[Title 12 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2008 Edition]
[From the U.S. Government Printing Office]



[[Page i]]

          

          12


          Part 900 to End

                         Revised as of January 1, 2008


          Banks and Banking
          



________________________

          Containing a codification of documents of general 
          applicability and future effect

          As of January 1, 2008
          With Ancillaries
                    Published by
                    Office of the Federal Register
                    National Archives and Records
                    Administration
                    A Special Edition of the Federal Register

[[Page ii]]

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                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 12:
          Chapter IX--Federal Housing Finance Board                  3
          Chapter XI--Federal Financial Institutions 
          Examination Council                                      225
          Chapter XIV--Farm Credit System Insurance 
          Corporation                                              261
          Chapter XV--Department of the Treasury                   299
          Chapter XVII--Office of Federal Housing Enterprise 
          Oversight, Department of Housing and Urban 
          Development                                              321
          Chapter XVIII--Community Development Financial 
          Institutions Fund, Department of the Treasury            553
  Finding Aids:
      Material Approved for Incorporation by Reference........     593
      Table of CFR Titles and Chapters........................     595
      Alphabetical List of Agencies Appearing in the CFR......     613
      List of CFR Sections Affected...........................     623

[[Page iv]]





                     ----------------------------

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus,  12 CFR 900.1 refers 
                       to title 12, part 900, 
                       section 1.

                     ----------------------------

[[Page v]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

    The contents of the Federal Register are required to be judicially 
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie 
evidence of the text of the original documents (44 U.S.C. 1510).

HOW TO USE THE CODE OF FEDERAL REGULATIONS

    The Code of Federal Regulations is kept up to date by the individual 
issues of the Federal Register. These two publications must be used 
together to determine the latest version of any given rule.
    To determine whether a Code volume has been amended since its 
revision date (in this case, January 1, 2008), consult the ``List of CFR 
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative 
List of Parts Affected,'' which appears in the Reader Aids section of 
the daily Federal Register. These two lists will identify the Federal 
Register page number of the latest amendment of any given rule.

EFFECTIVE AND EXPIRATION DATES

    Each volume of the Code contains amendments published in the Federal 
Register since the last revision of that volume of the Code. Source 
citations for the regulations are referred to by volume number and page 
number of the Federal Register and date of publication. Publication 
dates and effective dates are usually not the same and care must be 
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instances where the effective date is beyond the cut-off date for the 
Code a note has been inserted to reflect the future effective date. In 
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OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
amendments to existing regulations in the CFR. These OMB numbers are 
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OBSOLETE PROVISIONS

    Provisions that become obsolete before the revision date stated on 
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of provisions in effect on a given date in the past by using the 
appropriate numerical list of sections affected. For the period before 
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1963, 1964-1972, or 1973-1985, published in seven separate volumes. For 
the period beginning January 1, 1986, a ``List of CFR Sections 
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INCORPORATION BY REFERENCE

    What is incorporation by reference? Incorporation by reference was 
established by statute and allows Federal agencies to meet the 
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to materials already published elsewhere. For an incorporation to be 
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This material, like any other properly issued regulation, has the force 
of law.
    What is a proper incorporation by reference? The Director of the 
Federal Register will approve an incorporation by reference only when 
the requirements of 1 CFR part 51 are met. Some of the elements on which 
approval is based are:
    (a) The incorporation will substantially reduce the volume of 
material published in the Federal Register.
    (b) The matter incorporated is in fact available to the extent 
necessary to afford fairness and uniformity in the administrative 
process.
    (c) The incorporating document is drafted and submitted for 
publication in accordance with 1 CFR part 51.
    Properly approved incorporations by reference in this volume are 
listed in the Finding Aids at the end of this volume.
    What if the material incorporated by reference cannot be found? If 
you have any problem locating or obtaining a copy of material listed in 
the Finding Aids of this volume as an approved incorporation by 
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20408, or call 202-741-6010.

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that volume.
    The Federal Register Index is issued monthly in cumulative form. 
This index is based on a consolidation of the ``Contents'' entries in 
the daily Federal Register.
    A List of CFR Sections Affected (LSA) is published monthly, keyed to 
the revision dates of the 50 CFR titles.

[[Page vii]]


REPUBLICATION OF MATERIAL

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    Raymond A. Mosley,
    Director,
    Office of the Federal Register.
    January 1, 2008.







[[Page ix]]



                               THIS TITLE

    Title 12--Banks and Banking is composed of seven volumes. The parts 
in these volumes are arranged in the following order: parts 1-199, 200-
219, 220-299, 300-499, 500-599, part 600-899, and 900-end. The first 
volume containing parts 1-199 is comprised of chapter I--Comptroller of 
the Currency, Department of the Treasury. The second and third volumes 
containing parts 200-299 are comprised of chapter II--Federal Reserve 
System. The fourth volume containing parts 300-499 is comprised of 
chapter III--Federal Deposit Insurance Corporation and chapter IV--
Export-Import Bank of the United States. The fifth volume containing 
parts 500-599 is comprised of chapter V--Office of Thrift Supervision, 
Department of the Treasury. The sixth volume containing parts 600-899 is 
comprised of chapter VI--Farm Credit Administration, chapter VII--
National Credit Union Administration, chapter VIII--Federal Financing 
Bank. The seventh volume containing part 900-end is comprised of chapter 
IX--Federal Housing Finance Board, chapter XI--Federal Financial 
Institutions Examination Council, chapter XIV--Farm Credit System 
Insurance Corporation, chapter XV--Department of the Treasury, chapter 
XVII--Office of Federal Housing Enterprise Oversight, Department of 
Housing and Urban Development and chapter XVIII--Community Development 
Financial Institutions Fund, Department of the Treasury. The contents of 
these volumes represent all of the current regulations codified under 
this title of the CFR as of January 1, 2008.

    For this volume, Jonn V. Lilyea was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of 
Michael L. White, assisted by Ann Worley.


[[Page 1]]



                       TITLE 12--BANKS AND BANKING




                  (This book contains part 900 to end)

  --------------------------------------------------------------------
                                                                    Part

chapter ix--Federal Housing Finance Board...................         900

chapter xi--Federal Financial Institutions Examination 
  Council...................................................        1101

chapter xiv--Farm Credit System Insurance Corporation.......        1400

chapter xv--Department of the Treasury......................        1510

chapter xvii--Office of Federal Housing Enterprise 
  Oversight, Department of Housing and Urban Development....        1700

chapter xviii--Community Development Financial Institutions 
  Fund, Department of the Treasury..........................        1805

[[Page 3]]



                CHAPTER IX--FEDERAL HOUSING FINANCE BOARD




  --------------------------------------------------------------------

                    SUBCHAPTER A--GENERAL DEFINITIONS
Part                                                                Page
900             General definitions applying to all finance 
                    board regulations.......................           7
 SUBCHAPTER B--FEDERAL HOUSING FINANCE BOARD ORGANIZATION AND OPERATIONS
905             Description of organization and functions...          10
906             Operations..................................          14
907             Procedures..................................          16
908             Rules of practice and procedure in hearings 
                    on the record...........................          26
910             Freedom of Information Act regulation.......          54
911             Availability of unpublished information.....          61
912             Information regarding meetings of the Board 
                    of Directors of the Federal Housing 
                    Finance Board...........................          66
913             Privacy Act Regulation......................          70
 SUBCHAPTER C--GOVERNANCE AND MANAGEMENT OF THE FEDERAL HOME LOAN BANKS
914             Data availability and reporting.............          77
915             Bank director eligibility, appointment and 
                    elections...............................          77
917             Powers and responsibilities of Bank boards 
                    of directors and senior management......          88
918             Bank director compensation and expenses.....          94
   SUBCHAPTER D--FEDERAL HOME LOAN BANK MEMBERS AND HOUSING ASSOCIATES
925             Members of the Banks........................          97

[[Page 4]]

926             Federal Home Loan Bank housing associates...         115
    SUBCHAPTER E--FEDERAL HOME LOAN BANK RISK MANAGEMENT AND CAPITAL 
                                STANDARDS
930             Definitions applying to risk management and 
                    capital regulations.....................         118
931             Federal Home Loan Bank capital stock........         119
932             Federal Home Loan Bank capital requirements.         123
933             Bank capital structure plans................         135
              SUBCHAPTER F--FEDERAL HOME LOAN BANK MISSION
940             Core Mission Activities.....................         141
944             Community support requirements..............         142
 SUBCHAPTER G--FEDERAL HOME LOAN BANK ASSETS AND OFF-BALANCE SHEET ITEMS
950             Advances....................................         147
951             Affordable Housing Program..................         157
952             Community Investment Cash Advance Programs..         179
955             Acquired Member Assets......................         184
956             Federal Home Loan Bank Investments..........         187
960             Standby letters of credit...................         188
            SUBCHAPTER H--FEDERAL HOME LOAN BANK LIABILITIES
965             Source of funds.............................         192
966             Consolidated obligations....................         192
969             Deposits....................................         197
   SUBCHAPTER I--MISCELLANEOUS FEDERAL HOME LOAN BANK OPERATIONS AND 
                               AUTHORITIES
975             Collection, settlement, and processing of 
                    payment instruments.....................         198
977             Miscellaneous bank authorities..............         200
978             Bank requests for information...............         200
           SUBCHAPTER J--NEW FEDERAL HOME LOAN BANK ACTIVITIES
980             New business activities.....................         203
                     SUBCHAPTER K--OFFICE OF FINANCE
985             The Office of Finance.......................         206
987             Book-entry procedure for consolidated 
                    obligations.............................         210
989             Financial statements of the Banks...........         215
                 SUBCHAPTER L--NON-BANK SYSTEM ENTITIES
995             Financing Corporation operations............         217

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996             Authority for Bank assistance of the 
                    Resolution Funding Corporation..........         220
997             Resolution Funding Corporation obligations 
                    of the Banks............................         220
            SUBCHAPTER M--FEDERAL HOME LOAN BANK DISCLOSURES
998             Registration of Federal Home Loan Bank 
                    equity securities.......................         223

[[Page 7]]



                    SUBCHAPTER A_GENERAL DEFINITIONS





PART 900_GENERAL DEFINITIONS APPLYING TO ALL FINANCE BOARD REGULATIONS--Table of Contents




Sec.
900.1 Basic terms relating to the Finance Board, the Bank System and 
          related entities.
900.2 Terms relating to Bank operations, mission and supervision.
900.3 Terms relating to other entities and concepts used throughout 12 
          CFR chapter IX.

    Authority: 12 U.S.C. 1422b(a).

    Source: 67 FR 12842, Mar. 20, 2002, unless otherwise noted.



Sec. 900.1  Basic terms relating to the Finance Board, the Bank System and related entities.

    As used throughout this chapter, the following basic terms relating 
to the Finance Board, the Bank System and related entities have the 
meanings set forth below, unless otherwise indicated in a particular 
subchapter, part, section, or paragraph:
    Act means the Federal Home Loan Bank Act, as amended (12 U.S.C. 1421 
through 1449).
    Bank, written in title case, means a Federal Home Loan Bank 
established under section 12 of the Act (12 U.S.C. 1432).
    Bank System means the Federal Home Loan Bank System, consisting of 
the 12 Banks and the Office of Finance.
    Board of Directors, written in title case, means the Board of 
Directors of the Federal Housing Finance Board; the term board of 
directors, written in lower case, has the meaning indicated in context.
    Chairperson means the Chairperson of the Board of Directors of the 
Finance Board.
    Executive Secretary means an employee within the Office of 
Management of the Finance Board who is responsible for records 
management.
    Finance Board means the Federal Housing Finance Board established by 
section 2A of the Act (12 U.S.C. 1422a).
    Financing Corporation or FICO means the Financing Corporation 
established and supervised by the Finance Board under section 21 of the 
Act (12 U.S.C. 1441) and part 995 of this chapter.
    Housing associate means an entity that has been approved as a 
housing associate pursuant to part 926 of this chapter.
    Member means an institution that has been approved for membership in 
a Bank and has purchased capital stock in the Bank in accordance with 
Sec. Sec. 925.20 or 925.24(b) of this chapter.
    Office of Finance or OF means the Office of Finance, a joint office 
of the Banks referred to in section 2B of the Act (12 U.S.C. 1422b) and 
established under part 985 of this chapter.
    Resolution Funding Corporation or REFCORP means the Resolution 
Funding Corporation established by section 21B of the Act (12 U.S.C. 
1441b) and addressed in parts 996 and 997 of this chapter.
    Secretary to the Board means employees within the Office of General 
Counsel of the Finance Board who are responsible for issues concerning 
meetings of the Board of Directors.

[67 FR 12842, Mar. 20, 2002, as amended at 68 FR 38169, June 27, 2003]



Sec. 900.2  Terms relating to Bank operations, mission and supervision.

    As used throughout this chapter, the following terms relating to 
Bank operations, mission and supervision have the meanings set forth 
below, unless otherwise indicated in a particular subchapter, part, 
section or paragraph:
    Acquired member assets or AMA means those assets that may be 
acquired by a Bank under part 955 of this chapter.
    Advance means a loan from a Bank that is:
    (1) Provided pursuant to a written agreement;
    (2) Supported by a note or other written evidence of the borrower's 
obligation; and
    (3) Fully secured by collateral in accordance with the Act and part 
950 of this chapter.
    Affordable Housing Program or AHP means the Affordable Housing 
Program, the CICA program that each Bank is required to establish 
pursuant

[[Page 8]]

to section 10(j) of the Act (12 U.S.C. 1430(j)) and part 951 of this 
chapter.
    Capital plan means the capital structure plan required for each Bank 
by section 6(b) of the Act, as amended (12 U.S.C. 1426(b)), and part 933 
of this chapter, as approved by the Finance Board, unless the context of 
the regulation refers to the capital plan prior to its approval by the 
Finance Board.
    CIP means the Community Investment Program, an advance program under 
CICA required to be offered pursuant to section 10(i) of the Act (12 
U.S.C. 1430(i)).
    Community Investment Cash Advance or CICA means any advance made 
through a program offered by a Bank under section 10 of the Act (12 
U.S.C. 1430) and parts 951 and 952 of this chapter to provide funding 
for targeted community lending and affordable housing, including 
advances made under a Bank's Rural Development Funding (RDF) program, 
offered under section 10(j)(10) of the Act (12 U.S.C. 1430(j)(10)); a 
Bank's Urban Development Funding (UDF) program, offered under section 
10(j)(10) of the Act (12 U.S.C. 1430(j)(10)); a Bank's Affordable 
Housing Program (AHP), offered under section 10(j) of the Act (12 U.S.C. 
1430(j)); a Bank's Community Investment Program (CIP), offered under 
section 10(i) of the Act (12 U.S.C. 1430(i)); or any other program 
offered by a Bank that meets the requirements of part 952 of this 
chapter.
    Community lending means providing financing for economic development 
projects for targeted beneficiaries, and, for community financial 
institutions (as defined in Sec. 925.1 of this chapter), purchasing or 
funding small business loans, small farm loans or small agri-business 
loans (as defined in Sec. 950.1 of this chapter).
    Consolidated obligation or CO means any bond, debenture, or note 
authorized under part 966 of this chapter to be issued jointly by the 
Banks pursuant to section 11(a) of the Act, as amended (12 U.S.C. 
1431(a)), or any bond or note issued by the Finance Board on behalf of 
all Banks pursuant to section 11(c) of the Act (12 U.S.C. 1431(c)), on 
which the Banks are jointly and severally liable.
    Data Reporting Manual or DRM means a manual issued by the Finance 
Board and amended from time to time containing reporting requirements 
for the Banks.
    Excess stock means that amount of a Bank's capital stock owned by a 
member or other institution in excess of that member's or other 
institution's minimum investment in capital stock required under the 
Bank's capital plan, the Act, or the Finance Board's regulations, as 
applicable.
    Financial Management Policy or FMP means the Financial Management 
Policy For The Federal Home Loan Bank System approved by the Finance 
Board pursuant to Finance Board Resolution No. 96-45 (July 3, 1996), as 
amended by Finance Board Resolution No. 96-90 (Dec. 6, 1996), Finance 
Board Resolution No. 97-05 (Jan. 14, 1997), and Finance Board Resolution 
No. 97-86 (Dec. 17, 1997).

[67 FR 12842, Mar. 20, 2002, as amended at 71 FR 35499, June 21, 2006; 
71 FR 78050, Dec. 28, 2006]



Sec. 900.3  Terms relating to other entities and concepts used throughout 12 CFR chapter IX.

    As used throughout this chapter, the following terms relating to 
other entities and concepts used throughout 12 CFR chapter IX have the 
meanings set forth below, unless otherwise indicated in a particular 
subchapter, part, section or paragraph:
    Appropriate Federal banking agency has the meaning set forth in 
section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. 1813(q)) 
and, for federally-insured credit unions, means the NCUA.
    Appropriate state regulator means any state officer, agency, 
supervisor or other entity that has regulatory authority over, or is 
empowered to institute enforcement action against, a particular 
institution.
    Fannie Mae means the Federal National Mortgage Association 
established under authority of the Federal National Mortgage Association 
Charter Act (12 U.S.C. 1716, et seq.).
    FDIC means the Federal Deposit Insurance Corporation.
    FRB means the Board of Governors of the Federal Reserve System.

[[Page 9]]

    Freddie Mac means the Federal Home Loan Mortgage Corporation 
established under authority of the Federal Home Loan Mortgage 
Corporation Act (12 U.S.C. 1451, et seq.).
    Generally Accepted Accounting Principles or GAAP means accounting 
principles generally accepted in the United States.
    Ginnie Mae means the Government National Mortgage Association 
established under authority of the Federal National Mortgage Association 
Charter Act (12 U.S.C. 1716, et seq.).
    GLB Act means the Gramm-Leach-Bliley Act (Pub. L. 106-102 (1999)).
    HUD means the United States Department of Housing and Urban 
Development.
    NCUA means the National Credit Union Administration.
    NRSRO means a credit rating organization regarded as a Nationally 
Recognized Statistical Rating Organization by the Securities and 
Exchange Commission.
    OCC means the Office of the Comptroller of the Currency.
    OTS means the Office of Thrift Supervision.
    SBIC means a small business investment company formed pursuant to 
section 301 of the Small Business Investment Act (15 U.S.C. 681).
    SEC means the United States Securities and Exchange Commission.
    State means a state of the United States, American Samoa, the 
Commonwealth of the Northern Mariana Islands, the District of Columbia, 
Guam, Puerto Rico, or the United States Virgin Islands.
    1934 Act means the Securities Exchange Act of 1934 (15 U.S.C. 78a et 
seq.).

[67 FR 12842, Mar. 20, 2002, as amended at 69 FR 38811, June 29, 2004]

[[Page 10]]



 SUBCHAPTER B_FEDERAL HOUSING FINANCE BOARD ORGANIZATION AND OPERATIONS





PART 905_DESCRIPTION OF ORGANIZATION AND FUNCTIONS--Table of Contents




        Subpart A_Functions and Responsibilities of Finance Board

Sec.
905.1 [Reserved]
905.2 General statement and statutory authority.
905.3 Location and business hours.
905.4 Duties of the Finance Board.

Appendix A to Subpart A of Part 905--Federal Home Loan Banks

                     Subpart B_General Organization

905.10 Board of Directors.
905.11 Office of Inspector General.
905.12 Office of Management.
905.13 Office of Supervision.
905.14 Office of General Counsel.

                         Subpart C_Miscellaneous

905.25 Forms.
905.26 Official logo and seal.
905.27 OMB control numbers assigned under the Paperwork Reduction Act.

    Authority: 5 U.S.C. 552; 12 U.S.C. 1422b(a) and 1423; 44 U.S.C. 
3507; 5 CFR 1320.5 and 1320.8.

    Source: 56 FR 67155, Dec. 30, 1991, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.



        Subpart A_Functions and Responsibilities of Finance Board



Sec. 905.1  [Reserved]



Sec. 905.2  General statement and statutory authority.

    (a) The Finance Board is an independent, executive agency in the 
Federal Government, responsible for regulating the Bank System. It is 
funded through assessments levied upon the Banks. These funds are not 
considered Government Funds or appropriated monies. The Finance Board is 
governed by a five-member Board of Directors and administered by a full-
time staff.
    (b) The members of the Board of Directors individually are referred 
to as Directors. Other than the Office of Inspector General and the 
Office of General Counsel, the heads of the administrative units, called 
offices, also are called Directors. The head of the Office of Inspector 
General is called the Inspector General and the head of the Office of 
General Counsel is called the General Counsel.
    (c) The Finance Board administers the Act and is authorized to issue 
rules, regulations and orders affecting the Bank System. The Finance 
Board performs all such duties and responsibilities as may be required 
by statute. As required by section 302(b)(2) of the Federal National 
Mortgage Association Charter Act (12 U.S.C. 1717(b)), it also conducts a 
monthly survey of all major lenders to calculate a national average for 
interest rates on mortgages for one-family homes, on behalf of the 
Fannie Mae. As required by section 305(b) of the Federal Home Loan 
Mortgage Corporation Act (12 U.S.C. 1454(b)), it conducts a similar 
survey for the Freddie Mac.

[56 FR 67155, Dec. 30, 1991, as amended at 65 FR 8256, Feb. 18, 2000; 67 
FR 12843, Mar. 20, 2002; 68 FR 38169, June 27, 2003]



Sec. 905.3  Location and business hours.

    (a) Location. All office units of the Finance Board are located at 
1777 F Street, NW., Washington, DC 20006.
    (b) Hours of operation. The regular hours of operation of the 
Finance Board are from 8:30 a.m. to 5:30 p.m., Monday through Friday.



Sec. 905.4  Duties of the Finance Board.

    (a) Bank System. The Finance Board supervises and regulates the 
Banks and the Office of Finance. Specifically, its duties are:
    (1) To ensure that the Banks operate in a safe and sound manner;
    (2) To supervise all business operations of the Banks, which may 
include:
    (i) Prescribing conditions upon which Banks may advance funds to 
their members and housing associates;
    (ii) Prescribing rules and conditions under which a Bank may borrow 
funds,

[[Page 11]]

pay interest on those funds, or issue obligations;
    (iii) Requiring examinations of the Banks; and
    (iv) Appointing the public interest members of the boards of 
directors of the Banks;
    (3) To ensure that the Banks fulfill their housing finance and 
community lending mission;
    (4) To ensure that the Banks remain adequately capitalized; and
    (5) To ensure that the Banks are able to raise funds in the capital 
markets.
    (b) Financing Corporation. The Finance Board also oversees the 
operations of the Financing Corporation, including its issuance of 
obligations.

[67 FR 12843, Mar. 20, 2002]



    Sec. Appendix A to Subpart A of Part 905--Federal Home Loan Banks

                    Federal Home Loan Bank District 1

(Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, 
Vermont)

                    Federal Home Loan Bank of Boston

111 Huntington Avenue, 24th Floor, Boston, MA 02199-7614

                    Federal Home Loan Bank District 2

(New Jersey, New York, Puerto Rico, Virgin Islands)

                   Federal Home Loan Bank of New York

101 Park Avenue, New York, NY 10178-0599

                    Federal Home Loan Bank District 3

(Delaware, Pennsylvania, West Virginia)

                  Federal Home Loan Bank of Pittsburgh

601 Grant Street, Pittsburgh, PA 15219-4455

                    Federal Home Loan Bank District 4

(Alabama, District of Columbia, Florida, Georgia, Maryland, North 
Carolina, South Carolina, Virginia)

                    Federal Home Loan Bank of Atlanta

1475 Peachtree Street, NE., Atlanta, GA 30309

                    Federal Home Loan Bank District 5

(Kentucky, Ohio, Tennessee)

                  Federal Home Loan Bank of Cincinnati

221 East Fourth Street, Suite 1000, Cincinnati, OH 45202

                    Federal Home Loan Bank District 6

(Indiana, Michigan)

                 Federal Home Loan Bank of Indianapolis

8250 Woodfield Crossing Boulevard, Indianapolis, IN 46240

                    Federal Home Loan Bank District 7

(Illinois, Wisconsin)

                    Federal Home Loan Bank of Chicago

111 East Wacker Drive, Suite 700, Chicago, IL 60601

                    Federal Home Loan Bank District 8

(Iowa, Minnesota, Missouri, North Dakota, South Dakota)

                  Federal Home Loan Bank of Des Moines

907 Walnut Street, Des Moines, IA 50309

                    Federal Home Loan Bank District 9

(Arkansas, Louisiana, Mississippi, New Mexico, Texas)

                    Federal Home Loan Bank of Dallas

8500 Freeport Parkway South, Suite 100, Irving, TX 75063-2547

                   Federal Home Loan Bank District 10

(Colorado, Kansas, Nebraska, Oklahoma)

                    Federal Home Loan Bank of Topeka

One Security Benefit Place, Suite 100, Topeka, KS 66606-2444

                   Federal Home Loan Bank District 11

(Arizona, California, Nevada)

                 Federal Home Loan Bank of San Francisco

600 California Street, San Francisco, CA 94108

                   Federal Home Loan Bank District 12

(Alaska, American Samoa, the Commonwealth of the Northern Mariana 
Islands, Guam, Hawaii, Idaho, Montana, Oregon, Utah, Washington, 
Wyoming)

                    Federal Home Loan Bank of Seattle

1501 Fourth Avenue, 19th Floor, Seattle, WA 98101-1693

[56 FR 67155, Dec. 30, 1991, as amended at 63 FR 3455, Jan. 23, 1998; 67 
FR 12843, Mar. 20, 2002; 68 FR 38170, June 27, 2003]



                     Subpart B_General Organization

    Source: 68 FR 38170, June 27, 2003, unless otherwise noted.

[[Page 12]]



Sec. 905.10  Board of Directors.

    (a) Board of Directors--(1) General. The Bank Act vests management 
of the Finance Board in a five-member Board of Directors consisting of 
four members appointed by the President with the advice and consent of 
the Senate to serve staggered seven-year terms, and one ex-officio 
member, the Secretary of the U.S. Department of Housing and Urban 
Development. The four appointed directors must have backgrounds in 
housing finance or a demonstrated commitment to providing specialized 
housing credit and at least one appointed director must have a 
background with an organization with a two-year record of representing 
consumer or community interests on either banking services, credit 
needs, housing or financial consumer protections. Not more than three of 
the five directors may belong to the same political party.
    (2) Responsibilities. The Board of Directors is responsible for 
setting agency policy and issuing resolutions, rules, regulations, 
orders and policies as necessary.
    (b) Chairperson--(1) General. The President designates an appointed 
director as chairperson of the Board of Directors.
    (2) Responsibilities. The responsibilities of the chairperson 
include:
    (i) Presiding over the meetings of the Board of Directors;
    (ii) Effecting the overall management, functioning and organization 
of the Finance Board;
    (iii) Ensuring effective coordination and communication with the 
Congress and interest groups on legislative issues pertaining to the 
Finance Board, the Bank System, and the Financing Corporation; and
    (iv) Disseminating information about the Finance Board to other 
government agencies, the public and the news media.



Sec. 905.11  Office of Inspector General.

    (a) General. The Inspector General reports directly to the 
chairperson of the Board of Directors and is subject to, and operates 
under, the provisions of the Inspector General Act of 1978, as amended 
(5 U.S.C. app. 3).
    (b) Responsibilities. The responsibilities of the Office of 
Inspector General under the Inspector General Act include:
    (1) Conducting and supervising audits and investigations relating to 
the programs and operations of the Finance Board;
    (2) Providing leadership and coordination, and recommending policies 
for Finance Board activities designed to promote the economy, efficiency 
and effectiveness of programs and operations, and preventing and 
detecting fraud and abuse in programs and operations; and
    (3) Providing a means for keeping the Board of Directors, agency 
managers and the Congress fully and currently informed regarding on-
going investigations and, if needed, the necessity for and progress of 
corrective action.



Sec. 905.12  Office of Management.

    (a) General. The Office of Management is the principal advisor to 
the chairperson and the Board of Directors on management and 
organizational policies and is responsible for the Finance Board's 
administrative management programs.
    (b) Responsibilities. The responsibilities of the Office of 
Management include:
    (1) Developing and managing agency policies and procedures governing 
employment and personnel action requirements, compensation and agency 
payroll requirements, travel, awards, insurance, retirement benefits and 
other employee benefits;
    (2) Facilities and property management and supply requirements;
    (3) Procurement and contracting programs;
    (4) Agency financial management, budgeting and accounting;
    (5) Records management; and
    (6) Coordinating the design, programming, operation and maintenance 
of the Finance Board's technology and information systems.



Sec. 905.13  Office of Supervision.

    (a) General. The Office of Supervision is responsible for conducting 
on-site examinations of the twelve Federal

[[Page 13]]

Home Loan Banks and the Office of Finance and conducting off-site 
monitoring and analysis. The Office of Supervision also is responsible 
for providing expert policy advice and analyzing and reporting on 
economic, housing finance, community investment and competitive 
environments in which the Bank System and its members operate.
    (b) Responsibilities. The responsibilities of the Office of 
Supervision include:
    (1) Conducting examinations, at least annually, of the Banks, the 
Office of Finance and the Financing Corporation and resolving 
outstanding examination issues;
    (2) Monitoring Bank and Bank System market, credit and operational 
risks;
    (3) Analyzing the financial performance of the Banks;
    (4) Preparing the Monthly Survey of Rates and Terms of Conventional 
One-Family Nonfarm Mortgage Loans (MIRS) and determining the conforming 
loan limit for Federal National Mortgage Association (Fannie Mae) and 
Federal Home Loan Mortgage Corporation (Freddie Mac) purchases and 
guarantees;
    (5) Analyzing the Banks' performance and policy issues arising under 
the Affordable Housing Program and the Community Investment Program; and
    (6) Collecting and analyzing data on the housing and community and 
economic development activities of the Banks.



Sec. 905.14  Office of General Counsel.

    (a) General. The General Counsel is the chief legal officer of the 
Finance Board and is responsible for advising the Board of Directors, 
the chairperson and other Finance Board officials on interpretations of 
law, regulation and policy.
    (b) Responsibilities. The responsibilities of the Office of General 
Counsel include:
    (1) Preparing all legal documents on behalf of the Finance Board 
such as opinions, regulations and memoranda of law;
    (2) Representing the Finance Board in all administrative 
adjudicatory proceedings before the Board of Directors and in all other 
administrative matters involving the agency;
    (3) Representing the Finance Board in judicial proceedings involving 
the agency's supervisory or regulatory authority over the Federal Home 
Loan Banks;
    (4) Administering the Finance Board's Ethics, Freedom of Information 
Act, Privacy Act, Paperwork Reduction Act, and Government in the 
Sunshine Act programs; and
    (5) Secretary to the Board functions.



                         Subpart C_Miscellaneous



Sec. 905.25  Forms.

    The following forms are available at the Finance Board headquarters 
facility and shall be used for the purpose indicated:

                                  Form

10-91--Monthly Survey of Rates and Terms on Conventional 1 Family 
          Nonfarm Mortgage Loans.
9102--Certificate of Nomination, Election of Federal Home Loan Bank 
          Directors.
9103--Election Ballot, Election of Federal Home Loan Bank Directors.
A-1--Appointive Director Candidates--Personal Certification and 
          Disclosure Form.
E-1--Elective Director Nominees--Personal Certification and Disclosure 
          Form.
90-T04--Local Travel Claim.

[60 FR 49199, Sept. 22, 1995, as amended at 63 FR 65687, Nov. 30, 1998; 
65 FR 8257, Feb. 18, 2000. Redesignated and amended at 67 FR 12843, Mar. 
20, 2002]



Sec. 905.26  Official logo and seal.

    This section describes and displays the logo adopted by the Board of 
Directors as the official symbol representing the Finance Board. It is 
displayed on correspondence and selected documents. This logo also 
serves as the official seal used to certify and authenticate official 
documents of the Board of Directors.
    (a) Description. The logo is a disc with its center consisting of 
three polygons arranged in an irregular line partially overlapping--each 
polygon drawn in a manner resembling a silhouette of a pitched roof 
house and with distinctive eaves under its roof--encircled by a 
designation scroll having an outer and inner border of plain heavy lines 
and containing the words ``FEDERAL

[[Page 14]]

HOUSING FINANCE BOARD'' in capital letters with serifs, with two mullets 
on the extreme left and right of the scroll.
    (b) Display. The Finance Board's official seal and logo appears 
below:
[GRAPHIC] [TIFF OMITTED] TR20MR02.004


[67 FR 12843, Mar. 20, 2002]



Sec. 905.27  OMB control numbers assigned under the Paperwork Reduction Act.

    (a) Purpose. This section collects and displays the control numbers 
assigned to information collection requirements contained in Finance 
Board regulations by the Office of Management and Budget (OMB) under the 
Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35) and OMB 
regulations (5 CFR 1320.5 and 1320.8). The Finance Board may not sponsor 
or conduct, and a person is not required to respond to, an information 
collection unless the agency displays a currently valid OMB control 
number.
    (b) Display.

------------------------------------------------------------------------
    12 CFR part or section where          OMB
      identified and  described       control No.     Expiration date
------------------------------------------------------------------------
906.5...............................    3069-0001  July 2007.
915.3...............................    3069-0002  Nov. 2007.
915.4...............................    3069-0002  Nov. 2007.
915.5...............................    3069-0002  Nov. 2007.
915.6...............................    3069-0002  Nov. 2007.
915.7...............................    3069-0002  Nov. 2007.
915.8...............................    3069-0002  Nov. 2007.
915.10..............................    3069-0002  Nov. 2007.
915.12..............................    3069-0002  Nov. 2007.
925.2...............................    3069-0004  May 2007.
925.3...............................    3069-0004  May 2007.
925.5...............................    3069-0004  May 2007.
925.6...............................    3069-0004  May 2007.
925.7...............................    3069-0004  May 2007.
925.8...............................    3069-0004  May 2007.
925.9...............................    3069-0004  May 2007.
925.11..............................    3069-0004  May 2007.
925.12..............................    3069-0004  May 2007.
925.13..............................    3069-0004  May 2007.
925.15..............................    3069-0004  May 2007.
925.16..............................    3069-0004  May 2007.
925.17..............................    3069-0004  May 2007.
925.18..............................    3069-0004  May 2007.
925.22..............................    3069-0004  May 2007.
925.24..............................    3069-0004  May 2007.
925.26..............................    3069-0004  May 2007.
925.31..............................    3069-0004  May 2007.
926.1...............................    3069-0005  Nov. 2005.
926.2...............................    3069-0005  Nov. 2005.
926.3...............................    3069-0005  Nov. 2005.
926.4...............................    3069-0005  Nov. 2005.
926.5...............................    3069-0005  Nov. 2005.
926.6...............................    3069-0005  Nov. 2005.
931.3...............................    3069-0059  Feb. 2007.
931.7...............................    3069-0004  May 2007.
933.2...............................    3069-0059  Feb. 2007.
944.2...............................    3069-0003  Feb. 2006.
944.3...............................    3069-0003  Feb. 2006.
944.4...............................    3069-0003  Feb. 2006.
944.5...............................    3069-0003  Feb. 2006.
950.17..............................    3069-0005  Nov. 2005.
951.1...............................    3069-0006  July 2007.
951.3...............................    3069-0006  July 2007.
951.4...............................    3069-0006  July 2007.
951.6...............................    3069-0006  July 2007.
951.7...............................    3069-0006  July 2007.
951.8...............................    3069-0006  July 2007.
951.10..............................    3069-0006  July 2007.
951.11..............................    3069-0006  July 2007.
951.13..............................    3069-0006  July 2007.
951.15..............................    3069-0006  July 2007.
955.4...............................    3069-0058  Mar. 2007.
------------------------------------------------------------------------


[70 FR 9508, Feb. 28, 2005]



PART 906_OPERATIONS--Table of Contents




                   Subpart A_Assessments on the Banks

Sec.
906.1 Assessment authority.
906.2 Assessment procedure.

              Subpart B_Monthly Interest Rate Survey (MIRS)

906.5 Monthly interest rate survey.

     Subpart C_Contractor Outreach Program for Businesses Owned by 
           Minorities, Women, or Individuals With Disabilities

906.10 Why does the Finance Board have this outreach program?
906.11 Who may participate in the outreach program?
906.12 What outreach efforts are included in this program?
906.13 How does the Finance Board oversee and monitor the outreach 
          program?

    Authority: 12 U.S.C. 1422b, 1438(b), and 1833e.

    Source: 70 FR 9509, Feb. 28, 2005, unless otherwise noted.

[[Page 15]]



                   Subpart A_Assessments on the Banks



Sec. 906.1  Assessment authority.

    The Finance Board may impose a semiannual assessment on the Banks in 
an aggregate amount the Finance Board determines is sufficient to 
provide for the payment of its estimated expenses for the period for 
which it makes such assessment.



Sec. 906.2  Assessment procedure.

    (a) At or near the end of each fiscal year, the Finance Board shall 
approve an annual budget of Finance Board expenses for the next fiscal 
year. The Finance Board shall promptly provide a copy of the approved 
budget to each Bank president.
    (b) The Finance Board shall assess the Banks semiannually in an 
aggregate amount it determines is sufficient to pay the expenses 
approved under paragraph (a) of this section. The Finance Board shall 
offset the amount of the semiannual assessments it imposes on the Banks 
by any amount it determines is remaining from previous semiannual 
assessments. The Finance Board shall promptly notify each Bank president 
in writing of the amount on any assessment.
    (c) Each Bank shall pay a pro rata share of the semiannual 
assessments imposed under paragraph (b) of this section. The Finance 
Board shall calculate each Bank's pro rata share based on the ratio 
between the total paid-in value of the Bank's capital stock and the 
aggregate total paid-in value of the capital stock of every Bank. The 
Finance Board shall promptly notify each Bank in writing of the amount 
of its pro rata share of any semiannual assessment.
    (d) Unless otherwise instructed in writing by the Finance Board, 
each Bank shall pay to the Finance Board its pro rata share of an 
assessment in equal monthly installments during the semiannual period 
covered by the assessment.



              Subpart B_Monthly Interest Rate Survey (MIRS)



Sec. 906.5  Monthly interest rate survey.

    The Finance Board conducts its Monthly Survey of Rates and Terms on 
Conventional One-Family Non-farm Mortgage Loans in the following manner:
    (a) Initial survey. Each month, the Finance Board samples savings 
institutions, commercial banks, and mortgage loan companies, and asks 
them to report the terms and conditions on all conventional mortgages 
(i.e., those not federally insured or guaranteed) used to purchase 
single-family homes that each such lender closes during the last five 
working days of the month. In most cases, the information is reported 
electronically in a format similar to Finance Board Form FHFB 10-91. The 
initial weights are based on lender type and lender size. The data also 
is weighted so that the pattern of weighted responses matches the actual 
pattern of mortgage originations by lender type and by region. The 
Finance Board tabulates the data and publishes standard data tables late 
in the following month.
    (b) Adjustable-rate mortgage index. The weighted data, tabulated and 
published pursuant to paragraph (a) of this section, is used to compile 
the Finance Board's adjustable-rate mortgage index, entitled the 
``National Average Contract Mortgage Rate for the Purchase of Previously 
Occupied Homes by Combined Lenders.'' This index is the successor to the 
index maintained by the former Federal Home Loan Bank Board and is used 
for determining the movement of the interest rate on renegotiable-rate 
mortgages and on some other adjustable-rate mortgages.



     Subpart C_Contractor Outreach Program for Businesses Owned by 
           Minorities, Women, or Individuals With Disabilities



Sec. 906.10  Why does the Finance Board have this outreach program?

    The Finance Board awards contracts consistent with the principles of 
full and open competition and best value

[[Page 16]]

acquisition. The purpose of this outreach program is to ensure that 
minorities, women, and individuals with disabilities, and businesses 
unconditionally owned by them, have the maximum practicable opportunity 
to participate fully in all contracts awarded by the Finance Board.



Sec. 906.11  Who may participate in the outreach program?

    Minorities, women, and individuals with disabilities, and businesses 
unconditionally owned by them, may participate in the outreach program. 
As used in this subpart:
    (a) Disability with respect to an individual has the same meaning as 
defined by the Equal Employment Opportunity Commission at 29 CFR 
1630.2(g) and 1630.3.
    (b) Minority means Black or African American, American Indian or 
Alaska Native, Hispanic or Latino American, Asian American, and Native 
Hawaiian or Other Pacific Islander.
    (c) Unconditional ownership means ownership of at least 51 percent 
of a business by one or more members of a minority group, women, or 
individuals with disabilities. In the case of a corporation, it means 
ownership of at least 51 percent of each class of voting stock. In the 
case of a partnership, it means ownership of at least 51 percent of the 
partnership interest.



Sec. 906.12  What outreach efforts are included in this program?

    The Finance Board's outreach program includes the following:
    (a) Identifying businesses unconditionally owned by minorities, 
women, and individuals with disabilities by obtaining lists and 
directories that may be maintained by government agencies, trade groups, 
and other organizations;
    (b) Contacting businesses unconditionally owned by minorities, 
women, and individuals with disabilities to provide information about, 
and technical assistance to participate in, the Finance Board 
contracting process;
    (c) Advertising contracting opportunities with the Finance Board 
through media targeted to reach businesses unconditionally owned by 
minorities, women, and individuals with disabilities;
    (d) Participating, to the extent practicable, in events such as 
conventions, seminars, and professional meetings that are intended 
primarily to promote business opportunities for minorities, women, and 
individuals with disabilities, and businesses unconditionally owned by 
them; and
    (e) Ensuring that Finance Board contracting staff understand and 
promote the outreach program.



Sec. 906.13  How does the Finance Board oversee and monitor the outreach program?

    The Chairperson will appoint an Outreach Advocate who will be 
responsible for program advocacy, oversight, and monitoring. In 
addition, the Outreach Advocate will be responsible for providing the 
Finance Board with technical assistance and guidance to facilitate 
identifying and soliciting participation in the contracting process of 
minorities, women, and individuals with disabilities, and businesses 
unconditionally owned by them.



PART 907_PROCEDURES--Table of Contents




                          Subpart A_Definitions

Sec.
907.1 Definitions.

    Subpart B_Waivers, Approvals, No-Action Letters, and Regulatory 
                             Interpretations

907.2 Waivers.
907.3 Approvals.
907.4 No-Action Letters.
907.5 Regulatory Interpretations.
907.6 Submission requirements.
907.7 Issuance of Waivers, Approvals, No-Action Letters, and Regulatory 
          Interpretations.

 Subpart C_Case-by-Case Determinations; Review of Disputed Supervisory 
                             Determinations

907.8 Case-by-Case Determinations.
907.9 Review of Disputed Supervisory Determinations.
907.10 Petitions.
907.11 Requests to Intervene.
907.12 Finance Board procedures.
907.13 Consideration and Final Decisions.
907.14 Meetings of the Board of Directors to consider Petitions.
907.15 General provisions.
907.16 Rules of practice.

    Authority: 12 U.S.C. 1422b(a)(1).

[[Page 17]]


    Source: 64 FR 30883, June 9, 1999, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.

    Editorial Note: Nomenclature changes to part 907 appear at 67 FR 
12844, Mar. 20, 2002.



                          Subpart A_Definitions



Sec. 907.1  Definitions.

    As used in this part:
    Approval means a written statement issued to a Bank or the Office of 
Finance approving a transaction, activity, or item that requires Finance 
Board approval under the Act or a Finance Board rule, regulation, 
policy, or order.
    Case-by-Case Determination means a Final Decision concerning any 
matter that requires a determination, finding, or approval by the Board 
of Directors under the Act or Finance Board regulations, for which no 
controlling statutory, regulatory, or other Finance Board standard 
previously has been established, and that, in the judgment of the Board 
of Directors, is best resolved on a case-by-case basis by a ruling 
applicable only to the Petitioner and any Intervenor, and not by 
adoption of a rule of general applicability.
    Final Decision means a decision rendered by the Board of Directors 
on issues raised in a Petition or Request to Intervene that have been 
accepted for consideration.
    Intervenor means a Bank, Member, or other entity that has been 
granted leave to intervene in the consideration of a Petition by the 
Board of Directors.
    Managing Director means the Managing Director of the Finance Board.
    No-Action Letter means a written statement issued to a Bank or the 
Office of Finance providing that Finance Board staff will not recommend 
supervisory or other action to the Board of Directors for failure to 
comply with a specific provision of the Act or a Finance Board rule, 
regulation, policy, or order, if a requester undertakes a proposed 
transaction or activity.
    Party means a Petitioner, an Intervenor, or the Finance Board.
    Petition means a Petition for Case-by-Case Determination or a 
Petition for Review of a Disputed Supervisory Determination.
    Petitioner means the Office of Finance or a Bank that has filed a 
Petition.
    Regulatory Interpretation means written guidance issued by Finance 
Board staff with respect to application of the Act or a Finance Board 
rule, regulation, policy, or order to a proposed transaction or 
activity.
    Requester means an entity or person that has submitted an 
application for a Waiver or Approval or a request for a No-Action Letter 
or Regulatory Interpretation.
    Supervisory determination means a Finance Board finding in a report 
of examination, order, or directive, or a Finance Board order or 
directive concerning safety and soundness or compliance matters that 
requires mandatory action by a Bank or the Office of Finance.
    Waiver means a written statement issued to a Bank, a Member, or the 
Office of Finance that waives a provision, restriction, or requirement 
of a Finance Board rule, regulation, policy, or order, or a required 
submission of information, not otherwise required by law, in connection 
with a particular transaction or activity.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000; 67 
FR 12844, Mar. 20, 2002]



    Subpart B_Waivers, Approvals, No-Action Letters, and Regulatory 
                             Interpretations



Sec. 907.2  Waivers.

    (a) Authority. The Board of Directors reserves the right, in its 
discretion and in connection with a particular transaction or activity, 
to waive any provision, restriction, or requirement of this chapter, or 
any required submission of information, not otherwise required by law, 
if such waiver is not inconsistent with the law and does not adversely 
affect any substantial existing rights, upon a determination that 
application of the provision, restriction, or requirement would 
adversely affect achievement of the purposes of the Act, or upon a 
showing of good cause.

[[Page 18]]

    (b) Application. A Bank, a Member, or the Office of Finance may 
apply for a Waiver in accordance with Sec. 907.6.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.3  Approvals.

    (a) Application. A Bank or the Office of Finance may apply for an 
Approval of any transaction, activity, or item that requires Finance 
Board approval under the Act or a Finance Board rule, regulation, 
policy, or order in accordance with Sec. 907.6, unless alternative 
application procedures are prescribed by the Act or a Finance Board 
rule, regulation, policy, or order for the transaction, activity, or 
item at issue.
    (b) Reservation. The Finance Board reserves the right, in its 
discretion, to prescribe additional or alternative procedures for any 
application for Approval of a transaction, activity, or item.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.4  No-Action Letters.

    (a) Authority. Finance Board staff, in its discretion, may issue a 
No-Action Letter to a Bank or the Office of Finance stating that staff 
will not recommend supervisory or other action to the Board of Directors 
for failure to comply with a specific provision of the Act or a Finance 
Board rule, regulation, policy, or order, if a requester undertakes a 
proposed transaction or activity. The Board of Directors may modify or 
supersede a No-Action Letter.
    (b) Requests. A Bank or the Office of Finance may request a No-
Action Letter in accordance with Sec. 907.6.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.5  Regulatory Interpretations.

    (a) Authority. Finance Board staff, in its discretion, may issue a 
Regulatory Interpretation to a Bank, a Member, an official of a Bank or 
Member, the Office of Finance, or any other entity or person, providing 
guidance with respect to application of the Act or a Finance Board rule, 
regulation, policy, or order to a proposed transaction or activity. The 
Board of Directors may modify or supersede a Regulatory Interpretation.
    (b) Requests. A Bank, a Member, an official of a Bank or Member, the 
Office of Finance, or any other entity or person may request a 
Regulatory Interpretation in accordance with Sec. 907.6.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.6  Submission requirements.

    Applications for a Waiver or Approval and requests for a No-Action 
Letter or Regulatory Interpretation shall comply with the following 
requirements:
    (a) Filing. Each application or request shall be in writing. The 
original and three copies shall be filed with the Secretary to the 
Board, Federal Housing Finance Board, 1777 F Street NW., Washington, DC 
20006.
    (b) Authorization--(1) Waivers and Approvals. Applications for 
Waivers and Approvals shall be signed by an official with authority to 
sign such applications on behalf of the requester. Applications for 
Waivers and Approvals from a Bank or the Office of Finance shall be 
accompanied by a resolution of the board of directors of the Bank or the 
Office of Finance concurring in the substance and authorizing the filing 
of the application.
    (2) Requests for No-Action Letters. The president of the Bank making 
a Request for a No-Action Letter shall sign the Request. Requests for a 
No-Action Letter from the Office of Finance shall be signed by the 
chairperson of the board of directors of the Office of Finance.
    (3) Requests for Regulatory Interpretations. The requester or an 
authorized representative of the requester shall sign a request for a 
Regulatory Interpretation.
    (c) Information requirements. Each application or request shall 
contain:
    (1) The name of the requester, and the name, title, address, 
telephone number, and electronic mail address, if any, of the official 
filing the application or request on its behalf;
    (2) The name, address, telephone number, and electronic mail 
address, if any, of a contact person from whom Finance Board staff may 
seek additional information if necessary;

[[Page 19]]

    (3) The section numbers of the particular provisions of the Act or 
Finance Board rules, regulations, policies, or orders to which the 
application or request relates;
    (4) Identification of the determination or relief requested, 
including any alternative relief requested if the primary relief is 
denied, and a clear statement of why such relief is needed;
    (5) A statement of the particular facts and circumstances giving 
rise to the application or request and identifying all relevant legal 
and factual issues;
    (6) References to all relevant authorities, including the Act, 
Finance Board rules, regulations, policies, and orders, judicial 
decisions, administrative decisions, relevant statutory interpretations, 
and policy statements;
    (7) References to any Waivers, No-Action Letters, Approvals, or 
Regulatory Interpretations issued to the requester in the past in 
response to circumstances similar to those surrounding the request or 
application;
    (8) For any application or request involving interpretation of the 
Act or Finance Board regulations, a reasoned opinion of counsel 
supporting the relief or interpretation sought and distinguishing any 
adverse authority;
    (9) Any non-duplicative, relevant supporting documentation; and
    (10) A certification by a person with knowledge of the facts that 
the representations made in the application or request are accurate and 
complete. The following form of certification is sufficient for this 
purpose: ``I hereby certify that the statements contained in the 
submission are true and complete to the best of my knowledge. [Name and 
Title].''
    (d) Waiver of requirements. The Managing Director may waive any 
requirement of this section for good cause. The Managing Director shall 
provide prompt notice of any such waiver to the Board of Directors. The 
Board of Directors may overrule any waiver granted by the Managing 
Director under this paragraph.
    (e) Withdrawal. Once filed, an application or request may be 
withdrawn only upon written request. The Finance Board will not consider 
a request for withdrawal after transmission by the Secretary to the 
Board to the requester of a response in final form.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000; 67 
FR 12844, Mar. 20, 2002]



Sec. 907.7  Issuance of Waivers, Approvals, No-Action Letters, and Regulatory Interpretations.

    (a) Board of Directors review. At least three business days prior to 
issuance to the requester, the Secretary to the Board shall transmit 
each Approval, No-Action Letter, or Regulatory Interpretation issued by 
the Chairperson or Finance Board staff to the Board of Directors for 
review.
    (b) Issuance and effectiveness. A Waiver, Approval, No-Action 
Letter, or Regulatory Interpretation is not effective until the 
Secretary to the Board has transmitted it in final form to the 
requester.
    (c) Abbreviated form. The Finance Board may respond to an 
application or request in an abbreviated form, consisting of a concise 
statement of the nature of the response, without restatement of the 
underlying facts.



 Subpart C_Case-by-Case Determinations; Review of Disputed Supervisory 
                             Determinations



Sec. 907.8  Case-by-Case Determinations.

    (a) Petition for Case-by-Case Determination. A Bank or the Office of 
Finance may seek a Case-by-Case Determination concerning any matter that 
may require a determination, finding or approval under the Act or 
Finance Board regulations by the Board of Directors, and for which no 
controlling statutory, regulatory or other Finance Board standard 
previously has been established. The Office of Finance or a Bank seeking 
a Case-by-Case Determination shall file a Petition for Case-by-Case 
Determination in accordance with Sec. 907.10.
    (b) Intervention. A Member, a Bank, or the Office of Finance may 
file a Request to Intervene in the consideration of the Petition in 
accordance with Sec. 907.11 if it believes its rights may be affected.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]

[[Page 20]]



Sec. 907.9  Review of Disputed Supervisory Determinations.

    (a) Petition for Review of a Disputed Supervisory Determination. A 
Bank or the Office of Finance may seek review by the Board of Directors 
of a Finance Board finding in a report of examination, order, or 
directive, or a Finance Board order or directive concerning safety and 
soundness or compliance matters requiring mandatory action by the Bank 
or Office of Finance. The Office of Finance or a Bank seeking review of 
a disputed Supervisory Determination shall file a Petition for Review of 
a Disputed Supervisory Determination within 60 calendar days from the 
date of the disputed Supervisory Determination in accordance with Sec. 
907.10.
    (b) No stay while Petition is pending. All Supervisory 
Determinations directed to a Bank or the Office of Finance shall remain 
in full force and effect while a Petition is pending. That a Petition is 
pending shall not operate or be deemed to operate as a suspension of the 
obligation of a Bank or the Office of Finance to take corrective action 
as required by a Supervisory Determination, except as the Bank or the 
Office of Finance may be otherwise directed by order of the Board of 
Directors.
    (c) Notice to affected entities. With the approval of the Managing 
Director, a Petitioner may, pursuant to 12 CFR 951.12(d) or otherwise, 
provide notice of the issuance of a Supervisory Determination or the 
filing of a Petition for Review of a Disputed Supervisory Determination, 
to another Bank, the Office of Finance, or a Member or other entity 
named in 12 CFR 951.12(d), if the Petitioner believes the entity's 
rights may be affected by the Supervisory Determination or the Petition.
    (d) Intervention. A Bank, the Office of Finance, a Member, or other 
entity named in 12 CFR 951.12(d) may file a Request to Intervene in the 
consideration of a Petition in accordance with Sec. 907.11 if it 
believes its rights may be adversely affected by a Final Decision on the 
Petition.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.10  Petitions.

    Each Petition brought pursuant to this subpart shall comply with the 
following requirements:
    (a) Filing. The Petition shall be in writing. The original and three 
copies shall be filed with the Secretary to the Board, Federal Housing 
Finance Board, 1777 F Street NW., Washington, DC 20006.
    (b) Information requirements. Each Petition shall contain:
    (1) The name of the Petitioner, and the name, title, address, 
telephone number, and electronic mail address, if any, of the official 
filing the Petition on its behalf;
    (2) The name, address, telephone number, and electronic mail 
address, if any, of a contact person from whom Finance Board staff may 
seek additional information if necessary;
    (3) The section numbers of the particular provisions of the Act or 
Finance Board rules, regulations, policies, or orders to which the 
Petition relates, and, if the Petition is for Review of a Disputed 
Supervisory Determination, identification of the disputed Supervisory 
Determination;
    (4) Identification of the determination or relief requested, 
including any alternative relief requested if the primary relief is 
denied, and a clear statement of why such relief is needed;
    (5) A statement of the particular facts and circumstances giving 
rise to the Petition and identifying all relevant legal and factual 
issues;
    (6) A summary of any steps taken to date by the Petitioner to 
address or resolve the dispute or issue; or, in cases involving safety 
and soundness or compliance issues, a summary of any actions taken by 
the Petitioner in the interim to implement corrective action;
    (7) The Petitioner's argument in support of its position, including 
citation to any supporting legal opinions, policy statements, or other 
relevant precedent and supporting documentation, if any;
    (8) References to all relevant authorities, including the Act, 
Finance Board rules, regulations, policies, and orders, judicial 
decisions, administrative decisions, relevant statutory interpretations, 
and policy statements;

[[Page 21]]

    (9) A reasoned opinion of counsel supporting the relief or 
interpretation sought and distinguishing any adverse authority;
    (10) Any non-duplicative, relevant supporting documentation; and
    (11) A certification by a person with knowledge of the facts that 
the representations made in the Petition are accurate and complete. The 
following form of certification is sufficient for this purpose: ``I 
hereby certify that the statements contained in the Petition are true 
and complete to the best of my knowledge. [Name and Title].''
    (c) Authorization. Each Petition shall be accompanied by a 
resolution of the Petitioner's board of directors concurring in the 
substance and authorizing the filing of the Petition.
    (d) Request to Appear. The Petition may contain a request that staff 
or an agent of the Petitioner be permitted to make a personal appearance 
before the Board of Directors at any meeting convened to consider the 
Petition pursuant to these procedures. A statement of the reasons a 
written presentation would not suffice shall accompany a Request to 
Appear. The statement shall specifically:
    (1) Identify any questions of fact that are in dispute;
    (2) Summarize the evidence that would be presented at the meeting; 
and
    (3) Identify any proposed witnesses, and state the substance of 
their anticipated testimony.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.11  Requests to Intervene.

    (a) Filing--(1) Date. Any Request to Intervene in consideration of a 
Petition under this subpart shall be in writing and shall be filed with 
the Secretary to the Board within 45 days from the date the Petition is 
filed.
    (2) Information requirements. A Request to Intervene shall include 
the information required by Sec. 907.10(b), where applicable, and a 
concise statement of the position and interest of the Intervenor and the 
grounds for the proposed intervention.
    (3) Authorization. If the entity requesting intervention is a Bank 
or the Office of Finance, the Request to Intervene shall be accompanied 
by a resolution of the Petitioner's board of directors concurring in the 
substance and authorizing the filing of the Request. If the entity 
requesting intervention is not a Bank or the Office of Finance, the 
Request to Intervene shall be signed by an official of the entity with 
authority to authorize the filing of the Request, and shall include a 
statement describing such authority.
    (4) Request to Appear. A Request to Intervene may include a Request 
to Appear before the Board of Directors in any meeting conducted under 
these procedures to consider a Petition. A Request to Appear shall be 
accompanied by a statement containing the information required by Sec. 
907.10(d), and, in addition, setting forth the likely impact that 
intervention will have on the expeditious progress of the meeting. A 
Request to Appear shall be filed with the Secretary to the Board either 
with the Request to Intervene or at least 20 days prior to the meeting 
scheduled to consider the Petition.
    (5) Intervenor is bound. Any Request to Intervene shall include a 
statement that, if such leave to intervene is granted, the Intervenor 
shall be bound expressly by the Final Decision of the Board of 
Directors, as described in Sec. 907.13(b), subject only to judicial 
review or as otherwise provided by law.
    (b) Grounds for approval. The Managing Director may grant leave to 
intervene if the entity requesting intervention has complied with 
paragraph (a) of this section and, in the judgment of Managing Director:
    (1) The presence of the entity requesting intervention would not 
unduly prolong or otherwise prejudice the adjudication of the rights of 
the original parties; and
    (2) The entity requesting intervention may be adversely affected by 
a Final Decision on the Petition.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.12  Finance Board procedures.

    (a) Notice of Receipt of Petition or Request to Intervene. No later 
than three business days following receipt of a Petition or Request to 
Intervene, the Secretary to the Board shall transmit a written Notice of 
Receipt to the Petitioner or Intervenor. In the case of a

[[Page 22]]

Petition for Case-by-Case Determination, the Finance Board shall 
promptly publish a notice of receipt of Petition, including a brief 
summary of the issue(s) involved, in the Federal Register.
    (b) Transmittal of filings. The Secretary to the Board shall 
promptly transmit copies of any Petition, Request to Intervene, or other 
filing under this subpart to the Board of Directors and all other 
parties to the filing.
    (c) Opportunity to cure defects. The Managing Director shall afford 
the Petitioner or Intervenor a reasonable opportunity to cure any 
failure to comply with the requirements of Sec. 907.10.
    (d) Information request. The Managing Director may request 
additional information from the Petitioner or Intervenor. No later than 
20 calendar days after the date of a request under this paragraph, the 
Petitioner shall provide to the Secretary to the Board all information 
requested.
    (e) Supplemental information. Upon good cause shown, the Managing 
Director may grant permission to a Petitioner or Intervenor to submit 
supplemental written information pertaining to the Petition or Request 
to Intervene.
    (f) Consolidation and severance--(1) Consolidation. The Managing 
Director may consolidate any or all matters at issue in two or more 
meetings on Petitions where:
    (i) There exist common parties or common questions of fact or law;
    (ii) Consolidation would expedite and simplify consideration of the 
issues; and
    (iii) Consolidation would not adversely affect the rights of parties 
engaged in otherwise separate proceedings.
    (2) Severance. The Managing Director may order any meetings and 
issues severed with respect to any or all parties or issues.
    (g) Notice of Board Consideration. Within 30 calendar days of 
receipt of a Petition deemed by the Managing Director to be in 
compliance with the requirements of Sec. 907.10, or, if the Petition 
has been the subject of a request under paragraph (d) of this section, 
within 30 calendar days of receipt of a response from the Petitioner 
deemed by the Managing Director to complete the information necessary 
for the Board of Directors to consider the Petition, the Managing 
Director, after consultation with the Board of Directors, through the 
Secretary to the Board, shall provide all parties with a Notice of Board 
Consideration containing the following information:
    (1) Identification of the issues accepted for consideration;
    (2) Any decision to consolidate or sever pursuant to paragraph (f) 
of this section;
    (3) Whether the Petition will be considered by the Board of 
Directors on the written record pursuant to Sec. 907.13(a)(1), or at a 
meeting pursuant to Sec. 907.13(a)(2); and
    (4) If the Petition will be considered by the Board of Directors at 
a meeting:
    (i) The date, time and place of the meeting; and
    (ii) A decision as to any Request to Appear filed pursuant to 
Sec. Sec. 907.10(d) or 907.11(a)(4).

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.13  Consideration and Final Decisions.

    (a) Consideration by Board of Directors. The Board of Directors may 
consider a Petition and render a decision:
    (1) Solely on the basis of the written record; or
    (2) At a regularly scheduled meeting or a meeting convened 
specifically for the purpose of considering the Petition. Consideration 
of a Petition at a meeting shall be governed by the procedures described 
in Sec. 907.14.
    (b) Final Decision. The Board of Directors shall render a Final 
Decision on the issue(s) presented in a Petition or Request to Intervene 
that has been accepted for consideration, based upon consideration of 
the entire record of the proceeding. The terms and conditions of the 
Final Decision shall bind the parties as to any issue(s) presented in 
the Petition or Request to Intervene and decided by the Board of 
Directors. The decision of the Board of Directors is a final decision 
for purposes of obtaining judicial review or as otherwise provided by 
law.

[[Page 23]]

    (c) Time periods. Subject to extension by such additional time as 
may reasonably be required, the Board of Directors shall render a Final 
Decision within 120 calendar days of the date the Petition is received 
in a form deemed by the Managing Director to be in compliance with the 
requirements of Sec. 907.10 or, if the Petition has been the subject of 
a request under Sec. 907.12(d), within 120 calendar days of receipt of 
a response from the Petitioner deemed by the Managing Director to 
complete the information necessary for the Board of Directors to 
consider the Petition.
    (d) Transmittal of Final Decision. The Secretary to the Board shall 
transmit the Final Decision of the Board of Directors to all parties to 
the submission.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.14  Meetings of the Board of Directors to consider Petitions.

    (a) Full and fair opportunity to be heard. Any meeting of the Board 
of Directors to consider a Petition shall be conducted in a manner that 
provides the parties a full and fair opportunity to be heard on the 
issues accepted for consideration. Any such meeting shall be conducted 
so as to permit an expeditious presentation of such issues.
    (b) Participation in meeting. (1) The presence of a quorum of the 
Board if Directors is required to conduct a meeting under this section. 
Members of the Board of Directors are deemed present if they appear in 
person or by telephone.
    (2) An act of the Board of Directors requires the vote of a majority 
of the members of the Board of Directors voting at a meeting at which a 
quorum of the Board of Directors is present.
    (3) A Final Decision may be reached by a vote of the Board of 
Directors after the meeting at which the Petition has been considered. 
Only those members of the Board of Directors present at the meeting at 
which the Petition was considered may vote on issues presented in the 
Petition and accepted for consideration. A vote of the majority of the 
members of the Board of Directors eligible to vote and voting shall be 
an act of the Board of Directors.
    (c) Chairperson--(1) Presiding officer. The Chairperson, or a member 
of the Board of Directors designated by the Chairperson, shall preside 
over a meeting of the Board of Directors convened under this section.
    (2) Authority of the Chairperson. The Chairperson shall have all 
powers and discretion necessary to conduct the meeting in a fair and 
impartial manner, to avoid unnecessary delay, to regulate the course of 
the meeting and the conduct of the parties and their counsel, and to 
discharge the duties of a presiding officer.
    (3) Board of Directors may overrule the Chairperson. Any member of 
the Board of Directors may, by motion, challenge any action, finding, or 
determination made by the Chairperson in the course of the meeting, and 
the Board of Directors, by majority vote, may overrule any action, 
finding or determination of the Chairperson.
    (d) Meeting may be closed. A party may request that the meeting, or 
portion thereof, be closed to public observation. A request to close a 
meeting shall be processed in accordance with the requirements of the 
Government in the Sunshine Act (5 U.S.C. 552b) and the Finance Board's 
implementing regulation (12 CFR part 912).
    (e) Location of meeting. Unless otherwise specified, all meetings of 
the Board of Directors will be held in the Board Room of the Finance 
Board at 1777 F Street, NW., Washington, DC, at the time specified in 
the notice of meeting issued pursuant to 12 CFR 912.6.
    (f) Presentation of issues--(1) Stipulations. Subject to the 
Chairperson's discretion, the parties may agree to stipulations of law 
or fact, including stipulations as to the admissibility of exhibits, and 
present such stipulations at the meeting. Stipulations shall be made a 
part of the record of the proceeding.
    (2) Order of presentation. The Chairperson shall determine the order 
of presentation of the issues, testimony of any witnesses, presentation 
of any other information or document, and all other procedural matters 
at the meeting.
    (g) Record. The meeting shall be recorded and transcribed. 
Transcripts of the proceedings shall be governed by 12

[[Page 24]]

CFR 912.5(c). The Petition and all supporting documentation shall be 
made a part of the record, unless otherwise determined by the 
Chairperson. The Chairperson may order the record corrected, upon motion 
to correct, upon stipulation of the parties, or at the Chairperson's 
discretion.
    (h) Admissibility of documents and testimony. (1) The Chairperson 
has discretion to admit and make a part of the record documents and 
testimony that are relevant, material, and reliable, and may elect not 
to admit documents and testimony that are privileged, unduly 
repetitious, or of little probative value.
    (2) The Board of Directors shall give such weight to documents and 
testimony admitted and made part of the record as it may deem reasonable 
and appropriate.
    (3) The Chairperson may admit and make a part of the record, in lieu 
of oral testimony, statements of fact or opinion prepared by a witness. 
The admissibility of the information contained in the statement shall be 
subject to the same rules as if the testimony were provided orally.
    (i) Official notice. All matters officially noticed by the 
Chairperson shall appear on the record.
    (j) Exhibits and documents--(1) Copies. A legible duplicate copy of 
a document shall be admissible to the same extent as the original.
    (2) Exhibits. Witnesses may use existing or newly created charts, 
exhibits, calendars, calculations, outlines, or other graphic materials 
to summarize, illustrate, or simplify the presentation of testimony. 
Subject to the Chairperson's discretion, such materials may be used with 
or without being admitted into the record.
    (3) Identification. All exhibits offered into the record shall be 
numbered sequentially and marked with a designation identifying the 
sponsor. The original of each exhibit offered into the record or marked 
for identification shall be retained in the record of the meeting, 
unless the Chairperson permits substitution of a copy for the original.
    (4) Exchange of Exhibits. One copy of each exhibit offered into the 
record shall be furnished to each of the parties and to each member of 
the Board of Directors. If the Chairperson does not fix a time for the 
exchange of exhibits, the parties shall exchange copies of proposed 
exhibits at the earliest practicable time before the commencement of the 
meeting to consider the Petition. Parties are not required to exchange 
exhibits submitted as rebuttal information before the meeting commences 
if submission of the exhibits is not reasonably certain at that time.
    (5) Authenticity. The authenticity of all documents submitted or 
exchanged as proposed exhibits prior to the meeting shall be admitted 
unless written objection is filed before the commencement of the 
meeting, or unless good cause is shown for failing to file such a 
written objection.
    (k) Sanction for obstruction of the proceedings. The Board of 
Directors may impose sanctions it deems appropriate for violation of any 
applicable provision of this subpart or any applicable law, rule, 
regulation, or order, or any dilatory, frivolous, or obstructionist 
conduct by any witness or counsel during the course of a meeting.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.15  General provisions.

    (a) Waiver of requirements. The Managing Director may waive any 
filing requirement or deadline in this subpart for good cause shown. The 
Managing Director shall provide prompt notice of any such waiver to the 
Board of Directors.
    (b) Actions of the Managing Director subject to the authority of the 
Board of Directors. The Board of Directors may overrule any action by 
the Managing Director under this subpart.
    (c) Withdrawal. At any time prior to the issuance by the Managing 
Director of a Notice of Board Consideration pursuant to Sec. 907.12(g), 
an authorized representative of a Petitioner may withdraw the Petition, 
or an authorized representative of an Intervenor may withdraw the 
Request to Intervene, by filing a written request to withdraw with the 
Secretary to the Board. Only the Board of Directors may grant a request 
to withdraw after issuance by the Managing Director of a Notice of Board 
Consideration pursuant to Sec. 907.12(g).

[[Page 25]]

Unless otherwise agreed, withdrawal of a Petition or Request to 
Intervene shall not foreclose a Petitioner from resubmitting a Petition, 
or an Intervenor from submitting a Request to Intervene, on the same or 
similar issues.
    (d) Settlement agreement. (1) At any time during the course of 
proceedings pursuant to this subpart, the Finance Board shall give 
Petitioners and Intervenors the opportunity to submit offers of 
settlement when the nature of the proceedings and the public interest 
permit. With the approval of the Managing Director, an authorized 
representative of a Petitioner or Intervenor may enter into a proposed 
settlement agreement with the Finance Board disposing of some or all of 
the issues presented in a Petition or Request to Intervene.
    (2) No proposed settlement agreement shall be final until approved 
by the Board of Directors. The Board of Directors shall consider any 
proposed settlement agreement within 30 calendar days of receiving a 
notice of the proposed settlement agreement. If the Board of Directors 
disapproves or fails to approve a proposed settlement agreement within 
30 days, the proposed settlement agreement shall be null and void and 
the previously filed Petition or Request to Intervene shall be 
considered in accordance with this subpart.
    (3) A settlement agreement approved by the Board of Directors shall 
be deemed final and binding on all parties to the agreement. At the time 
a proposed settlement agreement becomes final, a Petition or Request to 
Intervene previously filed by a party to the agreement shall be deemed 
withdrawn as to all issues resolved in the agreement, and the parties to 
the agreement shall be estopped from raising objection to those issues 
or to the terms of the settlement agreement.
    (e) No rights created; Finance Board not prohibited. Nothing in this 
subpart shall be deemed to create any substantive or discovery right in 
any party. Nothing in this subpart shall limit in any manner the right 
of the Finance Board to conduct any examination or inspection of any 
Bank or the Office of Finance, or to take any action with respect to a 
Bank or the Office of Finance, or its directors, officers, employees or 
agents, otherwise authorized by law.
    (f) Exhaustion requirement. When seeking a Case-by-Case 
Determination of any matter or review by the Board of Directors of any 
Supervisory Determination, a Bank or the Office of Finance shall follow 
the procedures in this subpart as a prerequisite to seeking judicial 
review. Failure to do so shall be deemed to be a failure to exhaust all 
available administrative remedies.
    (g) Improper conduct prohibited. No party shall, by act or omission, 
unduly burden or frustrate the efforts of the Board of Directors to 
carry out its duties under the laws and regulations of the Finance 
Board. A Petitioner or Intervenor shall confine its communications with 
the Board of Directors, or any individual member thereof, concerning 
issues raised in a pending Petition, to written communications for 
inclusion in the record of the proceeding, filed with the Secretary to 
the Board.
    (h) Costs. Petitioners are encouraged to contain costs associated 
with the preparation and filing of Petitions and related personal 
appearances, if any, at any meeting held by the Board of Directors under 
this subpart. The Petitioner shall be solely responsible for all costs 
associated with any such Petitions and appearances.
    (i) Procedures are exclusive. All Case-by-Case Determinations by the 
Board of Directors and all Reviews of Disputed Supervisory 
Determinations shall be considered exclusively pursuant to the 
procedures described in this subpart.

[64 FR 30883, June 9, 1999, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 907.16  Rules of practice.

    In connection with any matter initiated or pending pursuant to this 
part, petitioners, requestors or intervenors, or their representatives, 
shall be subject to the provisions of subpart F of 12 CFR part 908. No 
other provision of part 908 shall apply under this part

[67 FR 9903, Mar. 5, 2002]

[[Page 26]]



PART 908_RULES OF PRACTICE AND PROCEDURE IN HEARINGS ON THE RECORD--Table of Contents




                         Subpart A_Introduction

Sec.
908.1 Scope.
908.2 Definitions.
908.3 Rules of construction.

          Subpart B_Scope and Authority_Enforcement Proceedings

908.4 Cease and desist proceedings.
908.5 Temporary cease and desist orders.
908.6 Civil money penalties.
908.7 Service of notice.
908.8 Subpoenas.
908.9 Hearings on the record.
908.10 Judicial review.
908.11 Jurisdiction and enforcement.
908.12 Notice after separation.
908.13 Public disclosure of final orders.
908.14 No implied private right of action.
908.15-908.19 [Reserved]

                         Subpart C_General Rules

908.20 Authority of the Board of Directors.
908.21 Authority of the presiding officer.
908.22 Public hearings.
908.23 Good faith certification.
908.24 Ex parte communications.
908.25 Filing of papers.
908.26 Service of papers.
908.27 Computing time.
908.28 Change of time limits.
908.29 Witness fees and expenses.
908.30 Settlement or other dispute resolution.
908.31 Right to supervise the Banks.
908.32 Collateral attacks on proceedings under this part.
908.33-908.39 [Reserved]

                    Subpart D_Pre-Hearing Proceedings

908.40 Commencement of proceeding and contents of notices.
908.41 Answer.
908.42 Amended pleadings.
908.43 Failure to appear.
908.44 Consolidation and severance of actions.
908.45 Motions.
908.46 Discovery.
908.47 Request for document discovery from parties.
908.48 Document subpoenas to nonparties.
908.49 Deposition of witness unavailable for hearing.
908.50 Interlocutory review.
908.51 Summary disposition.
908.52 Partial summary disposition.
908.53 Scheduling and prehearing conferences.
908.54 Pre-hearing submissions.
908.55 Hearing subpoenas.
908.56-908.59 [Reserved]

             Subpart E_Hearing and Post-hearing Proceedings

908.60 Conduct of hearings.
908.61 Evidence.
908.62 Post-hearing filings.
908.63 Recommended decision and filing of record.
908.64 Exceptions to recommended decision.
908.65 Review by Board of Directors.
908.66 Exhaustion of administrative remedies.
908.67 Stay of final decision and order pending judicial review.
908.68-908.69 [Reserved]

          Subpart F_Rules of Practice Before the Finance Board

908.70 Scope.
908.71 Practice before the Finance Board.
908.72 Appearances and practice in proceedings before the Finance Board.
908.73 Conflicts of interest.
908.74 Sanctions.
908.75 Censure, suspension, disbarment and reinstatement.

    Authority: 12 U.S.C. 1422b(a)(5), 4631(c) and (f), and 4632-4641. 
Section 908.4 is also authorized by 12 U.S.C. 1818(b)(6) and (7).

    Source: 67 FR 9903, Mar. 5, 2002, unless otherwise noted.



                         Subpart A_Introduction



Sec. 908.1  Scope.

    This part prescribes rules of practice and procedure applicable to 
any hearing with regard to:
    (a) Cease and desist proceedings under section 2B(a)(5) of the Act 
(12 U.S.C. 1422b(a)(5)); or
    (b) Civil money penalty assessment proceedings under section 
2B(a)(5) of the Act (12 U.S.C. 1422b(a)(5)).



Sec. 908.2  Definitions.

    For purposes of this part--
    Decisional employee means any employee of the Finance Board, except 
the Office of General Counsel, or any member of the presiding officer's 
staff who has not engaged in an investigative or prosecutorial role in 
connection with the subject cease and desist or civil money penalty 
proceedings and who may assist the Board of Directors or the presiding 
officer, respectively, in

[[Page 27]]

preparing orders, recommended decisions, decisions and other documents 
under this part.
    Hearing means an adjudicatory proceeding conducted pursuant to this 
part;
    Notice means a written notice of charges or notice of assessment of 
a civil money penalty so titled that served by the Finance Board upon a 
respondent, which conforms to Sec. 908.40 and describes the alleged 
violations with sufficient specificity to put the respondent on notice 
of the nature and scope of the charges being brought against him, except 
in the context of the plain meaning of the word notice in a provision, 
such as reasonable notice or actual notice.
    Party means, for purposes of subparts C through F of this part only, 
the Finance Board or respondent.
    Person means an individual, sole proprietor, partnership, 
corporation, unincorporated association, trust, joint venture, pool, 
syndicate, agency, Bank, or other entity or organization with the 
exception of the Finance Board.
    Presiding officer means an administrative law judge or other 
qualified, neutral individual who is appointed by the Finance Board 
under applicable law, and, pursuant to Title 5 of the United States 
Code, may conduct a hearing or adjudicatory proceeding under this part.
    Representative of record means an individual who is authorized to 
represent a respondent (and includes a respondent who represents 
himself) at a hearing conducted under this part and who has filed a 
notice of appearance in accordance with Sec. 908.72.
    Respondent means any person named in a notice of charges or notice 
of determination to impose civil money penalties issued by the Finance 
Board.
    Safety and Soundness Act means the Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501-4641) (Title 
XIII of the Housing and Community Development Act of 1992, Pub. L. No. 
102-550).
    Violation includes any act or omission by any person, undertaken 
alone or with one or more others, that causes directly or indirectly, 
counsels, participates in, or otherwise furthers, aids or abets a 
violation of the Act, other applicable law, regulation, or order of the 
Finance Board.



Sec. 908.3  Rules of construction.

    For purposes of this part--
    (a) Any term in the singular includes the plural and the plural 
includes the singular, if such use would be appropriate;
    (b) Any use of a masculine, feminine, or neuter gender encompasses 
all three, if such use would be appropriate; and
    (c) Unless the context requires otherwise, a party's representative 
of record, if any, may, on behalf of that party, take any action 
required to be taken by the party.



          Subpart B_Scope and Authority_Enforcement Proceedings



Sec. 908.4  Cease and desist proceedings.

    (a) Notice of charges--(1) Grounds. The Finance Board may issue and 
serve a notice of charges upon a Bank or any executive officer or 
director of a Bank if the Finance Board determines that such party is 
engaging or has engaged in, or, if the Finance Board has reasonable 
cause to believe is about to engage in:
    (i) An unsafe or unsound practice in conducting the business of the 
Bank;
    (ii) Any conduct that violates any provision of the Act or any 
applicable law, order, rule or regulation; or
    (iii) Any conduct that violates any condition imposed in writing by 
the Finance Board in connection with the granting of any application or 
other request by the Bank, or any written agreement between the Bank and 
the Finance Board.
    (2) Content of notice of charges. A notice of charges shall contain 
a statement of the facts constituting the alleged conduct or violation 
and otherwise shall conform to the requirements set forth in Sec. 
908.40.
    (b) Cease and desist order--(1) Issuance of order. An order to cease 
and desist shall be issued in writing and only after the respondent has 
been given the opportunity for a hearing on the record in accordance 
with the requirements set forth in Sec. 908.9. If the Board of 
Directors finds, based on the record of the hearing, that any conduct or 
violation specified in the notice of charges has

[[Page 28]]

been established or if a respondent consents (or is deemed to have 
consented pursuant to Sec. 908.43), the Board of Directors may issue 
and serve upon the respondent an order requiring the respondent to cease 
and desist from any such practice, violation or conduct, to take 
affirmative action to correct or remedy the conditions resulting from 
any such practice, violation or conduct, or to comply with such 
limitations on activities or functions as may be prescribed therein.
    (2) Affirmative action. The authority of the Board of Directors to 
issue and serve a cease and desist order that requires a respondent to 
take affirmative action to correct or remedy any conditions resulting 
from any violation or practice with respect to which such order is 
issued includes the authority to require a respondent to--
    (i) Make restitution or provide reimbursement, indemnification, or 
guarantee against loss if--
    (A) The respondent was unjustly enriched in connection with the 
violation, conduct or practice described in the order; or
    (B) The violation, conduct or practice involved a reckless disregard 
for the law or any applicable regulations or prior order of the Finance 
Board;
    (ii) Restrict the growth of the Bank;
    (iii) Dispose of any loan or asset involved;
    (iv) Rescind any agreement or contract;
    (v) Employ qualified officers or employees (who may be subject to 
approval by the Finance Board, as directed by the Finance Board); and
    (vi) Take such other action as the Finance Board determines to be 
appropriate.
    (3) Authority to limit activities. The authority of the Board of 
Directors to issue and serve a cease and desist order includes the 
authority to place limitations on the activities or functions of a 
respondent.
    (c) Effective date of order. An order issued under paragraph (b) of 
this section shall become effective upon the expiration of the 30-day 
period beginning on the date of service of the order upon the 
respondent, (except in the case of an order issued upon consent, which 
shall become effective at the time specified therein), and shall remain 
effective and enforceable as provided in the order, except to the extent 
that the order is stayed, modified, terminated, or set aside by action 
of the Board of Directors or otherwise as provided for in this part.



Sec. 908.5  Temporary cease and desist orders.

    (a) Grounds. Whenever the Board of Directors determines that any 
conduct or violation, or threatened conduct or violation, specified in a 
notice of charges issued and served upon a respondent, or the 
continuation of such conduct or violation, is likely to cause 
insolvency, a significant depletion of total capital, or irreparable 
harm to a Bank prior to the completion of the cease and desist 
proceeding, the Board of Directors may issue a temporary order requiring 
the respondent to cease and desist from any such conduct or violation, 
or such threatened conduct or violation, and to take affirmative action 
to prevent or remedy such insolvency, depletion, or harm pending 
completion of such proceedings. Such order may include any requirement 
authorized under Sec. 908.4(b)(2).
    (b) Incomplete records. If a notice of charges specifies that the 
books and records of a Bank are so incomplete or inaccurate that the 
Finance Board is unable, through the normal supervisory process, to 
determine the financial condition of the Bank or the details or purpose 
of any transaction or transactions that may have a material effect on 
the financial condition of a Bank, the Finance Board may issue a 
temporary order requiring a respondent to:
    (1) Cease and desist from any activity or practice that caused or 
contributed to, whether in whole or in part, the incomplete or 
inaccurate state of the books or records of a Bank; or
    (2) Take affirmative action to restore the books or records to a 
complete and accurate state.
    (c) Effective date. Any temporary order issued pursuant to this 
section shall become effective upon service upon the respondent.
    (d) Effective period. (1) Any temporary order issued under paragraph 
(a) of this section, unless set aside, limited, or

[[Page 29]]

suspended by a court in a proceeding under paragraph (e) of this 
section, shall remain in effect and enforceable pending the completion 
of the proceeding on the notice of charges and shall remain effective 
until the Board of Directors dismisses the charges specified in the 
notice of charges or it is superceded by a cease and desist order.
    (2) Any temporary order issued under paragraph (b) of this section, 
unless set aside, limited, or suspended by a court in proceedings 
pursuant to paragraph (e) of this section, shall remain in effect and 
enforceable until the earlier of the completion of the proceeding on the 
notice of charges, or the date that the Finance Board determines, by 
examination or otherwise, that the books and records of the Bank are 
accurate and reflect the financial condition of the Bank.
    (e) Judicial relief. As authorized by section 2B(a)(5) of the Act 
(12 U.S.C. 1422b(a)(5)) and sections 1372(d) and 1375(b) of the Safety 
and Soundness Act (12 U.S.C. 4632(d) and 4635(b)), a respondent that has 
been served with a temporary order may apply to the United States 
District Court for the District of Columbia within ten days after such 
service for an injunction setting aside, limiting, or suspending the 
enforcement, operation, or effectiveness of the order pending the 
completion of the hearing pursuant to the notice of charges.
    (f) Enforcement of temporary order. If a respondent violates, 
threatens to violate, or fails to obey, a temporary order issued 
pursuant to this section, the Finance Board may bring an action in the 
United States District Court for the District of Columbia for an 
injunction to enforce such temporary order, as authorized by sections 
2B(a)(5) and 2B(a)(7) of the Act (12 U.S.C. 1422b(a)(5) and (a)(7)) and 
section 1372(e) of the Safety and Soundness Act (12 U.S.C. 4632(e)).



Sec. 908.6  Civil money penalties.

    (a) Notice of assessment--(1) Grounds. The Finance Board may issue 
and serve a notice of assessment of a civil money penalty on any Bank or 
any executive officer or director of a Bank that:
    (i) Violates any provision of the Act, or any order, rule, or 
regulation issued under the Act;
    (ii) Violates any final or temporary cease and desist order issued 
by the Finance Board pursuant to the Act;
    (iii) Violates any written agreement between a Bank and the Finance 
Board; or
    (iv) Engages in any conduct that causes or is likely to cause a loss 
to a Bank.
    (2) Content of notice. A notice of assessment of a civil money 
penalty shall contain a statement of the facts constituting the alleged 
conduct or violation and otherwise conform to the requirements set forth 
in Sec. 908.40.
    (b) Order assessing penalty. An order assessing a civil money 
penalty shall be issued in writing and only after the respondent has 
been given the opportunity for a hearing on the record in accordance 
with the procedures set forth in Sec. 908.9. If the Board of Directors 
finds, based on the record of the hearing, that any conduct or violation 
specified in the notice of assessment of a civil money penalty has been 
established or if a respondent consents (or is deemed to have consented 
pursuant to Sec. 908.43), the Board of Directors may issue and serve 
upon the respondent an order assessing a civil money penalty.
    (c) Amount of penalty. (1) The Finance Board may impose a civil 
money penalty under paragraph (b) of this section against a Bank for a 
violation described in paragraph (a)(i) through (iii) of this section in 
an amount not to exceed $5,000.00 for each day that such violation 
continues;
    (2) The Finance Board may impose a civil money penalty on an 
executive officer or director of a Bank in an amount not to exceed 
$10,000.00, or on a Bank in an amount not to exceed $25,000.00, for each 
day that a violation or conduct described in paragraph (a) of this 
section continues, if the Finance Board finds that the violation or 
conduct:
    (i) Is part of a pattern of misconduct; or
    (ii) Involved recklessness and caused or would be likely to cause a 
material loss to a Bank; or

[[Page 30]]

    (3) The Finance Board may impose a civil money penalty on an 
executive officer or director of a Bank in an amount not to exceed 
$100,000.00, or on a Bank in an amount not to exceed $1,000,000.00, for 
each day that a violation or conduct described in paragraph (a) of this 
section continues, if the Finance Board finds that the violation or 
conduct was knowing and caused or would be likely to cause a substantial 
loss to a Bank.
    (d) Factors in determining the amount of the penalty. In determining 
the amount of the civil money penalty to be assessed under this section, 
the Finance Board shall consider such factors as the gravity of the 
violation, any history of prior violations, the good faith of the 
officer or director of a Bank, the effect of the penalty on promoting or 
protecting the safety and soundness of a Bank or the Bank System, any 
injury to members of the subject Bank or to the public at large, any 
benefits received, and the potential for the deterrence of future 
violations.
    (e) Judicial relief. Pursuant to section 2B(a)(5) of the Act (12 
U.S.C. 1422b(a)(5)) and section 1376(c)(3) of the Safety and Soundness 
Act (12 U.S.C. 4636(c)(3)), an order of the Board of Directors imposing 
a civil money penalty under this subsection shall not be subject to 
judicial review except as otherwise provided in Sec. 908.10, in 
accordance with section 1374 of the Safety and Soundness Act (12 U.S.C. 
4634).
    (f) Judicial enforcement of an order imposing a penalty. Pursuant to 
sections 2B(a)(5) and 2B(a)(7) of the Act (12 U.S.C. 1422b(a)(5) and 
(a)(7)) and section 1376(d) of the Safety and Soundness Act (12 U.S.C. 
4636(d)), if a Bank, or an executive officer or director of a Bank, 
fails to comply with an order of the Board of Directors imposing a civil 
money penalty, the Finance Board may seek to enforce the order as 
follows:
    (1) After the order is final and no longer subject to judicial 
review under Sec. 908.10, the Finance Board may bring an action in the 
United States District Court for the District of Columbia to obtain a 
monetary judgment against a Bank or the executive officer or director of 
a Bank;
    (2) The Finance Board may, in addition, seek such other relief as 
may be available from the District Court;
    (3) The monetary judgment may, in the discretion of the District 
Court, include any attorneys fees and other expenses incurred by the 
Finance Board in connection with the action; and
    (4) The validity and appropriateness of the Board of Directors' 
order assessing a civil money penalty shall not be subject to review of 
the United States District Court for the District of Columbia.
    (g) Board of Directors' authority to review. The Board of Directors 
may:
    (1) Review any order to assess a civil money penalty or any 
interlocutory ruling arising from a hearing on the record, or
    (2) Settle, modify, or remit in whole or in part, any civil money 
penalty, which may be or may have been assessed under this section.
    (h) Availability of other remedies. Any civil money penalty assessed 
under this section shall be in addition to any other available civil 
remedy and may be assessed whether or not the Finance Board imposes 
other administrative sanctions pursuant to this part.
    (i) Prohibition of reimbursement or indemnification. A Bank shall 
not reimburse, indemnify, or otherwise compensate directly or indirectly 
any executive officer or director for any penalty imposed against such 
individual under paragraph (c)(3) of this section.
    (j) Applicability. Any penalty under this part may be imposed only 
for conduct or violations occurring after November 12, 1999.
    (k) Adjustment of civil money penalties by the rate of inflation. 
Pursuant to the Federal Civil Penalties Inflation Adjustment Act of 
1990, as amended by the Debt Collection Improvement Act of 1996, Pub. 
Law No. 104-134 (1996) (collectively, the Inflation Adjustment Act) (to 
be codified at 28 U.S.C. 2461 note), the Finance Board is required to 
adjust each civil money penalty set forth herein by a prescribed cost-
of-living adjustment at least once every four years. The adjustment is 
based on the formula prescribed in section 5(b) of the Inflation 
Adjustment Act (28 U.S.C. 2461 note).

[[Page 31]]



Sec. 908.7  Service of notice.

    In accordance with section 2B(a)(5) of the Act (12 U.S.C. 
1422b(a)(5)) and section 1379A of the Safety and Soundness Act (12 
U.S.C. 4640), any service required or authorized to be made by the 
Finance Board under this part may be made by registered mail, or in such 
other manner reasonably calculated to give actual notice as the Finance 
Board may by regulation or otherwise provide.



Sec. 908.8  Subpoenas.

    (a) Authority. Pursuant to section 2B(a)(5) of the Act (12 U.S.C. 
1422b(a)(5)) and section 1379B of the Safety and Soundness Act (12 
U.S.C. 4641), the Finance Board, in the course of or in connection with 
a hearing under this part, shall have the authority:
    (1) To administer oaths and affirmations;
    (2) To take and preserve testimony under oath;
    (3) To issue subpoenas and subpoenas duces tecum; and
    (4) To revoke, quash, or modify subpoenas and subpoenas duces tecum 
issued by the Finance Board pursuant to this part.
    (b) Witnesses and documents. The attendance of witnesses and the 
production of documents provided for in this subsection may be required 
from any place in any State at any designated place where such 
proceeding is being conducted.
    (c) Enforcement. The Finance Board may file an action in the United 
States district court for the judicial district where the proceeding is 
being conducted or where the witness resides or conducts business, or in 
the United States District Court for the District of Columbia, for 
enforcement of any subpoena or subpoena duces tecum issued pursuant to 
this section. Such courts shall have jurisdiction over such actions and 
power to order and require compliance with such subpoenas and subpoenas 
duces tecum.
    (d) Fees and expenses. Witnesses subpoenaed under this section shall 
be paid the same fees and mileage that are paid witnesses in the 
district courts of the United States. Any court having jurisdiction of 
any proceeding instituted under this section by a Bank may allow to any 
such party such reasonable expenses and attorneys fees as the court 
deems just and proper. Such expenses shall be paid by the Bank or from 
its assets.



Sec. 908.9  Hearings on the record.

    (a) Requirements--(1) Venue and record. Pursuant to section 2B(a)(5) 
of the Act (12 U.S.C. 1422b(a)(5)) and section 1373 of the Safety and 
Soundness Act (12 U.S.C. 4633), any hearing conducted pursuant to 
Sec. Sec. 908.4 or 908.6 shall be held on the record and in the 
District of Columbia.
    (2) Timing. Any hearing shall be set for a date not earlier than 
thirty (30) days nor later than sixty (60) days after service of a 
notice, unless an earlier or a later date is set by the presiding 
officer at the request of the party served.
    (3) Procedure. Any hearing held pursuant to Sec. Sec. 908.4 or 
908.6 shall be conducted in accordance with chapter 5 of Title 5 of the 
United States Code.
    (4) Failure to appear. If a respondent fails to appear at a hearing 
individually or through a duly authorized representative, the respondent 
shall be deemed to have consented to the issuance of a cease and desist 
order or an order assessing a civil money penalty for which the hearing 
is held.
    (5) Open to the public. All hearings on the record with respect to 
any notice issued by the Finance Board shall be open to the public, 
unless the Board of Directors, in its discretion, determines that 
holding an open hearing would be contrary to the public interest.
    (b) Issuance of final order. After a hearing on the record has been 
concluded, and within 90 days after the parties have been notified that 
the case has been submitted to the Board of Directors for final 
decision, the Board of Directors shall render the final decision (which 
shall include findings of fact upon which the decision is predicated) 
and shall issue and serve upon each party to the proceeding a final 
order or orders consistent with the provisions.
    (c) Judicial review and modification of final orders. Judicial 
review of any such final decision and order shall be exclusively as 
provided for in Sec. 908.10, pursuant to section 2B(a)(5) of the Act 
(12 U.S.C. 1422b(a)(5)) and sections 1373 and

[[Page 32]]

1374 of the Safety and Soundness Act (12 U.S.C. 4633 and 4634). Unless a 
petition for review is timely filed as provided in Sec. 908.10, and 
thereafter until the record in the proceeding has been filed as so 
provided, the Board of Directors may at any time modify, terminate, or 
set aside any such final decision and order, upon such notice and in 
such manner as the Board of Directors, in its sole discretion, considers 
proper. Upon such filing of the record, the Board of Directors may 
modify, terminate, or set aside any such final decision and order with 
permission of the court.



Sec. 908.10  Judicial review.

    (a) Authority. Pursuant to section 2B(a)(5) of the Act (12 U.S.C. 
1422b(a)(5)) and section 1374 of the Safety and Soundness Act (12 U.S.C. 
4634), any party to a hearing may obtain judicial review of a final 
decision and order issued under Sec. Sec. 908.4 or 908.6 exclusively by 
filing a written petition in the United States Court of Appeals for the 
District of Columbia Circuit within thirty (30) days after the date of 
service of the final decision and order, requesting the court to modify, 
terminate or set aside the final decision and order.
    (b) Filing of record. Upon receiving a copy of the petition from the 
clerk of the court of appeals, the Finance Board shall file the hearing 
record with the clerk, as provided in section 2112 of Title 28 of the 
United States Code (28 U.S.C. 2112).
    (c) Jurisdiction. Pursuant to section 2B(a)(5) of the Act (12 U.S.C. 
1422b(a)(5)) and section 1374(c) of the Safety and Soundness Act (12 
U.S.C. 4634(c)), upon the filing of a petition, the court of appeals 
shall have jurisdiction, which upon the filing of the record by the 
Finance Board (except as otherwise provided in Sec. 908.9) shall be 
exclusive, to affirm, modify, terminate or set aside, in whole or in 
part, a final decision and order of the Board of Directors.
    (d) Review. Review by the court of appeals of a final decision and 
order of the Board of Directors and the record of any hearing conducted 
pursuant to this part shall be governed by chapter 7 of Title 5 of the 
United States Code (5 U.S.C. 701 et seq.).
    (e) Order to pay civil money penalty. In connection with its review 
of a final order pursuant to this part, the court of appeals shall have 
authority in accordance with section 2B(a)(5) of the Act (12 U.S.C. 
1422b(a)(5)) and section 1374(e) of the Safety and Soundness Act (12 
U.S.C. 4634(e)), to order payment of any civil money penalty imposed by 
the Finance Board.
    (f) No automatic stay. In accordance with section 2B(a)(5) of the 
Act (12 U.S.C. 1422b(a)(5)) and section 1374(f) of the Safety and 
Soundness Act (12 U.S.C. 4634(f)), the commencement of an action for 
judicial review of a final decision and order of the Board of Directors 
under this section shall not operate as a stay of any such order, unless 
the court of appeals specifically orders a stay of the order in whole or 
in part.



Sec. 908.11  Jurisdiction and enforcement.

    (a) Enforcement. In accordance with sections 2B(a)(5) and 2B(a)(7) 
of the Act (12 U.S.C. 1422b(a)(5) and (a)(7)) and section 1375(a) of the 
Safety and Soundness Act (12 U.S.C. 4635(a)), the Finance Board may 
bring an action in the United States District Court for the District of 
Columbia for the enforcement of any effective order issued by the Board 
of Directors under this part. Such court shall have jurisdiction and 
power to order and require compliance with such order.
    (b) Limitation on jurisdiction. In accordance with sections 2B(a)(5) 
and 2B(a)(7) of the Act (12 U.S.C. 1422b(a)(5) and (a)(7)) and section 
1375(b) of the Safety and Soundness Act (12 U.S.C. 4635(b)), and except 
as otherwise provided in the Act, no court shall have jurisdiction to 
affect, by injunction or otherwise, the issuance or enforcement of any 
order issued by the Board of Directors under this part, or to review, 
modify, suspend, terminate, or set aside any such notice or order.



Sec. 908.12  Notice after separation.

    The resignation, termination of employment or participation, or 
separation of a director or executive officer of a Bank shall not affect 
the jurisdiction and authority of the Finance Board to issue any notice 
and proceed under this

[[Page 33]]

part against any such director or executive officer, if such notice is 
served before the end of the two-year period beginning on the date such 
director or executive officer ceases to be associated with the Bank.



Sec. 908.13  Public disclosure of final orders.

    (a) In general. The Finance Board shall make available to the 
public--
    (1) Any written agreement or other written statement for which a 
violation may be redressed by the Finance Board or any modification to 
or termination thereof, unless the Finance Board in its discretion, 
determines that public disclosure would be contrary to the public 
interest;
    (2) Any order that is issued by the Board of Directors and that has 
become final in accordance with this part; and
    (3) Any modification to or termination of any final order made 
public pursuant to this part.
    (b) Delay of public disclosure under exceptional circumstances. If 
the Finance Board determines in writing that the public disclosure, 
pursuant to paragraph (a) of this section, of any final decision and 
order of the Board of Directors would seriously threaten the financial 
health or security of a Bank, the Finance Board may delay the public 
disclosure of such decision and order for a reasonable time.
    (c) Documents filed under seal. The Finance Board may file any 
document or part thereof under seal in any hearing commenced by the 
Finance Board under this part, if it determines in writing that 
disclosure thereof would be contrary to the public interest.
    (d) Retention of documents. The Finance Board shall keep and 
maintain a record, for not less than six years, of all documents 
described in paragraph (a) of this section and all enforcement 
agreements and other supervisory actions and supporting documents issued 
with respect to or in connection with any enforcement proceeding 
initiated by the Finance Board under this part or any other law.
    (e) Disclosure to Congress. This section may not be construed to 
authorize the withholding, or to prohibit the disclosure, of any 
information to the Congress or any committee or subcommittee thereof.



Sec. 908.14  No implied private right of action.

    This part shall not create any private right of action on behalf of 
any person against a Bank or any director or executive officer of a Bank 
or impair any existing private right of action under applicable law.



Sec. Sec. 908.15-908.19  [Reserved]



                         Subpart C_General Rules



Sec. 908.20  Authority of the Board of Directors.

    The Board of Directors may, at any time during the pendency of a 
proceeding under this part, perform, direct the performance of, or waive 
the performance of any act that could be done or ordered by the 
presiding officer.



Sec. 908.21  Authority of the presiding officer.

    (a) General rule. All cease and desist or civil money penalty 
proceedings governed by this subpart shall be conducted in a hearing on 
the record in accordance with the provisions of the Administrative 
Procedure Act, 5 U.S.C. 551-559. The presiding officer shall have 
complete charge of the hearing, conduct a fair and impartial hearing, 
avoid unnecessary delay, and assure that a record of the hearing is 
made.
    (b) Powers. The presiding officer shall have all powers necessary to 
conduct the hearing in accordance with paragraph (a) of this section and 
5 U.S.C. 556(c). The presiding officer is authorized to--
    (1) Set and change the date, time and place of the hearing upon 
reasonable notice to the parties;
    (2) Continue or recess the hearing in whole or in part for a 
reasonable period of time;
    (3) Hold conferences to identify or simplify the issues, or to 
consider other matters that may aid in the expeditious disposition of 
the proceeding, including settlement conferences, mediation or other 
consensual methods of dispute resolution;
    (4) Administer oaths and affirmations;

[[Page 34]]

    (5) Issue subpoenas, subpoenas duces tecum, and protective orders, 
as authorized by this part, and to revoke, quash, or modify such 
subpoenas;
    (6) Take and preserve testimony under oath;
    (7) Rule on motions and other procedural matters appropriate in a 
hearing, except that only the Board of Directors shall have the power to 
grant any motion to dismiss a cease and desist or civil money penalty 
proceeding or to make a final determination on the merits of such 
proceedings;
    (8) Regulate the scope and timing of discovery;
    (9) Regulate the course of the hearing and the conduct of 
representatives and parties;
    (10) Examine witnesses;
    (11) Receive, exclude, limit, or otherwise rule on evidence;
    (12) Upon motion of a party, take official notice of facts;
    (13) Recuse herself/himself upon motion made by a party or on her or 
his own motion;
    (14) Prepare and present to the Board of Directors a recommended 
decision as provided in this part;
    (15) Establish time, place and manner limitations on the attendance 
of the public and the media for any public hearing; and
    (16) Do all other things necessary and appropriate to discharge the 
duties of a presiding officer.



Sec. 908.22  Public hearings.

    (a) General rule. All hearings shall be open to the public, unless 
the Finance Board, in its discretion, determines that holding an open 
hearing would be contrary to the public interest. The Finance Board may 
make such determination sua sponte at any time by written notice to all 
parties.
    (b) Motion for closed hearing. Within twenty (20) days of service of 
a notice, any party or respondent may file with the presiding officer a 
motion for a non-public hearing and any party may file a pleading in 
reply to the motion. The presiding officer shall forward the motion and 
any reply, together with a recommended decision on the motion, to the 
Board of Directors, who shall make a final determination. Such motions 
and replies shall be governed by Sec. 908.45.
    (c) Filing documents under seal. The Finance Board, in its 
discretion, may file any document, or any part of any document, under 
seal if the agency makes a written determination that disclosure of the 
document would be contrary to the public interest. The presiding officer 
shall take all appropriate steps to preserve the confidentiality of such 
documents or parts thereof, including closing portions of the hearing to 
the public.



Sec. 908.23  Good faith certification.

    (a) General requirement. Every filing or submission of record 
following the issuance of a notice by the Finance Board shall be signed 
by at least one representative of record in her or his individual name 
and shall state that representative's address and telephone number and 
the names, addresses and telephone numbers of all other representatives 
of record for the person making the filing or submission.
    (b) Effect of signature. (1) By signing a document, the 
representative of record or party certifies that--
    (i) The representative of record or party has read the filing or 
submission of record;
    (ii) To the best of her or his knowledge, information and belief 
formed after reasonable inquiry, the filing or submission of record is 
well-grounded in fact and is warranted by existing law or a good faith, 
non-frivolous argument for the extension, modification, or reversal of 
existing law, regulation or Finance Board policy or order; and
    (iii) The filing or submission of record is not made for any 
improper purpose, such as to harass or to cause unnecessary delay or 
needless increase in the cost of litigation.
    (2) If a filing or submission of record is not signed, the presiding 
officer shall strike the filing or submission of record, unless it is 
signed promptly after the omission is called to the attention of the 
pleader or movant.
    (c) Effect of making oral motion or argument. The act of making any 
oral motion or oral argument by any representative or party shall 
constitute a certification that to the best of her or his knowledge, 
information, and belief,

[[Page 35]]

formed after reasonable inquiry, such expressions or statements are 
well-grounded in fact and are warranted by existing law or a good faith, 
non-frivolous argument for the extension, modification, or reversal of 
existing law, regulation, or Finance Board policy or order, and are not 
made for any improper purpose, such as to harass or to cause unnecessary 
delay or needless increase in the cost of litigation.



Sec. 908.24  Ex parte communications.

    (a) Definition.(1) Ex parte communication means any material oral or 
written communication relevant to the merits of a cease and desist or 
civil money penalty proceeding under this part that was neither on the 
record nor on reasonable prior notice to all parties that takes place 
between--
    (i) An interested person outside the Finance Board (including the 
person's representative); and
    (ii) The presiding officer handling the proceeding, the Board of 
Directors or any member thereof, a decisional employee of the Finance 
Board assigned to that proceeding, or any other person who is or may 
reasonably be expected to be involved in the decisional process.
    (2) A communication that does not concern the merits of a proceeding 
under this part, such as a request for status of the proceeding, does 
not constitute an ex parte communication.
    (b) Prohibition of ex parte communications. From the time that a 
notice commencing a proceeding under this part is issued by the Finance 
Board until the date that the Board of Directors issues its final 
decision pursuant to Sec. 908.65, no person referred to in paragraph 
(a)(1)(i) of this section shall knowingly make or cause to be made an ex 
parte communication. The Board of Directors, any member thereof 
individually, the presiding officer, or an employee of the Finance 
Board, shall not knowingly make or cause to be made an ex parte 
communication.
    (c) Procedure upon occurrence of ex parte communication. If an ex 
parte communication is received by any person identified in paragraph 
(a) of this section, that person promptly shall cause all such written 
communications (or, if the communication is oral, a memorandum stating 
the substance of the communication) to be placed on the record of the 
proceeding and served on all parties. All parties to the proceeding 
shall have an opportunity, within ten days of receipt of service of the 
ex parte communication or the written record of an oral communication, 
to file responses thereto and to recommend any sanctions, in accordance 
with paragraph (d) of this section, that they believe to be appropriate 
under the circumstances.
    (d) Sanctions. Any party or representative for a party who makes an 
ex parte communication, or who encourages or solicits another person or 
entity to make any such communication, may be subject to any appropriate 
sanction or sanctions imposed by the Board of Directors or the presiding 
officer, including, but not limited to, exclusion from the proceedings 
and an adverse ruling on the issue that is the subject of the prohibited 
communication.
    (e) Consultations by presiding officer. Except to the extent 
required for the disposition of ex parte matters as authorized by law, 
the presiding officer may not consult a person or party on any matter 
relevant to the merits of a proceeding, unless on notice and opportunity 
for all parties to participate.
    (f) Separation of functions. An employee or agent engaged in the 
performance of investigative or prosecuting functions for the Finance 
Board in a case may not, in that or a factually related case, 
participate or advise in the decision, recommended decision, or Board of 
Directors' review of the recommended decision under Sec. 908.65, except 
as a witness or counsel in a hearing.



Sec. 908.25  Filing of papers.

    (a) Filing. Any papers required to be filed shall be addressed to 
the presiding officer and filed with the Finance Board, 1777 F Street, 
NW., Washington, DC 20006.
    (b) Manner of filing. Unless otherwise specified by the Finance 
Board or the presiding officer, filing shall be accomplished by:
    (1) Personal service;
    (2) Delivery to the U.S. Postal Service or to a reliable commercial 
delivery

[[Page 36]]

service for same day or overnight delivery;
    (3) Mailing by first class, registered, or certified mail; or
    (4) Transmission by electronic media upon any conditions specified 
by the Finance Board or the presiding officer. All papers filed by 
electronic media shall also concurrently be filed in accordance with 
paragraph (c) of this section.
    (c) Formal requirements as to papers filed--(1) Form. All papers 
must set forth the name, address and telephone number of the 
representative or party making the filing and must be accompanied by a 
certification setting forth when and how service has been made on all 
other parties. All papers filed must be double-spaced and printed or 
typewritten on 8\1/2\ x 11-inch paper and must be clear and legible.
    (2) Signature. All papers must be dated and signed as provided in 
Sec. 908.23.
    (3) Caption. All papers filed must include at the head thereof, or 
on a title page, the name of the Finance Board and of the filing party, 
the title and docket number of the proceeding and the subject of the 
particular paper.
    (4) Number of copies. Unless otherwise specified by the Finance 
Board or the presiding officer, an original and one copy of all 
documents, papers, transcripts of testimony, and exhibits shall be 
filed.



Sec. 908.26  Service of papers.

    (a) By the parties. Except as otherwise provided, a party filing 
papers or serving a subpoena shall serve a copy upon the representative 
of record for each party to the proceeding so represented and upon any 
party not so represented.
    (b) Method of service. Except as provided in paragraphs (c)(2) and 
(d) of this section, a serving party shall use one or more of the 
following methods of service:
    (1) Personal service;
    (2) Delivery to the U.S. Postal Service or to a reliable commercial 
delivery service for same day or overnight delivery;
    (3) Mailing by first class, registered, or certified mail; or
    (4) Transmission by electronic media, only if the parties mutually 
agree. Any papers served by electronic media shall also concurrently be 
served in accordance with the requirements of Sec. 908.25(c).
    (c) By the Finance Board or the presiding officer. (1) All papers 
required to be served by the Finance Board or the presiding officer upon 
a party who has appeared in the proceeding in accordance with Sec. 
908.72 may be served by any means specified in paragraph (b) of this 
section.
    (2) If a notice of appearance has not been filed in the proceeding 
for a party in accordance with Sec. 908.72, the Finance Board or the 
presiding officer shall make service upon such party by any of the 
following methods:
    (i) By personal service;
    (ii) If the person to be served is an individual, by delivery to a 
person of suitable age and discretion at the physical location where the 
individual resides or works;
    (iii) If the person to be served is a corporation or other 
association, by delivery to an officer, managing or general agent, or to 
any other agent authorized by appointment or by law to receive service 
and, if the agent is one authorized by statute to receive service and 
the statute so requires, by also mailing a copy to the party;
    (iv) By registered or certified mail addressed to the person's last 
known address; or
    (v) By any other method reasonably calculated to give actual notice.
    (d) Subpoenas. Subject to applicable provisions in this part, 
service of a subpoena may be made:
    (1) By personal service;
    (2) If the person to be served is an individual, by delivery to a 
person of suitable age and discretion at the physical location where the 
individual resides or works;
    (3) If the person to be served is a corporation or other 
association, by delivery to an officer, managing or general agent, or to 
any other agent authorized by appointment or by law to receive service 
and, if the agent is one authorized by statute to receive service and 
the statute so requires, by also mailing a copy to the party;
    (4) By registered or certified mail addressed to the person's last 
known address; or

[[Page 37]]

    (5) By any other method reasonably calculated to give actual notice.
    (e) Area of service. Service in any State, commonwealth, possession, 
territory of the United States or the District of Columbia on any person 
doing business in any State, commonwealth, possession, territory of the 
United States or the District of Columbia, or on any person as otherwise 
permitted by law, is effective without regard to the place where the 
hearing is held.
    (f) Proof of service. Proof of service of papers filed by a party 
shall be filed before action is taken thereon. The proof of service, 
which shall serve as prima facie evidence of the fact and date of 
service, shall show the date and manner of service and may be by written 
acknowledgment of service, by declaration of the person making service, 
or by certificate of a representative of record. However, failure to 
file proof of service contemporaneously with the papers shall not affect 
the validity of actual service. The presiding officer may allow the 
proof to be amended or supplied, unless to do so would result in 
material prejudice to a party.



Sec. 908.27  Computing time.

    (a) General rule. In computing any period of time prescribed or 
allowed by this subpart, the date of the act or event that commences the 
designated period of time is not included. The last day so computed is 
included unless it is a Saturday, Sunday, or Federal holiday. When the 
last day is a Saturday, Sunday or Federal holiday, the period shall run 
until the end of the next day that is not a Saturday, Sunday, or Federal 
holiday. Intermediate Saturdays, Sundays and Federal holidays are 
included in the computation of time. However, when the time period 
within which an act is to be performed is ten (10) days or less, not 
including any additional time allowed for in paragraph (c) of this 
section, intermediate Saturdays, Sundays and Federal holidays are not 
included.
    (b) When papers are deemed to be filed or served. (1) Filing and 
service are deemed to be effective--
    (i) In the case of personal service or same day reliable commercial 
delivery service, upon actual service;
    (ii) In the case of U.S. Postal Service or reliable commercial 
overnight delivery service, or first class, registered, or certified 
mail, upon deposit in or delivery to an appropriate point of collection; 
or
    (iii) In the case of transmission by electronic media, as specified 
by the authority receiving the filing in the case of filing, and as 
agreed among the parties in the case of service.
    (2) The effective filing and service dates specified in paragraph 
(b)(1) of this section may be modified by the Finance Board or the 
presiding officer in the case of filing or by agreement of the parties 
in the case of service.
    (c) Calculation of time for service and filing of responsive papers. 
Whenever a time limit is measured by a prescribed period from the 
service of any notice or paper, the applicable time limits shall be 
calculated as follows:
    (1) If service was made by first class, registered, or certified 
mail, or by delivery to the U.S. Postal Service for longer than 
overnight delivery service, add three (3) calendar days to the 
prescribed period for the responsive filing.
    (2) If service was made by U.S. Postal Service or reliable 
commercial overnight delivery service, add one (1) calendar day to the 
prescribed period for the responsive filing.
    (3) If service was made by electronic media transmission, add one 
(1) calendar day to the prescribed period for the responsive filing, 
unless otherwise determined by the Board of Directors or the presiding 
officer in the case of filing, or by agreement among the parties in the 
case of service.



Sec. 908.28  Change of time limits.

    Except as otherwise provided by law, the presiding officer may, for 
good cause shown, extend the time limits prescribed above or prescribed 
by any notice or non-dispositive order issued under this part. After the 
referral of the case to the Board of Directors pursuant to Sec. 908.63, 
the Board of Directors may grant extensions of the time limits for good 
cause shown. Extensions may be granted on the motion of a party after 
notice and opportunity to respond is afforded all nonmoving parties, or 
on the Board of Directors' or the presiding officer's own motion.

[[Page 38]]



Sec. 908.29  Witness fees and expenses.

    Witnesses (other than parties) subpoenaed for testimony or 
depositions shall be paid the same fees for attendance and mileage as 
are paid to witnesses pursuant to the Federal Rules of Civil Procedure 
(title 28 of the U.S. Code) governing proceedings in the United States 
district courts, in which the United States is a party, provided that, 
in the case of a discovery subpoena addressed to a party, no witness 
fees or mileage shall be paid. Fees for witnesses shall be tendered in 
advance by the party requesting the subpoena, except that fees and 
mileage need not be tendered in advance where the Finance Board is the 
issuer of the subpoena. The Finance Board shall not be responsible for 
or required to pay any fees to or expenses of any witness not subpoenaed 
by the Finance Board.



Sec. 908.30  Settlement or other dispute resolution.

    Any respondent may, at any time in a cease and desist or civil money 
penalty proceeding, unilaterally submit to the Finance Board's counsel 
of record written offers or proposals for settlement of such proceeding 
in whole or in part without prejudice to the rights of any of the 
parties. Any such offer or proposal shall be made exclusively to the 
Finance Board. Submission of a written settlement offer does not provide 
a basis for adjourning or otherwise delaying all or any portion of a 
proceeding under this part. Any party to a proceeding under this part 
may request a neutral individual preside over settlement negotiations. 
No settlement offer or proposal, or any subsequent negotiation or 
resolution, is admissible as evidence in any proceeding under this part 
or any court.



Sec. 908.31  Right to supervise the Banks.

    Nothing contained in this part shall limit in any manner the right 
of the Finance Board to conduct any examination, inspection, or 
visitation of any Bank, or the right of the Finance Board to conduct or 
continue any form of investigation authorized by law. Nothing set forth 
in this part shall restrict or be deemed to restrict the authority of 
the Finance Board to supervise the Banks or to issue or enforce orders 
or directives pursuant to section 2B(a)(1), or any other provision, of 
the Act (12 U.S.C. 1422b(a)(1)).



Sec. 908.32  Collateral attacks on proceedings under this part.

    If a respondent files in any court a collateral attack that purports 
to challenge all or any portion of a proceeding under this part, the 
hearing on the merits shall continue without regard to the pendency of 
any such challenge action. No default or other failure to act as 
directed in the hearing within the times prescribed in this subpart 
shall be excused based on the pendency of any such challenge action.



Sec. Sec. 908.33-908.39  [Reserved]



                    Subpart D_Pre-Hearing Proceedings



Sec. 908.40  Commencement of proceeding and contents of notices.

    Proceedings under this part are commenced by the issuance of a 
notice of charges or a notice of assessment of a civil money penalty 
(notice). A notice that is served by the Finance Board upon a respondent 
in accordance with Sec. 908.7 shall state all of the following:
    (a) The legal authority for the proceeding and for the Finance 
Board's jurisdiction over the proceeding;
    (b) A statement of the matters of fact or law showing that the 
Finance Board is entitled to relief;
    (c) A proposed order or prayer for an order granting the requested 
relief;
    (d) The time, place and nature of the hearing;
    (e) The time within which to file an answer;
    (f) The time within which to request a hearing; and
    (g) The address for filing the answer and/or request for a hearing.



Sec. 908.41  Answer.

    (a) Deadline for filing answer. Unless otherwise specified by the 
Finance Board in the notice, respondent shall file an answer within 
twenty (20) days of service of the notice.
    (b) Content of answer. An answer shall respond specifically to each 
paragraph or allegation of fact contained in the notice and must admit, 
deny, or state

[[Page 39]]

that the party lacks sufficient information to admit or deny each 
allegation of fact. A statement of lack of information has the effect of 
a denial. Denials must fairly meet the substance of each allegation of 
fact denied; general denials are not permitted. When a respondent denies 
part of an allegation, that part must be denied and the remainder 
specifically admitted. Any allegation of fact in the notice that is not 
denied in the answer is deemed admitted for purposes of the proceeding. 
A respondent is not required to respond to the portion of a notice that 
constitutes the prayer for relief or proposed order. The answer shall 
set forth affirmative defenses, if any, asserted by the respondent.
    (c) Default. Failure of a respondent to file an answer required by 
this section within the time provided constitutes a waiver of such 
respondent's right to appear and contest the allegations in the notice. 
If no timely answer is filed, the Finance Board's counsel of record may 
file a motion for entry of an order of default. Upon a finding that no 
good cause has been shown for the failure to file a timely answer, the 
presiding officer shall file with the Board of Directors a recommended 
decision containing the findings and the relief sought in the notice. 
Any final order issued by the Board of Directors based upon a 
respondent's failure to answer shall be deemed to be an order issued 
upon consent.



Sec. 908.42  Amended pleadings.

    (a) Amendments. The notice or answer may be amended or supplemented 
by the Finance Board prior to the scheduling conference held in 
accordance with Sec. 908.53, or at any stage of the proceeding with the 
permission of the presiding officer for good cause shown. The respondent 
must answer an amended notice within the time remaining for the 
respondent's answer to the original notice, or within ten (10) days 
after service of the amended notice, whichever period is longer, unless 
the Board of Directors or the presiding officer orders otherwise for 
good cause shown.
    (b) Amendments to conform to the evidence. When issues not raised in 
the notice or answer are tried at the hearing by express or implied 
consent of the parties, they shall be treated in all respects as if they 
had been raised in the notice or answer, and no formal amendments shall 
be required. If evidence is objected to at the hearing on the ground 
that it is not within the issues raised by the notice or answer, the 
presiding officer may admit the evidence when admission is likely to 
assist in adjudicating the merits of the action. The presiding officer 
will do so freely when the determination of the merits of the action is 
served thereby and the objecting party fails to satisfy the presiding 
officer that the admission of such evidence would unfairly prejudice 
that party's action or defense upon the merits. The presiding officer 
may grant a continuance to enable the objecting party to meet such 
evidence.



Sec. 908.43  Failure to appear.

    Failure of a respondent to appear in person or by a duly authorized 
representative at the hearing constitutes a waiver of respondent's right 
to a hearing and is deemed an admission of the facts as alleged and 
consent to the relief sought in the notice. Without further proceedings 
or notice to the respondent, the presiding officer shall file with the 
Board of Directors a recommended decision containing the findings and 
the relief sought in the notice.



Sec. 908.44  Consolidation and severance of actions.

    (a) Consolidation. On the motion of any party, or on the Finance 
Board's or the presiding officer's own motion, the presiding officer may 
consolidate, for some or all purposes, any two or more proceedings, if 
each such proceeding involves or arises out of the same transaction, 
occurrence or series of transactions or occurrences, or involves at 
least one common respondent or a material common question of law or 
fact, unless such consolidation would cause unreasonable delay or 
injustice. In the event of consolidation under this section, appropriate 
adjustment to the pre-hearing schedule must be made to avoid unnecessary 
expense, inconvenience, or delay.
    (b) Severance. The presiding officer may, upon the motion of the 
Finance

[[Page 40]]

Board or any party, sever the proceeding for separate resolution of the 
matter as to any respondent only if the presiding officer finds that 
undue prejudice or injustice to the moving party would result from not 
severing the proceeding and such undue prejudice or injustice would 
outweigh the interests of judicial economy and expedition in the 
complete and final resolution of the proceeding.



Sec. 908.45  Motions.

    (a) Written motions. (1) Except as otherwise provided herein, an 
application or request for an order or ruling must be made by written 
motion.
    (2) All written motions shall state with particularity the relief 
sought and must be accompanied by a proposed order.
    (3) No oral argument may be held on written motions except as 
otherwise directed by the presiding officer. Written memoranda, briefs, 
affidavits, or other relevant material or documents may be filed in 
support of or in opposition to a motion.
    (b) Oral motions. A motion may be made orally and on the record at a 
hearing, unless the presiding officer directs that such motion be 
reduced to writing and filed with the presiding officer. Oral motions 
must be made a part of the record of the hearing, and accompanied by a 
proposed order.
    (c) Filing of motions. Motions shall be filed with the presiding 
officer, except that following the filing of a recommended decision with 
the Board of Directors, motions must be filed with the Board of 
Directors in accordance with Sec. 908.64.
    (d) Responses. (1) Except as otherwise provided herein, any party 
may file a written response to a motion within ten days after service of 
any written motion, or within such other period of time as may be 
established by the presiding officer or the Board of Directors. The 
presiding officer shall not rule on any oral or written motion before 
each party has had an opportunity to file a response.
    (2) The failure of a party to oppose a written motion or an oral 
motion made on the record is deemed to be consent by that party to the 
entry of an order substantially in the form of the order accompanying 
the motion.
    (e) Dilatory motions. Frivolous, dilatory, or repetitive motions are 
prohibited. The filing of such motions may form the basis for sanctions.
    (f) Dispositive motions. Dispositive motions shall be governed by 
Sec. Sec. 908.51 and 908.52.



Sec. 908.46  Discovery.

    (a) Limits on discovery. Subject to the limitations set out in 
paragraphs (b), (d), and (e) of this section, any party to a hearing 
under this part may obtain document discovery by serving a written 
request to produce documents. For purposes of a request to produce 
documents, the term documents may be defined to include drawings, 
graphs, charts, photographs, recordings, data stored in electronic form, 
and other data compilations from which information can be obtained or 
translated, if necessary, by the parties through detection devices into 
reasonably usable form, as well as written material of all kinds.
    (b) Relevance. A party may obtain document discovery regarding any 
matter not privileged provided that the information sought has a logical 
connection to consequential facts (i.e., material) or may tend to prove 
or disprove a matter in issue (i.e., relevant) related to the merits of 
the pending action. Any request to produce documents that calls for 
irrelevant or immaterial information, or that is unreasonable, 
oppressive, excessive in scope, unduly burdensome, or repetitive of 
previous requests, or that seeks to obtain privileged documents, shall 
be denied or modified. A request is unreasonable, oppressive, excessive 
in scope, or unduly burdensome if, among other things, it fails to 
include justifiable limitations on the time period covered and the 
geographic locations to be searched, the time provided to respond in the 
request is inadequate, or the request calls for copies of documents to 
be delivered to the requesting party and fails to include the 
requestor's written agreement to pay in advance for the copying, in 
accordance with Sec. 908.47.
    (c) Forms of discovery. Document discovery shall be limited to 
requests for

[[Page 41]]

production of documents for inspection and copying. No other form of 
discovery shall be allowed. Discovery by use of interrogatories may be 
permitted. This paragraph shall not be interpreted to require the 
creation of a document.
    (d) Privileged matter. Privileged documents shall not be 
discoverable. Privileges include the attorney-client privilege, work-
product privilege, any government's or government agency's deliberative 
process privilege and any other privileges provided by the Constitution, 
any applicable act of Congress, or the principles of common law.
    (e) Time limits. All discovery, including all responses to discovery 
requests, shall be completed within the time set by the presiding 
officer, but in no case later than ten (10) days prior to the service 
deadline for pre-hearing submissions in accordance with Sec. 908.54. No 
exception to this time limit shall be permitted, unless the presiding 
officer finds on the record that good cause exists for waiving the 
requirements of this paragraph.



Sec. 908.47  Request for document discovery from parties.

    (a) General rule. Any party may serve on any other party a request 
to produce for inspection any discoverable documents that are in the 
possession, custody, or control of the party upon whom the request is 
served. Copies of the request shall be served on all other parties. The 
request must identify the documents to be produced either by individual 
item or by category and must describe each item and category with 
reasonable particularity. Documents must be produced as they are kept in 
the usual course of business or they shall be labeled and organized to 
correspond with the categories in the request.
    (b) Production or copying. The request shall specify a reasonable 
time, place and manner for production and performing any related acts. 
In lieu of inspecting the documents, the requesting party may specify 
that all or some of the responsive documents be copied and the copies 
delivered to the requesting party. If copying of fewer than 250 pages is 
requested, the party to whom the request is addressed shall bear the 
cost of copying and shipping charges. If a party requests more than 250 
pages of copying, the requesting party shall pay for copying and 
shipping charges. Copying charges are at the current rate per page 
imposed by the Finance Board at Sec. 910.9(g) of this chapter for 
requests for documents filed under the Freedom of Information Act, 5 
U.S.C. 552. The party to whom the request is addressed may require 
payment in advance before producing the documents.
    (c) Obligation to update responses. A party who has responded to a 
discovery request is not required to supplement the response, unless:
    (1) The responding party learns that in some material respect the 
information disclosed is incomplete or incorrect, and
    (2) The additional or corrective information has not otherwise been 
made known to the other parties during the discovery process or in 
writing.
    (d) Motions to strike or limit discovery requests. (1) Any party 
that objects to a discovery request may, within ten (10) days of being 
served with such request, file a motion in accordance with the 
provisions of Sec. 908.45 requesting the presiding officer order the 
request be stricken or otherwise limited. If an objection is made to 
only a portion of an item or category in a request, the objection shall 
specify that portion. Any objections not made in accordance with this 
paragraph and Sec. 908.45 are waived.
    (2) The party who served the request that is the subject of a motion 
to strike or limit may file a written response within five (5) days of 
service of the motion. No other party may file a response.
    (e) Privilege. At the time other documents are produced, all 
documents withheld on the grounds of privilege must be reasonably 
identified, together with a statement of the basis for the assertion of 
privilege. When similar documents that are protected by deliberative 
process, attorney work-product, or attorney-client privilege are 
voluminous, these documents may be identified by category instead of by 
individual document. The presiding officer has discretion to determine 
when the identification by category is insufficient.

[[Page 42]]

    (f) Motions to compel production. (1) If a party withholds any 
documents as privileged or fails to comply fully with a discovery 
request, the requesting party may, within (10) ten days of the assertion 
of privilege or of the time the failure to comply becomes known to the 
requesting party, file a motion in accordance with the provisions of 
Sec. 908.45 for the issuance of a subpoena compelling production.
    (2) The party who asserted the privilege or failed to comply with 
the request may, within five (5) days of service of a motion for the 
issuance of a subpoena compelling production, file a written response to 
the motion. No other party may file a response.
    (g) Ruling on motions. After the time for filing responses to 
motions pursuant to this section has expired, the presiding officer 
shall rule promptly on all such motions. If the presiding officer 
determines that a discovery request or any of its terms calls for 
irrelevant material, is unreasonable, oppressive, excessive in scope, 
unduly burdensome, or repetitive of previous requests, or seeks to 
obtain privileged documents, he or she may deny or modify the request 
and may issue appropriate protective orders, upon such conditions as 
justice may require. The pendency of a motion to strike or limit 
discovery or to compel production shall not be a basis for staying or 
continuing the proceeding, unless otherwise ordered by the presiding 
officer. Notwithstanding any other provision in this part, the presiding 
officer may not release, or order a party to produce, documents withheld 
on grounds of privilege if the party has stated to the presiding officer 
its intention to file a timely motion for interlocutory review of the 
presiding officer's order to produce the documents, until the motion for 
interlocutory review has been decided.
    (h) Enforcing discovery subpoenas. If the presiding officer issues a 
subpoena compelling production of documents by a party, the subpoenaing 
party may, in the event of noncompliance and to the extent authorized by 
applicable law, apply to any appropriate United States district court 
for an order requiring compliance with the subpoena. A party's right to 
seek court enforcement of a subpoena shall not in any manner limit the 
sanctions that may be imposed by the presiding officer against a party 
who fails to produce or induces another to fail to produce subpoenaed 
documents.



Sec. 908.48  Document subpoenas to nonparties.

    (a) General rules. (1) Any party may apply to the presiding officer 
for the issuance of a document discovery subpoena addressed to any 
person who is not a party to the proceeding. The application must 
contain a proposed document subpoena and a brief statement showing the 
general relevance and reasonableness of the scope of documents sought. 
The subpoenaing party shall specify a reasonable time, place, and manner 
for production in response to the subpoena.
    (2) A party shall only apply for a document subpoena under this 
section within the time period during which such party could serve a 
discovery request under Sec. 908.46(e) and in accordance with Sec. 
908.47. The party requesting the document subpoena is responsible for 
serving it on the subpoenaed person and for serving copies on all 
parties. Document subpoenas may be served in any State, territory, or 
possession of the United States, the District of Columbia, or as 
otherwise provided by law.
    (3) The presiding officer shall promptly issue any document subpoena 
applied for under this section; except that, if the presiding officer 
determines that the application does not set forth a valid basis for the 
issuance of the subpoena, or that any of its terms are unreasonable, 
oppressive, excessive in scope, or unduly burdensome, he may refuse to 
issue the subpoena or may issue it in a modified form upon such 
conditions as may be determined by the presiding officer.
    (b) Motion to quash or modify. (1) Any person to whom a document 
subpoena is directed may file a motion to quash or modify such subpoena, 
accompanied by a statement of the basis for quashing or modifying the 
subpoena. The movant shall serve the motion on all parties and any party 
may respond to such motion within ten days of service of the motion.

[[Page 43]]

    (2) Any motion to quash or modify a document subpoena shall be filed 
on the same basis, including the assertion of privilege, upon which a 
party could object to a discovery request under Sec. 908.47 and during 
the same time limits during which such an objection could be filed.
    (c) Enforcing document subpoenas. If a subpoenaed person fails to 
comply with any subpoena issued pursuant to this section or any order of 
the presiding officer that directs compliance with all or any portion of 
a document subpoena, the subpoenaing party or any other aggrieved party 
may, to the extent authorized by applicable law, apply to an appropriate 
United States district court for an order requiring compliance with any 
part of the subpoena that the presiding officer has not quashed or 
modified. A party's right to seek court enforcement of a document 
subpoena shall in no way limit the sanctions that may be imposed by the 
presiding officer on a party who induces a failure to comply with 
subpoenas issued under this section.



Sec. 908.49  Deposition of witness unavailable for hearing.

    (a) General rules. (1) A party desiring to preserve that witness' 
testimony for the record may apply in accordance with the procedures set 
forth in paragraph (a)(2) of this section to the presiding officer for 
the issuance of a subpoena, including a subpoena duces tecum, requiring 
the attendance of the witness at a deposition. The presiding officer may 
issue a deposition subpoena under this section upon a showing that--
    (i) The testimony is reasonably expected to be material; and
    (ii) Taking the deposition will not result in any undue burden to 
any other party and will not cause undue delay of the proceeding.
    (2) The application must contain a proposed deposition subpoena and 
a brief statement of the reasons for the issuance of the subpoena. The 
subpoena must name the witness whose deposition is to be taken and 
specify the time and place for taking the deposition. A deposition 
subpoena may require the witness to be deposed anywhere within the 
United States and its possessions and territories in which that witness 
resides or has a regular place of employment or such other convenient 
place as the presiding officer shall fix.
    (3) A subpoena shall be promptly issued upon request, unless the 
presiding officer determines that the request fails to set forth a valid 
basis under this section for its issuance. The presiding officer shall 
make a determination that there is a valid basis for issuing the 
subpoena. The presiding officer may require a written response from the 
party requesting the subpoena or require attendance at a conference to 
determine whether there is a valid basis upon which to issue the 
requested subpoena.
    (4) The party obtaining a deposition subpoena is responsible for 
serving it on the witness and for serving copies on all parties. Unless 
the presiding officer orders otherwise, no deposition under this section 
shall be taken on fewer than ten (10) days' notice to the witness and 
all parties. Deposition subpoenas may be served anywhere within the 
United States or its possessions or territories on any person doing 
business anywhere within the United States or its possessions or 
territories, or as otherwise permitted by law.
    (b) Objections to deposition subpoenas. (1) The witness and any 
party who has not had an opportunity to oppose a deposition subpoena 
issued under this section may file a motion under Sec. 908.45 with the 
presiding officer to quash or modify the subpoena prior to the time for 
compliance specified in the subpoena, but not more than ten (10) days 
after service of the subpoena.
    (2) A statement of the basis for the motion to quash or modify a 
subpoena issued under this section shall accompany the motion. The 
motion must be served on all parties.
    (c) Procedure upon deposition. (1) Each witness testifying pursuant 
to a deposition subpoena shall be duly sworn and each party shall have 
the right to examine the witness. Objections to questions or documents 
must be in short form, stating the grounds for the objection. Failure to 
object to questions or documents is not deemed a waiver except where the 
ground for objection might have been avoided if the objection had been 
presented timely. All

[[Page 44]]

questions, answers and objections must be recorded.
    (2) Any party may move before the presiding officer for an order 
compelling the witness to answer any questions the witness has refused 
to answer or submit any evidence that, during the deposition, the 
witness has refused to submit.
    (3) The deposition shall be subscribed by the witness, unless the 
parties and the witness, by stipulation, have waived the signing, or the 
witness is ill, cannot be found, or has refused to sign. If the 
deposition is not subscribed by the witness, the court reporter taking 
the deposition shall certify that the transcript is a true and complete 
transcript of the deposition.
    (d) Enforcing subpoenas. If a subpoenaed person fails to comply with 
any subpoena issued pursuant to this section or with any order of the 
presiding officer made upon motion under paragraph (c)(2) of this 
section, the subpoenaing party or other aggrieved party may, to the 
extent authorized by applicable law, apply to an appropriate United 
States district court for an order requiring compliance with the 
portions of the subpoena that the presiding officer has ordered 
enforced. A party's right to seek court enforcement of a deposition 
subpoena in no way limits the sanctions that may be imposed by the 
presiding officer on a party who fails to comply with or induces a 
failure to comply with a subpoena issued under this section.



Sec. 908.50  Interlocutory review.

    (a) General rule. The Board of Directors may review a ruling of the 
presiding officer prior to the certification of the record to the Board 
of Directors only in accordance with the procedures set forth in this 
section.
    (b) Procedure. Any motion for interlocutory review shall be filed by 
a party with the presiding officer within ten (10) days of his ruling. 
Upon the expiration of the time for filing all responses, the presiding 
officer shall refer the matter to the Board of Directors for final 
disposition. In referring the matter to the Board of Directors, the 
presiding officer may indicate agreement or disagreement with the 
asserted grounds for interlocutory review of the ruling in question.
    (c) Scope of review. The Board of Directors may exercise 
interlocutory review of a ruling of the presiding officer if it finds 
that--
    (1) The ruling involves a controlling question of law or policy as 
to which substantial grounds exist for a difference of opinion;
    (2) Immediate review of the ruling may materially advance the 
ultimate termination of the proceeding;
    (3) Subsequent modification of the ruling at the conclusion of the 
proceeding would be an inadequate remedy; or
    (4) Subsequent modification of the ruling would cause unusual delay 
or expense.
    (d) Suspension of proceeding. Neither a request for interlocutory 
review nor any disposition of such a request by the Board of Directors 
under this section suspends or stays the proceeding unless otherwise 
ordered by the presiding officer or the Board of Directors.



Sec. 908.51  Summary disposition.

    (a) In general. The presiding officer shall recommend that the Board 
of Directors issue a final order granting a motion for summary 
disposition if the undisputed pleaded facts, admissions, affidavits, 
stipulations, documentary evidence, matters as to which official notice 
may be taken and any other evidentiary materials properly submitted in 
connection with a motion for summary disposition show that--
    (1) There is no genuine issue as to any material fact; and
    (2) The movant is entitled to a decision in its favor as a matter of 
law.
    (b) Filing of motions and responses. (1) Any party who believes 
there is no genuine issue of material fact to be determined and that 
such party is entitled to a decision as a matter of law may move at any 
time for summary disposition in its favor of all or any part of the 
proceeding. Any party, within twenty (20) days after service of such 
motion or within such time period as allowed by the presiding officer, 
may file a response to such motion.
    (2) A motion for summary disposition must be accompanied by a 
statement of material facts as to which the movant

[[Page 45]]

contends there is no genuine issue. Such motion must be supported by 
documentary evidence, which may take the form of admissions in 
pleadings, stipulations, written interrogatory responses, depositions, 
investigatory depositions, transcripts, affidavits and any other 
evidentiary materials that the movant contends support its position. The 
motion must also be accompanied by a brief containing the points and 
authorities in support of the contention of the movant. Any party 
opposing a motion for summary disposition must file a statement setting 
forth those material facts as to which such party contends a genuine 
dispute exists. Such opposition must be supported by evidence of the 
same type as that submitted with the motion for summary disposition and 
a brief containing the points and authorities in support of the 
contention that summary disposition would be inappropriate.
    (c) Hearing on motion. At the request of any party or on his own 
motion, the presiding officer may hear oral argument on the motion for 
summary disposition.
    (d) Decision on motion. Following receipt of a motion for summary 
disposition and all responses thereto, the presiding officer shall 
determine whether the movant is entitled to summary disposition. If the 
presiding officer finds that the moving party is not entitled to summary 
disposition, the presiding officer shall make a ruling denying the 
motion. If the presiding officer determines that summary disposition is 
warranted, the presiding officer shall submit a recommended decision to 
that effect to the Board of Directors under Sec. 908.63.



Sec. 908.52  Partial summary disposition.

    If the presiding officer determines that a party is entitled to 
summary disposition as to certain claims only, he or she shall defer 
submitting a recommended decision to the Board of Directors as to those 
claims. A hearing on the remaining issues must be ordered. Those claims 
for which the presiding officer has determined that summary disposition 
is warranted will be addressed in the recommended decision filed at the 
conclusion of the hearing.



Sec. 908.53  Scheduling and prehearing conferences.

    (a) Scheduling conference. Within thirty (30) days of service of the 
notice or order commencing a proceeding or at such other time as the 
parties may agree, the presiding officer shall direct representatives 
for all parties to meet with him or her in person at a specified time 
and place prior to the hearing or to confer by telephone for the purpose 
of scheduling the course and conduct of the proceeding. This meeting or 
telephone conference is called a ``scheduling conference.'' The 
identification of potential witnesses, the time for and manner of 
discovery and the exchange of any pre-hearing materials including 
witness lists, statements of issues, stipulations, exhibits and any 
other materials may also be determined at the scheduling conference.
    (b) Pre-hearing conference. The presiding officer may, in addition 
to the scheduling conference, on his own motion or at the request of any 
party, direct representatives for the parties to meet with him (in 
person or by telephone) at a pre-hearing conference to address any or 
all of the following:
    (1) Simplification and clarification of the issues;
    (2) Stipulations, admissions of fact and the contents, authenticity 
and admissibility into evidence of documents;
    (3) Matters of which official notice may be taken;
    (4) Limitation of the number of witnesses;
    (5) Summary disposition of any or all issues;
    (6) Resolution of discovery issues or disputes;
    (7) Amendments to pleadings; and
    (8) Such other matters as may aid in the orderly disposition of the 
proceeding.
    (c) Transcript. The presiding officer, in his discretion, may 
require that a scheduling or prehearing conference be recorded by a 
court reporter. A transcript of the conference and any materials filed, 
including orders, becomes part of the record of the proceeding. A party 
may obtain a copy of the transcript at such party's expense.
    (d) Scheduling or pre-hearing orders. Within a reasonable time 
following the

[[Page 46]]

conclusion of the scheduling conference or any pre-hearing conference, 
the presiding officer shall serve on each party an order setting forth 
any agreements reached and any procedural determinations.



Sec. 908.54  Pre-hearing submissions.

    (a) Service deadline. Within the time set by the presiding officer, 
but in no case later than 10 (ten) days before the start of the hearing, 
each party shall serve on every other party the serving party's:
    (1) Pre-hearing statement;
    (2) Final list of witnesses to be called to testify at the hearing, 
including name and address of each witness and a short summary of the 
expected testimony of each witness;
    (3) List of the exhibits to be introduced at the hearing along with 
a copy of each exhibit; and
    (4) Stipulations of fact, if any.
    (b) Effect of failure to comply. No witness may testify and no 
exhibits may be introduced at the hearing if such witness or exhibit is 
not listed in the pre-hearing submissions pursuant to paragraph (a) of 
this section, except for good cause shown.



Sec. 908.55  Hearing subpoenas.

    (a) Issuance. (1) Upon application of a party showing general 
materiality or relevance and reasonableness of scope of the testimony or 
other evidence sought, the presiding officer may issue a subpoena or a 
subpoena duces tecum requiring the attendance of a witness at the 
hearing or the production of documentary or physical evidence at such 
hearing. The application for a hearing subpoena must also contain a 
proposed subpoena specifying the attendance of a witness or the 
production of evidence from any State, commonwealth, possession, 
territory of the United States, or the District of Columbia, or as 
otherwise provided by law at any designated place where the hearing is 
being conducted. The party making the application shall serve a copy of 
the application and the proposed subpoena on every other party.
    (2) A party may apply for a hearing subpoena at any time before the 
commencement of or during a hearing. During a hearing, a party may make 
an application for a subpoena orally on the record before the presiding 
officer.
    (3) The presiding officer shall promptly issue any hearing subpoena 
applied for under this section; except that, if the presiding officer 
determines that the application does not set forth a valid basis for the 
issuance of the subpoena, or that any of its terms are unreasonable, 
oppressive, excessive in scope, or unduly burdensome, he may refuse to 
issue the subpoena or may issue the subpoena in a modified form upon any 
conditions consistent with this subpart. Upon issuance by the presiding 
officer, the party making the application shall serve the subpoena on 
the person named in the subpoena and on each party.
    (b) Motion to quash or modify. (1) Any person to whom a hearing 
subpoena is directed or any party may file a motion to quash or modify 
such subpoena, accompanied by a statement of the basis for quashing or 
modifying the subpoena. The movant must serve the motion on each party 
and on the person named in the subpoena. Any party may respond to the 
motion within ten days of service of the motion.
    (2) Any motion to quash or modify a hearing subpoena must be filed 
prior to the time specified in the subpoena for compliance, but no more 
than ten days after the date of service of the subpoena upon the movant.
    (c) Enforcing subpoenas. If a subpoenaed person fails to comply with 
any subpoena issued pursuant to this section or any order of the 
presiding officer that directs compliance with all or any portion of a 
hearing subpoena, the subpoenaing party or any other aggrieved party may 
seek enforcement of the subpoena pursuant to Sec. 908.8(c). A party's 
right to seek court enforcement of a hearing subpoena shall in no way 
limit the sanctions that may be imposed by the presiding officer on a 
party who fails, or induces a failure, to comply with any subpoena 
issued under this section.

[[Page 47]]



Sec. Sec. 908.56-908.59  [Reserved]



             Subpart E_Hearing and Post-hearing Proceedings



Sec. 908.60  Conduct of hearings.

    (a) General rules--(1) Hearings. Hearings shall be conducted in 
accordance with chapter 5 of Title 5 of the United States Code (5 U.S.C. 
501-559) and other applicable law, so as to provide a fair and 
expeditious presentation of the relevant disputed issues. Except as 
limited by this subpart, each party has the right to present its case or 
defense by oral and documentary evidence and to conduct such cross-
examination of witnesses as may be required for full disclosure of the 
facts.
    (2) Order of hearing. The Finance Board shall present its case-in-
chief first, unless otherwise ordered by the presiding officer or unless 
otherwise expressly specified by law or regulation. The Finance Board 
shall be the first party to present an opening statement and a closing 
statement and may make a rebuttal statement after the respondent's 
closing statement. If there are multiple respondents, respondents may 
agree among themselves as to their order or presentation of their cases, 
but if they do not agree, the presiding officer shall fix the order.
    (3) Examination of witnesses. Only one representative for each party 
may conduct an examination of a witness, except that in the case of 
extensive direct examination, the presiding officer may permit more than 
one representative for the party presenting the witness to conduct the 
examination. A party may have one representative conduct the direct 
examination and another representative conduct re-direct examination of 
a witness, or may have one representative conduct the cross examination 
of a witness and another representative conduct the re-cross examination 
of a witness.
    (4) Stipulations. Unless the presiding officer directs otherwise, 
all documents that the parties have stipulated as admissible shall be 
admitted into evidence upon commencement of the hearing.
    (b) Transcript. The hearing shall be recorded and transcribed. The 
transcript shall be made available to any party upon payment of the cost 
thereof. The presiding officer shall have authority to order the record 
corrected, either upon motion to correct, upon stipulation of the 
parties, or following notice to the parties upon the presiding officer's 
own motion.



Sec. 908.61  Evidence.

    (a) Admissibility. (1) Except as is otherwise set forth in this 
section, relevant, material and reliable evidence that is not unduly 
repetitive is admissible to the fullest extent authorized by the 
Administrative Procedure Act (5 U.S.C. 551-559) and other applicable 
law.
    (2) Evidence that would be admissible under the Federal Rules of 
Evidence (see generally, 28 U.S.C.) is admissible in a proceeding 
conducted pursuant to this subpart.
    (3) The presiding officer may admit evidence, which otherwise would 
be inadmissible under the Federal Rules of Evidence (28 U.S.C.), upon a 
finding made on the record that the evidence is relevant, material, 
probative and reliable, and would not prejudice the rights of or cause 
an undue burden to any party to the proceeding.
    (b) Official notice. (1) Official notice may be taken of any 
material fact that may be judicially noticed by a United States district 
court and any material information in the official public records of any 
Federal or State government agency.
    (2) All matters officially noticed by the presiding officer or the 
Finance Board shall appear on the record.
    (3) If official notice is requested of any material fact, the 
parties, upon timely request, shall be afforded an opportunity to 
object.
    (c) Documents. (1) A duplicate copy of a document is admissible to 
the same extent as the original, unless a genuine issue is raised as to 
whether the copy is in some material respect not a true and legible copy 
of the original.
    (2) Subject to the requirements of paragraph (a)(1) of this section, 
any document, including a report of examination, oversight activity, 
inspection, or visitation, prepared by the Finance Board or by another 
Federal or State

[[Page 48]]

financial institutions regulatory agency is admissible either with or 
without a sponsoring witness.
    (3) Witnesses may use existing or newly created charts, exhibits, 
calendars, calculations, outlines, or other graphic material to 
summarize, illustrate, or simplify the presentation of testimony. Such 
materials may, subject to the presiding officer's discretion, be used 
with or without being admitted into evidence.
    (d) Objections. (1) Objections to the admissibility of evidence must 
be timely made and rulings on all objections must appear in the record.
    (2) When an objection to a question or line of questioning is 
sustained, the examining representative of record may make a specific 
proffer on the record of what he expected to prove by the expected 
testimony of the witness. The proffer may be by representation of the 
representative or by direct interrogation of the witness.
    (3) The presiding officer shall retain rejected exhibits, adequately 
marked for identification, for the record and transmit such exhibits to 
the Board of Directors.
    (4) Failure to object to admission of evidence or to any evidentiary 
ruling constitutes a waiver of the objection.
    (e) Stipulations. The parties may stipulate as to any relevant 
matters of fact or the authentication of any relevant documents. Such 
stipulations must be received in evidence at a hearing and are binding 
on the parties with respect to the matters therein stipulated.
    (f) Depositions of unavailable witnesses. (1) If a witness is 
unavailable to testify at a hearing and that witness has testified in a 
deposition in accordance with Sec. 908.49, a party may offer as 
evidence all or any part of the transcript of the deposition, including 
deposition exhibits, if any.
    (2) Such deposition transcript is admissible to the same extent that 
testimony would have been admissible had that person testified at the 
hearing, provided that if a witness refused to answer proper questions 
during the depositions, the presiding officer may, on that basis, limit 
the admissibility of the deposition in any manner that justice requires.
    (3) Only those portions of a deposition received in evidence at the 
hearing constitute a part of the record.

[67 FR 9903, Mar. 5, 2002; 67 FR 34990, May 16, 2002]



Sec. 908.62  Post-hearing filings.

    (a) Proposed findings and conclusions and supporting briefs. (1) 
Using the same method of service for each party, the presiding officer 
shall serve notice upon each party that the certified transcript, 
together with all hearing exhibits and exhibits introduced but not 
admitted into evidence at the hearing, has been filed. Any party may 
file with the presiding officer proposed findings of fact, proposed 
conclusions of law and a proposed order within thirty (30) days after 
the parties have received notice that the transcript has been filed with 
the presiding officer, unless otherwise ordered by the presiding 
officer.
    (2) Proposed findings and conclusions must be supported by citation 
to any relevant authorities and by page references to any relevant 
portions of the record. A post-hearing brief may be filed in support of 
proposed findings and conclusions, either as part of the same document 
or in a separate document.
    (3) Any party is deemed to have waived any issue not raised in 
proposed findings or conclusions timely filed by that party.
    (b) Reply briefs. Reply briefs may be filed within fifteen (15) days 
after the date on which the parties' proposed findings and conclusions 
and proposed order are due. Reply briefs must be limited strictly to 
responding to new matters, issues, or arguments raised in another 
party's papers. A party who has not filed proposed findings of fact and 
conclusions of law or a post-hearing brief shall not file a reply brief.
    (c) Simultaneous filing required. The presiding officer shall not 
order the filing by any party of any brief or reply brief supporting 
proposed findings and conclusions in advance of the other party's filing 
of its brief.



Sec. 908.63  Recommended decision and filing of record.

    (a) Filing of recommended decision and record. Within forty-five 
(45) days after

[[Page 49]]

expiration of the time allowed for filing reply briefs under Sec. 
908.62(b), the presiding officer shall file with and certify to the 
Board of Directors, for decision, the record of the proceeding. The 
record must include the presiding officer's recommended decision, 
recommended findings of fact and conclusions of law, and proposed order; 
all pre-hearing and hearing transcripts, exhibits and rulings; and the 
motions, briefs, memoranda and other supporting papers filed in 
connection with the hearing. The presiding officer shall serve upon each 
party the recommended decision, recommended findings and conclusions, 
and proposed order.
    (b) Filing of index. At the same time the presiding officer files 
with and certifies to the Board of Directors, for final determination, 
the record of the proceeding, the presiding officer shall furnish to the 
Board of Directors a certified index of the entire record of the 
proceeding. The certified index shall include, at a minimum, an entry 
for each paper, document or motion filed with the presiding officer in 
the proceeding, the date of the filing, and the identity of the filer. 
The certified index shall also include an exhibit index containing, at a 
minimum, an entry consisting of exhibit number and title or description 
for each exhibit introduced and admitted into evidence at the hearing; 
each exhibit introduced but not admitted into evidence at the hearing; 
each exhibit introduced and admitted into evidence after the completion 
of the hearing; and each exhibit introduced but not admitted into 
evidence after the completion of the hearing.



Sec. 908.64  Exceptions to recommended decision.

    (a) Filing exceptions. Within thirty (30) days after service of the 
recommended decision, recommended findings and conclusions, and proposed 
order under Sec. 908.63, a party may file with the Finance Board 
written exceptions to the presiding officer's recommended decision, 
recommended findings and conclusions, or proposed order; to the 
admission or exclusion of evidence; or to the failure of the presiding 
officer to make a ruling proposed by a party. A supporting brief may be 
filed at the time the exceptions are filed, either as part of the same 
document or in a separate document.
    (b) Effect of failure to file or raise exceptions. (1) Failure of a 
party to file exceptions to those matters specified in paragraph (a) of 
this section within the time prescribed is deemed a waiver of objection 
thereto.
    (2) No exception need be considered by the Board of Directors if the 
party taking exception had an opportunity to raise the same objection, 
issue, or argument before the presiding officer and failed to do so.
    (c) Contents. (1) All exceptions and briefs in support of such 
exceptions must be confined to the particular matters in or omissions 
from the presiding officer's recommendations to which that party takes 
exception.
    (2) All exceptions and briefs in support of exceptions must set 
forth page or paragraph references to the specific parts of the 
presiding officer's recommendations to which exception is taken, the 
page or paragraph references to those portions of the record relied upon 
to support each exception and the legal authority relied upon to support 
each exception. Exceptions and briefs in support shall not exceed a 
total of 30 pages, except by leave of the Finance Board on motion.
    (3) Each party may submit one reply brief within ten (10) days of 
service of exceptions and briefs in support of exceptions. Reply briefs 
shall not exceed 15 pages, except by leave of the Finance Board on 
motion.



Sec. 908.65  Review by Board of Directors.

    (a) Notice of submission to the Board of Directors. When the Board 
of Directors determines that the record in the proceeding is complete, 
the Finance Board shall serve notice upon the parties that the 
proceeding has been submitted to the Board of Directors for final 
decision and order in accordance with this section.
    (b) Oral argument before the Board of Directors. Upon the initiative 
of the Board of Directors or on the written request of any party filed 
with the Board of Directors within the time for filing exceptions under 
Sec. 908.64, the Board of Directors may order and hear oral argument on 
the recommended findings,

[[Page 50]]

conclusions, decision and order of the presiding officer. A written 
request by a party must show good cause for oral argument and state 
reasons why arguments cannot be presented adequately in writing. A 
denial of a request for oral argument may be set forth in the Board of 
Directors' final decision and order. Oral argument before the Board of 
Directors must be transcribed.
    (c) Board of Directors' final decision and order. (1) Decisional 
employees may advise and assist the Board of Directors in the 
consideration and disposition of the case, and in the preparation of the 
final decision and order. The final decision and order of the Board of 
Directors will be based upon review of the entire record of the 
proceeding, except that the Board of Directors may limit the issues to 
be reviewed to those findings and conclusions to which opposing 
arguments or exceptions have been filed by the parties in accordance 
with this part.
    (2) The Board of Directors shall render and issue a final decision 
and order within ninety (90) days after notification of the parties that 
the case has been submitted to the Board of Directors, unless the Board 
of Directors orders that the action or any aspect thereof be remanded to 
the presiding officer for further proceedings in accordance with 
instructions as may be specified by the Board of Directors. Copies of 
the final decision and order of the Board of Directors shall be served 
upon each party to the proceeding and otherwise, as may be required by 
the Board of Directors in accordance with applicable law.



Sec. 908.66  Exhaustion of administrative remedies.

    To exhaust administrative remedies as to any issue on which a party 
disagrees with the presiding officer's recommendations, a party must 
file exceptions with the Board of Directors under Sec. 908.64. A party 
must exhaust administrative remedies as a precondition to seeking 
judicial review of any final decision and order, in whole or in part, 
issued by the Board of Directors under Sec. 908.65.



Sec. 908.67  Stay of final decision and order pending judicial review.

    The commencement of proceedings for judicial review of all or part 
of a final order issued by the Board of Directors in accordance with 
Sec. 908.65, as provided in Sec. 908.10 may not, unless specifically 
ordered by the Board of Directors or a reviewing court, operate as a 
stay of any order issued by the Board of Directors. The Board of 
Directors may, in its discretion and on such terms as it finds just, 
stay the effectiveness of all or any part of an order of the Board of 
Directors pending a final decision on a petition for judicial review of 
that order.



Sec. Sec. 908.68-908.69  [Reserved]



          Subpart F_Rules of Practice Before the Finance Board



Sec. 908.70  Scope.

    This subpart contains rules governing practice by parties or their 
representatives in any proceeding before the Finance Board. In 
particular, these rules of practice shall apply to any appearances 
before the Board of Directors under this part or part 907 of this 
chapter. This subpart also shall govern the imposition of sanctions by 
the Finance Board or a presiding officer against parties or their 
representatives in a hearing under this part or a proceeding under part 
907 of this chapter. In the sole discretion of the Finance Board, 
Sec. Sec. 908.74 and 908.75 may be applied to persons who appear in a 
representational capacity in any hearing under this part or any 
proceeding under part 907 of this chapter, or in any other matter that 
involves contacting the Finance Board as a principal or agent with 
respect to asserting the rights, privileges, or liabilities of an 
individual or entity, including presentations to or communications with 
the Board of Directors or any member of the Board of Directors. This 
representation includes, but is not limited to, the practice of 
attorneys and accountants. Employees of the Finance Board are not 
subject to disciplinary proceedings under this subpart.

[[Page 51]]



Sec. 908.71  Practice before the Finance Board.

    Practice before the Finance Board for the purposes of this subpart, 
includes, but is not limited to, transacting any business with the 
Finance Board as counsel, representative or agent for any other person, 
unless the Finance Board orders otherwise. Practice before the Finance 
Board also includes the preparation of any statement, opinion, or other 
paper by a counsel, representative or agent that is filed with the 
Finance Board in any request, certification, notification, application, 
report, or other document, with the consent of such counsel, 
representative or agent. Practice before the Finance Board does not 
include work prepared for a Bank solely at the request of the Bank for 
use in the ordinary course of its business.



Sec. 908.72  Appearances and practice in proceedings before the Finance Board.

    (a) Appearances in proceedings before the Finance Board--(1) By 
attorneys. A party may be represented by an attorney who is a member in 
good standing of the bar of the highest court of any State, 
commonwealth, possession, territory of the United States, or the 
District of Columbia and who is not currently suspended or disbarred 
from practice before the Finance Board.
    (2) By non-attorneys. An individual may appear on his own behalf. A 
member of a partnership may represent the partnership and a duly 
authorized officer, board of director member, employee, or other agent 
of any corporation or other entity not specifically listed herein may 
represent such corporation or other entity; provided that such officer, 
board of director member, employee, or other agent is not currently 
suspended or disbarred from practice before the Finance Board. A duly 
authorized officer or employee of any Government unit, agency, or 
authority may represent that unit, agency, or authority.
    (b) Notice of appearance. Any person appearing in a representative 
capacity on behalf of a party, including the Finance Board, shall 
execute and file a notice of appearance with the presiding officer at or 
before the time such person submits papers or otherwise appears on 
behalf of a party in a hearing under this part. Such notice of 
appearance shall include a written declaration that the individual is 
currently qualified as provided in paragraphs (a)(1) or (a)(2) of this 
section and is authorized to represent the particular party. By filing a 
notice of appearance on behalf of a party in a hearing under this part, 
the representative thereby agrees and represents that he is authorized 
to accept service on behalf of the represented party and that, in the 
event of withdrawal from representation, he or she will, if required by 
the presiding officer, continue to accept service until a new 
representative has filed a notice of appearance or until the represented 
party indicates that he or she will proceed on a pro se basis. Unless 
the representative filing the notice is an attorney, the notice of 
appearance shall also be executed by the person represented or, if the 
person is not an individual, by the chief executive officer, or duly 
authorized officer of that person.



Sec. 908.73  Conflicts of interest.

    (a) Conflict of interest in representation. No representative shall 
represent another person in an adjudicatory proceeding if it reasonably 
appears that such representation may be limited materially by that 
representative's responsibilities to a third person or by that 
representative's own interests. The presiding officer may take 
corrective measures at any stage of a proceeding to cure a conflict of 
interest in representation, including the issuance of an order limiting 
the scope of representation or disqualifying an individual from 
appearing in a representative capacity for the duration of the 
proceeding.
    (b) Certification and waiver. If any person appearing as counsel or 
other representative represents two or more parties in a proceeding 
under this part or also represents a nonparty on a matter relevant to an 
issue in the proceeding, that representative must certify in writing at 
the time of filing the notice of appearance required by Sec. 908.72:

[[Page 52]]

    (1) That the representative has personally and fully discussed the 
possibility of conflicts of interest with each such party and nonparty;
    (2) That each such party and nonparty waives any right it might 
otherwise have had to assert any known conflicts of interest or to 
assert any non-material conflicts of interest during the course of the 
proceeding.



Sec. 908.74  Sanctions.

    (a) General rule. Appropriate sanctions may be imposed during the 
course of any proceeding when any party or representative of record has 
acted or failed to act in a manner required by applicable statute, 
regulation, or order, and that act or failure to act--
    (1) Constitutes contemptuous conduct. Contemptuous conduct includes 
dilatory, obstructionist, egregious, contumacious, unethical, or other 
improper conduct at any phase of any proceeding, hearing, or appearance 
before the Board of Directors;
    (2) Has caused some other party material and substantive injury, 
including, but not limited to, incurring expenses including attorney's 
fees or experiencing prejudicial delay;
    (3) Is a clear and unexcused violation of an applicable statute, 
regulation, or order; or
    (4) Has delayed the proceeding unduly.
    (b) Sanctions. Sanctions that may be imposed include, but are not 
limited to, any one or more of the following:
    (1) Issuing an order against a party;
    (2) Rejecting or striking any testimony or documentary evidence 
offered, or other papers filed, by the party;
    (3) Precluding the party from contesting specific issues or 
findings;
    (4) Precluding the party from offering certain evidence or from 
challenging or contesting certain evidence offered by another party;
    (5) Precluding the party from making a late filing or conditioning a 
late filing on any terms that may be just; or
    (6) Assessing reasonable expenses, including attorney's fees, 
incurred by any other party as a result of the improper action or 
failure to act.
    (c) Procedure for imposition of sanctions. (1) The presiding 
officer, on the motion of any party, or on his own motion, and after 
such notice and responses as may be directed by the presiding officer, 
may impose any sanction authorized by this section. The presiding 
officer shall submit to the Board of Directors for final ruling any 
sanction that would result in a final order that terminates the case on 
the merits or is otherwise dispositive of the case.
    (2) Except as provided in paragraph (d) of this section, no sanction 
authorized by this section, other than refusing to accept late papers, 
shall be imposed without prior notice to all parties and an opportunity 
for any representative or party against whom sanctions would be imposed 
to be heard. The presiding officer shall determine and direct the 
appropriate notice and form for such opportunity to be heard. The 
opportunity to be heard may be limited to an opportunity to respond 
verbally immediately after the act or inaction in question is noted by 
the presiding officer.
    (3) For purposes of interlocutory review, motions for the imposition 
of sanctions by any party and the imposition of sanctions shall be 
treated the same as motions for any other ruling by the presiding 
officer.
    (4) Nothing in this section shall be read to preclude the presiding 
officer or the Finance Board from taking any other action or imposing 
any other restriction or sanction authorized by any applicable statute 
or regulation.
    (d) Sanctions for contemptuous conduct. If, during the course of any 
proceeding, a presiding officer finds any representative or any 
individual representing himself to have engaged in contemptuous conduct, 
the presiding officer may summarily suspend that individual from 
participating in that or any related proceeding or impose any other 
appropriate sanction.



Sec. 908.75  Censure, suspension, disbarment and reinstatement.

    (a) Discretionary censure, suspension and disbarment. (1) The 
Finance Board may censure any individual who practices or attempts to 
practice before it or suspend or revoke the privilege to appear or 
practice before the Finance Board of such individual if, after notice

[[Page 53]]

of and opportunity for a hearing in the matter, that individual is found 
by the Finance Board--
    (i) Not to possess the requisite qualifications or competence to 
represent others;
    (ii) To be seriously lacking in character or integrity or to have 
engaged in material unethical or improper professional conduct;
    (iii) To have caused unfair and material injury or prejudice to 
another party, such as prejudicial delay or unnecessary expenses 
including attorney's fees;
    (iv) To have engaged in, or aided and abetted, a material and 
knowing violation of the Act or the rules or regulations issued under 
the Act or any other law or regulation governing Bank operations;
    (v) To have engaged in contemptuous conduct before the Finance 
Board;
    (vi) With intent to defraud in any manner, to have willfully and 
knowingly deceived, misled, or threatened any client or prospective 
client; or
    (vii) Within the last ten years, to have been convicted of an 
offense involving moral turpitude, dishonesty or breach of trust, if the 
conviction has not been reversed on appeal. A conviction within the 
meaning of this paragraph shall be deemed to have occurred when the 
convicting court enters its judgment or order, regardless of whether an 
appeal is pending or could be taken and includes a judgment or an order 
on a plea of nolo contendere or on consent, regardless of whether a 
violation is admitted in the consent.
    (2) Suspension or revocation on the grounds set forth in paragraphs 
(a)(1) (ii), (iii), (iv), (v), (vi) and (vii) of this section shall only 
be ordered upon a further finding that the individual's conduct or 
character was sufficiently egregious as to justify suspension or 
revocation. Suspension or disbarment under this paragraph shall continue 
until the applicant has been reinstated by the Finance Board for good 
cause shown or until, in the case of a suspension, the suspension period 
has expired.
    (3) If the final order against the respondent is for censure, the 
individual may be permitted to practice before the Finance Board, but 
such individual's future representations may be subject to conditions 
designed to promote high standards of conduct. If a written letter of 
censure is issued, a copy will be maintained in the Finance Board's 
files.
    (b) Mandatory suspension and disbarment. (1) Any counsel who has 
been and remains suspended or disbarred by a court of the United States 
or of any State, commonwealth, possession, territory of the United 
States or the District of Columbia; any accountant or other licensed 
expert whose license to practice has been revoked in any State, 
commonwealth, possession, territory of the United States or the District 
of Columbia; any person who has been and remains suspended or barred 
from practice before the Department of Housing and Urban Development, 
the Office of the Comptroller of the Currency, the Board of Governors of 
the Federal Reserve System, the Office of Thrift Supervision, the 
Federal Deposit Insurance Corporation, the National Credit Union 
Administration, the Office of Federal Housing Enterprise Oversight, the 
Farm Credit Administration, the Securities and Exchange Commission, or 
the Commodity Futures Trading Commission is also suspended automatically 
from appearing or practicing before the Finance Board. A disbarment or 
suspension within the meaning of this paragraph shall be deemed to have 
occurred when the disbarring or suspending agency or tribunal enters its 
judgment or order, regardless of whether an appeal is pending or could 
be taken and regardless of whether a violation is admitted in the 
consent.
    (2) A suspension or disbarment from practice before the Finance 
Board under paragraph (b)(1) of this section shall continue until the 
person suspended or disbarred is reinstated under paragraph (d)(2) of 
this section.
    (c) Notices to be filed. (1) Any individual appearing or practicing 
before Finance Board who is the subject of an order, judgment, decree, 
or finding of the types set forth in paragraph (b)(1) of this section 
shall file promptly with the Finance Board a copy thereof, together with 
any related opinion or statement of the agency or tribunal involved.
    (2) Any individual appearing or practicing before the Finance Board 
who is

[[Page 54]]

or within the last ten years has been convicted of a felony or of a 
misdemeanor that resulted in a sentence of prison term or in a fine or 
restitution order totaling more than $5,000 shall file a notice promptly 
with the Finance Board. The notice shall include a copy of the order 
imposing the sentence or fine, together with any related opinion or 
statement of the court involved.
    (d) Reinstatement. (1) Unless otherwise ordered by the Finance 
Board, an application for reinstatement for good cause may be made in 
writing by a person suspended or disbarred under paragraph (a)(1) of 
this section at any time more than three years after the effective date 
of the suspension or disbarment and, thereafter, at any time more than 
one year after the person's most recent application for reinstatement. 
An applicant for reinstatement under this paragraph (d)(1) may, in the 
Finance Board's sole discretion, be afforded a hearing.
    (2) An application for reinstatement for good cause by any person 
suspended or disbarred under paragraph (b)(1) of this section may be 
filed at any time, but not less than one (1) year after the applicant's 
most recent application. An applicant for reinstatement for good cause 
under this paragraph (d)(2) may, in the Finance Board's sole discretion, 
be afforded a hearing. However, if all the grounds for suspension or 
disbarment under paragraph (b)(1) of this section have been removed by a 
reversal of the order of suspension or disbarment or by termination of 
the underlying suspension or disbarment, any person suspended or 
disbarred under paragraph (b)(1) of this section may apply immediately 
for reinstatement and shall be reinstated upon written application 
notifying the Finance Board that the grounds have been removed.
    (e) Conferences. (1) The Finance Board may confer with a proposed 
respondent concerning allegations of misconduct or other grounds for 
censure, disbarment or suspension, regardless of whether a proceeding 
for censure, disbarment or suspension has been commenced. If a 
conference results in a stipulation in connection with a proceeding in 
which the individual is the respondent, the stipulation may be entered 
in the record at the request of either party to the proceeding.
    (2) Resignation or voluntary suspension. In order to avoid the 
institution of or a decision in a disbarment or suspension proceeding, a 
person who practices before the Finance Board may consent to censure, 
suspension or disbarment from practice. At the discretion of the Finance 
Board, the individual may be censured, suspended or disbarred in 
accordance with the consent offered.
    (f) Hearings under this section. Hearings conducted under this 
section shall be conducted in substantially the same manner as other 
hearings under this part, provided that in proceedings to terminate an 
existing suspension or disbarment order, the person seeking the 
termination of the order shall bear the burden of going forward with an 
application supported with proof that the suspension should be 
terminated. The Finance Board may, in its sole discretion, direct that 
any proceeding to terminate an existing suspension or disbarment be 
limited to written submissions. All hearings held under this section 
shall be closed to the public unless the Finance Board, on its own 
motion or upon the request of a party, otherwise directs that the 
hearing be open to the public.



PART 910_FREEDOM OF INFORMATION ACT REGULATION--Table of Contents




Sec.
910.1 Definitions.
910.2 Records available to the public.
910.3 Requests for records.
910.4 Finance Board response to requests for records.
910.5 Records not disclosed.
910.6 Disclosure of Federal Home Loan Bank examination reports.
910.7 Records of financial regulatory agencies held by the Finance 
          Board.
910.8 Appeals.
910.9 Fees.

    Authority: 5 U.S.C. 552.

    Source: 63 FR 37485, July 13, 1998, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.

    Editorial Note: Nomenclature changes to part 910 appear at 65 FR 
20346, Apr. 17, 2000.



Sec. 910.1  Definitions.

    As user in this part:

[[Page 55]]

    Agency has the meaning set forth in 5 U.S.C. 552(f)(1).
    Duplication means the process of making a copy of a record in order 
to respond to a FOIA request, including paper copies, microfilm, audio-
video materials, and computer diskettes or other electronic copies.
    Financial regulatory agency means the FRB, OCC, FDIC, OTS, NCUA, 
Farm Credit Administration, or a state officer, agency, supervisor, or 
other entity that has regulatory authority over, or is empowered to 
institute enforcement action against, a financial institution, including 
an insurance company.
    FOIA means the Freedom of Information Act, as amended (5 U.S.C. 
552).
    FOIA Officer means the Finance Board employee who is authorized to 
make determinations as provided in this part. The mailing address for 
the FOIA Officer is: Freedom of Information Act Office, Federal Housing 
Finance Board, 1625 Eye Street NW., Washington DC 20006.
    Record means information or documentary material the Finance Board 
maintains in any form or format, including an electronic form or format, 
which the Finance Board:
    (1) Made or received under federal law or in connection with the 
transaction of public business;
    (2) Preserved or determined is appropriate for preservation as 
evidence of Finance Board operations or activities or because of the 
value the information it contains; and
    (3) Controls at the time it receives a request.
    Requester means any person, including an individual, corporation, 
firm, organization, or other entity, who makes a request to the Finance 
Board under FOIA for records.
    Review means the process of examining a record to determine whether 
all or part of the record may be withheld, and includes redacting or 
otherwise processing the record for disclosure to a requester. It does 
not include time spent:
    (1) Resolving legal or policy issues regarding the application of 
exemptions to a record; or
    (2) At the administrative appeal level, unless the Finance Board 
determines that the exemption under which it withheld records does not 
apply and the records are reviewed again to determine whether a 
different exemption may apply.
    Search means the time spent locating records responsive to a 
request, manually or by electronic means, including page-by-page or 
line-by-line identification of responsive material within a record.
    Unusual circumstances means the need to:
    (1)Search for and collect records from establishments that are 
separate from the office processing the request;
    (2) Search, review, and duplicate a voluminous amount of separate 
and distinct records in order to process a single request; or
    (3) Consult with another agency or among two or more components of 
the Finance Board that have a substantial interest in the determination 
of a request.
    Working days do not include Saturdays, Sundays, and legal public 
holidays.

[63 FR 37485, July 13, 1998, as amended at 65 FR 8257, 8258, Feb. 18, 
2000; 65 FR 20346, Apr. 17, 2000; 67 FR 12844, Mar. 20, 2002; 71 FR 
60812, Oct. 17, 2006]



Sec. 910.2  Records available to the public.

    (a) General. (1) It is the policy of the Finance Board to respond 
promptly to all FOIA requests.
    (2) The Finance Board may disclose records that were previously 
published or disclosed or are customarily furnished to the public in the 
course of the performance of official duties without complying with this 
part. These records include, but are not limited to, the annual report 
the Finance Board submits to Congress pursuant to section 2B(d) of the 
Act (12 U.S.C. 1422b(d)), press releases, Finance Board forms, and 
materials published in the Federal Register.
    (3) Except as provided in the Privacy Act (5 U.S.C. 552a), the 
Finance Board's Privacy Act regulation (12 CFR part 913), or paragraph 
(a)(2) of this section, the Finance Board shall not disclose records 
except in accordance with the requirements of this part.
    (b) Reading room. (1) Subject to Sec. Sec. 910.5 through 910.7, the 
following

[[Page 56]]

records shall be available for public inspection and copying in the 
Finance Board reading room from 9:00 a.m. to 4:00 p.m. each working day:
    (i) Final opinions or orders of the Finance Board in the 
adjudication of cases.
    (ii) A record of the final votes of each member of the Board of 
Directors in every Finance Board proceeding.
    (iii) Statements of policy and interpretations adopted by the 
Finance Board that are not published in the Federal Register.
    (iv) Administrative staff manuals and instructions to staff that 
affect a member of the public.
    (v) Records previously disclosed to any requester pursuant to this 
part which, because of the nature of their subject matter, the Finance 
Board has determined will likely be the subject of subsequent requests 
for substantially the same records, and a general index thereof.
    (vi) Current indices that provide identifying information about all 
matters issued, adopted, or promulgated by the Finance Board.
    (vii) The report the Finance Board submits to the Attorney General 
pursuant to 5 U.S.C. 552(e).
    (2) The Finance Board shall make each reading room record created on 
or after November 1, 1996 available by computer telecommunications or 
other electronic means, such as on computer diskettes or on the Finance 
Board's Internet Web site, found at http://www.fhfb.gov.
    (3) The Finance Board shall assess fees for searching, reviewing, or 
duplicating reading room records in accordance with Sec. 910.9.

[63 FR 37485, July 13, 1998, as amended at 65 FR 8257, 8258, Feb. 18, 
2000]



Sec. 910.3  Requests for records.

    (a) Request requirements. Requests for access to, or copies of, 
Finance Board records shall be in writing and addressed to the FOIA 
Officer. Each request shall include the following:
    (1) A description of the requested record that provides sufficient 
detail to enable the Finance Board to locate the record with a 
reasonable amount of effort;
    (2) The requester's full name, mailing address, and a telephone 
number where the requester can be reached during normal business hours;
    (3) A statement that the request is made pursuant to FOIA; and
    (4) At the discretion of the requester, a dollar limit on the fees 
the Finance Board may incur to respond to the request for records. The 
Finance Board shall not exceed such limit.
    (b) Incomplete requests. If a request does not meet all of the 
requirements of paragraph (a) of this section, the FOIA Officer may 
advise the requester that additional information is needed. If the 
requester submits a corrected request, the FOIA Officer shall treat the 
corrected request as a new request.

[63 FR 37485, July 13, 1998, as amended at 65 FR 20346, Apr. 17, 2000]



Sec. 910.4  Finance Board response to requests for records.

    (a) Response deadline. Subject to Sec. 910.9(f), within 20 working 
days of receipt of a request meeting the requirements of Sec. 910.3(a) 
and any extensions of time under paragraph (c) of this section, the FOIA 
Officer shall:
    (1) Determine whether to grant or deny the request in whole or in 
part;
    (2) Notify the requester in writing of the determination and the 
reasons therefor; and
    (3) Make the records, if any, available to the requester.
    (b) Denials. If the FOIA Officer denies the request in whole or in 
part, the notice required under paragraph (a)(2) of this section shall 
state that the FOIA Officer is the person responsible for the denial, 
the denial is not a final agency action, and the requester may appeal 
the denial under Sec. 910.8.
    (c) Extensions of time. In unusual circumstances, the FOIA Officer 
may extend the time limit in paragraph (a) of this section for a period 
not to exceed 10 working days by notifying the requester in writing of:
    (1) The reasons for the extension;
    (2) The date on which a determination is expected; and
    (3) The opportunity for the requester to either limit the scope of 
the request so that the FOIA Officer may process it in accordance with 
paragraph (a) of this section, or arrange an alternative

[[Page 57]]

time frame for processing the request or a modified request.
    (d) Expedited processing. (1) The FOIA Officer shall process a 
request for records as soon as practicable if it is determined that 
expedited processing is appropriate or the requester demonstrates a 
compelling need. To demonstrate a compelling need, a requester shall 
submit a written application certified to be true and correct to the 
best of the requester's knowledge and belief to the FOIA Officer. The 
application shall state that:
    (i) The failure to obtain the records on an expedited basis could 
reasonably be expected to pose an imminent threat to the life or 
physical safety of an individual; or
    (ii) With respect to a requester who is primarily engaged in 
disseminating information, such as a representative of the news media as 
defined in Sec. 910.9(a)(4)(iv), there is urgency to inform the public 
concerning actual or alleged Finance Board activity.
    (2) Within 10 working days of receipt of an application for 
expedited processing that meets the requirements of paragraph (d)(1) of 
this section, the FOIA Officer shall determine whether to grant or deny 
the application and notify the requester in writing of the 
determination.
    (3) A requester may appeal the denial of an application for 
expedited processing by submitting a written application stating the 
grounds for the appeal to the FOIA Officer. The Finance Board shall 
expeditiously determine whether to grant or deny the appeal and shall 
notify the requester in writing of the determination, the name and title 
or position of the person responsible for the determination, and of the 
provisions for judicial review of this final action under 5 U.S.C. 
552(a) (4) and (6).
    (e) Providing responsive records. The FOIA Officer shall provide one 
copy of a record to a requester in any form or format requested if the 
record is readily reproducible by the Finance Board in that form or 
format by regular U.S. mail to the address indicated in the request 
unless other arrangements are made, such as taking delivery of the 
document at the Finance Board. At the option of the requester and upon 
the requester's agreement to pay fees in accordance with Sec. 910.9, 
the FOIA Officer shall provide copies by facsimile transmission or other 
express delivery methods.

[63 FR 37485, July 13, 1998, as amended at 65 FR 8257, 8258, Feb. 18, 
2000; 65 FR 20346, Apr. 17, 2000; 67 FR 12844, Mar. 20, 2002]



Sec. 910.5  Records not disclosed.

    (a) Records exempt from disclosure. Except as otherwise provided in 
this part, the Finance Board shall not disclose records that are:
    (1) Specifically authorized under criteria established by an 
Executive order to be kept secret in the interest of national defense or 
foreign policy and are in fact properly classified pursuant to such 
Executive order.
    (2) Related solely to the Finance Board's internal personnel rules 
and practices.
    (3) Specifically exempted from disclosure by a statute other than 
FOIA if such statute requires the record to be withheld from the public 
in such a manner as to leave no discretion on the issue, establishes 
particular criteria for withholding, or refers to particular types of 
records to be withheld.
    (4) Trade secrets and commercial or financial information obtained 
from a person and privileged or confidential.
    (5) Inter- or intra-agency memorandums or letters that would not be 
available by law to a party other than an agency in litigation with the 
Finance Board.
    (6) Personnel, medical, or similar files the disclosure of which 
would constitute a clearly unwarranted invasion of personal privacy.
    (7) Compiled for law enforcement purposes, but only to the extent 
that the production of such law enforcement records or information:
    (i) Could reasonably be expected to interfere with enforcement 
proceedings;
    (ii) Would deprive a person of a right to a fair trial or an 
impartial adjudication;
    (iii) Could reasonably be expected to constitute an unwarranted 
invasion of personal privacy;
    (iv) Could reasonably be expected to disclose the identity of a 
confidential source, including a State, local, or foreign agency or 
authority, any private

[[Page 58]]

institution, or a Bank, which furnished information on a confidential 
basis, and, in the case of a record compiled by criminal law enforcement 
authority in the course of a criminal investigation or by an agency 
conducting a lawful national security investigation, information 
furnished by a confidential source;
    (v) Would disclose techniques and procedures for law enforcement 
investigations or prosecutions, or would disclose guidelines for law 
enforcement investigations or prosecutions if such disclosure could 
reasonably be expected to risk circumvention of the law; or
    (vi) Could reasonably be expected to endanger the life or physical 
safety of any individual.
    (8) Contained in or related to examination, operating, or condition 
reports prepared by, on behalf of, or for the use of the Finance Board, 
a Bank, or a financial regulatory agency.
    (9) Geological and geophysical information and data, including maps, 
concerning wells.
    (b) Reasonably segregable portions. (1) The Finance Board shall 
provide a requester with any reasonably segregable portion of a record 
after redacting the portion that is exempt from disclosure under 
paragraph (a) of this section.
    (2) The Finance Board shall make a reasonable effort to estimate the 
volume of redacted information and provide that information to the 
requester unless providing the estimate would harm an interest protected 
by the exemption under which the redaction is made.
    (3) The Finance Board shall indicate the estimated volume of 
redacted information on the released portion of the record unless 
providing the estimate would harm an interest protected by the exemption 
under which the redaction is made. If technically feasible, the Finance 
Board shall make the indication at the place in the record where the 
redaction is made.
    (c) Public interest. The Finance Board may disclose records it has 
authority to withhold under paragraph (a) of this section upon a 
determination that disclosure would be in the public interest.

[63 FR 37485, July 13, 1998, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 910.6  Disclosure of Federal Home Loan Bank examination reports.

    The Finance Board may disclose an examination, operating, or 
condition report of a Bank or a related record to a financial regulatory 
agency upon a determination that:
    (a) The person requesting the record on behalf of the financial 
regulatory agency has the authority to make such request;
    (b) The financial regulatory agency is requesting the record for a 
legitimate regulatory purpose; and
    (c) The financial regulatory agency making the request agrees that 
it shall not disclose the record pursuant to FOIA, the agency's 
regulations, or any other authority.

[63 FR 37485, July 13, 1998, as amended at 65 FR 8257, Feb. 18, 2000]



Sec. 910.7  Records of financial regulatory agencies held by the Finance Board.

    The Finance Board shall not disclose an examination, operating, or 
condition report, or other record prepared by, on behalf of, or for the 
use of a financial regulatory agency. Upon a receipt of a request for 
such records, the FOIA Officer shall promptly refer the request to the 
appropriate agency and notify the requester of the referral.

[65 FR 20346, Apr. 17, 2000]



Sec. 910.8  Appeals.

    (a) Procedure. (1) If the FOIA Officer has denied a request in whole 
or in part, the requester may appeal the denial by submitting a written 
application to the FOIA Officer stating the grounds for the appeal 
within 30 working days of the date of the determination under Sec. 
910.4.
    (2) Subject to Sec. 910.9(f), within 20 working days of receipt of 
an application for appeal meeting the requirements of paragraph (a)(1) 
of this section and any extensions of time under paragraph (a)(3) of 
this section, the Finance Board shall determine whether to grant or deny 
the appeal and notify the requester in writing of the determination, the 
name and title or position of the person responsible for the 
determination, and the provisions for

[[Page 59]]

judicial review of this final action under 5 U.S.C. 552(a)(4).
    (3) In unusual circumstances, the FOIA Officer may extend the time 
limit in paragraph (a)(2) of this section for a period not to exceed 10 
working days by notifying the requester in writing of the reasons for 
the extension and the date on which a determination is expected.
    (b) Appeal during pendency of judicial review. If a requester files 
an action in a United States district court under 5 U.S.C. 552(a)(4) 
concerning a request for Finance Board records before exhausting the 
administrative appeals process for that request under paragraph (a) of 
this section, the Finance Board may:
    (1) Initiate and process an administrative appeal; or
    (2) Continue to process an administrative appeal previously filed 
under paragraph (a) of this section.

[63 FR 37485, July 13, 1998, as amended at 65 FR 8257, 8258, Feb. 18, 
2000; 65 FR 20346, Apr. 17, 2000]



Sec. 910.9  Fees.

    (a) Fees. Except as otherwise provided in a statute specifically 
providing for setting fees for particular types of records or in this 
section, the Finance Board shall assess against each requester the 
direct costs of responding to a request for records.
    (1) If the records are requested for a commercial use, the direct 
costs are limited to the reasonable operating costs the Finance Board 
incurs to search, review, and duplicate records.
    (2) If the records are not requested for a commercial use and the 
requester is an educational institution, non-commercial scientific 
institution, or representative of the news media, the direct costs are 
limited to the reasonable operating costs the Finance Board incurs to 
duplicate records in excess of 100 pages.
    (3) If neither the request nor the requester is described in 
paragraphs (a) (1) or (2) of this section, the direct costs are limited 
to the reasonable operating costs the Finance Board incurs to search in 
excess of two hours and duplicate records in excess of 100 pages.
    (4) For purposes of this section, the term:
    (i) Commercial use request means a request from, or on behalf of, a 
person who seeks records for a use or purpose that furthers the 
commercial, trade, or profit interests of the requester or the person on 
whose behalf the request is made.
    (ii) Educational institution means a preschool, public or private 
elementary or secondary school, or institution of undergraduate, 
graduate, professional, or vocational higher education that operates a 
program of scholarly research.
    (iii) Non-commercial scientific institution means a nonprofit 
institution operated solely for the purpose of conducting scientific 
research the results of which are not intended to promote any particular 
product or industry.
    (iv) Representative of the news media means a requester who is 
actively gathering information that is about current events or would be 
of current interest to the public for an entity that is organized and 
operated to publish or broadcast news to the public.
    (b) Fees when no records are provided. The Finance Board may assess 
a fee for the direct costs of searching for a requested record the 
Finance Board cannot locate or if located, determines to be exempt from 
disclosure under Sec. 910.5.
    (c) Interest. The Finance Board may assess interest at the rate 
prescribed in 31 U.S.C. 3717 on any unpaid fees beginning 31 days after 
the earlier of the date of the determination under Sec. 910.4 or the 
date a fee statement is mailed to a requester. Interest shall accrue 
from such date.
    (d) Exceptions. Notwithstanding paragraphs (a) or (b) of this 
section, the FOIA Officer may determine not to assess a fee or to reduce 
a fee if:
    (1) The routine cost of collecting and processing the fee is likely 
to equal or exceed the amount of the fee.
    (2) The fee is equal to or less than 10 dollars.
    (3) Disclosure of the record is in the public interest because it is 
likely to contribute significantly to public understanding of the 
operations or activities of the government and is not primarily in the 
commercial interest of the requester.
    (i) A requester may apply in writing to the FOIA Officer for a 
waiver of fees

[[Page 60]]

under this paragraph (d)(3). A fee waiver request shall include the 
following:
    (A) The requester's interest in and proposed use of the record;
    (B) Whether the requester will derive income or other benefit from 
the record;
    (C) An explanation of how the public will benefit from disclosure, 
including the requester's ability and intention to disseminate the 
information to the public; and
    (D) The requester's expertise in the subject area of the record.
    (ii) In determining whether disclosure of a record is in the public 
interest, the FOIA Officer shall consider whether the record:
    (A) Concerns identifiable operations or activities of the Finance 
Board;
    (B) Is meaningfully informative in relation to the subject matter of 
the request;
    (C) Contributes to an understanding of the subject matter by the 
public at large, and the significance of that contribution; and
    (D) Furthers, or is primarily in, the requester's commercial 
interest.
    (e) Aggregating requests. If the FOIA Officer reasonably believes 
that a requester or a group of requesters acting in concert is 
attempting to break a request down into a series of requests for the 
purpose of evading the assessment of fees, the FOIA Officer may 
aggregate such requests and assess fees in accordance with this section.
    (f) Collecting fees. (1) The Finance Board shall deem any request 
for Finance Board records as an agreement by the requester to pay fees 
and interest assessed in accordance with this section.
    (2) To pay fees and interest assessed under this section, a 
requester shall deliver to the Office of Management, located at the 
Federal Housing Finance Board, 1625 Eye Street NW., Washington DC 20006, 
a check or money order made payable to the ``Federal Housing Finance 
Board.''
    (3) Prior to disclosing any record, the FOIA Officer may require a 
requester to agree in writing to pay actual fees and interest incurred 
in accordance with this section if the estimated fee will likely exceed 
$25 but not $250.
    (4) The FOIA Officer may require a requester to pay an estimated fee 
in advance if:
    (i) It is determined that the fee will likely exceed $250;
    (ii) The requester previously has failed to pay a fee assessed under 
this section within 30 days of the earlier of the date of the 
determination under Sec. 910.4 or the date a fee statement was 
transmitted to a requester; or
    (iii) The requester previously has failed to timely pay a fee 
assessed in accordance with the FOIA regulation of another federal 
agency.
    (5) The Finance Board shall promptly refund to a requester any 
estimated advance fee paid under paragraph (f)(4) of this section that 
exceeds the actual fee. The FOIA Officer shall assess the requester for 
the amount by which the actual fee exceeds the estimated advance fee 
payment.
    (6) The FOIA Officer may administratively close a request if the 
requester previously has failed to pay a fee assessed under this section 
or in accordance with the FOIA regulation of another federal agency 
unless the requester can substantiate that the debt was paid.
    (g) Fee schedule. The Finance Board shall assess fees in accordance 
with the following schedule:

Search:
    Supervisory/Professional Staff--$72.00 per hour.
    Clerical Staff--$31.00 per hour.
    Computer Operator--$59.00 per hour.
    Review--$72.00 per hour.
Duplication:
    Photocopies--$.10 per page.
    Diskettes--$.50 per diskette.
    CD-ROMs--$1.00 per CD.
    Transcription of audio tape--$4.50 per page.
    Certification, seal and attestation--$5.00 per document.
Delivery:
    Facsimile transmission (long distance)--long distance charges plus 
$.25 per page.
    Facsimile transmission (local)--$.25 per call plus $.25 per page.
    Express delivery service--actual cost.

[63 FR 37485, July 13, 1998, as amended at 64 FR 5930, Feb. 8, 1999, as 
amended at 65 FR 8257, 8258, Feb. 18, 2000; 65 FR 20346, Apr. 17, 2000; 
67 FR 12844, Mar. 20, 2002; 68 FR 39812, July 3, 2003; 71 FR 60812, Oct. 
17, 2006]

[[Page 61]]



PART 911_AVAILABILITY OF UNPUBLISHED INFORMATION--Table of Contents




Sec.
911.1 Definitions.
911.2 Purpose and scope.
911.3 Prohibition on unauthorized use and disclosure of unpublished 
          information.
911.4 Requests for unpublished information by document or testimony.
911.5 Consideration of requests.
911.6 Persons and entities with access to unpublished information.
911.7 Availability of unpublished information by testimony.
911.8 Availability of unpublished information by document.
911.9 Fees.

    Authority: 5 U.S.C. 301; 12 U.S.C. 1422b(a)(1).

    Source: 64 FR 44106, Aug. 13, 1999, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.



Sec. 911.1  Definitions.

    As used in this part:
    Legal proceeding means any administrative, civil, or criminal 
proceeding, including a grand jury or discovery proceeding, in which 
neither the Finance Board nor the United States is a party.
    Supervised entity means a Bank, the Office of Finance, and the 
Financing Corporation.
    Unpublished information means information and documents created or 
obtained by the Finance Board in connection with the performance of 
official duties, whether the information or documents are in the 
possession of the Finance Board, a current or former Finance Board 
employee or agent, a supervised entity, a Bank member, government 
agency, or some other person or entity; and information and documents 
created or obtained by, or in the memory of, a current or former Finance 
Board employee or agent, that was acquired in the person's official 
capacity or in the course of performing official duties. It does not 
include information or documents the Finance Board must disclose under 
the Freedom of Information Act (5 U.S.C. 552), Privacy Act (5 U.S.C. 
552a), or the Finance Board's implementing regulations (12 CFR parts 910 
and 913, respectively). It also does not include information or 
documents that were previously published or disclosed or are customarily 
furnished to the public in the course of the performance of official 
duties such as the annual report the Finance Board submits to Congress 
pursuant to section 2B(d) of the Act (12 U.S.C. 1422b(d)), press 
releases, Finance Board forms, and materials published in the Federal 
Register.

[64 FR 44106, Aug. 13, 1999, as amended at 65 FR 8258, Feb. 18, 2000; 67 
FR 12844, Mar. 20, 2002]



Sec. 911.2  Purpose and scope.

    (a) Purpose. The purposes of this part are to:
    (1) Maintain the confidentiality and control the dissemination of 
unpublished information;
    (2) Conserve the time of employees for official duties and ensure 
that Finance Board resources are used in the most efficient manner;
    (3) Maintain the Finance Board's impartiality among private 
litigants; and
    (4) Establish an orderly mechanism for the Finance Board to process 
expeditiously and respond appropriately to requests for unpublished 
information.
    (b) Scope. (1) This part applies to a request for and use and 
disclosure of unpublished information, including a request for 
unpublished information by document or testimony arising out of a legal 
proceeding in which neither the Finance Board nor the United States is a 
party. It does not apply to a request for unpublished information in a 
legal proceeding in which the Finance Board or the United States is a 
party or a request for information or records the Finance Board must 
disclose under the Freedom of Information Act, Privacy Act, or the 
Finance Board's implementing regulations.
    (2) This part does not, and may not be relied upon to create any 
substantive or procedural right or benefit enforceable against the 
Finance Board.



Sec. 911.3  Prohibition on unauthorized use and disclosure of unpublished information.

    (a) In general. Possession or control by any person, supervised 
entity, Bank member, government agency, or other entity of unpublished 
information does not constitute a waiver by the Finance Board of any 
privilege or its right to

[[Page 62]]

control, supervise, or impose limitations on, the subsequent use and 
disclosure of the information.
    (b) Current and former employees and agents. Except as authorized by 
this part or otherwise by the Finance Board, no current or former 
Finance Board employee or agent may disclose or permit the disclosure in 
any manner of any unpublished information to anyone other than a Finance 
Board employee or agent for use in the performance of official duties.
    (c) Other persons or entities possessing unpublished information. 
(1) Except as authorized in writing by the Finance Board, no person, 
supervised entity, Bank member, government agency, or other entity in 
possession or control of unpublished information may disclose or permit 
the use or disclosure of such information in any manner or for any 
purpose.
    (2) All unpublished information made available under this part 
remains the property of the Finance Board and may not be used or 
disclosed for any purpose other than that authorized under this part 
without the prior written permission of the Finance Board.
    (3) Reports of examination, supervisory correspondence, and other 
unpublished information lawfully in the possession of a supervised 
entity, Bank member, or government agency remains the property of the 
Finance Board and may not be used or disclosed for any purpose other 
than that authorized under this part without the prior written 
permission of the Finance Board.
    (4) Any person or entity that discloses or uses unpublished 
information except as expressly authorized under this part may be 
subject to the penalties provided in 18 U.S.C. 641 and other applicable 
laws. A current Finance Board, Bank, or Office of Finance employee also 
may be subject to administrative or disciplinary proceedings.
    (d) Exception for supervised entities and Bank members. When 
necessary or appropriate for business purposes, a supervised entity, 
Bank member, or any director, officer, employee, or agent thereof, may 
disclose unpublished information, including information contained in, or 
related to, supervisory correspondence or reports of examination, to a 
person or entity officially connected with the supervised entity or Bank 
member as officer, director, employee, attorney, agent, auditor, or 
independent auditor. A supervised entity, Bank member, or a director, 
officer, employee, or agent thereof, also may disclose unpublished 
information to a consultant under this paragraph if the consultant is 
under a written contract to provide services to the supervised entity or 
Bank member and the consultant has agreed in writing:
    (1) To abide by the prohibition on the disclosure of unpublished 
information contained in this section; and
    (2) That it will not to use the unpublished information for any 
purposes other than those stated in its contract to provide services to 
the supervised entity or Bank member.
    (e) Government agencies. The Finance Board may make reports of 
examination, supervisory correspondence, and other unpublished 
information available to another federal agency or a state agency for 
use where necessary in the performance of the agency's official duties. 
As used in this paragraph, the term agency does not include a grand 
jury.

[64 FR 44106, Aug. 13, 1999, as amended at 65 FR 8258, Feb. 18, 2000; 67 
FR 12844, Mar. 20, 2002]



Sec. 911.4  Requests for unpublished information by document or testimony.

    (a) Form of requests. A request for unpublished information must be 
submitted to the Finance Board in writing and include a detailed 
description of the basis for the request. At a minimum, the request must 
demonstrate that:
    (1) The requested information is highly relevant to the purpose for 
which it is sought;
    (2) The requested information is not available from any other 
source;
    (3) The need for the information clearly outweighs the need to 
maintain its confidentiality; and
    (4) The need for the information clearly outweighs the burden on the 
Finance Board to produce it.
    (b) Requests for documents. If the request is for unpublished 
information by document, the request must include

[[Page 63]]

the elements in paragraph (a) of this section and also must adequately 
describe the record or records sought by type and date.
    (c) Requests for testimony. (1) If the request is for unpublished 
information by testimony, the request must include the elements in 
paragraph (a) of this section and also must set forth the intended use 
of the testimony, a summary of the scope of the testimony requested, and 
a showing that no document or the testimony of other non-Finance Board 
persons, including retained experts, could be provided and used in lieu 
of the testimony.
    (2) Upon submitting a request to the Finance Board for unpublished 
information by testimony, the requester must notify all other parties to 
the matter at issue of the request.
    (3) After receipt of a request for unpublished information by 
testimony but before the requested testimony occurs, a party to the 
matter at issue who did not join in the request and who wishes to 
question the witness beyond the scope of the testimony sought by the 
request, must timely submit its own request for unpublished information 
pursuant to this part.
    (d) Requests in connection with legal proceedings. If the request 
for unpublished information arises out of a legal proceeding, the 
Finance Board generally will require that the legal proceeding already 
be filed before it will consider the request. In addition to the 
elements in paragraph (a) of this section, requests in connection with 
legal proceedings must include the caption and docket number of the 
case; the forum; the name, address, phone number, and electronic mail 
address, if available, of counsel to all other parties to the legal 
proceeding; the requester's interest in the case; a summary of the 
issues in litigation; and the reasons for the request, including the 
relevance of the unpublished information and how the requested 
information will contribute substantially to the resolution of one or 
more specifically identified issues in the legal proceeding.
    (e) Expedited requests. If a requester seeks a response in less than 
60 days, the request must explain why the request was not submitted 
earlier and why the Finance Board should expedite the request.
    (f) Where to submit requests. Send requests for unpublished 
information to the Office of General Counsel, Federal Housing Finance 
Board, 1777 F Street, NW., Washington, DC 20006.
    (g) Additional information--(1) From the requester. The Office of 
General Counsel may consult with the requester to refine and limit the 
scope of the request to make compliance less burdensome or to obtain 
information necessary to make an informed determination on the request. 
A requester's failure to cooperate in good faith with the Office of 
General Counsel may serve as the basis for a determination not to grant 
the request.
    (2) From others. The Office of General Counsel may inquire into the 
facts and circumstances underlying a request for unpublished information 
and rely on sources of information other than the requester, including 
other parties to the matter at issue.



Sec. 911.5  Consideration of requests.

    (a) Discretion. Each decision concerning the availability of 
unpublished information is at the sole discretion of the Finance Board 
based on a weighing of all appropriate factors. The decision is a final 
agency action that exhausts administrative remedies for disclosure of 
the information.
    (b) Time to respond. The Finance Board generally will respond in 
writing to a request for unpublished information within 60 days of 
receipt absent exigent or unusual circumstances and dependent upon the 
scope and completeness of the request.
    (c) Factors the Finance Board may consider. The factors the Finance 
Board may consider in making a determination regarding the availability 
of unpublished information include:
    (1) Whether and how the requested information is relevant to the 
purpose for which it is sought;
    (2) Whether information reasonably suited to the requester's needs 
other than the requested information is available from another source;
    (3) Whether the requested information is privileged;

[[Page 64]]

    (4) If the request is in connection with a legal proceeding, whether 
the proceeding has been filed;
    (5) The burden placed on the Finance Board to respond to the 
request;
    (6) Whether production of the information would be contrary to the 
public interest; and
    (7) Whether the need for the information clearly outweighs the need 
to maintain the confidentiality of the information.
    (d) Disclosure of unpublished information by others. When a person 
or entity other than the Finance Board has a claim of privilege 
regarding unpublished information and the information is in the 
possession or control of that person or entity, the Finance Board, at 
its sole discretion, may respond to a request for the information by 
authorizing the person or entity to disclose the information to the 
requester pursuant to an appropriate confidentiality order. Finance 
Board authorization to disclose information under this paragraph does 
not preclude the person or entity in possession of the unpublished 
information from asserting its own privilege, arguing that the 
information is not relevant, or asserting any other argument to protect 
the information from disclosure.
    (e) Notice to supervised entities and Bank members. The Finance 
Board generally will notify a supervised entity or Bank member that it 
is the subject of a request, unless the Finance Board, in its sole 
discretion, determines that to do so would advantage or prejudice any of 
the parties to the matter at issue.

[64 FR 44106, Aug. 13, 1999, as amended at 65 FR 8258, Feb. 18, 2000]



Sec. 911.6  Persons and entities with access to unpublished information.

    (a) Notice to Finance Board. Any person, including a current or 
former Finance Board employee or agent, or any entity, including a 
supervised entity, Bank member, or government agency that receives a 
request for, or is served with a subpoena, order, or other legal process 
to disclose unpublished information by document or testimony, must 
immediately notify the Office of General Counsel.
    (b) Response of person or entity served with request. Unless the 
Finance Board has authorized in writing disclosure of the requested 
information:
    (1) A current or former Finance Board employee or agent or a 
supervised entity that must respond to a subpoena, order, or other legal 
process, must decline to disclose the requested information, citing this 
part as authority.
    (2) A non-Finance Board person or entity may not disclose 
unpublished information unless:
    (i) The requester has sought the information from the Finance Board 
under this part; and
    (ii) After the Finance Board or the Department of Justice has had 
the opportunity to appear and oppose disclosure, a Federal court has 
ordered the person or entity to disclose the information.
    (c) Finance Board response. If the Finance Board does not authorize 
in writing disclosure of the requested information, the Finance Board 
will provide a copy of this part to the person or entity at whose 
instance the process was issued and advise that person or entity or the 
court or other body that the Finance Board has prohibited disclosure of 
the information under this part. The Finance Board or the Department of 
Justice may intervene in the matter at issue, attempt to have the 
compulsory process withdrawn, or register other appropriate objections.

[64 FR 44106, Aug. 13, 1999, as amended at 65 FR 8258, Feb. 18, 2000]



Sec. 911.7  Availability of unpublished information by testimony.

    (a) Scope. (1) The scope of permissible testimony is limited to that 
set forth in the written authorization granted by the Finance Board. The 
Finance Board may act to ensure that the scope of testimony provided is 
consistent with the written authorization.
    (2) A party to the matter at issue that did not join in a request 
for unpublished information who wishes to question a witness beyond the 
authorized scope must request expanded authorization under this part. 
The Finance Board will attempt to render decisions on such requests in 
an expedited manner.
    (3) The Finance Board generally will not authorize a current 
employee or

[[Page 65]]

agent to provide expert or opinion testimony for a private party.
    (b) Manner in which testimony is given. (1) The Finance Board 
ordinarily will make the authorized testimony of a former or current 
employee or agent available only through written interrogatories or 
deposition. The Finance Board will not authorize testimony at a trial or 
hearing unless the requester shows that properly developed deposition 
testimony could not be used or would be inadequate at the trial or 
hearing.
    (2) If the Finance Board has authorized testimony in connection with 
a legal proceeding, the requester must cause a subpoena to be served on 
the employee in accordance with applicable rules of procedure, with a 
copy by registered or certified mail to the Office of General Counsel.
    (3) If the authorized testimony is through deposition, the 
deposition ordinarily will take place at the Finance Board's offices at 
a time that will avoid substantial interference with the performance of 
the employee's official duties.
    (4) The requester is responsible for all costs associated with an 
employee's appearance, including provision of a copy of a transcript of 
the deposition at the request of the Office of General Counsel. The 
person whose deposition was transcribed does not waive his or her right 
to review the transcript and note errors.
    (c) Restrictions on use and disclosure. The Finance Board may 
condition its authorization of deposition testimony on an agreement of 
the parties to appropriate limitations, such as an agreement to keep the 
transcript of the testimony under seal or to make the transcript 
available only to the parties, the court or other body, or the jury. 
Upon request made pursuant to this part or on its own initiative, the 
Finance Board may authorize use of a deposition transcript in another 
legal proceeding or non-adversarial matter.
    (d) Responsibility of litigants. If the testimony is disclosed in 
connection with a legal proceeding, the requester is responsible for:
    (1) Promptly notifying all other parties to the legal proceeding of 
the disclosure, and, after entry of a protective order, providing copies 
of the testimony to the other parties who are signatories and subject to 
the protective order; and
    (2) At the conclusion of the legal proceeding, retrieving the 
testimony from the court or other body's file as soon as it is no longer 
required and certifying to the Finance Board that every party covered by 
the protective order has destroyed the unpublished information.



Sec. 911.8  Availability of unpublished information by document.

    (a) Scope. The scope of permissible document disclosure is limited 
to that set forth in the written authorization granted by the Finance 
Board. The Finance Board may act to ensure that the scope of documents 
provided is consistent with the written authorization.
    (b) Restrictions on use and disclosure. The Finance Board may 
condition a decision to disclose unpublished information by document on 
entry of a protective order satisfactory to the Finance Board by the 
court or other body presiding in a legal proceeding or, in non-
adversarial matters, on a written agreement of confidentiality that 
limits access of third parties to the unpublished information. In a 
legal proceeding in which a protective order already has been entered, 
the Finance Board may condition a decision to disclose unpublished 
information upon inclusion of additional or amended provisions in the 
protective order. Upon request made pursuant to this part or on its own 
initiative, the Finance Board may authorize use of the documents in 
another legal proceeding or non-adversarial matter.
    (c) Responsibility of litigants. If the documents are disclosed in 
connection with a legal proceeding, the requester is responsible for:
    (1) Promptly notifying all other parties to the legal proceeding of 
the disclosure, and, after entry of a protective order, providing copies 
of the documents to the other parties that are signatories and subject 
to the protective order; and
    (2) At the conclusion of the legal proceeding, retrieving the 
documents from the court or other body's file as soon as they are no 
longer required and certifying to the Finance Board that every

[[Page 66]]

party covered by the protective order has destroyed the unpublished 
information.
    (d) Certification or authentication. If the Finance Board has 
authorized disclosure of unpublished information by document, it will 
provide certified or authenticated copies of the document upon request.



Sec. 911.9  Fees.

    (a) Fees for records search, copying, and certification. Unless 
waived or reduced, a requester must pay a fee to the Finance Board for 
the costs of searching, copying, authenticating, or certifying 
unpublished information in accordance with 12 CFR 910.9. The Office of 
Resource Management generally will bill a requester upon completion of 
the production, but, in certain instances, may require a requester to 
remit payment prior to providing the requested information. To pay fees 
assessed under this section, a requester must deliver to the Office of 
Resource Management, located at the Federal Housing Finance Board, 1777 
F Street, NW., Washington, DC 20006, a check or money order made payable 
to the ``Federal Housing Finance Board.''
    (b) Witness fees and mileage--(1) Current Finance Board or federal 
employees. If the Finance Board authorizes disclosure of unpublished 
information by testimony of a current Finance Board employee or agent or 
a former Finance Board employee or agent who is still in the employ of 
the United States, upon completion of the testimonial appearance the 
requester must remit promptly to the Office of Resource Management 
payment for witness fees and mileage computed in accordance with 28 
U.S.C. 1821.
    (2) Former employees or agents. If the Finance Board authorizes 
disclosure of unpublished information by testimony of a former Finance 
Board employee or agent who is not currently employed by the United 
States, upon completion of the testimonial appearance the requester must 
remit promptly to the witness any witness fees or mileage due in 
accordance with 28 U.S.C. 1821.

[64 FR 44106, Aug. 13, 1999, as amended at 65 FR 8258, Feb. 18, 2000]



PART 912_INFORMATION REGARDING MEETINGS OF THE BOARD OF DIRECTORS OF THE FEDERAL HOUSING FINANCE BOARD--Table of Contents




Sec.
912.1 Definitions.
912.2 Purpose and scope.
912.3 Open meetings.
912.4 Closed meetings.
912.5 Procedures for closing meetings.
912.6 Notice of meetings.

    Authority: 5 U.S.C. 552b.

    Source: 58 FR 19202, Apr. 13, 1993, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.



Sec. 912.1  Definitions.

    As used in this part:
    Board Director or Director means a member of the Board of Directors.
    Chairperson includes the Acting Chairperson.
    Meeting means any deliberations of three or more Directors of the 
Board of Directors, that determines or results in the joint conduct or 
disposition of official Finance Board business, but does not include:
    (1) Discussions to determine whether meetings will be open or closed 
or whether information pertaining to closed meetings will be disclosed;
    (2) Discussions to determine whether to schedule a meeting with less 
than seven days notice, or to change the time, place or subject matter 
of a scheduled meeting; and
    (3) Disposition of Finance Board business by circulation of written 
materials on proposed actions to individual Directors for proposed 
actions, and notational voting by the individual Directors on such 
proposed actions.
    Public observation means the right of the general public to attend 
open meetings of the Board of Directors, but does not include the right 
to participate therein unless invited to do so by the Chairperson.
    Secretary to the Board includes the Acting Secretary if the position 
of Secretary is vacant.
    Sunshine Act means the Government in the Sunshine Act (5 U.S.C. 
552b).

[58 FR 19202, Apr. 13, 1993, as amended at 65 FR 8258, Feb. 18, 2000. 
Redesignated and amended at 67 FR 12844, Mar. 20, 2002]

[[Page 67]]



Sec. 912.2  Purpose and scope.

    (a) This part is issued by the Finance Board pursuant to the 
Sunshine Act, which requires Federal agencies, headed by collegial 
bodies, to promulgate regulations to implement its provisions. The 
purpose of these regulations is to provide the public with access to 
information regarding the decisionmaking processes of the Board of 
Directors of the Finance Board, while protecting the privacy rights of 
individuals and the ability of the Board of Directors to carry out its 
responsibilities.
    (b) The Board of Directors shall not jointly conduct or dispose of 
official Finance Board business other than in accordance with this part.

[58 FR 19202, Apr. 13, 1993, as amended at 65 FR 8258, Feb. 18, 2000. 
Redesignated and amended at 67 FR 12844, Mar. 20, 2002]



Sec. 912.3  Open meetings.

    (a) Except as provided in Sec. 912.4, every portion of every 
meeting of the Board of Directors shall be open to public observation.
    (b) Unless otherwise specified in the public notice, open meetings 
of the Board of Directors shall be held in the Board Room of the Finance 
Board at 1777 F Street, NW., Washington, DC, at the time specified in 
the public notice.

[58 FR 19202, Apr. 13, 1993, as amended at 65 FR 8258, Feb. 18, 2000]



Sec. 912.4  Closed meetings.

    (a) The Board of Directors may close a meeting, or portion thereof, 
to public observation, or withhold information from the public 
pertaining to a meeting, when it determines that opening the meeting, or 
a portion thereof, or the public disclosure of information pertaining to 
such meeting, or portion thereof, is likely to:
    (1) Disclose matters that are:
    (i) Specifically authorized under criteria established by an 
Executive Order to be kept secret in the interests of national defense 
or foreign policy; and
    (ii) Are, in fact, properly classified pursuant to such Executive 
Order;
    (2) Relate solely to the internal personnel rules and practices of 
the Finance Board;
    (3) Disclose matters specifically exempt from disclosure by statute 
(other than the Freedom of Information Act (5 U.S.C. 552)), provided 
that such statute:
    (i) Requires that the matters be withheld from the public in such a 
manner as to leave no discretion on the issue; or
    (ii) Establishes particular criteria for withholding matters from 
the public or refers to particular types of matters to be withheld;
    (4) Disclose trade secrets or commercial or financial information 
that is obtained from a person and is privileged or confidential;
    (5) Involve accusing any person of a crime, or formally censuring 
any person;
    (6) Disclose information of a personal nature where disclosure would 
constitute a clearly unwarranted invasion of personal privacy;
    (7) Disclose investigatory records compiled for law enforcement 
purposes, or information which if written would be contained in such 
records, but only to the extent that the production of such records or 
information would:
    (i) Interfere with enforcement proceedings;
    (ii) Deprive a person of a right to a fair trial or an impartial 
adjudication;
    (iii) Constitute an unwarranted invasion of personal privacy;
    (iv) Disclose the identity of a confidential source and, in the case 
of a record compiled by a criminal law enforcement authority in the 
course of a criminal investigation or by an agency conducting a lawful 
national security intelligence investigation, confidential information 
furnished only by the confidential source;
    (v) Disclose investigative techniques and procedures; or
    (vi) Endanger the life or physical safety of law enforcement 
personnel;
    (8) Disclose information contained in or related to examination, 
operating, or condition reports prepared by, on behalf of, or for the 
use of the Finance Board or another agency responsible for the 
regulation or supervision of Banks or other financial institutions;
    (9) Disclose information the premature disclosure of which would be 
likely to:

[[Page 68]]

    (i) (A) Lead to significant financial speculation in currencies, 
securities, or commodities;
    (B) Significantly endanger the stability of any of the Banks or any 
other financial institution; or
    (ii) Significantly frustrate implementation of a proposed Finance 
Board action, except that this paragraph shall not apply in any instance 
where the Finance Board has already disclosed to the public the content 
or nature of its proposed action, or where the Finance Board is required 
by law to make such disclosure on its own initiative prior to taking 
final action on such proposal; or
    (10) Specifically concern the issuance of a subpoena by the Board of 
Directors, or the Finance Board's participation in a civil action or 
proceeding, an action in a foreign court or international tribunal, or 
an arbitration, or the initiation, conduct or disposition of a 
particular case of formal adjudication pursuant to the procedures in 5 
U.S.C. 554 or otherwise involving a determination on the record after 
opportunity for a hearing.
    (b) A meeting or portions of a meeting shall not be closed nor 
information withheld pursuant to paragraph (a) of this section if the 
Board of Directors finds that the public interest requires otherwise.

[58 FR 19202, Apr. 13, 1993. Redesignated at 65 FR 8256, Feb. 18, 2000, 
as amended at 67 FR 12844, Mar. 20, 2002]



Sec. 912.5  Procedures for closing meetings.

    (a) Regular procedures. (1) Except as provided in paragraph (b) of 
this section, a meeting of the Board of Directors, or portion thereof, 
will be closed to public observation, and information pertaining to such 
meeting, or portion thereof, will be withheld from the public, when a 
majority of the Board of Directors determines by recorded vote that such 
meeting, or portion thereof, or the withholding of information qualifies 
for exemption under Sec. 912.4, and the Board of Directors does not 
find that the public interest requires otherwise.
    (2) Except as provided in paragraph (a)(3) of this section, a 
separate vote of the Board Directors will be taken with respect to the 
closing or the withholding of information as to each meeting or portion 
thereof that is proposed to be closed to public observation, or with 
respect to information that is proposed to be withheld pursuant to 
paragraph (a) of this section.
    (3) A single vote may be taken with respect to a series of meetings, 
a portion or portions of which are proposed to be closed to public 
observation, or with respect to any information concerning such series 
of meetings proposed to be withheld, so long as each meeting in such 
series involves the same particular matters and is scheduled to be held 
no more than thirty days after the initial meeting in such series.
    (4) The vote of each Board Director taken pursuant to paragraph (a) 
of this section shall be recorded, and no proxies shall be allowed.
    (5) Whenever any person's interests may be directly affected by any 
portion of a meeting for any of the reasons referred to in Sec. 
912.4(a)(5), (6), or (7), such person may send a written request to the 
Secretary to the Board asking that such portion of the meeting be closed 
to public observation. The Secretary to the Board will transmit the 
request to each Board Director, and upon the request of a Director, a 
recorded vote will be taken of the Board of Directors whether to close 
the meeting to public observation.
    (6)(i) Within one day of any vote taken pursuant to paragraph (a) of 
this section, the Finance Board will make publicly available through the 
Secretary to the Board a written copy of such vote reflecting the vote 
of each Board Director.
    (ii) If a meeting or portion thereof is to be closed to public 
observation, the Finance Board within one day of the vote taken pursuant 
to paragraph (a) of this section will make publicly available through 
the Secretary to the Board a full, written explanation of its action 
closing the meeting, or portion thereof, together with a list of all 
persons expected to attend the meeting and their affiliation, except to 
the extent such information is determined by the Board of Directors to 
be exempt from disclosure under Sec. 912.4(a).
    (7) Any person may request in writing to the Secretary to the Board 
that

[[Page 69]]

an announced closed meeting, or portion thereof, be open to public 
observation. The Secretary to the Board will transmit the request to 
each Board Director, and upon the request of a Director, a recorded vote 
will be taken of the Board of Directors on whether to open the meeting 
to public observation.
    (b) Expedited procedures. (1) Since a majority of the meetings, of 
the Board of Directors may be closed pursuant to Sec. 912.4(a)(4), (8), 
(9)(i) or (10), 5 U.S.C. 552b(d)(4) allows the Finance Board to use 
expedited procedures in closing such meetings. The following are 
examples of meetings of the Board of Directors, or portions thereof, 
that may be closed to the public under these expedited procedures: sale 
of consolidated obligations, and review of examination, operating or 
condition reports of Banks.
    (2) A decision to close a meeting, or portion thereof, under 
paragraph (b) of this section shall be made at the beginning of the 
meeting, or portion thereof, by majority vote of the Directors.
    (3)(i) The Finance Board shall maintain a record of each of the 
votes taken by its Board of Directors to close a meeting, or portion 
thereof, or to withhold public access to information thereof, under 
paragraph (b) of this section.
    (ii) A copy of such record, reflecting the vote of each Board 
Director on the question of closing a meeting, or portion thereof, or 
withhholding public access to information thereof, under this paragraph 
(b) of this section, shall be made available to any member of the public 
upon request to the Secretary to the Board.
    (4) Public announcement of the time, place and subject matter of 
meetings, or portions thereof, closed under this paragraph (b) of this 
section shall be made at the earliest practical time.
    (c) Records of closed proceedings--(1) Transcripts or electronic 
recording. Except as provided in paragraph (c)(2) of this section, the 
Finance Board shall make and maintain a complete transcript or verbatim 
electronic recording of the proceedings at each meeting, or portion 
thereof, closed to public observation under paragraph (a) or (b) of this 
section.
    (2) Minutes. The Finance Board may make and maintain a set of 
complete minutes, in lieu of such transcript or electronic recording, 
with respect to meetings, or portions thereof, closed or information 
withheld under Sec. 912.4(a)(8), (9)(i) or (10). Such set of minutes 
shall fully and clearly describe all matters discussed and provide a 
full and accurate summary of any action taken, and the reasons therefor, 
including a description of each of the views expressed on any item and 
the record of any roll call vote (reflecting the vote of each Board 
Director on the question). All documents considered in connection with 
any action shall be identified in such set of minutes.
    (3) Availability of Records. (i) The transcript, electronic 
recording or set of minutes of an item discussed, or of testimony 
received, at a meeting, shall be made available promptly to the public 
through the Secretary to the Board except in cases where the Board of 
Directors determines that the item or testimony contains information 
which may be withheld under Sec. 912.4(a).
    (ii) Copies of such transcript, electronic recording or set of 
minutes, disclosing the identity of each speaker, shall be furnished to 
any person at the actual cost of duplication or transcription.
    (iii) The Finance Board shall maintain a complete copy of the 
transcript, verbatim electronic recording or complete set of minutes of 
each meeting, or portion thereof closed to the public, for at least two 
years after such meeting, or until one year after the conclusion of any 
proceeding of the Board of Directors with respect to which the meeting 
or portion thereof was held, whichever occurs later.
    (d) Legal certification for closing meeting. (1) For every meeting, 
or portion thereof, of the Board of Directors closed pursuant to 
paragraphs (a) or (b) of this section, the General Counsel (or in the 
General Counsel's absence or incapacity the senior legal officer 
available) shall publicly certify that the meeting or portion thereof 
may be closed to the public pursuant to the Sunshine Act and this part, 
and specifically state the relevant exemption in support thereof.

[[Page 70]]

    (2) A copy of the certification, together with a statement from the 
Chairperson or, when appropriate, the Acting Chairperson or designee, 
setting forth the time and place of the meeting and the persons present, 
shall be retained in the permanent files of the Finance Board.

[58 FR 19202, Apr. 13, 1993, as amended at 65 FR 8258, Feb. 18, 2000; 65 
FR 12844, Mar. 20, 2002]



Sec. 912.6  Notice of meetings.

    (a) Scope of notice. (1) Except as provided in Sec. 912.4(a) that 
such information is determined to be exempt from disclosure, each open 
meeting of the Board of Directors, or each meeting closed under the 
regular procedures in Sec. 912.5(a), will be preceded by public notice 
as described in this section.
    (2) The notices for meetings of the Board of Directors closed under 
the expedited procedures pursuant to Sec. 912.5(b) will be made in 
accordance with Sec. 912.5(b)(4).
    (b) Content of notice. A notice of an open meeting or a meeting 
closed under the regular procedures in Sec. 912.5(a) will state the 
time, place, and subject matter of the meeting, whether it is to be open 
or closed to the public, and the name and telephone number of the 
Secretary to the Board for information about the meeting. Each such 
notice shall be posted in the lobby of the Finance Board offices, and 
may be made available in addition by other means or at other locations 
as deemed desirable. Immediately following the posting of each such 
notice, the Finance Board will publish the notice in the Federal 
Register.
    (c) Time--(1) Seven days notice. Except as provided in paragraph 
(c)(2) of this section, a public notice of open meetings or meetings 
closed under Sec. 912.5(a) will be made at least seven days in advance 
of each meeting.
    (2) Less than seven days notice. When a majority of the Board of 
Directors determine by recorded vote that Finance Board business 
requires a meeting to be called at any earlier date, the seven-day prior 
notice rule may be suspended and notice shall be made at the earliest 
practicable time.
    (d) Amendment of notice--(1) Time and place. A change in the time or 
place of a meeting following public notice may be made only if announced 
at the earliest practicable time.
    (2) Subject matter. A change in the subject matter of a meeting or a 
re-determination to open or close a meeting, or portions thereof, may be 
made, after public notice, only if:
    (i) At least a majority of the Board Directors determines by 
recorded vote that Finance Board business so requires and that no 
earlier notice of the change was possible; and
    (ii) The Finance Board publicly announces the change and the vote of 
each Board Director by posting a notice thereof in the lobby of the 
Finance Board offices at the earliest practicable time.
    (3) Timing of amendment. A public announcement of a change in either 
the time, place or subject matter of a meeting may be made after the 
commencement of the meeting affected.
    (4) Publication of amendment. Each change to a notice of a meeting 
will be published in the Federal Register, following the Finance Board's 
public announcement of the change.

[58 FR 19202, Apr. 13, 1993, as amended at 65 FR 8258, Feb. 18, 2000; 67 
FR 12845, Mar. 20, 2002]



PART 913_PRIVACY ACT REGULATION--Table of Contents




Sec.
913.1 Definitions.
913.2 Purpose and scope.
913.3 How do I make a request under the Privacy Act?
913.4 How will the Finance Board respond to your Privacy Act request?
913.5 What can I do if I am dissatisfied with the Finance Board's 
          response to my Privacy Act request?
913.6 Fees.
913.7 Exemptions.
913.8 Security of systems of records.
913.9 Use and collection of social security numbers.
913.10 Employee responsibilities under the Privacy Act.

    Authority: 5 U.S.C. 552a.

    Source: 68 FR 39812, July 3, 2003, unless otherwise noted.



Sec. 913.1  Definitions.

    For purposes of this part:

[[Page 71]]

    Amendment means any correction, addition to or deletion of 
information in a record.
    FOIA means the Freedom of Information Act, as amended (5 U.S.C. 
552).
    Individual means a citizen of the United States or an alien lawfully 
admitted to the United States for permanent residence.
    Maintain means to keep or hold and preserve in an existing state, 
and includes the terms collect, use, disseminate and control.
    Privacy Act means the Privacy Act of 1974, as amended (5 U.S.C. 
552a).
    Privacy Act Official means the Finance Board employee who is 
authorized to make determinations as provided in this part. The mailing 
address for the Privacy Act Official is: Privacy Act Office, Federal 
Housing Finance Board, 1625 Eye Street, NW., Washington DC 20006.
    Record means any item, collection or grouping of information about 
an individual that the Finance Board maintains within a system of 
records and contains the individual's name or the identifying number, 
symbol or other identifying particular assigned to the individual, such 
as a finger or voice print or photograph.
    System of records means a group of records the Finance Board 
maintains or controls from which information is retrieved by the name of 
an individual or by some identifying number, symbol, or other 
identifying particular assigned to the individual. You can find a 
description of the Finance Board's systems of records as part of the 
``Privacy Act Compilation'' published by the Federal Register. You can 
access the ``Privacy Act Compilation'' in most large reference and 
university libraries or electronically at the Government Printing 
Office's Web site at http://www.gpoaccess.gov/privacyact/index.html. You 
also can request a copy of the Finance Board's systems of records from 
the Privacy Act Official.
    Working days do not include Saturdays, Sundays and legal public 
holidays.

[68 FR 39812, July 3, 2003, as amended at 71 FR 60812, Oct. 17, 2006]



Sec. 913.2  Purpose and scope.

    (a) This part 913 contains the rules the Finance Board follows under 
the Privacy Act. You should read these rules together with the Privacy 
Act, which provides additional information about records maintained on 
individuals. The rules apply to all records in systems of records the 
Finance Board maintains that are retrieved by an individual's name or 
personal identifier. They describe the procedures by which individuals 
may request access to records, request amendment or correction of those 
records, and request an accounting of disclosures of those records by 
the Finance Board. Whenever it is appropriate to do so, the Finance 
Board automatically processes a Privacy Act request for access to 
records under both the Privacy Act and the FOIA, following the rules 
contained in part 910 of this chapter and this part 913. The Finance 
Board processes a request under both the Privacy Act and the FOIA so you 
will receive the maximum amount of information available to you by law.
    (b) This part does not entitle you to any service or to the 
disclosure of any record to which you are not entitled under the Privacy 
Act. It also does not, and may not be relied upon to create any 
substantive or procedural right or benefit enforceable against the 
Finance Board.

[68 FR 39812, July 3, 2003, as amended at 71 FR 60812, Oct. 17, 2006]



Sec. 913.3  How do I make a request under the Privacy Act?

    (a) In general. You can make a Privacy Act request on your own 
behalf or on behalf of another individual as the parent or guardian of a 
minor or as the guardian of someone determined by a court to be 
incompetent. To make sure that the Privacy Act Office receives your 
request without delay, you should include the notation ``Privacy Act 
Request'' on the front of your envelope and also at the beginning of 
your request.
    (b) Requests for access to records. You may make a request for 
access to a record by appearing in person or by writing directly to the 
Privacy Act Official. You must describe the record

[[Page 72]]

that you want in enough detail to enable the Privacy Act Office to 
locate the system(s) of records containing it with a reasonable amount 
of effort. Your request should describe the record sought, the time 
period in which you believe it was compiled, and the name or identifying 
number of each system of records in which you believe it is kept.
    (c) Requests for amendment or correction of records. You may make a 
request for amendment or correction of a Finance Board record by writing 
to the Privacy Act Official. Your request should identify each 
particular record in question and the system(s) of records in which the 
record is located, describe the amendment or correction that you want, 
and state why you believe that the record is not accurate, relevant, 
timely or complete. You may submit any documentation that you think 
would be helpful.
    (d) Requests for an accounting of record disclosures. You may 
request an accounting of disclosures made by the Finance Board to 
another person, organization or agency of any record by writing to the 
Privacy Act Official. Your request for an accounting should identify 
each particular record in question. An accounting generally includes the 
date, nature and purpose of each disclosure, as well as the name and 
address of the person, organization or agency to which the disclosure 
was made.
    (e) Verification of identity. When making a Privacy Act request, you 
must verify your identity in accordance with these procedures to protect 
your privacy or the privacy of the individual on whose behalf you are 
acting. If you make a Privacy Act request and you do not follow these 
identity verification procedures, the Finance Board cannot process your 
request.
    (1) Verifying your own identity. You must state your full name, 
current address, and date and place of birth. In order to help identify 
and locate the records you request, you also may, at your option, 
include your social security number. If you make your request in person 
and your identity is not known to the Privacy Act Official, you must 
provide either 2 forms of identification with photographs, or 1 form of 
identification with a photograph and a properly authenticated birth 
certificate. If you make your request by mail, your signature either 
must be notarized or submitted under 28 U.S.C. 1746, a law that permits 
statements to be made under penalty of perjury as a substitute for 
notarization. You may fulfill this requirement by having your signature 
on your request letter witnessed by a notary, or including the following 
statement just before the signature on your request letter: ``I declare 
under penalty of perjury that the foregoing is true and correct. 
Executed on [date].''
    (2) Verification of guardianship. When making a request as the 
parent or guardian of a minor or as the guardian of someone determined 
by a court to be incompetent, for access to records about that 
individual, you must establish:
    (i) The identity of the individual who is the subject of the record, 
by stating the individual's name, current address and date and place of 
birth, and, at your option, the social security number of the 
individual;
    (ii) Your own identity, as required in paragraph (e)(1) of this 
section;
    (iii) That you are the parent or guardian of the individual, which 
you may prove by providing a properly authenticated copy of the 
individual's birth certificate showing your parentage or a properly 
authenticated court order establishing your guardianship; and
    (iv) That you are acting on behalf of the individual in making the 
request.

[68 FR 39812, July 3, 2003, as amended at 71 FR 60812, Oct. 17, 2006]



Sec. 913.4  How will the Finance Board respond to your Privacy Act request?

    (a) When will the Finance Board respond to my request? The Privacy 
Act Official generally will respond to you in writing within 10 working 
days of receipt of a request that meets the requirements of Sec. 913.3. 
The Privacy Act Official may extend the response time in unusual 
circumstances, such as the need to consult with another agency about a 
record or to retrieve a record shipped offsite for storage. If you make 
your request in person, the Privacy Act Official may disclose records to 
you directly with a written record made of

[[Page 73]]

the grant of the request. If you are accompanied by another person, we 
will require your written authorization before discussing the records in 
the presence of the other person.
    (b) What will the Finance Board's response include? The written 
response will include the Privacy Act Official's determination whether 
to grant or deny your request in whole or in part, a brief explanation 
of the reasons for the determination, and the amount of the fee charged, 
if any, under Sec. 913.6. If you requested access to records, the 
Privacy Act Official will make the records, if any, available to you. If 
you requested amendment or correction of a record, the response will 
describe any amendments or corrections made and advise you of your right 
to obtain a copy of the amended or corrected record, in disclosable 
form, under this part.
    (c) Adverse determinations--(1) What is an adverse determination? 
Adverse determinations consist of the following determinations by the 
Privacy Act Official:
    (i) A determination to withhold any requested record in whole or in 
part;
    (ii) A determination to deny a request to amend or correct a record 
in whole or in part;
    (iii) A determination not to provide an accounting of disclosures;
    (iv) A determination that a requested record does not exist or 
cannot be located;
    (v) A determination that what has been requested is not a record 
subject to the Privacy Act; or
    (vi) A determination on any disputed fee matter.
    (2) Responses that include an adverse determination. If the Privacy 
Act Official makes an adverse determination with respect to your 
request, the written response under this section will state that the 
Privacy Act Official is the person responsible for the adverse 
determination, that the adverse determination is not a final agency 
action, and that you may appeal the adverse determination under Sec. 
913.5.

[68 FR 39812, July 3, 2003, as amended at 71 FR 60813, Oct. 17, 2006]



Sec. 913.5  What can I do if I am dissatisfied with the Finance Board's response to my Privacy Act request?

    (a) Appeals. You can appeal any adverse determination made by the 
Privacy Act Official in responding to your Privacy Act request. If you 
wish to seek review by a court of any adverse determination or denial of 
a request, you first must appeal it under this section.
    (b) How do I make an appeal? You may make an appeal by submitting a 
written application giving the reasons why the adverse determination 
should be overturned within 30 working days of the date of the Privacy 
Act Official's determination under Sec. 913.4. You should include the 
notation ``Privacy Act Appeal'' on the front of your envelope and also 
at the beginning of your application to make sure that the Privacy Act 
Office receives your appeal without delay.
    (c) When will the Finance Board respond to my appeal? The Finance 
Board generally will respond to you in writing within 30 working days of 
receipt of an appeal that meets the requirements of paragraph (b) of 
this section. The Finance Board may extend the response time in unusual 
circumstances, such as the need to consult with another agency about a 
record or to retrieve a record shipped offsite for storage.
    (d) What will the Finance Board's response include? The written 
response will include the Finance Board's determination whether to grant 
or deny your appeal in whole or in part, a brief explanation of the 
reasons for the determination, and information about the Privacy Act 
provisions for court review of the determination. If your appeal 
concerns a request for access to records, the Finance Board will make 
the records, if any, available to you. If your appeal concerns amendment 
or correction of a record, the response will describe any amendment or 
correction made and advise you of your right to obtain a copy of the 
amended or corrected record, in disclosable form, under this part and 
your right to file a Statement of Disagreement under paragraph (e) of 
this section.
    (e) Statements of Disagreement (1) What is a Statement of 
Disagreement? A Statement of Disagreement is a concise

[[Page 74]]

written statement in which you clearly identify each part of any record 
that you dispute and explain your reason(s) for disagreeing with the 
Finance Board's denial in whole or in part of your appeal requesting 
amendment or correction.
    (2) How do I file a Statement of Disagreement? You must deliver your 
Statement of Disagreement to the Privacy Act Official within 30 working 
days of the Finance Board's denial in whole or in part of your appeal 
concerning amendment or correction of a record.
    (3) What will the Finance Board do with my Statement of 
Disagreement? The Finance Board will place your Statement of 
Disagreement in the system(s) of records in which the disputed record is 
maintained. The Finance Board also may append a concise statement of its 
reason(s) for denying the request to amend or correct the record. The 
Finance Board will notify all persons, organizations, or agencies to 
which it previously disclosed the record, if an accounting of that 
disclosure was made, that the record has been amended or corrected. We 
will provide a copy of your Statement of Disagreement and its 
explanation, if any, along with the record whenever the record is 
disclosed.

[68 FR 39812, July 3, 2003, as amended at 71 FR 60813, Oct. 17, 2006]



Sec. 913.6  Fees.

    (a) Your request is an agreement to pay fees. The Finance Board 
considers your Privacy Act request as your agreement to pay all 
applicable fees unless you specify a limit on the amount of fees you 
agree to pay. The Finance Board will not exceed the specified limit 
without your written agreement.
    (b) How does the Finance Board calculate fees? The Finance Board 
will charge a fee for duplication of a record under the Privacy Act in 
the same way it charges for duplication of records under the FOIA (12 
CFR 910.9). The Finance Board will not charge any fees to search for or 
review records.



Sec. 913.7  Exemptions.

    (a) What is the effect of an exemption?--(1) In general. Except as 
provided in paragraph (a)(2) of this section, the Finance Board will not 
provide you with an accounting of disclosures or make available to you 
records that are exempt under paragraph (b) of this section.
    (2) Certain law enforcement records. The Finance Board will disclose 
a law enforcement record that is subject to an exemption if any right, 
privilege or benefit to which you would otherwise be entitled by Federal 
law, or for which you would otherwise be eligible, is denied as a result 
of the maintenance of the record, except to the extent that disclosure 
of the record would reveal the identity of a source who furnished 
information to the government under an express promise that his or her 
identity would be held in confidence.
    (b) Which records are exempt? (1) Office of Inspector General Audit 
and Investigative Records. Pursuant to 5 U.S.C. 552a(k)(2) and (5), a 
record contained in the system of records titled ``Office of Inspector 
General Audit and Investigative Records'' (FHFB-6) is exempt from 5 
U.S.C. 552a(c)(3), (d), (e)(1), (e)(4)(G), (e)(4)(H), (e)(4)(I), and 
(f), to the extent that the record consists of audit or investigatory 
material compiled:
    (i) For law enforcement purposes; or
    (ii) For the purpose of determining suitability, eligibility or 
qualifications for federal civilian employment or federal contracts, if 
disclosure of the record would reveal the identity of a source who 
furnished information to the government under an express promise that 
his or her identity would be held in confidence.
    (2) Personnel Investigative Records. Pursuant to 5 U.S.C. 
552a(k)(5), a record contained in the system of records titled 
``Personnel Investigative Records'' (FHFB-5) is exempt from 5 U.S.C. 
552a(c)(3), (d), (e)(1), (e)(4)(G), (e)(4)(H), (e)(4)(I), and (f), to 
the extent that disclosure would reveal the identity of a source who 
furnished information to the government under an express promise that 
his or her identity of the source would be held in confidence.
    (c) Why are these records exempt? (1) Office of Inspector General 
Investigative Records. The records contained in the system of records 
titled ``Office of Inspector General Investigative Records'' (FHFB-6) 
are exempt:

[[Page 75]]

    (i) To prevent interference with law enforcement proceedings;
    (ii) To avoid an unwarranted invasion of personal privacy by 
revealing information about third parties such as other subjects of an 
investigation, law enforcement personnel, witnesses and other sources of 
information;
    (iii) To fulfill commitments made to protect the confidentiality of 
sources including Federal employees who furnish a complaint or 
information to the Office of the Inspector General and other sources of 
information;
    (iv) To assure access by the Office of Inspector General to sources 
of confidential information, including those contained in federal, state 
and local criminal law enforcement information systems;
    (v) To prevent disclosure of law enforcement techniques and 
procedures; and
    (vi) To avoid endangering the life or physical safety of 
confidential sources and law enforcement personnel.
    (2) Personnel Investigative Records. The records contained in the 
system of records titled ``Personnel Investigative Records'' (FHFB-5) 
are exempt:
    (i) To fulfill commitments made to protect the confidentiality of 
sources; and
    (ii) To assure access to sources of confidential information, 
including those contained in federal, state and local criminal law 
enforcement information systems.

[68 FR 39812, July 3, 2003, as amended at 68 FR 59309, Oct. 15, 2003; 71 
FR 60813, Oct. 17, 2006]



Sec. 913.8  Security of systems of records.

    (a) Controls. Each Finance Board office must establish 
administrative and physical controls to prevent unauthorized access to 
its systems of records, unauthorized or inadvertent disclosure of 
records, and physical damage to or destruction of records. The 
stringency of these controls should correspond to the sensitivity of the 
records that the controls protect. At a minimum, the administrative and 
physical controls must ensure that:
    (1) Records are protected from public view;
    (2) The area in which records are kept is supervised during business 
hours to prevent unauthorized persons from having access to them;
    (3) Records are inaccessible to unauthorized persons outside of 
business hours; and
    (4) Records are not disclosed to unauthorized persons or under 
unauthorized circumstances in either oral or written form.
    (b) Limited access. Access to records is restricted only to 
individuals who require access in order to perform their official 
duties.

[71 FR 60813, Oct. 17, 2006]



Sec. 913.9  Use and collection of social security numbers.

    At least annually, the Privacy Act Official and/or Chief Privacy 
Officer will inform employees who are authorized to collect information 
that:
    (a) Individuals may not be denied any right, benefit, or privilege 
as a result of refusing to provide their social security numbers, unless 
the collection is authorized either by a statute or by a regulation 
issued prior to 1975; and
    (b) They must inform individuals who are asked to provide their 
social security numbers:
    (1) If providing a social security number is mandatory or voluntary;
    (2) If any statutory or regulatory authority authorizes collection 
of a social security number; and
    (3) The uses that will be made of the social security number.

[71 FR 60813, Oct. 17, 2006]



Sec. 913.10  Employee responsibilities under the Privacy Act.

    At least annually, the Privacy Act Official and/or Chief Privacy 
Officer will inform employees about the provisions of the Privacy Act, 
including the Act's civil liability and criminal penalty provisions. 
Unless otherwise permitted by law, a Finance Board employee shall:
    (a) Collect from individuals only information that is relevant and 
necessary to discharge the Finance Board's responsibilities.
    (b) Collect information about an individual directly from that 
individual whenever practicable.
    (c) Inform each individual from whom information is collected of:

[[Page 76]]

    (1) The legal authority to collect the information and whether 
providing it is mandatory or voluntary;
    (2) The principal purpose for which the Finance Board intends to use 
the information;
    (3) The routine uses the Finance Board may make of the information; 
and
    (4) The effects on the individual, if any, of not providing the 
information.
    (d) Ensure that the employee's office does not maintain a system of 
records without public notice and notify appropriate officials of the 
existence or development of any system of records that is not the 
subject of a current or planned public notice.
    (e) Maintain all records that are used in making any determination 
about an individual with such accuracy, relevance, timeliness, and 
completeness as is reasonably necessary to ensure fairness to the 
individual in the determination.
    (f) Except as to disclosures made to an agency or made under the 
FOIA, make reasonable efforts, prior to disseminating any record about 
an individual, to ensure that the record is accurate, relevant, timely, 
and complete.
    (g) When required by the Privacy Act, maintain an accounting in the 
specified form of all disclosures of records by the Finance Board to 
persons, organizations, or agencies.
    (h) Maintain and use records with care to prevent the unauthorized 
or inadvertent disclosure of a record to anyone.
    (i) Notify the appropriate official of any record that contains 
information that the Privacy Act does not permit the Finance Board to 
maintain.

[71 FR 60813, Oct. 17, 2006]

[[Page 77]]



  SUBCHAPTER C_GOVERNANCE AND MANAGEMENT OF THE FEDERAL HOME LOAN BANKS





PART 914_DATA AVAILABILITY AND REPORTING--Table of Contents




Sec.
914.1 Regulatory Report defined.
914.2 Filing Regulatory Reports.
914.3 Access to books and records.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a)(1), and 1440.

    Source: 71 FR 35499, June 21, 2006, unless otherwise noted.



Sec. 914.1  Regulatory Report defined.

    (a) Definition. Regulatory Report means any report of raw or summary 
data needed to evaluate the safe and sound condition and operations of a 
Bank or to determine compliance with any:
    (1) Provision in the Act or other law, order, rule, or regulation;
    (2) Condition imposed in writing by the Finance Board in connection 
with the granting of any application or other request by a Bank; or
    (3) Written agreement entered into between the Finance Board and a 
Bank.
    (b) Examples. Regulatory Report includes:
    (1) Call reports and reports of instrument-level risk modeling data;
    (2) Reports related to a Bank's housing mission achievement, such as 
reports related to AMA, AHP, CIP, and other CICA programs; and
    (3) Reports submitted in response to requests to one or more Banks 
for information on a nonrecurring basis.



Sec. 914.2  Filing Regulatory Reports.

    Each Bank shall file Regulatory Reports with the Finance Board in 
accordance with the forms, instructions, and schedules issued by the 
Finance Board from time to time. If no regularly scheduled reporting 
dates are established, Regulatory Reports shall be filed as requested by 
the Finance Board.



Sec. 914.3  Access to books and records.

    Each Bank shall make its books and records readily available for 
inspection and other supervisory purposes within a reasonable period 
upon request by the Finance Board, at a location acceptable to the 
Finance Board. For requests for documents made during the course of an 
onsite examination and pursuant to the examination's scope, a reasonable 
period is presumed to be no longer than 1 business day. For requests for 
documents made outside of an onsite examination, a reasonable period is 
presumed to be 3 business days.



PART 915_BANK DIRECTOR ELIGIBILITY, APPOINTMENT AND ELECTIONS--Table of Contents




Sec.
915.1 Definitions.
915.2 Dates.
915.3 Director elections.
915.4 Capital stock report.
915.5 Determination of member votes.
915.6 Elective director nominations.
915.7 Eligibility requirements for elective directors.
915.8 Election process.
915.9 Actions affecting director elections.
915.10 Selection of appointive directors.
915.11 Conflict of interests policy for Bank directors.
915.12 Reporting requirements for Bank directors
915.13 Ineligible Bank directors.
915.14 Vacant Bank directorships.
915.15 Minimum number of elective directorships.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1426, 1427, and 1432.

    Source: 63 FR 65688, Nov. 30, 2000, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.

    Editorial Note: Nomenclature changes to part 915 appear at 67 FR 
12845, Mar. 20, 2002.



Sec. 915.1  Definitions.

    For purposes of this part:
    Bona fide resident of a Bank district means an individual who:
    (1) Maintains a principal residence within the Bank district; or
    (2) If serving as an appointive director, owns or leases in his or 
her own name a residence within the Bank district and is employed within 
a voting state within the Bank district.

[[Page 78]]

    Discretionary directorship means an elective or appointive 
directorship created by the Finance Board pursuant to section 7(a) of 
the Act (12 U.S.C. 1427(a)) for districts that include five or more 
states.
    FHFB ID number means the number assigned to each member by the 
Finance Board and used by the Finance Board and the Banks to identify a 
particular member.
    Guaranteed directorship means an elective directorship that is 
required by section 7(b) of the Act (12 U.S.C. 1427(b)) and Sec. 915.15 
to be designated as representing Bank members that are located in a 
particular state.
    Non-guaranteed directorship means an elective directorship that is 
either a discretionary directorship or a stock directorship.
    Record date means December 31 of the calendar year immediately 
preceding the election year.
    Stock directorship means an elective directorship that is designated 
by the Finance Board as representing the members located in a particular 
state based on the amount of Bank stock held by the members in that 
state, and which is in excess of the number of guaranteed directorships 
allocated to that state.
    Voting state means the District of Columbia, Puerto Rico, or the 
state of the United States in which a member's principal place of 
business, as determined in accordance with part 925 of this chapter, is 
located as of the record date. The voting state of a member with a 
principal place of business located in the U.S. Virgin Islands as of the 
record date shall be Puerto Rico, and the voting state of a member with 
a principal place of business located in American Samoa, Guam, or the 
Commonwealth of the Northern Mariana Islands as of the record date shall 
be Hawaii.

[63 FR 65688, Nov. 30, 1998, as amended at 65 FR 8259, Feb. 18, 2000; 65 
FR 41568, July 6, 2000; 67 FR 12845, Mar. 20, 2002]



Sec. 915.2  Dates.

    If any date specified in this part, or specified by a Bank pursuant 
to this part, falls on a Saturday, Sunday, or Federal holiday, the 
relevant time period shall be deemed to include the next business day.

[63 FR 65688, Nov. 30, 1998]



Sec. 915.3  Director elections.

