[Title 12 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2020 Edition]
[From the U.S. Government Publishing Office]



[[Page i]]

          

                                 Title 12

                            Banks and Banking
                         ________________________

                            Part 1100 to End

                         Revised as of January 1, 2020

          Containing a codification of documents of general 
          applicability and future effect

          As of January 1, 2020
                    Published by the Office of the Federal Register 
                    National Archives and Records Administration as a 
                    Special Edition of the Federal Register

[[Page ii]]

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          It is prohibited to use NARA's official seal and the stylized Code 
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                            Table of Contents



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

  Title 12:
          Chapter XI--Federal Financial Institutions 
          Examination Council                                        3
          Chapter XII--Federal Housing Finance Agency               41
          Chapter XIII--Financial Stability Oversight Council      507
          Chapter XIV--Farm Credit System Insurance 
          Corporation                                              565
          Chapter XV--Department of the Treasury                   603
          Chapter XVI--Office of Financial Research, 
          Department of the Treasury                               625
          Chapter XVII--Office of Federal Housing Enterprise 
          Oversight, Department of Housing and Urban 
          Development                                              635
          Chapter XVIII--Community Development Financial 
          Institutions Fund, Department of the Treasury            769
  Finding Aids:
      Table of CFR Titles and Chapters........................     859
      Alphabetical List of Agencies Appearing in the CFR......     879
      List of CFR Sections Affected...........................     889

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

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 12 CFR 1101.1 refers 
                       to title 12, part 1101, 
                       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, 2020), 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 
exercised by the user in determining the actual effective date. In 
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 
those instances where a regulation published in the Federal Register 
states a date certain for expiration, an appropriate note will be 
inserted following the text.

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 
placed as close as possible to the applicable recordkeeping or reporting 
requirements.

PAST PROVISIONS OF THE CODE

    Provisions of the Code that are no longer in force and effect as of 
the revision date stated on the cover of each volume are not carried. 
Code users may find the text of provisions in effect on any given date 
in the past by using the appropriate List of CFR Sections Affected 
(LSA). For the convenience of the reader, a ``List of CFR Sections 
Affected'' is published at the end of each CFR volume. For changes to 
the Code prior to the LSA listings at the end of the volume, consult 
previous annual editions of the LSA. For changes to the Code prior to 
2001, consult the List of CFR Sections Affected compilations, published 
for 1949-1963, 1964-1972, 1973-1985, and 1986-2000.

``[RESERVED]'' TERMINOLOGY

    The term ``[Reserved]'' is used as a place holder within the Code of 
Federal Regulations. An agency may add regulatory information at a 
``[Reserved]'' location at any time. Occasionally ``[Reserved]'' is used 
editorially to indicate that a portion of the CFR was left vacant and 
not dropped in error.

INCORPORATION BY REFERENCE

    What is incorporation by reference? Incorporation by reference was 
established by statute and allows Federal agencies to meet the 
requirement to publish regulations in the Federal Register by referring 
to materials already published elsewhere. For an incorporation to be 
valid, the Director of the Federal Register must approve it. The legal 
effect of incorporation by reference is that the material is treated as 
if it were published in full in the Federal Register (5 U.S.C. 552(a)). 
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.
    What if the material incorporated by reference cannot be found? If 
you have any problem locating or obtaining a copy of material listed as 
an approved incorporation by reference, please contact the agency that 
issued the regulation containing that incorporation. If, after 
contacting the agency, you find the material is not available, please 
notify the Director of the Federal Register, National Archives and 
Records Administration, 8601 Adelphi Road, College Park, MD 20740-6001, 
or call 202-741-6010.

CFR INDEXES AND TABULAR GUIDES

    A subject index to the Code of Federal Regulations is contained in a 
separate volume, revised annually as of January 1, entitled CFR Index 
and Finding Aids. This volume contains the Parallel Table of Authorities 
and Rules. A list of CFR titles, chapters, subchapters, and parts and an 
alphabetical list of agencies publishing in the CFR are also included in 
this volume.
    An index to the text of ``Title 3--The President'' is carried within 
that volume.

[[Page vii]]

    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.

REPUBLICATION OF MATERIAL

    There are no restrictions on the republication of material appearing 
in the Code of Federal Regulations.

INQUIRIES

    For a legal interpretation or explanation of any regulation in this 
volume, contact the issuing agency. The issuing agency's name appears at 
the top of odd-numbered pages.
    For inquiries concerning CFR reference assistance, call 202-741-6000 
or write to the Director, Office of the Federal Register, National 
Archives and Records Administration, 8601 Adelphi Road, College Park, MD 
20740-6001 or e-mail [email protected].

SALES

    The Government Publishing Office (GPO) processes all sales and 
distribution of the CFR. For payment by credit card, call toll-free, 
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write to: US Government Publishing Office - New Orders, P.O. Box 979050, 
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ELECTRONIC SERVICES

    The full text of the Code of Federal Regulations, the LSA (List of 
CFR Sections Affected), The United States Government Manual, the Federal 
Register, Public Laws, Public Papers of the Presidents of the United 
States, Compilation of Presidential Documents and the Privacy Act 
Compilation are available in electronic format via www.govinfo.gov. For 
more information, contact the GPO Customer Contact Center, U.S. 
Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-
free). E-mail, [email protected].
    The Office of the Federal Register also offers a free service on the 
National Archives and Records Administration's (NARA) website for public 
law numbers, Federal Register finding aids, and related information. 
Connect to NARA's website at www.archives.gov/federal-register.
    The e-CFR is a regularly updated, unofficial editorial compilation 
of CFR material and Federal Register amendments, produced by the Office 
of the Federal Register and the Government Publishing Office. It is 
available at www.ecfr.gov.

    Oliver A. Potts,
    Director,
    Office of the Federal Register
    January 1, 2020







[[Page ix]]



                               THIS TITLE

    Title 12--Banks and Banking is composed of ten volumes. The parts in 
these volumes are arranged in the following order: Parts 1-199, 200-219, 
220-229, 230-299, 300-346, 347-599, 600-899, 900-1025, 1026-1099, and 
1100-end. The contents of these volumes represent all current 
regulations codified under this title of the CFR as of January 1, 2020.

    For this volume, Michele Bugenhagen was Chief Editor. The Code of 
Federal Regulations publication program is under the direction of John 
Hyrum Martinez, assisted by Stephen J. Frattini.

[[Page 1]]



                       TITLE 12--BANKS AND BANKING




                  (This book contains part 1100 to end)

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

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

chapter xii--Federal Housing Finance Agency.................        1206

chapter xiii--Financial Stability Oversight Council.........        1301

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

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

chapter xvi--Office of Financial Research, Department of the 
  Treasury..................................................        1600

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 XI--FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL




  --------------------------------------------------------------------
Part                                                                Page
1100           [Reserved]

1101            Description of office, procedures, public 
                    information.............................           5
1102            Appraiser regulation........................          12
1103-1199       [Reserved]

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                          PART 1100 [RESERVED]



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 3501 Fairfax 
Drive, Room B-7081a, Arlington, VA, 22226-3550.

[45 FR 46794, July 11, 1980, as amended at 53 FR 7341, Mar. 8, 1988; 75 
FR 71014, Nov. 22, 2010]



Sec.1101.4  Disclosure of information, policies, and records.

    (a) Statements of policy published in the Federal Register or 
available for public inspection in an electronic format; indices. (1) 
Under 5 U.S.C. 552(a)(l), the Council publishes general rules, policies 
and interpretations in the Federal Register.
    (2) Under 5 U.S.C. 552(a)(2), policies and interpretations adopted 
by the Council, including instructions to Council staff affecting 
members of the

[[Page 6]]

public are available for public inspection in an electronic format at 
the office of the Executive Secretary of the Council, 3501 Fairfax 
Drive, Room B-7081a, Arlington, VA, 22226-3550, during regular business 
hours. Policies and interpretations of the Council may be withheld from 
disclosure under the principles stated in paragraph (b)(1) of this 
section.
    (3) Copies of all records, regardless of form or format, are 
available for public inspection in an electronic format if they:
    (i) Have been released to any person under paragraph (b) of this 
section; and
    (ii)(A) Because of the nature of their subject matter, the Council 
determines that they have become or are likely to become the subject of 
subsequent requests for substantially the same records; or
    (B) They have been requested three or more times.
    (4) An index of the records referred to in paragraphs (a)(1) through 
(3) of this section is available for public inspection in an electronic 
format.
    (b) Other records of the Council available to the public upon 
request; procedures--(1) General rule and exemptions. Under 5 U.S.C. 
552(a)(3), all other records of the Council are available to the public 
upon request, except to the extent exempted from disclosure as provided 
in 5 U.S.C. 552(b) and described in this paragraph (b)(1), or if 
disclosure is prohibited by law. Unless specifically authorized by the 
Council, or as set forth in paragraph (b)(2) of this section, 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 intra-agency 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, 
and records of deliberations of the Council and discussions of meetings 
of the Council, any Council Committee, or Council staff, that are not 
subject to 5 U.S.C. 552b (the Government in the Sunshine Act). In 
applying this exemption, the Council will not withhold records based on 
the deliberative process privilege if the records were created 25 years 
or more before the date on which the records were requested.
    (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, 
to the extent permitted under 5 U.S.C. 552(b)(7), including records 
relating to a proceeding by a financial institution's State or Federal 
regulatory agency for the issuance of a cease-anddesist 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.
    (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 State or Federal agency directly 
or indirectly responsible for the regulation or supervision of financial 
institutions.
    (ix) A record, or portion thereof, which contains or is related to 
geological and geophysical information and data, including maps, 
concerning wells.

[[Page 7]]

    (2) Discretionary release of exempt information. Notwithstanding the 
applicability of an exemption, the Council will only withhold records 
requested under this paragraph (b) if the Council reasonably foresees 
that disclosure would harm an interest protected by an exemption listed 
in 5 U.S.C. 552(b) and described in paragraph (b)(1) of this section. In 
addition, whenever the Council determines that full disclosure of a 
requested record is not possible, the Council will consider whether 
partial disclosure is possible and will take reasonable steps necessary 
to segregate and release the nonexempt portion of a record. The Council 
or the Council's designee may elect, under the circumstances of a 
particular request, to disclose all or a portion of any requested record 
where permitted by law. Such disclosure has no precedential 
significance.
    (3) Procedure for records request-(i) Initial request. Requests for 
records shall be submitted in writing to the Executive Secretary of the 
Council:
    (A) By sending a letter to: FFIEC, Attn: Executive Secretary, 3501 
Fairfax Drive, Room B-708la, Arlington, VA, 22226-3550. Both the mailing 
envelope and the request should be marked ``Freedom of Information 
Request,'' ``FOIA Request,'' or the like; or
    (B) By facsimile clearly marked ``Freedom of Information Act 
Request,'' ``FOIA Request,'' or the like to the Executive Secretary at 
(703) 562-6446; or
    (C) By email to the address provided on the FFIEC's World Wide Web 
page, found at: http://www.ffiec.gov. Requests must reasonably describe 
the records sought.
    (ii) Contents of request. All requests should contain the following 
information:
    (A) The name and mailing 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;
    (B) A statement as to whether the information is intended for 
commercial use, and whether the requester is an educational or 
noncommercial scientific institution, or news media representative; and
    (C) A statement agreeing to pay all applicable fees, or a statement 
identifying any desired fee limitation, or a request for a waiver or 
reduction of fees that satisfies paragraph (b)(5)(ii)(H) of this 
section.
    (iii) Defective requests. The Council 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 section. The 
Executive Secretary may return a defective request specifying the 
deficiency. The requester may submit a corrected request, which will be 
treated as an initial request.
    (iv) Expedited processing. (A) Where a person requesting expedited 
access to records has demonstrated a compelling need for the records, or 
where the Executive Secretary has determined to expedite the response, 
the Executive Secretary shall process the request as soon as 
practicable. To show a compelling need for expedited processing, the 
requester shall provide a statement demonstrating that:
    (1) 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
    (2) The requester is primarily engaged in information dissemination 
as a main professional occupation or activity, and there is urgency to 
inform the public of the government activity involved in the request.
    (B) 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.
    (C) The formality of the certification required to obtain expedited 
treatment may be waived by the Executive Secretary as a matter of 
administrative discretion.
    (v) Response to initial requests. (A) Except where the Executive 
Secretary has determined to expedite the processing of a request, the 
Executive Secretary will respond by mail or electronic mail to all 
properly submitted initial requests within 20 working days of receipt. 
The time for response may be extended up to 10 additional working

[[Page 8]]

days in unusual circumstances, as defined in 5 U.S.C. 552(a)(6)(B), 
where the Council has provided written notice to the requester setting 
forth the reasons for the extension and the date on which a 
determination is expected to be dispatched. In addition, where the 
extension of the 20-day time limit exceeds 10 working days, as described 
by the FOIA, the requester shall be provided with an opportunity to 
modify the scope of the FOIA request so that it can be processed within 
that time frame or provided an opportunity to arrange an alternative 
time frame for processing the request or a modified request. To aid the 
requester, the Council's FOIA Public Liaison is available to assist the 
requester for this purpose and in the resolution of any disputes between 
the requester and the Council. The Council's FOIA Public Liaison's 
contact information is available at http://www.ffiec.gov/foia.htm. The 
requester may also seek dispute resolution services from the Office of 
Government Information Services.
    (B) In response to a request that reasonably describes the records 
sought and otherwise satisfies the requirements of this section, a 
search shall be conducted of records in existence and maintained by the 
Council on the date of receipt of the request, and a review made of any 
responsive information located. The Executive Secretary shall notify the 
requester of:
    (1) The Executive Secretary's determination of the response to the 
request;
    (2) The reasons for the determination;
    (3) The right of the requester to seek assistance from the Council's 
FOIA Public Liaison; and
    (4) When an adverse determination is made (including a determination 
that the requested record is exempt, in whole or in part; the request 
does not reasonably describe the records sought; the information 
requested is not a record subject to the FOIA; the requested record does 
not exist, cannot be located, or has been destroyed; the requested 
record is not readily reproducible in the form or format sought by the 
requester; a fee waiver request or other fee categorization matter is 
denied; and a request for expedited processing is denied), the Executive 
Secretary will advise the requester in writing of that determination and 
will further advise the requester:
    (i) If the denial is in part or in whole;
    (ii) The name and title of each person responsible for the denial 
(when other than the person signing the notification);
    (iii) The exemptions relied on for the denial;
    (iv) The right of the requester to appeal any adverse determination 
to the Chairman of the Council within 90 days following the date of 
issuance of the notification, as specified in paragraph (b)(3)(vi) of 
this section; and
    (v) The right of the requester to seek dispute resolution services 
from the Council's FOIA Public Liaison or the Office of Government 
Information Services.
    (vi) Appeals of responses to initial requests. A requester may 
appeal any adverse determination in writing, within 90 days of the date 
of issuance of the adverse determination. Appeals should refer to the 
date and tracking number of the original request and the date of the 
Council's initial ruling. Appeals should include an explanation of the 
basis for the appeal. Appeals shall be submitted to the Chairman of the 
Council:
    (A) By sending a letter to: FFIEC, Attn: Executive Secretary, 3501 
Fairfax Drive, Room B-7081a, Arlington, VA, 22226-3550. Both the mailing 
envelope and the request should be marked ``Freedom of Information Act 
Appeal,'' ``FOIA Appeal,'' or the like; or
    (B) By facsimile clearly marked ``Freedom of Information Act 
Appeal,'' ``FOIA Appeal,'' or the like to the Executive Secretary at 
(703) 562-6446; or
    (C) By email with the subject line marked ``Freedom of Information 
Act Appeal,'' ``FOIA Appeal,'' or the like to [email protected].
    (vii) Council response to appeals. The Chairman of the Council, or 
another member designated by the Chairman, will respond to all properly 
submitted appeals within 20 working days of actual receipt of the appeal 
by the Executive Secretary. 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

[[Page 9]]

agreement between the requester and the Chairman or the Chairman's 
designee.
    (4) Procedure for access to records if request is granted. (i) 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 
requester or made available for inspection in an electronic format, 
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.
    (ii) When delivery to the requester is to be made, copies of 
requested records shall be sent to the requester by regular U.S. mail to 
the address indicated in the request, unless the Executive Secretary 
deems it appropriate to send the documents by another means.
    (iii) The Council shall provide a copy of the record in any form or 
format requested if the record is readily reproducible by the Council in 
that form or format, but the Council need not provide more than one copy 
of any record to a requester.
    (iv) By arrangement with the requester, the Executive Secretary may 
elect to send the responsive records electronically if a substantial 
portion of the records is in electronic format. If the information 
requested is subject to disclosure under the Privacy Act of 1974, 5 
U.S.C. 552a, it will not be sent by electronic means unless reasonable 
security measures can be established.
    (5) Fees for document search, review, and duplication; waiver and 
reduction of fee--(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. Such copies can take the form of 
paper copy, microfilm, audiovisual records, or machine readable records 
(e.g., magnetic tape or computer disk).
    (D) Review means the process of examining documents located in 
response to a request that is for a commercial use (see paragraph 
(b)(5)(i)(E) of this section) 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. In determining whether a request falls 
within this category, the Executive Secretary will determine the use to 
which a requester will put the records requested and seek additional 
information as the Executive Secretary deems necessary.
    (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 
paragraph (b)(5)(i)(E) of this section, 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.
    (H) Representative of the news media means any person or entity that 
gathers information of potential interest to a segment of the public, 
uses its editorial skills to turn the raw materials into a distinct 
work, and distributes that work to an audience. In this paragraph 
(b)(5)(i)(H), 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 are television or radio stations broadcasting to the 
public at large and publishers of periodicals (but only if such entities 
qualify as disseminators of ``news'') who make their products available 
for purchase

[[Page 10]]

by or subscription by or free distribution to the general public. These 
examples are not all-inclusive. Moreover, as methods of news delivery 
evolve (for example, the adoption of the electronic dissemination of 
newspapers through telecommunications services), such alternative media 
shall be considered to be news-media entities. A freelance journalist 
shall be regarded as working for a news-media entity if the journalist 
can demonstrate a solid basis for expecting publication through that 
entity, whether or not the journalist is actually employed by the 
entity. A publication contract would present a solid basis for such an 
expectation; the Council may also consider the past publication record 
of the requester in making such a determination.
    (ii) Fees to be charged. The Council will charge fees that recoup 
the full allowable direct costs it incurs, except that the charging of 
search and/or duplication fees is subject to the restrictions of 
paragraph (b)(5)(ii)(G) of this section. 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 records 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, 
disks, labels, etc.).
    (3) If any other method of duplication is used, the Council will 
charge the actual direct cost of duplicating the records.
    (D) Hourly rates. 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 the Council's 
FOIA Public Liaison 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 
such as certifying records as true copies or mailing records by express 
mail 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. (1) 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.
    (2)(i) If the Council fails to comply with the time limits specified 
in the FOIA in which to respond to a request, the Council will not 
charge search fees, or, in the case of a requester described in 
paragraph (b)(5)(iii)(B) of this section, will not charge duplication 
fees, except as described in paragraphs (b)(5)(ii)(G)(2)(ii) through 
(iv) of this section.

[[Page 11]]

    (ii) If the Council has determined that unusual circumstances apply 
(as the term is defined in the FOIA) and the Council provided a timely 
written notice to the requester in accordance with the FOIA, a failure 
to comply with the time limit shall be excused for an additional 10 
working days.
    (iii) If the Council has determined that unusual circumstances apply 
(as the term is defined in the FOIA) and more than 5,000 pages are 
necessary to respond to the request, the Council may charge search fees, 
or, in the case of requesters described in paragraph (b)(5)(iii)(B) of 
this section, may charge duplication fees, if the following steps are 
taken: The Council provided timely written notice of unusual 
circumstances to the requester in accordance with the FOIA; and The 
Council discussed with the requester via written mail, email message, or 
telephone (or made not less than three good-faith attempts to do so) how 
the requester could effectively limit the scope of the request in 
accordance with 5 U.S.C. 552(a)(6)(B)(ii). If this exception is 
satisfied, the Council may charge all applicable fees incurred in the 
processing of the request.
    (iv) If a court has determined that exceptional circumstances exist, 
as defined by the FOIA, a failure to comply with the time limits shall 
be excused for the length of time provided by the court order.
    (H) Waiving or reducing fees. As part of the initial request for 
records, a requester may ask that the Council 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 Council and is not primarily in the commercial 
interest of the requester. The initial request for records must also 
state the justification for a waiver or reduction of fees. 
Determinations as to a waiver or reduction of fees will be made by the 
Executive Secretary of the Council and the requester will be notified in 
writing of his/her determination. A determination not to grant a request 
for a waiver or reduction of fees under this paragraph (b)(5)(ii)(H) may 
be appealed to the Chairman of the Council pursuant to the procedure set 
forth in paragraph (b)(3)(vi) of this section.
    (iii) Categories of requesters--(A) Commercial use requesters. The 
Council will assess fees for commercial use requesters sufficient to 
recover the full direct costs of searching for, reviewing for release, 
and 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) News media, educational and noncommercial scientific institution 
requesters. 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 in paragraphs (b)(5)(iii)(A) and (B) 
of this section 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) Description of records. 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 31 U.S.C. 3717 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.

[[Page 12]]

    (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 paragraph 
(b)(5)(iv) of this section 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 paragraph (b)(5)(vii)(A) or (B) of 
this section, the administrative time limits prescribed in subsection 
(a)(6) of the FOIA (i.e., 20 working days from receipt of initial 
requests, 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 originated with 
or incorporates the information of another State or Federal agency or 
department, upon receipt of a request for the record the Council will 
promptly inform the requester of this circumstance and immediately shall 
forward the request to the originating agency or department either for 
processing in accordance with the latter's regulations or for guidance 
with respect to disposition.

[82 FR 30726, July 3, 2017]



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.

[[Page 13]]

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.
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 E_Collection and Transmission of Appraisal Management Company 
                           (AMC) Registry Fees

1102.400 Authority, purpose, and scope.
1102.401 Definitions.
1102.402 Establishing the annual AMC registry fee.
1102.403 Collection and transmission of annual AMC registry fees.

    Authority: 12 U.S.C. 3348(a), 3332, 3335, 3338 (a)(4)(B), 3348(c), 5 
U.S.C. 552a, 553(e); Executive Order 12600, 52 FR 23781 (3 CFR, 1987 
Comp., p. 235).

    Editorial Note: Nomenclature changes to part appear at 83 FR 43739, 
Aug. 28, 2018.



                   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;

[[Page 14]]

    (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 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

[[Page 15]]

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, 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\ x 11 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

[[Page 16]]

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, 1325 G Street NW, 
Suite 500, Washington, DC 20005.
    (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 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.

[[Page 17]]



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 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]

[[Page 18]]



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 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

[[Page 19]]

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 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

[[Page 20]]

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.



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

[[Page 21]]

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: Privacy Act of 1974, Pub. L. 93-579, 88 Stat. 1896; 12 
U.S.C. 552a, as amended.

    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 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 1325 G Street NW, Suite 500, 
Washington, DC 20005, or by mail addressed to: Privacy Act Officer, ASC, 
1325 G Street NW, Suite 500, Washington, DC 20005. 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

[[Page 22]]

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 1325 G Street NW, Suite 500, Washington, DC 20005, 
between 9 a.m. to 4:30 p.m., 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; 75 
FR 36270, June 25, 2010]



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.

[[Page 23]]

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 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 1325 G Street NW, Suite 500, 
Washington, DC 20005, or by mail addressed to the Privacy Act Officer, 
ASC, 1325 G Street NW, Suite 500, Washington, DC 20005.
    (1) Information to be included in requests. Each request to amend an 
ASC record shall reasonably describe the

[[Page 24]]

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 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; 75 
FR 36270, June 25, 2010]



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

[[Page 25]]

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) 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, 1325 G Street NW, 
Suite 500, Washington, DC 20005, or by mail addressed to the Privacy Act 
Officer, ASC, 1325 G Street NW, Suite 500, Washington, DC 20005.
    (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;

[[Page 26]]

    (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, 
1325 G Street NW, Suite 500, Washington, DC 20005, 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.
    (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; 75 
FR 36270, June 25, 2010]



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

[[Page 27]]

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 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).

[[Page 28]]


    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]



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,

[[Page 29]]

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 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

[[Page 30]]

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 1325 G Street NW, Suite 
500, Washington, DC 20005.

[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 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

[[Page 31]]

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''; 1325 G Street NW, Suite 500, Washington, DC 
20005; or
    (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

[[Page 32]]

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 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);

[[Page 33]]

    (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.
    (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

[[Page 34]]

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 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,

[[Page 35]]

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 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; 1325 G Street NW, Suite 500, Washington, DC 20005.
    (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.

[[Page 36]]

    (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 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

[[Page 37]]

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 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.

[[Page 38]]

    (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. 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

[[Page 39]]

Chairman ASC; 1325 G Street NW, Suite 500, Washington, DC 20005. 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 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]



 Subpart E_Collection and Transmission of Appraisal Management Company 
                           (AMC) Registry Fees

    Source: 82 FR 44501, Sept. 25, 2017, unless otherwise noted.



Sec.1102.400  Authority, purpose, and scope.

    (a) Authority. This subpart is issued by the Appraisal Subcommittee 
(ASC) under sections 1106 and 1109 (a)(4)(B) of Title XI of the 
Financial Institutions Reform, Recovery, and Enforcement Act of 1989 
(Title XI), as amended by the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act) (Pub. L. 111-203, 124 Stat. 1376 
(2010)), 12 U.S.C. 3335, 3338 (a)(4)(B)).
    (b) Purpose. The purpose of this subpart is to implement section 
1109 (a)(4)(B) of Title XI, 12 U.S.C. 3338.
    (c) Scope. This subpart applies to States that elect to register and 
supervise appraisal management companies pursuant to 12 U.S.C. 3346 and 
3353, and the regulations promulgated thereunder.



Sec.1102.401  Definitions.

    For purposes of this subpart:
    (a) AMC Registry means the national registry maintained by the ASC 
of those AMCs that meet the Federal definition of AMC, as defined in 12 
U.S.C. 3350(11), are registered by a State or are Federally regulated, 
and have paid the annual AMC registry fee.
    (b) AMC Rule means the interagency final rule on minimum 
requirements for AMCs. (12 CFR 34.210-34.216; 12 CFR 225.190-225.196; 12 
CFR 323.8-323.14; 12 CFR 1222.20-1222.26).
    (c) ASC means the Appraisal Subcommittee of the Federal Financial 
Institutions Examination Council established under section 1102 (12 
U.S.C. 3310) as it amended the Federal Financial Institutions 
Examination Council Act of 1978 (12 U.S.C. 3301 et seq.) by adding 
section 1011.
    (d) Performed an appraisal means the appraisal service requested of 
an appraiser by the AMC was provided to the AMC.

[[Page 40]]

    (e) State means any State, the District of Columbia, the 
Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana 
Islands, Guam, the United States Virgin Islands, and American Samoa.
    (f) Other terms. Definitions of: Appraisal management company (AMC); 
appraisal management services; appraisal panel; consumer credit; covered 
transaction; dwelling; Federally regulated AMC are incorporated from the 
AMC Rule by reference.



Sec.1102.402  Establishing the annual AMC registry fee.

    The annual AMC registry fee to be applied by States that elect to 
register and supervise AMCs is established as follows:
    (a) In the case of an AMC that has been in existence for more than a 
year, $25 multiplied by the number of appraisers who have performed an 
appraisal for the AMC in connection with a covered transaction in such 
State during the previous year; and
    (b) In the case of an AMC that has not been in existence for more 
than a year, $25 multiplied by the number of appraisers who have 
performed an appraisal for the AMC in connection with a covered 
transaction in such State since the AMC commenced doing business.



Sec.1102.403  Collection and transmission of annual AMC registry fees.

    (a) Collection of annual AMC registry fees. States that elect to 
register and supervise AMCs pursuant to the AMC Rule shall collect an 
annual registry fee as established in Sec.1102.402 from AMCs eligible 
to be on the AMC Registry.
    (b) Transmission of annual AMC registry fee. States that elect to 
register and supervise AMCs pursuant to the AMC Rule shall transmit AMC 
registry fees as established in Sec.1102.402 to the ASC on an annual 
basis. States may align a one-year period with any 12-month period, 
which may, or may not, be based on the calendar year. Only those AMCs 
whose registry fees have been transmitted to the ASC will be eligible to 
be on the AMC Registry.

                       PARTS 1103	1199 [RESERVED]

[[Page 41]]



               CHAPTER XII--FEDERAL HOUSING FINANCE AGENCY




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

                SUBCHAPTER A--ORGANIZATION AND OPERATIONS
Part                                                                Page
1200            Organization and functions..................          45
1201            General definitions applying to all Federal 
                    Housing Finance Agency regulations......          49
1202            Freedom of Information Act..................          51
1203            Equal Access to Justice Act.................          64
1204            Privacy Act implementation..................          70
1206            Assessments.................................          79
1207            Minority and Women Outreach Program.........          81
1208            Debt collection.............................          82
1209            Rules of practice and procedure.............         103
1211            Procedures..................................         141
1212            Post-employment restriction for senior 
                    examiners...............................         143
1213            Office of the Ombudsman.....................         145
1214            Availability of non-public information......         147
1215            Production of FHFA records, information, and 
                    employee testimony in third-party legal 
                    proceedings.............................         149
1217            Program Fraud Civil Remedies Act............         155
                    SUBCHAPTER B--ENTITY REGULATIONS
1221            Margin and capital requirements for covered 
                    swap entities...........................         161
1222            Appraisals..................................         182
1223            Minority and women inclusion................         187
1225            Minimum capital--temporary increase.........         195
1227            Suspended Counterparty Program..............         197
1228            Restrictions on the acquisition of, or 
                    taking security interests in, mortgages 
                    on properties encumbered by certain 
                    private transfer fee covenants and 
                    related securities......................         203
1229            Capital classifications and prompt 
                    corrective action.......................         204
1230            Executive compensation......................         214

[[Page 42]]

1231            Golden parachute and indemnification 
                    payments................................         217
1233            Reporting of fraudulent financial 
                    instruments.............................         223
1234            Credit risk retention.......................         225
1235            Record retention for regulated entities and 
                    office of finance.......................         262
1236            Prudential management and operations 
                    standards...............................         265
1237            Conservatorship and receivership............         274
1238            Stress testing of regulated entities........         278
1239            Responsibilities of boards of directors, 
                    corporate practices, and corporate 
                    governance..............................         281
                        SUBCHAPTER C--ENTERPRISES
1248            Uniform Mortgage-backed securities..........         291
1249            Book-entry procedures.......................         294
1250            Flood insurance.............................         298
1251            Contributions to the housing trust and 
                    capital magnet funds....................         299
1252            Portfolio holdings..........................         300
1253            Prior approval for enterprise products......         300
1254            Validation and approval of credit score 
                    models..................................         316
                  SUBCHAPTER D--FEDERAL HOME LOAN BANKS
1260            Sharing of information among Federal Home 
                    Loan Banks..............................         322
1261            Federal Home Loan Bank directors............         324
1263            Members of the banks........................         337
1264            Federal Home Loan Bank housing associates...         357
1265            Core mission activities.....................         360
1266            Advances....................................         361
1267            Federal Home Loan Bank investments..........         372
1268            Acquired member assets......................         375
1269            Standby letters of credit...................         378
1270            Liabilities.................................         381
1271            Miscellaneous Federal Home Loan Bank 
                    operations and authorities..............         390
1272            New business activities.....................         397
1273            Office of Finance...........................         398
1274            Financial statements of the banks...........         406
1277            Federal Home Loan Bank capital requirements, 
                    capital stock and capital plans.........         407
1278            Voluntary mergers of Federal Home Loan Banks         425
                 SUBCHAPTER E--HOUSING GOALS AND MISSION
1281            Federal Home Loan Bank housing goals........         431
1282            Enterprise housing goals and mission........         439
1290            Community support requirements..............         468

[[Page 43]]

1291            Federal Home Loan Banks' Affordable Housing 
                    Program.................................         473
1292            Community Investment Cash Advance Programs..         501
1293-1299       [Reserved]

[[Page 45]]



                SUBCHAPTER A_ORGANIZATION AND OPERATIONS





PART 1200_ORGANIZATION AND FUNCTIONS--Table of Contents



Sec.
1200.1 Federal Housing Finance Agency.
1200.2 Organization of the Federal Housing Finance Agency.
1200.3 Official logo and seal.
1200.4 OMB control numbers assigned under the Paperwork Reduction Act.

    Authority: 5 U.S.C. 552, 12 U.S.C. 4512, 12 U.S.C. 4526, 44 U.S.C. 
3506.

    Source: 77 FR 73264, Dec. 10, 2012, unless otherwise noted.



Sec.1200.1  Federal Housing Finance Agency.

    (a) Scope and authority. The Federal Housing Finance Agency (FHFA) 
is an independent agency of the Federal Government. Division A of the 
Housing and Economic Recovery Act of 2008, Public Law 110-289, 122 Stat. 
2654, titled the Federal Housing Finance Regulatory Reform Act of 2008, 
amended the Federal Housing Enterprises Financial Safety and Soundness 
Act of 1992 (12 U.S.C. 4501 et seq.) (Safety and Soundness Act) and the 
Federal Home Loan Bank Act (12 U.S.C. 1421-1449) to establish FHFA. FHFA 
administers the Safety and Soundness Act and the regulated entities' 
authorizing statutes: the Federal Home Loan Bank Act, the Federal 
National Mortgage Association Charter Act, and the Federal Home Loan 
Mortgage Corporation Act. FHFA is responsible for the supervision and 
regulation of the Federal National Mortgage Corporation (Fannie Mae), 
the Federal Home Loan Mortgage Corporation (Freddie Mac), (together, 
Enterprises), the Federal Home Loan Banks (Banks) (collectively, the 
``regulated entities''), and the Office of Finance (OF). FHFA is charged 
with ensuring that the regulated entities: Operate in a safe and sound 
manner, including maintaining adequate capital and internal controls; 
foster liquid, efficient, competitive, and resilient national housing 
finance markets; comply with the Safety and Soundness Act and their 
respective authorizing statutes, and rules, regulations and orders 
issued under the Safety and Soundness Act and the authorizing statutes; 
and carry out their respective statutory missions through activities and 
operations that are authorized and consistent with the Safety and 
Soundness Act, their respective authorizing statutes, and the public 
interest. FHFA's costs and expenses are funded by annual assessments 
paid by the regulated entities. FHFA is headed by a director, who is 
appointed by the President and confirmed by the Senate for a five-year 
term.
    (b) Location. FHFA's headquarters is located at 400 Seventh Street 
SW., Washington, DC 20219. FHFA's official hours of business are 8:00 
a.m.-5 p.m. (Eastern Time), Monday through Friday, excluding Federal 
holidays.

[77 FR 73264, Dec. 10, 2012, as amended at 80 FR 80233, Dec. 24, 2015]



Sec.1200.2  Organization of the Federal Housing Finance Agency.

    (a) Director. The Director is responsible for overseeing the 
prudential operations of each regulated entity, and for ensuring that 
each regulated entity: Operates in a safe and sound manner; operates and 
acts to foster liquid, efficient, competitive, and resilient national 
housing financing markets; complies with the Safety and Soundness Act, 
its authorizing statute, and rules, regulations, guidelines, and orders 
issued under those statutes; carries out its mission only through 
activities that are authorized by statute; and acts and operates 
consistent with the public interest. The Director may delegate to FHFA 
officers and employees any of the functions, powers, and duties of the 
Director as the Director considers appropriate. The Director manages 
FHFA, including through authorities delegated to FHFA officers and 
employees.
    (b) Deputy Director of the Division of Enterprise Regulation. The 
Deputy Director is responsible for managing FHFA's program of prudential 
supervision of the Enterprises. The Deputy

[[Page 46]]

Director provides management oversight, direction, and support for all 
examination activity involving the Enterprises, the development of 
supervision findings, and preparation of the annual reports of 
examination. The Deputy Director provides support and advice to the 
Director and other senior executives and represents the division on 
significant and emerging supervisory issues and development of FHFA 
supervisory policy, and has such other responsibilities as the Director 
may prescribe.
    (c) Deputy Director of the Division of Housing Mission and Goals. 
The Deputy Director is responsible for FHFA policy development and 
analysis, oversight of housing and regulatory policy, and oversight of 
the mission and goals of the Enterprises. The Deputy Director oversees 
and coordinates FHFA activities regarding data analysis, market 
surveillance, policy development, policy research and analysis affecting 
housing finance and financial markets, and policy analysis and research 
in support of FHFA's mission and the Director's responsibilities as a 
member of the Federal Housing Finance Oversight board, the Financial 
Stability Oversight Board, and the Financial Stability Oversight 
Council, and has such other responsibilities as the Director may 
prescribe.
    (d) Deputy Director of the Division of Federal Home Loan Bank 
Regulation. The Deputy Director is responsible for managing FHFA's 
program of prudential supervision of the Banks and the OF. The Deputy 
Director provides management oversight, direction and support for all 
examination activity involving the Banks, the development of supervision 
findings, and preparation of the annual reports of examination. The 
Deputy Director provides support and advice to the Director and other 
senior executives and represents the division on significant and 
emerging supervisory issues and development of FHFA supervisory policy, 
and has such other responsibilities as the Director may prescribe.
    (e) Offices and functions--(1) Office of the Director. The Office of 
the Director supports the activities of the Director and includes 
Offices as the Director may create within the Office of the Director.
    (2) Division of Enterprise Regulation. The division supports and 
implements the responsibilities of the Deputy Director described in 
paragraph (b) of this section. The division oversees and directs all 
Enterprise supervisory activities, develops examination findings, 
prepares reports of examination, and prepares the sections of the Annual 
Report to Congress that describe the condition and performance of each 
Enterprise. The division monitors and assesses the financial condition 
and performance of the Enterprises. By means of annual examinations and 
a continuous on-site presence, the division monitors and assesses the 
amount of risk each Enterprise assumes, the quality of risk management, 
and compliance with regulations.
    (3) Division of Housing Mission and Goals. The division supports and 
implements the responsibilities of the Deputy Director described in 
paragraph (c) of this section. In support of FHFA's mission and the 
Director's responsibilities as a member of the Federal Housing Finance 
Oversight Board, the Financial Stability Oversight Board, and the 
Financial Stability Oversight Committee, the division also oversees and 
coordinates FHFA activities that involve certain data analysis, and 
analysis affecting housing finance and financial markets.
    (4) Division of Federal Home Loan Bank Regulation. The division 
supports and implements the responsibilities of the Deputy Director 
described in paragraph (d) of this section, including overseeing and 
directing all Bank supervisory activities, developing examination 
findings, preparing reports of examination, and preparing the sections 
of the annual report to Congress that describe the condition and 
performance of the Banks. The division monitors and assesses the 
financial condition and performance of the Banks and the OF and monitors 
and assesses their compliance with regulations, the amount of risk they 
assume, and the quality of their risk management through annual on-site 
examinations, periodic visits, and ongoing off-site monitoring and 
analysis.

[[Page 47]]

    (5) Office of Inspector General. The office is headed by a 
presidentially appointed and Senate-confirmed Inspector General who 
serves under the general supervision of the Director. The office carries 
out activities and responsibilities established in the Inspector General 
Act of 1978.
    (6) Office of General Counsel. The office advises and supports the 
Director and FHFA staff on legal matters related to the functions, 
activities, and operations of FHFA and the regulated entities; it 
supports supervision functions, development and promulgation of 
regulations and orders, and enforcement actions. The office manages the 
Freedom of Information, Privacy Act and ethics programs. The Designated 
Agency Ethics Official advises, counsels, and trains FHFA employees on 
ethical standards and conflicts of interest, and manages the agency's 
financial disclosure program.
    (7) Office of the Ombudsman. The office is responsible for 
considering complaints and appeals from the regulated entities, the OF 
and any person that has a business relationship with a regulated entity 
or the OF concerning any matter relating to FHFA's regulation and 
supervision of that entity or the OF.
    (8) Office of Minority and Women Inclusion. The office is 
responsible for all matters of FHFA relating to diversity in management, 
employment, and business activities, and for supervising the diversity 
requirements applicable to the regulated entities and the OF.
    (f) Other Offices and Departments. The Director may from time to 
time establish or terminate Offices and Divisions of the agency as the 
Director deems necessary or appropriate to carry out FHFA's mission. The 
Director may establish Offices and positions as the Director deems 
necessary and appropriate to support the operations of a federal agency, 
such as a Deputy Director for one or more specified areas of 
responsibility, a Chief Operating Officer, a Chief Financial Officer, an 
Office of Information Technology, and such other offices, departments, 
and positions as are necessary and appropriate or may be required by 
statute.
    (g) Additional information. Current information on the organization 
of FHFA may be obtained by mail from the Office of Congressional Affairs 
and Communications, 400 Seventh Street, SW., Washington, DC 20219. Such 
information, as well as other FHFA information, also may be obtained 
electronically by accessing FHFA's Web site located at www.FHFA.gov.

[77 FR 73264, Dec. 10, 2012, as amended at 80 FR 45599, July 31, 2015; 
80 FR 80233, Dec. 24, 2015]



Sec.1200.3  Official logo and seal.

    This section describes and displays the logo adopted by the Director 
as the official symbol representing FHFA. It is displayed on 
correspondence, selected documents, and signage. The logo serves as the 
official seal to certify and authenticate official documents of the 
agency.
    (a) Description. The logo is a disc consisting of three polygons 
each drawn in a manner resembling a silhouette of a pitched roof house 
and with distinctive eaves under its roof. Each polygon is placed one in 
front of the other, two of which are diminished in size from the polygon 
behind it. Placed in the center of the smallest polygon is the acronym 
for the organization, ``FHFA.'' The polygons are encircled by a 
designation scroll having a solid background and containing the words 
``FEDERAL HOUSING FINANCE AGENCY'' in capital letters with serifs, with 
two mullets on the extreme left and right of the scroll. Upon approval 
by the Director, FHFA may employ variations of the color or shading of 
its logo and seal for specified purposes; these will be available for 
reference on the agency Web site at www.fhfa.gov.
    (b) Display. FHFA's official logo and seal appears below:

[[Page 48]]

[GRAPHIC] [TIFF OMITTED] TR31JY15.025


[77 FR 73264, Dec. 10, 2012, as amended at 80 FR 45599, July 31, 2015]



Sec.1200.4  OMB control numbers assigned under the Paperwork
Reduction Act.

    (a) Under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3531) 
and the implementing regulations of the Office of Management and Budget 
(OMB) (5 CFR part 1320), an agency may not conduct or sponsor, and a 
person is not required to respond to, a collection of information unless 
it displays a currently valid OMB control number.
    (b) OMB has approved the collections of information contained in 
FHFA's regulations and has assigned each collection a control number. 
The following table displays the sections of FHFA's regulations (both 
those located in this chapter and those promulgated by the former 
Federal Housing Finance Board that appear in chapter IX of this title) 
containing collections of information, along with the applicable OMB 
control numbers and the expirations dates for those control numbers:

------------------------------------------------------------------------
 12 CFR part or section where identified    OMB control     Expiration
              and described                     No.            date
------------------------------------------------------------------------
1222.22.................................       2590-0013      07/31/2018
1222.23.................................       2590-0013      07/31/2018
1222.24.................................       2590-0013      07/31/2018
1222.25.................................       2590-0013      07/31/2018
1222.26.................................       2590-0013      07/31/2018
1223.23.................................       2590-0014      07/31/2018
1261.7..................................       2590-0006      02/28/2021
1261.12.................................       2590-0006      02/28/2021
1261.14.................................       2590-0006      02/28/2021
1263.2..................................       2590-0003      03/31/2020
1263.4..................................       2590-0003      03/31/2020
1263.5..................................       2590-0003      03/31/2020
1263.6..................................       2590-0003      03/31/2020
1263.7..................................       2590-0003      03/31/2020
1263.8..................................       2590-0003      03/31/2020
1263.9..................................       2590-0003      03/31/2020
1263.11.................................       2590-0003      03/31/2020
1263.12.................................       2590-0003      03/31/2020
1263.13.................................       2590-0003      03/31/2020
1263.14.................................       2590-0003      03/31/2020
1263.15.................................       2590-0003      03/31/2020
1263.16.................................       2590-0003      03/31/2020
1263.17.................................       2590-0003      03/31/2020
1263.18.................................       2590-0003      03/31/2020
1263.19.................................       2590-0003      03/31/2020
1263.24.................................       2590-0003      03/31/2020
1263.26.................................       2590-0003      03/31/2020
1263.31.................................       2590-0003      03/31/2020
1264.4..................................       2590-0001      12/31/2018

[[Page 49]]

 
1264.5..................................       2590-0001      12/31/2018
1264.6..................................       2590-0001      12/31/2018
1266.17.................................       2590-0001      12/31/2018
1268.7..................................       2590-0008      02/29/2016
1277.22.................................       2590-0002      04/30/2020
1277.28.................................       2590-0002      04/30/2020
1290.2..................................       2590-0005      03/31/2020
1290.3..................................       2590-0005      03/31/2020
1290.4..................................       2590-0005      03/31/2020
1290.5..................................       2590-0005      03/31/2020
1291.5..................................       2590-0007      03/31/2020
1291.6..................................       2590-0007      03/31/2020
1291.7..................................       2590-0007      03/31/2020
1291.8..................................       2590-0007      03/31/2020
1291.9..................................       2590-0007      03/31/2020
------------------------------------------------------------------------


[81 FR 76294, Nov. 2, 2016, as amended at 83 FR 39325, Aug. 9, 2018]



PART 1201_GENERAL DEFINITIONS APPLYING TO ALL FEDERAL HOUSING FINANCE
AGENCY REGULATIONS--Table of Contents



    Authority: 12 U.S.C. 4511(b), 4513(a), 4513(b).

