12 C.F.R. PART 955—ACQUIRED MEMBER ASSETS
Title 12 - Banks and Banking
Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1430, 1430b, 1431.
Source: 65 FR 43981, July 17, 2000, unless otherwise noted.
As used in this part: Affiliate means any business entity that controls, is controlled by, or is under common control with, a member. Expected losses means the base loss scenario in the methodology of an NRSRO applicable to that type of AMA asset. Residential real property has the meaning set forth in §950.1 of this chapter. [67 FR 12852, Mar. 20, 2002] Subject to the requirements of part 980 of this chapter, each Bank may hold assets acquired from or through Bank System members or housing associates by means of either a purchase or a funding transaction (AMA), subject to each of the following requirements: (a) Loan type requirement. The assets are either: (1) Whole loans that are eligible to secure advances under §§950.7(a)(1)(i), (a)(2)(ii), (a)(4), or (b)(1) of this chapter, excluding: (i) Single-family mortgages where the loan amount exceeds the limits established pursuant to 12 U.S.C. 1717(b)(2); and (ii) Loans made to an entity, or secured by property, not located in a state; (2) Whole loans secured by manufactured housing, regardless of whether such housing qualifies as residential real property; or (3) State and local housing finance agency bonds; (b) Member or housing associate nexus requirement. The assets are: (1) Either: (i) Originated or issued by, through, or on behalf of a Bank System member or housing associate, or an affiliate thereof; or (ii) Held for a valid business purpose by a Bank System member or housing associate, or an affiliate thereof, prior to acquisition by a Bank; and (2) Acquired either: (i) From a member or housing associate of the acquiring Bank; (ii) From a member or housing associate of another Bank, pursuant to an arrangement with that Bank, which, in the case of state and local finance agency bonds only, may be reached in accordance with the following process: (A) The housing finance agency shall first offer the Bank in whose district the agency is located (local Bank) a right of first refusal to purchase, or negotiate the terms of, its proposed bond offering; (B) If the local Bank indicates, within a three day period, that it will negotiate in good faith to purchase the bonds, the agency may not offer to sell or negotiate the terms of a purchase with another Bank; and (C) If the local Bank declines the offer, or has failed to respond within the three day period, the acquiring Bank will be considered to have an arrangement with the local Bank for purposes of this section and may offer to buy or negotiate the terms of a bond sale with the agency; (iii) From another Bank; and (c) Credit risk-sharing requirement. The transactions through which the Bank acquires the assets either: (1) Meet the credit risk-sharing requirements of §955.3 of this part; or (2) Were authorized by the Finance Board under section II.B.12 of the FMP and are within any total dollar cap established by the Finance Board at the time of such authorization. (a) Determination of necessary credit enhancement. At the earlier of 270 days from the date of the Bank's acquisition of the first loan in a pool, or the date at which the amount of a pool's assets reaches $100 million, a Bank shall determine the total credit enhancement necessary to enhance the asset or pool of assets to a credit quality that is equivalent to that of an instrument having at least the fourth highest credit rating from an NRSRO, or such higher credit rating as the Bank may require. The Bank shall make this determination for each AMA product using a methodology that is confirmed in writing by an NRSRO to be comparable to a methodology that the NRSRO would use in determining credit enhancement levels when conducting a rating review of the asset or pool of assets in a securitization transaction. (b) Credit risk-sharing structure. A Bank acquiring AMA shall implement, and have in place at all times, a credit risk-sharing structure for each AMA product under which a member or housing associate of the Bank or, with the approval of both Banks, a member or housing associate of another Bank, provides a sufficient credit enhancement from the first dollar of credit loss for each asset or pool of assets such that the acquiring Bank's exposure to credit risk for the life of the asset or pool of assets is no greater than that of an asset rated in the fourth highest credit rating category, as determined pursuant to paragraph (a) of this section, or such higher rating as the acquiring Bank may require. This credit enhancement structure shall meet the following requirements: (1) A portion of the credit enhancement may be provided by: (i) Contracting with an insurance affiliate of that member or housing associate to provide an enhancement or undertaking against losses to the Bank, but only where such insurance is positioned in the credit enhancement structure so as to cover only losses remaining after the member or housing associate has borne losses as required under paragraph (b)(2) of this section; (ii) Purchasing loan-level insurance, which may include United States government insurance or guarantee, but only where: (A) The member or housing associate is legally obligated at all times to maintain such insurance with an insurer rated not lower than the second highest credit rating category; and (B) Such insurance is positioned in the credit enhancement structure so as to cover only losses remaining after the member or housing associate has borne losses as required under paragraph (b)(2) of this section; (iii) Purchasing pool-level insurance, but only where such insurance: (A) Insures that portion of the required credit enhancement attributable to the