This Order is issued pursuant to the Commodity Promotion, Research, and Information Act of 1996 (Act) [7 U.S.C. 7401-7425; Public Law 104-127].

Previous documents in this proceeding: Proposed Rule Number 1 (July 1999 proposed rule) on the Order published in the July 22, 1999, issue of the Federal Register [64 FR 39790]; a proposed rule on referendum procedures published in the July 22, 1999, issue of the Federal Register [64 FR 39803]; Proposed Rule Number 2 (February 2000 proposed rule) on the Order, which included a Referendum Order, published in the February 15, 2000, issue of the Federal Register [65 FR 7657]; a final rule on referendum procedures published in the February 15, 2000, issue of the Federal Register [65 FR 7652].

In a recent referendum, eligible producers and importers of cultivated blueberries voted in favor of implementing the Order. This final rule, which will become effective in 30 days, completes the implementation process.

The purpose of the program is to develop and finance an effective and coordinated program of promotion, research, and information to maintain and expand the markets for fresh and processed cultivated blueberries.

Cultivated blueberry producers who grow and importers who import 2,000 pounds or more of cultivated blueberries annually will be subject to this rule and pay an assessment.

The assessment rate is $12 per ton.

Domestic assessments for the 2001 crop year will be due by November 30, 2001. Assessments for the subsequent crop years will be due by November 30 of the crop year. The U.S. Customs Service will collect assessments on imports at the time of entry into the United States, starting on January 2, 2001.

Assessments will be due as long as the Order is in effect. However, every five years, USDA will conduct a referendum to determine whether producers and importers of cultivated blueberries want the program to continue. The program will continue if a majority of the voters in the referendum vote for approval and those voters represent a majority of the pounds of cultivated blueberries produced and imported by the voters in the referendum.

The USABC will administer the Order with supervision from USDA. The USABC members will be appointed by the Secretary of Agriculture (Secretary) from nominations received from the blueberry industry.

The USABC will consist of 13 members: One producer member from each of four producer regions; one producer member from each of the top five cultivated-blueberry-producing states; one importer; one exporter (a foreign producer who ships cultivated blueberries into the United States from the largest foreign cultivated blueberry production area); one first handler; and one public member. Each member will have an alternate. Currently, the top five states (in descending order) are Michigan, New Jersey, Oregon, Georgia, and North Carolina.

The nomination process for the producer members and alternates will begin soon after the Order becomes effective. The North American Blueberry Council (NABC) will assist USDA in this process for the initial nominations. Future nominations will be managed by the USABC.

It is expected that the producer members and alternates will be appointed by the Secretary in time for the USABC to hold its organizational meeting in Washington, DC, in late 2000. The USABC will nominate persons to serve as the importer, exporter, handler, and public member and alternates after it is appointed and has met.

The NABC will notify all producers of cultivated blueberries when the nomination process will begin. Voting for nominees will be by mail ballot. In states where there is a state commission or marketing order committee for cultivated blueberries, the commission or committee will have the opportunity to nominate members and alternates to serve on the USABC. The commissions and committees must submit two nominees for each member and two nominees for each alternate. Producers in these states should contact their state commission or committee to express interest in being nominated.

In states where no commission or committee exists, the NABC will seek nominations from the cultivated blueberry producers in those states, place the names on a ballot for each state and region, and send the ballot to the producers in the appropriate states and regions to vote on the nominees of their choice. The person receiving the highest number of votes cast for each seat on the USABC will be the first choice nominee for the member. The person receiving the second highest number of votes cast will be the first choice nominee for the alternate member. The persons with the third and fourth highest number of votes cast will be designated as additional nominees for the member and alternate positions. Each nominee will complete and submit to the NABC a background form. The NABC will then submit the nominees and their background forms to the Secretary for consideration.

This rule has been reviewed under Executive Order (E.O.) 12988, Civil Justice Reform. It is not intended to have retroactive effect. Section 524 of the Act provides that the Act shall not affect or preempt any other Federal or state law authorizing promotion or research relating to an agricultural commodity.

Under Section 519 of the Act, a person subject to the Order may file a petition with the Secretary of Agriculture (Secretary) stating that the Order, any provision of the Order, or any obligation imposed in connection with the Order, is not established in accordance with the law, and requesting a modification of the Order or an exemption from the Order. Any petition filed challenging the Order, any provision of the Order, or any obligation imposed in connection with the Order, shall be filed within two years after the effective date of the Order, provision, or obligation subject to challenge in the petition. The petitioner will have the opportunity for a hearing on the petition. Thereafter, the Secretary will issue a ruling on a petition. The Act provides that the district court of the United States for any district in which the petitioner resides or conducts business shall have the jurisdiction to review a final ruling on the petition, if the petitioner files a complaint for that purpose not later than 20 days after the date of the entry of the Secretary's final ruling.

This rule has been determined “not significant” for purposes of E.O. 12866 and therefore has not been reviewed by the Office of Management and Budget (OMB).

In accordance with the Regulatory Flexibility Act (RFA) [5 U.S.C. 601 et seq. ], the Agency examined the impact of this rule on small entities and prepared a final regulatory flexibility analysis that was included in the proposed rule published in the Federal Register on February 15, 2000. The analysis indicates that the agency minimized the economic impacts of the Order provisions on small entities to the fullest extent reasonably possible while adhering to the program's objectives.

In addition, the Order's provisions were carefully reviewed, and every effort was made to minimize any unnecessary information collection and recordkeeping costs or requirements. In accordance with the OMB regulation [5 CFR Part 1320] which implements the Paperwork Reduction Act of 1995 [44 U.S.C. Chapter 35], the information collection and recordkeeping requirements that are imposed by this Order were submitted to OMB and approved under OMB control numbers 0505-0001 and 0581-0093.

Copies of the final regulatory flexibility analysis and the discussion of the information collection and recordkeeping requirements contained in this rulemaking can be obtained from Oliver Flake at the address listed above or by e-mail at oliver.flake@usda.gov .

In December 1998, the North American Blueberry Council, Inc. (proponent or NABC) submitted a proposal for a national promotion, research, and information order for cultivated blueberries pursuant to the Act. The Department published the proponent's proposal, with modifications, for public comment in the July 1999 proposed rule. Eight comments were received by the September 20, 1999, deadline. These comments, and related changes to the Order, were discussed in the February 15, 1999 proposed rule, which included a Referendum Order. A referendum was conducted from March 13 to April 14, 2000. In the referendum, producers and importers of 2,000 pounds of cultivated blueberries voted to implement the program.

Under the program, producers and importers of 2,000 pounds or more of cultivated blueberries will pay an assessment of $12 per ton annually. The producer assessment will be collected by first handlers, and the importer assessment will be collected by the U.S. Customs Service.

The program will be administered by the USABC under USDA supervision. The USABC will have 13 members: one producer member from each of four producer regions; one producer member from each of the top five cultivated-blueberry-producing states; one importer; one exporter (a foreign producer who ships cultivated blueberries into the United States from the largest foreign cultivated blueberry production area); one first handler; and one public member. Each member will have an alternate.

The USABC will conduct a generic program of promotion, research, consumer information, and industry information to maintain and expand markets for cultivated blueberries.

The Order is summarized as follows: Sections 1218.1 through 1218.23 of the Order define certain terms, such as blueberries, producer, and importer, which are used in the Order.

Sections 1218.40 through 1218.48 include provisions relating to the USABC. These provisions cover establishment and membership, nominations and appointments, term of office, vacancies, alternate members, procedures for conducting USABC business, compensation and reimbursement, powers and duties of the USABC, and prohibited activities. The USABC is the governing body authorized to administer the Order through the implementation of programs, plans, projects, budgets, and contracts to promote and disseminate information about blueberries, subject to oversight of the Secretary.

Sections 1218.50 through 1218.56 cover budget review and approval; financial statements; authorize the collection of assessments; specify how assessments will be used, including reimbursement of necessary expenses incurred by the USABC for the performance of its duties and expenses incurred for USDA's oversight responsibilities; specify who pays the assessment and how; authorize the imposition of a late-payment charge on past-due assessments; outline exemption procedures; address programs, plans, and projects; require the USABC to periodically conduct an independent review of its overall program; and address patents, copyrights, trademarks, information, publications, and product formulations developed through the use of assessment funds.

There will be an assessment rate of $12 per ton for domestic cultivated blueberries and imported fresh and processed cultivated blueberries. The assessment rate may be raised or lowered after the initial continuance referendum which will be conducted after the program has been in operation five years. The assessment rate may be raised or lowered without a referendum.

The federal debt collection procedures referenced above and in § 1218.52(f) include those set forth in 7 CFR §§ 3.1 through 3.36 for all research and promotion programs administered by AMS [60 FR 12533, March 7, 1995].

Sections 1218.60 through 1218.62 concern reporting and recordkeeping requirements for persons subject to the Order and protect the confidentiality of information from such books, records, or reports.

Sections 1218.70 through 1218.78 describe the right of the Secretary; address referenda; authorize the Secretary to suspend or terminate the Order when deemed appropriate; prescribe proceedings after termination; address personal liability, separability, and amendments; and provide OMB control numbers.

The Department conducted a referendum among producers and importers of cultivated blueberries from March 13 through April 14, 2000, to determine whether the Order would become effective. The representative period for establishing voter eligibility was from January 1 through December 31, 1999. Producers and importers who produced or imported 2,000 pounds or more of cultivated blueberries during the representative period were eligible to vote.

It is determined that a majority of the eligible producers and importers voting who also represent a majority of the pounds of cultivated blueberries represented in the referendum favored implementation of the Order. After consideration of all relevant material presented, including the initial proposal, comments received, and the referendum results, it is found that the Order is consistent with and effectuates the declared policy and purpose of the Act.

The effective date of this action will be 30 days after publication in the Federal Register .

I. Background

On May 3, 2000, the Finance Board published for comment a proposed rule to: (1) Add new provisions in part 940 enumerating the Bank activities that are considered to be CMA; (2) add to the regulations a new part 955 setting forth in regulation the authority and requirements for Banks' AMA programs; (3) revise part 956 of the regulations, governing Bank investments; and (4) amend part 950 of the regulations, governing advances, so that inter-district advances activity would be subject to the same requirements as inter-district AMA activities. See 65 FR 25676 (May 3, 2000). The initial 30-day public comment period for the proposed rule was later extended to 43 days, see 65 FR 34127 (May 27, 2000), and closed on June 15, 2000. The Finance Board received a total of 107 comment letters about the proposed rule. Among the comment letters considered in preparing the final rule were 19 that were accepted after the official close of the comment period.

As part of its statutory duty to ensure that the Banks carry out their housing finance mission, the Finance Board recently adopted a regulatory requirement, set forth in § 917.5 of the regulations, that each Bank's board of directors have in effect at all times a strategic business plan that describes how the Bank's business activities will achieve the mission of the Bank consistent with part 940 of the regulations. See 65 FR 25267 (May 1, 2000). At the same time, the Finance Board adopted § 940.2 of the regulations, which states the mission of the Banks in its broadest terms and, by way of cross-reference, gives meaning to the strategic business plan requirement of § 917.5. See id.

This final rule adds to part 940 a new § 940.3, which enumerates the specific Bank activities that qualify as core mission activities. The intent of this new regulatory provision is to further focus the Banks' strategic business plans on the activities that the Finance Board has determined are most central to the fulfillment of the Banks' statutory mission. In so doing, the Finance Board means to stress the importance that must be placed upon this category of activities as each Bank plans and undertakes its ongoing business activities. Aside from the strategic business plan requirements set forth in § 917.5, there currently are no other regulatory requirements pertaining to CMA.

In the proposed rule, activities that would have qualified as CMA were listed in § 940.3(a). Proposed § 940.3(b) stated that, should the Finance Board impose upon the Banks any future requirement regarding the level of Bank CMA holdings, the requirement would not prevent the Banks from holding to maturity, or funding with the proceeds of consolidated obligations, assets acquired under sections II.B.8 through II.B.11 of the Bank System Financial Management Policy (FMP) (consisting mostly of agency and privately-issued mortgage-backed securities (MBS) and asset-backed securities (ABS)). As discussed in detail below, this provision has been removed in the final rule. Accordingly, the list of activities that qualify as CMA, which appeared as § § 940.3(a)(1) through (9) in the proposed rule, appears as § § 940.3(a) through (i) in the final rule.

Of the comment letters addressing aspects of part 940, support for and opposition to the CMA provisions was about evenly divided. Most of the commenters who generally supported the CMA provisions of the proposed rule agreed with the Finance Board's goal of focusing the Banks on their housing finance and community lending mission, and especially upon extending the reach of the Banks' resources into underserved communities. One commenter (a Bank) agreed with the Finance Board that Bank members will be unable to make intelligent choices about their Banks' new capital plans without understanding the future direction of the Bank System, including the asset categories to be supported by the new capital structure.

