other 
eligibility requirements of this paragraph (d).
    (3) A Bank may, in its discretion, require the revolving loan 
fund's subsequent lending of subsidy principal and interest repayments 
to be subject to retention period, monitoring, and recapture 
requirements for rental projects, as defined by the Bank in its AHP 
Implementation Plan.
    (e) Return of unused AHP subsidy. The revolving loan fund shall 
return to the Bank any AHP subsidy that will not be used according to 
the requirements in this section.


Sec.  1291.30  Use of AHP subsidy in loan pools.

    Pursuant to written policies established by a Bank's board of 
directors after consultation with its Advisory Council, a Bank, in its 
discretion, may provide AHP subsidy under its General Fund or any Bank 
Targeted Funds for the origination of first mortgage or rehabilitation 
loans with subsidized interest rates to AHP-eligible households through 
a purchase commitment by an entity that will purchase and pool the 
loans, provided the following requirements are met:
    (a) Eligibility requirements. The loan pool sponsor's use of the 
AHP subsidies shall meet the requirements under this section, and shall 
not be used for the purpose of providing liquidity to the originator or 
holder of the loans, or paying the loan pool's operating or secondary 
market transaction costs.
    (b) Forward commitment--(1) The loan pool sponsor shall purchase 
the loans pursuant to a forward commitment that identifies the loans to 
be originated with interest-rate reductions as specified in the 
approved application for AHP subsidy to households with incomes at or 
below 80 percent of the median income for the area. Both initial 
purchases of loans for the AHP loan pool and subsequent purchases of 
loans to substitute for repaid loans in the pool shall be made pursuant 
to the terms of such forward commitment and subject to time limits on 
the use of the AHP subsidy as specified by the Bank in its AHP 
Implementation Plan and the Bank's agreement with the loan pool 
sponsor, which shall not exceed 1 year from the date of approval of the 
AHP application.
    (2) As an alternative to using a forward commitment, the loan pool 
sponsor may purchase an initial round of loans that were not originated 
pursuant to an AHP-specific forward commitment, provided that the 
entities from which the loans were purchased are required to use the 
proceeds from the initial loan purchases within time limits on the use 
of the AHP subsidy as specified by the Bank in its AHP Implementation 
Plan and the Bank's agreement with the loan pool sponsor, which shall 
not exceed 1 year from the date of approval of the AHP application. The 
proceeds shall be used by such entities to assist households that are 
income-eligible under the approved AHP application during subsequent 
rounds of lending, and such assistance shall be provided in the form of 
a below-market AHP-subsidized interest rate as specified in the 
approved AHP application.
    (c) Each AHP-assisted rental project receiving AHP direct subsidy 
or a subsidized advance shall be subject to the requirements of 
Sec. Sec.  1291.15, 1291.50(a), and 1291.60, respectively.
    (d) Where AHP direct subsidy is being used to buy down the interest 
rate of a loan or loans from a member or other party, the loan pool 
sponsor shall use the full amount of the AHP direct subsidy to buy down 
the interest rate on a permanent basis at the time of closing on such 
loan or loans.

Subpart D--Homeownership Set-Aside Programs


Sec.  1291.40  Establishment of programs.

    A Bank may establish, in its discretion, one or more Homeownership 
Set-Aside Programs pursuant to the requirements of this part. The 
Bank's analyses supporting establishment of such programs shall be 
included in its Targeted Community Lending Plan, as provided in Sec.  
1291.13(a).


Sec.  1291.41  Eligible applicants.

    A Bank shall accept applications for AHP direct subsidy under its 
Homeownership Set-Aside Programs only from institutions that are 
members of the Bank at the time the application is submitted to the 
Bank.


Sec.  1291.42   Eligibility requirements.

    A Bank's Homeownership Set-Aside Programs shall meet the 
eligibility requirements set forth in this section. A

[[Page 11385]]