    Source: 78 FR 2322, Jan. 11, 2013, unless otherwise noted.



Sec.1201.1  Definitions.

    As used throughout this chapter, the following basic terms relating 
to the Federal Housing Finance Agency, the Federal National Mortgage 
Association, the Federal Home Loan Mortgage Corporation, the Federal 
Home Loan Banks, the Office of Finance, and related entities have the 
meanings set forth below, unless otherwise indicated in a particular 
subchapter, part, section, or paragraph:
    1934 Act means the Securities Exchange Act of 1934 (15 U.S.C. 78a et 
seq.).
    Acquired member assets or AMA means assets acquired in accordance 
with, and satisfying the applicable requirements of, part 1268 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 Bank Act and 
part 1266 of this chapter.
    Affordable Housing Program or AHP means the Affordable Housing 
Program that each Bank is required to establish pursuant to section 
10(j) of the Bank Act (12 U.S.C. 1430(j)) and part 1291 of this chapter.
    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.
    Authorizing Statutes means the Federal National Mortgage Association 
Charter Act, the Federal Home Loan Mortgage Corporation Act, and the 
Federal Home Loan Bank Act.
    Bank, written in title case, means a Federal Home Loan Bank 
established under section 12 of the Bank Act (12 U.S.C. 1432).
    Bank Act means the Federal Home Loan Bank Act, as amended (12 U.S.C. 
1421 et seq.).
    Bank System means the Federal Home Loan Bank System, consisting of 
all of the Banks and the Office of Finance.
    Capital plan means the capital structure plan required for each Bank 
by section 6(b) of the Bank Act, as amended (12 U.S.C. 1426(b)).
    CIP means the Community Investment Program, an advance program under 
CICA required to be offered pursuant to section 10(i) of the Bank Act 
(12 U.S.C. 1430(i)).

[[Page 50]]

    Community Investment Cash Advance or CICA means any advance made 
through a program offered by a Bank under section 10 of the Bank Act (12 
U.S.C. 1430) and parts 1291 and 1292 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 Bank Act (12 U.S.C. 1430(j)(10)); 
a Bank's Urban Development Funding (UDF) program, offered under section 
10(j)(10) of the Bank Act (12 U.S.C. 1430(j)(10)); a Bank's Affordable 
Housing Program (AHP), offered under section 10(j) of the Bank Act (12 
U.S.C. 1430(j)); a Bank's Community Investment Program (CIP), offered 
under section 10(i) of the Bank Act (12 U.S.C. 1430(i)); or any other 
program offered by a Bank that meets the requirements of part 1292 of 
this chapter.
    Community lending means providing financing for economic development 
projects for targeted beneficiaries, and, for community financial 
institutions (as defined in Sec.1263.1 of this chapter), purchasing or 
funding small business loans, small farm loans, small agri-business 
loans, or community development loans (as defined in Sec.1266.1 of 
this chapter).
    Consolidated obligation or CO means any bond, debenture, or note on 
which the Banks are jointly and severally liable and which was issued 
under section 11 of the Bank Act (12 U.S.C. 1431) and any implementing 
regulations, whether or not such instrument was originally issued 
jointly by the Banks or by the Federal Housing Finance Board on behalf 
of the Banks.
    Data Reporting Manual or DRM means a manual issued by FHFA and 
amended from time to time containing reporting requirements for the 
Regulated Entities.
    Director, written in title case, means the Director of FHFA or his 
or her designee.
    Enterprise means Fannie Mae and Freddie Mac (collectively, 
Enterprises) and any affiliate thereof.
    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 Bank Act, or FHFA's regulations, as applicable.
    Fannie Mae means the Federal National Mortgage Association and any 
affiliate thereof.
    FDIC means the Federal Deposit Insurance Corporation.
    FHFA means the Federal Housing Finance Agency established by Section 
1311(a) of the Safety and Soundness Act. (12 U.S.C. 4511(a)).
    Financing Corporation or FICO means the Financing Corporation 
established and supervised by the Director under section 21 of the Bank 
Act (12 U.S.C. 1441) and part 1271 of this chapter.
    FRB means the Board of Governors of the Federal Reserve System.
    Freddie Mac means the Federal Home Loan Mortgage Corporation and any 
affiliate thereof.
    Generally Accepted Accounting Principles or GAAP means accounting 
principles generally accepted in the United States.
    Ginnie Mae means the Government National Mortgage Association.
    GLB Act means the Gramm-Leach-Bliley Act (Pub. L. 106-102 (1999)).
    HERA means the Housing and Economic Recovery Act of 2008, Public Law 
No. 110-289, 122 Stat. 2654.
    Housing associate means an entity that has been approved as a 
housing associate pursuant to part 1264 of this chapter.
    HUD means the United States Department of Housing and Urban 
Development.
    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.1263.20 or 1263.24(b) of this chapter.
    NCUA means the National Credit Union Administration.
    NRSRO means a credit rating organization registered with the SEC as 
a nationally recognized statistical rating organization by the 
Securities and Exchange Commission.
    OCC means the Office of the Comptroller of the Currency.
    Office of Finance or OF means the Office of Finance, a joint office 
of the Banks established under part 1273 of this chapter and referenced 
in the

[[Page 51]]

Bank Act and the Safety and Soundness Act.
    President, when referring to an officer of a Bank only, means a 
Bank's principal executive officer.
    Regulated Entity means the Federal Home Loan Mortgage Corporation 
and any affiliate thereof, the Federal National Mortgage Association and 
any affiliate thereof, and any Federal Home Loan Bank.
    Resolution Funding Corporation or REFCORP means the Resolution 
Funding Corporation established by section 21B of the Bank Act (12 
U.S.C. 1441b).
    Safety and Soundness Act means the Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992, as amended (12 U.S.C. 4501 
et seq.).
    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.

[78 FR 2322, Jan. 11, 2013, as amended at 79 FR 64665, Oct. 31, 2014; 81 
FR 76295, Nov. 2, 2016; 81 FR 91688, Dec. 19, 2016]



PART 1202_FREEDOM OF INFORMATION ACT--Table of Contents



Sec.
1202.1 Why did FHFA issue this part?
1202.2 What do the terms in this part mean?
1202.3 What information can I obtain through the FOIA?
1202.4 What information is exempt from disclosure?
1202.5 How do I request information from FHFA under the FOIA?
1202.6 What if my request does not have all the information FHFA 
          requires?
1202.7 How will FHFA respond to my FOIA request?
1202.8 If the requested records contain confidential commercial 
          information, what procedures will FHFA follow?
1202.9 How do I appeal a response denying my FOIA request?
1202.10 Will FHFA expedite my request or appeal?
1202.11 What will it cost to get the records I requested?
1202.12 Is there anything else I need to know about FOIA procedures?

Appendix A to Part 1202--FHFA Headquarters
Appendix B to Part 1202--FHFA Office of Inspector General

    Authority: Pub. L. 110-289, 122 Stat. 2654; 5 U.S.C. 301, 552; 12 
U.S.C. 4526; E.O. 12600, 52 FR 23781, 3 CFR, 1987 Comp., p. 235; E.O. 
13392, 70 FR 75373-75377, 3 CFR, 2006 Comp., p. 216-200.

    Source: 82 FR 13745, Mar. 15, 2017, unless otherwise noted.



Sec.1202.1  Why did FHFA issue this part?

    The Federal Housing Finance Agency (FHFA) issued this regulation to 
comply with the Freedom of Information Act (FOIA) (5 U.S.C. 552).
    (a) The Freedom of Information Act (FOIA) (5 U.S.C. 552), is a 
Federal law that requires the Federal Government to disclose certain 
Federal Government records to the public.
    (b) This part explains the rules that the FHFA will follow when 
processing and responding to requests for records under the FOIA. It 
also explains what you must do to request records from FHFA under the 
FOIA. You should read this part together with the FOIA, which explains 
in more detail your rights and the records FHFA may release to you.
    (c) If you want to request information about yourself that is 
contained in a system of records maintained by FHFA, you may do so under 
the Privacy Act of 1974, as amended (5 U.S.C. 552a). This is considered 
a first-party or Privacy Act request under the Privacy Act, and you must 
file your request following FHFA's Privacy Act regulation at part 1204 
of this title. If you file a request for information about yourself, 
FHFA will process your request under both the FOIA and Privacy Act in 
order to give you the greatest degree of access to any responsive 
material.
    (d) Notwithstanding the FOIA and this part, FHFA may routinely 
publish or disclose to the public information without following these 
procedures.



Sec.1202.2  What do the terms in this part mean?

    Some of the terms you need to understand while reading this 
regulation are--

[[Page 52]]

    Aggregating means combing multiple requests for documents that could 
reasonably have been the subject of a single request and which occur 
within a 30-day period, by a single requester or by a group of 
requesters acting in concert that would otherwise involve unusual 
circumstances.
    Appeals Officer or FOIA Appeals Officer means a person designated by 
FHFA who processes appeals of denied FOIA requests for FHFA records.
    Chief FOIA Officer means the designated high-level official within 
FHFA (FHFA-OIG does not have a separate Chief FOIA Officer) who has 
overall responsibility for the agency's FOIA program and compliance with 
the FOIA.
    Confidential commercial information means records provided to the 
Federal Government by a submitter that contain material exempt from 
release under Exemption 4 of the FOIA, 5 U.S.C. 552(b)(4), because 
disclosure could reasonably be expected to cause substantial competitive 
harm.
    Days, unless stated as ``calendar days,'' are working days and do 
not include Saturdays, Sundays, and Federal holidays. If the last day of 
any period prescribed herein falls on a Saturday, Sunday, or Federal 
holiday, the last day of the period will be the next working day that is 
not a Saturday, Sunday, or Federal holiday.
    Direct costs means the expenses, including contract services and 
retrieving documents from at a Federal records center operated by the 
National Archives and Records Administration, incurred by FHFA, in 
searching for, reviewing and/or duplicating records to respond to a 
request for information. In the case of a commercial use request, the 
term also means those expenditures FHFA actually incurs in reviewing 
records to respond to the request. Direct costs include the cost of the 
time of the employee performing the work, the cost of any computer 
searches, and the cost of operating duplication equipment. Direct costs 
do not include overhead expenses such as costs of space, and heating or 
lighting the facility in which the records are stored.
    Duplication means reproducing a copy of a record, or of the 
information contained in it, necessary to respond to a FOIA request. 
Copies can take the form of paper, audiovisual materials, or electronic 
records, among others.
    Employee, for the purposes of this regulation, means any person 
holding an appointment to a position of employment with FHFA, or any 
person who formerly held such an appointment; any conservator appointed 
by FHFA; or any agent or independent contractor acting on behalf of 
FHFA, even though the appointment or contract has terminated.
    Fee Waiver means the waiver or reduction of fees if the requester 
can demonstrate that certain statutory standards are met.
    FHFA means each separate component designated by the agency as a 
primary organizational unit that is responsible for processing FOIA 
requests, as specified in Appendices A and B to this part. FHFA has two 
components: Federal Housing Finance Agency Headquarters (FHFA-HQ) and 
FHFA Office of Inspector General (FHFA-OIG).
    FOIA Officer, FOIA Official and Chief FOIA Officer are persons 
designated by FHFA to process and respond to requests for FHFA records 
under the FOIA.
    FOIA Public Liaison is a person designated by FHFA who is 
responsible for assisting requesters with their requests.
    Proactive disclosure means records that are required by the FOIA to 
be made publicly available, as well as additional records identified as 
being of interest to the public that are appropriate for public 
disclosure, and for posting and indexing such records.
    Readily reproducible means that the requested record or records 
exist in electronic format and can be downloaded or transferred intact 
to a computer disk, tape, or another electronic medium with equipment 
and software currently in use by FHFA.
    Record means information or documentary material FHFA maintains in 
any form or format, including electronic, which FHFA--
    (1) Created 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

[[Page 53]]

operations or activities of FHFA, or because of the value of the 
information it contains; and
    (3) Controls at the time it receives a request under the FOIA.
    Regulated entities means the Federal Home Loan Mortgage Corporation, 
the Federal National Mortgage Association, and the Federal Home Loan 
Banks.
    Requester means any person seeking access to FHFA records under the 
FOIA. A requester falls into one of three categories for the purpose of 
determining what fees may be charged. The three categories are--
    (1) Commercial--A request that asks for information for a use or a 
purpose that furthers a commercial, trade, or profit interest, which can 
include furthering those interests through litigation. A decision to 
place a requester in the commercial use category will be made on a case-
by-case basis based on the requester's intended use of the information;
    (2) Noncommercial--Three distinct subcategories--
    (i) Educational institution--Any school that operates a program of 
scholarly research. A requester in this fee category must show that the 
request is authorized by, and is made under the auspices of, an 
educational institution and that the records are not sought for a 
commercial use, but rather are sought to further scholarly research. To 
fall with this fee category, the request must serve the scholarly 
research goals of the institution rather than an individual research 
goal. A student who makes a request in furtherance of their coursework 
or other school-sponsored activities and provides a copy of a course 
syllabus or other reasonable documentation to indicate the research 
purpose for the request would qualify as part of this fee category;
    (ii) Noncommercial scientific institution--An institution that is 
not operated on a ``commercial'' basis, as defined in this section 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. A request in this category must show that the 
request is authorized by and is made under the auspices of a qualifying 
institution and that the records are sought to further scientific 
research and are not for a commercial use; or
    (iii) Representative of the news media--Any person or entity that 
publishes or broadcasts news to the public, actively gathers information 
of potential interest to a segment of the public, uses its editorial 
skills to turn the raw materials into distinct work, and distributes 
that work to an audience. The term ``news'' means information that is 
about current events or that would be of current interest to the public; 
and
    (3) Other--All requesters who do not fall within either of the 
preceding two categories.
    Requester Service Centers serve as the primary contacts for a 
requester when the requester has questions, is seeking information about 
how the FOIA works, or to check the status of their request.
    Review means the examination of a record located in response to a 
request in order to determine whether any portion of it is exempt from 
disclosure. Review time includes processing any record for disclosure, 
such as doing all that is necessary to prepare the record for 
disclosure, including the process of redacting the record and marking 
the appropriate exemptions. Review costs are properly charged even if a 
record ultimately is not disclosed. Review time also includes time spent 
both obtaining and considering any formal objection to disclosure made 
by a confidential commercial information submitter under Sec.1202.8(f) 
of this part.
    Search means the process of looking for and retrieving records or 
information responsive to a request, whether manually or by electronic 
means. Search time includes a page-by-page or line-by-line 
identification of information within a record and the reasonable efforts 
expanded to locate and retrieve information from electronic records.
    Submitter means any person or entity providing confidential 
information to the Federal Government. The term ``submitter'' includes, 
but is not limited to corporations, state governments, and foreign 
governments.
    Unusual circumstances means the need to--

[[Page 54]]

    (1) Search for and collect records from agencies, offices, 
facilities, or locations that are separate from the office processing 
the request;
    (2) Search for, collect, and appropriately examine 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 FHFA that have a substantial interest in the determination of a 
request.
    Vaughn index means an itemized index, used in litigation, 
correlating each withheld document (or portion) with a specific FOIA 
exemption and the relevant part of the agency's nondisclosure 
justification.

[82 FR 13745, Mar. 15, 2017, as amended at 83 FR 5683, Feb. 9, 2018]



Sec.1202.3  What information can I obtain through the FOIA?

    (a) General. You may request that FHFA disclose to you its records 
on a subject of interest to you. The FOIA only requires the disclosure 
of records. It does not require FHFA to create compilations of 
information or to provide narrative responses to questions or queries.
    (b) Proactive disclosure. FHFA will make available for public 
inspection and copying in its electronic reading room the following 
records:
    (1) Final opinions or orders made in the adjudication of cases;
    (2) Statements of policy and interpretation adopted by FHFA that are 
not published in the Federal Register;
    (3) Administrative staff manuals and instructions to staff that 
affect a member of the public and are not exempt from disclosure under 
the FOIA;
    (4) Copies of all records, regardless of form or format, that have 
been released to any person under 5 U.S.C. 552(a)(3), that because of 
the nature of their subject matter, FHFA determines have become or are 
likely to become the subject of subsequent requests for substantially 
the same records, or that have been requested 3 or more times; and
    (5) A general index of the records referred to in paragraph (b)(4) 
of this section.
    (c) Reading rooms. FHFA maintains an electronic reading room. FHFA 
will ensure that its reading room is reviewed and updated on an ongoing 
basis. See the Appendices to this part for location and contact 
information for FHFA-HQ and FHFA-OIG respective reading rooms.



Sec.1202.4  What information is exempt from disclosure?

    (a) General. Unless the Director of FHFA or his or her designee, or 
any regulation or statute specifically authorizes disclosure, FHFA will 
not release records if it reasonably foresees that disclosure would harm 
an interest protected by one or more of the following--
    (1) Specifically authorized under criteria established by an 
Executive Order to be kept secret in the interest of national defense or 
foreign policy, and in fact is properly classified pursuant to such 
Executive Order;
    (2) Related solely to FHFA's internal personnel rules and practices;
    (3) Specifically exempted from disclosure by statute (other than 5 
U.S.C. 552a), 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 and privileged or confidential;
    (5) Contained in inter-agency or intra-agency memoranda or letters 
that would not be available by law to a private party in litigation with 
FHFA; provided that the deliberative process privilege shall not apply 
to records created 25 years or more before the date on which the records 
were requested.
    (6) Contained in personnel, medical or similar files (including 
financial 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;

[[Page 55]]

    (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 entity that is regulated and 
examined by FHFA that furnished information on a confidential basis, 
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, 
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 that are prepared by, on behalf of, or for the use of an agency 
responsible for the regulation or supervision of financial institutions; 
or
    (9) Geological and geophysical information and data, including maps, 
concerning wells.
    (b) Redacted portion. If a requested record contains exempt 
information and information that can be disclosed and the portions can 
reasonably be segregated from each other, the disclosable portion of the 
record will be released to the requester after FHFA redacts the exempt 
portions. If it is technically feasible, FHFA will indicate the amount 
of the information redacted at the place in the record where the 
redaction is made and include a notation identifying the exemption that 
was applied, unless including that indication would harm an interest 
protected by an exemption.
    (c) Exempt and redacted material. FHFA is not required to and will 
not provide a Vaughn index during the administrative stage of processing 
your FOIA request.

[82 FR 13745, Mar. 15, 2017, as amended at 83 FR 5683, Feb. 9, 2018]



Sec.1202.5  How do I request information from FHFA under the FOIA?

    (a) Where to send your request. FHFA has a decentralized system for 
processing FOIA requests, made up of two components. To make a request 
for FHFA records, the FOIA request must be in writing. A requester must 
write directly to the FOIA office of the component that maintains the 
records being sought. The Appendices to this part contain the respective 
location and contact information for submitting a FOIA request for each 
FHFA component.
    (b) Provide your name and address. Your request must include your 
full name, your address and, if different, the address at which the 
component is to notify you about your request, a telephone number at 
which you can be reached during normal business hours, and an electronic 
mail address, if any.
    (c) Request is under the FOIA. Your request must have a statement 
identifying it as being made under the FOIA.
    (d) Your FOIA status. Your request should include a statement 
specifically identifying your status as a ``commercial use'' requester, 
an ``educational institution'' requester, a ``non-commercial scientific 
institution'' requester, or a ``representative of the news media'' for 
the purposes of the fee provisions of the FOIA.
    (e) Describing the records you request. You must describe the 
records that you seek in enough detail to enable FHFA to search for and 
locate the records with a reasonable amount of effort. Your request must 
include as much specific information as possible that you know about 
each record in your request, such as the date, title, name, author, 
recipient, subject matter, file designations, or the description of the 
record.
    (f) How you want the records produced to you. Your request may state 
in what form or format you want FHFA to furnish the releasable records, 
e.g., hardcopy, or electronic.
    (g) Agreement to pay fees. In your FOIA request you must acknowledge

[[Page 56]]

that you are aware of the applicable fees charged under Sec.1202.11, 
and specify an amount, if any, you are willing to pay without 
consultation. Your inability to pay a fee does not justify granting a 
fee waiver. The fact that FHFA withholds all responsive documents or 
does not locate any documents responsive to your request, does not mean 
that you are not responsible for paying applicable fees. Your FOIA 
request will not be considered received by FHFA until your 
acknowledgement of the applicable fees, in writing, is received. FHFA 
will notify a requester of any fees above $25.00.
    (h) Valid requests. FHFA will only process valid requests. A valid 
request must meet all the requirements of this part.

[82 FR 13745, Mar. 15, 2017, as amended at 83 FR 5683, Feb. 9, 2018]



Sec.1202.6  What if my request does not have all the information
FHFA requires?

    If FHFA determines that your request does not reasonably describe 
the records you seek, cannot be processed for reasons related to fees, 
or lacks required information, you will be informed in writing why your 
request cannot be processed. You will be given 15 calendar days to meet 
all requirements. If you are notified that your request cannot be 
processed for the reasons cited herein, your request will be placed on 
hold and will not be considered as being received by FHFA for the 
purpose of processing your request under this part.
    (a) If you respond with all the necessary information, FHFA will 
process this response as a new request and the time period for FHFA to 
respond to your request will start from the date the additional 
information is actually received by FHFA.
    (b) If you do not respond or provide additional information within 
the time period allowed, or if the additional information you provide is 
still incomplete or insufficient, FHFA will consider your request closed 
and will notify you that it will not be processed.

[82 FR 13745, Mar. 15, 2017, as amended at 83 FR 5683, Feb. 9, 2018]



Sec.1202.7  How will FHFA respond to my FOIA request?

    (a) Authority to grant or deny requests. The FOIA Officer, FOIA 
Official, and the Chief FOIA Officer are authorized to grant or deny any 
request for FHFA records.
    (b) Designated standard ``cut-off'' date for searches. In 
determining which records are responsive to a request, FHFA will include 
only records in its possession as of the date the FOIA request is 
received.
    (c) Multi-Track request processing. FHFA uses a multi-track system 
to process FOIA requests. This means that a FOIA request is processed 
based on its complexity. When FHFA receives your request, it is assigned 
to a Standard Track or Complex Track. FHFA will notify you if your 
request is assigned to the Complex Track as described in paragraph (h) 
of this section.
    (1) Standard Track. FHFA assigns FOIA requests that are routine and 
require little or no search time, review, or analysis to the Standard 
Track. FHFA responds to these requests in the order in which they are 
received and normally responds within 20 days after receipt. If FHFA 
determines while processing your Standard Track request, that it is more 
appropriately a Complex Track request, it will be reassigned to the 
Complex Track and you will be notified as described in paragraph (h) of 
this section.
    (2) Complex Track. (i) FHFA assigns requests that are non-routine to 
the Complex Track. Complex Track requests are those to which FHFA 
determines that the request and/or response may--
    (A) Be voluminous;
    (B) Involve two or more FHFA components or units;
    (C) Require consultation with other agencies or entities;
    (D) Require searches of archived documents;
    (E) Seek confidential commercial information as described in Sec.
1202.8 of this part;
    (F) Require an unusually high level of effort to search for, review 
and/or duplicate records; or
    (G) Cause undue disruption to the day-to-day activities of FHFA in 
regulating and supervising the regulated

[[Page 57]]

entities or in carrying out its statutory responsibilities.
    (ii) FHFA will respond to Complex Track requests as soon as 
reasonably possible, regardless of the date of receipt.
    (d) Referrals to other agencies. If you submit a FOIA request that 
seeks records originating in another Federal Government agency, FHFA 
will refer those records, as applicable, to the other agency for a 
direct response. FHFA will provide you notice of the referral, what 
records were referred, and the name of the other agency and relevant 
contact information.
    (e) Consultation with other agencies. When records originate with 
FHFA, but contain within them information of interest to another agency, 
FHFA will consult with the other agency(ies) prior to making a 
determination on your request.
    (f) Responses to FOIA requests. FHFA will respond to your request by 
granting or denying it in full, or by granting and denying it in part. 
The response will be in writing. In determining which records are 
responsive to your request, FHFA will conduct a search for records in 
its possession as of the date of your request.
    (1) Requests that are granted. If FHFA grants your request, the 
response will include the requested records or details about how FHFA 
will provide them to you and the amount of any fees charged.
    (2) Requests that are denied, or granted and denied in part. If FHFA 
denies your request in whole or in part because a requested record does 
not exist or cannot be located, is not readily reproducible in the form 
or format you sought, is not subject to the FOIA, or is exempt from 
disclosure, the written response will include the requested releasable 
records, if any, the amount of any fees charged, the reasons for denial, 
and a notice and description of your right to file an administrative 
appeal under Sec.1202.9. FHFA will not provide you with a Vaughn index 
during the administrative stage of processing your request.
    (g) Format and delivery of disclosed records. If FHFA grants, in 
whole or in part, your request for disclosure of records under the FOIA, 
the records may be made available to you in the form or format you 
requested, if they are readily reproducible in that form or format. The 
records will be sent to the address you provided by regular U.S. mail or 
by electronic mail unless alternate arrangements are made by mutual 
agreement, such as your agreement to pay express or expedited delivery 
service fees, or to pick up records at FHFA offices.
    (h) Extensions of time. (1) In unusual circumstances, FHFA may 
extend the statutory time limit in paragraph (c)(1) of this section for 
no more than 10 days and notify you of--
    (i) The reason for the extension; and
    (ii) The date on which the determination is expected.
    (2) When a request requires more than 30 days to process, FHFA will 
make available its FOIA Public Liaison or other FOIA contact to assist 
you in modifying or reformulating your request. If the request cannot be 
modified or reformulated, FHFA will notify you regarding an alternative 
time period for processing the request. FHFA will also notify you of the 
availability of the Office of Government Information Services to provide 
dispute resolution service.
    (3) For the purpose of satisfying unusual circumstances under the 
FOIA, FHFA may aggregate requests in cases where it reasonably appears 
that multiple requests, submitted either by a requester or by a group of 
requesters acting in concert, constitute a single request that would 
otherwise involve unusual circumstances. FHFA will not aggregate 
multiple requests that involve unrelated matters.

[82 FR 13745, Mar. 15, 2017, as amended at 83 FR 5683, Feb. 9, 2018]



Sec.1202.8  If the requested records contain confidential commercial
information, what procedures will FHFA follow?

    (a) General. FHFA will not disclose confidential commercial 
information in response to your FOIA request except as described in this 
section.
    (b) Designation of confidential commercial information. Submitters 
of commercial information must use good-faith efforts to designate, by 
appropriate markings or written request, either at

[[Page 58]]

the time of submission or at a reasonable time thereafter, those 
portions of the information they deem to be protected under 5 U.S.C. 
552(b)(4) and Sec.1202.4(a)(4) of this part. Any such designation will 
expire 10 years after the records are submitted to the Federal 
Government, unless the submitter requests, and provides reasonable 
justification for a designation period of longer duration.
    (c) Pre-Disclosure Notification. Except as provided in paragraph (e) 
of this section, if your FOIA request encompasses confidential 
commercial information, FHFA will, prior to disclosure of the 
information and to the extent permitted by law, provide prompt written 
notice to a submitter that confidential commercial information was 
requested when--
    (1) The submitter has in good faith designated the information as 
confidential commercial information protected from disclosure under 5 
U.S.C. 552(b)(4) and Sec.1202.4(a)(4) of this part; or
    (2) FHFA has reason to believe that the request seeks confidential 
commercial information, the disclosure of which may result in 
substantial competitive harm to the submitter.
    (d) Content of Pre-Disclosure Notification. When FHFA sends a Pre-
Disclosure Notification to a submitter, it will contain--
    (1) A description of the commercial information requested or copies 
of the records or portions thereof containing the business information; 
and
    (2) An opportunity to object to disclosure within 10 days or such 
other time period that FHFA may allow by providing to FHFA a detailed 
written statement demonstrating all reasons the submitter opposes 
disclosure.
    (e) Exceptions to Pre-Disclosure Notification. FHFA is not required 
to send a Pre-Disclosure Notification if--
    (1) FHFA determines that information should not be disclosed;
    (2) The information has been published lawfully or has been made 
officially available to the public;
    (3) Disclosure of the information is required by law, other than the 
FOIA;
    (4) The information requested is not designated by the submitter as 
confidential commercial information pursuant to this section, unless the 
agency has substantial reason to believe that disclosure of the 
information would result in competitive harm; or
    (5) The submitter's designation, under paragraph (b) of this 
section, appears on its face to be frivolous; except that FHFA will 
provide the submitter with written notice of any final decision to 
disclose the designated confidential commercial information within a 
reasonable number of days prior to a specified disclosure date.
    (f) Submitter's objection to disclosure. A submitter may object to 
disclosure within 10 days after the date of the Pre-Disclosure 
Notification, or such other time period that FHFA may allow, by 
delivering to FHFA a written statement demonstrating all grounds on 
which it opposes disclosure, and all reasons supporting its contention 
that the information should not be disclosed. The submitter's objection 
must contain a certification by the submitter, or an officer or 
authorized representative of the submitter, that the grounds and reasons 
presented are true and correct to the best of the submitter's knowledge. 
The submitter's objection may itself be subject to disclosure under the 
FOIA.
    (g) Notice of Intent to disclose information. FHFA will carefully 
consider all grounds and reasons provided by a submitter objecting to 
disclosure. If FHFA decides to disclose the information over the 
submitter's objection, the submitter will be provided with a written 
Notice of Intent to disclose at least 10 days before the date of 
disclosure. The written Notice of Intent will contain--
    (1) A statement of the reasons why the information will be 
disclosed;
    (2) A description of the information to be disclosed; and
    (3) A specific disclosure date.
    (h) Notice to requester. FHFA will give a requester whose request 
encompasses confidential commercial information--
    (1) A written notice that the request encompasses confidential 
commercial information that may be exempt from disclosure under 5 U.S.C. 
552(b)(4) and Sec.1202.4(a)(4) of this part and that the submitter of 
the information has been given a Pre-Disclosure Notification with the 
opportunity to comment on the proposed disclosure of the information; 
and

[[Page 59]]

    (2) A written notice that a Notice of Intent to disclose has been 
provided to the submitter, and that the submitter has 10 days, or such 
other time period that FHFA may allow, to respond.
    (i) Notice of FOIA lawsuit. FHFA will promptly notify the submitter 
whenever a requester files suit seeking to compel disclosure of the 
submitter's confidential commercial information. FHFA will promptly 
notify the requester whenever a submitter files suit seeking to prevent 
disclosure of information.

[82 FR 13745, Mar. 15, 2017, as amended at 83 FR 5684, Feb. 9, 2018]



Sec.1202.9  How do I appeal a response denying my FOIA request?

    (a) Right of appeal. If FHFA denied your request in whole or in 
part, you may appeal the denial by writing directly to the appropriate 
FHFA component specified in the Appendices to this part.
    (b) Timing, form, content, and receipt of an appeal. Your written 
appeal must be postmarked or submitted within 90 calendar days of the 
date of the decision by FHFA denying, in whole or in part, your request. 
Your appeal must 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 you believe support disclosure of 
the requested record(s). FHFA will not consider an improperly addressed 
appeal to have been received for the purposes of the 20-day time period 
of paragraph (d) of this section until it is actually received by the 
correct FHFA component.
    (c) Extensions of time to appeal. If you need more time to file your 
appeal, you may request, in writing, an extension of time of no more 
than 10 calendar days in which to file your appeal, but only if your 
request is made within the original 90-calendar day time period for 
filing the appeal. Granting such an extension is in the sole discretion 
of the designated component Appeals Officer.
    (d) Final action on appeal. FHFA's determination on your appeal will 
be in writing, signed by the designated component Appeals Officer, and 
sent to you within 20 days after the appeal is received, or by the last 
day of the last extension under paragraph (e) of this section. The 
determination of an appeal is the final action of FHFA on a FOIA 
request. A determination may--
    (1) Affirm, in whole or in part, the initial denial of the request 
and may include a brief statement of the reason or reasons for the 
decision, including each FOIA exemption relied upon;
    (2) Reverse, in whole or in part, the denial of a request in whole 
or in part, and require the request to be processed promptly in 
accordance with the decision; or
    (3) Remand a request to FHFA, as appropriate, for re-processing.
    (e) Notice of delayed determinations on appeal. If FHFA cannot send 
a final determination on your appeal within the 20-day time limit, the 
designated component Appeals Officer will continue to process the appeal 
and upon expiration of the time limit, will inform you of the reason(s) 
for the delay and the date on which a determination may be expected.
    (f) Judicial review. If the denial of your request for records is 
upheld in whole or in part, or if a determination on your appeal has not 
been sent at the end of the 20-day period in paragraph (d) of this 
section, or the last extension thereof, you may seek judicial review 
under 5 U.S.C. 552(a)(4). Before seeking review by a court of FHFA's 
adverse determination, a requester generally must first submit a timely 
administrative appeal.
    (g) Additional resource. To aid the requester, the FOIA Public 
Liaison is available and will assist in the resolution of any disputes. 
Also, the National Archives and Records Administration (NARA), Office of 
Government Information Services (OGIS) offers non-compulsory, non-
binding services to resolve FOIA disputes. If you need information 
regarding the OGIS and/or the services it offers, please contact OGIS 
directly at Office of Government Information Services, National Archives 
and Records Administration, 8601 Adelphi Road-OGIS, College Park, MD 
20740-6001; email: [email protected]; phone: (202) 741-5770; toll-free: 1 
(877) 684-6448;

[[Page 60]]

or facsimile at (202) 741-5769. This information is provided as a public 
service only.

[82 FR 13745, Mar. 15, 2017, as amended at 83 FR 5684, Feb. 9, 2018]



Sec.1202.10  Will FHFA expedite my request or appeal?

    (a) Request for expedited processing. You may request, in writing, 
expedited processing of an initial request or of an appeal. FHFA may 
grant expedited processing, and give your request or appeal priority if 
your request for expedited processing demonstrates a compelling need by 
establishing one or more of the following--
    (1) Circumstances in which the lack of expedited treatment could 
reasonably be expected to pose an imminent threat to the life or 
physical safety of an individual;
    (2) An urgency to inform the public about an actual or alleged 
Federal Government activity if you are a person primarily engaged in 
disseminating information;
    (3) The loss of substantial due process or rights;
    (4) A matter of widespread and exceptional media interest in which 
there exists possible questions about the Federal Government's 
integrity, affecting public confidence; or
    (5) Humanitarian need.
    (b) Certification of compelling need. Your request for expedited 
processing must include a statement certifying that the reason(s) you 
present demonstrate a compelling need are true and correct to the best 
of your knowledge.
    (c) Determination on request. FHFA will notify you within 10 
calendar days of receipt of your request whether expedited processing 
has been granted. If a request for expedited treatment is granted, the 
request will be given priority and will be processed as soon as 
practicable. If a request for expedited processing is denied, any appeal 
of that decision under Sec.1202.9 of this part will be acted on 
expeditiously.

[82 FR 13745, Mar. 15, 2017, as amended at 83 FR 5684, Feb. 9, 2018]



Sec.1202.11  What will it cost to get the records I requested?

    (a) Assessment of fees, generally. FHFA will assess you for fees 
covering the direct costs of responding to your request and costs for 
duplicating records, except as otherwise provided in a statute with 
respect to the determination of fees that may be assessed for 
disclosure, search time, or review of particular records.
    (b) Assessment of fees, categories of requesters. The fees that FHFA 
may assess vary depending on the type of request or the type of 
requester you are--
    (1) Commercial use. If you request records for a commercial use, the 
fees that FHFA may assess are limited to FHFA's operating costs incurred 
for document search, review, and duplication.
    (2) Educational institution, noncommercial scientific institution, 
or representative of the news media. If you are not requesting records 
for commercial use and you are an educational institution or a 
noncommercial scientific institution, whose purpose is scholarly or 
scientific research, or a representative of the news media, the fees 
that may be assessed are limited to standard reasonable charges for 
duplication in excess of 100 pages or an electronic equivalent of 100 
pages.
    (3) Other. If neither paragraph (b)(1) nor paragraph (b)(2) of this 
section applies, the fees assessed are limited to the costs for document 
searching in excess of two hours and duplication in excess of 100 pages, 
or an electronic equivalent of 100 pages.
    (c) Fee schedule. FHFA will charge fees for processing requests 
under the FOIA in accordance with the provisions of this section and OMB 
guidelines (basic pay plus 16 percent). There are three different groups 
of grades typically involved in processing FOIA requests: Personnel in 
grades EL-6 to EL-9; personnel in grades EL-10 to EL-13; and personnel 
EL-14 and above. FHFA's Web site, www.fhfa.gov, will contain current 
rates for search and review fees for each group. The rates will be 
updated as salaries change and will be determined by using the formula 
in this regulation. The formula is the sum of the mid-point of each 
grade divided

[[Page 61]]

by the number of grades in each category divided by 2088 and then 
multiplied by 1.16.\1\ Fees for searches of computerized records are 
based on the actual cost to FHFA. For requests that require the 
retrieval of records stored by FHFA at a Federal records center operated 
by the National Archives and Records Administration, FHFA will charge 
additional costs in accordance with the Transaction Billing Rate 
Schedule established by NARA.
---------------------------------------------------------------------------

    \1\ Example of the rate formula is as follows: For 2016, EL-6 to EL-
9 is [($55,769 + $63,554 + $71,816 + $81,152)/4][1/2088 hours per 
year][1.16 OMB markup factor] = $37.82 per hour.
---------------------------------------------------------------------------

    (d) Notice of anticipated fees in excess of $25.00. When FHFA 
determines or estimates that the fees chargeable to you will exceed 
$25.00, you will be notified of the actual or estimated amount of fees 
you will incur, unless you earlier indicated your willingness to pay 
fees as high as those anticipated. When you are notified that the actual 
or estimated fees exceed $25.00, your request will be tolled until you 
agree to pay, in writing, the anticipated total fee.
    (e) Advance payment of fees. FHFA may request that you pay estimated 
fees or a deposit in advance of responding to your request. If FHFA 
requests advance payment or a deposit, your request will be tolled by 
FHFA until the advance payment or deposit is received. FHFA may request 
advance payment or a deposit if--
    (1) The fees are likely to exceed $250.00;
    (2) You do not have a history of payment;
    (3) You previously failed to pay a FOIA fee to FHFA in a timely 
fashion, i.e., within 30 calendar days of the date of a billing; or
    (4) You have an outstanding balance due from a prior request. FHFA 
will require you to pay the full amount owed plus any applicable 
interest, as provided in paragraph (f) of this section, or demonstrate 
that the fee owed has been paid, as well as payment of the full amount 
of anticipated fees before processing your request.
    (f) Interest. FHFA may charge you interest on an unpaid bill 
starting on the 31st calendar day following the day on which the bill 
was sent. Once a fee payment has been received by FHFA, even if not 
processed, FHFA will stay the accrual of interest. Interest charges will 
be assessed at the rate prescribed by 31 U.S.C. 3717 and will accrue 
from the date of the billing.
    (g) FHFA assistance to reduce costs. If FHFA notifies you of 
estimated fees exceeding $100.00 or requests advance payment or a 
deposit, you will have an opportunity to consult with FHFA FOIA staff to 
modify or reformulate your request to meet your needs at a lower cost.
    (h) Fee waiver requests. You may request a fee waiver in accordance 
with the FOIA and this regulation. Requests for a waiver of fees must be 
made in writing and should be made at the time you submit your FOIA 
request. However, your fee waiver may be submitted at a later time so 
long as the underlying record request is pending or on administrative 
appeal. FHFA may grant your fee waiver request or a reduction of fees if 
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 is not primarily 
in your commercial interest. In submitting a fee waiver request, you 
must address the following six factors--
    (1) Whether the subject of the requested records concerns the 
operations or activities of the Federal Government. The subject of the 
request must concern identifiable operations or activities of the 
Federal Government with a connection that is direct and clear, not 
remote or attenuated;
    (2) Whether the disclosure is likely to contribute significantly to 
the public understanding of Federal Government operations or activities. 
This factor is satisfied when the following criteria are met:
    (i) Disclosure of the requested information must be meaningfully 
informative about government operations or activities. The disclosure of 
information that already is in the public domain, in either the same or 
a substantially identical form, would not be meaningfully informative if 
nothing new would be added to the public's understanding; and

[[Page 62]]

    (ii) The disclosure must contribute to the understanding of a 
reasonably broad audience of persons interested in the subject, as 
opposed to your individual understanding. Your expertise in the subject 
area as well as your ability and intention to effectively convey 
information to the public must be considered. FHFA will presume that a 
representative of the news media will satisfy this consideration.
    (3) The disclosure must not be primarily in your commercial 
interest. To determine whether disclosure of the requested information 
is primarily in your commercial interest FHFA will consider the 
following criteria:
    (i) FHFA will determine whether you have any commercial interest 
that would be furthered by the requested disclosure. A commercial 
interest includes any commercial, trade, or profit interest. You will be 
given an opportunity to provide explanatory information regarding this 
consideration; and
    (ii) If there is an identified commercial interest, FHFA will 
determine whether that is the primary interest furthered by the request.
    (i) Fee Waiver determination. FHFA will notify you within 20 days of 
receipt of your request whether the fee waiver has been granted. Where 
only some of the records to be released satisfy the requirements for a 
waiver of fees, a waiver will be granted for those records. For those 
records that do not satisfy the requirements for a waiver of fees, you 
may be charged for those records. When you have committed to pay fees 
and subsequently ask for a waiver of those fees and that waiver is 
denied, you must pay any costs incurred up to the date the fee waiver 
request was received. A request for fee waiver that is denied may only 
be appealed when a final decision has been made on the initial FOIA 
request.
    (j) Restrictions on charging fees. (1) When FHFA determines that you 
are an educational institution, non-commercial scientific institution, 
or representative of the news media, and the records are not sought for 
commercial use, FHFA will not charge search fees.
    (2)(i) If FHFA fails to comply with the FOIA's time limits in which 
to respond to your request, FHFA will not charge search fees, or, in the 
instances of requests from requesters described in paragraph (j)(1) of 
this section, will not charge duplication fees, except as described in 
paragraphs (j)(2)(ii) through (iv) of this section.
    (ii) If FHFA has determined that unusual circumstances as defined by 
the FOIA apply and FHFA has provided timely written notice to you in 
accordance with the FOIA, FHFA's failure to comply with the time limit 
will be excused for an additional 10 days.
    (iii) If FHFA determines that unusual circumstances, as defined by 
the FOIA, apply and more than 5,000 pages are necessary to respond to 
your request, FHFA may charge search fees, or, in the case of a 
requester described in paragraph (j)(1) of this section, may charge 
duplication fees, if the following steps are taken. FHFA must have 
provided timely written notice of unusual circumstances to you in 
accordance with the FOIA and FHFA must have discussed with you via 
written mail, email, or telephone (or made not less than three good-
faith attempts to do so) how you could effectively limit the scope of 
your request in accordance with 5 U.S.C. 552(a)(6)(B)(ii). If this 
exception is satisfied, FHFA may charge all applicable fees incurred in 
the processing of the request.
    (iv) If a court has determined that exceptional circumstances exist, 
as defined by the FOIA, a failure to comply with the time limits shall 
be excused for the length of time provided by the court order.
    (3) No search or review fees will be charged for a quarter-hour 
period unless more than half of that period is required for search or 
review.
    (4) If you seek records for a commercial use, FHFA will provide 
without charge:
    (i) The first 100 pages of duplication (or the cost equivalent for 
other media); and
    (ii) The first two hours of search.
    (5) No fee will be charged when the total fee, after deducting the 
100 free pages (or its cost equivalent) and the first two hours of 
search, is equal to or less than $25.00.
    (k) Additional resource. The FOIA Public Liaison or other FOIA 
contact is available to assist you in modifying or reformulating a 
request to meet

[[Page 63]]

your needs at a lower cost. FHFA will also notify you of the 
availability of OGIS to provide dispute resolution service.

[82 FR 13745, Mar. 15, 2017, as amended at 83 FR 5684, Feb. 9, 2018]



Sec.1202.12  Is there anything else I need to know about FOIA 
procedures?