Of those opposed to the rule, many stated as the primary reason for their opposition a belief that the Finance Board should wait until after it has promulgated new capital regulations as required by the Federal Home Loan Bank System Modernization Act of 1999 (Modernization Act), Title VI of the Gramm-Leach-Bliley Act, Pub. L. 106-102 (1999), and the Banks have adopted new capital plans under those regulations, before putting into place any further mission regulations. Most of these commenters expressed the opinion that, at a time when Congress has recently made membership in the Bank System completely voluntary and when, as a result, the Banks will need to market “Class B” stock to their members in order to establish a base of permanent capital, the Finance Board should not be implementing actual or implied asset requirements that could result in earnings volatility.

Many commenters stressed their belief that the uncertain ability of any Bank to maintain strong earnings and pay an attractive dividend while focusing upon the business activities enumerated in § 940.3 could dissuade members or potential members from purchasing Bank stock. Several commenters noted especially that the reference in proposed § 940.3(b) to possible future requirements regarding Bank CMA, combined with a failure to detail what those requirements could be, raises the possibility that a Bank may in the future be required to divest itself of legally-acquired investments, making the future balance sheet composition of the Banks particularly uncertain for potential investors.

Many of the commenters expressing generally negative reactions to proposed § 940.3 raised concerns that the CMA provisions would limit the Banks' flexibility in managing their balance sheets and, therefore, would adversely impact Bank profits and possibly the safety and soundness of the Banks. Frequently mentioned in this regard was the Finance Board's exclusion of investments in most types of MBS from the list of activities that qualify as CMA. Two commenters (both Banks) specifically requested that the Finance Board continue to permit the Banks to hold MBS in an amount up to three times capital (as is currently the limit under the FMP).

Regarding the exclusion of most MBS from the list of CMA, many commenters expressed a belief that MBS are an important balance sheet management tool for the Banks that may be especially useful in deploying Bank capital prudently during periods of cyclical business downturns. Several commenters stressed the Banks' roles as reliable sources of liquidity for their members and stated that failure to permit the Banks to continue to invest in MBS could threaten the Banks' abilities to act in this role. Others questioned whether it is appropriate for the Finance Board to restrict Bank investment in assets, like MBS, that are specifically authorized by statute as legal investments for a Bank. Still others argued that MBS do play an important role in helping Banks to carry out their mission in that, as low-risk investments with a reasonable record of return, MBS improve the Bank System's financial strength and help to reduce rates on advances. Some commenters also asserted that MBS are mission-related in that, despite the statements of the Finance Board to the contrary, the Banks' purchase of these securities do result in increased availability of funds for housing and in reduced cost of housing funds.

More generally, several Bank members commented that § 940.3, as proposed, would restrict the Banks' abilities to respond to members' needs with well-priced advances by encouraging the Banks to focus upon “programs” required by regulation. Several other commenters expressed the opinion that Congress has adequately addressed the “mission” of the Banks in the Federal Home Loan Bank Act (Bank Act) and that, by its failure to impose mission requirements as part of the Modernization Act, Congress expressed its intent that such requirements should not be imposed through regulation. Several also pointed out that the Modernization Act devolved the remaining elements of corporate governance authority to the Banks and claimed that the manner in which the Banks carry out their statutory mission is a matter of corporate governance to be decided upon by the Banks' own boards of directors, subject only to the safety and soundness regulation of the Finance Board.

Finally, one commenter stated that the CMA provisions, as proposed, would violate the spirit of an October 18, 1999 letter from Finance Board Chairman Bruce Morrison to Senator Phil Gramm and Congressman Jim Leach. In that letter, Chairman Morrison stated that, upon the enactment of the Modernization Act, the Finance Board would withdraw its Financial Management and Mission Achievement (FMMA) proposed rulemaking, see 64 FR 52163 (1999), and would take no action to promulgate proposed or final regulations limiting Bank assets or advances beyond those regulations currently in effect (except to the extent necessary to protect the safety and soundness of the Banks) until such time as the Finance Board's new capital regulations take effect.

The Bank Act authorizes the Finance Board to supervise the Banks and to promulgate and enforce such regulations and orders as are necessary from time to time to carry out the provisions of the Bank Act. See 12 U.S.C. 1422b(a)(1). Among the provisions of the Bank Act are those outlining the duties of the Finance Board, which include the duty to “ensure” that the Banks carry out their housing finance mission. See id. at 1422a(a)(3)(B)(ii). The use of the word “ensure” in section 2A(a)(3)(B)(ii) of the Bank Act makes clear that, consistent with the safe and sound operation of the Banks, the Finance Board has the duty to take active measures to see to it that the Banks carry out their housing finance mission.

Because Congress has not expressly defined the term “housing finance mission,” it is the responsibility and the privilege of the Finance Board—as the body charged with the duty to ensure that the Banks fulfill that mission and, more generally, as the supervisory regulator of the Banks and the agency charged with the administration of the Bank Act—to construe the term reasonably in light of the totality of the Act. It is the position of the Finance Board that, when Congress amended the Bank Act in 1989 to require the Banks to offer Affordable Housing Programs (AHP) and Community Investment Programs (CIP) and authorized the Banks to offer Community Investment Cash Advance Programs (CICA), the Banks' “housing finance mission,” as referenced in section 2A(a)(3)(B)(ii), came to include support not only for the financing of traditional housing-related activities, but also for those types of community lending that the Banks are authorized by statute to support and that indirectly enhance traditional housing finance by helping to create and sustain thriving and livable communities. See 12 U.S.C. 1430(i), (j).

Having earlier set forth its construction of the Banks' mission in § 940.2 of the regulations, see 65 FR 25267 (May 1, 2000), the Finance Board is now further fulfilling its duty to ensure that the Banks carry out that mission by requiring that the Banks focus on the CMA listed in new § 940.3 as part of their strategic planning process. Under the Finance Board's regulations, as amended by this final rule, this is the only regulatory requirement regarding CMA.

The material formerly contained in proposed § 940.3(b) was intended to give the Banks and their members some assurance that, if the Finance Board were to promulgate at some point in the future any effective limits on non-CMA Bank activities, MBS and other investments previously made under sections II.B.8 through II.B.11 of the FMP would not adversely affected. However, based on the comments it is apparent that rather than providing reassurance, the effect of including this provision in the proposed rule has been to raise the specter of as-yet-undisclosed future limits on non-CMA activities, while obscuring the fact that no such limits are being contemplated or implemented. Accordingly, the Finance Board has eliminated proposed § 940.3(b) and its reference to possible limits on non-CMA activities from the final rule. Although this declaration of intent has been eliminated from the language of the rule, the Finance Board stresses again that: (1) It has no current plans to impose limits on non-CMA activities; and (2) if any such limits were ever to be imposed, the agency has no current plans to require any Bank to divest itself of otherwise legal and safe investments already held.

Because this rule does not limit Bank assets or activities to a greater extent than the limits to which they are subject under the FMP, the rule does nothing to violate either the spirit, or the literal language, of Chairman Morrison's letter to Senator Gramm and Congressman Leach.

The Finance Board disagrees with comments that the Banks would suffer from lower profits and reduced balance-sheet management flexibility as a result of the Finance Board's failure to characterize MBS as CMA. First and foremost, the rule contains no new restrictions on the Banks' ability to invest in MBS. The only limit on the Banks' authority to invest in MBS is the current FMP “three times capital” limit (which will remain in effect until expressly repealed by the Finance Board). Second, the loans and pools of loans a Bank may acquire through AMA programs authorized under part 955 of the final rule (which is discussed in more detail below) would be substantially similar to loans that are normally acquired in securitized form through the purchase of MBS.

Since 1989, the Banks have gained substantial experience in managing the risks associated with MBS. This experience should be transferable to the management of what would essentially be “self-securitized” MBS acquired under an AMA program. While the rate of return on AMA could be lower than that on MBS depending upon the price structure of a particular AMA program, the slight difference in return would inure to the benefit of the selling member, in keeping with the cooperative nature of the Bank System. The purchase of MBS from the capital markets typically does little or nothing to enhance the availability of any reasonably-priced product or service to any member or housing associate.

Finally, the Finance Board rejects the notion that the promulgation of the CMA strategic planning requirement should be postponed until after the Banks have put into effect their new capital plans. As the Banks' mission regulator, the Finance Board has made decisions regarding the broad activities it believes are preferable for the Banks to be pursuing in the context of their housing finance and community lending mission. Having made these decisions, the Finance Board finds it most logical to state those preferences as clearly as possible and as soon as possible prior to the development of the Banks' new capital plans. In doing so, the Finance Board is enabling the Banks to structure their capital plans with specific mission considerations in mind, as opposed to amending the plans after they have already been developed. In addition, members and potential members will be aware in advance of the CMA in which the Banks are encouraged to engage. To do otherwise would serve only to undermine the capital planning process and the expectations of investors in the Bank System, and to no good purpose.

Under § 940.3(b) of the final rule, all AMA authorized under new part 955 qualify as CMA, except for certain United States government-insured or guaranteed whole single-family residential mortgage loans acquired under a commitment entered into after April 12, 2000. The latter shall qualify as CMA only in a cumulative dollar amount up to 33 percent of: the cumulative total dollar amount of AMA acquired by a Bank after April 12, 2000, less the cumulative dollar amount of United States government-insured or guaranteed whole single-family residential mortgage loans acquired after April 12, 2000 under commitments entered into on or before April 12, 2000. At the discretion of two or more Banks, this percentage calculation may be made based on aggregate transactions among those Banks.

This provision appeared as § 940.3(a)(2) in the proposed rule. Section 940.3(b) of the final rule differs from the proposal in that the “33 percent” calculation regarding government-insured and -guaranteed loans has been made to apply on a cumulative basis, as opposed to a year-to-year basis.

The Finance Board received a total of 20 comments regarding the CMA definition as applied to government-insured or -guaranteed loans. Seventeen commenters were opposed to that aspect of the CMA definition that would result in only a portion of the government-insured or -guaranteed loans acquired by a Bank being considered as CMA. Two commenters supported the definition as proposed, and one noted that the issue required further discussion.

Generally, the commenters opposed to this aspect of the CMA definition noted that the Banks should be provided maximum flexibility in meeting the needs of their members. It was noted that the exclusion of a portion of government-insured or -guaranteed loans from the definition of CMA would have a detrimental effect on the ability of private sector lenders to pass the full benefits of AMA programs on to consumers. It was also noted that the Banks should have unlimited flexibility to acquire government insured or guaranteed loans, similar to the unlimited flexibility afforded Fannie Mae and Freddie Mac. One commenter added that no limitation should exist since there are no safety and soundness or mission reasons to justify such a limitation. Another commenter suggested that the April 12, 2000 date, relating to prior acquisition of government-insured and -guaranteed loans, be either deleted or moved to the date of enactment of the final rule. Yet another commenter requested that the 33 percent limitation should not take effect until 2002.

One of the comments in favor of the proposed definition noted that the Banks should be encouraged to focus on conventional and prime rate mortgages that are made to minorities and low-and moderate-income populations. Another commenter supporting the proposed definition added that the use of mortgage insurance would significantly reduce the need for Banks to purchase government-insured or -guaranteed loans, since such purchases to date have been the result of the recourse capital treatment for members selling conventional loans.

The Finance Board considered the comments received regarding the CMA definition as applied to government-insured and -guaranteed loans and decided that the definition should remain as proposed, although the calculation thereunder should be made on a cumulative, as opposed to a year-to-year, basis. The distribution of the Banks' current mortgage portfolio indicates that a high percentage of government-insured loans have been acquired when compared to the percentage of these loans in the total mortgage market. The final rule encourages the composition of the Banks' mortgage portfolios to more closely reflect the distribution of loans in the marketplace. This provision is intended to reduce the emphasis on government-insured loans that currently exists in the Banks' mortgage portfolios and to provide incentive for Bank acquisition of conventional mortgages.

The parenthetical at the end of § 940.3(b) makes clear that the calculation of the percentage of AMA loans that qualify as CMA may be made based on aggregate transactions between two or more Banks so long as the relevant Banks agree (or, even on a System-wide basis if all Banks agree). This provision is intended to provide flexibility among the Banks such that if one Bank's acquisition of government-insured or guaranteed loans exceeds 33 percent of total AMA in a given year, it may combine its portfolio for purposes of the calculation with another Bank that may not have reached the maximum allowed CMA purchase of such loans.

Under § 940.3(e) of the final rule, certain targeted debt and equity investments may qualify as CMA. As stated in § 940.3(e)(1), these include debt or equity investments that primarily benefit households having a targeted income level, or areas targeted for redevelopment by local, state, tribal or Federal government, by providing or supporting: housing; economic development; community services; permanent jobs; or area revitalization or stabilization. The term “targeted income level” is defined in § 940.1 by cross-referencing to the first two paragraphs of the definition of the same term under the Finance Board's CICA regulation. See 12 CFR 952.3. There, “targeted income level” is defined to refer to a household income that is at or below 115 percent of the area median income in rural areas, and at or below 100 percent of the area median income in urban areas. See 12 CFR 952.3. Section 940.3(e)(1) also requires that a significant proportion of the households with a targeted income level must have incomes at or below 80 percent of area median income. An example of a housing project that would meet the targeted income requirement would be a project that qualifies for a federal Low Income Housing Tax Credit where either 20 percent of the units are affordable to households with incomes at or below 50 percent of area median income or 40 percent of the units are affordable to households with incomes at or below 60 percent of area median income.

