Daily Rules, Proposed Rules, and Notices of the Federal Government
In addition, the interim final rule enhances the ability of the Banks to respond to the mortgage crisis by providing greater flexibility to accelerate their future annual statutory AHP contributions for use in their AHP homeownership set-aside programs in the current year. The interim final rule also permits the Banks to adopt multiple housing needs under their Second District Priority scoring criterion under the AHP competitive application program.
We will post all public comments we receive without change, including any personal information you provide, such as your name and address, on the FHFA Web site at
FHFA invites comments on all aspects of the interim final rule, and will revise the rule as appropriate after taking all comments into consideration. Copies of all comments will be posted on the FHFA Internet Web site at
Effective July 30, 2008, Division A of HERA, Public Law 110-289, 122 Stat. 2654 (2008), created FHFA as an independent agency of the Federal Government. HERA transferred the supervisory and oversight responsibilities over the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, Enterprises), the Banks, and the Bank System's Office of Finance, from the Office of Federal Housing Enterprise Oversight (OFHEO) and the Federal Housing Finance Board (FHFB) to FHFA. HERA provides for the abolishment of OFHEO and FHFB one year after the date of enactment. FHFA is responsible for ensuring that the
Section 10(j) of the Federal Home Loan Bank Act (Bank Act) requires each Bank to establish an affordable housing program, the purpose of which is to enable a Bank's members to finance homeownership by households with incomes at or below 80% of the area median income (low- or moderate-income households), and to finance the purchase, construction, or rehabilitation of rental projects in which at least 20% of the units will be occupied by and affordable for households earning 50% or less of the area median income (very low-income households).
The AHP regulation authorizes a Bank, in its discretion, to set aside a portion of its annual required AHP contribution to establish homeownership set-aside programs for the purpose of promoting homeownership for low- or moderate-income households.
In January 2008, FHFB waived certain homeownership set-aside program provisions of the AHP regulation to allow the Federal Home Loan Bank of San Francisco (San Francisco Bank) to establish a temporary pilot program to provide AHP direct subsidy to enable eligible households with subprime or nontraditional loans held by a San Francisco Bank member or its affiliate to refinance or restructure the loans into affordable, long-term fixed-rate mortgages.
In April 2008, FHFB published a proposed rule that would have extended the temporary authority to use AHP set-aside funds for mortgage refinancing or restructuring to all 12 Banks.
Before FHFB took final action on the proposed amendments to the AHP regulation, section 1218 of HERA added section 10(j)(2)(C) to the Bank Act. Title IV of HERA also required establishment of the Hope for Homeowners Program, a temporary mortgage refinancing program under the FHA, which will expire on September 30, 2011. To implement the requirements of section 1218 of HERA, on October 17, 2008, FHFA published an interim final rule (“October amendments”), which added new § 1291.6(f) to the AHP homeownership set-aside regulation authorizing the Banks, in their discretion, to temporarily establish an AHP set-aside refinancing program.
FHFA received 38 comment letters on the October amendments, representing 40 commenters.
Section 1201 of HERA requires the FHFA Director to consider the differences between the Banks and the Enterprises in rulemakings that affect the Banks with respect to the Banks' cooperative ownership structure, mission of providing liquidity to members, affordable housing and community development mission, capital structure and joint and several liability.
The October amendments provided that a household's loan is eligible to be refinanced with AHP direct subsidy if the loan is secured by a first mortgage on an owner-occupied unit that is the primary residence of the household, and the loan is refinanced under the Hope for Homeowners Program. FHFA specifically requested comment on whether the Banks should be permitted to use AHP set-aside funds to assist homeowners refinancing under other programs intended to aid distressed homeowners, such as those offered by the Enterprises, FHASecure, or any
In the past year or so, a number of State housing finance agencies established taxable bond programs to refinance households with unaffordable mortgages. To help State and local housing finance agencies address the need for refinancing households into affordable mortgages, HERA authorized the temporary use of tax-exempt mortgage-revenue bonds for refinancing at-risk households with subprime mortgages.
In addition, as part of the Administration's Homeowner Affordability and Stability Plan, Fannie Mae and Freddie Mac are now responsible for implementing the Making Home Affordable programs, which include the Home Affordable Refinance program for first mortgage loans owned or guaranteed by these agencies. Many Bank members are also Fannie Mae and Freddie Mac approved seller/servicers that already participate in Fannie Mae and Freddie Mac homeownership mortgage programs.
Based on the comments and FHFA's review of Federal, State and local refinancing programs, FHFA has determined that the Hope for Homeowners Program has experienced limited usage due to statutory and regulatory restrictions and market conditions, rendering the current AHP refinancing authority of limited utility.
