[Federal Register Volume 65, Number 137 (Monday, July 17, 2000)]
[Rules and Regulations]
[Pages 43969-43986]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-17663]
=======================================================================
-----------------------------------------------------------------------
FEDERAL HOUSING FINANCE BOARD
12 CFR Parts 900, 940, 950, 955, 956 and 966
[No. 2000-33]
RIN 3069-AA98
Federal Home Loan Bank Acquired Member Assets, Core Mission
Activities, Investments and Advances
AGENCY: Federal Housing Finance Board.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Federal Housing Finance Board (Finance Board) is adding
regulations to authorize the Federal Home Loan Banks (Banks) to hold
acquired member assets (AMA) and is amending its regulations to
enumerate the types of core mission assets (CMA) that must be addressed
in the Banks' strategic business plans. The Finance Board is also
making related changes to
[[Page 43970]]
its regulations governing the Banks' investment, advances and debt
issuance authorities.
DATES: This final rule is effective on July 17, 2000.
FOR FURTHER INFORMATION CONTACT: James L. Bothwell, Director and Chief
Economist, (202) 408-2821; Scott L. Smith, Deputy Director, (202) 408-
2991; Ellen Hancock, Senior Financial Analyst, (202) 408-2906;
Christina K. Muradian, Senior Financial Analyst, (202) 408-2584, Office
of Policy, Research and Analysis; or Eric M. Raudenbush, Senior
Attorney-Advisor, (202) 408-2932; Office of General Counsel, Federal
Housing Finance Board, 1777 F Street, N.W., Washington, D.C. 20006.
SUPPLEMENTARY INFORMATION:
I. Background
On May 3, 2000, the Finance Board published for comment a proposed
rule to: (1) Add new provisions in part 940 enumerating the Bank
activities that are considered to be CMA; (2) add to the regulations a
new part 955 setting forth in regulation the authority and requirements
for Banks' AMA programs; (3) revise part 956 of the regulations,
governing Bank investments; and (4) amend part 950 of the regulations,
governing advances, so that inter-district advances activity would be
subject to the same requirements as inter-district AMA activities. See
65 FR 25676 (May 3, 2000). The initial 30-day public comment period for
the proposed rule was later extended to 43 days, see 65 FR 34127 (May
27, 2000), and closed on June 15, 2000. The Finance Board received a
total of 107 comment letters about the proposed rule. Among the comment
letters considered in preparing the final rule were 19 that were
accepted after the official close of the comment period.
II. Analysis of Comment Letters and Changes Made in the Final Rule
A. Core Mission Activities--Part 940
1. General Commentary
As part of its statutory duty to ensure that the Banks carry out
their housing finance mission, the Finance Board recently adopted a
regulatory requirement, set forth in Sec. 917.5 of the regulations,
that each Bank's board of directors have in effect at all times a
strategic business plan that describes how the Bank's business
activities will achieve the mission of the Bank consistent with part
940 of the regulations. See 65 FR 25267 (May 1, 2000). At the same
time, the Finance Board adopted Sec. 940.2 of the regulations, which
states the mission of the Banks in its broadest terms and, by way of
cross-reference, gives meaning to the strategic business plan
requirement of Sec. 917.5. See id.
This final rule adds to part 940 a new Sec. 940.3, which enumerates
the specific Bank activities that qualify as core mission activities.
The intent of this new regulatory provision is to further focus the
Banks' strategic business plans on the activities that the Finance
Board has determined are most central to the fulfillment of the Banks'
statutory mission. In so doing, the Finance Board means to stress the
importance that must be placed upon this category of activities as each
Bank plans and undertakes its ongoing business activities. Aside from
the strategic business plan requirements set forth in Sec. 917.5, there
currently are no other regulatory requirements pertaining to CMA.
In the proposed rule, activities that would have qualified as CMA
were listed in Sec. 940.3(a). Proposed Sec. 940.3(b) stated that,
should the Finance Board impose upon the Banks any future requirement
regarding the level of Bank CMA holdings, the requirement would not
prevent the Banks from holding to maturity, or funding with the
proceeds of consolidated obligations, assets acquired under sections
II.B.8 through II.B.11 of the Bank System Financial Management Policy
(FMP) (consisting mostly of agency and privately-issued mortgage-backed
securities (MBS) and asset-backed securities (ABS)). As discussed in
detail below, this provision has been removed in the final rule.
Accordingly, the list of activities that qualify as CMA, which appeared
as Sec. Sec. 940.3(a)(1) through (9) in the proposed rule, appears as
Sec. Sec. 940.3(a) through (i) in the final rule.
Of the comment letters addressing aspects of part 940, support for
and opposition to the CMA provisions was about evenly divided. Most of
the commenters who generally supported the CMA provisions of the
proposed rule agreed with the Finance Board's goal of focusing the
Banks on their housing finance and community lending mission, and
especially upon extending the reach of the Banks' resources into
underserved communities. One commenter (a Bank) agreed with the Finance
Board that Bank members will be unable to make intelligent choices
about their Banks' new capital plans without understanding the future
direction of the Bank System, including the asset categories to be
supported by the new capital structure.
Of those opposed to the rule, many stated as the primary reason for
their opposition a belief that the Finance Board should wait until
after it has promulgated new capital regulations as required by the
Federal Home Loan Bank System Modernization Act of 1999 (Modernization
Act), Title VI of the Gramm-Leach-Bliley Act, Pub. L. 106-102 (1999),
and the Banks have adopted new capital plans under those regulations,
before putting into place any further mission regulations. Most of
these commenters expressed the opinion that, at a time when Congress
has recently made membership in the Bank System completely voluntary
and when, as a result, the Banks will need to market ``Class B'' stock
to their members in order to establish a base of permanent capital, the
Finance Board should not be implementing actual or implied asset
requirements that could result in earnings volatility.
Many commenters stressed their belief that the uncertain ability of
any Bank to maintain strong earnings and pay an attractive dividend
while focusing upon the business activities enumerated in Sec. 940.3
could dissuade members or potential members from purchasing Bank stock.
Several commenters noted especially that the reference in proposed
Sec. 940.3(b) to possible future requirements regarding Bank CMA,
combined with a failure to detail what those requirements could be,
raises the possibility that a Bank may in the future be required to
divest itself of legally-acquired investments, making the future
balance sheet composition of the Banks particularly uncertain for
potential investors.
Many of the commenters expressing generally negative reactions to
proposed Sec. 940.3 raised concerns that the CMA provisions would limit
the Banks' flexibility in managing their balance sheets and, therefore,
would adversely impact Bank profits and possibly the safety and
soundness of the Banks. Frequently mentioned in this regard was the
Finance Board's exclusion of investments in most types of MBS from the
list of activities that qualify as CMA. Two commenters (both Banks)
specifically requested that the Finance Board continue to permit the
Banks to hold MBS in an amount up to three times capital (as is
currently the limit under the FMP).
Regarding the exclusion of most MBS from the list of CMA, many
commenters expressed a belief that MBS are an important balance sheet
management tool for the Banks that may be especially useful in
deploying Bank capital prudently during periods of cyclical business
downturns. Several commenters stressed the Banks' roles as reliable
sources of liquidity for their
[[Page 43971]]
members and stated that failure to permit the Banks to continue to
invest in MBS could threaten the Banks' abilities to act in this role.
Others questioned whether it is appropriate for the Finance Board to
restrict Bank investment in assets, like MBS, that are specifically
authorized by statute as legal investments for a Bank. Still others
argued that MBS do play an important role in helping Banks to carry out
their mission in that, as low-risk investments with a reasonable record
of return, MBS improve the Bank System's financial strength and help to
reduce rates on advances. Some commenters also asserted that MBS are
mission-related in that, despite the statements of the Finance Board to
the contrary, the Banks' purchase of these securities do result in
increased availability of funds for housing and in reduced cost of
housing funds.
More generally, several Bank members commented that Sec. 940.3, as
proposed, would restrict the Banks' abilities to respond to members'
needs with well-priced advances by encouraging the Banks to focus upon
``programs'' required by regulation. Several other commenters expressed
the opinion that Congress has adequately addressed the ``mission'' of
the Banks in the Federal Home Loan Bank Act (Bank Act) and that, by its
failure to impose mission requirements as part of the Modernization
Act, Congress expressed its intent that such requirements should not be
imposed through regulation. Several also pointed out that the
Modernization Act devolved the remaining elements of corporate
governance authority to the Banks and claimed that the manner in which
the Banks carry out their statutory mission is a matter of corporate
governance to be decided upon by the Banks' own boards of directors,
subject only to the safety and soundness regulation of the Finance
Board.
Finally, one commenter stated that the CMA provisions, as proposed,
would violate the spirit of an October 18, 1999 letter from Finance
Board Chairman Bruce Morrison to Senator Phil Gramm and Congressman Jim
Leach. In that letter, Chairman Morrison stated that, upon the
enactment of the Modernization Act, the Finance Board would withdraw
its Financial Management and Mission Achievement (FMMA) proposed
rulemaking, see 64 FR 52163 (1999), and would take no action to
promulgate proposed or final regulations limiting Bank assets or
advances beyond those regulations currently in effect (except to the
extent necessary to protect the safety and soundness of the Banks)
until such time as the Finance Board's new capital regulations take
effect.
2. The Final Rule--Background
The Bank Act authorizes the Finance Board to supervise the Banks
and to promulgate and enforce such regulations and orders as are
necessary from time to time to carry out the provisions of the Bank
Act. See 12 U.S.C. 1422b(a)(1). Among the provisions of the Bank Act
are those outlining the duties of the Finance Board, which include the
duty to ``ensure'' that the Banks carry out their housing finance
mission. See id. at 1422a(a)(3)(B)(ii). The use of the word ``ensure''
in section 2A(a)(3)(B)(ii) of the Bank Act makes clear that, consistent
with the safe and sound operation of the Banks, the Finance Board has
the duty to take active measures to see to it that the Banks carry out
their housing finance mission.
Because Congress has not expressly defined the term ``housing
finance mission,'' it is the responsibility and the privilege of the
Finance Board--as the body charged with the duty to ensure that the
Banks fulfill that mission and, more generally, as the supervisory
regulator of the Banks and the agency charged with the administration
of the Bank Act--to construe the term reasonably in light of the
totality of the Act. It is the position of the Finance Board that, when
Congress amended the Bank Act in 1989 to require the Banks to offer
Affordable Housing Programs (AHP) and Community Investment Programs
(CIP) and authorized the Banks to offer Community Investment Cash
Advance Programs (CICA), the Banks' ``housing finance mission,'' as
referenced in section 2A(a)(3)(B)(ii), came to include support not only
for the financing of traditional housing-related activities, but also
for those types of community lending that the Banks are authorized by
statute to support and that indirectly enhance traditional housing
finance by helping to create and sustain thriving and livable
communities. See 12 U.S.C. 1430(i), (j).
Having earlier set forth its construction of the Banks' mission in
Sec. 940.2 of the regulations, see 65 FR 25267 (May 1, 2000), the
Finance Board is now further fulfilling its duty to ensure that the
Banks carry out that mission by requiring that the Banks focus on the
CMA listed in new Sec. 940.3 as part of their strategic planning
process. Under the Finance Board's regulations, as amended by this
final rule, this is the only regulatory requirement regarding CMA.
The material formerly contained in proposed Sec. 940.3(b) was
intended to give the Banks and their members some assurance that, if
the Finance Board were to promulgate at some point in the future any
effective limits on non-CMA Bank activities, MBS and other investments
previously made under sections II.B.8 through II.B.11 of the FMP would
not adversely affected. However, based on the comments it is apparent
that rather than providing reassurance, the effect of including this
provision in the proposed rule has been to raise the specter of as-yet-
undisclosed future limits on non-CMA activities, while obscuring the
fact that no such limits are being contemplated or implemented.
Accordingly, the Finance Board has eliminated proposed Sec. 940.3(b)
and its reference to possible limits on non-CMA activities from the
final rule. Although this declaration of intent has been eliminated
from the language of the rule, the Finance Board stresses again that:
(1) It has no current plans to impose limits on non-CMA activities; and
(2) if any such limits were ever to be imposed, the agency has no
current plans to require any Bank to divest itself of otherwise legal
and safe investments already held.
Because this rule does not limit Bank assets or activities to a
greater extent than the limits to which they are subject under the FMP,
the rule does nothing to violate either the spirit, or the literal
language, of Chairman Morrison's letter to Senator Gramm and
Congressman Leach.