    (a) Responsibilities of the Banks. Each Bank annually shall conduct 
an election the purpose of which is to fill all elective directorships 
designated by the Finance Board as commencing on January 1 of the 
calendar year immediately following the year of the election. Subject to 
the provisions of the Act and in accordance with the requirements of 
this part, the disinterested members of the board of directors of each 
Bank, or a committee of disinterested directors, shall administer and 
conduct the annual election of directors. In so doing, the disinterested 
directors may use Bank staff or independent contractors to perform 
ministerial and administrative functions concerning the elections 
process. The term of office of each elective director shall be three 
years, except as adjusted pursuant to section 7(d) of the Act (12 U.S.C. 
1427(d)) and Sec. 915.17 of this part to achieve a staggered board, and 
shall commence on January 1 of the calendar year immediately following 
the year in which the election is held. Each Bank shall complete the 
election in sufficient time to allow newly elected directors to assume 
their seats on January 1 of the year immediately following the election.
    (b) Designation of elective directorships. The Finance Board 
annually shall designate each elective directorship as representing the 
members that are located in a particular state. The Finance Board shall 
conduct the annual designation of directorships for each Bank based on 
the number of shares of Bank stock required to be held by the members in 
each state as of December 31 of the preceding calendar year. If a Bank 
has issued more than one class of stock, the Finance Board shall 
designate the directorships for that Bank based on the combined number 
of shares required to be held by the members in each state. For purposes 
of conducting the designation, if a Bank's capital plan was not in 
effect on the immediately preceding December 31st, the number of shares 
of Bank stock that the members were required to

[[Page 79]]

hold as of that date shall be determined in accordance with Sec. 925.20 
and Sec. 925.22. If a Bank's capital plan was in effect on the 
immediately preceding December 31st, the number of shares of Bank stock 
that the members were required to hold as of that date shall be 
determined in accordance with the minimum investment established by the 
capital plan for that Bank, provided, however, that for any members 
whose Bank stock is less than the minimum investment during a transition 
period, the amount of stock to be used in the designation of 
directorships shall be the number of shares of Bank stock actually owned 
by those members as of December 31st. In all cases, the Finance Board 
shall designate the directorships by using the information provided by 
the Banks in the capital stock report required by Sec. 915.4. The 
Finance Board shall allocate the elective directorships among the states 
as follows:
    (1) One elective directorship shall be allocated to each State 
within the Bank district;
    (2) If the total number of elective directorships allocated pursuant 
to paragraph (b)(1) of this section is less than eight, the Finance 
Board shall allocate additional elective directorships among the States, 
using the method of equal proportions, until the total allocated for the 
Bank equals eight;
    (3) If the number of elective directorships allocated to any State 
pursuant to paragraphs (b)(1) and (b)(2) of this section is less than 
the number allocated to that State on December 31, 1960, as specified in 
Sec. 915.15, the Finance Board shall allocate such additional elective 
directorships to that State until the total allocated equals the number 
allocated to that State on December 31, 1960;
    (4) Pursuant to section 7(e) of the Act (12 U.S.C. 1427(e)), the 
Federal Home Loan Bank of New York is hereby allocated one additional 
elective directorship, which is designated as representing the members 
in the Commonwealth of Puerto Rico;
    (5) Pursuant to section 7(a) of the Act (12 U.S.C. 1427(a)), in any 
Bank district that includes five or more states, the Finance Board, 
after consultation with the affected Banks, may increase the number of 
elective directorships up to thirteen, and the number of appointive 
directorships up to three-fourths of the number of elective 
directorships. In determining the number of appointive directorships, 
the Finance Board may round to the nearest whole number. The annual 
designation of directorships shall indicate the number of discretionary 
directorships, if any, to be authorized for the succeeding year. If the 
Finance Board eliminates an existing discretionary directorship, or 
designates such a directorship to another state, the term of any 
appointive or elective director affected by that action shall terminate 
after the close of business on the immediately following December 31.
    (c) Notification. On or before June 1 of each year, the Finance 
Board shall notify each Bank in writing of the total number of elective 
directorships established for the Bank and the number of elective 
directorships designated as representing the members in each voting 
State in the Bank district. If the annual designation of elective 
directorships results in an existing stock directorship being 
redesignated as representing members in a different state, the notice 
also shall state that the directorship must be filled by an officer or 
director of a member located in the newly designated state as of January 
1 of the immediately following year, regardless of whether the term for 
the incumbent director would have expired by that date.
    (d) Location of member. In accordance with section 7(c) of the Act 
(12 U.S.C. 1427(c)), unless otherwise designated by the Finance Board, 
for purposes of election of directors a member shall be deemed to be 
located in its voting State.
    (e) 2000 designation. For any stock directorship with a term ending 
December 31, 2001 that is redesignated from one state to another state 
by the 2000 designation of directorships, the board of directors of the 
Bank shall determine which incumbent director from

[[Page 80]]

the former state shall become ineligible to serve as a result of the 
redesignation on the basis of the most recent election.

[63 FR 65688, Nov. 30, 1998, as amended at 65 FR 8259, Feb. 18, 2000; 65 
FR 41568, July 6, 2000; 66 FR 8307, Jan. 30, 2001; 67 FR 12845, Mar. 20, 
2002]



Sec. 915.4  Capital stock report.

    (a) On or before April 10 of each year, each Bank shall submit to 
the Finance Board a capital stock report that indicates, as of the 
record date, the number of members located in each voting state in the 
Bank's district, the number of shares of Bank stock that each member 
(identified by its FHFB ID number) was required to hold, and the number 
of shares of Bank stock that all members located in each voting state 
were required to hold. If a Bank has issued more than one class of 
stock, it shall report the total shares of stock of all classes required 
to be held by the members. The Bank shall certify to the Finance Board 
that, to the best of its knowledge, the information provided in the 
capital stock report is accurate and complete, and that it has notified 
each member of its minimum capital stock holdings pursuant to Sec. 
925.22(b)(1) of this chapter.
    (b) If a Bank's capital plan was not in effect as of the record 
date, the number of shares of Bank stock that the members are required 
to hold as of the record date shall be determined in accordance with 
Sec. 925.20 and Sec. 925.22. If a Bank's capital plan was in effect as 
of the record date, the number of shares of Bank stock that the members 
were required to hold as of that date shall be determined in accordance 
with the minimum investment established by the capital plan for that 
Bank, provided, however, that for any members whose Bank stock is less 
than the minimum investment during a transition period, the amount of 
Bank stock to be reported shall be the number of shares of Bank stock 
actually owned by those members as of the record date.

[66 FR 8307, Jan. 30, 2001]



Sec. 915.5  Determination of member votes.

    (a) In general. Each Bank shall determine, in accordance with this 
section, the number of votes that each member of the Bank may cast for 
each directorship that is to be filled by the vote of the members that 
are located in a particular state.
    (b) Number of votes. For each directorship that is to be filled in 
an election, each member that is located in the state to be represented 
by the directorship shall be entitled to cast one vote for each share of 
Bank stock that the member was required to hold as of the record date. 
Notwithstanding the preceding sentence, the number of votes that any 
member may cast for any one directorship shall not exceed the average 
number of shares of Bank stock that were required to be held by all 
members located in that state as of the record date. If a Bank has 
issued more than one class of stock, it shall calculate the average 
number of shares separately for each class of stock and shall apply 
those limits separately in determining the maximum number of votes that 
any member owning that class of stock may cast in the election. If a 
Bank's capital plan was not in effect as of the record date, the number 
of shares of Bank stock that a member was required to hold as of the 
record date shall be determined in accordance with Sec. 925.20 and 
Sec. 925.22. If a Bank's capital plan was in effect as of the record 
date, the number of shares of Bank stock that a member was required to 
hold as of the record date shall be determined in accordance with the 
minimum investment established by the Bank's capital plan, provided, 
however, that for any members whose Bank stock is less than the minimum 
investment during a transition period, the amount of Bank stock to be 
used shall be the number of shares of Bank stock actually owned by those 
members as of the record date.
    (c) Voting preferences. If the board of directors of a Bank includes 
any voting preferences as part of its approved capital plan, those 
preferences shall supercede the provisions of paragraph (b) of this 
section that otherwise would allow a member to cast one vote for each 
share of Bank stock it was required to hold as of the record date. If a 
Bank establishes a voting preference for a class of stock, the members 
with voting rights shall remain subject to

[[Page 81]]

the provisions of section 7(b) of the Act (12 U.S.C. 1427(b)) that 
prohibit any member from casting any vote in excess of the average 
number of shares of stock required to be held by all members in its 
state.

[66 FR 8308, Jan. 30, 2001, as amended at 67 FR 12845, Mar. 20, 2002]



Sec. 915.6  Elective director nominations.

    (a) Election announcement. Within a reasonable time in advance of an 
election, a Bank shall provide to each member in its district a written 
notice of the election that includes:
    (1) The number of elective directorships designated as representing 
the members in each voting State in the Bank district;
    (2) The name of each incumbent Bank director, the name and location 
of the member at which each elective director serves, and the name and 
location of the organization with which each appointive director is 
affiliated, if any, and the expiration date of each Bank director's term 
of office;
    (3) A brief statement describing the skills and experience the Bank 
believes are most likely to add strength to the board of directors, 
provided that the Bank previously has conducted the annual assessment 
permitted by Sec. 915.9 and the Bank has elected to provide the results 
of the assessment to the members;
    (4) An attachment indicating the name, location, and FHFB ID number 
of every member in the member's voting state, and the number of votes 
each such member may cast for each directorship to be filled in the 
election, as determined in accordance with Sec. 915.5; and
    (5) A nominating certificate.
    (b) Nominations. (1) Any member that is entitled to vote in the 
election may nominate an eligible individual to fill each available 
elective directorship for its voting State by submitting to its Bank, 
prior to a deadline to be established by the Bank, a nominating 
certificate duly adopted by the member's governing body or by an 
individual authorized to act on behalf of the member's governing body.
    (2) The nominating certificate shall include the name of the nominee 
and the name, location, and FHFB ID number of the member at which the 
nominee serves as an officer or director.
    (3) The Bank shall establish a deadline for submitting nominating 
certificates, which shall be no earlier than 30 calendar days after the 
date on which the Bank mails the notice required by paragraph (a) of 
this section, and the Bank shall not accept certificates received after 
that deadline. The Bank shall retain all nominating certificates for at 
least two years after the date of the election.
    (c) Accepting nominations. A Bank shall notify in writing any person 
nominated for an elective directorship promptly upon receipt of the 
nominating certificate. A person may accept the nomination only by 
submitting an executed director eligibility certification, as prescribed 
by the Finance Board, to the Bank prior to the deadline established by 
the Bank. A Bank shall allow each nominee at least 30 calendar days 
after the date of the notice of nomination within which to submit the 
executed form. A nominee may decline the nomination by so advising the 
Bank in writing, or by failing to submit a properly executed director 
eligibility certification prior to the deadline. Each Bank shall retain 
all information received under this paragraph for at least two years 
after the date of the election.

[63 FR 65689, Nov. 30, 1998, as amended at 65 FR 8259, Feb. 18, 2000; 66 
FR 8308, Jan. 30, 2001; 71 FR 40647, July 18, 2006]



Sec. 915.7  Eligibility requirements for elective directors.

    (a) Eligibility verification. Based on the information provided on 
the director eligibility certification form prescribed in the Data 
Reporting Manual issued by the Finance Board, as amended from time to 
time, a Bank shall verify that each nominee meets all of the eligibility 
requirements for elective directors set forth in the Act and this part 
before placing that nominee on the ballot prepared by the Bank under 
Sec. 915.8(a). A Bank shall not declare elected a nominee that it has 
reason to know is ineligible to serve, nor shall it seat a director-
elect that it has reason to know is ineligible to serve.

[[Page 82]]

    (b) Eligibility requirements. Each elective director, and each 
nominee, shall be:
    (1) A citizen of the United States;
    (2) An officer or director of a member that is located in the voting 
state to be represented by the elective directorship, that was a member 
of the Bank as of the record date, and that meets all minimum capital 
requirements established by its appropriate Federal banking agency or 
appropriate state regulator.
    (c) Restrictions. (1) A nominee is not eligible if he or she:
    (i) Is an incumbent elective director, unless:
    (A) The incumbent director's term of office would expire before the 
new term of office would begin; and
    (B) The new term of office would not be barred by the term limit 
provision of section 7(d) of the Act (12 U.S.C. 1427(d)).
    (ii) Is a former elective director whose service would be barred by 
the term limit provision of section 7(d) of the Act; or
    (iii) Is an incumbent appointive director.
    (2) For purposes of applying the term limit provision of section 
7(d) of the Act (12 U.S.C. 1427(d)), a term of office that has been 
adjusted to a period of less than three years in accordance with Sec. 
915.17(a)(2) shall not be deemed to be a full term.
    (d) Loss of eligibility. (1) An elective director shall become 
ineligible to remain in office if, during his or her term of office, the 
stock directorship to which he or she has been elected is eliminated or 
is redesignated by the Finance Board as representing members located in 
another state, in accordance with Sec. 915.3(b). The incumbent director 
shall become ineligible after the close of business on December 31 of 
the year in which the directorship is redesignated or eliminated.
    (2) In the case of a redesignation to another state, the stock 
directorship shall become vacant after the close of business on December 
31 of the year in which the directorship is redesignated and the 
resulting vacancy shall be filled by the board of directors of the Bank 
for the remainder of the unexpired term with a person who is an officer 
or director of a member located in the newly designated state, pursuant 
to section 7(f) of the Act (12 U.S.C. 1427(f)).

[63 FR 65689, Nov. 30, 1998, as amended at 65 FR 8259, Feb. 18, 2000; 65 
FR 41569, July 6, 2000; 66 FR 8308, Jan. 30, 2001; 67 FR 12845, Mar. 20, 
2002; 67 FR 39791, June 10, 2002; 71 FR 35500, June 21, 2006]



Sec. 915.8  Election process.

    (a) Ballots. Promptly after verifying the eligibility of all 
nominees in accordance with Sec. 915.7(a), a Bank shall prepare a 
ballot for each voting State for which an elective directorship is to be 
filled and shall mail the ballot to all members within that State that 
were members as of the record date.
    (1) A ballot shall include at least the following provisions:
    (i) An alphabetical listing of the names of each nominee for the 
member's voting state, the name, location, and FHFB ID number of the 
member each nominee serves, the nominee's title or position with the 
member, and the number of elective directorships to be filled by members 
in that voting state in the election;
    (ii) A statement that write-in candidates are not permitted; and
    (iii) A confidentiality statement prohibiting the Banks from 
disclosing how a member voted.
    (2) At the election of the Bank, a ballot also may include, in the 
body or as an attachment, a brief description of the skills and 
experience of each individual nominee.
    (b) Statement on skills and experience. If a Bank has conducted an 
annual assessment permitted by Sec. 915.9 and has included the results 
of the assessment as part of the notice to members required by Sec. 
915.6(a), it may include with each ballot a statement regarding the 
types of skills and experience the Bank has determined are most likely 
to add strength to the board of directors. If the statement differs from 
the statement provided under Sec. 915.6(a)(3), the Bank also shall 
include an explanation of why the statements differ.
    (c) Lack of nominees. If, for any voting state, all directorships to 
be filled in an election are the same with regard to their respective 
terms and status as

[[Page 83]]

guaranteed or non-guaranteed directorships, and the number of nominees 
from that state is equal to or less than the number of such 
directorships, the Bank shall notify the members in the affected voting 
state in writing (in lieu of providing a ballot) that the directorships 
are to be filled without an election due to a lack of nominees. The Bank 
shall declare elected any eligible nominee, who shall be included as a 
director-elect in the report of election required under paragraph (e) of 
this section. If necessary, the Bank's board of directors shall fill any 
elective directorship that has become vacant due to a lack of a nominee 
in accordance with Sec. 915.14(a).
    (d) Voting. For each directorship to be filled, a member may cast 
the number of votes determined by the Bank pursuant to Sec. 915.5. A 
member may not split its votes among multiple nominees for a single 
directorship, nor, where there are multiple directorships to be filled 
for a voting State, may it cumulatively vote for a single nominee. Any 
ballots cast in violation of this subsection shall be void. To vote, a 
member shall:
    (1) Mark on the ballot the name of not more than one of the nominees 
for each elective directorship to be filled in the member's voting 
State. Each nominee so selected shall receive all of the votes that the 
member is entitled to cast.
    (2) Execute the ballot by resolution of the member's governing body, 
or by an appropriate writing signed by an individual authorized to act 
on behalf of the governing body.
    (3) Deliver the executed ballot to the Bank on or before the closing 
date that has been established by the Bank, which shall be no earlier 
than 30 calendar days after the date the ballots are mailed in 
accordance with paragraph (a) of this section. A member may not change a 
ballot after it has been delivered to the Bank.
    (e) Counting ballots. A Bank shall not open any ballot until after 
the closing date, and may not include in the election results any ballot 
received after the closing date. Promptly after the closing date, each 
Bank shall tabulate, by each voting State, the votes cast in accordance 
with paragraph (c) of this section, and shall declare elected the 
nominee receiving the highest number of votes.
    (1) If more than one elective directorship is to be filled in a 
voting State, the Bank shall declare elected each successive nominee 
receiving the next highest number of votes until all open elective 
directorships for that voting State are filled.
    (2) In the event of a tie for the last available seat, the incumbent 
board of directors of the Bank shall, by a majority vote, declare 
elected one of the nominees for whom the number of votes cast was tied.
    (3) The Bank shall retain all ballots it receives for at least two 
years after the date of the election, and shall not disclose how any 
member voted.
    (f) Report of election. Promptly following the election, each Bank 
shall provide written notice to its members, to each nominee, and to the 
Finance Board of the following:
    (1) The name of each director-elect, the name and location of the 
member at which he or she serves, and his or her title or position at 
the member;
    (2) The voting State represented by each director-elect;
    (3) The expiration date of the term of office of each director-
elect;
    (4) The number of members voting in the election and the total 
number of votes cast, both reported by State; and
    (5) The number of votes cast for each nominee.

[63 FR 65690, Nov. 30, 1998, as amended at 65 FR 8259, Feb. 18, 2000; 65 
FR 41569, July 6, 2000; 67 FR 12845, Mar. 20, 2002; 71 FR 40647, July 
18, 2006]



Sec. 915.9  Actions affecting director elections.

    (a) Banks. Each Bank, acting through its board of directors, may 
conduct an annual assessment of the skills and experience possessed by 
the members of its board of directors as a whole and may determine 
whether the capabilities of the board would be enhanced through the 
addition of persons with particular skills and experience. If the board 
of directors determines that the Bank could benefit by the addition to 
the board of directors of persons with particular qualifications, such 
as in financial management, accounting,

[[Page 84]]

hedging, risk management, capital markets, securities laws, or housing 
finance, it may identify those qualifications and so inform the members 
as part of the announcement of elections.
    (b) Incumbent Bank directors. A Bank director acting in his or her 
personal capacity may support the nomination or election of any person 
for an elective directorship, provided that no such director may purport 
to represent the views of the Bank or its board of directors in doing 
so.
    (c) Prohibition. Except as provided in paragraphs (a) and (b) of 
this section, no director, officer, attorney, employee, or agent of a 
Bank or the Finance Board may:
    (1) Communicate in any manner that a director, officer, attorney, 
employee, or agent of a Bank, directly or indirectly, supports the 
nomination or election of a particular person for an elective 
directorship; or
    (2) Take any other action to influence votes for a directorship.

[71 FR 40647, July 18, 2006]



Sec. 915.10  Selection of appointive directors.

    (a) Bank responsibilities. (1) On or before October 1st of each 
year, the board of directors of each Bank shall submit to the Finance 
Board a list of eligible nominees who are well-qualified to fill the 
appointive directorships that will expire on December 31st of that year, 
along with the original Finance Board-prescribed appointive director 
application form executed by each individual on the list.
    (2) If an appointive directorship becomes vacant prior to the 
expiration of its term, the board of directors of the Bank shall submit 
to the Finance Board a list of eligible nominees who are well-qualified 
to fill that directorship, along with each individual's executed 
appointive director application form, promptly after the vacancy arises.
    (3) The number of nominees on any list submitted by a Bank's board 
of directors pursuant to paragraphs (a)(1) or (2) of this section shall 
be at least equal to the number of appointive directorships to be filled 
but shall not exceed 2 times the number of such directorships.
    (b) Finance Board selection. As provided by the Act, the Finance 
Board has the sole responsibility for appointing individuals to the 
boards of directors of the Banks. In exercising that responsibility, the 
Finance Board shall select from among the nominees on the list submitted 
by the Bank pursuant to paragraph (a) of this section, provided, 
however, that if the Finance Board does not fill all of the appointive 
directorships from the list initially submitted by the Bank, it may 
require the Bank to submit a supplemental list of nominees for its 
consideration.
    (c) Prospective applicants. Any individual who seeks to be appointed 
to the board of directors of a Bank may submit to the Bank an executed 
appointive director application form that demonstrates that the 
individual both is eligible and has business, financial, housing, 
community and economic development, and/or leadership experience. Any 
other interested party may recommend to the Bank that it consider a 
particular individual as a nominee for an appointive directorship, but 
the Bank may not do so until the individual has provided the Bank with 
an executed appointive director application form. The board of directors 
of the Bank may consider any individual for inclusion on the list it 
submits to the Finance Board provided it has determined that the 
individual is eligible and well-qualified for an appointive directorship 
at the Bank.
    (d) Term of office. The term of office of each appointive 
directorship is 3 years, except as adjusted pursuant to section 7(d) of 
the Act (12 U.S.C. 1427(d)) to achieve a staggered board, and shall 
commence on January 1st. In the case of a discretionary appointive 
directorship that is terminated pursuant to Sec. 915.3(b)(5), the term 
of office of the directorship shall end after the close of business on 
December 31st of that year.
    (e) Financial interests. Except as otherwise provided in this 
section, an appointive director may not: own any debt or equity 
securities issued by, or have any other financial interest in, a member 
of the Bank on whose board the director serves; serve as an officer or 
director of any member of the Bank on whose board the director serves; 
or

[[Page 85]]

serve as an officer of any Bank. An appointive director or appointive 
director candidate must disclose all financial interests to the Finance 
Board.
    (1) Investment vehicles. An appointive director's investment in a 
legally recognized entity that owns debt or equity securities issued by 
a member is not deemed to be shares or other financial interests in a 
member if the appointive director neither controls the entity nor plays 
any role in the purchase or sale of the securities owned by the entity.
    (2) Investment accounts. Debt or equity securities an appointive 
director owns through an account managed by an investment adviser 
registered under the Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et 
seq.), for which the director pays a fee for advisory services and with 
respect to which the director has given the investment adviser complete 
investment discretion to buy and sell all securities in the account, are 
not deemed to be shares or other financial interests in a member if the 
director is not affiliated with the investment adviser and has no 
control over the selection of securities acquired for the account.
    (3) Holding companies. Debt or equity securities issued by a holding 
company that controls one or more members of the Bank on whose board an 
appointive director serves are not deemed to be shares or other 
financial interest in a member if the assets of all such members 
constitute less than 35 percent of the assets of the holding company, on 
a consolidated basis. Service as a director or officer of a holding 
company that controls one or more members of the Bank on whose board an 
appointive director serves is not deemed to be service as a director or 
officer of a member of the Bank if the assets of all such members 
constitute less than 35 percent of the assets of the holding company, on 
a consolidated basis.
    (4) Loans and deposits. Loans obtained from a member and money 
placed on deposit with a member are not deemed to be a financial 
interest in a member if the transactions occur in the normal course of 
business of the member and are on terms that are no more favorable than 
those that would be available under like circumstances to members of the 
public.
    (5) Contractual relationships. Any contractual relationship between 
an appointive director and one or more members of the Bank on whose 
board the director serves that includes a contractual right to the 
payment of money, is presumed not to constitute a financial interest in 
a member if the amount due to the director under such contracts in any 
calendar year is less than 10 percent of the director's adjusted gross 
income for that calendar year. The Finance Board will determine on a 
case-by-case basis whether a contractual relationship that exceeds the 
10 percent threshold constitutes a financial interest in a member.
    (6) Attribution. The Finance Board will attribute to the appointive 
director any debt or equity securities owned by the director's spouse or 
minor children and any contractual relationships between a member and 
the director's spouse for purposes of determining compliance with this 
section.

[72 FR 15602, Apr. 2, 2007, as amended at 72 FR 33639, June 19, 2007]



Sec. 915.11  Conflict of interests policy for Bank directors.

    (a) Adoption of conflict of interests policy. Each Bank shall adopt 
a written conflict of interests policy that applies to all Bank 
directors. At a minimum, the conflict of interests policy of each Bank 
shall:
    (1) Require the directors to administer the affairs of the Bank 
fairly and impartially and without discrimination in favor of or against 
any member or nonmember borrower;
    (2) Require appointive directors to comply with Sec. 915.10(e) of 
this part;
    (3) Prohibit the use of a director's official position for personal 
gain;
    (4) Require directors to disclose actual or apparent conflicts of 
interest and establish procedures for addressing such conflicts;
    (5) Provide internal controls to ensure that reports are filed and 
that conflicts are disclosed and resolved in accordance with this 
section; and
    (6) Establish procedures to monitor compliance with the conflict of 
interests policy.
    (b) Disclosure and recusal. A director shall disclose to the Bank's 
board of directors any personal financial interests

[[Page 86]]

he or she has, as well as any financial interests known to the director 
of any immediate family member or business associate of the director, in 
any matter to be considered by the Bank's board of directors and in any 
other matter in which another person or entity does, or proposes to do, 
business with the Bank. A director shall fully disclose the nature of 
his or her interest in the matter and shall provide to the Bank's board 
of directors any information requested to aid in its consideration of 
the director's interest. A director shall refrain from considering or 
voting on any issue in which the director, any immediate family member, 
or any business associate has a financial interest.
    (c) Confidential Information. Directors shall not disclose or use 
confidential information received by them solely by reason of their 
position with the Bank to obtain a financial interest for themselves or 
for any other person.
    (d) Gifts. Directors shall not accept, and shall discourage their 
immediate family members from accepting, any substantial gift where the 
director has reason to believe that the gift is given in order to 
influence the director's actions as a member of the Bank's board of 
directors, or where acceptance of such gift gives the appearance of 
influencing the director's actions as a member of the board.
    (e) Compensation. Directors shall not accept compensation for 
services performed for the Bank from any source other than the Bank for 
which the services are performed.
    (f) Definitions. For purposes of this section:
    (1) Immediate family member means parent, sibling, spouse, child, or 
dependent, or any relative sharing the same residence as the director.
    (2) Financial interest means a direct or indirect financial interest 
in any activity, transaction, property, or relationship that involves 
receiving or providing something of monetary value, and includes, but is 
not limited to any right, contractual or otherwise, to the payment of 
money, whether contingent or fixed. It does not include a deposit or 
savings account maintained with a member, nor does it include a loan or 
extension of credit obtained from a member in the normal course of 
business on terms that are generally available to the public.
    (3) Business associate means any individual or entity with whom a 
director has a business relationship, including, but not limited to:
    (i) Any corporation or organization of which the director is an 
officer or partner, or in which the director beneficially owns ten 
percent or more of any class of equity security, including subordinated 
debt;
    (ii) Any other partner, officer, or beneficial owner of ten percent 
or more of any class of equity security, including subordinated debt, of 
any such corporation or organization; and
    (iii) Any trust or other estate in which a director has a 
substantial beneficial interest or as to which the director serves as 
trustee or in a similar fiduciary capacity.
    (4) Substantial Gifts includes:
    (i) Gifts of more than token value;
    (ii) Entertainment or hospitality, the cost of which is in excess of 
what is considered reasonable, customary, and accepted business 
practices; or
    (iii) Any other items or services for which a director pays less 
than market value.

[63 FR 65690, Nov. 30, 1998, as amended at 65 FR 8259, Feb. 18, 2000; 72 
FR 33639, June 19, 2007]



Sec. 915.12  Reporting requirements for Bank directors.

    (a) Annual reporting. Each director shall submit to his or her Bank 
the appropriate executed director eligibility certification, as 
prescribed in the Data Reporting Manual issued by the Finance Board, as 
amended from time to time. The Bank shall promptly forward to the 
Finance Board a copy of the certification filed by each appointive 
director.
    (b) Report of noncompliance. If an elective or appointive director 
knows or has reason to believe that he or she no longer meets the 
eligibility requirements set forth in the Act or this part, the director 
shall so inform the Bank in writing within 30 calendar days of first 
learning of the facts causing the loss of eligibility. An appointive 
director also shall inform the Finance Board

[[Page 87]]

in writing at the same time that he or she informs the Bank.

[63 FR 65691, Nov. 30, 1998, as amended at 65 FR 8259, Feb. 18, 2000; 67 
FR 12845, Mar. 20, 2002; 71 FR 35500, June 21, 2006]



Sec. 915.13  Ineligible Bank directors.

    (a) Elective directors. Upon a determination by the Finance Board or 
a Bank that an elective director no longer satisfies the eligibility 
requirements set forth in the Act or this part, or has failed to comply 
with the reporting requirements of Sec. 915.12, the elective 
directorship shall immediately become vacant. Any elective director that 
is determined to have failed to comply with the eligibility or reporting 
requirements shall not continue to act as a Bank director.
    (b) Appointive directors. Except as provided herein, upon a 
determination by the Finance Board that an appointive director no longer 
satisfies the eligibility requirements set forth in the Act, or has 
failed to comply with the reporting requirements of Sec. 915.12, the 
appointive directorship shall immediately become vacant. Notwithstanding 
the vacancy, an appointive director may continue to serve until a 
successor assumes the directorship or the term of office expires, 
whichever occurs first, and the Finance Board, in its sole discretion, 
may allow an appointive director up to 90 calendar days to comply with 
the eligibility or reporting requirements.

[63 FR 65691, Nov. 30, 1998, as amended at 65 FR 8259, Feb. 18, 2000]



Sec. 915.14  Vacant Bank directorships.

    (a) Vacant elective directorships. (1) As soon as practicable after 
a vacancy occurs, a Bank shall fill the unexpired term of office of a 
vacant elective directorship by a majority vote of the remaining Bank 
directors regardless of whether the remaining Bank directors constitute 
a quorum of the Bank's board of directors.
    (2) An individual so selected to fill a vacant elective directorship 
shall satisfy all of the eligibility requirements for elective directors 
set forth in the Act and this part, and shall provide to the Bank an 
executed director eligibility certification. The Bank shall verify the 
individual's eligibility in accordance with Sec. 915.7(a) before 
allowing the individual to assume the directorship, and shall retain the 
information it receives in accordance with Sec. 915.6(c).
    (3) Promptly after verifying the individual's eligibility under 
paragraph (a)(2) of this section, a Bank shall notify the Finance Board 
and each member located in the Bank's district in writing of the 
following:
    (i) The name of the new elective director, the name, location and 
FHFB ID number of the member at which the new director serves, and the 
new director's title or position with the member;
    (ii) The voting State that the new elective director represents; and
    (iii) The expiration date of the new elective director's term of 
office.
    (b) Vacant appointive directorships. (1) As soon as practicable 
after a vacancy occurs, the Finance Board shall fill the unexpired term 
of office of a vacant appointive directorship.
    (2) Promptly after filling a vacant appointive directorship, the 
Finance Board shall notify the affected Bank in writing of the 
following:
    (i) The name of the new appointive director, the name and location 
of the organization with which the new director is affiliated, if any, 
and the new director's title or position with such organization; and
    (ii) The expiration date of the new appointive director's term of 
office.
    (3) Promptly after receiving the notice required by paragraph (b)(2) 
of this section, a Bank shall provide each of its members with the 
information described in paragraphs (b)(2)(i) and (ii) of this section.

[63 FR 65691, Nov. 30, 1998, as amended at 65 FR 8259, Feb. 18, 2000]



Sec. 915.15  Minimum number of elective directorships.

    Under section 7(c) of the Act (12 U.S.C. 1427(c)), the number of 
elective directorships allocated to members located in each State cannot 
be less than the number of directorships that were filled by the members 
from that State on December 31, 1960. The following list sets forth the 
States whose members held more than one (1) seat on December 31, 1960:

[[Page 88]]



------------------------------------------------------------------------
                                                              No. of
                                                             elective
                          State                            directorships
                                                            on December
                                                             31, 1960
------------------------------------------------------------------------
California..............................................               3
Colorado................................................               2
Illinois................................................               4
Indiana.................................................               5
Iowa....................................................               2
Kansas..................................................               3
Kentucky................................................               2
Louisiana...............................................               2
Massachusetts...........................................               3
Michigan................................................               3
Minnesota...............................................               2
Missouri................................................               2
New Jersey..............................................               4
New York................................................               4
Ohio....................................................               4
Oklahoma................................................               2
Pennsylvania............................................               6
Tennessee...............................................               2
Texas...................................................               3
Wisconsin...............................................               4
------------------------------------------------------------------------


[55 FR 1399, Jan. 16, 1990, as amended at 56 FR 55221, Oct. 25, 1991. 
Redesignated and amended at 63 FR 65692, Nov. 30, 1998; 67 FR 12846, 
Mar. 20, 2002]



PART 917_POWERS AND RESPONSIBILITIES OF BANK BOARDS OF DIRECTORS AND SENIOR MANAGEMENT--Table of Contents




Sec.
917.1 Definitions.
917.2 General authorities and duties of Bank boards of directors.
917.3 Risk management.
917.4 Bank Member Products Policy.
917.5 Strategic business plan.
917.6 Internal control system.
917.7 Audit committees.
917.8 Budget preparation.
917.9 Dividends.
917.10 Bank bylaws.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a)(1), 1426, 1427, 1432(a), 
1436(a), 1440.

    Source: 65 FR 25274, May 1, 2000, unless otherwise noted.



Sec. 917.1  Definitions.

    As used in this part:
    Business risk means the risk of an adverse impact on a Bank's 
profitability resulting from external factors as may occur in both the 
short and long run.
    Community financial institution has the meaning set forth in Sec. 
925.1 of this chapter.
    Contingency liquidity means the sources of cash a Bank may use to 
meet its operational requirements when its access to the capital markets 
is impeded, and includes:
    (1) Marketable assets with a maturity of one year or less;
    (2) Self-liquidating assets with a maturity of seven days or less;
    (3) Assets that are generally accepted as collateral in the 
repurchase agreement market; and
    (4) Irrevocable lines of credit from financial institutions rated 
not lower than the second highest credit rating category by an NRSRO.
    Credit risk means the risk that the market value, or estimated fair 
value if market value is not available, of an obligation will decline as 
a result of deterioration in creditworthiness.
    Immediate family member means a parent, sibling, spouse, child, 
dependent, or any relative sharing the same residence.
    Internal auditor means the individual responsible for the internal 
audit function at the Bank.
    Liquidity risk means the risk that a Bank will be unable to meet its 
obligations as they come due or meet the credit needs of its members and 
associates in a timely and cost-efficient manner.
    Market risk means the risk that the market value, or estimated fair 
value if market value is not available, of a Bank's portfolio will 
decline as a result of changes in interest rates, foreign exchange 
rates, equity and commodity prices.
    Operational liquidity means sources of cash from both a Bank's 
ongoing access to the capital markets and its holding of liquid assets 
to meet operational requirements in a Bank's normal course of business.
    Operations risk means the risk of an unexpected loss to a Bank 
resulting from human error, fraud, unenforceability of legal contracts, 
or deficiencies in internal controls or information systems.
    Reportable conditions means matters that represent significant 
deficiencies in the design or operation of the internal control system 
that could adversely affect a Bank's ability to record, process, 
summarize and report

[[Page 89]]

financial data consistent with the assertions of management.

[65 FR 25274, May 1, 2000, as amended at 67 FR 12846, Mar. 20, 2002]



Sec. 917.2  General authorities and duties of Bank boards of directors.

    (a) Management of a Bank. The management of each Bank shall be 
vested in its board of directors. While Bank boards of directors may 
delegate the execution of operational functions to Bank personnel, the 
ultimate responsibility of each Bank's board of directors for that 
Bank's management is non-delegable.
    (b) Duties of Bank directors. Each Bank director shall have the duty 
to:
    (1) Carry out his or her duties as director in good faith, in a 
manner such director believes to be in the best interests of the Bank, 
and with such care, including reasonable inquiry, as an ordinarily 
prudent person in a like position would use under similar circumstances;
    (2) Administer the affairs of the Bank fairly and impartially and 
without discrimination in favor of or against any member;
    (3) At the time of appointment or election, or within a reasonable 
time thereafter, have a working familiarity with basic finance and 
accounting practices, including the ability to read and understand the 
Bank's balance sheet and income statement and to ask substantive 
questions of management and the internal and external auditors; and
    (4) Direct the operations of the Bank in conformity with the 
requirements set forth in the Act and this chapter.
    (c) Authority regarding staff and outside consultants. (1) In 
carrying out its duties and responsibilities under the Act and this 
chapter, each Bank's board of directors and all committees thereof shall 
have authority to retain staff and outside counsel, independent 
accountants, or other outside consultants at the expense of the Bank.
    (2) Bank staff providing services to the board of directors or any 
committee of the board under paragraph (c)(1) of this section may be 
required by the board of directors or such committee to report directly 
to the board or such committee, as appropriate.



Sec. 917.3  Risk management.

    (a) Risk management policy--(1) Adoption. Beginning August 29, 2000, 
each Bank's board of directors shall have in effect at all times a risk 
management policy that addresses the Bank's exposure to credit risk, 
market risk, liquidity risk, business risk and operations risk and that 
conforms to the requirements of paragraph (b) of this section and to all 
applicable Finance Board regulations and policies.
    (2) Review and compliance. Each Bank's board of directors shall:
    (i) Review the Bank's risk management policy at least annually;
    (ii) Amend the risk management policy as appropriate;
    (iii) Re-adopt the Bank's risk management policy, including interim 
amendments, not less often than every three years; and
    (iv) Ensure that policies and procedures are in place that are 
reasonably designed to achieve continuing Bank compliance with the risk 
management policy.
    (b) Risk management policy requirements. In addition to meeting any 
other requirements set forth in this chapter, each Bank's risk 
management policy shall:
    (1) After the Finance Board has approved a Bank's capital plan, but 
before the plan takes effect, the Bank shall amend its risk management 
policy to describe the specific steps the Bank will take to comply with 
its capital plan and to include specific target ratios of total capital 
and permanent capital to total assets at which the Bank intends to 
operate. The target operating capital-to-assets ratios to be specified 
in the risk management policy shall be in excess of the minimum leverage 
and risk-based capital ratios and may be expressed as a range of ratios 
or as a single ratio;
    (2) Set forth the Bank's tolerance levels for the market and credit 
risk components; and
    (3) Set forth standards for the Bank's management of each risk 
component, including but not limited to:
    (i) Regarding credit risk arising from all secured and unsecured 
transactions, standards and criteria for, and timing of, periodic 
assessment of the creditworthiness of issuers, obligors, or other

[[Page 90]]

counterparties including identifying the criteria for selecting dealers, 
brokers and other securities firms with which the Bank may execute 
transactions;
    (ii) Regarding market risk, standards for the methods and models 
used to measure and monitor such risk;
    (iii) Regarding day-to-day operational liquidity needs and 
contingency liquidity needs:
    (A) An enumeration of specific types of investments to be held for 
such liquidity purposes; and
    (B) The methodology to be used for determining the Bank's 
operational and contingency liquidity needs;
    (iv) Regarding operations risk, standards for an effective internal 
control system, including periodic testing and reporting; and
    (v) Regarding business risk, strategies for mitigating such risk, 
including contingency plans where appropriate.
    (c) Risk assessment. The senior management of each Bank shall 
perform, at least annually, a risk assessment that is reasonably 
designed to identify and evaluate all material risks, including both 
quantitative and qualitative aspects, that could adversely affect the 
achievement of the Bank's performance objectives and compliance 
requirements. The risk assessment shall be in written form and shall be 
reviewed by the Bank's board of directors promptly upon its completion.

[65 FR 25274, May 1, 2000, as amended at 66 FR 8308, Jan. 30, 2001; 67 
FR 12846, Mar. 20, 2002]



Sec. 917.4  Bank Member Products Policy.

    (a) Adoption and review of member products policy--(1) Adoption. 
Beginning November 15, 2000, each Bank's board of directors shall have 
in effect at all times a policy that addresses the Bank's management of 
products offered by the Bank to members and housing associates, 
including but not limited to advances, standby letters of credit and 
acquired member assets, consistent with the requirements of the Act, 
paragraph (b) of this section, and all applicable Finance Board 
regulations and policies.
    (2) Review and compliance. Each Bank's board of directors shall:
    (i) Review the Bank's member products policy annually;
    (ii) Amend the member products policy as appropriate; and
    (iii) Re-adopt the member products policy, including interim 
amendments, not less often than every three years.
    (b) Member products policy requirements. In addition to meeting any 
other requirements set forth in this chapter, each Bank's member 
products policy shall:
    (1) Address credit underwriting criteria to be applied in evaluating 
applications for advances, standby letters of credit, and renewals;
    (2) Address appropriate levels of collateralization, valuation of 
collateral and discounts applied to collateral values for advances and 
standby letters of credit;
    (3) Address advances-related fees to be charged by each Bank, 
including any schedules or formulas pertaining to such fees;
    (4) Address standards and criteria for pricing member products, 
including differential pricing of advances pursuant to Sec. 950.5(b)(2) 
of this chapter, and criteria regarding the pricing of standby letters 
of credit, including any special pricing provisions for standby letters 
of credit that facilitate the financing of projects that are eligible 
for any of the Banks' CICA programs under part 952 of this chapter;
    (5) Provide that, for any draw made by a beneficiary under a standby 
letter of credit, the member will be charged a processing fee calculated 
in accordance with the requirements of Sec. 975.6(b) of this chapter;
    (6) Address the maintenance of appropriate systems, procedures and 
internal controls; and
    (7) Address the maintenance of appropriate operational and personnel 
capacity.

[65 FR 44426, July 18, 2000, as amended at 67 FR 12846, Mar. 20, 2002]



Sec. 917.5  Strategic business plan.

    (a) Adoption of strategic business plan. Beginning on July 30, 2000, 
each Bank's board of directors shall have in effect at all times a 
strategic business plan that describes how the business activities of 
the Bank will achieve the mission of the Bank consistent with part

[[Page 91]]

940 of this chapter. Specifically, each Bank's strategic business plan 
shall:
    (1) Enumerate operating goals and objectives for each major business 
activity and for all new business activities, which must include plans 
for maximizing activities that enhance the carrying out of the mission 
of the Bank, consistent with part 940 of this chapter;
    (2) Discuss how the Bank will:
    (i) Address credit needs and market opportunities identified through 
ongoing market research and consultations with members, associates and 
public and private organizations; and
    (ii) Notify members and associates of relevant programs and 
initiatives;
    (3) Establish quantitative performance goals for Bank products 
related to multi-family housing, small business, small farm and small 
agri-business lending;
    (4) Describe any proposed new business activities or enhancements of 
existing activities; and
    (5) Be supported by appropriate and timely research and analysis of 
relevant market developments and member and associate demand for Bank 
products and services.
    (b) Review and monitoring. Each Bank's board of directors shall:
    (1) Review the Bank's strategic business plan at least annually;
    (2) Amend the strategic business plan as appropriate;
    (3) Re-adopt the Bank's strategic business plan, including interim 
amendments, not less often than every three years; and
    (4) Establish management reporting requirements and monitor 
implementation of the strategic business plan and the operating goals 
and objectives contained therein.
    (c) Report to Finance Board. Each Bank shall submit to the Finance 
Board annually a report analyzing and describing the Bank's performance 
in achieving the goals described in paragraph (a)(3) of this section.

[65 FR 25274, May 1, 2000, as amended at 67 FR 12846, Mar. 20, 2002]



Sec. 917.6  Internal control system.

    (a) Establishment and maintenance. (1) Each Bank shall establish and 
maintain an effective internal control system that addresses:
    (i) The efficiency and effectiveness of Bank activities;
    (ii) The safeguarding of Bank assets;
    (iii) The reliability, completeness and timely reporting of 
financial and management information and transparency of such 
information to the Bank's board of directors and to the Finance Board; 
and
    (iv) Compliance with applicable laws, regulations, policies, 
supervisory determinations and directives of the Bank's board of 
directors and senior management.
    (2) Ongoing internal control activities necessary to maintain the 
internal control system required under paragraph (a)(1) of this section 
shall include, but are not limited to:
    (i) Top level reviews by the Bank's board of directors and senior 
management, including review of financial presentations and performance 
reports;
    (ii) Activity controls, including review of standard performance and 
exception reports by department-level management on an appropriate 
periodic basis;
    (iii) Physical and procedural controls to safeguard, and prevent the 
unauthorized use of, assets;
    (iv) Monitoring for compliance with the risk tolerance limits set 
forth in the Bank's risk management policy;
    (v) Any required approvals and authorizations for specific 
activities; and
    (vi) Any required verifications and reconciliations for specific 
activities.
    (b) Internal control responsibilities of Banks' boards of directors. 
Each Bank's board of directors shall ensure that the internal control 
system required under paragraph (a)(1) of this section is established 
and maintained, and shall oversee senior management's implementation of 
such a system on an ongoing basis, by:
    (1) Conducting periodic discussions with senior management regarding 
the effectiveness of the internal control system;
    (2) Ensuring that an internal audit of the internal control system 
is performed annually and that such annual audit is reasonably designed 
to be effective and comprehensive;

[[Page 92]]

    (3) Requiring that internal control deficiencies be reported to the 
Bank's board of directors in a timely manner and that such deficiencies 
are addressed promptly;
    (4) Conducting a timely review of evaluations of the effectiveness 
of the internal control system made by internal auditors, external 
auditors and Finance Board examiners;
    (5) Directing senior management to address promptly and effectively 
recommendations and concerns expressed by internal auditors, external 
auditors and Finance Board examiners regarding weaknesses in the 
internal control system;
    (6) Reporting any internal control deficiencies found, and the 
corrective action taken, to the Finance Board in a timely manner;
    (7) Establishing, documenting and communicating an organizational 
structure that clearly shows lines of authority within the Bank, 
provides for effective communication throughout the Bank, and ensures 
that there are no gaps in the lines of authority;
    (8) Reviewing all delegations of authority to specific personnel or 
committees and requiring that such delegations state the extent of the 
authority and responsibilities delegated; and
    (9) Establishing reporting requirements, including specifying the 
nature and frequency of reports it receives.
    (c) Internal control responsibilities of Banks' senior management. 
Each Bank's senior management shall be responsible for carrying out the 
directives of the Bank's board of directors, including the 
establishment, implementation and maintenance of the internal control 
system required under paragraph (a)(1) of this section, by:
    (1) Establishing, implementing and effectively communicating to Bank 
personnel policies and procedures that are adequate to ensure that 
internal control activities necessary to maintain an effective internal 
control system, including the activities enumerated in paragraph (a)(2) 
of this section, are an integral part of the daily functions of all Bank 
personnel;
    (2) Ensuring that all Bank personnel fully understand and comply 
with all policies, procedures and legal requirements applicable to their 
positions and responsibilities;
    (3) Ensuring that there is appropriate segregation of duties among 
Bank personnel and that personnel are not assigned conflicting 
responsibilities;
    (4) Establishing effective paths of communication upward, downward 
and across the organization in order to ensure that Bank personnel 
receive necessary and appropriate information, including:
    (i) Information relating to the operational policies and procedures 
of the Bank;
    (ii) Information relating to the actual operational performance of 
the Bank;
    (iii) Adequate and comprehensive internal financial, operational and 
compliance data; and
    (iv) External market information about events and conditions that 
are relevant to decision making;
    (5) Developing and implementing procedures that translate the major 
business strategies and policies established by the Bank's board of 
directors into operating standards;
    (6) Ensuring adherence to the lines of authority and responsibility 
established by the Bank's board of directors;
    (7) Overseeing the implementation and maintenance of management 
information and other systems;
    (8) Establishing and implementing an effective system to track 
internal control weaknesses and the actions taken to correct them; and
    (9) Monitoring and reporting to the Bank's board of directors the 
effectiveness of the internal control system on an ongoing basis.

[65 FR 25274, May 1, 2000, as amended at 67 FR 12846, Mar. 20, 2002]



Sec. 917.7  Audit committees.

    (a) Establishment. The board of directors of each Bank shall 
establish an audit committee, consistent with the requirements set forth 
in this section.
    (b) Composition. (1) The audit committee shall comprise five or more 
persons drawn from the Bank's board of directors, each of whom shall 
meet the criteria of independence set forth in paragraph (c) of this 
section.
    (2) The audit committee shall include a balance of representatives 
of:

[[Page 93]]

    (i) Community financial institutions and other members; and
    (ii) Appointive and elective directors of the Bank.
    (3) The terms of audit committee members shall be appropriately 
staggered so as to provide for continuity of service.
    (4) At least one member of the audit committee shall have extensive 
accounting or related financial management experience.
    (c) Independence. Any member of the Bank's board of directors shall 
be considered to be sufficiently independent to serve as a member of the 
audit committee if that director does not have a disqualifying 
relationship with the Bank or its management that would interfere with 
the exercise of that director's independent judgment. Such disqualifying 
relationships include, but are not limited to:
    (1) Being employed by the Bank in the current year or any of the 
past five years;
    (2) Accepting any compensation from the Bank other than compensation 
for service as a board director;
    (3) Serving or having served in any of the past five years as a 
consultant, advisor, promoter, underwriter, or legal counsel of or to 
the Bank; or
    (4) Being an immediate family member of an individual who is, or has 
been in any of the past five years, employed by the Bank as an executive 
officer.
    (d) Charter. (1) The audit committee of each Bank shall adopt, and 
the Bank's board of directors shall approve, a formal written charter 
that specifies the scope of the audit committee's powers and 
responsibilities, as well as the audit committee's structure, processes 
and membership requirements.
    (2) The audit committee and the board of directors of each Bank 
shall:
    (i) Review, assess the adequacy of and, where appropriate, amend the 
Bank's audit committee charter on an annual basis;
    (ii) Amend the audit committee charter as appropriate; and
    (iii) Re-adopt and re-approve, respectively, the Bank's audit 
committee charter not less often than every three years.
    (3) Each Bank's audit committee charter shall:
    (i) Provide that the audit committee has the responsibility to 
select, evaluate and, where appropriate, replace the internal auditor 
and that the internal auditor may be removed only with the approval of 
the audit committee;
    (ii) Provide that the internal auditor shall report directly to the 
audit committee on substantive matters and that the internal auditor is 
ultimately accountable to the audit committee and board of directors; 
and
    (iii) Provide that both the internal auditor and the external 
auditor shall have unrestricted access to the audit committee without 
the need for any prior management knowledge or approval.
    (e) Duties. Each Bank's audit committee shall have the duty to:
    (1) Direct senior management to maintain the reliability and 
integrity of the accounting policies and financial reporting and 
disclosure practices of the Bank;
    (2) Review the basis for the Bank's financial statements and the 
external auditor's opinion rendered with respect to such financial 
statements (including the nature and extent of any significant changes 
in accounting principles or the application therein) and ensure that 
policies are in place that are reasonably designed to achieve disclosure 
and transparency regarding the Bank's true financial performance and 
governance practices;
    (3) Oversee the internal audit function by:
    (i) Reviewing the scope of audit services required, significant 
accounting policies, significant risks and exposures, audit activities 
and audit findings;
    (ii) Assessing the performance and determining the compensation of 
the internal auditor; and
    (iii) Reviewing and approving the internal auditor's work plan;
    (4) Oversee the external audit function by:
    (i) Approving the external auditor's annual engagement letter;
    (ii) Reviewing the performance of the external auditor; and
    (iii) Making recommendations to the Bank's board of directors 
regarding the

[[Page 94]]

appointment, renewal, or termination of the external auditor;
    (5) Provide an independent, direct channel of communication between 
the Bank's board of directors and the internal and external auditors;
    (6) Conduct or authorize investigations into any matters within the 
audit committee's scope of responsibilities;
    (7) Ensure that senior management has established and is maintaining 
an adequate internal control system within the Bank by:
    (i) Reviewing the Bank's internal control system and the resolution 
of identified material weaknesses and reportable conditions in the 
internal control system, including the prevention or detection of 
management override or compromise of the internal control system; and
    (ii) Reviewing the programs and policies of the Bank designed to 
ensure compliance with applicable laws, regulations and policies and 
monitoring the results of these compliance efforts;
    (8) Review the policies and procedures established by senior 
management to assess and monitor implementation of the Bank's strategic 
business plan and the operating goals and objectives contained therein; 
and
    (9) Report periodically its findings to the Bank's board of 
directors.
    (f) Meetings. The audit committee shall prepare written minutes of 
each audit committee meeting.

[65 FR 25274, May 1, 2000, as amended at 67 FR 12846, Mar. 20, 2002]



Sec. 917.8  Budget preparation.

    (a) Adoption of budgets. Each Bank's board of directors shall be 
responsible for the adoption of an annual operating expense budget and a 
capital expenditures budget for the Bank, and any subsequent amendments 
thereto, consistent with the requirements of the Act, this section, 
other regulations and policies of the Finance Board, and with the Bank's 
responsibility to protect both its members and the public interest by 
keeping its costs to an efficient and effective minimum.
    (b) No delegation of budget authority. A Bank's board of directors 
may not delegate the authority to approve the Bank's annual budgets, or 
any subsequent amendments thereto, to Bank officers or other Bank 
employees.
    (c) Interest rate scenario. A Bank's annual budgets shall be 
prepared based upon an interest rate scenario as determined by the Bank.
    (d) Board approval for deviations. A Bank may not exceed its total 
annual operating expense budget or its total annual capital expenditures 
budget without prior approval by the Bank's board of directors of an 
amendment to such budget.



Sec. 917.9  Dividends.

    (a) A Bank's board of directors may declare and pay a dividend only 
from previously retained earnings or current net earnings and only in 
accordance with any other applicable limitations on dividends set forth 
in the Act or this chapter. Dividends on such capital stock shall be 
computed without preference.
    (b) A Bank's board of directors may not declare or pay a dividend 
based on projected or anticipated earnings and may not declare or pay a 
dividend if the par value of the Bank's stock is impaired or is 
projected to become impaired after paying such dividend.
    (c) The requirement in paragraph (a) of this section that dividends 
be computed without preference shall cease to apply to any Bank that has 
established any dividend preferences for 1 or more classes or subclasses 
of its capital stock as part of its approved capital plan, as of the 
date on which the capital plan takes effect.

[71 FR 78051, Dec. 28, 2006]



Sec. 917.10  Bank bylaws.

    A Bank's board of directors shall have in effect at all times bylaws 
governing the manner in which the Bank administers its affairs and such 
bylaws shall be consistent with applicable laws and regulations as 
administered by the Finance Board.



PART 918_BANK DIRECTOR COMPENSATION AND EXPENSES--Table of Contents




Sec.
918.1 Definitions.
918.2 Annual directors' compensation policy.

[[Page 95]]

918.3 Directors' compensation policy requirements.
918.4 Directors' expenses.
918.5 Approval by Finance Board.
918.6 Disclosure.
918.7 Maintenance of effort.
918.8 Site of board of directors and committee meetings.
918.9 Date of applicability of removal of requirements regarding 
          compensation of bank officers and employees.

    Authority: 12 U.S.C. 1422b(a), 1427.

    Source: 65 FR 8260, Feb. 18, 2000, unless otherwise noted.



Sec. 918.1  Definitions.

    As used in this part:
    Compensation means any payment of money or provision of any other 
thing of value (or the accrual of a right to receive money or a thing of 
value in a subsequent year) in consideration of a director's performance 
of official duties for the Bank, including, without limitation, daily 
meeting fees, incentive payments and fringe benefits.



Sec. 918.2  Annual directors' compensation policy.

    Beginning in 2000 and annually thereafter, each Bank's board of 
directors shall adopt by resolution a written policy to provide for the 
payment to Bank directors of reasonable compensation for the performance 
of their duties as members of the Bank's board of directors, subject to 
the requirements set forth in Sec. 918.3. At a minimum, such policy 
shall address the activities or functions for which attendance is 
necessary and appropriate and may be compensated, and shall explain and 
justify the methodology for determining the amount of compensation to be 
paid to directors.

[65 FR 8260, Feb. 18, 2000]



Sec. 918.3  Compensation policy requirements.

    Payment to directors under each Bank's policy on director 
compensation may be based upon factors that the Bank determines to be 
appropriate, but each Bank's policy shall conform to the following 
requirements:
    (a)(1) Statutory limits on annual compensation. Pursuant to section 
7(i) of the Act (12 U.S.C. 1427(i)), for 2000, the following limits on 
compensation shall apply: for a Chairperson--$25,000; for a Vice 
Chairperson--$20,000; for any other member of the Bank's board of 
directors--$15,000. Beginning in 2001 and for subsequent years, these 
limits on annual compensation shall be adjusted annually by the Finance 
Board to reflect any percentage increase in the preceding year's 
Consumer Price Index (CPI) for all urban consumers, as published by the 
Department of Labor. Each year, as soon as practicable after the 
publication of the previous year's CPI, the Finance Board shall publish 
notice by Federal Register, distribution of a memorandum, or otherwise, 
of the CPI-adjusted limits on annual compensation.
    (2) Starting in 2000, the annual compensation limits set forth in 
paragraph (a)(1) of this section shall apply to the year in which any 
deferred compensation was accrued or earned by a director, and not to 
the year in which it is paid to the director.
    (b) Compensation permitted only for performance of official Bank 
business. The total compensation received by each director in a year 
shall reflect the amount of time spent on official Bank business, and 
greater or lesser attendance at board and committee meetings during a 
given year shall be reflected in the compensation received by the 
director for that year. A Bank shall not pay a director who regularly 
fails to attend board or committee meetings. A Bank shall not pay fees 
to a director, such as retainer fees, that do not reflect the director's 
performance of official Bank business conducted prior to the payment of 
such fees.

[65 FR 8260, Feb. 18, 2000, as amended at 65 FR 13666, Mar. 14, 2000; 67 
FR 12846, Mar. 20, 2002]



Sec. 918.4  Directors' expenses.

    Each Bank may pay its directors for such necessary and reasonable 
travel, subsistence and other related expenses incurred in connection 
with the performance of their official duties as are payable to senior 
officers of the Bank under the Bank's travel policy, except that 
directors may not be paid for gift or entertainment expenses.

[65 FR 8260, Feb. 18, 2000]

[[Page 96]]



Sec. 918.5  Approval by Finance Board.

    Payments made to directors in compliance with the limits on annual 
directors' compensation and the standards set forth in this section are 
deemed to be approved by the Finance Board for purposes of section 7(i) 
of the Act (12 U.S.C. 1427(i)).

[65 FR 8260, Feb. 18, 2000, as amended at 67 FR 12846, Mar. 20, 2002]



Sec. 918.6  Disclosure.

    Each Bank shall, in its annual report:
    (a) State the sum of the total actual compensation paid to its 
directors in that year;
    (b) State the sum of the total actual expenses paid to its directors 
in that year; and
    (c) Summarize its policy on director compensation.



Sec. 918.7  Maintenance of effort.

    Notwithstanding the limits on annual directors' compensation 
established by section 7(i) of the Act (12 U.S.C. 1427(i)), the board of 
directors of each Bank shall continue to maintain its level of oversight 
of the management of the Bank. In maintaining its level of oversight, 
the board of directors of a Bank shall hold at least six in-person 
meetings in any year.

[66 FR 24264, May 14, 2001, as amended at 67 FR 12846, Mar. 20, 2002]



Sec. 918.8  Site of board of directors and committee meetings.

    Meetings of a Bank's board of directors and committees thereof 
usually should be held within the district served by the Bank. No 
meetings of a Bank's board of directors and committees thereof may be 
held in any location that is not within the United States, including its 
possessions and territories.



Sec. 918.9  Date of applicability of removal of requirements regarding compensation of bank officers and employees.

    The removal of the requirements relating to compensation of Bank 
officers and employees in former 12 CFR 932.19 (in the Code of Federal 
Regulations revised as of January 1, 1999), is applicable for all Bank 
officer and employee compensation years starting after December 21, 
1999.

[65 FR 13666, Mar. 14, 2000, as amended at 67 FR 12846, Mar. 20, 2002]

[[Page 97]]



   SUBCHAPTER D_FEDERAL HOME LOAN BANK MEMBERS AND HOUSING ASSOCIATES





PART 925_MEMBERS OF THE BANKS--Table of Contents




                          Subpart A_Definitions

Sec.
925.1 Definitions.

                Subpart B_Membership Application Process

925.2 Membership application requirements.
925.3 Decision on application.
925.4 Automatic membership.
925.5 Appeals.

                   Subpart C_Eligibility Requirements

925.6 General eligibility requirements.
925.7 Duly organized requirement.
925.8 Subject to inspection and regulation requirement.
925.9 Makes long-term home mortgage loans requirement.
925.10 10 percent requirement for certain insured depository institution 
          applicants.
925.11 Financial condition requirement for applicants other than 
          insurance companies.
925.12 Character of management requirement.
925.13 Home financing policy requirement.
925.14 De novo insured depository institution applicants.
925.15 Recent merger or acquisition applicants.
925.16 Financial condition requirement for insurance company applicants.
925.17 Rebuttable presumptions.
925.18 Determination of appropriate Bank district for membership.

                      Subpart D_Stock Requirements

925.19 Par value and price of stock.
925.20 Stock purchase.
925.21 Issuance and form of stock.
925.22 Adjustments in stock holdings.
925.23 Excess stock.

               Subpart E_Consolidations Involving Members

925.24 Consolidations involving members.

            Subpart F_Withdrawal and Removal From Membership

925.26 Voluntary withdrawal from membership.
925.27 Involuntary termination of membership.

    Subpart G_Orderly Liquidation of Advances and Redemption of Stock

925.29 Disposition of claims.

                  Subpart H_Reacquisition of Membership

925.30 Readmission to membership.

                  Subpart I_Bank Access to Information

925.31 Reports and examinations.

                      Subpart J_Membership Insignia

925.32 Official membership insignia.

    Authority: 12 U.S.C. 1422, 1422a, 1422b, 1423, 1424, 1426, 1430, 
1442.

    Source: 58 FR 43542, Aug. 17, 1993, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.



                          Subpart A_Definitions



Sec. 925.1  Definitions.

    For purposes of this part:
    Adjusted net income means net income, excluding extraordinary items 
such as income received from, or expense incurred in, sales of 
securities or fixed assets, reported on a regulatory financial report.
    Aggregate unpaid loan principal means the aggregate unpaid principal 
of a subscriber's or member's home mortgage loans, home-purchase 
contracts and similar obligations.
    Allowance for loan and lease losses means a specified balance-sheet 
account held to fund potential losses on loans or leases, that is 
reported on a regulatory financial report.
    Appropriate regulator means a regulatory entity listed in Sec. 
925.8, as applicable.
    Combination business or farm property means real property for which 
the total appraised value is attributable to residential, and business 
or farm uses.
    Community financial institution or CFI means an institution:
    (1) The deposits of which are insured under the Federal Deposit 
Insurance Act (12 U.S.C. 1811, et seq.); and

[[Page 98]]

    (2) That has, as of the date of the transaction at issue, less than 
the community financial institution asset cap in total assets, based on 
an average of total assets over three years, which shall be calculated 
by the Bank based on the average of total assets drawn from the 
institution's regulatory financial reports filed with its appropriate 
regulator for the most recent calendar quarter and the immediately 
preceding 11 calendar quarters.
    Community financial institution asset cap means, for 2000, $500 
million. Beginning in 2001 and for subsequent years, the cap shall be 
adjusted annually by the Finance Board to reflect any percentage 
increase in the preceding year's Consumer Price Index (CPI) for all 
urban consumers, as published by the U.S. Department of Labor. Each 
year, as soon as practicable after the publication of the previous 
year's CPI, the Finance Board shall publish notice by the Federal 
Register of the CPI-adjusted cap.
    Composite regulatory examination rating means a composite rating 
assigned to an institution following the guidelines of the Uniform 
Financial Institutions Rating System (Issued by the Federal Financial 
Institutions Examination Council; for availability contact the Federal 
Housing Finance Board, FOIA Office, 1777 F Street, NW., Washington, DC 
20006), including a CAMEL rating, a MACRO rating, or other similar 
rating, contained in a written regulatory examination report.
    Consolidation includes a consolidation, a merger, or a purchase of 
all of the assets and assumption of all of the liabilities of an entity 
by another entity.
    Dwelling unit means a single room or a unified combination of rooms 
designed for residential use.
    Enforcement action means any written notice, directive, order or 
agreement initiated by an applicant for Bank membership or by its 
appropriate regulator to address any operational, financial, managerial 
or other deficiencies of the applicant identified by such regulator, but 
does not include a board of directors resolution adopted by the 
applicant in response to examination weaknesses identified by such 
regulator.
    Funded residential construction loan means the portion of a loan 
secured by real property made to finance the on-site construction of 
dwelling units on one-to-four family property or multifamily property 
disbursed to the borrower.
    Home mortgage loan means:
    (1) A loan, whether or not fully amortizing, or an interest in such 
a loan, which is secured by a mortgage, deed of trust, or other security 
agreement that creates a first lien on one of the following interests in 
property:
    (i) One-to-four family property or multifamily property, in fee 
simple;
    (ii) A leasehold on one-to-four family property or multifamily 
property under a lease of not less than 99 years that is renewable, or 
under a lease having a period of not less than 50 years to run from the 
date the mortgage was executed; or
    (iii) Combination business or farm property where at least 50 
percent of the total appraised value of the combined property is 
attributable to the residential portion of the property or, in the case 
of any community financial institution, combination business or farm 
property, on which is located a permanent structure actually used as a 
residence (other than for temporary or seasonal housing), where the 
residence constitutes an integral part of the property; or
    (2) A mortgage pass-through security that represents an undivided 
ownership interest in:
    (i) Long-term loans, provided that, at the time of issuance of the 
security, all of the loans meet the requirements of paragraph (1) of 
this definition; or
    (ii) A security that represents an undivided ownership interest in 
long-term loans, provided that, at the time of issuance of the security, 
all of the loans meet the requirements of paragraph (1) of this 
definition.
    Insured depository institution means an insured depository 
institution as defined in section 2(12) of the Act (12 U.S.C. 1422(12)).
    Long-term means a term to maturity of five years or greater.
    Manufactured housing means a manufactured home as defined in section

[[Page 99]]

603(6) of the Manufactured Home Construction and Safety Standards Act of 
1974, as amended (42 U.S.C. 5402(6)).
    Multifamily property means:
    (1) Real property that is solely residential and includes five or 
more dwelling units;
    (2) Real property that includes five or more dwelling units combined 
with commercial units, provided that the property is primarily 
residential; or
    (3) Nursing homes, dormitories, or homes for the elderly.
    Nonperforming loans and leases means the sum of the following, 
reported on a regulatory financial report:
    (1) Loans and leases that have been past due for 90 days (60 days in 
the case of credit union applicants) or longer but are still accruing;
    (2) Loans and leases on a nonaccrual basis; and
    (3) Restructured loans and leases (not already reported as 
nonperforming).
    Nonresidential real property means real property that is not used 
for residential purposes, including business or industrial property, 
hotels, motels, churches, hospitals, educational and charitable 
institution buildings or facilities, clubs, lodges, association 
buildings, golf courses, recreational facilities, farm property not 
containing a dwelling unit, or similar types of property.
    One-to-four family property means:
    (1) Real property that is solely residential, including one-to-four 
family dwelling units or more than four family dwelling units if each 
dwelling unit is separated from the other dwelling units by dividing 
walls that extend from ground to roof, such as row houses, townhouses or 
similar types of property;
    (2) Manufactured housing if applicable state law defines the 
purchase or holding of manufactured housing as the purchase or holding 
of real property;
    (3) Individual condominium dwelling units or interests in individual 
cooperative housing dwelling units that are part of a condominium or 
cooperative building without regard to the number of total dwelling 
units therein; or
    (4) Real property which includes one-to-four family dwelling units 
combined with commercial units, provided the property is primarily 
residential.
    Other real estate owned means all other real estate owned (i.e., 
foreclosed and repossessed real estate), reported on a regulatory 
financial report, and does not include direct and indirect investments 
in real estate ventures.
    Regulatory examination report means a written report of examination 
prepared by the applicant's appropriate regulator, containing, in the 
case of insured depository institution applicants, a composite rating 
assigned to the institution following the guidelines of the Uniform 
Financial Institutions Rating System, including a CAMEL rating, a MACRO 
rating, or other similar rating.
    Regulatory financial report means a financial report that an 
applicant is required to file with its appropriate regulator on a 
specific periodic basis, including the quarterly call report for 
commercial banks, thrift financial report for savings associations, 
quarterly or semi-annual call report for credit unions, the National 
Association of Insurance Commissioners' annual or quarterly report for 
insurance companies, or other similar report, including such report 
maintained by the appropriate regulator on a computer on-line database.
    Residential mortgage loan means any one of the following types of 
loans, whether or not fully amortizing:
    (1) Home mortgage loans;
    (2) Funded residential construction loans;
    (3) Loans secured by manufactured housing whether or not defined by 
state law as secured by an interest in real property;
    (4) Loans secured by junior liens on one-to-four family property or 
multifamily property;
    (5) Mortgage pass-through securities representing an undivided 
ownership interest in:
    (i) Loans that meet the requirements of paragraphs (1) through (4) 
of this definition at the time of issuance of the security;
    (ii) Securities representing an undivided ownership interest in 
loans, provided that, at the time of issuance of the security, all of 
the loans meet the requirements of paragraphs (1) through (4) of this 
definition; or
    (iii) Mortgage debt securities as defined in paragraph (6) of this 
definition;

[[Page 100]]

    (6) Mortgage debt securities secured by:
    (i) Loans, provided that, at the time of issuance of the security, 
substantially all of the loans meet the requirements of paragraphs (1) 
through (4) of this definition;
    (ii) Securities that meet the requirements of paragraph (5) of this 
definition; or
    (iii) Securities secured by assets, provided that, at the time of 
issuance of the security, all of the assets meet the requirements of 
paragraphs (1) through (5) of this definition;
    (7) Home mortgage loans secured by a leasehold interest, as defined 
in paragraph (1)(ii) of the definition of ``home mortgage loan,'' except 
that the period of the lease term may be for any duration; or
    (8) Loans that finance properties or activities that, if made by a 
member, would satisfy the statutory requirements for the CIP established 
under section 10(i) of the Act (12 U.S.C. 1430(i)), or the regulatory 
requirements established for any CICA program.
    Total assets means the total assets reported on a regulatory 
financial report.

[67 FR 12846, Mar. 20, 2002]



                Subpart B_Membership Application Process

    Source: 61 FR 42543 Aug. 16, 1996, unless otherwise noted.



Sec. 925.2  Membership application requirements.

    (a) Application. An applicant for membership in a Bank shall submit 
to that Bank an application that satisfies the requirements of this 
part. The application shall include a written resolution or 
certification duly adopted by the applicant's board of directors, or by 
an individual with authority to act on behalf of the applicant's board 
of directors, of the following:
    (1) Applicant review. Applicant has reviewed the requirements of 
this part and, as required by this part, has provided to the best of 
applicant's knowledge the most recent, accurate and complete information 
available; and
    (2) Duty to supplement. Applicant will promptly supplement the 
application with any relevant information that comes to applicant's 
attention prior to the Bank's decision on whether to approve or deny the 
application, and if the Bank's decision is appealed pursuant to Sec. 
925.5 of this part, prior to resolution of any appeal by the Finance 
Board.
    (b) Digest. The Bank shall prepare a written digest for each 
applicant stating whether or not the applicant meets each of the 
requirements in Sec. Sec. 925.6 to 925.18 of this part, the Bank's 
findings and the reasons therefor.
    (c) File. The Bank shall maintain a membership file for each 
applicant for at least three years after the Bank decides whether to 
approve or deny membership and the resolution of any appeal to the 
Finance Board. The membership file shall contain at a minimum:
    (1) Digest. The digest required by paragraph (b) of this section.
    (2) Required documents. All documents required by Sec. Sec. 925.6 
to 925.18 of this part, including those documents required to establish 
or rebut a presumption under this part, shall be described in and 
attached to the digest. The Bank may retain in the file only the 
relevant portions of the regulatory financial reports required by this 
part. If an applicant's appropriate regulator requires return or 
destruction of a regulatory examination report, the date that the report 
is returned or destroyed shall be noted in the file.
    (3) Additional documents. Any additional document submitted by the 
applicant, or otherwise obtained or generated by the Bank, concerning 
the applicant.
    (4) Decision resolution. The decision resolution described in Sec. 
925.3(b) of this part.

[61 FR 42543, Aug. 16, 1996, as amended at 63 FR 40023, July 27, 1998; 
65 FR 8261, Feb. 18, 2000; 70 FR 9510, Feb. 28, 2005]



Sec. 925.3  Decision on application.

    (a) Authority. The Finance Board authorizes the Banks to approve or 
deny all applications for membership, subject to the requirements of 
this part. The Bank may delegate the authority to approve membership 
applications only to a committee of the Bank's board of directors, the 
Bank president,

[[Page 101]]

or a senior officer who reports directly to the Bank president other 
than an officer with responsibility for business development.
    (b) Decision resolution. For each applicant, the Bank shall prepare 
a written resolution duly adopted by the Bank's board of directors, by a 
committee of the board of directors, or by an officer with delegated 
authority to approve membership applications. The decision resolution 
shall state:
    (1) That the statements in the digest are accurate to the best of 
the Bank's knowledge, and are based on a diligent and comprehensive 
review of all available information identified in the digest; and
    (2) The Bank's decision and the reasons therefor. Decisions to 
approve an application should state specifically that: the applicant is 
authorized under the laws of the United States and the laws of the 
appropriate state to become a member of, purchase stock in, do business 
with, and maintain deposits in, the Bank to which the applicant has 
applied; and the applicant meets all of the membership eligibility 
criteria of the Act and this part.
    (c) Action on applications. The Bank shall act on an application 
within 60 calendar days of the date the Bank deems the application to be 
complete. An application is ``complete'' when a Bank has obtained all 
the information required by this part, and any other information the 
Bank deems necessary, to process the application. If an application that 
was deemed complete subsequently is deemed incomplete because the Bank 
determines during the review process that additional information is 
necessary to process the application, the Bank may stop the 60-day clock 
until the application again is deemed complete, and then resume the 
clock where it left off. The Bank shall notify an applicant in writing 
when its application is deemed by the Bank to be complete, and shall 
maintain a copy of such letter in the applicant's membership file. The 
Bank shall notify an applicant if the 60-day clock is stopped, and when 
the clock is resumed, and shall maintain a written record of such 
notifications in the applicant's membership file. Within 3 business days 
of a Bank's decision on an application, the Bank shall provide the 
applicant and the Finance Board's Secretary to the Board with a copy of 
the Bank's decision resolution.

[61 FR 42543, Aug. 16, 1996, as amended at 63 FR 40023, July 27, 1998; 
65 FR 8261, Feb. 18, 2000; 67 FR 12848, Mar. 20, 2002; 70 FR 9510, Feb. 
28, 2005]



Sec. 925.4  Automatic membership.

    (a) Automatic membership for certain charter conversions. An insured 
depository institution member that converts from one charter type to 
another automatically shall become a member of the Bank of which the 
converting institution was a member on the effective date of such 
conversion, provided that the converting institution continues to be an 
insured depository institution and the assets of the institution 
immediately before and immediately after the conversion are not 
materially different. In such case, all relationships existing between 
the member and the Bank at the time of such conversion may continue.
    (b) Automatic membership for transfers. Any member whose membership 
is transferred pursuant to Sec. 925.18(d) of this part automatically 
shall become a member of the Bank to which it transfers.
    (c) Automatic membership, in the Bank's discretion, for certain 
consolidations. (1) If a member institution (or institutions) and a 
nonmember institution are consolidated and the consolidated institution 
has its principal place of business in a state in the same Bank district 
as the disappearing institution (or institutions), and the consolidated 
institution will operate under the charter of the nonmember institution, 
on the effective date of the consolidation, the consolidated institution 
may, in the discretion of the Bank of which the disappearing institution 
(or institutions) was a member immediately prior to the effective date 
of the consolidation, automatically become a member of such Bank upon 
the purchase of stock in that Bank pursuant to Sec. 925.20, provided 
that:
    (i) 90 percent or more of the total assets of the consolidated 
institution are derived from the total assets of the disappearing member 
institution (or institutions); and

[[Page 102]]

    (ii) The consolidated institution provides written notice to such 
Bank, within 60 calendar days after the effective date of the 
consolidation, that it desires to be a member of the Bank.
    (2) The provisions of Sec. 925.25(b)(4)(i) shall apply, and upon 
approval of automatic membership by the Bank, the provisions of 
Sec. Sec. 925.24(c) and (d) shall apply.

[61 FR 42543, Aug. 16, 1996, as amended at 63 FR 40024, July 27, 1998; 
65 FR 8261, Feb. 18, 2000; 65 FR 13870, Mar. 15, 2000; 67 FR 12848, Mar. 
20, 2002]



Sec. 925.5  Appeals.

    (a) Appeals by applicants--(1) Filing procedure. Within 90 calendar 
days of the date of a Bank's decision to deny an application for 
membership, the applicant may file a written appeal of the decision with 
the Finance Board.
    (2) Documents. The applicant's appeal shall be addressed to the 
Secretary to the Board, Federal Housing Finance Board, 1777 F Street, 
NW., Washington, DC 20006, with a copy to the Bank, and shall include 
the following documents:
    (i) Bank's decision resolution. A copy of the Bank's decision 
resolution; and
    (ii) Basis for appeal. A statement of the basis for the appeal by 
the applicant with sufficient facts, information, analysis and 
explanation to rebut any applicable presumptions and otherwise support 
the applicant's position.
    (b) Record for appeal--(1) Copy of membership file. Upon receiving a 
copy of an appeal, the Bank whose action has been appealed (appellee 
Bank) shall provide the Finance Board with a copy of the applicant's 
complete membership file. Until the Finance Board resolves the appeal, 
the appellee Bank shall supplement the materials provided to the Finance 
Board as any new materials are received.
    (2) Additional information. The Finance Board may request additional 
information or further supporting arguments from the appellant, the 
appellee Bank or any other party that the Finance Board deems 
appropriate.
    (c) Deciding appeals. The Finance Board shall consider the record 
for appeal described in paragraph (b) of this section and shall resolve 
the appeal based on the requirements of the Act and this part within 90 
calendar days of the date the appeal is filed with the Finance Board. In 
deciding the appeal, the Finance Board shall apply the presumptions in 
this part, unless the appellant or appellee Bank presents evidence to 
rebut a presumption as provided in Sec. 925.17 of this part.

[61 FR 42543, Aug. 16, 1996, as amended at 65 FR 8261, Feb. 18, 2000; 67 
FR 12848, Mar. 20, 2002; 70 FR 9510, Feb. 28, 2005]



                   Subpart C_Eligibility Requirements

    Source: 61 FR 42545, Aug. 16, 1996, unless otherwise noted.



Sec. 925.6  General eligibility requirements.

    (a) Requirements. Any building and loan association, savings and 
loan association, cooperative bank, homestead association, insurance 
company, savings bank, or insured depository institution, upon 
application satisfying all of the requirements of the Act and this part, 
shall be eligible to become a member of a Bank if:
    (1) It is duly organized under the laws of any State or of the 
United States;
    (2) It is subject to inspection and regulation under the banking 
laws, or under similar laws, of any State or of the United States;
    (3) It makes long-term home mortgage loans;
    (4) Its financial condition is such that advances may be safely made 
to it;
    (5) The character of its management is consistent with sound and 
economical home financing; and
    (6) Its home financing policy is consistent with sound and 
economical home financing.
    (b) Additional eligibility requirement for insured depository 
institutions other than community financial institutions. In order to be 
eligible to become a member of a Bank, an insured depository institution 
applicant other than a community financial institution also must have at 
least 10 percent of its total assets in residential mortgage loans.
    (c) Additional eligibility requirement for applicants that are not 
insured depository institutions. In order to be eligible to become a 
member of a Bank, an applicant that is not an insured depository

[[Page 103]]

institution also must have mortgage-related assets that reflect a 
commitment to housing finance, as determined by the Bank in its 
discretion.
    (d) Ineligibility. Except as otherwise provided in this part, if an 
applicant does not satisfy the requirements of this part, the applicant 
is ineligible for membership.

[61 FR 42545, Aug. 16, 1996, as amended at 65 FR 13870, Mar. 15, 2000; 
70 FR 9510, Feb. 28, 2005]



Sec. 925.7  Duly organized requirement.

    An applicant shall be deemed to be duly organized as required by 
section 4(a)(1)(A) of the Act (12 U.S.C. 1424(a)(1)(A)) and Sec. 
925.6(a)(1) of this part, if it is chartered by a state or federal 
agency as a building and loan association, savings and loan association, 
cooperative bank, homestead association, insurance company, savings bank 
or insured depository institution.

[61 FR 42545, Aug. 16, 1996, as amended at 65 FR 8261, Feb. 18, 2000; 67 
FR 12848, Mar. 20, 2002; 70 FR 9510, Feb. 28, 2005]



Sec. 925.8  Subject to inspection and regulation requirement.

    An applicant shall be deemed to be subject to inspection and 
regulation as required by section 4(a)(1)(B) of the Act (12 U.S.C. 
1424(a)(1)(B)) and Sec. 925.6(a)(2) of this part, if, in the case of a 
depository institution applicant, it is subject to inspection and 
regulation by the FDIC, FRB, NCUA, OCC, OTS, or other appropriate state 
regulator, and, in the case of an insurance company applicant, it is 
subject to inspection and regulation by an appropriate state regulator 
accredited by the National Association of Insurance Commissioners.

[61 FR 42545, Aug. 16, 1996, as amended at 65 FR 8261, Feb. 18, 2000; 67 
FR 12848, Mar. 20, 2002; 70 FR 9510, Feb. 28, 2005]



Sec. 925.9  Makes long-term home mortgage loans requirement.

    An applicant shall be deemed to make long-term home mortgage loans 
as required by section 4(a)(1)(C) of the Act (12 U.S.C. 1424(a)(1)(C)) 
and Sec. 925.6(a)(3) of this part, if, based on the applicant's most 
recent regulatory financial report filed with its appropriate regulator, 
the applicant originates or purchases long-term home mortgage loans.

[61 FR 42545, Aug. 16, 1996, as amended at 63 FR 40023, July 27, 1998; 
65 FR 8261, Feb. 18, 2000; 67 FR 12848, Mar. 20, 2002; 70 FR 9510, Feb. 
28, 2005]



Sec. 925.10  10 percent requirement for certain insured depository institution applicants.

    An insured depository institution applicant that is subject to the 
10 percent requirement of section 4(a)(2)(A) of the Act (12 U.S.C. 
1424(a)(2)(A))and section 925.6(b) of this part, shall be deemed to be 
in compliance with such requirement if, based on the applicant's most 
recent regulatory financial report filed with its appropriate regulator, 
the applicant has at least 10 percent of its total assets in residential 
mortgage loans, except that any assets used to secure mortgage debt 
securities as described in paragraph (6) of the definition of 
``residential mortgage loan'' set forth in Sec. 925.1 of this part 
shall not be used to meet this requirement.

[65 FR 13870, Mar. 15, 2000, as amended at 67 FR 12848, Mar. 20, 2002]



Sec. 925.11  Financial condition requirement for applicants other than insurance companies.

    (a) Review requirement. In determining whether an applicant other 
than an insurance company has complied with the financial condition 
requirement of section 4(a)(2)(B) of the Act (12 U.S.C. 1424(a)(2)(B)) 
and Sec. 925.6(a)(4) of this part, the Bank shall obtain as a part of 
the membership application and review each of the following documents:
    (1) Regulatory financial reports. The regulatory financial reports 
filed by the applicant with its appropriate regulator for the last six 
calendar quarters and three year-ends preceding the date the Bank 
receives the application;
    (2) Financial statement. In order of preference: the most recent 
independent audit of the applicant conducted in accordance with 
generally accepted auditing standards by a certified public accounting 
firm which submits a report on the applicant; the most recent 
independent audit of the applicant's parent holding company

[[Page 104]]

conducted in accordance with generally accepted auditing standards by a 
certified public accounting firm which submits a report on the 
consolidated holding company but not on the applicant separately; the 
most recent Directors' examination of the applicant conducted in 
accordance with generally accepted auditing standards by a certified 
public accounting firm; the most recent Directors' examination of the 
applicant performed by other external auditors; the most recent review 
of the applicant's financial statements by external auditors; the most 
recent Compilation of the applicant's financial statements by external 
auditors; or the most recent audit of other procedures of the applicant;
    (3) Regulatory examination report. The applicant's most recent 
available regulatory examination report prepared by its appropriate 
regulator, a summary prepared by the Bank of the applicant's strengths 
and weaknesses as cited in the regulatory examination report, and a 
summary prepared by the Bank or applicant of actions taken by the 
applicant to respond to examination weaknesses;
    (4) Enforcement actions. A description prepared by the Bank or 
applicant of any outstanding enforcement actions against the applicant, 
responses by the applicant, reports as required by the enforcement 
action, and verbal or written indications, if available, from the 
appropriate regulator of how the applicant is complying with the terms 
of the enforcement action; and
    (5) Additional information. Any other relevant document or 
information concerning the applicant that comes to the Bank's attention 
in reviewing the applicant's financial condition.
    (b) Standards. An applicant other than an insurance company shall be 
deemed to be in compliance with the financial condition requirement of 
section 4(a)(2)(B) of the Act (12 U.S.C. 1424(a)(2)(B)) and Sec. 
925.6(a)(4) of this part, if:
    (1) Recent composite regulatory examination rating. The applicant 
has received a composite regulatory examination rating from its 
appropriate regulator within two years preceding the date the Bank 
receives the application;
    (2) Capital requirement. The applicant meets all of its minimum 
statutory and regulatory capital requirements as reported in its most 
recent quarter-end regulatory financial report filed with its 
appropriate regulator; and
    (3) Minimum performance standard. (i) The applicant's most recent 
composite regulatory examination rating from its appropriate regulator 
within the past two years was ``1;'' or was ``2'' or ``3'' and, based on 
the applicant's most recent regulatory financial report filed with its 
appropriate regulator, the applicant satisfied all of the following 
performance trend criteria:
    (A) Earnings. The applicant's adjusted net income was positive in 
four of the six most recent calendar quarters;
    (B) Nonperforming assets. The applicant's nonperforming loans and 
leases plus other real estate owned, did not exceed 10 percent of its 
total loans and leases plus other real estate owned, in the most recent 
calendar quarter; and
    (C) Allowance for loan and lease losses. The applicant's ratio of 
its allowance for loan and lease losses plus the allocated transfer risk 
reserve to nonperforming loans and leases was 60 percent or greater 
during 4 of the 6 most recent calendar quarters.
    (ii) For applicants that are not required to report financial data 
to their appropriate regulator on a quarterly basis, the information 
required in paragraph (b)(3)(i) of this section may be reported on a 
semiannual basis.
    (c) Eligible collateral not considered. The availability of 
sufficient eligible collateral to secure advances to the applicant is 
presumed and shall not be considered in determining whether an applicant 
is in the financial condition required by section 4(a)(2)(B) of the Act 
(12 U.S.C. 1424(a)(2)(B)) and Sec. 925.6(a)(4) of this part.

[61 FR 42545, Aug. 16, 1996, as amended at 63 FR 40023, 40024, July 27, 
1998; 65 FR 8261, Feb. 18, 2000; 67 FR 12848, Mar. 20, 2002; 70 FR 9510, 
Feb. 28, 2005]



Sec. 925.12  Character of management requirement.

    An applicant shall be deemed to be in compliance with the character 
of management requirement of section 4(a)(2)(C) of the Act (12 U.S.C.

[[Page 105]]

1424(a)(2)(C)) and Sec. 925.6(a)(5) of this part, if the applicant 
provides to the Bank an unqualified written certification duly adopted 
by the applicant's board of directors, or by an individual with 
authority to act on behalf of the applicant's board of directors, that:
    (a) Enforcement actions. Neither the applicant nor any of its 
directors or senior officers is subject to, or operating under, any 
enforcement action instituted by its appropriate regulator;
    (b) Criminal, civil or administrative proceedings. Neither the 
applicant nor any of its directors or senior officers has been the 
subject of any criminal, civil or administrative proceedings reflecting 
upon creditworthiness, business judgment, or moral turpitude since the 
most recent regulatory examination report; and
    (c) Criminal, civil or administrative monetary liabilities, lawsuits 
or judgments. There are no known potential criminal, civil or 
administrative monetary liabilities, material pending lawsuits, or 
unsatisfied judgments against the applicant or any of its directors or 
senior officers since the most recent regulatory examination report, 
that are significant to the applicant's operations.

[61 FR 42545, Aug. 16, 1996, as amended at 63 FR 40023, July 27, 1998; 
65 FR 8261, Feb. 18, 2000; 67 FR 12848, Mar. 20, 2002; 70 FR 9510, Feb. 
28, 2005]



Sec. 925.13  Home financing policy requirement.

    (a) Standard. An applicant shall be deemed to be in compliance with 
the home financing policy requirement of section 4(a)(2)(C) of the Act 
(12 U.S.C. 1424(a)(2)(C)) and Sec. 925.6(a)(6) of this part, if the 
applicant has received a Community Reinvestment Act (CRA) rating of 
``Satisfactory'' or better on its most recent formal, or if unavailable, 
informal or preliminary, CRA performance evaluation.
    (b) Written justification required. An applicant that is not subject 
to the CRA shall file as part of its application for membership a 
written justification acceptable to the Bank of how and why the 
applicant's home financing policy is consistent with the Bank System's 
housing finance mission.

[61 FR 42545, Aug. 16, 1996, as amended at 65 FR 8261, Feb. 18, 2000; 67 
FR 12848, Mar. 20, 2002; 70 FR 9510, Feb. 28, 2005]



Sec. 925.14  De novo insured depository institution applicants.

    (a) Duly organized, subject to inspection and regulation, financial 
condition and character of management requirements. An insured 
depository institution applicant whose date of charter approval is 
within three years prior to the date the Bank receives the applicant's 
application for membership in the Bank (de novo applicant) is deemed to 
meet the requirements of Sec. Sec. 925.7, 925.8, 925.11 and 925.12.
    (b) Makes long-term home mortgage loans requirement. A de novo 
applicant shall be deemed to make long-term home mortgage loans as 
required by Sec. 925.9 if it has filed as part of its application for 
membership a written justification acceptable to the Bank of how its 
home financing credit policy and lending practices will include 
originating or purchasing long-term home mortgage loans.
    (c) 10 percent requirement--(1) One-year requirement. A de novo 
applicant that is subject to the 10 percent requirement of section 
4(a)(2)(A) of the Act (12 U.S.C. 1424(a)(2)(A)) and Sec. 925.6(b) shall 
have until one year after commencing its initial business operations to 
meet the 10 percent requirement of Sec. 925.10.
    (2) Conditional approval. A de novo applicant shall be conditionally 
deemed to be in compliance with the 10 percent requirement of section 
4(a)(2)(A) of the Act (12 U.S.C. 1424(a)(2)(A)) and Sec. 925.6(b). A de 
novo applicant that receives such conditional membership approval is 
subject to the stock purchase requirements of Sec. 925.20 and the 
advances provisions of part 950 of this chapter.
    (3) Approval. A de novo applicant shall be deemed to be in 
compliance with the 10 percent requirement of section 4(a)(2)(A) of the 
Bank Act (12 U.S.C. 1424(a)(2)(A)) and Sec. 925.6(b) upon receipt by 
the Bank from the applicant, within one year after commencement of the 
applicant's initial business operations, of evidence acceptable to

[[Page 106]]

the Bank that the applicant satisfies the 10 percent requirement.
    (4) Conditional approval deemed null and void. If the requirements 
of paragraph (c)(3) of this section are not satisfied, a de novo 
applicant shall be deemed to be in noncompliance with the 10 percent 
requirement of section 4(a)(2)(A) of the Act (12 U.S.C. 1424(a)(2)(A)) 
and Sec. 925.6(b), and its conditional membership approval is deemed 
null and void.
    (5) Treatment of outstanding advances and Bank stock. If a de novo 
applicant's conditional membership approval is deemed null and void 
pursuant to paragraph (c)(4) of this section, the liquidation of any 
outstanding indebtedness owed by the applicant to the Bank and 
redemption of stock of such Bank shall be carried out in accordance with 
Sec. 925.29.
    (d) Home financing policy requirement--(1) Conditional approval. A 
de novo applicant that has not received its first formal, or, if 
unavailable, informal or preliminary, Community Reinvestment Act (CRA) 
performance evaluation, shall be conditionally deemed to be in 
compliance with the home financing policy requirement of section 
4(a)(2)(C) of the Act (12 U.S.C. 1424(a)(2)(C)) and Sec. 925.6(a)(6), 
if the applicant has filed as part of its application for membership a 
written justification acceptable to the Bank of how and why its home 
financing credit policy and lending practices will meet the credit needs 
of its community. An applicant that receives such conditional membership 
approval is subject to the stock purchase requirements of Sec. 925.20 
and the advances provisions of part 950 of this chapter.
    (2) Approval. A de novo applicant that has been granted conditional 
approval under paragraph (d)(1) of this section shall be deemed to be in 
compliance with the home financing policy requirement of section 
4(a)(2)(C) of the Act (12 U.S.C. 1424(a)(2)(C)) and Sec. 925.6(a)(6) 
upon receipt by the Bank of evidence from the applicant that it received 
a CRA rating of ``Satisfactory'' or better on its first formal, or if 
unavailable, informal or preliminary, CRA performance evaluation.
    (3) Conditional approval deemed null and void. If the de novo 
applicant's first such CRA rating is ``Needs to Improve'' or 
``Substantial Non-Compliance,'' the applicant shall be deemed to be in 
noncompliance with the home financing policy requirement of section 
4(a)(2)(C) of the Act (12 U.S.C. 1424(a)(2)(C)) and Sec. 925.6(a)(6), 
subject to rebuttal by the applicant under Sec. 925.17(f), and its 
conditional membership approval is deemed null and void.
    (4) Treatment of outstanding advances and Bank stock. If the 
applicant's conditional membership approval is deemed null and void 
pursuant to paragraph (d)(3) of this section, the liquidation of any 
outstanding indebtedness owed by the applicant to the Bank and 
redemption of stock of such Bank shall be carried out in accordance with 
Sec. 925.29.

[67 FR 12848, Mar. 20, 2002]



Sec. 925.15  Recent merger or acquisition applicants.

    An applicant that merged with or acquired another institution prior 
to the date the Bank receives its application for membership is subject 
to the requirements of Sec. Sec. 925.7 to 925.13 of this part except as 
provided in this section.
    (a) Financial condition requirement--(1) Regulatory financial 
reports. For purposes of Sec. 925.11(a)(1) of this part, an applicant 
that, as a result of a merger or acquisition preceding the date the Bank 
receives its application for membership, has not yet filed regulatory 
financial reports with its appropriate regulator for the last six 
calendar quarters and three year-ends preceding such date, shall provide 
any regulatory financial reports that the applicant has filed with its 
appropriate regulator.
    (2) Performance trend criteria. For purposes of Sec. 
925.11(b)(3)(i) (A) to (C) of this part, an applicant that, as a result 
of a merger or acquisition preceding the date the Bank receives its 
application for membership, has not yet filed combined regulatory 
financial reports with its appropriate regulator for the last six 
calendar quarters preceding such date, shall provide pro forma combined 
financial statements for those calendar quarters in which actual 
combined regulatory financial reports are unavailable.
    (b) Home financing policy requirement. For purposes of Sec. 925.13 
of this part, an

[[Page 107]]

applicant that, as a result of a merger or acquisition preceding the 
date the Bank receives its application for membership, has not received 
its first formal, or if unavailable, informal or preliminary, Community 
Reinvestment Act performance evaluation, shall file as part of its 
application a written justification acceptable to the Bank of how and 
why the applicant's home financing credit policy and lending practices 
will meet the credit needs of its community.
    (c) Makes long-term home mortgage loans requirement; 10 percent 
requirement. For purposes of determining compliance with Sec. Sec. 
925.9 and 925.10, a Bank may, in its discretion, permit an applicant 
that, as a result of a merger or acquisition preceding the date the Bank 
receives its application for membership, has not yet filed a 
consolidated regulatory financial report as a combined entity with its 
appropriate regulator, to provide the combined pro forma financial 
statement for the combined entity filed with the regulator that approved 
the merger or acquisition.

[61 FR 42545, Aug. 16, 1996, as amended at 63 FR 40023, 40024, July 27, 
1998; 65 FR 8261, Feb. 18, 2000; 70 FR 9510, Feb. 28, 2005]



Sec. 925.16  Financial condition requirement for insurance company applicants.

    An insurance company applicant shall be deemed to meet the financial 
condition requirement of section 4(a)(2)(B) of the Act (12 U.S.C. 
1424(a)(2)(B)) and Sec. 925.6(a)(4) of this part, if, based on the 
information contained in the applicant's most recent regulatory 
financial report filed with its appropriate regulator, the applicant 
meets all of its minimum statutory and regulatory capital requirements 
and the capital standards established by the National Association of 
Insurance Commissioners.

[61 FR 42545, Aug. 16, 1996, as amended at 63 FR 40023, July 27, 1998; 
65 FR 8261, Feb. 18, 2000; 67 FR 12849, Mar. 20, 2002; 70 FR 9510, Feb. 
28, 2005]



Sec. 925.17  Rebuttable presumptions.

    (a) Rebutting presumptive compliance. The presumption that an 
applicant meeting the requirements of Sec. Sec. 925.7 to 925.16 of this 
part is in compliance with section 4(a) of the Act (12 U.S.C. 1424(a)) 
and Sec. 925.6 (a) and (b) of this part, may be rebutted, and the Bank 
may deny membership to the applicant, if the Bank obtains substantial 
evidence to overcome the presumption of compliance.
    (b) Rebutting presumptive noncompliance. The presumption that an 
applicant not meeting a particular requirement of Sec. Sec. 925.8, 
925.11, 925.12, 925.13, or 925.16 of this part is in noncompliance with 
section 4(a) of the Act (12 U.S.C. 1424(a)) and Sec. 925.6(a)(2), (4), 
(5), or (6) of this part, may be rebutted, and the applicant shall be 
deemed to meet such requirement, if the applicable requirements in this 
section are satisfied.
    (c) Presumptive noncompliance by insurance company applicant with 
``subject to inspection and regulation'' requirement of Sec. 925.8. If 
an insurance company applicant is not subject to inspection and 
regulation by an appropriate state regulator accredited by the National 
Association of Insurance Commissioners (NAIC), as required by Sec. 
925.8 of this part, the applicant or the Bank shall prepare a written 
justification that provides substantial evidence acceptable to the Bank 
that the applicant is subject to inspection and regulation as required 
by Sec. 925.6(a)(2) of this part, notwithstanding the lack of NAIC 
accreditation.
    (d) Presumptive noncompliance with financial condition requirements 
of Sec. Sec. 925.11 and 925.16--(1) Applicants other than insurance 
companies. For applicants other than insurance companies, in the case of 
an applicant's lack of a composite regulatory examination rating within 
the two-year period required by Sec. 925.11(b)(1) of this part, a 
variance from the rating required by Sec. 925.11(b)(3)(i) of this part, 
or a variance from a performance trend criterion required by Sec. 
925.11(b)(3)(i) of this part, the applicant or the Bank shall prepare a 
written justification pertaining to such requirement that provides 
substantial evidence acceptable to the Bank that the applicant is in the 
financial condition required by Sec. 925.6(a)(4) of this part, 
notwithstanding the lack of rating or variance.

[[Page 108]]

    (2) Insurance company applicants. In the case of an insurance 
company applicant's variance from a capital requirement or standard of 
Sec. 925.16 of this part, the applicant or the Bank shall prepare a 
written justification pertaining to such requirement or standard that 
provides substantial evidence acceptable to the Bank that the applicant 
is in the financial condition required by Sec. 925.6(a)(4) of this 
part, notwithstanding the variance.
    (e) Presumptive noncompliance with character of management 
requirement of Sec. 925.12--(1) Enforcement actions. If an applicant or 
any of its directors or senior officers is subject to, or operating 
under, any enforcement action instituted by its appropriate regulator, 
the applicant shall provide or the Bank shall obtain:
    (i) Regulator confirmation. Written or verbal confirmation from the 
applicant's appropriate regulator that the applicant or its directors or 
senior officers are in substantial compliance with all aspects of the 
enforcement action; or
    (ii) Written analysis. A written analysis acceptable to the Bank 
indicating that the applicant or its directors or senior officers are in 
substantial compliance with all aspects of the enforcement action. The 
written analysis shall state each action the applicant or its directors 
or senior officers are required to take by the enforcement action, the 
actions actually taken by the applicant or its directors or senior 
officers, and whether the applicant regards this as substantial 
compliance with all aspects of the enforcement action.
    (2) Criminal, civil or administrative proceedings. If an applicant 
or any of its directors or senior officers has been the subject of any 
criminal, civil or administrative proceedings reflecting upon 
creditworthiness, business judgment, or moral turpitude since the most 
recent regulatory examination report, the applicant shall provide or the 
Bank shall obtain:
    (i) Regulator confirmation. Written or verbal confirmation from the 
applicant's appropriate regulator that the proceedings will not likely 
result in enforcement action; or
    (ii) Written analysis. A written analysis acceptable to the Bank 
indicating that the proceedings will not likely result in enforcement 
action. The written analysis shall state the severity of the charges, 
and any mitigating action taken by the applicant or its directors or 
senior officers.
    (3) Criminal, civil or administrative monetary liabilities, lawsuits 
or judgments. If there are any known potential criminal, civil or 
administrative monetary liabilities, material pending lawsuits, or 
unsatisfied judgments against the applicant or any of its directors or 
senior officers since the most recent regulatory examination report, 
that are significant to the applicant's operations, the applicant shall 
provide or the Bank shall obtain:
    (i) Regulator confirmation. Written or verbal confirmation from the 
applicant's appropriate regulator that the liabilities, lawsuits or 
judgments will not likely cause the applicant to fall below its 
applicable capital requirements set forth in Sec. Sec. 925.11(b)(2) and 
925.16 of this part; or
    (ii) Written analysis. A written analysis acceptable to the Bank 
indicating that the liabilities, lawsuits or judgments will not likely 
cause the applicant to fall below its applicable capital requirements 
set forth in Sec. Sec. 925.11(b)(2) and 925.16 of this part. The 
written analysis shall state the likelihood of the applicant or its 
directors or senior officers prevailing, and the financial consequences 
if the applicant or its directors or senior officers do not prevail.
    (f) Presumptive noncompliance with home financing policy 
requirements of Sec. Sec. 925.13 and 925.14(d). If an applicant 
received a ``Substantial Non-Compliance'' rating on its most recent 
formal, or if unavailable, informal or preliminary, Community 
Reinvestment Act (CRA) performance evaluation, or a ``Needs to Improve'' 
CRA rating on its most recent formal, or if unavailable, informal or 
preliminary, CRA performance evaluation and a CRA rating of ``Needs to 
Improve'' or better on any immediately preceding CRA performance 
evaluation, the applicant shall provide or the Bank shall obtain:

[[Page 109]]

    (1) Regulator confirmation. Written or verbal confirmation from the 
applicant's appropriate regulator of the applicant's recent satisfactory 
CRA performance, including any corrective action that substantially 
improved upon the deficiencies cited in the most recent CRA performance 
evaluation(s); or
    (2) Written analysis. A written analysis acceptable to the Bank 
demonstrating that the CRA rating is unrelated to home financing, and 
providing substantial evidence of how and why the applicant's home 
financing credit policy and lending practices meet the credit needs of 
its community.

[61 FR 42545, Aug. 16, 1996, as amended at 63 FR 40023, July 27, 1998; 
65 FR 8261, Feb. 18, 2000; 67 FR 12849, Mar. 20, 2002; 70 FR 9510, Feb. 
28, 2005]



Sec. 925.18  Determination of appropriate Bank district for membership.

    (a) Eligibility. (1) An institution eligible to become a member of a 
Bank under the Act and this part may become a member only of the Bank of 
the district in which the institution's principal place of business is 
located, except as provided in paragraph (a)(2) of this section. A 
member shall promptly notify its Bank in writing whenever it relocates 
its principal place of business to another state and the Bank shall 
inform the Finance Board in writing of any such relocation.
    (2) An institution eligible to become a member of a Bank under the 
Act and this part may become a member of the Bank of a district 
adjoining the district in which the institution's principal place of 
business is located, if demanded by convenience and then only with the 
approval of the Finance Board.
    (b) Principal place of business. Except as otherwise designated in 
accordance with this section, the principal place of business of an 
institution is the state in which the institution maintains its home 
office established as such in conformity with the laws under which the 
institution is organized.
    (c) Designation of principal place of business. (1) A member or an 
applicant for membership may request in writing to the Bank in the 
district where the institution maintains its home office that a state 
other than the state in which it maintains its home office be designated 
as its principal place of business. Within 90 calendar days of receipt 
of such written request, the board of directors of the Bank in the 
district where the institution maintains its home office shall designate 
a state other than the state where the institution maintains its home 
office as the institution's principal place of business, provided all of 
the following criteria are satisfied:
    (i) At least 80 percent of the institution's accounting books, 
records and ledgers are maintained, located or held in such designated 
state;
    (ii) A majority of meetings of the institution's board of directors 
and constituent committees are conducted in such designated state; and
    (iii) A majority of the institution's five highest paid officers 
have their place of employment located in such designated state.
    (2) Written notice of a designation made pursuant to paragraph 
(c)(1) of this section shall be sent to the Bank in the district 
containing the designated state, the Finance Board and the institution.
    (3) The notice of designation made pursuant to paragraph (c)(1) of 
this section shall include the state designated as the principal place 
of business and the resulting Bank to which membership will be 
transferred.
    (4) If the board of directors of the Bank in the district where the 
institution maintains its home office fails to make the designation 
requested by the member or applicant pursuant to paragraph (c)(1) of 
this section, then the member or applicant may request in writing that 
the Finance Board make the designation.
    (d) Transfer of membership. (1) No transfer of membership from one 
Bank to another Bank shall take effect until the Banks involved reach 
agreement on a method of orderly transfer.
    (2) In the event that the Banks involved fail to agree on a method 
of orderly transfer, the Finance Board shall determine the conditions 
under which the transfer shall take place.
    (e) Effect of transfer. A transfer of membership pursuant to this 
section shall be effective for all purposes, but shall not affect voting 
rights in the

[[Page 110]]

year of the transfer and shall not be subject to the provisions on 
termination of membership set forth in section 6 of the Act (12 U.S.C. 
1426) or Sec. Sec. 925.26 and 925.27, nor the restriction on 
reacquiring Bank membership set forth in Sec. 925.30.

[61 FR 42545, Aug. 16, 1996, as amended at 63 FR 65692, Nov. 30, 1998; 
65 FR 8261, Feb. 18, 2000; 65 FR 13870, Mar. 15, 2000; 67 FR 12849, Mar. 
20, 2002; 70 FR 9510, Feb. 28, 2005]



                      Subpart D_Stock Requirements

    Source: 58 FR 43542, Aug. 17, 1993, unless otherwise noted. 
Redesignated at 61 FR 42542, Aug. 16, 1996.



Sec. 925.19  Par value and price of stock.

    The capital stock of each Bank shall be sold at par, unless the 
Board has fixed a higher price.



Sec. 925.20  Stock purchase.

    (a) Minimum stock purchase. Each member shall purchase stock in the 
Bank in which it is a member in an amount equal to the greater of:
    (1) $500;
    (2) 1 percent of the member's aggregate unpaid loan principal; or
    (3) 5 percent of the member's aggregate amount of outstanding 
advances.
    (b) Timing of minimum stock purchase. (1) Within 60 calendar days 
after an institution is approved for membership in a Bank pursuant to 
Sec. 925.3 of this part, or an institution is automatically approved 
for membership pursuant to Sec. 925.4(c) of this part, the institution 
shall purchase its minimum stock requirement as set forth in paragraph 
(a) of this section.
    (2) At the election of an institution approved for membership, 
including those automatically approved under Sec. 925.4(c) of this 
part, the institution may purchase its minimum stock requirement in 
installments, provided that not less than one-fourth of the total amount 
shall be purchased within 60 calendar days of the date of approval of 
membership, and that a further sum of not less than one-fourth of such 
total shall be purchased at the end of each succeeding period of four 
months from the date of approval of membership.
    (c) Commencement of membership. An institution that has been 
approved for membership shall become a member at the time it purchases 
its minimum stock requirement or the first installment thereof pursuant 
to this section.
    (d) Failure to purchase minimum stock requirement. If an institution 
that has submitted an application and been approved for membership fails 
to purchase its minimum stock requirement or its first installment 
within 60 calendar days of the date of its approval for membership, such 
approval shall be null and void and the institution, if it wants to be a 
member, shall be required to submit a new application for membership.
    (e) Reports. The Bank shall make reports to the Finance Board 
setting forth purchases by institutions approved for membership of their 
minimum stock requirement pursuant to this section in accordance with 
the instructions provided in the Data Reporting Manual issued by the 
Finance Board, as amended from time to time.

[58 FR 43542, Aug. 17, 1993; 58 FR 47181, Sept. 7, 1993. Redesignated 
and amended at 61 FR 42542, 42549, Aug. 16, 1996; 63 FR 40024, July 27, 
1998; 63 FR 65692, Nov. 30, 1998; 65 FR 8261, Feb. 18, 2000; 65 FR 
13870, Mar. 15, 2000; 71 FR 35500, June 21, 2006]



Sec. 925.21  Issuance and form of stock.

    (a) A Bank shall issue to each new member, as of the effective date 
of membership, stock in the member's name for the amount of stock 
purchased and paid for in full.
    (b) If the member purchases stock in installments, the stock shall 
be issued in installments with the appropriate number of shares issued 
after each payment is made.
    (c) Stock may be issued in certificated or uncertificated form at 
the discretion of the Bank.
    (d) A Bank may convert all outstanding certificated stock to 
uncertificated form at its discretion.



Sec. 925.22  Adjustments in stock holdings.

    (a) Adjustment in general. A Bank may from time to time increase or 
decrease the amount of stock any member is required to hold.
    (b)(1) Annual adjustment. A Bank shall calculate annually, in the 
manner

[[Page 111]]

set forth in Sec. 925.20(a) of this part, each member's required 
minimum holdings of stock in the Bank in which it is a member using 
calendar year-end financial data provided by the member to the Bank, 
pursuant to Sec. 925.31(d) of this part, and shall notify each member 
of the adjustment. The notice shall clearly state that the Bank's 
calculation of each member's minimum stock holdings is to be used to 
determine the number of votes that the member may cast in that year's 
election of directors and shall identify the state within the district 
in which the member will vote. A member that does not agree with the 
Bank's calculation of the minimum stock requirement or with the 
identification of its voting state may request the Finance Board to 
review the Bank's determination. The Finance Board shall promptly 
determine the member's minimum required holdings and its proper voting 
state, which determination shall be final.
    (2) Redemption of excess shares. If, after the annual adjustment 
required by paragraph (b)(1) of this section is made, the amount of 
stock that a member is required to hold is decreased, the Bank may, in 
its discretion and upon proper application of the member, retire such 
excess stock, and the Bank shall pay for each share upon surrender of 
the stock an amount equal to the par value thereof (except that if at 
any time the Finance Board finds that the paid-in capital of a Bank is 
or is likely to be impaired as a result of losses in or depreciation of 
the assets held, the Bank shall on the order of the Finance Board 
withhold from the amount to be paid in retirement of the stock a pro 
rata share of the amount of such impairment as determined by the Finance 
Board) or, at its election, the Bank may credit any part of such payment 
against the member's debt to the Bank.
    (c) A member's stock holdings shall not be reduced under this 
section to an amount less than required by sections 6(b), 10(c) and 
10(e) of the Act (12 U.S.C. 1426(b), 1430(c), 1430(e)).

[58 FR 43542, Aug. 17, 1993, as amended at 58 FR 50837, Sept. 29, 1993; 
58 FR 53023, Oct. 13, 1993; 58 FR 58231, Oct. 29, 1993. Redesignated and 
amended at 61 FR 42542, 42549, Aug. 16, 1996; 63 FR 65692, Nov. 30, 
1998; 65 FR 8261, Feb. 18, 2000; 67 FR 12849, Mar. 20, 2002; 70 FR 9510, 
Feb. 28, 2005]



Sec. 925.23  Excess stock.

    (a) Sale of excess stock. Subject to the restriction in paragraph 
(b) of this section, a member may purchase excess stock as long as the 
purchase is approved by the member's Bank and is permitted by the laws 
under which the member operates.
    (b) Restriction. Any Bank with excess stock greater than 1 percent 
of its total assets shall not declare or pay any dividends in the form 
of additional shares of Bank stock or otherwise issue any excess stock. 
A Bank shall not issue excess stock, as a dividend or otherwise, if 
after the issuance, the outstanding excess stock at the Bank would be 
greater than 1 percent of its total assets.

[71 FR 78051, Dec. 28, 2006]



               Subpart E_Consolidations Involving Members

    Source: 58 FR 43542, Aug. 17, 1993, unless otherwise noted. 
Redesignated at 61 FR 42542, Aug. 16, 1996.



Sec. 925.24  Consolidations involving members.

    (a) Consolidation of members. Upon the consolidation of two or more 
institutions that are members of the same Bank into one institution 
operating under the charter of one of the consolidating institutions, 
the membership of the surviving institution shall continue and the 
membership of each disappearing institution shall terminate on the 
cancellation of its charter. Upon the consolidation of two or more 
institutions, at least two of which are members of different Banks, into 
one institution operating under the charter of one of the consolidating 
institutions, the membership of the surviving institution shall continue 
and the membership of each disappearing institution shall terminate upon 
cancellation of

[[Page 112]]

its charter, provided, however, that if more than 80 percent of the 
assets of the consolidated institution are derived from the assets of a 
disappearing institution, then the consolidated institution shall 
continue to be a member of the Bank of which that disappearing 
institution was a member prior to the consolidation, and the membership 
of the other institutions shall terminate upon the effective date of the 
consolidation.
    (b) Consolidation into nonmember--(1) In general. Upon the 
consolidation of a member into an institution that is not a member of a 
Bank, where the consolidated institution operates under the charter of 
the nonmember institution, the membership of the disappearing 
institution shall terminate upon the cancellation of its charter.
    (2) Notification. If a member has consolidated into a nonmember that 
has its principal place of business in a state in the same Bank district 
as the former member, the consolidated institution shall have 60 
calendar days after the cancellation of the charter of the former member 
within which to notify the Bank of the former member that the 
consolidated institution intends to apply for membership in such Bank. 
If the consolidated institution does not so notify the Bank by the end 
of the period, the Bank shall require the liquidation of any outstanding 
indebtedness owed by the former member, shall settle all outstanding 
business transactions with the former member, and shall redeem or 
repurchase the Bank stock owned by the former member in accordance with 
Sec. 925.29.
    (3) Application. If such a consolidated institution has notified the 
appropriate Bank of its intent to apply for membership, the consolidated 
institution shall submit an application for membership within 60 
calendar days of so notifying the Bank. If the consolidated institution 
does not submit an application for membership by the end of the period, 
the Bank shall require the liquidation of any outstanding indebtedness 
owed by the former member, shall settle all outstanding business 
transactions with the former member, and shall redeem or repurchase the 
Bank stock owned by the former member in accordance with Sec. 925.29.
    (4) Outstanding indebtedness. If a member has consolidated into a 
nonmember institution, the Bank need not require the former member or 
its successor to liquidate any outstanding indebtedness owed to the Bank 
or to redeem its Bank stock, as otherwise may be required under Sec. 
925.29, during:
    (i) The initial 60 calendar-day notification period;
    (ii) The 60 calendar-day period following receipt of a notification 
that the consolidated institution intends to apply for membership; and
    (iii) The period of time during which the Bank processes the 
application for membership.
    (5) Approval of membership. If the application of such a 
consolidated institution is approved, the consolidated institution shall 
become a member of that Bank upon the purchase of the amount of Bank 
stock required by section 6 of the Act (12 U.S.C. 1426). If a Bank's 
capital plan has not taken effect, the amount of stock that the 
consolidated institution is required to own shall be as provided in 
Sec. 925.20 and Sec. 925.22. If the capital plan for the Bank has 
taken effect, the amount of stock that the consolidated institution is 
required to own shall be equal to the minimum investment established by 
the capital plan for that Bank.
    (6) Disapproval of membership. If the Bank disapproves the 
application for membership of the consolidated institution, the Bank 
shall require the liquidation of any outstanding indebtedness owed by, 
and the settlement of all other outstanding business transactions with, 
the former member, and shall redeem or repurchase the Bank stock owned 
by the former member in accordance with Sec. 925.29.
    (c) Dividends on acquired Bank stock. A consolidated institution 
shall be entitled to receive dividends on the Bank stock that it 
acquires as a result of a consolidation with a member in accordance with 
Sec. 931.4(a) of this chapter.
    (d) Stock transfers. With regard to any transfer of Bank stock from 
a disappearing member to the surviving or consolidated member, as 
appropriate, for which the approval of the Finance Board is required 
pursuant to section 6(f) of the Act (12 U.S.C. 1426(f)), as in effect 
prior to November 12, 1999, such

[[Page 113]]

transfer shall be deemed to be approved by the Finance Board by 
compliance in all applicable respects with the requirements of this 
section.

[66 FR 8308, Jan. 30, 2001, as amended at 67 FR 12849, Mar. 20, 2002; 70 
FR 9510, Feb. 28, 2005]



            Subpart F_Withdrawal and Removal From Membership

    Source: 58 FR 43542, Aug. 17, 1993, unless otherwise noted. 
Redesignated at 61 FR 42542, Aug. 16, 1996.



Sec. 925.26  Voluntary withdrawal from membership.

    (a) In general. (1) Any institution may withdraw from membership by 
providing to the Bank written notice of its intent to withdraw from 
membership. A member that has so notified its Bank shall be entitled to 
have continued access to the benefits of membership until the effective 
date of its withdrawal, but the Bank need not commit to providing any 
further services, including advances, to a withdrawing member that would 
mature or otherwise terminate subsequent to the effective date of the 
withdrawal. A member may cancel its notice of withdrawal at any time 
prior to its effective date by providing a written cancellation notice 
to the Bank. A Bank may impose a fee on a member that cancels a notice 
of withdrawal, provided that the fee or the manner of its calculation is 
specified in the Bank's capital plan.
    (2) A Bank shall notify the Finance Board within 10 calendar days of 
receipt of any notice of withdrawal or notice of cancellation of 
withdrawal from membership.
    (b) Effective date of withdrawal. The membership of an institution 
that has submitted a notice of withdrawal shall terminate as of the date 
on which the last of the applicable stock redemption periods ends for 
the stock that the member is required to hold, as of the date that the 
notice of withdrawal is submitted, under the terms of a Bank's capital 
plan as a condition of membership, unless the institution has cancelled 
its notice of withdrawal prior to the effective date of the termination 
of its membership.
    (c) Stock redemption periods. The receipt by a Bank of a notice of 
withdrawal shall commence the applicable 6-month and 5-year stock 
redemption periods, respectively, for all of the Class A and Class B 
stock held by that member that is not already subject to a pending 
request for redemption. In the case of an institution the membership of 
which has been terminated as a result of a merger or other consolidation 
into a nonmember or into a member of another Bank, the applicable stock 
redemption periods for any stock that is not subject to a pending notice 
of redemption shall be deemed to commence on the date on which the 
charter of the former member is cancelled.
    (d) Certification. No institution may withdraw from membership 
unless, on the date that the membership is to terminate, there is in 
effect a certification from the Finance Board that the withdrawal of a 
member will not cause the Bank System to fail to satisfy its 
requirements under section 21B(f)(2)(C) of the Act (12 U.S.C. 
1441b(f)(2)(C)) to contribute toward the interest payments owed on 
obligations issued by the Resolution Funding Corporation.

[66 FR 8309, Jan. 30, 2001, as amended at 66 FR 54107, Oct. 26, 2001; 67 
FR 12849, Mar. 20, 2002; 70 FR 9510, Feb. 28, 2005]



Sec. 925.27  Involuntary termination of membership.

    (a) Grounds. The board of directors of a Bank may terminate the 
membership of any institution that:
    (1) Fails to comply with any requirement of the Act, any regulation 
adopted by the Finance Board, or any requirement of the Bank's capital 
plan;
    (2) Becomes insolvent or otherwise subject to the appointment of a 
conservator, receiver, or other legal custodian under federal or state 
law; or
    (3) Would jeopardize the safety or soundness of the Bank if it were 
to remain a member.
    (b) Stock redemption periods. The applicable 6-month and 5-year 
stock redemption periods, respectively, for all of the Class A and Class 
B stock owned by a member and not already subject to a pending request 
for redemption, shall commence on the date that the Bank terminates the 
institution's membership.

[[Page 114]]

    (c) Membership rights. An institution whose membership is terminated 
involuntarily under this section shall cease being a member as of the 
date on which the board of directors of the Bank acts to terminate the 
membership, and the institution shall have no right to obtain any of the 
benefits of membership after that date, but shall be entitled to receive 
any dividends declared on its stock until the stock is redeemed or 
repurchased by the Bank.

[66 FR 8309, Jan. 30, 2001, as amended at 66 FR 54107, Oct. 26, 2001]



    Subpart G_Orderly Liquidation of Advances and Redemption of Stock



Sec. 925.29  Disposition of claims.

    (a) In general. If an institution withdraws from membership or its 
membership is otherwise terminated, the Bank shall determine an orderly 
manner for liquidating all outstanding indebtedness owed by that member 
to the Bank and for settling all other claims against the member. After 
all such obligations and claims have been extinguished or settled, the 
Bank shall return to the member all collateral pledged by the member to 
the Bank to secure its obligations to the Bank.
    (b) Bank stock. If an institution that has withdrawn from membership 
or that otherwise has had its membership terminated remains indebted to 
the Bank or has outstanding any business transactions with the Bank 
after the effective date of its termination of membership, the Bank 
shall not redeem or repurchase any Bank stock that is required to 
support the indebtedness or the business transactions until after all 
such indebtedness and business transactions have been extinguished or 
settled.

[66 FR 8310, Jan. 30, 2001]



                  Subpart H_Reacquisition of Membership



Sec. 925.30  Readmission to membership.

    (a) In general. An institution that has withdrawn from membership or 
otherwise has had its membership terminated and which has divested all 
of its shares of Bank stock, may not be readmitted to membership in any 
Bank, or acquire any capital stock of any Bank, for a period of 5 years 
from the date on which its membership terminated and it divested all of 
its shares of Bank stock.
    (b) Exceptions. An institution that transfers membership between two 
Banks without interruption shall not be deemed to have withdrawn from 
Bank membership or had its membership terminated. Any institution that 
withdrew from Bank membership prior to December 31, 1997, and for which 
the 5-year period has not expired, may apply for membership in a Bank at 
any time, subject to the approval of the Finance Board and the 
requirements of this part 925.

[66 FR 8310, Jan. 30, 2001]



                  Subpart I_Bank Access to Information



Sec. 925.31  Reports and examinations.

    As a condition precedent to Bank membership, each member:
    (a) Consents to such examinations as the Bank or the Finance Board 
may require for purposes of the Act;
    (b) Agrees that reports of examinations by local, state or federal 
agencies or institutions may be furnished by such authorities to the 
Bank or the Finance Board upon request;
    (c) Agrees to give the Bank or the appropriate Federal banking 
agency, upon request, such information as the Bank or the appropriate 
Federal banking agency may need to compile and publish cost of funds 
indices and to publish other reports or statistical summaries pertaining 
to the activities of Bank members;
    (d) Agrees to provide the Bank with calendar year-end financial data 
each year, for purposes of making the calculation described in Sec. 
925.22(b)(1) of this part; and
    (e) Agrees to provide the Bank with copies of reports of condition 
and operations required to be filed with the member's appropriate 
Federal banking agency, if applicable, within 20 calendar days of 
filing, as well as copies of

[[Page 115]]

any annual report of condition and operations required to be filed.

[58 FR 43542, Aug. 17, 1993; 58 FR 50837, Sept. 29, 1993; 58 FR 53023, 
Oct. 13, 1993. Redesignated and amended at 61 FR 42542, 42549, Aug. 16, 
1996; 65 FR 8262, Feb. 18, 2000; 67 FR 12849, Mar. 20, 2002; 70 FR 9510, 
Feb. 28, 2005]



                      Subpart J_Membership Insignia



Sec. 925.32  Official membership insignia.

    Members may display the approved insignia of membership on their 
documents, advertising and quarters, and likewise use the words ``Member 
Federal Home Loan Bank System.''

[58 FR 43542, Aug. 17, 1993. Redesignated at 61 FR 42542, Aug. 16, 1996]



PART 926_FEDERAL HOME LOAN BANK HOUSING ASSOCIATES--Table of Contents




Sec.
926.1 Definitions.
926.2 Bank authority to make advances to housing associates.
926.3 Housing associate eligibility requirements.
926.4 Satisfaction of eligibility requirements.
926.5 Housing associate application process.
926.6 Appeals.

    Authority: 12 U.S.C. 1422b(a), 1430b.

    Source: 65 FR 44426, July 18, 2000, unless otherwise noted.



Sec. 926.1  Definitions.

    As used in this part:
    Governmental agency means the governor, legislature, and any other 
component of a federal, state, local, tribal, or Alaskan native village 
government with authority to act for or on behalf of that government.
    State housing finance agency or SHFA means:
    (1) A public agency, authority, or publicly sponsored corporation 
that serves as an instrumentality of any state or political subdivision 
of any state, and functions as a source of residential mortgage loan 
financing in that state; or
    (2) A legally established agency, authority, corporation, or 
organization that serves as an instrumentality of any Indian tribe, 
band, group, nation, community, or Alaskan Native village recognized by 
the United States or any state, and functions as a source of residential 
mortgage loan financing for the Indian or Alaskan Native community.

[65 FR 44426, July 18, 2000, as amended at 67 FR 12849, Mar. 20, 2002]



Sec. 926.2  Bank authority to make advances to housing associates.

    Subject to the provisions of the Act and part 950 of this chapter, a 
Bank may make advances to an entity that is not a member of the Bank if 
the Bank has certified the entity as a housing associate under the 
provisions of this part.



Sec. 926.3  Housing associate eligibility requirements.

    (a) General. A Bank may certify as a housing associate any applicant 
that meets the following requirements, as determined using the criteria 
set forth in Sec. 926.4:
    (1) The applicant is approved under title II of the National Housing 
Act (12 U.S.C. 1707, et seq.);
    (2) The applicant is a chartered institution having succession;
    (3) The applicant is subject to the inspection and supervision of 
some governmental agency;
    (4) The principal activity of the applicant in the mortgage field 
consists of lending its own funds; and
    (5) The financial condition of the applicant is such that advances 
may be safely made to it.
    (b) State housing finance agencies. In addition to meeting the 
requirements in paragraph (a) of this section, any applicant seeking 
access to advances as a SHFA pursuant to Sec. 950.17(b)(2) of this 
chapter shall provide evidence satisfactory to the Bank, such as a copy 
of, or a citation to, the statutes and/or regulations describing the 
applicant's structure and responsibilities, that the applicant is a 
state housing finance agency as defined in Sec. 926.1.



Sec. 926.4  Satisfaction of eligibility requirements.

    (a) HUD approval requirement. An applicant shall be deemed to meet 
the requirement in section 10b(a) of the Act (12 U.S.C. 1430b(a)) and 
Sec. 926.3(a)(1) that it be approved under title II of the National 
Housing Act if it submits a current HUD Yearly Verification Report

[[Page 116]]

or other documentation issued by HUD stating that the Federal Housing 
Administration of HUD has approved the applicant as a mortgagee.
    (b) Charter requirement. An applicant shall be deemed to meet the 
requirement in section 10b(a) of the Act and Sec. 926.3(a)(2) that it 
be a chartered institution having succession if it provides evidence 
satisfactory to the Bank, such as a copy of, or a citation to, the 
statutes and/or regulations under which the applicant was created, that:
    (1) The applicant is a government agency; or
    (2) The applicant is chartered under state, federal, local, tribal, 
or Alaskan Native village law as a corporation or other entity that has 
rights, characteristics, and powers under applicable law similar to 
those granted a corporation.
    (c) Inspection and supervision requirement. (1) An applicant shall 
be deemed to meet the inspection and supervision requirement in section 
10b(a) of the Act (12 U.S.C. 1430b(a)) and Sec. 926.3(a)(3) if it 
provides evidence satisfactory to the Bank, such as a copy of, or a 
citation to, relevant statutes and/or regulations, that, pursuant to 
statute or regulation, the applicant is subject to the inspection and 
supervision of a federal, state, local, tribal, or Alaskan native 
village governmental agency.
    (2) An applicant shall be deemed to meet the inspection requirement 
if there is a statutory or regulatory requirement that the applicant be 
audited or examined periodically by a governmental agency or by an 
external auditor.
    (3) An applicant shall be deemed to meet the supervision requirement 
if the governmental agency has statutory or regulatory authority to 
remove an applicant's officers or directors for cause or otherwise 
exercise enforcement or administrative control over actions of the 
applicant.
    (d) Mortgage activity requirement. An applicant shall be deemed to 
meet the mortgage activity requirement in section 10b(a) of the Act (12 
U.S.C. 1430b(a)) and Sec. 926.3(a)(4) if it provides documentary 
evidence satisfactory to the Bank, such as a financial statement or 
other financial documents that include the applicant's mortgage loan 
assets and their funding liabilities, that it lends its own funds as its 
principal activity in the mortgage field. For purposes of this 
paragraph, lending funds includes, but is not limited to, the purchase 
of whole mortgage loans. In the case of a federal, state, local, tribal, 
or Alaskan Native village government agency, appropriated funds shall be 
considered an applicant's own funds. An applicant shall be deemed to 
satisfy this requirement notwithstanding that the majority of its 
operations are unrelated to mortgage lending if its mortgage activity 
conforms to this requirement. An applicant that acts principally as a 
broker for others making mortgage loans, or whose principal activity is 
to make mortgage loans for the account of others, does not meet this 
requirement.
    (e) Financial condition requirement. An applicant shall be deemed to 
meet the financial condition requirement in Sec. 926.3(a)(5) if the 
Bank determines that advances may be safely made to the applicant. The 
applicant shall submit to the Bank copies of its most recent regulatory 
audit or examination report, or external audit report, and any other 
documentary evidence, such as financial or other information, that the 
Bank may require to make the determination.

[65 FR 44426, July 18, 2000, as amended at 67 FR 12849, Mar. 20, 2002; 
70 FR 9510, Feb. 28, 2005]



Sec. 926.5  Housing associate application process.

    (a) Authority. The Banks are authorized to approve or deny all 
applications for certification as a housing associate, subject to the 
requirements of the Act and this part. A Bank may delegate the authority 
to approve applications for certification as a housing associate only to 
a committee of the Bank's board of directors, the Bank president, or a 
senior officer who reports directly to the Bank president other than an 
officer with responsibility for business development.
    (b) Application requirements. An applicant for certification as a 
housing associate shall submit an application that satisfies the 
requirements of the Act and this part to the Bank of the district in 
which the applicant's principal

[[Page 117]]

place of business, as determined in accordance with part 925 of this 
chapter, is located.
    (c) Bank decision process--(1) Action on applications. A Bank shall 
approve or deny an application for certification as a housing associate 
within 60 calendar days of the date the Bank deems the application to be 
complete. A Bank shall deem an application complete, and so notify the 
applicant in writing, when it has obtained all of the information 
required by this part and any other information it deems necessary to 
process the application. If a Bank determines during the review process 
that additional information is necessary to process the application, the 
Bank may deem the application incomplete and stop the 60-day time period 
by providing written notice to the applicant. When the Bank receives the 
additional information, it shall again deem the application complete, so 
notify the applicant in writing, and resume the 60-day time period where 
it stopped.
    (2) Decision on applications. The Bank or a duly delegated committee 
of the Bank's board of directors, the Bank president, or a senior 
officer who reports directly to the Bank president other than an officer 
with responsibility for business development shall approve, or the board 
of directors of a Bank shall deny, each application for certification as 
a housing associate by a written decision resolution stating the grounds 
for the decision. Within three business days of a Bank's decision on an 
application, the Bank shall provide the applicant and the Finance Board 
with a copy of the Bank's decision resolution.
    (3) File. The Bank shall maintain a certification file for each 
applicant for at least three years after the date the Bank decides 
whether to approve or deny certification or the date the Finance Board 
resolves any appeal, whichever is later. At a minimum, the certification 
file shall include all documents submitted by the applicant or otherwise 
obtained or generated by the Bank concerning the applicant, all 
documents the Bank relied upon in making its determination regarding 
certification, including copies of statutes and regulations, and the 
decision resolution.

[65 FR 44426, July 18, 2000, as amended at 70 FR 9510, Feb. 28, 2005]



Sec. 926.6  Appeals.

    (a) General. Within 90 calendar days of the date of a Bank's 
decision to deny an application for certification as a housing 
associate, the applicant may submit a written appeal to the Finance 
Board that includes the Bank's decision resolution and a statement of 
the basis for the appeal with sufficient facts, information, analysis, 
and explanation to support the applicant's position. Appeals shall be 
sent to the Federal Housing Finance Board, 1777 F Street, NW, 
Washington, DC 20006, with a copy to the Bank.
    (b) Record for appeal. Upon receiving a copy of an appeal, the Bank 
whose action has been appealed shall provide to the Finance Board a 
complete copy of the applicant's certification file maintained by the 
Bank under Sec. 926.5(c)(3). Until the Finance Board resolves the 
appeal, the Bank shall promptly provide to the Finance Board any 
relevant new materials it receives. The Finance Board may request 
additional information or further supporting arguments from the 
applicant, the Bank, or any other party that the Finance Board deems 
appropriate.
    (c) Deciding appeals. Within 90 calendar days of the date an 
applicant files an appeal with the Finance Board, the Finance Board 
shall consider the record for appeal described in paragraph (b) of this 
section and resolve the appeal based on the requirements of the Act and 
this part.

[65 FR 44426, July 18, 2000, as amended at 70 FR 9510, Feb. 28, 2005]

[[Page 118]]



    SUBCHAPTER E_FEDERAL HOME LOAN BANK RISK MANAGEMENT AND CAPITAL 
                                STANDARDS





PART 930_DEFINITIONS APPLYING TO RISK MANAGEMENT AND CAPITAL REGULATIONS--Table of Contents




    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1426, 1436(a), 1440, 
1443, and 1446.



Sec. 930.1  Definitions.

    As used in this subchapter:
    Affiliated counterparty means a counterparty of a Bank that 
controls, is controlled by or is under common control with another 
counterparty of the Bank. For the purposes of this definition only, 
direct or indirect ownership (including beneficial ownership) of more 
than 50 percent of the voting securities or voting interests of an 
entity constitutes control.
    Certain drawdown means a legally binding agreement that commits the 
Bank to make an advance or acquire a loan, at or by a specified future 
date.
    Charges against the capital of the Bank means an other than 
temporary decline in the Bank's total equity that causes the value of 
total equity to fall below the Bank's aggregate capital stock amount.
    Class A stock means capital stock issued by a Bank, including 
subclasses, that has the characteristics specified by Sec. 931.1(a) of 
this subchapter.
    Class B stock means capital stock issued by a Bank, including 
subclasses, that has the characteristics specified by Sec. 931.1(b) of 
this subchapter.
    Contingency liquidity means the sources of cash a Bank may use to 
meet its operational requirements when its access to the capital markets 
is impeded, and includes:
    (1) Marketable assets with a maturity of one year or less;
    (2) Self-liquidating assets with a maturity of seven days or less;
    (3) Assets that are generally accepted as collateral in the 
repurchase agreement market; and
    (4) Irrevocable lines of credit from financial institutions rated 
not lower than the second highest credit rating category by an NRSRO.
    Credit derivative contract means a derivative contract that 
transfers credit risk.
    Credit risk means the risk that the market value, or estimated fair 
value if market value is not available, of an obligation will decline as 
a result of deterioration in creditworthiness.
    Derivative contract means generally a financial contract the value 
of which is derived from the values of one or more underlying assets, 
reference rates, or indices of asset values, or credit-related events. 
Derivative contracts include interest rate, foreign exchange rate, 
equity, precious metals, commodity, and credit contracts, and any other 
instruments that pose similar risks.
    Exchange rate contracts include cross-currency interest-rate swaps, 
forward foreign exchange rate contracts, currency options purchased, and 
any similar instruments that give rise to similar risks.
    General allowance for losses means an allowance established by a 
Bank in accordance with GAAP for losses, but which does not include any 
amounts held against specific assets of the Bank.
    Government Sponsored Enterprise, or GSE, means a United States 
Government-sponsored agency or instrumentality originally established or 
chartered to serve public purposes specified by the United States 
Congress, but whose obligations are not obligations of the United States 
and are not guaranteed by the United States.
    Interest rate contracts include, single currency interest-rate 
swaps, basis swaps, forward rate agreements, interest-rate options, and 
any similar instrument that gives rise to similar risks, including when-
issued securities.
    Investment grade means:
    (1) A credit quality rating in one of the four highest credit rating 
categories by an NRSRO and not below the fourth highest rating category 
by any NRSRO; or
    (2) If there is no credit quality rating by an NRSRO, a 
determination by a

[[Page 119]]

Bank that the issuer, asset or instrument is the credit equivalent of 
investment grade using credit rating standards available from an NRSRO 
or other similar standards.
    Market risk means the risk that the market value, or estimated fair 
value if market value is not available, of a Bank's portfolio will 
decline as a result of changes in interest rates, foreign exchange 
rates, equity and commodity prices.
    Marketable means, with respect to an asset, that the asset can be 
sold with reasonable promptness at a price that corresponds reasonably 
to its fair value.
    Market value at risk is the loss in the market value of a Bank's 
portfolio measured from a base line case, where the loss is estimated in 
accordance with Sec. 932.5 of this chapter.
    Minimum investment means the minimum amount of Class A and/or Class 
B stock that a member is required to own in order to be a member of a 
Bank and in order to obtain advances and to engage in other business 
activities with the Bank in accordance with Sec. 931.3 of this chapter.
    Operations risk means the risk of an unexpected loss to a Bank 
resulting from human error, fraud, unenforceability of legal contracts, 
or deficiencies in internal controls or information systems.
    Permanent capital means the retained earnings of a Bank, determined 
in accordance with GAAP, plus the amount paid-in for the Bank's Class B 
stock.
    Redeem or Redemption means the acquisition by a Bank of its 
outstanding Class A or Class B stock at par value following the 
expiration of the six-month or five-year statutory redemption period, 
respectively, for the stock.
    Regulatory risk-based capital requirement means the amount of 
permanent capital that a Bank is required to maintain in accordance with 
Sec. 932.3 of this chapter.
    Regulatory total capital requirement means the amount of total 
capital that a Bank is required to maintain in accordance with Sec. 
932.2 of this chapter.
    Repurchase means the acquisition by a Bank of excess stock prior to 
the expiration of the six-month or five-year statutory redemption period 
for the stock.
    Repurchase agreement means an agreement between a seller and a buyer 
whereby the seller agrees to repurchase a security or similar securities 
at an agreed upon price, with or without a stated time for repurchase.
    Sales of federal funds subject to a continuing contract means an 
overnight federal funds loan that is automatically renewed each day 
unless terminated by either the lender or the borrower.
    Total assets means the total assets of a Bank, as determined in 
accordance with GAAP.
    Total capital of a Bank means the sum of permanent capital, the 
amounts paid-in for Class A stock, the amount of any general allowance 
for losses, and the amount of other instruments identified in a Bank's 
capital plan that the Finance Board has determined to be available to 
absorb losses incurred by such Bank.
    Walkaway clause means a provision in a bilateral netting contract 
that permits a nondefaulting counterparty to make a lower payment than 
it would make otherwise under the bilateral netting contract, or no 
payment at all, to a defaulter or the estate of a defaulter, even if the 
defaulter or the estate of the defaulter is a net creditor under the 
bilateral netting contract.

[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54107, Oct. 26, 2001; 66 
FR 66728, Dec. 27, 2001; 67 FR 12849, Mar. 20, 2002; 71 FR 78051, Dec. 
28, 2006]



PART 931_FEDERAL HOME LOAN BANK CAPITAL STOCK--Table of Contents




Sec.
931.1 Classes of capital stock.
931.2 Issuance of capital stock.
931.3 Minimum investment in capital stock.
931.4 Dividends.
931.5 Liquidation, merger, or consolidation.
931.6 Transfer of capital stock.
931.7 Redemption and repurchase of capital stock.
931.8 Other restrictions on the repurchase or redemption of Bank stock.
931.9 Transition provision.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1426, 1440, 1443, 1446.

    Source: 66 FR 8310, Jan. 30, 2001, unless otherwise noted.

[[Page 120]]



Sec. 931.1  Classes of capital stock.

    The authorized capital stock of a Bank shall consist of the 
following instruments:
    (a) Class A stock, which shall:
    (1) Have a par value as determined by the board of directors of the 
Bank and stated in the Bank's capital plan;
    (2) Be issued, redeemed, and repurchased only at its stated par 
value; and
    (3) Be redeemable in cash only on six-months written notice to the 
Bank.
    (b) Class B stock, which shall:
    (1) Have a par value as determined by the board of directors of the 
Bank and stated in the Bank's capital plan;
    (2) Be issued, redeemed, and repurchased only at its stated par 
value;
    (3) Be redeemable in cash only on five-years written notice to the 
Bank; and
    (4) Confer an ownership interest in the retained earnings, surplus, 
undivided profits, and equity reserves of the Bank; and
    (c) Any one or more subclasses of Class A or Class B stock, each of 
which may have different rights, terms, conditions, or preferences as 
may be authorized in the Bank's capital plan, provided, however, that 
each subclass of stock shall have all of the characteristics of its 
respective class, as specified in paragraph (a) or (b) of this section.



Sec. 931.2  Issuance of capital stock.

    (a) In general. A Bank may issue either one or both classes of its 
capital stock (including subclasses), as authorized by Sec. 931.1, and 
shall not issue any other class of capital stock. A Bank shall issue its 
stock only to its members and only in book-entry form, and the Bank 
shall act as its own transfer agent. All capital stock shall be issued 
in accordance with the Bank's capital plan.
    (b) Initial issuance. In connection with the initial issuance of its 
Class A and/or Class B stock (or any subclass of either), a Bank may 
issue such stock in exchange for its existing stock, through a 
conversion of its existing stock, or through any other fair and 
equitable transaction or method of distribution. As part of its initial 
stock issuance transaction, a Bank may distribute any portion of its 
then-existing unrestricted retained earnings as shares of Class B stock.



Sec. 931.3  Minimum investment in capital stock.

    (a) A Bank shall require each member to maintain a minimum 
investment in the capital stock of the Bank, both as a condition to 
becoming and remaining a member of the Bank and as a condition to 
transacting business with the Bank or obtaining advances and other 
services from the Bank. The amount of the required minimum investment 
shall be determined in accordance with the Bank's capital plan and shall 
be sufficient to ensure that the Bank remains in compliance with its 
minimum capital requirements. A Bank shall require each member to 
maintain its minimum investment for as long as the institution remains a 
member of the Bank and for as long as the member engages in any activity 
with the Bank against which the Bank is required to maintain capital.
    (b) A Bank may establish the minimum investment required of each 
member as a percentage of the total assets of the member, as a 
percentage of the advances outstanding to the member, as a percentage of 
any other business activity conducted with the member, on any other 
basis that is approved by the Finance Board, or any combination thereof.
    (c) A Bank may require each member to satisfy the minimum investment 
requirement through the purchase of either Class A or Class B stock, or 
through the purchase of one or more combinations of Class A and Class B 
stock that have been authorized by the board of directors of the Bank in 
its capital plan. A Bank, in its discretion, may establish a lower 
minimum investment for members that invest in Class B stock than is 
required for members that invest in Class A stock, provided that such 
reduced investment provides sufficient capital for the Bank to remain in 
compliance with its minimum capital requirements.
    (d) Each member of a Bank shall at all times maintain an investment 
in the capital stock of the Bank in an amount that is sufficient to 
satisfy the minimum investment required for that

[[Page 121]]

member in accordance with the Bank's capital plan.

[66 FR 8310, Jan. 30, 2001, as amended at 70 FR 9510, Feb. 28, 2005]



Sec. 931.4  Dividends.

    (a) In general. A Bank may pay dividends on Class A or Class B 
stock, including any subclasses of such stock, only out of previously 
retained earnings or current net earnings, and shall declare and pay 
dividends only as provided by its capital plan. The capital plan may 
establish different dividend rates or preferences for each class or 
subclass of stock, which may include a dividend that tracks the economic 
performance of certain Bank assets, such as Acquired Member Assets. A 
member, including a member that has provided the Bank with a notice of 
intent to withdraw from membership or one whose membership is otherwise 
terminated, shall be entitled to receive any dividends that a Bank 
declares on its capital stock while the member owns the stock.
    (b) Limitation on payment of dividends. In no event shall a Bank 
declare or pay any dividend on its capital stock if after doing so the 
Bank would fail to meet any of its minimum capital requirements, nor 
shall a Bank that is not in compliance with any of its minimum capital 
requirements declare or pay any dividend on its capital stock.

[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54108, Oct. 26, 2001]



Sec. 931.5  Liquidation, merger, or consolidation.

    The respective rights of the Class A and Class B stockholders, in 
the event that the Bank is liquidated, or is merged or otherwise 
consolidated with another Bank, shall be determined in accordance with 
the capital plan of the Bank.



Sec. 931.6  Transfer of capital stock.

    A Bank in its capital plan may allow a member to transfer any excess 
capital stock of the Bank to another member of that Bank or to an 
institution that has been approved for membership in that Bank and that 
has satisfied all conditions for becoming a member, other than the 
purchase of the minimum amount of Bank stock that it is required to hold 
as a condition of membership. Any such stock transfers shall be at par 
value and shall be effective upon being recorded on the appropriate 
books and records of the Bank. The Bank may, in its capital plan, 
require a member to receive the approval of the Bank before a transfer 
of the Bank's stock, as allowed under this section, is completed.

[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54108, Oct. 26, 2001]



Sec. 931.7  Redemption and repurchase of capital stock.

    (a) Redemption. A member may have its capital stock in a Bank 
redeemed by providing written notice to the Bank in accordance with this 
section. For Class A stock, a member shall provide six-months written 
notice, and for Class B stock a member shall provide five-years written 
notice. The notice shall indicate the number of shares of Bank stock 
that are to be redeemed, and a member shall not have more than one 
notice of redemption outstanding at one time for the same shares of Bank 
stock. A member may cancel a notice of redemption by so informing the 
Bank in writing, and the Bank may impose a fee (to be specified in its 
capital plan) on any member that cancels a pending notice of redemption. 
At the expiration of the applicable notice period, the Bank shall pay 
the stated par value of that stock to the member in cash. A request by a 
member (whose membership has not been terminated) to redeem specific 
shares of stock shall automatically be cancelled if the Bank is 
prevented from redeeming the member's stock by paragraph (c) of this 
section within five business days from the end of the expiration of the 
applicable redemption notice period because the member would fail to 
maintain its minimum investment in the stock of the Bank after such 
redemption. The automatic cancellation of a member's redemption request 
shall have the same effect as if the member had cancelled its notice to 
redeem stock prior to the end of the redemption notice period, and a 
Bank may impose a fee (to be specified in its capital plan) for 
automatic cancellation of a redemption request. A Bank

[[Page 122]]

shall not be obligated to redeem its capital stock other than in 
accordance with this paragraph.
    (b) Repurchase. A Bank, in its discretion and without regard to the 
applicable redemption periods, may repurchase from a member any 
outstanding Class A or Class B capital stock that is in excess of the 
amount of that class of Bank stock that the member is required to hold 
as a minimum investment, in accordance with the capital plan of that 
Bank. A Bank undertaking such a stock repurchase at its own initiative 
shall provide the member with reasonable notice prior to repurchasing 
any excess stock, with the period of such notice to be specified in the 
Bank's capital plan, and shall pay the stated par value of that stock to 
the member in cash. For purposes of this section, any Bank stock owned 
by a member shall be considered to be excess stock if the member is not 
required to hold such stock either as a condition of remaining a member 
of the Bank or as a condition of obtaining advances or transacting other 
business with the Bank. A member's submission of a notice of intent to 
withdraw from membership, or its termination of membership in any other 
manner, shall not, in and of itself, cause any Bank stock to be deemed 
excess stock for purposes of this section.
    (c) Limitation. In no event may a Bank redeem or repurchase any 
stock if, following the redemption or repurchase, the Bank would fail to 
meet any minimum capital requirement, or if the member would fail to 
maintain its minimum investment in the stock of the Bank, as required by 
Sec. 931.3.

[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54108, Oct. 26, 2001; 70 
FR 9510, Feb. 28, 2005]



Sec. 931.8  Other restrictions on the repurchase or redemption of Bank stock.

    (a) Capital impairment. A Bank may not redeem or repurchase any 
capital stock without the prior written approval of the Finance Board if 
the Finance Board or the board of directors of the Bank has determined 
that the Bank has incurred or is likely to incur losses that result in 
or are likely to result in charges against the capital of the Bank. This 
prohibition shall apply even if a Bank is in compliance with its minimum 
capital requirements, and shall remain in effect for however long the 
Bank continues to incur such charges or until the Finance Board 
determines that such charges are not expected to continue.
    (b) Bank discretion to suspend redemption. A Bank, upon the approval 
of its board of directors, or of a subcommittee thereof, may suspend 
redemption of stock if the Bank reasonably believes that continued 
redemption of stock would cause the Bank to fail to meet its minimum 
capital requirements as set forth in Sec. Sec. 932.2 or 932.3 of this 
chapter, would prevent the Bank from maintaining adequate capital 
against a potential risk that may not be adequately reflected in its 
minimum capital requirements, or would otherwise prevent the Bank from 
operating in a safe and sound manner. A Bank shall notify the Finance 
Board in writing within two business days of the date of the decision to 
suspend the redemption of stock, informing the Finance Board of the 
reasons for the suspension and of the Bank's strategies and time frames 
for addressing the conditions that led to the suspension. The Finance 
Board may require the Bank to re-institute the redemption of member 
stock. A Bank shall not repurchase any stock without the written 
permission of the Finance Board during any period in which the Bank has 
suspended redemption of stock under this paragraph.

[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54108, Oct. 26, 2001]



Sec. 931.9  Transition provision.

    (a) In general. Each Bank shall comply with the minimum leverage and 
risk-based capital requirements specified in Sec. 932.2 and Sec. 932.3 
of this chapter, respectively, and each member shall comply with the 
minimum investment established in the capital plan, as of the effective 
date of that Bank's capital plan. The effective date of a Bank's capital 
plan shall be the date on which the Bank first issues any Class A or 
Class B stock. Prior to the effective date, the issuance and retention 
of Bank stock shall be as provided in Sec. 925.20 and Sec. 925.22 of 
this chapter.

[[Page 123]]

    (b) Transition period--(1) Bank transition. A Bank that will not be 
in compliance with the minimum leverage and risk-based capital 
requirements specified in Sec. 932.2 and Sec. 932.3 of this chapter as 
of the effective date of its capital plan shall maintain compliance with 
the leverage limit requirements in Sec. 966.3(a) of this chapter and 
shall include in its capital plan a description of the steps that the 
Bank will take to achieve compliance with the minimum capital 
requirements specified in Sec. 932.2 and Sec. 932.3 of this chapter. 
The period of time for compliance with the minimum capital requirements 
shall be stated in the plan and shall not exceed three years from the 
effective date of the capital plan. When the Bank has achieved 
compliance with the leverage requirement of Sec. 932.2 of this chapter, 
the leverage limit requirements of Sec. 966.3(a) of this chapter shall 
cease to apply to that Bank.
    (2) Member transition. (i) Existing members. A Bank's capital plan 
shall require any institution that was a member on November 12, 1999, 
and whose investment in Bank stock as of the effective date of the 
capital plan will be less than the minimum investment required by the 
plan, to comply with the minimum investment by a date specified in the 
Bank's capital plan. The length of the transition period shall be 
specified in the capital plan and shall not exceed three years. The 
capital plan shall describe the actions that the existing members are 
required to take to achieve compliance with the minimum investment, and 
may require such members to purchase additional Bank stock periodically 
over the course of the transition period.
    (ii) New members. A Bank's capital plan shall require any 
institution that became a member after November 12, 1999, but prior to 
the effective date of the capital plan, to comply with the minimum 
investment specified in the Bank's capital plan as of the effective date 
of the plan. A Bank's capital plan shall require any institution that 
becomes a member after the effective date of the capital plan, to comply 
with the minimum investment upon becoming a member.
    (3) New business. A Bank's capital plan shall require any member 
that obtains an advance or other services from the Bank, or that 
initiates any other business activity with the Bank against which the 
Bank is required to hold capital, after the effective date of the 
capital plan to comply with the minimum investment specified in the 
Bank's capital plan for such advance, services, or activity at the time 
the transaction occurs.



PART 932_FEDERAL HOME LOAN BANK CAPITAL REQUIREMENTS--Table of Contents




Sec.
932.1 Risk management.
932.2 Total capital requirement.
932.3 Risk-based capital requirement.
932.4 Credit risk capital requirement.
932.5 Market risk capital requirement.
932.6 Operations risk capital requirement.
932.7 Reporting requirements.
932.8 Minimum liquidity requirements.
932.9 Limits on unsecured extensions of credit to one counterparty or 
          affiliated counterparties; reporting requirements for total 
          extensions of credit to one counterparty or affiliated 
          counterparties.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1426, 1440, 1443, 1446.

    Source: 66 FR 8310, Jan. 30, 2001, unless otherwise noted.



Sec. 932.1  Risk management.

    Before its new capital plan may take effect, each Bank shall obtain 
the approval of the Finance Board for the internal market risk model or 
the internal cash flow model used to calculate the market risk component 
of its risk-based capital requirement, and for the risk assessment 
procedures and controls (whether established as part of its risk 
management policy or otherwise) to be used to manage its credit, market, 
and operations risks.



Sec. 932.2  Total capital requirement.

    (a) Each Bank shall maintain at all times:
    (1) Total capital in an amount at least equal to 4.0 percent of the 
Bank's total assets; and
    (2) A leverage ratio of total capital to total assets of at least 
5.0 percent of the Bank's total assets. For purposes of determining the 
leverage ratio, total capital shall be computed by multiplying the 
Bank's permanent capital

[[Page 124]]

by 1.5 and adding to this product all other components of total capital.
    (b) For reasons of safety and soundness, the Finance Board may 
require an individual Bank to have and maintain a greater amount of 
total capital than mandated by paragraph (a)(1) of this section.



Sec. 932.3  Risk-based capital requirement.

    (a) Each Bank shall maintain at all times permanent capital in an 
amount at least equal to the sum of its credit risk capital requirement, 
its market risk capital requirement, and its operations risk capital 
requirement, calculated in accordance with Sec. Sec. 932.4, 932.5 and 
932.6, respectively.
    (b) For reasons of safety and soundness, the Finance Board may 
require an individual Bank to have and maintain a greater amount of 
permanent capital than required by paragraph (a) of this section.



Sec. 932.4  Credit risk capital requirement.

    (a) General requirement. Each Bank's credit risk capital requirement 
shall be equal to the sum of the Bank's credit risk capital charges for 
all assets, off-balance sheet items and derivative contracts.
    (b) Credit risk capital charge for assets. Except as provided in 
paragraph (i) of this section, each Bank's credit risk capital charge 
for an asset shall be equal to the book value of the asset multiplied by 
the credit risk percentage requirement assigned to that asset pursuant 
to paragraph (e)(2) of this section.
    (c) Credit risk capital charge for off-balance sheet items. Each 
Bank's credit risk capital charge for an off-balance sheet item shall be 
equal to the credit equivalent amount of such item, as determined 
pursuant to paragraph (f) of this section multiplied by the credit risk 
percentage requirement assigned to that item pursuant to paragraph 
(e)(2) of this section, except that the credit risk percentage 
requirement applied to the credit equivalent amount for a stand-by 
letter of credit shall be that for an advance with the same remaining 
maturity as that stand-by letter of credit.
    (d) Credit risk capital charge for derivative contracts--(1) 
Derivative contracts with non-member counterparties. Except as provided 
in paragraph (j) of this section, each Bank's credit risk capital charge 
for a specific derivative contract entered into between a Bank and a 
non-member institution shall equal the sum of :
    (i) The current credit exposure for the derivative contract, 
calculated in accordance with paragraph (g) or (h) of this section, as 
applicable, multiplied by the credit risk percentage requirement 
assigned to that derivative contract pursuant to paragraph (e)(2) of 
this section, provided that:
    (A) The remaining maturity of the derivative contract shall be 
deemed to be less than one year for the purpose of applying Table 1.1 or 
1.3 of this part; and
    (B) Any collateral held against an exposure from the derivative 
contract shall be applied to reduce the portion of the credit risk 
capital charge corresponding to the current credit exposure in 
accordance with the requirements of paragraph (e)(2)(ii)(B) of this 
section; plus
    (ii) The potential future credit exposure for the derivative 
contract calculated in accordance with paragraph (g) or (h) of this 
section, as applicable, multiplied by the credit risk percentage 
requirement assigned to that derivative contract pursuant to paragraph 
(e)(2) of this section, where the actual remaining maturity of the 
derivative contract is used to apply Table 1.1 or Table 1.3 of this 
part.
    (2) Derivative contracts with a member. Except as provided in 
paragraph (j) of this section, the credit risk capital charge for any 
derivative contract entered into between a Bank and one of its member 
institutions shall be calculated in accordance with paragraph (d)(1) of 
this section. However, the credit risk percentage requirements used in 
the calculations shall be found in Table 1.1 of this part, which sets 
forth the credit risk percentage requirements for advances.
    (e) Determination of credit risk percentage requirements--(1) 
Finance Board determination of credit risk percentage requirements. The 
Finance Board shall determine, and update periodically, the

[[Page 125]]

credit risk percentage requirements set forth in Tables 1.1 through 1.4 
of this part applicable to a Bank's assets, off-balance sheet items, and 
derivative contracts.
    (2) Bank determination of credit risk percentage requirements. (i) 
Each Bank shall determine the credit risk percentage requirement 
applicable to each asset, each off-balance sheet item and each 
derivative contract by identifying the category set forth in Table 1.1, 
Table 1.2, Table 1.3 or Table 1.4 of this part to which the asset, item 
or derivative belongs, given, if applicable, its demonstrated credit 
rating and remaining maturity (as determined in accordance with 
paragraphs (e)(2)(ii) and (e)(2)(iii) of this section). The applicable 
credit risk percentage requirement for an asset, off-balance sheet item 
or derivative contract shall be used to calculate the credit risk 
capital charge for such asset, item, or derivative contract in 
accordance with paragraphs (b), (c) or (d) of this section respectively. 
The relevant categories and credit risk percentage requirements are 
provided in the following Tables 1.1 through 1.4 of this part:

                   Table 1.1--Requirement for Advances
------------------------------------------------------------------------
                                                              Percentage
                      Type of advances                        applicable
                                                             to advances
------------------------------------------------------------------------
Advances with:
  Remaining maturity <= 4 years............................         0.07
  Remaining maturity  4 years to 7 years........         0.20
  Remaining maturity  7 years to 10 years.......         0.30
  Remaining maturity  10 years..................         0.35
------------------------------------------------------------------------


      Table 1.2--Requirement for Rated Residential Mortgage Assets
------------------------------------------------------------------------
                                                              Percentage
                                                              applicable
                                                                  to
             Type of residential mortgage asset              residential
                                                               mortgage
                                                                assets
------------------------------------------------------------------------
Highest Investment Grade...................................         0.37
Second Highest Investment Grade............................         0.60
Third Highest Investment Grade.............................         0.86
Fourth Highest Investment Grade............................         1.20
If Downgraded to Below Investment Grade After Acquisition
 By Bank:
  Highest Below Investment Grade...........................         2.40
  Second Highest Below Investment Grade....................         4.80
  All Other Below Investment Grade.........................        34.00
Subordinated Classes of Mortgage Assets:
  Highest Investment Grade.................................         0.37
  Second Highest Investment Grade..........................         0.60
  Third Highest Investment Grade...........................         1.60
  Fourth Highest Investment Grade..........................         4.45
If Downgraded to Below Investment Grade After Acquisition
 By Bank:
  Highest Below Investment Grade...........................        13.00
  Second Highest Below Investment Grade....................        34.00
  All Other Below Investment Grade.........................       100.00
------------------------------------------------------------------------


    Table 1.3--Requirement for rated Assets or Rated Items Other Than Advances or Residential Mortgage Assets
                                          [Based on remaining maturity]
----------------------------------------------------------------------------------------------------------------
                                                                    Applicable percentage
                                           ---------------------------------------------------------------------
                                                                                     7
                                             <= 1 year   1  3    yrs to 10   10
                                                          yr to 3 yrs   yrs to 7yrs       yrs           yrs
----------------------------------------------------------------------------------------------------------------
U.S. Government Securities................         0.00          0.00          0.00          0.00          0.00
Highest Investment Grade..................         0.15          0.40          0.90          1.40          2.20
Second Highest Investment Grade...........         0.20          0.45          1.00          1.45          2.30
Third Highest Investment Grade............         0.70          1.10          1.60          2.05          2.95
Fourth Highest Investment Grade...........         2.50          3.70          4.45          5.50          7.05
If Downgraded Below Investment Grade After
 Acquisition by Bank:
    Highest Below Investment Grade........        10.00         13.00         13.00         13.00         13.00
    Second Highest Below Investment Grade.        26.00         34.00         34.00         34.00         34.00
    All Other.............................       100.00        100.00        100.00        100.00        100.00
----------------------------------------------------------------------------------------------------------------


                Table 1.4--Requirement for Unrated Assets
------------------------------------------------------------------------
                                                              Applicable
                   Type of unrated asset                      percentage
------------------------------------------------------------------------
Cash.......................................................         0.00
Premises, Plant, and Equipment.............................         8.00
Investments Under Sec.  940.3(e) & (f)....................         8.00
------------------------------------------------------------------------

    (ii) When determining the applicable credit risk percentage 
requirement from Tables 1.2 or 1.3 of this part, each Bank shall apply 
the following criteria:
    (A) For assets or items that are rated directly by an NRSRO, the 
credit rating shall be the NRSRO's credit rating for the asset or item 
as determined in accordance with paragraph (e)(2)(iii) of this section.
    (B) When using Table 1.3 of this part, for an asset, off-balance 
sheet item, or

[[Page 126]]

derivative contract that is not rated directly by an NRSRO, but for 
which an NRSRO rating has been assigned to any corresponding obligor 
counterparty, third party guarantor, or collateral backing the asset, 
item, or derivative, the credit rating that shall apply to the asset, 
item, or derivative, or portion of the asset, item, or derivative so 
guaranteed or collateralized, shall be the credit rating corresponding 
to such obligor counterparty, third party guarantor, or underlying 
collateral, as determined in accordance with paragraph (e)(2)(iii) of 
this section. If there are multiple obligor counterparties, third party 
guarantors, or collateral instruments backing an asset, item, or 
derivative not rated directly by an NRSRO, or any specific portion 
thereof, then the credit rating that shall apply to that asset, item, or 
derivative or specific portion thereof, shall be the highest credit 
rating among such obligor counterparties, third party guarantors, or 
collateral instruments, as determined in accordance with paragraph 
(e)(2)(iii) of this section. Assets, items or derivatives shall be 
deemed to be backed by collateral for purposes of this paragraph if the 
collateral is:
    (1) Actually held by the Bank or an independent, third-party 
custodian, or, if permitted under the Bank's collateral agreement with 
such party, by the Bank's member or an affiliate of that member where 
the term ``affiliate'' has the same meaning as in Sec. 950.1 of this 
chapter;
    (2) Legally available to absorb losses;
    (3) Of a readily determinable value at which it can be liquidated by 
the Bank;
    (4) Held in accordance with the provisions of the Bank's member 
products policy established pursuant to Sec. 917.4 of this chapter; and
    (5) Subject to an appropriate discount to protect against price 
decline during the holding period, as well as the costs likely to be 
incurred in the liquidation of the collateral.
    (C) When using Table 1.3 of this part, for an asset with a short-
term credit rating from a given NRSRO, the credit risk percentage 
requirement shall be based on the remaining maturity of the asset and 
the long-term credit rating provided for the issuer of the asset by the 
same NRSRO. Should the issuer of the short-term asset not have a long-
term credit rating, the long-term equivalent rating shall be determined 
as follows:
    (1) The highest short-term credit rating shall be equivalent to the 
third highest long-term rating;
    (2) The second highest short-term rating shall be equivalent to the 
fourth highest long-term rating;
    (3) The third highest short-term rating shall be equivalent to the 
fourth highest long-term rating; and
    (4) If the short-term rating is downgraded to below investment grade 
after acquisition by the Bank, the short-term rating shall be equivalent 
to the second highest below investment grade long-term rating.
    (D) For residential mortgage assets and other assets or items, or 
relevant portion of an asset or item, that do not meet the requirements 
of paragraphs (e)(2)(ii)(A), (e)(2)(ii)(B) or (e)(2)(ii)(C) of this 
section, and are not identified in Tables 1.1 or Table 1.4 of this part, 
each Bank shall determine its own credit rating for such assets or 
items, or relevant portion thereof, using credit rating standards 
available from an NRSRO or other similar standards. This credit rating, 
as determined by the Bank, shall be used to identify the applicable 
credit risk percentage requirement under Table 1.2 of this part for 
residential mortgage assets, or under Table 1.3 of this part for all 
other assets or items.
    (E) The credit risk percentage requirement for mortgage assets that 
are acquired member assets described in Sec. 955.2 of this chapter 
shall be assigned from Table 1.2 of this part based on the rating of 
those assets after taking into account any credit enhancement required 
by Sec. 955.3 of this chapter. Should a Bank further enhance a pool of 
loans through the purchase of insurance or by some other means, the 
credit risk percentage requirement shall be based on the rating of such 
pool after the supplemental credit enhancement, except that the Finance 
Board retains the right to adjust the credit capital charge to account 
for any deficiencies with the supplemental enhancement on a case-by-case 
basis.

[[Page 127]]

    (iii) In determining the credit ratings under paragraph 
(e)(2)(ii)(A), (e)(2)(ii)(B) and (e)(2)(ii)(C) of this section, each 
Bank shall apply the following criteria:
    (A) The most recent credit rating from a given NRSRO shall be 
considered. If only one NRSRO has rated an asset or item, that NRSRO's 
rating shall be used. If an asset or item has received credit ratings 
from more than one NRSRO, the lowest credit rating from among those 
NRSROs shall be used.
    (B) Where a credit rating has a modifier (e.g., A-1+ for short-term 
ratings and A+ or A- for long-term ratings) the credit rating is deemed 
to be the credit rating without the modifier (e.g., A-1+ = A-1 and A+ or 
A-= A);
    (f) Calculation of credit equivalent amount for off-balance sheet 
items--(1) General requirement. The credit equivalent amount for an off-
balance sheet item shall be determined by a Finance Board approved model 
or shall be equal to the face amount of the instrument multiplied by the 
credit conversion factor assigned to such risk category of instruments, 
subject to the exceptions in paragraph (f)(2) of this section, provided 
in the following Table 2 of this part:

     TABLE 2--CREDIT CONVERSION FACTORS FOR OFF-BALANCE SHEET ITEMS
------------------------------------------------------------------------
                                                              Credit
                                                            conversion
                       Instrument                           factor  (In
                                                             percent)
------------------------------------------------------------------------
Asset sales with recourse where the credit risk remains              100
 with the Bank..........................................
Commitments to make advances subject to certain drawdown
Commitments to acquire loans subject to certain drawdown
Standby letters of credit...............................              50
Other commitments with original maturity of over one
 year...................................................
Other commitments with original maturity of one year or               20
 less...................................................
------------------------------------------------------------------------

    (2) Exceptions. The credit conversion factor shall be zero for Other 
Commitments With Original Maturity of Over One Year and Other 
Commitments With Original Maturity of One Year or Less, for which credit 
conversion factors of 50 percent or 20 percent would otherwise apply, 
that are unconditionally cancelable, or that effectively provide for 
automatic cancellation, due to the deterioration in a borrower's 
creditworthiness, at any time by the Bank without prior notice.
    (g) Calculation of current and potential future credit exposures for 
single derivative contracts--(1) Current credit exposure. The current 
credit exposure for a derivative contract that is not subject to a 
qualifying bilateral netting contract described in paragraph (h)(3) of 
this section shall be:
    (i) If the mark-to-market value of the contract is positive, the 
mark-to-market value of the contract; or
    (ii) If the mark-to-market value of the contract is zero or 
negative, zero.
    (2) Potential future credit exposure. (i) The potential future 
credit exposure for a single derivative contract, including a derivative 
contract with a negative mark-to-market value, shall be calculated using 
an internal model approved by the Finance Board or, in the alternative, 
by multiplying the effective notional amount of the derivative contract 
by one of the assigned credit conversion factors, modified as may be 
required by paragraph (g)(2)(ii) of this section, for the appropriate 
category as provided in the following Table 3 of this part:

          Table 3--Credit Conversion Factors for Potential Future Credit Exposure Derivative Contracts
                                                  [In percent]
----------------------------------------------------------------------------------------------------------------
                                                                Foreign                   Precious
              Residual maturity                  Interest    exchange and     Equity       metals       Other
                                                   rate          gold                   except gold  commodities
----------------------------------------------------------------------------------------------------------------
One year or less.............................           0             1              6            7           10
Over 1 year to five years....................            .5           5              8            7           12
Over five years..............................           1.5           7.5           10            8           15
----------------------------------------------------------------------------------------------------------------


[[Page 128]]

    (ii) In applying the credit conversion factors in Table 3 of this 
part the following modifications shall be made:
    (A) For derivative contracts with multiple exchanges of principal, 
the conversion factors are multiplied by the number of remaining 
payments in the derivative contract; and
    (B) For derivative contracts that automatically reset to zero value 
following a payment, the residual maturity equals the time until the 
next payment; however, interest rate contracts with remaining maturities 
of greater than one year shall be subject to a minimum conversion factor 
of 0.5 percent.
    (iii) If a Bank uses an internal model to determine the potential 
future credit exposure for a particular type of derivative contract, the 
Bank shall use the same model for all other similar types of contracts. 
However, the Bank may use an internal model for one type of derivative 
contract and Table 3 of this part for another type of derivative 
contract.
    (iv) Forwards, swaps, purchased options and similar derivative 
contracts not included in the Interest Rate, Foreign Exchange and Gold, 
Equity, or Precious Metals Except Gold categories shall be treated as 
other commodities contracts when determining potential future credit 
exposures using Table 3 of this part.
    (v) If a Bank uses Table 3 of this part to determine the potential 
future credit exposures for credit derivative contracts, the credit 
conversion factors provided in Table 3 for equity contracts shall also 
apply to the credit derivative contracts entered into with investment 
grade counterparties. If the counterparty is downgraded to below 
investment grade, the credit conversion factor provided in Table 3 of 
this part for other commodity contracts shall apply.
    (h) Calculation of current and potential future credit exposures for 
multiple derivative contracts subject to a qualifying bilateral netting 
contract--(1) Current credit exposure. The current credit exposure for 
multiple derivative contracts executed with a single counterparty and 
subject to a qualifying bilateral netting contract described in 
paragraph (h)(3) of this section, shall be calculated on a net basis and 
shall equal:
    (i) The net sum of all positive and negative mark-to-market values 
of the individual derivative contracts subject to a qualifying bilateral 
netting contract, if the net sum of the mark-to-market values is 
positive; or
    (ii) Zero, if the net sum of the mark-to-market values is zero or 
negative.
    (2) Potential future credit exposure. The potential future credit 
exposure for each individual derivative contract from among a group of 
derivative contracts that are executed with a single counterparty and 
subject to a qualifying bilateral netting contract described in 
paragraph (h)(3) of this section shall be calculated as follows:

Anet = 0.4 x Agross + (0.6 x NGR x 
    Agross),


where:
    (i) Anet is the potential future credit exposure for an 
individual derivative contract subject to the qualifying bilateral 
netting contract;
    (ii) Agross is the gross potential future credit 
exposure, i.e., the potential future credit exposure for the individual 
derivative contract, calculated in accordance with paragraph (g)(2) of 
this section but without regard to the fact that the contract is subject 
to the qualifying bilateral netting contract;
    (iii) NGR is the net to gross ratio, i.e., the ratio of the net 
current credit exposure of all the derivative contracts subject to the 
qualifying bilateral netting contract, calculated in accordance with 
paragraph (h)(1) of this section, to the gross current credit exposure; 
and
    (iv) The gross current credit exposure is the sum of the positive 
current credit exposures of all the individual derivative contracts 
subject to the qualifying bilateral netting contract, calculated in 
accordance with paragraph (g)(1) of this section but without regard to 
the fact that the contract is subject to the qualifying bilateral 
netting contract.
    (3) Qualifying bilateral netting contract. A bilateral netting 
contract shall be considered a qualifying bilateral netting contract if 
the following conditions are met:
    (i) The netting contract is in writing;
    (ii) The netting contract is not subject to a walkaway clause;

[[Page 129]]

    (iii) The netting contract provides that the Bank would have a 
single legal claim or obligation either to receive or to pay only the 
net amount of the sum of the positive and negative mark-to-market values 
on the individual derivative contracts covered by the netting contract 
in the event that a counterparty, or a counterparty to whom the netting 
contract has been assigned, fails to perform due to default, insolvency, 
bankruptcy, or other similar circumstance;
    (iv) The Bank obtains a written and reasoned legal opinion that 
represents, with a high degree of certainty, that in the event of a 
legal challenge, including one resulting from default, insolvency, 
bankruptcy, or similar circumstances, the relevant court and 
administrative authorities would find the Bank's exposure to be the net 
amount under:
    (A) The law of the jurisdiction by which the counterparty is 
chartered or the equivalent location in the case of non-corporate 
entities, and if a branch of the counterparty is involved, then also 
under the law of the jurisdiction in which the branch is located;
    (B) The law of the jurisdiction that governs the individual 
derivative contracts covered by the netting contract; and
    (C) The law of the jurisdiction that governs the netting contract;
    (v) The Bank establishes and maintains procedures to monitor 
possible changes in relevant law and to ensure that the netting contract 
continues to satisfy the requirements of this section; and
    (vi) The Bank maintains in its files documentation adequate to 
support the netting of a derivative contract.
    (i) Credit risk capital charge for assets hedged with credit 
derivatives--(1) Credit derivatives with a remaining maturity of one 
year or more. The credit risk capital charge for an asset that is hedged 
with a credit derivative that has a remaining maturity of one year or 
more may be reduced only in accordance with paragraph (i)(3) or (i)(4) 
of this section and only if the credit derivative provides substantial 
protection against credit losses.
    (2) Credit derivatives with a remaining maturity of less than one 
year. The credit risk capital charge for an asset that is hedged with a 
credit derivative that has a remaining maturity of less than one year 
may be reduced only in accordance with paragraph (i)(3) of this section 
and only if the remaining maturity on the credit derivative is identical 
to or exceeds the remaining maturity of the hedged asset and the credit 
derivative provides substantial protection against credit losses.
    (3) Capital charge reduced to zero. The credit risk capital charge 
for an asset shall be zero if a credit derivative is used to hedge the 
credit risk on that asset in accordance with paragraph (i)(1) or (i)(2) 
of this section, provided that:
    (i) The remaining maturity for the credit derivative used for the 
hedge is identical to or exceeds the remaining maturity for the hedged 
asset, and either:
    (A) The asset referenced in the credit derivative is identical to 
the hedged asset; or
    (B) The asset referenced in the credit derivative is different from 
the hedged asset, but only if the asset referenced in the credit 
derivative and the hedged asset have been issued by the same obligor, 
the asset referenced in the credit derivative ranks pari passu to or 
more junior than the hedged asset and has the same maturity as the 
hedged asset, and cross-default clauses apply; and
    (ii) The credit risk capital charge for the credit derivative 
contract calculated pursuant to paragraph (d) of this section is still 
applied.
    (4) Capital charge reduction in certain other cases. The credit risk 
capital charge for an asset hedged with a credit derivative in 
accordance with paragraph (i)(1) of this section shall equal the sum of 
the credit risk capital charges for the hedged and unhedged portion of 
the asset provided that:
    (i) The remaining maturity for the credit derivative is less than 
the remaining maturity for the hedged asset and either:
    (A) The asset referenced in the credit derivative is identical to 
the hedged asset; or
    (B) The asset referenced in the credit derivative is different from 
the hedged asset, but only if the asset referenced in the credit 
derivative and the hedged

[[Page 130]]

asset have been issued by the same obligor, the asset referenced in the 
credit derivative ranks pari passu to or more junior than the hedged 
asset and has the same maturity as the hedged asset, and cross-default 
clauses apply; and
    (ii) The credit risk capital charge for the unhedged portion of the 
asset equals:
    (A) The credit risk capital charge for the hedged asset, calculated 
as the book value of the hedged asset multiplied by the hedged asset's 
credit risk percentage requirement assigned pursuant to paragraph (e)(2) 
of this section where the appropriate credit rating is that for the 
hedged asset and the appropriate maturity is the remaining maturity of 
the hedged asset; minus
    (B) The credit risk capital charge for the hedged asset, calculated 
as the book value of the hedged asset multiplied by the hedged asset's 
credit risk percentage requirement assigned pursuant to paragraph (e)(2) 
of this section where the appropriate credit rating is that for the 
hedged asset but the appropriate maturity is deemed to be the remaining 
maturity of the credit derivative; and
    (iii) The credit risk capital charge for the hedged portion of the 
asset is equal to the credit risk capital charge for the credit 
derivative, calculated in accordance with paragraph (d) of this section.
    (j) Zero Credit risk capital charge for certain derivative 
contracts. The credit risk capital charge for the following derivative 
contracts shall be zero:
    (1) A foreign exchange rate contract with an original maturity of 14 
calendar days or less (gold contracts do not qualify for this 
exception); and
    (2) A derivative contract that is traded on an organized exchange 
requiring the daily payment of any variations in the market value of the 
contract.
    (k) Date of calculations. Unless otherwise directed by the Finance 
Board, each Bank shall perform all calculations required by this section 
using the assets, off-balance sheet items, and derivative contracts held 
by the Bank, and, if applicable, the values or credit ratings of such 
assets, items, or derivatives as of the close of business of the last 
business day of the month for which the credit risk capital charge is 
being calculated.

[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54108, Oct. 26, 2001]



Sec. 932.5  Market risk capital requirement.

    (a) General requirement. (1) Each Bank's market risk capital 
requirement shall equal the sum of:
    (i) The market value of the Bank's portfolio at risk from movements 
in interest rates, foreign exchange rates, commodity prices, and equity 
prices that could occur during periods of market stress, where the 
market value of the Bank's portfolio at risk is determined using an 
internal market risk model that fulfills the requirements of paragraph 
(b) of this section and that has been approved by the Finance Board; and
    (ii) The amount, if any, by which the Bank's current market value of 
total capital is less than 85 percent of the Bank's book value of total 
capital, where:
    (A) The current market value of the total capital is calculated by 
the Bank using the internal market risk model approved by the Finance 
Board under paragraph (d) of this section; and
    (B) The book value of total capital is the same as the amount of 
total capital reported by the Bank to the Finance Board under Sec. 
932.7 of this part.
    (2) A Bank may substitute an internal cash flow model to derive a 
market risk capital requirement in place of that calculated using an 
internal market risk model under paragraph (a)(1) of this section, 
provided that:
    (i) The Bank obtains Finance Board approval of the internal cash 
flow model and of the assumptions to be applied to the model; and
    (ii) The Bank demonstrates to the Finance Board that the internal 
cash flow model subjects the Bank's assets and liabilities, off-balance 
sheet items and derivative contracts, including related options, to a 
comparable degree of stress for such factors as will be required for an 
internal market risk model.
    (b) Measurement of market value at risk under a Bank's internal 
market risk model. (1) Except as provided under paragraph (a)(2) of this 
section, each

[[Page 131]]

Bank shall use an internal market risk model that estimates the market 
value of the Bank's assets and liabilities, off-balance sheet items, and 
derivative contracts, including any related options, and measures the 
market value of the Bank's portfolio at risk of its assets and 
liabilities, off-balance sheet items, and derivative contracts, 
including related options, from all sources of the Bank's market risks, 
except that the Bank's model need only incorporate those risks that are 
material.
    (2) The Bank's internal market risk model may use any generally 
accepted measurement technique, such as variance-covariance models, 
historical simulations, or Monte Carlo simulations, for estimating the 
market value of the Bank's portfolio at risk, provided that any 
measurement technique used must cover the Bank's material risks.
    (3) The measures of the market value of the Bank's portfolio at risk 
shall include the risks arising from the non-linear price 
characteristics of options and the sensitivity of the market value of 
options to changes in the volatility of the options' underlying rates or 
prices.
    (4) The Bank's internal market risk model shall use interest rate 
and market price scenarios for estimating the market value of the Bank's 
portfolio at risk, but at a minimum:
    (i) The Bank's internal market risk model shall provide an estimate 
of the market value of the Bank's portfolio at risk such that the 
probability of a loss greater than that estimated shall be no more than 
one percent;
    (ii) The Bank's internal market risk model shall incorporate 
scenarios that reflect changes in interest rates, interest rate 
volatility, and shape of the yield curve, and changes in market prices, 
equivalent to those that have been observed over 120-business day 
periods of market stress. For interest rates, the relevant historical 
observations should be drawn from the period that starts at the end of 
the previous month and goes back to the beginning of 1978;
    (iii) The total number of, and specific historical observations 
identified by the Bank as, stress scenarios shall be:
    (A) Satisfactory to the Finance Board;
    (B) Representative of the periods of the greatest potential market 
stress given the Bank's portfolio, and
    (C) Comprehensive given the modeling capabilities available to the 
Bank; and
    (iv) The measure of the market value of the Bank's portfolio at risk 
may incorporate empirical correlations among interest rates.
    (5) For any consolidated obligations denominated in a currency other 
than U.S. Dollars or linked to equity or commodity prices, each Bank 
shall, in addition to fulfilling the criteria of paragraph (b)(4) of 
this section, calculate an estimate of the market value of its portfolio 
at risk due to the material foreign exchange, equity price or commodity 
price risk, such that, at a minimum:
    (i) The probability of a loss greater than that estimated shall not 
exceed one percent;
    (ii) The scenarios reflect changes in foreign exchange, equity, or 
commodity market prices that have been observed over 120-business day 
periods of market stress, as determined using historical data that is 
from an appropriate period; and
    (iii) The total number of, and specific historical observations 
identified by the Bank as, stress scenarios shall be:
    (A) Satisfactory to the Finance Board;
    (B) Representative of the periods of greatest potential stress given 
the Bank's portfolio; and
    (C) Comprehensive given the modeling capabilities available to the 
Bank; and
    (iv) The measure of the market value of the Bank's portfolio at risk 
may incorporate empirical correlations within or among foreign exchange 
rates, equity prices, or commodity prices.
    (c) Independent validation of Bank internal market risk model or 
internal cash flow model. (1) Each Bank shall conduct an independent 
validation of its internal market risk model or internal cash flow model 
within the Bank that is carried out by personnel not reporting to the 
business line responsible for conducting business transactions for the

[[Page 132]]

Bank. Alternatively, the Bank may obtain independent validation by an 
outside party qualified to make such determinations. Validations shall 
be done on an annual basis, or more frequently as required by the 
Finance Board.
    (2) The results of such independent validations shall be reviewed by 
the Bank's board of directors and provided promptly to the Finance 
Board.
    (d) Finance Board approval of Bank internal market risk model or 
internal cash flow model. Each Bank shall obtain Finance Board approval 
of an internal market risk model or an internal cash flow model, 
including subsequent material adjustments to the model made by the Bank, 
prior to the use of any model. Each Bank shall make such adjustments to 
its model as may be directed by the Finance Board.
    (e) Date of calculations. Unless otherwise directed by the Finance 
Board, each Bank shall perform any calculations or estimates required 
under this section using the assets and liabilities, off-balance sheet 
items, and derivative contracts held by the Bank, and if applicable, the 
values of any such holdings, as of the close of business of the last 
business day of the month for which the market risk capital requirement 
is being calculated.



Sec. 932.6  Operations risk capital requirement.

    (a) General requirement. Except as authorized under paragraph (b) of 
this section, each Bank's operations risk capital requirement shall at 
all times equal 30 percent of the sum of the Bank's credit risk capital 
requirement and market risk capital requirement.
    (b) Alternative requirements. With the approval of the Finance 
Board, each Bank may have an operations risk capital requirement equal 
to less than 30 percent but no less than 10 percent of the sum of the 
Bank's credit risk capital requirement and market risk capital 
requirement if:
    (1) The Bank provides an alternative methodology for assessing and 
quantifying an operations risk capital requirement; or
    (2) The Bank obtains insurance to cover operations risk from an 
insurer rated at least the second highest investment grade credit rating 
by an NRSRO.



Sec. 932.7  Reporting requirements.

    Each Bank shall report to the Finance Board by the 15th business day 
of each month its risk-based capital requirement by component amounts, 
and its actual total capital amount and permanent capital amount, 
calculated as of the close of business of the last business day of the 
preceding month, or more frequently, as may be required by the Finance 
Board.



Sec. 932.8  Minimum liquidity requirements.

    In addition to meeting the deposit liquidity requirements contained 
in Sec. 965.3 of this chapter, each Bank shall hold contingency 
liquidity in an amount sufficient to enable the Bank to meet its 
liquidity needs, which shall, at a minimum, cover five business days of 
inability to access the consolidated obligation debt markets. An asset 
that has been pledged under a repurchase agreement cannot be used to 
satisfy minimum liquidity requirements.



Sec. 932.9  Limits on unsecured extensions of credit to one counterparty or affiliated counterparties; reporting requirements for total extensions of credit to 
          one counterparty or affiliated counterparties.

    (a) Unsecured extensions of credit to a single counterparty. A Bank 
shall not extend unsecured credit to any single counterparty (other than 
a GSE) in an amount that would exceed the limits of this paragraph. A 
Bank shall not extend unsecured credit to a GSE in an amount that would 
exceed the limits set forth in paragraph (c) of this section. If a 
third-party provides an irrevocable, unconditional guarantee of 
repayment of a credit (or any part thereof), the third-party guarantor 
shall be considered the counterparty for purposes of calculating and 
applying the unsecured credit limits of this section with respect the to 
guaranteed portion of the transaction.
    (1) Term limits. All unsecured extensions of credit by a Bank to a 
single counterparty that arise from the Bank's on- and off-balance sheet 
and derivative transactions (but excluding

[[Page 133]]

the amount of sales of federal funds with a maturity of one day or less 
and sales of federal funds subject to a continuing contract) shall not 
exceed the product of the maximum capital exposure limit applicable to 
such counterparty, as determined in accordance with paragraph (a)(4) of 
this section and Table 4 of this part, multiplied by the lesser of:
    (i) The Bank's total capital; or
    (ii) The counterparty's Tier 1 capital, or if Tier 1 capital is not 
available, total capital (as defined by the counterparty's principal 
regulator) or some similar comparable measure identified by the Bank.
    (2) Overall limits including sales of overnight federal funds. All 
unsecured extensions of credit by a Bank to a single counterparty that 
arise from the Bank's on- and off-balance sheet and derivative 
transactions, including the amounts of sales of federal funds with a 
maturity of one day or less and sales of federal funds subject to a 
continuing contract, shall not exceed twice the limit calculated 
pursuant to paragraph (a)(1) of this section.
    (3) Limits for certain obligations issued by state, local or tribal 
governmental agencies. The term limit set forth in paragraph (a)(1) of 
this section when applied to the marketable direct obligations of state, 
local or tribal government unit or agencies that are acquired member 
assets identified in Sec. 955.2(a)(3) of this chapter or are otherwise 
excluded from the prohibition against investments in whole mortgages or 
whole loan or interests in such mortgages or loans by Sec. 
956.3(a)(4)(iii) of this chapter shall be calculated based on the Bank's 
total capital and the credit rating assigned to the particular 
obligation as determined in accordance with paragraph (a)(5) of this 
section. If a Bank owns series or classes of obligations issued by a 
particular state, local or tribal government unit or agency or has 
extended other forms of unsecured credit to such entity falling into 
different rating categories, the total amount of unsecured credit 
extended by the Bank to that government unit or agency shall not exceed 
the term limit associated with the highest-rated obligation issued by 
the entity and actually purchased by the Bank.
    (4) Bank determination of applicable maximum capital exposure 
limits. (i) Except as set forth in paragraph (a)(4)(ii) or (a)(4)(iii) 
of this section, the applicable maximum capital exposure limits are 
assigned to each counterparty based upon the long-term credit rating of 
the counterparty, as determined in accordance with paragraph (a)(5) of 
this section, and are provided in the following Table 4 of this part:

  Table 4--Maximum Limits on Unsecured Extensions of Credit to a Single
      Counterparty by Counterparty Long-Term Credit Rating Category
------------------------------------------------------------------------
                                                              Maximum
                                                              capital
    Long-term credit rating of counterparty category      exposure limit
                                                            (in percent)
------------------------------------------------------------------------
Highest Investment Grade................................              15
Second Highest Investment Grade.........................              14
Third Highest Investment Grade..........................               9
Fourth Highest Investment Grade.........................               3
Below Investment Grade or Other.........................               1
------------------------------------------------------------------------

    (ii) If a counterparty does not have a long-term credit rating but 
has received a short-term credit rating from an NRSRO, the maximum 
capital exposure limit applicable to that counterparty shall be based 
upon the short-term credit rating, as determined in accordance with 
paragraph (a)(5) of this section, as follows:
    (A) The highest short-term investment grade credit rating shall 
correspond to the maximum capital exposure limit provided in Table 4 of 
this part for the third highest long-term investment grade rating;
    (B) The second highest short-term investment grade rating shall 
correspond to the maximum capital exposure limit provided in Table 4 of 
this part for the fourth highest long-term investment grade rating; and
    (C) The third highest short-term investment grade rating shall 
correspond to the maximum capital exposure limit provided in Table 4 of 
this part for the fourth highest long-term investment grade rating.
    (iii) If a specific debt obligation issued by a counterparty 
receives a credit rating from an NRSRO that is lower than the 
counterparty's long-term credit rating, the total amount of

[[Page 134]]

the lower-rated obligation held by the Bank may not exceed a sub-limit 
calculated in accordance with paragraph (a)(1) of this section, except 
that the Bank shall use the credit rating associated with the specific 
obligation to determine the applicable maximum capital exposure limit. 
For purposes of this paragraph, the credit rating of the debt obligation 
shall be determined in accordance with paragraph (a)(5) of this section.
    (5) Bank determination of applicable credit ratings. The following 
criteria shall be applied to determine a counterparty's credit rating:
    (i) The counterparty's most recent credit rating from a given NRSRO 
shall be considered;
    (ii) If only one NRSRO has rated the counterparty, that NRSRO's 
rating shall be used. If a counterparty has received credit ratings from 
more than one NRSRO, the lowest credit rating from among those NRSROs 
shall be used;
    (iii) Where a credit rating has a modifier, the credit rating is 
deemed to be the credit rating without the modifier;
    (iv) If a counterparty is placed on a credit watch for a potential 
downgrade by an NRSRO, the credit rating from that NRSRO at the next 
lower grade shall be used; and
    (v) If a counterparty is not rated by an NRSRO, the Bank shall 
determine the applicable credit rating by using credit rating standards 
available from an NRSRO or other similar standards.
    (b) Unsecured extensions of credit to affiliated counterparties--(1) 
In general. The total amount of unsecured extensions of credit by a Bank 
to a group of affiliated counterparties that arise from the Bank's on- 
and off-balance sheet and derivative transactions, including sales of 
federal funds with a maturity of one day or less and sales of federal 
funds subject to a continuing contract, shall not exceed thirty percent 
of the Bank's total capital.
    (2) Relation to individual limits. The aggregate limits calculated 
under this paragraph shall apply in addition to the limits on extensions 
of unsecured credit to a single counterparty imposed by paragraph (a) of 
this section.
    (c) Special limits for GSEs--(1) In general. Unsecured extensions of 
credit by a Bank to a GSE that arise from the Bank's on- and off-balance 
sheet and derivative transactions, including from the purchase of any 
subordinated debt subject to the sub-limit set forth in paragraph (c)(2) 
of this section, from any sales of federal funds with a maturity of one 
day or less and from sales of federal funds subject to a continuing 
contract, shall not exceed the lesser of:
    (i) The Bank's total capital; or
    (ii) The GSE's total capital (as defined by the GSE's principal 
regulator) or some similar comparable measure identified by the Bank.
    (2) Sub-limit for subordinated debt. The maximum amount of 
subordinated debt issued by a GSE and held by a Bank shall not exceed 
the term limit calculated under paragraph (a)(1) of this section, except 
that a Bank shall use the credit rating of the GSE's subordinated debt 
to determine the applicable maximum capital exposure limit. The credit 
rating of the subordinated debt shall be determined in accordance with 
paragraph (a)(5) of this section.
    (3) Limits applying to a GSE after a downgrade. If any NRSRO assigns 
a credit rating to any senior debt obligation issued (or to be issued) 
by a GSE that is below the highest investment grade or downgrades, or 
places on a credit watch for a potential downgrade of the credit rating 
on any senior unsecured obligation issued by a GSE to below the highest 
investment grade, the special limits on unsecured extensions of credit 
under paragraph (c)(1) of this section shall cease to apply, and 
instead, the Bank shall calculate the maximum amount of its unsecured 
extensions of credit to that GSE in accordance with paragraphs (a)(1) 
and (a)(2) of this section.
    (4) Extensions of unsecured credit to other Banks. The limits of 
this section do not apply to unsecured credit extended by one Bank to 
another Bank.
    (d) Extensions of unsecured credit after downgrade or placement on 
credit watch. If an NRSRO downgrades the credit rating applicable to any 
counterparty or places any counterparty on a credit watch for a 
potential downgrade, a Bank need not unwind or liquidate any existing 
transaction or position with

[[Page 135]]

that counterparty that complied with the limits of this section at the 
time it was entered. In such a case, however, a Bank may extend any 
additional unsecured credit to such a counterparty only in compliance 
with the limitations that are calculated using the lower maximum 
exposure limits. For the purposes of this section, the renewal of an 
existing unsecured extension of credit, including any decision not to 
terminate any sales of federal funds subject to a continuing contract, 
shall be considered an additional extension of unsecured credit that can 
be undertaken only in accordance with the lower limit.
    (e) Reporting requirements--(1) Total unsecured extensions of 
credit. Each Bank shall report monthly to the Finance Board the amount 
of the Bank's total unsecured extensions of credit arising from on- and 
off-balance sheet and derivative transactions to any single counterparty 
or group of affiliated counterparties that exceeds 5 percent of:
    (i) The Bank's total capital; or
    (ii) The counterparty's, or affiliated counterparties' combined, 
Tier 1 capital, or if Tier 1 capital is not available, total capital (as 
defined by each counterparty's principal regulator) or some similar 
comparable measure identified by the Bank.
    (2) Total secured and unsecured extensions of credit. Each Bank 
shall report monthly to the Finance Board the amount of the Bank's total 
secured and unsecured extensions of credit arising from on- and off-
balance sheet and derivative transactions to any single counterparty or 
group of affiliated counterparties that exceeds 5 percent of the Bank's 
total assets.
    (3) Extensions of credit in excess of limits. A Bank shall report 
promptly to the Finance Board any extensions of unsecured credit that 
exceeds any limit set forth in paragraphs (a), (b) or (c) of this 
section. In making this report, a Bank shall provide the name of the 
counterparty or group of affiliated counterparties to which the excess 
unsecured credit has been extended, the dollar amount of the applicable 
limit which has been exceeded, the dollar amount by which the Bank's 
extension of unsecured credit exceeds such limit, the dates for which 
the Bank was not in compliance with the limit, and, if applicable, a 
brief explanation of any extenuating circumstances which caused the 
limit to be exceeded.
    (f) Measurement of unsecured extensions of credit--(1) In general. 
For purposes of this section, unsecured extensions of credit will be 
measured as follows:
    (i) For on-balance sheet transactions, an amount equal to the sum of 
the book value of the item plus net payments due the Bank;
    (ii) For off-balance sheet transactions, an amount equal to the 
credit equivalent amount of such item, calculated in accordance with 
Sec. 932.4(f) of this part; and
    (iii) For derivative transactions, an amount equal to the sum of the 
current and potential future credit exposures for the derivative 
contract, where those values are calculated in accordance with 
Sec. Sec. 932.4(g) or 932.4(h) of this part, as applicable, less the 
amount of any collateral that is held in accordance with the 
requirements of Sec. 932.4(e)(2)(ii)(B) of this part against the credit 
exposure from the derivative contract.
    (2) Status of debt obligations purchased by the Bank. Any debt 
obligation or debt security (other than mortgage-backed securities or 
acquired member assets that are identified in Sec. Sec. 955.2(a)(1) and 
(2) of this chapter) purchased by a Bank shall be considered an 
unsecured extension of credit for the purposes of this section, except:
    (i) Any amount owed the Bank against which the Bank holds collateral 
in accordance with Sec. 932.4(e)(2)(ii)(B) of this part; or
    (ii) Any amount which the Finance Board has determined on a case-by-
case basis shall not be considered an unsecured extension of credit.
    (g) Obligations of the United States. Obligations of, or guaranteed 
by, the United States are not subject to the requirements of this 
section.

[66728, Dec. 27, 2002]



PART 933_BANK CAPITAL STRUCTURE PLANS--Table of Contents




Sec.
933.1 Submission of plan.

[[Page 136]]

933.2 Contents of plan.
933.3 Independent review of capital plan.
933.4 Transition provisions.
933.5 Disclosure to members concerning capital plan and capital stock 
          conversion.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1426, 1440, 1443, 1446.

    Source: 66 FR 8310, Jan. 30, 2001, unless otherwise noted.



Sec. 933.1  Submission of plan.

    (a) In general. By no later than October 29, 2001, the board of 
directors of each Bank shall submit to the Finance Board a plan to 
establish and implement a new capital structure for that Bank, which 
plan shall comply with part 931 of this chapter and under which, when 
implemented, the Bank shall have sufficient total and permanent capital 
to comply with the regulatory capital requirements established by part 
932 of this chapter. The Finance Board, upon a demonstration of good 
cause submitted by the board of directors of a Bank, may approve a 
reasonable extension of the 270-day period for submission of the capital 
plan. A Bank shall not implement its capital plan, or any amendment to 
the plan, without Finance Board approval.
    (b) Failure to submit a capital plan. If a Bank fails to submit a 
capital plan to the Finance Board by October 29, 2001, including any 
approved extension, the Finance Board may establish a capital plan for 
that Bank, take any enforcement action against the Bank, its directors, 
or its executive officers authorized by section 2B(a) of the Act (12 
U.S.C. 1422b(a)), or merge the Bank pursuant to section 26 of the Act 
(12 U.S.C. 1446) into any other Bank that has submitted a capital plan.
    (c) Consideration of the plan. After receipt of a Bank's capital 
plan, the Finance Board may return the plan to the Bank if it does not 
comply with section 6 of the Act (12 U.S.C. 1426) or any regulatory 
requirement or is otherwise incomplete or materially deficient. If the 
Finance Board accepts a capital plan for review, it may require the Bank 
to submit additional information regarding its plan or to amend the 
plan, prior to determining whether to approve the plan. The Finance 
Board may approve a capital plan as submitted or as amended, or may 
condition its approval on the Bank's compliance with certain stated 
conditions, and may require that the capital plans of all Banks take 
effect on the same date.



Sec. 933.2  Contents of plan.

    The capital plan for each Bank shall include, at a minimum, 
provisions addressing the following matters:
    (a) Minimum investment. (1) The capital plan shall require each 
member to purchase and maintain a minimum investment in the capital 
stock of the Bank, in accordance with Sec. 931.3, of this chapter and 
shall prescribe the manner in which the minimum investment is to be 
calculated. The plan shall require each member to maintain its minimum 
investment in the Bank's stock for as long as it remains a member and, 
with regard to Bank stock purchased to support an advance or other 
business activity, for as long as the advance or business activity 
remains outstanding.
    (2) The capital plan shall specify the amount and class (or classes) 
of Bank stock that an institution is required to own in order to become 
and remain a member of the Bank, and shall specify the amount and class 
(or classes) of Bank stock that a member is required to own in order to 
obtain advances from, or to engage in other business transactions with, 
the Bank. If a Bank requires its members to satisfy its minimum 
investment through the purchase of one or more combinations of Class A 
and Class B stock, the authorized combinations of stock shall be 
specified in the capital plan, which shall afford the members the option 
of satisfying the minimum investment through the purchase of any such 
combination of stock.
    (3) The capital plan may establish a minimum investment that is 
calculated as a percentage of the total assets of the member, as a 
percentage of the advances outstanding to the member, as a percentage of 
the other business activities conducted with the member, on any other 
basis approved by the Finance Board, or on any combination of the above.
    (4) The minimum investment established by the capital plan shall be 
set at a level that, when applied to all

[[Page 137]]

members, provides sufficient capital for the Bank to comply with its 
minimum capital requirements, as specified in part 932 of this chapter. 
The capital plan shall require the board of directors of the Bank to 
monitor and, as necessary, to adjust, the minimum investment to ensure 
that the stock required to be purchased and maintained by the members is 
sufficient to allow the Bank to comply with its minimum capital 
requirements. The plan shall require each member to comply promptly with 
any adjusted minimum investment established by the board of directors of 
the Bank, but may allow a member a reasonable time to do so and may 
allow a member to reduce its outstanding business with the Bank as an 
alternative to purchasing additional stock.
    (b) Classes of capital stock. The capital plan shall specify the 
class or classes of stock (including subclasses, if any) that the Bank 
will issue, and shall establish the par value, rights, terms, and 
preferences associated with each class (or subclass) of stock. A Bank 
may establish preferences relating to, but not limited to, the dividend, 
voting, or liquidation rights for each class or subclass of Bank stock. 
Any voting preferences established by the Bank pursuant to Sec. 915.5 
of this chapter shall expressly state the voting rights of each class of 
stock with regard to the election of Bank directors. The capital plan 
shall provide that the owners of the Class B stock own the retained 
earnings, surplus, undivided profits, and equity reserves of the Bank, 
but shall have no right to receive any portion of those items, except 
through declaration of a dividend or capital distribution approved by 
the board of directors or through the liquidation of the Bank.
    (c) Dividends. The capital plan shall establish the manner in which 
the Bank will pay dividends, if any, on each class or subclass of stock, 
and shall provide that the Bank may not declare or pay any dividends if 
it is not in compliance with any capital requirement or if after paying 
the dividend it would not be in compliance with any capital requirement.
    (d) Initial issuance. The capital plan shall specify the date on 
which the Bank will implement the new capital structure, and shall 
establish the manner in which the Bank will issue Class A and/or Class B 
stock to its existing members, as well as to eligible institutions that 
subsequently become members. The capital plan shall address how the Bank 
will retire the stock that is outstanding as of the effective date, 
including stock held by a member that does not affirmatively elect to 
convert or exchange its existing stock to either Class A or Class B 
stock, or some combination thereof.
    (e) Members wishing not to convert existing stock. The capital plan 
shall establish an opt-out date on or before which a member that does 
not wish to convert its existing stock into Class A and/or Class B stock 
must file a written notice to withdraw from membership with the Finance 
Board. This opt-out date shall not be more than six months before the 
effective date of the capital plan. (For purposes of applying this 
provision, the membership of an institution that files its notice to 
withdraw with the Finance Board on or before the opt-out date 
established in a capital plan shall terminate six months from the date 
that the notice of withdrawal was filed with the Finance Board or on the 
effective date of the Bank's capital plan, whichever date is earlier.) 
The capital plan shall further provide that any member that is in the 
process of withdrawing on the effective date of the capital plan but did 
not file its written notice to withdraw from membership with the Finance 
Board on or before this opt-out date, shall have its existing stock 
converted into Class A and/or Class B stock as required by the capital 
plan, and that the effective date of withdrawal for such member shall be 
established in accordance with Sec. Sec. 925.26(b) and (c) of this 
chapter, provided, however, that the applicable stock redemption periods 
calculated under Sec. 925.26(c) of this chapter shall commence on date 
the member first submitted its written notice to withdraw to the Finance 
Board.
    (f) Stock transactions. The capital plan shall establish the 
criteria for the issuance, redemption, repurchase, transfer, and 
retirement of stock issued by the Bank. The capital plan also:

[[Page 138]]

    (1) Shall provide that the Bank may not issue stock other than in 
accordance with Sec. 931.2 of this chapter;
    (2) Shall provide that the stock of the Bank may be issued only to 
and held only by the members of that Bank;
    (3) Shall specify whether the stock of the Bank may be transferred 
among members, and, if such transfer is allowed, shall specify the 
procedures that a member should follow to effect such transfer, and that 
the transfer shall be undertaken only in accordance with Sec. 931.6 of 
this chapter;
    (4) Shall specify that the stock of the Bank may be traded only 
between the Bank and its members;
    (5) May provide for a minimum investment for members that purchase 
Class B stock that is lower than the minimum investment for members that 
purchase Class A stock, provided that the level of investment is 
sufficient for the Bank to comply with its regulatory capital 
requirements;
    (6) Shall specify the fee, if any, to be imposed on a member that 
cancels a request to redeem Bank stock; and
    (7) Shall specify the period of notice that the Bank will provide to 
a member before the Bank, on its own initiative, determines to 
repurchase any excess Bank stock from a member.
    (g) Termination of membership. The capital plan shall address the 
manner in which the Bank will provide for the disposition of its capital 
stock that is held by institutions that terminate their membership, and 
the manner in which the Bank will liquidate claims against its members, 
including claims resulting from prepayment of advances prior to their 
stated maturity.
    (h) Implementation. The capital plan shall demonstrate that the Bank 
has made a good faith determination that the Bank will be able to 
implement the plan as submitted and that the Bank will be in compliance 
with its regulatory total capital requirement and its regulatory risk-
based capital requirement after the plan is implemented.

[66 FR 8310, Jan. 30, 2001, as amended at 66 FR 54108, Oct. 26, 2001; 70 
FR 9510, Feb. 28, 2005]



Sec. 933.3  Independent review of capital plan.

    Prior to submitting its capital plan, each Bank shall conduct a 
review of the plan by an independent certified public accountant to 
ensure, to the extent possible, that the implementation of the plan 
would not result in any write-down of the redeemable stock owned by its 
members, and shall conduct a separate review by at least one NRSRO to 
determine, to the extent possible, whether the implementation of the 
plan would have a material effect on the credit rating of the Bank. The 
Bank shall submit a copy of each report to the Finance Board as part of 
its proposed capital plan.



Sec. 933.4  Transition provisions.

    (a) The capital plan of a Bank may include a transition provision 
that would allow a period of time, not to exceed three years, during 
which the Bank shall increase its total and permanent capital to levels 
that are sufficient to comply with its minimum leverage capital 
requirement and its minimum risk-based capital requirement. The capital 
plan of a Bank may also include a transition provision that would allow 
a period of time, not to exceed three years, during which institutions 
that were members of the Bank on November 12, 1999, shall increase the 
amount of Bank stock to a level that is sufficient to comply with the 
minimum investment established by the capital plan. The length of the 
transition periods need not be identical.
    (b) Any transition provision shall comply with the requirements of 
Sec. 931.9.



Sec. 933.5  Disclosure to members concerning capital plan and capital stock conversion.

    (a) No capital plan shall become effective until disclosure required 
by paragraphs (b) and (c) of this section has been provided to members. 
All disclosure required under this section shall be transmitted, sent or 
given to members not less than 45 days and not more than 60 days prior 
to the opt-out date established in the Bank's capital plan in accordance 
with Sec. 933.2(e).
    (b) The following information shall be provided to members about the 
Class A and/or Class B stock that a

[[Page 139]]

Bank intends to issue on the effective date of its capital plan:
    (1) With regard to each class or subclass of authorized stock, a 
description of:
    (i) Dividend rights;
    (ii) The terms of conversion;
    (iii) Redemption and repurchase rights;
    (iv) Voting rights and preferences,
    (v) Liquidation rights; and
    (vi) Any liability to further calls or to assessments by the Banks;
    (2) A description of any material differences between the securities 
to be converted into Class A and/or Class B stock and the Class A and/or 
Class B stock with regard to the rights addressed in paragraph (b)(1) of 
this section.
    (3) A statement of the reasons for the conversion to Class A and/or 
Class B stock and of the general effect thereof upon the rights of 
existing members; and
    (4) A description of any other material features concerning the 
Bank's initial issuance of Class A and/or Class B stock.
    (c) In addition to the disclosure about Class A and/or Class B 
stock, the following information shall be provided to members:
    (1) The Bank shall disclose financial information as follows:
    (i) Audited balance sheets as of the end of the two most recent 
fiscal years, audited statements of income and cash flows for each of 
the three fiscal years preceding the date of the most recent audited 
balance sheet being presented, and unaudited interim balance sheets and 
statements of income and cash flows as of and for appropriate interim 
dates that in form and content meet the requirements of Sec. 989.4 of 
this chapter;
    (ii) A pro forma capitalization table that reflects the Bank's 
projected new capital structure relative to its actual capitalization as 
of the date of the latest balance sheet required to be provided to 
members by paragraph (c)(1)(i) of this section. The Bank shall also 
provide a description of any material assumptions underlying the pro 
forma capitalization table and the basis for these assumptions, and 
shall provide estimates of its risk-based capital requirement, 
calculated in accordance with Sec. 932.3 of this chapter, and of its 
total capital-to-asset ratio (both of which shall be based on the same 
financial data used for the capitalization table), along with a 
discussion of material assumptions underlying these estimates and the 
basis for these assumptions; and
    (iii) Any of the financial information required to be disclosed by 
paragraph (c)(1) of this section may be incorporated by reference, 
provided the information being incorporated is contained in an annual or 
quarterly Bank report prepared in accordance with Sec. 989.4 of this 
chapter or an annual or quarterly Bank System report, and the disclosure 
identifies the information being incorporated by reference;
    (2) A narrative discussion of anticipated developments that could 
materially affect the liquidity, capital, earnings or continuing 
operations of the Bank, including those affecting dividends, product 
volumes, investment volumes, new business lines and risk profile.
    (3) A description of any amendments anticipated to be made to the 
Bank's by-laws, policies or other governance documents as a result of 
the implementation of the capital plan;
    (4) To the extent that such information has not been provided under 
paragraph (b) of this section, the Bank shall disclose information 
related to the capital plan as follows:
    (i) A description of the minimum stock investment requirements set 
forth in the capital plan;
    (ii) A statement outlining the requirements for amending the capital 
plan;
    (iii) A description of any restrictions or limitations under a 
Bank's capital plan on a member's rights to buy, or redeem its class A 
or class B stock, to have such stock repurchased, or otherwise to make 
use of such stock to fulfill the member's minimum stock investment 
requirement;
    (iv) A statement setting forth the opt-out date, on or before which 
a member's written notice to withdraw must be filed with the Finance 
Board (as established in accordance with Sec. 933.2(e) of this part) 
for the member not to have its existing Bank stock

[[Page 140]]

converted to Class A or Class B stock on the effective date of the 
Bank's capital plan and describing the effect on a member's effective 
date of withdrawal of failing to file its notice to withdraw on or 
before the opt-out date; and
    (v) A description of a member's rights under the capital plan to 
have its stock redeemed or repurchased upon voluntary or involuntary 
termination of its membership;
    (5) The Bank should state the name, address and telephone number 
where members may direct written or oral requests for a copy of the 
capital plan and any other instrument or document that defines the 
rights of the member/stockholders. This information shall be provided to 
the members without charge; and
    (6) The Bank shall provide a statement as to the anticipated 
accounting treatment for the transaction and the federal income tax 
implications of the transaction that members should consider in 
consultation with their own accounting and tax advisors.
    (d) Nothing in this section shall create or be deemed to create any 
rights in any third party.

[66 FR 54109, Oct. 26, 2001]

[[Page 141]]



               SUBCHAPTER F_FEDERAL HOME LOAN BANK MISSION





PART 940_CORE MISSION ACTIVITIES--Table of Contents




Sec.
940.1 Definitions.
940.2 Mission of the Banks.
940.3 Core mission activities.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1430, 1430b, 1431.

    Source: 65 FR 25278, May 1, 2000, unless otherwise noted.



Sec. 940.1  Definitions.

    As used in this part:
    Targeted income level has the meaning set forth in paragraphs (1) 
and (2) of the definition of ``targeted income level'' in Sec. 952.1 of 
this chapter.

[67 FR 12850, Mar. 20, 2002]



Sec. 940.2  Mission of the Banks.

    The mission of the Banks is to provide to their members' and housing 
associates financial products and services, including but not limited to 
advances, that assist and enhance such members' and housing associates 
financing:
    (a) Financing of housing, including single-family and multi-family 
housing serving consumers at all income levels; and
    (b) Community lending.

[65 FR 25278, May 1, 2000, as amended at 67 FR 12850, Mar. 20, 2002; 67 
FR 39791, June 10, 2002]



Sec. 940.3  Core mission activities.

    The following Bank activities qualify as core mission activities:
    (a) Advances;
    (b) Acquired member assets (AMA), except that United States 
government-insured or guaranteed whole single-family residential 
mortgage loans acquired under a commitment entered into after April 12, 
2000 shall qualify 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 (which calculation, at the discretion 
of two or more Banks, may be made based on aggregate transactions among 
those Banks);
    (c) Standby letters of credit;
    (d) Intermediary derivative contracts;
    (e) Debt or equity investments:
    (1) That primarily benefit households having a targeted income 
level, a significant proportion of which must benefit households with 
incomes at or below 80 percent of area median income, or areas targeted 
for redevelopment by local, state, tribal or Federal government 
(including Federal Empowerment Zones and Enterprise and Champion 
Communities), by providing or supporting one or more of the following 
activities:
    (i) Housing;
    (ii) Economic development;
    (iii) Community services;
    (iv) Permanent jobs; or
    (v) Area revitalization or stabilization;
    (2) In the case of mortgage- or asset-backed securities, the 
acquisition of which would expand 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; and
    (3) That involve one or more members or housing associates in a 
manner, financial or otherwise, and to a degree to be determined by the 
Bank;
    (f) Investments in SBICs, where one or more members or housing 
associates of the Bank also make a material investment in the same 
activity;
    (g) SBIC debentures, the short term tranche of SBIC securities, ore 
other debentures that are guaranteed by the Small Business 
Administration under title III of the Small Business Investment Act of 
1958, as amended (15 U.S.C. 681 et seq.);
    (h) Section 108 Interim Notes and Participation Certificates 
guaranteed by the Department of Housing and Urban Development under 
section 108

[[Page 142]]

of the Housing and Community Development Act of 1974, as amended (42 
U.S.C. 5308); and
    (i) Investments and obligations issued or guaranteed under the 
Native American Housing Assistance and Self-Determination Act of 1996 
(25 U.S.C. 4101 et seq.).

[65 FR 43981, July 17, 2000]



PART 944_COMMUNITY SUPPORT REQUIREMENTS--Table of Contents




Sec.
944.1 Definitions.
944.2 Community support requirement.
944.3 Community support standards.
944.4 Decision on community support statements.
944.5 Restrictions on access to long-term advances.
944.6 Bank community support programs.
944.7 Reports.

    Authority: 12 U.S.C. 1422a(a)(3)(B), 1422b(a)(1), 1430(g).

    Source: 62 FR 28988, May 29, 1997, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.



Sec. 944.1  Definitions.

    For purposes of this part:
    Advisory Council means the Advisory Council each Bank is required to 
establish pursuant to section 10(j)(11) of the Act (12 U.S.C. 
1430(j)(11)) and part 951 of this chapter.
    CRA means the Community Reinvestment Act of 1977, as amended (12 
U.S.C. 2901, et seq.).
    CRA evaluation means the public disclosure portion of the CRA 
performance evaluation provided by a member's appropriate Federal 
banking agency.
    Displaced homemaker means an adult who has not worked full-time, 
full-year in the labor force for a number of years and, during that 
period, worked primarily without remuneration to care for a home and 
family, and currently is unemployed or underemployed and is experiencing 
difficulty in obtaining or upgrading employment.
    First-time homebuyer means:
    (1) An individual and his or her spouse, if any, who has had no 
present ownership interest in a principal residence during the three-
year period prior to purchase of a principal residence.
    (2) A displaced homemaker who, except for owning a residence with 
his or her spouse or residing in a residence owned by his or her spouse, 
meets the requirements of paragraph (1) of this definition.
    (3) A single parent who, except for owning a residence with his or 
her spouse or residing in a residence owned by his or her spouse, meets 
the requirements of paragraph (1) of this definition.
    Long-term advance means an advance with a term to maturity greater 
than one year.
    Restriction on access to long-term advances means a member may not 
borrow long-term advances or renew any maturing advance for a term to 
maturity greater than one year.
    Single parent means an individual who is unmarried or legally 
separated from a spouse and has custody or joint custody of one or more 
minor children or is pregnant.
    Targeted community lending has the meaning set forth in Sec. 952.1 
of this chapter.

[67 FR 12850, Mar. 20, 2002]



Sec. 944.2  Community support requirement.

    (a) Selection for community support review. The Finance Board shall 
select a member for community support review approximately once every 
two years.
    (b) Notice--(1) By the Finance Board. The Finance Board concurrently 
shall:
    (i) Notify each Bank of the members within its district that are 
required to submit community support statements during the calendar 
quarter; and
    (ii) Publish a notice in the Federal Register that includes the name 
and address of each member required to submit a community support 
statement during the calendar quarter, and the deadline for submission 
of the community support statement to the Finance Board. The deadline 
for submission of a community support statement shall be no earlier than 
45 calendar days after the date of publication of the notice in the 
Federal Register.
    (2) By the Banks. Within 15 calendar days of the date of publication 
in the

[[Page 143]]

Federal Register of the notice required by paragraph (b)(1)(ii) of this 
section, a Bank shall provide written notice to:
    (i) Each member within its district that is named in the Federal 
Register notice, that the member is required to submit a community 
support statement to the Finance Board by the deadline stated in the 
Federal Register notice; and
    (ii) Its Advisory Council and nonprofit housing developers, 
community groups, and other interested parties in its district of the 
name and address of each member within its district that is required to 
submit a community support statement during the calendar quarter.
    (c) Required documents. Each member selected for community support 
review shall submit a completed Community Support Statement Form 
executed by an appropriate senior officer to the Finance Board and any 
other information the Finance Board may require to determine whether a 
member meets the community support standards.
    (d) Public comments. In reviewing a member for compliance with the 
community support requirement, the Finance Board shall take into 
consideration any public comments it has received concerning the member.

[62 FR 28988, May 29, 1997, as amended at 65 FR 5739, Feb. 7, 2000; 67 
FR 12850, Mar. 20, 2002; 70 FR 9510, Feb. 28, 2005]



Sec. 944.3  Community support standards.

    (a) In general. In reviewing a community support statement, the 
Finance Board shall take into account a member's performance under the 
CRA if the member is subject to the requirements of the CRA, and the 
member's record of lending to first-time homebuyers.
    (b) CRA standard--(1) Adequate performance. A member that is subject 
to the requirements of the CRA shall be deemed to meet the CRA standard 
if the rating in the member's most recent CRA evaluation is 
``outstanding'' or ``satisfactory.''
    (2) Probationary performance. A member that is subject to the 
requirements of the CRA shall be subject to a probationary period if the 
rating in the member's most recent CRA evaluation is ``needs to 
improve.'' The probationary period shall extend until the member's 
appropriate Federal banking agency completes its next CRA evaluation and 
issues a rating. The member will be eligible to receive long-term 
advances during the probationary period. If the member does not meet the 
CRA standard at the end of the probationary period, the Finance Board 
shall restrict the member's access to long-term advances in accordance 
with Sec. 944.5.
    (3) Inadequate performance. A member's access to long-term advances 
shall be restricted in accordance with Sec. 944.5 if the rating in the 
member's most recent CRA evaluation is ``substantial noncompliance.''
    (c) First-time homebuyer standard--(1) Adequate performance. In the 
absence of public comments or other information to the contrary, a 
member shall be presumed to meet the first-time homebuyer standard if 
the member is subject to the requirements of the CRA and the rating in 
the member's most recent CRA evaluation is ``outstanding.'' In 
determining whether other members meet the first-time homebuyer 
standard, the Finance Board shall consider a member's description of its 
efforts to assist first-time or potential first-time homebuyers or its 
explanation of factors that affect its ability to assist first-time or 
potential first-time homebuyers. A member shall be deemed to meet the 
first-time homebuyer standard if the member otherwise demonstrates to 
the satisfaction of the Finance Board that it:
    (i) Has an established record of lending to first-time homebuyers;
    (ii) Has a program whereby it actively seeks to lend or support 
lending to first-time homebuyers, including, but not limited to, the 
following:
    (A) Providing special credit products with flexible underwriting 
standards for first-time homebuyers;
    (B) Participating in federal, state, or local government, or 
nationwide homeownership lending programs that benefit, serve, or are 
targeted to, first-time homebuyers; or
    (C) Participating in loan consortia for first-time homebuyer loans 
or loans that serve predominantly low- or moderate-income borrowers;

[[Page 144]]

    (iii) Has a program whereby it actively seeks to assist or support 
organizations that assist potential first-time homebuyers to qualify for 
mortgage loans, including, but not limited to, the following:
    (A) Providing, participating in, or supporting special counseling 
programs or other homeownership education activities that benefit, 
serve, or are targeted to, first-time homebuyers;
    (B) Providing or participating in marketing plans and related 
outreach programs targeted to first-time homebuyers;
    (C) Providing technical assistance of financial support to 
organizations that assist first-time homebuyers;
    (D) Participating with or financially supporting community or 
nonprofit groups that assist first-time homebuyers;
    (E) Holding investments or making loans that support first-time 
homebuyer programs;
    (F) Holding mortgage-backed securities that may include a pool of 
loans to low- and moderate-income homebuyers;
    (G) Participating or investing in service organizations that assist 
credit unions in providing mortgages; or
    (H) Participating in Bank targeted community lending programs; or
    (iv) Has any combination of the elements described in paragraphs 
(c)(1)(i), (ii), or (iii) of this section.
    (2) Probationary performance. If the evidence of first-time 
homebuyer performance is deemed to be unsatisfactory by the Finance 
Board, the member shall be subject to a one-year probationary period. 
The member will be eligible to receive long-term advances during the 
probationary period. If the member does not demonstrate compliance with 
the first-time homebuyer standard before the probationary period ends, 
the Finance Board shall restrict the member's access to long-term 
advances in accordance with Sec. 944.5.
    (3) Inadequate performance. A member's access to long-term advances 
shall be restricted in accordance with Sec. 944.5 if the member 
provides no evidence of first-time homebuyer performance.

[62 FR 28988, May 29, 1997, as amended at 65 FR 5739, Feb. 7, 2000; 65 
FR 8262, Feb. 18, 2000; 65 FR 44428, July 18, 2000; 67 FR 12850, Mar. 
20, 2002; 70 FR 9510, Feb. 28, 2005]



Sec. 944.4  Decision on community support statements.

    (a) Action on community support statements. The Finance Board shall 
act on each community support statement in accordance with the 
requirements of Sec. 944.3 within 75 calendar days of the date the 
Finance Board deems the community support statement to be complete. The 
Finance Board shall deem a community support statement complete when it 
has obtained all of the information required by this part and any other 
information it deems necessary to process the community support 
statement. If the Finance Board determines during the review process 
that additional information is necessary to process the community 
support statement, the Finance Board may deem the community support 
statement incomplete and stop the 75-day time period by providing 
written notice to the member. When the Finance Board receives the 
additional information, it shall again deem the community support 
statement complete and resume the 75-day time period where it stopped. 
The Finance Board shall have 10 calendar days in addition to the 75-day 
time period to act on a community support statement if the Finance Board 
receives the additional information on or after the seventieth day of 
the 75-day time period.
    (b) Decision on community support statements. The Finance Board 
shall provide written notice to the member and the member's Bank of its 
determination regarding the community support statement submitted by the 
member. The notice shall identify the reasons for the Finance Board's 
determination.

[62 FR 28988, May 29, 1997, as amended at 65 FR 5739, Feb. 7, 2000; 65 
FR 8262, Feb. 18, 2000; 70 FR 9510, Feb. 28, 2005]

[[Page 145]]



Sec. 944.5  Restrictions on access to long-term advances.

    (a) Requirement. The Finance Board shall restrict a member's access 
to long-term advances if the member:
    (1) Failed to comply with the requirements of this part;
    (2) Submitted a community support statement that was not approved by 
the Finance Board;
    (3) Did not receive a rating in a CRA evaluation of ``outstanding'' 
or ``satisfactory'' at the end of the probationary period described in 
Sec. 944.3(b)(2); or
    (4) Failed to provide evidence satisfactory to the Finance Board of 
its first-time homebuyer performance before the end of the probationary 
period described in Sec. 944.3(c)(2).
    (b) Notice. The Finance Board shall provide written notice to a 
member and the member's Bank of its determination to restrict the 
member's access to long-term advances: the member by certified mail, 
return receipt requested, and the member's Bank by facsimile and by 
regular mail.
    (c) Effective date. Restrictions on access to long-term advances 
shall take effect 30 days after the date the notices required under 
paragraph (b) of this section are mailed unless the member complies with 
the requirements of this part before the end of the 30-day period.
    (d) Removing restrictions. (1) The Finance Board may remove 
restrictions on a member's access to long-term advances imposed under 
this section:
    (i) If the Finance Board determines that application of the 
restriction may adversely affect the safety and soundness of the member. 
A member may submit a written request to the Finance Board to remove a 
restriction on access to long-term advances under this paragraph 
(d)(1)(i). Such written request shall contain a clear and concise 
statement of the basis for the request, and a statement that application 
of the restriction may adversely affect the safety and soundness of the 
member from the member's appropriate Federal banking agency, or the 
member's appropriate state regulator for a member that is not subject to 
regulation or supervision by a federal regulator. The Finance Board 
shall consider each written request within 30 calendar days of receipt.
    (ii) If the Finance Board determines that the member subsequently 
has complied with the requirements of this part. A member may submit a 
written request to the Finance Board to remove a restriction on access 
to long-term advances under this paragraph (d)(1)(ii). Such written 
request shall state with specificity how the member has complied with 
the requirements of this part. The Finance Board shall consider each 
written request within 30 calendar days of receipt.
    (2) The Finance Board shall place a member on probation in 
accordance with Sec. 944.3(b)(2), if:
    (i) The member's access to long-term advances was restricted on the 
basis of the member's inadequate performance under the CRA standard, as 
described in Sec. 944.3(b)(3);
    (ii) The rating in the member's subsequent CRA evaluation is ``needs 
to improve;'' and
    (iii) The member did not receive either a ``substantial 
noncompliance'' CRA rating or a ``needs to improve'' CRA rating 
immediately preceding the CRA rating on which the member's inadequate 
performance under the CRA standard was based.
    (3) The Finance Board shall provide written notice to the member and 
the member's Bank of its determination under this paragraph (d): the 
member by certified mail, return receipt requested, and the member's 
Bank by facsimile and by regular mail. The Finance Board's determination 
shall take effect on the date the notices are mailed.
    (e) CICA. A member that is subject to a restriction on access to 
long-term advances under this part shall not be eligible to participate 
in a CICA program offered under parts 951 and 952 of this chapter. The 
restriction in this paragraph (e) shall not apply to CICA applications 
or funding approved before the date the restriction is imposed.

[62 FR 28988, May 29, 1997, as amended at 62 FR 46872, Sept. 5, 1997; 63 
FR 65545, Nov. 27, 1998; 65 FR 5739, Feb. 7, 2000; 65 FR 8262, Feb. 18, 
2000; 67 FR 12850, Mar. 20, 2002; 70 FR 9510, Feb. 28, 2005]

[[Page 146]]



Sec. 944.6  Bank community support programs.

    (a) Requirement. Consistent with the safe and sound operation of the 
Bank, each Bank shall establish and maintain a community support 
program. A Bank's community support program shall:
    (1) Provide technical assistance to members;
    (2) Promote and expand affordable housing finance;
    (3) Identify opportunities for members to expand financial and 
credit services in underserved neighborhoods and communities;
    (4) Encourage members to increase their targeted community lending 
and affordable housing finance activities by providing incentives such 
as awards or technical assistance to nonprofit housing developers or 
community groups with outstanding records of participation in targeted 
community lending or affordable housing finance partnerships with 
members; and
    (5) Include an annual Targeted Community Lending Plan, approved by 
the Bank's board of directors and subject to modification, which shall 
require the Bank to:
    (i) Conduct market research in the Bank's district;
    (ii) Describe how the Bank will address identified credit needs and 
market opportunities in the Bank's district for targeted community 
lending;
    (iii) Consult with its Advisory Council and with members, housing 
associates, and public and private economic development organizations in 
the Bank's district in developing and implementing its Targeted 
Community Lending Plan; and
    (iv) Establish quantitative targeted community lending performance 
goals.
    (b) Notice. A Bank shall provide annually to each of its members a 
written notice:
    (1) Identifying CICA programs and other Bank activities that may 
provide opportunities for a member to meet the community support 
requirements and to engage in targeted community lending; and
    (2) Summarizing targeted community lending and affordable housing 
activities undertaken by members, housing associates, nonprofit housing 
developers, community groups, or other entities in the Bank's district, 
that may provide opportunities for a member to meet the community 
support requirements and to engage in targeted community lending.

[62 FR 28988, May 29, 1997, as amended at 63 FR 65545, Nov. 27, 1998; 65 
FR 44428, July 18, 2000; 67 FR 12850, Mar. 20, 2002]



Sec. 944.7  Reports.

    Each Advisory Council annual report required to be submitted to the 
Finance Board pursuant to section 10(j)(11) of the Act (12 U.S.C. 
1430(j)(11)) shall include an analysis of the Bank's targeted community 
lending and affordable housing activities.

[63 FR 65545, Nov. 27, 1998, as amended at 65 FR 44428, July 18, 2000; 
67 FR 12850, Mar. 20, 2002]

[[Page 147]]



 SUBCHAPTER G_FEDERAL HOME LOAN BANK ASSETS AND OFF-BALANCE SHEET ITEMS





PART 950_ADVANCES--Table of Contents




                      Subpart A_Advances to Members

Sec.
950.1 Definitions.
950.2 Authorization and application for advances; obligation to repay 
          advances.
950.3 Purpose of long-term advances; Proxy text.
950.4 Limitations on access to advances.
950.5 Terms and conditions for advances.
950.6 Fees.
950.7 Collateral.
950.8 Banks as secured creditors.
950.9 Pledged collateral; verification.
950.10 Collateral valuation; appraisals.
950.11 Capital stock requirements; unilateral redemption of excess 
          stock.
950.12 Intradistrict transfer of advances.
950.13 Special advances to savings associations.
950.14 Advances to the Savings Association Insurance Fund.
950.15 Liquidation of advances upon termination of membership.

                Subpart B_Advances to Housing Associates

950.16 Scope.
950.17 Advances to housing associates.



  Subpart C_Advances to Out-of-District Members and Housing Associates

950.25 Advances to out-of-district members and housing associates.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a)(1), 1426, 1429, 1430, 
1430b, 1431.

    Source: 58 FR 29469, May 20, 1993, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.



                      Subpart A_Advances to Members



Sec. 950.1  Definitions.

    As used in this part:
    Affiliate means any business entity that controls, is controlled by, 
or is under common control with, a member.
    Capital deficient member means a member that fails to meet its 
minimum regulatory capital requirements as defined or otherwise required 
by the member's appropriate federal banking agency, insurer or, in the 
case of members that are not federally insured depository institutions, 
state regulator.
    Cash equivalents means investments that--
    (1) Are readily convertible into known amounts of cash;
    (2) Have a remaining maturity of 90 days or less at the acquisition 
date; and
    (3) Are held for liquidity purposes.
    CFI member means a member that is a Community Financial Institution, 
as defined in Sec. 925.1 of this chapter, except that, for purposes of 
this part, the member's average of total assets over three years shall 
be calculated by the Bank:
    (1) Based on the average of total assets drawn from the 
institution's regulatory financial reports (as defined in Sec. 925.1 of 
this chapter) filed with its appropriate regulator (as defined in Sec. 
925.1 of this chapter) for the three most recent calendar year-ends; and
    (2) Annually, and shall be effective April 1 of each year.
    Credit union means a credit union as defined in section 101 of the 
Federal Credit Union Act (12 U.S.C. 1752).
    Depository institution means a bank, savings association, or credit 
union.
    Dwelling unit means a single room or a unified combination of rooms 
designed for residential use by one household.
    Improved residential real property means residential real property 
excluding real property to be improved, or in the process of being 
improved, by the construction of dwelling units.
    Insurer means the FDIC for insured depository institutions, as 
defined section 3(c)(2) of the Federal Deposit Insurance Act (12 U.S.C. 
1813(c)(2)), and the NCUA for federally-insured credit unions.
    Long-term advance means an advance with an original term to maturity 
greater than five years.
    Manufactured housing means a manufactured home as defined in section

[[Page 148]]

603(6) of the Manufactured Home Construction and Safety Standards Act of 
1974, as amended (42 U.S.C. 5402(6)).
    Mortgage-backed security means:
    (1) An equity security representing an ownership interest in:
    (i) Fully disbursed, whole first mortgage loans on improved 
residential real property; or
    (ii) Mortgage pass-through or participation securities which are 
themselves backed entirely by fully disbursed, whole first mortgage 
loans on improved residential real property; or
    (2) An obligation, bond, or other debt security backed entirely by 
the assets described in paragraph (1)(i) or (ii) of this definition.
    Multifamily property means:
    (1)(i) Real property that is solely residential and which includes 
five or more dwelling units; or
    (ii) Real property which includes five or more dwelling units with 
commercial units combined, provided the property is primarily 
residential.
    (2) Multifamily property as defined in this section includes nursing 
homes, dormitories and homes for the elderly.
    Nonresidential real property means real property not used for 
residential purposes, including business or industrial property, hotels, 
motels, churches, hospitals, educational and charitable institutions, 
clubs, lodges, association buildings, golf courses, recreational 
facilities, farm property not containing a dwelling unit, or similar 
types of property, except as otherwise determined by the Finance Board 
in its discretion.
    One-to-four family property means any of the following:
    (1) Real property containing:
    (i) One-to-four dwelling units; or
    (ii) More than four dwelling units if each unit is separated from 
the other units by dividing walls that extend from ground to roof, 
including row houses, townhouses or similar types of property;
    (2) Manufactured housing if:
    (i) Applicable state law defines the purchase or holding of 
manufactured housing as the purchase or holding of real property; and
    (ii) The loan to purchase the manufactured housing is secured by 
that manufactured housing;
    (3) Individual condominium dwelling units or interests in individual 
cooperative housing dwelling units that are part of a condominium or 
cooperative building without regard to the number of total dwelling 
units therein; or
    (4) Real property containing one-to-four dwelling units with 
commercial units combined, provided the property is primarily 
residential.
    Residential housing finance assets means any of the following:
    (1) Loans secured by residential real property;
    (2) Mortgage-backed securities;
    (3) Participations in loans secured by residential real property;
    (4) Loans or investments qualifying under the definition of 
``community lending'' in Sec. 900.1 of this chapter;
    (5) Loans secured by manufactured housing, regardless of whether 
such housing qualifies as residential real property; or
    (6) Any loans or investments which the Finance Board, in its 
discretion, otherwise determines to be residential housing finance 
assets.
    Residential real property means:
    (1) Any of the following:
    (i) One-to-four family property;
    (ii) Multifamily property;
    (iii) Real property to be improved by the construction of dwelling 
units;
    (iv) Real property in the process of being improved by the 
construction of dwelling units;
    (2) The term residential real property does not include 
nonresidential real property as defined in this section.
    Savings association means a savings association as defined in 
section 3(b) of the Federal Deposit Insurance Act, as amended (12 U.S.C. 
1813(b)).
    Small agri-business loans means loans to finance agricultural 
production and other loans to farmers that are within the legal lending 
limit of the reporting CFI member, and that are reported on either: 
Schedule RC-C, Part I, item 3 of the Report of Condition and Income 
filed by insured commercial banks and FDIC-supervised savings banks; or 
Schedule SC300, SC303 or SC306 of the Thrift Financial Report filed by 
savings associations (or equivalent successor schedules).

[[Page 149]]

    Small business loans means commercial and industrial loans that are 
within the legal lending limit of the reporting CFI member and that are 
reported on either: Schedule RC-C, Part I, item 1.e or Schedule RC-C, 
Part I, item 4 of the Report of Condition and Income filed by insured 
commercial banks and FDIC-supervised savings banks; or Schedule SC300, 
SC303 or SC306 of the Thrift Financial Report filed by savings 
associations (or equivalent successor schedules).
    Small farm loans means loans secured primarily by farmland that are 
within the legal lending limit of the reporting CFI member, and that are 
reported on either: Schedule RC-C, Part I, item 1.a. or 1.b. of the 
Report of Condition and Income filed by insured commercial banks and 
FDIC-supervised savings banks; or Schedule SC260 of the Thrift Financial 
Report filed by savings associations (or equivalent successor 
schedules).
    State housing finance agency or SHFA has the meaning set forth in 
Sec. 926.1 of this chapter.
    State regulator means a state insurance commissioner or state 
regulatory entity with primary responsibility for supervising a member 
borrower that is not a federally insured depository institution.
    Tangible capital means:
    (1) Capital, calculated according to GAAP, less ``intangible 
assets'' except for purchased mortgage servicing rights to the extent 
such assets are included in a member's core or Tier 1 capital, as 
reported in the member's Thrift Financial Report for members whose 
primary federal regulator is the OTS, or as reported in the Report of 
Condition and Income for members whose primary federal regulator is the 
FDIC, the OCC, or the FRB.
    (2) Capital calculated according to GAAP, less intangible assets, as 
defined by a Bank for members that are not regulated by the OTS, the 
FDIC, the OCC, or the FRB; provided that a Bank shall include a member's 
purchased mortgage servicing rights to the extent such assets are 
included for the purpose of meeting regulatory capital requirements.

[58 FR 29469, May 20, 1993, as amended at 58 FR 29477, May 20, 1993; 59 
FR 2949, Jan. 20, 1994; 62 FR 8871, Feb. 27, 1997; 62 FR 12079, Mar. 14, 
1997; 63 FR 35128, June 29, 1998; 63 FR 65545, Nov. 27, 1998; 64 FR 
16621, Apr. 6, 1999; 65 FR 8262, Feb. 18, 2000; 65 FR 44428, July 18, 
2000; 66 FR 50295, Oct. 3, 2001; 67 FR 12850, Mar. 20, 2002]



Sec. 950.2  Authorization and application for advances; obligation to repay advances.

    (a) Application for advances. A Bank may accept oral or written 
applications for advances from its members.
    (b) Obligation to repay advances. (1) A Bank shall require any 
member to which an advance is made to enter into a primary and 
unconditional obligation to repay such advance and all other 
indebtedness to the Bank, together with interest and any unpaid costs 
and expenses in connection therewith, according to the terms under which 
such advance was made or other indebtedness incurred.
    (2) Such obligations shall be evidenced by a written advances 
agreement that shall be reviewed by the Bank's legal counsel to ensure 
such agreement is in compliance with applicable law.
    (c) Secured advances. (1) Each Bank shall make only fully secured 
advances to its members as set forth in the Act, the provisions of this 
part and policy guidelines established by the Finance Board.
    (2) The Bank shall execute a written security agreement with each 
borrowing member which establishes the Bank's security interest in 
collateral securing advances.
    (3) Such written security agreement shall, at a minimum, describe 
the type of collateral securing the advances and give the Bank a 
perfectible security interest in the collateral.
    (d) Form of applications and agreements. Applications for advances, 
advances agreements and security agreements shall be in substantially 
such form as approved by the Bank's board of directors, or a committee 
thereof

[[Page 150]]

specifically authorized by the board of directors to approve such forms.

[58 FR 29469, May 20, 1993, as amended at 64 FR 71278, Dec. 21, 1999; 65 
FR 8262, Feb. 18, 2000. Redesignated at 65 FR 44429, July 18, 2000; 67 
FR 12851, Mar. 20, 2002]



Sec. 950.3  Purpose of long-term advances; Proxy test.

    (a) A Bank shall make long-term advances only for the purpose of 
enabling any member to purchase or fund new or existing residential 
housing finance assets, which include, for CFI members, small business 
loans, small farm loans and small agri-business loans.
    (b)(1) Prior to approving an application for a long-term advance, a 
Bank shall determine that the principal amount of all long-term advances 
currently held by the member does not exceed the total book value of 
residential housing finance assets held by such member. The Bank shall 
determine the total book value of such residential housing finance 
assets, using the most recent Thrift Financial Report, Report of 
Condition and Income, financial statement or other reliable 
documentation made available by the member.
    (2) Applications for CICA advances are exempt from the requirements 
of paragraph (b)(1) of this section.

[58 FR 29469, May 20, 1993, as amended at 63 FR 65545, Nov. 27, 1998. 
Redesignated and amended at 65 FR 44429, July 18, 2000]



Sec. 950.4  Limitations on access to advances.

    (a) Credit underwriting. A Bank, in its discretion, may:
    (1) Limit or deny a member's application for an advance if, in the 
Bank's judgment, such member:
    (i) Is engaging or has engaged in any unsafe or unsound banking 
practices;
    (ii) Has inadequate capital;
    (iii) Is sustaining operating losses;
    (iv) Has financial or managerial deficiencies, as determined by the 
Bank, that bear upon the member's creditworthiness; or
    (v) Has any other deficiencies, as determined by the Bank; or
    (2) Make advances and renewals only if the Bank determines that it 
may safely make such advance or renewal to the member, including 
advances and renewals made pursuant to this section.
    (b) New advances to members without positive tangible capital. (1) A 
Bank shall not make a new advance to a member without positive tangible 
capital unless the member's appropriate federal banking agency or 
insurer requests in writing that the Bank make such advance. The Bank 
shall promptly provide the Finance Board with a copy of any such 
request.
    (2) A Bank shall use the most recently available Thrift Financial 
Report, Report of Condition, and Income or other regulatory report of 
financial condition to determine whether a member has positive tangible 
capital.
    (c) Renewals of advances to members without positive tangible 
capital--(1) Renewal for 30-day terms. A Bank may renew outstanding 
advances, for successive terms of up to 30 days each, to a member 
without positive tangible capital; provided, however, that a Bank shall 
honor any written request of the appropriate federal banking agency or 
insurer that the Bank not renew such advances.
    (2) Renewal for longer than 30-day terms. A Bank may renew 
outstanding advances to a member without positive tangible capital for a 
term greater than 30 days at the written request of the appropriate 
federal banking agency or insurer.
    (d) Advances to capital deficient but solvent members. (1) Except as 
provided in paragraph (d)(2)(i) of this section, a Bank may make a new 
advance or renew an outstanding advance to a capital deficient member 
that has positive tangible capital.
    (2)(i) A Bank shall not lend to a capital deficient member that has 
positive tangible capital if it receives written notice from the 
appropriate federal banking agency or insurer that the member's use of 
Bank advances has been prohibited. The Bank shall promptly provide the 
Finance Board with a copy of any such notice.
    (ii) A Bank may resume lending to such a capital deficient member if 
the Bank receives a written statement from the appropriate federal 
banking agency or insurer which re-establishes the member's ability to 
use advances.

[[Page 151]]

    (e) Reporting. (1) Each Bank shall provide the Finance Board with a 
report of the advances and commitments outstanding to each of its 
members in accordance with the instructions provided in the Data 
Reporting Manual issued by the Finance Board, as amended from time to 
time.
    (2) Each Bank shall, upon written request from a member's 
appropriate federal banking agency or insurer, provide to such entity 
information on advances and commitments outstanding to the member.
    (f) Members without federal regulators. In the case of members that 
are not federally insured depository institutions, the references in 
paragraphs (b), (c), (d) and (e) of this section to ``appropriate 
federal banking agency or insurer'' shall mean the member's state 
regulator acting in a capacity similar to an appropriate federal banking 
agency or insurer.
    (g) Advance commitments. (1) In the event that a member's access to 
advances from a Bank is restricted pursuant to this section, the Bank 
shall not fund outstanding commitments for advances not exercised prior 
to the imposition of the restriction. This requirement shall apply to 
all advance commitments made by a Bank after August 25, 1993.
    (2) Each Bank shall include the stipulation contained in paragraph 
(g)(1) of this section as a clause in either:
    (i) The written advances agreement required by Sec. 950.2(b)(2) of 
this part; or
    (ii) The written advances application required by Sec. 950.2(a) of 
this part.

[58 FR 29469, May 20, 1993, as amended at 59 FR 2949, Jan. 20, 1994; 64 
FR 71278, Dec. 21, 1999; 65 FR 8263, Feb. 18, 2000. Redesignated at 65 
FR 44429, July 18, 2000, as amended at 67 FR 12851, Mar. 20, 2002; 71 FR 
35500, June 21, 2006]



Sec. 950.5  Terms and conditions for advances.

    (a) Advance maturities. Each Bank shall offer advances with 
maturities of up to ten years, and may offer advances with longer 
maturities consistent with the safe and sound operation of the Bank.
    (b) Advance pricing--(1) General. A Bank shall not price its 
advances to members below:
    (i) The marginal cost to the Bank of raising matching term and 
maturity funds in the marketplace, including embedded options; and
    (ii) The administrative and operating costs associated with making 
such advances to members.
    (2) Differential pricing. (i) Each Bank may, in pricing its 
advances, distinguish among members based upon its assessment of:
    (A) The credit and other risks to the Bank of lending to any 
particular member; or
    (B) Other reasonable criteria that may be applied equally to all 
members.
    (ii) Each Bank shall include in its member products policy required 
by Sec. 917.4 of this chapter, standards and criteria for such 
differential pricing and shall apply such standards and criteria 
consistently and without discrimination to all members applying for 
advances.
    (3) Exceptions. The advance pricing policies contained in paragraph 
(b)(1) of this section shall not apply in the case of:
    (i) A Bank's CICA programs; and
    (ii) Any other advances programs that are volume limited and 
specifically approved by the Bank's board of directors.
    (c) Authorization for pricing advances. (1) A Bank's board of 
directors, a committee thereof, or the Bank's president, if so 
authorized by the Bank's board of directors, shall set the rates of 
interest on advances consistent with paragraph (b) of this section.
    (2) A Bank president authorized to set interest rates on advances 
pursuant to this paragraph (c) may delegate any part of such authority 
to any officer or employee of the Bank.
    (d) Putable or convertible advances--(1) Disclosure. A Bank that 
offers a putable or convertible advance to a member shall disclose in 
writing to such member the type and nature of the risks associated with 
putable or convertible advance funding. The disclosure should include 
detail sufficient to describe such risks.
    (2) Replacement funding for putable advances. If a Bank terminates a 
putable advance prior to the stated maturity date of such advance, the 
Bank shall offer to provide replacement funding to

[[Page 152]]

the member, provided the member is able to satisfy the normal credit and 
collateral requirements of the Bank for the replacement funding 
requested.
    (3) Definition. For purposes of this paragraph (d), the term putable 
advance means an advance that a Bank may, at its discretion, terminate 
and require the member to repay prior to the stated maturity date of the 
advance.

[58 FR 29469, May 20, 1993, as amended at 61 FR 52687, Oct. 8, 1996; 65 
FR 8263, Feb. 18, 2000. Redesignated and amended at 65 FR 44429, July 
18, 2000]



Sec. 950.6  Fees.

    (a) Fees in member products policy. All fees charged by each Bank 
and any schedules or formulas pertaining to such fees shall be included 
in the Bank's member products policy required by Sec. 917.4 of this 
chapter. Any such fee schedules or formulas shall be applied 
consistently and without discrimination to all members.
    (b) Prepayment fees. (1) Except where an advance product contains a 
prepayment option, each Bank shall establish and charge a prepayment fee 
pursuant to a specified formula which makes the Bank financially 
indifferent to the borrower's decision to repay the advance prior to its 
maturity date.
    (2) Prepayment fees are not required for:
    (i) Advances with original terms to maturity or repricing periods of 
six months or less;
    (ii) Advances funded by callable debt; or
    (iii) Advances which are otherwise appropriately hedged so that the 
Bank is financially indifferent to their prepayment.
    (3) The board of directors of each Bank, a designated committee 
thereof, or officers specifically authorized by the board of directors, 
may waive a prepayment fee only if such prepayment will not result in an 
economic loss to the Bank. Any such waiver must subsequently be ratified 
by the board of directors.
    (4) A Bank, in determining whether or not to waive a prepayment fee, 
shall apply consistent standards to all of its members.
    (c) Commitment fees. Each Bank may charge a fee for its commitment 
to fund an advance.
    (d) Other fees. Each Bank is authorized to charge other fees as it 
deems necessary and appropriate.

[58 FR 29469, May 20, 1993; 65 FR 8263, Feb. 18, 2000. Redesignated and 
amended at 65 FR 44429, July 18, 2000]



Sec. 950.7  Collateral.