Section 940.3(e)(2) provides that, if the targeted investment is an MBS or ABS, the acquisition of these securities by the Bank must substantially contribute to expanding liquidity for loans that are not otherwise adequately provided by the private sector and do not have a readily-available or well-established secondary market in order for the investment to qualify as CMA. Whether the investment is an MBS or ABS, or a non-securitized asset, § 940.3(e)(3) requires that the investment must in all cases involve one or more members or housing associates in a manner, financial or otherwise, and to a degree to be determined by the Bank.

Most of the comments addressing the targeted lending provision were generally supportive, although many suggested additions, clarifying language or other modifications. Many of the commenters who praised the provision specifically supported Bank debt and equity investments in Community Development Financial Institutions (CDFIs) and secondary capital in community development credit unions, which, as mentioned in the preamble to the proposed rule, would qualify as CMA under § 940.3(e). Several commenters also stated generally that the Finance Board should make clear that § 940.3(e) is intended to encompass whole loans, whole loan portfolios or participations in whole loans or whole loan portfolios, where these loans meet the requirements of the provision.

As proposed, § 940.3(e)(1) (which appeared at § 940.3(a)(5)(i) of the proposed rule) required that these investments primarily benefit “low- or moderate-income households,” which the proposed rule defined as a household with an income that is at or below 115 percent of area median income. With regard to these income targets, several commenters stated that the Finance Board should amend its definition of “low- or moderate-income households” to include only those households with incomes up to 80 percent of area median income. The commenters noted that this would correspond with the income targets under the Community Reinvestment Act (CRA) and would enhance the ability of Bank members to meet their CRA requirements by making CRA-related loans and investments.

After considering all of the relevant factors, the Finance Board decided that it was desirable to keep the parameters of “targeted” Bank activities like CICA programs and targeted investments consistent. Therefore, in the final rule, the Finance Board as amended the income target provision to cross-reference the CICA regulation.

As indicated, in the realm of targeted lending, the term “low- or moderate-income households” refers to households with an income that is at or below 80 percent of the area median income. In order to avoid confusion, the Finance Board has removed the term “low- or moderate-income households” and has used instead referred to households having a “targeted income level,” a term which is used in the Finance Board's CICA regulation. See 12 CFR 952.3. By cross-referencing this definition in the CICA regulation, the agency has effectively modified the income targets that were set forth in proposed § 940.3(a)(5)(i) by tightening the requirement from 115 to 100 percent of area median income for urban households. The target remains at 115 percent of area median income for rural households.

As proposed, only “non-securitized” debt and equity investments could have qualified as CMA under § 940.3(e). However, this provision has been revised in the final rule to include targeted MBS and ABS as CMA under this section where the requirements of § 940.3(e)(2) (described above) have been met. In the proposed rule, the Finance Board requested comment on appropriate rule language that might allow for MBS and ABS that substantially contribute to opening an underserved market to qualify as CMA, while continuing to exclude securities that, while they may be backed by loans that could qualify as “targeted,” actually trade in a well established and liquid market.

While two commenters provided the Finance Board with suggestions regarding income targets for loans backing securitized targeted CMA investments, these comments did not address the Finance Board's concern regarding the market in which the securities trade. The income requirements for MBS and ABS are the same as those for non-securitized assets.

Upon consideration of the issue, the Finance Board decided that MBS and ABS that are backed by mortgages or other assets that meet the targeting requirements, and the purchase of which would substantially contribute to expanding liquidity for loans that would not otherwise be adequately provided by the private sector and that do not have a readily available or well-established secondary market should be deemed to be CMA. MBS or ABS where less than half of the dollar amount of the assets underlying each of the securities meet the targeting requirements of this provision would not be considered to primarily benefit targeted areas or households with a targeted income level as required under § 940.3(e)(1).

The Banks are encouraged to invest in MBS and ABS backed by assets consisting of whole loans and loan participations that address financially underserved income-targeted households or area-targeted markets identified by a Bank. Currently, there are a number of financing opportunities where the secondary market is not fully developed and the Banks' involvement could facilitate the growth and liquidity of loans provided to underserved markets. There are many such types of MBS and ABS where the majority of the underlying assets are composed of loans for households with targeted incomes or loans in targeted areas, for example: Single-family home purchase mortgages that do not meet the underwriting standards of the secondary market Government Sponsored Enterprises (GSEs); mortgages on owner-occupied two- to four-unit homes; home equity conversion (reverse) mortgages; single-family rehabilitation or combination acquisition/rehabilitation loans; home purchase loans for households with incomes less than 80 percent of area median income in areas where GSE purchases are less than the proportion of loans made to such households in those areas; loans of less than $3 million for the acquisition, construction or rehabilitation of small multifamily buildings; homeowner and rental property loans on tribal lands; community facility and economic development loans in low-income census tracts or rural areas; and economic development and housing loans originated by nonprofit organizations.

Many commenters mentioned specific programs, agencies, non-profit organizations and other projects and investments and requested confirmation by the Finance Board that each was a type of targeted investment that could qualify as CMA under § 940.3(e). The elements to be considered under that section can in some cases be known only with respect to a specific investment. While it is impossible to list every type of investment that might qualify as CMA under § 940.3(e), there are several types of investment that would clearly qualify as CMA in most circumstances, such as investments in: Community Development Venture Capital Funds; SBIC “fund-of-funds”; and equity investments in governmentally-aided economic development entities structured similarly to SBICs, where the investment primarily benefits low- or moderate-income individuals or areas.

Section 940.3(e)(3) of the rule (§ 940.3(a)(5)(ii) in the proposed rule) requires that, to qualify as CMA, an otherwise qualifying targeted investment by a Bank must involve one or more members or housing associates in a manner, financial or otherwise, and to a degree to be determined by the Bank. One commenter opposed any requirement that, to qualify as CMA, a targeted investment must have the direct financial involvement of one or more members or housing associates and recommended that the rule permit a range of involvement from sponsorship through financial participation. Section 940.3(e)(3) does not require direct financial participation on the part of the member or housing associate and, in fact, clearly allows the Bank itself to determine the extent and nature of its involvement with its member or housing associate. Accordingly, the Finance Board believes that, as worded, the rule allows for levels of member or housing associate involvement from sponsorship through financial participation.

Under § 940.3(g) of the final rule, SBIC debentures, the short-term tranche of SBIC securities and other debentures guaranteed by the Small Business Administration (SBA) under Title III of the Small Business Act of 1958 are considered to be CMA. Under the proposed rule, this provision (which appeared at § 940.3(a)(7)) would have defined only the short-term tranche of SBIC securities as CMA. Two commenters (a Bank and the SBA) asked the Finance Board to broaden the provision to include all securities insured by the SBA under Title III of the Small Business Act, in order to provide needed funding for SBICs and to accommodate new programs that the Bank and the SBA are pursuing. In the final rule, the Finance Board has expanded the provision to encompass the investments that the Bank has proposed to make and other similar SBA-guaranteed debt investments. SBIC-related equity investments would not count as CMA under this provision, but could qualify under § 940.3(f).

Part 955 of the final rule addresses AMA—that is, whole loans and certain interests in whole loans that a Bank may acquire from or through its members or housing associates in a transaction that is in purpose and economic substance functionally equivalent to the business of making advances in that: (1) It allows the member or housing associate to use its eligible assets to access liquidity for further mission-related lending; and (2) all, or a material portion of, the credit risk attached to the assets is being borne by the member or housing associate.

Section 955.2 of the final rule sets forth a three-part test for determining whether an asset may qualify as AMA. As adopted, it is substantially similar the proposal, except for one change relating to state or local housing finance agency (HFA) bonds. This section provides that AMA must be: (a) Whole loans or certain interests in whole loans; (b) originated or held for a valid business purpose by a member or housing associate, and acquired from a member, housing associate, or another Bank; and (c) structured such that a member or housing associate is responsible for a significant portion of the credit risk of the investment and otherwise in compliance with § 955.3.

Two commenters opposed the requirement of proposed § 955.2(a)(1)(i) prohibiting the purchase of single-family mortgages where the loan amount exceeds the conforming loan limits established for Fannie Mae and Freddie Mac. See 12 U.S.C. 1717(b)(2). One commenter noted that this limitation would prevent the Bank from fully serving its mission. The second commenter requested relief from the loan limit specifically for “Difficult Development Areas,” where housing costs are a significant burden relative to other areas in the region.

The Finance Board considered these comments and decided to maintain the prohibition on the purchase of single-family mortgages where the loan amount exceeds the conforming loan limit. This provision is intended to prohibit the acquisition of “jumbo” loans. Additionally, the Finance Board's intent is to create a level playing field among the Banks, Fannie Mae and Freddie Mac with respect to the types of loans eligible for purchase.

At the request of one commenter, the Finance Board here clarifies that, under § 955.2(a)(1), a Bank may acquire certificates representing interests in whole loans as AMA only if: (1) The certificates are rated by an NRSRO to meet the credit enhancement requirement of § 955.3; (2) the certificates are issued following the execution of, and for the purpose of implementing an agreement between and initiated by the Bank and a Bank System member or housing associate to share risks in compliance with the requirements of § 955.3(b); and (3) the initiating Bank or Banks acquire substantially all of the certificates. It is the Finance Board's view that, in such a case, the use of a third party to securitize the whole loans would merely represent a vehicle to invest in certain types of AMA under more favorable terms and should therefore be permitted under the rule. However, if the certificates have been created as a security initially available to investors generally, they will not be considered to qualify as “whole loans” under § 955.2(a)(1).

Three commenters addressed the requirements of § 955.2, as applied to the acquisition of HFA bonds. All of the commenters were opposed to the proposed rule's treatment of HFA bonds to varying degrees. Of primary concern was the “member or housing associate nexus” requirement set forth in § 955.2(b). The commenters were generally more concerned with whether HFA bonds could qualify as CMA under § 940.3, than with the status of such bonds under the AMA provisions of part 955.

One commenter stated that HFA bonds should qualify as CMA whether or not the Bank purchased the bond from an housing associate of the Bank, or was granted permission by another Bank to purchase such bonds in its district. The commenter believes that this restriction has the potential to increase interest rates on taxable securities issued by HFAs by decreasing the competition for purchase of such securities. The commenter further noted that some Banks may be unwilling to grant permission to deal with HFAs in their district and, even where Banks are so willing, the cost of crafting a transaction would be onerous and unnecessary.

Another commenter noted that constraining the Banks to acquire HFA bonds from out-of-district housing associates only if the Bank has an agreement with the housing associate's District Bank granting permission to make such an acquisition is inappropriate and could cause transactions with housing associates to take place at non-market-clearing prices. The final commenter noted that costs and time would be reduced and HFAs would be able to access a pool of funds to provide low-interest loans for affordable housing if HFAs could privately place bonds, using the agencies' investment grade stand alone rating. The commenter further stated that it would be helpful if the rule would provide a clear description of the criteria applicable to HFAs to engage in selling bonds to Banks, in joint lending arrangements, in shared risk and credit enhancement programs for affordable housing properties, and in programs with member banks and through Banks directly.

The Finance Board considered the comments received and has, for HFA bonds only, modified the requirement that the bonds may be acquired from out-of-district housing associates only with the permission of the Bank in whose district the HFA is located (local Bank). Instead the final rule requires that the HFA first give the local Bank a right-of-first-refusal to purchase, or negotiate the terms of, a particular bond issue. If the local Bank refuses, or does not respond within three days, the HFA may then offer the bonds to an out-of-district Bank. This has been done in order to preserve the integrity of the Bank Districts, while at the same time preventing any one Bank from denying an HFA in its District financing that another Bank is willing to provide.

At any rate, under final § § 956.2(f) and 956.3(a)(4)(iii) Banks retain their existing authority to invest in AA-rated HFA bonds regardless of the District in which the issuer is located. However, HFA bonds that are acquired under Part 956 only and that do not meet the AMA requirements of § 955.2 do not qualify as CMA.

Section 955.3 elaborates upon the credit risk-sharing requirement that is the third part of the AMA test set forth in § 955.2. The risk-sharing requirements of § 955.3 are based on risk-sharing structures that have evolved during the three-and-one-half years that the AMA pilots have been in operation. Though somewhat detailed, the credit risk-sharing requirements of § 955.3 are intended to produce a simple result: a recourse model for capital markets participation in the mortgage business that overcomes the traditional problems with the capital treatment on recourse transactions for financial institutions and results in a reasonable capital charge for the participating member or housing associate.