Bank may not adopt additional eligibility requirements for its 
Homeownership Set-Aside Programs except for eligible households 
pursuant to paragraph (b) of this section.
    (a) Member allocation criteria. AHP direct subsidies shall be 
provided to members pursuant to allocation criteria established by the 
Bank in its AHP Implementation Plan.
    (b) Eligible households. Members shall provide AHP direct subsidies 
only to households that:
    (1) Have incomes at or below 80 percent of the median income for 
the area at the time the household is accepted for enrollment by the 
member in the Bank's Homeownership Set-Aside Program, with such time of 
enrollment by the member defined by the Bank in its AHP Implementation 
Plan;
    (2) Complete a homebuyer or homeowner counseling program provided 
by, or based on one provided by, an organization experienced in 
homebuyer or homeowner counseling, in the case of households that are 
first-time homebuyers; and
    (3) Are first-time homebuyers or households receiving AHP subsidy 
for the purpose of owner-occupied rehabilitation, in the case of 
households receiving subsidy pursuant to the one-third set-aside 
funding allocation requirement in Sec.  1291.12(b), and meet such other 
eligibility criteria that may be established by the Bank in its AHP 
Implementation Plan, such as a matching funds requirement, homebuyer or 
homeowner counseling requirement for households that are not first-time 
homebuyers, or criteria that give priority for the purchase or 
rehabilitation of housing in particular areas or as part of a disaster 
relief effort.
    (c) Maximum grant amount. Members shall provide AHP direct 
subsidies to households as a grant, in an amount up to a maximum 
established by the Bank, not to exceed $22,000 per household, which 
limit shall automatically adjust upward on an annual basis in 
accordance with increases in FHFA's Housing Price Index (HPI). In the 
event of a decrease in the HPI, the subsidy limit shall remain at its 
then-current level until the HPI increases above the subsidy limit, at 
which point the subsidy limit shall adjust to that higher level. FHFA 
will notify the Banks annually of the maximum subsidy amount, based on 
the HPI. A Bank may establish a different maximum grant amount for each 
Homeownership Set-Aside Program it establishes. A Bank's maximum grant 
amount for each such program shall be included in its AHP 
Implementation Plan, which limit shall apply to all households in the 
specific program for which it is established.
    (d) Eligible uses of AHP direct subsidy. Households shall use the 
AHP direct subsidies to pay for down payment, closing cost, counseling, 
or rehabilitation assistance in connection with the household's 
purchase or rehabilitation of an owner-occupied unit, including a 
condominium or cooperative housing unit or manufactured housing, to be 
used as the household's primary residence.
    (e) Financial or other concessions. The Bank may, in its 
discretion, require members and other lenders to provide financial or 
other concessions, as defined by the Bank in its AHP Implementation 
Plan, to households in connection with providing the AHP direct subsidy 
or financing to the household.
    (f) Financing costs. The rate of interest, points, fees, and any 
other charges for all loans made in conjunction with the AHP direct 
subsidy shall not exceed a reasonable market rate of interest, points, 
fees, and other charges for loans of similar maturity, terms, and risk.
    (g) Counseling costs. The AHP direct subsidies may be used to pay 
for counseling costs only where:
    (1) Such costs are incurred in connection with counseling of 
homebuyers who actually purchase an AHP-assisted unit; and
    (2) The cost of the counseling has not been covered by another 
funding source, including the member.
    (h) Cash back to household. A member may provide cash back to a 
household at closing on the mortgage loan in an amount not exceeding 
$250, as determined by the Bank in its AHP Implementation Plan, and a 
member shall use any AHP direct subsidy exceeding such amount that is 
beyond what is needed at closing for closing costs and the approved 
mortgage amount as a credit to reduce the principal of the mortgage 
loan or as a credit toward the household's monthly payments on the 
mortgage loan.


Sec.  1291.43   Approval of AHP applications.

    A Bank shall approve applications for AHP direct subsidy in 
accordance with the Bank's criteria governing the allocation of funds.


Sec.  1291.44  Procedures for funding.

    (a) Disbursement of AHP direct subsidies to members--(1) A Bank may 
disburse AHP direct subsidies only to institutions that are members of 
the Bank at the time they request a draw-down of the subsidies.
    (2) If an institution with an approved application for AHP direct 
subsidy loses its membership in a Bank, the Bank may disburse AHP 
direct subsidies to a member of such Bank to which the institution has 
transferred its obligations under the approved AHP application, or the 
Bank may disburse AHP direct subsidies through another Bank to a member 
of that Bank that has assumed the institution's obligations under the 
approved AHP application.
    (b) Reservation of homeownership set-aside subsidies. A Bank shall 
establish and implement policies for reservation of homeownership set-
aside subsidies for households enrolled in the Bank's Homeownership 
Set-Aside Program. The policies shall provide that set-aside subsidies 
be reserved no more than two years in advance of the Bank's time limit 
in its AHP Implementation Plan for draw-down and use of the subsidies 
by the household and the reservation of subsidies be made from the set-
aside allocation of the year in which the Bank makes the reservation.
    (c) Progress towards use of AHP direct subsidy. A Bank shall 
establish and implement policies, including time limits, for 
determining whether progress is being made towards draw-down and use of 
the AHP direct subsidies by eligible households, and whether to cancel 
AHP application approvals for lack of such progress. If a Bank cancels 
any AHP application approvals due to lack of such progress, it shall 
make the AHP direct subsidies available for other applicants for AHP 
direct subsidies under the Homeownership Set-Aside Program or for other 
AHP-eligible projects.