    This FOIA regulation does not and shall not be construed to create 
any right or to entitle any person, as of right, to any service or to 
the disclosure of any record to which such person is not entitled under 
the FOIA. This regulation only provides procedures for requesting 
records under the FOIA.





             Sec. Appendix A to Part 1202--FHFA Headquarters

    1. This Appendix applies to the Federal Housing Finance Agency's 
Headquarters Office.
    2. Reading room. FHFA Headquarters only maintains an electronic 
reading room. The electronic reading room is located on FHFA's public 
website at http://www.fhfa.gov/AboutUs/FOIAPrivacy/Pages/Reading-
Room.aspx.
    3. Where to send your request. You may make a request for FHFA 
Headquarters records by writing directly to the FOIA Office through 
electronic mail, U.S. mail, delivery service, or facsimile. The 
electronic mail address is: [email protected]. For U.S. mail or delivery 
service, the mailing address is: FOIA Officer, Federal Housing Finance 
Agency, 400 Seventh Street SW., Eighth Floor, Washington, DC 20219. The 
facsimile number is: (202) 649-1073. When submitting your request, 
please mark electronic mail, letters, or facsimiles and the subject 
line, envelope, or facsimile cover sheet with ``FOIA Request.'' FHFA's 
``Freedom of Information Act Reference Guide,'' which is available on 
FHFA's Web site, provides additional information to assist you in making 
your request. You can find additional information on FHFA's FOIA program 
at http://www.fhfa.gov/AboutUs/FOIAPrivacy/Pages/FOIA-Reference-
Guide.aspx.
    4. Right of appeal. If FHFA Headquarters denied your request in 
whole or in part, you may appeal the denial by writing directly to the 
FOIA Appeals Officer through electronic mail, U.S. mail, delivery 
service, or facsimile. The electronic mail address is: [email protected]. 
For U.S. mail or delivery service, the mailing address is: FOIA Appeals 
Officer, Federal Housing Finance Agency, 400 Seventh Street SW., Eighth 
Floor, Washington, DC 20219. The facsimile number is: (202) 649-1073. 
When submitting your appeal, please mark electronic mail, letters, or 
facsimiles and the subject line, envelope, or facsimile cover sheet with 
``FOIA Appeal.'' FHFA's ``Freedom of Information Act Reference Guide,'' 
which is available on FHFA's Web site, provides additional information 
to assist you in making your appeal. You can find additional information 
on FHFA's FOIA program at http://www.fhfa.gov/AboutUs/FOIAPrivacy/Pages/
FOIA-Reference-Guide.aspx

[82 FR 13745, Mar. 15, 2017, as amended at 83 FR 5685, Feb. 9, 2018]



     Sec. Appendix B to Part 1202--FHFA Office of Inspector General

    This Appendix applies to the Federal Housing Finance Agency's Office 
of Inspector General (FHFA-OIG).
    1. Contact information for FOIA Officer. You may contact the FOIA 
Officer at (202) 730-0399 or by email at [email protected]. Hearing 
impaired users may utilize the Federal Relay Service (external link) by 
dialing 1(800) 877-8339. A Communications Assistant will dial the 
requested number and relay the conversation between a standard (voice) 
telephone user and text telephone (TTY).
    2. Information about the FHFA-OIG FOIA process. You may find 
information about the FHFA-OIG FOIA process at https://www.fhfaoig.gov/
FOIA.
    3. Reading room. FHFA-OIG maintains an electronic reading room. The 
electronic reading room is located at https://www.fhfaoig.gov/FOIA/
ReadingRoom.
    4. Where to send your request. You may make a request for FHFA-OIG 
records by writing directly to the FOIA Office through electronic mail, 
U.S. mail, delivery service, or facsimile. The electronic mail address 
is: [email protected]. For U.S. mail or delivery service, the mailing 
address is: Federal Housing Finance Agency Office of Inspector General, 
400 Seventh Street SW., Third Floor, Washington, DC 20219, ATTN: Office 
of Inspector General--FOIA Officer. The facsimile number is: (202) 318-
8602. When submitting your request, please mark electronic mail, 
letters, or facsimiles and the subject line, envelope, or facsimile 
cover sheet with ``FOIA Request.''
    5. Right of appeal. If FHFA-OIG denies your request in whole or in 
part, you may appeal the denial by writing directly to the FOIA Officer 
through electronic mail, U.S. mail, delivery service, or facsimile. The 
electronic mail address is: [email protected]. For U.S. mail or delivery 
service, the mailing address is: Federal Housing Finance Agency, Office 
of Inspector General, 400 Seventh Street SW., Third Floor, Washington, 
DC 20219, ATTN: Office of Inspector General--FOIA Officer. The facsimile 
number is: (202) 318-8602. When

[[Page 64]]

submitting your appeal, please mark electronic mail, letters, or 
facsimiles and the subject line, envelope, or facsimile cover sheet with 
``FOIA Appeal.''



PART 1203_EQUAL ACCESS TO JUSTICE ACT--Table of Contents



                      Subpart A_General Provisions

Sec.
1203.1 Purpose and scope.
1203.2 Definitions.
1203.3 Eligible parties.
1203.4 Standards for awards.
1203.5 Allowable fees and expenses.
1203.6 Rulemaking on maximum rate for fees.
1203.7 Awards against other agencies.
1203.8-1203.9 [Reserved]

             Subpart B_Information Required From Applicants

1203.10 Contents of the application for award.
1203.11 Confidentiality of net worth exhibit.
1203.12 Documentation for fees and expenses.
1203.13-1203.19 [Reserved]

Subpart C_Procedures for Filing and Consideration of the Application for 
                                  Award

1203.20 Filing and service of the application for award and related 
          papers.
1203.21 Response to the application for award.
1203.22 Reply to the response.
1203.23 Comments by other parties.
1203.24 Settlement.
1203.25 Further proceedings on the application for award.
1203.26 Decision of the adjudicative officer.
1203.27 Review by FHFA.
1203.28 Judicial review.
1203.29 Payment of award.

    Authority: 12 U.S.C. 4526, 5 U.S.C. 504.

    Source: 75 FR 65219, Oct. 22, 2010, unless otherwise noted..



                      Subpart A_General Provisions



Sec.1203.1  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 awards of fees and other expenses to eligible 
individuals and entities who are parties to adversary adjudications 
before FHFA.
    (b) This part applies to the award of fees and other expenses in 
connection with adversary adjudications before FHFA. 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.1203.2  Definitions.

    As used in this part:
    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.
    Adversary adjudication means an administrative proceeding conducted 
by FHFA under 5 U.S.C. 554 in which the position of FHFA or any other 
agency of the United States is represented by counsel or otherwise, 
including but not limited to an adjudication conducted under the Safety 
and Soundness Act, as amended, and any implementing regulations. 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.
    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.
    Agency counsel means the attorney or attorneys designated by the 
General Counsel of FHFA to represent FHFA in an adversary adjudication 
covered by this part.
    Demand of FHFA means the express demand of FHFA that led to the 
adversary adjudication, but does not include a recitation by FHFA of the 
maximum statutory penalty when accompanied

[[Page 65]]

by an express demand for a lesser amount.
    Director means the Director of the Federal Housing Finance Agency.
    Fees and other expenses means reasonable attorney or agent fees, the 
reasonable expenses of expert witnesses, and the reasonable cost of any 
study, analysis, engineering report, or test, which the agency finds 
necessary for the preparation of the eligible party's case.
    FHFA means the Federal Housing Finance Agency.
    Final disposition date 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.
    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.
    Position of FHFA means the position taken by FHFA in the adversary 
adjudication, including the action or failure to act by FHFA upon which 
the adversary adjudication was based.



Sec.1203.3  Eligible parties.

    (a) To be eligible for an award of fees and other expenses under the 
Equal Access to Justice Act, the applicant must show that it meets all 
conditions of eligibility set out in this paragraph and has complied 
with all the requirements in subpart B of this part. The applicant must 
also be a party to the adversary adjudication for which it seeks an 
award.
    (b) To be eligible for an award of fees and other expenses for 
prevailing parties, a party must be one of the following:
    (1) An individual who has a net worth of not more than $2 million;
    (2) 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;
    (3) 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;
    (4) 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;
    (5) 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; or
    (6) For the purposes of an application filed pursuant to 5 U.S.C. 
504(a)(4), a small entity as defined in 5 U.S.C. 601.
    (c) For purposes of eligibility under this section:
    (1) The employees of a party must include all persons who regularly 
perform services for remuneration for the party, under the party's 
direction and control. Part-time employees must be included on a 
proportional basis.
    (2) The net worth and number of employees of the party and its 
affiliates must be aggregated to determine eligibility.
    (3) The net worth and number of employees of a party will be 
determined as of the date the underlying adversary adjudication was 
initiated.
    (4) 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.



Sec.1203.4  Standards for awards.

    (a) An eligible party that files an application for award of fees 
and other expenses in accordance with this part will receive an award of 
fees and other expenses related to defending against a demand of FHFA 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

[[Page 66]]

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 FHFA 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 will 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 
FHFA in the adversary adjudication was substantially justified or 
special circumstances make an award unjust. FHFA 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.1203.5  Allowable fees and expenses.

    (a) Awards of fees and other expenses will 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.1203.6, 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 FHFA pays expert 
witnesses. However, an award may also include 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 will 
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 will 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.



Sec.1203.6  Rulemaking on maximum rate for fees.

    If warranted by an increase in the cost of living or by special 
circumstances, FHFA 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. FHFA will conduct any 
rulemaking proceedings for this purpose under the informal rulemaking 
procedures of the Administrative Procedure Act, 5 U.S.C. 553.



Sec.1203.7  Awards against other agencies.

    If another agency of the United States participates in an adversary 
adjudication before FHFA 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 will be made against that agency.

[[Page 67]]



Sec. Sec.1203.8-1203.9  [Reserved]



             Subpart B_Information Required From Applicants



Sec.1203.10  Contents of the application for award.

    (a) An application for award of fees and other expenses under either 
Sec.1203.4(a) and Sec.1203.4(b) must:
    (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.1203.12 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.1203.4(a) must show that 
the demand of FHFA 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 must also show that 
the applicant is a small entity as defined in 5 U.S.C. 601.
    (c) An application for award under Sec.1203.4(b) must:
    (1) Show that the applicant has prevailed in a significant and 
discrete substantive portion of the underlying adversary adjudication 
and identify the position of FHFA 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).



Sec.1203.11  Confidentiality of net worth exhibit.

    Unless otherwise ordered by the Director, or required by law, the 
statement of net worth will be for the confidential use of the 
adjudicative officer, the Director, and agency counsel.



Sec.1203.12  Documentation for fees and expenses.

    (a) The application for award must 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 must be submitted for each entity 
or individual whose services are covered by the application. Each 
itemized statement must 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

[[Page 68]]

claimed, and the total amount paid or payable by the applicant or by any 
other person or entity.



Sec. Sec.1203.13-1203.19  [Reserved]



Subpart C_Procedures for Filing and Consideration of the Application for 
                                  Award



Sec.1203.20  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 must 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 must be computed in the same 
manner as in the underlying adversary adjudication.



Sec.1203.21  Response to the application for award.

    (a) Agency counsel must file a response 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 response, 
agency counsel must 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 must include with the response either 
supporting affidavits or a request for further proceedings under Sec.
1203.25.
    (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 will extend the time for filing a response 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 a response. If agency counsel does not 
respond 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.



Sec.1203.22  Reply to the response.

    Within 15 days after service of a response, 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 must 
include with the reply either supporting affidavits or a request for 
further proceedings under Sec.1203.25.



Sec.1203.23  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 a response 
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.1203.24  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 must be filed with the proposed settlement.

[[Page 69]]



Sec.1203.25  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 
under Sec.1203.27, 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 will be held only when necessary for full and fair 
resolution of the issues arising from the application for award and will 
be conducted as promptly as possible. The issue as to whether the 
position of FHFA in the underlying adversary adjudication was 
substantially justified will 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 must specifically identify the 
information sought on the disputed issues and must explain why the 
additional proceedings are necessary to resolve the issues.



Sec.1203.26  Decision of the adjudicative officer.

    (a) The adjudicative officer must make the initial decision on the 
basis of the written record, except if further proceedings are ordered 
under Sec.1203.25.
    (b) The adjudicative officer must issue a written initial decision 
on the application for award within 30 days after completion of 
proceedings on the application. The initial decision will become the 
final decision of FHFA after 30 days from the day it was issued, unless 
review is ordered under Sec.1203.27.
    (c) In all initial decisions, the adjudicative officer must 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 
must 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.
1203.4(a), the adjudicative officer must include findings and 
conclusions as to whether FHFA 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.1203.4(b), 
the adjudicative officer must include written findings and conclusions 
as to whether the applicant is a prevailing party and whether the 
position of FHFA 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.



Sec.1203.27  Review by FHFA.

    Within 30 days after the adjudicative officer issues an initial 
decision under Sec.1203.26, either the applicant or agency counsel may 
request the Director to review the initial decision of the adjudicative 
officer. The Director may also decide, at his or her discretion, to 
review the initial decision. If review is ordered, the Director must 
issue a final decision on the application for award or remand the 
application for award to the adjudicative officer for further 
proceedings under Sec.1203.25.



Sec.1203.28  Judicial review.

    Any party, other than the United States, that is dissatisfied with 
the final decision on an application for award of fees and expenses 
under this part may seek judicial review as provided in 5 U.S.C. 
504(c)(2).



Sec.1203.29  Payment of award.

    To receive payment of an award of fees and other expenses granted 
under this part, the applicant must 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

[[Page 70]]

the Director, Federal Housing Finance Agency, 400 7th Street SW., 
Washington, DC 20219. FHFA must 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.

[75 FR 65219, Oct. 22, 2010, as amended at 80 FR 80233, Dec. 24, 2015]



PART 1204_PRIVACY ACT IMPLEMENTATION--Table of Contents



Sec.
1204.1 Why did FHFA issue this part?
1204.2 What do the terms in this part mean?
1204.3 How do I make a Privacy Act request?
1204.4 How will FHFA or FHFA-OIG respond to my Privacy Act request?
1204.5 What if I am dissatisfied with the response to my Privacy Act 
          request?
1204.6 What does it cost to get records under the Privacy Act?
1204.7 Are there any exemptions from the Privacy Act?
1204.8 How are records secured?
1204.9 Does FHFA or FHFA-OIG collect and use Social Security numbers?
1204.10 What are FHFA and FHFA-OIG employee responsibilities under the 
          Privacy Act?
1204.11 May FHFA-OIG obtain Privacy Act records from other Federal 
          agencies for law enforcement purposes?

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

    Source: 76 FR 51871, Aug. 19, 2011, unless otherwise noted.

    Editorial Note: Nomenclature changes to part 1204 appear at 77 FR 
4646, Jan. 31, 2012.



Sec.1204.1  Why did FHFA issue this part?

    The Federal Housing Finance Agency (FHFA) issued this part to--
    (a) Implement the Privacy Act, a Federal law that helps protect 
private information about individuals that Federal agencies collect or 
maintain. You should read this part together with the Privacy Act, which 
provides additional information about records maintained on individuals;
    (b) Establish rules that apply to all FHFA and FHFA Office of 
Inspector General (FHFA-OIG) maintained systems of records retrievable 
by an individual's name or other personal identifier;
    (c) Describe procedures through which you may request access to 
records, request amendment or correction of those records, or request an 
accounting of disclosures of those records by FHFA or FHFA-OIG;
    (d) Inform you, that when it is appropriate to do so, FHFA or FHFA-
OIG automatically processes a Privacy Act request for access to records 
under both the Privacy Act and FOIA, following the rules contained in 
this part and in FHFA's Freedom of Information Act regulation at part 
1202 of this title so that you will receive the maximum amount of 
information available to you by law;
    (e) Notify you that 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 FHFA or 
FHFA-OIG; and
    (f) Notify you that this part applies to both FHFA and FHFA-OIG.



Sec.1204.2  What do the terms in this part mean?

    The following definitions apply to the terms used in this part--
    Access means making a record available to a subject individual.
    Amendment means any correction of, addition to, or deletion from a 
record.
    Court means any entity conducting a legal proceeding.
    Days, unless stated as ``calendar days,'' are working days and do 
not include Saturdays, Sundays, and federal holidays. If the last day of 
any period prescribed herein falls on a Saturday, Sunday, or federal 
holiday, the last day of the period will be the next working day that is 
not a Saturday, Sunday, or federal holiday.
    FHFA means the Federal Housing Finance Agency and includes its 
predecessor agencies, the Office of Federal Housing Enterprise Oversight 
(OFHEO) and the Federal Housing Finance Board (FHFB).
    FHFA-OIG means the Office of Inspector General for FHFA.
    FOIA means the Freedom of Information Act, as amended (5 U.S.C. 
552).
    Individual means a natural person who is either a citizen of the 
United

[[Page 71]]

States of America or an alien lawfully admitted for permanent residence.
    Maintain includes collect, use, disseminate, or control.
    Privacy Act means the Privacy Act of 1974, as amended (5 U.S.C. 
552a).
    Privacy Act Appeals Officer means a person designated by the FHFA 
Director to process appeals of denials of requests for or seeking 
amendment of records maintained by FHFA under the Privacy Act. For 
appeals pertaining to records maintained by FHFA-OIG, Privacy Act 
Appeals Officer means a person designated by the FHFA Inspector General 
to process appeals of denials of requests for or seeking amendment of 
records maintained by FHFA-OIG under the Privacy Act.
    Privacy Act Officer means a person designated by the FHFA Director 
who has primary responsibility for privacy and data protection policy 
and is authorized to process requests for or amendment of records 
maintained by FHFA under the Privacy Act. For requests pertaining to 
records maintained by FHFA-OIG, Privacy Act Officer means a person 
designated by the FHFA Inspector General to process requests for or 
amendment of records maintained by FHFA-OIG under the Privacy Act.
    Record means any item, collection, or grouping of information about 
an individual that FHFA or FHFA-OIG maintains within a system of 
records, including, but not limited to, the individual's name, an 
identifying number, symbol, or other identifying particular assigned to 
the individual, such as a finger or voice print, or photograph.
    Routine use means the purposes for which records and information 
contained in a system of records may be disclosed by FHFA or FHFA-OIG 
without the consent of the subject of the record. Routine uses for 
records are identified in each system of records notice. Routine use 
does not include disclosure that subsection (b) of the Privacy Act (5 
U.S.C. 552a(b)) otherwise permits.
    Senior Agency Official for Privacy means a person designated by the 
FHFA Director who has the authority and responsibility to oversee and 
supervise the FHFA privacy program and implementation of the Privacy 
Act.
    System of Records means a group of records FHFA or FHFA-OIG 
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. Single records or 
groups of records that are not retrieved by a personal identifier are 
not part of a system of records.
    System of Records Notice means a notice published in the Federal 
Register which announces the creation, deletion, or amendment of one or 
more system of records. System of records notices are also used to 
identify a system of records' routine uses.



Sec.1204.3  How do I make a Privacy Act request?

    (a) What is a valid request? In general, a Privacy Act request can 
be made on your own behalf for records or information about you. You can 
make a Privacy Act request 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. You also may request access to another 
individual's record or information if you have that individual's written 
consent, unless other conditions of disclosure apply.
    (b) How and where do I make a request? Your request must be in 
writing. Regardless of whether your request seeks records from FHFA, 
FHFA-OIG, or both, you may appear in person to submit your written 
request to the FHFA Privacy Act Officer, or send your written request to 
the FHFA Privacy Act Officer by electronic mail, mail, delivery service, 
or facsimile. The electronic mail address is: [email protected]. For mail 
or delivery service, the address is: FHFA Privacy Act Officer, Federal 
Housing Finance Agency, 400 Seventh Street, SW., Eighth Floor, 
Washington, DC 20219. The facsimile number is (202) 649-1073. Requests 
for FHFA-OIG maintained records will be forwarded to FHFA-OIG for 
processing and direct response. You can help FHFA and FHFA-OIG process 
your request by marking electronic mail, letters, or facsimiles and the 
subject line, envelope, or facsimile cover sheet with ``Privacy Act 
Request.'' FHFA's ``Privacy Act Reference

[[Page 72]]

Guide,'' which is available on FHFA's Web site, http://www.fhfa.gov, 
provides additional information to assist you in making your request.
    (c) What must the request include? You must describe the record that 
you want in enough detail to enable either the FHFA or FHFA-OIG Privacy 
Act Officer to locate the system of records containing it with a 
reasonable amount of effort. Include specific information about each 
record sought, such as the time period in which you believe it was 
compiled, the name or identifying number of each system of records in 
which you believe it is kept, and the date, title or name, author, 
recipient, or subject matter of the record. As a general rule, the more 
specific you are about the record that you want, the more likely FHFA or 
FHFA-OIG will be able to locate it in response to your request.
    (d) How do I request amendment or correction of a record? If you are 
requesting an amendment or correction of any FHFA or FHFA-OIG record, 
identify each particular record in question and the system 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, including an annotated copy of the record.
    (e) How do I request for an accounting of disclosures? If you are 
requesting an accounting of disclosures by FHFA or FHFA-OIG of a record 
to another person, organization, or Federal agency, you must 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 Federal agency to which the 
disclosure was made, subject to Sec.1204.7.
    (f) Must I verify my identity? Yes. When making requests under the 
Privacy Act, your request must verify your identity 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, FHFA or FHFA-OIG cannot and will not process 
your request.
    (1) How do I verify my identity? To verify your 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 either the FHFA or 
FHFA-OIG Privacy Act Officer, you must provide either two forms of 
unexpired identification with photographs issued by a federal, state, or 
local government agency or entity (i.e. passport, passport card, 
driver's license, ID card, etc.), or one form of unexpired 
identification with a photograph issued by a federal, state, or local 
government agency or entity (i.e. passport, passport card, driver's 
license, ID card, etc.) 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 by including the 
following statement just before the signature on your request letter: 
``I declare (or certify, verify, or state) under penalty of perjury that 
the foregoing is true and correct. Executed on [date]. [Signature].''
    (2) How do I verify parentage or guardianship? If you make a Privacy 
Act request as the parent or guardian of a minor, or as the guardian of 
someone determined by a court to be incompetent, with respect to records 
or information 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, date and place of 
birth, and, at your option, the Social Security number of the 
individual;
    (ii) Your own identity, as required in paragraph (f)(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

[[Page 73]]

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.

[76 FR 51871, Aug. 19, 2011, as amended at 77 FR 4646, Jan. 31, 2012; 80 
FR 80233, Dec. 24, 2015]



Sec.1204.4  How will FHFA or FHFA-OIG respond to my Privacy Act
request?

    (a) How will FHFA or FHFA-OIG locate the requested records? FHFA or 
FHFA-OIG will search to determine if requested records exist in the 
system of records it owns or controls. You can find FHFA and FHFA-OIG 
system of records notices on our Web site at http://www.fhfa.gov. You 
can also find descriptions of OFHEO and FHFB system of records that have 
not yet been superseded on the FHFA Web site. A description of the 
system of records also is available in the ``Privacy Act Issuances'' 
compilation published by the Office of the Federal Register of the 
National Archives and Records Administration. You can access the 
``Privacy Act Issuances'' compilation in most large reference and 
university libraries or electronically at the Government Printing Office 
Web site at: http://www.gpoaccess.gov/privacyact/index.html. You also 
can request a copy of FHFA or FHFA-OIG system of records from the 
Privacy Act Officer.
    (b) How long does FHFA or FHFA-OIG have to respond? Either the FHFA 
or FHFA-OIG Privacy Act Officer generally will respond to your request 
in writing within 20 days after receiving it, if it meets the Sec.
1204.3 requirements. For requests to amend a record, either the FHFA or 
FHFA-OIG Privacy Act Officer will respond within 10 days after receipt 
of the request to amend. FHFA or FHFA-OIG may extend the response time 
in unusual circumstances, such as when consultation is needed with 
another Federal agency (if that agency is subject to the Privacy Act) 
about a record or to retrieve a record shipped offsite for storage. If 
you submit your written request in person, either the FHFA or FHFA-OIG 
Privacy Act Officer may disclose records or information to you directly 
and create a written record of the grant of the request. If you are to 
be accompanied by another person when accessing your record or any 
information pertaining to you, FHFA or FHFA-OIG may require your written 
authorization before permitting access or discussing the record in the 
presence of the other person.
    (c) What will the FHFA or FHFA-OIG response include? The written 
response will include a determination 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.
1204.6. If you are granted a request to access a record, FHFA or FHFA-
OIG will make the record available to you. If you are granted a request 
to amend or correct 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.
    (d) What is an adverse determination? An adverse determination is a 
determination on a Privacy Act request that--
    (1) Withholds any requested record in whole or in part;
    (2) Denies a request for an amendment or correction of a record in 
whole or in part;
    (3) Declines to provide a requested accounting of disclosures;
    (4) Advises that a requested record does not exist or cannot be 
located; or
    (5) Finds what has been requested is not a record subject to the 
Privacy Act.
    (e) What will be stated in a response that includes an adverse 
determination? If an adverse determination is made with respect to your 
request, either the FHFA or FHFA-OIG Privacy Act Officer's written 
response under this section will identify the person responsible for the 
adverse determination, state that the adverse determination is not a 
final action of FHFA or FHFA-OIG, and state that you may appeal the 
adverse determination under Sec.1204.5.



Sec.1204.5  What if I am dissatisfied with the response to my 
Privacy Act request?

    (a) May I appeal the response? You may appeal any adverse 
determination made in response to your Privacy Act

[[Page 74]]

request. If you wish to seek review by a court of any adverse 
determination or denial of a request, you must first appeal it under 
this section.
    (b) How do I appeal the response?--(1) You may appeal by submitting 
in writing, a statement of the reasons you believe the adverse 
determination should be overturned. FHFA or FHFA-OIG must receive your 
written appeal within 30 calendar days of the date of the adverse 
determination under Sec.1204.4. Your written appeal may include as 
much or as little related information as you wish, as long as it clearly 
identifies the determination (including the request number, if known) 
that you are appealing.
    (2) If FHFA or FHFA-OIG denied your request in whole or in part, you 
may appeal the denial by writing directly to the FHFA Privacy Act 
Appeals Officer through electronic mail, mail, delivery service, or 
facsimile. The electronic mail address is: [email protected]. For mail or 
express mail, the address is: FHFA Privacy Act Appeals Officer, Federal 
Housing Finance Agency, 400 Seventh Street, SW., Eighth Floor, 
Washington, DC 20219. The facsimile number is: (202) 649-1073. For 
appeals of FHFA-OIG denials, whether in whole or in part, the appeal 
must be clearly marked by adding ``FHFA-OIG'' after ``Privacy Act 
Appeal.'' All appeals from denials, in whole or part, made by FHFA-OIG 
will be forwarded to the FHFA-OIG Privacy Act Appeals Officer for 
processing and direct response. You can help FHFA and FHFA-OIG process 
your appeal by marking electronic mail, letters, or facsimiles and the 
subject line, envelope, or facsimile cover sheet with ``Privacy Act 
Appeal.'' FHFA's ``Privacy Act Reference Guide,'' which is available on 
FHFA's Web site, http://www.fhfa.gov, provides additional information to 
assist you in making your appeal. FHFA or FHFA-OIG ordinarily will not 
act on an appeal if the Privacy Act request becomes a matter of 
litigation.
    (3) If you need more time to file your appeal, you may request an 
extension of time of no more than ten (10) calendar days in which to 
file your appeal, but only if your request is made within the original 
30-calendar day time period for filing the appeal. Granting an extension 
is in the sole discretion of either the FHFA or FHFA-OIG Privacy Act 
Appeals Officer.
    (c) Who has the authority to grant or deny appeals? For appeals from 
the FHFA Privacy Act Officer, the FHFA Privacy Act Appeals Officer is 
authorized to act on your appeal. For appeals from the FHFA-OIG Privacy 
Act Officer, the FHFA-OIG Privacy Act Appeals Officer is authorized to 
act on your appeal.
    (d) When will FHFA or FHFA-OIG respond to my appeal? FHFA or FHFA-
OIG generally will respond to you in writing within 30 days of receipt 
of an appeal that meets the requirements of paragraph (b) of this 
section, unless for good cause shown, the FHFA or FHFA-OIG Privacy Act 
Appeals Officer extends the response time.
    (e) What will the FHFA or FHFA-OIG response include? The written 
response will include the determination of either the FHFA or FHFA-OIG 
Privacy Act Appeals Officer, 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.
    (1) If your appeal concerns a request for access to records or 
information and the appeal determination grants your access, the records 
or information, if any, will be made available to you.
    (2)(i) If your appeal concerns an amendment or correction of a 
record and the appeal determination grants your request for an amendment 
or correction, the response will describe any amendment or correction 
made to the record and advise you of your right to obtain a copy of the 
amended or corrected record under this part. FHFA or FHFA-OIG will 
notify all persons, organizations, or Federal agencies to which it 
previously disclosed the record, if an accounting of that disclosure was 
made, that the record has been amended or corrected. Whenever the record 
is subsequently disclosed, the record will be disclosed as amended or 
corrected.
    (ii) If the response to your appeal denies your request for an 
amendment or correction to a record, the response

[[Page 75]]

will advise you of your right to file a Statement of Disagreement under 
paragraph (f) of this section.
    (f) What is a Statement of Disagreement?--(1) A Statement of 
Disagreement is a concise written statement in which you clearly 
identify each part of any record that you dispute and explain your 
reason(s) for disagreeing with either the FHFA or FHFA-OIG Privacy Act 
Appeals Officer's denial, in whole or in part, of your appeal requesting 
amendment or correction. Your Statement of Disagreement must be received 
by either the FHFA or FHFA-OIG Privacy Act Officer within 30 calendar 
days of either the FHFA or FHFA-OIG Privacy Act Appeals Officer's 
denial, in whole or in part, of your appeal concerning amendment or 
correction of a record. FHFA and FHFA-OIG will place your Statement of 
Disagreement in the system of records in which the disputed record is 
maintained. FHFA and FHFA-OIG may also append a concise statement of its 
reason(s) for denying the request for an amendment or correction of the 
record.
    (2) FHFA and FHFA-OIG will notify all persons, organizations, and 
Federal agencies to which it previously disclosed the disputed record, 
if an accounting of that disclosure was made, that the record is 
disputed and provide your Statement of Disagreement and the FHFA or 
FHFA-OIG concise statement, if any. Whenever the disputed record is 
subsequently disclosed, a copy of your Statement of Disagreement and the 
FHFA or FHFA-OIG concise statement, if any, will also be disclosed.

[76 FR 51871, Aug. 19, 2011, as amended at 77 FR 4646, Jan. 31, 2012; 80 
FR 80233, Dec. 24, 2015]



Sec.1204.6  What does it cost to get records under the Privacy Act?

    (a) Must I agree to pay fees? Your Privacy Act request is your 
agreement to pay all applicable fees, unless you specify a limit on the 
amount of fees you agree to pay. FHFA or FHFA-OIG will not exceed the 
specified limit without your written agreement.
    (b) How does FHFA or FHFA-OIG calculate fees? FHFA and FHFA-OIG will 
charge a fee for duplication of a record under the Privacy Act in the 
same way it charges for duplication of records under FOIA in 12 CFR 
1202.11. There are no fees to search for or review records.



Sec.1204.7  Are there any exemptions from the Privacy Act?

    (a) What is a Privacy Act exemption? The Privacy Act authorizes the 
Director and the FHFA Inspector General to exempt records or information 
in a system of records from some of the Privacy Act requirements, if the 
Director or the FHFA Inspector General, as appropriate, determines that 
the exemption is necessary.
    (b) How do I know if the records or information I want are exempt?--
(1) Each system of records notice will advise you if the Director or the 
FHFA Inspector General has determined records or information in records 
are exempt from Privacy Act requirements. If the Director or the FHFA 
Inspector General has claimed an exemption for a system of records, the 
system of records notice will identify the exemption and the provisions 
of the Privacy Act from which the system is exempt.
    (2) Until superseded by FHFA or FHFA-OIG systems of records, the 
following OFHEO and FHFB systems of records are, under 5 U.S.C. 
552a(k)(2) or (k)(5), exempt from the Privacy Act requirements of 5 
U.S.C. 552a(c)(3), (d), (e)(1), (e)(4)(G), (e)(4)(H), (e)(4)(I), and 
(f)--
    (i) OFHEO-11 Litigation and Enforcement Information System; and
    (ii) FHFB-5 Agency Personnel Investigative Records.
    (c) What exemptions potentially apply to FHFA-OIG records? Unless 
the FHFA Inspector General, his or her designee, or a statute 
specifically authorizes disclosure, FHFA-OIG will not release records of 
matters that are subject to the following exemptions--
    (1) To the extent that the systems of records entitled ``FHFA-OIG 
Audit Files Database,'' ``FHFA-OIG Investigative & Evaluative Files 
Database,'' ``FHFA-OIG Investigative & Evaluative MIS Database,'' 
``FHFA-OIG Hotline Database,'' and ``FHFA-OIG Correspondence Database'' 
contain any information compiled by FHFA-OIG for the purpose of criminal 
law enforcement investigations, such information falls within the scope 
of exemption (j)(2) of the Privacy Act, 5 U.S.C.

[[Page 76]]

552a(j)(2), and therefore these systems of records are exempt from the 
requirements of the following subsections of the Privacy Act to that 
extent, for the reasons stated in paragraphs (1)(i) through (vi) of this 
section.
    (i) From 5 U.S.C. 552a(c)(3), because release of an accounting of 
disclosures to an individual who is the subject of an investigation or 
evaluation could reveal the nature and scope of the investigation or 
evaluation and could result in the altering or destruction of evidence, 
improper influencing of witnesses, and other evasive actions that could 
impede or compromise the investigation or evaluation.
    (ii) From 5 U.S.C. 552a(d)(1), because release of investigative or 
evaluative records to an individual who is the subject of an 
investigation or evaluation could interfere with pending or prospective 
law enforcement proceedings, constitute an unwarranted invasion of the 
personal privacy of third parties, reveal the identity of confidential 
sources, or reveal sensitive investigative or evaluative techniques and 
procedures.
    (iii) From 5 U.S.C. 552a(d)(2), because amendment or correction of 
investigative or evaluative records could interfere with pending or 
prospective law enforcement proceedings, or could impose an impossible 
administrative and investigative or evaluative burden by requiring FHFA-
OIG to continuously retrograde its investigations or evaluations 
attempting to resolve questions of accuracy, relevance, timeliness, and 
completeness.
    (iv) From 5 U.S.C. 552a(e)(1), because it is often impossible to 
determine relevance or necessity of information in the early stages of 
an investigation or evaluation. The value of such information is a 
question of judgment and timing; what appears relevant and necessary 
when collected may ultimately be evaluated and viewed as irrelevant and 
unnecessary to an investigation or evaluation. In addition, FHFA-OIG may 
obtain information concerning the violation of laws other than those 
within the scope of its jurisdiction. In the interest of effective law 
enforcement, FHFA-OIG should retain this information because it may aid 
in establishing patterns of unlawful activity and provide leads for 
other law enforcement agencies. Further, in obtaining evidence during an 
investigation or evaluation, information may be provided to FHFA-OIG 
that relates to matters incidental to the main purpose of the 
investigation or evaluation, but which may be pertinent to the 
investigative or evaluative jurisdiction of another agency. Such 
information cannot readily be identified.
    (v) From 5 U.S.C. 552a(e)(2), because in a law enforcement 
investigation or an evaluation it is usually counterproductive to 
collect information to the greatest extent practicable directly from the 
subject thereof. It is not always feasible to rely upon the subject of 
an investigation or evaluation as a source for information which may 
implicate him or her in illegal activities. In addition, collecting 
information directly from the subject could seriously compromise an 
investigation or evaluation by prematurely revealing its nature and 
scope, or could provide the subject with an opportunity to conceal 
criminal activities, or intimidate potential sources, in order to avoid 
apprehension.
    (vi) From 5 U.S.C. 552a(e)(3), because providing such notice to the 
subject of an investigation or evaluation, or to other individual 
sources, could seriously compromise the investigation or evaluation by 
prematurely revealing its nature and scope, or could inhibit 
cooperation, permit the subject to evade apprehension, or cause 
interference with undercover activities.
    (2) To the extent that the systems of records entitled ``FHFA-OIG 
Audit Files Database,'' ``FHFA-OIG Investigative & Evaluative Files 
Database,'' ``FHFA-OIG Investigative & Evaluative MIS Database,'' 
``FHFA-OIG Hotline Database,'' and ``FHFA-OIG Correspondence Database,'' 
contain information compiled by FHFA-OIG for the purpose of criminal law 
enforcement investigations, such information falls within the scope of 
exemption (k)(2) of the Privacy Act, 5 U.S.C. 552a(k)(2), and therefore 
these systems of records are exempt from the requirements of the 
following subsections of the Privacy Act to that extent, for the reasons 
stated in paragraphs (c)(2)(i) through (iv) of this section.

[[Page 77]]

    (i) From 5 U.S.C. 552a(c)(3), because release of an accounting of 
disclosures to an individual who is the subject of an investigation or 
evaluation could reveal the nature and scope of the investigation or 
evaluation and could result in the altering or destruction of evidence, 
improper influencing of witnesses, and other evasive actions that could 
impede or compromise the investigation or evaluation.
    (ii) From 5 U.S.C. 552a(d)(1), because release of investigative or 
evaluative records to an individual who is the subject of an 
investigation or evaluation could interfere with pending or prospective 
law enforcement proceedings, constitute an unwarranted invasion of the 
personal privacy of third parties, reveal the identity of confidential 
sources, or reveal sensitive investigative or evaluative techniques and 
procedures.
    (iii) From 5 U.S.C. 552a(d)(2), because amendment or correction of 
investigative or evaluative records could interfere with pending or 
prospective law enforcement proceedings, or could impose an impossible 
administrative and investigative or evaluative burden by requiring FHFA-
OIG to continuously retrograde its investigations or evaluations 
attempting to resolve questions of accuracy, relevance, timeliness, and 
completeness.
    (iv) From 5 U.S.C. 552a(e)(1), because it is often impossible to 
determine relevance or necessity of information in the early stages of 
an investigation or evaluation. The value of such information is a 
question of judgment and timing; what appears relevant and necessary 
when collected may ultimately be evaluated and viewed as irrelevant and 
unnecessary to an investigation or evaluation. In addition, FHFA-OIG may 
obtain information concerning the violation of laws other than those 
within the scope of its jurisdiction. In the interest of effective law 
enforcement, FHFA-OIG should retain this information because it may aid 
in establishing patterns of unlawful activity and provide leads for 
other law enforcement agencies. Further, in obtaining evidence during an 
investigation or evaluation, information may be provided to FHFA-OIG 
that relates to matters incidental to the main purpose of the 
investigation or evaluation but which may be pertinent to the 
investigative or evaluative jurisdiction of another agency. Such 
information cannot readily be identified.
    (3) To the extent that the systems of records entitled ``FHFA-OIG 
Audit Files Database,'' ``FHFA-OIG Investigative & Evaluative Files 
Database,'' ``FHFA-OIG Investigative & Evaluative MIS Database,'' 
``FHFA-OIG Hotline Database,'' and ``FHFA-OIG Correspondence Database'' 
contain any investigatory material compiled by FHFA-OIG for the purpose 
of determining suitability, eligibility, or qualifications for Federal 
civilian employment or Federal contracts, the release of which would 
reveal the identity of a source who furnished information to the 
Government under an express promise that the identity of the source 
would be held in confidence, such information falls within the scope of 
exemption (k)(5) of the Privacy Act, 5 U.S.C. 552a(k)(5), and therefore 
these systems of records are exempt from the requirements of subsection 
(d)(1) of the Privacy Act to that extent, because release would reveal 
the identity of a source who furnished information to the Government 
under an express promise of confidentiality. Revealing the identity of a 
confidential source could impede future cooperation by sources, and 
could result in harassment or harm to such sources.



Sec.1204.8  How are records secured?

    (a) What controls must FHFA and FHFA-OIG have in place? FHFA and 
FHFA-OIG must establish administrative and physical controls to prevent 
unauthorized access to their systems of records, unauthorized or 
inadvertent disclosure of records, and physical damage to or destruction 
of records. The stringency of these controls corresponds 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;

[[Page 78]]

    (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) Is access to records restricted? Access to records is restricted 
to authorized employees who require access in order to perform their 
official duties.



Sec.1204.9  Does FHFA or FHFA-OIG collect and use Social Security
numbers?

    FHFA and FHFA-OIG collect Social Security numbers only when it is 
necessary and authorized. At least annually, the FHFA Privacy Act 
Officer or the Senior Agency Official for Privacy 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.



Sec.1204.10  What are FHFA and FHFA-OIG employee responsibilities
under the Privacy Act?

    At least annually, the FHFA Privacy Act Officer or the Senior Agency 
Official for Privacy will inform employees about the provisions of the 
Privacy Act, including the Privacy Act's civil liability and criminal 
penalty provisions. Unless otherwise permitted by law, an authorized 
FHFA or FHFA-OIG employee shall--
    (a) Collect from individuals only information that is relevant and 
necessary to discharge FHFA or FHFA-OIG responsibilities;
    (b) Collect information about an individual directly from that 
individual whenever practicable;
    (c) Inform each individual from whom information is collected of--
    (1) The legal authority to collect the information and whether 
providing it is mandatory or voluntary;
    (2) The principal purpose for which FHFA or FHFA-OIG intends to use 
the information;
    (3) The routine uses FHFA or FHFA-OIG 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 for disclosures made under 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 FHFA or FHFA-OIG to 
persons, organizations, or Federal agencies;
    (h) Maintain and use records with care to prevent the unauthorized 
or inadvertent disclosure of a record to anyone; and
    (i) Notify the appropriate official of any record that contains 
information that the Privacy Act does not permit FHFA or FHFA-OIG to 
maintain.



Sec.1204.11  May FHFA-OIG obtain Privacy Act records from other 
Federal agencies for law enforcement purposes?

    (a) The FHFA Inspector General is authorized under the Inspector 
General Act of 1978, as amended, to make written requests under 5 U.S.C. 
552a(b)(7) for transfer of records maintained by other Federal agencies 
which are necessary to carry out an authorized law enforcement activity 
under the Inspector General Act of 1978, as amended.
    (b) The FHFA Inspector General delegates the authority under 
paragraph

[[Page 79]]

(a) of this section to the following FHFA-OIG officials--
    (1) Principal Deputy Inspector General;
    (2) Deputy Inspector General for Audits;
    (3) Deputy Inspector General for Investigations;
    (4) Deputy Inspector General for Evaluations; and
    (5) Deputy Inspector General for Administration.
    (c) The officials listed in paragraph (b) of this section may not 
further delegate or re-delegate the authority described in paragraph (a) 
of this section.



PART 1206_ASSESSMENTS--Table of Contents



Sec.
1206.1 Purpose.
1206.2 Definitions.
1206.3 Annual assessments.
1206.4 Increased costs of regulation.
1206.5 Working capital fund.
1206.6 Notice and review.
1206.7 Delinquent payment.
1206.8 Enforcement of payment.

    Authority: 12 U.S.C. 4516.

    Source: 73 FR 56713, Sept. 30, 2008, unless otherwise noted.



Sec.1206.1  Purpose.

    This part sets forth the policy and procedures of the FHFA with 
respect to the establishment and collection of the assessments of the 
Regulated Entities under 12 U.S.C. 4516.



Sec.1206.2  Definitions.

    As used in this part:
    Act means the Federal Housing Finance Regulatory Reform Act of 2008.
    Adequately capitalized means the adequately capitalized capital 
classification under 12 U.S.C. 1364 and related regulations.
    Director means the Director of the Federal Housing Finance Agency or 
his or her designee.
    Enterprise means the Federal National Mortgage Association or the 
Federal Home Loan Mortgage Corporation; and ``Enterprises'' means, 
collectively, the Federal National Mortgage Association and the Federal 
Home Loan Mortgage Corporation.
    Federal Home Loan Bank, or Bank, means a Federal Home Loan Bank 
established under section 12 of the Federal Home Loan Bank Act (12 
U.S.C. 1432).
    FHFA means the Federal Housing Finance Agency.
    Minimum required regulatory capital means the highest amount of 
capital necessary for a Bank to comply with any of the capital 
requirements established by the Director and applicable to it.
    Regulated Entity means the Federal National Mortgage Association, 
the Federal Home Loan Mortgage Corporation, or any of the Federal Home 
Loan Banks.
    Surplus funds means any amounts that are not obligated as of 
September 30 of the fiscal year for which the assessment was made.
    Total exposure means the sum, as of the most recent June quarterly 
minimum capital report of the Enterprise, of the amounts of the 
following assets and off-balance sheet obligations that are used to 
calculate the quarterly minimum capital requirement of the Enterprise 
under 12 CFR part 1750:
    (1) On-balance sheet assets;
    (2) Guaranteed mortgage-backed securities; and
    (3) Other off-balance sheet obligations as determined by the 
Director.
    Working capital fund means an account for amounts collected from the 
Regulated Entities to establish an operating reserve that is intended to 
provide for the payment of large or multiyear capital and operating 
expenditures, as well as unanticipated expenses.



