issue-1996-01-17•Federal Register proposed rules — 1996-01-17
Federal Register proposed rules — 1996-01-17
issue-1996-01-17Federal Register proposed rules — 1996-01-17Proposed Regulation
Published Federal Register documents, not public-inspection drafts. The GPO XML/text rendition is a research aid; the linked complete official PDF retains the printed layout and all graphics. Graphics are retained in that PDF and are not independently reproduced in this text rendition. Publication does not establish that every provision remains legally in force.
FR Doc. 96-450 Advance Notice of Arrivals, Departures, and Certain Dangerous Cargoes
[Federal Register Volume 61, Number 11 (Wednesday, January 17, 1996)]
[Proposed Rules]
[Pages 1183-1187]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-450]
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DEPARTMENT OF TRANSPORTATION
33 CFR Part 160
[CGD 94-089]
RIN 2115-AF19
Advance Notice of Arrivals, Departures, and Certain Dangerous
Cargoes
AGENCY: Coast Guard, DOT.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Coast guard proposes to amend the requirements for notice
of arrival and departure by applying them to all vessels of 300 gross
tons or more and eliciting added information. In addition, the Coast
Guard proposes to amend the requirement for all foreign vessels
regardless of the gross tonnage to give notice of arrival and departure
anywhere within the Seventh Coast Guard District. These changes are
necessary for the Coast guard to implement more efficiently its
programs for safety of vessels and for protection of the marine
environment. They should aid in the identification and elimination of
substandard ships from U.S. waters, improve emergency response, and
facilitate the enforcement of rules governing Certificates of Financial
Responsibility.
DATES: Comments must be received on or before April 16, 1996.
ADDRESSES: Comments may be mailed to the Executive Secretary, Marine
Safety Council (G-LRA, 3406) [CGD 94-089], U.S. Coast Guard
Headquarters, 2100 Second Street SW., Washington, DC 20593-0001, or may
be delivered to room 3406 at the same address between 8 a.m. and 3
p.m., Monday through Friday, except Federal holidays. The telephone
number is (202) 267-1477. Comments on collection-of-information
requirements must be mailed also to the Office of Information and
Regulatory Affairs, Office of Management and Budget, 725 17th Street
NW., Washington, DC 20503, ATTN: Desk Officer, U.S. Coast Guard.
The Executive Secretary maintains the public docket for this
rulemaking. Comments will become part of this docket and will be
available for inspection or copying at room 3406, U.S. Coast Guard
Headquarters, between 8 a.m. and 3 p.m., Monday through Friday, except
Federal holidays.
FOR FURTHER INFORMATION CONTACT:
[[Page 1184]]
CDR Dennis Haise, Operating and Environmental Standards Division, (202)
267-6451.
SUPPLEMENTARY INFORMATION:
Request for Comments
The Coast Guard encourages interested persons to participate in
this rulemaking by submitting written data, views, or arguments.
Persons submitting comments should include their names and addresses,
identify this rulemaking [CGD 94-089] and the specific section of this
proposal to which each comment applies, and give the reason for each
comment. Please submit two copies of all comments and attachments in an
unbound format, no larger than 8\1/2\ by 11 inches, suitable for
copying and electronic filing. Persons wanting acknowledgement of
receipt of comments should enclose stamped, self-addressed postcards or
envelopes.
The Coast Guard will consider all comments received during the
comment period. It may change this proposal in view of the comments.
The Coast Guard plans no public hearing. Persons may request a
public hearing by writing to the Marine Safety Council at the address
under ADDRESSES. The request should include the reasons why a hearing
would be beneficial. If it determines that the opportunity for oral
presentations will aid this rulemaking, the Coast Guard will hold a
public hearing at a time and place announced by a later notice in the
Federal Register.
Background and Purpose
The Ports and Waterways Safety Act of 1972 [86 Stat. 424], as
amended by the Port and Tanker Safety Act of 1978 [92 Stat. 1471],
authorizes the Secretary of the Department in which the Coast Guard is
operating to require the receipt of notice from any vessel destined for
or departing from a port or place under the jurisdiction of the United
States. This notice may include any information necessary for the
control of the vessel and for the safety of the port or marine
environment. See 33 U.S.C. 1223; 33 CFR Part 160, Subpart C. In April,
1994, the Coast Guard established its Port-State-Control Program (PSCP)
to eliminate substandard ships from U.S. waters. It developed a
comprehensive risk-based targeting scheme to set boarding priorities
and used funds provided in the Coast Guard's 1994 appropriations act
for this purpose. See Senate Report Number 103-150. The primary factors
used in determining which vessels to board are the vessel's: Flag;
owner; operator; classification (``class'') society; age; and operating
history. The PSCP's success hinges on the ability of the Coast Guard to
identify and examine those vessels that seem to pose the greatest risks
to life, property, and the environment. By making vessels provide added
information about arrival and departure, field units of the Coast Guard
will be able to efficiently target vessels and allocate inspection
resources.
As the Coast Guard continues enforcing financial responsibility for
water pollution under the Oil Pollution Act of 1990, it is important
that only those vessels that have satisfactorily demonstrated their
ability to meet their responsibility to the U.S. resulting from their
discharge of oil or hazardous substances be permitted into U.S. waters.
A Certificate of Financial Responsibility (COFR) is required of certain
vessels over 300 gross tons, is issued by the Coast Guard, and
documents a vessel's compliance with U.S. law on financial
responsibility for water pollution. The current threshold of 1600 gross
tons for notice means that the Coast Guard gets no advance notice of
arrival for many vessels over 300 gross tons required to carry COFRs.
Reducing the tonnage threshold will enhance the ability of the Captain
of the Port (COTP) to verify compliance by vessels over 300 gross tons
with the requirements for the carriage of COFRs.
In 1989, because of the large number of foreign vessels arriving at
the port of Miami without notice, in unsafe condition and without
proper manning, the Coast Guard amended 33 CFR Part 160 so that all
foreign vessels calling in the zone of the COTP Miami had to give
notice of arrival.
The COTP Miami runs a vigorous compliance program aimed at these
low-tonnage and often substandard ships. However, vessel operators have
been able to avoid the stricter requirements and potential enforcement
of the COTP Miami by changing their ports of call to other, nearby COTP
zones (such as those of Jacksonville, Savannah, Charleston, or Tampa).
To remove the incentive to avoid scrutiny by the COTP Miami, and to
improve the effectiveness of efforts by the Seventh Coast Guard
District to eliminate substandard ships from U.S. waters; the
requirement for notice of arrival by all commercial non-public foreign
vessels needs expansion to cover all COTP zones in the Seventh
District. The boundaries of the Seventh District appear at 33 CFR 3.35-
1(b); the District comprises South Carolina, Georgia, and most of
Florida, along with the island possessions of the U.S. pertaining to
Puerto Rico and the Virgin Islands.
Discussion of Proposed Rule
Section 160.201(c). This paragraph would remove reference to
section 160.209, which is reserved.
Section 160.201(c)(1). This paragraph would reduce the threshold
for giving prearrival notice from 1600 to 300 gross tons; but it would
require the notice from foreign vessels, entering ports or places
throughout the entire Seventh Coast Guard District, regardless of
tonnage.
First, the change in tonnage would help the COTP verify the
validity of a vessel's COFR before the vessel's arrival in U.S. waters,
and prohibit any vessel not in compliance from entering. Second, the
change in geographic reach to cover all ports in the Seventh Coast
Guard District would remove the incentive to change ports of call to
avoid scrutiny by COTP Miami. This should improve the effectiveness of
efforts by the Seventh District to eliminate substandard ships from
U.S. waters.
The increased population of reporting vessels resulting from a
lowering of the threshold of tonnage would allow the Coast Guard to
establish and maintain a more comprehensive set of data relative to a
flag state's ``fleet size''--``fleet size'' being the number of
distinct vessels of a certain flag calling at U.S. ports in a year.
This would aid in a more accurate identification of flag states
associated with substandard shipping and improve the usefulness of the
PSCP targeting scheme.
Section 160.201(c)(3). This paragraph would make a vessel's
International Maritime Organization (IMO) international number, owner,
operator, class society, and 24-hour point of contact all reportable
elements.
The IMO international number is a unique identifier assigned by the
IMO to vessels subject to the International Convention for the Safety
of Life at Sea. This number is typically the same number assigned by
Lloyds Registry of Shipping, and is a primary vessel-identification
number in the Coast Guard's automated Marine Safety Information System
(MSIS). The inclusion of a vessel's IMO international number as part of
the required report would facilitate the identification and retrieval
from MSIS of vessel-specific factors used in the risk-based targeting
scheme of the PSCP.
As several of the primary factors in the risk-analysis matrix of
the PSCP are a vessel's owner, operator, and class society, COTPs need
to learn these data as far in advance as practicable. They could then
identify and examine those vessels that seem to pose the greatest
[[Page 1185]]
risks and could allocate inspection resources efficiently.
A name and telephone number of a 24-hour point of contact for
vessel-related problems or concerns would constitute part of the
prearrival notice. Experience shows that, when these data are readily
available to the COTP, response to incidents is quicker and more
efficient, and problems associated with a vessel's port call are
minimized.
Section 160.203. This section would define gross tons and operator
to resolve doubts that might arise regarding applicability of this
rule. It would also redefine public vessel to conform it to a recent
decision by the General Counsel, U.S. Department of Transportation.
Section 160.207(c). This paragraph would bring uniformity to the
contents of the notice; uniformity would facilitate compliance by the
affected parties. This paragraph would also delete current, although
recent, paragraph (c)(5) because the IMO international number would
become required information of all covered vessels, not just foreign-
flag tank vessels of over 5000 gross tons.
Section 160.211. This section would bring uniformity to the
contents of the notice from vessels carrying certain dangerous cargoes;
again, uniformity would facilitate compliance by the affected parties.
Section 160.211 already requires notices from all vessels carrying
certain dangerous cargoes, regardless of tonnage. The items made
matters of notice would be IMO international number (if applicable),
owner, operator, class society, and 24-hour point of contact.
Section 160.213. Like section 160.211, this section would bring
uniformity to the contents of the notice from vessels carrying certain
dangerous cargoes; again, uniformity would facilitate compliance by the
affected parties. The items made matters of notice would be IMO
international number (if applicable), owner, operator, class society,
and 24-hour point of contact.
Regulatory Evaluation
This proposed rule is not a significant regulatory action under
section 3(f) of Executive Order 12866 and does not require an
assessment of potential costs and benefits under section 6(a)(3) of
that Order. It has not been reviewed by the Office of Management and
Budget under that Order.
Nor is this rule significant under the regulatory policies and
procedures of the Department of Transportation (DOT) [44 FR 11040
(February 26, 1979)]. The Coast Guard expects the economic impact of
this rule to be so minimal that a full Regulatory Evaluation under
paragraph 10e of the regulatory policies and procedures of DOT is
unnecessary.
This rule for the most part would incorporate into an established
reporting regime what are becoming customary procedures. The items made
matters of notice are readily available to those from whom we seek
them. Modern electronic communication simplifies their reporting. Some
units of the Coast Guard already receive much of this information from
the shipping industry on a voluntary basis.
Small Entities
Under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), the
Coast Guard must consider whether this proposed rule, if adopted, would
have a significant economic impact on a substantial number of small
entities. ``Small entities'' may include: (1) Small businesses and not-
for-profit organizations that are independently owned and operated and
are not dominant in their fields and (2) governmental jurisdictions
with populations of less than 50,000.
Small businesses generally operate fewer vessels and would
therefore have fewer reports to make. As the notice can be spoken and
need follow no particular format, costs could be limited to those of a
brief telephone call. In the Seventh Coast Guard District, all foreign
vessels, regardless of size, have had to give notice since 1989, with
no reported economic impact.
In an effort to minimize the impacts of the reporting requirements,
current Sec. 160.201 already contains several exemptions from the
reporting requirements. Notwithstanding the changes this rule would
make to Sec. 160.201(c)(1), these exemptions would remain.
Because it expects the impact of this rule to be minimal, the Coast
Guard certifies under 5 U.S.C. 605(b) that this rule if adopted, would
not have a significant economic impact on a substantial number of small
entities.
Collection of Information
Under the Paperwork Reduction Act (44 U.S.C. 3501 et seq.), the
Office of Management and Budget (OMB) reviews each proposed rule that
contains a collection-of-information requirement to determine whether
the practical value of the information would be worth the burden
imposed by its collection. Collection-of-information requirements
include reporting, recordkeeping, notification, and other, similar
requirements.
This rule would contain collection-of-information requirements in
the following sections: 160.207, 160.211, and 160.213. The following
particulars apply:
DOT No: 2115.
OMB Control No.: 2115-0557.
Administration: U.S. Coast Guard.
Title: Advance Notice of Arrivals, Departures, and Certain
Dangerous Cargoes.
Need for Information: Senate Report 103-150 on the 1994
appropriation bill for the Department of Transportation and related
agencies directed, and the bill as enacted funded, vigorous efforts by
the Coast Guard to implement procedures designed to eliminate
substandard ships from U.S. waters. In April, 1994, the Coast Guard
established its PSCP for this purpose. It developed a comprehensive
risk-based targeting scheme to set boarding priorities. The primary
factors in this analysis are the vessel's flag, owner, operator, class
society, age, and operating history. The PSCP's success hinges on the
ability of the Coast Guard to target and examine those vessels that
seem to pose the greatest risks to life, property, and the environment.
By making vessels provide added information on arrival and departure,
Coast Guard field units would be able to efficiently target vessels and
allocate inspection resources.
Proposed Use of Information: Requiring a vessel to give notice that
includes its IMO international number, along with the names of its
owner, operator, and class society, would enable the COTP to identify a
high-risk vessel more effectively before its arrival in U.S. waters,
and to take the appropriate safety measures. The inclusion of the IMO
international number would facilitate the identification and retrieval
from the Coast Guard's MSIS of the vessel-specific factors used in the
risk-based targeting scheme of the PSCP.
Frequency of Response: A covered vessel would have to give notice
whenever it arrived at a U.S. port. A covered vessel carrying any of
certain dangerous cargoes would have to give notice whenever it arrived
at or departed from a U.S. port.
Burden Estimate: The estimated burden to respondents would be
around 15,700 hours/year.
Respondents: According to MSIS records, around 9800 vessels would
be covered.
Form(s): There would be no forms required for collection of this
information.
Average Burden Hours per Respondent: Average reporting burden would
be 0.185 hours a response. There would be no recordkeeping burden.
[[Page 1186]]
The Coast Guard has submitted the requirements to OMB for review
under section 3504(h) of the Paperwork Reduction Act. Persons
submitting comments on the requirements should submit their comments
both to OMB and to the Coast Guard where indicated under ADDRESSES.
Federalism
The Coast Guard has analyzed this proposed rule under the
principles and criteria contained in Executive Order 12612 and has
determined that this rule does not have sufficient implications for
federalism to warrant the preparation of a Federalism Assessment.
Environment
The Coast Guard has considered the environmental impact of this
proposed rule and concluded that, under paragraph 2.B.2e(22) of
Commandant Instruction M16475.1B, this rule is categorically excluded
from further environmental documentation. A Determination of
Categorical Exclusion is available in the docket for inspection or
copying where indicated under ADDRESSES.
List of Subjects in 33 CFR Part 160
Administrative practice and procedure, Harbors, Hazardous materials
transportation, Marine safety, Navigation (water), Reporting and
recordkeeping requirements, Vessels, Waterways.
For the reasons set out in the preamble, the Coast Guard proposes
to amend 33 CFR Part 160 as follows:
PART 160--[AMENDED]
1. The citation of authority for Part 160 is revised to read as
follows:
Authority: 33 U.S.C. 1223, 1231; 49 CFR 1.46.
2. In Sec. 160.201, paragraph (c) is amended by revising its
introductory text; (c)(1); and (c)(3) (i), (ii), and (iii) and by
adding paragraphs (c)(3) (iv) through (x), to read as follows:
Sec. 160.201 Applicability and exceptions to applicability.
* * * * *
(c) Section 160.207 does not apply to the following:
(1) Each vessel of 300 gross tons or less, except a foreign vessel
of 300 gross tons or less entering any port or place in the Seventh
Coast Guard District as described by Sec. 3.35-1(b) of this chapter.
* * * * *
(3) * * *
(i) Name of the vessel;
(ii) Country of registry of the vessel;
(iii) Call sign of the vessel;
(iv) International Maritime Organization (IMO) international
number--or, if the vessel does not have an assigned IMO international
number, official number--of the vessel;
(v) Name of the registered owner of the vessel;
(vi) Name of the operator of the vessel;
(vii) Name of the classification society of the vessel;
(viii) Each port or place of destination;
(ix) Estimated dates and times of arrivals at and departures from
these ports or places; and
(x) Name and telephone number of a 24-hour point of contact.
* * * * *
3. In Sec. 160.203, new definitions, for ``gross tons'' and
``operator'', are added in alphabetical order, and the definition for
``public vessel'' is revised, to read as follows:
Sec. 160.203 Definitions.
* * * * *
Gross tons means the tonnage determined by the tonnage authorities
of a vessel's flag state in accordance with the national tonnage rules
in force before the entry into force of the International Convention on
Tonnage Measurement of Ships, 1969 (``Convention''). For a vessel
measured only under Annex I of the Convention, gross tons means that
tonnage. For a vessel measured under both systems, the higher gross
tonnage is the tonnage used for the purposes of the 300-gross-ton
threshold.
* * * * *
Operator means any person including, but not limited to, an owner,
a demise- (bareboat-) charterer, or another contractor who conducts, or
is responsible for, the operation of a vessel.
* * * * *
Public vessel means a vessel that is owned or demise- (bareboat-)
chartered by the government of the United States, by a State or local
government, or by the government of a foreign country and that is not
engaged in commercial service.
* * * * *
4. In Sec. 160.207, paragraphs (c)(1) through (c)(5) are revised,
and paragraphs (c) (6) through (11) are added, to read follows:
Sec. 160.207 Notice of arrival: Vessels bound for ports or places in
the United States.
* * * * *
(c) * * *
(1) Name of the vessel;
(2) Country of registry of the vessel;
(3) Call sign of the vessel;
(4) International Maritime Organization (IMO) international
number--or, if the vessel does not have an assigned IMO international
number, official number--of the vessel;
(5) Name of the registered owner of the vessel;
(6) Name of the operator of the vessel;
(7) Name of the classification society of the vessel;
(8) Name of the port or place of departure;
(9) Name of the port or place of destination;
(10) Estimated date and time of arrival at this port or place; and
(11) Name and telephone number of a 24-hour point of contact.
5. In Sec. 160.211, paragraph (a) is revised to read as follows:
Sec. 160.211 Notice of arrival: Vessels carrying certain dangerous
cargo.
(a) The owner, agent, master, operator, or person in charge of a
vessel, except a barge, bound for a port or place in the United States
and carrying certain dangerous cargo, shall notify the Captain of the
Port of the port or place of destination at least 24 hours before
entering that port or place of the--
(1) Name of the vessel;
(2) Country of registry of the vessel;
(3) Call sign of the vessel;
(4) International Maritime Organization (IMO) international
number--or, if the vessel does not have an assigned IMO international
number, official number--of the vessel;
(5) Name of the registered owner of the vessel;
(6) Name of the operator of the vessel;
(7) Name of the classification society of the vessel;
(8) Name of the port or place of departure;
(9) Name of the port or place of destination;
(10) Estimated date and time of arrival at this port or place;
(11) Name and telephone number of a 24-hour point of contact;
(12) Location of the vessel at the time of the report;
(13) Name of each of the certain dangerous cargoes carried;
(14) Amount of each of the certain dangerous cargoes carried;
(15) Stowage location of each of the certain dangerous cargoes
carried; and
(16) Operational condition of the equipment under Sec. 164.35 of
this chapter.
* * * * *
6. In Sec. 164.211, paragraph (b) is amended by removing the
reference ``(a)(8)'' and adding, in its place, the reference ``(4) and
(a)(8) through (16)''.
[[Page 1187]]
7. In Sec. 160.213, paragraph (a) is revised to read as follows:
Sec. 160.213 Notice of departure: Vessels carrying certain dangerous
cargo.
(a) The owner, agent, master, operator, or person in charge of a
vessel, except a barge, departing from a port or place in the United
States for any other port or place and carrying certain dangerous
cargo, shall notify the Captain of the Port or place of departure at
least 24 hours before departing, unless this notification was made
within 2 hours after the vessel's arrival, of--
(1) Name of the vessel;
(2) Country of registry of the vessel;
(3) Call sign of the vessel;
(4) International Maritime Organization (IMO) international
number--or, if the vessel does not have an assigned IMO international
number, official number--of the vessel;
(5) Name of the registered owner of the vessel;
(6) Name of the operator of the vessel;
(7) Name of the classification society of the vessel;
(8) Name of the port or place of departure;
(9) Name of the port or place of destination;
(10) Estimated date and time of arrival at this port or place;
(11) Name and telephone number of a 24-hour point of contact;
(12) Name of each of the certain dangerous cargoes carried;
(13) Amount of each of the certain dangerous cargoes carried;
(14) Stowage location of each of the certain dangerous cargoes
carried; and
(15) Operational condition of the equipment under Sec. 164.35 of
this chapter.
* * * * *
Sec. 160.213 [Amended]
8. In Sec. 160.213, paragraph (b) is amended by removing the
reference ``(a)(7)'' and adding in its place the reference ``(4) and
(a)(8) through (15)''.
Joseph J. Angelo,
Acting Chief, Office of Marine Safety, Security and Environmental
Protection.
[FR Doc. 96-450 Filed 1-16-96; 8:45 am]
BILLING CODE 4910-14-M
Complete official Federal Register PDF
FR Doc. 96-449 Special Local Regulations; Annual National Maritime Week Tugboat Races, Elliott Bay, Seattle, WA
[Federal Register Volume 61, Number 11 (Wednesday, January 17, 1996)]
[Proposed Rules]
[Pages 1182-1183]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-449]
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DEPARTMENT OF TRANSPORTATION
Coast Guard
33 CFR Part 100
[CGD13-95-003]
Special Local Regulations; Annual National Maritime Week Tugboat
Races, Elliott Bay, Seattle, WA
AGENCY: Coast Guard, DOT.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Coast Guard is proposing to adopt permanent special local
regulations for the annual National Maritime Week Tugboat Races in
Seattle, Washington. This event is held each year on the third Saturday
in May on the waters of Elliott Bay. In the past, the Coast Guard has
established a safety zone each year to protect the safety of life on
the navigable waters during this event. However, because the event
recurs annually, the Coast Guard is proposing to adopt a permanent
description of the event and permanent regulations in the Code of
Federal Regulations (CFR) to better inform the boating public.
DATES: Comments must be received on or before March 18, 1996.
ADDRESSES: Comments should be mailed to U.S. Coast Guard Group Seattle,
1519 Alaskan Way So., Seattle, WA 98134. The comments and other
materials referenced in this notice will be available for inspection
and copying at the above address in Building One, Room 130, Operations
Division. Normal office hours are between 7 a.m. and 4 p.m., Monday
through Friday, except Federal holidays. Comments may also be hand-
delivered to this address.
FOR FURTHER INFORMATION CONTACT:
LT Ben White, Assistant Operations Officer, U.S. Coast Guard Group
Seattle, (206) 217-6138.
SUPPLEMENTARY INFORMATION:
Request for Comments
The Coast Guard encourages interested persons to participate in
this ruelmaking by submitting written data, views, and arguments.
Persons submitting comments should include their names and addresses,
identify this notice, specify the section of this notice to which each
comment applies, and give the reason for each comment. Two copies of
each comment should be provided in an unbound format. All comments
should on paper no larger than 8\1/2\ by 11 inches and should be
suitable for copying and electronic filing. Persons wanting
acknowledgement of receipt of their comments should enclose stamped,
self-addressed postcards or envelopes.
The proposed regulations may be changed in light of comments
received. All comments received before the expiration of the comment
period will be considered before final action is taken on this
proposal.
The Coast Guard plans no public hearing. Persons may request a
public hearing by writing to the above address. The request should
include the reasons why a hearing would be beneficial. If the Coast
Guard determines that the opportunity for oral presentation will aid
this rulemaking, it will hold a public hearing at a time and place
announced by a later notice in the Federal Register.