Although the credit risk of mortgage loans is typically low, it is still important to find the most economical way to manage that risk. The Finance Board believes that the recourse model, under which the seller of a mortgage retains all or part of the credit risk, is a more economically efficient system for bringing the benefits of the capital markets to the mortgage industry. Under the recourse model, entities that underwrite the loans benefit from good underwriting and therefore are economically disciplined to reduce credit risk. In contrast to the insurance-based secondary market model, under which Fannie Mae and Freddie Mac are paid a premium to insure against credit losses, the recourse model allows an originator to take on more credit risk (so long as that risk is adequately capitalized) and to profit from successful management of that credit risk. Thus, credit risk is dispersed among the many potential originators in the Bank System, and even further dispersed through the permitted insurance and credit derivative structures.

Section 955.3 differs from the proposed rule in several respects. These changes generally provide additional clarification and do not represent a change in the Finance Board's intent regarding AMA activities. In some sections additional requirements have been specified to ensure safe and sound operations.

In general, § 955.3 enables the Bank and the member to take best advantage of their core competencies by: (1) Requiring the member to bear most of the economic cost and the management burden associated with lowering the credit risk of AMA assets to levels comparable with investment grade rates securities; thus (2) leaving the Bank with AMA assets that have a risk profile similar to the securities that have historically been a normal part of Bank operations.

Under § 955.3(a), a Bank is required to determine, for each AMA product, the total credit enhancement needed to enhance an AMA asset or pool of assets to a credit quality that is equivalent to that of an instrument having at least the fourth highest credit rating from an NRSRO, or the credit enhancement associated with such other rating equivalent above the lowest investment grade that the Bank may choose. It further requires that the determination be made using a methodology that is confirmed in writing by an NRSRO to be comparable to a methodology that the NRSRO would use in determining credit enhancement levels when conducting a rating review of the asset or pool of assets in a securitization transaction. In addition, this determination must be made at the earlier of 270 days from the date of the Bank's acquisition of the first loan in a pool, or the date at which the amount of a pool's assets reaches $100 million.

The portion of § 955.3(a) regarding the confirmation by NRSROs combines § § 955.3(a)(1)(ii) and 955.3(a)(2) of the proposed rule. The NRSRO's confirmation of the method used to determine the required credit enhancement ensures that the Bank's estimates of credit ratings are reasonably accurate. However, the Finance Board acknowledges that an NRSRO conducting a formal rating of an asset or pool of assets may take into account qualitative factors that may not be considered by a theoretical model. Hence, the estimate of the credit enhancement requirement by a Bank would not be required to be identical to that determined by an NRSRO, but should produce roughly the equivalent rating, or equivalent ratings on average, to a formal rating review of the assets or pools of assets.

The NRSRO confirmations required by this part help ensure that AMA assets have risk and return characteristics that are more transparent, because of their similarity to rated instruments, than if the Banks simply accepted assets with unspecified levels of credit risk, or with credit risk measures that did not map to publicly available rating categories. Finance Board discussions with NRSROs indicate that it will be possible to obtain confirmations that give the Finance Board reasonable assurance regarding the soundness of the approach used to estimate the credit risk of AMA assets.

By specifying that the credit enhancement requirement be determined at the earlier of 270 days from the date of the Bank's acquisition of the first loan in a pool, or the date at which the amount of a pool's assets reaches $100 million, the rule ensures that large volumes of AMA assets cannot be acquired without a determination of their credit quality. This requirement did not appear in the proposed rule and was added to address the safety and soundness concerns that could arise if the credit enhancement determination were not performed on large pools that were formed over extended periods of time. However, the specified period in which the determination may be made still allows Banks latitude to assemble AMA assets in sufficient quantity to achieve and measure the benefit of diversification.

The rule no longer includes the text of proposed § 955.3(a)(1)(i), which specifically required the Bank to determine, at the time of acquisition of member assets, the expected credit losses on the asset or pool of assets using a method confirmed by a NRSRO. However, this determination likely still must be made to comply with § 955.3(b)(2)(ii), regarding the member's incentive to reduce actual credit losses.

Seven comments were received regarding the impact of geographic concentration and pool size on the calculation of the credit risk requirement and the resulting impact on small originators. These two diversification factors are taken into account by the NRSROs and the credit rating software that would be used to comply with § 955.3(a). Such software is likely to indicate substantially higher credit enhancement requirements for loan pools provided by smaller originators because the marketplace for such originators does not allow them to produce large numbers of geographically dispersed loans. The commenters proposed that the portion of credit enhancement requirements attributable to the lack of diversification not be included in determining compliance with § 955.3(a) for small members because such members could incur higher capital charges from the significantly higher credit enhancement requirements.

The Finance Board believes that such an approach would be detrimental to the safety and soundness of the acquiring Bank because the credit risk associated with the lack of diversification is a real risk that must be accounted for and managed. However, the Banks are not precluded from proposing a credit enhancement structure that appropriately manages the risk associated with the two diversification factors as confirmed by an NRSRO. In addition, 955.3(b)(1)(iii) of this rule now includes a provision allowing a narrow form of pool insurance, discussed more fully below, as one means for the Banks to address this issue.

A comment was also received advocating that § 955.3(a) should allow the recalculation of the amount of the credit enhancement on AMA pools some period of time after the establishment of the pool for the purpose of reducing the amount if such a reduction were found to be appropriate. The rule does not restrict the Bank from performing such recalculation. However, the timing of recalculations and any actions taken by the Bank to apply such new estimates of credit enhancements must be deemed appropriate, a priori , in writing, by an NRSRO.

Under § 955.3(b) of the final rule, the member must provide an enhancement to the credit quality of the prospective AMA asset that is sufficient to raise the credit quality of the asset to be comparable with a rated investment grade instrument. The final rule is similar to the provisions of § 955.3(b)(2) of the proposed rule that address the total amount of the credit enhancement. Under final § 955.3(b), the member must provide and bear the economic cost of the required amount of the credit enhancement. The amount of the credit enhancement must cover losses from the first dollar up to at least the coverage of an equivalent rated investment grade instrument and must be designed to extend for the life of the asset or pool of assets. The requirement that the amount of the credit enhancement extend for the life of the asset or pool of assets is intended to exclude, for example, structures that would comply with the credit rating requirement in the first year, but would then scale back the amount of the member's credit enhancement enough in future years so that the pool no longer meets the credit rating requirement. Furthermore, although the Bank may provide loan loss reserves for AMA assets, unless it can be demonstrated that, in substance, the economic cost of such reserves is borne by the member, such reserves would not be included in the credit enhancement for the purpose of determining compliance with this section. However, Bank reserves can be included in calculating the risk-based capital requirement associated with the asset.

Section 955.3(b) does not specify the form of the credit enhancement, only that it must be provided by the member subject to some limitations. By allowing flexibility in the form of the credit enhancement structure, the Banks can pursue alternative structures that meet member needs while providing the best overall return on the AMA activity.

Specifically, § 955.3(b)(1)(i) has been added to the final rule to authorize an insurance affiliate of the member to hold a portion of the credit enhancement obligation, to accommodate corporate structures common to some members that allow the credit enhancement obligation to be held by an entity that incurs a lower capital charge than the member. Also, § 955.3(b)(1)(ii), which replaces § 955.3(b)(ii)(2)(B)(3) of the proposed rule, allows loan-level insurance as a part of the credit enhancement but requires that the insurer be rated not lower than the second highest rating category. However, both of these insurance provisions are subject to the same limitation, which is contained in both §§ 955.3(b)(1)(i) and 955.3(b)(1)(ii)(B). The limitation requires that any insurance, regardless of the source, only absorb losses that remain after the member has economically absorbed all losses associated with the economic incentives described in § 955.3(b)(2). This limitation was added to ensure that members retain an ongoing economic interest in the actual credit losses of the asset even though much of the overall exposure to credit losses might be covered through an insurance arrangement.

Section 955.3(b)(1)(iii)(A) allows pool-level insurance as part of the credit enhancement subject to two limitations. This provision was added to the rule to permit a member to help offset the very high credit enhancement requirements that may be incurred by members that are unable to produce asset pools with sufficient pool size and geographic diversity. However, pool insurance may be used for the sole purpose of allowing groups of members, that would otherwise have to manage financially impractical credit enhancement requirements arising from a lack of diversification, to offset only that portion of the requirement that arises from a lack of diversification. Section 955.3(b)(1)(iii)(B) further requires that such pool insurance must only cover loss exposure that arises after all other credit support structures have been exhausted.

Section 955.3(b)(1)(iv) incorporates and clarifies § 955.3(b)(2)(ii)(B)( 2 ) of the proposed rule by allowing a member to contract with another member or housing associate in the Bank's district or in another Bank's district, pursuant to an arrangement with that Bank, to provide a contractual enhancement or undertaking against losses to the Bank in return for some compensation.

Section 955.3(b)(2) of the final rule has been revised from proposed § 955.3(b)(2)(i) and (ii) regarding the member's incentive to reduce actual credit losses. Taken together, § 955.3(b)(2)(i) and (ii) provide that the member must bear the direct economic consequences of actual credit losses in an amount at least equal to expected losses and positioned in the credit enhancement structure no later than immediately after expected losses (and also before any loan-level or pool insurance, as required by §§ 955.3(b)(1)(ii)(B) and (iii)(B)). This design requirement for the credit enhancement structure is intended to ensure that the member retains an economic incentive to reduce actual losses that is both material in amount and early enough in the structure to be meaningful to the member.

“Expected losses” are defined in § 955.1 as losses on the underlying assets expected under prevailing economic conditions— i.e., the base loss scenario—as estimated at the time the credit enhancement requirement was determined under § 955.3(a). Expected losses may be calculated as the mean of the losses associated with economic conditions represented by the sixth ratings category ( e.g. single-B) determined by computer rating models that map to NRSRO ratings.

Recognizing that advantages exist under each structure, the Finance Board is giving the Banks the flexibility to offer products or programs under either of the structures. However, any combination that removes the incentive to reduce actual credit losses is prohibited.

The economic responsibility of the expected credit losses may be borne by the member or housing associate in a variety of ways. For instance, under the product developed by the Federal Home Loan Bank of Chicago known as MPF 100®, a Bank establishes an account to absorb credit losses. As the Bank incurs losses, it is reimbursed by the member through the reduction of credit enhancement fees paid to the member by the Bank. Essentially, the fees paid to the member are contingent upon the performance of the asset.

The Finance Board has determined that the amount represented by expected credit losses is typically of sufficient size that members or housing associates, when responsible for such losses, have incentive to seek ways to achieve better than expected performance. In the case of acquiring mortgage loans, by requiring that the member or housing associate bear direct economic responsibility for such an amount, position early in the structure, a system of risk and reward is established that is based on the core competencies of the participating institutions. Since member financial institutions are most knowledgeable regarding their local housing markets, this structure allows members the opportunity to benefit from their expertise in underwriting mortgage loans in their communities. The credit risk sharing structure is based on the concept that different institutions have different capacities. The Banks are capital market specialists, with the ability to bear market risks well, while depository institutions are experts in credit risk evaluation since they know their communities best. Therefore, by establishing a structure where the member or housing associate from which the Bank acquired the asset or pool of assets bears economic responsibility for the amount of the expected credit losses, members or housing associates are rewarded for their credit risk management expertise.

Regardless of how credit loss coverage is allocated, the economic cost of expected credit losses must be borne by the member or housing associate from which the Bank acquired the asset or pool of assets. In the case of an FHA-insured loan, the loan would meet the risk-sharing requirements since it is insured by the government; however, the member or housing associate would have to bear the economic responsibility of all unreimbursed servicing expenses, up to the amount of expected losses on the loan or loan pool. In the case of HFA bonds, the Banks are only permitted to purchase bonds that have been assigned a credit rating of at least investment grade, and that rating cannot be achieved unless the housing associate selling the bonds has somehow credit enhanced the underlying loans in an amount sufficient to earn the credit rating. In particular, HFA bonds are usually rated in at least the third highest credit rating category based on the fact that the bonds are backed by FHA-insured, VA-guaranteed or private mortgage insurance (PMI)-insured whole loans. In many cases the bonds are backed by loans securitized by the Government National Mortgage Association (Ginnie Mae), Fannie Mae or Freddie Mac and are rated in the highest credit rating category. Additional bondholder protections frequently include mortgage reserve funds.

Section 955.3(b)(3) of the final rule adds a provision requiring the member's credit enhancement obligation to be fully secured. This provision was added to address the concern that the Bank might be exposed to credit risk if the member were not able to comply with its contractual credit enhancement obligation. This provision requires that the member's credit enhancement obligation must be secured in parallel with the requirement for advances to members under part 950.

Section 955.3(b)(4) requires the Bank to obtain written confirmation from an NRSRO regarding the sufficiency of the credit enhancement. This section generally expands and clarifies § 955.3(b) of the proposed rule. The rule clarifies that the confirmation must be satisfactory to the Finance Board and must be based on the underlying economic terms of the credit enhancement structure as represented by the Bank for each AMA product. This confirmation may be provided in two forms. Section 955.3(b)(4)(i) allows the NRSRO to verify that the level of credit enhancement provided by the member or housing associate is generally sufficient to enhance the asset or pool of assets to a credit quality that is equivalent to that of an instrument having the fourth highest credit rating from an NRSRO, or such higher rating as the Bank may require. In this case the NRSRO is, in essence, describing the value of the credit enhancement structure hypothetically for the purpose of determining a credit rating.