The Finance Board disagrees with comments that the Banks would
suffer from lower profits and reduced balance-sheet management
flexibility as a result of the Finance Board's failure to characterize
MBS as CMA. First and foremost, the rule contains no new restrictions
on the Banks' ability to invest in MBS. The only limit on the Banks'
authority to invest in MBS is the current FMP ``three times capital''
limit (which will remain in effect until expressly repealed by the
Finance Board). Second, the loans and pools of loans a Bank may acquire
through AMA programs authorized under part 955 of the final rule (which
is discussed in more detail below) would be substantially similar to
loans that are normally acquired in securitized form through the
purchase of MBS.
Since 1989, the Banks have gained substantial experience in
managing the risks associated with MBS. This experience should be
transferable to the management of what would essentially be ``self-
securitized'' MBS acquired under an AMA program. While the rate of
return on AMA could be lower than that on MBS depending upon the price
structure of a particular AMA program,
[[Page 43972]]
the slight difference in return would inure to the benefit of the
selling member, in keeping with the cooperative nature of the Bank
System. The purchase of MBS from the capital markets typically does
little or nothing to enhance the availability of any reasonably-priced
product or service to any member or housing associate.
Finally, the Finance Board rejects the notion that the promulgation
of the CMA strategic planning requirement should be postponed until
after the Banks have put into effect their new capital plans. As the
Banks' mission regulator, the Finance Board has made decisions
regarding the broad activities it believes are preferable for the Banks
to be pursuing in the context of their housing finance and community
lending mission. Having made these decisions, the Finance Board finds
it most logical to state those preferences as clearly as possible and
as soon as possible prior to the development of the Banks' new capital
plans. In doing so, the Finance Board is enabling the Banks to
structure their capital plans with specific mission considerations in
mind, as opposed to amending the plans after they have already been
developed. In addition, members and potential members will be aware in
advance of the CMA in which the Banks are encouraged to engage. To do
otherwise would serve only to undermine the capital planning process
and the expectations of investors in the Bank System, and to no good
purpose.
3. Definition of CMA and Government-Insured or -Guaranteed AMA Loans--
Sec. 940.3(b)
Under Sec. 940.3(b) of the final rule, all AMA authorized under new
part 955 qualify as CMA, except for certain United States government-
insured or guaranteed whole single-family residential mortgage loans
acquired under a commitment entered into after April 12, 2000. The
latter shall qualify as CMA only in a cumulative dollar amount up to 33
percent of: the cumulative total dollar amount of AMA acquired by a
Bank after April 12, 2000, less the cumulative dollar amount of United
States government-insured or guaranteed whole single-family residential
mortgage loans acquired after April 12, 2000 under commitments entered
into on or before April 12, 2000. At the discretion of two or more
Banks, this percentage calculation may be made based on aggregate
transactions among those Banks.
This provision appeared as Sec. 940.3(a)(2) in the proposed rule.
Section 940.3(b) of the final rule differs from the proposal in that
the ``33 percent'' calculation regarding government-insured and -
guaranteed loans has been made to apply on a cumulative basis, as
opposed to a year-to-year basis.
The Finance Board received a total of 20 comments regarding the CMA
definition as applied to government-insured or -guaranteed loans.
Seventeen commenters were opposed to that aspect of the CMA definition
that would result in only a portion of the government-insured or -
guaranteed loans acquired by a Bank being considered as CMA. Two
commenters supported the definition as proposed, and one noted that the
issue required further discussion.
Generally, the commenters opposed to this aspect of the CMA
definition noted that the Banks should be provided maximum flexibility
in meeting the needs of their members. It was noted that the exclusion
of a portion of government-insured or -guaranteed loans from the
definition of CMA would have a detrimental effect on the ability of
private sector lenders to pass the full benefits of AMA programs on to
consumers. It was also noted that the Banks should have unlimited
flexibility to acquire government insured or guaranteed loans, similar
to the unlimited flexibility afforded Fannie Mae and Freddie Mac. One
commenter added that no limitation should exist since there are no
safety and soundness or mission reasons to justify such a limitation.
Another commenter suggested that the April 12, 2000 date, relating to
prior acquisition of government-insured and -guaranteed loans, be
either deleted or moved to the date of enactment of the final rule. Yet
another commenter requested that the 33 percent limitation should not
take effect until 2002.
One of the comments in favor of the proposed definition noted that
the Banks should be encouraged to focus on conventional and prime rate
mortgages that are made to minorities and low-and moderate-income
populations. Another commenter supporting the proposed definition added
that the use of mortgage insurance would significantly reduce the need
for Banks to purchase government-insured or -guaranteed loans, since
such purchases to date have been the result of the recourse capital
treatment for members selling conventional loans.
The Finance Board considered the comments received regarding the
CMA definition as applied to government-insured and -guaranteed loans
and decided that the definition should remain as proposed, although the
calculation thereunder should be made on a cumulative, as opposed to a
year-to-year, basis. The distribution of the Banks' current mortgage
portfolio indicates that a high percentage of government-insured loans
have been acquired when compared to the percentage of these loans in
the total mortgage market. The final rule encourages the composition of
the Banks' mortgage portfolios to more closely reflect the distribution
of loans in the marketplace. This provision is intended to reduce the
emphasis on government-insured loans that currently exists in the
Banks' mortgage portfolios and to provide incentive for Bank
acquisition of conventional mortgages.
The parenthetical at the end of Sec. 940.3(b) makes clear that the
calculation of the percentage of AMA loans that qualify as CMA may be
made based on aggregate transactions between two or more Banks so long
as the relevant Banks agree (or, even on a System-wide basis if all
Banks agree). This provision is intended to provide flexibility among
the Banks such that if one Bank's acquisition of government-insured or
guaranteed loans exceeds 33 percent of total AMA in a given year, it
may combine its portfolio for purposes of the calculation with another
Bank that may not have reached the maximum allowed CMA purchase of such
loans.
4. Targeted Investments--Sec. 940.3(e)
Under Sec. 940.3(e) of the final rule, certain targeted debt and
equity investments may qualify as CMA. As stated in Sec. 940.3(e)(1),
these include debt or equity investments that primarily benefit
households having a targeted income level, or areas targeted for
redevelopment by local, state, tribal or Federal government, by
providing or supporting: housing; economic development; community
services; permanent jobs; or area revitalization or stabilization. The
term ``targeted income level'' is defined in Sec. 940.1 by cross-
referencing to the first two paragraphs of the definition of the same
term under the Finance Board's CICA regulation. See 12 CFR 952.3.
There, ``targeted income level'' is defined to refer to a household
income that is at or below 115 percent of the area median income in
rural areas, and at or below 100 percent of the area median income in
urban areas. See 12 CFR 952.3. Section 940.3(e)(1) also requires that a
significant proportion of the households with a targeted income level
must have incomes at or below 80 percent of area median income. An
example of a housing project that would meet the targeted income
requirement would be a project that qualifies for a federal Low Income
Housing Tax Credit where either 20 percent of the units are affordable
to
[[Page 43973]]
households with incomes at or below 50 percent of area median income or
40 percent of the units are affordable to households with incomes at or
below 60 percent of area median income.
Section 940.3(e)(2) provides that, if the targeted investment is an
MBS or ABS, the acquisition of these securities by the Bank must
substantially contribute to expanding liquidity for loans that are not
otherwise adequately provided by the private sector and do not have a
readily-available or well-established secondary market in order for the
investment to qualify as CMA. Whether the investment is an MBS or ABS,
or a non-securitized asset, Sec. 940.3(e)(3) requires that the
investment must in all cases involve one or more members or housing
associates in a manner, financial or otherwise, and to a degree to be
determined by the Bank.
Most of the comments addressing the targeted lending provision were
generally supportive, although many suggested additions, clarifying
language or other modifications. Many of the commenters who praised the
provision specifically supported Bank debt and equity investments in
Community Development Financial Institutions (CDFIs) and secondary
capital in community development credit unions, which, as mentioned in
the preamble to the proposed rule, would qualify as CMA under
Sec. 940.3(e). Several commenters also stated generally that the
Finance Board should make clear that Sec. 940.3(e) is intended to
encompass whole loans, whole loan portfolios or participations in whole
loans or whole loan portfolios, where these loans meet the requirements
of the provision.
As proposed, Sec. 940.3(e)(1) (which appeared at
Sec. 940.3(a)(5)(i) of the proposed rule) required that these
investments primarily benefit ``low- or moderate-income households,''
which the proposed rule defined as a household with an income that is
at or below 115 percent of area median income. With regard to these
income targets, several commenters stated that the Finance Board should
amend its definition of ``low- or moderate-income households'' to
include only those households with incomes up to 80 percent of area
median income. The commenters noted that this would correspond with the
income targets under the Community Reinvestment Act (CRA) and would
enhance the ability of Bank members to meet their CRA requirements by
making CRA-related loans and investments.
After considering all of the relevant factors, the Finance Board
decided that it was desirable to keep the parameters of ``targeted''
Bank activities like CICA programs and targeted investments consistent.
Therefore, in the final rule, the Finance Board as amended the income
target provision to cross-reference the CICA regulation.
As indicated, in the realm of targeted lending, the term ``low- or
moderate-income households'' refers to households with an income that
is at or below 80 percent of the area median income. In order to avoid
confusion, the Finance Board has removed the term ``low- or moderate-
income households'' and has used instead referred to households having
a ``targeted income level,'' a term which is used in the Finance
Board's CICA regulation. See 12 CFR 952.3. By cross-referencing this
definition in the CICA regulation, the agency has effectively modified
the income targets that were set forth in proposed Sec. 940.3(a)(5)(i)
by tightening the requirement from 115 to 100 percent of area median
income for urban households. The target remains at 115 percent of area
median income for rural households.
As proposed, only ``non-securitized'' debt and equity investments
could have qualified as CMA under Sec. 940.3(e). However, this
provision has been revised in the final rule to include targeted MBS
and ABS as CMA under this section where the requirements of
Sec. 940.3(e)(2) (described above) have been met. In the proposed rule,
the Finance Board requested comment on appropriate rule language that
might allow for MBS and ABS that substantially contribute to opening an
underserved market to qualify as CMA, while continuing to exclude
securities that, while they may be backed by loans that could qualify
as ``targeted,'' actually trade in a well established and liquid
market.
While two commenters provided the Finance Board with suggestions
regarding income targets for loans backing securitized targeted CMA
investments, these comments did not address the Finance Board's concern
regarding the market in which the securities trade. The income
requirements for MBS and ABS are the same as those for non-securitized
assets.
Upon consideration of the issue, the Finance Board decided that MBS
and ABS that are backed by mortgages or other assets that meet the
targeting requirements, and the purchase of which would substantially
contribute to expanding liquidity for loans that would not otherwise be
adequately provided by the private sector and that do not have a
readily available or well-established secondary market should be deemed
to be CMA. MBS or ABS where less than half of the dollar amount of the
assets underlying each of the securities meet the targeting
requirements of this provision would not be considered to primarily
benefit targeted areas or households with a targeted income level as
required under Sec. 940.3(e)(1).
The Banks are encouraged to invest in MBS and ABS backed by assets
consisting of whole loans and loan participations that address
financially underserved income-targeted households or area-targeted
markets identified by a Bank. Currently, there are a number of
financing opportunities where the secondary market is not fully
developed and the Banks' involvement could facilitate the growth and
liquidity of loans provided to underserved markets. There are many such
types of MBS and ABS where the majority of the underlying assets are
composed of loans for households with targeted incomes or loans in
targeted areas, for example: Single-family home purchase mortgages that
do not meet the underwriting standards of the secondary market
Government Sponsored Enterprises (GSEs); mortgages on owner-occupied
two- to four-unit homes; home equity conversion (reverse) mortgages;
single-family rehabilitation or combination acquisition/rehabilitation
loans; home purchase loans for households with incomes less than 80
percent of area median income in areas where GSE purchases are less
than the proportion of loans made to such households in those areas;
loans of less than $3 million for the acquisition, construction or
rehabilitation of small multifamily buildings; homeowner and rental
property loans on tribal lands; community facility and economic
development loans in low-income census tracts or rural areas; and
economic development and housing loans originated by nonprofit
organizations.
Many commenters mentioned specific programs, agencies, non-profit
organizations and other projects and investments and requested
confirmation by the Finance Board that each was a type of targeted
investment that could qualify as CMA under Sec. 940.3(e). The elements
to be considered under that section can in some cases be known only
with respect to a specific investment. While it is impossible to list
every type of investment that might qualify as CMA under Sec. 940.3(e),
there are several types of investment that would clearly qualify as CMA
in most circumstances, such as investments in: Community Development
Venture Capital Funds; SBIC ``fund-of-funds''; and equity investments
in governmentally-aided economic
[[Page 43974]]
development entities structured similarly to SBICs, where the
investment primarily benefits low- or moderate-income individuals or
areas.