FHFA believes that there should be sufficient demand among these eligible targeted refinancing programs to absorb the limited amount of AHP subsidy that will be available for refinancing. Eligible targeted refinancing programs do not include programs that permit households to refinance for any reason, programs that provide the full amount of subsidy or other financing concessions needed for a household to achieve an affordable mortgage in accordance with the program's terms (see discussion under the Eligible Uses of Subsidy section below), or programs that involve the modification or restructuring of the loans, rather than refinancing (
The interim final rule does not limit eligible targeted refinancing programs to those in existence as of the effective date of the rule. Federal, State and local agencies and housing authorities are likely to add or replace refinancing programs during the period of AHP set-aside refinancing authorization, based on refinancing needs and housing market conditions, and FHFA does not wish to preclude the use of AHP subsidy with such programs that are consistent with the purposes of this rule. USDA is a primary source of Federal funding for owner-occupied housing primarily in rural areas, and although it has not announced a targeted refinancing program to date, it may do so in the future. A number of State housing finance agencies are also expected to implement targeted refinancing programs under their new tax-exempt mortgage-revenue bond authority in the near future. The FHASecure Program, which ended in December 2008 and assisted thousands of households in troubled mortgages, may be revived, or a program of a similar nature may be established.
Several commenters suggested that FHFA permit AHP subsidy to be used in conjunction with private targeted refinancing programs including not-for-profit programs. One commenter recommended limiting the AHP refinancing set-aside program to assisting in the refinancing of loans originated by Bank members. Three commenters also supported the use of AHP subsidy to restructure or refinance mortgages originated by members and purchased by the Banks for their Mortgage Partnership Finance (MPF) and Mortgage Purchase Program (MPP) portfolios, as consistent with efforts by the Federal Deposit Insurance Corporation to promote lender
The AHP regulation permits a Bank, in its discretion, to set aside annually, in the aggregate, a maximum of the greater of $4.5 million or 35% of its annual required AHP contribution to provide funds to members participating in homeownership set-aside programs, including mortgage refinancing programs established under § 1291.6(f).
All 27 commenters that opposed the October amendments opposed using AHP subsidies for refinancing at the expense of assisting new home purchases, especially at a time when there are fewer sources of purchase assistance and the decline in home prices is making homeownership possible for more low- or moderate-income households. Two of these commenters expressed concern that refinancing often does not prevent a household from losing its home due to factors other than the terms of the original mortgage and, therefore, does not constitute a better use of AHP subsidy than purchase assistance. Three commenters stated that the regulation should retain the existing homeownership set-aside requirement that a minimum one-third of the total set-aside allocation be allocated for first-time homebuyers in order to ensure that some minimum amount of AHP home purchase assistance is available.
FHFA finds these comments to be persuasive. In the current market where many existing homeowners are unable to sell their homes and purchase move-up homes because their mortgages exceed their homes' value, efforts to promote new home purchases could contribute to recovery and stabilization of the housing market. Ensuring that at least some portion of AHP set-aside subsidies is available for home purchase assistance is also consistent with HERA's establishment of Federal funding for what is commonly referred to as the Neighborhood Stabilization Program (NSP).
Consequently, the interim final rule reinstates in § 1291.2(b)(2)(i) the requirement that at least one-third of a Bank's total annual set-aside allocation shall be targeted to assist first-time homebuyers, regardless of whether the set-aside allocation is being used for homeownership or refinancing assistance, or both. Thus, a Bank may use up to two-thirds of its annual set-aside allocation for the AHP set-aside refinancing program. If a Bank wants to increase the amount of AHP subsidy dollars available for refinancing assistance, the Bank may increase its total AHP set-aside allocation, and thereby its refinancing set-aside amount, by accelerating additional funding from subsequent years' AHP contributions as permitted under § 1291.2(b)(3) and discussed further below. In addition, the first-time homebuyers provision requires that the Bank allocate one-third of the Bank's set-aside funding for first-time homebuyers but does not require the Bank to commit or use the amount of the allocation for first-time homebuyers. If there is not sufficient demand for the first-time homebuyers allocation and the Bank does not commit the entire allocation to first-time homebuyers, then the Bank may ultimately carry over the unused portion of the first-time homebuyers allocation to other AHP set-aside uses, including refinancing.
Under the Bank Act, a Bank is required to contribute at least 10% of its prior year's net earnings to its current year's AHP.