Section 955.3(b)(4)(ii) allows that the NRSRO may confirm that the methodology used by the Bank for estimating the level of credit enhancement provided by the member or housing associate is in accordance with the practices established by the NRSRO. In this approach the NRSRO does not provide the value of the credit enhancement but rather indicates whether the Bank is estimating the value of the credit enhancement structure in a way that is comparable to the methodology used by the NRSRO in determining the sufficiency of credit enhancements.

Section 955.3(c), regarding the timing of NRSRO confirmations, was added to the rule to ensure that the confirmations are received on a timely basis for already-established programs. It requires that ongoing AMA programs shall acquire these confirmations within 90 days of the effective date of this rule. This provision was added because established AMA programs have acquired large portfolios even as of the date of the proposed rule.

Two comments were received advocating that certain mortgage financing instruments, if backed by member loans, should be included within the general definition of AMA assets. One of the comments specifically discussed securitized structures in which the Bank would acquire an investment grade senior portion and the member would retain the credit support tranches necessary to support the investment grade tranches. A Bank would not be in compliance with part 955 if it the transaction were merely a capital markets purchase of senior tranches resulting from securitizations of this type. However, it is expected that such structures would meet the requirements of part 955 if the structure were implemented through a Bank's AMA program using assets that conform with the AMA requirements that were previously held by the member for a valid business purpose. In this regard, the structure contemplated by the comment is similar to a “sequential” loan participation program previously approved by the Finance Board. The fact that such a structure might include rated subordinate credit tranches would not constitute non-compliance with part 955 as long as the structure were arranged cooperatively with the Bank and the member bore the risk of holding or selling the credit support tranches.

Six comments were received advocating a provision in part 955 that would give members participating in AMA programs the ability to transfer credit enhancement obligations and the servicing of AMA loans to other members in the same or other Bank districts. The final rule does not explicitly address, nor does it restrict, such transfers, though they may only be undertaken with the concurrence of the Bank of which the transferee is a member. In addition, such transfers must be accompanied by a similar undertaking by the transferee of the incentive requirements in § 955.3(b)(2). Finally, the credit enhancement obligations must be secured according to the same requirements that apply to advances pursuant to part 950.

A total of 24 comment letters were received regarding the AMA reporting requirements set forth in § 955.4 of the rule, and in appendices A and B to part 955. Eighteen of the comments, while not opposed to reporting requirements in general, were opposed to certain aspects of the requirements. Six commenters supported all of the reporting requirements.

In general, the commenters that stated some opposition to the reporting requirements were most concerned with the burden of requiring data elements in addition to those already required by the Department of Housing and Urban and Development (HUD) and Office of Federal Housing Enterprise Office (OFHEO) of Fannie Mae and Freddie Mac. The commenters noted that any data elements in excess of what was already required of members selling loans to Fannie Mae and Freddie Mac would require expensive computer programming and procedural changes. It was further noted that any such changes required to be made to members' systems would make AMA programs less attractive in the marketplace. Some commenters also objected to the lack of a transition period within which the Banks would be required to begin reporting to the Finance Board.

Some commenters were supportive of the reporting requirements in the proposal. These commenters generally were in favor of collecting of “prepayment penalty” data on single-family mortgages, noting that predatory lending is a problem in the U.S. and the collection of prepayment penalty data will help prevent the Banks from engaging in anti-borrower activities. One commenter stated that the data elements submitted by the Banks to the Finance Board should be made publicly available and that the Finance Board should consider mandating reporting requirements on all CMA activities. Another commenter supporting the reporting requirements suggested additional data elements to be collected.

The Finance Board has considered the comments received regarding reporting requirements and has made a number of revisions to the final rule in response. In the proposed rule, the Finance Board based its list of data elements on HUD's and OFHEO's requirements of Fannie Mae and Freddie Mac. In addition to the data elements required by HUD and OFHEO for single-family and multifamily mortgage loans, the Finance Board included a total of ten additional data elements to the two lists. Six of these data elements, “originating lender institution,” “originating lender city” and “originating lender state” for both single-family and multifamily acquisitions, are not regularly reported to Fannie Mae and Freddie Mac by financial institutions selling loans. Given the comments received, the Finance Board has decided it would be too burdensome to require the members to provide this data to the Banks and has eliminated these data elements from both the single-family and multifamily data element lists in the rule (Appendices A and B). The Finance Board's original intent was to use this information to monitor compliance with the valid business purpose requirement set forth in § 955.2(b)(1)(ii). The Finance Board has determined that the cost burden on members and housing associates would exceed the benefits of collecting such data on a System-wide and regular basis.

The additional four items not reported to HUD or OFHEO include, “front-end ratio,” “back-end ratio,” “self-employment indicator,” and “prepayment penalties.” Although not reported to either HUD or OFHEO, financial institutions selling loans to Fannie Mae and Freddie Mac currently report front-end ratio, back-end ratio, and self-employment indicator to the GSEs. The prepayment penalties data element is currently reported by Fannie Mae and Freddie Mac to OFHEO for multifamily loans. Although not reported by Fannie Mae and Freddie Mac for single-family loans, prepayment penalties for single-family loans have become more prevalent in the marketplace.

Upon consideration, the Finance Board has determined that the collection of the four above-mentioned data elements does not cause undue burden on members and is necessary to evaluate the risk of the loans acquired under AMA programs. Therefore, these four items will remain on the list of required data elements for reporting purposes.

The Finance Board has added three data elements to the single-family and multifamily lists published in the proposed rules. These items are “owner-occupied” on the single-family list and “construction loan” and “total number of units” on the multifamily list. All three of these data elements are reported by Fannie Mae and Freddie Mac to HUD, but were inadvertently omitted from the proposed rule.

In addition to the changes made to the data elements by the Finance Board, the Finance Board has specified in the final rule the date on which Banks must begin to collect and report information to the Finance Board. The Banks must begin collecting from their members the required information on loans acquired as of January 1, 2001. By allowing this transition period, the Finance Board is providing the Banks ample time to design and implement the systems necessary for this type of data collection. The first mortgage report the Banks must submit to the Finance Board will be due no later than May 31, 2001, which is 60 days after the end of the first quarter.

Section 955.6(a) of the rule sets forth capital requirements for AMA that shall apply until the Finance Board's new capital rule is finalized later in 2000. In the proposed rule, the provision would have required each Bank to hold retained earnings plus specific loan loss reserves as support for the credit risk of all AMA estimated by the Bank to be below the second highest credit rating, in an amount equal to or greater than: the outstanding balance of the assets or pools of assets times a factor associated with the credit rating of the assets or pools of assets as determined by the Finance Board. In the final rule, the reference to specific loan loss has been changed to refer to “general” loan loss reserves, as was originally intended and a table has been added setting forth the factors applying to single-family AMA.

The Finance Board received three comments regarding the proposed risk-based capital requirement, all of which were opposed in varying degrees to the provision. One of the comments noted that the proposed rule, because it stated that the amount of retained earnings the Banks would be required to hold would be “as determined by the Finance Board,” provided little real guidance and made it difficult for the Banks to comply in an effective manner. Another commenter suggested that the Finance Board's risk-based capital requirements were overly complex since they were included in separate regulations. The commenter further noted that loan-loss reserves established under GAAP should be deducted from risk-based capital.

After considering the comments, the Finance Board has included in final § 955.6(a) a table stipulating the percentage applicable to the on-balance sheet equivalent value of single-family AMA rated below the second highest rating category. The percentages included in the table for the third through sixth categories take into account the difference, in a sample of AMA assets, between the credit enhancement requirement for these grades and the second highest investment grade with a base requirement of 100 percent for pools below the sixth highest investment grade. The sample of AMA assets used to produce these percentages is thought to be representative of the general level of credit risk in AMA. The percentage in the table for AMA with credit quality below the sixth national grade coincides with the requirement that all AMA have credit quality estimated to be equal to or better than similar investment grade instruments. The Finance Board may adjust this requirement going forward if there is information indicating that higher or lower percentages are necessary.

The percentages in table differ from those set forth in the table for single-family mortgage loans contained in the proposed capital regulation. At this time, while the Bank System is still largely subject to the restrictive safety and soundness parameters of the FMP, the Banks will not be required to hold capital against AMA that have a putative rating (calculated in accordance with the requirements of § 955.3) in the second highest credit rating category or higher. Correspondingly, the factors listed for AMA having a rating below the second highest credit rating category are intended to result in a Bank's entire AMA portfolio having the same risk of uncapitalized loss as an instrument rated in at least the second highest credit rating category. Thus, the interim risk-based capital requirement for AMA has been calibrated to be consistent with the risk management regime now in place under the FMP. Once the Finance Board's new capital regulations are in place, banks will need to hold risk based capital against all assets, including those rated in the second highest category or higher, but in amounts determined on a different basis than that reflected in § 955.6(a).

The Finance Board also modified the provision for risk-based capital requirements for AMA by adding § 955.6(b), which requires that, for risk-based capital purposes, each Bank shall recalculate the estimated credit rating of a pool of AMA if there is evidence that a decline in the credit quality of the may have occurred. This provision was added to ensure that any downgrade in credit status of a pool would be reflected in the risk-based capital charge.

A total of 13 comments were received regarding the pilot status of the AMA programs. Eleven commenters were in favor of removing the pilot status and two commenters were opposed.

In general, the commenters in favor of converting the AMA programs from pilot to permanent status noted the success of the current MPF program in terms of Bank and member cooperation, allocation of risk, and safety and soundness. It was noted that the AMA cap of $9 billion needed to be lifted so that AMA programs could provide further benefits to members and consumers. It was also noted that pilot status of the AMA program creates unnecessary concern and uncertainty about the Banks' ability to fulfill its obligations.

Two commenters opposed the removal of the pilot status on AMA programs. One commenter noted that the Finance Board should defer any action on the cap until the changes to the Banks' capital structures mandated by the Modernization Act are put into place. The second commenter noted that the cap on AMA programs should not be removed since the performance of the MPF program has not been fully evaluated.

The Finance Board considered the comments received on the removal of the pilot status of these programs and determined that existing AMA programs had, in their pilots stages, proved to be a safe and sound investment for the Banks, as well as a valuable, alternative means for its members and housing associates to sell loans to the secondary market. Accordingly, the Finance Board finds it appropriate to authorize AMA programs on a permanent basis and to ensure the safety and soundness of these programs through appropriate risk-based capital, collateral and credit-risk sharing requirements, as well as through thorough supervisory examinations.

Section 955.2 of the rule makes all Bank AMA activities subject to the “new business activity” requirements of part 980 of the Finance Board's regulations. Part 980 is being finalized as part of the Finance Board's rule on advances collateral, which was approved at the Board of Directors meeting of June 29, 2000. Thereunder, Banks are required to provide 60 days notice to the Finance Board before undertaking any new business activity (defined in § 980.1). To the extent that an AMA transaction involves acquisition of a new class of asset, new types of risk or risk structures, or new types of operations, Banks will need to follow the notice procedures set out in part 980 before proceeding. It is anticipated that new AMA products will almost always be new business activities for purposes of part 980. In addition, new classes of transactions engaged in under existing AMA programs may also be new business activities, and thus subject to part 980, if they expose the Bank to new loans types, risks, or operations.

The Finance Board received eight comments on the 60-day approval period for new business activities. All commenters found the approval period was to be lengthy and thought it would hinder product innovation and development. However, the Finance Board believes that this requirement is most needed as a safety and soundness measure where, as with AMA, the Banks will be taking part in transactions with which they have little past experience.

On June 20, 2000, HUD and the Department of Treasury released a report entitled “Curbing Predatory Home Mortgage Lending—A Joint Report” that describes the damaging impact predatory lending practices have on individuals and whole neighborhoods. Predatory lending practices include loan flipping (refinancing borrowers' loans repeatedly in a short period of time), excessive fees, financing single premium credit life insurance products in the mortgage, lending without regard to the borrower's ability to repay, and outright fraud.

The report included recommendations for actions that the Finance Board, working to assure consistency with any requirements that HUD will impose on Fannie Mae and Freddie Mac, could apply to the Federal Home Loan Banks to help end predatory lending. Specifically, the Finance Board could prohibit purchases of high cost mortgages with excessive fees, prepayment penalties (except in circumstances that benefit the borrower, where the terms are fully disclosed, and alternative options are offered), and prepaid single-premium credit life insurance products, as well as mortgages from a seller/servicer that fails to document monthly that it is submitting payment information to a credit bureau.

Six commenters to the proposed rule recommended that the Finance Board consider prohibitions on the purchase or funding of predatory loans, or that certain information be added to the reporting requirements for AMA so the Finance Board could determine whether AMA included predatory loans.