    (a) Eligible security for advances to all members. At the time of 
origination or renewal of an advance, each Bank shall obtain from the 
borrowing member or, in accordance with paragraph (g) of this section, 
an affiliate of the borrowing member, and thereafter maintain, a 
security interest in collateral that meets the requirements of one or 
more of the following categories:
    (1) Mortgage loans and privately issued securities. (i) Fully 
disbursed, whole first mortgage loans on improved residential real 
property not more than 90 days delinquent; or
    (ii) Privately issued mortgage-backed securities, excluding the 
following:
    (A) Securities that represent a share of only the interest payments 
or only the principal payments from the underlying mortgage loans;
    (B) Securities that represent a subordinate interest in the cash 
flows from the underlying mortgage loans;
    (C) Securities that represent an interest in any residual payments 
from the underlying pool of mortgage loans; or
    (D) Such other high-risk securities as the Finance Board in its 
discretion may determine.
    (2) Agency securities. Securities issued, insured or guaranteed by 
the United States Government, or any agency thereof, including without 
limitation:
    (i) Mortgage-backed securities issued or guaranteed by Freddie Mac, 
Fannie Mae, Ginnie Mae, or any other agency of the United States 
Government;
    (ii) Mortgages or other loans, regardless of delinquency status, to 
the extent that the mortgage or loan is insured or guaranteed by the 
United States or any agency thereof, or otherwise is backed by the full 
faith and credit of the United States, and such insurance, guarantee or 
other backing

[[Page 153]]

is for the direct benefit of the holder of the mortgage or loan; and
    (iii) Securities backed by, or representing an equity interest in, 
mortgages or other loans referred to in paragraph (a)(2)(ii) of this 
section.
    (3) Cash or deposits. Cash or deposits in a Bank.
    (4) Other real estate-related collateral. (i) Other real estate-
related collateral provided that:
    (A) Such collateral has a readily ascertainable value, can be 
reliably discounted to account for liquidation and other risks, and can 
be liquidated in due course; and
    (B) The Bank can perfect a security interest in such collateral.
    (ii) Eligible other real estate-related collateral may include, but 
is not limited to:
    (A) Privately issued mortgage-backed securities not otherwise 
eligible under paragraph (a)(1)(ii) of this section;
    (B) Second mortgage loans, including home equity loans;
    (C) Commercial real estate loans; and
    (D) Mortgage loan participations.
    (5) Securities representing equity interests in eligible advances 
collateral. Any security the ownership of which represents an undivided 
equity interest in underlying assets, all of which qualify either as:
    (i) Eligible collateral under paragraphs (a)(1), (2), (3) or (4) of 
this section; or
    (ii) Cash equivalents.
    (b) Additional collateral eligible as security for advances to CFI 
members or their affiliates--(1) General. Subject to the requirements 
set forth in part 980 of this chapter, a Bank is authorized to accept 
from CFI members or their affiliates as security for advances small 
business loans, small farm loans or small agri-business loans fully 
secured by collateral other than real estate, or securities representing 
a whole interest in such loans, provided that:
    (i) Such collateral has a readily ascertainable value, can be 
reliably discounted to account for liquidation and other risks, and can 
be liquidated in due course; and
    (ii) The Bank can perfect a security interest in such collateral.
    (2) Change in CFI status. If a Bank determines, as of April 1 of 
each year, that a member that has previously qualified as a CFI no 
longer qualifies as a CFI, and the member has total advances outstanding 
that exceed the amount that can be fully secured by collateral under 
paragraph (a) of this section, the Bank may:
    (i) Permit the advances of such member to run to their stated 
maturities; and
    (ii) Renew such member's advances to mature no later than March 31 
of the following year; provided that the total of the member's advances 
under paragraphs (b)(2)(i) and (ii) of this section shall be fully 
secured by collateral set forth in paragraphs (a) and (b) of this 
section.
    (c) Bank restrictions on eligible advances collateral. A Bank at its 
discretion may further restrict the types of eligible collateral 
acceptable to the Bank as security for an advance, based upon the 
creditworthiness or operations of the borrower, the quality of the 
collateral, or other reasonable criteria.
    (d) Additional advances collateral. The provisions of paragraph (a) 
of this section shall not affect the ability of any Bank to take such 
steps as it deems necessary to protect its secured position on 
outstanding advances, including requiring additional collateral, whether 
or not such additional collateral conforms to the requirements for 
eligible collateral in paragraphs (a) or (b) of this section or section 
10 of the Act (12 U.S.C. 1430).
    (e) Bank stock as collateral. (1) Pursuant to section 10(c) of the 
Act (12 U.S.C. 1430(c)), a Bank shall have a lien upon, and shall hold, 
the stock of a member in the Bank as further collateral security for all 
indebtedness of the member to the Bank.
    (2) The written security agreement used by the Bank shall provide 
that the borrowing member's Bank stock is assigned as additional 
security by the member to the Bank.
    (3) The security interest of the Bank in such member's Bank stock 
shall be entitled to the priority provided for in section 10(e) of the 
Act (12 U.S.C. 1430(e)).

[[Page 154]]

    (f) Advances collateral security requiring formal approval. No home 
mortgage loan otherwise eligible to be accepted as collateral for an 
advance by a Bank under this section shall be accepted as collateral for 
an advance if any director, officer, employee, attorney or agent of the 
Bank or of the borrowing member is personally liable thereon, unless the 
board of directors of the Bank has specifically approved such acceptance 
by formal resolution, and the Finance Board has endorsed such 
resolution.
    (g) Pledge of advances collateral by affiliates. Assets held by an 
affiliate of a member that are eligible as collateral under paragraphs 
(a) or (b) of this section may be used to secure advances to that member 
only if:
    (1) The collateral is pledged to secure either:
    (i) The member's obligation to repay advances; or
    (ii) A surety or other agreement under which the affiliate has 
assumed, along with the member, a primary obligation to repay advances 
made to the member; and
    (2) The Bank obtains and maintains a legally enforceable security 
interest pursuant to which the Bank's legal rights and privileges with 
respect to the collateral are functionally equivalent in all material 
respects to those that the Bank would possess if the member were to 
pledge the same collateral directly, and such functional equivalence is 
supported by adequate documentation.

[58 FR 29469, May 20, 1993, as amended at 64 FR 16621, Apr. 6, 1999; 65 
FR 8262, Feb. 18, 2000. Redesignated and amended at 65 FR 44429, July 
18, 2000; 67 FR 12851, Mar. 20, 2002]



Sec. 950.8  Banks as secured creditors.

    (a) Except as provided in paragraph (b) of this section, 
notwithstanding any other provision of law, any security interest 
granted to a Bank by a member, or by an affiliate of a member, shall be 
entitled to priority over the claims and rights of any party, including 
any receiver, conservator, trustee or similar party having rights of a 
lien creditor, to such collateral.
    (b) A Bank's security interest as described in paragraph (a) of this 
section shall not be entitled to priority over the claims and rights of 
a party that:
    (1) Would be entitled to priority under otherwise applicable law; 
and
    (2) Is an actual bona fide purchaser for value of such collateral or 
is an actual secured party whose security interest in such collateral is 
perfected in accordance with applicable state law.

[58 FR 29469, May 20, 1993. Redesignated at 65 FR 8256, Feb. 18, 2000 
and further redesignated at 65 FR 44429, July 18, 2000, as amended at 67 
FR 12851, Mar. 20, 2002]



Sec. 950.9  Pledged collateral; verification.

    (a) Collateral safekeeping. (1) A Bank may permit a member that is a 
depository institution to retain documents evidencing collateral pledged 
to the Bank, provided that the Bank and such member have executed a 
written security agreement pursuant to Sec. 950.2(c) of this part 
whereby such collateral is retained solely for the Bank's benefit and 
subject to the Bank's control and direction.
    (2) A Bank shall take any steps necessary to ensure that its 
security interest in all collateral pledged by non-depository 
institutions for an advance is as secure as its security interest in 
collateral pledged by depository institutions.
    (3) A Bank may at any time perfect its security interest in 
collateral securing an advance to a member.
    (b) Collateral verification. Each Bank shall establish written 
procedures and standards for verifying the existence of collateral 
securing the Bank's advances, and shall regularly verify the existence 
of the collateral securing its advances in accordance with such 
procedures and standards.

[58 FR 29469, May 20, 1993, as amended at 64 FR 16621, Apr. 6, 1999; 65 
FR 8263, Feb. 18, 2000. Redesignated at 65 FR 44430, July 18, 2000; 67 
FR 12851, Mar. 20, 2002]



Sec. 950.10  Collateral valuation; appraisals.

    (a) Collateral valuation. Each Bank shall determine the value of 
collateral securing the Bank's advances in accordance with the 
collateral valuation procedures set forth in the Bank's member products 
policy established pursuant to Sec. 917.4 of this chapter.

[[Page 155]]

    (b) Fair application of procedures. Each Bank shall apply the 
collateral valuation procedures consistently and fairly to all borrowing 
members, and the valuation ascribed to any item of collateral by the 
Bank shall be conclusive as between the Bank and the member.
    (c) Appraisals. A Bank may require a member to obtain an appraisal 
of any item of collateral, and to perform such other investigations of 
collateral as the Bank deems necessary and proper.

[65 FR 44430, July 18, 2000]



Sec. 950.11  Capital stock requirements; unilateral redemption of excess stock.

    (a) Capital stock requirement for advances. At no time shall the 
aggregate amount of outstanding advances made by a Bank to a member 
exceed 20 times the amount paid in by such member for capital stock in 
the Bank.
    (b) Unilateral redemption of excess capital stock; fee in lieu 
prohibited. (1) A Bank, after providing 15 calendar days advance written 
notice to a member, may require the redemption of that amount of the 
member's Bank capital stock that exceeds the capital stock requirements 
set forth in paragraph (a) of this section, provided the minimum amount 
required in section 6(b)(1) of the Act (12 U.S.C. 1426(b)(1)) is 
maintained. The Bank shall have the discretion to determine the timing 
of such unilateral redemption. The Bank's implementation of its 
redemption policy shall be consistent with the requirement of section 
7(j) of the Act (12 U.S.C. 1427(j)) that the affairs of the Bank shall 
be administered fairly and impartially and without discrimination in 
favor of or against any member borrower.
    (2) A Bank may not impose on or accept from a member a fee in lieu 
of redeeming the member's excess Bank capital stock.

[58 FR 29469, May 20, 1993, as amended at 64 FR 16791, Apr. 6, 1999; 65 
FR 8263, Feb. 18, 2000; 65 FR 13870, Mar. 15, 2000. Redesignated at 65 
FR 44430, July 18, 2000, as amended at 67 FR 12851, Mar. 20, 2002]



Sec. 950.12  Intradistrict transfer of advances.

    (a) Advances held by members. A Bank may allow one of its members to 
assume an advance extended by the Bank to another of its members, 
provided the assumption complies with the requirements of this part 
governing the issuance of new advances. A Bank may charge an appropriate 
fee for processing the transfer.
    (b) Advances held by nonmembers. A Bank may allow one of its members 
to assume an advance held by a nonmember, provided the advance was 
originated by the Bank and provided the assumption complies with the 
requirements of this part governing the issuance of new advances. A Bank 
may charge an appropriate fee for processing the transfer.

[59 FR 2950, Jan. 20, 1994. Redesignated at 65 FR 44430, July 18, 2000]



Sec. 950.13  Special advances to savings associations.

    (a) Eligible institutions. (1) A Bank, upon receipt of a written 
request from the Director of the OTS, may make short-term advances to a 
savings association member.
    (2) Such request must certify that the member:
    (i) Is solvent but presents a supervisory concern to the OTS because 
of the member's financial condition; and
    (ii) Has reasonable and demonstrable prospects of returning to a 
satisfactory financial condition.
    (b) Terms and conditions. Advances made by a Bank to a member 
savings association under this section shall:
    (1) Be subject to all applicable collateral requirements of the 
Bank, this part and section 10(a) of the Act (12 U.S.C. 1430(a)); and
    (2) Be at the interest rate applicable to advances of similar type 
and maturity that are made available to other members that do not pose 
such a supervisory concern.

[58 FR 29469, May 20, 1993. Redesignated at 65 FR 8256, Feb. 18, 2000 
and further redesignated at 65 FR 44430, July 18, 2000]



Sec. 950.14  Advances to the Savings Association Insurance Fund.

    (a) Authority. Upon receipt of a written request from the FDIC, a 
Bank may make advances to the FDIC for the use of the Savings 
Association Insurance Fund. The Bank shall provide

[[Page 156]]

a copy of such request to the Finance Board.
    (b) Requirements. Advances to the FDIC for the use of the Savings 
Association Insurance Fund shall:
    (1) Bear a rate of interest not less than the Bank's marginal cost 
of funds, taking into account the maturities involved and reasonable 
administrative costs;
    (2) Have a maturity acceptable to the Bank;
    (3) Be subject to any prepayment, commitment, or other appropriate 
fees of the Bank; and
    (4) Be adequately secured by collateral acceptable to the Bank.

[58 FR 29469, May 20, 1993, as amended at 65 FR 8262, Feb. 18, 2000. 
Redesignated at 65 FR 44430, July 18, 2000]



Sec. 950.15  Liquidation of advances upon termination of membership.

    If an institution's membership in a Bank is terminated, the Bank 
shall determine an orderly schedule for liquidating any indebtedness of 
such member to the Bank; this section shall not require a Bank to call 
any such indebtedness prior to maturity of the advance. The Bank shall 
deem any such liquidation a prepayment of the member's indebtedness, and 
the member shall be subject to any fees applicable to such prepayment.

[58 FR 29469, May 20, 1993. Redesignated at 65 FR 8256, Feb. 18, 2000 
and further redesignated at 65 FR 44430, July 18, 2000]



                Subpart B_Advances to Housing Associates

    Source: 62 FR 12079, Mar. 14, 1997, unless otherwise noted.



Sec. 950.16  Scope.

    Except as otherwise provided in Sec. Sec. 950.14 and 950.17, the 
requirements of subpart A apply to this subpart.

[58 FR 29469, May 20, 1993. Redesignated at 65 FR 44430, July 18, 2000]



Sec. 950.17  Advances to housing associates.

    (a) Authority. Subject to the provisions of the Act and this 
subpart, a Bank may make advances only to a housing associate whose 
principal place of business, as determined in accordance with part 925 
of this chapter, is located in the Bank's district.
    (b) Collateral requirements--(1) Advances to housing associates. A 
Bank may make an advance to any housing associate upon the security of 
the following collateral:
    (i) Mortgage loans insured by the Federal Housing Administration of 
HUD under title II of the National Housing Act; or
    (ii) Securities representing a whole interest in the principal and 
interest payments due on a pool of mortgage loans insured by the Federal 
Housing Administration of HUD under title II of the National Housing 
Act. A Bank may only accept as collateral the securities described in 
this paragraph (b)(1)(ii) if the housing associate provides evidence 
that such securities are backed solely by mortgages of the type 
described in paragraph (b)(1)(i) of this section.
    (2) Certain advances to SHFAs. (i) In addition to the collateral 
described in paragraph (b)(1) of this section, a Bank may make an 
advance to a housing associate that has satisfied the requirements of 
Sec. 926.3(b) for the purpose of facilitating residential or commercial 
mortgage lending that benefits individuals or families meeting the 
income requirements in section 142(d) or 143(f) of the Internal Revenue 
Code (26 U.S.C. 142(d) or 143(f)) upon the security of the following 
collateral:
    (A) The collateral described in Sec. 950.7(a)(1) or (2).
    (B) The collateral described in Sec. 950.7(a)(3). Solely for the 
purpose of facilitating acceptance of such collateral, a Bank may 
establish a cash collateral account for a housing associate that has 
satisfied the requirements of Sec. 926.3(b).
    (C) The other real estate-related collateral described in Sec. 
950.7(a)(4), provided that such collateral comprises mortgage loans on 
one-to-four family or multifamily residential property.
    (ii) Prior to making an advance pursuant to this paragraph (b)(2), a 
Bank shall obtain a written certification from the housing associate 
that it shall use the proceeds of the advance for the purposes described 
in paragraph (b)(2)(i) of this section.

[[Page 157]]

    (c) Terms and conditions--(1) General. Subject to the provisions of 
this paragraph (c), a Bank, in its discretion, shall determine whether, 
and on what terms, it will make advances to a housing associate.
    (2) Advance pricing. (i) A Bank shall price advances to housing 
associates in accordance with the requirements for pricing advances to 
members set forth in Sec. 950.3(b). Wherever the term ``member'' 
appears in Sec. 950.3(b), the term shall be construed also to mean 
``housing associate.''
    (ii) A Bank shall apply the pricing criteria identified in Sec. 
950.5(b)(2) equally to all of its member and housing associate 
borrowers.
    (3) Limit on advances. The principal amount of any advance made to a 
housing associate may not exceed 90 percent of the unpaid principal of 
the mortgage loans or securities pledged as security for the advance. 
This limit does not apply to an advance made to a housing associate 
under paragraph (b)(2) of this section.
    (d) Transaction accounts. Solely for the purpose of facilitating the 
making of advances to a housing associate, a Bank may establish a 
transaction account for each housing associate.
    (e) Loss of eligibility--(1) Notification of status changes. A Bank 
shall require a housing associate that applies for an advance to agree 
in writing that it will promptly inform the Bank of any change in its 
status as a housing associate.
    (2) Verification of eligibility. A Bank may, from time to time, 
require a housing associate to provide evidence that it continues to 
satisfy all of the eligibility requirements of the Act, this subpart and 
part 926 of this chapter.
    (3) Loss of eligibility. A Bank shall not extend a new advance or 
renew an existing advance to a housing associate that no longer meets 
the eligibility requirements of the Act, this subpart and part 926 of 
this chapter until the entity has provided evidence satisfactory to the 
Bank that it is in compliance with such requirements.

[58 FR 29469, May 20, 1993, as amended by 65 FR 203, Jan. 4, 2000; 65 FR 
8263, Feb. 18, 2000. Redesignated and amended at 65 FR 44430, July 18, 
2000; 67 FR 12851, Mar. 20, 2002; 70 FR 9510, Feb. 28, 2005]



  Subpart C_Advances to Out-of-District Members and Housing Associates



Sec. 950.25  Advances to out-of-district members and housing associates.

    (a) Establishment of creditor/debtor relationship. Any Bank may 
become a creditor to a member or housing associate of another Bank 
through the purchase of an outstanding advance, or a participation 
interest therein, from the other Bank, or through an arrangement with 
the other Bank that provides for the establishment of such a creditor/
debtor relationship at the time an advance is made.
    (b) Applicability of advances requirements. Any creditor/debtor 
relationship established pursuant to paragraph (a) of this section shall 
be subject to all of the provisions of this part that would apply to an 
advance made by a Bank to its own members or housing associates.

[65 FR 43981, July 17, 2000; 65 FR 46049, July 26, 2000, as amended at 
67 FR 12852, Mar. 20, 2002]



PART 951_AFFORDABLE HOUSING PROGRAM--Table of Contents




Sec.
951.1 Definitions.
951.2 Required annual AHP contributions; allocation of contributions.
951.3 AHP Implementation Plan.
951.4 Advisory Councils.
951.5 Competitive application program.
951.6 Homeownership set-aside programs.
951.7 Monitoring.
951.8 Remedial actions for noncompliance.
951.9 Agreements.
951.10 Conflicts of interest.
951.11 Temporary suspension of AHP contributions.
951.12 Affordable Housing Reserve Fund.

    Authority: 12 U.S.C. 1430(j).

    Source: 71 FR 59286, Oct. 6, 2006, unless otherwise noted.

[[Page 158]]



Sec. 951.1  Definitions.

    As used in this part:
    Affordable means that:
    (1) The rent charged to a household for a unit that is to be 
reserved for occupancy by a household with an income at or below 80 
percent of the median income for the area, does not exceed 30 percent of 
the income of a household of the maximum income and size expected, under 
the commitment made in the AHP application, to occupy the unit (assuming 
occupancy of 1.5 persons per bedroom or 1.0 persons per unit without a 
separate bedroom); or
    (2) The rent charged to a household, for rental units subsidized 
with Section 8 assistance under 42 U.S.C. 1437f or subsidized under 
another assistance program where the rents are charged in the same way 
as under the Section 8 program, if the rent complied with this Sec. 
951.1 of this part at the time of the household's initial occupancy and 
the household continues to be assisted through the Section 8 or another 
assistance program, respectively.
    AHP project means a single-family or multifamily housing project for 
owner-occupied or rental housing that has been awarded or has received 
AHP subsidy under the competitive application program.
    Competitive application program means a program established by a 
Bank under which the Bank awards and disburses AHP subsidy through a 
competitive application scoring process pursuant to the requirements of 
Sec. 951.5 of this part.
    Cost of funds means, for purposes of a subsidized advance, the 
estimated cost of issuing Bank System consolidated obligations with 
maturities comparable to that of the subsidized advance.
    Direct subsidy means an AHP subsidy in the form of a direct cash 
payment.
    Eligible household means a household that meets the income limits 
and other requirements specified by a Bank for its competitive 
application program and homeownership set-aside programs, provided that:
    (1) In the case of owner-occupied housing, the household's income 
may not exceed 80 percent of the median income for the area; and
    (2) In the case of rental housing, the household's income in at 
least 20 percent of the units may not exceed 50 percent of the median 
income for the area.
    Eligible project means a project eligible to receive AHP subsidy 
pursuant to the requirements of this part.
    Family member means any individual related to a person by blood, 
marriage, or adoption.
    Funding period means a time period, as determined by a Bank, during 
which the Bank accepts AHP applications for subsidy.
    Homeownership set-aside program means a program established by a 
Bank under which the Bank disburses AHP direct subsidy pursuant to the 
requirements of Sec. 951.6 of this part.
    Loan pool means a group of mortgage or other loans meeting the 
requirements of this part that are purchased, pooled, and held in trust.
    Low- or moderate-income household means a household that has an 
income of 80 percent or less of the median income for the area, with the 
income limit adjusted for household size in accordance with the 
methodology of the applicable median income standard, unless such median 
income standard has no household size adjustment methodology.
    Low- or moderate-income neighborhood means any neighborhood in which 
51 percent or more of the households have incomes at or below 80 percent 
of the median income for the area.
    Median income for the area means one or more of the following median 
income standards as determined by a Bank, after consultation with its 
Advisory Council, in its AHP Implementation Plan:
    (1) The median income for the area, as published annually by HUD;
    (2) The median income for the area obtained from the Federal 
Financial Institutions Examination Council;
    (3) The applicable median family income, as determined under 26 
U.S.C. 143(f) (Mortgage Revenue Bonds) and published by a state agency 
or instrumentality;
    (4) The median income for the area, as published by the United 
States Department of Agriculture; or

[[Page 159]]

    (5) The median income for an applicable definable geographic area, 
as published by a federal, state, or local government entity, and 
approved by the Finance Board, at the request of a Bank, for use under 
the AHP.
    Multifamily building means a structure with 5 or more dwelling 
units.
    Net earnings of a Bank means the net earnings of a Bank for a 
calendar year after deducting the Bank's annual contribution to the 
Resolution Funding Corporation required under section 21B of the Act (12 
U.S.C. 1441b), and before declaring or paying any dividend under section 
16 of the Act (12 U.S.C. 1436). For purposes of this part, ``dividend'' 
includes any dividends on capital stock subject to a redemption request 
even if under GAAP those dividends are treated as an ``interest 
expense.''
    Owner-occupied project means, for purposes of the competitive 
application program, one or more owner-occupied units in a single-family 
or multifamily building, including condominiums, cooperative housing, 
and manufactured housing.
    Owner-occupied unit means a dwelling unit occupied by the owner of 
the unit. Housing with 2 to 4 dwelling units consisting of one owner-
occupied unit and one or more rental units is considered a single owner-
occupied unit.
    Program means the Affordable Housing Program established pursuant to 
this part.
    Rental project means, for purposes of the competitive application 
program, one or more dwelling units for occupancy by households that are 
not owner-occupants, including overnight and emergency shelters, 
transitional housing for homeless households, mutual housing, single-
room occupancy housing, and manufactured housing.
    Retention period means:
    (1) Five years from closing for an AHP-assisted owner-occupied unit, 
or in the case of rehabilitation of a unit currently occupied by the 
owner where there is no closing, 5 years from the date established by 
the Bank in its AHP Implementation Plan; and
    (2) Fifteen years from the date of project completion for a rental 
project.
    Revolving loan fund means a capital fund established to make 
mortgage or other loans whereby loan principal is repaid into the fund 
and re-lent to other borrowers.
    Single-family building means a structure with 1 to 4 dwelling units.
    Sponsor means a not-for-profit or for-profit organization or public 
entity that:
    (1) Has an ownership interest (including any partnership interest), 
as defined by the Bank in its AHP Implementation Plan, in a rental 
project;
    (2) Is integrally involved, as defined by the Bank in its AHP 
Implementation Plan, in an owner-occupied project, such as by exercising 
control over the planning, development, or management of the project, or 
by qualifying borrowers and providing or arranging financing for the 
owners of the units;
    (3) Operates a loan pool; or
    (4) Is a revolving loan fund.
    Subsidized advance means an advance to a member at an interest rate 
reduced below the Bank's cost of funds by use of a subsidy.
    Subsidy means:
    (1) A direct subsidy, provided that if a direct subsidy is used to 
write down the interest rate on a loan extended by a member, sponsor, or 
other party to a project, the subsidy must equal the net present value 
of the interest foregone from making the loan below the lender's market 
interest rate; or
    (2) The net present value of the interest revenue foregone from 
making a subsidized advance at a rate below the Bank's cost of funds.
    Very low-income household means a household that has an income at or 
below 50 percent of the median income for the area, with the income 
limit adjusted for household size in accordance with the methodology of 
the applicable median income standard, unless such median income 
standard has no household size adjustment methodology.
    Visitable means, in either owner-occupied or rental housing, at 
least one entrance is at-grade (no steps) and approached by an 
accessible route such as a sidewalk, and the entrance door and all 
interior passage doors are at least 2 feet, 10 inches wide, offering 32 
inches of clear passage space.

[[Page 160]]



Sec. 951.2  Required annual AHP contributions; allocation of contributions.

    (a) Annual AHP contributions. Each Bank shall contribute annually to 
its Program the greater of:
    (1) 10 percent of the Bank's net earnings for the previous year; or
    (2) That Bank's pro rata share of an aggregate of $100 million to be 
contributed in total by the Banks, such proration being made on the 
basis of the net earnings of the Banks for the previous year, except 
that the required annual AHP contribution for a Bank shall not exceed 
its net earnings in the previous year.
    (b) Allocation of contributions. Each Bank, after consultation with 
its Advisory Council and pursuant to written policies adopted by the 
Bank's board of directors, shall allocate its annual required AHP 
contribution as follows:
    (1) Competitive application program. Each Bank shall allocate 
annually that portion of its annual required AHP contribution that is 
not set aside to fund homeownership set-aside programs under paragraph 
(b)(2) of this section, to provide funds to members through a 
competitive application program, pursuant to the requirements of this 
part.
    (2) Homeownership set-aside programs--(i) Allocation amount; first-
time homebuyers. A Bank, in its discretion, may set aside annually, in 
the aggregate, up to the greater of $4.5 million or 35 percent of the 
Bank's annual required AHP contribution to provide funds to members 
participating in homeownership set-aside programs established by the 
Bank, provided that at least one-third of the Bank's aggregate annual 
set-aside allocation to such programs shall be to assist first-time 
homebuyers, pursuant to the requirements of this part.
    (ii) No delegation. A Bank's board of directors shall not delegate 
to Bank officers or other Bank employees the responsibility for adopting 
its homeownership set-aside program policies.
    (3) Additional funding. A Bank may allot to its current year's 
Program from its annual required AHP contribution for the subsequent 
year, an amount up to the greater of $2 million or 20 percent of its 
annual required AHP contribution for the current year.



Sec. 951.3  AHP Implementation Plan.

    (a) Adoption; no delegation. Each Bank, after consultation with its 
Advisory Council, shall adopt a written AHP Implementation Plan, and 
shall not amend the AHP Implementation Plan without first consulting its 
Advisory Council. The Bank's board of directors shall not delegate to 
Bank officers or other Bank employees the responsibility to consult with 
the Advisory Council prior to adopting or amending the AHP 
Implementation Plan. The AHP Implementation Plan shall set forth, at a 
minimum:
    (1) The applicable median income standard or standards adopted by 
the Bank consistent with the definition of median income for the area in 
Sec. 951.1 of this part;
    (2) The Bank's requirements for its competitive application program 
established pursuant to Sec. 951.5 of this part;
    (3) The Bank's requirements for its homeownership set-aside 
programs, if adopted by the Bank pursuant to Sec. 951.6 of this part;
    (4) The Bank's requirements for funding revolving loan funds, if 
adopted by the Bank pursuant to Sec. 951.5(c)(13) of this part;
    (5) The Bank's requirements for funding loan pools, if adopted by 
the Bank pursuant to Sec. 951.5(c)(14) of this part;
    (6) The Bank's requirements for monitoring under its competitive 
application program and any Bank homeownership set-aside programs, 
pursuant to Sec. 951.7 of this part;
    (7) The Bank's requirements, including time limits, for re-use of 
repaid AHP direct subsidy, if adopted by the Bank pursuant to Sec. 
951.8(f)(2) of this part; and
    (8) The retention agreement requirements for projects and households 
under the competitive application program and any Bank homeownership 
set-aside programs, pursuant to Sec. 951.9(a)(7) and (a)(8) of this 
part.
    (b) Advisory Council review. Prior to the amendment of a Bank's AHP 
Implementation Plan, the Bank shall provide its Advisory Council an 
opportunity to review the document, and the Advisory Council shall 
provide its recommendations to the Bank's board of directors for its 
consideration.

[[Page 161]]

    (c) Notification of Plan amendments to the Finance Board. A Bank 
shall notify the Finance Board of any amendments made to its AHP 
Implementation Plan within 30 days after the date of their adoption by 
the Bank's board of directors.
    (d) Public access. A Bank shall publish its current AHP 
Implementation Plan on its publicly available Web site, and shall 
publish any amendments to the AHP Implementation Plan on the Web site 
within 30 days after the date of their adoption by the Bank's board of 
directors.



Sec. 951.4  Advisory Councils.

    (a) Appointment. (1) Each Bank's board of directors shall appoint an 
Advisory Council of 7 to 15 persons who reside in the Bank's District 
and are drawn from community and not-for-profit organizations that are 
actively involved in providing or promoting low- and moderate-income 
housing, and community and not-for-profit organizations that are 
actively involved in providing or promoting community lending, in the 
District.
    (2) Each Bank shall solicit nominations for membership on the 
Advisory Council from community and not-for-profit organizations 
pursuant to a nomination process that is as broad and as participatory 
as possible, allowing sufficient time for responses.
    (3) The Bank's board of directors shall appoint Advisory Council 
members from a diverse range of organizations so that representatives of 
no one group constitute an undue proportion of the membership of the 
Advisory Council, giving consideration to the size of the Bank's 
District and the diversity of low- and moderate-income housing and 
community lending needs and activities within the District.
    (b) Terms of Advisory Council members. Pursuant to policies adopted 
by the Bank's board of directors, Advisory Council members shall be 
appointed by the Bank's board of directors to serve for terms of 3 
years, which shall be staggered to provide continuity in experience and 
service to the Advisory Council, except that Advisory Council members 
may be appointed to serve for terms of 1 or 2 years solely for purposes 
of reconfiguring the staggering of the 3-year terms. No Advisory Council 
member may be appointed to serve for more than 3 full consecutive terms. 
An Advisory Council member appointed to fill a vacancy shall be 
appointed for the unexpired term of his or her predecessor in office.
    (c) Election of officers. Each Advisory Council shall elect from 
among its members a chairperson, a vice chairperson, and any other 
officers the Advisory Council deems appropriate.
    (d) Duties--(1) Meetings with the Banks. (i) The Advisory Council 
shall meet with representatives of the Bank's board of directors at 
least quarterly to provide advice on ways in which the Bank can better 
carry out its housing finance and community lending mission, including, 
but not limited to, advice on the low- and moderate-income housing and 
community lending programs and needs in the Bank's District, and on the 
use of AHP subsidies, Bank advances, and other Bank credit products for 
these purposes.
    (ii) The Advisory Council's advice shall include recommendations on:
    (A) The amount of AHP subsidies to be allocated to the Bank's 
competitive application program and any Bank homeownership set-aside 
programs;
    (B) The AHP Implementation Plan and any subsequent amendments 
thereto;
    (C) The scoring criteria, related definitions, and any additional 
optional District eligibility requirements for the competitive 
application program; and
    (D) The eligibility requirements and any priority criteria for any 
Bank homeownership set-aside programs.
    (2) Summary of AHP applications. The Bank shall comply with requests 
from the Advisory Council for summary information regarding AHP 
applications from prior funding periods.
    (3) Annual analysis; public access. (i) Each Advisory Council 
annually shall submit to the Finance Board by May 1 its analysis of the 
low- and moderate-income housing and community lending activity of the 
Bank by which it is appointed.
    (ii) Within 30 days after the date the Advisory Council's annual 
analysis is submitted to the Finance Board, the

[[Page 162]]

Bank shall publish the analysis on its publicly available Web site.
    (e) Expenses. The Bank shall pay Advisory Council members' travel 
expenses, including transportation and subsistence, for each day devoted 
to attending meetings with representatives of the board of directors of 
the Bank and meetings requested by the Finance Board.
    (f) No delegation. A Bank's board of directors shall not delegate to 
Bank officers or other Bank employees the responsibility to appoint 
persons as members of the Advisory Council, or to meet with the Advisory 
Council at the quarterly meetings required by the Act (12 U.S.C. 
1430(j)(11)).



Sec. 951.5  Competitive application program.

    (a) Establishment of program. A Bank shall establish a competitive 
application program pursuant to the requirements of this part.
    (b) Funding periods and application process--(1) Funding periods. A 
Bank may accept applications for AHP subsidy under its competitive 
application program during a specified number of funding periods each 
year, as determined by the Bank.
    (2) Eligible applicants. A Bank shall accept applications for AHP 
subsidy under its competitive application program only from institutions 
that are members of the Bank at the time the application is submitted to 
the Bank.
    (3) Submission of applications. Except as provided in paragraph 
(c)(13)(i) of this section, a Bank shall require applications for AHP 
subsidy to contain information sufficient for the Bank to:
    (i) Determine that the proposed AHP project meets the eligibility 
requirements of paragraph (c) of this section; and
    (ii) Evaluate the application pursuant to the scoring guidelines 
adopted by the Bank pursuant to paragraph (d) of this section.
    (4) Review of applications submitted. Except as provided in 
paragraph (c)(13)(ii) of this section, a Bank shall review the 
applications for AHP subsidy to determine that the proposed AHP project 
meets the eligibility requirements of paragraph (c) of this section, and 
shall evaluate the applications pursuant to the Bank's scoring 
guidelines adopted pursuant to paragraph (d) of this section.
    (c) Minimum eligibility requirements. Projects receiving AHP 
subsidies pursuant to a Bank's competitive application program must meet 
the following eligibility requirements:
    (1) Owner-occupied or rental housing. The AHP subsidy shall be used 
exclusively for:
    (i) Owner-occupied housing. The purchase, construction, or 
rehabilitation of an owner-occupied project by or for very low-income or 
low- or moderate-income households. A household must have an income 
meeting the income targeting commitments in the approved AHP application 
at the time it is qualified by the project sponsor for participation in 
the project.
    (ii) Rental housing. The purchase, construction, or rehabilitation 
of a rental project, where at least 20 percent of the units in the 
project are occupied by and affordable for very low-income households. A 
household must have an income meeting the income targeting commitments 
in the approved AHP application upon initial occupancy of the rental 
unit, or for projects involving the purchase or rehabilitation of rental 
housing that already is occupied, at the time the application for AHP 
subsidy is submitted to the Bank for approval.
    (2) Need for subsidy. (i) The project's estimated sources of funds 
shall equal its estimated uses of funds, as reflected in the project's 
development budget. The difference between the project's sources of 
funds and uses of funds is the project's need for AHP subsidy, which is 
the maximum amount of AHP subsidy the project may receive. A Bank, in 
its discretion, may permit a project's sources of funds to include or 
exclude the estimated market value of in-kind donations and voluntary 
professional labor or services (excluding the value of sweat equity), 
provided that the project's uses of funds also include or exclude, 
respectively, the value of such estimates.
    (ii) A project's cash sources of funds shall include any cash 
contributions by the sponsor, any cash from sources other than the 
sponsor, and estimates of funds the project sponsor intends to

[[Page 163]]

obtain from other sources but which have not yet been committed to the 
project. In the case of homeownership projects where the sponsor extends 
permanent financing to the homebuyer, the sponsor's cash contribution 
shall include the present value of any payments the sponsor is to 
receive from the buyer, which shall include any cash down payment from 
the buyer, plus the present value of any purchase note the sponsor holds 
on the unit. If the note carries a market interest rate commensurate 
with the credit quality of the buyer, the present value of the note 
equals the face value of the note. If the note carries an interest rate 
below the market rate, the present value of the note shall be determined 
using the market rate to discount the cash flows.
    (iii) A project's cash uses are the actual outlay of cash needed to 
pay for materials, labor, and acquisition or other costs of completing 
the project. Cash costs do not include in-kind donations, voluntary 
professional labor or services, or sweat equity.
    (3) Project costs--(i) In general. (A) Taking into consideration the 
geographic location of the project, development conditions, and other 
non-financial household or project characteristics, a Bank shall 
determine that a project's costs, as reflected in the project's 
development budget, are reasonable, in accordance with the Bank's 
project cost guidelines.
    (B) For purposes of determining the reasonableness of a developer's 
fee for a project as a percentage of total development costs, a Bank 
may, in its discretion, include estimates of the market value of in-kind 
donations and volunteer professional labor or services (excluding the 
value of sweat equity) committed to the project as part of the total 
development costs.
    (ii) Cost of property and services provided by a member. The 
purchase price of property or services, as reflected in the project's 
development budget, sold to the project by a member providing AHP 
subsidy to the project, or, in the case of property, upon which such 
member holds a mortgage or lien, may not exceed the market value of such 
property or services as of the date the purchase price was agreed upon. 
In the case of real estate owned property sold to a project by a member 
providing AHP subsidy to the project, or property sold to the project 
upon which the member holds a mortgage or lien, the market value of such 
property is deemed to be the ``as-is'' or ``as-rehabilitated'' value of 
the property, whichever is appropriate. That value shall be reflected in 
an independent appraisal of the property performed by a state certified 
or licensed appraiser, as defined in 12 CFR 564.2(j) and (k), within 6 
months prior to the date the Bank disburses AHP subsidy to the project.
    (4) Project feasibility--(i) Developmental feasibility. The project 
must be likely to be completed and occupied, based on relevant factors 
contained in the Bank's project feasibility guidelines, including, but 
not limited to, the development budget, market analysis, and project 
sponsor's experience in providing the requested assistance to 
households.
    (ii) Operational feasibility of rental projects. A rental project 
must be able to operate in a financially sound manner, in accordance 
with the Bank's project feasibility guidelines, as projected in the 
project's operating pro forma.
    (5) Financing costs. The rate of interest, points, fees, and any 
other charges for all loans that are made for the project in conjunction 
with the AHP subsidy shall not exceed a reasonable market rate of 
interest, points, fees, and other charges for loans of similar maturity, 
terms, and risk.
    (6) Timing of AHP subsidy use. Some or all of the AHP subsidy must 
be likely to be drawn down by the project or used by the project to 
procure other financing commitments within 12 months of the date of 
approval of the application for AHP subsidy funding the project.
    (7) Counseling costs. AHP subsidies may be used to pay for 
counseling costs only where:
    (i) Such costs are incurred in connection with counseling of 
homebuyers who actually purchase an AHP-assisted unit; and
    (ii) The cost of the counseling has not been covered by another 
funding source, including the member.
    (8) Refinancing. The project may use AHP subsidies to refinance an 
existing

[[Page 164]]

single-family or multi-family mortgage loan, provided that the 
refinancing produces equity proceeds and such equity proceeds up to the 
amount of the AHP subsidy in the project shall be used only for the 
purchase, construction, or rehabilitation of housing units meeting the 
eligibility requirements of this paragraph (c).
    (9) Retention--(i) Owner-occupied projects. Each AHP-assisted unit 
in an owner-occupied project is, or is committed to be, subject to a 5-
year retention agreement described in Sec. 951.9(a)(7) of this part.
    (ii) Rental projects. AHP-assisted rental projects are, or are 
committed to be, subject to a 15-year retention agreement described in 
Sec. 951.9(a)(8) of this part.
    (10) Project sponsor qualifications--(i) In general. A project's 
sponsor must be qualified and able to perform its responsibilities as 
committed to in the application for AHP subsidy funding the project.
    (ii) Revolving loan fund. Pursuant to written policies adopted by a 
Bank's board of directors, a revolving loan fund sponsor that intends to 
use AHP direct subsidy in accordance with Sec. 951.5(c)(13) of this 
part shall:
    (A) Provide audited financial statements that its operations are 
consistent with sound business practices; and
    (B) Demonstrate the ability to re-lend AHP subsidy repayments on a 
timely basis and track the use of the AHP subsidy.
    (iii) Loan pool. Pursuant to written policies adopted by a Bank's 
board of directors, a loan pool sponsor that intends to use AHP subsidy 
in accordance with Sec. 951.5(c)(14) of this part shall:
    (A) Provide evidence of sound asset/liability management practices;
    (B) Provide audited financial statements that its operations are 
consistent with sound business practices; and
    (C) Demonstrate the ability to track the use of the AHP subsidy.
    (11) Fair housing. The project, as proposed, must comply with 
applicable federal and state laws on fair housing and housing 
accessibility, including, but not limited to, the Fair Housing Act, the 
Rehabilitation Act of 1973, the Americans with Disabilities Act of 1990, 
and the Architectural Barriers Act of 1969, and must demonstrate how the 
project will be affirmatively marketed.
    (12) Calculation of AHP subsidy. (i) Where an AHP direct subsidy is 
provided to a project to write down the interest rate on a loan extended 
by a member, sponsor, or other party to a project, the net present value 
of the interest foregone from making the loan below the lender's market 
interest rate shall be calculated as of the date the application for AHP 
subsidy is submitted to the Bank, and subject to adjustment under 
paragraph (g)(4) of this section.
    (ii) Where an AHP subsidized advance is provided to a project, the 
net present value of the interest revenue foregone from making a 
subsidized advance at a rate below the Bank's cost of funds shall be 
determined as of the earlier of the date of disbursement of the 
subsidized advance or the date prior to disbursement on which the Bank 
first manages the funding to support the subsidized advance through its 
asset/liability management system, or otherwise.
    (13) Lending and re-lending of AHP direct subsidy by revolving loan 
funds. Pursuant to written policies established by a Bank's board of 
directors after consultation with its Advisory Council, a Bank, in its 
discretion, may provide AHP direct subsidy under its competitive 
application program for eligible projects and households involving both 
the lending of the subsidy and subsequent lending of subsidy principal 
and interest repayments by a revolving loan fund, provided the following 
requirements are met:
    (i) Submission of application. (A) An application for AHP subsidy 
under this paragraph (c)(13) shall include the revolving loan fund's 
criteria for the initial lending of the subsidy, identification of and 
information on a specific proposed AHP project if required in the Bank's 
discretion, the revolving loan fund's criteria for subsequent lending of 
subsidy principal and interest repayments, and any other information 
required by the Bank.

[[Page 165]]

    (B) The information in the application shall be sufficient for the 
Bank to:
    (1) Determine that the criteria for the initial lending of the 
subsidy, the specific proposed project if applicable, and the criteria 
for subsequent lending of subsidy principal and interest repayments, 
meet the eligibility requirements of paragraph (c) of this section; and
    (2) Evaluate the criteria for the initial lending of the subsidy, 
and the specific proposed project if applicable, pursuant to the scoring 
guidelines established by the Bank pursuant to paragraph (d) of this 
section.
    (ii) Review of application. A Bank shall review the application for 
AHP subsidy to determine that the criteria for the initial lending of 
the subsidy, the specific proposed project if applicable, and the 
criteria for subsequent lending of subsidy principal and interest 
repayments, meet the eligibility requirements of paragraph (c) of this 
section, and shall evaluate the criteria for the initial lending of the 
subsidy and the specific proposed project, if applicable, pursuant to 
the scoring guidelines established by the Bank pursuant to paragraph (d) 
of this section.
    (iii) Initial lending of subsidy. (A) The revolving loan fund's 
initial lending of the AHP subsidy shall meet the eligibility 
requirements of this paragraph (c), shall be to projects or households 
meeting the commitments in the approved application for AHP subsidy, and 
shall be subject to the requirements of Sec. Sec. 951.7(a) and 951.9 of 
this part, respectively.
    (B) If a project or owner-occupied unit funded under this paragraph 
(c)(13)(iii) is in noncompliance with the commitments in the approved 
AHP application, or is sold or refinanced prior to the end of the 
applicable AHP retention period, the required amount of AHP subsidy 
shall be repaid to the revolving loan fund in accordance with Sec. Sec. 
951.8 and 951.9 of this part, and the revolving loan fund shall re-lend 
such repaid subsidy, excluding the amounts of AHP subsidy principal 
already repaid to the revolving loan fund, to another project or owner-
occupied unit meeting the initial lending requirements of this paragraph 
(c)(13)(iii) for the remainder of the retention period.
    (iv) Subsequent lending of AHP subsidy principal and interest 
repayments. (A) AHP subsidy principal and interest repayments received 
by the revolving loan fund from the initial lending of the AHP direct 
subsidy shall be re-lent by the revolving loan fund in accordance with 
the requirements of this paragraph (c)(13)(iv), except that the 
revolving loan fund, in its discretion, may provide part or all of such 
repayments as nonrepayable grants to eligible projects in accordance 
with the requirements of this paragraph (c)(13)(iv).
    (B) The revolving loan fund's subsequent lending of AHP subsidy 
principal and interest repayments shall be for the purchase, 
construction, or rehabilitation of owner-occupied projects for 
households with incomes at or below 80 percent of the median income for 
the area, or of rental projects where at least 20 percent of the units 
are occupied by and affordable for households with incomes at or below 
50 percent of the median income for the area, and shall meet all other 
eligibility requirements of this paragraph (c).
    (C) A Bank may, in its discretion, require the revolving loan fund's 
subsequent lending of subsidy principal and interest repayments to be 
subject to retention period, monitoring, and recapture requirements as 
defined by the Bank in its AHP Implementation Plan.
    (v) Return of unused AHP subsidy. The revolving loan fund shall 
return to the Bank any AHP subsidy that will not be used according to 
the requirements in this paragraph (c)(13).
    (14) Use of AHP subsidy in loan pools. Pursuant to written policies 
established by a Bank's board of directors after consultation with its 
Advisory Council, a Bank, in its discretion, may provide AHP subsidy 
under its competitive application program for the origination of first 
mortgage or rehabilitation loans with subsidized interest rates to AHP-
eligible households through a purchase commitment by an entity that will 
purchase and pool the loans, provided the following requirements are 
met:
    (i) Eligibility requirements. The loan pool sponsor's use of the AHP 
subsidies shall meet the requirements under this paragraph (c)(14), and 
shall not be used

[[Page 166]]

for the purpose of providing liquidity to the originator or holder of 
the loans, or paying the loan pool's operating or secondary market 
transaction costs.
    (ii) Forward commitment. (A) The loan pool sponsor shall purchase 
the loans pursuant to a forward commitment that identifies the loans to 
be originated with interest-rate reductions as specified in the approved 
application for AHP subsidy to households with incomes at or below 80 
percent of the median income for the area. Both initial purchases of 
loans for the AHP loan pool and subsequent purchases of loans to 
substitute for repaid loans in the pool shall be made pursuant to the 
terms of such forward commitment and subject to time limits on the use 
of the AHP subsidy as specified by the Bank in its AHP Implementation 
Plan and the Bank's agreement with the loan pool sponsor, which shall 
not exceed 1 year from the date of approval of the AHP application.
    (B) As an alternative to using a forward commitment, the loan pool 
sponsor may purchase an initial round of loans that were not originated 
pursuant to an AHP-specific forward commitment, provided that the 
entities from which the loans were purchased are required to use the 
proceeds from the initial loan purchases within time limits on the use 
of the AHP subsidy as specified by the Bank in its AHP Implementation 
Plan and the Bank's agreement with the loan pool sponsor, which shall 
not exceed 1 year from the date of approval of the AHP application. The 
proceeds shall be used by such entities to assist households that are 
income-eligible under the approved AHP application during subsequent 
rounds of lending, and such assistance shall be provided in the form of 
a below-market AHP-subsidized interest rate as specified in the approved 
AHP application.
    (iii) Each AHP-assisted owner-occupied unit and rental project 
receiving AHP direct subsidy or a subsidized advance shall be subject to 
the requirements of Sec. 951.7(a), 951.8, and 951.9, respectively, of 
this part.
    (iv) Where AHP direct subsidy is being used to buy down the interest 
rate of a loan or loans from a member or other party, the loan pool 
sponsor shall use the full amount of the AHP direct subsidy to buy down 
the interest rate on a permanent basis at the time of closing on such 
loan or loans.
    (15) Optional District eligibility requirements. A Bank may require 
a project receiving AHP subsidies to meet one or more of the following 
additional eligibility requirements adopted by the Bank's board of 
directors and included in its AHP Implementation Plan after consultation 
with its Advisory Council:
    (i) AHP subsidy limits. A requirement that the amount of AHP subsidy 
requested for the project does not exceed limits established by the Bank 
as to the maximum amount of AHP subsidy available per member each year, 
or per member, per project, or per project unit in a single funding 
period; or
    (ii) Homebuyer or homeowner counseling. A requirement that a 
household must complete a homebuyer or homeowner counseling program 
provided by, or based on one provided by, an organization recognized as 
experienced in homebuyer or homeowner counseling, respectively.
    (16) Prohibited uses of AHP subsidies. The project shall not use AHP 
subsidies to pay for:
    (i) Certain prepayment fees. Prepayment fees imposed by a Bank on a 
member for a subsidized advance that is prepaid, unless:
    (A) The project is in financial distress that cannot be remedied 
through a project modification pursuant to Sec. 951.5(f) of this part;
    (B) The prepayment of the subsidized advance is necessary to retain 
the project's affordability and income targeting commitments;
    (C) Subsequent to such prepayment, the project will continue to 
comply with the terms of the approved AHP application and the 
requirements of this part for the duration of the original retention 
period;
    (D) Any unused AHP subsidy is returned to the Bank and made 
available for other AHP projects; and
    (E) The amount of AHP subsidy used for the prepayment fee may not 
exceed the amount of the member's prepayment fee to the Bank.
    (ii) Cancellation fees. Cancellation fees and penalties imposed by a 
Bank

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on a member for a subsidized advance commitment that is canceled.
    (iii) Processing fees. Processing fees charged by members for 
providing AHP direct subsidies to a project.
    (d) Scoring of applications--(1) In general. A Bank shall establish 
written scoring guidelines setting forth the Bank's AHP competitive 
application program scoring criteria and related definitions and point 
allocations, and implementing other applicable requirements pursuant to 
this paragraph (d). A Bank shall not adopt additional scoring criteria 
or point allocations, except as specifically authorized under this 
paragraph (d).
    (2) Point allocations. (i) A Bank shall allocate 100 points among 
the 9 scoring criteria identified in paragraph (d)(5) of this section.
    (ii) The scoring criterion for targeting identified in paragraph 
(d)(5)(iii) of this section shall be allocated at least 20 points.
    (iii) The remaining scoring criteria shall be allocated at least 5 
points each.
    (3) Fixed point and variable point scoring criteria. A Bank shall 
designate each scoring criterion as either a fixed-point or a variable-
point criterion, defined as follows:
    (i) Fixed-point scoring criteria are those which cannot be satisfied 
in varying degrees and are either satisfied or not, with the total 
number of points allocated to the criterion awarded by the Bank to an 
application meeting the criterion; and
    (ii) Variable-point criteria are those where there are varying 
degrees to which an application can satisfy the criteria, with the 
number of points that may be awarded to an application for meeting the 
criterion varying, depending on the extent to which the application 
satisfies the criterion, based on a fixed scale or on a scale relative 
to the other applications being scored. A Bank shall designate the 
targeting and subsidy-per-unit scoring criteria identified in paragraphs 
(d)(5)(iii) and (d)(5)(viii), respectively, of this section, as 
variable-point criteria.
    (4) Satisfaction of scoring criteria. A Bank shall award scoring 
points to applications for proposed projects based on satisfaction of 
the scoring criteria adopted by the Bank pursuant to paragraph (d)(5) of 
this section.
    (5) Scoring criteria. An application for a proposed project may 
receive scoring points based on satisfaction of the following 9 scoring 
criteria:
    (i) Use of donated or conveyed government-owned or other properties. 
The financing of housing using a significant proportion, as defined by 
the Bank in its AHP Implementation Plan, of:
    (A) Land or units donated or conveyed by the federal government or 
any agency or instrumentality thereof; or
    (B) Land or units donated or conveyed by any other party for an 
amount significantly below the fair market value of the property, as 
defined by the Bank in its AHP Implementation Plan.
    (ii) Sponsorship by a not-for-profit organization or government 
entity. Project sponsorship by a not-for-profit organization, a state or 
political subdivision of a state, a state housing agency, a local 
housing authority, a Native American Tribe, an Alaskan Native Village, 
or the government entity for Native Hawaiian Home Lands.
    (iii) Targeting. The extent to which a project provides housing for 
very low- and low- or moderate-income households, as follows:
    (A) Rental projects. An application for a rental project shall be 
awarded the maximum number of points available under this scoring 
criterion if 60 percent or more of the units in the project are reserved 
for occupancy by households with incomes at or below 50 percent of the 
median income for the area. Applications for projects with less than 60 
percent of the units reserved for occupancy by households with incomes 
at or below 50 percent of the median income for the area shall be 
awarded points on a declining scale based on the percentage of units in 
a project that are reserved for households with incomes at or below 50 
percent of the median income for the area, and on the percentage of the 
remaining units reserved for households with incomes at or below 80 
percent of the median income for the area.
    (B) Owner-occupied projects. Applications for owner-occupied 
projects shall be awarded points based on a declining

[[Page 168]]

scale to be determined by the Bank in its AHP Implementation Plan, 
taking into consideration percentages of units and targeted income 
levels.
    (C) Separate scoring. For purposes of this scoring criterion, 
applications for owner-occupied projects and rental projects may be 
scored separately.
    (iv) Housing for homeless households. The financing of rental 
housing, excluding overnight shelters, reserving at least 20 percent of 
the units for homeless households, the creation of transitional housing 
for homeless households permitting a minimum of 6 months occupancy, or 
the creation of permanent owner-occupied housing reserving at least 20 
percent of the units for homeless households, with the term ``homeless 
households'' as defined by the Bank in its AHP Implementation Plan.
    (v) Promotion of empowerment. The provision of housing in 
combination with a program offering: employment; education; training; 
homebuyer, homeownership, or tenant counseling; daycare services; 
resident involvement in decision making affecting the creation or 
operation of the project; or other services that assist residents to 
move toward better economic opportunities, such as welfare to work 
initiatives.
    (vi) First District priority. The satisfaction of one of the 
following criteria, or one of a number of the following criteria, 
adopted by the Bank and set forth in the Bank's AHP Implementation Plan, 
as long as the total points available for meeting the criterion or 
criteria adopted under this category do not exceed the total points 
allocated to this category:
    (A) Special needs. The financing of housing in which at least 20 
percent of the units are reserved for occupancy by households with 
special needs, such as the elderly, mentally or physically disabled 
persons, persons recovering from physical abuse or alcohol or drug 
abuse, or persons with AIDS; or the financing of housing that is 
visitable by persons with physical disabilities who are not occupants of 
such housing;
    (B) Community development. The financing of housing meeting housing 
needs documented as part of a community revitalization or economic 
development strategy approved by a unit of a state or local government;
    (C) First-time homebuyers. The financing of housing for first-time 
homebuyers;
    (D) Member financial participation. Member financial participation 
(excluding the pass-through of AHP subsidy) in the project, such as 
providing market rate or concessionary financing, fee waivers, or 
donations;
    (E) Disaster areas and displaced households. The financing of 
housing located in federally declared disaster areas, or for households 
displaced from federally declared disaster areas due to a disaster;
    (F) Rural. The financing of housing located in rural areas;
    (G) Urban. The financing of urban infill or urban rehabilitation 
housing;
    (H) Economic diversity. The financing of housing that is part of a 
strategy to end isolation of very low-income households by providing 
economic diversity through mixed-income housing in low- or moderate-
income neighborhoods, or providing very low- or low- or moderate-income 
households with housing opportunities in neighborhoods or cities where 
the median income equals or exceeds the median income for the larger 
surrounding area, such as the city, county, or Primary Metropolitan 
Statistical Area, in which the neighborhood or city is located;
    (I) Fair housing remedy. The financing of housing as part of a 
remedy undertaken by a jurisdiction adjudicated by a Federal, State, or 
local court to be in violation of title VI of the Civil Rights Act of 
1964 (42 U.S.C. 2000d et seq.), the Fair Housing Act (42 U.S.C. 3601 et 
seq.), or any other Federal, State, or local fair housing law, or as 
part of a settlement of such claims;
    (J) Community involvement. Demonstrated support for the project by 
local government, other than as a project sponsor, in the form of 
property tax deferment or abatement, zoning changes or variances, 
infrastructure improvements, fee waivers, or other similar forms of non-
cash assistance, or demonstrated support for the project by community 
organizations or individuals, other than as project sponsors, through 
the commitment by such

[[Page 169]]

entities or individuals of donated goods and services, or volunteer 
labor;
    (K) Lender consortia. The involvement of financing by a consortium 
of at least 2 financial institutions; or
    (L) In-District projects. The financing of housing located in the 
Bank's District.
    (vii) Second District priority: defined housing need in the 
District. The satisfaction of a housing need in the Bank's District, as 
defined by the Bank in its AHP Implementation Plan. The Bank may, but is 
not required to, use one of the criteria listed in paragraph (d)(5)(vi) 
of this section, provided it is different from the criterion or criteria 
adopted by the Bank under such paragraph.
    (viii) AHP subsidy per unit--(A) Amount of subsidy. The extent to 
which a project proposes to use the least amount of AHP subsidy per AHP-
targeted unit. In the case of an application for a project financed by a 
subsidized advance, the total amount of AHP subsidy used by the project 
shall be estimated based on the Bank's cost of funds as of the date on 
which all applications are due for the funding period in which the 
application is submitted.
    (B) Separate scoring. For purposes of this scoring criterion, 
applications for owner-occupied projects and rental projects may be 
scored separately.
    (ix) Community stability. The promotion of community stability, such 
as by rehabilitating vacant or abandoned properties, being an integral 
part of a neighborhood stabilization plan approved by a unit of state or 
local government, and not displacing low- or moderate-income households, 
or if such displacement will occur, assuring that such households will 
be assisted to minimize the impact of such displacement.
    (e) Approval of AHP applications. (1) A Bank shall approve 
applications for AHP subsidy in descending order starting with the 
highest scoring application until the total funding amount for the 
particular funding period, except for any amount insufficient to fund 
the next highest scoring application, has been allocated.
    (2) The Bank also shall approve at least the next 4 highest scoring 
applications as alternates and, within 1 year of approval, may fund such 
alternates if any previously committed AHP subsidies become available.
    (f) Modifications of approved AHP applications--(1) Modification 
procedure. If, prior to or after final disbursement of funds to a 
project from all funding sources, there is or will be a change in the 
project that would change the score that the project application 
received in the funding period in which it was originally scored and 
approved, had the changed facts been operative at that time, a Bank, in 
its discretion, may approve in writing a modification to the terms of 
the approved application, provided that:
    (i) The project, incorporating any such changes, would meet the 
eligibility requirements of paragraph (c) of this section;
    (ii) The application, as reflective of such changes, continues to 
score high enough to have been approved in the funding period in which 
it was originally scored and approved by the Bank; and
    (iii) There is good cause for the modification, and the analysis and 
justification for the modification are documented by the Bank in 
writing.
    (2) AHP subsidy increases; no delegation. Modifications involving an 
increase in AHP subsidy shall be approved or disapproved by a Bank's 
board of directors. The authority to approve or disapprove such requests 
shall not be delegated to Bank officers or other Bank employees.
    (g) Procedure for funding--(1) Disbursement of AHP subsidies to 
members. (i) A Bank may disburse AHP subsidies only to institutions that 
are members of the Bank at the time they request a draw-down of the 
subsidies.
    (ii) If an institution with an approved application for AHP subsidy 
loses its membership in a Bank, the Bank may disburse AHP subsidies to a 
member of such Bank to which the institution has transferred its 
obligations under the approved AHP application, or the Bank may disburse 
AHP subsidies through another Bank to a member of that Bank that has 
assumed the institution's obligations under the approved AHP 
application.

[[Page 170]]

    (2) Progress towards use of AHP subsidy. A Bank shall establish and 
implement policies, including time limits, for determining whether 
progress is being made towards draw-down and use of AHP subsidies by 
approved projects, and whether to cancel AHP application approvals for 
lack of such progress. If a Bank cancels any AHP application approvals 
due to lack of such progress, the Bank shall make the AHP subsidies 
available for other AHP-eligible projects.
    (3) Compliance upon disbursement of AHP subsidies. A Bank shall 
establish and implement policies for determining, prior to its initial 
disbursement of AHP subsidies for an approved project, and prior to each 
subsequent disbursement if the need for AHP subsidy has changed, that 
the project meets the eligibility requirements of paragraph (c) of this 
section and all obligations committed to in the approved AHP 
application. If a Bank cancels any AHP application approvals due to 
noncompliance with eligibility requirements of paragraph (c) of this 
section, the Bank shall make the AHP subsidies available for other AHP-
eligible projects.
    (4) Changes in approved AHP subsidy amount where a direct subsidy is 
used to write down prior to closing the principal amount or interest 
rate on a loan. If a member is approved to receive AHP direct subsidy to 
write down prior to closing the principal amount or the interest rate on 
a loan to a project, and the amount of AHP subsidy required to maintain 
the debt service cost for the loan decreases from the amount of AHP 
subsidy initially approved by the Bank due to a decrease in market 
interest rates between the time of approval and the time the lender 
commits to the interest rate to finance the project, the Bank shall 
reduce the AHP subsidy amount accordingly. If market interest rates rise 
between the time of approval and the time the lender commits to the 
interest rate to finance the project, the Bank, in its discretion, may 
increase the AHP subsidy amount accordingly.
    (5) AHP outlay adjustment. If a Bank reduces the amount of AHP 
subsidy approved for a project, the amount of such reduction shall be 
returned to the Bank's AHP fund. If a Bank increases the amount of AHP 
subsidy approved for a project, the amount of such increase shall be 
drawn first from any currently uncommitted or repaid AHP subsidies and 
then from the Bank's required AHP contribution for the next year.
    (6) Project sponsor notification of reuse of repaid AHP direct 
subsidy. Prior to disbursement by a project sponsor of AHP direct 
subsidy repaid to and retained by such project sponsor pursuant to a 
subsidy re-use program authorized by the Bank under Sec. 951.8(f)(2) of 
this part, the project sponsor shall provide written notice to the 
member and the Bank of its intent to disburse the repaid AHP subsidy to 
a household satisfying the requirements of this part and the commitments 
made in the approved AHP application.
    (h) Bank board duties and delegation--(1) Duties. A Bank's board of 
directors, after consultation with its Advisory Council, shall be 
responsible for:
    (i) Adoption of the AHP Implementation Plan required pursuant to 
Sec. 951.3 of this part; and
    (ii) Approving or disapproving the applications for AHP subsidy 
pursuant to Sec. 951.5(e) of this part.
    (2) No delegation. The Bank's board of directors shall not delegate 
to Bank officers or other Bank employees the responsibilities set forth 
in paragraph (h)(1) of this section.



Sec. 951.6  Homeownership set-aside programs.

    (a) Establishment of program. A Bank may establish one or more 
homeownership set-aside programs pursuant to the requirements of this 
part.
    (b) Eligible applicants. A Bank shall accept applications for AHP 
direct subsidy under its homeownership set-aside programs only from 
institutions that are members of the Bank at the time the application is 
submitted to the Bank.
    (c) Minimum eligibility requirements. A Bank's homeownership set-
aside programs shall meet the following eligibility requirements:
    (1) Member allocation criteria. AHP direct subsidies shall be 
provided to

[[Page 171]]

members pursuant to allocation criteria established by the Bank in its 
AHP Implementation Plan.
    (2) Eligible households. Members shall provide AHP direct subsidies 
only to households that:
    (i) Have incomes at or below 80 percent of the median income for the 
area at the time the household is accepted for enrollment by the member 
in the Bank's homeownership set-aside program, with such time of 
enrollment by the member defined by the Bank in its AHP Implementation 
Plan;
    (ii) Complete a homebuyer or homeowner counseling program provided 
by, or based on one provided by, an organization experienced in 
homebuyer or homeowner counseling, in the case of households that are 
first-time homebuyers; and
    (iii) Are first-time homebuyers, in the case of households receiving 
funds pursuant to the first-time homebuyer requirement in Sec. 
951.2(b)(2) of this part, and meet such other eligibility criteria that 
may be established by the Bank in its AHP Implementation Plan, such as a 
matching funds requirement, homebuyer or homeowner counseling 
requirement for households that are not first-time homebuyers, or 
criteria that give priority for the purchase or rehabilitation of 
housing in particular areas or as part of a disaster relief effort.
    (3) Maximum grant amount. Members shall provide AHP direct subsidies 
to households as a grant, in an amount up to a maximum of $15,000 per 
household, as established by the Bank in its AHP Implementation Plan, 
which limit shall apply to all households.
    (4) Eligible uses of AHP direct subsidy. Households shall use the 
AHP direct subsidies to pay for down payment, closing cost, counseling, 
or rehabilitation assistance in connection with the household's purchase 
or rehabilitation of an owner-occupied unit, including a condominium or 
cooperative housing unit or manufactured housing, to be used as the 
household's primary residence.
    (5) Retention agreement. An owner-occupied unit purchased or 
rehabilitated using AHP direct subsidy shall be subject to a 5-year 
retention agreement described in Sec. 951.9(a)(7) of this part.
    (6) Financial or other concessions. The Bank may, in its discretion, 
require members and other lenders to provide financial or other 
concessions, as defined by the Bank in its AHP Implementation Plan, to 
households in connection with providing the AHP direct subsidy or 
financing to the household.
    (7) Financing costs. The rate of interest, points, fees, and any 
other charges for all loans made in conjunction with the AHP direct 
subsidy shall not exceed a reasonable market rate of interest, points, 
fees, and other charges for loans of similar maturity, terms, and risk.
    (8) Counseling costs. The AHP direct subsidies may be used to pay 
for counseling costs only where:
    (i) Such costs are incurred in connection with counseling of 
homebuyers who actually purchase an AHP-assisted unit; and
    (ii) The cost of the counseling has not been covered by another 
funding source, including the member.
    (9) Cash back to household. A member may provide cash back to a 
household at closing on the mortgage loan in an amount not exceeding 
$250, as determined by the Bank in its AHP Implementation Plan, and a 
member shall use any AHP direct subsidy exceeding such amount that is 
beyond what is needed at closing for closing costs and the approved 
mortgage amount as a credit to reduce the principal of the mortgage loan 
or as a credit toward the household's monthly payments on the mortgage 
loan.
    (d) Approval of AHP applications. A Bank shall approve applications 
for AHP direct subsidy in accordance with the Bank's criteria governing 
the allocation of funds.
    (e) Procedure for funding--(1) Disbursement of AHP direct subsidies 
to members. (i) A Bank may disburse AHP direct subsidies only to 
institutions that are members of the Bank at the time they request a 
draw-down of the subsidies.
    (ii) If an institution with an approved application for AHP direct 
subsidy loses its membership in a Bank, the Bank may disburse AHP direct 
subsidies to a member of such Bank to which the institution has 
transferred its obligations under the approved AHP application, or the 
Bank may disburse

[[Page 172]]

AHP direct subsidies through another Bank to a member of that Bank that 
has assumed the institution's obligations under the approved AHP 
application.
    (2) Reservation of homeownership set-aside subsidies. A Bank shall 
establish and implement policies for reservation of homeownership set-
aside subsidies for households enrolled in the Bank's homeownership set-
aside program. The policies shall provide that set-aside subsidies be 
reserved no more than 2 years in advance of the Bank's time limit in its 
AHP Implementation Plan for draw-down and use of the subsidies by the 
household and the reservation of subsidies be made from the set-aside 
allocation of the year in which the Bank makes the reservation.
    (3) Progress towards use of AHP direct subsidy. A Bank shall 
establish and implement policies, including time limits, for determining 
whether progress is being made towards draw-down and use of the AHP 
direct subsidies by eligible households, and whether to cancel AHP 
application approvals for lack of such progress. If a Bank cancels any 
AHP application approvals due to lack of such progress, it shall make 
the AHP direct subsidies available for other applicants for AHP direct 
subsidies under the homeownership set-aside program or for other AHP-
eligible projects.



Sec. 951.7  Monitoring.

    (a) Competitive application program--(1) Initial monitoring policies 
for owner-occupied and rental projects--(i)--Adoption and 
implementation. Pursuant to written policies established by a Bank, the 
Bank shall monitor each AHP owner-occupied and rental project under its 
competitive application program prior to, and within a reasonable period 
of time after, project completion to determine, at a minimum, whether:
    (A) The project is making satisfactory progress towards completion, 
in compliance with the commitments made in the approved AHP application, 
Bank policies, and the requirements of this part;
    (B) Following completion of the project, satisfactory progress is 
being made towards occupancy of the project by eligible households; and
    (C) Within a reasonable period of time after project completion, the 
project meets the following requirements, at a minimum:
    (1) The AHP subsidies were used for eligible purposes according to 
the commitments made in the approved AHP application;
    (2) The household incomes and rents comply with the income targeting 
and rent commitments made in the approved AHP application;
    (3) The project's actual costs were reasonable in accordance with 
the Bank's project cost guidelines, and the AHP subsidies were necessary 
for the completion of the project as currently structured;
    (4) Each AHP-assisted unit of an owner-occupied project and rental 
project is subject to AHP retention agreements that meet the 
requirements of Sec. 951.9(a)(7) or (a)(8), respectively, of this part; 
and
    (5) The services and activities committed to in the approved AHP 
application have been provided in connection with the project.
    (ii) Back-up and other project documentation. The Bank's written 
monitoring policies shall include requirements for:
    (A) Bank review of back-up project documentation regarding household 
incomes and rents maintained by the project sponsor or owner; and
    (B) Maintenance and Bank review of other project documentation in 
the Bank's discretion.
    (iii) Sampling plan. The Bank shall not use a sampling plan to 
select the projects to be monitored under this paragraph (a)(1), but may 
use a reasonable risk-based sampling plan to review the back-up project 
documentation.
    (2) Reliance on long-term tax credit monitoring for rental projects. 
For completed AHP rental projects that have been allocated federal Low-
Income Housing Tax Credits (tax credits), a Bank may, in its discretion, 
for purposes of long-term AHP monitoring under its competitive 
application program, rely on the monitoring by the state-designated 
housing credit agency administering the tax credits of the income 
targeting and rent requirements applicable under the Low-Income Housing 
Tax Credit Program, and the Bank

[[Page 173]]

need not obtain and review reports from such agency or otherwise monitor 
the projects' long-term AHP compliance.
    (3) Reliance on other long-term governmental monitoring for rental 
projects. For completed AHP rental projects that received funds other 
than tax credits from federal, state, or local government entities, a 
Bank may, in its discretion, for purposes of long-term AHP monitoring 
under its competitive application program, rely on the monitoring by 
such entities of the income targeting and rent requirements applicable 
under their programs, provided that the Bank can show that:
    (i) The compliance profiles regarding income targeting, rent, and 
retention period requirements of the AHP and the other programs are 
substantively equivalent;
    (ii) The entity has demonstrated and continues to demonstrate its 
ability to monitor the project;
    (iii) The entity agrees to provide reports to the Bank on the 
project's incomes and rents for the full 15-year AHP retention period; 
and
    (iv) The Bank reviews the reports from the monitoring entity to 
confirm that they comply with the Bank's monitoring policies.
    (4) Long-term monitoring policies for rental projects--(i) Adoption 
and implementation. In cases where a Bank does not rely on monitoring by 
a federal, state, or local government entity pursuant to paragraphs 
(a)(2) or (a)(3) of this section, pursuant to written policies 
established by the Bank, the Bank shall monitor completed AHP rental 
projects under its competitive application program, commencing in the 
second year after project completion to determine, at a minimum, whether 
during the full 15-year retention period, the household incomes and 
rents comply with the income targeting and rent commitments, 
respectively, made in the approved AHP applications.
    (ii) Annual project owner certifications; backup and other project 
documentation. A Bank's written monitoring policies shall include 
requirements for:
    (A) Bank review of annual certifications by project owners to the 
Bank that household incomes and rents are in compliance with the 
commitments made in the approved AHP application;
    (B) Bank review of back-up project documentation regarding household 
incomes and rents maintained by the project owner; and
    (C) Maintenance and Bank review of other project documentation in 
the Banks' discretion.
    (iii) Risk factors and other monitoring--(A) Risk factors; other 
monitoring. A Bank's written monitoring policies shall take into account 
risk factors such as the amount of AHP subsidy in the project, type of 
project, size of project, location of project, sponsor experience, and 
any monitoring of the project provided by a federal, state, or local 
government entity.
    (B) Risk-based sampling plan. A Bank may use a reasonable, risk-
based sampling plan to select the rental projects to be monitored under 
this paragraph (a)(4), and to review the annual project owner 
certifications, back-up, and any other project documentation. The risk-
based sampling plan and its basis shall be in writing.
    (5) Annual adjustment of targeting commitments. For purposes of 
determining compliance with the targeting commitments in an approved AHP 
application for both initial and long-term AHP monitoring purposes under 
a Bank's competitive application program, such commitments shall be 
considered to adjust annually according to the current applicable median 
income data. A rental unit may continue to count toward meeting the 
targeting commitment of an approved AHP application as long as the rent 
charged to a household remains affordable, as defined in Sec. 951.1 of 
this part, for the household occupying the unit.
    (b) Homeownership set-aside programs: Monitoring policies--(1) 
Adoption and implementation. Pursuant to written policies adopted by a 
Bank, the Bank shall monitor compliance with the requirements of its 
homeownership set-aside programs, including monitoring to determine, at 
a minimum, whether:
    (i) The AHP subsidy was provided to households meeting all 
applicable eligibility requirements in Sec. 951.6(c)(2) of this part 
and the Bank's homeownership set-aside program policies; and

[[Page 174]]

    (ii) All other applicable eligibility requirements in Sec. 951.6(c) 
of this part and the Bank's homeownership set-aside program policies are 
met, including that the AHP-assisted units are subject to retention 
agreements required under Sec. 951.6(c)(5) of this part.
    (2) Member certifications; back-up and other documentation. The 
Bank's written monitoring policies shall include requirements for:
    (i) Bank review of certifications by members to the Bank, prior to 
disbursement of the AHP subsidy, that the subsidy will be provided in 
compliance with all applicable eligibility requirements in Sec. 
951.6(c) of this part;
    (ii) Bank review of back-up documentation regarding household 
incomes maintained by the member; and
    (iii) Maintenance and Bank review of other documentation in the 
Bank's discretion.
    (3) Sampling plan. The Bank may use a reasonable sampling plan to 
select the households to be monitored, and to review the back-up and any 
other documentation received by the Bank, but not the member 
certifications required in paragraph (b)(2) of this section. The 
sampling plan and its basis shall be in writing.



Sec. 951.8  Remedial actions for noncompliance.

    (a) Recovery of AHP subsidies. A Bank shall recover the amount of 
any AHP subsidies (plus interest, if appropriate) that are not used in 
compliance with the commitments made in the approved application for AHP 
subsidy and the requirements of this part, if the misuse is the result 
of the actions or omissions of the member, the project sponsor, or the 
project owner.
    (b) Responsible party for repayment of AHP subsidies. Except as 
provided in paragraph (c) of this section:
    (1) If the member causes the AHP subsidies to be misused through its 
actions or omissions, the member shall repay the AHP subsidies to the 
Bank.
    (2) If the project sponsor or owner causes the AHP subsidies to be 
misused through its actions or omissions, the following shall apply, as 
determined by the Bank in its discretion:
    (i) The member shall recover the AHP subsidies from the project 
sponsor or owner and repay them to the Bank; or
    (ii) The project sponsor or owner shall repay the AHP subsidies 
directly to the Bank.
    (c) Recovery not required. Recovery of the AHP subsidies is not 
required if:
    (1) The member, project sponsor, or project owner cures the 
noncompliance within a reasonable period of time;
    (2) The circumstances of noncompliance are eliminated through a 
modification of the terms of the approved application for AHP subsidy 
pursuant to Sec. 951.5(f) of this part; or
    (3) The member is unable to collect the AHP subsidy after making 
reasonable efforts to collect it.
    (d) Settlements. A Bank may settle a claim for AHP subsidies that it 
has against a member, project sponsor, or project owner for less than 
the full amount due. If a Bank enters into such a settlement, the 
Finance Board may require the Bank to reimburse its AHP fund in the 
amount of any shortfall under paragraph (e)(2) of this section, unless:
    (1) The Bank has sufficient documentation showing that the sum 
agreed to be repaid under the settlement is reasonably justified, based 
on the facts and circumstances of the noncompliance (including the 
degree of culpability of the non-complying parties and the extent of the 
Bank's recovery efforts); or
    (2) The Bank obtains a determination from the Finance Board that the 
sum agreed to be repaid under the settlement is reasonably justified, 
based on the facts and circumstances of the noncompliance (including the 
degree of culpability of the non-complying parties and the extent of the 
Bank's recovery efforts).
    (e) Reimbursement of AHP fund--(1) By the Bank. A Bank shall 
reimburse its AHP fund in the amount of any AHP subsidies (plus 
interest, if appropriate) misused as a result of the actions or 
omissions of the Bank.
    (2) By Finance Board order. The Finance Board may order a Bank to 
reimburse its AHP fund in an appropriate amount upon determining that:
    (i) The Bank has failed to reimburse its AHP fund as required under 
paragraph (e)(1) of this section; or

[[Page 175]]

    (ii) The Bank has failed to recover AHP subsidy from a member, 
project sponsor, or project owner pursuant to the requirements of 
paragraph (a) of this section, and has not shown that such failure is 
reasonably justified, considering factors such as the extent of the 
Bank's recovery efforts.
    (f) Use of repaid AHP subsidies--(1) Use of repaid AHP subsidies in 
other AHP-eligible projects. Except as provided in paragraph (f)(2) of 
this section, amounts of AHP subsidy, including any interest, repaid to 
a Bank pursuant to this part shall be made available by the Bank for 
other AHP-eligible projects.
    (2) Re-use of repaid AHP direct subsidies in same project--(i) 
Requirements. AHP direct subsidy, including any interest, repaid to a 
member or project sponsor under a homeownership set-aside program or the 
competitive application program, respectively, may be repaid by such 
parties to the Bank for subsequent disbursement to and re-use by such 
parties, or retained by such parties for subsequent re-use, as 
authorized by the Bank, in its discretion, after consultation with its 
Advisory Council, in its AHP Implementation Plan, provided all of the 
following requirements are satisfied:
    (A) The member or the project sponsor originally provided the AHP 
direct subsidy as down payment, closing cost, rehabilitation, or 
interest rate buy down assistance to an eligible household to purchase 
or rehabilitate an owner-occupied unit pursuant to an approved AHP 
application;
    (B) The AHP direct subsidy, including any interest, was repaid to 
the member or project sponsor as a result of a sale by the household of 
the unit prior to the end of the retention period to a purchaser that is 
not a low-or moderate-income household; and
    (C) The repaid AHP direct subsidy is made available by the member or 
project sponsor, within the period of time specified by the Bank in its 
AHP Implementation Plan, to another AHP-eligible household to purchase 
or rehabilitate an owner-occupied unit in the same project in accordance 
with the terms of the approved AHP application.
    (ii) No delegation. A Bank's board of directors shall not delegate 
to Bank officers or other Bank employees the responsibility to adopt any 
Bank policies on re-use of repaid AHP direct subsidies in the same 
project pursuant to paragraph (f)(2)(i) of this section.
    (g) Suspension and debarment--(1) At a Bank's initiative. A Bank may 
suspend or debar a member, project sponsor, or project owner from 
participation in the Program if such party shows a pattern of 
noncompliance, or engages in a single instance of flagrant 
noncompliance, with the terms of an approved application for AHP subsidy 
or the requirements of this part.
    (2) At the Finance Board's initiative. The Finance Board may order a 
Bank to suspend or debar a member, project sponsor, or project owner 
from participation in the Program if such party shows a pattern of 
noncompliance, or engages in a single instance of flagrant 
noncompliance, with the terms of an approved application for AHP subsidy 
or the requirements of this part.
    (h) Transfer of Program administration. Without limitation on other 
remedies, the Finance Board, upon determining that a Bank has engaged in 
mismanagement of its Program, may designate another Bank to administer 
all or a portion of the first Bank's annual AHP contribution, for the 
benefit of the first Bank's members, under such terms and conditions as 
the Finance Board may prescribe.
    (i) Finance Board actions under this section. Except as provided in 
paragraph (d)(2) of this section, actions taken by the Finance Board 
under this section are reviewable under Sec. 907.9 of this chapter.



Sec. 951.9  Agreements.

    (a) Agreements between Banks and members. A Bank shall have in place 
with each member receiving an AHP subsidized advance or AHP direct 
subsidy an agreement or agreements containing, at a minimum, the 
following provisions, where applicable:
    (1) Notification of member. The member has been notified of the 
requirements of this part as they may be amended from time to time, and 
all Bank policies relevant to the member's approved application for AHP 
subsidy.
    (2) AHP subsidy pass-through. The member shall pass on the full 
amount of the AHP subsidy to the project or

[[Page 176]]

household, as applicable, for which the subsidy was approved.
    (3) Use of AHP subsidy--(i) Use of AHP subsidy by the member. The 
member shall use the AHP subsidy in accordance with the terms of the 
member's approved application for the subsidy and the requirements of 
this part.
    (ii) Use of AHP subsidy by the project sponsor or owner. The member 
shall have in place an agreement with each project sponsor or project 
owner in which the project sponsor or project owner agrees to use the 
AHP subsidy in accordance with the terms of the member's approved 
application for the subsidy and the requirements of this part.
    (4) Repayment of AHP subsidies in case of noncompliance--(i) 
Noncompliance by the member. The member shall repay AHP subsidies to the 
Bank in accordance with the requirements of Sec. 951.8(b)(1) of this 
part.
    (ii) Noncompliance by a project sponsor or owner--(A) Agreement. The 
member shall have in place an agreement with each project sponsor or 
project owner in which the project sponsor or project owner agrees to 
repay AHP subsidies to the member or the Bank in accordance with the 
requirements of Sec. 951.8(b)(2)(i) or (b)(2)(ii) of this part, 
respectively (as applicable).
    (B) Recovery of AHP subsidies. The member shall recover from the 
project sponsor or project owner and repay to the Bank any AHP subsidy 
in accordance with the requirements of Sec. 951.8(b)(2)(i) of this part 
(if applicable).
    (5) Project monitoring--(i) Monitoring by the member. The member 
shall comply with the monitoring requirements applicable to it, as 
established by the Bank in its monitoring policies pursuant to Sec. 
951.7 of this part.
    (ii) Agreement. The member shall have in place an agreement with 
each project sponsor and project owner, in which the project sponsor and 
project owner agree to comply with the monitoring requirements 
applicable to such parties, as established by the Bank in its monitoring 
policies pursuant to Sec. 951.7 of this part.
    (6) Transfer of AHP obligations--(i) To another member. The member 
shall make best efforts to transfer its obligations under the approved 
application for AHP subsidy to another member in the event of its loss 
of membership in the Bank prior to the Bank's final disbursement of AHP 
subsidies.
    (ii) To a nonmember. If, after final disbursement of AHP subsidies 
to the member, the member undergoes an acquisition or a consolidation 
resulting in a successor organization that is not a member of the Bank, 
the nonmember successor organization assumes the member's obligations 
under its approved application for AHP subsidy, and where the member 
received an AHP subsidized advance, the nonmember assumes such 
obligations until prepayment or orderly liquidation by the nonmember of 
the subsidized advance.
    (7) Retention agreements for owner-occupied units. The member shall 
ensure that an AHP-assisted owner-occupied unit is subject to a deed 
restriction or other legally enforceable retention agreement or 
mechanism requiring that:
    (i) The Bank or its designee is to be given notice of any sale or 
refinancing of the unit occurring prior to the end of the retention 
period;
    (ii) In the case of a sale or refinancing of the unit prior to the 
end of the retention period, an amount equal to a pro rata share of the 
AHP subsidy that financed the purchase, construction, or rehabilitation 
of the unit, reduced for every year the seller owned the unit, shall be 
repaid to the Bank from any net gain realized upon the sale or 
refinancing, unless:
    (A) The unit was assisted with a permanent mortgage loan funded by 
an AHP subsidized advance;
    (B) The unit is sold to a very low-, or low- or moderate-income 
household; or
    (C) Following a refinancing, the unit continues to be subject to a 
deed restriction or other legally enforceable retention agreement or 
mechanism described in this paragraph (a)(7); and
    (iii) In the case of a direct subsidy, such repayment of AHP subsidy 
shall be made:
    (A) To the Bank. If the Bank has not authorized re-use of the repaid 
AHP subsidy or has authorized re-use of the repaid subsidy but not 
retention of such repaid subsidy by the member or project sponsor 
pursuant to Sec. 951.8(f)(2)

[[Page 177]]

of this part, or has authorized retention and re-use of such repaid 
subsidy by the member or project sponsor pursuant to such section and 
the repaid subsidy is not re-used in accordance with the requirements of 
the Bank and such section; or
    (B) To the member or project sponsor. To the member or project 
sponsor for reuse by such member or project sponsor, if the Bank has 
authorized retention and re-use of such subsidy by the member or project 
sponsor pursuant to Sec. 951.8(f)(2); and
    (iv) The obligation to repay AHP subsidy to the Bank shall terminate 
after any foreclosure.
    (8) Retention agreements for rental projects. The member shall 
ensure that an AHP-assisted rental project is subject to a deed 
restriction or other legally enforceable retention agreement or 
mechanism requiring that:
    (i) The project's rental units, or applicable portion thereof, must 
remain occupied by and affordable for households with incomes at or 
below the levels committed to be served in the approved AHP application 
for the duration of the retention period;
    (ii) The Bank or its designee is to be given notice of any sale or 
refinancing of the project occurring prior to the end of the retention 
period;
    (iii) In the case of a sale or refinancing of the project prior to 
the end of the retention period, the full amount of the AHP subsidy 
received by the owner shall be repaid to the Bank, unless:
    (A) The project continues to be subject to a deed restriction or 
other legally enforceable retention agreement or mechanism incorporating 
the income-eligibility and affordability restrictions committed to in 
the approved AHP application for the duration of the retention period; 
or
    (B) If authorized by the Bank, in its discretion, the households are 
relocated, due to the exercise of eminent domain, or for expansion of 
housing or services, to another property that is made subject to a deed 
restriction or other legally enforceable retention agreement or 
mechanism incorporating the income-eligibility and affordability 
restrictions committed to in the approved AHP application for the 
remainder of the retention period; and
    (iv) The income-eligibility and affordability restrictions 
applicable to the project shall terminate after any foreclosure.
    (9) Lending of AHP direct subsidies. If a member or a project 
sponsor lends AHP direct subsidy to a project, any repayments of 
principal and payments of interest received by the member or the project 
sponsor must be paid forthwith to the Bank, unless the direct subsidy is 
being both lent and re-lent by a revolving loan fund pursuant to Sec. 
951.5(c)(13) of this part.
    (10) Special provisions where members obtain AHP subsidized 
advances--(i) Repayment schedule. The term of an AHP subsidized advance 
shall be no longer than the term of the member's loan to the project 
funded by the advance, and at least once in every 12-month period, the 
member shall be scheduled to make a principal repayment to the Bank 
equal to the amount scheduled to be repaid to the member on its loan to 
the project in that period.
    (ii) Prepayment fees. Upon a prepayment of an AHP subsidized 
advance, the Bank shall charge a prepayment fee only to the extent the 
Bank suffers an economic loss from the prepayment.
    (iii) Treatment of loan prepayment by project. If all or a portion 
of the loan or loans financed by an AHP subsidized advance are prepaid 
by the project to the member, the member may, at its option, either:
    (A) Repay to the Bank that portion of the advance used to make the 
loan or loans to the project, and be subject to a fee imposed by the 
Bank sufficient to compensate the Bank for any economic loss the Bank 
experiences in reinvesting the repaid amount at a rate of return below 
the cost of funds originally used by the Bank to calculate the interest 
rate subsidy incorporated in the advance; or
    (B) Continue to maintain the advance outstanding, subject to the 
Bank resetting the interest rate on that portion of the advance used to 
make the loan or loans to the project to a rate equal to the cost of 
funds originally used by the Bank to calculate the interest rate subsidy 
incorporated in the advance.

[[Page 178]]

    (b) Agreements between Banks and project sponsors or owners. A Bank 
shall have in place an agreement with each project sponsor or project 
owner, in which the project sponsor or project owner agrees to repay AHP 
subsidies directly to the Bank in accordance with the requirements of 
Sec. 951.8(b)(2)(ii) of this part (if applicable).
    (c) Application to existing AHP projects and units. The requirements 
of section 10(j) of the Act (12 U.S.C. 1430(j)) and the provisions of 
this part, as amended, are incorporated into all agreements between 
Banks, members, project sponsors, and project owners receiving AHP 
subsidies under the competitive application program, and between Banks, 
members and unit owners under the homeownership set-aside program. To 
the extent the requirements of this part are amended from time to time, 
such agreements are deemed to incorporate the amendments to conform to 
any new requirements of this part. No amendment to this part shall 
affect the legality of actions taken prior to the effective date of such 
amendment.



Sec. 951.10  Conflicts of interest.

    (a) Bank directors and employees. (1) Each Bank's board of directors 
shall adopt a written policy providing that if a Bank director or 
employee, or such person's family member, has a financial interest in, 
or is a director, officer, or employee of an organization involved in, a 
project that is the subject of a pending or approved AHP application, 
the Bank director or employee shall not participate in or attempt to 
influence decisions by the Bank regarding the evaluation, approval, 
funding, monitoring, or any remedial process for such project.
    (2) If a Bank director or employee, or such person's family member, 
has a financial interest in, or is a director, officer, or employee of 
an organization involved in, an AHP project such that he or she is 
subject to the requirements in paragraph (a)(1) of this section, such 
person shall not participate in or attempt to influence decisions by the 
Bank regarding the evaluation, approval, funding, monitoring, or any 
remedial process for such project.
    (b) Advisory Council members. (1) Each Bank's board of directors 
shall adopt a written policy providing that if an Advisory Council 
member, or such person's family member, has a financial interest in, or 
is a director, officer, or employee of an organization involved in, a 
project that is the subject of a pending or approved AHP application, 
the Advisory Council member shall not participate in or attempt to 
influence decisions by the Bank regarding the approval for such project.
    (2) If an Advisory Council member, or such person's family member, 
has a financial interest in, or is a director, officer, or employee of 
an organization involved in, an AHP project such that he or she is 
subject to the requirements in paragraph (b)(1) of this section, such 
person shall not participate in or attempt to influence decisions by the 
Bank regarding the approval for such project.
    (c) No delegation. A Bank's board of directors shall not delegate to 
Bank officers or other Bank employees the responsibility to adopt the 
conflict of interest policies required by this section.



Sec. 951.11  Temporary suspension of AHP contributions.

    (a) Request to Finance Board. If a Bank finds that the contributions 
required pursuant to Sec. 951.2(a) of this part are contributing to the 
financial instability of the Bank, the Bank may apply in writing to the 
Finance Board for a temporary suspension of such contributions.
    (b) Board of Directors review. (1) In determining the financial 
instability of a Bank, the Board of Directors shall consider such 
factors as:
    (i) Severely depressed Bank earnings;
    (ii) A substantial decline in Bank membership capital; and
    (iii) A substantial reduction in Bank advances outstanding.
    (2) Limitations on grounds for suspension. The Board of Directors 
shall not suspend a Bank's annual AHP contributions if it determines 
that the Bank's reduction in earnings is due to:
    (i) A change in the terms of advances to members that is not 
justified by market conditions;
    (ii) Inordinate operating and administrative expenses; or
    (iii) Mismanagement.

[[Page 179]]



Sec. 951.12  Affordable Housing Reserve Fund.

    (a) Deposits. If a Bank fails to use or commit the full amount it is 
required to contribute to the Program in any year pursuant to Sec. 
951.2(a) of this part, 90 percent of the unused or uncommitted amount 
shall be deposited by the Bank in an Affordable Housing Reserve Fund 
established and administered by the Finance Board. The remaining 10 
percent of the unused and uncommitted amount retained by the Bank should 
be fully used or committed by the Bank during the following year, and 
any remaining portion shall be deposited in the Affordable Housing 
Reserve Fund.
    (b) Use or commitment of funds. Approval of applications for AHP 
subsidies from members sufficient to exhaust the amount a Bank is 
required to contribute pursuant to Sec. 951.2(a) of this part shall 
constitute use or commitment of funds. Amounts remaining unused or 
uncommitted at year-end are deemed to be used or committed if, in 
combination with AHP subsidies that have been returned to the Bank or 
de-committed from canceled projects, they are insufficient to fund:
    (1) The next highest scoring AHP application in the Bank's final 
funding period of the year for its competitive application program;
    (2) Pending applications for funds under the Bank's homeownership 
set-aside programs; and
    (3) Project modifications approved by the Bank pursuant to the 
requirements of this part.
    (c) Carryover of insufficient amounts. Such insufficient amounts as 
described in paragraph (b) of this section shall be carried over for use 
or commitment in the following year in the Bank's competitive 
application program or homeownership set-aside programs.



PART 952_COMMUNITY INVESTMENT CASH ADVANCE PROGRAMS--Table of Contents




Sec.
952.1 Definitions.
952.2 Scope.
952.3 Purpose.
952.4 Targeted Community Lending Plan.
952.5 Community Investment Cash Advance Programs.
952.6 Reporting.
952.7 Documentation.

    Authority: 12 U.S.C. 1422b(a)(1), 1430.

    Source: 63 FR 65546, Nov. 27, 1998, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.



Sec. 952.1  Definitions.

    As used in this part:
    Champion Community means a community which developed a strategic 
plan and applied for designation by either the Secretary of HUD or the 
Secretary of the USDA as an Empowerment Zone or Enterprise Community, 
but was designated a Champion Community.
    CICA program or Community Investment Cash Advance program means:
    (1) A Bank's AHP;
    (2) A Bank's CIP;
    (3) A Bank's RDF program or UDF program using any combination of the 
targeted beneficiaries and targeted income levels specified in Sec. 
952.1 of this part; and
    (4) Any other advance or grant program offered by a Bank using 
targeted beneficiaries and targeted income levels other than those 
specified in Sec. 952.1 of this part, established by the Bank with the 
prior approval of the Finance Board.
    Economic development projects means:
    (1) Commercial, industrial, manufacturing, social service, and 
public facility projects and activities; and
    (2) Public or private infrastructure projects, such as roads, 
utilities, and sewers.
    Family means one or more persons living in the same dwelling unit.
    Housing projects means projects or activities that involve the 
purchase, construction, rehabilitation or refinancing (subject to Sec. 
952.5(c) of this part) of, or predevelopment financing for:
    (1) Individual owner-occupied housing units, each of which is 
purchased or owned by a family with an income at or below the targeted 
income level;
    (2) Projects involving multiple units of owner-occupied housing in 
which at least 51% of the units are owned or are intended to be 
purchased by families with incomes at or below the targeted income 
level;

[[Page 180]]

    (3) Rental housing where at least 51% of the units in the project 
are occupied by, or the rents are affordable to, families with incomes 
at or below the targeted income level; or
    (4) Manufactured housing parks where:
    (i) At least 51% of the units in the project are occupied by, or the 
rents are affordable to, families with incomes at or below the targeted 
income level; or
    (ii) The project is located in a neighborhood with a median income 
at or below the targeted income level.
    Median income for the area--(1) Owner-occupied housing projects and 
economic development projects. For purposes of owner-occupied housing 
projects and economic development projects, median income for the area 
means one or more of the following, as determined by the Bank:
    (i) The median income for the area, as published annually by HUD;
    (ii) The median income for the area obtained from the Federal 
Financial Institutions Examination Council;
    (iii) The applicable median family income, as determined under 26 
U.S.C. 143(f) (Mortgage Revenue Bonds) and published by a State agency 
or instrumentality;
    (iv) The median income for the area, as published by the USDA; or
    (v) The median income for the area obtained from another public 
entity or a private source and approved by the Board of Directors, at 
the request of a Bank, for use under the Bank's CICA programs.
    (2) Rental housing projects. For purposes of rental housing 
projects, median income for the area means one or more of the following, 
as determined by the Bank:
    (i) The median income for the area, as published annually by HUD; or
    (ii) The median income for the area obtained from the Federal 
Financial Institutions Examination Council;
    (iii) The median income for the area obtained from another public 
entity or a private source and approved by the Board of Directors, at 
the request of a Bank, for use under the Bank's CICA programs.
    MSA means a Metropolitan Statistical Area as designated by the 
Office of Management and Budget.
    Neighborhood means:
    (1) A census tract or block numbering area;
    (2) A unit of local government with a population of 25,000 or less;
    (3) A rural county; or
    (4) A geographic location designated in comprehensive plans, 
ordinances, or other local documents as a neighborhood, village, or 
similar geographic designation that is within the boundary of but does 
not encompass the entire area of a unit of general local government.
    Provide financing means:
    (1) Originating loans;
    (2) Purchasing a participation interest, or providing financing to 
participate, in a loan consortium for CICA-eligible housing or economic 
development projects;
    (3) Making loans to entities that, in turn, make loans for CICA-
eligible housing or economic development projects;
    (4) Purchasing mortgage revenue bonds or mortgage-backed securities, 
where all of the loans financed by such bonds and all of the loans 
backing such securities, respectively, meet the eligibility requirements 
of the CICA program under which the member or housing associate borrower 
receives funding;
    (5) Creating or maintaining a secondary market for loans, where all 
such loans are mortgage loans meeting the eligibility requirements of 
the CICA program under which the member or housing associate borrower 
receives funding;
    (6) Originating CICA-eligible loans within 3 months prior to 
receiving the CICA funding; and
    (7) Purchasing low-income housing tax credits.
    RDF or Rural Development Funding program means an advance or grant 
program offered by a Bank for targeted community lending in rural areas.
    Rural area means:
    (1) A unit of general local government with a population of 25,000 
or less;
    (2) An unincorporated area outside an MSA; or

[[Page 181]]

    (3) An unincorporated area within an MSA that qualifies for housing 
or economic development assistance from the USDA.
    Small business means a ``small business concern,'' as that term is 
defined by section 3(a) of the Small Business Act (15 U.S.C. 632(a)) and 
implemented by the Small Business Administration under 13 CFR part 121, 
or any successor provisions.
    Targeted beneficiaries means beneficiaries determined by the 
geographical area in which a project is located (Geographically Defined 
Beneficiaries), by the individuals who benefit from a project as 
employees or service recipients (Individual Beneficiaries), or by the 
nature of the project itself (Activity Beneficiaries), as follows:
    (1) Geographically Defined Beneficiaries:
    (i) The project is located in a neighborhood with a median income at 
or below the targeted income level;
    (ii) The project is located in a rural Champion Community, or a 
rural Empowerment Zone or rural Enterprise Community, as designated by 
the Secretary of the USDA;
    (iii) The project is located in an urban Champion Community, or an 
urban Empowerment Zone or urban Enterprise Community, as designated by 
the Secretary of HUD;
    (iv) The project is located in an Indian area, as defined by the 
Native American Housing Assistance and Self-Determination Act of 1996 
(25 U.S.C. 4101 et seq.), Alaskan Native Village, or Native Hawaiian 
Home Land;
    (v) The project is located in an area and involves a property 
eligible for a Brownfield Tax Credit;
    (vi) The project is located in an area affected by a military base 
closing and is a ``community in the vicinity of the installation'' as 
defined by the Department of Defense at 32 CFR part 176;
    (vii) The project is located in a designated community under the 
Community Adjustment and Investment Program as defined under 22 U.S.C. 
290m-2;
    (viii) The project is located in a Federally declared disaster area; 
or
    (ix) The project is located in a state declared disaster area, or 
other area that qualifies for assistance under another Federal or State 
targeted economic development program, approved by the Finance Board.
    (2) Individual Beneficiaries:
    (i) The annual salaries for at least 51% of the permanent full- and 
part-time jobs, computed on a full-time equivalent basis, created or 
retained by the project, other than construction jobs, are at or below 
the targeted income level; or
    (ii) At least 51% of the families who otherwise benefit from (other 
than through employment), or are provided services by, the project have 
incomes at or below the targeted income level.
    (3) Activity Beneficiaries: Projects that qualify as small 
businesses.
    (4) Other Targeted Beneficiaries. A Bank may designate, with the 
prior approval of the Finance Board, other targeted beneficiaries for 
its targeted community lending.
    (5) Only targeted beneficiaries identified in paragraphs (1)(i) 
through (1)(iv), and (2)(i) and (2)(ii) of this definition are eligible 
for CIP advances.
    Targeted community lending means providing financing for economic 
development projects for targeted beneficiaries.
    Targeted income level means:
    (1) For rural areas, incomes at or below 115 percent of the median 
income for the area, as adjusted for family size in accordance with the 
methodology of the applicable area median income standard or, at the 
option of the Bank, for a family of four;
    (2) For urban areas, incomes at or below 100 percent of the median 
income for the area, as adjusted for family size in accordance with the 
methodology of the applicable area median income standard or, at the 
option of the Bank, for a family of four;
    (3) For advances provided under CIP:
    (i) For economic development projects, incomes at or below 80 
percent of the median income for the area; or
    (ii) For housing projects, incomes at or below 115 percent of the 
median income for the area, both as adjusted for family size in 
accordance with the methodology of the applicable area median income 
standard or, at the option of the Bank, for a family of four; or

[[Page 182]]

    (4) For advances or grants provided under any other CICA program 
offered by a Bank, a targeted income level established by the Bank with 
the prior approval of the Finance Board.
    UDF program or Urban Development Funding program means an advance or 
grant program offered by a Bank for targeted community lending in urban 
areas.
    Urban area means:
    (1) A unit of general local government with a population of more 
than 25,000; or
    (2) An unincorporated area within an MSA that does not qualify for 
housing or economic development assistance from the USDA.
    USDA means the United States Department of Agriculture.

[63 FR 65546, Nov. 27, 1998, as amended at 65 FR 8264, Feb. 18, 2000; 65 
FR 44431, July 18, 2000; 66 FR 50295, Oct. 3, 2001. Redesignated and 
amended at 67 FR 12852, Mar. 20, 2002]



Sec. 952.2  Scope.

    Section 10(j)(10) of the Act (12 U.S.C. 1430(j)(10) authorizes the 
Banks to offer Community Investment Cash Advance (CICA) programs. This 
part establishes requirements for all CICA programs offered by a Bank, 
except for a Bank's Affordable Housing Program (AHP), which is governed 
specifically by part 951 of this chapter.

[63 FR 65546, Nov. 27, 1998, as amended at 65 FR 8264, Feb. 18, 2000. 
Redesignated and amended at 67 FR 12852, Mar. 20, 2002]



Sec. 952.3  Purpose.

    The purpose of this part is to identify targeted community lending 
projects that the Banks may support through the establishment of CICA 
programs under section 10(j)(10) of the Act (12 U.S.C. 1430(j)(10)). 
Pursuant to this part, a Bank may offer Rural Development Funding (RDF) 
or Urban Development Funding (UDF) programs, or both, for targeted 
community lending using the targeted beneficiaries or targeted income 
levels specified in Sec. 952.1, without prior Finance Board approval. A 
Bank also may offer other CICA programs for targeted community lending 
using targeted beneficiaries and targeted income levels other than those 
specified in Sec. 952.1, established by the Bank with the prior 
approval of the Finance Board. In addition, a Bank shall offer CICA 
programs under section 10(i) of the Act (12 U.S.C. 1430(i)) (Community 
Investment Program (CIP)) and section 10(j) of the Act (12 U.S.C. 
1430(j)) (Affordable Housing Program (AHP)). A Bank may provide advances 
or grants under its CICA programs except for CIP programs, under which a 
Bank may only provide advances.

[67 FR 12852, Mar. 20, 2002]



Sec. 952.4  Targeted Community Lending Plan

    Each Bank shall develop and adopt an annual Targeted Community 
Lending Plan pursuant to Sec. 944.6 of this chapter.

[63 FR 65546, Nov. 27, 1998, as amended at 65 FR 8264, Feb. 18, 2000; 65 
FR 44431, July 18, 2000]



Sec. 952.5  Community Investment Cash Advance Programs.

    (a) In general. (1) Each Bank shall offer an AHP in accordance with 
part 951 of this chapter.
    (2) Each Bank shall offer a CIP to provide financing for housing 
projects and for eligible targeted community lending at the appropriate 
targeted income levels.
    (3) Each Bank may offer RDF programs or UDF programs, or both, for 
targeted community lending using the targeted beneficiaries or targeted 
income levels specified in Sec. 952.1 of this part, without prior 
Finance Board approval.
    (4) Each Bank may offer CICA programs for targeted community lending 
using targeted beneficiaries and targeted income levels other than those 
specified in Sec. 952.1 of this part, established by the Bank with the 
prior approval of the Finance Board.
    (b) Mixed-use projects. (1) For projects funded under CICA programs 
other than CIP, involving a combination of housing projects and economic 
development projects, only the economic development components of the 
project must meet the appropriate targeted income level for the 
respective CICA program.
    (2) For projects funded under CIP, both the housing and economic 
development components of the project

[[Page 183]]

must meet the appropriate targeted income levels.
    (c) Refinancing. CICA funding other than AHP may be used to 
refinance economic development projects and housing projects, provided 
that any equity proceeds of the refinancing of rental housing and 
manufactured housing parks are used to rehabilitate the projects or to 
preserve affordability for current residents.
    (d) Pricing and Availability of advances--(1) Advances to members. 
For CICA programs other than AHP and CIP, a Bank shall price advances to 
members as provided in Sec. 950.5 of this chapter, and may price such 
advances at rates below the price of advances of similar amounts, 
maturities and terms made pursuant to section 10(a) of the Act. (12 
U.S.C. 1430(a)).
    (2) Pricing of CIP advances. The price of advances made under CIP 
shall not exceed the Bank's cost of issuing consolidated obligations of 
comparable maturity, taking into account reasonable administrative 
costs.
    (3) Pricing of AHP advances. A Bank shall price advances made under 
AHP in accordance with parts 950 and 951 of this chapter.
    (4) Advances to housing associate borrowers. (i) A Bank may offer 
advances under CICA programs to housing associate borrowers at the 
Bank's option, except for AHP and CIP, which are available only to 
members.
    (ii) A Bank shall price advances to housing associate borrowers as 
provided in Sec. 950.17 of this chapter, and may price such advances at 
rates below the price of advances of similar amounts, maturities and 
terms made pursuant to section 10b of the Act. (12 U.S.C. 1430b).
    (5) Pricing pass-through. A Bank may require that borrowers 
receiving advances made under CICA programs pass through the benefit of 
any price reduction from regular advance pricing to their borrowers.
    (6) Discount Fund. (i) A Bank may establish a Discount Fund which 
the Bank may use to reduce the price of CIP or other advances made under 
CICA programs below the advance prices provided for by this part.
    (ii) Price reductions made through the Discount Fund shall be made 
in accordance with a fair distribution scheme.

[63 FR 65546, Nov. 27, 1998, as amended at 65 FR 8264, Feb. 18, 2000; 65 
FR 44431, July 18, 2000; 66 FR 50296, Oct. 3, 2001; 67 FR 12852, Mar. 
20, 2002]



Sec. 952.6  Reporting.

    (a) By July 1, 1999, each Bank shall provide to the Finance Board an 
initial assessment of the credit needs and market opportunities in a 
Bank's district for targeted community lending.
    (b) Effective in 2000, each Bank annually shall provide to the 
Finance Board, on or before January 31, a Targeted Community Lending 
Plan.
    (c) Each Bank shall provide such other reports concerning its CICA 
programs as the Finance Board may request from time to time.

[63 FR 65546, Nov. 27, 1998. Redesignated at 65 FR 8256, Feb. 18, 2000, 
as amended at 65 FR 44431, July 18, 2000]



Sec. 952.7  Documentation.

    (a) A Bank shall require the borrower to certify to the Bank that 
each project funded under a CICA program (other than AHP) meets the 
respective targeting requirements of the CICA program. Such 
certification shall include a description of how the project meets the 
requirements, and where appropriate, a statistical summary or list of 
incomes of the borrowers, rents for the project, or salaries of jobs 
created or retained.
    (b) For those CICA-funded projects that also receive funds from 
another targeted Federal economic development program that has income 
targeting requirements that are the same as, or more restrictive than, 
the targeting requirements of the applicable CICA program, the Bank 
shall permit the borrower to certify that compliance with the criteria 
of such Federal economic development program will meet the requirements 
of the respective CICA program.
    (c) Such certifications shall satisfy the Bank's obligations to 
document compliance with the CICA funding provisions of this part.

[63 FR 65546, Nov. 27, 1998. Redesignated at 65 FR 8256, Feb. 18, 2000, 
as amended at 66 FR 50296, Oct. 3, 2001]

[[Page 184]]



PART 955_ACQUIRED MEMBER ASSETS--Table of Contents




Sec.
955.1 Definitions.
955.2 Authorization to hold acquired member assets.
955.3 Required credit-risk sharing structure.
955.4 Reporting requirements for acquired member assets.
955.5 Administrative and investment transactions between Banks.
955.6 Risk-based capital requirement for acquired member assets.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1430, 1430b, 1431.

    Source: 65 FR 43981, July 17, 2000, unless otherwise noted.



Sec. 955.1  Definitions.

    As used in this part:
    Affiliate means any business entity that controls, is controlled by, 
or is under common control with, a member.
    Expected losses means the base loss scenario in the methodology of 
an NRSRO applicable to that type of AMA asset.
    Residential real property has the meaning set forth in Sec. 950.1 
of this chapter.

[67 FR 12852, Mar. 20, 2002]



Sec. 955.2  Authorization to hold acquired member assets.

    Subject to the requirements of part 980 of this chapter, each Bank 
may hold assets acquired from or through Bank System members or housing 
associates by means of either a purchase or a funding transaction (AMA), 
subject to each of the following requirements:
    (a) Loan type requirement. The assets are either:
    (1) Whole loans that are eligible to secure advances under 
Sec. Sec. 950.7(a)(1)(i), (a)(2)(ii), (a)(4), or (b)(1) of this 
chapter, excluding:
    (i) Single-family mortgages where the loan amount exceeds the limits 
established pursuant to 12 U.S.C. 1717(b)(2); and
    (ii) Loans made to an entity, or secured by property, not located in 
a state;
    (2) Whole loans secured by manufactured housing, regardless of 
whether such housing qualifies as residential real property; or
    (3) State and local housing finance agency bonds;
    (b) Member or housing associate nexus requirement. The assets are:
    (1) Either:
    (i) Originated or issued by, through, or on behalf of a Bank System 
member or housing associate, or an affiliate thereof; or
    (ii) Held for a valid business purpose by a Bank System member or 
housing associate, or an affiliate thereof, prior to acquisition by a 
Bank; and
    (2) Acquired either:
    (i) From a member or housing associate of the acquiring Bank;
    (ii) From a member or housing associate of another Bank, pursuant to 
an arrangement with that Bank, which, in the case of state and local 
finance agency bonds only, may be reached in accordance with the 
following process:
    (A) The housing finance agency shall first offer the Bank in whose 
district the agency is located (local Bank) a right of first refusal to 
purchase, or negotiate the terms of, its proposed bond offering;
    (B) If the local Bank indicates, within a three day period, that it 
will negotiate in good faith to purchase the bonds, the agency may not 
offer to sell or negotiate the terms of a purchase with another Bank; 
and
    (C) If the local Bank declines the offer, or has failed to respond 
within the three day period, the acquiring Bank will be considered to 
have an arrangement with the local Bank for purposes of this section and 
may offer to buy or negotiate the terms of a bond sale with the agency;
    (iii) From another Bank; and
    (c) Credit risk-sharing requirement. The transactions through which 
the Bank acquires the assets either:
    (1) Meet the credit risk-sharing requirements of Sec. 955.3 of this 
part; or
    (2) Were authorized by the Finance Board under section II.B.12 of 
the FMP and are within any total dollar cap established by the Finance 
Board at the time of such authorization.

[[Page 185]]



Sec. 955.3  Required credit risk-sharing structure.

    (a) Determination of necessary credit enhancement. 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, a Bank shall determine the total credit enhancement necessary 
to enhance the 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 such higher credit rating as the Bank 
may require. The Bank shall make this determination for each AMA product 
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.
    (b) Credit risk-sharing structure. A Bank acquiring AMA shall 
implement, and have in place at all times, a credit risk-sharing 
structure for each AMA product under which a member or housing associate 
of the Bank or, with the approval of both Banks, a member or housing 
associate of another Bank, provides a sufficient credit enhancement from 
the first dollar of credit loss for each asset or pool of assets such 
that the acquiring Bank's exposure to credit risk for the life of the 
asset or pool of assets is no greater than that of an asset rated in the 
fourth highest credit rating category, as determined pursuant to 
paragraph (a) of this section, or such higher rating as the acquiring 
Bank may require. This credit enhancement structure shall meet the 
following requirements:
    (1) A portion of the credit enhancement may be provided by:
    (i) Contracting with an insurance affiliate of that member or 
housing associate to provide an enhancement or undertaking against 
losses to the Bank, but only where such insurance is positioned in the 
credit enhancement structure so as to cover only losses remaining after 
the member or housing associate has borne losses as required under 
paragraph (b)(2) of this section;
    (ii) Purchasing loan-level insurance, which may include United 
States government insurance or guarantee, but only where:
    (A) The member or housing associate is legally obligated at all 
times to maintain such insurance with an insurer rated not lower than 
the second highest credit rating category; and
    (B) Such insurance is positioned in the credit enhancement structure 
so as to cover only losses remaining after the member or housing 
associate has borne losses as required under paragraph (b)(2) of this 
section;
    (iii) Purchasing pool-level insurance, but only where such 
insurance:
    (A) Insures that portion of the required credit enhancement 
attributable to the geographic concentration and size of the pool; and
    (B) Is positioned last in the credit enhancement structure so as to 
cover only those losses remaining after all other elements of the credit 
enhancement structure have been exhausted; or
    (iv) Contracting 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 an enhancement or undertaking 
against losses to the Bank in return for some compensation;
    (2) The member or housing associate that is providing the credit 
enhancement required under paragraph (b)(1) of this section shall in all 
cases bear the direct economic consequences of actual credit losses on 
the asset or pool of assets:
    (i) From the first dollar of loss up to the amount of expected 
losses; or
    (ii) Immediately following expected losses, but in an amount equal 
to or exceeding the amount of expected losses;
    (3) The portion of the credit enhancement that is an obligation of a 
Bank System member or housing associate shall be fully secured; and
    (4) The Bank shall obtain written verification from an NRSRO that 
concludes to the satisfaction of the Finance Board, based on the 
underlying economic terms of the credit enhancement structure as 
represented by the Bank for each AMA product, that either:
    (i) 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

[[Page 186]]

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; or
    (ii) 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.
    (c) Timing of NRSRO opinions. For AMA programs already in operation 
at the time of the effective date of this rule, a Bank shall have 90 
days from the effective date of this rule to obtain the NRSRO 
verifications required under paragraphs (a) and (b)(4) of this section.

[65 FR 43981, July 17, 2000, as amended at 67 FR 12852, Mar. 20, 2002]



Sec. 955.4  Reporting requirement for acquired member assets.

    Each Bank shall report information related to AMA in accordance with 
the instructions provided in the Data Reporting Manual issued by the 
Finance Board, as amended from time to time.

[71 FR 35500, June 21, 2006]



Sec. 955.5  Administrative and investment transactions between Banks.

    (a) Delegation of administrative duties. A Bank may delegate the 
administration of an AMA program to another Bank whose administrative 
office has been examined and approved by the Finance Board to process 
AMA transactions. The existence of such a delegation, or the possibility 
that such a delegation may be made, must be disclosed to any potential 
participating member or housing associate as part of any AMA-related 
agreements are signed with that member or housing associate.
    (b) Terminability of Agreements. Any agreement made between two or 
more Banks in connection with any AMA program shall be made terminable 
by either party after a reasonable notice period.
    (c) Delegation of Pricing Authority. A Bank that has delegated its 
AMA pricing function to another Bank shall retain a right to refuse to 
acquire AMA at prices it does not consider appropriate.



Sec. 955.6  Risk-based capital requirement for acquired member assets.

    (a) General. Each Bank shall hold retained earnings plus general 
allowance for losses as support for the credit risk of all AMA estimated 
by the Bank to represent a credit risk that is greater than that of 
comparable instruments that have received the second highest credit 
rating from an NRSRO in an amount equal to or greater than the 
outstanding balance of the assets or pools of assets times a factor 
associated with the putative credit rating of the assets or pools of 
assets as determined by the Finance Board on a case-by-case basis. For 
single-family mortgage assets, the factors are as set forth in Table 1 
of this part.

                                 Table 1
------------------------------------------------------------------------
                                                           Percentage
                                                        applicable to on-
   Putative rating of single-family mortgage assets       balance sheet
                                                        equivalent value
                                                             of AMA
------------------------------------------------------------------------
Third Highest Investment Grade........................              0.90
Fourth Highest Investment Grade.......................              1.50
If Downgraded to Below Investment Grade After
 Acquisition By Bank:
    Highest Below Investment Grade....................              2.25
    Second Highest Below Investment Grade.............              2.60
    All Other Below Investment Grade..................            100.00
------------------------------------------------------------------------

    (b) Recalculation of credit enhancement. 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 
that pool may have occurred.

[[Page 187]]



PART 956_FEDERAL HOME LOAN BANK INVESTMENTS--Table of Contents




Sec.
956.1 Definitions.
956.2 Authorized investments.
956.3 Prohibited investments and prudential rules.
956.4 Risk-based capital requirement for investments.
956.5 Authorization for derivative contracts and other transactions.
956.6 Use of hedging instruments.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1429, 1430, 1430b, 1431, 
1436.

    Source: 65 FR 43985, July 17, 2000, unless otherwise noted.



Sec. 956.1  Definitions.

    As used in this part:
    Deposits in banks or trust companies has the meaning set forth in 
Sec. 965.1 of this chapter.
    Derivative contract means generally a financial contract the value 
of which is derived from the values of one or more underlying assets, 
reference rates, or indices of asset values, or credit-related events. 
Derivative contracts include interest rate, foreign exchange rate, 
equity, precious metals, commodity, and credit contracts, and any other 
instruments that pose similar risks.
    Investment grade means:
    (1) A credit quality rating in one of the four highest credit rating 
categories by an NRSRO and not below the fourth highest credit rating 
category by any NRSRO; or
    (2) If there is no credit quality rating by an NRSRO, a 
determination by a Bank that the issuer, asset or instrument is the 
credit equivalent of investment grade using credit rating standards 
available from an NRSRO or other similar standards.
    Repurchase agreement means an agreement between a seller and a buyer 
whereby the seller agrees to repurchase a security or similar securities 
at an agreed upon price, with or without a stated time for repurchase.

[67 FR 12853, Mar. 20, 2002]



Sec. 956.2  Authorized investments.

    In addition to assets enumerated in parts 950 and 955 of this 
chapter and subject to the applicable limitations set forth in this 
part, in the Financial Management Policy and in part 980 of this 
chapter, each Bank may invest in:
    (a) Obligations of the United States;
    (b) Deposits in banks or trust companies;
    (c) Obligations, participations or other instruments of, or issued 
by, Fannie Mae or Ginnie Mae;
    (d) Mortgages, obligations, or other securities that are, or ever 
have been, sold by Freddie Mac pursuant to section 305 or 306 of the 
Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454 or 1455);
    (e) Stock, obligations, or other securities of any small business 
investment company formed pursuant to 15 U.S.C. 681(d), to the extent 
such investment is made for purposes of aiding members of the Bank; and
    (f) Instruments that the Bank has determined are permissible 
investments for fiduciary or trust funds under the laws of the state in 
which the Bank is located.

[65 FR 43985, July 17, 2000, as amended at 67 FR 12853, Mar. 20, 2002]



Sec. 956.3  Prohibited investments and prudential rules.

    (a) Prohibited investments. A Bank may not invest in:
    (1) Instruments that provide an ownership interest in an entity, 
except for investments described in Sec. Sec. 940.3(e) and (f) of this 
chapter;
    (2) Instruments issued by non-United States entities, except United 
States branches and agency offices of foreign commercial banks;
    (3) Debt instruments that are not rated as investment grade, except:
    (i) Investments described in Sec. 940.3(e) of this chapter;
    (ii) Debt instruments that were downgraded to a below investment 
grade rating after acquisition by the Bank; or
    (4) Whole mortgages or other whole loans, or interests in mortgages 
or loans, except:
    (i) Acquired member assets;
    (ii) Investments described in Sec. 940.3(e) of this chapter;
    (iii) Marketable direct obligations of state, local, or tribal 
government units or agencies, having at least the second highest credit 
rating from an NRSRO,

[[Page 188]]

where the purchase of such obligations by the Bank provides to the 
issuer the customized terms, necessary liquidity, or favorable pricing 
required to generate needed funding for housing or community lending;
    (iv) Mortgage-backed securities, or asset-backed securities 
collateralized by manufactured housing loans or home equity loans, that 
meet the definition of the term ``securities'' under 15 U.S.C. 
77b(a)(1); and
    (v) Loans held or acquired pursuant to section 12(b) of the Act (12 
U.S.C. 1432(b)).
    (b) Foreign currency or commodity positions prohibited. A Bank may 
not take a position in any commodity or foreign currency. A Bank may 
participate in consolidated obligations denominated in a currency other 
than U.S. Dollars or linked to equity or commodity prices, provided that 
the Bank meets the requirements of Sec. 966.8(d) of this chapter, and 
all other applicable requirements related to issuing consolidated 
obligations.

[65 FR 43985, July 17, 2000, as amended at 66 FR 8320, Jan. 30, 2001; 67 
FR 12853, Mar. 20, 2002]



Sec. 956.4  Risk-based capital requirement for investments.

    Each Bank shall hold retained earnings plus general allowance for 
losses as support for the credit risk of all investments that are not 
rated by an NRSRO, or are rated or have a putative rating below the 
second highest credit rating, in an amount equal to or greater than the 
outstanding balance of the investments multiplied by:
    (a) A factor associated with the credit rating of the investments as 
determined by the Finance Board on a case-by-case basis for rated assets 
to be sufficient to raise the credit quality of the asset to the second 
highest credit rating category; and
    (b) 0.08 for assets having neither a putative nor actual rating.

[65 FR 43985, July 17, 2000, as amended at 67 FR 12853, Mar. 20, 2002]



Sec. 956.5  Authorization for derivative contracts and other transactions.

    A Bank may enter into the following types of transactions:
    (a) Derivative contracts;
    (b) Standby letters of credit, pursuant to the requirements of part 
960 of this chapter;
    (c) Forward asset purchases and sales;
    (d) Commitments to make advances; and
    (e) Commitments to make or purchase other loans.

[66 FR 8320, Jan. 30, 2001, as amended at 67 FR 12853, Mar. 20, 2002]



Sec. 956.6  Use of hedging instruments.

    (a) Applicability of GAAP. Derivative instruments that do not 
qualify as hedging instruments pursuant to GAAP may be used only if a 
non-speculative use is documented by the Bank.
    (b) Documentation requirements. (1) Transactions with a single 
counterparty shall be governed by a single master agreement when 
practicable.
    (2) A Bank's agreement with the counterparty for over-the-counter 
derivative contracts shall include:
    (i) A requirement that market value determinations and subsequent 
adjustments of collateral be made at least on a monthly basis;
    (ii) A statement that failure of a counterparty to meet a collateral 
call will result in an early termination event;
    (iii) A description of early termination pricing and methodology, 
with the methodology reflecting a reasonable estimate of the market 
value of the over-the-counter derivative contract at termination 
(standard International Swaps and Derivatives Association, Inc. language 
relative to early termination pricing and methodology may be used to 
satisfy this requirement); and
    (iv) A requirement that the Bank's consent be obtained prior to the 
transfer of an agreement or contract by a counterparty.

[66 FR 8321, Jan. 30, 2001]



PART 960_STANDBY LETTERS OF CREDIT--Table of Contents




Sec.
960.1 Definitions.
960.2 Standby letters of credit on behalf of members.

[[Page 189]]

960.3 Standby letters of credit on behalf of housing associates.
960.4 Obligation to Bank under all standby letters of credit.
960.5 Additional provisions applying to all standby letters of credit.

    Authority: 12 U.S.C. 1422b, 1429, 1430, 1430b, 1431.

    Source: 63 FR 65699, Nov. 30, 1998, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000, and further redesignated at 
67 FR 12853, Mar. 20, 2002.



Sec. 960.1  Definitions.

    As used in this part:
    Applicant means a person or entity at whose request or for whose 
account a standby letter of credit is issued.
    Beneficiary means a person or entity who, under the terms of a 
standby letter of credit, is entitled to have its complying presentation 
honored.
    Confirm means to undertake, at the request or with the consent of 
the issuer, to honor a presentation under a standby letter of credit 
issued by a member or housing associate.
    Document means a draft or other demand, document of title, 
investment security, certificate, invoice, or other record, statement, 
or representation of fact, law, right, or opinion that is presented 
under the terms of a standby letter of credit.
    Investment grade means:
    (1) A credit quality rating in one of the four highest credit rating 
categories by an NRSRO and not below the fourth highest credit rating 
category by any NRSRO; or
    (2) If there is no credit quality rating by an NRSRO, a 
determination by a Bank that the issuer, asset or instrument is the 
credit equivalent of investment grade using credit rating standards 
available from an NRSRO or other similar standards.
    Issuer means a person or entity that issues a standby letter of 
credit.
    Presentation means delivery of a document to an issuer, or an entity 
that has undertaken a confirmation at the request or with the consent of 
the issuer, for the giving of value under a standby letter of credit.
    Residential housing finance means:
    (1) The purchase or funding of ``residential housing finance 
assets,'' as that term is defined in Sec. 950.1 of this chapter; or
    (2) Other activities that support the development or construction of 
residential housing.
    SHFA associate means a housing associate that is a ``state housing 
finance agency,'' as that term is defined in Sec. 926.1 of this 
chapter, and that has met the requirements of Sec. 926.3(b) of this 
chapter.
    Standby letter of credit means a definite undertaking by an issuer 
on behalf of an applicant that represents an obligation to the 
beneficiary, pursuant to a complying presentation: to repay money 
borrowed by, advanced to, or for the account of the applicant; to make 
payment on account of any indebtedness undertaken by the applicant; or 
to make payment on account of any default by the applicant in the 
performance of an obligation. The term standby letter of credit does not 
include a commercial letter of credit, or any short-term self-
liquidating instrument used to finance the movement of goods.

[63 FR 65699, Nov. 30, 1998, as amended at 65 FR 8265, Feb. 18, 2000; 65 
FR 44431, July 18, 2000. Redesignated and amended at 67 FR 12853, Mar. 
20, 2002]



Sec. 960.2  Standby letters of credit on behalf of members.

    (a) Authority and purposes. Each Bank is authorized to issue or 
confirm on behalf of members standby letters of credit that comply with 
the requirements of this part, for any of the following purposes:
    (1) To assist members in facilitating residential housing finance;
    (2) To assist members in facilitating community lending;
    (3) To assist members with asset/liability management; or
    (4) To provide members with liquidity or other funding.
    (b) Fully secured. A Bank, at the time it issues or confirms a 
standby letter of credit on behalf of a member, shall obtain and 
maintain a security interest in collateral that is sufficient to secure 
fully the member's unconditional obligation described in Sec. 
960.4(a)(2) of this part, and that complies with the requirements set 
forth in paragraph (c) of this section.
    (c) Eligible collateral. (1) Any standby letter of credit issued or 
confirmed on behalf of a member may be secured in

[[Page 190]]

accordance with the requirements for advances under Sec. 950.7 of this 
chapter.
    (2) A standby letter of credit issued or confirmed on behalf of a 
member for a purpose described in paragraphs (a)(1) or (a)(2) of this 
section may, in addition to the collateral described in paragraph (c)(1) 
of this section, be secured by obligations of state or local government 
units or agencies rated as investment grade by an NRSRO.

[63 FR 65699, Nov. 30, 1998, as amended at 65 FR 8265, Feb. 18, 2000; 65 
FR 44431, July 18, 2000. Redesignated and amended at 67 FR 12853, Mar. 
20, 2002]



Sec. 960.3  Standby letters of credit on behalf of housing associates.

    (a) Housing associates. Each Bank is authorized to issue or confirm 
on behalf of housing associates standby letters of credit that are fully 
secured by collateral described in Sec. Sec. 950.17(b)(1)(i) or (ii) 
of this chapter, and that otherwise comply with the requirements of this 
part, for any of the following purposes:
    (1) To assist housing associates in facilitating residential housing 
finance;
    (2) To assist housing associates in facilitating community lending;
    (3) To assist housing associates with asset/liability management; or
    (4) To provide housing associates with liquidity or other funding.
    (b) SHFA associates. Each Bank is authorized to issue or confirm on 
behalf of SHFA associates standby letters of credit that are fully 
secured by collateral described in Sec. 950.17(b)(2)(i) (A), (B) or (C) 
of this chapter, and that otherwise comply with the requirements of this 
part, for the purpose of facilitating residential or commercial mortgage 
lending that benefits individuals or families meeting the income 
requirements in section 142(d) or 143(f) of the Internal Revenue Code 
(26 U.S.C. 142(d) or 143(f)).

[63 FR 65699, Nov. 30, 1998, as amended at 65 FR 8265, Feb. 18, 2000; 65 
FR 44431, July 18, 2000]



Sec. 960.4  Obligation to Bank under all standby letters of credit.

    (a) Obligation to reimburse. A Bank may issue or confirm a standby 
letter of credit only on behalf of a member or housing associate that 
has:
    (1) Established with the Bank a cash account pursuant to Sec. Sec. 
950.17(b)(2)(i)(B), 950.17(d), or 969.2 of this chapter; and
    (2) Assumed an unconditional obligation to reimburse the Bank for 
value given by the Bank to the beneficiary under the terms of the 
standby letter of credit by depositing immediately available funds into 
the account described in paragraph (a)(1) of this section not later than 
the date of the Bank's payment of funds to the beneficiary.
    (b) Prompt action to recover funds. If a member or housing associate 
fails to fulfill the obligation described in paragraph (a)(2) of this 
section, the Bank shall take action promptly to recover the funds that 
such member or housing associate is obligated to repay.
    (c) Obligation financed by advance. Notwithstanding the obligations 
and duties of the Bank and its member or housing associate under 
paragraphs (a) and (b) of this section, the Bank may, at its discretion, 
permit such member or housing associate to finance repayment of the 
obligation described in paragraph (a)(2) of this section by receiving an 
advance that complies with sections 10 or 10b of the Act (12 U.S.C. 
1430, 1430(b)) and part 950 of this chapter.

[63 FR 65699, Nov. 30, 1998, as amended at 65 FR 8265, Feb. 18, 2000; 65 
FR 44431, July 18, 2000. Redesignated and amended at 67 FR 12853, Mar. 
20, 2002]



Sec. 960.5  Additional provisions applying to all standby letters of credit.

    (a) Requirements. Each standby letter of credit issued or confirmed 
by a Bank shall:
    (1) Contain a specific expiration date, or be for a specific term; 
and
    (2) Require approval in advance by the Bank of any transfer of the 
standby letter of credit from the original beneficiary to another person 
or entity.
    (b) Additional collateral provisions. (1) A Bank may take such steps 
as it deems necessary to protect its secured position on standby letters 
of credit, including requiring additional collateral, whether or not 
such additional collateral conforms to the requirements of Sec. Sec. 
960.2 or 960.3 of this part.
    (2) Collateral pledged by a member or housing associate to secure a 
letter of

[[Page 191]]

credit issued or confirmed on its behalf by a Bank shall be subject to 
the provisions of Sec. Sec. 950.7(d), 950.7(e), 950.8, 950.9 and 950.10 
of this chapter.

[63 FR 65699, Nov. 30, 1998, as amended at 65 FR 8265, Feb. 18, 2000; 65 
FR 44431, July 18, 2000. Redesignated and amended at 67 FR 12853, Mar. 
20, 2002]

[[Page 192]]



             SUBCHAPTER H_FEDERAL HOME LOAN BANK LIABILITIES





PART 965_SOURCE OF FUNDS--Table of Contents




Sec.
965.1 Definitions.
965.2 Authorized liabilities.
965.3 Liquidity reserves for deposits.

    Authority: 12 U.S.C. 1422a, 1422b, 1431.

    Source: 65 FR 36298, June 7, 2000, unless otherwise noted.



Sec. 965.1  Definitions.

    As used in this part:
    Deposits in banks or trust companies means:
    (1) A deposit in another Bank;
    (2) A demand account in a Federal Reserve Bank;
    (3) A deposit in, or a sale of Federal funds to:
    (i) An insured depository institution, as defined in section 
2(12)(A) of the Act (12 U.S.C. 1422(12)(A)), that is designated by a 
Bank's board of directors;
    (ii) A trust company that is a member of the Federal Reserve System 
or insured by the FDIC, and is designated by a Bank's board of 
directors; or
    (iii) A U.S. branch or agency of a foreign bank, as defined in the 
International Banking Act of 1978, as amended (12 U.S.C. 3101 et seq.), 
that is subject to the supervision of the FRB, and is designated by a 
Bank's board of directors.
    Repurchase agreement means an agreement in which a Bank sells 
securities and simultaneously agrees to repurchase those securities or 
similar securities at an agreed upon price, with or without a stated 
time for repurchase.

[65 FR 36298, June 7, 2000, as amended at 67 FR 12853, Mar. 20, 2002]



Sec. 965.2  Authorized liabilities.

    As a source of funds for business operations, each Bank is 
authorized to incur liabilities by:
    (a) Accepting proceeds from the issuance of consolidated obligations 
issued in accordance with part 966 of this chapter;
    (b) Accepting time or demand deposits from members, other Banks or 
instrumentalities of the United States, and cash accounts from members 
or associates pursuant to Sec. Sec. 969.2, 950.17(b)(2)(i)(B), 
950.17(d) or 960.4(a)(1), or other institutions for which the Bank is 
providing correspondent services pursuant to section 11(e) of the Act 
(12 U.S.C. 1431(e));
    (c) Purchasing Federal funds; and
    (d) Entering into repurchase agreements.

[65 FR 36298, June 7, 2000, as amended at 67 FR 12853, Mar. 20, 2002]



Sec. 965.3  Liquidity reserves for deposits.

    Each Bank shall at all times have at least an amount equal to the 
current deposits received from its members invested in:
    (a) Obligations of the United States;
    (b) Deposits in banks or trust companies; or
    (c) Advances with a maturity of not to exceed five years that are 
made to members in conformity with part 950 of this chapter.



PART 966_CONSOLIDATED OBLIGATIONS--Table of Contents




Sec.
966.1 Definitions.
966.2 Issuance of consolidated obligations.
966.3 Leverage limit and credit rating requirements.
966.4 Form of consolidated obligations.
966.5 Transactions in consolidated obligations.
966.6 Lost, stolen, destroyed, mutilated or defaced consolidated 
          obligations.
966.7 Administrative provision.
966.8 Conditions for issuance of consolidated obligations.
966.9 Joint and several liability.
966.10 Savings clause.

    Authority: 12 U.S.C. 1422a, 1422b, 1431.

    Source: 65 FR 36298, June 7, 2000, unless otherwise noted.



Sec. 966.1  Definitions.

    As used in this part:
    Non-complying Bank means a Bank that has failed to provide the 
liquidity certification as required under Sec. 966.9(b)(1).

[67 FR 12853, Mar. 20, 2002]

[[Page 193]]



Sec. 966.2  Issuance of consolidated obligations.

    (a) Consolidated obligations issued by the Finance Board. The 
Finance Board may issue consolidated obligations under section 11(c) of 
the Act (12 U.S.C. 1431(c)), including the determination of the dates of 
issue, maturities, rates of interest, terms and conditions thereof, and 
the manner in which such consolidated obligations shall be issued. The 
Finance Board in its discretion from time to time may delegate this by 
resolution of the Board of Directors, or may terminate such delegation.
    (b) Consolidated obligations issued by the Banks. (1) Pursuant to 
the Banks' housing finance mission set forth in section 2A(a)(3)(B)(ii) 
of the Act (12 U.S.C. 1422a(a)(3)(B)(ii)), pursuant to the Finance 
Board's duty to ensure that the Banks carry out that mission and remain 
adequately capitalized and able to raise funds in the capital markets 
under section 2A(a)(3)(B)(ii) and (iii) of the Act (12 U.S.C. 
1422a(a)(3)(B)(ii) and (iii)), and subject to the provisions of this 
part and such rules, regulations, terms and conditions as the Finance 
Board may prescribe, the Banks are authorized to issue joint debt under 
section 11(a) of the Act (12 U.S.C. 1431(a)), which shall be called 
consolidated obligations and on which the Banks shall be jointly and 
severally liable under Sec. 966.9 of this part.
    (2) Consolidated obligations shall be issued only through the Office 
of Finance, as agent of the Banks pursuant to this part and part 985 of 
this chapter.
    (3) The authorization contained herein shall be deemed to constitute 
satisfaction of the requirement for Finance Board approval of the 
``terms and conditions'' of the consolidated obligations pursuant to 
section 11(a) of the Act (12 U.S.C. 1431(a)).
    (c) Negative pledge requirement. Each Bank shall at all times 
maintain assets described in paragraphs (c)(1) through (c)(6) of this 
section free from any lien or pledge, in an amount at least equal to a 
pro rata share of the total amount of currently outstanding consolidated 
obligations jointly issued by the Banks pursuant to section 11(a) of the 
Act (12 U.S.C. 1431(a)) and by the Finance Board pursuant to section 
11(c) of the Act (12 U.S.C. 1431(c)) and equal to such Bank's 
participation in all such COs outstanding, provided that any assets that 
are subject to a lien or pledge for the benefit of the holders of any 
issue of consolidated obligations shall be treated as if they were 
assets free from any lien or pledge for purposes of compliance with this 
paragraph (c). Eligible assets are:
    (1) Cash;
    (2) Obligations of or fully guaranteed by the United States;
    (3) Secured advances;
    (4) Mortgages as to which one or more Banks have any guaranty or 
insurance, or commitment therefor, by the United States or any agency 
thereof;
    (5) Investments described in section 16(a) of the Act (12 U.S.C. 
1436(a)); and
    (6) Other securities that have been assigned a rating or assessment 
by an NRSRO that is equivalent to or higher than the rating or 
assessment assigned by that NRSRO to consolidated obligations 
outstanding.

[65 FR 36298, June 7, 2000, as amended at 67 FR 12853, Mar. 20, 2002]



Sec. 966.3  Leverage limit and credit rating requirements.

    (a) Bank leverage. (1) Except as provided in paragraph (a)(2) of 
this section, the total assets of any Bank shall not exceed 21 times the 
total of paid-in capital stock, retained earnings, and reserves 
(excluding loss reserves and liquidity reserves for deposits pursuant to 
section 11(g) of the Act (12 U.S.C. 1431(g)) of that Bank.
    (2) The aggregate amount of assets of any Bank may be up to 25 times 
the total paid-in capital stock, retained earnings, and reserves of that 
Bank, provided that non-mortgage assets, after deducting the amount of 
deposits and capital, do not exceed 11 percent of such total assets. For 
the purposes of this section, the amount of non-mortgage assets equals 
total assets after deduction of:
    (i) Advances;
    (ii) Acquired member assets, including all United States government-
insured or guaranteed whole single-family or multi-family residential 
mortgage loans;

[[Page 194]]

    (iii) Standby letters of credit;
    (iv) Intermediary derivative contracts;
    (v) Debt or equity investments:
    (A) That primarily benefit households having a targeted income 
level, a significant proportion of which must benefit households with 
incomes at or below 80 percent of area median income, or areas targeted 
for redevelopment by local, state, tribal or Federal government 
(including Federal Empowerment Zones and Enterprise and Champion 
Communities), by providing or supporting one or more of the following 
activities:
    (1) Housing;
    (2) Economic development;
    (3) Community services;
    (4) Permanent jobs; or
    (5) Area revitalization or stabilization;
    (B) In the case of mortgage-or asset-backed securities, the 
acquisition of which would expand 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; and
    (C) That involve one or more members or housing associates in a 
manner, financial or otherwise, and to a degree to be determined by the 
Bank;
    (vi) Investments in SBICs, where one or more members or housing 
associates of the Bank also make a material investment in the same 
activity;
    (vii) SBIC debentures, the short term tranche of SBIC securities, or 
other debentures that are guaranteed by the Small Business 
Administration under title III of the Small Business Investment Act of 
1958, as amended (15 U.S.C. 681 et seq);
    (viii) Section 108 Interim Notes and Participation Certificates 
guaranteed by the Department of Housing and Urban Development under 
section 108 of the Housing and Community Development Act of 1974, as 
amended (42 U.S.C. 5308);
    (ix) Investments and obligations issued or guaranteed under the 
Native American Housing Assistance and Self-Determination Act of 1996 
(25 U.S.C. 4101 et seq.).
    (x) Securities representing an interest in pools of mortgages (MBS) 
issued, guaranteed, or fully insured by the Government National Mortgage 
Association (Ginnie Mae), the Federal Home Loan Mortgage Corporation 
(Freddie Mac), or the Federal National Mortgage Association (Fannie 
Mae), or Collateralized Mortgage Obligations (CMOs), including Real 
Estate Mortgage Investment Conduits (REMICs), backed by such securities;
    (xi) Other MBS, CMOs, and REMICs rated in the highest rating 
category by a NRSRO;
    (xii) Asset-backed securities collateralized by manufactured housing 
loans or home equity loans and rated in the highest rating category by a 
NRSRO; and
    (xiii) Marketable direct obligations of state or local government 
units or agencies, rated in one of the two highest rating categories by 
a NRSRO, where the purchase of such obligations by a Bank provides to 
the issuer the customized terms, necessary liquidity, or favorable 
pricing required to generate needed funding for housing or community 
development.
    (b) Credit ratings. (1) The Banks, collectively, shall obtain from 
an NRSRO and, at all times, maintain a current credit rating on the 
Banks' consolidated obligations.
    (2) Each Bank shall operate in such a manner and take any actions 
necessary, including without limitation reducing Bank leverage, to 
ensure that the Banks' consolidated obligations receive and continue to 
receive the highest credit rating from any NRSRO by which the 
consolidated obligations have then been rated.
    (c) Individual Bank credit rating. Each Bank shall operate in such a 
manner and take any actions necessary to ensure that the Bank has and 
maintains an individual issuer credit rating of at least the second 
highest credit rating from any NRSRO providing a rating, where such 
rating is a meaningful measure of the individual Bank's financial 
strength and stability, and is updated at least annually by an NRSRO, or 
more frequently as required by the Finance Board, to reflect any 
material changes in the condition of the Bank.
    (d) Transition provision. Each Bank shall obtain the credit rating 
from an

[[Page 195]]

NRSRO required under paragraph (c) of this section by July 1, 2001.

[65 FR 36298, June 7, 2000, as amended at 67 FR 12853, Mar. 20, 2002; 67 
FR 35715, May 21, 2002]



Sec. 966.4  Form of consolidated obligations.

    (a) All consolidated obligations shall be issued in pari passu.
    (b) Consolidated obligations with maturities of one year or less may 
be designated consolidated notes.



Sec. 966.5  Transactions in consolidated obligations.

    The general regulations of the Department of the Treasury now or 
hereafter in force governing transactions in United States securities, 
except 31 CFR part 357 regarding book-entry procedure, are hereby 
incorporated into this part 966, so far as applicable and as necessarily 
modified to relate to consolidated obligations, as the regulations of 
the Finance Board for similar transactions on consolidated obligations. 
The book-entry procedure for consolidated obligations is contained in 
part 987 of this subchapter.



Sec. 966.6  Lost, stolen, destroyed, mutilated or defaced consolidated obligations.

    United States statutes and regulations of the Department of the 
Treasury now or hereafter in force governing relief on account of the 
loss, theft, destruction, mutilation or defacement of United States 
securities, so far as applicable and as necessarily modified to relate 
to consolidated obligations, are hereby adopted as the regulations of 
the Finance Board for the issuance of substitute consolidated 
obligations or the payment of lost, stolen, destroyed, mutilated or 
defaced consolidated obligations.



Sec. 966.7  Administrative provision.

    The Secretary of the Treasury or the Acting Secretary of the 
Treasury is hereby authorized and empowered, as the agent of the Finance 
Board and the Banks, to administer Sec. Sec. 966.5 and 966.6, and to 
delegate such authority at their discretion to other officers, 
employees, and agents of the Department of the Treasury. Any such 
regulations may be waived on behalf of the Finance Board and the Banks 
by the Secretary of the Treasury, the Acting Secretary of the Treasury, 
or by an officer of the Department of the Treasury authorized to waive 
similar regulations with respect to United States securities, but only 
in any particular case in which a similar regulation with respect to 
United States securities would be waived. The terms ``securities'' and 
``bonds'' as used in this section shall, unless the context otherwise 
requires, include and apply to coupons and interim certificates.



Sec. 966.8  Conditions for issuance of consolidated obligations.

    (a) The Office of Finance board of directors shall authorize the 
offering for current and forward settlement (up to 12 months) or the 
reopening of COs, as necessary, and authorize the maturities, rates of 
interest, terms and conditions thereof, subject to the provisions of 31 
U.S.C. 9108.
    (b) COs may be offered for sale only to the extent that Banks are 
committed to take the proceeds.
    (c) COs shall not be directly placed with any Bank.
    (d) If a Bank participates in any CO denominated in a currency other 
than U.S. Dollars or linked to equity or commodity prices, then the Bank 
shall meet the following requirements:
    (1) The relevant foreign exchange, equity price or commodity price 
risks associated with the CO must be hedged in accordance with Sec. 
956.6 of this chapter;
    (2) If there is a default on the part of a counterparty to a 
contract hedging the foreign exchange, equity or commodity price risk 
associated with a CO, the Bank shall enter into a replacement contract 
in a timely manner and as soon as market conditions permit.

[65 FR 36298, June 7, 2000, as amended at 66 FR 8321, Jan. 30, 2001; 67 
FR 12853, Mar. 20, 2002]



Sec. 966.9  Joint and several liability.

    (a) In general. (1) Each and every Bank, individually and 
collectively, has an obligation to make full and timely payment of all 
principal and interest on consolidated obligations when due.
    (2) Each and every Bank, individually and collectively, shall ensure 
that the

[[Page 196]]

timely payment of principal and interest on all consolidated obligations 
is given priority over, and is paid in full in advance of, any payment 
to or redemption of shares from any shareholder.
    (3) The provisions of this part shall not limit, restrict or 
otherwise diminish, in any manner, the joint and several liability of 
all of the Banks on all of the consolidated obligations issued by the 
Finance Board pursuant to section 11(c) of the Act (12 U.S.C. 1431(c)) 
and by the Banks pursuant to section 11(a) of the Act (12 U.S.C. 
1431(a)).
    (b) Certification and reporting. (1) Before the end of each calendar 
quarter, and before declaring or paying any dividend for that quarter, 
the President of each Bank shall certify in writing to the Finance Board 
that, based on known current facts and financial information, the Bank 
will remain in compliance with the liquidity requirements set forth in 
section 11(g) of the Act (12 U.S.C. 1431(g)), and the Finance Board's 
FMP or any regulations (as the same may be amended, modified or 
replaced), and will remain capable of making full and timely payment of 
all of its current obligations, including direct obligations, coming due 
during the next quarter.
    (2) A Bank shall immediately provide written notice to the Finance 
Board if at any time the Bank:
    (i) Is unable to provide the certification required by paragraph 
(b)(1) of this section;
    (ii) Projects at any time that it will fail to comply with statutory 
or regulatory liquidity requirements, or will be unable to timely and 
fully meet all of its current obligations, including direct obligations, 
due during the quarter;
    (iii) Actually fails to comply with statutory or regulatory 
liquidity requirements or to timely and fully meet all of its current 
obligations, including direct obligations, due during the quarter; or
    (iv) Negotiates to enter or enters into an agreement with one or 
more other Banks to obtain financial assistance to meet its current 
obligations, including direct obligations, due during the quarter; the 
notice of which shall be accompanied by a copy of the agreement, which 
shall be subject to the approval of the Finance Board.
    (c) Consolidated obligation payment plans. (1) A Bank promptly shall 
file a consolidated obligation payment plan for Finance Board approval:
    (i) If the Bank becomes a non-complying Bank as a result of failing 
to provide the certification required in paragraph (b)(1) of this 
section;
    (ii) If the Bank becomes a non-complying Bank as a result of being 
required to provide the notice required pursuant to paragraph (b)(2) of 
this section, except in the event that a failure to make a principal or 
interest payment on a consolidated obligation when due was caused solely 
by a temporary interruption in the Bank's debt servicing operations 
resulting from an external event such as a natural disaster or a power 
failure; or
    (iii) If the Finance Board determines that the Bank will cease to be 
in compliance with the statutory or regulatory liquidity requirements, 
or will lack the capacity to timely and fully meet all of its current 
obligations, including direct obligations, due during the quarter.
    (2) A consolidated obligation payment plan shall specify the 
measures the non-complying Bank will undertake to make full and timely 
payments of all of its current obligations, including direct 
obligations, due during the applicable quarter.
    (3) A non-complying Bank may continue to incur and pay normal 
operating expenses incurred in the regular course of business (including 
salaries, benefits, or costs of office space, equipment and related 
expenses), but shall not incur or pay any extraordinary expenses, or 
declare, or pay dividends, or redeem any capital stock, until such time 
as the Finance Board has approved the Bank's consolidated obligation 
payment plan or inter-Bank assistance agreement, or ordered another 
remedy, and all of the non-complying Bank's direct obligations have been 
paid.
    (d) Finance Board payment orders; Obligation to reimburse. (1) The 
Finance Board, in its discretion and notwithstanding any other provision 
in this section, may at any time order any Bank to make any principal or 
interest

[[Page 197]]

payment due on any consolidated obligation.
    (2) To the extent that a Bank makes any payment on any consolidated 
obligation on behalf of another Bank, the paying Bank shall be entitled 
to reimbursement from the non-complying Bank, which shall have a 
corresponding obligation to reimburse the Bank providing assistance, to 
the extent of such payment and other associated costs (including 
interest to be determined by the Finance Board).
    (e) Adjustment of equities. (1) Any non-complying Bank shall apply 
its assets to fulfill its direct obligations.
    (2) If a Bank is required to meet, or otherwise meets, the direct 
obligations of another Bank due to a temporary interruption in the 
latter Bank's debt servicing operations (e.g., in the event of a natural 
disaster or power failure), the assisting Bank shall have the same right 
to reimbursement set forth in paragraph (d)(2) of this section.
    (3) If the Finance Board determines that the assets of a non-
complying Bank are insufficient to satisfy all of its direct obligations 
as set forth in paragraph (e)(1) of this section, then the Finance Board 
may allocate the outstanding liability among the remaining Banks on a 
pro rata basis in proportion to each Bank's participation in all 
consolidated obligations outstanding as of the end of the most recent 
month for which the Finance Board has data, or otherwise as the Finance 
Board may prescribe.
    (f) Reservation of authority. Nothing in this section shall affect 
the Finance Board's authority to adjust equities between the Banks in a 
manner different than the manner described in paragraph (e) of this 
section, or to take enforcement or other action against any Bank 
pursuant to the Finance Board's authority under the Act or otherwise to 
supervise the Banks and ensure that they are operated in a safe and 
sound manner.
    (g) No rights created. (1) Nothing in this part shall create or be 
deemed to create any rights in any third party.
    (2) Payments made by a Bank toward the direct obligations of another 
Bank are made for the sole purpose of discharging the joint and several 
liability of the Banks on consolidated obligations.
    (3) Compliance, or the failure to comply, with any provision in this 
section shall not be deemed a default under the terms and conditions of 
the consolidated obligations.



Sec. 966.10  Savings clause.

    Any agreements or other instruments entered into in connection with 
the issuance of COs prior to the amendments made to this part shall 
continue in effect with respect to all COs issued under the authority of 
section 11 of the Act (12 U.S.C. 1431) and pursuant to this part. 
References to consolidated obligations in such agreements and 
instruments shall be deemed to refer to all joint and several 
obligations of the Banks.

[65 FR 36298, June 7, 2000, as amended at 67 FR 12854, Mar. 20, 2002]



PART 969_DEPOSITS--Table of Contents




Sec.
969.1 Definitions. [Reserved]
969.2 Deposits from members.

    Authority: 12 U.S.C. 1422b(a)(1), 1431.

    Source: 65 FR 8266, Feb 18, 2000, unless otherwise noted.



Sec. 969.1  Definitions. [Reserved]



Sec. 969.2  Deposits from members.

    Banks may accept demand and time deposits from members, reserving 
the right to require notice of intention to withdraw any part of time 
deposits. Rates of interest paid on all deposits shall be set by the 
Bank's board of directors (or, between regular meetings thereof, by a 
committee of directors selected by the board) or by the Bank President, 
if so authorized by the board. Unless otherwise specified by the board, 
a Bank President may delegate to any officer or employee of the Bank any 
authority he possesses under this section.

[[Page 198]]



    SUBCHAPTER I_MISCELLANEOUS FEDERAL HOME LOAN BANK OPERATIONS AND 
                               AUTHORITIES





PART 975_COLLECTION, SETTLEMENT, AND PROCESSING OF PAYMENT INSTRUMENTS--Table of Contents




Sec.
975.1 Definitions.
975.2 Authority and scope.
975.3 General provisions.
975.4 Incidental powers.
975.5 Operations.
975.6 Pricing of services.
975.7 Rights, powers, responsibilities, duties, and liabilities.

    Authority: 12 U.S.C. 1430, 1431.

    Source: 45 FR 64164, Sept. 29, 1980, unless otherwise noted. 
Redesignated at 54 FR 36759, Sept. 5, 1989, and further redesignated at 
65 FR 8256, Feb. 18, 2000.



Sec. 975.1  Definitions.

    (a) Unless otherwise defined in this part, the terms used in this 
part shall conform, in the following order, to: Regulations of the 
Finance Board, the Uniform Commercial Code, regulations of the Federal 
Reserve System, and general banking usage.
    (b) As used in this part:
    Account processing includes charging, crediting, and settling of 
member or eligible institution accounts, excluding individual customer 
accounts.
    Assets includes furniture and equipment, leasehold improvements, and 
capitalized start-up costs.
    Data communication means transmitting and receiving of data to or 
from Banks, Federal Reserve offices, clearinghouse associations, 
depository institutions or their service bureaus, and other direct 
sending entities, arrangement for delivery of information; and telephone 
inquiry service.
    Data processing includes capture, storage, and assembling of, and 
computation of, data from payment instruments received from Federal 
Reserve offices, Banks, clearinghouse associations, depository 
institutions, and other direct lending entities.
    Eligible institution means any institution that is eligible to make 
application to become a member of a Bank under section 4 of the Act (12 
U.S.C. 1424), including any building and loan association, savings and 
loan association, cooperative bank, homestead association, insurance 
company, savings bank, or any insured depository institution (as defined 
in section 2(12) of the Act (12 U.S.C. 1422(12))), regardless of whether 
the institution applies for or would be approved for membership.
    Issuance of forms means the designation and distribution of 
standardized forms for use in collection, processing, and settlement 
services.
    Presentment means a demand for acceptance or payment made upon the 
maker, acceptor, drawee or other payor by or on behalf of the holder, 
and may involve the use of electronic transmission of an instrument or 
item or transmission of data from the instrument or item by electronic 
or mechanical means.
    Statement packaging includes receiving statement information from 
members or eligible institutions or their service bureaus on respective 
customer cycle dates; printing statements; matching customer account 
statements; packaging the statements with appropriate items and 
informational materials, as authorized by individual members and 
eligible institutions, for distribution to their customers; sending the 
packages to the members or eligible institutions or mailing the packages 
directly to their customers.
    Storage services includes filing, storage, and truncation of items.
    Transportation of items includes transporting items from Federal 
Reserve offices, other Banks' clearinghouse associations, depository 
institutions, and other direct sending entities to a Bank; forwarding 
items to financial institutions after sorting and forwarding cash items 
or return items to Federal Reserve offices and other sending entities.

[67 FR 12854, Mar. 20, 2002]



Sec. 975.2  Authority and scope.

    (a) Pursuant to section 11(e)(2) of the Act (12 U.S.C. 1431(e)(2)) , 
the Finance Board has promulgated this part governing the collection, 
processing, and settlement, and services incidental

[[Page 199]]

thereto, of drafts, checks, and other negotiable and nonnegotiable items 
and instruments by Banks. Settlement, collection, and processing include 
the following activities as defined in this part: Account processing, 
data processing, data communication, issuance of forms, transportation 
of items, and storage services.
    (b) Any activity authorized by section 11(e)(2) of the Act (12 
U.S.C. 1431(e)(2)) shall be governed by the provisions of this part.

[45 FR 64164, Sept. 5, 1989, as amended at 65 FR 8266, Feb. 18, 2000. 
Redesignated and amended at 67 FR 12854, Mar. 20, 2002]



Sec. 975.3  General provisions.

    The Banks are authorized to:
    (a) Engage in, be agents or intermediaries for, or otherwise 
participate or assist in, the processing, collection, and settlement of 
checks, drafts, or any other negotiable or nonnegotiable items and 
instruments of payment drawn on eligible institutions or Bank members; 
and
    (b) Be drawees of checks, drafts, and other negotiable and 
nonnegotiable items and instruments issued by eligible institutions or 
Bank members.

[67 FR 12854, Mar. 20, 2002]



Sec. 975.4  Incidental powers.

    In connection with the collection, processing, and settlement of 
items and instruments drawn on or issued by eligible institutions or 
Bank members, a Bank may also perform the following services:
    (a) Statement packaging; and
    (b) Any other activity that the Finance Board shall, from time to 
time, after notice and comment, find necessary for the exercise of the 
authority of this part.

[45 FR 64164, Sept. 29, 1980, as amended at 55 FR 2231, Jan. 23, 1990; 
65 FR 8266, Feb. 18, 2000; 67 FR 12854, Mar. 20, 2002]



Sec. 975.5  Operations.

    A Bank may utilize the services of a Federal Reserve Bank and may 
become a member or use the services of a clearinghouse, public or 
private financial institution, or agency in the exercise of any powers 
or functions under this part.

[45 FR 64164, Sept. 5, 1989, as amended at 65 FR 8266, Feb. 18, 2000]



Sec. 975.6  Pricing of services.

    (a) General. Banks shall charge for services authorized in this part 
in a manner consistent with the principles of section 11(A)(c) of the 
Federal Reserve Act (12 U.S.C. 248a(c)), as interpreted by this part.
    (b) Payment instrument account services. (1) In determining the fees 
for services provided under this part, a Bank must take into account all 
direct and indirect costs of providing the services.
    (2) Prices must reflect the imputed rate of return that would have 
been earned and the taxes that would have been paid if the Bank were a 
private corporation, by using a cost of capital adjustment factor 
applied to those assets used in providing services authorized under this 
part.
    (c) Review and publication. The Finance Board shall from time to 
time and at least annually review the cost of capital adjustment factor 
and review prices for services authorized in this part for compliance 
with the principles set forth in paragraphs (a) and (b) of this section. 
All prices for Bank services authorized in this part will be published 
annually in the Federal Register, except those for fees charged to an 
applicant for draws made by a beneficiary under a standby letter of 
credit.

(12 U.S.C. 1431(e); Reorg. Plan No. 3 of 1947, 12 FR 4981, 3 CFR, 1943-
48 Comp., p. 1071)

[45 FR 64164, Sept. 29, 1980, as amended at 46 FR 38900, July 30, 1981. 
Redesignated at 54 FR 36759, Sept. 5, 1989, and amended at 58 FR 59936, 
Nov. 12, 1993; 60 FR 57682, Nov. 17, 1995; 63 FR 65700, Nov. 30, 1998; 
65 FR 8266, Feb. 18, 2000]



Sec. 975.7  Rights, powers, responsibilities, duties, and liabilities.

    To the extent it is not inconsistent with other provisions of this 
part, the Uniform Commercial Code governs the rights, powers, 
responsibilities, duties, and liabilities of Banks in the exercise of 
their authority under this part. For purposes of this paragraph, the 
term ``bank,'' as used in the Uniform Commercial Code and clearinghouse 
rules,

[[Page 200]]

includes Banks and their members and eligible institutions.

[45 FR 64164, Sept. 5, 1989, as amended at 65 FR 8266, Feb. 18, 2000]



PART 977_MISCELLANEOUS BANK AUTHORITIES--Table of Contents




Sec.
977.1 Definitions. [Reserved]
977.2 Transfer of funds between Banks.
977.3 Trustee powers.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a)(1), 1431(a), 1431(e), 
1432(a).

    Source: 65 FR 8266, Feb. 18, 2000, unless otherwise noted.



Sec. 977.1  Definitions. [Reserved]



Sec. 977.2  Transfer of funds between Banks.

    Inter-Bank borrowing shall be through unsecured deposits bearing 
interest at rates negotiated between Banks.



Sec. 977.3  Trustee powers.

    A Bank may act, and make reasonable charges for doing so, as trustee 
of any trust affecting the business of any member or any institution or 
group applying for membership or for insurance of accounts, or any group 
applying for a charter for a Federal Savings Association, if:
    (a) Such trust is created or arises for the benefit of the 
institution or its depositors, investors, or borrowers, or for the 
promotion of sound and economical home financing; and
    (b) In the case of applicants, the Bank ceases to act as trustee if 
the application is withdrawn or rejected.



PART 978_BANK REQUESTS FOR INFORMATION--Table of Contents




Sec.
978.1 Definitions.
978.2 Scope.
978.3 Request for confidential information.
978.4 Form of request.
978.5 Storage of confidential information.
978.6 Access to confidential information.
978.7 Third party requests for confidential information.
978.8 Computer data.

    Authority: 12 U.S.C. 1422b(a), 1442.

    Source: 65 FR 8266, Feb. 18, 2000, unless otherwise noted.



Sec. 978.1  Definitions.

    As used in this part:
    Confidential information means any record, data, or report, 
including but not limited to examination reports, or any part thereof, 
that is non-public, privileged or otherwise not intended for public 
disclosure which is in the possession or control of a financial 
regulatory agency and which contains information regarding members of a 
Bank or financial institutions with which a Bank has had or contemplates 
having transactions under the Act.
    Financial regulatory agency means any of the following:
    (1) The Department of the Treasury, including either the OCC or the 
OTS;
    (2) The FRB;
    (3) The NCUA; or
    (4) The FDIC.
    Third party means any person or entity except a director, officer, 
employee or agent of either:
    (1) A Bank in possession of any particular confidential information; 
or
    (2) The financial regulatory agency that supplied the particular 
confidential information to such Bank.

[65 FR 8266, Feb. 18, 2000, as amended at 67 FR 12854, Mar. 20, 2002]



Sec. 978.2  Scope.

    This part governs the procedure by which a Bank will request and 
receive confidential information pursuant to section 22 of the Act (12 
U.S.C. 1442).

[65 FR 8266, Feb. 18, 2000, as amended at 67 FR 12854, Mar. 20, 2002]



Sec. 978.3  Request for confidential information.

    A Bank shall make all requests for confidential information to a 
financial regulatory agency, or to a regional office of such agency if 
mutually agreeable, in accordance with the procedures contained in this 
part as well as any procedures of general applicability for requesting 
information promulgated by such financial regulatory agency. This part 
and its procedures may be supplemented by a confidentiality agreement 
between a Bank and a financial regulatory agency.

[[Page 201]]



Sec. 978.4  Form of request.

    A request by a Bank to a financial regulatory agency for 
confidential information shall be made in writing or by such other means 
as may be agreed upon between the Bank and the financial regulatory 
agency. The request shall reference section 22 of the Act (12 U.S.C. 
1442), as amended, and this regulation, and shall describe the 
confidential information requested and identify its intended use 
pursuant to the Act. The request shall be signed or otherwise made by 
any duly authorized Bank officer or employee.

[65 FR 8266, Feb. 18, 2000, as amended at 67 FR 12854, Mar. 20, 2002]



Sec. 978.5  Storage of confidential information.

    Each Bank shall:
    (a) Store all identified confidential information in secure storage 
areas or filing cabinets or other secured facilities generally used by 
such Bank and limit access thereto in the same manner as it maintains 
the confidentiality of its own members' privileged or non-public 
information;
    (b) Have in place a written set of procedures and policies designed 
to ensure the confidentiality of confidential information in its 
possession; and
    (c) Establish an internal review of its procedures for storing 
confidential information and maintaining its confidentiality, as a part 
of its internal audit process.



Sec. 978.6  Access to confidential information.

    Each Bank shall ensure that access to the confidential information 
stored at its facility is limited to those with a need to know such 
information and that employees with access maintain the confidentiality 
of the confidential information in accordance with the Bank's own 
procedures for maintaining the confidentiality of its members' 
privileged or non-public information.



Sec. 978.7  Third party requests for confidential information.

    (a) General. In the event a Bank receives a request for confidential 
information in its possession from any third party, the Bank shall 
forward such request to the financial regulatory agency from which the 
confidential information was obtained.
    (b) Subpoena. In the event a Bank receives a subpoena for 
confidential information issued by a Federal, state or local government 
department, agency, court or bureau, the Bank shall give timely written 
notice of such subpoena to the financial regulatory agency from which 
the confidential information was obtained, unless such notice is 
prohibited by applicable law. Except as limited in this part, the Bank 
may disclose confidential information pursuant to the subpoena, after 
giving timely written notice, when:
    (1) The financial regulatory agency gives written approval to the 
disclosure; or
    (2) A binding order to produce the confidential information has 
become final with all rights of appeal either exhausted or lapsed.
    (c) Nondisclosure to third parties. Except as provided in paragraph 
(b) of this section, a Bank shall not disclose confidential information 
to any third party. A Bank shall refer all third party requests for such 
confidential information to the financial regulatory agency that 
released the confidential information to the Bank.
    (d) Disclosure to Finance Board. (1) Neither this part nor any 
confidentiality agreement executed between a Bank and a financial 
regulatory agency shall prevent a Bank from disclosing confidential 
information in its possession to the Finance Board whenever disclosure 
is necessary to accomplish the Finance Board's supervision of Bank 
membership applications or Bank director eligibility issues, or 
disclosing any confidential information in its possession if such 
disclosure is made pursuant to an audit conducted pursuant to Sec. 
978.5 or section 20 of the Act (12 U.S.C. 1440).
    (2) The Finance Board shall keep all confidential information 
received under paragraph (d) of this section in strict confidence.

[65 FR 8266, Feb. 18, 2000, as amended at 67 FR 12854, Mar. 20, 2002]

[[Page 202]]



Sec. 978.8  Computer data.

    Nothing in this part shall preclude a Bank from arranging with any 
financial regulatory agency to transmit or allow access to confidential 
information with the consent of such agency by means of an electronic 
computer system. Any such arrangement shall ensure the security of the 
computerized data stored in a Bank's computer and restrict access to 
such data in order to preserve confidentiality in a manner agreed upon 
by the Bank and the financial regulatory agency.

[[Page 203]]



           SUBCHAPTER J_NEW FEDERAL HOME LOAN BANK ACTIVITIES





PART 980_NEW BUSINESS ACTIVITIES--Table of Contents




Sec.
980.1 Definitions.
980.2 Limitation on Bank authority to undertake new business activities.
980.3 New business activity notice requirement.
980.4 Commencement of new business activities.
980.5 Notice by the Finance Board.
980.6 Finance Board consent.
980.7 Examinations; requests for additional information.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a), 1431(a), 1432(a).

    Source: 65 FR 44431, July 18, 2000, unless otherwise noted.



Sec. 980.1  Definitions.

    As used in this part:
    New business activity means any business activity undertaken, 
transacted, conducted, or engaged in by a Bank that has not been 
previously undertaken, transacted, conducted, or engaged in by that 
Bank, or was previously undertaken, transacted, conducted, or engaged in 
under materially different terms and conditions, such that it:
    (1) Involves the acceptance of collateral enumerated under Sec. 
950.7(a)(4) of this chapter;
    (2) Involves the acceptance of classes of collateral enumerated 
under Sec. 950.7(b) of this chapter for the first time;
    (3) Entails risks not previously and regularly managed by that Bank, 
its members, or both, as appropriate; or
    (4) Involves operations not previously undertaken by that Bank.



Sec. 980.2  Limitation on Bank authority to undertake new business activities.

    No Bank shall undertake any new business activity except in 
accordance with the procedures set forth in this part.



Sec. 980.3  New business activity notice requirement.

    At least sixty days prior to undertaking a new business activity, 
except as provided in Sec. 980.4(b), a Bank shall submit to the Finance 
Board a written notice containing the following information:
    (a) General requirements. Except as provided in paragraph (b) of 
this section, a Bank's notice of new business activity shall include:
    (1) An opinion of counsel citing the statutory, regulatory, or other 
legal authority for the new business activity;
    (2) A good faith estimate of the anticipated dollar volume of the 
activity over the short-and long-term;
    (3) A full description of:
    (i) The purpose and operation of the proposed activity;
    (ii) The market targeted by the activity;
    (iii) The delivery system for the activity; and
    (iv) The effect of the activity on the housing, or relevant 
community lending, market;
    (4) A demonstration of the Bank's capacity, through staff, or 
contractors employed by the Bank, sufficiency of experience and 
expertise, to safely administer and manage the risks associated with the 
new activity;
    (5) An assessment of the risks associated with the activity, 
including the Bank's ability to manage these risks and the Bank's 
ability to manage the risks associated with increasing volumes of the 
new activity; and
    (6) The criteria that the Bank will use to determine the eligibility 
of its members or housing associates to participate in the new activity.
    (b) New collateral activities. If a proposed new business activity 
relates to the acceptance of collateral under Sec. 950.7 of this 
chapter, a Bank's notice of new business activity shall include:
    (1) A description of the classes or amounts of collateral proposed 
to be accepted by the Bank;

[[Page 204]]

    (2) A copy of the Bank's member products policy, adopted pursuant to 
Sec. 917.4 of this chapter;
    (3) A copy of the Bank's procedures for determining the value of the 
collateral in question, established pursuant to Sec. 950.10 of this 
chapter; and
    (4) A demonstration of the Bank's capacity, personnel, technology, 
experience and expertise to value, discount and manage the risks 
associated with the collateral in question.

[65 FR 44431, July 18, 2000, as amended at 67 FR 12854, Mar. 20, 2002]



Sec. 980.4  Commencement of new business activities.

    A Bank may commence a new business activity:
    (a) Sixty days after receipt by the Finance Board of the notice of 
new business activity under Sec. 980.3, if the Finance Board has not 
issued to the Bank a notice as described in Sec. 980.5(a)(1) through 
(4);
    (b) In the case of the acceptance of collateral enumerated under 
Sec. 950.7(a)(4) of this chapter, immediately upon receipt by the 
Finance Board of a notice of new business activity under Sec. 980.3; or
    (c) Immediately upon issuance by the Finance Board of a letter of 
approval under Sec. 980.6.



Sec. 980.5  Notice by the Finance Board.

    (a) Issuance. Within sixty days after receipt of a notice of new 
business activity under Sec. 980.3, the Finance Board may issue to a 
Bank a notice that:
    (1) Disapproves the new business activity;
    (2) Instructs the Bank not to commence the new business pending 
further consideration by the Finance Board;
    (3) Declares an intent to examine the Bank;
    (4) Requests additional information including but not limited to the 
requests listed in Sec. 980.7;
    (5) Establishes conditions for the Finance Board's approval of the 
new business activity, including but not limited to the conditions 
listed in Sec. 980.7; or
    (6) Contains other instructions or information that the Finance 
Board deems appropriate under the circumstances.
    (b) Effect. Following receipt of a notice issued pursuant to 
paragraph (a) of this section, a Bank may not undertake any new business 
activity that is the subject of the notice until the Bank has received 
the Finance Board's consent pursuant to Sec. 980.6.



Sec. 980.6  Finance Board consent.

    The Finance Board may at any time provide consent for a Bank to 
undertake a particular new business activity and setting forth the terms 
and conditions that apply to the activity, with which the Bank shall 
comply if the Bank undertakes the activity in question.



Sec. 980.7  Examinations; requests for additional information.

    (a) General. Nothing in this part shall limit in any manner the 
right of the Finance Board to conduct any examination of any Bank.
    (b) Requests for additional information and conditions for approval. 
With respect to a new business activity, nothing in this part shall 
limit the right of the Finance Board at any time to:
    (1) Request further information from a Bank concerning a new 
business activity; and
    (2) Require a Bank to comply with certain conditions in order to 
undertake, or continue to undertake, the new business activity in 
question, including but not limited to:
    (i) Successful completion of pre- or post-implementation safety and 
soundness examinations;
    (ii) Demonstration by the Bank of adequate operational capacity, 
including the existence of appropriate policies, procedures and 
controls;
    (iii) Demonstration by the Bank of its ability to manage the risks 
associated with accepting increasing volumes of particular collateral, 
or holding increasing volumes of particular assets, including the Bank's 
capacity reliably to value, discount and market the collateral or assets 
for liquidation;
    (iv) Demonstration by the Bank that the new business activity is 
consistent with the housing finance and community lending mission of the 
Banks and the cooperative nature of the Bank System; and

[[Page 205]]

    (v) Finance Board review of any contracts or agreements between the 
Bank and its members or housing associates.

[[Page 206]]



                     SUBCHAPTER K_OFFICE OF FINANCE





PART 985_THE OFFICE OF FINANCE--Table of Contents




Sec.
985.1 Definitions.
985.2 Authority of the OF.
985.3 Functions of the OF.
985.4 Finance Board oversight.
985.5 Funding of the OF.
985.6 Debt management duties of the OF.
985.7 Structure of the OF board of directors.
985.8 General duties of the OF board of directors.

Appendix A to Part 985--Exceptions to the General Disclosure Standards

    Authority: 12 U.S.C. 1422b(b)(2), 1431(a), 1431(c), 1432(a).

    Source: 65 FR 36300, June 7, 2000, unless otherwise noted.



Sec. 985.1  Definitions.

    As used in this part:
    Chair means the chairperson of the board of directors of the Office 
of Finance.
    Managing Director means the managing director of the Office of 
Finance.

[67 FR 12854, Mar. 20, 2002]



Sec. 985.2  Authority of the OF.

    (a) General. The OF shall enjoy such incidental powers under section 
12(a) of the Act (12 U.S.C. 1432(a)), as are necessary, convenient and 
proper to accomplish the efficient execution of its duties and functions 
pursuant to this part, including the authority to contract with a Bank 
or Banks for the use of Bank facilities or personnel in order to perform 
its functions or duties.
    (b) Agent. The OF in the performance of its duties, shall have the 
power to act on behalf of:
    (1) The Banks in issuing consolidated obligations pursuant to 
section 11(a) of the Act (12 U.S.C. 1431(a));
    (2) By delegation of the Finance Board under Sec. 966.2 of this 
chapter in issuing consolidated obligations pursuant to section 11(c) of 
the Act (12 U.S.C. 1431(c)); and
    (3) The Banks in paying principal and interest due on the 
consolidated obligations, or other obligations of the Banks.
    (c) Assessments. The OF shall have authority to assess the Banks for 
the funding of its operations in accordance with Sec. 985.5.



Sec. 985.3  Functions of the OF.

    (a) Joint debt issuance. Subject to parts 965 and 966 of this 
chapter, and this part, the OF as agent shall offer, issue and service 
(including making timely payments on principal and interest due) 
consolidated obligations on which the Banks are jointly and severally 
liable on behalf of the Finance Board pursuant to section 11(c) of the 
Act (12 U.S.C. 1431(c), or the Banks pursuant to section 11(a) of the 
Act (12 U.S.C. 1431(a)).
    (b) Preparation of combined financial reports. The OF shall prepare 
and issue the combined annual and quarterly financial reports for the 
Bank System in accordance with the requirements of Sec. 985.6(b) and 
Appendix A of this part.
    (c) Fiscal agent. The OF shall function as the Fiscal Agent of the 
Banks.
    (d) Financing Corporation and Resolution Funding Corporation. The OF 
shall perform such duties and responsibilities for the Financing 
Corporation (FICO) as may be required under part 995 of this chapter, or 
for the Resolution Funding Corporation (REFCORP) as may be required 
under part 996 of this chapter or authorized by the Finance Board 
pursuant to section 21B(c)(6)(B) of the Act (12 U.S.C. 1441b(c)(6)(B)).

[65 FR 36300, June 7, 2000, as amended at 67 FR 12855, Mar. 20, 2002]



Sec. 985.4  Finance Board oversight.

    (a) Oversight and enforcement actions. The Finance Board shall have 
the same regulatory oversight authority and enforcement powers over the 
OF, the OF board of directors, the directors, officers, employees, 
agents, attorneys, accountants or other OF staff, as it has over a Bank 
and its respective directors, officers, employees, attorneys, 
accountants, agents or other staff.
    (b) Examinations. Pursuant to section 20 of the Act (12 U.S.C. 
1440), the Finance Board shall examine the OF, all

[[Page 207]]

funds and accounts that may be established pursuant to this part 985, 
and the operations and activities of the OF, as provided for in the Act 
or any regulations promulgated pursuant thereto.



Sec. 985.5  Funding of the OF.

    (a) Generally. The Banks are responsible for jointly funding all of 
the expenses of the Office of Finance, including the costs of 
indemnifying the members of the OF board of directors, the Managing 
Director and other officers and employees of the OF, as provided for in 
this part.
    (b) Funding policies. (1) At the direction of, and pursuant to 
policies and procedures adopted by, the OF board of directors, the Banks 
shall periodically reimburse the OF in order to maintain sufficient 
operating funds under the budget approved by the OF board of directors. 
The OF operating funds shall be:
    (i) Available for expenses of the Office of Finance and the OF board 
of directors, according to their approved budgets; and
    (ii) Subject to withdrawal by check, wire transfer or draft signed 
by the Managing Director or other person designated by the OF board of 
directors.
    (2) Each Bank's respective pro rata share of the reimbursement 
described in paragraph (b)(1) of this section shall be based on the 
ratio of the total paid-in value of its capital stock relative to the 
total paid-in value of all capital stock in the Bank System.
    (c) Alternative formula for assessment. With the prior approval of 
the Finance Board, the OF board of directors may implement an 
alternative formula for determining each Bank's respective share of the 
OF expenses or, by contract with a Bank or Banks, may choose to be 
reimbursed through a fee structure in lieu of or in addition to 
assessment, for services provided to the Bank or Banks.
    (d) Prompt reimbursement. Each Bank from time to time shall promptly 
forward funds to the OF in an amount representing its share of the 
reimbursement described in paragraph (b) of this section when directed 
to do so by the Managing Director pursuant to procedures of the OF board 
of directors.
    (e) Indemnification expenses. All expenses incident to 
indemnification of the members of the OF board of directors, the 
Managing Director, and other officers and employees of the OF shall be 
treated as an expense of the OF to be reimbursed by the Banks under the 
provisions of this part.
    (f) Operating funds shall be segregated. (1) Any funds received by 
the OF from the Banks pursuant to this section for OF operating expenses 
promptly shall be deposited into one or more accounts and shall not be 
commingled with any proceeds from the sale of consolidated obligations 
in any manner.
    (2) Neither the proceeds from the sale of consolidated obligations 
under part 966, nor any operating expense reimbursements received by the 
OF from assessments on the Banks under this section shall be construed 
to be Government Funds or appropriated monies or subject to 
apportionment for the purposes of chapter 15 of title 31 of the United 
States Code, or any other authority, in accordance with section 2B(b)(1) 
of the Act (12 U.S.C. 1422b(b)(1)).



Sec. 985.6  Debt management duties of the OF.

    (a) Issuance and servicing of COs. The OF shall issue and service 
(including making timely payments on principal and interest due, subject 
to Sec. Sec. 966.8 and 966.9 of this chapter) consolidated obligations 
pursuant to and in accordance with the policies and procedures 
established by the OF board of directors under this part.
    (b) Combined financial reports requirements. The OF shall prepare 
and distribute the combined annual and quarterly financial reports for 
the Bank System in accordance with the following requirements:
    (1) The scope, form and content of the disclosure generally shall be 
consistent with the requirements of the Securities and Exchange 
Commission's Regulations S-K and S-X (17 CFR parts 229 and 210).
    (2) Information about each Bank shall be presented as a segment of 
the Bank System as if Statement of Financial Accounting Standards No. 
131, titled ``Disclosures about Segments of an Enterprise and Related 
Information''

[[Page 208]]

(FASB 131) applied to the combined annual and quarterly financial 
reports of the Bank System.
    (3) The standards set forth in paragraphs (b)(1) and (2) of this 
section are subject to the exceptions set forth in the Appendix to this 
part.
    (4) The combined Bank System annual report shall be filed with the 
Finance Board and distributed to each Bank and Bank member within 90 
days after the end of the fiscal year. The combined Bank System 
quarterly reports shall be filed with the Finance Board and distributed 
to each Bank and Bank member within 45 days after the end of the first 
three fiscal quarters of each year.
    (5) The Finance Board in its sole discretion shall determine whether 
or not a combined Bank System annual or quarterly financial report 
complies with the standards of this part.
    (6) The OF board of directors shall comply promptly with any 
directive of the Finance Board regarding the preparation, filing, 
amendment or distribution of the combined Bank System annual or 
quarterly financial reports.
    (7) Nothing in this section shall create or be deemed to create any 
rights in any third party.
    (c) Capital markets data. The OF board of directors shall provide 
capital markets information concerning debt to the Banks.
    (d) NRSROs. The OF board of directors shall manage relationships 
with NRSROs in connection with their rating of consolidated obligations.
    (e) Research. The OF shall conduct research reasonably related to 
the issuance or servicing of consolidated obligations.
    (f) Monitor Banks' credit exposure. The OF shall timely monitor each 
Bank's and the Bank System's unsecured credit exposure to individual 
counterparties.

[65 FR 36300, June 7, 2000, as amended at 67 FR 12855, Mar. 20, 2002]



Sec. 985.7  Structure of the OF board of directors.

    (a) Membership. The OF board of directors shall consist of three 
part-time members appointed by the Finance Board as follows:
    (1) Two Bank Presidents; and
    (2) A citizen of the United States with a demonstrated expertise in 
financial markets. Such appointee may not be an officer, director or 
employee of a Bank or Bank System member, hold shares, or any other 
financial interest in, any member of a Bank, or be affiliated with any 
consolidated obligation selling or dealer group member under contract 
with the OF.
    (b) Terms. (1) Except as provided in paragraph (b)(2) of this 
section, the members of the OF board of directors shall serve for three-
year terms (which shall be staggered), and shall be subject to removal 
or suspension for cause by the Finance Board.
    (2) The Finance Board shall fill any vacancy occurring on the OF 
board of directors. An appointment to fill a vacancy shall be only for 
the remainder of the term during which the vacancy occurred.
    (3) Any member of the OF board of directors is authorized to 
continue to serve on the OF board of directors after the expiration of 
the member's term until a successor has been appointed by the Finance 
Board.
    (c) Chair. (1) The private citizen member of the OF board of 
directors shall serve as the Chair, and the Vice Chair shall be selected 
by a majority vote of the members of the OF board of directors.
    (2) The Chair shall preside over the meetings of the OF board of 
directors. In the absence of the Chair, the Vice Chair shall preside.
    (3) The Chair shall be responsible for ensuring that the directives 
and resolutions of the OF board of directors are drafted and maintained 
and for keeping the minutes of all meetings.
    (d) Compensation. (1) The Bank President members shall not receive 
any additional compensation or reimbursement as a result of their 
service on the OF board of directors.
    (2) Each Bank shall be entitled to be reimbursed by from the Office 
of Finance for its expenditure of travel and per diem expenses 
associated with its Bank President's attendance at an OF board of 
directors meeting as a director member thereof.
    (3) The Office of Finance shall pay compensation and expenses to the 
private citizen member of the OF board of

[[Page 209]]

directors in accordance with the requirements for payment of 
compensation and expenses to Bank chairs as set forth in part 918 of 
this chapter.
    (e) Indemnification. (1) The OF board of directors shall indemnify 
its members, the Managing Director, and other officers and employees of 
the OF under such terms and conditions as shall be determined by the OF 
board of directors, provided that such terms and conditions are 
consistent with the terms and conditions of indemnification of 
directors, officers and employees of the Bank System generally.
    (2) The OF board of directors shall adopt indemnification 
procedures, which shall be supplemented by a contract of insurance.
    (f) Delegation. The OF board of directors may delegate any of its 
authority or duties to any employee of the OF in order to enable the OF 
to carry out its functions.



Sec. 985.8  General duties of the OF board of directors.

    (a) General--(1) Conduct of business. Each director shall have the 
duties prescribed in Sec. 917.2(b) of this chapter, as appropriate.
    (2) Bylaws. The OF board of directors shall adopt bylaws in 
accordance with the provisions of Sec. 917.10 of this chapter.
    (b) Meetings and quorum. The OF board of directors shall conduct its 
business by majority vote of its members at meetings convened in 
accordance with its bylaws, and shall hold no fewer than six in-person 
meetings annually. Due notice shall be given to the Finance Board by the 
Chair prior to each meeting. A quorum, for purposes of meetings of the 
OF board of directors, shall be not less than two members.
    (c) Duties regarding COs. The OF board of directors shall establish 
policies regarding COs that shall:
    (1) Govern the frequency and timing of issuance, issue size, minimum 
denomination, CO concessions, underwriter qualifications, currency of 
issuance, interest-rate change or conversion features, call features, 
principal indexing features, selection and retention of outside counsel, 
selection of clearing organizations, and the selection and compensation 
of underwriters for consolidated obligations, which shall be in 
accordance with the requirements and limitations set forth in paragraph 
(c)(4) of this section;
    (2) Prohibit the issuance of COs intended to be privately placed 
with or sold without the participation of an underwriter to retail 
investors, or issued with a concession structure designed to facilitate 
the placement of the COs in retail accounts, unless the OF has given 
notice to the board of directors of each Bank describing a policy 
permitting such issuances, soliciting comments from each Bank's board of 
directors, and considering the comments received before adopting a 
policy permitting such issuance activities;
    (3) Require all broker-dealers or underwriters under contract to the 
OF to have and maintain adequate suitability sales practices and 
policies, which shall be acceptable to, and subject to review by, the 
Office of Finance;
    (4) Require that COs shall be issued efficiently and at the lowest 
all-in funding costs over time, consistent with:
    (i) Prudent risk-management practices, prudential debt parameters, 
short and long-term market conditions, and the Banks' role as 
government-sponsored enterprises;
    (ii) Maintaining reliable access to the short-term and long-term 
capital markets; and
    (iii) Positioning the issuance of debt to take advantage of current 
and future capital market opportunities.
    (d) Other duties. The OF board of directors shall:
    (1) Set policies for management and operation of the OF;
    (2) Approve a strategic business plan for the OF in accordance with 
the provisions of Sec. 917.5 of this chapter, as appropriate;
    (3) Review, adopt and monitor annual operating and capital budgets 
of the OF in accordance with the provisions of Sec. 917.8 of this 
chapter, as appropriate;
    (4) Constitute and perform the duties of an audit committee, which 
to the extent possible shall operate consistent with:
    (i) The requirements of Sec. 917.7 of this chapter, and

[[Page 210]]

    (ii) The requirements pertaining to audit committee reports set 
forth in Item 306 of Regulation S-K promulgated by the Securities and 
Exchange Commission.
    (5) Select, employ, determine the compensation for, and assign the 
duties and functions of a Managing Director of the OF who shall:
    (i) Be the chief executive officer for the OF and shall direct the 
implementation of the OF board of directors' policies;
    (ii) Serve as a member of the Directorate of the Financing 
Corporation, pursuant to section 21(b)(1)(A) of the Act (12 U.S.C. 
1441(b)(1)(A)); and
    (iii) Serve as a member of the Directorate of the Resolution Funding 
Corporation, pursuant to section 21B(c)(1)(A) of the Act (12 U.S.C. 
1441b(c)(1)(A)).
    (6) Review and approve all contracts of the OF;
    (7) Have the exclusive authority to employ and contract for the 
services of an independent, external auditor for the Banks' annual and 
quarterly combined financial statements;
    (8) Select, evaluate, determine the compensation of, and, where 
appropriate, replace the internal auditor, who may be removed only by 
vote of the OF board of directors; and
    (9) Assume any other responsibilities that may from time to time be 
delegated to it by the Finance Board.
    (e) No rights created. Nothing in this part shall create or be 
deemed to create any rights in any third party.

[65 FR 36300, June 7, 2000, as amended at 67 FR 12855, Mar. 20, 2002; 67 
FR 18807, Apr. 17, 2002]



   Sec. Appendix A to Part 985--Exceptions to the General Disclosure 
                                Standards

    A. Related-party transactions. Item 404 of Regulation S-K, 17 CFR 
229.404, requires the disclosure of certain relationships and related 
party transactions. In light of the cooperative nature of the Bank 
System, related-party transactions are to be expected, and a disclosure 
of all related-party transactions that meet the threshold would not be 
meaningful. Instead, the combined annual report will disclose the 
percent of advances to members an officer of which serves as a Bank 
director, and list the top ten holders of advances in the Bank System 
and the top five holders of advances by Bank, with a further disclosure 
indicating which of these members had an officer that served as a Bank 
director.
    B. Biographical information. The biographical information required 
by Items 401 and 405 of Regulation S-K, 17 CFR 229.401 and 405, will be 
provided only for the members of the Board of Directors of the Finance 
Board, Bank presidents, chairs and vice chairs, and the directors and 
Managing Director of the OF.
    C. Compensation. The information on compensation required by Item 
402 of Regulation S-K, 17 CFR 229.402, will be provided only for Bank 
presidents and the Managing Director of the OF. Since stock in each Bank 
trades at par, the Office of Finance will not include the performance 
graph specified in Item 402(1) of Regulation S-K, 17 CFR 229.402(1).
    D. Submission of matters to a vote of stockholders. No information 
will be presented on matters submitted to shareholders for a vote, as 
otherwise required by Item 4 of the SEC's form 10-K, 17 CFR 249.310. The 
only item shareholders vote upon is the annual election of directors.
    E. Exhibits. The exhibits required by Item 601 of Regulation S-K, 17 
CFR 229.601, are not applicable and will not be provided.
    F. Per share information. The statement of financial information 
required by Items 301 and 302 of Rule S-K, 17 CFR 229.301 and 302, is 
inapplicable because the shares of the Banks are subscription capital 
that trades at par, and the shares expand or contract with changes in 
member assets or advance levels.
    G. Beneficial ownership. Item 403 of Rule S-K, 17 CFR 229.403, 
requires the disclosure of security ownership of certain beneficial 
owners and management. The combined financial report will provide a 
listing of the ten largest holders of capital stock in the Bank System 
and a listing of the five largest holders of capital stock by Bank. This 
listing will also indicate which members had an officer that served as a 
director of a Bank.



PART 987_BOOK-ENTRY PROCEDURE FOR CONSOLIDATED OBLIGATIONS--Table of Contents




Sec.
987.1 Definitions.
987.2 Law governing rights and obligations of Banks, Finance Board, 
          Office of Finance, United States and Federal Reserve Banks; 
          rights of any Person against Banks, Finance Board, Office of 
          Finance, United States and Federal Reserve Banks.
987.3 Law governing other interests.
987.4 Creation of Participant's Security Entitlement; security 
          interests.
987.5 Obligations of Banks and the Office of Finance; no Adverse Claims.

[[Page 211]]

987.6 Authority of Federal Reserve Banks.
987.7 Liability of Banks, Finance Board, Office of Finance and Federal 
          Reserve Banks.
987.8 Additional requirements; notice of attachment for Book-entry 
          consolidated obligations.
987.9 Reference to certain Department of Treasury commentary and 
          determinations.
987.10 Obligations of United States with respect to consolidated 
          obligations.

    Authority: 12 U.S.C. 1422a, 1422b, 1431, 1435.

    Source: 63 FR 8059, Feb. 18, 1998, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.



Sec. 987.1  Definitions.

    As used in this part, unless the context otherwise requires or 
indicates:
    Adverse Claim means a claim that a claimant has a property interest 
in a Book-entry consolidated obligation and that it is a violation of 
the rights of the claimant for another Person to hold, transfer, or deal 
with the Security.
    Book-entry consolidated obligation means a consolidated obligation 
maintained in the book-entry system of the Federal Reserve Banks.
    Entitlement Holder means a Person or a Bank to whose account an 
interest in a Book-entry consolidated obligation is credited on the 
records of a Securities Intermediary.
    Federal Reserve Bank means a Federal Reserve Bank or branch, acting 
as fiscal agent for the Office of Finance, unless otherwise indicated.
    Federal Reserve Bank Operating Circular means the publication issued 
by each Federal Reserve Bank that sets forth the terms and conditions 
under which the Federal Reserve Bank maintains Book-entry Securities 
accounts and transfers Book-entry Securities.
    Funds account means a reserve and/or clearing account at a Federal 
Reserve Bank to which debits or credits are posted for transfers against 
payment, Book-entry Securities transaction fees, or principal and 
interest payments.
    Office of Finance means the Office of Finance acting as agent of the 
Banks in all matters relating to the issuance of Book-entry consolidated 
obligations and in the performance of all other necessary and proper 
functions relating to Book-entry consolidated obligations, including the 
payment of principal and interest due thereon.
    Participant means a Person or a Bank that maintains a Participant's 
Securities Account with a Federal Reserve Bank.
    Participant's Securities Account means an account in the name of a 
Participant at a Federal Reserve Bank to which Book-entry consolidated 
obligations held for a Participant are or may be credited.
    Person means and includes an individual, corporation, company, 
governmental entity, association, firm, partnership, trust, estate, 
representative, and any other similar organization, but does not mean or 
include a Bank, the Finance Board, the Office of Finance, the United 
States, or a Federal Reserve Bank.
    Revised Article 8 means Uniform Commercial Code, Revised Article 8, 
Investment Securities (with Conforming and Miscellaneous Amendments to 
Articles 1, 3, 4, 5, 9, and 10) 1994 Official Text. Copies of this 
publication are available from the Executive Office of the American Law 
Institute, 4025 Chestnut Street, Philadelphia, PA 19104, and the 
National Conference of Commissioners on Uniform State Laws, 676 North 
St. Clair Street, Suite 1700, Chicago, IL 60611.
    Securities Intermediary means:
    (1) A Person that is registered as a ``clearing agency'' under the 
Federal securities laws; a Federal Reserve Bank; any other person that 
provides clearance or settlement services with respect to a Book-entry 
consolidated obligation that would require it to register as a clearing 
agency under the Federal securities laws but for an exclusion or 
exemption from the registration requirement, it its activities as a 
clearing corporation, including promulgation of rules, are subject to 
regulation by a Federal or State governmental authority; or
    (2) A Person (other than an individual, unless such individual is 
registered as a broker or dealer under the Federal securities laws) 
including a bank or broker, that in the ordinary course of its business 
maintains securities accounts for others and is acting in that capacity.

[[Page 212]]

    Security Entitlement means the rights and property interest of an 
Entitlement Holder with respect to a Book-entry consolidated obligation.
    Transfer Message means an instruction of a Participant to a Federal 
Reserve Bank to effect a transfer of a Book-entry consolidated 
obligation, as set forth in Federal Reserve Bank Operating Circulars.

[63 FR 8059, Feb. 18, 1998, as amended at 65 FR 8268, Feb. 18, 2000; 67 
FR 12855, Mar. 20, 2002]



Sec. 987.2  Law governing rights and obligations of Banks, Finance Board, Office of Finance, United States and Federal Reserve Banks; rights of any Person 

          against Banks, Finance Board, Office of Finance, United States 
          and Federal Reserve Banks.

    (a) Except as provided in paragraph (b) of this section, the rights 
and obligations of the Banks, the Finance Board, the Office of Finance, 
the United States and the Federal Reserve Banks with respect to: A Book-
entry consolidated obligation or Security Entitlement and the operation 
of the Book-entry system, as it applies to consolidated obligations; and 
the rights of any Person, including a Participant, against the Banks, 
the Finance Board, the Office of Finance, the United States and the 
Federal Reserve Banks with respect to: A Book-entry consolidated 
obligation or Security Entitlement and the operation of the Book-entry 
system, as it applies to consolidated obligations; are governed solely 
by regulations of the Finance Board, including the regulations of this 
part 987, the applicable offering notice, applicable procedures 
established by the Office of Finance, and Federal Reserve Bank Operating 
Circulars.
    (b) A security interest in a Security Entitlement that is in favor 
of a Federal Reserve Bank from a Participant and that is not recorded on 
the books of a Federal Reserve Bank pursuant to Sec. 987.4(c)(1), is 
governed by the law (not including the conflict-of-law rules) of the 
jurisdiction where the head office of the Federal Reserve Bank 
maintaining the Participant's Securities Account is located. A security 
interest in a Security Entitlement that is in favor of a Federal Reserve 
Bank from a Person that is not a Participant, and that is not recorded 
on the books of a Federal Reserve Bank pursuant to Sec. 987.4(c)(1), is 
governed by the law determined in the manner specified in Sec. 987.3.
    (c) If the jurisdiction specified in the first sentence of paragraph 
(b) of this section is a State that has not adopted Revised Article 8, 
then the law specified in the first sentence of paragraph (b) of this 
section shall be the law of that State as though Revised Article 8 had 
been adopted by that State.

[63 FR 8059, Feb. 18, 1998, as amended at 65 FR 8268, Feb. 18, 2000]



Sec. 987.3  Law governing other interests.

    (a) To the extent not inconsistent with this part 987, the law (not 
including the conflict-of-law rules) of a Securities Intermediary's 
jurisdiction governs:
    (1) The acquisition of a Security Entitlement from the Securities 
Intermediary;
    (2) The rights and duties of the Securities Intermediary and 
Entitlement Holder arising out of a Security Entitlement;
    (3) Whether the Securities Intermediary owes any duties to an 
adverse claimant to a Security Entitlement;
    (4) Whether an Adverse Claim can be asserted against a Person who 
acquires a Security Entitlement from the Securities Intermediary or a 
Person who purchases a Security Entitlement or interest therein from an 
Entitlement Holder; and
    (5) Except as otherwise provided in paragraph (c) of this section, 
the perfection, effect of perfection or non-perfection, and priority of 
a security interest in a Security Entitlement.
    (b) The following rules determine a ``Securities Intermediary's 
jurisdiction'' for purposes of this section:
    (1) If an agreement between the Securities Intermediary and its 
Entitlement Holder specifies that it is governed by the law of a 
particular jurisdiction, that jurisdiction is the Securities 
Intermediary's jurisdiction.
    (2) If an agreement between the Securities Intermediary and its 
Entitlement Holder does not specify the governing law as provided in 
paragraph (b)(1) of this section, but expressly specifies that the 
securities account is

[[Page 213]]

maintained at an office in a particular jurisdiction, that jurisdiction 
is the Securities Intermediary's jurisdiction.
    (3) If an agreement between the Securities Intermediary and its 
Entitlement Holder does not specify a jurisdiction as provided in 
paragraph (b)(1) or (b)(2) of this section, the Securities 
Intermediary's jurisdiction is the jurisdiction in which is located the 
office identified in an account statement as the office serving the 
Entitlement Holder's account.
    (4) If an agreement between the Securities Intermediary and its 
Entitlement Holder does not specify a jurisdiction as provided in 
paragraph (b)(1) or (b)(2) of this section and an account statement does 
not identify an office serving the Entitlement Holder's account as 
provided in paragraph (b)(3) of this section, the Securities 
Intermediary's jurisdiction is the jurisdiction in which is located the 
chief executive office of the Securities Intermediary.
    (c) Notwithstanding the general rule in paragraph (a)(5) of this 
section, the law (but not the conflict-of-law rules) of the jurisdiction 
in which the Person creating a security interest is located governs 
whether and how the security interest may be perfected automatically or 
by filing a financing statement.
    (d) If the jurisdiction specified in paragraph (b) of this section 
is a State that has not adopted Revised Article 8, then the law for the 
matters specified in paragraph (a) of this section shall be the law of 
that State as though Revised Article 8 had been adopted by that State. 
For purposes of the application of the matters specified in paragraph 
(a) of this section, the Federal Reserve Bank maintaining the Securities 
Account is a clearing corporation, and the Participant's interest in a 
Bank Book-entry Security is a Security Entitlement.

[63 FR 8059, Feb. 18, 1998, as amended at 65 FR 8268, Feb. 18, 2000]



Sec. 987.4  Creation of Participant's Security Entitlement; security interests.

    (a) A Participant's Security Entitlement is created when a Federal 
Reserve Bank indicates by book entry that a Book-entry consolidated 
obligation has been credited to a Participant's Securities Account.
    (b) A security interest in a Security Entitlement of a Participant 
in favor of the United States to secure deposits of public money, 
including, without limitation, deposits to the Treasury tax and loan 
accounts, or other security interest in favor of the United States that 
is required by Federal statute, regulation, or agreement, and that is 
marked on the books of a Federal Reserve Bank is thereby effected and 
perfected, and has priority over any other interest in the Securities. 
Where a security interest in favor of the United States in a Security 
Entitlement of a Participant is marked on the books of a Federal Reserve 
Bank, such Federal Reserve Bank may rely, and is protected in relying, 
exclusively on the order of an authorized representative of the United 
States directing the transfer of the Security. For purposes of this 
paragraph (b), an ``authorized representative of the United States'' is 
the official designated in the applicable regulations or agreement to 
which a Federal Reserve Bank is a party, governing the security 
interest.
    (c)(1) The Banks, the Finance Board, the Office of Finance, the 
United States and the Federal Reserve Banks have no obligation to agree 
to act on behalf of any Person or to recognize the interest of any 
transferee of a security interest or other limited interest in a 
Security Entitlement in favor of any Person except to the extent of any 
specific requirement of Federal law or regulation or to the extent set 
forth in any specific agreement with the Federal Reserve Bank on whose 
books the interest of the Participant is recorded. To the extent 
required by such law or regulation or set forth in an agreement with a 
Federal Reserve Bank, or the Federal Reserve Bank Operating Circular, a 
security interest in a Security Entitlement that is in favor of a 
Federal Reserve Bank or a Person may be created and perfected by a 
Federal Reserve Bank marking its books to record the security interest. 
Except as provided in paragraph (b) of this section, a security interest 
in a Security Entitlement marked on the books of a Federal Reserve Bank 
shall have priority over any other interest in the Securities.

[[Page 214]]

    (2) In addition to the method provided in paragraph (c)(1) of this 
section, a security interest in a Security Entitlement, including a 
security interest in favor of a Federal Reserve Bank, may be perfected 
by any method by which a security interest may be perfected under 
applicable law as described in Sec. 987.2(b) or Sec. 987.3. The 
perfection, effect of perfection or non-perfection, and priority of a 
security interest are governed by that applicable law. A security 
interest in favor of a Federal Reserve Bank shall be treated as a 
security interest in favor of a clearing corporation in all respects 
under that law, including with respect to the effect of perfection and 
priority of the security interest. A Federal Reserve Bank Operating 
Circular shall be treated as a rule adopted by a clearing corporation 
for such purposes.

[63 FR 8059, Feb. 18, 1998, as amended at 65 FR 8268, Feb. 18, 2000]



Sec. 987.5  Obligations of the Banks and the Office of Finance; no Adverse Claims.

    (a) Except in the case of a security interest in favor of the United 
States or a Federal Reserve Bank or otherwise as provided in Sec. 
987.4(c)(1), for the purposes of this part 987, the Banks, the Office of 
Finance and the Federal Reserve Banks shall treat the Participant to 
whose Securities Account an interest in a Book-entry consolidated 
obligations has been credited as the person exclusively entitled to 
issue a Transfer Message, to receive interest and other payments with 
respect thereof and otherwise to exercise all the rights and powers with 
respect to the Security, notwithstanding any information or notice to 
the contrary. Neither the Banks, the Finance Board, the Office of 
Finance, the United States, nor the Federal Reserve Banks are liable to 
a Person asserting or having an Adverse Claim to a Security Entitlement 
or to Book-entry consolidated obligations in a Participant's Securities 
Account, including any such claim arising as a result of the transfer or 
disposition of a Book-entry consolidated obligation by a Federal Reserve 
Bank pursuant to a Transfer Message that the Federal Reserve Bank 
reasonably believes to be genuine.
    (b) The obligation of the Banks and the Office of Finance to make 
payments of interest and principal with respect to Book-entry 
consolidated obligations is discharged at the time payment in the 
appropriate amount is made as follows:
    (1) Interest on Book-entry consolidated obligations is either 
credited by a Federal Reserve Bank to a Funds Account maintained at the 
Federal Reserve Bank or otherwise paid as directed by the Participant.
    (2) Book-entry consolidated obligations are paid, either at maturity 
or upon redemption, in accordance with their terms by a Federal Reserve 
Bank withdrawing the securities from the Participant's Securities 
Account in which they are maintained and by either crediting the amount 
of the proceeds, including both principal and interest, where 
applicable, to a Funds Account at the Federal Reserve Bank or otherwise 
paying such principal and interest as directed by the Participant. No 
action by the Participant is required in connection with the payment of 
a Book-entry consolidated obligation, unless otherwise expressly 
required.

[63 FR 8059, Feb. 18, 1998, as amended at 65 FR 8268, Feb. 18, 2000; 67 
FR 12855, Mar. 20, 2002]



Sec. 987.6  Authority of Federal Reserve Banks.

    (a) Each Federal Reserve Bank is hereby authorized as fiscal agent 
of the Office of Finance: To perform functions with respect to the 
issuance of Book-entry consolidated obligations, in accordance with the 
terms of the applicable offering notice and with procedures established 
by the Office of Finance; to service and maintain Book-entry 
consolidated obligations in accounts established for such purposes; to 
make payments of principal, interest and redemption premium (if any), as 
directed by the Office of Finance; to effect transfer of Book-entry 
consolidated obligations between Participants' Securities Accounts as 
directed by the Participants; and to perform such other duties as fiscal 
agent as may be requested by the Office of Finance.

[[Page 215]]

    (b) Each Federal Reserve Bank may issue Operating Circulars not 
inconsistent with this part 987, governing the details of its handling 
of Book-entry consolidated obligations, Security Entitlements, and the 
operation of the Book-entry system under this part 987.

[63 FR 8059, Feb. 18, 1998, as amended at 65 FR 8268, Feb. 18, 2000]



Sec. 987.7  Liability of Banks, Finance Board, Office of Finance and Federal Reserve Banks.

    The Banks, the Finance Board, the Office of Finance and the Federal 
Reserve Banks may rely on the information provided in a tender, 
transaction request form, other transaction documentation, or Transfer 
Message, and are not required to verify the information. Neither the 
Banks, the Finance Board, the Office of Finance, the United States, nor 
the Federal Reserve Banks shall be liable for any action taken in 
accordance with the information set out in a tender, transaction request 
form, other transaction documentation, or Transfer Message, or evidence 
submitted in support thereof.

[63 FR 8059, Feb. 18, 1998, as amended at 65 FR 8268, Feb. 18, 2000]



Sec. 987.8  Additional requirements; notice of attachment for Book-entry consolidated obligations.

    (a) Additional requirements. In any case or any class of cases 
arising under the regulations in this part 987, the Office of Finance 
may require such additional evidence and a bond of indemnity, with or 
without surety, as may in its judgment, or in the judgment of the Banks 
or the Finance Board, be necessary for the protection of the interests 
of the Banks, the Finance Board, the Office of Finance or the United 
States.
    (b) Notice of attachment. The interest of a debtor in a Security 
Entitlement may be reached by a creditor only by legal process upon the 
Securities Intermediary with whom the debtor's securities account is 
maintained, except where a Security Entitlement is maintained in the 
name of a secured party, in which case the debtor's interest may be 
reached by legal process upon the secured party. The regulations in this 
part 987 do not purport to establish whether a Federal Reserve Bank is 
required to honor an order or other notice of attachment in any 
particular case or class of cases.

[63 FR 8059, Feb. 18, 1998, as amended at 65 FR 8268, Feb. 18, 2000]



Sec. 987.9  Reference to certain Department of Treasury commentary and determinations.

    (a) The Department of Treasury TRADES Commentary (31 CFR part 357, 
appendix B) addressing the Department of Treasury regulations governing 
book-entry procedure for Treasury Securities is hereby referenced, so 
far as applicable and as necessarily modified to relate to Book-entry 
consolidated obligations, as an interpretive aid to this part 987.
    (b) Determinations of the Department of Treasury regarding whether a 
State shall be considered to have adopted Revised Article 8 for purposes 
of 31 CFR part 357, as published in the Federal Register or otherwise, 
shall also apply to this part 987.

[63 FR 8059, Feb. 18, 1998, as amended at 65 FR 8268, Feb. 18, 2000]



Sec. 987.10  Obligations of United States with respect to consolidated obligations.

    Consolidated obligations are not obligations of the United States 
and are not guaranteed by the United States.

[63 FR 8059, Feb. 18, 1998, as amended at 65 FR 8268, Feb. 18, 2000]



PART 989_FINANCIAL STATEMENTS OF THE BANKS--Table of Contents




Sec.
989.1 Definitions.
989.2 Audit requirements.
989.3 Requirement to provide financial and other information to the 
          Finance Board and the Office of Finance.
989.4 Requirement for voluntary bank disclosure.

    Authority: 12 U.S.C. 1422a, 1422b, 1426, 1431, 1440.

    Source: 63 FR 39704, July 24, 1998, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.



Sec. 989.1  Definitions.

    As used in this part:

[[Page 216]]

    Audit means an examination of the financial statements by an 
independent accountant in accordance with Generally Accepted Auditing 
Standards for the purpose of expressing an opinion thereon.
    Audit report means a document in which an independent accountant 
indicates the scope of the audit made and sets forth an opinion 
regarding the financial statement taken as a whole, or an assertion to 
the effect that an overall opinion cannot be expressed. When an overall 
opinion cannot be expressed, the reasons therefor shall be stated.

[65 FR 36303, June 7, 2000, as amended at 67 FR 12855, Mar. 20, 2002]



Sec. 989.2  Audit requirements.

    (a) Each Bank, the OF and the Financing Corporation shall obtain 
annually an independent, external audit of and an audit report on its 
individual financial statement.
    (b) The OF board of directors shall obtain an audit and an audit 
report on the combined annual financial statements for the Bank System.
    (c) All audits must be conducted in accordance with generally 
accepted auditing standards and in accordance with the most current 
government auditing standards issued by the Office of the Comptroller 
General of the United States.
    (d) An independent, external auditor must meet at least twice each 
year with the audit committee of each Bank, the OF board of directors, 
and the Financing Corporation Directorate.
    (e) Finance Board examiners shall have unrestricted access to all 
auditors' work papers and to the auditors to address substantive 
accounting issues that may arise during the course of any audit.

[65 FR 36303, June 7, 2000]



Sec. 989.3  Requirement to provide financial and other information to the Finance Board and the Office of Finance.

    In order to facilitate the preparation by the Office of Finance of 
combined Bank System annual and quarterly reports, each Bank shall 
provide to the Office of Finance in such form and within such timeframes 
as the Finance Board or the Office of Finance shall specify, all 
financial and other information and assistance the Office of Finance 
shall request for that purpose. Nothing in this section shall contravene 
or be deemed to circumscribe in any manner the authority of the Finance 
Board to obtain any information from any Bank related to the preparation 
or review of any financial report.

[65 FR 36303, June 7, 2000]



Sec. 989.4  Requirement for voluntary bank disclosure.

    Any financial statements contained in an annual or quarterly 
financial report issued by an individual Bank must be consistent in both 
form and content with the financial statements presented in the combined 
Bank System annual or quarterly financial reports prepared and issued by 
the Office of Finance .

[63 FR 39704, July 24, 1998. Redesignated and amended at 65 FR 36303, 
36304, June 7, 2000.]

[[Page 217]]



                  SUBCHAPTER L_NON-BANK SYSTEM ENTITIES





PART 995_FINANCING CORPORATION OPERATIONS--Table of Contents




Sec.
995.1 Definitions.
995.2 General authority.
995.3 Authority to establish investment policies and procedures.
995.4 Book-entry procedure for Financing Corporation obligations.
995.5 Bank and Office of Finance employees.
995.6 Budget and expenses.
995.7 Administrative expenses.
995.8 Non-administrative expenses; assessments.
995.9 Reports to the Finance Board.
995.10 Review of books and records.

    Authority: 12 U.S.C. 1441(b)(8), (c), (j).

    Source: 62 FR 50248, Sept. 25, 1997, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000.



Sec. 995.1  Definitions.

    As used in this part:
    Administrative expenses:
    (1) Include general office and operating expenses such as telephone 
and photocopy charges, printing, legal, and professional fees, postage, 
courier services, and office supplies; and
    (2) Do not include any form of employee compensation, custodian 
fees, issuance costs, or any interest on (and any redemption premium 
with respect to) any Financing Corporation obligations.
    BIF-assessable deposit means a deposit that is subject to assessment 
for purposes of the Bank Insurance Fund under the Federal Deposit 
Insurance Act (12 U.S.C. 1811 et seq.), including a deposit that is 
treated as a deposit insured by the Bank Insurance Fund under section 
5(d)(3) of the Federal Deposit Insurance Act (12 U.S.C. 1815(d)(3)).
    Custodian fees means any fee incurred by the Financing Corporation 
in connection with the transfer of any security to, or maintenance of 
any security in, the segregated account established under section 
21(g)(2) of the Act (12 U.S.C. 1441(g)(2)), and any other expense 
incurred by the Financing Corporation in connection with the 
establishment or maintenance of such account.
    Directorate means the board established under section 21(b) of the 
Act (12 U.S.C. 1441(b)) to manage the Financing Corporation.
    Exit fees means the amounts paid under sections 5(d)(2)(E) and (F) 
of the Federal Deposit Insurance Act (12 U.S.C. 1815(d)(2)(E) and (F)), 
and regulations promulgated thereunder (12 CFR part 312).
    Insured depository institution has the same meaning as in section 3 
of the Federal Deposit Insurance Act (12 U.S.C. 1813).
    Issuance costs means issuance fees and commissions incurred by the 
Financing Corporation in connection with the issuance or servicing of 
Financing Corporation obligations, including legal and accounting 
expenses, trustee, fiscal, and paying agent charges, securities 
processing charges, joint collection agent charges, advertising 
expenses, and costs incurred in connection with preparing and printing 
offering materials to the extent the Financing Corporation incurs such 
costs in connection with issuing any obligations.
    Non-administrative expenses means custodian fees, issuance costs, 
and interest on Financing Corporation obligations.
    Obligations means debentures, bonds, and similar debt securities 
issued by the Financing Corporation under sections 21(c)(3) and (e) of 
the Act (12 U.S.C. 1421(c)(3) and (e)).
    Receivership proceeds means the liquidating dividends and payments 
made on claims received by the Federal Savings and Loan Insurance 
Corporation Resolution Fund established under section 11A of the Federal 
Deposit Insurance Act (12 U.S.C. 1821a) from receiverships, that are not 
required by the Resolution Funding Corporation to provide funds for the 
Funding Corporation Principal Fund established under section 21B of the 
Act (12 U.S.C. 1441b).
    SAIF-assessable deposit means a deposit that is subject to 
assessment for

[[Page 218]]

purposes of the Savings Association Insurance Fund under the Federal 
Deposit Insurance Act, including a deposit that is treated as a deposit 
insured by the Savings Association Insurance Fund under section 5(d)(3) 
of the Federal Deposit Insurance Act (12 U.S.C. 1815(d)(3)).

[67 FR 12855, Mar. 20, 2002]



Sec. 995.2  General authority.

    Subject to the limitations and interpretations in this part and such 
orders and directions as the Finance Board may prescribe, the Financing 
Corporation shall have authority to exercise all powers and authorities 
granted to it by the Act and by its charter and bylaws regardless of 
whether the powers and authorities are specifically implemented in 
regulation.



Sec. 995.3  Authority to establish investment policies and procedures.

    The Directorate shall have authority to establish investment 
policies and procedures with respect to Financing Corporation funds 
provided that the investment policies and procedures are consistent with 
the requirements of section 21(g) of the Act (12 U.S.C. 1441(g)). The 
Directorate shall promptly notify the Finance Board in writing of any 
changes to the investment policies and procedures.

[62 FR 50248, Sept. 25, 1997. Redesignated at 65 FR 8256, Feb. 18, 2000, 
as amended at 67 FR 12855, Mar. 20, 2002]



Sec. 995.4  Book-entry procedure for Financing Corporation obligations.

    (a) Authority. Any Federal Reserve Bank shall have authority to 
apply book-entry procedure to Financing Corporation obligations.
    (b) Procedure. The book-entry procedure for Financing Corporation 
obligations shall be governed by the book-entry procedure established 
for Bank consolidated obligations, codified at part 987 of this chapter. 
Wherever the terms ``Bank(s),'' ``consolidated obligation(s)'' or 
``Book-entry consolidated obligation(s)'' appear in part 987, the terms 
shall be construed also to mean ``Financing Corporation,'' ``Financing 
Corporation obligation(s),'' or ``Book-entry Financing Corporation 
obligation(s),'' respectively, if appropriate to accomplish the purposes 
of this section.

[62 FR 50248, Sept. 25, 1997, as amended at 65 FR 8268, Feb. 18, 2000; 
67 FR 12855, Mar. 20, 2002]



Sec. 995.5  Bank and Office of Finance employees.

    Without further approval of the Finance Board, the Financing 
Corporation shall have authority to utilize the officers, employees, or 
agents of any Bank or the Office of Finance in such manner as may be 
necessary to carry out its functions.



Sec. 995.6  Budget and expenses.

    (a) Directorate approval. The Financing Corporation shall submit 
annually to the Directorate for approval, a budget of proposed 
expenditures for the next calendar year that includes administrative and 
non-administrative expenses.
    (b) Finance Board approval. The Directorate shall submit annually to 
the Finance Board for approval, the budget of the Financing 
Corporation's proposed expenditures it approved pursuant to paragraph 
(a) of this section.
    (c) Spending limitation. The Financing Corporation shall not exceed 
the amount provided for in the annual budget approved by the Finance 
Board pursuant to paragraph (b) of this section, or as it may be amended 
by the Directorate within limits set by the Finance Board.
    (d) Amended budgets. Whenever the Financing Corporation projects or 
anticipates that it will incur expenditures, other than interest on 
Financing Corporation obligations, that exceed the amount provided for 
in the annual budget approved by the Finance Board or the Directorate 
pursuant to paragraph (b) or (c) of this section, the Financing 
Corporation shall submit an amended annual budget to the Directorate for 
approval, and the Directorate shall submit such amended budget to the 
Finance Board for approval.



Sec. 995.7  Administrative expenses.

    (a) Payment by Banks. The Banks shall pay all administrative 
expenses

[[Page 219]]

of the Financing Corporation approved pursuant to Sec. 995.6.
    (b) Amount. The Financing Corporation shall determine the amount of 
administrative expenses each Bank shall pay in the manner provided by 
section 21(b)(7)(B) of the Act (12 U.S.C. 1441(b)(7)(B)). The Financing 
Corporation shall bill each Bank for such amount periodically.
    (c) Adjustments. The Financing Corporation shall adjust the amount 
of administrative expenses the Banks are required to pay in any calendar 
year pursuant to paragraphs (a) and (b) of this section, by deducting 
any funds that remain from the amount paid by the Banks for 
administrative expenses in the prior calendar year.

[62 FR 50248, Sept. 25, 1997, as amended at 65 FR 8268, Feb. 18, 2000; 
67 FR 12856, Mar. 20, 2002]



Sec. 995.8  Non-administrative expenses; assessments.

    (a) Interest expenses. The Financing Corporation shall determine 
anticipated interest expenses on its obligations at least semiannually.
    (b) Assessments on insured depository institutions--(1) Authority. 
To provide sufficient funds to pay the non-administrative expenses of 
the Financing Corporation approved under Sec. 995.6, the Financing 
Corporation shall, with the approval of the board of directors of the 
FDIC, assess against each insured depository institution an assessment 
in the same manner as assessments are made by the FDIC under section 7 
of the Federal Deposit Insurance Act.
    (2) Assessment rate--(i) Determination. The Financing Corporation at 
least semiannually shall establish an assessment rate formula, which may 
include rounding methodology, to determine the rate or rates of the 
assessment it will assess against insured depository institutions 
pursuant to section 21(f)(2) of the Act (12 U.S.C. 1441(f)(2)) and 
paragraph (b)(1) of this section.
    (ii) Limitation. Until the earlier of December 31, 1999, or the date 
as of which the last savings association ceases to exist, the rate of 
the assessment imposed on an insured depository institution with respect 
to any BIF-assessable deposit shall be a rate equal to \1/5\ of the rate 
of the assessment imposed on an insured depository institution with 
respect to any SAIF-assessable deposit.
    (iii) Notice. The Financing Corporation shall notify the FDIC and 
the collection agent, if any, of the formula established under paragraph 
(b)(2)(i) of this section.
    (3) Collecting assessments--(i) Collection agent. The Financing 
Corporation shall have authority to collect assessments made under 
section 21(f)(2) of the Act (12 U.S.C. 1441(f)(2)) and paragraph (b)(1) 
of this section through a collection agent of its choosing.
    (ii) Accounts. Each Bank shall permit any insured depository 
institution whose principal place of business is in its district to 
establish and maintain at least one demand deposit account to facilitate 
collection of the assessments made under section 21(f)(2) of the Act (12 
U.S.C. 1441(f)(2)) and paragraph (b)(1) of this section.
    (c) Receivership proceeds--(1) Authority. To the extent the amounts 
collected under paragraph (b) of this section are insufficient to pay 
the non-administrative expenses of the Financing Corporation approved 
under Sec. 995.6, the Financing Corporation shall have authority to 
require the FDIC to transfer receivership proceeds to the Financing 
Corporation in accordance with section 21(f)(3) of the Act (12 U.S.C. 
1441(f)(3)).
    (2) Procedure. The Directorate shall request in writing that the 
FDIC transfer the receivership proceeds to the Financing Corporation. 
Such request shall specify the estimated amount of funds required to pay 
the non-administrative expenses of the Financing Corporation approved 
under Sec. 995.6.
    (d) Exit fees--(1) Authority. To the extent the amounts provided 
under paragraphs (b) and (c) of this section are insufficient to pay the 
interest due on Financing Corporation obligations, the Financing 
Corporation shall have authority to request that the Secretary of the 
Treasury order the transfer of exit fees to the Financing Corporation in 
accordance with section 5(d)(2)(E) of the Federal Deposit Insurance Act 
(12 U.S.C. 1815(d)(2)(E)) or as otherwise may be provided for by 
statute.
    (2) Procedure. The Directorate shall request in writing that the 
Secretary of the Treasury order that exit fees be

[[Page 220]]

transferred to the Financing Corporation. Such request shall specify the 
estimated amount of funds required to pay the interest due on Financing 
Corporation obligations.

[62 FR 50248, Sept. 25, 1997, as amended at 65 FR 8268, 8269, Feb. 18, 
2000; 67 FR 12856, Mar. 20, 2002]



Sec. 995.9  Reports to the Finance Board.

    The Financing Corporation shall file such reports as the Finance 
Board shall direct.



Sec. 995.10  Review of books and records.

    The Finance Board shall examine the Financing Corporation at least 
annually to determine whether the Financing Corporation is performing 
its functions in accordance with the requirements of section 21 of the 
Act (12 U.S.C. 1441) and this part.

[62 FR 50248, sept. 25, 1997. Redesignated at 65 FR 8256, Feb. 18, 2000, 
as amended at 67 FR 12856, Mar. 20, 2002]



PART 996_AUTHORITY FOR BANK ASSISTANCE OF THE RESOLUTION FUNDING CORPORATION--Table of Contents




Sec.
996.1 [Reserved]
996.2 Bank employees.
996.3 Demand deposit accounts.

    Authority: 12 U.S.C. 1422a, 1422b.



Sec. 996.1  [Reserved]



Sec. 996.2  Bank employees.

    Upon the request of the Directorate of the Resolution Funding 
Corporation, established pursuant to section 21B(b) of the Act (12 
U.S.C. 1441b(b)), officers, employees, or agents of the Banks are 
authorized to act for and on behalf of the Resolution Funding 
Corporation in such manner as may be necessary to carry out the 
functions of the Resolution Funding Corporation as provided in section 
21B(c)(6)(B) of the Act (12 U.S.C. 1441b(c)(6)(B)).

[54 FR 39729, Sept. 28, 1989, as amended at 65 FR 8269, Feb. 18, 2000. 
Redesignated and amended at 67 FR 12856, Mar. 20, 2002]



Sec. 996.3  Demand deposit accounts.

    Each Bank shall allow any Savings Association Insurance Fund member 
whose principal place of business is in its district to establish and 
maintain at least one demand deposit account for the purpose of 
facilitating the Resolution Funding Corporation's assessments pursuant 
to section 21B(e)(7) of the Act (12 U.S.C. 1441b(e)(7)).

[54 FR 39729, Sept. 28, 1989, as amended at 65 FR 8269, Feb. 18, 2000. 
Redesignated and amended at 67 FR 12856, Mar. 20, 2002]



PART 997_RESOLUTION FUNDING CORPORATION OBLIGATIONS OF THE BANKS--Table of Contents




Sec.
997.1 Definitions.
997.2 Reduction of the payment term.
997.3 Extension of the payment term.
997.4 Calculation of the quarterly present-value determination.
997.5 Termination of the obligation.

    Authority: 12 U.S.C. 1422b(a) and 1441b(f).

    Source: 65 FR 17438, Apr. 3, 2000, unless otherwise noted.



Sec. 997.1  Definitions.

    As used in this part:
    Actual quarterly payment means the quarterly amount paid by the 
Banks to fulfill the Banks' obligation to pay toward interest owed on 
bonds issued by the REFCORP. The amount will equal the aggregate of 20 
percent of the quarterly net earnings of each Bank, or such other amount 
assessed in accordance with the Act and the regulations adopted 
thereunder.
    Benchmark quarterly payment means $75 million, or such amount that 
may result from adjustments required by calculations made in accordance 
with Sec. Sec. 997.2 and 997.3.
    Current benchmark quarterly payment means the benchmark quarterly 
payment that corresponds to the date of the actual quarterly payment.
    Deficit quarterly payment means the amount by which the actual 
quarterly payment falls short of the current benchmark quarterly 
payment.
    Estimated interest rate means the interest rate provided to the 
Finance Board by the Department of the Treasury on a zero-coupon 
Treasury bond, the maturity of which is the same as the date of the 
benchmark quarterly payment that is being defeased, or if no bond 
matures on that date, then is the

[[Page 221]]

date closest to the date of the payment being defeased.
    Excess quarterly payment means the amount by which the actual 
quarterly payment exceeds the current benchmark quarterly payment.
    Quarterly present-value determination means the quarterly 
calculation that will determine the extent to which an excess quarterly 
payment or deficit quarterly payment alters the term of the Banks' 
obligation to the REFCORP. This determination will fulfill the 
requirements of 21B(f)(2)(C)(ii) of the Act (12 U.S.C 
1441b(f)(2)(C)(ii), as amended by Pub. L. 106-102, sec. 607, 113 
Stat.1456-57.

[65 FR 17438, Apr. 3, 2000, as amended at 67 FR 12856, Mar. 20, 2002]



Sec. 997.2  Reduction of the payment term.

    (a) Generally. The Finance Board shall shorten the term of the 
obligation of the Banks to make payments toward the interest owed on 
bonds issued by the REFCORP for each quarter in which there is an excess 
quarterly payment.
    (b) Excess quarterly payment. Where there is an excess quarterly 
payment, the quarterly present-value determination shall be as follows:
    (1) The future value of the excess quarterly payment shall be 
calculated using the estimated interest rate corresponding to the last 
non-defeased benchmark quarterly payment.
    (2) The future value calculated in paragraph (b)(1) of this section 
shall be subtracted from the amount of the last non-defeased quarterly 
benchmark payment.
    (3) If the difference resulting from the calculation in paragraph 
(b)(2) of this section is greater than zero, then the last non-defeased 
quarterly benchmark payment is reduced by the future value of the excess 
quarterly payment.
    (4) If the difference resulting from the calculation in paragraph 
(b)(2) of this section is less than zero, then the last non-defeased 
quarterly benchmark payment shall be defeased and the payment term shall 
be shortened.
    (5) The amount of the excess quarterly payment that has not already 
been applied to defeasing the payment under paragraph (b)(4) of this 
section shall be applied toward defeasing the last non-defeased 
quarterly benchmark payment using the applicable estimated interest 
rate.



Sec. 997.3  Extension of the payment term.

    (a) Generally. The Finance Board will extend the term of the 
obligation of the Banks to make payments toward interest owed on bonds 
issued by the REFCORP for each calendar quarter in which there is a 
deficit quarterly payment.
    (b) Deficit quarterly payment. Where there is a deficit quarterly 
payment, the quarterly present-value determination shall be as follows:
    (1) The future value of the deficit quarterly payment shall be 
calculated using the estimated interest rate corresponding to the last 
non-defeased benchmark quarterly payment, or to the first quarter 
thereafter if the last non-defeased benchmark quarterly payment already 
equals $75 million.
    (2) The future value calculated in paragraph (b)(1) of this section 
shall be added to the amount of the last non-defeased quarterly 
benchmark payment if that sum is $75 million or less.
    (3) If the sum calculated in paragraph (b)(2) of this section 
exceeds $75 million, the last non-defeased quarterly benchmark payment 
will become $75 million, and the quarterly benchmark payment term will 
be extended.
    (4) The extended payment will equal the future value of the amount 
of the deficit quarterly payment that has not already been applied to 
raising the quarterly benchmark payment to $75 million under paragraph 
(b)(3) of this section, using the estimated interest rate corresponding 
to the date of the extended benchmark quarterly payment.
    (c) Term beyond maturity. The benchmark quarterly payment term may 
be extended beyond April 15, 2030, if such extension is necessary to 
ensure that the value of the aggregate amounts paid by the Banks exactly 
equals the present value of an annuity of $300 million per year that 
commences on the date on which the first obligation of the REFCORP was 
issued and ends on April 15, 2030.

[[Page 222]]



Sec. 997.4  Calculation of the quarterly present-value determination.

    (a) Applicable interest rates. The Finance Board shall obtain from 
the Department of the Treasury the applicable estimated interest rates 
and provide those rates to the REFCORP so that the REFCORP can perform 
the calculations required under Sec. Sec. 997.2 and 997.3.
    (b) Calculation by the Finance Board. If Sec. 997.3 requires that 
the term for the Banks' actual quarterly payments extend beyond April 
15, 2030 or if, for any reason, the REFCORP is unable to perform the 
calculations or to provide the Finance Board with the results of the 
calculations, the Finance Board shall make all calculations required 
under this part.
    (c) Records. The Finance Board will maintain the official record of 
the results of all quarterly present-value determinations made under 
this part.



Sec. 997.5  Termination of the obligation.

    (a) Generally. The Banks' obligation to the REFCORP, or to the 
Department of the Treasury if the term of that obligation extends beyond 
April 15, 2030, will terminate when the aggregate actual quarterly 
payments made by the Banks exactly equal the present value of an annuity 
of $300 million per year that commences on the date on which the first 
obligation of the REFCORP was issued and ends on April 15, 2030.
    (b) Date of the final payment. The aggregate actual quarterly 
payments made by the Banks exactly equal the present value of the 
annuity described in paragraph (a) of this section when the value of any 
remaining benchmark quarterly payment(s), after the benchmark quarterly 
payments have been adjusted as required by Sec. Sec. 997.2 and 997.3, 
exactly equals the actual quarterly payment.

[65 FR 17438, Apr. 3, 2000, as amended at 65 FR 40492, June 30, 2000]

[[Page 223]]



             Subchapter M_FEDERAL HOME LOAN BANK DISCLOSURES





PART 998_REGISTRATION OF FEDERAL HOME LOAN BANK EQUITY SECURITIES--Table of Contents




Sec.
998.1 Purpose.
998.2 Registration and periodic disclosures.
998.3 Reservation of authority.

    Authority: 12 U.S.C. 1422a(a)(3), 1422b(a)(1).

    Source: 69 FR 38811, June 29, 2004, unless otherwise noted.



Sec. 998.1  Purpose.

    The purposes of this part are to enhance the quality of the 
financial disclosures provided by each Bank, to promote a greater degree 
of consistency and uniformity of such disclosures from Bank to Bank, to 
provide a greater degree of transparency regarding the financial 
condition of each Bank, and to conform the disclosure practices of the 
Banks to those of other financial institutions who raise funds in the 
global debt markets.



Sec. 998.2  Registration and periodic disclosures.

    (a) Registration. (1) Each Bank shall file a registration statement 
by no later than June 30, 2005 to register a class of its equity 
securities pursuant to the provisions of section 12(g)(1) of the 1934 
Act. Each Bank shall ensure that its registration statement becomes 
effective as provided in section 12 no later than August 29, 2005.
    (2) Notwithstanding paragraph (a)(1) of this section, the Finance 
Board may by order extend the registration date for one or more Banks if 
it determines, based on factors presented in a written request to the 
Finance Board, that good cause exists to do so.
    (b) Periodic disclosures. Consistent with the registration required 
pursuant to paragraph (a) of this section, each Bank, after registering 
a class of equity securities with the SEC, shall comply with the 
periodic disclosure requirements of the 1934 Act by preparing and filing 
with the SEC such annual, quarterly, and current reports, as well as any 
other materials required pursuant to SEC rules, regulations, or 
interpretations, including those related to audited financial 
statements, as may be required by the SEC under the 1934 Act.
    (c) Submission to Finance Board. Unless otherwise directed by the 
Finance Board, each Bank shall provide to the Finance Board on a 
concurrent basis copies of all disclosure documents filed with the SEC.



Sec. 998.3  Reservation of authority.

    The requirements of this part do not diminish, or otherwise restrict 
the ability of the Finance Board to exercise, any and all authority 
conferred by the Bank Act to ensure that the Banks operate in a 
financially safe and sound manner, that they carry out their housing 
finance mission, and that they remain adequately capitalized and able to 
raise funds in the capital markets. Nor do the requirements of part 998 
diminish or otherwise restrict the Finance Board's authority to 
supervise the Banks, to conduct examinations, to require reports and 
other disclosures, and to enforce compliance with applicable laws, 
rules, orders or agreements.

[[Page 225]]



     CHAPTER XI--FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL




  --------------------------------------------------------------------
Part                                                                Page
1101            Description of office, procedures, public 
                    information.............................         227
1102            Appraiser regulation........................         232

[[Page 227]]



PART 1101_DESCRIPTION OF OFFICE, PROCEDURES, PUBLIC INFORMATION--Table of Contents




Sec.
1101.1 Scope and purpose.
1101.2 Authority and functions.
1101.3 Organization and methods of operation.
1101.4 Disclosure of information, policies, and records.
1101.5 Testimony and production of documents in response to subpoena, 
          order, etc.

    Authority: 5 U.S.C. 552; 12 U.S.C. 3307.

    Source: 45 FR 46794, July 11, 1980, unless otherwise noted.



Sec. 1101.1  Scope and purpose.

    This part implements the Freedom of Information Act (FOIA), 5 U.S.C. 
552, with respect to the Federal Financial Institutions Examination 
Council (Council), and establishes related information disclosure 
procedures.



Sec. 1101.2  Authority and functions.

    (a) The Council was established by the Federal Financial 
Institutions Examination Council Act of 1978 (Act), 12 U.S.C. 3301-3308. 
It is composed of the Comptroller of the Currency; the Chairman of the 
Federal Deposit Insurance Corporation; a Governor of the Board of 
Governors of the Federal Reserve System; the Chairman of the Federal 
Home Loan Bank Board; and the Chairman of the National Credit Union 
Administration Board.
    (b) The statutory functions of the Council are set out at 12 U.S.C. 
3305. In summary, the mission of the Council is to promote consistency 
and progress in federal examination and supervision of financial 
institutions and their affiliates. The Council is empowered to prescribe 
uniform principles, standards, and reporting forms and systems; make 
recommendations in the interest of uniformity; and conduct examiner 
schools open to personnel of the agencies represented on the Council and 
employees of state financial institutions supervisory agencies.



Sec. 1101.3  Organization and methods of operation.

    (a) Statutory requirements relating to the Council's organization 
are stated in 12 U.S.C. 3303.
    (b) Council staff. Administrative support and substantive 
coordination for Council activities are provided by a small staff 
detailed on a full-time basis from the five member agencies. The 
Executive Secretary and Deputy Executive Secretary of the Council 
supervise this staff.
    (c) Agency Liaison Group, Task Forces and Legal Advisory Group. Most 
staff support in the substantive areas of the Council's duties is 
provided by interagency task forces and the Council's Legal Advisory 
Group (LAG). These task forces and the LAG are responsible for securing 
the services, as needed, of staff experts from the five agencies; 
supervising research and other investigative work for the Council; and 
preparing reports and recommendations for the Council. The Agency 
Liaison Group (ALG) is responsible for the overall coordination of the 
respective agencies' staff contributions to Council business. The ALG, 
the task forces, and the LAG are each composed of Council member agency 
staff serving the Council on a part-time basis.
    (d) State Liaison Committee. Under 12 U.S.C. 3306, the Council has 
established a State Liaison Committee, composed of five representatives 
of state financial institutions supervisory agencies.
    (e) Council address. Council offices are located at 1776 G Street, 
NW., Suite 701, Washington, DC 20006.

[45 FR 46794, July 11, 1980, as amended at 53 FR 7341, Mar. 8, 1988]



Sec. 1101.4  Disclosure of information, policies, and records.

    (a) Statements of policy published in the Federal Register or 
available for public inspection and copying; indices. Under 5 U.S.C. 
552(a)(1), the Council publishes general rules, policies and 
interpretations in the Federal Register. Under 5 U.S.C. 552(a)(2), 
policies and interpretations adopted by the Council, including 
instructions to Council staff affecting members of the public, and an 
index to the same, are available for public inspection and copying at 
the address set out in Sec. 1101.3(e) of this part

[[Page 228]]

during regular business hours. The preceding materials may be withheld 
from disclosure under the principles stated in paragraph (b)(1) of this 
section.
    (b) Other records of the Council available for public inspection; 
procedures--(1) General rule and exemptions. Under 5 U.S.C. 552(a)(3), 
all other records of the Council are available for public inspection and 
copying, except those exempted from disclosure as provided in this 
paragraph. Except as specifically authorized by the Council, the 
following records, and portions thereof, are not available to the 
public:
    (i) A record, or portion thereof, which is specifically authorized 
under criteria established by an Executive order to be kept secret in 
the interest of national defense or foreign policy and which is, in 
fact, properly classified pursuant to such Executive order.
    (ii) A record, or portion thereof, relating solely to the internal 
personnel rules and practices of an agency.
    (iii) A record, or portion thereof, specifically exempted from 
disclosure by statute (other than 5 U.S.C. 552b), provided that such 
statute (A) requires that the matters be withheld from the public in 
such a manner as to leave no discretion on the issue, or (B) establishes 
particular criteria for withholding or refers to particular types of 
matters to be withheld.
    (iv) A record, or portion thereof, containing trade secrets and 
commercial or financial information obtained from a person and 
privileged or confidential.
    (v) An intraagency or interagency memorandum or letter that would 
not be routinely available by law to a private party in litigation, 
including, but not limited to, memoranda, reports, and other documents 
prepared by the personnel of the Council or its constituent agencies.
    (vi) A personnel, medical, or similar record, including a financial 
record, or any portion thereof, the disclosure of which would constitute 
a clearly unwarranted invasion of personal privacy.
    (vii) Records or information compiled for law enforcement purposes, 
including records relating to a proceeding by a financial institution's 
regulatory agency for the issuance of a cease-and-desist order, or order 
of suspension or removal, or assessment of a civil money penalty and the 
granting, withholding, or revocation of any approval, permission, or 
authority, but only to the extent that the production of such law 
enforcement records or information (A) could reasonably be expected to 
interfere with enforcement proceedings; (B) would deprive a person of a 
right to a fair trial or an impartial adjudication; (C) could reasonably 
be expected to constitute an unwarranted invasion of personal privacy; 
(D) could reasonably be expected to disclose the identity of a 
confidential source, including a state, local, or foreign agency or 
authority or any private institution which furnished information on a 
confidential basis, and, in the case of a record or information compiled 
by a criminal law enforcement authority in the course of a criminal 
investigation, or by an agency conducting a lawful national security 
intelligence investigation, information furnished by a confidential 
source; (E) would disclose techniques and procedures for law enforcement 
investigations or prosecutions, or would disclose guidelines for law 
enforcement investigations or prosecutions if such disclosure could 
reasonably be expected to risk circumvention of the law; or (F) could 
reasonably be expected to endanger the life or physical safety of any 
individual.
    (viii) A record, or portion thereof, containing, relating to, or 
derived from an examination, operating, or condition report prepared by, 
or on behalf of, or for the use of any agency directly or indirectly 
responsible for the regulation or supervision of financial institutions, 
relating to the affairs of any financial institution or affiliate 
thereof, financial institution holding company or subsidiary, broker, 
finance company, or any other person engaged, or proposing to engage, in 
the business of operating, managing or controlling financial 
institutions.
    (ix) A record, or portion thereof, which contains or is related to 
geological and geophysical information and data, including maps, 
concerning wells.
    (2) Waiver of exemption. Notwithstanding the applicability of an 
exemption, the Council or the Council's designee may elect, under the 
circumstances of a particular request, to

[[Page 229]]

disclose all or a portion of any requested record where permitted by 
law. Such disclosure has no precedential significance whatsoever.
    (3) Procedure for records request--(i) Initial request. Requests for 
records shall be submitted in writing to the Executive Secretary of the 
Council, at the address set out in Sec. 1101.3(e) of this part. Mailed 
requests should be marked ``Freedom of Information Request,'' ``FOIA 
Request,'' or the like on the envelope. Requests must reasonably 
describe the records sought. The Executive Secretary will aid members of 
the public in formulating their requests. All requests should give the 
complete telephone number of the individual seeking the records, if 
possible.
    (ii) Council response to initial requests. The Executive Secretary 
will respond by mail to all properly submitted initial requests within 
10 working days of receipt. The time for response may be extended up to 
10 additional working days, as provided in 5 U.S.C. 552(a)(6)(B), or for 
other periods by agreement between the requesting party and the 
Executive Secretary.
    (iii) Appeals of responses to initial requests. If a request is 
denied in whole or in part, the individual making the request may appeal 
in writing, within 35 days of the date of the denial, to the Chairman of 
the Council, at the address set out in Sec. 1101.3(e) of this part. 
Mailed requests should be marked ``Freedom of Information Appeal,'' 
``FOIA Appeal,'' or the like on the envelope. Appeals should refer to 
the date of the original request and the date of the Council's initial 
ruling. Appeals should include an explanation of the basis for the 
appeal.
    (iv) Council response to appeals. The Chairman of the Council, or 
another member designated by the Chairman, will respond by mail to all 
properly submitted appeals within 20 working days of receipt. The time 
for response may be extended up to 10 additional working days, as 
provided in 5 U.S.C. 552(a)(6)(B), or for other periods by agreement 
between the requesting party and the Chairman or the Chairman's 
designee.
    (4) Procedure for access to records if request is granted. When a 
request for access to records is granted, in whole or in part, a copy of 
the records to be disclosed will be promptly delivered to the requesting 
party or made available for inspection, whichever was requested. 
Inspection of records, or duplication and delivery of copies of records 
will be arranged so as not to interfere with their use by the Council 
and other users of the records.
    (5) Fees for document search, review, and duplication; waiver and 
reduction of fees--(i) Definitions--(A) Direct costs means those 
expenditures which the Council actually incurs in searching for, 
duplicating, and reviewing documents to respond to a FOIA request.
    (B) Search means all time spent looking for material that is 
responsive to a request, including page-by-page or line-by-line 
identification of material within documents. Searches may be done 
manually or by computer using existing programming.
    (C) Duplication means the process of making a copy of a document 
necessary to respond to a FOIA request.
    (D) Review means the process of examining documents located in 
response to a request that is for a commercial use (see Sec. 
1101.4(b)(5)(i)(E)) to determine whether any portion of any document 
located is permitted to be withheld and processing such documents for 
disclosure.
    (E) Commercial use request means a request from or on behalf of one 
who seeks information for a use or purpose that furthers the commercial, 
trade, or profit interests of the requester or the person on whose 
behalf the request is made.
    (F) Educational institution means a preschool, an elementary or 
secondary school, an institution of undergraduate higher education, an 
institution of graduate higher education, an institution of professional 
education, and an institution of vocational education, which operates a 
program or programs of scholarly research.
    (G) Noncommercial scientific institution means an institution that 
is not operated on a ``commercial'' basis as that term is referenced in 
Sec. 1101.4(b)(i)(E), and which is operated solely for the purposes of 
conducting scientific research, the results of which are not intended to 
promote any particular product or industry.

[[Page 230]]

    (H) Representative of the news media means any person actively 
gathering news for an entity that is organized and operated to publish 
or broadcast news to the public. The term ``news'' means information 
that is about current events or that would be of current interest to the 
public.
    (ii) Fees to be charged. The Council will charge fees that recoup 
the full allowable direct costs it incurs. The Council may contract with 
the private sector to locate, reproduce, and/or disseminate records. 
Provided, however, that the Council has ensured that the ultimate cost 
to the requester is no greater than it would be if the Council performed 
these tasks. Fees are subject to change as costs change. In no case will 
the Council contract out responsibilities which the FOIA provides that 
it alone may discharge, such as determining the applicability of an 
exemption, or determining whether to waive or reduce fees.
    (A) Manual searches and review. The Council will charge fees at the 
following rates for manual searches for and review of records:
    (1) If search/review is done by clerical staff, the hourly rate for 
GS-7, step 5, plus 16 percent of the rate to cover benefits;
    (2) If search/review is done by professional staff, the hourly rate 
for GS-13, step 5, plus 16 percent of the rate to cover benefits.
    (B) Computer searches. The Council will charge fees at the hourly 
rate for GS-13, step 5, plus 16 percent of the rate to cover benefits, 
plus the hourly cost of operating the computer for computer searches for 
records.
    (C) Duplication of records. (1) The per-page fee for paper copy 
reproduction of a document is $.25;
    (2) The fee for documents generated by computer is the hourly rate 
for the computer operator (at GS 7, step 5, plus 16 percent for benefits 
if clerical staff, and GS 13, step 5, plus 16 percent for benefits if 
professional staff) plus the cost of materials (computer paper, tapes, 
labels, etc.).
    (3) If any other method of duplication is used, the Council will 
charge the actual direct cost of duplicating the documents.
    (D) If search, duplication and/or review is provided by personnel of 
member agencies of the Council, fees will reflect their actual hourly 
rates, plus 16 percent for benefits.
    (E) Fees to exceed $25. If the Council estimates that duplication 
and/or search fees are likely to exceed $25, it will notify the 
requester of the estimated amount of fees, unless the requester has 
indicated in advance his/her willingness to pay fees as high as those 
anticipated. In the case of such notification by the Council, the 
requester will then have the opportunity to confer with Council 
personnel with the object of reformulating the request to meet his/her 
needs at a lower cost.
    (F) Other services. Complying with requests for special services is 
entirely at the discretion of the Council. The Council will recover the 
full costs of providing such services to the extent it elects to provide 
them.
    (G) Restriction on assessing fees. The Council will not charge fees 
to any requester, including commercial use requesters, if the cost of 
collecting a fee would be equal to or greater than the fee itself.
    (H) Waiving or reducing fees. The Council shall waive or reduce fees 
under this section whenever disclosure of information is in the public 
interest because it is likely to contribute significantly to public 
understanding of the operations or activities of the government and is 
not primarily in the commercial interest of the requester.
    (1) The Council will make a determination of whether the public 
interest requirement above is met based on the following factors:
    (i) The subject of the request: Whether the subject of the requested 
records concerns the operations or activities of the government;
    (ii) The informative value of the information to be disclosed: 
Whether the disclosure is likely to contribute to an understanding of 
government operations or activities;
    (iii) The contribution to an understanding of the subject by the 
general public likely to result from disclosure: Whether disclosure of 
the requested information will contribute to public understanding;

[[Page 231]]

    (iv) The significance of the contribution to the public 
understanding: Whether the disclosure is likely to contribute 
significantly to public understanding of government operations or 
activities.
    (2) If the public interest requirement is met, the Council will make 
a determination on the commercial interest requirement based upon the 
following factors:
    (i) The existence and magnitude of a commercial interest: Whether 
the requester has a commercial interest that would be furthered by the 
requested disclosure; and if so
    (ii) The primary interest in disclosure: Whether the magnitude of 
the identified commercial interest of the requester is sufficiently 
large in comparison with the public interest in disclosure; that 
disclosure is primarily in the commercial interest of the requester.
    (3) If the required public interest exists and the requester's 
commercial interest is not primary in comparison to it, the Council will 
waive or reduce fees.
    (iii) Categories of requesters. (A) Commercial use requesters. The 
Council will assess fees for commercial use requesters which recover the 
full direct costs of searching for, reviewing for release, the 
duplicating the records sought. Commercial use requesters are not 
entitled to two hours of free search time nor 100 free pages of 
reproduction of documents.
    (B) Requesters who are representatives of the news media, 
educational and noncommercial scientific institution requesters. The 
Council shall provide documents to requesters in these categories for 
the cost of reproduction alone, excluding fees for the first 100 pages.
    (C) All other requesters. The Council shall charge requesters who do 
not fit into any of the categories above fees which recover the full 
reasonable direct cost of searching for and reproducing records that are 
responsive to the request, except that the first 100 pages of 
reproduction and the first two hours of search time shall be furnished 
without a fee.
    (D) All requesters must specifically describe records sought.
    (iv) Interest on unpaid fees. The Council may begin assessing 
interest charges on an unpaid bill starting on the 31st day following 
the day on which the bill was sent. Interest will be at the rate 
prescribed in section 3717 of title 31 U.S.C. and will accrue from the 
date of the billing.
    (v) Fees for unsuccessful search and review. The Council may assess 
fees for time spent searching and reviewing, even if it fails to locate 
the records or if records located are determined to be exempt from 
disclosure.
    (vi) Aggregating requests. A requester(s) may not file multiple 
requests each seeking portions of a document or documents, solely in 
order to avoid payment of fees. If this is done, the Council may 
aggregate any such requests and charge accordingly. In no case will the 
Council aggregate multiple requests on unrelated subjects from the same 
requester.
    (vii) Advance payment of fees. The Council will not require a 
requester to make an assurance of payment or an advance payment unless:
    (A) The Council estimates or determines that allowable charges that 
a requester may be required to pay are likely to exceed $250. The 
Council will notify the requester of the likely cost and obtain 
satisfactory assurance of full payment where the requester has a history 
of prompt payment of FOIA fees, or require an advance payment of an 
amount up to the full estimated charges in the case of requesters with 
no history of payment; or
    (B) A requester has previously failed to pay a fee charged in a 
timely fashion. The Council may require the requester to pay the full 
amount owed plus any applicable interest as provided in Sec. 
1101.4(b)(5)(iv) or demonstrate that he/she has, in fact, paid the fee, 
and to make an advance payment of the full amount of the estimated fee 
before the Council begins to process a new request or a pending request 
from that requester.
    (C) When the Council acts under Sec. 1101.4(b)(5)(vii) (A) or (B), 
the administrative time limits prescribed in subsection (a)(6) of the 
FOIA (i.e., 10 working days from receipt of initial requests and 20 
working days from receipt of appeals from initial denial,

[[Page 232]]

plus permissible extensions of these time limits) will begin only after 
the Council has received the fee payments described.
    (6) Records of another agency. If a requested record is the property 
of another federal agency or department, and that agency or department, 
either in writing or by regulation, expressly retains ownership of such 
record, upon receipt of a request for the record the Council will 
promptly inform the requester of this ownership and immediately shall 
forward the request to the proprietary agency or department either for 
processing in accordance with the latter's regulations or for guidance 
with respect to disposition.