Drafting Information. The principal persons involved in drafting
this document are LT Ben White, Project Officer, U.S. Coast Guard
Group Seattle, and LCDR John Odell, Project Attorney, Thirteenth
Coast Guard District Legal Office.
Background and Purpose
The Coast Guard proposes to adopt permanent special local
regulations for the annual National Maritime Week Tugboat Races in
Seattle, Washington. This even is held on the waters of Elliott Bay
each year from 12 p.m. to 4:30 p.m. on the third Saturday in May. In
the past, the Coast Guard has established a safety zone each year to
protect the safety of life on the navigable waters during the event.
However, because the event recurs annually, the Coast Guard is
proposing to adopt a permanent description of the event and permanent
regulations in the Code of Federal Regulations (CFR) to better inform
the boating public. The Coast Guard, through this action, intends to
promote the safety of spectators and participants in this event. The
Tug Boat Races are sponsored by the Seattle Maritime Week Committee as
part of the Seattle Maritime Week celebration. This one day event has
been held on Elliott Bay for the last ten years. The race attracts a
large number of spectator craft which gather on the waters near the
race course.
Discussion of Proposed Regulation
To promote the safety of both the spectators and participants, the
proposed special local regulations would establish a regulated area and
prohibit entry into this area during the event. These special local
regulations will be enforced by representatives of the Captain of the
Port Puget Sound, Seattle, Washington. The Captain of the Port may be
assisted by other federal agencies.
Regulatory Evaluation
This proposal is not a significant action under section 3(f) of
Executive Order 12866 and does not require an assessment of potential
costs and benefits under section 6(a)(3) of that order. It has been
exempted from review by the Office of Management and Budget under that
order. It is not significant under the regulatory policies and
procedures of the Department of Transportation (DOT) (44 FR 11040;
February 26, 1979).
The Coast Guard expects the economic impact of this proposal to be
so minimal that a full regulatory evaluation under paragraph 10e of the
[[Page 1183]]
regulatory policies and procedures of DOT is unnecessary. The regulated
areas established by the proposed regulation would encompass less than
one square nautical mile on Elliott Bay adjacent to the Seattle
waterfront. Entry into the regulatory area would be restricted for less
than five hours on the day of the event. These restrictions would have
little effect on maritime commerce in the area.
Small Entities
Under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), the
Coast Guard must consider whether this proposal will have a significant
economic impact on a substantial number of small entities. ``Small
entities'' include independently owned and operated small businesses
that are not dominant in their field and that otherwise qualify as
``small business concerns'' under section 3 of the Small Business Act
(15 U.S.C. 632). Because the impacts of this proposal are expected to
be minimal, the Coast Guard certifies under section 605(b) of the
Regulatory Flexibility Act (5 U.S.C. 601 et seq.) that this proposal
will not have a significant impact on a substantial number of small
entities.
Federalism
The Coast Guard has analyzed this action in accordance with the
principles and criteria contained in Executive Order 12612 and has
determined that this proposal does not have sufficient federalism
implications to warrant the preparation of a federalism assessment.
Environment
The Coast Guard considered the environmental impact of this
proposed regulation and concluded that, under paragraph 2.B.2 of
Commandant Instruction M16475.1B (as revised by 59 FR 38654; July 29,
1994), this proposed regulation is categorically excluded from further
environmental documentation. Appropriate environmental analysis of the
National Maritime Week Tugboat Race will be conducted in conjunction
with the marine event permitting process each year. Any environmental
documentation required under the National Environmental Policy Act will
be completed prior to the issuance of a marine event permit for this
event.
List of Subjects in 33 CFR Part 100
Marine safety, Navigation (water), Reporting and recordkeeping
requirements, Waterways.
Proposed Regulations
For the reasons set out in the preamble, the Coast Guard proposes
to amend Part 100 of Title 33, Code of Federal Regulations, as follows:
PART 100--[AMENDED]
1. The authority citation for part 100 continues to read as
follows:
Authority: 33 U.S.C. 1233; 49 CFR 1.46 and 33 CFR 100.35.
2. A new section 100.1306 is added to read as follows:
Sec. 100.1306 National Maritime Week Tugboat Races, Seattle, WA
(a) Regulated Area. A regulated area is established on that portion
of Elliott Bay along the Seattle waterfront in Puget Sound bounded by a
line commencing at latitude 47 deg.37'36.0'' N, longitude
122 deg.22'42.0'' W; thence to latitude 47 deg.37'24.5'' N, longitude
122 deg.22'58.5'' W; thence to latitude 47 deg.36'08.0'' N, longitude
122 deg.20'53.0'' W; thence to latitude 47 deg.36'21.0'' N, longitude
122 deg.20'31.0'' W; thence returning to the origin. This regulated
area resembles a rectangle measuring approximately 3900 yards along the
shoreline between Pier 57 and Pier 89, and extending approximately 650
yards into Elliott Bay. Temporary floating markers will be placed by
the race sponsors to delineate the regulated area. [Datum: NAD 1983]
(b) Special Local Regulations.
(1) No person or vessel may enter or remain in the regulated area
except for participants in the event, supporting personnel, vessels
registered with the event organizer, and personnel or vessels
authorized by the Coast Guard Patrol Commander.
(2) When deemed appropriate, the Coast Guard may establish a patrol
consisting of active and auxiliary Coast Guard vessels and personnel in
the area described in paragraph (a) of this section. The patrol shall
be under the direction of a Coast Guard officer or petty officer
designated by the Captain of the Port as the Coast Guard Patrol
Commander. The Patrol Commander may forbid and control the movement of
vessels in the area described in paragraph (a) of this section.
(3) A succession of sharp, short blasts from whistle or horn from
vessels patrolling the area under the direction of the Patrol Commander
shall serve as a signal to stop. Vessels signaled shall stop and comply
with the orders of the patrol vessel. Failure to do so may result in
expulsion from the area, citation for failure to comply, or both.
(c) Effective dates. These regulations become effective annually on
the third Saturday of May from 12 p.m. to 4:30 p.m. unless otherwise
specified by Federal Register notice.
Dated: December 21, 1995.
John W. Lockwood,
U.S. Coast Guard, Commander, Thirteenth Coast Guard District.
[FR Doc. 96-449 Filed 1-16-96; 8:45 am]
BILLING CODE 4910-14-M
Complete official Federal Register PDF
FR Doc. 96-409 Lending and Investment
[Federal Register Volume 61, Number 11 (Wednesday, January 17, 1996)]
[Proposed Rules]
[Pages 1162-1182]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-409]
=======================================================================
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DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Parts 545, 556, 560, 563, 571
[No. 96-1]
RIN 1550-AA94
Lending and Investment
AGENCY: Office of Thrift Supervision, Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: Pursuant to section 303 of the Community Development and
Regulatory Improvement Act of 1994 (CDRIA) and the Regulatory
Reinvention Initiative of the Vice President's National Performance
Review, the Office of Thrift Supervision (OTS) has reviewed each of its
lending and investment regulations and related policy statements set
forth in the Code of Federal Regulations (CFR) to determine whether it
is necessary, imposes the least possible burden consistent with safety
and soundness, and is written in a clear, straightforward manner. As a
result, the OTS today is proposing to update, reorganize, and
substantially streamline its lending and investment regulations and
policy statements.
DATES: Comments must be received on or before April 16, 1996.
ADDRESSES: Send comments to Manager, Dissemination Branch, Records
Management and Information Policy, Office of Thrift Supervision, 1700 G
Street, NW., Washington, DC 20552, Attention Docket No. 96-1. These
submissions may be hand-delivered to 1700 G Street, NW., from 9:00 a.m.
to 5:00 p.m. on business days; they may be sent by facsimile
transmission to FAX Number (202) 906-7755. Comments will be available
for inspection at 1700 G Street, NW., from 9:00 a.m. until 4:00 p.m. on
business days.
FOR FURTHER INFORMATION CONTACT: For general information contact:
William J. Magrini, Project Manager, Supervision Policy (202) 906-5744;
Ellen J. Sazzman, Counsel (Banking and Finance), (202) 906-7133; or
Deborah Dakin, Assistant Chief Counsel, (202) 906-6445, Regulations and
Legislation Division, Chief Counsel's Office. For information about
preemption, contact Evelyne Bonhomme, Counsel (Banking and Finance),
(202) 906-7052, Regulations and Legislation Division, Chief Counsel's
Office, Office of Thrift Supervision, 1700 G Street, NW., Washington,
DC 20552.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background of the proposal
II. Historical overview of current lending and investment
regulations
III. Discussion
A. General description of objectives
1. Removal of unnecessary regulations
2. Converting regulations into guidance
3. Reorganization of lending and investment regulations
4. Continuity of current position on federal preemption in
lending area
B. Section-by-section analysis
1. Disposition of existing sections
2. New Part 560--Lending and investment
IV. Proposed disposition of lending-and investment-related
regulations
V. Request for comment
VI. Paperwork Reduction Act of 1995
VII. Executive Order 12866
VIII. Regulatory Flexibility Act Analysis
IX. Unfunded Mandates Act of 1995
I. Background of the Proposal
In a comprehensive review of the agency's regulations in the spring
of 1995, the OTS identified numerous obsolete or redundant regulations
that could be quickly repealed. On December 27, 1995, the OTS published
a final rule in the Federal Register repealing these regulations.1
This resulted in an eight percent reduction in OTS regulations.
\1\ 60 FR 66866 (December 27, 1995).
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As part of its review in the spring of 1995, the OTS also
identified several key areas in its regulations for a more intensive,
systematic regulatory burden review. These areas--lending and
investment authority, subsidiaries and equity investments, insurance
and fees, and charter and bylaws--were selected for intensive review
because they are vital to thrift operations, had not been developed on
an interagency basis, and had not been substantively reviewed in recent
years.
Today's proposal presents the results of the review of the lending
and investment regulations, the first of the subject areas the OTS has
identified for intensive review. Today's proposal, if adopted in final
form, will reduce the number of lending and investment regulations from
43 to 23, and result in a net reduction of 11 pages of CFR text.
We reviewed each lending and investment regulation under the
following criteria:
Is the regulation current?
Can the regulation be eliminated without endangering
safety and soundness, diminishing consumer protection, or violating
statutory requirements?
Is the regulation's subject matter more suited for a
policy statement or handbook guidance?
Is the regulation consistent with the regulations of the
other federal banking agencies?
Can the regulation be easily understood?
Today's proposal reorganizes the lending and investment regulations
into a more rational, user-friendly framework. The proposal removes
unnecessary detail from loan documentation regulations in favor of
general safety and soundness requirements, removes unnecessary
restrictions on the lending and investment powers of federal savings
associations (including restrictions on certain commercial loans and
community development investments), minimizes inequities between
federal and state associations, and eliminates redundant or obsolete
provisions.
This proposal was developed in consultation with those who use the
regulations on a daily basis: the agency's regional examination staff
and representatives of the thrift industry. Regional staff made
recommendations
[[Page 1163]]
on the changes being considered. An industry focus group meeting among
seven thrift representatives, an industry trade association, and OTS
staff discussed staff's initial recommendations.
Both regional staff and industry representatives supported the
overall approach presented. They raised some questions, however, that
are addressed in the discussion below.
II. Historical Overview of Current Lending and Investment
Regulations
The OTS's current lending and investment regulations have remained
virtually unchanged since they were adopted in 1983, following
enactment of the Garn-St Germain Depository Institutions Act of 1982
(DIA).2 Before the DIA, the Home Owners' Loan Act (HOLA) 3
had set forth in great detail specific lending and investment
authorities and accompanying restrictions. The DIA changed this
approach, modifying HOLA section 5(c) to list the broad categories of
investment authorities afforded federal savings associations and to
indicate which of these categories were subject to percentage-of-assets
limitations. The statute provided that the HOLA 5(c) authorities could
be exercised subject to regulations promulgated by the Federal Home
Loan Bank Board (FHLBB), the OTS's predecessor agency. HOLA section
5(c) retains that format today, referring to the Director of the OTS,
rather than the FHLBB.
\2\ Pub. L. 97-320, 96 Stat. 1469, October 15, 1982.
\3\ 12 U.S.C. 1461-1470.
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Before 1983, the FHLBB's lending and investment regulations were
based on the premise that HOLA's investment authorities had to be
implemented expressly by regulation.4 That year, the FHLBB
modified its lending and investment regulations to reflect a new
regulatory approach, stating:
\4\ 48 FR 23032 (May 23, 1983).
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In order to grant associations the maximum flexibility to
exercise the authorities granted by the HOLA, the Board has
determined to revise the general approach to regulating investment
activities of Federal associations.
Accordingly, Part 545 now addresses the authority of
associations only to limit [or] interpret [the statutory
authorizations] or [to] recognize incidental authority. Federal
associations may exercise all of the authority granted by the HOLA
subject only to limitations contained in the regulations.5
\5\ Id.
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As a result, the regulations do not currently list all of a federal
association's lending and investment authorities. The FHLBB emphasized
that ``deletion of sections specifically implementing existing
authority does not mean that any authority can no longer be
exercised.'' 6
\6\ 48 FR 23032.
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As inherited from the FHLBB, today's lending and investment
regulations still contain a fair amount of detail and restrictions in
some areas, such as real estate lending; minimal guidance in others,
such as general leasing authority; and do not mention other important
investment authorities at all, such as the ability to invest in
mortgage-backed securities. Many of the restrictions that the FHLBB
retained in the 1983 regulations, such as loan-to-value requirements,
limitations on the maximum terms of loans, and some percentage-of-
assets limitations beyond those found in the statute were based on
safety and soundness concerns.
While neither the basic lending and investment authorities nor the
lending and investment regulations have changed greatly since 1983, the
safety and soundness restrictions on both federal and state savings
associations have been comprehensively revised. The Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 7
(FIRREA) imposed new capital, loans to one borrower, and appraisal
requirements and tied the investment powers of state savings
associations more closely to federal association powers. The Federal
Deposit Insurance Corporation Improvement Act of 1991 8 (FDICIA)
required new real estate lending standards, as well as operational and
managerial standards. The OTS has adopted new regulations in all of
these areas, most on an interagency basis with the other federal
banking agencies. A number of these regulations directly affect the
ways and extent to which thrifts may make investments and loans and
obviate the need for some specific provisions currently found in the
lending and investment regulations.
\7\ Pub. L. 101-73, 103 Stat. 183, Aug. 9, 1989.
\8\ Pub. L. 102-242, 105 Stat. 2236, Dec. 19, 1991.
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III. Discussion
A. General Description of Objectives
The OTS is today proposing a comprehensive revision of the lending
and investment regulations to reflect statutory and regulatory changes,
as well as the agency's and industry's experience with the current
regulations. This section will discuss the overall objectives behind
today's proposal. A section-by-section analysis follows in Part III.B.
1. Removal of Unnecessary Regulations
The first objective of the OTS proposal is to remove unnecessary,
duplicative, or outdated lending and investment regulations. By
clearing out the unnecessary regulations, the OTS hopes to reduce
regulatory compliance costs and enhance the profitability of thrift
institutions. Examples of the regulations slated for removal are
Sec. 563.97 (loans in excess of 90 percent of value), Sec. 545.44
(mortgage transactions with the Federal Home Loan Mortgage
Corporation), and Sec. 545.37 (combination loans).
In some instances, the agency believes that safety and soundness
concerns still require a regulation, but that this objective can be
satisfied with a less burdensome regulation. For example, the agency is
proposing to amend the scope of ``commercial loans'' under current
Sec. 545.46(b) to exclude commercial loans made by service
corporations. This will free up additional lending authority within the
statutory limit of 10 percent of assets for commercial loans by a
federal savings association. The agency is also proposing to remove
outdated restrictions on manufactured home loans and investments in
government securities and state housing corporations.
2. Converting Regulations Into Guidance
Second, the proposal would convert certain regulatory requirements
to handbook guidance. The goal of such a transfer would be to provide
thrifts with guidance about what the agency considers to be generally
safe and sound practices in a particular area, while giving them more
flexibility in addressing safety and soundness concerns than the
regulations currently allow.
In making determinations about moving specific provisions out of
the lending and investment regulations and into guidance, the OTS has
carefully looked at whether the other federal banking agencies have
specific regulations addressing those issues, such as classification of
assets and loan documentation, or whether they rely more on guidance.
Thrift lending regulations traditionally have been lengthy, generally
providing far more detail and leaving less room for the exercise of
judgment by the industry and examiners than have bank lending
regulations.
Section 303 of CDRIA encourages the federal banking agencies to
move towards greater uniformity in regulations and guidelines on common
supervisory issues. In the past, the federal banking agencies have
worked together to develop common regulations affecting lending,
notably the appraisal and real estate lending standards
[[Page 1164]]
regulations. Pursuant to section 303 and in continuation of this
movement towards uniformity, the OTS is proposing to shift from a more
regulation-specific to a more guidance-oriented approach in its lending
and investment regulations.
One example of this proposed shift in approach is loan
documentation. Currently, Sec. 563.170(c) (1)-(9) lists a number of
documents that thrifts must maintain in connection with various types
of secured and unsecured extensions of credit. While the document list
may provide a useful checklist and may be appropriate as guidance, all
transactions may not require all documents. Conversely, safety and
soundness concerns for a particular transaction may necessitate
different or additional documents beyond those listed in the
regulation. Accordingly, the OTS proposes replacing those specific
documentation requirements with a more general lending documentation
regulation based on interagency safety and soundness guidelines.9
\9\ Standards for Safety and Soundness, 60 FR 35674 (July 10,
1995).
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Both industry representatives attending the focus group meeting and
regional staff raised questions about the effect of incorporating
material currently in regulations into handbooks or other guidance.
Some industry representatives believed that many in the industry and
examination staff view the guidelines in the handbooks as equivalent to
binding regulations and would not perceive a burden reduction in such a
transfer. Various regional staff raised the opposite concern: that if
requirements were moved from regulations to guidance the agency would
find it more difficult to convince some in the industry to operate in a
safe and sound manner in those areas.
By proposing to remove some specific lending regulations and to
rely more heavily on general safety and soundness standards, the OTS is
in no way signalling that an association would not need to maintain
adequate loan documentation or to classify its assets and establish
appropriate valuation allowances. Generally accepted accounting
principles and principles of safety and soundness will still require
these steps to be taken. In most circumstances, supervisory guidance
provided in Regulatory Bulletins, Thrift Bulletins, the Thrift
Activities Handbook and other sources can and should be relied upon to
define safe and sound practices.
In its ongoing training programs, however, the OTS will continue to
emphasize to examiners that guidance documents should not be confused
with regulations. In particular situations, it may be prudent for
institutions to deviate from what is stated in standard guidance
documents. Examiners and thrift management both have a responsibility
to consider what is safe and sound under all the facts of each
circumstance. Neither should rely on the regulations and guidance
documents in rote fashion.
Provided both management and examiners understand the proper role
of regulations and guidance, and the overarching requirement for safe
and sound operations and practices, a move away from detailed
regulations and toward greater reliance on guidance should provide
institutions with more flexibility without diminishing safety and
soundness. The OTS believes that regulations should be reserved for
core safety and soundness requirements. Details on prudent operating
practices should be relegated to guidance. Otherwise, regulated
entities can find themselves unable to respond to market innovations
because they are trapped in a rigid regulatory framework developed in
accordance with conditions prevailing at an earlier time.
Today's proposal represents the agency's current best judgment
about the right balance between which provisions affecting lending and
investment should be binding regulations and which should be guidance
conveying the OTS's more detailed views on what generally constitutes
safe and sound standards under current market conditions. The agency
specifically seeks comments on whether the proposal achieves these
goals.
3. Reorganization of Lending and Investment Regulations
The agency has received comments over the years that its lending
and investment regulations are hard to locate and difficult to follow.
The agency is proposing two remedies for this problem. First, all
lending and investment regulations will be moved into a new part 560,
``Lending and Investment,'' that will specify which regulations apply
to all savings associations (such as loan documentation, disclosure,
and real estate lending standards) and which apply only to federal
savings associations (such as specific lending powers). This part will
include provisions currently located in parts 545 and 563 that are
being modified as part of today's proposal. The OTS expects that this
part will ultimately include all lending and investment regulations
except for Appraisals (located in part 564).
The OTS also proposes to remove unnecessary restatements of
statutory authority and limitations from various sections of part 545.
These would be replaced by a regulation in chart format that would
provide easy reference to the statutory authority for, and statutory
limitations on, federal associations' lending powers. Notes to the
chart would set forth any additional regulatory restrictions. The
agency seeks comment on whether such a chart would make it easier to
locate lending authorities and to determine which restrictions apply.
Because of the FHLBB's 1983 decision that part 545 would not repeat
all of HOLA section 5(c)'s lending powers but only those where
additional restrictions apply, the proposed chart, based on the current
part 545, is not comprehensive. Although many of the most significant
authorities are listed, some more obscure authorities are not. The
agency seeks comment on whether the proposed chart would be more useful
if it included statutory provisions not currently set forth in the
regulations.
4. Continuity of Current Position on Federal Preemption in Lending Area
One of the points made by industry representatives in the focus
group meeting was that OTS should maintain a clear and consistent
position on the preemptive effect of its lending regulations,
especially if those regulations are restructured, amended, converted
into guidance, or deleted. The OTS has long held that, with certain
narrow exceptions, any state laws or regulations that purport to affect
the lending operations of federal savings associations are preempted.
Such preemption is essential to the OTS's regulation of the operations
of federal savings associations because lending is one of the most
important functions of a savings association. None of the changes
discussed today should be construed as evidencing in any way an intent
by the OTS to change this long-held position. Whether the OTS continues
to have a specific regulation addressing a particular aspect of lending
or chooses to remove a federal regulation to streamline its regulations
and reduce regulatory burden, the agency still intends to occupy the
entire field of lending regulation for federal savings associations.
Because the lending regulations are being moved out of Part 545
and, thus, separated from the general preemption provision that
currently appears in Part
[[Page 1165]]
545,10 the OTS is proposing to include a general lending
preemption provision in new Part 560. This provision (discussed more
fully in the section-by-section analysis in Section III.B.2 below)
merely restates long-standing preemption principles applicable to
federal savings associations, as developed in a long line of court
cases and legal opinions by the OTS and the FHLBB.
\10\ 12 CFR 545.2.
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B. Section-by-Section Analysis
1. Disposition of Existing Sections
Part 545 Operations (Federal Savings Associations)
Section 545.31 Election Regarding Classification of Loans or
Investments
Paragraph (a) of Sec. 545.31 sets forth the OTS's general rule that
where a loan or investment meets the requirements of more than one
authority, the association may elect to place it in any applicable
category. The OTS proposes to retain this paragraph in modified form as
new Sec. 560.31(a).
The OTS is considering moving the description in Sec. 545.31(a) of
the essential characteristics of a loan that can be classified as a
real estate loan into a separate definitional section of the
regulations 11 along with the definition of loan commitment
currently found in paragraph (b).
\11\ The question of whether regulatory definitions should all
be moved into a centralized location in the regulations or instead
be located in or near the sections to which they relate will be
addressed in a subsequent proposal regarding the structure and
organization of OTS regulations (``Regulatory Structure Proposal'').
We anticipate that any changes proposed in the Regulatory Structure
Proposal will be made final at the same time any changes proposed
today are made final.
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Paragraph (b) also provides that loan commitments are included in
total assets and accounted for as an investment for purposes of
determining applicable statutory or regulatory investment limitations
only to the extent that funds are advanced and not repaid. The OTS
proposes to combine this provision into new Sec. 560.31(a).
Paragraph (c) addresses the treatment of loans sold to third
parties for purposes of calculating percentage-of-assets investment
limitations. Paragraph (d) addresses treatment of loans secured by
assignment of loans. The OTS proposes to retain both paragraphs in new
Sec. 560.31.
Section 545.32 Real Estate Loans
Paragraph (a) of Sec. 545.32 reiterates the HOLA's general grant of
statutory authority for federal savings associations to make or invest
in residential (home) or nonresidential real estate loans.12 The
OTS proposes to delete this paragraph and move the statutory reference
into the proposed lending/investment powers chart.
\12\ 12 U.S.C. 1464 (c)(1)(B), (c)(2)(B).
