For any property that received Affordable Housing Program (AHP), Disaster Reconstruction Program (DRP), or Welcome Home Program (WHP) grant assistance, the homeowner may be required to repay part of the remaining balance of the grant if the property is sold, transferred, its title or deed is assigned, or refinanced during the five-year retention period.

In the event of a sale, transfer, assignment of title or deed such as to the Secretary of HUD, or refinance of the property, the FHLB must be given notice in writing. To facilitate the notification process, the FHLB Subsidy Payoff Request Form should be used. The required Subsidy Payoff Request Form is posted at www.fhlbcin.com. Once completed, the form should be emailed to AHPrecaptures@fhlbcin.comEffective April 15, 2021, a Subsidy Payoff Request will not be processed for any sale or refinance transaction unless a preliminary Closing Disclosure is submitted.

The Member has no responsibility to monitor the homebuyer or property during the five-year retention period. The original Member should only contact the FHLB about a sale or refinance of a property if they are providing the new financing. It is the responsibility of the new lender or closing agent to submit the Subsidy Payoff Request Form and any additional information required.

Once the completed Subsidy Payoff Request Form is received a Subsidy Recapture letter will be generated that displays the subsidy balance (if applicable).

Rental subsidy recaptures

The FHLB will investigate whether the project will continue to be subject to a deed restriction or other legally enforceable retention agreement or mechanism incorporating the income-eligibility and affordability restrictions committed to in the approved AHP application for the duration of the retention period.

  • If the project will continue to be subject to a deed restriction or other legally enforceable retention agreement or mechanism, there is no recapture required.
  • If the project will not continue to be subject to a deed restriction or other legally enforceable retention agreement or mechanism, the FHLB will recapture the full amount of the subsidy disbursed.

Recapture on Advances

  • For any property assisted with a permanent mortgage loan funded by an Affordable Housing Program (AHP) Subsidized Advance, there is no recapture of amortized subsidy required. The unamortized portion will be recaptured upon repayment of the advance. Please contact the Housing and Community Investment Department directly for assistance with recapture on advances at 888-345-2246.

Ownership subsidy recaptures

Recapture on sale

No repayment is due for a homeowner receiving a grant through the Carol M. Peterson Housing Fund or for AHP subsidy used solely for rehabilitation of owner-occupied homes. However, FHLB Cincinnati must still be notified of the pending sale transaction.

For properties that received grant funding through the DRP, additional documentation may be required to determine the need for recapture as the original Closing Disclosure may not be available.

The grant is prorated monthly for the Affordable Housing Program, Welcome Home Program, and Disaster Reconstruction Program based on the amount of assistance received. For example, a homebuyer who received a $5,000 grant from the Welcome Home Program would potentially owe $83.33 multiplied by the number of months remaining in the retention period ($5,000/60 months = $83.33). 

Recapture is not required:

  • If the property is sold to another income-eligible household, and the retention language can be removed from the Deed. A Certification of Household Income Eligibility Form, completed by the new lender, must be submitted with the Subsidy Payoff Request form. 
  • If application of an approved proxy limits indicate the subsequent purchase is likely an income-eligible household.
  • If the calculated subsidy recapture amount is $2,500 or less.

If the FHLB is unable to determine whether or not the household purchasing the property is very low- or low- or moderate-income, and they do not meet proxy limits, the FHLB assumes that the household is not income eligible and will follow the steps below to determine the required recapture amount. 

Step 1: Determine Net Proceeds. Review the preliminary Closing Disclosure to determine net proceeds. “Net” proceeds” is defined as the sales price minus reasonable and customary costs paid by the seller and outstanding superior debt, or, in the case of a refinancing, the principal amount of the new mortgage minus reasonable and customary costs paid by the household and the principal amount of the refinanced mortgage. If the preliminary Closing Disclosure indicates there are no net proceeds being disbursed to the seller, no recapture of funds is required. If there are net proceeds to the seller, proceed to Step #2.

Step 2: Determine the Seller’s Household Investment. “Household investment” means reasonable and customary transaction costs paid in connection with the purchase of the unit, down payment, cost of capital improvements made after the home was purchased, and any mortgage principal repaid since the purchase of the unit until the time of sale or refinancing during the AHP five-year retention period where the household documents these costs to the Bank or its designee. For example, a household could produce documentation of its expenditures associated with the installation of a new roof. Customary transaction costs could include, but are not limited to, closing costs, earnest money deposit, appraisal fees, inspections fees, and credit report fees. Down payment may include cash to close, AHP subsidy awarded and other grants/subsidies, seller and lender paid closing costs, or gifts. If the seller’s household investment exceeds the amount of net proceeds being disbursed to the seller, it is assumed that the net proceeds are zero and no recapture of funds is required. Otherwise the seller has net proceeds.