Subpart E--Outcome Requirements for Statutory and Regulatory 
Priorities


Sec.  1291.48   Outcome requirements for statutory and regulatory 
priorities.

    (a) Statutory priorities--government properties; project 
sponsorship. Each year, each Bank shall award at least 55 percent of 
the total AHP funds allocated, in the aggregate, to the Bank's General 
Fund and any Bank Targeted Funds to projects that meet paragraph (a)(1) 
or paragraph (a)(2) of this section. If an awarded project meets both 
paragraphs, it may be counted towards meeting only one of the 
paragraphs.
    (1) Use of donated or conveyed government-owned or other 
properties. The financing of housing that uses a significant 
proportion, as defined by the Bank in its AHP Implementation Plan, of:
    (i) Land or units donated or conveyed by the federal government or 
any agency or instrumentality thereof; or

[[Page 11386]]

    (ii) Land or units donated or conveyed by any other party for an 
amount significantly below the fair market value of the property, as 
defined by the Bank in its AHP Implementation Plan.
    (2) Sponsorship by a not-for-profit organization or government 
entity. Project sponsorship by a not-for-profit organization, a state 
or political subdivision of a state, a state housing agency, a local 
housing authority, a Native American Tribe, an Alaskan Native Village, 
or the government entity for Native Hawaiian Home Lands.
    (b) Statutory priority--purchase of homes by low- or moderate-
income households. Each year, each Bank shall award at least 10 percent 
of its required annual AHP contribution to low- or moderate-income 
households, or to projects targeting such households, for the purchase 
by such households of homes under any or some combination of the Bank's 
General Fund, any Bank Targeted Funds, and any Bank Homeownership Set-
Aside Programs.
    (c) Regulatory priority--very low-income targeting for rental 
units. Each year, each Bank shall ensure that at least 55 percent of 
all rental units in rental projects receiving AHP awards under the 
Bank's General Fund and any Bank Targeted Funds are reserved for very 
low-income households.
    (d) Regulatory priorities--Underserved Communities and Populations; 
Creating Economic Opportunity; and Affordable Housing Preservation. 
Each year, each Bank shall ensure that at least 55 percent of the 
Bank's required annual AHP contribution is awarded under the Bank's 
General Fund and any Bank Targeted Funds to projects that, in the 
aggregate, meet at least two of the three regulatory priorities in this 
paragraph (d) (paragraphs (d)(1), (d)(2), and (d)(3)) by meeting one or 
more of the specified housing needs included under the regulatory 
priority, and awarding at least 10 percent of the funds to projects 
meeting each of such regulatory priorities. If an awarded project meets 
more than one of the regulatory priorities, it may be counted towards 
meeting only one of them. If an awarded project meets more than one 
specified housing need under a regulatory priority, it may be counted 
towards meeting only one of those housing needs. An award to a project 
may not be counted towards meeting a regulatory priority in this 
paragraph (d) unless the specified housing need that it meets is 
identified in the Bank's Targeted Community Lending Plan as an 
affordable housing need the Bank indicated it would address through its 
AHP scoring criteria.
    (1) Regulatory priority--Underserved Communities and Populations. 
The financing of housing for underserved communities or populations, by 
addressing one or more of the following specific housing needs:
    (i) Housing for homeless households. The financing of rental 
housing, excluding overnight shelters, reserving at least 50 percent of 
the units for homeless households, the creation of transitional housing 
for homeless households permitting a minimum of 6 months occupancy, or 
the creation of permanent owner-occupied housing reserving at least 50 
percent of the units for homeless households, with the term ``homeless 
households'' as defined by the Bank in its AHP Implementation Plan.
    (ii) Housing for special needs populations. The financing of 