[45 FR 46794, July 11, 1980, as amended at 53 FR 7341, Mar. 8, 1988]



Sec. 1101.5  Testimony and production of documents in response to subpoena, order, etc.

    No person shall testify, in court or otherwise, as a result of 
activities on behalf of the Council without prior written authorization 
from the Council. This section shall not restrict the authority of a 
Council member to testify before Congress on matters within his or her 
official responsibilities as a Council member. No person shall furnish 
documents reflecting information of the Council in compliance with a 
subpoena, order, or otherwise, without prior written authorization from 
the Council. The Council may authorize testimony or production of 
documents after the litigant (or the litigant's attorney) submits an 
affidavit to the Council setting forth the interest of the litigant and 
the testimony or documents desired. Authorization to testify or produce 
documents is limited to authority expressly granted by the Council. When 
the Council has not authorized testimony or production of documents, the 
individual to whom the subpoena or order has been directed will appear 
in court and respectfully state that he or she is unable to comply 
further with the subpoena or order by reason of this section.



PART 1102_APPRAISER REGULATION--Table of Contents




                   Subpart A_Temporary Waiver Requests

Sec.
1102.1 Authority, purpose, and scope.
1102.2 Requirements for requests.
1102.3 Other requests and information submissions.
1102.4 Notice and comment.
1102.5 Subcommittee determination.
1102.6 Waiver extension.
1102.7 Waiver termination.

               Subpart B_Rules of Practice for Proceedings

1102.20 Authority, purpose, and scope.
1102.21 Definitions.
1102.22 Appearance and practice before the Subcommittee.
1102.23 Formal requirements as to papers filed.
1102.24 Filing requirements.
1102.25 Service.
1102.26 When papers are deemed filed or served.
1102.27 Computing time.
1102.28 Documents and exhibits in proceedings public.
1102.29 Conduct of proceedings.
1102.30 Rules of evidence.
1102.31 Burden of proof.
1102.32 Notice of Intention to Commence a Proceeding.
1102.33 Rebuttal or Notice Not To Contest.
1102.34 Briefs, memoranda and statements.
1102.35 Opportunity for informal settlement.
1102.36 Oral presentations.
1102.37 Decision of the Subcommittee and judicial review.
1102.38 Compliance activities.
1102.39 Duty to cooperate.

Subpart C_Rules Pertaining to the Privacy of Individuals and Systems of 
            Records Maintained by the Appraisal Subcommittee

1102.100 Authority, purpose and scope.
1102.101 Definitions.
1102.102 Times, places and requirements for requests pertaining to 
          individual records in a record system and for the 
          identification of individuals making requests for access to 
          records pertaining to them.
1102.103 Disclosure of requested records.
1102.104 Special procedure: Medical records.
1102.105 Requests for amendment of records.
1102.106 Review of requests for amendment.
1102.107 Appeal of initial adverse agency determination regarding access 
          or amendment.
1102.108 General provisions.

[[Page 233]]

1102.109 Fees.
1102.110 Penalties.

     Subpart D_Description of Office, Procedures, Public Information

1102.300 Purpose and scope.
1102.301 Definitions.
1102.302 ASC authority and functions.
1102.303 Organization and methods of operation.
1102.304 Federal Register publication.
1102.305 Publicly available records.
1102.306 Procedures for requesting records.
1102.307 Disclosure of exempt records.
1102.308 Right to petition for issuance, amendment and repeal of rules 
          of general application.
1102.309 Confidential treatment procedures.
1102.310 Service of process.



                   Subpart A_Temporary Waiver Requests

    Authority: 12 U.S.C. 3348(b).

    Source: 57 FR 10982, Apr. 1, 1992, unless otherwise noted.



Sec. 1102.1  Authority, purpose and scope.

    (a) Authority. This subpart is issued under section 1119(b) of Title 
XI of the Financial Institutions Reform, Recovery, and Enforcement Act 
of 1989 (``FIRREA'') (12 U.S.C. Sec. 3348(b)).
    (b) Purpose and scope. This subpart prescribes rules of practice and 
procedure governing temporary waiver proceedings under Section 1119(b) 
of Title XI of FIRREA (12 U.S.C. 3348(b)). These procedures apply 
whenever a State appraiser regulatory agency requests the Appraisal 
Subcommittee of the Federal Financial Institutions Examination Council 
(``ASC'') for a waiver of any requirement relating to certification or 
licensing of a person to perform appraisals under Title XI of FIRREA. 
They also apply whenever the ASC, based on sufficient, credible 
information or requests received from other persons or entities, 
initiates a temporary waiver proceeding.



Sec. 1102.2  Requirements for requests.

    A request will not be deemed received by the ASC unless it fully and 
accurately sets out:
    (a) If the requester is a State Appraiser Regulatory Agency, a 
written, duly authorized determination by the State Appraiser Regulatory 
Agency that there is a scarcity of State licensed or State certified 
appraisers leading to significant delays in obtaining appraisals in 
federally related transactions. The scarcity can relate to the entire 
State or to particular geographical or political subdivisions. In the 
absence of such a written determination, a State Appraiser Regulatory 
Agency must ask the ASC for such a determination;
    (b) The requirement or requirements of State law from which relief 
is being sought;
    (c) A description of all significant problems currently being 
encountered in efforts to comply with Title XI;
    (d) The nature of the scarcity of certified or licensed appraisers 
(including supporting documentation);
    (e) The extent of the delays anticipated or experienced in obtaining 
the services of certified or licensed appraisers (including supporting 
documentation);
    (f) The reasons why the requester believes that the requirement or 
requirements are causing the scarcity of certified or licensed 
appraisers and the service delays; and
    (g) A specific plan for expeditiously alleviating the scarcity and 
the service delays.



Sec. 1102.3  Other requests and information submissions.

    The federal financial institutions regulatory agencies and the 
Resolution Trust Corporation, their respective regulated financial 
institutions, and other persons or institutions with a demonstrable 
interest in appraiser regulation, may ask the ASC for a determination 
under Sec. 1102.2(a) of this subpart, and may ask that the ASC exercise 
its discretionary authority to initiate a temporary waiver proceeding. 
Such regulated financial institutions and other persons or institutions 
do not need to comply with Sec. 1102.2(g) of this subpart, but are 
strongly encouraged to include meaningful suggestions and 
recommendations for remedying the situation. A copy of the request or 
informational submission shall be forwarded promptly to the State 
Appraiser Regulatory Agency. The ASC shall consider these submissions 
and requests in exercising its authority to

[[Page 234]]

initiate a temporary waiver procedure. When the ASC initiates a 
temporary waiver proceeding, these documents shall correspond to a 
received request under Sec. 1102.4 of this subpart.



Sec. 1102.4  Notice and comment.

    The ASC shall publish promptly in the Federal Register a notice 
respecting:
    (a) The received request; or
    (b) The ASC order initiating a temporary waiver proceeding. The 
notice or initiation order shall contain a concise general statement of 
the nature and basis for the action and shall give interested persons 30 
calendar days from its publication in which to submit written data, 
views and arguments.



Sec. 1102.5  Subcommittee determination.

    Within 45 calendar days of the date of the publication of the notice 
or initiation order in the Federal Register, the ASC, by order, shall 
either grant or deny a waiver in whole, in part, and upon specified 
terms and conditions, including provisions for waiver termination. Such 
order shall respond to comments received from interested members of the 
public and shall provide the reasons for the ASC's finding. The order 
shall be published promptly in the Federal Register, which, in the case 
of an approval order, shall be after Federal Financial Institution 
Examination Council concurrence. Upon the ASC's determination that an 
emergency exists, the ASC may issue an interim approval order 
simultaneously with its action under Sec. 1120.4 of this subpart. Any 
ASC approval order shall be effective only upon Federal Financial 
Institution Examination Council concurrence.



Sec. 1102.6  Waiver extension.

    The ASC may initiate an extension of temporary waiver relief and 
shall follow Sec. Sec. 1102.4, 1102.5 and 1102.7 of this subpart. A 
State Appraiser Regulatory Agency also may request an extension of 
temporary waiver relief by forwarding an additional written request to 
the ASC. A request for an extension from State Appraiser Regulatory 
Agency shall be subject to all the requirements of this subpart.



Sec. 1102.7  Waiver termination.

    The ASC at any time may terminate a waiver order on the finding 
that:
    (a) The significant delays in obtaining the services of certified or 
licensed appraisers no longer exist; or
    (b) The terms and conditions of the waiver order are not being 
satisfied. The ASC shall publish a finding of waiver termination 
promptly in the Federal Register, giving interested persons no less than 
30 calendar days from publication in which to submit written data, views 
and arguments. In the absence of further ASC action to the contrary, the 
finding of waiver termination automatically shall become final 21 
calendar days after the close of the comment period.



               Subpart B_Rules of Practice for Proceedings

    Authority: 12 U.S.C. 3332, 3335, 3347, and 3348(c).

    Source: 57 FR 31650, July 17, 1992, unless otherwise noted.



Sec. 1102.20  Authority, purpose, and scope.

    (a) Authority. This subpart is issued under sections 1103, 1106, 
1118 and 1119(c) of Title XI of the Financial Institutions Reform, 
Recovery, and Enforcement Act of 1989 (FIRREA) (12 U.S.C. 3332, 3335, 
3347, and 3348(c)).
    (b) Purpose and scope. This subpart prescribes rules of practice and 
procedure governing non-recognition proceedings under section 1118 of 
Title XI (12 U.S.C. 3347); and other proceedings necessary to carry out 
the purposes of Title XI under section 1119(c) of Title XI (12 U.S.C. 
3348(c)).

[57 FR 31650, July 17, 1992, as amended at 57 FR 35004, Aug. 7, 1992]



Sec. 1102.21  Definitions.

    As used in this subpart:
    (a) Subcommittee or ASC means the Appraisal Subcommittee of the 
Federal Financial Institutions Examination Council, as established under 
section 1011 of Title XI (12 U.S.C. 3310).
    (b) Party means the ASC or a person, agency or other entity named as 
a party, including, when appropriate,

[[Page 235]]

persons appearing in the proceeding under Sec. 1102.22 of this subpart.
    (c) Respondent means any party other than the ASC.
    (d) Secretary means the Secretary of the ASC under its Rules of 
Operation.



Sec. 1102.22  Appearance and practice before the Subcommittee.

    (a) By attorneys and notice of appearance. Any person who is a 
member in good standing of the bar of the highest court of any State or 
of the District of Columbia, or of any possession, territory, or 
commonwealth of the United States, may represent parties before the ASC 
upon filing with the Secretary a written notice of appearance stating 
that he or she is currently qualified as provided in this paragraph and 
is authorized to represent the particular party on whose behalf he or 
she acts.
    (b) By non-attorneys. An individual may appear on his or her own 
behalf. A member of a partnership may represent the partnership, and an 
officer, director or employee of any government unit, agency, 
institution, corporation or authority may represent that unit, agency, 
institution, corporation or authority. The partner, officer, director or 
employee must file with the Secretary a written statement that he or she 
has been duly authorized by the partnership, government unit, agency, 
institution, corporation or authority to act on its behalf. The ASC may 
require the representative to attach to the statement appropriate 
supporting documentation, such as a corporate resolution.
    (c) Conduct during proceedings. All participants in a proceeding 
shall conduct themselves with dignity and in an orderly and ethical 
manner. The attorney or other representative of a party shall make every 
effort to restrain a client from improper conduct in connection with a 
proceeding. Improper language or conduct, refusal to comply with 
directions, use of dilatory tactics, or refusal to adhere to reasonable 
standards of orderly and ethical conduct constitute grounds for 
immediate exclusion from the proceeding at the direction of the ASC.



Sec. 1102.23  Formal requirements as to papers filed.

    (a) Form. All papers filed under this subpart must be double-spaced 
and printed or typewritten on 8\1/2\x11 paper. All 
copies shall be clear and legible.
    (b) Caption. All papers filed must include at the head thereof, or 
on a title page, the name of the ASC and of the filing party, the title 
and/or docket number of the proceeding and the subject of the particular 
paper.
    (c) Party names, signatures, certificates of service. All papers 
filed must set forth the name, address and telephone number of the 
attorney or party making the filing, must be signed by the attorney or 
party, and must be accompanied by a certification setting forth when and 
how service has been made on all other parties.
    (d) Copies. Unless otherwise specifically provided in the notice of 
proceeding or by the ASC during the proceeding, an original and one copy 
of all documents and papers shall be furnished to the Secretary.



Sec. 1102.24  Filing requirements.

    (a) Filing. All papers filed with the ASC in any proceeding shall be 
filed with the Secretary, Appraisal Subcommittee, 2000 K Street, NW., 
Suite 310, Washington, DC 20006.
    (b) Manner of filing. Unless otherwise specified by the ASC, filing 
may be accomplished by:
    (1) Personal service;
    (2) Delivering the papers to a reliable commercial courier service, 
overnight delivery service, or to the U.S. Post Office for Express Mail 
delivery; and
    (3) Mailing the papers by first class, registered, or certified 
mail.

[57 FR 31650, July 17, 1992, as amended at 69 FR 2501, Jan. 16, 2004]



Sec. 1102.25  Service.

    (a) Methods; appearing party. A serving party, who has made an 
appearance under Sec. 1102.22 of this subpart, shall use one or more of 
the following methods of service:
    (1) Personal service;
    (2) Delivering the papers to a reliable commercial courier service, 
overnight

[[Page 236]]

delivery service, or to the U.S. Post Office for Express Mail delivery; 
and
    (3) Mailing the papers by first class, registered, or certified 
mail.
    (b) Methods; non-appearing party. If a party has not appeared in the 
proceeding in accordance with Sec. 1102.22 of this subpart, the ASC or 
any other party shall make service by any of the following methods:
    (1) By personal service;
    (2) By delivery to a person of suitable age and discretion at the 
party's last known address;
    (3) By registered or certified mail addressed to the party's last 
known address; or
    (4) By any other manner reasonably calculated to give actual notice.
    (c) By the Subcommittee. All papers required to be served by the ASC 
shall be served by the Secretary unless some other person shall be 
designated for such purpose by the ASC.
    (d) By the respondent. All papers filed in a proceeding under this 
subpart shall be served by a respondent on the Secretary and each 
party's attorney, or, if any party is not so represented, then upon such 
party. Such service may be made by any of the appropriate methods 
specified in paragraphs (a) and (b) of this section.



Sec. 1102.26  When papers are deemed filed or served.

    (a) Effectiveness. Filing and service are deemed effective:
    (1) For personal service or same-day commercial courier delivery, 
upon actual delivery; and
    (2) For overnight commercial delivery service, U.S. Express Mail 
delivery, or first class, registered, or certified mail, upon deposit 
in, or delivery to, an appropriate point of collection.
    (b) Modification. The effective times for filing and service in 
paragraph (a) of this section may be modified by the ASC in the case of 
filing or by agreement of the parties in the case of service.



Sec. 1102.27  Computing time.

    (a) General rule. In computing any period of time prescribed or 
allowed by this subpart, the date of the act, event or default from 
which the designated period of time begins to run is not included. The 
last day so computed is included, unless it is a Saturday, Sunday, or 
Federal holiday, in which event the period runs until the end of the 
next day which is not a Saturday, Sunday or Federal holiday. 
Intermediate Saturdays, Sundays, and Federal holidays shall not be 
included in the computation.
    (b) For service and filing responsive papers. Whenever a time limit 
is measured by a prescribed period from the service of any notice or 
paper, the applicable time periods are calculated as follows:
    (1) If service is made by first class, registered or certified mail, 
add three days to the prescribed period; and
    (2) If service is made by express mail or overnight delivery 
service, add one day to the prescribed period.



Sec. 1102.28  Documents and exhibits in proceedings public.

    Unless and until otherwise ordered by the ASC or unless otherwise 
provided by statute or by ASC regulation, all documents, papers and 
exhibits filed in connection with any proceeding, other than those that 
may be withheld from disclosure under applicable law, shall be placed by 
the Secretary in the proceeding's public file and will be available for 
public inspection and copying at the address set out in Sec. 1102.24 of 
this subpart.



Sec. 1102.29  Conduct of proceedings.

    (a) In general. Unless otherwise provided in the notice of 
proceedings, all proceedings under this subpart shall be conducted as 
hereinafter provided.
    (b) Written submissions. All aspects of the proceeding shall be 
conducted by written submissions only, with the exception of oral 
presentations allowed under Sec. 1102.36 of this subpart.
    (c) Disqualification. A Subcommittee member who deems himself or 
herself disqualified may at any time withdraw. Upon receipt of a timely 
and sufficient affidavit of personal bias or disqualification of such 
member, the ASC will rule on the matter as a part of the record and 
decision in the case.
    (d) User of ASC staff. Appropriate members of the ASC's staff who 
are not engaged in the performance of investigative or prosecuting 
functions in the

[[Page 237]]

proceeding may advise and assist the ASC in the consideration of the 
case and in the preparation of appropriate documents for its 
disposition.
    (e) Authority of Subcommittee Chairperson. The Chairperson of the 
ASC, in consultation with other members of the ASC whenever appropriate, 
shall have complete charge of the proceeding and shall have the duty to 
conduct it in a fair and impartial manner and to take all necessary 
action to avoid delay in the disposition of proceedings in accordance 
with this subpart.
    (f) Conferences. (1) The ASC may on its own initiative or at the 
request of any party, direct all parties or counsel to meet with one or 
more duly authorized ASC members or staff at a specified time and place, 
or to submit to the ASC or its designee, suggestions in writing for the 
purpose of considering any or all of the following:
    (i) Scheduling of matters, including a timetable for the 
information-gathering phase of the proceeding;
    (ii) Simplification and clarification of the issues;
    (iii) Stipulations and admissions of fact and of the content and 
authenticity of documents;
    (iv) Matters of which official notice will be taken; and
    (v) Such other matters as may aid in the orderly disposition of the 
proceeding, including disclosure of the names of persons submitting 
affidavits or other documents and exhibits which may be introduced into 
the public file of the proceeding.
    (2) Such conferences will not be recorded, but the Secretary shall 
place in the proceeding's public file a memorandum summarizing the 
results of the conference and shall provide a copy of the memorandum to 
each party. The memorandum shall control the subsequent course of the 
proceedings, unless the ASC for good cause shown by one or more parties 
to the conference, modifies those results and instructs the Secretary to 
place an amendatory memorandum to that effect in the public file.
    (g) Changes or extensions of time and changes of place of 
proceeding. The ASC, in connection with initiating a specific 
proceedings under Sec. 1102.32 of this subpart, may instruct the 
Secretary to publish in the Federal Register time limits different from 
those specified in this subpart, and may, on its own initiative or for 
good cause shown, issue an exemption changing the place of the 
proceeding or extending any time limit prescribed by this subpart, 
including the date for ending the information-gathering phase of the 
proceeding.
    (h) Call for further briefs, memoranda, statements; reopening of 
matters. The ASC may call for the production of further information upon 
any issue, the submission of briefs, memoranda and statements (together 
with written responses), and, upon appropriate notice, may reopen any 
aspect of the proceeding at any time prior to a decision on the matter.

[57 FR 31650, July 17, 1992, as amended at 57 FR 35004, Aug. 7, 1992]



Sec. 1102.30  Rules of evidence.

    (a) In general. (1) Except as is otherwise set forth in this 
section, relevant, material and reliable evidence that is not unduly 
repetitive is admissible to the fullest extent authorized by the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and other applicable 
law.
    (2) Evidence that would be admissible under the Federal Rules of 
Evidence is admissible in a proceeding conducted under this subpart.
    (3) Evidence that would be inadmissible under the Federal Rules of 
Evidence may be deemed or ruled admissible in a proceeding conducted 
under this subpart if such evidence is relevant, material, reliable and 
not unduly repetitive.
    (b) Stipulations. Any party may stipulate in writing as to any 
relevant matters of fact, law, or the authenticity of any relevant 
documents. The Secretary shall place such stipulations in the public 
file, and they shall be binding on the parties.
    (c) Official notice. Every matter officially noticed by the ASC 
shall appear in the public file, unless the ASC determines that the 
matter must be withheld from public disclosure under applicable Federal 
law.



Sec. 1102.31  Burden of proof.

    The ultimate burden of proof shall be on the respondent. The burden 
of going

[[Page 238]]

forward with a prima facie case shall be on the ASC.



Sec. 1102.32  Notice of Intention to Commence a Proceeding.

    The ASC shall instruct the Secretary or other designated officer 
acting for the ASC to publish in the Federal Register a Notice of 
Intention To Commence A Proceeding (Notice of Intention). The Notice of 
Intention shall be served upon the party or parties to the proceeding 
and shall commence at the time of service. The Notice of Intention shall 
state the legal authority and jurisdiction under which the proceeding is 
to be held; shall contain, or incorporate by appropriate reference, a 
specific statement of the matters of fact or law constituting the 
grounds for the proceeding; and shall state a date no sooner than 25 
days after service of the Notice of Intention is made for termination of 
the information-gathering phase of the proceeding. The Notice of 
Intention also must contain a bold-faced warning respecting the effect 
of a failure to file a Rebuttal or Notice Not To Contest under Sec. 
1102.33(d) of this subpart. The ASC may amend a Notice of Intention in 
any manner and to the extent consistent with provisions of applicable 
law.



Sec. 1102.33  Rebuttal or Notice Not To Contest.

    (a) When required. A party to the proceeding may file either a 
Rebuttal or a Notice Not to Contest the statements contained in the 
Notice of Intention or any amendment thereto with the Secretary within 
15 days after being served with the Notice of Intention or an amendment 
to such Notice. The Secretary shall place the Rebuttal or the Notice Not 
To Contest in the public file.
    (b) Requirements of Rebuttal; effect of failure to deny. A Rebuttal 
filed under this section shall specifically admit, deny or state that 
the party does not have sufficient information to admit or deny each 
statement in the Notice of Intention. A statement of lack of information 
shall have the effect of a denial. Any statement not denied shall be 
deemed to be admitted. When a party intends to deny only a part or a 
qualification of a statement, the party shall admit so much of it as is 
true and shall deny only the remainder.
    (c) Notice Not To Contest. A party filing a Notice Not To Contest 
the statement of fact set forth in the Notice of Intention shall 
constitute a waiver of the party's opportunity to rebut the facts 
alleged, and together with the Notice of Intention and any referenced 
documents, will provide a record basis on which the ASC shall decide the 
matter. The filing of a Notice Not To Contest shall not constitute a 
waiver of the right of such party to a judicial review of the ASC's 
decision, findings and conclusions.
    (d) Effect of failure to file Rebuttal or Notice Not To Contest. 
Failure of a party to file a response required by this section within 
the time provided shall constitute a waiver of the party's opportunity 
to rebut and to contest the statements in the Notice of Intention and 
shall constitute authorization for the ASC to find the facts to be as 
presented in the Notice of Intention and to file with the Secretary a 
decision containing such findings and appropriate conclusions. The ASC, 
for good cause shown, will permit the filing of a Rebuttal after the 
prescribed time.



Sec. 1102.34  Briefs, memoranda and statements.

    (a) By the parties. Until the end of the information-gathering phase 
of the proceeding, any party may file with the Secretary a written 
brief, memorandum or other statement providing factual data and policy 
and legal arguments regarding the matters set out in the Notice of 
Intention. The filing party shall simultaneously serve other parties to 
the proceeding with a copy of the document. No later than ten days after 
such service, any party may file with the Secretary a written response 
to the document and must simultaneously serve a copy thereof on the 
other parties to the proceeding. The Secretary will receive documents 
and responses and will place them in the public file.
    (b) By interested persons, in non-recognition proceedings. Until the 
end of the information-gathering phase of a proceeding under section 
1118 of FIRREA (12 U.S.C. 3347), any person with a demonstrable, direct 
interest in

[[Page 239]]

the outcome of the proceeding may file with the Secretary a written 
brief, memorandum or other statement providing factual data and policy 
and legal arguments regarding the matters set out in the Notice of 
Intention. The ASC's Chairperson or his or her designee may not accept 
any such written brief, memorandum or other statement if the submitting 
person cannot demonstrate a direct interest in the outcome of the 
proceeding. Upon acceptance of the written brief, memorandum or other 
statement, the Secretary shall make copies of the document and forward 
one copy thereof to each party to the proceeding. No later than ten days 
after such service, any party may file with the Secretary a written 
response to the document and must simultaneously serve one copy thereof 
on the other parties to the proceeding. The Secretary will place a copy 
of such briefs, memoranda, statements and responses in the public file.



Sec. 1102.35  Opportunity for informal settlement.

    Any party may at any time submit to the Secretary, for consideration 
by the Subcommittee, written offers or proposals for settlement of a 
proceeding, without prejudice to the rights of the parties. No offer or 
proposal shall be included in the proceeding's public file over the 
objection of any party to such proceeding. This paragraph shall not 
preclude settlement of any proceeding by the filing of a Notice Not To 
Contest as provided in Sec. 1102.33(c) or by the submission of the case 
to the ASC on a stipulation of facts.



Sec. 1102.36  Oral presentations.

    (a) In general. A party does not have a right to an oral 
presentation. Under this section, a party's request to make an oral 
presentation may be denied if such a denial is appropriate and 
reasonable under the circumstances. An oral presentation shall be 
considered as an opportunity to offer, emphasize and clarify the facts, 
policies and laws concerning the proceeding.
    (b) Method and time of request. Between the commencement of the 
proceeding and ten days before the end of the information-gathering 
phase, any party to the proceeding may file with the Secretary a letter 
requesting that the Secretary schedule an opportunity for the party to 
give an oral presentation to the ASC. That letter shall include the 
reasons why an oral presentation is necessary.
    (c) ASC processing. The Secretary must promptly forward the letter 
request to the Chairman of the ASC. The Chairman, after informally 
contacting other ASC members and the ASC's senior staff for their views, 
will instruct the Secretary to forward a letter to the party either: 
Scheduling a date and time for the oral presentation and specifying the 
allowable duration of the presentation; or declining the request and 
providing the reasons therefor. The party's letter request and the ASC's 
response will be included in the proceeding's public file.
    (d) Procedure on presentation day. On the appropriate date and time, 
the party or his or her attorney (if any) will make the oral 
presentation before the ASC. Any ASC member may ask the party or the 
attorney, as the case may be, pertinent questions relating to the 
content of the oral presentation. Oral presentations will not be 
recorded or otherwise transcribed. The Secretary must enter promptly 
into the proceeding's public file a memorandum summarizing the subjects 
discussed during the oral presentation.



Sec. 1102.37  Decision of the Subcommittee and judicial review.

    At a reasonable time after the end of the information-gathering 
phase of the proceeding, but not exceeding 35 days, the ASC shall issue 
a final decision, containing specified terms and conditions as it deems 
appropriate, in the matter and shall cause the decision to be published 
promptly in the Federal Register. The final decision shall be effective 
on issuance. The Secretary shall serve the decision upon the parties 
promptly, shall place it in the proceeding's public file and shall 
furnish it to such other persons as the ASC may direct. Pursuant to the 
provisions of chapter 7 of title 5 of the U.S. Code and section 
1118(c)(3) of title XI of FIRREA (12 U.S.C. 3348(c)(3)), a final 
decision of the ASC is a prerequisite to seeking judicial review.

[[Page 240]]



Sec. 1102.38  Compliance activities.

    (a) Where, from complaints received from members of the public, 
communications from Federal or State agencies, examination of 
information by the ASC, or otherwise, it appears that a person has 
violated, is violating or is about to violate title XI of FIRREA or the 
rules or regulations thereunder, the ASC staff may commence an informal, 
preliminary inquiry into the matter. If, upon such inquiry, it appears 
that one or more allegations relate to possible violations of 
regulations administered by another agency or instrumentality of the 
Federal Government, then the matter shall be referred to that agency or 
instrumentality for appropriate action. The ASC, pursuant to its 
responsibilities under section 1103(a)(2) of title XI (12 U.S.C. 
3332(a)(2)) and section 1119(c) of title XI (12 U.S.C. 3348)), shall 
monitor the matter. If, upon inquiry, it appears that one or more 
allegations are within the ASC's jurisdiction, then the ASC, in its 
discretion, may determine to commence a formal investigation respecting 
the matter and shall instruct the Secretary to create a public file for 
the formal investigation. The Secretary shall place in that file a 
memorandum naming the person or persons subject to the investigation and 
the statutory basis for the investigation.
    (b) Unless otherwise instructed by the ASC or required by law, the 
Secretary shall ensure that all other papers, documents and materials 
gathered or submitted in connection with the investigation are non-
public and for ASC use only.
    (c) Persons who become involved in preliminary inquiries or formal 
investigations may, on their own initiative, submit a written statement 
to the Secretary setting forth their interests, positions or views 
regarding the subject matter of the investigation. Upon request, the 
staff, in its discretion, may advise such persons of the general nature 
of the investigation, including the indicated violations as they pertain 
to them and the amount of time that may be available for preparing and 
submitting such a statement prior to the presentation of a staff 
recommendation to the ASC. Upon the commencement of a formal 
investigation or a proceeding under this subpart, the Secretary shall 
place any such statement in the appropriate public file.
    (d) In instances where the staff has concluded its inquiry of a 
particular matter and has determined that it will not recommend the 
commencement of a formal investigation or a proceeding under this 
subpart against a person, the staff shall advise the person that its 
inquiry has been terminated. Such advice, if given, must in no way be 
construed as indicating that the person has been exonerated or that no 
action may ultimately result from the staff's inquiry into the 
particular matter.



Sec. 1102.39  Duty to cooperate.

    In the course of the investigations and proceedings, the ASC (and 
its staff, with appropriate authorization) must provide parties or 
persons ample opportunity to work out problems by consent, by 
settlement, or in some other manner.



Subpart C_Rules Pertaining to the Privacy of Individuals and Systems of 
            Records Maintained by the Appraisal Subcommittee

    Authority: 12 U.S.C. 552a.

    Source: 57 FR 36357, Aug. 13, 1992, unless otherwise noted.



Sec. 1102.100  Authority, purpose and scope.

    (a) This subpart is issued under the Privacy Act of 1974, Public Law 
93-579, 88 Stat. 1896; 12 U.S.C. 552a, as amended.
    (b) The Privacy Act of 1974 is based, in part, on the finding by 
Congress that ``in order to protect the privacy of individuals 
identified in information systems maintained by Federal agencies, it is 
necessary and proper for the Congress to regulate the collection, 
maintenance, use, and dissemination of information by such agencies.'' 
To achieve this objective, the Act generally provides that Federal 
agencies must advise an individual upon request whether records 
maintained by the agency in a system of records pertain to the 
individual and must grant the individual access to such records. The

[[Page 241]]

Act further provides that individuals may request amendments to records 
pertaining to them that are maintained by the agency, and that the 
agency shall either grant the requested amendments or set forth fully 
its reasons for refusing to do so.
    (c) The Appraisal Subcommittee of the Federal Financial Institutions 
Examination Council (ASC), pursuant to subsection (f) of the Privacy 
Act, adopts the following rules and procedures to implement the 
provisions of the Act summarized above and other provisions of the Act. 
These rules and procedures are applicable to all requests for 
information and access or amendment to records pertaining to an 
individual that are contained in any system of records that is 
maintained by the ASC.



Sec. 1102.101  Definitions.

    The following definitions shall apply for purposes of this subpart:
    (a) The terms individual, maintain, record, system of records, and 
routine use are defined for purposes of these rules as they are defined 
in 5 U.S.C. 552a(a)(2), (a)(3), (a)(4), (a)(5) and (a)(7).
    (b) ASC or Subcommittee means the Appraisal Subcommittee of the 
Federal Financial Institutions Examination Council.
    (c) Privacy Act Officer means the ASC's Associate Director for 
Administration or such other ASC staff officer, other than the Executive 
Director, duly designated by the ASC's Executive Director.



Sec. 1102.102  Times, places and requirements for requests pertaining to individual records in a record system and for the identification of individuals making 
          requests for access to records pertaining to them.

    (a) Place to make request. Any request by an individual to be 
advised whether any system of records maintained by the ASC and named by 
the individual contains a record pertaining to him or her, or any 
request by an individual for access to a record pertaining to him or her 
that is contained in a system of records maintained by the ASC, shall be 
submitted in person at the ASC between 9 a.m. and 4:30 p.m., Monday 
through Friday, which is located at 2000 K Street, NW., Suite 310, 
Washington, DC 20006, or by mail addressed to: Privacy Act Officer, ASC, 
2000 K Street, NW., Suite 310, Washington, DC 20006. All requests will 
be required to be put in writing and signed by the individual making the 
request. In the case of requests for access that are made by mail, the 
envelope should be clearly marked ``Privacy Act Request.''
    (1) Information to be included in requests. Each request by an 
individual concerning whether the ASC maintains in a system of records a 
record that pertains to the individual, or for access to any record 
pertaining to the individual that is maintained by the ASC in a system 
of records, shall include such information as will assist the ASC in 
identifying those records as to which the individual is seeking 
information or access. Where practicable, the individual should identify 
the system of records that is the subject of his or her request by 
reference to the ASC's notices of systems of records, which are 
published in the Federal Register, as required by section (e)(4) of the 
Privacy Act, 5 U.S.C. 552a(e)(4). Where a system of records is compiled 
on the basis of a specific identification scheme, the individual should 
include in his or her request the identification number or other 
identifier assigned to the individual. In the event the individual does 
not know that number or identifier, the individual shall provide other 
information, including his or her full name, address, date of birth and 
subject matter of the record, to aid in processing his or her request. 
If additional information is required before a request can be processed, 
the individual shall be so advised.
    (2) Verification of identity. When the fact of the existence of a 
record is not required to be disclosed under the Freedom of Information 
Act, 5 U.S.C. 552, as amended, or when a record as to which access has 
been requested is not required to be disclosed under that Act, the 
individual seeking the information or requesting access to the record 
shall be required to verify his or her identity before access will be 
granted or information given. For this purpose, individuals shall appear 
at the ASC located at 2000 K Street, NW., Suite 310, Washington, DC, 
between 9 a.m. to 4:30 p.m.,

[[Page 242]]

Monday through Friday. The ASC's Office is not open on Saturdays, 
Sundays or Federal holidays.
    (3) Methods for verifying identity--appearance in person. For the 
purpose of verifying identity, an individual seeking information 
regarding pertinent records or access to those records shall furnish 
documentation that may reasonably be relied on to establish the 
individual's identity. Such documentation might include a valid birth 
certificate, driver's license, employee or military identification card, 
and medicare card.
    (4) Method for verifying identity--by mail. Where an individual 
cannot appear at the ASC's Office for the purpose of verifying identity, 
the individual shall submit, along with the request for information or 
access, a signed and notarized statement attesting to his or her 
identity. Where access is being sought, the sworn statement shall 
include a representation that the records being sought pertain to the 
individual and a stipulation that the individual is aware that knowingly 
and willfully requesting or obtaining records pertaining to an 
individual from the ASC under false pretenses is a criminal offense.
    (5) Additional procedures for verifying identity. When it appears 
appropriate to the Privacy Act Officer, other arrangements may be made 
for the verification of identity as are reasonable under the 
circumstances and appear to be effective to prevent unauthorized 
disclosure of, or access to, individual records.
    (b) Acknowledgement of requests for information pertaining to 
individual records in a record system or for access to individual 
records. (1) Except where an immediate acknowledgement is given for 
requests made in person, the receipt of a request for information 
pertaining to individual records in a record system will be acknowledged 
within 10 days, excluding Saturdays, Sundays and Federal holidays. 
Requests will be processed as promptly as possible and a response to 
such requests will be given within 30 days (excluding Saturdays, 
Sundays, and Federal holidays) unless, within the 30 day period and for 
cause shown, the individual making the request is notified in writing 
that a longer period is necessary.

[57 FR 36357, Aug. 13, 1992, as amended at 69 FR 2501, Jan. 16, 2004]



Sec. 1102.103  Disclosure of requested records.

    (a) Initial review. Requests by individuals for access to records 
pertaining to them will be referred to the ASC's Privacy Act Officer, 
who initially will determine whether access will be granted.
    (b) Grant of request for access. (1) If it is determined that a 
request for access to records pertaining to an individual will be 
granted, the individual will be advised by mail that access will be 
given at the ASC or a copy of the requested record will be provided by 
mail if the individual shall so indicate. Where the individual requests 
that copies of the record be mailed to or her or requests copies of a 
record upon reviewing it at the ASC, the individual shall pay the cost 
of making requested copies, as set forth in Sec. 1102.109 of this 
subpart.
    (2) In granting access to an individual to a record pertaining to 
him or her, the ASC staff shall take steps to prevent the unauthorized 
disclosure of information pertaining to other individuals.
    (c) Denial of request for access. If it is determined that access 
will not be granted, the individual making the request will be notified 
of that fact and given the reasons why access is being denied. The 
individual also will be advised of his or her right to seek review by 
the Executive Director of the initial decision to deny access, in 
accordance with the procedures set forth in Sec. 1102.107 of this 
subpart.
    (d) Time for acting on requests for access. Access to a record 
pertaining to an individual normally will be granted or denied within 30 
days (excluding Saturdays, Sundays, and Federal holidays) after the 
receipt of the request for access, unless the individual making the 
request is notified in writing within the 30 day period that, for good 
cause shown, a longer time is required. In such cases, the individual 
making the request shall be informed in writing of the difficulties 
encountered and an indication shall be given as to when

[[Page 243]]

it is anticipated that access may be granted or denied.
    (e) Authorization to allow designated person to review and discuss 
records pertaining to another individual. An individual, who is granted 
access to records pertaining to him or her and who appears at the ASC 
Office to review the records, may be accompanied by another person of 
his or her choosing. Where the records as to which access has been 
granted are not required to be disclosed under provisions of the Freedom 
of Information Act, 5 U.S.C. 552, as amended, the individual requesting 
the records, before being granted access, shall execute a written 
statement, signed by him or her, specifically authorizing the latter 
individual to review and discuss the records. If such authorization has 
not been given as described, the person who has accompanied the 
individual making the request will be excluded from any review or 
discussion of the records.
    (f) Exclusion for certain records. Nothing contained in these rules 
shall allow an individual access to any information compiled in 
reasonable anticipation of an administrative judicial or civil action or 
proceeding.



Sec. 1102.104  Special procedure: Medical records.

    (a) Statement of physician or mental health professional. When an 
individual requests access to records pertaining to the individual that 
include medical and/or psychological information, the ASC, if it deems 
it necessary under the particular circumstances, may require the 
individual to submit with the request a signed statement by the 
individual's physician or a mental health professional indicating that, 
in his or her opinion, disclosure of the requested records or 
information directly to the individual will not have an adverse effect 
on the individual.
    (b) Designation of physician or mental health professional to 
receive records. If the ASC believes, in good faith, that disclosure of 
medical and/or psychological information, directly to an individual 
could have an adverse effect on that individual, the individual may be 
asked to designate in writing a physician or mental health professional 
to whom the individual would like the records to be disclosed, and 
disclosure that otherwise would be made to the individual will instead 
be made to the designated physician or mental health professional.



Sec. 1102.105  Requests for amendment of records.

    (a) Place to make requests. A request by an individual to amend 
records pertaining to him or her may be made in person during normal 
business hours at the ASC located at 2000 K Street, NW., Suite 310, 
Washington, DC , or by mail addressed to the Privacy Act Officer, ASC, 
2000 K Street, NW., Suite 310, Washington, DC 20006.
    (1) Information to be included in requests. Each request to amend an 
ASC record shall reasonably describe the record sought to be amended. 
Such description should include, for example, relevant names, dates and 
subject matter to permit the record to be located among the records 
maintained by the ASC. An individual who has requested that a record 
pertaining to the individual be amended will be advised promptly if the 
record cannot be located on the basis of the description given and that 
further identifying information is necessary before the request can be 
processed. An initial evaluation of a request presented in person will 
be made immediately to ensure that the request is complete and to 
indicate what, if any, additional information will be required. 
Verification of the individual's identity as set forth in Sec. 
1102.102(a) (2), (3), (4) and (5) may also be required.
    (2) Basis for amendment. An individual requesting an amendment to a 
record pertaining to the individual shall specify the substance of the 
amendment and set forth facts and provide such materials that would 
support his or her contention that the record as maintained by the ASC 
is not accurate, timely or complete, or that the record is not necessary 
and relevant to accomplish a statutory purpose of the ASC as authorized 
by law or by Executive Order of the President.
    (b) Acknowledgement of requests for amendment. Receipt of a request 
to amend a record pertaining to an individual normally will be 
acknowledged

[[Page 244]]

in writing within 10 days after such request has been received, 
excluding Saturdays, Sundays and Federal holidays. When a request to 
amend is made in person, the individual making the request will be given 
a written acknowledgement when the request is presented. The 
acknowledgement will describe the request received and indicate when it 
is anticipated that action will be taken on the request. No 
acknowledgement will be sent when the request for amendment will be 
reviewed, and an initial decision made, within the 10 day period after 
such request has been received.

[57 FR 36357, Aug. 13, 1992, as amended at 69 FR 2501, Jan. 16, 2004]



Sec. 1102.106  Review of requests for amendment.

    (a) Initial review. As in the case of requests for access, requests 
by individuals for amendment to records pertaining to them will be 
referred to the ASC's Privacy Act Officer for an initial determination.
    (b) Standards to be applied in reviewing requests. In reviewing 
requests to amend records, the Privacy Act Officer will be guided by the 
criteria set forth in 5 U.S.C. 552(e) (1) and (5), i.e., that records 
maintained by the ASC shall contain only such information as is 
necessary and relevant to accomplish a statutory purpose of the ASC as 
required by statute or Executive Order of the President and that such 
information also be accurate, timely, relevant and complete. These 
criteria will be applied whether the request is to add material to a 
record or to delete information from a record.
    (c) Time for acting on requests. Initial review of a request by an 
individual to amend a record shall be completed as promptly as is 
reasonably possible and normally within 30 days (excluding Saturdays, 
Sundays, and Federal holidays) from the date the request was received, 
unless unusual circumstances preclude completion of review within that 
time. If the anticipated completion date indicated in the 
acknowledgement cannot be met, the individual requesting the amendment 
will be advised in writing of the delay and the reasons therefor, and 
also advised when action is expected to be completed.
    (d) Grant of requests to amend records. If a request to amend a 
record is granted in whole or in part, the Privacy Act Officer will:
    (1) Advise the individual making the request in writing of the 
extent to which it has been granted;
    (2) Amend the record accordingly; and
    (3) Where an accounting of disclosures of the record has been kept 
pursuant to 5 U.S.C. 552a(c), advise all previous recipients of the 
record of the fact that the record has been amended and the substance of 
the amendment.
    (e) Denial of requests to amend records. If an individual's request 
to amend a record pertaining to him is denied in whole or in part, the 
Privacy Act Officer will:
    (1) Promptly advise the individual making the request in writing of 
the extent to which the request has been denied;
    (2) State the reasons for the denial of the request;
    (3) Describe the procedures established by the ASC to obtain further 
review within the ASC of the request to amend, including the name and 
address of the person to whom the appeal is to be addressed; and
    (4) Inform the individual that the Privacy Act Officer will provide 
information and assistance to the individual in perfecting an appeal of 
the initial decision.



Sec. 1102.107  Appeal of initial adverse agency determination regarding access or amendment.

    (a) Administrative review. Any person who has been notified pursuant 
to Sec. 1102.103(c) that a request for access to records pertaining to 
him or her has been denied in whole or in part, or pursuant to Sec. 
1102.106(e) of this subpart that a request for amendment has been denied 
in whole or in part, or who has received no response to a request for 
access or to amend within 30 days (excluding Saturdays, Sundays and 
Federal holidays) after the request was received by the ASC's staff (or 
within such extended period as may be permitted in accordance with 
Sec. Sec. 1102.103(d)

[[Page 245]]

and 1102.106(c) of this subpart), may appeal the adverse determination 
or failure to respond by applying for an order of the Executive Director 
determining and directing that access to the record be granted or that 
the record be amended in accordance with his or her request.
    (1) The application shall be in writing and shall describe the 
record in issue and set forth the proposed amendment and the reasons 
therefor.
    (2) The application shall be delivered to the ASC, 2000 K Street, 
NW., Suite 310, Washington, DC, or by mail addressed to the Privacy Act 
Officer, ASC, 2000 K Street, NW., Suite 310, Washington, DC 20006.
    (3) The applicant may state such facts and cite such legal or other 
authorities in support of the application.
    (4) The Executive Director will make a determination with respect to 
any appeal within 30 days after the receipt of such appeal (excluding 
Saturdays, Sundays, and Federal holidays), unless for good cause shown, 
the Executive Director shall extend that period. If such an extension is 
made, the individual who is appealing shall be advised in writing of the 
extension, the reasons therefor, and the anticipated date when the 
appeal will be decided.
    (5) In considering an appeal from a denial of a request to amend a 
record, the Executive Director shall apply the same standards as set 
forth in Sec. 1102.106(b).
    (6) If the Executive Director concludes that access should be 
granted, the Executive Director shall issue an order granting access and 
instructing the Privacy Act Officer to comply with Sec. 1102.103(b).
    (7) If the Executive Director concludes that the request to amend 
the record should be granted in whole or in part, the Executive Director 
shall issue an order granting the requested amendment in whole or in 
part and instructing the Privacy Act Officer to comply with the 
requirements of Sec. 1102.106(d) of this subpart, to the extent 
applicable.
    (8) If the Executive Director affirms the initial decision denying 
access, the Executive Director shall issue an order denying access and 
advising the individual seeking access of:
    (i) The order;
    (ii) The reasons for denying access; and
    (iii) The individual's right to obtain judicial review of the 
decision pursuant to 5 U.S.C. 552a(g)(1)(B).
    (9) If the Executive Director determines that the decision of the 
Privacy Act Officer denying a request to amend a record should be 
upheld, the Executive Director shall issue an order denying the request 
and the individual shall be advised of:
    (i) The order refusing to amend the record and the reasons therefor;
    (ii) The individual's right to file a concise statement setting 
forth his or her disagreement with the Executive Director's decision not 
to amend the record;
    (iii) The procedures for filing such a statement of disagreement 
with the Executive Director;
    (iv) The fact that any such statement of disagreement will be made 
available to anyone to whom the record is disclosed, together with, if 
the Executive Director deems it appropriate, a brief statement setting 
forth the Executive Director's reasons for refusing to amend;
    (v) The fact that prior recipients of the record in issue will be 
provided with the statement of disagreement and the Executive Director's 
statement, if any, to the extent that an accounting of such disclosures 
has been maintained pursuant to 5 U.S.C. 552a(c); and
    (vi) The individual's right to seek judicial review of the Executive 
Director's refusal to amend, pursuant to 5 U.S.C. 552a(g)(1)(A).
    (b) Statement of disagreement. As noted in paragraph (a)(9)(ii) of 
this section, an individual may file with the Executive Director a 
statement setting forth his or her disagreement with the Executive 
Director's denial of his or her request to amend a record.
    (1) Such statement of disagreement shall be delivered to the ASC, 
2000 K Street, NW., Suite 310, Washington, DC 20006, within 30 days 
after receipt by the individual of the Executive Director's order 
denying the amendment, excluding Saturdays, Sundays and Federal 
holidays. For good cause shown, this period can be extended for a 
reasonable time.

[[Page 246]]

    (2) Such statement of disagreement shall concisely state the basis 
for the individual's disagreement. Unduly lengthy or irrelevant 
materials will be returned to the individual by the Executive Director 
for appropriate revisions before they become a permanent part of the 
individual's record.
    (3) The record about which a statement of disagreement has been 
filed will clearly note which part of the record is disputed and the 
Executive Director will provide copies of the statement of disagreement 
and, if the Executive Director deems it appropriate, provide a concise 
statement of his or her reasons for refusing to amend the record, to 
persons or other agencies to whom the record has been or will be 
disclosed.

[57 FR 36357, Aug. 13, 1992, as amended at 69 FR 2501, Jan. 16, 2004]



Sec. 1102.108  General provisions.

    (a) Extensions of time. Pursuant to Sec. Sec. 1102.103(b), 
1102.104(d), 1102.109(c) and 1102.109(a)(4) of this subpart, the time 
within which a request for information, access or amendment by an 
individual with respect to records maintained by the ASC that pertain to 
him or her normally would be processed may be extended for good cause 
shown or because of unusual circumstances. As used in these rules, good 
cause and unusual circumstances shall include, but only to the extent 
reasonably necessary to the proper processing of a particular request:
    (1) The need to search for and collect the requested records from 
establishments that are separate from the ASC. Some records of the ASC 
may be stored in Federal Records Centers in accordance with law--
including many of the documents that have been on file with the ASC for 
more than 2 years--and cannot be made available promptly. Any person who 
has requested for personal examination a record stored at the Federal 
Records Center will be notified when the record will be made available.
    (2) The need to search for, collect, and appropriately examine a 
voluminous amount of separate and distinct records which may be demanded 
in a single request. While every reasonable effort will be made to 
comply fully with each request as promptly as possible on a first-come, 
first-served basis, work done to search for, collect and appropriately 
examine records in response to a request for a large number of records 
will be contingent upon the availability of processing personnel in 
accordance with an equitable allocation of time to all members of the 
public who have requested or wish to request records.
    (3) The need for consultation, which shall be conducted with all 
practicable speed, with another agency having a substantial interest in 
the determination of the request, or among two or more components within 
the ASC having substantial subject-matter interest herein.
    (b) Effective date of action. Whenever it is provided in this 
subpart that an acknowledgement or response to a request will be given 
by specific times, deposit in the mails of such acknowledgement or 
response by that time, addressed to the person making the request, will 
be deemed full compliance.
    (c) Records in use by a member of the ASC or its staff. Although 
every effort will be made to make a record in use by a member of the ASC 
or its staff available when requested, it may occasionally be necessary 
to delay making such a record available when doing so at the time the 
request is made would seriously interfere with the work of the ASC or 
its staff.
    (d) Missing or lost records. Any person who has requested a record 
or a copy of a record pertaining to him or her will be notified if the 
record sought cannot be found. If the person so requests, he or she will 
be notified if the record subsequently is found.
    (e) Oral requests; misdirected written requests--(1) Telephone and 
other oral requests. Before responding to any request by an individual 
for information concerning whether records maintained by the ASC in a 
system of records pertain to the individual or to any request for access 
to records by an individual, such request must be in writing and signed 
by the individual making the request. The Executive Director will not 
entertain any appeal from an alleged denial of failure to comply with an 
oral request. Any person who has made an oral request for information or 
access

[[Page 247]]

to records who believes that the request has been improperly denied 
should resubmit the request in appropriate written form to obtain proper 
consideration and, if need be, administrative review.
    (2) Misdirected written requests. The ASC cannot assure that a 
timely or satisfactory response will be given to written requests for 
information, access or amendment by an individual with respect to 
records pertaining to him or her that are directed to the ASC other than 
in a manner prescribed in Sec. Sec. 1102.103(a), 1102.106(a), 
1102.108(a)(2), and 1102.110 of this subpart. Any staff member who 
receives a written request for information, access or amendment should 
promptly forward the request to the Privacy Act Officer. Misdirected 
requests for records will be considered to have been received by the ASC 
only when they have been actually received by the Privacy Act Officer in 
cases under Sec. 1102.108(a)(2). The Executive Director will not 
entertain any appeal from an alleged denial or failure to comply with a 
misdirected request, unless it is clearly shown that the request was in 
fact received by the Privacy Act Officer.



Sec. 1102.109  Fees.

    (a) There will be no charge assessed to the individual for the ASC's 
expense involved in searching for or reviewing the record. Copies of the 
ASC's records will be provided by a commercial copier at rates 
established by a contract between the copier and the ASC or by the ASC 
at the rates in Sec. 1101.4(b)(5)(ii) of 12 CFR part 1101.
    (b) Waiver or reduction of fees. Whenever the Executive Director of 
the ASC determines that good cause exists to grant a request for 
reduction or waiver of fees for copying documents, he or she may reduce 
or waive any such fees.



Sec. 1102.110  Penalties.

    Title 18 U.S.C. 1001 makes it a criminal offense, subject to a 
maximum fine of $10,000, or imprisonment for not more than 5 years or 
both, to knowingly and willingly make or cause to be made any false or 
fraudulent statements or representations in any matter within the 
jurisdiction of any agency of the United States. 5 U.S.C. 552a(i) makes 
it a misdemeanor punishable by a fine of not more than $5,000 for any 
person knowingly and willfully to request or obtain any record 
concerning an individual from the ASC under false pretenses. 5 U.S.C. 
552a(i) (1) and (2) provide criminal penalties for certain violations of 
the Privacy Act by officers and employees of the ASC.



     Subpart D_Description of Office, Procedures, Public Information

    Authority: 5 U.S.C. 552, 553(e); and Executive Order 12600, 52 FR 
23781 (3 CFR, 1987 Comp., p. 235).

    Source: 57 FR 60724, Dec. 22, 1992, unless otherwise noted.



Sec. 1102.300  Purpose and scope.

    This part sets forth the basic policies of the Appraisal 
Subcommittee of the Federal Financial Institutions Examination Council 
(``ASC'') regarding information it maintains and the procedures for 
obtaining access to such information. This part does not apply to the 
Federal Financial Institutions Examination Council. Section 1102.301 
sets forth definitions applicable to this part 1102, subpart D. Section 
1102.302 describes the ASC's statutory authority and functions. Section 
1102.303 describes the ASC's organization and methods of operation. 
Section 1102.304 describes the types of information and documents 
typically published in the Federal Register. Section 1102.305 explains 
how to access public records maintained on the ASC's World Wide Web site 
and at the ASC's office and describes the categories of records 
generally found there. Section 1102.306 implements the Freedom of 
Information Act (``FOIA'') (5 U.S.C. 552). Section 1102.307 authorizes 
the discretionary disclosure of exempt records under certain limited 
circumstances. Section 1102.308 provides anyone with the right to 
petition the ASC to issue, amend, and repeal rules of general 
application. Section 1102.309 sets out the ASC's confidential treatment 
procedures. Section 1102.310 outlines procedures for serving a subpoena 
or other legal process to obtain information maintained by the ASC.

[64 FR 72496, Dec. 28, 1999]

[[Page 248]]



Sec. 1102.301  Definitions.

    For purposes of this subpart:
    (a) ASC means the Appraisal Subcommittee of the Federal Financial 
Institutions Examination Council.
    (b) Commercial use request means a request from, or on behalf of, a 
requester who seeks records for a use or purpose that furthers the 
commercial, trade, or profit interests of the requester or the person on 
whose behalf the request is made. In determining whether a request falls 
within this category, the ASC will determine the use to which a 
requester will put the records requested and seek additional information 
as it deems necessary.
    (c) Direct costs means those expenditures the ASC actually incurs in 
searching for, duplicating, and, in the case of commercial requesters, 
reviewing records in response to a request for records.
    (d) Disclose or disclosure mean to give access to a record, whether 
by producing the written record or by oral discussion of its contents. 
Where the ASC member or employee authorized to release ASC documents 
makes a determination that furnishing copies of the documents is 
necessary, these words include the furnishing of copies of documents or 
records.
    (e) Duplication means the process of making a copy of a record 
necessary to respond to a request for records or for inspection of 
original records that contain exempt material or that cannot otherwise 
be directly inspected. Such copies can take the form of paper copy, 
microfilm, audiovisual records, or machine readable records (e.g., 
magnetic tape or computer disk).
    (f) Educational institution means a preschool, a public or private 
elementary or secondary school, an institution of undergraduate or 
graduate higher education, an institution of professional education, and 
an institution of vocational education, which operates a program or 
programs of scholarly research.
    (g) Field review includes, but is not limited to, formal and 
informal investigations of potential irregularities occurring at State 
appraiser regulatory agencies involving suspected violations of Federal 
or State civil or criminal laws, as well as such other investigations as 
may conducted pursuant to law.
    (h) Non-commercial scientific institution means an institution that 
is not operated on a commercial basis as that term is defined in 
paragraph (b) of this section, and which is operated solely for the 
purpose of conducting scientific research, the results of which are not 
intended to promote any particular product or industry.
    (i) Record includes records, files, documents, reports 
correspondence, books, and accounts, or any portion thereof, in any form 
the ASC regularly maintains them.
    (j) Representative of the news media means any person primarily 
engaged in gathering news for, or a free-lance journalist who can 
demonstrate a reasonable expectation of having his or her work product 
published or broadcast by, an entity that is organized and operated to 
publish or broadcast news to the public. The term news means information 
that is about current events or that would be of current interest to the 
general public.
    (k) Review means the process of examining documents located in a 
response to a request that is for a commercial use to determine whether 
any portion of any document located is permitted to be withheld. It also 
includes processing any documents for disclosure, e.g, doing all that is 
necessary to excise them and otherwise prepare them for release. Review 
does not include time spent resolving general legal or policy issues 
regarding the application of exemptions.
    (l) Search includes all time spent looking for material that is 
responsive to a request, including page-by-page or line-by-line 
identification of material within records. Searches may be done manually 
and/or by computer using existing programming.
    (m) State appraiser regulatory agency includes, but is not limited 
to, any board, commission, individual or other entity that is authorized 
by State law to license, certify, and supervise the activities or 
persons authorized to perform appraisals in connections with federally 
related transactions and real estate related financial transactions

[[Page 249]]

that require the services of a State licensed or certified appraiser.

[64 FR 72496, Dec. 28, 1999]



Sec. 1102.302  ASC authority and functions.

    (a) Authority. The ASC was established on August 9, 1989, pursuant 
to title XI of the Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989, as amended (``FIRREA''), 12 U.S.C. 3331 and 
3310 through 3351. Title XI is intended ``to provide that Federal 
financial and public policy interests in real estate related 
transactions will be protected by requiring that real estate appraisals 
utilized in connection with federally related transactions are performed 
in writing, in accordance with uniform standards, by individuals whose 
competency has been demonstrated and whose professional conduct will be 
subject to effective supervision.'' 12 U.S.C. 3331.
    (b) Functions. The ASC's statutory functions are generally set out 
in 12 U.S.C. 3332. In summary, the ASC must:
    (1) Monitor the requirements established by the States for the 
certification and licensing of individuals who are qualified to perform 
appraisals in connection with federally related transactions, including 
a code of professional responsibility;
    (2) Monitor the requirements of the Federal financial institutions 
regulatory agency and Resolution Trust Corporation with respect to 
appraisal standards for federally related transactions and 
determinations as to which federally related transactions require the 
services of a State certified appraiser and which require the services 
of a State licensed appraiser;
    (3) Monitor and review the practices, procedures, activities and 
organizational structure of the Appraisal Foundation; and
    (4) Maintain a national registry of State certified and licensed 
appraisers eligible to perform appraisals in federally related 
transactions.



Sec. 1102.303  Organization and methods of operation.

    (a) Statutory and other guidelines. Statutory requirements relating 
to the ASC's organization are stated in 12 U.S.C. 3310, 3333 and 3334. 
The ASC has adopted and published Rules of Operation guiding its 
administration, meetings and procedures. These Rules of Operation were 
published at 56 FR 28561 (June 21, 1991) and 56 FR 33451 (July 22, 
1991).
    (b) ASC members and staff. The ASC is composed of six members, each 
being designated by the head of their respective agencies: the Board of 
Governors of the Federal Reserve System, Federal Deposit Insurance 
Corporation, Office of the Comptroller of the Currency, National Credit 
Union Administration, Office of Thrift Supervision, and the Department 
of Housing and Urban Development. Administrative support and substantive 
program, policy, and legal guidance for ASC activities are provided by a 
small, full-time, professional staff supervised by an Executive 
Director.
    (c) FFIEC. Title XI placed the ASC within FFIEC as a separate, 
appropriated agency of the United States Government with specific 
statutory responsibilities under Federal law.
    (d) ASD Address ASC offices are located at 2000 K Street, NW., Suite 
310; Washington, DC 20006.

[57 FR 60724, Dec. 22, 1992, as amended at 64 FR 72497, Dec. 28, 1999]



Sec. 1102.304  Federal Register publication.

    The ASC publishes the following information in the Federal Register 
for the guidance of the public:
    (a) Description of its organization and the established places at 
which, the officers from whom, and the methods whereby, the public may 
secure information, make submittals or re nests, or obtain decisions;
    (b) Statements of the general course and method by which its 
functions are channeled and determined, including the nature and 
requirements of all formal and informal procedures available;
    (c) Rules of procedure, descriptions of forms available or the 
places at which forms may be obtained, and instructions as to the scope 
and contents of all papers, reports or examinations;
    (d) Substantive rules of general applicability adopted as authorized 
by law, and statements of general policy

[[Page 250]]

or interpretations of general applicability formulated and adopted by 
the ASC;
    (e) Every amendment, revision or repeal of the foregoing; and
    (f) General notices of proposed rulemaking.

[64 FR 72497, Dec. 28, 1999]



Sec. 1102.305  Publicly available records.

    (a) Records available on the ASCs World Wide Web site--(1) 
Discretionary release of documents. The ASC encourages the public to 
explore the wealth of resources available on the ASC's Internet World 
Wide Web site, located at: http://www.asc.gov. The ASC has elected to 
publish a broad range to materials on its Web site.
    (2) Documents required to be made available via computer 
telecommunications. (i) The following types of documents created on or 
after November 1, 1996, and required to be made available through 
computer telecommunications, may be found on the ASC's Internet World 
Wide Web site located at: http://www.asc.gov:
    (A) Final opinions, including concurring and dissenting opinions, as 
well as final orders, made in the adjudication of cases;
    (B) Statements of policy and interpretations adopted by the ASC that 
are not published in the Federal Register;
    (C) Administrative staff manuals and instructions to staff that 
affect a member of the public;
    (D) Copies of all records (regardless of form or format), such as 
correspondence relating to field reviews or other regulatory subjects, 
released to any person under Sec. 1102.306 that, because of the nature 
of their subject matter, the ASC has determined are likely to be the 
subject of subsequent requests;
    (E) A general index of the records referred to in paragraph 
(a)(2)(i)(D) of this section.
    (ii) To the extent permitted by law, the ASC may delete identifying 
details when it makes available or publishes any records. If reduction 
is necessary, the ASC will, to the extent technically feasible, indicate 
the amount of material deleted at the place in the record where such 
deletion is made unless that indication in and of itself will jeopardize 
the purpose for the redaction.
    (b) Types of written communications. The following types of written 
communications shall be subject to paragraph (a) of this section:
    (1) The ASC's annual report to Congress;
    (2) All final opinions and orders made in the adjudication of cases;
    (3) All statements of general policy not published in the Federal 
Register.
    (4) Requests for the ASC or its staff to provide interpretive advice 
with respect to the meaning or application of any statute administered 
by the ASC or any rule or regulation adopted thereunder and any ASC 
responses thereto;
    (5) Requests for a statement that, on the basis of the facts 
presented in such a request, the ASC would not take any enforcement 
action pertaining to the facts as represented and any ASC responses 
thereto: and
    (6) Correspondence between the ASC and a State appraiser regulatory 
agency arising out of the ASC's field review of the State agency's 
appraiser regulatory program.
    (c) Applicable fees. (1) If applicable, fees for furnishing records 
under this section are as set forth in Sec. 1102.306(e).
    (2) Information on the ASC's World Wide Web site is available to the 
public without charge. If, however, information available on the ASC's 
World Wide Web site is provided pursuant to a Freedom of Information Act 
request processed under g 1102.306 then fees apply and will be assessed 
pursuant to Sec. 1102.306(e).

[59 FR 1902, Jan. 13, 1994, as amended at 64 FR 72497, Dec. 28, 1999]



Sec. 1102.306  Procedures for requesting records.

    (a) Making a request for records. (1) The request shall be submitted 
in writing to the Executive Director:
    (i) By facsimile clearly marked ``Freedom of Information Act 
Request'' to (202) 293-6251;
    (ii) By letter to the Executive Director marked ``Freedom of 
Information Act Request''; 2000 K Street, NW., Suite 301; Washington, DC 
20006; or

[[Page 251]]

    (iii) By sending Internet e-mail to the Executive Director marked 
``Freedom of Information Act Request'' at his or her e-mail address 
listed on the ASC's World Wide Web site.
    (2) The request shall contain the following information:
    (i) The name and address of the requester, an electronic mail 
address, if available, and the telephone number at which the requester 
may be reached during normal business hours;
    (ii) Whether the requester is an educational institution, non-
commercial scientific institution, or news media representative;
    (iii) A statement agreeing to pay the applicable fees, or a 
statement identifying a maximum fee that is acceptable to the requester, 
or a request for a waiver or reduction of fees that satisfies paragraph 
(e)(1)(x) of this section; and
    (iv) The preferred form and format of any responsive information 
requested, if other than paper copies.
    (3) A request for identifiable records shall reasonably describe the 
records in a way that enables the ASC's staff to identify and produce 
the records with reasonable effort and without unduly burdening or 
significantly interfering with any ASC operations.
    (b) Defective requests. The ASC need not accept or process a request 
that does not reasonably describe the records requested or that does not 
otherwise comply with the requirements of this subpart. The ASC may 
return a defective request, specifying the deficiency. The requester may 
submit a corrected request, which will be treated as a new request.
    (c) Processing requests--(1) Receipt of requests. Upon receipt of 
any request that satisfies paragraph (a) of this section, the Executive 
Director shall assign the request to the appropriate processing track 
pursuant to this section. The date of receipt for any request, including 
one that is addressed incorrectly or that is referred by another agency, 
is the date the Executive Director actually receives the request.
    (2) Expedited processing. (i) Where a person requesting expedited 
access to records has demonstrated a compelling need for the records, or 
where the ASC has determined to expedite the response, the ASC shall 
process the request as soon as practicable. To show a compelling need 
for expedited processing, the requester shall provide a statement 
demonstrating that:
    (A) The failure to obtain the records on an expedited basis could 
reasonably be expected to pose an imminent threat to the life or 
physical safety of an individual; or
    (B) The requester can establish that it is primarily engaged in 
information dissemination as its main professional occupation or 
activity, and there is urgency to inform the public of the government 
activity involved in the re request; and
    (C) The requester's statement must be certified to be true and 
correct to the best of the person's knowledge and belief and explain in 
detail the basis for requesting expedited processing.
    (ii) The formality of the certification required to obtain expedited 
treatment may be waived by the Executive Director as a matter of 
administrative discretion.
    (3) A requester seeking expedited processing will be notified 
whether expedited processing has been granted within ten (10) working 
days of the receipt of the request. If the request for expedited 
processing is denied, the requester may file an appeal pursuant to the 
procedures set forth in paragraph (g) of this section, and the ASC shall 
respond to the appeal within ten (10) working days after receipt of the 
appeal.
    (4) Priority of responses. Consistent with sound administrative 
process, the ASC processes requests in the order they are received. 
However, in the ASC's discretion, or upon a court order in a matter to 
which the ASC is a party, a particular request may be processed out of 
turn.
    (5) Notification. (i) The time for response to requests will be 
twenty (20) working days except:
    (A) In the case of expedited treatment under paragraph (c)(2) of 
this section;
    (B) Where the running of such time is suspended for the calculation 
of a cost estimate for the requester if the ASC determines that the 
processing of the request may exceed the requester's maximum fee 
provision or if the

[[Page 252]]

charges are likely to exceed $250 as provided for in paragraph 
(e)(1)(iv) of this section;
    (C) Where the running of such time is suspended for the payment of 
fees pursuant to the paragraph (c)(5)(i)(B) and (e)(1) of this section; 
or
    (D) In unusual circumstances, as defined in 5 U.S.C. 552(a)(6)(B) 
and further described in paragraph (c)(5)(iii) of this section.
    (ii) In unusual circumstances as referred to in paragraph 
(c)(5)(i)(D) of this section, the time limit may be extended for a 
period of:
    (A) Ten (10) working days as provided by written notice to the 
requester, setting forth the reasons for the extension and the date on 
which a determination is expected to be dispatched; or
    (B) Such alternative time period as agreed to by the requester or as 
reasonably determined by the ASC when the ASC notifies the requester 
that the request cannot be processed in the specified time limit.
    (iii) Unusual circumstances may arise when:
    (A) The records are in facilities that are not located at the ASC's 
Washington office;
    (B) The records requested are voluminous or are not in close 
proximity to one another; or
    (C) There is a need to consult with another agency or among two or 
more components of the ASC having a substantial interest in the 
determination.
    (6) Response to request. In response to a request that satisfies the 
requirements of paragraph (a) of this section, a search shall be 
conducted of records maintained by the ASC in existence on the date of 
receipt of the request, and a review made of any responsive information 
located. To the extent permitted by law, the ASC may redact identifying 
details when it makes available or publishes any records. If redaction 
is appropriate, the ASC will, to the extent technically feasible, 
indicate the amount of material deleted at the place in the record where 
such deletion is made unless that indication in and of itself will 
jeopardize the purpose for the redaction. The ASC shall notify the 
requester of:
    (i) The ASC's determination of the request;
    (ii) The reasons for the determination;
    (iii) If the response is a denial of an initial request or if any 
information is withheld, the ASC will advise the requester in writing:
    (A) If the denial is in part or in whole;
    (B) The name and title of each person responsible for the denial 
(when other than the person signing the notification);
    (C) The exemptions relied on for the denial; and
    (D) The right of the requester to appeal the denial to the Chairman 
of the ASC within 30 business days following receipt of the 
notification, as specified in paragraph (h) of this section.
    (d) Providing responsive records. (1) Copies of requested records 
shall be sent to the requester by regular U.S. mail to the address 
indicated in the request, unless the requester elects to take delivery 
of the documents at the ASC or makes other acceptable arrangements, or 
the ASC deems it appropriate to send the documents by another means.
    (2) The ASC shall provide a copy of the record in any form or format 
requested if the record is readily reproducible by the ASC in that form 
or format, but the ASC need not provide more than one copy of any record 
to a requester.
    (3) By arrangement with the requester, the ASC may elect to send the 
responsive records electronically if a substantial portion of the 
request is in electronic format. If the information requested is made 
pursuant to the Privacy Act of 1974, 5 U.S.C. 552a, it will not be sent 
by electronic means unless reasonable security measures can be provided.
    (e) Fees--(1) General rules. (i) Persons requesting records of the 
ASC shall be charged for the direct costs of search, duplication, and 
review as set forth in paragraphs (e)(2) and (e)(3) of this section, 
unless such costs are less than the ASC's cost of processing the 
requester's remittance.
    (ii) Requesters will be charged for search and review costs even if 
responsive records are not located or, if located, are determined to be 
exempt from disclosure.

[[Page 253]]

    (iii) Multiple requests seeking similar or related records from the 
same requester or group of requesters will be aggregated for the 
purposes of this section.
    (iv) If the ASC determines that the estimated costs of search, 
duplication, or review of requested records will exceed the dollar 
amount specified in the request, or if no dollar amount is specified, 
the ASC will advise the requester of the estimated costs. The requester 
must agree in writing to pay the costs of search, duplication, and 
review prior to the ASC initiating any records search.
    (v) If the ASC estimates that its search, duplication, and review 
costs will exceed $250, the requester must pay an amount equal to 20 
percent of the estimated costs prior to the ASC initiating any records 
search.
    (vi) The ASC ordinarily will collect all applicable fees under the 
final invoice before releasing copies of requested records to the 
requester.
    (vii) The ASC may require any requester who has previously failed to 
pay charges under this section within 30 calendar days of mailing of the 
invoice to pay in advance the total estimated costs of search, 
duplication, and review. The ASC also may require a requester who has 
any charges outstanding in excess of 30 calendar days following mailing 
of the invoice to pay the full amount due, or demonstrate that the fee 
has been paid in full, prior to the ASC initiating any additional 
records search.
    (viii) The ASC may begin assessing interest charges on unpaid bills 
on the 31st day following the day on which the invoice was sent. 
Interest will be at the rate prescribed in Sec. 3717 of title 31 of the 
United States Code and will accrue from the date of the invoice.
    (ix) The time limit for the ASC to respond to a request will not 
begin to run until the ASC has received the requester's written 
agreement under paragraph (e)(1)(iv) of this section, and advance 
payment under paragraph (e)(1)(v) or (vii) of this section, or payment 
of outstanding charges under paragraph (e)(1)(vii) or (viii) of this 
section.
    (x) As part of the initial request, a requester may ask that the ASC 
waive or reduce fees if disclosure of the records is in the public 
interest because it is likely to contribute significantly to public 
understanding of the operations or activities of the government and is 
not primarily in the commercial interest of the requester. 
Determinations as to a waiver or reduction of fees will be made by the 
Executive Director (or designee), and the requester will be notified in 
writing of his or her determination. A determination not to grant a 
request for a waiver or reduction of fees under this paragraph may be 
appealed to the ASC's Chairman pursuant to the procedure set forth in 
paragraph (g) of this section.
    (2) Chargeable fees by category of requester. (i) Commercial use 
requesters shall be charged search, duplication, and review costs.
    (ii) Educational institutions, noncommercial scientific 
institutions, and news media representatives shall be charged 
duplication costs, except for the first 100 pages.
    (iii) Requesters not described in paragraph (e)(2)(i) or (ii) of 
this section shall be charged the full reasonable direct cost of search 
and duplication, except for the first two hours of search time and first 
100 pages of duplication.
    (3) Fee schedule. The dollar amount of fees which the ASC may charge 
to records requesters will be established by the Executive Director. The 
ASC may charge fees that recoup the full allowable direct costs it 
incurs. Fees are subject to change as costs change. The fee schedule 
will be published periodically on the ASC's Internet World Wide Web site 
(http://www.asc.gov) and will be effective on the date of publication. 
Copies of the fee schedule may be obtained by request at no charge by 
contacting the Executive Director by letter, Internet email or 
facsimile.
    (i) Manual searches for records. The ASC will charge for manual 
searches for records at the basic rate of pay of the employee making the 
search plus 16 percent to cover employee benefit costs.
    (ii) Computer searches for records. The fee for searches of 
computerized records is the actual direct cost of the

[[Page 254]]

search, including computer time, computer runs, and the operator's time 
apportioned to the search multiplied by the operator's basic rate of pay 
plus 16 percent to cover employee benefit costs.
    (iii) Duplication of records. (A) The per-page fee for paper copy 
reproduction of documents is $.25.
    (B) For other methods of reproduction or duplication, the ASC will 
charge the actual direct costs of reproducing or duplicating the 
documents, including each involved employee's basic rate of pay plus 16 
percent to cover employee benefit costs.
    (iv) Review of records. The ASC will charge commercial use 
requesters for the review of records at the time of processing the 
initial request to determine whether they are exempt from mandatory 
disclosure at the basic rate of pay of the employee making the search 
plus 16 percent to cover employee benefit costs. The ASC will not charge 
at the administrative appeal level for review of an exemption already 
applied. When records or portions of records are withheld in full under 
an exemption which is subsequently determined not to apply, the ASC may 
charge for a subsequent review to determine the applicability of other 
exemptions not previously considered.
    (v) Other services. Complying with requests for special services, 
other than a readily produced electronic form or format, is at the ASC's 
discretion. The ASC may recover the full costs of providing such 
services to the requester.
    (4) Use of contractors. The ASC may contact with independent 
contractors to locate, reproduce, and/or disseminate records; provided, 
however, that the ASC has determined that the ultimate cost to the 
requester will be no greater than it would be if the ASC performed these 
tasks itself. In no case will the ASC contract our responsibilities 
which FOIA provides that the ASC alone may discharge, such as 
determining the applicability of an exemption or whether to waive or 
reduce fees.
    (f) Exempt information. A request for records may be denied if the 
requested record contains information that falls into one or more of the 
following categories.\1\ If the requested record contains both exempt 
and nonexempt information, the nonexempt portions, which may reasonable 
be segregated from the exempt portions, will be released to the 
requester. If redaction is necessary, the ASC will, to the extent 
technically feasible, indicate the amount of material deleted at the 
place in the record where such deletion is made unless that indication 
in and of itself will jeopardize the purpose for the redaction. The 
categories of exempt records are as follows:
---------------------------------------------------------------------------

    \1\ Classification of a record as exempt from disclosure under the 
provisions of this paragraph (f) shall not be construed as authority to 
withhold the record if it is otherwise subject to disclosure under the 
Privacy Act of 1974 (5 U.S.C. 552a) or other Federal statute, any 
applicable regulation of ASC or any other Federal agency having 
jurisdiction thereof, or any directive or order of any court of 
competent jurisdiction.
---------------------------------------------------------------------------

    (1) Records that are specifically authorized under criteria 
established by an Executive Order to be kept secret in the interest of 
national defense or foreign policy and are in fact properly classified 
pursuant to such Executive Order;
    (2) Records related solely to the internal personnel rules and 
practices of the ASC;
    (3) Records specifically exempted from disclosure by statute, 
provided that such statute:
    (i) Requires that the matters be withheld from the public in such a 
manner as to leave no discretion on the issue; or
    (ii) Establishes particular criteria for withholding or refers to 
particular types of matters to be withheld;
    (4) Trade secrets and commercial or financial information obtained 
from a person that is privileged or confidential;
    (5) Interagency or intra-agency memoranda or letters that would not 
be available by law to a private party in litigation with the ASC;
    (6) Personnel, medical, and similar files (including financial 
files) the disclosure of which would constitute a clearly unwarranted 
invasion of personal privacy;
    (7) Records compiled for law enforcement purposes, but only to the 
extent

[[Page 255]]

that the production of such law enforcement records:
    (i) Could reasonably be expected to interfere with enforcement 
proceedings;
    (ii) Would deprive a person of a right to a fair trail or an 
impartial adjudication;
    (ii) Could reasonably be expected to constitute an unwarranted 
invasion of personal privacy;
    (iv) Could reasonably be expected to disclose the identity of a 
confidential source, including a State, local, or foreign agency or 
authority or any private institution which furnished records on a 
confidential basis;
    (v) Would disclose techniques and procedures for law enforcement 
investigations or prosecutions, or would disclose guidelines for law 
enforcement investigations or prosecutions if such disclosure could 
reasonably be expected to risk circumvention of the law; or
    (vi) Could reasonably be expected to endanger the life or physical 
safety of any individual;
    (8) Records that are contained in or related to examination, 
operating, or condition reports prepared by, on behalf of, or for the 
use of the ASC or any agency responsible for the regulation or 
supervision of financial institutions; or
    (9) Geological and geophysical information and data, including maps, 
concerning wells.
    (g) Appeals. (1) Appeals should be addressed to the Executive 
Director; ASC; 2000 K Street, NW., Suite 310; Washington, DC 20006.
    (2) A person whose initial request for records under this section, 
or whose request for a waiver of fees under paragraph (e)(1)(x) of this 
section, has been denied, either in part or in whole, has the right to 
appeal the denial to the ASC's Chairman (or designee) within 30 business 
days after receipt of notification of the denial. Appeals of denials of 
initial requests or for a waiver of fees must be in writing and include 
any additional information relevant to consideration of the appeal.
    (3) Except in the case of an appeal for expedited treatment under 
paragraph (c)(3) of this section, the ASC will notify the appellant in 
writing within 20 business days after receipt of the appeal and will 
state:
    (i) Whether it is granted or denied in whole or in part;
    (ii) The name and title of each person responsible for the denial 
(if other than the person signing the notification);
    (iii) The exemptions relied upon for the denial in the case of 
initial requests for records; and
    (iv) The right to judicial review of the denial under the FOIA.
    (4) If a requester is appealing for denial of expedited treatment, 
the ASC will notify the appellant within ten business days after receipt 
of the appeal of the ASC's disposition.
    (5) Complete payment of any outstanding fee invoice will be required 
before an appeal is processed.
    (h) Records of another agency. If a requested record is the property 
of another Federal agency or department, and that agency or department, 
either in writing or by regulation, expressly retains ownership of such 
record, upon receipt of a request for the record the ASC will promptly 
inform the requester of this ownership and immediately shall forward the 
request to the proprietary agency or department either for processing in 
accordance with the latter's regulations or for guidance with respect to 
disposition.

[64 FR 72497, Dec. 28, 1999; 65 FR 31960, May 19, 2000, as amended at 69 
FR 2501, Jan. 16, 2004]



Sec. 1102.307  Disclosure of exempt records.

    (a) Disclosure prohibited. Except as provided in paragraph (b) of 
this section or by 12 CFR part 1102, subpart C, no person shall disclose 
or permit the disclosure of any exempt records, or information contained 
therein, to any persons other than those officers, directors, employees, 
or agents of the ASC or a State appraiser regulatory agency who has a 
need for such records in the performance of their official duties. In 
any instance in which any person has possession, custody or control of 
ASC exempt records or information contained therein, all copies of such 
records shall remain the property of the ASC and under no circumstances 
shall any person, entity or agency disclose or make public in any manner 
the

[[Page 256]]

exempt records or information without written authorization from the 
Executive Director, after consultation with the ASC General Counsel.
    (b) Disclosure authorized. Exempt records or information of the ASC 
may be disclosed only in accordance with the conditions and requirements 
set forth in this paragraph (b). Requests for discretionary disclosure 
of exempt records of information pursuant to this paragraph (b) may be 
submitted directly to the Executive Director. Such administrative 
request must clearly state that it seeks discretionary disclosure of 
exempt records, clearly identify the records sought, provide sufficient 
information for the ASC to evaluate whether there is good cause for 
disclosure, and meet all other conditions set forth in paragraph (b)(1) 
through (3) of this section. Authority to disclose or authorize 
disclosure of exempt records of the ASC is delegated to the Executive 
Director, after consultation with the ASC General Counsel.
    (1) Disclosure by Executive Director. (i) The Executive Director, or 
designee, may disclose or authorize the disclosure of any exempt record 
in response to a valid judicial subpoena, court order, or other legal 
process, and authorize any current or former member, officer, employee, 
agent of the ASC, or third party, to appear and testify regarding an 
exempt record or any information obtained in the performance of such 
person's official duties, at any administrative or judicial hearing or 
proceeding where such person has been served with a valid subpoena, 
court order, or other legal process requiring him or her to testify. The 
Executive Director shall consider the relevancy of such exempt records 
or testimony to the ligation, and the interests of justice, in 
determining whether to disclose such records or testimony. Third parties 
seeking disclosure of exempt records or testimony in litigation to which 
the ASC is not a party shall submit a request for discretionary 
disclosure directly to the Executive Director. Such requests shall 
specify the information sought with reasonable particularity and shall 
be accompanied by a statement with supporting documentation showing in 
detail the relevance of such exempt information to the litigation, 
justifying good cause for disclosure, and a commitment to be bound by a 
protective order. Failure to exhaust such administration request prior 
to service of a subpoena or other legal process may, in the Executive 
Director's discretion, serve as a basis for objection to such subpoena 
or legal process.
    (ii) The Executive Director, or designee, may in his or her 
discretion and for good cause, disclose or authorize disclosure of any 
exempt record or testimony by a current or former member, officer, 
employee, agent of the ASC, or third party, sought in connection with 
any civil or criminal hearing, proceeding or investigation without the 
service of a judicial subpoena, or other legal process requiring such 
disclosure or testimony. If he or she determines that the records or 
testimony are relevant to the hearing, proceeding or investigation and 
that disclosure is in the best interests of justice and not otherwise 
prohibited by Federal statute. Where the Executive Director or designee 
authorizes a current or former member, officer, director, empl9oyee or 
agent of the ASC to testify or disclose exempt records pursuant to this 
paragraph (b)(1), he or she may, in his or her discretion, limit the 
authorization to so much of the record or testimony as is relevant to 
the issues at such hearing, proceeding or investigation, and he or she 
shall give authorization only upon fulfillment of such conditions as he 
or she deems necessary and practicable to protect the confidential 
nature of such records or testimony.
    (2) Authorization for disclosure by the Chairman of the ASC. Except 
where expressly prohibited by law, the Chairman of the ASC may, in his 
or her discretion, authorize the disclosure of any ASC records. Except 
where disclosure is required by law, the Chairman may direct any current 
or former member, officer, director, employee or agent of the ASC to 
refuse to disclose any record or to give testimony if the Chairman 
determines, in his or her discretion, that refusal to permit such 
disclosure is in the public interest.
    (3) Limitations on disclosure. All steps practicable shall be taken 
to protect the confidentiality of exempt records

[[Page 257]]

and information. Any disclosure permitted by paragraph (b) of this 
section is discretionary and nothing in paragraph (b) of this section 
shall be construed as requiring the disclosure of information. Further, 
nothing in paragrah (b) of this section shall be construed as 
restricting, in any manner, the authority of the ASC, the Chairman of 
the ASC, the Executive Director, the ASC General Counsel, or their 
designees, in their discretion and in light of the facts and 
circumstances attendant in any given case, to require conditions upon, 
and to limit, the form, manner, and extent of any disclosure permitted 
by this section. Wherever practicable, disclosure of exempt records 
shall be made pursuant to a protective order and redacted to exclude all 
irrelevant or non-responsive exempt information.

[64 FR 72500, Dec. 28, 1999]



Sec. 1102.308  Right to petition for issuance, amendment and repeal of rules of general application.

    Any person desiring the issuance, amendment or repeal of a rule of 
general application may file a petition for those purposes with the 
Executive Director of the ASC. The petition shall include a statement 
setting forth the text or substance of any proposed rule or amendment 
desired or shall specify the rule for which repeal is desired. The 
petitioner also shall state the nature of his or her interest and the 
reasons for seeking ASC action. The Executive Director shall acknowledge 
receipt of the petition within ten business days of receipt. As soon as 
reasonably practicable, the ASC shall consider the petition and related 
staff recommendations and shall take such action as it deems 
appropriate. The Executive Director shall notify the petitioner in 
writing of the ASC action within ten business days of the action.

[59 FR 1902, Jan. 13, 1994. Redesignated at 64 FR 72497, Dec. 28, 1999]



Sec. 1102.309  Confidential treatment procedures.

    (a) In general. Any submitter of written information to the ASC who 
desires that some or all of his or her submission be afforded 
confidential treatment under 5 U.S.C. 552(b)(4) (i.e., trade secrets and 
commercial or financial information obtained from a person and 
privileged or confidential) shall file a request for confidential 
treatment with the Executive Director of the ASC at the time the written 
information is submitted to the ASC or within ten business days 
thereafter. Nothing in this section limits the authority of the ASC and 
its staff to make determinations regarding access to documents under 
this subpart.
    (b) Form of request. A request for confidential treatment shall be 
submitted in a separate letter or memorandum conspicuously entitled, 
``Request for Confidential Treatment.'' Each request shall state in 
reasonable detail the facts and arguments supporting the request and its 
legal justification. If the submitter had been required by the ASC to 
provide the particular information, conclusory statements that the 
information would be useful to competitors or would impair sales or 
similar statements generally will not be considered sufficient to 
justify confidential treatment. When the submitter had voluntarily 
provided the particular information to the ASC, the submitter must 
specifically identify the documents or information which are of a kind 
the submitter would not customarily make available to the public.
    (c) Designation and separation of confidential material. Submitters 
shall clearly designate all information considered confidential and 
shall clearly separate such information from other non-confidential 
information, whenever possible.
    (d) ASC action on request. A request for confidential treatment of 
information will be considered only in connection with a request for 
access to the information under FOIA as implemented by this subpart. 
Upon the receipt of a request for access, the Executive Director or his 
or her designee (``ASC Officer'') as soon as possible shall provide the 
submitter with a written notice describing the request and shall provide 
the submitter with a reasonable opportunity, no longer than ten business 
days, to submit written objections to disclosure of the information. 
Notice may be given orally, and such notice shall be promptly confirmed 
in writing.

[[Page 258]]

The ASC Officer may provide a submitter with a notice if the submitter 
did not request confidential treatment of the requested information. If 
the ASC required the submitter to provide the requested information, the 
ASC Officer would need substantial reason to believe that disclosure of 
the requested information would result in substantial competitive harm 
to the submitter. If the submitter provided the information voluntarily 
to the ASC, the ASC officer would need to believe that the information 
is of a kind the submitter would not customarily make available to the 
public. The ASC Officer similarly shall notify the person seeking 
disclosure of the information under FOIA of the existence of a request 
for confidential treatment. These notice requirements need not be 
followed if the ASC Officer determines under this subpart that the 
information should not be disclosed; the information has been published 
or has been officially made available to the public; disclosure of the 
information is required by law (other than FOIA); or the submitter's 
request for confidential treatment appears obviously frivolous, in such 
instance the submitter shall be given written notice of the 
determination to disclose the information at least five business days 
prior to release. The ASC Officer shall carefully consider the issues 
involved, and if disclosure of the requested information is warranted, a 
written notice, containing a brief description of why the submitter's 
objections were not sustained, must be forwarded to the submitter within 
ten business days. The time for response may be extended up to ten 
additional business days, as provided in 5 U.S.C. 552(a)(6)(B), or for 
other periods by agreement between the requester and the ASC Officer. 
This notice shall be provided to the submitter at least five business 
days prior to release of the requested information.
    (e) Notice of lawsuit. The ASC Officer shall notify a submitter of 
any filing of any suit against the ASC pursuant to 5 U.S.C. 552 to 
compel disclosure of documents or information covered by the submitter's 
request for confidential treatment within ten business days of service 
of the suit. The ASC Officer also shall notify the requester of the 
documents or information of any suit filed by the submitter against the 
ASC to enjoin their disclosure within ten business days of service of 
the suit.

[59 FR 1902, Jan. 13, 1994. Redesignated at 64 FR 72497, Dec. 28, 1999]



Sec. 1102.310  Service of process.

    (a) Service. Any subpoena or other legal process to obtain 
information maintained by the ASC shall be duly issued by a court having 
jurisdiction over the ASC, and served upon the Chairman ASC; 2000 K 
Street, NW., Suite 310; Washington, DC 20006. Where the ASC is named as 
a party, service of process shall be made pursuant to the Federal Rules 
of Civil Procedure upon the Chairman at the above address. The Chairman 
shall immediately forward any subpoena, court order or legal process to 
the General Counsel. If consistent with the terms of the subpoena, court 
order or legal process, the ASC may require the payment of fees, in 
accordance with the fee schedule referred to in Sec. 1102.306(e) prior 
to the release of any records requested pursuant to any subpoena or 
other legal process.
    (b) Notification by person served. If any current or former member, 
officer, employee or agent of the ASC, or any other person who has 
custody of records belonging to the ASC, is served with a subpoena, 
court order, or other process requiring that person's attendance as a 
witness concerning any matter related to official duties, or the 
production of any exempt record of the ASC, such person shall promptly 
advise the Executive Director of such service, the testimony and records 
described in the subpoena, and all relevant facts that may assist the 
Executive Director, in consultation with the ASC General Counsel, in 
determining whether the individual in question should be authorized to 
testify or the records should be produced. Such person also should 
inform the court or tribunal that issued the process and the attorney 
for the party upon whose application the process was issued, if known, 
of the substance of this section.
    (c) Appearance by person served. Absent the written authorization of 
the Executive Director or designee to disclose the requested 
information, any current or former member, officer, employee, or agent 
of the ASC, and any

[[Page 259]]

other person having custody of records of the ASC, who is required to 
respond to a subpoena or other legal process, shall attend at the time 
and place therein specified and respectfully decline to produce any such 
record or give any testimony with respect thereto, basing such refusal 
on this section.

[64 FR 72501, Dec. 28, 1999]

[[Page 261]]



          CHAPTER XIV--FARM CREDIT SYSTEM INSURANCE CORPORATION




  --------------------------------------------------------------------
Part                                                                Page
1400            Organization and functions..................         263
1401            Employee responsibilities and conduct.......         263
1402            Releasing information.......................         263
1403            Privacy Act regulations.....................         271
1408            Collection of claims owed the United States.         274
1410            Premiums....................................         287
1411            Rules of practice and procedure.............         291
1412            Golden parachute and indemnification 
                    payments................................         291

[[Page 263]]



PART 1400_ORGANIZATION AND FUNCTIONS--Table of Contents




                  Subpart A_Organization and Functions

Sec.
1400.1 Farm Credit System Insurance Corporation.
1400.2 Board of Directors of the Farm Credit System Insurance 
          Corporation.
1400.3 Organization of the Farm Credit System Insurance Corporation.

Subpart B [Reserved]

    Authority: 12 U.S.C. 2277a-5; 12 U.S.C. 2277a-7.

    Source: 55 FR 36610, Sept. 6, 1990, unless otherwise noted.



                  Subpart A_Organization and Functions



Sec. 1400.1  Farm Credit System Insurance Corporation.

    The Farm Credit System Insurance Corporation (Corporation) was 
created by sections 5.52 and 5.58 of the Farm Credit Act of 1971 (Act) 
to carry out the responsibilities set out in part E of title V of the 
Act, including insuring the timely payment of principal and interest on 
notes, bonds, debentures, and other obligations issued under subsection 
(c) or (d) of section 4.2 of the Farm Credit Act on behalf of one or 
more Farm Credit System banks.



Sec. 1400.2  Board of Directors of the Farm Credit System Insurance Corporation.

    The Board of Directors of the Farm Credit System Insurance 
Corporation is entrusted with the responsibility to manage the 
Corporation. The Board of Directors consists of the members of the Farm 
Credit Administration Board. The Chairman of the Corporation is elected 
by the members of the Board.



Sec. 1400.3  Organization of the Farm Credit System Insurance Corporation.

    Officers of the Corporation shall be appointed by the Board of 
Directors of the Corporation. Current information on the organization of 
the Corporation may be obtained from the Corporation, 1501 Farm Credit 
Drive, McLean, Virginia 22102-0826.

Subpart B [Reserved]



PART 1401_EMPLOYEE RESPONSIBILITIES AND CONDUCT--Table of Contents




    Authority: 5 U.S.C. 7301; 12 U.S.C. 2277a-7.



Sec. 1401.1  Cross-references to employee ethical conduct standards and financial disclosure regulations.

    Board members, officers, and other employees of the Farm Credit 
System Insurance Corporation are subject to the Standards of Ethical 
Conduct for Employees of the Executive Branch at 5 CFR part 2635, the 
Farm Credit System Insurance Corporation regulation at 5 CFR part 4001, 
which supplements the Executive Branch-wide Standards, and the executive 
branch-wide financial disclosure regulations at 5 CFR part 2634.

[60 FR 30778, June 12, 1995]



PART 1402_RELEASING INFORMATION--Table of Contents




Subpart A [Reserved]

 Subpart B_Availability of Records of the Farm Credit System Insurance 
                               Corporation

Sec.
1402.10 Official records of the Farm Credit System Insurance 
          Corporation.
1402.11 Current index.
1402.12 Identification of records requested.
1402.13 Request for records.
1402.14 Response to requests for records.
1402.15 Business information.

               Subpart C_Fees for Provision of Information

1402.20 Definitions.
1402.21 Categories of requesters--fees.
1402.22 Fees to be charged.
1402.23 Waiver or reduction of fees.
1402.24 Advance payments--notice.
1402.25 Interest.
1402.26 Charges for unsuccessful searches or reviews.
1402.27 Aggregating requests.

    Authority: Secs. 5.58, 5.59 of the Farm Credit Act (12 U.S.C. 2277a-
7, 2277a-8); 5 U.S.C. 552; 52 FR 10012; E.O. 12600, 52 FR 23781, 3 CFR, 
1987 Comp., p. 235.

    Source: 59 FR 24638, May 12, 1994, unless otherwise noted.

[[Page 264]]

Subpart A [Reserved]



 Subpart B_Availability of Records of the Farm Credit System Insurance 
                               Corporation



Sec. 1402.10  Official records of the Farm Credit System Insurance Corporation.

    (a) The Farm Credit System Insurance Corporation shall, upon any 
request for records which reasonably describes them and is made in 
accordance with the provisions of this subpart, make the records 
available as promptly as practicable to any person, except exempt 
records, which include the following:
    (1) Records specifically authorized under criteria established by an 
Executive order to be kept secret in the interest of national defense or 
foreign policy and are in fact properly classified pursuant to such 
Executive order;
    (2) Records related solely to the internal personnel rules and 
practices of the Farm Credit System Insurance Corporation, including 
matters which are for the guidance of agency personnel;
    (3) Records which are specifically exempted from disclosure by 
statute;
    (4) Trade secret, commercial, proprietary, or financial information 
obtained from any person or organization and privileged or confidential;
    (5) Inter-agency or intra-agency memorandums or letters which would 
not be available by law to a private party in litigation with the Farm 
Credit System Insurance Corporation or in litigation in which the United 
States, as a real party in interest on behalf of the Farm Credit System 
Insurance Corporation, is a party;
    (6) Personnel and similar files, the disclosure of which would 
constitute a clearly unwarranted invasion of personal privacy;
    (7) Records or information compiled for law enforcement purposes, 
but only to the extent that the production of such law enforcement 
records or information:
    (i) Could reasonably be expected to interfere with enforcement 
proceedings;
    (ii) Would deprive a person of a right to a fair trial or an 
impartial adjudication;
    (iii) Could reasonably be expected to constitute an unwarranted 
invasion of personal privacy;
    (iv) Could reasonably be expected to disclose the identity of a 
confidential source, including a State, local, or foreign agency or 
authority or any private institution which furnished information on a 
confidential basis, and, in the case of a record or information compiled 
by criminal law enforcement authority in the course of a criminal 
investigation or by an agency conducting a lawful national security 
intelligence investigation, information furnished by a confidential 
source;
    (v) Would disclose techniques and procedures for law enforcement 
investigations or prosecutions, or would disclose guidelines for law 
enforcement investigations or prosecutions if such disclosure could 
reasonably be expected to risk circumvention of the law; or
    (vi) Could reasonably be expected to endanger the life or physical 
safety of any individual; and
    (8) Records of or related to examination, operation, reports of 
condition and performance, or reports of or related to Farm Credit 
System institutions and that are prepared by, on behalf of, or for the 
use of the Farm Credit System Insurance Corporation.
    (b) Any reasonably segregable portion of a record shall be provided 
to any person requesting such record after deletion of the portions 
which are exempt under this section.
    (c) This section does not authorize withholding of information or 
limit the availability of records to the public, except as specifically 
stated in this section. This section is not authority to withhold 
information from Congress.



Sec. 1402.11  Current index.

    The Farm Credit System Insurance Corporation will make available for 
public inspection and copying a current index to provide identifying 
information as to any matter required by 5 U.S.C. 552(a)(2)(C) to be 
made available or published in the Federal Register. Because of the 
anticipated infrequency of requests for material required to be indexed, 
it is determined that the publication of the index in the Federal

[[Page 265]]

Register is unnecessary and impracticable. However, the Farm Credit 
System Insurance Corporation will provide a copy of such index to a 
member of the public upon request therefor at a cost not in excess of 
the direct cost of duplication.



Sec. 1402.12  Identification of records requested.

    A member of the public who requests records from the Farm Credit 
System Insurance Corporation shall provide a reasonable description of 
the records sought including, where possible, specific information as to 
dates, titles, and subject matter, so that such records may be located 
without undue search or inquiry. If a record is not identified by a 
reasonable description, the request therefor may be denied.



Sec. 1402.13  Request for records.

    Requests for records shall be in writing and addressed to the 
attention of the Freedom of Information Officer, Farm Credit System 
Insurance Corporation, McLean, Virginia 22102. A request improperly 
addressed will be deemed not to have been received for purposes of the 
20-day time period set forth in Sec. 1402.14(a) of this part until it 
is received, or would have been received, by the Freedom of Information 
Officer, with the exercise of due diligence by Corporation personnel. 
Records requested in conformance with this subpart and which are not 
exempt records may be received in person or by mail as specified in the 
request. Records to be received in person will be available for 
inspection or copying during business hours on a regular business day in 
the office of the Farm Credit System Insurance Corporation, 1501 Farm 
Credit Drive, McLean, Virginia, 22102.

[62 FR 49593, Sept. 23, 1997]



Sec. 1402.14  Response to requests for records.

    (a) Within 20 days (excluding Saturdays, Sundays, and legal public 
holidays), or any extensions thereof as provided in paragraph (d) of 
this section, of the receipt of a request by the Freedom of Information 
Officer, the Freedom of Information Officer shall determine whether to 
comply with or deny such a request and transmit a written notice thereof 
to the requester.
    (b) Within 30 days of the receipt of a notice denying, in whole or 
in part, a request for records, the requester may appeal the denial. The 
appeal shall be in writing addressed to the Chief Financial Officer, 
Farm Credit System Insurance Corporation, and both the letter and 
envelope shall be clearly marked ``FOIA Appeal.'' An appeal improperly 
addressed shall be deemed not to have been received for purposes of the 
20-day time period set forth in paragraph (c) of this section until it 
is received, or would have been received with the exercise of due 
diligence by Farm Credit System Insurance Corporation personnel.
    (c) Within 20 days (excluding Saturdays, Sundays, and legal public 
holidays), or any extension thereof as provided in paragraph (d) of this 
section, of the receipt of an appeal, the Farm Credit System Insurance 
Corporation shall act upon the appeal and place a notice of the 
determination thereof in writing in the mail addressed to the requester. 
If the determination on the appeal upholds in whole or in part the 
denial of the request for records, or, if a determination on the appeal 
has not been mailed at the end of the 20-day period or the last 
extension thereof, the requester is deemed to have exhausted that 
person's administrative remedies, giving rise to a right of review in a 
district court of the United States as specified in 5 U.S.C. 552(a)(4). 
When a determination cannot be mailed within the applicable time limit, 
the appeal will nevertheless be processed. In such case, upon the 
expiration of the time limit, the requester will be informed of the 
reason for the delay, of the date on which a determination may be 
expected to be mailed, and of that person's right to seek judicial 
review. The requester may be asked to forego judicial review until 
determination of the appeal.
    (d) In ``unusual circumstances,'' the 20-day time limit prescribed 
in paragraphs (a) and (c) of this section, or both, may be extended by 
the Freedom of Information Officer or, in the case of an appeal, by the 
General Counsel, provided that the total of all extensions

[[Page 266]]

does not exceed 10 days (excluding Saturdays, Sundays, and legal public 
holidays). Extensions shall be made by written notice to the requester 
setting forth the reason for the extension and the date on which a 
determination is expected to be dispatched. As used in this paragraph, 
``unusual circumstances'' means, but only to the extent reasonably 
necessary to the proper processing of the request:
    (1) The need to search for and collect the requested records from 
facilities or other establishments that are separate from the office 
processing the request;
    (2) The need to search for, collect, and appropriately examine a 
voluminous amount of separate and distinct records which are demanded in 
a single request; or
    (3) The need for consultation, which shall be conducted with all 
practicable speed, with another agency having a substantial interest in 
the determination of the request or among two or more components of the 
agency having a substantial subject matter interest therein.
    (e) A requester may obtain, upon request, expedited processing of a 
request for records when the requester demonstrates a ``compelling 
need'' for the information. The Freedom of Information Officer will 
notify the requester within 10 calendar days after receipt of such a 
request whether the Corporation granted expedited processing. If 
expedited processing was granted, the request will be processed as soon 
as practicable.
    (1) For the purposes of this paragraph, ``compelling need'' means:
    (i) That a failure to obtain requested records on an expedited basis 
could reasonably be expected to pose an imminent threat to the life or 
physical safety of an individual; or
    (ii) With respect to a request made by a person primarily engaged in 
disseminating information, urgency to inform the public concerning 
actual or alleged Federal Government activity.
    (2) A requester shall demonstrate a compelling need by a statement 
certified by the requester to be true and correct to the best of such 
person's knowledge and belief.
    (3) The procedures of this paragraph (e) for expedited processing 
apply to both requests for information and to administrative appeals.

[59 FR 24638, May 12, 1994, as amended at 62 FR 49593, Sept. 23, 1997]



Sec. 1402.15  Business information.

    (a) Business information provided to the Farm Credit System 
Insurance Corporation by a business submitter shall not be disclosed 
pursuant to a Freedom of Information Act request except in accordance 
with this section. The requirements of this section shall not apply if:
    (1) The Farm Credit System Insurance Corporation determines that the 
information should not be disclosed;
    (2) The information lawfully has been published or otherwise made 
available to the public; or
    (3) Disclosure of the information is required by law (other than 5 
U.S.C. 552).
    (b) For the purpose of this section, the following definitions shall 
apply.
    (1) Business information means trade secrets or other commercial or 
financial information.
    (2) Business submitter means any person or entity which provides 
business information to the government.
    (3) Requester means the person or entity making the Freedom of 
Information Act request.
    (c)(1) The Freedom of Information Officer shall, to the extent 
permitted by law, provide a business submitter with prompt written 
notice of a request encompassing its business information whenever 
required under paragraph (d) of this section. Such notice shall either 
describe the exact nature of the business information requested or 
provide copies of the records or portions thereof containing the 
business information.
    (2) Whenever the Freedom of Information Officer provides a business 
submitter with the notice set forth in paragraph (c)(1) of this section, 
the Freedom of Information Officer shall notify the requester that the 
request includes information that may arguably be exempt from disclosure 
under 5 U.S.C. 552(b)(4) and that the person or entity who submitted the 
information to the Farm Credit System Insurance Corporation has been 
given the opportunity to comment on the proposed disclosure of 
information.

[[Page 267]]

    (d)(1) The Farm Credit System Insurance Corporation shall provide a 
business submitter with notice of a request whenever:
    (i) The business submitter has in good faith designated the 
information as commercially or financially sensitive information; or
    (ii) The Farm Credit System Insurance Corporation has reason to 
believe that the disclosure of the information may result in commercial 
or financial injury to the business submitter.
    (2) Notice of a request for business information falling within 
paragraph (d)(1)(i) of this section shall be required for a period of 
not more than 10 years after the date of submission unless the business 
submitter requests and provides acceptable justification for a specific 
notice period of greater duration.
    (3) Whenever possible, the business submitter's claim of 
confidentiality should be supported by a statement or certification by 
an officer or authorized representative of the business submitter that 
the information in question is in fact a trade secret or commercial or 
financial information that is privileged or confidential.
    (e) Through the notice described in paragraph (c) of this section, 
the Farm Credit System Insurance Corporation shall, to the extent 
permitted by law, afford a business submitter a reasonable period within 
which it can provide the Farm Credit System Insurance Corporation with a 
detailed statement of any objection to disclosure. Such statement shall 
specify all grounds for withholding any of the information under any 
exemption of the Freedom of Information Act and, in the case of the 
exemption provided by 5 U.S.C. 552(b)(4), shall demonstrate why the 
information is contended to be a trade secret or commercial or financial 
information that is privileged or confidential. Information provided by 
a business submitter pursuant to this paragraph may itself be subject to 
disclosure under the Freedom of Information Act.
    (f)(1) The Farm Credit System Insurance Corporation shall consider 
carefully a business submitter's objections and specific grounds for 
nondisclosure prior to determining whether to disclose business 
information. Whenever the Farm Credit System Insurance Corporation 
decides to disclose business information over the objection of a 
business submitter, the Freedom of Information Officer shall forward to 
the business submitter a written notice which shall include:
    (i) A statement of the reasons for which the business submitter's 
disclosure objections were not sustained;
    (ii) A description of the business information to be disclosed; and
    (iii) A specified disclosure date.
    (2) The notice of intent to disclose required by this paragraph 
shall be sent, to the extent permitted by law, within a reasonable 
number of days prior to the specified date upon which disclosure is 
intended.
    (3) The Freedom of Information Officer shall send a copy of such 
disclosure notice to the requester at the same time the notice is sent 
to the business submitter.
    (g) Whenever a requester brings suit seeking to compel disclosure of 
business information covered by paragraph (d) of this section, the Farm 
Credit System Insurance Corporation shall promptly notify the business 
submitter of such action.



               Subpart C_Fees for Provision of Information



Sec. 1402.20  Definitions.

    For the purpose of this subpart, the following definitions shall 
apply:
    (a) Commercial use request means a request for information that is 
from or on behalf of an individual or entity seeking information for a 
use or purpose that furthers the commercial, trade, or profit interests 
of the requester or on whose behalf the request is being made. To 
determine whether a request is properly classified as a commercial use 
request, the Farm Credit System Insurance Corporation shall determine 
the purpose for which the documents requested will be used. If the Farm 
Credit System Insurance Corporation has reasonable cause to doubt the 
purpose specified in the request, for which a requester will use the 
records sought, or where the purpose is not clear from the request 
itself, the Farm Credit System Insurance Corporation

[[Page 268]]

shall seek additional clarification before assigning the request to a 
specified category.
    (b) Direct costs means those expenditures the Farm Credit System 
Insurance Corporation actually incurs in searching for and reproducing 
documents to respond to a request for information. In the case of a 
commercial use request, the term also means those expenditures the Farm 
Credit System Insurance Corporation actually incurs in reviewing 
documents to respond to the request. The direct cost shall include the 
salary of the employee performing work (the basic rate of pay for the 
employee plus 16 percent of that rate to cover benefits) and the cost of 
operating reproduction equipment. Not included in direct costs are 
overhead expenses such as costs of space, and heating or lighting the 
facility in which the records are stored.
    (c) Educational institution means a preschool, a public or private 
elementary or secondary school, an institution of undergraduate higher 
education, an institution of graduate higher education, an institution 
of professional education, and an institution of vocational education 
that operates a program or programs of scholarly research.
    (d) Noncommercial scientific institution refers to an institution 
that is not operated on a commercial, trade, or profit basis and that is 
operated solely for the purpose of conducting scientific research, the 
results of which are not intended to promote any particular product or 
industry.
    (e) Representative of the news media means any person actively 
gathering news for an entity that is organized and operated to publish 
or broadcast news to the public. The term news means information that is 
about current events or that would be of current interest to the public. 
Examples of news media entities include television or radio stations 
broadcasting to the public at large, and publishers of periodicals (but 
only in those instances when the periodicals can qualify as 
disseminators of ``news'') who make their products available for 
purchase or subscription by the general public. These examples are not 
intended to be all-inclusive. As traditional methods of news delivery 
evolve (e.g., electronic dissemination of newspapers through 
telecommunication services), such alternative media would be included in 
this category. ``Freelance'' journalists may be regarded as working for 
a news organization if they can demonstrate a solid basis for expecting 
publication through that organization even though they are not actually 
employed by the organization. A publication contract would be the 
clearest proof that a journalist is working for a news organization, but 
the Farm Credit System Insurance Corporation may look to a requester's 
past publication record to determine whether a journalist is working for 
a news organization.
    (f) Reproduce and reproduction mean the process of making a copy of 
a document necessary to respond to a request for information. Such 
copies take the form of paper copy, microfilm, audio-visual materials, 
or machine readable documentation (e.g., magnetic tape or disk), among 
others. The copy provided shall be in a form that is reasonably usable 
by requesters.
    (g) Review means the process of examining documents located in 
response to a request for information to determine whether any portion 
of any document located is permitted to be withheld. It also includes 
processing any documents for disclosure (e.g., doing all that is 
necessary to prepare the documents for release). The term review does 
not include the time spent resolving general legal or policy issues 
regarding the application of exemptions. The Farm Credit System 
Insurance Corporation shall only charge fees for reviewing documents in 
response to a commercial use request.
    (h) Search includes all time spent looking for material that is 
responsive to a request for information, including page-by-page or line-
by-line identification of material within documents. Searching for 
material shall be done in the most efficient and least expensive manner 
so as to minimize the costs of the Farm Credit System Insurance 
Corporation and the requester. For example, a line-by-line search for 
responsive material should not be performed when merely reproducing an 
entire document would be the less expensive and the

[[Page 269]]

faster method of complying with a request for information. Searches may 
be done manually or by computer using existing programming. A ``search'' 
for material that is responsive to a request should be distinguished 
from a ``review'' of material to determine whether the material is 
exempt from disclosure.



Sec. 1402.21  Categories of requesters--fees.

    There are four categories of requesters: Commercial use requesters; 
educational and noncommercial scientific institutions; representatives 
of the news media; and all other requesters.
    (a) The Farm Credit System Insurance Corporation shall charge fees 
for records requested by or on behalf of educational institutions and 
noncommercial scientific institutions in an amount which equals the cost 
of reproducing the documents responsive to the request, excluding the 
costs of reproducing the first 100 pages. For a request to be included 
in this category, requesters must show that the request being made is 
authorized by and under the auspices of a qualifying institution and 
that the records are not sought for a commercial use but are sought in 
furtherance of scholarly research (if the request is from an educational 
institution) or scientific research (if the request is from a 
noncommercial scientific institution).
    (b) The Farm Credit System Insurance Corporation shall charge fees 
for records requested by representatives of the news media in an amount 
which equals the cost of reproducing the documents responsive to the 
request, excluding the costs of reproducing the first 100 pages. For a 
request to be included in this category, the requester must qualify as a 
representative of the news media and the request must not be made for a 
commercial use. A request for records supporting the news dissemination 
function of the requester shall not be considered to be a request that 
is for a commercial use.
    (c) The Farm Credit System Insurance Corporation shall charge fees 
for records requested by persons or entities making a commercial use 
request in an amount that equals the full direct costs for searching 
for, reviewing for release, and reproducing the records sought. 
Commercial use requesters are not entitled to 2 hours of free search 
time nor 100 free pages of reproduction of documents. In accordance with 
Sec. 1402.26, commercial use requesters may be charged the costs of 
searching for and reviewing records even if there is ultimately no 
disclosure of records.
    (d) The Farm Credit System Insurance Corporation shall charge fees 
for records requested by persons or entities that are not classified in 
any of the categories listed in paragraphs (a), (b), or (c) of this 
section in an amount that equals the full reasonable direct cost of 
searching for and reproducing records that are responsive to the 
request, excluding the first 2 hours of search time and the cost of 
reproducing the first 100 pages of records. In accordance with Sec. 
1402.26, requesters in this category may be charged the cost of 
searching for records even if there is ultimately no disclosure of 
records, excluding the first 2 hours of search time.
    (e) For purposes of the exceptions contained in this section on 
assessment of fees, the word pages refers to paper copies of ``8\1/2\ x 
11'' or ``11 x 14.'' Thus, requesters are not entitled to 100 microfiche 
or 100 computer disks, for example. A microfiche containing the 
equivalent of 100 pages or a computer disk containing the equivalent of 
100 pages of computer printout meets the terms of the exception.
    (f) For purposes of paragraph (d) of this section, the term search 
time has as its basis, manual search. To apply this term to searches 
made by computer, the Farm Credit System Insurance Corporation will 
determine the hourly cost of operating the central processing unit and 
the operator's hourly salary plus 16 percent of that rate. When the cost 
of search (including the operator time and the cost of operating the 
computer to process a request) equals the equivalent dollar amount of 2 
hours of the salary of the person performing the search, i.e., the 
operator, the Farm Credit System Insurance Corporation will begin 
assessing charges for computer search.



Sec. 1402.22  Fees to be charged.

    (a) Generally, the fees charged for requests for records shall cover 
the full

[[Page 270]]

allowable direct costs of searching for, reproducing, and reviewing 
documents that are responsive to a request for information.
    (b) Manual searches for records will be charged at the salary 
rate(s) (i.e., basic pay plus 16 percent of that rate) of the 
employee(s) making the search.
    (c) Computer searches for records will be charged at the actual 
direct cost of providing the service. This will include the cost of 
operating the central processing unit for that portion of operating time 
that is directly attributable to searching for records and the operator/
programmer salary apportionable to the search. A charge shall also be 
made for any substantial amounts of special supplies or materials used 
to contain, present, or make available the output of computers, based 
upon the prevailing levels of costs to the Farm Credit System Insurance 
Corporation for the type and amount of such supplies of materials that 
are used. Nothing in this paragraph shall be construed to entitle any 
person or entity, as a right, to any services in connection with 
computerized records, other than services to which such person or entity 
may be entitled under the provisions of this subpart.
    (d) Only requesters who are seeking documents for commercial use may 
be charged for time spent reviewing records to determine whether they 
are exempt from mandatory disclosure. Charges may be assessed only for 
the initial review; i.e., the review undertaken the first time the Farm 
Credit System Insurance Corporation analyzes the applicability of a 
specific exemption to a particular record or portion of a record. 
Records or portions of records withheld in full under an exemption that 
is subsequently determined not to apply may be reviewed again to 
determine the applicability of other exemptions not previously 
considered. The costs for such a subsequent review is assessable.
    (e) Records will be reproduced at a rate of $.15 per page. For 
copies prepared by computer, such as tapes or printouts, the requester 
shall be charged the actual cost, including operator time, of production 
of the tape or printout. For other methods of reproduction, the actual 
direct costs of producing the document(s) shall be charged.
    (f) The Farm Credit System Insurance Corporation will recover the 
full costs of providing services such as those enumerated below when it 
elects to provide them:
    (1) Certifying that records are true copies; or
    (2) Sending records by special methods such as express mail.
    (g) Remittances shall be in the form either of a personal check or 
bank draft drawn on a bank in the United States, or a postal money 
order. Remittances shall be made payable to the order of the Farm Credit 
System Insurance Corporation.
    (h) A receipt for fees paid will be given upon request.



Sec. 1402.23  Waiver or reduction of fees.

    (a) The Farm Credit System Insurance Corporation may grant a waiver 
or reduction of fees if the Farm Credit System Insurance Corporation 
determines that the disclosure of the information is in the public 
interest because it is likely to contribute significantly to public 
understanding of the operations or activities of the Government, and the 
disclosure of the information is not primarily in the commercial 
interest of the requester.
    (b) The Farm Credit System Insurance Corporation will not charge 
fees to any requester, including commercial use requesters, if the cost 
of collecting a fee would be equal to or greater than the fee itself. 
The elements to be considered in determining the ``cost of collecting a 
fee'' are the administrative costs of receiving and recording a 
requester's remittance and processing the fee.



Sec. 1402.24  Advance payments--notice.

    (a) Where it is anticipated that the fees chargeable will amount to 
more than $25 and the requester has not indicated in advance a 
willingness to pay fees as high as are anticipated, the requester shall 
be promptly notified of the amount of the anticipated fee or such 
portion thereof that can be readily estimated.
    (b) If the anticipated fees exceed $250 and if the requester has a 
history of

[[Page 271]]

promptly paying fees charged in connection with information requests, 
the Farm Credit System Insurance Corporation may obtain satisfactory 
assurances that the requester will fully pay the fees anticipated.
    (c) If the anticipated fees exceed $250 and if the requester has no 
history of paying fees charged in connection with information requests, 
the Farm Credit System Insurance Corporation may require an advance 
payment of fees in an amount up to the full amount anticipated.
    (d) If the requester has previously failed to pay a fee charged 
within 30 days of the date of a billing for fees charged in connection 
with information requests, the Farm Credit System Insurance Corporation 
may require the requester to pay the fees owed, plus interest, or 
demonstrate that the full amount owed has been paid, and require the 
requester to make an advance payment of the full amount of the fees 
anticipated before processing a new request or a pending request from 
that requester.
    (e) The notice of the amount of an anticipated fee or a request for 
an advance deposit shall include an offer to the requester to confer 
with identified Farm Credit System Insurance Corporation personnel to 
attempt to reformulate the request in a manner which will meet the needs 
of the requester at a lower cost.



Sec. 1402.25  Interest.

    The Farm Credit System Insurance Corporation may begin charging 
interest on unpaid fees, starting on the 31st day following the day on 
which the bill for such fees was sent. Interest will not accrue if 
payment of the fees has been received by the Farm Credit System 
Insurance Corporation, even if said payment has not been processed. 
Interest will accrue at the rate prescribed in section 3717 of title 31, 
United States Code, and will accrue from the day on which the bill for 
such fees was sent.



Sec. 1402.26  Charges for unsuccessful searches or reviews.

    The Farm Credit System Insurance Corporation may assess charges for 
time spent searching for records on behalf of requesters in the 
categories provided for in Sec. 1402.21 (c) and (d), even if there are 
no records that are responsive to the request or there is ultimately no 
disclosure of records. The Farm Credit System Insurance Corporation may 
assess charges for time spent reviewing records for requesters in the 
category provided for in Sec. 1402.21(c) even if the records located 
are determined to be exempt from disclosure.



Sec. 1402.27  Aggregating requests.

    A requester may not file multiple requests at the same time, each 
seeking portions of a document or documents, solely in order to avoid 
payment of fees. When the Farm Credit System Insurance Corporation 
reasonably believes that a requester, or a group of requesters acting in 
concert, is attempting to break a request down into a series of requests 
for the purpose of evading the assessment of fees, the Farm Credit 
System Insurance Corporation may aggregate any such requests and charge 
accordingly. One element to be considered in determining whether a 
belief would be reasonable is the time period over which the requests 
have occurred.



PART 1403_PRIVACY ACT REGULATIONS--Table of Contents




Sec.
1403.1 Purpose and scope.
1403.2 Definitions.
1403.3 Procedures for requests pertaining to individual records in a 
          record system.
1403.4 Times, places, and requirements for identification of individuals 
          making requests.
1403.5 Disclosure of requested information to individuals.
1403.6 Special procedures for medical records.
1403.7 Request for amendment to record.
1403.8 Agency review of request for amendment of record.
1403.9 Appeal of an initial adverse determination of a request to amend 
          a record.
1403.10 Fees for providing copies of records.
1403.11 Criminal penalties.
1403.12 Exemptions.

    Authority: Secs. 5.58, 5.59 of the Farm Credit Act (12 U.S.C. 2277a-
7, 2277a-8); 5 U.S.C. app. 3, 5 U.S.C. 552a.

    Source: 59 FR 53084, Oct. 21, 1994, unless otherwise noted.

[[Page 272]]



Sec. 1403.1  Purpose and scope.

    (a) This part is published by the Farm Credit System Insurance 
Corporation pursuant to the Privacy Act of 1974 (Pub. L. 93-579, 5 
U.S.C. 552a) which requires each Federal agency to promulgate rules to 
establish procedures for notification and disclosure to an individual of 
agency records pertaining to that person, and for review of such 
records.
    (b) The records covered by this part include:
    (1) Personnel and employment records maintained by the Farm Credit 
System Insurance Corporation not covered by Sec. Sec. 293.101 through 
293.108 of the regulations of the Office of Personnel Management (5 CFR 
293.101 through 293.108); and
    (2) Other records contained in record systems maintained by the Farm 
Credit System Insurance Corporation.
    (c) This part does not apply to any records maintained by the Farm 
Credit System Insurance Corporation in its capacity as a receiver or 
conservator.



Sec. 1403.2  Definitions.

    For the purposes of this part:
    (a) Agency means the Farm Credit System Insurance Corporation. It 
does not include the Farm Credit System Insurance Corporation when it is 
acting as a receiver or a conservator;
    (b) Individual means a citizen of the United States or an alien 
lawfully admitted for permanent residence;
    (c) Maintain includes maintain, collect, use, or disseminate;
    (d) Record means any item, collection, or grouping of information 
about an individual that is maintained by an agency including, but not 
limited to, that person's education, financial transactions, medical 
history, and criminal or employment history, and that contains that 
person's name, or the identifying number, symbol, or other identifying 
particular assigned to the individual, such as a finger or voice print 
or photograph;
    (e) Routine use means, with respect to the disclosure of a record, 
the use of such record for a purpose that is compatible with the purpose 
for which it was collected;
    (f) Statistical record means a record in a system of records 
maintained for statistical research or reporting purposes only and not 
used in whole or in part in making any determination about an 
identifiable individual, except as provided by 13 U.S.C. 8;
    (g) System of records means a group of any records under the control 
of any agency from which information is retrieved by the name of an 
individual or by some identifying number, symbol, or other identifying 
particular assigned to the individual.



Sec. 1403.3  Procedures for requests pertaining to individual records in a record system.

    (a) Any present or former employee of the Farm Credit System 
Insurance Corporation seeking access to that person's official civil 
service records maintained by the Farm Credit System Insurance 
Corporation shall submit a request in such manner as is prescribed by 
the Office of Personnel Management.
    (b) Individuals shall submit their requests in writing to the 
Privacy Act Officer, Farm Credit System Insurance Corporation, McLean, 
Virginia 22102-0826, when seeking to obtain the following information 
from the Farm Credit System Insurance Corporation:
    (1) Notification of whether the agency maintains a record pertaining 
to that person in a system of records;
    (2) Notification of whether the agency has disclosed a record for 
which an accounting of disclosure is required to be maintained and made 
available to that person;
    (3) A copy of a record pertaining to that person or the accounting 
of its disclosure; or
    (4) The review of a record pertaining to that person or the 
accounting of its disclosure.

The request shall state the full name and address of the individual, and 
identify the system or systems of records believed to contain the 
information or record sought.



Sec. 1403.4  Times, places, and requirements for identification of individuals making requests.

    The individual making written requests for information or records 
ordinarily will not be required to verify that person's identity. The 
signature

[[Page 273]]

upon such requests shall be deemed to be a certification by the 
requester that he or she is the individual to whom the record pertains, 
or the parent of a minor, or the duly appointed legal guardian of the 
individual to whom the record pertains. The Privacy Act Officer, 
however, may require such additional verification of identity in any 
instance in which the Privacy Act Officer deems it advisable.



Sec. 1403.5  Disclosure of requested information to individuals.

    (a) The Privacy Act Officer shall, within a reasonable period of 
time after the date of receipt of a request for information of records:
    (1) Determine whether or not such request shall be granted;
    (2) Notify the requester of the determination, and, if the request 
is denied, of the reasons therefor; and
    (3) Notify the requester that fees for reproducing copies of records 
may be charged as provided in Sec. 1403.10.
    (b) If access to a record is denied because the information therein 
has been compiled by the Farm Credit System Insurance Corporation in 
reasonable anticipation of a civil or criminal action proceeding, the 
Privacy Act Officer shall notify the requester of that person's right to 
judicial appeal under 5 U.S.C. 552a(g).
    (c)(1) If access to a record is granted, the requester shall notify 
the Privacy Act Officer whether the requested record is to be copied and 
mailed to the requester or whether the record is to be made available 
for personal inspection.
    (2) A requester who is an individual may be accompanied by an 
individual selected by the requester when the record is disclosed, in 
which case the requester may be required to furnish a written statement 
authorizing the discussion of the record in the presence of the 
accompanying person.
    (d) If the record is to be made available for personal inspection, 
the requester shall arrange with the Privacy Act Officer a mutually 
agreeable time in the offices of the Farm Credit System Insurance 
Corporation for inspection of the record.



Sec. 1403.6  Special procedures for medical records.

    Medical records in the custody of the Farm Credit System Insurance 
Corporation which are not subject to Office of Personnel Management 
regulations shall be disclosed either to the individual to whom they 
pertain or that person's authorized or legal representative or to a 
licensed physician named by the individual.



Sec. 1403.7  Request for amendment to record.

    (a) If, after disclosure of the requested information, an individual 
believes that the record is not accurate, relevant, timely, or complete, 
that person may request in writing that the record be amended. Such a 
request shall be submitted to the Privacy Act Officer and shall identify 
the system of records and the record or information therein, a brief 
description of the material requested to be changed, the requested 
change or changes, and the reason for such change or changes.
    (b) The Privacy Act Officer shall acknowledge receipt of the request 
within 10 days (excluding Saturdays, Sundays, and legal holidays) and, 
if a determination has not been made, advise the individual when that 
person may expect to be advised of action taken on the request. The 
acknowledgment may contain a request for additional information needed 
to make a determination.



Sec. 1403.8  Agency review of request for amendment of record.

    Upon receipt of a request for amendment of a record, the Privacy Act 
Officer shall:
    (a) Correct any portion of a record which the individual making the 
request believes is not accurate, relevant, timely, or complete and 
thereafter inform the individual in writing of such correction, or
    (b) Inform the individual in writing of the refusal to amend the 
record and of the reasons therefor, and advise that the individual may 
appeal such determination as provided in Sec. 1403.9.

[[Page 274]]



Sec. 1403.9  Appeal of an initial adverse determination of a request to amend a record.

    (a) Not more than 10 days (excluding Saturdays, Sundays, and legal 
holidays) after receipt by an individual of an adverse determination on 
the individual's request to amend a record or otherwise, the individual 
may appeal to the Chief Operating Officer, Farm Credit System Insurance 
Corporation, McLean, Virginia 22102-0826.
    (b) The appeal shall be by letter, mailed or delivered to the Chief 
Operating Officer, Farm Credit System Insurance Corporation, McLean, 
Virginia 22102-0826. The letter shall identify the records involved in 
the same manner they were identified to the Privacy Act Officer, shall 
specify the dates of the request and adverse determination, and shall 
indicate the expressed basis for that determination. Also, the letter 
shall state briefly and succinctly the reasons why the adverse 
determination should be reversed.
    (c) The review shall be completed and a final determination made by 
the Chief Operating Officer not later than 30 days (excluding Saturdays, 
Sundays, and legal holidays) from receipt of the request for such 
review, unless the Chief Operating Officer extends such 30-day period 
for good cause. If the 30-day period is extended, the individual shall 
be notified of the reasons therefor.
    (d) If the Chief Operating Officer refuses to amend the record in 
accordance with the request, the individual shall be notified of the 
right to file a concise statement setting forth that person's 
disagreement with the final determination and that person's right under 
5 U.S.C. 552a(g)(1)(A) to a judicial review of the final determination.
    (e) If the refusal to amend a record as requested is confirmed, 
there shall be included in the disputed portion of the record a copy of 
the concise statement filed by the individual together with a concise 
statement of the reasons for not amending the record as requested. Such 
statements will be included when disclosure of the disputed record is 
made to persons and agencies as authorized under 5 U.S.C. 552a.



Sec. 1403.10  Fees for providing copies of records.

    Fees for providing copies of records shall be charged in accordance 
with Sec. Sec. 1402.22 and 1402.24 of this chapter.



Sec. 1403.11  Criminal penalties.

    Section 552a(i)(3) of the Privacy Act (5 U.S.C. 552a(i)(3)) makes it 
a misdemeanor, subject to a maximum fine of $5,000, to knowingly and 
willfully request or obtain any record concerning any individual from an 
agency under false pretenses. Sections 552a(i) (1) and (2) of the Act (5 
U.S.C. 552a(i) (1), (2)) provide penalties for violation by agency 
employees of the Act or regulations established thereunder.



Sec. 1403.12  Exemptions.

    Specific. Pursuant to 5 U.S.C. 552a(k)(5), the investigatory 
material compiled for law enforcement purposes in the following system 
of records is exempt from subsections (c)(3), (d), (e)(1), (e)(4) (G), 
(H), and (I), and (f) of 5 U.S.C. 552a and from the provisions of this 
part:

Personnel Security Files--FCSIC.



PART 1408_COLLECTION OF CLAIMS OWED THE UNITED STATES--Table of Contents




              Subpart A_Administrative Collection of Claims

Sec.
1408.1 Authority.
1408.2 Applicability.
1408.3 Definitions.
1408.4 Delegation of authority.
1408.5 Responsibility for collection.
1408.6 Demand for payment.
1408.7 Right to inspect and copy records.
1408.8 Right to offer to repay claim.
1408.9 Right to agency review.
1408.10 Review procedures.
1408.11 Special review.
1408.12 Charges for interest, administrative costs, and penalties.
1408.13 Contracting for collection services.
1408.14 Reporting of credit information.
1408.15 Credit report.

                     Subpart B_Administrative Offset

1408.20 Applicability.
1408.21 Collection by offset.
1408.22 Notice requirements before offset.
1408.23 Right to review of claim.
1408.24 Waiver of procedural requirements.

[[Page 275]]

1408.25 Coordinating offset with other Federal agencies.
1408.26 Stay of offset.
1408.27 Offset against amounts payable from Civil Service Retirement and 
          Disability Fund.

                     Subpart C_Offset Against Salary

1408.35 Purpose.
1408.36 Applicability of regulations.
1408.37 Definitions.
1408.38 Waiver requests and claims to the General Accounting Office.
1408.39 Procedures for salary offset.
1408.40 Refunds.
1408.41 Requesting current paying agency to offset salary.
1408.42 Responsibility of the Corporation as the paying agency.
1408.43 Nonwaiver of rights by payments.

    Authority: Sec. 5.58 of the Farm Credit Act (12 U.S.C. 2277a-7); 31 
U.S.C. 3701-3719; 5 U.S.C. 5514; 4 CFR parts 101-105; 5 CFR part 550.

    Source: 59 FR 24899, May 13, 1994, unless otherwise noted.



              Subpart A_Administrative Collection of Claims



Sec. 1408.1  Authority.

    The regulations of this part are issued under the Federal Claims 
Collection Act of 1966, as amended by the Debt Collection Act of 1982, 
31 U.S.C. 3701-3719 and 5 U.S.C. 5514, and in conformity with the joint 
regulations issued under that Act by the General Accounting Office and 
the Department of Justice (joint regulations) prescribing standards for 
administrative collection, compromise, suspension, and termination of 
agency collection actions, and referral to the General Accounting Office 
and to the Department of Justice for litigation of civil claims for 
money or property owed to the United States (4 CFR parts 101-105).



Sec. 1408.2  Applicability.

    This part applies to all claims of indebtedness due and owing to the 
United States and collectible under procedures authorized by the Federal 
Claims Collection Act of 1966, as amended by the Debt Collection Act of 
1982. The joint regulations and this part do not apply to conduct in 
violation of antitrust laws, tax claims, claims between Federal 
agencies, or to any claim which appears to involve fraud, presentation 
of a false claim, or misrepresentation on the part of the debtor or any 
other party having an interest in the claim, unless the Justice 
Department authorizes the Farm Credit System Insurance Corporation, 
pursuant to 4 CFR 101.3, to handle the claim in accordance with the 
provisions of 4 CFR parts 101 through 105. Additionally, this part does 
not apply to Farm Credit System Insurance Corporation's premiums 
regulations under part 1410 of this chapter.



Sec. 1408.3  Definitions.

    In this part (except where the term is defined elsewhere in this 
part), the following definitions shall apply:
    (a) Administrative offset or offset, as defined in 31 U.S.C. 
3701(a)(1), means withholding money payable by the United States 
Government to, or held by the Government for, a person to satisfy a debt 
the person owes the Government.
    (b) Agency means a department, agency, or instrumentality in the 
executive or legislative branch of the Government.
    (c) Claim or debt means money or property owed by a person or entity 
to an agency of the Federal Government. A ``claim'' or ``debt'' includes 
amounts due the Government from loans insured by or guaranteed by the 
United States and all other amounts due from fees, leases, rents, 
royalties, services, sales of real or personal property, overpayment, 
penalties, damages, interest, and fines.
    (d) Claim certification means a creditor agency's written request to 
a paying agency to effect an administrative offset.
    (e) Corporation means the Farm Credit System Insurance Corporation.
    (f) Creditor agency means an agency to which a claim or debt is 
owed.
    (g) Debtor means the person or entity owing money to the Federal 
Government.
    (h) Hearing official means an individual who is responsible for 
reviewing a claim under Sec. 1408.10.
    (i) Paying agency means an agency of the Federal Government owing 
money to a debtor against which an administrative or salary offset can 
be effected.

[[Page 276]]

    (j) Salary offset means an administrative offset to collect a debt 
under 5 U.S.C. 5514 by deductions at one or more officially established 
pay intervals from the current pay account of a debtor.



Sec. 1408.4  Delegation of authority.

    The Corporation official(s) designated by the Chairman of the Farm 
Credit System Insurance Corporation are authorized to perform all duties 
which the Chairman is authorized to perform under these regulations, the 
Federal Claims Collection Act of 1966, as amended, and the joint 
regulations issued under that Act.



Sec. 1408.5  Responsibility for collection.

    (a) The collection of claims shall be aggressively pursued in 
accordance with the provisions of the Federal Claims Collection Act of 
1966, as amended, the joint regulations issued under that Act, and these 
regulations. Debts owed to the United States, together with charges for 
interest, penalties, and administrative costs, should be collected in 
one lump sum unless otherwise provided by law. If a debtor requests 
installment payments, the debtor, as requested by the Corporation, shall 
provide sufficient information to demonstrate that the debtor is unable 
to pay the debt in one lump sum. When appropriate, the Corporation shall 
arrange an installment payment schedule. Claims which cannot be 
collected directly or by administrative offset shall be either written 
off as administratively uncollectible or referred to the General Counsel 
for further consideration.
    (b) The Chairman, or designee of the Chairman, may compromise claims 
for money or property arising out of the activities of the Corporation, 
where the claim (exclusive of charges for interest, penalties, and 
administrative costs) does not exceed $100,000. When the claim exceeds 
$100,000 (exclusive of charges for interest, penalties, and 
administrative costs), the authority to accept a compromise rests solely 
with the Department of Justice. The standards governing the compromise 
of claims are set forth in 4 CFR part 103.
    (c) The Chairman, or designee of the Chairman, may suspend or 
terminate the collection of claims which do not exceed $100,000 
(exclusive of charges for interest, penalties, and administrative costs) 
after deducting the amount of any partial payments or collections. If, 
after deducting the amount of any partial payments or collections, a 
claim exceeds $100,000 (exclusive of charges for interest, penalties, 
and administrative costs), the authority to suspend or terminate rests 
solely with the Department of Justice. The standards governing the 
suspension or termination of claim collections are set forth in 4 CFR 
part 104.
    (d) The Corporation shall refer claims to the Department of Justice 
for litigation or to the General Accounting Office (GAO) for claims 
arising from audit exceptions taken by the GAO to payments made by the 
Corporation in accordance with 4 CFR part 105.



Sec. 1408.6  Demand for payment.

    (a) A total of three progressively stronger written demands at not 
more than 30-day intervals should normally be made upon a debtor, unless 
a response or other information indicates that additional written 
demands would either be unnecessary or futile. When necessary to protect 
the Government's interest, written demands may be preceded by other 
appropriate actions under Federal law, including immediate referral for 
litigation and/or administrative offset.
    (b) The initial demand for payment shall be in writing and shall 
inform the debtor of the following:
    (1) The amount of the debt, the date it was incurred, and the facts 
upon which the determination of indebtedness was made;
    (2) The payment due date, which shall be 30 calendar days from the 
date of mailing or hand delivery of the initial demand for payment;
    (3) The right of the debtor to inspect and copy the records of the 
agency related to the claim or to receive copies if personal inspection 
is impractical. The debtor shall be informed that the debtor may be 
assessed for the cost of copying the documents in accordance with Sec. 
1408.7;

[[Page 277]]

    (4) The right of the debtor to obtain a review of the Corporation's 
determination of indebtedness;
    (5) The right of the debtor to offer to enter into a written 
agreement with the agency to repay the amount of the claim. The debtor 
shall be informed that the acceptance of such an agreement is 
discretionary with the agency;
    (6) That charges for interest, penalties, and administrative costs 
will be assessed against the debtor, in accordance with 31 U.S.C. 3717, 
if payment is not received by the payment due date;
    (7) That if the debtor has not entered into an agreement with the 
Corporation to pay the debt, has not requested the Corporation to review 
the debt, or has not paid the debt by the payment due date, the 
Corporation intends to collect the debt by all legally available means, 
which may include initiating legal action against the debtor, referring 
the debt to a collection agency for collection, collecting the debt by 
offset, or asking other Federal agencies for assistance in collecting 
the debt by offset;
    (8) The name and address of the Corporation official to whom the 
debtor shall send all correspondence relating to the debt; and
    (9) Other information, as may be appropriate.
    (c) If, prior to, during, or after completion of the demand cycle, 
the Corporation determines to collect the debt by either administrative 
or salary offset, the Corporation shall follow, as applicable, the 
requirements for a Notice of Intent to Collect by Administrative Offset 
or a Notice of Intent to Collect by Salary Offset set forth in Sec. 
1408.22.
    (d) If no response to the initial demand for payment is received by 
the payment due date, the Corporation shall take further action under 
this part, under the Federal Claims Collection Act of 1966, as amended, 
under the joint regulations (4 CFR parts 101-105), or under any other 
applicable State or Federal law. These actions may include reports to 
credit bureaus, referrals to collection agencies, termination of 
contracts, debarment, and salary or administrative offset.



Sec. 1408.7  Right to inspect and copy records.

    The debtor may inspect and copy the Corporation records related to 
the claim. The debtor shall give the Corporation reasonable advanced 
notice that he/she intends to inspect and copy the records involved. The 
debtor shall pay copying costs unless they are waived by the 
Corporation. Copying costs shall be assessed pursuant to Sec. 1402.22 
of this chapter.



Sec. 1408.8  Right to offer to repay claim.

    (a) The debtor may offer to enter into a written agreement with the 
Corporation to repay the amount of the claim. The acceptance of such an 
offer and the decision to enter into such a written agreement is at the 
discretion of the Corporation.
    (b) If the debtor requests a repayment arrangement because payment 
of the amount due would create a financial hardship, the Corporation 
shall analyze the debtor's financial condition. The Corporation may 
enter into a written agreement with the debtor permitting the debtor to 
repay the debt in installments if the Corporation determines, in its 
sole discretion, that payment of the amount due would create an undue 
financial hardship for the debtor. The written agreement shall set forth 
the amount and frequency of installment payments and shall, in 
accordance with Sec. 1408.12, provide for the imposition of charges for 
interest, penalties, and administrative costs unless waived by the 
Corporation.
    (c) The written agreement may require the debtor to execute a 
confess-judgment note when the total amount of the deferred installments 
will exceed $750. The Corporation shall provide the debtor with a 
written explanation of the consequences of signing a confess-judgment 
note. The debtor shall sign a statement acknowledging receipt of the 
written explanation. The statement shall recite that the written 
explanation was read and understood before execution of the note and 
that the debtor signed the note knowingly and voluntarily. Documentation 
of these procedures will be maintained in the Corporation's file on the 
debtor.

[[Page 278]]



Sec. 1408.9  Right to agency review.

    (a) If the debtor disputes the claim, the debtor may request a 
review of the Corporation's determination of the existence of the debt 
or of the amount of the debt. If only part of the claim is disputed, the 
undisputed portion should be paid by the payment due date.
    (b) To obtain a review, the debtor shall submit a written request 
for review to the Corporation official named in the initial demand 
letter, within 15 calendar days after receipt of the letter. The 
debtor's request for review shall state the basis on which the claim is 
disputed.
    (c) The Corporation shall promptly notify the debtor, in writing, 
that the Corporation has received the request for review. The 
Corporation shall conduct its review of the claim in accordance with 
Sec. 1408.10.
    (d) Upon completion of its review of the claim, the Corporation 
shall notify the debtor whether the Corporation's determination of the 
existence or amount of the debt has been sustained, amended, or 
canceled. The notification shall include a copy of the written decision 
issued by the hearing official pursuant to Sec. 1408.10(e). If the 
Corporation's determination is sustained, this notification shall 
contain a provision which states that the Corporation intends to collect 
the debt by all legally available means, which may include initiating 
legal action against the debtor, referring the debt to a collection 
agency for collection, collecting the debt by offset, or asking other 
Federal agencies for assistance in collecting the debt by offset.



Sec. 1408.10  Review procedures.

    (a) Unless an oral hearing is required by Sec. 1408.23(d), the 
Corporation's review shall be a review of the written record of the 
claim.
    (b) If an oral hearing is required under Sec. 1408.23(d) the 
Corporation shall provide the debtor with a reasonable opportunity for 
such a hearing. The oral hearing, however, shall not be an adversarial 
adjudication and need not take the form of a formal evidentiary hearing. 
All significant matters discussed at the hearing, however, will be 
carefully documented.
    (c) Any review required by this part, whether a review of the 
written record or an oral hearing, shall be conducted by a hearing 
official. In the case of a salary offset, the hearing official shall not 
be under the supervision or control of the Chairman of the Farm Credit 
System Insurance Corporation.
    (d) The Corporation may be represented by legal counsel. The debtor 
may represent himself or herself or may be represented by an individual 
of the debtor's choice and at the debtor's expense.
    (e) The hearing official shall issue a final written decision based 
on documentary evidence and, if applicable, information developed at an 
oral hearing. The written decision shall be issued as soon as 
practicable after the review but not later than 60 days after the date 
on which the request for review was received by the Corporation, unless 
the debtor requests a delay in the proceedings. A delay in the 
proceedings shall be granted if the hearing official determines, in his 
or her sole discretion, that there is good cause to grant the delay. If 
a delay is granted, the 60-day decision period shall be extended by the 
number of days by which the review was postponed.
    (f) Upon issuance of the written opinion, the Corporation shall 
promptly notify the debtor of the hearing official's decision. Said 
notification shall include a copy of the written decision issued by the 
hearing official pursuant to paragraph (e) of this section.



Sec. 1408.11  Special review.

    (a) An employee subject to salary offset, under subpart C of this 
part, or a voluntary repayment agreement, may, at any time, request a 
special review by the Corporation of the amount of the salary offset or 
voluntary repayment, based on materially changed circumstances such as, 
but not limited to, catastrophic illness, divorce, death, or disability.
    (b) To determine whether an offset would prevent the employee from 
meeting essential subsistence expenses (costs incurred for food, 
housing, clothing, transportation, and medical care), the employee shall 
submit a detailed statement and supporting documents

[[Page 279]]

for the employee, his or her spouse, and dependents indicating:
    (1) Income from all sources;
    (2) Assets;
    (3) Liabilities;
    (4) Number of dependents;
    (5) Expenses for food, housing, clothing, and transportation;
    (6) Medical expenses; and
    (7) Exceptional expenses, if any.
    (c) If the employee requests a special review under this section, 
the employee shall file an alternative proposed offset or payment 
schedule and a statement, with supporting documents, showing why the 
current salary offset or payments result in an extreme financial 
hardship to the employee.
    (d) The Corporation shall evaluate the statement and supporting 
documents, and determine whether the original offset or repayment 
schedule imposes an undue financial hardship on the employee. The 
Corporation shall notify the employee in writing of such determination, 
including, if appropriate, a revised offset or payment schedule.



Sec. 1408.12  Charges for interest, administrative costs, and penalties.

    (a) Except as provided in paragraph (d) of this section, the 
Corporation shall:
    (1) Assess interest on unpaid claims;
    (2) Assess administrative costs incurred in processing and handling 
overdue claims; and
    (3) Assess penalty charges not to exceed 6 percent a year on any 
part of a debt more than 90 days past due.
    The imposition of charges for interest, administrative costs, and 
penalties shall be made in accordance with 31 U.S.C. 3717.
    (b)(1) Interest shall accrue from the date of mailing or hand 
delivery of the initial demand for payment or the Notice of Intent to 
Collect by either Administrative or Salary Offset if the amount of the 
claim is not paid within 30 days from the date of mailing or hand 
delivery of the initial demand or notice.
    (2) The 30-day period may be extended on a case-by-case basis if the 
Corporation reasonably determines that such action is appropriate. 
Interest shall only accrue on the principal of the claim and the 
interest rate shall remain fixed for the duration of the indebtedness, 
except, as provided in paragraph (c) of this section, in cases where a 
debtor has defaulted on a repayment agreement and seeks to enter into a 
new agreement, or if the Corporation reasonably determines that a higher 
rate is necessary to protect the interests of the United States.
    (c) If a debtor defaults on a repayment agreement and seeks to enter 
into a new agreement, the Corporation may assess a new interest rate on 
the unpaid claim. In addition, charges for interest, administrative 
costs, and penalties which accrued but were not collected under the 
original repayment agreement shall be added to the principal of the 
claim to be paid under the new repayment agreement. Interest shall 
accrue on the entire principal balance of the claim, as adjusted to 
reflect any increase resulting from the addition of these charges.
    (d) The Corporation may waive charges for interest, administrative 
costs, and/or penalties if it determines that:
    (1) The debtor is unable to pay any significant sum toward the claim 
within a reasonable period of time;
    (2) Collection of charges for interest, administrative costs, and/or 
penalties would jeopardize collection of the principal of the claim;
    (3) Collection of charges for interest, administrative costs, or 
penalties would be against equity and good conscience; or
    (4) It is otherwise in the best interest of the United States, 
including the situation where an installment payment agreement or offset 
is in effect.



Sec. 1408.13  Contracting for collection services.

    The Chairman, or designee of the Chairman, may contract for 
collection services in accordance with 31 U.S.C. 3718 and 4 CFR 102.6 to 
recover debts.



Sec. 1408.14  Reporting of credit information.

    The Chairman, or designee of the Chairman, may disclose to a 
consumer reporting agency information that an individual is responsible 
for a debt owed to the United States. Information

[[Page 280]]

will be disclosed to reporting agencies in accordance with the terms and 
conditions of agreements entered into between the Corporation and the 
reporting agencies. The terms and conditions of such agreements shall 
specify that all of the rights and protection afforded to the debtor 
under 31 U.S.C. 3711(f) have been fulfilled. The Corporation shall 
notify each consumer reporting agency, to which a claim was disclosed, 
when the debt has been satisfied.



Sec. 1408.15  Credit report.

    In order to aid the Corporation in making appropriate determinations 
regarding the collection and compromise of claims; the collection of 
charges for interest, administrative costs, and penalties; the use of 
administrative offset; the use of other collection methods; and the 
likelihood of collecting the claim, the Corporation may institute, 
consistent with the provisions of the Fair Credit Reporting Act (15 
U.S.C. 1681, et seq.), a credit investigation of the debtor immediately 
following a determination that the claim exists.



                     Subpart B_Administrative Offset



Sec. 1408.20  Applicability.

    (a) The provisions of this subpart shall apply to the collection of 
debts by administrative [or salary] offset under 31 U.S.C. 3716, 5 
U.S.C. 5514, or other statutory or common law.
    (b) Offset shall not be used to collect a debt more than 10 years 
after the Government's right to collect the debt first accrued, unless 
facts material to the Government's right to collect the debt were not 
known and could not reasonably have been known by the official or 
officials of the Government who were charged with the responsibility of 
discovering and collecting such debt.
    (c) Offset shall not be used with respect to:
    (1) Debts owed by other agencies of the United States or by any 
State or local government;
    (2) Debts arising under or payments made under the Social Security 
Act, the Internal Revenue Code of 1986, as amended, or tariff laws of 
the United States; or
    (3) Any case in which collection by offset of the type of debt 
involved is explicitly provided for or prohibited by another statute.
    (d) Unless otherwise provided by contract or law, debts or payments 
which are not subject to offset under 31 U.S.C. 3716 or 5 U.S.C. 5514 
may be collected by offset if such collection is authorized under common 
law or other applicable statutory authority.



Sec. 1408.21  Collection by offset.

    (a) Collection of a debt by administrative [or salary] offset shall 
be accomplished in accordance with the provisions of these regulations, 
4 CFR 102.3, and 5 CFR part 550, subpart K. It is not necessary for the 
debt to be reduced to judgment or to be undisputed for offset to be 
used.
    (b) The Chairman, or designee of the Chairman, may determine that it 
is feasible to collect a debt to the United States by offset against 
funds payable to the debtor.
    (c) The feasibility of collecting a debt by offset will be 
determined on a case-by-case basis. This determination shall be made by 
considering all relevant factors, including the following: (1) The 
degree to which the offset can be accomplished in accordance with law. 
This determination should take into consideration relevant statutory, 
regulatory, and contractual requirements;
    (2) The degree to which the Corporation is certain that its 
determination of the existence and amount of the debt is correct;
    (3) The practicality of collecting the debt by offset. The cost, in 
time and money, of collecting the debt by offset and the amount of money 
which can reasonably be expected to be recovered through offset will be 
relevant to this determination; and
    (4) Whether the use of offset will substantially interfere with or 
defeat the purpose of a program authorizing payments against which the 
offset is contemplated. For example, under a grant program in which 
payments are made in advance of the grantee's performance, the 
imposition of offset against such a payment may be inappropriate.
    (d) The collection of a debt by offset may not be feasible when 
there are circumstances which would indicate that

[[Page 281]]

the likelihood of collection by offset is less than probable.
    (e) The offset will be effected 31 days after the debtor receives a 
Notice of Intent to Collect by Administrative Offset (or Notice of 
Intent to Collect by Salary Offset if the offset is a salary offset), or 
upon the expiration of a stay of offset, unless the Corporation 
determines under Sec. 1408.24 that immediate action is necessary.
    (f) If the debtor owes more than one debt, amounts recovered through 
offset may be applied to them in any order. Applicable statutes of 
limitation would be considered before applying the amounts recovered to 
any debts owed.



Sec. 1408.22  Notice requirements before offset.

    (a) Except as provided in Sec. 1408.24, the Corporation will 
provide the debtor with 30 calendar days' written notice that unpaid 
debt amounts shall be collected by administrative [or salary] offset 
(Notice of Intent to Collect by Administrative [or Salary] Offset) 
before the Corporation imposes offset against any money that is to be 
paid to the debtor.
    (b) The Notice of Intent to Collect by Administrative [or Salary] 
Offset shall be delivered to the debtor by hand or by mail and shall 
provide the following information:
    (1) The amount of the debt, the date it was incurred, and the facts 
upon which the determination of indebtedness was made;
    (2) In the case of an administrative offset, the payment due date, 
which shall be 30 calendar days from the date of mailing or hand 
delivery of the Notice;
    (3) In the case of a salary offset:
    (i) The Corporation's intention to collect the debt by means of 
deduction from the employee's current disposable pay account until the 
debt and all accumulated interest is paid in full; and
    (ii) The amount, frequency, proposed beginning date, and duration of 
the intended deductions;
    (4) The right of the debtor to inspect and copy the records of the 
Corporation related to the claim or to receive copies if personal 
inspection is impractical. The debtor shall be informed that he/she 
shall be assessed for the cost of copying the documents in accordance 
with Sec. 1408.7 of this part;
    (5) The right of the debtor to obtain a review of, and to request a 
hearing, on the Corporation's determination of indebtedness, the 
propriety of collecting the debt by offset, and, in the case of salary 
offset, the propriety of the proposed repayment schedule (i.e., the 
percentage of disposable pay to be deducted each pay period). The debtor 
shall be informed that to obtain a review, the debtor shall deliver a 
written request for a review to the Corporation official named in the 
Notice, within 15 calendar days after the debtor's receipt of the 
Notice. In the case of a salary offset, the debtor shall also be 
informed that the review shall be conducted by an official arranged for 
by the Corporation who shall be a hearing official not under the control 
of the Chairman of the Farm Credit System Insurance Corporation, or an 
administrative law judge;
    (6) That the filing of a petition for hearing within 15 calendar 
days after receipt of the Notice will stay the commencement of 
collection proceedings;
    (7) That a final decision on the hearing (if one is requested) will 
be issued at the earliest practical date, but not later than 60 days 
after the filing of the written request for review unless the employee 
requests, and the hearing official grants, a delay in the proceedings;
    (8) The right of the debtor to offer to enter into a written 
agreement with the Corporation to repay the amount of the claim. The 
debtor shall be informed that the acceptance of such an agreement is 
discretionary with the Corporation;
    (9) That charges for interest, penalties, and administrative costs 
shall be assessed against the debtor, in accordance with 31 U.S.C. 3717, 
if payment is not received by the payment due date. The debtor shall be 
informed that such assessments must be made unless excused in accordance 
with the Federal Claims Collection Standards (4 CFR parts 103 and 104);
    (10) The amount of accrued interest and the amount of any other 
penalties or administrative costs which may have been added to the 
principal debt;

[[Page 282]]

    (11) That if the debtor has not entered into an agreement with the 
Corporation to pay the debt, has not requested the Corporation to review 
the debt, or has not paid the debt prior to the date on which the offset 
is to be imposed, the Corporation intends to collect the debt by 
administrative [or salary] offset or by requesting other Federal 
agencies for assistance in collecting the debt by offset. The debtor 
shall be informed that the offset shall be imposed against any funds 
that might become available to the debtor, until the principal debt and 
all accumulated interest and other charges are paid in full;
    (12) The date on which the offset will be imposed, which shall be 31 
calendar days from the date of mailing or hand delivery of the Notice. 
The debtor shall be informed that the Corporation reserves the right to 
impose an offset prior to this date if the Corporation determines that 
immediate action is necessary;
    (13) That any knowingly false or frivolous statements, 
representations, or evidence may subject the debtor to:
    (i) Penalties under the False Claims Act, 31 U.S.C. 3729 through 
3731, or any other applicable statutory authority;
    (ii) Criminal penalties under 18 U.S.C. 286, 287, 1001, and 1002, or 
any other applicable statutory authority; and, with regard to employees,
    (iii) Disciplinary procedures appropriate under 5 U.S.C. chapter 75; 
5 CFR part 752, or any other applicable statute or regulation;
    (14) The name and address of the Corporation official to whom the 
debtor shall send all correspondence relating to the debt or the offset;
    (15) Any other rights and remedies available to the debtor under 
statutes or regulations governing the program for which the collection 
is being made;
    (16) That unless there are applicable contractual or statutory 
provisions to the contrary, amounts paid on or deducted for the debt, 
which are later waived or found not owed to the United States, will be 
promptly refunded to the employee; and
    (17) Other information, as may be appropriate.
    (c) When the procedural requirements of this section have been 
provided to the debtor in connection with the same debt or under some 
other statutory or regulatory authority, the Corporation is not required 
to duplicate those requirements before effecting offset.



Sec. 1408.23  Right to review of claim.

    (a) If the debtor disputes the claim, the debtor may request a 
review of the Corporation's determination of the existence of the debt, 
the amount of the debt, the propriety of collecting the debt by offset, 
and in the case of salary offset, the propriety of the proposed 
repayment schedule. If only part of the claim is disputed, the 
undisputed portion should be paid by the payment due date.
    (b) To obtain a review, the debtor shall submit a written request 
for review to the Corporation official named in the Notice of Intent to 
Collect by Administrative [or Salary] Offset within 15 calendar days 
after receipt of the notice. The debtor's written request for review 
shall state the basis on which the claim is disputed and shall specify 
whether the debtor requests an oral hearing or a review of the written 
record of the claim. If an oral hearing is requested, the debtor shall 
explain in the request why the matter cannot be resolved by a review of 
the documentary evidence alone.
    (c) The Corporation shall promptly notify the debtor, in writing, 
that the Corporation has received the request for review. The 
Corporation shall conduct its review of the claim in accordance with 
Sec. 1408.10.
    (d) The Corporation's review of the claim, under this section, shall 
include providing the debtor with a reasonable opportunity for an oral 
hearing if:
    (1) An applicable statute authorizes or requires the Corporation to 
consider waiver of the indebtedness, the debtor requests waiver of the 
indebtedness, and the waiver determination turns on an issue of 
credibility or veracity; or
    (2) The debtor requests reconsideration of the debt and the 
Corporation determines that the question of the indebtedness cannot be 
resolved by reviewing the documentary evidence; for example, when the 
validity of the debt turns on an issue of credibility or veracity.

[[Page 283]]

    (e) A debtor waives the right to a hearing and will have his or her 
debt offset in accordance with the proposed offset schedule if the 
debtor:
    (1) Fails to file a written request for review within the timeframe 
set forth in paragraph (b) of this section, unless the Corporation 
determines that the delay was the result of circumstances beyond his or 
her control; or
    (2) Fails to appear at an oral hearing of which he or she was 
notified unless the hearing official determines that the failure to 
appear was due to circumstances beyond the employee's control.
    (f) Upon completion of its review of the claim, the Corporation 
shall notify the debtor whether the Corporation's determination of the 
existence or amount of the debt has been sustained, amended, or 
canceled. The notification shall include a copy of the written decision 
issued by the hearing official, pursuant to Sec. 1408.10(e). If the 
Corporation's determination is sustained, this notification shall 
contain a provision which states that the Corporation intends to collect 
the debt by offset or by requesting other Federal agencies for 
assistance in collecting the debt.
    (g) When the procedural requirements of this section have been 
provided to the debtor in connection with the same debt or under some 
other statutory or regulatory authority, the Corporation is not required 
to duplicate those requirements before effecting offset.



Sec. 1408.24  Waiver of procedural requirements.

    (a) The Corporation may impose offset against a payment to be made 
to a debtor prior to the completion of the procedures required by this 
part, if:
    (1) Failure to impose the offset would substantially prejudice the 
Government's ability to collect the debt; and
    (2) The timing of the payment against which the offset will be 
imposed does not reasonably permit the completion of those procedures.
    (b) The procedures required by this part shall be complied with 
promptly after the offset is imposed. Amounts recovered by offset, which 
are later found not to be owed to the Government, shall be promptly 
refunded to the debtor.



Sec. 1408.25  Coordinating offset with other Federal agencies.

    (a)(1) Any creditor agency which requests the Corporation to impose 
an offset against amounts owed to the debtor shall submit to the 
Corporation a claim certification which meets the requirements of this 
paragraph. The Corporation shall submit the same certification to any 
agency that the Corporation requests to effect an offset.
    (2) The claim certification shall be in writing. It shall certify 
the debtor owes the debt and that all of the applicable requirements of 
31 U.S.C. 3716 and 4 CFR part 102 have been met. If the intended offset 
is to be a salary offset, a claim certification shall instead certify 
that the debtor owes the debt and that the applicable requirements of 5 
U.S.C. 5514 and 5 CFR part 550, subpart K, have been met.
    (3) A certification that the debtor owes the debt shall state the 
amount of the debt, the factual basis supporting the determination of 
indebtedness, and the date on which payment of the debt was due. A 
certification that the requirements of 31 U.S.C. 3716 and 4 CFR part 102 
have been met shall include a statement that the debtor has been sent a 
Notice of Intent to Collect by Administrative Offset at least 31 
calendar days prior to the date of the intended offset or a statement 
that pursuant to 4 CFR 102.3(b)(5) said Notice was not required to be 
sent. A certification that the requirements of 5 U.S.C. 5514 and 5 CFR 
part 550, subpart K, have been met shall include a statement that the 
debtor has been sent a Notice of Intent to Collect by Salary Offset at 
least 31 calendar days prior to the date of the intended offset or a 
statement that pursuant to 4 CFR 102.3(b)(5) said Notice was not 
required to be sent.
    (b)(1) The Corporation shall not effect an offset requested by 
another Federal agency without first obtaining the claim certification 
required by paragraph (a) of this section. If the Corporation receives 
an incomplete claim certification, the Corporation shall return the 
claim certification with notice that a claim certification

[[Page 284]]

which complies with the requirements of paragraph (a) of this section 
must be submitted to the Corporation before the Corporation will 
consider effecting an offset.
    (2) The Corporation may rely on the information contained in the 
claim certification provided by a requesting creditor agency. The 
Corporation is not authorized to review a creditor agency's 
determination of indebtedness.
    (c) Only the creditor agency may agree to enter into an agreement 
with the debtor for the repayment of the claim. Only the creditor agency 
may agree to compromise, suspend, or terminate collection of the claim.
    (d) The Corporation may decline, for good cause, a request by 
another agency to effect an offset. Good cause includes that the offset 
might disrupt, directly or indirectly, essential Corporation operations. 
The refusal and the reasons shall be sent in writing to the creditor 
agency.



Sec. 1408.26  Stay of offset.

    (a)(1) When a creditor agency receives a debtor's request for 
inspection of agency records, the offset is stayed for 10 calendar days 
beyond the date set for the record inspection.
    (2) When a creditor agency receives a debtor's offer to enter into a 
repayment agreement, the offset is stayed until the debtor is notified 
as to whether the proposed agreement is acceptable.
    (3) When a review is conducted, the offset is stayed until the 
creditor agency issues a final written decision.
    (b) When offset is stayed, the amount of the debt and the amount of 
any accrued interest or other charges will be withheld from payments to 
the debtor. The withheld amounts shall not be applied against the debt 
until the stay expires. If withheld funds are later determined not to be 
subject to offset, they will be promptly refunded to the debtor.
    (c) If the Corporation is the creditor agency and the offset is 
stayed, the Corporation will immediately notify an offsetting agency to 
withhold the payment pending termination of the stay.



Sec. 1408.27  Offset against amounts payable from Civil Service Retirement and Disability Fund.

    The Corporation may request that monies payable to a debtor from the 
Civil Service Retirement and Disability Fund be administratively offset 
to collect debts owed to the Corporation by the debtor. The Corporation 
must certify that the debtor owes the debt, the amount of the debt, and 
that the Corporation has complied with the requirements set forth in 
this part, 4 CFR 102.3, and the Office of Personnel Management 
regulations. The request shall be submitted to the official designated 
in the Office of Personnel Management regulations to receive the 
request.



                     Subpart C_Offset Against Salary



Sec. 1408.35  Purpose.

    The purpose of this subpart is to implement section 5 of the Debt 
Collection Act of 1982 (Pub. L. 97-365 (5 U.S.C. 5514)), which 
authorizes the collection of debts owed by Federal employees to the 
Federal Government by means of salary offsets. These regulations provide 
procedures for the collection of a debt owed to the Government by the 
imposition of a salary offset against amounts payable to a Federal 
employee as salary. These regulations are consistent with the 
regulations on salary offset published by the Office of Personnel 
Management, codified in 5 CFR part 550, subpart K. Since salary offset 
is a type of administrative offset, the requirements of subpart B also 
apply to salary offsets.



Sec. 1408.36  Applicability of regulations.

    (a) These regulations apply to the following cases:
    (1) Where the Corporation is owed a debt by an individual currently 
employed by another agency;
    (2) Where the Corporation is owed a debt by an individual who is 
currently employed by the Corporation; or
    (3) Where the Corporation currently employs an individual who owes a 
debt to another Federal agency. Upon receipt of proper certification 
from the creditor agency, the Corporation will offset the debtor-
employee's salary in accordance with these regulations.

[[Page 285]]

    (b) These regulations do not apply to the following: (1) Debts or 
claims arising under the Internal Revenue Code of 1986, as amended (26 
U.S.C. 1 et seq.); the Social Security Act (42 U.S.C. 301 et seq.); the 
tariff laws of the United States; or to any case where collection of a 
debt by salary offset is explicitly provided for or prohibited by 
another statute (e.g., travel advances in 5 U.S.C. 5705 and employee 
training expenses in 5 U.S.C. 4108).
    (2) Any adjustment to pay arising from an employee's election of 
coverage or a change in coverage under a Federal benefits program 
requiring periodic deductions from pay if the amount to be recovered was 
accumulated over four pay periods or less.
    (3) A claim which has been outstanding for more than 10 years after 
the creditor agency's right to collect the debt first accrued, unless 
facts material to the Government's right to collect were not known and 
could not reasonably have been known by the official or officials 
charged with the responsibility for discovery and collection of such 
debts.



Sec. 1408.37  Definitions.

    In this subpart, the following definitions shall apply:
    (a) Agency means:
    (1) An executive agency as defined by 5 U.S.C. 105, including the 
United States Postal Service and the United States Postal Rate 
Commission;
    (2) A military department as defined in 5 U.S.C. 102;
    (3) An agency or court of the judicial branch, including a court as 
defined in 28 U.S.C. 610, the District Court for the Northern Mariana 
Islands, and the Judicial Panel on Multi-district Litigation;
    (4) An agency of the legislative branch, including the United States 
Senate and the United States House of Representatives; or
    (5) Other independent establishments that are entities of the 
Federal Government.
    (b) Disposable pay means, for an officially established pay 
interval, that part of current basic pay, special pay, incentive pay, 
retired pay, retainer pay, or, in the case of an employee not entitled 
to basic pay, other authorized pay remaining after the deduction of any 
amount required by law to be withheld. The Corporation shall allow the 
deductions described in 5 CFR 581.105 (b) through (f).
    (c) Employee means a current employee of the Corporation or other 
agency, including a current member of the Armed Forces or Reserve of the 
Armed Forces of the United States.
    (d) Waiver means the cancellation, remission, forgiveness, or 
nonrecovery of a debt allegedly owed by an employee to the Corporation 
or another agency as permitted or required by 5 U.S.C. 5584 or 8346(b), 
10 U.S.C. 2774, 32 U.S.C. 716, or any other law.



Sec. 1408.38  Waiver requests and claims to the General Accounting Office.

    (a) The regulations contained in this subpart do not preclude an 
employee from requesting a waiver of an overpayment under 5 U.S.C. 5584 
or 8346(b), 10 U.S.C. 2774, 32 U.S.C. 716, or in any way questioning the 
amount or validity of a debt by submitting a subsequent claim to the 
General Accounting Office in accordance with the procedures prescribed 
by the General Accounting Office.
    (b) These regulations also do not preclude an employee from 
requesting a waiver pursuant to other statutory provisions pertaining to 
the particular debts being collected.



Sec. 1408.39  Procedures for salary offset.

    (a) The Chairman, or designee of the Chairman, shall determine the 
amount of an employee's disposable pay and the amount to be deducted 
from the employee's disposable pay at regular pay intervals.
    (b) Deductions shall begin within three official pay periods 
following the date of mailing or delivery of the Notice of Intent to 
Collect by Salary Offset.
    (c)(1) If the amount of the debt is equal to or is less than 15 
percent of the employee's disposable pay, such debt should be collected 
in one lump-sum deduction.
    (2) If the amount of the debt is not collected in one lump-sum 
deduction, the debt shall be collected in installment deductions over a 
period of time not greater than the anticipated period

[[Page 286]]

of employment. The size and frequency of installment deductions will 
bear a reasonable relation to the size of the debt and the employee's 
ability to pay. However, the amount deducted from any pay period will 
not exceed 15 percent of the employee's disposable pay for that period, 
unless the employee has agreed in writing to the deduction of a greater 
amount.
    (3) A deduction exceeding the 15-percent disposable pay limitation 
may be made from any final salary payment pursuant to 31 U.S.C. 3716 in 
order to liquidate the debt, whether the employee is being separated 
voluntarily or involuntarily.
    (4) Whenever an employee subject to salary offset is separated from 
the Corporation and the balance of the debt cannot be liquidated by 
offset of the final salary check pursuant to 31 U.S.C. 3716, the 
Corporation may offset any later payments of any kind against the 
balance of the debt.
    (d) In instances where two or more creditor agencies are seeking 
salary offsets against current employees of the Corporation or where two 
or more debts are owed to a single creditor agency, the Corporation, at 
its discretion, may determine whether one or more debts should be offset 
simultaneously within the 15-percent limitation. Debts owed to the 
Corporation should generally take precedence over debts owed to other 
agencies.



Sec. 1408.40  Refunds.

    (a) In instances where the Corporation is the creditor agency, it 
shall promptly refund any amounts deducted under the authority of 5 
U.S.C. 5514 when:
    (1) The debt is waived or otherwise found not to be owed to the 
United States (unless expressly prohibited by statute or regulations); 
or
    (2) An administrative or judicial order directs the Corporation to 
make a refund.
    (b) Unless required or permitted by law or contract, refunds under 
this section shall not bear interest.



Sec. 1408.41  Requesting current paying agency to offset salary.

    (a) To request a paying agency to impose a salary offset against 
amounts owed to the debtor, the Corporation shall provide the paying 
agency with a claim certification which meets the requirements set forth 
in Sec. 1408.25(a) of this part. The Corporation shall also provide the 
paying agency with a repayment schedule determined under the provisions 
of Sec. 1408.39 or in accordance with a repayment agreement entered 
into with the debtor.
    (b) If the employee separates from the paying agency before the debt 
is paid in full, the paying agency shall certify the total amount 
collected on the debt. A copy of this certification shall be sent to the 
employee and a copy shall be sent to the Corporation. If the paying 
agency is aware that the employee is entitled to payments from the Civil 
Service Retirement and Disability Fund, or other similar payments, it 
must provide written notification to the agency responsible for making 
such payments that the debtor owes a debt (including the amount) and 
that the provisions of this section have been fully complied with. 
However, the Corporation must submit a properly certified claim to the 
agency responsible for making such payments before the collection can be 
made.
    (c) When an employee transfers to another paying agency, the 
Corporation is not required to repeat the due process procedures set 
forth in 5 U.S.C. 5514 and this part to resume the collection. The 
Corporation shall, however, review the debt upon receiving the former 
paying agency's notice of the employee's transfer to make sure the 
collection is resumed by the new paying agency.
    (d) If a special review is conducted pursuant to Sec. 1408.11 and 
results in a revised offset or repayment schedule, the Corporation shall 
provide a new claim certification to the paying agency.



Sec. 1408.42  Responsibility of the Corporation as the paying agency.

    (a) When the Corporation receives a claim certification from a 
creditor agency, deductions should be scheduled to begin at the next 
officially established pay interval. The Corporation shall send the 
debtor written notice which provides:

[[Page 287]]

    (1) That the Corporation has received a valid claim certification 
from the creditor agency;
    (2) The date on which salary offset will begin;
    (3) The amount of the debt; and
    (4) The amount of such deductions.
    (b) If, after the creditor agency has submitted the claim 
certification to the Corporation, the employee transfers to a different 
agency before the debt is collected in full, the Corporation must 
certify the total amount collected on the debt. The Corporation shall 
send a copy of this certification to the creditor agency and a copy to 
the employee. If the Corporation is aware that the employee is entitled 
to payments from the Civil Service Retirement Fund and Disability Fund, 
or other similar payments, it shall provide written notification to the 
agency responsible for making such payments that the debtor owes a debt 
(including the amount).



Sec. 1408.43  Nonwaiver of rights by payments.

    An employee's involuntary payment of all or any portion of a debt 
being collected under this subpart shall not be construed as a waiver of 
any rights the employee may have under 5 U.S.C. 5514 or any other 
provisions of a written contract or law unless there are statutory or 
contractual provisions to the contrary.



PART 1410_PREMIUMS--Table of Contents




Sec.
1410.1 Purpose and scope.
1410.2 Definitions.
1410.3 Calculation and reporting of premiums due.
1410.4 Payment of premiums.
1410.5 Delinquent premium payments and premium overpayments.
1410.6 Certified statements.
1410.7 Documentation.

    Authority: 12 U.S.C. 2277a-5; 12 U.S.C. 2277a-7.

    Source: 56 FR 3201, Jan. 29, 1991, unless otherwise noted.



Sec. 1410.1  Purpose and scope.

    This part sets forth the rules for:
    (a) The calculation of premiums;
    (b) The time for payment of the premium required by sections 5.55 
and 5.56 of the Farm Credit Act of 1971, as amended;
    (c) Interest charges on delinquent payments;
    (d) The form and content of certified statements; and,
    (e) Documentation supporting certified statements.



Sec. 1410.2  Definitions.

    (a) Act means the Farm Credit Act of 1971, as amended.
    (b) Average principal outstanding means:
    (1) For calendar year 1989, the average annual principal outstanding 
using balances as of monthend for each of the 13 months beginning with 
December 1988 and ending with December 1989;
    (2) For calendar year 1990 and thereafter, the average annual 
principal outstanding on a daily basis using balances as of the close of 
each day. In computing the average annual principal outstanding in this 
manner, the closing balance of the most recent past business day shall 
be the closing balance for days when an institution is closed.
    (c) Direct lending association means any production credit 
association or any other association making direct loans under authority 
provided under section 7.6 of the Act, including, without limitation, 
agricultural credit associations and Federal land credit associations.
    (d) Government-guaranteed loans means loans or credits, or portions 
of loans or credits, that are guaranteed:
    (1) By the full faith and credit of the United States Government or 
any State government; or,
    (2) By an agency or other entity of the United States Government 
whose obligations are explicitly guaranteed by the United States 
Government; or,
    (3) By an agency or other entity of a State government whose 
obligations are explicitly guaranteed by such State government.
    (e) Insured bank means any Farm Credit bank whose participation in 
notes, bonds, debentures, and other obligations issued under subsection 
(c) or (d) of section 4.2 of the Act is insured

[[Page 288]]

under part E of title V of the Act, including, without limitation, the 
Federal Intermediate Credit Bank of Jackson and banks that are in or are 
placed in receivership or conservatorship to the extent that those 
banks' participation in such obligations is insured.
    (f) Loan means any extension of credit or lease resulting from 
direct negotiations between a lender and a borrowing entity that is 
recorded as an asset of an insured bank, a direct lending association, 
or an other financing institution. The term ``loan'' includes loans, 
contracts of sale, notes receivable, and other similar obligations and 
lease financings. The term ``loan'' includes loans originated through 
direct negotiations between the insured bank, direct lending 
association, or other financing institution and a borrowing entity and 
loans or interests in loans purchased from another lender. Loans 
purchased subject to recourse shall be considered loans of the seller to 
the extent of the recourse.
    (g)(1) Nonaccrual loan means any loan where--
    (i) Any amount of outstanding principal and all past and future 
interest accruals, considered over the full term of the asset, are 
determined to be uncollectible for any reason; or,
    (ii) It has been classified ``loss'' as a result of a periodic 
credit evaluation and has not been charged off; or,
    (iii) The loan is severely past due and is not adequately secured, 
in process of collection, and fully collectible with respect to all 
principal and interest.
    (2) For the purposes of determining whether a loan is considered as 
accrual or nonaccrual under this part, all loans on which a borrowing 
entity, or a component of a borrowing entity, is primarily obligated to 
the institution shall be considered as one loan unless a review of all 
pertinent facts supports a reasonable determination that a particular 
loan constitutes an independent credit risk and such determination is 
adequately documented in the loan file.
    (h) Other financing institution means any bank, company, 
institution, corporation, union, or association described in section 
1.7(b)(1)(B) of the Act.

[56 FR 3201, Jan. 29, 1991; 56 FR 10302, Mar. 11, 1991]



Sec. 1410.3  Calculation and reporting of premiums due.

    (a) Premium base. For purposes of computing the annual premium, each 
insured bank shall:
    (1) Report its premium base for each category of loan described in 
paragraph (a)(2) of this section based on the total of the average 
annual principal balances of:
    (i)(A) Loans of each direct lending association that were able to be 
made because the direct lending association is receiving, or has 
received, funds provided through the insured bank;
    (B) Loans of each other financing institution that were able to be 
made because the other financing institution is receiving, or has 
received, funds provided through the insured bank; and,
    (C) The bank's loans, other than loans made to direct lending 
associations and other financing institutions.
    (ii) For purposes of this section, loans of an other financing 
institution were able to be made because of funds provided through the 
insured bank only if they are loans which resulted from funding provided 
through the insured bank and which are pledged to or discounted by the 
insured bank.
    (2) Segregate the loans of each entity described in paragraph (a) of 
this section into:
    (i) Loans in accrual status, excluding the guaranteed portions of 
State and Federal government-guaranteed loans;
    (ii) The guaranteed portions of State government-guaranteed loans 
that are in accrual status;
    (iii) The guaranteed portions of Federal government-guaranteed loans 
that are in accrual status; and,
    (iv) Nonaccrual loans.
    (b) Calculating the 1989 premium payment. The 1989 premium payment 
shall be equal to the sum of:
    (1) The total annual average principal outstanding for calendar year 
1989 on the loans in accrual status as described in paragraph (a)(2)(i) 
of this section of each entity described in paragraph (a)(1) of this 
section multiplied by 0.0015;

[[Page 289]]

    (2) The total annual average principal outstanding for calendar year 
1989 on loans in accrual status as described in paragraph (a)(2)(ii) of 
this section of each entity described in paragraph (a)(1) of this 
section multiplied by 0.0003; and,
    (3) The total annual average principal outstanding for calendar year 
1989 on loans in accrual status as described in paragraph (a)(2)(iii) of 
this section of each entity described in paragraph (a)(1) of this 
section multiplied by 0.00015.
    (c) Calculating the premium payment for 1990 and subsequent years. 
Except as provided in paragraph (d) of this section, the annual premium 
payment for 1990 and for each subsequent year shall be equal to the sum 
of:
    (1) The total annual average principal outstanding for each calendar 
year on the loans in accrual status as described in paragraph (a)(2)(i) 
of this section of each entity described in paragraph (a) of this 
section multiplied by 0.0015;
    (2) The total annual average principal outstanding for each calendar 
year on the loans in accrual status as described in paragraph (a)(2)(ii) 
of this section of each entity described in paragraph (a)(1) of this 
section multiplied by 0.0003;
    (3) The total annual average principal outstanding for each calendar 
year on the loans in accrual status as described in paragraph 
(a)(2)(iii) of this section of each entity as described in paragraph 
(a)(1) of this section multiplied by 0.00015; and,
    (4) The total annual average principal outstanding for each calendar 
year on the nonaccrual loans as described in paragraph (a)(2)(iv) of 
this section of each entity described in paragraph (a)(1) of this 
section multiplied by 0.0025.
    (d) Secure base amount. Upon reaching the secure base amount 
determined by the Corporation in accordance with section 5.55 of the 
Act, the annual premium to be paid by each insured bank, computed in 
accordance with paragraph (c) of this section, shall be reduced by a 
percentage determined by the Corporation so that the aggregate of the 
premiums payable by all of the Farm Credit banks for the following 
calendar year is sufficient to ensure that the Insurance Fund balance is 
maintained at not less than the secure base amount. The Corporation 
shall announce any such percentage no later than December 31 of the year 
prior to the January in which such premiums are to be paid.

[56 FR 3201, Jan. 29, 1991; 56 FR 13211, Mar. 29, 1991]



Sec. 1410.4  Payment of premiums.

    (a) Calendar years 1989 and 1990. Each insured bank shall pay to the 
Corporation the amount of the premium due to the Corporation computed in 
accordance with Sec. 1410.3 of this part, and shown on its certified 
statement, at the time its certified statement is filed. The certified 
statement for calendar years 1989 and 1990 must be filed with the 
Corporation and the premium must be received by the Corporation on or 
before March 29, 1991.
    (b) Calendar year 1991 and subsequent years. Each insured bank shall 
pay to the Corporation the amount of the premium due to the Corporation 
computed in accordance with Sec. 1410.3 of this part, and shown on its 
certified statement, at the time the statement is filed. Certified 
statements shall be considered to have been filed and payments made in a 
timely manner if they are received on or before January 31 following the 
end of the calendar year on which the certified statement is based.
    (c) Premiums as obligations of insured banks. Premiums required to 
be paid by Sec. 1410.3 are obligations of the insured banks, and are to 
be paid at the times required by this section, regardless of whether the 
insured bank has assessed and collected any assessments under section 
1.12 of the Act.

[56 FR 3201, Jan. 29, 1991; 56 FR 10302, Mar. 11, 1991]



Sec. 1410.5  Delinquent premium payments and premium overpayments.

    (a) Delinquent payments. Each insured bank shall pay to the 
Corporation interest on delinquent premium payments. All premiums will 
be considered delinquent if they are received after the time for payment 
specified in

[[Page 290]]

Sec. 1410.4 of this part, including late payments caused by bank errors 
in the certified statement. The interest rate will be the United States 
Treasury Department's current value of funds rate, which is issued under 
the Treasury Fiscal Requirements Manual (TFRM rate) and published 
quarterly in the Federal Register. The interest rate will be determined 
as follows:
    (1) Current year. (i) For delinquent days occurring on or prior to 
March 31, the rate will be the TFRM rate that is published in the 
preceding December.
    (ii) For delinquent days occurring from April 1 to June 30, the rate 
will be the TFRM rate that is published in March for the second quarter 
of the year.
    (iii) For delinquent days occurring from July 1 to September 30, the 
rate will be the TFRM rate that is published in June for the third 
quarter.
    (iv) For delinquent days occurring from October 1 to December 31, 
the rate will be the TFRM rate that is published in September for the 
fourth quarter.
    (2) Prior years. The interest will be calculated quarterly and 
compounded annually at the rates applicable for each quarter as issued 
under the TFRM. For the initial year, the rate will be applied to the 
gross amount of the delinquent payment. For each additional year or 
portion thereof the rate will be applied to the net amount of the 
delinquent payment after it has been reduced by any premium credit under 
paragraph (c) of this section.
    (b) Other rights and remedies. Payment of the interest specified in 
paragraph (a) of this section does not affect any other rights and 
remedies available to the Corporation.
    (c) Overpayments. To the extent that any payment by a bank exceeds 
the required amount:
    (1) The excess shall be credited against future premium payments by 
the bank which overpaid; or,
    (2)(i) Upon written request to the Corporation by the bank which 
overpaid, the excess shall be refunded to the bank within 30 days of 
receipt of the written request; and
    (ii) If the Corporation fails to make a refund within such 30-day 
period, and the Corporation determines that a refund is in order, the 
Corporation shall pay to the bank interest on the amount of the 
overpayment, from the end of such 30-day period through the date the 
refund is issued.



Sec. 1410.6  Certified statements.

    (a) Forms. The certified statements required to be filed by insured 
banks under the provisions of section 5.56 of the Act shall be filed 
with the Corporation. The certified statement forms will be furnished to 
all insured banks by, or may be obtained from, the Corporation. The 
following forms are available from the Corporation:
    (1) Form FCSIC 90-001: First Certified Statement. The form shows the 
premium base for calendar years 1989 and 1990. The premium payment 
period is from January 1 of each year to December 31 of each year. The 
form must show the computation of the premium base and the bank's 
calculation of the premium due the Corporation.
    (2) Form FCSIC 90-002: Certified Statement. This form must be used 
for calendar year 1991 and subsequent years. The form shows the premium 
base for the annual premium payment period. The premium payment period 
is from January 1 of each year to December 31 of each year. The form 
must show the computation of the premium base and the bank's calculation 
of the amount of the premium due the Corporation.
    (b) Amendments to certified statements. In the event of an amendment 
or correction of a previously submitted certified statement, the 
amending insured bank shall resubmit to the Corporation the appropriate 
certified statement along with a letter of explanation regarding the 
amendment or correction.

[56 FR 3201, Jan. 29, 1991, as amended at 56 FR 57233, Nov. 8, 1991]



Sec. 1410.7  Documentation.

    Each insured bank shall:
    (a) Prepare and maintain accurate and complete records as necessary 
to prepare certified statements, including, but not limited to, records 
relating to the loans of each direct lending association and other 
financing institution that are able to make such loans because they are 
receiving, or have received, funding from the insured bank.

[[Page 291]]

    (b) Prepare and maintain on its premises books and records in such a 
manner as to facilitate reconciliation with certified statements 
prepared from them.
    (c) Maintain in its books and records documentation supporting its 
certified statement for a period no less than 5 years following the date 
of each certified statement, unless the bank shall have requested in 
writing, and the Corporation shall have granted to the bank, written 
permission to dispose of such documentation prior to the expiration of 5 
years.
    (d) Make all records and any supporting documentation available, 
without limitation, to Corporation officials upon request.



PART 1411_RULES OF PRACTICE AND PROCEDURE--Table of Contents




    Authority: Secs. 5.58(10), 5.65(c) and (d) of the Farm Credit Act; 
12 U.S.C. 2277a-7(10), 2277a-14(c) and (d)); 28 U.S.C. 2461 note.



 Subpart A_Rules and Procedures for Assessment and Collection of Civil 
                             Money Penalties



Sec. 1411.1  Inflation adjustment of civil money penalties for failure to file a certified statement, pay any premium required or obtain approval before 
          employment of persons convicted of criminal offenses.

    In accordance with the Federal Civil Money Penalties Inflation 
Adjustment Act of 1990, as amended by the Debt Collection Improvement 
Act of 1996, a civil money penalty imposed pursuant to section 5.65(c) 
or (d) of the Act for a violation occurring on or after October 23, 1996 
shall not exceed $117 per day for each day the violation continues.

[66 FR 44027, Aug. 22, 2001]



PART 1412_GOLDEN PARACHUTE AND INDEMNIFICATION PAYMENTS--Table of Contents




Sec.
1412.1 Scope.
1412.2 Definitions.
1412.3 Golden parachute payments prohibited.
1412.4 Prohibited indemnification payments.
1412.5 Permissible golden parachute payments.
1412.6 Permissible indemnification payments.
1412.7 Filing instructions.
1412.8 Application in the event of receivership.

    Authority: 12 U.S.C. 2277a-10b.

    Source: 71 FR 7405, Feb. 13, 2006, unless otherwise noted.



Sec. 1412.1  Scope.

    (a) This part limits and/or prohibits, in certain circumstances, the 
ability of Farm Credit System (System) institutions, their service 
corporations, subsidiaries and affiliates from making golden parachute 
and indemnification payments to institution-related parties (IRPs).
    (b) This part applies to System institutions in a troubled condition 
that seek to make golden parachute payments to their IRPs.
    (c) The limitations on indemnification payments apply to all System 
institutions, their service corporations, subsidiaries and affiliates 
regardless of their financial health.



Sec. 1412.2  Definitions.

    (a) Act or Farm Credit Act means Farm Credit Act of 1971 (12 U.S.C. 
2002(a)), as amended by the Farm Credit System Reform Act of 1996, 
amending 12 U.S.C. 2277a-10.
    (b) Farm Credit System institution or System institution means any 
``institution'' enumerated in section 1.2 of the Act including, but not 
limited to, associations, banks, service corporations, the Federal Farm 
Credit Banks Funding Corporation, the Farm Credit Leasing Services 
Corporation and their subsidiaries and affiliates, as well as, the 
Federal Agricultural Mortgage Corporation and its subsidiaries and 
affiliates, as described in 12 U.S.C. 2279aa-1(a).
    (c) Benefit plan means any plan, contract, agreement or other 
arrangement which is an ``employee welfare benefit plan'' as that term 
is defined in section 3(1) of the Employee Retirement Income Security 
Act of 1974, as amended (29 U.S.C. 1002(1)), or other usual and 
customary plans such as dependent care, tuition reimbursement, group

[[Page 292]]

legal services or other benefits provided under a cafeteria plan 
sponsored by the System institution; provided however, that such term 
shall not include any plan intended to be subject to paragraph 
(f)(2)(iii), (vii) and (viii) of this section.
    (d) Bona fide deferred compensation plan or arrangement means any 
plan, contract, agreement or other arrangement whereby:
    (1) An IRP voluntarily elects to defer all or a portion of the 
reasonable compensation, wages or fees paid for services rendered which 
otherwise would have been paid to such party at the time the services 
were rendered (including a plan that provides for the crediting of a 
reasonable investment return on such elective deferrals) and the System 
institution either:
    (i) Recognizes compensation expense and accrues a liability for the 
benefit payments according to generally accepted accounting principles 
(GAAP); or
    (ii) Segregates or otherwise sets aside assets in a trust which may 
only be used to pay plan and other benefits, except that the assets of 
such trust may be available to satisfy claims of the System 
institution's creditors in the case of insolvency; or
    (2) The System institution establishes a nonqualified deferred 
compensation or supplemental retirement plan, other than an elective 
deferral plan described in paragraph (d)(1) of this section:
    (i) Primarily for the purpose of providing benefits for certain IRPs 
in excess of the limitations on contributions and benefits imposed by 
sections 415, 401(a)(17), 402(g) or any other applicable provision of 
the Internal Revenue Code of 1986 (26 U.S.C. 415, 401(a)(17), 402(g)); 
or
    (ii) Primarily for the purpose of providing supplemental retirement 
benefits or other deferred compensation for a select group of directors, 
management or highly compensated employees (excluding severance payments 
described in paragraph (f)(2)(v) of this section and permissible golden 
parachute payments described in Sec. 1412.5); and
    (3) In the case of any nonqualified deferred compensation or 
supplemental retirement plans as described in paragraphs (d)(1) and (2) 
of this section, the following requirements shall apply:
    (i) The plan was in effect at least 1 year prior to any of the 
events described in paragraph (f)(1)(ii) of this section;
    (ii) Any payment made pursuant to such plan is made in accordance 
with the terms of the plan as in effect no later than 1 year prior to 
any of the events described in paragraph (f)(1)(ii) of this section and 
in accordance with any amendments to such plan during such 1 year period 
that do not increase the benefits payable thereunder;
    (iii) The IRP has a vested right, as defined under the applicable 
plan document, at the time of termination of employment to payments 
under such plan;
    (iv) Benefits under such plan are accrued each period only for 
current or prior service rendered to the employer (except that an 
allowance may be made for service with a predecessor employer);
    (v) Any payment made pursuant to such plan is not based on any 
discretionary acceleration of vesting or accrual of benefits which 
occurs at any time later than 1 year prior to any of the events 
described in paragraph (f)(1)(ii) of this section;
    (vi) The System institution has previously recognized compensation 
expense and accrued a liability for the benefit payments according to 
GAAP or segregated or otherwise set aside assets in a trust which may 
only be used to pay plan benefits, except that the assets of such trust 
may be available to satisfy claims of the System institution's creditors 
in the case of insolvency; and
    (vii) Payments pursuant to such plans shall not be in excess of the 
accrued liability computed in accordance with GAAP.
    (e) Corporation or FCSIC mean the Farm Credit System Insurance 
Corporation, in its corporate capacity.
    (f) Golden parachute payment. (1) The term ``golden parachute 
payment'' means any payment (or any agreement to make any payment) in 
the nature of compensation by any System institution for the benefit of 
any current or

[[Page 293]]

former IRP pursuant to an obligation of such System institution that:
    (i) Is contingent on the termination of such party's primary 
employment or relationship with the System institution; and
    (ii) Is received on or after, or is made in contemplation of, any of 
the following events:
    (A) The insolvency (or similar event) of the System institution 
which is making the payment or bankruptcy or insolvency (or similar 
event) of the service corporation, subsidiary or affiliate which is 
making the payment; or
    (B) The System institution is assigned a composite rating of 4 or 5 
by the FCA; or
    (C) The appointment of any conservator or receiver for such System 
institution; or
    (D) A determination by the Corporation, that the System institution 
is in a troubled condition, as defined in paragraph (m) of this section; 
and
    (iii) Is payable to an IRP whose employment by or relationship with 
a System institution is terminated at a time when the System institution 
by which the IRP is employed or related satisfies any of the conditions 
enumerated in paragraphs (f)(1)(ii)(A) through (D) of this section, or 
in contemplation of any of these conditions.
    (2) Exceptions. The term ``golden parachute payment'' shall not 
include:
    (i) Any payment made pursuant to a pension or retirement plan which 
is qualified (or is intended within a reasonable period of time to be 
qualified) under section 401 of the Internal Revenue Code of 1986 (26 
U.S.C. 401); or
    (ii) Any payment made pursuant to a benefit plan as that term is 
defined in paragraph (c) of this section; or
    (iii) Any payment made pursuant to a ``bona fide'' deferred 
compensation plan or arrangement as defined in paragraph (d) of this 
section; or
    (iv) Any payment made by reason of death or by reason of termination 
caused by the disability of IRP; or
    (v) Any severance or similar payment which is required to be made 
pursuant to a state statute or foreign law which is applicable to all 
employers within the appropriate jurisdiction (with the exception of 
employers that may be exempt due to their small number of employees or 
other similar criteria); or
    (vi) Any other payment which the Corporation determines to be 
permissible in accordance with Sec. 1412.6, on permissible 
indemnification payments; or
    (vii) Any payment made pursuant to a nondiscriminatory severance pay 
plan or arrangement that provides for payment of severance benefits to 
all eligible employees upon involuntary termination other than for 
cause, voluntary resignation, or early retirement. Furthermore, such 
severance pay plan or arrangement shall not have been adopted or 
modified to increase the amount or scope of severance benefits at a time 
when the System institution was in a condition specified in paragraph 
(f)(1)(ii) of this section or in contemplation of such a condition 
without the prior written consent of the FCA; or in lieu of a payment 
made pursuant to this paragraph;
    (viii) Any payment made pursuant to a severance pay plan or 
arrangement that provides severance benefits upon involuntary 
termination other than for cause, voluntary resignation, or early 
retirement. No employee shall receive any payment under this subpart 
which exceeds the base compensation paid to such employee during the 12 
months (or longer period or greater benefit as the Corporation shall 
consent to) immediately proceeding termination of employment. 
Furthermore, such severance pay plan or arrangement shall not have been 
adopted or modified to increase the amount or the scope of the severance 
benefits at a time when the System institution was in a condition 
specified in paragraph (f)(1)(ii) of this section or in contemplation of 
such a condition without the written approval of the FCA.
    (g) The FCA means the Farm Credit Administration.
    (h) Institution-related party (IRP) means:
    (1) Any director, officer, employee, or controlling stockholder 
(other than another Farm Credit System institution) of, or agent for a 
System institution;
    (2) Any stockholder (other than another Farm Credit System 
institution), consultant, joint venture partner, and any other person as 
determined by the FCA (by regulation or case-by-case)

[[Page 294]]

who participates in the conduct of the affairs of a System institution; 
and
    (3) Any independent contractor (including any attorney, appraiser, 
or accountant) who knowingly or recklessly participates in any violation 
of any law or regulation, any breach of fiduciary duty, or any unsafe or 
unsound practice, which caused or is likely to cause more than a minimal 
financial loss to, or a significant adverse effect on, the System 
institution.
    (i) Liability or legal expense means:
    (1) Any legal or other professional fees and expenses incurred in 
connection with any claim, proceeding, or action;
    (2) The amount of, and any cost incurred in connection with, any 
settlement of any claim, proceeding, or actions; and
    (3) The amount of, any cost incurred in connection with, any 
judgment or penalty imposed with respect to any claim, processing, or 
action.
    (j) Nondiscriminatory means that the plan, contract or arrangement 
in question applies to all employees of a System institution who meet 
reasonable and customary eligibility requirements applicable to all 
employees, such as minimum length of service requirements. A 
nondiscriminatory plan, contract or arrangement may provide different 
benefits based only on objective criteria such as salary, total 
compensation, length of service, job grade or classification, which are 
applied on a proportionate basis, with a modest disparity in severance 
benefits relating to any one criterion of 20 percent.
    (k) Payment means:
    (1) Any direct or indirect transfer of any funds or any asset;
    (2) Any forgiveness of any debt or other obligation;
    (3) The conferring of benefits in the nature of compensation, 
including but not limited to stock options and stock appreciation 
rights; or
    (4) Any segregation of any funds or assets, the establishment or 
funding of any trust or the purchase of or arrangement for any letter of 
credit or other instrument, for the purpose of making, or pursuant to 
any agreement to make, any payment on or after the date on which such 
funds or assets are segregated, or at the time of or after such trust is 
established or letter of credit or other instrument is made available, 
without regard to whether the obligation to make such payment is 
contingent on:
    (i) The determination, after such date, of the liability for the 
payment of such amount; or
    (ii) The liquidation, after such date, of the amount of such 
payment.
    (l) Prohibited indemnification payment. (1) The term ``prohibited 
indemnification payment'' means any payment (or any agreement or 
arrangement to make any payment) by any System institution for the 
benefit of any person who is or was an IRP of such System institution, 
to pay or reimburse such person for any civil money penalty or judgment 
resulting from any administrative or civil action instituted by the FCA, 
or any other liability or legal expense with regard to any 
administrative proceeding or civil action instituted by the FCA which 
results in a final order or settlement pursuant to which such person:
    (i) Is assessed a civil money penalty;
    (ii) Is removed from office or prohibited from participating in the 
conduct of the affairs of the institution; or
    (iii) Is required to cease and desist from or take any affirmative 
action with respect to such institution.
    (2) Exceptions. (i) The term ``prohibited indemnification'' payment 
shall not include any reasonable payment by a System institution which 
is used to purchase any commercial insurance policy or fidelity bond, 
provided that such insurance policy or bond shall not be used to pay or 
reimburse an IRP for the cost of any judgment or civil money penalty 
assessed against such person in an administrative proceeding or civil 
action commenced by the FCA, but may pay any legal or professional 
expenses incurred in connection with such proceeding or action or the 
amount of any restitution to the System institution or receiver.
    (ii) The term ``prohibited indemnification payment'' shall not 
include any reasonable payment by a System institution that represents 
partial indemnification for legal or professional expenses specifically 
attributable to particular charges for which there has been a formal and 
final adjudication or

[[Page 295]]

finding in connection with a settlement that the IRP has not violated 
certain FCA laws or regulations or has not engaged in certain unsafe or 
unsound practices or breaches of fiduciary duty, unless the 
administrative action or civil proceedings has resulted in a final 
prohibition order against the IRP.
    (m) Troubled condition means a System institution that:
    (1) Is subject to a cease-and-desist order or written agreement 
issued by the FCA that requires action to improve the financial 
condition of the System institution or is subject to a proceeding 
initiated by the FCA which contemplates the issuance of an order that 
requires action to improve the financial condition of the institution, 
unless otherwise informed in writing by the FCA; or
    (2) Is unable to make a timely payment of principal or interest on 
any insured obligation (as defined in section 5.51(3) of the Farm Credit 
Act; 12 U.S.C. 2277a(3)); or
    (3) Is receiving assistance as described in section 5.61 of the Farm 
Credit Act, 12 U.S.C. 2277a-10; or
    (4) Is unable to make timely payment of principal or interest on 
debt obligations issued under the authority of section 8.6(e)(2) of the 
Farm Credit Act; 12 U.S.C. 2279aa-6(e)(2) or is unable to fulfill the 
guarantee obligations provided under section 8.6 of the Farm Credit Act; 
12 U.S.C. 2279aa-6; or
    (5) Is informed in writing by the Corporation that it is in a 
``troubled condition'' for purposes of the requirements of this subpart 
on the basis of the System institution's most recent report of condition 
or report of examination or other information available to the 
Corporation.



Sec. 1412.3  Golden parachute payments prohibited.

    No System institution shall make or agree to make any golden 
parachute payment, except as provided in this part.



Sec. 1412.4  Prohibited indemnification payments.

    No System institution shall make or agree to make any prohibited 
indemnification payment, except as provided in this part.



Sec. 1412.5  Permissible golden parachute payments.

    (a) A System institution may agree to make or may make a golden 
parachute payment if and to the extent that:
    (1) The FCA, with the written concurrence of the Corporation, 
determines that such a payment or agreement is permissible; or
    (2) Such an agreement is made in order to hire a person to become an 
IRP either at a time when the System institution satisfies or in an 
effort to prevent it from imminently satisfying any of the criteria set 
forth in Sec. 1412.2(f)(1)(ii), and the FCA and the Corporation consent 
in writing to the amount and terms of the golden parachute payment. Such 
consent by the Corporation and the FCA shall not improve the IRP's 
position in the event of the insolvency of the institution since such 
consent can neither bind a receiver nor affect the provability of 
receivership claims. In the event that the institution is placed into 
receivership or conservatorship, the Corporation and/or the FCA shall 
not be obligated to pay the promised golden parachute and the IRP shall 
not be accorded preferential treatment on the basis of such prior 
approval; or
    (3) Such a payment is made pursuant to an agreement which provides 
for a reasonable severance payment, not to exceed 18-months' salary, to 
an IRP in the event of a change in control of the System institution; 
provided, however, that the System institution shall obtain the consent 
of the FCA prior to making such a payment and this paragraph (a)(3) 
shall not apply to any change in control of System institution which 
results from an assisted transaction as described in section 5.61 of the 
Farm Credit Act; 12 U.S.C. 2277a-10 or the System institution being 
placed into conservatorship or receivership; and
    (4) A System institution or IRP making a request pursuant to 
paragraphs (a)(1) through (3) of this section shall demonstrate that it 
is not aware of any information, evidence, documents or other materials 
which would indicate

[[Page 296]]

that there is a reasonable basis to believe, at the time such payment is 
proposed to be made, that:
    (i) The IRP has committed any fraudulent act or omission, breach of 
trust or fiduciary duty, or insider abuse with regard to the System 
institution that has had or is likely to have a material adverse effect 
on the institution;
    (ii) The IRP is substantially responsible for the insolvency of, the 
appointment of a conservator or receiver for, or the troubled condition, 
as defined by applicable regulations concerning the System institution;
    (iii) The IRP has materially violated any applicable Federal or 
state law or regulation that has had or is likely to have a material 
effect on the System institution; and
    (iv) The IRP has violated or conspired to violate section 215, 657, 
1006, 1014, or 1344 of title 18 of the United States Code or section 
1341 or 1343 of such title affecting a Farm Credit System institution.
    (b) In making a determination under paragraphs (a)(1) through (3) of 
this section the FCA and the Corporation may consider:
    (1) Whether, and to what degree, the IRP was in a position of 
managerial or fiduciary responsibility;
    (2) The length of time the IRP was affiliated with the System 
institution, and the degree to which the proposed payment represents 
reasonable compensation earned over the period of employment and 
reasonable payment for services rendered; and
    (3) Any other factors or circumstances which would indicate that the 
proposed payment would be contrary to the intent of the Act or this 
part.



Sec. 1412.6  Permissible indemnification payments.

    (a) A System institution may make or agree to make reasonable 
indemnification payments to an IRP with respect to an administrative 
proceeding or civil action initiated by the FCA if:
    (1) The System institution's board of directors, in good faith, 
determines in writing after due investigation and consideration that the 
IRP acted in good faith and in a manner he/she believed to be in the 
best interests of the institution;
    (2) The System institution's board of directors, in good faith, 
determines in writing after due investigation and consideration that the 
payment of such expenses will not materially adversely affect the 
institution's safety and soundness;
    (3) The indemnification payments do not constitute prohibited 
indemnification payments as that term is defined in Sec. 1412.2(l); and
    (4) The IRP agrees in writing to reimburse the System institution, 
to the extent not covered by payments from insurance or bonds purchased 
pursuant to Sec. 1412.2(l)(2), for that portion of the advanced 
indemnification payments which subsequently become prohibited 
indemnification payments, as defined herein.
    (b) An IRP requesting indemnification payments shall not participate 
in any way in the board's discussion and approval of such payments; 
provided, however, that such IRP may present his/her request to the 
board and respond to any inquiries from the board concerning his/her 
involvement in the circumstances giving rise to the administrative 
proceeding or civil action.
    (c) In the event that a majority of the members of the board of 
directors are named as respondents in an administrative proceeding or 
civil action and request indemnification, the remaining members of the 
board may authorize independent legal counsel to review the 
indemnification request and provide the remaining members of the board 
with a written opinion of counsel as to whether the conditions 
delineated in paragraph (a) of this section have been met. If 
independent legal counsel opines that said conditions have been met, the 
remaining members of the board of directors may rely on such opinion in 
authorizing the requested indemnification.
    (d) In the event that all of the members of the board of directors 
are named as respondents in an administrative proceeding or civil action 
and request indemnification, the board shall authorize independent legal 
counsel to review the indemnification request and provide the board with 
a

[[Page 297]]

written opinion of counsel as to whether the conditions delineated in 
paragraph (a) of this section have been met. If independent legal 
counsel opines that said conditions have been met, the board of 
directors may rely on such opinion in authorizing the requested 
indemnification.



Sec. 1412.7  Filing instructions.

    Requests to make excess nondiscriminatory severance plan payments 
and permitted golden parachute payments shall be submitted in writing to 
the FCA and the Corporation. The request shall be in letter form and 
shall contain all relevant factual information as well as the reasons 
why such approval should be granted.



Sec. 1412.8  Application in the event of receivership.

    The provisions of this part or any consent or approval granted under 
the provisions of this part by the Corporation (in its corporate 
capacity), shall not in any way bind any receiver of a failed System 
institution. Any consent or approval granted under the provisions of 
this part by the Corporation or the FCA shall not in any way obligate 
such agency or receiver to pay any claim or obligation pursuant to any 
golden parachute, severance, indemnification or other agreement. Claims 
for employee welfare benefits or other benefits which are contingent, 
even if otherwise vested, when the Corporation is appointed as receiver 
for any System institution, including any contingency for termination of 
employment, are not provable claims or actual, direct compensatory 
damage claims against such receiver. Nothing in this part may be 
construed to permit the payment of salary or any liability or legal 
expense of any IRP contrary to 12 U.S.C. 2277a-10b(d).

[[Page 299]]



                 CHAPTER XV--DEPARTMENT OF THE TREASURY




  --------------------------------------------------------------------

                    SUBCHAPTER A--GENERAL PROVISIONS
Part                                                                Page
1500            Merchant banking investments................         301
1501            Financial subsidiaries......................         308
1502-1503

 [Reserved]

1505-1507

 [Reserved]

              SUBCHAPTER B--RESOLUTION FUNDING CORPORATION
1510            Resolution Funding Corporation operations...         311
1511            Book-entry procedure........................         314

[[Page 301]]



                     SUBCHAPTER A_GENERAL PROVISIONS





PART 1500_MERCHANT BANKING INVESTMENTS--Table of Contents




Sec.
1500.1 What type of investments are permitted by this part, and under 
          what conditions may they be made?
1500.2 What are the limitations on managing or operating a portfolio 
          company held as a merchant banking investment?
1500.3 What are the holding periods permitted for merchant banking 
          investments?
1500.4 How are investments in private equity funds treated under this 
          part?
1500.5 What aggregate thresholds apply to merchant banking investments?
1500.6 What risk management, record keeping and reporting policies are 
          required to make merchant banking investments?
1500.7 How do the statutory cross marketing and sections 23A and B 
          limitations apply to merchant banking investments?
1500.8 Definitions.

    Authority: 12 U.S.C. 1843(k).

    Source: Reg. Y, 66 FR 8489, Jan. 31, 2001, unless otherwise noted.



Sec. 1500.1  What type of investments are permitted by this part, and under what conditions may they be made?

    (a) What types of investments are permitted by this part? Section 
4(k)(4)(H) of the Bank Holding Company Act (12 U.S.C. 1843(k)(4)(H)) and 
this part authorize a financial holding company, directly or indirectly 
and as principal or on behalf of one or more persons, to acquire or 
control any amount of shares, assets or ownership interests of a company 
or other entity that is engaged in any activity not otherwise authorized 
for the financial holding company under section 4 of the Bank Holding 
Company Act. For purposes of this part, shares, assets or ownership 
interests acquired or controlled under section 4(k)(4)(H) and this part 
are referred to as ``merchant banking investments.'' A financial holding 
company may not directly or indirectly acquire or control any merchant 
banking investment except in compliance with the requirements of this 
part.
    (b) Must the investment be a bona fide merchant banking investment? 
The acquisition or control of shares, assets or ownership interests 
under this part is not permitted unless it is part of a bona fide 
underwriting or merchant or investment banking activity.
    (c) What types of ownership interests may be acquired? Shares, 
assets or ownership interests of a company or other entity include any 
debt or equity security, warrant, option, partnership interest, trust 
certificate or other instrument representing an ownership interest in 
the company or entity, whether voting or nonvoting.
    (d) Where in a financial holding company may merchant banking 
investments be made? A financial holding company and any subsidiary 
(other than a depository institution or subsidiary of a depository 
institution) may acquire or control merchant banking investments. A 
financial holding company and its subsidiaries may not acquire or 
control merchant banking investments on behalf of a depository 
institution or subsidiary of a depository institution.
    (e) May assets other than shares be held directly? A financial 
holding company may not under this part acquire or control assets, other 
than debt or equity securities or other ownership interests in a 
company, unless:
    (1) The assets are held by or promptly transferred to a portfolio 
company;
    (2) The portfolio company maintains policies, books and records, 
accounts, and other indicia of corporate, partnership or limited 
liability organization and operation that are separate from the 
financial holding company and limit the legal liability of the financial 
holding company for obligations of the portfolio company; and
    (3) The portfolio company has management that is separate from the 
financial holding company to the extent required by Sec. 1500.2.
    (f) What type of affiliate is required for a financial holding 
company to make merchant banking investments? A financial holding 
company may not acquire or control merchant banking investments under 
this part unless the financial holding company qualifies under at least 
one of the following paragraphs:

[[Page 302]]

    (1) Securities affiliate. The financial holding company is or has an 
affiliate that is registered under the Securities Exchange Act of 1934 
(15 U.S.C. 78c, 78o, 78o-4) as:
    (i) A broker or dealer; or
    (ii) A municipal securities dealer, including a separately 
identifiable department or division of a bank that is registered as a 
municipal securities dealer.
    (2) Insurance affiliate with an investment adviser affiliate. The 
financial holding company controls:
    (i) An insurance company that is predominantly engaged in 
underwriting life, accident and health, or property and casualty 
insurance (other than credit-related insurance), or providing and 
issuing annuities; and
    (ii) A company that:
    (A) Is registered with the Securities and Exchange Commission as an 
investment adviser under the Investment Advisers Act of 1940 (15 U.S.C. 
80b-1 et seq.); and
    (B) Provides investment advice to an insurance company.



Sec. 1500.2  What are the limitations on managing or operating a portfolio company held as a merchant banking investment?

    (a) May a financial holding company routinely manage or operate a 
portfolio company? Except as permitted in paragraph (e) of this section, 
a financial holding company may not routinely manage or operate any 
portfolio company.
    (b) When does a financial holding company routinely manage or 
operate a company?--(1) Examples of routine management or operation--(i) 
Executive officer interlocks at the portfolio company. A financial 
holding company routinely manages or operates a portfolio company if any 
director, officer or employee of the financial holding company serves as 
or has the responsibilities of an executive officer of the portfolio 
company.
    (ii) Interlocks by executive officers of the financial holding 
company--(A) Prohibition. A financial holding company routinely manages 
or operates a portfolio company if any executive officer of the 
financial holding company serves as or has the responsibilities of an 
officer or employee of the portfolio company.
    (B) Definition. For purposes of paragraph (b)(1)(ii)(A) of this 
section, the term ``financial holding company'' includes the financial 
holding company and only the following subsidiaries of the financial 
holding company:
    (1) A securities broker or dealer registered under the Securities 
Exchange Act of 1934;
    (2) A depository institution;
    (3) An affiliate that engages in merchant banking activities under 
this part or insurance company investment activities under section 
4(k)(4)(I) of the Bank Holding Company Act (12 U.S.C. 1843(k)(4)(I));
    (4) A small business investment company (as defined in section 
302(b) of the Small Business Investment Act of 1958 (15 U.S.C. 682(b)) 
controlled by the financial holding company or by any depository 
institution controlled by the financial holding company; and
    (5) Any other affiliate that engages in significant equity 
investment activities that are subject to a special capital charge under 
the capital adequacy rules or guidelines of the Board.
    (iii) Covenants regarding ordinary course of business. A financial 
holding company routinely manages or operates a portfolio company if any 
covenant or other contractual arrangement exists between the financial 
holding company and the portfolio company that would restrict the 
portfolio company's ability to make routine business decisions, such as 
entering into transactions in the ordinary course of business or hiring 
officers or employees other than executive officers.
    (2) Presumptions of routine management or operation. A financial 
holding company is presumed to routinely manage or operate a portfolio 
company if:
    (i) Any director, officer, or employee of the financial holding 
company serves as or has the responsibilities of an officer (other than 
an executive officer) or employee of the portfolio company; or
    (ii) Any officer or employee of the portfolio company is supervised 
by any director, officer, or employee of the financial holding company 
(other than

[[Page 303]]

in that individual's capacity as a director of the portfolio company).
    (c) How may a financial holding company rebut a presumption that it 
is routinely managing or operating a portfolio company? A financial 
holding company may rebut a presumption that it is routinely managing or 
operating a portfolio company under paragraph (b)(2) of this section by 
presenting information to the Board demonstrating to the Board's 
satisfaction that the financial holding company is not routinely 
managing or operating the portfolio company.
    (d) What arrangements do not involve routinely managing or operating 
a portfolio company?--(1) Director representation at portfolio 
companies. A financial holding company may select any or all of the 
directors of a portfolio company or have one or more of its directors, 
officers, or employees serve as directors of a portfolio company if:
    (i) The portfolio company employs officers and employees responsible 
for routinely managing and operating the company; and
    (ii) The financial holding company does not routinely manage or 
operate the portfolio company, except as permitted in paragraph (e) of 
this section.
    (2) Covenants or other provisions regarding extraordinary events. A 
financial holding company may, by virtue of covenants or other written 
agreements with a portfolio company, restrict the ability of the 
portfolio company, or require the portfolio company to consult with or 
obtain the approval of the financial holding company, to take actions 
outside of the ordinary course of the business of the portfolio company. 
Examples of the types of actions that may be subject to these types of 
covenants or agreements include, but are not limited to, the following:
    (i) The acquisition of significant assets or control of another 
company by the portfolio company or any of its subsidiaries;
    (ii) Removal or selection of an independent accountant or auditor or 
investment banker by the portfolio company;
    (iii) Significant changes to the business plan or accounting methods 
or policies of the portfolio company;
    (iv) Removal or replacement of any or all of the executive officers 
of the portfolio company;
    (v) The redemption, authorization or issuance of any equity or debt 
securities (including options, warrants or convertible shares) of the 
portfolio company or any borrowing by the portfolio company outside of 
the ordinary course of business;
    (vi) The amendment of the articles of incorporation or by-laws (or 
similar governing documents) of the portfolio company; and
    (vii) The sale, merger, consolidation, spin-off, recapitalization, 
liquidation, dissolution or sale of substantially all of the assets of 
the portfolio company or any of its significant subsidiaries.
    (3) Providing advisory and underwriting services to, and having 
consultations with, a portfolio company. A financial holding company 
may:
    (i) Provide financial, investment and management consulting advice 
to a portfolio company in a manner consistent with and subject to any 
restrictions on such activities contained in Sec. Sec. 225.28(b)(6) or 
225.86(b)(1) of the Board's Regulation Y (12 CFR 225.28(b)(6) and 
225.86(b)(1));
    (ii) Provide assistance to a portfolio company in connection with 
the underwriting or private placement of its securities, including 
acting as the underwriter or placement agent for such securities; and
    (iii) Meet with the officers or employees of a portfolio company to 
monitor or provide advice with respect to the portfolio company's 
performance or activities.
    (e) When may a financial holding company routinely manage or operate 
a portfolio company?--(1) Special circumstances required. A financial 
holding company may routinely manage or operate a portfolio company only 
when intervention by the financial holding company is necessary or 
required to obtain a reasonable return on the financial holding 
company's investment in the portfolio company upon resale or other 
disposition of the investment, such as to avoid or address a significant 
operating loss or in connection with a loss of senior management at the 
portfolio company.

[[Page 304]]

    (2) Duration Limited. A financial holding company may routinely 
manage or operate a portfolio company only for the period of time as may 
be necessary to address the cause of the financial holding company's 
involvement, to obtain suitable alternative management arrangements, to 
dispose of the investment, or to otherwise obtain a reasonable return 
upon the resale or disposition of the investment.
    (3) Notice required for extended involvement. A financial holding 
company may not routinely manage or operate a portfolio company for a 
period greater than nine months without prior written notice to the 
Board.
    (4) Documentation required. A financial holding company must 
maintain and make available to the Board upon request a written record 
describing its involvement in routinely managing or operating a 
portfolio company.
    (f) May a depository institution or its subsidiary routinely manage 
or operate a portfolio company?--(1) In general. A depository 
institution and a subsidiary of a depository institution may not 
routinely manage or operate a portfolio company in which an affiliated 
company owns or controls an interest under this part.
    (2) Definition applying provisions governing routine management or 
operation. For purposes of this section other than paragraph (e) and for 
purposes of Sec. 1500.4(d), a financial holding company includes a 
depository institution controlled by the financial holding company and a 
subsidiary of such a depository institution.
    (3) Exception for certain subsidiaries of depository institutions. 
For purposes of paragraph (e) of this section, a financial holding 
company includes a financial subsidiary held in accordance with section 
5136A of the Revised Statutes (12 U.S.C. 24a) or section 46 of the 
Federal Deposit Insurance Act (12 U.S.C. 1831w), and a subsidiary that 
is a small business investment company and that is held in accordance 
with the Small Business Investment Act (15 U.S.C. 661 et seq.), and such 
a subsidiary may, in accordance with the limitations set forth in this 
section, routinely manage or operate a portfolio company in which an 
affiliated company owns or controls an interest under this part.



Sec. 1500.3  What are the holding periods permitted for merchant banking investments?

    (a) Must investments be made for resale? A financial holding company 
may own or control shares, assets and ownership interests pursuant to 
this part only for a period of time to enable the sale or disposition 
thereof on a reasonable basis consistent with the financial viability of 
the financial holding company's merchant banking investment activities.
    (b) What period of time is generally permitted for holding merchant 
banking investments?--(1) In general. Except as provided in this section 
or Sec. 1500.4, a financial holding company may not, directly or 
indirectly, own, control or hold any share, asset or ownership interest 
pursuant to this part for a period that exceeds 10 years.
    (2) Ownership interests acquired from or transferred to companies 
held under this part. For purposes of paragraph (b)(1) of this section, 
shares, assets or ownership interests--
    (i) Acquired by a financial holding company from a company in which 
the financial holding company held an interest under this part will be 
considered to have been acquired by the financial holding company on the 
date that the share, asset or ownership interest was acquired by the 
company; and
    (ii) Acquired by a company from a financial holding company will be 
considered to have been acquired by the company on the date that the 
share, asset or ownership interest was acquired by the financial holding 
company if--
    (A) The financial holding company held the share, asset, or 
ownership interest under this part; and
    (B) The financial holding company holds an interest in the acquiring 
company under this part.
    (3) Interests previously held by a financial holding company under 
limited authority. For purposes of paragraph (b)(1) of this section, any 
shares, assets, or ownership interests previously owned or controlled, 
directly or indirectly, by a financial holding company under any other 
provision of the Federal banking laws that imposes a limited holding 
period will if acquired under this part be

[[Page 305]]

considered to have been acquired by the financial holding company under 
this part on the date the financial holding company first acquired 
ownership or control of the shares, assets or ownership interests under 
such other provision of law. For purposes of this paragraph (b)(3), a 
financial holding company includes a depository institution controlled 
by the financial holding company and any subsidiary of such a depository 
institution.
    (4) Approval required to hold interests held in excess of time 
limit. A financial holding company may seek Board approval to own, 
control or hold shares, assets or ownership interests of a company under 
this part for a period that exceeds the period specified in paragraph 
(b)(1) of this section. A request for approval must:
    (i) Be submitted to the Board at least 90 days prior to the 
expiration of the applicable time period;
    (ii) Provide the reasons for the request, including information that 
addresses the factors in paragraph (b)(5) of this section; and
    (iii) Explain the financial holding company's plan for divesting the 
shares, assets or ownership interests.
    (5) Factors governing Board determinations. In reviewing any 
proposal under paragraph (b)(4) of this section, the Board may consider 
all the facts and circumstances related to the investment, including:
    (i) The cost to the financial holding company of disposing of the 
investment within the applicable period;
    (ii) The total exposure of the financial holding company to the 
company and the risks that disposing of the investment may pose to the 
financial holding company;
    (iii) Market conditions;
    (iv) The nature of the portfolio company's business;
    (v) The extent and history of involvement by the financial holding 
company in the management and operations of the company; and
    (vi) The average holding period of the financial holding company's 
merchant banking investments.
    (6) Restrictions applicable to investments held beyond time period. 
A financial holding company that directly or indirectly owns, controls 
or holds any share, asset or ownership interest of a company under this 
part for a total period that exceeds the period specified in paragraph 
(b)(1) of this section must--
    (i) For purposes of determining the financial holding company's 
regulatory capital, apply to the financial holding company's adjusted 
carrying value of such shares, assets, or ownership interests a capital 
charge determined by the Board that must be:
    (A) Higher than the maximum marginal Tier 1 capital charge 
applicable under the Board's capital adequacy rules or guidelines (see 
12 CFR 225 Appendix A) to merchant banking investments held by that 
financial holding company; and
    (B) In no event less than 25 percent of the adjusted carrying value 
of the investment; and
    (ii) Abide by any other restrictions that the Board may impose in 
connection with granting approval under paragraph (b)(4) of this 
section.



Sec. 1500.4  How are investments in private equity funds treated under this part?

    (a) What is a private equity fund? For purposes of this part, a 
``private equity fund'' is any company that:
    (1) Is formed for the purpose of and is engaged exclusively in the 
business of investing in shares, assets, and ownership interests of 
financial and nonfinancial companies for resale or other disposition;
    (2) Is not an operating company;
    (3) No more than 25 percent of the total equity of which is held, 
owned or controlled, directly or indirectly, by the financial holding 
company and its directors, officers, employees and principal 
shareholders;
    (4) Has a maximum term of not more than 15 years; and
    (5) Is not formed or operated for the purpose of making investments 
inconsistent with the authority granted under section 4(k)(4)(H) of the 
Bank Holding Company Act (12 U.S.C. 1843(k)(4)(H)) or evading the 
limitations governing merchant banking investments contained in this 
part.
    (b) What form may a private equity fund take? A private equity fund 
may be a corporation, partnership, limited

[[Page 306]]

liability company or other type of company that issues ownership 
interests in any form.
    (c) What is the holding period permitted for interests in private 
equity funds?--(1) In general. A financial holding company may own, 
control or hold any interest in a private equity fund under this part 
and any interest in a portfolio company that is owned or controlled by a 
private equity fund in which the financial holding company owns or 
controls any interest under this part for the duration of the fund, up 
to a maximum of 15 years.
    (2) Request to hold interest for longer period. A financial holding 
company may seek Board approval to own, control or hold an interest in 
or held through a private equity fund for a period longer than the 
duration of the fund in accordance with Sec. 1500.3(b) of this part.
    (3) Application of rules. The rules described in Sec. 1500.3(b)(2) 
and (3) governing holding periods of interests acquired, transferred or 
previously held by a financial holding company apply to interests in, 
held through, or acquired from a private equity fund.
    (d) How do the restrictions on routine management and operation 
apply to private equity funds and investments held through a private 
equity fund?--(1) Portfolio companies held through a private equity 
fund. A financial holding company may not routinely manage or operate a 
portfolio company that is owned or controlled by a private equity fund 
in which the financial holding company owns or controls any interest 
under this part, except as permitted under Sec. 1500.2(e).
    (2) Private equity funds controlled by a financial holding company. 
A private equity fund that is controlled by a financial holding company 
may not routinely manage or operate a portfolio company, except as 
permitted under Sec. 1500.2(e).
    (3) Private equity funds that are not controlled by a financial 
holding company. A private equity fund may routinely manage or operate a 
portfolio company so long as no financial holding company controls the 
private equity fund or as permitted under Sec. 1500.2(e).
    (4) When does a financial holding company control a private equity 
fund? A financial holding company controls a private equity fund for 
purposes of this part if the financial holding company, including any 
director, officer, employee or principal shareholder of the financial 
holding company:
    (i) Serves as a general partner, managing member, or trustee of the 
private equity fund (or serves in a similar role with respect to the 
private equity fund);
    (ii) Owns or controls 25 percent or more of any class of voting 
shares or similar interests in the private equity fund;
    (iii) In any manner selects, controls or constitutes a majority of 
the directors, trustees or management of the private equity fund; or
    (iv) Owns or controls more than 5 percent of any class of voting 
shares or similar interests in the private equity fund and is the 
investment adviser to the fund.



Sec. 1500.5  What aggregate thresholds apply to merchant banking investments?

    (a) In general. A financial holding company may not, without Board 
approval, directly or indirectly acquire any additional shares, assets 
or ownership interests under this part or make any additional capital 
contribution to any company the shares, assets or ownership interests of 
which are held by the financial holding company under this part if the 
aggregate carrying value of all merchant banking investments held by the 
financial holding company under this part exceeds:
    (1) 30 percent of the Tier 1 capital of the financial holding 
company; or
    (2) After excluding interests in private equity funds, 20 percent of 
the Tier 1 capital of the financial holding company
    (b) How do these thresholds apply to a private equity fund? 
Paragraph (a) of this section applies to the interest acquired or 
controlled by the financial holding company under this part in a private 
equity fund. Paragraph (a) of this section does not apply to any 
interest in a company held by a private equity fund or to any interest 
held by

[[Page 307]]

a person that is not affiliated with the financial holding company.
    (c) How long do these thresholds remain in effect? This Sec. 1500.5 
shall cease to be effective on the date that a final rule issued by the 
Board that specifically addresses the appropriate regulatory capital 
treatment of merchant banking investments becomes effective.



Sec. 1500.6  What risk management, record keeping and reporting policies are required to make merchant banking investments?

    (a) What internal controls and records are necessary?--(1) General. 
A financial holding company, including a private equity fund controlled 
by a financial holding company, that makes investments under this part 
must establish and maintain policies, procedures, records and systems 
reasonably designed to conduct, monitor and manage such investment 
activities and the risks associated with such investment activities in a 
safe and sound manner, including policies, procedures, records and 
systems reasonably designed to:
    (i) Monitor and assess the carrying value, market value and 
performance of each investment and the aggregate portfolio;
    (ii) Identify and manage the market, credit, concentration and other 
risks associated with such investments;
    (iii) Identify, monitor and assess the terms, amounts and risks 
arising from transactions and relationships (including contingent fees 
or contingent interests) with each company in which the financial 
holding company holds an interest under this part;
    (iv) Ensure the maintenance of corporate separateness between the 
financial holding company and each company in which the financial 
holding company holds an interest under this part and protect the 
financial holding company and its depository institution subsidiaries 
from legal liability for the operations conducted and financial 
obligations of each such company; and
    (v) Ensure compliance with this part.
    (2) Availability of records. A financial holding company must make 
the policies, procedures and records required by paragraph (a)(1) of 
this section available to the Board or the appropriate Reserve Bank upon 
request.
    (b) Certain additional recordkeeping and reporting requirements for 
merchant banking investments are set forth in the Board's Regulation Y, 
12 CFR 225.175.



Sec. 1500.7  How do the statutory cross marketing and sections 23A and B limitations apply to merchant banking investments?

    Certain cross-marketing limitations and limitations under sections 
23A and 23B of the Federal Reserve Act (12 U.S.C. 371c, 371c-1) 
applicable to merchant banking investments are set forth in the Board's 
Regulation Y, 12 CFR 225.176.



Sec. 1500.8  Definitions.

    (a) What do references to a financial holding company include?--(1) 
Except as otherwise expressly provided, the term ``financial holding 
company'' as used in this part means the financial holding company and 
all of its subsidiaries, including a private equity fund or other fund 
controlled by the financial holding company.
    (2) Except as otherwise expressly provided, the term ``financial 
holding company'' does not include a depository institution or 
subsidiary of a depository institution or any portfolio company 
controlled directly or indirectly by the financial holding company.
    (b) What do references to a depository institution include? For 
purposes of this part, the term ``depository institution'' includes a 
U.S. branch or agency of a foreign bank.
    (c) What is a portfolio company? A portfolio company is any company 
or entity:
    (1) That is engaged in any activity not authorized for the financial 
holding company under section 4 of the Bank Holding Company Act (12 
U.S.C. 1843); and
    (2) Any shares, assets or ownership interests of which are held, 
owned or controlled directly or indirectly by the financial holding 
company pursuant to this part, including through a private equity fund 
that the financial holding company controls.
    (d) Who are the executive officers of a company?--(1) An executive 
officer of a

[[Page 308]]

company is any person who participates or has the authority to 
participate (other than in the capacity as a director) in major 
policymaking functions of the company, whether or not the officer has an 
official title, the title designates the officer as an assistant, or the 
officer serves without salary or other compensation.
    (2) The term ``executive officer'' does not include--
    (i) Any person, including a person with an official title, who may 
exercise a certain measure of discretion in the performance of his 
duties, including the discretion to make decisions in the ordinary 
course of the company's business, but who does not participate in the 
determination of major policies of the company and whose decisions are 
limited by policy standards fixed by senior management of the company; 
or
    (ii) Any person who is excluded from participating (other than in 
the capacity of a director) in major policymaking functions of the 
company by resolution of the board of directors or by the bylaws of the 
company and who does not in fact participate in such policymaking 
functions.
    (e) What is the Board? The Board means the Board of Governors of the 
Federal Reserve System.
    (f) How are other terms that are used in this part defined? Unless 
otherwise defined in this part, all terms used have the meanings given 
such terms in the Board's Regulation Y (12 CFR Part 225).



PART 1501_FINANCIAL SUBSIDIARIES--Table of Contents




Sec.
1501.1 How do you request the Secretary to determine that an activity is 
          financial in nature or incidental to a financial activity?
1501.2 What activities has the Secretary determined to be financial in 
          nature or incidental to a financial activity?
1501.3 Comparable ratings requirement for national banks among the 
          second 50 largest insured banks.

    Authority: Section 5136A of the Revised Statutes of the United 
States (12 U.S.C. 24a).

    Source: 65 FR 14821, Mar. 20, 2000, unless otherwise noted.



Sec. 1501.1  How do you request the Secretary to determine that an activity is financial in nature or incidental to a financial activity?

    (a) Requests regarding activities that may be financial in nature or 
incidental to a financial activity. A national bank or other interested 
party may request the Secretary to determine that an activity not 
defined to be financial in nature or incidental to a financial activity 
in Section 4(k)(4) of the Bank Holding Company Act (12 U.S.C. 
1843(k)(4)), is financial in nature or incidental to a financial 
activity.
    (b) What information must the request contain? A request submitted 
under this section must be in writing and must:
    (1) Identify and define the activity for which the determination is 
sought, specifically describing what the activity would involve and how 
the activity would be conducted;
    (2) Explain in detail why the activity should be considered 
financial in nature or incidental to a financial activity; and
    (3) Provide information supporting the requested determination and 
any other information required by the Secretary concerning the proposed 
activity.
    (c) What factors will the Secretary take into account in making his 
determination? (1) Section 121 of the Gramm-Leach-Bliley Act (GLBA) 
(Public Law 106-102, 113 Stat. 1373) requires the Secretary to take into 
account the following factors in making his determination:
    (i) The purposes of section 5136A of the Revised Statutes (12 U.S.C. 
24a) and the GLBA;
    (ii) Changes or reasonably expected changes in the marketplace in 
which banks compete;
    (iii) Changes or reasonably expected changes in the technology for 
delivering financial services; and
    (iv) Whether the activity is necessary or appropriate to allow a 
bank and the subsidiaries of a bank to--
    (A) Compete effectively with any company seeking to provide 
financial services in the United States;
    (B) Efficiently deliver information and services that are financial 
in nature through the use of technological

[[Page 309]]

means, including any application necessary to protect the security or 
efficacy of systems for the transmission of data or financial 
transactions; and
    (C) Offer customers any available or emerging technological means 
for using financial services or for the document imaging of data.
    (2) Because the Secretary is required to consider the factors in 
paragraph (c)(1) of this section in making his determination, any 
request should address the factors in paragraph (c)(1) of this section. 
The Secretary may also consider other relevant factors.
    (d) What action will the Secretary take after receiving a request?--
(1) Consultation with the Board of Governors of the Federal Reserve 
System (Board). Upon receiving the request, the Secretary will send a 
copy to the Board and consult with the Board in accordance with section 
5136A(b)(1)(B)(i) of the Revised Statutes (12 U.S.C. 5136A(b)(1)(B)(i)).
    (2) Public notice. The Secretary may, as appropriate and after 
consultation with the Board, publish a description of the proposal in 
the Federal Register with a request for public comment.
    (e) How and when will the Secretary act on a request? In the case of 
each request, the Secretary:
    (1) Will inform the requester of the Secretary's final determination 
regarding the requested activity; and
    (2) Will endeavor to inform the requester of the Secretary's final 
determination within 60 days of completion of both the consultative 
process described in paragraph (d)(1) of this section and the public 
comment period, if any.
    (f) What must a national bank do in order for a financial subsidiary 
to engage in activities that the Secretary has determined are financial 
in nature or incidental to financial activities? Once the Secretary 
determines that an activity is financial in nature or incidental to a 
financial activity (either in accordance with this section or after 
evaluation of a proposal raised by the Board under section 
5136A(b)(1)(B)(ii) of the Revised Statutes), a financial subsidiary may 
engage in the activity subject to the requirements of 12 CFR part 5 and 
in accordance with any terms or conditions established by the Secretary 
in connection with authorizing the activity.



Sec. 1501.2  What activities has the Secretary determined to be financial in nature or incidental to a financial activity?

    (a) Activities permitted under section 5136A(b)(3) of the Revised 
Statutes (12 U.S.C. 24a(b)(3)). (1) The following types of activities 
are financial in nature or incidental to a financial activity when 
conducted pursuant to a determination by the Secretary under paragraph 
(a)(2) of this section:
    (i) Lending, exchanging, transferring, investing for others, or 
safeguarding financial assets other than money or securities;
    (ii) Providing any device or other instrumentality for transferring 
money or other financial assets; and
    (iii) Arranging, effecting, or facilitating financial transactions 
for the account of third parties.
    (2) Review of specific activities. (i) Is a specific request 
required? A financial subsidiary that wishes to engage on the basis of 
paragraph (a)(1) of this section in an activity that is not otherwise 
permissible for a financial subsidiary must obtain a determination from 
the Secretary that the activity is permitted under paragraph (a)(1).
    (ii) Consultation with the Board of Governors of the Federal Reserve 
System. After receiving a request under this section, the Secretary will 
provide the Board of Governors of the Federal Reserve System (Board) 
with a copy of the request and consult with the Board in accordance with 
section 5136A(b)(1)(B)(i) of the Revised Statutes (12 U.S.C. 
24a(b)(1)(B)(i)).
    (iii) Secretary action on requests. After consultation with the 
Board, the Secretary will promptly make a written determination 
regarding whether the specific activity described in the request is 
included in an activity category listed in paragraph (a)(1) of this 
section and is therefore either financial in nature or incidental to a 
financial activity.
    (3) What factors will the Secretary consider? In evaluating a 
request made under this section, the Secretary will take into account 
the factors listed in

[[Page 310]]

section 5136A(b)(2) of the Revised Statutes (12 U.S.C. 24a(b)(2)) that 
the Secretary must consider when determining whether an activity is 
financial in nature or incidental to a financial activity.
    (4) What information must the request contain? Any request by 
financial subsidiary under this section must be in writing and must:
    (i) Identify and define the activity for which the determination is 
sought, specifically describing what the activity would involve and how 
the activity would be conducted; and
    (ii) Provide information supporting the requested determination, 
including information regarding how the proposed activity falls into one 
of the categories listed in paragraph (a)(1) of this section, and any 
other information required by the Secretary concerning the proposed 
activity.
    (b) [Reserved]

[66 FR 260, Jan. 3, 2001]



Sec. 1501.3  Comparable ratings requirement for national banks among the second 50 largest insured banks.

    (a) Scope and purpose. Section 5136A of the Revised Statutes permits 
a national bank that is within the second 50 largest insured banks to 
own or control a financial subsidiary only if, among other requirements, 
the bank satisfies the eligible debt requirement set forth in section 
5136A or an alternative criteria jointly established by the Secretary of 
the Treasury and the Board of Governors of the Federal Reserve System. 
This section establishes the alternative criteria that a national bank 
among the second 50 largest insured banks may meet, which criteria is 
comparable to and consistent with the purposes of the eligible debt 
requirement established by section 5136A.
    (b) Alternative criteria. A national bank satisfies the alternative 
criteria referenced in Section 5136A(a)(2)(E) of the Revised Statutes 
(12 U.S.C. 24a) and 12 CFR 5.39(g)(3) if the bank has a current long-
term issuer credit rating from at least one nationally recognized 
statistical rating organization that is within the three highest 
investment grade rating categories used by the organization.
    (c) Definition of long-term issuer credit rating. A ``long-term 
issuer credit rating'' is a written opinion issued by a nationally 
recognized statistical rating organization of the bank's overall 
capacity and willingness to pay on a timely basis its unsecured, dollar-
denominated financial obligations maturing in not less than one year.

[66 FR 8750, Feb. 2, 2001]

                       PARTS 1502	1503 [RESERVED]

                       PARTS 1505	1507 [RESERVED]

[[Page 311]]



               SUBCHAPTER B_RESOLUTION FUNDING CORPORATION





PART 1510_RESOLUTION FUNDING CORPORATION OPERATIONS--Table of Contents




Sec.
1510.1 Authority, purpose, and scope.
1510.2 Definitions.
1510.3 How does the Funding Corporation pay administrative expenses?
1510.4 Who may act as the depositary and fiscal agent for the Funding 
          Corporation?
1510.5 How does the Funding Corporation make interest payments on its 
          obligations?
1510.6 What must the Funding Corporation do with surplus funds?
1510.7 What are the Funding Corporation's reporting requirements?
1510.8 What are the audit requirements for the Funding Corporation?

    Authority: 12 U.S.C. 1441b; Sec. 14(d), Pub. L. 105-216, 112 Stat. 
910.

    Source: 65 FR 12069, Mar. 8, 2000, unless otherwise noted.



Sec. 1510.1  Authority, purpose, and scope.

    (a) Authority. This part is issued under the authority of section 
14(d) of the Homeowners Protection Act of 1998 (Public Law 105-216, 112 
Stat. 910) and section 21B(l) of the Federal Home Loan Bank Act (12 
U.S.C. 1441b(l)).
    (b) Purpose and scope. The purpose of this part is to provide 
direction to the Funding Corporation in carrying out its statutory 
mandate to make interest payments on its outstanding debt obligations. 
This part also provides direction to the Funding Corporation regarding 
funding the administrative costs of its operations. This part does not 
provide direction to the Funding Corporation, however, on activities 
that the Funding Corporation is authorized to carry out under the Act, 
but that it previously has completed or is not likely to undertake in 
the future, such as raising capital and issuing obligations. Although 
the Funding Corporation continues to have statutory authority to 
undertake these activities, the circumstances under which it would do so 
are limited. If such circumstances were to arise, the Secretary has the 
authority to provide any necessary direction to the Funding Corporation.
    (c) Authority of the Funding Corporation. The Funding Corporation 
may exercise all authority granted to it by the Act in accordance with 
its bylaws, whether or not specifically implemented by regulation, 
subject to the requirements of this part and such other regulations, 
orders and directions as the Secretary may prescribe.



Sec. 1510.2  Definitions.

    The following definitions apply to terms used in this part unless 
the context requires otherwise:
    Act means the Federal Home Loan Bank Act (12 U.S.C. 1421 et seq.).
    Administrative expenses means costs incurred as necessary to carry 
out the functions of the Funding Corporation, including custodian fees, 
but does not include any interest on obligations.
    Bank means a Federal Home Loan Bank established under the authority 
of the Act.
    Custodian fee means any fee incurred by the Funding Corporation in 
connection with the transfer of any security to, or the maintenance of 
any security in, the Funding Corporation Principal Fund and any other 
expense incurred in connection with the establishment or maintenance of 
the Funding Corporation Principal Fund.
    Directorate means the Directorate of the Funding Corporation 
established pursuant to section 21B(c) of the Act (12 U.S.C. 1421b(c)).
    FDIC means the Federal Deposit Insurance Corporation established 
pursuant to section 1 of the Federal Deposit Insurance Act (12 U.S.C. 
1811, et seq.).
    Finance Board means the Federal Housing Finance Board established 
pursuant to section 2A(a)(1) of the Act.
    FSLIC Resolution Fund means the Federal Savings and Loan Insurance 
Corporation Resolution Fund established pursuant to section 11A(a)(1) of 
the Federal Deposit Insurance Act (12 U.S.C. 1811, et seq.).
    Funding Corporation means the Resolution Funding Corporation 
established pursuant to section 21B(b) of the Act.
    Funding Corporation Principal Fund means the separate account 
established under section 21B(g)(2) of the Act.

[[Page 312]]

    Interest payment due date means the date on which the next quarterly 
interest payments on obligations are due.
    Net earnings means net earnings after deducting expenses relating to 
section 10(j) of the Act (Affordable Housing Program) and operating 
expenses, but without reduction for chargeoffs and payments to fund 
interest payments on obligations.
    Obligations means bonds issued by the Funding Corporation under 
section 21B(f) of the Act.
    RTC means the Resolution Trust Corporation established pursuant to 
section 21A(b)(1)(A) of the Act and which terminated on December 31, 
1995, pursuant to section 21A(m) of the Act.
    Secretary means the Secretary of the Treasury or the designee of the 
Secretary of the Treasury.



Sec. 1510.3  How does the Funding Corporation pay administrative expenses?

    (a) The Directorate proposes a budget. By November 15 of each year, 
the Directorate must approve and submit to the Secretary a proposed 
budget for the administrative expenses of the Funding Corporation for 
the following year.
    (b) The Secretary approves the budget. The Funding Corporation's 
budget is subject to the Secretary's prior approval. The proposed budget 
submitted by the Directorate shall be deemed to be approved by the 
Secretary unless the Secretary disapproves it within 45 days of the date 
submitted. The Funding Corporation must transmit a copy of the approved 
budget to each Bank.
    (c) Budget changes must be approved by the Secretary. If the Funding 
Corporation projects or anticipates incurring expenses exceeding its 
approved budget, the Directorate must submit an amended budget to the 
Secretary for approval.
    (d) The Funding Corporation collects funds from the Banks to pay its 
administrative expenses. At least semiannually, the Funding Corporation 
must request that each Bank submit within 10 business days of the 
request payment for a portion of the administrative expenses in the 
Funding Corporation's budget for the current calendar year. The amount 
of each Bank's payment must be pro rated according to the percentage of 
the total outstanding Funding Corporation capital stock owned by the 
Bank. The Funding Corporation must adjust the amount of each Bank's 
payment as necessary to reflect differences between aggregate projected 
and actual administrative expenses incurred during the calendar year and 
to reflect any changes in estimated aggregate administrative expenses 
for the coming period. The Funding Corporation must not request payments 
from the Banks that, in the aggregate, exceed the administrative 
expenses in the Funding Corporation's approved budget.



Sec. 1510.4  Who may act as the depositary and fiscal agent for the Funding Corporation?

    (a) In general, the Federal Reserve Banks. The Funding Corporation 
must use one or more Federal Reserve Banks as depositaries for or fiscal 
agents or custodians of the Funding Corporation.
    (b) For administrative accounts, insured depository institutions. 
Subject to approval by the Secretary, the Funding Corporation may 
establish demand deposit accounts at one or more federally insured 
depository institutions for the management of funds used to pay 
administrative expenses.



Sec. 1510.5  How does the Funding Corporation make interest payments on its obligations?

    (a) The Funding Corporation must obtain funds from up to four 
sources. The Funding Corporation must pay the interest due on its 
obligations with funds it obtains from the following sources and in the 
following order:
    (1) Earnings on assets of the Funding Corporation not invested in 
the Funding Corporation Principal Fund.
    (2) To the extent funds identified in paragraph (a)(1) of this 
section are insufficient, the Funding Corporation must obtain from each 
Bank in each calendar year payments totaling 20 percent of the net 
earnings of the Bank. The Funding Corporation must not obtain funds from 
a Bank under this paragraph after the date upon which the term of the 
Bank's payment obligation has ended, as determined by the Finance Board 
pursuant to section 21B(f)(2)(C)(iii) of the Act.