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Paragraphs (b) (1) and (2) of Sec. 545.32 duplicate more
comprehensive interagency-developed real estate lending standards and
appraisal standards set forth at 12 CFR 563.100-101 and 12 CFR Part 564
respectively. Accordingly, the OTS proposes to delete these paragraphs.
Paragraphs (b) (3), (4), (5), and (6) of Sec. 545.32 discuss
federal savings associations' authority to adjust the terms of real
estate loans, to amortize real estate loans, to charge certain initial
fees for real estate loans, and to establish escrow accounts. The HOLA
expressly authorizes federal savings associations to ``invest in, sell
or otherwise deal in * * * loans on the security of liens upon
residential real property'' and ``nonresidential real property.''
13 This express authorization to make real estate loans
necessarily includes within it the authority to adjust and fix the
terms of each loan, including loan charges, an escrow account, the
terms for repayment, and the circumstances under which a repayment
obligation can be modified. The OTS believes that the authority to
adjust, amortize, establish escrow accounts for, and charge fees for
loans properly falls within the scope of savings associations'
statutory authority to originate loans, and these powers do not need to
be specifically identified or restricted in the CFR.
\13\ 12 U.S.C. 1464 (c)(1)(B), (c)(2)(D).
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Because these paragraphs have been relied upon in preemption
opinions of the FHLBB and the OTS, the agency emphasizes that by
proposing to remove these paragraphs, the OTS does not intend any
change in federal thrifts' authority to conduct these activities, but
rather to enhance associations' flexibility in lending. Each of these
areas is specifically cited in proposed new Sec. 560.2 as an area in
which state law is preempted.
Paragraph (c) of Sec. 545.32 defines the phrase ``loan made on the
security of real estate.'' The OTS is considering moving this paragraph
to a definitional section of the regulations or deleting this paragraph
entirely as part of its Regulatory Structure Proposal. Questions have
arisen about the application of the current description of secured real
estate loan both in the context of asset classification and the making
of real estate loans in foreign countries. The OTS seeks comment on
whether the current definition of secured real estate loan has provided
adequate guidance for savings associations and how it could be
clarified or updated.
Paragraph (d) of Sec. 545.32 addresses loan-to-value ratios and
duplicates more comprehensive interagency real estate lending
standards.14 Accordingly, the OTS proposes to delete this
paragraph.
\14\ 12 CFR 563.100-563.101.
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Section 545.33 Home Loans
The introductory paragraph of Sec. 545.33 generally describes home
loans. The OTS is considering moving this paragraph to a new
definitional section of the regulations as part of the Regulatory
Structure Proposal.
Paragraph (a) describes the authority of savings associations to
amortize home loans. The OTS proposes to delete this paragraph for the
reasons discussed under Sec. 545.32(b)(3)-(6).
Paragraph (b) addresses loan-to-value ratios for home loans. The
OTS proposes to delete this paragraph because the interagency real
estate lending standards address the same issues in a more
comprehensive and current manner.
Paragraph (c) sets forth limitations on the adjustments that may be
made to residential mortgages. Paragraph (c) requires that adjustments
to rates, payments, or loan balances be tied to a national or regional
index outside the control of the savings association or a formula or
schedule set forth in the loan contract. Loans must also comply with
the notice requirements of 12 CFR 563.99, which address disclosure
requirements for fixed-rate and adjustable-rate mortgage (ARM) loans
made by all savings associations.
The OTS proposes to delete paragraph (c).15 Because
Sec. 563.99 would remain in place, savings associations would still be
required to provide full disclosure regarding adjustments in rates,
payments, and loan balances. However, the substantive restrictions on
how these adjustments can be made that now appear in Sec. 545.33(c)
would be eliminated. These limitations are much more detailed than
those required of other institutions offering mortgages. When these
adjustment limitations were last substantially revised, in 1983, ARMs
were still relatively new in the marketplace. Consumers did not have a
wide range of choices of lenders offering this type of loan. Today,
consumers are much more familiar with this type of loan and have a wide
variety of possible
[[Page 1166]]
sources for obtaining home mortgages. The OTS believes that as long as
information about adjustments to interest rates, term, payments, and
loan balances is clearly disclosed to purchasers, the details should be
a matter of contract between the savings association and the purchaser.
The agency specifically solicits comments about whether any of the
provisions in Sec. 545.33(c) should be retained.
\15\ The last sentence in paragraph (c)(5) concerns a federal
thrift's right to call a loan due and payable under certain
circumstances. OTS proposes to incorporate this provision into new
Sec. 560.2.
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Among the provisions that would be removed is the requirement that
an ARM's interest rate adjustment be tied to an external index. Some
federal savings associations have argued that this external control
provision puts savings associations at a competitive disadvantage in
the current ARM market and inhibits their ability to manage their
assets. Generally federal savings associations, national banks 16,
and those housing creditors who elect to operate under the Alternative
Mortgage Parity Act 17 are subject to this requirement. The OTS
solicits comment on whether it should retain this requirement or,
alternatively, a requirement of a national or regional index. The OTS
also solicits comment on how federal thrifts might structure their ARM
lending programs to ensure that consumers are protected if adjustments
are not tied to an external index.
\16\ 12 CFR 34.7. The Office of the Comptroller of the Currency
has recently proposed amendments to its real estate lending
regulations that would not amend this requirement. The preamble to
the proposal did not explain why OCC proposes to retain this
requirement. See 60 FR 35353, 35355-35356 (July 7, 1995).
\17\ The Alternative Mortgage Parity Act, Pub. L. 97-320, Title
VII, authorizes certain housing creditors to make alternative
mortgage transactions not withstanding any contrary state law under
certain conditions. Among the conditions that housing creditors that
rely on the Parity Act and are not commercial banks or credit unions
must satisfy is compliance with applicable OTS regulations on ARMs,
which include this paragraph. See 12 CFR 545.33(f).
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Paragraph (d) of Sec. 545.33 addresses loans on cooperatives. The
OTS proposes to delete this paragraph. The interagency real estate
lending standards address the same issues as paragraph (d)(1) in a more
comprehensive and flexible manner. No comparable reserve requirement to
that set forth in paragraph (d)(1) exists for state-chartered thrifts.
The OTS solicits comment on whether the provisions of (d)(2), which set
forth what may constitute security for such a loan, should be included
in guidance.
Paragraph (e) addresses loans to facilitate trade-in or exchange.
The OTS proposes to delete this paragraph because the interagency real
estate lending standards address the same issues in a more
comprehensive and flexible manner.
Paragraph (f) specifies the OTS regulations that state savings
associations and certain other state lenders who elect to make loans
under the Alternative Mortgage Parity Act must follow. The Alternative
Mortgage Parity Act preempts state laws that might otherwise limit
certain state creditors' ability to offer ARMs if they comply with the
OTS regulations identified in this paragraph. The agency is concerned
that this paragraph is not easy to locate for those affected by it. The
OTS therefore proposes to move the provisions of this paragraph, as
modified to reflect changes elsewhere in today's proposal, into new
Sec. 560.210, as part of a subpart dealing with alternative mortgages,
with a title that highlights its content.
Section 545.34 Limitations for Home Loans Secured by Borrower-Occupied
Property
Paragraph (a) permits federal savings associations to include due-
on-sale clauses in loan instruments to the extent authorized under
federal statutes and regulations, regardless of state prohibitions of
due-on-sale clauses.18 The OTS proposes to remove this paragraph
and incorporate its provisions into new Sec. 560.2.
\18\ 12 U.S.C. 1701j-3, 12 CFR Part 591.
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Paragraphs (b) and (c) permit federal savings associations to
include provisions imposing late fees and prepayment penalties in loan
contracts on home loans subject to certain conditions. The OTS proposes
to remove these paragraphs and incorporate these limitations, which may
provide protection for borrowers, into new Sec. 560.34. The OTS
solicits comment on whether these restrictions are important for
borrowers.
Section 545.35 Other Real Estate Loans
Section 545.35 sets forth federal savings associations' authority
to lend and invest in nonresidential real estate subject to certain
statutory and regulatory limitations. Paragraph (a) requires compliance
with real estate lending standards. Paragraph (b) reiterates the
statutory limit of 400 percent of an association's total capital
imposed on investments in nonresidential real estate. The OTS proposes
to delete this section, incorporate the reference to federal savings
associations' statutory authority to invest in nonresidential real
estate loans into the proposed lending and investment powers chart, and
place the limitations into an accompanying endnote.
Section 545.36 Loans To Acquire or To Improve Real Estate
Section 545.36 sets forth regulatory investment limitations
pertaining to acquisition, development, and construction loans. The OTS
proposes to delete this section inasmuch as the interagency real estate
lending standards and interagency safety and soundness standards
address the same issues in a more comprehensive and current manner.
Paragraphs (c) and (d) of Sec. 545.36 would be incorporated into the
Thrift Activities Handbook to provide additional guidance to thrifts
making development loans beyond that contained in the interagency real
estate lending standards.
Section 545.37 Combination Loans
Section 545.37 allows thrifts to combine loans authorized by part
545. The OTS proposes to delete this section as unnecessary and vague.
Section 545.38 Insured and Guaranteed Loans
Paragraphs (a) and (b) of Sec. 545.38 authorize Federal thrifts to
make insured and guaranteed residential real estate loans,
notwithstanding other provisions of part 545 but subject to certain
conditions. The OTS proposes to delete these paragraphs as unnecessary.
Federal savings associations may make an unlimited percentage of
residential real estate loans, subject to the interagency real estate
lending standards. Other regulatory restrictions affecting such loans
have either already been removed from part 545 or are proposed for
deletion today.
Paragraph (c) addresses nonresidential real estate loans that are
guaranteed by the Economic Development Administration, the Farmers Home
Administration, or the Small Business Administration. The OTS proposes
to delete this paragraph and incorporate the HOLA's statutory grant of
authority for Federal thrifts to make guaranteed nonresidential real
estate loans in the endnotes to the proposed lending and investment
powers chart.
Section 545.39 Loans Guaranteed Under the Foreign Assistance Act of
1961
This section reiterates the HOLA's statutory grant of authority
19 to Federal thrifts to make loans guaranteed under the Foreign
Assistance Act (FAA).20 The
[[Page 1167]]
OTS proposes to delete this section and incorporate its provisions into
the proposed lending powers and investment chart and endnotes and new
Sec. 560.43. The OTS solicits comment on whether thrifts have invested
in or made loans guaranteed under the FAA.
\19\ 12 U.S.C. 1464(c)(4)(C).
\20\ 22 U.S.C. 2181, 2184.
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Section 545.40 Loans on Low-Rent Housing
Section 545.40 exempts loans made pursuant to certain low rent
housing programs of the Department of Housing and Urban Development
from regulatory maximum loan term and loan-to-value limitations. The
OTS proposes to delete this section as unnecessary because the loan
term and loan-to-value ratio limitations referred to in this section
have already been or are now being removed from OTS regulations. By
deleting this section, the OTS does not intend to limit Federal
thrifts' authority to make low-rent housing loans pursuant to
applicable statutory and regulatory provisions, but rather to remove
obsolete restrictions that only serve to confuse CFR users.
Section 545.41 Community Development Loans and Investments
Section 545.41 reiterates the HOLA's statutory grant of authority
to Federal savings associations to make direct community development
loans and investments, subject to an overall 5 percent of assets
limitation.21 The OTS proposes to delete this section and
incorporate the statutory authority reference into the proposed lending
and investment powers chart. The chart will separately list the
sublimit of 2 percent of assets for equity investments in community
development real estate under this authority.
\21\ See 12 U.S.C. 1464(c)(3)(B).
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Section 545.42 Home Improvement Loans
Section 545.42 reiterates the HOLA's statutory grant of authority
to Federal thrifts to make home improvement loans subject to prudent
lending standards.22 The OTS proposes to delete this section and
incorporate the reference to Federal thrifts' statutory authority to
make home improvement loans into the proposed lending and investment
powers chart.
\22\ 12 U.S.C. 1464(c)(1)(J).
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Section 545.43 State Housing Corporation Investment-Insured
Section 545.43 reiterates the HOLA's grant of statutory authority
to Federal thrifts to invest in State housing corporation loans 23
subject to a regulatory 30 percent of assets limitation. This section
also duplicates restrictions in current Sec. 563.95, which regulates
investment in State housing corporations for all savings
associations.24 The OTS proposes to delete Sec. 545.43 and
incorporate the reference to the HOLA's statutory grant of authority to
Federal thrifts to invest in State housing corporation loans into the
proposed lending and investment powers chart.
\23\ 12 U.S.C. 1464(c)(1)(P).
\24\ Section 563.95, as discussed later, is proposed to be
modified and moved into new Part 560.
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Section 545.44 Mortgage Transactions With the Federal Home Loan
Mortgage Corporation
Section 545.44 provides, in accordance with HOLA Sec. 5(c)(1)(E)
and the Federal Home Loan Mortgage Corporation (FHLMC) Act, that
Federal thrifts may enter into or perform mortgage transactions with
the FHLMC. It does not impose any additional regulatory restrictions,
nor does it currently exempt these transactions from any regulatory
restrictions. The OTS proposes to delete this section as an unnecessary
reiteration of statutory authority and savings associations' inherent
power to enter into business contracts. The OTS also solicits comments
on whether the OTS should incorporate the definition of ``mortgage''
set forth in Sec. 302 of the FHLMC Act, currently cross-referenced in
this section, in a general definitional section as part of its
Regulatory Structure Proposal.
Section 545.45 Manufactured Home Financing
Paragraph (a) of Sec. 545.45 contains several definitions relating
to manufactured home financing. The proposed disposition of this
section will render these definitions unnecessary and, therefore, the
OTS proposes to delete this paragraph.
Paragraph (b) of Sec. 545.45 reiterates the HOLA's statutory grant
of authority to federal thrifts to invest in or make manufactured home
loans.25 The OTS proposes to delete this paragraph and incorporate
the statutory reference to federal thrifts' authority to invest in
manufactured home loans into the proposed lending and investment powers
chart.
\25\ 12 U.S.C. 1464(c)(1)(J).
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Paragraphs (c) and (d) of Sec. 545.45 address inventory financing
and retail financing for manufactured home chattel paper and establish
term and loan to value limits for such loans. The OTS believes these
paragraphs describe underwriting standards for manufactured homes that
are more suitable as guidance and proposes to transfer these paragraphs
to the Thrift Activities Handbook. The OTS solicits comment as to
whether these paragraphs provide useful guidance to savings
associations.26
\26\ One commenter on the agency's August 28, 1995 proposal to
remove unnecessary provisions from its regulations suggested the
removal of the provisions in paragraphs (d)(2)(ii)(chattel paper
must generally be payable within 20 years in substantially equal
payments) and (iii)(the financed amount may not exceed certain loan
to value ratios), claiming that they imposed a competitive
disadvantage for federal savings associations.
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Paragraph (e) provides that a federal thrift's sale of manufactured
home chattel paper must be sold without recourse. Since it was adopted,
the OTS has adopted a capital regulation that requires thrifts to hold
appropriate levels of capital against all sales with recourse.27
The OTS therefore proposes to delete this paragraph.
\27\ See 12 CFR 567.1(kk), 567.6(a)(2)(i)(C).
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Section 545.46 Commercial Loans
Paragraph (a) of Sec. 545.46 reiterates the HOLA's grant of
statutory authority to federal thrifts to invest in and make commercial
loans not to exceed 10 percent of their assets.28 The OTS proposes
to delete this paragraph and incorporate the authority and statutory
limitation in paragraph (a) into the proposed lending and investment
powers chart.
\28\ 12 U.S.C. 1464(c)(2)(A). The language in Sec. 545.46(a)
regarding pre-1984 investment limits is obsolete and will be
deleted.
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The agency is also proposing to delete paragraph (b). This
paragraph defines commercial loans to include commercial overdrafts
related to demand accounts and commercial unsecured loans by service
corporations. Paragraph (b)(1) (commercial overdrafts) will be
incorporated into an endnote to the lending and investment powers
chart. Thus, commercial overdrafts will continue to be subject to the
commercial lending limit.
As for commercial loans made at the service corporation level,
however, the agency has determined that the statutory maximum 3 percent
of assets that federal savings associations may invest in service
corporations generally provides a sufficient safeguard for the savings
association, as it does for all other types of activities conducted in
service corporations. Under the current service corporation regulation,
only a service corporation's commercial loans are aggregated with its
parent's loans for purposes of statutory percentage-of-assets
limitations on general investment
[[Page 1168]]
authority.29 Other service corporation investments are not. The
agency believes such a distinction is no longer warranted and that such
loans should no longer be subject to the statutory 10 percent of assets
limitation on commercial lending set forth in HOLA section 5(c)(2)(A).
\29\ 12 CFR 545.74(c)(1)(1995). For purposes of some other
regulations, such as loans to one borrower (12 CFR 563.99) and
transactions with affiliates (12 CFR 563.41 and 563.42), investments
at the service corporation level are aggregated with investments of
the parent savings association. Today's proposal does not affect
those regulatory provisions.
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By removing these loans from the definition of commercial loans,
federal savings associations' limited authority to make commercial
loans will be somewhat enhanced, benefiting both thrifts and their
customers, without endangering safety and soundness or thrifts' primary
mission of providing mortgage lending.
Section 545.47 Overdraft Loans
Section 545.47 reiterates the HOLA's statutory grant of authority
to federal thrifts to make loans specifically related to transaction
accounts, which includes overdraft loans.30 The OTS proposes to
delete this section and incorporate the reference to federal thrifts'
statutory authority to make overdraft loans into the proposed lending
and investment powers chart.
\30\ 12 U.S.C. 1464(c)(1)(A).
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The endnote accompanying this provision will specify that
commercial overdraft loans formerly covered by Sec. 545.46 remain
subject to the same commercial lending limits.
Section 545.48 Letters of Credit
Section 545.48 authorizes federal thrifts to issue letters of
credit in conformance with the Uniform Commercial Code or the Uniform
Customs and Practices for Documentary Credits and subject to certain
general standards. As already discussed, the HOLA expressly authorizes
federal thrifts to invest in or make commercial loans, and this express
authorization to make commercial loans necessarily includes within it
the authority to issue letters of credit. For ease of reference, the
OTS proposes to reference the authority of federal thrifts to issue
letters of credit in the proposed lending and investment powers chart.
The OTS believes it would be useful to establish general standards
for the issuance of letters of credit for all savings associations. The
OTS therefore also proposes to incorporate the substance of
Sec. 545.48(a), modified to include a broader range of permissible
letters of credit, into new Sec. 560.120 as prudent lending standards
for the issuance of letters of credit. The OTS believes, and industry
representatives at the focus group meeting concurred, that many states
have already incorporated similar standards and that most associations
already have such prudent practices in place.
The OTS solicits comment on whether transferring the substance of
Sec. 545.48(a) to the new part 560 would provide needed uniform
standards for all savings associations, the benefits of which would
outweigh any additional burden on state-chartered savings associations.
Alternatively, the OTS invites comment on whether Sec. 545.48(a) should
be transferred to handbook guidance.
The OTS proposes to delete paragraph (b) of Sec. 545.48, which
addresses the treatment of funds advanced under a letter of credit
without compensation from the account party, because it duplicates
Sec. 545.31(b), which the OTS proposes to incorporate into new
Sec. 560.31(a).
Section 545.49 Loans on Securities
Section 545.49 reiterates the HOLA's statutory grant of authority
to federal thrifts to invest in loans to financial institutions and
brokers secured by obligations backed by the United States government
or certain agencies or instrumentalities thereof.31 The OTS
proposes to delete this section and incorporate a reference to thrifts'
statutory authority to invest in such loans secured by U.S. government
or agency backed obligations into the proposed lending and investment
powers chart. The introductory paragraph that limits permissible
investments in agencies or instrumentalities of the United States to
those entities named in Sec. 566.1(g)(3) is being removed as
unnecessary.
\31\ 12 U.S.C. 1464(c)(1)(C), (D), (E), (F).
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Section 545.50 Consumer Loans
Section 545.50 reiterates the HOLA's statutory grant of authority
to federal thrifts to make consumer loans subject to a 35 percent of
assets limit.32 For purposes of determining compliance with this
limit, federal thrifts must aggregate their consumer loans with any
investments in corporate debt securities and commercial paper.33
In other words, a federal thrift's aggregate investments in consumer
loans, corporate debt securities, and commercial paper may not exceed
35 percent of its assets.
\32\ 12 U.S.C. 1464(c)(2)(D).
\33\ Id.
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The OTS proposes to delete Sec. 545.50 and to incorporate the
reference to federal thrifts' statutory authority to make consumer
loans, subject to the statutory asset limit, into the proposed lending
and investment powers chart. The OTS plans to include an endnote
incorporating the provisions of Sec. 545.50(c), which addresses loans
to dealers in consumer goods. The OTS is considering moving paragraph
(b) of Sec. 545.50, which defines consumer loans, to a consolidated
definitional location in the regulations as part of its Regulatory
Structure Proposal. The OTS solicits comment on how the definition of
consumer loan can be clarified for categorization purposes and
coordinated with other OTS regulations that address consumer
credit.34 The current definition of consumer loan that appears in
Sec. 545.50(b) expressly excludes credit cards. As a result, under
current regulations, credit card loans are not subject to the 35
percent of assets investment limit applicable to consumer loans,
corporate debt securities, and commercial paper. A separate regulation,
Sec. 545.51 (discussed below), governs the credit card activity of
federal savings associations. No percentage of assets limits are
imposed on credit cards by that regulation.
\34\ Compare 12 CFR 545.50(b)'s definition of consumer loan,
which excludes credit extended in connection with credit cards, with
12 CFR 561.12, which defines consumer credit for purposes of the
regulations in part 563 to include credit cards.
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This approach mirrors the HOLA. The statutory provision authorizing
federal thrifts to invest in consumer loans, corporate debt securities,
and commercial paper subject to a 35 percent of assets limit is
separate from the statutory provision that authorizes them to invest in
credit cards. The statutory provision authorizing credit cards contains
no percentage of assets limit.
The OTS has reviewed the legislative history of the two statutory
provisions. The legislative history does not provide clear guidance
regarding whether any linkage was intended. Thus, under normal rules of
statutory interpretation, the plain language of the statute would
ordinarily be given effect. As indicated above, the plain language
imposes no percentage of assets limit on credit card operations. This
does not mean that federal thrifts can make unlimited credit card
loans, however. Independent of the investment authorizations in HOLA
section 5, all savings associations are required to meet the qualified
thrift lender test.35 Credit card loans count as qualified thrift
investments only to a very limited extent. The qualified thrift
[[Page 1169]]
lender test effectively requires all savings associations to hold a
substantial amount of residential mortgage-related assets.
\35\ 12 U.S.C. 1467a(m).
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The proposed rule carries forward the pattern of OTS's existing
regulations. Under the proposed rule, credit card loans would not be
subjected to the 35 percent of assets limit. The OTS solicits comment,
however, regarding whether this is the proper approach.
Section 545.51 Credit Cards
As discussed above, Sec. 545.51(a) reiterates the HOLA's grant of
statutory authority to federal thrifts to issue credit cards and extend
credit in connection therewith, and otherwise engage in credit card
operations.36 The OTS proposes to delete this section and
incorporate a reference to federal savings associations' statutory
authority to engage in credit card operations into the proposed
lending/investment powers chart. Consistent with the current form of
Sec. 545.51(a), credit card operations would not be subject to the 35
percent of assets limit.
\36\ 12 U.S.C. 1464(b)(4).
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Paragraph (b), addressing the confidentiality of personal security
identifiers in conjunction with credit card operations, would be
deleted as redundant with the provisions of the Electronic Funds
Transfer Act and Regulation E.37
\37\ See 15 U.S.C. 1693 et seq. and 12 CFR part 205
respectively.
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Section 545.52 Loans on Savings Accounts
Section 545.52 reiterates the HOLA's statutory grant of authority
to federal thrifts to make loans on the security of savings accounts
and sets forth a regulatory limitation on such loans.38 The OTS
proposes to delete this section and incorporate the reference to
federal thrifts' statutory authority to make loans on savings accounts
into the proposed lending and investment powers chart. The limitation
on loans on savings accounts to the withdrawal amount of the savings
account set forth in paragraph (b) will be retained as an endnote.
\38\ 12 U.S.C. 1464(c)(1)(A).
