should not seek credit in anticipation of withdrawals, and credit should not be granted to increase cash positions, to purchase Government securities, or to acquire other investment securities except to the extent that the applicant is reestablishing the association's normal liquidity.

[32 F.R. 2366, Feb. 3, 1967, as amended at 32 FR 21029, Dec. 30, 1967; 38 FR 14743, June 5, 1973]

§ 531.3 Supplemental statement of policy on advances.

(a) Commitments should not exceed reasonable levels giving due consideration to all factors pertaining to a member's condition and operating situation. Moreover, member institutions should control commitments by giving due regard to reasonably anticipated cash flows, the requirements of the residential mortgage market, and the availability of credit from a member's bank based on discussion with the bank.

(b) Loan officers of regional banks are expected to examine each advance application in prudent detail. Previous credit determinations certainly do not preclude such examinations, nor acceptance, rejection or modification of the proposed loan application. Particular attention shall be given to precise purposes of the proposed advance and the type of properties and transactions for which the funds are sought.

[38 FR 14743, June 5, 1973]

§ 531.4 Verification of collateral held by members under trust receipt. (a) Documents evidencing home mortgages assigned by a borrowing member to a Federal Home Loan Bank as security for advances may be placed or left with such borrowing member for safekeeping, provided that the Bank obtains from the borrowing member a trust receipt or other agreement. Such documents will be held for the benefit and subject to the direction and control of the lending Bank. Where such a procedure is employed, it is necessary for the loaning Bank to periodically determine that home mortgage loans securing its advances are actually in existence and that any documents held by the borrowing member under a trust receipt are not intermingled with other documents. This periodic determination should be accomplished by a member's auditor at the time of each audit of such member by means of verification and reconcile

ment of the appropriate records and documents of the Bank and the borrowing member. If a borrowing member is not audited regularly, the verification and reconcilement may be done by representatives of the appropriate supervisory authority in connection with each examination of such member. Notwithstanding the foregoing, verification may be made at any time by a representative of the Bank, and shall be made by such a representative in any instance where verification was not accomplished to the satisfaction of the Bank during the preceding 16-month period.

(b) Verification must be accomplished in accordance with generally accepted auditing standards and must include such tests of the borrowing member's books, records, and documents as may be necessary to provide a reasonable basis for a certification to the loaning Bank by the auditor, examiner, or other person performing the verification and reconcilement that home mortgage loans pledged as security for Bank advances are actually in existence and that loan documents which are held for the Bank by the borrowing member are physically segregated from other loan documents in the possession of such borrowing member. The certification shall be of such type and in such form as the loaning Bank may from time to time prescribe.

[32 F.R. 3970, Mar. 11, 1967]

§ 531.5

Removal of credit restrictionsCalifornia.

(a) Federal Home Loan Bank Board Resolution No. 19,333, dated August 6, 1965, provides that institutions which remain restricted as to advances as of July 1, 1965, or become restricted thereafter, will continue to be restricted for & period of from 6 months to 1 year after coming into conformity with the Board's requirements.

(b) The Board finds that, as a result of its Statement of Policy contained in Federal Home Loan Bank Board Resolution No. 19,898, dated May 16, 1966, as amended (§ 513.3), those institutions in California whose dividend rate was increased to 5 percent effective on dates prior to July 1, 1966, will, to that extent, come into conformity with Board requirements on July 1, 1966. The Board has determined that, if such institutions otherwise comply with all conditions of Resolution No. 19,808, the period of continuing restriction referred to in Resolu

tion No. 19,333 for such institutions shall terminate on January 1, 1967. [31 F.R. 8773, June 24, 1966]

§ 531.6 Continued inclusion of certain obligations of the United States as liquid assets.

(a) Under § 523.10(g) (2) of this subchapter, obligations of the United States are included as liquid assets, without regard to maturity, prior to January 1, 1972. Beginning on January 1, 1972, obligations of the United States with a remaining period to maturity of more than 7 years will be included as liquid assets only up to a maximum limit of one-half of 1 percent of the member institution's liquidity base, except as the Board may otherwise direct in a specific case.