Section 940.3(e)(3) of the rule (Sec. 940.3(a)(5)(ii) in the
proposed rule) requires that, to qualify as CMA, an otherwise
qualifying targeted investment by a Bank must involve one or more
members or housing associates in a manner, financial or otherwise, and
to a degree to be determined by the Bank. One commenter opposed any
requirement that, to qualify as CMA, a targeted investment must have
the direct financial involvement of one or more members or housing
associates and recommended that the rule permit a range of involvement
from sponsorship through financial participation. Section 940.3(e)(3)
does not require direct financial participation on the part of the
member or housing associate and, in fact, clearly allows the Bank
itself to determine the extent and nature of its involvement with its
member or housing associate. Accordingly, the Finance Board believes
that, as worded, the rule allows for levels of member or housing
associate involvement from sponsorship through financial participation.
5. SBIC Investments--Sec. 940.3(g)
Under Sec. 940.3(g) of the final rule, SBIC debentures, the short-
term tranche of SBIC securities and other debentures guaranteed by the
Small Business Administration (SBA) under Title III of the Small
Business Act of 1958 are considered to be CMA. Under the proposed rule,
this provision (which appeared at Sec. 940.3(a)(7)) would have defined
only the short-term tranche of SBIC securities as CMA. Two commenters
(a Bank and the SBA) asked the Finance Board to broaden the provision
to include all securities insured by the SBA under Title III of the
Small Business Act, in order to provide needed funding for SBICs and to
accommodate new programs that the Bank and the SBA are pursuing. In the
final rule, the Finance Board has expanded the provision to encompass
the investments that the Bank has proposed to make and other similar
SBA-guaranteed debt investments. SBIC-related equity investments would
not count as CMA under this provision, but could qualify under
Sec. 940.3(f).
B. Acquired Member Assets--Part 955
Part 955 of the final rule addresses AMA--that is, whole loans and
certain interests in whole loans that a Bank may acquire from or
through its members or housing associates in a transaction that is in
purpose and economic substance functionally equivalent to the business
of making advances in that: (1) It allows the member or housing
associate to use its eligible assets to access liquidity for further
mission-related lending; and (2) all, or a material portion of, the
credit risk attached to the assets is being borne by the member or
housing associate.
1. Three-Part Test--Sec. 955.2
Section 955.2 of the final rule sets forth a three-part test for
determining whether an asset may qualify as AMA. As adopted, it is
substantially similar the proposal, except for one change relating to
state or local housing finance agency (HFA) bonds. This section
provides that AMA must be: (a) Whole loans or certain interests in
whole loans; (b) originated or held for a valid business purpose by a
member or housing associate, and acquired from a member, housing
associate, or another Bank; and (c) structured such that a member or
housing associate is responsible for a significant portion of the
credit risk of the investment and otherwise in compliance with
Sec. 955.3.
Two commenters opposed the requirement of proposed
Sec. 955.2(a)(1)(i) prohibiting the purchase of single-family mortgages
where the loan amount exceeds the conforming loan limits established
for Fannie Mae and Freddie Mac. See 12 U.S.C. 1717(b)(2). One commenter
noted that this limitation would prevent the Bank from fully serving
its mission. The second commenter requested relief from the loan limit
specifically for ``Difficult Development Areas,'' where housing costs
are a significant burden relative to other areas in the region.
The Finance Board considered these comments and decided to maintain
the prohibition on the purchase of single-family mortgages where the
loan amount exceeds the conforming loan limit. This provision is
intended to prohibit the acquisition of ``jumbo'' loans. Additionally,
the Finance Board's intent is to create a level playing field among the
Banks, Fannie Mae and Freddie Mac with respect to the types of loans
eligible for purchase.
At the request of one commenter, the Finance Board here clarifies
that, under Sec. 955.2(a)(1), a Bank may acquire certificates
representing interests in whole loans as AMA only if: (1) The
certificates are rated by an NRSRO to meet the credit enhancement
requirement of Sec. 955.3; (2) the certificates are issued following
the execution of, and for the purpose of implementing an agreement
between and initiated by the Bank and a Bank System member or housing
associate to share risks in compliance with the requirements of
Sec. 955.3(b); and (3) the initiating Bank or Banks acquire
substantially all of the certificates. It is the Finance Board's view
that, in such a case, the use of a third party to securitize the whole
loans would merely represent a vehicle to invest in certain types of
AMA under more favorable terms and should therefore be permitted under
the rule. However, if the certificates have been created as a security
initially available to investors generally, they will not be considered
to qualify as ``whole loans'' under Sec. 955.2(a)(1).
Three commenters addressed the requirements of Sec. 955.2, as
applied to the acquisition of HFA bonds. All of the commenters were
opposed to the proposed rule's treatment of HFA bonds to varying
degrees. Of primary concern was the ``member or housing associate
nexus'' requirement set forth in Sec. 955.2(b). The commenters were
generally more concerned with whether HFA bonds could qualify as CMA
under Sec. 940.3, than with the status of such bonds under the AMA
provisions of part 955.
One commenter stated that HFA bonds should qualify as CMA whether
or not the Bank purchased the bond from an housing associate of the
Bank, or was granted permission by another Bank to purchase such bonds
in its district. The commenter believes that this restriction has the
potential to increase interest rates on taxable securities issued by
HFAs by decreasing the competition for purchase of such securities. The
commenter further noted that some Banks may be unwilling to grant
permission to deal with HFAs in their district and, even where Banks
are so willing, the cost of crafting a transaction would be onerous and
unnecessary.
Another commenter noted that constraining the Banks to acquire HFA
bonds from out-of-district housing associates only if the Bank has an
agreement with the housing associate's District Bank granting
permission to make such an acquisition is inappropriate and could cause
transactions with housing associates to take place at non-market-
clearing prices. The final commenter noted that costs and time would be
reduced and HFAs would be able to access a pool of funds to provide
low-interest loans for affordable housing if HFAs could privately place
bonds, using the agencies' investment grade stand alone rating. The
commenter further stated that it would be helpful if the rule would
provide a clear description of the criteria applicable to HFAs to
engage in selling bonds to Banks, in joint lending
[[Page 43975]]
arrangements, in shared risk and credit enhancement programs for
affordable housing properties, and in programs with member banks and
through Banks directly.
The Finance Board considered the comments received and has, for HFA
bonds only, modified the requirement that the bonds may be acquired
from out-of-district housing associates only with the permission of the
Bank in whose district the HFA is located (local Bank). Instead the
final rule requires that the HFA first give the local Bank a right-of-
first-refusal to purchase, or negotiate the terms of, a particular bond
issue. If the local Bank refuses, or does not respond within three
days, the HFA may then offer the bonds to an out-of-district Bank. This
has been done in order to preserve the integrity of the Bank Districts,
while at the same time preventing any one Bank from denying an HFA in
its District financing that another Bank is willing to provide.
At any rate, under final Sec. Sec. 956.2(f) and 956.3(a)(4)(iii)
Banks retain their existing authority to invest in AA-rated HFA bonds
regardless of the District in which the issuer is located. However, HFA
bonds that are acquired under Part 956 only and that do not meet the
AMA requirements of Sec. 955.2 do not qualify as CMA.
2. Required AMA Credit Risk-Sharing Structure--Sec. 955.3
Section 955.3 elaborates upon the credit risk-sharing requirement
that is the third part of the AMA test set forth in Sec. 955.2. The
risk-sharing requirements of Sec. 955.3 are based on risk-sharing
structures that have evolved during the three-and-one-half years that
the AMA pilots have been in operation. Though somewhat detailed, the
credit risk-sharing requirements of Sec. 955.3 are intended to produce
a simple result: a recourse model for capital markets participation in
the mortgage business that overcomes the traditional problems with the
capital treatment on recourse transactions for financial institutions
and results in a reasonable capital charge for the participating member
or housing associate.
Although the credit risk of mortgage loans is typically low, it is
still important to find the most economical way to manage that risk.
The Finance Board believes that the recourse model, under which the
seller of a mortgage retains all or part of the credit risk, is a more
economically efficient system for bringing the benefits of the capital
markets to the mortgage industry. Under the recourse model, entities
that underwrite the loans benefit from good underwriting and therefore
are economically disciplined to reduce credit risk. In contrast to the
insurance-based secondary market model, under which Fannie Mae and
Freddie Mac are paid a premium to insure against credit losses, the
recourse model allows an originator to take on more credit risk (so
long as that risk is adequately capitalized) and to profit from
successful management of that credit risk. Thus, credit risk is
dispersed among the many potential originators in the Bank System, and
even further dispersed through the permitted insurance and credit
derivative structures.
Section 955.3 differs from the proposed rule in several respects.
These changes generally provide additional clarification and do not
represent a change in the Finance Board's intent regarding AMA
activities. In some sections additional requirements have been
specified to ensure safe and sound operations.
In general, Sec. 955.3 enables the Bank and the member to take best
advantage of their core competencies by: (1) Requiring the member to
bear most of the economic cost and the management burden associated
with lowering the credit risk of AMA assets to levels comparable with
investment grade rates securities; thus (2) leaving the Bank with AMA
assets that have a risk profile similar to the securities that have
historically been a normal part of Bank operations.
Under Sec. 955.3(a), a Bank is required to determine, for each AMA
product, the total credit enhancement needed to enhance an AMA asset or
pool of assets to a credit quality that is equivalent to that of an
instrument having at least the fourth highest credit rating from an
NRSRO, or the credit enhancement associated with such other rating
equivalent above the lowest investment grade that the Bank may choose.
It further requires that the determination be made using a methodology
that is confirmed in writing by an NRSRO to be comparable to a
methodology that the NRSRO would use in determining credit enhancement
levels when conducting a rating review of the asset or pool of assets
in a securitization transaction. In addition, this determination must
be made at the earlier of 270 days from the date of the Bank's
acquisition of the first loan in a pool, or the date at which the
amount of a pool's assets reaches $100 million.
The portion of Sec. 955.3(a) regarding the confirmation by NRSROs
combines Sec. Sec. 955.3(a)(1)(ii) and 955.3(a)(2) of the proposed
rule. The NRSRO's confirmation of the method used to determine the
required credit enhancement ensures that the Bank's estimates of credit
ratings are reasonably accurate. However, the Finance Board
acknowledges that an NRSRO conducting a formal rating of an asset or
pool of assets may take into account qualitative factors that may not
be considered by a theoretical model. Hence, the estimate of the credit
enhancement requirement by a Bank would not be required to be identical
to that determined by an NRSRO, but should produce roughly the
equivalent rating, or equivalent ratings on average, to a formal rating
review of the assets or pools of assets.
The NRSRO confirmations required by this part help ensure that AMA
assets have risk and return characteristics that are more transparent,
because of their similarity to rated instruments, than if the Banks
simply accepted assets with unspecified levels of credit risk, or with
credit risk measures that did not map to publicly available rating
categories. Finance Board discussions with NRSROs indicate that it will
be possible to obtain confirmations that give the Finance Board
reasonable assurance regarding the soundness of the approach used to
estimate the credit risk of AMA assets.
By specifying that the credit enhancement requirement be determined
at the earlier of 270 days from the date of the Bank's acquisition of
the first loan in a pool, or the date at which the amount of a pool's
assets reaches $100 million, the rule ensures that large volumes of AMA
assets cannot be acquired without a determination of their credit
quality. This requirement did not appear in the proposed rule and was
added to address the safety and soundness concerns that could arise if
the credit enhancement determination were not performed on large pools
that were formed over extended periods of time. However, the specified
period in which the determination may be made still allows Banks
latitude to assemble AMA assets in sufficient quantity to achieve and
measure the benefit of diversification.
The rule no longer includes the text of proposed
Sec. 955.3(a)(1)(i), which specifically required the Bank to determine,
at the time of acquisition of member assets, the expected credit losses
on the asset or pool of assets using a method confirmed by a NRSRO.
However, this determination likely still must be made to comply with
Sec. 955.3(b)(2)(ii), regarding the member's incentive to reduce actual
credit losses.
Seven comments were received regarding the impact of geographic
concentration and pool size on the calculation of the credit risk
[[Page 43976]]
requirement and the resulting impact on small originators. These two
diversification factors are taken into account by the NRSROs and the
credit rating software that would be used to comply with Sec. 955.3(a).
Such software is likely to indicate substantially higher credit
enhancement requirements for loan pools provided by smaller originators
because the marketplace for such originators does not allow them to
produce large numbers of geographically dispersed loans. The commenters
proposed that the portion of credit enhancement requirements
attributable to the lack of diversification not be included in
determining compliance with Sec. 955.3(a) for small members because
such members could incur higher capital charges from the significantly
higher credit enhancement requirements.