Sec.1206.3  Annual assessments.

    (a) Establishing assessments. The Director shall establish annual 
assessments on the Regulated Entities in an amount sufficient to 
maintain a working capital fund and provide for the payment of the 
FHFA's costs and expenses, including, but not limited to:
    (1) Expenses of any examinations under 12 U.S.C. 4517 and section 20 
of the Federal Home Loan Bank Act (12 U.S.C. 1440);
    (2) Expenses of obtaining any reviews and credit assessments under 
12 U.S.C. 4519;
    (3) Expenses of any enforcement activities under 12 U.S.C. 4635;

[[Page 80]]

    (4) Expenses of other FHFA litigation under 12 U.S.C. 4513;
    (5) Expenses relating to the maintenance of the FHFA records 
relating to examinations and other reviews of the Regulated Entities;
    (6) Such amounts in excess of actual expenses for any given year 
deemed necessary to maintain a working capital fund;
    (7) Expenses relating to monitoring and ensuring compliance with 
housing goals;
    (8) Expenses relating to conducting reviews of new products;
    (9) Expenses related to affordable housing and community programs;
    (10) Other administrative expenses of the FHFA;
    (11) Expenses related to preparing reports and studies;
    (12) Expenses relating to the collection of data and development of 
systems to calculate the House Price Index (HPI) and the conforming loan 
limit;
    (13) Amounts deemed necessary by the Director to wind up the affairs 
of the Office of Federal Housing Enterprise Oversight and the Federal 
Housing Finance Board; and
    (14) Expenses relating to other responsibilities of the FHFA under 
the Safety and Soundness Act, the Federal Home Loan Bank Act and the 
Act.
    (b) Allocating assessments. The Director shall allocate the annual 
assessments as follows:
    (1) Enterprises. Assessments collected from the Enterprises shall 
not exceed amounts sufficient to provide for payment of the costs and 
expenses relating to the Enterprises as determined by the Director. Each 
Enterprise shall pay a proportional share that bears the same ratio to 
the total portion of the annual assessment allocated to the Enterprises 
that the total exposure of each Enterprise bears to the total exposure 
of both Enterprises.
    (2) Federal Home Loan Banks. Assessments collected from the Banks 
shall not exceed amounts sufficient to provide for payment of the costs 
and expenses relating to the Banks as determined by the Director. Each 
Bank shall pay a pro rata share of the annual assessments based on the 
ratio between its minimum required regulatory capital and the aggregate 
minimum required regulatory capital of every Bank.
    (c) Timing and amount of semiannual payment. Each Regulated Entity 
shall pay on or before October 1 and April 1 an amount equal to one-half 
of its annual assessment.
    (d) Surplus funds. Surplus funds shall be credited to the annual 
assessment by reducing the amount collected in the following semiannual 
period by the amount of the surplus funds. Surplus funds shall be 
allocated to all Regulated Entities in the same proportion in which they 
were collected, except as determined by the Director.

[73 FR 56713, Sept. 30, 2008, as amended at 83 FR 39326, Aug. 9, 2018]



Sec.1206.4  Increased costs of regulation.

    (a) Increase for inadequate capitalization. The Director may, at his 
or her discretion, increase the amount of a semiannual payment allocated 
to a Regulated Entity that is not classified as adequately capitalized 
to pay additional estimated costs of regulation of that Regulated 
Entity.
    (b) Increase for enforcement activities. The Director may, at his or 
her discretion, adjust the amount of a semiannual payment allocated to a 
Regulated Entity to ensure that the Regulated Entity bears the estimated 
costs of enforcement activities under the Act related to that Regulated 
Entity.
    (c) Additional assessment for deficiencies. At any time, the 
Director may make and collect from any Regulated Entity an assessment, 
payable immediately or through increased semiannual payments, to cover 
the estimated amount of any deficiency for the semiannual period as a 
result of increased costs of regulation of a Regulated Entity due to its 
classification as other than adequately capitalized, or as a result of 
enforcement activities related to that Regulated Entity. Any amount 
remaining from such additional assessment and the semiannual payments at 
the end of any semiannual period during which such an additional 
assessment is made shall be deducted pro rata (based upon the amount of 
the additional assessments) from the assessment for the following 
semiannual period for that Regulated Entity.

[[Page 81]]



Sec.1206.5  Working capital fund.

    (a) Assessments. The Director shall establish and collect from the 
Regulated Entities such assessments he or she deems necessary to 
maintain a working capital fund.
    (b) Purposes. Assessments collected to maintain the working capital 
fund shall be used to establish an operating reserve and to provide for 
the payment of large or multiyear capital and operating expenditures as 
well as unanticipated expenses.
    (c) Remittance of excess assessed funds. At the end of each year for 
which an assessment under this section is made, the Director shall remit 
to each Regulated Entity any amount of assessed and collected funds in 
excess of the amount the Director deems necessary to maintain a working 
capital fund in the same proportions as paid under the most recent 
annual assessment.



Sec.1206.6  Notice and review.

    (a) Written notice of budget. The Director shall provide to each 
Regulated Entity written notice of the projected budget for the Agency 
for the upcoming fiscal year. Such notice shall be provided at least 30 
days before the beginning of the applicable fiscal year.
    (b) Written notice of assessments. The Director shall provide each 
Regulated Entity with written notice of assessments as follows:
    (1) Annual assessments. The Director shall provide each Regulated 
Entity with written notice of the annual assessment and the semiannual 
payments to be collected under this part. Notice of the annual 
assessment and semiannual payments shall be provided before the start of 
the new fiscal year.
    (2) Immediate assessments. The Director shall provide each Regulated 
Entity with written notice of any immediate assessments to be collected 
under Sec.1206.4 of this chapter. Notice of any immediate assessment 
and the required payments shall be provided at such reasonable time as 
determined by the Director.
    (3) Changes to assessments. The Director shall provide each 
Regulated Entity with written notice of any changes in the assessment 
procedures that the Director, in his or her sole discretion, deems 
necessary under the circumstances.
    (c) Request for review. At the written request of a Regulated 
Entity, 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 upon such review is final. 
Except as provided by the Director, review by the Director does not 
suspend the requirement that the Regulated Entity make the semiannual 
payment or partial payment on or before the date it is due. Any 
adjustments determined appropriate shall be credited or otherwise 
addressed by the following year's assessment for that entity.



Sec.1206.7  Delinquent payment.

    The Director may assess interest and penalties on any delinquent 
semiannual payment or other payment assessed under this part in 
accordance with 31 U.S.C. 3717 (interest and penalty on claims) and part 
1704 of this title (debt collection).



Sec.1206.8  Enforcement of payment.

    The Director may enforce the payment of any assessment under 12 
U.S.C. 4631 (cease-and-desist proceedings), 12 U.S.C. 4632 (temporary 
cease-and-desist orders), and 12 U.S.C. 4626 (civil money penalties).



PART 1207_MINORITY AND WOMEN OUTREACH PROGRAM--Table of Contents



Sec.
1207.1 Definitions.
1207.2 FHFA workforce diversity; Equal Employment Opportunity Program.
1207.3 FHFA contracting and diversity and inclusion.
1207.4 Limitations.

    Authority: 12 U.S.C. 4520 and 4526; 12 U.S.C. 1833e; E.O. 11478.

    Source: 82 FR 14994, Mar. 24, 2017, unless otherwise noted.



Sec.1207.1  Definitions.

    The terms in this part have the same meaning as in FHFA's Minority 
and Women Inclusion Regulation at part 1223 of this chapter, as may be 
amended from time to time.

[[Page 82]]



Sec.1207.2  FHFA workforce diversity; Equal Employment Opportunity
Program.

    (a) Responsibility. FHFA's Office of Minority and Women Inclusion 
(OMWI) shall have overall responsibility for diversity and inclusion in 
FHFA's employment practices.
    (b) General. FHFA shall maintain an Equal Employment Opportunity 
(EEO) program consistent with the Equal Employment Opportunity 
Commission requirements for Federal agencies and Executive Order 11478.
    (c) Workforce diversity. FHFA shall not discriminate in employment 
against any person because of race, color, religion, national origin, 
sex, age, genetic information, disability, sexual orientation, gender 
identity, or status as a parent.
    (d) Affirmative steps for workforce diversity. FHFA shall take 
affirmative steps to seek diversity in its workforce, at all levels of 
the agency, in a manner consistent with applicable law. Such steps shall 
include:
    (1) Recruiting at historically Black colleges and universities, 
Hispanic-serving institutions, women's colleges, and colleges that 
typically serve the individuals with disabilities and majority minority 
populations;
    (2) Sponsoring and recruiting at job fairs in urban communities;
    (3) Placing employment advertisements in media oriented toward 
minorities and women;
    (4) Partnering with organizations that are focused on developing 
opportunities for minorities and women to place talented minorities and 
women in industry internships, summer employment, and full-time 
positions; and
    (5) Where feasible, partnering with inner-city high schools, girls' 
high schools, and high schools with majority minority populations, to 
establish or enhance financial literacy and provide mentoring.



Sec.1207.3  FHFA contracting and diversity and inclusion.

    (a) Responsibilities. FHFA's Office of Minority and Women Inclusion 
(OMWI) shall have responsibility for diversity and inclusion in FHFA's 
contracting practices.
    (b) Outreach. FHFA's policy is to promote diversity in its 
contracting process. FHFA shall establish a contractor outreach program 
intended to ensure that minority- and women-owned businesses are made 
aware of and given the opportunity to compete for contracts with FHFA. 
FHFA shall conduct outreach activities that may include, but are not 
limited to:
    (1) Identifying contractors that are minority- and women-owned by 
obtaining lists and directories maintained by government agencies, trade 
groups, and other organizations;
    (2) Advertising contract opportunities through media targeted to 
reach potential contractors that are minority- and women-owned; and
    (3) Participating in events such as conventions, trade shows, 
seminars, professional meetings, and other gatherings intended to 
promote business opportunities for minority- and women-owned businesses.
    (c) Technical assistance. FHFA shall provide technical assistance 
and guidance to facilitate the identification and solicitation of 
minority and women-owned businesses.
    (d) Monitoring. FHFA's OMWI shall monitor that FHFA staff 
interfacing with the contracting community are knowledgeable about, and 
actively promoting, FHFA's Outreach program.



Sec.1207.4  Limitations.

    The regulations in this part do not, are not intended to, and should 
not be construed to create any right or benefit, substantive or 
procedural, enforceable at law, in equity, or through administrative 
proceeding, by any party against FHFA, the United States, its other 
departments, agencies, or entities, its officers, employees, or agents.



PART 1208_DEBT COLLECTION--Table of Contents



                            Subpart A_General

Sec.
1208.1 Authority and scope.
1208.2 Definitions.
1208.3 Referrals to the Department of the Treasury, collection services, 
          and use of credit bureaus.
1208.4 Reporting delinquent debts to credit bureaus.

[[Page 83]]

1208.5-1208.19 [Reserved]

                         Subpart B_Salary Offset

1208.20 Authority and scope.
1208.21 Notice requirements before salary offset where FHFA is the 
          creditor agency.
1208.22 Review of FHFA records related to the debt.
1208.23 Opportunity for a hearing where FHFA is the creditor agency.
1208.24 Certification where FHFA is the creditor agency.
1208.25 Voluntary repayment agreements as alternative to salary offset 
          where FHFA is the creditor agency.
1208.26 Special review where FHFA is the creditor agency.
1208.27 Notice of salary offset where FHFA is the paying agency.
1208.28 Procedures for salary offset where FHFA is the paying agency.
1208.29 Coordinating salary offset with other agencies.
1208.30 Interest, penalties, and administrative costs.
1208.31 Refunds.
1208.32 Request from a creditor agency for the services of a hearing 
          official.
1208.33 Non-waiver of rights by payments.

                     Subpart C_Administrative Offset

1208.40 Authority and scope.
1208.41 Collection.
1208.42 Administrative offset prior to completion of procedures.
1208.43 Procedures.
1208.44 Interest, penalties, and administrative costs.
1208.45 Refunds.
1208.46 No requirement for duplicate notice.
1208.47 Requests for administrative offset to other Federal agencies.
1208.48 Requests for administrative offset from other Federal agencies.
1208.49 Administrative offset against amounts payable from Civil Service 
          Retirement and Disability Fund.

                       Subpart D_Tax Refund Offset

1208.50 Authority and scope.
1208.51 Definitions.
1208.52 Procedures.
1208.53 No requirement for duplicate notice.
1208.54-1208.59 [Reserved]

                Subpart E_Administrative Wage Garnishment

1208.60 Scope and purpose.
1208.61 Notice.
1208.62 Debtor's rights.
1208.63 Form of hearing.
1208.64 Effect of timely request.
1208.65 Failure to timely request a hearing.
1208.66 Hearing official.
1208.67 Procedure.
1208.68 Format of hearing.
1208.69 Date of decision.
1208.70 Content of decision.
1208.71 Finality of agency action.
1208.72 Failure to appear.
1208.73 Wage garnishment order.
1208.74 Certification by employer.
1208.75 Amounts withheld.
1208.76 Exclusions from garnishment.
1208.77 Financial hardship.
1208.78 Ending garnishment.
1208.79 Prohibited actions by employer.
1208.80 Refunds.
1208.81 Right of action.

    Authority: 5 U.S.C. 5514; 12 U.S.C. 4526; 26 U.S.C. 6402(d); 31 
U.S.C. 3701-3720D; 31 CFR 285.2; 31 CFR Chapter IX.



                            Subpart A_General

    Source: 75 FR 68958, Nov. 10, 2010, unless otherwise noted.



Sec.1208.1  Authority and scope.

    (a) Authority. FHFA issues this part 1208 under the authority of 5 
U.S.C. 5514 and 31 U.S.C. 3701-3720D, and in conformity with the Federal 
Claims Collection Standards (FCCS) at 31 CFR chapter IX; the regulations 
on salary offset issued by the Office of Personnel Management (OPM) at 5 
CFR part 550, subpart K; the regulations on tax refund offset issued by 
the United States Department of the Treasury (Treasury) at 31 CFR 285.2; 
and the regulations on administrative wage garnishment issued by 
Treasury at 31 CFR 285.11.
    (b) Scope--(1) This part applies to debts that are owed to the 
Federal Government by Federal employees; other persons, organizations, 
or entities that are indebted to FHFA; and by Federal employees of FHFA 
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 1208 do not apply to--
    (i) Debts or claims arising under the Internal Revenue Code (26 
U.S.C. 1 et seq.), the Social Security Act (42 U.S.C. 301 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;

[[Page 84]]

    (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 FHFA to handle the collection; or
    (v) Claims between agencies.
    (3) Nothing in this part precludes the compromise, suspension, or 
termination of collection actions, where appropriate, under standards 
implementing the Debt Collection Improvement Act (DCIA) (31 U.S.C. 3701 
et seq.), the FCCS (31 CFR chapter IX) or the use of alternative dispute 
resolution methods if they are not inconsistent with applicable law and 
regulations.
    (4) Nothing in this part precludes an employee from requesting 
waiver of 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.



Sec.1208.2  Definitions.

    The following terms apply to this part, unless defined otherwise 
elsewhere-
    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.
    Agency means an executive department or agency; a military 
department; the United States Postal Service; the Postal Regulatory 
Commission; any nonappropriated fund instrumentality described in 5 
U.S.C. 2105(c); the United States Senate; the United States House of 
Representatives; any court, court administrative office, or 
instrumentality in the judicial or legislative branches of the 
Government; or a Government corporation. If an agency under this 
definition is a component of an agency, the broader definition of agency 
may be used in applying the provisions of 5 U.S.C. 5514(b) (concerning 
the authority to prescribe regulations).
    Centralized administrative offset means the mandatory referral to 
the Secretary of the Treasury by a creditor agency of a past due debt 
which is more than 180 days delinquent, for the purpose of collection 
under the Treasury's centralized offset program.
    Certification means a written statement received by a paying agency 
from a creditor agency that requests the paying agency to institute 
salary offset of an employee, to the Financial Management Service (FMS) 
for offset or to the Secretary of the Treasury for centralized 
administrative offset, and specifies that required procedural 
protections have been afforded the debtor. Where the debtor requests a 
hearing on a claimed debt, the decision by a hearing official or 
administrative law judge constitutes a certification.
    Claim or debt (used interchangeably in this part) 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. For 
purposes of this part, a debt owed to FHFA constitutes a debt owed to 
the Federal Government. 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) Unauthorized expenditures of agency funds;
    (3) Overpayments, including payments disallowed by audits performed

[[Page 85]]

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 fine or penalty assessed by an agency; and
    (7) Other amounts of money or property owed to the Federal 
Government.
    Compromise means the settlement or forgiveness of a debt under 31 
U.S.C. 3711, in accordance with standards set forth in the FCCS and 
applicable Federal law.
    Creditor agency means the agency to which the debt is owed, 
including a debt collection center when acting on behalf of a creditor 
agency in matters pertaining to the collection of a debt.
    Debt See the definition of the terms ``Claim or debt'' of this 
section.
    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).
    Debtor means the person, organization, or entity owing money to the 
Federal Government.
    Delinquent debt means a debt that has not been paid by the date 
specified in the agency's initial written demand for payment or 
applicable agreement or instrument (including a post-delinquency payment 
agreement) unless other satisfactory payment arrangements have been 
made.
    Director means the Director of FHFA or Director's designee.
    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). FHFA will apply the order of precedence contained in 
OPM guidance (PPM-2008-01; Order Of Precedence When Gross Pay Is Not 
Sufficient To Permit All Deductions), as follows--
    (1) Retirement deductions for defined benefit plan (including Civil 
Service Retirement System, Federal Employees Retirement System, or other 
similar defined benefit plan);
    (2) Social security (OASDI) tax;
    (3) Medicare tax;
    (4) Federal income tax;
    (5) Basic health insurance premium (including Federal Employees 
Health Benefits premium, pre-tax or post-tax, or premium for similar 
benefit under another authority but not including amounts deducted for 
supplementary coverage);
    (6) Basic life insurance premium (including Federal Employees' Group 
Life Insurance--FEGLI--Basic premium or premium for similar benefit 
under another authority);
    (7) State income tax;
    (8) Local income tax;
    (9) Collection of debts owed to the U.S. Government (e.g., tax debt, 
salary overpayment, failure to withhold proper amount of deductions, 
advance of salary or travel expenses, etc.; debts which may or may not 
be delinquent; debts which may be collected through the Treasury's 
Financial Management Services Treasury Offset Program, an automated 
centralized debt collection program for collecting Federal debt from 
Federal payments):
    (i) Continuous levy under the Federal Payment Levy Program (tax 
debt); and
    (ii) Salary offsets (whether involuntary under 5 U.S.C. 5514 or 
similar authority or required by a voluntarily signed written agreement; 
if multiple debts are subject to salary offset, the order is based on 
when each offset commenced--with earliest commencing offset at the top 
of the order--unless there are special circumstances, as determined by 
the paying agency).
    (10) Court-Ordered collection/debt:
    (i) Child support (may include attorney and other fees as provided 
for in 5 CFR 581.102(d)). If there are multiple child support orders, 
the priority of orders is governed by 42 U.S.C. 666(b) and implementing 
regulations, as required by 42 U.S.C. 659(d)(2);
    (ii) Alimony (may include attorney and other fees as provided for in 
5 CFR

[[Page 86]]

581.102(d)). If there are multiple alimony orders, they are prioritized 
on a first-come, first-served basis, as required by 42 U.S.C. 659(d)(3);
    (iii) Bankruptcy; and
    (iv) Commercial garnishments.
    (11) Optional benefits:
    (i) Health care/limited-expense health care flexible spending 
accounts (pre-tax benefit under FedFlex or equivalent cafeteria plan);
    (ii) Dental (pre-tax benefit under FedFlex or equivalent cafeteria 
plan);
    (iii) Vision (pre-tax benefit under FedFlex or equivalent cafeteria 
plan);
    (iv) Health Savings Account (pre-tax benefit under FedFlex or 
equivalent cafeteria plan);
    (v) Optional life insurance premiums (FEGLI optional benefits or 
similar benefits under other authority);
    (vi) Long-term care insurance premiums;
    (vii) Dependent-care flexible spending accounts (pre-tax benefit 
under FedFlex or equivalent cafeteria plan);
    (viii) Thrift Savings Plan (TSP):
    (A) Loan payments;
    (B) Basic contributions; and
    (C) Catch-up contributions; and
    (ix) Other optional benefits.
    (12) Other voluntary deductions/allotments:
    (i) Military service deposits;
    (ii) Professional associations;
    (iii) Union dues;
    (iv) Charities;
    (v) Bonds;
    (vi) Personal account allotments (e.g., to savings or checking 
account); and
    (vii) Additional voluntary deductions (on first-come, first-served 
basis); and
    (13) IRS paper levies.
    Employee means a current employee of FHFA or other agency, including 
a current member of the Armed Forces or a Reserve of the Armed Forces of 
the United States.
    Federal Claims Collection Standards (FCCS) means standards published 
at 31 CFR chapter IX.
    FHFA means the Federal Housing Finance Agency.
    Garnishment means the process of withholding amounts from the 
disposable pay of a person employed outside the Federal Government, and 
the paying of those amounts to a creditor in satisfaction of a 
withholding order.
    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 final decision on the basis of such hearing. 
A hearing official may not be under the supervision or control of the 
Director of FHFA when FHFA is the creditor agency but may be an 
administrative law judge.
    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.
    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.
    Paying agency means an agency of the Federal Government that employs 
the individual who owes a debt to an agency of the Federal Government 
and transmits payment requests in the form of certified payment 
vouchers, or other similar forms, to a disbursing official for 
disbursement. The same agency may be both the creditor agency and the 
paying agency.
    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.
    Waiver means the cancellation, remission, forgiveness, or non-
recovery of a debt allegedly owed by an employee to FHFA 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.
    Withholding order means any order for withholding or garnishment of 
pay issued by an agency, or judicial, or administrative body. For 
purposes of administrative wage garnishment, the terms ``wage 
garnishment order'' and ``garnishment order'' have the same meaning as 
``withholding order.''

[[Page 87]]



Sec.1208.3  Referrals to the Department of the Treasury, collection
services, and use of credit bureaus.

    (a) Referral of delinquent debts. (1) FHFA 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, 5 CFR 550.1108, 31 CFR part 285, and the 
FCCS.
    (2) FHFA 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.
    (b) Collection Services. Section 13 of the Debt Collection Act (31 
U.S.C. 3718) authorizes agencies to enter into contracts for collection 
services to recover debts owed the Federal Government. The Debt 
Collection Act requires that certain provisions be contained in such 
contracts, including:
    (1) The agency retains the authority to resolve a dispute, including 
the authority to terminate a collection action or refer the matter to 
the Attorney General for civil remedies; and
    (2) The contractor is subject to the Privacy Act of 1974, as it 
applies to private contractors, as well as subject to State and Federal 
laws governing debt collection practices.
    (c) Referrals to collection agencies. (1) FHFA has authority to 
contract for collection services to recover delinquent debts in 
accordance with 31 U.S.C. 3718(a) and the FCCS (31 CFR 901.5).
    (2) FHFA may use private collection agencies where it determines 
that their use is in the best interest of the Federal Government. Where 
FHFA determines that there is a need to contract for collection 
services, the contract will provide that:
    (i) The authority to resolve disputes, compromise claims, suspend or 
terminate collection action, or refer the matter to the Department of 
Justice for litigation or to take any other action under this part will 
be retained by FHFA;
    (ii) Contractors are subject to the Privacy Act of 1974, as amended, 
to the extent specified in 5 U.S.C. 552a(m) and to applicable Federal 
and State laws and regulations pertaining to debt collection practices, 
such as the Fair Debt Collection Practices Act, 15 U.S.C. 1692;
    (iii) The contractor is required to strictly account for all amounts 
collected;
    (iv) The contractor must agree that uncollectible accounts shall be 
returned with appropriate documentation to enable FHFA to determine 
whether to pursue collection through litigation or to terminate 
collection; and
    (v) The contractor must agree to provide any data in its files 
requested by FHFA upon returning the account to FHFA for subsequent 
referral to the Department of Justice for litigation.



Sec.1208.4  Reporting delinquent debts to credit bureaus.

    (a) FHFA may report delinquent debts to consumer reporting agencies 
(31 U.S.C. 3701(a)(3), 3711). Sixty calendar days prior to release of 
information to a consumer reporting agency, the debtor shall be 
notified, in writing, of the intent to disclose the existence of the 
debt to a consumer reporting agency. Such notice of intent may be a 
separate correspondence or included in correspondence demanding direct 
payment. The notice shall be in conformance with 31 U.S.C. 3711(e) and 
the FCCS. In the notice, FHFA shall provide the debtor with:
    (1) An opportunity to inspect and copy agency records pertaining to 
the debt;
    (2) An opportunity for an administrative review of the legal 
enforceability or past due status of the debt;
    (3) An opportunity to enter into a repayment agreement on terms 
satisfactory to FHFA to prevent FHFA from reporting the debt as overdue 
to consumer reporting agencies, and provide deadlines and method for 
requesting this relief;
    (4) An explanation of the rate of interest that will accrue on the 
debt, that all costs incurred to collect the debt will be charged to the 
debtor, the authority for assessing these costs, and

[[Page 88]]

the manner in which FHFA will calculate the amount of these costs;
    (5) An explanation that FHFA will report the debt to the consumer 
reporting agencies to the detriment of the debtor's credit rating; and
    (6) A description of the collection actions that the agency may take 
in the future if those presently proposed actions do not result in 
repayment of the debt, including the filing of a lawsuit against the 
borrower by the agency and assignment of the debt for collection by 
offset against Federal income tax refunds or the filing of a lawsuit 
against the debtor by the Federal Government.
    (b) The information that may be disclosed to the consumer reporting 
agency is limited to:
    (1) The debtor's name, address, social security number or taxpayer 
identification number, and any other information necessary to establish 
the identity of the individual;
    (2) The amount, status, and history of the claim; and
    (3) FHFA program or activity under which the claim arose.
    (c) Subsequent reports. FHFA may update its report to the credit 
bureau whenever it has knowledge of events that substantially change the 
status of the amount of liability.
    (d) Subsequent reports of delinquent debts. Pursuant to 31 CFR 
901.4, FHFA will report delinquent debt to the Department of Housing and 
Urban Development's Credit Alert Interactive Voice Response System 
(CAIVRS).
    (e) Privacy Act considerations. A delinquent debt may not be 
reported under this section unless a notice issued pursuant to the 
Privacy Act, 5 U.S.C. 552a(e)(4), authorizes the disclosure of 
information about the debtor to a credit bureau or CAIVRS.



Sec. Sec.1208.5-1208.19  [Reserved]



                         Subpart B_Salary Offset



Sec.1208.20  Authority and scope.

    (a) Authority. FHFA may collect debts owed by employees to the 
Federal Government by means of salary offset under the authority of 5 
U.S.C. 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 FHFA is attempting to collect a debt by salary offset 
that is owed to it by an individual employed by FHFA or by another 
agency; or where FHFA 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, 
FHFA 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 such adjustment is made, FHFA 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.1208.21  Notice requirements before salary offset where FHFA 
is the creditor agency.

    (a) Notice of Intent. Deductions from an employee's salary may not 
be made unless FHFA provides the employee with a Notice of Intent at 
least 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) That FHFA has reviewed the records relating to the claim and has 
determined that the employee owes the debt;
    (2) That FHFA intends to collect the debt by deductions from the 
employee's current disposable pay account;

[[Page 89]]

    (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 FHFA, the alternative written schedule shall be signed by both the 
employee and FHFA;
    (6) An explanation of FHFA's policy concerning interest, penalties, 
and administrative costs, the date by which payment should be made to 
avoid such costs, and 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 FHFA 
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 FHFA 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.1208.23; 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;
    (10) The filing of a request for a hearing on or before the 30th 
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) or will be issued at 
the earliest practical date, but not later than 60 calendar days after 
the request for the hearing;
    (11) FHFA shall initiate certification procedures to implement a 
salary offset unless the employee files a request for a hearing on or 
before the 30th 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 75, 5 
CFR part 752, or any other applicable statutes or regulations;
    (ii) Penalties under the False Claims Act, 31 U.S.C. 3729 through 
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) That the employee also has the right to request waiver of 
overpayment pursuant to 5 U.S.C. 5584 and may exercise 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.



Sec.1208.22  Review of FHFA records related to the debt.

    (a) Request for review. An employee who desires to inspect or copy 
FHFA records related to a debt owed by the employee to FHFA 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.

[[Page 90]]

    (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, FHFA shall arrange to send copies of 
such records to the employee. The debtor shall pay copying costs unless 
they are waived by FHFA. Copying costs shall be assessed pursuant to 
FHFA's Freedom of Information Act Regulation, 12 CFR part 1202.



Sec.1208.23  Opportunity for a hearing where FHFA 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 FHFA or on the salary-offset schedule proposed by FHFA, must 
send a written request to FHFA. The request for a hearing must be 
received by FHFA on or before the 30th 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 30th calendar day, the employee 
shall not be entitled to a hearing. However, FHFA 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 exists in the amount specified in the Notice of Intent that was 
provided to the employee under Sec.1208.21(b).
    (b) Obtaining the services of a hearing official--(1) Debtor is not 
an FHFA employee. When the debtor is not an FHFA employee and FHFA 
cannot provide a prompt and appropriate hearing before an administrative 
law judge or other hearing official, FHFA 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. The paying 
agency must cooperate with FHFA to provide a hearing official, as 
required by the FCCS.
    (2) Debtor is an FHFA employee. When the debtor is an FHFA employee, 
FHFA 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 within 30 calendar 
days.
    (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

[[Page 91]]

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 FHFA, 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 FHFA finds that the debt is still valid, 
FHFA 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 FHFA fails to appear, 
the hearing official shall proceed with the hearing as scheduled, and 
make his or her 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 of the time and place of the new hearing.



Sec.1208.24  Certification where FHFA is the creditor agency.

    (a) Issuance. FHFA 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 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 FHFA'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 through salary 
offset, the amount or percentage of disposable pay to be collected in 
each installment and, if FHFA wishes, the desired commencing date of the 
first installment, if a date other than the next officially established 
pay period; and
    (7) A statement that FHFA's regulation on salary offset has been 
approved by OPM pursuant to 5 CFR part 550, subpart K.



Sec.1208.25  Voluntary repayment agreements as alternative to salary
offset where FHFA 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 FHFA. Any 
proposal under this section must be received by FHFA within 30 calendar 
days after receipt of the Notice of Intent.
    (b) Notification of decision. In response to a timely proposal by 
the employee, FHFA shall notify the employee whether the employee's 
proposed repayment schedule is acceptable. FHFA

[[Page 92]]

has the discretion to accept, reject, or propose to the employee a 
modification of the proposed repayment schedule.
    (1) If FHFA decides that the proposed repayment schedule is 
unacceptable, the employee shall have 30 calendar days from the date he 
or she received notice of the decision in which to file a request for a 
hearing.
    (2) If FHFA decides that the proposed repayment schedule is 
acceptable or the employee agrees to a modification proposed by FHFA, an 
agreement shall be put in writing and signed by both the employee and 
FHFA.



Sec.1208.26  Special review where FHFA 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 FHFA 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. FHFA shall evaluate the statement and 
supporting documents and determine whether the original offset or 
repayment schedule imposes extreme financial hardship on the employee, 
for example, by preventing the employee from meeting essential 
subsistence expenses such as food, housing, clothing, transportation, 
and medical care. FHFA 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 schedule, FHFA shall provide a new 
certification to the paying agency.



Sec.1208.27  Notice of salary offset where FHFA is the paying agency.

    (a) Notice. Upon issuance of a proper certification by FHFA (for 
debts owed to FHFA) or upon receipt of a proper certification from 
another creditor agency, FHFA 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 FHFA 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 FHFA is not the creditor agency, FHFA 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.1208.28  Procedures for salary offset where FHFA is the paying agency.

    (a) Generally. FHFA 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 FHFA or the receipt by FHFA of the certification 
from another agency, or as soon thereafter as possible.
    (b) Upon issuance of a proper certification by FHFA for debts owed 
to FHFA, or upon receipt of a proper certification from a creditor 
agency, FHFA shall send the employee a written notice of salary offset. 
Such notice shall advise the employee:
    (1) That certification has been issued by FHFA or received from 
another creditor agency;
    (2) Of the amount of the debt and of the deductions to be made; and 
provided for in the certification, and
    (3) Of the initiation of salary offset at the next officially 
established pay

[[Page 93]]

interval or as otherwise provided for in the certification.
    (c) Where appropriate, FHFA shall provide a copy of the notice to 
the creditor agency and advise such agency of the dollar amount to be 
offset and the pay period when the offset will begin.
    (d) 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 FHFA, and the balance of the 
debt cannot be liquidated by offset of the final salary check, FHFA 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.
    (e) 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, FHFA may, at its discretion, determine whether one or 
more debts should be offset simultaneously within the 15 percent 
limitation.
    (2) In the event that a debt owed FHFA is certified while an 
employee is subject to salary offset to repay another agency, FHFA may, 
at its discretion, determine whether the debt to FHFA 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.1208.29  Coordinating salary offset with other agencies.

    (a) Responsibility of FHFA as the creditor agency. (1) FHFA 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.1208.21;
    (iii) Obtaining hearing officials from other agencies pursuant to 
Sec.1208.23(b); and
    (iv) Ensuring that each certification of debt pursuant to Sec.
1208.24(b) is sent to a paying agency.
    (2) Upon completion of the procedures set forth in Sec. Sec.
1208.24 through 1208.26, FHFA 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, FHFA 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 FHFA 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, FHFA may, unless 
otherwise prohibited, request that money due and payable to the employee 
from the Federal Government, including payments from the Civil Service 
Retirement and Disability Fund (5 CFR 831.1801) or other similar funds, 
be administratively offset to collect the debt.

[[Page 94]]

    (iii) When an employee transfers to another paying agency, FHFA 
shall not repeat the procedures described in Sec. Sec.1208.24 through 
1208.26. Upon receiving notice of the employee's transfer, FHFA shall 
review the debt to ensure that collection is resumed by the new paying 
agency.
    (b) Responsibility of FHFA as the paying agency--(1) Complete claim. 
When FHFA 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 FHFA receives an incomplete certification 
of debt from a creditor agency, FHFA 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 FHFA will 
take action to collect the debt from the employee's current pay account.
    (3) Review. FHFA 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 FHFA, the 
employee transfers to another agency before the debt is collected in 
full, FHFA must certify the total amount collected on the debt as 
required by 5 CFR 550.1109. 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 FHFA 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. FHFA must submit a properly certified claim to the new payment 
agency before a collection can be made.



Sec.1208.30  Interest, penalties, and administrative costs.

    Where FHFA is the creditor agency, FHFA shall assess interest, 
penalties, and administrative costs pursuant to 31 U.S.C. 3717 and the 
FCCS, 31 CFR chapter IX.



Sec.1208.31  Refunds.

    (a) Where FHFA is the creditor agency, FHFA shall promptly refund 
any amount deducted under the authority of 5 U.S.C. 5514 when:
    (1) FHFA receives notice that the debt has been waived or otherwise 
found not to be owing to the Federal Government; or
    (2) An administrative or judicial order directs FHFA to make a 
refund.
    (b) Unless required by law or contract, refunds under this section 
shall not bear interest.



Sec.1208.32  Request from a creditor agency for the services of 
a hearing official.

    (a) FHFA may provide qualified personnel to serve as hearing 
officials upon request of a creditor agency when:
    (1) The debtor is employed by FHFA 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 FHFA to creditor agencies under this 
section shall be provided on a fully reimbursable basis pursuant to 31 
U.S.C. 1535, or other applicable authority.



Sec.1208.33  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.

[[Page 95]]



                     Subpart C_Administrative Offset



Sec.1208.40  Authority and scope.

    (a) The provisions of this subpart C apply to the collection of 
debts owed to the Federal Government arising from transactions with 
FHFA. Administrative offset is authorized under the Debt Collection 
Improvement Act of 1996 (DCIA). This subpart C is consistent with the 
Federal Claims Collection Standards (FCCS) on administrative offset 
issued by the Department of Justice.
    (b) FHFA 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:
    (1) The debt is certain in amount;
    (2) Administrative offset is feasible, desirable, and not otherwise 
prohibited;
    (3) The applicable statute of limitations has not expired; and
    (4) Administrative offset is in the best interest of the Federal 
Government.



Sec.1208.41  Collection.

    (a) FHFA may collect a claim from a person, organization, or other 
entity by administrative offset of monies payable by the Federal 
Government only after:
    (1) Providing the debtor with due process required under this part; 
and
    (2) Providing the paying agency with written certification that the 
debtor owes the debt in the amount stated and that FHFA, as creditor 
agency, has complied with this part.
    (b) Prior to initiating collection by administrative offset, FHFA 
should determine that the proposed offset is within the scope of this 
remedy, as set forth in 31 CFR 901.3(a). Administrative offset under 31 
U.S.C. 3716 may not be used to collect debts more than 10 years after 
the Federal Government's right to collect the debt first accrued, except 
as otherwise provided by law. In addition, administrative offset may not 
be used when a statute explicitly prohibits its use to collect the claim 
or type of claim involved.
    (c) Unless otherwise provided, debts or payments not subject to 
administrative offset under 31 U.S.C. 3716 may be collected by 
administrative offset under common law, or any other applicable 
statutory authority.



Sec.1208.42  Administrative offset prior to completion of procedures.

    FHFA shall not be required to follow the procedures described in 
Sec.1208.43 where:
    (a) Prior to the completion of the procedures described in Sec.
1208.43, FHFA 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.1208.43. Such prior 
administrative offset shall be followed promptly by the completion of 
the procedures described in Sec.1208.43. Amounts recovered by 
administrative offset but later found not to be owed to FHFA shall be 
promptly refunded. This section applies only to administrative offset 
pursuant to 31 CFR 901.3(c), and does not apply when debts are referred 
to the Department of the Treasury for mandatory centralized 
administrative offset under 31 CFR 901.3(b)(1).
    (b) The administrative offset is in the nature of a recoupment 
(i.e., FHFA may offset a payment due to the debtor when both the payment 
due to the debtor and the debt owed to FHFA arose from the same 
transaction); or
    (c) In the case of non-centralized administrative offsets, FHFA 
first learns of the existence of a debt due when there would be 
insufficient time to afford the debtor due process under these 
procedures before the paying agency makes payment to the debtor; in such 
cases, the Director shall give the debtor notice and an opportunity for 
review as soon as practical and shall refund any money ultimately found 
not to be due to the Federal Government.



Sec.1208.43  Procedures.

    Unless the procedures described in Sec.1208.42 are used, prior to 
collecting any debt by administrative offset or referring such claim to 
another agency for collection through administrative offset, FHFA shall 
provide the debtor with the following:
    (a) Written notification of the nature and amount of the debt, the 
intention

[[Page 96]]

of FHFA 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 FHFA related 
to the debt that are not exempt from disclosure;
    (c) An opportunity for review within FHFA of the determination of 
indebtedness. Any request for review by the debtor shall be in writing 
and shall be submitted to FHFA within 30 calendar days of the date of 
the notice of the offset. FHFA may waive the time limits for requesting 
review for good cause shown by the debtor. FHFA shall provide the debtor 
with a reasonable opportunity for an oral hearing when:
    (1) An applicable statute authorizes or requires FHFA 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 FHFA 
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 FHFA shall document all 
significant matters discussed at the hearing. In those cases where an 
oral hearing is not required by this subpart C, FHFA shall make its 
determination on the request for waiver or reconsideration based upon a 
review of the written record; and
    (d) An opportunity to enter into a written agreement for the 
voluntary repayment of the amount of the claim at the discretion of 
FHFA.



Sec.1208.44  Interest, penalties, and administrative costs.

    FHFA 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. FHFA 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.1208.45  Refunds.

    FHFA shall refund promptly those amounts recovered by administrative 
offset but later found not to be owed to the Federal Government. Unless 
required by law or contract, such refunds shall not bear interest.



Sec.1208.46  No requirement for duplicate notice.

    Where FHFA has previously given a debtor any of the required notice 
and review opportunities with respect to a particular debt, FHFA is not 
required to duplicate such notice and review opportunities prior to 
initiating administrative offset.



Sec.1208.47  Requests for administrative offset to other Federal
agencies.

    (a) FHFA may request that a debt owed to FHFA be collected by 
administrative offset against funds due and payable to a debtor by 
another agency.
    (b) In requesting administrative offset, FHFA, 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 FHFA 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, unless 
otherwise provided.



Sec.1208.48  Requests for administrative offset from other Federal
agencies.

    (a) Any agency may request that funds due and payable to a debtor by 
FHFA be administratively offset in order to collect a debt owed to such 
agency by the debtor.
    (b) FHFA 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

[[Page 97]]

    (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 FHFA that collection by administrative offset 
against funds payable by FHFA 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.1208.49  Administrative offset against amounts payable from Civil
Service Retirement and Disability Fund.

    (a) Request for administrative offset. Unless otherwise prohibited 
by law, FHFA 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 FHFA by the 
debtor. Such requests shall be made to the appropriate officials of OPM 
in accordance with such regulations as may be prescribed by FHFA or OPM.
    (b) Contents of certification. When making a request for 
administrative offset under paragraph (a) of this section, FHFA shall 
provide OPM with a written certification that:
    (1) The debtor owes FHFA a debt, including the amount of the debt;
    (2) FHFA has complied with the applicable statutes, regulations, and 
procedures of OPM; and
    (3) FHFA has complied with the requirements of the FCCS, including 
any required hearing or review.
    (c) If FHFA 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 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 FHFA collects part or all of the debt by other means before 
deductions are made or completed pursuant to paragraph (a) of this 
section, FHFA shall act promptly to modify or terminate its request for 
administrative offset under paragraph (a) of this section.



                       Subpart D_Tax Refund Offset



Sec.1208.50  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. In addition, 
FHFA is authorized to collect debts by means of administrative offset 
under 31 U.S.C. 3716 and, as part of the debt collection process, to 
notify the United States Department of Treasury's Financial Management 
Service of the amount of such debt for collection by tax refund offset.



Sec.1208.51  Definitions.

    The following terms apply to this subpart D--
    Debt or claim means an amount of money, funds or property which has 
been determined by FHFA to be due to the Federal Government from any 
person, organization, or entity, except another Federal agency.
    (1) 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 or cannot be 
collected currently by administrative offset; and
    (iii) The requirements of this section are otherwise satisfied.
    (2) All judgment debts are past due for purposes of this subpart D. 
Judgment debts remain past due until paid in full.
    Debtor means a person who owes a debt or a claim. The term 
``person'' includes any individual, organization or entity, except 
another Federal agency.

[[Page 98]]

    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 judgment has been satisfied or stayed.
    Notice means the information sent to the debtor pursuant to Sec.
1208.53. The date of the notice is that date shown on the notice letter 
as its date of issuance.
    Tax refund offset means withholding or reducing a tax refund payment 
by an amount necessary to satisfy a debt owed by the payee(s) of a tax 
refund payment.
    Tax refund payment means any overpayment of Federal taxes to be 
refunded to the person making the overpayment after the Internal Revenue 
Service (IRS) makes the appropriate credits.



Sec.1208.52  Procedures.

    (a) Referral to the Department of the Treasury. (1) FHFA 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 FHFA'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) FHFA 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. FHFA 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 FHFA. The notice sent to 
the debtor shall state the amount of the debt and inform the debtor 
that:
    (1) The debt is past due;
    (2) FHFA intends to refer the debt to the Department of the Treasury 
for offset from tax refunds that may be due to the taxpayer;
    (3) FHFA 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) of this section.
    (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, FHFA 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. FHFA shall certify to the Department of 
the Treasury that reasonable efforts have been made by FHFA to obtain 
payment of such debt.
    (d) Request for review. A debtor may request a review by FHFA 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 FHFA 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

[[Page 99]]

make a written request to FHFA 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 FHFA at the address stated 
in the notice within 65 calendar days of the date of issuance of the 
notice.
    (6) In reaching its decision, FHFA shall review the dispute and 
shall consider its records and any documentation and arguments submitted 
by the debtor. FHFA 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-
FHFA agent or other entities or persons acting on behalf of FHFA, 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 FHFA 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.
    (9) To the extent that a debt owed has not been established by 
judicial or administrative order, a debtor may dispute the existence or 
amount of the debt or the terms of repayment. With respect to debts 
established by a judicial or administrative order, FHFA review will be 
limited to issues concerning the payment or other discharge of the debt.



Sec.1208.53  No requirement for duplicate notice.

    Where FHFA has previously given a debtor any of the required notice 
and review opportunities with respect to a particular debt, FHFA is not 
required to duplicate such notice and review opportunities prior to 
initiating tax refund offset.



