On March 6, the Federal Housing Finance Agency (FHFA) proposed wide-ranging changes to the regulations governing the Federal Home Loan Banks’ Affordable Housing Program (AHP). The proposed amendments would allow the Banks to establish special competitive funds that target specific affordable housing needs in their districts and design and implement their own project selection scoring criteria, among many other provisions. Many affordable rental projects receive AHP gap financing to expand affordable housing. FHFA provided an advance copy of its proposed rule changes on March 6. The formal Federal Register version is yet to be posted.

There are 11 Federal Home Loan Banks whose members are local lending institutions. Both Indiana and Michigan AHP projects fall under the Federal Home Loan Bank of Indianapolis. FHLBanks must annually contribute to its AHP 10% of its net income from the preceding year, subject to a minimum annual combined contribution by all of the Banks of $100 million. The current AHP regulation authorizes two programs: a mandatory Competitive Application Program and optional Homeownership Set-Aside Programs. 

With this rule, the FHFA proposes to eliminate the Competitive Application Program and its required 65% minimum annual allocation to AHP. In its place, FHFA proposes a three-program scheme:

• Requiring Banks to allocate at least 50% of their annual AHP obligation to a new General Fund;
• Allowing Banks to annually allocate the greater of 40% or $4.5 million to Homeowner Set-Aside Programs; and
• Allowing Banks to annually allocate up to 40% to a maximum of three Targeted Funds.