For Release June 25, 1997 FHFB 97-34

Contact: Naomi Salus 202/408-2957 Bill Glavin 202/408-2546

The Federal Housing Finance Board today approved a final rule modifying the Federal Home Loan Bank System's Affordable Housing Program (AHP). The amendments to the existing AHP regulations aim to build upon the program's success as a source of housing finance for low-income families and communities by localizing its operations, streamlining its procedures, and clarifying standards.

The final rule, which transfers operational authority to the FHLBanks which fund the program, is the latest initiative by the Finance Board in its continuing efforts to devolve management and governance authority to the FHLBanks.

"The Affordable Housing Program has proven to be an effective means of providing homes for low-income people and revitalizing communities," said Finance Board Chairman Bruce A. Morrison. "These changes will move the AHP to an even higher level of success. Giving more autonomy to the 12 FHLBanks will increase the program's flexibility and responsiveness to local affordable housing needs."

Created by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), the AHP provides direct subsidies or loans at below-market rates to FHLBank System member financial institutions which, in turn, finance the purchase, construction, or rehabilitation of affordable housing for very low-income to moderate-income households. Since its inception, the AHP has provided approximately $575 million to help finance nearly 150,000 housing units, the majority of them targeted for very low-income households.

Presently, the program operates as a series of district-wide competitions by each of the FHLBanks. Under the existing regulations, each FHLBank evaluates and scores its own applications, and they are forwarded to the Finance Board for final approval. Now that the FHLBanks have had over seven years of experience with the AHP, the Finance Board determined that each FHLBank is in a position to administer its own program. Provisions in the final rule make this effective January 1, 1998. The regulation was published August 4, 1997 in the Federal Register and is codified at 12 CFR part 960.

The rule makes significant changes to the program which provide clearer standards for operation of the AHP and reduce regulatory burden, while ensuring that the FHLBanks will continue to be able to identify and prevent misuse of AHP subsidies. These changes will:

1) Transfer authority to approve AHP applications to the FHLBanks.

2) Modify the competitive scoring process for AHP applications.

3) Establish specific standards and retention periods for monitoring of AHP projects.

4) Clarify and expand the types of remedies available for noncompliance with AHP requirements.

The Finance Board will continue to exercise its supervisory oversight role through examinations of each FHLBank's AHP. A fact sheet on the rule is attached.

FINAL RULE ON THE AFFORDABLE HOUSING PROGRAM

The final rule would comprehensively revise the Federal Home Loan Bank System's Affordable Housing Program (AHP). It is intended to decentralize its operations and provide clearer standards for operating the program, while reducing regulatory burden. Many of the changes codify successful practices developed by the FHLBanks in implementing the AHP over the past seven years.

The amendments to the AHP are designed to make the program more responsive to low- and moderate-income housing needs in each of the 12 FHLBank districts, increase efficiency in the administration of the program, and enhance coordination of the AHP with other housing programs used in conjunction with AHP subsidies. Major changes to the existing AHP regulations include:

Decentralization of Authority to Make Final Funding Decisions for AHP Projects

The rule transfers approval authority for AHP applications from the Finance Board to the FHLBanks, as part of the Finance Board's continuing effort to devolve management and governance authority to the FHLBanks.

Monitoring of AHP-Assisted Housing

The rule establishes clear, uniform standards and procedures for monitoring AHP projects for compliance. These standards and procedures take into account the costs of monitoring relative to the benefits and reduce the overall monitoring burden.

Long-Term Retention of AHP-Assisted Housing

The rule establishes minimum threshold retention periods of five years for AHP-assisted owner-occupied housing and fifteen years for AHP-assisted rental housing. These minimum retention periods will result in a reduction in the number of years that projects must be monitored for AHP compliance.

Scoring of AHP Applications

The existing regulatory framework governing the scoring of AHP applications remains, but with a new allocation of points among revised scoring categories and additional discretion provided to the FHLBanks, including the addition of a new FHLBank District scoring priority.

Remedies for Noncompliance with AHP Requirements The rule establishes a wider range of remedies for noncompliance with AHP requirements, with the required remedial actions tailored to the nature of the noncompliance and to the party committing the noncompliance.

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