Sec. Sec.1208.54-1208.59  [Reserved]



                Subpart E_Administrative Wage Garnishment



Sec.1208.60  Scope and purpose.

    These administrative wage garnishment procedures are issued in 
compliance with 31 U.S.C. 3720D and 31 CFR 285.11(f). This subpart E 
provides procedures for FHFA to collect money from a debtor's disposable 
pay by means of administrative wage garnishment. The receipt of payments 
pursuant to this subpart E does not preclude FHFA from pursuing other 
debt collection remedies, including the offset of Federal payments. FHFA 
may pursue such debt collection remedies separately or in conjunction 
with administrative wage garnishment. This subpart E does not apply to 
the collection of delinquent debts from the wages of Federal employees 
from their Federal employment. Federal pay is subject to the Federal 
salary offset procedures set forth in 5 U.S.C. 5514 and other applicable 
laws.



Sec.1208.61  Notice.

    At least 30 days before the initiation of garnishment proceedings, 
FHFA will send, by first class mail to the debtor's last known address, 
a written notice informing the debtor of:
    (a) The nature and amount of the debt;
    (b) FHFA's intention to initiate proceedings to collect the debt 
through deductions from the debtor's pay until the debt and all 
accumulated interest penalties and administrative costs are paid in 
full;
    (c) An explanation of the debtor's rights as set forth in Sec.
1208.62(c); and
    (d) The time frame within which the debtor may exercise these 
rights. FHFA shall retain a stamped copy of the notice indicating the 
date the notice was mailed.



Sec.1208.62  Debtor's rights.

    FHFA shall afford the debtor the opportunity:
    (a) To inspect and copy records related to the debt;

[[Page 100]]

    (b) To enter into a written repayment agreement with FHFA, under 
terms agreeable to FHFA; and
    (c) To the extent that a debt owed has not been established by 
judicial or administrative order, to request a hearing concerning the 
existence or amount of the debt or the terms of the repayment schedule. 
With respect to debts established by a judicial or administrative order, 
a debtor may request a hearing concerning the payment or other discharge 
of the debt. The debtor is not entitled to a hearing concerning the 
terms of the proposed repayment schedule if these terms have been 
established by written agreement.



Sec.1208.63  Form of hearing.

    (a) If the debtor submits a timely written request for a hearing as 
provided in Sec.1208.62(c), FHFA will afford the debtor a hearing, 
which at FHFA's option may be oral or written. FHFA will provide the 
debtor with a reasonable opportunity for an oral hearing when FHFA 
determines that the issues in dispute cannot be resolved by review of 
the documentary evidence, for example, when the validity of the claim 
turns on the issue of credibility or veracity.
    (b) If FHFA determines that an oral hearing is appropriate, the time 
and location of the hearing shall be established by FHFA. An oral 
hearing may, at the debtor's option, be conducted either in person or by 
telephone conference. All travel expenses incurred by the debtor in 
connection with an in-person hearing will be borne by the debtor. All 
telephonic charges incurred during the hearing will be the 
responsibility of the agency.
    (c) In cases when it is determined that an oral hearing is not 
required by this section, FHFA will accord the debtor a ``paper 
hearing,'' that is, FHFA will decide the issues in dispute based upon a 
review of the written record.



Sec.1208.64  Effect of timely request.

    If FHFA receives a debtor's written request for a hearing within 15 
business days of the date FHFA mailed its notice of intent to seek 
garnishment, FHFA shall not issue a withholding order until the debtor 
has been provided the requested hearing, and a decision in accordance 
with Sec.1208.68 and Sec.1208.69 has been rendered.



Sec.1208.65  Failure to timely request a hearing.

    If FHFA receives a debtor's written request for a hearing after 15 
business days of the date FHFA mailed its notice of intent to seek 
garnishment, FHFA shall provide a hearing to the debtor. However, FHFA 
will not delay issuance of a withholding order unless it determines that 
the untimely filing of the request was caused by factors over which the 
debtor had no control, or FHFA receives information that FHFA believes 
justifies a delay or cancellation of the withholding order.



Sec.1208.66  Hearing official.

    A hearing official may be any qualified individual, as determined by 
FHFA, including an administrative law judge.



Sec.1208.67  Procedure.

    After the debtor requests a hearing, the hearing official shall 
notify the debtor of:
    (a) The date and time of a telephonic hearing;
    (b) The date, time, and location of an in-person oral hearing; or
    (c) The deadline for the submission of evidence for a written 
hearing.



Sec.1208.68  Format of hearing.

    FHFA will have the burden of proof to establish the existence or 
amount of the debt. Thereafter, if the debtor disputes the existence or 
amount of the debt, the debtor must prove by a preponderance of the 
evidence that no debt exists, or that the amount of the debt is 
incorrect. In addition, the debtor may present evidence that the terms 
of the repayment schedule are unlawful, would cause a financial hardship 
to the debtor, or that collection of the debt may not be pursued due to 
operation of law. The hearing official shall maintain a record of any 
hearing held under this section. Hearings are not required to be formal, 
and evidence may be offered without regard to formal rules of evidence. 
Witnesses who testify in oral hearings shall do so under oath or 
affirmation.

[[Page 101]]



Sec.1208.69  Date of decision.

    The hearing official shall issue a written opinion stating his or 
her decision as soon as practicable, but not later than 60 days after 
the date on which the request for such hearing was received by FHFA. If 
FHFA is unable to provide the debtor with a hearing and decision within 
60 days after the receipt of the request for such hearing:
    (a) FHFA may not issue a withholding order until the hearing is held 
and a decision rendered; or
    (b) If FHFA had previously issued a withholding order to the 
debtor's employer, the withholding order will be suspended beginning on 
the 61st day after the date FHFA received the hearing request and 
continuing until a hearing is held and a decision is rendered.



Sec.1208.70  Content of decision.

    The written decision shall include:
    (a) A summary of the facts presented;
    (b) The hearing official's findings, analysis and conclusions; and
    (c) The terms of any repayment schedule, if applicable.



Sec.1208.71  Finality of agency action.

    A decision by a hearing official shall become the final decision of 
FHFA for the purpose of judicial review under the Administrative 
Procedure Act.



Sec.1208.72  Failure to appear.

    In the absence of good cause shown, a debtor who fails to appear at 
a scheduled hearing will be deemed as not having timely filed a request 
for a hearing.



Sec.1208.73  Wage garnishment order.

    (a) Unless FHFA receives information that it believes justifies a 
delay or cancellation of the withholding order, FHFA will send by first 
class mail a withholding order to the debtor's employer within 30 
calendar days after the debtor fails to make a timely request for a 
hearing (i.e., within 15 business days after the mailing of the notice 
of FHFA's intent to seek garnishment) or, if a timely request for a 
hearing is made by the debtor, within 30 calendar days after a decision 
to issue a withholding order becomes final.
    (b) The withholding order sent to the employer will be in the form 
prescribed by the Secretary of the Treasury, on FHFA's letterhead, and 
signed by the head of the agency or delegate. The order will contain all 
information necessary for the employer to comply with the withholding 
order, including the debtor's name, address, and social security number, 
as well as instructions for withholding and information as to where 
payments should be sent.
    (c) FHFA will keep a stamped copy of the order indicating the date 
it was mailed.



Sec.1208.74  Certification by employer.

    Along with the withholding order, FHFA will send to the employer a 
certification in a form prescribed by the Secretary of the Treasury. The 
employer shall complete and return the certification to FHFA within the 
time frame prescribed in the instructions to the form. The certification 
will address matters such as information about the debtor's employment 
status and disposable pay available for withholding.



Sec.1208.75  Amounts withheld.

    (a) Upon receipt of the garnishment order issued under this section, 
the employer shall deduct from all disposable pay paid to the debtor 
during each pay period the amount of garnishment described in paragraphs 
(b) through (d) of this section.
    (b) Subject to the provisions of paragraphs (c) and (d) of this 
section, the amount of garnishment shall be the lesser of:
    (1) The amount indicated on the garnishment order up to 15 percent 
of the debtor's disposable pay; or
    (2) The amount set forth in 15 U.S.C. 1673(a)(2). The amount set 
forth at 15 U.S.C. 1673(a)(2) is the amount by which the debtor's 
disposable pay exceeds an amount equivalent to thirty times the minimum 
wage.
    (c) When a debtor's pay is subject to withholding orders with 
priority, the following shall apply:
    (1) Unless otherwise provided by Federal law, withholding orders 
issued under this section shall be paid in the amounts set forth under 
paragraph (b) of this section and shall have priority over other 
withholding orders which

[[Page 102]]

are served later in time. However, withholding orders for family support 
shall have priority over withholding orders issued under this section.
    (2) If amounts are being withheld from a debtor's pay pursuant to a 
withholding order served on an employer before a withholding order 
issued pursuant to this section, or if a withholding order for family 
support is served on an employer at any time, the amounts withheld 
pursuant to the withholding order issued under this section shall be the 
lesser of:
    (i) The amount calculated under paragraph (b) of this section; or
    (ii) An amount equal to 25 percent of the debtor's disposable pay 
less the amount(s) withheld under the withholding order(s) with 
priority.
    (3) If a debtor owes more than one debt to FHFA, FHFA may issue 
multiple withholding orders. The total amount garnished from the 
debtor's pay for such orders will not exceed the amount set forth in 
paragraph (b) of this section.
    (d) An amount greater than that set forth in paragraphs (b) and (c) 
of this section may be withheld upon the written consent of the debtor.
    (e) The employer shall promptly pay to FHFA all amounts withheld in 
accordance with the withholding order issued pursuant to this section.
    (f) An employer shall not be required to vary its normal pay and 
disbursement cycles in order to comply with the withholding order.
    (g) Any assignment or allotment by the employee of the employee's 
earnings shall be void to the extent it interferes with or prohibits 
execution of the withholding order under this section, except for any 
assignment or allotment made pursuant to a family support judgment or 
order.
    (h) The employer shall withhold the appropriate amount from the 
debtor's wages for each pay period until the employer receives 
notification from FHFA to discontinue wage withholding. The garnishment 
order shall indicate a reasonable period of time within which the 
employer is required to commence wage withholding.



Sec.1208.76  Exclusions from garnishment.

    FHFA will not garnish the wages of a debtor it knows has been 
involuntarily separated from employment until the debtor has been re-
employed continuously for at least 12 months. The debtor has the burden 
of informing FHFA of the circumstances surrounding an involuntary 
separation from employment.



Sec.1208.77  Financial hardship.

    (a) A debtor whose wages are subject to a wage withholding order 
under this section, may, at any time, request a review by FHFA of the 
amount garnished, based on materially changed circumstances such as 
disability, divorce, or catastrophic illness which result in financial 
hardship.
    (b) A debtor requesting a review under this section shall submit the 
basis for claiming that the current amount of garnishment results in a 
financial hardship to the debtor, along with supporting documentation.
    (c) If a financial hardship is found, FHFA will downwardly adjust, 
by an amount and for a period of time agreeable to FHFA, the amount 
garnished to reflect the debtor's financial condition. FHFA will notify 
the employer of any adjustments to the amounts to be withheld.



Sec.1208.78  Ending garnishment.

    (a) Once FHFA has fully recovered the amounts owed by the debtor, 
including interest, penalties, and administrative costs consistent with 
the Federal Claims Collection Standards, FHFA will send the debtor's 
employer notification to discontinue wage withholding.
    (b) At least annually, FHFA will review its debtors' accounts to 
ensure that garnishment has been terminated for accounts that have been 
paid in full.



Sec.1208.79  Prohibited actions by employer.

    The Debt Collection Improvement Act of 1996 prohibits an employer 
from discharging, refusing to employ, or taking disciplinary action 
against the debtor due to the issuance of a withholding order under this 
subpart E.

[[Page 103]]



Sec.1208.80  Refunds.

    (a) If a hearing official determines that a debt is not legally due 
and owing to the United States, FHFA shall promptly refund any amount 
collected by means of administrative wage garnishment.
    (b) Unless required by Federal law or contract, refunds under this 
section shall not bear interest.



Sec.1208.81  Right of action.

    FHFA may sue any employer for any amount that the employer fails to 
withhold from wages owed and payable to its employee in accordance with 
this subpart E. However, a suit will not be filed before the termination 
of the collection action involving a particular debtor, unless earlier 
filing is necessary to avoid expiration of any applicable statute of 
limitations. For purposes of this subpart E, ``termination of the 
collection action'' occurs when the agency has terminated collection 
action in accordance with the FCCS or other applicable standards. In any 
event, termination of the collection action will have been deemed to 
occur if FHFA has not received any payments to satisfy the debt from the 
particular debtor whose wages were subject to garnishment, in whole or 
in part, for a period of one (1) year.



PART 1209_RULES OF PRACTICE AND PROCEDURE--Table of Contents



                      Subpart A_Scope and Authority

Sec.
1209.1 Scope.
1209.2 Rules of construction.
1209.3 Definitions.

 Subpart B_Enforcement Proceedings Under Sections 1371 Through 1379D of 
                      the Safety and Soundness Act

1209.4 Scope and authority.
1209.5 Cease and desist proceedings.
1209.6 Temporary cease and desist orders.
1209.7 Civil money penalties.
1209.8 Removal and prohibition proceedings.
1209.9 Supervisory actions not affected.

                Subpart C_Rules of Practice and Procedure

1209.10 Authority of the Director.
1209.11 Authority of the Presiding Officer.
1209.12 Public hearings; closed hearings.
1209.13 Good faith certification.
1209.14 Ex parte communications.
1209.15 Filing of papers.
1209.16 Service of papers.
1209.17 Time computations.
1209.18 Change of time limits.
1209.19 Witness fees and expenses.
1209.20 Opportunity for informal settlement.
1209.21 Conduct of examination.
1209.22 Collateral attacks on adjudicatory proceeding.
1209.23 Commencement of proceeding and contents of notice of charges.
1209.24 Answer.
1209.25 Amended pleadings.
1209.26 Failure to appear.
1209.27 Consolidation and severance of actions.
1209.28 Motions.
1209.29 Discovery.
1209.30 Request for document discovery from parties.
1209.31 Document discovery subpoenas to non-parties.
1209.32 Deposition of witness unavailable for hearing.
1209.33 Interlocutory review.
1209.34 Summary disposition.
1209.35 Partial summary disposition.
1209.36 Scheduling and pre-hearing conferences.
1209.37 Pre-hearing submissions.
1209.38 Hearing subpoenas.
1209.39-1209.49 [Reserved]
1209.50 Conduct of hearings.
1209.51 Evidence.
1209.52 Post-hearing filings.
1209.53 Recommended decision and filing of record.
1209.54 Exceptions to recommended decision.
1209.55 Review by Director.
1209.56 Exhaustion of administrative remedies.
1209.57 Judicial review; no automatic stay.
1209.58-1209.69 [Reserved]

   Subpart D_Parties and Representational Practice Before the Federal 
              Housing Finance Agency; Standards of Conduct

1209.70 Scope.
1209.71 Definitions.
1209.72 Appearance and practice in adjudicatory proceedings.
1209.73 Conflicts of interest.
1209.74 Sanctions.
1209.75 Censure, suspension, disbarment, and reinstatement.
1209.76-1209.79 [Reserved]

           Subpart E_Civil Money Penalty Inflation Adjustments

1209.80 Inflation adjustments.

[[Page 104]]

1209.81 Applicability.
1209.82-1209.99 [Reserved]

 Subpart F_Suspension or Removal of an Entity-Affiliated Party Charged 
                               With Felony

1209.100 Scope.
1209.101 Suspension, removal, or prohibition.
1209.102 Hearing on removal or suspension.
1209.103 Recommended and final decisions.

    Authority: 5 U.S.C. 554, 556, 557, and 701 et seq.; 12 U.S.C. 
1430c(d); 12 U.S.C. 4501, 4502, 4503, 4511, 4513, 4513b, 4517, 4526, 
4566(c)(1) and (c)(7), 4581-4588, 4631-4641; and 28 U.S.C. 2461 note.

    Source: 76 FR 53607, Aug. 26, 2011, unless otherwise noted.



                      Subpart A_Scope and Authority



Sec.1209.1  Scope.

    (a) Authority. This part sets forth the Rules of Practice and 
Procedure for hearings on the record in administrative enforcement 
proceedings in accordance with 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, sections 1301 et 
seq., codified at 12 U.S.C. 4501 et seq., as amended (the ``Safety and 
Soundness Act''), as stated in Sec.1209.4 of this part.\1\
---------------------------------------------------------------------------

    \1\ As used in this part, the ``Safety and Soundness Act'' means the 
Federal Housing Enterprise Financial Safety and Soundness Act of 1992, 
as amended. See Sec.1209.3. The Safety and Soundness Act was amended 
by the Housing and Economic Recovery Act of 2008, Public Law No. 110-
289, sections 1101 et seq., 122 Stat. 2654 (July 30, 2008) (HERA). 
Specifically, sections 1151 through 1158 of HERA amended sections 1371 
through 1379D of the Safety and Soundness Act, (codified at 12 U.S.C. 
4631 through 4641) (hereafter, ``Enforcement Proceedings'').
---------------------------------------------------------------------------

    (b) Enforcement Proceedings. Subpart B of this part (Enforcement 
Proceedings Under sections 1371 through 1379D of the Safety and 
Soundness Act) sets forth the statutory authority for enforcement 
proceedings under sections 1371 through 1379D of the Safety and 
Soundness Act (12 U.S.C. 4631 through 4641) (Enforcement Proceedings).
    (c) Rules of Practice and Procedure. Subpart C of this part (Rules 
of Practice and Procedure) prescribes the general rules of practice and 
procedure applicable to adjudicatory proceedings that the Director is 
required by statute to conduct on the record after opportunity for a 
hearing under the Administrative Procedure Act, 5 U.S.C. 554, 556, and 
557, under the following statutory provisions:
    (1) Enforcement proceedings under sections 1371 through 1379D of the 
Safety and Soundness Act, as amended (12 U.S.C. 4631 through 4641);
    (2) Removal, prohibition, and civil money penalty proceedings for 
violations of post-employment restrictions imposed by applicable law;
    (3) Proceedings under section 102 of the Flood Disaster Protection 
Act of 1973, as amended (42 U.S.C. 4012a) to assess civil money 
penalties; and
    (4) Enforcement proceedings under sections 1341 through 1348 of the 
Safety and Soundness Act, as amended (12 U.S.C. 4581 through 4588), and 
section 10C of the Federal Home Loan Bank Act, as amended (12 U.S.C. 
1430c), except where the Rules of Practice and Procedure in Subpart C 
are inconsistent with such statutory provisions, in which case the 
statutory provisions shall apply.
    (d) Representation and conduct. Subpart D of this part (Parties and 
Representational Practice before the Federal Housing Finance Agency; 
Standards of Conduct) sets out the rules of representation and conduct 
that shall govern any appearance by any person, party, or representative 
of any person or party, before a presiding officer, the Director of 
FHFA, or a designated representative of the Director or FHFA staff, in 
any proceeding or matter pending before the Director.
    (e) Civil money penalty inflation adjustments. Subpart E of this 
part (Civil Money Penalty Inflation Adjustments) sets out the 
requirements for the periodic adjustment of maximum civil money penalty 
amounts under the Federal Civil Penalties Inflation Adjustment Act of 
1990, as amended (Inflation Adjustment Act) on a recurring four-year 
cycle.\2\
---------------------------------------------------------------------------

    \2\ Public Law 101-410, 104 Stat. 890, as amended by the Debt 
Collection Improvement Act of 1996, Public Law 104-134, title III, sec. 
31001(s)(1), Apr. 26, 1996, 110 Stat. 1321-373; Public Law 105-362, 
title XIII, sec. 1301(a), Nov. 10, 1998, 112 Stat. 3293 (28 U.S.C. 2461 
note).

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

[[Page 105]]

    (f) Informal proceedings. Subpart F of this part (Suspension or 
Removal of an Entity-Affiliated Party Charged with Felony) sets out the 
scope and procedures for the suspension or removal of an entity-
affiliated party charged with a felony under section 1377(h) of the 
Safety and Soundness Act (12 U.S.C. 4636a(h)), which provides for an 
---------------------------------------------------------------------------
informal hearing before the Director.

[76 FR 53607, Aug. 26, 2011, as amended at 78 FR 37103, June 20, 2013]



Sec.1209.2  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;
    (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, on behalf of that party, may take any action required 
to be taken by the party.



Sec.1209.3  Definitions.

    For purposes of this part, unless explicitly stated to the contrary:
    Adjudicatory proceeding means a proceeding conducted pursuant to 
these rules, on the record, and leading to the formulation of a final 
order other than a regulation.
    Agency has the meaning defined in section 1303(2) of the Safety and 
Soundness Act (12 U.S.C. 4502(2)).
    Associated with the regulated entity means, for purposes of section 
1379 of the Safety and Soundness Act (12 U.S.C. 4637), any direct or 
indirect involvement or participation in the conduct of operations or 
business affairs of a regulated entity, including engaging in activities 
related to the operations or management of, providing advice or services 
to, consulting or contracting with, serving as agent for, or in any 
other way affecting the operations or business affairs of a regulated 
entity--with or without regard to--any direct or indirect payment, 
promise to make payment, or receipt of any compensation or thing of 
value, such as money, notes, stock, stock options, or other securities, 
or other benefit or remuneration of any kind, by or on behalf of the 
regulated entity, except any payment made pursuant to a retirement plan 
or deferred compensation plan, which is determined by the Director to be 
permissible under section 1318(e) of the Safety and Soundness Act (12 
U.S.C. 4518(e)), or by reason of the death or disability of the party, 
in the form and manner commonly paid or provided to retirees of the 
regulated entity, unless such payment, compensation, or such benefit is 
promised or provided to or for the benefit of said party for the 
provision of services or other benefit to the regulated entity.
    Authorizing statutes has the meaning defined in section 1303(3) of 
the Safety and Soundness Act (12 U.S.C. 4502(3)).
    Bank Act means the Federal Home Loan Bank Act, as amended (12 U.S.C. 
1421 et seq.).
    Board or Board of Directors means the board of directors of any 
Enterprise or Federal Home Loan Bank (Bank), as provided for in the 
respective authorizing statutes.
    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 subpart C of this part.
    Director has the meaning defined in section 1303(9) of the Safety 
and Soundness Act (12 U.S.C. 4502(9)); except, as the context requires 
in this part, ``director'' may refer to a member of the Board of 
Directors or any Board committee of an Enterprise, a Federal Home Loan 
Bank, or the Office of Finance.
    Enterprise has the meaning defined in section 1303(10) of the Safety 
and Soundness Act (12 U.S.C. 4502(10)).
    Entity-affiliated party has the meaning defined in section 1303(11) 
of the Safety and Soundness Act (12 U.S.C. 4502(11)), and may include an 
executive officer, any director, or management of the Office of Finance, 
as applicable

[[Page 106]]

under relevant provisions of the Safety and Soundness Act or FHFA 
regulations.
    Executive officer has the meaning defined in section 1303(12) of the 
Safety and Soundness Act (12 U.S.C. 4502(12)), and may include an 
executive officer of the Office of Finance, as applicable under relevant 
provisions of the Safety and Soundness Act or FHFA regulations.
    FHFA means the Federal Housing Finance Agency as defined in section 
1303(2) of the Safety and Soundness Act (12 U.S.C. 4502(2)).
    Notice of charges means the charging document served by FHFA to 
commence an enforcement proceeding under this part for the issuance of a 
cease and desist order; removal, suspension, or prohibition order; or an 
order to assess a civil money penalty, under 12 U.S.C. 4631 through 4641 
and Sec.1209.23. A ``notice of charges,'' as used or referred to as 
such in this part, is not an ``effective notice'' under section 1375(a) 
of the Safety and Soundness Act (12 U.S.C. 4635(a)).
    Office of Finance has the meaning defined in section 1303(19) of the 
Safety and Soundness Act (12 U.S.C. 4502(19)).
    Party means any person named as a respondent in any notice of 
charges, or FHFA, as the context requires in this part.
    Person means an individual, sole proprietor, partnership, 
corporation, unincorporated association, trust, joint venture, pool, 
syndicate, organization, regulated entity, entity-affiliated party, or 
other entity.
    Presiding officer means an administrative law judge or any other 
person appointed by or at the request of the Director under applicable 
law to conduct an adjudicatory proceeding under this part.
    Regulated entity has the meaning defined in section 1303(20) of the 
Safety and Soundness Act (12 U.S.C. 4502(20)).
    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 and otherwise has complied with the requirements under 
Sec.1209.72. FHFA's representative of record may be referred to as 
FHFA counsel of record, agency counsel or enforcement counsel.
    Respondent means any party that is the subject of a notice of 
charges under this part.
    Safety and Soundness Act means title XIII of the Housing and 
Community Development Act of 1992, Public Law 102-550, known as the 
Federal Housing Enterprises Financial Safety and Soundness Act of 1992, 
as amended (12 U.S.C. 4501 et seq.)
    Violation has the meaning defined in section 1303(25) of the Safety 
and Soundness Act (12 U.S.C. 4502(25)).



 Subpart B_Enforcement Proceedings Under Sections 1371 Through 1379D of 
                      the Safety and Soundness Act



Sec.1209.4  Scope and authority.

    The rules of practice and procedure set forth in Subpart C (Rules of 
Practice and Procedure) of this part shall be applicable to any hearing 
on the record conducted by FHFA in accordance with sections 1371 through 
1379D of the Safety and Soundness Act (12 U.S.C. 4631 through 4641), as 
follows:
    (a) Cease-and-desist proceedings under sections 1371 and 1373 of the 
Safety and Soundness Act, (12 U.S.C. 4631, 4633);
    (b) Civil money penalty assessment proceedings under sections 1373 
and 1376 of the Safety and Soundness Act, (12 U.S.C. 4633, 4636); and
    (c) Removal and prohibition proceedings under sections 1373 and 1377 
of the Safety and Soundness Act, (12 U.S.C. 4633, 4636a), except removal 
proceedings under section 1377(h) of the Safety and Soundness Act, (12 
U.S.C. 4636a(h)).



Sec.1209.5  Cease and desist proceedings.

    (a) Cease and desist proceedings--(1) Authority--(i) In general. As 
prescribed by section 1371(a) of the Safety and Soundness Act (12 U.S.C. 
4631(a)), if in the opinion of the Director, a regulated entity or any 
entity-affiliated party is engaging or has engaged, or the Director has 
reasonable cause to believe that the regulated entity or any entity-
affiliated party is about to engage, in an unsafe or unsound practice in

[[Page 107]]

conducting the business of the regulated entity or the Office of 
Finance, or is violating or has violated, or the Director has reasonable 
cause to believe is about to violate, a law, rule, regulation, or order, 
or any condition imposed in writing by the Director in connection with 
the granting of any application or other request by the regulated entity 
or the Office of Finance or any written agreement entered into with the 
Director, the Director may issue and serve upon the regulated entity or 
entity-affiliated party a notice of charges (as described in Sec.
1209.23) to institute cease and desist proceedings, except with regard 
to the enforcement of any housing goal that must be addressed under 
sections 1341 and 1345 of the Safety and Soundness Act (12 U.S.C. 4581, 
4585).
    (ii) Hearing on the record. In accordance with section 1373 of the 
Safety and Soundness Act (12 U.S.C. 4633), a hearing on the record shall 
be held in the District of Columbia. Subpart C of this part shall govern 
the hearing procedures.
    (iii) Consent to order. Unless the party served with a notice of 
charges shall appear at the hearing personally or through an authorized 
representative of record, the party shall be deemed to have consented to 
the issuance of the cease and desist order.
    (2) Unsatisfactory rating. In accordance with section 1371(b) of the 
Safety and Soundness Act (12 U.S.C. 4631(b)), if a regulated entity 
receives, in its most recent report of examination, a less-than-
satisfactory rating for asset quality, management, earnings, or 
liquidity, the Director may deem the regulated entity to be engaging in 
an unsafe or unsound practice within the meaning of section 1371(a) of 
the Safety and Soundness Act (12 U.S.C. 4631(a)), if any such deficiency 
has not been corrected.
    (3) Order. As provided by section 1371(c)(2) of the Safety and 
Soundness Act (12 U.S.C. 4631(c)(2)), if the Director finds on the 
record made at a hearing in accordance with section 1373 of the Safety 
and Soundness Act (12 U.S.C. 4633) that any practice or violation 
specified in the notice of charges has been established (or the 
regulated entity or entity-affiliated party consents pursuant to section 
1373(a)(4) of the Safety and Soundness Act (12 U.S.C. 4633(a)(4)), the 
Director may issue and serve upon the regulated entity, executive 
officer, director, or entity-affiliated party, an order (as set forth in 
Sec.1209.55) requiring such party to cease and desist from any such 
practice or violation and to take affirmative action to correct or 
remedy the conditions resulting from any such practice or violation.
    (b) Affirmative action to correct conditions resulting from 
violations or activities. The authority to issue a cease and desist 
order or a temporary cease and desist order requiring a regulated 
entity, executive officer, director, or entity-affiliated party to take 
affirmative action to correct or remedy any condition resulting from any 
practice or violation with respect to which such cease and desist order 
or temporary cease and desist order is set forth in section 1371(a), 
(c)(2), and (d) of the Safety and Soundness Act (12 U.S.C. 4631(a), 
(c)(2), and (d)), and includes the authority to:
    (1) Require the regulated entity or entity-affiliated party to make 
restitution, or to provide reimbursement, indemnification, or guarantee 
against loss, if--
    (i) Such entity or party or finance facility was unjustly enriched 
in connection with such practice or violation, or
    (ii) The violation or practice involved a reckless disregard for the 
law or any applicable regulations, or prior order of the Director;
    (2) Require the regulated entity to seek restitution, or to obtain 
reimbursement, indemnification, or guarantee against loss; as
    (3) Restrict asset or liability growth of the regulated entity;
    (4) Require the regulated entity to obtain new capital;
    (5) Require the regulated entity to dispose of any loan or asset 
involved;
    (6) Require the regulated entity to rescind agreements or contracts;
    (7) Require the regulated entity to employ qualified officers or 
employees (who may be subject to approval by the Director at the 
direction of the Director); and
    (8) Require the regulated entity to take such other action, as the 
Director

[[Page 108]]

determines appropriate, including limiting activities.
    (c) Authority to limit activities. As provided by section 1371(e) of 
the Safety and Soundness Act (12 U.S.C. 4631(e)), the authority of the 
Director to issue a cease and desist order under section 1371 of the 
Safety and Soundness Act (12 U.S.C. 4631) or a temporary cease and 
desist order under section 1372 of the Safety and Soundness Act (12 
U.S.C. 4632), includes the authority to place limitations on the 
activities or functions of the regulated entity or entity-affiliated 
party or any executive officer or director of the regulated entity or 
entity-affiliated party.
    (d) Effective date of order; judicial review--(1) Effective date. 
The effective date of an order is as set forth in section 1371(f) of the 
Safety and Soundness Act (12 U.S.C. 4631(f)).
    (2) Judicial review. Judicial review is governed by section 1374 of 
the Safety and Soundness Act (12 U.S.C. 4634).



Sec.1209.6  Temporary cease and desist orders.

    (a) Temporary cease and desist orders--(1) Grounds for issuance. The 
grounds for issuance of a temporary cease and desist order are set forth 
in section 1372(a) of the Safety and Soundness Act (12 U.S.C. 4632(a)). 
In accordance with section 1372(a) of the Safety and Soundness Act (12 
U.S.C. 4632(a)), the Director may:
    (i) Issue a temporary order requiring that regulated entity or 
entity-affiliated party to cease and desist from any violation or 
practice specified in the notice of charges; and
    (ii) Require that regulated entity or entity-affiliated party to 
take affirmative action to prevent or remedy any insolvency, 
dissipation, condition, or prejudice, pending completion of the 
proceedings.
    (2) Additional requirements. As provided by section 1372(a)(2) of 
the Safety and Soundness Act (12 U.S.C. 4632(a)(2)), an order issued 
under section 1372(a)(1) of the Safety and Soundness Act (12 U.S.C. 
4632(a)(1)) may include any requirement authorized under section 1371(d) 
of the Safety and Soundness Act (12 U.S.C. 4631(d)).
    (b) Effective date of temporary order. The effective date of a 
temporary order is as provided by section 1372(b) of the Safety and 
Soundness Act (12 U.S.C. 4632(b)). And, unless set aside, limited, or 
suspended by a court in proceedings pursuant to the judicial review 
provisions of section 1372(d) of the Safety and Soundness Act (12 U.S.C. 
4632(d)), shall remain in effect and enforceable pending the completion 
of the proceedings pursuant to such notice of charges, and shall remain 
effective until the Director dismisses the charges specified in the 
notice or until superseded by a cease-and-desist order issued pursuant 
to section 1371 of the Safety and Soundness Act (12 U.S.C. 4631).
    (c) Incomplete or inaccurate records--(1) Temporary order. As 
provided by section 1372(c) of the Safety and Soundness Act (12 U.S.C. 
4632(c)), if a notice of charges served under section 1371(a) or (b) of 
the Safety and Soundness Act (12 U.S.C. 4631(a), (b)), specifies on the 
basis of particular facts and circumstances that the books and records 
of the regulated entity served are so incomplete or inaccurate that the 
Director is unable, through the normal supervisory process, to determine 
the financial condition of the regulated entity or the details or the 
purpose of any transaction or transactions that may have a material 
effect on the financial condition of that regulated entity, the Director 
may issue a temporary order requiring:
    (i) The cessation of any activity or practice that gave rise, 
whether in whole or in part, to the incomplete or inaccurate state of 
the books or records; or
    (ii) Affirmative action to restore the books or records to a 
complete and accurate state.
    (2) Effective period. Any temporary order issued under section 
1372(c)(1) of the Safety and Soundness Act (12 U.S.C. 4632(c)(1)) shall 
become effective upon service, and remain in effect and enforceable 
unless set aside, limited, or suspended in accordance with section 
1372(d) of the Safety and Soundness Act (12 U.S.C. 4632(d)), as provided 
by section 1372(c)(2) of the Safety and Soundness Act (12 U.S.C. 
4632(c)(2)).
    (d) Judicial review. Section 1372(d) of the Safety and Soundness Act 
(12 U.S.C. 4632(d)), authorizes a regulated

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entity, executive officer, director, or entity-affiliated party that has 
been served with a temporary order pursuant to section 1372(a) or (b) of 
the Safety and Soundness Act (12 U.S.C. 4632(a), (b)) to apply to the 
United States District Court for the District of Columbia within 10 days 
after service of the temporary order for an injunction setting aside, 
limiting, or suspending the enforcement, operation, or effectiveness of 
the temporary order, pending the completion of the administrative 
enforcement proceeding. The district court has jurisdiction to issue 
such injunction.
    (e) Enforcement of temporary order. As provided by section 1372(e) 
of the Safety and Soundness Act (12 U.S.C. 4632(e)), in the case of any 
violation, threatened violation, or failure to obey a temporary order 
issued pursuant to this section, the Director may bring an action in the 
United States District Court for the District of Columbia for an 
injunction to enforce a temporary order, and the district court is to 
issue such injunction upon a finding made in accordance with section 
1372(e) of the Safety and Soundness Act (12 U.S.C. 4632(e)).



Sec.1209.7  Civil money penalties.

    (a) Civil money penalty proceedings--(1) In general. Section 1376 of 
the Safety and Soundness Act (12 U.S.C. 4636) governs the imposition of 
civil money penalties. Upon written notice, which shall conform to the 
requirements of Sec.1209.23 of this part, and a hearing on the record 
to be conducted in accordance with subpart C of this part, the Director 
may impose a civil money penalty on any regulated entity or any entity-
affiliated party as provided by section 1376 of the Safety and Soundness 
Act for any violation, practice, or breach addressed under sections 
1371, 1372, or 1376 of the Safety and Soundness Act (12 U.S.C. 4631, 
4632, 4636), except with regard to the enforcement of housing goals that 
are addressed separately under sections 1341 and 1345 of the Safety and 
Soundness Act (12 U.S.C. 4581, 4585).
    (2) Amount of penalty--(i) First Tier. Section 1376(b)(1) of the 
Safety and Soundness Act (12 U.S.C. 4636(b)(1)) prescribes the civil 
penalty for violations as stated therein, in the amount of $10,000 for 
each day during which a violation continues.
    (ii) Second Tier. Section 1376(b)(2) of the Safety and Soundness Act 
(12 U.S.C. 4636(b)(2)) provides that notwithstanding paragraph (b)(1) 
thereof, a regulated entity or entity-affiliated party shall forfeit and 
pay a civil penalty of not more than $50,000 for each day during which a 
violation, practice, or breach continues, if the regulated entity or 
entity-affiliated party commits any violation described in (b)(1) 
thereof, recklessly engages in an unsafe or unsound practice, or 
breaches any fiduciary duty, and the violation, practice, or breach is 
part of a pattern of misconduct; causes or is likely to cause more than 
a minimal loss to the regulated entity; or results in pecuniary gain or 
other benefit to such party.
    (iii) Third Tier. Section 1376(b)(3) of the Safety and Soundness Act 
(12 U.S.C. 4636(b)(3)) provides that, notwithstanding paragraphs (b)(1) 
and (b)(2) thereof, any regulated entity or entity-affiliated party 
shall forfeit and pay a civil penalty, in accordance with section 
1376(b)(4) of the Safety and Soundness Act (12 U.S.C. 4636(b)(4)), for 
each day during which such violation, practice, or breach continues, if 
such regulated entity or entity-affiliated party:
    (A) Knowingly--
    (1) Commits any violation described in any subparagraph of section 
1376(b)(1) of the Safety and Soundness Act;
    (2) Engages in any unsafe or unsound practice in conducting the 
affairs of the regulated entity; or
    (3) Breaches any fiduciary duty; and
    (B) Knowingly or recklessly causes a substantial loss to the 
regulated entity or a substantial pecuniary gain or other benefit to 
such party by reason of such violation, practice, or breach.
    (b) Maximum amounts--(1) Maximum daily penalty. Section 1376(b)(4) 
of the Safety and Soundness Act (12 U.S.C. 4636(b)(4)), prescribes the 
maximum daily amount of a civil penalty that may be assessed for any 
violation, practice, or breach pursuant to section 1376(b)(3) of the 
Safety and Soundness Act (12 U.S.C. 4636(b)(3)), in the case of

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any entity-affiliated party (not to exceed $2,000,000.00), and in the 
case of any regulated entity ($2,000,000.00).
    (2) Inflation Adjustment Act. The maximum civil penalty amounts are 
subject to periodic adjustment under the Federal Civil Penalties 
Inflation Adjustment Act of 1990, as amended (28 U.S.C. 2461 note), as 
provided in subpart E of this part.
    (c) Factors in determining amount of penalty. In accordance with 
section 1376(c)(2) of the Safety and Soundness Act (12 U.S.C. 
4636(c)(2)), in assessing civil money penalties on a regulated entity or 
an entity-affiliated party in amounts as provided in section 1376(b) of 
the Safety and Soundness Act (12 U.S.C. 4636(b)), the Director shall 
give consideration to such factors as:
    (1) The gravity of the violation, practice, or breach;
    (2) Any history of prior violations or supervisory actions, or any 
attempts at concealment;
    (3) The effect of the penalty on the safety and soundness of the 
regulated entity or the Office of Finance;
    (4) Any loss or risk of loss to the regulated entity or to the 
Office of Finance;
    (5) Any benefits received or derived, whether directly or 
indirectly, by the respondent(s);
    (6) Any injury to the public;
    (7) Any deterrent effect on future violations, practices, or 
breaches;
    (8) The financial capacity of the respondent(s), or any unusual 
circumstance(s) of hardship upon an executive officer, director, or 
other individual;
    (9) The promptness, cost, and effectiveness of any effort to remedy 
or ameliorate the consequences of the violation, practice, or breach;
    (10) The candor and cooperation, if any, of the respondent(s); and
    (11) Any other factors the Director may determine by regulation to 
be appropriate.
    (d) Review of imposition of penalty. Section 1376(c)(3) of the 
Safety and Soundness Act (12 U.S.C. 4636(c)(3)) governs judicial review 
of a penalty order under section 1374 of the Safety and Soundness Act 
(12 U.S.C. 4634).



Sec.1209.8  Removal and prohibition proceedings.

    (a) Removal and prohibition proceedings--(1) Authority to issue 
order. As provided by section 1377(a)(1) of the Safety and Soundness Act 
(12 U.S.C. 4636a(a)(1)), the Director may serve upon a party described 
in paragraph (a)(2) of this section, or any officer, director, or 
management of the Office of Finance, a notice of the intention of the 
Director to suspend or remove such party from office, or to prohibit any 
further participation by such party in any manner in the conduct of the 
affairs of the regulated entity or the Office of Finance.
    (2) Applicability. As provided by section 1377(a)(2) of the Safety 
and Soundness Act (12 U.S.C. 4636a(a)(2)), a party described in this 
paragraph is an entity-affiliated party or any officer, director, or 
management of the Office of Finance, if the Director determines that:
    (i) That party, officer, or director has, directly or indirectly--
    (A) Violated--
    (1) Any law or regulation;
    (2) Any cease and desist order that has become final;
    (3) Any condition imposed in writing by the Director in connection 
with an application, notice, or other request by a regulated entity; or
    (4) Any written agreement between such regulated entity and the 
Director;
    (B) Engaged or participated in any unsafe or unsound practice in 
connection with any regulated entity or business institution; or
    (C) Committed or engaged in any act, omission, or practice which 
constitutes a breach of such party's fiduciary duty;
    (ii) By reason of such violation, practice, or breach--
    (A) Such regulated entity or business institution has suffered or 
likely will suffer financial loss or other damage; or
    (B) Such party directly or indirectly received financial gain or 
other benefit; and
    (iii) The violation, practice, or breach described in subparagraph 
(i) of this section--
    (A) Involves personal dishonesty on the part of such party; or
    (B) Demonstrates willful or continuing disregard by such party for 
the

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safety or soundness of such regulated entity or business institution.
    (3) Applicability to business entities. Under section 1377(f) of the 
Safety and Soundness Act (12 U.S.C. 4636a(f)), this remedy applies only 
to a person who is an individual, unless the Director specifically finds 
that it should apply to a corporation, firm, or other business entity.
    (b) Suspension order--(1) Suspension or prohibition authorized. If 
the Director serves written notice under section 1377(a) of the Safety 
and Soundness Act (12 U.S.C. 4636a(a)) upon a party subject to that 
section, the Director may, by order, suspend or remove such party from 
office, or prohibit such party from further participation in any manner 
in the conduct of the affairs of the regulated entity or the Office of 
Finance, if the Director:
    (i) Determines that such action is necessary for the protection of 
the regulated entity or the Office of Finance; and
    (ii) Serves such party with written notice of the order.
    (2) Effective period. The effective period of any order under 
section 1377(b)(1) of the Safety and Soundness Act (12 U.S.C. 
4636a(b)(1)) is specified in section 1377(b)(2) of the Safety and 
Soundness Act (12 U.S.C. 4636a(b)(2)). An order of suspension shall 
become effective upon service and, absent a court-ordered stay, remains 
effective and enforceable until the date the Director dismisses the 
charges or the effective date of an order issued by the Director under 
section 1377(c)(4) of the Safety and Soundness Act (12 U.S.C. 
4636a(c)(4),(5)).
    (3) Copy of order to be served on regulated entity. In accordance 
with section 1377(b)(3) of the Safety and Soundness Act (12 U.S.C. 
4636a(b)(3)), the Director will serve a copy of any order to suspend, 
remove, or prohibit participation in the conduct of the affairs on the 
Office of Finance or any regulated entity with which such party is 
affiliated at the time such order is issued.
    (c) Notice; hearing and order--(1) Written notice. A notice of the 
intention of the Director to issue an order under sections 1377(a) and 
(c) of the Safety and Soundness Act, (12 U.S.C. 4636a(a), (c)), shall 
conform with Sec.1209.23, and may include any such additional 
information as the Director may require.
    (2) Hearing. A hearing on the record shall be held in the District 
of Columbia in accordance with sections 1373(a)(1) and 1377(c)(2) of the 
Safety and Soundness Act. See 12 U.S.C. 4633(a)(1), 4636a(c)(2).
    (3) Consent. As provided by section 1377(c)(3) of the Safety and 
Soundness Act (12 U.S.C. 4636a(c)(3)), unless the party that is the 
subject of a notice delivered under paragraph (a) of this section 
appears in person or by a duly authorized representative of record, in 
the adjudicatory proceeding, such party shall be deemed to have 
consented to the issuance of an order under this section.
    (4) Issuance of order of suspension or removal. As provided by 
section 1377(c)(4) of the Safety and Soundness Act (12 U.S.C. 
4636a(c)(4)), the Director may issue an order under this part, as the 
Director may deem appropriate, if:
    (i) A party is deemed to have consented to the issuance of an order 
under paragraph (d); or
    (ii) Upon the record made at the hearing, the Director finds that 
any of the grounds specified in the notice have been established.
    (5) Effectiveness of order. As provided by section 1377(c)(5) of the 
Safety and Soundness Act (12 U.S.C. 4636a(c)(5)), any order issued and 
served upon a party in accordance with this section shall become 
effective at the expiration of 30 days after the date of service upon 
such party and any regulated entity or entity-affiliated party. An order 
issued upon consent under paragraph (c)(3) of this section, however, 
shall become effective at the time specified therein. Any such order 
shall remain effective and enforceable except to such extent as it is 
stayed, modified, terminated, or set aside by action of the Director or 
a reviewing court.
    (d) Prohibition of certain activities and industry-wide 
prohibition--(1) Prohibition of certain activities. As provided by 
section 1377(d) of the Safety and Soundness Act (12 U.S.C. 4636a(d)), 
any person subject to an order issued under subpart B of this part shall 
not--
    (i) Participate in any manner in the conduct of the affairs of any 
regulated entity or the Office of Finance;

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    (ii) Solicit, procure, transfer, attempt to transfer, vote, or 
attempt to vote any proxy, consent, or authorization with respect to any 
voting rights in any regulated entity;
    (iii) Violate any voting agreement previously approved by the 
Director; or
    (iv) Vote for a director, or serve or act as an entity-affiliated 
party of a regulated entity or as an officer or director of the Office 
of Finance.
    (2) Industry-wide prohibition. As provided by section 1377(e)(1) of 
the Safety and Soundness Act (12 U.S.C. 4636a(e)(1)), except as provided 
in section 1377(e)(2) of the Safety and Soundness Act (12 U.S.C. 
4636a(e)(2)), any person who, pursuant to an order issued under section 
1377 of the Safety and Soundness Act (12 U.S.C. 4636a), has been removed 
or suspended from office in a regulated entity or the Office of Finance, 
or prohibited from participating in the conduct of the affairs of a 
regulated entity or the Office of Finance, may not, while such order is 
in effect, continue or commence to hold any office in, or participate in 
any manner in the conduct of the affairs of, any regulated entity or the 
Office of Finance.
    (3) Relief from industry-wide prohibition at the discretion of the 
Director--(i) Relief from order. As provided by section 1377(e)(2) of 
the Safety and Soundness Act (12 U.S.C. 4636a(e)(2)), if, on or after 
the date on which an order has been issued under section 1377 of the 
Safety and Soundness Act (12 U.S.C. 4636a) that removes or suspends from 
office any party, or prohibits such party from participating in the 
conduct of the affairs of a regulated entity or the Office of Finance, 
such party receives the written consent of the Director, the order shall 
cease to apply to such party with respect to the regulated entity or the 
Office of Finance to the extent described in the written consent. Such 
written consent shall be on such terms and conditions as the Director 
therein may specify in his discretion. Any such consent shall be 
publicly disclosed.
    (ii) No private right of action; no final agency action. Nothing in 
this paragraph shall be construed to require the Director to entertain 
or to provide such written consent, or to confer any rights to such 
consideration or consent upon any party, regulated entity, entity-
affiliated party, or the Office of Finance. Additionally, whether the 
Director consents to relief from an outstanding order under this part is 
committed wholly to the discretion of the Director, and such 
determination shall not be a final agency action for purposes of seeking 
judicial review.
    (4) Violation of industry-wide prohibition. As provided by section 
1377(e)(3) of the Safety and Soundness Act (12 U.S.C. 4636a(e)(3)), any 
violation of section 1377(e)(1) of the Safety and Soundness Act (12 
U.S.C. 4636a(e)(1)) by any person who is subject to an order issued 
under section 1377(h) of the Safety and Soundness Act (12 U.S.C. 
4636a(h)) (suspension or removal of entity-affiliated party charged with 
felony) shall be treated as a violation of the order.
    (e) Stay of suspension or prohibition of entity-affiliated party. As 
provided by section 1377(g) of the Safety and Soundness Act (12 U.S.C. 
4636a(g)), not later than 10 days after the date on which any entity-
affiliated party has been suspended from office or prohibited from 
participation in the conduct of the affairs of a regulated entity, such 
party may apply to the United States District Court for the District of 
Columbia, or the United States district court for the judicial district 
in which the headquarters of the regulated entity is located, for a stay 
of such suspension or prohibition pending the completion of the 
administrative enforcement proceeding pursuant to section 1377(c) of the 
Safety and Soundness Act (12 U.S.C. 4636a(c)). The court shall have 
jurisdiction to stay such suspension or prohibition, but such 
jurisdiction does not extend to the administrative enforcement 
proceeding.