[[Page 313]]

    (3) To the extent funds identified in paragraphs (a)(1) and (2) of 
this section are insufficient, the Funding Corporation must obtain from 
the FSLIC Resolution Fund amounts available from any net proceeds from 
the sale of assets received from the RTC by the FSLIC Resolution Fund.
    (4) To the extent that funds from the sources identified in 
paragraphs (a)(1) through (3) of this section are insufficient, the 
Funding Corporation must obtain from the Secretary the additional amount 
due.
    (b) The Funding Corporation must obtain projections of funds 
availability from the Banks and the FSLIC Resolution Fund. Not later 
than March 15, June 15, September 15, and December 15 of each year:
    (1) The Funding Corporation must obtain from each Bank a statement 
signed by an officer of such Bank containing sufficient information on 
the Banks net earnings to enable the Funding Corporation to make 
quarterly projections of funds available from the Bank for the current 
quarter and the next three quarters; and
    (2) The Funding Corporation must obtain from an authorized 
representative of the FSLIC Resolution Fund projections of the amount of 
funds available in the current quarter and the next three quarters from 
the net proceeds from the sale of received from the RTC.
    (c) The Funding Corporation must report funding projections to the 
Secretary. Not later than March 20, June 20, September 20, and December 
20 of each year, the Funding Corporation must submit to the Secretary a 
report containing:
    (1) The aggregate amounts of each of the next four quarterly 
interest payments due on obligations; and
    (2) The amounts projected to be available to fund such payments 
from:
    (i) Earnings on assets of the Funding Corporation not invested in 
the Funding Corporation Principal Fund;
    (ii) Payments from the Banks; and
    (iii) Funds transferred from the FSLIC Resolution Fund.
    (d) The Funding Corporation must request funds from the Banks, the 
FSLIC Resolution Fund, and the Secretary--(1) Requests to the Banks. Not 
less than four business days prior to the interest payment due date, the 
Funding Corporation must obtain from each Bank a report of its actual 
net earnings for the prior quarter and notify each Bank in writing of 
the interest payment due date and the amount of the payment due from the 
Bank. To the extent funds identified in paragraph (a)(1) of this section 
are insufficient to pay the interest due, the amount of each Bank's 
payment must be 20 percent of the Bank's actual quarterly net earnings, 
taking into account any adjustment to the Bank's earnings for any 
previous quarters. The Funding Corporation must request the Bank to 
provide payment through wiring immediately available and finally 
collected funds to the Funding Corporation no later than the interest 
payment due date.
    (2) Request to the FSLIC Resolution Fund. On the day the Funding 
Corporation notifies the Banks of the payments due from them under 
paragraph (d)(1) of this section, the Funding Corporation must:
    (i) Notify the FSLIC Resolution Fund in writing of:
    (A) The interest payment due date;
    (B) The aggregate amount of the quarterly interest payment due on 
that date; and
    (C) The amount of the quarterly interest payment that will be funded 
by earnings on assets of the Funding Corporation not invested in the 
Funding Corporation Principal Fund and payments due from the Banks; and
    (ii) Request that the FSLIC Resolution Fund transfer to the Funding 
Corporation by noon on the third business day prior to the interest 
payment due date any funds available from the net proceeds from the sale 
of assets received from the RTC, to the extent funds identified in 
paragraphs (a)(1) and (2) of this section are insufficient to pay the 
interest due.
    (3) Request to the Secretary. No less than three business days prior 
to the interest payment due date, the Funding Corporation must request 
payment from the Secretary by providing a certification, in a form 
satisfactory to the Secretary, stating the total amounts of the 
quarterly interest payment to be paid by the Funding Corporation from 
sources other than the Secretary and

[[Page 314]]

the amounts necessary to make up the deficiency. Any amount paid by the 
Secretary becomes a liability of the Funding Corporation to be repaid to 
the Secretary upon the dissolution of the Funding Corporation, to the 
extent of its remaining assets.

[65 FR 12069, Mar. 8, 2000, as amended at 66 FR 47071, Sept. 11, 2001]



Sec. 1510.6  What must the Funding Corporation do with surplus funds?

    If the Funding Corporation has funds that are not needed for current 
interest payments on obligations, it must invest the funds in 
obligations of the United States issued by the Secretary, in accordance 
with an investment policy approved by the Secretary.



Sec. 1510.7  What are the Funding Corporation's reporting requirements?

    In addition to the budget submission required by Sec. 1510.3 and 
the funding projection reports required by Sec. 1510.5, the Funding 
Corporation must prepare such reports as the Secretary may require, 
including reports necessary to assist the Secretary in making the annual 
report to Congress and the President on the Funding Corporation under 
section 21B(i) of the Act.



Sec. 1510.8  What are the audit requirements for the Funding Corporation?

    The Funding Corporation must obtain an audit of its books and 
records by an independent external auditor at least annually.



PART 1511_BOOK-ENTRY PROCEDURE--Table of Contents




Sec.
1511.0 Applicability.
1511.1 Definition of terms.
1511.2 Law governing rights and obligations of the Funding Corporation 
          and Federal Reserve Banks; rights of any Person against the 
          Funding Corporation and the Federal Reserve Banks.
1511.3 Law governing other interests.
1511.4 Creation of Participant's Security Entitlement; security 
          interests.
1511.5 Obligations of Funding Corporation; no adverse claims.
1511.6 Authority of Federal Reserve Banks.
1511.7 Liability of the Funding Corporation and Federal Reserve Banks.
1511.8 Notice of attachment.

    Authority: 12 U.S.C. 1441b.

    Source: 61 FR 66875, Dec. 19, 1996, unless otherwise noted.



Sec. 1511.0  Applicability.

    The regulations in this part apply to Book-entry Funding Corporation 
Securities.



Sec. 1511.1  Definitions of terms.

    In this part, unless the context indicates otherwise:
    Act means the Federal Home Loan Bank Act as amended (12 U.S.C. 1421 
et seq.).
    Adverse Claim means a claim that a claimant has a property interest 
in a Book-entry Funding Corporation Security and that it is a violation 
of the rights of the claimant for another Person to hold, transfer, or 
deal with the Book-entry Funding Corporation Security.
    Book-entry Funding Corporation Security means a Funding Corporation 
Security in book-entry form that is issued or maintained in the Book-
entry System. Solely for the purposes of this Part, it also means the 
separate interest and principal components of a Book-entry Funding 
Corporation Security if such security has been divided into such 
components as authorized by the Securities Documentation and the 
components are maintained separately on the books of one or more Federal 
Reserve Banks.
    Book-entry System means the automated book-entry system operated by 
the Federal Reserve Banks acting as the fiscal agent for the Funding 
Corporation, on which Book-entry Funding Corporation Securities are 
issued, recorded, transferred and maintained in book-entry form.
    Entitlement Holder means a Person to whose account an interest in a 
Book-entry Funding Corporation Security is credited on the records of a 
Securities Intermediary.
    Federal Reserve Bank or Reserve Bank means a Federal Reserve Bank or 
Branch.
    Federal Reserve Bank Operating Circular means the publication issued 
by each Federal Reserve Bank that sets forth the terms and conditions 
under which the Reserve Bank maintains

[[Page 315]]

book-entry Securities accounts (including Book-entry Funding Corporation 
Securities) and transfers book-entry Securities (including Book-entry 
Funding Corporation Securities).
    Funding Corporation means the Resolution Funding Corporation 
established pursuant to section 21B(b) of the Act.
    Funding Corporation Security or Security means a Funding Corporation 
bond, note, debenture and similar obligations issued under section 21B 
of the Act.
    Funds Account means a reserve and/or clearing account at a Federal 
Reserve Bank to which debits or credits are posted for transfers against 
payment, book-entry securities transaction fees, or principal and 
interest payments.
    Participant means a Person that maintains a Participant's Securities 
Account with a Federal Reserve Bank.
    Participant's Securities Account means an account in the name of a 
Participant at a Federal Reserve Bank to which Book-entry Funding 
Corporation Securities held for a Participant are or may be credited.
    Person means and includes an individual, corporation, company, 
governmental entity, association, firm, partnership, trust, estate, 
representative, and any other similar organization, but does not mean or 
include the United States, the Funding Corporation, or a Federal Reserve 
Bank.
    Revised Article 8 means Uniform Commercial Code, Revised Article 8, 
Investment Securities (with Conforming and Miscellaneous Amendments to 
Articles 1, 3, 4, 5, 9, and 10) 1994 Official Text. Revised Article 8 of 
the Uniform Commercial Code is incorporated by reference in this Part 
pursuant to 5 U.S.C. 552(a) and 1 CFR Part 51. Article 8 was adopted by 
the American Law Institute and the National Conference of Commissioners 
on Uniform State laws and approved by the American Bar Association on 
February 14, 1995. Copies of this publication are available from the 
Executive Office of the American Law Institute, 4025 Chestnut Street, 
Philadelphia, PA 19104, and the National Conference of Commissioners on 
Uniform State Laws, 676 North St. Clair Street, Suite 1700, Chicago, IL 
60611. Copies are also available for public inspection at the Department 
of the Treasury Library, Room 5030, main Treasury Building, 1500 
Pennsylvania Avenue, NW., Washington DC 20220, or at the National 
Archives and Records Administration (NARA). For information on the 
availability of this material at NARA, call 202-741-6030, or go to: 
http://www.archives.gov/federal--register/code--of--federal--
regulations/ibr--locations.html.
    Securities Documentation means the applicable offering circular, 
supplement, or other documents establishing the terms of a Book-entry 
Funding Corporation Security.
    Securities Intermediary means:
    (1) A Person that is registered as a ``clearing agency'' under the 
Federal securities laws; a Federal Reserve Bank; any other Person that 
provides clearance or settlement services with respect to a Book-entry 
Funding Corporation Security that would require it to register as a 
clearing agency under the Federal securities laws but for an exclusion 
or exemption from the registration requirement, if its activities as a 
clearing corporation, including promulgation of rules, are subject to 
regulation by a Federal or State governmental authority; or
    (2) A Person (other than an individual, unless such individual is 
registered as a broker or dealer under the federal securities laws) 
including a bank or broker, that in the ordinary course of its business 
maintains securities accounts for others and is acting in that capacity.
    Security Entitlement means the rights and property interest of an 
Entitlement Holder with respect to a Book-entry Funding Corporation 
Security.
    State means any State of the United States, the District of 
Columbia, Puerto Rico, the Virgin Islands, or any other territory or 
possession of the United States.
    Transfer message means an instruction of a Participant to a Federal 
Reserve Bank to effect a transfer of a Book-entry Funding Corporation 
Security, as set forth in Federal Reserve Bank Operating Circulars.

[61 FR 66875, Dec. 19, 1996, as amended at 69 FR 18803, Apr. 9, 2004]

[[Page 316]]



Sec. 1511.2  Law governing rights and obligations of the Funding Corporation and Federal Reserve Banks; rights of any Person against the Funding Corporation 
          and the Federal Reserve Banks.

    (a) Except as provided in paragraph (b) of this section, the 
following are governed solely by the regulations contained in this part 
1511, the Securities Documentation and Federal Reserve Bank Operating 
Circulars:
    (1) The rights and obligations of the Funding Corporation and the 
Federal Reserve Banks with respect to:
    (i) A Book-entry Funding Corporation Security or Security 
Entitlement; and
    (ii) The operation of the Book-entry System as it applies to Funding 
Corporation Securities; and
    (2) The rights of any Person, including a Participant, against the 
Funding Corporation and the Federal Reserve Banks with respect to:
    (i) A Book-entry Funding Corporation Security or Security 
Entitlement; and
    (ii) The operation of the Book-entry System as it applies to Funding 
Corporation Securities.
    (b) A security interest in a Security Entitlement that is in favor 
of a Federal Reserve Bank from a Participant and that is not recorded on 
the books of a Federal Reserve Bank pursuant to Sec. 1511.4(c)(1), is 
governed by the law (not including the conflict-of-law rules) of the 
jurisdiction where the head office of the Federal Reserve Bank 
maintaining the Participant's Securities Account is located. A security 
interest in a Security Entitlement that is in favor of a Federal Reserve 
Bank from a Person that is not a Participant, and that is not recorded 
on the books of a Federal Reserve Bank pursuant to Sec. 1511.4(c)(1), 
is governed by the law determined in the manner specified in Sec. 
1511.3.
    (c) If the jurisdiction specified in the first sentence of paragraph 
(b) of this section is a State that has not adopted Revised Article 8 
(incorporated by reference, see Sec. 1511.1), then the law specified in 
paragraph (b) shall be the law of that State as though Revised Article 8 
had been adopted by that State.



Sec. 1511.3  Law governing other interests.

    (a) To the extent not inconsistent with the regulations in this 
part, the law (not including the conflict-of-law rules) of a Securities 
Intermediary's jurisdiction governs:
    (1) The acquisition of a Security Entitlement from the Securities 
Intermediary;
    (2) The rights and duties of the Securities Intermediary and 
Entitlement Holder arising out of a Security Entitlement;
    (3) Whether the Securities Intermediary owes any duties to an 
adverse claimant to a Security Entitlement;
    (4) Whether an Adverse Claim can be asserted against a Person who 
acquires a Security Entitlement from the Securities Intermediary or a 
Person who purchases a Security Entitlement or interest therein from an 
Entitlement Holder; and
    (5) Except as otherwise provided in paragraph (c) of this section, 
the perfection, effect of perfection or non-perfection and priority of a 
security interest in a Security Entitlement.
    (b) The following rules determine a ``Securities Intermediary's 
jurisdiction'' for purposes of this section:
    (1) If an agreement between the Securities Intermediary and its 
Entitlement Holder specifies that it is governed by the law of a 
particular jurisdiction, that jurisdiction is the Securities 
Intermediary's jurisdiction.
    (2) If an agreement between the Securities Intermediary and its 
Entitlement Holder does not specify the governing law as provided in 
paragraph (b)(1) of this section, but expressly specifies that the 
securities account is maintained at an office in a particular 
jurisdiction, that jurisdiction is the Securities Intermediary's 
jurisdiction.
    (3) If an agreement between the Securities Intermediary and its 
Entitlement Holder does not specify a jurisdiction as provided in 
paragraph (b)(1) or (b)(2) of this section, the Securities 
Intermediary's jurisdiction is the jurisdiction in which is located the 
office identified in an account statement as the office serving the 
Entitlement Holder's account.

[[Page 317]]

    (4) If an agreement between the Securities Intermediary and its 
Entitlement Holder does not specify a jurisdiction as provided in 
paragraph (b)(1) or (b)(2) of this section and an account statement does 
not identify an office serving the Entitlement Holder's account as 
provided in paragraph (b)(3) of this section, the Securities 
Intermediary's jurisdiction is the jurisdiction in which is located the 
chief executive office of the Securities Intermediary.
    (c) Notwithstanding the general rule in paragraph (a)(5) of this 
section, the law (but not the conflict-of-law rules) of the jurisdiction 
in which the Person creating a security interest is located governs 
whether and how the security interest may be perfected automatically or 
by filing a financing statement.
    (d) If the jurisdiction specified in paragraph (b) of this section 
is a State that has not adopted Revised Article 8 (incorporated by 
reference, see Sec. 1511.1), then the law for the matters specified in 
paragraph (a) of this section shall be the law of that State as though 
Revised Article 8 had been adopted by that State. For purposes of the 
application of the matters specified in paragraph (a) of this section, 
the Federal Reserve Bank maintaining the Securities Account is a 
clearing corporation, and the Participant's interest in a Book-entry 
Funding Corporation Security is a Security Entitlement.



Sec. 1511.4  Creation of Participant's Security Entitlement; security interests.

    (a) A Participant's Security Entitlement is created when a Federal 
Reserve Bank indicates by book-entry that a Book-entry Funding 
Corporation Security has been credited to a Participant's Securities 
Account.
    (b) A security interest in a Security Entitlement of a Participant 
in favor of the United States to secure deposits of public money, 
including without limitation deposits to the Treasury tax and loan 
accounts, or other security interest in favor of the United States that 
is required by Federal statute, regulation, or agreement, and that is 
marked on the books of a Federal Reserve Bank is thereby effected and 
perfected, and has priority over any other interest in the securities. 
Where a security interest in favor of the United States in a Security 
Entitlement of a Participant is marked on the books of a Federal Reserve 
Bank, such Reserve Bank may rely, and is protected in relying, 
exclusively on the order of an authorized representative of the United 
States directing the transfer of the security. For purposes of this 
paragraph, an ``authorized representative of the United States'' is the 
official designated in the applicable regulations or agreement to which 
a Federal Reserve Bank is a party, governing the security interest.
    (c)(1) The Funding Corporation and the Federal Reserve Banks have no 
obligation to agree to act on behalf of any Person or to recognize the 
interest of any transferee of a security interest or other limited 
interest in favor of any Person except to the extent of any specific 
requirement of Federal law or regulation or to the extent set forth in 
any specific agreement with the Federal Reserve Bank on whose books the 
interest of the Participant is recorded. To the extent required by such 
law or regulation or set forth in an agreement with a Federal Reserve 
Bank, or the Federal Reserve Bank Operating Circular, a security 
interest in a Security Entitlement that is in favor of a Federal Reserve 
Bank, the Funding Corporation, or a Person may be created and perfected 
by a Federal Reserve Bank marking its books to record the security 
interest. Except as provided in paragraph (b) of this section, a 
security interest in a Security Entitlement marked on the books of a 
Federal Reserve Bank shall have priority over any other interest in the 
securities.
    (2) In addition to the method provided in paragraph (c)(1) of this 
section, a security interest in a Security Entitlement, including a 
security interest in favor of a Federal Reserve Bank, may be perfected 
by any method by which a security interest may be perfected under 
applicable law as described in Sec. 1511.2(b) or Sec. 1511.3. The 
perfection, effect of perfection or non-perfection and priority of a 
security interest are governed by such applicable law. A security 
interest in favor of a Federal Reserve Bank shall be treated as a 
security interest in favor of a

[[Page 318]]

clearing corporation in all respects under such law, including with 
respect to the effect of perfection and priority of such security 
interest. A Federal Reserve Bank Operating Circular shall be treated as 
a rule adopted by a clearing corporation for such purposes.



Sec. 1511.5  Obligations of Funding Corporation; no adverse claims.

    (a) Except in the case of a security interest in favor of the United 
States or a Federal Reserve Bank or otherwise as provided in Sec. 
1511.4(c)(1), for the purposes of this part 1511, the Funding 
Corporation and the Federal Reserve Banks shall treat the Participant to 
whose Securities Account an interest in a Book-entry Funding Corporation 
Security has been credited as the Person exclusively entitled to issue a 
Transfer Message, to receive interest and other payments with respect 
thereof and otherwise to exercise all the rights and powers with respect 
to such Security, notwithstanding any information or notice to the 
contrary. Neither the Federal Reserve Banks nor the Funding Corporation 
is liable to a Person asserting or having an Adverse Claim to a Security 
Entitlement or to a Book-entry Funding Corporation Security in a 
Participant's Securities Account, including any such claim arising as a 
result of the transfer or disposition of a Book-entry Funding 
Corporation Security by a Federal Reserve Bank pursuant to a Transfer 
Message that the Federal Reserve Bank reasonably believes to be genuine.
    (b) The obligation of the Funding Corporation to make payments of 
interest and principal with respect to Book-entry Funding Corporation 
Securities is discharged at the time payment in the appropriate amount 
is made as follows:
    (1) Interest on Book-entry Funding Corporation Securities is either 
credited by a Federal Reserve Bank to a Funds Account maintained at such 
Bank or otherwise paid as directed by the Participant.
    (2) Book-entry Funding Corporation Securities are redeemed in 
accordance with their terms by a Federal Reserve Bank withdrawing the 
securities from the Participant's Securities Account in which they are 
maintained and by either crediting the amount of the redemption 
proceeds, including both principal and interest where applicable, to a 
Funds Account at such Bank or otherwise paying such principal and 
interest, as directed by the Participant. The principal of such 
Securities shall be paid using the proceeds of the noninterest bearing 
instruments maintained by the Funding Corporation for such purpose.



Sec. 1511.6  Authority of Federal Reserve Banks.

    (a) Each Federal Reserve Bank is hereby authorized as fiscal agent 
of the Funding Corporation to perform functions with respect to the 
issuance of Book-entry Funding Corporation Securities offered and sold 
by the Funding Corporation, in accordance with the Securities 
Documentation, and Federal Reserve Bank Operating Circulars; to service 
and maintain Book-entry Funding Corporation Securities in accounts 
established for such purposes; to make payments of principal and 
interest with respect to such Book-entry Funding Corporation Securities 
as directed by the Funding Corporation; to effect transfer of Book-entry 
Funding Corporation Securities between Participants' Securities Accounts 
as directed by the Participants; and to perform such other duties as 
fiscal agent as may be requested by the Funding Corporation.
    (b) Each Federal Reserve Bank may issue Operating Circulars not 
inconsistent with this Part, governing the details of its handling of 
Book-entry Funding Corporation Securities, Security Entitlements, and 
the operation of the Book-Entry System under this Part.



Sec. 1511.7  Liability of the Funding Corporation and Federal Reserve Banks.

    The Funding Corporation and the Federal Reserve Banks may rely on 
the information provided in a Transfer Message, or other documentation, 
and are not required to verify the information. The Funding Corporation 
and the Federal Reserve Banks shall not be liable for any action taken 
in accordance with the information set out in a

[[Page 319]]

Transfer Message, other documentation, or evidence submitted in support 
thereof.



Sec. 1511.8  Notice of attachment.

    The interest of a debtor in a Security Entitlement may be reached by 
a creditor only by legal process upon the Securities Intermediary with 
whom the debtor's securities account is maintained, except where a 
Security Entitlement is maintained in the name of a secured party, in 
which case the debtor's interest may be reached by legal process upon 
the secured party. The regulations in this part do not purport to 
establish whether a Federal Reserve Bank is required to honor an order 
or other notice of attachment in any particular case or class of cases.

[[Page 321]]



CHAPTER XVII--OFFICE OF FEDERAL HOUSING ENTERPRISE OVERSIGHT, DEPARTMENT 
                    OF HOUSING AND URBAN DEVELOPMENT




  --------------------------------------------------------------------

             SUBCHAPTER A--OFHEO ORGANIZATION AND FUNCTIONS
Part                                                                Page
1700            Organization and functions..................         323
1701            Assessments.................................         325
1702            Implementation of The Privacy Act of 1974...         327
1703            Release of information......................         332
1704            Debt collection.............................         349
1705            Implementation of the Equal Access to 
                    Justice Act.............................         362
                         SUBCHAPTER B [RESERVED]
                   SUBCHAPTER C--SAFETY AND SOUNDNESS
1710            Corporate governance........................         370
1720            Safety and soundness........................         374
1730            Disclosure of financial and other 
                    information.............................         385
1731            Mortgage fraud reporting....................         386
1732            Record retention............................         387
1750            Capital.....................................         390
1770            Executive compensation......................         510
1773            Flood insurance.............................         513
1777            Prompt corrective action....................         514
              SUBCHAPTER D--RULES OF PRACTICE AND PROCEDURE
1780            Rules of practice and procedure.............         527

[[Page 323]]



              SUBCHAPTER A_OFHEO ORGANIZATION AND FUNCTIONS





PART 1700_ORGANIZATION AND FUNCTIONS--Table of Contents




Sec.
1700.1 Office of Federal Housing Enterprise Oversight.
1700.2 Organization of the Office of Federal Housing Enterprise 
          Oversight.
1700.3 Official logo and seal.

    Authority: 5 U.S.C. 552; 12 U.S.C 4513, 4526.

    Source: 59 FR 62304, Dec. 5, 1994, unless otherwise noted.



Sec. 1700.1  Office of Federal Housing Enterprise Oversight.

    (a) Scope and authority. The Office of Federal Housing Enterprise 
Oversight (referred to as OFHEO) is an independent office within the 
Department of Housing and Urban Development. OFHEO was created by the 
Federal Housing Enterprises Financial Safety and Soundness Act of 1992 
(Act), Title XIII of the Housing and Community Development Act of 1992 
(Pub. L. 102-550, October 28, 1992; 106 Stat. 3943; 12 U.S.C. 4501, et 
seq.). OFHEO is responsible for the examination and financial regulation 
of the Federal National Mortgage Association (Fannie Mae) and the 
Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, the 
Enterprises). OFHEO is charged with ensuring that the Enterprises are 
adequately capitalized and operating in a safe and sound manner. OFHEO's 
costs and expenses are funded by annual assessments paid by the 
Enterprises. OFHEO is headed by a Director, who is appointed by the 
President and confirmed by the Senate for a five-year term.
    (b) Location. OFHEO is located at 1700 G Street NW., 4th Floor, 
Washington, DC 20552. OFHEO's hours of business are 8:30 a.m.-5:00 p.m. 
(eastern standard time), Monday through Friday, excluding Federal 
holidays.



Sec. 1700.2  Organization of the Office of Federal Housing Enterprise Oversight.

    (a) Director. The Director has exclusive authority under the Act 
with respect to the management of OFHEO, and is responsible for 
directing the development, implementation, and review of all OFHEO 
programs and functions. The Director appoints such personnel as may be 
necessary to carry out the functions of OFHEO. The Director may delegate 
to OFHEO officers and employees any of the functions, powers, and duties 
of the Director, as the Director considers appropriate. The Director may 
establish and fix the responsibilities of the offices within OFHEO as 
the Director deems necessary for the efficient functioning of OFHEO.
    (b) Deputy Director. The Deputy Director of OFHEO is appointed by 
the Director in accordance with the Act. In the event of the absence, 
sickness, death or resignation of the Director, the Deputy Director 
serves as acting Director until the Director's return or the 
confirmation of a successor. The Deputy Director performs such 
functions, powers and duties as the Director determines are necessary 
with respect to OFHEO's management and the development and 
implementation of OFHEO's programs and functions.
    (c) Executive Director and Chief of Staff. The Executive Director 
and Chief of Staff of OFHEO heads the Office of Executive Director. The 
Executive Director and Chief of Staff reports to the Director and the 
Deputy Director. The Executive Director and Chief of Staff is the chief 
administrative officer of OFHEO, serves as a legal advisor on 
administrative matters, and coordinates communication and cooperation on 
administrative issues with the Office of General Counsel.
    (d) Offices and functions. (1) Office of Executive Director. The 
Office of Executive Director consists of the Office of Budget and 
Financial Management, the Office of Human Resources Management, the 
Office of Technology and Information Management, and the Office of 
Strategic Planning and Management. The Office of Executive Director is 
responsible for OFHEO-wide management and oversight of all 
administrative matters.

[[Page 324]]

    (2) Office of Examination. The Office of Examination plans and 
conducts examinations of the Enterprises, as required by the Act, 
prepares and issues reports of examination summarizing the financial 
condition and management practices of each Enterprise, and seeks 
preventative and corrective actions as appropriate. The Office 
complements its on-site examination activities with off-site financial 
safety and soundness monitoring.
    (3) Office of Capital Supervision. The Office of Capital Supervision 
ensures the comprehensive evaluation and classification of the capital 
adequacy of the Enterprises, the assessment of risks that impact capital 
and the development of tools to measure such risks. The Office ensures 
the integrity of capital classifications by effectively producing 
results under the minimum and risk based capital models and systems and 
by implementing appropriate enhancements to those measures. The Office 
assesses new GSE activities under the capital regime and addresses 
changes in accounting standards. The Office supports its 
responsibilities as well as other OFHEO offices through research on 
alternative models and measurements of risk and capital adequacy.
    (4) Office of General Counsel. The Office of General Counsel advises 
the Director and OFHEO staff on all legal matters concerning the 
functions, activities, and operations of OFHEO and of the Enterprises 
under the Act. The Office is responsible for interpreting the Act and 
other applicable law, including financial institutions regulatory 
issues, securities and corporate law principles, and administrative and 
general legal matters. This Office also coordinates the preparation of 
legislation and agency regulations and works with other counsels in the 
government.
    (5) Office of External Relations. The Office of External Relations 
is responsible for coordinating and communicating on behalf of OFHEO 
with the Congress, for monitoring relevant legislative developments, and 
for analyzing and assisting the Director in developing legislative 
proposals. The Office also is responsible for directing and coordinating 
communication with the news media and the public as well as 
participating in planning programs for OFHEO.
    (6) Office of Policy Analysis and Research. The Office of Policy 
Analysis and Research conducts policy analysis and research to assess 
the short- and long-term impact on the regulatory and supervisory 
functions of OFHEO of trends and developments in Enterprise activities, 
housing finance and financial regulation. The Office also prepares data 
series, reports and research papers; works with other OFHEO offices to 
develop policy options; and, makes recommendations to the Director on a 
broad range of policy issues.
    (7) Office of Compliance. The Office of Compliance assists the 
Director in ensuring that the Enterprises operate in compliance with 
applicable laws, regulations and safety and soundness standards. The 
Office conducts special review and examinations on focused issues that 
may arise at the enterprises or that are of concern to OFHEO, often in 
coordination with other OFHEO offices, to assess compliance and obtain 
information. The Office also assists in providing information for 
enforcement actions and other activities as requested by the Director.
    (8) Office of Chief Accountant. The Office of Chief Accountant 
advises the Director and OFHEO staff on all accounting matters related 
to the Enterprises. The Office develops policies regarding accounting 
and financial reporting and monitors accounting standards that affect 
the Enterprises, working with the Enterprises at a policy level on 
emerging issues. The Office supports and coordinates accounting 
resources within the agency to assure the best and most efficient use of 
those resources. The Office supports other offices in providing 
consistent accounting policy interpretation across OFHEO and works with 
external constituencies on accounting issues.
    (e) Additional information. Current information on the organization 
of OFHEO may be obtained by mail from the Office of External Affairs, 
1700 G Street NW, 4th Floor, Washington, DC 20552. Such information, as 
well as other OFHEO information, also may be obtained electronically by 
accessing

[[Page 325]]

OFHEO's website located at www.OFHEO.gov.

[59 FR 62304, Dec. 5, 1994, as amended at 65 FR 39787, June 28, 2000; 69 
FR 18809, Apr. 9, 2004; 70 FR 59629, Oct. 13, 2005]



Sec. 1700.3  Official logo and seal.

    The section describes and displays the logo adopted by the Director 
as the official symbol representing the Office of Federal Housing 
Enterprise Oversight. It is displayed on correspondence, selected 
documents, and signage. The logo serves as the official seal to 
authenticate official documents of the Agency.
    (a) Description. The logo is a disc consisting of two concentric 
circles enclosing the words ``Office of Federal Housing Enterprise 
Oversight'' and the inaugural year, 1993. In the center of the disc is a 
stylized image of a structure consisting of a solid two-tiered pedestal 
base topped by a solid triangular shape, which represents the roof of 
the structure. Placed between the base and the top are the letters 
``OFHEO.'' These letters spell out the acronym of the Office of Federal 
Housing Enterprise Oversight and act as a visual link between the top 
and bottom of the structure.
    (b) Display. The Office of Federal Housing Enterprise Oversight's 
official logo and seal appears below:
[GRAPHIC] [TIFF OMITTED] TR02JN03.002


[68 FR 32629, June 2, 2003]



PART 1701_ASSESSMENTS--Table of Contents




Sec.
1701.1 Purpose.
1701.2 Definitions.
1701.3 Annual assessment.
1701.4 Increase in semiannual payment.
1701.5 Notice and review.
1701.6 Delinquent payment.
1701.7 Enforcement of payment.
1701.8 Deposit in fund.

    Authority: 12 U.S.C. 4513(b)(1) and 12 U.S.C. 4516.

    Source: 66 FR 18039, Apr. 5, 2001, unless otherwise noted.



Sec. 1701.1  Purpose.

    This part sets forth the policy and procedures of OFHEO with respect 
to the establishment and collection of the annual assessments of the 
Enterprises under section 1316 of the Act (12 U.S.C. 4516).



Sec. 1701.2  Definitions.

    For purposes of this part, the term--
    (a) Act means the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992, Title XIII of the Housing and Community 
Development Act of 1992, Pub. L. 102-550, section 1301, Oct. 28, 1992, 
106 Stat. 3672, 3941-4012 (1993) (12 U.S.C. 4501 et seq.).
    (b) Adequately capitalized means the adequately capitalized capital 
classification under section 1364 of the Act (12 U.S.C. 4614).
    (c) Director means the Director of the Office of Federal Housing 
Enterprise Oversight or his or her designee.
    (d) Enterprise means the Federal National Mortgage Association or 
the Federal Home Loan Mortgage Corporation; and the term ``Enterprises'' 
means, collectively, the Federal National Mortgage Association and the 
Federal Home Loan Mortgage Corporation.
    (e) Surplus funds means funds that are not obligated as of September 
30 of each fiscal year that were collected from any Enterprise pursuant 
to Sec. 1701.3 or Sec. 1701.4.
    (f) Total assets means the sum, as of the most recent June quarterly 
minimum capital report of the Enterprise, of the amounts of the 
following assets that are used to calculate the quarterly minimum 
capital requirement of the Enterprise under 12 CFR part 1750:
    (1) On-balance sheet assets;
    (2) Off-balance sheet mortgage-backed securities; and
    (3) Other off-balance sheet obligations.

[[Page 326]]

    (g) OFHEO means the Office of Federal Housing Enterprise Oversight.



Sec. 1701.3  Annual assessment.

    (a) Establishment of assessment. The Director may, to the extent 
provided in appropriation acts, establish and collect from the 
Enterprises an annual assessment for each fiscal year, as allocated 
under paragraph (b) of this section. The amount of the annual assessment 
shall not exceed the estimated amount to be sufficient to provide for 
the necessary administrative and non-administrative expenses to carry 
out the responsibilities of the Director relating to the Enterprises and 
to carry out the purposes of the Act.
    (b) Allocation and proportional share. The annual assessment 
established under paragraph (a) of this section shall be allocated 
between the Enterprises. Each Enterprise shall pay a proportional share 
of the annual assessment that bears the same ratio to the total annual 
assessment as the total assets of each Enterprise bears to the total 
assets of both Enterprises.
    (c) Timing and amount of semiannual payment. (1) Each Enterprise 
shall pay on or before October 1 and April 1 of each fiscal year an 
amount of one-half of its proportional share of the annual assessment, 
except:
    (i) As provided in paragraph (c)(2) of this section;
    (ii) To the extent surplus funds are credited under paragraph (d) of 
this section; and
    (iii) To the extent a semiannual payment is increased under Sec. 
1701.4.
    (2) If OFHEO is operating under a continuing appropriation as of 
October 1 of any year, each Enterprise shall pay, on such date as 
determined by the Director, an amount calculated by applying the annual 
assessment proportion calculated under paragraph (b) of this section to 
the amount authorized for expenditure. When OFHEO receives a regular 
appropriation, the amount of the allocation share of the annual 
assessment collected from each Enterprise shall be reduced by any 
partial payments made by each Enterprise in connection with any 
continuing appropriations.
    (d) Surplus funds. Surplus funds shall be credited to the annual 
assessment by reducing the amount collected by the amount of the surplus 
funds. Surplus funds shall be allocated in the same proportion in which 
they were collected, except as determined by the Director.



Sec. 1701.4  Increase in semiannual payment.

    The Director, in his or her discretion, may increase any semiannual 
payment to be collected under Sec. 1701.3 from an Enterprise that is 
not classified as adequately capitalized as necessary to pay additional 
estimated costs of regulation of the Enterprise.



Sec. 1701.5  Notice and review.

    (a) Written notice. The Director shall provide each Enterprise with 
written notice of the annual assessment, the semiannual payments and any 
partial payments to be collected under this part. In addition, the 
Director shall provide each Enterprise with written notice of any 
changes in the assessment procedures that the Director, in his or her 
sole discretion, deems necessary under the circumstances.
    (b) Request for review. At the written request of an Enterprise, the 
Director, in his or her discretion, may review the calculation of the 
proportional share of the annual assessment, the semiannual payments, 
and any partial payments to be collected under this part. The 
determination of the Director is final. Except as provided by the 
Director, review by the Director does not suspend the requirement that 
the Enterprise make the semiannual payment or partial payment on or 
before the date it is due.



Sec. 1701.6  Delinquent payment.

    (a) Interest and penalties. The Director may assess interest and 
penalties on any delinquent semiannual payment or partial payment 
collected under this part in accordance with 31 U.S.C. 3717 (interest 
and penalty on claims) and 12 CFR part 1704 (debt collection). The 
Director may waive interest and penalties in his or her discretion.
    (b) Transfer to general fund. Any interest and penalties collected 
under this section shall be transferred to the general fund of the 
Treasury of the United States.

[[Page 327]]



Sec. 1701.7  Enforcement of payment.

    Notwithstanding Sec. 1701.6, the Director may enforce the payment 
of any assessment under this part pursuant to the authorities of 
sections 1371 (12 U.S.C. 4631) (cease-and-desist proceedings), 1372 (12 
U.S.C. 4632) (temporary cease-and-desist orders), and 1376 (12 U.S.C. 
4636) (civil money penalties) of the Act.



Sec. 1701.8  Deposit in fund.

    OFHEO shall deposit any annual assessment collected under this part 
in the Federal Housing Enterprise Oversight Fund established in the 
Treasury of the United States.



PART 1702_IMPLEMENTATION OF THE PRIVACY ACT OF 1974--Table of Contents




Sec.
1702.1 Scope.
1702.2 Definitions.
1702.3 Requests for access to individual records.
1702.4 Decision to grant or deny requests for access to individual 
          records.
1702.5 Special procedures for medical records.
1702.6 Requirements for verification of identity.
1702.7 Requests for amendment of individual records.
1702.8 Decision to grant or deny requests for amendment of individual 
          records.
1702.9 Appeals of the initial decision to deny access to or amendment of 
          individual records.
1702.10 Decision to grant or deny appeals.
1702.11 Disclosure of individual records to other persons or agencies.
1702.12 Accounting of disclosures.
1702.13 Requests for accounting of disclosures.
1702.14 Fees.
1702.15 Preservation of records.
1702.16 Rights of parents and legal guardians.
1702.17 Penalties.

    Authority: 5 U.S.C. 552a, 12 U.S.C. 4513(b).

    Source: 63 FR 8844, Feb. 23, 1998, unless otherwise noted. 
Redesignated at 65 FR 81327, Dec. 26, 2000.



Sec. 1702.1  Scope.

    (a) This part 1702 sets forth the procedures by which an individual 
may request access to records about him/her that are maintained by the 
Office of Federal Housing Enterprise Oversight (OFHEO) in a designated 
system of records, amendment of such records, or an accounting of 
disclosures of such records. This part 1702 implements the provisions of 
the Privacy Act of 1974, as amended (Privacy Act) (5 U.S.C. 552a).
    (b) A request from an individual for a record about that individual 
that is not contained in an OFHEO designated system of records will be 
considered to be a Freedom of Information Act (FOIA) (5 U.S.C. 552) 
request and will be processed under the FOIA.

[63 FR 8844, Feb. 23, 1998. Redesignated and amended at 65 FR 81327, 
Dec. 26, 2000]



Sec. 1702.2  Definitions.

    For the purposes of this part 1702--
    Amendment means any correction of, addition to, or deletion from a 
record.
    Designated system of records means a system of records that OFHEO 
has listed and summarized in the Federal Register pursuant to the 
requirements of 5 U.S.C. 552a(e).
    Individual means a natural person who is either a citizen of the 
United States of America or an alien lawfully admitted for permanent 
residence.
    Maintain includes collect, use, disseminate, or control.
    Privacy Act Appeals Officer means the OFHEO employee who has been 
delegated the authority to determine Privacy Act appeals.
    Privacy Act Officer means the OFHEO employee who has been delegated 
the authority to determine Privacy Act requests.
    Record means any item, collection, or grouping of information about 
an individual that is maintained by OFHEO and that contains his/her 
name, or the identifying number, symbol, or other identifying particular 
assigned to the individual.
    Routine use, with respect to disclosure of a record, means the use 
of such record for a purpose that is compatible with the purpose for 
which it was created.
    Statistical Record means a record in a system of records maintained 
only for statistical research or reporting purposes and not used, in 
whole or in part, in making any determination about an identifiable 
individual, except as provided by 13 U.S.C. 8.

[[Page 328]]

    System of records means a group of records under the control of 
OFHEO from which information is retrieved by the name of the individual 
or some identifying number, symbol, or other identifying particular 
assigned to the individual.

[63 FR 8844, Feb. 23, 1998. Redesignated and amended at 65 FR 81327, 
Dec. 26, 2000]



Sec. 1702.3  Requests for access to individual records.

    (a) Any individual may request records about him/her that are 
maintained by OFHEO.
    (b) The procedures for submitting requests are as follows:
    (1) If the records are contained in a governmentwide system of 
records of the U.S. Office of Personnel Management (OPM), the request 
must be submitted as prescribed by the regulations of OPM (5 CFR part 
297).
    (2) If the records are contained in a record in a system of records 
of another Federal agency, the request must be submitted as prescribed 
in the Federal Register Privacy Act notice for the specific 
governmentwide system.
    (3) If the records are contained in a system of records of OFHEO, 
the request must be submitted in writing to the Privacy Act Officer, 
Office of Federal Housing Enterprise Oversight, 1700 G Street, NW., 
Fourth Floor, Washington, DC 20552. The written request should describe 
the records sought and identify the designated systems of records in 
which such records may be contained. (A copy of the designated systems 
of records published by OFHEO in the Federal Register is available upon 
request from the Privacy Act Officer.) No individual shall be required 
to state a reason or otherwise justify a request for access to records 
about him/her.



Sec. 1702.4  Decision to grant or deny requests for access to individual records.

    (a) Basis for the decision. The Privacy Act Officer shall grant 
access to records upon receipt of a request submitted under Sec. 
1702.3(b)(3), unless the records--
    (1) Were compiled in reasonable anticipation of a civil action or 
proceeding; or
    (2) Require special procedures for medical records provided for in 
Sec. 1702.5.
    (b) Notification procedures. (1) Within 20 business days of receipt 
of a request submitted under Sec. 1702.3(b)(3), the Privacy Act Officer 
shall send a written acknowledgment of receipt to the requesting 
individual.
    (2) As soon as reasonably possible, normally within 20 business days 
following receipt of the request, the Privacy Act Officer shall send a 
written notification that informs the individual whether the requested 
records exist and, if the requested records exist, whether access is 
granted or denied, in whole or in part.
    (c) Access procedures. If access is granted, in whole or in part, 
the Privacy Act Officer shall provide the individual with a reasonable 
period of time to inspect the records at OFHEO during normal business 
hours or shall mail a copy of the requested records to the individual.
    (d) Denial procedures. If access is denied, in whole or in part, the 
Privacy Act Officer shall inform the individual of the reasons for the 
denial and of the right to appeal the denial, as set forth in Sec. 
1702.9.

[63 FR 8844, Feb. 23, 1998. Redesignated and amended at 65 FR 81327, 
Dec. 26, 2000]



Sec. 1702.5  Special procedures for medical records.

    The Privacy Act Officer shall grant access to medical records to the 
requesting individual to whom the medical records pertain. However, if, 
in the judgment of OFHEO, such direct access may have an adverse effect 
on that individual, the Privacy Act Officer shall transmit the medical 
records to a licensed medical doctor named by the individual.



Sec. 1702.6  Requirements for verification of identity.

    (a) Written requests submitted in person. Any individual who submits 
in person a written request under this part, may be required to present 
two forms of identification, such as an employment identification card, 
driver's license, passport, or other document

[[Page 329]]

typically used for identification purposes. One of the two forms of 
identification must contain the individual's photograph and signature.
    (b) Other written requests. Any individual who submits, other than 
in person, a written request under this part may be required to provide 
either one or both of the following:
    (1) Minimal identifying information, such as full name, date and 
place of birth, or other personal information.
    (2) At the election of the individual, either a certification of a 
duly commissioned notary public of any State or territory or the 
District of Columbia attesting to the requesting individual's identity 
or an unsworn declaration subscribed to as true under penalty of perjury 
under the laws of the United States of America.



Sec. 1702.7  Requests for amendment of individual records.

    (a) Procedures for requesting amendment of a record. Any individual 
may request amendment of any record about him/her that the individual 
believes is not accurate, relevant, timely, or complete. To request 
amendment, the individual must submit a written request to the Privacy 
Act Officer, Office of Federal Housing Enterprise Oversight, 1700 G 
Street, NW., Fourth Floor, Washington, DC 20552. The request should 
include--
    (1) The reason for requesting the amendment;
    (2) A description of the record, or portion thereof, including the 
name of the appropriate designated system of records, sufficient to 
enable the Privacy Act Officer to identify the particular record or 
portion thereof; and
    (3) If available, a copy of the record, or portion thereof, on which 
the specific portion requested to be amended is notated.
    (b) Requirement for identifying information. The Privacy Act Officer 
may require the individual making the request for amendment to provide 
the identifying information specified in Sec. 1702.6.

[63 FR 8844, Feb. 23, 1998. Redesignated and amended at 65 FR 81327, 
Dec. 26, 2000]



Sec. 1702.8  Decision to grant or deny requests for amendment of individual records.

    (a) Notification procedures. Within 10 business days following 
receipt of a request for amendment of records, the Privacy Act Officer 
shall send a written acknowledgment of receipt to the requesting 
individual. As soon as reasonably possible, normally within 30 business 
days from the receipt of the request for amendment, the Privacy Act 
Officer shall send a written notification to the individual that informs 
him/her of the decision to grant or deny, in whole or in part, the 
request for amendment.
    (b) Amendment procedures. If the request is granted, in whole or in 
part, the requested amendment shall be made to the subject record. A 
copy of the amended record shall be provided to all prior recipients of 
the subject record in accordance with Sec. 1702.12(b).
    (c) Denial procedures. If the request is denied, in whole or in 
part, the Privacy Act Officer shall include in the written notification 
the reasons for the denial and an explanation of the right to appeal the 
denial, as set forth in Sec. 1702.9.

[63 FR 8844, Feb. 23, 1998. Redesignated and amended at 65 FR 81327, 
Dec. 26, 2000]



Sec. 1702.9  Appeals of the initial decision to deny access to or amendment of individual records.

    Any individual may appeal the initial denial, in whole or in part, 
of a request for access to or amendment of his/her record. To appeal, 
the individual must submit a written appeal, within 30 business days 
following receipt of written notification of denial, to the Privacy Act 
Appeals Officer, Office of Federal Housing Enterprise Oversight, 1700 G 
Street, NW., Fourth Floor, Washington, DC 20552. Both the envelope and 
the appeal request should be marked ``Privacy Act Appeal.'' The appeal 
should include--
    (a) The information specified for requests for access in Sec. 
1702.3(b)(3) or for requests for amendment in Sec. 1702.7, as 
appropriate;
    (b) A copy of the initial denial notice; and

[[Page 330]]

    (c) Any other relevant information for consideration by the Privacy 
Act Appeals Officer.

[63 FR 8844, Feb. 23, 1998. Redesignated and amended at 65 FR 81327, 
Dec. 26, 2000]



Sec. 1702.10  Decision to grant or deny appeals.

    (a) Notification of decision. Within 30 business days following 
receipt of the appeal, the Privacy Act Appeals Officer shall send a 
written notification of the decision to grant or deny to the individual 
making the appeal. The Privacy Act Appeals Officer may extend the 30-day 
notification period for good cause. If the time period is extended, the 
Privacy Act Appeals Officer shall inform in writing the individual 
making the appeal of the reason for the extension and the expected date 
of the final decision.
    (b) Appeal granted. If the appeal for access is granted, in whole or 
in part, the Privacy Act Appeals Officer shall provide the individual 
with reasonable time to inspect the requested records at OFHEO during 
normal business hours or mail a copy of the requested records to the 
individual. If the appeal for amendment is granted, in whole or in part, 
the requested amendment shall be made. A copy of the amended record 
shall be provided to all prior recipients of the subject record in 
accordance with Sec. 1702.12(b).
    (c) Appeal denied. If the Privacy Act Appeals Officer denies, in 
whole or in part, the appeal for access or amendment, he/she shall 
include in the written notification of the reasons for the denial an 
explanation of the right to seek judicial review of the final decision, 
and, with respect to an appeal for amendment, the right to submit a 
statement of disagreement under paragraph (d) of this section.
    (d) Statements of disagreement and explanation. (1) Upon receipt of 
a decision to deny, in whole or in part, the appeal for amendment of 
records, the individual may file a statement with the Privacy Act 
Appeals Officer that sets forth his/her reasons for disagreeing with the 
decision. The Privacy Act Appeals Officer shall attach the statement of 
disagreement to the record that is the subject of the request for 
amendment. In response to the statement of disagreement, the Privacy Act 
Appeals Officer has the discretion to prepare a statement that explains 
why the requested amendment was not made. If prepared, the statement of 
explanation shall be attached to the subject record and a copy of the 
statement provided to the individual who filed the statement of 
disagreement.
    (2) The Privacy Act Appeals Officer shall provide a copy of any 
statement of disagreement, and may provide any statement of explanation, 
to prior recipients of the subject record in accordance with Sec. 
1702.12(b).
    (e) Right to judicial review. If OFHEO does not comply with the 
notification procedures under paragraph (a) of this Sec. 1720.10 with 
respect to an appeal for amendment of records, the appealing individual 
may bring a civil action against OFHEO in the appropriate district court 
of the United States, as provided for under 5 U.S.C. 552a(g)(1)(A) and 
552a(g)(5) before receiving the written notification of the decision.

[63 FR 8844, Feb. 23, 1998. Redesignated and amended at 65 FR 81327, 
Dec. 26, 2000]



Sec. 1702.11  Disclosure of individual records to other persons or agencies.

    (a) OFHEO may disclose a record to a person or agency other than the 
individual about whom the record pertains only under one or more of the 
following circumstances:
    (1) If requested and authorized in writing by the individual.
    (2) With the prior written consent of the individual.
    (3) If such disclosure is required under the Freedom of Information 
Act.
    (4) For a routine use, as defined in Sec. 1702.2, with respect to a 
designated system of records as described by OFHEO in its notice of 
systems of records published in the Federal Register.
    (5) Pursuant to the order of a court of competent jurisdiction.
    (6) To the following persons or agencies--
    (i) Officers and employees of OFHEO who have a need for the record 
in the performance of their duties;

[[Page 331]]

    (ii) The Bureau of the Census for purposes of planning or carrying 
out a census or survey or related activity pursuant to the provisions of 
title 13 of the United States Code;
    (iii) A recipient who has provided OFHEO with advance, adequate 
written assurance that the record will be used solely as a statistical 
research or reporting record, and the record is to be transferred in a 
form that is not individually identifiable;
    (iv) The National Archives and Records Administration as a record 
which has sufficient historical or other value to warrant its continued 
preservation by the U.S. Government, or for evaluation by the Archivist 
of the United States to determine whether the record has such value;
    (v) An agency or an instrumentality of any governmental jurisdiction 
within or under the control of the United States for a civil or criminal 
law enforcement activity if the activity is authorized by law, and if 
the head of the agency or instrumentality has made a written request to 
OFHEO specifying the particular portion of the record desired and the 
law enforcement activity for which the record is sought;
    (vi) A person pursuant to a showing of compelling circumstances 
affecting the health or safety of an individual if, concurrently with 
such disclosure, notification is transmitted to the last known address 
of the individual to whom the record pertains;
    (vii) Either House of Congress, or, to the extent of matter within 
its jurisdiction, any committee or subcommittee thereof, any joint 
committee of Congress, or subcommittee of any such joint committee;
    (viii) The Comptroller General, or any of his/her authorized 
representatives, in the course of the performance of the duties of the 
General Accounting Office; or
    (ix) A consumer reporting agency in accordance with 31 U.S.C. 
3711(e).
    (b) Before a record is disclosed to other persons or agencies under 
paragraph (a) (1) or (2) of this section, the identifying information 
specified in Sec. 1702.6 may be required.

[63 FR 8844, Feb. 23, 1998. Redesignated and amended at 65 FR 81327, 
Dec. 26, 2000]



Sec. 1702.12  Accounting of disclosures.

    (a) OFHEO shall keep an accurate accounting of the date, nature, and 
purpose of each disclosure of a record, and the name and address of each 
person or agency to whom a disclosure was made under Sec. 1702.11, 
except for disclosures made under Sec. 1702.11(a)(3) or (a)(6)(i). 
OFHEO shall retain such accounting for at least 5 years or the life of 
the record, whichever is longer, after the disclosure for which the 
accounting was made.
    (b) When a record has been amended, in whole or in part, or when a 
statement of disagreement has been filed, a copy of the amended record 
and any statement of disagreement must be provided, and any statement of 
explanation may be provided, to all prior and subsequent recipients of 
the affected record whose identities can be determined pursuant to the 
disclosure accountings required under paragraph (a) of this section.

[63 FR 8844, Feb. 23, 1998. Redesignated and amended at 65 FR 81327, 
Dec. 26, 2000]



Sec. 1702.13  Requests for accounting of disclosures.

    (a) Any individual may request an accounting of disclosures of 
records about him/her for which an accounting is required to be 
maintained under Sec. 1702.12(a) by submitting a written request to the 
Privacy Act Officer, Office of Federal Housing Enterprise Oversight, 
1700 G Street, NW., Fourth Floor, Washington, DC 20552. Before 
processing the request, the Privacy Act Officer may require that the 
individual provide the identifying information specified under Sec. 
1702.6.
    (b) The Privacy Act Officer shall make available the accounting of 
disclosures required to be maintained under Sec. 1702.12, except for an 
accounting made under Sec. 1702.11(a)(6)(v).

[63 FR 8844, Feb. 23, 1998. Redesignated and amended at 65 FR 81327, 
Dec. 26, 2000]



Sec. 1702.14  Fees.

    OFHEO shall not charge any fees for providing a copy of any records, 
pursuant to a request for access under this part.

[[Page 332]]



Sec. 1702.15  Preservation of records.

    OFHEO shall preserve all correspondence relating to the written 
requests it receives and all records processed pursuant to such requests 
under this part, in accordance with the records retention provisions of 
General Records Schedule 14, Informational Services Records. OFHEO shall 
not destroy records that are subject to a pending request for access, 
amendment, appeal, or lawsuit pursuant to the Privacy Act.



Sec. 1702.16  Rights of parents and legal guardians.

    For purposes of this part, a parent of any minor or the legal 
guardian of any individual who has been declared to be incompetent due 
to physical or mental incapacity or age by a court of competent 
jurisdiction may act on behalf of the individual.



Sec. 1702.17  Penalties.

    The Privacy Act (5 U.S.C. 552a(i)(3)) makes it a misdemeanor, 
subject to a maximum fine of $5,000, to knowingly and willfully request 
or obtain any record concerning an individual from OFHEO under false 
pretenses.



PART 1703_RELEASE OF INFORMATION--Table of Contents




                      Subpart A_General Definitions

Sec.
1703.1 Scope.
1703.2 General definitions.

              Subpart B_Documents and Information Generally

1703.6 General rule.
1703.7 Applicability.
1703.8 OFHEO examination reports.
1703.9 Orders and agreements available to the public.

               Subpart C_Availability of Records of OFHEO

1703.11 Official records of OFHEO.
1703.12 Publicly available records.
1703.13 Requests for records.
1703.14 Response to requests.
1703.15 Form and content of responses.
1703.16 Appeals of denials.
1703.17 Time limits.
1703.18 Special procedures for business information.

               Subpart D_Fees for Provision of Information

1703.21 Definitions.
1703.22 Fees to be charged--general.
1703.23 Fees to be charged--categories of requesters.
1703.24 Limitations on charging fees.
1703.25 Miscellaneous fee provisions.

Subpart E_Testimony and Production of Documents in Legal Proceedings in 
                    Which OFHEO Is Not a Named Party

1703.31 General purposes.
1703.32 Definitions.
1703.33 General policy.
1703.34 Request for testimony or production of documents.
1703.35 Scope of permissible testimony.
1703.36 Manner in which testimony is given.
1703.37 Manner in which documents will be produced.
1703.38 Fees.
1703.39 Responses to demands served on employees.
1703.40 Responses to demands served on nonemployees.

          Subpart F_Rules and Procedures for Service Upon OFHEO

1703.51 Service of process.

    Authority: 5 U.S.C. 301, 552; 12 U.S.C. 4513, 4522, 4526, 4639; E.O. 
12600, 3 CFR, 1987 Comp., p. 235.

    Source: 63 FR 71005, Dec. 23, 1998, unless otherwise noted. 
Redesignated at 65 FR 81327, Dec. 26, 2000.



                      Subpart A_General Definitions



Sec. 1703.1  Scope.

    Definitions in Sec. 1703.2 relate to the meaning of terms used 
throughout part 1703.

[63 FR 71005, Dec. 23, 1998. Redesignated and amended at 65 FR 81327, 
Dec. 26, 2000]



Sec. 1703.2  General definitions.

    For the purpose of this part:
    (a) Appeals Officer means the person designated by the Director to 
process appeals of denials of requests for OFHEO records under the FOIA.
    (b) Director means the Director of OFHEO or his or her designee.
    (c) Document means any record or paper, including but not limited to 
a report, credit review, audit, examination, letter, telegram, 
memorandum, study, calendar and diary entry, log,

[[Page 333]]

graph, pamphlet, note, chart, tabulation, analysis, statistical or 
information accumulation, any record of meetings and conversations, film 
impression, magnetic tape, or any electronic media, disk, film, or 
mechanical reproduction that is generated, obtained, or adopted by OFHEO 
in connection with the conduct of its official business.
    (d) Employee means any officer, former officer, employee, or former 
employee of OFHEO; any conservator appointed by OFHEO; or any agent or 
independent contractor acting on behalf of OFHEO, even though the 
appointment or contract has terminated.
    (e) FOIA means the Freedom of Information Act.
    (f) FOIA Officer means the person designated to process requests for 
OFHEO records under the FOIA.
    (g) Official means concerning the authorized business of OFHEO.
    (h) OFHEO means the Office of Federal Housing Enterprise Oversight.
    (i) Person means any individual, or any agency, corporation, 
partnership, trust, association, joint venture, pool, syndicate, sole 
proprietorship, unincorporated organization, or any other form of entity 
not specifically listed herein, but does not include OFHEO or any 
employee.
    (j) Record means any document, regardless of form or format, which 
is created or obtained by OFHEO and which is under OFHEO control at the 
time of an FOIA request.
    (k) Requester means any person seeking access to OFHEO records under 
the FOIA.

[63 FR 71005, Dec. 23, 1998, as amended at 65 FR 55171, Sept. 13, 2000]



              Subpart B_Documents and Information Generally



Sec. 1703.6  General rule.

    Except as authorized by this part or as otherwise necessary in 
performing official duties, no employee shall in any manner disclose or 
permit disclosure of any document or information in the possession of 
OFHEO that is confidential or otherwise of a nonpublic nature, including 
that regarding OFHEO or the Federal National Mortgage Association 
(Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac) 
(collectively, the Enterprises).



Sec. 1703.7  Applicability.

    (a) General. The FOIA and the regulations in this part apply to all 
OFHEO documents and information. However, if another law sets specific 
procedure for disclosure, OFHEO will process a request in accordance 
with the procedures that apply to those specific documents. If a request 
is received for disclosure of a document to the public which is not 
required to be released under those provisions, OFHEO will consider the 
request under the FOIA and the regulations in this part.
    (b) The relationship between the FOIA and the Privacy Act of 1974. 
The Privacy Act of 1974 (Privacy Act), 5 U.S.C. 552a, applies to records 
that are about individuals, but only if the records are in a system of 
records as defined in the Privacy Act. Requests from individuals for 
records about themselves which are contained in an OFHEO system of 
records will be processed under the provisions of the Privacy Act as 
well as the FOIA. OFHEO will not deny access by a first party to a 
record under the FOIA or the Privacy Act unless the record is not 
available to that individual under both the Privacy Act and the FOIA.
    (c) Records available through routine distribution procedures. When 
the record requested includes material published and offered for sale, 
e.g., by the Superintendent of Documents or the Government Printing 
Office, or which is available to the public through an established 
distribution system (such as that of the National Technical Information 
Service of the Department of Commerce), or material offered on OFHEO's 
web site (http://www.ofheo.gov), OFHEO will first refer the requester to 
those sources. Nevertheless, if the requester is not satisfied with the 
alternative sources, OFHEO will process the request under the FOIA.

[63 FR 71005, Dec. 23, 1998, as amended at 65 FR 55171, Sept. 13, 2000]



Sec. 1703.8  OFHEO examination reports.

    (a) General. Reports of examinations prepared by OFHEO may be 
disclosed

[[Page 334]]

only in accordance with this part or with the prior written consent of 
the Director. No person, agency, or authority, or director, officer, 
employee, or agent thereof, shall disclose any such report or 
information contained therein in any manner except as authorized in 
accordance with this subpart. The report of examination is the property 
of OFHEO and any unauthorized use or disclosure of such report may be 
subject to the penalties provided in 18 U.S.C. 641.
    (b) Enterprises. The Director makes available to each Enterprise a 
copy of OFHEO's report of examination of such Enterprise. The report of 
examination is the property of OFHEO and is provided to the Enterprise 
for its confidential use only. Under no circumstance shall the 
Enterprise or any director, officer, employee, or agent thereof, make 
public or disclose in any manner the report of examination or any 
portion of the contents thereof to any person or organization not 
officially connected with the Enterprise as director, officer, employee, 
attorney, auditor, or independent auditor. Any other disclosure or use 
of this report except as expressly permitted by the Director may be 
subject to the penalties of 18 U.S.C. 641.
    (c) Government agencies. The Director may make available reports of 
examination for the confidential use of Federal agencies responsible for 
investigating or enforcing applicable Federal laws.



Sec. 1703.9  Orders and agreements available to the public.

    (a) General. OFHEO shall make the following documents available to 
the public:
    (1) Any written agreement or other written statement for which a 
violation may be redressed by the Director or any modification to or 
termination thereof, unless the Director, in the Director's discretion, 
determines that public disclosure would be contrary to the public 
interest.
    (2) Any order that is issued with respect to any administrative 
enforcement proceeding initiated by the Director under 12 U.S.C. 4631 
through 4641 that has become final in accordance with 12 U.S.C. 4633 and 
12 U.S.C. 4634.
    (3) Any modification to or termination of any final order made 
public pursuant to this section.
    (b) Delay of public disclosure under exceptional circumstances. If 
the Director makes a determination in writing that the public disclosure 
of any final order pursuant to paragraph (a) of this section would 
seriously threaten the financial health or security of the Enterprise, 
the Director may delay the public disclosure of such order for a 
reasonable time.
    (c) Documents filed under seal in public enforcement hearings. The 
Director may file any document or part thereof under seal in any hearing 
commenced by the Director if the Director determines in writing that 
disclosure thereof would be contrary to the public interest.
    (d) Retention of documents. The Director shall keep and maintain a 
record, for not less than 6 years, of all documents described in 
paragraph (a) of this section and all enforcement agreements and other 
supervisory actions and supporting documents issued with respect to or 
in connection with any enforcement proceedings initiated by the Director 
under 12 U.S.C. 4631 through 4641.
    (e) Disclosure to Congress. This section may not be construed to 
authorize the withholding of any information from, or to prohibit the 
disclosure of any information to, the Congress or any committee or 
subcommittee thereof.



               Subpart C_Availability of Records of OFHEO



Sec. 1703.11  Official records of OFHEO.

    (a) OFHEO shall, upon a written request for records that reasonably 
describes the information or records and is made in accordance with the 
provisions of this subpart, make the records available as promptly as 
practicable to any person for inspection and/or copying, except as 
provided in paragraph (b) of this section. OFHEO may charge a fee 
determined in accordance with subpart D of this part. OFHEO will make 
the record available in the form or format requested if the record is 
readily reproducible in that form or format

[[Page 335]]

with reasonable effort. ``Readily reproducible'' means, with respect to 
electronic format, that the requested record or records can be 
downloaded or transferred intact to a computer disk, tape, or other 
electronic medium using equipment currently in use by OFHEO.
    (b) Records not available. Except as otherwise provided in this 
part, or as may be specifically authorized by the Director, the 
following information and records, or portions thereof, are not 
available to requesters:
    (1) Any record, or portion thereof, that is--
    (i) Specifically authorized under criteria established by an 
Executive order to be kept secret in the interest of national defense or 
foreign policy, and
    (ii) Is in fact properly classified pursuant to such Executive 
order.
    (2) Any record, or portion thereof, related solely to the internal 
personnel rules and practices of OFHEO.
    (3) Any record, or portion thereof that is specifically exempted 
from disclosure by statute (other than 5 U.S.C. 552b), provided that 
such statute--
    (i) Requires that the matters be withheld from the public in such a 
manner as to leave no discretion on the issue, or
    (ii) Establishes particular criteria for withholding or refers to 
particular types of matters to be withheld.
    (4) Any matter that is a trade secret or that constitutes commercial 
or financial information obtained from a person and that is privileged 
or confidential.
    (5) Any matter contained in inter-agency or intra-agency memoranda 
or letters that would not be available by law to a private party in 
litigation with OFHEO.
    (6) Any information contained in personnel and medical files and 
similar files (including financial files) the disclosure of which would 
constitute a clearly unwarranted invasion of personal privacy.
    (7) Any records or information compiled for law enforcement 
purposes, but only to the extent that the production of such law 
enforcement records or information--
    (i) Could reasonably be expected to interfere with enforcement 
proceedings;
    (ii) Would deprive a person of a right to fair trial or an impartial 
adjudication;
    (iii) Could reasonably be expected to constitute an unwarranted 
invasion of personal privacy;
    (iv) Could reasonably be expected to disclose the identity of a 
confidential source, including a State, local, or foreign agency or 
authority or any private institution or an Enterprise regulated and 
examined by OFHEO that furnished information on a confidential basis, 
and, in the case of a record of information compiled by a criminal law 
enforcement authority in the course of a criminal investigation or by an 
agency conducting a lawful national security intelligence investigation, 
information furnished by a confidential source;
    (v) Would disclose techniques and procedures for law enforcement 
investigations or prosecutions, or would disclose guidelines for law 
enforcement investigations or prosecutions if such disclosure could 
reasonably be expected to risk circumvention of the law; or
    (vi) Could reasonably be expected to endanger the life or physical 
safety of any individual.
    (8) Any matter that is contained in or related to examination, 
operating, or condition reports that are prepared by, on behalf of, or 
for the use of OFHEO.
    (9) Any geological and geophysical information and data, including 
maps, concerning wells.
    (c) Even if an exemption described in paragraph (b) of this section 
may be reasonably applicable to a requested record, or portion thereof, 
OFHEO may elect under the circumstances of any particular request not to 
apply the exemption to such requested record, or portion thereof. The 
fact that the exemption is not applied by OFHEO to any requested record, 
or portion thereof, has no precedential significance as to the 
application or nonapplication of the exemption to any other requested 
record, or portion thereof, no matter when the request is received.
    (d) Any reasonably segregable portion of a record shall be provided 
to any person properly requesting such record after deletion of the 
portions

[[Page 336]]

which are exempt under this subpart. The amount of the information 
deleted shall be indicated on the released portion of the record, unless 
including that indication would harm an interest protected by the 
exemption in paragraph (b) of this section pursuant to which the 
deletion is made. If technically feasible, the amount of the information 
deleted shall be indicated at the place in the record where the deletion 
is made.
    (e) This section does not authorize withholding of information or 
limit the availability of records to the public, except as specifically 
stated in this section. This section is not authority to withhold 
information from Congress.

[65 FR 55171, Sept. 13, 2000]



Sec. 1703.12  Publicly available records.

    (a) The records described in this paragraph are available for public 
inspection and copying, for a fee determined in accordance with subpart 
D of this part, at OFHEO's offices located at 1700 G Street, NW., Fourth 
Floor, Washington, DC 20552. Records created on or after November 1, 
1996, and current indexes to all records described in paragraphs (a)(1), 
(a)(2), (a)(3), and (a)(4) of this section, including those created 
before November 1, 1996, are available electronically at http://
www.ofheo.gov/docs/. The publicly available records include--
    (1) Any final opinions issued by OFHEO, as well as orders made in 
adjudication of cases as set forth in Sec. 1703.9 of subpart B of this 
part;
    (2) Any statements of policy and interpretation that have been 
adopted by OFHEO and have not been published in the Federal Register;
    (3) Any OFHEO administrative staff manuals and instructions to staff 
that affect a member of the public, and that are not exempt from 
disclosure under the Freedom of Information Act;
    (4) Copies of all records released pursuant to this subpart that 
OFHEO determines have become or are likely to become the subject of 
subsequent requests for substantially the same records; and
    (5) Current indexes to the records described in this paragraph.
    (b) To the extent necessary to prevent an invasion of personal 
privacy, the Director may delete identifying details from a record 
described in paragraph (a) of this section. In each case of such 
deletion, the justification will be clearly explained in writing and the 
extent of such deletion indicated (at the place in the record where the 
deletion is made if technically feasible), unless including that 
indication would harm an interest protected by the exemption in Sec. 
1703.11(b) pursuant to which the deletion is made.

[65 FR 55172, Sept. 13, 2000. Redesignated and amended at 65 FR 81327, 
Dec. 26, 2000]



Sec. 1703.13  Requests for records.

    (a) Addressing requests. Requests for records in the possession of 
OFHEO shall be made in writing but may be submitted by regular mail, 
electronic mail, or facsimile. If the request is sent by regular mail, 
the request shall be addressed to FOIA Officer, Office of Federal 
Housing Enterprise Oversight, 1700 G Street NW., Fourth Floor, 
Washington, DC 20552, with both the envelope and the letter marked 
``FOIA Request.'' Electronic mail requests shall be addressed to foia--
[email protected], with ``FOIA Request'' in the subject line. Requests 
submitted by fax shall be sent to FOIA Officer at (202) 414-8917 and 
shall be clearly marked ``FOIA Request.'' All requests shall include the 
requester's name, address, and telephone number. An improperly addressed 
request will be deemed not to have been received for purposes of the 20-
day time period set forth in Sec. 1703.17(a) of this subpart until it 
is received, or would have been received with the exercise of due 
diligence, by the FOIA Officer. Records requested in conformance with 
this subpart that are not exempt records may be obtained in person, by 
regular mail, or by electronic mail, as specified in the request, 
provided the records are readily reproducible in the requested form or 
format with reasonable effort. Records to be obtained in person will be 
available for inspection or copying during business hours on a regular 
business day in the office of OFHEO.

[[Page 337]]

    (b) Description of records. Each request must reasonably describe 
the desired records in sufficient detail to enable OFHEO personnel to 
locate the records with a reasonable amount of effort. A request for a 
specific category of records will be regarded as fulfilling this 
requirement if it enables responsive records to be identified by a 
technique or process that is not unreasonably burdensome or disruptive 
of OFHEO operations.
    (1) Whenever possible, a request should include specific information 
about each record sought, such as the date, title or name, author, 
recipient, and subject matter of the record.
    (2) If the FOIA Officer determines that a request does not 
reasonably describe the records sought, he or she will either advise the 
requester what additional information is needed to locate the record or 
otherwise state why the request is insufficient. The FOIA Officer will 
also extend to the requester an opportunity to confer with OFHEO 
personnel with the objective of reformulating the request in a manner 
which will meet the requirements of this section.

[63 FR 71005, Dec. 23, 1998, as amended at 65 FR 55172, Sept. 13, 2000. 
Redesignated and amended at 65 FR 81327, Dec. 26, 2000]



Sec. 1703.14  Responses to requests.

    (a) Response to initial request. The FOIA Officer of OFHEO is 
authorized to grant or deny any request for a record and to determine 
appropriate fees.
    (b) Referral to another agency. When a requester seeks records that 
originated in another Federal Government agency, OFHEO will refer the 
request to the other agency for response. If OFHEO refers the request to 
another agency, it will notify the requester of the referral. A request 
for any records classified by some other agency will be referred to that 
agency for response.
    (c) Creating records. If a person seeks information from OFHEO in a 
format that does not currently exist, OFHEO will make reasonable efforts 
to provide the information in the format requested. OFHEO is not 
required to create a new record of information to satisfy a request.
    (d) No responsive record. If no records are responsive to the 
request, the FOIA Officer will so notify the requester in writing.

[63 FR 71005, Dec. 23, 1998, as amended at 65 FR 55173, Sept. 13, 2000]



Sec. 1703.15  Form and content of responses.

    (a) Form of notice granting a request. After the FOIA Officer has 
granted a request in whole or in part, the requester will be notified in 
writing. The notice shall describe the manner in which the record will 
be disclosed, whether by providing a copy of the record with the 
response or at a later date, or by making a copy of the record available 
to the requester for inspection at a reasonable time and place. The 
procedure for such an inspection may not unreasonably disrupt the 
operation of OFHEO. The response letter will also inform the requester 
of any fees to be charged in accordance with the provisions of subpart D 
of this part.
    (b) Form of notice denying a request. When the FOIA Officer denies a 
request in whole or in part, he or she will so notify the requester in 
writing. The response will be signed by the FOIA Officer and will 
include--
    (1) The name and title or position of the person making the denial;
    (2) An estimate of the volume of any requested matter that is 
withheld, unless providing the estimate would harm an interest protected 
by the exemption in Sec. 1703.11(b) pursuant to which the denial was 
made;
    (3) A brief statement of the reason or reasons for the denial, 
including the FOIA exemption or exemptions which the FOIA Officer has 
relied upon in denying the request; and
    (4) A statement that the denial may be appealed under Sec. 1703.16 
of this subpart and a description of the requirements of that section.

[63 FR 71005, Dec. 23, 1998, as amended at 65 FR 55173, Sept. 13, 2000. 
Redesignated and amended at 65 FR 81327, Dec. 26, 2000]



Sec. 1703.16  Appeals of denials.

    (a) Right of appeal. If a request, including a request for expedited 
processing, has been denied in whole or in part, the requester may 
appeal the denial to: FOIA Appeals Officer, Office of

[[Page 338]]

Federal Housing Enterprise Oversight, 1700 G Street, NW, Fourth Floor, 
Washington DC 20552. Electronic appeals shall be submitted to foia--
[email protected] with ``FOIA Appeal'' in the subject line.
    (b) Letter of appeal. The appeal must be in writing and submitted 
within 30 days of receipt of the denial letter. The appeal shall be 
submitted in the manner described in Sec. 1703.13, except that it shall 
be clearly marked ``FOIA Appeal'' instead of ``FOIA Request.'' An appeal 
shall include a copy of the initial request, a copy of the letter 
denying the request in whole or in part, and a statement of the 
circumstances, reasons, or arguments advanced in support of disclosure 
of the requested record. An improperly addressed appeal shall be deemed 
not to have been received for the purposes of the 20-day time period set 
forth in Sec. 1703.17(b) until it is received, or would have been 
received with the exercise of due diligence, by the Appeals Officer.
    (c) Action on appeal. The disposition of an appeal will be in 
writing and will constitute the final action of OFHEO on a request. A 
decision affirming in whole or in part the denial of a request will 
include a brief statement of the reason or reasons for affirmance, 
including each FOIA exemption relied on. If the denial of a request is 
reversed in whole or in part on appeal, the request will be processed 
promptly in accordance with the decision on appeal.
    (d) Judicial review. If the denial of the request for records is 
upheld in whole or in part, or, if a determination on the appeal has not 
been mailed at the end of the 20-day period or the last extension 
thereof, the requester is deemed to have exhausted his or her 
administrative remedies, giving rise to a right of judicial review under 
5 U.S.C. 552(a)(4). However, a requester's refusal of OFHEO's offer of 
an opportunity to limit the scope of the request or arrange an alternate 
time frame for processing the request shall be considered as a factor in 
determining whether ``exceptional circumstances'' exist, which permits a 
court in which a requester has sought judicial review, to grant a stay 
to allow OFHEO to complete its review of the records.

[63 FR 71005, Dec. 23, 1998, as amended at 65 FR 55173, Sept. 13, 2000. 
Redesignated and amended at 65 FR 81327, Dec. 26, 2000]



Sec. 1703.17  Time limits.

    (a) Initial request. Following receipt of a request for records, the 
FOIA Officer will determine whether to comply with the request and will 
notify the requester in writing of his or her determination within 20 
days (excluding Saturdays, Sundays, and legal holidays) after receipt of 
the request.
    (b) Appeal. A written determination on an appeal submitted in 
accordance with Sec. 1703.16 of this subpart will be issued within 20 
days (excluding Saturdays, Sundays, and legal holidays) after receipt of 
the appeal. However, determination of an appeal of a denial of expedited 
processing will be issued as expeditiously as practicable. When a 
determination cannot be mailed within the applicable time limit, the 
appeal will nevertheless be processed. In such case, upon the expiration 
of the time limit, the requester will be informed of the reason for the 
delay, of the date on which a determination may be expected to be 
mailed, and of that person's right to seek judicial review. The 
requester may be asked to forego judicial review until determination of 
the appeal.
    (c) Extension of time limits. The time limits specified in either 
paragraph (a) or (b) of this section may be extended in unusual 
circumstances after written notice to the requester setting forth the 
reasons for the extension and the date on which a determination is 
expected to be made. If the date specified for the extension is more 
than 10 days after the initial time allowed for response, OFHEO will 
provide the requester an opportunity to limit the scope of the request 
or arrange for an alternate time frame for processing the request. As 
used in this paragraph, unusual circumstances means that there is a need 
to--
    (1) Search for and collect the requested records from facilities 
that are separate from the office processing the request;
    (2) Search for, collect, and appropriately examine a voluminous 
amount

[[Page 339]]

of separate and distinct records which are demanded in a single request; 
or
    (3) Consult with another agency having a substantial interest in the 
determination of the request, or consult with various offices within 
OFHEO that have a substantial interest in the records requested.
    (d) Related requests. OFHEO may aggregate multiple requests 
involving clearly related matters made by a single requester, or a group 
of requesters acting in concert, if OFHEO reasonably believes that such 
requests actually constitute a single request that would qualify as an 
``unusual circumstance.''
    (e) Expedited processing. (1) Upon a demonstration of compelling 
need by the requester, OFHEO will grant a request for expedited 
processing of a FOIA request. If a request for expedited processing is 
granted, OFHEO will give the request priority and process it as soon as 
practicable.
    (2) To show a compelling need for expedited processing, the 
requester shall provide a statement demonstrating that:
    (i) The failure to obtain the requested records could reasonably be 
expected to pose an imminent threat to the life or physical safety of an 
individual; or
    (ii) The requester's main professional occupation or activity is 
information dissemination and there is a particular urgency to inform 
the public of government activity involved in the request beyond the 
public's right to know about government activity generally.
    (3) The requester's statement of compelling need must be certified 
to be true and correct to the best of his or her knowledge and belief 
and must explain in detail the basis for requesting expedited 
processing. The formality of the certification required to obtain 
expedited treatment may be waived by OFHEO in its discretion.
    (4) A requester seeking expedited processing will be notified within 
ten (10) working days of the receipt of the request whether expedited 
processing has been granted. If the request for expedited processing is 
denied, OFHEO will act on any appeal expeditiously.

[65 FR 55173, Sept. 13, 2000. Redesignated and amended at 65 FR 81327, 
Dec. 26, 2000]



Sec. 1703.18  Special procedures for business information.

    (a) In general. Business information provided to OFHEO by a business 
submitter shall not be disclosed pursuant to an FOIA request except in 
accordance with this section.
    (b) Definitions. For the purpose of this section, the following 
definitions shall apply:
    (1) Business information means trade secrets or other commercial or 
financial information, provided to OFHEO by a submitter, which arguably 
is protected from disclosure under Sec. 1703.11(b)(4), because 
disclosure could reasonably be expected to cause substantial competitive 
harm.
    (2) Business submitter means any person or entity which provides 
business information, directly or indirectly, to OFHEO and who has a 
proprietary interest in the information.
    (c) Designation of business information. Submitters of business 
information should use good-faith efforts to designate, by appropriate 
markings, either at the time of submission or at a reasonable time 
thereafter, those portions of their submissions which they deem to be 
protected under Sec. 1703.11(b)(4). Any such designation will expire 10 
years after the records were submitted to the Government, unless the 
submitter requests, and provides reasonable justification for, a 
designation period of longer duration.
    (d) Predisclosure notification. (1) Except as is provided for in 
paragraph (i) of this section, the FOIA Officer shall, to the extent 
permitted by law, provide a submitter with prompt written notice of an 
FOIA request or administrative appeal encompassing its business 
information whenever required under paragraph (e) of this section. Such 
notice shall either describe the exact nature of the business 
information requested or provide copies of the records or portions 
thereof containing the business information.
    (2) Whenever the FOIA Officer provides a business submitter with the 
notice set forth in paragraph (e)(1) of this section, the FOIA Officer 
shall notify the requester that the request includes information that 
may arguably be exempt from disclosure under

[[Page 340]]

Sec. 1703.11(b)(4) and that the person or entity who submitted the 
information to OFHEO has been given the opportunity to comment on the 
proposed disclosure of information.
    (e) When notice is required. OFHEO shall provide a business 
submitter with notice of a request whenever--
    (1) The business submitter has in good faith designated the 
information as business information deemed protected from disclosure 
under Sec. 1703.11(b)(4); or
    (2) OFHEO has reason to believe that the request seeks business 
information the disclosure of which may result in substantial commercial 
or financial injury to the business submitter.
    (f) Opportunity to object to disclosure. Through the notice 
described in paragraph (d) of this section, OFHEO shall, to the extent 
permitted by law, afford a business submitter at least 10 days 
(excluding Saturdays, Sundays, and legal holidays) within which it can 
provide OFHEO with a detailed written statement of any objection to 
disclosure. Such statement shall demonstrate why the information is 
contended to be a trade secret or commercial or financial information 
that is privileged or confidential and why disclosure would cause 
competitive harm. Whenever possible, the business submitter's claim of 
confidentiality should be supported by a statement or certification by 
an officer or authorized representative of the business submitter. 
Information provided by a submitter pursuant to this paragraph may 
itself be subject to disclosure under the FOIA.
    (g) Notice of intent to disclose. (1) The FOIA Officer shall 
consider carefully a business submitter's objections and specific 
grounds for nondisclosure prior to determining whether to disclose 
business information. Whenever the FOIA Officer decides to disclose 
business information over the objection of a business submitter, the 
FOIA Officer shall forward to the business submitter a written notice at 
least 10 days (excluding Saturdays, Sundays, and legal holidays) before 
the date of disclosure containing--
    (i) A statement of the reasons for which the business submitter's 
disclosure objections were not sustained,
    (ii) A description of the business information to be disclosed, and
    (iii) A specified disclosure date.
    (2) Such notice of intent to disclose likewise shall be forwarded to 
the requester at least 10 days (excluding Saturdays, Sundays, and legal 
holidays) prior to the specified disclosure date.
    (h) Notice of FOIA lawsuit. Whenever a requester brings suit seeking 
to compel disclosure of business information, the FOIA Officer shall 
promptly notify the business submitter of such action.
    (i) Exceptions to predisclosure notification. The requirements of 
this section shall not apply if--
    (1) The FOIA Officer determines that the information should not be 
disclosed;
    (2) The information lawfully has been published or has been 
officially made available to the public;
    (3) Disclosure of the information is required by law (other than the 
Freedom of Information Act ); or
    (4) The designation made by the submitter in accordance with 
paragraph (c) of this section appears obviously frivolous; except that, 
in such a case, the FOIA Officer will provide the submitter with written 
notice of any final decision to disclose business information within a 
reasonable number of days prior to a specified disclosure date.

[63 FR 71005, Dec. 23, 1998, as amended at 65 FR 55173, Sept. 13, 2000. 
Redesignated and amended at 65 FR 81327, Dec. 26, 2000]



               Subpart D_Fees for Provision of Information



Sec. 1703.21  Definitions.

    For the purpose of this subpart, the following definitions shall 
apply:
    (a) Commercial use request means a request for information that is 
from, or on behalf of, a requester seeking information for a use or 
purpose that furthers the commercial, trade, or profit interests of the 
requester or the person on whose behalf the request is being made. To 
determine whether a request is properly classified as a commercial use 
request, OFHEO shall determine the purpose for which the requested 
records shall be used. If OFHEO has reasonable cause to doubt the 
purpose

[[Page 341]]

specified in the request for which a requester will use the records 
sought, or where the purpose is not clear from the request itself, OFHEO 
shall seek additional clarification before assigning the request to a 
specified category.
    (b) Direct costs means the expenditures actually incurred by OFHEO 
in searching for and reproducing records to respond to a request for 
information. In the case of a commercial use request, the term also 
means those expenditures OFHEO actually incurs in reviewing records to 
respond to the request. The direct costs shall include the cost of the 
time of the employee performing the work, determined in accordance with 
Sec. 1703.22(b)(1)(i), the cost of any computer searches, determined in 
accordance with Sec. 1703.22(b)(1)(ii), and the cost of operating 
duplication equipment. Not included in direct costs are overhead 
expenses such as costs of space, and heating or lighting the facility in 
which the records are stored. Direct costs also include the costs 
incurred by OFHEO for any contract services that may be needed to 
respond to a request.
    (c) Educational institution means a preschool, a public or private 
elementary or secondary school, an institution of undergraduate higher 
education, an institution of graduate higher education, an institution 
of professional education, and an institution of vocational education, 
which operates a program or programs of scholarly research.
    (d) Noncommercial scientific institution refers to an institution 
that is not operated on a commercial, trade, or profit basis and which 
is operated solely for the purpose of conducting scientific research, 
the results of which are not intended to promote any particular product 
or industry.
    (e) Representative of the news media means any person actively 
gathering news for an entity that is organized and operated to publish 
or broadcast news to the public. The term ``news'' means information 
that is about current events or that would be of current interest to the 
public. Examples of news media entities include television or radio 
stations broadcasting to the public at large and publishers of 
periodicals (but only in those instances in which the periodicals can 
qualify as disseminators of ``news'') who make their products available 
for purchase or subscription by the general public. These examples are 
not intended to be all-inclusive. As traditional methods of news 
delivery evolve, e.g., electronic dissemination of newspapers through 
telecommunication services, such alternative media, would be included in 
this category. ``Freelance'' journalists may be regarded as working for 
a news organization if they can demonstrate a solid basis for expecting 
publication through that organization even though they are not actually 
employed by the organization. A publication contract would be the 
clearest proof that a journalist is working for a news organization, but 
OFHEO may look to the requester's past publication record to determine 
whether a journalist is working for a news organization.
    (f) Reproduce and reproduction means the process of making a copy of 
a record necessary to respond to a request for information. Such copies 
take the form of paper copy, microfilm, audio-visual materials, or 
machine-readable documentation, e.g., magnetic tape or disk. The copy 
provided shall be in the form or format requested, provided the record 
is readily reproducible in that form or format with reasonable effort, 
and shall be in a form reasonably usable by the requesters.
    (g) Review means the process of examining records located in 
response to a request for information to determine whether any portion 
of any record located is permitted to be withheld. It also includes 
processing any records for disclosure, e.g., doing all that is necessary 
to prepare the records for release. The term ``review'' does not include 
the time spent resolving general legal or policy issues regarding the 
application of exemptions. OFHEO shall only charge fees for reviewing 
records in response to a commercial use request.
    (h) The term search includes all time spent looking for material 
that is responsive to a request for information, including page-by-page 
or line-by-line identification of material within records. The term 
``search'' includes the extraction of information from a computer using 
existing programming.

[[Page 342]]

Searching for materials shall be done in the most efficient and least 
expensive manner so as to minimize the costs of OFHEO and the requester. 
For example, a line-by-line search for responsive material should not be 
performed when merely reproducing an entire document would be less 
expensive and the faster method of complying with the request for 
information. A ``search'' for material that is responsive to a request 
should be distinguished from a ``review'' of material to determine 
whether the material is exempt from disclosure.

[63 FR 71005, Dec. 23, 1998, as amended at 65 FR 55174, Sept. 13, 2000. 
Redesignated and amended at 65 FR 81327, Dec. 26, 2000]



Sec. 1703.22  Fees to be charged--general.

    (a) Generally, the fees charged for requests for records pursuant to 
the Freedom of Information Act will cover the full allowable direct 
costs of searching for, reproducing, and reviewing records that are 
responsive to a request for information. Fees will be assessed according 
to the schedule contained in paragraph (b) of this section and the 
category of requesters described in Sec. 1703.23 of this subpart for 
services rendered by OFHEO staff in responding to, and processing 
requests for, records under this part. Fees assessed shall be paid by 
check or money order payable to the Office of Federal Housing Enterprise 
Oversight.
    (b) Types of charges. The types of charges that may be assessed in 
connection with the production of records in response to a FOIA request 
are as follows:
    (1) Searches. (i) Manual searches for records. OFHEO will charge for 
actual search time, billed in 15-minute segments, at a rate determined 
by whether the employee performing the work is classified as clerical, 
professional, or executive. The hourly fee for each classification is 
based on the average of the actual compensation (salary and benefits) of 
employees in the classification and is adjusted periodically to reflect 
significant changes in the average compensation of the class. The 
``executive'' classification includes the senior management of OFHEO, 
i.e. Director, Deputy Director, Associate Directors and Deputy Associate 
Directors. The ``clerical'' classification includes employees performing 
primarily secretarial, clerical, or ministerial tasks. The 
``professional'' classification includes all positions not classified as 
``executive'' or ``clerical.'' A current fee schedule is available on 
electronically at http://www.ofheo.gov/docs/ or by regular mail.
    (ii) Computer searches for records. Requesters will be charged at 
the actual direct costs of conducting a search using existing 
programming. These direct costs will include the cost of operating the 
computer equipment for that portion of operating time that is directly 
attributable to searching for records and the cost of the time of the 
employee performing the work, determined as described in paragraph 
(b)(1)(i) of this section. A charge will also be made for any 
substantial amounts of special supplies or materials used to contain, 
present, or make available the output of computers, based upon the 
prevailing levels of costs to OFHEO for the type and amount of such 
supplies of materials that are used. Nothing in this paragraph shall be 
construed to entitle any person or entity, as of right, to any services 
in connection with computerized records, other than services to which 
such person or entity may be entitled under the provisions of this 
subpart.
    (iii) Unproductive searches. OFHEO may charge search fees even if no 
records are found that are responsive to the request or if the records 
found are exempt from disclosure.
    (2) Reproduction. Records will be photocopied at a rate of $.15 per 
page. For copies prepared by computer, such as tapes or printouts, the 
requester will be charged the actual cost, including operator time, of 
production of the tape or printout. For other methods of reproduction, 
the actual direct costs of reproducing the record(s) will be charged.
    (3) Review. Only requesters who are seeking records for commercial 
use may be charged for time spent reviewing records to determine whether 
they are exempt from mandatory disclosure. Charges may be assessed only 
for initial review, i.e., the review undertaken

[[Page 343]]

the first time OFHEO analyzes the applicability of a specific exemption 
to a particular record or portion of a record. Records or portions of 
records withheld in full under an exemption that is subsequently 
determined not to apply may be reviewed again to determine the 
applicability of other exemptions not previously considered. The costs 
for such a review are properly assessable.
    (4) Other services and materials. Where OFHEO elects, as a matter of 
administrative discretion, to comply with a request for a special 
service or materials, such as certifying that records are true copies or 
sending records by special methods, the actual direct costs of providing 
the service or materials will be charged.

[65 FR 55174, Sept. 13, 2000. Redesignated and amended at 65 FR 81327, 
Dec. 26, 2000]



Sec. 1703.23  Fees to be charged--categories of requesters.

    (a) Fees for various requester categories. Paragraphs (b) through 
(e) of this section state, for each category of requester, the types of 
fees generally charged by OFHEO. However, for each of these categories, 
the fees may be limited, waived or reduced in accordance with the 
provisions set forth in paragraph (c) of Sec. 1703.24. If OFHEO has 
reasonable cause to doubt the purpose specified in the request for which 
a requester will use the records sought, or where the purpose is not 
clear from the request itself, OFHEO will seek clarification before 
assigning the request a specific category.
    (b) Commercial use requester. OFHEO shall charge fees for records 
requested by persons or entities making a commercial use request in an 
amount that equals the full direct costs for searching for, reviewing 
for release, and reproducing the records sought. Commercial use 
requesters are not entitled to 2 hours of free search time nor 100 free 
pages of reproduction of records. In accordance with Sec. 1703.22, 
commercial use requesters may be charged the costs of searching for and 
reviewing records even if there is ultimately no disclosure of records.
    (c) Educational and noncommercial scientific institutions. OFHEO 
shall charge fees for records requested by, or on behalf of, educational 
institutions and noncommercial scientific institutions in an amount 
which equals the cost of reproducing the records responsive to the 
request, excluding the cost of reproducing the first 100 pages. No 
search fee shall be charged with respect to requests by educational and 
noncommercial scientific institutions. For a request to be included in 
this category, requesters must show that the request being made is 
authorized by and under the auspices of a qualifying institution, and 
that the records are not sought for commercial use but are sought in 
furtherance of scholarly research (if the request is from an educational 
institution) or scientific research (if the request is from a 
noncommercial scientific institution).
    (d) News media. OFHEO shall charge fees for records requested by 
representatives of the news media in an amount which equals the cost of 
reproducing the records responsive to the request, excluding the costs 
of reproducing the first 100 pages. No search fee shall be charged with 
respect to requests by representatives of the news media. For a request 
to be included in this category, the requester must qualify as a 
representative of the news media and the request must not be made for a 
commercial use. A request for records supporting the news dissemination 
function of the requester shall not be considered to be a request that 
is for commercial use.
    (e) All other requesters. OFHEO shall charge fees for records 
requested by persons or entities that are not classified in any of the 
categories listed in paragraphs (b), (c), or (d) of this section in an 
amount that equals the full reasonable direct cost of searching for and 
reproducing records that are responsive to the request, excluding the 
first 2 hours of search time and the cost of reproducing the first 100 
pages of records. In accordance with Sec. 1703.22, requesters in this 
category may be charged the cost of searching for records even if there 
is ultimately no disclosure of records, excluding the first 2 hours of 
search time.
    (f) For purposes of the exceptions contained in this section on 
assessment of fees, the word ``pages'' refers to paper copies of 8\1/2\ 
x 11 or 11 x 14. Thus,

[[Page 344]]

requesters are not entitled to 100 microfiche or 100 computer disks, for 
example. A microfiche containing the equivalent of 100 pages or a 
computer disk containing the equivalent of 100 pages of computer 
printout meets the terms of the exception.
    (g) For purposes of paragraph (e) of this section, the term ``search 
time'' has as its basis, manual search. To apply this term to searches 
made by computer, OFHEO will determine the hourly cost of operating the 
computer equipment and the operator's time determined as described in 
paragraph (b)(1)(i) of Sec. 1703.22. When the cost of the search 
(including the operator's time and the cost of operating the computer 
equipment to process a request) equals the equivalent dollar amount of 
two hours of the time of the person performing the work, i.e., the 
operator, OFHEO will begin assessing charges for the computer.

[63 FR 71005, Dec. 23, 1998, as amended at 65 FR 55174, Sept. 13, 2000. 
Redesignated and amended at 65 FR 81327, Dec. 26, 2000]



Sec. 1703.24  Limitations on charging fees.

    (a) In general. Except for requesters seeking records for a 
commercial use as described in paragraph (b) of Sec. 1703.23, OFHEO 
will provide, without charge, the first 100 pages of duplication and the 
first 2 hours of search time, or their cost equivalent.
    (b) No fee charged. OFHEO will not charge fees to any requester, 
including commercial use requesters, if the cost of collecting a fee 
would be equal to or greater than the fee itself. The elements to be 
considered in determining the ``cost of collecting a fee'' are the 
administrative costs of receiving and recording a requester's remittance 
and of processing the fee.
    (c) Waiver or reduction of fees. OFHEO may grant a waiver or 
reduction of fees if OFHEO determines that the disclosure of the 
information is in the public interest because it is likely to contribute 
significantly to public understanding of the operations or activities of 
the Federal Government, and the disclosure of the information is not 
primarily in the commercial interest of the requester. Requests for a 
waiver or reduction of fees will be considered on a case-by-case basis.
    (1) The following factors will be considered by OFHEO in determining 
whether a waiver or reduction of fees is in the public interest:
    (i) The subject of the request: Whether the subject of the requested 
records concerns ``the operations or activities of the Government.'' The 
subject matter of the requested records, in the context of the request, 
must specifically concern identifiable operations or activities of the 
Federal Government with a connection that is direct and clear, not 
remote or attenuated. Furthermore, the records must be sought for their 
informative value with respect to those Government operations or 
activities; a request for access to records for their intrinsic 
informational content alone will not satisfy this threshold 
consideration.
    (ii) The informative value of the information to be disclosed: 
Whether the disclosure is ``likely to contribute'' to an understanding 
of Government operations or activities. The disclosable portions of the 
requested records must be meaningfully informative on specific 
Government operations or activities in order to hold potential for 
contributing to increased public understanding of those operations and 
activities. The disclosure of information that is already in the public 
domain, in either a duplicative or substantially identical form, would 
not be likely to contribute to such understanding, as nothing new would 
be added to the public record.
    (iii) The contribution to an understanding of the subject by the 
general public: Whether disclosure of the requested information will 
contribute to the ``public understanding.'' The disclosure must 
contribute to the understanding of the public at large, as opposed to 
the individual understanding of the requester or a narrow segment of 
interested persons. A requester's identity and qualifications, e.g., 
expertise in the subject area and ability and intention to convey 
information to the general public, will be considered.
    (iv) The significance of the contribution in public understanding: 
Whether the disclosure is likely to ``significantly enhance'' the public 
understanding of Government operations or activities. The public's 
understanding of the subject matter in question, as compared to the

[[Page 345]]

level of public understanding existing prior to the disclosure, must be 
likely to be enhanced by the disclosure to a significant extent. The 
FOIA Officer shall not make a separate value judgment as to whether 
information, even though it in fact would contribute significantly to 
public understanding of the operations or activities of the Government, 
is ``important'' enough to be made public.
    (2) In order to determine whether the second fee waiver requirement 
is met, i.e., that disclosure of the requested information is not 
primarily in the commercial interest of the requester, OFHEO shall 
consider the following two factors in sequence:
    (i) The existence and magnitude of a commercial interest: Whether 
the requester, or any person on whose behalf the requester may be 
acting, has a commercial interest that would be furthered by the 
requested disclosure. In assessing the magnitude of identified 
commercial interests, consideration will be given to the effect that the 
information disclosed would have on those commercial interests, as well 
as to the extent to which FOIA disclosures serve those interests 
overall. Requesters shall be given a reasonable opportunity in the 
administrative process to provide information bearing upon this 
consideration.
    (ii) The primary interest in disclosure: Whether the magnitude of 
the identified commercial interest of the requester is sufficiently 
large in comparison with the public interest in disclosure, that 
disclosure is ``primarily in the commercial interest of the requester.'' 
A fee waiver or reduction is warranted only where, once the ``public 
interest'' standard set out in paragraph (c)(1) of this section is 
satisfied, that public interest can fairly be regarded as greater in 
magnitude than that of the requester's commercial interest in 
disclosure. OFHEO will ordinarily presume that, where a news media 
requester has satisfied the public interest standard, the public 
interest will be serviced primarily by disclosure to that requester. 
Disclosure to requesters who compile and market Federal Government 
information for direct economic return will not be presumed to primarily 
serve the ``public interest.''
    (3) Where only a portion of the requested record satisfies the 
requirements for a waiver or reduction of fees under this paragraph, a 
waiver or reduction shall be granted only as to that portion.
    (4) A request for a waiver or reduction of fees must accompany the 
request for disclosure of records and should include--
    (i) A clear statement of the requester's interest in the records;
    (ii) The proposed use of the records and whether the requester will 
derive income or other benefit from such use;
    (iii) A statement of how the public will benefit from release of the 
requested records; and
    (iv) If specialized use of the documents is contemplated, a 
statement of the requester's qualifications that are relevant to the 
specialized use.
    (5) A requester may appeal the denial of a request for a waiver or 
reduction of fees in accordance with the provisions of Sec. 1703.16.

[63 FR 71005, Dec. 23, 1998. Redesignated and amended at 65 FR 81327, 
Dec. 26, 2000]



Sec. 1703.25  Miscellaneous fee provisions.

    (a) Notice of anticipated fees in excess of $25.00. Where OFHEO 
determines or estimates that the fees chargeable will amount to more 
than $25.00, OFHEO shall promptly notify the requester of the actual or 
estimated amount of fees or such portion thereof that can be readily 
estimated, unless the requester has indicated his or her willingness to 
pay fees as high as those anticipated. Where a requester has been 
notified that the actual or estimated fees may exceed $25.00, the 
request will be deemed not to have been received until the requester has 
agreed to pay the anticipated total fee. A notice to the requester 
pursuant to this paragraph will include the opportunity to confer with 
OFHEO personnel in order to reformulate the request to meet the 
requester's needs at a lower cost.
    (b) Aggregating requests. A requester may not file multiple requests 
at the same time, each seeking portions of a record or records, solely 
in order to avoid the payment of fees. When OFHEO reasonably believes 
that a requester, or a group of requesters acting

[[Page 346]]

in concert, is attempting to break a request into a series of requests 
for the purpose of evading the assessment of fees, OFHEO may aggregate 
such requests and charge accordingly. One element to be considered in 
determining whether a belief would be reasonable is the time period over 
which the requests have occurred. OFHEO will presume that multiple 
requests of this type made within a 30-day period have been made in 
order to evade fees. Where requests are separated by a longer period, 
OFHEO shall aggregate them only where there exists a solid basis for 
determining that such aggregation is warranted, e.g., where the requests 
involve clearly related matters. Multiple requests regarding unrelated 
matters will not be aggregated.
    (c) Advance payment of fees. (1) OFHEO does not require an advance 
payment before work is commenced or continued, unless--
    (i) OFHEO estimates or determines that the fees are likely to exceed 
$250.00. If it appears that the fees will exceed $250.00, OFHEO will 
notify the requester of the likely cost and obtain satisfactory 
assurance of full payment where the requester has a history of prompt 
payment of FOIA fees. In the case of requesters with no history of 
payment, OFHEO may require an advance payment of fees in an amount up to 
the full estimated charge that will be incurred; or
    (ii) The requester has previously failed to pay a fee in a timely 
fashion, i.e., within 30 days of the date of a billing. In such cases, 
OFHEO may require the requester to pay the full amount owed plus any 
applicable interest, as provided in paragraph (d) of this section, or 
demonstrate that the fee owed has been paid, prior to processing any 
further record request. Under these circumstances, OFHEO may require the 
requester to make an advance payment of the full amount of the fees 
anticipated before processing a new request or finishing processing of a 
pending request from that requester.
    (2) A request for an advance deposit shall include an offer to the 
requester to confer with identified OFHEO personnel to attempt to 
reformulate the request in a manner which will meet the needs of the 
requester at a lower cost.
    (3) When OFHEO requests an advance payment of fees, the 
administrative time limits described in 5 U.S.C. 552(a)(6) begin only 
after OFHEO has received the advance payment.
    (d) Interest. OFHEO may assess interest charges on an unpaid bill 
starting on the 31st day following the day on which the bill was sent. 
Once a fee payment has been received by OFHEO, even if not processed, 
the accrual of interest shall be stayed. Interest charges shall be 
assessed at the rate prescribed in 31 U.S.C. 3717 and shall accrue from 
the date of the billing.



Subpart E_Testimony and Production of Documents in Legal Proceedings in 
                    Which OFHEO Is Not a Named Party



Sec. 1703.31  General purposes.

    The purposes of this subpart are to maintain the confidentiality of 
official documents and information of OFHEO, conserve the time of 
employees for their official duties, maintain the impartial position of 
OFHEO in litigation in which OFHEO is not a named party, and enable the 
Director to determine when to authorize testimony and to produce 
documents in legal proceedings in which OFHEO is not a named party. This 
subpart sets forth the procedures to be followed with respect to 
testimony concerning official matters and production of official 
documents of OFHEO in legal proceedings in which OFHEO is not a named 
party. This subpart in no way affects the rights and procedures 
governing public access to official documents pursuant to the FOIA or 
the Privacy Act.



Sec. 1703.32  Definitions.

    For the purpose of this subpart:
    (a) Court means any entity conducting a legal proceeding.
    (b) Demand means any order, subpoena, or other legal process for 
testimony or documents.
    (c) Legal proceeding means any administrative, civil, or criminal 
proceeding, including a discovery proceeding therein, before a court of 
law, administrative board or commission,

[[Page 347]]

hearing officer, or other body in which OFHEO is not a named party or in 
which OFHEO has not instituted the administrative investigation or 
administrative hearing.
    (d) OFHEO Counsel means the General Counsel or his or her designee, 
a Department of Justice attorney, or counsel authorized by OFHEO to act 
on behalf of OFHEO or an employee.



Sec. 1703.33  General policy.

    It is the policy of OFHEO that in any legal proceeding in which 
OFHEO is not a named party, no employee shall, in response to a demand, 
produce any documents contained in the files of OFHEO, or disclose any 
information relating to, or based upon, documents contained in the files 
of OFHEO, or disclose or produce any documents acquired as part of the 
performance of that employee's official duties or because of that 
employee's official status. Under appropriate circumstances, the 
Director may grant exceptions in writing to this policy when the 
Director determines that the testimony of employees or disclosure of 
official documents would be in the best interest of OFHEO or in the 
public interest. Prior to any authorized testimony or release of 
official documents, the requesting party shall obtain a protective order 
from the court before which the action is pending to preserve the 
confidentiality of the testimony or documents subsequently produced. The 
protective order shall be in a form satisfactory to OFHEO.



Sec. 1703.34  Request for testimony or production of documents.

    (a) No employee shall give testimony concerning official matters or 
produce any official documents in any legal proceeding to which OFHEO is 
not a named party without the prior written authorization of the 
Director.
    (b) If testimony by an employee concerning official matters or the 
production of official documents is desired, the requesting party, or 
his or her attorney, shall submit a letter to the Director setting forth 
the title of the case, the forum, the requesting party's interest in the 
case, a summary of the issues in the litigation, the reasons for the 
request, and a showing that the desired testimony, documents, or 
information are not reasonably available from any other source. If an 
appearance or testimony is requested, the letter shall also set forth 
the intended use of the testimony, a general summary of the scope of the 
testimony requested, and a showing that no document could be provided 
and used in lieu of the testimony or other appearance requested.
    (c) The General Counsel is authorized to consult with the requesting 
party or his or her attorney to refine and limit the request so that 
compliance is less burdensome, or obtain information necessary to make 
the determination described in Sec. 1703.33 of this subpart. Failure of 
the requesting party, or his or her attorney, to cooperate in good faith 
with the General Counsel to enable the Director to make an informed 
determination under this subpart may serve as the basis for a 
determination not to comply with the request.

[63 FR 71005, Dec. 23, 1998. Redesignated and amended at 65 FR 81327, 
Dec. 26, 2000]



Sec. 1703.35  Scope of permissible testimony.

    (a) The scope of permissible testimony by an employee is limited to 
that set forth in the written authorization granted that employee by the 
Director.
    (b) Employees are not authorized to give opinion testimony, except 
as authorized by the Director. OFHEO, as the regulatory agency charged 
with the responsibility of examining, supervising, and regulating the 
financial safety and soundness and capital adequacy of the Enterprises 
under the Federal Housing Enterprises Financial Safety and Soundness Act 
of 1992, 12 U.S.C. 4501 et seq., relies on the ability of its employees 
to gather full and complete information in order to carry out its 
statutory responsibilities. The use of employees to give opinion 
testimony would hamper OFHEO's ability to carry out its statutory 
responsibilities and would cause a serious administrative burden on 
OFHEO's staff.



Sec. 1703.36  Manner in which testimony is given.

    (a) Authorized testimony of employees ordinarily will be made 
available only through depositions or written interrogatories.

[[Page 348]]

    (b) Where, in response to a request, the Director determines that 
circumstances warrant authorizing testimony by an employee, the 
requesting party shall cause a subpoena to be served on the employee in 
accordance with applicable Federal or State rules of procedure, with a 
copy of the subpoena sent by registered or certified mail to the General 
Counsel.
    (c) Normally, authorized depositions will be taken at OFHEO's 
office, at a time arranged with the employee that is reasonably fixed to 
avoid substantial interference with the performance of the employee's 
duties.
    (d) Upon completion of the deposition of an employee, a copy of the 
transcript of the testimony shall be furnished, at the expense of the 
party requesting the deposition, to the General Counsel for OFHEO's 
files.



Sec. 1703.37  Manner in which documents will be produced.

    (a) An employee's authorization to produce official documents is 
limited to the authority granted that employee by the Director.
    (b) Certified or authenticated copies of official OFHEO documents 
authorized by the Director to be released under this subpart will be 
provided upon request.



Sec. 1703.38  Fees.

    Unless waived or reduced, the following fees shall be charged for 
documents produced by OFHEO in connection with requests subject to this 
subpart:
    (a) Searches for documents. OFHEO will charge for the actual search 
time of the employee performing the work, billed in 15-minute segments, 
as described in Sec. 1703.22(b)(1)(i).
    (b) Copying of documents. The standard copying charge for documents 
in paper copy is $.15 per page. When responsive information is provided 
in a format other than paper copy, such as in the form of computer tapes 
and disks, OFHEO will assess the direct costs of the tape, disk, or 
whatever medium is used to produce the information, as well as any 
related reproduction costs. Normally, only one copy will be provided. 
Additional copies will be provided only upon a showing of demonstrated 
need.
    (c) Certification or authentication of documents. OFHEO will charge 
$3.00 for each certification or authentication of documents.
    (d) Computer searches. Services of personnel in the nature of a 
computer search shall be charged at rates prescribed in paragraph (a) of 
this section. A charge shall be made for the computer time involved, 
based upon the prevailing level of costs to OFHEO and upon the 
particular types of computer and associated equipment and the amount of 
time that such equipment is utilized. A charge shall also be made for 
any substantial amount of special supplies or documents used to contain, 
present, or make available the output of computers, based upon 
prevailing levels of costs to OFHEO and upon the type and amount of such 
supplies or documents that are used.
    (e) Other costs. When other services and documents not specifically 
identified in this section are requested and provided, their actual cost 
to OFHEO shall be charged.
    (f) Payments of fees. A bill will be forwarded to the requesting 
party upon completion of the production. Payment shall be made by check 
or money order payable to the Office of Federal Housing Enterprise 
Oversight.

[63 FR 71005, Dec. 23, 1998, as amended at 65 FR 55175, Sept. 13, 2000. 
Redesignated and amended at 65 FR 81327, Dec. 26, 2000]



Sec. 1703.39  Responses to demands served on employees.

    (a) Advice by employee served. Any employee who is served with a 
demand in a legal proceeding requiring his or her personal attendance as 
a witness or requiring the production of documents or information in any 
proceeding, shall immediately notify the General Counsel of such 
service, of the testimony and documents described in the demand, and of 
all relevant facts which may be of assistance to the General Counsel in 
determining whether the individual in question should be authorized to 
testify or the documents requested should be made available.
    (b) When authorization to testify or to produce documents has not 
been

[[Page 349]]

granted by the Director, OFHEO Counsel shall provide the party issuing 
the demand or the court with a copy of the regulations contained in this 
subpart and shall inform the party issuing the demand or the court that 
the employee upon whom the demand has been made is prohibited from 
testifying or producing documents without the prior approval of the 
Director.
    (c) Appearance by employee served. Unless OFHEO has authorized 
disclosure of the information requested, any employee who has OFHEO 
information that may not be disclosed and who is required to respond to 
a subpoena or other legal process, shall attend at the time and place 
required and respectfully decline to disclose or to give any testimony 
with respect to the information, basing such refusal upon the provisions 
of this subpart. If the court nevertheless orders the disclosure of the 
information or the giving of testimony irrespective of instructions from 
the Director not to produce the documents or disclose the information 
sought, the employee upon whom the demand has been made shall continue 
to decline respectfully to disclose the information and shall report 
promptly the facts to OFHEO for such action as OFHEO may deem 
appropriate.
    (d) A determination under this subpart to comply or not to comply 
with any demand shall not constitute an assertion or waiver of 
privilege, lack of relevance, technical deficiencies, or any other 
ground for noncompliance. OFHEO reserves the right to oppose any demand 
on any legal ground independent of its determination under this subpart.



Sec. 1703.40  Responses to demands served on nonemployees.

    (a) OFHEO reports of examinations, or any documents related thereto, 
are the property of OFHEO and are not to be disclosed to any person 
without the Director's prior written consent.
    (b) If any person who has possession of an OFHEO report of 
examination, or any documents related thereto, is served with a demand 
in a legal proceeding directing that person to produce such OFHEO 
documents or to testify with respect thereto, such person shall 
immediately notify the General Counsel of such service, of the testimony 
and described documents in the demand, and of all relevant facts. Such 
person shall also object to the production of such documents or 
information contained therein on the basis that the documents are the 
property of OFHEO and cannot be released without OFHEO's consent and 
that their production must be sought from OFHEO following the procedures 
set forth in Sec. 1703.33, paragraphs (b) and (c) of Sec. 1703.34, and 
paragraph (b) of Sec. 1703.37 of this subpart.

[63 FR 71005, Dec. 23, 1998. Redesignated and amended at 65 FR 81328, 
Dec. 26, 2000]



          Subpart F_Rules and Procedures for Service Upon OFHEO



Sec. 1703.51  Service of process.

    (a) Except as otherwise provided by OFHEO regulations, the Federal 
Rules of Civil Procedure, or order of a court with jurisdiction over 
OFHEO, any legal process upon OFHEO, including a legal process served on 
OFHEO demanding access to its records under the FOIA, shall be duly 
issued and served upon the General Counsel and any OFHEO personnel named 
in the caption of the documents.
    (b) Service of process upon the General Counsel may be effected by 
personally delivering a copy of the documents to the General Counsel or 
by sending a copy of the documents to the General Counsel by registered 
or certified mail, postage prepaid, to the Office of Federal Housing 
Enterprise Oversight, 1700 G Street, NW., Fourth Floor, Washington, DC 
20552.



PART 1704_DEBT COLLECTION--Table of Contents




                            Subpart A_General

Sec.
1704.1 Authority and scope.
1704.2 Definitions.
1704.3 Collection of debts and referrals to the Department of the 
          Treasury.
1704.4-1704.19 [Reserved]

                         Subpart B_Salary Offset

1704.20 Authority and scope.
1704.21 Notice requirements before salary offset where OFHEO is the 
          creditor agency.

[[Page 350]]

1704.22 Review of OFHEO records related to the debt.
1704.23 Opportunity for a hearing where OFHEO is the creditor agency.
1704.24 Certification where OFHEO is the creditor agency.
1704.25 Voluntary repayment agreements as alternative to salary offset 
          where OFHEO is the creditor agency.
1704.26 Special review where OFHEO is creditor agency.
1704.27 Notice of salary offset where OFHEO is the paying agency.
1704.28 Procedures for salary offset where OFHEO is the paying agency.
1704.29 Coordinating salary offset with other agencies.
1704.30 Interest, penalties, and administrative costs.
1704.31 Refunds.
1704.32 Request from a creditor agency for the services of a hearing 
          official.
1704.33 Non-waiver of rights by payment.
1704.34-1704.39 [Reserved]

                     Subpart C_Administrative Offset

1704.40 Authority and scope.
1704.41 Administrative offset prior to completion of procedures.
1704.42 Procedures.
1704.43 Interest.
1704.44 Refunds.
1704.45 Requests for administrative offset to other Federal agencies.
1704.46 Requests for administrative offset from other Federal agencies.
1704.47 Administrative offset against amounts payable from Civil Service 
          Retirement and Disability Fund.
1704.48-1704.49 [Reserved]

                       Subpart D_Tax Refund Offset

1704.50 Authority and scope.
1704.51 Definitions.
1704.52 Procedures.

    Authority: 5 U.S.C. 5514; 26 U.S.C. 6402(d); 31 U.S.C. 3701-3720A.

    Source: 64 FR 34969, June 30, 1999, unless otherwise noted. 
Redesignated at 65 FR 81328, Dec. 26, 2000.



                            Subpart A_General



Sec. 1704.1  Authority and scope.

    (a) Authority. The Office of Federal Housing Enterprise Oversight 
(OFHEO) issues this part 1704 under the authority of 5 U.S.C. 5514 and 
31 U.S.C. 3701-3720A, and in conformity with the FCCS at 4 CFR chapter 
II; the regulations on salary offset issued by the Office of Personnel 
Management at 5 CFR part 550, subpart K; and the regulations on tax 
refund offset issued by the Internal Revenue Service at 26 CFR 301.6402-
6.
    (b) Scope. (1) This part 1704 applies to debts that are owed to the 
Federal Government by Federal employees, other persons, organizations, 
or entities that are indebted to OFHEO, and by Federal employees of 
OFHEO who are indebted to other agencies, except for those debts listed 
in paragraph (b)(2) of this section.
    (2) Subparts B and C of this part 1704 do not apply to:
    (i) Debts or claims arising under the Internal Revenue Code (26 
U.S.C. 1 et seq.) or the tariff laws of the United States;
    (ii) Any case to which the Contract Disputes Act (41 U.S.C. 601 et 
seq.) applies;
    (iii) Any case where collection of a debt is explicitly provided for 
or provided by another statute, e.g. travel advances under 5 U.S.C. 5705 
and employee training expenses under 5 U.S.C. 4108, or, as provided for 
by title 11 of the United States Code, when the claims involve 
bankruptcy;
    (iv) Any debt based in whole or in part on conduct in violation of 
the antitrust laws or involving fraud, the presentation of a false 
claim, or misrepresentation on the part of the debtor or any party 
having an interest in the claim, unless the Department of Justice 
authorizes OFHEO to handle the collection;
    (v) Claims between agencies; or
    (vi) A claim that has been outstanding for more than 10 years after 
the creditor agency's right to collect the debt first accrued, unless 
facts material to the Federal Government's right to collect were not 
known and could not reasonably have been known by the officials charged 
with the responsibility for discovery and collection of such debts.
    (3) Nothing in this part 1704 precludes the compromise, suspension, 
or termination of collection actions, where appropriate under the FCCS, 
or the use of alternative dispute resolution methods if they are not 
inconsistent with applicable law and regulations.
    (4) Nothing in this part 1704 precludes an employee from requesting 
waiver of

[[Page 351]]

an erroneous payment under 5 U.S.C. 5584, 10 U.S.C. 2774, or 32 U.S.C. 
716, or from questioning the amount or validity of a debt, in the manner 
set forth in this part 1704.

[64 FR 34969, June 30, 1999. Redesignated and amended at 65 FR 81328, 
Dec. 26, 2000]



Sec. 1704.2  Definitions.

    The following definitions apply to the terms used in this part 1704, 
unless the term is defined elsewhere in this part 1704.
    (a) Administrative offset means an action, pursuant to 31 U.S.C. 
3716, in which the Federal Government withholds funds payable to, or 
held by the Federal Government for a person, organization, or other 
entity in order to collect a debt from that person, organization, or 
other entity. Such funds include funds payable by the Federal Government 
on behalf of a State Government.
    (b) Agency means a department, agency, court, court administrative 
office, or instrumentality in the executive, judicial, or legislative 
branch of the Federal Government, including government corporations.
    (c) Claim or debt (used interchangeably in this part 1704) means any 
amount of funds or property that has been determined by an agency 
official to be due the Federal Government by a person, organization, or 
entity, except another agency. It also means any amount of money, funds, 
or property owed by a person to a State, the District of Columbia, 
American Samoa, Guam, the United States Virgin Islands, the Commonwealth 
of the Northern Mariana Islands, or the Commonwealth of Puerto Rico. A 
claim or debt includes:
    (1) Funds owed on account of loans made, insured, or guaranteed by 
the Federal Government, including any deficiency or any difference 
between the price obtained by the Federal Government in the sale of a 
property and the amount owed to the Federal Government on a mortgage on 
the property;
    (2) Expenditures of non-appropriated funds;
    (3) Overpayments, including payments disallowed by audits performed 
by the Inspector General of the agency administering the program;
    (4) Any amount the Federal Government is authorized by statute to 
collect for the benefit of any person;
    (5) The unpaid share of any non-Federal partner in a program 
involving a Federal payment, and a matching or cost-sharing payment by 
the non-Federal partner;
    (6) Any fines or penalties assessed by an agency; and
    (7) Other amounts of money or property owed to the Federal 
Government.
    (d) Certification means a written statement received by a paying 
agency from a creditor agency that request the paying agency to offset 
the salary of an employee and specifies that required procedural 
protections have been afforded the employee.
    (e) Compromise means the settlement or forgiveness of a debt.
    (f) Creditor agency means the agency to which the debt is owed, 
including a debt collection center when acting in behalf of a creditor 
agency in matters pertaining to the collection of a debt.
    (g) Debt. See Claim or debt in paragraph (c) of this section.
    (h) Debt collection center means the Department of the Treasury or 
any other agency or division designated by the Secretary of the Treasury 
with authority to collect debts on behalf of creditor agencies in 
accordance with 31 U.S.C. 3711(g).
    (i) Debtor means the person, organization, or entity owing money to 
the Federal Government.
    (j) Disposable pay means that part of current basic pay, special 
pay, incentive pay, retired pay, or retainer pay (or in the case of an 
employee not entitled to basic pay, other authorized pay) remaining 
after the deduction of any amount required by law to be withheld (other 
than deductions to execute garnishment orders in accordance with 5 CFR 
parts 581 and 582). Among the legally required deductions that OFHEO 
must apply first to determine disposable pay are levies pursuant to the 
Internal Revenue Code (title 26, United States Code) and deductions 
described in 5 CFR 581.105 (b) through (f), as follows:
    (1) Federal employment taxes;
    (2) Amounts withheld for the United States Soldiers' and Airmen's 
Home;
    (3) Amounts deducted for Medicare;

[[Page 352]]

    (4) Fines and forfeiture ordered by a court-martial or by a 
commanding officer;
    (5) Federal, State, or local income taxes to the extent authorized 
or required by law, but no greater than would be the case if the 
employee claimed all dependents to which her or she is entitled and such 
additional amounts for which the employee presents evidence of a tax 
obligation supporting the additional withholding;
    (6) Health insurance premiums;
    (7) Normal retirement contributions, including employee 
contributions to the Thrift Savings Plan; and
    (8) Normal life insurance premiums, e.g., Serviceman's Group Life 
Insurance and ``Basic Life'' Federal Employee's Group Life Insurance 
premiums, not including amounts deducted for supplementary coverage.
    (k) Employee means a current employee of OFHEO or other agency, 
including a current member of the Armed Forces or a Reserve of the Armed 
Forces of the United States.
    (l) FCCS means the Federal Claims Collection Standards at 4 CFR 
chapter II.
    (m) Hearing official means an individual who is responsible for 
conducting any hearing with respect to the existence or amount of a debt 
claimed and for rendering a decision on the basis of such hearing. A 
hearing official may not be under the supervision or control of the 
Director of OFHEO when OFHEO is the creditor agency but may be an 
administrative law judge.
    (n) Notice of Intent means a written notice of a creditor agency to 
a debtor that states that the debtor owes a debt to the creditor agency 
and apprises the debtor of the applicable procedural rights.
    (o) Notice of salary offset means a written notice from the paying 
agency to an employee after a certification has been issued by a 
creditor agency that informs the employee that salary offset will begin 
at the next officially established pay interval.
    (p) Paying agency means an agency of the Federal Government that 
employs the individual who owes a debt to an agency of the Federal 
Government.
    (q) Salary offset means an administrative offset to collect a debt 
under 5 U.S.C. 5514 by deductions at one or more officially established 
pay intervals from the current pay account of an employee without his or 
her consent.
    (r) Waiver means the cancellation, remission, forgiveness, or non-
recovery of a debt allegedly owed by an employee to OFHEO or another 
agency as permitted or required by 5 U.S.C. 5584 or 8346(b), 10 U.S.C. 
2774, 32 U.S.C. 716, or any other law.

[64 FR 34969, June 30, 1999. Redesignated and amended at 65 FR 81328, 
Dec. 26, 2000]



Sec. 1704.3  Collection of debts and referrals to the Department of the Treasury.

    (a) Collection activity. The collection of debts directly and by 
offset shall be pursued in accordance with this part 1704. This part 
1704 incorporates all applicable debt collection provisions of the FCCS 
and supplements the FCCS by the prescription of procedures necessary and 
appropriate for the operations of OFHEO.
    (b) Referral of delinquent debts. (1) OFHEO shall transfer to the 
Secretary of the Department of the Treasury any past due, legally 
enforceable nontax debt that has been delinquent for a period of 180 
days or more so that the Secretary may take appropriate action to 
collect the debt or terminate collection action in accordance with 31 
U.S.C. 3716, 5 U.S.C. 5514, the FCCS, 5 CFR 550.1108, and 31 CFR part 
285.
    (2) OFHEO may transfer any past due, legally enforceable nontax debt 
that has been delinquent for less than a period of 180 days to a debt 
collection center for collection in accordance with 31 U.S.C. 3716, 5 
U.S.C. 5514, 5 CFR 550.1108, 31 CFR part 285, and the FCCS.

[64 FR 34969, June 30, 1999. Redesignated and amended at 65 FR 81328, 
Dec. 26, 2000]



Sec. Sec. 1704.4-1704.19  [Reserved]



                         Subpart B_Salary Offset



Sec. 1704.20  Authority and scope.

    (a) Authority. OFHEO may collect debts owed by employees to the 
Federal Government by means of salary offset under the authority of 5 
U.S.C.

[[Page 353]]

5514, 5 CFR part 550, subpart K, and this subpart B.
    (b) Scope. (1) The procedures set forth in this subpart B apply to 
situations where OFHEO is attempting to collect a debt by salary offset 
that is owed to it by an individual employed by OFHEO or by another 
agency; or where OFHEO employs an individual who owes a debt to another 
agency.
    (2) The procedures set forth in this subpart B do not apply to:
    (i) Any routine intra-agency adjustment of pay that is attributable 
to clerical or administrative error or delay in processing pay documents 
that have occurred within the four pay periods preceding the adjustment, 
or any adjustment to collect a debt amounting to $50 or less. However, 
at the time of any such adjustment, or as soon thereafter as possible, 
OFHEO or its designated payroll agent shall provide the employee with a 
written notice of the nature and the amount of the adjustment and a 
point of contact for contesting such adjustment.
    (ii) Any negative adjustment to pay that arises from an employee's 
election of coverage or a change in coverage under a Federal benefits 
program that requires periodic deductions from pay, if the amount to be 
recovered was accumulated over four pay periods or less. However, at the 
time the such adjustment is made, OFHEO or its payroll agent shall 
provide in the employee's earnings statement a clear and concise 
statement that informs the employee of the previous overpayment.



Sec. 1704.21  Notice requirements before salary offset where OFHEO is the creditor agency.

    (a) Notice of Intent. Deductions from an employee's salary may not 
be made unless OFHEO provides the employee with a Notice of Intent a 
minimum of 30 calendar days before the salary offset is initiated.
    (b) Contents of Notice of Intent. The Notice of Intent shall advise 
the employee of the following:
    (1) OFHEO has reviewed the records relating to the claim and has 
determined that the employee owes the debt;
    (2) OFHEO intends to collect the debt by deductions from the 
employee's current disposable pay account;
    (3) The amount of the debt and the facts giving rise to the debt;
    (4) The frequency and amount of the intended deduction (stated as a 
fixed dollar amount or as a percentage of pay not to exceed 15 percent 
of disposable pay), and the intention to continue the deductions until 
the debt and all accumulated interest are paid in full or otherwise 
resolved;
    (5) The name, address, and telephone number of the person to whom 
the employee may propose a written alternative schedule for voluntary 
repayment, in lieu of salary offset. The employee shall include a 
justification for the alternative schedule in his or her proposal. If 
the terms of the alternative schedule are agreed upon by the employee 
and OFHEO, the alternative written schedule shall be signed by both the 
employee and OFHEO;
    (6) An explanation of OFHEO's policy concerning interest, penalties, 
and administrative costs, including a statement that such assessments 
must be made unless excused in accordance with the FCCS;
    (7) The employee's right to inspect and copy all records of OFHEO 
pertaining to his or her debt that are not exempt from disclosure or to 
receive copies of such records if he or she is unable personally to 
inspect the records as the result of geographical or other constraints;
    (8) The name, address, and telephone number of the OFHEO employee to 
whom requests for access to records relating to the debt must be sent;
    (9) The employee's right to a hearing conducted by an impartial 
hearing official with respect to the existence and amount of the debt 
claimed or the repayment schedule i.e., the percentage of disposable pay 
to be deducted each pay period, so long as a request is filed by the 
employee as prescribed in Sec. 1704.23; the name and address of the 
office to which the request for a hearing should be sent; and the name, 
address, and telephone number of a person whom the employee may contact 
concerning procedures for requesting a hearing;

[[Page 354]]

    (10) The filing of a request for a hearing on or before the 15th 
calendar day following receipt of the Notice of Intent will stay the 
commencement of collection proceedings and a final decision on whether a 
hearing will be held (if a hearing is requested) will be issued at the 
earliest practical date;
    (11) OFHEO shall initiate certification procedures to implement a 
salary offset unless the employee files a request for a hearing on or 
before the 15th calendar day following receipt of the Notice of Intent;
    (12) Any knowingly false or frivolous statement, representations, or 
evidence may subject the employee to:
    (i) Disciplinary procedures appropriate under 5 U.S.C. chapter LXXV, 
5 CFR part 752, or any other applicable statutes or regulations;
    (ii) Penalties under the False Claims Act, 31 U.S.C. 3729-3731, or 
under any other applicable statutory authority; or
    (iii) Criminal penalties under 18 U.S.C. 286, 287, 1001, and 1002, 
or under any other applicable statutory authority;
    (13) Any other rights and remedies available to the employee under 
statutes or regulations governing the program for which the collection 
is being made;
    (14) Unless there are applicable contractual or statutory provisions 
to the contrary, amounts paid on or deducted from debts that are later 
waived or found not to be owed to the Federal Government shall be 
promptly refunded to the employee; and
    (15) Proceedings with respect to the debt are governed by 5 U.S.C. 
5514.

[64 FR 34969, June 30, 1999. Redesignated and amended at 65 FR 81328, 
Dec. 26, 2000]



Sec. 1704.22  Review of OFHEO records related to the debt.

    (a) Request for review. An employee who desires to inspect or copy 
OFHEO records related to a debt owed by the employee to OFHEO must send 
a letter to the individual designated in the Notice of Intent requesting 
access to the relevant records. The letter must be received in the 
office of that individual within 15 calendar days after the employee's 
receipt of the Notice of Intent.
    (b) Review location and time. In response to a timely request 
submitted by the employee, the employee shall be notified of the 
location and time when the employee may inspect and copy records related 
to his or her debt that are not exempt from disclosure. If the employee 
is unable personally to inspect such records as the result of 
geographical or other constraints, OFHEO shall arrange to send copies of 
such records to the employee.



Sec. 1704.23  Opportunity for a hearing where OFHEO is the creditor agency.

    (a) Request for a hearing--(1) Time-period for submission. An 
employee who requests a hearing on the existence or amount of the debt 
held by OFHEO or on the salary-offset schedule proposed by OFHEO, must 
send such request to OFHEO. The request for a hearing must be received 
by OFHEO on or before the 15th calendar day following receipt by the 
employee of the Notice of Intent.
    (2) Failure to submit timely. If the employee files a request for a 
hearing after the expiration of the 15th calendar day, OFHEO may accept 
the request if the employee can show that the delay was the result of 
circumstances beyond his or her control or that he or she failed to 
receive actual notice of the filing deadline.
    (3) Contents of request. The request for a hearing must be signed by 
the employee and must fully identify and explain with reasonable 
specificity all the facts, evidence, and witnesses, if any, that the 
employee believes support his or her position. The employee must also 
specify whether he or she requests an oral hearing. If an oral hearing 
is requested, the employee should explain why a hearing by examination 
of the documents without an oral hearing would not resolve the matter.
    (4) Failure to request a hearing. The failure of an employee to 
request a hearing will be considered an admission by the employee that 
the debt exits in the amount specified in the Notice of Intent that was 
provided to the employee under Sec. 1704.21(b).
    (b) Obtaining the services of a hearing official--(1) Debtor is not 
OFHEO employee. When the debtor is not an

[[Page 355]]

OFHEO employee and OFHEO cannot provide a prompt and appropriate hearing 
before an administrative law judge or other hearing official, OFHEO may 
request a hearing official from an agent of the paying agency, as 
designated in 5 CFR part 581, appendix A, or as otherwise designated by 
the paying agency.
    (2) Debtor is OFHEO employee. When the debtor is an OFHEO employee, 
OFHEO may contact any agent of another agency, as designated in 5 CFR 
part 581, appendix A, or as otherwise designated by the agency, to 
request a hearing official.
    (c) Procedure--(1) Notice of hearing. After the employee requests a 
hearing, the hearing official shall notify the employee of the form of 
the hearing to be provided. If the hearing will be oral, the notice 
shall set forth the date, time, and location of the hearing, which must 
occur no more than 30 calendar days after the request is received, 
unless the employee requests that the hearing be delayed. If the hearing 
will be conducted by an examination of documents, the employee shall be 
notified within 30 calendar days that he or she should submit evidence 
and arguments in writing to the hearing official.
    (2) Oral hearing. (i) An employee who requests an oral hearing shall 
be provided an oral hearing if the hearing official determines that the 
matter cannot be resolved by an examination of the documents alone, as 
for example, when an issue of credibility or veracity is involved. The 
oral hearing need not be an adversarial adjudication and rules of 
evidence need not apply. Witnesses who testify in an oral hearing shall 
do so under oath or affirmation.
    (ii) Oral hearings may take the form of, but are not limited to:
    (A) Informal conferences with the hearing official in which the 
employee and agency representative are given full opportunity to present 
evidence, witnesses, and argument;
    (B) Informal meetings in which the hearing examiner interviews the 
employee; or
    (C) Formal written submissions followed by an opportunity for oral 
presentation.
    (3) Hearing by examination of documents. If the hearing official 
determines that an oral hearing is not necessary, he or she shall make 
the determination based upon an examination of the documents.
    (d) Record. The hearing official shall maintain a summary record of 
any hearing conducted under this section.
    (e) Decision. (1) The hearing official shall issue a written opinion 
stating his or her decision, based upon all evidence and information 
developed during the hearing, as soon as practicable after the hearing, 
but not later than 60 calendar days after the date on which the request 
was received by OFHEO, unless the hearing was delayed at the request of 
the employee, in which case the 60-day decision period shall be extended 
by the number of days by which the hearing was postponed.
    (2) The decision of the hearing official shall be final and is 
considered to be an official certification regarding the existence and 
the amount of the debt for purposes of executing salary offset under 5 
U.S.C. 5514. If the hearing official determines that a debt may not be 
collected by salary offset, but OFHEO finds that the debt is still 
valid, OFHEO may seek collection of the debt through other means in 
accordance with applicable law and regulations.
    (f) Content of decision. The written decision shall include:
    (1) A summary of the facts concerning the origin, nature, and amount 
of the debt;
    (2) The hearing official's findings, analysis, and conclusions; and
    (3) The terms of any repayment schedules, if applicable.
    (g) Failure to appear. If, in the absence of good cause shown, such 
as illness, the employee or the representative of OFHEO fails to appear, 
the hearing official shall proceed with the hearing as scheduled, and 
make his or decision based upon the oral testimony presented and the 
documentation submitted by both parties. At the request of both parties, 
the hearing official may schedule a new hearing date. Both parties shall 
be given reasonable notice

[[Page 356]]

of the time and place of the new hearing.

[64 FR 34969, June 30, 1999. Redesignated and amended at 65 FR 81328, 
Dec. 26, 2000]



Sec. 1704.24  Certification where OFHEO is the creditor agency.

    (a) Issuance. OFHEO shall issue a certification in all cases where 
the hearing official determines that a debt exists or the employee 
admits the existence and amount of the debt, as for example, by failing 
to request a hearing.
    (b) Contents. The certification must be in writing and state:
    (1) That the employee owes the debt;
    (2) The amount and basis of the debt;
    (3) The date of the Federal Government's right to collect the debt 
first accrued;
    (4) The date the employee was notified of the debt, the action(s) 
taken pursuant to OFHEO's regulations, and the dates such actions were 
taken;
    (5) If the collection is to be made by lump-sum payment, the amount 
and date such payment will be collected;
    (6) If the collection is to be made in installments, the amount or 
percentage of disposable pay to be collected in each installment and, if 
OFHEO wishes, the desired commencing date of the first installments, if 
a date other than the next officially established pay period; and
    (7) A statement that OFHEO's regulation on salary offset has been 
approved by the Office of Personnel Management pursuant to 5 CFR part 
550, subpart K.



Sec. 1704.25  Voluntary repayment agreements as alternative to salary offset where OFHEO is the creditor agency.

    (a) Proposed repayment schedule. In response to a Notice of Intent, 
an employee may propose to repay the debt voluntarily in lieu of salary 
offset by submitting a written proposed repayment schedule to OFHEO. Any 
proposal under this section must be received by OFHEO within 15 calendar 
days after receipt of the Notice of Intent.
    (b) Notification of decision. In response to a timely proposal by 
the employee, OFHEO shall notify the employee whether the employee's 
proposed repayment schedule is acceptable. OFHEO has the discretion to 
accept, reject, or propose to the employee a modification of the 
proposed repayment schedule.
    (1) If OFHEO decides that the proposed repayment schedule is 
unacceptable, the employee shall have 15 calendar days from the date he 
or she received notice of the decision in which to file a request for a 
hearing.
    (2) If OFHEO decides that the proposed repayment schedule is 
acceptable or the employee agrees to a modification proposed by OFHEO, 
an agreement shall be put in writing and signed by both the employee and 
OFHEO.



Sec. 1704.26  Special review where OFHEO is the creditor agency.

    (a) Request for review. (1) An employee subject to salary offset or 
a voluntary repayment agreement may, at any time, request a special 
review by OFHEO of the amount of the salary offset or voluntary 
repayment, based on materially changed circumstances, including, but not 
limited to, catastrophic illness, divorce, death, or disability.
    (2) The request for special review must include an alternative 
proposed offset or payment schedule and a detailed statement, with 
supporting documents, that shows why the current salary offset or 
payments result in extreme financial hardship to the employee and his or 
her spouse and dependents. The detailed statement must indicate:
    (i) Income from all sources;
    (ii) Assets;
    (iii) Liabilities;
    (iv) Number of dependents;
    (v) Expenses for food, housing, clothing, and transportation;
    (vi) Medical expenses; and
    (vii) Exceptional expenses, if any.
    (b) Evaluation of request. OFHEO shall evaluate the statement and 
supporting documents and determine whether the original offset or 
repayment schedule imposes extreme financial hardship on the employee. 
OFHEO shall notify the employee in writing within 30 calendar days of 
such determination, including, if appropriate, a revised offset or 
payment schedule. If the special review results in a revised offset or 
repayment

[[Page 357]]

schedule, OFHEO shall provide a new certification to the paying agency.



Sec. 1704.27  Notice of salary offset where OFHEO is the paying agency.

    (a) Notice. Upon issuance of a proper certification by OFHEO (for 
debts owed to OFHEO) or upon receipt of a proper certification from 
another creditor agency, OFHEO shall send the employee a written notice 
of salary offset.
    (b) Content of notice. Such written notice of salary offset shall 
advise the employee of the:
    (1) Certification that has been issued by OFHEO or received from 
another creditor agency;
    (2) Amount of the debt and of the deductions to be made; and
    (3) Date and pay period when the salary offset will begin.
    (c) If OFHEO is not the creditor agency, OFHEO shall provide a copy 
of the notice of salary offset to the creditor agency and advise the 
creditor agency of the dollar amount to be offset and the pay period 
when the offset will begin.



Sec. 1704.28  Procedures for salary offset where OFHEO is the paying agency.

    (a) Generally. OFHEO shall coordinate salary deductions under this 
section and shall determine the amount of an employee's disposable pay 
and the amount of the salary offset subject to the requirements in this 
section. Deductions shall begin the pay period following the issuance of 
the certification by OFHEO or the receipt by OFHEO of the certification 
from another agency, or as soon thereafter as possible.
    (b) Types of collection--(1) Lump-sum payment. If the amount of the 
debt is equal to or less than 15 percent of the employee's disposable 
pay, such debt ordinarily will be collected in one lump-sum payment.
    (2) Installment deductions. Installment deductions will be made over 
a period not greater than the anticipated period of employment. The size 
and frequency of installment deductions will bear a reasonable relation 
to the size of the debt and the employee's ability to pay. However, the 
amount deducted for any pay period will not exceed 15 percent of the 
disposable pay from which the deduction is made unless the employee has 
agreed in writing to the deduction of a greater amount. The installment 
payment should normally be sufficient in size and frequency to liquidate 
the debt in no more than three years. Installment payments of less than 
$50 should be accepted only in the most unusual circumstances.
    (3) Lump-sum deductions from final check. In order to liquidate a 
debt, a lump-sum deduction exceeding 15 percent of disposable pay may be 
made pursuant to 31 U.S.C. 3716 from any final salary payment due a 
former employee, whether the former employee was separated voluntarily 
or involuntarily.
    (4) Lump-sum deductions from other sources. Whenever an employee 
subject to salary offset is separated from OFHEO, and the balance of the 
debt cannot be liquidated by offset of the final salary check, OFHEO may 
offset any later payments of any kind to the former employee to collect 
the balance of the debt pursuant to 31 U.S.C. 3716.
    (c) Multiple debts. (1) Where two or more creditor agencies are 
seeking salary offset, or where two or more debts are owed to a single 
creditor agency, OFHEO may, at his or her discretion, determine whether 
one or more debts should be offset simultaneously within the 15 percent 
limitation.
    (2) In the event that a debt owed OFHEO is certified while an 
employee is subject to salary offset to repay another agency, OFHEO may, 
at its discretion, determine whether the debt to OFHEO should be repaid 
before the debt to the other agency is repaid, repaid simultaneously 
with the other debt, or repaid after the debt to the other agency.
    (3) A levy pursuant to the Internal Revenue Code of 1986 shall take 
precedence over other deductions under this section, as provided in 5 
U.S.C. 5514(d).



Sec. 1704.29  Coordinating salary offset with other agencies.

    (a) Responsibility of OFHEO as the creditor agency. (1) OFHEO shall 
be responsible for:
    (i) Arranging for a hearing upon proper request by a Federal 
employee;
    (ii) Preparing the Notice of Intent consistent with the requirements 
of Sec. 1704.21;

[[Page 358]]

    (iii) Obtaining hearing officials from other agencies pursuant to 
Sec. 1704.23(b); and
    (iv) Ensuring that each certification of debt is sent to a paying 
agency pursuant to Sec. 1704.24(b).
    (2) Upon completion of the procedures set forth in Sec. Sec. 
1704.24-1704.26, OFHEO shall submit to the employee's paying agency, if 
applicable, a certified debt claim and an installment agreement or other 
instruction on the payment schedule.
    (i) If the employee is in the process of separating from the Federal 
Government, OFHEO shall submit its debt claim to the employee's paying 
agency for collection by lump-sum deduction from the employee's final 
check. The paying agency shall certify the total amount of its 
collection and furnish a copy of the certification to OFHEO and to the 
employee.
    (ii) If the employee is already separated and all payments due from 
his or her former paying agency have been paid, OFHEO may, unless 
otherwise prohibited, request that money due and payable to the employee 
from the Federal Government be administratively offset to collect the 
debt.
    (iii) When an employee transfers to another paying agency, OFHEO 
shall not repeat the procedures described in Sec. Sec. 1704.24-1704.26. 
Upon receiving notice of the employee's transfer, OFHEO shall review the 
debt to ensure that collection is resumed by the new paying agency.
    (b) Responsibility of OFHEO as the paying agency--(1) Complete 
claim. When OFHEO receives a certified claim from a creditor agency, the 
employee shall be given written notice of the certification, the date 
salary offset will begin, and the amount of the periodic deductions. 
Deductions shall be scheduled to begin at the next officially 
established pay interval or as otherwise provided for in the 
certification.
    (2) Incomplete claim. When OFHEO receives an incomplete 
certification of debt from a creditor agency, OFHEO shall return the 
claim with notice that procedures under 5 U.S.C. 5514 and 5 CFR 550.1104 
must be followed, and that a properly certified claim must be received 
before OFHEO will take action to collect the debt from the employee's 
current pay account.
    (3) Review. OFHEO is not authorized to review the merits of the 
creditor agency's determination with respect to the amount or validity 
of the debt certified by the creditor agency.
    (4) Employees who transfer from one paying agency to another agency. 
If, after the creditor agency has submitted the debt claim to OFHEO, the 
employee transfers to another agency before the debt is collected in 
full, OFHEO must certify the total amount collected on the debt. One 
copy of the certification shall be furnished to the employee and one 
copy shall be sent to the creditor agency along with notice of the 
employee's transfer. If OFHEO is aware that the employee is entitled to 
payments from the Civil Service Retirement and Disability Fund or other 
similar payments, it must provide written notification to the agency 
responsible for making such payments that the debtor owes a debt 
(including the amount) and that the requirements set forth herein and in 
5 CFR part 550, subpart k, have been met.

[64 FR 34969, June 30, 1999. Redesignated and amended at 65 FR 81328, 
Dec. 26, 2000]



Sec. 1704.30  Interest, penalties, and administrative costs.

    Where OFHEO is the creditor agency, OFHEO shall assess interest, 
penalties, and administrative costs pursuant to 31 U.S.C. 3717 and the 
FCCS.



Sec. 1704.31  Refunds.

    (a) Where OFHEO is the creditor agency, OFHEO shall promptly refund 
any amount deducted under the authority of 5 U.S.C. 5514 when:
    (1) OFHEO receives notice that the debt has been compromised or 
otherwise found not to be owing to the Federal Government; or
    (2) An administrative or judicial order directs OFHEO to make a 
refund.
    (b) Unless required by law or contract, refunds under this section 
shall not bear interest.



Sec. 1704.32  Request from a creditor agency for the services of a hearing official.

    (a) OFHEO may provide qualified personnel to serve as hearing 
officials

[[Page 359]]

upon request of a creditor agency when--
    (1) The debtor is employed by OFHEO and the creditor agency cannot 
provide a prompt and appropriate hearing before a hearing official 
furnished pursuant to another lawful arrangement; or
    (2) The debtor is employed by the creditor agency and that agency 
cannot arrange for a hearing official.
    (b) Services provided by OFHEO to creditor agencies under this 
section shall be provided on a fully reimbursable basis pursuant to 31 
U.S.C. 1535.

[64 FR 34969, June 30, 1999. Redesignated and amended at 65 FR 81328, 
Dec. 26, 2000]



Sec. 1704.33  Non-waiver of rights by payments.

    A debtor's payment, whether voluntary or involuntary, of all or any 
portion of a debt being collected pursuant to this subpart B shall not 
be construed as a waiver of any rights that the debtor may have under 
any statute, regulation, or contract, except as otherwise provided by 
law or contract.



Sec. Sec. 1704.34-1704.39  [Reserved]



                     Subpart C_Administrative Offset



Sec. 1704.40  Authority and scope.

    OFHEO may collect a debt owed to the Federal Government from a 
person, organization, or other entity by administrative offset, pursuant 
to 31 U.S.C. 3716, where:
    (a) The debt is certain in amount;
    (b) Administrative offset is feasible, desirable, and not otherwise 
prohibited;
    (c) The applicable statute of limitations has not expired; and
    (d) Administrative offset is in the best interest of the Federal 
Government.



Sec. 1704.41  Administrative offset prior to completion of procedures.

    Prior to the completion of the procedures described in Sec. 
1704.42, OFHEO may effect administrative offset if failure to offset 
would substantially prejudice its ability to collect the debt, and if 
the time before the payment is to be made does not reasonably permit 
completion of the procedures described in Sec. 1704.42. Such prior 
administrative offset shall be followed promptly by the completion of 
the procedures described in Sec. 1704.42.

[64 FR 34969, June 30, 1999. Redesignated and amended at 65 FR 81328, 
Dec. 26, 2000]



Sec. 1704.42  Procedures.

    Unless the procedures described in Sec. 1704.41 are used, prior to 
collecting any debt by administrative offset or referring such claim to 
another agency for collection through administrative offset, OFHEO shall 
provide the debtor with the following:
    (a) Written notification of the nature and amount of the debt, the 
intention of OFHEO to collect the debt through administrative offset, 
and a statement of the rights of the debtor under this section;
    (b) An opportunity to inspect and copy the records of OFHEO related 
to the debt that are not exempt from disclosure;
    (c) An opportunity for review within OFHEO of the determination of 
indebtedness. Any request for review by the debtor shall be in writing 
and shall be submitted to OFHEO within 30 calendar days of the date of 
the notice of the offset. OFHEO may waive the time limits for requesting 
review for good cause shown by the debtor. OFHEO shall provide the 
debtor with a reasonable opportunity for an oral hearing when:
    (1) An applicable statute authorizes or requires OFHEO to consider 
waiver of the indebtedness involved, the debtor requests waiver of the 
indebtedness, and the waiver determination turns on an issue of 
credibility or veracity; or
    (2) The debtor requests reconsideration of the debt and OFHEO 
determines that the question of the indebtedness cannot be resolved by 
review of the documentary evidence, as for example, when the validity of 
the debt turns on an issue of credibility or veracity. Unless otherwise 
required by law, an oral hearing under this subpart C is not required to 
be a formal evidentiary hearing, although OFHEO shall document all 
significant matters discussed at the hearing. In those cases where an 
oral hearing is not required by this subpart C, OFHEO shall make its 
determination on the request for

[[Page 360]]

waiver or reconsideration based upon a review of the written record; and
    (d) An opportunity to enter into a written agreement for the 
repayment of the amount of the claim at the discretion of OFHEO.

[64 FR 34969, June 30, 1999. Redesignated and amended at 65 FR 81328, 
Dec. 26, 2000]



Sec. 1704.43  Interest.

    OFHEO shall assess interest, penalties, and administrative costs on 
debts owed to the Federal Government, in accordance with 31 U.S.C. 3717 
and the FCCS. OFHEO may also assess interest and related charges on 
debts that are not subject to 31 U.S.C. 3717 and the FCCS to the extent 
authorized under the common law or other applicable statutory authority.



Sec. 1704.44  Refunds.

    OFHEO shall refund promptly those amounts recovered by 
administrative offset but later found not to be owed to the Federal 
Government.



Sec. 1704.45  Requests for administrative offset to other Federal agencies.

    (a) OFHEO may request that a debt owed to OFHEO be collected by 
administrative offset against funds due and payable to a debtor by 
another agency.
    (b) In requesting administrative offset, OFHEO, as creditor, shall 
certify in writing to the agency holding funds of the debtor:
    (1) That the debtor owes the debt;
    (2) The amount and basis of the debt; and
    (3) That OFHEO has complied with the requirements of its own 
administrative offset regulations and the applicable provisions of the 
FCCS with respect to providing the debtor with due process.



Sec. 1704.46  Requests for administrative offset from other Federal agencies.

    (a) Any agency may request that funds due and payable to a debtor by 
OFHEO be administratively offset in order to collect a debt owed to such 
agency by the debtor.
    (b) OFHEO shall initiate the requested administrative offset only 
upon:
    (1) Receipt of written certification from the creditor agency that:
    (i) The debtor owes the debt, including the amount and basis of the 
debt;
    (ii) The agency has prescribed regulations for the exercise of 
administrative offset; and
    (iii) The agency has complied with its own administrative offset 
regulations and with the applicable provisions of the FCCS, including 
providing any required hearing or review.
    (2) A determination by OFHEO that collection by administrative 
offset against funds payable by OFHEO would be in the best interest of 
the Federal Government as determined by the facts and circumstances of 
the particular case and that such administrative offset would not 
otherwise be contrary to law.



Sec. 1704.47  Administrative offset against amounts payable from Civil Service Retirement and Disability Fund.

    (a) Request for administrative offset. Unless otherwise prohibited 
by law, OFHEO may request that monies that are due and payable to a 
debtor from the Civil Service Retirement and Disability Fund (Fund) be 
offset administratively in reasonable amounts in order to collect in one 
full payment or in a minimal number of payments debt owed to OFHEO by 
the debtor. Such requests shall be made to the appropriate officials of 
the Office of Personnel Management in accordance with such regulations 
as may be prescribed by the Director of the Office of Personnel 
Management.
    (b) Contents of certification. When making a request for 
administrative offset under paragraph (a) of this section, OFHEO shall 
include a written certification that:
    (1) The debtor owes OFHEO a debt, including the amount of the debt;
    (2) OFHEO has complied with the applicable statutes, regulations, 
and procedures of the Office of Personnel Management; and
    (3) OFHEO has complied with the requirements of the FCCS, including 
any required hearing or review.
    (c) If OFHEO decides to request administrative offset under 
paragraph (a) of this section, it shall make the request as soon as 
practicable after completion of the applicable procedures. This will 
satisfy any requirement that

[[Page 361]]

administrative offset be initiated prior to the expiration of the 
applicable statute of limitations. At such time as the debtor makes a 
claim for payments from the Fund, if at least one year has elapsed since 
the administrative offset request was originally made, the debtor shall 
be permitted to offer a satisfactory repayment plan in lieu of 
administrative offset if he or she establishes that changed financial 
circumstances would render the administrative offset unjust.
    (d) If OFHEO collects part or all of the debt by other means before 
deductions are made or completed pursuant to paragraph (a) of this 
section, OFHEO shall act promptly to modify or terminate its request for 
administrative offset under paragraph (a) of this section.



Sec. Sec. 1704.48-1704.49  [Reserved]



                       Subpart D_Tax Refund Offset



Sec. 1704.50  Authority and scope.

    The provisions of 26 U.S.C. 6402(d) and 31 U.S.C. 3720A authorize 
the Secretary of the Treasury to offset a delinquent debt owed the 
Federal Government from the tax refund due a taxpayer when other 
collection efforts have failed to recover the amount due.



Sec. 1704.51  Definitions.

    (a)(1) Debt means money owed by an individual, organization, or 
entity from sources which include loans insured or guaranteed by the 
Federal Government and all other amounts due the Federal Government from 
fees, leases, services, overpayments, civil and criminal penalties, 
damages, interest, fines, administrative costs, and all other similar 
sources.
    (2) A debt becomes eligible for tax refund offset procedures if:
    (i) It cannot currently be collected pursuant to the salary offset 
procedures of 5 U.S.C. 5514(a)(1);
    (ii) The debt is ineligible for administrative offset under 31 
U.S.C. 3716(a) by reason of 31 U.S.C. 3716(c)(2), or it cannot be 
collected currently by administrative offset under 31 U.S.C. 3716(a); 
and
    (iii) The requirements of this section are otherwise satisfied.
    (3) All judgment debts are past due for purposes of this subpart D. 
Judgment debts remain past due until paid in full.
    (b) Dispute means a written statement supported by documentation or 
other evidence that all or part of an alleged debt is not past due or 
legally enforceable, that the amount is not the amount currently owed, 
that the outstanding debt has been satisfied, or in the case of a debt 
reduced to judgment, that the judgement has been satisfied or stayed.
    (c) Notice means the information sent to the debtor pursuant to 
Sec. 1704.53. The date of the notice is that date shown on the notice 
letter as its date of issuance.

[64 FR 34969, June 30, 1999. Redesignated and amended at 65 FR 81328, 
Dec. 26, 2000]



Sec. 1704.52  Procedures.

    (a) Referral to the Department of the Treasury. (1) OFHEO may refer 
any past due, legally enforceable nonjudgment debt of an individual, 
organization, or entity to the Department of the Treasury for tax refund 
offset if OFHEO's or the referring agency's rights of action accrued 
more than three months but less than 10 years before the offset is made.
    (2) Debts reduced to judgment may be referred at any time.
    (3) Debts in amounts lower than $25 are not subject to referral.
    (4) In the event that more than one debt is owed, the tax refund 
offset procedures shall be applied in the order in which the debts 
became past due.
    (5) OFHEO shall notify the Department of the Treasury of any change 
in the amount due promptly after receipt of payment or notice of other 
reductions.
    (b) Notice. OFHEO shall provide the debtor with written notice of 
its intent to offset before initiating the offset. Notice shall be 
mailed to the debtor at the current address of the debtor, as determined 
from information obtained from the Internal Revenue Service pursuant to 
26 U.S.C. 6103(m)(2), (4), (5) or maintained by OFHEO. The notice sent 
to the debtor shall state the amount of the debt and inform the debtor 
that:
    (1) The debt is past due;

[[Page 362]]

    (2) OFHEO intends to refer the debt to the Department of the 
Treasury for offset from tax refunds that may be due to the taxpayer;
    (3) OFHEO intends to provide information concerning the delinquent 
debt exceeding $100 to a consumer reporting bureau unless such debt has 
already been disclosed; and
    (4) Before the debt is reported to a consumer reporting agency, if 
applicable, and referred to the Department of the Treasury for offset 
from tax refunds, the debtor has 65 calendar days from the date of 
notice to request a review under paragraph (d).
    (c) Report to consumer reporting agency. If the debtor neither pays 
the amount due nor presents evidence that the amount is not past due or 
is satisfied or stayed, OFHEO will report the debt to a consumer 
reporting agency at the end of the notice period, if applicable, and 
refer the debt to the Department of the Treasury for offset from the 
taxpayer's Federal tax refund. OFHEO shall certify to the Department of 
the Treasury that reasonable efforts have been made by OFHEO to obtain 
payment of such debt.
    (d) Request for review. A debtor may request a review by OFHEO if he 
or she believes that all or part of the debt is not past due or is not 
legally enforceable, or in the case of a judgment debt, that the debt 
has been stayed or the amount satisfied, as follows:
    (1) The debtor must send a written request for review to OFHEO at 
the address provided in the notice.
    (2) The request must state the amount disputed and reasons why the 
debtor believes that the debt is not past due, is not legally 
enforceable, has been satisfied, or if a judgment debt, has been 
satisfied or stayed.
    (3) The request must include any documents that the debtor wishes to 
be considered or state that additional information will be submitted 
within the time permitted.
    (4) If the debtor wishes to inspect records establishing the nature 
and amount of the debt, the debtor must make a written request to OFHEO 
for an opportunity for such an inspection. The office holding the 
relevant records not exempt from disclosure shall make them available 
for inspection during normal business hours within one week from the 
date of receipt of the request.
    (5) The request for review and any additional information submitted 
pursuant to the request must be received by OFHEO at the address stated 
in the notice within 65 calendar days of the date of issuance of the 
notice.
    (6) In reaching its decision, OFHEO shall review the dispute and 
shall consider its records and any documentation and arguments submitted 
by the debtor. OFHEO shall send a written notice of its decision to the 
debtor. There is no administrative appeal of this decision.
    (7) If the evidence presented by the debtor is considered by a non-
OFHEO agent or other entities or persons acting on behalf of OFHEO, the 
debtor shall be accorded at least 30 calendar days from the date the 
agent or other entity or person determines that all or part of the debt 
is past due and legally enforceable to request review by OFHEO of any 
unresolved dispute.
    (8) Any debt that previously has been reviewed pursuant to this 
section or any other section of this part, or that has been reduced to a 
judgment, may not be disputed except on the grounds of payments made or 
events occurring subsequent to the previous review or judgment.



PART 1705_IMPLEMENTATION OF THE EQUAL ACCESS TO JUSTICE ACT--Table of Contents




                      Subpart A_General Provisions

Sec.
1705.1 Purpose and scope.
1705.2 Definitions.
1705.3 Eligible parties.
1705.4 Standards for awards.
1705.5 Allowable fees and expenses.
1705.6 Rulemaking on maximum rate for fees.
1705.7 Awards against other agencies.
1705.8-1705.9 [Reserved]

             Subpart B_Information Required from Applicants

1705.10 Contents of the application for award.
1705.11 Request for confidentiality of net worth exhibit.
1705.12 Documentation of fees and expenses.
1705.13-1705.19 [Reserved]

[[Page 363]]

Subpart C_Procedures for Filing and Consideration of the Application for 
                                  Award

1705.20 Filing and service of the application for award and related 
          papers.
1705.21 Answer to the application for award.
1705.22 Reply to the answer.
1705.23 Comments by other parties.
1705.24 Settlement.
1705.25 Further proceedings on the application for award.
1705.26 Decision of the adjudicative officer.
1705.27 Review by OFHEO.
1705.28 Judicial review.
1705.29 Payment of award.

    Authority: 5 U.S.C. 504(c)(1).

    Source: 65 FR 26732, May 9, 2000, unless otherwise noted. 
Redesignated and amended at 65 FR 81328, Dec. 26, 2000.



                      Subpart A_General Provisions



Sec. 1705.1  Purpose and scope.

    (a) This part implements the Equal Access to Justice Act, 5 U.S.C. 
504, by establishing procedures for the filing and consideration of 
applications for award of fees and other expenses to eligible 
individuals and entities who are parties to adversary adjudications 
before OFHEO.
    (b) This part applies to the award of fees and other expenses in 
connection with adversary adjudications before OFHEO. However, if a 
court reviews the underlying decision of the adversary adjudication, an 
award for fees and other expenses may be made only pursuant to 28 U.S.C. 
2412(d)(3).



Sec. 1705.2  Definitions.

    (a) Adjudicative officer means the official who presided at the 
underlying adversary adjudication, without regard to whether the 
official is designated as a hearing examiner, administrative law judge, 
administrative judge, or otherwise.
    (b) Adversary adjudication means an administrative proceeding 
conducted by OFHEO under 5 U.S.C. 554 in which the position of OFHEO or 
any other agency of the United States is represented by counsel or 
otherwise, including but not limited to an adjudication conducted under 
12 CFR part 1780. Any issue as to whether an administrative proceeding 
is an adversary adjudication for purposes of this part will be an issue 
for resolution in the proceeding on the application for award.
    (c) Affiliate means an individual, corporation, or other entity that 
directly or indirectly controls or owns a majority of the voting shares 
or other interests of the party, or any corporation or other entity of 
which the party directly or indirectly owns or controls a majority of 
the voting shares or other interest, unless the adjudicative officer 
determines that it would be unjust and contrary to the purpose of the 
Equal Access to Justice Act in light of the actual relationship between 
the affiliated entities to consider them to be affiliates for purposes 
of this part.
    (d) Agency counsel means the attorney or attorneys designated by the 
General Counsel of OFHEO to represent OFHEO in an adversary adjudication 
covered by this part.
    (e) Demand of OFHEO means the express demand of OFHEO that led to 
the adversary adjudication, but does not include a recitation by OFHEO 
of the maximum statutory penalty when accompanied by an express demand 
for a lesser amount.
    (f) Fees and other expenses include reasonable attorney or agent 
fees, the reasonable expenses of expert witnesses, and the reasonable 
cost of any study, analysis, engineering report, test, or project that 
is found by the agency to be necessary for the preparation of the 
eligible party's case.
    (g) Final disposition means the date on which a decision or order 
disposing of the merits of the adversary adjudication or any other 
complete resolution of the adversary adjudication, such as a settlement 
or voluntary dismissal, becomes final and unappealable, both within the 
agency and to the courts.
    (h) OFHEO means the Office of Federal Housing Enterprise Oversight.
    (i) Party means an individual, partnership, corporation, 
association, or public or private organization that is named or admitted 
as a party, that is admitted as a party for limited purposes, or that is 
properly seeking and entitled as of right to be admitted as a party in 
an adversary adjudication.
    (j) Position of OFHEO means the position taken by OFHEO in the 
adversary adjudication, including the action or

[[Page 364]]

failure to act by OFHEO upon which the adversary adjudication was based.



Sec. 1705.3  Eligible parties.

    (a) To be eligible for an award of fees and other expenses under 
Sec. 1705.4(a), a party must be a small entity as defined in 5 U.S.C. 
601.
    (b)(1) To be eligible for an award of fees and other expenses for 
prevailing parties under Sec. 1705.5(b), a party must be one of the 
following:
    (i) An individual who has a net worth of not more than $2 million;
    (ii) The sole owner of an unincorporated business who has a net 
worth of not more than $7 million, including both personal and business 
interest, and not more than 500 employees; however, a party who owns an 
unincorporated business will be considered to be an ``individual'' 
rather than the ``sole owner of an unincorporated business'' if the 
issues on which the party prevails are related primarily to personal 
interests rather than to business interests.
    (iii) A charitable or other tax-exempt organization described in 
section 501(c)(3) of the Internal Revenue Code, 26 U.S.C. 501(c)(3), 
with not more than 500 employees;
    (iv) A cooperative association as defined in section 15(a) of the 
Agricultural Marketing Act, 12 U.S.C. 1141j(a), with not more than 500 
employees; or
    (v) Any other partnership, corporation, association, unit of local 
government, or organization that has a net worth of not more than $7 
million and not more than 500 employees.
    (2) For purposes of eligibility under paragraph (b) of this section:
    (i) The employees of a party include all persons who regularly 
perform services for remuneration for the party, under the party's 
direction and control. Part-time employees shall be included on a 
proportional basis.
    (ii) The net worth and number of employees of the party and its 
affiliates shall be aggregated to determine eligibility.
    (iii) The net worth and number of employees of a party shall be 
determined as of the date the underlying adversary adjudication was 
initiated.
    (c) A party that participates in an adversary adjudication primarily 
on behalf of one or more entities that would be ineligible for an award 
is not itself eligible for an award.

[65 FR 26732, May 9, 2000. Redesignated and amended at 65 FR 81328, Dec. 
26, 2000]



Sec. 1705.4  Standards for awards.

    (a) An eligible party that files an application for award of fees 
and other expenses in accordance with this part shall receive an award 
of fees and other expenses related to defending against a demand of 
OFHEO if the demand was in excess of the decision in the underlying 
adversary adjudication and was unreasonable when compared with the 
decision under the facts and circumstances of the case, unless the party 
has committed a willful violation of law or otherwise acted in bad 
faith, or unless special circumstances make an award unjust. The burden 
of proof that the demand of OFHEO was substantially in excess of the 
decision and is unreasonable when compared with the decision is on the 
eligible party.
    (b) An eligible party that submits an application for award in 
accordance with this part shall receive an award of fees and other 
expenses incurred in connection with an adversary adjudication in which 
it prevailed or in a significant and discrete substantive portion of the 
adversary adjudication in which it prevailed, unless the position of 
OFHEO in the adversary adjudication was substantially justified or 
special circumstances make an award unjust. OFHEO has the burden of 
proof to show that its position was substantially justified and may do 
so by showing that its position was reasonable in law and in fact.



Sec. 1705.5  Allowable fees and expenses.

    (a) Awards of fees and other expenses shall be based on rates 
customarily charged by persons engaged in the business of acting as 
attorneys, agents, and expert witnesses, even if the services were made 
available without charge or at a reduced rate to the party. However, 
except as provided in Sec. 1705.6, an award for the fee of an attorney 
or agent may not exceed $125 per hour and an award to compensate an 
expert witness may not exceed the highest rate at which OFHEO pays 
expert witnesses. However, an award may also include

[[Page 365]]

the reasonable expenses of the attorney, agent, or expert witness as a 
separate item if he or she ordinarily charges clients separately for 
such expenses.
    (b) In determining the reasonableness of the fee sought for an 
attorney, agent, or expert witness, the adjudicative officer shall 
consider the following:
    (1) If the attorney, agent, or expert witness is in private 
practice, his or her customary fees for similar services; or, if the 
attorney, agent, or expert witness is an employee of the eligible party, 
the fully allocated costs of the services;
    (2) The prevailing rate for similar services in the community in 
which the attorney, agent, or expert witness ordinarily performs 
services;
    (3) The time actually spent in the representation of the eligible 
party;
    (4) The time reasonably spent in light of the difficulty or 
complexity of the issues in the adversary adjudication; and
    (5) Such other factors as may bear on the value of the services 
provided.
    (c) In determining the reasonable cost of any study, analysis, 
engineering report, test, project, or similar matter prepared on behalf 
of a party, the adjudicative officer shall consider the prevailing rate 
for similar services in the community in which the services were 
performed.
    (d) Fees and other expenses incurred before the date on which an 
adversary adjudication was initiated will be awarded only if the 
eligible party can demonstrate that they were reasonably incurred in 
preparation for the adversary adjudication.

[65 FR 26732, May 9, 2000. Redesignated and amended at 65 FR 81328, Dec. 
26, 2000]



Sec. 1705.6  Rulemaking on maximum rate for fees.

    If warranted by an increase in the cost of living or by special 
circumstances, OFHEO may adopt regulations providing for an award of 
attorney or agent fees at a rate higher than $125 per hour in adversary 
adjudications covered by this part. Special circumstances include the 
limited availability of attorneys or agents who are qualified to handle 
certain types of adversary adjudications. OFHEO will conduct any 
rulemaking proceedings for this purpose under the informal rulemaking 
procedures of the Administrative Procedures Act, 5 U.S.C. 553.



Sec. 1705.7  Awards against other agencies.

    If another agency of the United States participates in an adversary 
adjudication before OFHEO and takes a position that was not 
substantially justified, the award or appropriate portion of the award 
to an eligible party that prevailed over that agency shall be made 
against that agency.



Sec. Sec. 1705.8-1705.9  [Reserved]



             Subpart B_Information Required from Applicants



Sec. 1705.10  Contents of the application for award.

    (a) An application for award of fees and other expenses under either 
Sec. 1705.4(a) and Sec. 1705.4(b) shall:
    (1) Identify the applicant and the adversary adjudication for which 
an award is sought;
    (2) State the amount of fees and other expenses for which an award 
is sought;
    (3) Provide the statements and documentation required by paragraph 
(b) or (c) of this section and Sec. 1705.12 and any additional 
information required by the adjudicative officer; and
    (4) Be signed by the applicant or an authorized officer or attorney 
of the applicant and contain or be accompanied by a written verification 
under oath or under penalty of perjury that the information provided in 
the application is true and correct.
    (b) An application for award under Sec. 1705.4(a) shall show that 
the demand of OFHEO was substantially in excess of, and was unreasonable 
when compared to, the decision in the underlying adversary adjudication 
under the facts and circumstances of the case. It shall also show that 
the applicant is a small entity as defined in 5 U.S.C. 601.
    (c) An application for award under Sec. 1705.4(b) shall:

[[Page 366]]

    (1) Show that the applicant has prevailed in a significant and 
discrete substantive portion of the underlying adversary adjudication 
and identify the position of OFHEO in the adversary adjudication that 
the applicant alleges was not substantially justified;
    (2) State the number of employees of the applicant and describe 
briefly the type and purposes of its organization or business (if the 
applicant is not an individual);
    (3) State that the net worth of the applicant does not exceed $2 
million, if the applicant is an individual; or for all other applicants, 
state that the net worth of the applicant and its affiliates, if any, 
does not exceed $7 million; and
    (4) Include one of the following:
    (i) A detailed exhibit showing the net worth (net worth exhibit) of 
the applicant and its affiliates, if any, when the underlying adversary 
adjudication was initiated. The net worth exhibit may be in any form 
convenient to the applicant as long as the net worth exhibit provides 
full disclosure of the assets and liabilities of the applicant and its 
affiliates, if any, and is sufficient to determine whether the applicant 
qualifies as an eligible party;
    (ii) A copy of a ruling by the Internal Revenue Service that shows 
that the applicant qualifies as an organization described in section 
501(c)(3) of the Internal Revenue Code, 26 U.S.C. 501(c)(3); or in the 
case of a tax-exempt organization not required to obtain a ruling from 
the Internal Revenue Service on its exempt status, a statement that 
describes the basis for the belief that the applicant qualifies under 
such section; or
    (iii) A statement that the applicant is a cooperative association as 
defined in section 15(a) of the Agricultural Marketing Act, 12 U.S.C. 
1141j(a).

[65 FR 26732, May 9, 2000. Redesignated and amended at 65 FR 81328, Dec. 
26, 2000]



Sec. 1705.11  Request for confidentiality of net worth exhibit.

    (a) The net worth exhibit described in Sec. 1705.10(c)(4)(i) shall 
be included in the public record of the proceeding for the award of fees 
and other expenses, except if confidential treatment is requested and 
granted as provided in paragraph (b) of this section.
    (b)(1) The applicant may request confidential treatment of the 
information in the net worth exhibit by filing a motion directly with 
the adjudicative officer in a sealed envelope labeled ``Confidential 
Financial Information.'' If the adjudicative officer finds that the 
information should be withheld from public disclosure, any request to 
inspect or copy the information by another party or the public shall be 
resolved in accordance with the Freedom of Information Act, 5 U.S.C. 
552b, and the Releasing Information regulation at 12 CFR part 1710.
    (2) The motion shall:
    (i) Include a copy of the portion of the net worth exhibit sought to 
be withheld;
    (ii) Describe the information sought to be withheld; and
    (iii) Explain why the information is exempt from disclosure under 
the Freedom of Information Act and why public disclosure of the 
information would adversely affect the applicant and is not in the 
public's interest.
    (iv) Be served on agency counsel but need not be served on any other 
party to the proceeding.

[65 FR 26732, May 9, 2000. Redesignated and amended at 65 FR 81328, Dec. 
26, 2000]



Sec. 1705.12  Documentation of fees and expenses.

    (a) The application for award shall be accompanied by full and 
itemized documentation of the fees and other expenses for which an award 
is sought. The adjudicative officer may require the applicant to provide 
vouchers, receipts, logs, or other documentation for any fees or 
expenses claimed.
    (b) A separate itemized statement shall be submitted for each entity 
or individual whose services are covered by the application. Each 
itemized statement shall include:
    (1) The hours spent by each entity or individual;
    (2) A description of the specific services performed and the rates 
at which each fee has been computed; and
    (3) Any expenses for which reimbursement is sought, the total amount 
claimed, and the total amount paid or

[[Page 367]]

payable by the applicant or by any other person or entity.



Sec. Sec. 1705.13-1705.19  [Reserved]



Subpart C_Procedures for Filing and Consideration of the Application for 
                                  Award



Sec. 1705.20  Filing and service of the application for award and related papers.

    (a) An application for an award of fees and other expenses must be 
filed no later than 30 days after the final disposition of the 
underlying adversary adjudication.
    (b) An application for award and other papers related to the 
proceedings on the application for award shall be filed and served on 
all parties in the same manner as papers are filed and served in the 
underlying adversary adjudication, except as otherwise provided in this 
part.
    (c) The computation of time for filing and service of the 
application of award and other papers shall be computed in the same 
manner as in the underlying adversary adjudication.



Sec. 1705.21  Answer to the application for award.

    (a) Agency counsel shall file an answer within 30 days after service 
of an application for award of fees and other expenses except as 
provided in paragraphs (b) and (c) of this section. In the answer, 
agency counsel shall explain any objections to the award requested and 
identify the facts relied upon to support the objections. If any of the 
alleged facts are not already in the record of the underlying adversary 
adjudication, agency counsel shall include with the answer either 
supporting affidavits or a request for further proceedings under Sec. 
1705.25.
    (b) If agency counsel and the applicant believe that the issues in 
the application for award can be settled, they may jointly file a 
statement of their intent to negotiate a settlement. The filing of this 
statement shall extend the time for filing an answer for an additional 
30 days. Upon request by agency counsel and the applicant, the 
adjudicative officer may grant for good cause further time extensions.
    (c) Agency counsel may request that the adjudicative officer extend 
the time period for filing an answer. If agency counsel does not answer 
or otherwise does not contest or settle the application for award within 
the 30-day period or the extended time period, the adjudicative officer 
may make an award of fees and other expenses upon a satisfactory showing 
of entitlement by the applicant.

[65 FR 26732, May 9, 2000. Redesignated and amended at 65 FR 81328, Dec. 
26, 2000]



Sec. 1705.22  Reply to the answer.

    Within 15 days after service of an answer, the applicant may file a 
reply. If the reply is based on any alleged facts not already in the 
record of the underlying adversary adjudication, the applicant shall 
include with the reply either supporting affidavits or a request for 
further proceedings under Sec. 1705.25.

[65 FR 26732, May 9, 2000. Redesignated and amended at 65 FR 81328, Dec. 
26, 2000]



Sec. 1705.23  Comments by other parties.

    Any party to the underlying adversary adjudication other than the 
applicant and agency counsel may file comments on an application for 
award within 30 calendar days after it is served, or on an answer within 
15 calendar days after it is served. A commenting party may not 
participate further in proceedings on the application unless the 
adjudicative officer determines that the public interest requires such 
participation in order to permit full exploration of matters raised in 
the comments.



Sec. 1705.24  Settlement.

    The applicant and agency counsel may agree on a proposed settlement 
of an award before the final decision on the application for award is 
made, either in connection with a settlement of the underlying adversary 
adjudication or after the underlying adversary adjudication has been 
concluded. If the eligible party and agency counsel agree on a proposed 
settlement of an award before an application for award has been filed, 
the application shall be filed with the proposed settlement.

[[Page 368]]



Sec. 1705.25  Further proceedings on the application for award.

    (a) On request of either the applicant or agency counsel, on the 
adjudicative officer's own initiative, or as requested by the Director 
of OFHEO under Sec. 1705.27, the adjudicative officer may order further 
proceedings, such as an informal conference, oral argument, additional 
written submissions, or, as to issues other than substantial 
justification (such as the applicant's eligibility or substantiation of 
fees and expenses), pertinent discovery or an evidential hearing. Such 
further proceedings shall be held only when necessary for full and fair 
resolution of the issues arising from the application for award and 
shall be conducted as promptly as possible. The issue as to whether the 
position of OFHEO in the underlying adversary adjudication was 
substantially justified shall be determined on the basis of the whole 
administrative record that was made in the underlying adversary 
adjudication.
    (b) A request that the adjudicative officer order further 
proceedings under this section shall specifically identify the 
information sought on the disputed issues and shall explain why the 
additional proceedings are necessary to resolve the issues.

[65 FR 26732, May 9, 2000. Redesignated and amended at 65 FR 81328, Dec. 
26, 2000]



Sec. 1705.26  Decision of the adjudicative officer.

    (a) The adjudicative officer shall make the initial decision on the 
basis of the written record, except if further proceedings are ordered 
under Sec. 1705.25.
    (b) The adjudicative officer shall issue a written initial decision 
on the application for award within 30 days after completion of 
proceedings on the application. The initial decision shall become the 
final decision of OFHEO after 30 days from the day it was issued, unless 
review is ordered under Sec. 1705.27.
    (c) In all initial decisions, the adjudicative officer shall include 
findings and conclusions with respect to the applicant's eligibility and 
an explanation of the reasons for any difference between the amount 
requested by the applicant and the amount awarded. If the applicant has 
sought an award against more than one agency, the adjudicative officer 
shall also include findings and conclusions with respect to the 
allocation of payment of any award made.
    (d) In initial decisions on applications filed pursuant to Sec. 
1705.4(a), the adjudicative officer shall include findings and 
conclusions as to whether OFHEO made a demand that was substantially in 
excess of the decision in the underlying adversary adjudication and that 
was unreasonable when compared with that decision; and, if at issue, 
whether the applicant has committed a willful violation of the law or 
otherwise acted in bad faith, or whether special circumstances would 
make the award unjust.
    (e) In decisions on applications filed pursuant to Sec. 1705.4(b), 
the adjudicative officer shall include written findings and conclusions 
as to whether the applicant is a prevailing party and whether the 
position of OFHEO was substantially justified; and, if at issue, whether 
the applicant unduly protracted or delayed the underlying adversary 
adjudication or whether special circumstance make the award unjust.

[65 FR 26732, May 9, 2000. Redesignated and amended at 65 FR 81328, Dec. 
26, 2000]



Sec. 1705.27  Review by OFHEO.

    Within 30 days after the adjudicative officer issues an initial 
decision under Sec. 1705.26, either the applicant or agency counsel may 
request the Director of OFHEO to review the initial decision of the 
adjudicative officer. The Director of OFHEO or his or her designee may 
also decide, on his or her own initiative, to review the initial 
decision. Whether to review a decision is at the discretion of the 
Director of OFHEO or his or her designee. If review is ordered, the 
Director of OFHEO or his or her designee shall issue a final decision on 
the application for award or remand the application for award to the 
adjudicative officer for further proceedings under Sec. 1705.25.

[65 FR 26732, May 9, 2000. Redesignated and amended at 65 FR 81328, Dec. 
26, 2000]



Sec. 1705.28  Judicial review.

    Any party, other than the United States, that is dissatisfied with 
the final decision on an application for

[[Page 369]]

award of fees and expenses under this part may seek judicial review as 
provided in 5 U.S.C. 504(c)(2).



Sec. 1705.29  Payment of award.

    To receive payment of an award of fees and other expenses granted 
under this part, the applicant shall submit a copy of the final decision 
that grants the award and a certification that the applicant will not 
seek review of the decision in the United States courts to the Director, 
Office of Federal Housing Enterprise Oversight, 1700 G Street, NW., 
Washington, DC 20552. OFHEO shall pay the amount awarded to the 
applicant within 60 days of receipt of the submission of the copy of the 
final decision and the certification, unless judicial review of the 
award has been sought by any party to the proceedings.



                         SUBCHAPTER B [RESERVED]



[[Page 370]]



                    SUBCHAPTER C_SAFETY AND SOUNDNESS





PART 1710_CORPORATE GOVERNANCE--Table of Contents




                            Subpart A_General

Sec.
1710.1 Purpose.
1710.2 Definitions.
1710.3-1710.9 [Reserved]

              Subpart B_Corporate Practices and Procedures

1710.10 Law applicable to corporate governance.
1710.11 Board of directors.
1710.12 Committees of board of directors.
1710.13 Compensation of board members, executive officers, and 
          employees.
1710.14 Code of conduct and ethics.
1710.15 Conduct and responsibilities of board of directors.
1710.16 Prohibition of extensions of credit to board members and 
          executive officers.
1710.17 Certification of disclosures by chief executive officer and 
          chief financial officer.
1710.18 Change of audit partner.
1710.19 Compliance and risk management programs; compliance with other 
          laws.

                        Subpart C_Indemnification

1710.20 Indemnification.

              Subpart D_Modification of Certain Provisions

1710.30 Modification of certain provisions.

    Authority: 12 U.S.C. 4513(a) and 4513(b)(1).

    Source: 67 FR 38370, June 4, 2002, unless otherwise noted.



                            Subpart A_General



Sec. 1710.1  Purpose.

    OFHEO is responsible under the Federal Housing Enterprises Financial 
Safety and Soundness Act of 1992, 12 U.S.C. 4501 et seq., for ensuring 
the safety and soundness of the Enterprises. In furtherance of that 
responsibility, this part sets forth minimum standards with respect to 
the corporate governance practices and procedures of the Enterprises.



Sec. 1710.2  Definitions.

    For purposes of this part, the term:
    (a) Act means the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992, Title XIII of the Housing and Community 
Development Act of 1992, Pub. L. 102-550, section 1301, Oct. 28, 1992, 
106 Stat. 3672, 3941 through 4012 (1993) (12 U.S.C. 4501 et seq.).
    (b) Board member means a member of the board of directors.
    (c) Board of directors means the board of directors of an 
Enterprise.
    (d) Chartering acts mean the Federal National Mortgage Association 
Charter Act and the Federal Home Loan Mortgage Corporation Act, which 
are codified at 12 U.S.C. 1716 through 1723i and 12 U.S.C. 1451 through 
1459, respectively.
    (e) Compensation means any payment of money or the provision of any 
other thing of current or potential value in connection with employment. 
The term ``compensation'' includes all direct and indirect payments of 
benefits, both cash and non-cash, including, but not limited to, 
payments and benefits derived from compensation or benefit agreements, 
fee arrangements, perquisites, stock option plans, post employment 
benefits, or other compensatory arrangements.
    (f) Director means the Director of OFHEO or his or her designee.
    (g) Employee means a salaried individual, other than an executive 
officer, who works part-time, full-time, or temporarily for an 
Enterprise.
    (h) Enterprise means the Federal National Mortgage Association or 
the Federal Home Loan Mortgage Corporation; and the term ``Enterprises'' 
means, collectively, the Federal National Mortgage Association and the 
Federal Home Loan Mortgage Corporation.
    (i) Executive officer means any senior executive officer and any 
senior vice president of an Enterprise and any individual with similar 
responsibilities, without regard to title, who is in charge of a 
principal business unit, division, or function of an Enterprise, or

[[Page 371]]

who reports directly to the chairperson, vice chairperson, chief 
operating officer, or president of an Enterprise.
    (j) NYSE means the New York Stock Exchange.
    (k) OFHEO means the Office of Federal Housing Enterprise Oversight.
    (l) Senior executive officer means the chairperson of the board of 
directors, chief executive officer, chief financial officer, chief 
operating officer, president, vice chairperson, any executive vice 
president of an Enterprise, and any individual, without regard to title, 
who has similar responsibilities.



Sec. Sec. 1710.3-1710.9  [Reserved]



              Subpart B_Corporate Practices and Procedures



Sec. 1710.10  Law applicable to corporate governance.

    (a) General. The corporate governance practices and procedures of 
each Enterprise shall comply with applicable chartering acts and other 
Federal law, rules, and regulations, and shall be consistent with the 
safe and sound operations of the Enterprise.
    (b) Election and designation of body of law. (1) To the extent not 
inconsistent with paragraph (a) of this section, each Enterprise shall 
follow the corporate governance practices and procedures of the law of 
the jurisdiction in which the principal office of the Enterprise is 
located, as amended; Delaware General Corporation Law, Del. Code Ann. 
tit. 8, as amended; or the Revised Model Business Corporation Act, as 
amended.
    (2) Each Enterprise shall designate in its bylaws the body of law 
elected for its corporate governance practices and procedures pursuant 
to this paragraph within 90 calendar days from August 5, 2002.



Sec. 1710.11  Board of directors.

    (a) Membership--(1) Limits on service of board members--(i) General 
requirement. No board member of an Enterprise may serve on the board of 
directors for more than 10 years or past the age of 72, whichever comes 
first; provided, however, a board member may serve his or her full term 
if he or she has served less than 10 years or is 72 years on the date of 
his or her election or appointment to the board.
    (ii) Waiver. Upon written request of an Enterprise, the Director may 
waive, in his or her sole discretion and for good cause, the limits on 
the service of a board member under paragraph (a)(1)(i) of this section.
    (2) Independence of board members. A majority of seated members of 
the board of directors of an Enterprise shall be independent board 
members, as defined under rules set forth by the NYSE, as amended from 
time to time.
    (b) Meetings, quorum and proxies, information, and annual review--
(1) Frequency of meetings. The board of directors of an Enterprise shall 
meet at least eight times a year and no less than once a calendar 
quarter to carry out its obligations and duties under applicable laws, 
rules, regulations, and guidelines.
    (2) Non-management board member meetings. Non-management directors 
of an Enterprise shall meet at regularly scheduled executive sessions 
without management participation.
    (3) Quorum of board of directors; proxies not permissible. For the 
transaction of business, a quorum of the board of directors of an 
Enterprise is at least a majority of the seated board of directors and a 
board member may not vote by proxy.
    (4) Information. Management of an Enterprise shall provide a board 
member of the Enterprise with such adequate and appropriate information 
that a reasonable board member would find important to the fulfillment 
of his or her fiduciary duties and obligations.
    (5) Annual review. At least annually, the board of directors of an 
Enterprise shall review, with appropriate professional assistance, the 
requirements of laws, rules, regulations, and guidelines that are 
applicable to its activities and duties.

[70 FR 17310, Apr. 6, 2005]



Sec. 1710.12  Committees of board of directors.

    (a) General. The board of directors may rely, in directing the 
Enterprise, on reports from committees of the board of directors, 
provided, however, that no committee of the board of directors shall 
have the authority of the

[[Page 372]]

board of directors to amend the bylaws and no committee shall operate to 
relieve the board of directors or any board member of a responsibility 
imposed by applicable law, rule, or regulation.
    (b) Frequency of meetings. A committee of the board of directors of 
an Enterprise shall meet with sufficient frequency to carry out its 
obligations and duties under applicable laws, rules, regulations, and 
guidelines.
    (c) Required committees. An Enterprise shall provide for the 
establishment of, however styled, the following committees of the board 
of directors, which committees shall be in compliance with the charter, 
independence, composition, expertise, duties, responsibilities, and 
other requirements set forth under section 301 of the Sarbanes-Oxley Act 
of 2002, Pub. L. 107-204 (Jul. 30, 2002) (SOA), as amended from time to 
time, with respect to the audit committee, and under rules issued by the 
NYSE, as amended from time to time--
    (1) Audit committee;
    (2) Compensation committee; and
    (3) Nominating/corporate governance committee.

[67 FR 38370, June 4, 2002. Redesignated and amended at 70 FR 17310, 
17311, Apr. 6, 2005]



Sec. 1710.13  Compensation of board members, executive officers, and employees.

    (a) General. Compensation of board members, executive officers, and 
employees of an Enterprise shall not be in excess of that which is 
reasonable and appropriate, shall be commensurate with the duties and 
responsibilities of such persons, shall be consistent with the long-term 
goals of the Enterprise, shall not focus solely on earnings performance, 
but shall take into account risk management, operational stability and 
legal and regulatory compliance as well, and shall be undertaken in a 
manner that complies with applicable laws, rules, and regulations.
    (b) Reimbursement. If an Enterprise is required to prepare an 
accounting restatement due to the material noncompliance of the 
Enterprise, as a result of misconduct, with any financial reporting 
requirement under the securities laws, the chief executive officer and 
chief financial officer of the Enterprise shall reimburse the Enterprise 
as provided under section 304 of the SOA, as amended from time to time. 
This provision does not otherwise limit the authority of OFHEO to employ 
remedies available to it under its enforcement authorities.

[67 FR 38370, June 4, 2002. Redesignated and amended at 70 FR 17310, 
17311, Apr. 6, 2005]



Sec. 1710.14  Code of conduct and ethics.

    (a) General. An Enterprise shall establish and administer a written 
code of conduct and ethics that is reasonably designed to assure the 
ability of board members, executive officers, and employees of the 
Enterprise to discharge their duties and responsibilities, on behalf of 
the Enterprise, in an objective and impartial manner, and that includes 
standards required under section 406 of the SOA, as amended from time to 
time, and other applicable laws, rules, and regulations.
    (b) Review. Not less than once every three years, an Enterprise 
shall review the adequacy of its code of conduct and ethics for 
consistency with practices appropriate to the Enterprise and make any 
appropriate revisions to such code.

[70 FR 17311, Apr. 6, 2005]



Sec. 1710.15  Conduct and responsibilities of board of directors.

    (a) Purpose. The purpose of this section, and of this subpart, is to 
set forth minimum standards of the conduct and responsibilities of the 
board of directors in furtherance of the safe and sound operations of 
each Enterprise. The provisions of this section neither provide 
shareholders of an Enterprise with additional rights nor impose 
liability on any board member under State law.
    (b) Conduct and responsibilities. The board of directors of an 
Enterprise is responsible for directing the conduct and affairs of the 
Enterprise in furtherance of the safe and sound operation of the 
Enterprise and shall remain reasonably informed of the condition, 
activities, and operations of the Enterprise. The responsibilities of 
the board of directors include having in place

[[Page 373]]

adequate policies and procedures to assure its oversight of, among other 
matters, the following:
    (1) Corporate strategy, major plans of action, risk policy, programs 
for legal and regulatory compliance and corporate performance, including 
but not limited to prudent plans for growth and allocation of adequate 
resources to manage operations risk;
    (2) Hiring and retention of qualified senior executive officers and 
succession planning for such senior executive officers;
    (3) Compensation programs of the Enterprise;
    (4) Integrity of accounting and financial reporting systems of the 
Enterprise, including independent audits and systems of internal 
control;
    (5) Process and adequacy of reporting, disclosures, and 
communications to shareholders, investors, and potential investors;
    (6) Extensions of credit to board members and executive officers; 
and
    (7) Responsiveness of executive officers in providing accurate and 
timely reports to Federal regulators and in addressing the supervisory 
concerns of Federal regulators in a timely and appropriate manner.
    (c) Guidance. The board of directors should refer to the body of law 
elected under Sec. 1710.10 and to publications and other pronouncements 
of OFHEO for additional guidance on conduct and responsibilities of the 
board of directors.

[67 FR 38370, June 4, 2002, as amended at 70 FR 17311, Apr. 6, 2005]



Sec. 1710.16  Prohibition of extensions of credit to board members and executive officers.

    An Enterprise may not directly or indirectly, including through any 
subsidiary, extend or maintain credit, arrange for the extension of 
credit, or renew an extension of credit, in the form of a personal loan 
to or for any board member or executive officer of the Enterprise as 
provided by section 402 of the SOA, as amended from time to time.

[70 FR 17311, Apr. 6, 2005]



Sec. 1710.17  Certification of disclosures by chief executive officer and chief financial officer.

    The chief executive officer and the chief financial officer of an 
Enterprise shall review each quarterly report and annual report issued 
by the Enterprise and such reports shall include certifications by such 
officers as required by section 302 of the SOA, as amended from time to 
time.

[70 FR 17311, Apr. 6, 2005]



Sec. 1710.18  Change of audit partner.

    An Enterprise may not accept audit services from an external 
auditing firm if the lead or coordinating audit partner who has primary 
responsibility for the external audit of the Enterprise, or the external 
audit partner who has responsibility for reviewing the external audit 
has performed audit services for the Enterprise in each of the five 
previous fiscal years.

[70 FR 17312, Apr. 6, 2005]



Sec. 1710.19  Compliance and risk management programs; compliance with other laws.

    (a) Compliance program. (1) An Enterprise shall establish and 
maintain a compliance program that is reasonably designed to assure that 
the Enterprise complies with applicable laws, rules, regulations, and 
internal controls.
    (2) The compliance program shall be headed by a compliance officer, 
however styled, who reports directly to the chief executive officer of 
the Enterprise. The compliance officer shall report regularly to the 
board of directors or an appropriate committee of the board of directors 
on compliance with and the adequacy of current compliance policies and 
procedures of the Enterprise, and shall recommend any adjustments to 
such policies and procedures that he or she considers necessary and 
appropriate.
    (b) Risk management program. (1) An Enterprise shall establish and 
maintain a risk management program that is reasonably designed to manage 
the risks of the operations of the Enterprise.
    (2) The risk management program shall be headed by a risk management

[[Page 374]]

officer, however styled, who reports directly to the chief executive 
officer of the Enterprise. The risk management officer shall report 
regularly to the board of directors or an appropriate committee of the 
board of directors on compliance with and the adequacy of current risk 
management policies and procedures of the Enterprise, and shall 
recommend any adjustments to such policies and procedures that he or she 
considers necessary and appropriate.
    (c) Compliance with other laws. (1) If an Enterprise deregisters or 
has not registered its common stock with the U.S. Securities and 
Exchange Commission (Commission) under the Securities Exchange Act of 
1934, the Enterprise shall comply or continue to comply with sections 
301, 302, 304, 402, and 406 of the SOA, as amended from time to time, 
subject to such requirements as provided by Sec. 1710.30 of this part.
    (2) An Enterprise that has its common stock registered with the 
Commission shall maintain such registered status, unless it provides 60 
days prior written notice to the Director stating its intent to 
deregister and its understanding that it will remain subject to the 
requirements of sections 301, 302, 304, 402, and 406 of the SOA, as 
amended from time to time, subject to such requirements as provided by 
Sec. 1710.30 of this part.

[70 FR 17312, Apr. 6, 2005]



                        Subpart C_Indemnification



Sec. 1710.20  Indemnification.

    (a) Safety and soundness authority. OFHEO has the authority, under 
the Act, to prohibit or restrict reimbursement or indemnification of any 
current or former board member or any current or former executive 
officer by an Enterprise or by any affiliate of an Enterprise in 
furtherance of the safe and sound operations of the Enterprise.
    (b) Policies and procedures. Each Enterprise shall have in place 
policies and procedures consistent with this part for indemnification, 
including the approval or denial by the board of directors of 
indemnification of current and former board members and current or 
former executive officers. Such policies and procedures should address, 
among other matters, standards relating to indemnification, 
investigation by the board of directors, and review by independent 
counsel.



              Subpart D_Modification of Certain Provisions



Sec. 1710.30  Modification of certain provisions.

    In connection with standards of Federal or state law (including the 
Revised Model Corporation Act) or NYSE rules that are made applicable to 
an Enterprise by Sec. Sec. 1710.10, 1710.11, 1710.12, 1710.17, and 
1710.19 of this part, the Director, in his or her sole discretion, may 
modify the standards contained in this part in accordance with 5 U.S.C. 
553 and upon written notice to the Enterprise.

[70 FR 17312, Apr. 6, 2005]



PART 1720_SAFETY AND SOUNDNESS--Table of Contents




Sec.
1720.1 Authority.
1720.2 Safety and soundness standards.

Appendix A to Part 1720--Policy Guidance; Minimum Safety and Soundness 
          Requirements
Appendix B to Part 1720--Policy Guidance; Non-Mortgage Liquidity 
          Investments
Appendix C to Part 1720--Policy Guidance; Safety and Soundness Standards 
          for Information

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

    Source: 67 FR 55693, Aug. 30, 2002, unless otherwise noted.



Sec. 1720.1  Authority.

    (a) Authority. This part is issued by the Office of Federal Housing 
Enterprise Oversight (OFHEO) pursuant to sections 1313(a), 1313(b)(1), 
and 1313(b)(5) of the Federal Housing Enterprise Financial Safety and 
Soundness Act (Act) (12 U.S.C. 4513(a), 4513(b)(1), and 4513(b)(5)). 
These provisions of the Act authorize OFHEO to take any action deemed 
appropriate by the Director of OFHEO to ensure that the Federal National 
Mortgage Association and the Federal Home Loan Mortgage Corporation (the 
Enterprises) are operated in a safe and sound manner, including by

[[Page 375]]

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



Sec. 1720.2  Safety and soundness standards.

    Policy guidances as may be adopted from time to time by OFHEO, 
addressing safety and soundness standards, shall apply to the 
Enterprises. If OFHEO determines that an Enterprise does not meet a 
requirement set out in such policy guidance, it may require corrective 
or remedial actions by the Enterprise, and take such enforcement action 
as the Director deems to be appropriate.



   Sec. Appendix A to Part 1720--Policy Guidance; Minimum Safety and 
                         Soundness Requirements

                     A--Background and Introduction

I. Background
II. Introduction

               B--Operational and Managerial Requirements

I. Asset underwriting and credit quality.
II. Balance sheet growth and management.
III. Market risk.
IV. Information technology.
V. Internal controls.
VI. Audits.
VII. Information reporting and documentation.
VIII. Board and management responsibilities and function.
IX. Format of policies and procedures.

                           C--Compliance Plans

I. Notice; submission and review of compliance plan.
II. Failure to submit acceptable plan or to comply with plan.

                     A--Background and Introduction

    I. Background. The Federal Housing Enterprises Safety and Soundness 
Act of 1992, Title XIII of Pub. L. No. 102-550 (the Act) empowers OFHEO 
to take any such action as the Director determines to be appropriate to 
ensure that the federally sponsored housing enterprises, Fannie Mae and 
Freddie Mac, are, among other things, adequately capitalized and 
operating safely, including by adopting supervisory policies and 
standards by regulation or other guidance or process.
    i. OFHEO herein sets forth the minimum supervisory requirements used 
by the agency in reviewing the ensuring, the adequacy of policies and 
procedures of the Enterprises in the areas of: (1) Asset underwriting 
and credit quality; (2) balance sheet growth; (3) market risks; (4) 
information technology; (5) internal controls; (6) audits; (7) 
information reporting and documentation; and (8) board and management 
responsibilities and functions. If the agency finds that an Enterprise 
fails to meet any requirement or standard set forth in this 
pronouncement, the Director may, among other things, require the 
Enterprise to submit to the agency and implement an adequate plan to 
achieve timely compliance with the requirement or standard. If the 
Enterprise fails to submit such an adequate plan within the time 
specified by the agency or fails in any material respect to implement 
the plan, the agency may take additional supervisory action. The 
Director may at any time prescribe such supervisory actions as deemed 
appropriate to correct conditions resulting from an unsafe or unsound 
practice or condition or deficiency in complying with regulatory 
requirements or standards including, but not limited to, issuance of a 
notice of charges or order, imposition of civil money penalties, or 
other remedial actions or sanctions as determined by the Director.
    ii. The minimum supervisory requirements and standards identify key 
safety and soundness concerns regarding operation and management of an 
Enterprise, and ensure that action is taken to avoid the emergence of 
problems that might entail serious risks to an Enterprise. The minimum 
supervisory requirements of the Policy Guidance also reflect the need 
for internal policies and procedures in particular areas that, if not 
appropriately addressed by the Enterprises, may warrant action by OFHEO 
in order to reduce risks of loss and possible capital impairment. The 
proposed minimum requirements set forth herein are intended to effect 
these

[[Page 376]]

purposes without dictating how the Enterprises must be operated and 
managed; moreover, the Policy Guidance does not set out detailed 
operational and managerial procedures that an Enterprise must have in 
place. The Policy Guidance is intended to identify the ends that proper 
operational and management policies and procedures are to achieve, while 
leaving the means to be devised by each Enterprise as it designs and 
implements its own policies and procedures. Where OFHEO does specify 
particular requirements, each Enterprise's management is left with 
substantial flexibility to fashion and implement them.
    iii. The Policy Guidance is not intended to effect a change in 
OFHEO's policies; the announced minimum requirements reflect the basic 
underlying criteria OFHEO uses to assess the operations and managerial 
quality of an Enterprise. OFHEO will determine compliance with the 
requirements and related standards through examinations of the 
Enterprises, as well as off-site surveillance means and other 
interchanges with each Enterprise.
    iv. OFHEO routinely undertakes to evaluate an Enterprise's overall 
policies, in order to determine whether such policies are safe and sound 
in principle and in practice. OFHEO also evaluates whether procedures 
are in place to ensure that an Enterprise's overall policies as adopted 
by the Enterprise's board of directors and management are, in fact, 
applied in the normal course of business. As reflected in the Policy 
Guidance, the Enterprises are, at a minimum, expected to adopt 
appropriate policies and internal guidelines, and to put in place 
procedures to ensure they are followed as a matter of routine.
    v. Nothing in the Policy Guidance in any way limits the authority of 
OFHEO to otherwise address unsafe or unsound conditions or practices, or 
violations of applicable law, regulation or supervisory order. Action 
referencing the Policy Guidance may be taken separate from, in 
conjunction with or in addition to any other enforcement action 
available to OFHEO. Compliance with the Policy Guidance in general would 
not preclude a finding by the agency that an Enterprise is otherwise 
engaged in a specific unsafe or unsound practice or is in an unsafe or 
unsound condition, or requiring corrective or remedial action with 
regard to such practice or condition. That is, supervisory action is not 
precluded against an Enterprise that has not been cited for a deficiency 
under the Policy Guidance. Conversely, an Enterprise's failure to comply 
with one of the supervisory requirements set forth in the Policy 
Guidance may not warrant a formal supervisory response from OFHEO, if 
the agency determines the matter may be otherwise addressed in a 
satisfactory manner. For example, OFHEO may require timely submission of 
a plan to achieve compliance with the particular requirement or standard 
without taking any other enforcement action.
    II. Introduction. i. Authority, purpose, and scope.
    a. Authority. This Policy Guidance is issued by the Office of 
Federal Housing Enterprise Oversight (OFHEO) pursuant to sections 
1313(a), 1313(b)(1), 1313(b)(5) and 1371 of the Federal Housing 
Enterprise Safety and Soundness Act (Act) (12 U.S.C. 4513(a), 
4513(b)(1), 4513(b)(5) and 4631). These provisions of the Act authorize 
OFHEO to take any action deemed appropriate by the Director of OFHEO to 
ensure that the Federal National Mortgage Association and the Federal 
Home Loan Mortgage Corporation (the Enterprises) are operated in a safe 
and sound manner, including by adopting supervisory policies and 
standards by regulation, guidance, or other process.
    b. Purpose and scope. This Policy Guidance sets out certain minimum 
safety and soundness requirements for the business and operations of the 
Enterprises, and reiterates agency policies requiring the Enterprises to 
establish and implement policies and procedures that are sufficient to 
effectuate compliance with supervisory standards. If OFHEO determines 
that an Enterprise does not meet the requirements set forth herein, the 
Director may require the Enterprise to submit and carry out a plan to 
achieve compliance, or may take other corrective and remedial actions. 
The requirements enumerated herein are supervisory minimums. In order to 
satisfy an Enterprise's overarching obligation under the Act to conduct 
is operations in a safe and sound manner, it may be necessary and 
appropriate for an Enterprise to take additional measures in these or 
other areas, as directed by OFHEO through regulation, guidance, order or 
otherwise as part of the supervisory process.
    ii. Preservation of existing authority. Neither this Policy Guidance 
nor any action by OFHEO to enforce compliance of an Enterprise therewith 
in any way limits the authority of the Director otherwise to address 
unsafe or unsound conditions or practices, or other violations of law or 
other regulation. Action under this Policy Guidance may be taken 
separate from, in conjunction with, or in addition to any other 
enforcement action deemed appropriate by OFHEO. Nothing in this Policy 
Guidance or related guidances limits the authority of the Director 
pursuant to section 1313 of the Act (12 U.S.C. 4513) or any other 
provision of law, rule or regulation applicable to the Enterprises.
    iii. Definitions. For purposes of this Policy Guidance, except as 
modified therein or unless the context otherwise requires, the terms 
used have the same meaning as set forth in section 1303 of the Act (12 
U.S.C. 4502).

[[Page 377]]

               B--Operational and Managerial Requirements

    I. Asset underwriting and credit quality. An Enterprise should 
establish and implement policies and procedures to adequately assess 
credit risks before they are assumed, and monitor such risks 
subsequently to ensure that they conform to the Enterprise's credit risk 
standards on an individual and an aggregate basis. The Enterprise 
should:
    i. For loans purchased and loans collateralizing securities 
guaranteed by the Enterprise, adopt and implement prudent underwriting 
standards and procedures commensurate with the type of loan or loans and 
the markets in which the loan or loans were made that include 
consideration of the borrower's and any guarantor's financial condition 
and ability to repay as well as the type and value of any collateral or 
credit enhancement;
    ii. To the extent the Enterprise's assets are serviced or 
administered by other entities or are covered by mortgage insurance or 
other credit enhancements or arrangements, the Enterprise's policies and 
procedures should recognize the consequences and implications of such 
contractual arrangements for the Enterprise's credit risk;
    iii. Establish and implement policies and procedures to address 
declining credit quality and to require appropriate corrective action; 
to establish sufficient reserves; and to deal with defaulted assets so 
as to minimize losses;
    iv. Establish and implement policies and procedures to select and 
price credit risk to ensure that the Enterprise is appropriately 
compensated commensurate with the credit risk it assumes and its 
statutory obligations;
    v. Establish and implement policies and procedures that address the 
prudential selection, management and handling of counterparty credit 
exposure that arises from engaging in hedging activities and the use 
derivative instruments; and
    vi. Establish and implement policies and procedures to identify, 
monitor and evaluate its credit exposures on an aggregate basis so as to 
assess the implications and consequences of matters such as 
concentration exposure (including geographic as well as product 
concentrations), to identify and evaluate credit risk trends 
effectively, and to maintain and revise appropriately its systems and 
procedures for underwriting, servicing, and monitoring of such exposures 
and changes to those exposures.
    II. Balance sheet growth and management. An Enterprise's balance 
sheet growth should be prudent and consider:
    i. The source, volatility, and use of funds that support balance 
sheet growth;
    ii. Any changes in credit risk or interest rate risk resulting from 
balance sheet growth;
    iii. The effect of balance sheet growth on the Enterprise's capital 
adequacy; and
    iv. The appropriate policies and procedures needed to manage changes 
in risk that may occur as a result of balance sheet growth.
    III. Market risk. An Enterprise should establish and implement 
policies and procedures that allow for the effective identification, 
measurement, monitoring, and management of market risk. The Enterprise 
should:
    i. Establish and implement policies and procedures sufficient to 
quantify and monitor the interest rate risk of the Enterprise 
effectively and to model the effect of differing interest rate scenarios 
on the Enterprise's financial condition and operations;
    ii. Develop risk management strategies that respond appropriately to 
changes in interest rates;
    iii. Establish and implement policies and procedures sufficient to 
quantify and monitor the Enterprise's liquidity effectively, and to 
identify and anticipate various market environments and their effects on 
the Enterprises' liquidity; and
    iv. Establish and maintain an effective contingency plan for 
liquidity under varying scenarios.
    IV. Information technology. An Enterprise should establish and 
implement policies and procedures to ensure that its computing 
resources, proprietary and nonpublic information and data are:
    i. Protected from access by unauthorized users, and otherwise 
protected by appropriate security measures;
    ii. Reliable, accurate and available at all times as needed for its 
business operations, including an ability to effect timely recovery and 
resume operations after a reasonably foreseeable adverse event; and
    iii. Designed to ensure adequate support of business operations.
    V. Internal controls. An Enterprise should maintain and implement 
internal controls appropriate to the nature, scope and risk of its 
business activities that, at a minimum, provide for:
    i. An organizational structure and assignment of responsibility for 
management, employees, consultants and contractors, that provide for 
accountability and controls, including adherence to policies and 
procedures;
    ii. A control framework commensurate with the Enterprise's risks;
    iii. Policies and procedures adequate to safeguard and to manage 
assets; and
    iv. Compliance with applicable laws, regulations and policies.
    VI. Audits. An Enterprise should establish and implement internal 
and external audit programs appropriate to the nature and scope of its 
business activities that, at minimum, provide for:
    i. Adequate monitoring of internal controls through an audit 
function appropriate to the

[[Page 378]]

Enterprise's size, structure and scope of operations;
    ii. Independence of the audit function;
    iii. Qualified professionals and management for the conduct and 
review of audit functions;
    iv. Adequate testing and review of audited areas together with 
adequate documentation of findings and of any recommendations and 
corrective actions; and
    v. Verification and review of measures and actions undertaken to 
address identified material weaknesses.
    VII. Information reporting and documentation. An Enterprise should 
establish and implement policies and procedures for generating and 
retaining reports and documents that:
    i. Enable the Enterprise's board of directors (including appropriate 
committees) to make informed decisions and to exercise its oversight 
function, by providing all such relevant information of an appropriate 
level of detail as necessary;
    ii. Enable the Enterprise's managers to make informed business 
decisions and to assess risks for all aspects of the Enterprise's 
business on an ongoing basis, by providing sufficient relevant 
information of an appropriate level of detail as necessary;
    iii. Ensure decision-makers have appropriate and necessary 
information about particular transactions and business operations;
    iv. Enable the Enterprise to administer and supervise all assets, 
liabilities, commitments and other financial obligations appropriately;
    v. Enable the Enterprise to enforce legal claims against borrowers, 
counterparties and other obligors; and
    vi. Ensure timely and complete submissions of reports of financial 
condition and operations, as well as annual and other periodic reports 
and special reports to OFHEO whenever requested or required by OFHEO.
    VIII. Board and management responsibilities and function. An 
Enterprise's board of directors shall ensure that the board (including 
appropriate committees) works with executive management to establish the 
Enterprise's strategies and goals in an informed manner, and that the 
Enterprise's executive managers and other managers, as appropriate, 
implement such strategies, by ensuring at a minimum that:
    i. The board (including appropriate committees) oversees the 
development of the Enterprise's strategies in key areas and exercises 
oversight necessary to ensure that management sets policies and controls 
to implement such strategies effectively;
    ii. The board (including appropriate committees) hires qualified 
executive management, and exercises oversight to hold management 
accountable for meeting the Enterprise's goals and objectives;
    iii. The board (including appropriate committees) is provided with 
accurate information about the operations and financial condition of the 
Enterprise in a timely fashion, and sufficient to enable the board to 
effect its oversight duties and responsibilities;
    iv. Management of the Enterprise sets policies and controls to 
ensure the Enterprise's strategies are implemented effectively, and that 
the Enterprise's organization structure and assignment of 
responsibilities provide clear accountability and controls; and
    v. Management of the Enterprise establishes and maintains an 
effective risk management framework, including review of such framework 
to monitor its effectiveness and taking appropriate action to correct 
any weaknesses.
    IX. Format of policies and procedures. i. Generally, the policies of 
an Enterprise contemplated by this Policy Guidance should be in writing 
and in such form and detail as appropriate in light of their intended 
purpose, nature, and potential consequences for the operations and 
financial condition of the Enterprise, and approved by the board of 
directors (including appropriate committees) or such responsible officer 
or officers as designated by the board.
    ii. The policies and procedures of an Enterprise contemplated by 
this Policy Guidance should be provided to OFHEO at such time and in 
such format as OFHEO directs.

                           C--Compliance Plans

    I. Notice; submission and review of compliance plans. i. 
Determination. The Director of OFHEO may, based upon a report of 
examination, or other supervisory information however acquired, 
determine that an Enterprise has failed or is likely to fail to satisfy 
the minimum supervisory requirements or standards set forth in part B of 
this appendix.
    ii. Request for compliance plan. If the Director determines pursuant 
to paragraph C.I.i of thiis appendix that an Enterprise has failed or is 
likely to fail to satisfy a supervisory requirement or standard, OFHEO 
may require the submission of a written compliance plan.
    iii. Schedule for filing compliance plan. An Enterprise may be 
required to file a written compliance plan with OFHEO within thirty days 
of receiving a written request for a compliance plan pursuant to 
paragraph C.I.ii of this appendix.
    iv. Contents of plan. A required compliance plan should include, 
subject to additional direction by OFHEO, a detailed description of the 
steps the Enterprise will take to correct a deficiency and any condition 
resulting therefrom and the time within which such steps will be 
undertaken and fully implemented.
    v. Review of compliance plans. If the compliance plan submitted 
under this section is deemed to be inadequate or incomplete,

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OFHEO may provide written notice of such inadequacy or deficiencies 
thereof to the Enterprise OFHEO or seek additional information from the 
Enterprise regarding the plan.
    vi. Amendment of compliance plan. An Enterprise that has filed a 
required compliance plan to which no objection has been raised by OFHEO 
may, after prior written notice to and approval by the Director, amend 
the plan to reflect changes in circumstance, policies and procedures.
    II. Failure to submit acceptable plan or to comply with plan. If an 
Enterprise does not submit an adequate and complete plan as required by 
the agency within the time specified by OFHEO or does not implement such 
an adequate and complete plan, the Director may require the Enterprise 
to correct any deficiency and may require additional corrective or 
remedial actions by the Enterprise as deemed to be appropriate pursuant 
to the Act, including sections 1371 (12 U.S.C. 4631), 1372 (12 U.S.C. 
4632), and 1376 (12 U.S.C. 4636).



 Sec. Appendix B to Part 1720--Policy Guidance; Non-Mortgage Liquidity 
                               Investments

A--Purpose
B--Activities Covered
C--Standards for Non-mortgage Liquidity Investment Activities
D--Disclosure of Non-mortgage Liquidity Investment Activities
E--Summary

                               A--Purpose

    1. Fannie Mae and Freddie Mac (the Enterprises) were chartered by 
Congress as government-sponsored enterprises with public missions. They 
perform an important role in the United States mortgage market by 
gathering funds and purchasing mortgages from mortgage originators and 
guaranteeing mortgage-backed securities. In chartering the Enterprises, 
Congress charged the Enterprises with: (1) providing stability to 
mortgage markets; (2) responding to the changing capital markets; (3) 
assisting the secondary markets including the support of these markets 
for affordable housing; and (4) promoting access to credit throughout 
the country by increasing liquidity and improving distribution of 
investment capital for residential mortgage finance. These functions 
require the Enterprises, as principals in the secondary mortgage market, 
to serve as bedrock in providing liquidity to the U.S. housing finance 
system.
    2. For the Enterprises effectively to perform their public purposes, 
they must be financially sound and liquid. As the Enterprises' financial 
safety and soundness regulator, OFHEO conducts its regulatory programs 
to ensure these companies adhere to safety and soundness standards. In 
addition, OFHEO interprets this to include heightening the positive 
effect of market discipline on the Enterprises by encouraging quality 
disclosures, appropriate accounting standards, and state-of-the-art risk 
management further strengthens their safety and soundness. More 
specifically, OFHEO conducts comprehensive safety and soundness 
examinations and requires the Enterprises to adhere to regulatory 
capital requirements. In conducting its regulatory programs, OFHEO 
applies a series of safety and soundness standards to assess the 
Enterprises' liquidity management, including their investments in non-
mortgage liquidity assets. It is appropriate to issue initial guidance 
that addresses the safety and soundness standards OFHEO uses to evaluate 
Enterprise investment activities in non-mortgage liquidity assets.
    3. Further, it should be noted that the Secretary of HUD, who has 
general regulatory power over the Enterprises and who is required to 
make such rules and regulations as necessary to ensure that the purposes 
of the GSE's respective Charter Acts are accomplished, has issued an 
Advanced Notice of Proposed Rulemaking on possible substantive and/or 
procedural rules governing the GSEs' non-mortgage investment activities. 
Accordingly, the GSEs may be subject to regulations in this area through 
future HUD actions, in addition to this initial guidance.

                          B--Activities Covered

    1. The Enterprises must maintain sufficient liquidity to meet both 
known and unexpected payment demands on borrowings and mortgage 
securities, for operations and to purchase mortgage assets. Liquidity 
management is the process by which the Enterprises manage the use and 
availability of various funding sources to meet current and future 
needs. Liquidity must be closely managed on a daily basis.
    2. The Enterprises manage liquidity through three primary channels: 
securitizations, issuance of debt and conversion of liquid assets into 
cash. It is through careful management within and among the three 
channels, that the Enterprises can effectively meet demands and remain 
safe and sound under all market conditions. This Guidance specifically 
addresses ``non-mortgage liquidity investments'' which are conducted 
within the liquidity channel whereby the Enterprises are able to convert 
their own assets into cash.
    3. There are various types of investments that may be appropriate 
for non-mortgage liquidity holdings. Appropriate non-mortgage liquidity 
investments are characterized by both creditworthiness and low price 
volatility. Even though an investment may be creditworthy, if the 
holding is subject to undue price volatility (e.g. common stock), the 
investment is inappropriate for inclusion

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in the non-mortgage liquidity portfolio since the investment may not be 
readily converted into cash without substantial loss.
    4. For the purposes of this Guidance, the types of assets listed 
below are generally considered to be appropriate non-mortgage liquidity 
investments. This list is subject to revision over time as new asset 
types are introduced and/or market activities change. The presence of an 
asset on the list does not mean that OFHEO will necessarily consider any 
and all Enterprise investments in these assets to be safe and sound, 
especially if they fail to meet appropriate credit quality, maturity and 
diversification objectives:
    a. Debt issued by the United States Treasury,
    b. Debt issued by U.S. Government Agencies,
    c. General obligation debt issued by states and municipal 
authorities,
    d. Revenue obligations issued by states and municipal authorities,
    e. Corporate debt instruments,
    f. Money market instruments,
    g. Non-mortgage asset-backed securities, and
    h. Reverse repurchase agreements.
    5. This Guidance does not address investments in mortgage-backed 
securities, mortgage revenue bonds, or other investments secured by 
housing (including commercial mortgage-backed securities with a 
significant housing component) since these assets are not principally 
held for liquidity purposes. Also, upon implementation of FAS 133, this 
Guidance is not intended to address the use of derivative instruments. 
For activities not covered in this Guidance on non-mortgage liquidity 
investments, there should be no inferences drawn about OFHEO's views.

      C--Standards for Non-Mortgage Liquidity Investment Activities

    To ensure there are sufficient funds available to the mortgage 
market, the Enterprise must actively manage liquidity across all three 
channels. OFHEO assesses the safety and soundness of non-mortgage 
liquidity investment activities against five criteria. The five criteria 
and details about each of the criteria are:
     Prudent investment policies and procedures that 
guide the Enterprise's process;
     Quality management information that ensures 
timely performance measures and governance data;
     Safe & sound investment holdings and investment 
culture;
     Quality controls and personnel administering and 
governing the process; and
     Independent testing of the process to assure 
compliance.

      1. Prudent Investment Policies and Procedures That Guide the 
                          Enterprise's Process

    a. The Enterprise must have a comprehensive written investment 
policy that clearly expresses the goals for the non-mortgage liquidity 
investment activities. The Board of Directors and management must 
evaluate the effectiveness of non-mortgage liquidity investments in 
meeting the goals set out in the policy; and management must evaluate 
activities against the procedures and limitations in the policy. At a 
minimum, the policy should cover:
    i. The purpose of the non-mortgage liquidity investment holdings;
    ii. The institutional goal(s) for the non-mortgage liquidity 
investment holdings;
    iii. The authorized instruments and activities;
    iv. The internal control standards;
    v. The limits structure;
    vi. The performance standards and measures; and
    vii. The reporting requirements.
    b. The policy should clearly document the purpose for non-mortgage 
liquidity investment holdings. Management should install a series of 
procedures and controls that produce behaviors and performance that are 
consistent with the defined purpose for the non-mortgage liquidity 
investment activities.
    c. The policy should establish the primary goals for the non-
mortgage liquidity investment activities. For an Enterprise, some 
primary goals should be to augment liquidity and to generate a rate of 
return that is reasonable in light of the purpose of such investments. 
The emphasis placed on individual goals may vary based upon 
institutional differences. However, non-mortgage liquidity investments 
made with a goal of maximizing earnings or maximizing arbitrage 
opportunities would be inconsistent with this Guidance for the 
maintenance of an Enterprise's liquidity portfolio.
    d. The policy should clearly define the authorized investment 
vehicles and establish guidelines for the introduction of new types of 
investment vehicles.
    e. The Enterprise's procedures should include a framework of 
controls that provide an appropriate separation of duties and 
responsibilities. There should be responsibility assigned for an 
independent review of non-mortgage liquidity investments by a designated 
unit, such as audit or an independent risk oversight group.
    f. The Enterprise should adopt a limit structure to promote 
diversification in the non-mortgage liquidity investment portfolio and 
emphasizes strategies for risk mitigation. Additionally, there should be 
limits for the aggregate size of the non-mortgage liquidity investment 
portfolio.

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    g. The Enterprise should adopt measures to evaluate performance 
against the policy and its objectives.
    h. The Enterprise should adopt internal reporting requirements that 
quantify performance, document exceptions, and serve as a basis for 
communicating information about activities involving non-mortgage 
liquidity assets.
    i. The Enterprise should periodically evaluate the adequacy and 
content of its public disclosure for non-mortgage investment liquidity 
activities.

   2. Quality Management Information That Ensures Timely Performance 
                      Measures and Governance Data

    a. The Enterprise must maintain systems that adequately identify, 
measure and report the nature and level of exposure associated with 
their non-mortgage liquidity investments. Management must remain 
appropriately informed about the activity in non-mortgage liquidity 
investments. Also, the Board of Directors should periodically be 
provided a summary of non-mortgage liquidity investment activities. At a 
minimum, management's reports to the Board should:
    i. Summarize non-mortgage investment activity since the last report;
    ii. Identify and explain any material changes or trends in the non-
mortgage liquidity investment portfolio risk and returns; and
    iii. Report and explain exceptions to the policy or risk guidelines 
for liquidity investments.
    b. Meaningful changes in portfolio volume and spreads from period to 
period should be identified and explained to the Board in terms of why 
they occurred (e.g., changes in portfolio composition, changes in 
funding costs, etc.). In overseeing the day-to-day management of non-
mortgage liquidity investment activities, management should consider the 
discrete risks associated with the non-mortgage liquidity investment 
portfolio as well as the exposure of this portfolio within the context 
of risks across the entire Enterprise. This includes assessing the non-
mortgage liquidity investment portfolio's sensitivity to changes in 
interest rates, expressed in terms of net interest income sensitivity 
and portfolio value sensitivity.

      3. Safe and Sound Investment Holdings and Investment Culture

    a. The Enterprise should implement and enforce policies and/or 
procedures for non-mortgage liquidity investments. Management should 
establish limits and procedures in a manner that is consistent with the 
Board's sanctioned goals and risk appetite. Certain risk-limits for non-
mortgage liquidity investments may be expressed in terms of how they 
affect the Enterprise's overall risk-profile, such as those pertaining 
to interest-rate sensitivity. Other risk limits may be more 
appropriately expressed in terms of individual portfolios and 
instruments. In addition, limits restricting the size-range and scope of 
the non-mortgage liquidity investment activities should be established.
    b. The limits and procedures should delineate the acceptable 
investment instruments, acceptable markets, acceptable counterparties, 
along with unacceptable investment or portfolio activities. The 
Enterprise should maintain sufficient documentation to demonstrate due 
diligence in adhering to policies, procedures, limits and guidelines.
    c. At a minimum, limits should be established and reviewed annually, 
for:
    i. Credit threshold guidelines: Credit quality is a compelling 
factor for liquidity investments. Since liquidity investments should be 
able to be readily converted into cash without substantial exposure to 
losses, investments should be insulated from price vulnerabilities that 
are associated with creditworthiness. The most effective means of 
insulating against price exposure from credit quality concerns is to 
invest in high-quality instruments and the debt obligations of high-
quality issuers. The Enterprise should establish thresholds identifying 
the minimum credit standards of any security eligible for purchase. 
Where these standards involve credit ratings, the ratings should come 
from a nationally recognized rating organization. Procedures should be 
included that determine the steps to be taken by management if an 
instrument's credit rating falls below the minimum threshold before 
maturity.
    ii. Maturity guidelines: Because the maturity of an investment 
significantly affects its exposure to credit risk and price volatility, 
longer maturity instruments have limited suitability as liquidity 
investments. The Enterprise should establish the maximum maturity 
allowable for non-mortgage liquidity investments. It would be 
appropriate to have different maturity limits for certain types of 
instruments. For example, management may wish to establish shorter 
maturity limits for fixed-coupon instruments than for adjustable-rate 
securities. Management may have different maturity limits for bullet 
securities and amortizing structures. It would be appropriate to 
establish a maturity matrix based upon an instrument's credit rating at 
the time of purchase.
    iii. Diversification and concentration guidelines: Credit 
concentrations can increase credit risk. Accordingly, the Enterprise 
should establish guidelines that limit investments in the securities of 
any single issuer. Such limits may be established as a percentage limit 
(e.g., as a percentage of capital) or as an absolute dollar amount. To 
enhance portfolio liquidity, there should also

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be a limit on the percentage of any particular issue held by the 
Enterprise.

   4. Quality Controls and Personnel Administering and Governing the 
                                 Process

    a. The Enterprise should maintain a comprehensive set of controls to 
enforce the appropriate separation of duties and responsibilities. These 
controls should translate into clear procedures for routine operations. 
At a minimum, the internal control program for non-mortgage liquidity 
investment activities should include procedures for the following: 
portfolio valuation, personnel, settlement, physical control and 
documentation, conflict of interest, and accounting.
    i. Portfolio valuation procedures. Portfolio valuation procedures 
should require pricing that is independent of the investment portfolio 
managers. Pricing securities provides an indication of the market depth 
and liquidity for individual instruments, and is an important process 
for providing data to the risk management function, particularly within 
a framework of estimating market value sensitivity. Pricing is 
particularly important for securities that are classified as 
``available-for-sale'' for accounting purposes.
    ii. Personnel guidelines. Personnel guidelines should require 
competent and experienced staff be responsible for conducting 
transactions and managing the non-mortgage investment portfolio. There 
should be clear guidance regarding the roles and responsibilities of 
individuals involved with the non-mortgage liquidity portfolio.
    iii. Settlement practices. Procedures should cover standard 
settlement practices for the various types of non-mortgage liquidity 
investments in the Enterprise's portfolio. Inadequate understanding of 
standard settlement practices, coupled with poor internal controls, 
could result in unnecessary costs or losses.
    iv. Control and documentation. Procedures covering control and 
documentation should be comprehensive and consistent with the evolving 
better practices in the marketplace. The procedures should include, for 
example, standards for: processing and controlling purchased 
instruments, safeguarding investment documentation and reviewing trade 
tickets and confirmations.
    v. Conflict of interest. Conflict of interest guidelines should 
govern all Enterprise personnel authorized to purchase or sell non-
mortgage liquidity investments. These guidelines should ensure that all 
directors, officers and employees act in the Enterprise's best interest. 
Conflict of interest guidelines should address employee relationships 
with authorized broker/dealers. Guidelines should also address personnel 
accepting gifts and travel expenses from broker/dealers.
    vi. Accounting. Accounting practices should be evaluated to 
determine the level of compliance with GAAP standards.

  5. Independent Testing and Review of the Process To Assure Compliance

    a. An independent review of non-mortgage liquidity investment 
activities should be conducted periodically to ensure:
    i. The accuracy and integrity of information provided to the Board, 
management and other oversight bodies;
    ii. The adherence to policy, procedures, limits and guidelines;
    iii. The timeliness, accuracy and usefulness of non-mortgage 
investment reports;
    iv. The adequacy of personnel resources and capabilities; and
    v. The non-mortgage liquidity investment activities remain 
appropriate in the context of the marketplace and the external 
environment.
    b. This review may be conducted by a risk oversight unit or internal 
audit department, or any party that is independent of the routine risk-
taking decisions and should be commensurate with the level of review of 
other primary Enterprise activities. Independent review findings for 
non-mortgage liquidity investments should be reported to the Board 
directly or through one of its committees. The Board should consider the 
independent review when reaffirming policies, and should address any 
issues raised.

      D--Disclosure of Non-Mortgage Liquidity Investment Activities

    1. Sound risk management practices include thorough disclosures 
about the Enterprise's risks and further regulators' efforts to increase 
financial transparency for regulated financial companies. Quality 
disclosures about risks and risk management can be an effective 
deterrent to excessive risk-taking. Three essential elements needed to 
promote market discipline for non-mortgage liquidity investments are (1) 
type of issuer and security, (2) maturity, and (3) credit quality or 
rating. Accordingly, quality disclosure for a portfolio of non-mortgage 
liquidity investments should include a detailed categorization of the 
portfolio with respect to each of these elements and cross-
categorization, so that (for example) the quantity of any longer-
maturity, lower-credit-quality assets is clearly identified. Information 
about fair values; yields; and narrative discussions of objectives, risk 
management policies, and controls can also promote transparency of risk 
and should be included. Such disclosures should be made quarterly, and 
they should be made using average balances so that average risks can be 
assessed--not just the risks on a given date.
    2. Over the next few quarters, OFHEO will discuss more specifically 
with the Enterprise

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how these disclosures will meet the expectations expressed in this 
guidance. An example of a disclosure format that may be used by the 
Enterprise is available on the OFHEO Web site at http://www.ofheo.gov. 
However, the Enterprise may disclose the risks in its non-mortgage 
liquidity investment activities, consistent with the expectations 
expressed in this guidance, using a format of its choice.

                               E--Summary

    This Guidance sets forth OFHEO's process for evaluating the safety 
and soundness of liquidity non-mortgage investment activities. OFHEO 
remains committed to ensuring the Enterprises remain financially sound, 
have appropriate control environments, and engage only in financially 
sound business and investment activities. OFHEO's examiners have been 
instructed to incorporate this evaluation process into their ongoing 
safety and soundness examinations. Examiners will evaluate and test the 
Enterprise's non-mortgage liquidity investment processes and activities 
to ensure they are in compliance with this guidance.



  Sec. Appendix C to Part 1720--Policy Guidance; Safety and Soundness 
                        Standards for Information

                             A--Introduction

1. Scope.
2. Preservation of Existing Authority.
3. Definitions.

            B--Safety and Soundness Standards for Information

1. Information Security Program.
2. Objectives.

    C--Development and Implementation of Information Security Program

1. Involve the Board of Directors.
2. Assess Risk.
3. Manage and Control Risk.
4. Oversee Service Provider Arrangements.
5. Adjust the Program.
6. Report to the Board.
7. Implementation.

                             A--Introduction

    The Policy Guidance on Safety and Soundness Standards for 
Information sets forth standards pursuant to section 1313 of the Federal 
Housing Enterprise Safety and Soundness Act (12 U.S.C. 4513). The 
Guidance addresses standards for developing and implementing 
administrative, technical, and physical safeguards to protect the 
security, confidentiality, and integrity of information.
    1. Scope. The Guidance applies to information maintained by or on 
behalf of the Federal National Mortgage Association (Fannie Mae) and the 
Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, the 
Enterprises).
    2. Preservation of Existing Authority. Nothing in the Guidance in 
any way limits the authority of OFHEO to otherwise address unsafe or 
unsound conditions or practices or violations of applicable law, 
regulation or supervisory order. Action referencing the Policy Guidance 
may be taken separate from, in conjunction with or in addition to any 
other enforcement action available to OFHEO. Compliance with the Policy 
Guidance in general would not preclude a finding by the agency that an 
Enterprise is otherwise engaged in a specific unsafe or unsound practice 
or is in an unsafe or unsound condition, or requiring corrective or 
remedial action with regard to such practice or condition. That is, 
supervisory action is not precluded against an Enterprise that has not 
been cited for a deficiency under the Policy Guidance. Conversely, an 
Enterprise's failure to comply with one of the supervisory requirements 
set forth in the Policy Guidance may not warrant a formal supervisory 
response from OFHEO, if the agency determines the matter may be 
otherwise addressed in a satisfactory manner. For example, OFHEO may 
require the submission of a plan to achieve compliance with the 
particular requirement or standard without taking any other enforcement 
action.
    3. Definitions. For purposes of the Guidance, the following 
definitions apply:
    a. Information means any record of an Enterprise, whether in paper, 
electronic, or other form, that is handled or maintained by or on behalf 
of an Enterprise;
    b. Information security program means the administrative, technical, 
or physical safeguards used by an Enterprise to access, collect, 
process, store, use, transmit, dispose of, or otherwise handle 
information;
    c. Information systems means any methods used to access, collect, 
store, use, transmit, protect, or dispose of information;
    d. Service provider means any person or entity, including any third 
party vendor, that maintains, processes or otherwise is permitted access 
to information through its provision of services directly or indirectly 
to an Enterprise.

            B--Safety and Soundness Standards For Information

    1. Information Security Program. Each Enterprise shall implement a 
comprehensive written information security program that includes 
administrative, technical, and physical safeguards appropriate to the 
nature and scope of its activities. While all parts of the Enterprise 
are not required to implement a uniform set of policies, all elements of 
the information security program must be coordinated.

[[Page 384]]

    2. Objectives. An Enterprise's information security program shall be 
designed to:
    a. Ensure the security and confidentiality of information;
    b. Protect against any anticipated threats or hazards to the 
security or integrity of such information; and
    c. Protect against unauthorized access to or use of such 
information.

    C--Development and Implementation of Information Security Program

    1. Involve the Board of Directors. The board of directors or an 
appropriate committee of the board of each Enterprise shall:
    a. Approve the Enterprise's written information security program; 
and
    b. Oversee the development, implementation, and maintenance of the 
Enterprise's information security program, including assigning specific 
responsibility for its implementation and reviewing reports from 
management.
    2. Assess Risk. Each Enterprise shall:
    a. Identify reasonably foreseeable internal and external threats 
that could result in unauthorized disclosure, misuse, alteration, or 
destruction of information or information systems;
    b. Assess the likelihood and potential damage of these threats, 
taking into consideration the sensitivity of nonpublic information; and
    c. Assess the sufficiency of policies, procedures, information 
systems, and other arrangements in place to control risks.
    3. Manage and Control Risk. Each Enterprise shall:
    a. Design its information security program to manage and control the 
identified risks, commensurate with the sensitivity of the information 
as well as the complexity and scope of the Enterprise's activities. Each 
Enterprise should consider whether the following security measures are 
appropriate for the Enterprise and, if so, adopt those measures the 
Enterprise concludes are appropriate:
    i. Access controls over information systems, including controls to 
authenticate and permit access only to authorized individuals and 
controls to prevent employees from providing information to unauthorized 
individuals who may seek to obtain this information through fraudulent 
means;
    ii. Access restrictions at physical locations containing 
information, such as buildings, computer facilities, and records storage 
facilities to permit access only to authorized individuals;
    iii. Encryption of electronic information, including while in 
transit or in storage on networks or systems to which unauthorized 
individuals may have access;
    iv. Procedures designed to ensure that information system 
modifications are consistent with the Enterprise's information security 
program;
    v. Dual control procedures, segregation of duties, and employee 
background checks for employees with responsibilities for or access to 
information;
    vi. Monitoring systems and procedures to detect actual and attempted 
attacks on or intrusion into information systems;
    vii. Response programs that specify actions to be taken when the 
Enterprise suspects or detects that unauthorized individuals have gained 
access to information systems, including appropriate reports to 
regulatory and law enforcement agencies; and
    viii. Measures to protect against destruction, loss or damage of 
information due to potential environmental hazards, such as fire and 
water damage or technological failures.
    b. Train staff to implement the Enterprise's information security 
program; and
    c. Regularly test the key controls, systems and procedures of the 
information security program. The frequency and nature of such tests 
should be determined by the Enterprise's risk assessment. Tests should 
be conducted or reviewed by independent third parties or staff that are 
independent of those that develop or maintain the security programs.
    4. Oversee Service Provider Arrangements. Each Enterprise shall:
    a. Exercise appropriate due diligence in selecting its service 
providers;
    b. Require its service providers by contract to implement 
appropriate measures designed to meet the objectives of the Guidance; 
and
    c. Where indicated by the Enterprise's risk assessment, monitor its 
service providers to confirm that they have satisfied their obligations 
as required by section 9(b). As part of this monitoring, an Enterprise 
should review audits, summaries of test results, or other equivalent 
evaluations of its service providers.
    5. Adjust the Program. Each Enterprise shall monitor, evaluate, and 
adjust, as appropriate, the information security program in light of any 
relevant changes in technology, the sensitivity of its information, 
internal or external threats to information, and the Enterprise's own 
changing business arrangements, such as acquisitions, alliances and 
joint ventures, outsourcing arrangements, and changes to information 
systems.
    6. Report to the Board. Each Enterprise shall report to its board or 
an appropriate committee of the board at least annually. This report 
should describe the overall status of the information security program 
and the Enterprise's compliance with the Guidance. The reports should 
discuss material matters related to its program, addressing issues such 
as: risk assessment; risk management and control decisions; service 
provider arrangements; results of testing; security

[[Page 385]]

breaches or violations and management's responses; and recommendations 
for changes in the information security program.
    7. Implementation. a. Each Enterprise should implement an 
information security program pursuant to the Guidance.
    b. Until January 1, 2004, a contract that an Enterprise has entered 
into with a service provider to perform services for it or functions on 
its behalf satisfies the provisions of section 9, even if the contract 
does not include a requirement that the servicer maintain the security 
and confidentiality of information, as long as the Enterprise entered 
into the contract on or before the effective date.



PART 1730_DISCLOSURE OF FINANCIAL AND OTHER INFORMATION--Table of Contents




Sec.
1730.1 Purpose.
1730.2 Definitions.
1730.3 Periodic disclosures.
1730.4 Submission of disclosures.

    Authority: 12 U.S.C. 4513; 12 U.S.C. 4514; 12 U.S.C. 4631; and, 12 
U.S.C. 4632.

    Source: 68 FR 16718, Apr. 7, 2003, unless otherwise noted.



Sec. 1730.1  Purpose.

    (a) The purpose of this part is to require the Enterprises to 
prepare and submit financial and other disclosures as specified by 
OFHEO.
    (b) This part does not limit or restrict the authority of OFHEO to 
act under its safety and soundness mandate to regulate the Enterprises, 
including conducting examinations, requiring reports and disclosures, 
and enforcing compliance with applicable laws, rules and regulations.



Sec. 1730.2  Definitions.

    For purposes of this part, the term:
    (a) Commission means the Securities and Exchange Commission (or 
SEC).
    (b) Disclosure or disclosures means any report[s], form[s], or other 
information submitted by the Enterprises pursuant to this part and may 
be used interchangeably with the terms ``report[s]'' or ``form[s].''
    (c) Enterprise means the Federal National Mortgage Association or 
the Federal Home Loan Mortgage Corporation; and the term ``Enterprises'' 
means, collectively, the Federal National Mortgage Association and the 
Federal Home Loan Mortgage Corporation.
    (d) Exchange Act means the Securities Exchange Act of 1934.
    (e) OFHEO means the Office of Federal Housing Enterprise Oversight 
(or the office).



Sec. 1730.3  Periodic disclosures.

    (a) Each Enterprise shall prepare disclosures relating to its 
financial condition, results of operation, business developments, and 
management's expectations that include supporting financial information 
and certifications.
    (b) The requirement of paragraph (a) of this section for disclosures 
will be satisfied if:
    (1) In the case of an Enterprise having a class of securities 
registered pursuant to Section 12 of the Exchange Act, the Enterprise 
prepares and makes public an annual report, quarterly report and current 
reports and such other materials that may be required under the rules 
and regulations of the Commission, including interpretations of the 
Commission and its staff and rules governing audited financial 
statements;
    (2) The Enterprise files with the Commission all reports, 
statements, and forms required pursuant to Sections 14(a) and (c) of the 
Exchange Act and by rules and regulations adopted by the Commission 
under those sections that would be required to be filed by the 
Enterprises if the Enterprises has a class of equity securities 
registered under Section 12(g) of the Exchange Act that were not 
exempted securities under the Exchange Act; and,
    (3) The officers and directors of the Enterprise file with the 
Commission all reports and forms relating to the common stock of the 
Enterprise that would be required to be filed by the officers and 
directors pursuant to Section 16 of the Exchange Act and by rules and 
regulations adopted by the Commission under that section if the 
Enterprises had a class of equity securities registered under Section 
12(g) of the Exchange Act that were not exempted securities under the 
Exchange Act.

[[Page 386]]



Sec. 1730.4  Submission of disclosures.

    Unless otherwise required by OFHEO, the Enterprises shall provide to 
OFHEO on a concurrent basis copies of all disclosures filed with the SEC 
pursuant to Sec. 1730.3.



PART 1731_MORTGAGE FRAUD REPORTING--Table of Contents




Sec.
1731.1 Purpose and scope.
1731.2 Definitions.
1731.3 Unsafe and unsound conduct.
1731.4 Procedures for reporting.
1731.5 Internal controls, procedures, and training.
1731.6 Supervisory action.

    Authority: 12 U.S.C. 4513(a) and 4513(b)(1), (2), and (7).

    Source: 70 FR 43627, July 28, 2005, unless otherwise noted.



Sec. 1731.1  Purpose and scope.

    The purpose of this section is to set forth safety and soundness 
requirements with respect to the reporting of mortgage fraud in 
furtherance of the supervisory responsibilities of OFHEO under the 
Federal Housing Enterprises Financial Safety and Soundness Act of 1992 
(12 U.S.C. 4501 et seq.).



Sec. 1731.2  Definitions.

    For purposes of this part--
    (a) Director means the Director of OFHEO, or his or her designee.
    (b) Enterprise means the Federal National Mortgage Association or 
the Federal Home Loan Mortgage Corporation.
    (c) Mortgage fraud means a material misstatement, misrepresentation, 
or omission relied upon by an Enterprise to fund or purchase--or not to 
fund or purchase--a mortgage, including a mortgage associated with a 
mortgage-backed security or similar financial instrument issued or 
guaranteed by an Enterprise. Such mortgage fraud includes, but is not 
limited to, a material misstatement, misrepresentation, or omission in 
identification and employment documents, mortgagee or mortgagor 
identity, and appraisals that are fraudulent.
    (d) OFHEO means the Office of Federal Housing Enterprise Oversight.
    (e) Possible mortgage fraud means that an Enterprise has a 
reasonable belief, based upon a review of information available to the 
Enterprise, that mortgage fraud may be occurring or has occurred.



Sec. 1731.3  Unsafe and unsound conduct.

    An Enterprise may not require the repurchase of or may not decline 
to purchase a mortgage, mortgage backed security, or similar financial 
instrument because of possible mortgage fraud without promptly reporting 
to the Director under Sec. 1731.4. An Enterprise may decline such 
purchase or require such repurchase if it is reporting mortgage fraud or 
possible mortgage fraud in accordance with Sec. 1731.4.



Sec. 1731.4  Procedures for reporting.

    (a) Procedures for reporting--(1) Prompt report. An Enterprise shall 
report promptly mortgage fraud or possible mortgage fraud in writing to 
the Director in such format and under such notification procedures as 
prescribed by OFHEO. The report shall describe the mortgage fraud or 
possible mortgage fraud in detail sufficient under OFHEO guidance. The 
Enterprise, at the sole discretion of the Director, may be required to 
provide additional or continuing information in connection with such 
mortgage fraud.
    (2) Immediate report. In addition to reporting in writing under 
paragraph (a)(1) of this section, in any situation requiring immediate 
attention by OFHEO, an Enterprise shall report the mortgage fraud or 
possible mortgage fraud to the Director by telephone or electronic 
communication.
    (b) Retention of records. An Enterprise shall maintain a copy of any 
report submitted to the Director and the original or business record 
equivalent of any supporting documentation for a period of five years 
from the date of submission.
    (c) Nondisclosure. An Enterprise may not disclose, without the prior 
written approval of the Director, to the party or parties connected with 
the mortgage fraud or possible mortgage fraud that it has reported such 
fraud under this part. This restriction does not prohibit an Enterprise 
from--

[[Page 387]]

    (1) Disclosing or reporting such fraud pursuant to legal 
requirements, including reporting to appropriate law enforcement or 
other governmental authorities; or
    (2) Taking any legal or business action it may deem appropriate, 
including any action involving the party or parties connected with the 
mortgage fraud or possible mortgage fraud.
    (d) Acceptance of other forms. The Director may, upon written notice 
to each Enterprise, accept reports of mortgage fraud or possible 
mortgage fraud in formats promulgated by any Federal agency that has 
jurisdiction over the reporting of mortgage fraud or possible mortgage 
fraud by the Enterprises.
    (e) No waiver of privilege. An Enterprise does not waive any 
privilege it may claim under law by reporting mortgage fraud or possible 
mortgage fraud under this part.



Sec. 1731.5  Internal controls, procedures, and training.

    An Enterprise shall establish adequate and efficient internal 
controls and procedures and an operational training program to assure an 
effective system to detect and report mortgage fraud or possible 
mortgage fraud under this part.



Sec. 1731.6  Supervisory action.

    Failure by an Enterprise to comply with Sec. Sec. 1731.3, 1731.4, 
and 1731.5 may subject the Enterprise or the board members, officers, or 
employees thereof to supervisory action by OFHEO under the Federal 
Housing Enterprises Safety and Soundness Act of 1992 (12 U.S.C. 4501 et 
seq.), including but not limited to, cease-and-desist proceedings and 
civil money penalties.



PART 1732_RECORD RETENTION--Table of Contents




                            Subpart A_General

Sec.
1732.1 Purpose and scope.
1732.2 Definitions.
1732.3-4 [Reserved]

                   Subpart B_Record Retention Program

1732.5 Establishment and evaluation of record retention program.
1732.6 Minimum requirements of record retention program.
1732.7 Record hold.
1732.8-1732.9 [Reserved]

                      Subpart C_Supervisory Action

1732.10 Supervisory action.

    Authority: 12 U.S.C. 4513(a), 4513(b)(1), 4513(b)(5), 4514, 4631, 
4632, and 4632.

    Source: 71 FR 62884, Oct. 27, 2006, unless otherwise noted.



                            Subpart A_General



Sec. 1732.1  Purpose and scope.

    In furtherance of the safety and soundness authorities of OFHEO, 
this part sets forth minimum requirements in connection with the record 
retention program of each Enterprise. The requirements are intended to 
ensure that complete and accurate records of an Enterprise are readily 
accessible by OFHEO for examination and other supervisory purposes. Such 
access shall be by reasonable means, consistent with the nature and 
availability of the records and existing information technology.



Sec. 1732.2  Definitions.

    For purposes of this part, the term:
    (a) Act means the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992, Title XIII of the Housing and Community 
Development Act of 1992, Public Law 102-550, section 1301, Oct. 28, 
1992, 106 Stat. 3672, 3941 through 4012 (1993) (12 U.S.C. 4501 et seq.).
    (b) Active record means a record that is necessary to conduct the 
current business of an office or business unit of an Enterprise and, 
therefore, is readily available for consultation and reference.
    (c) Director means the Director of OFHEO, or his or her designee.
    (d) Electronic record means a record created, generated, 
communicated, or stored by electronic means.
    (e) Employee means any officer or employee of an Enterprise or any 
conservator appointed by OFHEO.
    (f) Enterprise means the Federal National Mortgage Association or 
the Federal Home Loan Mortgage Corporation; and the term ``Enterprises''

[[Page 388]]

means, collectively, the Federal National Mortgage Association and the 
Federal Home Loan Mortgage Corporation.
    (g) E-mail means electronic mail, which is a method of communication 
in which:
    (1) Usually, text is transmitted (but sometimes also graphics and/or 
audio information);
    (2) Operations include sending, storing, processing, and receiving 
information;
    (3) Users are allowed to communicate under specified conditions; and
    (4) Messages are held in storage until called for by the addressee, 
including any attachment of separate electronic files.
    (h) Inactive record means a record that is seldom used but must be 
retained by an Enterprise for fiscal, legal, historical, or vital 
records purposes.
    (i) OFHEO means the Office of Federal Housing Enterprise Oversight.
    (j) Record means any information whether generated internally or 
received from outside sources by an Enterprise or employee maintained in 
connection with Enterprise business, regardless of the following:
    (1) Form or format, including hard copy documents (e.g., files, 
logs, and reports) and electronic documents (e.g., e-mail, databases, 
spreadsheets, PowerPoint presentations, electronic reporting systems, 
electronic tapes and back-up tapes, optical discs, CD-ROMS, and DVDs), 
and voicemail records;
    (2) Where the information is stored or located, including network 
servers, desktop or laptop computers and handheld computers, other 
wireless devices with text messaging capabilities, and on-site or off-
site at a storage facility;
    (3) Whether the information is maintained or used on Enterprise-
owned equipment, or personal or home computer systems of an employee; or
    (4) Whether the information is active or inactive.
    (k) Record retention schedule means a schedule that details the 
categories of records an Enterprise is required to retain and the 
corresponding retention periods. The record retention schedule includes 
all media, such as microfilm and machine-readable computer records, for 
each record category. Reproductions are also included for each record 
category if the original of the official record is not available.
    (l) Retention period means the length of time that records must be 
kept before they are destroyed. Records not authorized for destruction 
have a retention period of ``permanent.''
    (m) Vital records means records that are needed to meet operational 
responsibilities of an Enterprise under emergency or disaster conditions 
(emergency operating records) or to protect the legal and financial 
rights of an Enterprise. Emergency operating records are the type of 
vital records essential to the continued functioning or reconstitution 
of an Enterprise during and after an emergency. A vital record may be 
both an emergency operating record and a legal and financial rights 
record.