The current housing and financial crises have created unprecedented financial conditions not contemplated by the AHP regulation. Bank earnings declined in 2008, and the Banks' earnings potential in the near future is uncertain and more unpredictable than in previous years because of market instability. In this environment, a Bank that accelerates AHP funds from the subsequent year's required contribution may find that the subsequent year's actual required AHP contribution is less than the amount accelerated. At the same time, a Bank may have no required current year AHP contribution on which to base a percentage calculation, or even expectation of a required subsequent year AHP contribution. In 2009, two Banks with no 2008 earnings have no required AHP contributions, while several other Banks have very small required AHP contributions. The ability to accelerate funds from future required AHP contributions would enable these Banks to make some level of AHP funding available in 2009.
Consequently, the interim final rule amends § 1291.2(b)(3) to increase the maximum amount that a Bank may accelerate in any one year to the greater of $5 million (an increase from $2 million) or 20% of the Bank's required annual AHP contribution for the current year. In addition, because of the uncertainty of future earnings and the possibility that a Bank may find itself in the same situation of having little or no required AHP contribution in the subsequent year, the interim final rule allows a Bank to credit the amount of the accelerated contribution against required AHP contributions over one or more of the subsequent five years. This is consistent with FHFA's policy for treatment of excess AHP annual contributions, under which a Bank that restates its earnings with the result that its annual AHP contribution exceeded the statutorily required amount, may credit the excess contributions against required AHP contributions in future periods.
As a technical matter, FHFA has found that use of the term “allot” in the current AHP regulation to describe the acceleration process has been confused with the process of allocating AHP funding between the homeownership set-aside and competitive application programs, and may also be confused with the process of allocating AHP set-aside funds between the homeownership set-aside and refinancing set-aside programs. Accordingly, the interim final rule uses the term “acceleration,” which was used prior to 2007, in lieu of the term “allot” to describe the process of using future required AHP contributions in the current year.
Section 1291.6(f)(1) authorizes a Bank, in its discretion, to establish a homeownership set-aside program for the use of AHP direct subsidy by its members to assist in the refinancing of a household's mortgage loan that meets the requirements in § 1291.6, except for certain specified provisions, as well as with the requirements of part 1291. The October amendments exempted the AHP set-aside refinancing program from the provisions in § 1291.6 governing five-year retention agreements on AHP-assisted household's units.
Three commenters recommended that the Banks be able to require AHP retention agreements for repayment of the AHP subsidy in the event of a sale or refinancing during the five-year retention period. Four commenters stated that there could be cases where households receive AHP subsidy but subsequently fail to qualify under the Hope for Homeowners Program because they fail to make the first payment on their newly refinanced loan, and the Bank could not recover the AHP subsidy in such cases if the household subsequently sold or refinanced the home.
Under the Banks' current AHP competitive application and home purchase set-aside programs, AHP retention agreements, which may be subordinate liens or other forms of legally enforceable agreements, are used in conjunction with all types of mortgage financing provided by all Federal, State and local agencies, including other FHA programs. Because the AHP regulation requires that AHP subsidy only be repaid from any net gain from the sale or refinancing, the AHP repayment requirement should not interfere with any appreciation or equity sharing requirements of the eligible targeted refinancing programs. Requiring AHP retention agreements for the AHP set-aside refinancing program would also maintain consistency between the refinancing program and all other AHP programs, which are subject to the retention agreement requirement. Accordingly, the interim final rule requires that a household assisted under the AHP set-aside refinancing program be subject to an AHP five-year retention agreement in accordance with § 1291.6(c)(5).
As discussed above, the interim final rule amends § 1291.6(f)(2) to make loans refinanced under other eligible targeted refinancing programs in addition to the Hope for Homeowners Program eligible for AHP refinancing subsidy. To be eligible for AHP refinancing assistance, a household must meet the terms of refinancing established by the eligible targeted refinancing program, such as the mortgage debt-to-income ratio, loan-to-value ratio, payment history, type of original loan (
Consistent with the October amendments, for purposes of determining whether a household is at or below 80% of AMI under the AHP set-aside refinancing program, the interim final rule does not establish specific requirements for how a Bank should calculate a household's income. Thus, a Bank may make its own calculation of total household income, or may use the eligible targeted refinancing program's calculation of total household income for purposes of determining whether a household meets the 80% of AMI income limit. This is also consistent with the AHP home
Section 1291.6(c)(2)(i) of the existing AHP regulation requires a Bank or member to determine a household's income eligibility at the time the member enrolls the household in the AHP homeownership set-aside program. Consistent with this requirement, the Bank or member must determine that the household is at or below 80% of AMI at the time of enrollment in the AHP set-aside refinancing program. However, a Bank or member may use the total household income provided by the eligible targeted refinancing program regardless of when that program calculated the amount.
