AHP Modernization

The proposed rule to amend the AHP regulation requires that a significant proportion of each Federal Home Loan Bank’s (FHLBank) total annual AHP contribution meet priorities and outcomes requirements established by the FHFA. The proposed outcomes-based framework increases the complexity of the AHP, limits the FHLBanks’ ability to respond to local affordable housing needs, and reduces transparency in the competitive process. 

Impact: Reduced Flexibility and Responsiveness
The proposed allocation of an FHLBank’s annual 10% AHP contribution across general and targeted competitive funds, as well as set-aside programs, gives the appearance of flexibility to create localized and responsive programs. However, the proposed rule is highly prescriptive regarding the priorities and outcomes that must be met by each fund and program, thereby further constraining the AHP’s flexibility and responsiveness to local needs.

• The outcomes framework would create a national, prescriptive program driven by FHFA-established priorities that may overshadow the local needs of each FHLBank district.
• Prescribed priorities and housing needs, established through the proposed regulation, are inherently static and not adaptable to future, changing, and localized affordable housing needs.
• Prescribed thresholds for targeted populations are inconsistent with current housing models and funding sources, particularly in a constrained funding environment.

Impact: Less Transparency
To mitigate noncompliance and ensure achievement of the specified outcomes requirements, the proposed rule would allow an FHLBank to "re-rank" applications in the competitive AHP. This would make the competitive process more complex and less transparent.

• Re-ranking to meet outcomes requirements may result in lower-scoring applications receiving awards in place of higher-scoring, more competitive applications. 
• In practice, there may be one or more cycles of re-ranking needed to comply with FHFA outcomes requirements. This is because substituting one project for another may satisfy compliance with one of the FHFA outcomes requirements, but not all of those requirements.
• Re-ranking compromises the integrity of the competitive process and increases reputational risk to the FHLBank.
• The uncertainty associated with re-ranking would also make it challenging for each FHLBank to provide meaningful technical assistance to help its members and sponsors prepare a competitive AHP application.

Recommendation: The final regulation should eliminate the outcomes-based framework and retain a scoring structure that:

• Provides FHLBanks with scoring discretion beyond what is available in the current regulation, and
• Adds the ability to create targeted funds, as proposed in the amendments, under a scoring structure that allows for FHLBank discretion.

The proposed amendments increase the thresholds that projects must meet to qualify as serving targeted populations, such as the homeless, individuals with special needs, and other specified groups. 

• A project would need to reserve at least 50% of its units to qualify as serving targeted populations, as opposed to 20% of its units under the current program. This higher (50%) threshold is not compatible with other funders and does not recognize the benefit of a mixed-occupancy development, which allows developers to cross-subsidize units in a project and ensure feasibility. 
• Many projects serving targeted populations rely on rental subsidies to do so. Raising the unit threshold to qualify as serving targeted populations under the AHP would mean some projects would also require an increased rental subsidy to support those units. This heightened requirement could discourage some sponsors/developers from applying for AHP. 

Recommendation: If the FHFA prescribes and defines housing needs, maintain a 20% threshold for serving targeted populations.

FHLBanks would be required to research, identify, and prioritize district housing needs in an annual Targeted Community Lending Plan (TCLP) that would then drive funding allocations and scoring criteria for the general fund, any targeted funds, and set-aside programs. Identified needs would have to be included in the TCLP at least six months before prior to the applicable year for the general fund and set-aside programs, and 12 months prior to the applicable year for targeted funds.

• The requirement to identify scoring priorities and the need for targeted funds well in advance of an annual AHP application round would reduce the program’s flexibility and responsiveness to changing dynamics within the FHLBank’s district (e.g., disaster relief).
• The prescribed timeline constrains the FHLBank’s ability to appropriately operationalize its programs.

Recommendation: Remove the requirement that the FHLBanks must identify scoring priorities and the need for targeted funds within a certain timeframe prior to an annual AHP application round. 

The proposed amendments would eliminate the current requirement of a five-year retention period for owner-occupied housing, including owner-occupied housing assisted through the competitive Affordable Housing Program and set-aside homeownership products.

• An FHLBank may favor maintaining retention agreements under specific circumstances depending on market dynamics within its district.
• For example, eliminating the five-year retention agreement may be beneficial for households needing only a moderate amount of AHP to purchase, rehabilitate, or construct a home. However, for households requiring a larger amount of AHP, eliminating the retention agreement may introduce a risk for misuse of AHP funds.

Recommendation: Allow each FHLBank to determine the circumstances in which it is appropriate to require a retention agreement for owner-occupied AHP-assisted housing. 

The proposed amendments require the FHLBanks to evaluate the ability of the sponsor, including all affiliates and team members, to perform the responsibilities committed to in the application. This evaluation would occur, not just at the time of application, but at the time of AHP disbursement, as well. 

• Expanding the sponsor capacity assessment to include affiliates and team members is overly burdensome. It negates the experience and expertise of the sponsor to form a qualified development team. 
• FHLBanks currently assess a sponsor’s capacity at time of application; it is unnecessary to perform this evaluation again at disbursement.  If an approved change to a sponsor occurs, the FHLBanks assess the new sponsor’s capacity to fulfill its commitments.
• Development team members may not yet be identified at the time of AHP application.  If team members’ capacity were also assessed at disbursement, it would create a risk that the award could be de-obligated.

Recommendation: Maintain current FHLBank practice of assessing sponsor/development team experience.