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Section 545.53 Finance Leasing
This section authorizes federal thrifts to engage in various
leasing activities that are the functional equivalent of lending,
subject to certain regulatory limitations.39 The OTS proposes to
reference federal thrifts' finance leasing authority with applicable
limitations in the proposed lending and investment powers chart.
\39\ Section 545.53 cites several HOLA lending provisions, 12
U.S.C. 1464(c)(1)(B), (c)(2)(A), and (c)(2)(D), as the basis for
federal thrifts' leasing authority.
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The OTS is also proposing to consolidate the finance leasing
requirements of this section with the general leasing requirements of
Sec. 545.78 into one streamlined section, new Sec. 560.41. As part of
this consolidation and streamlining, OTS proposes to delete the term
limits in paragraph (c)(2) of Sec. 545.53. Institutions should be free
to establish their own term limits based on prudent underwriting
criteria and market conditions. OTS proposes to amend the residual
value requirement for finance leases in current Sec. 545.53(c)(2). The
current rule states that no more than 20 percent of the return may be
realized from the residual value of the property. Commenters have
stated that this language is confusing and that the 20 percent
requirement is too strict in light of the fact that the Office of the
Comptroller of the Currency (OCC) allows national banks to make leases
with a residual value of 25 percent of the original cost of the
property to the lessor. Therefore, OTS proposes to amend its residual
value requirement for finance leases, to clarify the language and to
incorporate the 25 percent standard.40
\40\ The OCC has recently proposed amendments to its leasing
regulation at 60 FR 46246 (September 6, 1995).
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The OTS solicits comment on whether it should consolidate the
salvage powers described in this section and in the service corporation
regulations into one new section that will outline salvage powers on
all types of loans and investments.
Section 545.72 Government Obligations
Section 545.72 reiterates the HOLA's grant of statutory authority
to federal thrifts to invest in obligations of any state, territory, or
political subdivision thereof.41 The OTS proposes to delete this
section and incorporate the reference to federal thrifts' statutory
authority to invest in government obligations into the proposed lending
and investment powers chart. The provisions of Sec. 545.72(a) regarding
investments in obligations meeting investment grade requirements will
be incorporated into new Sec. 560.42 and noted in the endnotes to the
chart.
\41\ 12 U.S.C. 1464(c)(1)(H).
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Other provisions of Sec. 545.72 will also be modified and
incorporated into new Sec. 560.42. In order to encourage additional
safe and sound community-related investments under this provision, the
agency is proposing to modify the regulatory restrictions currently
contained in Sec. 545.72(b) for unrated government obligations before
incorporating them into the new section.
First, the agency is clarifying that the 1 percent of assets
limitation for investments in obligations of a state or political
subdivision where a savings association has its home or a branch office
that do not meet the rating or full faith and credit requirements of
Sec. 545.72(a) is an aggregate limit. However, the OTS is proposing to
allow savings associations to invest additional amounts in such
obligations, without geographic restrictions, if the obligation is
approved for investment by the OTS. This will allow savings
associations additional flexibility while allowing the agency the
opportunity to monitor the potential riskiness of such investments.
The OTS is also proposing to remove the restriction on gold-related
obligations contained in paragraph (c) as obsolete.42
\42\ See 57 FR 40352 (September 3, 1992).
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Section 545.73 Inter-American Savings and Loan Bank
Section 545.73 reiterates federal savings associations' statutory
authority to invest in the share capital and capital reserve of the
Inter-American Savings and Loan Bank, subject to statutory and
regulatory limitations on the amount of the investment.43 The OTS
proposes to remove this section and incorporate this authority and
limitations into the new lending and investment powers chart, endnotes
and new Sec. 560.43, which addresses foreign assistance investments. As
with investments authorized under the Foreign Assistance Act, discussed
earlier under Sec. 545.39, the OTS solicits comment on the extent to
which federal savings associations have utilized this authority.
\43\ 12 U.S.C. 1464(c)(4)(C).
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Section 545.74 Service Corporations
The OTS proposes, as discussed under Sec. 545.46 above, to no
longer aggregate commercial loans made by a savings association's
service corporation with such loans made by the savings association
itself for purposes of the statutory 10 percent of assets limitation.
The agency proposes a conforming change to Sec. 545.74(c)(1)(vi), where
this regulatory aggregation is repeated. The remaining provisions of
Sec. 545.74 are under separate review as part of the agency's
reinvention of its subsidiaries regulations.
[[Page 1170]]
Section 545.75 Commercial Paper and Corporate Debt Securities
Section 545.75(a) reiterates the HOLA's grant of statutory
authority to federal thrifts to invest in commercial paper and
corporate debt securities.44 The OTS proposes to delete this
paragraph and to reference federal thrifts' statutory authority to
invest in commercial paper and corporate debt securities in the
proposed lending and investment powers chart. The agency proposes to
retain the limitations on these investments contained in paragraphs (b)
and (c) and to move them into a new Sec. 560.40 on commercial paper and
corporate debt securities in part 560. The agency solicits comment on
whether these provisions should, alternatively, be removed from the
regulations and incorporated as guidance in the Thrift Activities
Handbook.
\44\ 12 U.S.C. 1464(c)(2)(D).
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The agency proposes to delete paragraph (d) as no longer having any
practical application for thrifts in light of section 28(d) of the
Federal Deposit Insurance Act. Paragraph (d) authorizes a Federal
savings association to invest in commercial paper and corporate debt
securities not meeting the rating and marketability requirements of
paragraphs (b) and (c), so long as such investments are not otherwise
prohibited by section section 28(d) of the FDIA, which prohibits
investments in junk bonds. The OTS solicits comment as to whether there
is any scenario under which paragraph (d) is still relevant.
Section 545.78 Leasing
Section 545.78(a) reiterates the HOLA's grant of statutory
authority to federal thrifts to invest in tangible personal property
for leasing purposes.45 The OTS proposes to incorporate this
statutory authority reference into the proposed lending and investment
powers chart. The OTS also proposes to delete paragraph (b) of
Sec. 545.78, which imposes a maximum 70 percent residual value limit
for general leasing activities, because the OTS believes that such an
underwriting restriction may be unduly restrictive if applied in all
cases. Such lease underwriting considerations are more appropriately
addressed in the Thrift Activities Handbook as guidance. As discussed
under Sec. 545.53 earlier, new part 560 will contain a Sec. 560.41
addressing both finance leasing and general leasing authority.
\45\ 12 U.S.C. 1464(c)(2)(C).
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Part 556 Statements of Policy
Section 556.2 Power To Engage In Escrow Business
Section 556.2 addresses federal thrifts' power to engage in the
escrow business. The OTS proposes to delete this policy statement. As
already discussed with regard to Sec. 545.32(b)(6), the OTS believes
that the authority to establish escrow accounts is subsumed within the
authority of federal savings associations to make loans and does not
need to be specifically identified in the CFR.
Section 556.3 Real Estate
Section 556.3(a) addresses the treatment of motels as either
improved nonresidential real estate or combination home and business
property for real estate categorization purposes. The OTS proposes to
delete this paragraph and incorporate it into guidance. Section
556.3(b) permits federal thrifts to purchase paving certificates that
constitute a lien on property securing an association's loan. The OTS
proposes to delete this section and transfer the language of the policy
statement to the Thrift Activities Handbook.
Section 556.10 First Liens on Properties Sold by the Secretary of HUD
Section 556.10 reiterates federal thrifts' authority to make
mortgage loans insured by the Federal Housing Administration and
secured by first liens on improved real estate and discusses the
treatment and documentary evidence of such loans after disposal by the
Secretary of Housing and Urban Development. The OTS proposes to delete
this policy statement and move it to guidance in the Thrift Activities
Handbook.
Part 563--Operations (All Savings Associations)
Section 563.95 Investment in State Housing Corporations
Section 563.95 covers investments in or loans to state housing
corporations by all savings associations. It imposes certain
conditions, including percentage-of-asset limitations, depending on the
type of loan or investment and the savings association's capital level.
The OTS proposes to modify and update this section and move it into a
new Sec. 560.121 in new part 560.
Paragraph (a) deals with loans to, and investments in obligations
of, state housing corporations that are secured, directly or
indirectly, by first liens on insured improved real estate. The OTS
proposes to remove percentage-of-asset limitations in this paragraph
(a). Although in the agency's opinion the existing percentage-of-assets
limitations would not affect most savings associations that make this
type of investment, removing the limit will allow thrifts to exercise
business judgment in determining the amount they wish to invest in such
loans and obligations, subject, as always, to overall safety and
soundness considerations.
The OTS proposes to update the language in paragraph (b), which
covers investments in obligations of state housing corporations that do
not fall under paragraph (a), in several ways. First, the agency
proposes to remove the outdated limitation based on a thrift's level of
``general reserves surplus and undivided profits.'' Instead, any thrift
that is adequately capitalized under 12 CFR Part 565 may make such
investments. Second, the OTS proposes to allow investments under
paragraph (b) to be made in obligations of state housing corporations
located in any state in which the association has its home or a branch
office. Third, the OTS proposes to revise the aggregate limit on such
investments to equal a thrift's total capital under 12 CFR Part 567 and
to move this requirement into a new paragraph (b)(2). Finally, the
agency proposes to delete the requirement that a thrift may make no
more than 25 percent of its aggregate investment in this type of
obligation in the obligations of any one state housing corporation.
This requirement effectively requires an institution to invest in four
state housing corporations any time it wishes to invest in one.
The agency also proposes to delete existing paragraph (c), which
allows thrifts (that otherwise have the legal authority to do so) to
make direct equity investments in equity securities of state housing
authorities. Federal thrifts currently do not have authority to invest
in equity securities of state housing corporations, and section 28 of
the FDIA constrains state chartered thrifts from making, or retaining
past July 1, 1994, any equity investment not permissible for federal
thrifts.46 The OTS solicits comment as to whether there is any
scenario under which paragraph (c) is still relevant.
\46\ See 12 U.S.C. 1831e(c), which states that a state chartered
savings association ``may not directly acquire or retain any equity
investment of a type or in an amount that is not permissible for a
Federal savings association,'' with a limited exception for service
corporation investments.
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The agency proposes to move paragraph (d), substantially unchanged,
into new Sec. 560.121 as paragraph (c). This paragraph addresses a
thrift's obligation before making an investment
[[Page 1171]]
in a state housing corporation, to obtain the corporation's agreement
to make information available to the OTS upon request.
Section 563.97 Loans in Excess of 90 Percent of Value
Section 563.97 authorizes thrifts to make loans on the security of
residential real estate with loan-to-value ratios in excess of 90
percent of value, consistent with the interagency real estate lending
standards. The OTS proposes to delete this section because the
interagency real estate lending standards address the same issues in a
more comprehensive manner.
Section 563.99 Fixed-Rate and Adjustable-Rate Mortgage Loan
Disclosures, Adjustment Notices, and Interest Rate Caps
Section 563.99 defines fixed and adjustable rate mortgage loans and
requires thrifts to make certain disclosures to applicants of
adjustable rate mortgage loans. The OTS is considering moving the
definitions in paragraph (a) to a consolidated definitional location in
the regulations as part of the Regulatory Structure Proposal. The
agency also expects ultimately to move this section into new Part 560,
Subpart C, ``Adjustable Rate Mortgages.''
The disclosure requirements of Sec. 563.99 and the Federal Reserve
Board's (FRB) Truth in Lending Regulation Z 47 are substantially
parallel except for their coverage of certain types of credit
transactions. Pursuant to Sec. 303(b) of the CDRIA, the FRB is required
to review its regulations with respect to disclosures pursuant to the
TILA with regard to adjustable-rate mortgages in order to simplify the
disclosures, if necessary, and make the disclosures more meaningful and
comprehensible to consumers.48 Accordingly, the OTS will undertake
a comprehensive review of Sec. 563.99 in conjunction with the FRB's
section 303 review of Regulation Z.
\47\ See 12 CFR 226.19(b), 226.20(c).
\48\ 12 U.S.C. 4803.
---------------------------------------------------------------------------
Currently Sec. 563.99 covers all adjustable rate loans with a term
of more than one year, secured by property occupied or to be occupied
by the borrower. Unlike Sec. 563.99, Regulation Z's coverage is not
determined by the nature of the secured property but rather by other
criteria, e.g., the extension of credit must be for personal, family,
or household purposes.49
\49\ 12 CFR 226.1(c)(1)(iv).
---------------------------------------------------------------------------
As the regulations currently interact, certain transactions are
encompassed by Sec. 563.99 but not by Regulation Z. For example, a
savings association that makes a business purpose adjustable rate
mortgage loan secured by a home would be subject to the disclosure
requirements set forth at Sec. 563.99; however, no disclosures would be
required under Regulation Z.50 In order to establish parity in
coverage with respect to disclosure requirements among lenders, the OTS
is today proposing to revise Sec. 563.99 to exclude from that section's
coverage adjustable rate loans that are primarily for a business,
commercial, or agricultural purposes, consistent with Regulation
Z.51
\50\ Regulation Z exempts from its disclosure requirements
extensions of credit primarily for business, commercial, or
agricultural purposes. See 12 CFR 226.3(a)(1).
\51\ 12 CFR 226.3(a).
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Section 563.100-.101 Real Estate Lending Standards
These sections prescribe real estate lending standards that require
all savings associations to adopt and maintain comprehensive written
real estate lending policies that are consistent with safe and sound
practices and with the Guidelines for Real Estate Lending.52
Savings associations' policies must address certain lending
considerations including loan-to-value limits, loan administration
procedures, portfolio diversification standards, and documentation,
approval, and reporting requirements. The OTS is not proposing changes
to these sections today, but plans ultimately to redesignate and move
them substantially unchanged into a new part 560.
\52\ Appendix A to the Real estate lending standards at
Secs. 563.100-563.101.
---------------------------------------------------------------------------
The OTS adopted the real estate lending standards pursuant to an
interagency effort mandated by section 304 of the FDICIA.53
Pursuant to Section 303 of the CDRIA, the OTS and the other banking
agencies are each to review these standards and to ``consider the
impact that such standards have on the availability of credit for small
business, residential, and agricultural purposes, and on low- and
moderate-income communities.'' 54 The OTS welcomes comments on the
impact that the real estate lending standards, including the
Guidelines, are having on the availability of the types of credit and
communities described above.
\53\ See 57 FR 62890 (December 31, 1992).
\54\ 12 U.S.C. 4803(a)(1)(C).
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Section 563.160 Classification of Certain Assets
Section 563.160 requires thrifts to classify their own assets and
establish valuation allowances. The OTS proposes to delete this section
in its entirety.55
\55\ The OTS has already requested comment on deleting the
definitions of ``substandard,'' ``doubtful,'' and ``loss'' set forth
in paragraph (b), and the definition of ``Special Mention'' assets
in paragraph (e) because definitions of those terms are contained in
the Thrift Activities Handbook. 58 FR 38730 (July 20, 1993).
Commenters supported such deletions. The OTS proposed deleting
paragraph (f) as part of its regulatory review proposal of August
28, 1995, and received no unfavorable comments.
---------------------------------------------------------------------------
Section 563.160 was added in 1987 pursuant to section 402 of CEBA,
which amended the HOLA to add a new section 9 requiring that the FHLBB,
the OTS's predecessor, adopt regulations establishing an asset
classification system. FIRREA removed that section and in turn amended
the HOLA to require only that OTS asset classification regulations and
policies be no less stringent than the OCC's.56 None of the
banking agencies, including OCC, has an asset classification
regulation. Their asset classification systems are set forth in
supervisory guidance.
\56\ See HOLA section 4(c), 12 U.S.C. 1463.
---------------------------------------------------------------------------
In order to more closely parallel the asset classification systems
of the other federal banking agencies, the OTS believes that
Sec. 563.160 can be re
FR Doc. 96-409 Lending and Investment
moved without impairing safety and soundness. The
existing asset classification system will be placed in the Thrift
Activities Handbook.
This change in no way relieves thrifts of the responsibility to
properly classify their assets and establish prudent valuation
allowances as necessary. Nor does it reduce the OTS's statutory
supervisory authority to require associations to classify their assets
and establish valuation allowances based on examination findings.
Section 563.170 Examinations and Audits; Appraisals; Establishment and
Maintenance of Records
Paragraph (a) of Sec. 563.170 authorizes the OTS to examine thrifts
consistent with OTS policies and to annually assess thrifts for the
costs of such examinations based on the thrifts' assets. The OTS
proposes to retain this paragraph.
Paragraph (b) authorizes the OTS to select appraisers to perform
appraisals of real estate in connection with examinations and audits
and requires thrifts to pay for such appraisal services. The agency
proposes to retain this paragraph.
Paragraph (c) sets forth general record maintenance requirements
for savings associations to ensure that examiners have access to an
accurate and complete record of all business transacted by the thrift.
The OTS proposes to retain this
[[Page 1172]]
general introductory paragraph, with a modification to incorporate
language in current paragraph (c)(9) on maintaining records required by
other laws or regulations.
Paragraphs (c)(1)-(9) set forth a list of specific loan documents
that, at a minimum, thrifts must maintain to comply with
Sec. 563.170(c). While the documents listed are generally appropriate
and could be used as a checklist for prudent lending, a rigid
requirement that all documents be present for each loan is too
restrictive and does not necessarily address all safety and soundness
concerns. Currently, if an institution is missing any of the documents
required by regulation, it is technically in violation of that
regulation, even if the safety and soundness intent of the regulation
has been satisfied. Conversely, safety and soundness concerns may, in a
particular instance, necessitate different or additional documentation
beyond those records listed in the regulation.
For example, Sec. 563.170(c)(1)(v) requires either a financial
statement or a credit report for all loans, ostensibly to justify the
borrower's willingness and ability to repay the loan. However, the
ability and willingness of a borrower to repay a consumer or home loan
may be better demonstrated with a verification of employment (not
currently required) and a satisfactory credit report, rather than a
financial statement. For commercial borrowers, verification by the
institution that the borrower's financial statements accurately reflect
all assets, liabilities, and any other guarantees or encumbrances is
more important to the decision to extend credit than the mere presence
of a financial statement.
Since FIRREA, several interagency regulations have been developed
that include guidelines for proper loan documentation. These
underwriting and documentation standards minimize the need for OTS to
have a regulation setting specific documentation requirements.
Guidelines appended to the interagency real estate lending
standards state that an institution should establish loan
administration procedures that address documentation.57 The OTS
also sets forth loan documentation and credit underwriting requirements
in the interagency Standards for Safety and Soundness and Guidelines
Establishing Standards for Safety and Soundness to which all federal
insured depository institutions are expected to adhere.58
\57\ See 12 CFR part 563, subpart D, appendix A.
\58\ 12 CFR Part 570 and Appendix A thereto, 60 FR 35674 (July
10, 1995).
---------------------------------------------------------------------------
The OTS proposes replacing the specific documentation listed in
paragraphs (c)(1)-(9) with more general documentation standards in a
new Sec. 560.170 in part 560. These proposed standards are drawn from
the interagency guidelines establishing standards for safety and
soundness.
Deleting these paragraphs would not only relieve savings
associations of documentation requirements that exceed those for banks
and other financial institutions but also may enable savings
associations to take better advantage of technological marketplace
advances such as telephone and computerized home banking. The OTS
invites comment as to whether the proposed revisions to loan
documentation requirements are sufficiently flexible to accommodate
savings associations' participation in telephone and computerized home
banking.
The OTS is considering transferring the current document list in
paragraphs (c)(1)-(5), (7), to the Thrift Activities Handbook to be
used as a checklist of records generally maintained by prudent lenders
to support a loan.
Paragraph (c)(10) of Sec. 563.170 exempts certain small business
loans from the documentation requirements set forth in paragraphs
(c)(1)-(7). The OTS proposes to delete paragraph (c)(10) inasmuch as
the revision of paragraphs (c)(1)-(7) eliminates the need for this
exemption.
Paragraph (d) of Sec. 563.170 addresses change in location of
accounting or control records. Paragraph (e) addresses use of data
processing services for maintenance of records. The OTS proposes to
retain these paragraphs, but solicits comments on how these paragraphs
might be updated to reflect technological changes in record
maintenance.
Section 563.172 Re-evaluation of Real Estate Owned
Section 563.172 requires savings associations to appraise all real
estate owned (REO) at the earlier of in-substance foreclosure or at the
time of acquisition and, thereafter, as dictated by prudent management
policy. The OTS is considering deleting this section inasmuch as
thrifts can apply the appraisal regulations and general accounting
principles (GAAP) to determine when an appraisal may be appropriate or
necessary for safety and soundness. If it is retained, this section
would be incorporated into new part 560. The OTS solicits comment on
the need for this section and on how the interaction between this
section and the appraisal regulations at part 564 might be clarified.
Part 571 Statements of Policy
Section 571.8 Investment in State Housing Corporations
Section 571.8 limits savings associations' investment authority in
state housing corporations to certain public and private corporations
and agencies. The OTS proposes to delete this policy statement as an
unnecessary limitation on the definition of state housing corporation.
Section 571.13 Participation Interests in Pools of Loans
Section 571.13 addresses appropriate documentation for a savings
association's purchase of a participation interest in a pool of loans
(in the nature of mortgage-backed securities) and indicates that
compliance with the documentation requirements of Sec. 563.170 may be
impracticable for such transactions. The OTS proposes to delete this
section inasmuch as the proposed revision of Sec. 563.170(c) would
eliminate the need for this policy statement. The OTS plans to transfer
the documentation guidance for purchases of participation interests in
pools of loans to the Thrift Activities Handbook.
Section 571.20 Payment for Appraisals
Section 571.20 addresses payment by savings associations for
appraisals obtained as part of an OTS examination. The OTS proposes to
delete this section and expects to transfer this policy statement to
the Thrift Activities Handbook.
Section 571.22 Most Favored Lender Status
Section 571.22 implements section 4(g) of the HOLA, which
authorizes savings associations to charge on any extension of credit an
interest rate equal to the greater of (a) one percentage point above
the discount rate on 90-day commercial paper in effect at the Federal
Reserve bank in the Federal Reserve district in which the savings
association is located or (b) the rate allowed by the laws of the State
in which the savings association is located. The OTS proposes to move
the provisions of this section into new section 560.2 without
substantive modification.
However, the OTS requests specific comment on one aspect of
Sec. 571.22. Paragraph (b) indicates that any savings association
seeking to make loans at the
[[Page 1173]]
interest rate authorized for a state most favored lender must also
comply with the same ``substantive state law requirements'' that are
applicable to that state lender when making loans of the same type. The
OCC, which administers a very similar statutory provision for national
banks, uses a slightly different phrase to describe what types of state
laws must be complied with pursuant to the most favored lender
doctrine. The OCC requires national banks to comply with all state laws
that apply to the state most favored lender and are ``material to the
determination of the interest rate'' authorized under state law.59
The OTS has previously opined that this standard is essentially the
same as the OTS's ``substantive law'' standard.60 Accordingly,
when addressing interpretive questions, the OTS has looked to the case
law and other precedent interpreting the national bank standard. In
order to promote both clarity and parity, the OTS specifically requests
comment regarding whether paragraph (b) of Sec. 571.22 should be
replaced in its entirety with a reference to state laws that are
``material to the determination of the interest rate.''
\59\ 12 CFR 7.7310.
\60\ OTS Op. Chief Counsel, Oct. 14, 1992.
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2. New Part 560--Lending and Investment
The OTS proposes to adopt a new part 560, Lending and Investment,
that will ultimately include all of the agency's lending and investment
regulations except for Appraisals (part 564) and subsidiary-related
investments (currently under separate review). The agency believes that
this reorganization will make it much easier for those using the
agency's regulations to find all relevant lending and investment
powers, authorities, and limitations.
Section 560.1 Authority and Scope (Proposed)
This proposed section sets out the basic statutory authority for
lending and which regulations in this part will apply only to federal
savings associations and which to all savings associations. It also
briefly sets forth the agency's expectations that all lending and
investment activities are to be conducted prudently, consistent with
safety and soundness, with adequate portfolio diversification, and in a
manner appropriate for the size of the institution, the nature and
scope of its operations, and conditions in its lending market.
