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Notice No. 0006 | July 25, 2008

AHP Retention Regulation: Default Interest Provisions

Dear Community Lending Partner:

According to Federal Housing Finance Board regulations, owner-occupied homes and rental units funded under the Affordable Housing Program must be subject to a deed restriction or other legally enforceable retention agreement or mechanism that requires the homeowner (for an owner-occupied unit) or project owner (for a rental unit) to repay all or a portion of the AHP subsidy under certain circumstances involving resale or refinancing of the unit during the regulatory retention period. 

Many members participating in the AHP have met this requirement by obtaining a promissory note or other legal agreement from the homeowner or project owner obligating the homeowner or project owner to repay the required subsidy amount along with any applicable interest charged by the Federal Home Loan Bank of San Francisco if the home or project is sold or refinanced prior to the end of the retention period unless certain regulatory conditions are present. This provision for the repayment of interest to the FHLBank (FHLBank interest) is consistent with the AHP Regulation.

In some cases, however, the members have also included in their retention documents a clause requiring the homeowner or project owner to pay the member additional interest if the required AHP subsidy amount is not repaid within a certain period of time. These “default interest” provisions are generally intended to encourage the borrower or project owner to repay the required amount owing on the note promptly after receiving a notice of default from the lender. 

The Bank has recently learned from Finance Board staff that “default interest” provisions included in AHP retention documents are not consistent with the intent and scope of the retention provisions of the Finance Board’s AHP Regulation. Effective immediately, retention documents may not contain default interest provisions allowing a member to collect additional interest (other than FHLBank interest) from the homeowner or project owner in the event the homeowner or project owner does not repay the required AHP subsidy amount within a reasonable payment period as stated in the promissory note. In addition, to the extent any member has included a default interest provision in its outstanding retention agreements, the member will be expected not to enforce any rights it may have under the provision to collect default interest (other than FHLBank interest) from an AHP homeowner or project owner who is otherwise required to repay some or all of the AHP subsidy.

If you have any questions, please call the Community Investment Department at (415) 616-2542 or email



James E. Yacenda
Vice President and Community Investment Officer