housing in which at least 50 percent of the units are reserved for, and 
provide supportive services or access to supportive services for, 
households with specific special needs, such as: The elderly; persons 
with disabilities; formerly incarcerated persons; persons recovering 
from physical abuse or alcohol or drug abuse; victims of domestic 
violence, dating violence, sexual assault or stalking; persons with 
HIV/AIDS; or unaccompanied youth; or the financing of housing that is 
visitable by persons with physical disabilities who are not occupants 
of such housing.
    (iii) Housing for other targeted populations. The financing of 
housing, not necessarily with supportive services, in which at least 50 
percent of the units are reserved for populations specifically in need 
of housing, such as agricultural workers, military veterans, Native 
Americans, multigenerational households, persons with disabilities, or 
households requiring large units.
    (iv) Rural housing. The financing of housing located in rural areas 
(with the term ``rural area'' as defined in 12 CFR 1282.1).
    (v) Rental housing for extremely low-income households. The 
financing of rental projects in which at least 20 percent of the units 
are reserved for extremely low-income households.
    (vi) Other. The financing of other housing addressing specific 
housing needs of underserved communities or populations as FHFA may 
provide by guidance.
    (2) Regulatory priority--Creating Economic Opportunity. The 
financing of housing that facilitates economic opportunity for the 
residents by addressing one or more of the following specific housing 
needs:
    (i) Promotion of empowerment. The provision of housing in 
combination with a program offering services that assist residents in 
attaining life skills or moving toward better economic opportunities, 
such as: Employment; education; training; homebuyer, homeownership or 
tenant counseling; child care; adult daycare services; afterschool 
care; tutoring; health services; resident involvement in decision 
making affecting the creation of operation of the project; or workforce 
preparation and integration.
    (ii) Residential economic diversity. The financing of either 
affordable housing in a high opportunity area, or mixed-income housing 
in an area of concentrated poverty (as those terms are defined in 12 
CFR 1282.1 and FHFA's Duty to Serve Evaluation Guidance).
    (iii) Other. The financing of other housing that facilitates 
economic opportunity as FHFA may provide by guidance.
    (3) Regulatory priority--Affordable Housing Preservation. The 
financing of affordable rental housing preservation or homeownership 
preservation, by addressing one or more of the following specific 
housing needs:
    (i) Affordable rental housing preservation. Providing financing 
that preserves affordable rental housing such as existing housing in 
need of rehabilitation as indicated by deteriorating physical 
condition, high vacancy rates, or poor financial performance, 
affordable rental housing with energy or water efficiency improvements 
(meeting the requirements of 12 CFR 1282.34(d)(2)), and affordable 
housing under the following programs: Section 8 (42 U.S.C. 1437f), 
Section 236 (12 U.S.C. 1715z-1), Section 221(d)(4) (12 U.S.C. 1715l), 
Section 202 (12 U.S.C. 1701q), Section 811 (42 U.S.C. 8013), McKinney-
Vento Homeless Assistance (42 U.S.C. 11361 et seq.), Section 515 (42 
U.S.C. 1485), Low-Income Housing Tax Credits (26 U.S.C. 42), HUD Choice 
Neighborhoods Initiative (42 U.S.C. 1437v); HUD Rental Assistance 
Demonstration program (42 U.S.C. 1437f note), or other state or local 
affordable housing programs comparable to the foregoing housing 
programs.
    (ii) Affordable homeownership preservation. The financing of 
housing that preserves affordable homeownership, including owner-
occupied rehabilitation, shared equity programs, owner-occupied housing 
with energy or water efficiency improvements (meeting the requirements 
of 12 CFR 1282.34(d)(3)), or other housing finance strategies to 
preserve homeownership.
    (iii) Other. The financing of other mechanisms for affordable 
rental