(b) In any case in which such limitation on the inclusion of long-term obligations as liquid assets may cause a member institution undue financial loss or hardship, the Board will consider a request from the member institution for permission to include a greater amount of longterm obligations of the United States than would be includable under § 523.10 (g) (2) of this subchapter. The Board may permit the inclusion of such obligations in such amounts and for such periods of time as it may deem necessary or desirable under the circumstances of that particular case.

(c) Any such request by a member institution should be transmitted to the Director, Office of Examinations and Supervision, Federal Home Loan Bank Board, Washington, D.C. 20052, with a copy thereof to the Bank of which it is a member.

(12 U.S.C. 1425a) [34 F.R. 20415, Dec. 31, 1969]

§ 531.7 Distribution of maturities of certificate accounts of 1 year or more. (a) This is a statement of the Federal Home Loan Bank Board's policy concerning distribution of maturities of certificate accounts of 1 year or more. In conducting examinations of member institutions whose accounts are insured by the Federal Savings and Loan Insurance Corporation, the Board's examiners will review the maturity structure of each institution's certificate accounts. Supervisory comment will be made if the institution has an undue "bunching" of maturities of certificate accounts of 1 year or more.

(b) Each member institution should avoid issuing or renewing a certificate

account of 1 year or more if, as a result of such issuance or renewal, the total of the institution's certificate accounts of 1 year or more maturing in a particular month would exceed 5 percent of the institution's total savings accounts. In computing the 5 percent ratio, the denominator shall be the institution's total savings as of the end of the month preceding such issuance or renewal and the numerator shall be the total certificate accounts of 1 year or more outstanding after such issuance or renewal and maturing in the particular month.

(Sec. 5B, 47 Stat. 727, as added by sec. 4, 80 Stat. 824, as amended by sec. 2(b), 83 Stat. 371, as amended by sec. 4, Public Law 93-100, August 16, 1973; sec. 17, 47 Stat. 736, as amended; 12 U.S.C. 1425b, 1437. Reorg. Plan No. 3 of 1947, 12 F.R. 4981, 3 CFR, 1943-48 Comp. p. 1071). [38 FR 30103, Nov. 1, 1973] § 531.8 Guidelines relating to Nondiscrimination in Lending.

(a) General. Fair housing and equal opportunity in home financing is a policy of the United States established by Federal statutes and Presidential orders and proclamations. In furtherance of the Federal civil rights laws and the economical home financing purposes of the statutes administered by the Board, the Board has adopted, in Parts 528 and 529 of this subchapter, nondiscrimination regulations which, among other things prohibit discrimination based on race, color, religion, sex, or national origin in fixing the amount, interest rate, duration, application procedures, collection or enforcement procedures, or other terms or conditions of housing related loans. This section provides supplementary guidelines to aid member institutions in developing and implementing non-discriminatory lending policies. Each member institution should re-examine its underwriting standards from time to time in order to insure equal opportunity.

(b) Loan underwriting standards. The basic purpose of the Board's nondiscrimination regulations is to require that every applicant be given an equal opportunity to obtain a loan. Each loan applicant's credit worthiness should be evaluated on an individual basis without reference to presumed characteristics of a group. The use of lending standards which have no economic basis and which are discriminatory in effect is a violation of law even in the absence of an actual intent to discriminate. However, a standard which has a discriminatory effect is not necessarily improper if its use

39-057-75- -19

achieves a genuine business need which cannot be achieved by means which are not discriminatory in effect or less discriminatory in effect.

(c) Discriminatory practices-(1) Discrimination on the basis of sex. The Civil Rights Act of 1968 and the National Housing Act prohibit discrimination in home lending on the basis of sex. Refusing to lend to, requiring higher standards of credit worthiness of, or imposing different requirements on, members of one sex would be discriminatory practices based on sex. For example, requiring single women with steady employment, or other income, and who are otherwise credit worthy, to obtain a cosigner or guarantor in order to obtain mortgage credit if the member institution does not require multiple signatures on mortgage loans to a single man in the same income and credit situation would be a discriminatory practice based on sex.