Sec. Sec. 1732.3-1732.4  [Reserved]



                   Subpart B_Record Retention Program



Sec. 1732.5  Establishment and evaluation of record retention program.

    (a) Establishment. An Enterprise shall establish and maintain a 
written record retention program and provide a copy of such program to 
the OFHEO Examiner-in-Charge of the Enterprise within 120 days of the 
effective date of this part, and annually thereafter, and whenever a 
significant revision to the program has been made.
    (b) Evaluation. Management of the Enterprise shall evaluate in 
writing the adequacy and effectiveness of the record retention program 
at least every three years and provide a copy of the evaluation to the 
board of directors and the OFHEO Examiner-in-Charge of the Enterprise.



Sec. 1732.6  Minimum requirements of record retention program.

    (a) Requirements. The record retention program established and 
maintained by an Enterprise under Sec. 1732.5 shall:
    (1) Be reasonably designed to assure that retained records are 
complete and accurate;

[[Page 389]]

    (2) Be reasonably designed to assure that the format of retained 
records and the retention period--
    (i) Are adequate to support litigation and the administrative, 
business, external and internal audit functions of the Enterprise;
    (ii) Comply with requirements of applicable laws and regulations; 
and
    (iii) Permit ready access by the Enterprise and, upon request, by 
the examination and other staff of OFHEO by reasonable means, consistent 
with the nature and availability of the records and existing information 
technology;
    (3) Assign in writing the authorities and responsibilities for 
record retention activities;
    (4) Include policies and procedures concerning record holds, 
consistent with Sec. 1732.7;
    (5) Include an accurate, current, and comprehensive record retention 
schedule that lists records by major categories, subcategories, record 
type, and retention period, which retention period is appropriate to the 
specific record and consistent with applicable legal, regulatory, 
fiscal, and operational and business requirements;
    (6) Include adequate security and internal controls to protect 
records from unauthorized access and data alteration; and
    (7) Provide for adequate back-up and recovery of electronic records.
    (b) Training. The record retention program shall provide for 
training of and notice to all employees on a periodic basis on their 
record retention responsibilities, including instruction regarding 
penalties provided by law for the unlawful removal or destruction of 
records. The record retention program also shall provide for training 
for the agents or independent contractors of an Enterprise, as 
appropriate, consistent with their respective roles and responsibilities 
to the Enterprise.



Sec. 1732.7  Record hold.

    (a) Definition. For purposes of this part, the term ``record hold'' 
means a requirement, an order, or a directive from an Enterprise or 
OFHEO that the Enterprise is to retain records relating to a particular 
issue in connection with an actual or a potential OFHEO examination, 
investigation, enforcement proceeding, or litigation of which the 
Enterprise has received notice from OFHEO.
    (b) Notification by Enterprise. The record retention program of an 
Enterprise shall:
    (1) Address how employees and, as appropriate, how agents or 
independent contractors consistent with their respective roles and 
responsibilities to the Enterprise, will receive prompt notification of 
a record hold;
    (2) Designate an individual to communicate specific requirements and 
instructions, including, when necessary, the instruction to cease 
immediately any otherwise permissible destruction of records; and,
    (3) Provide that any employee and, as appropriate, any agent or 
independent contractor consistent with his or her respective role and 
responsibility to the Enterprise, who has received notice of a potential 
investigation, enforcement proceeding, or litigation by OFHEO involving 
the Enterprise or an employee, or otherwise has actual knowledge that an 
issue is subject to such an investigation, enforcement proceeding or 
litigation, shall notify immediately the legal department of the 
Enterprise and shall retain any records that may be relevant in any way 
to such investigation, enforcement proceeding, or litigation.
    (c) Method of record retention. The record retention program of an 
Enterprise shall address the method by which the Enterprise will retain 
records during a record hold. Specifically, the program shall describe 
the method for the continued preservation of electronic records, 
including e-mails, and the conversion of records from paper to 
electronic format as well as any alternative storage method.
    (d) Access to and retrieval of records. The record retention program 
of an Enterprise shall ensure access to and retrieval of records by the 
Enterprise and access, upon request, by OFHEO, during a record hold. 
Such access shall be by reasonable means, consistent with the nature and 
availability of the records and existing information technology.

[[Page 390]]



Sec. Sec. 1732.8-1732.9  [Reserved]



                      Subpart C_Supervisory Action



Sec. 1732.10  Supervisory action.

    (a) Supervisory action. Failure by an Enterprise to comply with this 
part may subject the Enterprise or the board members, officers, or 
employees thereof to supervisory action by OFHEO under the Act, 
including but not limited to cease-and-desist proceedings, temporary 
cease-and-desist proceedings, and civil money penalties.
    (b) No limitation of authority. This part does not limit or restrict 
the authority of OFHEO to act under its safety and soundness mandate, in 
accordance with the Act. Such authority includes, but is not limited to, 
conducting examinations, requiring reports and disclosures, and 
enforcing compliance with applicable laws, rules, and regulations.



PART 1750_CAPITAL--Table of Contents




                        Subpart A_Minimum Capital

Sec.
1750.1 General.
1750.2 Definitions.
1750.3 Procedure and timing.
1750.4 Minimum capital requirement computation.

Appendix A to Subpart A of Part 1750--Minimum Capital Components for 
          Interest Rate and Foreign Exchange Rate Contracts

                      Subpart B_Risk-Based Capital

1750.10 General.
1750.11 Definitions.
1750.12 Procedures and timing.
1750.13 Risk-based capital level computation.

Appendix A to Subpart B of Part 1750--Risk-Based Capital Test 
          Methodology and Specifications
Appendix B to Subpart B of Part 1750 [Reserved]

    Authority: 12 U.S.C. 4513, 4514, 4611, 4612, 4614, 4615, 4618.



                        Subpart A_Minimum Capital



Sec. 1750.1  General.

    The regulation contained in this subpart A sets forth the 
methodology for computing the minimum capital requirement for each 
Enterprise. The board of directors of each Enterprise is responsible for 
ensuring that the Enterprise maintains capital at a level that is 
sufficient to ensure the continued financial viability of the Enterprise 
and that equals or exceeds the minimum capital requirement contained in 
this subpart A.



Sec. 1750.2  Definitions.

    For purposes of this subpart A, the following definitions shall 
apply:
    Affiliate means any entity that controls, is controlled by, or is 
under common control with, an Enterprise, except as otherwise provided 
by the Director.
    Commitment means any contractual, legally binding agreement that 
obligates an Enterprise to purchase or to securitize mortgages.
    Core Capital--(1) Means the sum of (as determined in accordance with 
generally accepted accounting principles)--
    (i) The par or stated value of outstanding common stock;
    (ii) The par or stated value of outstanding perpetual, noncumulative 
preferred stock;
    (iii) Paid-in capital; and
    (iv) Retained earnings; and
    (2) Does not include debt instruments or any amounts the Enterprise 
could be required to pay at the option of an investor to retire capital 
instruments.
    Director means the Director of OFHEO.
    Enterprise means the Federal National Mortgage Association and any 
affiliate thereof or the Federal Home Loan Mortgage Corporation and any 
affiliate thereof.
    Foreign exchange rate contracts--
    (1) Means cross-currency interest rate swaps, forward foreign 
exchange contracts, currency options purchased (including currency 
options purchased over-the-counter), and any other instrument that gives 
rise to similar credit risks; and
    (2) Does not mean foreign exchange rate contracts with an original 
maturity of 14 calendar days or less and foreign exchange rate contracts 
traded on exchanges that require daily payment of variation margins.
    Interest rate contracts--

[[Page 391]]

    (1) Means single currency interest rate swaps, basis swaps, forward 
rate agreements, interest rate options purchased (including caps, 
collars, and floors purchased), over-the-counter options purchased, and 
any other instrument that gives rise to similar credit risks (including 
when-issued securities and forward deposits accepted); and
    (2) Does not mean such instruments traded on exchanges that require 
daily payment of variation margins.
    Mortgage-backed security means a security, investment, or 
substantially equivalent instrument that represents an interest in a 
pool of loans secured by mortgages or deeds of trust where the principal 
or interest payments to the investor in the security or substantially 
equivalent instrument are guaranteed or effectively guaranteed by an 
Enterprise.
    Multifamily credit enhancement means any guarantee, pledge, purchase 
arrangement, or other obligation or commitment provided or entered into 
by an Enterprise with respect to multifamily mortgages to provide credit 
enhancement, liquidity, interest rate support, and other guarantees and 
enhancements for revenue bonds issued by a state or local governmental 
unit (including a housing finance agency) or other bond issuer.
    1992 Act means the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992, found at Title XIII of the Housing and Community 
Development Act of 1992, Pub. L. 102-550, 12 U.S.C. 4501 et seq.
    Notional amount means the face value of the underlying financial 
instrument(s) on which an interest rate or foreign exchange rate 
contract is based.
    Off-balance sheet obligation means a binding agreement, contract, or 
similar arrangement that requires or may require future payment(s) in 
money or kind by another party to an Enterprise, or that effectively 
guarantees all or part of such payment(s) to third parties (including 
commitments), where such agreement or contract is a source of credit 
risk that is not included on its balance sheet.
    OFHEO means the Office of Federal Housing Enterprise Oversight.
    Other off-balance sheet obligations means all off-balance sheet 
obligations of an Enterprise that are not mortgage-backed securities or 
substantially equivalent instruments and that are not resecuritized 
mortgage-backed securities, such as real estate mortgage investment 
conduits or similar resecuritized instruments.
    Perpetual, noncumulative preferred stock means preferred stock 
that--
    (1) Does not have a maturity date;
    (2) Provides the issuer the ability and the legal right to eliminate 
dividends and does not permit the accruing or payment of impaired 
dividends;
    (3) Cannot be redeemed at the option of the holder; and
    (4) Has no other provisions that will require future redemption of 
the issue, in whole or in part, or that will reset the dividend 
periodically based, in whole or in part, on the Enterprise's current 
credit standing, such as auction rate, money market, or remarketable 
preferred stock, or that may cause the dividend to increase to a level 
that could create an incentive for the issuer to redeem the instrument, 
such as exploding rate stock.
    Qualifying collateral means cash on deposit; securities issued or 
guaranteed by the central governments of the OECD-based group of 
countries,\1\

[[Page 392]]

United States Government agencies, or United States Government-sponsored 
agencies; and securities issued by multilateral lending institutions or 
regional development banks.
---------------------------------------------------------------------------

    \1\ The OECD-based group of countries comprises full members of the 
Organization for Economic Cooperation and Development (OECD) regardless 
of entry date, as well as countries that have concluded special lending 
arrangements with the International Monetary Fund (IMF) associated with 
the IMF's General Arrangements to Borrow, but excludes any country that 
has rescheduled its external sovereign debt within the previous 5 years. 
A rescheduling of external sovereign debt generally would include any 
renegotiation of terms arising from a country's mobility or 
unwillingness to meet its external debt service obligations, but 
generally not include any renegotiation to allow the borrower to take 
advantage of a decline in interest rate or other change in market 
conditions. As of November 1995, the OECD countries included the 
following countries: Australia, Austria, Belgium, Canada, Denmark, 
Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, 
Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Portugal, 
Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United 
States; and Saudi Arabia has concluded special lending arrangements with 
the IMF associated with the IMF's General Arrangements to Borrow.
---------------------------------------------------------------------------



Sec. 1750.3  Procedure and timing.

    (a) Each Enterprise shall file with the Director a minimum capital 
report each quarter or at such other times as the Director requires, in 
his or her sole discretion. The report shall contain the information 
that responds to all of the items required by OFHEO in written 
instructions to the Enterprise, including, but not limited to:
    (1) Estimate of the minimum capital requirement;
    (2) Estimate of core capital overage or shortfall relative to the 
estimated minimum capital requirement;
    (3) Such other information as may be required by the Director.
    (b) The quarterly minimum capital report shall be submitted not 
later than April 30, July 30, October 30, and January 30 of each year.
    (c) Each minimum capital report shall be submitted in writing and in 
such other format as may be required by the Director.
    (d) In the event an Enterprise makes an adjustment to its financial 
statements for a quarter or a date for which the information was 
requested, which would cause an adjustment to a minimum capital report, 
the Enterprise shall file with the Director an amended minimum capital 
report not later than 3 business days after the date of such adjustment.
    (e) Each minimum capital report or any amended minimum capital 
report shall contain a declaration by an officer authorized by the board 
of directors of the Enterprise to make such a declaration, including, 
but not limited to a president, vice president, or treasurer, that the 
report is true and correct to the best of such officer's knowledge and 
belief.



Sec. 1750.4  Minimum capital requirement computation.

    (a) The minimum capital requirement for each Enterprise shall be 
computed by adding the following amounts:
    (1) 2.50 percent times the aggregate on-balance sheet assets of the 
Enterprise;
    (2) 0.45 percent times the unpaid principal balance of mortgage-
backed securities and substantially equivalent instruments that were 
issued or guaranteed by the Enterprise;
    (3) 0.45 percent of 50 percent of the average dollar amount of 
commitments outstanding each quarter over the preceding four quarters;
    (4) 0.45 percent of the outstanding principal amount of bonds with 
multifamily credit enhancements;
    (5) 0.45 percent of the dollar amount of sold portfolio remittances 
pending;
    (6)(i) 3.00 percent of the credit equivalent amount of interest rate 
contracts and foreign exchange rate contracts, except to the extent of 
the current market value of posted qualifying collateral, computed in 
accordance with appendix A to this subpart;
    (ii) 1.50 percent of the market value of qualifying collateral 
posted to secure interest rate and foreign exchange rate contracts, not 
to exceed the credit equivalent amount of such contracts, computed in 
accordance with appendix A to this subpart; and
    (7) 0.45 percent of the outstanding amount, credit equivalent 
amount, or other measure determined appropriate by the Director, of 
other off-balance sheet obligations (excluding commitments, multifamily 
credit enhancements, sold portfolio remittances pending, and interest 
rate contracts and foreign exchange rate contracts), except as adjusted 
by the Director to reflect differences in the credit risk of such 
obligations in relation to mortgage-backed securities.
    (b) Any asset or financial obligation that is properly classifiable 
in more than one of the categories enumerated in paragraphs (a) (1) 
through (7) of this section shall be classified in the category that 
yields the highest minimum capital requirement.
    (c) As used in this section, the term ``preceding four quarters'' 
means the last day of the quarter just ended (or

[[Page 393]]

the date for which the minimum capital report is filed, if different), 
and the three preceding quarter-ends.



 Sec. Appendix A to Subpart A of Part 1750--Minimum Capital Components 
          for Interest Rate and Foreign Exchange Rate Contracts

    1. The minimum capital components for interest rate and foreign 
exchange rate contracts are computed on the basis of the credit 
equivalent amounts of such contracts. Credit equivalent amounts are 
computed for each of the following off-balance sheet interest rate and 
foreign exchange rate contracts:

                       a. Interest Rate Contracts

    i. Single currency interest rate swaps.
    ii. Basis swaps.
    iii. Forward rate agreements.
    iv. Interest rate options purchased (including caps, collars, and 
floors purchased).
    v. Any other instrument that gives rise to similar credit risks 
(including when-issued securities and forward deposits accepted).

                   b. Foreign Exchange Rate Contracts

    i. Cross-currency interest rate swaps.
    ii. Forward foreign exchange rate contracts.
    iii. Currency options purchased.
    iv. Any other instrument that gives rise to similar credit risks.
    2. Foreign exchange rate contracts with an original maturity of 14 
calendar days or less and foreign exchange rate contracts traded on 
exchanges that require daily payment of variation margins are excluded 
from the minimum capital requirement computation. Over-the-counter 
options purchased, however, are included and treated in the same way as 
the other interest rate and foreign exchange rate contracts.

               3. Calculation of Credit Equivalent Amounts

    a. The minimum capital components for interest rate and foreign 
exchange rate contracts are computed on the basis of the credit 
equivalent amounts of such contracts. The credit equivalent amount of an 
off-balance sheet interest rate and foreign exchange rate contract that 
is not subject to a qualifying bilateral netting contract in accordance 
with this appendix A is equal to the sum of the current exposure 
(sometimes referred to as the replacement cost) of the contract and an 
estimate of the potential future credit exposure over the remaining life 
of the contract.
    b. The current exposure is determined by the mark-to-market value of 
the contract. If the mark-to-market value is positive, then the current 
exposure is the mark-to-market value. If the mark-to-market value is 
zero or negative, then the current exposure is zero. Mark-to-market 
values are measured in United States dollars, regardless of the currency 
or currencies specified in the contract, and should reflect changes in 
the relevant rates, as well as counterparty credit quality.
    c. The potential future credit exposure of a contract, including a 
contract with a negative mark-to-market value, is estimated by 
multiplying the notional principal amount of the contract by a credit 
conversion factor. The effective rather than the apparent or stated 
notional amount must be used in this calculation. The credit conversion 
factors are:

------------------------------------------------------------------------
                                                              Foreign
                                            Interest rate  exchange rate
            Remaining maturity                 contracts     contracts
                                              (percent)      (percent)
------------------------------------------------------------------------
1 year or less............................            0.0            1.0
Over 1 year...............................            0.5            5.0
------------------------------------------------------------------------

    d. Because foreign exchange rate contracts involve an exchange of 
principal upon maturity, and foreign exchange rates are generally more 
volatile than interest rates, higher conversion factors have been 
established for foreign exchange rate contracts than for interest rate 
contracts.
    e. No potential future credit exposure is calculated for single 
currency interest rate swaps in which payments are made based upon two 
floating rate indexes, so-called floating/floating or basis swaps. The 
credit exposure on these contracts is evaluated solely on the basis of 
their mark-to-market values.

                     4. Avoidance of Double Counting

    In certain cases, credit exposures arising from the interest rate 
and foreign exchange instruments covered by this appendix A may already 
be reflected, in part, on the balance sheet. To avoid double counting 
such exposures in the assessment of capital adequacy, counterparty 
credit exposures arising from the types of instruments covered by this 
appendix A may need to be excluded from balance sheet assets in 
calculating the minimum capital requirement.

                              5. Collateral

    a. The sufficiency of collateral for off-balance sheet items is 
determined by the market value of the collateral in relation to the 
credit equivalent amount. Collateral held against a netting contract is 
not recognized for minimum capital standard purposes unless it is 
legally available to support the single legal obligation created by the 
netting contract. Excess collateral held against one contract or a group 
of contracts for which a recognized netting agreement exists may not be 
considered.
    b. The only forms of collateral that are formally recognized by the 
minimum capital standard framework are cash on deposit; securities 
issued or guaranteed by the central

[[Page 394]]

governments of the OECD-based group of countries, United States 
Government agencies, or United States Government-sponsored agencies; and 
securities issued by multilateral lending institutions or regional 
development banks.

                               6. Netting

    a. For purposes of this appendix A, netting refers to the offsetting 
of positive and negative mark-to-market values in the determination of a 
current exposure to be used in the calculation of a credit equivalent 
amount. Any legally enforceable form of bilateral netting (that is, 
netting with a single counterparty) of interest rate and foreign 
exchange rate contracts is recognized for purposes of calculating the 
credit equivalent amount provided that the following criteria are met:
    i. Netting must be accomplished under a written netting contract 
that creates a single legal obligation, covering all included individual 
contracts, with the effect that the Enterprise would have a claim to 
receive, or obligation to pay, only the net amount of the sum of the 
positive and negative mark-to-market values on included individual 
contracts in the event that a counterparty, or a counterparty to whom 
the contract has been validly assigned, fails to perform due to default, 
insolvency, liquidation, or similar circumstances.
    ii. The Enterprise must obtain a written and reasoned legal 
opinion(s) representing that in the event of a legal challenge--
including one resulting from default, insolvency, liquidation, or 
similar circumstances--the relevant court and administrative authorities 
would find the Enterprise's exposure to be such a net amount under--
    A. The law of the jurisdiction in which the counterparty is 
chartered or the equivalent location in the case of noncorporate 
entities, and if a branch of the counterparty is involved, then also 
under the law of the jurisdiction in which the branch is located;
    B. The law that governs the individual contracts covered by the 
netting contract; and
    C. The law that governs the netting contract.
    iii. The Enterprise must establish and maintain procedures to ensure 
that the legal characteristics of netting contracts are kept under 
review in the event of possible changes in relevant law.
    iv. The Enterprise must maintain in its files documentation adequate 
to support the netting of rate contracts, including a copy of the 
bilateral netting contract and necessary legal opinions.
    b. A contract containing a walkaway clause is not eligible for 
netting for purposes of calculating the credit equivalent amount.\1\
---------------------------------------------------------------------------

    \1\ A walkaway clause is a provision in a netting contract that 
permits a non-defaulting counterparty to make lower payments than it 
would make otherwise under the contract, or no payment at all, to a 
defaulter or to the estate of a defaulter, even if the defaulter or the 
estate of the defaulter is a net creditor under the contract.
---------------------------------------------------------------------------

    c. By netting individual contracts for the purpose of calculating 
its credit equivalent amount, the Enterprise represents that it has met 
the requirements of this appendix A and all the appropriate documents 
are in the Enterprise's files and available for inspection by OFHEO. 
OFHEO may determine that an Enterprise's files are inadequate or that a 
netting contract, or any of its underlying individual contracts, may not 
be legally enforceable under any one of the bodies of law described in 
this appendix A. If such a determination is made, the netting contract 
may be disqualified from recognition for minimum capital standard 
purposes or underlying individual contracts may be treated as though 
they are not subject to the netting contract.
    d. The credit equivalent amount of interest rate and foreign 
exchange rate contracts that are subject to a qualifying bilateral 
netting contract is calculated by adding the current exposure of the 
netting contract and the sum of the estimates of the potential future 
credit exposures on all individual contracts subject to the netting 
contract, estimated in accordance with paragraph 3 of this appendix A. 
Offsetting contracts in the same currency maturing on the same date will 
have lower potential future exposure as well as lower current exposure. 
Therefore, for purposes of calculating potential future credit exposure 
to a netting counterparty for foreign exchange rate contracts and other 
similar contracts in which notional principal is equivalent to cash 
flows, total notional principal is defined as the net receipts falling 
due on each value date in each currency.
    e. The current exposure of the netting contract is determined by 
summing all positive and negative mark-to-market values of the 
individual contracts included in the netting contract. If the net sum of 
the mark-to-market values is positive, then the current exposure of the 
netting contract is equal to that sum. If the net sum of the mark-to-
market values is zero or negative, then the current exposure of the 
netting contract is zero. OFHEO may determine that a netting contract 
qualifies for minimum capital standard netting treatment even though 
certain individual contracts may not qualify. In such instances, the 
nonqualifying contracts should

[[Page 395]]

be treated as individual contracts that are not subject to the netting 
contract.
    f. In the event a netting contract covers contracts that are 
normally excluded from the minimum capital requirement computation--for 
example, foreign exchange rate contracts with an original maturity of 14 
calendar days or less, or instruments traded on exchanges that require 
daily payment of variation margin--an Enterprise may elect consistently 
either to include or exclude all mark-to-market values of such contracts 
when determining net current exposure.



                      Subpart B_Risk-Based Capital

    Source: 66 FR 47806, Sept. 13, 2001, unless otherwise noted.



Sec. 1750.10  General.

    The regulation contained in this subpart B establishes the 
methodology for computing the risk-based capital level for each 
Enterprise. The board of directors of each Enterprise is responsible for 
ensuring that the Enterprise maintains total capital at a level that is 
sufficient to ensure the continued financial viability of the Enterprise 
and is equal to or exceeds the risk-based capital level computed 
pursuant to this subpart B.



Sec. 1750.11  Definitions.

    Except where a term is explicitly defined differently in this 
subpart, all terms defined at Sec. 1750.2 of subpart A of this part 
shall have the same meanings for purposes of this subpart. For purposes 
of subpart B of this part, the following definitions shall apply:
    (a) Benchmark loss experience means the rates of default and 
severity for mortgage loans that--
    (1) Were originated during a period of two or more consecutive 
calendar years in contiguous areas that together contain at least five 
percent of the population of the United States, and
    (2) Experienced the highest loss rate for any period of such 
duration in comparison with the loans originated in any other contiguous 
areas that together contain at least five percent of the population of 
the United States.
    (b) Constant maturity Treasury yield means the constant maturity 
Treasury yield, published by the Board of Governors of the Federal 
Reserve System.
    (c) Contiguous areas means all the areas within a state or a group 
of two or more states sharing common borders. ``Sharing common borders'' 
does not mean meeting at a single point. Colorado, for example, is 
contiguous with New Mexico, but not with Arizona.
    (d) Credit risk means the risk of financial loss to an Enterprise 
from nonperformance by borrowers or other obligors on instruments in 
which an Enterprise has a financial interest, or as to which the 
Enterprise has a financial obligation.
    (e) Default rate of a given group of loans means the ratio of the 
aggregate original principal balance of the defaulted loans in the group 
to the aggregate original principal balance of all loans in the group.
    (f) Defaulted loan means a loan that, within ten years following its 
origination:
    (1) Resulted in pre-foreclosure sale,
    (2) Completed foreclosure,
    (3) Resulted in the acquisition of real estate collateral, or
    (4) Otherwise resulted in a credit loss to an Enterprise.
    (g) Financing costs of property acquired through foreclosure means 
the product of:
    (1) The number of years (including fractions) of the period from the 
completion of foreclosure through disposition of the property,
    (2) The average of the Enterprises' short-term funding rates, and
    (3) The unpaid principal balance at the time of foreclosure.
    (h) Interest rate risk means the risk of financial loss due to the 
sensitivity of earnings and net worth of an Enterprise to changes in 
interest rates.
    (i) Loss on a defaulted loan means:
    (1) With respect to a loan in category 1, 2, or 3 of the definition 
of defaulted loan the difference between:
    (i) The sum of the principal and interest owed when the borrower 
lost title to the property securing the mortgage; financing costs 
through the date of property disposition; and cash expenses incurred 
during the foreclosure process, the holding period for real estate 
collateral acquired as a result of default, and the property liquidation 
process; and

[[Page 396]]

    (ii) The sum of the property sales price and any other liquidation 
proceeds (except those resulting from private mortgage insurance 
proceeds or other third-party credit enhancements).
    (2) With respect to defaulted loans not in categories 1, 2, or 3, 
the amount of the financial loss to the Enterprise.
    (j) Mortgage means any loan secured by such classes of liens as are 
commonly given or are legally effective to secure advances on, or the 
unpaid purchase price of, real estate under the laws of the State in 
which the real estate is located; or a manufactured house that is 
personal property under the laws of the State in which the manufactured 
house is located, together with the credit instruments, if any, secured 
thereby, and includes interests in mortgages.
    (k) Seasoning means the change over time in the ratio of the unpaid 
principal balance of a mortgage to the value of the property by which 
such mortgage loan is secured.
    (l) Severity rate for any group of defaulted loans means the 
aggregate losses on all loans in that group divided by the aggregate 
original principal balances of those loans.
    (m) Stress period means a hypothetical ten-year period immediately 
following the day for which capital is being measured, which is a period 
marked by the severely adverse economic circumstances defined in 12 CFR 
1750.13 and Appendix A to this subpart.
    (n) Total capital means, with respect to an Enterprise, the sum of 
the following:
    (1) The core capital of the Enterprise;
    (2) A general allowance for foreclosure losses, which--
    (i) Shall include an allowance for portfolio mortgage losses, an 
allowance for non-reimbursable foreclosure costs on government claims, 
and an allowance for liabilities reflected on the balance sheet for the 
Enterprise for estimated foreclosure losses on mortgage-backed 
securities; and
    (ii) Shall not include any reserves of the Enterprise made or held 
against specific assets.
    (3) Any other amounts from sources of funds available to absorb 
losses incurred by the Enterprise, that the Director by regulation 
determines are appropriate to include in determining total capital.
    (o) Type of mortgage product means a classification of one or more 
mortgage products, as established by the Director, that have similar 
characteristics from each set of characteristics under the paragraphs 
(o)(1) through (o)(7) of this section:
    (1) The property securing the mortgage is--
    (i) A residential property consisting of 1 to 4 dwelling units; or
    (ii) A residential property consisting of more than 4 dwelling 
units.
    (2) The interest rate on the mortgage is---
    (i) Fixed; or
    (ii) Adjustable.
    (3) The priority of the lien securing the mortgage is--
    (i) First; or
    (ii) Second or other.
    (4) The term of the mortgage is--
    (i) 1 to 15 years;
    (ii) 16-30 years; or
    (iii) More than 30 years.
    (5) The owner of the property is--
    (i) An owner-occupant; or
    (ii) An investor.
    (6) The unpaid principal balance of the mortgage--
    (i) Will amortize completely over the term of the mortgage, and will 
not increase significantly at any time during the term of the mortgage;
    (ii) Will not amortize completely over the term of the mortgage, and 
will not increase significantly at any time during the term of the 
mortgage; or
    (iii) May increase significantly at some time during the term of the 
mortgage.
    (7) Any other characteristics of the mortgage, as specified in 
Appendix A to this subpart.



Sec. 1750.12  Procedures and timing.

    (a) Each Enterprise shall file with the Director a Risk-Based 
Capital Report each quarter, and at such other times as the Director may 
require, in his or her discretion. The report shall contain the 
information required by the Director in the instructions to the Risk-
Based Capital Report in the format or media specified therein and

[[Page 397]]

such other information as may be required by the Director.
    (b) The quarterly Risk-Based Capital Report shall contain 
information for the last day of the quarter and shall be submitted not 
later than 30 days after the end of the quarter. Reports required by the 
Director other than quarterly reports shall be submitted within such 
time period as the Director shall specify.
    (c) When an Enterprise contemplates entering a new activity, as the 
term is defined in section 3.11 of Appendix A to this subpart, the 
Enterprise shall notify the Director as soon as possible while the 
transaction or activity is under consideration, but in no event later 
than 5 calendar days after settlement or closing. The Enterprises shall 
provide to the Director such information regarding the activity as the 
Director may require to determine a stress test treatment. OFHEO will 
inform the Enterprise as soon as possible thereafter of the proposed 
stress test treatment of the new activity. In addition, the notice of 
proposed capital classification required by Sec. 1777.21 of this 
chapter will inform the Enterprise of the capital treatment of such new 
activity used in the determination of the risk-based capital 
requirement.
    (d) If an Enterprise discovers that a Risk-Based Capital Report 
previously filed with OFHEO contains any errors or omissions, the 
Enterprise shall notify OFHEO immediately of such discovery and file an 
amended Risk-Based Capital Report not later than three days thereafter.
    (e) Each capital classification shall be determined by OFHEO on the 
basis of the Risk-Based Capital Report filed by the Enterprise under 
paragraph (a) of this section; provided that, in the event an amended 
Risk-Based Capital Report is filed prior to the issuance of the final 
notice of capital classification, the Director has the discretion to 
determine the Enterprise's capital classification on the basis of the 
amended report.
    (f) Each Risk-Based Capital Report or any amended Risk-Based Capital 
Report shall contain a declaration by the officer who has been 
designated by the Board as responsible for overseeing the capital 
adequacy of the Enterprise that the report is true and correct to the 
best of such officer's knowledge and belief.

[66 FR 47806, Sept. 13, 2001, as amended at 67 FR 19322, Apr. 19, 2002]



Sec. 1750.13  Risk-based capital level computation.

    (a) Risk-Based Capital Test--OFHEO shall compute a risk-based 
capital level for each Enterprise at least quarterly by applying the 
risk-based capital test described in Appendix A to this subpart to 
determine the amount of total capital required for each Enterprise to 
maintain positive capital during the stress period. In making this 
determination, the Director shall take into account any appropriate 
distinctions among types of mortgage products, differences in seasoning 
of mortgages, and other factors determined appropriate by the Director 
in accordance with the methodology specified in Appendix A to this 
subpart. The stress period has the following characteristics:
    (1) Credit risk--With respect to mortgages owned or guaranteed by 
the Enterprise and other obligations of the Enterprise, losses occur 
throughout the United States at a rate of default and severity 
reasonably related, in accordance with Appendix A to this subpart, to 
the benchmark loss experience.
    (2) Interest rate risk--(i) In general. Interest rates decrease as 
described in paragraph (a)(2)(ii) of this section or increase as 
described in paragraph (a)(2)(iii) of this section, whichever would 
require more capital in the stress test for the Enterprise. Appendix A 
to this subpart contains a description of the methodology applied to 
implement the interest rate scenarios described in paragraphs (a)(2)(ii) 
and (iii) of this section.
    (ii) Decreases. The 10-year constant maturity Treasury yield 
decreases during the first year of the stress period and remains at the 
new level for the remainder of the stress period. The yield decreases to 
the lesser of--
    (A) 600 basis points below the average yield during the 9 months 
immediately preceding the stress period, or
    (B) 60 percent of the average yield during the 3 years immediately 
preceding the stress period, but in no case to a yield less than 50 
percent of the

[[Page 398]]

average yield during the 9 months immediately preceding the stress 
period.
    (iii) Increases. The 10-year constant maturity Treasury yield 
increases during the first year of the stress period and will remain at 
the new level for the remainder of the stress period. The yield 
increases to the greater of--
    (A) 600 basis points above the average yield during the 9 months 
immediately preceding the stress period, or
    (B) 160 percent of the average yield during the 3 years immediately 
preceding the stress period, but in no case to a yield greater than 175 
percent of the average yield during the 9 months immediately preceding 
the stress period.
    (iv) Different terms to maturity. Yields of Treasury instruments 
with terms to maturity other than 10 years will change relative to the 
10-year constant maturity Treasury yield in patterns and for durations 
that are reasonably related to historical experience and are judged 
reasonable by the Director. The methodology used by the Director to 
adjust the yields of those other instruments is specified in Appendix A 
to this subpart.
    (v) Large increases in yields. If the 10-year constant maturity 
Treasury yield is assumed to increase by more than 50 percent over the 
average yield during the 9 months immediately preceding the stress 
period, the Director shall adjust the losses resulting from the 
conditions specified in paragraph (a)(2)(iii) of this section to reflect 
a correspondingly higher rate of general price inflation. The method of 
such adjustment by the Director is specified in Appendix A to this 
subpart.
    (3) New business. Any contractual commitments of the Enterprise to 
purchase mortgages or issue securities will be fulfilled. The 
characteristics of resulting mortgages purchased, securities issued, and 
other financing will be consistent with the contractual terms of such 
commitments, recent experience, and the economic characteristics of the 
stress period, as more fully specified in Appendix A to this subpart. No 
other purchases of mortgages shall be assumed.
    (4) Other activities. Losses or gains on other activities, including 
interest rate and foreign exchange hedging activities, shall be 
determined by the Director, in accordance with Appendix A to this 
subpart and on the basis of available information, to be consistent with 
the stress period.
    (5) Consistency. Characteristics of the stress period other than 
those specifically set forth in paragraph (a) of this section, such as 
prepayment experience and dividend policies, will be determined by the 
Director, in accordance with Appendix A to this subpart, on the basis of 
available information, to be most consistent with the stress period.
    (b) Risk-Based Capital Level. The risk-based capital level of an 
Enterprise, to be used in determining the appropriate capital 
classification of each Enterprise, as required by section 1364 of the 
Federal Housing Enterprises Financial Safety and Soundness Act of 1992 
(12 U.S.C. 4614), shall be equal to the sum of the following amounts:
    (1) Credit and Interest Rate Risk. The amount of total capital 
determined by applying the risk-based capital test under paragraph (a) 
of this section to the Enterprise.
    (2) Management and Operations Risk. To provide for management and 
operations risk, 30 percent of the amount of total capital determined by 
applying the risk-based capital test under paragraph (a) of this section 
to the Enterprise.



   Sec. Appendix A to Subpart B of Part 1750--Risk-Based Capital Test 
                     Methodology and Specifications

1.0 Identification of the Benchmark Loss Experience
    1.1 Definitions
    1.2 Data
    1.3 Procedures
2.0 Identification of a New Benchmark Loss Experience
3.0 Computation of the Risk-Based Capital Requirement
3.1 Data
    3.1.1 Introduction
    3.1.2 Risk-Based Capital Report
    3.1.2.1 Whole Loan Inputs
    3.1.2.2 Mortgage Related Securities Inputs
    3.1.2.3 Nonmortgage Instrument Cash Flows Inputs
    3.1.2.4 Inputs for Alternative Modeling Treatment Items
    3.1.2.5 Operations, Taxes, and Accounting Inputs
    3.1.3 Public Data
    3.1.3.1 Interest Rates

[[Page 399]]

    3.1.3.2 Property Valuation Inputs
    3.1.4 Constant Values
    3.1.4.1 Single Family Loan Performance
    3.1.4.2 Multifamily Loan Performance
3.2 Commitments
    3.2.1 Commitments Overview
    3.2.2 Commitments Inputs
    3.2.2.1 Loan Data
    3.2.2.2 Interest Rate Data
    3.2.3 Commitments Procedures
    3.2.4 Commitments Outputs
3.3 Interest Rates
    3.3.1 Interest Rates Overview
    3.3.2 Interest Rates Inputs
    3.3.3 Interest Rates Procedures
    3.3.4 Interest Rates Outputs
3.4 Property Valuation
    3.4.1 Property Valuation Overview
    3.4.2 Property Valuation Inputs
    3.4.3 Property Valuation Procedures for Inflation Adjustment
    3.4.4 Property Valuation Outputs
3.5 Counterparty Defaults
    3.5.1 Counterparty Defaults Overview
    3.5.2 Counterparty Defaults Input
    3.5.3 Counterparty Defaults Procedures
    3.5.4 Counterparty Defaults Outputs
3.6 Whole Loan Cash Flows
    3.6.1 Whole Loan Cash Flows Overview
    3.6.2 Whole Loan Cash Flows Inputs
    3.6.3 Whole Loan Cash Flows Procedures
    3.6.3.1 Timing Conventions
    3.6.3.2 Payment Allocation Conventions
    3.6.3.3 Mortgage Amortization Schedule
    3.6.3.4 Single Family Default and Prepayment Rates
    3.6.3.5 Multifamily Default and Prepayment Rates
    3.6.3.6 Calculation of Single Family and Multifamily Mortgage Losses
    3.6.3.7 Stress Test Whole Loan Cash Flows
    3.6.3.8 Whole Loan Accounting Flows
    3.6.4 Final Whole Loan Cash Flow Outputs
3.7 Mortgage-Related Securities Cash Flows
    3.7.1 Mortgage-Related Securities Overview
    3.7.2 Mortgage-Related Securities Inputs
    3.7.2.1 Inputs Specifying Individual Securities
    3.7.2.2 Interest Rate Inputs
    3.7.2.3 Mortgage Performance Inputs
    3.7.2.4 Third-Party Credit Inputs
    3.7.3 Mortgage-Related Securities Procedures
    3.7.3.1 Single Class MBSs
    3.7.3.2 REMICs and Strips
    3.7.3.3 Mortgage Revenue Bonds and Miscellaneous MRS
    3.7.3.4 Accounting
    3.7.4 Mortgage-Related Securities Outputs
3.8 Nonmortgage Instrument Cash Flows
    3.8.1 Nonmortgage Instrument Overview
    3.8.2 Nonmortgage Instrument Inputs
    3.8.3 Nonmortgage Instrument Procedures
    3.8.3.1 Apply Specific Calculation Simplifications
    3.8.3.2 Determine the Timing of Cash Flows
    3.8.3.3 Obtain the Principal Factor Amount at Each Payment Date
    3.8.3.4 Calculate the Coupon Factor
    3.8.3.5 Project Principal Cash Flows or Changes in the Notional 
Amount
    3.8.3.6 Project Interest and Dividend Cash Flows
    3.8.3.7 Apply Call, Put, or Cancellation Features, if Applicable
    3.8.3.8 Calculate Monthly Interest Accruals for the Life of the 
Instrument
    3.8.3.9 Calulate Monthly Amotization (Accretion) of Premiums 
(Discounts) and Fees
    3.8.3.10 Apply Counterparty Haircuts
    3.8.4 Nonmortgage Instrument Outputs
3.9 Alternative Modeling Treatments
    3.9.1 Alternative Modeling Treatments Overview
    3.9.2 Alternative Modeling Treatments Inputs
    3.9.3 Alternative Modeling Treatments Procedures
    3.9.3.1 Off-Balance Sheet Items
    3.9.3.2 Reconciling Items
    3.9.3.3 Balance Sheet Items
    3.9.4 Alternative Modeling Treatments Outputs
3.10 Operations, Taxes, and Accounting
    3.10.1 Operations, Taxes, and Accounting Overview
    3.10.2 Operations, Taxes, and Accounting Inputs
    3.10.3 Operations, Taxes, and Accounting Procedures
    3.10.3.1 New Debt and Investments
    3.10.3.2 Dividends and Share Repurchases
    3.10.3.3 Allowances for Loan Losses and Other Charge-Offs
    3.10.3.4 Operating Expenses
    3.10.3.5 Income Taxes
    3.10.3.6 Accounting
    3.10.4 Operations, Taxes, and Accounting Outputs
3.11 Treatment of New Enterprise Activities
    3.11.1 New Enterprise Activities Overview
    3.11.2 New Enterprise Activities Inputs
    3.11.3 New Enterprise Activities Procedures
    3.11.4 New Enterprise Activities Outputs
3.12 Calculation of the Risk-Based Capital Requirement
    3.12.1 Risk-Based Capital Requirement Overview
    3.12.2 Risk-Based Capital Requirement Inputs
    3.12.3 Risk-Based Capital Requirement Procedures
    3.12.4 Risk-Based Capital Requirement Output
4.0 Glossary

[[Page 400]]

           1.0 Identification of the Benchmark Loss Experience

    OFHEO will use the definitions, data, and methodology described 
below to identify the Benchmark Loss Experience.

                             1.1 Definitions

    The terms defined in the Glossary to this Appendix shall apply for 
this Appendix.

                                1.2 Data

    [a] OFHEO identifies the Benchmark Loss Experience (BLE) using 
historical loan-level data required to be submitted by each of the two 
Enterprises. OFHEO's analysis is based entirely on the data available 
through 1995 on conventional, 30-year, fixed-rate loans secured by first 
liens on single-unit, owner-occupied, detached properties. For this 
purpose, detached properties are defined as single family properties 
excluding condominiums, planned urban developments, and cooperatives. 
The data includes only loans that were purchased by an Enterprise within 
12 months after loan origination and loans for which the Enterprise has 
no recourse to the lender.
    [b] OFHEO organizes the data from each Enterprise to create two 
substantially consistent data sets. OFHEO separately analyzes default 
and severity data from each Enterprise. Default rates are calculated 
from loan records meeting the criteria specified above. Severity rates 
are calculated from the subset of defaulted loans for which loss data 
are available.

                             1.3 Procedures

    [a] Cumulative ten-year default rates for each combination of states 
and origination years (state/year combination) that OFHEO examines are 
calculated for each Enterprise by grouping all of the Enterprise's loans 
originated in that combination of states and years. For origination 
years with less than ten-years of loss experience, cumulative-to-date 
default rates are used. The two Enterprise default rates are averaged, 
yielding an ``average default rate'' for that state/year combination.
    [b] An ``average severity rate'' for each state/year combination is 
determined in the same manner as the average default rate. For each 
Enterprise, the aggregate severity rate is calculated for all loans in 
the relevant state/year combination and the two Enterprise severity 
rates are averaged.
    [c] The ``loss rate'' for any state/year combination examined is 
calculated by multiplying the average default rate for that state/year 
combination by the average severity rate for that combination.
    [d] The rates of default and Loss Severity of loans in the state/
year combination containing at least two consecutive origination years 
and contiguous areas with a total population equal to or greater than 
five percent of the population of the United States with the highest 
loss rate constitutes the Benchmark Loss Experience.

          2.0 Identification of a New Benchmark Loss Experience

    OFHEO will periodically monitor available data and reevaluate the 
Benchmark Loss Experience using the methodology set forth in this 
Appendix. Using this methodology, OFHEO may identify a new Benchmark 
Loss Experience that has a higher rate of loss than the Benchmark Loss 
Experience identified at the time of the issuance of this regulation. In 
the event such a Benchmark Loss Experience is identified, OFHEO may 
incorporate the resulting higher loss rates in the Stress Test.

          3.0 Computation of the Risk-Based Capital Requirement

                                3.1 Data

                           3.1.1 Introduction

    [a] The Stress Test requires data on all of an Enterprise's assets, 
liabilities, stockholders equity, accounting entries, operations and 
off-balance sheet obligations, as well as economic factors that affect 
them: interest rates, house prices, rent growth rates, and vacancy 
rates. The Enterprises are responsible for compiling and aggregating 
data on at least a quarterly basis into a standard format called the 
Risk-Based Capital Report (RBC Report). Each Enterprise is required to 
certify that the RBC Report submission is complete and accurate. Data on 
economic factors, such as interest rates, are compiled from public 
sources. The Stress Test uses proprietary and public data directly, and 
also uses values derived from such data in the form of constants or 
default values. (See Table 3-1, Sources of Stress Test Input Data.) Data 
fields from each of these sources for Stress Test computations are 
described in the following tables and in each section of this Appendix.
    [b] The RBC Report includes information for all the loans owned or 
guaranteed by an Enterprise, as well as securities and derivative 
contracts, the dollar balances of these instruments and obligations, as 
well as all characteristics that bear on their behavior under stress 
conditions. As detailed in the RBC Report, data are required for all the 
following categories of instruments and obligations:

 Mortgages owned by or underlying mortgage-backed 
securities (MBS) issued by the Enterprises (whole loans)
 Mortgage-related securities
 Nonmortgage related securities, whether issued by an 
Enterprise, (e.g., debt) or held as investments
 Derivative contracts

[[Page 401]]

 Other off-balance sheet guarantees (e.g., guarantees 
of private-issue securities).

                                  Table 3-1--Sources of Stress Test Input Data
----------------------------------------------------------------------------------------------------------------
                                                                    Data Source(s)  R = RBC Report  P = Public
                                                                              Data  F = Fixed Values
    Section of this Appendix                  Table              -----------------------------------------------
                                                                   R    P    F         Intermediate Outputs
----------------------------------------------------------------------------------------------------------------
3.1.3, Public Data               3-19, Stress Test Single Family  ...  ...   F
                                  Quarterly House Price Growth
                                  Rates
                                --------------------------------------------------------------------------------
                                 3-20, Multifamily Monthly Rent   ...  ...   F
                                  Growth and Vacancy Rates
----------------------------------------------------------------------------------------------------------------
3.2.2, Commitments Inputs        Characteristics of securitized    R   ...  ...  3.3.4, Interest Rates Outputs
                                  single family loans originated
                                  and delivered within 6 months
                                  prior to the Start of the
                                  Stress Test
----------------------------------------------------------------------------------------------------------------
3.2.3, Commitments Procedures    3-25, Monthly Deliveries as a    ...  ...   F   ...............................
                                  Percentage of Commitments
                                  Outstanding (MDP)
----------------------------------------------------------------------------------------------------------------
3.3.2, Interest Rates Inputs     3-18, Interest Rate and Index    ...   P
                                  Inputs
----------------------------------------------------------------------------------------------------------------
3.3.3, Interest Rates            3-26, CMT Ratios to the Ten-     ...  ...   F
 Procedures                       Year CMT
----------------------------------------------------------------------------------------------------------------
3.4.2, Property Valuation        3-28, Property Valuation Inputs  ...  ...  ...  3.1.3, Public Data
 Inputs                                                                          3.3.4, Interest Rates Outputs
----------------------------------------------------------------------------------------------------------------
3.5.3, Counterparty Defaults     3-30, Rating Agencies Mappings   ...   P   ...  ...............................
 Procedures                       to OFHEO Ratings Categories
                                --------------------------------------------------------------------------------
                                 3-31, Stress Test Maximum        ...  ...   F
                                  Haircut by Ratings
                                  Classification
----------------------------------------------------------------------------------------------------------------
3.6.3.3.2, Mortgage              3-32, Loan Group Inputs for      ...  ...  ...  3.3.4, Interest Rates Outputs
 Amortization Schedule Inputs     Mortgage Amortization
                                  Calculation
----------------------------------------------------------------------------------------------------------------
3.6.3.4.2, Single Family         3-34, Single Family Default and   R   ...   F   3.6.3.3.4, Mortgage
 Default and Prepayment Inputs    Prepayment Inputs                               Amortization Schedule Outputs
----------------------------------------------------------------------------------------------------------------
3.6.3.4.3.3, Prepayment and      3-35, Coefficients for Single    ...  ...   F
 Default Rates and Performance    Family Default and Prepayment
 Fractions                        Explanatory Variables
----------------------------------------------------------------------------------------------------------------
3.6.3.5.2, Multifamily Default   3-38, Loan Group Inputs for       R   ...   F
 and Prepayment Inputs            Multifamily Default and
                                  Prepayment Calculations
----------------------------------------------------------------------------------------------------------------
3.6.3.5.3.3, Default and         3-39, Explanatory Variable       ...  ...   F   3.6.3.3.4, Mortgage
 Prepayment Rates and             Coefficients for Multifamily                    Amortization Schedule Outputs
 Performance Fractions            Default
----------------------------------------------------------------------------------------------------------------

[[Page 402]]

 
3.6.3.6.2.6, Single Family       3-42, Loan Group inputs for      ...  ...   F   3.3.4, Interest Rates Outputs
 Gross Loss Severity Inputs       Gross Loss Severity                            3.6.3.3.4, Mortgage
                                                                                  Amortization Schedule Outputs
                                                                                 3.6.3.4.4, Single Family
                                                                                  Default and Prepayment Outputs
----------------------------------------------------------------------------------------------------------------
3.6.3.6.3.6, Multifamily Gross   3-44, Loan Group Inputs for      ...  ...   F   3.3.4, Interest Rates Outputs
 Loss Severity Inputs             Multifamily Gross Loss                          3.6.3.3.4, Mortgage
                                  Severity                                        Amortization Schedule Outputs
----------------------------------------------------------------------------------------------------------------
3.6.3.6.4.8, Mortgage Credit     3-46, CE Inputs for each Loan     R   ...  ...  3.6.3.3.4, Mortgage
 Enhancement Inputs               Group                                           Amortization Schedule Outputs
                                                                                 3.6.3.4.4, Single Family
                                                                                  Default and Prepayment Outputs
                                                                                 3.6.3.5.4, Multifamily Default
                                                                                  and Prepayment Outputs
                                                                                 3.6.3.6.2.3, Single Family
                                                                                  Gross Loss Severity Outputs
                                                                                 3.6.3.6.3.3, Multifamily Gross
                                                                                  Loss Severity Outputs
                                --------------------------------------------------------------------------------
                                 3-47, Inputs for each Distinct    R
                                  CE Combination (DCC)
----------------------------------------------------------------------------------------------------------------
3.6.3.7.2, Stress Test Whole     3-51, Inputs for Final            R   ...  ...  3.3.4, Interest Rates Outputs
 Loan Cash Flow Inputs            Calculation of Stress Test                     3.6.3.3.4, Mortgage
                                  Whole Loan Cash Flows                           Amortization Schedule Outputs
                                                                                 3.6.3.4.4, Single Family
                                                                                  Default and Prepayment Outputs
                                                                                 3.6.3.5.4, Multifamily Default
                                                                                  and Prepayment Outputs
                                                                                 3.6.3.6.5.6, Single Family and
                                                                                  Multifamily Net Loss Severity
                                                                                  Outputs
----------------------------------------------------------------------------------------------------------------
3.6.3.8.2, Whole Loan            3-54, Inputs for Whole Loan       R   ...  ...  3.6.3.7.4, Stress Test Whole
 Accounting Flows Inputs          Accounting Flows                                Loan Cash Flow Outputs
----------------------------------------------------------------------------------------------------------------
3.7.2, Mortgage-Related          3-56, RBC Report Inputs for       R
 Securities Inputs                Single Class MBS Cash Flows
                                --------------------------------------------------------------------------------
                                 3-57, RBC Report Inputs for       R
                                  Multi-Class and Derivative MBS
                                  Cash Flows
                                --------------------------------------------------------------------------------
                                 3-58, RBC Report Inputs for       R
                                  MRBs and Derivative MBS Cash
                                  Flows
----------------------------------------------------------------------------------------------------------------
3.8.2, Nonmortgage Instrument    3-66, Input Variables for         R
 Inputs                           Nonmortgage Instrument Cash
                                  flows
----------------------------------------------------------------------------------------------------------------

[[Page 403]]

 
3.9.2, Alternative Modeling      3-70, Alternative Modeling        R
 Treatments Inputs                Treatment Inputs
----------------------------------------------------------------------------------------------------------------
3.10.2, Operations, Taxes, and   3-71, Operations, Taxes, and      R   ...  ...  3.3.4, Interest Rates Outputs
 Accounting Inputs                Accounting Inputs                              3.6.3.7.4, Stress Test Whole
                                                                                  Loan Cash Flow Outputs
                                                                                 3.7.4, Mortgage-Related
                                                                                  Securities Outputs
                                                                                 3.8.4, Nonmortgage Instrument
                                                                                  Outputs
----------------------------------------------------------------------------------------------------------------
3.12.2, Risk-Based Capital       ...............................   R   ...  ...  3.3.4, Interest Rates Outputs
 Requirement Inputs                                                              3.9.4, Alternative Modeling
                                                                                  Treatments Outputs
                                                                                 3.10.4, Operations, Taxes, and
                                                                                  Accounting Outputs
----------------------------------------------------------------------------------------------------------------

                     3.1.2 Risk-Based Capital Report

    The Risk-Based Capital Report is comprised of information on whole 
loans, mortgage-related securities, nonmortgage instruments (including 
liabilities and derivatives), and accounting items (including off-
balance sheet guarantees). In addition to their reported data, the 
Enterprises may report scale factors in order to reconcile this reported 
data with their published financials (see section 3.10.2[b] of this 
Appendix). If so, specific data items, as indicated, are adjusted by 
appropriate scale factors before any calculations occur.

                        3.1.2.1 Whole Loan Inputs

    [a] Whole loans are individual single family or multifamily mortgage 
loans. The Stress Test distinguishes between whole loans that the 
Enterprises hold in their investment portfolios (retained loans) and 
those that underlie mortgage-backed securities (sold loans). Consistent 
with Table 3-2, Whole Loan Classification Variables, each Enterprise 
aggregates the data for loans with similar portfolio (retained or sold), 
risk, and product characteristics. The characteristics of these loan 
groups determine rates of mortgage Default, Prepayment and Loss Severity 
and cash flows.
    [b] The characteristics that are the basis for loan groups are 
called ``classification variables'' and reflect categories, e.g., fixed 
interest rate versus floating interest rate, or identify a value range, 
e.g., original loan-to-value (LTV) ratio greater than 80 percent and 
less than or equal to 90 percent.
    [c] All loans with the same values for each of the relevant 
classification variables included in 3-2 (and where applicable 3-3 and 
3-4) comprise a single loan group. For example, one loan group includes 
all loans with the following characteristics:

 Single family
 Sold portfolio
 30-year fixed rate conventional loan
 Mortgage age greater than or equal to 36 months and 
less than 48 months
 Original LTV greater than 75 percent and less than or 
equal to 80 percent
 Current mortgage interest rate class greater than or 
equal to six percent and less than seven percent
 Secured by property located in the East North Central 
Census Division
 Relative loan size greater than or equal to 75 
percent and less than 100 percent of the average for its state and 
origination year.

[[Page 404]]



                                 Table 3-2--Whole Loan Classification Variables
----------------------------------------------------------------------------------------------------------------
              Variable                             Description                              Range
----------------------------------------------------------------------------------------------------------------
Reporting Date                        The last day of the quarter for the   YYYY0331
                                       loan group activity that is being    YYYY0630
                                       reported to OFHEO                    YYYY0930
                                                                            YYYY1231
----------------------------------------------------------------------------------------------------------------
Enterprise                            Enterprise submitting the loan group  Fannie Mae
                                       data                                 Freddie Mac
----------------------------------------------------------------------------------------------------------------
Business Type                         Single family or multifamily          Single family
                                                                            Multifamily
----------------------------------------------------------------------------------------------------------------
Portfolio Type                        Retained portfolio or Sold portfolio  Retained Portfolio
                                                                            Sold Portfolio
----------------------------------------------------------------------------------------------------------------
Government Flag                       Conventional or Government insured    Conventional
                                       loan                                 Government
----------------------------------------------------------------------------------------------------------------
Original LTV                          Assigned LTV classes based on the     LTV<=60
                                       ratio, in percent, between the       6016.0
----------------------------------------------------------------------------------------------------------------
Original Mortgage Interest Rate       Assigned classes for the original     0.0<=Rate<4.0
                                       mortgage interest rate               4.0<=Rate<5.0
                                                                            5.0<=Rate<6.0
                                                                            6.0<=Rate<7.0
                                                                            7.0<=Rate<8.0
                                                                            8.0<=Rate<9.0
                                                                            9.0<=Rate<10.0
                                                                            10.0<=Rate<11.0
                                                                            11.0<=Rate<12.0
                                                                            12.0<=Rate<13.0
                                                                            13.0<=Rate<14.0
                                                                            14.0<=Rate<15.0
                                                                            15.0<=Rate<16.0
                                                                            Rate=16.0
----------------------------------------------------------------------------------------------------------------

[[Page 405]]

 
Mortgage Age                          Assigned classes for the age of the   0<=Age<=12
                                       loan                                 12180
----------------------------------------------------------------------------------------------------------------
Rate Reset Period                     Assigned classes for the number of    Period=1
                                       months between rate adjustments      11.5
                                       OFHEO based upon data from both
                                       Enterprises. It is expressed as a
                                       decimal
----------------------------------------------------------------------------------------------------------------


                         Table 3-4--Additional Multifamily Loan Classification Variables
----------------------------------------------------------------------------------------------------------------
              Variable                             Description                              Range
----------------------------------------------------------------------------------------------------------------
Multifamily Product Code              Identifies the mortgage product       Fixed Rate Fully Amortizing
                                       types for multifamily loans          Adjustable Rate Fully Amortizing
                                                                            5 Year Fixed Rate Balloon
                                                                            7 Year Fixed Rate Balloon

[[Page 407]]

 
                                                                            10 Year Fixed Rate Balloon
                                                                            15 Year Fixed Rate Balloon
                                                                            Balloon ARM
                                                                            Other
----------------------------------------------------------------------------------------------------------------
New Book Flag                         ``New Book'' is applied to Fannie     New Book
                                       Mae loans acquired beginning in      Old Book
                                       1988 and Freddie Mac loans acquired
                                       beginning in 1993, except for loans
                                       that were refinanced to avoid a
                                       default on a loan originated or
                                       acquired earlier
----------------------------------------------------------------------------------------------------------------
Ratio Update Flag                     Indicates if the LTV and DCR were     Yes
                                       updated at origination or at         No
                                       Enterprise acquisition
----------------------------------------------------------------------------------------------------------------
Current DCR                           Assigned classes for the Debt         DCR<1.00
                                       Service Coverage Ratio based on the  1.00<=DCR<1.10
                                       most recent annual operating         1.10<=DCR<1.20
                                       statement                            1.20<=DCR<1.30
                                                                            1.30<=DCR<1.40
                                                                            1.40<=DCR<1.50
                                                                            1.50<=DCR<1.60
                                                                            1.60<=DCR<1.70
                                                                            1.70<=DCR<1.80
                                                                            1.80<=DCR<1.90
                                                                            1.90<=DCR<2.00
                                                                            2.00<=DCR<2.50
                                                                            2.50<=DCR<4.00
                                                                            DCR=4.00
----------------------------------------------------------------------------------------------------------------
Prepayment Penalty Flag               Indicates if prepayment of the loan   Yes
                                       is subject to active prepayment      No
                                       penalties or yield maintenance
                                       provisions
----------------------------------------------------------------------------------------------------------------

                       3.1.2.1.1 Loan Group Inputs

           Table 3-5--Mortgage Amortization Calculation Inputs
------------------------------------------------------------------------
              Variable                           Description
------------------------------------------------------------------------
                                     Rate Type (Fixed or Adjustable)
------------------------------------------------------------------------
                                     Product Type (30/20/15-Year FRM,
                                      ARM, Balloon, Government, etc.)
------------------------------------------------------------------------
UPBORIG                              Unpaid Principal Balance at
                                      Origination (aggregate for Loan
                                      Group)
------------------------------------------------------------------------
UPB0                                 Unpaid Principal Balance at start
                                      of Stress Test (aggregate for Loan
                                      Group), adjusted by UPB scale
                                      factor.
------------------------------------------------------------------------
MIR0                                 Mortgage Interest Rate for the
                                      Mortgage Payment prior to the
                                      start of the Stress Test, or
                                      Initial Mortgage Interest Rate for
                                      new loans (weighted average for
                                      Loan Group) (expressed as a
                                      decimal per annum)
------------------------------------------------------------------------
PMT0                                 Amount of the Mortgage Payment
                                      (Principal and Interest) prior to
                                      the start of the Stress Test, or
                                      first Payment for new loans
                                      (aggregate for Loan Group),
                                      adjusted by UPB scale factor.
------------------------------------------------------------------------

[[Page 408]]

 
AT                                   Original loan Amortizing Term in
                                      months (weighted average for Loan
                                      Group)
------------------------------------------------------------------------
RM                                   Remaining term to Maturity in
                                      months (i.e., number of
                                      contractual payments due between
                                      the start of the Stress Test and
                                      the contractual maturity date of
                                      the loan) (weighted average for
                                      Loan Group)
------------------------------------------------------------------------
A0                                   Age of the loan at the start of
                                      Stress Test, in months (weighted
                                      average for Loan Group)
------------------------------------------------------------------------
IRP                                  Initial Rate Period, in months
------------------------------------------------------------------------
                                     Interest-only Flag
------------------------------------------------------------------------
RIOP                                 Remaining Interest-only period, in
                                      months (weighted average for loan
                                      group)
------------------------------------------------------------------------
UPB Scale Factor                     Factor determined by reconciling
                                      reported UPB to published
                                      financials.
------------------------------------------------------------------------
Additional Interest Rate Inputs
------------------------------------------------------------------------
GFR                                  Guarantee Fee Rate (weighted
                                      average for Loan Group) (decimal
                                      per annum)
------------------------------------------------------------------------
SFR                                  Servicing Fee Rate (weighted
                                      average for Loan Group) (decimal
                                      per annum)
------------------------------------------------------------------------
Additional Inputs for ARMs (weighted averages for Loan Group, except for
 Index)
------------------------------------------------------------------------
INDEXm                               Monthly values of the contractual
                                      Interest Rate Index
------------------------------------------------------------------------
LB                                   Look-Back period, in months
------------------------------------------------------------------------
MARGIN                               Loan Margin (over index), decimal
                                      per annum
------------------------------------------------------------------------
RRP                                  Rate Reset Period, in months
------------------------------------------------------------------------
                                     Rate Reset Limit (up and down),
                                      decimal per annum
------------------------------------------------------------------------
                                     Maximum Rate (life cap), decimal
                                      per annum
------------------------------------------------------------------------
                                     Minimum Rate (life floor), decimal
                                      per annum
------------------------------------------------------------------------
NAC                                  Negative Amortization Cap, decimal
                                      fraction of UPBORIG
------------------------------------------------------------------------
                                     Unlimited Payment Reset Period, in
                                      months
------------------------------------------------------------------------
PRP                                  Payment Reset Period, in months
------------------------------------------------------------------------
                                     Payment Reset Limit, as decimal
                                      fraction of prior payment
------------------------------------------------------------------------


  Table 3-6--Additional Inputs for Single Family Default and Prepayment
------------------------------------------------------------------------
              Variable                           Description
------------------------------------------------------------------------
PROD                                 Mortgage Product Type
------------------------------------------------------------------------
A0                                   Age immediately prior to start of
                                      Stress Test, in months (weighted
                                      average for Loan Group)
------------------------------------------------------------------------
LTVORIG                              Loan-to-Value ratio at Origination
                                      (weighted average for Loan Group)
------------------------------------------------------------------------

[[Page 409]]

 
UPBORIG                              UPB at Origination (aggregate for
                                      Loan Group), adjusted by UPB scale
                                      factor.
------------------------------------------------------------------------
MIRORIG                              Mortgage Interest Rate at
                                      origination (``Initial Rate'' for
                                      ARMs), decimal per annum (weighted
                                      average for loan group)
------------------------------------------------------------------------
UPB0                                 Unpaid Principal Balance
                                      immediately prior to start of
                                      Stress Test (aggregate for Loan
                                      Group),
------------------------------------------------------------------------
IF                                   Fraction (by UPB, in decimal form)
                                      of Loan Group backed by Investor-
                                      owned properties
------------------------------------------------------------------------
RLSORIG                              Weighted average Relative Loan Size
                                      at Origination (Original UPB as a
                                      fraction of average UPB for the
                                      state and Origination Year of loan
                                      origination)
------------------------------------------------------------------------
CHPGF0LG                             Cumulative House Price Growth
                                      Factor since Loan Origination
                                      (weighted average for Loan Group)
------------------------------------------------------------------------


   Table 3-7--Additional Inputs for Multifamily Default and Prepayment
------------------------------------------------------------------------
              Variable                           Description
------------------------------------------------------------------------
                                     Mortgage Product Type
------------------------------------------------------------------------
A0                                   Age immediately prior to start of
                                      Stress Test, in months (weighted
                                      average for Loan Group)
------------------------------------------------------------------------
NBF                                  New Book Flag
------------------------------------------------------------------------
RUF                                  Ratio Update Flag
------------------------------------------------------------------------
LTVORIG                              Loan-to-Value ratio at loan
                                      origination
------------------------------------------------------------------------
DCR0                                 Debt Service Coverage Ratio at the
                                      start of the Stress Test
------------------------------------------------------------------------
PMT0                                 Amount of the mortgage payment
                                      (principal and interest) prior to
                                      the start of the Stress Test, or
                                      first payment for new loans
                                      (aggregate for Loan Group)
------------------------------------------------------------------------
PPEM                                 Prepayment Penalty End Month number
                                      in the Stress Test (weighted
                                      average for Loan Group)
------------------------------------------------------------------------
RM                                   Remaining term to Maturity in
                                      months (i.e., number of
                                      contractual payments due between
                                      the start of the Stress Test and
                                      the contractual maturity date of
                                      the loan) (weighted average for
                                      Loan Group)
------------------------------------------------------------------------


   Table 3-8--Miscellaneous Whole Loan Cash and Accounting Flow Inputs
------------------------------------------------------------------------
              Variable                           Description
------------------------------------------------------------------------
GF                                   Guarantee Fee rate (weighted
                                      average for Loan Group) (decimal
                                      per annum)
------------------------------------------------------------------------
FDS                                  Float Days for Scheduled Principal
                                      and Interest (weighted average for
                                      Loan Group)
------------------------------------------------------------------------
FDP                                  Float Days for Prepaid Principal
                                      (weighted average for Loan Group)
------------------------------------------------------------------------
FREP                                 Fraction Repurchased (weighted
                                      average for Loan Group) (decimal)
------------------------------------------------------------------------

[[Page 410]]

 
RM                                   Remaining Term to Maturity in
                                      months
------------------------------------------------------------------------
UPD0                                 Sum of all unamortized discounts,
                                      premiums, fees, commissions, etc.
                                      for the loan group, such that the
                                      unamortized balance equals the
                                      book value minus the face value
                                      for the loan group at the start of
                                      the Stress Test, adjusted by the
                                      Unamortized Balance Scale Factor
------------------------------------------------------------------------
Unamortized Balance Scale Factor     Factor determined by reconciling
                                      reported Unamortized Balance to
                                      published financials
------------------------------------------------------------------------


            Table 3-9--Additional Inputs for Repurchased MBS
------------------------------------------------------------------------
              Variable                           Description
------------------------------------------------------------------------
Wtd Ave Percent Repurchased          For sold loan groups, the percent
                                      of the loan group UPB that gives
                                      the actual dollar amount of loans
                                      that collateralize single class
                                      MBSs that the Enterprise holds in
                                      its own portfolio
------------------------------------------------------------------------
SUPD0                                The aggregate sum of all
                                      unamortized discounts, premiums,
                                      fees, commissions, etc. associated
                                      with the securities modeled using
                                      the Wtd Ave Percent Repurchased,
                                      such that the unamortized balance
                                      equals the book value minus the
                                      face value for the relevant
                                      securities at the start of the
                                      Stress Test, adjusted by the
                                      percent repurchased and the
                                      Security Unamortized Balance Scale
                                      Factor
------------------------------------------------------------------------
Security Unamortized Balances Scale  Factor determined by reconciling
 Factor                               reported Security Unamortized
                                      Balances to published financials
------------------------------------------------------------------------

                   3.1.2.1.2 Credit Enhancement Inputs

    To calculate reductions in mortgage credit losses due to credit 
enhancements, the following data are required for any credit-enhanced 
loans in a loan group. For this purpose, a Loan Group is divided into 
Distinct Credit Enhancement Combinations, as further described in 
section 3.6.3.6.4, Mortgage Credit Enhancement, of this Appendix.

                Table 3-10--CE Inputs for Each Loan Group
------------------------------------------------------------------------
              Variable                           Description
------------------------------------------------------------------------
UPBORIGLG                            Origination UPB.
------------------------------------------------------------------------
LTV ORIGLG                           Original LTV.
------------------------------------------------------------------------


        Table 3-11--Inputs for Each Distinct CE Combination (DCC)
------------------------------------------------------------------------
              Variable                           Description
------------------------------------------------------------------------
PDCC                                 Percent of Initial Loan Group UPB
                                      represented by individual loan(s)
                                      in a DCC
------------------------------------------------------------------------
RMI,DCC or RLSA,DCC                  Credit rating of Loan Limit CE (MI
                                      or LSA) Counterparty
------------------------------------------------------------------------
CMI,DCC or CLSA,DCC                  Weighted Average Coverage
                                      Percentage for MI or LSA Coverage
                                      (weighted by Initial UPB)
------------------------------------------------------------------------
AB0DCC,C1                            DCC Available First Priority CE
                                      Balance immediately prior to start
                                      of the Stress Test
------------------------------------------------------------------------
AB0DCC,C2                            DCC Available Second Priority CE
                                      Balance immediately prior to start
                                      of the Stress Test
------------------------------------------------------------------------

[[Page 411]]

 
RDCC,C1                              DCC Credit Rating of First Priority
                                      CE Provider or Counterparty; or
                                      Cash/Cash Equivalent (which is not
                                      Haircutted)
------------------------------------------------------------------------
RDCC,C2                              DCC Credit Rating of Second
                                      Priority CE Provider or
                                      Counterparty; or Cash/Cash
                                      Equivalent (which is not
                                      Haircutted)
------------------------------------------------------------------------
CDCC,C1                              DCC Loan-Level Coverage Limit of
                                      First Priority Contract (If
                                      Subtype is MPI; otherwise = 1)
------------------------------------------------------------------------
CDCC,C2                              DCC Loan-Limit Coverage Limit of
                                      Second Priority Contract (if
                                      Subtype is MPI; otherwise = 1)
------------------------------------------------------------------------
ExpMoDCC,C1                          Month in the Stress Test (1...120
                                      or after) in which the DCC First
                                      Priority Contract expires
------------------------------------------------------------------------
ExpMoDCC,C2                          Month in the Stress Test (1...120
                                      or after) in which the DCC Second
                                      Priority Contract expires
------------------------------------------------------------------------
ELPFDCC,C1                           DCC Enterprise Loss Position Flag
                                      for First Priority Contract (Y or
                                      N)
------------------------------------------------------------------------
ELPFDCC,C2                           DCC Enterprise Loss Position Flag
                                      for Second Priority Contract (Y or
                                      N)
------------------------------------------------------------------------

                      3.1.2.1.3 Commitments Inputs

    [a] The Enterprises report Commitment Loan Group categories based on 
specific product type characteristics of securitized single family loans 
originated and delivered during the six months prior to the start of the 
Stress Test (see section 3.2, Commitments, of this Appendix). For each 
category, the Enterprises report the same information as for Whole Loan 
Groups with the following exceptions:
    1. Amortization term and remaining term are set to those appropriate 
for newly originated loans;
    2. Unamortized balances are set to zero;
    3. The House Price Growth Factor is set to one;
    4. Age is set to zero;
    5. Any credit enhancement coverage other than mortgage insurance is 
not reported.

               3.1.2.2 Mortgage Related Securities Inputs

    [a] The Enterprises hold mortgage-related securities, including 
single class and Derivative Mortgage-Backed Securities (certain multi-
class and strip securities) issued by Fannie Mae, Freddie Mac, and 
Ginnie Mae; mortgage revenue bonds issued by State and local governments 
and their instrumentalities; and single class and Derivative Mortgage-
Backed Securities issued by private entities. The Stress Test models the 
cash flows of these securities individually. Table 3-12, Inputs for 
Single Class MBS Cash Flows sets forth the data elements that the 
Enterprises must compile in the RBC Report regarding each MBS held in 
their portfolios. This information is necessary for determining 
associated cash flows in the Stress Test.

           Table 3-12--Inputs for Single Class MBS Cash Flows
------------------------------------------------------------------------
              Variable                           Description
------------------------------------------------------------------------
Pool Number                          A unique number identifying each
                                      mortgage pool
------------------------------------------------------------------------
CUSIP Number                         A unique number assigned to
                                      publicly traded securities by the
                                      Committee on Uniform Securities
                                      Identification Procedures
------------------------------------------------------------------------
Issuer                               Issuer of the mortgage pool
------------------------------------------------------------------------
Government Flag                      Indicates Government insured
                                      collateral
------------------------------------------------------------------------
Original UPB Amount                  Original pool balance adjusted by
                                      UPB scale factor and multiplied by
                                      the Enterprise's percentage
                                      ownership
------------------------------------------------------------------------

[[Page 412]]

 
Current UPB Amount                   Initial Pool balance (at the start
                                      of the Stress Test), adjusted by
                                      UPB scale factor and multiplied by
                                      the Enterprise's percentage
                                      ownership
------------------------------------------------------------------------
Product Code                         Mortgage product type for the pool
------------------------------------------------------------------------
Security Rate Index                  If the rate on the security adjusts
                                      over time, the index that the
                                      adjustment is based on
------------------------------------------------------------------------
Unamortized Balance                  The sum of all unamortized
                                      discounts, premiums, fees,
                                      commissions, etc., such that the
                                      unamortized balance equals book
                                      value minus face value, adjusted
                                      by Unamortized Balance Scale
                                      Factor
------------------------------------------------------------------------
Wt Avg Original Amortization Term    Original amortization term of the
                                      underlying loans, in months
                                      (weighted average for underlying
                                      loans)
------------------------------------------------------------------------
Wt Avg Remaining Term of             Remaining maturity of the
Maturity                              underlying loans at the start of
                                      the Stress Test (weighted average
                                      for underlying loans)
------------------------------------------------------------------------
Wt Avg Age                           Age of the underlying loans at the
                                      start of the Stress Test (weighted
                                      average for underlying loans)
------------------------------------------------------------------------
Wt Avg Current Mortgage              Mortgage Interest Rate of the
Interest Rate                         underlying loans at the start of
                                      the Stress Test (weighted average
                                      for underlying loans)
------------------------------------------------------------------------
Wt Avg Pass-Through Rate             Pass-Through Rate of the underlying
                                      loans at the start of the Stress
                                      Test (Sold loans only) (weighted
                                      average for underlying loans)
------------------------------------------------------------------------
Wtg Avg Original Mortgage            The current UPB weighted average
Interest Rate                         mortgage interest rate in effect
                                      at origination for the loans in
                                      the pool
------------------------------------------------------------------------
Security Rating                      The most current rating issued by
                                      any Nationally Recognized
                                      Statistical Rating Organization
                                      (NRSRO) for this security, as of
                                      the reporting date
------------------------------------------------------------------------
Wt Avg Gross Margin                  Gross margin for the underlying
                                      loans (ARM MBS only) (weighted
                                      average for underlying loans)
------------------------------------------------------------------------
Wt Avg Net Margin                    Net margin (used to determine the
                                      security rate for ARM MBS)
                                      (weighted average for underlying
                                      loans)
------------------------------------------------------------------------
Wt Avg Rate Reset Period             Rate reset period in months (ARM
                                      MBS only) (weighted average for
                                      underlying loans)
------------------------------------------------------------------------
Wt Avg Rate Reset Limit              Rate reset limit up/down (ARM MBS
                                      only) (weighted average for
                                      underlying loans)
------------------------------------------------------------------------
Wt Avg Life Interest Rate            Maximum rate (lifetime cap) (ARM
Ceiling                               MBS only) (weighted average for
                                      underlying loans)
------------------------------------------------------------------------
Wt Avg Life Interest Rate Floor      Minimum rate (lifetime floor) (ARM
                                      MBS only) (weighted average for
                                      underlying loans)
------------------------------------------------------------------------
Wt Avg Payment Reset Period          Payment reset period in months (ARM
                                      MBS only) (weighted average for
                                      underlying loans)
------------------------------------------------------------------------
Wt Avg Payment Reset Limit           Payment reset limit up/down (ARM
                                      MBS only) (weighted average for
                                      underlying loans)
------------------------------------------------------------------------
Wt Avg Lockback Period               The number of months to look back
                                      from the interest rate change date
                                      to find the index value that will
                                      be used to determine the next
                                      interest rate (weighted average
                                      for underlying loans)
------------------------------------------------------------------------

[[Page 413]]

 
Wt Avg Negative Amortization Cap     The maximum amount to which the
                                      balance can increase before the
                                      payment is recast to a fully
                                      amortizing amount. It is expressed
                                      as a fraction of the original UPB
                                      (weighted average for underlying
                                      loans)
------------------------------------------------------------------------
Wt Avg Original Mortgage             The current UPB weighted average
Interest Rate                         original mortgage interest rate
                                      for the loans in the pool
------------------------------------------------------------------------
Wt Avg Initial Interest Rate         Number of months between the loan
Period                                origination date and the first
                                      rate adjustment date (weighted
                                      average for underlying loans)
------------------------------------------------------------------------
Wt Avg Unlimited Payment Reset       Number of months between unlimited
 Period                               payment resets i.e., not limited
                                      by payment caps, starting with
                                      origination date (weighted average
                                      for underlying loans)
------------------------------------------------------------------------
Notional Flag                        Indicates if the amounts reported
                                      in Original Security Balance and
                                      Current Security Balance are
                                      notional
------------------------------------------------------------------------
UPB Scale Factor                     Factor determined by reconciling
                                      reported UPB to published
                                      financials
------------------------------------------------------------------------
Unamortized Balance Scale Factor     Factor determined by reconciling
                                      reported Unamortized Balance to
                                      published financials
------------------------------------------------------------------------
Whole Loan Modeling Flag             Indicates that the Current UPB
                                      Amount and Unamortized Balance
                                      associated with this repurchased
                                      MBS are included in the Wtg Avg
                                      Percent Repurchased and Security
                                      Unamortized Balance fields
------------------------------------------------------------------------
FAS 115 Classification               The financial instrument's
                                      classification according to FAS
                                      115
------------------------------------------------------------------------
HPGRK                                Vector of House Price Growth Rates
                                      for quarters q=1. . .40 of the
                                      Stress Period
------------------------------------------------------------------------

    [b] Table 3-13, Information for Multi-Class and Derivative MBS Cash 
Flows Inputs sets forth the data elements that the Enterprises must 
compile regarding multi-class and Derivative MBS (e.g., REMICs and 
Strips). This information is necessary for determining associated cash 
flows in the Stress Test.

  Table 3-13--Information for Multi-Class and Derivative MBS Cash Flows
                                 Inputs
------------------------------------------------------------------------
              Variable                           Description
------------------------------------------------------------------------
CUSIP Number                         A unique number assigned to
                                      publicly traded securities by the
                                      Committee on Uniform Securities
                                      Identification Procedures
------------------------------------------------------------------------
Issuer                               Issuer of the security: FNMA,
                                      FHLMC, GNMA or other
------------------------------------------------------------------------
Original Security Balance            Original principal balance of the
                                      security (notional amount for
                                      interest-only securities) at the
                                      time of issuance, adjusted by UPB
                                      scale factor, multiplied by the
                                      Enterprise's percentage ownership
------------------------------------------------------------------------
Current Security Balance             Initial principal balance, or
                                      notional amount, at the start of
                                      the Stress Period, adjusted by UPB
                                      scale factor, multiplied by the
                                      Enterprise's percentage ownership
------------------------------------------------------------------------
Current Security Percentage Owned    The percentage of a security's
                                      total current balance owned by the
                                      Enterprise
------------------------------------------------------------------------
Notional Flag                        Indicates if the amounts reported
                                      in Original Security Balance and
                                      Current Security Balance are
                                      notional
------------------------------------------------------------------------
Unamortized Balance                  The sum of all unamortized
                                      discounts, premiums, fees,
                                      commissions, etc., such that the
                                      unamortized balance equals book
                                      value minus face value, adjusted
                                      by the Unamortized Balance Scale
                                      Factor
------------------------------------------------------------------------
Unamortized Balance Scale Factor     Factor determined by reconciling
                                      reported Unamortized Balance to
                                      published financials
------------------------------------------------------------------------

[[Page 414]]

 
UPB Scale Factor                     Factor determined by reconciling
                                      the reported current security
                                      balance to published financials
------------------------------------------------------------------------
Security Rating                      The most current rating issued by
                                      any Nationally Recognized
                                      Statistical Rating Organization
                                      (NRSRO) for this security, as of
                                      the reporting date
------------------------------------------------------------------------

    [c] Table 3-14, Inputs for MRBs and Derivative MBS Cash Flows Inputs 
sets forth the data elements that the Enterprises must compile in the 
RBC Report regarding mortgage revenue bonds and private issue mortgage 
related securities (MRS). The data in this table is supplemented with 
public securities disclosure data. This information is necessary for 
determining associated cash flows in the Stress Test.

    Table 3-14--Inputs for MRBs and Derivative MBS Cash Flows Inputs
------------------------------------------------------------------------
              Variable                           Description
------------------------------------------------------------------------
CUSIP Number                         A unique number assigned to
                                      publicly traded securities by the
                                      Committee on Uniform Securities
                                      Identification Procedures
------------------------------------------------------------------------
Original Security Balance            Original principal balance,
                                      adjusted by UPB scale factor and
                                      multiplied by the Enterprise's
                                      percentage ownership
------------------------------------------------------------------------
Current Security Balance             Initial Principal balance (at start
                                      of Stress Period), adjusted by UPB
                                      scale factor and multiplied by the
                                      Enterprise's percentage ownership
------------------------------------------------------------------------
Unamortized Balance                  The sum of all unamortized
                                      discounts, premiums, fees,
                                      commissions, etc., such that the
                                      unamortized balance equals book
                                      value minus face value, adjusted
                                      by Unamortized Balance scale
                                      factor
------------------------------------------------------------------------
Unamortized Balance Scale Factor     Factor determined by reconciling
                                      reported Unamortized Balance to
                                      published financials
------------------------------------------------------------------------
UPB Scale Factor                     Factor determined by reconciling
                                      the reported current security
                                      balance to published financials
------------------------------------------------------------------------
Floating Rate Flag                   Indicates the instrument pays
                                      interest at a floating rate
------------------------------------------------------------------------
Issue Date                           The issue date of the security
------------------------------------------------------------------------
Maturity Date                        The stated maturity date of the
                                      security
------------------------------------------------------------------------
Security Interest Rate               The rate at which the security
                                      earns interest, as of the
                                      reporting date
------------------------------------------------------------------------
Principal Payment Window Starting    The month in the Stress Test that
 Date, Down-Rate Scenario             principal payment is expected to
                                      start for the security under the
                                      statutory ``down'' interest rate
                                      scenario, according to Enterprise
                                      projections
------------------------------------------------------------------------
Principal Payment Window Ending      The month in the Stress Test that
 Date, Down-Rate Scenario             principal payment is expected to
                                      end for the security under the
                                      statutory ``down'' interest rate
                                      scenario, according to Enterprise
                                      projections
------------------------------------------------------------------------
Principal Payment Window Starting    The month in the Stress Test that
 Date, Up-Rate Scenario               principal payment is expected to
                                      start for the security under the
                                      statutory ``up'' interest rate
                                      scenario, according to Enterprise
                                      projections
------------------------------------------------------------------------
Principal Payment Window Ending      The month in the Stress Test that
 Date, Up-Rate Scenario               principal payment is expected to
                                      end for the security under the
                                      statutory ``up'' interest rate
                                      scenario, according to Enterprise
                                      projections
------------------------------------------------------------------------
Notional Flag                        Indicates if the amounts reported
                                      in Original Security Balance and
                                      Current Security Balance are
                                      notional
------------------------------------------------------------------------

[[Page 415]]

 
Security Rating                      The most current rating issued by
                                      any Nationally Recognized
                                      Statistical Rating Organization
                                      (NRSRO) for this security, as of
                                      the reporting date
------------------------------------------------------------------------
Security Rate Index                  If the rate on the security adjusts
                                      over time, the index on which the
                                      adjustment is based
------------------------------------------------------------------------
Security Rate Index Coefficient      If the rate on the security adjusts
                                      over time, the coefficient is the
                                      number used to multiply by the
                                      value of the index
------------------------------------------------------------------------
Security Rate Index Spread           If the rate on the security adjusts
                                      over time, the spread is added to
                                      the value of the index multiplied
                                      by the coefficient to determine
                                      the new rate
------------------------------------------------------------------------
Security Rate Adjustment Frequency   The number of months between rate
                                      adjustments
------------------------------------------------------------------------
Security Interest Rate Ceiling       The maximum rate (lifetime cap) on
                                      the security
------------------------------------------------------------------------
Security Interest Rate Floor         The minimum rate (lifetime floor)
                                      on the security
------------------------------------------------------------------------
Life Ceiling Interest Rate           The maximum interest rate allowed
                                      throughout the life of the
                                      security
------------------------------------------------------------------------
Life Floor Interest Rate             The minimum interest rate allowed
                                      throughout the life of security
------------------------------------------------------------------------

            3.1.2.3 Nonmortgage Instrument Cash Flows Inputs

    Table 3-15, Input Variables for Nonmortgage Instrument Cash flows 
sets forth the data elements that the Enterprises must compile in the 
RBC Report to identify individual securities (other than Mortgage 
Related Securities) that are held by the Enterprises in their 
portfolios. These include debt securities, preferred stock, and 
derivative contracts (interest rate swaps, caps, and floors). All data 
are instrument specific. The data in this table are supplemented by 
public securities disclosure data. For instruments with complex or non-
standard features, the Enterprises may be required to provide additional 
information such as amortization schedules, interest rate coupon reset 
formulas, and the terms of the call options.

    Table 3-15--Input Variables for Nonmortgage Instrument Cash Flows
------------------------------------------------------------------------
           Data Elements                         Description
------------------------------------------------------------------------
Amortization Methodology Code        Enterprise method of amortizing
                                      deferred balances (e.g., straight
                                      line)
------------------------------------------------------------------------
Asset ID                             CUSIP or Reference Pool Number
                                      identifying the asset underlying a
                                      derivative position
------------------------------------------------------------------------
Asset Type Code                      Code that identifies asset type
                                      used in the commercial information
                                      service (e.g. ABS, Fannie Mae
                                      pool, Freddie Mac pool)
------------------------------------------------------------------------
Associated Instrument ID             Instrument ID of an instrument
                                      linked to another instrument
------------------------------------------------------------------------
Coefficient                          Indicates the extent to which the
                                      coupon is leveraged or de-
                                      leveraged
------------------------------------------------------------------------
Compound Indicator                   Indicates if interest is compounded
------------------------------------------------------------------------
Compounding Frequency                Indicates how often interest is
                                      compounded
------------------------------------------------------------------------
Counterparty Credit Rating           NRSRO's rating for the counterparty
------------------------------------------------------------------------
Counterparty Credit Rating Type      An indicator identifying the
                                      counterparty's credit rating as
                                      short-term (`S') or long-term
                                      (`L')
------------------------------------------------------------------------
Counterparty ID                      Enterprise counterparty tracking ID
------------------------------------------------------------------------

[[Page 416]]

 
Country Code                         Standard country codes in
                                      compliance with Federal
                                      Information Processing Standards
                                      Publication 10-4
------------------------------------------------------------------------
Credit Agency Code                   Identifies NRSRO (e.g., Moody's)
------------------------------------------------------------------------
Current Asset Face Amount            Current face amount of the asset
                                      underlying a swap adjusted by UPB
                                      scale factor
------------------------------------------------------------------------
Current Coupon                       Current coupon or dividend rate of
                                      the instrument
------------------------------------------------------------------------
Current Unamortized Discount         Current unamortized premium or
                                      unaccreted discount of the
                                      instrument adjusted by Unamortized
                                      Balance Scale Factor. If the
                                      proceeds from the issuance of debt
                                      or derivatives or the amount paid
                                      for an asset were greater than
                                      par, the value should be positive.
                                      If the proceeds or the amounts
                                      paid were less than par, the value
                                      should be negative
------------------------------------------------------------------------
Current Unamortized Fees             Current unamortized fees associated
                                      with the instrument adjusted by
                                      Unamortized Balance Scale Factor.
                                      Generally fees associated with the
                                      issuance of debt or derivatives
                                      should be negative numbers. Fees
                                      associated with the purchase of an
                                      asset should generally be reported
                                      as positive numbers
------------------------------------------------------------------------
Current Unamortized Hedge            Current unamortized hedging gains
                                      (positive) or losses (negative)
                                      associated with the instrument
                                      adjusted by the Unamortized
                                      Balance Scale Factor
------------------------------------------------------------------------
Current Unamortized Other            Any other unamortized items
                                      originally associated with the
                                      instrument adjusted by Unamortized
                                      Balance Scale Factor. If the
                                      proceeds from the issuance of debt
                                      or derivatives or the amount paid
                                      for an asset were greater than
                                      par, the value should be positive.
                                      If the proceeds or the amounts
                                      paid were less than par, the value
                                      should be negative
------------------------------------------------------------------------
CUSIP--ISIN                          CUSIP or ISIN Number identifying
                                      the instrument
------------------------------------------------------------------------
Day Count                            Day count convention (e.g. 30/360)
------------------------------------------------------------------------
End Date                             The last index repricing date
------------------------------------------------------------------------
EOP Principal Balance                End of Period face, principal or
                                      notional, amount of the instrument
                                      adjusted by UPB scale factor
------------------------------------------------------------------------
Exact Representation                 Indicates that an instrument is
                                      modeled according to its
                                      contractual terms
------------------------------------------------------------------------
Exercise Convention                  Indicates option exercise
                                      convention (e.g., American Option)
------------------------------------------------------------------------
Exercise Price                       Par = 1.0; Options
------------------------------------------------------------------------
First Coupon Date                    Date first coupon is received or
                                      paid
------------------------------------------------------------------------
Index Cap                            Indicates maximum index rate
------------------------------------------------------------------------
Index Floor                          Indicates minimum index rate
------------------------------------------------------------------------
Index Reset Frequency                Indicates how often the interest
                                      rate index resets on floating-rate
                                      instruments
------------------------------------------------------------------------
Index Code                           Indicates the interest rate index
                                      to which floating-rate instruments
                                      are tied (e.g., LIBOR)
------------------------------------------------------------------------
Index Term                           Point on yield curve, expressed in
                                      months, upon which the index is
                                      based
------------------------------------------------------------------------
Instrument Credit Rating             NRSRO credit rating for the
                                      instrument
------------------------------------------------------------------------

[[Page 417]]

 
Instrument Credit Rating Type        An indicator identifying the
                                      instruments credit rating as short-
                                      term (`S') or long-term (`L')
------------------------------------------------------------------------
Instrument ID                        An integer used internally by the
                                      Enterprise that uniquely
                                      identifies the instrument
------------------------------------------------------------------------
Interest Currency Code               Indicates currency in which
                                      interest payments are paid or
                                      received
------------------------------------------------------------------------
Interest Type Code                   Indicates the method of interest
                                      rate payments (e.g., fixed,
                                      floating, step, discount)
------------------------------------------------------------------------
Issue Date                           Indicates the date that the
                                      instrument was issued
------------------------------------------------------------------------
Life Cap Rate                        The maximum interest rate for the
                                      instrument throughout its life
------------------------------------------------------------------------
Life Floor Rate                      The minimum interest rate for the
                                      instrument throughout its life
------------------------------------------------------------------------
Look-Back Period                     Period from the index reset date,
                                      expressed in months, that the
                                      index value is derived
------------------------------------------------------------------------
Maturity Date                        Date that the instrument
                                      contractually matures
------------------------------------------------------------------------
Notional Indicator                   Identifies whether the face amount
                                      is notional
------------------------------------------------------------------------
Instrument Type Code                 Indicates the type of instrument to
                                      be modeled (e.g., ABS, Cap, Swap)
------------------------------------------------------------------------
Option Indicator                     Indicates if instrument contains an
                                      option
------------------------------------------------------------------------
Option Type                          Indicates option type (e.g., Call
                                      option)
------------------------------------------------------------------------
Original Asset Face Amount           Original face amount of the asset
                                      underlying a swap adjusted by UPB
                                      scale factor
------------------------------------------------------------------------
Original Discount                    Original premium or discount
                                      associated with the purchase or
                                      sale of the instrument adjusted by
                                      Unamortized Balance Scale Factor.
                                      If the proceeds from the issuance
                                      of debt or derivatives or the
                                      amount paid for an asset were
                                      greater than par, the value should
                                      be positive. If the proceeds or
                                      the amounts paid were less than
                                      par, the value should be negative
------------------------------------------------------------------------
Original Face                        Original face, principal or
                                      notional, amount of the instrument
                                      adjusted by UPB scale factor
------------------------------------------------------------------------
Original Fees                        Fees or commissions paid at the
                                      time of purchase or sale adjusted
                                      by the Unamortized Balance Scale
                                      Factor. Generally fees associated
                                      with the issuance of debt or
                                      derivatives should be negative
                                      numbers. Fees associated with the
                                      purchase of an asset should
                                      generally be reported as positive
                                      numbers
------------------------------------------------------------------------
Original Hedge                       Gains (positive) or losses
                                      (negative) from closing out a
                                      hedge associated with the
                                      instrument at settlement, adjusted
                                      by the Unamortized Balance Scale
                                      Factor
------------------------------------------------------------------------
Original Other                       Any other items originally
                                      associated with the instrument to
                                      be amortized or accreted adjusted
                                      by the Unamortized Balance Scale
                                      Factor. If the proceeds from the
                                      issuance of debt or derivatives or
                                      the amount paid for an asset were
                                      greater than par, the value should
                                      be positive. If the proceeds of
                                      the amounts paid were less than
                                      par, the value should be negative
------------------------------------------------------------------------
Parent Entity ID                     Enterprise internal tracking ID for
                                      parent entity
------------------------------------------------------------------------
Payment Amount                       Interest payment amount associated
                                      with the instrument (reserved for
                                      complex instruments where interest
                                      payments are not modeled) adjusted
                                      by UPB scale factor
------------------------------------------------------------------------

[[Page 418]]

 
Payment Frequency                    Indicates how often interest
                                      payments are made or received
------------------------------------------------------------------------
Performance Date                     ``As of'' date on which the data is
                                      submitted
------------------------------------------------------------------------
Periodic Adjustment                  The maximum amount that the
                                      interest rate for the instrument
                                      can change per reset
------------------------------------------------------------------------
Position Code                        Indicates whether the Enterprise
                                      pays or receives interest on the
                                      instrument
------------------------------------------------------------------------
Principal Currency Code              Indicates currency in which
                                      principal payments are paid or
                                      received
------------------------------------------------------------------------
Principal Factor Amount              EOP Principal Balance expressed as
                                      a percentage of Original Face
------------------------------------------------------------------------
Principal Payment Date               A valid date identifying the date
                                      that principal is paid
------------------------------------------------------------------------
Settlement Date                      A valid date identifying the date
                                      the settlement occurred
------------------------------------------------------------------------
Spread                               An amount added to an index to
                                      determine an instrument's interest
                                      rate
------------------------------------------------------------------------
Start Date                           The date, spot or forward, when
                                      some feature of a financial
                                      contract becomes effective (e.g.,
                                      Call Date), or when interest
                                      payments or receipts begin to be
                                      calculated
------------------------------------------------------------------------
Strike Rate                          The price or rate at which an
                                      option begins to have a settlement
                                      value at expiration, or, for
                                      interest-rate caps and floors, the
                                      rate that triggers interest
                                      payments
------------------------------------------------------------------------
Submitting Entity                    Indicates which Enterprise is
                                      submitting information
------------------------------------------------------------------------
Trade ID                             Unique code identifying the trade
                                      of an instrument
------------------------------------------------------------------------
Transaction Code                     Indicates the transaction that an
                                      Enterprise is initiating with the
                                      instrument (e.g. buy, issue
                                      reopen)
------------------------------------------------------------------------
Transaction Date                     A valid date identifying the date
                                      the transaction occurred
------------------------------------------------------------------------
UPB Scale Factor                     Factor determined by reconciling
                                      reported UPB to published
                                      financials
------------------------------------------------------------------------
Unamortized Balances Scale Factor    Factor determined by reconciling
                                      reported Unamortized Balances to
                                      published financials
------------------------------------------------------------------------

3.1.2.4 Inputs for Alternative Modeling Treatment Items

       Table 3-16--Inputs for Alternative Modeling Treatment Items
------------------------------------------------------------------------
              Variable                           Description
------------------------------------------------------------------------
TYPE                                 Type of item (asset, liability or
                                      off-balance sheet item)
------------------------------------------------------------------------
BOOK                                 Book Value of item (amount
                                      outstanding adjusted for deferred
                                      items)
------------------------------------------------------------------------
FACE                                 Face Value or notional balance of
                                      item for off-balance sheet items
------------------------------------------------------------------------
REMATUR                              Remaining Contractual Maturity of
                                      item in whole months. Any fraction
                                      of a month equals one whole month
------------------------------------------------------------------------
RATE                                 Interest Rate
------------------------------------------------------------------------
INDEX                                Index used to calculate Interest
                                      Rate
------------------------------------------------------------------------

[[Page 419]]

 
FAS115                               Designation that the item is
                                      recorded at fair value, according
                                      to FAS 115
------------------------------------------------------------------------
RATING                               Instrument or counterparty rating
------------------------------------------------------------------------
FHA                                  In the case of off-balance sheet
                                      guarantees, a designation
                                      indicating 100% of collateral is
                                      guaranteed by FHA
------------------------------------------------------------------------
MARGIN                               Margin over an Index
------------------------------------------------------------------------

            3.1.2.5 Operations, Taxes, and Accounting Inputs

    [a] Table 3-17, Operations, Taxes, and Accounting Inputs sets forth 
the data the Enterprises must compile in the RBC Report to permit the 
calculation of taxes, operating expenses, and dividends. These data 
include:
 Average monthly Operating Expenses (i.e., 
administrative expenses, salaries and benefits, professional services, 
property costs, equipment costs) for the quarter prior to the beginning 
of the Stress Test;
 Income for the current year-to-date, one year, and 
two years prior to the beginning of the stress test, before taxes and 
provision for income taxes;
 Dividend payout ratio for the four quarters prior to 
the beginning of the Stress Period;
 Minimum capital requirement as of the beginning of 
the Stress Period.

          Table 3-17--Operations, Taxes, and Accounting Inputs
------------------------------------------------------------------------
               Input                             Description
------------------------------------------------------------------------
FAS 115 and 125 fair value
 adjustment on retained mortgage
 portfolio
------------------------------------------------------------------------
FAS 133 fair value adjustment on
 retained mortgage portfolio
------------------------------------------------------------------------
Reserve for losses on retained
 mortgage portfolio
------------------------------------------------------------------------
FAS 115 and 125 fair value
 adjustments on non-mortgage
 investments
------------------------------------------------------------------------
FAS 133 fair value adjustments on
 non-mortgage investments
------------------------------------------------------------------------
Total cash
------------------------------------------------------------------------
Accrued interest receivable on
 mortgages
------------------------------------------------------------------------
Accrued interest receivable on non-
 mortgage investment securities
------------------------------------------------------------------------
Accrued interest receivable on non-
 mortgage investment securities
 denominated in foreign currency--
 hedged
------------------------------------------------------------------------
Accrued interest receivable on non-
 mortgage investment securities
 denominated in foreign currency--
 unhedged
------------------------------------------------------------------------
Accrued interest receivable on
 mortgage-linked derivatives, gross
------------------------------------------------------------------------
Accrued interest receivable on
 investment-linked derivatives,
 gross
------------------------------------------------------------------------

[[Page 420]]

 
Accrued interest receivable on debt-
 linked derivatives, gross
------------------------------------------------------------------------
Other accrued interest receivable
------------------------------------------------------------------------
Accrued interest receivable on       Underlying instrument is GSE issued
 hedged debt-linked foreign           debt
 currency swaps
------------------------------------------------------------------------
Accrued interest receivable on
 unhedged debt-linked foreign
 currency swaps
------------------------------------------------------------------------
Accrued interest receivable on       Underlying instrument is an asset
 hedged asset-linked foreign
 currency swaps
------------------------------------------------------------------------
Accrued interest receivable on
 unhedged asset-linked foreign
 currency swaps
------------------------------------------------------------------------
Currency transaction adjustments--   Cumulative gain or loss due to
 hedged assets                        changes in foreign exchange rates
                                      relative to on-balance sheet
                                      assets originally denominated in
                                      foreign currency
------------------------------------------------------------------------
Currency transaction adjustments--   Cumulative gain or loss due to
 unhedged assets                      changes in foreign exchange rates
                                      relative to unhedged assets and
                                      off-balance sheet items originally
                                      denominated in foreign currency
------------------------------------------------------------------------
Federal income tax refundable
------------------------------------------------------------------------
Accounts receivable
------------------------------------------------------------------------
Fees receivable
------------------------------------------------------------------------
Low income housing tax credit
 investments
------------------------------------------------------------------------
Fixed assets, net
------------------------------------------------------------------------
Clearing accounts                    Net book value of all clearing
                                      accounts
------------------------------------------------------------------------
Other assets
------------------------------------------------------------------------
Foreclosed property, net             Real estate owned including
                                      property acquired through
                                      foreclosure proceedings
------------------------------------------------------------------------
FAS 133 fair value adjustment on
 debt securities
------------------------------------------------------------------------
Accrued interest payable on
 existing fixed-rate debt
 securities
------------------------------------------------------------------------
Accrued interest payable on
 existing floating-rate debt
 securities
------------------------------------------------------------------------
Accrued interest payable on
 existing debt issued in foreign
 currency--hedged
------------------------------------------------------------------------
Accrued interest payable on
 existing debt issued in foreign
 currency--unhedged
------------------------------------------------------------------------
Accrued interest payable on
 mortgage-linked derivatives, gross
------------------------------------------------------------------------
Accrued interest payable on
 investment-linked derivatives,
 gross
------------------------------------------------------------------------

[[Page 421]]

 
Accrued interest payable on debt-
 linked derivatives, gross
------------------------------------------------------------------------
Other accrued interest payable
------------------------------------------------------------------------
Accrued interest payable debt-
 linked foreign currency swaps--
 hedged
------------------------------------------------------------------------
Accrued interest payable debt-
 linked foreign currency swaps--
 unhedged
------------------------------------------------------------------------
Accrued interest payable asset-
 linked foreign currency swaps--
 hedged
------------------------------------------------------------------------
Accrued interest payable asset-
 linked foreign currency swaps--
 unhedged
------------------------------------------------------------------------
Principal and interest due to        Cash received on sold mortgages for
 mortgage security investors          onward submission to mortgage
                                      security investors
------------------------------------------------------------------------
Currency transaction adjustments--   Cumulative gain or loss due to
 hedged debt                          changes in foreign exchange rates
                                      relative to on-balance sheet debt
                                      originally denominated in foreign
                                      currency
------------------------------------------------------------------------
Currency transaction adjustments--   Cumulative gain or loss due to
 unhedged debt                        changes in foreign exchange rates
                                      relative to unhedged liabilities
                                      and off-balance sheet items
                                      originally denominated in foreign
                                      currency
------------------------------------------------------------------------
Escrow deposits                      Cash balances held in relation to
                                      servicing of multi-family loans
------------------------------------------------------------------------
Federal income taxes payable
------------------------------------------------------------------------
Preferred dividends payable
------------------------------------------------------------------------
Accounts payable
------------------------------------------------------------------------
Other liabilities
------------------------------------------------------------------------
Common dividends payable
------------------------------------------------------------------------
Reserve for losses on sold
 mortgages
------------------------------------------------------------------------
Common stock
------------------------------------------------------------------------
Preferred stock, non-cumulative
------------------------------------------------------------------------
Additional paid-in capital
------------------------------------------------------------------------
Retained earnings
------------------------------------------------------------------------
Treasury stock
------------------------------------------------------------------------
Unrealized gains and losses on
 available-for-sale securities, net
 of tax, in accordance with FAS 115
 and 125
------------------------------------------------------------------------
Unrealized gains and losses due to
 mark to market adjustments, FAS
 115 and 125
------------------------------------------------------------------------
Unrealized gains and losses due to
 deferred balances related to pre-
 FAS 115 and 125 adjustments
------------------------------------------------------------------------

[[Page 422]]

 
Unrealized gains and losses due to
 other realized gains, FAS 115
------------------------------------------------------------------------
Other comprehensive income, net of
 tax, in accordance with FAS 133
------------------------------------------------------------------------
OCI due to mark to market
 adjustments, FAS 133
------------------------------------------------------------------------
OCI due to deferred balances
 related to pre-FAS 133 adjustments
------------------------------------------------------------------------
OCI due to other realized gains,
 FAS 133
------------------------------------------------------------------------
Operating expenses                   Average of prior three months
------------------------------------------------------------------------
Common dividend payout ratio         Sum dollar amount of common
 (average of prior 4 quarters)        dividends paid over prior 4
                                      quarters and divided by the sum of
                                      total of after tax income less
                                      preferred dividends paid over
                                      prior 4 quarters
------------------------------------------------------------------------
Common dividends per share paid 1
 quarter prior to the beginning of
 the stress period
------------------------------------------------------------------------
Common shares outstanding
------------------------------------------------------------------------
Common Share Market Price
------------------------------------------------------------------------
Dividends paid on common stock 1
 quarter prior to the beginning of
 the stress period
------------------------------------------------------------------------
Share Repurchases (average of prior  Sum dollar amount of repurchased
 4 quarters)                          shares, net of newly issued
                                      shares, over prior 4 quarters and
                                      divided by 4
------------------------------------------------------------------------
Off-balance-sheet Guarantees         Guaranteed instruments not reported
                                      on the balance sheet, such as
                                      whole loan REMICs and multifamily
                                      credit enhancements, and not 100%
                                      guaranteed by the FHA
------------------------------------------------------------------------
Other Off-Balance Sheet Guarantees   All other off-balance sheet
                                      guaranteed instruments not
                                      included in another category, and
                                      not 100% guaranteed by the FHA
------------------------------------------------------------------------
YTD provision for income taxes       Provision for income taxes for the
                                      period beginning January 1 and
                                      ending as of the report date
------------------------------------------------------------------------
Tax loss carryforward                Net losses available to write off
                                      against future years' net income
------------------------------------------------------------------------
Tax liability for the year prior to
 the beginning of the Stress Test
------------------------------------------------------------------------
Tax liability for the year 2 years
 prior to the beginning of the
 Stress Test (net of carrybacks)
------------------------------------------------------------------------
Taxable income for the year prior
 to the beginning of the Stress
 Test
------------------------------------------------------------------------
Taxable income for the year 2 years
 prior to the beginning of the
 Stress Test (net of carrybacks)
------------------------------------------------------------------------
Net after tax income for the
 quarter preceding the start of the
 stress test
------------------------------------------------------------------------

[[Page 423]]

 
YTD taxable income                   Total amount of taxable income for
                                      the period beginning January 1 and
                                      ending as of the report date
------------------------------------------------------------------------
Minimum capital requirement at the
 beginning of the Stress Period
------------------------------------------------------------------------
Specific allowance for loan losses   Loss allowances calculated in
                                      accordance with FAS 114
------------------------------------------------------------------------
Zero coupon swap receivable
------------------------------------------------------------------------
Unamortized discount on zero coupon
 swap receivable
------------------------------------------------------------------------

                            3.1.3 Public Data

                         3.1.3.1 Interest Rates

    [a] The Interest Rates component of the Stress Test projects 
Treasury yields as well as other interest rate indexes that are needed 
to calculate cash flows, to simulate the performance of mortgages and 
other financial instruments, and to calculate capital for each of the 
120 months in the Stress Period. Table 3-18, Interest Rate and Index 
Inputs, sets forth the interest rate indexes used in the Stress Test
    [b] The starting values for all of the Interest Rates are the 
monthly average of daily rates for the month preceding the start of the 
stress test.
    [c] For the 10-year CMT, monthly values are required for the three 
years prior to the start of the Stress Test (m = -35, -34...0). For all 
other indexes, monthly values for the prior two years are required (m = 
-23, -22...0).

                                   Table 3-18--Interest Rate and Index Inputs
----------------------------------------------------------------------------------------------------------------
        Interest Rate Index                        Description                               Source
----------------------------------------------------------------------------------------------------------------
1 MO Treasury Bill                  One-month Treasury bill yield, monthly     Bloomberg Generic 1 Month.
                                     simple average of daily rate, quoted as   U.S. Treasury bill.
                                     actual/360                                Ticker: GB1M (index).
----------------------------------------------------------------------------------------------------------------
3 MO CMT                            Three-month constant maturity Treasury     Federal Reserve H.15 Release.
                                     yield, monthly simple average of daily
                                     rate, quoted as bond equivalent yield
----------------------------------------------------------------------------------------------------------------
6 MO CMT                            Six-month constant maturity Treasury       Federal Reserve H.15 Release.
                                     yield, monthly simple average of daily
                                     rate, quoted as bond equivalent yield
----------------------------------------------------------------------------------------------------------------
1 YR CMT                            One-year constant maturity Treasury        Federal Reserve H.15 Release.
                                     yield, monthly simple average of daily
                                     rate, quoted as bond equivalent yield
----------------------------------------------------------------------------------------------------------------
2 YR CMT                            Two-year constant maturity Treasury        Federal Reserve H.15 Release.
                                     yield, monthly simple average of daily
                                     rate, quoted as bond equivalent yield
----------------------------------------------------------------------------------------------------------------
3 YR CMT                            Three-year constant maturity Treasury      Federal Reserve H.15 Release.
                                     yield, monthly simple average of daily
                                     rate, quoted as bond equivalent yield
----------------------------------------------------------------------------------------------------------------
5 YR CMT                            Five-year constant maturity Treasury       Federal Reserve H.15 Release.
                                     yield, monthly simple average of daily
                                     rate, quoted as bond equivalent yield
----------------------------------------------------------------------------------------------------------------

[[Page 424]]

 
10 YR CMT                           Ten-year constant maturity Treasury        Federal Reserve H.15 Release.
                                     yield, monthly simple average of daily
                                     rate, quoted as bond equivalent yield
----------------------------------------------------------------------------------------------------------------
20 YR CMT                           Twenty-year constant maturity Treasury     Federal Reserve H.15 Release.
                                     yield, monthly simple average of daily
                                     rate, quoted as bond equivalent yield
----------------------------------------------------------------------------------------------------------------
30 YR CMT                           Thirty-year constant maturity Treasury     Federal Reserve H.15 Release,
                                     yield, monthly simple average of daily     Extrapolation Factors used for
                                     rate, quoted as bond equivalent yield;     estimation, U.S. Dept. of
                                     after February 15, 2002, estimated         Treasury.
                                     according to the Department of Treasury
                                     methodology using long-term average
                                     rates and extrapolation factors as
                                     referenced in OFHEO guideline 402
----------------------------------------------------------------------------------------------------------------
12-mo Moving Treasury               12-month Federal Reserve cumulative        Bloomberg Ticker: 12MTA (Index).
Average (MTA)                        average 1 year CMT, monthly simple
                                     average of daily rate
----------------------------------------------------------------------------------------------------------------
Overnight Fed Funds (Effective)     Overnight effective Federal Funds rate,    Federal Reserve H.15 Release.
                                     monthly simple average of daily rate
----------------------------------------------------------------------------------------------------------------
Certificate of Deposits Index       12-month average of monthly published      Bloomberg Ticker: COF CODI
 (CODI)                              yields on 3-month certificates of          (index).
                                     deposit, based on the Federal Reserve
                                     Board statistical release, H-15
----------------------------------------------------------------------------------------------------------------
1 Week Federal Funds                1 week Federal Funds rate, monthly simple  Bloomberg Term Fed Funds U.S.
                                     average of daily rates                     Domestic
                                                                               Ticker: GFED01W (index).
----------------------------------------------------------------------------------------------------------------
6 Month Fed Funds                   6 month Federal Funds rate, monthly        Bloomberg Term Fed Funds U.S.
                                     simple average of daily rates              Domestic
                                                                               Ticker: GFED06M (index).
----------------------------------------------------------------------------------------------------------------
Conventional Mortgage Rate          FHLMC (Freddie Mac) contract interest      Federal Reserve H.15 Release.
                                     rates for 30 YR fixed-rate mortgage
                                     commitments, monthly average of weekly
                                     rates
----------------------------------------------------------------------------------------------------------------
Constant Maturity Mortgage (CMM)    Bond equivalent yield on TBA mortgage-     TradeWeb.
 Index                               backed security which prices at the par
                                     price
----------------------------------------------------------------------------------------------------------------
1-mo Freddie Mac Reference Bill     1-month Freddie Mac Reference Bill,        Freddiemac.com website: http://
                                     actual price and yield by auction date     www.freddiemac.com/debt/data/cgi-
                                                                                bin/refbillaucres.cgi?order=AD.
----------------------------------------------------------------------------------------------------------------
FHLB 11th District COF              11th District (San Francisco) weighted     Bloomberg Cost of Funds for the
                                     average cost of funds for savings and      11th District
                                     loans, monthly                            Ticker: COF11 (index).
----------------------------------------------------------------------------------------------------------------
1 MO LIBOR                          One-month London Interbank Offered Rate,   British Bankers Association
                                     average of bid and asked, monthly simple  Bloomberg Ticker: US0001M
                                     average of daily rates, quoted as actual/  (index).
                                     360
----------------------------------------------------------------------------------------------------------------

[[Page 425]]

 
3 MO LIBOR                          Three-month London Interbank Offered       British Bankers Association
                                     Rate, average of bid and asked, monthly   Bloomberg Ticker: US0003M
                                     simple average of daily rates, quoted as   (index).
                                     actual/360
----------------------------------------------------------------------------------------------------------------
6 MO LIBOR                          Six-month London Interbank Offered Rate,   British Bankers Association
                                     average of bid and asked, monthly simple  Bloomberg Ticker: US0006M
                                     average of daily rates, quoted as actual/  (index).
                                     360
----------------------------------------------------------------------------------------------------------------
12 MO LIBOR                         One-year London Interbank Offered Rate,    British Bankers Association
                                     average of bid and asked, monthly simple  Bloomberg Ticker: US0012M
                                     average of daily rates, quoted as actual/  (index).
                                     360
----------------------------------------------------------------------------------------------------------------
Prime Rate                          Prevailing rate as quoted, monthly         Federal Reserve H.15 Release.
                                     average of daily rates
----------------------------------------------------------------------------------------------------------------
1 MO Federal Agency COF             One-month Federal Agency Cost of Funds,    Bloomberg Generic 1 Month Agency
                                     monthly simple average of daily rates,     Discount Note Yield
                                     quoted as actual/360                      Ticker: AGDN030Y (index).
----------------------------------------------------------------------------------------------------------------
3 MO Federal Agency COF             Three-month Federal Agency Cost of Funds,  Bloomberg Generic 3 Month Agency
                                     monthly simple average of daily rates,     Discount Note Yield
                                     quoted as actual/360                      Ticker: AGDN090Y (index).
----------------------------------------------------------------------------------------------------------------
6 MO Federal Agency COF             Six-month Federal Agency Cost of Funds,    Bloomberg Generic 6 Month Agency
                                     monthly simple average of daily rates,     Discount Note Yield
                                     quoted as actual/360                      Ticker: AGDN180Y (index).
----------------------------------------------------------------------------------------------------------------
1 YR Federal Agency COF             One-year Federal Agency Cost of Funds,     Bloomberg Generic 12 Month Agency
                                     monthly simple average of daily rates,     Discount Note Yield.
                                     quoted as actual/360                      Ticker: AGDN360Y (index).
----------------------------------------------------------------------------------------------------------------
2 YR Federal Agency COF             Two-year Federal Agency Fair Market        Bloomberg Generic 2 Year Agency
                                     Yield, monthly simple average of daily     Fair Market Yield.
                                     rates                                     Ticker: CO842Y (index).
----------------------------------------------------------------------------------------------------------------
3 YR Federal Agency COF             Three-year Federal Agency Fair Market      Bloomberg Generic 3 Year Agency
                                     Yield, monthly simple average of daily     Fair Market Yield.
                                     rates                                     Ticker: CO843Y (index).
----------------------------------------------------------------------------------------------------------------
5 YR Federal Agency COF             Five-year Federal Agency Fair Market       Bloomberg Generic 5 Year Agency
                                     Yield, monthly simple average of daily     Fair Market Yield.
                                     rates                                     Ticker: CO845Y (index).
----------------------------------------------------------------------------------------------------------------
10 YR Federal Agency COF            Ten-year Federal Agency Fair Market        Bloomberg Generic 10 Year Agency
                                     Yield, monthly simple average of daily     Fair Market Yield.
                                     rates                                     Ticker: CO8410Y (index).
----------------------------------------------------------------------------------------------------------------
30 YR Federal Agency COF            Thirty-year Federal Agency Fair Market     Bloomberg Generic 30 Year Agency
                                     Yield, monthly simple average of daily     Fair Market Yield.
                                     rates                                     Ticker: CO8430Y (index).
----------------------------------------------------------------------------------------------------------------
15 YR fixed-rate mortgage           FHLMC (Freddie Mac) contract interest      Bloomberg FHLMC 15 YR, 10 day
                                     rates for 15 YR fixed-rate mortgage        commitment rate
                                     commitments, monthly average of FHLMC     Ticker: FHCR1510 (index).
                                     (Freddie Mac) contract interest rates
                                     for 15 YR
----------------------------------------------------------------------------------------------------------------

[[Page 426]]

 
7-year balloon mortgage rate        Seven-year balloon mortgage, equal to the  Computed.
                                     Conventional Mortgage Rate less 50 basis
                                     points
----------------------------------------------------------------------------------------------------------------
2-yr Swap                           2-yr U.S. Dollar Swap Rate, quoted as      Bloomberg Ticker: USSWAP2
                                     semi-annually fixed rate vs. 3-mo U.S.     (index).
                                     dollar
----------------------------------------------------------------------------------------------------------------
3-yr Swap                           3-yr U.S. Dollar Swap Rate, quoted as      Bloomberg Ticker: USSWAP3
                                     semi-annually fixed rate vs. 3-mo U.S.     (Index).
                                     dollar LIBOR
----------------------------------------------------------------------------------------------------------------
5-yr Swap                           5-yr U.S. Dollar Swap Rate, quoted as      Bloomberg Ticker: USSWAP5
                                     semi-annually fixed rate vs. 3-mo U.S.     (Index).
                                     dollar LIBOR
----------------------------------------------------------------------------------------------------------------
10-yr Swap                          10-yr U.S. Dollar Swap Rate, quoted as     Bloomberg Ticker: USSWAP10
                                     semi-annually fixed rate vs. 3-mo U.S.     (Index).
                                     dollar LIBOR
----------------------------------------------------------------------------------------------------------------
30-yr Swap                          30-yr U.S. Dollar Swap Rate, quoted as     Bloomberg Ticker: USSWAP30
                                     semi-annually fixed rate vs. 3-mo U.S.     (Index).
                                     dollar LIBOR
----------------------------------------------------------------------------------------------------------------

                    3.1.3.2 Property Valuation Inputs

    Table 3-19, Stress Test Single Family Quarterly House Price Growth 
Rates and Table 3-21, HPI Dispersion Parameters, set forth inputs which 
are used to project single family mortgage performance. Table 3-20, 
Multifamily Monthly Rent Growth and Vacancy Rates, sets forth inputs 
which are used to project multifamily mortgage performance.

                  Table 3-19--Stress Test Single Family Quarterly House Price Growth Rates \1\
----------------------------------------------------------------------------------------------------------------
                                             House Price                                             House Price
 Stress Test Months     Historical Months    Growth Rate   Stress Test Months    Historical Months   Growth Rate
----------------------------------------------------------------------------------------------------------------
1-3                   Jan-Mar 1984            -0.005048   61-63                 Jan-Mar 1989            0.006292
----------------------------------------------------------------------------------------------------------------
4-6                   Apr-Jun 1984             0.001146   64-66                 Apr-Jun 1989            0.010523
----------------------------------------------------------------------------------------------------------------
7-9                   Jul-Sep 1984             0.001708   67-69                 Jul-Sep 1989            0.017893
----------------------------------------------------------------------------------------------------------------
10-12                 Oct-Dec 1984            -0.007835   70-72                 Oct-Dec 1989           -0.004881
----------------------------------------------------------------------------------------------------------------
13-15                 Jan-Mar 1985            -0.006975   73-75                 Jan-Mar 1990           -0.000227
----------------------------------------------------------------------------------------------------------------
16-18                 Apr-Jun 1985             0.004178   76-78                 Apr-Jun 1990            0.008804
----------------------------------------------------------------------------------------------------------------
19-21                 Jul-Sep 1985            -0.005937   79-81                 Jul-Sep 1990            0.003441
----------------------------------------------------------------------------------------------------------------
22-24                 Oct-Dec 1985            -0.019422   82-84                 Oct-Dec 1990           -0.003777
----------------------------------------------------------------------------------------------------------------
25-27                 Jan-Mar 1986             0.026231   85-87                 Jan-Mar 1991            0.009952
----------------------------------------------------------------------------------------------------------------
28-30                 Apr-Jun 1986             0.022851   88-90                 Apr-Jun 1991            0.012616
----------------------------------------------------------------------------------------------------------------
31-33                 Jul-Sep 1986            -0.021402   91-93                 Jul-Sep 1991            0.002267
----------------------------------------------------------------------------------------------------------------
34-36                 Oct-Dec 1986            -0.018507   94-96                 Oct-Dec 1991            0.012522
----------------------------------------------------------------------------------------------------------------

[[Page 427]]

 
37-39                 Jan-Mar 1987             0.004558   97-99                 Jan-Mar 1992            0.013378
----------------------------------------------------------------------------------------------------------------
40-42                 Apr-Jun 1987            -0.039306   100-102               Apr-Jun 1992           -0.000519
----------------------------------------------------------------------------------------------------------------
43-45                 Jul-Sep 1987            -0.024382   103-105               Jul-Sep 1992            0.016035
----------------------------------------------------------------------------------------------------------------
46-48                 Oct-Dec 1987            -0.026761   106-108               Oct-Dec 1992            0.005691
----------------------------------------------------------------------------------------------------------------
49-51                 Jan-Mar 1988            -0.003182   109-111               Jan-Mar 1993            0.005723
----------------------------------------------------------------------------------------------------------------
52-54                 Apr-Jun 1988             0.011854   112-114               Apr-Jun 1993            0.010614
----------------------------------------------------------------------------------------------------------------
55-57                 Jul-Sep 1988            -0.020488   115-117               Jul-Sep 1993            0.013919
----------------------------------------------------------------------------------------------------------------
58-60                 Oct-Dec 1988            -0.007260   118-120               Oct-Dec 1993           0.011267
----------------------------------------------------------------------------------------------------------------
\1\ Source: OFHEO House Price Report, 1996:3.


                      Table 3-20--Multifamily Monthly Rent Growth \1\ and Vacancy Rates \2\
----------------------------------------------------------------------------------------------------------------
   Stress Test       Historical    Rent Growth   Vacancy    Stress Test       Historical    Rent Growth  Vacancy
      Month            Month           Rate       Rate         Month            Month           Rate       Rate
----------------------------------------------------------------------------------------------------------------
1                 Jan 1984            0.001367    0.136   61               Jan 1989            0.000052    0.135
----------------------------------------------------------------------------------------------------------------
2                 Feb 1984            0.001186    0.136   62               Feb 1989            0.000284    0.135
----------------------------------------------------------------------------------------------------------------
3                 Mar 1984            0.001422    0.136   63               Mar 1989            0.000404    0.135
----------------------------------------------------------------------------------------------------------------
4                 Apr 1984            0.001723    0.136   64               Apr 1989            0.000150    0.135
----------------------------------------------------------------------------------------------------------------
5                 May 1984            0.001537    0.136   65               May 1989            0.000331    0.135
----------------------------------------------------------------------------------------------------------------
6                 Jun 1984            0.001354    0.136   66               Jun 1989            0.001483    0.135
----------------------------------------------------------------------------------------------------------------
7                 Jul 1984            0.000961    0.136   67               Jul 1989            0.000759    0.135
----------------------------------------------------------------------------------------------------------------
8                 Aug 1984            0.000601    0.136   68               Aug 1989            0.001502    0.135
----------------------------------------------------------------------------------------------------------------
9                 Sep 1984            0.001106    0.136   69               Sep 1989            0.002254    0.135
----------------------------------------------------------------------------------------------------------------
10                Oct 1984            0.001623    0.136   70               Oct 1989            0.002768    0.135
----------------------------------------------------------------------------------------------------------------
11                Nov 1984            0.001395    0.136   71               Nov 1989            0.002220    0.135
----------------------------------------------------------------------------------------------------------------
12                Dec 1984            0.001170    0.136   72               Dec 1989            0.002040    0.135
----------------------------------------------------------------------------------------------------------------
13                Jan 1985            0.001014    0.150   73               Jan 1990            0.002180    0.120
----------------------------------------------------------------------------------------------------------------
14                Feb 1985            0.000857    0.150   74               Feb 1990            0.002772    0.120
----------------------------------------------------------------------------------------------------------------
15                Mar 1985            0.000315    0.150   75               Mar 1990            0.002867    0.120
----------------------------------------------------------------------------------------------------------------
16                Apr 1985           -0.000225    0.150   76               Apr 1990            0.003243    0.120
----------------------------------------------------------------------------------------------------------------
17                May 1985            0.000154    0.150   77               May 1990            0.002963    0.120
----------------------------------------------------------------------------------------------------------------
18                Jun 1985            0.000534    0.150   78               Jun 1990            0.003588    0.120
----------------------------------------------------------------------------------------------------------------
19                Jul 1985            0.001115    0.150   79               Jul 1990            0.004885    0.120
----------------------------------------------------------------------------------------------------------------

[[Page 428]]

 
20                Aug 1985            0.001702    0.150   80               Aug 1990            0.004564    0.120
----------------------------------------------------------------------------------------------------------------
21                Sep 1985            0.001576    0.150   81               Sep 1990            0.005491    0.120
----------------------------------------------------------------------------------------------------------------
22                Oct 1985            0.001450    0.150   82               Oct 1990            0.005475    0.120
----------------------------------------------------------------------------------------------------------------
23                Nov 1985            0.001357    0.150   83               Nov 1990            0.005763    0.120
----------------------------------------------------------------------------------------------------------------
24                Dec 1985            0.001266    0.150   84               Dec 1990            0.005817    0.120
----------------------------------------------------------------------------------------------------------------
25                Jan 1986            0.001823    0.168   85               Jan 1991            0.005261    0.108
----------------------------------------------------------------------------------------------------------------
26                Feb 1986            0.002392    0.168   86               Feb 1991            0.005456    0.108
----------------------------------------------------------------------------------------------------------------
27                Mar 1986            0.002665    0.168   87               Mar 1991            0.005637    0.108
----------------------------------------------------------------------------------------------------------------
28                Apr 1986            0.002942    0.168   88               Apr 1991            0.005843    0.108
----------------------------------------------------------------------------------------------------------------
29                May 1986            0.002517    0.168   89               May 1991            0.005970    0.108
----------------------------------------------------------------------------------------------------------------
30                Jun 1986            0.002105    0.168   90               Jun 1991            0.005719    0.108
----------------------------------------------------------------------------------------------------------------
31                Jul 1986            0.001372    0.168   91               Jul 1991            0.005533    0.108
----------------------------------------------------------------------------------------------------------------
32                Aug 1986            0.000652    0.168   92               Aug 1991            0.004512    0.108
----------------------------------------------------------------------------------------------------------------
33                Sep 1986            0.000110    0.168   93               Sep 1991            0.003916    0.108
----------------------------------------------------------------------------------------------------------------
34                Oct 1986           -0.000431    0.168   94               Oct 1991            0.003779    0.108
----------------------------------------------------------------------------------------------------------------
35                Nov 1986           -0.000201    0.168   95               Nov 1991            0.004226    0.108
----------------------------------------------------------------------------------------------------------------
36                Dec 1986            0.000030    0.168   96               Dec 1991            0.004791    0.108
----------------------------------------------------------------------------------------------------------------
37                Jan 1987           -0.001448    0.175   97               Jan 1992            0.005361    0.098
----------------------------------------------------------------------------------------------------------------
38                Feb 1987           -0.002162    0.175   98               Feb 1992            0.004085    0.098
----------------------------------------------------------------------------------------------------------------
39                Mar 1987           -0.001202    0.175   99               Mar 1992            0.003885    0.098
----------------------------------------------------------------------------------------------------------------
40                Apr 1987           -0.001136    0.175   100              Apr 1992            0.002992    0.098
----------------------------------------------------------------------------------------------------------------
41                May 1987           -0.001466    0.175   101              May 1992            0.002941    0.098
----------------------------------------------------------------------------------------------------------------
42                Jun 1987           -0.002809    0.175   102              Jun 1992            0.002851    0.098
----------------------------------------------------------------------------------------------------------------
43                Jul 1987           -0.002069    0.175   103              Jul 1992            0.002346    0.098
----------------------------------------------------------------------------------------------------------------
44                Aug 1987           -0.002530    0.175   104              Aug 1992            0.003850    0.098
----------------------------------------------------------------------------------------------------------------
45                Sep 1987           -0.001033    0.175   105              Sep 1992            0.003245    0.098
----------------------------------------------------------------------------------------------------------------
46                Oct 1987           -0.001148    0.175   106              Oct 1992            0.003194    0.098
----------------------------------------------------------------------------------------------------------------
47                Nov 1987           -0.001617    0.175   107              Nov 1992            0.001931    0.098
----------------------------------------------------------------------------------------------------------------
48                Dec 1987           -0.002064    0.175   108              Dec 1992            0.001494    0.098
----------------------------------------------------------------------------------------------------------------
49                Jan 1988           -0.001372    0.158   109              Jan 1993            0.001527    0.104
----------------------------------------------------------------------------------------------------------------
50                Feb 1988           -0.001524    0.158   110              Feb 1993            0.002317    0.104
----------------------------------------------------------------------------------------------------------------

[[Page 429]]

 
51                Mar 1988           -0.001972    0.158   111              Mar 1993            0.001904    0.104
----------------------------------------------------------------------------------------------------------------
52                Apr 1988           -0.001363    0.158   112              Apr 1993            0.002545    0.104
----------------------------------------------------------------------------------------------------------------
53                May 1988           -0.001143    0.158   113              May 1993            0.002570    0.104
----------------------------------------------------------------------------------------------------------------
54                Jun 1988           -0.001194    0.158   114              Jun 1993            0.002449    0.104
----------------------------------------------------------------------------------------------------------------
55                Jul 1988           -0.001429    0.158   115              Jul 1993            0.002161    0.104
----------------------------------------------------------------------------------------------------------------
56                Aug 1988           -0.001315    0.158   116              Aug 1993            0.001857    0.104
----------------------------------------------------------------------------------------------------------------
57                Sep 1988           -0.002581    0.158   117              Sep 1993            0.001664    0.104
----------------------------------------------------------------------------------------------------------------
58                Oct 1988           -0.002337    0.158   118              Oct 1993            0.002184    0.104
----------------------------------------------------------------------------------------------------------------
59                Nov 1988           -0.001218    0.158   119              Nov 1993            0.002932    0.104
----------------------------------------------------------------------------------------------------------------
60                Dec 1988           -0.000203    0.158   120              Dec 1993            0.002776   0.104
----------------------------------------------------------------------------------------------------------------
\1\ Source: U.S. Department of Labor, Bureau of Labor Statistics, Rent of Primary Residence component of the
  Consumer Price Index--All Urban Consumers.
\2\ Source: U.S. Census Bureau, Housing Vacancy Survey--Annual 1999.


                Table 3-21--HPI Dispersion Parameters \1\
------------------------------------------------------------------------
                                                           Quadratic
                                    Linear  ([alpha])       ([beta])
------------------------------------------------------------------------
Dispersion Parameter                        0.002977      -0.000024322
------------------------------------------------------------------------
\1\ Source: OFHEO House Price Report, 1996:3.

                          3.1.4 Constant Values

    Certain values are numerical constants that are parameters of the 
cash flow simulation. These values are established by OFHEO on the basis 
of analysis of Benchmark and other historical data.

                 3.1.4.1 Single Family Loan Performance

                       Table 3-22--Loan Group Inputs for Single Family Gross Loss Severity
----------------------------------------------------------------------------------------------------------------
              Variable                      Description                 Value                    Source
----------------------------------------------------------------------------------------------------------------
MQ                                   Months Delinquent: time         4 for sold loans
                                      during which Enterprise             0 otherwise
                                      pays delinquent loan
                                      interest to MBS holders
----------------------------------------------------------------------------------------------------------------
MF                                   Months to Foreclosure:                 13 months  Average value of BLE data
                                      number of missed
                                      payments through
                                      completion of
                                      foreclosure
----------------------------------------------------------------------------------------------------------------
MR                                   Months in REO                           7 months  Average value of BLE data
----------------------------------------------------------------------------------------------------------------
F                                    Foreclosure Costs as a                     0.037  Average of historical
                                      decimal fraction of                               data from Enterprise
                                      Defaulted UPB                                     loans, 1979-1999
----------------------------------------------------------------------------------------------------------------

[[Page 430]]

 
R                                    REO Expenses as a decimal                  0.163  Average of historical
                                      fraction of Defaulted                             data from Enterprise
                                      UPB                                               loans, 1979-1999
----------------------------------------------------------------------------------------------------------------
RR                                   Recovery Rate for                           0.61  Average value of BLE data
                                      Defaulted loans in the
                                      BLE, as a percent of
                                      predicted house price
                                      using HPI (decimal)
----------------------------------------------------------------------------------------------------------------

    See also Table 3-35, Coefficients for Single Family Default and 
Prepayment Explanatory Variables.

                  3.1.4.2 Multifamily Loan Performance

                      Table 3-23--Loan Group Inputs for Multifamily Default and Prepayment
----------------------------------------------------------------------------------------------------------------
               Variable                         Description               Value                 Source
----------------------------------------------------------------------------------------------------------------
OE                                     Operating expenses as a                0.472  Average ratio of operating
                                        share of gross potential                      expenses to gross rents,
                                        rents                                         1970-1992 Institute for
                                                                                      Real Estate Management
                                                                                      annual surveys of
                                                                                      apartments.
----------------------------------------------------------------------------------------------------------------
RVRo                                   Initial rental vacancy rate           0.0623  National average vacancy
                                                                                      rate, 1970-1995, from
                                                                                      census surveys.
----------------------------------------------------------------------------------------------------------------


                        Table 3-24--Loan Group Inputs for Multifamily Gross Loss Severity
----------------------------------------------------------------------------------------------------------------
             Variable                       Description                 Value                    Source
----------------------------------------------------------------------------------------------------------------
MQ                                  Time during which                4 for sold loans
                                     delinquent loan interest             0 otherwise
                                     is passed-through to MBS
                                     holders
----------------------------------------------------------------------------------------------------------------
RHC                                 Net REO holding costs as a                 0.1333  UPB-weighted average,
                                     decimal fraction of                                Freddie Mac ``old book''
                                     Defaulted UPB                                      REO through 1995.
----------------------------------------------------------------------------------------------------------------
MF                                  Time from Default to                    18 months  UPB-weighted average,
                                     completion of foreclosure                          Freddie Mac ``old book''
                                     (REO acquisition)                                  REO through 1995.
----------------------------------------------------------------------------------------------------------------
MR                                  Months from REO                         13 months  UPB-weighted average,
                                     acquisition to REO                                 Freddie Mac ``old book''
                                     disposition                                        REO through 1995.
----------------------------------------------------------------------------------------------------------------
RP                                  REO proceeds as a decimal                  0.5888  UPB-weighted average,
                                     fraction of Defaulted UPB                          Freddie Mac ``old book''
                                                                                        REO through 1995.
----------------------------------------------------------------------------------------------------------------


[[Page 431]]

    See also Table 3-39, Explanatory Variable Coefficients for 
Multifamily Default.

                             3.2 Commitments

                       3.2.1 Commitments Overview

    The Enterprises make contractual commitments to purchase or 
securitize mortgages. The Stress Test provides for deliveries of 
mortgages into the commitments that exist at the start of the Stress 
Period. These mortgages are grouped into ``Commitment Loan Groups'' that 
reflect the characteristics of the mortgages that were originated in the 
six months preceding the start of the Stress Period and securitized by 
the Enterprise, except that they are assigned coupon rates consistent 
with the projected delivery month in each interest rate scenario. These 
Commitment Loan Groups are added to the Enterprise's sold portfolio and 
the Stress Test projects their performance during the Stress Period. In 
the down-rate scenario, the Stress Test provides that 100 percent of the 
mortgages specified in the commitments are delivered within the first 
three months. In the up-rate scenario, 75 percent are delivered within 
the first six months.

                        3.2.2 Commitments Inputs

    The Stress Test uses two sources of data to determine the 
characteristics of the mortgages delivered under commitments:
 Information from the Enterprises on the 
characteristics of loans originated and delivered to the Enterprises in 
the six months preceding the start of the Stress Period, broken out into 
four categories, scaled by the dollar value of commitments outstanding 
at the start of the Stress Period;
 Interest Rate series generated by the Interest Rates 
component of the Stress Test.

                            3.2.2.1 Loan Data

    [a] The Enterprises report Commitment Loan Group categories based on 
the following product type characteristics of securitized single family 
loans originated and delivered during the six months prior to the start 
of the Stress Test:
 30-year fixed-rate
 15-year fixed-rate
 One-year CMT ARM
 Seven-year balloon
    [b] For each Commitment Loan Group category, the Enterprises report 
the same information as in section 3.6 for Whole Loan groups with the 
following exceptions:
 Amortization term and remaining term are set to those 
appropriate for newly originated loans
 Unamortized balances are set to zero
 The House Price Growth Factor is set to one
 Age is set to zero
 Any credit enhancement coverage other than mortgage 
insurance is not reported.
    [c] For each Commitment Loan Group category, the Enterprises report 
the Starting UPB defined as follows:
[GRAPHIC] [TIFF OMITTED] TR13SE01.000

                       3.2.2.2 Interest Rate Data

    The Stress Test uses the following Interest Rate series, generated 
from section 3.3, Interest Rates, of this Appendix, for the first 12 
months of the Stress Period:
 One-year Constant Maturity Treasury yield (CMT)
 Conventional mortgage rate (30-year fixed rate)
 15-year fixed-rate mortgage rate
 Seven-year balloon mortgage rate.

                      3.2.3 Commitments Procedures

    [a] Determine Commitment Loan Groups from the Commitment Loan Group 
categories as follows:
1. Divide each category into one subcategory for each delivery month. 
Three subcategories are created in the down-rate scenario and six in the 
up-rate scenario.
2. Calculate the total starting UPB for each subcategory as follows:
[GRAPHIC] [TIFF OMITTED] TR13SE01.001

Where: MDP is taken from Table 3-25.

      Table 3-25--Monthly Deliveries as a Percentage of Commitments
                            Outstanding (MDP)
------------------------------------------------------------------------
                                                  Up-Rate     Down-Rate
              Delivery Month (DM)                 Scenario     Scenario
                                                    MDP          MDP
------------------------------------------------------------------------
1                                                    18.75%       62.50%
------------------------------------------------------------------------
2                                                    18.75%       25.00%
------------------------------------------------------------------------
3                                                    12.50%       12.50%
------------------------------------------------------------------------

[[Page 432]]

 
4                                                    12.50%        0.00%
------------------------------------------------------------------------
5                                                     6.25%        0.00%
------------------------------------------------------------------------
6                                                     6.25%        0.00%
------------------------------------------------------------------------
    Total                                               75%         100%
------------------------------------------------------------------------

3. Set the Initial Mortgage Interest Rate for each subcategory using the 
interest rate series consistent with the commitment product type. For 
fixed rate loans, this rate = INDEXDM. For ARM loans, the 
Initial Mortgage Interest Rate and the Mortgage Interest Rate at 
Origination are equal and set to INDEXDM-LB-1+MARGIN, where 
LB (Lookback Period) and MARGIN for ARM commitment loan groups come from 
the RBC Report. Calculate the mortgage payment amount consistent with 
the Initial rate and amortizing term.
    [b] Cash flows for the commitment loan groups, broken down by 
subcategory corresponding to assumed month of delivery to the 
Enterprises, are to be generated using the same procedures as contained 
in section 3.6, Whole Loan Cash Flows, of this Appendix, except as 
follows:
1. For purposes of generating cash flows, treat each commitment loan 
          subcategory as if the loans were newly originated and 
          delivered just prior to the start of the Stress Test (that is, 
          treat them as if mortgage age at time zero, A0, 
          were zero).
2. Wherever section 3.6, Whole Loan Cash Flows, of this Appendix, refers 
          to interest rate or discount rate adjustments, add Delivery 
          Month (DM) to the Interest Rate or discount rate monthly 
          counter, where constant DM [isin] [1,2,3,4,5,6] refers to the 
          number of months into the Stress Test that the commitment 
          subcategory is assumed to be delivered to the Enterprise. For 
          example,

    a. Section 3.6.3.3.3[a]1.b.3) of this Appendix, if m is a rate reset 
month, then:
[GRAPHIC] [TIFF OMITTED] TR13SE01.002

    b. Section 3.6.3.4.3.1[a]3.a., of this Appendix,
    [GRAPHIC] [TIFF OMITTED] TR13SE01.003
    
    c. Section 3.6.3.4.3.1[a]4., of this Appendix,
    [GRAPHIC] [TIFF OMITTED] TR13SE01.004
    
    d. Section 3.6.3.4.3.1[a]5., of this Appendix,
    [GRAPHIC] [TIFF OMITTED] TR13SE01.005
    
    e. Section 3.6.3.6.5.1, of this Appendix. Throughout this section 
replace DRm with DRm+DM wherever it appears.
    f. Section 3.6.3.7.3[a]9.b., of this Appendix. The formula for float 
income received should replace FERm with FERm+DM

3. For purpose of computing LTVq as defined in section 
          3.6.3.4.3.1[a]2.a., of this Appendix, adjust the quarterly 
          index for the vector of house price growth rates by adding 
          DQ=2 if the loans are delivered in the Stress Test month 6, DQ 
          = 1 if the loans are delivered in Stress Test months 3, 4 or 
          5, and 0 otherwise. That is, in the LTVq formula:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.006
          
Where:
[GRAPHIC] [TIFF OMITTED] TR13SE01.007

4. The note at the end of section 3.6.3.4.3.2[a]5., of this Appendix, 
          should be adjusted to read: for m  120-DM, use 
          MPR120-DM and MDR120-DM.
5. Adjust the final outputs for each commitment subcategory by adding DM 
          to each monthly counter, m. That is, the outputs in Table 3-52 
          and 3-55 should be revised to replace each value's monthly 
          counter of m with the new counter of m + DM, which will modify 
          the description of each to read ``in month m = 1 + DM, ... 
          RM+DM''. (Note that for one variable, PUPBm, the 
          revised counter will range from DM to RM + DM). The revised 
          monthly counters will now correspond to the months of the 
          Stress Test. For values of m under the revised description 
          which are less than or equal to DM, each variable (except 
          Performing UPB) in these two tables should equal zero. For 
          Performing UPB in month DM, the variable will equal the 
          Original UPB for month DM and will equal zero for months less 
          than DM.

                        3.2.4 Commitments Outputs

    [a] The outputs of the Commitment component of the Stress Test 
include Commitment Loan Groups specified in the same way as

[[Page 433]]

loan groups in the RBC Report (See section 3.6, Whole Loan Cash Flows, 
of this Appendix) with two exceptions: mortgage insurance is the only 
available credit enhancement coverage; and delivery month is added to 
indicate the month in which these loan groups are added to the sold 
portfolio. The data for these loan groups allow the Stress Test to 
project the Default, Prepayment and loss rates and cash flows for loans 
purchased under commitments for the ten-year Stress Period.
    [b] The Commitment outputs also include cash flows analagous to 
those specified for Whole Loans in section 3.6.4, Final Whole Loan Cash 
Flow Outputs, of this Appendix, which are produced for each Commitment 
Loan Group.

                           3.3 Interest Rates

                      3.3.1 Interest Rates Overview

    [a] The Interest Rates component of the Stress Test projects 
Constant Maturity Treasury yields as well as other interest rates and 
indexes (collectively, ``Interest Rates'') that are needed to project 
mortgage performance and calculate cash flows for mortgages and other 
financial instruments for each of the 120 months in the Stress Period.
    [b] The process for determining Interest Rates is as follows: first, 
identify the values for the necessary Interest Rates at time zero; 
second, project the ten-year CMT for each month of the Stress Period as 
specified in the 1992 Act; third, project the 1-month Treasury yield, 
the 3-month, 6-month, 1-, 2-, 3-, 5-, 20-year, and 30-year CMTs; fourth, 
project non-treasury Interest Rates, including the Federal Agency Cost 
of Funds Index; and fifth, project the Enterprises Cost of Funds Index, 
which provides borrowing rates for the Enterprises during the Stress 
Period, by increasing the Agency Cost of Funds Index by 10 basis points 
for the last 108 months of the Stress Test. Guidance in determining 
interest rates is available under OFHEO Guideline No. 402, ``Risk Based 
Capital Process for Capturing and Utilizing Interest Rates Files,'' 
which is available on OFHEO's Web site, http://www.OFHEO.Gov.
    [c] In cases where the Stress Test would require interest rates for 
maturities other than those specifically projected in Table 3-18 of 
section 3.1.3, Public Data, of this Appendix, the Interest Rates 
component performs a monthly linear interpolation. In cases where the 
Stress Test would require an Interest Rate for a maturity greater than 
the longest maturity specifically projected for that index, the Stress 
Test would use the longest maturity for that index.

                       3.3.2 Interest Rates Inputs

    The Interest Rates that are input to the Stress Test are set forth 
in Table 3-18 of section 3.1.3, Public Data, of this Appendix. Inputs 
for the 30-year CMT yield after February 15, 2002 are estimated 
according to the Department of Treasury methodology using long-term 
average rates and extrapolation factors.

                     3.3.3 Interest Rates Procedures

    [a] Produce Interest Rates for use in the Stress Test using the 
following three steps:
1. Project the Ten-Year CMT as specified in the 1992 Act:
    a. Down-Rate Scenario. In the Stress Test, the ten-year CMT changes 
from its starting level to its new level in equal increments over the 
first twelve months of the Stress Period, and remains constant at the 
new level for the remaining 108 months of the Stress Period. The new 
level of the ten-year CMT in the last 108 months of the down-rate 
scenario equals the lesser of:

    1) The average of the ten-year CMT for the nine months prior to the 
start of the Stress Test, minus 600 basis points; or
    2) The average yield of the ten-year CMT for the 36 months prior to 
the start of the Stress Test, multiplied by 60 percent;

but in no case less than 50 percent of the average for the nine months 
preceding the start of the Stress Period.
    b. Up-Rate Scenario. In the Stress Test, the ten-year CMT changes 
from its starting level to its new level in equal increments over the 
first twelve months of the Stress Period, and remains at the new level 
for the remaining 108 months of the Stress Period. The new level of the 
ten-year CMT in the last 108 months of the up-rate scenario is the 
greater of:

    1) The average of the ten-year CMT for the nine months prior to the 
start of the Stress Test, plus 600 basis points; or
    2) The average of the ten-year CMT for the 36 months prior to the 
start of the Stress Test, multiplied by 160 percent;

but in no case greater than 175 percent of the average of the ten-year 
CMT for the nine months preceding the start of the Stress Period.
2. Project the 1-month Treasury and other CMT yields:
    a. Down-Rate Scenario. For the down-rate scenario, the new value of 
each of the other Treasury and CMT yields for the last 108 months of the 
Stress Test is calculated by multiplying the ten-year CMT by the 
appropriate ratio from Table 3-26. For the first 12 months of the Stress 
Period, the other rates are computed in the same way as the ten-year 
CMT, i.e. from their time zero levels. Each of the other CMTs changes in 
equal steps in each of the first twelve months of the Stress Period 
until it reaches the new level for the remaining 108 months of the 
Stress Test.

[[Page 434]]



             Table 3-26--CMT Ratios to the Ten-Year CMT \1\
------------------------------------------------------------------------
 
------------------------------------------------------------------------
1 MO / 10 YR                                                     0.68271
------------------------------------------------------------------------
3 MO / 10 YR                                                     0.73700
------------------------------------------------------------------------
6 MO / 10 YR                                                     0.76697
------------------------------------------------------------------------
1 YR / 10 YR                                                     0.79995
------------------------------------------------------------------------
2 YR / 10 YR                                                     0.86591
------------------------------------------------------------------------
3 YR / 10 YR                                                     0.89856
------------------------------------------------------------------------
5 YR / 10 YR                                                     0.94646
------------------------------------------------------------------------
20 YR / 10 YR                                                    1.06246
------------------------------------------------------------------------
30 YR / 10 YR                                                   1.03432
------------------------------------------------------------------------
\1\ Source: calculated over the period from May, 1986, through April,
  1995.

    b. Up-Rate Scenario. In the up-rate scenario, all other Treasury and 
CMT yields are equal to the ten-year CMT in the last 108 months of the 
Stress Test. Each of the other yields changes in equal increments over 
the first twelve months of the Stress Test until it equals the ten-year 
CMT.
3. Project Non-Treasury Interest Rates:
    a. Non-Treasury Rates. For each of the non-Treasury interest rates 
with the exception of mortgage rates, rates during the Stress Test are 
computed as a proportional spread to the nearest maturity Treasury yield 
as given in Table 3-27. The proportional spread is the average over the 
two years prior to the start of the Stress Test, of the difference 
between the non-Treasury rate and the comparable maturity Treasury yield 
divided by that Treasury yield. For example, the three month LIBOR 
proportional spread would be calculated as the two year average of the 
ratio:
[GRAPHIC] [TIFF OMITTED] TR13SE01.008

     During the Stress Test, the 3-month LIBOR rate is projected by 
multiplying the 3-month Treasury yield by 1 plus this average 
proportional spread.
    b. Mortgage Rates. Mortgage interest rates are projected as 
described in this section for other non-Treasury interest rates, except 
that an average of the additive, not proportional, spread to the 
appropriate Treasury interest rate is used. For example, the 30-year 
Conventional Mortgage Rate spread is projected as the average, over the 
two years preceding the start of the Stress Test, of: (Conventional 
Mortgage Rate minus the ten-year CMT). This spread is then added to the 
ten-year CMT for the 120 months of the Stress Test to obtain the 
projected Conventional Mortgage Rate.

                 Table 3-27--Non-Treasury Interest Rates
------------------------------------------------------------------------
             Mortgage Rates                      Spread Based on
------------------------------------------------------------------------
15-year Fixed-rate Mortgage Rate         10-year CMT
------------------------------------------------------------------------
30-year Conventional Mortgage Rate       10-year CMT
------------------------------------------------------------------------
7-year Balloon Mortgage Rate             (computed from Conventional
                                          Mortgage Rate)
------------------------------------------------------------------------
Constant Maturity Mortgage Index         10-year CMT
------------------------------------------------------------------------
                    Other Non-Treasury Interest Rates
------------------------------------------------------------------------
Overnight Fed Funds                      1-month Treasury Yield
------------------------------------------------------------------------
7-day Fed Funds                          1-month Treasury Yield
------------------------------------------------------------------------
1-month LIBOR                            1-month Treasury Yield
------------------------------------------------------------------------
1-month Federal Agency Cost of Funds     1-month Treasury Yield
------------------------------------------------------------------------
1-mo Freddie Mac Reference Bill          1-month Treasury Yield
------------------------------------------------------------------------
3-month LIBOR                            3-month CMT
------------------------------------------------------------------------
3-month Federal Agency Cost of Funds     3-month CMT
------------------------------------------------------------------------
PRIME                                    3-month CMT
------------------------------------------------------------------------

[[Page 435]]

 
6-month LIBOR                            6-month CMT
------------------------------------------------------------------------
6-month Federal Agency Cost of Funds     6-month CMT
------------------------------------------------------------------------
6-month Fed Funds                        6-month CMT
------------------------------------------------------------------------
FHLB 11th District Cost of Funds         1-year CMT
------------------------------------------------------------------------
12-month LIBOR                           1-year CMT
------------------------------------------------------------------------
12-mo Moving Treasury Average            1-year CMT
------------------------------------------------------------------------
Certificate of Deposits Index            1-year CMT
------------------------------------------------------------------------
1-year Federal Agency Cost of Funds      1-year CMT
------------------------------------------------------------------------
2-year Federal Agency Cost of Funds      2-year CMT
------------------------------------------------------------------------
3-year Federal Agency Cost of Funds      3-year CMT
------------------------------------------------------------------------
5-year Federal Agency Cost of Funds      5-year CMT
------------------------------------------------------------------------
10-year Federal Agency Cost of Funds     10-year CMT
------------------------------------------------------------------------
30-year Federal Agency Cost of Funds     30-year CMT
------------------------------------------------------------------------
2-yr Swap                                2-year CMT
------------------------------------------------------------------------
3-yr Swap                                3-year CMT
------------------------------------------------------------------------
5-yr Swap                                5-year CMT
------------------------------------------------------------------------
10-yr Swap                               10-year CMT
------------------------------------------------------------------------
30-yr Swap                               30-year CMT
------------------------------------------------------------------------

    c. Enterprise Borrowing Rates. In the Stress Test, the Federal 
Agency Cost of Funds Index is the same as the Enterprise Cost of Funds 
Index during the Stress Period, except that the Stress Test adds a 10 
basis-point credit spread to the Federal Agency Cost of Funds rates to 
project Enterprise Cost of Funds rates for the last 108 months of the 
Stress Period.

                      3.3.4 Interest Rates Outputs

    Interest Rate outputs are monthly values for: the projected ten 
points on the Treasury yield curve (1-month, 3-month, 6-month, 1-year, 
2-year, 3-year, 5-year, 10-year, 20-year and 30-year); the 21 non-
Treasury rates contained in Table 3-27; and the nine points on the 
Enterprise Cost of Funds curve.

                         3.4 Property Valuation

                    3.4.1 Property Valuation Overview

    [a] The Property Valuation component applies inflation adjustments 
to the single family house price growth rates and multifamily rent 
growth rates that are used to determine single family property values 
and multifamily current debt-service coverage ratios during the up-rate 
scenario, as required by the 1992 Act.
    [b] Single family house price growth rates during the 120 months of 
the Stress Test are calculated from the HPI series for the West South 
Central Census Division for the years 1984-1993, as derived from OFHEO's 
Third Quarter, 1996 HPI Report. The West South Central Census Division 
includes Texas and all of the Benchmark states except Mississippi. This 
series is applied to single family loans nationwide during the Stress 
Test because the 1992 Act applies a regional loss experience (the BLE) 
to the entire nation. In contrast, house prices are brought forward to 
the start of the Stress Test based on local Census Division HPI values 
available at the start of the Stress Test.
    [c] Multifamily rent growth rates during the 120 months of the 
Stress Test are computed using a population-weighted average of the 
monthly growth of the Rent of Primary

[[Page 436]]

Residence component of the Consumer Price Index-Urban, which is 
generated by the U.S. Department of Labor Bureau of Labor Statistics. 
The metropolitan areas used for this computation are the Dallas/Ft. 
Worth CMSA, the Houston/Galveston/Brazoria CMSA, and the New Orleans 
MSA.
    [d] Multifamily rental vacancy rates during the 120 months of the 
Stress Test are computed using a population-weighted average of annual 
rental vacancy rates from the U.S. Department of Commerce, Bureau of the 
Census' Housing Vacancy Survey. The metropolitan areas used for this 
computation are the Dallas, Houston and Fort Worth PMSAs and the San 
Antonio, New Orleans and Oklahoma City MSAs.
    [e] Inflation adjustment. In the up-rate scenario, if the ten-year 
CMT rises more than 50 percent above the average yield during the nine 
months preceding the Stress Period, rent and house price growth rates 
are adjusted to account for inflation as required by the 1992 Act. The 
single family House Price Growth Rates and the multifamily Rent Growth 
Rates are increased by the amount by which the ten-year CMT exceeds 50 
percent of its annualized monthly yield averaged over the nine months 
preceding the Stress Test. The inflation adjustment is applied only in 
the last 60 months of the Stress Period.

                     3.4.2 Property Valuation Inputs

    The inputs required for the Property Valuation component are set 
forth in Table 3-28.

                                      Table 3-28--Property Valuation Inputs
----------------------------------------------------------------------------------------------------------------
      Variable                             Description                                     Source
----------------------------------------------------------------------------------------------------------------
CMT10m                10-year CMT yield for months m = 1...120 of the       section 3.3, Interest Rates
                       Stress Test
----------------------------------------------------------------------------------------------------------------
ACMTo                 Unweighted nine-month average of the ten-year CMT     section 3.3, Interest Rates
                       yield for the nine months immediately preceding the
                       Stress Test. (Monthly rates are unweighted monthly
                       averages of daily rates, bond equivalent yield)
----------------------------------------------------------------------------------------------------------------
HHPGRqHSP             Quarterly single family historical house price        Table 3-19 of section 3.1.3, Public
                       growth rates computed from the HPI series for the     Data
                       Benchmark region and time period, unadjusted for
                       inflation. The specific series is the West South
                       Central Census Division for the years l984-1993, as
                       reported in OFHEO's Third Quarter, 1996 HPI Report
----------------------------------------------------------------------------------------------------------------
RGmHSP                Multifamily Rent Growth Rates for months m = 1...120  Table 3-20 of section 3.1.3, Public
                       of the Benchmark region and time period, unadjusted   Data
                       for inflation
----------------------------------------------------------------------------------------------------------------
RVRmHSP               Multifamily Rental Vacancy Rates for months m =       Table 3-20 of section 3.1.3, Public
                       1...120 of the Benchmark region and time period       Data
----------------------------------------------------------------------------------------------------------------

      3.4.3 Property Valuation Procedures for Inflation Adjustment

    [a] Calculate inflation-adjusted House Price Growth Rates and Rent 
Growth Rates using the following six steps:
1. Calculate the Inflation-Adjustment (IA) for the up-rate stress test, 
          as follows:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.009
          
Where:

CMT10\MAX\ is the value of the ten-year CMT during the last 108 months 
          of the up-rate Stress Test.

2. The Inflation Adjustment (IA) is compounded annually over 9 years and 
          2 months (110 months) to obtain the Cumulative Inflation 
          Adjustment (CIA) according to the following equation:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.010
          
3. For single family house prices, convert the CIA to continuously 
          compounded quarterly factors, the Quarterly House Price Growth 
          Adjustments (QHGAq), which take on positive values 
          only in the last twenty quarters of the Stress Test, using:

[[Page 437]]

[GRAPHIC] [TIFF OMITTED] TR13SE01.011

4. For Multifamily rent growth, the CIA is converted to discrete monthly 
          factors or Monthly Rent Growth Adjustments (MRGAm), 
          and is applied only in the last 60 months of the Stress Test 
          in the up-rate scenario, as follows:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.012
          
5. Calculate the inflation-adjusted House Price Growth Rates 
          (HPGRq), used in updating single family house 
          prices during the Stress Test:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.013
          
6. Calculate inflation-adjusted Rent Growth Rates (RGRm), 
          used in updating Multifamily debt-service coverage ratios 
          during the Stress Test:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.014
          
                    3.4.4 Property Valuation Outputs

    [a] The outputs of the Property Valuation component of the Stress 
Test are set forth in Table 3-29.

                 Table 3-29--Property Valuation Outputs
------------------------------------------------------------------------
            Variable                           Description
------------------------------------------------------------------------
HPGRq                            House price growth rates for quarters
                                  1...40 of the Stress Test, adjusted
                                  for inflation, if applicable.
------------------------------------------------------------------------
RGRm                             Multifamily Rent Growth Rates for
                                  months m = 1...120 of the Stress Test,
                                  adjusted for inflation, if applicable.
------------------------------------------------------------------------
RVRm                             Multifamily Rental Vacancy Rates for
                                  months m = 1...120 of the Stress Test.
------------------------------------------------------------------------

    [b] Inflation-adjusted House Price Growth Rates (HPGRq) 
are inputs to the Single Family Default and Prepayment component of the 
Stress Test (see section 3.6.3.4, of this Appendix). Inflation-adjusted 
Rent Growth Rates (RGRm) and Rental Vacancy Rates 
(RVRm) are inputs to the Multifamily Default and Prepayment 
component (see section 3.6.3.5, of this Appendix).

                        3.5 Counterparty Defaults

                  3.5.1 Counterparty Defaults Overview

    The Counterparty Defaults component of the Stress Test accounts for 
the risk of default by credit enhancement and derivative contract 
counterparties, corporate securities, municipal securities, and 
mortgage-related securities. The Stress Test recognizes five rating 
categories (``AAA'', ``AA'', ``A'', ``BBB'', and ``Below BBB and 
Unrated'') and establishes appropriate credit loss factors that are 
applied during the Stress Period. Securities rated below BBB are treated 
as unrated securities, unless OFHEO determines to specify a different 
treatment upon a showing by an Enterprise that a different treatment is 
warranted.

                    3.5.2 Counterparty Defaults Input

    For counterparties and securities, information on counterparty type 
and the lowest public rating of the counterparty is required. The Stress 
Test uses credit ratings issued by Nationally Recognized Statistical 
Rating Organizations (``NRSROs'') to assign rating categories to 
counterparties and securities. If a counterparty or security has 
different ratings from different rating agencies, i.e., a ``split 
rating,'' or has a long-term rating and a short-term rating, then the 
lower rating is used.

                 3.5.3 Counterparty Defaults Procedures

    [a] Apply the following three steps to determine maximum haircuts:
1. Identifying Counterparties. The Stress Test divides all sources of 
          credit risk other than mortgage default into two categories--
          (1) derivative contract counterparties and (2) non-derivative

[[Page 438]]

          contract counterparties and instruments. Non-derivative 
          contract counterparties and instruments include mortgage 
          insurance (MI) counterparties, seller-servicers, mortgage-
          related securities such as mortgage revenue bonds (MRBs) and 
          private label REMICS, and nonmortgage investments such as 
          corporate and municipal bonds and asset-backed securities 
          (ABSs).
2. Classify Rating Categories.
    a. Stress Test rating categories are defined as set forth in Table 
3-30. Organizations frequently apply modifiers (numerical, plus, minus) 
to the generic rating classifications. In order to determine the correct 
mapping, ignore these modifiers except as noted in Table 3-30.

                        Table 3-30--Rating Agencies Mappings to OFHEO Ratings Categories
----------------------------------------------------------------------------------------------------------------
    OFHEO Ratings                                                                               Below BBB and
      Category               AAA               AA                 A               BBB              Unrated
----------------------------------------------------------------------------------------------------------------
Standard & Poor's     AAA               AA                A                 BBB              Below BBB and
 Long-Term                                                                                    Unrated
----------------------------------------------------------------------------------------------------------------
Fitch Long-Term       AAA               AA                A                 BBB              Below BBB and
                                                                                              Unrated
----------------------------------------------------------------------------------------------------------------
Moody's Long-Term     Aaa               Aa                A                 Baa              Below Baa and
                                                                                              Unrated
----------------------------------------------------------------------------------------------------------------
Standard & Poor's     A-1+              A-1               A-2               A-3              SP-3, B or Below
 Short-Term           SP-1+             SP-1              SP-2                                and Unrated
----------------------------------------------------------------------------------------------------------------
Fitch Short-Term      F-1+              F-1               F-2               F-3              B and Below and
                                                                                              Unrated
----------------------------------------------------------------------------------------------------------------
Moody's \1\           Prime-1           Prime-1           Prime-2           Prime-3          Not Prime, SG and
                      MIG1              MIG1              MIG2              MIG3              Unrated
                      VMIG1             VMIG1             VMIG2             VMIG3
----------------------------------------------------------------------------------------------------------------
Fitch Bank            A                 B                 C                 D                E
 Individual Ratings                     A/B               B/C               C/D              D/E
----------------------------------------------------------------------------------------------------------------
Moody's Bank          A                 B                 C                 D                E
 Financial Strength
 Rating
----------------------------------------------------------------------------------------------------------------
\1\ Any rating that appears in more than one OFHEO category column is assigned the lower OFHEO rating category.

    b. The Stress Test also includes a ratings classification called 
cash. This includes cash equivalents as defined in FAS 95, Government 
securities, and securities of the reporting Enterprise.
    c. Unrated, unsubordinated obligations issued by Government 
Sponsored Enterprises other than the reporting Enterprise are treated as 
AAA. Unrated seller-servicers are treated as BBB.
    d. The Stress Test will permit a higher rating to be used for an 
unrated seller-servicer who participates in a multifamily delegated 
underwriting and servicing program that requires a loss-sharing 
agreement when: (1) The loss sharing agreement is collateralized by a 
fully funded reserve account pledged to the Enterprise; and (2) the 
reserve account is in an amount that is equal to or exceeds the amount 
that OFHEO has determined to be adequate to support the seller-
servicer's loss-sharing obligation under the program. Determinations of 
the reserve requirement and of the rating that will be permitted will be 
made on a program-by-program and Enterprise-by-Enterprise basis by the 
Director.
3. Determine Maximum Haircuts. The Stress Test specifies the Maximum 
          Haircut (i.e., the maximum reduction applied to cash flows 
          during the Stress Test to reflect the risk of loss due to 
          counterparty (including security) default) by rating category 
          and counterparty type as shown in Table 3-31.
    a. The Maximum Haircut for a rating category is the product of its 
default rate and its loss severity rate. For all counterparties, the 
default rates are 5 percent for AAA, 12.5 percent for AA, 20 percent for 
A, 40 percent for BBB and 100 percent for Below BBB and Unrated. For 
non-derivative counterparties, the loss severity rate is 70 percent; for 
derivative counterparties, it is 10 percent. For all Below BBB and 
Unrated counterparties, the loss severity rate is 100 percent.
    b. For periods prior to the implementation of netting, a separate 
set of Maximum Haircuts (set forth in Table 3-31) will be applied to 
derivative contract cash flows

[[Page 439]]

to approximate the impact of the net exposures to derivative contract 
counterparties (see section 3.8.3, Nonmortgage Instrument Procedures). 
After the implementation of netting, exposures will be netted as 
described in section 3.8.3 before the haircut is applied.
    c. With the exception of haircuts for the Below BBB and Unrated 
category, haircuts for all counterparty categories are phased-in 
linearly over the 120 months of the Stress Period. The Maximum Haircut 
is applied in month 120 of the Stress Period. Haircuts for the Below BBB 
and Unrated category are applied fully starting in the first month of 
the Stress Test.

    Table 3-31--Stress Test Maximum Haircut by Ratings Classification
------------------------------------------------------------------------
                  Derivative      Derivative
                   Contract        Contract     Non-Derivative   Number
    Ratings     Counterparties  Counterparties     Contract     of Phase-
Classification     prior to          after      Counterparties     in
                Implementation  Implementation  or Instruments   Months
                  of Netting      of Netting
------------------------------------------------------------------------
Cash            0%              0%              0%              N/A
------------------------------------------------------------------------
AAA             0.3%            0.5%            3.5%            120
------------------------------------------------------------------------
AA              0.75%           1.25%           8.75%           120
------------------------------------------------------------------------
A               1.2%            2%              14%             120
------------------------------------------------------------------------
BBB             2.4%            4%              28%             120
------------------------------------------------------------------------
Below BBB and   100%            100%            100%            1
 Unrated
------------------------------------------------------------------------

                   3.5.4 Counterparty Defaults Outputs

    The Maximum Haircut for a given Counterparty Type and Rating 
Classification is used in section 3.6, Whole Loan Cash Flows, section 
3.7, Mortgage-Related Securities Cash Flows, and section 3.8, 
Nonmortgage Instrument Cash Flows, of this Appendix.

                        3.6 Whole Loan Cash Flows

                  3.6.1 Whole Loan Cash Flows Overview

    [a] Loan Aggregation. In the Stress Test calculations (except as 
described in section 3.6.3.6.4, Mortgage Credit Enhancement, of this 
Appendix), individual loans having similar characteristics are 
aggregated into Loan Groups as described in section 3.1.2.1, Whole Loan 
Inputs, of this Appendix (RBC Report). All individual loans within a 
Loan Group are considered to be identical for computational purposes. In 
the discussions in this section, quantities described as ``loan level'' 
will actually be computed at the Loan Group level.
    [b] Loan Participations. In some cases, an Enterprise may hold only 
a pari passu fractional ownership interest in a loan. This interest is 
referred to as a participation, and is specified by the ownership 
percentage held by the Enterprise (the participation percentage). In 
such cases, the Unpaid Principal Balance (UPB) and Mortgage Payment 
reported in the RBC Report will be only the Enterprise's participation 
percentage of the loan's actual UPB and Mortgage Payment. The actual UPB 
is not explicitly used in the calculations described in this section 3.6 
but it is used in the creation of the RBC Report.
    [c] Retained Loans vs. Sold Loans. The Stress Test models cash flows 
from single family and multifamily mortgage loans that are held in 
portfolio (Retained Loans) and loans that are pooled into Mortgage-
Backed Securities (MBSs) that are sold to investors and guaranteed by 
the Enterprises (Sold Loans). Together, Retained Loans and Sold Loans 
are referred to as ``Whole Loans.'' The treatment of cash flows for 
loans not guaranteed by the Enterprises, e.g., loans backing GNMA 
Certificates and private label MBSs and REMICs, is discussed in section 
3.7, Mortgage-Related Securities Cash Flows, of this Appendix.
    [d] Repurchased MBSs. From time to time an Enterprise may repurchase 
all or part of one of its own previously issued single-class MBSs for 
its own securities portfolio. At an Enterprise's option, these 
``Repurchased MBSs'' may be reported with the underlying Whole Loans for 
computation in this section 3.6 rather than in section 3.7, Mortgage-
Related Securities Cash Flows, of this Appendix. In such cases, the 
Enterprise will report the underlying Whole Loans as sold loans, along 
with the appropriate Fraction Repurchased and any security unamortized 
balances associated with the purchase of the MBS (not with the original 
sale of the underlying loans, which unamortized balances are reported 
separately).

[[Page 440]]

    [e] Sources of Enterprise Whole Loan Cash Flows. For Retained Loans, 
the Enterprises receive all principal and interest payments on the 
loans, except for a portion of the interest payment retained by the 
servicer as compensation (the Servicing Fee). For Sold Loans, the 
Enterprises receive Guarantee Fees and Float Income. Float Income is the 
earnings on the investment of loan principal and interest payments (net 
of the Servicing Fee and Guarantee Fee) from the time these payments are 
received from the servicer until they are remitted to security holders. 
The length of this period depends on the security payment cycle (the 
remittance cycle). For both retained and sold loans, the Enterprises 
retain 100 percent of their credit losses and experience amortization of 
discounts as income and amortization of premiums as expense. For 
Repurchased MBSs, the Enterprise receives the Fraction Repurchased of 
the cash flows it remits to investors, and retains 100 percent of the 
Credit Losses and the Guarantee Fee. See section 3.6.3.7, Stress Test 
Whole Loan Cash Flows and section 3.6.3.8, Whole Loan Accounting Flows, 
of this Appendix.
    [f] Required Inputs. The calculation of Whole Loan cash flows 
requires mortgage Amortization Schedules, mortgage Prepayment, Default 
and Loss Severity rates, and Credit Enhancement information. The four 
mortgage performance components of the Stress Test are single family 
Default and Prepayment, single family Loss Severity, multifamily Default 
and Prepayment, and multifamily Loss Severity. Mortgage Amortization 
Schedules are computed from input data in the RBC Report. (For ARMs, 
selected interest rate indexes from section 3.3, Interest Rates, of this 
Appendix, are also used.) Prepayment and Default Rates are computed by 
combining explanatory variables and weighting coefficients according to 
a set of logistic equations. The explanatory variables are computed from 
the mortgage Amortization Schedule and external economic variables such 
as Interest Rates (section 3.3, Interest Rates, of this Appendix), 
historical house-price indexes (HPIs) or rental-price indexes (RPIs), 
and Stress Period HPI growth rate, RPI and Vacancy Rate (RVR) series 
from section 3.4, Property Valuation, of this Appendix. The weighting 
coefficients determine the relative importance of the different 
explanatory variables, and are estimated from a statistical analysis of 
data from the Benchmark Loss region and time period as described in 
section 1, Identification of the Benchmark Loss Experience, of this 
Appendix. Mortgage Amortization information is also combined with HPI, 
RPI and VR series to determine Gross Loss Severity rates, which are 
offset by Credit Enhancements. Finally, the Amortization Schedules, 
Default and Prepayment rates and Net Loss Severity rates are combined to 
produce Stress Test Whole Loan Cash Flows to the Enterprises for each 
Loan Group, as well as amortization of any discounts, premiums and fees.
    [g] Specification of Mortgage Prepayment. Mortgages are assumed to 
prepay in full. The model makes no specific provision for partial 
Prepayments of principal (curtailments).
    [h] Specification of Mortgage Default and Loss. Mortgage Defaults 
are modeled as follows: Defaulting loans enter foreclosure after a 
number of missed payments (MQ, Months in Delinquency), and are 
foreclosed upon several months later. Months in Foreclosure (MF) is the 
total number of missed payments through foreclosure. Upon completion of 
foreclosure, the loan as such ceases to exist and the property becomes 
Real Estate Owned by the lender (REO). Foreclosure expenses are paid and 
MI proceeds received when foreclosure is completed. After several more 
months (MR, Months in REO), the property is sold, REO expenses are paid, 
and sales proceeds and other credit enhancements are received. These 
timing differences are not modeled explicitly in the cash flows, but 
their economic effect is taken into account by calculating the present 
value of the Default-related cash flows back to the initial month of 
Default.
    [i] Combining Cash Flows from Scheduled Payments, Prepayments and 
Defaults. Aggregate Whole Loan Cash Flows, adjusted for the effects of 
mortgage performance, are based on the following conceptual equation, 
which is made more explicit in the calculations in the sections 
specified in section 3.6.2 of this Appendix:

[[Page 441]]

[GRAPHIC] [TIFF OMITTED] TR13SE01.015

                   3.6.2 Whole Loan Cash Flows Inputs

    Inputs for each stage of the Whole Loan Cash Flows calculation are 
found in the following sections:

 Section 3.6.3.3.2, Mortgage Amortization Schedule 
Inputs
 Section 3.6.3.4.2, Single Family Default and 
Prepayment Inputs
 Section 3.6.3.5.2, Multifamily Default and Prepayment 
Inputs
 Section 3.6.3.6.2.2, Single Family Gross Loss 
Severity Inputs
 Section 3.6.3.6.3.2, Multifamily Gross Loss Severity 
Inputs
 Section 3.6.3.6.4.2, Mortgage Credit Enhancement 
Inputs
 Section 3.6.3.7.2, Stress Test Whole Loan Cash Flow 
Inputs
 Section 3.6.3.8.2, Whole Loan Accounting Flows 
Inputs, of this Appendix

                 3.6.3 Whole Loan Cash Flows Procedures

                       3.6.3.1 Timing Conventions

    [a] Calculations are monthly. The Stress Test operates monthly, with 
all events of a given type assumed to take place on the same day of the 
month. For mortgages, unless otherwise specified, all payments and other 
mortgage-related cash flows that are due on the first day of the month 
are received on the fifteenth. Biweekly loans are mapped into their 
closest term-equivalent monthly counterpart.
    [b] ``Time Zero'' for Calculations. Time Zero refers to the 
beginning of the Stress Test. For example, if the 2Q2000 Stress Test 
uses Enterprise Data as of June 30, ``month zero'' represents conditions 
as of June 30, the Stress Period begins July 1, and July 2000 is month 
one of the Stress Test. In this document, UPB0 is the Unpaid 
Principal Balance of a loan immediately prior to (as of) the start of 
the Stress Test, i.e. as reported by the Enterprise in the RBC Report. 
Origination refers to the beginning of the life of the loan, which will 
be prior to the start of the Stress Test for all loans except those 
delivered later under Commitments, for which Origination refers to the 
delivery month (See section 3.2, Commitments, of this Appendix).
    [c] Definition of Mortgage Age. The Mortgage Age at a given time is 
the number of scheduled mortgage payment dates that have occurred prior 
to that time, whether or not the borrower has actually made the 
payments. Prior to the first payment date, the Mortgage Age would be 
zero. From the first payment date until (but not including) the second 
loan payment date, the Mortgage Age would be one. The Mortgage Age at 
Time Zero (A0) is thus the number of scheduled loan payment 
dates that have occurred prior to the start of the Stress Test. The 
scheduled payment date for all loans is assumed to be the first day of 
each month; therefore, the Mortgage Age will be A1 on the 
first day of the Stress Test (except for Commitments that are delivered 
after the start of the Stress Test).
    [d] Interest Rate Setting Procedure. Mortgage interest is due in 
arrears, i.e., on the first day following the month in which it is 
accrued. Thus, a payment due on the first day of month m is for interest 
accrued during the prior month. For example, for Adjustable Rate 
Mortgages (ARMs) the Mortgage Interest Rate (MIRm) applicable 
to the July reset is set on the first day of June, and is generally 
based on the May or April value of the underlying Index, as specified in 
the loan terms. This Lookback Period (LB) is specified in the Stress 
Test as a period of one or two months, respectively. Thus, 
PMTm will be based on MIRm, which is based on 
INDEXm-1-LB.
    [e] Prepayment Interest Shortfall. In some remittance cycles, the 
period between an Enterprise's receipt of Prepayments and transmittal to 
investors exceeds a full month. In those cases, the Enterprise must 
remit an additional month's interest (at the Pass-Through Rate) to MBS 
investors. See section 3.6.3.7.3, Stress Test Whole Loan Cash Flow 
Procedures, of this Appendix.

[[Page 442]]

    [f] Certain Calculations Extend Beyond the End of the Stress Test. 
Even though the Stress Test calculates capital only through the ten year 
Stress Period, certain calculations (for example, the level yield 
amortization of discounts, premiums and fees, as described in section 
3.10, Operations, Taxes, and Accounting, of this Appendix) require cash 
flows throughout the life of the instrument. For such calculations in 
the Stress Test, the conditions of month 120 are held constant 
throughout the remaining life of the instrument: specifically, Interest 
Rates (which are already held constant for months 13 through 120), 
Prepayment and Default rates for months m  120 are taken to 
be equal to their respective values in month 120.

                 3.6.3.2 Payment Allocation Conventions

                3.6.3.2.1 Allocation of Mortgage Interest

    [a] Components of Mortgage Interest. The interest portion of the 
Mortgage Payment is allocated among several components. For all Whole 
Loans, a Servicing Fee is retained by the servicer. For Sold Loans, the 
Enterprise retains a Guarantee Fee. An additional amount of interest 
(Spread) \1\ may be deposited into a Spread Account to reimburse 
potential future credit losses on loans covered by this form of Credit 
Enhancement, as described further in section 3.6.3.6.4, Mortgage Credit 
Enhancement, of this Appendix. The remaining interest amount is either 
retained by the Enterprise (Net Yield on Retained Loans) or passed 
through to MBS investors (Pass-Through Interest on Sold Loans).
---------------------------------------------------------------------------

    \1\ The spread may or may not be embedded in the recorded Servicing 
Fee.
---------------------------------------------------------------------------

    [b] Effect of Negative Amortization. If the Mortgage Payment is 
contractually limited to an amount less than the full amount accrued (as 
may be the case with loans that permit Negative Amortization), then the 
Servicing Fee, the Guarantee Fee and the spread are paid in full, and 
the shortfall is borne entirely by the recipient of the Net Yield or 
Pass-Through Interest.
    [c] Effect of Variable Rates. For ARMs, the Servicing Fee, Guarantee 
Fee and Spread rates are taken to be constant over time, as they are for 
Fixed Rate Loans. Thus in the Stress Test the Mortgage Interest Rate and 
the Net Yield or Pass-through Rate will change simultaneously by equal 
amounts. All other details of the rate and payment reset mechanisms are 
modeled in accordance with the contractual terms using the inputs 
specified in section 3.6.3.3.2, Mortgage Amortization Schedule Inputs, 
of this Appendix.

               3.6.3.2.2 Allocation of Mortgage Principal

    [a] Scheduled Principal is that amount of the mortgage payment that 
amortizes principal. For calculational purposes, when a loan prepays in 
full the amount specified in the Amortization Schedule is counted as 
Scheduled Principal, and the rest is Prepayment Principal. For a Balloon 
Loan, the final Balloon Payment includes the remaining UPB, all of which 
is counted as Scheduled Principal.
    [b] Mortgages that prepay are assumed to prepay in full. Partial 
Prepayments (curtailments) are not modeled.
    [c] Any loan that does not prepay or Default remains on its original 
Amortization Schedule.

                 3.6.3.3 Mortgage Amortization Schedule

            3.6.3.3.1 Mortgage Amortization Schedule Overview

    [a] The Stress Test requires an Amortization Schedule for each Loan 
Group. A mortgage is paid down, or amortized over time, to the extent 
that the contractual mortgage payment exceeds the amount required to 
cover interest due.
    [b] Definitions.
1. Fully Amortizing Loans. The Amortization Schedule for a mortgage with 
          age A0 at the beginning of the Stress Test is 
          generated using the starting UPB (UPB0), the 
          Remaining Term to Maturity (RM), the remaining Amortization 
          Term (AT-A0), the remaining Mortgage Payments 
          (PMTm for m = 1...RM) and Mortgage Interest Rates 
          (MIRm for m = 1...RM). The Amortization Schedule is 
          generated by repeating the following three steps iteratively 
          until the UPB is zero:

    a. Interest Due =
     UPB x Mortgage Interest Rate
    b. Principal Amortization = Payment-Interest Due
    c. Next period's UPB =
     UPB-Principal Amortization

    2. Balloon Loans. A Balloon Loan matures prior to its Amortizing 
Term, i.e. before the UPB is fully amortized to zero. Computationally, 
AT-A0  RM, usually by at least 180 months. In 
order that UPBRM = 0, the principal component of the 
resulting lump sum final payment (the Balloon Payment, equal to 
UPBRM-1) is counted as Scheduled Principal, not as a 
Prepayment.
    [c] Special Cases. In general the UPB of a mortgage decreases 
monotonically over time, i.e. UPBm  
UPBm+1, reaching zero at maturity except for Balloon Loans as 
described in [b]2. in this section. However, in practice certain 
exceptions must be handled.
1. Interest-Only Loans. Certain loans are interest-only for all or part 
          of their term. The monthly payment covers only the interest 
          due, and the UPB stays constant until maturity (in some 
          cases), in which case a Balloon Payment is due or a changeover 
          date (in other cases) at which

[[Page 443]]

          time the payment is recast so that the loan begins to amortize 
          over its remaining term. If the loan does not amortize fully 
          over its remaining term, a Balloon Payment will be due at 
          maturity.
2. Negative Amortization. For some loans, the UPB may increase for a 
          period of time if the mortgage payment is contractually 
          limited to an amount that is less than the amount of interest 
          due, and the remainder is added to the UPB. At some point, 
          however, the payment must exceed the interest due or else the 
          loan balance will never be reduced to zero. In the 
          calculation, this is permitted to occur only for payment-
          capped ARMs that contractually specify negative amortization. 
          Certain types of FRMs, notably Graduated Payment Mortgages 
          (GPMs) and Tiered Payment Mortgages (TPMs), also have variable 
          payment schedules that result in negative amortization, but in 
          the Stress Test all such loans are assumed to have passed 
          their negative amortization periods.
3. Early Amortization.
    a. If a borrower has made additional principal payments 
(curtailments or partial prepayments) on a FRM prior to the start of the 
Stress Test, the contractual mortgage payment will amortize the loan 
prior to its final maturity, i.e. UPBm = 0 for some m < RM. 
This is an acceptable outcome in the Stress Test. Note: for ARMs, the 
mortgage payment is recalculated, and thus the amortization schedule is 
recast to end exactly at m = RM, on each rate or payment reset date.
    b. When this calculation is performed for a fully amortizing FRM 
using weighted average values to represent a Loan Group, the final 
scheduled payment may exceed the amount required to reduce the UPB to 
zero, or the UPB may reach zero prior to month RM. This is because the 
mortgage payment calculation is nonlinear, and as a result the average 
mortgage payment is not mathematically guaranteed to amortize the 
average UPB using the average MIR. This is an acceptable outcome in the 
Stress Test.
4. Late Amortization. According to its contractual terms, the UPB of a 
          mortgage loan must reach zero at its scheduled maturity. The 
          borrower receives a disclosure schedule that explicitly sets 
          forth such an Amortization Schedule. If the characteristics of 
          a mortgage loan representing a Loan Group in the RBC Report do 
          not result in UPBRM = 0, it must be for one of 
          three reasons: a data error, an averaging artifact, or an 
          extension of the Amortization Schedule related to a 
          delinquency prior to the start of the Stress Test. In any such 
          case, the Stress Test does not recognize cash flows beyond the 
          scheduled maturity date and models the performing portion of 
          UPBRM in month RM as a credit loss.
5. Biweekly Loans. Biweekly loans are mapped into the FRM category that 
          most closely approximates their final maturity.
6. Step-Rate (or ``Two-Step'') Loans. Certain loans have an initial 
          interest rate for an extended period of time (typically 
          several years) and then ``step'' to a final fixed rate for the 
          remaining life of the loan. This final fixed rate may be 
          either a predetermined number or a margin over an index. Such 
          loans can be exactly represented as ARMs with the appropriate 
          Initial Mortgage Interest Rate and Initial Rate Period, Index 
          and Margin (if applicable). If the final rate is a 
          predetermined rate (e.g., 8 percent per annum) then the ARM's 
          Maximum and Minimum Rate should be set to that number. The 
          Rate and Payment Reset Periods should be set equal to the 
          final rate period after the step.
7. Reverse Mortgages. In a reverse mortgage, a borrower receives one or 
          more payments from the lender and the lender is repaid with a 
          lump sum when the borrower dies, sells the property or moves 
          out of the home permanently. The stress test models reverse 
          mortgages as a ladder of zero-coupon securities:
a. 11 proxy securities for each reverse mortgage program are created.
b. A 10% conditional payment rate is used to create the zero-coupon 
          securities that will mature in every year of the stress test. 
          The zero-coupon securities are a laddered series of floating-
          rate coupon-bearing accreting bonds with a first payment date 
          at maturity.
c. The 11th zero-coupon security will mature three months after the 
          stress test to reflect the 35% of UPB not paid down during the 
          stress period.
d. An OFHEO credit rating equivalent to AAA for the FHA insured programs 
          and AA for other reverse mortgage programs is assigned.
8. Split-Rate ARM Loans. In split-rate ARM loans, the principal portion 
          of the payment is based on a fixed-rate amortization schedule 
          while the interest portion is based on a floating rate index. 
          These multifamily loans are available as fully amortizing 
          product or with a balloon feature. The stress test model does 
          not provide treatment for split-rate ARM loans. Split-rate 
          loans shall be treated as ARMs when they are issued without a 
          balloon payment feature or as Balloon ARMs when the loans 
          contain a balloon payment feature.

[[Page 444]]

             3.6.3.3.2 Mortgage Amortization Schedule Inputs

    The inputs needed to calculate the amortization schedule are set 
forth in Table 3-32:

                       Table 3-32--Loan Group Inputs for Mortgage Amortization Calculation
----------------------------------------------------------------------------------------------------------------
              Variable*                                Description                              Source
----------------------------------------------------------------------------------------------------------------
                                      Rate Type (Fixed or Adjustable)                RBC Report
----------------------------------------------------------------------------------------------------------------
                                      Product Type (30/20/15-Year FRM, ARM,          RBC Report
                                       Balloon, Government, etc.)
----------------------------------------------------------------------------------------------------------------
UPBORIG                               Unpaid Principal Balance at Origination        RBC Report
                                       (aggregate for Loan Group)
----------------------------------------------------------------------------------------------------------------
UPB0                                  Unpaid Principal Balance at start of Stress    RBC Report
                                       Test (aggregate for Loan Group)
----------------------------------------------------------------------------------------------------------------
MIR0                                  Mortgage Interest Rate for the Mortgage        RBC Report
                                       Payment prior to the start of the Stress
                                       Test, or Initial Mortgage Interest Rate for
                                       new loans (weighted average for Loan Group)
                                       (expressed as a decimal per annum)
----------------------------------------------------------------------------------------------------------------
PMT0                                  Amount of the Mortgage Payment (Principal and  RBC Report
                                       Interest) prior to the start of the Stress
                                       Test, or first payment for new loans
                                       (aggregate for Loan Group)
----------------------------------------------------------------------------------------------------------------
AT                                    Original loan Amortizing Term in months        RBC Report
                                       (weighted average for Loan Group)
----------------------------------------------------------------------------------------------------------------
RM                                    Remaining term to Maturity in months (i.e.,    RBC Report
                                       number of contractual payments due between
                                       the start of the Stress Test and the
                                       contractual maturity date of the loan)
                                       (weighted average for Loan Group)
----------------------------------------------------------------------------------------------------------------
A0                                    Age immediately prior to the start of the      RBC Report
                                       Stress Test, in months (weighted average for
                                       Loan Group)
----------------------------------------------------------------------------------------------------------------
                                      Interest-only Flag                             RBC Report
----------------------------------------------------------------------------------------------------------------
RIOP                                  Remaining Interest-only period, in months      RBC Report
                                       (weighted average for loan group)
----------------------------------------------------------------------------------------------------------------
                                         Additional Interest Rate Inputs
----------------------------------------------------------------------------------------------------------------
GFR                                   Guarantee Fee Rate (weighted average for Loan  RBC Report
                                       Group) (decimal per annum)
----------------------------------------------------------------------------------------------------------------
SFR                                   Servicing Fee Rate (weighted average for Loan  RBC Report
                                       Group) (decimal per annum)
----------------------------------------------------------------------------------------------------------------
                 Additional Inputs for ARMs (weighted averages for Loan Group, except for Index)
----------------------------------------------------------------------------------------------------------------
INDEXm                                Monthly values of the contractual Interest     section 3.3, Interest Rates
                                       Rate Index
----------------------------------------------------------------------------------------------------------------
LB                                    Look-Back period, in months                    RBC Report
----------------------------------------------------------------------------------------------------------------
MARGIN                                Loan Margin (over index), decimal per annum    RBC Report
----------------------------------------------------------------------------------------------------------------
RRP                                   Rate Reset Period, in months                   RBC Report
----------------------------------------------------------------------------------------------------------------
                                      Rate Reset Limit (up and down), decimal per    RBC Report
                                       annum
----------------------------------------------------------------------------------------------------------------

[[Page 445]]

 
                                      Maximum Rate (life cap), decimal per annum     RBC Report
----------------------------------------------------------------------------------------------------------------
                                      Minimum Rate (life floor), decimal per annum   RBC Report
----------------------------------------------------------------------------------------------------------------
NAC                                   Negative Amortization Cap, decimal fraction    RBC Report
                                       of UPBORIG
----------------------------------------------------------------------------------------------------------------
                                      Unlimited Payment Reset Period, in months      RBC Report
----------------------------------------------------------------------------------------------------------------
PRP                                   Payment Reset Period, in months                RBC Report
----------------------------------------------------------------------------------------------------------------
                                      Payment Reset Limit, as decimal fraction of    RBC Report
                                       prior payment
----------------------------------------------------------------------------------------------------------------
IRP                                   Initial Rate Period, in months                 RBC Report
----------------------------------------------------------------------------------------------------------------
* Variable name is given when used in an equation

           3.6.3.3.3 Mortgage Amortization Schedule Procedures

    [a] For each Loan Group, calculate a mortgage Amortization Schedule 
using the inputs in Table 3-32 and the following ten steps. Note: Do not 
round dollar amounts to the nearest penny.)
    For months m = 1...RM, calculate quantities for month m based on 
values from month m-1 as follows:
1. Calculate current month's Mortgage Interest Rate (MIRm).
    a. For FRMs: MIRm = MIR0 for all m = 1 to RM
    b. For ARMs, use the following procedure:

    1) If RRP = PRP then month m is a rate reset month if:
    [GRAPHIC] [TIFF OMITTED] TR13SE01.016
    
    2) If RRP [ne] PRP then month m is a rate reset month if either:

    a) A0 + m - (IRP + 1) = 0, or
    b) [A0 + m - 1] mod RRP = 0 and A0 + m - 1 
= IRP

    3) If m is a rate reset month, then:
    [GRAPHIC] [TIFF OMITTED] TR13SE01.017
    
     but not greater than MIRm-1 + Rate Reset Limit
     nor less than MIRm-1 - Rate Reset Limit
     and in no case greater than Maximum Rate
     and in no case less than Minimum Rate

    4) If month m is not a rate reset month, then MIRm = 
MIRm-1.
    c. In all cases, MIRm = MIR120 for m 
 120, and MIR m = 0 for m  RM.
2. Calculate current month's Payment (PMTm).
    a. For FRMs:
    1) For Interest-Only Loans, if m = RIOP + 1 then month m is a reset 
month; recompute PMTm as described for ARMs in step b.4)b), 
of this section without applying any payment limit.
    2) PMTm = PMT0 for all m = 1 to RM
    b. For ARMs, use the following procedure:
    1) For Interest Only Loans, if m = RIOP + 1 then month m is a 
payment reset month.
    2) If PRP = RRP, then month m is a payment reset month if m is also 
a rate reset month.
    3) If PRP [ne] RRP then month m is a payment reset month if:
    [GRAPHIC] [TIFF OMITTED] TR13SE01.018
    
    4) If month m is a payment reset month, then:
    a) For loans in an Interest-only Period,
    [GRAPHIC] [TIFF OMITTED] TR13SE01.019
    
    b) Otherwise, PMTm = the amount that will fully amortize 
the Loan over its remaining Amortizing Term (i.e. AT-Ao-m+1 
months) with a fixed Mortgage Interest Rate equal to MIRm as 
determined in Step 1 of this section

     but not greater than PMTm-1 x (1 + Payment Reset Limit 
Up)
     nor less than PMTm-1 x (1-Payment Reset Limit Down)
     unless month m is the month following the end of an Unlimited 
Payment Reset Period, in which case PMTm is not subject to 
any reset limitations.
    5) If month m is not a payment reset month, then PMTm = 
PMTm-1
    6) If, in any month,

[[Page 446]]

[GRAPHIC] [TIFF OMITTED] TR13SE01.020

    then recalculate PMTm without applying any Payment Reset 
Limit.
    c. For Balloon Loans, or for loans that have RIOP = RM, if m = RM 
then:
[GRAPHIC] [TIFF OMITTED] TR13SE01.021

    d. In all cases, PMTm should amortize the loan within the 
Remaining Maturity:
[GRAPHIC] [TIFF OMITTED] TR13SE01.022

3. Determine Net Yield Rate (NYRm) and, for sold loans, Pass-
          Through Rate (PTRm) applicable to the 
          mth payment:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.023
          
4. Calculate Scheduled Interest Accrued (during month m-1) on account of 
          the mth payment (SIAm)
          [GRAPHIC] [TIFF OMITTED] TR13SE01.024
          
5. Calculate the Scheduled Interest component of the mth 
          payment (SIm)
          [GRAPHIC] [TIFF OMITTED] TR13SE01.025
          
6. Calculate Scheduled Principal for the mth payment 
          (SPm):
          [GRAPHIC] [TIFF OMITTED] TR13SE01.026
          
    Note:
    Scheduled Principal should not be greater than the remaining UPB. 
SPM can be negative if the Scheduled Payment is less than Scheduled 
Interest Accrued.
7. Calculate Loan Unpaid Principal Balance after taking into account the 
          mth monthly payment (UPBm):
          [GRAPHIC] [TIFF OMITTED] TR13SE01.027
          
8. In the month when UPBm is reduced to zero, reset
[GRAPHIC] [TIFF OMITTED] TR13SE01.028

9. Repeat all steps for m = 1...RM or until UPBm = 0.
    Note: If UPBRM is greater than zero, the performing 
portion is included in Credit Losses (section 3.6.3.7.3, Stress Test 
Whole Loan Cash Flow Procedures, of this Appendix).
    10. Determine Net Yield Rate (NYRo) and, for sold loans, 
Pass-Through Rate (PTRo) for month 0:
[GRAPHIC] [TIFF OMITTED] TR13SE01.029

            3.6.3.3.4 Mortgage Amortization Schedule Outputs

    The Mortgage Amortization Schedule Outputs set forth in Table 3-33 
are used in section 3.6.3.4, Single Family Default and Prepayment Rates, 
section 3.6.3.5, Multifamily Default and Prepayment Rates, section 
3.6.3.6, Calculation of Single Family and Multifamily Mortgage Losses, 
section 3.6.3.7, Stress Test Whole Loan Cash Flows, and section 3.6.3.8, 
Whole Loan Accounting Flows, of this Appendix.

           Table 3-33--Mortgage Amortization Schedule Outputs
------------------------------------------------------------------------
            Variable                           Description
------------------------------------------------------------------------
UPBm                             Unpaid Principal Balance for months
                                  m=1...RM
------------------------------------------------------------------------
MIRm                             Mortgage Interest Rate for months
                                  m=1...RM
------------------------------------------------------------------------
NYRm                             Net Yield Rate for months m=1...RM
------------------------------------------------------------------------
PTRm                             Passthrough Rate for months m=1...RM
------------------------------------------------------------------------
SPm                              Scheduled Principal (Amortization) for
                                  months m=1...RM
------------------------------------------------------------------------
SIm                              Scheduled Interest for months m=1...RM
------------------------------------------------------------------------
PMTm                             Scheduled Mortgage Payment for months
                                  m=1...RM
------------------------------------------------------------------------


[[Page 447]]

           3.6.3.4 Single Family Default and Prepayment Rates

         3.6.3.4.1 Single Family Default and Prepayment Overview

    [a] The Stress Test projects conditional Default and Prepayment 
rates for each single family Loan Group for each month of the Stress 
Period. The conditional rate is the percentage (by principal balance) of 
the remaining loans in a Loan Group that defaults or prepays during a 
given period of time. Computing Default and Prepayment rates for a Loan 
Group requires information on the Loan Group characteristics at the 
beginning of the Stress Test, historical and projected interest rates 
from section 3.3, Interest Rates, and house price growth rates and 
volatility measures from section 3.4, Property Valuation, of this 
Appendix.
    [b] Explanatory Variables. Several explanatory variables are used in 
the equations to determine Default and Prepayment rates for single 
family loans: Mortgage Age, Original Loan-to-Value (LTV) ratio, 
Probability of Negative Equity, Burnout, the percentage of Investor-
owned Loans, Relative Interest Rate Spread, Payment Shock (for ARMs 
only), Initial Rate Effect (for ARMs only), Yield Curve Slope, Relative 
Loan Size, and Mortgage Product Type. Regression coefficients (weights) 
are associated with each variable. All of this information is used to 
compute conditional quarterly Default and Prepayment rates throughout 
the Stress Test. The quarterly rates are then converted to monthly 
conditional Default and Prepayment rates, which are used to calculate 
Stress Test Whole Loan cash flows and Default losses. See section 
3.6.3.7, Stress Test Whole Loan Cash Flows, of this Appendix.
    [c] The regression coefficients for each Loan Group will come from 
one of three models. The choice of model will be determined by the 
values of the single family product code and Government Flag in the RBC 
Report. See section 3.6.3.4.3.2, Prepayment and Default Rates and 
Performance Fractions, of this Appendix.
    [d] Special Provision for Accounting Calculations. For accounting 
calculations that require cash flows over the entire remaining life of 
the instrument, Default and Prepayment rates for months beyond the end 
of the Stress Test are held constant at their values for month 120.

          3.6.3.4.2 Single Family Default and Prepayment Inputs

    The information in Table 3-34 is required for each single family 
Loan Group:

                             Table 3-34--Single Family Default and Prepayment Inputs
----------------------------------------------------------------------------------------------------------------
             Variable                              Description                               Source
----------------------------------------------------------------------------------------------------------------
PROD                               Mortgage Product Type                       RBC Report
----------------------------------------------------------------------------------------------------------------
A0                                 Age immediately prior to start of Stress    RBC Report
                                    Test, in months (weighted average for
                                    Loan Group)
----------------------------------------------------------------------------------------------------------------
LTVORIG                            Loan-to-Value ratio at Origination          RBC Report
                                    (weighted average for Loan Group)
----------------------------------------------------------------------------------------------------------------
UPBORIG                            UPB at Origination (aggregate for Loan      RBC Report
                                    Group)
----------------------------------------------------------------------------------------------------------------
MIRORIG                            Mortgage Interest Rate at Origination       RBC Report
                                    (``Initial Rate'' for ARMs), decimal per
                                    annum (weighted average for loan group)
----------------------------------------------------------------------------------------------------------------
UPB0                               Unpaid Principal Balance immediately prior  RBC Report
                                    to start of Stress Test (aggregate for
                                    Loan Group)
----------------------------------------------------------------------------------------------------------------
UPBm                               Unpaid Principal Balance in months m =      section 3.6.3.3.4, Mortgage
                                    1...RM                                      Amortization Schedule Outputs
----------------------------------------------------------------------------------------------------------------
MIRm                               Mortgage Interest Rate in months m =        section 3.6.3.3.4, Mortgage
                                    1...RM (weighted average for Loan Group)    Amortization Schedule Outputs
----------------------------------------------------------------------------------------------------------------
MCONm                              Conventional (30 Year Fixed-Rate) Mortgage  section 3.3.2, Interest Rates
                                    Rate series projected for months 1...RM     Inputs, and section 3.3.4,
                                    and for the 24 months prior to the start    Interest Rates Outputs
                                    of the Stress Test
----------------------------------------------------------------------------------------------------------------

[[Page 448]]

 
T12Ym                              1-year CMT series projected for months      section 3.3.4, Interest Rates
                                    1...120 of the Benchmark region and time    Outputs
                                    period
----------------------------------------------------------------------------------------------------------------
T120Ym                             10-year CMT series projected for months     section 3.3.4, Interest Rates
                                    1...120 of the Benchmark region and time    Outputs
                                    period
----------------------------------------------------------------------------------------------------------------
HPGRq                              Vector of House Price Growth Rates for      section 3.4.4, Property Valuation
                                    quarters q = 1...40 of the Stress Period    Outputs
----------------------------------------------------------------------------------------------------------------
CHPGF0LG                           Cumulative House Price Growth Factor since  RBC Report
                                    Loan Origination (weighted average for
                                    Loan Group)
----------------------------------------------------------------------------------------------------------------
[alpha], [beta]                    HPI Dispersion Parameters for the Stress    [alpha] = 0.002977
                                    Period (Benchmark Census Division,         [beta] = -0.000024322
                                    currently West South Central Census
                                    Division, as published in the OFHEO House
                                    Price Report for 1996:3)
----------------------------------------------------------------------------------------------------------------
IF                                 Fraction (by UPB, in decimal form) of Loan  RBC Report
                                    Group backed by Investor-owned properties
----------------------------------------------------------------------------------------------------------------
RLSORIG                            Weighted average Relative Loan Size at      RBC Report
                                    Origination (Original UPB as a fraction
                                    of average UPB for the state and
                                    Origination Year of loan origination)
----------------------------------------------------------------------------------------------------------------

        3.6.3.4.3 Single Family Default and Prepayment Procedures

 3.6.3.4.3.1 Single Family Default and Prepayment Explanatory Variables

    [a] Compute the explanatory variables for single family Default and 
Prepayment in the seven steps as follows:
1. Calculate Aq, the loan Age in quarters, for quarter q:
[GRAPHIC] [TIFF OMITTED] TR13SE01.030

Where:

int means to round to the lower integer if the argument is not an 
          integer.

2. Calculate PNEQq, the Probability of Negative Equity in 
          quarter q:
          [GRAPHIC] [TIFF OMITTED] TR15MR02.000
          
where:

    N designates the cumulative normal distribution function.
    a. LTVq is evaluated for a quarter q as:
    [GRAPHIC] [TIFF OMITTED] TR15MR02.001
    
The HPI at Origination is updated to the beginning of the Stress Test 
using actual historical experience as measured by the OFHEO HPI; and 
then updated within the Stress Test using House Price Growth Factors 
from the Benchmark region and time period:

[[Page 449]]

[GRAPHIC] [TIFF OMITTED] TR15MR02.002

Where:

UPBm=3q-3 = UPB for the month at the end of the quarter prior 
to quarter q
CHPGFoLG = 1.0 if the loan was originated in the 
same quarter as or after the most recently available HPI as of the 
reporting date
3. Calculate Bq, the Burnout factor in quarter q. A loan's 
          Prepayment incentive is ``burned out'' (i.e., reduced) if, 
          during at least two of the previous eight full quarters, the 
          borrower had, but did not take advantage of, an opportunity to 
          reduce his or her mortgage interest rate by at least two 
          percentage points. For this purpose, the mortgage interest 
          rate is compared with values of the Conventional Mortgage Rate 
          (MCON) Index.
    a. Compare mortgage rates for each quarter of the Stress Test and 
for the eight quarters prior to the start of the stress test (q = -7, -
6,...0, 1,...40):
[GRAPHIC] [TIFF OMITTED] TR26JA04.010

    Note: For this purpose, MCONm is required for the 24 
months (eight quarters) prior to the start of the Stress Test. Also, 
MIRm = MIR0 for m < 0.
    b. Determine whether the loan is ``burned out'' in quarter q 
(Burnout Flag, Bqf):
[GRAPHIC] [TIFF OMITTED] TR13SE01.037

Where:
q' = index variable for prior 8 quarters

    c. Adjust for recently originated loans as follows:
    [GRAPHIC] [TIFF OMITTED] TR13SE01.038
    
4. Calculate RSq, the Relative Spread in quarter q, as the 
          average value of the monthly Relative Spread of the Original 
          mortgage interest rate to the Conventional (30-Year Fixed 
          Rate) Mortgage Rate series for the three months in the 
          quarter.
    Note: Use the Current MIR for Fixed Rate Loans and the Original MIR 
for Adjustable Rate Loans.
[GRAPHIC] [TIFF OMITTED] TR13SE01.039

If MIR = 0, then RSq = -0.20 for all q.
5. Calculate YCSq, the Yield Curve Slope in quarter q, as the 
          average of the monthly ratio of the 10-Year CMT to the One-
          Year CMT for the three months in the quarter:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.040
          
6. Evaluate the Payment Shock Indicator (PSq) for ARMs only:
[GRAPHIC] [TIFF OMITTED] TR13SE01.041

7. Evaluate the Initial Rate Effect Flag (IREFq) for ARMS 
          only:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.042
          
   3.6.3.4.3.2 Prepayment and Default Rates and Performance Fractions

    [a] Calculate Prepayment and Default Rates and Performance Fractions 
using the following five steps:
1. Compute the logits for Default and Prepayment using the formulas for 
          simultaneous processes using inputs from Table 3-34 and 
          explanatory variable coefficients in Table 3-35.
    Note: [beta]BCalLTV is the LTV-specific constant used to 
calibrate the Default rates to the BLE.

[[Page 450]]

[GRAPHIC] [TIFF OMITTED] TR13SE01.043


             Table 3-35--Coefficients for Single Family Default and Prepayment Explanatory Variable
----------------------------------------------------------------------------------------------------------------
                                    30-Year Fixed-Rate Loans    Adjustable-Rate Loans    Other Fixed-Rate Loans
                                   --------------------------          (ARMs)          -------------------------
                                                             --------------------------
     Explanatory Variable (V)         Default     Prepayment    Default     Prepayment    Default     Prepayment
                                       Weight       Weight       Weight       Weight       Weight       Weight
                                     ([beta]v)    ([gamma]v)   ([beta]v)    ([gamma]v)   ([beta]v)    ([gamma]v)
----------------------------------------------------------------------------------------------------------------
                Aq
0 <= Aq <= 4                            -0.6276      -0.6122      -0.7046      -0.5033      -0.7721      -0.6400
----------------------------------------------------------------------------------------------------------------
5<= Aq <= 8                             -0.1676       0.1972      -0.2259       0.1798      -0.2738       0.1721
----------------------------------------------------------------------------------------------------------------
9<= Aq <= 12                           -0.05872       0.2668      0.01504       0.2744     -0.09809       0.2317
----------------------------------------------------------------------------------------------------------------
13 <= Aq <= 16                          0.07447       0.2151       0.2253       0.2473       0.1311       0.1884
----------------------------------------------------------------------------------------------------------------
17 <= Aq <= 20                           0.2395       0.1723       0.3522       0.1421       0.3229       0.1900
----------------------------------------------------------------------------------------------------------------
21 <= Aq <= 24                           0.2773       0.2340       0.4369       0.1276       0.3203       0.2356
----------------------------------------------------------------------------------------------------------------
25 <= Aq <= 36                           0.2740       0.1646       0.2954       0.1098       0.3005       0.1493
----------------------------------------------------------------------------------------------------------------
37 <= Aq <= 48                           0.1908      -0.2318      0.06902      -0.1462       0.2306      -0.2357
----------------------------------------------------------------------------------------------------------------
49 <= Aq                                -0.2022      -0.4059      -0.4634      -0.4314      -0.1614      -0.2914
----------------------------------------------------------------------------------------------------------------
              LTVORIG
LTVORIG <= 60                            -1.150      0.04787       -1.303      0.08871       -1.280      0.02309
----------------------------------------------------------------------------------------------------------------
600 = 1.0. For 
          each month m = 1...RM, calculate the following quantities. 
          Note: For m  120, use and MPR120 and 
          MDR120:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.046
          
         3.6.3.4.4 Single Family Default and Prepayment Outputs

    Single family Default and Prepayment outputs are set forth in Table 
3-37. Prepayment, Default and Performing Fractions for single family 
loans for months m = 1...RM are used in section 3.6.3.6, Calculation of 
Single Family and Multifamily Mortgage Losses; and section 3.6.3.7, 
Stress Test Whole Loan Cash Flows, of this Appendix. Quarterly LTV 
ratios are used in section 3.6.3.6.2.3, Single Family Gross Loss 
Severity Procedures, of this Appendix.

[[Page 454]]



        Table 3-37--Single Family Default and Prepayment Outputs
------------------------------------------------------------------------
            Variable                           Description
------------------------------------------------------------------------
LTVq                             Current Loan-to-Value ratio in quarter
                                  q = 1...40
------------------------------------------------------------------------
PREmSF                           Prepaying Fraction of Initial Loan
                                  Group in month m = 1...RM (single
                                  family Loans)
------------------------------------------------------------------------
DEFmSF                           Defaulting Fraction of Initial Loan
                                  Group in month m = 1...RM (single
                                  family Loans)
------------------------------------------------------------------------
PERFmSF                          Performing Fraction of Initial original
                                  Loan Group in month m = 1...RM (single
                                  family loans)
------------------------------------------------------------------------

            3.6.3.5 Multifamily Default and Prepayment Rates

       3.6.3.5.1 Multifamily Default and Prepayment Rates Overview

    [a] The Stress Test projects conditional Default and Prepayment 
rates for each multifamily Loan Group for each month of the Stress 
Period. Computing Default rates for a Loan Group requires information on 
the Loan Group characteristics at the beginning of the Stress Test and 
the economic conditions of the Stress Period--interest rates (section 
3.3 of this Appendix), vacancy rates and rent growth rates (section 3.4 
of this Appendix). These input data are used to create values for the 
explanatory variables in the Multifamily Default component.
    [b] Explanatory Variables for Default Rates. Eight explanatory 
variables are used as specified in the equations in section 3.6.3.5.3.1, 
of this Appendix, to determine Default rates for multifamily loans: 
Mortgage Age, Mortgage Age Squared, New Book indicator, Not Ratio-
updated ARM indicator, current Debt-Service Coverage Ratio, Underwater 
Current Debt-Service Coverage indicator, Loan-To-Value Ratio at 
origination/acquisition, and a Balloon Maturity indicator. Regression 
coefficients (weights) are associated with each variable. All of this 
information is used to compute conditional annual Default rates 
throughout the Stress Test. The annualized Default rates are converted 
to monthly conditional Default rates and are used together with monthly 
conditional Prepayment rates to calculate Stress Test Whole Loan Cash 
Flows. (See section 3.6.3.7, Stress Test Whole Loan Cash Flows, of this 
appendix).
    [c] Specification of Multifamily Prepayment Rates. Multifamily 
Prepayment rates are not generated by a statistical model but follow a 
set of Prepayment rules that capture the effect of yield maintenance, 
Prepayment penalties and other mechanisms that effectively curtail or 
eliminate multifamily Prepayments for a specified period of time.
    [d] Special Provision for Accounting Calculations. For accounting 
calculations, which require cash flows over the entire remaining life of 
the instrument, Default and Prepayment rates for months beyond the end 
of the Stress Test are held constant at their values for month 120.

           3.6.3.5.2 Multifamily Default and Prepayment Inputs

    The information in Table 3-38 is required for each multifamily Loan 
Group:

                Table 3-38--Loan Group Inputs for Multifamily Default and Prepayment Calculations
----------------------------------------------------------------------------------------------------------------
      Variable                           Description                                     Source
----------------------------------------------------------------------------------------------------------------
                      Mortgage Product Type                             RBC Report
----------------------------------------------------------------------------------------------------------------
Ao                    Age immediately prior to start of Stress Test,    RBC Report
                       in months (weighted average for Loan Group)
----------------------------------------------------------------------------------------------------------------
NBF                   New Book Flag                                     RBC Report
----------------------------------------------------------------------------------------------------------------
RUF                   Ratio Update Flag                                 RBC Report
----------------------------------------------------------------------------------------------------------------
LTVORIG               Loan-to-Value ratio at loan Origination           RBC Report
----------------------------------------------------------------------------------------------------------------
DCRo                  Debt Service Coverage Ratio at the start of the   RBC Report
                       Stress Test
----------------------------------------------------------------------------------------------------------------

[[Page 455]]

 
PMTo                  Amount of the mortgage Payment (principal and     RBC Report
                       interest) prior to the start of the Stress
                       Test, or first Payment for new loans (aggregate
                       for Loan Group)
----------------------------------------------------------------------------------------------------------------
PPEM                  Prepayment Penalty End Month number in the        RBC Report
                       Stress Test (weighted average for Loan Group)
----------------------------------------------------------------------------------------------------------------
RM                    Remaining term to Maturity in months (i.e.,       RBC Report
                       number of contractual payments due between the
                       start of the Stress Test and the contractual
                       maturity date of the loan) (weighted average
                       for Loan Group)
----------------------------------------------------------------------------------------------------------------
RGRm                  Benchmark Rent Growth for months m = 1...120 of   section 3.4.4, Property Valuation
                       the Stress Test                                   Outputs
----------------------------------------------------------------------------------------------------------------
RVRm                  Benchmark Vacancy Rates for months m = 1...120    section 3.4.4, Property Valuation
                       of the Stress Test                                Outputs
----------------------------------------------------------------------------------------------------------------
PMTm                  Scheduled Payment for months m = 1... RM          section 3.6.3.3.4, Mortgage Amortization
                                                                         Schedule Outputs
----------------------------------------------------------------------------------------------------------------
OE                    Operating expenses as a share of gross potential  fixed decimal from Benchmark region and
                       rents (0.472)                                     time period
----------------------------------------------------------------------------------------------------------------
RVRo                  Initial rental vacancy rate                       0.10
----------------------------------------------------------------------------------------------------------------

         3.6.3.5.3 Multifamily Default and Prepayment Procedures

                    3.6.3.5.3.1 Explanatory Variables

    [a] Compute the explanatory variables for multifamily Default and 
Prepayment in five steps as follows:
1. Calculate Loan Age in Years for months m = 0...120 of the Stress Test 
(AYm):
[GRAPHIC] [TIFF OMITTED] TR13SE01.047

Where:

A0 + m is Loan Age in months at the beginning of month m of 
the Stress Test.
    Note: AYm is calculated for each month m, whereas the 
corresponding Age variable for single family Loans Aq is 
calculated only quarterly.
2. Assign product and ratio update flags (NBF, NRAF). Note: these values 
          do not change over time for a given Loan Group.
    a. New Book Flag (NBF):
NBF = 1 for Fannie Mae loans acquired after 1987 and Freddie Mac loans 
acquired after 1992, except for loans that were refinanced to avoid a 
Default on a loan originated or acquired earlier.
NBF = 0 otherwise.
    b. Not Ratio-updated Arm Flag (NRAF):
NRAF = 1 if both ARMF = 1 and RUF = 0,
NRAF = 0 otherwise.
Where:

ARMF = 1 for ARMs (including Balloon ARMs)
ARMF = 0 otherwise, and
RUF = 1 if the LTV and DCR were calculated or delegated to have been 
calculated at origination or recalculated or delegated to have been 
recalculated at Enterprise acquisition according to current Enterprise 
standards.
RUF = 0 otherwise
3. Calculate Debt Service Coverage Ratio in month m (DCRm):
    The standard definition of Debt Service Coverage Ratio is current 
net operating income divided by current mortgage payment. However, for 
the Stress Test, update DCRm each month from the prior 
month's value using Rent Growth Rates (RGRm) and Rental 
Vacancy Rates (RVRm) starting with DCRm from Table 
3-38, as follows:

[[Page 456]]

[GRAPHIC] [TIFF OMITTED] TR13SE01.051

4. Assign Underwater Debt-Service Coverage Flag (UWDCRFm):

UWDCRFm = 1 if DCRm < 0.98 in month m
UWDCRFm = 0 otherwise.

5. Assign Balloon Maturity Flag (BMFm) for any Balloon Loan 
          that is within twelve months of its maturity date:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.053
          
   3.6.3.5.3.2 Default and Prepayment Rates and Performance Fractions

    [a] Compute Default and Prepayment Rates and Performance Fractions 
for multifamily loans in the following four steps:
1. Compute the logits for multifamily Default using inputs from Table 3-
          38 and coefficients from Table 3-39. For indexing purposes, 
          the Default rate for a period m is the likelihood of missing 
          the mth payment; calculate its corresponding logit 
          (X[delta]m) based on Loan Group characteristics as 
          of the period prior to m, i.e. prior to making the m\th\ 
          payment.
          [GRAPHIC] [TIFF OMITTED] TR15MR02.003
          

  Table 3-39--Explanatory Variable Coefficients for Multifamily Default
------------------------------------------------------------------------
                                                        Default Weight
              Explanatory Variable (V)                    ([delta]v)
------------------------------------------------------------------------
AY                                                                0.5256
AY\2\                                                             0.0284
NBF                                                               -1.219
NRAF                                                              0.4193
DCR                                                               -2.368
UWDCRF                                                             1.220
LTV                                                               0.8165
BMF                                                                1.518
Intercept ([delta]0)                                              -4.553
------------------------------------------------------------------------

2. Compute Annual Prepayment Rate (APR) and Annual Default Rate (ADR) as 
          follows:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.055
          
APRm is a constant, determined as follows:

    a. For the up-rate scenario, APRm = 0 for all months m
    b. For the down-rate scenario,
    APRm = 0 percent during the Prepayment penalty period 
(i.e., when m <= PPEM)
    APRm = 25 percent after the Prepayment penalty period 
(i.e., when m  PPEM)

3. Convert annual Prepayment and Default rates to monthly rates (MPR and 
          MDR) using the following formulas for simultaneous processes:
          [GRAPHIC] [TIFF OMITTED] TR15MR02.004
          
    If both ARMF = 0 and RUF = 0, then
    [GRAPHIC] [TIFF OMITTED] TR15MR02.005
    
    otherwise,
    [GRAPHIC] [TIFF OMITTED] TR15MR02.006
    
4. Calculate Defaulting Fraction (DEFm), Prepaying Fraction 
          (PREm), and Performing Fraction (PERFm) 
          of the Initial Loan Group for each month m = 1...RM. Initially 
          (immediately prior to the beginning of the Stress Test), all 
          loans are assumed to be performing, i.e. PERF0 = 
          1.0. Note: For m 120, use MPR120 and 
          MDR120.

[[Page 457]]

[GRAPHIC] [TIFF OMITTED] TR13SE01.058

          3.6.3.5.4 Multifamily Default and Prepayment Outputs

    [a] Multifamily Default and Prepayment Outputs are set forth in 
Table 3-40.

         Table 3-40--Multifamily Default and Prepayment Outputs
------------------------------------------------------------------------
                Variable                           Description
------------------------------------------------------------------------
PREm\MF\                                 Prepaying Fraction of initial
                                          Loan Group in month m=1...RM
                                          (multifamily Loans)
------------------------------------------------------------------------
DEFm\MF\                                 Defaulting Fraction of initial
                                          Loan Group in month m=1...RM
                                          (multifamily Loans)
------------------------------------------------------------------------
PERFm\MF\                                Performing Fraction of initial
                                          Loan Group in month m=1...RM
                                          (multifamily Loans)
------------------------------------------------------------------------

    [b] Multifamily monthly Prepayment Fractions (PERFm\MF\) 
and monthly Default Fractions (DEFm\MF\) for months m=1...RM 
are used in section 3.6.3.6, Calculation of Single Family and 
Multifamily Mortgage Losses; section 3.6.3.7, Stress Test Whole Loan 
Cash Flows, and section 3.6.3.8, Whole Loan Accounting Flows, of this 
Appendix.

  3.6.3.6 Calculation of Single Family and Multifamily Mortgage Losses

 3.6.3.6.1 Calculation of Single Family and Multifamily Mortgage Losses 
                                Overview

    [a] Definition. Loss Severity is the net cost to an Enterprise of a 
loan Default. Though losses may be associated with delinquency, loan 
restructuring and/or modification and other loss mitigation efforts, 
foreclosures are the only loss events modeled during the Stress Test.
    [b] Calculation. The Loss Severity rate is expressed as a fraction 
of the Unpaid Principal Balance (UPB) at the time of Default. The Stress 
Test calculates Loss Severity rates for each Loan Group for each month 
of the Stress Period. Funding costs (and offsetting revenues) of 
defaulted loans are captured by discounting the Loss Severity elements 
using a cost-of-funds interest rate that varies during the Stress 
Period. Table 3-41 specifies the Stress Test Loss Severity timeline. 
Loss Severity rates also depend upon the application of Credit 
Enhancements and the credit ratings of enhancement providers.

                 Table 3-41--Loss Severity Event Timing
------------------------------------------------------------------------
                 Month                                Event
------------------------------------------------------------------------
1                                        First missed payment
------------------------------------------------------------------------
4 ( = MQ)                                Loan is repurchased from
                                          securitized pool and UPB is
                                          passed through to MBS
                                          investors (Sold Loans only)
------------------------------------------------------------------------
13 ( = MFSF)                             Single family foreclosure
------------------------------------------------------------------------
18 ( = MFMF)                             Multifamily foreclosure
------------------------------------------------------------------------
20 ( = MFSF+ MRSF)                       Single family property
                                          disposition
------------------------------------------------------------------------
31 ( = MFMF+MRMF)                        Multifamily property
                                          disposition
------------------------------------------------------------------------

    [c] Timing of the Default Process. Mortgage Defaults are modeled as 
follows: defaulting loans enter foreclosure after a number of months 
(MQ, Months in Delinquency) and are foreclosed upon several months 
later. MF (Months in Foreclosure) is the total number of missed 
payments. Upon completion of foreclosure, the loan as such ceases to 
exist and the property becomes Real Estate Owned by the lender (REO). 
After several more months (MR, Months in REO), the property is sold. 
Foreclosure expenses are paid and MI proceeds (and, for multifamily 
loans, loss sharing proceeds) are received when foreclosure is 
completed. REO expenses are paid, and sales proceeds and other Credit 
Enhancements are received, when the property is sold. These timing 
differences are not modeled explicitly in the cash flows, but their 
economic effect is taken into account by present-valuing the default-
related cash flows to the month of Default.
    [d] Gross Loss Severity, Credit Enhancement, and Net Loss Severity. 
The calculation of mortgage losses is divided into three parts. First, 
Gross Loss Severity is determined by expressing the principal loss plus 
unpaid interest plus expenses as a percentage of the loan UPB at the 
time of Default (section 3.6.3.6.2, Single Family Gross Loss Severity, 
and section 3.6.3.6.3, Multifamily Gross Loss Severity, of this 
Appendix). Second, Credit Enhancements (CEs) are applied according to 
their terms to offset losses on loans that are covered by one or more CE 
arrangements (section 3.6.3.6.4, Mortgage Credit Enhancement, of this 
Appendix). Finally, to account for the timing of these different cash 
flows,

[[Page 458]]

net losses are discounted back to the month in which the Default 
initially occurred (section 3.6.3.6.5, Single Family and Multifamily Net 
Loss Severity, of this Appendix).

               3.6.3.6.2 Single Family Gross Loss Severity

         3.6.3.6.2.1 Single Family Gross Loss Severity Overview

    The Loss Severity calculation adds the discounted present value of 
various costs and offsetting revenues associated with the foreclosure of 
single family properties, expressed as a fraction of UPB on the date of 
Default. The loss elements are:
    [a] Unpaid Principal Balance. Because all Loss Severity elements are 
expressed as a fraction of Default date UPB, the outstanding loan 
balance is represented as 1.
    [b] Unpaid Interest. Unpaid interest at the Mortgage Interest Rate 
is included in the MI claim amount. Unpaid interest at the Pass-Through 
Rate must be paid to MBS holders until the Defaulted loan is repurchased 
from the MBS pool.
    [c] Foreclosure Expenses and REO Expenses. Foreclosure expenses are 
reimbursed by MI. REO expenses are incurred in connection with the 
maintenance and sale of a property after foreclosure is completed. 
Stress Test values for these quantities are derived from historical 
Enterprise REO experience.
    [d] Net Recovery Proceeds from REO sale (RP). This amount is less 
than the sale price for ordinary properties as predicted by the HPI, 
because of the distressed nature of the sale.

          3.6.3.6.2.2 Single Family Gross Loss Severity Inputs

    The inputs in Table 3-42 are used to compute Gross Loss Severity for 
single family loans:

                              Table 3-42--Loan Group Inputs for Gross Loss Severity
----------------------------------------------------------------------------------------------------------------
              Variable                                 Description                       Definition or Source
----------------------------------------------------------------------------------------------------------------
                                      Government Flag                                RBC Report
----------------------------------------------------------------------------------------------------------------
MQ                                    Months Delinquent: time during which           4 for sold loans
                                       Enterprise pays delinquent loan interest to   0 otherwise
                                       MBS holders
----------------------------------------------------------------------------------------------------------------
MF                                    Months to Foreclosure: number of missed        13 months
                                       payments through completion of foreclosure
----------------------------------------------------------------------------------------------------------------
MR                                    Months from REO acquisition to REO             7 months
                                       disposition
----------------------------------------------------------------------------------------------------------------
F                                     Foreclosure Costs as a decimal fraction of     0.037
                                       Defaulted UPB
----------------------------------------------------------------------------------------------------------------
R                                     REO Expenses as a decimal fraction of          0.163
                                       Defaulted UPB
----------------------------------------------------------------------------------------------------------------
DRm                                   Discount Rate in month m (decimal per annum)   6-month Enterprise Cost of
                                                                                      Funds from section 3.3,
                                                                                      Interest Rates
----------------------------------------------------------------------------------------------------------------
LTVq                                  Current LTV in quarter q = 1...40              section 3.6.3.4.4, Single
                                                                                      Family Default and
                                                                                      Prepayment Outputs
----------------------------------------------------------------------------------------------------------------
MIRm                                  Mortgage Interest Rate in month m (decimal     section 3.6.3.3.4, Mortgage
                                       per annum)                                     Amortization Schedule
                                                                                      Outputs
----------------------------------------------------------------------------------------------------------------
PTRm                                  Pass-Through Rate applicable to payment due    section 3.6.3.3.4, Mortgage
                                       in month m (decimal per annum)                 Amortization Schedule
                                                                                      Outputs
----------------------------------------------------------------------------------------------------------------
RR                                    Recovery Rate for Defaulted loans in the BLE,  0.61
                                       as a percent of predicted house price using
                                       HPI (decimal)
----------------------------------------------------------------------------------------------------------------


[[Page 459]]

        3.6.3.6.2.3 Single Family Gross Loss Severity Procedures

    [a] Calculate single family gross Loss Severity using the following 
three steps:
1. Compute REO Proceeds in month m (RPm) as a fraction of 
          Defaulted UPB:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.059
          
2. Compute MI Claim Amount on loans that Defaulted in month m 
          (CLMmMI) as a fraction of Defaulted UPB:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.060
          
Where:

0.67 = FHA reimbursement rate on foreclosure-related expenses
0.75 = adjustment to reflect that FHA reimbursement on unpaid interest 
is at a government debenture rate, not MIR.

3. Compute Gross Loss Severity of loans that Defaulted in month m 
          (GLm) as a fraction of Defaulted UPB:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.061
          
          3.6.3.6.2.4 Single Family Gross Loss Severity Outputs

    The single family Gross Loss Severity outputs in Table 3-43 are used 
in the Credit Enhancement calculations in section 3.6.3.6.4 of this 
Appendix.

          Table 3-43--Single Family Gross Loss Severity Outputs
------------------------------------------------------------------------
            Variable                           Description
------------------------------------------------------------------------
GLSm                             Gross Loss Severity for loans that
                                  defaulted in month m = 1...120
------------------------------------------------------------------------
CLMmMI                           MI claim on account of loans that
                                  defaulted in month m = 1...120
------------------------------------------------------------------------
RPm                              REO Proceeds on account of loans that
                                  defaulted in month m = 1...120
------------------------------------------------------------------------

                3.6.3.6.3 Multifamily Gross Loss Severity

          3.6.3.6.3.1 Multifamily Gross Loss Severity Overview

    The multifamily Loss Severity calculation adds the discounted 
present value of various costs and offsetting revenues associated with 
the foreclosure of multifamily properties, expressed as a fraction of 
Defaulted UPB. The loss elements are:
    [a] Unpaid Principal Balance (UPB). Because all Loss Severity 
elements are expressed as a fraction of Default date UPB, the 
outstanding loan balance is represented as 1.
    [b] Unpaid Interest. Unpaid interest at the Net Yield Rate is 
included in the Loss Sharing Claim amount. Unpaid interest at the Pass-
Through Rate must be paid to MBS holders until the defaulted loan is 
repurchased from the MBS pool.
    [c] Net REO Holding Costs (RHC). Foreclosure costs, including 
attorneys fees and other liquidation expenses are incurred between the 
date of Default and the date of foreclosure completion (REO 
acquisition). Operating and capitalized expenses are incurred and rental 
and other income are received between REO acquisition and REO 
disposition. As a result, half of the Net REO Holding Costs (RHC) are 
expensed at REO acquisition and the remainder are expensed at REO 
disposition.
    [d] Net Proceeds from REO sale (RP). The gross sale price of the REO 
less all costs associated with the disposition of the REO asset are 
discounted from the date of REO sale.

[[Page 460]]

           3.6.3.6.3.2 Multifamily Gross Loss Severity Inputs

    The inputs in Table 3-44 are used to compute Gross Loss Severity for 
multifamily Loans:

                        Table 3-44--Loan Group Inputs for Multifamily Gross Loss Severity
----------------------------------------------------------------------------------------------------------------
         Variable                       Description                              Value or Source
----------------------------------------------------------------------------------------------------------------
                            Government Flag                      RBC Report
----------------------------------------------------------------------------------------------------------------
DRm                         Discount Rate in month m (decimal    6-month Enterprise Cost of Funds from Section
                             per annum)                           3.3, Interest Rates
----------------------------------------------------------------------------------------------------------------
MQ                          Time during which delinquent loan    4 for sold loans
                             interest is passed-through to MBS   0 otherwise
                             holders
----------------------------------------------------------------------------------------------------------------
PTRm                        Pass Through Rate applicable to      section 3.6.3.3.4, Mortgage Amortization
                             payment due in month m (decimal      Schedule Outputs
                             per annum)
----------------------------------------------------------------------------------------------------------------
NYRm                        Net Yield Rate applicable to         section 3.6.3.3.4, Mortgage Amortization
                             payment due in month m (decimal      Schedule Outputs
                             per annum)
----------------------------------------------------------------------------------------------------------------
RHC                         Net REO holding costs as a decimal   0.07
                             fraction of Defaulted UPB
----------------------------------------------------------------------------------------------------------------
MF                          Time from Default to completion of   9 months
                             foreclosure (REO acquisition)
----------------------------------------------------------------------------------------------------------------
MR                          Months from REO acquisition to REO   15 months
                             disposition
----------------------------------------------------------------------------------------------------------------
RP                          REO proceeds as a decimal fraction   0.63
                             of Defaulted UPB
----------------------------------------------------------------------------------------------------------------

         3.6.3.6.3.3 Multifamily Gross Loss Severity Procedures

    [a] Calculate multifamily gross loss severity in the following two 
steps:
1. For Conventional Loans, compute the Loss Sharing Claim Amount 
          (CLMm\LSA\) and Gross Loss (GLSm) on 
          loans that Defaulted in month m, as a fraction of Defaulted 
          UPB:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.062
          
2. For FHA-insured (i.e., government) multifamily Loans, separate Gross 
          Loss Severity and Credit Enhancement calculations are not 
          necessary. Net Loss Severity is determined explicitly in 
          section 3.6.3.6.5, Single Family and Multifamily Net Loss 
          Severity, of this Appendix).

           3.6.3.6.3.4 Multifamily Gross Loss Severity Outputs

    Multifamily Gross Loss Severity Outputs in Table 3-45 are used in 
the Credit Enhancements Calculations section 3.6.3.6.4, of this 
Appendix.

  Table 3-45--Multifamily Gross Loss Severity Outputs for use in Credit
                        Enhancement Calculations
------------------------------------------------------------------------
                Variable                           Description
------------------------------------------------------------------------
GLSm                                     Gross Loss Severity for loans
                                          that Defaulted in month m =
                                          1...120
------------------------------------------------------------------------
CLMm\LSA\                                Loss Sharing Claim on account
                                          of loans that Defaulted in
                                          month m = 1...120
------------------------------------------------------------------------


[[Page 461]]

                  3.6.3.6.4 Mortgage Credit Enhancement

            3.6.3.6.4.1 Mortgage Credit Enhancement Overview

    [a] Types of Mortgage Credit Enhancements. Credit Enhancements (CE) 
reimburse losses on individual loans. The CE most often utilized by the 
Enterprises at the present time is primary Mortgage Insurance (MI) 
including both private and government MI or loan guarantees (e.g. FHA, 
VA), which pays claims up to a given limit on each loan. Most other 
types of CE do not limit the amount payable on each loan individually, 
but do limit the aggregate amount available under a given CE arrangement 
or Contract. These two types of CE must be computed differently. To 
denote this distinction, this Appendix will refer to ``Loan Limit'' and 
``Aggregate Limit'' CE types. Loan Limit CE includes Mortgage Insurance 
for single family loans and Loss-Sharing Arrangements (LSA) for 
multifamily loans. Aggregate Limit CE includes Pool Insurance, Spread 
Accounts, Letters of Credit, Cash or Collateral Accounts, and 
Subordination Agreements. For operational convenience in the Stress 
Test, the Aggregate Limit classification also includes Unlimited 
Recourse, which has neither loan-level nor aggregate-level coverage 
limits, and Modified Pool Insurance, Limited Recourse, Limited 
Indemnification and FHA risk-sharing, which may have both loan-level and 
aggregate-level coverage limits.
    [b] Loan Limit Credit Enhancements. Loan Limit Credit Enhancements 
are applied to every covered loan individually, without regard to how 
much has been paid on any other covered loan. For example, an MI policy 
covers losses on an individual loan up to a specified limit. If every 
loan with MI were to Default, every claim would be payable regardless of 
the total outlay on the part of the MI provider. Loss Sharing 
Arrangements on multifamily loans operate the same way.
    [c] Aggregate Limit Credit Enhancements. Aggregate Limit Credit 
Enhancements cover a group of loans on an aggregate basis. In most such 
arrangements, the coverage for any individual loan is unlimited, except 
that the total outlay by the provider cannot exceed a certain aggregate 
limit. Thus, the amount of Aggregate Limit coverage available to an 
individual loan depends, in practice, on how much has been paid on all 
previous claims under the specified Contract.
    [d] Credit Enhancement Counterparty Defaults. CE payments from a 
rated counterparty are subject to Haircuts to simulate counterparty 
failures during the Stress Test. These Haircuts are based on the rating 
of the counterparty or guarantor immediately prior to the Stress Test, 
and are applied each month as described in section 3.5, Counterparty 
Defaults, of this Appendix.
    [e] Stress Test Application of Credit Enhancement. The Stress Test 
calculates mortgage cash flows for aggregated Loan Groups, within which 
individual loans are assumed to have identical characteristics, and 
therefore are not differentiated in the computations. However, a single 
Loan Group may include loans with Loan Limit CE and/or one or more types 
of Aggregate Limit CE. Additionally, this coverage may come from a rated 
provider or from cash or cash-equivalent collateral. Therefore, for 
computational purposes it is necessary to distinguish among the 
different possible CE combinations that each loan or subset of loans in 
a Loan Group may have. In the Stress Test, this is accomplished by 
creating Distinct Credit Enhancement Combinations (DCCs).
1. Distinct Credit Enhancement Combinations. When aggregating individual 
          loans into Loan Groups for the RBC Report, the applicable CE 
          arrangements will have been identified for each loan:

    a. Loan Group (LG) Number
    b. Initial UPB of individual loan
    c. Rating of MI or LSA Counterparty
    d. Loan-Limit Coverage Percentage for MI or LSA
    e. Contract Number for Aggregate Limit CE, First Priority
    f. Contract Number for Aggregate Limit CE, Second Priority
    g. Contract Number for Aggregate Limit CE, Third Priority
    h. Contract Number for Aggregate Limit CE, Fourth Priority

2. Individual loans for which all of the entries in step 1) of this 
          section (except UPB and Loan-Limit Coverage Percent) are 
          identical, are aggregated into a DCCs. For example, all loans 
          in a given Loan Group with MI from a AAA-rated provider and no 
          other CE would comprise one DCC whose balance is the aggregate 
          of the included loans and whose MI Coverage Percent is the 
          weighted average of that of the included loans. In each month, 
          within each Loan Group, for each DCC, each applicable form of 
          CE is applied in priority order to reduce Gross Loss Severity 
          as much as possible to zero. The total CE payment for each 
          DCC, as a percentage of Defaulted UPB is converted to a total 
          CE payment for each Loan Group and then factored into the 
          calculation of Net Loss Severity in section 3.6.3.6.5, Single 
          Family and Multifamily Net Loss Severity, of this Appendix.
3. DCC First and Second Priority Available Aggregate CE Balance. In the 
          Stress Test, First and Second Priority Available Aggregate CE 
          Balances are allocated to the DCCs that are parties to each 
          Contract on a pro-rata basis. Third and Fourth Priority 
          Aggregate Limit Contracts are not modeled because they are 
          extremely rare. In each month of the Stress Test

[[Page 462]]

          these CE Balances, adjusted by appropriate Haircuts, are 
          reduced by the losses incurred by each DCC that is a party to 
          each Contract. Spread Account deposits, if applicable, are 
          included in the First and Second Priority DCC Available 
          Aggregate CE Balances.
    a. Spread Accounts may take one of two forms: Balance-Limited, or 
Deposit-Limited. A Balance-Limited Spread Account receives monthly 
spread payments based on the UPB of the covered loans until a required 
balance is achieved and maintained. Any amounts paid to cover losses 
must be replenished by future spread payments from the covered loans 
that are still performing. Thus, there is no known limit to the amount 
of spread deposits that may be made over the life of the covered loans. 
In contrast, for a Deposit-Limited Spread Account the limit is similar 
to a customary coverage limit. The total amount of spread deposits made 
into the account is limited to a maximum amount specified in the 
Contract.
    b. In the Stress Test, the Available Contract Balance of a Spread 
Account is adjusted prior to the calculation of the DCC Available 
Balance as reported in the RBC Report. For each Spread Account contract, 
the Enterprises report the Remaining Limit Amount, which represents the 
maximum dollar amount of additional spread deposits that could be 
required under the Contract. For Deposit-Limited Spread Accounts, this 
amount is the maximum remaining dollar amount of spread deposits 
required under the Contract. For Balance-Limited Spread Accounts, this 
amount is defined as one-twelfth of the annualized spread rate times the 
UPB of the covered loans at the start of the Stress Test times the 
weighted average Remaining term to Maturity of those loans. However, the 
maximum amount of spread deposits that could be received will generally 
be higher than the amount reasonably expected to be received during the 
Stress Test, because the UPB of the covered loans, which is the basis 
for determining the amounts of future spread deposits, declines over the 
term of the Contract due to Amortization, Defaults, and Prepayments. 
Therefore, the Enterprises report an adjusted Available Contract Balance 
for both types of Spread Accounts before reporting the DCC Available 
Balance by adding the lesser of the Remaining Limit Amount or one-
twelfth of the spread rate times the UPB of the covered loans at the 
start of the stress test times 60 months.
    c. Modified Pool Insurance, Limited Recourse, Limited 
Indemnification and FHA risk-sharing contracts may have both loan-level 
and aggregate-level coverage limits. To account for this aspect of these 
types of Aggregate Limit CE, the Enterprises report a DCC Loan Level 
Coverage Limit Amount, which represents the share of each loss after 
deductibles (such as MI or First Priority Contract payments) covered by 
a given MPI Contract. (The Loan Level Coverage Limit Amount takes the 
value of one if the Contract is not of this type, representing that 100 
percent of losses are covered by other types of Contracts).
    d. In practice, Unlimited Recourse Contracts have neither loan-level 
nor aggregate-level coverage limits. However, the Enterprises report the 
Available Aggregate CE Balance of Unlimited Recourse Contracts as the 
summation of the Original UPB of all covered loans.
    e. The Available Aggregate CE Balances of Collateral Account 
Contracts funded with anything other than Cash or Cash-equivalents are 
discounted by thirty percent to account for market risk in securities 
that are not cash equivalents.
    f. Enterprise Loss Positions are treated as Aggregate Limit CE in 
terms of reducing remaining losses eligible to be covered by a next-
priority Contract. However, since Enterprise Loss Positions are 
typically a deductible for other forms of supplementary coverage, 
payments from such accounts do not reduce loss severity.
    [f] Multiple Layers of Credit Enhancement. For loans with more than 
one type of Credit Enhancement, MI or Loss Sharing is applied first, and 
then other types of CE (if available) are applied in priority order to 
the remaining losses. MI and Loss Sharing claims are payable regardless 
of whether (and to what extent) a loan is also covered by other forms of 
CE. MI is unique in that the MI payment is based on a percentage of a 
Claim Amount equal to the entire Defaulted UPB plus expenses, not the 
actual loss incurred upon liquidation. Therefore, an Enterprise can 
receive MI payments on a defaulted loan in excess of the actual realized 
loss on that loan. However, it is frequently the case that MI payments 
are insufficient to cover the entire loss amount. In such cases, one or 
more types of Aggregate Limit CE may be available to make up the 
deficiency. Unlike MI claims, however, the Claim Amounts for Loss 
Sharing and for all Aggregate Limit CE types do depend on the actual 
losses incurred; and unlike Loss Sharing and MI, Claim Amounts payable 
under other forms of CE are net of payments received on account of other 
forms of CE. When a single loan is covered by multiple forms of CE, the 
order in which they are to be applied (First Priority, Second Priority, 
etc.) must be specified. To avoid double-counting, a higher-numbered

[[Page 463]]

priority CE only covers losses that were not covered by a lower-numbered 
priority CE.

             3.6.3.6.4.2 Mortgage Credit Enhancement Inputs

    [a] For each Loan Group, the inputs in Table 3-46 are required:

                                    Table 3-46--CE Inputs for Each Loan Group
----------------------------------------------------------------------------------------------------------------
           Variable                           Description                                 Source
----------------------------------------------------------------------------------------------------------------
UPBORIGLG                       Origination UPB                          RBC Report
----------------------------------------------------------------------------------------------------------------
UPB0LG and UPBmLG               Initial UPB and UPB in month m =         section 3.6.3.3.4, Mortgage
                                 0,1...120                                Amortization Schedule Outputs
----------------------------------------------------------------------------------------------------------------
LTVORIGLG                       Original LTV                             RBC Report
----------------------------------------------------------------------------------------------------------------
DEFmLG and PERFmLG              Defaulting and Performing Fractions of   section 3.6.3.4.4, Single Family
                                 Initial Loan Group UPB in month m =      Default and Prepayment Outputs and
                                 1...120                                  section 3.6.3.5.4, Multifamily Default
                                                                          and Prepayment Outputs
----------------------------------------------------------------------------------------------------------------
CLMmMI,LG                       MI Claim Amount and LSA Claim Amount     section 3.6.3.6.2, Single Family Gross
CLMmLSA,LG                                                                Loss Severity and section 3.6.3.6.3,
                                                                          Multifamily Gross Loss Severity
----------------------------------------------------------------------------------------------------------------
GLSmLG                          Gross Loss Severity                      section 3.6.3.6.2, Single Family Gross
                                                                          Loss Severity and section 3.6.3.6.3,
                                                                          Multifamily Gross Loss Severity
----------------------------------------------------------------------------------------------------------------

    [b] For each DCC covering loans in the Loan Group, the inputs in 
Table 3-47 are required:

                            Table 3-47--Inputs for Each Distinct CE Combination (DCC)
----------------------------------------------------------------------------------------------------------------
              Variable                               Description                              Source
----------------------------------------------------------------------------------------------------------------
PDCC                                 Percent of Initial Loan Group UPB            RBC Report
                                      represented by individual loan(s) in a DCC
----------------------------------------------------------------------------------------------------------------
RMI,DCC or RLSA,DCC                  Credit rating of Loan Limit CE (MI or LSA)   RBC Report
                                      Counterparty
----------------------------------------------------------------------------------------------------------------
CMI,DCC or CLSA,DCC                  Weighted Average Coverage Percentage for MI  RBC Report
                                      or LSA Coverage (weighted by Initial UPB)
----------------------------------------------------------------------------------------------------------------
AB0DCC,C1                            DCC Available First Priority CE Balance      RBC Report
                                      immediately prior to start of the Stress
                                      Test
----------------------------------------------------------------------------------------------------------------
AB0DCC,C2                            DCC Available Second Priority CE Balance     RBC Report
                                      immediately prior to start of the Stress
                                      Test
----------------------------------------------------------------------------------------------------------------
RDCC,C1                              DCC Credit Rating of First Priority CE       RBC Report
                                      Provider or Counterparty; or Cash/Cash
                                      Equivalent (which is not Haircutted)
----------------------------------------------------------------------------------------------------------------
RDCC,C2                              DCC Credit Rating of Second Priority CE      RBC Report
                                      Provider or Counterparty; or Cash/Cash
                                      Equivalent (which is not Haircutted)
----------------------------------------------------------------------------------------------------------------
CDCC,C1                              DCC Loan-Level Coverage Limit of First       RBC Report
                                      Priority Contract (If Subtype is MPI;
                                      otherwise = 1)
----------------------------------------------------------------------------------------------------------------
CDCC,C2                              DCC Loan-Limit Coverage Limit of Second      RBC Report
                                      Priority Contract (if Subtype is MPI;
                                      otherwise = 1)
----------------------------------------------------------------------------------------------------------------

[[Page 464]]

 
ExpMoDCC,C1                          Month in the Stress Test (1...120 or after)  RBC Report
                                      in which the DCC First Priority Contract
                                      expires
----------------------------------------------------------------------------------------------------------------
ExpMoDCC,C2                          Month in the Stress Test (1...120 or after)  RBC Report
                                      in which the DCC Second Priority Contract
                                      expires
----------------------------------------------------------------------------------------------------------------
ELPFDCC,C1                           DCC Enterprise Loss Position Flag for First  RBC Report
                                      Priority Contract (Y or N)
----------------------------------------------------------------------------------------------------------------
ELPFDCC,C2                           DCC Enterprise Loss Position Flag for        RBC Report
                                      Second Priority Contract (Y or N)
----------------------------------------------------------------------------------------------------------------

    [c] In the RBC Report, Aggregate Limit CE Subtypes are grouped as 
illustrated in Table 3-48.