1. Reduction in Outstanding Loan Principal Balance
The October amendments provided that AHP subsidy may pay to reduce the outstanding principal balance of the household's loan below the maximum loan-to-value ratio required under the Hope for Homeowners Program in order for the household to also meet that program's maximum debt-to-income ratio. 12 CFR 1291.6(f)(3)(i).
The October amendments also authorized a member to use the AHP subsidy to pay only FHA-approved loan closing costs in connection with the refinancing of an eligible loan under the Hope for Homeowners Program. 12 CFR 1291.6(f)(3)(ii).
Two commenters requested clarification that AHP subsidy may be used to pay FHA up-front insurance premiums under the AHP set-aside refinancing program. Because they are required for the mortgage financing, FHA up-front insurance premiums are eligible costs under the AHP homeownership set-aside and competitive application programs. Consequently, AHP subsidy may pay for such insurance premiums under the AHP set-aside refinancing program.
The October amendments excluded the current requirement of the AHP homeownership set-aside program that the rate of interest, points, fees and any other charges for all loans made in conjunction with the AHP subsidy cannot exceed a reasonable market rate of interest, points, fees and other charges for loans of similar maturity, terms and risk. 12 CFR 1291.6(c)(7). As part of the goal to achieve consistency, where applicable, between the requirements of the AHP homeownership set-aside and the refinancing set-aside programs, the interim final rule applies § 1291.6(c)(7) to the refinancing set-aside program.
The October amendments stated that a Bank may provide AHP direct subsidy to members that are FHA-approved lenders for the purpose of refinancing an eligible loan with an FHA-insured loan by the member under the Hope for Homeowners Program. The October amendments also stated that a Bank may, in its discretion, provide the AHP subsidy to members that will provide the subsidy to FHA-approved lenders that are not members of the Bank for the purpose of refinancing an eligible loan if, after consulting with the Bank's Advisory Council, the Bank determines that such action would be in the best interests of borrowers in the Bank's district. 12 CFR 1291.6(f)(4). All 13 commenters supporting refinancing, opposed limiting participants in the AHP set-aside refinancing program to FHA-approved lenders, noting that relatively few Bank members are FHA-approved lenders and many Bank members participate in housing finance agency mortgage-revenue bond programs and are Fannie Mae and Freddie Mac approved seller/servicers. Several commenters also stated that assistance should be available to households based on their qualifications, regardless of whether the member providing the AHP subsidy is FHA-approved. In addition, the requirement that members be FHA-approved is too restrictive since the interim final rule permits the use of the AHP subsidy with other eligible targeted refinancing programs in addition to the FHA's Hope for Homeowners Program.
Under the current AHP home purchase set-aside program, the Banks have discretionary authority to decide whether to permit a household to obtain a purchase-money mortgage from any lender or to require the household to obtain its mortgage from the member providing the AHP assistance.
Section 1291.6(c)(2)(iii) of the current AHP regulation permits a Bank, in its discretion, to require homebuyers who are not first-time homebuyers to obtain homeownership counseling under the AHP home purchase set-aside program.
FHFA agrees that counseling is an important component of successful refinancing, and should be provided by competent and reputable counseling programs, such as the NFMC program or other counseling programs used by State or local government or housing finance agencies that may not be part of the NFMC program. These counseling programs can also serve as an efficient and effective means of identifying for households the assistance programs for which they may qualify. Accordingly, § 1291.6(f)(5) of the interim final rule requires that a household seeking AHP assistance must obtain counseling for foreclosure mitigation and qualification for refinancing by an eligible targeted refinancing program, through the NFMC program or other counseling program used by a State or local government or housing finance agency. Bank members would refer interested households to an NFMC program participant, or to a State or local government or housing finance agency counseling program, which would determine whether the households are eligible to have their loans refinanced through an eligible targeted refinancing program. Households determined by a counseling organization to qualify for refinancing under an eligible targeted refinancing program would then be referred to participating Bank members, who would enroll the households in the AHP set-aside refinancing program upon determination of their AHP income eligibility.
