FHFA Proposes Changes to FHLB Affordable Housing Program

The Federal Housing Finance Agency (FHFA) issued March 6 a proposed rule that would amend the Federal Home Loans Banks’ (FHLB) Affordable Housing Program (AHP). The proposal is designed to give FHLBs more flexibility in administering and targeting their AHP programs to meet specific housing needs.

FHFA will hold a webinar to explain the proposed changes on Tuesday, March 27 at 2:00 p.m. Eastern Time. You can register for the webinar here.

Federal law requires each FHLB to contribute ten percent of their annual earnings to set up their own AHP. AHP funding is used to finance homeownership opportunities for low- or moderate-income households (those with incomes at 80 percent or less of the area median income) and the development and rehabilitation of affordable multifamily housing (in which at least 20 percent of units are affordable to renters earning 50 percent of area median income or below). From 1990 through 2016, the FHLBs used $5.4 billion in AHP financing to subsidize the development of 660,000 affordable rental units and assist 167,000 homebuyers.

Current rules require that each FHLB distribute at least 65 percent of their AHP funding through a competitive application program. Financial institutions that are members of the FHLB submit an application for AHP funds to the FHLB on behalf of a non-profit or for-profit sponsor. In addition, FHLBs may use up to 35 percent of their AHP funds (or $4.5 million, whichever is greater) for down payment assistance, housing counseling, or other benefits to help low and moderate-income consumers purchase a home. The proposed rule would give FHLBs more flexibility in how they allocate their AHP funds by lowering the amount of AHP funding FHLBs are required to distribute through their competitive application programs to 50 percent. FHFA also proposes to allow FHLBs to design their own scoring systems for their competitive application programs, which FHFA suggests will allow them to better meet the housing needs of their jurisdictions.

In addition, FHLBs would be able to allocate up to 40 percent of their AHP funds to their single-family set-aside programs. The maximum benefit that each FHLB could provide a homebuyer would increase from $15,000 to $22,000 and be indexed to increase annually in accordance with FHFA’s Housing Price Index. The proposed rule also eliminates a rule requiring that AHP-assisted homebuyers repay the FHLB a portion of their benefit should they sell or refinance their home within five years of purchase.

The rule would also allow FHLBs to use up to 40 percent of their AHP funding to establish up to three targeted funds. The targeted funds would be dedicated to meeting specific housing needs within an FHLB’s district that have proven difficult to address through its competitive application program.

Finally, the rule proposes to align AHP’s program monitoring requirements with those used by other government housing finance programs so that AHP funding can more easily be combined with such resources. This includes removing certain backup documentation requirements for AHP projects that have been financed through Housing Credit investments.

FHFA will accept comments until 60 days after the proposed rule is published in the Federal Register, which is expected to be shortly.

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