Section 560.2 Applicability of Law (Proposed)
This proposed section sets forth the OTS's longstanding position,
as developed in caselaw and legal opinions by both the OTS and its
predecessor, the FHLBB, and as currently reflected in Sec. 545.2, on
the federal preemption of state laws purporting to affect the lending
activities of federal savings associations. Because the lending
regulations are being moved out of Part 545 and, thus, separated from
Sec. 545.2 and because many of the details of the lending regulations
that have been cited in preemption opinions are being removed, the OTS
proposes to include new Sec. 560.2 to confirm and carry forward its
existing preemption position.
As discussed in Section III.A.4., above, lending is one of the core
activities in which federal savings associations engage. The OTS
believes that Federal preemption of State laws purporting to affect
lending is critical to filling the agency's mandate under HOLA sections
4(a) and 5(a) to provide for the safe and sound operation of Federal
savings associations in accordance with the best practices of thrift
institutions in the United States. Today's proposal, which deals only
with preemption in the lending area and does not amend Sec. 545.2,
provides general standards drawn from caselaw and legal opinions and
the agency's current regulations. The agency is hopeful that the
increased clarity and specificity of Sec. 560.2 will reduce confusion
and the need for frequent preemption inquiries to OTS.
Subpart A--Lending and Investment Powers for Federal Savings
Associations
This subpart will contain lending and investment regulations
directly applicable only to federal savings associations.
Section 560.30 General Lending and Investment Powers (Proposed)
Proposed Sec. 560.30 takes the form of a chart that lists many of
the lending and investment powers granted to federal thrifts by the
HOLA. It is derived from the regulations that currently appear in part
545. An important component of this regulation are the endnotes to the
chart that elaborate upon statutory limitations, impose regulatory
limitations, or otherwise describe conditions on the exercise of these
powers.
Although the chart references many of the more commonly used
powers, it does not give a complete listing of all statutory lending
and investment authorities. The OTS solicits comment on whether a chart
in this format makes the CFR easier to use. The OTS also invites
comment on whether the chart would be more useful if it codified all
statutory powers, even those without statutory or regulatory
limitations or those rarely used.
Section 560.31 Election Regarding Categorization of Investments and
Related Calculations
This proposed section is derived from current Sec. 545.31,
incorporating the modifications described earlier under that section.
Section 560.34 Limitations on Home Loans
This proposed section is derived from current Sec. 545.34 (b) and
(c).
Section 560.40 Commercial Paper and Corporate Debt Securities
This proposed section is derived from paragraphs (b) and (c) of
current Sec. 545.75.
Section 560.41 Leasing
This proposed section is a consolidation and reorganization of
current Sec. 545.53 (finance leasing) and Sec. 545.78 (general leasing
authority), incorporating the modifications described under those
sections.
Section 560.42 State and Local Government Obligations
This proposed section is derived from section 5(c)(1)(H) of the
HOLA and paragraphs (a) and (b) of current Sec. 545.72.
Section 560.43 Foreign Assistance Investments
This proposed section is a consolidation and reorganization of
current Secs. 545.39 and 545.73.
Subpart B--Lending and Investment Provisions Applicable to All Savings
Associations
This proposed subpart will contain safety and soundness based
lending standards and provisions applicable to all savings
associations, including state savings associations, to the extent that
they have the authority to make the investments it discusses. The
agency expects to move its Real Estate Lending Standards and
Guidelines, currently located at 12 CFR 563.100-.101 and Appendix A to
Part 563, Subpart D, into this subpart.
Section 560.120 Letters of Credit
This proposed section is derived from current Sec. 545.48 and
establishes standards for letters of credit for all savings
associations.
[[Page 1174]]
Section 560.121 Investments in State Housing Corporations
This proposed section is derived from current Sec. 563.95,
incorporating the modifications described earlier under that section.
Section 560.170 Records for Lending Transactions
This proposed section will contain general loan documentation
requirements based on the interagency safety and soundness standards
and guidelines found at 12 CFR Part 570. It will replace the specific
loan documentation requirements currently found at 12 CFR 563.170(c)
(1)-(10).
Subpart C--Adjustable Rate Mortgages
This proposed subpart will contain new Sec. 560.210, ``Alternative
Mortgage Parity Act'' and will also ultimately include ARM disclosure
requirements currently found in Sec. 563.99, with the possible
amendments discussed under that section.
Section 560.210 Alternative Mortgage Parity Act
This proposed section is derived from current Sec. 545.33(f),
``Notice of housing creditors regarding alternative mortgage
transactions.'' The OTS has observed that housing creditors interested
in engaging in alternative mortgage transactions could not easily
locate this section and believes placing it into a subpart specifically
dealing with alternative mortgages will make it more accessible to
users. The section has been streamlined and modified to reflect changes
proposed today, including the removal of cross-references of provisions
proposed for repeal.
IV. Proposed Disposition of Lending- and Investment-Related
Regulations
The following chart displays the proposed reorganization of OTS's
existing lending- and investment-related regulations.
----------------------------------------------------------------------------------------------------------------
Original provision New provision Comment
----------------------------------------------------------------------------------------------------------------
Sec. 545.31(a).................... Sec. 560.31(a)............ Modified; last sentence to be addressed in
Regulatory Structure rulemaking.
Sec. 545.31(b).................... Sec. 560.31(a)............ Modified; last sentence to be addressed in
Regulatory Structure rulemaking.
Sec. 545.31(c),(d)................ Sec. 560.31(b), (c)....... Unchanged.
Sec. 545.32(a).................... Sec. 560.30............... Incorporated into lending and investment
powers chart.
Sec. 545.32(b)(1),(2)............. ........................... Removed.
Sec. 545.32(b)(3)-(6)............. ........................... Removed, included as areas in which state law
is preempted under Sec. 560.2.
Sec. 545.32(c).................... ........................... To be addressed in Regulatory Structure
rulemaking.
Sec. 545.32(d).................... ........................... Removed.
Sec. 545.33 Introductory paragraph ........................... To be addressed in Regulatory Structure
rulemaking.
Sec. 545.33(a)-(e)................ ........................... Removed, included as area in which state law
is preempted under Sec. 560.2.
Sec. 545.33(f).................... Sec. 560.210.............. Modified.
Sec. 545.34(a).................... Sec. 560.2................ Modified and reorganized.
Sec. 545.34(b), (c)............... Sec. 560.34............... Substantially unchanged.
Sec. 545.35....................... Sec. 560.30............... Incorporated into lending and investment
powers chart.
Sec. 545.36....................... ........................... Removed. Paragraphs (c) and (d) to be
incorporated into guidance.
Sec. 545.37....................... ........................... Removed.
Sec. 545.38(a),(b)................ ........................... Removed.
Sec. 545.38(c).................... Sec. 560.30............... Incorporated into lending and investment
powers chart.
Sec. 545.39(a).................... Sec. 560.30............... Incorporated into lending and investment
powers chart.
Sec. 545.39(b).................... Sec. 560.43............... Modified.
Sec. 545.40....................... ........................... Removed.
Sec. 545.41....................... Sec. 560.30............... Incorporated into lending and investment
powers chart.
Sec. 545.42....................... Sec. 560.30............... Incorporated into lending and investment
powers chart.
Sec. 545.43....................... Sec. 560.30............... Incorporated into lending and investment
powers chart.
Sec. 545.44....................... ........................... Removed.
Sec. 545.45(a),(b)................ Sec. 560.30............... Incorporated into lending and investment
powers chart.
Sec. 545.45(c),(d)................ ........................... To be incorporated into guidance.
Sec. 545.45(e).................... ........................... Removed.
Sec. 545.46(a).................... Sec. 560.30............... Incorporated into lending and investment
powers chart.
Sec. 545.46(b) introductory Sec. 560.30............... Incorporated into lending and investment
paragraph and (b)(1). powers chart.
Sec. 545.46(b)(2)................. ........................... Removed.
Sec. 545.47....................... Sec. 560.30............... Incorporated into lending and investment
powers chart.
Sec. 545.48....................... Sec. 560.30............... Authority incorporated into lending and
investment powers chart.
Sec. 545.48(a).................... Sec. 560.120.............. Modified.
Sec. 545.48(b).................... ........................... Removed.
Sec. 545.49....................... Sec. 560.30............... Incorporated into lending and investment
powers chart.
Sec. 545.50(a).................... Sec. 560.30............... Incorporated into lending and investment
powers chart.
Sec. 545.50(b).................... ........................... To be addressed in Regulatory Structure
rulemaking.
Sec. 545.50(c).................... Sec. 560.30............... Incorporated into lending and investment
powers chart.
Sec. 545.51(a).................... Sec. 560.30............... Incorporated into lending and investment
powers chart.
Sec. 545.51(b).................... ........................... Removed.
Sec. 545.52....................... Sec. 560.30............... Incorporated into lending and investment
powers chart.
Sec. 545.53(a).................... Sec. 560.30............... Incorporated into lending and investment
powers chart.
Sec. 545.53(b)-(d)................ Sec. 560.41............... Significantly changed.
Sec. 545.72 Introductory paragraph Sec. 560.30............... Incorporated into lending and investment
powers chart.
Sec. 545.72(a), (b)............... Sec. 560.42............... Significantly changed.
Sec. 545.72(c).................... ........................... Removed.
Sec. 545.73 Introductory paragraph Sec. 560.30............... Incorporated into lending and investment
powers chart.
Sec. 545.73(a), (b)............... Sec. 560.43............... Modified.
[[Page 1175]]
Sec. 545.74(c)(1)(vi)............. ........................... Removed.
Sec. 545.75(a).................... Sec. 560.30............... Incorporated into lending and investment
powers chart.
Sec. 545.75(b), (c)............... Sec. 560.40............... Modified.
Sec. 545.75(d).................... ........................... Removed.
Sec. 545.78....................... Sec. 560.30. See also Significantly changed and incorporated into
560.41. lending and investment powers chart.
Sec. 556.2........................ ........................... Removed.
Sec. 556.3........................ ........................... To be incorporated into guidance.
Sec. 556.10....................... ........................... To be incorporated into guidance.
Sec. 563.95....................... Sec. 560.121.............. Significantly changed.
Sec. 563.97....................... ........................... Removed.
Sec. 563.99....................... ........................... Modified by adding new paragraph (g).
Sec. 563.160...................... ........................... Removed.
Sec. 563.170(a),(b)............... ........................... Unchanged.
Sec. 563.170(c)................... ........................... Modified.
Sec. 563.170(c)(1)-(10)........... Sec. 560.170.............. Significantly changed.
Sec. 563.170(d),(e)............... ........................... Unchanged.
Sec. 563.172...................... ........................... Modifications or removal under consideration.
Sec. 571.8........................ ........................... Removed.
Sec. 571.13....................... ........................... Removed.
Sec. 571.20....................... ........................... To be incorporated into guidance.
Sec. 571.22....................... Sec. 560.2................ No substantive change.
----------------------------------------------------------------------------------------------------------------
V. Request for Comment
The OTS invites comment on all aspects of the proposal as well as
specific comments on the proposed changes. For the convenience of the
reader, specific areas noted for comment earlier in this preamble are
repeated under section B., below.
A. General Areas for Comment
The OTS also solicits comments on several broader areas of concern:
(1) What is the best approach for providing clear guidance on the
preemptive effect of OTS's lending regulations for federal savings
associations?
(2) Could a supervisory approach more dependent on general
guidelines and safety and soundness standards lead to differences in
interpretation of regulatory requirements and safety and soundness
standards? Would these differences result in unnecessary
misunderstandings and confrontations between institutions and
supervisory staff? What types of communications or training would ease
the transition to a supervisory approach more dependent on guidelines?
(3) Are there regulatory or policy barriers in OTS's lending and
investment regulations that prevent or otherwise discourage savings
associations from investing in community development activities? As
discussed above, OTS is proposing to remove unnecessary restrictions
from its regulations on investments in government obligations and state
housing corporations. The agency seeks comments on other regulatory
changes that would encourage safe and sound community lending that are
within its statutory authority.
(4) While savings associations have, and will continue to have, a
focus on mortgage lending, it is important that the regulations do not
impair their ability to offer other types of loans. A savings
association should be able to structure its portfolio of assets to
offer the best mix of income-producing products that will meet its
community's credit needs consistent with statutory authority. The
agency is proposing to remove commercial loans made by service
corporations from the overall commercial lending limit, which it
believes is consistent with safety and soundness and within its
statutory authority. The agency solicits comments on what other
regulations affecting federal savings associations' commercial lending,
especially small business lending, authority could be modified.
B. Specific Requests for Comment
For the convenience of the reader, the specific points on which the
proposal requests comment are repeated below:
(1) Should the regulation contain a chart listing the most commonly
used lending and investment powers that would make it easier to locate
lending authorities and determine which restrictions apply? Would such
a chart be more useful if it included statutory provisions not
currently set forth in the regulations?
(2) Today's proposal represents the agency's current best
considered judgment about the right balance between which provisions
affecting lending should be binding regulations and which should be
guidance conveying the OTS's general views on safety and soundness
standards. Does the proposal achieve these goals?
(3) The section-by-section analysis highlights particular lending
provisions that the agency is considering modifying or removing in an
effort to streamline the lending regulations and remove unnecessary
restrictions. Are specific, detailed regulations needed in these areas?
(4) Has the current definition of secured real estate loan provided
adequate guidance for savings associations and how could it be
clarified or updated?
(5) Should any of the provisions in Sec. 545.33(c), limitations on
adjustments to mortgages, be retained?
(6) Should OTS retain the requirement that an index used for an ARM
must be outside the institution's control or, alternatively, a
requirement of a national or regional index? The OTS also solicits
comment on how federal thrifts might structure their ARM lending
programs to ensure that consumers are protected if adjustments need not
be tied to external indices.
(7) Should the provisions of Sec. 545.33(d)(2), which set forth
what may constitute security for a loan on a cooperative, be included
in guidance?
(8) Are the restrictions on late fees and prepayment penalties on
home loans, currently found in Sec. 545.34(b) and (c) and proposed to
be incorporated into new Sec. 560.34, important for borrowers?
(9) Have thrifts invested in or made loans guaranteed under the
Foreign Assistance Act?
(10) How can OTS best reference federal thrifts' authority to make
low-rent housing loans in the proposed lending and investment powers
chart?
[[Page 1176]]
(11) Should the definition of ``mortgage'' set forth in Sec. 302 of
the FHLMC Act, currently cross-referenced in Sec. 545.44, be
incorporated into a future general definitional section?
(12) Do paragraphs (c) and (d) of Sec. 545.45 on manufactured home
financing underwriting standards provide useful guidance to savings
associations?
(13) Does transferring the substance of the letters of credit
regulation, Sec. 545.48(a), to the new part 560 provide needed uniform
standards for the thrift industry, the benefits of which would outweigh
any additional burden on state savings associations? Alternatively,
should Sec. 545.48(a) be transferred to handbook guidance?
(14) How can the definition of consumer loan be clarified for
classification purposes and coordinated with other OTS regulations that
define consumer credit differently?
(15) Should the salvage powers described in the leasing regulation
(proposed new Sec. 560.41) and in the service corporation regulation
(Sec. 545.74) be consolidated into one new section that will outline
salvage powers on all types of loans and investments?
(16) To what extent have savings associations utilized the
authority to invest in the Inter-American Savings and Loan Bank?
(17) The agency proposes to retain paragraphs (b) and (c) of
current Sec. 545.75 and to move them into a new Sec. 560.40 on
commercial paper and corporate debt securities in part 560. Should
these provisions, alternatively, be removed from the regulations and
incorporated as guidance in the Thrift Activities Handbook?
(18) The agency proposes to delete paragraph (d) of current
Sec. 545.75, commercial paper and corporate debt securities, as no
longer having any practical application for savings associations in
light of section 28(d) of the FDIA. Is there any scenario under which
paragraph (d) is still relevant?
(19) Pursuant to 303 of the CDRIA, the OTS and the other banking
agencies are each to review these standards and to consider the impact
that such standards have on credit availability for small business,
residential, and agricultural purposes, and on low- and moderate-income
communities. What impact have the interagency real estate lending
standards, including the Guidelines, had on the availability of the
types of credit and communities described above?
(20) Are the proposed revisions to loan documentation requirements
(proposed new Sec. 560.170) sufficiently flexible to accommodate
participation in telephone and computerized home banking?
(21) Paragraph (d) of Sec. 563.170 addresses change in location of
accounting or control records. Paragraph (e) addresses use of data
processing services for maintenance of records. How can these
paragraphs be updated to reflect technological changes in record
maintenance?
(22) What is the need for Sec. 563.172, re-evaluation of real
estate? How can the interaction between this section and the appraisal
regulations at part 564 be clarified?
(23) Should paragraph (b) of Sec. 571.22 (most favored lender) be
replaced in its entirety with a reference to state laws that are
``material to the determination of the interest rate,'' in order to
clarify the meaning of paragraph (b) and to promote parity between
savings associations and national banks?
VI. Paperwork Reduction Act of 1995
The OTS invites comment on:
(1) Whether the proposed collection of information contained in
this notice of proposed rulemaking is necessary for the proper
performance of the agency's functions, including whether the
information has practical utility;
(2) The accuracy of the agency's estimate of the burden of the
proposed information collection;
(3) Ways to enhance the quality, utility, and clarity of the
information to be collected; and
(4) Ways to minimize the burden of the information collection,
including the use of automated collection techniques or other forms of
information technology.
Respondents/recordkeepers are not required to respond to this
collection of information unless it displays a currently valid OMB
control number.
The reporting requirements contained in this notice of proposed
rulemaking have been submitted to the Office of Management and Budget
for review in accordance with the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)). Comments on all aspects of this information collection
should be sent to the Office of Management and Budget, Paperwork
Reduction Project (1550), Washington, DC 20503 with copies to the OTS,
1700 G Street, NW., Washington, DC 20552.
The recordkeeping requirements in this notice of proposed
rulemaking are found in 12 CFR 560.170 and 563.170. The recordkeeping
requirements set forth in this notice of proposed rulemaking are needed
by the OTS in order to supervise savings associations and develop
regulatory policy. The likely recordkeepers are OTS-regulated savings
associations.
Estimated number of respondents and/or recordkeepers: 1,460.
Estimated average annual burden hours per recordkeeper: 422 hours.
Estimated total annual reporting and recordkeeping burden: 616,431
hours.
Start-up costs to respondents: None.
Records are to be maintained for the period of time respondent/
recordkeeper owns the loan plus three years.
VII. Executive Order 12866
The Director of the OTS has determined that this proposed rule does
not constitute a ``significant regulatory action'' for the purposes of
Executive Order 12866.
VIII. Regulatory Flexibility Act Analysis
Pursuant to section 605(b) of the Regulatory Flexibility Act, the
OTS certifies that this proposal will not have a significant economic
impact on a substantial number of small entities. The proposal does not
impose any additional burdens or requirements upon small entities and
lowers several paperwork and other burdens on all savings associations.
IX. Unfunded Mandates Act of 1995
The OTS has determined that the requirements of this proposed rule
will not result in expenditures by State, local, and tribal
governments, or by the private sector, of more than $100 million in any
one year. Accordingly, a budgetary impact statement is not required
under section 202 of the Unfunded Mandates Act of 1995.
List of Subjects
12 CFR Part 545
Accounting, Consumer protection, Credit, Electronic funds
transfers, Investments, Manufactured homes, Mortgages, Reporting and
recordkeeping requirements, Savings associations.
12 CFR Part 556
Savings associations.
12 CFR Part 560
Consumer protection, Investments, Manufactured homes, Mortgages,
Reporting and recordkeeping requirements, Savings associations,
Securities.
12 CFR Part 563
Accounting, Advertising, Crime, Currency, Flood insurance,
Investments, Mortgages, Reporting and recordkeeping requirements,
Savings associations, Securities, Surety bonds.
[[Page 1177]]
12 CFR Part 571
Accounting, Conflicts of interest, Investments, Reporting and
recordkeeping requirements, Savings associations.
Accordingly, and under the authority of 12 U.S.C. 1462a, the Office
of Thrift Supervision proposes to amend chapter V, title 12, Code of
Federal Regulations, as set forth below.
PART 545--OPERATIONS
1. The authority citation for part 545 continues to read as
follows:
Authority: 12 U.S.C. 1462a, 1463, 1464, 1828.
Sec. 545.31 [Amended]
2. Section 545.31 is amended by removing the first two sentences of
paragraph (a), and paragraphs (c) and (d).
Sec. 545.32 [Amended]
3. Section 545.32 is amended by removing and reserving paragraphs
(a), (b), and (d).
Sec. 545.33 [Amended]
4. Section 545.33 is amended by removing and reserving paragraphs
(a) through (f).
Secs. 545.34-545.43, 545.45-545.49 [Removed]
5. Sections 545.34 through 545.43 and 545.45 through 545.49 are
removed.
Sec. 545.50 [Amended]
6. Section 545.50 is amended by removing and reserving paragraphs
(a) and (c).
Secs. 545.51-545.53 [Removed]
7. Sections 545.51 through 545.53 are removed.
Sec. 545.72-545.73 [Removed]
8. Sections 545.72 through 545.73 are removed.
9. Section 545.74 is amended by revising paragraph (c)(1)(vi) to
read as follows:
Sec. 545.74 Service corporations.
* * * * *
(c) * * *
(1) * * *
(vi) Commercial loans and participations therein.
* * * * *
Sec. 545.75 [Removed]
10. Section 545.75 is removed.
Sec. 545.78 [Removed]
11. Section 545.78 is removed.
PART 556--STATEMENTS OF POLICY
12. The authority citation for part 556 continues to read as
follows:
Authority: 5 U.S.C. 552, 559; 12 U.S.C. 1464, 1701j-3; 15 U.S.C.
1693-1693r.
Secs. 556.2, 556.3, 556.10 [Removed]
13. Sections 556.2, 556.3, and 556.10 are removed.
14. Part 560 is added to read as follows:
PART 560--LENDING AND INVESTMENT
Sec.
560.1 General.
560.2 Applicability of law.
Subpart A--Lending and Investment Powers for Federal Savings
Associations
560.30 General lending and investment powers for Federal savings
associations.
560.31 Election regarding categorization of loans or investments
and related calculations.
560.34 Limitations on home loans.
560.40 Commercial paper and corporate debt securities.
560.41 Leasing.
560.42 State and local government obligations.
560.43 Foreign assistance investments.
Subpart B--Lending and Investment Provisions Applicable to All Savings
Associations
560.120 Letters of credit.
560.121 Investment in state housing corporations.
560.170 Records for lending transactions.
Subpart C--Adjustable Rate Mortgages
560.210 Alternative Mortgage Parity Act.
Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1828, 1701j-3,
3803, 3806; 42 U.S.C. 4106.
Sec. 560.1 General.
(a) Authority and scope. This part is being issued by the OTS under
its general rulemaking and supervisory authority under the Home Owners'
Loan Act, 12 U.S.C. 1462 et seq. Subpart A of this part sets forth the
lending and investment powers and authority of Federal savings
associations. Subpart B of this part contains safety-and-soundness
based lending and investment provisions applicable to all savings
associations. Subpart C of this part deals with adjustable-rate
mortgages.
(b) General lending standards. Each savings association is expected
to conduct its lending and investment activities prudently. Each
association should use lending and investment standards that are
consistent with safety and soundness and ensure adequate portfolio
diversification and are appropriate for the size and condition of the
institution, the nature and scope of its operations, and conditions in
its lending market. Each association should adequately monitor its
portfolio and collateral.
Sec. 560.2 Applicability of law.
(a) General standards. In considering whether State laws apply to
the lending and investment activities of Federal savings associations,
the OTS will apply generally recognized principles of Federal
preemption of state law. For purposes of this part, ``State law''
includes any State statute, regulation, ruling, order or judicial
decision. The OTS intends to occupy the entire field of lending
regulation for Federal savings associations. For purposes of clarity,
paragraphs (b) and (d) of this section set forth specific areas in
which State laws are expressly preempted as they purport to affect
lending by Federal savings associations and any limitations on such
preemption. Paragraph (c) of this section sets forth the specific areas
in which state laws that may have an effect on lending are not
preempted by Federal law.
