On March 14, 2018, the Federal Housing Finance Agency (FHFA) released a Notice of Proposed Rulemaking to amend the Affordable Housing Program (AHP) regulation. On April 29, 2018, the FHFA issued a correction.
The proposed amendments will affect how Federal Home Loan Bank of Des Moines (FHLB Des Moines) members and affordable housing providers use the Competitive Affordable Housing Program and down payment products (Home$tart®, Home$tart Plus and the Native American Homeownership Initiative).
Public comments are due to the FHFA by Tuesday, June 12, 2018 at 5:00 PM (ET).
We have prepared a summary of the proposed amendments and provided additional information about the proposals that we believe will most affect members' and housing providers' strategies for meeting community needs.
Don't miss this opportunity to share your expertise about how AHP funds can be most impactful in your community.
The proposed rule to amend the AHP regulation offers some benefits, but also poses a number of challenges. The primary challenge is the proposed outcome framework that requires a significant proportion of the total annual AHP contribution to meet priorities established by the FHFA. The proposed outcome framework increases the complexity of AHP and limits the Federal Home Loan Banks' (FHLBanks) ability to respond to local affordable housing needs.
Current Scoring System:Straight-forward, transparent, incents types of projects7 FHFA scoring categories
+ 2 FHLBank regional categories
= 100 points
Proposed Outcome Framework: Complex, less transparent, requires types of projects
Four required outcomes use three different metrics.
Impact on Housing Providers
What will the impact be on our AHP project sponsors?
The competitive and administrative processes for receiving and disbursing AHP funds would become more complex and less transparent for affordable housing providers.
While the proposal to allow a General Fund and Targeted Funds for the AHP competitive program appears to offer greater flexibility, the practical implications of the proposed outcome framework actually makes the AHP less flexible to meet local needs.
By controlling at least 65 percent of the entire year's AHP contribution, FHFA outcome requirements will drive the types of projects that receive AHP funds.
Because FHLBanks will want to avoid the consequences of not meeting required outcomes, the FHFA priorities will drive scoring and thus, overshadow local affordable housing needs. The result of the proposed outcome framework is that it creates a national, prescriptive program that reduces flexibility for an FHLBank to respond to local affordable housing needs and leverage local opportunities.
Proposed Solution: Maintain the current AHP scoring model and allow FHLBanks more flexibility for allocating points and responding to affordable housing needs.
The proposed outcome framework may force FHLB Des Moines to diverge from the long-standing practice of selecting AHP projects in descending application score order. The proposed amendment would allow an FHLBank to "re-rank" applications and select lower-scoring applications in order to achieve the outcome requirements. FHLB Des Moines would make every effort possible to adjust and avoid a possible re-ranking, but if it were to still occur, the process for selecting competitive projects would be more complex and less transparent.
In practice, there may be one or more cycles of re-ranking needed to comply with FHFA outcome requirements. This is because substituting one project for another may satisfy compliance with one of the FHFA outcome requirements, but not all of those requirements.
The uncertainty associated with re-ranking would also make it challenging for FHLB Des Moines to provide meaningful technical assistance to affordable housing providers to help them prepare a competitive AHP application.
Proposed Solution: Maintain the current AHP scoring model, which is transparent and incentivizes, rather than requires, certain types of projects. Eliminate the proposed outcome framework, which would eliminate the need for project re-ranking.
The proposal to establish a set of national regulatory outcomes for AHP introduces a risk for unintended consequences. For example, as proposed, a project would be required to reserve at least 50 percent of its units for homeless and/or special needs households in order to be eligible for those points. The current threshold is at least 20 percent of the units must be reserved for these populations to be eligible for points.
An unintended consequence of this proposal could be that AHP is more competitive in markets and geographies where capital and operating funds prioritize projects with a concentrated proportion of units for homeless and/or special needs households. Conversely, applications for AHP funds may be less competitive in markets and geographies where state and/or local funders prioritize, or perhaps require, projects to serve a diverse range of incomes and households.
An additional concern with the proposal to establish a set of national regulatory outcomes for AHP is that those requirements, because they are established through regulation, are inherently static and not adaptable to future and changing affordable housing needs.
Proposed Solution: Maintain the current AHP scoring methodology that allows FHLBanks flexibility to amend district priorities, as needed. Also maintain the minimum threshold of reserving at least 20 percent of the units for homeless and/or special needs households in order for a project to receive these points.