             Table 3-48--Aggregate Limit CE Subtype Grouping
------------------------------------------------------------------------
           Symbol                    Subtype            Also Includes
------------------------------------------------------------------------
REC                           Unlimited Recourse    Unlimited
                                                     Indemnification
------------------------------------------------------------------------
PI                            Pool Insurance        Pool Insurance
                                                   ---------------------
                                                    Letter of Credit
                                                   ---------------------
                                                    Subordination
                                                     Arrangements
------------------------------------------------------------------------
MPI                           Modified Pool         Modified Pool
                               Insurance             Insurance
                                                   ---------------------
                                                    Limited Recourse
                                                   ---------------------
                                                    Limited
                                                     Indemnification
                                                   ---------------------
                                                    FHA Risk-sharing
                                                     Agreements
------------------------------------------------------------------------
CASH                          Cash Account          Cash Account
------------------------------------------------------------------------
COLL                          Collateral Account    Collateral
------------------------------------------------------------------------
ELP                           Enterprise Loss       GSE Loss Position
                               Position              (ledger item)
------------------------------------------------------------------------
SA                            Spread Account        Spread Account
------------------------------------------------------------------------

3.6.3.6.4.3 Mortgage Credit Enhancement Procedures

    [a] For each month m of the Stress Test, for each Loan Group (LG), 
carry out the following six steps [a] 1-6 for each DCC.
    Note: Process the Loan Groups and DCCs using the numerical order 
assigned to them in the RBC Report.
1. Determine Mortgage Insurance Payment (MIm) for single 
          family loans in the DCC, or Loss Sharing Payment 
          (LSAm) for multifamily loans in the DCC, as a 
          percentage of Defaulted UPB, applying appropriate counterparty 
          Haircuts from section 3.5., of this Appendix:

[[Page 465]]

[GRAPHIC] [TIFF OMITTED] TR15MR02.007

Where:

m' = m, except for counterparties rated below BBB, where m' = 120
[GRAPHIC] [TIFF OMITTED] TR15MR02.008

2. Determine Remaining Loss in Dollars (RLD) after application of MI or 
          LSA and prior to application of other Aggregate Limit CE:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.066
          
3. Determine the contractual CE Payment in Dollars under the First 
Priority Contract C1. Determine Payment after Haircut. Update Remaining 
Loss Dollars and DCC Available Balance.
 a. Determine CE Payment as the minimum of the Remaining Loss Dollars 
          after MI or LSA (if applicable) times the DCC Loan-Level 
          Coverage Limit (=1 if not MPI Contract) or the previous 
          month's ending DCC Available Balance:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.067
          
b. Determine CE Payment in Dollars after application of Haircuts:
[GRAPHIC] [TIFF OMITTED] TR15MR02.009

Where:

m' = m, except for counterparties rated below BBB, where m' = 120

 c. Update DCC Remaining Loss Dollars and DCC Available Balance under 
          the First Priority Contract C1:

[[Page 466]]

[GRAPHIC] [TIFF OMITTED] TR13SE01.069

Where:

ExpmC = 1 if the Contract has expired, i.e. if the 
          calendar month corresponding to the mth month of 
          the Stress Test is on or after the expiration month 
          (ExpMoC)
ExpmC = 0 otherwise

4. Determine the contractual CE Payment in Dollars under the Second 
          Priority Contract C2. Determine Payment after Haircut. Update 
          Remaining Loss Dollars and DCC Available Balance.
 a. Determine CE Payment as the minimum of the Remaining Loss Dollars 
          after C1 Payment (if applicable) times a DCC Loan-Level 
          Coverage Limit (=1 if not MPI Contract) or the previous 
          month's ending DCC Available Balance:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.070
          
b. Determine CE Payment in Dollars after application of Haircuts:
[GRAPHIC] [TIFF OMITTED] TR15MR02.010

Where:

m' = m, except for counterparties rated below BBB, where m' = 120

 c. Update DCC Remaining Loss Dollars and DCC Available Balance under 
          the Second Priority Contract C2:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.072
          
Where:

ExpmC = 1 if the Contract has expired, i.e. if the 
calendar month corresponding to the mth month of the Stress 
Test is on or after the expiration month (ExpMoC)
ExpmC = 0 otherwise

5. Convert Aggregate Limit First and Second Priority Contract receipts 
          in Dollars for each DCC in month m to a percentage of DCC 
          Defaulted UPB:
          [GRAPHIC] [TIFF OMITTED] TR26JA04.009
          

[[Page 467]]


[GRAPHIC] [TIFF OMITTED] TR15MR02.011

Where:

ELPI\DCC,C\ = 0 if ELPF\DCC,C\ = Y (Yes, indicating that Contract C is 
an Enterprise Loss Position)
ELPI\DCC,C\ = 1 otherwise
6. Add the Loan Limit CE (MI and LSA) and Aggregate Limit CE (ALPD), 
          each expressed as a share of DCC Defaulted UPB, separately for 
          each DCC to increment the respective Loan Group totals:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.074
          
3.6.3.6.4.4 Mortgage Credit Enhancement Outputs

    [a] Mortgage Credit Enhancement Outputs are set forth in Table 3-49.

  Table 3-49--Single Family and Multifamily Credit Enhancement Outputs
------------------------------------------------------------------------
            Variable                           Description
------------------------------------------------------------------------
MIm                              MI payments applied to reduce single
                                  family Gross Loss Severity in month m
                                  of the Stress Test (as a fraction of
                                  Defaulted UPB in month m)
------------------------------------------------------------------------
LSAm                             LSA payments applied to reduce
                                  multifamily Gross Loss Severity in
                                  month m of the Street Test (as a
                                  fraction of Defaulted UPB in month m)
------------------------------------------------------------------------
ALCEm                            Aggregate receipts from all forms of
                                  Aggregate Limit Limit Credit
                                  Enhancement applied to reduce single-
                                  and multifamily Gross Loss Severity in
                                  month m of the Stress Test (as a
                                  fraction of Defaulted UPB in month m)
------------------------------------------------------------------------

    [b] MImLG or LSAmLG and 
ALCEmLG for months m = 1...120 of the Stress Test 
are used in section 3.6.3.6.5, Single Family and Multifamily Net Loss 
Severity, of this Appendix.

3.6.3.6.5 Single Family and Multifamily Net Loss Severity

3.6.3.6.5.1 Single Family and Multifamily Net Loss Severity Procedures

    Combine inputs and outputs from Gross Loss Severity and Credit 
Enhancements (Table 3-42 through Table 3-49) in the following formulas 
for each Loan Group in month m:
    [a] For Conventional single family Loan Groups:
    [GRAPHIC] [TIFF OMITTED] TR13SE01.075
    

[[Page 468]]


    [b] For Government single family Loan Groups, complete the following 
three steps:
1. Compute a Loss Severity value for FHA-insured loans using the 
          Conventional formula for all government loans. FHA 
          reimbursement rates will be reflected in the value of 
          MIm, as computed in section 3.6.3.6.4.3, Mortgage 
          Credit Enhancement Procedures, of this Appendix.
2. Compute a Loss Severity value for VA-insured loans as follows for all 
          government loans:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.076
          
Where:

0.30 is a fixed percentage representing the VA guarantee coverage 
          percentage. (The VA coverage rate is a function of the initial 
          loan size.)

3. Compute Net Loss Severity by combining FHA-insured and VA-insured 
          Loss Severity values as follows:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.077
          
    [c] For multifamily Loan Groups other than FHA-Insured:
    [GRAPHIC] [TIFF OMITTED] TR13SE01.078
    
    [d] For FHA-Insured multifamily Loan Groups:
    [GRAPHIC] [TIFF OMITTED] TR13SE01.079
    
3.6.3.6.5.2 Single Family and Multifamily Net Loss Severity Outputs

    Net Loss Severity outputs are set forth in Table 3-50:

     Table 3-50--Single Family and Multifamily Loss Severity Outputs
------------------------------------------------------------------------
            Variable                           Description
------------------------------------------------------------------------
LSmSF                            Loss Severity (as a fraction of
                                  Defaulted UPB) for single family loans
                                  in month m
------------------------------------------------------------------------
LSmMF                            Loss Severity (as a fraction of
                                  Defaulted UPB) for multifamily loans
                                  in month m
------------------------------------------------------------------------


[[Page 469]]

Single family and multifamily Loss Severities for months 1...120 of the 
Stress Test are used in section 3.6.3.7, Stress Test Whole Loan Cash 
Flows, of this Appendix.

                3.6.3.7 Stress Test Whole Loan Cash Flows

           3.6.3.7.1 Stress Test Whole Loan Cash Flow Overview

    This section combines the mortgage Amortization Schedules with 
Default, Prepayment and Net Loss Severity Rates to produce performance-
adjusted cash flows for Enterprise Whole Loans in the Stress Test.

            3.6.3.7.2 Stress Test Whole Loan Cash Flow Inputs

    The inputs required to compute Stress Test Whole Loan Cash Flows for 
each Loan Group are listed in Table 3-51.

                  Table 3-51--Inputs for Final Calculation of Stress Test Whole Loan Cash Flows
----------------------------------------------------------------------------------------------------------------
              Variable                                 Description                              Source
----------------------------------------------------------------------------------------------------------------
UPBm                                  Aggregate Unpaid Principal Balance in month m  section 3.6.3.3.4, Mortgage
                                       = 0 ... RM                                     Amortization Schedule
                                                                                      Outputs
----------------------------------------------------------------------------------------------------------------
NYRm                                  Net Yield Rate in month m = 1 ... RM           section 3.6.3.3.4, Mortgage
                                                                                      Amortization Schedule
                                                                                      Outputs
----------------------------------------------------------------------------------------------------------------
GF                                    Guarantee Fee rate (weighted average for Loan  RBC Report
                                       Group) (decimal per annum)
----------------------------------------------------------------------------------------------------------------
PTRm                                  Pass-Through Rate in month m = 1 ... RM        section 3.6.3.3.4, Mortgage
                                                                                      Amortization Schedule
                                                                                      Outputs
----------------------------------------------------------------------------------------------------------------
SPm                                   Aggregate Scheduled Principal (Amortization)   section 3.6.3.3.4, Mortgage
                                       in month m = 1 ... RM                          Amortization Schedule
                                                                                      Outputs
----------------------------------------------------------------------------------------------------------------
PREm\SF\                              Prepaying Fraction of original Loan Group in   section 3.6.3.4.4, Single
PREm\MF\                               month                                          Family Default and
                                      m = 1 ... RM                                    Prepayment Outputs and,
                                                                                     section 3.6.3.5.4,
                                                                                      Multifamily Default and
                                                                                      Prepayment Outputs
----------------------------------------------------------------------------------------------------------------
DEFm\SF\                              Defaulting Fraction of original Loan Group in  section 3.6.3.4.4, Single
DEFm\MF\                               month                                          Family Default and
                                      m = 1 ... RM                                    Prepayment Outputs and,
                                                                                     section 3.6.3.5.4,
                                                                                      Multifamily Default and
                                                                                      Prepayment Outputs
----------------------------------------------------------------------------------------------------------------
PERFm\SF\                             Performing Fraction of original Loan Group in  section 3.6.3.4.4, Single
PERFm\MF\                              month                                          Family Default and
                                      m = 1 ... RM                                    Prepayment Outputs and,
                                                                                     section 3.6.3.5.4,
                                                                                      Multifamily Default and
                                                                                      Prepayment Outputs
----------------------------------------------------------------------------------------------------------------
FDS                                   Float Days for Scheduled Principal and         RBC Report
                                       Interest (weighted average for Loan Group)
----------------------------------------------------------------------------------------------------------------
FDP                                   Float Days for Prepaid Principal (weighted     RBC Report
                                       average for Loan Group)
----------------------------------------------------------------------------------------------------------------
FERm                                  Float Earnings Rate in month m = 1 ... RM      1 week Fed Funds Rate;
                                                                                      section 3.3, Interest
                                                                                      Rates
----------------------------------------------------------------------------------------------------------------

[[Page 470]]

 
LSm\SF\                               Loss Severity Rate in month m = 1 ... RM       section 3.6.3.6.5.2, Single
                                                                                      Family and Multifamily Net
                                                                                      Loss Severity Outputs
----------------------------------------------------------------------------------------------------------------
FREP                                  Fraction Repurchased (weighted average for     RBC Report
                                       Loan Group) (decimal)
----------------------------------------------------------------------------------------------------------------

          3.6.3.7.3 Stress Test Whole Loan Cash Flow Procedures

    [a] Calculate Stress Test whole loan cash flows using the following 
nine steps:
1. Calculate Scheduled Principal Received (SPR) in month m:
[GRAPHIC] [TIFF OMITTED] TR13SE01.080

    Note: Scheduled Principal Received is zero, not negative, when 
amortization is negative.
2. Calculate Net Interest Received (NIR) in month m. Any interest 
          shortfall due to Negative Amortization reduces Net Yield 
          directly. Note: NIR includes loans that default in month m, 
          because lost interest is included in Credit Losses in step 6) 
          of this section. (See section 3.6.3.6, Calculation of Single 
          Family and Multifamily Mortgage Losses, of this Appendix.)
          [GRAPHIC] [TIFF OMITTED] TR13SE01.081
          
3. Calculate Prepaid Principal Received (PPR) in month m:
[GRAPHIC] [TIFF OMITTED] TR13SE01.082

4. Calculate newly Defaulted Principal (DP) in month m:
[GRAPHIC] [TIFF OMITTED] TR13SE01.083

5. Calculate Recovery Principal Received (RPR) on account of loans that 
          Defaulted in month m:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.084
          
6. Calculate Credit Losses (CL) on account of loans that Defaulted in 
          month m:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.085
          
    In addition, if m = RM and UPBRM  0 then,
    [GRAPHIC] [TIFF OMITTED] TR13SE01.086
    
7. Calculate Performing Loan Group UPB in month m (PUPBm), 
          including PUPB0.
    Note: All loans are assumed to be performing in month 0; therefore 
PUPB0 = UPB0.
[GRAPHIC] [TIFF OMITTED] TR13SE01.087

8. Calculate Total Principal Received (TPR) and Total Interest Received 
          (TIR) in month m:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.088
          
9. For Sold Loans, calculate the following cash flow components:
    a. Guarantee Fee (GF) received in month m:
    [GRAPHIC] [TIFF OMITTED] TR13SE01.089
    
b. Float Income (FI) received in month m
[GRAPHIC] [TIFF OMITTED] TR15MR02.012


[[Page 471]]


where: Prepayment Interest Shortfall (PIS) in month m is:
[GRAPHIC] [TIFF OMITTED] TR15MR02.013

           3.6.3.7.4 Stress Test Whole Loan Cash Flow Outputs

    The Whole Loan Cash Flows in Table 3-52 are used to prepare pro 
forma balance sheets and income statements for each month of the Stress 
Period (see section 3.10 Operations, Taxes and Accounting, of this 
Appendix). For Retained Loan groups, cash flows consist of Scheduled 
Principal, Prepaid Principal, Defaulted Principal, Credit Losses, and 
Interest. For Sold Loan groups, cash flow consists of Credit Losses, 
Guarantee Fees and Float Income. For Repurchased MBSs, cash flows are 
allocated according to the Fraction Repurchased. Table 3-52 covers all 
cases; for Retained Loans FREP = 1.0.

              Table 3-52--Outputs for Whole Loan Cash Flows
------------------------------------------------------------------------
            Variable                           Description
------------------------------------------------------------------------
SPRm                             Scheduled Principal Received in month m
                                  = 1...RM
------------------------------------------------------------------------
PPRm                             Prepaid Principal Received in month m =
                                  1...RM
------------------------------------------------------------------------
DPm                              Defaulted Principal in month m = 1...RM
------------------------------------------------------------------------
CLm                              Credit Losses in month m = 1...RM
------------------------------------------------------------------------
PUPBm                            Performing Loan Group UPB in month m =
                                  0...RM
------------------------------------------------------------------------
TPRm                             Total Principal Received in month m =
                                  1...RM
------------------------------------------------------------------------
TIRm                             Total Interest Received in month m =
                                  1...RM
------------------------------------------------------------------------
GFm                              Guarantee Fees received in month m =
                                  1...RM
------------------------------------------------------------------------
FIm                              Float Income received in month m =
                                  1...RM
------------------------------------------------------------------------


                               Table 3-53--Additional Outputs for Repurchased MBSs
----------------------------------------------------------------------------------------------------------------
              Variable                          Quantity                             Description
----------------------------------------------------------------------------------------------------------------
STPRm                                 FREP x (SPRm + PPRm+ DPm)     Enterprise's portion of Total Principal
                                                                     Received in months m = 1...RM, reflecting
                                                                     its fractional ownership of the MBS
----------------------------------------------------------------------------------------------------------------
STIRm                                 FREP x (TIRm-GFm)             Enterprise's portion of Total Interest
                                                                     Received (at the Pass-Through Rate) in
                                                                     months m = 1...RM, reflecting its
                                                                     fractional ownership of the MBS
----------------------------------------------------------------------------------------------------------------
SPUPBm                                FREP x PUPBm                  Enterprise's portion of the Performing UPB
                                                                     of the repurchased MBS in months m =
                                                                     0...RM, reflecting its fractional ownership
                                                                     of the MBS
----------------------------------------------------------------------------------------------------------------

                   3.6.3.8 Whole Loan Accounting Flows

             3.6.3.8.1 Whole Loan Accounting Flows Overview

    [a] For accounting purposes, cash flows are adjusted to reflect (1) 
the value over time of discounts, premiums and fees paid or received 
(Deferred Balances) when an asset was acquired; and (2) the fact that 
mortgage interest is paid in arrears, i.e. it is received in the month 
after it is earned. In the Stress Test calculations, payments are 
indexed by the month in which they are received. Therefore, interest 
received in month m was earned in month m-1. However, principal is 
accounted for in the month received.
    [b] Deferred Balances are amortized over the remaining life of the 
asset. Therefore,

[[Page 472]]

these calculations go beyond the end of the Stress Test if the Remaining 
Maturity (RM) is greater than the 120 months of the Stress Test. The 
projection of cash flows beyond the end of the Stress Test is discussed 
in the individual sections where the cash flows are first calculated. In 
general, for interest rate indexes, monthly Prepayment rates and monthly 
Default rates, the value for m = 120 is used for all months 120 < m <= 
RM, but LS = 0 for m  120.

              3.6.3.8.2 Whole Loan Accounting Flows Inputs

    The inputs in Table 3-54 are required to compute Accounting Flows:

                               Table 3-54--Inputs for Whole Loan Accounting Flows
----------------------------------------------------------------------------------------------------------------
              Variable                                 Description                              Source
----------------------------------------------------------------------------------------------------------------
RM                                    Remaining Term to Maturity in months           RBC Report
----------------------------------------------------------------------------------------------------------------
UPD0                                  Sum of all unamortized discounts, premiums,    RBC Report
                                       fees, commissions, etc. for the loan group,
                                       such that the unamortized balance equals the
                                       book value minus the face value for the loan
                                       group at the start of the Stress Test,
                                       adjusted by the Unamortized Balance Scale
                                       Factor
----------------------------------------------------------------------------------------------------------------
NYR0                                  Net Yield Rate at time zero                    section 3.6.3.3.4, Mortgage
                                                                                      Amortization Schedule
                                                                                      Outputs
----------------------------------------------------------------------------------------------------------------
PUPBm                                 Performing Loan Group UPB in months m = 0 ...  section 3.6.3.7.4, Stress
                                       RM                                             Test Whole Loan Cash Flow
                                                                                      Outputs
----------------------------------------------------------------------------------------------------------------
PTR0                                  Pass-Through Rate at time zero                 section 3.6.3.3.4, Mortgage
                                                                                      Amortization Schedule
                                                                                      Outputs
----------------------------------------------------------------------------------------------------------------
SPUPBm                                Security Performing UPB in months m = 0 ...    section 3.6.3.7.4, Stress
                                       RM                                             Test Whole Loan Cash Flow
                                                                                      Outputs
----------------------------------------------------------------------------------------------------------------
SUPD0                                 The sum of all unamortized discounts,          RBC Report
                                       premiums, fees, commissions, etc. associated
                                       with the securities modeled using the Wtd
                                       Ave Percent Repurchased, such that the
                                       unamortized balance equals the book value
                                       minus the face value for the relevant
                                       securities at the start of the Stress Test,
                                       adjusted by the percent repurchased and the
                                       Security Unamortized Balance Scale Factor
----------------------------------------------------------------------------------------------------------------

            3.6.3.8.3 Whole Loan Accounting Flows Procedures

        3.6.3.8.3.1 Accounting for Retained and Sold Whole Loans

    [a] Complete the following three steps to account for Retained and 
Sold loans:
1. Compute Allocated Interest in month m (AI\m\) as follows:
[GRAPHIC] [TIFF OMITTED] TR13SE01.093

    Note: Allocated Interest is used only to determine the allocation of 
Amortization Expense over time, not to generate actual cash flows)
2. Calculate the monthly Internal Rate of Return (IRR) that equates the 
          adjusted cash flows (actual principal plus Allocated Interest) 
          to the Initial Book Value (BV0) of the Loan Group. 
          A single IRR is used for all months m. Solve for IRR such 
          that:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.094
          
Where:
[GRAPHIC] [TIFF OMITTED] TR13SE01.095


[[Page 473]]


3. Calculate the monthly Amortization Expense for each month m:
    a. If BV0 < 0, or if 12 x IRR  1.0 (100%), or 
if
[GRAPHIC] [TIFF OMITTED] TR13SE01.096

then the full amount of UPD0 is realized in the first month 
(AE1 = -UPD0)
    b. Otherwise:
    [GRAPHIC] [TIFF OMITTED] TR13SE01.097
    
         3.6.3.8.3.2 Additional Accounting for Repurchased MBSs

    [a] Complete the following three steps to account for Repurchased 
MBSs:
1. Compute Security Allocated Interest in month m (SAIm) as 
          follows:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.098
          
 Note: Security Allocated Interest is used only to determine the 
allocation of Security Amortization Expense over time, not to generate 
actual cash flows.

2. Calculate the monthly Internal Rate of Return (IRR) that equates the 
          adjusted cash flows (actual principal plus Allocated Interest) 
          to the Initial Book Value (SBV0) of the Loan Group. 
          A single IRR is used for all months m. Solve for IRR such 
          that:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.099
          
Where:

SBV0 = SPUPB0 + SUPD0
SACFm = SAIm - SPUPBm + 
          SPUPBm-1
3. Calculate the monthly Security Amortization Expense for each month m:
    a. If SBV0 < 0, or if 12 x IRR  1.0 (100%), or 
if
[GRAPHIC] [TIFF OMITTED] TR13SE01.100

then the full amount of SUPD0 is realized in the first month 
(SAE1 = -SUPD0).
    b. Otherwise:
    [GRAPHIC] [TIFF OMITTED] TR13SE01.101
    
              3.6.3.8.4 Whole Loan Accounting Flows Outputs

    Whole loan accounting flows outputs are set forth in Table 3-55. 
Amortization Expense for months m = 1...RM are used in section 3.10, 
Operations, Taxes, and Accounting, of this Appendix.

           Table 3-55--Outputs for Whole Loan Accounting Flows
------------------------------------------------------------------------
                Variable                           Description
------------------------------------------------------------------------
AEm                                      Amortization Expense for months
                                          m = 1...RM
------------------------------------------------------------------------
SAEm                                     Security Amortization Expense
                                          for months m = 1...RM
------------------------------------------------------------------------

                3.6.4 Final Whole Loan Cash Flow Outputs

    The final outputs for section 3.6, Whole Loan Cash Flows, of this 
Appendix are as specified in Table 3-52, and Table 3-55.

               3.7 Mortgage-Related Securities Cash Flows

               3.7.1 Mortgage-Related Securities Overview

    [a] Mortgage-Related Securities (MRSs) include Single Class MBSs, 
Multi-class MBSs (REMICs or Collateralized Mortgage Obligations (CMOs)), 
Mortgage Revenue Bonds (MRBs), and Derivative Mortgage Securities such 
as Interest-Only and Principal-Only Stripped MBSs. MBSs and Derivative 
Mortgage Securities are issued by the Enterprises, Ginnie Mae and 
private issuers. MRBs are issued by State and local governments or their 
instrumentalities. For computational purposes, certain Asset-Backed 
Securities (ABS) backed by mortgages (Mortgage ABSs backed by 
manufactured housing loans, second mortgages or home equity loans) are 
treated as REMICs in the Stress Test.
    [b] Cash flows from Single Class MBSs represent the pass-through of 
all principal and interest payments, net of servicing and guarantee 
fees, on the underlying pools of mortgages. Cash flows from Multi-Class 
MBSs and Derivative Mortgage Securities represent a specified portion of 
the cash flows produced by an underlying pool of mortgages and/or

[[Page 474]]

Mortgage-Related Securities, determined according to rules set forth in 
offering documents for the securities. MRBs may have specific maturity 
schedules and call provisions, whereas MBSs have only expected 
maturities and, in most cases, no issuer call provision (other than 
``cleanup calls'' if the pool balance becomes quite small). However, the 
timing of principal payments for MRBs is still closely related to that 
of their underlying mortgage collateral. The Stress Test treats most 
MRBs in a manner similar to single class MBSs. Finally, a small number 
of Enterprise and private label REMIC securities for which modeling 
information is not readily available and which are not modeled by a 
commercial information service (referred to as ``miscellaneous MRS'') 
are treated separately.
    [c] In addition to reflecting the defaults of mortgage borrowers 
during the Stress Period, the Stress Test considers the possibility of 
issuer Default on Mortgage-Related Securities. Credit impairments 
throughout the Stress Period are based on the rating of these 
securities, and are modeled by reducing contractual interest payments 
and ``writing down'' principal. No Credit Losses are assumed for the 
Enterprise's own securities and Ginnie Mae securities (see section 
3.5.3, Counterparty Defaults Procedures, of this Appendix).
    [d] The calculation of cash flows for Mortgage-Related Securities 
requires information from the Enterprises identifying their holdings, 
publicly available information characterizing the securities, and 
information on the interest rate, mortgage performance and credit rating 
(for rated securities).
    [e] Cash and accounting flows--monthly principal and interest 
payments and amortization expense--are produced for each month of the 
Stress Period for each security. (Principal- and interest-only 
securities pay principal or interest respectively.) These cash flows are 
input to the Operations, Taxes, and Accounting component of the Stress 
Test.

                3.7.2 Mortgage-Related Securities Inputs

             3.7.2.1 Inputs Specifying Individual Securities

                       3.7.2.1.1 Single Class MBSs

    The information in Table 3-56 is required for single class MBSs held 
by an Enterprise at the start of the Stress Test. This information 
identifies the Enterprise's holdings and describes the MBS and the 
underlying mortgage loans.

                          Table 3-56--RBC Report Inputs for Single Class MBS Cash Flows
----------------------------------------------------------------------------------------------------------------
                  Variable                                               Description
----------------------------------------------------------------------------------------------------------------
Pool Number                                  A unique number identifying each mortgage pool
----------------------------------------------------------------------------------------------------------------
CUSIP Number                                 A unique number assigned to publicly traded securities by the
                                              Committee on Uniform Securities Identification Procedures
----------------------------------------------------------------------------------------------------------------
Issuer                                       Issuer of the mortgage pool
----------------------------------------------------------------------------------------------------------------
Original UPB Amount                          Original pool balance multiplied by the Enterprise's percentage
                                              ownership
----------------------------------------------------------------------------------------------------------------
Current UPB Amount                           Initial Pool balance (at the start of the Stress Test), multiplied
                                              by the Enterprise's percentage ownership
----------------------------------------------------------------------------------------------------------------
Product Code                                 Mortgage product type for the pool
----------------------------------------------------------------------------------------------------------------
Security Rate Index                          If the rate on the security adjusts over time, the index that the
                                              adjustment is based on
----------------------------------------------------------------------------------------------------------------
Unamortized Balance                          The sum of all unamortized discounts, premiums, fees, commissions,
                                              etc., such that the unamortized balance equals book value minus
                                              face value, adjusted by the Unamortized Balance Scale Factor
----------------------------------------------------------------------------------------------------------------
Wt Avg Original Amortization Term            Original amortization term of the underlying loans, in months
                                              (weighted average for underlying loans)
----------------------------------------------------------------------------------------------------------------
Wt Avg Remaining Term of Maturity            Remaining Maturity of the underlying loans at the start of the
                                              Stress Test (weighted average for underlying loans)
----------------------------------------------------------------------------------------------------------------
Wt Avg Age                                   Age of the underlying loans at the start of the Stress Test
                                              (weighted average for underlying loans)
----------------------------------------------------------------------------------------------------------------

[[Page 475]]

 
Wt Avg Current Mortgage Interest rate        Mortgage Interest Rate of the underlying loans at the start of the
                                              Stress Test (weighted average for underlying loans)
----------------------------------------------------------------------------------------------------------------
Wt Avg Pass-Through Rate                     Pass-Through Rate of the underlying loans at the start of the
                                              Stress Test (weighted average for underlying loans)
----------------------------------------------------------------------------------------------------------------
Wtg Avg Original Mortgage Interest Rate      The current UPB weighted average Mortgage Interest Rate in effect
                                              at Origination for the loans in the pool
----------------------------------------------------------------------------------------------------------------
Security Rating                              The most current rating issued by any Nationally Recognized
                                              Statistical Rating Organization (NRSRO) for this security, as of
                                              the reporting date. In the case of a ``split'' rating, the lowest
                                              rating should be given
----------------------------------------------------------------------------------------------------------------
Wt Avg Gross Margin                          Gross margin for the underlying loans (ARM MBS only) (weighted
                                              average for underlying loans)
----------------------------------------------------------------------------------------------------------------
Wt Avg Net Margin                            Net margin (used to determine the security rate for ARM MBS)
                                              (weighted average for underlying loans)
----------------------------------------------------------------------------------------------------------------
Wt Avg Rate Reset Period                     Rate reset period in months (ARM MBS only) (weighted average for
                                              underlying loans)
----------------------------------------------------------------------------------------------------------------
Wt Avg Rate Reset Limit                      Rate reset limit up/down (ARM MBS only) (weighted average for
                                              underlying loans)
----------------------------------------------------------------------------------------------------------------
Wt Avg Life Interest Rate Ceiling            Maximum rate (lifetime cap) (ARM MBS only) (weighted average for
                                              underlying loans)
----------------------------------------------------------------------------------------------------------------
Wt Avg Life Interest Rate Floor              Minimum rate (lifetime floor) (ARM MBS only) (weighted average for
                                              underlying loans)
----------------------------------------------------------------------------------------------------------------
Wt Avg Payment Reset Period                  Payment reset period in months (ARM MBS only) (weighted average for
                                              underlying loans)
----------------------------------------------------------------------------------------------------------------
Wt Avg Payment Reset Limit                   Payment reset limit up/down (ARM MBS only) (weighted average for
                                              underlying loans)
----------------------------------------------------------------------------------------------------------------
Wt Avg Lookback Period                       The number of months to look back from the interest rate change
                                              date to find the index value that will be used to determine the
                                              next interest rate (ARM MBS only) (weighted average for underlying
                                              loans)
----------------------------------------------------------------------------------------------------------------
Wt Avg Negative Amortization Cap             The maximum amount to which the balance can increase before the
                                              payment is recast to a fully amortizing amount. It is expressed as
                                              a fraction of the original UPB. (ARM MBS only) (weighted average
                                              for underlying loans)
----------------------------------------------------------------------------------------------------------------
Wt Avg Initial Interest Rate Period          Number of months between the loan origination date and the first
                                              rate adjustment date (ARM MBS only) (weighted average for
                                              underlying loans)
----------------------------------------------------------------------------------------------------------------
Wt Avg Unlimited Payment Reset Period        Number of months between unlimited payment resets, i.e., not
                                              limited by payment caps, starting with Origination date (ARM MBS
                                              only) (weighted average for underlying loans)
----------------------------------------------------------------------------------------------------------------
Notional Flag                                Indicates that amounts reported in Original UPB Amount and Current
                                              UPB Amount are notional
----------------------------------------------------------------------------------------------------------------
UPB Scale Factor                             Factor applied to the current UPB that offsets any timing
                                              adjustments between the security level data and the Enterprise's
                                              published financials
----------------------------------------------------------------------------------------------------------------

[[Page 476]]

 
Whole Loan Modeling Flag                     Indicates that the Current UPB Amount and Unamortized Balance
                                              associated with this Repurchased MBS are included in the Wtg Avg
                                              Percent Repurchased and Security Unamortized Balance fields
----------------------------------------------------------------------------------------------------------------
FAS 115 Classification                       The financial instrument's classification according to FAS 115
----------------------------------------------------------------------------------------------------------------
HPGRK                                        Vector of House Price Growth Rates for quarters q=1...40 of the
                                              Stress Period
----------------------------------------------------------------------------------------------------------------

      3.7.2.1.2 Multi-Class MBSs and Derivative Mortgage Securities

    [a] The information in Table 3-57 is required for Multi-Class MBSs 
and Derivative Mortgage Securities held by an Enterprise at the start of 
the Stress Test. This information identifies the MBS and an Enterprise's 
holdings.

                   Table 3-57--RBC Report Inputs for Multi-Class and Derivative MBS Cash Flows
----------------------------------------------------------------------------------------------------------------
                  Variable                                               Description
----------------------------------------------------------------------------------------------------------------
CUSIP Number                                 A unique number assigned to publicly traded securities by the
                                              Committee on Uniform Securities Identification Procedures
----------------------------------------------------------------------------------------------------------------
Issuer                                       Issuer of the security: FNMA, FHLMC, GNMA or other
----------------------------------------------------------------------------------------------------------------
Original Security Balance                    Original principal balance of the security (notional amount for
                                              Interest-Only securities) at the time of issuance, multiplied by
                                              the Enterprise's percentage ownership
----------------------------------------------------------------------------------------------------------------
Current Security Balance                     Initial principal balance, or notional amount, at the start of the
                                              Stress Period multiplied by the Enterprise's percentage ownership
----------------------------------------------------------------------------------------------------------------
Current Security Percentage Owned            The percentage of a security's total current balance owned by the
                                              Enterprise
----------------------------------------------------------------------------------------------------------------
Unamortized Balance                          The sum of all unamortized discounts, premiums, fees, commissions,
                                              etc., such that the unamortized balance equals book value minus
                                              face value, adjusted by the Unamortized Balance Scale Factor.
----------------------------------------------------------------------------------------------------------------

    [b] The Stress Test requires sufficient information about the cash 
flow allocation rules among the different classes of a Multi-Class MBS 
to determine the cash flows for the individual class(es) owned by an 
Enterprise, including descriptions of the component classes of the 
security, the underlying collateral, and the rules directing cash flows 
to the component classes. This information is obtained from offering 
documents or securities data services. In the Stress Test, this 
information is used either as an input to a commercial modeling service 
or, for securities that are not so modeled, to derive an approximate 
modeling treatment as described more fully in this section.
    [c] If a Derivative Mortgage Security is itself backed by one or 
more underlying securities, sufficient information is required for each 
underlying security as described in the preceding paragraph.

         3.7.2.1.3 Mortgage Revenue Bonds and Miscellaneous MRSs

    [a] The Stress Test requires two types of information for Mortgage 
Revenue Bonds and miscellaneous MRS held by an Enterprise at the start 
of the Stress Test: information identifying the Enterprise's holdings 
and the contractual terms of the securities. The inputs required for 
these instruments are set forth in Table 3-58.

                      Table 3-58--RBC Report Inputs for MRBs and Derivative MBS Cash Flows
----------------------------------------------------------------------------------------------------------------
                  Variable                                               Description
----------------------------------------------------------------------------------------------------------------
CUSIP Number                                 A unique number assigned to publicly traded securities by the
                                              Committee on Uniform Securities Identification Procedures
----------------------------------------------------------------------------------------------------------------

[[Page 477]]

 
Original Security Balance                    Original principal balance, multiplied by the Enterprise's
                                              percentage ownership
----------------------------------------------------------------------------------------------------------------
Current Security Balance                     Initial principal balance (at start of Stress Period), multiplied
                                              by the Enterprise's percentage ownership
----------------------------------------------------------------------------------------------------------------
Unamortized Balance                          The sum of all unamortized discounts, premiums, fees, commissions,
                                              etc., such that the unamortized balance equals book value minus
                                              face value, adjusted by the Unamortized Balance Scale Factor
----------------------------------------------------------------------------------------------------------------
Issue Date                                   The Issue Date of the security
----------------------------------------------------------------------------------------------------------------
Maturity Date                                The stated Maturity Date of the security
----------------------------------------------------------------------------------------------------------------
Security Interest Rate                       The rate at which the security earns interest, as of the reporting
                                              date
----------------------------------------------------------------------------------------------------------------
Principal Payment Window Starting Date,      The month in the Stress Test that principal payment is expected to
 Down-Rate Scenario                           start for the security under the statutory ``down'' interest rate
                                              scenario, according to Enterprise projections
----------------------------------------------------------------------------------------------------------------
Principal Payment Window Ending Date, Down-  The month in the Stress Test that principal payment is expected to
 Rate Scenario                                end for the security under the statutory ``down'' interest rate
                                              scenario, according to Enterprise projections
----------------------------------------------------------------------------------------------------------------
Principal Payment Window Starting Date, Up-  The month in the Stress Test that principal payment is expected to
 Rate Scenario                                start for the security under the statutory ``up'' interest rate
                                              scenario, according to Enterprise projections
----------------------------------------------------------------------------------------------------------------
Principal Payment Window Ending Date, Up-    The month in the Stress Test that principal payment is expected to
 Rate Scenario                                end for the security under the statutory ``up'' interest rate
                                              scenario, according to Enterprise projections
----------------------------------------------------------------------------------------------------------------
Security Rating                              The most current rating issued by any Nationally Recognized
                                              Statistical Rating Organization (NRSRO) for this security, as of
                                              the reporting date. In the case of a ``split'' rating, the lowest
                                              rating should be given.
----------------------------------------------------------------------------------------------------------------
Security Rate Index                          If the rate on the security adjusts over time, the index on which
                                              the adjustment is based
----------------------------------------------------------------------------------------------------------------
Security Rate Index Coefficient              If the rate on the security adjusts over time, the coefficient is
                                              the number used to multiply by the value of the index
----------------------------------------------------------------------------------------------------------------
Security Rate Index Spread                   If the rate on the security adjusts over time, the spread is added
                                              to the value of the index multiplied by the coefficient to
                                              determine the new rate
----------------------------------------------------------------------------------------------------------------
Security Rate Adjustment Frequency           The number of months between rate adjustments
----------------------------------------------------------------------------------------------------------------
Security Interest Rate Ceiling               The maximum rate (lifetime cap) on the security
----------------------------------------------------------------------------------------------------------------
Security Interest Rate Floor                 The minimum rate (lifetime floor) on the security
----------------------------------------------------------------------------------------------------------------

    [b] The Payment Window Starting and Ending Dates are projected by 
the Enterprise on the basis of prospectus information or simulations 
from a dealer in the securities or other qualified source, such as the 
structured finance division of an accounting firm, for the two statutory 
scenarios.

                      3.7.2.2 Interest Rate Inputs

    Interest rates projected for each month of the Stress Period are 
used to calculate principal amortization and interest payments for ARM 
MBSs and MRBs, and for Derivative Mortgage Securities with indexed 
coupon rates. This information is produced in section 3.3, Interest 
Rates, of this Appendix.

[[Page 478]]

                   3.7.2.3 Mortgage Performance Inputs

    Default and Prepayment rates for the loans underlying a single- or 
multiclass MBS are computed according to the characteristics of the 
loans as specified in this section 3.7.2, Mortgage-Related Securities 
Inputs. LTV and Census Region are not uniquely specified for the loans 
underlying a given security; instead, the Prepayment and Default rates 
are averaged over all LTV categories, weighted according to the 
distribution of LTVs given in Table 3-59. (This weighting applies to 
Time Zero, i.e., the start of the Stress Test; the weightings will 
change over time as individual LTV groups pay down at different rates. 
See section 3.7.3, Mortgage-Related Securities Procedures, of this 
Appendix.) Instead of Census Division, the national average HPI is used 
for all calculations in this section.

    Table 3-59--Aggregate Enterprise Amortized Original LTV (AOLTV0)
                            Distribution \1\
------------------------------------------------------------------------
                                                                Wt Avg
                 Original LTV                       UPB       AOLTV for
                                               Distribution     Range
------------------------------------------------------------------------
00404. The contents of the
  table appear at http://www.OFHEO.gov.
Note: Amortized Original LTV (also known as the ``current-loan-to-
  original-value'' ratio) is the Original LTV adjusted for the change in
  UPB but not for changes in property value.

                    3.7.2.4 Third-Party Credit Inputs

    For securities not issued by the Enterprise or Ginnie Mae, issuer 
Default risk is reflected by haircutting the instrument cash flows based 
on the rating of the security, as described in section 3.5, Counterparty 
Defaults, of this Appendix.

              3.7.3 Mortgage-Related Securities Procedures

    The following sections describe the calculations for (1) single 
class MBSs, (2) Multi-Class MBSs and derivative mortgage securities, and 
(3) MRBs and miscellaneous MRS.

                        3.7.3.1 Single Class MBSs

    [a] The calculation of cash flows for single class MBSs is based on 
the procedures outlined earlier in section 3.6, Whole Loan Cash Flows, 
of this Appendix. The collateral (i.e., the mortgage pool) underlying 
each MBS is treated as one single family Loan Group with characteristics 
equal to the weighted average characteristics of the underlying loans.
    [b] For each MBS, compute the scheduled cash flows specified in 
Table 3-33, as directed in section 3.6.3.3.3, Mortgage Amortization 
Schedule Procedures of this Appendix, with the following exceptions and 
clarifications:
1. The Net Yield Rate (NYR) is not used in the MBS calculation. Instead, 
          the Pass-Through Rate (for Fixed-Rate MBSs) and INDEX + Net 
          Margin (for Adjustable-Rate MBSs) are used.
2. PMT is not a direct input for MBSs. (That is, it is not specified in 
          the RBC Report.) Instead, compute PMT from UPB, MIR and 
          remaining amortizing term AT-A0, using the standard 
          mortgage payment formula (and update it as appropriate for 
          ARMs, as described in the Whole Loan calculation).
3. For ARM MBS, interest rate and monthly payment adjustments for the 
          underlying loans are calculated in the same manner as they are 
          for ARM Loan Groups.
4. MBSs backed by Biweekly mortgages, GPMs, TPMs, GEMs, and Step 
          mortgages are mapped into mortgage types as described in 
          section 3.6, Whole Loan Cash Flows, of this Appendix.
    [c] Use the Loan Group characteristics to generate Default and 
Prepayment rates as described in section 3.6.3.4.3, Single Family 
Default and Prepayment Procedures, of this Appendix. For the following 
explanatory variables that are not specified for MBSs, proceed as 
follows:
1. For fixed rate Ginnie Mae certificates and the small number of 
          multifamily MBS held by the Enterprises, use the model 
          coefficients for Government Loans. For loans underlying Ginnie 
          Mae ARM certificates, use the conventional ARM model 
          coefficients.
2. Set Investor Fraction (IF) = 7.56%
3. Set Relative Loan Size (RLS) = 1.0. For Ginnie Mae certificates, use 
          RLS = 0.75.
4. For LTVORIG of the underlying loans: Divide the MBS's 
          single weighted average Loan Group into several otherwise 
          identical Loan Groups (``LTV subgroups''), one for each 
          Original LTV range specified in Table 3-59. UPB0 
          for each of these LTV subgroups is the specified percentage of 
          the aggregate UPB0. AOLTV0 for each 
          subgroup is also specified in Table 3-59. For Ginnie Mae 
          certificates, use only the 95 < LTV <= 100 LTV category and 
          its associated weighted average LTV.

[[Page 479]]

5. For each LTV subgroup, compute LTV0 as follows:
[GRAPHIC] [TIFF OMITTED] TR13SE01.102

Where:

HPI = the national average HPI figures in Table 3-60 (updated as 
          necessary from subsequent releases of the OFHEO HPI).
A0 = weighted average age in months of the underlying loans 
          immediately prior to the start of the Stress Test.
AQ0 = weighted average age in quarters of the underlying 
          loans immediately prior to the start of the Stress Test. 
          AQ0 = int (A0/3).
AQ'0 = AQ0 minus the number of whole quarters 
          between the most recently available HPI at the start of the 
          Stress Test and time zero.
    If AQ'0<=0, then LTV0 = AOLTV0.

                                 Table 3-60--Historical National Average HPI \1\
----------------------------------------------------------------------------------------------------------------
       Quarter \2\             HPI              Quarter              HPI              Quarter             HPI
----------------------------------------------------------------------------------------------------------------
1975Q1                         62.45   1983Q4                       116.63   1992Q3                       177.94
----------------------------------------------------------------------------------------------------------------
1975Q2                         63.50   1984Q1                       118.31   1992Q4                       178.71
----------------------------------------------------------------------------------------------------------------
1975Q3                         62.85   1984Q2                       120.40   1993Q1                       178.48
----------------------------------------------------------------------------------------------------------------
1975Q4                         63.92   1984Q3                       121.68   1993Q2                       179.89
----------------------------------------------------------------------------------------------------------------
1976Q1                         65.45   1984Q4                       122.94   1993Q3                       180.98
----------------------------------------------------------------------------------------------------------------
1976Q2                         66.73   1985Q1                       124.81   1993Q4                       182.38
----------------------------------------------------------------------------------------------------------------
1976Q3                         67.73   1985Q2                       126.91   1994Q1                       183.35
----------------------------------------------------------------------------------------------------------------
1976Q4                         68.75   1985Q3                       129.38   1994Q2                       183.95
----------------------------------------------------------------------------------------------------------------
1977Q1                         70.70   1985Q4                       131.20   1994Q3                       184.43
----------------------------------------------------------------------------------------------------------------
1977Q2                         73.34   1986Q1                       133.77   1994Q4                       184.08
----------------------------------------------------------------------------------------------------------------
1977Q3                         75.35   1986Q2                       136.72   1995Q1                       184.85
----------------------------------------------------------------------------------------------------------------
1977Q4                         77.71   1986Q3                       139.37   1995Q2                       187.98
----------------------------------------------------------------------------------------------------------------
1978Q1                         79.96   1986Q4                       141.99   1995Q3                       190.81
----------------------------------------------------------------------------------------------------------------
1978Q2                         82.75   1987Q1                       145.07   1995Q4                       192.42
----------------------------------------------------------------------------------------------------------------
1978Q3                         85.39   1987Q2                       147.88   1996Q1                       194.80
----------------------------------------------------------------------------------------------------------------
1978Q4                         87.88   1987Q3                       150.21   1996Q2                       195.00
----------------------------------------------------------------------------------------------------------------
1979Q1                         91.65   1987Q4                       151.57   1996Q3                       195.78
----------------------------------------------------------------------------------------------------------------
1979Q2                         94.26   1988Q1                       154.26   1996Q4                       197.48
----------------------------------------------------------------------------------------------------------------
1979Q3                         96.24   1988Q2                       157.60   1997Q1                       199.39
----------------------------------------------------------------------------------------------------------------
1979Q4                         98.20   1988Q3                       159.25   1997Q2                       201.00
----------------------------------------------------------------------------------------------------------------
1980Q1                        100.00   1988Q4                       160.96   1997Q3                       203.94
----------------------------------------------------------------------------------------------------------------
1980Q2                        100.86   1989Q1                       163.10   1997Q4                       206.97
----------------------------------------------------------------------------------------------------------------
1980Q3                        104.27   1989Q2                       165.33   1998Q1                       210.09
----------------------------------------------------------------------------------------------------------------
1980Q4                        104.90   1989Q3                       169.09   1998Q2                       212.37
----------------------------------------------------------------------------------------------------------------
1981Q1                        105.69   1989Q4                       170.74   1998Q3                       215.53
----------------------------------------------------------------------------------------------------------------

[[Page 480]]

 
1981Q2                        107.85   1990Q1                       171.42   1998Q4                       218.09
----------------------------------------------------------------------------------------------------------------
1981Q3                        109.21   1990Q2                       171.31   1999Q1                       220.80
----------------------------------------------------------------------------------------------------------------
1981Q4                        109.38   1990Q3                       171.85   1999Q2                       224.32
----------------------------------------------------------------------------------------------------------------
1982Q1                        111.02   1990Q4                       171.03   1999Q3                       228.46
----------------------------------------------------------------------------------------------------------------
1982Q2                        111.45   1991Q1                       172.41   1999Q4                       232.41
----------------------------------------------------------------------------------------------------------------
1982Q3                        110.91   1991Q2                       173.14   2000Q1                       235.91
----------------------------------------------------------------------------------------------------------------
1982Q4                        111.96   1991Q3                       173.14   2000Q2                       240.81
----------------------------------------------------------------------------------------------------------------
1983Q1                        114.12   1991Q4                       175.46   2000Q3                       245.15
----------------------------------------------------------------------------------------------------------------
1983Q2                        115.33   1992Q1                       176.62
----------------------------------------------------------------------------------------------------------------
1983Q3                        116.15   1992Q2                       176.26
----------------------------------------------------------------------------------------------------------------
\1\ These numbers are updated as necessary from subsequent releases of the HPI after 2000Q3.
\2\ Note: If the underlying loans were originated before 1975, use the HPI from 1975Q1 as HPIORIG.

6. For each quarter q of the Stress Test, use UPBq and the 
          house price growth rates from the Benchmark regional time 
          period:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.103
          
7. Generate Default, Prepayment and Performance vectors PREm, 
          DEFm and PERFm for each LTV subgroup. 
          When LTVORIG is used as a categorical variable, use 
          the corresponding range defined for each LTV subgroup in Table 
          3-59. For LTV subgroup 95 < LTV < 100, use 90 < 
          LTVORIG in Table 3-35.
    [d] For each LTV subgroup, do not compute any Loss Severity or 
Credit Enhancement amounts. MBS investors receive the full UPB of 
defaulted loans.
    [e] Compute Total Principal Received (TPR), Total Interest Received 
(TIR), and Amortization Expense (AE) for each LTV subgroup as directed 
in section 3.6.3.7.3, Stress Test Whole Loan Cash Flow Procedures and 
section 3.6.3.8.3, Whole Loan Accounting Flows Procedures, of this 
Appendix, with the following exception:
1. For Net Interest Received (NIR), do not use the Net Yield Rate 
          (NYRm). Instead, use the Pass-Through Rate 
          (PTRm) for Fixed Rate Loans, and 
          INDEXm-1-LB + Wt Avg Net Margin, subject to rate 
          resets as described in section 3.6.3.3.3, Mortgage 
          Amortization Schedule Procedures, [a]1.b.3) of this Appendix, 
          for ARMs.
    2. Calculate Recovery Principal Received using a Loss Severity rate 
of zero (LS = 0).
    [f] Sum over the LTV subgroups to obtain the original MBS's TPR, TIR 
and AE for m = 1...RM.
    [g] Apply counterparty Haircuts in each month m as follows:
1. Compute:
[GRAPHIC] [TIFF OMITTED] TR15MR02.014

Where:

m' = m, except for MBS credit rating below BBB where m'=120
R = MBS credit rating

2. Compute:
[GRAPHIC] [TIFF OMITTED] TR26JA04.011

    [h] The resulting values, for each MBS, of TPR, TIR, AE, and HctAmt 
for months m = 1...RM are used in the section 3.10, Operations, Taxes, 
and Accounting, of this Appendix.

                        3.7.3.2 REMICs and Strips

    [a] Cash flows for REMICs and Strips are generated according to 
standard securities industry procedures, as follows:
1. From the CUSIP number of the security, identify the characteristics 
          of the underlying collateral. This is facilitated by using a 
          securities data service.
2. Calculate the cash flows for the underlying collateral in the manner 
          described for whole loans and MBS, based on Stress

[[Page 481]]

          Test interest, Default, and Prepayment rates appropriate for 
          the collateral.
3. Calculate cash flows for the Multiclass MBS using the allocation 
          rules specified in the offering materials.
4. Determine the cash flows attributable to the specific securities held 
          by an Enterprise, applying the Enterprise's ownership 
          percentage.
5. For securities not issued by the Enterprise or Ginnie Mae, reduce 
          cash flows by applying the Haircuts specified in section 3.5, 
          Counterparty Defaults, of this Appendix, as appropriate.
    [b] If a commercial information service is used for steps [a] 1 
through 4 of this section, the information service may model mortgage 
product types beyond those described for Whole Loans in section 3.6, 
Whole Loan Cash Flows, and ARM indexes in addition to those listed in 
section 3.3, Interest Rates, of this Appendix. In such cases, the cash 
flows used are generated from the actual data used by the information 
service for the underlying security.

          3.7.3.3 Mortgage Revenue Bonds and Miscellaneous MRS

    [a] Cash flows for mortgage revenue bonds and miscellaneous MRS are 
computed as follows:
1. From the start of the Stress Test until the first principal payment 
          date at the start of the Principal Payment Window, the 
          security pays coupon interest at the Security Interest Rate, 
          adjusted as necessary according to the Security Rate Index and 
          Adjustment information in Table 3-58, but pays no principal.
2. During the Principal Payment Window, the security pays principal and 
          interest equal to the aggregate cash flow from a level pay 
          mortgage whose term is equal to the length of the Principal 
          Payment Window and whose interest rate is the Security 
          Interest Rate. If the Security Interest Rate is zero (as in 
          the case of zero-coupon MRBs), then the security pays 
          principal only in level monthly payment amounts equal to the 
          Current Security Balance divided by the length of the 
          Principal Payment Window.
3. For securities not issued by the Enterprise or Ginnie Mae, reduce 
          cash flows by applying the Haircuts specified in section 3.5, 
          Counterparty Defaults, of this Appendix, as appropriate.

                           3.7.3.4 Accounting

    Deferred balances are amortized as described in section 3.6.3.8, 
Whole Loan Accounting Flows, of this Appendix, using the Pass-Through 
Rate (or Security Interest Rate for MRBs) rather than the Net Yield 
Rate. For principal-only strips and zero-coupon MRBs, assume Allocated 
Interest is zero. If the conditions in section 3.6.3.8.3.1[a]3.a. of 
this Appendix, apply, do not realize the full amount in the first month. 
Instead, amortize the deferred balances using a straight line method 
over a period from the start of the Stress Test through the latest month 
with a non-zero cash flow.

                3.7.4 Mortgage-Related Securities Outputs

    [a] The outputs for MBS and MRS Cash Flows, found in Table 3-61, are 
analogous to those specified for Whole Loans in section 3.6.4, Final 
Whole Loan Cash Flow Outputs, of this Appendix, which are produced for 
each security for each month.

           Table 3-61--Outputs for Mortgage-Related Securities
------------------------------------------------------------------------
             Variable                            Description
------------------------------------------------------------------------
TPRm                                Total Principal Received in month m
                                     = 1...RM
------------------------------------------------------------------------
TIRm                                Total Interest Received in month m =
                                     1...RM
------------------------------------------------------------------------
HctAmtm                             Total Haircut amount in month m =
                                     1...RM
------------------------------------------------------------------------
AEm                                 Amortization Expense for months m =
                                     1...RM
------------------------------------------------------------------------

    [b] These outputs are used as inputs to the Operations, Taxes, and 
Accounting component of the Stress Test, which prepares pro forma 
financial statements. See section 3.10, Operations, Taxes, and 
Accounting, of this Appendix.

                  3.8 Nonmortgage Instrument Cash Flows

                  3.8.1 Nonmortgage Instrument Overview

    [a] The Nonmortgage Instrument Cash Flows component of the Stress 
Test produces instrument level cash flows and accounting flows (accruals 
and amortization) for the 120 months of the Stress Test for:
1. Debt
2. Nonmortgage investments
3. Guaranteed Investment Contracts (GICs)
4. Preferred stock
5. Derivative contracts
    a. Debt-linked derivative contracts
    b. Investment-linked derivative contracts
    c. Mortgage-linked derivative contracts
    d. Derivative contracts that hedge forecasted transactions
    e. Non-linked derivative contracts
    [b] Although mortgage-linked derivative contracts are usually linked 
to mortgage assets rather than nonmortgage instruments, they are treated 
similarly to debt-linked and investment-linked derivative contracts and, 
therefore, are covered in this section.
    [c] Debt, nonmortgage investments, and preferred stock cash flows 
include interest

[[Page 482]]

(or dividends for preferred stock) and principal payments or receipts, 
while debt-linked, investment-linked, and mortgage-linked derivative 
contract cash flows are composed of interest payments and receipts only. 
Debt, nonmortgage investments, and preferred stock are categorized in 
one of six classes \2\ as shown in Table 3-62.
---------------------------------------------------------------------------

    \2\ In addition to the items listed here, there are instruments that 
do not fit into these categories. Additional input information and 
calculation methodologies may be required for these instruments.

     Table 3-62--Debt, Non-Mortgage Investments, and Preferred Stock
                             Classifications
------------------------------------------------------------------------
       Classification                        Description
------------------------------------------------------------------------
Fixed-Rate Bonds or          Fixed-rate securities that pay periodic
 Preferred Stock              interest or dividends
------------------------------------------------------------------------
Floating-Rate Bonds or       Floating-rate securities that pay periodic
 Preferred Stock              interest or dividends
------------------------------------------------------------------------
Fixed-Rate Asset-Backed      Fixed-rate securities collateralized by
 Securities                   nonmortgage assets
------------------------------------------------------------------------
Floating-Rate Asset-Backed   Floating-rate securities collateralized by
 Securities                   nonmortgage assets
------------------------------------------------------------------------
Short-Term Instruments       Fixed-rate, short-term securities that are
                              not issued at a discount and which pay
                              principal and interest only at maturity
------------------------------------------------------------------------
Discount Instruments         Securities issued below face value that pay
                              a contractually fixed amount at maturity
------------------------------------------------------------------------

    [d] Derivative contracts consist of interest rate caps, floors, and 
swaps. The primary difference between financial instruments and 
derivative contracts, in terms of calculating cash flows, is that 
interest payments on financial instruments are based on principal 
amounts that are eventually repaid to creditors, whereas interest 
payments on derivative contracts are based on notional amounts that 
never change hands. Debt- and investment-linked derivative contracts are 
categorized in one of seven classes \3\ as shown in Table 3-63:
---------------------------------------------------------------------------

    \3\ Ibid.

       Table 3-63--Debt- and Investment-Linked Derivative Contract
                             Classification
------------------------------------------------------------------------
       Classification                  Description of Contract
------------------------------------------------------------------------
Basis Swap                   Floating-rate interest payments are
                              exchanged based on different interest rate
                              indexes
------------------------------------------------------------------------
Fixed-Pay Swap               Enterprise pays a fixed interest rate and
                              receives a floating interest rate
------------------------------------------------------------------------
Floating-Pay Swap            Enterprise pays a floating interest rate
                              and receives a fixed interest rate
------------------------------------------------------------------------
Long Cap                     Enterprise receives a floating interest
                              rate when the interest rate to which it is
                              indexed exceeds a specified level (strike
                              rate)
------------------------------------------------------------------------
Short Cap                    Enterprise pays a floating interest rate
                              when the interest rate to which it is
                              indexed exceeds the strike rate
------------------------------------------------------------------------
Long Floor                   Enterprise receives a floating interest
                              rate when the interest rate to which it is
                              indexed falls below the strike rate
------------------------------------------------------------------------
Short Floor                  Enterprise pays a floating interest rate
                              when the interest rate to which it is
                              indexed falls below the strike rate
------------------------------------------------------------------------

    [e] Mortgage-linked swaps are similar to debt-linked swaps except 
that the notional amount of a mortgage-linked swap amortizes based on 
the performance of certain MBS pools. Mortgage-linked derivative 
contracts are divided into two classes \4\ as shown in Table 3-64:
---------------------------------------------------------------------------

    \4\ Ibid.

     Table 3-64--Mortgage-Linked Derivative Contract Classification
------------------------------------------------------------------------
       Classification                  Description of Contract
------------------------------------------------------------------------
Fixed-Pay Amortizing Swaps   Enterprise pays a fixed interest rate and
                              receives a floating interest rate, both of
                              which are based on a declining notional
                              balance
------------------------------------------------------------------------
Floating-Pay Amortizing      Enterprise pays a floating interest rate
 Swaps                        and receives a fixed interest rate, both
                              of which are based on a declining notional
                              balance
------------------------------------------------------------------------


[[Page 483]]

    [f] In a currency swap, the Enterprise receives payments that are 
denominated in a foreign currency and it makes payments in U.S. dollars. 
The main difference between currency swaps and the type of swaps 
discussed above is that in a currency swap principal amounts are 
actually exchanged between the two counterparties. Currency swaps are 
divided into two classes, as shown in Table 3-65.\5\
---------------------------------------------------------------------------

    \5\ Ibid.

                                Table 3-65--Currency Swap Contract Classification
----------------------------------------------------------------------------------------------------------------
             Classification                                      Description of Contract
----------------------------------------------------------------------------------------------------------------
Fixed-for-Fixed Currency Swap            Enterprise receives fixed interest payments denominated in a foreign
                                          currency and makes fixed, US dollar-denominated payments
----------------------------------------------------------------------------------------------------------------
Fixed-for Floating Currency Swap         Enterprise receives fixed interest payments denominated in a foreign
                                          currency and makes payments in US dollar based on a floating interest
                                          rate
----------------------------------------------------------------------------------------------------------------

                   3.8.2 Nonmortgage Instrument Inputs

    [a] The Nonmortgage Instrument Cash Flows component of the Stress 
Test requires numerous inputs. Instrument level inputs provided by the 
Enterprises in the RBC Report are listed in Table 3-66. Many instrument 
classes require simulated Interest Rates because their interest payments 
adjust periodically based on rates tied to various indexes. These rates 
are generated as described in section 3.3, Interest Rates, of this 
Appendix.

    Table 3-66--Input Variables for Nonmortgage Instrument Cash Flows
------------------------------------------------------------------------
       Data Elements                         Description
------------------------------------------------------------------------
Amortization Methodology     Enterprise method of amortizing deferred
 Code                         balances (e.g., straight line)
------------------------------------------------------------------------
Asset ID                     CUSIP or Reference Pool Number identifying
                              the asset underlying a derivative position
------------------------------------------------------------------------
Asset Type Code              Code that identifies asset type used in the
                              commercial information service (e.g., ABS,
                              Fannie Mae pool, Freddie Mac pool)
------------------------------------------------------------------------
Associated Instrument ID     Instrument ID of an instrument linked to
                              another instrument
------------------------------------------------------------------------
Coefficient                  Indicates the extent to which the coupon is
                              leveraged or de-leveraged
------------------------------------------------------------------------
Compound Indicator           Indicates if interest is compounded
------------------------------------------------------------------------
Compounding Frequency        Indicates how often interest is compounded
------------------------------------------------------------------------
Counterparty Credit Rating   NRSRO's rating for the counterparty
------------------------------------------------------------------------
Counterparty Credit Rating   An indicator identifying the counterparty's
 Type                         credit rating as short-term (`S') or long-
                              term (`L')
------------------------------------------------------------------------
Counterparty ID              Enterprise counterparty tracking ID
------------------------------------------------------------------------
Country Code                 Standard country codes in compliance with
                              Federal Information Processing Standards
                              Publication 10-4
------------------------------------------------------------------------
Credit Agency Code           Identifies NRSRO (e.g., Moody's)
------------------------------------------------------------------------
Current Asset Face Amount    Current face amount of the asset underlying
                              a swap
------------------------------------------------------------------------
Current Coupon               Current coupon or dividend rate of the
                              instrument
------------------------------------------------------------------------
Current Unamortized          Current unamortized premium or unaccreted
 Discount                     discount of the instrument adjusted by the
                              Unamortized Balance Scale Factor. If the
                              proceeds from the issuance of debt or
                              derivatives or the amount paid for an
                              asset were greater than par, the value
                              should be positive. If the proceeds or the
                              amounts paid were less than par, the value
                              should be negative
------------------------------------------------------------------------

[[Page 484]]

 
Current Unamortized Fees     Current unamortized fees associated with
                              the instrument adjusted by the Unamortized
                              Balance Scale Factor. Generally fees
                              associated with the issuance of debt or
                              derivatives should be negative numbers.
                              Fees associated with the purchase of an
                              asset should generally be reported as
                              positive numbers
------------------------------------------------------------------------
Current Unamortized Hedge    Current unamortized hedging gains
                              (positive) or losses (negative) associated
                              with the instrument adjusted by the
                              Unamortized Balance Scale Factor
------------------------------------------------------------------------
Current Unamortized Other    Any other unamortized items originally
                              associated with the instrument adjusted by
                              the Unamortized Balance Scale Factor. If
                              the proceeds from the issuance of debt or
                              derivatives or the amount paid for an
                              asset was greater than par, the value
                              should be positive. If the proceeds or the
                              amounts paid were less than par, the value
                              should be negative
------------------------------------------------------------------------
CUSIP--ISIN                  CUSIP or ISIN Number identifying the
                              instrument
------------------------------------------------------------------------
Day Count                    Day count convention (e.g., 30/360)
------------------------------------------------------------------------
End Date                     The last index repricing date
------------------------------------------------------------------------
EOP Principal Balance        End of Period face, principal or notional,
                              amount of the instrument
------------------------------------------------------------------------
Exact Representation         Indicates that an instrument is modeled
                              according to its contractual terms
------------------------------------------------------------------------
Exercise Convention          Indicates option exercise convention (e.g.,
                              American Option)
------------------------------------------------------------------------
Exercise Price               Par = 1.0; Options
------------------------------------------------------------------------
First Coupon Date            Date first coupon is received or paid
------------------------------------------------------------------------
Index Cap                    Indicates maximum index rate
------------------------------------------------------------------------
Index Floor                  Indicates minimum index rate
------------------------------------------------------------------------
Index Reset Frequency        Indicates how often the interest rate index
                              resets on floating-rate instruments
------------------------------------------------------------------------
Index Code                   Indicates the interest rate index to which
                              floating-rate instruments are tied (e.g.,
                              LIBOR)
------------------------------------------------------------------------
Index Term                   Point on yield curve, expressed in months,
                              upon which the index is based
------------------------------------------------------------------------
Instrument Credit Rating     NRSRO credit rating for the instrument
------------------------------------------------------------------------
Instrument Credit Rating     An indicator identifying the instruments
 Type                         credit rating as short-term (`S') or long-
                              term (`L')
------------------------------------------------------------------------
Instrument ID                An integer used internally by the
                              Enterprise that uniquely identifies the
                              instrument
------------------------------------------------------------------------
Interest Currency Code       Indicates currency in which interest
                              payments are paid or received
------------------------------------------------------------------------
Interest Type Code           Indicates the method of interest rate
                              payments (e.g., fixed, floating, step,
                              discount)
------------------------------------------------------------------------
Issue Date                   Indicates the date that the instrument was
                              issued
------------------------------------------------------------------------
Life Cap Rate                The maximum interest rate for the
                              instrument throughout its life
------------------------------------------------------------------------
Life Floor Rate              The minimum interest rate for the
                              instrument throughout its life
------------------------------------------------------------------------
Look-Back Period             Period from the index reset date, expressed
                              in months, that the index value is derived
------------------------------------------------------------------------
Maturity Date                Date that the instrument contractually
                              matures
------------------------------------------------------------------------
Notional Indicator           Identifies whether the face amount is
                              notional
------------------------------------------------------------------------
Instrument Type Code         Indicates the type of instrument to be
                              modeled (e.g., ABS, Cap, Swap)
------------------------------------------------------------------------
Option Indicator             Indicates if instrument contains an option
------------------------------------------------------------------------
Option Type                  Indicates option type (e.g., Call option)
------------------------------------------------------------------------

[[Page 485]]

 
Original Asset Face Amount   Original face amount of the asset
                              underlying a swap
------------------------------------------------------------------------
Original Discount            Original premium or discount associated
                              with the purchase or sale of the
                              instrument adjusted by the Unamortized
                              Balance Scale Factor. If the proceeds from
                              the issuance of debt or derivatives or the
                              amount paid for an asset were greater than
                              par, the value should be positive. If the
                              proceeds or the amounts paid were less
                              than par, the value should be negative
------------------------------------------------------------------------
Original Face                Original face, principal or notional,
                              amount of the instrument
------------------------------------------------------------------------
Original Fees                Fees or commissions paid at the time of
                              purchase or sale adjusted by the
                              Unamortized Balance Scale Factor.
                              Generally fees associated with the
                              issuance of debt or derivatives should be
                              negative numbers. Fees associated with the
                              purchase of an asset should generally be
                              reported as positive numbers
------------------------------------------------------------------------
Original Hedge               Gains (positive) or losses (negative) from
                              closing out a hedge associated with the
                              instrument at settlement, adjusted by the
                              Unamortized Balance Scale Factor
------------------------------------------------------------------------
Original Other               Any other amounts originally associated
                              with the instrument to be amortized or
                              accreted adjusted by the Unamortized
                              Balance Scale Factor. If the proceeds from
                              the issuance of debt or derivatives or the
                              amount paid for an asset were greater than
                              par, the value should be positive. If the
                              proceeds or the amounts paid were less
                              than par, the value should be negative
------------------------------------------------------------------------
Parent Entity ID             Enterprise internal tracking ID for parent
                              entity
------------------------------------------------------------------------
Payment Amount               Interest payment amount associated with the
                              instrument (reserved for complex
                              instruments where interest payments are
                              not modeled)
------------------------------------------------------------------------
Payment Frequency            Indicates how often interest payments are
                              made or received
------------------------------------------------------------------------
Performance Date             ``As of'' date on which the data is
                              submitted
------------------------------------------------------------------------
Periodic Adjustment          The maximum amount that the interest rate
                              for the instrument can change per reset
------------------------------------------------------------------------
Position Code                Indicates whether the Enterprise pays or
                              receives interest on the instrument
------------------------------------------------------------------------
Principal Currency Code      Indicates currency in which principal
                              payments are paid or received
------------------------------------------------------------------------
Principal Factor Amount      EOP Principal Balance expressed as a
                              percentage of Original Face
------------------------------------------------------------------------
Principal Payment Date       A valid date identifying the date that
                              principal is paid
------------------------------------------------------------------------
Settlement Date              A valid date identifying the date the
                              settlement occurred
------------------------------------------------------------------------
Spread                       An amount added to an index to determine an
                              instrument's interest rate
------------------------------------------------------------------------
Start Date                   The date, spot or forward, when some
                              feature of a financial contract becomes
                              effective (e.g., Call Date), or when
                              interest payments or receipts begin to be
                              calculated
------------------------------------------------------------------------
Strike Rate                  The price or rate at which an option begins
                              to have a settlement value at expiration,
                              or, for interest-rate caps and floors, the
                              rate that triggers interest payments
------------------------------------------------------------------------
Submitting Entity            Indicates which Enterprise is submitting
                              information
------------------------------------------------------------------------
Trade ID                     Unique code identifying the trade of an
                              instrument
------------------------------------------------------------------------

[[Page 486]]

 
Transaction Code             Indicates the transaction that an
                              Enterprise is initiating with the
                              instrument (e.g., buy, issue reopen)
------------------------------------------------------------------------
Transaction Date             A valid date identifying the date the
                              transaction occurred
------------------------------------------------------------------------
UPB Scale Factor             Factor applied to UPB to adjust for timing
                              differences
------------------------------------------------------------------------
Unamortized Balances Scale   Factor applied to Unamortized Balances to
 Factor                       adjust for timing differences
------------------------------------------------------------------------

    [b] In addition to the inputs in Table 3-66, other inputs may be 
required depending on the characteristics of the instrument modeled. For 
example, the mortgage-linked derivative contract cash flows require 
inputs describing the performance of the mortgage assets to which they 
are linked, including Single Family Default and Prepayment rates (See 
section 3.6.3.4, Single Family Default and Prepayment Rates, of this 
Appendix). Mortgage-linked derivative contract identification numbers 
(Asset IDs) are used to link the derivative contract to the required 
pool information that will be used to calculate the cash flows of the 
corresponding swap.

                 3.8.3 Nonmortgage Instrument Procedures

    In general, non mortgage instruments are modeled according to their 
terms. The general methodology for calculating cash flows for principal 
and interest payments is described in this section and is not intended 
to serve as definitive text for calculating all possible present and 
future complex instruments. As mentioned in section 3.8.2, Nonmortgage 
Instrument Inputs, of this Appendix, there are some instruments that may 
require additional input information and calculation methodologies. 
Simplifying assumptions are made for some instrument terms until they 
can be modeled more precisely.

           3.8.3.1 Apply Specific Calculation Simplifications

    [a] In order to produce cash flows, accruals, or amortization of 
deferred balances, the following simplifications are used for all 
instruments to which they apply. Should the language in any other 
portion of section 3.8, Nonmortgage Instrument Cash Flows, of this 
Appendix, seem to conflict with a statement in this section, the 
language in section 3.8.3.1 takes precedence.
1. For day count methodology, use one of three methodologies 30/360, 
          Actual/360, and Actual/365. All special day counts (i.e. 
          Actual/366 B, Actual/366 S, Actual/366 E, and Actual/Actual) 
          are treated as Actual/365.
2. Set the first index reset date to the First Coupon Date. If the Issue 
          Date is later than the start of the Stress Test, use the 
          Current Coupon Rate to determine the interest paid from Issue 
          Date to First Coupon Date. When a calculation requires a rate 
          that occurs before the start of the Stress Test, use the 
          Current Coupon Rate. This applies to interest accrued but not 
          paid for the start of the Stress test and to rate indexes 
          where applying a Look Back Period requires data prior to the 
          start of the Stress Test.
    a. If periodic caps are zero, change them to 999.99; If periodic 
floors are greater than 1, change them to zero.
    b. For instruments which have principal balance changes other than 
those caused by compounding interest, perform calculations as if the 
principal changes occur only on coupon dates (coupon dates on the fixed-
rate leg for swaps) on or later than the first principal change date.
    c. When using a rate index for a specified term in an option 
exercise rule or as an index, assume that rate is appropriate for the 
calculation. Do not convert from bond equivalent yield to another yield 
form for a discount, monthly pay, quarterly pay, semi-annual pay or 
annual pay instrument.
3. When applying the option exercise rule:
    a. For zero coupon and discount securities, instruments with 
European options, and zero coupon swaps, evaluate option exercise only 
on dates listed in the instrument's option exercise schedule. For 
Bermudan options, evaluate option exercise on the first option date in 
the instrument's option exercise schedule and subsequent coupon dates 
(coupon dates on the fixed-rate leg for swaps). For American options, 
evaluate option exercise on the first option date in the instrument's 
option exercise schedule and subsequent monthly anniversaries of the 
instrument's first coupon date.
    b. Assume all call/put premiums/discounts are zero except for zero 
coupon instruments (including zero coupon swaps and discount notes). For 
these exceptions, when calculating a rate to compare with the Enterprise 
Cost of Funds, use the yield to maturity calculated by equating the face 
or notional amount plus the unamortized discount at the start of the 
Stress Test to the present value of the face or notional amount at 
maturity.
    c. Assume basis swaps and floating rate securities have no cancel, 
put, or call options.

[[Page 487]]

    d. If the remaining maturity is greater than 360 months, use the 
equivalent-maturity Enterprise Cost of Funds as if the remaining 
maturity is 360 months.
    e. In the Stress Test, no preferred stock issued by the Enterprise 
will be called.

               3.8.3.2 Determine the Timing of Cash Flows

    Project payment dates from the payment date immediately prior to the 
start of the stress test according to the Payment Frequency, First 
Coupon Date, and Maturity Date.

     3.8.3.3 Obtain the Principal Factor Amount at Each Payment Date

    [a] Where there is no amortization or prepayment of principal, the 
Principal Factor Amount is 1.0 for each payment date until the stated 
Maturity Date, when it becomes zero.
    [b] For debt and debt-linked derivative contracts that amortize, 
either a principal or a notional amortization schedule must be provided. 
If amortization information is unavailable, then the Principal Factor 
Amount is 1.0 for each payment date until the stated Maturity Date, when 
it becomes zero.
    [c] Monthly prepayment rates are 3.5 percent for fixed-rate and 2.0 
percent for floating-rate asset-backed securities. Furthermore, asset-
backed securities are modeled through a commercial information service 
where possible. Instruments that cannot be modeled through the 
commercial information service are treated in accordance with section 
3.9, Alternative Modeling Treatments, of this Appendix.
    [d] In the case of mortgage-linked derivative contracts, notional 
amounts are amortized based on the characteristics of the underlying 
pool in the manner described for principal balances of mortgage-backed 
securities held by an Enterprise in section 3.7, Mortgage-Related 
Securities Cash Flows, of this Appendix.

                   3.8.3.4 Calculate the Coupon Factor

    The Coupon Factor applicable to a given period, which applies to 
dividends also, depends on day count conventions used to calculate the 
interest payments for the instrument. For example, the Coupon Factor for 
a bond that pays interest quarterly based on a non-compounded 30/360 
convention would be 3 (representing the number of months in a quarter) 
times 30 days divided by 360 days, or 0.25. Table 3-67 lists the most 
common day count conventions.

                    Table 3-67--Day Count Conventions
------------------------------------------------------------------------
               Convention                   Coupon Factor Calculation
------------------------------------------------------------------------
30/360                                   Number of days between two
                                          payment dates assuming 30 days
                                          per month/360
------------------------------------------------------------------------
Actual/360                               Number of days between two
                                          payment dates/360
------------------------------------------------------------------------
Actual/365                               Number of days between two
                                          payment dates/365
------------------------------------------------------------------------
Actual/Actual                            Number of days between two
                                          payment dates/Number of days
                                          in the year
------------------------------------------------------------------------

 3.8.3.5 Project Principal Cash Flows or Changes in the Notional Amount

    For all financial instruments, principal outstanding for the current 
period is determined by multiplying the Original Face by the Principal 
Factor Amount for the current period. The principal payment equals the 
amount of principal outstanding at the end of the previous period less 
the principal outstanding at the end of the current period, or zero if 
the instrument has a notional amount.

            3.8.3.6 Project Interest and Dividend Cash Flows

               3.8.3.6.1 Non-Complex Financial Instruments

    [a] Fixed-Rate Instruments. The current period principal outstanding 
is multiplied by the product of the Current Coupon and current period 
Coupon Factor and rounded to even 100ths of a dollar.
    [b] Zero-Coupon Bonds. Interest payments equal zero.
    [c] Discount Notes. Interest payments equal zero.
    [d] Floating-Rate Instruments. Interest payments are calculated as 
principal outstanding multiplied by the coupon for the current period. 
The current period coupon is calculated by adding a spread to the 
appropriate interest rate index and multiplying by the Coupon Factor. 
The coupon for the current period is set to this amount as long as the 
rate lies between the periodic and lifetime maximum and minimum rates. 
Otherwise the coupon is set to the maximum or minimum rate.
    [e] Interest Rate Caps and Floors. These derivative instruments pay 
or receive interest only if the underlying index is above a Strike Rate 
(for caps) or below it (for floors). Interest payments are based on 
notional amounts instead of principal amounts.
1. The interest payment on a long cap is the Original Face multiplied by 
          the amount,

[[Page 488]]

          if any, by which the index exceeds the Strike Rate, as defined 
          by the equation in Table 3-68. The interest payment on a long 
          floor is the Original Face multiplied by the amount, if any, 
          by which the index is below the Strike Rate. Otherwise 
          interest payments are zero for caps and floors. Interest 
          payments are either paid or received depending on whether the 
          Enterprise is in a long or short position in a cap or a floor.
2. Monthly cash flows for long caps and floors are calculated as 
          illustrated in Table 3-68:

 Table 3-68--Calculation of Monthly Cash Flows for Long Caps and Floors
------------------------------------------------------------------------
                Instrument                           Cash Flows
------------------------------------------------------------------------
Cap                                         (I-K) x N x D if I  K; O if I <=K
------------------------------------------------------------------------
Floor                                       (K-I) x N x D if I < K; O if
                                             I =K
------------------------------------------------------------------------

Where:

N = Original Face
K = Strike Rate
I = interest rate index
D = Coupon Factor

    [f] Swaps. A derivative contract in which counterparties exchange 
periodic interest payments. Each swap leg (pay side or receive side) is 
modeled as a separate instrument, with interest payments based on the 
same notional amount but different interest rates.
1. For debt- and investment-linked swaps, each leg's interest payment is 
          determined in the same manner as payments for fixed-rate, 
          floating-rate or zero coupon instruments as described in 
          paragraph [a], [b] and [d] of this section.
2. For mortgage-linked swaps, calculate the reduction in the notional 
          amount due to scheduled monthly principal payments (taking 
          into account both lifetime and reset period caps and floors), 
          Prepayments, and Defaults of the reference MBS or index pool. 
          Reduce the notional amount of the swap for the previous period 
          by this amount to determine the notional amount for the 
          current period. Calculate interest payments or receipts for a 
          given period as the product of the notional amount of the swap 
          in that period, the coupon, and the Coupon Factor applicable 
          for that period.

                 3.8.3.6.2 Complex Financial Instruments

    [a] Some instruments have more complex or non-standard features than 
those described in section 3.8.3.6.1, Non-Complex Financial Instruments, 
of this Appendix. These complexities can include more sophisticated 
variants of characteristics such as principal or notional amortization 
schedules, interest accrual methodologies, coupon reset formulas, and 
option features. In these instances, additional information may be 
required to completely specify the contractual cash flows or a proxy 
treatment for these instruments.
    [b] An example of an instrument with complex features is an indexed 
amortizing swap. This instrument is non-standard because its notional 
amount declines in a way that is related to the level of interest rates. 
Its amortization table contains a notional amount reduction factor for a 
given range of interest rates. To compute cash flows for this 
instrument, reduce the notional amount on each payment date as specified 
in the amortization table. (The notional amount at the beginning of the 
Stress Period is given as an input to the calculation.)
    [c] Special treatment is also required for foreign-currency-linked 
notes, the redemption value of which is tied to a specific foreign 
exchange rate. These require special treatment because the Stress Test 
does not forecast foreign currency rates. If these instruments are 
currency-hedged, then the note plus the hedge comprise a synthetic debt 
instrument for which only the pay side of the swap is modeled. If these 
instruments are not currency-hedged, the following treatment applies:
1. In the up-rate scenario, the U.S. dollar per unit of foreign currency 
          ratio is increased in proportion to the increase in the ten-
          year CMT; therefore, the amount of an interest or principal 
          payment is increased accordingly. For example, if the ten-year 
          CMT shifts up by 50 percent, then the U.S. dollar per unit of 
          foreign currency ratio shifts up by 50 percent. In the Stress 
          Test, the payment would be multiplied by 1.5.
2. In the down-rate scenario, the foreign currency per U.S. dollar ratio 
          is decreased in proportion to the decrease in the ten-year 
          CMT.
    [d] Futures and Options on Futures also require special treatment:
1. Settle positions on their expiration dates. Exercise only in-the-
          money options (settlement value greater than zero).
2. Settle all contracts for cash
3. Calculate the cash settlement amount--the change in price of a 
          contract from the contract trade date to its expiration date. 
          Calculate the price on the expiration date based on stress 
          test interest rates (or, as necessary, forward rates 
          extrapolated from these rates).
4. Amortize amounts received or paid at the expiration date into income 
          or expense on a straight-line basis over the life of the 
          underlying instrument (in the case of an option on a futures 
          contract, the life of the instrument underlying the futures 
          contract).

[[Page 489]]

5. Amortize an option premium on a straight-line basis over the life of 
          the option. (Amortize any remaining balances upon option 
          exercise.)
    [e] Swaptions also require special treatment:
1. Assume swap settlement (i.e., initiation of the underlying swap) when 
          a swap option is exercised.
2. Calculate a ``normalized'' fixed-pay coupon by subtracting the spread 
          over the index, if any, from the coupon on the fixed-rate swap 
          leg.
3. For all exercise types (American, Bermudan, and European), consistent 
          with RBC Rule section 3.8.3.7, assume exercise by the party 
          holding the swap option if the equivalent maturity Enterprise 
          Cost of Funds is more than
a. 50 basis points above the normalized fixed-pay coupon, for a pay-
          fixed swaption (a call or `payor' swaption), or
b. 50 basis points below the normalized fixed pay coupon for a receive-
          fixed swaption (a put or `receiver' swaption).
4. Amortize option premiums on a straight-line basis over the option 
          term. (Amortize any remaining balances upon option exercise).
    [f] CPI-Linked Instruments also require special treatment. The 
stress test lacks the ability to accommodate floating-rate instruments 
that reset in response to changes in the consumer price index (CPI) as 
published by the Bureau of Labor Statistics. Enterprise issuance of CPI-
linked instruments is tied to swap market transactions intended to 
create desired synthetic debt structure and terms. In such cases, the 
true economic position nets to the payment terms of the related 
derivative contract. Accordingly, in order to accommodate and address 
the existence of CPI-linked instruments in the Enterprises' portfolios, 
the net synthetic position shall be evaluated in the stress test. That 
is, for CPI-linked instruments tied to swap transactions that are 
formally linked in a hedge accounting relationship, the Enterprise 
should substitute the CPI-linked instrument's coupon payment terms with 
those of the related swap contract.
    [g] Pre-refunded municipal bonds also require special treatments. 
Pre-refunded municipal bonds are collateralized by securities that are 
structured to fund all the cash flows of the refunded municipal bonds 
until the bonds are callable. Since the call date for the bonds, also 
referred to as the pre-refunded date, is a more accurate representation 
of the payoff date than the contractual maturity date of the bonds, the 
stress test models the bonds to mature on the call date.
    [h] If a financial instrument's inputs are described in section 3.1, 
Data, of this Appendix, then model the instrument according to its 
terms; however, the Director reserves the authority to determine a more 
appropriate treatment if modeling the instrument according to its terms 
does not capture the instrument's impact on Enterprise risk. If the 
financial instrument's inputs are not described in section 3.1, then 
treat it as described in section 3.9, Alternative Modeling Treatments, 
of this Appendix.

    3.8.3.7 Apply Call, Put, or Cancellation Features, if Applicable

    [a] In some cases, principal and interest cash flows may be altered 
due to options imbedded in individual financial instruments. Securities 
can be called or put and contracts can be cancelled at the option of the 
Enterprise or the counterparty. The Option Type, Exercise Convention 
Type, and the Start Date determine when an option may be exercised. 
There are three standard Exercise Convention Types, all of which are 
accommodated in the Stress Test:
 American--Exercise can occur at any time after the 
Start Date of the option.
 European--Exercise can occur only on the Start Date 
of the option.
 Bermudan--Exercise can occur only on specified dates, 
usually on coupon payment dates between the Start Date of the option and 
maturity.
    [b] The options are treated in the following manner for each date on 
which the option can be exercised:
1. Project cash flows for the instrument with the imbedded option 
          assuming that the option is not exercised. If the instrument 
          is tied to an index, assume that the index remains constant at 
          its value on that date.
2. Determine the discount rate that equates the outstanding balance of 
          the security plus option premium and accrued interest to the 
          sum of the discounted values of the projected cash flows. This 
          discount rate is called the yield-to-maturity.
3. Convert the yield-to-maturity to a bond-equivalent yield and compare 
          the bond-equivalent yield with the projected Enterprise Cost 
          of Funds for debt with an equivalent maturity. Interpolate 
          linearly if the maturity is not equal to one of the maturities 
          specified in section 3.3, Interest Rates, of this Appendix.
4. If the equivalent-maturity Enterprise Cost of Funds is lower (higher) 
          than 50 basis points below (above) the bond-equivalent yield 
          of the callable (putable) instrument, then the option is 
          exercised. Otherwise, the option is not exercised, and it is 
          evaluated at the next period when the option can be exercised.
    [c] Some swap derivative contracts have cancellation features that 
allow either counterparty to terminate the contracts on certain dates. 
The cancellation feature is evaluated by comparing the fixed-rate leg of 
the swap to the Enterprise Cost of Funds. If either leg of the swap is 
cancelled, then the

[[Page 490]]

other leg is cancelled concurrently. Cancellable swaps are treated in 
the following manner:
1. For each period when an option can be exercised, compare the swap's 
          fixed-leg coupon rate to the Enterprise Cost of Funds with a 
          maturity equivalent to the maturity date of the swap.
2. If the option is a Call, it is deemed to be exercisable at the 
          discretion of the Enterprise. If the option is a Put, it is 
          deemed to be exercisable at the discretion of the 
          Counterparty. If the option is a PutCall, it is deemed to be 
          exercisable at the discretion of either party to the swap. 
          Exercise the option when the swap is out of the money for the 
          party who holds the option. A swap is considered out of the 
          money when the rate on its fixed leg is at least 50 basis 
          point higher or lower, depending upon whether the fixed rate 
          is paid or received, than the like-maturity Enterprise Cost of 
          Funds. For zero coupon swaps in all option exercise periods, 
          use the yield to maturity calculated by equating the notional 
          amount plus the unamortized discount at the start of the 
          Stress Test to the present value of the notional amount at 
          maturity.
    a. For example, if the Enterprise holds a call option for a fixed-
pay swap and the coupon rate on the fixed-pay leg is at least 50 basis 
points above the Enterprise cost of funds for a maturity equivalent to 
that of the swap, then cancel the swap. Otherwise, the swap is not 
cancelled and it is evaluated the next time that the swap can be 
cancelled.

    3.8.3.8 Calculate Monthly Interest Accruals for the Life of the 
                               Instrument

    [a] Monthly interest accruals are calculated by prorating the 
interest cash flows on an actual-day basis. In this section, the term 
``from'' means from and including, ``to'' means up to and not including, 
and ``through'' means up to and including. As an example, from the first 
to the third of a month is two days from the first through the third is 
three days. This convention is used to facilitate the day count and does 
not imply on which day's payments or accruals are actually made. Use one 
of the three following methodologies with the exception that interest 
cash flow dates occurring on or after the 30th of a month are considered 
as occurring on the last day of the month:
1. If the final interest cash flow occurs within the month, the interest 
          accrual for that month is calculated by multiplying the final 
          interest cash flow amount (as calculated in section 3.8.3.6 of 
          this Appendix) times the number of days from the beginning of 
          the month through the final maturity date divided by the 
          number of days from the previous interest cash flow date to 
          the maturity date.
2. If an interest cash flow other than the final interest cash flow 
          occurs within a month, the interest accrual for that month is 
          determined by multiplying the interest cash flow amount for 
          the current month times the number of days from the beginning 
          of the month through the interest cash flow date, divided by 
          the number of days from the previous interest cash flow date 
          (or issue date) to this interest cash flow date. To this add 
          the interest cash flow amount for the next interest cash flow 
          date times the number of days from the current month's 
          interest cash flow date to the end of the month, divided by 
          the number of days from the current month's interest cash flow 
          date to the following next interest cash flow date.
3. If no interest cash flows occur during a month other than the issue 
          month, the monthly interest accrual is calculated by 
          multiplying the next interest cash flow amount times the 
          number of days in the month divided by the number of days from 
          the previous interest cash flow date to the next interest cash 
          flow date.
4. If the issue month occurs after the start of the Stress Test, the 
          monthly interest accrual is calculated by multiplying the next 
          interest cash flow amount by the number of days in the month 
          minus the day of issue, divided by the number of days from the 
          issue date to the next interest cash flow date.

     3.8.3.9 Calculate Monthly Amortization (Accretion) of Premiums 
                          (Discounts) and Fees

    [a] Adjust monthly interest accruals (see section 3.10.3.6.1[a]3., 
of this Appendix) to reflect the value over time of discounts, premiums, 
fees and hedging gains and losses incurred (Deferred Balances). Amortize 
Deferred Balances that exist at the beginning of the Stress Test until 
the instrument's Maturity Date. If there are any put, call, or cancel 
options that are executed, amortize any remaining Deferred Balances in 
the execution month.

[[Page 491]]



                         Table 3-69--Inputs for Nonmortgage Instrument Accounting Flows
----------------------------------------------------------------------------------------------------------------
           Variable                           Description                                 Source
----------------------------------------------------------------------------------------------------------------
MD                              Maturity Date                            Table 3-66, Input Variables for
                                                                          Nonmortgage Instrument Cash Flows
----------------------------------------------------------------------------------------------------------------
UDB0                            The sum of Current Unamortized           Table 3-66, Input Variables for
                                 Discount, Current Unamortized Hedge,     Nonmortgage Instrument Cash Flows
                                 and Current Unamortized Other
                                 (Deferred Balances) for the instrument
                                 at the start of the Stress Test
----------------------------------------------------------------------------------------------------------------
MACRUm                          Monthly Interest Accruals                section 3.8.3.8, Calculate Monthly
                                                                          Interest Accruals for the Life of the
                                                                          Instrument
----------------------------------------------------------------------------------------------------------------
EOMPBAOm                        Principal Balance at the end of the      section 3.8.3.6, Project Interest and
                                 month for months m = 0...RM after        Dividend Cash Flows
                                 modeling all options execution
----------------------------------------------------------------------------------------------------------------
EOMPBm                          Principal Balance at the end of the      section 3.8.3.6, Project Interest and
                                 month for months m = 0...RM before       Dividend Cash Flows
                                 modeling any options execution
----------------------------------------------------------------------------------------------------------------

1. Compute Remaining Term (RM) as follows:
[GRAPHIC] [TIFF OMITTED] TR13SE01.106

Where:

STDT is the Starting Date of the Stress Test

2. For nonmortgage instruments with notional principal, calculate the 
          monthly Amortization Amount (AAm) for each month m 
          = 1...RM:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.107
          
3. For nonmortgage instruments with principal and interest payments,
    a. Compute Allocated Interest for all months m (AIm) as 
follows:
[GRAPHIC] [TIFF OMITTED] TR13SE01.108

    b. Calculate the monthly Internal Rate of Return (IRR) that equates 
the adjusted cash flows (actual principal plus allocated interest) to 
the Initial Book Value (BV0) of the instrument. Solve for IRR 
such that:
[GRAPHIC] [TIFF OMITTED] TR13SE01.109

Where:

BV0 = EOMPB0 + UPD0
ACFm = EOMPBm-1 - EOMPBm + 
          AIm

    c. Calculate the monthly Amortization Amount (AAm) for 
each month m = 1...RM:
[GRAPHIC] [TIFF OMITTED] TR13SE01.110

4. For discount notes,
    a. Calculate Remaining Maturity in Actual Days (RMD):
    [GRAPHIC] [TIFF OMITTED] TR13SE01.111
    
    b. Calculate the month Amortization Amount (AAm) for each 
month m = 1...RM:

[[Page 492]]

[GRAPHIC] [TIFF OMITTED] TR13SE01.112

Where:

ADAYSm = actual number of days in month m (days from the 
          first of the month through maturity in month RM)

5. For zero coupon bonds,
    a. Calculate Remaining Maturity in Actual Days (RMD):
    [GRAPHIC] [TIFF OMITTED] TR13SE01.114
    
    b. Calculate Yield Factor (YF):
    [GRAPHIC] [TIFF OMITTED] TR13SE01.115
    
    c. Calculate the monthly Amortization Factor (AFm) for 
each month m = 1...RM:
[GRAPHIC] [TIFF OMITTED] TR13SE01.116

Where:

ADAYSm = actual number of days in month m (days from the 
          first of the month through maturity in month RM):

    d. Calculate the monthly Amortization Amount (AAm) for 
each month m = 1...RM
[GRAPHIC] [TIFF OMITTED] TR13SE01.117

                  3.8.3.10 Apply Counterparty Haircuts

    [a] Finally, the interest and principal cash flows received by the 
Enterprises for non-mortgage instruments other than swaps and foreign 
currency-related instruments are Haircut (i.e., reduced) by a percentage 
to account for the risk of counterparty insolvency, if a counterparty 
obligation exists. The amount of the Haircut is calculated based on the 
public rating of the counterparty and time during the stress period in 
which the cash flow occurs, as specified in section 3.5, Counterparty 
Defaults, of this Appendix.
    [b] An Enterprise may issue debt denominated in, or indexed to, 
foreign currencies, and eliminate the resulting foreign currency 
exposure by entering into currency swap agreements. The combination of 
the debt and the swap creates synthetic debt with principal and interest 
payments denominated in U.S. dollars. The Haircuts for currency swaps 
are applied to the pay (dollar-denominated) side of the currency swaps, 
or to the cash outflows of the synthetic debt instrument. Therefore, the 
payments made by the Enterprise on a foreign currency contract are 
increased by the haircut amount. The Haircuts and the Phase-in periods 
for currency swaps are detailed in Table 3-31, under Derivative 
Contracts.
    [c] Haircuts for swaps that are not foreign currency related are 
applied to the Monthly Interest Accruals (as calculated in section 
3.8.3.8, of this Appendix) on the receive leg minus the Monthly Interest 
Accruals on the pay leg when this difference is positive. Use the 
maximum haircut from Table 3-31 for periods before and after the 
implementation of netting, as appropriate. After the implementation of 
netting, net the swap proceeds for each counterparty before applying the 
haircuts. The following example applies to an Enterprise having two 
swaps with the same counterparty. On the first swap, the Enterprise pays 
fixed and receives floating and on the second swap it pays floating and 
receives fixed. If the counterparty is a net payer to the Enterprise, 
the haircuts will be applied to the sum of the two receive legs net of 
the sum of the two pay legs.

                  3.8.4 Nonmortgage Instrument Outputs

    [a] Outputs consist of cash flows and accounting information for 
debt, nonmortgage investments, preferred stock, and derivative 
contracts. Cash flows and accounting information outputs are inputs to 
section 3.10, Operations, Taxes, and Accounting, of this Appendix.
    [b] Cash flows include the following monthly amounts:
1. Interest and principal payments for debt and nonmortgage investments,
2. Dividends and redemptions for preferred stock, and
3. Interest payments for debt-linked, investment-linked, and mortgage-
          linked derivative contracts.
    [c] Accounting information includes the following monthly amounts:
1. Accrued interest and

[[Page 493]]

2. Amortization of discounts, premiums, fees and other deferred items.

                   3.9 Alternative Modeling Treatments

             3.9.1 Alternative Modeling Treatments Overview

    [a] This section provides treatment for items that cannot be modeled 
in one of the ways specified in paragraph [b] of this section, but must 
be included in order to run the Stress Test. Because the rule provides 
treatments for a wide variety of instruments and activities that can be 
applied to accommodate unusual instruments, OFHEO expects few items to 
fall into this category.
    [b] An Alternative Modeling Treatment (AMT) applies to any on- or 
off-balance-sheet item that is missing data elements required to 
calculate appropriate cash flows, or any instrument with unusual 
features for which this Appendix does not:
1. Provide an explicit computational procedure and set of inputs (i.e., 
          the Appendix specifies exact data inputs and procedures for a 
          class of instruments to which the item belongs); or,
2. Provide an implicit procedure (used for a general class of 
          instruments), and explicit inputs that allow the item to be 
          fully characterized for computational purposes (i.e., the 
          Appendix specifies procedures and data inputs for a class of 
          instruments to which the item does not belong that can be 
          applied to the item to accurately compute its cash flows); or
3. Provide an implicit procedure by exact substitution, i.e., by 
          representing the item as a computationally equivalent 
          combination of other items that are specified in paragraphs 
          (1) or (2) in this section (i.e., the Appendix specifies 
          treatments for two or more instruments, which, in combination, 
          exactly produce the item's cash flows); or
4. Permit the approximation of one or more computational characteristics 
          by other similar values that are explicitly specified in this 
          Appendix, or in the RBC Report instructions (i.e., the 
          Appendix specifies a treatment, or combination of treatments, 
          that can be used as a reasonable proxy for the computational 
          characteristics of the item). Such proxy treatments must be 
          approved by OFHEO. OFHEO may, in its discretion, approve a 
          proposed proxy treatment, adopt a different proxy treatment, 
          or treat items for which a proxy treatment has been proposed 
          by the Enterprises according to the remaining provisions of 
          section 3.9, Alternative Modeling Treatments, of this 
          Appendix.
    [c] For a given on- or off-balance sheet item, the appropriate AMT 
is determined according to the categories specified in section 3.9.3, 
Alternative Modeling Treatments Procedures, of this Appendix, based on 
the information available for that item. The output for each such item 
is a set of cash and accounting flows, or specific amounts to be applied 
in section 3.12, Calculation of the Risk-Based Capital Requirement, of 
this Appendix.

              3.9.2 Alternative Modeling Treatments Inputs

    Table 3-70 identifies the minimal inputs that are used to determine 
an AMT. (See also section 3.1, Data, of this Appendix)

            Table 3-70--Alternative Modeling Treatment Inputs
------------------------------------------------------------------------
            Variable                           Description
------------------------------------------------------------------------
TYPE                             Type of item (asset, liability or off-
                                  balance sheet item)
------------------------------------------------------------------------
BOOK                             Book Value of item (amount outstanding
                                  adjusted for deferred items)
------------------------------------------------------------------------
FACE                             Face Value or notional balance of item
                                  for off-balance sheet items
------------------------------------------------------------------------
REMATUR                          Remaining Contractual Maturity of item
                                  in whole months. Any fraction of a
                                  month equals one whole month.
------------------------------------------------------------------------
RATE                             Interest Rate
------------------------------------------------------------------------
INDEX                            Index used to calculate Interest Rate
------------------------------------------------------------------------
FAS115                           Designation that the item is recorded
                                  at fair value, according to FAS 115
------------------------------------------------------------------------
RATING                           Instrument or counterparty rating
------------------------------------------------------------------------
FHA                              In the case of off-balance sheet
                                  guarantees, a designation indicating
                                  100% of collateral is guaranteed by
                                  FHA
------------------------------------------------------------------------
MARGIN                           Margin over an Index
------------------------------------------------------------------------


[[Page 494]]

            3.9.3 Alternative Modeling Treatments Procedures

    For each item, one of the following alternatives will be applied:

                     3.9.3.1 Off-Balance Sheet Items

    [a] If the item is a guarantee of a tax-exempt multifamily housing 
bond, or a single family or multifamily whole-loan REMIC class rated 
triple-A, or other similar transaction guaranteed by the Enterprises, 
multiply the face value of the guaranteed instruments by 0.45 percent. 
This amount is added to the amount of capital required to maintain 
positive total capital throughout the ten-year Stress Period. Any 
instruments or obligations with 100 percent of collateral guaranteed by 
the Federal Housing Administration (FHA) are excluded from this 
calculation.
    [b] Otherwise, add to the amount of capital required to maintain 
positive total capital throughout the ten-year Stress Period an amount 
equal to the face or notional value of the item at the beginning of the 
Stress Period times three percent.

                        3.9.3.2 Reconciling Items

    Reconciling items falling into this category will be treated 
according to the specifications in section 3.10, Operations, Taxes, and 
Accounting, of this Appendix.

                       3.9.3.3 Balance Sheet Items

    [a] If the item is a trading security recorded at fair value 
according to FAS 115, then the book value (the face value adjusted for 
deferred balances) will be converted to cash in the first month of the 
Stress Test.
    [b] Otherwise, if the item is an earning asset, then it is treated 
as a held-to-maturity asset, based on book value, as follows:
1. In the up-rate scenario, it will be treated as a held-to-maturity 
          bond paying compound interest on a 30/360 basis at maturity, 
          with the item's contractual maturity and rate. The item will 
          be Haircut according to its rating. If no maturity is 
          provided, maturity will be set at 120 months. If no rate is 
          provided, a rate will be assigned at the Initial Enterprise 
          Cost of Funds whose term is equal to the remaining maturity, 
          less 200 basis points (but not less than zero). If no rating 
          is provided, the asset will be classified as unrated.
2. In the down-rate scenario, it will be treated as a held-to-maturity 
          bond paying compound interest on a 30/360 basis at maturity, 
          with the item's contractual maturity and rate. The item will 
          be Haircut according to its rating. If no maturity is 
          provided, maturity will be set at 120 months. If no rate is 
          provided, a rate will be assigned at the floating one-month 
          Enterprise Cost of Funds less 200 basis points (but not less 
          than zero). If no rating is provided, the asset will be 
          classified as unrated.
    [c] If the item is a non-earning asset it will remain on the books 
and earn no interest throughout the Stress Period.
    [d] Otherwise, if the item is a liability, then it is treated as 
follows, based on book value:
1. In the up-rate scenario, it will be treated as non-callable and 
          monthly coupon-paying to maturity on a 30/360 basis. If the 
          coupon rate is not specified, the liability will be given a 
          floating rate at the one-month Enterprise Cost of Funds plus 
          200 basis points. If no maturity is provided, maturity will be 
          set at 120 months.
2. In the down-rate scenario, it will be treated as non-callable and 
          monthly coupon paying to maturity. If no coupon is provided, 
          the liability will be given a fixed rate at the Initial 
          Enterprise Cost of Funds plus 200 basis points. If no maturity 
          is provided, maturity will be set at ten years.
    [e] Unamortized Balances should be amortized on a straight-line 
basis over the designated remaining maturity of the instrument.
    [f] All items in this section are treated as if they had no options 
or cancellation features. The face value will be held constant until 
maturity. If an item has an adjustable rate, it is assumed that the 
interest rate will adjust monthly with no caps and a lifetime floor of 
zero percent.

              3.9.4 Alternative Modeling Treatments Outputs

    For each AMT item, the output is a set of cash and accounting flows 
appropriate to its respective treatment as specified in section 3.9.3, 
Alternative Modeling Treatments Procedures, or specific amounts to be 
applied in section 3.12, Calculation of the Risk-Based Capital 
Requirement, of this Appendix.

                 3.10 Operations, Taxes, and Accounting

            3.10.1 Operations, Taxes, and Accounting Overview

    This section describes the procedures for determining new debt 
issuance and investments, computing capital distributions, calculating 
operating expenses and taxes, and creating pro forma balance sheets and 
income statements. Input data include an Enterprise's balance sheet at 
the beginning of the Stress Period, interest rates from the Interest 
Rates component of the Stress Test, and the outputs from cash flow 
components of the Stress Test. The outputs of the procedures discussed 
in this section--monthly pro forma balance sheets, cash flow and income 
statements for each month of the Stress Test--are the basis for the 
capital calculation described in section 3.12, Calculation of

[[Page 495]]

the Risk-Based Capital Requirement, of this Appendix.

             3.10.2 Operations, Taxes, and Accounting Inputs

    [a] Data described in section 3.1, Data, section 3.3.4, Interest 
Rates Outputs, section 3.6.4, Final Whole Loan Cash Flow Outputs, 
section 3.7.4, Mortgage-Related Securities Outputs, and section 3.8.4, 
Nonmortgage Instrument Outputs, of this Appendix, is used to produce 
monthly pro forma balance sheets and income statements for the 
Enterprises. In addition to the starting position data, described in the 
cash flow components, the Enterprises provide the starting position 
dollar values for the items in Table 3-71.

          Table 3-71--Operations, Taxes, and Accounting Inputs
------------------------------------------------------------------------
               Input                             Description
------------------------------------------------------------------------
FAS 115 and 125 fair value
 adjustment on retained mortgage
 portfolio
------------------------------------------------------------------------
FAS 133 fair value adjustment on
 retained mortgage portfolio
------------------------------------------------------------------------
Reserve for losses on retained
 mortgage portfolio
------------------------------------------------------------------------
FAS 115 and 125 fair value
 adjustments on non-mortgage
 investments
------------------------------------------------------------------------
FAS 133 fair value adjustments on
 non-mortgage investments
------------------------------------------------------------------------
Total cash
------------------------------------------------------------------------
Accrued interest receivable on
 mortgages
------------------------------------------------------------------------
Accrued interest receivable on non-
 mortgage investment securities
------------------------------------------------------------------------
Accrued interest receivable on non-
 mortgage investment securities
 denominated in foreign currency--
 hedged
------------------------------------------------------------------------
Accrued interest receivable on non-
 mortgage investment securities
 denominated in foreign currency--
 unhedged
------------------------------------------------------------------------
Accrued interest receivable on
 mortgage-linked derivatives, gross
------------------------------------------------------------------------
Accrued interest receivable on
 investment-linked derivatives,
 gross
------------------------------------------------------------------------
Accrued interest receivable on debt-
 linked derivatives, gross
------------------------------------------------------------------------
Other accrued interest receivable
------------------------------------------------------------------------
Accrued interest receivable on       Underlying instrument is GSE issued
 hedged debt-linked foreign           debt
 currency swaps
------------------------------------------------------------------------
Accrued interest receivable on
 unhedged debt-linked foreign
 currency swaps
------------------------------------------------------------------------
Accrued interest receivable on       Underlying instrument is an asset
 hedged asset-linked foreign
 currency swaps
------------------------------------------------------------------------
Accrued interest receivable on
 unhedged asset-linked foreign
 currency swaps
------------------------------------------------------------------------

[[Page 496]]

 
Currency transaction adjustments--   Cumulative gain or loss due to
 hedged assets                        changes in foreign exchange rates
                                      relative to on-balance sheet
                                      assets originally denominated in
                                      foreign currency
------------------------------------------------------------------------
Currency transaction adjustments--   Cumulative gain or loss due to
 unhedged assets                      changes in foreign exchange rates
                                      relative to unhedged assets and
                                      off-balance sheet items originally
                                      denominated in foreign currency
------------------------------------------------------------------------
Federal income tax refundable
------------------------------------------------------------------------
Accounts receivable
------------------------------------------------------------------------
Fees receivable
------------------------------------------------------------------------
Low income housing tax credit
 investments
------------------------------------------------------------------------
Fixed assets, net
------------------------------------------------------------------------
Clearing accounts                    Net book value of all clearing
                                      accounts
------------------------------------------------------------------------
Other assets
------------------------------------------------------------------------
Foreclosed property, net             Real estate owned including
                                      property acquired through
                                      foreclosure proceedings
------------------------------------------------------------------------
FAS 133 fair value adjustment on
 debt securities
------------------------------------------------------------------------
Accrued interest payable on
 existing fixed-rate debt
 securities
------------------------------------------------------------------------
Accrued interest payable on
 existing floating-rate debt
 securities
------------------------------------------------------------------------
Accrued interest payable on
 existing debt issued in foreign
 currency--hedged
------------------------------------------------------------------------
Accrued interest payable on
 existing debt issued in foreign
 currency--unhedged
------------------------------------------------------------------------
Accrued interest payable on
 mortgage-linked derivatives, gross
------------------------------------------------------------------------
Accrued interest payable on
 investment-linked derivatives,
 gross
------------------------------------------------------------------------
Accrued interest payable on debt-
 linked derivatives, gross
------------------------------------------------------------------------
Other accrued interest payable
------------------------------------------------------------------------
Accrued interest payable debt-
 linked foreign currency swaps--
 hedged
------------------------------------------------------------------------
Accrued interest payable debt-
 linked foreign currency swaps--
 unhedged
------------------------------------------------------------------------
Accrued interest payable asset-
 linked foreign currency swaps--
 hedged
------------------------------------------------------------------------
Accrued interest payable asset-
 linked foreign currency swaps--
 unhedged
------------------------------------------------------------------------

[[Page 497]]

 
Principal and interest due to        Cash received on sold mortgages for
 mortgage security investors          onward submission to mortgage
                                      security investors
------------------------------------------------------------------------
Currency transaction adjustments--   Cumulative gain or loss due to
 hedged debt                          changes in foreign exchange rates
                                      relative to on-balance sheet debt
                                      originally denominated in foreign
                                      currency
------------------------------------------------------------------------
Currency transaction adjustments--   Cumulative gain or loss due to
 unhedged debt                        changes in foreign exchange rates
                                      relative to unhedged liabilities
                                      and off-balance sheet items
                                      originally denominated in foreign
                                      currency
------------------------------------------------------------------------
Escrow deposits                      Cash balances held in relation to
                                      servicing of multifamily loans
------------------------------------------------------------------------
Federal income taxes payable
------------------------------------------------------------------------
Preferred dividends payable
------------------------------------------------------------------------
Accounts payable
------------------------------------------------------------------------
Other liabilities
------------------------------------------------------------------------
Common dividends payable
------------------------------------------------------------------------
Reserve for losses on sold
 mortgages
------------------------------------------------------------------------
Common stock
------------------------------------------------------------------------
Preferred stock, non-cumulative
------------------------------------------------------------------------
Additional paid-in capital
------------------------------------------------------------------------
Retained earnings
------------------------------------------------------------------------
Treasury stock
------------------------------------------------------------------------
Unrealized gains and losses on
 available-for-sale securities, net
 of tax, in accordance with FAS 115
 and 125
------------------------------------------------------------------------
Unrealized gains and losses due to
 mark to market adjustments, FAS
 115 and 125
------------------------------------------------------------------------
Unrealized gains and losses due to
 deferred balances related to pre-
 FAS 115 and 125 adjustments
------------------------------------------------------------------------
Unrealized gains and losses due to
 other realized gains, FAS 115
------------------------------------------------------------------------
Other comprehensive income, net of
 tax, in accordance with FAS 133
------------------------------------------------------------------------
OCI due to mark to market
 adjustments, FAS 133
------------------------------------------------------------------------
OCI due to deferred balances
 related to pre-FAS 133 adjustments
------------------------------------------------------------------------
OCI due to other realized gains,
 FAS 133
------------------------------------------------------------------------
Operating expenses                   Average of prior three months
------------------------------------------------------------------------

[[Page 498]]

 
Common dividend payout ratio         Sum dollar amount of common
 (average of prior 4 quarters)        dividends paid over prior 4
                                      quarters and divided by the sum of
                                      total of after tax income less
                                      preferred dividends paid over
                                      prior 4 quarters
------------------------------------------------------------------------
Common dividends per share paid 1
 quarter prior to the beginning of
 the stress period
------------------------------------------------------------------------
Common shares outstanding
------------------------------------------------------------------------
Common Share Market Price
------------------------------------------------------------------------
Dividends paid on common stock 1
 quarter prior to the beginning of
 the stress period
------------------------------------------------------------------------
Share Repurchases (average of prior  Sum dollar amount of repurchased
 4 quarters)                          shares, net of newly issued
                                      shares, over prior 4 quarters and
                                      divided by 4
------------------------------------------------------------------------
Off-balance-sheet Guarantees         Guaranteed instruments not reported
                                      on the balance sheet, such as
                                      whole loan REMICs and multifamily
                                      credit enhancements, and not 100%
                                      guaranteed by the FHA
------------------------------------------------------------------------
Other Off-Balance Sheet Guarantees   All other off-balance sheet
                                      guaranteed instruments not
                                      included in another category, and
                                      not 100% guaranteed by the FHA
------------------------------------------------------------------------
YTD provision for income taxes       Provision for income taxes for the
                                      period beginning January 1 and
                                      ending as of the report date
------------------------------------------------------------------------
Tax loss carryforward                Net losses available to write off
                                      against future years' net income
------------------------------------------------------------------------
Tax liability for the year prior to
 the beginning of the Stress Test
------------------------------------------------------------------------
Tax liability for the year 2 years
 prior to the beginning of the
 Stress Test (net of carrybacks)
------------------------------------------------------------------------
Taxable income for the year prior
 to the beginning of the Stress
 Test
------------------------------------------------------------------------
Taxable income for the year 2 years
 prior to the beginning of the
 Stress Test (net of carrybacks)
------------------------------------------------------------------------
Net after tax income for the
 quarter preceding the start of the
 stress test
------------------------------------------------------------------------
YTD taxable income                   Total amount of taxable income for
                                      the period beginning January 1 and
                                      ending as of the report date
------------------------------------------------------------------------
Minimum capital requirement at the
 beginning of the Stress Period
------------------------------------------------------------------------
Specific allowance for loan losses   Loss allowances calculated in
                                      accordance with FAS 114
------------------------------------------------------------------------
Zero coupon swap receivable
------------------------------------------------------------------------
Unamortized discount on zero coupon
 receivable
------------------------------------------------------------------------


[[Page 499]]

    [b] Amounts required to reconcile starting position balances from 
cash flow components of the Stress Test with an Enterprise's balance 
sheet will be reported in the RBC Report with the related instrument. 
The corresponding balance for the related instrument will be adjusted 
accordingly.

           3.10.3 Operations, Taxes, and Accounting Procedures

    The Stress Test calculates new debt and investments, dividends, 
allowances for loan losses, operating expenses, and income taxes. These 
calculations are determined by, and also affect, the pro forma balance 
sheets and income statements during the Stress Period.

                    3.10.3.1 New Debt and Investments

    [a] For each month of the Stress Test, cash deficits and surpluses 
are eliminated by issuing new debt or purchasing new investments. The 
Stress Test calculates cash received and cash disbursed each month in 
order to determine the net availability of cash. Depending on the 
calculated net cash position at month end, new short term investments 
are purchased at mid-month or a mix of long and short term debt is 
issued at mid-month so that the recalculated net cash position at month 
end is zero.
    [b] For each month of the Stress Test, the following calculations 
are performed to determine the amount and type of new debt and 
investments. The short-term investments and appropriate mix of long-term 
and short-term debt are reflected in the pro forma balance sheets. 
Interest income or interest expense for the new investments or debt are 
reflected in the pro forma income statements.
1. In any month in which the cash position is positive at the end of the 
          month, the Stress Test invests the Enterprise's excess cash on 
          the 15th day of that month in one-month Treasury bills that 
          yield the six-month Treasury rate for that month as specified 
          in section 3.3, Interest Rates, of this Appendix.
2. In any month in which the cash position is negative at the end of the 
          month, the Stress Test issues a mix of new short-term and 
          long-term debt on the 15th day of that month. New short-term 
          debt issued is six-month discount notes with a discount rate 
          at the six-month Enterprise Cost of Funds as specified in 
          section 3.3, Interest Rates, of this Appendix, with interest 
          accruing on a 30/360 basis. New long-term debt issued is five-
          year bonds not callable for the first year (``five-year-no 
          call-one'') with an American call at par after the end of the 
          first year, semiannual coupons on a 30/360 basis with 
          principal paid at maturity or call, and a coupon rate set at 
          the five year Enterprise Cost of Funds as specified in section 
          3.3, Interest Rates, of this Appendix, plus a 50 basis point 
          premium for the call option. During the Stress Test, the call 
          option for new long-term debt issued is not executed in the 
          up-rate scenario and in the down-rate scenario follows the 
          same call exercise rule as other debt. An issuance cost of 2.5 
          basis points is assessed on new short-term debt at issue and 
          an issuance cost of 20 basis points is assessed on new long-
          term debt at issue. New long-term debt is issued to target a 
          total debt mix of short- to long-term debt that is the same as 
          the short- to long-term debt mix at the beginning of the 
          Stress Test. Issuance fees for new debt are amortized on a 
          straight line basis to the maturity of the appropriate 
          instrument.
3. Given the Net Cash Deficit (NCDm) in month m, use the 
          following constants and method to calculate the amount of 
          short-term and long-term debt to issue in month m:
    a. Set the Issuance Cost on new short-term debt at issue (ISCOST):
 ISCOST = 0.00025
    b. Set the Issuance Cost on new long-term debt at issue (ILCOST):
 ILCOST = 0.002
    c. Calculate Net Short-term Debt Outstanding (NSDO0) and 
Total Debt Outstanding (TDO0) at the start of the Stress Test 
(m = 0) using the following methodology:
    1) For each month m and each debt and swap instrument i (each swap 
leg is considered a separate instrument), determine the Month of Next 
Repricing (MNRm) defined as the first month greater than m in 
which the instrument matures or repricing can occur whether or not the 
coupon rate actually changes. Set the Principal Balance (PBm) 
to be:
    a) The principal (or notional principal) outstanding if the 
instrument cash flows are paid by the Enterprise,
    b) Minus the principal (or notional principal) outstanding if the 
instrument cash flows are received by the Enterprise.
    c) Zero if m is less than or equal to the issue month or the month 
in which an option exercised during the stress test would begin accruing 
cash flows to or from the Enterprise.
    d) Zero if m is greater than or equal to the maturity month or the 
month in which an option exercised during the stress test would cease 
further cash flows to or from the Enterprise.
    2) Calculate NSDOm by summing PBm,i for all 
instruments where MNRm,i is less than or equal to m plus 12.
    3) Calculate TDOm by summing PBm,i for 
instruments where MNRm,i, is greater than m.

[[Page 500]]

    d. Set the Maximum Proportion of Total Debt (MPD):
    [GRAPHIC] [TIFF OMITTED] TR15MR02.015
    
    e. Calculate Discount Rate Factor (DRFm):
    [GRAPHIC] [TIFF OMITTED] TR15MR02.016
    
    Where: CFm = six month Enterprise Cost of Funds for month 
m

    f. Calculate the Adjustment Factor for Short-Term Debt Issuance Fees 
(AFSIFm):
[GRAPHIC] [TIFF OMITTED] TR15MR02.017

    g. Calculate the Adjustment Factor for Long-Term Debt Issuance Fees 
(AFLIFm):
[GRAPHIC] [TIFF OMITTED] TR15MR02.018

    h. Calculate the Maximum Long-Term Issuance (MLTIm):
    [GRAPHIC] [TIFF OMITTED] TR15MR02.019
    
    i. Calculate Net Short-Term Debt Outstanding (NSDOm) and 
Total Debt Outstanding (TDOm) for month m using the 
methodology described in paragraph 3.10.3.1.[b]3.c. of this appendix. 
Note: This calculation must reflect all new issuances, option exercises, 
and maturities between the beginning of the Stress Test and month m.
    j. Calculate Interim Face Amount of Long-Term Debt to be issued this 
month (IFALDm):
[GRAPHIC] [TIFF OMITTED] TR15MR02.020

    k. Calculate Face Amount of Long-Term Debt to be issued 
(FALDm):
[GRAPHIC] [TIFF OMITTED] TR15MR02.021

    l. Calculate Face Amount of Short-Term Debt to be issued 
(FASDm):
[GRAPHIC] [TIFF OMITTED] TR15MR02.022

                3.10.3.2 Dividends and Share Repurchases

    [a] The Stress Test determines quarterly whether to pay dividends 
and make share repurchases. Dividends are decided upon and paid during 
the first month after the end of the quarter for which they are 
declared. If any dividends are paid, the dividend payout cannot exceed 
an amount equal to core capital less the estimated minimum capital 
requirement at the end of the quarter. Share repurchases are made during 
the middle month of the quarter.
1. Preferred Stock. An Enterprise will pay dividends on preferred stock 
          as long as that Enterprise meets the estimated minimum capital 
          requirement before and after the payment of these dividends. 
          Preferred stock dividends are based on the coupon rates of the 
          issues outstanding. The coupon rates for any issues of 
          variable rate preferred stock are calculated using projections 
          of the appropriate index rate. Preferred stock dividends may 
          not exceed core capital less the estimated minimum capital 
          requirement at the end of the preceding quarter.
2. Common Stock. In the first year of the Stress Test, dividends are 
          paid on common stock in each of the four quarters after 
          preferred dividends, if any, are paid unless the Enterprise's 
          capital is, or after the payment, would be, below the 
          estimated minimum capital requirement.
    a. First Quarter. In the first quarter, the dividend is the dividend 
per share ratio

[[Page 501]]

for common stock from the quarter preceding the Stress Test times the 
current number of shares of common stock outstanding.
    b. Subsequent Quarters.
    1) In the three subsequent quarters, if the preceding quarter's 
after tax income is greater than after tax income in the quarter 
preceding the Stress Test, (adjusted by the ratio of the Enterprise's 
retained earnings and retained earnings after adjustments are made that 
revert investment securities and derivatives to amortized cost), pay the 
larger of (1) the dividend per share ratio for common stock from the 
quarter preceding the Stress Test times the current number of shares of 
common stock outstanding or (2) the average dividend payout ratio for 
common stock for the four quarters preceding the start of the Stress 
Test times the preceding quarter's after tax income (adjusted by the 
reciprocal of the ratio of the Enterprise's retained earnings and 
retained earnings after adjustments are made that revert investment 
securities and derivatives to amortized cost) less preferred dividends 
paid in the current quarter. In no case may the dividend payment exceed 
an amount equal to core capital less the estimated minimum capital 
requirement at the end of the preceding quarter.
    (2) If the previous quarter's after tax income is less than or equal 
to after tax income in the quarter preceding the Stress Test (adjusted 
by the ratio of the Enterprise's retained earnings and retained earnings 
after adjustments are made that revert investment securities and 
derivatives to amortized cost), pay the lesser of (1) the dividend per 
share ratio for common stock for the quarter preceding the Stress Test 
times the current number of shares of common stock outstanding or (2) an 
amount equal to core capital less the estimated minimum capital 
requirement at the end of the preceding quarter, but not less than zero.
3. Share Repurchases. In the first two quarters of the Stress Test, the 
          capital of the Enterprises will be reduced to reflect the 
          repurchase of shares. The amount of the capital reduction in 
          each of those two quarters will be equal to the average net 
          stock repurchases by the Enterprise during the four quarters 
          preceding the start of the Stress Period. Net stock 
          repurchases equal repurchases less receipts from new stock 
          issued, but not less than zero. Repurchases in each of the 
          first two quarters may occur only up to the point that the 
          amount of core capital exceeds the estimated minimum capital 
          requirement at the end of the first month of the quarter.
4. Minimum Capital Requirements. For the purposes of the Stress Test, 
          the Enterprise's minimum capital requirement is computed by 
          applying leverage ratios to all assets (2.50 percent) and off-
          balance sheet obligations (0.45 percent), and summing the 
          results. Repurchases of an Enterprise's own previously-issued 
          MBSs are excluded from the minimum capital calculation used in 
          section 3.10.3.2, Dividends and Share Repurchases, of this 
          Appendix.

        3.10.3.3 Allowances for Loan Losses and Other Charge-Offs

    [a] The Stress Test calculates a tentative allowance for loan losses 
monthly by multiplying current-month Credit Losses (CL in Table 3-52) by 
twelve, thus annualizing current month Credit Losses. This is a proxy 
for a loss contingency where it is probable that a loss has been 
incurred and the amount can be reasonably estimated. For both the 
retained and sold portfolios, these credit losses include lost principal 
(net of recoveries from credit enhancements and disposition of the real 
estate collateral), and foreclosure, holding, and disposition costs. If 
the tentative allowance for loan losses for the current period is 
greater than the balance from the prior month less charge-offs (i.e., 
credit losses) for the current month, a provision (i.e., expense) is 
recorded. Otherwise, no provision is made and the allowance for loan 
losses is equal to the prior period amount less current month charge-
offs.
    [b] Other charge-offs result from Haircuts related to mortgage 
revenue bonds, private-issue MBS, and non mortgage investments, 
described in their respective cash flow components.
1. In the case of Enterprise investments in securities, these Haircuts 
          result in the receipt of less principal and interest than is 
          contractually due. Lost principal is recorded as Other Losses 
          when due and not received, while lost interest is recorded as 
          a reduction of Interest Income.
2. In the case of interest rate derivative instruments, these Haircuts 
          result in the receipt of less net interest than is 
          contractually due from, or the payment of more interest than 
          is contractually due to, an Enterprise counterparty. For those 
          swaps that are linked to Enterprise investments, the increase 
          or decrease of net swap interest due is recorded as an 
          adjustment of Interest Income. For those swaps that are linked 
          to Enterprise debt obligations, the increase or decrease of 
          net swap interest due is recorded as an adjustment of Interest 
          Expense.

                       3.10.3.4 Operating Expenses

    [a] The Stress Test calculates operating expenses, which include 
non-interest costs

[[Page 502]]

such as those related to an Enterprise's salaries and benefits, 
professional services, property, equipment and office space. Over the 
Stress Period, operating expenses are equal to the sum of two 
components. The first component in each month is equal to one-third (\1/
3\) of the average monthly operating expenses of the Enterprise in the 
quarter immediately preceding the start of the Stress Test. The second 
component changes in proportion to the change in the size of the 
Enterprise's mortgage portfolio (i.e., the sum of outstanding principal 
balances of its retained and sold mortgage portfolios). The Stress Test 
calculates the Enterprise's mortgage portfolio at the end of each month 
of the Stress Period as a percentage of the portfolio at the start of 
the Stress Test, and then multiplies the percentage of assets remaining 
by two-thirds (\2/3\) of the average monthly operating expenses of the 
Enterprise in the quarter immediately preceding the start of the Stress 
Test.
    [b] The sum of the two components in paragraph [a], of this section, 
is multiplied by a factor which equals
[GRAPHIC] [TIFF OMITTED] TR13SE01.124

for the first 12 months of the Stress Test and then equals two-thirds 
for months 13 and beyond. This product is the Enterprise's operating 
expense for a given month in the Stress Period.

                          3.10.3.5 Income Taxes

    [a] Both Enterprises are subject to Federal income taxes, but 
neither is subject to state or local income taxes.
    [b] The Stress Test applies an effective Federal income tax rate of 
30 percent when calculating the monthly provision for income taxes 
(e.g., income tax expense). OFHEO may change the 30 percent income tax 
rate if there are significant changes in Enterprise experience or 
changes in the statutory income tax.
    [c] The Stress Test sets income tax expense for tax purposes equal 
to the provision for income taxes. The effects of timing differences 
between taxable income and Generally Accepted Accounting Principles 
(GAAP) income before income taxes are ignored. Income before taxes is 
adjusted by the ratio of Enterprise retained earnings and retained 
earnings after adjustments are made that revert investment securities 
and derivatives to amortized cost. Therefore, Net Operating Loss (NOL) 
occurs only when the net income, before the provision for income taxes, 
is negative.
    [d] Payments for estimated income taxes are made quarterly, in the 
month after the end of the quarter. At the end of each year, the annual 
estimated tax amount is compared to the annual actual tax amount. In 
March of the next year, a payment of remaining taxes is made or a refund 
for overpayment of income taxes is received.
    [e] The NOL for the current year is ``carried back'' to offset taxes 
in any or all of the preceding two calendar years. (The Enterprises' tax 
year is the same as the calendar year.) This offset of the prior years' 
taxes results in a negative provision for income taxes (e.g., income) 
for the current year. Use of a carry back reduces available carry backs 
in subsequent years. Any NOL remaining after carry backs are exhausted 
becomes a carry forward.
    [f] Carry forwards represent NOLs that cannot be carried back to 
offset previous years' taxes, but can be used to offset taxes in any or 
all of the subsequent 20 years. Carry forwards accumulate until used, or 
until they expire 20 years after they are generated.
    [g] A valuation adjustment is used to eliminate any deferred tax 
asset.

                           3.10.3.6 Accounting

    [a] The 1992 Act specifies that total capital includes core capital 
and a general allowance for foreclosure losses. For the Enterprises, 
this general allowance is represented by general allowances for loan 
losses on their retained and sold mortgage portfolios. As defined at 12 
CFR 1750.2, core capital includes the sum of the following components of 
equity:
1. The par or stated value of outstanding common stock,
2. The par or stated value of outstanding perpetual, noncumulative 
          preferred stock,
3. Paid-in capital, and
4. Retained earnings.
    [b] In order to determine the amount of total capital an Enterprise 
must hold to maintain positive total capital throughout the ten-year 
Stress Period, the Stress Test projects the four components of equity 
listed in paragraph [a] of this section plus general loss allowances as 
part of the monthly pro forma balance sheets.
    [c] Details of an Enterprise's actual balance sheet at the beginning 
of the Stress Test are recorded from a combination of starting position 
balances for all instruments for which other components of the Stress 
Test calculate cash flows and other starting position balances for 
assets, liabilities, and equity accounts needed to complete an 
Enterprise's balance sheet.
    [d] After recording an Enterprise's balance sheet at the beginning 
of the Stress Period, the Stress Test creates monthly pro forma balance 
sheets and income statements by recording output from the cash flow 
components of the Stress Test; recording new debt and investments (and 
related interest), dividends, loss allowances, operating expenses, and 
taxes; and applying accounting rules

[[Page 503]]

pertaining to pro forma balance sheets and income statements.

        3.10.3.6.1 Accounting for Cash Flows and Accounting Flows

    [a] Balances at the beginning of the Stress Test are obtained from 
the RBC Report. Subsequent changes to related pro forma balance sheet 
and income statement accounts are obtained from data generated by cash 
flow components of the Stress Test as follows:
1. Retained Loans. For Retained Loans, interest cash flows in the first 
          month of the Stress Period reduce accrued interest receivable 
          at the beginning of the Stress Test. Subsequent months 
          interest cash flows are recorded as accrued interest 
          receivable and interest income in the month prior to receipt. 
          When the interest cash flows are received, accrued interest 
          receivable is reduced. Monthly principal cash flows (including 
          Prepayments and defaulted principal) are recorded as 
          reductions in the outstanding balance of the loan group. Net 
          losses on Defaults are charged off against the allowance for 
          loan losses. Amortization of deferred discounts increases 
          interest income; amortization of deferred premiums decreases 
          interest income.
2. Mortgage Revenue Bonds. For mortgage revenue bonds, interest cash 
          flows in the first month of the Stress Period reduce accrued 
          interest receivable at the beginning of the Stress Test. 
          Subsequent months' interest cash flows are recorded as accrued 
          interest receivable and interest income in the month prior to 
          receipt. When the interest cash flows are received, accrued 
          interest receivable is reduced. Monthly principal cash flows 
          (including Prepayments) are recorded in the month received as 
          a reduction in the outstanding balance of mortgage assets. 
          Defaulted principal is charged off when due and is not 
          received. Amortization of deferred discounts increases 
          interest income; amortization of deferred premiums decreases 
          interest income.
3. Nonmortgage Instruments. Principal repayments of nonmortgage 
          instruments reduce the nonmortgage instrument and increases or 
          decreases cash. When the interest cash flows are received or 
          paid, accrued interest receivable or payable is reduced. 
          Accrued interest includes both amounts at the beginning of the 
          Stress Period and subsequent monthly accruals (also recorded 
          as interest income or interest expense). Amortization of 
          deferred discounts and premiums increases or decreases 
          interest income or interest expense. Defaulted principal is 
          charged off when due and not received.
4. Sold Portfolio. Sold portfolio cash flows include monthly guarantee 
          fees, float, and principal and interest due MBS investors. 
          Guarantee fees are recorded as income in the month received. 
          Principal and interest due mortgage security investors does 
          not affect the balance sheet; however, interest earned on 
          these amounts (float) is recorded as income in the month the 
          underlying principal and interest payments are received. 
          Principal payments received and defaulted loan balances reduce 
          the outstanding balance of the sold portfolio. Losses (net of 
          recoveries) are charged off against the allowance for losses 
          on the sold portfolio (a liability on the pro forma balance 
          sheets) and reduce cash. Amortization of deferred premiums and 
          discounts increases or decreases guarantee fees.

                3.10.3.6.2 Accounting for Non-Cash Items

    [a] Changes in the pro forma balances for other parts of the 
Enterprise's balance sheet not resulting from cash flows are recorded as 
described in the following nine steps:
1. Unrealized Gains and Losses.
a. The valuation impact of any Applicable Fair Value Standards (AFVS), 
          cumulative from their time of implementation, will be reversed 
          out of the starting position data, by debiting any accumulated 
          credits, and crediting any accumulated debits.
    (1) AFVS are defined as GAAP pronouncements that require or allow 
fair value measurements, e.g., EITF 99-20, FAS 65, FAS 87, FAS 115, FAS 
133, FAS 140, FAS 149 and FIN 45. Valuation impacts of AVFS pertain only 
to amounts that are measured at fair value and not to other amounts that 
are included in AFVS but are not measured at fair value.
    (2) The GAAP pronouncements covered by this treatment are subject to 
OFHEO review. The Enterprises will submit a list of standards and 
pronouncements that are being reversed in their RBC Reports.
b. After reversing the valuation impact of AFVS, any affected items are 
          presented as follows:
    (1) If absent the adoption of the AFVS, the affected transactions 
measured at fair value would have been accounted for on an amortized 
cost basis, they are presented as if they had always been accounted for 
on an amortized cost basis. Amounts not measured at fair value are 
represented as specified by GAAP and are presented using current GAAP 
rules.
    (2) To the extent that transactions would not have been accounted 
for on an amortized cost basis, they are accounted for as if they were 
income and expense items.
2. Low Income Housing Tax Credit Investments. Low income housing tax 
          credit investments at the beginning of the Stress Test are 
          converted to cash on a straight line

[[Page 504]]

          basis over the first six months of the Stress Period.
3. Other Assets. The following other assets at the beginning of the 
          Stress Test are converted to cash as follows:
    a. Clearing accounts and other miscellaneous receivables (e.g., fees 
receivable, accounts receivable, and other miscellaneous assets) in the 
first month of the Stress Test.
    b. Earning assets (see section 3.9, Alternative Modeling Treatments, 
of this Appendix)
    c. Items not covered by a. and b. of this section on a straight-line 
basis over the first five-years of the Stress Test.
4. Real Estate Owned (REO). Real estate owned at the beginning of the 
          Stress Test is converted to cash on a straight-line basis over 
          the first six months of the Stress Test.
    5. Fixed Assets. 25 percent of fixed assets (net of accumulated 
depreciation) as of the beginning of the Stress Test remain constant 
over the Stress Test. The remaining 75 percent is converted to cash on a 
straight line basis over the ten-year Stress Period. Depreciation is 
included in the base on which operating expenses are calculated for each 
month during the Stress Period.
6. Principal and Interest Payable. Principal and interest payable to an 
          Enterprise's mortgage security investors at the beginning of 
          the Stress Test are paid during the first two months of the 
          Stress Test (one-half in month one and one-half in month two).
7. Other Liabilities. The following liabilities at the beginning of the 
          Stress Test are paid in the first month of the Stress Test, 
          reducing cash:
    a. Escrow deposits
    b. Other miscellaneous liabilities
8. Commitments. No gains or losses are recorded when commitments are 
          added to the Enterprise's sold portfolio. See section 3.2.1, 
          of this Appendix.
9. Fully-Hedged Foreign Currency-Denominated Liabilities. Amounts that 
          relate to currency swaps and foreign currency-denominated 
          liabilities will be treated as follows:
    a. Recorded balances that correspond to converted foreign currency-
denominated liabilities will be amortized in a manner that is consistent 
with scheduled pay leg exchanges of notional amounts as set forth in 
corresponding currency swaps. The unamortized premiums, discounts and/or 
fees that are associated with these liabilities will be amortized as 
described in section 3.8, of this Appendix, as if they were associated 
with the pay legs of the corresponding currency swap. Any differences 
will be reflected as an increase or decrease in Retained Earnings.
    b. Interest payable amounts associated with currency swaps will be 
settled in a manner that is consistent with the contractual terms for 
these instruments.
    c. Receivable amounts associated with currency swaps and interest 
payable amounts associated with foreign currency-denominated debt will 
be reversed against Retained Earnings.
    d. The adjustments in a., b. and c., of this section, will take 
place at the start of the Stress Test. These treatments are not applied 
to instruments that are modeled under AMT (see section 3.9, Alternative 
Modeling Treatments, of this Appendix) or foreign currency-denominated 
instruments that are not fully hedged.

                 3.10.3.6.3 Other Accounting Principles

    The following additional accounting principles apply to the pro 
forma balance sheets and income statements:
1. All investment securities are treated as held to maturity. As such, 
          they are recorded as assets at amortized cost, not at fair 
          value.
2. All non-securitized mortgage loans will be classified as ``held-to-
          maturity'' and will be accounted for on an amortized cost 
          basis.
3. Effective control over the collateral for collateral financings is 
          with the party that originally delivered such collateral.
4. Enterprise Real Estate Investment Trust (REIT) subsidiaries are 
          consolidated. Specifically, REIT assets are treated as 
          Enterprise assets. Preferred stock of the REIT is reflected as 
          Enterprise debt. Dividends paid on the preferred stock are 
          reported as interest expense.
5. Treasury stock is reflected as a reduction in retained earnings.

            3.10.4 Operations, Taxes, and Accounting Outputs

    For each month of the Stress Period, the Stress Test produces a pro 
forma balance sheet and income statement. The Operations, Taxes and 
Accounting component outputs 121 monthly and 11 annual balance sheets, 
120 monthly and 10 annual income statements, and 120 monthly and 10 
annual cash flow statements, including part-year statements for the 
first and last calendar years of the Stress Test when necessary. These 
pro forma financial statements are the inputs for calculation of the 
risk-based capital requirement (see section 3.12, Calculation of the 
Risk-Based Capital Requirement, of this Appendix).

               3.11 Treatment of New Enterprise Activities

                3.11.1 New Enterprise Activities Overview

    [a] Given rapid innovation in the financial services industry, OFHEO 
anticipates the

[[Page 505]]

Enterprises will become involved with new mortgage products, 
investments, debt and derivative instruments, and business activities, 
which must be accommodated in the Stress Test in order to capture all of 
the risk in the Enterprises' businesses. New accounting entries 
resulting from these innovations and changes in accounting must also be 
accommodated. The regulation is sufficiently flexible and complete to 
address new Enterprise activities as they emerge, using the procedures 
outlined in this section. However, OFHEO will monitor the Enterprises' 
activities and, when appropriate, propose amendments to this regulation 
addressing the treatment of new instruments, activities, or accounting 
treatments.
    [b] For the purpose of this section of the Appendix, the term New 
Activity means any type of asset, liability, off-balance-sheet item, 
accounting entry, or activity to which a Stress Test treatment has not 
previously been applied. In addition, the Director has the discretion to 
treat as a New Activity: (1) any activity or instrument with 
characteristics or unusual features that create risks or hedges for the 
Enterprise that are not reflected adequately in the specified treatments 
for similar activities or instruments; and (2) any activity or 
instrument for which the specified treatment no longer adequately 
reflects the risk/benefit to the Enterprise, either because of increased 
volume or because new information concerning those risks/hedges has 
become available.

                 3.11.2 New Enterprise Activities Inputs

    [a] Complete data and full explanations of the operation of the New 
Activity sufficient to understand the risk profile of the New Activity 
must be provided by the Enterprise. The Enterprises are required to 
notify OFHEO, pursuant to Sec. 1750.12(c), of proposals related to New 
Activities as soon as possible, but in any event no later than five 
calendar days after the date on which the transaction closes or is 
settled. The Enterprises are encouraged to suggest an appropriate 
capital treatment that will fully capture the credit and interest rate 
risk in the New Activity. Information on New Activities must also be 
submitted and appropriately identified as such in the RBC Report.
    [b] The Stress Test will not give an Enterprise the capital benefit 
associated with a New Activity where OFHEO determines that the impact of 
that activity on the risk-based capital level of the Enterprise is not 
commensurate with the economic benefit to the Enterprise.

               3.11.3 New Enterprise Activities Procedures

    [a] OFHEO will analyze the risk characteristics and determine 
whether an existing approach specified in the Appendix appropriately 
captures the risk of the New Activity or whether some combination or 
adaptation of existing approaches specified in the Appendix is 
appropriate. For example, the Stress Test might employ its mortgage 
performance components and adapt its cash flow components to simulate 
accurately the loss mitigating effects and counterparty credit risk of 
credit derivatives.
    [b] Where there is no reasonable approach using existing 
combinations or adaptations of treatments specified in this Appendix 
that could be applied within the timeframe for computing a quarterly 
capital calculation, the Stress Test will employ an appropriately 
conservative treatment, consistent with OFHEO's role as a safety and 
soundness regulator. Such treatment may include an alternative modeling 
treatment specified in section 3.9, Alternative Modeling Treatments, of 
this Appendix, or some other conservative treatment that OFHEO deems 
more appropriate.
    [c] OFHEO will provide the Enterprise with its estimate of the 
capital treatment as soon as possible after receiving notice of the New 
Activity. In any event, the Enterprise will be notified of the capital 
treatment in accordance with the notice of proposed capital 
classification provided for in Sec. 1777.21 of this chapter.
    [d] After a treatment has been incorporated into a final capital 
classification, OFHEO will provide notice of such treatment to the 
public, including the other Enterprise. OFHEO will consider any comments 
it receives from the public regarding the treatment during subsequent 
quarters. OFHEO may change the treatment as a result of such input or 
otherwise, if OFHEO determines that the risks of the New Activity are 
not appropriately reflected in a treatment previously adopted.

                3.11.4 New Enterprise Activities Outputs

    The Stress Test will generate a set of cash and/or accounting flows 
reflecting the treatment applied to the New Activity.

         3.12 Calculation of the Risk-Based Capital Requirement

             3.12.1 Risk-Based Capital Requirement Overview

    The risk-based capital requirement is the sum of (1) the minimum 
amount of total capital that an Enterprise must hold at the start of the 
Stress Test in order to maintain positive total capital throughout the 
ten-year Stress Period, for all financial instruments explicitly modeled 
in the Stress Test (Stress Test capital subtotal) and (2) certain 
additional amounts relating to off-balance-sheet items addressed in 
section 3.9, Alternative Modeling Treatments, of this Appendix, and (3) 
30 percent of that sum for management and operations risk. The Stress 
Test capital subtotal is determined based on

[[Page 506]]

monthly total capital figures from the pro forma financial statements, 
the additional amounts related to off-balance-sheet items, and 
Enterprise short term borrowing and investment rates.

              3.12.2 Risk-Based Capital Requirement Inputs

    [a] Inputs to the capital calculation are outputs from section 3.3, 
Interest Rates, section 3.9, Alternative Modeling Treatments, and 
section 3.10, Operations, Taxes, and Accounting, of this Appendix.
    [b] For each month of the Stress Test, the following inputs are 
from, or used in the creation of, pro forma financial statements 
projected in section 3.10, Operations, Taxes, and Accounting, of this 
Appendix:

1. Total capital
    a. The par or stated value of outstanding common stock,
    b. The par or stated value of outstanding perpetual, noncumulative 
preferred stock,
    c. Paid-in capital,
    d. retained earnings, and
    e. allowance for losses on retained and sold mortgages less specific 
losses calculated in accordance with FAS 114,
2. Provision for income taxes (income tax expense),
3. Valuation adjustment that reduces benefits recorded from net 
          operating losses when no net operating loss tax carrybacks are 
          available, and
4. An Enterprise's cash position prior to the decision to issue new debt 
          or purchase new investments to balance the balance sheet (see 
          section 3.10.3.1, New Debt and Investments, of this Appendix).

    [c] For present-value calculations, the Stress Test uses the six-
month Enterprise Cost of Funds or the six-month CMT yield as described 
in section 3.3, Interest Rates, of this Appendix.
    [d] The amount for off-balance-sheet items that are not explicitly 
modeled is obtained from section 3.9.3.1, Off-Balance Sheet Items, of 
this Appendix.

            3.12.3 Risk-Based Capital Requirement Procedures

    [a] The following eight steps are used to determine the Stress Test 
capital subtotal and the risk-based capital requirement for an 
Enterprise:
1. Determine the effective tax rate in each month. If the provision for 
          income taxes is positive (reflecting taxes owed) or negative 
          (reflecting tax refunds to be received), then the effective 
          tax rate is 30 percent. If the provision for income taxes is 
          zero after applying any valuation adjustments (see section 
          3.10.3.6, Accounting, of this Appendix), then the effective 
          tax rate applied in step 3. of this section is zero.
2. Determine whether an Enterprise is an investor or a borrower in each 
          month of the Stress Period. In months where an Enterprise has 
          outstanding six-month discount notes that were issued during 
          the stress test, then the Enterprise is a borrower. Otherwise, 
          the Enterprise is an investor.
3. Determine the appropriate monthly discount factor for each month of 
          the Stress Period:
 a. In months where an Enterprise is an investor, the monthly discount 
          factor is based on the yield of short-term assets:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.125
          
 b. In months where an Enterprise is a borrower, the monthly discount 
          factor is based on the cost of the Enterprise's short-term 
          debt:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.126
          
Where:

0.00025 is the factor that incorporates the issuance and administrative 
costs for an Enterprise's new discount notes.

4. Compute the appropriate cumulative discount for each month of the 
          Stress Period. The cumulative discount factor for a given 
          month is the monthly discount factor for that month multiplied 
          by the

[[Page 507]]

          cumulative discount factor for the preceding month. (The 
          cumulative discount factor for the first month of the Stress 
          Period is the monthly discount factor for that month.) Thus, 
          the cumulative discount factor for any month incorporates all 
          of the previous monthly discount factors.
5. Discount total capital for each month of the Stress Period to the 
          start of the Stress Period for both interest rate scenarios. 
          Divide the total capital for a given month by the cumulative 
          discount factor for that month.
6. Identify the Stress Test capital subtotal, which is the lowest 
          discounted total capital amount from among the 240 monthly 
          discounted total capital amounts.
7. From the Stress Test capital subtotal, subtract the capital required 
          for off-balance sheet items not explicitly modeled in the 
          Stress Test, as calculated in section 3.9.3.1, Off-Balance 
          Sheet Items, of this Appendix. Then subtract the resulting 
          difference from the Enterprise's total capital at the start of 
          the Stress Period. The resulting number is the amount of total 
          capital that an Enterprise must hold at the start of the 
          Stress Test in order to maintain positive total capital 
          throughout the ten-year Stress Period.
8. Multiply the minimum total capital amount by 1.3 for management and 
          operations risk.
9. Subtract the net increase (or add the net decrease) in Retained 
          Earnings related to Fair Value Hedges at the start of the 
          stress test made in accordance with section 3.10.3.6.2[a]1.b. 
          of this appendix.

              3.12.4 Risk-Based Capital Requirement Output

    The output of the calculations in this section is the risk-based 
capital requirement for an Enterprise at the start date of the Stress 
Test.

                              4.0 Glossary

    This glossary is intended to define terms in the Regulatory Appendix 
that are used in a computationally specific sense that require a precise 
quantitative definition.

                                    A

    Accounting Flows: one or more series of numbers tracking various 
components of the accounting computations over time, analogous to ``Cash 
Flows.''
    Age: of a Mortgage Loan, for computational purpose: the number of 
scheduled payment dates that have occurred prior to the time at which 
the Age is determined. The Age of a newly originated Mortgage is zero 
prior to its first payment date.
    Amortization Expense: used in the accounting sense of the monthly 
allocation of a one-time amount (positive or negative) over time, not to 
describe amortization of principal in a mortgage.
    Amortization Schedule: for a Mortgage Loan, a series of numbers 
specifying the (1) principal and (2) interest components of each 
Mortgage Payment, and (3) the Unpaid Principal Balance after each such 
payment is made.
    Allocated Interest: in certain accounting calculations, the amount 
of interest deemed to be received on a certain date according to an 
allocation formula, whether or not equal to the amount actually received 
on that date (see, e.g., section 3.6.3.8.3, Whole Loan Accounting Flows 
Procedures, of this Appendix).
    Aggregate Limit: see section 3.6.3.6.4.1, Mortgage Credit 
Enhancement Overview, of this Appendix.

                                    B

    Balance Limit: see section 3.6.3.6.4.1, Mortgage Credit Enhancement 
Overview, of this Appendix.
    Balloon Payment: the final payment of a Balloon Loan, the principal 
component of which is the entire Unpaid Principal Balance of said loan 
at the time the Balloon Payment is contractually due.
    Balloon Loan: a Mortgage Loan that matures before the Unpaid 
Principal Balance is fully amortized to zero, thus requiring a large 
final Balloon Payment.
    Balloon Date: the maturity date of a Balloon Loan.
    Benchmark: used as an adjective to refer to the economic environment 
(including interest rates, house prices, and vacancy and rental rates) 
that prevailed in the region and time period of the Benchmark Loss 
Experience.
    Benchmark Census Division: the Census Division, designated by OFHEO, 
that is used to determine house prices and vacancy and rental rates of 
the Stress Period.
    Benchmark Loss Experience (BLE): the rates of default and loss 
severity of loans in the state/year combination (containing at least two 
consecutive origination years and contiguous areas with a total 
population equal to or greater than five percent of the population of 
the United States) with the highest loss rate.
    Burnout: in describing Mortgage Prepayments, the reduced rates of 
Prepayment observed with Mortgage Loans that were not prepaid during 
earlier periods when it would have been advantageous to do so.

                                    C

    Cash Flow Hedges: cash flow hedges as defined by FAS 133.
    Census Division: any one of the nine geographic areas of the United 
States so designated by the Bureau of the Census. The

[[Page 508]]

OFHEO House Price Index determined at the Census Division level is used 
in the Stress Test.
    Claim Amount: the amount of Credit Enhancement that an Enterprise is 
eligible to receive as a reimbursement on mortgage loan losses, which is 
often but not always equal to the total amount of the loss.
    Commitment Loan Groups: hypothetical groups of Mortgage Loans 
assumed to be originated during the months immediately after the start 
of the Stress Test pursuant to Commitments made but not yet fulfilled by 
the Enterprises prior to the start of the Stress Test to purchase or 
securitize loans.
    Contract: a Mortgage Credit Enhancement contract covering a distinct 
set of loans with a distinct set of contractual terms.
    Constant Maturity Treasury (CMT) Rate: see table 3-18, Interest Rate 
and Index Inputs.
    Counterparty Type: classification used to specify the appropriate 
Haircut level in section 3.5, Counterparty Defaults, of this Appendix.
    Credit Enhancement: for the GSEs, agreements with lenders or third-
parties put in place to reduce or limit mortgage credit (default) losses 
for an individual loan. See section 3.1.2.1.1, Loan Group Inputs, of 
this Appendix.

                                    D

    Debt Service Coverage Ratio: see section 3.6.3.5.3.1, Explanatory 
Variables, of this Appendix.
    Default: for purposes of computing rates of mortgage default and 
losses, see the specific process specified in section 3.6.1, Whole Loan 
Cash Flows Overview, of this Appendix.
    Defaulting Fraction: in any month, for any group of loans, the 
proportion of loans newly defaulted in that month expressed as a 
fraction of the initial loans (by number or by balance, depending on how 
Prepayment and Default Rates are measured) in the loan group; see, e.g., 
section 3.6.3.4.3.2, Prepayment and Default Rates and Performance 
Fractions, of this Appendix.
    Defaulted UPB: the Unpaid Principal Balance (UPB) of a loan in the 
month that it Defaults.
    Deferred Balances: see section 3.6.3.8.1, Whole Loan Accounting 
Flows Overview, of this Appendix.
    Derivative Mortgage Security: generally refers to securities that 
receive cash flow with significantly different characteristics than the 
aggregate cash flow from the underlying mortgage loans, such as 
Interest-Only or Principal-Only Stripped MBSs or REMIC Residual 
Interests. See section 3.7.1, Mortgage-Related Securities Overview, of 
this Appendix.
    Deposit Limit: see section 3.6.3.6.4.1, Mortgage Credit Enhancement 
Overview, of this Appendix.
    Distinct Credit Combination (DCC): see section 3.6.3.6.4.1, Mortgage 
Credit Enhancement Overview, of this Appendix.

                                    E

    Enterprise Cost of Funds: Cost of funds used in computing the cost 
of new debt for the Enterprises during the Stress Test, as specified in 
section 3.3.3.[a]3.c., of this Appendix.
    Enterprise Loss Position: see section 3.6.3.6.4.1, Mortgage Credit 
Enhancement Overview, of this Appendix.

                                    F

    Fair Value Hedges: fair value hedges as described in FAS 133.
    Float Income: the earnings on the investment of loan principal and 
interest payments (net of the Servicing Fee and Guarantee Fee) from the 
time these payments are received from the servicer until they are 
remitted to security holders. See section 3.6.1, Whole Loan Cash Flows 
Overview, of this Appendix.

                                    G

    Gross Loss Severity: Loss Severity including the excess, if any, of 
Defaulted UPB over gross sale price of an REO property, fees, expenses 
and certain unpaid interest amounts, before giving effect to Credit 
Enhancement or any other amounts received on account of a defaulted loan 
(all such amounts expressed as a fraction of Defaulted UPB); see section 
3.6.3.6.2, Single Family Gross Loss Severity, and section 3.6.3.6.3, 
Multifamily Gross Loss Severity, of this Appendix.
    Guarantee Fee: the amount received by an Enterprise as payment for 
guaranteeing a mortgage loan; see, e.g., section 3.6.3.2, Payment 
Allocation Conventions, of this Appendix.

                                    H

    Haircut: the amount by which payments from a counterparty are 
reduced to account for a given probability of counterparty failure.

                                    I

    Initial: used as an adjective to specify conditions at the start of 
the Stress Test, except in defined terms; see also Time Zero.
    Initial Rate Period: for an Adjustable Rate Mortgage, the number of 
months before the mortgage interest rate changes for the first time. 
Also known as ``teaser period.''
    Interest-only Period: for interest-only loans, the period of time 
for which the monthly payment covers only the interest due. (During the 
interest-only period, the UPB of the loan stays constant until maturity 
or a changeover date. For loans that mature, a Balloon Payment in the 
amount of the UPB is due at maturity. In other cases, the loan payment 
is recast at the changeover date

[[Page 509]]

and the loan begins to amortize over its remaining term.) See section 
3.6.3.3.1, Mortgage Amortization Schedule Overview, of this Appendix.
    Interest Rates: the Constant Maturity Treasury yields and other 
interest rates and indexes used in the Stress Test.
    Investor-owned: a property that is not owner-occupied.

                                    L

    Loan Limit: used to describe a type of Credit Enhancement; see 
section 3.6.3.6.4.1, Mortgage Credit Enhancement Overview, of this 
Appendix.
    Loan Group: a group of one or more mortgage loans with similar 
characteristics, that are treated identically for computational purposes 
in the Risk-Based Capital calculations.
    Loss Severity: the amount of a mortgage loss divided by the 
Defaulted UPB.
    Loss Sharing Arrangements (LSA): see section 3.6.3.6.4.1, Mortgage 
Credit Enhancement Overview, of this Appendix.

                                    M

    Maximum Haircut: as defined in section 3.5, Counterparty Defaults, 
of this Appendix.
    Modified Pool Insurance: a form of Single Family Mortgage Credit 
Enhancement described in section 3.6.3.6.4.1, Mortgage Credit 
Enhancement Overview, of this Appendix.
    Mortgage Insurance (Primary Mortgage Insurance): a type of credit 
enhancement that pays claims up to a given limit on each loan. See 
section 3.6.3.6.4.1, Mortgage Credit Enhancement Overview, of this 
Appendix.
    Mortgage Related Security: a collective reference for (1) securities 
directly backed by mortgage loans, such as Single Class MBSs, Multi-
Class MBSs (REMICs or Collaterilized Mortgage Obligations (CMOs)); (2) 
Derivative Mortgage-Backed Securities (certain multi-class and strip 
securities) issued by Fannie Mae, Freddie Mac, and Ginnie Mae; (3) 
Mortgage Revenue Bonds issued by State and local governments and their 
instrumentalities; or (4) single class and Derivative Mortgage-Backed 
Securities issued by private entities. See section 3.1.2.2, Mortgage-
Related Securities Inputs, of this Appendix.

                                    N

    Negative Amortization: as defined in section 3.6.3.2.1, Allocation 
of Mortgage Interest, of this Appendix.
    Net Loss Severity: Gross Loss Severity reduced by Credit 
Enhancements and any other amounts received on account of a defaulted 
loan (all such amounts expressed as a fraction of Defaulted UPB).
    Net Yield Rate: the Mortgage Interest Rate minus the Servicing Fee 
Rate.
    New Activity: as defined in section 3.11, Treatment of New 
Enterprise Activities, of this Appendix.
    Notional Amount: the amount analogous to a principal balance which 
is used to calculate interest payments in certain swap transactions or 
derivative securities.

                                    O

    Original: used as an adjective to specify values in effect at Loan 
Origination.
    Origination: for a Mortgage Loan with monthly payments, the date one 
month prior to the first contractual payment date.
    Owner-Occupied: a property, or a Mortgage Loan backed by a property, 
that is a single family residence which is the primary residence of the 
owner.

                                    P

    Pass-Through Rate: the Mortgage Interest Rate minus the Servicing 
Fee and the Guarantee Fee.
    Performing Fraction: in any month, for any group of loans, the 
proportion of loans that have not either prepaid or defaulted in that 
month or any prior month, expressed as a fraction of the loans at the 
start of the Stress Test (by number or by balance, depending on how 
Prepayment and Default rates are measured) in a loan group; see e.g., 
section 3.6.3.4.3.2, Prepayment and Default Rates and Performance 
Fractions, of this Appendix.
    Prepaying Fraction: in any month, for any group of loans, the 
proportion of loans that prepay in full in that month expressed as a 
fraction of the loans at the start of the Stress Test (by number or by 
balance, depending on how Prepayment and Default rates are measured) in 
the loan group; see e.g., section 3.6.3.4.3.2, Prepayment and Default 
Rates and Performance Fractions, of this Appendix.
    Prepayment: the prepayment in full of a loan before its contractual 
maturity date
    Prepayment Interest Shortfall: as defined in section 3.6.3.1, Timing 
Conventions, of this Appendix.

                                    R

    Risk-Based Capital (RBC) Report: The form in which Enterprise data 
is to be submitted for purposes of calculating the risk-based capital 
requirement, as described in section 3.1, Data, of this Appendix.
    Relative Spread: as defined in section 3.6.3.4.3.1, Single Family 
Default and Prepayment Explanatory Variables, of this Appendix.
    Retained Loans: as described in section 3.6.1, Whole Loan Cash Flows 
Overview, of this Appendix.

[[Page 510]]

                                    S

    Scheduled Principal: the amount of principal reduction that occurs 
in a given month according to the Amortization Schedule of a mortgage 
loan; see section 3.6.3.3, Mortgage Amortization Schedule, of this 
Appendix.
    Servicing Fee: portion of mortgage interest payment retained by 
servicer.
    Sold Loans: as described in section 3.6.1, Whole Loan Cash Flows 
Overview, of this Appendix.
    Spread Accounts: a form of Credit Enhancement; section 3.6.3.6.4, 
Mortgage Credit Enhancement, of this Appendix.
    Stress Period: the 10-year period covered by the Stress Test 
simulation.
    Stress Test: the calculation, which applies specified economic 
assumptions to Enterprise portfolios, described in this Appendix.
    Strike Rate: the interest rate above/below which interest is 
received for caps/floors.
    Subordination Agreements: a form of Credit Enhancement in which the 
cash flows allocable to a portion of a mortgage pool are used to cover 
losses on loans allocable to another portion of the mortgage pool; see 
section 3.6.3.6.4, Mortgage Credit Enhancement, of this Appendix.

                                    T

    Time Zero: used to designate the conditions in effect at the start 
of the Stress Test, as defined in section 3.6.3.1, Timing Conventions, 
of this Appendix.

                                    U

    Unpaid Principal Balance (UPB): the Unpaid Principal Balance of a 
loan or loan group based solely on its Amortization Schedule, without 
giving effect to any missed or otherwise unscheduled payments.

                                    W

    Whole Loan: a mortgage loan.

[66 FR 47806, Sept. 13, 2001, as amended at 67 FR 11861, Mar. 15, 2002; 
67 FR 66535, Nov. 1, 2002; 68 FR 7312, Feb. 13, 2003; 71 FR 75087, Dec. 
14, 2006]



          Sec. Appendix B to Subpart B of Part 1750 [Reserved]



PART 1770_EXECUTIVE COMPENSATION--Table of Contents




Sec.
1770.1 Authority and scope.
1770.2 Purpose.
1770.3 Definitions.
1770.4 Submission requirements.
1770.5 Compliance.

    Authority: 12 U.S.C. 1452(h)(2), 1723a(d)(3)(B), 4501(6), 4502(3), 
4502(7), 4513, 4514, 4517, 4518(a), 4631, 4632, 4636, 4641.

    Source: 66 FR 47554, Sept. 12, 2001, unless otherwise noted.



Sec. 1770.1  Authority and scope.

    (a) Authority. Title XIII of the Housing and Community Development 
Act of 1992, Pub. L. No. 102-550, entitled the Federal Housing 
Enterprises Financial Safety and Soundness Act of 1992 (``the Act'') (12 
U.S.C. 4501 et seq.), established the Office of Federal Housing 
Enterprise Oversight (``OFHEO'') as an independent office within the 
Department of Housing and Urban Development. In general, OFHEO is the 
safety and soundness regulator of two housing-related government 
sponsored enterprises: the Federal National Mortgage Association 
(``Fannie Mae'') and the Federal Home Loan Mortgage Corporation 
(``Freddie Mac'') (collectively, ``the Enterprises''). The supervisory 
responsibilities of the Director of OFHEO (the ``Director'') include 
oversight of compensation provided by the Enterprises to their executive 
officers.
    (b) Scope. The procedures set forth in this part apply to OFHEO's 
oversight of executive compensation under the following two statutory 
mandates:
    (1) Prohibition of excessive compensation. The Act requires the 
Director to prohibit an Enterprise from providing compensation to any 
executive officer that is not reasonable and comparable with that paid 
by other similar businesses to executives doing similar work, i.e., 
having similar duties and responsibilities. Businesses used for 
comparison purposes include publicly held financial institutions or 
major financial services companies. (12 U.S.C. 4518(a)). To effectuate 
this compensation oversight responsibility, the Act provides that the 
Director has full authority to take such actions as the Director 
determines are necessary. (12 U.S.C. 4513(8)). However, the Director may 
not prescribe or set a specific level or range of compensation for 
executive officers of the Enterprises. (12 U.S.C. 4518(b)).
    (2) Prior approval of termination benefits. The Enterprises' 
enabling statutes (``charter acts'') similarly provide that an 
Enterprise may not enter into any agreement or contract to provide any 
payment of money or other thing of

[[Page 511]]

current or potential value in connection with the termination of 
employment of an executive officer unless the agreement or contract is 
approved in advance by the Director. The Director may only approve 
termination benefits that are comparable to benefits provided by other 
public or private entities involved in financial services and housing 
interests to executives with comparable duties and responsibilities. 
Agreements or contracts that provide for termination payments to 
executives that were entered into before October 28, 1992 are not 
retroactively subject to approval or disapproval by the Director. 
However, a renegotiation, amendment or change to such an agreement or 
contract entered into on or before October 28, 1992 shall be considered 
as entering into an agreement or contract that is subject to approval by 
the Director. (Section 309(d)(3)(B); 12 U.S.C. 1723a(d)(3)(B) of Fannie 
Mae's Charter Act; Section 303(h)(2); 12 U.S.C. 1452(h)(2) of Freddie 
Mac's Corporation Act)



Sec. 1770.2  Purpose.

    In exercising responsibilities related to executive compensation, 
the Director has established a structured process for the submission of 
relevant information by each Enterprise. This part codifies those 
procedures and clarifies the terms used therein in order to facilitate 
and enhance the efficiency of OFHEO's oversight.



Sec. 1770.3  Definitions.

    The following definitions apply to the terms used in this part:
    (a) The Act is Title XIII of the Housing and Community Development 
Act of 1992, Pub. L. No. 102-550, Oct. 28, 1992, 106 Stat. 3672, 3941 
through 4012 (1993), 12 U.S.C. 4501 et seq., separately entitled the 
``Federal Housing Enterprises Financial Safety and Soundness Act of 
1992.''
    (b) Affiliate means, except as provided by the Director, any entity 
that controls, is controlled by, or is under common control with, an 
Enterprise.
    (c) Charter acts mean the Federal National Mortgage Association 
Charter Act and the Federal Home Loan Mortgage Corporation Act, which 
are codified at 12 U.S.C. 1716 through 1723i and 12 U.S.C. 1451 through 
1459, respectively.
    (d) Compensation means any payment of money or the provision of any 
other thing of current or potential value in connection with employment. 
Compensation includes all direct and indirect payments of benefits, both 
cash and non-cash, granted to or for the benefit of any executive 
officer, including, but not limited to, payments and benefits derived 
from an employment contract compensation or benefit agreement, fee 
arrangement, perquisite, stock option plan, post employment benefit or 
other compensatory arrangement.
    (e) Director means the Director of OFHEO or his or her designee.
    (f) Enterprise means the Federal National Mortgage Association and 
the Federal Home Loan Mortgage Corporation and, except as provided by 
the Director, any affiliate thereof.
    (g)(1) Executive officer means, with respect to an Enterprise:
    (i) The chairman of the board of directors, chief executive officer, 
chief financial officer, chief operating officer, president, vice 
chairman, any executive vice president, and any individual who performs 
functions similar to such positions whether or not the individual has an 
official title; and
    (ii) Any senior vice president (SVP) or other individual with 
similar responsibilities, without regard to title:
    (A) Who is in charge of a principal business unit, division or 
function, or
    (B) Who reports directly to the Enterprise's chairman of the board 
of directors, vice chairman, president or chief operating officer.
    (2) The Director shall inform the Enterprises of those officers 
covered by this definition.
    (h) OFHEO means the Office of Federal Housing Enterprise Oversight.



Sec. 1770.4  Submission requirements.

    (a) Submission of information to OFHEO. All information required to 
be filed for purposes of this part is to be provided in a timely fashion 
by each Enterprise to OFHEO's Associate Director of the Office of Policy 
Analysis and Research, as specified in this section, or as designated by 
the Director.

[[Page 512]]

    (b) Categories of information relating to prohibition of excessive 
compensation. The following materials, unless otherwise specified, shall 
be provided by each Enterprise to OFHEO for review within one week after 
the specified action or event:
    (1) Resolutions, including supporting materials and related reports, 
from meetings of the Enterprise's committee responsible for compensation 
when the committee takes any action regarding a compensation matter that 
under the committee's authority is effective without further action by 
the committee or the board of directors;
    (2) Resolutions, including supporting materials and related reports 
(not otherwise provided to OFHEO under paragraph (b)(1) of this 
section), from meetings of the board of directors relating to executive 
compensation when the board of directors takes any action regarding a 
compensation matter that is effective without any further action by the 
board of directors;
    (3) Minutes, including supporting materials and related reports, 
when adopted by the committee responsible for compensation and those 
portions of minutes of the board of directors, including supporting 
materials and related reports, related to compensation matters (except 
for materials previously provided under paragraphs (b)(1) or (2) of this 
section);
    (4) General benefit plans applicable to executive officers when 
adopted or amended;
    (5) Any study conducted by or on behalf of an Enterprise with 
respect to compensation of executive officers;
    (6) The Enterprise's annual compensation report to Congress when 
submitted;
    (7) A current organizational chart when changes occur affecting the 
status of executive officers under this part;
    (8) Proxy statements when issued; and,
    (9) Such other information as deemed appropriate by the Director, 
except that submissions required under this paragraph shall not include 
materials related to the performance of specific individuals.
    (c) Timing of submissions related to prior approval of termination 
benefits. All relevant information, except as provided under Sec. 
1770.5(a), should be provided to OFHEO, unless already provided under 
paragraph (b) of this section:
    (1) Before an Enterprise enters into any agreement or contract with 
a new or existing executive officer that includes termination benefits;
    (2) Before an Enterprise makes any extension or other amendment to 
such an agreement or contract;
    (3) Before an Enterprise takes any other action to provide 
termination benefits to a specific executive officer, regardless of how 
effected; or
    (4) When an Enterprise makes any changes to the termination 
provisions of any compensation or benefit program affecting multiple 
executive officers.
    (d) Specific information required for calculation of termination 
benefits. For submissions under paragraph (c) of this section, an 
Enterprise shall submit to OFHEO the following materials:
    (1) The details of the agreement or program change, e.g., employment 
agreements, termination agreements, severance agreements, and portions 
of minutes of the board of directors relating to executive compensation 
and minutes and supporting materials of the compensation Committee of 
the board of directors;
    (2) All information, data, assumptions and calculations for the 
potential total dollar value or range of values of the benefits 
provided, such as but not limited to salary, bonus opportunity, short-
term incentives, long-term incentives, special incentives and pension 
provisions or related contract or benefit terms; and
    (3) Such other information deemed appropriate by the Director, 
except that information required to be submitted under paragraph (c) of 
this section or under this paragraph shall not include information on 
benefit plans of general applicability.



Sec. 1770.5  Compliance.

    (a) An employment agreement or contract subject to the Director's 
prior approval, as set forth in Sec. 1770.1(b)(2), may be entered into 
prior to that approval, provided that such agreement or

[[Page 513]]

contract specifically provides that termination benefits under the 
agreement or contract shall not be effective and no payments shall be 
made thereunder unless and until approved by OFHEO. Such notice should 
make clear that alteration of benefit plans subsequent to OFHEO approval 
under this section, that affect final termination benefits of an 
executive officer, requires review at the time of the individual's 
termination from the Enterprise and prior to the payment of any 
benefits.
    (b) Failure by an Enterprise to comply with the requirements this 
regulation may warrant remedial action by OFHEO. Such action may be 
taken in the form determined appropriate by the Director and may be 
taken separately from, in conjunction with, or in addition to any other 
corrective or remedial action, including an enforcement action to 
require an individual to make restitution to or reimbursement to the 
Enterprise of excessive compensation or inappropriately paid termination 
benefits.



PART 1773_FLOOD INSURANCE--Table of Contents




Sec.
1773.1 Authority and scope.
1773.2 Requirements.
1773.3 Civil money penalties.

    Authority: 12 U.S.C. 4521(a)(4), 4513, 4536(a); 42 U.S.C. 4001 note; 
28 U.S.C. 2461 note; 42 U.S.C. 4012a(f)(3), (4), (8), (9), (10).

    Source: 66 FR 65101, Dec. 18, 2001, unless otherwise noted.



Sec. 1773.1  Authority and scope.

    (a) Authority. The National Flood Insurance Act of 1968, title XII 
of Public Law 90-448, Aug. 1, 1968, 42 U.S.C. 4002 et seq., and the 
Flood Disaster Protection Act of 1973, 42 U.S.C. 4002 et seq., as 
amended by the National Flood Insurance Reform Act of 1994 (``NFIRA''), 
Public Law 103-325, Sept. 23, 1994, 42 U.S.C. 4001-4129, together create 
the National Flood Insurance Program (``NFIP'') which established 
specific requirements applicable to the Enterprises. NFIRA designates 
OFHEO as the Federal agency responsible for determining compliance by 
the Enterprises with these statutes and with reporting to Congress 
biannually for six years on the Enterprises' compliance. OFHEO has the 
authority to issue any regulations necessary to carry out the applicable 
provisions of NFIRA. OFHEO is also charged with enforcing the 
requirements of NFIRA as to the Enterprises and provides for the 
assessment of civil money penalties for violations of the procedures 
established by the Enterprises pursuant to the law or implementing 
regulations.
    (b) Scope. This part sets forth the responsibilities of the 
Enterprises under NFIRA and the procedures to be used in any proceeding 
to assess civil money penalties against an Enterprise under NFIRA.



Sec. 1773.2  Requirements.

    (a) Procedures. Each Enterprise shall implement procedures 
reasonably designed to ensure for any loan that is secured by improved 
real estate or a mobile home located in an area that has been 
identified, at the time of the origination of the loan or at any time 
during the term of the loan, by the Director of the Federal Emergency 
Management Agency as an area having special flood hazards and in which 
flood insurance is available under the NFIP, and purchased by such 
entity, the building or mobile home and any personal property securing 
the loan is covered for the term of the loan by flood insurance in an 
amount at least equal to the lesser of the outstanding principal balance 
of the loan or the maximum limit of coverage made available with respect 
to the particular type of property under the NFIP.
    (b) Applicability. (1) Paragraph (a) of this section shall apply 
only with respect to any loan made, increased, extended, or renewed 
after September 22, 1995.
    (2) Paragraph (a) of this section shall not apply to any loan having 
an original outstanding balance of $5,000 or less and a repayment term 
of one year or less.



Sec. 1773.3  Civil money penalties.

    (a) In general. If an Enterprise is determined by the Director of 
OFHEO to have engaged in a pattern or practice of purchasing loans in 
violation of the procedures established pursuant to the

[[Page 514]]

NFIA, as amended, or to Sec. 1773.2, the Director may assess civil 
money penalties against such Enterprise in such amount or amounts as 
deemed to be appropriate under paragraph (c) of this section.
    (b) Notice and hearing. A civil money penalty under this section may 
be assessed only after notice and an opportunity for a hearing on the 
record has been provided under 12 CFR part 1780.
    (c) Amount. A civil money penalty under this section may not exceed 
$385 for each violation. The total amount of penalties assessed under 
this section against an Enterprise during any calendar year may not 
exceed $110,000.
    (d) Deposit of penalties. Any penalties collected under this section 
shall be paid into the National Flood Mitigation Fund in accordance with 
42 U.S.C. 4104d.
    (e) Additional penalties. Any penalty under this section shall be in 
addition to, and shall not preclude, any civil remedy or criminal 
penalty otherwise available.
    (f) Statute of limitations. No civil money penalty may be imposed 
under this section after the expiration of the four-year period 
beginning on the date of the occurrence of the violation for which the 
penalty is authorized under this section.



PART 1777_PROMPT CORRECTIVE ACTION--Table of Contents




Sec.
1777.1 Authority, purpose, scope, and implementation dates.
1777.2 Preservation of other authority.
1777.3 Definitions.

                  Subpart A_Prompt Supervisory Response

1777.10 Developments prompting supervisory response.
1777.11 Supervisory response.
1777.12 Other supervisory action.

 Subpart B_Capital Classifications and Orders Under Section 1366 of the 
                                1992 Act

1777.20 Capital classifications.
1777.21 Notice of capital category, and adjustments.
1777.22 Limitation on capital distributions.
1777.23 Capital restoration plans.
1777.24 Notice of intent to issue an order.
1777.25 Response to notice.
1777.26 Final notice of order.
1777.27 Exhaustion and review.
1777.28 Appointment of conservator for a significantly undercapitalized 
          or critically undercapitalized Enterprise.

    Authority: 12 U.S.C. 1452(b)(2), 1456(c), 1718(c)(2), 1723a(k), 
4513(a), 4513(b), 4514, 4517, 4611-4619, 4622, 4623, 4631, 4635.

    Source: 67 FR 3598, Jan. 25, 2002, unless otherwise noted.



Sec. 1777.1  Authority, purpose, scope, and implementation dates.

    (a) Authority. This part is issued by the Office of Federal Housing 
Enterprise Oversight (OFHEO) pursuant to sections 1313, 1371, 1372, and 
1376 of the Federal Housing Enterprises Financial Safety and Soundness 
Act (1992 Act) (12 U.S.C. 4513, 4631, 4632, and 4636). These provisions 
broadly authorize OFHEO to take such actions as are deemed appropriate 
by the Director of OFHEO to ensure that the Federal National Mortgage 
Association and the Federal Home Loan Mortgage Corporation 
(collectively, the Enterprises) maintain adequate capital and operate in 
a safe and sound manner.
    (b) Authority, purpose and scope of subpart A. In addition to the 
authority set forth in paragraph (a) of this section, subpart A of this 
part is also issued pursuant to section 1314 of the 1992 Act (12 U.S.C. 
4514), section 307(c) of the Federal Home Loan Mortgage Corporation Act 
(12 U.S.C. 1456(c)), and section 309(k) of the Federal National Mortgage 
Association Charter Act (12 U.S.C. 1723a(k)), requiring each Enterprise 
to submit such reports to OFHEO as the Director of OFHEO determines, in 
his or her judgment, are necessary to carry out the purposes of the 1992 
Act. Subpart A of this part is also issued in reliance on section 1317 
of the 1992 Act (12 U.S.C. 4517) authorizing OFHEO to conduct 
examinations of the Enterprises. The purpose of subpart A of this part 
is to set forth a framework of early intervention supervisory measures, 
other than formal enforcement actions, that OFHEO may take to address 
emerging developments that merit supervisory review to ensure they do 
not pose a current or future threat to the safety and soundness of an 
Enterprise. OFHEO's initiation of procedures under subpart A does not 
necessarily indicate that any unsound condition exists. The

[[Page 515]]

supervisory responses enumerated in Sec. 1777.11 do not constitute 
orders under the 1992 Act for purposes of sections 1371 and 1376 thereof 
(12 U.S.C. 4631 and 4636).
    (c) Authority, purpose, and scope of subpart B. In addition to the 
authority set forth in paragraph (a) of this section, subpart B of this 
part is also issued pursuant to subtitle B of the 1992 Act (12 U.S.C. 
4611 through 4623), section 303(b)(2) of the Federal Home Loan Mortgage 
Corporation Act (12 U.S.C. 1452(b)(2)), and section 303(c)(2) of the 
Federal National Mortgage Association Charter Act (12 U.S.C. 
1718(c)(2)). These provisions authorize OFHEO to administer certain 
capital requirements for the Enterprises, to classify the capital of the 
Enterprises based on capital levels specified in the 1992 Act, and, in 
appropriate circumstances, to exercise discretion to reclassify an 
Enterprise into a lower capital category. Under these provisions, there 
are also automatic consequences for an Enterprise that is not classified 
as adequately capitalized, as well as discretionary authority for OFHEO 
to require an Enterprise to take remedial actions. Subpart B implements 
the provisions of sections 1364 through 1368, 1369(b) through (e), 
1369C, and 1369D of the 1992 Act as they apply to the Enterprises (12 
U.S.C. 4614 through 4618, 4619(b) through (e), 4622 and 4623). The 
principal purposes of subpart B are to identify the capital measures and 
capital levels that OFHEO uses in determining the capital classification 
of an Enterprise; to set out the procedures OFHEO uses in determining 
such capital classifications; to establish procedures for submission and 
review of capital restoration plans of an Enterprise that is not 
classified as adequately capitalized; and to establish procedures under 
which OFHEO issues orders pursuant to section 1366(b)(1) through (4) of 
the 1992 Act (12 U.S.C. 4616(b)(1) through (4)).
    (d) Effective dates of capital classifications. Section 1364 of the 
1992 Act (12 U.S.C. 4614(d)) directs OFHEO to determine capital 
classifications for the Enterprises by reference to two capital 
standards, consisting of the minimum or critical capital level on the 
one hand, and the risk-based capital level on the other. Section 1364(d) 
of the 1992 Act (12 U.S.C. 4614(d)) excludes consideration of whether 
the Enterprises meet the risk-based capital level in determining capital 
classifications or reclassifications under 1364, until one year after 
the effective date of OFHEO's regulation implementing OFHEO's risk-based 
capital test (issued under section 1361(e) of the 1992 Act (12 U.S.C. 
4611(e)), until such time, section 1364(d) provides that an Enterprise 
is to be classified as adequately capitalized so long as it meets the 
minimum capital level. Subpart B contains a currently effective set of 
capital classifications omitting consideration of the risk-based capital 
level, as well as another set of capital classifications which will take 
effect, and displace the current set of capital classifications, on 
September 13, 2002 that is, one year after the effective date of OFHEO's 
risk-based capital rule published at 66 FR 47730, September 13, 2001.



Sec. 1777.2  Preservation of other authority.

    (a) Supervisory standards. Notwithstanding the existence of 
procedures in Sec. 1777.10 for the Director of OFHEO to designate 
certain developments for supervisory response under subpart A of this 
part, nothing in this part in any way limits the authority of OFHEO 
otherwise to take such actions with respect to any issue as is deemed 
appropriate by the Director of OFHEO to ensure that the Enterprises 
maintain adequate capital, operate in a safe and sound manner, and 
comply with the 1992 Act and regulations, orders, and agreements 
thereunder.
    (b) Capital floor. Classification of an Enterprise as adequately 
capitalized in accordance with subtitle B of the 1992 Act and subpart B 
of this part indicates that the Enterprise meets the capital levels 
under sections 1361 and 1362 of the 1992 Act (12 U.S.C. 4611 and 4612) 
and regulations promulgated thereunder as of the times specified in the 
classification determination. Nothing in subpart B of this part or 
subtitle

[[Page 516]]

B of the 1992 Act limits OFHEO's authority otherwise to address 
circumstances that would require additional capital through regulations, 
orders, notices, guidance, or other actions.
    (c) Form of supervisory action or response. In addition to the 
supervisory responses contemplated under subpart A of this part, and the 
authority to classify and reclassify the Enterprises, to issue orders, 
and to appoint conservators under subpart B of this part, the 1992 Act 
grants OFHEO broad discretion to take such other supervisory actions as 
may be deemed by OFHEO to be appropriate, including issuing temporary 
and permanent cease and desist orders, imposing civil money penalties, 
appointing a conservator under section 1369(a)(1) through (2) of the 
1992 Act (12 U.S.C. 4619(a)(1) through (2)), entering into a written 
agreement the violation of which is actionable through enforcement 
proceedings, or entering into any other formal or informal agreement 
with an Enterprise. Neither the 1992 Act nor this part in any way limit 
OFHEO's discretion over the selection of the type of these actions, and 
the selection of one type of action under this part or under these other 
statutory authorities, or a combination thereof, does not foreclose 
OFHEO from pursuing any other action.



Sec. 1777.3  Definitions.

    For purposes of this part, the following definitions will apply:
    1992 Act means the Federal Housing Enterprises Financial Safety and 
Soundness Act, 12 U.S.C. 4501 et seq.
    Affiliate means an entity that controls an Enterprise, is controlled 
by an Enterprise, or is under common control with an Enterprise.
    Capital distribution means:
    (1) Any dividend or other distribution in cash or in kind made with 
respect to any shares of, or other ownership interest in, an Enterprise, 
except a dividend consisting only of shares of the Enterprise; and
    (2) Any payment made by an Enterprise to repurchase, redeem, retire, 
or otherwise acquire any of its shares or other ownership interests, 
including any extension of credit made to finance an acquisition by the 
Enterprise of such shares or other ownership interests, except to the 
extent the Enterprise makes a payment to repurchase its shares for the 
purpose of fulfilling an obligation of the Enterprise under an employee 
stock ownership plan that is qualified under section 401 of the Internal 
Revenue Code of 1986 (26 U.S.C. 401 et seq.) or any substantially 
equivalent plan as determined by the Director of OFHEO in writing in 
advance.
    Core capital has the same meaning as provided in 12 CFR 1750.2.
    Critical capital level means the amount of core capital that is 
equal to the sum of one half of the amount determined under 12 CFR 
1750.4(a)(1) and five-ninths of the amounts determined under 12 CFR 
1750.4(a)(2) through 1750.4(a)(7).
    Enterprise means the Federal National Mortgage Association and any 
affiliate thereof, and the Federal Home Loan Mortgage Corporation and 
any affiliate thereof.
    Minimum capital level means the minimum amount of core capital 
specified for an Enterprise pursuant to section 1362 of the 1992 Act (12 
U.S.C. 4612), as determined under 12 CFR 1750.4.
    OFHEO means the Office of Federal Housing Enterprise Oversight.
    Risk-based capital level means the amount of total capital specified 
for an Enterprise pursuant to section 1361 of the 1992 Act (12 U.S.C. 
4611), as determined under OFHEO's regulations implementing section 
1361.
    Total capital has the same meaning as provided at 12 CFR 1750.11(n).



                  Subpart A_Prompt Supervisory Response



Sec. 1777.10  Developments prompting supervisory response.

    In the event of any of the following developments, OFHEO shall 
undertake one of the supervisory responses enumerated in Sec. 1777.11, 
or a combination thereof:
    (a) OFHEO's national House Price Index (HPI) for the most recent 
quarter is more than two percent less than the national HPI four 
quarters previously, or for any Census Division or Divisions

[[Page 517]]

in which are located properties securing more than 25 percent of single-
family mortgages owned or securing securities guaranteed by an 
enterprise, the HPI for the most recent quarter for such Division or 
Divisions is more than five percent less than the HPI for that Division 
or Divisions four quarters previously;
    (b) An Enterprise's publicly reported net income for the most recent 
calendar quarter is less than one-half of its average quarterly net 
income for any four-quarter period during the prior eight quarters;
    (c) An Enterprise's publicly reported net interest margin (NIM) for 
the most recent quarter is less than one-half of its average NIM for any 
four-quarter period during the prior eight quarters;
    (d) For single-family mortgage loans owned or securities by an 
Enterprise that are delinquent ninety days or more or in foreclosure, 
the proportion of such loans in the most recent quarter has increased 
more than one percentage point compared to the lowest proportion of such 
loans in any of the prior four quarters; or
    (e) Any other development, including conduct of an activity by an 
Enterprise, that OFHEO determines in its discretion presents a risk to 
the safety and soundness of the Enterprise or a possible violation of 
applicable law, regulation, or order.



Sec. 1777.11  Supervisory response.

    (a) Level I supervisory response--(1) Supervisory letter. Not later 
than five business days after OFHEO determines that a development 
enumerated in Sec. 1777.10 has transpired, OFHEO shall deliver a 
supervisory letter alerting the chief executive officer or the board of 
directors of the Enterprise to OFHEO's determination.
    (2) Contents of supervisory letter. The supervisory letter shall 
notify the Enterprise that, pursuant to this subpart, OFHEO is 
commencing review of a potentially adverse development. As is 
appropriate under the particular circumstances and the nature of the 
potentially adverse development, the letter may direct the Enterprise to 
undertake one or more of the following actions, as of such time as OFHEO 
directs:
    (i) Provide OFHEO with any relevant information known to the 
Enterprise about the potentially adverse development, in such format as 
OFHEO directs;
    (ii) Respond to specific questions and concerns that OFHEO poses 
about the potentially adverse development; and
    (iii) Take appropriate action.
    (3) Review; further action. Based on the Enterprise's response to 
the supervisory letter and consideration of other relevant factors, 
OFHEO shall promptly determine whether the Level I supervisory response 
is adequate to resolve any supervisory issues implicated by the 
potentially adverse development, or whether additional supervisory 
response under this section is warranted.
    (4) Sequence of supervisory responses. The Level II through Level IV 
supervisory responses in paragraphs (b) through (d) of this section may 
be carried out in any sequence, including simultaneous performance of 
two or more such responses. OFHEO may also carry out one or more such 
responses simultaneously with a Level I supervisory response pursuant to 
this paragraph (a).
    (b) Level II supervisory response--(1) Special review. In addition 
to any other supervisory response described in this section, OFHEO may 
conduct a special review of an Enterprise in order to assess the impact 
of the potentially adverse development on the Enterprise.
    (2) Review; further action. Based on the results of the special 
review and consideration of other factors deemed by OFHEO to be 
relevant, OFHEO shall promptly determine whether additional supervisory 
response under this section is warranted.
    (c) Level III supervisory response--(1) Action plan. In addition to 
any other supervisory response described in this section, OFHEO may 
direct the Enterprise to prepare and submit an action plan to OFHEO, in 
such format and at such time as OFHEO directs.
    (2) Contents of action plan. Such action plan shall include, subject 
to additional direction by OFHEO, the following:

[[Page 518]]

    (i) In the case of any potentially adverse development arising from 
conditions or practices internal to the Enterprise, any relevant 
information known to the Enterprise about the circumstances that led to 
the potentially adverse development;
    (ii) An assessment of likely consequences that the potentially 
adverse development may have for the Enterprise; and
    (iii) The proposed course of action the Enterprise will undertake in 
response to the potentially adverse development, including an 
explanation as to why such approach is preferred to any other 
alternative actions by the Enterprise and how such approach will address 
the concerns of OFHEO.
    (3) Review; further action. If OFHEO in its discretion determines 
that the information, assessment, or proposed course of action contained 
in the action plan is incomplete or inadequate, OFHEO shall promptly 
direct the Enterprise to correct such deficiencies to the extent OFHEO 
determines such corrections will aid in resolving supervisory issues 
implicated by the potentially adverse development, and will promptly 
determine whether additional supervisory response under this section is 
warranted.
    (d) Level IV supervisory response--(1) Notice to show cause. In 
addition to any other supervisory response described in this section, 
OFHEO may issue written notice to the chief executive officer or the 
board of directors of the Enterprise directing the Enterprise to show 
cause, on or before the date specified in the notice, why OFHEO should 
not issue one or more of the following:
    (i) A notice of charges to the Enterprise under section 1371 of the 
1992 Act (12 U.S.C. 4631) and the procedures in 12 CFR part 1780 
commencing an action to order the Enterprise to cease and desist 
conduct, conditions, or violations specified in the notice to show 
cause;
    (ii) A temporary order to the Enterprise under section 1372 of the 
1992 Act (12 U.S.C. 4632) and the procedures in 12 CFR part 1780 to 
cease and desist from, and take affirmative actions to prevent or remedy 
harm from, conduct, conditions, or violations specified in the notice to 
show cause;
    (iii) A notice of charges under section 1376 of the 1992 Act (12 
U.S.C. 4636) and the procedures in 12 CFR part 1780 commencing 
imposition of a civil money penalty against the Enterprise; or
    (iv) A notice of discretionary reclassification of the Enterprise's 
capital classification under section 1364(b) of the 1992 Act (12 U.S.C. 
4614(b)) and subpart B of this part.
    (2) Review; further action. Based on the Enterprise's response to 
the notice to show cause and consideration of other relevant factors, 
OFHEO shall promptly determine whether to commence the actions described 
in the notice, and whether additional supervisory response under this 
section is warranted.



Sec. 1777.12  Other supervisory action.

    Notwithstanding the pendency or completion of one or more 
supervisory responses described in Sec. 1777.11, OFHEO may at any time 
undertake additional supervisory steps and actions in the form of any 
informal or formal supervisory tool available to OFHEO under the 1992 
Act, including, but not limited to, issuing guidance or directives under 
section 1313 (12 U.S.C. 4513), requiring reports under section 1314 (12 
U.S.C. 4514), conducting other examinations under section 1317 (12 
U.S.C. 4517), issuing discretionary reclassification under section 1364 
(12 U.S.C. 4614), initiating discretionary action under section 1366(b) 
(12 U.S.C. 4616(b)), appointing a conservator under section 1369(a) (12 
U.S.C. 4619(a)), or initiating administrative enforcement action under 
sections 1371, 1372, and 1376 (12 U.S.C. 4631, 4632 and 4636). In 
addition, OFHEO may take any such steps or actions with respect to an 
Enterprise that fails to make a submission or comply with a directive as 
required by Sec. 1777.11, or to address an Enterprise's failure to 
implement an appropriate action in response to a supervisory letter or 
under an action plan under Sec. 1777.11.



 Subpart B_Capital Classifications and Orders Under Section 1366 of the 
                                1992 Act



Sec. 1777.20  Capital classifications.

    (a) Capital classifications after the effective date of section 1365 
of the 1992 Act.

[[Page 519]]

The capital classification of an Enterprise for purposes of subpart B of 
this part is as follows:
    (1) Adequately capitalized. Except as otherwise provided under 
paragraph (a)(5) of this section, an Enterprise will be classified as 
adequately capitalized if the Enterprise:
    (i) As of the date specified in the notice of proposed capital 
classification, holds total capital equaling or exceeding the risk-based 
capital level; and
    (ii) As of the date specified in the notice of proposed capital 
classification, holds core capital equaling or exceeding the minimum 
capital level.
    (2) Undercapitalized. Except as otherwise provided under paragraph 
(a)(5) of this section or Sec. 1777.23(c) or Sec. 1777.23(h), an 
Enterprise will be classified as undercapitalized if the Enterprise:
    (i) As of the date specified in the notice of proposed capital 
classification, holds total capital less than the risk-based capital 
level; and
    (ii) As of the date specified in the notice of proposed capital 
classification, holds core capital equaling or exceeding the minimum 
capital level.
    (3) Significantly undercapitalized. Except as otherwise provided 
under paragraph (a)(5) of this section or Sec. 1777.23(c) or Sec. 
1777.23(h), an Enterprise will be classified as significantly 
undercapitalized if the Enterprise:
    (i) As of the date specified in the notice of proposed capital 
classification, holds core capital less than the minimum capital level; 
and
    (ii) As of the date specified in the notice of proposed capital 
classification, holds core capital equaling or exceeding the critical 
capital level.
    (4) Critically undercapitalized. An Enterprise will be classified as 
critically undercapitalized if, as of the date specified in the notice 
of proposed capital classification, the Enterprise holds core capital 
less than the critical capital level.
    (5) Discretionary reclassification--determination to reclassify. If 
OFHEO determines in writing that an Enterprise is engaging in action or 
inaction (including a failure to respond appropriately to changes in 
circumstances or unforeseen events) that could result in a rapid 
depletion of core capital, or that the value of property subject to 
mortgages held or securitized by the Enterprise has decreased 
significantly, or that reclassification is otherwise deemed necessary to 
ensure that the Enterprise holds adequate capital and operates safely, 
OFHEO may reclassify the Enterprise as:
    (i) Undercapitalized if the Enterprise is otherwise classified as 
adequately capitalized;
    (ii) Significantly undercapitalized if the Enterprise is otherwise 
classified as undercapitalized; or
    (iii) Critically undercapitalized if the Enterprise is otherwise 
classified as significantly undercapitalized.
    (b) Duration of reclassification; successive reclassifications. (1) 
A reclassification of an Enterprise based on action, inaction, or 
conditions under paragraph (a)(5) or (c)(5) of this section shall be 
considered in the determination of each subsequent capital 
classification of the Enterprise, and shall only cease being considered 
in the determination of the Enterprise's capital classification after 
OFHEO determines that the action, inaction or condition upon which the 
reclassification was based has ceased or been eliminated and remedied to 
OFHEO's satisfaction.
    (2) If the action, inaction, or condition upon which a 
reclassification was based under paragraph (a)(5) or (c)(5) of this 
section has not ceased or been eliminated and remedied to OFHEO's 
satisfaction within such reasonable time as is determined by OFHEO to be 
appropriate, OFHEO may consider such failure to be the basis for 
additional reclassification under such paragraph (a)(5) or (c)(5) of 
this section into a lower capital classification.
    (c) Capital classifications before the effective date of section 
1365 of the 1992 Act. Notwithstanding paragraph (a) of this section, 
until September 13, 2002, the capital classification of an Enterprise 
for purposes of subpart B of this part is as follows:
    (1) Adequately capitalized. Except as otherwise provided in 
paragraph (c)(5) of this section, an Enterprise will be classified as 
adequately capitalized if the Enterprise, as of the date specified in 
the notice of proposed capital classification, holds core capital 
equaling or exceeding the minimum capital level.

[[Page 520]]

    (2) Undercapitalized. An Enterprise will be classified as 
undercapitalized if the Enterprise:
    (i) As of the date specified in the notice of proposed capital 
classification, holds core capital equaling or exceeding the minimum 
capital level; and
    (ii) Is reclassified as undercapitalized by OFHEO under paragraph 
(c)(5) of this section.
    (3) Significantly undercapitalized. Except as otherwise provided 
under paragraph (c)(5) of this section or Sec. 1777.23(c) or Sec. 
1777.23(h), an Enterprise will be classified as significantly 
undercapitalized if the Enterprise:
    (i) As of the date specified in the notice of proposed capital 
classification, held core capital less than the minimum capital level; 
and
    (ii) As of the date specified in the notice of proposed capital 
classification, held core capital equaling or exceeding the critical 
capital level.
    (4) Critically undercapitalized. An Enterprise will be classified as 
critically undercapitalized if, as of the date specified in the notice 
of proposed capital classification, the Enterprise held core capital 
less than the critical capital level.
    (5) Discretionary reclassification. If OFHEO determines in writing 
that an Enterprise is engaging in action or inaction (including a 
failure to respond appropriately to changes in circumstances or 
unforeseen events) that could result a rapid depletion of core capital, 
or that the value of the property subject to mortgages held or 
securitized by the Enterprise has decreased significantly or that 
reclassification is deemed necessary to ensure that the Enterprise holds 
adequate capital and operates safely, OFHEO may reclassify the 
Enterprise as:
    (i) Undercapitalized if the Enterprise is otherwise classified as 
adequately capitalized:
    (ii) Significantly undercapitalized if the Enterprise is otherwise 
classified as undercapitalized; or
    (iii) Critically undercapitalized if the Enterprise is otherwise 
classified as significantly undercapitalized.
    (d) Prior approvals. In making a determination to reclassify an 
Enterprise under paragraph (a)(5) or (c)(5) of this section, OFHEO will 
not base its decision to reclassify solely on action or inaction that 
previously was given specific approval by the Director of OFHEO in 
connection with the Director's approval of the Enterprise's capital 
restoration plan under section 1369C of the 1992 Act (12 U.S.C. 4622), 
or of a written agreement with the Enterprise that is enforceable in 
accordance with section 1371 of the 1992 Act.



Sec. 1777.21  Notice of capital category, and adjustments.

    (a) Notice of capital classification. OFHEO will classify each 
Enterprise according to the capital classifications in Sec. 1777.20(a) 
or Sec. 1777.20(c) on at least a quarterly basis. OFHEO may classify an 
Enterprise according to the capital classifications in Sec. 1777.20(a) 
or Sec. 1777.20(c), or reclassify an Enterprise as set out in Sec. 
1777.20(a)(5), Sec. 1777.20(c)(5), Sec. 1777.23(c), or Sec. 
1777.23(h), at such other times as OFHEO deems appropriate.
    (1) Notice of proposed capital classification. (i) Before OFHEO 
classifies or reclassifies an Enterprise, OFHEO will provide the 
Enterprise with written notice containing the proposed capital 
classification, the information upon which the proposed classification 
is based, and the reason for the proposed classification.
    (ii) Notices proposing to classify or reclassify an Enterprise as 
undercapitalized or significantly undercapitalized may be combined with 
a notice that OFHEO may further reclassify the Enterprise under Sec. 
1777.23(c), without additional notice.
    (iii) Notices proposing to classify or reclassify an Enterprise as 
significantly undercapitalized or critically undercapitalized may be 
combined with a notice under Sec. 1777.24 that OFHEO intends to issue 
an order under section 1366 of the 1992 Act (12 U.S.C. 4616).
    (iv) Notices proposing to classify an Enterprise as undercapitalized 
or significantly undercapitalized may be combined with a notice 
proposing to simultaneously reclassify the Enterprise under Sec. 
1777.20(a)(5) or Sec. 1777.20(c)(5).
    (2) Response by the Enterprise. The Enterprise may submit a response 
to OFHEO containing information for

[[Page 521]]

OFHEO's consideration in classifying or reclassifying the Enterprise.
    (i) The Enterprise may, within thirty calendar days from receipt of 
a notice of proposed capital classification, submit a response to OFHEO, 
unless OFHEO determines the condition of the Enterprise requires a 
shorter period or the Enterprise consents to a shorter period.
    (ii) The Enterprise's response period may be extended for up to an 
additional thirty calendar days if OFHEO determines there is good cause 
for such extension.
    (iii) The Enterprise's failure to submit a response during the 
response period (as extended or shortened, if applicable) shall waive 
any right of the Enterprise to comment on or object to the proposed 
capital classification.
    (3) Classification determination and written notice of capital 
classification. After the Enterprise has submitted its response under 
paragraph (a)(2) of this section or the response period (as extended or 
shortened, if applicable) has expired, whichever occurs first, OFHEO 
will make its determination of the Enterprise's capital classification, 
taking into consideration such relevant information as is provided by 
the Enterprise in its response, if any, under paragraph (a)(2) of this 
section. OFHEO will provide the Enterprise with a written notice of 
capital classification, which shall include a description of the basis 
for OFHEO's determination.
    (4) Timing. OFHEO may, in its discretion, issue a notice of proposed 
capital classification to an Enterprise at any time. If a notice of 
proposed classification is pending (under the process set out in 
paragraphs (a)(1) through (3) of this section) at that time, OFHEO may, 
in its discretion, specify whether the subsequent notice of proposed 
capital classification supersedes the pending notice.
    (b) Developments warranting possible change to capital 
classification--(1) Notice to OFHEO. An Enterprise shall promptly 
provide OFHEO with written notice of any material development that would 
result in the Enterprise's core or total capital to fall to a point 
causing the Enterprise to be placed in a lower capital classification 
than the capital classification assigned to the Enterprise in its most 
recent notice of capital classification from OFHEO, or than is proposed 
to be assigned in the Enterprise's most recent notice of proposed 
capital classification from OFHEO. The Enterprise shall deliver such 
notice to OFHEO no later than ten calendar days after the Enterprise 
becomes aware of such development.
    (2) OFHEO, in its discretion, will determine whether to issue a new 
notice of proposed capital classification under paragraph (a) of this 
section, based on OFHEO's review of the notice under paragraph (b)(1) of 
this section from the Enterprise and any other information deemed 
relevant by OFHEO.



Sec. 1777.22  Limitation on capital distributions.

    (a) Capital distributions in general. An Enterprise shall make no 
capital distribution that would decrease the total capital of the 
Enterprise to an amount less than the risk-based capital level or the 
core capital of the Enterprise to an amount less than the minimum 
capital level without the prior written approval of OFHEO.
    (b) Capital distributions by an Enterprise that is not adequately 
capitalized--(1) Prohibited distributions. An Enterprise that is not 
classified as adequately capitalized shall make no capital distribution 
that would result in the Enterprise being classified into a lower 
capital classification than the one to which it is classified at the 
time of such distribution.
    (2) Restricted distributions. An Enterprise classified as 
significantly or critically undercapitalized shall make no capital 
distribution without the prior written approval of OFHEO. OFHEO may 
grant a request for such a capital distribution only if OFHEO 
determines, in its discretion, that the distribution:
    (i) Will enhance the ability of the Enterprise to meet the risk-
based capital level and the minimum capital level promptly;
    (ii) Will contribute to the long-term financial safety and soundness 
of the Enterprise; or
    (iii) Is otherwise in the public interest.

[[Page 522]]



Sec. 1777.23  Capital restoration plans.

    (a) Schedule for filing plans--(1) In general. An Enterprise shall 
file a capital restoration plan in writing with OFHEO within ten days of 
receiving a notice of capital classification under Sec. 1777.21(a)(3) 
stating that the Enterprise is classified as undercapitalized, 
significantly undercapitalized, or critically undercapitalized, unless 
OFHEO in its discretion determines an extension of the ten-day period is 
necessary and provides the Enterprise with written notice of the date 
the plan is due.
    (2) Successive capital classifications. Notwithstanding paragraph 
(a)(1) of this section, an Enterprise that has already submitted and is 
operating under a capital restoration plan approved by OFHEO under this 
part is not required to submit an additional capital restoration plan 
based on a subsequent notice of capital classification, unless OFHEO 
notifies the Enterprise that it must submit a new or amended capital 
restoration plan. An Enterprise that receives such a notice to submit a 
new or amended capital restoration plan shall file in writing with OFHEO 
a complete plan that is responsive to the terms of and within the 
deadline specified in such notice.
    (b) Contents of capital restoration plan. (1) The capital 
restoration plan submitted under paragraph (a)(1) or (2) of this section 
shall:
    (i) Specify the level of capital the Enterprise will achieve and 
maintain;
    (ii) Describe the actions that the Enterprise will take to become 
classified as adequately capitalized;
    (iii) Establish a schedule for completing the actions set forth in 
the plan;
    (iv) Specify the types and levels of activities (including existing 
and new programs) in which the Enterprise will engage during the term of 
the plan;
    (v) Describe the actions that the Enterprise will take to comply 
with any mandatory or discretionary requirements to be imposed under 
Subtitle B of the 1992 Act (12 U.S.C. 4611 through 4623) or subpart B of 
this part;
    (vi) To the extent the Enterprise is required to submit or revise a 
capital restoration plan as the result of a reclassification of the 
Enterprise under Sec. 1777.20(a)(5) or Sec. 1777.20(c)(5), describe 
the steps the Enterprise will take to cease or eliminate and remedy the 
action, inaction, or conditions that caused the reclassification; and
    (vii) Provide any other information or discuss any other issues as 
instructed by OFHEO.
    (2) The plan shall include a declaration by the chief executive 
officer, treasurer, or other officer designated by the Board of 
Directors of the Enterprise to make such declaration, that the material 
contained in the plan is true and correct to the best of such officer's 
knowledge and belief.
    (c) Failure to submit--(1) Failure to submit; submission of 
unacceptable plan. If, upon the expiration of the period provided in 
paragraph (a)(1) or (2) of this section for an Enterprise to submit a 
capital restoration plan, an Enterprise fails to comply with the 
requirement to file a complete capital restoration plan, or if the 
capital restoration plan is disapproved after review under paragraph (d) 
of this section, OFHEO may, in accordance with Sec. 1777.21(a)(1)(ii) 
without additional notice, reclassify the Enterprise:
    (i) As significantly undercapitalized if it is otherwise classified 
as undercapitalized; or
    (ii) As critically undercapitalized if it is otherwise classified as 
significantly undercapitalized.
    (2) Duration of reclassification. An Enterprise's failure to submit 
an approved capital restoration plan as described in paragraph (c)(1) of 
this section shall continue to be grounds for reclassification at each 
subsequent capital classification of the Enterprise, and shall only 
cease being considered grounds for reclassification after the Enterprise 
files a capital restoration plan that receives OFHEO's approval under 
paragraph (d) of this section.
    (3) Successive reclassifications. If an Enterprise has not remedied 
its failure to file a complete capital restoration plan or an acceptable 
capital restoration plan within such period as is determined by OFHEO to 
be appropriate, OFHEO may consider such failure to be the basis for 
additional reclassification under paragraph (c)(1) of this section into 
a lower capital classification. Such reclassification may be made

[[Page 523]]

without additional notice in accordance with Sec. 1777.21(a)(1)(ii).
    (d) Order approving or disapproving plan. Not later than thirty 
calendar days after receipt of the Enterprise's complete or amended 
capital restoration plan under this section (subject to extension upon 
written notice to the Enterprise for an additional thirty calendar days 
as OFHEO deems necessary), OFHEO shall issue an order to the Enterprise 
approving or disapproving the plan. An order disapproving a plan shall 
include the reasons therefore.
    (e) Resubmission. An Enterprise that receives an order disapproving 
its capital restoration plan shall submit an amended capital plan 
acceptable to OFHEO within thirty calendar days of the date of such 
order, or a longer period if OFHEO determines an extension is in the 
public interest.
    (f) Amendment. An Enterprise that has received an order approving 
its capital restoration plan may amend the capital restoration plan only 
after written notice to OFHEO and OFHEO's written approval of the 
modification. Pending OFHEO's review and approval of the amendment in 
OFHEO's discretion, the Enterprise shall continue to implement the 
capital restoration plan under the original approval order.
    (g) Termination--(1) Termination under the terms of the plan. An 
Enterprise that has received an order approving its capital restoration 
plan remains bound by each of its obligations under the plan until each 
such obligation terminates under express terms of the plan itself 
identifying a date, event, or condition upon which such obligation shall 
terminate.
    (2) Termination orders. To the extent the plan does not include such 
express terms for any obligation thereunder, the Enterprise's obligation 
continues until OFHEO issues an order terminating such obligation under 
the plan. The Enterprise may also submit a written request to OFHEO 
seeking termination of such obligations. OFHEO will approve termination 
of such obligation to the extent that OFHEO determines, in its 
discretion, that the obligation's purpose under the plan has been 
fulfilled and that termination of the obligation is consistent with the 
overall safety and soundness of the Enterprise.
    (h) Implementation--(1) An Enterprise that has received an order 
approving its capital restoration plan is required to implement the 
plan.
    (i) If OFHEO determines, in its discretion, that an Enterprise has 
failed to make, in good faith, reasonable efforts necessary to comply 
with the capital restoration plan and fulfill the schedule thereunder, 
OFHEO may reclassify the Enterprise:
    (A) As significantly undercapitalized if it is otherwise classified 
as undercapitalized; or
    (B) As critically undercapitalized if it is otherwise classified as 
significantly undercapitalized.
    (ii) Duration of reclassification. An Enterprise's failure to 
implement an approved capital restoration plan as described in paragraph 
(h)(1)(i) of this section shall continue to be grounds for 
reclassification at each subsequent capital classification of the 
Enterprise, and shall only cease being considered grounds for 
reclassification after OFHEO determines, in its discretion, that the 
Enterprise is making such efforts as are reasonably necessary to comply 
with the capital restoration plan and fulfill the schedule thereunder.
    (iii) Successive reclassifications. If an Enterprise has not 
remedied its failure to implement an approved capital restoration plan 
within such period as is determined by OFHEO to be appropriate, OFHEO 
may consider such failure to be the basis for additional 
reclassification under paragraph (h)(1)(i) of this section into a lower 
capital classification.
    (2) Administrative enforcement action. A capital plan that has 
received an approval order from OFHEO under this section shall 
constitute an order under the 1992 Act. An Enterprise, regardless of its 
capital classification, as well as its executive officers, and directors 
may be subject to action by OFHEO under sections 1371, 1372, and 1376 of 
the 1992 Act (12 U.S.C. 4631, 4632, and 4636) and 12 CFR part 1780 for 
failure to comply with such plan.

[[Page 524]]



Sec. 1777.24  Notice of intent to issue an order.

    (a) Orders under section 1366 of the 1992 Act (12 U.S.C. 4616). In 
addition to any other action taken under this part, part 1780 of this 
chapter, or any other applicable authority, OFHEO may, in its 
discretion, issue an order to an Enterprise that is classified as 
significantly undercapitalized or critically undercapitalized, or is in 
conservatorship, directing the Enterprise to take one or more of the 
following actions:
    (1) Limit any increase in, or reduce, any obligations of the 
Enterprise, including off-balance sheet obligations;
    (2) Limit or eliminate growth of the Enterprise's assets or reduce 
the amount of the Enterprise's assets;
    (3) Acquire new capital, in such form and amount as determined by 
OFHEO; or
    (4) Terminate, reduce, or modify any activity of the Enterprise that 
OFHEO determines creates excessive risk to the Enterprise.
    (b) Notice of intent to issue an order. Before OFHEO issues an order 
to an Enterprise pursuant to section 1366 of the 1992 Act (12 U.S.C. 
4616), OFHEO will provide the Enterprise with written notice containing 
the proposed order.
    (c) Contents of notice. A notice of intent to issue an order under 
this subpart shall include:
    (1) A statement of the Enterprise's capital classification and its 
minimum capital level or critical capital level, and its risk-based 
capital level;
    (2) A description of the restrictions, prohibitions, or affirmative 
actions that OFHEO proposes to impose or require; and
    (3) The proposed date when such restrictions or prohibitions would 
become effective or the proposed date for the commencement and/or 
completion of the affirmative actions.



Sec. 1777.25  Response to notice.

    (a) Content of response. The Enterprise may submit a response to 
OFHEO containing information for OFHEO's consideration in connection 
with the proposed order. The response should include, but is in no way 
limited to, the following:
    (1) Any relevant information, mitigating circumstances, 
documentation, or other information the Enterprise wishes OFHEO to 
consider in support of the Enterprise's position regarding the proposed 
order; and
    (2) Any recommended modification to the proposed order, and 
justification thereof.
    (b) Time to respond. The Enterprise may, within thirty calendar days 
after receipt of the notice of proposed order, submit a response to 
OFHEO, unless OFHEO determines a shorter period to be appropriate or the 
Enterprise consents to a shorter period. OFHEO may extend the 
Enterprise's response period for up to an additional thirty calendar 
days if OFHEO determines, in its discretion, that there is good cause 
for such extension.
    (c) Waiver and consent. The Enterprise's failure to submit a 
response during the response period (as extended or shortened, if 
applicable) shall waive any right of the Enterprise to comment on or 
object to the proposed order.



Sec. 1777.26  Final notice of order.

    (a) Determination and notice. After the Enterprise has submitted its 
response under Sec. 1777.25 or the response period (as extended or 
shortened, if applicable) has expired, whichever occurs first, OFHEO 
will determine, in its discretion, whether to take into consideration 
such relevant information as is provided by the Enterprise in its 
response, if any, under Sec. 1777.25. OFHEO will provide the Enterprise 
with a written final notice of any order issued by OFHEO under this 
subpart, which is to include a description of the basis for OFHEO's 
determination.
    (b) Termination or modification. An Enterprise that has received an 
order under paragraph (a) of this section remains subject to each 
provision of the order until each such provision terminates under the 
express terms of the order. The Enterprise may submit a written request 
to OFHEO seeking modification or termination of one or more provisions 
of the order. Pending OFHEO's review and approval, in OFHEO's discretion 
of the Enterprise's request, the Enterprise shall remain subject to the 
provisions of the order.

[[Page 525]]

    (c) Enforcement of order--(1) Judicial enforcement. An order issued 
under paragraph (a) of this section is an order for purposes of section 
1375 of the 1992 Act (12 U.S.C. 4635). An Enterprise in any capital 
classification may be subject to enforcement of such order in the United 
States District Court for the District of Columbia pursuant to such 
section.
    (2) Administrative enforcement. An order issued under paragraph (a) 
of this section constitutes an order under the 1992 Act. An Enterprise, 
regardless of its capital classification, as well as its executive 
officers and directors may be subject to action by OFHEO under sections 
1371, 1372, and 1376 of the 1992 Act (12 U.S.C. 4631, 4632, and 4636) 
and 12 CFR part 1780 for failure to comply with such order.



Sec. 1777.27  Exhaustion and review.

    (a) Judicial review--(1) Review of certain actions. An Enterprise 
that is not classified as critically undercapitalized may seek judicial 
review of a final notice of capital classification issued pursuant to 
Sec. 1777.21(a)(3) or a final notice of order issued pursuant to Sec. 
1777.26(a) in accordance with section 1369D of the 1992 Act (12 U.S.C. 
4623)
    (2) Other review barred. Except as set out in paragraph (a)(1) of 
this section, or review of conservatorship appointments to the limited 
extent provided in section 1369(b) of the 1992 Act (12 U.S.C. 4619(b)) 
and Sec. 1777.28(c), no court shall have jurisdiction to affect, by 
injunction or otherwise, the issuance or effectiveness of a capital 
classification or any other action of OFHEO pursuant to this subpart B, 
as provided in section 1369D of the 1992 Act (12 U.S.C. 4623).
    (b) Exhaustion of administrative remedies. In connection with any 
issue for which an Enterprise seeks judicial review in connection with 
an action described in paragraph (a)(1) of this section, the Enterprise 
must have first exhausted its administrative remedies, by presenting all 
its objections, arguments, and information relating to such issue for 
OFHEO's consideration pursuant to Sec. 1777.21(a)(2), as part of the 
Enterprise's response to OFHEO's notice of capital classification, or 
pursuant to Sec. 1777.25, as part of the Enterprise's response to 
OFHEO's notice of intent to issue an order.
    (c) No stay pending review. The commencement of proceedings for 
judicial review of a final capital classification or order as described 
in paragraph (a)(1) of this section shall not operate as a stay thereof.



Sec. 1777.28  Appointment of conservator for a significantly undercapitalized or critically undercapitalized Enterprise.

    (a) Significantly undercapitalized Enterprise. At any time after an 
Enterprise is classified as significantly undercapitalized, OFHEO may 
issue an order appointing a conservator for the Enterprise upon 
determining that:
    (1) The amount of core capital of the Enterprise is less than the 
minimum capital level; and
    (2) The alternative remedies available to OFHEO under the 1992 Act 
are not satisfactory.
    (b) Critically undercapitalized Enterprise--(1) Appointment upon 
classification. Not later than thirty days after issuing a final notice 
of capital classification pursuant to Sec. 1777.21(a)(3) classifying an 
Enterprise as significantly undercapitalized, OFHEO shall issue an order 
appointing a conservator for the Enterprise.
    (2) Exception. Notwithstanding paragraph (b)(1) of this section, 
OFHEO may determine not to appoint a conservator if OFHEO makes a 
written finding, with the written concurrence of the Secretary of the 
Treasury, that:
    (i) The appointment of a conservator would have serious adverse 
effects on economic conditions of national financial markets or on the 
financial stability of the housing finance market; and
    (ii) The public interest would be better served by taking some other 
enforcement action authorized under this title.
    (c) Judicial review. An Enterprise for which a conservator has been 
appointed pursuant to paragraph (a) or (b) of this section may seek 
judicial review of the appointment in accordance with section 1369(b) of 
the 1992 Act (12 U.S.C. 4619(b)). Except as provided therein, no court 
may take any action regarding the removal of a conservator

[[Page 526]]

or otherwise restrain or affect the exercise of the powers or functions 
of a conservator.
    (d) Termination--(1) Upon reaching the minimum capital level. OFHEO 
will issue an order terminating a conservatorship appointment under 
paragraph (a) or (b) of this section upon a determination that the 
Enterprise has maintained an amount of core capital that is equal to or 
exceeds the minimum capital level.
    (2) In OFHEO's discretion. OFHEO may, in its discretion, issue an 
order terminating a conservatorship appointment under paragraph (a) or 
(b) of this section upon a determination that such termination order is 
in the public interest and may safely be accomplished.

[[Page 527]]



              SUBCHAPTER D_RULES OF PRACTICE AND PROCEDURE





PART 1780_RULES OF PRACTICE AND PROCEDURE--Table of Contents




                         Subpart A_General Rules

Sec.
1780.1 Scope.
1780.2 Rules of construction.
1780.3 Definitions.
1780.4 Authority of the Director.
1780.5 Authority of the presiding officer.
1780.6 Public hearings.
1780.7 Good faith certification.
1780.8 Ex parte communications.
1780.9 Filing of papers.
1780.10 Service of papers.
1780.11 Computing time.
1780.12 Change of time limits.
1780.13 Witness fees and expenses.
1780.14 Opportunity for informal settlement.
1780.15 OFHEO's right to conduct examination.
1780.16 Collateral attacks on adjudicatory proceeding.

                    Subpart B_Prehearing Proceedings

1780.20 Commencement of proceeding and contents of notice of charges.
1780.21 Answer.
1780.22 Amended pleadings.
1780.23 Failure to appear.
1780.24 Consolidation and severance of actions.
1780.25 Motions.
1780.26 Discovery.
1780.27 Request for document discovery from parties.
1780.28 Document subpoenas to nonparties.
1780.29 Deposition of witness unavailable for hearing.
1780.30 Interlocutory review.
1780.31 Summary disposition.
1780.32 Partial summary disposition.
1780.33 Scheduling and prehearing conferences.
1780.34 Prehearing submissions.
1780.35 Hearing subpoenas.

              Subpart C_Hearing and Posthearing Proceedings

1780.50 Conduct of hearings.
1780.51 Evidence.
1780.52 Post hearing filings.
1780.53 Recommended decision and filing of record.
1780.54 Exceptions to recommended decision.
1780.55 Review by Director.
1780.56 Exhaustion of administrative remedies.
1780.57 Stays pending judicial review.

    Subpart D_Rules of Practice Before the Office of Federal Housing 
                          Enterprise Oversight

1780.70 Scope.
1780.71 Definitions.
1780.72 Appearance and practice in adjudicatory proceedings.
1780.73 Conflicts of interest.
1780.74 Sanctions.
1780.75 Censure, suspension, disbarment and reinstatement.

           Subpart E_Civil Money Penalty Inflation Adjustments

1780.80 Inflation adjustments.
1780.81 Applicability.

    Authority: 12 U.S.C. 4501, 4513(b), 4517, 4521, 4631-4641.

    Source: 62 FR 68154, Dec. 31, 1997, unless otherwise noted.



                         Subpart A_General Rules

    Source: 64 FR 72510, Dec. 28, 1999, unless otherwise noted.



Sec. 1780.1  Scope.

    (a) Types of proceedings governed by these rules. This part 
prescribes rules of practice and procedure applicable to the following 
adjudicatory proceedings:
    (1) Cease-and-desist proceedings under sections 1371 and 1373, title 
XIII of the Housing and Community Development Act of 1992, Pub. L. No. 
102-550, entitled The Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992 (1992 Act) (12 U.S.C. 4631 and 4633);
    (2) Civil money penalty assessment proceedings under sections 1373 
and 1376 of the 1992 Act (12 U.S.C. 4633 and 4636);
    (3) Civil money penalty assessment proceedings under section 102 of 
the Flood Disaster Protection Act of 1973, as amended, 42 U.S.C. 4012a; 
and
    (4) Other adjudications required by statute to be determined on the 
record after opportunity for hearing, except to the extent otherwise 
provided for in the regulations specifically governing such an 
adjudication.

[[Page 528]]

    (b) Cease and desist orders. (1) Grounds for instituting 
proceedings. Sections 1371(a) and (b) of the 1992 Act specify when the 
Director of OFHEO may issue a notice of charges instituting cease and 
desist proceedings, to be conducted according to the procedural rules in 
this part. The Director may issue a notice of charges as described in 
Sec. 1780.20 if the Director determines, or the Director has reasonable 
cause to believe that, an Enterprise or an executive officer or director 
thereof has engaged in, or it is about to engage in, any of the 
following conduct or violations:
    (i) For an adequately capitalized Enterprise, any conduct which 
threatens to cause a significant depletion of the Enterprise's core 
capital; or for an Enterprise which is not in the adequately capitalized 
category, any conduct that is likely to result in a material depletion 
of the Enterprise's core capital;
    (ii) Any conduct that may result in the issuance of a cease and 
desist order that requires an executive officer or director of an 
Enterprise to make restitution, provide reimbursement, indemnification 
or guarantee against loss to the Enterprise, where such person was 
either unjustly enriched or engaged in knowing misconduct likely to 
cause substantial loss to the Enterprise;
    (iii) Any conduct that violates a written agreement entered into by 
an Enterprise with the Director; or
    (iv) Any conduct that violates the 1992 Act, the Federal National 
Mortgage Association Charter Act (12 U.S.C. 1716 et seq.), the Federal 
Home Loan Mortgage Corporation Act (12 U.S.C. 1451 et seq.), or any 
regulation, rule, or order under such Acts, or any unsafe and unsound 
practice (in that it is contrary to prudent standards of operation which 
might cause loss or damage to the Enterprise, or is likely to cause such 
loss or damage if continued unabated), or any unsafe and unsound 
condition, except that the Director may not enforce compliance with 
housing goals established under subpart B of part 2 of subtitle A of the 
1992 Act (12 U.S.C. 4561 through 4567), with section 1336 or 1337 of the 
1992 Act (12 U.S.C. 4566 or 4567), or with subsection (m) or (n) of 
section 309 of the Federal National Mortgage Association Charter Act (12 
U.S.C. 4566 or 4567), or subsection (e) or (f) of section 307 of the 
Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1456(e) or (f)).
    (2) Remedial provisions of cease and desist orders. As provided by 
sections 1371(c) and (d) of the 1992 Act, a cease and desist order 
issued as set out in Sec. 1780.55 may require the Enterprise, or an 
executive officer or director thereof, to refrain from engaging in 
conduct or violations specified in paragraphs (b)(1)(i) through (iv) of 
this section and/or require correction of an unsafe or unsound condition 
specified in paragraph (b)(1)(iv) of this section, as found by the 
Director, and may also require the Enterprise, an executive officer, or 
director thereof to take such action as the Director determines to be 
appropriate to correct or remedy the conditions resulting from such 
conduct or violation. This may include, but is not limited to, 
provisions to:
    (i) Require the Enterprise to seek restitution, or to obtain 
reimbursement, indemnification, or guarantee against loss;
    (ii) Require the Enterprise to obtain new capital;
    (iii) Restrict asset or liability growth of the Enterprise;
    (iv) Require the Enterprise to dispose of any asset involved;
    (v) Require the Enterprise to improve design or implementation of 
internal policies, compliance efforts, internal controls, risk 
measurement and limits, and management reporting systems;
    (vi) Require the Enterprise to employ qualified officers or 
employees (who may be subject to approval by the Director at the 
direction of the Director);
    (vii) Require the Enterprise, an executive officer or director 
thereof to adhere to limits on activities or functions; or
    (viii) Require the Enterprise to take such other action as the 
Director determines appropriate.
    (3) Restitution and indemnification by executive officers and 
directors. As part of the affirmative relief described in paragraph 
(b)(2) of this section, section 1371(d)(1) of the 1992 Act provides that 
the Director may require an executive officer or director of an 
Enterprise to make restitution or reimbursement to

[[Page 529]]

the Enterprise, or to provide indemnification or guarantee against loss, 
to the extent such person was:
    (i) Unjustly enriched in connection with the conduct or violation in 
question; or
    (ii) Engaged in such conduct or violation knowingly, and such 
conduct or violation caused or would be likely to cause a substantial 
loss to the Enterprise.
    (4) Temporary cease and desist orders. (i) Under sections 1372(a) 
and (b) of the 1992 Act, if the Director determines that any conduct or 
violation or threatened conduct or violation described in the notice of 
charges in cease and desist proceedings described under Sec. 1780.20 is 
likely to cause insolvency, to cause significant depletion of core 
capital, or to cause other irreparable harm to an Enterprise before 
proceedings described in this part will be completed, the Director may 
issue a temporary cease and desist order. Such order may direct the 
Enterprise, executive officer or director thereof to refrain from the 
conduct or violation, and to take whatever affirmative action the 
Director determines to be appropriate to prevent or remedy such 
insolvency, depletion, or harm pending completion of such cease and 
desist proceedings.
    (ii) In addition, section 1372(c) of the 1992 Act addresses cases in 
which the Director determines that the books and records of an 
Enterprise are so incomplete or inaccurate that the Director is unable 
through normal supervisory processes to determine either the financial 
condition of the Enterprise or the details or purpose of transactions 
that may have a material effect on the financial condition of the 
Enterprise. In connection with issuance of the notice of charges in 
cease and desist proceedings specified by Sec. 1780.20, the Director 
may issue a temporary order directing the Enterprise to cease the 
activity or practice that gave rise, whether in whole or in part, to the 
incomplete or inaccurate state of the records, and may require the 
Enterprise to take affirmative action to make the records complete and 
accurate.
    (c) Civil money penalties--(1) First tier CMPs. Section 1736 of the 
1992 Act authorizes the Director to assess civil money penalties against 
an Enterprise, in proceedings to be conducted according to the 
procedural rules in this part. The Director may issue a notice of 
charges to an Enterprise, as described in Sec. 1780.20, to impose money 
penalties of up to $5,000 (adjusted for inflation as described in Sec. 
1780.80) for each day that the Enterprise engages in conduct that 
violates:
    (i) The 1992 Act, the Federal National Mortgage Association Charter 
Act, the Federal Home Loan Mortgage Corporation Act, or any regulation, 
rule, or order under such Acts, except with regard to housing goals 
established under subpart B of part 2 of subtitle A of the 1992 Act, 
with section 1336 or 1337 of the 1992 Act, or with subsection (m) or (n) 
of section 309 of the Federal National Mortgage Association Charter Act, 
or subsection (e) or (f) of section 307 of the Federal Home Loan 
Mortgage Corporation Act;
    (ii) Any written agreement entered into by the Enterprise with the 
Director; or
    (iii) Any permanent or temporary cease and desist order entered 
under sections 1371 or 1372 of the 1992 Act, or sections 1365 (12 U.S.C. 
4615, setting out supervisory actions applicable to undercapitalized 
Enterprises) or 1366 (12 U.S.C. 4616, setting out supervisory actions 
applicable to significantly undercapitalized institutions) of the 1992 
Act.
    (2) Second tier CMPs. The Director may issue a notice of charges to 
an Enterprise to impose money penalties of up to $25,000 (adjusted for 
inflation as described in Sec. 1780.80) for each day that the 
Enterprise engages in the following violation or conduct, or to an 
executive officer or director of an Enterprise to impose money penalties 
of up to $10,000 (adjusted for inflation as described in Sec. 1780.80) 
for each day such person or persons engages in the following violation 
or conduct, if the Director finds that the violation or conduct was 
either part of a pattern of misconduct or involved recklessness and 
causes or is likely to cause a material loss to the Enterprise:
    (i) Any violation described in paragraphs (c)(1)(i) through (iii) of 
this section; or

[[Page 530]]

    (ii) Any conduct that causes or is likely to cause a loss to the 
Enterprise.
    (3) Third tier CMPs. The Director may issue a notice of charges to 
an Enterprise to impose money penalties of up to $1,000,000 (adjusted 
for inflation as described in Sec. 1780.80) for each day that the 
Enterprise engages in a violation or conduct described in paragraphs 
(c)(2)(i) and (ii) of this section, or to an executive officer or 
director of an Enterprise to impose money penalties of up to $100,000 
(adjusted for inflation as described in Sec. 1780.80) for each day such 
person or persons engages in such violation or conduct described in 
paragraphs (c)(2)(i) and (ii) of this section, if the Director finds 
that the violation or conduct was knowing and caused or is likely to 
cause a substantial loss to the Enterprise.
    (4) Amount of CMPs. In determining the amount of a civil money 
penalty within the range of penalties described in paragraphs (c)(1) 
through (3) of this section, the Director may fashion sanctions in any 
such amount as deemed to be appropriate taking into consideration such 
factors as:
    (i) The gravity of the violation or conduct;
    (ii) Any loss or risk of loss to the Enterprise;
    (iii) Any benefits received;
    (iv) Any attempts at concealment;
    (v) Any history of prior violations or conduct;
    (vi) Any related or unrelated previous supervisory actions;
    (vii) Any injury to the public;
    (viii) Deterrence of future violations or conduct;
    (ix) The effect of the penalty on the safety and soundness of the 
Enterprise;
    (x) Any circumstances of hardship upon an executive officer or 
director;
    (xi) Promptness and effectiveness of any efforts to ameliorate the 
consequences of the violations or conduct; and
    (xii) Candor and cooperation after the fact.
    (d) Coordination with other supervisory actions. In addition to 
cease and desist and/or civil money penalty proceedings under this part, 
the 1992 Act grants the Director other authority to take supervisory 
action, including requiring mandatory and discretionary supervisory 
actions against an Enterprise that fails to remain adequately 
capitalized; appointment of a conservator for an Enterprise; entering 
into a written agreement the violation of which is actionable through 
proceedings under this part, or any other formal or informal agreement 
with an Enterprise as may be deemed by the Director to be appropriate. 
Under the 1992 Act, the selection of the form of supervisory action is 
within the Director's discretion, and the selection of one form of 
action or a combination of actions does not foreclose the Director from 
pursuing any other supervisory action.
    (e) Proceedings against affiliates. Under subtitle C of the 1992 
Act, the Director may institute proceedings as described under this part 
against an affiliate of an Enterprise as well as an executive officer or 
director of such affiliate. An entity is affiliated with an Enterprise 
if the entity controls the Enterprise, is controlled by the Enterprise, 
or is under common control with the Enterprise. For purposes of this 
part, control means the ability to exercise a controlling influence over 
the management and policies of the entity or Enterprise, whether it be 
by ownership of or the power to vote a concentration of any class of 
voting securities, the ability to elect or appoint members of the board 
of directors or officers of the entity, or otherwise.
    (f) Public nature of proceedings. As described in Sec. 1780.6 of 
this part, all hearings shall be open to the public unless the Director 
in his discretion determines to the contrary based on public interest. 
The Director shall also make final orders available to the public, as 
well as modifications to or terminations thereof, except that the 
Director may determine in writing to delay public disclosure of such 
final orders for a reasonable time if immediate disclosure would 
seriously threaten the financial health or security of the Enterprise.

[66 FR 18043, Apr. 5, 2001]



Sec. 1780.2  Rules of construction.

    For purposes of this part--
    (a) Any term in the singular includes the plural and the plural 
includes the singular, if such use would be appropriate;

[[Page 531]]

    (b) Any use of a masculine, feminine, or neuter gender encompasses 
all three, if such use would be appropriate; and
    (c) Unless the context requires otherwise, a party's representative 
of record, if any, may, on behalf of that party, take any action 
required to be taken by the party.



Sec. 1780.3  Definitions.

    For purposes of this part, unless explicitly stated to the 
contrary--
    (a) Adjudicatory proceeding means a proceeding conducted pursuant to 
these rules and leading to the formulation of a final order other than a 
regulation;
    (b) Decisional employee means any member of the Director's or the 
presiding officer's staff who has not engaged in an investigative or 
prosecutorial role in a proceeding and who may assist the Director or 
the presiding officer, respectively, in preparing orders, recommended 
decisions, decisions and other documents under this subpart.
    (c) Director means the Director of OFHEO.
    (d) Enterprise means the Federal National Mortgage Association and 
any affiliate thereof and the Federal Home Loan Mortgage Corporation and 
any affiliate thereof.
    (e) OFHEO means the Office of Federal Housing Enterprise Oversight 
of the Department of Housing and Urban Development.
    (f) Party means OFHEO and any person named as a party in any notice.
    (g) Person means an individual, sole proprietor, partnership, 
corporation, unincorporated association, trust, joint venture, pool, 
syndicate, agency, or other entity or organization.
    (h) Presiding officer means an administrative law judge or any other 
person appointed by the Director under applicable law to conduct a 
hearing.
    (i) Representative of record means an individual who is authorized 
to represent a person or is representing himself and who has filed a 
notice of appearance in accordance with Sec. 1780.72.
    (j) Respondent means any party other than OFHEO.
    (k) Violation includes any action (alone or with another or others) 
for or toward causing, bringing about, participating in, counseling, or 
aiding or abetting a violation.
    (l) The 1992 Act is title XIII of the Housing and Community 
Development Act of 1992, Pub. L. No. 102-550, known as the Federal 
Housing Enterprises Financial Safety and Soundness Act of 1992 (1992 
Act) (12 U.S.C. 4501-4641).



Sec. 1780.4  Authority of the Director.

    The Director may, at any time during the pendency of a proceeding, 
perform, direct the performance of, or waive performance of any act that 
could be done or ordered by the presiding officer.



Sec. 1780.5  Authority of the presiding officer.

    (a) General rule. All proceedings governed by this subpart shall be 
conducted in accordance with the provisions of 5 U.S.C. chapter 5. The 
presiding officer shall have complete charge of the hearing, conduct a 
fair and impartial hearing, avoid unnecessary delay and assure that a 
record of the proceeding is made.
    (b) Powers. The presiding officer shall have all powers necessary to 
conduct the proceeding in accordance with paragraph (a) of this section 
and 5 U.S.C. 556(c). The presiding officer is authorized to--
    (1) Set and change the date, time and place of the hearing upon 
reasonable notice to the parties;
    (2) Continue or recess the hearing in whole or in part for a 
reasonable period of time;
    (3) Hold conferences to identify or simplify the issues, or to 
consider other matters that may aid in the expeditious disposition of 
the proceeding;
    (4) Administer oaths and affirmations;
    (5) Issue subpoenas, subpoenas duces tecum, and protective orders, 
as authorized by this part, and to revoke, quash, or modify such 
subpoenas;
    (6) Take and preserve testimony under oath;
    (7) Rule on motions and other procedural matters appropriate in an 
adjudicatory proceeding, except that only the Director shall have the 
power to grant any motion to dismiss the proceeding or make a final 
determination of the merits of the proceeding;

[[Page 532]]

    (8) Regulate the scope and timing of discovery;
    (9) Regulate the course of the hearing and the conduct of 
representatives and parties;
    (10) Examine witnesses;
    (11) Receive, exclude, limit, or otherwise rule on evidence;
    (12) Upon motion of a party, take official notice of facts;
    (13) Recuse himself upon motion made by a party or on his own 
motion;
    (14) Prepare and present to the Director a recommended decision as 
provided in this part;
    (15) To establish time, place and manner limitations on the 
attendance of the public and the media for any public hearing; and
    (16) Do all other things necessary and appropriate to discharge the 
duties of a presiding officer.



Sec. 1780.6  Public hearings.

    (a) General rule. All hearings shall be open to the public, unless 
the Director, in his discretion, determines that holding an open hearing 
would be contrary to the public interest. The Director may make such 
determination sua sponte at any time by written notice to all parties.
    (b) Motion for closed hearing. Within 20 days of service of the 
notice of charges, any party may file with the presiding officer a 
motion for a private hearing and any party may file a pleading in reply 
to the motion. The presiding officer shall forward the motion and any 
reply, together with a recommended decision on the motion, to the 
Director, who shall make a final determination. Such motions and replies 
are governed by Sec. 1780.25.
    (c) Filing documents under seal. OFHEO's counsel of record, in his 
discretion, may file any document or part of a document under seal if 
such counsel makes a written determination that disclosure of the 
document would be contrary to the public interest. The presiding officer 
shall take all appropriate steps to preserve the confidentiality of such 
documents or parts thereof, including closing portions of the hearing to 
the public.



Sec. 1780.7  Good faith certification.

    (a) General requirement. Every filing or submission of record 
following the issuance of a notice by the Director shall be signed by at 
least one representative of record in his individual name and shall 
state that representative's address and telephone number and the names, 
addresses and telephone numbers of all other representatives of record 
for the person making the filing or submission.
    (b) Effect of signature. (1) By signing a document, the 
representative of record or party certifies that--
    (i) The representative of record or party has read the filing or 
submission of record;
    (ii) To the best of his knowledge, information and belief formed 
after reasonable inquiry, the filing or submission of record is well-
grounded in fact and is warranted by existing law or a good faith, 
nonfrivolous argument for the extension, modification, or reversal of 
existing law; and
    (iii) The filing or submission of record is not made for any 
improper purpose, such as to harass or to cause unnecessary delay or 
needless increase in the cost of litigation.
    (2) If a filing or submission of record is not signed, the presiding 
officer shall strike the filing or submission of record, unless it is 
signed promptly after the omission is called to the attention of the 
pleader or movant.
    (c) Effect of making oral motion or argument. The act of making any 
oral motion or oral argument by any representative or party shall 
constitute a certification that to the best of his knowledge, 
information, and belief, formed after reasonable inquiry, his statements 
are well-grounded in fact and are warranted by existing law or a good 
faith, nonfrivolous argument for the extension, modification, or 
reversal of existing law and are not made for any improper purpose, such 
as to harass or to cause unnecessary delay or needless increase in the 
cost of litigation.



Sec. 1780.8  Ex parte communications.

    (a) Definition. (1) Ex parte communication means any material oral 
or written communication relevant to the merits of an adjudicatory 
proceeding

[[Page 533]]

that was neither on the record nor on reasonable prior notice to all 
parties that takes place between--
    (i) An interested person outside OFHEO (including the person's 
representative); and
    (ii) The presiding officer handling that proceeding, the Director, a 
decisional employee assigned to that proceeding, or any other person who 
is or may reasonably be expected to be involved in the decisional 
process.
    (2) A communication that does not concern the merits of an 
adjudicatory proceeding, such as a request for status of the proceeding, 
does not constitute an ex parte communication.
    (b) Prohibition of ex parte communications. From the time the notice 
commencing the proceeding is issued by the Director until the date that 
the Director issues his final decision pursuant to Sec. 1780.55, no 
person referred to in paragraph (a)(1)(i) of this section shall 
knowingly make or cause to be made an ex parte communication. The 
Director, presiding officer, or a decisional employee shall not 
knowingly make or cause to be made an ex parte communication.
    (c) Procedure upon occurrence of ex parte communication. If an ex 
parte communication is received by any person identified in paragraph 
(a) of this section, that person shall cause all such written 
communications (or, if the communication is oral, a memorandum stating 
the substance of the communication) to be placed on the record of the 
proceeding and served on all parties. All parties to the proceeding 
shall have an opportunity, within ten days of receipt of service of the 
ex parte communication, to file responses thereto and to recommend any 
sanctions, in accordance with paragraph (d) of this section, that they 
believe to be appropriate under the circumstances.
    (d) Sanctions. Any party or representative for a party who makes an 
ex parte communication, or who encourages or solicits another to make 
any such communication, may be subject to any appropriate sanction or 
sanctions imposed by the Director or the presiding officer, including, 
but not limited to, exclusion from the proceedings and an adverse ruling 
on the issue that is the subject of the prohibited communication.
    (e) Consultations by presiding officer. Except to the extent 
required for the disposition of ex parte matters as authorized by law, 
the presiding officer may not consult a person or party on any matter 
relevant to the merits of the adjudication, unless on notice and 
opportunity for all parties to participate.
    (f) Separation of functions. An employee or agent engaged in the 
performance of investigative or prosecuting functions for OFHEO in a 
case may not, in that or a factually related case, participate or advise 
in the decision, recommended decision, or Director review under Sec. 
1780.55 of the recommended decision, except as witness or counsel in 
public proceedings.



Sec. 1780.9  Filing of papers.

    (a) Filing. Any papers required to be filed shall be addressed to 
the presiding officer and filed with OFHEO, 1700 G Street, NW., Fourth 
Floor, Washington, DC 20552.
    (b) Manner of filing. Unless otherwise specified by the Director or 
the presiding officer, filing shall be accomplished by:
    (1) Personal service;
    (2) Delivery to the U.S. Postal Service or to a reliable commercial 
delivery service for same day or overnight delivery;
    (3) Mailing by first class, registered, or certified mail; or
    (4) Transmission by electronic media, only if expressly authorized 
by and upon any conditions specified by the Director or the presiding 
officer. All papers filed by electronic media shall also concurrently be 
filed in accordance with paragraph (c) of this section.
    (c) Formal requirements as to papers filed--(1) Form. All papers 
must set forth the name, address and telephone number of the 
representative or party making the filing and must be accompanied by a 
certification setting forth when and how service has been made on all 
other parties. All papers filed must be double-spaced and printed or 
typewritten on 8\1/2\x11-inch paper and must be clear and legible.
    (2) Signature. All papers must be dated and signed as provided in 
Sec. 1780.7.

[[Page 534]]

    (3) Caption. All papers filed must include at the head thereof, or 
on a title page, the name of OFHEO and of the filing party, the title 
and docket number of the proceeding and the subject of the particular 
paper.
    (4) Number of copies. Unless otherwise specified by the Director or 
the presiding officer, an original and one copy of all documents and 
papers shall be filed, except that only one copy of transcripts of 
testimony and exhibits shall be filed.



Sec. 1780.10  Service of papers.

    (a) By the parties. Except as otherwise provided, a party filing 
papers or serving a subpoena shall serve a copy upon the representative 
of record for each party to the proceeding so represented and upon any 
party not so represented.
    (b) Method of service. Except as provided in paragraphs (c)(2) and 
(d) of this section, a serving party shall use one or more of the 
following methods of service:
    (1) Personal service;
    (2) Delivery to the U.S. Postal Service or to a reliable commercial 
delivery service for same day or overnight delivery;
    (3) Mailing by first class, registered, or certified mail; or
    (4) Transmission by electronic media, only if the parties mutually 
agree. Any papers served by electronic media shall also concurrently be 
served in accordance with the requirements of Sec. 1780.9(c).
    (c) By the Director or the presiding officer. (1) All papers 
required to be served by the Director or the presiding officer upon a 
party who has appeared in the proceeding in accordance with Sec. 
1780.72 shall be served by any means specified in paragraph (b) of this 
section.
    (2) If a notice of appearance has not been filed in the proceeding 
for a party in accordance with Sec. 1780.72, the Director or the 
presiding officer shall make service upon the party by any of the 
following methods:
    (i) By personal service;
    (ii) If the person to be served is an individual, by delivery to a 
person of suitable age and discretion at the physical location where the 
individual resides or works;
    (iii) If the person to be served is a corporation or other 
association, by delivery to an officer, managing or general agent, or to 
any other agent authorized by appointment or by law to receive service 
and, if the agent is one authorized by statute to receive service and 
the statute so requires, by also mailing a copy to the party;
    (iv) By registered or certified mail addressed to the person's last 
known address; or
    (v) By any other method reasonably calculated to give actual notice.
    (d) Subpoenas. Service of a subpoena may be made:
    (1) By personal service;
    (2) If the person to be served is an individual, by delivery to a 
person of suitable age and discretion at the physical location where the 
individual resides or works;
    (3) If the person to be served is a corporation or other 
association, by delivery to an officer, managing or general agent, or to 
any other agent authorized by appointment or by law to receive service 
and, if the agent is one authorized by statute to receive service and 
the statute so requires, by also mailing a copy to the party; or
    (4) By registered or certified mail addressed to the person's last 
known address; or
    (5) By any other method reasonably calculated to give actual notice.
    (e) Area of service. Service in any State, commonwealth, possession, 
territory of the United States or the District of Columbia on any person 
doing business in any State, commonwealth, possession, territory of the 
United States or the District of Columbia, or on any person as otherwise 
permitted by law, is effective without regard to the place where the 
hearing is held.
    (f) Proof of service. Proof of service of papers filed by a party 
shall be filed before action is taken thereon. The proof of service, 
which shall serve as prima facie evidence of the fact and date of 
service, shall show the date and manner of service and may be by written 
acknowledgment of service, by declaration of the person making service, 
or by certificate of a representative of record. However, failure to 
file proof of service contemporaneously with the papers shall not affect 
the validity of

[[Page 535]]

actual service. The presiding officer may allow the proof to be amended 
or supplied, unless to do so would result in material prejudice to a 
party.



Sec. 1780.11  Computing time.

    (a) General rule. In computing any period of time prescribed or 
allowed by this subpart, the date of the act or event that commences the 
designated period of time is not included. The last day so computed is 
included unless it is a Saturday, Sunday, or Federal holiday. When the 
last day is a Saturday, Sunday or Federal holiday, the period shall run 
until the end of the next day that is not a Saturday, Sunday, or Federal 
holiday. Intermediate Saturdays, Sundays and Federal holidays are 
included in the computation of time. However, when the time period 
within which an act is to be performed is 10 days or less, not including 
any additional time allowed for in paragraph (c) of this section, 
intermediate Saturdays, Sundays and Federal holidays are not included.
    (b) When papers are deemed to be filed or served. (1) Filing and 
service are deemed to be effective--
    (i) In the case of personal service or same day reliable commercial 
delivery service, upon actual service;
    (ii) In the case of U.S. Postal Service or reliable commercial 
overnight delivery service, or first class, registered, or certified 
mail, upon deposit in or delivery to an appropriate point of collection; 
or
    (iii) In the case of transmission by electronic media, as specified 
by the authority receiving the filing in the case of filing, and as 
agreed among the parties in the case of service.
    (2) The effective filing and service dates specified in paragraph 
(b)(1) of this section may be modified by the Director or the presiding 
officer in the case of filing or by agreement of the parties in the case 
of service.
    (c) Calculation of time for service and filing of responsive papers. 
Whenever a time limit is measured by a prescribed period from the 
service of any notice or paper, the applicable time limits shall be 
calculated as follows:
    (1) If service was made by first class, registered, or certified 
mail, or by delivery to the U.S. Postal Service for longer than 
overnight delivery service, add three calendar days to the prescribed 
period for the responsive filing.
    (2) If service was made by U.S. Postal Service or reliable 
commercial overnight delivery service, add 1 calendar day to the 
prescribed period for the responsive filing.
    (3) If service was made by electronic media transmission, add one 
calendar day to the prescribed period for the responsive filing, unless 
otherwise determined by the Director or the presiding officer in the 
case of filing, or by agreement among the parties in the case of 
service.



Sec. 1780.12  Change of time limits.

    Except as otherwise provided by law, the presiding officer may, for 
good cause shown, extend the time limits prescribed above or prescribed 
by any notice or order issued in the proceedings. After the referral of 
the case to the Director pursuant to Sec. 1780.53, the Director may 
grant extensions of the time limits for good cause shown. Extensions may 
be granted on the motion of a party after notice and opportunity to 
respond is afforded all nonmoving parties, or on the Director's or the 
presiding officer's own motion.



Sec. 1780.13  Witness fees and expenses.