The Finance Board believes that such an approach would be
detrimental to the safety and soundness of the acquiring Bank because
the credit risk associated with the lack of diversification is a real
risk that must be accounted for and managed. However, the Banks are not
precluded from proposing a credit enhancement structure that
appropriately manages the risk associated with the two diversification
factors as confirmed by an NRSRO. In addition, 955.3(b)(1)(iii) of this
rule now includes a provision allowing a narrow form of pool insurance,
discussed more fully below, as one means for the Banks to address this
issue.
A comment was also received advocating that Sec. 955.3(a) should
allow the recalculation of the amount of the credit enhancement on AMA
pools some period of time after the establishment of the pool for the
purpose of reducing the amount if such a reduction were found to be
appropriate. The rule does not restrict the Bank from performing such
recalculation. However, the timing of recalculations and any actions
taken by the Bank to apply such new estimates of credit enhancements
must be deemed appropriate, a priori, in writing, by an NRSRO.
Under Sec. 955.3(b) of the final rule, the member must provide an
enhancement to the credit quality of the prospective AMA asset that is
sufficient to raise the credit quality of the asset to be comparable
with a rated investment grade instrument. The final rule is similar to
the provisions of Sec. 955.3(b)(2) of the proposed rule that address
the total amount of the credit enhancement. Under final Sec. 955.3(b),
the member must provide and bear the economic cost of the required
amount of the credit enhancement. The amount of the credit enhancement
must cover losses from the first dollar up to at least the coverage of
an equivalent rated investment grade instrument and must be designed to
extend for the life of the asset or pool of assets. The requirement
that the amount of the credit enhancement extend for the life of the
asset or pool of assets is intended to exclude, for example, structures
that would comply with the credit rating requirement in the first year,
but would then scale back the amount of the member's credit enhancement
enough in future years so that the pool no longer meets the credit
rating requirement. Furthermore, although the Bank may provide loan
loss reserves for AMA assets, unless it can be demonstrated that, in
substance, the economic cost of such reserves is borne by the member,
such reserves would not be included in the credit enhancement for the
purpose of determining compliance with this section. However, Bank
reserves can be included in calculating the risk-based capital
requirement associated with the asset.
Section 955.3(b) does not specify the form of the credit
enhancement, only that it must be provided by the member subject to
some limitations. By allowing flexibility in the form of the credit
enhancement structure, the Banks can pursue alternative structures that
meet member needs while providing the best overall return on the AMA
activity.
Specifically, Sec. 955.3(b)(1)(i) has been added to the final rule
to authorize an insurance affiliate of the member to hold a portion of
the credit enhancement obligation, to accommodate corporate structures
common to some members that allow the credit enhancement obligation to
be held by an entity that incurs a lower capital charge than the
member. Also, Sec. 955.3(b)(1)(ii), which replaces
Sec. 955.3(b)(ii)(2)(B)(3) of the proposed rule, allows loan-level
insurance as a part of the credit enhancement but requires that the
insurer be rated not lower than the second highest rating category.
However, both of these insurance provisions are subject to the same
limitation, which is contained in both Secs. 955.3(b)(1)(i) and
955.3(b)(1)(ii)(B). The limitation requires that any insurance,
regardless of the source, only absorb losses that remain after the
member has economically absorbed all losses associated with the
economic incentives described in Sec. 955.3(b)(2). This limitation was
added to ensure that members retain an ongoing economic interest in the
actual credit losses of the asset even though much of the overall
exposure to credit losses might be covered through an insurance
arrangement.
Section 955.3(b)(1)(iii)(A) allows pool-level insurance as part of
the credit enhancement subject to two limitations. This provision was
added to the rule to permit a member to help offset the very high
credit enhancement requirements that may be incurred by members that
are unable to produce asset pools with sufficient pool size and
geographic diversity. However, pool insurance may be used for the sole
purpose of allowing groups of members, that would otherwise have to
manage financially impractical credit enhancement requirements arising
from a lack of diversification, to offset only that portion of the
requirement that arises from a lack of diversification. Section
955.3(b)(1)(iii)(B) further requires that such pool insurance must only
cover loss exposure that arises after all other credit support
structures have been exhausted.
Section 955.3(b)(1)(iv) incorporates and clarifies
Sec. 955.3(b)(2)(ii)(B)(2) of the proposed rule by allowing a member to
contract with another member or housing associate in the Bank's
district or in another Bank's district, pursuant to an arrangement with
that Bank, to provide a contractual enhancement or undertaking against
losses to the Bank in return for some compensation.
Section 955.3(b)(2) of the final rule has been revised from
proposed Sec. 955.3(b)(2)(i) and (ii) regarding the member's incentive
to reduce actual credit losses. Taken together, Sec. 955.3(b)(2)(i) and
(ii) provide that the member must bear the direct economic consequences
of actual credit losses in an amount at least equal to expected losses
and positioned in the credit enhancement structure no later than
immediately after expected losses (and also before any loan-level or
pool insurance, as required by Secs. 955.3(b)(1)(ii)(B) and (iii)(B)).
This design requirement for the credit enhancement structure is
intended to ensure that the member retains an economic incentive to
reduce actual losses that is both material in amount and early enough
in the structure to be meaningful to the member.
``Expected losses'' are defined in Sec. 955.1 as losses on the
underlying assets expected under prevailing economic conditions--i.e.,
the base loss scenario--as estimated at the time the credit enhancement
requirement was determined under Sec. 955.3(a). Expected losses may be
calculated as the mean of the losses associated with economic
conditions represented by the sixth ratings category (e.g. single-B)
[[Page 43977]]
determined by computer rating models that map to NRSRO ratings.
Recognizing that advantages exist under each structure, the Finance
Board is giving the Banks the flexibility to offer products or programs
under either of the structures. However, any combination that removes
the incentive to reduce actual credit losses is prohibited.
The economic responsibility of the expected credit losses may be
borne by the member or housing associate in a variety of ways. For
instance, under the product developed by the Federal Home Loan Bank of
Chicago known as MPF 100, a Bank establishes an account to
absorb credit losses. As the Bank incurs losses, it is reimbursed by
the member through the reduction of credit enhancement fees paid to the
member by the Bank. Essentially, the fees paid to the member are
contingent upon the performance of the asset.
The Finance Board has determined that the amount represented by
expected credit losses is typically of sufficient size that members or
housing associates, when responsible for such losses, have incentive to
seek ways to achieve better than expected performance. In the case of
acquiring mortgage loans, by requiring that the member or housing
associate bear direct economic responsibility for such an amount,
position early in the structure, a system of risk and reward is
established that is based on the core competencies of the participating
institutions. Since member financial institutions are most
knowledgeable regarding their local housing markets, this structure
allows members the opportunity to benefit from their expertise in
underwriting mortgage loans in their communities. The credit risk
sharing structure is based on the concept that different institutions
have different capacities. The Banks are capital market specialists,
with the ability to bear market risks well, while depository
institutions are experts in credit risk evaluation since they know
their communities best. Therefore, by establishing a structure where
the member or housing associate from which the Bank acquired the asset
or pool of assets bears economic responsibility for the amount of the
expected credit losses, members or housing associates are rewarded for
their credit risk management expertise.
Regardless of how credit loss coverage is allocated, the economic
cost of expected credit losses must be borne by the member or housing
associate from which the Bank acquired the asset or pool of assets. In
the case of an FHA-insured loan, the loan would meet the risk-sharing
requirements since it is insured by the government; however, the member
or housing associate would have to bear the economic responsibility of
all unreimbursed servicing expenses, up to the amount of expected
losses on the loan or loan pool. In the case of HFA bonds, the Banks
are only permitted to purchase bonds that have been assigned a credit
rating of at least investment grade, and that rating cannot be achieved
unless the housing associate selling the bonds has somehow credit
enhanced the underlying loans in an amount sufficient to earn the
credit rating. In particular, HFA bonds are usually rated in at least
the third highest credit rating category based on the fact that the
bonds are backed by FHA-insured, VA-guaranteed or private mortgage
insurance (PMI)-insured whole loans. In many cases the bonds are backed
by loans securitized by the Government National Mortgage Association
(Ginnie Mae), Fannie Mae or Freddie Mac and are rated in the highest
credit rating category. Additional bondholder protections frequently
include mortgage reserve funds.
Section 955.3(b)(3) of the final rule adds a provision requiring
the member's credit enhancement obligation to be fully secured. This
provision was added to address the concern that the Bank might be
exposed to credit risk if the member were not able to comply with its
contractual credit enhancement obligation. This provision requires that
the member's credit enhancement obligation must be secured in parallel
with the requirement for advances to members under part 950.
Section 955.3(b)(4) requires the Bank to obtain written
confirmation from an NRSRO regarding the sufficiency of the credit
enhancement. This section generally expands and clarifies Sec. 955.3(b)
of the proposed rule. The rule clarifies that the confirmation must be
satisfactory to the Finance Board and must be based on the underlying
economic terms of the credit enhancement structure as represented by
the Bank for each AMA product. This confirmation may be provided in two
forms. Section 955.3(b)(4)(i) allows the NRSRO to verify that the level
of credit enhancement provided by the member or housing associate is
generally sufficient to enhance the asset or pool of assets to a credit
quality that is equivalent to that of an instrument having the fourth
highest credit rating from an NRSRO, or such higher rating as the Bank
may require. In this case the NRSRO is, in essence, describing the
value of the credit enhancement structure hypothetically for the
purpose of determining a credit rating.
Section 955.3(b)(4)(ii) allows that the NRSRO may confirm that the
methodology used by the Bank for estimating the level of credit
enhancement provided by the member or housing associate is in
accordance with the practices established by the NRSRO. In this
approach the NRSRO does not provide the value of the credit enhancement
but rather indicates whether the Bank is estimating the value of the
credit enhancement structure in a way that is comparable to the
methodology used by the NRSRO in determining the sufficiency of credit
enhancements.
Section 955.3(c), regarding the timing of NRSRO confirmations, was
added to the rule to ensure that the confirmations are received on a
timely basis for already-established programs. It requires that ongoing
AMA programs shall acquire these confirmations within 90 days of the
effective date of this rule. This provision was added because
established AMA programs have acquired large portfolios even as of the
date of the proposed rule.
Two comments were received advocating that certain mortgage
financing instruments, if backed by member loans, should be included
within the general definition of AMA assets. One of the comments
specifically discussed securitized structures in which the Bank would
acquire an investment grade senior portion and the member would retain
the credit support tranches necessary to support the investment grade
tranches. A Bank would not be in compliance with part 955 if it the
transaction were merely a capital markets purchase of senior tranches
resulting from securitizations of this type. However, it is expected
that such structures would meet the requirements of part 955 if the
structure were implemented through a Bank's AMA program using assets
that conform with the AMA requirements that were previously held by the
member for a valid business purpose. In this regard, the structure
contemplated by the comment is similar to a ``sequential'' loan
participation program previously approved by the Finance Board. The
fact that such a structure might include rated subordinate credit
tranches would not constitute non-compliance with part 955 as long as
the structure were arranged cooperatively with the Bank and the member
bore the risk of holding or selling the credit support tranches.
Six comments were received advocating a provision in part 955 that
would give members participating in AMA programs the ability to
transfer
[[Page 43978]]
credit enhancement obligations and the servicing of AMA loans to other
members in the same or other Bank districts. The final rule does not
explicitly address, nor does it restrict, such transfers, though they
may only be undertaken with the concurrence of the Bank of which the
transferee is a member. In addition, such transfers must be accompanied
by a similar undertaking by the transferee of the incentive
requirements in Sec. 955.3(b)(2). Finally, the credit enhancement
obligations must be secured according to the same requirements that
apply to advances pursuant to part 950.
3. AMA Reporting Requirements--Sec. 955.4
A total of 24 comment letters were received regarding the AMA
reporting requirements set forth in Sec. 955.4 of the rule, and in
appendices A and B to part 955. Eighteen of the comments, while not
opposed to reporting requirements in general, were opposed to certain
aspects of the requirements. Six commenters supported all of the
reporting requirements.
In general, the commenters that stated some opposition to the
reporting requirements were most concerned with the burden of requiring
data elements in addition to those already required by the Department
of Housing and Urban and Development (HUD) and Office of Federal
Housing Enterprise Office (OFHEO) of Fannie Mae and Freddie Mac. The
commenters noted that any data elements in excess of what was already
required of members selling loans to Fannie Mae and Freddie Mac would
require expensive computer programming and procedural changes. It was
further noted that any such changes required to be made to members'
systems would make AMA programs less attractive in the marketplace.