Step 3: Compare the net proceeds to the prorated required recapture. If the net proceeds minus the household’s investment exceed the required recapture, and this amount is greater than $2,500, the seller must repay the FHLB the full amount of the required recapture. If the net proceeds minus the household’s investment are less than the required recapture, the seller must repay the amount of the net proceeds minus the household’s investment to the FHLB and the remainder of the required recapture is forgiven.

Below are examples:

    Example 1:  Sale

Assumptions:

 

Current Sale Price

$224,350.00

Minus reasonable and customary transaction costs

(5,468.52)

Minus outstanding superior debt

(221,531.48)

Equal Net Proceeds

$(2,650.00)

Prorated Subsidy Recapture

$2,750.00

Required Subsidy Recapture

$0.00

In Example 1, the Net Proceeds shown on the preliminary Closing Disclosure are a negative number, which means the Seller had to bring funds to the closing; therefore, the Seller received no net proceeds and no recapture is due.                 

                     Example 2:  Refinance

Assumptions:

 

Principal Amount of New Mortgage

$105,000.00

Minus reasonable and customary transaction costs

(5,000.00)

Minus principal amount of the refinanced mortgage

(95,000.00)

Net Proceeds shown on the Closing Disclosure

$5,000.00

Prorated Subsidy Recapture

$1,666.60

Required Subsidy Recapture:

$0.00

In Example 2, the Prorated Subsidy Recapture is $2,500 or less; therefore no recapture is due.

    Example 3:  Sale 

Assumptions:

 

Current Sale Price

$224,350.00

Minus reasonable and customary transaction costs

(5,468.52)

Minus outstanding superior debt

(191,531.48)

Equal Net Proceeds

$27,350.00

Seller’s Household Investment

 

Down payment / earnest money

$1,500.00

Plus Transaction costs (broker’s commission, title search fees, etc.)

750.00

Plus Capital Improvements (roof replacement, room addition, etc.)

7,000.00

Plus Repaid Mortgage Principal

3,000.00
Total Household Investment

$12,250.00

Prorated Subsidy Recapture

$3,999.84

Net Proceeds

$27,350.00

Household Investment

(12,250.00)

Total Net Gain

$15,100.00

Required Subsidy Recapture:

$3,999.84

In Example 3, the Net Gain ($15,100) is sufficient to cover the Prorated Subsidy Recapture ($3,999.84); therefore, the full Prorated Subsidy Recapture amount is due.

It is possible for the seller to reduce or even eliminate the required subsidy recapture amount. The seller should refer to How Can a Household Reduce the Amount of Potential Recapture? for more information.

Recapture on refinancing

  • If the property is refinanced and the retention language remains in or attached to the recorded deed, no recapture is required, regardless of whether there are proceeds from the refinancing.
  • If the property is refinanced and the retention language is removed from the recorded deed, a recapture is required based on the refinance net proceeds and household investment calculations noted above.

Note: The FHLB does not provide or file a Release/Satisfaction of Obligation documentation if the grant is repaid prior to the end of the retention period or upon expiration of the retention period. If a Release/Satisfaction of Obligation is required, the document must be prepared and submitted to the FHLB for review. It is the responsibility of the new lender or closing agent to request and file the Release/Satisfaction of Obligation document.

Recapture on foreclosure or assignment

  • Any obligation to repay grant funds terminates in the event of foreclosure, deed-in-lieu of foreclosure, or assignment of the title or deed. FHLB requires legal documentation (i.e., copy of the entered Judgement, Notice of Sale, Report of Sale, Deed-in-Lieu, etc.) to verify the details of the foreclosure, deed-in-lieu of foreclosure, or transfer transaction. The lender/agent should send the documents along with the completed Subsidy Payoff Request Form directly to the FHLB.

Other transaction types

Assumption

  • If ownership of the property is transferred from the original grant recipient to a spouse, family member or other individual not originally included on the loan at the time of the initial grant, the transaction is viewed as a sale and all applicable steps are followed.

Death

  • Any obligation to repay grant funds terminates in the event of the death of the grant recipient prior to the expiration of the retention period. FHLB must be notified and official documentation to determine the date of death is required (i.e., Death Certificate, obituary announcement).

Destruction

  • Any obligation to repay grant funds terminates in the event the property is destroyed or damaged beyond repair through an unintentional act or event (fire, natural disaster, etc.). The homeowner should send documentation sufficient to verify the destruction event and damage to the property.