(2) Discrimination based on age or marital status. The Board's nondiscrimination regulations do not, at present, address discrimination on the basis of age or marital status (except as provided for in § 528.2(b)) because the regulations are limited to the scope of the Civil Rights Act of 1968 and the National Housing Act. However, such discrimination is contrary to the principle of, and may in fact violate, Constitutional provisions which guarantee equal protection of the law for all persons. In addition, such practices impede the achievement of the objectives of Federal laws intended to promote sound, economical home financing, fair housing opportunity, and a decent home for every American. Discrimination on the basis of marital status may additionally reIsult in racial or ethnic discrimination since a larger proportion of minority group families rely on the wife's income to afford housing and other necessities. The type of practices considered by this paragraph includes loan underwriting decisions which differentiate loan applicants on the basis of assumptions regarding comparative differences in credit worthiness between older and younger persons, or among married, single, widowed, or divorced individuals without actual consideration being given to the applicants' credit histories and present and reasonably foreseeable economic prospects.

(3) Discrimination on the basis of language. Requiring fluency in the English language as a prerequisite for ob

taining a loan may be a discriminatory practice based on national origin.

(4) Income of husbands and wives. A practice of normally discounting all or part of a wife's income is a violation of section 527 of the National Housing Act. As with other income, the determination as to whether a wife's income qualifies as effective for credit purposes should depend upon a reasonable evaluation of her past, present, and reasonably foreseeable economic circumstances. The Board disapproves of the practice of requiring, as a condition for counting a wife's income, information relating to birth control practices of the couple or information relating to their ability to have children.

(5) Supplementary income. Lending standards which consider as effective only the non-overtime income of the pr.mary wage-earner may result in discrimination because they do not take account of variations in employment patterns among individuals and families The Board favors loan underwriting which reasonably evaluates the credit worthiness of each applicant based on a realistic appraisal of his or her own past. present, and foreseeable economic circumstances. The determination as to whether primary income or additional income qualifies as effective for credit purposes should depend upon whether such income may reasonably be expected to continue through the early period of the mortgage risk. Automatically discounting other income from bonuses, overtime, or part-time employment, will cause some applicants to be denied financing without a realistic analysis of their credit worthiness. Since statistics show that minority group members and low- and moderate-income families rely more often on such supplemental income, the practice may be racially discriminatory in effect, as well as artificially restrictive of opportunities for home financing.

(6) Age, income level, or racial composition of neighborhood. Refusal to lend in a particular area solely because of the age of the homes or the income level in a neighborhood may be discriminatory in effect since minority group persons are more likely to purchase used housing and to live in low-income neighborhoods The racial composition of the neighborhood where the loan is to be made is always an improper underwriting consideration.

(7) Borrowers' prior history. Unstable or irresponsible behavior, especially toward credit obligations, is a proper conideration in making lending decisions. However, the application of a rigid and arbitrary rule may be a discriminaory lending practice. An isolated experience in the distant past should not be a ground for denial of a loan if subsequent experience and present circumstances indicate stability. A policy favorng applicants who have previously owned homes may perpetuate prior disrimination. Job or residential changes may indicate upward mobility. Emphasis should be upon a realistic assessment of the credit worthiness of each applicant without resorting to unreasonable standards.

Sec. 808, 88 Stat. 633; title VIII, 82 Stat. 81, as amended (42 U.S.C. 3601-3619); sec. 17, 47 Stat. 736, as amended (12 U.S.C. 1437); secs. 402, 403, 407, 527, 48 Stat. 1256, 1257, 1260, 1265, as amended (12 U.S.C. 1725, 1726, 1730); sec. 5, 48 Stat. 132, as amended (12 U.S.C. 1464); Reorg. Plan No. 3 of 1947, 12 FR 4981, 3 CFR 1943-48 Comp., p. 1071) [39 FR 43620, Dec. 17, 1974]

§ 531.9 Interest rates on advances.