Some commenters also objected to the lack of a transition period within
which the Banks would be required to begin reporting to the Finance
Board.
Some commenters were supportive of the reporting requirements in
the proposal. These commenters generally were in favor of collecting of
``prepayment penalty'' data on single-family mortgages, noting that
predatory lending is a problem in the U.S. and the collection of
prepayment penalty data will help prevent the Banks from engaging in
anti-borrower activities. One commenter stated that the data elements
submitted by the Banks to the Finance Board should be made publicly
available and that the Finance Board should consider mandating
reporting requirements on all CMA activities. Another commenter
supporting the reporting requirements suggested additional data
elements to be collected.
The Finance Board has considered the comments received regarding
reporting requirements and has made a number of revisions to the final
rule in response. In the proposed rule, the Finance Board based its
list of data elements on HUD's and OFHEO's requirements of Fannie Mae
and Freddie Mac. In addition to the data elements required by HUD and
OFHEO for single-family and multifamily mortgage loans, the Finance
Board included a total of ten additional data elements to the two
lists. Six of these data elements, ``originating lender institution,''
``originating lender city'' and ``originating lender state'' for both
single-family and multifamily acquisitions, are not regularly reported
to Fannie Mae and Freddie Mac by financial institutions selling loans.
Given the comments received, the Finance Board has decided it would be
too burdensome to require the members to provide this data to the Banks
and has eliminated these data elements from both the single-family and
multifamily data element lists in the rule (Appendices A and B). The
Finance Board's original intent was to use this information to monitor
compliance with the valid business purpose requirement set forth in
Sec. 955.2(b)(1)(ii). The Finance Board has determined that the cost
burden on members and housing associates would exceed the benefits of
collecting such data on a System-wide and regular basis.
The additional four items not reported to HUD or OFHEO include,
``front-end ratio,'' ``back-end ratio,'' ``self-employment indicator,''
and ``prepayment penalties.'' Although not reported to either HUD or
OFHEO, financial institutions selling loans to Fannie Mae and Freddie
Mac currently report front-end ratio, back-end ratio, and self-
employment indicator to the GSEs. The prepayment penalties data element
is currently reported by Fannie Mae and Freddie Mac to OFHEO for
multifamily loans. Although not reported by Fannie Mae and Freddie Mac
for single-family loans, prepayment penalties for single-family loans
have become more prevalent in the marketplace.
Upon consideration, the Finance Board has determined that the
collection of the four above-mentioned data elements does not cause
undue burden on members and is necessary to evaluate the risk of the
loans acquired under AMA programs. Therefore, these four items will
remain on the list of required data elements for reporting purposes.
The Finance Board has added three data elements to the single-
family and multifamily lists published in the proposed rules. These
items are ``owner-occupied'' on the single-family list and
``construction loan'' and ``total number of units'' on the multifamily
list. All three of these data elements are reported by Fannie Mae and
Freddie Mac to HUD, but were inadvertently omitted from the proposed
rule.
In addition to the changes made to the data elements by the Finance
Board, the Finance Board has specified in the final rule the date on
which Banks must begin to collect and report information to the Finance
Board. The Banks must begin collecting from their members the required
information on loans acquired as of January 1, 2001. By allowing this
transition period, the Finance Board is providing the Banks ample time
to design and implement the systems necessary for this type of data
collection. The first mortgage report the Banks must submit to the
Finance Board will be due no later than May 31, 2001, which is 60 days
after the end of the first quarter.
4. Risk-Based Capital Requirements for AMA--Sec. 955.6
Section 955.6(a) of the rule sets forth capital requirements for
AMA that shall apply until the Finance Board's new capital rule is
finalized later in 2000. In the proposed rule, the provision would have
required each Bank to hold retained earnings plus specific loan loss
reserves as support for the credit risk of all AMA estimated by the
Bank to be below the second highest credit rating, in an amount equal
to or greater than: the outstanding balance of the assets or pools of
assets times a factor associated with the credit rating of the assets
or pools of assets as determined by the Finance Board. In the final
rule, the reference to specific loan loss has been changed to refer to
``general'' loan loss reserves, as was originally intended and a table
has been added setting forth the factors applying to single-family AMA.
The Finance Board received three comments regarding the proposed
risk-based capital requirement, all of which were opposed in varying
degrees to the provision. One of the comments noted that the proposed
rule, because it stated that the amount of retained earnings the Banks
would be required to hold would be ``as determined by the Finance
Board,'' provided little real guidance and made it difficult for the
Banks to comply in an effective manner. Another commenter suggested
that the Finance Board's risk-based capital requirements were overly
complex since they were included in separate regulations. The
[[Page 43979]]
commenter further noted that loan-loss reserves established under GAAP
should be deducted from risk-based capital.
After considering the comments, the Finance Board has included in
final Sec. 955.6(a) a table stipulating the percentage applicable to
the on-balance sheet equivalent value of single-family AMA rated below
the second highest rating category. The percentages included in the
table for the third through sixth categories take into account the
difference, in a sample of AMA assets, between the credit enhancement
requirement for these grades and the second highest investment grade
with a base requirement of 100 percent for pools below the sixth
highest investment grade. The sample of AMA assets used to produce
these percentages is thought to be representative of the general level
of credit risk in AMA. The percentage in the table for AMA with credit
quality below the sixth national grade coincides with the requirement
that all AMA have credit quality estimated to be equal to or better
than similar investment grade instruments. The Finance Board may adjust
this requirement going forward if there is information indicating that
higher or lower percentages are necessary.
The percentages in table differ from those set forth in the table
for single-family mortgage loans contained in the proposed capital
regulation. At this time, while the Bank System is still largely
subject to the restrictive safety and soundness parameters of the FMP,
the Banks will not be required to hold capital against AMA that have a
putative rating (calculated in accordance with the requirements of
Sec. 955.3) in the second highest credit rating category or higher.
Correspondingly, the factors listed for AMA having a rating below the
second highest credit rating category are intended to result in a
Bank's entire AMA portfolio having the same risk of uncapitalized loss
as an instrument rated in at least the second highest credit rating
category. Thus, the interim risk-based capital requirement for AMA has
been calibrated to be consistent with the risk management regime now in
place under the FMP. Once the Finance Board's new capital regulations
are in place, banks will need to hold risk based capital against all
assets, including those rated in the second highest category or higher,
but in amounts determined on a different basis than that reflected in
Sec. 955.6(a).
The Finance Board also modified the provision for risk-based
capital requirements for AMA by adding Sec. 955.6(b), which requires
that, for risk-based capital purposes, each Bank shall recalculate the
estimated credit rating of a pool of AMA if there is evidence that a
decline in the credit quality of the may have occurred. This provision
was added to ensure that any downgrade in credit status of a pool would
be reflected in the risk-based capital charge.
5. Removal of Pilot Status of AMA Programs
A total of 13 comments were received regarding the pilot status of
the AMA programs. Eleven commenters were in favor of removing the pilot
status and two commenters were opposed.
In general, the commenters in favor of converting the AMA programs
from pilot to permanent status noted the success of the current MPF
program in terms of Bank and member cooperation, allocation of risk,
and safety and soundness. It was noted that the AMA cap of $9 billion
needed to be lifted so that AMA programs could provide further benefits
to members and consumers. It was also noted that pilot status of the
AMA program creates unnecessary concern and uncertainty about the
Banks' ability to fulfill its obligations.
Two commenters opposed the removal of the pilot status on AMA
programs. One commenter noted that the Finance Board should defer any
action on the cap until the changes to the Banks' capital structures
mandated by the Modernization Act are put into place. The second
commenter noted that the cap on AMA programs should not be removed
since the performance of the MPF program has not been fully evaluated.
The Finance Board considered the comments received on the removal
of the pilot status of these programs and determined that existing AMA
programs had, in their pilots stages, proved to be a safe and sound
investment for the Banks, as well as a valuable, alternative means for
its members and housing associates to sell loans to the secondary
market. Accordingly, the Finance Board finds it appropriate to
authorize AMA programs on a permanent basis and to ensure the safety
and soundness of these programs through appropriate risk-based capital,
collateral and credit-risk sharing requirements, as well as through
thorough supervisory examinations.
6. Effect of New Business Activities Requirement of Part 980 on AMA
Section 955.2 of the rule makes all Bank AMA activities subject to
the ``new business activity'' requirements of part 980 of the Finance
Board's regulations. Part 980 is being finalized as part of the Finance
Board's rule on advances collateral, which was approved at the Board of
Directors meeting of June 29, 2000. Thereunder, Banks are required to
provide 60 days notice to the Finance Board before undertaking any new
business activity (defined in Sec. 980.1). To the extent that an AMA
transaction involves acquisition of a new class of asset, new types of
risk or risk structures, or new types of operations, Banks will need to
follow the notice procedures set out in part 980 before proceeding. It
is anticipated that new AMA products will almost always be new business
activities for purposes of part 980. In addition, new classes of
transactions engaged in under existing AMA programs may also be new
business activities, and thus subject to part 980, if they expose the
Bank to new loans types, risks, or operations.
The Finance Board received eight comments on the 60-day approval
period for new business activities. All commenters found the approval
period was to be lengthy and thought it would hinder product innovation
and development. However, the Finance Board believes that this
requirement is most needed as a safety and soundness measure where, as
with AMA, the Banks will be taking part in transactions with which they
have little past experience.
7. Predatory Lending
On June 20, 2000, HUD and the Department of Treasury released a
report entitled ``Curbing Predatory Home Mortgage Lending--A Joint
Report'' that describes the damaging impact predatory lending practices
have on individuals and whole neighborhoods. Predatory lending
practices include loan flipping (refinancing borrowers' loans
repeatedly in a short period of time), excessive fees, financing single
premium credit life insurance products in the mortgage, lending without
regard to the borrower's ability to repay, and outright fraud.
The report included recommendations for actions that the Finance
Board, working to assure consistency with any requirements that HUD
will impose on Fannie Mae and Freddie Mac, could apply to the Federal
Home Loan Banks to help end predatory lending. Specifically, the
Finance Board could prohibit purchases of high cost mortgages with
excessive fees, prepayment penalties (except in circumstances that
benefit the borrower, where the terms are fully disclosed, and
alternative options are offered), and prepaid single-premium credit
life insurance products, as well as
[[Page 43980]]
mortgages from a seller/servicer that fails to document monthly that it
is submitting payment information to a credit bureau.
Six commenters to the proposed rule recommended that the Finance
Board consider prohibitions on the purchase or funding of predatory
loans, or that certain information be added to the reporting
requirements for AMA so the Finance Board could determine whether AMA
included predatory loans.
On June 26, 2000, the Federal Home Loan Banks of Chicago, Atlanta,
Boston, Dallas, Des Moines, Indianapolis, New York, Pittsburgh, and
Topeka voluntarily agreed to adopt guidelines pertaining to predatory
lending, which will be consistent with the relevant secondary market
guidelines. In particular, these guidelines will focus on not
purchasing or funding loans through the MPF Program that meet the
characteristics of a high cost mortgage under the Home Owners' Equity
Protection Act of 1994.
The Finance Board anticipates that in a future rulemaking it,
working closely with HUD as it develops regulatory requirements for
Fannie Mae and Freddie Mac, will propose for public comment parallel
requirements for the AMA and Bank debt investments to assure that they
will not include predatory loans or contribute to predatory lending
practices.
C. Investments--Part 956
Part 956 of the final rule governs Bank investments. Along with the
advances, AMA and standby letter of credit regulations (parts 950, 955
and 961, respectively), part 956 provides the authority necessary for
the Banks to carry out several of the core mission activities listed in
Sec. 940.3. The final provision remains largely unchanged from the that
in the proposed rule. However, three modifications have been made.
First, the investment authorization set forth in Sec. 956.2 has
been amended to make explicit that, except for those provisions in the
FMP that are directly overridden by this proposed rule, all provisions
of the FMP will remain in effect until expressly repealed by the
Finance Board. Accordingly, Bank investment in agency and private MBS,
CMOs and REMICs and in asset-backed securities secured by manufactured
housing or home equity loans would continue to be limited to a total
amount equal to 300 percent of a Bank's capital. It is anticipated that
the remaining provisions of the FMP will be repealed, or at least
codified as regulations, at such time as the Finance Board promulgates
a final rule on capital and risk management.
Second, Sec. 956.4(a)(4) has been changed in the final rule so that
targeted investments described in Sec. 940.3(e) of the CMA regulation
are exempted from the list from the general prohibition on Bank
investment in whole loans or interests in loans other than pursuant to
the AMA requirements. The omission of this provision from the proposed
rule was merely an oversight. Its inclusion ensures that targeted loan
purchase programs such as the Federal Home Loan Bank of Atlanta's AMPP
will qualify as CMA.