Need for Subsidy
The proposed rule offers relief for how the need for AHP subsidy is evaluated when a project receives federal rental assistance that includes funds for supportive services that cannot be bifurcated. However, the proposal does not offer the same relief to projects that do not fit this circumstance. As a result, it will continue to be challenging to award AHP to projects that rely on project cash flow to fund supportive services (unless those projects include federal rental assistance as previously described). This is particularly challenging in light of the proposal to increase the minimum threshold requirement to 50 percent of the units required to be reserved for special needs and homeless households in order to receive scoring points for serving these households because these projects are more likely to include supportive services as an integral component of their operational feasibility.
Additionally, the proposed rule would continue to require that affordable housing providers provide sufficient documentation to justify why debt financing is not used for projects with cash flow amounts that exceed FHLB Des Moines benchmarks.
Proposed Solution: Allow FHLBanks to evaluate the facts and circumstances of each project's need for subsidy.
The proposed rule introduces unnecessary administrative burdens for affordable housing providers by adding new provisions to require:
- Projects to pursue a cure for noncompliance before a project modification may be considered.
- Affordable housing providers to demonstrate that all members of the project development team, including all affiliates and team members, such as the general contractor, satisfy FHLBank sponsor capacity requirements.
- Affordable housing providers to subject their organization's assets and other financial resources for review by the FHLBank when evaluating if the repayment of AHP is needed to cure noncompliance of a project.
Proposed Solution: Allow the FHLBanks to evaluate the facts and circumstances of each project and each affordable housing providers' track record of performance.
Impact on Financial Institutions
What will the impact be on our member financial institutions?
The proposed changes to the AHP regulation would impact the proportion of total AHP funds that are available for the down payment products, the maximum grant amount available for individual households through the down payment products, and whether or not retention agreements are required for owner-occupied units that are assisted through the Competitive Affordable Housing Program and down payment products.
Availability of Funds for Down Payment Products
The original proposal theoretically increased the amount of funds that would be allocated to down payment products but, in actuality, to comply with the FHFA's proposed outcome requirements, the percentage of AHP funds available for down payment products would be the same or less.
The FHFA's correction amended the calculation for complying with the proposed outcome requirements. The amended proposal would allow the FHLBanks to allocate up to 40 percent of the annual AHP contribution to the down payment products. Currently, up to 35 percent of the annual AHP contribution may be allocated to the down payment products.
Proposed Solution: FHLB Des Moines supports this proposal for increased flexibility for our members to help finance their low- and moderate-income customers' opportunities for home purchase.
Maximum Per Unit Grant
The proposed rule would increase the maximum grant from $15,000 per household to up to $22,000 per household.
Proposed Solution: FHLB Des Moines supports this proposal for increased flexibility to provide a higher grant amount, which may benefit households requiring a deeper subsidy, such as those living in high cost areas and those with lower incomes.
Retention Agreements for Owner-occupied Housing
The proposed rule would eliminate the current requirement for a five-year retention for owner-occupied housing, including owner-occupied housing assisted through the Competitive Affordable Housing Program and down payment products.
Proposed Solution: Allow each FHLBank to determine the circumstances in which it is appropriate to require a retention agreement. For example, eliminating the five-year retention agreement is a beneficial amendment for households that need a moderate amount of AHP to purchase, rehabilitate or construct a home. However, for houesholds requiring a larger amount of AHP, it may introduce a risk for misuse.
How to Comment
Let the FHFA know what you think.
Comments to the AHP proposed rule are due to the FHFA by Tuesday, June 12, 2018 at 5:00 PM (ET).
Tips on filing a comment:
- Use examples from your organization's work to illustrate the impact of the proposal based on FHLB Des Moines concerns, or other concerns you may have.
- Direct your comments to one or more of the FHFA's 41 questions. Reference the question number in your comment. This does not preclude additional comments not covered by the 41 questions.
- When submitting a comment, you can type directly into the form provided on the FHFA website or you may produce the comment on your letterhead and upload it as a PDF file.
- The Affordable Housing Program was created by Congress. You may want to send a copy of your comments to your Member of Congress and Senators so that they are informed about how the proposed changes may impact affordable housing in their district.
You may submit your comments on the proposed rule, identified by regulatory information number (RIN) 2590-AA83, by any one of the following methods:
Federal eRulemaking Portal
Follow the instructions for submitting comments. If you submit your comment to the Federal eRulemaking Portal, please also send it by e-mail to FHFA at RegComments@fhfa.gov to ensure timely receipt by FHFA. Include the following information in the subject line of your submission: Comments/RIN 2590-AA83.
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, D.C. 20219. Deliver the package at the Seventh Street entrance Guard Desk, First Floor, on business days between 9:00 AM and 5:00 PM (ET)
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, D.C. 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.