geographic concentration and size of the pool; and (B) Is positioned last in the credit enhancement structure so as to cover only those losses remaining after all other elements of the credit enhancement structure have been exhausted; or (iv) Contracting with another member or housing associate in the Bank's district or in another Bank's district, pursuant to an arrangement with that Bank, to provide an enhancement or undertaking against losses to the Bank in return for some compensation; (2) The member or housing associate that is providing the credit enhancement required under paragraph (b)(1) of this section shall in all cases bear the direct economic consequences of actual credit losses on the asset or pool of assets: (i) From the first dollar of loss up to the amount of expected losses; or (ii) Immediately following expected losses, but in an amount equal to or exceeding the amount of expected losses; (3) The portion of the credit enhancement that is an obligation of a Bank System member or housing associate shall be fully secured; and (4) The Bank shall obtain written verification from an NRSRO that concludes to the satisfaction of the Finance Board, based on the underlying economic terms of the credit enhancement structure as represented by the Bank for each AMA product, that either: (i) The level of credit enhancement provided by the member or housing associate is generally sufficient to enhance the asset or pool of assets to a credit quality that is equivalent to that of an instrument having the fourth highest credit rating from an NRSRO, or such higher rating as the Bank may require; or (ii) The methodology used by the Bank for estimating the level of credit enhancement provided by the member or housing associate is in accordance with the practices established by the NRSRO. (c) Timing of NRSRO opinions. For AMA programs already in operation at the time of the effective date of this rule, a Bank shall have 90 days from the effective date of this rule to obtain the NRSRO verifications required under paragraphs (a) and (b)(4) of this section. [65 FR 43981, July 17, 2000, as amended at 67 FR 12852, Mar. 20, 2002] Each Bank shall report information related to AMA in accordance with the instructions provided in the Data Reporting Manual issued by the Finance Board, as amended from time to time. [71 FR 35500, June 21, 2006 (a) Delegation of administrative duties. A Bank may delegate the administration of an AMA program to another Bank whose administrative office has been examined and approved by the Finance Board to process AMA transactions. The existence of such a delegation, or the possibility that such a delegation may be made, must be disclosed to any potential participating member or housing associate as part of any AMA-related agreements are signed with that member or housing associate. (b) Terminability of Agreements. Any agreement made between two or more Banks in connection with any AMA program shall be made terminable by either party after a reasonable notice period. (c) Delegation of Pricing Authority. A Bank that has delegated its AMA pricing function to another Bank shall retain a right to refuse to acquire AMA at prices it does not consider appropriate. (a) General. Each Bank shall hold retained earnings plus general allowance for losses as support for the credit risk of all AMA estimated by the Bank to represent a credit risk that is greater than that of comparable instruments that have received the second highest credit rating from an NRSRO in an amount equal to or greater than the outstanding balance of the assets or pools of assets times a factor associated with the putative credit rating of the assets or pools of assets as determined by the Finance Board on a case-by-case basis. For single-family mortgage assets, the factors are as set forth in Table 1 of this part. (b) Recalculation of credit enhancement. For risk-based capital purposes, each Bank shall recalculate the estimated credit rating of a pool of AMA if there is evidence that a decline in the credit quality of that pool may have occurred.
Title 12: Banks and Banking
PART 955—ACQUIRED MEMBER ASSETS
Section Contents
§ 955.1 Definitions.
§ 955.2 Authorization to hold acquired member assets.
§ 955.3 Required credit risk-sharing structure.
§ 955.4 Reporting requirement for acquired member assets.
§ 955.5 Administrative and investment transactions between Banks.
§ 955.6 Risk-based capital requirement for acquired member assets.
§ 955.1 Definitions.
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§ 955.2 Authorization to hold acquired member assets.
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§ 955.3 Required credit risk-sharing structure.
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§ 955.4 Reporting requirement for acquired member assets.
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§ 955.5 Administrative and investment transactions between Banks.
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§ 955.6 Risk-based capital requirement for acquired member assets.
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Table 1------------------------------------------------------------------------ Percentage applicable to on- Putative rating of single-family mortgage assets balance sheet equivalent value of AMA------------------------------------------------------------------------Third Highest Investment Grade........................ 0.90Fourth Highest Investment Grade....................... 1.50If Downgraded to Below Investment Grade After Acquisition By Bank: Highest Below Investment Grade.................... 2.25 Second Highest Below Investment Grade............. 2.60 All Other Below Investment Grade.................. 100.00------------------------------------------------------------------------