Finally, under proposed Sec. 956.4, the Banks must hold retained
earnings plus specific loan loss reserves as support for the credit
risk of all investments that are not rated by an NRSRO, or are rated
below the second highest credit rating, in an amount equal to or
greater than the outstanding balance of the investments times a factor
associated with the credit rating of the investments as determined by
the Finance Board. The Finance Board has clarified in the final
provision that the factor shall be 0.08 for unrated assets. It is
expected that this specific Sec. 956.4 will be superceded at the time
that a final capital rule is promulgated, to be replaced by specific
requirements set forth in the capital regulation relating to each
credit rating category.
III. Regulatory Flexibility Act
The final rule applies only to the Banks, which do not come within
the meaning of ``small entities,'' as defined in the Regulatory
Flexibility Act (RFA). See 5 U.S.C. 601(6). Therefore, in accordance
with section 605(b) of the RFA, see id. at 605(b), the Finance Board
hereby certifies that this final rule will not have a significant
economic impact on a substantial number of small entities.
IV. Paperwork Reduction Act
In the proposed rule, the Finance Board inadvertently failed to
include a notice and request for comment regarding the Paperwork
Reduction Act implications of the information collection contained in
Sec. 955.4 of the rule, described more fully in part II of the
Supplementary Information. That notice and request for comment are
being provided here.
The data collected are intended to be used to create a data base
and reporting infrastructure for monitoring the Banks' risk management
and achievement of the public purpose of the residential mortgage-
related AMA programs. Responses are required in order obtain or retain
a benefit. The Finance Board will maintain the confidentiality of
information obtained from respondents pursuant to the collection of
information as required by applicable statute, regulation, and agency
policy. Books or records relating to this collection of information
must be retained as provided in the regulation.
Likely respondents and/or recordkeepers will be Banks, institutions
that are members or housing associates of a Bank and the Finance Board.
Potential respondents are not required to respond to the collection of
information unless the regulation collecting the information displays a
currently valid control number assigned by the OMB. See 44 U.S.C.
3512(a).
The estimated annual reporting and recordkeeping hour burden is:
a. Number of respondents: 412.
b. Total annual responses: 1600.
Percentage of these responses collected electronically: 75%.
c. Total annual hours requested: 38,880.
d. Current OMB inventory: n/a.
e. Difference: n/a.
The estimated annual reporting and recordkeeping cost burden is:
a. Total annualized capital/startup costs: $300,000.00.
b. Total annual costs (O&M): 0.
c. Total annualized cost requested: $1,212,297.94.
d. Current OMB inventory: n/a.
e. Difference: n/a.
The Finance Board will accept written comments concerning the
accuracy of the burden estimates and suggestions for reducing the
burden at the address listed above.
The Finance Board submitted an analysis of the information
collection to the Office of Management and Budget (OMB) for review.
Subsequent to submitting the analysis to OMB, the Finance Board decided
to reduce the level of reporting required in the final rule and,
therefore, has reduced the estimated annual reporting and recordkeeping
hour and cost burden. OMB assigned a control number, 3069-0058, and
temporarily approved the information collection with an expiration date
of December 31, 2000. Prior to the expiration of this temporary
approval, the Finance Board will again submit the collection of
information to OMB for review, with the intent of obtaining a full
three-year approval and will publish a final notice regarding the
information collection.
Comments regarding the proposed collection of information may be
submitted in writing to the Office of Information and Regulatory
Affairs of OMB, Attention: Desk Officer for Federal Housing Finance
Board,
[[Page 43981]]
Washington, D.C. 20503 by September 15, 2000.
List of Subjects in 12 CFR Parts 900, 940, 950, 955 and 956
Community development, Credit, Federal home loan banks, Housing,
Reporting and recordkeeping requirements.
Accordingly, the Finance Board hereby amends title 12, chapter IX,
Code of Federal Regulations, as follows:
PART 900--GENERAL DEFINITIONS
1. The authority citation for part 900 is revised to read as
follows:
Authority: 12 U.S.C. 1422, 1422b(a)(1).
2. Amend Sec. 900.1 by adding, in alphabetical order, definitions
of the term ``acquired member assets or AMA'' and ``NRSRO'' to read as
follows:
Sec. 900.1 Definitions applying to all regulations.
* * * * *
Acquired member assets or AMA means those assets that may be
acquired by a Bank under part 955 of this chapter.
* * * * *
NRSRO means a credit rating organization regarded as a Nationally
Recognized Statistical Rating Organization by the Securities and
Exchange Commission.
* * * * *
PART 940--CORE MISSION ACTIVITIES
3. The heading for part 940 is revised to read as set forth above.
4. The authority citation for part 940 continues to read as
follows:
Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1430, 1430b, 1431.
5. In part 940, amend Sec. 940.1 by adding, in alphabetical order,
definitions of the terms ``Financial Management Policy (FMP)'', ``low-
or moderate-income household'', ``SBIC'', and ``Targeted income level''
to read as follows:
Sec. 940.1 Definitions.
* * * * *
Financial Management Policy (FMP) has the meaning set forth in
Sec. 956.1 of this chapter.
SBIC means a small business investment company formed pursuant to
15 U.S.C. 681(d).
Targeted income level has the meaning set forth in paragraphs (1)
and (2) of the definition of ``targeted income level'' in Sec. 952.3 of
this chapter.
6. Amend part 940 by adding a new Sec. 940.3, to read as follows:
Sec. 940.3 Core mission activities.
The following Bank activities qualify as core mission activities:
(a) Advances;
(b) Acquired member assets (AMA), except that United States
government-insured or guaranteed whole single-family residential
mortgage loans acquired under a commitment entered into after April 12,
2000 shall qualify only in a cumulative dollar amount up to 33 percent
of: The cumulative total dollar amount of AMA acquired by a Bank after
April 12, 2000, less the cumulative dollar amount of United States
government-insured or guaranteed whole single-family residential
mortgage loans acquired after April 12, 2000 under commitments entered
into on or before April 12, 2000 (which calculation, at the discretion
of two or more Banks, may be made based on aggregate transactions among
those Banks);
(c) Standby letters of credit;
(d) Intermediary derivative contracts;
(e) Debt or equity investments:
(1) That primarily benefit households having a targeted income
level, a significant proportion of which must benefit households with
incomes at or below 80 percent of area median income, or areas targeted
for redevelopment by local, state, tribal or Federal government
(including Federal Empowerment Zones and Enterprise and Champion
Communities), by providing or supporting one or more of the following
activities:
(i) Housing;
(ii) Economic development;
(iii) Community services;
(iv) Permanent jobs; or
(v) Area revitalization or stabilization;
(2) In the case of mortgage- or asset-backed securities, the
acquisition of which would expand liquidity for loans that are not
otherwise adequately provided by the private sector and do not have a
readily available or well established secondary market; and
(3) That involve one or more members or housing associates in a
manner, financial or otherwise, and to a degree to be determined by the
Bank;
(f) Investments in SBICs, where one or more members or housing
associates of the Bank also make a material investment in the same
activity;
(g) SBIC debentures, the short term tranche of SBIC securities, ore
other debentures that are guaranteed by the Small Business
Administration under title III of the Small Business Investment Act of
1958, as amended (15 U.S.C. 681 et seq.);
(h) Section 108 Interim Notes and Participation Certificates
guaranteed by the Department of Housing and Urban Development under
section 108 of the Housing and Community Development Act of 1974, as
amended (42 U.S.C. 5308); and
(i) Investments and obligations issued or guaranteed under the
Native American Housing Assistance and Self-Determination Act of 1996
(25 U.S.C. 4101 et seq.).
PART 950--ADVANCES
7. The authority citation for part 950 continues to read as
follows:
Authority: 12 U.S.C. 1422a(a)(3), 1422b(a)(1), 1426, 1429, 1430,
1430b and 1431.
8. Amend part 950 by adding a new subpart C consisting of
Sec. 950.25 to read as follows:
Subpart C--Advances to Out-of-District Members and Housing
Associates
Sec. 950.18 Advances to out-of-district members and housing
associates.
(a) Establishment of creditor/debtor relationship. Any Bank may
become a creditor to a member or housing associate of another Bank
through the purchase of an outstanding advance, or a participation
interest therein, from the other Bank, or through an arrangement with
the other Bank that provides for the establishment of such a creditor/
debtor relationship at the time an advance is made.
(b) Applicability of advances requirements. Any debtor/creditor
relationship established pursuant to paragraph (a) of this section
shall be subject to all of the provisions of this part that would apply
to an advance made by a Bank to its own members or housing associates.
9. In subchapter G, add a new part 955 to read as follows:
PART 955--ACQUIRED MEMBER ASSETS
Sec.
955.1 Definitions.
955.2 Authorization to hold acquired member assets.
955.3 Required credit-risk sharing structure.
955.4 Reporting requirements for acquired member assets.
955.5 Administrative and investment transactions between Banks.
955.6 Risk-based capital requirement for acquired member assets.
Appendix A to Part 955--Reporting requirements for single-family
acquired member assets that are residential mortgages: loan-level
data elements
[[Page 43982]]
Appendix B to Part 955--Reporting requirements for multi-family
acquired member assets that are residential mortgages: loan-level
data elements
Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1430, 1430b, 1431.
Sec. 955.1 Definitions.
As used in this section:
Affiliate has the meaning set forth in Sec. 950.1 of this chapter.
Expected losses means the base loss scenario in the methodology of
an NRSRO applicable to that type of AMA asset.
Residential real property has the meaning set forth in Sec. 950.1
of this chapter.
State has the meaning set forth in Sec. 925.1 of this chapter.
Sec. 955.2 Authorization to hold acquired member assets.
Subject to the requirements of part 980 of this chapter, each Bank
may hold assets acquired from or through Bank System members or housing
associates by means of either a purchase or a funding transaction
(AMA), subject to each of the following requirements:
(a) Loan type requirement. The assets are either:
(1) Whole loans that are eligible to secure advances under
Secs. 950.7 (a)(1)(i), (a)(2)(ii), (a)(4), or (b)(1) of this chapter,
excluding:
(i) Single-family mortgages where the loan amount exceeds the
limits established pursuant to 12 U.S.C. 1717(b)(2); and
(ii) Loans made to an entity, or secured by property, not located
in a state;
(2) Whole loans secured by manufactured housing, regardless of
whether such housing qualifies as residential real property; or
(3) State and local housing finance agency bonds;
(b) Member or housing associate nexus requirement. The assets are:
(1) Either:
(i) Originated or issued by, through, or on behalf of a Bank System
member or housing associate, or an affiliate thereof; or
(ii) Held for a valid business purpose by a Bank System member or
housing associate, or an affiliate thereof, prior to acquisition by a
Bank; and
(2) Acquired either:
(i) From a member or housing associate of the acquiring Bank;
(ii) From a member or housing associate of another Bank, pursuant
to an arrangement with that Bank, which, in the case of state and local
finance agency bonds only, may be reached in accordance with the
following process:
(A) The housing finance agency shall first offer the Bank in whose
district the agency is located (local Bank) a right of first refusal to
purchase, or negotiate the terms of, its proposed bond offering;
(B) If the local Bank indicates, within a three day period, that it
will negotiate in good faith to purchase the bonds, the agency may not
offer to sell or negotiate the terms of a purchase with another Bank;
and
(C) If the local Bank declines the offer, or has failed to respond
within the three day period, the acquiring Bank will be considered to
have an arrangement with the local Bank for purposes of this section
and may offer to buy or negotiate the terms of a bond sale with the
agency;
(iii) From another Bank; and
(c) Credit risk-sharing requirement. The transactions through which
the Bank acquires the assets either:
(1) Meet the credit risk-sharing requirements of Sec. 955.3 of this
part; or
(2) Were authorized by the Finance Board under section II.B.12 of
the FMP and are within any total dollar cap established by the Finance
Board at the time of such authorization.
Sec. 955.3 Required credit risk-sharing structure.
(a) Determination of necessary credit enhancement. At the earlier
of 270 days from the date of the Bank's acquisition of the first loan
in a pool, or the date at which the amount of a pool's assets reaches
$100 million, a Bank shall determine the total credit enhancement
necessary to enhance the asset or pool of assets to a credit quality
that is equivalent to that of an instrument having at least the fourth
highest credit rating from an NRSRO, or such higher credit rating as
the Bank may require. The Bank shall make this determination for each
AMA product using a methodology that is confirmed in writing by an
NRSRO to be comparable to a methodology that the NRSRO would use in
determining credit enhancement levels when conducting a rating review
of the asset or pool of assets in a securitization transaction.