[[Page 11387]]

housing preservation or affordable homeownership preservation as FHFA 
may provide by guidance.
    (e) Annual report. Each Bank shall submit an annual report to FHFA, 
at a time and in a form designated by FHFA, demonstrating compliance 
with this section.


Sec.  1291.49   Determination of compliance with outcome requirements; 
notice of determination.

    (a) Determination of compliance. On an annual basis, the Director 
shall determine each Bank's compliance with the outcome requirements in 
Sec.  1291.48.
    (b) Noncompliance with outcome requirements. If the Director 
preliminarily determines that a Bank has failed to comply with Sec.  
1291.48, the Director shall notify the Bank in writing of such 
preliminary determination. Any notification to a Bank of such 
preliminary determination shall provide the Bank with an opportunity to 
respond in writing in accordance with the following procedures:
    (1) Notice. The Director shall provide written notice to the Bank 
of the preliminary determination, the reasons for such determination, 
and the information on which the Director based the determination.
    (2) Response period--(i) In general. During the 30-day period 
beginning on the date on which notice is provided under paragraph 
(b)(1) of this section, the Bank may submit to the Director any written 
information that the Bank considers appropriate for consideration by 
the Director in finally determining whether such noncompliance has 
occurred or whether compliance with Sec.  1291.48 was feasible.
    (ii) Extended period. The Director may extend the period under 
paragraph (b)(2)(i) of this section for good cause for not more than 30 
additional days.
    (iii) Shortened period. The Director may shorten the period under 
paragraph (b)(2)(i) of this section for good cause.
    (iv) Failure to respond. The failure of a Bank to provide 
information during the response period shall waive any right of the 
Bank to comment on the proposed determination or action of the 
Director.
    (3) Consideration of information and final determination--(i) 
Considerations. In making a final determination under paragraph 
(b)(3)(ii) of this section, the Director shall take into consideration 
any relevant information submitted by the Bank during the response 
period.
    (ii) Notice of final determination. After the expiration of the 
response period or receipt of information provided during such period 
by the Bank, the Director shall provide written notice to the Bank 
within a reasonable period of time of the final determination of:
    (A) Whether the Bank has failed to comply with Sec.  1291.48; and
    (B) Whether, taking into consideration market and economic 
conditions and the financial condition of the Bank, compliance with 
Sec.  1291.48 was feasible.

Subpart F--Monitoring


Sec.  1291.50  Monitoring under General Fund and Targeted Funds.

    (a) Initial monitoring policies for owner-occupied and rental 
projects. A Bank shall adopt written policies pursuant to which the 
Bank shall monitor each AHP owner-occupied project and rental project 
approved under its General Fund and any Bank Targeted Funds prior to, 
and within a reasonable period of time after, project completion to 
verify, at a minimum, satisfaction of the requirements in this section.
    (1) Satisfactory progress. The Bank shall determine that:
    (i) The project is making satisfactory progress towards completion, 
in compliance with the commitments made in the approved AHP 
application, Bank policies, and the requirements of this part; and
    (ii) Following completion of the project, satisfactory progress is 
being made towards occupancy of the project by eligible households.
    (2) Project sponsor or owner certification, rent roll and other 
documentation; backup and other project documentation. Within a 
reasonable period of time after project completion, the Bank shall 
review a certification from the project sponsor or owner, the project 
rent roll, and any other documentation to verify that the project meets 
the following requirements, at a minimum:
    (i) The AHP subsidies were used for eligible purposes according to 
the commitments made in the approved AHP application;
    (ii) The household incomes and rents comply with the income 
targeting and rent commitments made in the approved AHP application;
    (iii) The project's actual costs were reasonable in accordance with 
the Bank's project cost guidelines, and the AHP subsidies were 
necessary for the completion of the project as currently structured, as 
determined pursuant to Sec.  1291.24(a)(4);
    (iv) Each rental project is subject to an AHP retention agreement 
that meets the requirements of Sec.  1291.15(a)(7); and
    (v) The services and activities committed in the approved AHP 
application have been provided in connection with the project.
    (3) Back-up and other project documentation. The Bank's written 
monitoring policies shall include requirements for:
    (i) Bank review within a reasonable period of time after project 
completion of back-up project documentation regarding household incomes 
and rents (not including the rent roll) maintained by the project 
sponsor or owner, except for projects that received funds from other 
federal, state or local government entities whose programs meet the 
requirements in paragraphs (b)(1) and (2) of this section as specified 
in separate FHFA guidance, or projects that have also been allocated 
federal Low-Income Housing Tax Credits; and
    (ii) Maintenance and Bank review of other project documentation in 
the Bank's discretion.
    (4) Sampling plan. The Bank shall not use a sampling plan to select 
the projects to be monitored under this paragraph (a), but may use a 
reasonable risk-based sampling plan to review the back-up project 
documentation.
    (b) Long-term monitoring--reliance on other governmental monitoring 
for certain rental projects. For completed AHP rental projects that 
also received funds other than federal Low-Income Housing Tax Credits 
from federal, state, or local government entities, a Bank may, in its 
discretion, for purposes of long-term AHP monitoring under its General 
Fund and any Bank Targeted Funds, rely on the monitoring by such 
entities of the income targeting and rent requirements applicable under 
their programs, provided that the Bank can show that:
    (1) The compliance profiles regarding income targeting, rent, and 
retention period requirements of the AHP and the other programs are 
substantively equivalent;
    (2) The entity has demonstrated and continues to demonstrate its 
ability to monitor the project;
    (3) The entity agrees to provide reports to the Bank on the 
project's incomes and rents for the full 15-year AHP retention period; 
and
    (4) The Bank reviews the reports from the monitoring entity to 
confirm that they comply with the Bank's monitoring policies.
    (c) Long-term monitoring policies for rental projects. In cases 
where a Bank does not rely on monitoring by a federal, state, or local 
government entity pursuant to paragraph (b) of this section, pursuant 
to written policies established by the Bank, the Bank shall monitor 
completed AHP rental projects approved under its General Fund and