Sec.1209.9  Supervisory actions not affected.

    As provided by section 1311(c) of the Safety and Soundness Act (12 
U.S.C. 4511(c)), the authority of the Director to take action under 
subtitle A of the Safety and Soundness Act (12 U.S.C. 4611 et seq.) 
(e.g., the appointment of a conservator or receiver for a regulated

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entity; entering into a written agreement or pursuing an informal 
agreement with a regulated entity as the Director deems appropriate; and 
undertaking other such actions as may be applicable to undercapitalized, 
significantly undercapitalized or critically undercapitalized regulated 
entities), or to initiate enforcement proceedings under subtitle C of 
the Safety and Soundness Act (12 U.S.C. 4631 et seq.), shall not in any 
way limit the general supervisory or regulatory authority granted the 
Director under section 1311(b) of the Safety and Soundness Act (12 
U.S.C. 4511(b)). The selection and form of regulatory or supervisory 
action under the Safety and Soundness Act is committed to the discretion 
of the Director, and the selection of one form of action or a 
combination of actions does not foreclose the Director from pursuing any 
other supervisory action authorized by law.



                Subpart C_Rules of Practice and Procedure



Sec.1209.10  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.1209.11  Authority of the Presiding Officer.

    (a) General rule. All proceedings governed by subpart C of this part 
shall be conducted consistent with the provisions of chapter 5 of title 
5 of the United States Code. The presiding officer shall have complete 
charge of the adjudicative proceeding, conduct a fair and impartial 
hearing, avoid unnecessary delay, and assure that a complete 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) Control the proceedings. (i) Upon reasonable notice to the 
parties, not earlier than 30 days or later than 60 days after service of 
a notice of charges under the Safety and Soundness Act, set a date, 
time, and place for an evidentiary hearing on the record, within the 
District of Columbia, as provided in section 1373 of the Safety and 
Soundness Act (12 U.S.C. 4633), in a scheduling order that may be issued 
in conjunction with the initial scheduling conference set under Sec.
1209.36, or otherwise as the presiding officer finds in the best 
interest of justice, in accordance with this part; and
    (ii) Upon reasonable notice to the parties, reset or change the 
date, time, or place (within the District of Columbia) of an evidentiary 
hearing;
    (2) Continue or recess the hearing in whole or in part for a 
reasonable period of time;
    (3) Hold conferences to address legal or factual issues, or 
evidentiary matters materially relevant to the charges or allowable 
defenses; to regulate the timing and scope of discovery and rule on 
discovery plans; or otherwise to consider matters that may facilitate an 
effective, fair, and expeditious disposition of the proceeding;
    (4) Administer oaths and affirmations;
    (5) Issue and enforce subpoenas, subpoenas duces tecum, discovery 
and protective orders, as authorized by this part, and to revoke, quash, 
or modify such subpoenas issued by the presiding officer;
    (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 summary disposition or any motion to dismiss the 
proceeding or to make a final determination of the merits of the 
proceeding;
    (8) Take all actions authorized under this part to regulate the 
scope, timing, and completion of discovery of any non-privileged 
documents that are materially relevant to the charges or allowable 
defenses;
    (9) Regulate the course of the hearing and the conduct of 
representatives and parties;
    (10) Examine witnesses;
    (11) Receive materially relevant evidence, and rule upon the 
admissibility of evidence or exclude, limit, or otherwise rule on offers 
of proof;

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    (12) Upon motion of a party, take official notice of facts;
    (13) Recuse himself upon his own motion or upon motion made by a 
party;
    (14) Prepare and present to the Director 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 or appropriate to discharge the 
duties of a presiding officer.



Sec.1209.12  Public hearings; closed hearings.

    (a) General rule. As provided in section 1379B(b) of the Safety and 
Soundness Act (12 U.S.C. 4639(b)), all hearings shall be open to the 
public, except that the Director, in his discretion, may determine 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, or as provided in paragraphs (b) and (c) of this 
section.
    (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.1209.28 of this part. A determination under this 
section is committed to the discretion of the Director and is not a 
reviewable final agency action.
    (c) Filing documents under seal. FHFA counsel of record, in his 
discretion, may file or require the filing of 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 issue an order to govern confidential 
information, and take all appropriate steps to preserve the 
confidentiality of such documents in whole or in part, including closing 
any portion of a hearing to the public or issuing a protective order 
under such terms as may be acceptable to FHFA counsel of record.
    (d) Procedures for closed hearing. An evidentiary hearing, or any 
part thereof, that is closed for the purpose of offering into evidence 
testimony or documents filed under seal as provided in paragraph (c) of 
this section shall be conducted under procedures that may include: prior 
notification to the submitter of confidential information; provisions 
for sealing portions of the record, briefs, and decisions; in camera 
arguments, offers of proof, and testimony; and limitations on 
representatives of record or other participants, as the presiding 
officer may designate. Additionally, at such proceedings the presiding 
officer may make an opening statement as to the confidentiality and 
limitations and deliver an oath to the parties, representatives of 
record, or other approved participants as to the confidentiality of the 
proceedings.



Sec.1209.13  Good faith certification.

    (a) General requirement. Every filing or submission of record 
following the issuance of a notice of charges by the Director shall be 
signed by at least one representative of record in his individual name 
and shall state that representative's business contact information, 
which shall include his address, electronic mail 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, a representative 
of record or party appearing pro se 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, non-
frivolous argument for the extension, modification, or reversal of 
existing law, regulation, or FHFA order or policy; and
    (iii) The filing or submission of record is not made for any 
improper purpose, such as to harass or to cause

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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, non-frivolous argument for the extension, modification, or 
reversal of existing law, regulation, or FHFA order or policy, and are 
not made for any improper purpose, such as to harass or to cause 
unnecessary delay or to needlessly increase litigation-related costs.



Sec.1209.14  Ex parte communications.

    (a) Definition--(1) Ex parte communication means any material oral 
or written communication relevant to an adjudication of the merits of 
any proceeding under this subpart that was neither on the record nor on 
reasonable prior notice to all parties that takes place between:
    (i) An interested person outside FHFA (including the person's 
representative of record); 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 be reasonably expected to be involved in the decisional 
process.
    (2) A communication that is procedural in that it 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 a notice 
of charges commencing a proceeding under this part is issued by the 
Director until the date that the Director issues his final decision 
pursuant to Sec.1209.55 of this part, no person referred to in 
paragraph (a)(1)(i) of this section shall knowingly make or cause to be 
made an ex parte communication with the Director or the presiding 
officer. 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 10 days of receipt of service of the ex 
parte communication to file responses thereto, and to recommend 
sanctions that they believe to be appropriate under the circumstances, 
in accordance with paragraph (d) of this section.
    (d) Sanctions. Any party or representative for a party who makes an 
ex parte communication, or who encourages or solicits another to make an 
ex parte 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, an adverse ruling on 
the issue that is the subject of the prohibited communication, or other 
appropriate and commensurate action(s).
    (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 upon notice to and 
opportunity for all parties to participate.
    (f) Separation of functions. An employee or agent engaged in the 
performance of any investigative or prosecuting function for FHFA in a 
case may not, in that or in a factually related case, participate or 
advise in the recommended decision, the Director's review under Sec.
1209.55 of the recommended decision, or the Director's final 
determination on the merits

[[Page 116]]

based upon his review of the recommended decision, except as a witness 
or counsel in the adjudicatory proceedings. This section shall not 
prohibit FHFA counsel of record from providing necessary and appropriate 
legal advice to the Director on supervisory (including information or 
legal advice as to settlement issues) or regulatory matters.



Sec.1209.15  Filing of papers.

    (a) Filing. All pleadings, motions, memoranda, and any other 
submissions or papers required to be filed in the proceeding shall be 
addressed to the presiding officer and filed with FHFA, 400 7th Street 
SW., Eighth Floor, Washington, DC 20219, in accordance with paragraphs 
(b) and (c) of this section.
    (b) Manner of filing. Unless otherwise specified by the Director or 
the presiding officer, filing shall be accomplished by:
    (1) Overnight delivery. Overnight U.S. Postal Service delivery or 
delivery by a reliable commercial delivery service for same day or 
overnight delivery to the address stated above; or
    (2) U.S. Mail. First class, registered, or certified mail via the 
U.S. Postal Service; and
    (3) Electronic media. Transmission by electronic media shall be 
required by and upon any conditions specified by the Director or the 
presiding officer. FHFA shall provide a designated site for the 
electronic filing of all papers in a proceeding in accordance with any 
conditions specified by the presiding officer. All papers filed by 
electronic media shall be filed concurrently in a manner set out above 
and in accordance with paragraph (c) of this section.
    (c) Formal requirements as to papers filed--(1) Form. To be filed, 
all papers must set forth the name, address, telephone number, and 
electronic mail address of the representative or party seeking to make 
the filing. Additionally, all such papers 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 on 8\1/2\ x 11-
inch paper and must be clear, legible, and formatted as required by 
paragraph (c)(5) of this section.
    (2) Signature. All papers filed must be dated and signed as provided 
in Sec.1209.13.
    (3) Caption. All papers filed must include at the head thereof, or 
on a title page, the FHFA caption, title and docket number of the 
proceeding, the name of the filing party, 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 pleadings, 
motions and memoranda, or other such papers shall be filed, except that 
only one copy of transcripts of testimony and exhibits shall be filed.
    (5) Content format. All papers filed shall be formatted in such 
program(s) (e.g., MS WORD (copyright), MS Excel 
(copyright), or WordPerfect (copyright)) as the 
presiding officer or Director shall specify.

[76 FR 53607, Aug. 26, 2011, as amended at 80 FR 80233, Dec. 24, 2015]



Sec.1209.16  Service of papers.

    (a) 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 who is not so 
represented, in accordance with the requirements of this section.
    (b) 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) Overnight U.S. Postal Service delivery or delivery by a reliable 
commercial delivery service for same day or overnight delivery to the 
parties' respective street addresses; or
    (3) First class, registered, or certified mail via the U.S. Postal 
Service; and
    (4) For transmission by electronic media, each party shall promptly 
provide the presiding officer and all parties, in writing, an active 
electronic mail address where service will be accepted on behalf of such 
party. Any document transmitted via electronic mail for service on a 
party shall comply in all respects with the requirements of Sec.
1209.15(c).
    (5) Service of pleadings or other papers made by facsimile may not 
exceed a total page count of 30 pages. Any

[[Page 117]]

paper served by facsimile transmission shall meet the requirements of 
Sec.1209.15(c).
    (6) Any party serving a pleading or other paper by electronic media 
under paragraph (4) of this section also shall concurrently serve that 
pleading or paper by one of the methods specified in paragraphs (1) 
through (5) of this section.
    (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.
1209.72 shall be served by the 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.1209.72, 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;
    (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 or the District of 
Columbia, or any commonwealth, possession, territory or other place 
subject to the jurisdiction of the United States, or on any person doing 
business in any State or the District of Columbia, or any commonwealth, 
possession, territory or other place subject to the jurisdiction of the 
United States, 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.1209.17  Time computations.

    (a) General rule. In computing any period of time prescribed or 
allowed under this part, the date of the act or event that commences the 
designated period of time is not included. Computations shall include 
the last day of the time period, unless the day falls on a Saturday, 
Sunday, or Federal holiday. When the last day is a Saturday, Sunday or 
Federal holiday, the period of time 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

[[Page 118]]

(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 or 
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;
    (iii) In the case of transmission by electronic media, as specified 
by the authority receiving the filing, in the case of filing; or
    (iv) In the case of transmission by electronic media or facsimile, 
when the device through which the document was sent provides a reliable 
indicator that the document has been received by the opposing party, 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, 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, pleading or paper, the applicable time limits 
shall be calculated as follows:
    (1) If service was made by delivery to the U.S. Postal Service for 
longer than overnight delivery service by first class, registered, or 
certified mail, add three calendar days to the prescribed period for the 
responsive pleading or other filing.
    (2) If service was personal, or was made by delivery to the U.S. 
Postal Service or any reliable commercial delivery service for overnight 
delivery, add one calendar-day to the prescribed period for the 
responsive pleading or other filing.
    (3) If service was made by electronic media transmission or 
facsimile, add one calendar-day to the prescribed period for the 
responsive pleading or other filing--unless otherwise determined by the 
Director or the presiding officer sua sponte, or upon motion of a party 
in the case of filing or by prior agreement among the parties in the 
case of service.



Sec.1209.18  Change of time limits.

    Except as otherwise by law required, the presiding officer may 
extend any time limit that is prescribed above or in any notice or order 
issued in the proceedings. After the referral of the case to the 
Director pursuant to Sec.1209.53, 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.1209.19  Witness fees and expenses.

    Witnesses (other than parties) subpoenaed for testimony (or for a 
deposition in lieu of personal appearance at a hearing) 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 FHFA 
is the party requesting the subpoena. FHFA shall not be required to pay 
any fees to or expenses of any witness who was not subpoenaed by FHFA.



Sec.1209.20  Opportunity for informal settlement.

    Any respondent may, at any time in the proceeding, unilaterally 
submit to FHFA's counsel of record written offers or proposals for 
settlement of a proceeding without prejudice to the rights of any of the 
parties. No such offer or proposal shall be made to any FHFA 
representative other than FHFA counsel of record. Submission of a 
written settlement offer does not provide a basis for adjourning, 
deferring 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.

[[Page 119]]



Sec.1209.21  Conduct of examination.

    Nothing in this part limits or constrains in any manner any duty, 
authority, or right of FHFA to conduct or to continue any examination, 
investigation, inspection, or visitation of any regulated entity or 
entity-affiliated party.



Sec.1209.22  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 
subpart C of this part shall be excused based on the pendency before any 
court of any interlocutory appeal or collateral attack.



Sec.1209.23  Commencement of proceeding and contents of notice
of charges.

    Proceedings under subpart C of this part are commenced by the 
Director by the issuance of a notice of charges, as defined in Sec.
1209.3(p), that must be served upon a respondent. A notice of charges 
shall state all of the following:
    (a) The legal authority for the proceeding and for FHFA's 
jurisdiction over the proceeding;
    (b) A statement of the matters of fact or law showing that FHFA is 
entitled to relief;
    (c) A proposed order or prayer for an order granting the requested 
relief;
    (d) Information concerning the nature of the proceeding and 
pertinent procedural matters, including: the requirement that the 
hearing shall be held in the District of Columbia; the presiding officer 
will set the date and location for an evidentiary hearing in a 
scheduling order to be issued not less than 30 days or more than 60 days 
after service of the notice of charges; contact information for FHFA 
enforcement counsel and the presiding officer, if known; submission 
information for filings and appearances, the time within which to 
request a hearing, and citation to FHFA Rules of Practice and Procedure; 
and
    (e) Information concerning proper filing of the answer, including 
the time within which to file the answer as required by law or 
regulation, a statement that the answer shall be filed with the 
presiding officer or with FHFA as specified therein, and the address for 
filing the answer (and request for a hearing, if applicable).



Sec.1209.24  Answer.

    (a) Filing deadline. Unless otherwise specified by the Director in 
the notice, respondent shall file an answer within 20 days of service of 
the notice of charges initiating the enforcement action.
    (b) Content of answer. An answer must respond specifically to each 
paragraph or allegation of fact contained in the notice of charges 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, FHFA 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 120]]



Sec.1209.25  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 10 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, or as the presiding officer may allow for good 
cause shown, such issues 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.1209.26  Failure to appear.

    Failure of a respondent to appear in person at the hearing or by a 
duly authorized representative of record 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 
Agency's findings and the relief sought in the notice.



Sec.1209.27  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 pre-
hearing 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.1209.28  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, in 
which case the motion will be subject to the requirements of this 
section.
    (c) Filing of motions. Motions must be filed with the presiding 
officer and served on all parties; except that following the filing of a 
recommended decision, motions must be filed with the Director. Motions 
for pre-trial relief such as motions in limine or objections to offers 
of proof or experts shall be filed not less than 10 days prior to the 
date of the evidentiary hearing, except

[[Page 121]]

as provided with the consent of the presiding officer for good cause 
shown.
    (d) Responses and replies. (1) Except as otherwise provided herein, 
any party may file a written response to a non-dispositive motion within 
10 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; 
and the moving party may file a written reply to a written response to a 
non-dispositive motion within five days after the service of the 
response, unless some other period is ordered by the presiding officer 
or the Director. The presiding officer shall not rule on any oral or 
written motion before each party with an interest in the motion has had 
an opportunity to respond as provided in this section.
    (2) The failure of a party to oppose a written motion or an oral 
motion made on the record is deemed as 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 substantively 
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.1209.34 and 1209.35 of this part.



Sec.1209.29  Discovery.

    (a) General rule. (1) Limits on discovery. Subject to the 
limitations set out in paragraphs (a)(2), (b), (d), and (e) of this 
section, a party to a proceeding under this part may obtain document 
discovery by serving upon any other party in the proceeding a written 
request to produce documents. For purposes of such requests, the term 
``documents'' may be defined to include records, drawings, graphs, 
charts, photographs, recordings, or data stored in electronic form or 
other data compilations from which information can be obtained or 
translated, if necessary, by the parties through detection devices into 
reasonably usable form (e.g., electronically stored information), as 
well as written material of all kinds.
    (2) Discovery plan. (i) In the initial scheduling conference held in 
accordance with Sec.1209.36, or otherwise at the earliest practicable 
time, the presiding officer shall require the parties to confer in good 
faith to develop and submit a joint discovery plan for the timely, cost-
effective management of document discovery (including, if applicable, 
electronically stored information). The discovery plan should provide 
for the coordination of similar discovery requests by multiple parties, 
if any, and specify how costs are to be apportioned among those parties. 
The discovery plan shall specify the form of electronic productions, if 
any. Documents are to be produced in accordance with the technical 
specifications described in the discovery plan.
    (ii) Discovery in the proceeding may commence upon the approval of 
the discovery plan by the presiding officer. Thereafter, the presiding 
officer may interpret or modify the discovery plan for good cause shown 
or in his or her discretion due to changed circumstances.
    (iii) Nothing in paragraph (a)(2) of this section shall be 
interpreted or deemed to require the production of documents that are 
privileged or not reasonably accessible because of undue burden or cost, 
or to require any document production otherwise inconsistent with the 
limitations on discovery set forth in this part.
    (b) Relevance and scope. (1) A party may obtain document discovery 
regarding any matter not privileged that is materially relevant to the 
charges or allowable defenses raised in the pending proceeding.
    (2) The scope of available discovery shall be limited in accordance 
with subpart C of this part. Any request for the production of documents 
that seeks to obtain privileged information or documents not materially 
relevant under paragraph (b)(1) of this section, or that is 
unreasonable, oppressive, excessive in scope, unduly burdensome, 
cumulative, or repetitive of any prior discovery requests, shall be 
denied or modified.
    (3) A request for document discovery is unreasonable, oppressive, 
excessive in scope, or unduly burdensome--and shall be denied or 
modified--if, among other things, the request:
    (i) Fails to specify justifiable limitations on the relevant subject 
matter,

[[Page 122]]

time period covered, search parameters, or the geographic location(s) or 
data repositories to be searched;
    (ii) Fails to identify documents with sufficient specificity;
    (iii) Seeks material that is duplicative, cumulative, or obtainable 
from another source that is more accessible, cost-effective, or less 
burdensome;
    (iv) Calls for the production of documents to be delivered to the 
requesting party or his or her designee and fails to provide a written 
agreement by the requestor to pay in advance for the costs of production 
in accordance with Sec.1209.30, or otherwise fails to take into 
account costs associated with processing electronically stored 
information or any cost-sharing agreements between the parties;
    (v) Fails to afford the responding party adequate time to respond; 
or
    (vi) Fails to take into account retention policies or security 
protocols with respect to Federal information systems.
    (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. (1) Privileged documents are not 
discoverable. (i) 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.
    (ii) The parties may enter into a written agreement to permit a 
producing party to assert applicable privileges of a document even after 
its production and to request the return or destruction of privileged 
matter (claw back agreement). The parties shall file the claw back 
agreement with the presiding officer. To ensure the enforceability of 
the terms of any such claw back agreement, the presiding officer shall 
enter an order. Any party may petition the presiding officer for an 
order specifying claw back procedures for good cause shown.
    (2) No effect on examination authority. The limitations on 
discoverable matter provided for in this part are not intended and shall 
not be construed to limit or otherwise affect the examination, 
regulatory or supervisory authority of FHFA.
    (e) Time limits. All discovery matters, including all responses to 
discovery requests, shall be completed at least 20 days prior to the 
date scheduled for the commencement of the testimonial phase of the 
hearing. No exception to this discovery time limit shall be permitted, 
unless the presiding officer finds on the record that good cause exists 
for waiving the 20-day requirement of this paragraph.
    (f) Production. Documents must be produced as they are kept in the 
usual course of business, or labeled and organized to correspond with 
the categories in the request, or otherwise produced in a manner 
determined by mutual agreement between the requesting party and the 
party or non-party to whom the request is directed in accordance with 
this part.



Sec.1209.30  Request for document discovery from parties.

    (a) General rule. Each request for the production of documents must 
conform to the requirements of this part.
    (1) Limitations. Subject to applicable limitations on discovery in 
this part, a party may serve (requesting party) a request on another 
party (responding party) for the production of any non-privileged, 
discoverable documents in the possession, custody, or control of the 
responding party. A requesting party shall serve a copy of any such 
document request on all other parties. Each request for the production 
of documents must, with reasonable particularity, identify or describe 
the documents to be produced, either by individual item or by category, 
with sufficient specificity to enable the responding party to respond 
consistent with the requirements of this part.
    (2) Discovery plan. Document discovery under subpart C of this part 
shall be consistent with any discovery plan approved by the presiding 
officer under Sec.1209.29.

[[Page 123]]

    (b) Production and costs--(1) General rule. Subject to the 
applicable limitations on discovery in this part and the discovery plan, 
the requesting party shall specify a reasonable time, place, and manner 
for the production of documents and the performance of any related acts. 
The responding party shall produce documents to the requesting party in 
a manner consistent with the discovery plan.
    (2) Costs. All costs associated with document productions--
including, without limitation, photocopying (as specified in paragraph 
(b)(4) of this section) or electronic processing (as specified in 
paragraph (b)(5) of this section)--shall be born by the requesting 
party, or otherwise in accordance with any discovery plan approved by 
the presiding officer that may require such costs be apportioned between 
parties, or as otherwise ordered by the presiding officer. If consistent 
with the discovery plan approved by the presiding officer, the 
responding party may require receipt of payment of any such document 
production costs in advance before any such production of responsive 
documents.
    (3) Organization. Unless otherwise provided for in any discovery 
plan approved by the presiding officer under Sec.1209.29 of this part, 
or by order of the presiding officer, 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 document request.
    (4) Photocopying charges. Photocopying charges are to be set at the 
current rate per page imposed by FHFA under the fee schedule pursuant to 
Sec.1202.11(c) of this part for requests for documents filed under the 
Freedom of Information Act, 5 U.S.C. 552.
    (5) Electronic processing. In the event that any party seeks the 
production of electronically stored information (i.e., information 
created, stored, communicated, or used in digital format requiring the 
use of computer hardware and software), the parties shall confer in good 
faith to resolve common discovery issues related to electronically 
stored information, such as preservation, search methodology, 
collection, and need for such information; the suitability of 
alternative means to obtain it; and the format of production. Consistent 
with the discovery plan approved by the presiding officer under Sec.
1209.29, costs associated with the processing of such electronic 
information (i.e., imaging; scanning; conversion of ``native'' files to 
images that are viewable and searchable; indexing; coding; database or 
Web-based hosting; searches; branding of endorsements, such as 
``confidential'' or document control numbering; privilege reviews; and 
copies of production discs) and delivery of any such document 
production, shall be born by the requesting party, apportioned among the 
parties, or as otherwise ordered by the presiding officer. Nothing in 
this part shall be deemed to require FHFA to produce privileged 
documents or any electronic records in violation of applicable Federal 
law or security protocols.
    (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 
served with a document discovery request may object within 30 days of 
service of the request by filing a motion to strike or limit the request 
in accordance with the provisions of Sec.1209.28 of this part. No 
other party may file an objection. If an objection is made only to 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.1209.28 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 in accordance with the 
provisions of Sec.1209.28. A reply by the moving party, if any, shall 
be governed by Sec.1209.28. No other party may file a response.
    (e) Privilege. At the time other documents are produced, all 
documents withheld on a claim of privilege must

[[Page 124]]

be reasonably identified, together with a statement of the basis for the 
assertion of privilege on a privilege log. When similar documents that 
are protected by the government's deliberative process, investigative or 
examination privilege, the attorney work-product doctrine, or the 
attorney-client privilege are voluminous, such documents may be 
identified on the log by category instead of by individual document. The 
presiding officer has discretion to permit submission of a privilege log 
subsequent to the document production(s), which may occur on a rolling 
basis if agreed to by the parties in the discovery plan, and to 
determine whether an identification by category is sufficient to provide 
notice of withheld documents.
    (f) Motions to compel production. (1) If a party withholds any 
document as privileged or fails to comply fully with a document 
discovery request, the requesting party may, within 10 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.1209.28 for the issuance of a subpoena compelling 
the production of any such document.
    (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--(1) Appropriate protective orders. After the 
time for filing a response to a motion to compel pursuant to this 
section has expired, the presiding officer shall rule promptly on any 
such motion. The presiding officer may deny, grant in part, or otherwise 
modify any request for the production of documents, if he determines 
that a discovery request, or any one or more of its terms, seeks to 
obtain the production of documents that are privileged or otherwise not 
within the scope of permissible discovery under Sec.1209.29(b), and 
may issue appropriate protective orders, upon such conditions as justice 
may require.
    (2) No stay. The pendency of a motion to strike or limit discovery, 
or to compel the production of any document, shall not stay or continue 
the proceeding, unless otherwise ordered by the presiding officer. 
Notwithstanding any other provision in this part, the presiding officer 
may not release, or order any party to produce, any document withheld on 
the basis of privilege, if the withholding party has stated to the 
presiding officer its intention to file with the Director a timely 
motion for interlocutory review of the presiding officer's privilege 
determination or order to produce the documents, until the Director has 
rendered a decision on the motion for interlocutory review.
    (3) Interlocutory review by the Director. Interlocutory review of a 
privilege determination or document discovery subpoena of the presiding 
officer shall be in accordance with Sec.1209.33. To the extent 
necessary to rule promptly on such matters, the Director may request 
that the presiding officer provide additional information from the 
record. As provided by Sec.1209.33 of this part, a pending 
interlocutory review of a privilege determination or document discovery 
subpoena shall not stay the proceedings, unless otherwise ordered by the 
presiding officer or the Director.
    (h) Enforcement of document discovery subpoenas--(1) Authority. If 
the presiding officer or Director issues a subpoena compelling 
production of documents by a party in a proceeding under this part, in 
the event of noncompliance with the subpoena and to the extent 
authorized by section 1379D(c)(1) of the Safety and Soundness Act (12 
U.S.C. 4641(c)(1)), the Director or the subpoenaing party may apply to 
the appropriate United States district court for an order requiring 
compliance with the subpoena.
    (2) United States district court jurisdiction. As provided by 
section 1379D(c)(2) of the Safety and Soundness Act (12 U.S.C. 
4641(c)(2)), the appropriate United States district court has the 
jurisdiction and power to order and to require compliance with any 
discovery subpoena issued under this part.
    (3) No stay; sanctions. The judicial enforcement of a discovery 
subpoena shall not operate as a stay of the proceedings, unless the 
presiding officer or the Director orders a stay of such duration as the 
presiding officer or Director

[[Page 125]]

may find reasonable and in the best interest of the parties or as 
justice may require. A party's right to seek judicial enforcement of a 
subpoena shall not in any manner limit the sanctions that may be imposed 
by the presiding officer or Director against a party who fails to 
produce or induces another to fail to produce subpoenaed documents.



Sec.1209.31  Document discovery subpoenas to non-parties.

    (a) General rules--(1) Application for subpoena. As provided under 
this part, 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 the proposed 
document subpoena, and a brief statement of facts demonstrating that the 
documents are materially relevant to the charges and issues presented in 
the proceeding and the reasonableness of the scope of the document 
request. The subpoenaing party shall specify a reasonable time, place, 
and manner for production in response to the subpoena, and state its 
unequivocal intention to pay for the production of the documents as 
provided in this part.
    (2) Service of subpoena. A party shall apply for a document subpoena 
under this section only within the time period during which such party 
could serve a discovery request under Sec.1209.30 of this part. The 
party obtaining the document subpoena is responsible for serving it on 
the subpoenaed person and for serving copies on all other parties. 
Document subpoenas may be served in the District of Columbia, or any 
State, Territory, possession, or other place subject to the jurisdiction 
of the United States, or as otherwise provided by law.
    (3) Presiding officer's discretion. The presiding officer shall 
issue promptly any document subpoena applied for under this section 
subject to the application conditions set forth in this section and his 
or her discretion. If the presiding officer determines that the 
application does not set forth a valid basis for the issuance of the 
requested document subpoena, or that any of its terms are unreasonable, 
oppressive, excessive in scope, unduly burdensome, or otherwise 
objectionable under Sec.1209.29(b), he may refuse to issue the 
requested document subpoena or may issue it in a modified form upon such 
additional conditions as may be determined by the presiding officer.
    (b) Motion to quash or modify--(1) Limited appearance. Any non-party 
to a pending proceeding to whom a document subpoena is directed may 
enter a limited appearance, through a representative or on his or her 
own behalf, before the presiding officer to file with the presiding 
officer a motion to quash or modify such subpoena, accompanied by a 
statement of the basis for quashing or modifying the subpoena.
    (2) Objections. Any motion to quash or modify a document subpoena 
must be filed on the same basis, including the assertion of any 
privileges, upon which a party could object to a discovery document 
request under Sec.1209.30 and during the same time limits during which 
such an objection could be filed.
    (3) Responses and replies. The party who obtained the subpoena may 
respond to such motion within 10 days of service of the motion; the 
response shall be served on the non-party in accordance with this part. 
Absent express leave of the presiding officer, no other party may 
respond to the non-party's motion. The non-party may file a reply within 
five days of service of a response.
    (4) No stay. A non-party's right to seek to quash or modify a 
document subpoena shall not stay the proceeding, or limit in any manner 
the sanctions that may be imposed by the presiding officer against a 
party who induces another to fail to produce any such subpoenaed 
documents. No party may rely upon the pendency of a non-party's motion 
to quash or modify a document subpoena to excuse performance of any 
action required of that party under this part.
    (c) Enforcing document subpoenas to non-parties--(1) Application for 
enforcement of subpoena. If a non-party fails to comply with any 
subpoena issued pursuant to this section or with any order of the 
presiding officer that directs compliance with all or any portion of a 
document subpoena issued pursuant to this section, the subpoenaing party 
or

[[Page 126]]

any other aggrieved party to the proceeding may, to the extent 
authorized by section 1379D(c) of the Safety and Soundness Act (12 
U.S.C. 4641(c)), apply to an appropriate United States district court 
for an order requiring compliance with the subpoena.
    (2) No stay. A party's right to seek district court enforcement of a 
non-party document production subpoena under this section shall not 
automatically stay an enforcement proceeding under of the Safety and 
Soundness Act.
    (3) Sanctions. A party's right to seek district court enforcement of 
a non-party document subpoena shall in no way limit the sanctions that 
may be imposed by the presiding officer on a party who induces another 
to fail to comply with any subpoena issued under this section.



Sec.1209.32  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's testimony for the 
record may apply to the presiding officer in accordance with the 
procedures set forth in paragraph (a)(2) of this section for the 
issuance of a subpoena or subpoena duces tecum requiring attendance of 
the witness at a deposition for the purpose of preserving that witness's 
testimony. 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 testimonial phase of the hearing because of age, sickness, 
or infirmity, or will be otherwise unavailable;
    (ii) The subpoenaing party did not cause or contribute to the 
unavailability of the witness for the hearing;
    (iii) The witness has personal knowledge and the testimony is 
reasonably expected to be materially relevant to claims, defenses, or 
matters determined to be at issue in the proceeding; 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 witness to be deposed anywhere within the 
United States, or its Territories and possessions, 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 Territories and possessions, or on any person doing 
business anywhere within the United States or its Territories and 
possessions, 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 with the presiding officer 
under Sec.1209.28 of this part 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

[[Page 127]]

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 and transcribed. Videotaped depositions must 
be transcribed for the record; copies and transcriptions must be 
supplied to each party.
    (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 transcript 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 section 1379D(c) of the Safety and Soundness Act 
(12 U.S.C. 4641(c)), 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.1209.33  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;
    (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 10 days of his or her 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.1209.34  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.

[[Page 128]]

    (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 30 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, 
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 the 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 or her 
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.1209.53. 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.1209.35  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.



Sec.1209.36  Scheduling and pre-hearing conferences.

    (a) Scheduling conference. After service of a notice of charges 
commencing a proceeding under this part, the presiding officer shall 
order the representative(s) of record for each party, and any party not 
so represented who is appearing pro se, to meet in person or to confer 
by telephone at a specified time within 30 days of service of such 
notice for the purpose of setting the time and place of the testimonial 
hearing on the record to be held within the District of Columbia and 
scheduling the course and conduct of the proceeding (the ``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 also may be determined at the scheduling 
conference.
    (b) Pre-hearing conferences. The presiding officer may, in addition 
to the scheduling conference, on his or her own motion or at the request 
of any party, direct representatives for the parties to meet with (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;

[[Page 129]]

    (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 or her discretion, may 
require that a scheduling or pre-hearing conference be recorded by a 
court reporter. Any transcript of the conference and any materials 
filed, including orders, become part of the record of the proceeding. A 
party may obtain a copy of a transcript at such party's expense.
    (d) Scheduling or pre-hearing orders. Within a reasonable time 
following the 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 
made.



Sec.1209.37  Pre-hearing submissions.

    (a) General. 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) 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 
exhibit may be introduced at the hearing that is not listed in the pre-
hearing submissions pursuant to paragraph (a) of this section, except 
for good cause shown.



Sec.1209.38  Hearing subpoenas.

    (a) Issuance. (1) Upon application of a party to the presiding 
officer showing 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 place within the United States or its 
territories and possessions, or as otherwise provided by law, at the 
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 subpart C of this part. 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 10 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.1209.31. A

[[Page 130]]

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.



Sec. Sec.1209.39-1209.49  [Reserved]



Sec.1209.50  Conduct of hearings.

    (a) General rules. (1) Conduct. Hearings shall be conducted in 
accordance with chapter 5 of title 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. FHFA 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. FHFA 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 the order of 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.1209.51  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 (5 U.S.C. 552 et seq.) and other applicable 
law.
    (2) Evidence that would be admissible under the Federal Rules of 
Evidence is admissible in a proceeding conducted pursuant to subpart C 
of this part.
    (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 subpart C of this part if such evidence is 
relevant, material, probative and 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 of any materially relevant 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 FHFA or by

[[Page 131]]

another Federal or State financial institution's 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 or she 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 document to be admitted 
into evidence. Such stipulations must be received in evidence at a 
hearing, are binding on the parties with respect to the matters 
stipulated, and shall be made part of the record.
    (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.1209.32, 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 deposition 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 or related exhibits received 
in evidence at the hearing in accordance with this section shall 
constitute a part of the record.



Sec.1209.52  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 with the presiding 
officer. Any party may file with the presiding officer proposed findings 
of fact, proposed conclusions 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 and line 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) A 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 shall be limited strictly to 
responding to new matters, issues, or arguments raised by another party 
in papers filed in the proceeding. A party who has not filed proposed 
findings of fact and conclusions of law or a post-hearing 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.

[[Page 132]]



Sec.1209.53  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.
1209.52(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 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 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.1209.54  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.1209.53, a party may file with the Director written 
exceptions to the presiding officer's recommended decision, recommended 
findings and conclusions, and 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 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 opposing the 
exceptions within 10 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.1209.55  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 case 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, the Director may order and hear 
oral argument on the

[[Page 133]]

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 and order. (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 to 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 
including findings of fact and an appropriate order of the Director 
shall be served upon each party to the proceeding and as otherwise 
required by statute.
    (3) The Director may modify, terminate, or set aside an order in 
accordance with section 1373(b)(2) of the Safety and Soundness Act (12 
U.S.C. 4633(b)(2)).



Sec.1209.56  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.1209.54 of this part. A 
party must exhaust administrative remedies as a precondition to seeking 
judicial review of any final decision and order issued under this part.



Sec.1209.57  Judicial review; no automatic stay.

    (a) Judicial review. Judicial review of any final order of the 
Director shall be exclusively as provided by section 1374 of the Safety 
and Soundness Act (12 U.S.C. 4634).
    (b) No automatic stay. 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 or 
her 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.



Sec. Sec.1209.58-1209.69  [Reserved]



   Subpart D_Parties and Representational Practice Before the Federal 
              Housing Finance Agency; Standards of Conduct



Sec.1209.70  Scope.

    Subpart D of this part contains rules governing practice by parties 
or their representatives before FHFA. 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 
before FHFA in a representational capacity either in an adjudicatory 
proceeding under this part or in any other matters connected with 
presentations to FHFA 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 
FHFA are not subject to disciplinary proceedings under this subpart.



Sec.1209.71  Definitions.

    Practice before FHFA for the purposes of subpart D of this part, 
includes, but is not limited to, transacting any business with FHFA as 
counsel of record, representative, or agent for any other person, unless 
the Director orders otherwise. Practice before FHFA also includes the 
preparation of any statement, opinion, or other paper by a counsel, 
representative or agent that is filed with FHFA in any certification,

[[Page 134]]

notification, application, report, or other document, with the consent 
of such counsel, representative, or agent. Practice before FHFA does not 
include work prepared for a regulated entity or entity-affiliated party 
solely at the request of such party for use in the ordinary course of 
its business.



Sec.1209.72  Appearance and practice in adjudicatory proceedings.

    (a) Appearance before FHFA 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 or territory of the United States, or the District of 
Columbia, and who is not currently suspended or disbarred from practice 
before FHFA.
    (2) By non-attorneys. An individual may appear on his or her own 
behalf, pro se. 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 FHFA. 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 FHFA, 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 paragraph (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.1209.73  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 also represents a non-party 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.1209.72 of 
this part as follows:
    (1) That the representative has personally and fully discussed the 
possibility of conflicts of interest with each affected party and non-
party; and
    (2) That each affected party and non-party 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.1209.74  Sanctions.

    (a) General rule. Appropriate sanctions may be imposed during the 
course of any proceeding when any party or representative of record has

[[Page 135]]

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, which includes dilatory, 
obstructionist, egregious, contumacious, unethical, or other improper 
conduct at any phase of any proceeding, hearing, or appearance before a 
presiding officer or the Director;
    (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 or her 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 may 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 themself 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.1209.75  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 FHFA or suspend or revoke the privilege to appear or 
practice before FHFA 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 Safety and Soundness Act,

[[Page 136]]

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 applicable law or regulation;
    (v) To have engaged in contemptuous conduct before FHFA;
    (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) through (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 FHFA, 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 FHFA'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 or 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 or territory of the United States, or the 
District of Columbia; any person who has been and remains suspended or 
barred from practice by or 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 FHFA. 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 FHFA 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 FHFA 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 Director a copy thereof, together with any related 
opinion or statement of the agency or tribunal involved.
    (2) Any individual appearing or practicing before FHFA 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 promptly shall file a notice 
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

[[Page 137]]

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 hereunder 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 one year after the applicant's most 
recent application. An applicant for reinstatement for good cause 
hereunder may, in the Director's sole discretion, be afforded a hearing.
    If, however, 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 FHFA upon written application notifying FHFA 
that the grounds have been removed.
    (e) Conferences. (1) General rule. The FHFA counsel of record 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 FHFA 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, except that in proceedings to terminate an 
existing FHFA 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 FHFA 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.



Sec. Sec.1209.76-1209.79  [Reserved]



           Subpart E_Civil Money Penalty Inflation Adjustments



Sec.1209.80  Inflation adjustments.