Except as may otherwise be provided from time to time by the Federal Home Loan Bank Board, the following provisions shall apply to advances by the Federal Home Loan Banks to their members:

(a) Notes or other obligations evidencing such advances shall, except as provided in paragraphs (b) and (d) of this section, be written at such rate of interest as the Board may approve or determine by resolution or otherwise, calculated on the unpaid principal balance from time to time outstanding, and interest shall not, except as provided in

paragraphs (c) and (d) of this section, be collected by such banks on such advances at a rate exceeding such approved or determined rate, calculated as aforesaid;

(b) Notes or other obligations evidencing such advances made for periods of more than 6 months shall include, and notes or other obligations evidencing such advances made for periods of 6 months or less may include, a provision that the holder of the note or obligation may from time to time decrease the interest rate thereon and may from time to time, on giving to the member, or to the principal obligor at the time such notice is given, a notice for a period which shall be specified in the note or obligation and shall not exceed 30 days, increase the interest rate thereon to a rate not in excess of the maximum rate from time to time permitted by the Federal Home Loan Bank Board to be collected;

(c) Notes or other obligations evidencing such advances shall include a provision for an increase of not les than 1 percent and not more than 5 percent per annum in the then current interest rate on past-due principal and interest;

(d) Notes or other obligations evidencing the refinancing of delinquent advances shall be made under such conditions and written at such interest rates as may from time to time be prescribed by the Federal Home Loan Bank Board. All forms of notes or other obligations used to evidence such advances shall be submitted to the Federal Home Loan Bank Board for approval with the opinion of Bank counsel as to their validity in the jurisdiction or jurisdictions where they are to be used.

(Sec. 10, 47 Stat. 731, as amended; 12 U.S.C. 1430) [34 F.R. 13362, Aug. 19, 1969, as amended at 39 FR 13888, Apr. 18, 1974]

The term "Federal association" means a Federal savings and loan association chartered by the Board as provided in section 5 of the Home Owners' Loan Act of 1933, as amended. As used in §§ 546.1, 546.2, 546.3, and 546.4 of Part 546, and in Parts 547, 548, 549, and 550 of this subchapter, the term "Federal association" also includes any incorporated or unincorporated building, building or loan, building and loan, savings and loan, or homestead association, which has been organized or incorporated under or pursuant to the laws of the District of Columbia.

[33 F.R. 10523, July 24, 1968]

§ 541.3 Capital.

The term "withdrawal value" means the amount paid on a savings account in a Federal association, plus earnings credited thereto, less lawful deductions therefrom.

[23 F.R. 9890, Dec. 23, 1958]

§ 541.7 General reserves.

The term "general reserves" means the aggregate amount of reserves of a Federal association established by such association for the sole purpose of meeting losses.

[23 F.R. 9890, Dec. 23, 1958] § 541.8 Surplus.

The term "surplus" means the undistributed earnings of a Federal association which are held as unallocated reserves for general corporate use. [23 F.R. 9890, Dec. 23, 1958]

§ 541.8-1 Net worth.

The term "net worth" means the sum of all general reserves, surplus, and any other accounts of a Federal association which may be designated as part of net worth pursuant to the provisions of this subchapter.

[37 F.R. 12931, June 30, 1972]

§ 541.9 Loans on the security of first liens.

(a) The term "loans on the security of first liens" means loans on the security of any instrument (whether a mortgage, deed of trust, or land contract) which makes the interest in the real estate described therein (whether in fee or in a leasehold or subleasehold extending or renewable automatically or at the option of the holder (or at the option of the Federal association) for a period of at least 10 years beyond the maturity of the loan) specific security for the payment of the obligation secured by such instrument: Provided, The instrument is of such nature that, in the event of default, the real estate described in such instrument could be subjected to the satisfaction of such obligation with the same priority as a first mortgage or a first deed of trust in the jurisdiction where the real estate is located.