On June 26, 2000, the Federal Home Loan Banks of Chicago, Atlanta, Boston, Dallas, Des Moines, Indianapolis, New York, Pittsburgh, and Topeka voluntarily agreed to adopt guidelines pertaining to predatory lending, which will be consistent with the relevant secondary market guidelines. In particular, these guidelines will focus on not purchasing or funding loans through the MPF Program that meet the characteristics of a high cost mortgage under the Home Owners' Equity Protection Act of 1994.

The Finance Board anticipates that in a future rulemaking it, working closely with HUD as it develops regulatory requirements for Fannie Mae and Freddie Mac, will propose for public comment parallel requirements for the AMA and Bank debt investments to assure that they will not include predatory loans or contribute to predatory lending practices.

Part 956 of the final rule governs Bank investments. Along with the advances, AMA and standby letter of credit regulations (parts 950, 955 and 961, respectively), part 956 provides the authority necessary for the Banks to carry out several of the core mission activities listed in § 940.3. The final provision remains largely unchanged from the that in the proposed rule. However, three modifications have been made.

First, the investment authorization set forth in § 956.2 has been amended to make explicit that, except for those provisions in the FMP that are directly overridden by this proposed rule, all provisions of the FMP will remain in effect until expressly repealed by the Finance Board. Accordingly, Bank investment in agency and private MBS, CMOs and REMICs and in asset-backed securities secured by manufactured housing or home equity loans would continue to be limited to a total amount equal to 300 percent of a Bank's capital. It is anticipated that the remaining provisions of the FMP will be repealed, or at least codified as regulations, at such time as the Finance Board promulgates a final rule on capital and risk management.

Second, § 956.4(a)(4) has been changed in the final rule so that targeted investments described in § 940.3(e) of the CMA regulation are exempted from the list from the general prohibition on Bank investment in whole loans or interests in loans other than pursuant to the AMA requirements. The omission of this provision from the proposed rule was merely an oversight. Its inclusion ensures that targeted loan purchase programs such as the Federal Home Loan Bank of Atlanta's AMPP will qualify as CMA.

Finally, under proposed § 956.4, the Banks must hold retained earnings plus specific loan loss reserves as support for the credit risk of all investments that are not rated by an NRSRO, or are rated below the second highest credit rating, in an amount equal to or greater than the outstanding balance of the investments times a factor associated with the credit rating of the investments as determined by the Finance Board. The Finance Board has clarified in the final provision that the factor shall be 0.08 for unrated assets. It is expected that this specific § 956.4 will be superceded at the time that a final capital rule is promulgated, to be replaced by specific requirements set forth in the capital regulation relating to each credit rating category.

The final rule applies only to the Banks, which do not come within the meaning of “small entities,” as defined in the Regulatory Flexibility Act (RFA). See 5 U.S.C. 601(6). Therefore, in accordance with section 605(b) of the RFA, see id. at 605(b), the Finance Board hereby certifies that this final rule will not have a significant economic impact on a substantial number of small entities.

In the proposed rule, the Finance Board inadvertently failed to include a notice and request for comment regarding the Paperwork Reduction Act implications of the information collection contained in § 955.4 of the rule, described more fully in part II of the Supplementary Information. That notice and request for comment are being provided here.

The data collected are intended to be used to create a data base and reporting infrastructure for monitoring the Banks' risk management and achievement of the public purpose of the residential mortgage-related AMA programs. Responses are required in order obtain or retain a benefit. The Finance Board will maintain the confidentiality of information obtained from respondents pursuant to the collection of information as required by applicable statute, regulation, and agency policy. Books or records relating to this collection of information must be retained as provided in the regulation.

Likely respondents and/or recordkeepers will be Banks, institutions that are members or housing associates of a Bank and the Finance Board. Potential respondents are not required to respond to the collection of information unless the regulation collecting the information displays a currently valid control number assigned by the OMB. See 44 U.S.C. 3512(a).

The estimated annual reporting and recordkeeping hour burden is:

a. Number of respondents: 412.

b. Total annual responses: 1600.

Percentage of these responses collected electronically: 75%.

c. Total annual hours requested: 38,880.

d. Current OMB inventory: n/a.

e. Difference: n/a.

The estimated annual reporting and recordkeeping cost burden is:

a. Total annualized capital/startup costs: $300,000.00.

b. Total annual costs (O&M): 0.

c. Total annualized cost requested: $1,212,297.94.

d. Current OMB inventory: n/a.

e. Difference: n/a.

The Finance Board will accept written comments concerning the accuracy of the burden estimates and suggestions for reducing the burden at the address listed above.

The Finance Board submitted an analysis of the information collection to the Office of Management and Budget (OMB) for review. Subsequent to submitting the analysis to OMB, the Finance Board decided to reduce the level of reporting required in the final rule and, therefore, has reduced the estimated annual reporting and recordkeeping hour and cost burden. OMB assigned a control number, 3069-0058, and temporarily approved the information collection with an expiration date of December 31, 2000. Prior to the expiration of this temporary approval, the Finance Board will again submit the collection of information to OMB for review, with the intent of obtaining a full three-year approval and will publish a final notice regarding the information collection.

Comments regarding the proposed collection of information may be submitted in writing to the Office of Information and Regulatory Affairs of OMB, Attention: Desk Officer for Federal Housing Finance Board, Washington, D.C. 20503 by September 15, 2000.

Throughout this document “we,” “us,” or “our” means EPA.

We are finalizing our approval of the recodification of and revisions to Title 30, Texas Administrative Code (TAC) Chapter 116, “Control of Air Pollution by Permits for New Construction or Modification,” as indicated in Table 1 below:

This proposal includes portions of revisions submitted by the Governor of Texas to EPA on the following dates:

• August 31, 1993.

• November 1, 1995.

• July 18, 1996.

• April 13, 1998.

• March 16, 1999.

On January 18, 2000, we published a notice of proposed rulemaking (NPR) proposing full approval of the recodification of and revisions to Texas' regulations for the permitting of new major sources and major modifications in nonattainment areas. The Governor submitted revisions to these nonattainment area permitting requirements as described above.

As explained in the NPR, we have determined that Texas' recodification of and revisions to its nonattainment permitting requirements continue to meet the requirements of part D of the Act and 40 CFR 51.165 (Permit Requirements). The NPR provided opportunity for the public to comment on the proposed action. The public comment period for our action ended February 17, 2000. We received no comments on the NPR. As a result, we are finalizing our proposed approval without changes. For more details on these submittals, please refer to the proposed rulemaking.

Table 2 below summarizes each individual SIP submittal that we are approving in today's action.

The May 11, 2000, (65 FR 30358-30362) rulemaking included a statement in the first full paragraph in the first column on page 30360 that reads “The MOA is enforceable against the parties by their consent in the MOA to allow the Attorney General for the State of Alabama to sue any or all of the agencies for specific performance of other relief on behalf of the citizens of Alabama in parren patrial.” The Federal requirements for conformity do not require that the Attorney General for a state have this legal authority. Since the State of Alabama's submittal does not contain any such provisions for the Alabama Attorney General, the preamble language is amended to delete this sentence in its entirety.

Section 553 of the Administrative Procedure Act, 5 U.S.C. 553(b)(B), provides that, when an agency for good cause finds that notice and public procedure are impracticable, unnecessary or contrary to the public interest, the agency may issue a rule without providing notice and an opportunity for public comment. We have determined that there is good cause for making today's rule final without prior proposal and opportunity for comment because we are merely correcting the preamble language in a previous action. Thus, notice and public procedure are unnecessary. We find that this constitutes good cause under 5 U.S.C. 553(b)(B).

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and is therefore not subject to review by the Office of Management and Budget. Because the agency has made a “good cause” finding that this action is not subject to notice-and-comment requirements under the Administrative Procedure Act or any other statute as indicated in the Supplementary Information section above, it is not subject to the regulatory flexibility provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), or to sections 202 and 205 of the Unfunded Mandates Reform Act of 1995 (UMRA) (Public Law 104-4). In addition, this action does not significantly or uniquely affect small governments or impose a significant intergovernmental mandate, as described in sections 203 and 204 of UMRA. This rule also does not significantly or uniquely affect the communities of tribal governments, as specified by Executive Order 13084 (63 FR 27655, May 10, 1998). This rule will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of governments, as specified by Executive Order 13132 (64 FR 43255, August 10, 1999). This rule also is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997), because it is not economically significant. This correction action does not involve technical standards; thus the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. The rule also does not involve special consideration of environmental justice related issues as required by Executive Order 12898 (59 FR 7629, February 16, 1994). In issuing this rule, EPA has taken the necessary steps to eliminate drafting errors and ambiguity, minimize potential litigation, and provide a clear legal standard for affected conduct, as required by section 3 of Executive Order 12988 (61 FR 4729, February 7, 1996). EPA has complied with Executive Order 12630 (53 FR 8859, March 15, 1998) by examining the takings implications of the rule in accordance with the “Attorney General's Supplemental Guidelines for the Evaluation of Risk and Avoidance of Unanticipated Takings” issued under the executive order. This rule does not impose an information collection burden under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

The Congressional Review Act (5 U.S.C. 801 et seq.), as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. Section 808 allows the issuing agency to make a rule effective sooner than otherwise provided by the CRA if the agency makes a good cause finding that notice and public procedure is impracticable, unnecessary or contrary to the public interest. This determination must be supported by a brief statement. 5 U.S.C. 808(2). As stated previously, EPA had made such a good cause finding, including the reasons therefore, and established an effective date of July 17, 2000. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . This correction to the identification of plan for Alabama is not a “major rule” as defined by 5 U.S.C. 804(2).

This is a summary of the Commission's Report and Order , ET Docket 99-255 and PR Docket 92-235, FCC 00-211, adopted June 8, 2000, and released June 12, 2000. The full text of this Commission decision is available for inspection and copying during normal business hours in the FCC Reference Information Center, Room CY-A257, 445 12th Street, SW, Washington, DC, and also may be purchased from the Commission's duplication contractor, International Transcription Service, (202) 857-3800, 1231 20th Street, NW, Washington, DC 20036.

1. The Report and Order establishes a new Wireless Medical Telemetry Service (WMTS) which will enhance the ability of health care providers to offer high quality and cost-effective care to patients with acute and chronic health care needs. This action addresses consumer concerns that medical telemetry devices are increasingly at risk of harmful interference due to more extensive use of spectrum resources by other applications. The Commission allocates 14 Megahertz (MHz) to WMTS on a primary basis, which will allow potentially life-critical medical telemetry equipment to operate on an interference-protected basis. The Commission also adopts service rules for WMTS that “license by rule” to minimize regulatory procedures to facilitate rapid deployment. Medical telemetry equipment is used in hospitals and health care facilities to transmit patient measurement data, such as pulse and respiration rates to a nearby receiver, permitting greater patient mobility and increased comfort. As this service permits remote monitoring of several patients simultaneously it could also potentially decrease health care costs. The Commission's action will improve the reliability of this vital service.

2. In the Notice of Proposed Rule Making (NPRM), 64 FR 41891, August 2, 1999, in this proceeding, we proposed to allocate spectrum where medical telemetry equipment could operate on a primary basis. We also proposed to establish a new Wireless Medical Telemetry Service (WMTS) under part 95 of the rules. The Commission's proposal was based on recommendations provided by the American Hospital Association's (AHA) Medical Telemetry Task Force, which was established in coordination with the FDA, in response to the incidence of interference to medical telemetry equipment from a DTV station.

3. We are making available 14 MHz of spectrum in three blocks located at 608-614 MHz, 1395-1400 MHz, and 1429-1432 MHz for wireless medical telemetry. In making available 14 MHz of spectrum, we note that these bands each have significant constraints, such that the entire allocation is unlikely to be available in any individual market. The 608-614 MHz band is constrained as a result of radio astronomy quiet zones, including some sites in large markets, and interference from adjacent TV channels. The remaining 8 MHz that we are allocating is constrained by adjacent band interference from high power radars located below 1390 MHz and grandfathered protected Federal sites. However, this allocation ensures that at least 6 MHz is available for WMTS in all locations, consistent with the AHA needs assessment, with at least some additional spectrum available to accommodate long term needs. We note that this is in fact significantly less than the amount of spectrum that is currently available to medical telemetry on an unprotected basis. However, we find that the benefits of a primary allocation dedicated to this service compensates for the reduced availability of spectrum. We wish to underscore that we do not anticipate any further allocations for medical telemetry devices and expect manufacturers and the health care community to ensure that this spectrum is used efficiently to meet long term needs. We also wish to note that this medical telemetry allocation is an exception to the approach we have been taking toward more flexible allocations that are not service specific. A specific allocation is necessary in this case to protect the public safety by providing spectrum where medical telemetry equipment can operate without interference. Further, it will resolve conflicts that have delayed the land mobile refarming and that are affecting the deployment of DTV.

4. The Notice proposed the following two options for frequency bands to be allocated to the WMTS:

5. We conclude that it is necessary to allocate spectrum where medical telemetry equipment can operate on a primary basis. Based on the record, we also conclude that WMTS's planned use is best accommodated by making three blocks of spectrum available in the 608-614 MHz, 1395-1400 MHz, and 1429-1432 MHz bands. We will coordinate the frequency allocations with Canadian and Mexican governments as appropriate. Given the low-power nature of this equipment, we do not anticipate any interference issues in border areas.