    The maximum amount of each civil money penalty within FHFA's 
jurisdiction, as set by the Safety and Soundness Act and thereafter 
adjusted in accordance with the Inflation Adjustment Act, is as follows:

------------------------------------------------------------------------
                                                           New adjusted
                                                              maximum
       U.S. Code citation              Description            penalty
                                                              amount
------------------------------------------------------------------------
12 U.S.C. 4636(b)(1)...........  First Tier.............         $11,677
12 U.S.C. 4636(b)(2)...........  Second Tier............          58,383
12 U.S.C. 4636(b)(4)...........  Third Tier (Regulated         2,335,323
                                  Entity or Entity-
                                  Affiliated party).
------------------------------------------------------------------------


[84 FR 9704, Mar. 18, 2019]



Sec.1209.81  Applicability.

    The inflation adjustments set out in Sec.1209.80 shall apply to 
civil money penalties assessed in accordance with the provisions of the 
Safety and Soundness Act, 12 U.S.C. 4636, and subparts B and C of this 
part, for violations occurring after April 17, 2019.

[84 FR 9704, Mar. 18, 2019]

[[Page 138]]



Sec. Sec.1209.82-1209.99  [Reserved]



 Subpart F_Suspension or Removal of an Entity-Affiliated Party Charged 
                               With Felony



Sec.1209.100  Scope.

    Subpart F of this part applies to informal hearings afforded to any 
entity-affiliated party who has been suspended, removed, or prohibited 
from further participation in the business affairs of a regulated entity 
by a notice or order issued by the Director under section 1377(h) of the 
Safety and Soundness Act (12 U.S.C. 4636a(h)).



Sec.1209.101  Suspension, removal, or prohibition.

    (a) Notice of suspension or prohibition. (1) As provided by section 
1377(h)(1) of the Safety and Soundness Act (12 U.S.C. 4636a(h)(1)), if 
an entity-affiliated party is charged in any information, indictment, or 
complaint, with the commission of or participation in a crime that 
involves dishonesty or breach of trust that is punishable by 
imprisonment for more than one year under State or Federal law, the 
Director may, if continued service or participation by such party may 
pose a threat to the regulated entity or impair public confidence in the 
regulated entity, by written notice served upon such party, suspend such 
party from office or prohibit such party from further participation in 
any manner in the conduct of the affairs of any regulated entity.
    (2) In accordance with section 1377(h)(1) of the Safety and 
Soundness Act (12 U.S.C. 4636a(h)(1)), the notice of suspension or 
prohibition is effective upon service. A copy of such notice will be 
served on the relevant regulated entity. The notice will state the basis 
for the suspension and the right of the party to request an informal 
hearing as provided in Sec.1209.102. The suspension or prohibition is 
to remain in effect until the information, indictment, or complaint is 
finally disposed of, or until terminated by the Director, or otherwise 
as provided in paragraph (c) of this section.
    (b) Order of removal or prohibition. As provided by section 
1377(h)(2) of the Safety and Soundness Act (12 U.S.C. 4636a(h)(2)), at 
such time as a judgment of conviction is entered (or pretrial diversion 
or other plea bargain is agreed to) in connection with a crime as 
referred to above in paragraph (a) (the ``conviction''), and the 
conviction is no longer subject to appellate review, the Director may, 
if continued service or participation by such party may pose a threat to 
the regulated entity or impair public confidence in the regulated 
entity, issue an order removing such party from office or prohibiting 
such party from further participation in any manner in the conduct of 
the affairs of the regulated entity without the prior written consent of 
the Director. A copy of such order will be served on the relevant 
regulated entity, at which time the entity-affiliated party shall 
immediately cease to be a director or officer of the regulated entity. 
The notice will state the basis for the removal or prohibition and the 
right of the party to request a hearing as provided in Sec.1209.102.
    (c) Effective period. Unless terminated by the Director, a notice of 
suspension or order of removal issued under section 1377(h)(1) or (2) of 
the Safety and Soundness Act (12 U.S.C. 4636a(h)(1), (2)) shall remain 
effective and outstanding until the completion of any informal hearing 
or appeal provided under section 1377(h)(4) of the Safety and Soundness 
Act (12 U.S.C. 4636a(h)(4)). The pendency of an informal hearing, if 
any, does not stay any notice of suspension or prohibition or order of 
removal or prohibition under subpart F of this part.
    (d) Effect of acquittal. As provided by section 1377(h)(2)(B)(ii) of 
the Safety and Soundness Act (12 U.S.C. 4636a(h)(2)(B)(ii)), a finding 
of not guilty or other disposition of the charge does not preclude the 
Director from instituting removal, suspension, or prohibition 
proceedings under section 1377(a) or (b) of the Safety and Soundness Act 
(12 U.S.C. 4636a(a), (b)).
    (e) Preservation of authority. Action by the Director under section 
1377(h) of the Safety and Soundness Act (12 U.S.C. 4636a(h)), shall not 
be deemed as a predicate or a bar to any other regulatory, supervisory, 
or enforcement action under the Safety and Soundness Act.

[[Page 139]]



Sec.1209.102  Hearing on removal or suspension.

    (a) Hearing requests--(1) Deadline. An entity-affiliated party 
served with a notice of suspension or prohibition or an order of removal 
or prohibition, within 30 days of service of such notice or order, may 
submit to the Director a written request to appear before the Director 
to show that his or her continued service or participation in the 
affairs of the regulated entity will not pose a threat to the interests 
of, or threaten to impair public confidence in, the Enterprises or the 
Banks. The request must be addressed to the Director and sent to the 
Federal Housing Finance Agency at 400 Seventh Street, SW., Eighth Floor, 
Washington, DC 20219, by:
    (i) Overnight U.S. Postal Service delivery or delivery by a reliable 
commercial delivery service for same day or overnight delivery to the 
address stated above; or
    (ii) First class, registered, or certified mail via the U.S. Postal 
Service.
    (2) Waiver of appearance. An entity-affiliated party may elect in 
writing to waive his or her right to appear to make a statement in 
person or through counsel and have the matter determined solely on the 
basis of his or her written submission.
    (b) Form and timing of hearing. (1) Informal hearing. Hearings under 
subpart F of this part are not subject to the formal adjudication 
provisions of the Administrative Procedure Act (5 U.S.C. 554 through 
557), and are not conducted under subpart C of this part.
    (2) Setting of the hearing. Upon receipt of a timely request for a 
hearing, the Director will give written notice and set a date within 30 
days for the entity-affiliated party to appear, personally, or through 
counsel, before the Director or his or her designee(s) to submit written 
materials (or, at the discretion of the Director, oral testimony and 
oral argument) to make the necessary showing under paragraph (a) of this 
section. The entity-affiliated party may submit a written request for 
additional time for the hearing to commence, without undue delay, and 
the Director may extend the hearing date for a specified time.
    (3) Oral testimony. The Director or his or her designee, in his or 
her discretion, may deny, permit, or limit oral testimony in the 
hearing.
    (c) Conduct of the hearing--(1) Hearing officer. A hearing under 
this section may be presided over by the Director or one or more 
designated FHFA employees, except that an officer designated by the 
Director (hearing officer) to conduct the hearing may not have been 
involved in an underlying criminal proceeding, a factually related 
proceeding, or an enforcement proceeding in a prosecutorial or 
investigative role. This provision does not preclude the Director 
otherwise from seeking information on the matters at issue from 
appropriate FHFA staff on an as needed basis consistent with Sec.
1209.101(d)(2).
    (2) Submissions. All submissions of the requestor and FHFA's counsel 
of record must be received by the Director or his or her designee no 
later than 10 days prior to the date set for the hearing. FHFA may 
respond in writing to the requestor's submission and serve the requestor 
(and any other interested party such as the regulated entity) not later 
than the date fixed by the hearing officer for submissions or other time 
period as the hearing officer may require.
    (3) Procedures. (i) Fact finding authority of the hearing officer. 
The hearing officer shall determine all procedural matters under subpart 
F of this part, permit or limit the appearance of witnesses in 
accordance with paragraph (b)(3) of this section, and impose time limits 
as he or she deems reasonable. All oral statements, witness testimony, 
if permitted, and documents submitted that are found by the hearing 
officer to be materially relevant to the proceeding and not unduly 
repetitious may be considered. The hearing officer may question any 
person appearing in the proceeding, and may make any ruling reasonably 
necessary to ensure the full and fair presentation of evidence and to 
facilitate the efficient and effective operation of the proceeding.
    (ii) Statements to an officer. Any oral or written statement made to 
the Director, a hearing officer, or any FHFA employee under subpart F of 
this part

[[Page 140]]

is deemed to be a statement made to a Federal officer or agency within 
the meaning of 18 U.S.C. 1006.
    (iii) Oral testimony. If either the requestor or FHFA counsel of 
record desires to present oral testimony to supplement the party's 
written submission he or she must make a request in writing to the 
hearing officer not later than 10 days prior to the hearing, as provided 
in paragraph (c)(2) of this section, or within a shorter time period as 
permitted by the hearing officer for good cause shown. The request 
should include the name of the individual(s), a statement generally 
descriptive of the expected testimony, and the reasons why such oral 
testimony is warranted. The hearing officer generally will not admit 
witnesses, absent a strong showing of specific and compelling need. 
Witnesses, if admitted, shall be sworn.
    (iv) Written materials. Each party must file a copy of any 
affidavit, memorandum, or other written material to be presented at the 
hearing with the hearing officer and serve copies on any other 
interested party (such as the affected regulated entity) not later than 
10 days prior to commencement of the informal hearing, as provided in 
paragraph (c)(2), or within a shorter time period as permitted by the 
hearing officer for good cause shown.
    (v) Relief. The purpose of the hearing is to determine whether the 
suspension or prohibition from participation in any manner in the 
conduct of the affairs of the regulated entity will be continued, 
terminated, or otherwise modified, or whether the order removing such 
party from office or prohibiting the party from further participation in 
any manner in the conduct of the affairs of the regulated entity will be 
rescinded or otherwise modified.
    (vi) Ultimate question. In deciding on any request for relief from a 
notice of suspension or prohibition, the hearing officer shall not 
consider the ultimate question of guilt or innocence with respect to the 
outstanding criminal charge(s). In deciding on a request for relief from 
a removal order, the hearing officer shall not consider challenges to or 
efforts to impeach the validity of the conviction. In either case, the 
hearing officer may consider facts that show the nature of the events on 
which the conviction or charges were based.
    (4) Record. If warranted under the circumstances of the matter, the 
hearing officer may require that a transcript of the proceedings be 
prepared at the expense of the requesting party. The hearing officer may 
order the record be kept open for a reasonable time following the 
hearing, not to exceed five business days, to permit the filing of 
additional pertinent submissions for the record. Thereafter, no further 
submissions are to be admitted to the record, absent good cause shown.

[76 FR 53607, Aug. 26, 2011,, as amended at 80 FR 80233, Dec. 24, 2015]



Sec.1209.103  Recommended and final decisions.

    (a) Recommended decision--(1) Written recommended decision of the 
hearing officer. Not later than 20 days following the close of the 
hearing (or if the requestor waived a hearing, from the deadline for 
submission of the written materials), the hearing officer will serve a 
copy of the recommended decision on the parties to the proceeding. The 
recommended decision must include a summary of the findings, the 
parties' respective arguments, and support for the determination.
    (2) Five-day comment period. Not later than five business days after 
receipt of the recommended decision, the parties shall submit written 
comments in response to the recommended decision, if any, to the hearing 
officer. The hearing officer shall not grant any extension of the stated 
time for responses to a recommended decision.
    (3) Recommended decision to be transmitted to the Director. The 
hearing officer shall promptly forward the recommended decision, and 
written comments, if any, and the record to the Director for final 
determination.
    (b) Decision of the Director. Within 60 days of the date of the 
hearing, or if the requestor waived a hearing the date fixed for the 
hearing, the Director will notify the entity-affiliated party in writing 
by registered mail of the disposition of his or her request for relief 
from the notice of suspension or prohibition or the order of removal or 
prohibition. The decision will state whether the suspension or 
prohibition will be

[[Page 141]]

continued, terminated, or otherwise modified, or whether the order 
removing such party from any participation in the affairs of the 
regulated entity will be rescinded or otherwise modified. The decision 
will contain a brief statement of the basis for an adverse 
determination. The Director's decision is a final and non-appealable 
order.
    (c) Effect of notice or order. A removal or prohibition by order 
shall remain in effect until terminated by the Director. A suspension or 
prohibition by notice remains in effect until the criminal charge is 
disposed of or until terminated by the Director.
    (d) Reconsideration. A suspended or removed entity-affiliated party 
subsequently may petition the Director to reconsider the final decision 
any time after the expiration of a 12-month period from the date of the 
decision, but no such request may be made within 12 months of a previous 
petition for reconsideration. An entity-affiliated party must submit a 
petition for reconsideration in writing; the petition shall state the 
specific grounds for relief from the notice of suspension or order or 
removal and be supported by a memorandum and any other documentation 
materially relevant to the request for reconsideration. No hearing will 
be held on a petition for reconsideration, and the Director will inform 
the requestor of the disposition of the reconsideration request in a 
timely manner. A decision on a request for reconsideration shall not 
constitute an appealable order.



PART 1211_PROCEDURES--Table of Contents



                          Subpart A_Definitions

Sec.
1211.1 Definitions.

  Subpart B_Waivers, Approvals, Non-Objection Letters, and Regulatory 
                             Interpretations

1211.2 Waivers.
1211.3 Approvals.
1211.4 Non-Objection Letters.
1211.5 Regulatory Interpretations.
1211.6 Submission requirements.

    Authority: 12 U.S.C. 4511(b), 4513(a), 4526.

    Source: 79 FR 64665, Oct. 31, 2014, unless otherwise noted.



                          Subpart A_Definitions



Sec.1211.1  Definitions.

    As used in this part:
    Approval means a written statement issued to a regulated entity or 
the Office of Finance approving a transaction, activity, or item that 
requires FHFA approval under a statute, rule, regulation, policy, or 
order.
    Non-Objection Letter means a written statement issued to a regulated 
entity or the Office of Finance providing that FHFA does not object to a 
proposed transaction or activity.
    Regulatory Interpretation means a written interpretation issued by 
the FHFA General Counsel with respect to the application of a statute, 
rule, regulation, or order to a proposed transaction or activity.
    Requester means an entity that has submitted an application for a 
Waiver or Approval or a request for a Non-Objection Letter or Regulatory 
Interpretation.
    Waiver means a written statement issued by the Director to a 
regulated entity or the Office of Finance that waives a provision, 
restriction, or requirement of an FHFA rule, regulation, policy, or 
order, or a required submission of information, not otherwise required 
by law, in connection with a particular transaction or activity.



  Subpart B_Waivers, Approvals, Non-Objection Letters, and Regulatory 
                             Interpretations



Sec.1211.2  Waivers.

    (a) Authority. The Director reserves the right, in his or her 
discretion and in connection with a particular transaction or activity, 
to waive any provision, restriction, or requirement of this chapter (or 
of any Office of Federal Housing Enterprise Oversight or Federal Housing 
Finance Board regulation), 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

[[Page 142]]

of the provision, restriction, or requirement would adversely affect 
achievement of the purposes of the Authorizing Statutes or the Safety 
and Soundness Act, or upon a requester's showing of good cause. The 
Director also reserves the right to modify, rescind, or supersede any 
previously issued Waiver, with such action being effective only on a 
prospective basis.
    (b) Application. A regulated entity or the Office of Finance may 
apply for a Waiver in accordance with Sec.1211.6.



Sec.1211.3  Approvals.

    (a) Authority. The Deputy Directors for Enterprise Regulation and 
for Federal Home Loan Bank Regulation, or their designees, may grant 
requests submitted by an Enterprise or by a Bank or the Office of 
Finance, respectively, seeking approval of any transaction, activity, or 
item that requires FHFA approval under any applicable statute, rule, 
regulation, policy, or order. The Director reserves the right to modify, 
rescind, or supersede an Approval, with such action being effective only 
on a prospective basis.
    (b) Requests. A regulated entity or the Office of Finance may apply 
for an Approval in accordance with Sec.1211.6, unless alternative 
application procedures are prescribed by the applicable statute, rule, 
regulation, policy, or order for the transaction, activity, or item at 
issue.
    (c) Reservation. The Deputy Directors for Enterprise Regulation and 
for Federal Home Loan Bank Regulation, as appropriate, may, in their 
discretion, prescribe additional or alternative procedures for any 
application for approval of a transaction, activity, or item.



Sec.1211.4  Non-Objection Letters.

    (a) Authority. The Deputy Directors for Enterprise Regulation and 
for Federal Home Loan Bank Regulation, or their designees, may, in their 
discretion, issue to an Enterprise or to a Bank or the Office of 
Finance, respectively, a Non-Objection Letter stating that FHFA does not 
object to a proposed transaction or activity for supervisory, 
regulatory, or policy reasons. The Director reserves the right to 
modify, rescind, or supersede a Non-Objection Letter, with such action 
being effective only on a prospective basis.
    (b) Requests. A regulated entity or the Office of Finance may 
request a Non-Objection Letter in accordance with Sec.1211.6.



Sec.1211.5  Regulatory Interpretations.

    (a) Authority. The General Counsel may, in his or her discretion, 
issue a Regulatory Interpretation to a regulated entity or the Office of 
Finance, providing guidance with respect to the application of any 
applicable statute, rule, regulation, or order to a proposed transaction 
or activity. The Director reserves the right to modify, rescind, or 
supersede a Regulatory Interpretation, with such action being effective 
only on a prospective basis.
    (b) Requests. A regulated entity or the Office of Finance may 
request a Regulatory Interpretation in accordance with Sec.1211.6.



Sec.1211.6  Submission requirements.

    Applications for a Waiver or Approval and requests for a Non-
Objection Letter or Regulatory Interpretation shall comply with the 
requirements of this section and shall pertain to regulatory matters 
relating to the Banks or Enterprises, and not to conservatorship 
matters.
    (a) Filing. Each application or request shall be in writing. A Bank 
or the Office of Finance shall submit its filing to the Deputy Director 
for the Division of Federal Home Loan Bank Regulation, and an Enterprise 
shall submit its filing to the Deputy Director for Enterprise 
Regulation. Applications for regulatory interpretations shall be 
submitted also to the General Counsel.
    (b) Authorization. An application for a Waiver or Approval and a 
request for a Non-Objection Letter or Regulatory Interpretation shall be 
signed by the principal executive officer or other authorized executive 
officer of the regulated entity or by the chairperson of the board of 
directors or authorized executive officer of the Office of Finance, as 
appropriate.
    (c) Information requirements. Each application or request shall 
contain:
    (1) The name of the requester, and the name, title, business 
address, telephone number, and business electronic

[[Page 143]]

mail address, if any, of the official filing the application or request 
on its behalf;
    (2) The name, business address, telephone number, and business 
electronic mail address, if any, of a contact person from whom FHFA 
staff may seek additional information if necessary;
    (3) The section numbers of the particular provisions of the 
applicable statutes or 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 other relevant authorities that the regulated 
entity or Office of Finance believes should be considered in evaluating 
the application or request, including the Authorizing Statutes, Safety 
and Soundness Act, FHFA rules, regulations, policies, orders, judicial 
decisions, administrative decisions, relevant statutory interpretations, 
and policy statements;
    (7) References to any Waivers, Non-Objection Letters, Approvals, or 
Regulatory Interpretations issued 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 
Authorizing Statutes, Safety and Soundness Act, or FHFA regulations, a 
reasoned opinion of counsel supporting the relief or interpretation 
sought and distinguishing any adverse authority;
    (9) Any other 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) Exceptions. In any given matter or class of matters, the 
Director, the Deputy Director for Federal Home Loan Bank Regulation, the 
Deputy Director for Enterprise Regulation, or the General Counsel, as 
appropriate, may accept an application or request that does not comply 
with the requirements of this section, for supervisory reasons or 
administrative efficiency.
    (e) Withdrawal. Once filed, an application or request may be 
withdrawn only upon written request, and only if FHFA has not yet acted 
on the application or request.



PART 1212_POST	EMPLOYMENT RESTRICTION FOR SENIOR EXAMINERS--
Table of Contents



Subpart A [Reserved]

       Subpart B_Post-Employment Restriction for Senior Examiners

Sec.
1212.1 Purpose and scope.
1212.2 Definitions.
1212.3 Post-employment restriction for senior examiners.
1212.4 Waiver.
1212.5 Penalties.

    Authority: 12 U.S.C. 4526, 12 U.S.C. 4517(e).

    Source: 74 FR 51075, Oct. 5, 2009, unless otherwise noted.

Subpart A [Reserved]



       Subpart B_Post-Employment Restriction for Senior Examiners



Sec.1212.1  Purpose and scope.

    This subpart sets forth a one-year post-employment restriction 
applicable to senior examiners of the Federal Housing Finance Agency 
(FHFA). This restriction is in addition to the post-employment 
restriction applicable to employees of FHFA under 12 U.S.C. 4523.



Sec.1212.2  Definitions.

    For purposes of subpart B of this part, the term:
    Consultant means a person who works directly on matters for, or on 
behalf of, a regulated entity or the Office of Finance.

[[Page 144]]

    Director means the Director of FHFA or his or her designee.
    Employee means an officer or employee of FHFA, including a special 
Government employee.
    Federal Home Loan Bank or Bank means a Bank established under the 
Federal Home Loan Bank Act; the term ``Federal Home Loan Banks'' means, 
collectively, all the Federal Home Loan Banks.
    Office of Finance means the Office of Finance of the Federal Home 
Loan Bank System, or any successor thereto.
    Regulated entity means the Federal National Mortgage Association and 
any affiliate thereof, the Federal Home Loan Mortgage Corporation and 
any affiliate thereof, any Federal Home Loan Bank; the term ``regulated 
entities'' means, collectively, the Federal National Mortgage 
Association and any affiliate thereof, the Federal Home Loan Mortgage 
Corporation and any affiliate thereof, and the Federal Home Loan Banks.
    Safety and Soundness Act means the Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992, as amended by the Federal 
Housing Finance Regulatory Reform Act of 2008, Division A of the Housing 
and Economic Recovery Act of 2008, Public Law No. 110-289, 122 Stat. 
2654 (2008).
    Senior examiner means an employee of FHFA who has been:
    (1) Authorized by FHFA to conduct examinations or inspections on 
behalf of FHFA;
    (2) Assigned continuing, broad and lead responsibility for examining 
a regulated entity or the Office of Finance; and
    (3) Assigned responsibilities for examining, inspecting and 
supervising the regulated entity or the Office of Finance that--
    (i) Represents a substantial portion of the employee's assigned 
responsibilities; and
    (ii) Requires the employee to interact routinely with officers or 
employees of the regulated entity or the Office of Finance.



Sec.1212.3  Post-employment restriction for senior examiners.

    (a) Prohibition. An employee of FHFA who serves as the senior 
examiner of a regulated entity or the Office of Finance for two or more 
months during the last 12 months of his or her employment with FHFA may 
not, within one year after leaving the employment of FHFA, knowingly 
accept compensation as an employee, officer, director, or consultant 
from a regulated entity or the Office of Finance unless the Director 
grants a waiver pursuant to Sec.1212.4.
    (b) Effective date. The post-employment restriction in paragraph (a) 
of this section shall not apply to any officer or employee of FHFA or 
any former officer or employee of FHFA who ceased to be an officer or 
employee of FHFA before November 4, 2009.



Sec.1212.4  Waiver.

    At the written request of a senior examiner or former senior 
examiner, the Director may waive the post-employment restriction in 
Sec.1212.3 if he or she certifies, in writing, and on a case-by-case 
basis, that granting a waiver of such restriction does not affect the 
integrity of the supervisory program of FHFA.



Sec.1212.5  Penalties.

    (a) General. A senior examiner who, after leaving the employment of 
FHFA, violates the restriction set forth in Sec.1212.3 shall be 
subject to one or both of the following penalties--
    (1) An order:
    (i) Removing the individual from office at the regulated entity or 
the Office of Finance or prohibiting the individual from further 
participation in the affairs of the relevant regulated entity or the 
Office of Finance for a period of up to five years; and
    (ii) Prohibiting the individual from participating in the affairs of 
any regulated entity or the Office of Finance for a period of up to five 
years; and/or
    (2) A civil money penalty of not more than $250,000.
    (b) Other penalties. The penalties set forth in paragraph (a) of 
this section are not exclusive, and a senior examiner who violates the 
restrictions in

[[Page 145]]

Sec.1212.3 also may be subject to other administrative, civil, or 
criminal remedies or penalties as provided in law.
    (c) Procedural rights. The procedures applicable to actions under 
paragraph (a) of this section are those provided in the Safety and 
Soundness Act under section 1376, in connection with the imposition of a 
civil money penalty; under section 1377, in connection with a removal 
and prohibition order (12 U.S.C. 4636 and 4636a, respectively); and 
under any regulations issued by FHFA implementing such procedures.



PART 1213_OFFICE OF THE OMBUDSMAN--Table of Contents



Sec.
1213.1 Purpose and scope.
1213.2 Definitions.
1213.3 Authorities and duties of the Ombudsman.
1213.4 Complaints and appeals from a regulated entity or the Office of 
          Finance.
1213.5 Complaints from a person.
1213.6 No retaliation.
1213.7 Confidentiality.

    Authority: 12 U.S.C. 4511(b)(2), 4517(i), and 4526.

    Source: 76 FR 7481, Feb 10, 2011, unless otherwise noted.



Sec.1213.1  Purpose and scope.

    (a) Purpose. The purpose of this part is to establish within FHFA 
the Office of the Ombudsman (Office) under section 1317(i) of the 
Federal Housing Enterprises Financial Safety and Soundness Act of 1992 
(12 U.S.C. 4517(i)), as amended, and to set forth the authorities and 
duties of the Ombudsman.
    (b) Scope. (1) This part applies to complaints and appeals from any 
regulated entity and any person that has a business relationship with a 
regulated entity regarding any matter relating to the regulation and 
supervision of such regulated entity or the Office of Finance by FHFA.
    (2) The establishment of the Office does not alter or limit any 
other right or procedure associated with appeals, complaints, or 
administrative matters submitted by a person regarding any matter 
relating to the regulation and supervision of a regulated entity or the 
Office of Finance under any other law or regulation.



Sec.1213.2  Definitions.

    For purposes of this part, the term:
    Business relationship means any existing or potential interaction 
between a person and a regulated entity or the Office of Finance for the 
provision of goods or services. The term business relationship does not 
include any interaction between a mortgagor and a regulated entity that 
directly or indirectly owns, purchased, guarantees, or sold the 
mortgage.
    Director means the Director of FHFA or his or her designee.
    FHFA means the Federal Housing Finance Agency.
    Office of Finance means the Office of Finance of the Federal Home 
Loan Bank System.
    Person means an organization, business entity, or individual that 
has a business relationship with a regulated entity or the Office of 
Finance, or that represents the interests of a person that has a 
business relationship with a regulated entity or the Office of Finance. 
The term person does not include an individual borrower.
    Regulated entity means the Federal National Mortgage Association and 
any affiliate, the Federal Home Loan Mortgage Corporation and any 
affiliate, and any Federal Home Loan Bank.



Sec.1213.3  Authorities and duties of the Ombudsman.

    (a) General. The Office shall be headed by an Ombudsman, who shall 
consider complaints and appeals from any regulated entity, the Office of 
Finance, and any person that has a business relationship with a 
regulated entity or the Office of Finance regarding any matter relating 
to the regulation and supervision of such regulated entity or the Office 
of Finance by FHFA. In considering any complaint or appeal under this 
part, the Ombudsman shall:
    (1) Conduct inquiries and submit findings of fact and 
recommendations to the Director concerning resolution of the complaint 
or appeal, and
    (2) Act as a facilitator or mediator to advance the resolution of 
the complaint or appeal.
    (b) Other duties. The Ombudsman shall:

[[Page 146]]

    (1) Establish procedures for carrying out the functions of the 
Office,
    (2) Establish and publish procedures for receiving and considering 
complaints and appeals, and
    (3) Report annually to the Director on the activities of the Office, 
or more frequently, as determined by the Director.



Sec.1213.4  Complaints and appeals from a regulated entity or the 
Office of Finance.

    (a) Complaints. (1) General. Any regulated entity or the Office of 
Finance may submit a complaint in accordance with procedures established 
by the Ombudsman.
    (2) Matters subject to complaint. A regulated entity or the Office 
of Finance may submit a complaint regarding any matter relating to the 
regulation and supervision of a regulated entity or the Office of 
Finance by FHFA that is not subject to appeal or in litigation, 
arbitration, or mediation. The Ombudsman may further define what matters 
are subject to complaint.
    (b) Appeals. (1) General. Any regulated entity or the Office of 
Finance may submit an appeal in accordance with procedures established 
by the Ombudsman.
    (2) Matters subject to appeal. A regulated entity or the Office of 
Finance may submit an appeal regarding any final, written regulatory or 
supervisory conclusion, decision, or examination rating by FHFA. The 
Ombudsman may further define what matters are subject to appeal.
    (3) Matters not subject to appeal. Matters for which there is an 
existing avenue of appeal or for which there is another forum for 
appeal; non-final decisions or conclusions; and matters in ongoing 
litigation, arbitration, or mediation, unless there has been a breakdown 
in the process, may not be appealed. Matters not subject to appeal 
include, but are not limited to, appointments of conservators or 
receivers, preliminary examination conclusions, formal enforcement 
decisions, formal and informal rulemakings, Freedom of Information Act 
appeals, final FHFA decisions subject to judicial review, and matters 
within the jurisdiction of the FHFA Inspector General. The Ombudsman may 
further define what matters are not subject to appeal.
    (4) Effect of filing an appeal. An appeal under this section does 
not excuse a regulated entity or the Office of Finance from complying 
with any regulatory or supervisory decision while the appeal is pending. 
However, the Director, upon consideration of a written request, may 
waive compliance with a regulatory or supervisory decision during the 
pendency of the appeal.



Sec.1213.5  Complaints from a person.

    (a) General. Any person that has a business relationship with a 
regulated entity or the Office of Finance may submit a complaint in 
accordance with procedures established by the Ombudsman.
    (b) Matters subject to complaint. A person may submit a complaint 
regarding any matter relating to the regulation and supervision of a 
regulated entity or the Office of Finance by FHFA that is not a matter 
in litigation, arbitration, or mediation. The Ombudsman may further 
define what matters are subject to complaints.



Sec.1213.6  No retaliation.

    Neither FHFA nor any FHFA employee may retaliate against a regulated 
entity, the Office of Finance, or a person for submitting a complaint or 
appeal under this part. The Ombudsman shall receive and address claims 
of retaliation. Upon receiving a complaint, the Ombudsman, in 
coordination with the Inspector General, shall examine the basis of the 
alleged retaliation. Upon completion of the examination, the Ombudsman 
shall report the findings to the Director with recommendations, 
including a recommendation to take disciplinary action against any FHFA 
employee found to have retaliated.



Sec.1213.7  Confidentiality.

    The Ombudsman shall ensure that safeguards exist to preserve 
confidentiality. If a party requests that information and materials 
remain confidential, the Ombudsman shall not disclose the information or 
materials, without

[[Page 147]]

approval of the party, except to appropriate reviewing or investigating 
officials, such as the Inspector General, or as required by law. 
However, the resolution of certain complaints (such as complaints of 
retaliation against a regulated entity or the Office of Finance) may not 
be possible if the identity of the party remains confidential. In such 
cases, the Ombudsman shall discuss with the party the circumstances 
limiting confidentiality.



PART 1214_AVAILABILITY OF NON-PUBLIC INFORMATION--Table of Contents



Sec.
1214.1 Definitions.
1214.2 Purpose and scope.
1214.3 General rule.
1214.4 Exceptions.

    Authority: 5 U.S.C. 301, 552; 12 U.S.C. 4501, 4513, 4522, 4526, 
4639.

    Source: 78 FR 39958, July 3, 2013, unless otherwise noted.



Sec.1214.1  Definitions.

    Confidential supervisory information means information prepared or 
received by FHFA that meets all of the following criteria:
    (1) The information is not a document prepared by a regulated entity 
or the Office of Finance for its own business purposes that is in its 
possession;
    (2) The information is exempt from the Freedom of Information Act, 5 
U.S.C. 552 (1966); and
    (3) The information--(i) Consists of reports of examination, 
inspection and visitation, confidential operating and condition reports, 
and any information derived from, related to, or contained in such 
reports, or
    (ii) Is gathered by FHFA in the course of any investigation, 
suspicious activity report, cease-and-desist order, civil money penalty 
enforcement order, suspension, removal or prohibition order, or other 
supervisory or enforcement orders or actions taken under the Federal 
Housing Enterprises Financial Safety and Soundness Act of 1992, Public 
Law 102-550, 122 Stat. 2654.
    Disclosure means release or divulgence of information by any person 
to a person outside of FHFA.
    FHFA employee means strictly for the purpose of this regulation, any 
person employed by FHFA, including any current or former officer, 
intern, agent, contractor or contractor personnel, or detailee of FHFA, 
and any person employed by the FHFA Office of the Inspector General 
(FHFA-OIG), including any current or former officer, intern, agent, 
contractor or contractor personnel, or detailee of FHFA-OIG.
    Non-public information means information that FHFA has not made 
public that is created by, obtained by, or communicated to an FHFA 
employee in connection with the performance of official duties, 
regardless of who is in possession of the information. This includes 
confidential supervisory information as defined above. It does not 
include information or documents that FHFA has disclosed under the 
Freedom of Information Act (5 U.S.C. 552; 12 CFR part 1202), or Privacy 
Act of 1974 (5 U.S.C. 552a; 12 CFR part 1204). It also does not include 
specific information or documents that were previously disclosed to the 
public at large or information or documents that are customarily 
furnished to the public at large in the course of the performance of 
official FHFA duties, including but not limited to: Disclosures made by 
the Director pursuant to 24 CFR subpart F, and any FHFA successor rules; 
the annual report that FHFA submits to Congress pursuant to the Federal 
Housing Enterprises Financial Safety and Soundness Act of 1992 (12 
U.S.C. 4501 et seq.), press releases, FHFA blank forms, and materials 
published in the Federal Register.
    Person means individual or business entity.



Sec.1214.2  Purpose and scope.

    (a) Purpose. The purpose of this part is to control the 
dissemination of non-public information, which includes confidential 
supervisory information, and maintain its controlled, sensitive, 
privileged, or proprietary nature, as appropriate.
    (b) Scope. This part imposes a broad-based prohibition against 
unauthorized disclosure of any non-public information. This part does 
not supersede the regulations at 12 CFR part 1202 (governing disclosure 
under the Freedom of Information Act); 12 CFR part 1204

[[Page 148]]

(governing disclosure under the Privacy Act); and the sections 
describing permitted disclosures in any FHFA rules on Federal Home Loan 
Bank Information Sharing or on the FHFA Public Use Database.
    (c) These provisions also do not supersede or otherwise alter the 
rights or liabilities created by 5 U.S.C. 7211 (governing disclosures to 
Congress); 5 U.S.C. 2302(b)(8) (governing disclosures of illegality, 
waste, fraud, abuse, or public health or safety threats); or 12 U.S.C. 
3401 (governing disclosure of financial institution customer 
information).



Sec.1214.3  General rule.

    (a) In general, Non-FHFA Employees. The Director makes available to 
each regulated entity a copy of FHFA's report of examination of that 
regulated entity. The report of examination and all other confidential 
supervisory information is the property of FHFA and is provided to the 
regulated entity for its confidential internal use only. Under no 
circumstance shall any person in possession or control of confidential 
supervisory information make public or disclose, in any manner, the 
confidential supervisory information, or any portion of the contents 
thereof, except as authorized in writing by the Director.
    (b) In general, FHFA Employees. Except as authorized in writing by 
the Director, no FHFA employee in possession or control of non-public 
information may disclose or permit the use or disclosure of such 
information in any manner or for any purpose.
    (c) Persons possessing confidential supervisory information. All 
confidential supervisory information, for which the Director authorizes 
disclosure, remains the property of FHFA and may not be used or 
disclosed for any purpose other than that authorized under this part 
without the prior written permission of the Director.
    (d) No Waiver. FHFA's disclosure of non-public information to any 
person does not constitute a waiver by FHFA of any privilege or FHFA's 
right to control, supervise, or impose limitations on, the subsequent 
use and disclosure of the non-public information.
    (e) Penalties, Confidential Supervisory Information. Any person that 
discloses or uses confidential supervisory information except as 
authorized under this part may be subject to the penalties provided in 
18 U.S.C. 641 and other applicable laws. In addition to those penalties, 
FHFA, regulated entity, Office of Finance, affiliate (as defined in 12 
U.S.C. 4502(20)), or entity-affiliated party (as defined in 12 U.S.C. 
4502(11)) employees may be subject to appropriate administrative, 
enforcement, or disciplinary proceedings.
    (f) Penalties, Non-Public Information. Any FHFA employee that 
discloses or uses non-public information except as authorized under this 
part may be subject to the penalties provided in 18 U.S.C. 641, other 
applicable laws, and appropriate administrative, enforcement, or 
disciplinary proceedings.



Sec.1214.4  Exceptions.

    (a) FHFA Employees. Current FHFA employees may disclose or permit 
the disclosure of non-public information to another FHFA employee or 
regulated entity or the Office of Finance, when necessary and 
appropriate, for the performance of their official duties.
    (b) Regulated Entity Agents and Consultants. (1) When necessary and 
appropriate for regulated entity or Office of Finance business purposes, 
a regulated entity, the Office of Finance, or any director, officer, or 
employee thereof may disclose confidential supervisory information to 
any person currently engaged by the regulated entity or the Office of 
Finance, as officer, director, employee, attorney, auditor, or 
independent auditor (``regulated entity agents'').
    (2) A regulated entity, the Office of Finance, or a director, 
officer, employee, or agent thereof, also may disclose confidential 
supervisory information to a consultant under this paragraph if the 
consultant is under a written contract to provide services to the 
regulated entity or the Office of Finance and the consultant has agreed 
in writing:
    (i) To abide by the prohibition on the disclosure of confidential 
supervisory information contained in this section; and

[[Page 149]]

    (ii) That it will not use the confidential supervisory information 
for any purposes other than those stated in its contract to provide 
services to the regulated entity or the Office of Finance.
    (c) Law Enforcement Proceedings. Notwithstanding the general 
prohibition of disclosure of non-public information, to the minimum 
extent required by the Inspector General Act, Public Law 95-452, 92 
Stat. 1101 (1978), FHFA's Office of Inspector General is permitted under 
this section to disclose non-public FHFA information without Director 
approval.
    (d) Privilege. FHFA retains all privilege claims for non-public 
information shared under Sec.1214.4, including, but not limited to 
attorney-client, attorney-work product, deliberative process, and 
examination privileges.



PART 1215_PRODUCTION OF FHFA RECORDS, INFORMATION, AND EMPLOYEE 
TESTIMONY IN THIRD-PARTY LEGAL PROCEEDINGS--Table of Contents



Sec.
1215.1 Scope and purpose.
1215.2 Applicability.
1215.3 Definitions.
1215.4 General prohibition.
1215.5 Delegation.
1215.6 Factors FHFA may consider.
1215.7 Serving demands and submitting requests.
1215.8 Timing and form of demands and requests.
1215.9 Failure to meet this part's requirements.
1215.10 Processing demands and requests.
1215.11 FHFA determination.
1215.12 Restrictions that apply to testimony.
1215.13 Restrictions that apply to records and information.
1215.14 Procedure in the event of an adverse FHFA determination.
1215.15 Conflicting court order.
1215.16 Fees.
1215.17 Responses to demands served on nonemployees.
1215.18 Inspector General.

    Authority: 5 U.S.C. 301; 12 U.S.C. 4526.

    Source: 78 FR 39961, July 3, 2013, unless otherwise noted.



Sec.1215.1  Scope and purpose.

    (a) This regulation sets forth the policies and procedures that must 
be followed in order to compel an employee of the Federal Housing 
Finance Agency (FHFA) to produce records or information, or to provide 
testimony relating to the employee's official duties, in the context of 
a legal proceeding. Parties seeking records, information, or testimony 
must comply with these requirements when submitting demands or requests:
    (b) FHFA intends these provisions to:
    (1) Promote economy and efficiency in its programs and operations;
    (2) Minimize the possibility of involving FHFA in controversial 
issues not related to its mission and functions;
    (3) Maintain FHFA's impartiality;
    (4) Protect employees from being compelled to serve as involuntary 
witnesses for wholly private interests, or as inappropriate expert 
witnesses regarding current law or the activities of FHFA; and
    (5) Protect sensitive, confidential information and FHFA's 
deliberative processes.
    (c) By providing these policies and procedures, FHFA does not waive 
the sovereign immunity of the United States.
    (d) This part provides guidance for FHFA's internal operations. This 
part does not create any right or benefit, substantive or procedural, 
that a party may rely upon in any legal proceeding against the United 
States.
    (e) The production of records, information, or testimony pursuant to 
this part, does not constitute a waiver by FHFA of any privilege.



Sec.1215.2  Applicability.

    (a) This regulation applies to demands or requests for records, 
information, or testimony, in legal proceedings in which FHFA is not a 
named party.
    (b) This regulation does not apply to:
    (1) Demands or requests for an FHFA employee to testify as to facts 
or events that are unrelated to his or her official duties or that are 
unrelated to the functions of FHFA;
    (2) Requests for the release of non-exempt records under the Freedom 
of Information Act, 5 U.S.C. 552, or the Privacy Act, 5 U.S.C. 552a; or
    (3) Congressional demands or requests for records or testimony.

[[Page 150]]



Sec.1215.3  Definitions.

    As used in this part:
    Confidential supervisory information means information prepared or 
received by FHFA that meets all of the following criteria:
    (1) The information is not a document prepared by a regulated entity 
or the Office of Finance for its own business purposes that is in its 
possession;
    (2) The information is exempt from the Freedom of Information Act, 5 
U.S.C. 552 (1966); and
    (3) The information:
    (i) Consists of reports of examination, inspection and visitation, 
confidential operating and condition reports, and any information 
derived from, related to, or contained in such reports, or
    (ii) Is gathered by FHFA in the course of any investigation, 
suspicious activity report, cease-and-desist order, civil money penalty 
enforcement order, suspension, removal or prohibition order, or other 
supervisory or enforcement orders or actions taken under the Federal 
Housing Enterprises Financial Safety and Soundness Act of 1992, as 
amended, 12 U.S.C. 4501 et seq.
    (4) The inclusion of the term ``confidential'' within the definition 
of ``confidential supervisory information'' is not intended to invoke 
the meaning of ``confidential,'' as that term is used in Executive Order 
No. 13526, December 29, 2009 (75 FR 707 (Jan. 5, 2010) (President's 
order on the classification of National Security Information). 
Confidential supervisory information is used in part 1215 to refer to 
the distinct category of information defined in Sec.1215.3. FHFA used 
the word ``confidential'' within the label for this category of 
information simply to be consistent with the manner in which federal 
banking agencies refer to similar or identical types of information.
    Demand means a subpoena, or an order or other command of a court or 
other competent authority, for the production of records, information, 
or testimony that is issued in a legal proceeding.
    Employee means:
    (1) Any current or former officer or employee of FHFA or of FHFA-
OIG;
    (2) Any other individual hired through contractual agreement by or 
on behalf of FHFA who has performed or is performing services under such 
an agreement for FHFA; and
    (3) Any individual who has served or is serving in any consulting or 
advisory capacity to FHFA, whether formal or informal.
    Federal Home Loan Bank means a bank established under the authority 
of 12 U.S.C. 1423(a).
    FHFA means the Federal Housing Finance Agency including the FHFA-
OIG.
    FHFA Counsel means an attorney in FHFA's Office of General Counsel.
    General Counsel means FHFA's General Counsel or a person within 
FHFA's Office of General Counsel to whom the General Counsel has 
delegated responsibilities under this part.
    Legal proceeding means any matter before a court of law, 
administrative board or tribunal, commission, administrative law judge, 
hearing officer, or other body that conducts a legal or administrative 
proceeding. Legal proceeding includes all phases of litigation.
    Produce means provide, disclose, expose, or grant access to.
    Records or information means, regardless of the person or entity in 
possession:
    (1) All documents and materials that are FHFA agency records under 
the Freedom of Information Act, 5 U.S.C. 552;
    (2) All other documents and materials contained in FHFA files; and
    (3) All other information or materials acquired by an FHFA employee 
in the performance of his or her official duties or because of his or 
her official status, including confidential supervisory information.
    Regulated entity has the same meaning as set forth in 12 U.S.C. 
4502(20). For this regulation's purposes, ``regulated entity'' also 
includes:
    (1) The Office of Finance; and
    (2) Any current or former director, officer, employee, contractor or 
agent of a regulated entity.
    Request means any informal request, by whatever method, in 
connection with a legal proceeding, seeking production of records, 
information, or testimony that has not been ordered by a court or other 
competent authority.

[[Page 151]]

    Testimony means any written or oral statements, including 
depositions, answers to interrogatories, affidavits, declarations, and 
recorded interviews made by an individual about FHFA information in 
connection with a legal proceeding.



Sec.1215.4  General prohibition.