(b) Credit risk-sharing structure. A Bank acquiring AMA shall
implement, and have in place at all times, a credit risk-sharing
structure for each AMA product under which a member or housing
associate of the Bank or, with the approval of both Banks, a member or
housing associate of another Bank, provides a sufficient credit
enhancement from the first dollar of credit loss for each asset or pool
of assets such that the acquiring Bank's exposure to credit risk for
the life of the asset or pool of assets is no greater than that of an
asset rated in the fourth highest credit rating category, as determined
pursuant to paragraph (a) of this section, or such higher rating as the
acquiring Bank may require. This credit enhancement structure shall
meet the following requirements:
(1) A portion of the credit enhancement may be provided by:
(i) Contracting with an insurance affiliate of that member or
housing associate to provide an enhancement or undertaking against
losses to the Bank, but only where such insurance is positioned in the
credit enhancement structure so as to cover only losses remaining after
the member or housing associate has borne losses as required under
paragraph (b)(2) of this section;
(ii) Purchasing loan-level insurance, which may include United
States government insurance or guarantee, but only where:
(A) The member or housing associate is legally obligated at all
times to maintain such insurance with an insurer rated not lower than
the second highest credit rating category; and
(B) Such insurance is positioned in the credit enhancement
structure so as to cover only losses remaining after the member or
housing associate has borne losses as required under paragraph (b)(2)
of this section;
(iii) Purchasing pool-level insurance, but only where such
insurance:
(A) Insures that portion of the required credit enhancement
attributable to the geographic concentration and size of the pool; and
(B) Is positioned last in the credit enhancement structure so as to
cover only those losses remaining after all other elements of the
credit enhancement structure have been exhausted; or
(iv) Contracting with another member or housing associate in the
Bank's district or in another Bank's district, pursuant to an
arrangement with that Bank, to provide an enhancement or undertaking
against losses to the Bank in return for some compensation;
(2) The member or housing associate that is providing the credit
enhancement required under paragraph (b)(1) of this section shall in
all cases bear the direct economic consequences of actual credit losses
on the asset or pool of assets:
(i) From the first dollar of loss up to the amount of expected
losses; or
(ii) Immediately following expected losses, but in an amount equal
to or exceeding the amount of expected losses; and
(3) The portion of the credit enhancement that is an obligation of
a
[[Page 43983]]
Bank System member or housing associate shall be fully secured;
(4) The Bank shall obtain written verification from an NRSRO that
concludes to the satisfaction of the Finance Board, based on the
underlying economic terms of the credit enhancement structure as
represented by the Bank for each AMA product, that either:
(i) The level of credit enhancement provided by the member or
housing associate is generally sufficient to enhance the asset or pool
of assets to a credit quality that is equivalent to that of an
instrument having the fourth highest credit rating from an NRSRO, or
such higher rating as the Bank may require; or
(ii) The methodology used by the Bank for estimating the level of
credit enhancement provided by the member or housing associate is in
accordance with the practices established by the NRSRO.
(c) Timing of NRSRO opinions. For AMA programs already in operation
at the time of the effective date of this rule, a Bank shall have 90
days from the effective date of this rule to obtain the NRSRO
verifications required under paragraphs (a) and (b)(4) of this section.
Sec. 955.4 Reporting requirements for acquired member assets.
(a) Loan-Level Data Elements. Each Bank that acquires AMA that are
residential mortgages shall collect and maintain loan-level data on
each mortgage held, as specified in appendix A (for single-family
mortgage assets) or appendix B (for multifamily mortgage assets) to
this part.
(b) Quarterly Mortgage Reports. Beginning with calendar year 2001,
within 60 days of the end of every quarter of every calendar year, each
Bank that acquires AMA that are residential mortgages shall submit to
the Finance Board a Mortgage Report, which shall include:
(1) Aggregations of the loan-level mortgage data compiled by the
Bank pursuant to paragraph (a) of this section for year-to-date
mortgage acquisitions, in a format specified by the Finance Board;
(2) Year-to-date dollar volume, number of units and number of
mortgages on owner-occupied and rental properties relating to AMA
acquired by the Bank; and
(3) For the second and fourth quarter Mortgage Reports only, year-
to-date loan-level data that:
(i) Comprises the data elements required to be collected and
maintained by the Bank under paragraph (a) of this section; and
(ii) Appears in a machine-readable format specified by the Finance
Board.
(c) Additional Reports. The Finance Board may at any time require a
Bank to submit reports in addition to those required under paragraph
(b) of this section.
Sec. 955.5 Administrative and investment transactions between Banks.
(a) Delegation of administrative duties. A Bank may delegate the
administration of an AMA program to another Bank whose administrative
office has been examined and approved by the Finance Board to process
AMA transactions. The existence of such a delegation, or the
possibility that such a delegation may be made, must be disclosed to
any potential participating member or housing associate as part of any
AMA-related agreements are signed with that member or housing
associate.
(b) Terminability of Agreements. Any agreement made between two or
more Banks in connection with any AMA program shall be made terminable
by either party after a reasonable notice period.
(c) Delegation of Pricing Authority. A Bank that has delegated its
AMA pricing function to another Bank shall retain a right to refuse to
acquire AMA at prices it does not consider appropriate.
Sec. 955.6 Risk-based capital requirement for acquired member assets.
(a) General. Each Bank shall hold retained earnings plus general
allowance for losses as support for the credit risk of all AMA
estimated by the Bank to represent a credit risk that is greater than
that of comparable instruments that have received the second highest
credit rating from an NRSRO in an amount equal to or greater than the
outstanding balance of the assets or pools of assets times a factor
associated with the putative credit rating of the assets or pools of
assets as determined by the Finance Board on a case-by-case basis. For
single-family mortgage assets, the factors are as set forth in Table 1
of this part.
Table 1
------------------------------------------------------------------------
Percentage
applicable to on-
Putative rating of single-family mortgage assets balance sheet
equivalent value
of AMA
------------------------------------------------------------------------
Third Highest Investment Grade........................ 0.90
Fourth Highest Investment Grade....................... 1.50
If Downgraded to Below Investment Grade After
Acquisition By Bank:
Highest Below Investment Grade.................... 2.25
Second Highest Below Investment Grade............. 2.60
All Other Below Investment Grade.................. 100.00
------------------------------------------------------------------------
(b) Recalculation of credit enhancement. For risk-based capital
purposes, each Bank shall recalculate the estimated credit rating of a
pool of AMA if there is evidence that a decline in the credit quality
of that pool may have occurred.
Appendix A to Part 955--Reporting Requirements for Single-Family
Acquired Member Assets That Are Residential Mortgages: Loan-Level
Data Elements
1. Bank District Flag--Two-digit numeric code designating the
District Bank that originally acquired the loan.
2. Participating Bank District Flag--Two-digit numeric code
designating the District Bank that purchased a participation in the
loan.
3. Loan Number--Unique numeric identifier used by the Banks for
each mortgage acquisition.
4. US Postal State--Two-digit numeric Federal Information
Processing Standard (FIPS) code.
5. US Postal Zip Code--Five-digit zip code for the property.
6. MSA Code--Four-digit numeric code for the property's
metropolitan statistical area (MSA) if the property is located in an
MSA.
7. Place Code--Five-digit numeric FIPS code.
[[Page 43984]]
8. County--County, as designated in the most recent decennial
census by the Bureau of the Census.
9. Census Tract/Block Numbering Area (BNA)--Tract/BNA number as
used in the most recent decennial census by the Bureau of the
Census.
10. Census Tract-Percent Minority--Percentage of a census
tract's population that is minority based on the most recent
decennial census by the Bureau of the Census.
11. Census Tract-Median Income--Median family income for the
census tract based on the most recent decennial census.
12. Local Area Median Income--Median income for the area based
on the most recent decennial census.
13. Tract Income Ratio--Ratio of the census tract median income
based on the most recent decennial census to that year's local area
median income (i.e., loan-level data element number 11 divided by
loan-level data element number 12).
14. Borrower(s) Annual Income--Combined income of all borrowers.
15. Area Median Family Income--Current median family income for
a family of four for the area as established by HUD.
16. Borrower Income Ratio--Ratio of Borrower(s) annual income to
area median family income.
17. Acquisition Unpaid Principal Balance (UPB)--UPB in whole
dollars of the mortgage when acquired by the Bank.
18. Loan-to-Value (LTV) Ratio at Origination--LTV ratio of the
mortgage at the time of origination.
19. Participation Percentage--Where the mortgage acquisition is
a participation, the percentage of the mortgage for each Bank listed
in loan-level data element number 2.
20. Date of Mortgage Note--Date the mortgage note was created.
21. Date of Acquisition--Date the Bank acquired the mortgage.
22. Purpose of Loan--Indicates whether the mortgage was a
purchase money mortgage, a refinancing, a construction mortgage, or
a financing of property rehabilitation.
23. Cooperative Unit Mortgage--Indicates whether the mortgage is
on a dwelling unit in a cooperative housing building.
24. Product Type--Indicates the product type of the mortgage
(i.e., fixed rate, adjustable rate mortgage (ARM), balloon,
graduated payment mortgage (GPM) or growing equity mortgages (GEM),
reverse annuity mortgage, or other).
25. Federal Guarantee--Numeric code that indicates whether the
mortgage has a Federal guarantee, and from which agency.
26. Term of Mortgage at Origination--Term of the mortgage at the
time of origination in months.
27. Amortization Term--For amortizing mortgages, the
amortization term of the mortgage in months.
28. Acquiring Lender Institution--Name of the institution from
which the Bank acquired the mortgage.
29. Acquiring Lender City--City location of the institution from
which the Bank acquired the mortgage.
30. Acquiring Lender State--State location of the institution
from which the Bank acquired the mortgage.
31. Type of Acquiring Lender Institution--Type of institution
that the Bank acquired the mortgage from (i.e., mortgage company,
Savings Association Insurance Fund (SAIF) insured depositary
institution, Bank Insurance Fund (BIF) insured depositary
institution, National Credit Union Association (NCUA) insured credit
union, or other seller).
32. Number of Borrowers--Number of borrowers.
33. First-Time Home Buyer--Numeric code indicating whether the
mortgagor(s) are first-time homebuyers (second mortgages and
refinancings are not treated as first-time homebuyers).
34. Mortgage Purchased under the Banks' Community Investment
Cash Advances (CICA) Programs--Indicates whether the mortgage is on
a project funded under an AHP, CIP or other CICA program.
35. Acquisition Type--Indicates whether the Bank acquired the
mortgage with cash, by swap, with a credit enhancement, a bond or
debt purchase, reinsurance, risk-sharing, real estate investment
trust (REIT), or a real estate mortgage investment conduit (REMIC),
or other.
36. Bank Real Estate Owned--Indicates whether the mortgage is on
a property that was in the Bank's real estate owned (REO) inventory.
37. Borrower Race or National Origin--Numeric code indicating
the race or national origin of the borrower.
38. Co-Borrower Race or National Origin--Numeric code indicating
the race or national origin of the co-borrower.
39. Borrower Gender--Numeric code that indicates whether the
borrower is male or female.
40. Co-Borrower Gender--Numeric code that indicates whether the
co-borrower is male or female.
41. Age of Borrower--Age of borrower in years.
42. Age of Co-Borrower--Age of co-borrower in years.
43. Occupancy Code--Indicates whether the mortgaged property is
an owner-occupied principal residence, a second home, or a rental
investment property.
44. Number of Units--Indicates the number of units in the
mortgaged property.
45. Unit--Number of Bedrooms--Where the property contains non-
owner-occupied dwelling units, the number of bedrooms in each of
those units.
46. Unit--Affordable Category--Where the property contains non-
owner-occupied dwelling units, indicates under which, if any, of the
special affordable goals the units qualified.
47. Unit--Reported Rent Level--Where the property contains non-
owner-occupied dwelling units, the rent level for each unit in whole
dollars.
48. Unit--Reported Rent Plus Utilities--Where the property
contains non-owner-occupied dwelling units, the rent level plus the
utility cost for each unit in whole dollars.
49. Unit--Owner Occupied--Indicates whether each of the units
are owner-occupied.
50. Geographically Targeted Indicator--Numeric code that
indicates loans made in census tracts classified as underserved by
HUD.
51. Interest Rate--Note rate on the loan.
52. Loan Amount--Loan balance at origination.
53. Front-end Ratio--Ratio of principal, interest, taxes, and
insurance to borrower(s) income.
54. Back-end Ratio--Ratio of all debt payments to borrower(s)
income.