6. 608-614 MHz. We find the 608-614 MHz band to be suitable for WMTS because, other than radio astronomy, it is only used for medical telemetry under part 15 of the rules. We also note that no commenters opposed the use of this band. Accordingly, we allocate this band to medical telemetry equipment on a co-primary basis with radio astronomy. Operation of medical telemetry equipment in this band must not cause interference to sensitive radio astronomy operations, and users will be required to coordinate their operation with radio astronomy facilities. We note that medical telemetry service providers operating on 608-614 MHz (television channel 37) currently must accept adjacent channel interference from broadcast television stations operating on channels 36 and 38. With this allocation, we are not requiring television broadcasters to protect WMTS from adjacent band interference. We believe that the multi-band approach that we are adopting provides sufficient flexibility to WMTS. WMTS providers can operate on one of the other bands that we are making available in situations where a hospital is in close proximity to a television station operating on channels 36 or 38. Furthermore, WMTS providers can design equipment to provide sufficient protection from adjacent channel interference as is current practice.

7. 1395-1400 MHz and 1429-1432 MHz. In addition to the 608-614 MHz band, we are allocating the 1395-1400 MHz and 1429-1432 MHz bands for medical telemetry. Allocating the 1395-1400 MHz band instead of the alternative band we proposed will result in a 4 MHz greater frequency separation between medical telemetry and government radars operating below 1385 MHz, thereby reducing the risk of interference to medical telemetry equipment. We find that the frequency separation between the 1395-1400 MHz and the 1429-1432 MHz bands will give greater flexibility for medical telemetry by making the bands more useful for two-way communications than a single contiguous band at 1391-1400 MHz.

8. We adopt service rules for the new Wireless Medical Telemetry Service (WMTS). These service rules only apply to the WMTS that will operate at 608-614 MHz, 1395-1400 MHz, and 1429-1432 MHz, and not to the current medical telemetry operations permitted under parts 15 and 90. The rules include licensing requirements and technical standards for the equipment, as well as a frequency coordination procedure.

9. Definition. In the NPRM, 64 FR 41892, August 2, 1999, we proposed the following definition for medical telemetry:

Wireless medical telemetry is defined as the measurement and recording of physiological parameters and other patient-related information via radiated bi- or unidirectional electromagnetic signals.

10. We agree that allowing bi-directional transmissions could promote the development of more advanced medical telemetry equipment and encourage more efficient use of the spectrum. The split frequency allocation we are adopting in this item was selected in part to facilitate two-way communications. Accordingly, we are adopting a definition of medical telemetry that will allow bi-directional transmissions. We find it unnecessary to exclude voice and video transmissions in the definition for medical telemetry.

11. Licensing. There were no comments opposing our proposal that WMTS equipment be “licensed by rule”, rather than requiring individual operators” licenses. Individual licensing is generally designed to give a licensee a protected service area, and thus establishes rights among competing entities in the same service. Operators in the WMTS will not be in competition with each other as are parties in other radio services. The WMTS spectrum will be shared among medical telemetry users, and there will be no mutual exclusivity between users. In addition, “licensing by rule” will minimize regulatory procedures and thus facilitate deployment. We are therefore adopting our proposal that the WMTS exist as one of the Citizen's Band services contained in part 95 of the rules and that the equipment used in this service be “licensed by rule”. The Commission has authority under Section 307(e) of the Communications Act to define the citizen's band radio services and to license them by rule.

12. Eligibility. We proposed that only authorized health care providers be eligible to operate transmitters in the WMTS. For the purpose of this service, an “authorized health care provider” would be defined as (1) a physician or other individual authorized under state or federal law to provide health care services; (2) a health care facility operated by or employing individuals authorized under state or federal law to provide health care services; or (3) any trained technician under the supervision and control of an individual or health care facility authorized under state or federal law to provide health care services. We proposed to define a “health care provider facility” as a hospital or other establishment that offers services, facilities and beds for use beyond a 24 hour period in rendering medical treatment, and organizations regularly engaged in providing medical services through clinics, public health facilities and similar establishments, including government entities and agencies such as Veterans Administration Hospitals. Health care facilities on tribal lands would also be included under our proposed definition. A health care facility would not include an ambulance or other moving vehicle, and this definition would also not allow home use of WMTS equipment. We are adopting these eligibility definitions as proposed.

13. Frequency coordination. The comments supported our proposal to designate a frequency coordinator to maintain a database of all WMTS equipment identified by location, operating frequency, emission type and output power. NTIA notes that a frequency coordinator would facilitate band sharing between hospitals and the remaining government operations at protected sites. Accordingly, we are adopting the proposal to designate a frequency coordinator to maintain a database of WMTS equipment. Without a database, there would be no record of WMTS usage because WMTS transmitters will not be individually licensed. The database will provide a record of the frequencies used by each facility or device to assist parties in selecting frequencies to avoid interference. The database will be used by eligible users and manufacturers to plan for specific frequency use within a geographic area, especially where numerous WMTS operations may occur.

14. The frequency coordinator will not be a decision maker as to which frequency should be used. Rather, the coordinator will notify users of potential frequency conflicts, and users should be able to resolve any conflicts among themselves. We expect that there will be few conflicts between users of WMTS equipment due to its low operating power, but the Commission will make the final decision on a case-by-case basis in disputes between users, if necessary. The coordinator must be familiar with the medical telemetry user community, and must make its services available to all parties on a first-come, first-served and non-discriminatory basis. The frequency coordinator must be willing to serve a five-year term, which could be renewed by the Commission. In the event that a frequency coordinator does not wish to continue at the end of its term, it will have to transfer its database to another designated entity.

15. The NPRM, 64 FR 41892, August 2, 1999, asked for comments on the following questions about the frequency coordinator: (1) any other qualifications that a frequency coordinator must have, (2) whether a single entity or multiple entities should be designated as frequency coordinator(s), (3) how the frequency records could be maintained with multiple coordinators, and (4) whether we should limit the fees the frequency coordinator(s) can charge.

16. Several entities expressed an interest in being a frequency coordinator for WMTS. In the past the Commission has tried, where appropriate, to introduce market forces into the frequency coordination process. Therefore, rather than adopt a Commission rule restricting database management of WMTS spectrum to a single coordinator, we will leave the ultimate decision on the number of coordinators up to the Commission's Wireless Telecommunications Bureau (WTB). WTB already has delegated authority to select frequency coordinators in the services it administers. WTB will announce its coordination selection procedures in a Public Notice in the near future. We have not found it necessary to set limits on the fees charged by coordinators in other services, and we have no reason to believe that fee limits will be necessary in the WMTS. Accordingly, we will allow the designated coordinator to set the fee structure as necessary to recoup costs.

17. The NPRM, 64 FR 41892, August 2, 1999, proposed that certain information be submitted to the frequency coordinator for inclusion on the database, including:

(1) Frequency range(s) used

(2) Modulation scheme used

(3) Effective radiated power

(4) Number of transmitters in use at the health care facility at the time of registration

(5) Legal name of the authorized health care provider

(6) Location of transmitter (coordinates, street address, building)

(7) Point of contact for the authorized health care provider.

18. We find that requiring periodic equipment registration renewals from health care providers to be an unnecessary burden. Most hospitals would find it difficult to remember to renew their registrations after five years have passed, and requiring coordinators to send out periodic renewal notices and process renewal applications could significantly increase their workload. However, we will not preclude coordinators from verifying the continued use of registered equipment on an “as needed” basis, such as when the database shows a conflict between a registered user and a new user. Accordingly, we are adopting our proposal that equipment registrations will remain valid until the health care provider requests cancellation. Restricting access to the database to certain parties would be difficult and burdensome for the coordinator because the coordinator would have to verify that each and every party accessing the database has a need for the information that is related to health care. Such restrictions could make it difficult for parties with legitimate needs for information to view the database. We therefore find that the database should be open to all parties.

19. Permissible communications. We proposed that the WMTS could be used for all types of communications, except for voice or video transmissions. We proposed to exclude these types of transmissions because we were concerned that video could occupy a significant portion of the spectrum allocated to the WMTS, and that allowing voice transmissions could encourage the equipment to be used as a form of wireless intercom.

20. We find that the transmission of waveform information such as electrocardiograms (ECGs) is within the intended purpose of the WMTS, which is to transmit vital patient data. Accordingly, we will permit the transmission of waveform information in the WMTS. However, allowing the general purpose use of video in the WMTS could potentially result in video occupying a large portion of the available spectrum. This is a greater concern initially because portions of the WMTS spectrum will be unavailable for a number of years in parts of the country due to grandfathered government operations. We are not persuaded that there is currently a need for voice capabilities in telemetry equipment, and we reiterate our concern that allowing such capabilities could encourage use of the equipment for other than its intended purpose of transmitting patient data. Accordingly, we will prohibit voice and video transmissions in the WMTS at this time, but we may revisit the issue at a later date after government operations cease in the WMTS bands.

21. Technical Standards. We proposed only minimal technical standards for WMTS equipment to give manufacturers the flexibility to develop different applications for medical telemetry. We did not propose a specific channelization scheme for the 1395-1400 MHz and 1429-1432 MHz bands. However, to prevent users from monopolizing the 608-614 MHz band, we proposed that equipment using broadband technologies, such as spread spectrum, be capable of operating on channels of 1.5 MHz each, up to a maximum of 6 MHz. Such equipment would operate on the minimum number of channels necessary, and must have the capability of being “throttled back” so it will occupy as little as one 1.5 MHz channel, if necessary, to allow multiple users to share that band. There were no objections to the proposed requirement on maximum channel usage in the 608-614 MHz band, so we are adopting this requirement which will allow the WMTS spectrum to be used more efficiently.

22. We proposed the following field strength limits for transmitters in the WMTS.

23. We proposed the same out-of-band field strength limits for transmitters in the WMTS bands that are used for most intentional radiators under part 15 of the rules. We have found those limits to be effective at controlling interference. There were no objections to applying the part 15 out-of-band emission limits to WMTS equipment, and we are adopting them.

24. Protection of other existing services. The WMTS must not cause interference to radio astronomy operations, and to certain grandfathered government operations. We are therefore adopting rules requiring the coordination of WMTS operations in the 608-614 MHz band with radio astronomy operations, which are the same as the coordination requirements currently found in part 15. The rules also require operators in the 1395-1400 MHz and 1429-1432 MHz bands to protect certain government operations. Finally, parties using WMTS equipment should be aware that the operation of transmitters in close proximity to medical equipment could cause interference to the operation of the medical equipment. The rules provide a warning to this effect, which is the same warning found in part 15.

25. RF Safety. We do not currently require the routine evaluation of medical telemetry equipment for compliance with the radiofrequency (RF) radiation safety guidelines in our rules due to the low power of the equipment. The NPRM, 64 FR 41892, August 2, 1999 did not propose to require RF safety measurements for WMTS equipment because such equipment would also operate at relatively low power levels.

26. Our rules for RF safety classify equipment into two categories: (1) mobile devices, which normally operate with at least a 20 centimeter separation from the radiating element to the body of the user or a nearby person , and (2) portable devices, which normally operate with less than a 20 centimeter separation from the radiating element to the body of the user. Based upon our analysis, we agree that portable WMTS equipment could possibly exceed the RF safety guidelines in our rules. Accordingly, we will require routine environmental evaluation for RF exposure of portable WMTS equipment prior to equipment authorization or use. We expect that the majority of WMTS equipment will be classified as “portable” because medical telemetry transmitters are typically worn on the body. However, we realize that there may be some applications where the transmitter is separated from the body by more than 20 centimeters, such as a unit mounted on a bed or incorporated within a separate device. Consistent with the RF safety requirements for other services, mobile WMTS equipment will be categorically excluded from routine environmental evaluation because WMTS equipment complying with the technical requirements we are adopting will operate with an effective radiated power (ERP) of less than 1.5 watts, which is the threshold for the exclusion of equipment operating below 1.5 GHz.

27. Equipment authorization requirement. The NPRM, 64 FR 41892, August 2, 1999 proposed authorizing WMTS transmitters through the Declaration of Conformity (DoC) procedure in part 2 of the rules. DoC is a manufacturer's self-approval procedure where the equipment is tested to ensure it complies with the Commission's technical standards, and may then be marketed without an approval by the Commission.

28. The certification procedure requires the manufacturer to file electronically a test report showing the equipment complies with the rules along with other supporting documentation to the Commission or to a designated Telecommunication Certification Body (TCB). The equipment may not be marketed until an approval has been received from the Commission or a TCB. Upon further consideration, we agree that certification is the appropriate authorization procedure for WMTS equipment. WMTS equipment involves new technologies, and the majority will be subject to routine environmental evaluation for RF safety. Requiring certification is consistent with the actions we have taken in similar cases, such as the Medical Implant Communication Service (MICS) in part 95. However, we note that procedures for making the RF exposure measurements are currently under development. When such procedures are developed, we may consider relaxing the certification requirement for medical telemetry equipment.