(b) Express preemption. Federal savings associations may make all
loans and investments authorized under federal law, including this
part, without regard to limitations in state law purporting to regulate
such activities, including, without limitation, laws governing:
(1) Licensing, registration and filings and reports;
(2) Loan to value ratios;
(3) Amortization of loans, including the deferral and
capitalization of interest;
(4) Adjustments to the interest rate, payment, balance, or term to
maturity of the loan, including calling a loan due and payable upon the
passage of a number of years since closing or a specified event
external to the loan;
(5) Loan-related fees, including without limitation, initial
charges, late charges, and prepayment penalties;
(6) Escrow accounts;
(7) Security property, including leaseholds;
(8) Disclosure requirements and access to credit reports;
(9) Requirements on disbursements and repayments;
(10) Mortgage processing;
(11) Usury and interest rate ceilings to the extent provided in 12
U.S.C. 1735f-7(a) and part 590 of this chapter and 12 U.S.C. 1463(g)
and paragraph (d) of this Sec. 560.2; and
(12) Due-on-sale clauses to the extent provided in 12 U.S.C. 1701j-
3 and part 591 of this chapter.
(c) State laws that are not preempted. Notwithstanding paragraph
(b) of this
[[Page 1178]]
section, state laws in the following areas are not preempted as they
affect the lending operations of Federal savings associations:
(1) General contract law;
(2) General real property law;
(3) Homestead laws specified in 12 U.S.C. 1462a(f);
(4) Tort law; and
(5) Criminal law.
(d) Most favored lender. (1) Under 12 U.S.C. 1463(g), savings
associations are authorized to charge interest at a rate not to exceed
the greater of either one percent above the Federal Reserve ninety-day
discount rate or the rate allowed to the most favored lender on the
particular class of loans under State law whenever the greater of
either of these rates exceeds the rate the association is permitted to
charge by State law.
(2) Savings associations may only charge the preferential rates
reserved for most favored lenders when they are making the same type of
loans as the most favored lender. Accordingly, savings associations may
not charge the maximum loan rates permitted for small loan companies
unless that loan meets the substantive state law requirements as to
loan term amount, use of proceeds, identity of borrower, and so forth.
Consumer protections specifically required in such loans when made by
the most favored lender are also to be considered substantive and must
be included in loans made by savings associations that desire to use
most-favored-lender rates.
(3) Federal savings associations are not required to submit to
state most-favored-lender restrictions that are primarily procedural or
regulatory in nature. Such restrictions include licensing, bonding, and
reporting to State authorities. The degree to which state-chartered
savings associations must comply with such restrictions will be
determined by their State supervisors.
Subpart A--Lending and Investment Powers for Federal Savings
Associations
Sec. 560.30 General lending and investment powers for Federal savings
associations.
Pursuant to section 5(c) of the Home Owners Loan Act (HOLA), 12
U.S.C. 1464(c), a federal savings association may make, invest in,
purchase, sell, participate in, or otherwise deal in (including
brokerage or warehousing) all loans and investments allowed under
section 5(c) of the HOLA including, without limitation, the following
loans, extensions of credit, and investments, subject to the
limitations indicated and any such terms, conditions, or limitations as
may be prescribed from time to time by the Office by policy directive,
order, or regulation:
Lending and Investment Powers Chart
----------------------------------------------------------------------------------------------------------------
Statutory percentage of assets
Category HOLA authorization limitations (endnotes contain
applicable regulatory limitations)
----------------------------------------------------------------------------------------------------------------
Commercial loans................... 5(c)(2)(A)........................... 10% of total assets.
Commercial paper and corporate debt 5(c)(2)(D)........................... Up to 30% of total assets.1,.2
securities.
Community development.............. 5(c)(3)(B)........................... 5% of total assets.
Community development direct 5(c)(3)(B)........................... 2% of total assets.\3\
investments.
Consumer loans..................... 5(c)(2)(D)........................... Up to 35% of total assets.1,.4
Credit cards....................... 5(b)(4).............................. None.\5\
Education loans.................... 5(c)(3)(A)........................... 5% of total assets.
Finance leasing.................... 5(c)(1)(B)........................... Based on collateral type for
5(c)(2)(A)........................... property financed.\6\
5(c)(2)(D)...........................
Foreign assistance investments..... 5(c)(4)(C)........................... 1% of total assets.\7\
General leasing.................... 5(c)(2)(C)........................... 10% of assets.\6\
Home improvement loans............. 5(c)(1)(J)........................... None.\5\
Home (residential) loans \8\....... 5(c)(1)(B)........................... None. 5, 9
Letters of credit.................. 5(c)(2)(A)........................... Included in aggregate 10% of assets
commercial lending limitation.\10\
Loans secured by accounts.......... 5(c)(1)(A)........................... None.5, 11
Loans to financial institutions, 5(c)(1)(H)........................... None.5, 12
brokers, and dealers.
Manufactured home loans............ 5(c)(1)(J)........................... None.5, 13
Nonresidential real property loans. 5(c)(2)(B)........................... 400% of total capital.\14\
State and local government 5(c)(1)(H)........................... None5, 15
obligations.
State housing corporations......... 5(c)(1)(P)........................... None.5, 16
Transaction account loans, 5(c)(1)(A)........................... None.5,17
including overdrafts.
----------------------------------------------------------------------------------------------------------------
NOTES:
\1\ For purposes of determining a Federal savings association's percentage assets limitation, investment in
commercial paper and corporate debt securities must be aggregated with the Federal savings association's
investment in consumer loans.
\2\ A Federal savings association may invest in commercial paper and corporate debt securities, which includes
corporate debt securities convertible into stock, subject to the provisions of Sec. 560.40.
\3\ This 2% of assets limitation is a sublimit within the overall 5% of assets limitation on community
development loans and investments.
\4\ Amounts in excess of 30% of assets, in aggregate, may be invested only in loans made by the association
directly to the original obligor and for which no finder's or referral fees have been paid. A Federal savings
association may include loans to dealers in consumer goods to finance inventory and floor planning in the
total investment made under this section.
\5\ While there is no statutory limit on certain categories of loans and investments, including credit card
loans, home improvement loans, and deposit account loans, the OTS may establish an individual limit on such
loans or investments if the association's concentration in such loans or investments presents a safety and
soundness concern.
\6\ A Federal savings association may engage in leasing activities subject to the provisions of Sec. 560.41.
\7\ This 1% of assets limitation applies to the aggregate outstanding investments made under the Foreign
Assistance Act and in the capital of the Inter-American Savings and Loan Bank. Such investments may be made
subject to the provisions of Sec. 560.43.
\8\ A home (or residential) loan includes loans secured by on one-to-four family dwellings, multi-family
residential property and loans secured by a unit or units of a condominium or housing cooperative.
\9\ A Federal savings association may make home loans subject to the provisions of Sec. 560.34.
\10\ A Federal savings association may issue letters of credit subject to the provisions of Sec. 560.120.
[[Page 1179]]
\11\ Loans secured by savings accounts and other time deposits may be made without limitation, provided the
Federal savings association obtains a lien on, or a pledge of, such accounts. Such loans may not exceed the
withdrawable amount of the account.
\12\ A Federal savings association may only invest in loans secured by obligations of, or by obligations fully
guaranteed as to principal and interest by, the United States or any of its agencies or instrumentalities
where the borrower is a financial institution insured by the Federal Deposit Insurance Corporation or is a
broker or dealer registered with the Securities and Exchange Commission and the market value of the securities
for each loan at least equals the amount of the loan at the time it is made.
\13\ If the wheels and axles of the manufactured home have been removed and it is permanently affixed to a
foundation, a loan secured by a combination of a manufactured home and developed residential lot on which it
sits may be treated as a home loan.
\14\ Without regard to any limitations of this part, a Federal savings association may make or invest in the
fully insured or guaranteed portion of nonresidential real estate loans insured or guaranteed by the Economic
Development Administration, the Farmers Home Administration, or the Small Business Administration.
Unguaranteed portions of guaranteed loans must be aggregated with uninsured loans when determining an
association's compliance with the 400% of capital limitation for other real estate loans.
\15\ This category includes obligations issued by any state, territory, or possession of the United States or
political subdivision thereof (including any agency, corporation, or instrumentality of a state or political
subdivision), subject to Sec. 560.42.
\16\ A Federal savings association may invest in state housing corporations subject to the provisions of Sec.
560.121.
\17\ Payments on accounts in excess of the account balance (overdrafts) on commercial deposit or transaction
accounts shall be considered commercial loans for purposes of determining the association's percentage of
assets limitation.
Sec. 560.31 Election regarding categorization of loans or investments
and related calculations.
(a) If a loan or other investment is authorized under more than one
section of the Home Owners' Loan Act, as amended, or this part, a
Federal savings association may designate under which section the loan
or investment has been made. Such a loan or investment may be
apportioned among appropriate categories, and may be moved, in whole or
part, from one category to another. A loan commitment shall be counted
as an investment and included in total assets of a Federal savings
association only to the extent that funds have been advanced and not
repaid pursuant to the commitment.
(b) Loans sold to a third party shall be included in calculation of
a percentage-of-assets investment limitation only to the extent they
are sold with recourse.
(c) A Federal savings association may make a loan secured by
assignment of loans to the extent that it could, under applicable law
and regulations, make or purchase the underlying assigned loans.
Sec. 560.34 Limitations on home loans.
(a) Late charges. A Federal savings association may include in the
loan contract a provision authorizing the imposition of a late charge
with respect to the payment of any delinquent periodic payment. With
respect to any loan made after July 31, 1976, on the security of a home
occupied or to be occupied by the borrower, no late charge, regardless
of form, shall be assessed or collected by a Federal savings
association, unless any monthly billing, coupon, or notice the Federal
savings association may provide regarding installment payments due on
the loan discloses the date after which the charge may be assessed. A
Federal savings association may not impose a late charge more than one
time for late payment of the same installment, and any installment
payment made by the borrower shall be applied to the longest
outstanding installment due. A Federal savings association shall not
assess a late charge as to any payment received by it within fifteen
days after the due date of such payment. No form of such late charge
permitted by this paragraph shall be considered as interest to the
Federal savings association and the Federal savings association shall
not deduct late charges from the regular periodic installment payments
on the loan, but must collect them as such from the borrower.
(b) Loan payments and prepayments. Except for loans to natural
persons secured by borrower-occupied property and on which periodic
advances are being made, payments on the principal indebtedness of all
loans on real estate shall be applied directly to reduction of such
indebtedness, but prepayments made on an installment loan may be
reapplied from time to time wholly or partly to offset payments which
subsequently accrue under the loan contract. A Federal savings
association may impose a penalty on the prepayment of a loan as
provided in the loan contract.
Sec. 560.40 Commercial paper and corporate debt securities.
Pursuant to 12 U.S.C. 1464(c)(2)(D), a Federal savings association
may invest in, sell, or hold commercial paper and corporate debt
securities subject to the provisions of this section.
(a) Limitations. (1) Commercial paper must be:
(i) Denominated in dollars; and
(ii)(A) As of the date of purchase, as shown by the most recently
published rating made of such investments by at least two nationally
recognized investment ratings services, rated in either one of the two
highest categories; or
(B) If unrated, guaranteed by a company having outstanding paper
that is rated as provided in paragraph (a)(1)(ii)(A) of this section.
(2) Corporate debt securities must be:
(i) Denominated in dollars;
(ii) Securities that may be sold with reasonable promptness at a
price that corresponds reasonably to their fair value; and
(iii) Rated in one of the four highest categories by a nationally
recognized investment ratings service at its most recently published
rating before the date of purchase of the security.
(3) A Federal savings association's total investment in the
commercial paper and corporate debt securities of any one issuer, or
issued by any one person or entity affiliated with such issuer,
together with other loans shall not exceed the general lending
limitations contained in Sec. 563.93(c) of this chapter.
(4) Investments in corporate debt securities convertible into stock
are subject to the following additional limitations:
(i) The purchase of securities convertible into stock at the option
of the issuer is prohibited;
(ii) At the time of purchase, the cost of such securities must be
written down to an amount that represents the investment value of the
securities considered independently of the conversion feature; and
(iii) Federal savings associations are prohibited from exercising
the conversion feature.
(5) A Federal savings association shall maintain information in its
files adequate to demonstrate that it has exercised prudent judgment in
making investments under this section.
(b) Notwithstanding the limitations contained in this section, the
Office may permit investment in corporate debt securities of another
savings association in connection with the purchase or sale of a branch
office or in connection with a supervisory merger or acquisition.
Sec. 560.41 Leasing.
(a) Authorization. Pursuant to general lending authority in 12
U.S.C. 1464(c)(1)(B), 1464(c)(2)(A), and 1464(c)(2)(D), a Federal
savings association may engage in leasing activities that are the
functional equivalent of lending, subject to the
[[Page 1180]]
limitations of this section. Pursuant to 12 U.S.C. 1464(c)(2)(C), a
Federal savings association may invest in tangible personal property
for the purpose of leasing that property, subject to the limitations of
this section.
(b) General. A Federal savings association may become the legal or
beneficial owner of tangible personal property or real property for the
purpose of leasing such property, may obtain an assignment of a
lessor's interest in a lease of such property, and may incur
obligations incidental to its position as the legal or beneficial owner
and lessor of the leased property, subject to the limitations of this
section.
(c) Finance leasing. (1) A financing lease of tangible personal
property made to a natural person for personal, family or household
purposes pursuant to this section shall be subject to all limitations
applicable to the amount of a Federal savings association's investment
in consumer loans. A financing lease made for commercial, corporate,
business, or agricultural purposes pursuant to this section shall be
subject to all limitations applicable to the amount of a Federal
savings association's investment in commercial loans. A financing lease
of residential or nonresidential real property made pursuant to this
section shall be subject to all limitations applicable to the amount of
a Federal savings association's investment in real estate loans.
(2) To qualify as the functional equivalent of a loan, a financing
lease must meet all of the following requirements:
(i) The lease must be a net, full-payout lease representing a non-
cancelable obligation of the lessee, notwithstanding the possible early
termination of the lease.
(ii) Both the estimated residual value of the property and that
portion of the estimated residual value relied upon by the lessor to
satisfy the requirements of a full-payout lease must be reasonable in
light of the nature of the leased property and all relevant
circumstances so that realization of the lessor's full investment plus
the cost of financing the property depends primarily on the
creditworthiness of the lessee, and not on the residual market value of
the leased property.
(iii) At the termination of a financing lease, either by expiration
or default, property acquired must be liquidated or released on a net
basis as soon as practicable. Any property held in anticipation of
releasing must be reevaluated and recorded at the lower of fair market
value or book value.
(3) Definitions. For the purposes of this section:
(i) The term net lease means, a lease under which the Federal
savings association will not, directly or indirectly, provide or be
obligated to provide for:
(A) The servicing, repair or maintenance of the leased property
during the lease term;
(B) The purchasing of parts and accessories for the leased
property; Provided, that improvements and additions to the leased
property may be leased to the lessee upon its request in accordance
with the full-payout requirements of this section;
(C) The loan of replacement or substitute property while the leased
property is being serviced;
(D) The purchasing of insurance for the lessee, except where the
lessee has failed to discharge a contractual obligation to purchase or
maintain insurance; or
(E) The renewal of any license, registration of filing for the
property unless such action by the Federal savings association is
necessary to protect its interest as an owner or financier of the
property.
(ii) The term full-payout lease means a lease transaction in which
any unguaranteed portion of the estimated residual value relied on by
the association to yield the return of its full investment in the
leased property, plus the estimated cost of financing the property over
the term of the lease does not exceed 25% of the original cost of the
property to the lessor.
(iii) The term realization of investment means that a Federal
savings association that enters into a lease financing transaction must
reasonably expect to realize the return of its full investment in the
leased property, plus the estimated cost of financing the property over
the term of the lease from:
(A) Rentals;
(B) Estimated tax benefits, if any; and
(C) The estimated residual value of the property at the expiration
of the term of the lease.
(d) General leasing. (1) Pursuant to section 5(c)(2)(C) of the
HOLA, a Federal savings association may invest in tangible personal
property, including vehicles, manufactured homes, machinery, equipment,
or furniture for the purpose of rental or sale. Lease investments made
under this section are not restricted to being the functional
equivalent of loans as is the case for financing leases.
(2) A Federal savings association's investments in such property
may not exceed 10% of its assets.
(e) Salvage powers. If, in good faith, a Federal savings
association believes that there has been an unanticipated change in
conditions that threatens its financial position by significantly
increasing its exposure to loss, the provisions of this section shall
not prevent the Federal savings association:
(1) As the owner and lessor under a net, full-payout lease, from
taking reasonable and appropriate action to salvage or protect the
value of the property or its interest arising under the lease;
(2) As the assignee of a lessor's interest in a lease, from
becoming the owner and lessor of the leased property pursuant to its
contractual right, or from taking any reasonable and appropriate action
to salvage or protect the value of the property or its interest arising
under the lease; or
(3) From including any provisions in a lease, or from making any
additional agreements, to protect its financial position or investment
in the circumstances set forth in paragraphs (d)(1) and (d)(2) of this
section.
Sec. 560.42 State and local government obligations.
Pursuant to 12 U.S.C. 1464(c)(1)(H), a Federal savings association
may invest in obligations issued by any State or political subdivision
thereof, subject to the following conditions:
(a) A Federal savings association may not invest more than 10% of
its capital in obligations of any one issuer, exclusive of general
obligations of the issuer.
(b) The obligations must continue to hold one of the four highest
national investment grade ratings, or must be issued by a public
housing agency and backed by the full faith and credit of the United
States.
(c) Notwithstanding the limitations in paragraph (b) of this
section, a Federal savings association may invest, in the aggregate, up
to one percent of its assets in the obligations of a State, territory,
possession, or political subdivision in which the association's home
office or a branch office is located.
(d) Notwithstanding the limitations in paragraphs (b) and (c) of
this section, a Federal savings association may invest in any
obligations approved by the Office.
Sec. 560.43 Foreign assistance investments.
Pursuant to 12 U.S.C. 1464(c)(4)(C), a Federal savings association
may make foreign assistance investments in an aggregate amount not to
exceed one percent of its assets, subject to the following conditions:
(a) For any investment made under the Foreign Assistance Act, the
loan agreement shall specify what constitutes an event of default, and
provide that
[[Page 1181]]
upon default in payment of principal or interest under such agreement,
the entire amount of outstanding indebtedness thereunder shall become
immediately due and payable, at the lender's option. Additionally, the
contract of guarantee shall cover 100% of any loss of investment
thereunder, except for any portion of the loan arising out of fraud or
misrepresentation for which the party seeking payment is responsible,
and provide that the guarantor shall pay for any such loss in U.S.
dollars within a specified reasonable time after the date of
application for payment.
(b) To make any investments in the share capital and capital
reserve of the Inter-American Savings and Loan Bank, a Federal savings
association must be adequately capitalized and have adequate allowances
for loan and lease losses. The Federal savings association's aggregate
investment in such capital or capital reserve, including the amount of
any obligations undertaken to provide said Bank with reserve capital in
the future (call-able capital), will not, as a result of such
investment, exceed one-quarter of 1% of its assets or $100,000,
whichever is less.
Subpart B--Lending and Investment Provisions Applicable to All
Savings Associations
Sec. 560.120 Letters of credit.
(a) To the extent that a savings association has been given the
authority to invest in letters of credit elsewhere, a savings
association may issue and commit to issue letters of credit within the
scope of and in conformance with the laws and rules of practice
recognized by law, such as the Uniform Commercial Code, the Uniform
Customs and Practice for Documentary Credits, the United Nations
Commission on International Trade Law, the Convention on Independent
Guarantees and Standby Letters of Credit, and the Uniform Rules for
Bank-to-Bank Reimbursements Under Documentary Credits. Savings
associations may pledge collateral to secure its obligations
thereunder, subject to the following requirements:
(1) Each letter of credit must conspicuously state that it is a
letter of credit;
(2) The issue's undertaking must contain a specified expiration
date or be for a definite term, and must be limited in amount;
(3) The issuer's obligation to pay must be solely dependent upon
the presentation of conforming documents as specified in the letter of
credit, and not upon the factual performance or nonperformance by the
parties to the underlying transaction; and
(4) The account party must have an unqualified obligation to
reimburse the issuer for payments made under the letter of credit.
(b) To the extent funds are advanced under a letter of credit
without compensation from the account party, the amount shall be
treated as an extension of credit subject to percentage-of-assets
limits and other requirements under an applicable provision of this
part.
Sec. 560.121 Investment in state housing corporations.
(a) Any savings association to the extent it has legal authority to
do so, may make investments in, commitments to invest in, loans to, or
commitments to lend to any state housing corporation; provided, that
such obligations or loans are secured directly, or indirectly through a
fiduciary, by a first lien on improved real estate which is insured
under the National Housing Act, as amended, and that in the event of
default, the holder of such obligations or loans has the right
directly, or indirectly through a fiduciary, to subject to the
satisfaction of such obligations or loans the real estate described in
the first lien, or the insurance proceeds.
(b) Any savings association that is adequately capitalized may, to
the extent it has legal authority to do so, invest in obligations
(including loans) of or issued by any state housing corporation
incorporated in the State in which such savings association has its
home or a branch office; provided (except with respect to loans), that:
(1) The obligations are rated in one of the four highest grades as
shown by the most recently published rating made of such obligations by
a nationally recognized rating service; or
(2) The obligations, if not rated, are approved by the Office. The
aggregate outstanding direct investment in obligations under paragraph
(b) of this section shall not exceed the amount of the savings
association's total capital.
(c) Each state housing corporation in which a savings association
invests under the authority of paragraph (b) of this section shall
agree, before accepting any such investment (including any loan or loan
commitment), to make available at any time to the Office such
information as the Office may consider to be necessary to ensure that
investments are properly made under this section.
Sec. 560.170 Records for lending transactions.
In establishing and maintaining its records pursuant to
Sec. 563.170 of this chapter, each savings association and service
corporation should establish and maintain loan documentation practices
that:
(a) Ensure that the institution can make an informed lending
decision and can assess risk on an ongoing basis;
(b) Identify the purpose and all sources of repayment for each
loan, and assess the ability of the borrower(s) and any guarantor(s) to
repay the indebtedness in a timely manner;
(c) Ensure that any claims against a borrower, guarantor, security
holders, and collateral are legally enforceable;
(d) Demonstrate appropriate administration and monitoring of its
loans; and
(e) Take into account the size and complexity of a loan.
Subpart C--Adjustable Rate Mortgages
Sec. 560.210 Alternative Mortgage Parity Act.
Pursuant to 12 U.S.C. 3803, housing creditors that are not
commercial banks, credit unions, or Federal savings associations may
make alternative mortgage transactions as defined by that section and
further defined and described by applicable regulations identified
herein, notwithstanding any state constitution, law, or regulation. In
accordance with 12 U.S.C. 3807(b), this part 560 and 12 CFR 563.99 are
identified as appropriate and applicable to the exercise of this
authority and all regulations not so identified are deemed
inappropriate and inapplicable. Housing creditors engaged in credit
sales should read the term ``loan'' as ``credit sale'' wherever
applicable.
PART 563--OPERATIONS
15. The authority citation for part 563 continues to read as
follows:
Authority: 12 U.S.C. 375b, 1462, 1462a, 1463, 1464, 1467a, 1468,
1817, 1828, 3806.
Sec. 563.95 [Removed]
16. Section 563.95 is removed.
Sec. 563.97 [Removed]
17. Section 563.97 is removed.
18. Section 563.99 is amended by adding paragraph (g) to read as
follows:
Sec. 563.99 Fixed-rate and adjustable-rate mortgage loan disclosures,
adjustment notices, and interest rate caps.
* * * * *
(g) Exempt transactions. This section does not apply to an
extension of credit primarily for a business, commercial, or
agricultural purpose.
Sec. 563.160 [Removed]
19. Section 563.160 is removed.
[[Page 1182]]
Sec. 563.170 [Amended]
20. Section 563.170 is amended by revising paragraph (c) to read as
follows:
Sec. 563.170 Examinations and audits; appraisals; establishment and
maintenance of records.
* * * * *
(c) Establishment and maintenance of records. To enable the Office
to examine savings associations and affiliates and audit savings
associations, affiliates, and service corporations pursuant to the
provisions of paragraph (a) of this section, each savings association,
affiliate, and service corporation shall establish and maintain such
accounting and other records as will provide an accurate and complete
record of all business it transacts. This includes, without limitation,
establishing and maintaining such other records as are required by
statute or any other regulation to which the savings association,
affiliate, or service corporation is subject. The documents, files, and
other material or property comprising said records shall at all times
be available for such examination and audit wherever any of said
records, documents, files, material, or property may be.
