[Federal Register: June 21, 2002 (Volume 67, Number 120)]
[Proposed Rules]               
[Page 42200-42202]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21jn02-11]                         





Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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[[Page 42200]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of Federal Housing Enterprise Oversight

12 CFR Part 1720

RIN 2550-AA22

 
Safety and Soundness Regulation

AGENCY: Office of Federal Housing Enterprise Oversight, HUD

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Office of Federal Housing Enterprise Oversight (OFHEO) 
solicits comments on a proposed regulation that would support increased 
transparency and public awareness of minimum supervisory standards as 
may from time to time be adopted by OFHEO and applied in overseeing the 
safety and soundness of the Federal National Mortgage Association 
(Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie 
Mac) (collectively, the Enterprises). The format of the proposal 
reflects that used by other Federal regulators to delineate supervisory 
standards in a manner consistent with the United States Supreme Court 
rulings affecting such agency pronouncements. OFHEO will adopt and 
publish supervisory policy guidances as appendices to the proposed rule 
as it deems appropriate to illuminate areas of particular interest or 
potential concern.

DATES: Written comments on the proposed rule must be received by July 
22, 2002.

ADDRESSES: All comments concerning the proposed rule should be 
addressed to Alfred M. Pollard, General Counsel, Office of General 
Counsel, Office of Federal Housing Enterprise Oversight, 1700 G Street, 
NW, Fourth Floor, Washington, DC 20552. Copies of all communications 
received will be available for public inspection and copying at the 
address above. All comments will be posted on the OFHEO Web site at 
http://www.ofheo.gov. OFHEO requests that written comments submitted in 
hard copy also be accompanied by an electronic version in MS Word or in 
portable document format (PDF) on a 3.5'' disk. Alternatively, comments 
may be submitted via electronic mail to RegComments@ofheo.gov.

FOR FURTHER INFORMATION CONTACT: David W. Roderer, Deputy General 
Counsel, or Marvin Shaw, Senior Counsel, at (202) 414-6924 (not a toll-
free number), Office of General Counsel, Office of Federal Housing 
Enterprise Oversight, 1700 G Street NW., Fourth Floor, Washington, DC 
20552. The telephone number for the Telecommunications for the Deaf is: 
(800) 877-8339 (TTD only).

SUPPLEMENTARY INFORMATION: The Federal Housing Enterprises Safety and 
Soundness Act of 1992, Title XIII of Public Law 102-550 (the Act), 
empowers OFHEO to take any such action as the Director determines to be 
appropriate to ensure that the federally sponsored housing enterprises, 
the Federal National Mortgage Association (Fannie Mae) and the Federal 
Home Loan Mortgage Corporation (Freddie Mac) (collectively, the 
Enterprises), are adequately capitalized and operating safely by, among 
other things, adopting supervisory policies and standards by regulation 
or other guidance or process. On December 19, 2000, OFHEO issued Policy 
Guidance PG-00-001 setting forth minimum supervisory standards in eight 
broad areas of particular regulatory interest and potential concern.\1\ 
One year later, a second policy guidance was adopted that specifically 
sets out the minimum safety and soundness standards for information 
systems and security.\2\ That policy guidance, entitled ``Safety and 
Soundness Standards for Information,'' focused narrowly on safety and 
soundness concerns with the adequacy of the Enterprises' respective 
policies and procedures affecting the security of their information 
systems and integrity of such information, including borrower 
information maintained by the Enterprises.
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    \1\ OFHEO Policy Guidance PG-00-001, Minimum Safety and 
Soundness Requirements (Dec. 19, 2000) (available on OFHEO's Web 
site at http://www.ofheo.gov).
    \2\ OFHEO Policy Guidance PG-01-002, Safety and Soundness 
Standards for Information (Dec. 19, 2001) (available at http://
www.ofheo.gov).
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    Under those or any subsequently adopted policy guidances, if OFHEO 
finds that an Enterprise fails to meet specified requirements or 
standards, the Director may, among other things, require the Enterprise 
to submit to the agency and to implement a written plan to achieve 
timely compliance with the requirement or standard. If the Enterprise 
fails to submit such an adequate plan in the format and within the time 
specified by the agency or fails in some material respect to implement 
the plan, the agency may take additional supervisory action. The 
Director may at any time initiate an action to cease or prescribe 
conduct by the Enterprise as the agency deems to be appropriate to 
remedy or correct conditions resulting from an unsafe or unsound 
practice or condition. Agency actions may include, but are not limited 
to, issuance of a notice of charges or order, imposition of civil money 
penalties, or such other remedial actions or sanctions as determined by 
the Director.
    The minimum standards set forth in OFHEO's policy guidances are 
designed to identify key safety and soundness concerns regarding 
operation and management of an Enterprise, and to ensure that conduct 
and practices of the Enterprises reasonably avoid the emergence of 
problems that might entail serious risks. The minimum standards also 
reflect the need for internal policies and procedures in particular 
areas that, if not appropriately addressed by the Enterprises, may 
warrant supervisory action by OFHEO in order to reduce risks of loss 
and corresponding capital impairment. The minimum standards set out in 
such guidances are intended to effect these purposes without dictating 
how the Enterprises must be operated and managed; moreover, the 
guidances do not purport to set out detailed operational and managerial 
procedures that an Enterprise must have in place. Rather, the guidances 
identify the ends that proper operational and management policies and 
procedures are to achieve, while leaving the means to be devised by 
each Enterprise as it designs and implements its own policies and 
procedures. To the limited extent that OFHEO does specify particular 
requirements, each Enterprise's management is left with substantial 
flexibility to fashion and implement those requirements.