55. Borrower FICO Score--Fair, Isaacs, Co. credit score of
borrower.
56. Co-Borrower FICO Score--Fair, Isaacs, Co. credit score of
co-borrower.
57. PMI Percent--Percent of original loan balance covered by
private mortgage insurance.
58. Credit Enhancement--Numeric code indicating type of credit
enhancement.
59. Self-Employed Indicator--Numeric indicator for whether the
borrower is self-employed.
60. Property Type--Numeric indicator for whether the property is
single-family detached, condominium, townhouse, PUD, etc.
61. Default Status--Numeric indicator for whether the loan is
currently in default.
62. Termination Date--Date on which the loan terminated.
63. Termination Type--Numeric indicator for whether the loan
terminated in a prepayment, foreclosure, or other types of
termination.
64. ARM Index--Index used for the calculation of interest on an
ARM.
65. ARM margin--Margin added to the index for calculation of the
interest on an ARM.
66. Prepayment Penalty Terms--Numeric indicator for types of
prepayment penalties.
Appendix B to Part 955--Reporting Requirements for Multi-Family
Acquired Member Assets That Are Residential Mortgages: Loan-Level
Data Elements
1. Bank District Flag--Two-digit numeric code designating the
District Bank that originally acquired the loan.
2. Participating Bank District Flag--Two-digit numeric code
designating the District Bank that purchased a participation in the
loan.
3. Loan Number--Unique numeric identifier used by the Banks for
each mortgage acquisition.
4. US Postal State--Two-digit numeric Federal Information
Processing Standard (FIPS) code.
5. US Postal Zip Code--Five-digit zip code for the property.
6. MSA Code--Four-digit numeric code for the property's
metropolitan statistical area (MSA) if the property is located in an
MSA.
7. Place Code--Five-digit numeric FIPS code.
8. County--County, as designated in the most recent decennial
census by the Bureau of the Census.
9. Census Tract/Block Numbering Area (BNA)--Tract/BNA number as
used in the most recent decennial census by the Bureau of the
Census.
[[Page 43985]]
10. Census Tract-Percent Minority--Percentage of a census
tract's population that is minority based on the most recent
decennial census by the Bureau of the Census.
11. Census Tract-Median Income--Median family income for the
census tract based on the most recent decennial census.
12. Local Area Median Income--Median income for the area based
on the most recent decennial census.
13. Tract Income Ratio--Ratio of the census tract median income
based on the most recent decennial census to that year's local area
median income (i.e., loan-level data element number 11 divided by
loan-level data element number 12).
14. Area Median Family Income--Current median family income for
a family of four for the area as established by HUD.
15. Affordability Category--Indicates under which, if any, of
the special affordable goals mandated by HUD for Fannie Mae and
Freddie Mac, the property would qualify.
16. Acquisition Unpaid Principal Balance (UPB)--UPB in whole
dollars of the mortgage when purchased by the Bank.
17. Loan-to-Value (LTV) Ratio at Origination--LTV ratio of the
mortgage at the time of origination.
18. Participation Percentage--Where the mortgage acquisition is
a participation, the percentage of the mortgage when the note was
created for each Bank listed in loan-level data element number 2.
19. Date of Mortgage Note--Date the mortgage note was created.
20. Date of Acquisition--Date the Bank acquired the mortgage.
21. Purpose of Loan--Indicates whether the mortgage was a
purchase money mortgage, a refinancing, a construction mortgage, or
a financing of property rehabilitation.
22. Cooperative Project Loan--Indicates whether the mortgage is
a project loan on a cooperative housing building.
23. Mortgagor Type--Indicates the type of mortgagor (i.e., an
individual, a for-profit entity such as a corporation or
partnership, a nonprofit entity such as a corporation or
partnership, a public entity, or other type of entity).
24. Product Type--Indicates the product type of the mortgage
(i.e., fixed rate, adjustable rate mortgage (ARM), balloon,
graduated payment mortgage (GPM) or growing equity mortgages (GEM),
reverse annuity mortgage, or other).
25. Construction Loan--Indicates whether the mortgage is for a
construction loan.
26. Government Insurance--Indicates whether any part of the
mortgage has government insurance.
27. FHA Risk Share Percent--The percentage of the risk assumed
for the mortgage purchased under a risk-sharing arrangement with
FHA.
28. Mortgage Purchased under the Banks' Community Investment
Cash Advances (CICA) Programs--Indicates whether the mortgage is on
a project under an AHP, CIP or other CICA program.
29. Acquisition Type--Indicates whether the FHLBank acquired the
mortgage with cash, by swap, with a credit enhancement, a bond or
debt purchase, reinsurance, risk-sharing, real estate investment
trust (REIT), or a real estate mortgage investment conduit (REMIC),
or other.
30. Term of Mortgage at Origination--Term of the mortgage at the
time of origination in months.
31. Amortization Term--For amortizing mortgages, the
amortization term of the mortgage in months.
32. Acquiring Lender Institution--Name of the entity from which
the Bank acquired the mortgage.
33. Acquiring Lender City--City location of the entity from
which the Bank acquired the mortgage.
34. Acquiring Lender State--State location of the institution
from which the Bank acquired the mortgage.
35. Type of Acquiring Lender Institution--Type of institution
that the Bank acquired the mortgage from (i.e., mortgage company,
Savings Association Insurance Fund (SAIF) insured depositary
institution, Bank Insurance Fund (BIF) insured depositary
institution, National Credit Union Association (NCUA) insured credit
union, or other seller).
36. Bank Real Estate Owned--Indicates whether the mortgage is on
a property that was in the Bank's real estate owned (REO) inventory.
37. Number of Units--Indicates the number of units in the
mortgaged property.
38. Geographically Targeted Indicator--Numeric code that
indicates loans made in census tracts classified as underserved by
HUD.
39. Public Subsidy Program--Indicates whether the mortgage
property is involved in a public subsidy program and which level(s)
of government are involved in the subsidy program (i.e., Federal
government only, other only, Federal government, etc.).
40. Unit Class Level--The following data apply to unit types in
a particular mortgaged property. The unit types are defined by the
Banks for each property and are differentiated based on the number
of bedrooms in the units and on the average contract rent for the
units. A unit type must be included for each bedroom size category
in the property;
A. Unit Type XX-Number of Bedroom(s)--the number of bedrooms in
the unit type;
B. Unit Type XX-Number of Units--the number of units in the
property within the unit type;
C. Unite Type XX-Average Reported Rent Level--the average rent
level for the unit type in whole dollars; and
D. Unit Type XX-Average Reported Rent Plus Utilities--the
average reported rent level plus the utility cost for each unit in
whole dollars; and
E. Unit Type XX-Affordability Level--the ratio of the average
reported rent plus utilities for the unit type to the adjusted area
median income;
F. Unit Type XX-Tenant Income Indicator--indicates whether the
tenant's income is less than 60 percent of area median income,
greater than or equal to 60 percent but less than 80 percent of area
median income, greater than or equal to 80 percent but less than 100
percent of area median income, or greater than or equal to 100
percent of area median income.
41. Interest Rate--Note rate on the loan.
42. Debt Service Coverage Ratio--Ratio of net operating income
to debt service.
43. Total Number of Units--Indicates the number of dwelling
units in the mortgaged property.
44. Default Status--Numeric indicator for whether the loan is
currently in default.
45. Termination Date--Date on which the loan terminated.
46. Termination Type--Numeric indicator for whether the loan
terminated in a prepayment, foreclosure, or other types of
termination.
47. ARM Index--Index used for the calculation of interest on an
ARM.
48. ARM margin--Margin added to the index for calculation of the
interest on an ARM.
49. Prepayment Penalty Terms--Numeric indicator for types of
prepayment penalties.
10. In subchapter G, revise part 956 to read as follows:
PART 956--FEDERAL HOME LOAN BANK INVESTMENTS
Sec.
956.1 Definitions.
956.2 Authorized investments.
956.3 Prohibited investments and prudential rules.
956.4 Risk-based capital requirement for investments.
Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1431, 1436.
Sec. 956.1 Definitions.
As used in this part:
Deposits in banks or trust companies has the meaning set forth in
Sec. 969.3 of this chapter.
Financial Management Policy means the Financial Management Policy
For The Federal Home Loan Bank System approved by the Finance Board
pursuant to Finance Board Resolution No. 96-45 (July 3, 1996), as
amended by Finance Board Resolution No. 96-90 (Dec, 6, 1996), Finance
Board Resolution No. 97-05 (Jan. 14, 1997), and Finance Board
Resolution No. 97-86 (Dec. 17, 1997).
GAAP means Generally Accepted Accounting Principles.
Investment grade means:
(1) A credit quality rating in one of the four highest credit
rating categories by an NRSRO and not below the fourth highest credit
rating category by any NRSRO; or
(2) If there is no credit quality rating by an NRSRO, a
determination by a Bank that the issuer, asset or instrument is the
credit equivalent of investment grade using credit rating standards
available from an NRSRO or other similar standards.
NRSRO has the meaning set forth in Sec. 966.1 of this chapter.
[[Page 43986]]
Sec. 956.2 Authorized investments.
In addition to assets enumerated in parts 950 and 955 of this
chapter and subject to the applicable limitations set forth in this
part, in the Financial Management Policy and in part 980 of this
chapter, each Bank may invest in:
(a) Obligations of the United States;
(b) Deposits in banks or trust companies;
(c) Obligations, participations or other instruments of, or issued
by, the Federal National Mortgage Association or the Government
National Mortgage Association;
(d) Mortgages, obligations, or other securities that are, or ever
have been, sold by the Federal Home Loan Mortgage Corporation pursuant
to 12 U.S.C. 1454 or 1455;
(e) Stock, obligations, or other securities of any small business
investment company formed pursuant to 15 U.S.C. 681(d), to the extent
such investment is made for purposes of aiding members of the Bank; and
(f) Instruments that the Bank has determined are permissible
investments for fiduciary or trust funds under the laws of the state in
which the Bank is located.
Sec. 956.3 Prohibited investments and prudential rules.
(a) Prohibited investments. A Bank may not invest in:
(1) Instruments that provide an ownership interest in an entity,
except for investments described in Sec. Sec. 940.3(e) and (f) of this
chapter;
(2) Instruments issued by non-United States entities, except United
States branches and agency offices of foreign commercial banks;
(3) Debt instruments that are not rated as investment grade,
except:
(i) Investments described in Sec. 940.3(e) of this chapter;
(ii) Debt instruments that were downgraded to a below investment
grade rating after acquisition by the Bank; or
(4) Whole mortgages or other whole loans, or interests in mortgages
or loans, except:
(i) Acquired member assets;
(ii) Investments described in Sec. 940.3(e) of this chapter;
(iii) Marketable direct obligations of state, local, or tribal
government units or agencies, having at least the second highest credit
rating from a NRSRO, where the purchase of such obligations by the Bank
provides to the issuer the customized terms, necessary liquidity, or
favorable pricing required to generate needed funding for housing or
community lending;
(iv) Mortgage-backed securities, or asset-backed securities
collateralized by manufactured housing loans or home equity loans, that
meet the definition of the term ``securities'' under 15 U.S.C.
77b(a)(1); and
(v) Loans held or acquired pursuant to section 12(b) of the Act (12
U.S.C. 1432(b)).
(b) Foreign currency or commodity positions prohibited. A Bank may
not take a position in any commodity or foreign currency. If a Bank
participates in consolidated obligations denominated in a currency
other than U.S. Dollars or linked to equity or commodity prices, the
currency, commodity and equity risks must be hedged.
Sec. 956.4 Risk-based capital requirement for investments.
Each Bank shall hold retained earnings plus general allowance for
losses as support for the credit risk of all investments that are not
rated by a NRSRO, or are rated or have a putative rating below the
second highest credit rating, in an amount equal to or greater than the
outstanding balance of the investments multiplied by:
(a) A factor associated with the credit rating of the investments
as determined by the Finance Board on a case-by-case basis for rated
assets to be sufficient to raise the credit quality of the asset to the
second highest credit rating category; and
(b) 0.08 for assets having neither a putative nor actual rating.
PART 966--CONSOLIDATED OBLIGATIONS
11. The authority citation of part 966 continue to read as follows:
Authority: 12 U.S.C. 1442a, 1422b, and 1431.
12. Amend section 966.1 by removing the definition of the term
``NRSRO''.
Dated: June 29, 2000.
By the Board of Directors of the Federal Housing Finance Board.
Bruce A. Morrison,
Chairman.
[FR Doc. 00-17663 Filed 7-14-00; 8:45 am]
BILLING CODE 6725-01-P