29. Equipment authorization. We proposed that all new medical telemetry equipment that receives an equipment authorization starting two years after the adoption of final rules must operate in the newly authorized frequency bands. Two years is a reasonable timetable for requiring manufacturers to produce equipment to operate in the new bands. Based on the comments received, we are confident that manufacturers will be able to meet this deadline. We decline to allow equipment approved after that deadline to have the capability of operating in the current part 15 and part 90 bands. Our goal in this proceeding is to not only provide spectrum where medical telemetry he Commission has taken, such as the freeze in the 450-470 MHz band and the requirement for DTV stations to notify nearby health care facilities, affect other parties. We therefore wish to encourage medical telemetry users to migrate out of the current frequency bands and into the new frequency bands. Allowing the development of new equipment that can operate in the old bands after the transition date would discourage the eventual migration to the new bands.

30. Grandfathering. Requiring the replacement of functional medical telemetry systems that are not subject to interference would be an unnecessary financial burden on hospitals. Accordingly, we will permit medical telemetry equipment that has received an equipment authorization to operate in current part 15 and part 90 bands prior to the two year transition date to be manufactured, imported, marketed and operated without a cutoff date. This action will ensure that manufacturers will be able to make replacement parts for systems operating in the old bands, and that hospitals will be permitted to operate their existing systems as long as possible until replacement is necessary due to age or interference concerns.

31. Existing equipment registration. We find it unlikely that a complete database of all part 15 and part 90 medical telemetry transmitters could be developed prior to the transition to the new frequency bands. However, placing even some transmitters in a database could possibly assist parties in avoiding cases of interference. We therefore have no objection to allowing the voluntary registration of existing part 15 and part 90 medical telemetry devices. The rules we are adopting allow frequency coordinators to process voluntary requests to register equipment operating under parts 15 and 90.

32. In 1995, the Commission adopted changes to part 90 of the rules to allow more efficient use of the spectrum for land mobile services. These changes permitted high power operations on channels in the 450-470 MHz band. However, under the new channeling scheme, high-power primary users of the band would be able to operate on the same frequencies used for medical telemetry equipment. This could possibly result in interference to medical telemetry equipment. For this reason, on August 11, 1995, the Commission placed a freeze on the filing of applications for high power operation in the 450-470 MHz band on the 12.5 kHz offset channels.

33. 450-460 MHz band freeze. On October 20, 1999, the Commission issued a public notice asking parties operating medical telemetry equipment in the 450-460 MHz band to provide certain information to the Commission. We received responses from 25 parties around the country operating in this band. The majority of these users were operating a small number of devices on a limited number of frequencies around 457 and 458 MHz. Based on the limited usage of the 450-460 MHz band for medical telemetry, we find that the freeze on high-power land mobile applications in the 450-460 MHz band can be lifted. Accordingly, the Wireless Telecommunications Bureau will issue a public notice announcing the lifting of the freeze in this band in the near future.

34. 460-470 band freeze. We find that a five-year transition period is longer than is necessary to prepare for the lifting of the freeze in the 460-470 MHz band. The freeze was announced almost five years ago, so hospitals have been on notice that they may eventually have to change frequencies. Equipment is already available to operate in the 608-614 MHz band we are allocating in this proceeding, and equipment to operate in the other bands allocated in this proceeding should become available over the next two years. Five more years should not be required for hospitals to make the transition. We will therefore lift the freeze on high power land mobile application in the 460-470 MHz band within three years from the effective date of final rules in this proceeding.

35. The NPRM, 64 FR 41892, August 2, 1999, did not propose to preclude medical telemetry equipment from operating in the ISM bands under part 15 because only a small number of devices operate under these provisions. Therefore, there is not the same potential for a large number of cases of interference to medical telemetry equipment in these bands as there is for medical telemetry equipment operating in the TV and PLMR bands. We expect that the majority of medical telemetry equipment manufacturers will design equipment for the new bands allocated in this proceeding, and that only a small number of devices will continue to use the ISM bands. There, we will continue to allow medical telemetry equipment to operate in the ISM bands under part 15. While such operation will be permissible, manufacturers and users are cautioned that equipment operating in these bands has no protection from interference from ISM equipment operating under part 18 of the rules or other low power transmitters operating under part 15 of the rules.

36. Pursuant to sections 4(I), 11, 301, 302, 303(e), 303(f), 303(r) 304, 307 and 332(b) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 161, 301, 302, 303(3), 303(f), 303(r), 304, 307 and 332(b).

37. As required by the Regulatory Flexibility Act (RFA),  1 an Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the Notice of Proposed Rule Making, Amendment of parts 2 and 95 of the Commission's Rules to Establish a Wireless Medical Telemetry Service.  2 The Commission sought written public comment on the proposals in the Notice, including comment on the IRFA. The comments received are discussed below. This present Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA.  3

38. Medical telemetry equipment currently operates on an unlicensed basis on certain unused TV channels under part 15 of the rules, and on a secondary basis to private land mobile services in the 450-470 MHz band under part 90 of the rules. With the transition to digital TV service, both full power and low-power TV stations may begin operating on some of the vacant channels used by medical telemetry equipment. In addition, the new channelization scheme being implemented in the 450-470 MHz band will allow high-power operation on the channels currently reserved for low-power use where medical telemetry equipment operates. Both of these changes could result in severe interference to medical telemetry equipment. The rules adopted in the Report and Order allocate new frequency bands where medical telemetry equipment can operate on a primary basis without receiving interference.

39. There were no timely filed comments in response to the IRFA. The Office of Advocacy, U.S. Small Business Administration (SBA) filed “reply comments” after the comment deadline, but prior to the reply comment deadline. Because they do not respond to comments on the IRFA, they are in fact untimely filed comments. Nevertheless, we will address the issues raised by the SBA.

40. The SBA claims two deficiencies on the part of the Commission in this proceeding. First, SBA states that the NPRM did not consider the impact of the proposed rules on small businesses.  4 Second, SBA states that the IRFA does not describe the impact of the rules on small businesses and does not provide significant alternatives designed to minimize this impact.  5

41. We believe SBA is clearly in error on the first point. The RFA only requires agencies to provide an analysis of the impact of the proposed rules on small businesses in the IRFA.  6 There is no requirement in the RFA to provide such an analysis in the NPRM, which would unnecessarily duplicate the analysis in the IRFA. Thus we reject SBA's first claim.

42. We disagree with SBA on the second point as well. The RFA requires the Commission to provide an analysis that discusses significant alternatives such as (1) the establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance and reporting requirements under the rule for such small entities; (3) the use of performance rather than design standards; and (4) an exemption from coverage of the rule, or any part thereof, for such small entities.  7 These are merely examples of the type of information that should be included; this list is not a rigid checklist. The IRFA included with the NPRM in this proceeding did in fact include an analysis of the type required by the RFA. Specifically, it discussed the simplified compliance and reporting requirements we considered to minimize the impact of the rules on small businesses. We considered the effect on small business from the outset and made the rules apply equally to all parties. Thus, we consider the IRFA in this proceeding to be adequate. We further note that no other parties had any objections to the IRFA or considered it to be inadequate.

43. The RFA directs agencies to provide a description of, and, where feasible, an estimate of the number of small entities that may be affected by the proposed rules, if adopted. 8 Under the RFA, small entities may include small organizations, small businesses, and small governmental jurisdictions. 5 U.S.C. 601(6). The RFA, 5 U.S.C. 601(3), generally defines the term “small business” as having the same meaning as the term “small business concern” under the Small Business Act, 15 U.S.C. 632. A small business concern is one which: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the SBA. This standard also applies in determining whether an entity is a small business for purposes of the RFA.

44. The Commission has not developed a definition of small entities applicable to RF Equipment Manufacturers. Therefore, the applicable definition of small entity is the definition under the SBA rules applicable to manufacturers of “Radio and Television Broadcasting and Communications Equipment.” According to the SBA's regulation, an RF manufacturer must have 750 or fewer employees in order to qualify as a small business. 9 Census Bureau data indicates that there are 858 companies in the United States that manufacture radio and television broadcasting and communications equipment, and that 778 of these firms have fewer than 750 employees and would be classified as small entities. 10 Therefore, we believe that many of the companies that manufacture RF equipment would qualify as small entities.

45. According to the SBA's regulations, nursing homes and hospitals must have annual gross receipts of $5 million or less in order to qualify as a small business concern. 13 CFR 121.201. There are approximately 11,471 nursing care firms in the nation, of which 7,953 have annual gross receipts of $5 million or less. 11 There are approximately 3,856 hospital firms in the nation, of which 294 have gross receipts of $5 million or less. Thus, the approximate number of small confined setting entities to which the Commission's new rules will apply is 8,247.

This is a summary of the Commission's Report and Order, MM Docket No. 99-225, adopted June 21, 2000, and released June 30, 2000. The full text of this Commission decision is available for inspection and copying during normal business hours in the Commission's Reference Center, 445 12th Street, SW., Washington, DC. The complete text of this decision may also be purchased from the Commission's copy contractors, International Transcription Services, Inc., 1231 20th Street, NW., Washington, DC 20036, (202) 857-3800, facsimile (202) 857-3805.

This is a synopsis of the Commission's Memorandum Opinion and Order , MM Docket No. 94-78, adopted May 12, 2000, and released June 14, 2000. The full text of this Commission decision is available for inspection and copying during normal business hours in the FCC's Reference Information Center at Portals II, CY-A257, 445 12th Street, SW, Washington, DC. The complete text of this decision may also be purchased from the Commission's copy contractors, International Transcription Service, Inc., (202) 857-3800, 1231 20th Street NW., Washington, DC 20036.

This is a synopsis of the Commission's Report and Order, MM Docket No. 99-114, adopted June 21, 2000, and released June 30, 2000. The full text of this Commission decision is available for inspection and copying during normal business hours in the FCC's Reference Center (Room CY-A257), 445 Twelfth Street, SW., Washington, DC. The complete text of this decision may also be purchased from the Commission's copy contractor, International Transcription Service, Inc., 1231 20th Street, NW., Washington, DC 20036, (202) 857-3800.

NMFS manages the groundfish fishery in the BSAI exclusive economic zone according to the FMP prepared by the North Pacific Fishery Management Council under authority of the Magnuson-Stevens Fishery Conservation and Management Act. Regulations governing fishing by U.S. vessels in accordance with the FMP at subpart H of 50 CFR part 600 and 50 CFR part 679.

The BSAI halibut prohibited species catch (PSC) limit for nontrawl gear is an amount of halibut equivalent to 900 metric tons (mt) of halibut mortality (§ 679.21(e)(2)(i)). The apportionment of the nontrawl halibut PSC limit to bycatch allowances for the Pacific cod hook-and-line fishery, other nontrawl fisheries and prohibited species quota reserve was established by the Final 2000 Harvest Specifications of Groundfish for the BSAI (65 FR 8282, February 18, 2000) as 748 mt, 84 mt, and 67 mt, respectively.

At its April 2000 meeting, the Council requested NMFS to amend the 2000 harvest specifications to reapportion 75 mt of the halibut bycatch mortality allowance specified for the Pacific cod hook-and-line fishery to the other nontrawl fishery category. This proposed amendment to the 2000 harvest specifications was published in the Federal Register on May 22, 2000 (65 FR 32070), for public comment and review. No comments were received during the comment period that ended June 6, 2000. In order to provide greater opportunity to harvest the BSAI Greenland turbot total allowable catch (TAC) while not jeopardizing the opportunity to harvest the amount of the Pacific cod TAC allocated to hook-and-line vessels, NMFS increases the halibut bycatch mortality allowance specified for the other nontrawl fishery category by 75 mt and reduces the halibut bycatch mortality allowance specified for the Pacific cod hook-and-line fishery by the same amount.

The halibut bycatch mortality specifications for the 2000 BSAI nontrawl fisheries are listed in Table 7 of the Final 2000 Harvest Specifications for Groundfish (65 FR 8282, February 18, 2000). To accommodate the final action, the 2000 BSAI final harvest specifications are amended by adding the following Table 7A.

This action is authorized under 50 CFR 679.21(e)(4) and is exempt from OMB review under E.O. 12866.

NMFS prepared an environmental assessment (EA) and final regulatory flexibility assessment (FRFA) for the 2000 harvest specifications. These documents are available by contacting: Lori Gravel, Alaska Region, NMFS, P.O. Box 21668, Juneau, AK 99802-1668. The reapportionment of the BSAI nontrawl halibut PSC limit is intended to provide fuller opportunity to conduct the fishing activities considered in the EA/FRFA and is fully within the scope of these analyses.

The need to implement this reapportionment promptly to provide greater opportunity to harvest the BSAI Greenland turbot TAC and to prevent the unnecessary economic hardships to fishermen that would result from a fishery closure constitutes good cause under 5 U.S.C. 553(d) to waive the 30-day effective date and make this reapportionment effective July 12, 2000 through 2400 hrs, A.l.t., December 31, 2000.