[[Page 11388]]

any Bank Targeted Funds, commencing in the second year after project 
completion through the AHP 15-year retention period, to verify, at a 
minimum, satisfaction of the requirements in this section.
    (1) Annual project sponsor or owner certifications; backup and 
other project documentation. A Bank's written monitoring policies shall 
include requirements for:
    (i) Bank review of annual certifications by project sponsors or 
owners to the Bank that household incomes and rents are in compliance 
with the commitments made in the approved AHP application during the 
AHP 15-year retention period, along with information on the ongoing 
financial viability of the project, including whether the project is 
current on its property taxes and loan payments, its vacancy rate, and 
whether it is in compliance with its commitments to other funding 
sources;
    (ii) Bank review of back-up project documentation regarding 
household incomes and rents, including the rent rolls, maintained by 
the project sponsor or owner, except for projects that also received 
funds from other federal, state or local government entities whose 
programs meet the requirements in paragraphs (b)(1) and (2) of this 
section as specified in separate FHFA guidance, or projects that have 
also been allocated federal Low-Income Housing Tax Credits (LIHTC), 
provided that the Bank shall review any notices received from project 
sponsors or owners pursuant to Sec.  1291.15(a)(5)(ii) that an AHP 
project is in noncompliance with LIHTC income-targeting or rent 
requirements during the AHP 15-year retention period; and
    (iii) Maintenance and Bank review of other project documentation in 
the Banks' discretion.
    (2) Risk factors and other monitoring--(i) Risk factors; other 
monitoring. A Bank's written monitoring policies shall take into 
account risk factors such as the amount of AHP subsidy in the project, 
type of project, size of project, location of project, sponsor 
experience, and any monitoring of the project provided by a federal, 
state, or local government entity.
    (ii) Risk-based sampling plan. A Bank may use a reasonable, risk-
based sampling plan to select the rental projects to be monitored under 
this paragraph (c), and to review the back-up and any other project 
documentation. The risk-based sampling plan and its basis shall be in 
writing.
    (d) Annual adjustment of targeting commitments. For purposes of 
determining compliance with the targeting commitments in an approved 
AHP application for both initial and long-term AHP monitoring purposes 
under a Bank's General Fund and any Bank Targeted Funds, such 
commitments shall be considered to adjust annually according to the 
current applicable median income data. A rental unit may continue to 
count toward meeting the targeting commitment of an approved AHP 
application as long as the rent charged to a household remains 
affordable, as defined in Sec.  1291.1, for the household occupying the 
unit.


Sec.  1291.51   Monitoring under Homeownership Set-Aside Programs.

    (a) Adoption and implementation. Pursuant to written policies 
adopted by a Bank, the Bank shall monitor compliance with the 
requirements of its Homeownership Set-Aside Programs, including 
monitoring to determine, at a minimum, whether:
    (1) The AHP subsidy was provided to households meeting all 
applicable eligibility requirements in Sec.  1291.42(b) and the Bank's 
Homeownership Set-Aside Program policies; and
    (2) All other applicable eligibility requirements in Sec.  1291.42 
and the Bank's Homeownership Set-Aside Program policies are met.
    (b) Member certifications; back-up and other documentation. The 
Bank's written monitoring policies shall include requirements for:
    (1) Bank review of certifications by members to the Bank, prior to 
disbursement of the AHP subsidy, that the subsidy will be provided in 
compliance with all applicable eligibility requirements in Sec.  
1291.42;
    (2) Bank review of back-up documentation regarding household 
incomes maintained by the member; and
    (3) Maintenance and Bank review of other documentation in the 
Bank's discretion.
    (c) Sampling plan. The Bank may use a reasonable sampling plan to 
select the households to be monitored, and to review the back-up and 
any other documentation received by the Bank, but not the member 
certifications required in paragraph (b) of this section. The sampling 
plan and its basis shall be in writing.

Subpart G--Remedial Actions for Noncompliance


Sec.  1291.60   Remedial actions for project noncompliance.

