PART 1268—ACQUIRED MEMBER ASSETS Authority: 12 U.S.C. 1430, 1430b, 1431, 4511, 4513, 4526. Source: 81 FR 91688, Dec. 19, 2016, unless otherwise noted. § 1268.1 Definitions. As used in this part: Affiliate AMA investment grade AMA product AMA program Expected losses Participating financial institution Pool Qualified insurer Residential real property § 1268.2 Authorization for acquired member assets. (a) General. (b) Grandfathered transactions. § 1268.3 Asset requirement. Assets that qualify as AMA shall be limited to the following: (a) Whole loans that are eligible to secure advances under § 1266.7(a)(1)(i), (a)(2)(ii), (a)(4), or (b)(1) of this chapter, excluding: (1) Single-family mortgage loans where the loan amount exceeds the limits established pursuant to 12 U.S.C. 1717(b)(2), unless the loan is guaranteed or insured by an agency or department of the U.S. government, in which case the limits in 12 U.S.C. 1717(b)(2) do not apply; and (2) Loans made to an entity, or secured by property, not located in a state; (b) Whole loans secured by manufactured housing, regardless of whether such housing qualifies as residential real property under applicable state law; (c) State and local housing finance agency bonds; or (d) Certificates representing interests in whole loans if: (1) The loans qualify as AMA under paragraphs (a) or (b) of this section and meet the nexus requirement of § 1268.4; and (2) The certificates: (i) Meet the credit enhancement requirements of § 1268.5; (ii) Are issued pursuant to an agreement between the Bank and a participating financial institution to share risks consistent with the requirements of this part; and (iii) Are acquired substantially by the initiating Bank or Banks. § 1268.4 Member or housing associate nexus requirement. (a) General provision. (1) A participating financial institution, provided that the asset was: (i) Originated or issued by, through, or on behalf of the participating financial institution, or an affiliate thereof; or (ii) Held for a valid business purpose by the participating financial institution, or an affiliate thereof, prior to acquisition by the Bank; or (2) Another Bank, provided that the asset was originally acquired by the selling Bank consistent with this section. (b) Special provision for housing finance agency bonds. (1) The housing finance agency shall first offer the local Bank right of first refusal to purchase, or negotiate the terms of, its proposed bond offering; (2) If the local Bank indicates, within three business days, it will negotiate in good faith to purchase the bonds, the housing finance agency may not offer to sell or negotiate the terms of a purchase with another Bank; and (3) If the local Bank declines the offer, or has failed to respond within three business days, 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 housing finance agency. § 1268.5 Credit risk-sharing requirement. (a) General credit risk-sharing requirement. (1) Requires a participating financial institution to provide the credit enhancement necessary to enhance an eligible asset or pool to the credit quality specified by the terms and conditions of the AMA product, provided, however, that such credit enhancement results in the eligible asset or pool being at least AMA investment grade, as defined in § 1268.1; and (2) Meets the requirements of this section. (b) Determination of necessary credit enhancement. (2) A Bank shall document its basis for concluding that the contractual credit enhancement required from each participating financial institution with regard to a particular asset or pool will equal or exceed the credit enhancement level specified in the terms and conditions of the AMA product and determined in accordance with paragraph (b)(1) of this section. (c) Credit risk-sharing structure. (1) The participating financial institution that is providing the credit enhancement required under this paragraph (c) shall in all cases: (i) Bear the direct economic consequences of actual credit losses on the asset or pool: (A) From the first dollar of loss up to the amount of expected losses; or (B) Immediately following expected losses, but in an amount equal to or exceeding the amount of expected losses; and (ii) Fully secure its direct credit enhancement obligation in accordance with § 1266.7; and (2) The participating financial institution also may provide all or a portion of the credit enhancement, with the approval of the Bank, by: (i) Contracting with an insurance affiliate of that participating financial institution to provide an enhancement, but only where such insurance is positioned in the credit risk-sharing structure so as to cover only losses remaining after the participating financial institution has borne losses as required under paragraph (c)(1)(i) of this section; (ii) Purchasing loan-level insurance only where: (A) The participating financial institution is legally obligated at all times to maintain such insurance with a qualified insurer; and (B) Such insurance is positioned in the credit enhancement structure so as to cover only losses remaining after the participating financial institution has borne losses as required under paragraph (c)(1)(i) of this section; (iii) Purchasing pool-level insurance only where: (A) The participating financial institution is legally obligated at all times to maintain such insurance with a qualified insurer; (B) Such insurance insures that portion of the required credit enhancement attributable to the geographic concentration and size of the pool; and (C) Such insurance 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; (iv) Contracting with another participating financial institution in the Bank's district to provide a credit enhancement consistent with this section, in return for compensation; or (v) Contracting with a participating financial institution in another Bank's district, pursuant to an arrangement between the two Banks, to provide a credit enhancement consistent with this section, in return for compensation. (d) Loans guaranteed or insured by a department or agency of the U.S. government. (e) Qualified insurers. (2) Only qualified insurers may provide private loan insurance on AMA eligible assets or the loan or pool insurance allowed as part of the credit enhancement structure for AMA products under paragraphs (c)(2)(ii) or (iii) of this section. (f) Appropriate methodology for calculating credit enhancement. § 1268.6 Servicing of AMA loans. (a) Servicing of AMA loans may be performed by or transferred to any institution, including an institution that is not a member of the Bank System, provided that the loans, after such transfer, continue to meet all requirements to qualify as AMA under §§ 1268.3, 1268.4, and 1268.5. (b) The transfer of mortgage servicing rights and responsibilities must be approved by the Bank or Banks that own the loan or a participation interest in the loan. (c) A Bank shall have in place policies and procedures to ensure that the transfer of mortgage servicing rights does not negatively affect the credit enhancement on the loans in question or substantially increase the Bank's exposure to the credit risk for the asset or pool. § 1268.7 Reporting requirements for acquired member assets. Each Bank shall report information related to AMA in accordance with the instructions provided in the Data Reporting Manual issued by FHFA, as amended from time to time. § 1268.8 Administrative transactions and agreements between Banks. (a) Delegation of administrative duties. (b) Termination of agreements. (c) Delegation of pricing authority.