* * * * *
PART 571--STATEMENTS OF POLICY
21. The authority citation for part 571 continues to read as
follows:
Authority: 5 U.S.C. 552, 559; 12 U.S.C. 1462a, 1463, 1464.
Secs. 571.8, 571.13, 571.20, 571.22 [Removed]
22. Sections 571.8, 571.13, 571.20, and 571.22 are removed.
Dated: January 5, 1996.
By the Office of Thrift Supervision.
Jonathan L. Fiechter,
Acting Director.
[FR Doc. 96-409 Filed 1-16-96; 8:45 am]
BILLING CODE 6720-01-P
Complete official Federal Register PDF
FR Doc. 96-328 Processing Requests for Section 515 Rural Rental Housing (RRH) Loans
[Federal Register Volume 61, Number 11 (Wednesday, January 17, 1996)]
[Proposed Rules]
[Pages 1153-1162]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-328]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 61, No. 11 / Wednesday, January 17, 1996 /
Proposed Rules
[[Page 1153]]
DEPARTMENT OF AGRICULTURE
Rural Housing Service and Community Development
Rural Business and Cooperative Development Service
Rural Utilities Service
Farm Service Agency
7 CFR Part 1944
RIN 0575-AB93
Processing Requests for Section 515 Rural Rental Housing (RRH)
Loans
AGENCIES: Rural Housing Service and Community Development, Rural
Business and Cooperative Development Service, Rural Utilities Service,
and Farm Service Agency, USDA.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Rural Housing Service (RHS), formerly Rural Housing and
Community Development Service (RHCDS), a successor Agency to the
Farmers Home Administration (FmHA), proposes to amend its regulations
for processing loan requests for Rural Rental Housing (RRH) assistance.
This action is taken to strengthen the priority point system and
improve loan processing procedures to better accomplish the program's
purpose of providing rental housing to rural areas of greatest need.
DATES: Written comments on this Proposed Rule must be received on or
before March 8, 1996.
ADDRESSES: Submit written comments, in duplicate, to the Office of the
Chief, Regulation Analysis and Control Branch, Rural Housing Service,
U.S. Department of Agriculture, Ag Box 0743, 14th Street and
Independence Avenue, S.W., Washington, D.C. 20250. All written comments
will be available for public inspection at the above address during
normal working hours.
FOR FURTHER INFORMATION CONTACT: Linda Armour, Loan Specialist, Multi-
Family Housing Processing Division, Rural Housing Service, USDA, Room
5349--South Building, Ag Box 0781, Washington, D.C. 20250, telephone
(202) 720-1608.
SUPPLEMENTARY INFORMATION:
Classification
This rule has been determined to be not-significant for purposes of
Executive Order 12886 and therefore has not been reviewed by the Office
of Management and Budget.
Paperwork Reduction Act
The information collection requirements contained in this
regulation have been previously approved by the Office of Management
and Budget (OMB) under the provisions of 44 U.S.C. Chapter 35 and have
been assigned OMB control number 0575-0047, in accordance with the
Paperwork Reduction Act of 1995. This proposed rule does not impose any
new information collection requirements from those approved by OMB.
Civil Justice Reform
This proposed rule has been reviewed under Executive Order 12778,
Civil Justice Reform. If this proposed rule is adopted: (1) All state
and local laws and regulations that are in conflict with this rule will
be preempted; (2) no retroactive effect will be given to this rule; and
(3) administrative proceedings in accordance with Sub-title H of Title
II of Pub. L. 103-354 must be exhausted before bringing suit in court
challenging action taken under this rule.
Unfunded Mandate Reform Act
Title II of the Unfunded Mandate Reform Act of 1995 (UMRA), Pub. L.
104-4, establishes requirements for Federal agencies to assess the
effects of their regulatory actions on State, local, and tribal
governments and the private sector. Under section 202 of the UMRA,
generally must prepare a written statement, including a cost-benefit
analysis, for proposed and final rules with ``Federal mandates'' that
may result in expenditures to State, local, or tribal governments, in
the aggregate, or to the private sector, of $100 million or more in any
one year. When such a statement is needed for a rule, section 205 of
the UMRA generally requires RHS to identify and consider a reasonable
number of regulatory alternatives and adopt the least costly, more
cost-effective or least burdensome alternative that achieves the
objectives of the rule.
This rule contains no Federal mandates (under the regulatory
provisions of Title II of the UMRA) for State, local, and tribal
governments or the private sector. Therefore, this rule is not subject
to the requirements of sections 202 and 205 of the UMRA.
National Performance Review
This regulatory action is being taken as part of the National
Performance Review program to eliminate unnecessary regulations and
improve those that remain in force.
Programs Affected
The affected program is listed in the Catalog of Federal Domestic
Assistance under Number 10.415, Rural Rental Housing Loans.
Intergovernmental Consultation
For the reasons set forth in the Final Rule related Notice(s) to 7
CFR part 3015, subpart V, this program is subject to Executive Order
12372 which requires intergovernmental consultation with State and
local officials.
Environmental Impact Statement
This document has been reviewed in accordance with 7 CFR part 1940,
subpart G, ``Environmental Program.'' It is the determination of RHS
that the proposed action does not constitute a major Federal action
significantly affecting the quality of the human environment and in
accordance with the National Environmental Policy Act of 1969, Public
Law 91-190, an Environmental Impact Statement is not required.
Regulatory Flexibility Act
This proposed rule has been reviewed with regard to the
requirements of the Regulatory Flexibility Act (5 U.S.C. 601-612). The
undersigned has determined and certified by signature of this document
that this rule will not have a significant economic impact on a
substantial number of small entities since this rulemaking action does
not involve a new or expanded program.
Background/Discussion
RHS utilizes a point-score system to prioritize rural areas
according to their potential need for RRH assistance, based on
statutory requirements and preferences. Priority points ranging from
[[Page 1154]]
0 to 40 are assigned to rural counties and places based on their rural
median household income compared to the state's rural median income;
priority points ranging from 0 to 40 are similarly assigned based on
the county's or place's percentage of substandard housing compared to
the state's percentage. In addition, points are used to accomplish two
preferences required by statute: (1) Section 515(z) of the Housing Act
of 1949 (7 U.S.C. 1485(z)) requires the Secretary to give preference to
any project that will serve the needs of a rural community located 20
or more miles from an urban area. Twenty-five points are given for this
purpose. (2) Section 515(j) of the Housing Act of 1949 (7 U.S.C.
1485(j)) requires that, ``For the purpose of achieving the lowest cost
in providing units in newly constructed projects assisted under this
section, the Secretary shall give a preference in entering into
contracts under this section for projects which are to be located on
specific tracts of land provided by states, units of local government,
or others if the Secretary determines that the tract of land is
suitable for such housing, and that affording such preference will be
cost effective.'' Five points are given to accomplish this preference.
Recent findings indicate that the priority point system is not
always effective in directing RRH funds to rural areas with the
greatest need for affordable housing. One reason cited for this is
that, by awarding 25 points for proposals located 20 or more miles from
an urban area, other eligible rural communities with equal or higher
scores for income and substandard housing, and with comparable or
greater demand, have been excluded from successfully competing for
funds. The large number of points given for the mileage preference has
also led, in some cases, to the development of units in remote areas
with insufficient demand, resulting in slow rent-up and/or vacancy
problems. Another concern is the overdevelopment of these high-pointed
areas because of the competition to submit preapplications with the
highest point score.
Recent regulatory revisions have addressed the latter concern.
Effective October 1, 1993, (58 FR 44255) the Agency implemented its
``build and fill'' policy which prohibits the authorization of RRH
units in communities where similar-type units are already approved,
under construction, or have not achieved their projected occupancy
level; or where similar-type units are experiencing vacancy problems or
have a Servicing Market Rate Rent (SMR) pending or in effect. This
policy has been effective in deterring overdevelopment of high-pointed
areas and will continue to be followed by the Agency.
To address concerns that the large number of points awarded to
proposals located 20 or more miles from urban areas has excluded other
eligible rural areas, we propose to reduce the number of points for
this factor. This will enable more areas to compete on the basis of
income and substandard housing.
The Agency will continue to award 5 points for proposals with
donated land. However, we propose to modify this section to award 5
points for proposals with donated land or proposals that provide grants
for at least 10 percent of the total development cost.
A recent legislative amendment contained in H.R. 3838 and S. 2049
in FY 95 which would have allowed the Secretary to discontinue the
priority point system and, instead, select rural areas for RRH
assistance based on objective criteria, failed to be enacted. The
Agency supports and continues to seek this statutory authority, which
would give RHS more flexibility in directing Section 515 funds to rural
areas of greatest need. The regulatory revisions in this proposed rule
partially address concerns raised over the priority point system. To
fully address these concerns, statutory changes are needed. The
proposed revisions represent an improved system based upon significant
input from the public and RHS field employees.
In addition to the revisions to the priority point system, we are
proposing modifications to the market analysis requirements and the
market review process. The changes are intended to improve the Agency's
ability to evaluate market demand and reduce the risk of developing
units in areas with insufficient demand.
In recent years Section 515 funding levels have been severely
reduced while the need and demand for affordable rental units in rural
areas continues to grow. To develop as many RRH units as possible, it
has become increasingly important to develop partnerships with state
and local communities and other parties with an interest in developing
low-income housing. The proposed rule includes guidance on loan
proposals in which the Agency is participating with other funding
sources.
1. The following revisions are proposed to the priority point
system:
a. The Agency plans to award 10 points for proposals that will
serve rural communities 20 or more miles from an urban area. Ten points
gives preference to truly rural areas but is not so great that it
excludes other rural communities from competing.
b. The Agency is proposing to award priority points for loan
requests in areas with the highest share or percentage of rural renter
households at or below 60 percent of the county median income who are
paying in excess of 30 percent of their household income for rent.
Along with income and substandard housing, this is a statistically
measurable indicator of potential need for affordable housing. A
further consideration, however, is whether the need is for additional
units or for additional subsidies to make existing units more
affordable. The Agency's build and fill policy prohibits development of
new units if the need is for rent subsidies and not for additional
units. If this option is implemented, points will be calculated in a
manner consistent with the method used for income and substandard
housing.
2. The Agency is inviting comments on the following additional
factors which are being considered for inclusion in the priority point
system. These changes are not included in the proposed rule text;
however, the Agency is interested in comments, for and against the
proposed changes, and may include some form of the changes in the final
rule.
a. To maximize program funds, encourage partnerships with states
and local communities, and provide service to areas and/or households
that are underserved, we are considering awarding points for proposals
that are partially funded from other sources. Proposals would be
subject to specific conditions: (1) The total debt service would need
to be comparable to that of a RHS loan; (2) For limited profit
borrowers, the profit base for determining return to owner would be
made in accordance with Sec. 1944.215(n). The borrower contribution
would be based on the total development cost or security value and
could not exceed the 3 or 5 percent borrower contribution required by
Sec. 1944.213 (b), except as permitted by Sec. 1944.215 (n); (3) The
total of all loans and grants could not exceed the amount needed to
make the project affordable; and (4) Construction would be subject to
the cost containment provisions of Sec. 1944.215(a).
b. To ensure that underserved areas receive consideration, the
Agency is considering awarding points to projects located in
underserved counties identified by the Secretary using specific,
objective criteria. Points awarded under this provision would be
retained even if the preapplication is not authorized in the fiscal
year the area was designated underserved. This factor
[[Page 1155]]
would not be implemented if the set aside for targeted areas is
included in the program reauthorization in the future.
c. We are soliciting comments on the merits of modifying the
present method of awarding points for income and substandard housing.
The Agency presently awards points for income based on the county's or
area's rural median income compared to the State's rural median income.
The method under consideration awards points for income based on the
place's or county's share of rural households with incomes at or below
60 percent of the county rural median income. The place's or county's
share would be based on one of three different approaches, which
produce different results in point scores. The first approach
calculates the percentage of rural households at or below the county
rural median income as a percentage of the place's or county's total
rural households. For example, in County 1, Place A has 1,600
households, of which 450 are at or below 60 percent of the county rural
median income. Place A has a percentage of 28 for income (450/1,600).
Place B, with 9,000 households and 450 households at or below 60
percent of the county rural median income, has a percentage of 5 for
income (450/9,000). Using this approach, although both places have the
same number of households at or below 60 percent of county rural
median, Place A would receive the higher number of priority points for
income. The second approach calculates the place's percentage of rural
households at or below 60 percent of the county rural median income as
a percentage of the county's total rural households at or below 60
percent of the county rural median income. Using the same two places as
an example, if County 1 has a total of 1,200 rural households that are
at or below 60 percent of the county rural median income, both Place A
and Place B would have a percentage for income of 37.5 (450/1,200) and
would score the same number of priority points for income. The county's
percentage would be calculated as a percentage of the State's total.
The third approach calculates the percentage of the place's or county's
rural households at or below 60 percent of the county rural median
income as a percentage of the State's total rural households at or
below 60 percent of the county rural median income. Continuing with the
same example, if the State has a total of 200,000 households that are
at or below 60 percent of the county rural median income, Place A and
Place B would again have the same percentage of the total (450/200,000)
and score the same number of priority points. However, Place C in
County 2, with a population of 8,000 and 800 households at or below 60
percent of the county rural median income, has a higher percentage of
the State's total than Places A and B and scores a higher number of
priority points. The Agency would like comments on the merits of
considering the place's or county's share of households at or below 60
percent of the county rural median income and, if implemented, which of
the three approaches should be used as the basis for calculating the
place's and county's percentage. The third approach, which calculates
the place's or county's percentage as a percentage of the State's
total, has the potential of directing points to larger rural
communities or counties but would reach the largest numbers of
households that are at or below 60 percent of the county rural median
income. Based on the comments received, the Agency will decide if the
proposed method should be implemented and, if so, which of the three
approaches for calculating points should be used. The method and
approach that is used to award points for income will also be used to
award points for substandard housing and for rent overburden if the
rent-overburden option is implemented. Again, the three approaches for
calculating percentages for income, substandard housing, and rent-
overburden are: (1) as a percentage of the place's or county's total
households; (2) as a percentage of, respectively, the county's total
rural households at or below 60 percent of the county rural median
income, the county's total rural households in substandard housing, or
the county's total rural households at or below 60 percent of income
paying in excess of 30 percent of their income for rent; and (3) as a
percentage of, respectively, the State's total rural households at or
below 60 percent of county rural median income, the State's total rural
households in substandard housing, or the State's total rural
households at or below 60 percent of county rural median income who are
paying in excess of 30 percent of their income for rent.
3. The Agency is considering implementing a preliminary
preapplication stage and/or preliminary market analysis process. The
objective is to require sufficient information to enable the Agency to
make a preliminary determination of eligibility and feasibility, while
reducing the cost to the applicant for proposals that lack sufficient
priority for funding, as well as reducing Agency review time. Proposals
that appear to be eligible and feasible, and have sufficient priority
to be potentially funded within 24 months, would be invited to submit a
full preapplication and/or market study. No further preapplications
would be considered for the market area pending receipt of the complete
preapplication and/or market study within a specified timeframe.
Further processing would be based on a full eligibility and feasibility
review.
We are considering: (1) A simplified preliminary preapplication
stage, including a simplified preliminary market analysis, or (2) A
full preapplication with a simplified market analysis. If the second
option is implemented, a full market analysis will be required for the
eligibility and feasibility determination.
Information required at the preliminary preapplication stage would
include:
a. A description of the proposed project: type; number and bedroom
size of units; related facilities, if any; loan amount; number of RA
units requested; and number of units that will be targeted for Low-
Income Housing Tax Credits (LIHTC).
b. Site information: site plan; evidence of site control; evidence
that the site is, or will be, appropriately zoned; evidence of
existing, or soon to be available, utilities; and location map showing
relationship to facilities and services.
c. Preliminary budget and construction cost figures.
d. Preliminary applicant eligibility information: draft
organizational papers and financial statements for each principal.
e. Preliminary plans and specifications.
f. Preliminary market information:
(1) A description of the community (population growth or decline,
current economic conditions, types of employment, services and
facilities).
(2) The number of households by tenure (owner or renter) and
income.
(3) A survey of existing rental units including rent structure,
vacancies, and, when possible, rent-up history and extent of waiting
lists. The survey must include all RHS and similar assisted multifamily
units and a representative sampling of conventionally financed
multifamily units.
4. The Agency intends to establish a minimum priority point score
of 30 for retaining preapplications. The State Director will have the
authority to establish a higher or lower threshold by state, county, or
other division, which must be published in a State Instruction.
[[Page 1156]]
5. Section 1944.211 (a)(15) is added to include specific
eligibility requirements for existing or former RHS borrowers.
6. Section 1944.213 (f)(3) is revised to clarify that the
provisions of this section apply to both preapplications and
applications.
7. Section 1944.231 (c)(5) is revised to permit states to use a
computerized tracking system to supplement or replace Form FmHA 1905-
11, ``Application and Processing Card - Association'', provided
tracking requirements are met.
8. Section 1944.231 (i) is revised to clarify that the next
preapplication selected for further processing is the highest ranked
preapplication as of the date that processing levels permitted (i.e.,
as of the date that one or more loans were obligated, making sufficient
funds available within authorized funding limits).
9. Section 1944.233, ``Participation with other funding sources'',
is added to provide guidance on RRH loans that are funded jointly by
RHS and other partners with interests in developing low-income housing.
With reduced program levels, joint funding allows the Agency to develop
the maximum possible number of units.
10. Section 1944.234, ``Actions prior to loan approval'', is added
to clarify that eligibility and feasibility requirements must be
reviewed prior to loan approval.
11. Exhibit A-7 is modified to:
a. Require documentation regarding the availability of other credit
at the servicing official's discretion.
b. Allow the State Director to authorize use of a market survey for
small projects of 12 or fewer units.
c. Specify that the market analysis must address need and demand
for both family and elderly households. The proposed complex type
(family or elderly) will be determined by the greater need of the
market.
12. Revisions are proposed to Exhibit A-8, ``Outline of a
Professional Market Study'', to: (1) Modify the demand forecast; (2)
place more emphasis on the recommended unit mix based on an analysis of
household sizes and the unit mix of existing units; (3) allow current
year estimates from reliable sources, which must be identified by the
analyst; and (4) require the analyst to include analytical text with
the demographic data.
Summary of Proposed Changes for Comments
Following is a summary of the major changes in this rule for which
comments are invited:
1. A reduction in priority points from 25 points to 10 for
proposals that will be located 20 or more miles from an ineligible
area.
2. A proposal to award priority points based on the area's share of
the state's or county's total income-eligible households who are paying
in excess of 30 percent of their household income for rent.
3. While not included in the text of the proposed rule, the Agency
is inviting comments on the merits of:
a. Changing the method of awarding priority points for income from
the current method of comparing the place's or county's rural median
income to the state's rural median income to a method that takes into
consideration the place's or county's share of households below 60
percent of the county rural median income. Three approaches are being
considered for calculating the place's or county's share: as a
percentage of the place's or county's total households; as a percentage
of the county's total rural households below 60 percent of the county
rural median income; or as a percentage of the state's total rural
households below 60 percent of the county rural median income. If the
revised method is implemented, the same approach selected for
calculating the place's or county's percentage will be implemented for
substandard housing and for rent-overburden if, based on comments
received, the Agency determines that rent-overburden will be added to
the priority point score system.
b. Awarding points for proposals that will be partially funded from
other sources.
c. Awarding points for proposals that will be located in
underserved areas identified by the Secretary.
4. Implementation of a preliminary preapplication and/or market
analysis process.
5. A revision to the market analysis requirements that will permit
the State Director to authorize the use of a market survey for small
proposals of 12 or less units under certain conditions.
6. A requirement that the market analysis address both family and
elderly need and demand, which will be used in determining the type of
project that is proposed.
Implementation Proposal
The subject rule proposes changes to the manner in which
preapplications are processed, including the priority point system. The
Agency intends to implement the revised priority point system on
October 1, 1996. As of that date, all preapplications on hand, where an
AD-622 inviting a formal application has not been issued, will be
subject to the revised system. All preapplications will be rerated and
reranked based upon the priority point system in the final rule without
regard to previous priority processing score or ranking. We do not
intend to ``grandfather'' existing preapplications or have a ``phase-
in'' period. RHS recognizes the impact of this action on
preapplications which are in process. Potential applicants should be
aware of the proposed changes when they are developing a proposal. RHS
loan officials are encouraged to include information on the proposed
changes to potential applicants. All other provisions of the final rule
will become effective 30 days after publication of the final rule.
List of Subjects in 7 CFR Part 1944
Administrative practice and procedure, Aged, Handicapped, Loan
programs--Housing and community development, Low and moderate income
housing--Rental, Mortgages, Nonprofit organizations, Rent subsidies,
Rural housing.
Therefore, as proposed, part 1944, chapter XVIII, title 7, Code of
Federal Regulations is amended as follows:
PART 1944--HOUSING
1. The authority citation for part 1944 continues to read as
follows:
Authority: 42 U.S.C. 1489.
Subpart E--Rural Rental and Rural Cooperative Housing Loan
Policies, Procedures, and Authorizations
2. Section 1944.211 is amended by revising the introductory text of
paragraph (a)(2) and adding paragraph (a)(15) to read as follows:
Sec. 1944.211 Eligibility requirements.
(a) * * *
(2) Be unable to obtain the necessary credit from private or
cooperative sources on terms and conditions that allow establishment of
rent or occupancy charges within the payment ability of eligible
tenants or members.
* * * * *
(15) The applicant, including the principals, must be in compliance
with the requirements of existing RHS debts and must provide regular
financial and other required reports.
(i) In unusual circumstances, an applicant or principal with an
approved workout plan in effect to correct deficiencies in an existing
RHS debt may be considered for eligibility if the applicant or
principal has been in compliance with the provisions of the workout
plan for a period of time consistent with the extent of the
[[Page 1157]]
deficiencies; however, in no case will the period of compliance be less
than 6 months. The State Director may request a waiver to this
requirement for borrowers who have acted in good faith but are in non-
compliance through circumstances beyond their control. The State
Director will submit a request for exception to the Deputy
Administrator, Multi-Family Housing, with clear documentation to
support the request.
(ii) Applicants or principals, including former borrowers or
principals, with serious violations such as fraud, embezzlement, or
consistent fair housing violations will not meet eligibility
requirements regardless of compliance with existing workout plans. Fair
housing violations include, but are not limited to: racial or other
discrimination or segregation in tenant selection, project location,
maintenance of units, amenities, handicap accessibility, recreational
facilities, or management services; failure to maintain units in a safe
and sanitary condition; failure to maintain and utilize a current and
meaningful Affirmative Fair Housing Marketing Plan; unacceptable
Compliance Reviews.
* * * * *
3. Section 1944.213 is amended by revising paragraph (f)(3) to read
as follows:
Sec. 1944.213 Limitations.
* * * * *
(f) * * *
(3) Status. When a loan proposal or project exists in the market
area which meets any of the criteria established in paragraph (f)(2) of
this section, loan requests in the same market area will be processed
in accordance with this paragraph (f)(3) and Sec. 1944.231 of this
subpart. This does not affect the processing of loan requests in other
market areas. Deferred loan requests will be kept on file subject to
the same time restrictions contained in Sec. 1944.231 (c) of this
subpart.
(i) For preapplications, a preliminary eligibility and feasibility
determination will be made if the priority point score warrants. If the
proposal does not appear eligible and/or feasible, the preapplication
will be rejected. If the proposal appears eligible and feasible but the
market meets any of the conditions of paragraph (f)(2) of this section,
the applicant will be informed that the preapplication appears eligible
and feasible but further processing is deferred until the conditions of
paragraph (f)(2) of this section no longer apply.
(ii) For applications to finance new units, if the market meets any
of the conditions of paragraph (f)(2) of this section, further
processing of the application will be deferred until the conditions of
paragraph (f)(2) of this section no longer apply.
* * * * *
4. Section 1944.215 is amended by revising paragraphs (n)(1) and
(n)(2) to read as follows:
Sec. 1944.215 Special conditions.
* * * * *
(n) * * *
(1) Cash contributions made by the applicant, which, when added to
the loan and grant amounts from all sources, does not exceed the
security value of the project.