[[Page 42201]]

    In this notice of proposed rulemaking, OFHEO is proposing to issue 
a rule to provide regulatory support for the adoption and publication 
of such guidances, and thereby to increase the transparency and public 
awareness of the supervisory standards employed by OFHEO in the 
oversight of the Enterprises. The format of the proposed regulation, as 
a formal agency pronouncement delineating the parameters of the 
supervisory standards applicable to the Enterprises, mirrors that used 
by the Office of Comptroller of the Currency (OCC) in promulgating 
safety and soundness standards for national banks \3\ pursuant to 
Section 39 of the Federal Deposit Insurance Act,\4\ as well as in later 
adopting specific supervisory standards applicable to the information 
systems of banks.\5\
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    \3\ For the OCC, these regulations appear at 12 CFR part 30, 
Appendix A: ``Interagency Guidelines Establishing Standards for 
Safety and Soundness''; see also, for the Board of Governors of the 
Federal Reserve System at 12 CFR part 263; and for the Federal 
Deposit Insurance Corporation at 12 CFR part 308, subpart R; and for 
the Office of Thrift Supervision at 12 CFR part 570.
    \4\ 12 U.S.C. 1381p-1.
    \5\ See, Appendix B of 12 CFR part 30.
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    The regulation and appended guidances are intended to facilitate 
the public awareness and enforceability of such standards as official 
agency pronouncements in a manner consistent with recent United States 
Supreme Court's rulings.\6\ Policy guidances adopted by the agency that 
address matters of safety and soundness concern will be published as 
appendices to a final rule.
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    \6\ See, United States v. Mead Corp., 533 U.S. 218 (2001), and 
Christensen v. Harris County, 529 U.S. 576 (2000).
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Policy Guidances

    The proposed regulation is not intended to effect any specific 
change in OFHEO's supervisory policies, as either reflected in the 
policy guidances or elsewhere. OFHEO routinely undertakes to evaluate 
an Enterprise's policies and practices, in order to determine whether 
such policies are safe and sound in principle and in practice. OFHEO 
also evaluates whether procedures are in place to ensure that an 
Enterprise's policies as adopted by the Enterprise's board of directors 
and management are, in fact, applied in the normal course of business. 
OFHEO will continue to determine compliance with the standards 
specifically addressed in the policy guidances and to assess the 
policies and practices of the Enterprises that might affect their 
financial conditions and compliance with applicable laws and 
regulations through examinations of the Enterprises, as well as off-
site monitoring and a continuing dialogue with each Enterprise.
    Nothing in the OFHEO Policy Guidances in any way limits the 
authority of OFHEO to otherwise address unsafe or unsound conditions or 
practices, or violations of applicable laws, regulations or supervisory 
orders. Any supervisory action undertaken with reference to the policy 
guidances or the proposed regulation may be taken separate from, in 
conjunction with, or in addition to any other enforcement action 
available to OFHEO. Compliance with the minimum standards articulated 
in a policy guidance will preclude the agency from finding that an 
Enterprise is otherwise engaged in a specific unsafe or unsound 
practice or is in an unsafe or unsound condition, or requiring 
corrective or remedial action with regard to such practice or 
condition. That is, supervisory action is not precluded against an 
Enterprise because it has not been cited for a deficiency under a 
policy guidance. Conversely, an Enterprise's failure to comply with one 
of these supervisory standards may not warrant a formal supervisory 
response from OFHEO, if the agency determines the matter can be 
otherwise addressed in a satisfactory manner. For example, OFHEO may 
require timely submission of a plan to achieve compliance with the 
particular standard or standards, and refrain from taking any other 
enforcement action.