Under the interim final rule, the NFMC program and other permissible counseling organizations would thereby act as a gateway for households seeking refinancing assistance. The interim final rule does not establish a requirement for the type of educational counseling that may take a period of time that could delay the closing on the refinancing. Rather, the interim final rule requires the household to go to an NFMC program principally to determine if its loan can be refinanced by one of the eligible targeted refinancing programs and whether AHP subsidy will be needed in order for the household to obtain the refinancing. Although the household will benefit from accompanying foreclosure mitigation and credit counseling, the primary purpose of the interim final rule requirement is to ensure that the household receives counseling on a variety of available refinancing options that are suitable for that household. For example, a lender, such as an FHA lender or Fannie Mae/Freddie Mac seller/servicer, may be able to determine if a household is eligible for a specific program involving that lender, but is not likely to know if the household has other options if it is not eligible for the lender's specific program. Consequently, under the interim final rule, when a household contacts a member directly, the member would refer the household to the NFMC program or other State or local government or housing finance agency counseling program, to determine the household's eligibility before enrolling the household in the AHP refinancing program and committing AHP subsidy.
All NFMC program counseling is free to households; therefore, the interim final rule does not authorize the use of AHP subsidy to pay for such counseling costs. FHFA specifically requests comment on whether households should be required to obtain counseling for foreclosure mitigation and qualification for refinancing by an eligible targeted refinancing program prior to enrollment in the AHP set-aside refinancing program.
The October amendments included a provision terminating the Banks' authority to commit AHP subsidy for refinancing after July 30, 2010, which is the expiration date of the two-year period in section 1218 of HERA. 12 CFR 1291.6(f)(5). FHFA specifically requested comment on whether the sunset date should be extended to be co-extensive with the sunset date of the Hope for Homeowners Program on September 30, 2011.
Under the Banks' AHP competitive application program, the Second District Priority is the only one of nine scoring criteria in the AHP regulation for which a Bank may select a housing need that is not prescribed in the regulation. Unlike the First District Priority scoring criterion, the Second District Priority permits a Bank to establish only one housing need in its district. 12 CFR 1291.5(d)(5)(vi), (d)(5)(vii). The current housing crisis has led to acute housing needs that the AHP regulation does not contemplate. These needs reflect a number of interconnected factors related to foreclosures and declining home values, which adversely affect all participants in the housing industry. The hardest hit areas must contend with blighted properties and declining communities where there is a critical need for sustainable and affordable homeownership and assistance to rental sponsors to absorb properties being sold to avoid foreclosure or that are in foreclosure. At the same time, there is an increased demand for affordable rental housing in the wake of households losing their homes, compounded by a significant decline in investors for low-income housing tax credits and housing finance agency bonds for rental production.
FHFA believes that these housing market conditions have generated an urgent need for more flexibility in the Banks' capacity to respond under the AHP. The current scoring system in the AHP regulation can address foreclosed properties only marginally within the context of other, more general housing needs. Permitting the Banks to establish one or more housing needs under the Second District Priority scoring criterion would allow the AHP competitive application program to complement the efforts of the AHP refinancing set-aside and other targeted refinancing programs for foreclosure prevention and HERA's NSP for the disposition of foreclosed properties. Accordingly, the interim final rule amends § 1291.5(d)(5)(vii) of the AHP regulation to permit a Bank to establish one or more housing needs in the Bank's district under the Second District Priority scoring criterion.
FHFA believes that the severity of the housing market and the urgent need for housing assistance create exigent circumstances for amending the Second District Priority scoring criterion through an interim final rule. An immediate change is also necessary to allow the Banks and their Advisory Councils the opportunity to make any scoring revisions in this regard to their AHP Implementation Plans that would be applicable to their 2009 AHP competitive application funding rounds. FHFA specifically requests comment on whether this scoring change benefits the AHP competitive application program.
FHFA for good cause finds that the notice and comment procedure required by the Administrative Procedure Act is impracticable or contrary to the public interest in this instance.
For the reasons stated in part IV. above, FHFA for good cause finds that the interim final rule should become effective on August 4, 2009.
The information collection contained in the current AHP regulation, entitled “Affordable Housing Program (AHP),” has been assigned control number 3069-0006 by the Office of Management and Budget (OMB). The interim final rule does not substantively or materially modify the approved information collection. Consequently, FHFA has not submitted any information to OMB for review under the Paperwork Reduction Act of 1995.
FHFA is issuing this regulation in the form of an interim final rule and not as a proposed rule. Therefore, the provisions of the Regulatory Flexibility Act do not apply.
Community development, Credit, Federal home loan banks, Housing, Reporting and recordkeeping requirements.
12 U.S.C. 1430(j).
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(i) Reduce the outstanding principal balance of the loan by no more than the amount necessary for the new loan to qualify under both the maximum loan-to-value ratio and the maximum household mortgage debt-to-income ratio required by the eligible targeted refinancing program; or
(ii) Pay loan closing costs.
(ii) A lender may use the AHP subsidy committed by such date for a loan submitted to the eligible targeted refinancing program for approval on or before July 30, 2010 that is approved for refinancing under such program after such date.