    Witnesses (other than parties) subpoenaed for testimony or 
depositions shall be paid the same fees for attendance and mileage as 
are paid in the United States district courts in proceedings in which 
the United States is a party, provided that, in the case of a discovery 
subpoena addressed to a party, no witness fees or mileage shall be paid. 
Fees for witnesses shall be tendered in advance by the party requesting 
the subpoena, except that fees and mileage need not be tendered in 
advance where OFHEO is the party requesting the subpoena. OFHEO shall 
not be required to pay any fees to or expenses of any witness not 
subpoenaed by OFHEO.



Sec. 1780.14  Opportunity for informal settlement.

    Any respondent may, at any time in the proceeding, unilaterally 
submit to OFHEO's counsel of record written offers or proposals for 
settlement of a

[[Page 536]]

proceeding without prejudice to the rights of any of the parties. No 
such offer or proposal shall be made to any OFHEO representative other 
than OFHEO's counsel of record. Submission of a written settlement offer 
does not provide a basis for adjourning or otherwise delaying all or any 
portion of a proceeding under this part. No settlement offer or 
proposal, or any subsequent negotiation or resolution, is admissible as 
evidence in any proceeding.



Sec. 1780.15  OFHEO's right to conduct examination.

    Nothing contained in this part limits in any manner the right of 
OFHEO to conduct any examination, inspection, or visitation of any 
Enterprise or affiliate, or the right of OFHEO to conduct or continue 
any form of investigation authorized by law.



Sec. 1780.16  Collateral attacks on adjudicatory proceeding.

    If an interlocutory appeal or collateral attack is brought in any 
court concerning all or any part of an adjudicatory proceeding, the 
challenged adjudicatory proceeding shall continue without regard to the 
pendency of that court proceeding. No default or other failure to act as 
directed in the adjudicatory proceeding within the times prescribed in 
this subpart shall be excused based on the pendency before any court of 
any interlocutory appeal or collateral attack.



                    Subpart B_Prehearing Proceedings

    Source: 64 FR 72513, Dec. 28, 1999, unless otherwise noted.



Sec. 1780.20  Commencement of proceeding and contents of notice of charges.

    Proceedings under this subpart are commenced by the issuance of a 
notice of charges by the Director, which must be served upon the 
respondent. Such notice shall state all of the following:
    (a) The legal authority for the proceeding and for OFHEO's 
jurisdiction over the proceeding;
    (b) A statement of the matters of fact or law showing that OFHEO is 
entitled to relief;
    (c) A proposed order or prayer for an order granting the requested 
relief;
    (d) The time, place and nature of the hearing;
    (e) The time within which to file an answer;
    (f) The time within which to request a hearing; and
    (g) The address for filing the answer and/or request for a hearing.



Sec. 1780.21  Answer.

    (a) When. Unless otherwise specified by the Director in the notice, 
respondent shall file an answer within 20 days of service of the notice.
    (b) Content of answer. An answer must respond specifically to each 
paragraph or allegation of fact contained in the notice and must admit, 
deny, or state that the party lacks sufficient information to admit or 
deny each allegation of fact. A statement of lack of information has the 
effect of a denial. Denials must fairly meet the substance of each 
allegation of fact denied; general denials are not permitted. When a 
respondent denies part of an allegation, that part must be denied and 
the remainder specifically admitted. Any allegation of fact in the 
notice that is not denied in the answer is deemed admitted for purposes 
of the proceeding. A respondent is not required to respond to the 
portion of a notice that constitutes the prayer for relief or proposed 
order. The answer must set forth affirmative defenses, if any, asserted 
by the respondent.
    (c) Default. Failure of a respondent to file an answer required by 
this section within the time provided constitutes a waiver of such 
respondent's right to appear and contest the allegations in the notice. 
If no timely answer is filed, OFHEO's counsel of record may file a 
motion for entry of an order of default. Upon a finding that no good 
cause has been shown for the failure to file a timely answer, the 
presiding officer shall file with the Director a recommended decision 
containing the findings and the relief sought in the notice. Any final 
order issued by the Director based upon a respondent's failure to answer 
is deemed to be an order issued upon consent.

[[Page 537]]



Sec. 1780.22  Amended pleadings.

    (a) Amendments. The notice or answer may be amended or supplemented 
at any stage of the proceeding. The respondent must answer an amended 
notice within the time remaining for the respondent's answer to the 
original notice, or within ten days after service of the amended notice, 
whichever period is longer, unless the Director or presiding officer 
orders otherwise for good cause shown.
    (b) Amendments to conform to the evidence. When issues not raised in 
the notice or answer are tried at the hearing by express or implied 
consent of the parties, they will be treated in all respects as if they 
had been raised in the notice or answer, and no formal amendments are 
required. If evidence is objected to at the hearing on the ground that 
it is not within the issues raised by the notice or answer, the 
presiding officer may admit the evidence when admission is likely to 
assist in adjudicating the merits of the action. The presiding officer 
will do so freely when the determination of the merits of the action is 
served thereby and the objecting party fails to satisfy the presiding 
officer that the admission of such evidence would unfairly prejudice 
that party's action or defense upon the merits. The presiding officer 
may grant a continuance to enable the objecting party to meet such 
evidence.



Sec. 1780.23  Failure to appear.

    Failure of a respondent to appear in person at the hearing or by a 
duly authorized representative constitutes a waiver of respondent's 
right to a hearing and is deemed an admission of the facts as alleged 
and consent to the relief sought in the notice. Without further 
proceedings or notice to the respondent, the presiding officer shall 
file with the Director a recommended decision containing the findings 
and the relief sought in the notice.



Sec. 1780.24  Consolidation and severance of actions.

    (a) Consolidation. On the motion of any party, or on the presiding 
officer's own motion, the presiding officer may consolidate, for some or 
all purposes, any two or more proceedings, if each such proceeding 
involves or arises out of the same transaction, occurrence or series of 
transactions or occurrences, or involves at least one common respondent 
or a material common question of law or fact, unless such consolidation 
would cause unreasonable delay or injustice. In the event of 
consolidation under this section, appropriate adjustment to the 
prehearing schedule must be made to avoid unnecessary expense, 
inconvenience, or delay.
    (b) Severance. The presiding officer may, upon the motion of any 
party, sever the proceeding for separate resolution of the matter as to 
any respondent only if the presiding officer finds that undue prejudice 
or injustice to the moving party would result from not severing the 
proceeding and such undue prejudice or injustice would outweigh the 
interests of judicial economy and expedition in the complete and final 
resolution of the proceeding.



Sec. 1780.25  Motions.

    (a) In writing. (1) Except as otherwise provided herein, an 
application or request for an order or ruling must be made by written 
motion.
    (2) All written motions must state with particularity the relief 
sought and must be accompanied by a proposed order.
    (3) No oral argument may be held on written motions except as 
otherwise directed by the presiding officer. Written memoranda, briefs, 
affidavits, or other relevant material or documents may be filed in 
support of or in opposition to a motion.
    (b) Oral motions. A motion may be made orally on the record unless 
the presiding officer directs that such motion be reduced to writing.
    (c) Filing of motions. Motions must be filed with the presiding 
officer, except that following the filing of a recommended decision, 
motions must be filed with the Director.
    (d) Responses. (1) Except as otherwise provided herein, any party 
may file a written response to a motion within ten days after service of 
any written motion, or within such other period of time as may be 
established by the presiding officer or the Director. The presiding 
officer shall not rule on any oral or written motion before each party

[[Page 538]]

has had an opportunity to file a response.
    (2) The failure of a party to oppose a written motion or an oral 
motion made on the record is deemed a consent by that party to the entry 
of an order substantially in the form of the order accompanying the 
motion.
    (e) Dilatory motions. Frivolous, dilatory, or repetitive motions are 
prohibited. The filing of such motions may form the basis for sanctions.
    (f) Dispositive motions. Dispositive motions are governed by 
Sec. Sec. 1780.31 and 1780.32.



Sec. 1780.26  Discovery.

    (a) Limits on discovery. Subject to the limitations set out in 
paragraphs (b), (d), and (e) of this section, a party to a proceeding 
under this subpart may obtain document discovery by serving a written 
request to produce documents. For purposes of a request to produce 
documents, the term ``documents'' may be defined to include drawings, 
graphs, charts, photographs, recordings, data stored in electronic form, 
and other data compilations from which information can be obtained or 
translated, if necessary, by the parties through detection devices into 
reasonably usable form, as well as written material of all kinds.
    (b) Relevance. A party may obtain document discovery regarding any 
matter not privileged that has material relevance to the merits of the 
pending action. Any request to produce documents that calls for 
irrelevant material, that is unreasonable, oppressive, excessive in 
scope, unduly burdensome, or repetitive of previous requests, or that 
seeks to obtain privileged documents will be denied or modified. A 
request is unreasonable, oppressive, excessive in scope, or unduly 
burdensome if, among other things, it fails to include justifiable 
limitations on the time period covered and the geographic locations to 
be searched, the time provided to respond in the request is inadequate, 
or the request calls for copies of documents to be delivered to the 
requesting party and fails to include the requestor's written agreement 
to pay in advance for the copying, in accordance with Sec. 1780.27.
    (c) Forms of discovery. Discovery shall be limited to requests for 
production of documents for inspection and copying. No other form of 
discovery shall be allowed. Discovery by use of interrogatories is not 
permitted. This paragraph shall not be interpreted to require the 
creation of a document.
    (d) Privileged matter. Privileged documents are not discoverable. 
Privileges include the attorney-client privilege, work-product 
privilege, any government's or government agency's deliberative process 
privilege and any other privileges provided by the Constitution, any 
applicable act of Congress, or the principles of common law.
    (e) Time limits. All discovery, including all responses to discovery 
requests, shall be completed at least 20 days prior to the date 
scheduled for the commencement of the hearing. No exception to this time 
limit shall be permitted, unless the presiding officer finds on the 
record that good cause exists for waiving the requirements of this 
paragraph.



Sec. 1780.27  Request for document discovery from parties.

    (a) General rule. Any party may serve on any other party a request 
to produce for inspection any discoverable documents that are in the 
possession, custody, or control of the party upon whom the request is 
served. Copies of the request shall be served on all other parties. The 
request must identify the documents to be produced either by individual 
item or by category and must describe each item and category with 
reasonable particularity. Documents must be produced as they are kept in 
the usual course of business or they shall be labeled and organized to 
correspond with the categories in the request.
    (b) Production or copying. The request must specify a reasonable 
time, place and manner for production and performing any related acts. 
In lieu of inspecting the documents, the requesting party may specify 
that all or some of the responsive documents be copied and the copies 
delivered to the requesting party. If copying of fewer than 250 pages is 
requested, the party to whom the request is addressed shall bear the 
cost of copying and shipping charges. If

[[Page 539]]

a party requests more than 250 pages of copying, the requesting party 
shall pay for copying and shipping charges. Copying charges are at the 
current rate per page imposed by OFHEO at Sec. 1710.22(b)(2) of this 
chapter for requests for documents filed under the Freedom of 
Information Act, 12 U.S.C. 552. The party to whom the request is 
addressed may require payment in advance before producing the documents.
    (c) Obligation to update responses. A party who has responded to a 
discovery request is not required to supplement the response, unless:
    (1) The responding party learns that in some material respect the 
information disclosed is incomplete or incorrect, and
    (2) The additional or corrective information has not otherwise been 
made known to the other parties during the discovery process or in 
writing.
    (d) Motions to strike or limit discovery requests. (1) Any party 
that objects to a discovery request may, within ten days of being served 
with such request, file a motion in accordance with the provisions of 
Sec. 1780.25 to strike or otherwise limit the request. If an objection 
is made to only a portion of an item or category in a request, the 
objection shall specify that portion. Any objections not made in 
accordance with this paragraph and Sec. 1780.25 are waived.
    (2) The party who served the request that is the subject of a motion 
to strike or limit may file a written response within five days of 
service of the motion. No other party may file a response.
    (e) Privilege. At the time other documents are produced, all 
documents withheld on the grounds of privilege must be reasonably 
identified, together with a statement of the basis for the assertion of 
privilege. When similar documents that are protected by deliberative 
process, attorney work-product, or attorney-client privilege are 
voluminous, these documents may be identified by category instead of by 
individual document. The presiding officer has discretion to determine 
when the identification by category is insufficient.
    (f) Motions to compel production. (1) If a party withholds any 
documents as privileged or fails to comply fully with a discovery 
request, the requesting party may, within ten days of the assertion of 
privilege or of the time the failure to comply becomes known to the 
requesting party, file a motion in accordance with the provisions of 
Sec. 1780.25 for the issuance of a subpoena compelling production.
    (2) The party who asserted the privilege or failed to comply with 
the request may, within five days of service of a motion for the 
issuance of a subpoena compelling production, file a written response to 
the motion. No other party may file a response.
    (g) Ruling on motions. After the time for filing responses to 
motions pursuant to this section has expired, the presiding officer 
shall rule promptly on all such motions. If the presiding officer 
determines that a discovery request or any of its terms calls for 
irrelevant material, is unreasonable, oppressive, excessive in scope, 
unduly burdensome, or repetitive of previous requests, or seeks to 
obtain privileged documents, he may deny or modify the request and may 
issue appropriate protective orders, upon such conditions as justice may 
require. The pendency of a motion to strike or limit discovery or to 
compel production shall not be a basis for staying or continuing the 
proceeding, unless otherwise ordered by the presiding officer. 
Notwithstanding any other provision in this part, the presiding officer 
may not release, or order a party to produce, documents withheld on 
grounds of privilege if the party has stated to the presiding officer 
its intention to file a timely motion for interlocutory review of the 
presiding officer's order to produce the documents, until the motion for 
interlocutory review has been decided.
    (h) Enforcing discovery subpoenas. If the presiding officer issues a 
subpoena compelling production of documents by a party, the subpoenaing 
party may, in the event of noncompliance and to the extent authorized by 
applicable law, apply to any appropriate United States district court 
for an order requiring compliance with the subpoena. A party's right to 
seek court enforcement of a subpoena shall not in any manner limit the 
sanctions that may be imposed by the presiding officer against a party 
who fails to produce or induces

[[Page 540]]

another to fail to produce subpoenaed documents.



Sec. 1780.28  Document subpoenas to nonparties.

    (a) General rules. (1) Any party may apply to the presiding officer 
for the issuance of a document discovery subpoena addressed to any 
person who is not a party to the proceeding. The application must 
contain a proposed document subpoena and a brief statement showing the 
general relevance and reasonableness of the scope of documents sought. 
The subpoenaing party shall specify a reasonable time, place, and manner 
for production in response to the subpoena.
    (2) A party shall only apply for a document subpoena under this 
section within the time period during which such party could serve a 
discovery request under Sec. 1780.27. The party obtaining the document 
subpoena is responsible for serving it on the subpoenaed person and for 
serving copies on all parties. Document subpoenas may be served in any 
State, territory, or possession of the United States, the District of 
Columbia, or as otherwise provided by law.
    (3) The presiding officer shall issue promptly any document subpoena 
applied for under this section; except that, if the presiding officer 
determines that the application does not set forth a valid basis for the 
issuance of the subpoena, or that any of its terms are unreasonable, 
oppressive, excessive in scope, or unduly burdensome, he may refuse to 
issue the subpoena or may issue it in a modified form upon such 
conditions as may be determined by the presiding officer.
    (b) Motion to quash or modify. (1) Any person to whom a document 
subpoena is directed may file a motion to quash or modify such subpoena, 
accompanied by a statement of the basis for quashing or modifying the 
subpoena. The movant shall serve the motion on all parties and any party 
may respond to such motion within ten days of service of the motion.
    (2) Any motion to quash or modify a document subpoena must be filed 
on the same basis, including the assertion of privilege, upon which a 
party could object to a discovery request under Sec. 1780.27 and during 
the same time limits during which such an objection could be filed.
    (c) Enforcing document subpoenas. If a subpoenaed person fails to 
comply with any subpoena issued pursuant to this section or any order of 
the presiding officer that directs compliance with all or any portion of 
a document subpoena, the subpoenaing party or any other aggrieved party 
may, to the extent authorized by applicable law, apply to an appropriate 
United States district court for an order requiring compliance with the 
subpoena. A party's right to seek court enforcement of a document 
subpoena shall in no way limit the sanctions that may be imposed by the 
presiding officer on a party who induces a failure to comply with 
subpoenas issued under this section.



Sec. 1780.29  Deposition of witness unavailable for hearing.

    (a) General rules. (1) If a witness will not be available for the 
hearing, a party desiring to preserve that witness' testimony for the 
record may apply in accordance with the procedures set forth in 
paragraph (a)(2) of this section to the presiding officer for the 
issuance of a subpoena, including a subpoena duces tecum, requiring the 
attendance of the witness at a deposition. The presiding officer may 
issue a deposition subpoena under this section upon a showing that--
    (i) The witness will be unable to attend or may be prevented from 
attending the hearing because of age, sickness, or infirmity, or will be 
otherwise unavailable;
    (ii) The witness' unavailability was not produced or caused by the 
subpoenaing party;
    (iii) The testimony is reasonably expected to be material; and
    (iv) Taking the deposition will not result in any undue burden to 
any other party and will not cause undue delay of the proceeding.
    (2) The application must contain a proposed deposition subpoena and 
a brief statement of the reasons for the issuance of the subpoena. The 
subpoena must name the witness whose deposition is to be taken and 
specify the time and place for taking the deposition. A deposition 
subpoena may require the

[[Page 541]]

witness to be deposed anywhere within the United States and its 
possessions and territories in which that witness resides or has a 
regular place of employment or such other convenient place as the 
presiding officer shall fix.
    (3) Subpoenas must be issued promptly upon request, unless the 
presiding officer determines that the request fails to set forth a valid 
basis under this section for its issuance. Before making a determination 
that there is no valid basis for issuing the subpoena, the presiding 
officer shall require a written response from the party requesting the 
subpoena or require attendance at a conference to determine whether 
there is a valid basis upon which to issue the requested subpoena.
    (4) The party obtaining a deposition subpoena is responsible for 
serving it on the witness and for serving copies on all parties. Unless 
the presiding officer orders otherwise, no deposition under this section 
shall be taken on fewer than 10 days' notice to the witness and all 
parties. Deposition subpoenas may be served anywhere within the United 
States or its possessions or territories on any person doing business 
anywhere within the United States or its possessions or territories, or 
as otherwise permitted by law.
    (b) Objections to deposition subpoenas. (1) The witness and any 
party who has not had an opportunity to oppose a deposition subpoena 
issued under this section may file a motion under Sec. 1780.25 with the 
presiding officer to quash or modify the subpoena prior to the time for 
compliance specified in the subpoena, but not more than 10 days after 
service of the subpoena.
    (2) A statement of the basis for the motion to quash or modify a 
subpoena issued under this section must accompany the motion. The motion 
must be served on all parties.
    (c) Procedure upon deposition. (1) Each witness testifying pursuant 
to a deposition subpoena must be duly sworn and each party shall have 
the right to examine the witness. Objections to questions or documents 
must be in short form, stating the grounds for the objection. Failure to 
object to questions or documents is not deemed a waiver except where the 
ground for objection might have been avoided if the objection had been 
presented timely. All questions, answers and objections must be 
recorded.
    (2) Any party may move before the presiding officer for an order 
compelling the witness to answer any questions the witness has refused 
to answer or submit any evidence that, during the deposition, the 
witness has refused to submit.
    (3) The deposition must be subscribed by the witness, unless the 
parties and the witness, by stipulation, have waived the signing, or the 
witness is ill, cannot be found, or has refused to sign. If the 
deposition is not subscribed by the witness, the court reporter taking 
the deposition shall certify that the transcript is a true and complete 
transcript of the deposition.
    (d) Enforcing subpoenas. If a subpoenaed person fails to comply with 
any subpoena issued pursuant to this section or with any order of the 
presiding officer made upon motion under paragraph (c)(2) of this 
section, the subpoenaing party or other aggrieved party may, to the 
extent authorized by applicable law, apply to an appropriate United 
States district court for an order requiring compliance with the 
portions of the subpoena that the presiding officer has ordered 
enforced. A party's right to seek court enforcement of a deposition 
subpoena in no way limits the sanctions that may be imposed by the 
presiding officer on a party who fails to comply with or induces a 
failure to comply with a subpoena issued under this section.



Sec. 1780.30  Interlocutory review.

    (a) General rule. The Director may review a ruling of the presiding 
officer prior to the certification of the record to the Director only in 
accordance with the procedures set forth in this section.
    (b) Scope of review. The Director may exercise interlocutory review 
of a ruling of the presiding officer if the Director finds that--
    (1) The ruling involves a controlling question of law or policy as 
to which substantial grounds exist for a difference of opinion;
    (2) Immediate review of the ruling may materially advance the 
ultimate termination of the proceeding;

[[Page 542]]

    (3) Subsequent modification of the ruling at the conclusion of the 
proceeding would be an inadequate remedy; or
    (4) Subsequent modification of the ruling would cause unusual delay 
or expense.
    (c) Procedure. Any motion for interlocutory review shall be filed by 
a party with the presiding officer within ten days of his ruling. Upon 
the expiration of the time for filing all responses, the presiding 
officer shall refer the matter to the Director for final disposition. In 
referring the matter to the Director, the presiding officer may indicate 
agreement or disagreement with the asserted grounds for interlocutory 
review of the ruling in question.
    (d) Suspension of proceeding. Neither a request for interlocutory 
review nor any disposition of such a request by the Director under this 
section suspends or stays the proceeding unless otherwise ordered by the 
presiding officer or the Director.



Sec. 1780.31  Summary disposition.

    (a) In general. The presiding officer shall recommend that the 
Director issue a final order granting a motion for summary disposition 
if the undisputed pleaded facts, admissions, affidavits, stipulations, 
documentary evidence, matters as to which official notice may be taken 
and any other evidentiary materials properly submitted in connection 
with a motion for summary disposition show that--
    (1) There is no genuine issue as to any material fact; and
    (2) The movant is entitled to a decision in its favor as a matter of 
law.
    (b) Filing of motions and responses. (1) Any party who believes 
there is no genuine issue of material fact to be determined and that 
such party is entitled to a decision as a matter of law may move at any 
time for summary disposition in its favor of all or any part of the 
proceeding. Any party, within 20 days after service of such motion or 
within such time period as allowed by the presiding officer, may file a 
response to such motion.
    (2) A motion for summary disposition must be accompanied by a 
statement of material facts as to which the movant contends there is no 
genuine issue. Such motion must be supported by documentary evidence, 
which may take the form of admissions in pleadings, stipulations, 
written interrogatory responses, depositions, investigatory depositions, 
transcripts, affidavits and any other evidentiary materials that the 
movant contends support its position. The motion must also be 
accompanied by a brief containing the points and authorities in support 
of the contention of the movant. Any party opposing a motion for summary 
disposition must file a statement setting forth those material facts as 
to which such party contends a genuine dispute exists. Such opposition 
must be supported by evidence of the same type as that submitted with 
the motion for summary disposition and a brief containing the points and 
authorities in support of the contention that summary disposition would 
be inappropriate.
    (c) Hearing on motion. At the request of any party or on his own 
motion, the presiding officer may hear oral argument on the motion for 
summary disposition.
    (d) Decision on motion. Following receipt of a motion for summary 
disposition and all responses thereto, the presiding officer shall 
determine whether the movant is entitled to summary disposition. If the 
presiding officer determines that summary disposition is warranted, the 
presiding officer shall submit a recommended decision to that effect to 
the Director, under Sec. 1780.53. If the presiding officer finds that 
the moving party is not entitled to summary disposition, the presiding 
officer shall make a ruling denying the motion.



Sec. 1780.32  Partial summary disposition.

    If the presiding officer determines that a party is entitled to 
summary disposition as to certain claims only, he shall defer submitting 
a recommended decision to the Director as to those claims. A hearing on 
the remaining issues must be ordered. Those claims for which the 
presiding officer has determined that summary disposition is warranted 
will be addressed in the recommended decision filed at the conclusion of 
the hearing.

[[Page 543]]



Sec. 1780.33  Scheduling and prehearing conferences.

    (a) Scheduling conference. Within 30 days of service of the notice 
or order commencing a proceeding or such other time as the parties may 
agree, the presiding officer shall direct representatives for all 
parties to meet with him in person at a specified time and place prior 
to the hearing or to confer by telephone for the purpose of scheduling 
the course and conduct of the proceeding. This meeting or telephone 
conference is called a ``scheduling conference.'' The identification of 
potential witnesses, the time for and manner of discovery and the 
exchange of any prehearing materials including witness lists, statements 
of issues, stipulations, exhibits and any other materials may also be 
determined at the scheduling conference.
    (b) Prehearing conferences. The presiding officer may, in addition 
to the scheduling conference, on his own motion or at the request of any 
party, direct representatives for the parties to meet with him (in 
person or by telephone) at a prehearing conference to address any or all 
of the following:
    (1) Simplification and clarification of the issues;
    (2) Stipulations, admissions of fact and the contents, authenticity 
and admissibility into evidence of documents;
    (3) Matters of which official notice may be taken;
    (4) Limitation of the number of witnesses;
    (5) Summary disposition of any or all issues;
    (6) Resolution of discovery issues or disputes;
    (7) Amendments to pleadings; and
    (8) Such other matters as may aid in the orderly disposition of the 
proceeding.
    (c) Transcript. The presiding officer, in his discretion, may 
require that a scheduling or prehearing conference be recorded by a 
court reporter. A transcript of the conference and any materials filed, 
including orders, becomes part of the record of the proceeding. A party 
may obtain a copy of the transcript at such party's expense.
    (d) Scheduling or prehearing orders. Within a reasonable time 
following the conclusion of the scheduling conference or any prehearing 
conference, the presiding officer shall serve on each party an order 
setting forth any agreements reached and any procedural determinations 
made.



Sec. 1780.34  Prehearing submissions.

    (a) Within the time set by the presiding officer, but in no case 
later than 10 days before the start of the hearing, each party shall 
serve on every other party the serving party's--
    (1) Prehearing statement;
    (2) Final list of witnesses to be called to testify at the hearing, 
including name and address of each witness and a short summary of the 
expected testimony of each witness;
    (3) List of the exhibits to be introduced at the hearing along with 
a copy of each exhibit; and
    (4) Stipulations of fact, if any.
    (b) Effect of failure to comply. No witness may testify and no 
exhibits may be introduced at the hearing if such witness or exhibit is 
not listed in the prehearing submissions pursuant to paragraph (a) of 
this section, except for good cause shown.



Sec. 1780.35  Hearing subpoenas.

    (a) Issuance. (1) Upon application of a party showing general 
relevance and reasonableness of scope of the testimony or other evidence 
sought, the presiding officer may issue a subpoena or a subpoena duces 
tecum requiring the attendance of a witness at the hearing or the 
production of documentary or physical evidence at such hearing. The 
application for a hearing subpoena must also contain a proposed subpoena 
specifying the attendance of a witness or the production of evidence 
from any State, commonwealth, possession, territory of the United 
States, or the District of Columbia, or as otherwise provided by law at 
any designated place where the hearing is being conducted. The party 
making the application shall serve a copy of the application and the 
proposed subpoena on every other party.
    (2) A party may apply for a hearing subpoena at any time before the 
commencement of or during a hearing. During a hearing, a party may make 
an application for a subpoena orally on the record before the presiding 
officer.

[[Page 544]]

    (3) The presiding officer shall promptly issue any hearing subpoena 
applied for under this section; except that, if the presiding officer 
determines that the application does not set forth a valid basis for the 
issuance of the subpoena, or that any of its terms are unreasonable, 
oppressive, excessive in scope, or unduly burdensome, he may refuse to 
issue the subpoena or may issue the subpoena in a modified form upon any 
conditions consistent with this subpart. Upon issuance by the presiding 
officer, the party making the application shall serve the subpoena on 
the person named in the subpoena and on each party.
    (b) Motion to quash or modify. (1) Any person to whom a hearing 
subpoena is directed or any party may file a motion to quash or modify 
such subpoena, accompanied by a statement of the basis for quashing or 
modifying the subpoena. The movant must serve the motion on each party 
and on the person named in the subpoena. Any party may respond to the 
motion within ten days of service of the motion.
    (2) Any motion to quash or modify a hearing subpoena must be filed 
prior to the time specified in the subpoena for compliance, but no more 
than 10 days after the date of service of the subpoena upon the movant.
    (c) Enforcing subpoenas. If a subpoenaed person fails to comply with 
any subpoena issued pursuant to this section or any order of the 
presiding officer that directs compliance with all or any portion of a 
hearing subpoena, the subpoenaing party or any other aggrieved party may 
seek enforcement of the subpoena pursuant to Sec. 1780.28(c). A party's 
right to seek court enforcement of a hearing subpoena shall in no way 
limit the sanctions that may be imposed by the presiding officer on a 
party who induces a failure to comply with subpoenas issued under this 
section.



              Subpart C_Hearing and Posthearing Proceedings

    Source: 64 FR 72518, Dec. 28, 1999, unless otherwise noted.



Sec. 1780.50  Conduct of hearings.

    (a) General rules. (1) Hearings shall be conducted in accordance 
with 5 U.S.C. chapter 5 and other applicable law and so as to provide a 
fair and expeditious presentation of the relevant disputed issues. 
Except as limited by this subpart, each party has the right to present 
its case or defense by oral and documentary evidence and to conduct such 
cross examination as may be required for full disclosure of the facts.
    (2) Order of hearing. OFHEO's counsel of record shall present its 
case-in-chief first, unless otherwise ordered by the presiding officer 
or unless otherwise expressly specified by law or regulation. OFHEO's 
counsel of record shall be the first party to present an opening 
statement and a closing statement and may make a rebuttal statement 
after the respondent's closing statement. If there are multiple 
respondents, respondents may agree among themselves as to their order or 
presentation of their cases, but if they do not agree, the presiding 
officer shall fix the order.
    (3) Examination of witnesses. Only one representative for each party 
may conduct an examination of a witness, except that in the case of 
extensive direct examination, the presiding officer may permit more than 
one representative for the party presenting the witness to conduct the 
examination. A party may have one representative conduct the direct 
examination and another representative conduct re-direct examination of 
a witness, or may have one representative conduct the cross examination 
of a witness and another representative conduct the re-cross examination 
of a witness.
    (4) Stipulations. Unless the presiding officer directs otherwise, 
all documents that the parties have stipulated as admissible shall be 
admitted into evidence upon commencement of the hearing.
    (b) Transcript. The hearing shall be recorded and transcribed. The 
transcript shall be made available to any party upon payment of the cost 
thereof. The presiding officer shall have authority to order the record 
corrected, either upon motion to correct, upon stipulation of the 
parties, or following notice to the parties upon the presiding officer's 
own motion.

[[Page 545]]



Sec. 1780.51  Evidence.

    (a) Admissibility. (1) Except as is otherwise set forth in this 
section, relevant, material and reliable evidence that is not unduly 
repetitive is admissible to the fullest extent authorized by the 
Administrative Procedure Act and other applicable law.
    (2) Evidence that would be admissible under the Federal Rules of 
Evidence is admissible in a proceeding conducted pursuant to this 
subpart.
    (3) Evidence that would be inadmissible under the Federal Rules of 
Evidence may not be deemed or ruled to be inadmissible in a proceeding 
conducted pursuant to this subpart if such evidence is relevant, 
material, reliable and not unduly repetitive.
    (b) Official notice. (1) Official notice may be taken of any 
material fact that may be judicially noticed by a United States district 
court and any material information in the official public records of any 
Federal or State government agency.
    (2) All matters officially noticed by the presiding officer or the 
Director shall appear on the record.
    (3) If official notice is requested of any material fact, the 
parties, upon timely request, shall be afforded an opportunity to 
object.
    (c) Documents. (1) A duplicate copy of a document is admissible to 
the same extent as the original, unless a genuine issue is raised as to 
whether the copy is in some material respect not a true and legible copy 
of the original.
    (2) Subject to the requirements of paragraph (a)(1) of this section, 
any document, including a report of examination, oversight activity, 
inspection, or visitation, prepared by OFHEO or by another Federal or 
State financial institutions regulatory agency is admissible either with 
or without a sponsoring witness.
    (3) Witnesses may use existing or newly created charts, exhibits, 
calendars, calculations, outlines, or other graphic material to 
summarize, illustrate, or simplify the presentation of testimony. Such 
materials may, subject to the presiding officer's discretion, be used 
with or without being admitted into evidence.
    (d) Objections. (1) Objections to the admissibility of evidence must 
be timely made and rulings on all objections must appear in the record.
    (2) When an objection to a question or line of questioning is 
sustained, the examining representative of record may make a specific 
proffer on the record of what he expected to prove by the expected 
testimony of the witness. The proffer may be by representation of the 
representative or by direct interrogation of the witness.
    (3) The presiding officer shall retain rejected exhibits, adequately 
marked for identification, for the record and transmit such exhibits to 
the Director.
    (4) Failure to object to admission of evidence or to any ruling 
constitutes a waiver of the objection.
    (e) Stipulations. The parties may stipulate as to any relevant 
matters of fact or the authentication of any relevant documents. Such 
stipulations must be received in evidence at a hearing and are binding 
on the parties with respect to the matters therein stipulated.
    (f) Depositions of unavailable witnesses. (1) If a witness is 
unavailable to testify at a hearing and that witness has testified in a 
deposition in accordance with Sec. 1780.29, a party may offer as 
evidence all or any part of the transcript of the deposition, including 
deposition exhibits, if any.
    (2) Such deposition transcript is admissible to the same extent that 
testimony would have been admissible had that person testified at the 
hearing, provided that if a witness refused to answer proper questions 
during the depositions, the presiding officer may, on that basis, limit 
the admissibility of the deposition in any manner that justice requires.
    (3) Only those portions of a deposition received in evidence at the 
hearing constitute a part of the record.



Sec. 1780.52  Post hearing filings.

    (a) Proposed findings and conclusions and supporting briefs. (1) 
Using the same method of service for each party, the presiding officer 
shall serve notice upon each party that the certified transcript, 
together with all hearing exhibits and exhibits introduced but not 
admitted into evidence at the hearing, has been filed. Any party may 
file with the presiding officer proposed findings of fact, proposed 
conclusions

[[Page 546]]

of law and a proposed order within 30 days after the parties have 
received notice that the transcript has been filed with the presiding 
officer, unless otherwise ordered by the presiding officer.
    (2) Proposed findings and conclusions must be supported by citation 
to any relevant authorities and by page references to any relevant 
portions of the record. A posthearing brief may be filed in support of 
proposed findings and conclusions, either as part of the same document 
or in a separate document.
    (3) Any party is deemed to have waived any issue not raised in 
proposed findings or conclusions timely filed by that party.
    (b) Reply briefs. Reply briefs may be filed within 15 days after the 
date on which the parties' proposed findings and conclusions and 
proposed order are due. Reply briefs must be limited strictly to 
responding to new matters, issues, or arguments raised in another 
party's papers. A party who has not filed proposed findings of fact and 
conclusions of law or a posthearing brief may not file a reply brief.
    (c) Simultaneous filing required. The presiding officer shall not 
order the filing by any party of any brief or reply brief supporting 
proposed findings and conclusions in advance of the other party's filing 
of its brief.



Sec. 1780.53  Recommended decision and filing of record.

    (a) Filing of recommended decision and record. Within 45 days after 
expiration of the time allowed for filing reply briefs under Sec. 
1780.52(b), the presiding officer shall file with and certify to the 
Director, for decision, the record of the proceeding. The record must 
include the presiding officer's recommended decision, recommended 
findings of fact and conclusions of law, and proposed order; all 
prehearing and hearing transcripts, exhibits and rulings; and the 
motions, briefs, memoranda and other supporting papers filed in 
connection with the hearing. The presiding officer shall serve upon each 
party the recommended decision, recommended findings and conclusions, 
and proposed order.
    (b) Filing of index. At the same time the presiding officer files 
with and certifies to the Director, for final determination, the record 
of the proceeding, the presiding officer shall furnish to the Director a 
certified index of the entire record of the proceeding. The certified 
index shall include, at a minimum, an entry for each paper, document or 
motion filed with the presiding officer in the proceeding, the date of 
the filing, and the identity of the filer. The certified index shall 
also include an exhibit index containing, at a minimum, an entry 
consisting of exhibit number and title or description for: Each exhibit 
introduced and admitted into evidence at the hearing; each exhibit 
introduced but not admitted into evidence at the hearing; each exhibit 
introduced and admitted into evidence after the completion of the 
hearing; and each exhibit introduced but not admitted into evidence 
after the completion of the hearing.



Sec. 1780.54  Exceptions to recommended decision.

    (a) Filing exceptions. Within 30 days after service of the 
recommended decision, recommended findings and conclusions, and proposed 
order under Sec. 1780.53, a party may file with the Director written 
exceptions to the presiding officer's recommended decision, recommended 
findings and conclusions, or proposed order; to the admission or 
exclusion of evidence; or to the failure of the presiding officer to 
make a ruling proposed by a party. A supporting brief may be filed at 
the time the exceptions are filed, either as part of the same document 
or in a separate document.
    (b) Effect of failure to file or raise exceptions. (1) Failure of a 
party to file exceptions to those matters specified in paragraph (a) of 
this section within the time prescribed is deemed a waiver of objection 
thereto.
    (2) No exception need be considered by the Director if the party 
taking exception had an opportunity to raise the same objection, issue, 
or argument before the presiding officer and failed to do so.
    (c) Contents. (1) All exceptions and briefs in support of such 
exceptions must be confined to the particular

[[Page 547]]

matters in or omissions from the presiding officer's recommendations to 
which that party takes exception.
    (2) All exceptions and briefs in support of exceptions must set 
forth page or paragraph references to the specific parts of the 
presiding officer's recommendations to which exception is taken, the 
page or paragraph references to those portions of the record relied upon 
to support each exception and the legal authority relied upon to support 
each exception. Exceptions and briefs in support shall not exceed a 
total of 30 pages, except by leave of the Director on motion.
    (3) One reply brief may be submitted by each party within ten days 
of service of exceptions and briefs in support of exceptions. Reply 
briefs shall not exceed 15 pages, except by leave of the Director on 
motion.



Sec. 1780.55  Review by Director.

    (a) Notice of submission to the Director. When the Director 
determines that the record in the proceeding is complete, the Director 
shall serve notice upon the parties that the proceeding has been 
submitted to the Director for final decision.
    (b) Oral argument before the Director. Upon the initiative of the 
Director or on the written request of any party filed with the Director 
within the time for filing exceptions under Sec. 1780.54, the Director 
may order and hear oral argument on the recommended findings, 
conclusions, decision and order of the presiding officer. A written 
request by a party must show good cause for oral argument and state 
reasons why arguments cannot be presented adequately in writing. A 
denial of a request for oral argument may be set forth in the Director's 
final decision. Oral argument before the Director must be transcribed.
    (c) Director's final decision. (1) Decisional employees may advise 
and assist the Director in the consideration and disposition of the 
case. The final decision of the Director will be based upon review of 
the entire record of the proceeding, except that the Director may limit 
the issues to be reviewed to those findings and conclusions to which 
opposing arguments or exceptions have been filed by the parties.
    (2) The Director shall render a final decision and issue an 
appropriate order within 90 days after notification of the parties that 
the case has been submitted for final decision, unless the Director 
orders that the action or any aspect thereof be remanded to the 
presiding officer for further proceedings. Copies of the final decision 
and order of the Director shall be served upon each party to the 
proceeding and upon other persons required by statute.



Sec. 1780.56  Exhaustion of administrative remedies.

    To exhaust administrative remedies as to any issue on which a party 
disagrees with the presiding officer's recommendations, a party must 
file exceptions with the Director under Sec. 1780.54. A party must 
exhaust administrative remedies as a precondition to seeking judicial 
review of any decision issued under this subpart.



Sec. 1780.57  Stays pending judicial review.

    The commencement of proceedings for judicial review of a final 
decision and order of the Director may not, unless specifically ordered 
by the Director or a reviewing court, operate as a stay of any order 
issued by the Director. The Director may, in his discretion and on such 
terms as he finds just, stay the effectiveness of all or any part of an 
order of the Director pending a final decision on a petition for review 
of that order.



    Subpart D_Rules of Practice Before the Office of Federal Housing 
                          Enterprise Oversight

    Source: 64 FR 72520, Dec. 28, 1999, unless otherwise noted.



Sec. 1780.70  Scope.

    This subpart contains rules governing practice by parties or their 
representatives before OFHEO. This subpart addresses the imposition of 
sanctions by the presiding officer or the Director against parties or 
their representatives in an adjudicatory proceeding under this part. 
This subpart also covers other disciplinary sanctions--censure, 
suspension or disbarment--against individuals who appear

[[Page 548]]

before OFHEO in a representational capacity either in an adjudicatory 
proceeding under this part or in any other matters connected with 
presentations to OFHEO relating to a client's or other principal's 
rights, privileges, or liabilities. This representation includes, but is 
not limited to, the practice of attorneys and accountants. Employees of 
OFHEO are not subject to disciplinary proceedings under this subpart.



Sec. 1780.71  Definitions.

    Practice before OFHEO for the purposes of this subpart, includes, 
but is not limited to, transacting any business with OFHEO as counsel, 
representative or agent for any other person, unless the Director orders 
otherwise. Practice before OFHEO also includes the preparation of any 
statement, opinion, or other paper by a counsel, representative or agent 
that is filed with OFHEO in any certification, notification, 
application, report, or other document, with the consent of such 
counsel, representative or agent. Practice before OFHEO does not include 
work prepared for an Enterprise solely at the request of the Enterprise 
for use in the ordinary course of its business.



Sec. 1780.72  Appearance and practice in adjudicatory proceedings.

    (a) Appearance before OFHEO or a presiding officer--(1) By 
attorneys. A party may be represented by an attorney who is a member in 
good standing of the bar of the highest court of any State, 
commonwealth, possession, territory of the United States, or the 
District of Columbia and who is not currently suspended or disbarred 
from practice before OFHEO.
    (2) By nonattorneys. An individual may appear on his own behalf. A 
member of a partnership may represent the partnership and a duly 
authorized officer, director, employee, or other agent of any 
corporation or other entity not specifically listed herein may represent 
such corporation or other entity; provided that such officer, director, 
employee, or other agent is not currently suspended or disbarred from 
practice before OFHEO. A duly authorized officer or employee of any 
Government unit, agency, or authority may represent that unit, agency, 
or authority.
    (b) Notice of appearance. Any person appearing in a representative 
capacity on behalf of a party, including OFHEO, shall execute and file a 
notice of appearance with the presiding officer at or before the time 
such person submits papers or otherwise appears on behalf of a party in 
the adjudicatory proceeding. Such notice of appearance shall include a 
written declaration that the individual is currently qualified as 
provided in paragraphs (a)(1) or (a)(2) of this section and is 
authorized to represent the particular party. By filing a notice of 
appearance on behalf of a party in an adjudicatory proceeding, the 
representative thereby agrees and represents that he is authorized to 
accept service on behalf of the represented party and that, in the event 
of withdrawal from representation, he or she will, if required by the 
presiding officer, continue to accept service until a new representative 
has filed a notice of appearance or until the represented party 
indicates that he or she will proceed on a pro se basis. Unless the 
representative filing the notice is an attorney, the notice of 
appearance shall also be executed by the person represented or, if the 
person is not an individual, by the chief executive officer, or duly 
authorized officer of that person.



Sec. 1780.73  Conflicts of interest.

    (a) Conflict of interest in representation. No representative shall 
represent another person in an adjudicatory proceeding if it reasonably 
appears that such representation may be limited materially by that 
representative's responsibilities to a third person or by that 
representative's own interests. The presiding officer may take 
corrective measures at any stage of a proceeding to cure a conflict of 
interest in representation, including the issuance of an order limiting 
the scope of representation or disqualifying an individual from 
appearing in a representative capacity for the duration of the 
proceeding.
    (b) Certification and waiver. If any person appearing as counsel or 
other representative represents two or more parties to an adjudicatory 
proceeding or

[[Page 549]]

also represents a nonparty on a matter relevant to an issue in the 
proceeding, that representative must certify in writing at the time of 
filing the notice of appearance required by Sec. 1780.72--
    (1) That the representative has personally and fully discussed the 
possibility of conflicts of interest with each such party and nonparty;
    (2) That each such party and nonparty waives any right it might 
otherwise have had to assert any known conflicts of interest or to 
assert any non-material conflicts of interest during the course of the 
proceeding.



Sec. 1780.74  Sanctions.

    (a) General rule. Appropriate sanctions may be imposed during the 
course of any proceeding when any party or representative of record has 
acted or failed to act in a manner required by applicable statute, 
regulation, or order, and that act or failure to act--
    (1) Constitutes contemptuous conduct. Contemptuous conduct includes 
dilatory, obstructionist, egregious, contumacious, unethical, or other 
improper conduct at any phase of any adjudicatory proceeding;
    (2) Has caused some other party material and substantive injury, 
including, but not limited to, incurring expenses including attorney's 
fees or experiencing prejudicial delay;
    (3) Is a clear and unexcused violation of an applicable statute, 
regulation, or order; or
    (4) Has delayed the proceeding unduly.
    (b) Sanctions. Sanctions that may be imposed include, but are not 
limited to, any one or more of the following:
    (1) Issuing an order against a party;
    (2) Rejecting or striking any testimony or documentary evidence 
offered, or other papers filed, by the party;
    (3) Precluding the party from contesting specific issues or 
findings;
    (4) Precluding the party from offering certain evidence or from 
challenging or contesting certain evidence offered by another party;
    (5) Precluding the party from making a late filing or conditioning a 
late filing on any terms that are just;
    (6) Assessing reasonable expenses, including attorney's fees, 
incurred by any other party as a result of the improper action or 
failure to act.
    (c) Procedure for imposition of sanctions. (1) The presiding 
officer, on the motion of any party, or on his own motion, and after 
such notice and responses as may be directed by the presiding officer, 
may impose any sanction authorized by this section. The presiding 
officer shall submit to the Director for final ruling any sanction that 
would result in a final order that terminates the case on the merits or 
is otherwise dispositive of the case.
    (2) Except as provided in paragraph (d) of this section, no sanction 
authorized by this section, other than refusing to accept late papers, 
shall be imposed without prior notice to all parties and an opportunity 
for any representative or party against whom sanctions would be imposed 
to be heard. The presiding officer shall determine and direct the 
appropriate notice and form for such opportunity to be heard. The 
opportunity to be heard may be limited to an opportunity to respond 
verbally immediately after the act or inaction in question is noted by 
the presiding officer.
    (3) For purposes of interlocutory review, motions for the imposition 
of sanctions by any party and the imposition of sanctions shall be 
treated the same as motions for any other ruling by the presiding 
officer.
    (4) Nothing in this section shall be read to preclude the presiding 
officer or the Director from taking any other action or imposing any 
other restriction or sanction authorized by any applicable statute or 
regulation.
    (d) Sanctions for contemptuous conduct. If, during the course of any 
proceeding, a presiding officer finds any representative or any 
individual representing himself to have engaged in contemptuous conduct, 
the presiding officer may summarily suspend that individual from 
participating in that or any related proceeding or impose any other 
appropriate sanction.



Sec. 1780.75  Censure, suspension, disbarment and reinstatement.

    (a) Discretionary censure, suspension and disbarment. (1) The 
Director may censure any individual who practices or attempts to 
practice before OFHEO

[[Page 550]]

or suspend or revoke the privilege to appear or practice before OFHEO of 
such individual if, after notice of and opportunity for hearing in the 
matter, that individual is found by the Director--
    (i) Not to possess the requisite qualifications or competence to 
represent others;
    (ii) To be seriously lacking in character or integrity or to have 
engaged in material unethical or improper professional conduct;
    (iii) To have caused unfair and material injury or prejudice to 
another party, such as prejudicial delay or unnecessary expenses 
including attorney's fees;
    (iv) To have engaged in, or aided and abetted, a material and 
knowing violation of the 1992 Act, the Federal Home Loan Mortgage 
Corporation Act, the Federal National Mortgage Association Charter Act 
or the rules or regulations issued under those statutes or any other law 
or regulation governing Enterprise operations;
    (v) To have engaged in contemptuous conduct before OFHEO;
    (vi) With intent to defraud in any manner, to have willfully and 
knowingly deceived, misled, or threatened any client or prospective 
client; or
    (vii) Within the last 10 years, to have been convicted of an offense 
involving moral turpitude, dishonesty or breach of trust, if the 
conviction has not been reversed on appeal. A conviction within the 
meaning of this paragraph shall be deemed to have occurred when the 
convicting court enters its judgment or order, regardless of whether an 
appeal is pending or could be taken and includes a judgment or an order 
on a plea of nolo contendere or on consent, regardless of whether a 
violation is admitted in the consent.
    (2) Suspension or revocation on the grounds set forth in paragraphs 
(a)(1) (ii), (iii), (iv), (v), (vi) and (vii) of this section shall only 
be ordered upon a further finding that the individual's conduct or 
character was sufficiently egregious as to justify suspension or 
revocation. Suspension or disbarment under this paragraph shall continue 
until the applicant has been reinstated by the Director for good cause 
shown or until, in the case of a suspension, the suspension period has 
expired.
    (3) If the final order against the respondent is for censure, the 
individual may be permitted to practice before OFHEO, but such 
individual's future representations may be subject to conditions 
designed to promote high standards of conduct. If a written letter of 
censure is issued, a copy will be maintained in OFHEO's files.
    (b) Mandatory suspension and disbarment. (1) Any counsel who has 
been and remains suspended or disbarred by a court of the United States 
or of any State, commonwealth, possession, territory of the United 
States or the District of Columbia; any accountant or other licensed 
expert whose license to practice has been revoked in any State, 
commonwealth, possession, territory of the United States or the District 
of Columbia; any person who has been and remains suspended or barred 
from practice before the Department of Housing and Urban Development, 
the Office of the Comptroller of the Currency, the Board of Governors of 
the Federal Reserve System, the Office of Thrift Supervision, the 
Federal Deposit Insurance Corporation, the National Credit Union 
Administration, the Federal Housing Finance Board, the Farm Credit 
Administration, the Securities and Exchange Commission, or the Commodity 
Futures Trading Commission is also suspended automatically from 
appearing or practicing before OFHEO. A disbarment or suspension within 
the meaning of this paragraph shall be deemed to have occurred when the 
disbarring or suspending agency or tribunal enters its judgment or 
order, regardless of whether an appeal is pending or could be taken and 
regardless of whether a violation is admitted in the consent.
    (2) A suspension or disbarment from practice before OFHEO under 
paragraph (b)(1) of this section shall continue until the person 
suspended or disbarred is reinstated under paragraph (d)(2) of this 
section.
    (c) Notices to be filed. (1) Any individual appearing or practicing 
before OFHEO who is the subject of an order, judgment, decree, or 
finding of the types set forth in paragraph (b)(1) of this section shall 
file promptly with

[[Page 551]]

the Director a copy thereof, together with any related opinion or 
statement of the agency or tribunal involved.
    (2) Any individual appearing or practicing before OFHEO who is or 
within the last 10 years has been convicted of a felony or of a 
misdemeanor that resulted in a sentence of prison term or in a fine or 
restitution order totaling more than $5,000 shall file a notice promptly 
with the Director. The notice shall include a copy of the order imposing 
the sentence or fine, together with any related opinion or statement of 
the court involved.
    (d) Reinstatement. (1) Unless otherwise ordered by the Director, an 
application for reinstatement for good cause may be made in writing by a 
person suspended or disbarred under paragraph (a)(1) of this section at 
any time more than three years after the effective date of the 
suspension or disbarment and, thereafter, at any time more than one year 
after the person's most recent application for reinstatement. An 
applicant for reinstatement under this paragraph (d)(1) may, in the 
Director's sole discretion, be afforded a hearing.
    (2) An application for reinstatement for good cause by any person 
suspended or disbarred under paragraph (b)(1) of this section may be 
filed at any time, but not less than 1 year after the applicant's most 
recent application. An applicant for reinstatement for good cause under 
this paragraph (d)(2) may, in the Director's sole discretion, be 
afforded a hearing. However, if all the grounds for suspension or 
disbarment under paragraph (b)(1) of this section have been removed by a 
reversal of the order of suspension or disbarment or by termination of 
the underlying suspension or disbarment, any person suspended or 
disbarred under paragraph (b)(1) of this section may apply immediately 
for reinstatement and shall be reinstated by OFHEO upon written 
application notifying OFHEO that the grounds have been removed.
    (e) Conferences--(1) General. Counsel for OFHEO may confer with a 
proposed respondent concerning allegations of misconduct or other 
grounds for censure, disbarment or suspension, regardless of whether a 
proceeding for censure, disbarment or suspension has been commenced. If 
a conference results in a stipulation in connection with a proceeding in 
which the individual is the respondent, the stipulation may be entered 
in the record at the request of either party to the proceeding.
    (2) Resignation or voluntary suspension. In order to avoid the 
institution of or a decision in a disbarment or suspension proceeding, a 
person who practices before OFHEO may consent to censure, suspension or 
disbarment from practice. At the discretion of the Director, the 
individual may be censured, suspended or disbarred in accordance with 
the consent offered.
    (f) Hearings under this section. Hearings conducted under this 
section shall be conducted in substantially the same manner as other 
hearings under this part, provided that in proceedings to terminate an 
existing OFHEO suspension or disbarment order, the person seeking the 
termination of the order shall bear the burden of going forward with an 
application and with proof and that the Director may, in the Director's 
sole discretion, direct that any proceeding to terminate an existing 
suspension or disbarment by OFHEO be limited to written submissions. All 
hearings held under this section shall be closed to the public unless 
the Director, on the Director's own motion or upon the request of a 
party, otherwise directs.



           Subpart E_Civil Money Penalty Inflation Adjustments

    Source: 70 FR 51243, Aug. 30, 2005, unless otherwise noted.



Sec. 1780.80  Inflation adjustments.

    The maximum amount of each civil money penalty within OFHEO's 
jurisdiction is adjusted in accordance with the Federal Civil Penalties 
Inflation Adjustment Act of 1990, as amended by the Debt Collection 
Improvement Act of 1996 (28 U.S.C. 2461 note) as follows:

[[Page 552]]



------------------------------------------------------------------------
                                                   New adjusted maximum
     U.S. code citation          Description          penalty amount
------------------------------------------------------------------------
12 U.S.C. 4636(b)(1)........  First Tier.......                    6,500
12 U.S.C. 4636(b)(2)........  Second Tier                         11,000
                               (Executive
                               Officer or
                               Director).
12 U.S.C. 4636(b)(2)........  Second Tier                         32,500
                               (Enterprise).
12 U.S.C. 4636(b)(3)........  Third Tier                         130,000
                               (Executive
                               Officer or
                               Director).
12 U.S.C. 4636(b)(3)........  Third Tier                       1,275,000
                               (Enterprise).
------------------------------------------------------------------------



Sec. 1780.81  Applicability.

    The inflation adjustments in Sec. 1780.80 apply to civil money 
penalties assessed in accordance with the provisions of 12 U.S.C. 4636 
for violations occurring after the effective date, August 30, 2005.

[[Page 553]]



   CHAPTER XVIII--COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND, 
                       DEPARTMENT OF THE TREASURY




  --------------------------------------------------------------------
Part                                                                Page
1805            Community Development Financial Institutions 
                    Program.................................         555
1806            Bank Enterprise Award Program...............         573
1815            Environmental quality.......................         583

[[Page 555]]



PART 1805_COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS PROGRAM--Table of Contents




                      Subpart A_General Provisions

Sec.
1805.100 Purpose.
1805.101 Summary.
1805.102 Relationship to other Fund programs.
1805.103 Awardee not instrumentality.
1805.104 Definitions.
1805.105 Waiver authority.
1805.106 OMB control number.

                          Subpart B_Eligibility

1805.200 Applicant eligibility.
1805.201 Certification as a Community Development Financial Institution.

               Subpart C_Use of Funds/Eligible Activities

1805.300 Purposes of financial assistance.
1805.301 Eligible activities.
1805.302 Restrictions on use of assistance.
1805.303 Technical assistance.

                    Subpart D_Investment Instruments

1805.400 Investment instruments--general.
1805.401 Forms of investment instruments.
1805.402 Assistance limits.
1805.403 Authority to sell.

                  Subpart E_Matching Funds Requirements

1805.500 Matching funds--general.
1805.501 Comparability of form and value.
1805.502 Severe constraints waiver.
1805.503 Time frame for raising match.
1805.504 Retained earnings.

                  Subpart F_Applications for Assistance

1805.600 Notice of Funds Availability.

           Subpart G_Evaluation and Selection of Applications

1805.700 Evaluation and selection--general.
1805.701 Evaluation of applications.

              Subpart H_Terms and Conditions of Assistance

1805.800 Safety and soundness.
1805.801 Notice of Award.
1805.802 Assistance Agreement; sanctions.
1805.803 Disbursement of funds.
1805.804 Data collection and reporting.
1805.805 Information.
1805.806 Compliance with government requirements.
1805.807 Conflict of interest requirements.
1805.808 Lobbying restrictions.
1805.809 Criminal provisions.
1805.810 Fund deemed not to control.
1805.811 Limitation on liability.
1805.812 Fraud, waste and abuse.

    Authority: 12 U.S.C. 4703, 4703 note, 4710, 4717; and 31 U.S.C. 321.

    Source: 70 FR 73888, Dec. 13, 2005, unless otherwise noted.



                      Subpart A_General Provisions



Sec. 1805.100  Purpose.

    The purpose of the Community Development Financial Institutions 
Program is to promote economic revitalization and community development 
through investment in and assistance to Community Development Financial 
Institutions.



Sec. 1805.101  Summary.

    Under the Community Development Financial Institutions Program, the 
Fund will provide financial and technical assistance to Applicants 
selected by the Fund in order to enhance their ability to make loans and 
investments and provide services. An Awardee must serve an Investment 
Area(s), Targeted Population(s), or both. The Fund will select Awardees 
to receive financial and technical assistance through a merit-based 
qualitative application process. Each Awardee will enter into an 
Assistance Agreement which will require it to achieve performance goals 
negotiated between the Fund and the Awardee and abide by other terms and 
conditions pertinent to any assistance received under this part.



Sec. 1805.102  Relationship to other Fund programs.

    (a) Bank Enterprise Award Program. (1) No Community Development 
Financial Institution may receive a Bank Enterprise Award under the Bank 
Enterprise Award (BEA) Program (part 1806 of this chapter) if it has:
    (i) An application pending for assistance under the Community 
Development Financial Institutions Program;
    (ii) Directly received assistance in the form of a disbursement 
under the Community Development Financial Institutions Program within 
the preceding 12-month period prior to the

[[Page 556]]

date the Fund selected the CDFI to receive a Bank Enterprise Award 
(meaning, the date of the Fund's BEA Program notice of award); or
    (iii) Ever directly received assistance under the Community 
Development Financial Institutions Program for the same activities for 
which it is seeking a Bank Enterprise Award.
    (2) An equity investment (as defined in part 1806 of this chapter) 
in, or a loan to, a Community Development Financial Institution, or 
deposits in an Insured Community Development Financial Institution, made 
by a BEA Program Awardee may be used to meet the matching funds 
requirements described in subpart E of this part. Receipt of such equity 
investment, loan, or deposit does not disqualify a Community Development 
Financial Institution from receiving assistance under this part.
    (b) Liquidity enhancement program. No entity that receives 
assistance through the liquidity enhancement program authorized under 
section 113 (12 U.S.C. 4712) of the Act may receive assistance under the 
Community Development Financial Institutions Program.



Sec. 1805.103  Awardee not instrumentality.

    No Awardee (or its Community Partner) shall be deemed to be an 
agency, department, or instrumentality of the United States.



Sec. 1805.104  Definitions.

    For the purpose of this part:
    (a) Act means the Community Development Banking and Financial 
Institutions Act of 1994, as amended (12 U.S.C. 4701 et seq.);
    (b) Affiliate means any company or entity that Controls, is 
Controlled by, or is under common Control with another company;
    (c) Applicant means any entity submitting an application for CDFI 
Program assistance or funding under this part;
    (d) Appropriate Federal Banking Agency has the same meaning as in 
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813(q)), and 
includes, with respect to Insured Credit Unions, the National Credit 
Union Administration;
    (e) Appropriate State Agency means an agency or instrumentality of a 
State that regulates and/or insures the member accounts of a State-
Insured Credit Union;
    (f) Assistance Agreement means a formal agreement between the Fund 
and an Awardee which specifies the terms and conditions of assistance 
under this part;
    (g) Awardee means an Applicant selected by the Fund to receive 
assistance pursuant to this part;
    (h) Community Development Financial Institution (or CDFI) means an 
entity currently meeting the eligibility requirements described in Sec. 
1805.200;
    (i) Community Development Financial Institution Intermediary (or 
CDFI Intermediary) means an entity that meets the CDFI Program 
eligibility requirements described in Sec. 1805.200 and whose primary 
business activity is the provision of Financial Products to CDFIs and/or 
emerging CDFIs;
    (j) Community Development Financial Institutions Program (or CDFI 
Program) means the program authorized by sections 105-108 of the Act (12 
U.S.C. 4704-4707) and implemented under this part;
    (k) Community Facility means a facility where health care, 
childcare, educational, cultural, or social services are provided;
    (l) Community-Governed means an entity in which the residents of an 
Investment Area(s) or members of a Targeted Population(s) represent 
greater than 50 percent of the governing body;
    (m) Community-Owned means an entity in which the residents of an 
Investment Area(s) or members of a Targeted Population(s) have an 
ownership interest of greater than 50 percent;
    (n) Community Partner means a person (other than an individual) that 
provides loans, Equity Investments, or Development Services and enters 
into a Community Partnership with an Applicant. A Community Partner may 
include a Depository Institution Holding Company, an Insured Depository 
Institution, an Insured Credit Union, a State-Insured Credit Union, a 
not-for-profit or for-profit organization, a State or local government 
entity, a quasi-government entity, or an investment company authorized 
pursuant to

[[Page 557]]

the Small Business Investment Act of 1958 (15 U.S.C. 661 et seq.);
    (o) Community Partnership means an agreement between an Applicant 
and a Community Partner to collaboratively provide Financial Products or 
Development Services to an Investment Area(s) or a Targeted 
Population(s);
    (p) Comprehensive Business Plan means a document covering not less 
than the next five years which meets the requirements described in an 
applicable Notice of Funds Availability (NOTICE OF FUNDS AVAILABILITY);
    (q) Control means: (1) Ownership, control, or power to vote 25 
percent or more of the outstanding shares of any class of Voting 
Securities of any company, directly or indirectly or acting through one 
or more other persons; (2) Control in any manner over the election of a 
majority of the directors, trustees, or general partners (or individuals 
exercising similar functions) of any company; or (3) The power to 
exercise, directly or indirectly, a controlling influence over the 
management, credit or investment decisions, or policies of any company.
    (r) Depository Institution Holding Company means a bank holding 
company or a savings and loan holding company as defined in section 3 of 
the Federal Deposit Insurance Act (12 U.S.C. 1813(w)(1));
    (s) Development Services means activities that promote community 
development and are integral to the Applicant's provision of Financial 
Products and Financial Services. Such services shall prepare or assist 
current or potential borrowers or investees to utilize the Financial 
Products or Financial Services of the Applicant. Such services include, 
for example: financial or credit counseling to individuals for the 
purpose of facilitating home ownership, promoting self-employment, or 
enhancing consumer financial management skills; or technical assistance 
to borrowers or investees for the purpose of enhancing business 
planning, marketing, management, and financial management skills;
    (t) Equity Investment means an investment made by an Applicant that, 
in the judgment of the Fund, supports or enhances activities that serve 
an Investment Area(s) or a Targeted Population(s). Such investments must 
be made through an arms-length transaction with a third party that does 
not have a relationship with the Applicant as an Affiliate. Equity 
Investments may comprise a stock purchase, a purchase of a partnership 
interest, a purchase of a limited liability company membership interest, 
a loan made on such terms that it has sufficient characteristics of 
equity (and is considered as such by the Fund), a purchase of secondary 
capital, or any other investment deemed to be an Equity Investment by 
the Fund;
    (u) Financial Products means: Loans, Equity Investments and similar 
financing activities (as determined by the Fund) including the purchase 
of loans originated by certified CDFIs and the provision of loan 
guarantees; in the case of CDFI Intermediaries, grants to CDFIs and/or 
emerging CDFIs and deposits in Insured Credit Union CDFIs, emerging 
Insured Credit Union CDFIs, and/or State-Insured Credit Union CDFIs.
    (v) Financial Services means checking, savings accounts, check 
cashing, money orders, certified checks, automated teller machines, 
deposit taking, safe deposit box services, and other similar services;
    (w) Fund means the Community Development Financial Institutions Fund 
established under section 104(a) (12 U.S.C. 4703(a)) of the Act;
    (x) Indian Reservation means any geographic area that meets the 
requirements of section 4(10) of the Indian Child Welfare Act of 1978 
(25 U.S.C. 1903(10)), and shall include land held by incorporated Native 
groups, regional corporations, and village corporations, as defined in 
and pursuant to the Alaska Native Claims Settlement Act (43 U.S.C. 
1602), public domain Indian allotments, and former Indian reservations 
in the State of Oklahoma;
    (y) Indian Tribe means any Indian Tribe, band, pueblo, nation, or 
other organized group or community, including any Alaska Native village 
or regional or village corporation, as defined in or established 
pursuant to the Alaska Native Claims Settlement Act (43 U.S.C. 1601 et 
seq.), which is recognized as eligible for special programs and services 
provided by the United

[[Page 558]]

States to Indians because of their status as Indians;
    (z) Insider means any director, officer, employee, principal 
shareholder (owning, individually or in combination with family members, 
five percent or more of any class of stock), or agent (or any family 
member or business partner of any of the above) of any Applicant, 
Affiliate or Community Partner;
    (aa) Insured CDFI means a CDFI that is an Insured Depository 
Institution or an Insured Credit Union;
    (bb) Insured Credit Union means any credit union, the member 
accounts of which are insured by the National Credit Union Share 
Insurance Fund;
    (cc) Insured Depository Institution means any bank or thrift, the 
deposits of which are insured by the Federal Deposit Insurance 
Corporation;
    (dd) Investment Area means a geographic area meeting the 
requirements of Sec. 1805.201(b)(3);
    (ee) Low-Income means an income, adjusted for family size, of not 
more than:
    (1) For Metropolitan Areas, 80 percent of the area median family 
income; and
    (2) For non-Metropolitan Areas, the greater of:
    (i) 80 percent of the area median family income; or
    (ii) 80 percent of the statewide non-Metropolitan Area median family 
income;
    (ff) Metropolitan Area means an area designated as such by the 
Office of Management and Budget pursuant to 44 U.S.C. 3504(e) and 31 
U.S.C. 1104(d) and Executive Order 10253 (3 CFR, 1949-1953 Comp., p. 
758), as amended;
    (gg) Non-Regulated CDFI means any entity meeting the eligibility 
requirements described in Sec. 1805.200 which is not a Depository 
Institution Holding Company, Insured Depository Institution, Insured 
Credit Union, or State-Insured Credit Union;
    (hh) State means any State of the United States, the District of 
Columbia or any territory of the United States, Puerto Rico, Guam, 
American Samoa, the Virgin Islands, and the Northern Mariana Islands;
    (ii) State-Insured Credit Union means any credit union that is 
regulated by, and/or the member accounts of which are insured by, a 
State agency or instrumentality;
    (jj) Subsidiary means any company which is owned or Controlled 
directly or indirectly by another company and includes any service 
corporation owned in whole or part by an Insured Depository Institution 
or any Subsidiary of such a service corporation, except as provided in 
Sec. 1805.200(b)(4);
    (kk) Targeted Population means individuals or an identifiable group 
of individuals meeting the requirements of Sec. 1805.201(b)(3); and
    (ll) Target Market means an Investment Area(s) and/or a Targeted 
Population(s).
    (mm)(1) Voting Securities means shares of common or preferred stock, 
general or limited partnership shares or interests, or similar interests 
if the shares or interest, by statute, charter, or in any manner, 
entitle the holder:
    (i) To vote for or select directors, trustees, or partners (or 
persons exercising similar functions of the issuing company); or
    (ii) To vote on or to direct the conduct of the operations or other 
significant policies of the issuing company.
    (2) Nonvoting shares. Preferred shares, limited partnership shares 
or interests, or similar interests are not Voting Securities if:
    (i) Any voting rights associated with the shares or interest are 
limited solely to the type customarily provided by statute with regard 
to matters that would significantly and adversely affect the rights or 
preference of the security or other interest, such as the issuance of 
additional amounts or classes of senior securities, the modification of 
the terms of the security or interest, the dissolution of the issuing 
company, or the payment of dividends by the issuing company when 
preferred dividends are in arrears;
    (ii) The shares or interest represent an essentially passive 
investment or financing device and do not otherwise provide the holder 
with control over the issuing company; and
    (iii) The shares or interest do not entitle the holder, by statute, 
charter, or in any manner, to select or to vote for the selection of 
directors, trustees, or

[[Page 559]]

partners (or persons exercising similar functions) of the issuing 
company.



Sec. 1805.105  Waiver authority.

    The Fund may waive any requirement of this part that is not required 
by law upon a determination of good cause. Each such waiver shall be in 
writing and supported by a statement of the facts and the grounds 
forming the basis of the waiver. For a waiver in an individual case, the 
Fund must determine that application of the requirement to be waived 
would adversely affect the achievement of the purposes of the Act. For 
waivers of general applicability, the Fund will publish notification of 
granted waivers in the Federal Register.



Sec. 1805.106  OMB control number.

    The collection of information requirements in this part have been 
approved by the Office of Management and Budget and assigned OMB control 
numbers 1559-0006, 1559-0021 and 1559-0022.



                          Subpart B_Eligibility



Sec. 1805.200  Applicant eligibility.

    (a) General requirements. (1) An entity that meets the requirements 
described in Sec. 1805.201(b) and paragraph (b) of this section will be 
considered a CDFI and, subject to paragraph (a)(4) of this section, will 
be eligible to apply for assistance under this part.
    (2) An entity that proposes to become a CDFI is eligible to apply 
for assistance under this part if the Fund:
    (i) Receives a complete application for certification from the 
entity within the time period set forth in an applicable Notice of Funds 
Availability; and
    (ii) Determines that such entity's application materials provide a 
realistic course of action to ensure that it will meet the requirements 
described in Sec. 1805.201(b) and paragraph (b) of this section within 
the period set forth in an applicable Notice of Funds Availability.
    (3) The Fund will not, however, disburse any financial assistance to 
such an entity before it meets the requirements described in this 
section. Moreover, notwithstanding paragraphs (a)(1) and (a)(2)(ii) of 
this section, the Fund reserves the right to require an entity to have 
been certified as described in Sec. 1805.201(a) prior to its submission 
of an application for assistance, as set forth in an applicable Notice 
of Funds Availability.
    (4) The Fund shall require an entity to meet any additional 
eligibility requirements that the Fund deems appropriate.
    (5) The Fund, in its sole discretion, shall determine whether an 
Applicant fulfills the requirements set forth in this section and Sec. 
1805.201(b).
    (b) Provisions applicable to Depository Institution Holding 
Companies and Insured Depository Institutions. (1) A Depository 
Institution Holding Company may qualify as a CDFI only if it and its 
Affiliates collectively satisfy the requirements described in this 
section.
    (2) No Affiliate of a Depository Institution Holding Company may 
qualify as a CDFI unless the holding company and all of its Affiliates 
collectively meet the requirements described in this section.
    (3) No Subsidiary of an Insured Depository Institution may qualify 
as a CDFI if the Insured Depository Institution and its Subsidiaries do 
not collectively meet the requirements described in this section.
    (4) For the purposes of paragraphs (b)(1), (2) and (3) of this 
section, an Applicant will be considered to be a Subsidiary of any 
Insured Depository Institution or Depository Institution Holding Company 
that controls 25 percent or more of any class of the Applicant's voting 
shares, or otherwise controls, in any manner, the election of a majority 
of directors of the Applicant.



Sec. 1805.201  Certification as a Community Development Financial Institution.

    (a) General. An entity may apply to the Fund for certification that 
it meets the CDFI eligibility requirements regardless of whether it is 
seeking financial or technical assistance from the Fund. Entities 
seeking such certification shall provide the information set forth in 
the application for certification. Certification by the Fund will verify 
that the entity meets the CDFI eligibility requirements. However, such 
certification shall not constitute an

[[Page 560]]

opinion by the Fund as to the financial viability of the CDFI or that 
the CDFI will be selected to receive an award from the Fund. The Fund, 
in its sole discretion, shall have the right to decertify a certified 
entity after a determination that the eligibility requirements of 
paragraph (b) of this section, Sec. 1805.200(b) or (a)(4) (if 
applicable) are no longer met.
    (b) Eligibility verification. An Applicant shall demonstrate whether 
it meets the eligibility requirements described in this paragraph (b) of 
this section and Sec. 1805.200 by providing the information described 
in the application for certification demonstrating that the Applicant 
meets the eligibility requirements described in paragraphs (b)(1) 
through (b)(6) of this section. The Fund, in its sole discretion, shall 
determine whether an Applicant has satisfied the requirements of this 
paragraph (b) and Sec. 1805.200.
    (1) Primary mission. A CDFI shall have a primary mission of 
promoting community development. In determining whether an Applicant has 
such a primary mission, the Fund will consider whether the activities of 
the Applicant are purposefully directed toward improving the social and/
or economic conditions of underserved people (which may include Low-
Income persons and persons who lack adequate access to capital and/or 
Financial Services) and/or residents of economically distressed 
communities (which may include Investment Areas).
    (2) Financing entity. A CDFI shall be an entity whose predominant 
business activity is the provision, in arms-length transactions, of 
Financial Products, Development Services, and/or other similar 
financing. An Applicant may demonstrate that it is such an entity if it 
is a(n):
    (i) Depository Institution Holding Company;
    (ii) Insured Depository Institution, Insured Credit Union, or State-
Insured Credit Union; or
    (iii) Organization that is deemed by the Fund to have such a 
predominant business activity as a result of analysis of its financial 
statements, organizing documents, and any other information required to 
be submitted as part of its application. In conducting such analysis, 
the Fund may take into consideration an Applicant's total assets and its 
use of personnel.
    (3) Target Market. (i) General. An Applicant may be found to serve a 
Target Market by virtue of serving one or more Investment Areas and/or 
Targeted Populations. An Investment Area shall meet specific geographic 
and other criteria described in paragraph (b)(3)(ii) of this section, 
and a Targeted Population shall meet the criteria described in paragraph 
(b)(3)(iii) in this section.
    (ii) Investment Area. (A) General. A geographic area will be 
considered eligible for designation as an Investment Area if it:
    (1) Is entirely located within the geographic boundaries of the 
United States (which shall encompass any State of the United States, the 
District of Columbia or any territory of the United States, Puerto Rico, 
Guam, American Samoa, the Virgin Islands, and the Northern Mariana 
Islands); and either
    (2) Meets at least one of the objective criteria of economic 
distress as set forth in paragraph (b)(3)(ii)(D) of this section and has 
significant unmet needs for loans, Equity Investments, or Financial 
Services as described in paragraph (b)(3)(ii)(E) of this section; or
    (3) Encompasses (i.e. wholly consists of) or is wholly located 
within an Empowerment Zone or Enterprise Community designated under 
section 1391 of the Internal Revenue Code of 1986 (26 U.S.C. 1391).
    (B) Geographic units. Subject to the remainder of this paragraph 
(B), an Investment Area shall consist of a geographic unit(s) that is a 
county (or equivalent area), minor civil division that is a unit of 
local government, incorporated place, census tract, block numbering 
area, block group, or American Indian or Alaska Native area (as such 
units are defined or reported by the U.S. Bureau of the Census). 
However, geographic units in Metropolitan Areas that are used to 
comprise an Investment Area shall be limited to census tracts, block 
groups and American

[[Page 561]]

Indian or Alaskan Native areas. An Applicant may designate one or more 
Investment Areas as part of a single application.
    (C) Designation. An Applicant may designate an Investment Area by 
selecting:
    (1) A geographic unit(s) which individually meets one of the 
criteria in paragraph (b)(3)(ii)(D) of this section; or
    (2) A group of contiguous geographic units which together meet one 
of the criteria in paragraph (b)(3)(ii)(D) of this section, provided 
that the combined population residing within individual geographic units 
not meeting any such criteria does not exceed 15 percent of the total 
population of the entire Investment Area.
    (D) Distress criteria. An Investment Area (or the units that 
comprise an area) must meet at least one of the following objective 
criteria of economic distress (as reported in the most recently 
completed decennial census published by the U.S. Bureau of the Census):
    (1) The percentage of the population living in poverty is at least 
20 percent;
    (2) In the case of an Investment Area located:
    (i) Within a Metropolitan Area, the median family income shall be at 
or below 80 percent of the Metropolitan Area median family income or the 
national Metropolitan Area median family income, whichever is greater; 
or
    (ii) Outside of a Metropolitan Area, the median family income shall 
be at or below 80 percent of the statewide non-Metropolitan Area median 
family income or the national non-Metropolitan Area median family 
income, whichever is greater;
    (3) The unemployment rate is at least 1.5 times the national 
average;
    (4) In counties located outside of a Metropolitan Area, the county 
population loss during the period between the most recent decennial 
census and the previous decennial census is at least 10 percent; or
    (5) In counties located outside of a Metropolitan Area, the county 
net migration loss during the five-year period preceding the most recent 
decennial census is at least five percent.
    (E) Unmet needs. An Investment Area will be deemed to have 
significant unmet needs for loans or Equity Investments if a narrative 
analysis provided by the Applicant adequately demonstrate a pattern of 
unmet needs for Financial Products or Financial Services within such 
area(s).
    (F) Serving Investment Areas. An Applicant may serve an Investment 
Area directly or through borrowers or investees that serve the 
Investment Area or provide significant benefits to its residents.
    (iii) Targeted Population. (A) General. Targeted Population shall 
mean individuals, or an identifiable group of individuals, who are Low-
Income persons or lack adequate access to Financial Products or 
Financial Services in the Applicant's service area. The members of a 
Targeted Population shall reside within the boundaries of the United 
States (which shall encompass any State of the United States, the 
District of Columbia or any territory of the United States, Puerto Rico, 
Guam, American Samoa, the Virgin Islands, and the Northern Mariana 
Islands).
    (B) Serving A Targeted Population. An Applicant may serve the 
members of a Targeted Population directly or indirectly or through 
borrowers or investees that directly serve or provide significant 
benefits to such members.
    (4) Development Services. A CDFI directly, through an Affiliate, or 
through a contract with another provider, shall provide Development 
Services in conjunction with its Financial Products.
    (5) Accountability. A CDFI must maintain accountability to residents 
of its Investment Area(s) or Targeted Population(s) through 
representation on its governing board or otherwise.
    (6) Non-government. A CDFI shall not be an agency or instrumentality 
of the United States, or any State or political subdivision thereof. An 
entity that is created by, or that receives substantial assistance from, 
one or more government entities may be a CDFI provided it is not 
controlled by such entities and maintains independent decision-making 
power over its activities.

[[Page 562]]



               Subpart C_Use of Funds/Eligible Activities



Sec. 1805.300  Purposes of financial assistance.

    The Fund may provide financial assistance through investment 
instruments described under subpart D of this part. Such financial 
assistance is intended to strengthen the capital position and enhance 
the ability of an Awardee to provide Financial Products and Financial 
Services.



Sec. 1805.301  Eligible activities.

    Financial assistance provided under this part may be used by an 
Awardee to serve Investment Area(s) or Targeted Population(s) by 
developing or supporting, through lending, investing, enhancing 
liquidity, or other means of finance:
    (a) Commercial facilities that promote revitalization, community 
stability or job creation or retention;
    (b) Businesses that:
    (1) Provide jobs for Low-Income persons;
    (2) Are owned by Low-Income persons; or
    (3) Enhance the availability of products and services to Low-Income 
persons;
    (c) Community Facilities;
    (d) The provision of Financial Services;
    (e) Housing that is principally affordable to Low-Income persons, 
except that assistance used to facilitate home ownership shall only be 
used for services and lending products that serve Low-Income persons and 
that:
    (1) Are not provided by other lenders in the area; or
    (2) Complement the services and lending products provided by other 
lenders that serve the Investment Area(s) or Targeted Population(s);
    (f) The provision of consumer loans (a loan to one or more 
individuals for household, family, or other personal expenditures); or
    (g) Other businesses or activities as requested by the Applicant and 
deemed appropriate by the Fund.



Sec. 1805.302  Restrictions on use of assistance.

    (a) An Awardee shall use assistance provided by the Fund and its 
corresponding matching funds only for the eligible activities approved 
by the Fund and described in the Assistance Agreement.
    (b) An Awardee may not distribute assistance to an Affiliate without 
the Fund's consent.
    (c) Assistance provided upon approval of an application involving a 
Community Partnership shall only be distributed to the Awardee and shall 
not be used to fund any activities carried out by a Community Partner or 
an Affiliate of a Community Partner.



Sec. 1805.303  Technical assistance.

    (a) The Fund may provide technical assistance to build the capacity 
of a CDFI or an entity that proposes to become a CDFI. Such technical 
assistance may include training for management and other personnel; 
development of programs, products and services; improving financial 
management and internal operations; enhancing a CDFI's community impact; 
or other activities deemed appropriate by the Fund. The Fund, in its 
sole discretion, may provide technical assistance in amounts, or under 
terms and conditions that are different from those requested by an 
Applicant. The Fund may not provide any technical assistance to an 
Applicant for the purpose of assisting in the preparation of an 
application. The Fund may provide technical assistance to a CDFI 
directly, through grants, or by contracting with organizations that 
possess the appropriate expertise.
    (b) The Fund may provide technical assistance regardless of whether 
the recipient also receives financial assistance under this part. 
Technical assistance provided pursuant to this part is subject to the 
assistance limits described in Sec. 1805.402.
    (c) An Applicant seeking technical assistance must meet the 
eligibility requirements described in Sec. 1805.200 and submit an 
application as described in Sec. 1805.600.
    (d) Applicants for technical assistance pursuant to this part will 
be evaluated pursuant to the merit-based qualitative review criteria in 
subpart G

[[Page 563]]

of this part, except as otherwise may be provided in the applicable 
Notice of Funds Availability. In addition, the requirements for matching 
funds are not applicable to technical assistance requests.



                    Subpart D_Investment Instruments



Sec. 1805.400  Investment instruments--general.

    The Fund will provide financial assistance to an Awardee through one 
or more of the investment instruments described in Sec. 1805.401, and 
under such terms and conditions as described in this subpart D. The 
Fund, in its sole discretion, may provide financial assistance in 
amounts, through investment instruments, or under rates, terms and 
conditions that are different from those requested by an Applicant.



Sec. 1805.401  Forms of investment instruments.

    (a) Equity. The Fund may make nonvoting equity investments in an 
Awardee, including, without limitation, the purchase of nonvoting stock. 
Such stock shall be transferable and, in the discretion of the Fund, may 
provide for convertibility to voting stock upon transfer. The Fund shall 
not own more than 50 percent of the equity of an Awardee and shall not 
control its operations.
    (b) Grants. The Fund may award grants.
    (c) Loans. The Fund may make loans, if permitted by applicable law.
    (d) Deposits and credit union shares. The Fund may make deposits 
(which shall include credit union shares) in Insured CDFIs and State-
Insured Credit Unions. Deposits in an Insured CDFI or a State-Insured 
Credit Union shall not be subject to any requirement for collateral or 
security.



Sec. 1805.402  Assistance limits.

    (a) Except as provided in paragraph (b) of this section, the Fund 
may not provide, pursuant to this part, more than $5 million, in the 
aggregate, in financial and technical assistance to an Awardee and its 
Affiliates during any three-year period.
    (b) If an Awardee proposes to establish a new Affiliate to serve an 
Investment Area(s) or Targeted Population(s) outside of any State, and 
outside of any Metropolitan Area, currently served by the Awardee or its 
Affiliates, the Awardee may receive additional assistance pursuant to 
this part up to a maximum of $3.75 million during the same three-year 
period. Such additional assistance:
    (1) Shall be used only to finance activities in the new or expanded 
Investment Area(s) or Targeted Population(s); and
    (2) Must be distributed to a new Affiliate that meets the 
eligibility requirements described in Sec. 1805.200 and is selected for 
assistance pursuant to subpart G of this part.
    (c) An Awardee may receive the assistance described in paragraph (b) 
of this section only if no other application to serve substantially the 
same Investment Area(s) or Targeted Population(s) that meets the 
requirements of Sec. 1805.701(a) was submitted to the Fund prior to the 
receipt of the application of said Awardee and within the current 
funding round.



Sec. 1805.403  Authority to sell.

    The Fund may, at any time, sell its equity investments and loans, 
provided the Fund shall retain the authority to enforce the provisions 
of the Assistance Agreement until the performance goals specified 
therein have been met.



                  Subpart E_Matching Funds Requirements



Sec. 1805.500  Matching funds--general.

    All financial assistance awarded under this part shall be matched 
with funds from sources other than the Federal government. Except as 
provided in Sec. 1805.502, such matching funds shall be provided on the 
basis of not less than one dollar for each dollar provided by the Fund. 
Funds that have been used to satisfy a legal requirement for obtaining 
funds under either the CDFI Program or another Federal grant or award 
program may not be used to satisfy the matching requirements described 
in this section. Community Development Block Grant Program and other 
funds provided pursuant to the

[[Page 564]]

Housing and Community Development Act of 1974, as amended (42 U.S.C. 
5301 et seq.), shall be considered Federal government funds and shall 
not be used to meet the matching requirements. Matching funds shall be 
used as provided in the Assistance Agreement. Funds that are used prior 
to the execution of the Assistance Agreement may nevertheless qualify as 
matching funds provided the Fund determines in its reasonable discretion 
that such use promoted the purpose of the Comprehensive Business Plan 
that the Fund is supporting through its assistance.



Sec. 1805.501  Comparability of form and value.

    (a) Matching funds shall be at least comparable in form (e.g., 
equity investments, deposits, credit union shares, loans and grants) and 
value to financial assistance provided by the Fund (except as provided 
in Sec. 1805.502). The Fund shall have the discretion to determine 
whether matching funds pledged are comparable in form and value to the 
financial assistance requested.
    (b) In the case of an Awardee that raises matching funds from more 
than one source, through different investment instruments, or under 
varying terms and conditions, the Fund may provide financial assistance 
in a manner that represents the combined characteristics of such 
instruments.
    (c) An Awardee may meet all or part of its matching requirements by 
committing available earnings retained from its operations.



Sec. 1805.502  Severe constraints waiver.

    (a) In the case of an Applicant with severe constraints on available 
sources of matching funds, the Fund, in its sole discretion, may permit 
such Applicant to comply with the matching requirements by:
    (1) Reducing such requirements by up to 50 percent; or
    (2) Permitting an Applicant to provide matching funds in a form to 
be determined at the discretion of the Fund, if such an Applicant:
    (i) Has total assets of less than $100,000;
    (ii) Serves an area that is not a Metropolitan Area; and
    (iii) Is not requesting more than $25,000 in assistance.
    (b) Not more than 25 percent of the total funds available for 
obligation under this part in any fiscal year may be matched as 
described in paragraph (a) of this section. Additionally, not more than 
25 percent of the total funds disbursed under this part in any fiscal 
year may be matched as described in paragraph (a) of this section.
    (c) An Applicant may request a ``severe constraints waiver'' as part 
of its application for assistance. An Applicant shall provide a 
narrative justification for its request, indicating:
    (1) The cause and extent of the constraints on raising matching 
funds;
    (2) Efforts to date, results, and projections for raising matching 
funds;
    (3) A description of the matching funds expected to be raised; and
    (4) Any additional information requested by the Fund.
    (d) The Fund will grant a ``severe constraints waiver'' only in 
exceptional circumstances when it has been demonstrated, to the 
satisfaction of the Fund, that an Investment Area(s) or Targeted 
Population(s) would not be adequately served without the waiver.



Sec. 1805.503  Time frame for raising match.

    Applicants shall satisfy matching funds requirements within the 
period set forth in the applicable Notice of Funds Availability.



Sec. 1805.504  Retained earnings.

    (a) An Applicant may use its retained earnings to match a request 
for a financial assistance grant from the Fund. An Applicant that 
proposes to meet all or a portion of its matching funds requirements by 
committing available earnings retained from its operations shall be 
subject to the restrictions described in this section. Retained earnings 
shall be calculated as directed by the Fund in the applicable Notice of 
Funds Availability, the financial assistance application and/or related 
guidance materials. Retained earnings accumulated after the end of the 
Applicant's most recent fiscal year

[[Page 565]]

ending prior to the appropriate application deadline may not be used as 
matching funds.
    (b) In the case of an Applicant that is not an Insured Credit Union 
or a State-Insured Credit Union, retained earnings that may be used for 
matching funds purposes shall consist of:
    (1) The increase in retained earnings (meaning, for purposes of 
Sec. 1805.504(b), operating income minus operating expenses less any 
dividend payments) that has occurred over the Applicant's most recent 
fiscal year (e.g., retained earnings at the end of fiscal year 2003 less 
retained earnings at the end of fiscal year 2002); or
    (2) The annual average of such increases that has occurred over the 
Applicant's three most recent fiscal years.
    (c)(1) In the case of an Applicant that is an Insured Credit Union 
or a State-Insured Credit Union, retained earnings that may be used for 
matching funds purposes shall consist of:
    (i) The increase in retained earnings that has occurred over the 
Applicant's most recent fiscal year;
    (ii) The annual average of such increases that has occurred over the 
Applicant's three most recent fiscal years; or
    (iii) The entire retained earnings that have been accumulated since 
the inception of the Applicant, provided that the Assistance Agreement 
shall require that:
    (A) The Awardee shall increase its member shares, non-member shares, 
outstanding loans and/or other measurable activity as defined in and by 
an amount that is set forth in an applicable Notice of Funds 
Availability; and
    (B) Such increase must be achieved by a date certain set forth in 
the applicable Notice of Funds Availability;
    (C) The Applicant's Comprehensive Business Plan shall discuss its 
strategy for achieving the increases described in (c)(1)(iii)(A) of this 
section and the activities associated therewith;
    (D) The level from which the achievement of said increases will be 
measured will be as of July 31 of the calendar year in which the 
applicable application deadline falls (or such other date as set forth 
in the applicable Notice of Funds Availability); and
    (E) Financial assistance shall be disbursed by the Fund only as the 
amount of increases described in paragraph (c)(1)(iii)(A) of this 
section is achieved.
    (2) The Fund will allow an Applicant to utilize the option described 
in paragraph (c)(1)(iii) of this section for matching funds only if it 
determines, in its sole discretion, that the Applicant will have a high 
probability of success in achieving said increases to the specified 
amounts.



                  Subpart F_Applications for Assistance



Sec. 1805.600  Notice of Funds Availability.

    Each Applicant shall submit an application for financial or 
technical assistance under this part in accordance with the applicable 
Notice of Funds Availability published in the Federal Register. The 
Notice of Funds Availability will advise potential Applicants on how to 
obtain an application packet and will establish deadlines and other 
requirements. The Notice of Funds Availability may specify any 
limitations, special rules, procedures, and restrictions for a 
particular funding round. After receipt of an application, the Fund may 
request clarifying or technical information on the materials submitted 
as part of such application.



           Subpart G_Evaluation and Selection of Applications



Sec. 1805.700  Evaluation and selection--general.

    Applicants will be evaluated and selected, at the sole discretion of 
the Fund, to receive assistance based on a review process, that could 
include an interview(s) and/or site visit(s), that is intended to:
    (a) Ensure that Applicants are evaluated on a merit basis and in a 
fair and consistent manner;
    (b) Take into consideration the unique characteristics of Applicants 
that vary by institution type, total asset size, stage of organizational 
development, markets served, products and services provided, and 
location;

[[Page 566]]

    (c) Ensure that each Awardee can successfully meet the goals of its 
Comprehensive Business Plan and achieve community development impact;
    (d) Ensure that Awardees represent a geographically diverse group of 
Applicants serving Metropolitan Areas, non-Metropolitan Areas, and 
Indian Reservations from different regions of the United States; and
    (e) Take into consideration other factors as described in the 
applicable Notice of Funds Availability.



Sec. 1805.701  Evaluation of applications.

    (a) Eligibility and completeness. An Applicant will not be eligible 
to receive assistance pursuant to this part if it fails to meet the 
eligibility requirements described in Sec. 1805.200 or if it has not 
submitted complete application materials. For the purposes of this 
paragraph (a), the Fund reserves the right to request additional 
information from the Applicant, if the Fund deems it appropriate.
    (b) Substantive review. In evaluating and selecting applications to 
receive assistance, the Fund will evaluate the Applicant's likelihood of 
success in meeting the goals of the Comprehensive Business Plan and 
achieving community development impact, by considering factors such as:
    (1) Community development track record (e.g., in the case of an 
Applicant with a prior history of serving a Target Market, the extent of 
success in serving such Target Market);
    (2) Operational capacity and risk mitigation strategies;
    (3) Financial track record and strength;
    (4) Capacity, skills and experience of the management team;
    (5) Understanding of its market context, including its analysis of 
current and prospective customers, the extent of economic distress 
within the designated Investment Area(s) or the extent of need within 
the designated Targeted Population(s), as those factors are measured by 
objective criteria, the extent of need for Equity Investments, loans, 
Development Services, and Financial Services within the designated 
Target Market, and the extent of demand within the Target Market for the 
Applicant's products and services;
    (6) Program design and implementation plan, including an assessment 
of its products and services, marketing and outreach efforts, delivery 
strategy, and coordination with other institutions and/or a Community 
Partner, or participation in a secondary market for purposes of 
increasing the Applicant's resources. In the case of an Applicant 
submitting an application with a Community Partner, the Fund will 
evaluate the extent to which the Community Partner will participate in 
carrying out the activities of the Community Partnership; the extent to 
which the Community Partner will enhance the likelihood of success of 
the Comprehensive Business Plan; and the extent to which service to the 
designated Target Market will be better performed by a Community 
Partnership than by the Applicant alone;
    (7) Projections for financial performance, capitalization and 
raising needed external resources, including the amount of firm 
commitments and matching funds in hand to meet or exceed the matching 
funds requirements and, if applicable, the likely success of the plan 
for raising the balance of the matching funds in a timely manner, the 
extent to which the matching funds are, or will be, derived from private 
sources, and whether an Applicant is, or will become, an Insured CDFI or 
a State-Insured Credit Union;
    (8) Projections for community development impact, including the 
extent to which an Applicant will concentrate its activities on serving 
its Target Market(s), the extent of support from the designated Target 
Market, the extent to which an Applicant is, or will be, Community-Owned 
or Community-Governed, and the extent to which the activities proposed 
in the Comprehensive Business Plan will expand economic opportunities or 
promote community development within the designated Target Market;
    (9) The extent of need for the Fund's assistance, as demonstrated by 
the extent of economic distress in the Applicant's Target Market and the 
extent to which the Applicant needs the Fund's assistance to carry out 
its Comprehensive Business Plan;
    (10) In the case of an Applicant that has previously received 
assistance

[[Page 567]]

under the CDFI Program, the Fund also will consider the Applicant's 
level of success in meeting its performance goals, financial soundness 
covenants (if applicable), and other requirements contained in the 
previously negotiated and executed Assistance Agreement(s) with the 
Fund, the undisbursed balance of assistance, and whether the Applicant 
will, with additional assistance from the Fund, expand its operations 
into a new Target Market, offer more products or services, and/or 
increase the volume of its activities; and
    (11) The Fund may consider any other factors, as it deems 
appropriate, in reviewing an application as set forth in an applicable 
Notice of Funds Availability.
    (c) Consultation with Appropriate Federal Banking Agencies. The Fund 
will consult with, and consider the views of, the Appropriate Federal 
Banking Agency prior to providing assistance to:
    (1) An Insured CDFI;
    (2) A CDFI that is examined by or subject to the reporting 
requirements of an Appropriate Federal Banking Agency; or
    (3) A CDFI that has as its Community Partner an institution that is 
examined by, or subject to, the reporting requirements of an Appropriate 
Federal Banking Agency.
    (d) Consultation with Appropriate State Agencies. Prior to providing 
assistance to a State-Insured Credit Union, the Fund may consult with, 
and consider the views of, the Appropriate State Agency.
    (e) Awardee selection. The Fund will select Awardees based on the 
criteria described in paragraph (b) of this section and any other 
criteria set forth in this part or the applicable Notice of Funds 
Availability.



              Subpart H_Terms and Conditions of Assistance



Sec. 1805.800  Safety and soundness.

    (a) Regulated institutions. Nothing in this part, or in an 
Assistance Agreement, shall affect any authority of an Appropriate 
Federal Banking Agency or Appropriate State Agency to supervise and 
regulate any institution or company.
    (b) Non-Regulated CDFIs. The Fund will, to the maximum extent 
practicable, ensure that Awardees that are Non-Regulated CDFIs are 
financially and managerially sound and maintain appropriate internal 
controls.



Sec. 1805.801  Notice of Award.

    (a) The Fund will generally signify its selection of an Applicant as 
an Awardee by delivering a signed notice of award to the Applicant. The 
notice of award will contain the general terms and conditions underlying 
the Fund's provision of assistance to an Awardee including, but not 
limited to, the requirement that an Awardee and the Fund enter into an 
Assistance Agreement.
    (b) To become an Awardee under paragraph (a) of this section, an 
Applicant shall execute the notice of award and return it to the Fund.
    (c) By executing a notice of award, an Awardee agrees that, if prior 
to entering into an Assistance Agreement with the Fund, information 
comes to the attention of the Fund that either adversely affects the 
Awardee's eligibility for funding, or adversely affects the Fund's 
evaluation of the Awardee's application, or indicates fraud or 
mismanagement on the part of the Awardee, the Fund may, in its 
discretion and without advance notice to the Awardee, terminate the 
notice of award or take such other actions as it deems appropriate. 
Moreover, by executing a notice of award, an Awardee also agrees that, 
if prior to entering into an Assistance Agreement with the Fund, the 
Fund determines that the Awardee is not in compliance with the terms of 
any previous Assistance Agreement entered into with the Fund, the Fund 
may, in its discretion and without advance notice to the Awardee, either 
terminate the notice of award or take such other actions as it deems 
appropriate. An Awardee shall notify the Fund of information that an 
Awardee may reasonably believe may affect its eligibility or ability to 
achieve the objectives of its Comprehensive Business Plan as submitted 
to the Fund (such as changes in management).
    (d) The Fund will notify an Awardee of either the Fund's termination 
of a notice of award or such other action(s)

[[Page 568]]

taken by the Fund under paragraph (c) of this section.



Sec. 1805.802  Assistance Agreement; sanctions.

    (a) Prior to providing any assistance, the Fund and an Awardee shall 
execute an Assistance Agreement that requires an Awardee to comply with 
performance goals and abide by other terms and conditions of assistance. 
Such performance goals may be modified at any time by mutual consent of 
the Fund and an Awardee or as provided in paragraph (c) of this section. 
If a Community Partner or an Affiliate is part of an application that is 
selected for assistance, such partner must be a party to the Assistance 
Agreement, if deemed appropriate by the Fund.
    (b) An Awardee shall comply with performance goals that have been 
negotiated with the Fund and which are based upon the Comprehensive 
Business Plan submitted as part of the Awardee's application. Such 
performance goals may include measures that require an Awardee to:
    (1) Be financially sound;
    (2) Be managerially sound;
    (3) Maintain appropriate internal controls; and/or
    (4) Achieve specific lending, investment, and development service 
objectives. Performance goals for Insured CDFIs shall be determined in 
consultation with the Appropriate Federal Banking Agency, as applicable. 
Such goals shall be incorporated in, and enforced under, the Awardee's 
Assistance Agreement. Performance goals for State-Insured Credit Unions 
may be determined in consultation with the Appropriate State Agency, if 
deemed appropriate by the Fund.
    (c) The Assistance Agreement shall provide that, in the event of 
fraud, mismanagement, noncompliance with the Act and the Fund's 
regulations, or noncompliance with the terms and conditions of the 
Assistance Agreement on the part of the Awardee (or the Community 
Partner, if applicable), the Fund, in its discretion, may:
    (1) Require changes in the performance goals set forth in the 
Assistance Agreement;
    (2) Require changes in the Awardee's Comprehensive Business Plan;
    (3) Revoke approval of the Awardee's application;
    (4) Reduce or terminate the Awardee's assistance;
    (5) Require repayment of any assistance that has been distributed to 
the Awardee;
    (6) Bar the Awardee (and the Community Partner, if applicable) from 
reapplying for any assistance from the Fund; or
    (7) Take such other actions as the Fund deems appropriate.
    (d) In the case of an Insured CDFI, the Assistance Agreement shall 
provide that the provisions of the Act, this part, and the Assistance 
Agreement shall be enforceable under 12 U.S.C. 1818 of the Federal 
Deposit Insurance Act by the Appropriate Federal Banking Agency, as 
applicable, and that any violation of such provisions shall be treated 
as a violation of the Federal Deposit Insurance Act. Nothing in this 
paragraph (d) precludes the Fund from directly enforcing the Assistance 
Agreement as provided for under the terms of the Act.
    (e) The Fund shall notify the Appropriate Federal Banking Agency 
before imposing any sanctions on an Insured CDFI or other institution 
that is examined by or subject to the reporting requirements of that 
agency. The Fund shall not impose a sanction described in paragraph (c) 
of this section if the Appropriate Federal Banking Agency, in writing, 
not later than 30 calendar days after receiving notice from the Fund:
    (1) Objects to the proposed sanction;
    (2) Determines that the sanction would:
    (i) Have a material adverse effect on the safety and soundness of 
the institution; or
    (ii) Impede or interfere with an enforcement action against that 
institution by that agency;
    (3) Proposes a comparable alternative action; and
    (4) Specifically explains:
    (i) The basis for the determination under paragraph (e)(2) of this 
section and, if appropriate, provides documentation to support the 
determination; and
    (ii) How the alternative action suggested pursuant to paragraph 
(e)(3) of

[[Page 569]]

this section would be as effective as the sanction proposed by the Fund 
in securing compliance and deterring future noncompliance.
    (f) In reviewing the performance of an Awardee in which its 
Investment Area(s) includes an Indian Reservation or Targeted 
Population(s) includes an Indian Tribe, the Fund shall consult with, and 
seek input from, the appropriate tribal government.
    (g) Prior to imposing any sanctions pursuant to this section or an 
Assistance Agreement, the Fund shall, to the maximum extent practicable, 
provide the Awardee (or the Community Partner, if applicable) with 
written notice of the proposed sanction and an opportunity to comment. 
Nothing in this section, however, shall provide an Awardee or Community 
Partner with the right to any formal or informal hearing or comparable 
proceeding not otherwise required by law.



Sec. 1805.803  Disbursement of funds.

    Assistance provided pursuant to this part may be provided in a lump 
sum or over a period of time, as determined appropriate by the Fund. The 
Fund shall not provide any assistance (other than technical assistance) 
under this part until an Awardee has satisfied any conditions set forth 
in its Assistance Agreement and has secured in-hand and/or firm 
commitments for the matching funds required for such assistance pursuant 
to the applicable Notice of Funds Availability. At a minimum, a firm 
commitment must consist of a written agreement between an Awardee and 
the source of the matching funds that is conditioned only upon the 
availability of the Fund's assistance and such other conditions as the 
Fund, in its sole discretion, may deem appropriate. Such agreement must 
provide for disbursal of the matching funds to an Awardee prior to, or 
simultaneously with, receipt by an Awardee of the Federal funds.



Sec. 1805.804  Data collection and reporting.

    (a) Data--General. An Awardee (and a Community Partner, if 
appropriate) shall maintain such records as may be prescribed by the 
Fund that are necessary to:
    (1) Disclose the manner in which Fund assistance is used;
    (2) Demonstrate compliance with the requirements of this part and an 
Assistance Agreement; and
    (3) Evaluate the impact of the CDFI Program.
    (b) Customer profiles. An Awardee (and a Community Partner, if 
appropriate) shall compile such data on the gender, race, ethnicity, 
national origin, or other information on individuals that utilize its 
products and services as the Fund shall prescribe in an Assistance 
Agreement. Such data will be used to determine whether residents of 
Investment Area(s) or members of Targeted Population(s) are adequately 
served and to evaluate the impact of the CDFI Program.
    (c) Access to records. An Awardee (and a Community Partner, if 
appropriate) must submit such financial and activity reports, records, 
statements, and documents at such times, in such forms, and accompanied 
by such reporting data, as required by the Fund or the U.S. Department 
of Treasury to ensure compliance with the requirements of this part and 
to evaluate the impact of the CDFI Program. The United States 
Government, including the U.S. Department of Treasury, the Comptroller 
General, and their duly authorized representatives, shall have full and 
free access to the Awardee's offices and facilities and all books, 
documents, records, and financial statements relating to use of Federal 
funds and may copy such documents as they deem appropriate. The Fund, if 
it deems appropriate, may prescribe access to record requirements for 
entities that are borrowers of, or that receive investments from, an 
Awardee.
    (d) Retention of records. An Awardee shall comply with all record 
retention requirements as set forth in OMB Circular A-110 (as 
applicable).
    (e) Data collection and reporting. Each Awardee shall submit to the 
Fund, at least annually and within 180 days after the end of the 
Awardee's fiscal year, such information and documentation that will 
permit the Fund to review the Awardee's progress (and the progress of 
its Affiliates, Subsidiaries,

[[Page 570]]

and/or Community Partners, if appropriate) in implementing its 
Comprehensive Business Plan and satisfying the terms and conditions of 
its Assistance Agreement. The information and documentation shall 
include, but not be limited to, an Annual Report, which shall comprise 
the following components:
    (1) Financial Report:
    (i) All non-profit organizations (excluding Insured CDFIs and State-
Insured Credit Unions) must submit to the Fund financial statements that 
have been reviewed by an independent certified public accountant in 
accordance with Statements on Standards for Accounting and Review 
Services, issued by the American Institute of Certified Public 
Accountants, no later than 180 days after the end of the Awardee's 
fiscal year (audited financial statements can be provided by the due 
date in lieu of reviewed statements, if available). Non-profit 
organizations (excluding Insured CDFIs and State-Insured Credit Unions) 
that are required to have their financial statements audited pursuant to 
OMB Circular A-133 Audits of States, Local Governments and Non-Profit 
Organizations, must also submit their A-133 audited financial statements 
to the Fund no later than 270 days after the end of the Awardee's fiscal 
year. Non-profit organizations (excluding Insured CDFIs and State-
Insured Credit Unions) that are not required to have financial 
statements audited pursuant to OMB Circular A-133, Audits of States, 
Local Governments and Non-Profit Organizations, must submit to the Fund 
a statement signed by the Awardee's Authorized Representative or 
certified public accountant, asserting that the Awardee is not required 
to have a single audit pursuant OMB Circular A-133.
    (ii) For-profit organizations (excluding Insured CDFIs and State-
Insured Credit Unions) must submit to the Fund financial statements 
audited in conformity with generally accepted auditing standards as 
promulgated by the American Institute of Certified Public Accountants, 
no later than 180 days after the end of the Awardee's fiscal year.
    (iii) Insured CDFIs are not required to submit financial statements 
to the Fund. The Fund will obtain the necessary information from 
publicly available sources. State-Insured Credit Unions must submit to 
the Fund copies of the financial statements that they submit to the 
Appropriate State Agency.
    (iv) If multiple organizations sign the Assistance Agreement: The 
Awardee may submit combined financial statements and footnotes for the 
Awardee and other entities that signed the Assistance Agreement as long 
as the financial statements of each signatory are shown separately (for 
example, in combining financial statements).
    (v) If the Assistance is in the form of a loan or a deposit: The 
Awardee must provide the Fund with financial statements annually 
throughout the term of the loan or deposit.
    (vi) If the Assistance is in the form of an equity investment 
(common or preferred stock, secondary capital, certificate of deposit, 
partnership interest, or debentures): The Awardee must provide the Fund 
with financial statements annually for each year in which the Fund holds 
the equity investment.
    (2) Performance Goals Report/Annual Survey: Performance Goals 
include performance goals and measures that are specific to the 
Awardee's application for funding.
    (i) Performance Goals Report: The Awardee will submit to the Fund 
information through the Annual Survey that will inform the Fund of its 
compliance toward meeting the Performance Goals set forth in the 
Performance Goals Report.
    (ii) Annual Survey: The Fund will use the Annual Survey to collect 
data by which to assess the Awardee's compliance toward meeting its 
Performance Goals and the impact of the CDFI Program and the CDFI 
industry. The Annual Survey is comprised of two components, the 
Institution-Level Report and the Transaction-Level Report.
    (A) Institution-Level Report. The Institution-Level Report includes, 
but is not limited to, organizational, financial, portfolio and 
community development impact information and any other information that 
the Fund deems appropriate.
    (B) Transaction-Level Report. The Transaction-Level Report includes, 
but

[[Page 571]]

is not limited to, specific data elements on each of the Awardee's loans 
and investments including, but not limited to, borrower location, loan/
investment type, loan/investment amount, and terms. The Awardee must 
submit the Transaction-Level Report to the Fund at least annually but no 
more frequently than quarterly. If the Fund requires the Awardee to 
submit the Transaction-Level Report on a semi-annual or quarterly basis, 
the Fund will notify the Awardee of the due date for the submission of 
said report at least 60 days prior to the due date. Only Awardees that 
receive financial assistance awards are required to submit Transaction-
Level Reports.
    (3) Financial Status Report: The Financial Status Report is 
applicable only to Awardees that receive technical assistance awards and 
must be signed by the Awardee's authorized representative, and submitted 
to the Fund with the Annual Report. This form is only applicable to the 
technical assistance portion of the award.
    (4) Uses of Financial Assistance and Matching Funds Report: This 
report describes the Awardee's use of its financial assistance award and 
its matching funds during its preceding fiscal year.
    (5) Explanation of Noncompliance: Any Awardee that fails to meet a 
performance goal in its Performance Goals Report must submit to the Fund 
a narrative explanation.
    (6) Awardees are responsible for the timely and complete submission 
of the Annual Report, even if all or a portion of the documents actually 
are completed by another entity or signatory to the Assistance 
Agreement. If such other entities or signatories are required to provide 
Annual Surveys or Financial Reports, or other documentation that the 
Fund may require, the Awardee is responsible for ensuring that the 
information is submitted timely and complete. The Fund reserves the 
right to contact such additional signatories to the Assistance Agreement 
and require that additional information and documentation be provided.
    (7) The Fund's review of the progress of an Insured CDFI, a 
Depository Institution Holding Company or a State-Insured Credit Union 
in implementing its Comprehensive Business Plan and satisfying the terms 
and conditions of its Assistance Agreement may also include information 
from the Appropriate Federal Banking Agency or Appropriate State Agency, 
as the case may be.
    (8) The Fund shall make reports described in this section available 
for public inspection after deleting any materials necessary to protect 
privacy or proprietary interests.
    (f) Exchange of information with Appropriate Federal Banking 
Agencies and Appropriate State Agencies. (1) Except as provided in 
paragraph (f)(4) of this section, prior to directly requesting 
information from or imposing reporting or record keeping requirements on 
an Insured CDFI or other institution that is examined by or subject to 
the reporting requirements of an Appropriate Federal Banking Agency, the 
Fund shall consult with the Appropriate Federal Banking Agency to 
determine if the information requested is available from or may be 
obtained by such agency in the form, format, and detail required by the 
Fund.
    (2) If the information, reports, or records requested by the Fund 
pursuant to paragraph (f)(1) of this section are not provided by the 
Appropriate Federal Banking Agency within 15 calendar days after the 
date on which the material is requested, the Fund may request the 
information from or impose the record keeping or reporting requirements 
directly on such institutions with notice to the Appropriate Federal 
Banking Agency.
    (3) The Fund shall use any information provided by an Appropriate 
Federal Banking Agency or Appropriate State Agency under this section to 
the extent practicable to eliminate duplicative requests for information 
and reports from, and record keeping by, an Insured CDFI, State-Insured 
Credit Union or other institution that is examined by or subject to the 
reporting requirements of an Appropriate Federal Banking Agency or 
Appropriate State Agency.
    (4) Notwithstanding paragraphs (f)(1) and (2) of this section, the 
Fund may require an Insured CDFI, State-Insured Credit Union, or other 
institution that

[[Page 572]]

is examined by or subject to the reporting requirements of an 
Appropriate Federal Banking Agency or Appropriate State Agency to 
provide information with respect to the institution's implementation of 
its Comprehensive Business Plan or compliance with the terms of its 
Assistance Agreement, after providing notice to the Appropriate Federal 
Banking Agency or Appropriate State Agency, as the case may be.
    (5) Nothing in this part shall be construed to permit the Fund to 
require an Insured CDFI, State-Insured Credit Union, or other 
institution that is examined by or subject to the reporting requirements 
of an Appropriate Federal Banking Agency or Appropriate State Agency to 
obtain, maintain, or furnish an examination report of any Appropriate 
Federal Banking Agency or Appropriate State Agency, or records contained 
in or related to such report.
    (6) The Fund and the Appropriate Federal Banking Agency shall 
promptly notify each other of material concerns about an Awardee that is 
an Insured CDFI or that is examined by or subject to the reporting 
requirements of an Appropriate Federal Banking Agency, and share 
appropriate information relating to such concerns.
    (7) Neither the Fund nor the Appropriate Federal Banking Agency (or 
Appropriate State Agency, as the case may be) shall disclose 
confidential information obtained pursuant to this section from any 
party without the written consent of that party.
    (8) The Fund, the Appropriate Federal Banking Agency (or Appropriate 
State Agency, as the case may be), and any other party providing 
information under this paragraph (f) shall not be deemed to have waived 
any privilege applicable to the any information or data, or any portion 
thereof, by providing such information or data to the other party or by 
permitting such data or information, or any copies or portions thereof, 
to be used by the other party.
    (g) Availability of referenced publications. The publications 
referenced in this section are available as follows:
    (1) OMB Circulars may be obtained from the Office of Administration, 
Publications Office, 725 17th Street, NW., Room 2200, New Executive 
Office Building, Washington, DC 20503 or on the Internet (http://
www.whitehouse.gov/OMB/grants/index.html); and
    (2) General Accounting Office materials may be obtained from GAO 
Distribution, 700 4th Street, NW., Suite 1100, Washington, DC 20548.



Sec. 1805.805  Information.

    The Fund and each Appropriate Federal Banking Agency shall cooperate 
and respond to requests from each other and from other Appropriate 
Federal Banking Agencies in a manner that ensures the safety and 
soundness of Insured CDFIs or other institution that is examined by or 
subject to the reporting requirements of an Appropriate Federal Banking 
Agency.



Sec. 1805.806  Compliance with government requirements.

    In carrying out its responsibilities pursuant to an Assistance 
Agreement, the Awardee shall comply with all applicable Federal, State, 
and local laws, regulations, and ordinances, OMB Circulars, and 
Executive Orders.



Sec. 1805.807  Conflict of interest requirements.

    (a) Provision of credit to Insiders. (1) An Awardee that is a Non-
Regulated CDFI may not use any monies provided to it by the Fund to make 
any credit (including loans and Equity Investments) available to an 
Insider unless it meets the following restrictions:
    (i) The credit must be provided pursuant to standard underwriting 
procedures, terms and conditions;
    (ii) The Insider receiving the credit, and any family member or 
business partner thereof, shall not participate in any way in the 
decision making regarding such credit;
    (iii) The board of directors or other governing body of the Awardee 
shall approve the extension of the credit; and
    (iv) The credit must be provided in accordance with a policy 
regarding credit to Insiders that has been approved in advance by the 
Fund.
    (2) An Awardee that is an Insured CDFI, a Depository Institution 
Holding Company or a State-Insured Credit

[[Page 573]]

Union shall comply with the restrictions on Insider activities and any 
comparable restrictions established by its Appropriate Federal Banking 
Agency or Appropriate State Agency, as applicable.
    (b) Awardee standards of conduct. An Awardee that is a Non-Regulated 
CDFI shall maintain a code or standards of conduct acceptable to the 
Fund that shall govern the performance of its Insiders engaged in the 
awarding and administration of any credit (including loans and Equity 
Investments) and contracts using monies from the Fund. No Insider of an 
Awardee shall solicit or accept gratuities, favors or anything of 
monetary value from any actual or potential borrowers, owners or 
contractors for such credit or contracts. Such policies shall provide 
for disciplinary actions to be applied for violation of the standards by 
the Awardee's Insiders.



Sec. 1805.808  Lobbying restrictions.

    No assistance made available under this part may be expended by an 
Awardee to pay any person to influence or attempt to influence any 
agency, elected official, officer or employee of a State or local 
government in connection with the making, award, extension, 
continuation, renewal, amendment, or modification of any State or local 
government contract, grant, loan or cooperative agreement as such terms 
are defined in 31 U.S.C. 1352.



Sec. 1805.809  Criminal provisions.

    The criminal provisions of 18 U.S.C. 657 regarding embezzlement or 
misappropriation of funds is applicable to all Awardees and Insiders.



Sec. 1805.810  Fund deemed not to control.

    The Fund shall not be deemed to control an Awardee by reason of any 
assistance provided under the Act for the purpose of any applicable law.



Sec. 1805.811  Limitation on liability.

    The liability of the Fund and the United States Government arising 
out of any assistance to a CDFI in accordance with this part shall be 
limited to the amount of the investment in the CDFI. The Fund shall be 
exempt from any assessments and other liabilities that may be imposed on 
controlling or principal shareholders by any Federal law or the law of 
any State. Nothing in this section shall affect the application of any 
Federal tax law.



Sec. 1805.812  Fraud, waste and abuse.

    Any person who becomes aware of the existence or apparent existence 
of fraud, waste or abuse of assistance provided under this part should 
report such incidences to the Office of Inspector General of the U.S. 
Department of the Treasury.



PART 1806_BANK ENTERPRISE AWARD PROGRAM--Table of Contents




                      Subpart A_General Provisions

Sec.
1806.100 Purpose.
1806.101 Summary.
1806.102 Relationship to the Community Development Financial 
          Institutions Program.
1806.103 Definitions.
1806.104 Waiver authority.
1806.105 OMB control number.

                            Subpart B_Awards

1806.200 Community eligibility and designation.
1806.201 Measuring and reporting Qualified Activities.
1806.202 Estimated award amounts.
1806.203 Selection process, actual award amounts.
1806.204 Applications for Bank Enterprise Awards.

              Subpart C_Terms and Conditions of Assistance

1806.300 Award Agreement; sanctions.
1806.302 Compliance with government requirements.
1806.303 Fraud, waste and abuse.
1806.304 Books of account, records and government access.
1806.305 Retention of records.

    Authority: 12 U.S.C. 1834a, 4703, 4703 note, 4713, 4717; 31 U.S.C. 
321.

    Source: 68 FR 5720, Feb. 4, 2003, unless otherwise noted.

[[Page 574]]



                      Subpart A_General Provisions



Sec. 1806.100  Purpose.

    The purpose of the Bank Enterprise Award Program is to provide an 
incentive for insured depository institutions to increase their 
activities in Distressed Communities, and provide financial assistance 
to Community Development Financial Institutions.



Sec. 1806.101  Summary.

    (a) Under the Bank Enterprise Award Program, the Fund makes awards 
to selected Applicants that:
    (1) Increase their investments in or other support of Community 
Development Financial Institutions;
    (2) Increase lending and investment activities within Distressed 
Communities; or
    (3) Increase the provision of certain services and assistance.
    (b) Distressed Communities must meet minimum poverty and 
unemployment criteria.
    (c) Applicants are selected to participate in the program through a 
competitive application process. Awards are based on increases in 
Qualified Activities that are carried out by the Applicant during an 
Assessment Period. Bank Enterprise Awards are distributed after 
successful completion of projected Qualified Activities. All awards 
shall be made subject to the availability of funding.



Sec. 1806.102  Relationship to the Community Development Financial Institutions Program.

    (a) Prohibition against double funding. No CDFI may receive a Bank 
Enterprise Award if it has:
    (1) An application pending for assistance under the Community 
Development Financial Institutions Program (part 1805 of this chapter);
    (2) Directly received assistance from the Fund under the Community 
Development Financial Institutions Program within the 12-month period 
prior to the date the Fund selected the Applicant to receive a Bank 
Enterprise Award; or
    (3) Ever received assistance under the Community Development 
Financial Institutions Program for the same activities for which it is 
seeking a Bank Enterprise Award.
    (b) Matching funds. Equity Investments and CDFI Support Activities 
(except technical assistance) provided to a CDFI under this part can be 
used by the CDFI to meet the matching funds requirements of the 
Community Development Financial Institutions Program.



Sec. 1806.103  Definitions.

    For purposes of this part the following terms shall have the 
following definitions:
    (a) Act means the Community Development Banking and Financial 
Institutions Act of 1994, as amended (12 U.S.C. 4701 et seq.);
    (b) Affordable Housing Development Loan means origination of a loan 
to finance the acquisition, construction, and/or development of single-
or multi-family residential real property, where at least sixty percent 
of the units in such property are affordable, as may be defined in the 
applicable NOFA, to Low- and Moderate-Income individuals.
    (c) Affordable Housing Loan means origination of a loan to finance 
the purchase or improvement of the borrower's primary residence, and 
that is secured by such property, where such borrower is a Low- and 
Moderate-Income individual. Affordable Housing Loan may also refer to 
second (or otherwise subordinated) liens or ``soft second'' mortgages, 
and other similar types of downpayment assistance loans but may not 
necessarily be secured by such property originated for the purpose of 
facilitating the purchase or improvement of the borrower's primary 
residence, where such borrower is a Low- and Moderate-Income individual.
    (d) Applicant means any insured depository institution (as defined 
in section 3(c)(2) of the Federal Deposit Insurance Act (12 U.S.C. 
1813)) that is applying for a Bank Enterprise Award;
    (e) Appropriate Federal Banking Agency has the same meaning as in 
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813);
    (f) Assessment Period means an annual or semi-annual period 
specified in the applicable Notice of Funds Availability in which an 
Applicant will carry out, or has carried out, Qualified Activities;

[[Page 575]]

    (g) Award Agreement means a formal agreement between the Fund and an 
Awardee pursuant to Sec. 1806.300;
    (h) Awardee means an Applicant selected by the Fund to receive a 
Bank Enterprise Award;
    (i) Bank Enterprise Award (or BEA Program Award) means an award made 
to an Applicant pursuant to this part;
    (j) Bank Enterprise Award (or BEA) Program means the program 
authorized by section 114 of the Act and implemented under this part;
    (k) Baseline Period means an annual or semi-annual period specified 
in the applicable NOFA in which an Applicant has previously carried out 
Qualified Activities;
    (l) Commercial Real Estate Loan means an origination of a loan 
(other than an Affordable Housing Loan) that is secured by real estate 
and used to finance the acquisition or rehabilitation of a building, or 
the acquisition, construction and or development of property, used for 
commercial purposes;
    (m) Community Development Entity (or CDE) means any Qualified 
Community Development Entity that meets the requirements set forth at 
Internal Revenue Code (IRC) Sec. 45D(c) and that has been certified as 
such by the Fund;
    (n) Community Development Financial Institution (or CDFI) means an 
entity whose certification as a CDFI under Sec. 1805.201 of this 
chapter is in effect as of the end of the applicable Assessment Period 
(the Assessment Period in which the Qualified Activity takes place) and 
that meets the requirements of Sec. 1805.200 of this chapter at the 
time of the Qualified Activity, subject to the rest of this paragraph 
(n). If an Applicant is proposing to engage in CDFI Related Activities 
with an uncertified CDFI, the uncertified CDFI may apply for 
certification by submitting the information described in Sec. 
1805.201(b) of this chapter. In order for the Applicant to be eligible 
to receive a Bank Enterprise Award for its CDFI Related Activities, the 
required information with respect to the uncertified CDFI shall be 
submitted to the Fund as specified in the applicable NOFA, and 
certification must be completed by the end of the applicable Assessment 
Period as specified in the applicable NOFA. Notwithstanding anything in 
this paragraph (n) to the contrary, an Applicant may receive an award 
pursuant to this part for assistance provided to an uncertified CDFI 
that, at the time of the Qualified Activity, does not meet the 
requirements of Sec. 1805.200 of this chapter if the uncertified CDFI 
is certified by the end of the applicable Assessment Period.
    (o) CDFI Partner means a CDFI that has been provided assistance in 
the form of CDFI Related Activities by an Applicant;
    (p) CDFI Related Activities means Equity Investments, Equity-Like 
Loans and CDFI Support Activities;
    (q) CDFI Support Activity means assistance provided by an Applicant 
or its Subsidiary to a CDFI that meets criteria set forth by the Fund in 
the applicable NOFA, that is Integrally Involved in a Distressed 
Community, in the form of the origination of a loan, technical 
assistance, or deposits if such deposits are:
    (1) Uninsured and committed for a term of at least three years; or
    (2) Insured, committed for a term of at least three years, and 
provided at an interest rate that is materially (in the determination of 
the Fund) below market rates;
    (r) Community Services means the following forms of assistance 
provided by officers, employees or agents (contractual or otherwise) of 
the Applicant:
    (1) Provision of technical assistance, through consumer education 
programs, to Residents regarding managing their personal finances;
    (2) Provision of technical assistance and consulting services to 
newly formed small businesses located in the Distressed Community;
    (3) Provision of technical assistance to, or servicing the loans of, 
Low- or Moderate-Income homeowners and homeowners located in the 
Distressed Community; and
    (4) Other services provided to Low- and Moderate-Income individuals 
in a Distressed Community or enterprises Integrally Involved in a 
Distressed Community, as deemed appropriate by the Fund;
    (s) Deposit Liabilities means time or savings deposits or demand 
deposits, accepted from Residents at offices of the Applicant, or a 
Subsidiary of the

[[Page 576]]

Applicant, located within the Distressed Community. Depository 
Liabilities may only include deposits held by individuals in transaction 
accounts (i.e., demand deposits, NOW accounts, automated transfer 
service accounts and telephone or preauthorized transfer accounts) or 
nontransaction accounts (i.e., money market deposit accounts, other 
savings deposits and all time deposits), as defined by the Appropriate 
Federal Banking Agency;
    (t) Distressed Community means a geographic community which meets 
the minimum area eligibility requirements specified in Sec. 1806.200, 
and such additional criteria as may be set forth in the applicable NOFA;
    (u) Distressed Community Financing Activities means Affordable 
Housing Loans, Affordable Housing Development Loans and related Project 
Investments; Education Loans; Commercial Real Estate Loans and related 
Project Investments; Home Improvement Loans; and Small Business Loans 
and related Project Investments;
    (v) Education Loan means an advance of funds to a student, who is a 
Resident of a Distressed Community, for the purpose of financing a 
college or vocational education.
    (w) Electronic Transfer Account (or ETA) means an account meeting 
the requirements, and with respect to which the Applicant has satisfied 
the requirements, set forth in the Federal Register on July 16, 1999 at 
64 FR 38510, as such requirements may be amended from time to time;
    (x) Equity Investment means financial assistance provided by an 
Applicant or its Subsidiary to a CDFI, which CDFI meets such criteria as 
set forth in the applicable NOFA, in the form of a grant, a stock 
purchase, a purchase of a partnership interest, a purchase of a limited 
liability company membership interest, or any other investment deemed to 
be an Equity Investment by the Fund;
    (y) Equity-Like Loan means a loan provided by an Applicant or its 
Subsidiary to a CDFI, and made on such terms that it has characteristics 
of an Equity Investment (consistent with requirements of the Appropriate 
Federal Banking Agency), as such characteristics may be specified by the 
Fund in the applicable NOFA;
    (z) Financial Services means check-cashing, providing money orders 
and certified checks, automated teller machines, safe deposit boxes, new 
branches, and other comparable services as may be specified by the Fund 
in the applicable NOFA, that are provided by the Applicant to Low- and 
Moderate-Income individuals in the Distressed Community or enterprises 
Integrally Involved in the Distressed Community;
    (aa) First Account means a low-cost account and such other services 
designed to expand access to financial services for Low- and Moderate-
Income individuals, provided pursuant to grants made under the 
Consolidated Appropriations Act, 2001 (Public Law 106-554, 114 Stat. 
2763, 2763A-126), and the Department of Transportation and Related 
Agencies Appropriations Act, 2001 (Public Law 106-346, 114 Stat. 1356, 
1356A-44);
    (bb) Fund means the Community Development Financial Institutions 
Fund, established under section 104(a) of the Act (12 U.S.C. 4703(a));
    (cc) Geographic Units means counties (or equivalent areas), 
incorporated places, minor civil divisions that are units of local 
government, census tracts, block numbering areas, block groups, and 
American Indian or Alaska Native areas (as each is defined by the U.S. 
Bureau of the Census) or other areas deemed appropriate by the Fund;
    (dd) Home Improvement Loan means an advance of funds, either 
unsecured or secured by a one-to-four family residential property, the 
proceeds of which are used to improve the borrower's primary residence;
    (ee) Indian Reservation means a geographic area that meets the 
requirements of section 4(10) of the Indian Child Welfare Act of 1978 
(25 U.S.C. 1903(10)), and shall include land held by incorporated Native 
groups, regional corporations, and village corporations, as defined in 
and pursuant to the Alaska Native Claims Settlement Act (43 U.S.C. 1601 
et seq.), public domain Indian allotments, and former Indian 
Reservations in the State of Oklahoma;
    (ff) Individual Development Account (or IDA) means an account that 
meets the

[[Page 577]]

requirements, and with respect to the provision of which Applicant has 
satisfied the requirements, set forth in the U.S. Department of Health 
and Human Services Program Announcement OCS-2000-04, published on 
December 14, 1999 in the Federal Register at 64 FR 69824, as such 
requirements may be amended from time to time;
    (gg) Integrally Involved means (i) for a CDFI Partner, having 
provided at least five percent of financial transactions or dollars 
transacted (e.g., loans or equity investments as defined in 12 CFR 
1805.104(s)), or five percent of Development Service activities, in the 
Distressed Community identified by the Applicant or the CDFI Partner, as 
applicable, in each of the three calendar years preceding the date of 
the applicable NOFA, or having transacted at least ten percent of 
financial transactions (e.g., loans or equity investments) in said 
Distressed Community in at least one of the three calendar years 
preceding the date of the applicable NOFA, or demonstrating that it has 
attained at least five percent of market share for a particular product 
in said Distressed Community (such as at least five percent of home 
mortgages originated in said Distressed Community) in at least one of 
the three calendar years preceding the date of the applicable NOFA; or 
(ii) for a non-CDFI, having directed at least five percent of its 
business activities (e.g., investments, revenues, expenses, or other 
appropriate measures) to serving the Distressed Community identified by 
the Applicant in each of the three calendar years preceding the date of 
the applicable NOFA, or having provided at least ten percent of its 
business activities in said Distressed Community in at least one of the 
three calendar years preceding the date of the applicable NOFA.
    (hh) Low- and Moderate-Income means income that does not exceed 80 
percent of the median income of the area involved, as determined by the 
Secretary of Housing and Urban Development, with adjustments for smaller 
and larger families pursuant to section 102(a)(20) of the Housing and 
Community Development Act of 1974 (42 U.S.C. 5302(a)(20));
    (ii) Metropolitan Area means an area designated as such (as of the 
date of the application) by the Office of Management and Budget pursuant 
to 44 U.S.C. 3504(d)(3), 31 U.S.C. 1104(d), and Executive Order 10253 (3 
CFR, 1949-1953 Comp., p. 758), as amended;
    (jj) Notice of Funds Availability (or NOFA) means the public notice, 
published by the Fund in the Federal Register, that announces the 
availability of BEA Program funds for a particular funding round and 
that advises Applicants with respect to obtaining application materials, 
establishes application submission deadlines, and establishes other 
requirements or restrictions applicable for the particular funding round 
including, for example, application contents, further qualifications of 
Qualified Activities, Priority Factors, related policy directives, and 
any restrictions on Bank Enterprise Award amounts;
    (kk) Priority Factor means a numeric value assigned to each type of 
activity within each category of Qualified Activity, as may be 
established by the Fund in the applicable NOFA. A priority factor 
represents the Fund's assessment of the degree of difficulty, the extent 
of innovation, and the extent of benefits accruing to the Distressed 
Community for each type of activity;
    (ll) Project Investment means providing financial assistance in the 
form of a purchase of stock, limited partnership interest, other 
ownership instrument, or a grant to an entity that is Integrally 
Involved in a Distressed Community and formed for the sole purpose of 
engaging in a project or activity, approved by the Fund, including 
Affordable Housing Development Loans, Affordable Housing Loans, 
Commercial Real Estate Loans, and Small Business Loans (as defined in 
this part);
    (mm) Qualified Activities means CDFI Related Activities, Distressed 
Community Financing Activities, and Service Activities;
    (nn) Resident means an individual domiciled in a Distressed 
Community;
    (oo) Service Activities means the following activities that are 
carried out by the Applicant: Deposit Liabilities;

[[Page 578]]

Financial Services; Community Services; Targeted Financial Services; and 
Targeted Retail Savings/Investment Products;
    (pp) Small Business Loan means an origination of a loan used for 
commercial or industrial activities (other than an Affordable Housing 
Loan, Affordable Housing Development Loan, Commercial Real Estate Loan, 
Home Improvement Loan) to a business or farm that meets the size 
eligibility standards of the Small Business Administration's Development 
Company or Small Business Investment Company programs (13 CFR 121.301) 
or have gross annual revenues of $1 million or less;
    (qq) Subsidiary has the same meaning as in section 3 of the Federal 
Deposit Insurance Act, except that a CDFI shall not be considered a 
subsidiary of any insured depository institution or any depository 
institution holding company that controls less than 25 percent of any 
class of the voting shares of such corporation and does not otherwise 
control, in any manner, the election of a majority of directors of the 
corporation;
    (rr) Targeted Financial Services means ETAs, First Accounts, IDAs, 
and such other similar banking products as maybe specified by the Fund 
in the applicable NOFA;
    (ss) Targeted Retail Savings/Investment Products means certificates 
of deposit, mutual funds, life insurance and other similar savings or 
investment vehicles targeted to Low- and Moderate-Income Residents, as 
may be specified by the Fund in the applicable NOFA; and
    (tt) Unit of General Local Government means any city, county town, 
township, parish, village or other general-purpose political subdivision 
of a State or Commonwealth of the United States, or general-purpose 
subdivision thereof, and the District of Columbia.



Sec. 1806.104  Waiver authority.

    The Fund may waive any requirement of this part that is not required 
by law, upon a determination of good cause. Each such waiver will be in 
writing and supported by a statement of the facts and grounds forming 
the basis of the waiver. For a waiver in any individual case, the Fund 
must determine that application of the requirement to be waived would 
adversely affect the achievement of the purposes of the Act. For waivers 
of general applicability, the Fund will publish notification of granted 
waivers in the Federal Register.



Sec. 1806.105  OMB control number.

    The collection of information requirements in this part have been 
approved by the Office of Management and Budget and assigned OMB control 
number 1559-0005.



                            Subpart B_Awards



Sec. 1806.200  Community eligibility and designation.

    (a) General. If an Applicant proposes to carry out Service 
Activities, or Distressed Community Financing Activities, the Applicant 
shall designate one or more Distressed Communities in which it proposes 
to carry out those activities. If an Applicant proposes to carry out 
CDFI Support Activities, the Applicant shall provide evidence that the 
CDFI it is proposing to support is Integrally Involved in a Distressed 
Community. If an Applicant proposes to carry out CDFI Support 
Activities, Service Activities, or Distressed Community Financing 
Activities, the Applicant may designate different Distressed Communities 
for each category of activity.
    (b) Minimum area eligibility requirements. A Distressed Community 
must meet the following minimum area eligibility requirements:
    (1) Geographic requirements. A Distressed Community must be a 
geographic area:
    (i) That is located within the boundaries of a Unit of General Local 
Government;
    (ii) The boundaries of which are contiguous; and
    (A) The population of which must be at least 4,000 if any portion of 
the area is located within a Metropolitan Area with a population of 
50,000 or greater;
    (B) The population must be at least 1,000 if no portion of the area 
is located within such a Metropolitan Area; or
    (C) The area is located entirely within an Indian Reservation.

[[Page 579]]

    (2) Distress requirements. A Distressed Community must be a 
geographic area where:
    (i) At least 30 percent of the Residents have incomes which are less 
than the national poverty level, as published by the U.S. Bureau of the 
Census in the most recent decennial census for which data is available;
    (ii) The unemployment rate is at least 1.5 times greater than the 
national average, as determined by the U.S. Bureau of Labor Statistics' 
most recent data, including estimates of unemployment developed using 
the U.S. Bureau of Labor Statistics' Census Share calculation method; 
and
    (iii) Such additional requirements as may be specified by the Fund 
in the applicable NOFA.
    (c) Area designation. An Applicant shall designate an area as a 
Distressed Community by:
    (1) Selecting Geographic Units which individually meet the minimum 
area eligibility requirements set forth in paragraph (b) of this 
section; or
    (2) Selecting two or more Geographic Units which, in the aggregate, 
meet the minimum area eligibility requirements set forth in paragraph 
(b) of this section, provided that no Geographic Unit selected by the 
Applicant within the area has a poverty rate of less than 20 percent.
    (d) Designation and notification process. The Fund will provide a 
prospective Applicant with data and other information to help it 
identify areas eligible to be designated as a Distressed Community. 
Applicants shall submit designation materials as instructed in the 
applicable NOFA.



Sec. 1806.201  Measuring and reporting Qualified Activities.

    (a) General. An Applicant may receive a Bank Enterprise Award for 
engaging in any of the following categories of Qualified Activities 
during an Assessment Period: CDFI Related Activities, Distressed 
Community Financing Activities, or Service Activities. The Fund may 
further qualify such Qualified Activities in the applicable NOFA, 
including such additional geographic and transaction size limitations as 
the Fund deems appropriate.
    (b) Reporting Qualified Activities. An Applicant should report only 
its Qualified Activities for the category in which it is seeking a Bank 
Enterprise Award. For example, if an Applicant is seeking a Bank 
Enterprise Award for Distressed Community Financing Activities only, it 
should report only its activities for the Distressed Community Financing 
Activities category.
    (1) If an Applicant elects to apply for an award in either the CDFI 
Related Activities category or the Distressed Community Financing 
Activities category, it must report on all types of activity within that 
category except if an Applicant can provide a reasonable explanation, 
acceptable to the Fund in its sole discretion, as to why it cannot 
report on such category.
    (2) Exception. An Applicant may elect not to report each type of 
activity within the Service Activities category.
    (c) Area served. Service Activities and Distressed Community 
Financing Activities must serve a Distressed Community. An activity is 
considered to serve a Distressed Community if it is:
    (1) Undertaken in the Distressed Community; or
    (2) Provided to Low- and Moderate-Income Residents or enterprises 
Integrally Involved in the Distressed Community.
    (d) Limitations--(1) Low-Income Housing Tax Credits. Financial 
assistance provided by an Applicant for which the Applicant receives 
benefits through Low-Income Housing Tax Credits, authorized pursuant to 
Section 42 of the Internal Revenue Code, as amended (26 U.S.C. 42), 
shall not constitute an Equity Investment, Project Investment, or other 
Qualified Activity, for the purposes of calculating or receiving a Bank 
Enterprise Award.
    (2) New Markets Tax Credits. Financial assistance provided by an 
Applicant for which the Applicant receives benefits as an investor in a 
Community Development Entity that has received an allocation of New 
Markets Tax Credits, authorized pursuant to Section 45D of the Internal 
Revenue Code, as amended (26 U.S.C. 45D), shall not constitute an Equity 
Investment, Project Investment, or other Qualified Activity, for

[[Page 580]]

the purposes of calculating or receiving a Bank Enterprise Award.
    (3) Loan Renewals. Financial assistance provided by an Applicant 
shall not constitute a Qualified Activity, as defined in this part, for 
the purposes of calculating or receiving an award if, such activity has 
matured and is then renewed.
    (e) Measuring the Value of Qualified Activities. Subject to such 
additional or alternative valuations as the Fund may specify in the 
applicable NOFA, the Fund will assess the value of:
    (1) Equity Investments, Equity-Like Loans, loans, grants and 
certificates of deposits, at the original amount of such Equity 
Investments, Equity-Like Loans, loans, grants or certificates of 
deposits. Where a certificate of deposit matures and is then rolled over 
during the Baseline Period or the Assessment Period, as applicable, the 
Fund will assess the value of the full amount of the rolled over 
deposit. Where an existing loan is refinanced (a new loan is originated 
to pay off an existing loan, whether or not there is a change in the 
applicable loan terms), the Fund will only assess the value of any 
increase in the principal amount of the refinanced loan;
    (2) Project Investments at the original amount of the purchase of 
stock, limited partnership interest, other ownership interest, or grant;
    (3) Deposit Liabilities at the dollar amount deposited as measured 
by comparing (i) the net change in the amount of applicable funds on 
deposit at the Applicant during the Baseline Period with (ii) the net 
change in the amount of applicable funds on deposit at the Applicant 
during the Assessment Period, as described below:
    (i) The Applicant shall calculate the net change in deposits during 
the Baseline Period, by comparing the amount of applicable funds on 
deposit at the close of business the day before the beginning of the 
Baseline Period and at the close of business on the last day of the 
Baseline Period; and
    (ii) The Applicant shall calculate the net change in such deposits 
during the Assessment Period, by comparing the amount of applicable 
funds on deposit at the close of business the day before the beginning 
of the Assessment Period and at the close of business on the last day of 
the Assessment Period;
    (4) Financial Services and Targeted Financial Services based on the 
predetermined amounts as may be set forth by the Fund in the applicable 
NOFA; and
    (5) Financial Services (other than those for which the Fund has 
established a predetermined value), Community Services, and CDFI Support 
Activities consisting of technical assistance based on the 
administrative costs of providing such services.
    (f) Closed Transactions. A transaction shall be considered to have 
been carried out during the Baseline Period or the Assessment Period if 
the documentation evidencing the transaction:
    (1) Is executed on a date within the applicable Baseline Period or 
Assessment Period, respectively; and
    (2) Constitutes a legally binding agreement between the Applicant 
and a borrower or investee which specifies the final terms and 
conditions of the transaction, except that any contingencies included in 
the final agreement must be typical of such transaction and acceptable 
(both in the judgment of the Fund); and
    (3) An initial cash disbursement of loan or investment proceeds has 
occurred in a manner that is consistent with customary business 
practices and is reasonable given the nature of the transaction (as 
determined by the Fund) unless it is normal business practice to make no 
initial disbursement at closing and the Applicant demonstrates that the 
borrower has access to the proceeds, subject to reasonable conditions as 
may be determined by the Fund.
    (g) Reporting Period. An Applicant may only measure the amount of a 
Qualified Activity that it reasonably expects to disburse to an 
investee, borrower, or other recipient within one year of the end of the 
applicable Assessment Period, or such other period as may be set forth 
by the Fund in the applicable NOFA.



Sec. 1806.202  Estimated award amounts.

    (a) General. An Applicant shall calculate an estimated award amount 
that it shall submit to the Fund for

[[Page 581]]

consideration for a Bank Enterprise Award.
    (b) Award Percentages. The Fund will establish the award percentage 
for each category of Qualified Activities in the applicable NOFA. 
Applicable award percentages for activities undertaken by Applicants 
that are CDFIs will be equal to three times the award percentages for 
activities undertaken by Applicants that are not CDFIs.
    (c) Calculating the estimated award amount. The estimated award 
amount for each category of Qualified Activities will be equal to the 
applicable award percentage of the increase in the weighted value of 
such Qualified Activities between the Baseline Period and Assessment 
Period. The weighted value of the applicable Qualified Activities shall 
be calculated by:
    (1) subtracting the Baseline Period value of such Qualified Activity 
from the Assessment Period value of such Qualified Activity to yield a 
remainder; and
    (2) multiplying the remainder by the applicable Priority Factor (as 
set forth in the applicable NOFA).
    (d) Estimated Award Eligibility Review. The Fund will determine the 
eligibility of each transaction for which an Applicant has applied for a 
Bank Enterprise Award. Based upon this review, the Fund will calculate 
the actual award amount for which such Applicant is eligible.



Sec. 1806.203  Selection Process, actual award amounts.

    (a) Sufficient Funds Available to Cover Estimated Awards. All Bank 
Enterprise Awards are subject to the availability of funds. If the 
amount of funds available during a funding round is sufficient to cover 
all estimated award amounts for which Applicants are eligible, in the 
Fund's determination, and an Applicant meets all of the program 
requirements specified in this part, then such Applicant shall receive 
an actual award amount that is calculated by the Fund in the manner 
specified in Section 1806.202.
    (b) Insufficient Funds Available to Cover Estimated Awards. If the 
amount of funds available during a funding round is insufficient to 
cover all estimated award amounts for which Applicants are eligible, in 
the Fund's determination, then the Fund will select Awardees and 
determine actual award amounts based on the process described in this 
section.
    (c) Priority of Awards. The Fund will rank Applicants in each 
category of Qualified Activity according to the priorities described in 
this paragraph (c). All Applicants in the first priority category will 
be selected for Bank Enterprise Awards before Applicants in the second 
priority category. All Applicants in the first and second priority 
categories will be selected for Bank Enterprise Awards before Applicants 
in the third priority category. Selections within each priority category 
will be based on the Applicants' relative rankings within each such 
category, subject to the availability of funds.
    (1) First priority. If the amount of funds available during a 
funding round is insufficient for all estimated award amounts, first 
priority will be given to Applicants that propose to engage in CDFI 
Related Activities, ranked in the order set forth in the applicable 
NOFA.
    (2) Second priority. If the amount of funds available during a 
funding round is sufficient for all CDFI Related Activities but 
insufficient for all estimated award amounts, second priority will be 
given to Applicants that propose to engage in Distressed Community 
Financing Activities, ranked in the order set forth in the applicable 
NOFA.
    (3) Third Priority. If the amount of funds available during a 
funding round is sufficient for all CDFI Related Activities and all 
Distressed Community Financing Activities, but insufficient for all 
remaining estimated award amounts, third priority will be given to 
Applicants that propose to engage in Service Activities, ranked in the 
order set forth in the applicable NOFA.
    (d) Calculating actual award amounts. The Fund will determine actual 
award amounts based upon the availability of funds, increases in 
Qualified Activities from the Baseline to the Assessment Period, and an 
Applicant's priority ranking. If an Applicant receives an award for more 
than one priority category described in this section, the Fund will 
combine the award amounts into a single Bank Enterprise Award.

[[Page 582]]

    (e) Unobligated or deobligated funds. The Fund, in its sole 
discretion, may use any deobligated funds or funds not obligated during 
a funding round:
    (1) To select Applicants not previously selected, using the 
calculation and selection process contained in this part;
    (2) To make additional monies available for a subsequent funding 
round; or
    (3) As otherwise authorized by the Act.
    (f) Limitation. The Fund, in its sole discretion, may deny or limit 
the amount of an award for any reason.



Sec. 1806.204  Applications for Bank Enterprise Awards.

    (a) Notice of Funds Availability; Applications. Applicants shall 
submit applications for Bank Enterprise Awards in accordance with this 
section and the applicable NOFA. After receipt of an application, the 
Fund may request clarifying or technical information related to 
materials submitted as part of such application or to verify that 
Qualified Activities were carried out in the manner prescribed in this 
part.
    (b) Application contents. An application for a Bank Enterprise Award 
shall contain:
    (1) A completed worksheet that reports the increases in Qualified 
Activities actually carried out during the Baseline and Assessment 
Period. If an Applicant has merged with another institution during the 
Assessment Period, it shall submit a separate Baseline Period worksheet 
for each subject institution and one Assessment Period worksheet that 
reports the activities of the merged institutions. If such a merger is 
unexpectedly delayed beyond the Assessment Period, the Fund reserves the 
right to withhold distribution of an award until the merger has been 
completed;
    (2) A report of Qualified Activities that were closed during the 
Assessment Period. Such report shall describe the original amount, 
census tract served, and the dates of execution, initial disbursement, 
and final disbursement of the instrument;
    (3) With respect to:
    (i) All CDFI Related Activities; and
    (ii) Distressed Community Financing Activities where the original 
amount of the value of the activity is $250,000 or greater, 
documentation that meets the conditions described in Sec. 1806.201(f);
    (4) Information necessary for the Fund to complete its environmental 
review requirements pursuant to part 1815 of this chapter;
    (5) Certifications that the information provided to the Fund is true 
and accurately reflects the Qualified Activities carried out during an 
Assessment Period; and that the Applicant will comply with all relevant 
provisions of this chapter and all applicable Federal, State, and local 
laws, ordinances, regulations, policies, guidelines, and requirements;
    (6) In the case of an Applicant proposing to engage in Service 
Activities, Distressed Community Financing Activities, a completed 
Distressed Community Designation worksheet, and a map and narrative 
description of the Distressed Community;
    (7) Information that indicates that each CDFI to which an Applicant 
has provided CDFI Support Activities is Integrally Involved in a 
Distressed Community, a completed Distressed Community Designation 
worksheet, and a map and narrative description of the Distressed 
Community; and
    (8) Any other information requested by the Fund, or specified by the 
Fund in the applicable NOFA or the Bank Enterprise Award application, in 
order to document or otherwise assess the validity of information 
provided by the Applicant to the Fund.



              Subpart C_Terms and Conditions of Assistance



Sec. 1806.300  Award Agreement; sanctions.

    (a) General. After the Fund selects an Awardee, the Fund and the 
Awardee will enter into an Award Agreement. The Award Agreement shall 
provide that an Awardee shall:
    (1) Carry out its Qualified Activities in accordance with applicable 
law, the approved application, and all other applicable requirements;
    (2) Comply with such other terms and conditions (including 
recordkeeping and reporting requirements) that the Fund may establish; 
and

[[Page 583]]

    (3) Not receive any monies until the Fund has determined that the 
Awardee has fulfilled all applicable requirements.
    (b) Sanctions. In the event of any fraud, misrepresentation, or 
noncompliance with the terms of the Award Agreement by the Awardee, the 
Fund may terminate, reduce, or recapture the award, bar the Awardee and/
or its Affiliates from applying for an award from the Fund for a period 
to be decided by the Fund in its sole discretion, and pursue any other 
available legal remedies.
    (c) Compliance with Other CDFI Fund Awards. In the event that an 
Awardee or its Subsidiary or Affiliate is not in compliance, as 
determined by the Fund, with the terms and conditions of any other award 
under the Bank Enterprise Award Program or any component of the 
Community Development Financial Institutions Program, the Fund may, in 
its sole discretion, reject an application for or withhold disbursement 
(either initial or subsequent) on a Bank Enterprise Award.
    (d) Notice. Prior to imposing any sanctions pursuant to this section 
or an Award Agreement, the Fund will provide the Awardee with written 
notice of the proposed sanction and an opportunity to comment. Nothing 
in this section, however, will provide an Awardee with the right to any 
formal or informal hearing or comparable proceeding not otherwise 
required by law.



Sec. 1806.302  Compliance with government requirements.

    In carrying out its responsibilities pursuant to an Award Agreement, 
the Awardee shall comply with all applicable Federal, State, and local 
laws, regulations and ordinances, OMB Circulars, and Executive Orders.



Sec. 1806.303  Fraud, waste and abuse.

    Any person who becomes aware of the existence or apparent existence 
of fraud, waste, or abuse of assistance provided under this part should 
report such incidences to the Office of Inspector General of the U.S. 
Department of the Treasury.



Sec. 1806.304  Books of account, records and government access.

    An Awardee shall submit such financial and activity reports, 
records, statements, and documents at such times, in such forms, and 
accompanied by such supporting data, as required by the Fund and the 
U.S. Department of the Treasury to ensure compliance with the 
requirements of this part. The United States Government, including the 
U.S. Department of the Treasury, the Comptroller General, and its duly 
authorized representatives, shall have full and free access to the 
Awardee's offices and facilities, and all books, documents, records, and 
financial statements relevant to the award of the Federal funds and may 
copy such documents as they deem appropriate.



Sec. 1806.305  Retention of records.

    An Awardee shall comply with all record retention requirements as 
set forth in OMB Circular A-110 (as applicable). This circular may be 
obtained from Office of Administration, Publications Office, 725 17th 
Street, NW., Room 2200, New Executive Office Building, Washington, DC 
20503.



PART 1815_ENVIRONMENTAL QUALITY--Table of Contents




Sec.
1815.100 Policy.
1815.101 Purpose.
1815.102 Definitions.
1815.103 Designation of responsible Fund official.
1815.104 Specific responsibilities of the designated Fund official.
1815.105 Major decision points.
1815.106 Supplemental environmental review.
1815.107 Determination of review requirement.
1815.108 Actions that normally require an EIS.
1815.109 Preparation of an EIS.
1815.110 Categorical exclusion.
1815.111 Actions that require an environmental assessment.
1815.112 Preparation of an environmental assessment.
1815.113 Public involvement.
1815.114 Fund decisionmaking procedures.
1815.115 OMB control number.

    Authority: 12 U.S.C. 4703, 4717; 42 U.S.C. 4332; Chapter X, Pub L. 
104-19, 109 Stat. 237 (12 U.S.C. 4703 note).

[[Page 584]]


    Source: 60 FR 54130, Oct. 19, 1995, unless otherwise noted.



Sec. 1815.100  Policy.

    The Community Development Financial Institution Fund's policy is to 
ensure that environmental factors and concerns are given appropriate 
consideration in decisions and actions by the Fund and to reduce any 
possible adverse effects of Fund decisions and actions upon the quality 
of the human environment.



Sec. 1815.101  Purpose.

    This part supplements Council on Environmental Quality regulations 
for implementing the procedural provisions of the National Environmental 
Policy Act of 1969, as amended, and describe how the Community 
Development Financial Institutions Fund intends to consider 
environmental factors and concerns in the Fund's decisionmaking process. 
This part applies only to the Fund and not to any other bureau, office 
or organization within the Department of the Treasury.



Sec. 1815.102  Definitions.

    (a) For the purpose of this part:
    (1) Act means the Community Development Banking and Financial 
Institutions Act (12 U.S.C. 4701 et seq.);
    (2) Application means a request for assistance from the Fund 
submitted pursuant to parts 1805 or 1806 of this chapter;
    (3) CEQ regulations means the regulations for implementing the 
procedural provisions of the National Environmental Policy Act of 1969 
as promulgated by the Council on Environmental Quality, Executive Office 
of the President, appearing at 40 CFR parts 1500-1508 and to which this 
part is a supplement;
    (4) Comprehensive Business Plan means a document submitted as part 
of an Application pursuant to part 1805 of this chapter which describes 
an organization's proposed process for offering products or services to 
a particular market, including organizational requirements needed to 
serve that market effectively;
    (5) Consumer Loans means loans to one or more individuals for 
household, family or other personal expenditures;
    (6) Decisionmaker means the Director of the Fund, unless an 
appropriate delegation of authority has been made;
    (7) EIS means an environmental impact statement as defined in 40 CFR 
1508.11 of the CEQ regulations;
    (8) Fund means the Community Development Financial Institutions 
Fund, established under section 104(a) of the Act (12 U.S.C. 4703(a));
    (9) NEPA means the National Environmental Policy Act, as amended, 42 
U.S.C. 4321-4335; and
    (10) Project means all closely related actions relating to a 
specific site.
    (b) Other terms used in this part are defined in 40 CFR part 1508 of 
the CEQ regulations.



Sec. 1815.103  Designation of responsible Fund official.

    The Director of the Fund is the designated Fund official responsible 
for implementation and operation of the Fund's policies and procedures 
on environmental quality and control.



Sec. 1815.104  Specific responsibilities of the designated Fund official.

    The designated Fund official shall:
    (a) Coordinate the formulation and revision of Fund policies and 
procedures on matters pertaining to environmental quality and control;
    (b) Establish and maintain working relationships with relevant 
government agencies (including Federal, state and local) concerned with 
environmental matters;
    (c) Develop procedures within the Fund's planning and decisionmaking 
processes to ensure that environmental factors are properly considered 
in all proposals and decisions in accordance with this part;
    (d) Develop, monitor, and review the Fund's implementation of 
standards, procedures, and working relationships for protection and 
enhancement of environmental quality and compliance with applicable laws 
and regulations;
    (e) Monitor processes to ensure that the Fund's procedures regarding 
consideration of environmental quality are achieving their intended 
purposes;
    (f) Advise the officers and employees of the Fund of technical and 
management requirements of environmental analysis, of appropriate 
expertise

[[Page 585]]

available, and, with the assistance of the Department of the Treasury's 
Office of the General Counsel, of relevant legal developments;
    (g) Monitor the consideration and documentation of the environmental 
aspects of Fund planning and decisionmaking processes by appropriate 
officers and employees of the Fund;
    (h) Ensure that all environmental assessments and, where required, 
all EISs are prepared in accordance with the appropriate regulations 
adopted by the Council on Environmental Quality and the Fund;
    (i) Ensure that, as required, a legislative EIS is submitted with 
all proposed legislation;
    (j) Consolidate and transmit to appropriate parties the Fund's 
comments on EISs and other environmental reports prepared by other 
agencies;
    (k) Acquire information and prepare appropriate reports on 
environmental matters required of the Fund; and
    (l) Coordinate the Fund's efforts to make available to other parties 
information and advice on the Fund's policies for protecting and 
enhancing the quality of the environment.



Sec. 1815.105  Major decision points.

    (a) The possible environmental effects of an Application, including 
any Comprehensive Business Plan, must be considered along with 
technical, economic, and other factors throughout the decisionmaking 
process. For most Fund actions there are two distinct stages in the 
decisionmaking process:
    (1) Preliminary approval stage, at which point applications are 
selected for funding; and
    (2) Final approval and funding stage.
    (b) Environmental review shall be integrated into the decisionmaking 
process of the Fund as follows:
    (1) During the preliminary approval stage, the designated Fund 
official shall determine whether the Application proposes actions which 
are categorically excluded, or normally require an environmental 
assessment or an EIS;
    (2) If the designated Fund official determines that the Application 
proposes actions which normally require an environmental assessment or 
an EIS, the applicant shall be informed that the final approval and 
funding, in addition to any other conditions, is contingent upon:
    (i) The applicant supplying to the Fund all information necessary 
for the Fund to perform or have performed any environmental review 
required by this part;
    (ii) The applicant not using any Fund financial assistance to 
perform any of such proposed actions in the Application that affect the 
physical environment until Fund approval is received; and
    (iii) The outcome of the environmental review required by this part;
    (3) The Fund will perform or have performed the environmental 
reviews required by this part;
    (4) A preliminary approval of an Application may be withdrawn or 
further conditions may be imposed based upon the outcome of an 
environmental review required by this part; and
    (5) If the designated Fund official determines that the Application 
proposes actions that require an environmental assessment or an EIS, the 
environmental assessment and/or EIS must be completed and circulated 
prior to the use of Federal funds for any activity that triggers the 
need for an environmental assessment and/or EIS.



Sec. 1815.106  Supplemental environmental review.

    (a) The designated Fund official shall determine whether the 
proposed actions in the Application are sufficiently definite to perform 
a meaningful environmental review during the preliminary approval stage.
    (b) If the designated Fund official determines that the Application 
is sufficiently definite to perform a meaningful environmental review 
during the preliminary approval stage, no conditions for supplemental 
environmental review shall be imposed.
    (c) If the designated Fund official determines that the Application, 
or any part of the Application, is not sufficiently definite to complete 
a meaningful environmental review during the preliminary approval stage, 
the Fund shall require a supplemental environmental review prior to the 
taking of any action directly using Fund financial assistance that is 
not categorically

[[Page 586]]

excluded from environmental review or for which an environmental 
assessment or EIS has not been approved by the Fund. The applicant shall 
notify the designated Fund official when proposing any action requiring 
a supplemental environmental review and shall supply to the Fund all 
information necessary for the Fund to perform the supplemental 
environmental review. The Fund shall perform or have performed such a 
supplemental environmental review. The applicant shall not use any Fund 
financial assistance to perform any of the proposed actions requiring a 
supplemental environmental review that affect the physical environment 
until Fund approval for such action is received.



Sec. 1815.107  Determination of review requirement.

    In deciding whether to prepare an EIS, the designated Fund official 
shall determine whether the proposal is one that normally:
    (a) Requires an EIS;
    (b) Requires an environmental assessment, but not necessarily an 
EIS; or
    (c) Does not require either an EIS or an environmental assessment 
(categorical exclusion).



Sec. 1815.108  Actions that normally require an EIS.

    (a) If necessary, the Fund shall perform or have performed an 
environmental assessment to determine if an Application, or any portion 
of an Application, requires an EIS. However, it may be readily apparent 
that a proposed action in an Application will have a significant impact 
on the environment; in such cases, an environmental assessment is not 
required and the Fund shall immediately begin to prepare, or have 
prepared, an EIS.
    (b) An EIS normally is required where an Application proposes to 
directly use financial assistance from the Fund for any Project that 
would:
    (1) Remove, demolish, convert, or substantially rehabilitate 2,500 
or more existing housing units, or would result in the construction or 
installation of 2,500 or more new housing units, or which would provide 
sites for 2,500 or more new housing units; or
    (2) Remove, demolish, convert, or substantially rehabilitate 
1,500,000 square feet or more of commercial space, or would result in 
the construction or installation of 1,500,000 square feet or more of new 
commercial space, or which would provide sites for 1,500,000 square feet 
or more of new commercial space.



Sec. 1815.109  Preparation of an EIS.

    (a) If the Fund determines that an EIS should be prepared, it shall 
publish a notice of intent in the Federal Register in accordance with 40 
CFR 1501.7 and 1508.22 of the CEQ regulations. After publishing the 
notice of intent, the Fund shall begin to prepare or have prepared the 
EIS. Procedures for preparing the EIS are set forth in 40 CFR part 1502 
of the CEQ regulations.
    (b) The Fund may supplement a draft or final EIS at any time. The 
Fund shall prepare or have prepared a supplement to either the draft or 
final EIS when:
    (1) Substantial changes are proposed to an action contained in the 
draft or final EIS that are relevant to environmental concerns or there 
are significant new circumstances or information relevant to 
environmental concerns and bearing on the proposed action or its 
impacts; or
    (2) Actions are proposed which relate or are similar to other 
action(s) taken or proposed and that together have a cumulatively 
significant impact on the environment.



Sec. 1815.110  Categorical exclusion.

    The CEQ regulations provide for the categorical exclusion of actions 
that do not individually or cumulatively have a significant effect on 
the human environment (40 CFR 1508.4). Therefore, neither an 
environmental assessment nor an EIS is required for such actions. An 
action which falls into one of the categories below may still require 
the preparation of an EIS or environmental assessment if the designated 
Fund official determines it meets the criteria stated in Sec. 1815.109 
or involves extraordinary circumstances that may have a significant 
environmental effect. The Fund has determined the following categorical 
exclusions:

[[Page 587]]

    (a) Actions directly related to the administration or operation of 
the Fund (e.g. personnel actions, including, but not limited to, staff 
recruitment and training; purchase of goods and services for the Fund, 
including, but not limited to, furnishings, equipment, supplies and 
services; space acquisition; property management; and security);
    (b) Actions directly related to and implementing proposals for which 
an environmental assessment or an environmental assessment and EIS have 
been prepared;
    (c) Actions directly related to the granting or receipt of Bank 
Enterprise Act awards pursuant to part 1806 of this chapter;
    (d) Actions directly related to training and/or technical 
assistance;
    (e) Projects for the acquisition, disposition, rehabilitation and/or 
modernization of 500 existing housing units or less when all the 
following conditions are met:
    (1) Unit density is not increased more than 20 percent;
    (2) The Project does not involve changes in land use from 
nonresidential to residential;
    (3) The estimated cost of rehabilitation is less than 75 percent of 
the total estimated cost of replacement after rehabilitation; and
    (4) The Project does not involve the demolition of one or more 
buildings containing the primary use served by the project that, 
together, have more than 20 percent of the square footage of the 
Project;
    (f) Projects for the construction of 200 housing units or less when 
all the following conditions are met:
    (1) The Project does not involve changes in existing land use from 
nonresidential to residential; and
    (2) The Project does not involve the demolition of one or more 
buildings containing the primary use served by the project that, 
together, have more than 20 percent of the square footage of the 
Project;
    (g) Projects for the acquisition, disposition, rehabilitation and/or 
modernization of 200,000 square feet or less of existing commercial 
space when all the following conditions are met:
    (1) The Project does not involve changes in existing land use from 
residential to nonresidential;
    (2) The estimated cost of rehabilitation is less than 75 percent of 
the total estimated cost of replacement after rehabilitation; and
    (3) The Project does not involve the demolition of more than 10,000 
square feet of commercial space containing the primary use served by the 
Project;
    (h) Projects for the construction of 100,000 square feet or less of 
commercial space when all the following conditions are met:
    (1) The Project does not involve changes in existing land use from 
residential to nonresidential: and
    (2) The Project does not involve the demolition of more than 10,000 
square feet of commercial space containing the primary use served by the 
Project;
    (i) Projects for the acquisition of an existing structure, provided 
that the property to be acquired is in place and will be retained in the 
same use;
    (j) Projects involving Fund financial assistance of $1,000,000 or 
less;
    (k) Actions directly related to the provision of residential tenant-
based rental assistance, Consumer Loans, health care, child care, 
educational, cultural and/or social services;
    (l) Actions involving Fund financial assistance that is used to 
increase the permanent capital and/or liquidity of an applicant;
    (m) Actions where no use of Federal funds is involved in the 
activity or Project; and
    (n) Actions directly related to the provision of working capital, 
the acquisition of machinery and equipment or the purchase of inventory, 
raw materials or supplies.



Sec. 1815.111  Actions that require an environmental assessment.

    If a Project or action is not one that normally requires an EIS and 
does not qualify for categorical exclusion, the Fund shall prepare, or 
have prepared, an environmental assessment.



Sec. 1815.112  Preparation of an environmental assessment.

    (a) The Fund shall begin the preparation of an environmental 
assessment as early as possible after the designated

[[Page 588]]

Fund official has determined that it is required. The Fund may prepare 
an environmental assessment at any time to assist planning and 
decisionmaking.
    (b) An environmental assessment is a concise public document used to 
determine whether to prepare an EIS. An environmental assessment aids in 
complying with the NEPA when no EIS is necessary, and it facilitates the 
preparation of an EIS, if one is necessary. The environmental assessment 
shall contain brief discussions of the following topics:
    (1) Purpose and need for the proposed action;
    (2) Description of the proposed action;
    (3) Alternatives considered, including the no action alternative;
    (4) Environmental effects of the proposed action and alternative 
actions; and
    (5) Listing of agencies, organizations or persons consulted.
    (c) The most important or significant environmental consequences and 
effects on the areas listed below should be addressed in the 
environmental assessment. Only those areas which are specifically 
relevant to the particular proposal should be addressed. Those areas 
should be addressed in as much detail as is necessary to allow an 
analysis of the alternatives and the proposal. The areas to be 
considered are the following:
    (1) Natural/ecological features (such as floodplain, wetlands, 
coastal zones, wildlife refuges, and endangered species);
    (2) Air quality;
    (3) Sound levels;
    (4) Water supply, wastewater treatment and water runoff;
    (5) Energy requirements and conservation;
    (6) Solid waste;
    (7) Transportation;
    (8) Community facilities and services;
    (9) Social and economic;
    (10) Historic and aesthetic; and
    (11) Other relevant factors.
    (d) If the Fund completes an environmental assessment and determines 
that an EIS is not required, then the Fund shall prepare a finding of no 
significant impact. The finding of no significant impact shall be made 
available to the public by the Fund as specified in 40 CFR 1506.6 of the 
CEQ regulations.



Sec. 1815.113  Public involvement.

    All information collected by the Fund pursuant to this part shall be 
available to the public consistent with the CEQ regulations. Interested 
persons may obtain information concerning any pending EIS or any other 
element of the environmental review process of the Fund by contacting 
the Community Development Financial Institutions Fund, Department of the 
Treasury, 1500 Pennsylvania Avenue NW., room 5116, Washington, DC 20220, 
or such other contact entity designated by the Fund.



Sec. 1815.114  Fund decisionmaking procedures.

    To ensure that at major decisionmaking points all relevant 
environmental concerns are considered by the Decisionmaker, the 
following procedures are established:
    (a) An environmental document, i.e., the EIS, environmental 
assessment, finding of no significant impact, or notice of intent, in 
addition to being prepared at the earliest point in the decisionmaking 
process, shall accompany the relevant proposal or action through the 
Fund's decisionmaking process to ensure adequate consideration of 
environmental factors;
    (b) The Decisionmaker shall consider in its decisionmaking process 
only those alternatives discussed in the relevant environmental 
documents. Also, where an EIS has been prepared, the decisionmaker shall 
consider all comments received during any comment process and all 
alternatives described in the EIS. A written record of the consideration 
of alternatives during the decisionmaking process shall be maintained; 
and
    (c) Any environmental document prepared for a proposal or action 
shall be made part of the record of any formal rulemaking by the Fund.



Sec. 1815.115  OMB control number.

    The collection of information requirements in this part have been 
approved by the Office of Management and Budget and assigned OMB control

[[Page 589]]

number 1505-0153 (expires September 30, 1998).

[[Page 591]]



                              FINDING AIDS




  --------------------------------------------------------------------

  A list of CFR titles, subtitles, chapters, subchapters and parts and 
an alphabetical list of agencies publishing in the CFR are included in 
the CFR Index and Finding Aids volume to the Code of Federal Regulations 
which is published separately and revised annually.

  Material Approved for Incorporation by Reference
  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 593]]

            Material Approved for Incorporation by Reference

                     (Revised as of January 1, 2008)

  The Director of the Federal Register has approved under 5 U.S.C. 
552(a) and 1 CFR Part 51 the incorporation by reference of the following 
publications. This list contains only those incorporations by reference 
effective as of the revision date of this volume. Incorporations by 
reference found within a regulation are effective upon the effective 
date of that regulation. For more information on incorporation by 
reference, see the preliminary pages of this volume.


12 CFR (PART 900-END)

THRIFT DEPOSITOR OVERSIGHT BOARD
                                                                  12 CFR
Uniform Commercial Code, Revised Article 8,             1511.1; 1511.2; 
  Investment Securities, (with Conforming and                     1511.3
  Miscellaneous Amendments to Articles 1,3,4,5,9, 
  and 10) 1994 Official Text.

[[Page 595]]



                    Table of CFR Titles and Chapters




                     (Revised as of January 1, 2008)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
        IV  Miscellaneous Agencies (Parts 400--500)

                    Title 2--Grants and Agreements

            Subtitle A--Office of Management and Budget Guidance 
                for Grants and Agreements
         I  Office of Management and Budget Governmentwide 
                Guidance for Grants and Agreements (Parts 100--
                199)
        II  Office of Management and Budget Circulars and Guidance 
                (200--299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements
       III  Department of Health and Human Services (Parts 300-- 
                399)
        VI  Department of State (Parts 600--699)
      VIII  Department of Veterans Affairs (Parts 800--899)
        IX  Department of Energy (Parts 900--999)
        XI  Department of Defense (Parts 1100--1199)
       XIV  Department of the Interior (Parts 1400--1499)
        XV  Environmental Protection Agency (Parts 1500--1599)
     XVIII  National Aeronautics and Space Administration (Parts 
                1880--1899)
      XXII  Corporation for National and Community Service (Parts 
                2200--2299)
      XXIV  Housing and Urban Development (Parts 2400--2499)
       XXV  National Science Foundation (Parts 2500--2599)
      XXVI  National Archives and Records Administration (Parts 
                2600--2699)
     XXVII  Small Business Administration (Parts 2700--2799)
    XXVIII  Department of Justice (Parts 2800--2899)
     XXXII  National Endowment for the Arts (Parts 3200--3299)
    XXXIII  National Endowment for the Humanities (Parts 3300--
                3399)
      XXXV  Export-Import Bank of the United States (Parts 3500--
                3599)
    XXXVII  Peace Corps (Parts 3700--3799)

[[Page 596]]

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  Government Accountability Office (Parts 1--99)

                   Title 5--Administrative Personnel

         I  Office of Personnel Management (Parts 1--1199)
        II  Merit Systems Protection Board (Parts 1200--1299)
       III  Office of Management and Budget (Parts 1300--1399)
         V  The International Organizations Employees Loyalty 
                Board (Parts 1500--1599)
        VI  Federal Retirement Thrift Investment Board (Parts 
                1600--1699)
      VIII  Office of Special Counsel (Parts 1800--1899)
        IX  Appalachian Regional Commission (Parts 1900--1999)
        XI  Armed Forces Retirement Home (Parts 2100--2199)
       XIV  Federal Labor Relations Authority, General Counsel of 
                the Federal Labor Relations Authority and Federal 
                Service Impasses Panel (Parts 2400--2499)
        XV  Office of Administration, Executive Office of the 
                President (Parts 2500--2599)
       XVI  Office of Government Ethics (Parts 2600--2699)
       XXI  Department of the Treasury (Parts 3100--3199)
      XXII  Federal Deposit Insurance Corporation (Parts 3200--
                3299)
     XXIII  Department of Energy (Parts 3300--3399)
      XXIV  Federal Energy Regulatory Commission (Parts 3400--
                3499)
       XXV  Department of the Interior (Parts 3500--3599)
      XXVI  Department of Defense (Parts 3600-- 3699)
    XXVIII  Department of Justice (Parts 3800--3899)
      XXIX  Federal Communications Commission (Parts 3900--3999)
       XXX  Farm Credit System Insurance Corporation (Parts 4000--
                4099)
      XXXI  Farm Credit Administration (Parts 4100--4199)
    XXXIII  Overseas Private Investment Corporation (Parts 4300--
                4399)
      XXXV  Office of Personnel Management (Parts 4500--4599)
        XL  Interstate Commerce Commission (Parts 5000--5099)
       XLI  Commodity Futures Trading Commission (Parts 5100--
                5199)
      XLII  Department of Labor (Parts 5200--5299)
     XLIII  National Science Foundation (Parts 5300--5399)
       XLV  Department of Health and Human Services (Parts 5500--
                5599)
      XLVI  Postal Rate Commission (Parts 5600--5699)
     XLVII  Federal Trade Commission (Parts 5700--5799)
    XLVIII  Nuclear Regulatory Commission (Parts 5800--5899)
         L  Department of Transportation (Parts 6000--6099)
       LII  Export-Import Bank of the United States (Parts 6200--
                6299)
      LIII  Department of Education (Parts 6300--6399)

[[Page 597]]

       LIV  Environmental Protection Agency (Parts 6400--6499)
        LV  National Endowment for the Arts (Parts 6500--6599)
       LVI  National Endowment for the Humanities (Parts 6600--
                6699)
      LVII  General Services Administration (Parts 6700--6799)
     LVIII  Board of Governors of the Federal Reserve System 
                (Parts 6800--6899)
       LIX  National Aeronautics and Space Administration (Parts 
                6900--6999)
        LX  United States Postal Service (Parts 7000--7099)
       LXI  National Labor Relations Board (Parts 7100--7199)
      LXII  Equal Employment Opportunity Commission (Parts 7200--
                7299)
     LXIII  Inter-American Foundation (Parts 7300--7399)
      LXIV  Merit Systems Protection Board (Parts 7400--7499)
       LXV  Department of Housing and Urban Development (Parts 
                7500--7599)
      LXVI  National Archives and Records Administration (Parts 
                7600--7699)
     LXVII  Institute of Museum and Library Services (Parts 7700--
                7799)
      LXIX  Tennessee Valley Authority (Parts 7900--7999)
      LXXI  Consumer Product Safety Commission (Parts 8100--8199)
    LXXIII  Department of Agriculture (Parts 8300--8399)
     LXXIV  Federal Mine Safety and Health Review Commission 
                (Parts 8400--8499)
     LXXVI  Federal Retirement Thrift Investment Board (Parts 
                8600--8699)
    LXXVII  Office of Management and Budget (Parts 8700--8799)
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Parts 
                9700--9799)
      XCIX  Department of Defense Human Resources Management and 
                Labor Relations Systems (Department of Defense--
                Office of Personnel Management) (Parts 9900--9999)

                      Title 6--Domestic Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 0--99)
         X  Privacy and Civil Liberties Oversight Board (Parts 
                1000--1099)

                         Title 7--Agriculture

            Subtitle A--Office of the Secretary of Agriculture 
                (Parts 0--26)
            Subtitle B--Regulations of the Department of 
                Agriculture
         I  Agricultural Marketing Service (Standards, 
                Inspections, Marketing Practices), Department of 
                Agriculture (Parts 27--209)
        II  Food and Nutrition Service, Department of Agriculture 
                (Parts 210--299)
       III  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 300--399)

[[Page 598]]

        IV  Federal Crop Insurance Corporation, Department of 
                Agriculture (Parts 400--499)
         V  Agricultural Research Service, Department of 
                Agriculture (Parts 500--599)
        VI  Natural Resources Conservation Service, Department of 
                Agriculture (Parts 600--699)
       VII  Farm Service Agency, Department of Agriculture (Parts 
                700--799)
      VIII  Grain Inspection, Packers and Stockyards 
                Administration (Federal Grain Inspection Service), 
                Department of Agriculture (Parts 800--899)
        IX  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Fruits, Vegetables, Nuts), Department 
                of Agriculture (Parts 900--999)
         X  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Milk), Department of Agriculture 
                (Parts 1000--1199)
        XI  Agricultural Marketing Service (Marketing Agreements 
                and Orders; Miscellaneous Commodities), Department 
                of Agriculture (Parts 1200--1299)
       XIV  Commodity Credit Corporation, Department of 
                Agriculture (Parts 1400--1499)
        XV  Foreign Agricultural Service, Department of 
                Agriculture (Parts 1500--1599)
       XVI  Rural Telephone Bank, Department of Agriculture (Parts 
                1600--1699)
      XVII  Rural Utilities Service, Department of Agriculture 
                (Parts 1700--1799)
     XVIII  Rural Housing Service, Rural Business-Cooperative 
                Service, Rural Utilities Service, and Farm Service 
                Agency, Department of Agriculture (Parts 1800--
                2099)
        XX  Local Television Loan Guarantee Board (Parts 2200--
                2299)
      XXVI  Office of Inspector General, Department of Agriculture 
                (Parts 2600--2699)
     XXVII  Office of Information Resources Management, Department 
                of Agriculture (Parts 2700--2799)
    XXVIII  Office of Operations, Department of Agriculture (Parts 
                2800--2899)
      XXIX  Office of Energy Policy and New Uses, Department of 
                Agriculture (Parts 2900--2999)
       XXX  Office of the Chief Financial Officer, Department of 
                Agriculture (Parts 3000--3099)
      XXXI  Office of Environmental Quality, Department of 
                Agriculture (Parts 3100--3199)
     XXXII  Office of Procurement and Property Management, 
                Department of Agriculture (Parts 3200--3299)
    XXXIII  Office of Transportation, Department of Agriculture 
                (Parts 3300--3399)
     XXXIV  Cooperative State Research, Education, and Extension 
                Service, Department of Agriculture (Parts 3400--
                3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)

[[Page 599]]

     XXXVI  National Agricultural Statistics Service, Department 
                of Agriculture (Parts 3600--3699)
    XXXVII  Economic Research Service, Department of Agriculture 
                (Parts 3700--3799)
   XXXVIII  World Agricultural Outlook Board, Department of 
                Agriculture (Parts 3800--3899)
       XLI  [Reserved]
      XLII  Rural Business-Cooperative Service and Rural Utilities 
                Service, Department of Agriculture (Parts 4200--
                4299)

                    Title 8--Aliens and Nationality

         I  Department of Homeland Security (Immigration and 
                Naturalization) (Parts 1--499)
         V  Executive Office for Immigration Review, Department of 
                Justice (Parts 1000--1399)

                 Title 9--Animals and Animal Products

         I  Animal and Plant Health Inspection Service, Department 
                of Agriculture (Parts 1--199)
        II  Grain Inspection, Packers and Stockyards 
                Administration (Packers and Stockyards Programs), 
                Department of Agriculture (Parts 200--299)
       III  Food Safety and Inspection Service, Department of 
                Agriculture (Parts 300--599)

                           Title 10--Energy

         I  Nuclear Regulatory Commission (Parts 0--199)
        II  Department of Energy (Parts 200--699)
       III  Department of Energy (Parts 700--999)
         X  Department of Energy (General Provisions) (Parts 
                1000--1099)
      XIII  Nuclear Waste Technical Review Board (Parts 1303--
                1399)
      XVII  Defense Nuclear Facilities Safety Board (Parts 1700--
                1799)
     XVIII  Northeast Interstate Low-Level Radioactive Waste 
                Commission (Parts 1800--1899)

                      Title 11--Federal Elections

         I  Federal Election Commission (Parts 1--9099)

                      Title 12--Banks and Banking

         I  Comptroller of the Currency, Department of the 
                Treasury (Parts 1--199)
        II  Federal Reserve System (Parts 200--299)
       III  Federal Deposit Insurance Corporation (Parts 300--399)
        IV  Export-Import Bank of the United States (Parts 400--
                499)

[[Page 600]]

         V  Office of Thrift Supervision, Department of the 
                Treasury (Parts 500--599)
        VI  Farm Credit Administration (Parts 600--699)
       VII  National Credit Union Administration (Parts 700--799)
      VIII  Federal Financing Bank (Parts 800--899)
        IX  Federal Housing Finance Board (Parts 900--999)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
      XVII  Office of Federal Housing Enterprise Oversight, 
                Department of Housing and Urban Development (Parts 
                1700--1799)
     XVIII  Community Development Financial Institutions Fund, 
                Department of the Treasury (Parts 1800--1899)

               Title 13--Business Credit and Assistance

         I  Small Business Administration (Parts 1--199)
       III  Economic Development Administration, Department of 
                Commerce (Parts 300--399)
        IV  Emergency Steel Guarantee Loan Board, Department of 
                Commerce (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board, 
                Department of Commerce (Parts 500--599)

                    Title 14--Aeronautics and Space

         I  Federal Aviation Administration, Department of 
                Transportation (Parts 1--199)
        II  Office of the Secretary, Department of Transportation 
                (Aviation Proceedings) (Parts 200--399)
       III  Commercial Space Transportation, Federal Aviation 
                Administration, Department of Transportation 
                (Parts 400--499)
         V  National Aeronautics and Space Administration (Parts 
                1200--1299)
        VI  Air Transportation System Stabilization (Parts 1300--
                1399)

                 Title 15--Commerce and Foreign Trade

            Subtitle A--Office of the Secretary of Commerce (Parts 
                0--29)
            Subtitle B--Regulations Relating to Commerce and 
                Foreign Trade
         I  Bureau of the Census, Department of Commerce (Parts 
                30--199)
        II  National Institute of Standards and Technology, 
                Department of Commerce (Parts 200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)

[[Page 601]]

        IV  Foreign-Trade Zones Board, Department of Commerce 
                (Parts 400--499)
       VII  Bureau of Industry and Security, Department of 
                Commerce (Parts 700--799)
      VIII  Bureau of Economic Analysis, Department of Commerce 
                (Parts 800--899)
        IX  National Oceanic and Atmospheric Administration, 
                Department of Commerce (Parts 900--999)
        XI  Technology Administration, Department of Commerce 
                (Parts 1100--1199)
      XIII  East-West Foreign Trade Board (Parts 1300--1399)
       XIV  Minority Business Development Agency (Parts 1400--
                1499)
            Subtitle C--Regulations Relating to Foreign Trade 
                Agreements
        XX  Office of the United States Trade Representative 
                (Parts 2000--2099)
            Subtitle D--Regulations Relating to Telecommunications 
                and Information
     XXIII  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                2300--2399)

                    Title 16--Commercial Practices

         I  Federal Trade Commission (Parts 0--999)
        II  Consumer Product Safety Commission (Parts 1000--1799)

             Title 17--Commodity and Securities Exchanges

         I  Commodity Futures Trading Commission (Parts 1--199)
        II  Securities and Exchange Commission (Parts 200--399)
        IV  Department of the Treasury (Parts 400--499)

          Title 18--Conservation of Power and Water Resources

         I  Federal Energy Regulatory Commission, Department of 
                Energy (Parts 1--399)
       III  Delaware River Basin Commission (Parts 400--499)
        VI  Water Resources Council (Parts 700--799)
      VIII  Susquehanna River Basin Commission (Parts 800--899)
      XIII  Tennessee Valley Authority (Parts 1300--1399)

                       Title 19--Customs Duties

         I  Bureau of Customs and Border Protection, Department of 
                Homeland Security; Department of the Treasury 
                (Parts 0--199)
        II  United States International Trade Commission (Parts 
                200--299)
       III  International Trade Administration, Department of 
                Commerce (Parts 300--399)

[[Page 602]]

        IV  Bureau of Immigration and Customs Enforcement, 
                Department of Homeland Security (Parts 400--599)

                     Title 20--Employees' Benefits

         I  Office of Workers' Compensation Programs, Department 
                of Labor (Parts 1--199)
        II  Railroad Retirement Board (Parts 200--399)
       III  Social Security Administration (Parts 400--499)
        IV  Employees Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Employment Standards Administration, Department of 
                Labor (Parts 700--799)
       VII  Benefits Review Board, Department of Labor (Parts 
                800--899)
      VIII  Joint Board for the Enrollment of Actuaries (Parts 
                900--999)
        IX  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 1000--1099)

                       Title 21--Food and Drugs

         I  Food and Drug Administration, Department of Health and 
                Human Services (Parts 1--1299)
        II  Drug Enforcement Administration, Department of Justice 
                (Parts 1300--1399)
       III  Office of National Drug Control Policy (Parts 1400--
                1499)

                      Title 22--Foreign Relations

         I  Department of State (Parts 1--199)
        II  Agency for International Development (Parts 200--299)
       III  Peace Corps (Parts 300--399)
        IV  International Joint Commission, United States and 
                Canada (Parts 400--499)
         V  Broadcasting Board of Governors (Parts 500--599)
       VII  Overseas Private Investment Corporation (Parts 700--
                799)
        IX  Foreign Service Grievance Board (Parts 900--999)
         X  Inter-American Foundation (Parts 1000--1099)
        XI  International Boundary and Water Commission, United 
                States and Mexico, United States Section (Parts 
                1100--1199)
       XII  United States International Development Cooperation 
                Agency (Parts 1200--1299)
      XIII  Millenium Challenge Corporation (Parts 1300--1399)
       XIV  Foreign Service Labor Relations Board; Federal Labor 
                Relations Authority; General Counsel of the 
                Federal Labor Relations Authority; and the Foreign 
                Service Impasse Disputes Panel (Parts 1400--1499)

[[Page 603]]

        XV  African Development Foundation (Parts 1500--1599)
       XVI  Japan-United States Friendship Commission (Parts 
                1600--1699)
      XVII  United States Institute of Peace (Parts 1700--1799)

                          Title 23--Highways

         I  Federal Highway Administration, Department of 
                Transportation (Parts 1--999)
        II  National Highway Traffic Safety Administration and 
                Federal Highway Administration, Department of 
                Transportation (Parts 1200--1299)
       III  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 1300--1399)

                Title 24--Housing and Urban Development

            Subtitle A--Office of the Secretary, Department of 
                Housing and Urban Development (Parts 0--99)
            Subtitle B--Regulations Relating to Housing and Urban 
                Development
         I  Office of Assistant Secretary for Equal Opportunity, 
                Department of Housing and Urban Development (Parts 
                100--199)
        II  Office of Assistant Secretary for Housing-Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 200--299)
       III  Government National Mortgage Association, Department 
                of Housing and Urban Development (Parts 300--399)
        IV  Office of Housing and Office of Multifamily Housing 
                Assistance Restructuring, Department of Housing 
                and Urban Development (Parts 400--499)
         V  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 500--599)
        VI  Office of Assistant Secretary for Community Planning 
                and Development, Department of Housing and Urban 
                Development (Parts 600--699) [Reserved]
       VII  Office of the Secretary, Department of Housing and 
                Urban Development (Housing Assistance Programs and 
                Public and Indian Housing Programs) (Parts 700--
                799)
      VIII  Office of the Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Section 8 Housing Assistance 
                Programs, Section 202 Direct Loan Program, Section 
                202 Supportive Housing for the Elderly Program and 
                Section 811 Supportive Housing for Persons With 
                Disabilities Program) (Parts 800--899)
        IX  Office of Assistant Secretary for Public and Indian 
                Housing, Department of Housing and Urban 
                Development (Parts 900--1699)
         X  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Interstate Land Sales 
                Registration Program) (Parts 1700--1799)

[[Page 604]]

       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

                           Title 25--Indians

         I  Bureau of Indian Affairs, Department of the Interior 
                (Parts 1--299)
        II  Indian Arts and Crafts Board, Department of the 
                Interior (Parts 300--399)
       III  National Indian Gaming Commission, Department of the 
                Interior (Parts 500--599)
        IV  Office of Navajo and Hopi Indian Relocation (Parts 
                700--799)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900)
        VI  Office of the Assistant Secretary-Indian Affairs, 
                Department of the Interior (Parts 1000--1199)
       VII  Office of the Special Trustee for American Indians, 
                Department of the Interior (Parts 1200--1299)

                      Title 26--Internal Revenue

         I  Internal Revenue Service, Department of the Treasury 
                (Parts 1--899)

           Title 27--Alcohol, Tobacco Products and Firearms

         I  Alcohol and Tobacco Tax and Trade Bureau, Department 
                of the Treasury (Parts 1--399)
        II  Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
                Department of Justice (Parts 400--699)

                   Title 28--Judicial Administration

         I  Department of Justice (Parts 0--299)
       III  Federal Prison Industries, Inc., Department of Justice 
                (Parts 300--399)
         V  Bureau of Prisons, Department of Justice (Parts 500--
                599)
        VI  Offices of Independent Counsel, Department of Justice 
                (Parts 600--699)
       VII  Office of Independent Counsel (Parts 700--799)
      VIII  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 800--899)
        IX  National Crime Prevention and Privacy Compact Council 
                (Parts 900--999)

[[Page 605]]

        XI  Department of Justice and Department of State (Parts 
                1100--1199)

                            Title 29--Labor

            Subtitle A--Office of the Secretary of Labor (Parts 
                0--99)
            Subtitle B--Regulations Relating to Labor
         I  National Labor Relations Board (Parts 100--199)
        II  Office of Labor-Management Standards, Department of 
                Labor (Parts 200--299)
       III  National Railroad Adjustment Board (Parts 300--399)
        IV  Office of Labor-Management Standards, Department of 
                Labor (Parts 400--499)
         V  Wage and Hour Division, Department of Labor (Parts 
                500--899)
        IX  Construction Industry Collective Bargaining Commission 
                (Parts 900--999)
         X  National Mediation Board (Parts 1200--1299)
       XII  Federal Mediation and Conciliation Service (Parts 
                1400--1499)
       XIV  Equal Employment Opportunity Commission (Parts 1600--
                1699)
      XVII  Occupational Safety and Health Administration, 
                Department of Labor (Parts 1900--1999)
        XX  Occupational Safety and Health Review Commission 
                (Parts 2200--2499)
       XXV  Employee Benefits Security Administration, Department 
                of Labor (Parts 2500--2599)
     XXVII  Federal Mine Safety and Health Review Commission 
                (Parts 2700--2799)
        XL  Pension Benefit Guaranty Corporation (Parts 4000--
                4999)

                      Title 30--Mineral Resources

         I  Mine Safety and Health Administration, Department of 
                Labor (Parts 1--199)
        II  Minerals Management Service, Department of the 
                Interior (Parts 200--299)
       III  Board of Surface Mining and Reclamation Appeals, 
                Department of the Interior (Parts 300--399)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)

                 Title 31--Money and Finance: Treasury

            Subtitle A--Office of the Secretary of the Treasury 
                (Parts 0--50)
            Subtitle B--Regulations Relating to Money and Finance
         I  Monetary Offices, Department of the Treasury (Parts 
                51--199)
        II  Fiscal Service, Department of the Treasury (Parts 
                200--399)

[[Page 606]]

        IV  Secret Service, Department of the Treasury (Parts 
                400--499)
         V  Office of Foreign Assets Control, Department of the 
                Treasury (Parts 500--599)
        VI  Bureau of Engraving and Printing, Department of the 
                Treasury (Parts 600--699)
       VII  Federal Law Enforcement Training Center, Department of 
                the Treasury (Parts 700--799)
      VIII  Office of International Investment, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)

                      Title 32--National Defense

            Subtitle A--Department of Defense
         I  Office of the Secretary of Defense (Parts 1--399)
         V  Department of the Army (Parts 400--699)
        VI  Department of the Navy (Parts 700--799)
       VII  Department of the Air Force (Parts 800--1099)
            Subtitle B--Other Regulations Relating to National 
                Defense
       XII  Defense Logistics Agency (Parts 1200--1299)
       XVI  Selective Service System (Parts 1600--1699)
      XVII  Office of the Director of National Intelligence (Parts 
                1700--1799)
     XVIII  National Counterintelligence Center (Parts 1800--1899)
       XIX  Central Intelligence Agency (Parts 1900--1999)
        XX  Information Security Oversight Office, National 
                Archives and Records Administration (Parts 2000--
                2099)
       XXI  National Security Council (Parts 2100--2199)
      XXIV  Office of Science and Technology Policy (Parts 2400--
                2499)
     XXVII  Office for Micronesian Status Negotiations (Parts 
                2700--2799)
    XXVIII  Office of the Vice President of the United States 
                (Parts 2800--2899)

               Title 33--Navigation and Navigable Waters

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Corps of Engineers, Department of the Army (Parts 
                200--399)
        IV  Saint Lawrence Seaway Development Corporation, 
                Department of Transportation (Parts 400--499)

                          Title 34--Education

            Subtitle A--Office of the Secretary, Department of 
                Education (Parts 1--99)
            Subtitle B--Regulations of the Offices of the 
                Department of Education
         I  Office for Civil Rights, Department of Education 
                (Parts 100--199)

[[Page 607]]

        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)
       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Vocational and Adult Education, Department 
                of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599)
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
        XI  National Institute for Literacy (Parts 1100--1199)
            Subtitle C--Regulations Relating to Education
       XII  National Council on Disability (Parts 1200--1299)

                          Title 35 [Reserved]

             Title 36--Parks, Forests, and Public Property

         I  National Park Service, Department of the Interior 
                (Parts 1--199)
        II  Forest Service, Department of Agriculture (Parts 200--
                299)
       III  Corps of Engineers, Department of the Army (Parts 
                300--399)
        IV  American Battle Monuments Commission (Parts 400--499)
         V  Smithsonian Institution (Parts 500--599)
       VII  Library of Congress (Parts 700--799)
      VIII  Advisory Council on Historic Preservation (Parts 800--
                899)
        IX  Pennsylvania Avenue Development Corporation (Parts 
                900--999)
         X  Presidio Trust (Parts 1000--1099)
        XI  Architectural and Transportation Barriers Compliance 
                Board (Parts 1100--1199)
       XII  National Archives and Records Administration (Parts 
                1200--1299)
        XV  Oklahoma City National Memorial Trust (Parts 1500--
                1599)
       XVI  Morris K. Udall Scholarship and Excellence in National 
                Environmental Policy Foundation (Parts 1600--1699)

             Title 37--Patents, Trademarks, and Copyrights

         I  United States Patent and Trademark Office, Department 
                of Commerce (Parts 1--199)
        II  Copyright Office, Library of Congress (Parts 200--299)
       III  Copyright Royalty Board, Library of Congress (Parts 
                301--399)
        IV  Assistant Secretary for Technology Policy, Department 
                of Commerce (Parts 400--499)
         V  Under Secretary for Technology, Department of Commerce 
                (Parts 500--599)

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--99)

[[Page 608]]

                       Title 39--Postal Service

         I  United States Postal Service (Parts 1--999)
       III  Postal Regulatory Commission (Parts 3000--3099)

                  Title 40--Protection of Environment

         I  Environmental Protection Agency (Parts 1--1099)
        IV  Environmental Protection Agency and Department of 
                Justice (Parts 1400--1499)
         V  Council on Environmental Quality (Parts 1500--1599)
        VI  Chemical Safety and Hazard Investigation Board (Parts 
                1600--1699)
       VII  Environmental Protection Agency and Department of 
                Defense; Uniform National Discharge Standards for 
                Vessels of the Armed Forces (Parts 1700--1799)

          Title 41--Public Contracts and Property Management

            Subtitle B--Other Provisions Relating to Public 
                Contracts
        50  Public Contracts, Department of Labor (Parts 50-1--50-
                999)
        51  Committee for Purchase From People Who Are Blind or 
                Severely Disabled (Parts 51-1--51-99)
        60  Office of Federal Contract Compliance Programs, Equal 
                Employment Opportunity, Department of Labor (Parts 
                60-1--60-999)
        61  Office of the Assistant Secretary for Veterans' 
                Employment and Training Service, Department of 
                Labor (Parts 61-1--61-999)
            Subtitle C--Federal Property Management Regulations 
                System
       101  Federal Property Management Regulations (Parts 101-1--
                101-99)
       102  Federal Management Regulation (Parts 102-1--102-299)
       105  General Services Administration (Parts 105-1--105-999)
       109  Department of Energy Property Management Regulations 
                (Parts 109-1--109-99)
       114  Department of the Interior (Parts 114-1--114-99)
       115  Environmental Protection Agency (Parts 115-1--115-99)
       128  Department of Justice (Parts 128-1--128-99)
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]
            Subtitle E--Federal Information Resources Management 
                Regulations System
            Subtitle F--Federal Travel Regulation System
       300  General (Parts 300-1--300-99)
       301  Temporary Duty (TDY) Travel Allowances (Parts 301-1--
                301-99)
       302  Relocation Allowances (Parts 302-1--302-99)
       303  Payment of Expenses Connected with the Death of 
                Certain Employees (Part 303-1--303-99)
       304  Payment of Travel Expenses from a Non-Federal Source 
                (Parts 304-1--304-99)

[[Page 609]]

                        Title 42--Public Health

         I  Public Health Service, Department of Health and Human 
                Services (Parts 1--199)
        IV  Centers for Medicare & Medicaid Services, Department 
                of Health and Human Services (Parts 400--499)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1999)

                   Title 43--Public Lands: Interior

            Subtitle A--Office of the Secretary of the Interior 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Lands
         I  Bureau of Reclamation, Department of the Interior 
                (Parts 200--499)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10010)

             Title 44--Emergency Management and Assistance

         I  Federal Emergency Management Agency, Department of 
                Homeland Security (Parts 0--399)
        IV  Department of Commerce and Department of 
                Transportation (Parts 400--499)

                       Title 45--Public Welfare

            Subtitle A--Department of Health and Human Services 
                (Parts 1--199)
            Subtitle B--Regulations Relating to Public Welfare
        II  Office of Family Assistance (Assistance Programs), 
                Administration for Children and Families, 
                Department of Health and Human Services (Parts 
                200--299)
       III  Office of Child Support Enforcement (Child Support 
                Enforcement Program), Administration for Children 
                and Families, Department of Health and Human 
                Services (Parts 300--399)
        IV  Office of Refugee Resettlement, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 400--499)
         V  Foreign Claims Settlement Commission of the United 
                States, Department of Justice (Parts 500--599)
        VI  National Science Foundation (Parts 600--699)
       VII  Commission on Civil Rights (Parts 700--799)
      VIII  Office of Personnel Management (Parts 800--899)
         X  Office of Community Services, Administration for 
                Children and Families, Department of Health and 
                Human Services (Parts 1000--1099)
        XI  National Foundation on the Arts and the Humanities 
                (Parts 1100--1199)

[[Page 610]]

       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Office of Human Development Services, Department of 
                Health and Human Services (Parts 1300--1399)
       XVI  Legal Services Corporation (Parts 1600--1699)
      XVII  National Commission on Libraries and Information 
                Science (Parts 1700--1799)
     XVIII  Harry S. Truman Scholarship Foundation (Parts 1800--
                1899)
       XXI  Commission on Fine Arts (Parts 2100--2199)
     XXIII  Arctic Research Commission (Part 2301)
      XXIV  James Madison Memorial Fellowship Foundation (Parts 
                2400--2499)
       XXV  Corporation for National and Community Service (Parts 
                2500--2599)

                          Title 46--Shipping

         I  Coast Guard, Department of Homeland Security (Parts 
                1--199)
        II  Maritime Administration, Department of Transportation 
                (Parts 200--399)
       III  Coast Guard (Great Lakes Pilotage), Department of 
                Homeland Security (Parts 400--499)
        IV  Federal Maritime Commission (Parts 500--599)

                      Title 47--Telecommunication

         I  Federal Communications Commission (Parts 0--199)
        II  Office of Science and Technology Policy and National 
                Security Council (Parts 200--299)
       III  National Telecommunications and Information 
                Administration, Department of Commerce (Parts 
                300--399)

           Title 48--Federal Acquisition Regulations System

         1  Federal Acquisition Regulation (Parts 1--99)
         2  Defense Acquisition Regulations System, Department of 
                Defense (Parts 200--299)
         3  Department of Health and Human Services (Parts 300--
                399)
         4  Department of Agriculture (Parts 400--499)
         5  General Services Administration (Parts 500--599)
         6  Department of State (Parts 600--699)
         7  Agency for International Development (Parts 700--799)
         8  Department of Veterans Affairs (Parts 800--899)
         9  Department of Energy (Parts 900--999)
        10  Department of the Treasury (Parts 1000--1099)
        12  Department of Transportation (Parts 1200--1299)
        13  Department of Commerce (Parts 1300--1399)
        14  Department of the Interior (Parts 1400--1499)

[[Page 611]]

        15  Environmental Protection Agency (Parts 1500--1599)
        16  Office of Personnel Management, Federal Employees 
                Health Benefits Acquisition Regulation (Parts 
                1600--1699)
        17  Office of Personnel Management (Parts 1700--1799)
        18  National Aeronautics and Space Administration (Parts 
                1800--1899)
        19  Broadcasting Board of Governors (Parts 1900--1999)
        20  Nuclear Regulatory Commission (Parts 2000--2099)
        21  Office of Personnel Management, Federal Employees 
                Group Life Insurance Federal Acquisition 
                Regulation (Parts 2100--2199)
        23  Social Security Administration (Parts 2300--2399)
        24  Department of Housing and Urban Development (Parts 
                2400--2499)
        25  National Science Foundation (Parts 2500--2599)
        28  Department of Justice (Parts 2800--2899)
        29  Department of Labor (Parts 2900--2999)
        30  Department of Homeland Security, Homeland Security 
                Acquisition Regulation (HSAR) (Parts 3000--3099)
        34  Department of Education Acquisition Regulation (Parts 
                3400--3499)
        51  Department of the Army Acquisition Regulations (Parts 
                5100--5199)
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement [RESERVED]
        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  General Services Administration Board of Contract 
                Appeals (Parts 6100--6199)
        63  Department of Transportation Board of Contract Appeals 
                (Parts 6300--6399)
        99  Cost Accounting Standards Board, Office of Federal 
                Procurement Policy, Office of Management and 
                Budget (Parts 9900--9999)

                       Title 49--Transportation

            Subtitle A--Office of the Secretary of Transportation 
                (Parts 1--99)
            Subtitle B--Other Regulations Relating to 
                Transportation
         I  Pipeline and Hazardous Materials Safety 
                Administration, Department of Transportation 
                (Parts 100--199)
        II  Federal Railroad Administration, Department of 
                Transportation (Parts 200--299)
       III  Federal Motor Carrier Safety Administration, 
                Department of Transportation (Parts 300--399)
        IV  Coast Guard, Department of Homeland Security (Parts 
                400--499)

[[Page 612]]

         V  National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 500--599)
        VI  Federal Transit Administration, Department of 
                Transportation (Parts 600--699)
       VII  National Railroad Passenger Corporation (AMTRAK) 
                (Parts 700--799)
      VIII  National Transportation Safety Board (Parts 800--999)
         X  Surface Transportation Board, Department of 
                Transportation (Parts 1000--1399)
        XI  Research and Innovative Technology Administration, 
                Department of Transportation [RESERVED]
       XII  Transportation Security Administration, Department of 
                Homeland Security (Parts 1500--1699)

                   Title 50--Wildlife and Fisheries

         I  United States Fish and Wildlife Service, Department of 
                the Interior (Parts 1--199)
        II  National Marine Fisheries Service, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 200--299)
       III  International Fishing and Related Activities (Parts 
                300--399)
        IV  Joint Regulations (United States Fish and Wildlife 
                Service, Department of the Interior and National 
                Marine Fisheries Service, National Oceanic and 
                Atmospheric Administration, Department of 
                Commerce); Endangered Species Committee 
                Regulations (Parts 400--499)
         V  Marine Mammal Commission (Parts 500--599)
        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

                      CFR Index and Finding Aids

            Subject/Agency Index
            List of Agency Prepared Indexes
            Parallel Tables of Statutory Authorities and Rules
            List of CFR Titles, Chapters, Subchapters, and Parts
            Alphabetical List of Agencies Appearing in the CFR

[[Page 613]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of January 1, 2008)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Committee of the Federal Register  1, I
Advanced Research Projects Agency                 32, I
Advisory Council on Historic Preservation         36, VIII
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development              22, II
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, IX, X, XI
Agricultural Research Service                     7, V
Agriculture Department                            5, LXXIII
  Agricultural Marketing Service                  7, I, IX, X, XI
  Agricultural Research Service                   7, V
  Animal and Plant Health Inspection Service      7, III; 9, I
  Chief Financial Officer, Office of              7, XXX
  Commodity Credit Corporation                    7, XIV
  Cooperative State Research, Education, and      7, XXXIV
       Extension Service
  Economic Research Service                       7, XXXVII
  Energy, Office of                               2, IX; 7, XXIX
  Environmental Quality, Office of                7, XXXI
  Farm Service Agency                             7, VII, XVIII
  Federal Acquisition Regulation                  48, 4
  Federal Crop Insurance Corporation              7, IV
  Food and Nutrition Service                      7, II
  Food Safety and Inspection Service              9, III
  Foreign Agricultural Service                    7, XV
  Forest Service                                  36, II
  Grain Inspection, Packers and Stockyards        7, VIII; 9, II
       Administration
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  Natural Resources Conservation Service          7, VI
  Operations, Office of                           7, XXVIII
  Procurement and Property Management, Office of  7, XXXII
  Rural Business-Cooperative Service              7, XVIII, XLII
  Rural Development Administration                7, XLII
  Rural Housing Service                           7, XVIII, XXXV
  Rural Telephone Bank                            7, XVI
  Rural Utilities Service                         7, XVII, XVIII, XLII
  Secretary of Agriculture, Office of             7, Subtitle A
  Transportation, Office of                       7, XXXIII
  World Agricultural Outlook Board                7, XXXVIII
Air Force Department                              32, VII
  Federal Acquisition Regulation Supplement       48, 53
Air Transportation Stabilization Board            14, VI
Alcohol and Tobacco Tax and Trade Bureau          27, I
Alcohol, Tobacco, Firearms, and Explosives,       27, II
     Bureau of
AMTRAK                                            49, VII
American Battle Monuments Commission              36, IV
American Indians, Office of the Special Trustee   25, VII
Animal and Plant Health Inspection Service        7, III; 9, I
Appalachian Regional Commission                   5, IX

[[Page 614]]

Architectural and Transportation Barriers         36, XI
     Compliance Board
Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI
Army Department                                   32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
Benefits Review Board                             20, VII
Bilingual Education and Minority Languages        34, V
     Affairs, Office of
Blind or Severely Disabled, Committee for         41, 51
     Purchase From People Who Are
Broadcasting Board of Governors                   22, V
  Federal Acquisition Regulation                  48, 19
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X
Civil Rights, Commission on                       45, VII
Civil Rights, Office for                          34, I
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce Department                               44, IV
  Census Bureau                                   15, I
  Economic Affairs, Under Secretary               37, V
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  Fishery Conservation and Management             50, VI
  Foreign-Trade Zones Board                       15, IV
  Industry and Security, Bureau of                15, VII
  International Trade Administration              15, III; 19, III
  National Institute of Standards and Technology  15, II
  National Marine Fisheries Service               50, II, IV, VI
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Telecommunications and Information     15, XXIII; 47, III
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Productivity, Technology and Innovation,        37, IV
       Assistant Secretary for
  Secretary of Commerce, Office of                15, Subtitle A
  Technology, Under Secretary for                 37, V
  Technology Administration                       15, XI
  Technology Policy, Assistant Secretary for      37, IV
Commercial Space Transportation                   14, III
Commodity Credit Corporation                      7, XIV
Commodity Futures Trading Commission              5, XLI; 17, I
Community Planning and Development, Office of     24, V, VI
     Assistant Secretary for
Community Services, Office of                     45, X
Comptroller of the Currency                       12, I
Construction Industry Collective Bargaining       29, IX
     Commission
Consumer Product Safety Commission                5, LXXI; 16, II
Cooperative State Research, Education, and        7, XXXIV
     Extension Service
Copyright Office                                  37, II
Copyright Royalty Board                           37, III
Corporation for National and Community Service    2, XXII; 45, XII, XXV
Cost Accounting Standards Board                   48, 99
Council on Environmental Quality                  40, V
Court Services and Offender Supervision Agency    28, VIII
     for the District of Columbia
Customs and Border Protection Bureau              19, I
Defense Contract Audit Agency                     32, I
Defense Department                                5, XXVI; 32, Subtitle A; 
                                                  40, VII

[[Page 615]]

  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III, 
                                                  48, 51
  Defense Acquisition Regulations System          48, II
  Defense Intelligence Agency                     32, I
  Defense Logistics Agency                        32, I, XII; 48, 54
  Engineers, Corps of                             33, II; 36, III
  National Imagery and Mapping Agency             32, I
  Navy Department                                 32, VI; 48, 52
  Secretary of Defense, Office of                 2, XI; 32, I
Defense Contract Audit Agency                     32, I
Defense Intelligence Agency                       32, I
Defense Logistics Agency                          32, XII; 48, 54
Defense Nuclear Facilities Safety Board           10, XVII
Delaware River Basin Commission                   18, III
District of Columbia, Court Services and          28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Affairs, Under Secretary                 37, V
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Civil Rights, Office for                        34, I
  Educational Research and Improvement, Office    34, VII
       of
  Elementary and Secondary Education, Office of   34, II
  Federal Acquisition Regulation                  48, 34
  Postsecondary Education, Office of              34, VI
  Secretary of Education, Office of               34, Subtitle A
  Special Education and Rehabilitative Services,  34, III
       Office of
  Vocational and Adult Education, Office of       34, IV
Educational Research and Improvement, Office of   34, VII
Elementary and Secondary Education, Office of     34, II
Emergency Oil and Gas Guaranteed Loan Board       13, V
Emergency Steel Guarantee Loan Board              13, IV
Employee Benefits Security Administration         29, XXV
Employees' Compensation Appeals Board             20, IV
Employees Loyalty Board                           5, V
Employment and Training Administration            20, V
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             5, XXIII; 10, II, III, X
  Federal Acquisition Regulation                  48, 9
  Federal Energy Regulatory Commission            5, XXIV; 18, I
  Property Management Regulations                 41, 109
Energy, Office of                                 7, XXIX
Engineers, Corps of                               33, II; 36, III
Engraving and Printing, Bureau of                 31, VI
Environmental Protection Agency                   2, XV; 5, LIV; 40, I, IV, 
                                                  VII
  Federal Acquisition Regulation                  48, 15
  Property Management Regulations                 41, 115
Environmental Quality, Office of                  7, XXXI
Equal Employment Opportunity Commission           5, LXII; 29, XIV
Equal Opportunity, Office of Assistant Secretary  24, I
     for
Executive Office of the President                 3, I
  Administration, Office of                       5, XV
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                5, III, LXXVII; 14, VI; 
                                                  48, 99
  National Drug Control Policy, Office of         21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3

[[Page 616]]

  Science and Technology Policy, Office of        32, XXIV; 47, II
  Trade Representative, Office of the United      15, XX
       States
Export-Import Bank of the United States           2, XXXV; 5, LII; 12, IV
Family Assistance, Office of                      45, II
Farm Credit Administration                        5, XXXI; 12, VI
Farm Credit System Insurance Corporation          5, XXX; 12, XIV
Farm Service Agency                               7, VII, XVIII
Federal Acquisition Regulation                    48, 1
Federal Aviation Administration                   14, I
  Commercial Space Transportation                 14, III
Federal Claims Collection Standards               31, IX
Federal Communications Commission                 5, XXIX; 47, I
Federal Contract Compliance Programs, Office of   41, 60
Federal Crop Insurance Corporation                7, IV
Federal Deposit Insurance Corporation             5, XXII; 12, III
Federal Election Commission                       11, I
Federal Emergency Management Agency               44, I
Federal Employees Group Life Insurance Federal    48, 21
     Acquisition Regulation
Federal Employees Health Benefits Acquisition     48, 16
     Regulation
Federal Energy Regulatory Commission              5, XXIV; 18, I
Federal Financial Institutions Examination        12, XI
     Council
Federal Financing Bank                            12, VIII
Federal Highway Administration                    23, I, II
Federal Home Loan Mortgage Corporation            1, IV
Federal Housing Enterprise Oversight Office       12, XVII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority, and General    5, XIV; 22, XIV
     Counsel of the Federal Labor Relations 
     Authority
Federal Law Enforcement Training Center           31, VII
Federal Management Regulation                     41, 102
Federal Maritime Commission                       46, IV
Federal Mediation and Conciliation Service        29, XII
Federal Mine Safety and Health Review Commission  5, LXXIV; 29, XXVII
Federal Motor Carrier Safety Administration       49, III
Federal Prison Industries, Inc.                   28, III
Federal Procurement Policy Office                 48, 99
Federal Property Management Regulations           41, 101
Federal Railroad Administration                   49, II
Federal Register, Administrative Committee of     1, I
Federal Register, Office of                       1, II
Federal Reserve System                            12, II
  Board of Governors                              5, LVIII
Federal Retirement Thrift Investment Board        5, VI, LXXVI
Federal Service Impasses Panel                    5, XIV
Federal Trade Commission                          5, XLVII; 16, I
Federal Transit Administration                    49, VI
Federal Travel Regulation System                  41, Subtitle F
Fine Arts, Commission on                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
Fishery Conservation and Management               50, VI
Food and Drug Administration                      21, I
Food and Nutrition Service                        7, II
Food Safety and Inspection Service                9, III
Foreign Agricultural Service                      7, XV
Foreign Assets Control, Office of                 31, V
Foreign Claims Settlement Commission of the       45, V
     United States
Foreign Service Grievance Board                   22, IX
Foreign Service Impasse Disputes Panel            22, XIV
Foreign Service Labor Relations Board             22, XIV
Foreign-Trade Zones Board                         15, IV
Forest Service                                    36, II
General Services Administration                   5, LVII; 41, 105
  Contract Appeals, Board of                      48, 61
  Federal Acquisition Regulation                  48, 5
  Federal Management Regulation                   41, 102

[[Page 617]]

  Federal Property Management Regulations         41, 101
  Federal Travel Regulation System                41, Subtitle F
  General                                         41, 300
  Payment From a Non-Federal Source for Travel    41, 304
       Expenses
  Payment of Expenses Connected With the Death    41, 303
       of Certain Employees
  Relocation Allowances                           41, 302
  Temporary Duty (TDY) Travel Allowances          41, 301
Geological Survey                                 30, IV
Government Accountability Office                  4, I
Government Ethics, Office of                      5, XVI
Government National Mortgage Association          24, III
Grain Inspection, Packers and Stockyards          7, VIII; 9, II
     Administration
Harry S. Truman Scholarship Foundation            45, XVIII
Health and Human Services, Department of          2, III; 5, XLV; 45, 
                                                  Subtitle A,
  Centers for Medicare & Medicaid Services        42, IV
  Child Support Enforcement, Office of            45, III
  Children and Families, Administration for       45, II, III, IV, X
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  Human Development Services, Office of           45, XIII
  Indian Health Service                           25, V
  Inspector General (Health Care), Office of      42, V
  Public Health Service                           42, I
  Refugee Resettlement, Office of                 45, IV
Homeland Security, Department of                  6, I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection Bureau            19, I
  Federal Emergency Management Agency             44, I
  Immigration and Customs Enforcement Bureau      19, IV
  Immigration and Naturalization                  8, I
  Transportation Security Administration          49, XII
Housing and Urban Development, Department of      5, LXV; 24, Subtitle B, 2, 
                                                  XXIV; 2424
  Community Planning and Development, Office of   24, V, VI
       Assistant Secretary for
  Equal Opportunity, Office of Assistant          24, I
       Secretary for
  Federal Acquisition Regulation                  48, 24
  Federal Housing Enterprise Oversight, Office    12, XVII
       of
  Government National Mortgage Association        24, III
  Housing--Federal Housing Commissioner, Office   24, II, VIII, X, XX
       of Assistant Secretary for
  Housing, Office of, and Multifamily Housing     24, IV
       Assistance Restructuring, Office of
  Inspector General, Office of                    24, XII
  Public and Indian Housing, Office of Assistant  24, IX
       Secretary for
  Secretary, Office of                            24, Subtitle A, VII
Housing--Federal Housing Commissioner, Office of  24, II, VIII, X, XX
     Assistant Secretary for
Housing, Office of, and Multifamily Housing       24, IV
     Assistance Restructuring, Office of
Human Development Services, Office of             45, XIII
Immigration and Customs Enforcement Bureau        19, IV
Immigration and Naturalization                    8, I
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII
Indian Affairs, Bureau of                         25, I, V
Indian Affairs, Office of the Assistant           25, VI
     Secretary
Indian Arts and Crafts Board                      25, II
Indian Health Service                             25, V
Industry and Security, Bureau of                  15, VII
Information Resources Management, Office of       7, XXVII
Information Security Oversight Office, National   32, XX
   Archives and Records Administration
[[Page 618]]

Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior Department
  American Indians, Office of the Special         25, VII
       Trustee
  Endangered Species Committee                    50, IV
  Federal Acquisition Regulation                  48, 14
  Federal Property Management Regulations System  41, 114
  Fish and Wildlife Service, United States        50, I, IV
  Geological Survey                               30, IV
  Indian Affairs, Bureau of                       25, I, V
  Indian Affairs, Office of the Assistant         25, VI
       Secretary
  Indian Arts and Crafts Board                    25, II
  Land Management, Bureau of                      43, II
  Minerals Management Service                     30, II
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Reclamation, Bureau of                          43, I
  Secretary of the Interior, Office of            2, XIV; 43, Subtitle A
  Surface Mining and Reclamation Appeals, Board   30, III
       of
  Surface Mining Reclamation and Enforcement,     30, VII
       Office of
Internal Revenue Service                          26, I
International Boundary and Water Commission,      22, XI
     United States and Mexico, United States 
     Section
International Development, United States Agency   22, II
     for
  Federal Acquisition Regulation                  48, 7
International Development Cooperation Agency,     22, XII
     United States
International Fishing and Related Activities      50, III
International Investment, Office of               31, VIII
International Joint Commission, United States     22, IV
     and Canada
International Organizations Employees Loyalty     5, V
     Board
International Trade Administration                15, III; 19, III
International Trade Commission, United States     19, II
Interstate Commerce Commission                    5, XL
James Madison Memorial Fellowship Foundation      45, XXIV
Japan-United States Friendship Commission         22, XVI
Joint Board for the Enrollment of Actuaries       20, VIII
Justice Department                                2, XXVII; 5, XXVIII; 28, 
                                                  I, XI; 40, IV
  Alcohol, Tobacco, Firearms, and Explosives,     27, II
       Bureau of
  Drug Enforcement Administration                 21, II
  Federal Acquisition Regulation                  48, 28
  Federal Claims Collection Standards             31, IX
  Federal Prison Industries, Inc.                 28, III
  Foreign Claims Settlement Commission of the     45, V
       United States
  Immigration Review, Executive Office for        8, V
  Offices of Independent Counsel                  28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor Department                                  5, XLII
  Benefits Review Board                           20, VII
  Employee Benefits Security Administration       29, XXV
  Employees' Compensation Appeals Board           20, IV
  Employment and Training Administration          20, V
  Employment Standards Administration             20, VI
  Federal Acquisition Regulation                  48, 29
  Federal Contract Compliance Programs, Office    41, 60
       of
  Federal Procurement Regulations System          41, 50
  Labor-Management Standards, Office of           29, II, IV
  Mine Safety and Health Administration           30, I
  Occupational Safety and Health Administration   29, XVII
  Public Contracts                                41, 50

[[Page 619]]

  Secretary of Labor, Office of                   29, Subtitle A
  Veterans' Employment and Training Service,      41, 61; 20, IX
       Office of the Assistant Secretary for
  Wage and Hour Division                          29, V
  Workers' Compensation Programs, Office of       20, I
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Library of Congress                               36, VII
  Copyright Office                                37, II
  Copyright Royalty Board                         37, III
Local Television Loan Guarantee Board             7, XX
Management and Budget, Office of                  5, III, LXXVII; 14, VI; 
                                                  48, 99
Marine Mammal Commission                          50, V
Maritime Administration                           46, II
Merit Systems Protection Board                    5, II, LXIV
Micronesian Status Negotiations, Office for       32, XXVII
Millenium Challenge Corporation                   22, XIII
Mine Safety and Health Administration             30, I
Minerals Management Service                       30, II
Minority Business Development Agency              15, XIV
Miscellaneous Agencies                            1, IV
Monetary Offices                                  31, I
Morris K. Udall Scholarship and Excellence in     36, XVI
     National Environmental Policy Foundation
National Aeronautics and Space Administration     2, XVIII; 5, LIX; 14, V
  Federal Acquisition Regulation                  48, 18
National Agricultural Library                     7, XLI
National Agricultural Statistics Service          7, XXXVI
National and Community Service, Corporation for   45, XII, XXV
National Archives and Records Administration      2, XXVI; 5, LXVI; 36, XII
  Information Security Oversight Office           32, XX
National Capital Planning Commission              1, IV
National Commission for Employment Policy         1, IV
National Commission on Libraries and Information  45, XVII
     Science
National Council on Disability                    34, XII
National Counterintelligence Center               32, XVIII
National Credit Union Administration              12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           21, III
National Endowment for the Arts                   2, XXXII
National Endowment for the Humanities             2, XXXIII
National Foundation on the Arts and the           45, XI
     Humanities
National Highway Traffic Safety Administration    23, II, III; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute for Literacy                   34, XI
National Institute of Standards and Technology    15, II
National Intelligence, Office of Director of      32, XVII
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV, VI
National Mediation Board                          29, X
National Oceanic and Atmospheric Administration   15, IX; 50, II, III, IV, 
                                                  VI
National Park Service                             36, I
National Railroad Adjustment Board                29, III
National Railroad Passenger Corporation (AMTRAK)  49, VII
National Science Foundation                       2, XXV; 5, XLIII; 45, VI
  Federal Acquisition Regulation                  48, 25
National Security Council                         32, XXI
National Security Council and Office of Science   47, II
     and Technology Policy
National Telecommunications and Information       15, XXIII; 47, III
     Administration
National Transportation Safety Board              49, VIII
Natural Resources Conservation Service            7, VI

[[Page 620]]

Navajo and Hopi Indian Relocation, Office of      25, IV
Navy Department                                   32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
Nuclear Regulatory Commission                     5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Offices of Independent Counsel                    28, VI
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
Overseas Private Investment Corporation           5, XXXIII; 22, VII
Patent and Trademark Office, United States        37, I
Payment From a Non-Federal Source for Travel      41, 304
     Expenses
Payment of Expenses Connected With the Death of   41, 303
     Certain Employees
Peace Corps                                       22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 45, VIII
  Federal Acquisition Regulation                  48, 17
  Federal Employees Group Life Insurance Federal  48, 21
       Acquisition Regulation
  Federal Employees Health Benefits Acquisition   48, 16
       Regulation
Pipeline and Hazardous Materials Safety           49, I
     Administration
Postal Regulatory Commission                      5, XLVI; 39, III
Postal Service, United States                     5, LX; 39, I
Postsecondary Education, Office of                34, VI
President's Commission on White House             1, IV
     Fellowships
Presidential Documents                            3
Presidio Trust                                    36, X
Prisons, Bureau of                                28, V
Privacy and Civil Liberties Oversight Board       6, X
Procurement and Property Management, Office of    7, XXXII
Productivity, Technology and Innovation,          37, IV
     Assistant Secretary
Public Contracts, Department of Labor             41, 50
Public and Indian Housing, Office of Assistant    24, IX
     Secretary for
Public Health Service                             42, I
Railroad Retirement Board                         20, II
Reclamation, Bureau of                            43, I
Refugee Resettlement, Office of                   45, IV
Relocation Allowances                             41, 302
Research and Innovative Technology                49, XI
     Administration
Rural Business-Cooperative Service                7, XVIII, XLII
Rural Development Administration                  7, XLII
Rural Housing Service                             7, XVIII, XXXV
Rural Telephone Bank                              7, XVI
Rural Utilities Service                           7, XVII, XVIII, XLII
Saint Lawrence Seaway Development Corporation     33, IV
Science and Technology Policy, Office of          32, XXIV
Science and Technology Policy, Office of, and     47, II
     National Security Council
Secret Service                                    31, IV
Securities and Exchange Commission                17, II
Selective Service System                          32, XVI
Small Business Administration                     2, XXVII; 13, I
Smithsonian Institution                           36, V
Social Security Administration                    20, III; 48, 23
Soldiers' and Airmen's Home, United States        5, XI
Special Counsel, Office of                        5, VIII
Special Education and Rehabilitative Services,    34, III
     Office of
State Department                                  2, VI; 22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining and Reclamation Appeals, Board of  30, III

[[Page 621]]

Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Technology Administration                         15, XI
Technology Policy, Assistant Secretary for        37, IV
Technology, Under Secretary for                   37, V
Tennessee Valley Authority                        5, LXIX; 18, XIII
Thrift Supervision Office, Department of the      12, V
     Treasury
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     5, L
  Commercial Space Transportation                 14, III
  Contract Appeals, Board of                      48, 63
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 12
  Federal Aviation Administration                 14, I
  Federal Highway Administration                  23, I, II
  Federal Motor Carrier Safety Administration     49, III
  Federal Railroad Administration                 49, II
  Federal Transit Administration                  49, VI
  Maritime Administration                         46, II
  National Highway Traffic Safety Administration  23, II, III; 49, V
  Pipeline and Hazardous Materials Safety         49, I
       Administration
  Saint Lawrence Seaway Development Corporation   33, IV
  Secretary of Transportation, Office of          14, II; 49, Subtitle A
  Surface Transportation Board                    49, X
  Transportation Statistics Bureau                49, XI
Transportation, Office of                         7, XXXIII
Transportation Security Administration            49, XII
Transportation Statistics Bureau                  49, XI
Travel Allowances, Temporary Duty (TDY)           41, 301
Treasury Department                               5, XXI; 12, XV; 17, IV; 
                                                  31, IX
  Alcohol and Tobacco Tax and Trade Bureau        27, I
  Community Development Financial Institutions    12, XVIII
       Fund
  Comptroller of the Currency                     12, I
  Customs and Border Protection Bureau            19, I
  Engraving and Printing, Bureau of               31, VI
  Federal Acquisition Regulation                  48, 10
  Federal Claims Collection Standards             31, IX
  Federal Law Enforcement Training Center         31, VII
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  International Investment, Office of             31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
  Thrift Supervision, Office of                   12, V
Truman, Harry S. Scholarship Foundation           45, XVIII
United States and Canada, International Joint     22, IV
     Commission
United States and Mexico, International Boundary  22, XI
     and Water Commission, United States Section
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs Department                       2, VIII; 38, I
  Federal Acquisition Regulation                  48, 8
Veterans' Employment and Training Service,        41, 61; 20, IX
     Office of the Assistant Secretary for
Vice President of the United States, Office of    32, XXVIII
Vocational and Adult Education, Office of         34, IV
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I
World Agricultural Outlook Board                  7, XXXVIII

[[Page 623]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations that were 
made by documents published in the Federal Register since January 1, 
2001, are enumerated in the following list. Entries indicate the nature 
of the changes effected. Page numbers refer to Federal Register pages. 
The user should consult the entries for chapters and parts as well as 
sections for revisions.
For the period before January 1, 2001, see the ``List of CFR Sections 
Affected, 1949-1963, 1964-1972, 1973-1985, and 1986-2000'' published in 
11 separate volumes.

                                  2001

12 CFR
                                                                   66 FR
                                                                    Page
Chapter IX
915.3 (b) introductory text and (3) revised.........................8307
915.4 Revised.......................................................8307
915.5 Revised.......................................................8308
915.6 (a)(3) revised................................................8308
915.7 (b)(2) amended................................................8308
917 Authority citation revised......................................8308
917.3 (b)(1) revised................................................8308
917.9 Existing text designated as (a); (b) added....................8308
918.7 Revised; interim.............................................24264
    Regulation at 66 FR 24264 confirmed............................54918
925.24 Revised......................................................8308
925.25 Removed......................................................8309
925.26 Revised......................................................8309
    (b) revised....................................................54107
925.27 Revised......................................................8309
    (c) revised....................................................54107
925.28 Removed......................................................8310
925.29 Revised......................................................8310
925.30 Revised......................................................8310
930 Added...........................................................8310
930.1 Amended......................................................54107
    Amended; eff. 3-27-02..........................................66728
931 Added...........................................................8310
931.4 (a) amended..................................................54108
931.6 Amended......................................................54108
931.7 (a) amended..................................................54108
931.8 Existing text redesignated as (a); heading and new (a) 
        heading revised; (b) added.................................54108
932 Added...........................................................8310
932.4 (d) heading and (f)(1) Table 2 revised; (e)(2)(ii)(E) 
        amended....................................................54108
932.9 Revised; eff. 3-27-02........................................66728
933 Added...........................................................8310
933.2 (e), (f) and (g) redesignated as (f), (g) and (h); new 
        (f)(4), (5) and (6) redesignated as (f)(5), (6) and (7); 
        new (f)(3) revised; new (e) and (f)(4) added...............54108
933.5 Added........................................................54109
950.1 Amended......................................................50295
951 Nomenclature change............................................50301
951.3 (a)(1) revised...............................................50301
951.4 (a), (b), (f)(1) and (3) amended.............................50302
951.5 (a)(7)(iii) amended..........................................50302
951.8 (c)(3) amended; (c)(3)(i) designation and heading removed; 
        (c)(3)(ii) redesignated as (c)(4); new (c)(4) heading 
        revised....................................................50302
951.10 (a)(1)(ii) revised; (a)(2)(ii) amended; (b)(2)(i) 
        designation and (ii) removed...............................50302
951.15 (a)(2)(ii) amended; (a)(2)(iii) added; concluding text 
        designated as (a)(3).......................................50302
952.2 Amended......................................................50295
952.3 Amended......................................................50295
952.5 (a)(3), (c), (d) heading, (2), (3), (5) and (6)(i) amended 
                                                                   50296
952.7 (a) and (c) amended..........................................50296
956 Authority citation revised......................................8320
956.1 Amended.......................................................8320
956.3 (b) amended...................................................8320
956.5 Added.........................................................8320
956.6 Added.........................................................8321

[[Page 624]]

966.8 (d) added.....................................................8321
Chapter XIV
1411 Authority citation revised....................................44027
1411.1 Revised.....................................................44027
Chapter XV
1500 Revised........................................................8489
1501.2 Redesignated as 1501.3; new 1501.2 added; interim.............260
1501.3 Redesignated from 1501.2; interim.............................260
    Revised.........................................................8750
1510 Regulation at 65 FR 12069 confirmed...........................47070
1510.5 (c) introductory text amended; (d) revised; interim.........47071
Chapter XVII
1701 Added.........................................................18039
1750 Authority citation revised....................................47806
1750.10--1750.13 (Subpart B) Added.................................47806
1770 Added.........................................................47554
1773 Added.........................................................65101
1780 Authority citation revised...............................711, 18043
1780.1 Revised.....................................................18043
1780.80--1780.81 (Subpart E) Revised.................................711

                                  2002

12 CFR
                                                                   67 FR
                                                                    Page
Chapter IX
900 Revised........................................................12841
905 Authority citation revised.....................................12843
905.1 Removed......................................................12843
905.2 (b) and (c) revised..........................................12843
905.4 Revised......................................................12843
905.5 Removed......................................................12843
905.1--905.5 (Subpart A) Appendix A amended........................12843
905.25 Redesignated from 905.51 and amended........................12843
905.26 Redesignated from 905.54 and revised........................12843
905.50--905.54 (Subpart D) Redesignated as Subpart C; new heading 
        added......................................................12843
905.50 Removed.....................................................12843
905.51 Redesignated as 905.25......................................12843
905.52 Removed.....................................................12843
905.53 Removed.....................................................12843
905.54 Redesignated 905.26.........................................12843
906 Authority citation revised.....................................12843
906.1 Amended......................................................12844
906.2 (b)(3) amended...............................................12844
906.3 Revised; eff. 1-27-03........................................78961
906.4 (a), (b)(2) and (3) amended..................................12844
    Removed; eff. 1-27-03..........................................78961
906.5 (b)(1) and (c)(2)(iv) amended................................12844
907 Nomenclature change............................................12844
907.1 Amended......................................................12844
907.6 (b)(2) amended...............................................12844
907.16 Added........................................................9903
908 Added...........................................................9903
908.61 (c)(2) corrected............................................34990
910 Authority citation revised.....................................12844
910.1 Amended......................................................12844
910.4 (d)(2) amended...............................................12844
910.9 (d)(3)(i) introductory text amended..........................12844
911.1 Introductory text amended....................................12844
911.3 (d) amended..................................................12844
912.1 Redesignated as 912.2; new 912.1 redesignated from 912.2 and 
        amended....................................................12844
912.2 Redesignated as 912.1; new 912.2 redesignated from 912.1; 
        new (a) amended............................................12844
912.4 (a)(3) introductory text and (8) amended.....................12844
912.5 (a)(5), (6)(ii), (b)(1) and (c)(2) amended...................12844
912.6 (a)(1), (2), (b) and (c) amended.............................12845
913 Nomenclature change............................................12845
913.1 Redesignated as 913.2; new 913.1 redesignated from 913.2.....12845
913.2 Redesignated as 913.1; new 913.2 redesignated from 913.1.....12845
913.3 (b) amended..................................................12845
913.5 (b)(2)(iv) and (c) amended...................................12845
913.9 (c)(1)(iii), (2)(v) and (d) introductory text amended........12845
915 Authority citation revised; nomenclature change................12845
915.1 Amended......................................................12845
915.3 (a), (b)(5) and (d) amended..................................12845
915.5 (c) amended..................................................12845

[[Page 625]]

915.7 (c) introductory text, (1), (i), (ii), (2), (3) and 4 
        redesignated as (c)(1) introductory text, new (c)(1)(i), 
        (A), (B), (ii), (iii) and (2); (b)(2), new (c)(1)(i)(B), 
        (ii), (2) and (d)(2) amended...............................12845
    Corrected......................................................39791
915.8 (b) amended..................................................12845
915.10 (b) amended.................................................12845
915.12 (a) amended.................................................12845
915.15 Amended.....................................................12846
915.16 (e) amended.................................................12846
915.17 (a)(1) amended..............................................12846
917.1 Amended......................................................12846
917.3 (b)(3)(i) amended............................................12846
917.4 (a)(1) amended...............................................12846
917.5 (a) introductory text and (4) amended; (c) heading 
        designated.................................................12846
917.6 (c) introductory text amended................................12846
917.7 (e)(8) amended...............................................12846
918.3 (a)(1) amended...............................................12846
918.5 Amended......................................................12846
918.7 Amended......................................................12846
918.9 Amended......................................................12846
925.1 Revised......................................................12846
925.3 (c) amended..................................................12848
925.4 (c)(2) amended...............................................12848
925.5 (a)(2) amended...............................................12848
925.7 Amended......................................................12848
925.8 Amended......................................................12848
925.9 Amended......................................................12848
925.10 Amended.....................................................12848
925.11 (a), (b) introductory text, (3) and (c) amended.............12848
925.12 Introductory text amended...................................12848
925.13 (a) amended.................................................12848
925.14 Revised.....................................................12848
925.16 Amended.....................................................12849
925.17 (a), (b) and (f) heading amended............................12849
925.18 (e) amended.................................................12849
925.22 (b)(2) and (c) amended......................................12849
925.24 (b)(5), (c) and (d) amended.................................12849
925.26 (d) amended.................................................12849
925.31 (a) and (b) amended.........................................12849
926.1 Amended......................................................12849
926.4 (a), (c)(1) and (d) amended..................................12849
930.1 Amended......................................................12849
932.4 (g)(1)(i) amended............................................12850
940.1 Revised......................................................12850
940.2 Introductory text and (a) amended............................12850
    Corrected......................................................39791
944 Authority citation revised.....................................12850
944.1 Revised......................................................12850
944.2 (b)(2) introductory text and (i) amended.....................12850
944.3 (b)(2), (c)(1)(i), (ii)(B), (C) and (2) amended..............12850
944.5 (b), (d)(1)(i) and (3) amended...............................12850
944.6 (a)(3), (4) and (5)(iii) amended.............................12850
944.7 Amended......................................................12850
950 Authority citation revised.....................................12850
950.1 Amended......................................................12850
950.2 Heading amended..............................................12851
950.4 (e)(1), (2), (g)(2)(i) and (ii) amended......................12851
950.7 (a)(1)(ii)(D), (2)(i) and (e)(3) revised.....................12851
950.8 (a) amended..................................................12851
950.9 (a)(1) amended...............................................12851
950.11 (b)(1) amended..............................................12851
950.14 (b)(2)(i)(A), (C), (c)(2)(i), (ii), (e)(2) and (3) revised 
                                                                   12851
950.25 (b) amended.................................................12852
951.1 Amended...............................................12852, 18804
951.3 (a)(2) revised; (b)(1)(vii) and (viii) amended; (b)(1)(ix) 
        added......................................................18804
    (a)(1) revised.................................................58981
951.4 Amended......................................................12852
    Corrected......................................................15011
951.5 (b)(2)(i)(A), (7)(i) and (ii) amended........................12852
    (a)(2)(iii) revised; (a)(3) amended............................58982
951.6 (b)(1) and (4)(i) amended; (b)(4)(iv)(A) and (D) revised.....18804
951.7 Heading, (a) introductory text amended.......................18804
951.8 (b)(2) introductory text, (i) and (iii) revised; (c)(5) 
        added......................................................18804
951.9 Introductory text amended....................................12852
    Removed........................................................18804
951.10 (c)(1) introductory text amended............................12852
    (a)(1)(ii) amended; (b)(1)(ii) introductory text, (c)(1) 
introductory text, (2) introductory text and (i) revised...........18804
951.12 (h) amended.................................................12852
    (a)(1)(ii), (2)(i)(B) and (b)(2) amended; (e) revised..........18805

[[Page 626]]

951.13 (d)(1)(ii), (iii) and (iv) revised..........................18805
950.16 Amended.....................................................12852
952 Authority citation revised.....................................12852
952.1 Redesignated as 952.2; new 952.1 redesignated from 952.3 and 
        amended....................................................12852
952.2 Redesignated as 952.3; new 952.2 redesignated from 952.1 and 
        amended....................................................12852
952.3 Redesignated as 952.1; new 952.3 redesignated from 952.2 and 
        revised....................................................12852
952.5 (a)(3), (4), (d)(1), (4)(ii) and (6)(i) amended..............12852
955.1 Revised......................................................12852
955.3 (b)(2)(ii) and (3) amended...................................12852
956.1 Revised......................................................12853
956.2 (c) and (d) amended..........................................12853
956.3 (a)(4)(iii) amended..........................................12853
956.4 Introductory text amended....................................12853
956.5 (b) and (e) amended..........................................12853
960 Removed; new 960 redesignated from 961; new authority cite 
        amended....................................................12853
960.1 Amended......................................................12853
960.2 (b) amended..................................................12853
960.4 (c) amended..................................................12853
960.5 (b)(1) amended...............................................12853
961 Redesignated as 960............................................12853
965 Authority citation revised.....................................12853
965.1 (3)(ii) and (iii) amended....................................12853
965.2 (b) amended..................................................12853
966 Authority citation revised.....................................12853
966.1 Revised......................................................12853
966.2 (a) and (b)(2) amended.......................................12853
966.3 (a)(1) amended...............................................12853
    (a)(2) revised.................................................35715
966.8 (a) amended..................................................12853
966.10 Amended.....................................................12854
975.1 Redesignated as new 975.2; new 975.1 redesignated from 975.2 
        and revised................................................12854
975.2 Redesignated as 975.1; new 975.2 redesignated from 975.1; 
        new (a) and (b) amended....................................12854
975.3 Revised......................................................12854
975.4 Introductory text amended....................................12854
978.1 Amended......................................................12854
978.2 Amended......................................................12854
978.4 Amended......................................................12854
978.7 Amended......................................................12854
980.3 (a)(3)(iii) and (iv) amended.................................12854
985 Authority citation added.......................................12854
985.1 Revised......................................................12854
985.3 (d) amended..................................................12855
985.6 (d) amended..................................................12855
985.8 (d)(4)(i) amended............................................12855
    (b) revised....................................................18807
987.1 Amended......................................................12855
987.5 (a) amended..................................................12855
989 Authority citation revised.....................................12855
989.1 Amended......................................................12855
995 Authority citation revised.....................................12855
995.1 Revised......................................................12855
995.3 Amended......................................................12855
995.4 (b) amended..................................................12855
995.7 (b) amended..................................................12856
995.8 (b)(2)(i), (3)(i), (ii), (c)(1) and (d)(1) amended...........12856
995.10 Amended.....................................................12856
996.1 Redesignated as 996.2; new 996.1 added.......................12856
996.2 Redesignated as 996.3; new 996.2 redesignated from 996.1 and 
        amended....................................................12856
996.3 Redesignated from 996.2 and amended..........................12856
997 Authority citation revised.....................................12856
997.1 Amended......................................................12856
Chapter XVII
1705.10--1705.19 (Subpart B) Appendix A amended....................66535
1710 Added.........................................................38370
1720 Added.........................................................55693
1750.5 Removed.....................................................19322
1750.12 (c) revised................................................19322
1750.10--1750.13 (Subpart B) Appendix A amended.............11861, 66535
1777 Added..........................................................3598

                                  2003

12 CFR
                                                                   68 FR
                                                                    Page
Chapter IX
900.1 Amended......................................................38169
905.2 (b) revised..................................................38169
905.2-905.4 (Subpart A) Appendix A amended.........................38170
905.10 Revised.....................................................38170
905.11 Revised.....................................................38170
905.12 Revised.....................................................38170
905.13 Revised.....................................................38170
905.14 Revised.....................................................38170
905.15 Revised.....................................................38170
    Correctly removed..............................................67789
905.16 Removed.....................................................38170
905.17 Removed.....................................................38170

[[Page 627]]

905.18 Removed.....................................................38170
905.19 Removed.....................................................38170
910.9 (f)(2), (4) and (g) revised; (f)(6) added; interim...........39812
913 Revised; interim...............................................39812
913.7 (c)(1)(vii) redesignated as (c)(1)(vi).......................59309
Chapter XVII
1700.3 Revised.....................................................32629
1700.4 Removed.....................................................32629
1730 Added.........................................................16718
1750.10-175.13 (Subpart B) Appendix A amended.......................7312
Chapter XVIII
1805 Revised; interim...............................................5707
1806 Revised; interim...............................................5720

                                  2004

12 CFR
                                                                   69 FR
                                                                    Page
Title 12 Nomenclature change.......................................18803
Chapter IX
900.3 Amended......................................................38811
998 (Subchapter M) Added...........................................38811
Chapter XI
1102 Nomenclature change............................................2501
1102.306 (a)(1)(i) amended..........................................2501
Chapter XVII
1700.2 (b) and (c) revised.........................................18809
Chapter XVIII
1805 Revised; interim..............................................26262

                                  2005

12 CFR
                                                                   70 FR
                                                                    Page
Chapter IX
905 Authority citation revised......................................9508
905.27 Added........................................................9508
906 Revised.........................................................9509
925.2 Amended.......................................................9510
925.3 Amended.......................................................9510
925.5 Amended.......................................................9510
925.6 Amended.......................................................9510
925.7 Amended.......................................................9510
925.8 Amended.......................................................9510
925.9 Amended.......................................................9510
925.11 Amended......................................................9510
925.12 Amended......................................................9510
925.13 Amended......................................................9510
925.15 Amended......................................................9510
925.16 Amended......................................................9510
925.17 Amended......................................................9510
925.18 Amended......................................................9510
925.22 Amended......................................................9510
925.24 Amended......................................................9510
925.26 Amended......................................................9510
925.31 Amended......................................................9510
926.4 Amended.......................................................9510
926.5 Amended.......................................................9510
926.6 Amended.......................................................9510
931.3 Amended.......................................................9510
931.7 Amended.......................................................9510
933.2 Amended.......................................................9510
944.2 Amended.......................................................9510
944.3 Amended.......................................................9510
944.4 Amended.......................................................9510
944.5 Amended.......................................................9510
950.17 Amended......................................................9510
951.1 Amended.......................................................9511
951.3 Amended.......................................................9511
951.4 Amended.......................................................9511
951.6 Amended.......................................................9511
951.7 Amended.......................................................9511
951.8 Amended.......................................................9511
951.10 Amended......................................................9511
951.11 Amended......................................................9511
951.13 Amended......................................................9511
951.15 Amended......................................................9511
Chapter XVII
1700.2 (c)(3), (7) and (8) removed; (c) and (d) redesignated as 
        (d) and (e); new (d)(1), (2), (9) and (10) redesignated as 
        (d)(2), (3), (7) and (8); new (c) and (d)(1) added.........59629
1710.11 Redesignated as 1710.12; new 1710.11 added.................17310
1710.12 Redesignated as 1710.13; new 1710.12 redesignated from 
        1710.11....................................................17310
1710.12 (b) revised; (c) added.....................................17311
1710.13 Removed; new 1710.13 redesignated from 1710.12.............17310
    New (a) revised; (b) added.....................................17311
1710.14 Heading and new (a) revised; (b) added.....................17311
1710.15 (b) revised................................................17311
1710.16 Added......................................................17311
1710.17 Added......................................................17311
1710.18 Added......................................................17311
1710.19 Added......................................................17311
1710.30 (Subpart D) Added..........................................17311
1731 Added.........................................................43627
1780 Authority citation revised....................................51243
1780.30--1780.81 (Subpart E) Revised...............................51243
Chapter XVIII
1805 Revised; interim..............................................73888

[[Page 628]]

                                  2006

12 CFR
                                                                   71 FR
                                                                    Page
Chapter IX
900.2 Amended......................................................35499
    Amended; eff. 1-29-07..........................................78050
910.1 Amended; interim.............................................60812
910.9 (f)(2) and (g) revised; interim..............................60812
913.1 Amended; interim.............................................60812
913.2 (a) revised; interim.........................................60812
913.3 (e)(1) and (2)(i) revised; interim...........................60812
913.4 (a) and (b) revised; interim.................................60812
913.5 (e)(1) and (3) revised; interim..............................60813
913.7 (b)(1) introductory text revised; interim....................60813
913.8 Added; interim...............................................60813
913.9 Added; interim...............................................60813
913.10 Added; interim..............................................60813
914 Added..........................................................35499
915.6 (a)(3) and (4) redesignated as (a)(4) and (5); new (a)(3) 
        added; new (a)(4) revised..................................40647
915.7 (a) revised..................................................35500
915.8 (a) revised; (b) through (e) redesignated as (c) through 
        (f); new (b) added.........................................40647
915.9 Revised......................................................40647
915.12 (a) revised.................................................35500
915.16 (e) amended.................................................40648
915.17 (b)(1) amended..............................................40648
917.9 Revised; eff. 1-29-07........................................78051
925.20 (e) revised.................................................35500
925.23 Revised; eff. 1-29-07.......................................78051
930 Authority citation revised.....................................78051
930.1 Amended; eff. 1-29-07........................................78051
950.4 (e) revised..................................................35500
951 Revised........................................................59286
955.4 Revised......................................................35500
955 Appendices A and B removed.....................................35500
Chapter XIV
1412 Added..........................................................7405
    Regulation at 71 FR 7405 confirmed.............................25743
Chapter XVII
1700--1799 (Chapter XVII) Response to comments.....................19985
1732 Added.........................................................62884
1750.10--1750.13 (Subpart B) Appendix A amended....................75087

                                  2007

12 CFR
                                                                   72 FR
                                                                    Page
Chapter IX
910.1 Regulation at 71 FR 60812 confirmed............................645
910.9 Regulation at 71 FR 60812 confirmed............................645
913.1 Regulation at 71 FR 60812 confirmed............................645
913.2 Regulation at 71 FR 60812 confirmed............................645
913.3 Regulation at 71 FR 60812 confirmed............................645
913.4 Regulation at 71 FR 60812 confirmed............................645
913.5 Regulation at 71 FR 60813 confirmed............................645
913.7 Regulation at 71 FR 60813 confirmed............................645
913.8 Regulation at 71 FR 60813 confirmed............................645
913.9 Regulation at 71 FR 60813 confirmed............................645
913.10 Regulation at 71 FR 60813 confirmed...........................645
915.10 Revised; interim.............................................3029
    Revised........................................................15602
    (e) revised....................................................33639
915.11 (a) revised.................................................33639
915.16 Removed.....................................................33639
915.17 Removed.....................................................33639
915 Appendix A removed.............................................33639


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