Housing Finance:

Improving the Federal Home Loan Bank System's Affordable Housing Program

RCED-95-82: Published: Jun 9, 1995. Publicly Released: Jun 9, 1995.

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Pursuant to a legislative requirement, GAO reviewed the Federal Home Loan (FHL) Bank System's implementation of the Affordable Housing Program (AHP), focusing on: (1) how the program's funds have been used to support affordable housing initiatives; (2) how the program has been administered; and (3) what opportunities exist for program improvement.

GAO found that: (1) the FHL Bank System provided nearly $234 million for AHP through 1993; (2) these funds helped leverage the additional $3 billion from other sources to finance over 1,600 affordable housing projects; (3) AHP has encouraged more lenders and sponsors to finance and develop affordable housing in urban and rural communities; (4) FHL Banks and the Finance Board have improved their administration of AHP, documentation of critical decisions on how they select and fund projects, and compliance with AHP requirements; (5) the Finance Board's examiners continue to cite several banks for deficiencies in selecting projects and in calculating the amount of their AHP subsidies; (6) many FHL Banks currently do not have adequate procedures for documenting and verifying that the projects' beneficiaries are eligible for benefits and for ensuring that projects comply with any unique commitments made in the original applications; and (7) the Finance Board's lack of a quorum has delayed its action on compliance issues in cases in which existing regulations are unclear.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Federal Housing Finance Board issued new, comprehensive AHP regulations (12 C.F.R. Part 960) on June 25, 1997. Among other things, the new AHP regulations changed the requirements for documenting and verifying that the beneficiaries of the program are income-eligible and that any unique commitments made in the AHP applications are met. As a result, Federal Home Loan Banks--who are responsible for member and sponsor compliance with these requirements--will have to change their procedures to implement the new requirements. The provisions of this final rule will become effective on January 1, 1998.

    Recommendation: The Board of Directors, Federal Housing Finance Board, should direct the FHL Banks to improve, as necessary, their procedures for documenting and verifying that the beneficiaries of the program meet the requirements for income eligibility and that any unique commitments made in applications are met.

    Agency Affected: Federal Housing Finance Board: Board of Directors

  2. Status: Closed - Implemented

    Comments: The Federal Housing Finance Board issued new, comprehensive AHP regulations (12 C.F.R. Part 960) on June 25, 1997. Among other things, the new AHP regulations clearly define and integrate program monitoring and reporting requirements among project sponsors, members and FHLBanks. The provisions of this final rule will become effective on January 1, 1998.

    Recommendation: The Board of Directors, Federal Housing Finance Board, should ensure that any revised regulations for the program clearly define and integrate the monitoring and reporting responsibilities of the projects' sponsors, the members, and the FHL Banks.

    Agency Affected: Federal Housing Finance Board: Board of Directors

  3. Status: Closed - Implemented

    Comments: After December 31, 1996, the Finance Board will not permit excessive subsidies resulting from nonamortizing AHP advances funding amortizing AHP project loans. According to a February 14, 1997, Advisory Bulletin, the Finance Board will now require a FHLBank to recapture or replenish excessive subsidies attributable to such a funding condition.

    Recommendation: The Board of Directors, Federal Housing Finance Board, should encourage the FHL Banks to work with their members to convert all outstanding nonamortizing advances to amortizing advances that match the terms of the amortizing loan provided to the projects' sponsors.

    Agency Affected: Federal Housing Finance Board: Board of Directors

  4. Status: Closed - Implemented

    Comments: The Federal Housing Finance Board has completed its review of all three cases discussed in the report where GAO recommended that the Board determine whether to require a specific Federal Home Loan Bank to reimburse its AHP fund. On September 18, 1996, the Finance Board approved the FHL Bank of New York's proposed settlement of the reimbursement issue involving the third and only remaining project. As a result, the reimbursement issue for each of the three projects discussed in the report has been resolved successfully.

    Recommendation: The Board of Directors, Federal Housing Finance Board, should, where the conditions mentioned exist for projects already funded, determine, on a case-by-case basis, whether to require the FHL Banks to reimburse their AHP funds on the basis of the estimated amount of the shortfall.

    Agency Affected: Federal Housing Finance Board: Board of Directors

  5. Status: Closed - Implemented

    Comments: The Federal Housing Finance Board issued new, comprehensive Affordable Housing Program regulations (12 C.F.R. Part 960) on June 25, 1997. Among other things, the new AHP regulations clearly identify the conditions under which Federal Home Loan Banks must reimburse their AHP funds. These conditions include each of the subsidy issues raised in GAO's recommendation. The provisions of this final rule will become effective on January 1, 1998.

    Recommendation: The Board of Directors, Federal Housing Finance Board, should require the FHL Banks to reimburse their AHP funds in future cases in which the Finance Board determines that the: (1) subsidy calculations resulted in an overstatement of a FHL Bank's contribution to AHP; (2) the subsidies were used for ineligible purposes; or (3) a project's sponsor did not receive the full AHP subsidy.

    Agency Affected: Federal Housing Finance Board: Board of Directors

  6. Status: Closed - Implemented

    Comments: The Federal Housing Finance Board issued new, comprehensive AHP regulations (12 C.F.R. Part 960) on June 25, 1997. Among other things, the new regulations contain provisions that enhance coordination of AHP with other housing programs whose funds are used in conjunction with AHP subsidies. The provisions of this final rule will become effective on January 1, 1998.

    Recommendation: The Board of Directors, Federal Housing Finance Board, should encourage the FHL Banks to improve their monitoring and reporting of the results of the program through closer coordination with experienced agencies that are also responsible for monitoring housing programs.

    Agency Affected: Federal Housing Finance Board: Board of Directors

 

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