Regulatory Impact

Executive Order 12866, Regulatory Planning and Review

    The proposed regulation is not classified as a significant rule 
under Executive Order 12866 because it will not result in an annual 
effect on the economy of $100 million or more or a major increase in 
costs or prices for consumers, individual industries, Federal, State, 
or local government agencies, or geographic regions; or have 
significant adverse effects on competition, employment, investment, 
productivity, innovation, or on the ability of United States-based 
enterprises to compete with foreign-based enterprises in domestic or 
foreign markets. Accordingly, no regulatory impact assessment is 
required and this proposed regulation need not be submitted to the 
Office of Management and Budget for formal review.

Unfunded Mandates Reform Act of 1995

    This proposed rule does not include a Federal mandate that could 
result in the expenditure by State, local, and tribal governments, in 
the aggregate, or by the private sector, of $100,000,000 or more 
(adjusted annually for inflation) in any one year. As a result, the 
proposed rule does not warrant the preparation of an assessment 
statement in accordance with the Unfunded Mandates Reform Act of 1995.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that 
a regulation that has a significant economic impact on a substantial 
number of small entities, small businesses, or small organizations must 
include an initial regulatory flexibility analysis describing the 
regulation's impact on small entities. Such an analysis need not be 
undertaken if the agency has certified that the regulation will not 
have a significant economic impact on a substantial number of small 
entities. 5 U.S.C. 605(b). OFHEO has considered the impact of the 
proposed regulation under the Regulatory Flexibility Act. The General 
Counsel of OFHEO certifies that the proposed regulation, if adopted, is 
not likely to have a significant economic impact on a substantial 
number of small business entities because the regulation only affects 
the Enterprises, which are not small entities for purposes of the 
Regulatory Flexibility Act.

Paperwork Reduction Act of 1995

    This proposed regulatory contains no information collection 
requirement that would require the approval of the Office of Management 
and Budget pursuant to the Paperwork Reduction Act, 44 U.S.C. 3501-
3520.

List of Subjects in 12 CFR Part 1720

    Administrative practice and procedure, Privacy, Mortgages.

    Accordingly, for the reasons set out in the preamble, the Office of 
Federal Housing Enterprise Oversight proposes to add part 1720 to 
subchapter C of 12 CFR chapter XVII to read as follows:

PART 1720--SAFETY AND SOUNDNESS

Sec.
1720.1   Authority.
1720.2   Safety and soundness standards.

    Authority: 12 U.S.C. 4513(a), 4513(b)(1), 4513(b)(5), 4517(a), 
4521(a)(2) through (3), 4631, 4632, and 4636.


Sec. 1720.1  Authority.

    (a) Authority. This part is issued by the Office of Federal Housing 
Enterprise Oversight (OFHEO) pursuant to sections 1313(a), 1313(b)(1), 
and 1313(b)(5) of the Federal Housing Enterprise Safety and Soundness 
Act (Act) (12 U.S.C. 4513(a), 4513(b)(1), and 4513(b)(5)). These 
provisions of the Act authorize

[[Page 42202]]

OFHEO to take any action deemed appropriate by the Director of OFHEO to 
ensure that the Federal National Mortgage Association and the Federal 
Home Loan Mortgage Corporation (the Enterprises) are operated in a safe 
and sound manner, including by adopting supervisory policies and 
standards by regulation, guidance, or other process.
    (b) Preservation of existing authority. No action by OFHEO 
undertaken with reference to a policy guidance or this regulation will 
in any way limit the authority of the Director otherwise to address 
unsafe or unsound conditions or practices, or other violations of law, 
rule or regulation. Action with reference to a policy guidance or this 
regulation may be taken separate from, in conjunction with, or in 
addition to any other supervisory response, enforcement action, or 
agency-imposed requirements deemed appropriate by OFHEO. Nothing in 
this regulation or any guidance issued by OFHEO limits the authority of 
the Director pursuant to section 1313 of the Act (12 U.S.C. 4513) or 
any other provision of law, rule or regulation applicable to the 
Enterprises.


Sec. 1720.2  Safety and soundness standards.

    Policy guidances as may be adopted from time to time by OFHEO, 
addressing safety and soundness standards, shall apply to the Federal 
National Mortgage Association (Fannie Mae) and the Federal Home Loan 
Mortgage Corporation (Freddie Mac) (collectively, the Enterprises). If 
OFHEO determines that an Enterprise does not meet a requirement set out 
in such a policy guidance, it may require corrective or remedial 
actions by the Enterprise, and take such enforcement action as the 
Director deems to be appropriate.

    Dated: June 17, 2002.
Armando Falcon, Jr.,
Director, Office of Federal Housing Enterprise Oversight.
[FR Doc. 02-15678 Filed 6-20-02; 8:45 am]
BILLING CODE 4220-01-P