(2) The value of the building site or essential related facilities
contributed by the applicant up to the amount which, when added to the
loan and grant amounts from all sources, is not in excess of the
security value of the project. An appraisal will be done by an RHS
employee authorized to make appraisals or an RHS authorized
representative in accordance with applicable RHS regulations. Value of
the applicant's contribution will be determined on an ``as is'' basis
less any amount owed on the property.
* * * * *
5. Section 1944.221 is amended by revising the introductory text of
paragraph (a) to read as follows:
Sec. 1944.221 Security.
(a) Mortgage. Each loan will be secured in a manner that adequately
protects the financial interest of the Government. A first mortgage
will be taken on the property purchased or improved with the loan,
except as indicated in paragraphs (a)(1) and (a)(3) of this section
and, for projects that are funded jointly by RHS and other sources, as
indicated in Sec. 1944.233 (b) of this subpart.
* * * * *
6. Section 1944.231 is amended by revising the heading and the
introductory text, the introductory text of paragraph (c)(5),
paragraphs (d)(3), (d)(4), (e)(1), (i)(1)(i), (i)(2)(i), (i)(3)(i),
(i)(4)(i), and (k)(5); and by adding a new paragraph (d)(5), to read as
follows:
Sec. 1944.231 Processing loan requests.
Loan requests will be processed in accordance with this section to
assure that program intent is achieved and loan funds are utilized
expeditiously and prudently. A 2-stage application process is used. A
preapplication is used to determine the applicant's eligibility,
project feasibility, and potential priority for loan funds, thereby
eliminating proposals which have little to no chance of success or
funding. Selected preapplications will be invited to submit a formal
application in accordance with this section. The State Director is
responsible to coordinate efforts with HUD in accordance with Exhibit K
(available in any RHS office) to determine if HUD is considering a
similar request for funding or has funded a similar proposal. The State
Director will provide the state agency responsible for administering
LIHTC with information on projects that are allocated LIHTC, in
accordance with Exhibit A-10 of this subpart. Paragraphs (a), (c)(5),
(c)(6), (c)(7), (d), and (e) of this section do not apply to RCH loan
requests.
* * * * *
(c) * * *
(5) The servicing official will rate the complete preapplication in
accordance with the priority point system contained in paragraph (d) of
this section. The priority point score, and any annotation, will be
utilized for ranking purposes. In the event multiple preapplications of
the same priority point score are received on the same day, they will
be considered to be received at the same time. The order of receipt
will be determined by the type of applicant and by random drawing if
necessary, as follows:
* * * * *
(d) * * *
(3) Projects which will serve the needs of rural communities
located at least 20 miles from the RHS eligibility line around urban
areas (regardless of state boundaries) considered ineligible for RHS
housing loans as determined by Sec. 1944.10 of subpart A of part 1944
of this chapter. Ten points will be granted for complexes which are at
least 20 miles from an ineligible area line over normally traveled
roads. Mileage will not be rounded up or down to the nearest whole
mile. In cases where the preapplication covers development of units on
sites in different locations, points will be awarded based upon the
location of the site in which the majority of the units will be
developed. In cases of equal number of units in different locations,
the distances will be averaged:
------------------------------------------------------------------------
Miles Points
------------------------------------------------------------------------
20.0 or more.................................................... 10
Less than 20.0.................................................. 0
------------------------------------------------------------------------
(4) Projects in which a specific tract of land will be donated in
accordance with Sec. 1944.215 (r)(4) of this subpart or projects that
include grants equal to at least 10 percent of the total
[[Page 1158]]
development cost (TDC). Five points will be distributed as follows:
Complexes with donated land or grants of 5 points.
at least 10 percent of TDC.
Complexes without donated land or grants 0 points.
of at least 10 percent of TDC.
(5) Projects in areas with the highest percentage of households at
or below 60 percent of the county rural median income who are paying in
excess of 30 percent of their household income for rent. For this
purpose, each state will use place or county data based upon the latest
published census obtained from the National Office. If no place data is
available, county data will be used. The State Director may request
authority from the National Office to utilize other state-wide data
when it is available, reliable, and determined to be in the best
interest of the Agency. Up to 25 points will be awarded for households
at or below 60 percent of the county rural median income paying in
excess of 30 percent of the household's income for rent as follows:
------------------------------------------------------------------------
Percentage of households Points
------------------------------------------------------------------------
25 and above.............................. 25
20-24.9................................... 20
15-19.9................................... 15
10-14.9................................... 10
5-9.9..................................... 5
Less than................................. 5 0
------------------------------------------------------------------------
(e) * * *
(1) The feasibility determination will include a review of feedback
on the market area from:
(i) HUD (and similar lenders, if applicable), in accordance with
exhibit K (available in any RHS office) and Sec. 1944.213 (f) of this
subpart.
(ii) Local RHS office(s) closest to the market area.
* * * * *
(i) * * *
(1) * * *
(i) Rated preapplications which have been reviewed for eligibility
and feasibility will be ranked numerically from highest to lowest based
upon points received in the priority processing system. When processing
levels permit, the servicing official will review the list and select
the highest ranking preapplication, as of the date processing levels
permit, i.e., as of the date one or more proposals were obligated, for
continued processing.
* * * * *
(2) * * *
(i) Rated preapplications which have been reviewed for eligibility
and feasibility will be ranked numerically from highest to lowest based
upon points received in the priority processing system. When processing
levels permit, the servicing official will review the list and select
the highest ranking preapplication, as of the date processing levels
permit, i.e., as of the date one or more proposals are obligated, for
continued processing.
* * * * *
(3) * * *
(i) The state will maintain ranking lists by district. Rated
preapplications which have been reviewed for eligibility and
feasibility will be ranked numerically from highest to lowest based
upon points received in the priority processing system. When processing
levels permit, the servicing official will review the list and select
the highest ranking preapplication, as of the date processing levels
permit, i.e., as of the date one or more proposals are obligated, for
continued processing.
* * * * *
(4) * * *
(i) Rated preapplications which have been reviewed for eligibility
and feasibility will be ranked numerically from highest to lowest based
upon points received in the priority processing system. When processing
levels permit, the servicing official will review the list and select
the highest ranking preapplication, as of the date processing levels
permit, i.e., as of the date one or more proposals are obligated, for
continued processing.
* * * * *
(k) * * *
(5) A current copy of Form FmHA 1905-11 or State-approved automated
processing or tracking card.
* * * * *
7. Section 1944.233 is added to read as follows:
Sec. 1944.233 Participation with other funding sources.
In order to develop the maximum number of affordable housing units
and promote partnerships with states, local communities, and other
partners with similar housing goals, participation loans are
encouraged. Apartment complexes developed with participation loans may
serve lower income households exclusively or may be marketed to
households with mixed incomes. The following will apply:
(a) Amount of RHS loan participation. RHS loan participation may
not be less than 25 percent of the total development costs.
(b) Amount of RHS RA participation. RHS RA can be provided on any
unit where the debt service does not exceed what the debt service would
have been on that unit if RHS had provided full financing. The number
of RHS RA units available for participation loans is limited and
established annually through FmHA Instruction 1940-L (available in any
RHS office).
(c) General conditions:
(1) The total funds provided by all sources may not exceed what is
necessary to make the project feasible in accordance with Sec. 1944.213
(a) of this subpart.
(2) The total debt from all sources is limited to the State
Director's approval authority unless written authorization is obtained
from the National Office in accordance with Sec. 1944.213 (b) of this
subpart.
(3) Complexes that will serve only lower income households must
comply with the cost containment provisions of Sec. 1944.215 (a) of
this subpart. Proposals which will also serve higher income households
and include additional amenities to ensure marketability must contain a
portion of units that comply with RHS cost containment standards. The
number of units that comply with RHS cost standards will be determined
by dividing the RHS loan amount by the state's average new construction
cost per unit for units developed without participation funding. For
example, on a $1 million proposal where RHS is financing $400,000 and
the state's average per-unit cost on non-participation loans is
$40,000, a minimum of 10 units must meet RHS cost containment
standards.
(4) The minimum borrower contribution will be based on the RHS loan
amount and determined in accordance with Sec. 1944.213 (b) of this
subpart.
(5) For limited profit borrowers, the return on investment (ROI)
will be calculated in accordance with Sec. 1944.215 (n) of this subpart
on the amount actually contributed by the borrower (excluding loans and
grants from other sources), not to exceed the limits established in
Sec. 1944.213 (b) of this subpart, i.e., a maximum of 3 or 5 percent of
the total development cost or the security value, whichever is smaller.
(6) If Low Income Housing Tax Credits are anticipated on a
proportion of units higher than the percentage receiving RA or similar
tenant subsidy, the market study must clearly reflect a need and market
for units without deep subsidy. It is not the intent of RHS to provide
servicing RA in the future nor can RHS provide RA on units which have a
debt service higher than those if RHS had provided full financing.
(d) Security requirements:
[[Page 1159]]
(1) RHS will take a first or parity lien in all instances where the
Agency's participation is 50 percent or more.
(2) If RHS participation is less than 50 percent, every effort
should be made to obtain a parity lien position. If a parity lien
cannot be negotiated, RHS may consider securing its debt in second
position. The State Director will submit requests to accept a second
lien position to the Deputy Administrator, Multi-Family Housing with
comments and recommendations.
(3) All lienholders must agree in writing that foreclosure action
under their lien will not be initiated without first discussing with
RHS and providing a reasonable notice.
(4) Security for a second or parity lien may not include project
income or revenue.
8. Section 1944.234 is added to read as follows:
Sec. 1944.234 Actions prior to loan approval.
Prior to loan approval the application will be reviewed for
continued eligibility. The applicant may be required to submit updated
information at that time.
9. Exhibit A-7 of subpart E is amended by revising paragraph E of
section I and by revising section II to read as follows:
Exhibits to Subpart E
Exhibit A-7--Information to be Submitted with Preapplication for a
Rural Rental Housing (RRH) or a Rural Cooperative Housing (RCH) Loan
* * * * *
I. * * *
E. Evidence Concerning the Test for Other Credit--Applicants
must be unable to obtain other credit at rates and terms that will
allow a unit rent or occupancy charge within the payment ability of
the occupants. Based upon a review of the applicant's financial
condition, the servicing official may require the applicant to
provide documentation regarding the availability of other credit.
* * * * *
II. Need and demand.
A. Economic justification, the number of units, and the type of
facility (i.e., family, elderly, congregate, mixed, group home, or
cooperative) will be based on the housing need and demand of
eligible prospective tenants or members who are permanent residents
of the community and its surrounding trade area. Since the intent of
the program is to provide housing for the eligible permanent
residents of the community, temporary residents of a community (such
as college students in a college town, military personnel stationed
at a military installation within the trade area, or others not
claiming their current residence as their legal domicile) may not be
included in determining need and project size. Similarly, homeowners
may not be included in determining need and project size. The market
study must include a discussion of the current market for single
family houses and how sales, or the lack of sales, will affect the
demand for elderly rental units. The market study may discuss how
elderly homeowners may reinforce the need for rental housing, but
only as a secondary market and not as the primary market. The market
study must assess need and demand for both family and elderly renter
households. The type of complex (family, elderly, etc.) that is
proposed by the applicant must reflect the greater need and demand
of the community. The bedroom mix of the proposed units must reflect
the need in the market area based on renter household size. For
example, if the market study shows a need for one-bedroom, two-
bedroom, three-bedroom, and four-bedroom units, the preapplication
must contain a corresponding percentage of each size unit. Market
feasibility for the proposed units will be determined by RHS based
on the market information provided by the applicant, RHS' knowledge
of the market area and judgment concerning the need for new units,
RHS' experience with the housing market in the State and local area,
and the U.S. Department of Housing and Urban Development's (HUD's)
or similar lender's analysis of market feasibility for the proposed
units.
B. The applicant must provide a schedule of the proposed rental
or occupancy rates and, for congregate housing proposals, a separate
schedule listing the proposed cost of any nonshelter service to be
provided.
C. For proposals where the applicant is requesting Low-Income
Housing Tax Credits (LIHTC), the applicant must provide the number
of LIHTC units and the maximum LIHTC incomes and rents by unit size.
This information will determine the levels of incomes in the market
area which will support the basic rents while also qualifying the
borrower for tax credits.
D. For Rural Cooperative Housing (RCH) proposals, market
feasibility will be evidenced by the names and addresses of
prospective members who have definitely affirmed their intention of
becoming cooperative members in the proposed project. In the event
some persons cannot be accepted for membership for financial or
other reasons, the cooperative should obtain more names than the
number of proposed units in order to assure adequate feasibility
coverage. The Cooperative Housing Survey form found at Exhibit A-4
of this subpart and in ``A Guide to Cooperative Housing'' may be
used for this purpose.
E. For Rural Rental Housing (RRH) proposals, except as permitted
by Section II. G. of this exhibit, a professional market study is
required. The qualifications of the person preparing the market
study should include some housing or demographic experience. The
following requirements apply:
(1) A table of contents, the analyst's statement of
qualifications, and a certification of the accuracy of the study
must be included.
(2) The market analyst must affirm that he/she will receive no
fees which are contingent upon approval of the project by RHS,
before or after the fact, and that he/she will have no interest in
the housing project. An analyst with an identity of interest with
the developer will need to fully disclose the nature of the
identity.
(3) The analyst must personally visit the market area and
project site and must certify to same in the market study. Failure
to do so may result in the denial of further participation by the
analyst in the Section 515 program.
(4) A detailed study based upon data obtained from census
reports, state or county data centers, individual employers,
industrial directories, and other sources of local economic and
housing information such as newspapers, Realtors, apartment owners
and managers, community groups, and chambers of commerce is
required. Exhibit A-8 of this subpart details the specific
information which professional market studies are required to
provide. The study must be presented in clear, understandable
language. Negative as well as positive market trends must be
disclosed and discussed. Statistical data must be accompanied by
analytical text which explains the data and its significance to the
proposed housing. Mathematical calculations must be expressed in
actual numbers and may be accompanied by percentages. Each table or
section must identify the source of the data. A brief statement of
the methodology used in the study should be included in the foreword
and in other sections where necessary for clarity. RHS personnel
will utilize the market study checklist found at Exhibit A-12
(available in any RHS office) as a means of measuring market study
credibility.
(5) The market study will include:
a. A complete description of the proposed site and its location
with respect to city boundary lines, residential developments,
employment centers, and transportation; the location and description
of available services and facilities and their distances from the
site; a discussion of the site's desirability and marketability
based on its location in the community, adjacent land uses, traffic
conditions, air or noise pollution, and the location of competitive
housing units; and a description of the site in terms of its size,
accessibility, and terrain.
b. Pertinent employment data, including the name and location of
each major employer within the community and market area, its
product or service, number of employees and salary range, commute
times and distances, and the year the employer was established at
the location. If income data cannot be obtained from individual
employers, salary information for the community can be obtained from
the state employment commission.
c. Population data required by Exhibit A-8, of this subpart,
including population figures by year, number and percentage of
increase or decrease, and population characteristics by age.
d. Household data required by Exhibit A-8, of this subpart,
including number of households by year, tenure (owner or renter),
age, income groups, and number of persons per household.
e. Building permits issued and demolitions by year by single
unit dwelling and multiple unit dwelling. In nonreporting
jurisdictions, this information may be substituted with the
[[Page 1160]]
number of requests for electric service connections, number of water or
sewer hookups, etc., obtained from local suppliers.
f. Housing stock by tenure and vacancy rates for total number of
units, one-unit buildings, two- or more-unit buildings, mobile
homes, and number lacking some or all plumbing facilities.
g. A survey of existing rental housing by name, location, year
built, number of units, amenities, bedroom mix, type (family,
elderly, etc.), rental rates, and rental subsidies if any.
h. A projection of housing need and demand and the analyst's
recommendation for the number, type, and size of units, based on the
number of RHS and LIHTC income-eligible renter households, the
existing comparable housing supply and vacancy rates, the absorption
rate of recently completed units, the number of comparable units
currently proposed or under construction, and current and projected
economic conditions.
F. For congregate housing proposals with central dining area or
housing involving a group living arrangement, a narrative statement
from local, state, or federal government agencies supporting the
current and long-range need for the facilities in the community and
its trade area is required.
G. For RRH proposals of 12 or fewer units, the State Director
may authorize the use of a market survey to establish market
feasibility on a case-by-case basis. This authority may be used when
there is evidence of strong market demand, for example, very low
vacancy rates and long waiting lists in existing assisted or
comparable rental units. The casefile must be documented
accordingly. Exhibits A-2, A-3, and A-5 of this subpart may be used
for the market survey.
* * * * *
10. Exhibit A-8 of subpart E is amended by revising the second,
third, and fourth paragraphs of the introductory text of the exhibit
and the introductory paragraph of section I; by adding an
introductory sentence to section III; by revising in section III
paragraphs B.3., B.7., C.2., and C.3.; and by revising section IV to
read as follows:
Exhibit A-8--Outline of Professional Market Study
* * * * *
This outline is to be used by analysts in the preparation of
market studies for the section 515 housing program. Need and demand
for both family and elderly households must be addressed in the
market study. The information will be used by the Rural Housing
Service (RHS) in evaluating the feasibility of the proposed housing.
The analyst must provide a statement of his/her experience and
qualifications for preparing a market analysis. All segments of this
outline must be addressed. Data sources and/or methodology must be
identified. Charts and tables must be accompanied by text which
analyzes the data and discusses its significance in relationship to
the proposed housing. The market study should include a summary of
the analyst's findings and recommendations, preferably at the
beginning of the study.
The outline provides for the demonstration of historical trends
and allows the analyst to use reliable current year estimates and
project 2 years into the future. Estimates and projections made by
the analyst must be supported by reliable data and methodology. The
analyst must include the most recent population and household
estimates and projections from the State data center, or similar
data source, when available. If State or other reliable estimates
are not available, the analyst must provide a statement to that
effect. RHS may require additional information if estimates or
projections depart from historical trends and are not supported by
data from reliable sources.
The estimate of need and demand will be made for both family and
elderly households in accordance with section IV of this exhibit.
The estimate is based on the number of renter households in the
appropriate age and/or income ranges, the existing comparable rental
supply, and current or planned construction of rental units. The
analyst's recommendation must take into consideration existing
vacancies, economic projections, and other factors that affect
demand. The analyst must discuss the number of renter households
that can afford and/or would be willing (based on rental rates in
the market) to pay the maximum tax credit rents without rental
assistance and the number of rental assistance income eligible
renter households. The analyst must also take into consideration the
sources of demand in determining the number of units that are
recommended, i.e., the number that can be expected to be absorbed
within the normal rent-up period. The absorption rate will be slower
if a large portion of the demand is expected to come from households
in substandard housing rather than from household growth.
Substandard housing is defined as: (1) Units lacking complete
plumbing; and (2) Overcrowded (1.01 or more per room).
In addition to recommending the total number of units, the
analyst must provide a recommendation for the unit mix, which must
be supported by appropriate documentation, e.g., statistics on the
growth rate of renter households by household size, information on
the absorption rate of recently completed rental units, vacancy
rates by unit size, etc.
* * * * *
I. * * *
The market area will be the community where the project will be
located and only those outlying rural areas which will be impacted
by the project (excluding all other established communities). The
market area must be realistic. The criteria should be described by
the analyst. When a difference of opinion exists in the market area
determined by RHS personnel and the market analyst, the market area
established by RHS will prevail. Except in specific cases of
congregate housing projects where an expanded market may be
justified, the market area will not include the entire county (or
parish, township, or other subdivision). Any deviation from this
definition must be coordinated with the servicing office. The
analyst will discuss the market area in terms of its economic base
and how it relates to surrounding communities, the county, and the
State. For example, describe whether the market area is a small
agricultural community, the county seat, a trade center, a seasonal
recreational area, and so forth. A map showing the market area is
required. The following is an example of a market area description:
* * * * *
III. * * *
The data presented in this section must be accompanied by
analytical text which discusses the significance of the data and its
relationship to the proposed housing.
* * * * *
B. * * *
3. Households. Provide a breakdown of households by town, market
area, and county for the last 2 census years, a current year
estimate, and a 2-year projection. Identify the source/method for
the current year estimate and the 2-year projection.
----------------------------------------------------------------------------------------------------------------
In group Persons per
Year Population quarters Households household
----------------------------------------------------------------------------------------------------------------
1980
1990
19____
PROJECTED: 19____ (2 years)
----------------------------------------------------------------------------------------------------------------
* * * * *
7. Households by size. Provide the number of households by
household size and tenure in the town and market area. This data
should be used in conjunction with the unit mix of existing
comparable units (Section III. C. of this exhibit) to determine the
appropriate unit mix for the proposed complex.
[[Page 1161]]
------------------------------------------------------------------------
Total
Household size households Owner Renter
------------------------------------------------------------------------
1 person
2 person
3 person
4 person
5 person
6 person
7 person
8 person
9 person
10 person
------------------------------------------------------------------------
* * * * *
C. * * *
2. Housing stock. Provide, by tenure (owner/renter), the number
of units and the vacancy rates for single family homes, mobile
homes, multi-family units, and substandard units, from the 2 most
recent census years.
Example:
--------------------------------------------------------------------------------------------------------------------------------------------------------
Single family Vacancy rate Mobile home Vacancy rate
Year -------------------------------------------- Multi- Vacancy -------------------------------------------
Own Rent Own Rent family rate Own Rent Own Rent
--------------------------------------------------------------------------------------------------------------------------------------------------------
1980
1990
--------------------------------------------------------------------------------------------------------------------------------------------------------
3. Existing rental housing. The analyst must determine where the
proposed project will fit into the present housing stock. To
accomplish this, the analyst will survey the existing units and
discuss if the units:
(a) Are generally comparable with the proposed units in rents
and amenities;
(b) Are less than desirable because of age or upkeep;
(c) Are inconveniently located;
(d) Do not provide the appropriate bedroom mix for the community
need, etc.
* * * * *
IV. Housing demand forecast.
The analyst must provide a projection of the rental housing
needs for a specified forecast period, which may not be longer than
2 years from the date the market analysis is completed or updated.
The source and method used in estimating the current number of
households and projecting the number of households for the forecast
period must be stated. The analyst must include a recommendation for
the number of units needed based on the low-income housing tax
credit (LIHTC) rents and income limits if the applicant is applying
for LIHTC; the number of units that can be supported with and
without rental assistance; and the recommended bedroom mix. The
recommendation for the number of units must take into consideration
the expected sources of demand (i.e., household growth, households
in substandard rental units), current and projected economic
conditions, the absorption rates of recently completed units, and
the vacancy rate of comparable units.
Calculation of Demand
------------------------------------------------------------------------
Town Market area
------------------------------------------------------------------------
a. Total renter households based on current
estimate plus 2-year projection (for
elderly proposals, total age-eligible
renter households)......................... ________ ________
b. RHS income eligible:
X ________%............................. ________ ________
LIHTC income eligible:
X ________%............................. ________ ________
RA income eligible:
X ________%............................. ________ ________
c. Plus vacancy rate of 5 percent of:
RHS income eligible renter households... ________ ________
LIHTC income eligible renter households. ________ ________
RA income eligible renter households.... ________ ________
d. Total demand (RHS)....................... ________ ________
Total demand (LIHTC).................. ________ ________
Total demand (RA)..................... ________ ________
e. Less number of comparable units.......... ________ ________
f. Less number of units under construction
or in the planning stage................... ________ ________
g. Net demand (RHS)......................... ________ ________
Net demand (LIHTC)...................... ________ ________
Net demand (RA)......................... ________ ________
h. Recommended number of units.............. ________ ________
i. Recommended number RA units.............. ________ ________
j. Recommended number of units by unit size
based on the size of income eligible renter
households and the existing supply of units
by bedroom size:...........................
[[Page 1162]]
1-Bedroom ________
2-Bedroom ________
3-Bedroom ________
4-Bedroom ________
5-Bedroom ________
The source and/or methodology for the estimated and projected number
of renter households: ________________
------------------------------------------------------------------------
Dated: January 2, 1996.
Jill Long Thompson,
Under Secretary, Rural Economic and Community Development.
[FR Doc. 96-328 Filed 1-16-96; 8:45 am]
BILLING CODE 3410-07-P
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