    (a) Scope. This section applies to noncompliance of an AHP-assisted 
project with the commitments made in its application for AHP subsidies 
and the requirements of this part, including any use of AHP subsidy by 
the project sponsor or project owner for purposes other than those 
committed to in the AHP application. This section does not apply to 
individual AHP-assisted households or to the sale or refinancing by 
such households of their homes.
    (b) Elimination of project noncompliance--(1) Cure. In the event of 
project noncompliance, the project sponsor or owner must cure the 
noncompliance within a reasonable period of time. If the noncompliance 
is cured within a reasonable period of time, no AHP subsidy is required 
to be repaid to the Bank by the project sponsor or owner.
    (2) Project modification. If the project sponsor or project owner 
cannot cure the noncompliance within a reasonable period of time, the 
Bank shall determine whether the circumstances of the noncompliance can 
be eliminated through a modification of the terms of the AHP 
application pursuant to Sec.  1291.27. If the circumstances of the 
noncompliance can be eliminated through a modification, the Bank shall 
approve the modification and no AHP subsidy is required to be repaid to 
the Bank by the project sponsor or owner.
    (c) Reasonable collection efforts--(1) Demand for repayment. If the 
circumstances of a project's noncompliance cannot be eliminated through 
a cure or modification, the Bank, or the member if delegated the 
responsibility, shall make a demand on the project sponsor or owner for 
repayment of the full amount of the AHP subsidy not used in compliance 
with the commitments in the AHP application or the requirements of this 
part (plus interest, if appropriate). If the noncompliance is occupancy 
by households with incomes exceeding the income-targeting commitments 
in the AHP application, the amount of AHP subsidy due is calculated 
based on the number of units in noncompliance, the length of the 
noncompliance, and the portion of the AHP subsidy attributable to the 
noncompliant units.
    (2) Settlement--(i) If the demand for repayment of the full amount 
due is unsuccessful, the member, in consultation with the Bank, shall 
make reasonable efforts to collect the subsidy from the project sponsor 
or project owner, which may include settlement for less than the full 
amount due, taking into account factors such as the financial capacity 
of the project sponsor or project owner, assets securing the AHP 
subsidy, other assets of the project sponsor or project owner, the 
degree of culpability of the project sponsor or

[[Page 11389]]

project owner, and the extent of the Bank's or member's collection 
efforts.
    (ii) The settlement with the project sponsor or owner must be 
supported by sufficient documentation showing that the sum agreed to be 
repaid under the settlement is reasonably justified, based on the facts 
and circumstances of the noncompliance, including any factors in 
paragraph (c)(2)(i) of this section that were considered in reaching 
the settlement.


Sec.  1291.61   Recovery of subsidy for member noncompliance.

    If a member uses AHP subsidy for purposes other than those 
committed to in the AHP application or the requirements of this part, 
the Bank shall recover from the member the amount of subsidy used for 
such impermissible purposes.


Sec.  1291.62   Bank reimbursement of AHP fund.

    (a) By the Bank. A Bank shall reimburse its AHP fund in the amount 
of any AHP subsidies (plus interest, if appropriate) not used in 
compliance with the commitments in an AHP application or the 
requirements of this part as a result of the actions or omissions of 
the Bank.
    (b) By FHFA order. FHFA may order a Bank to reimburse its AHP fund 
in an appropriate amount upon determining that:
    (1) The Bank has failed to reimburse its AHP fund as required under 
paragraph (a) of this section; or
    (2) The Bank has failed to recover the full amount of AHP subsidy 
due from a project sponsor, project owner or member pursuant to the 
requirements of Sec. Sec.  1291.60 and 1291.61, and has not shown that 
such failure is reasonably justified, considering factors such as those 
in Sec.  1291.60(c)(2)(i).


Sec.  1291.63   Suspension and debarment.

    (a) At a Bank's initiative. A Bank may suspend or debar a member, 
project sponsor, or project owner from participation in the Program if 
such party shows a pattern of noncompliance, or engages in a single 
instance of flagrant noncompliance, with the terms of an approved 
application for AHP subsidy or the requirements of this part.
    (b) At FHFA's initiative. FHFA may order a Bank to suspend or debar 
a member, project sponsor, or project owner from participation in the 
Program if such party shows a pattern of noncompliance, or engages in a 
single instance of flagrant noncompliance, with the terms of an 
approved application for AHP subsidy or the requirements of this part.


Sec.  1291.64  Use of repaid AHP subsidies for other AHP-eligible 
projects and households.

    Amounts of AHP subsidy, including any interest, repaid to a Bank 
pursuant to this part shall be made available by the Bank for other 
AHP-eligible projects or households.


Sec.  1291.65  Remedial actions for Bank noncompliance with outcome 
requirements.

    If the Director determines, pursuant to Sec.  1291.49, that a Bank 
has failed to comply with an outcome requirement in Sec.  1291.48 and 
that compliance was feasible, the Director may require the Bank to take 
actions to remedy the noncompliance, which may include, but are not 
limited to, the following actions:
    (a) Housing plan. The Director may require the Bank to submit a 
housing plan for approval by the Director.
    (1) Nature of plan. If the Director requires a housing plan, the 
housing plan shall:
    (i) Be feasible;
    (ii) Be sufficiently specific to enable the Director to monitor 
compliance periodically;
    (iii) Describe the specific actions that the Bank will take to 
comply with Sec.  1291.48 for the next calendar year; and
    (iv) Address any additional matters relevant to the plan as 
required, in writing, by the Director.
    (2) Deadline for submission. The Bank shall submit the housing plan 
to the Director within 45 days after issuance of a notice requiring the 
Bank to submit a housing plan under this section. The Director may 
extend the deadline for submission of a plan, in writing and for a time 
certain, to the extent the Director determines an extension is 
necessary.
    (3) Review of housing plan. The Director shall review and approve 
or disapprove a housing plan under this section as follows:
    (i) Approval. The Director shall review each submission by a Bank, 
including a housing plan submitted under this section and approve or 
disapprove the plan or other action within a reasonable time. The 
Director shall approve any plan that the Director determines is likely 
to succeed and conforms with the Bank Act, this part, and any other 
applicable provision of law.
    (ii) Notice of approval and disapproval. The Director shall provide 
written notice to a Bank submitting a housing plan under this section 
of the approval or disapproval of the plan, which shall include the 
reasons for any disapproval of the plan, and of any extension of the 
period for approval or disapproval.
    (iii) Resubmission. If the Director disapproves an initial housing 
plan submitted by a Bank under this section, the Bank shall submit an 
amended plan acceptable to the Director not later than 30 days after 
the Director's disapproval of the initial plan. The Director may extend 
the deadline if the Director determines an extension is in the public 
interest. If the amended plan is not acceptable to the Director, the 
Director may afford the Bank 15 days to submit a new plan.
    (b) Reimbursement of AHP fund. FHFA may order the Bank to reimburse 
its AHP fund for the difference in the amount of AHP funds required to 
be awarded to meet the outcome requirement and the amount the Bank 
actually awarded.


Sec.  1291.66  Transfer of Program administration.

    Without limitation on other remedies, FHFA, upon determining that a 
Bank has engaged in mismanagement of its Program, may designate another 
Bank to administer all or a portion of the first Bank's annual AHP 
contribution, for the benefit of the first Bank's members, under such 
terms and conditions as FHFA may prescribe.

Subpart H--Affordable Housing Reserve Fund


Sec.  1291.70   Affordable Housing Reserve Fund.

    (a) Deposits. If a Bank fails to use or commit the full amount it 
is required to contribute to the Program in any year pursuant to Sec.  
1291.10(a), 90 percent of the unused or uncommitted amount shall be 
deposited by the Bank in an Affordable Housing Reserve Fund established 
and administered by FHFA. The remaining 10 percent of the unused and 
uncommitted amount retained by the Bank should be fully used or 
committed by the Bank during the following year, and any remaining 
portion shall be deposited in the Affordable Housing Reserve Fund.
    (b) Use or commitment of AHP funds. Approval of applications for 
AHP funds from members sufficient to exhaust the amount a Bank is 
required to contribute pursuant to Sec.  1291.10(a) shall constitute 
use or commitment of funds. Amounts remaining unused or uncommitted at 
year-end are deemed to be used or committed if, in combination with AHP 
funds that have been returned to the Bank or de-committed from canceled 
projects, they are insufficient to fund:
    (1) The next highest scoring AHP applications in the Bank's final 
funding period of the year for its General Fund first and then for any 
Targeted Funds established by the Bank;

[[Page 11390]]

    (2) Pending applications for funds under the Bank's Homeownership 
Set-Aside Programs, if any; and
    (3) Project modifications for AHP subsidy increases approved by the 
Bank pursuant to the requirements of this part.
    (c) Carryover of insufficient amounts. Such insufficient amounts as 
described in paragraph (b) of this section shall be carried over for 
use or commitment in the following year in the Bank's General Fund, and 
any Targeted Funds or Homeownership Set-Aside Programs established by 
the Bank.

    Dated: March 1, 2018.
Melvin L. Watt,
Director, Federal Housing Finance Agency.
[FR Doc. 2018-04745 Filed 3-13-18; 8:45 am]
 BILLING CODE 8070-01-P