    (a) No employee may produce records or information, or provide any 
testimony related to the records or information, in response to any 
demand or request without prior written approval to do so from the 
Director or the Director's designee.
    (b) Any person or entity that fails to comply with this part may be 
subject to the penalties provided in 18 U.S.C. 641 and other applicable 
laws. A current employee also may be subject to administrative or 
disciplinary proceedings.



Sec.1215.5  Delegation.

    To the extent permissible by statute, the Director may delegate his 
or her authority under this part to any FHFA employee and the General 
Counsel may delegate his or her authority under this part to any FHFA 
Counsel.



Sec.1215.6  Factors FHFA may consider.

    The Director may grant an employee permission to testify regarding 
agency matters, and to produce records and information, in response to a 
demand or request. Among the relevant factors that the Director may 
consider in making this determination are whether:
    (a) This part's purposes are met;
    (b) FHFA has an interest in the decision that may be rendered in the 
legal proceeding;
    (c) Approving the demand or request would assist or hinder FHFA in 
performing statutory duties or use FHFA resources;
    (d) Production might assist or hinder employees in doing their work;
    (e) The records, information, or testimony can be obtained from 
other sources. (Concerning testimony, ``other sources'' means a non-
agency employee, or an agency employee other than the employee named).
    (f) The demand or request is unduly burdensome or otherwise 
inappropriate under the rules of discovery or procedure governing the 
case or matter in which the demand or request arose;
    (g) Production of the records, information, or testimony might 
violate or be inconsistent with a statute, Executive Order, regulation, 
or other legal authority;
    (h) Production of the records, information, or testimony might 
reveal confidential or privileged information, trade secrets, or 
confidential commercial or financial information;
    (i) Production of the records, information, or testimony might 
impede or interfere with an ongoing law enforcement investigation or 
proceedings, or compromise constitutional rights;
    (j) Production of the records, information, or testimony might 
result in FHFA appearing to favor one litigant over another;
    (k) The demand or request pertains to documents that were produced 
by another agency;
    (l) The demand or request complies with all other applicable rules;
    (m) The demand or request is sufficiently specific to be answered;
    (n) The relevance of the records, information, or testimony to the 
purposes for which they are sought, and for which they may be used for 
substantive evidence;
    (o) Production of the records, information, or employee testimony 
may implicate a substantial government interest; and
    (p) Any other good cause.



Sec.1215.7  Serving demands and submitting requests.

    (a) All demands and requests must be in writing.
    (b) Demands must be served and requests must be submitted to the 
FHFA General Counsel at the following address: General Counsel, Federal 
Housing Finance Agency, Constitution Center, Eighth Floor, 400 Seventh 
Street SW., Washington, DC 20219.
    (c) Demands must not be served upon, nor requests submitted to any 
regulated entity for records, information, or testimony regardless of 
whether the records, information, or testimony sought are in the 
possession of, or known by, the regulated entity. If a regulated entity 
receives a request or demand for records, information, or

[[Page 152]]

testimony, the regulated entity must immediately notify the General 
Counsel and provide FHFA an opportunity to object to the demand or 
request before responding to the demand or request. Submitting a demand 
or request to a regulated entity may result in rejection of the demand 
or request under Sec.1215.9.
    (d) If an employee receives a request or demand that is not properly 
routed through FHFA's General Counsel, as required under this section, 
the employee must promptly notify the General Counsel. An employee's 
failure to notify the General Counsel is grounds for discipline or other 
adverse action.

[78 FR 39961, July 3, 2013, as amended at 80 FR 80233, Dec. 24, 2015]



Sec.1215.8  Timing and form of demands and requests.

    (a) A party seeking records, information, or testimony must submit a 
request and receive a rejection before making a demand for records, 
information, or testimony.
    (b) A demand or request to FHFA must include a detailed description 
of the basis for the demand or request and comply with the requirements 
in Sec.1215.7.
    (c) Demands and requests must be submitted at least 60 days in 
advance of the date on which the records, information, or testimony is 
needed. Exceptions to this requirement may be granted upon a showing of 
compelling need.
    (d) A demand or request for testimony also must include an estimate 
of the amount of time that the employee will need to devote to the 
process of testifying (including anticipated travel time and anticipated 
duration of round trip travel), plus a showing that no document or the 
testimony of non-agency persons, including retained experts, could 
suffice in lieu of the employee's testimony.
    (e) Upon submitting a demand or request seeking employee testimony, 
the requesting party must notify all other parties to the legal 
proceeding.
    (f) After receiving notice of a demand or request for testimony, but 
before the testimony occurs, a party to the legal proceeding who did not 
join in the demand or request and who wishes to question the witness 
beyond the scope of the testimony sought must submit a separate demand 
or request within 60 days of receiving the notice required under 
paragraph (e) of this section and must then comply with paragraph (c) of 
this section.
    (g) Every demand or request must include the legal proceeding's 
caption and docket number, the forum; the name, address, phone number, 
State Bar number, and, if available, electronic mail address of counsel 
to all parties to the legal proceeding (in the case of pro-se parties, 
substitute the name, address, phone number, and electronic mail address 
of the pro-se party); and a statement of the demanding or requesting 
party's interest in the case. In addition, the demanding or requesting 
party must submit a clear and concise written statement that includes: a 
summary of the legal and factual issues in the proceeding and a detailed 
explanation as to how the records, information or testimony will 
contribute substantially to the resolution of one or more specially 
identified issues in the legal proceeding. A copy of the complaint or 
charging document may accompany--but must not be substituted for--the 
required statement.



Sec.1215.9  Failure to meet this part's requirements.

    FHFA may oppose any demand or request that does not meet the 
requirements set forth in this part.



Sec.1215.10  Processing demands and requests.

    (a) The Director will review every demand or request received and, 
in accordance with this regulation, determine whether, and under what 
conditions, to authorize an employee to produce records, information, or 
testimony.
    (b) The Director will process demands and requests in the order in 
which they are received. The Director will ordinarily respond within 60 
days from the date that the agency receives all information necessary to 
evaluate the demand or request. However, the time for response will 
depend upon the scope of the demand or request. The Director may respond 
outside of the 60-day period:

[[Page 153]]

    (1) Under exigent or unusual circumstances; or
    (2) When FHFA must receive and process records or information in the 
possession, custody, or control of a third party.
    (c) The Director may confer with counsel to parties to a legal 
proceeding about demands or requests made pursuant to this part. The 
conference may be ex-parte. Failure to confer in good faith, in order to 
enable the Director to make an informed determination, may justify 
rejection of the demand or request.
    (d) The Director may rely on sources of information other than those 
provided by the demanding or requesting parties as bases for making a 
determination.
    (e) The Director may grant a waiver of any requirement in this 
section to promote a significant interest of FHFA or the United States, 
or for other good cause.



Sec.1215.11  FHFA determination.

    (a) The Director makes FHFA's determinations regarding demands and 
requests.
    (b) The Director will notify the demanding or requesting party of 
FHFA's determination, the reasons for the approval or rejection of the 
demand or request, and any conditions that the Director may impose on 
the release of records, information, or testimony.



Sec.1215.12  Restrictions that apply to testimony.

    (a) The Director may impose conditions or restrictions on testimony, 
including but not limited to limiting the scope of testimony or 
requiring the demanding or requesting party and other parties to the 
legal proceeding to agree that the testimony transcript will be kept 
under seal or will only be used or made available in the particular 
legal proceeding for which testimony was requested. The Director may 
also require a copy of the transcript of testimony to be provided to 
FHFA at the demanding or requesting party's expense.
    (b) The Director may offer an employee's written declaration in lieu 
of testimony.
    (c) If authorized to testify pursuant to this part, an employee may 
testify as to facts within his or her personal knowledge, but, unless 
specifically authorized to do so by the Director, the employee must not:
    (1) Disclose confidential or privileged information; or
    (2) Testify as an expert or opinion witness with regard to any 
matter arising out of the employee's official duties or FHFA's mission 
or functions. This provision does not apply to requests from the United 
States for expert or opinion testimony.
    (d) The Director may assign FHFA Counsel to be present for an 
employee's testimony.



Sec.1215.13  Restrictions that apply to records and information.

    (a) The Director may impose conditions or restrictions on the 
release of records and information, including but not limited to 
requiring that parties to the legal proceeding obtain a protective order 
or execute a confidentiality agreement to limit access and further 
disclosure, or that parties take other appropriate steps to comply with 
applicable privacy requirements. The terms of a protective order or 
confidentiality agreement must be acceptable to the Director. In cases 
where protective orders or confidentiality agreements have already been 
executed, the Director may condition the release of records and 
information on an amendment to the existing protective order or 
confidentiality agreement.
    (b) If the Director so determines, original agency records may be 
presented for examination in response to a demand or request, but they 
are not to be presented as evidence or otherwise used in a manner by 
which they could lose their status as original records, nor are they to 
be marked or altered. In lieu of the original records, certified copies 
will be presented for evidentiary purposes.
    (c) The scope of permissible production is limited to that set forth 
in the prior, written authorization granted by the Director.
    (d) If records or information are produced in connection with a 
legal proceeding, the demanding or requesting party must:
    (1) Promptly notify all other parties to the legal proceeding that 
the records

[[Page 154]]

or information are FHFA records or information and are subject to this 
part and any applicable confidentiality agreement or protective order;
    (2) Provide copies of any confidentiality agreement or protective 
order to all other parties; and
    (3) Retrieve the records or information from the court or other 
competent authority's file when the court or other competent authority 
no longer requires the records or information and certify that every 
party covered by a confidentiality agreement, protective order, or other 
privacy protection has destroyed all copies of the records or 
information.



Sec.1215.14  Procedure in the event of an adverse FHFA determination.

    (a) Procedure for seeking reconsideration of FHFA's determination. A 
demanding or requesting party seeking reconsideration of FHFA's 
rejection of a demand or request, or of any restrictions on receiving 
records, information, or testimony, may seek reconsideration of the 
rejection or restrictions as follows:
    (1) Notice of Intention to Petition for Reconsideration. The 
aggrieved demanding or requesting party may seek reconsideration by 
filing a written Notice of Intention to Petition for Reconsideration 
(Notice) within 10 business days of the date of FHFA's determination. 
The Notice must identify the petitioner, the determination for which 
reconsideration is being petitioned, and any dates (such as deposition, 
hearing, or court dates) that are significant to petitioner. The Notice 
must be served in accordance with Sec.1215.7.
    (2) Petition for Reconsideration. Within five business days of 
filing Notice, the petitioner must file a Petition for Reconsideration 
(Petition) in accordance with Sec.1215.7. The Petition must contain a 
clear and concise statement of the basis for the reconsideration with 
supporting authorities. Determinations about petitions for 
reconsideration are within the discretion of the FHFA Director, and are 
final.
    (b) Prerequisite to judicial review. Pursuant to section 704 of the 
Administrative Procedure Act, 5 U.S.C. 704, a petition to FHFA for 
reconsideration of a final determination made under the authority of 
this part is a prerequisite to judicial review.



Sec.1215.15  Conflicting court order.

    Notwithstanding FHFA's rejection of a demand for records, 
information, or testimony, if a court or other competent authority 
orders an FHFA employee to comply with the demand, the employee must 
promptly notify FHFA's General Counsel of the order, and the employee 
must respectfully decline to comply, citing United States ex rel. Touhy 
v. Ragen, 340 U.S. 462 (1951). An employee's failure to notify the 
General Counsel of a court or other authority's order is grounds for 
discipline or other adverse action.



Sec.1215.16  Fees.

    (a) The Director may condition the production of records, 
information, or an employee's appearance on advance payment of 
reasonable costs to FHFA, which may include but are not limited to those 
associated with employee search time, copying, computer usage, and 
certifications.
    (b) Witness fees will include fees, expenses, and allowances 
prescribed by the rules applicable to the particular legal proceeding. 
If no fees are prescribed, FHFA will base fees on the rule of the 
federal district court closest to the location where the witness will 
appear. Such fees may include but are not limited to time for 
preparation, travel, and attendance at the legal proceeding.



Sec.1215.17  Responses to demands served on nonemployees.

    (a) FHFA confidential supervisory information is the property of 
FHFA, and is not to be disclosed to any person without the Director's 
prior written consent.
    (b) If any person in possession of FHFA confidential supervisory 
information, is served with a demand in a legal proceeding directing 
that person to produce FHFA's confidential supervisory information or to 
testify with respect thereto, such person shall immediately notify the 
General Counsel of such service, of the testimony requested and 
confidential supervisory information described in the demand, and of all 
relevant facts. Such person

[[Page 155]]

shall also object to the production of such confidential supervisory 
information on the basis that the confidential supervisory information 
is the property of FHFA and cannot be released without FHFA's consent 
and that production must be sought from FHFA following the procedures 
set forth in Sec. Sec.1215.7, 1215.8, and 1215.14 of this part.



Sec.1215.18  Inspector General.

    Notwithstanding the general prohibition of disclosure of records and 
information, to the minimum extent required by the Inspector General 
Act, Public Law 9-452 (1978), FHFA's Office of Inspector General is 
permitted under this section to disclose records and information and 
permit FHFA-OIG employee testimony without Director approval.



PART 1217_PROGRAM FRAUD CIVIL REMEDIES ACT--Table of Contents



Sec.
1217.1 Purpose and scope.
1217.2 Definitions.
1217.3 Basis for civil penalties and assessments.
1217.4 Investigation.
1217.5 Request for approval by the Department of Justice.
1217.6 Notice.
1217.7 Response.
1217.8 Statute of limitations.
1217.9 Hearings.
1217.10 Settlements.

    Authority: 12 U.S.C. 4501; 12 U.S.C. 4526, 28 U.S.C. 2461 note; 31 
U.S.C. 3801-3812.

    Source: 81 FR 43034, July 1, 2016, unless otherwise noted.



Sec.1217.1  Purpose and scope.

    (a) Purpose. This part:
    (1) Establishes administrative procedures for imposing civil 
penalties and assessments against persons who make, submit, or present, 
or cause to be made, submitted, or presented, false, fictitious, or 
fraudulent claims or written statements to FHFA or to its agents; and
    (2) Specifies the hearing and appeal rights of persons subject to 
allegations of liability for such penalties and assessments. Hearings 
under this part shall be conducted in accordance with the Administrative 
Procedure Act pursuant to part 1209, subpart C, of this chapter.
    (b) Scope. This part applies only to persons who make, submit, or 
present or cause to be made, submitted, or presented false, fictitious, 
or fraudulent claims or written statements to FHFA or to those acting on 
its behalf in connection with FHFA employment matters and FHFA 
contracting activities. It does not apply to false claims or statements 
made in connection with matters or activities related to FHFA's 
supervisory, regulatory, enforcement, conservatorship, or receivership 
responsibilities, as other civil and administrative actions available to 
FHFA to redress fraud in such areas provide for remedies that are equal 
to or exceed those available through this part.



Sec.1217.2  Definitions.

    As used in this part:
    Ability to pay is determined based on a review of the respondent's 
resources available both currently and prospectively, from which FHFA 
could ultimately recover the total penalty, and as appropriate, 
assessment, which may be predicted based on historical evidence.
    Assessment means a monetary penalty that is in addition to a civil 
penalty and may be imposed if FHFA has made any payment, transferred 
property, or provided services for a claim that is determined to be in 
violation of paragraph (a)(1) of Sec.1217.3. An assessment may not 
exceed an amount that is twice the amount of the claim or portion of the 
claim determined to be in violation of paragraph (a)(1) of Sec.1217.3. 
A civil penalty other than an assessment may be imposed whether or not 
FHFA has made a payment, transferred property, or provided services in 
response to the false claim or statement.
    Benefit means anything of value, including, but not limited to, any 
advantage, preference, privilege, license, permit, favorable decision, 
ruling, or status.
    Claim means any request, demand, or submission:
    (1) Made to FHFA for property, services, or money (including money 
representing benefits);

[[Page 156]]

    (2) Made to a recipient of property, services, or money from FHFA or 
to a party to a contract with FHFA:
    (i) For property or services, if FHFA:
    (A) Provided such property or services;
    (B) Provided any portion of the funds for the purchase of such 
property or services; or
    (C) Will reimburse such recipient or party for the purchase of such 
property or services; or
    (ii) For the payment of money (including money representing 
benefits) if the United States:
    (A) Provided any portion of the money requested or demanded; or
    (B) Will reimburse such recipient or party for any portion of the 
money paid on such request or demand; or
    (3) Made to FHFA, which has the effect of decreasing an obligation 
to pay or account for property, services, or money.
    Investigating official means the FHFA Inspector General, or an 
officer or employee of the FHFA Office of Inspector General designated 
by the FHFA Inspector General.
    Knows or has reason to know. (1) For purposes of establishing 
liability under 31 U.S.C. 3802 and this part, means that a person, with 
respect to a claim or statement:
    (i) Has actual knowledge that the claim or statement is false, 
fictitious, or fraudulent;
    (ii) Acts in deliberate ignorance of the truth or falsity of the 
claim or statement; or
    (iii) Acts in reckless disregard of the truth or falsity of the 
claim or statement.
    (2) No proof of specific intent to defraud is required for purposes 
of establishing liability under 31 U.S.C. 3802 or this part.
    Makes a claim or statement includes making, presenting, or 
submitting the claim or statement and causing the claim or statement to 
be made, presented, or submitted.
    Notice means the charging document served by FHFA to commence an 
administrative proceeding to impose a civil penalty and, if appropriate, 
an assessment under chapter 38 of subtitle III of title 31, U.S.C., and 
this part.
    Person means any individual, partnership, corporation, association, 
or private organization.
    Presiding officer means an administrative law judge appointed under 
5 U.S.C. 3105 or detailed to FHFA under 5 U.S.C. 3344.
    Reasonable prospect of collecting an appropriate amount of penalties 
and assessments is determined based on a generalized analysis made by 
the reviewing official, based on the limited information available in 
the report of investigation for purposes of determining whether the 
allocation of FHFA's resources to any particular action is appropriate.
    Report of investigation means a report containing the findings and 
conclusions of an investigation under chapter 38 of subtitle III of 
title 31, U.S.C., by the investigating official, as described in Sec.
1217.4.
    Respondent means any person alleged to be liable for a civil penalty 
or assessment under Sec.1217.3.
    Reviewing official means the General Counsel of FHFA, as so 
designated by the Director pursuant to 31 U.S.C. 3801(a)(8)(A).
    Statement means, unless the context indicates otherwise, any 
representation, certification, affirmation, document, record, or 
accounting or bookkeeping entry made:
    (1) With respect to a claim or to obtain the approval or payment of 
a claim (including relating to eligibility to make a claim); or
    (2) With respect to (including relating to eligibility for) a 
contract with, or a bid or proposal for a contract with, or benefit 
from, FHFA or any State, political subdivision of a State, or other 
party, if FHFA provides any portion of the money or property under such 
contract or benefit, or if FHFA will reimburse such State, political 
subdivision, or party for any portion of the money or property under 
such contract or for such benefit.



Sec.1217.3  Basis for civil penalties and assessments.

    (a) False, fictitious or fraudulent claims. (1) A civil penalty of 
not more than $11,463 may be imposed upon a person who makes a claim to 
FHFA for property, services, or money where the

[[Page 157]]

person knows or has reason to know that the claim:
    (i) Is false, fictitious, or fraudulent;
    (ii) Includes or is supported by a written statement that:
    (A) Asserts a material fact which is false, fictitious, or 
fraudulent; or
    (B) Omits a material fact and, as a result of the omission, is 
false, fictitious, or fraudulent, where the person making, presenting, 
or submitting such statement has a duty to include such material fact; 
or
    (iii) Is for payment for the provision of property or services to 
FHFA which the person has not provided as claimed.
    (2) Each voucher, invoice, claim form, or other individual request 
or demand for property, services, or money constitutes a separate claim 
for purposes of this part.
    (3) A claim shall be considered made to FHFA, a recipient, or party 
when the claim is actually made to an agent, fiscal intermediary, or 
other entity, acting for or on behalf of FHFA, the recipient, or the 
party.
    (4) Each claim for property, services, or money is subject to a 
civil penalty, without regard to whether the property, services, or 
money actually is delivered or paid.
    (5) There is no liability under this part if the amount of money or 
value of property or services claimed exceeds $150,000 as to each claim 
that a person submits. For purposes of this paragraph (a), a group of 
claims submitted simultaneously as part of a single transaction shall be 
considered a single claim.
    (6) If the FHFA has made any payment, transferred property, or 
provided services for a claim, then FHFA may make an assessment against 
a person found liable in an amount of up to twice the amount of the 
claim or portion of the claim that is determined to be in violation of 
paragraph (a)(1) of this section. This assessment is in addition to the 
amount of any civil penalty imposed.
    (b) False, fictitious or fraudulent statements. (1) A civil penalty 
of up to $11,463 may be imposed upon a person who makes a written 
statement to FHFA with respect to a claim, contract, bid or proposal for 
a contract, or benefit from FHFA that:
    (i) The person knows or has reason to know:
    (A) Asserts a material fact which is false, fictitious, or 
fraudulent; or
    (B) Omits a material fact and is false, fictitious, or fraudulent as 
a result of such omission, where the person making, presenting, or 
submitting such statement has a duty to include such material fact; and
    (ii) Contains or is accompanied by an express certification or 
affirmation of the truthfulness and accuracy of the contents of the 
statement.
    (2) Each written representation, certification, or affirmation 
constitutes a separate statement.
    (3) A statement shall be considered made to FHFA when the statement 
is actually made to an agent, fiscal intermediary, or other entity 
acting for or on behalf of FHFA.
    (c) Joint and several liability. A civil penalty or assessment may 
be imposed jointly and severally if more than one person is determined 
to be liable.

[81 FR 43034, July 1, 2016, as amended at 83 FR 43968, Aug. 29, 2018; 84 
FR 9704, Mar. 18, 2019]



Sec.1217.4  Investigation.

    (a) General. FHFA may initiate an action under chapter 38 of 
subtitle III of title 31, U.S.C., and this part against a respondent 
only upon an investigation by the investigating official.
    (b) Subpoena. Pursuant to 31 U.S.C. 3804(a), the investigating 
official may require by subpoena the production of records and other 
documents. The subpoena shall state the authority under which it is 
issued, identify the records sought, and name the person designated to 
receive the records. The recipient of the subpoena shall provide a 
certification that the documents sought have been produced, that the 
documents are not available and the reasons they are not available, or 
that the documents, suitably identified, have been withheld based upon 
the assertion of an identified privilege.
    (c) Investigation report. If the investigating official concludes 
that an action under chapter 38 of subtitle III of title 31, U.S.C., and 
this part may be warranted, the investigating official shall prepare a 
report containing the

[[Page 158]]

findings and conclusions of the investigation, including:
    (1) A description of the claim or statement at issue;
    (2) The evidence supporting the allegations;
    (3) An estimate of the amount of money or the value of property, 
services, or other benefits requested or demanded in violation of Sec.
1217.3; and
    (4) Any exculpatory or mitigating circumstances that may relate to 
the claim or statement.
    (d) Referrals to the Attorney General. The investigating official 
may refer allegations directly to the Department of Justice for civil 
relief under other applicable law, as appropriate, or may defer or 
postpone submitting a report to the reviewing official to avoid 
interference with a criminal investigation or prosecution.



Sec.1217.5  Request for approval by the Department of Justice.

    (a) General. If the reviewing official determines that the report of 
investigation supports an action under this part, the reviewing official 
must submit a written request to the Department of Justice for approval 
to issue a notice under Sec.1217.6.
    (b) Content of request. A request under this section shall include:
    (1) A description of the claim or statement at issue;
    (2) The evidence supporting the allegations;
    (3) An estimate of the amount of money or the value of property, 
services, or other benefits requested or demanded in violation of Sec.
1217.3;
    (4) Any exculpatory or mitigating circumstances that may relate to 
the claim or statement; and
    (5) A statement that there is a reasonable prospect of collecting an 
appropriate amount of penalties and assessments. Determining there is a 
reasonable prospect of collecting an appropriate amount of penalties and 
assessments is separate from determining ability to pay, and may not be 
considered in determining the amount of any penalty or assessment in any 
particular case.



Sec.1217.6  Notice.

    (a) Commencement of action; notice. Upon obtaining approval from the 
Department of Justice, the reviewing official may commence an action to 
establish liability of the respondent under the Program Fraud Civil 
Remedies Act of 1986 (31 U.S.C. 3801 et seq.) and this part. To commence 
an action, the reviewing official must issue a notice to the respondent 
of the allegations of liability against the respondent. The notice shall 
be mailed, by registered or certified mail, or shall be delivered 
through such other means by which delivery may be confirmed.
    (b) Notice contents. The notice required under this section shall 
include:
    (1) The allegations of liability against the respondent, including 
the statutory basis for liability, the claim or statement at issue, and 
the reasons why liability arises from that claim or statement;
    (2) A statement that the required approval to issue the notice was 
received from the Department of Justice;
    (3) The amount of the penalty and, if applicable, any assessment for 
which the respondent may be held liable;
    (4) A statement that the respondent may request a hearing by 
submitting a written response to the notice;
    (5) The addresses to which a response must be sent in accordance 
with Sec.1209.15 of this chapter;
    (6) A statement that failure to submit an answer within 30 days of 
receipt of the notice may result in the imposition of the maximum amount 
of penalties and assessments sought, without right of appeal;
    (7) A statement that the respondent must preserve and maintain all 
documents and data, including electronically stored data, within the 
possession or control of the respondent that may relate to the 
allegations; and
    (8) A copy of this part 1217 and part 1209, subpart C of this 
chapter.
    (c) Obligation to preserve documents. Upon the issuance of a notice 
under this section, FHFA and the respondent shall each preserve and 
maintain all documents and data, including electronically stored data, 
within their respective possession or control that may relate to the 
allegations in the complaint.

[[Page 159]]



Sec.1217.7  Response.

    (a) General. (1) To obtain a hearing, the respondent must file a 
written response to a notice under Sec.1217.6:
    (i) In accordance with Sec.1209.24 of this chapter; and
    (ii) Not later than 30 days after the date of service of the notice.
    (2) A timely filed response to a notice under Sec.1217.6 shall be 
deemed to be a request for a hearing.
    (3) A response to a notice under Sec.1217.6 must include:
    (i) The admission or denial of each allegation of liability made in 
the notice;
    (ii) Any defense on which the respondent intends to rely;
    (iii) Any reasons why the penalty and, if appropriate, any 
assessment should be less than the amount set forth in the notice; and
    (iv) The name, address, and telephone number of the person who will 
act as the respondent's representative, if any.
    (b) Failure to respond. If no response to a notice under this part 
is timely submitted, FHFA may file a motion for default judgment in 
accordance with Sec.1209.24(c) of this part.



Sec.1217.8  Statute of limitations.

    The statute of limitations for commencing a hearing under this part 
shall be tolled:
    (a) If the hearing is commenced in accordance with 31 U.S.C. 
3803(d)(2)(B) within 6 years after the date on which the claim or 
statement is made; or
    (b) If the parties agree to such tolling.



Sec.1217.9  Hearings.

    (a) General. Hearings under this part shall be conducted in 
accordance with the procedures in subpart C of part 1209 of this 
chapter, governing actions in accordance with subchapter II of chapter 
5, U.S.C. (commonly known as the Administrative Procedure Act).
    (b) Factors to consider in determining amount of penalties and 
assessments. In determining an appropriate amount of any civil penalty 
and, if appropriate, any assessment, the presiding officer and, upon 
appeal, the Director or designee thereof, shall consider and state in 
his or her opinion any mitigating or aggravating circumstances. The 
amount of penalties and assessments imposed shall be based on the 
presiding officer's and the Director's or designee's consideration of 
evidence in support of one or more of the following factors:
    (1) The number of false, fictitious, or fraudulent claims or 
statements;
    (2) The time period over which such claims or statements were made;
    (3) The degree of the respondent's culpability with respect to the 
misconduct;
    (4) The amount of money or the value of the property, services, or 
benefit falsely claimed;
    (5) The value of the actual loss to FHFA as a result of the 
misconduct, including foreseeable consequential damages and the cost of 
investigation;
    (6) The relationship of the civil penalties to the amount of the 
loss to FHFA;
    (7) The potential or actual impact of the misconduct upon public 
health or safety or public confidence in the management of FHFA programs 
and operations, including particularly the impact on the intended 
beneficiaries of such programs;
    (8) Whether the respondent has engaged in a pattern of the same or 
similar misconduct;
    (9) Whether the respondent attempted to conceal the misconduct;
    (10) The degree to which the respondent has involved others in the 
misconduct or in concealing it;
    (11) If the misconduct of employees or agents is imputed to the 
respondent, the extent to which the respondent's practices fostered or 
attempted to preclude the misconduct;
    (12) Whether the respondent cooperated in or obstructed an 
investigation of the misconduct;
    (13) Whether the respondent assisted in identifying and prosecuting 
other wrongdoers;
    (14) The complexity of the program or transaction, and the degree of 
the respondent's sophistication with respect to it, including the extent 
of the respondent's prior participation in the program or in similar 
transactions;
    (15) Whether the respondent has been found, in any criminal, civil, 
or administrative proceeding, to have engaged in similar misconduct or 
to have dealt

[[Page 160]]

dishonestly with the Government of the United States or of a State, 
directly or indirectly;
    (16) The need to deter the respondent and others from engaging in 
the same or similar misconduct;
    (17) The respondent's ability to pay; and
    (18) Any other factors that in any given case may mitigate or 
aggravate the seriousness of the false claim or statement.
    (c) Stays ordered by the Department of Justice. If at any time the 
Attorney General or an Assistant Attorney General designated by the 
Attorney General notifies the Director in writing that continuation of 
FHFA's action may adversely affect any pending or potential criminal or 
civil action related to the claim or statement at issue, the presiding 
officer or the Director shall stay the FHFA action immediately. The FHFA 
action may be resumed only upon receipt of the written authorization of 
the Attorney General.



Sec.1217.10  Settlements.

    (a) General. The reviewing official, on behalf of FHFA, and the 
respondent may enter into a settlement agreement under Sec.1209.20 of 
this chapter at any time prior to the issuing of a notice of final 
decision under Sec.1209.55 of this chapter.
    (b) Failure to comply. Failure of the respondent to comply with a 
settlement agreement shall be sufficient cause for resuming an action 
under this part, or for any other judicial or administrative action.

[[Page 161]]



                     SUBCHAPTER B_ENTITY REGULATIONS





PART 1221_MARGIN AND CAPITAL REQUIREMENTS FOR COVERED SWAP ENTITIES
--Table of Contents



Sec.
1221.1 Authority, purpose, scope, exemptions and compliance dates.
1221.2 Definitions.
1221.3 Initial margin.
1221.4 Variation margin.
1221.5 Netting arrangements, minimum transfer amount and satisfaction of 
          collecting and posting requirements.
1221.6 Eligible collateral.
1221.7 Segregation of collateral.
1221.8 Initial margin models and standardized amounts.
1221.9 Cross-border application of margin requirements.
1221.10 Documentation of margin matters.
1221.11 Special rules for affiliates.
1221.12 Capital.

Appendix A to Part 1221--Standardized Minimum Initial Margin 
          Requirements for Non-Cleared Swaps and Non-Cleared Security-
          Based Swaps
Appendix B to Part 1221--Margin Values for Cash and Eligible Noncash 
          Margin Collateral

    Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o-10(e), 12 U.S.C. 4513 and 
12 U.S.C. 4526(a).

    Source: 80 FR 74913, Nov. 30, 2015, unless otherwise noted.



Sec.1221.1  Authority, purpose, scope, exemptions and compliance dates.

    (a) Authority. This part is issued by FHFA under section 4s(e) of 
the Commodity Exchange Act (7 U.S.C. 6s(e)), section 15F(e) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o-10(e)), 12 U.S.C. 4513 
and 12 U.S.C. 4526(a)).
    (b) Purpose. Section 4(s) of the Commodity Exchange Act (7 U.S.C. 
6s) and section 15F of the Securities Exchange Act of 1934 (15 U.S.C. 
78o-10) require FHFA to establish capital and margin requirements for 
any regulated entity that is registered as a swap dealer, major swap 
participant, security-based swap dealer, or major security-based swap 
participant with respect to all non-cleared swaps and non-cleared 
security-based swaps. This regulation implements section 4s of the 
Commodity Exchange Act and section 15F of the Securities Exchange Act of 
1934 by defining terms used in the statute and related terms, 
establishing capital and margin requirements, and explaining the 
statute's requirements.
    (c) Scope. This part establishes minimum capital and margin 
requirements for each covered swap entity subject to this part with 
respect to all non-cleared swaps and non-cleared security-based swaps. 
This part applies to any non-cleared swap or non-cleared security-based 
swap entered into by a covered swap entity on or after the related 
compliance date set forth in paragraph (e) of this section. Nothing in 
this part is intended to prevent a covered swap entity from collecting 
margin in amounts greater than are required under this part.
    (d) Exemptions--(1) Swaps. The requirements of this part (except for 
Sec.45.12) shall not apply to a non-cleared swap if the counterparty:
    (i) Qualifies for an exception from clearing under section 
2(h)(7)(A) of the Commodity Exchange Act of 1936 (7 U.S.C. 2(h)(7)(A)) 
and implementing regulations;
    (ii) Qualifies for an exemption from clearing under a rule, 
regulation, or order that the Commodity Futures Trading Commission 
issued pursuant to its authority under section 4(c)(1) of the Commodity 
Exchange Act of 1936 (7 U.S.C. 6(c)(1)) concerning cooperative entities 
that would otherwise be subject to the requirements of section 
2(h)(1)(A) of the Commodity Exchange Act of 1936 (7 U.S.C. 2(h)(1)(A)); 
or
    (iii) Satisfies the criteria in section 2(h)(7)(D) of the Commodity 
Exchange Act of 1936 (7 U.S.C. 2(h)(7)(D)) and implementing regulations.
    (2) Security-based swaps. The requirements of this part (except for 
Sec.1221.12) shall not apply to a non-cleared security-based swap if 
the counterparty:
    (i) Qualifies for an exception from clearing under section 3C(g)(1) 
of the Securities Exchange Act of 1934 (15 U.S.C. 78c-3(g)(1)) and 
implementing regulations; or
    (ii) Satisfies the criteria in section 3C(g)(4) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c-3(g)(4)) and implementing 
regulations.

[[Page 162]]

    (e) Compliance dates. Covered swap entities shall comply with the 
minimum margin requirements of this part on or before the following 
dates for non-cleared swaps and non-cleared security-based swaps entered 
into on or after the following dates:
    (1) September 1, 2016 with respect to the requirements in Sec.
1221.3 for initial margin and Sec.1221.4 for variation margin for any 
non-cleared swaps and non-cleared security-based swaps, where both:
    (i) The covered swap entity combined with all its affiliates; and
    (ii) Its counterparty combined with all its affiliates, have an 
average daily aggregate notional amount of non-cleared swaps, non-
cleared security-based swaps, foreign exchange forwards and foreign 
exchange swaps for March, April and May 2016 that exceeds $3 trillion, 
where such amounts are calculated only for business days; and
    (iii) In calculating the amounts in paragraphs (e)(1)(i) and (ii) of 
this section, an entity shall count the average daily aggregate notional 
amount of a non-cleared swap, a non-cleared security-based swap, a 
foreign exchange forward or a foreign exchange swap between the entity 
and an affiliate only one time, and shall not count a swap or security-
based swap that is exempt pursuant to paragraph (d) of this section.
    (2) March 1, 2017 with respect to the requirements in Sec.1221.4 
for variation margin for any other covered swap entity with respect to 
non-cleared swaps and non-cleared security-based swaps entered into with 
any other counterparty.
    (3) September 1, 2017 with respect to the requirements in Sec.
1221.3 for initial margin for any non-cleared swaps and non-cleared 
security-based swaps, where both:
    (i) The covered swap entity combined with all its affiliates; and
    (ii) Its counterparty combined with all its affiliates, have an 
average daily aggregate notional amount of non-cleared swaps, non-
cleared security-based swaps, foreign exchange forwards and foreign 
exchange swaps for March, April and May 2017 that exceeds $2.25 
trillion, where such amounts are calculated only for business days; and
    (iii) In calculating the amounts in paragraphs (e)(3)(i) and (ii) of 
this section, an entity shall count the average daily aggregate notional 
amount of a non-cleared swap, a non-cleared security-based swap, a 
foreign exchange forward or a foreign exchange swap between the entity 
and an affiliate only one time, and shall not count a swap or security-
based swap that is exempt pursuant to paragraph (d) of this section.
    (4) September 1, 2018 with respect to the requirements in Sec.
1221.3 for initial margin for any non-cleared swaps and non-cleared 
security-based swaps, where both:
    (i) The covered swap entity combined with all its affiliates; and
    (ii) Its counterparty combined with all its affiliates, have an 
average daily aggregate notional amount of non-cleared swaps, non-
cleared security-based swaps, foreign exchange forwards and foreign 
exchange swaps for March, April and May 2018 that exceeds $1.5 trillion, 
where such amounts are calculated only for business days; and
    (iii) In calculating the amounts in paragraphs (e)(4)(i) and (ii) of 
this section, an entity shall count the average daily aggregate notional 
amount of a non-cleared swap, a non-cleared security-based swap, a 
foreign exchange forward or a foreign exchange swap between the entity 
and an affiliate only one time, and shall not count a swap or security-
based swap that is exempt pursuant to paragraph (d) of this section.
    (5) September 1, 2019 with respect to the requirements in Sec.
1221.3 for initial margin for any non-cleared swaps and non-cleared 
security-based swaps, where both:
    (i) The covered swap entity combined with all its affiliates; and
    (ii) Its counterparty combined with all its affiliates, have an 
average daily aggregate notional amount of non-cleared swaps, non-
cleared security-based swaps, foreign exchange forwards and foreign 
exchange swaps for March, April and May 2019 that exceeds $0.75 
trillion, where such amounts are calculated only for business days; and
    (iii) In calculating the amounts in paragraphs (e)(5)(i) and (ii) of 
this section, an entity shall count the average

[[Page 163]]

daily aggregate notional amount of a non-cleared swap, a non-cleared 
security-based swap, a foreign exchange forward or a foreign exchange 
swap between the entity and an affiliate only one time, and shall not 
count a swap or security-based swap that is exempt pursuant to paragraph 
(d) of this section.
    (6) September 1, 2020 with respect to the requirements in Sec.
1221.3 for initial margin for any other covered swap entity with respect 
to non-cleared swaps and non-cleared security-based swaps entered into 
with any other counterparty.
    (7) For purposes of determining the date on which a non-cleared swap 
or a non-cleared security-based swap was entered into, a Covered Swap 
Entity will not take into account amendments to the non-cleared swap or 
the non-cleared security-based swap that were entered into solely to 
comply with the requirements of part 47, Subpart I of part 252 or part 
382 of Title 12, as applicable.
    (f) Once a covered swap entity must comply with the margin 
requirements for non-cleared swaps and non-cleared security-based swaps 
with respect to a particular counterparty based on the compliance dates 
in paragraph (e) of this section, the covered swap entity shall remain 
subject to the requirements of this part with respect to that 
counterparty.
    (g)(1) If a covered swap entity's counterparty changes its status 
such that a non-cleared swap or non-cleared security-based swap with 
that counterparty becomes subject to stricter margin requirements under 
this part (such as if the counterparty's status changes from a financial 
end user without material swaps exposure to a financial end user with 
material swaps exposure), then the covered swap entity shall comply with 
the stricter margin requirements for any non-cleared swap or non-cleared 
security-based swap entered into with that counterparty after the 
counterparty changes its status.
    (2) If a covered swap entity's counterparty changes its status such 
that a non-cleared swap or non-cleared security-based swap with that 
counterparty becomes subject to less strict margin requirements under 
this part (such as if the counterparty's status changes from a financial 
end user with material swaps exposure to a financial end user without 
material swaps exposure), then the covered swap entity may comply with 
the less strict margin requirements for any non-cleared swap or non-
cleared security-based swap entered into with that counterparty after 
the counterparty changes its status as well as for any outstanding non-
cleared swap or non-cleared security-based swap entered into after the 
applicable compliance date in paragraph (e) of this section and before 
the counterparty changed its status.
    (h) Legacy swaps. Covered swaps entities are required to comply with 
the requirements of this part for non-cleared swaps and non-cleared 
security-based swaps entered into on or after the relevant compliance 
dates for variation margin and for initial margin established in 
paragraph (e) of this section. Any non-cleared swap or non-cleared 
security-based swap entered into before such relevant date shall remain 
outside the scope of this part if changes are made to it as follows:
    (1) [Reserved]
    (2) The non-cleared swap or non-cleared security based swap was 
amended under the following conditions:
    (i) The swap was originally entered into before the relevant 
compliance date established in paragraph (e) of this section and one 
party to the swap booked it at, or otherwise held it at, an entity 
(including a branch or other authorized form of establishment) located 
in the United Kingdom;
    (ii) The entity in the United Kingdom subsequently arranged to amend 
the swap, solely for the purpose of transferring it to an affiliate, or 
a branch or other authorized form of establishment, located in any 
European Union member state or the United States, in connection with the 
entity's planning for or response to the event described in paragraph 
(h)(2)(iii) of this section, and the transferee is:
    (A) A covered swap entity, or
    (B) A covered swap entity's counterparty to the swap, and the 
counterparty represents to the covered

[[Page 164]]

swap entity that the counterparty performed the transfer in compliance 
with the requirements of paragraphs (h)(2)(i) and (ii) of this section;
    (iii) The law of the European Union ceases to apply to the United 
Kingdom pursuant to Article 50(3) of the Treaty on European Union, 
without conclusion of a Withdrawal Agreement between the United Kingdom 
and the European Union pursuant to Article 50(2);
    (iv) The amendments do not modify any of the following: The payment 
amount calculation methods, the maturity date, or the notional amount of 
the swap;
    (v) The amendments cause the transfer to take effect on or after the 
date of the event described in paragraph (h)(2)(iii) of this section 
transpires; and
    (vi) The amendments cause the transfer to take effect by the later 
of:
    (A) The date that is one year after the date of the event described 
in paragraph (h)(2)(iii) of this section; or
    (B) Such other date permitted by transitional provisions under 
Article 35 of Commission Delegated Regulation (E.U.) No. 2016/2251, as 
amended.

[80 FR 74913, 74914, Nov. 13, 2015, as amended at 83 FR 50813, Oct. 10, 
2018; 84 FR 9950, Mar. 19, 2019]



Sec.1221.2  Definitions.

    Affiliate. A company is an affiliate of another company if:
    (1) Either company consolidates the other on financial statements 
prepared in accordance with U.S. Generally Accepted Accounting 
Principles, the International Financial Reporting Standards, or other 
similar standards;
    (2) Both companies are consolidated with a third company on a 
financial statement prepared in accordance with such principles or 
standards;
    (3) For a company that is not subject to such principles or 
standards, if consolidation as described in paragraph (1) or (2) of this 
definition would have occurred if such principles or standards had 
applied; or
    (4) FHFA has determined that a company is an affiliate of another 
company, based on the FHFA's conclusion that either company provides 
significant support to, or is materially subject to the risks or losses 
of, the other company.
    Bank holding company has the meaning specified in section 2 of the 
Bank Holding Company Act of 1956 (12 U.S.C. 1841).
    Broker has the meaning specified in section 3(a)(4) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4)).
    Business day means any day other than a Saturday, Sunday, or legal 
holiday.
    Clearing agency has the meaning specified in section 3(a)(23) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(23)).
    Company means a corporation, partnership, limited liability company, 
business trust, special purpose entity, association, or similar 
organization.
    Counterparty means, with respect to any non-cleared swap or non-
cleared security-based swap to which a person is a party, each other 
party to such non-cleared swap or non-cleared security-based swap.
    Covered swap entity means any regulated entity that is a swap entity 
or any other entity that FHFA determines.
    Cross-currency swap means a swap in which one party exchanges with 
another party principal and interest rate payments in one currency for 
principal and interest rate payments in another currency, and the 
exchange of principal occurs on the date the swap is entered into, with 
a reversal of the exchange of principal at a later date that is agreed 
upon when the swap is entered into.
    Currency of settlement means a currency in which a party has agreed 
to discharge payment obligations related to a non-cleared swap, a non-
cleared security-based swap, a group of non-cleared swaps, or a group of 
non-cleared security-based swaps subject to a master agreement at the 
regularly occurring dates on which such payments are due in the ordinary 
course.
    Day of execution means the calendar day at the time the parties 
enter into a non-cleared swap or non-cleared security-based swap, 
provided:
    (1) If each party is in a different calendar day at the time the 
parties enter into the non-cleared swap or non-cleared security-based 
swap, the day of execution is deemed the latter of the two dates; and

[[Page 165]]

    (2) If a non-cleared swap or non-cleared security-based swap is:
    (i) Entered into after 4:00 p.m. in the location of a party; or
    (ii) Entered into on a day that is not a business day in the 
location of a party, then the non-cleared swap or non-cleared security-
based swap is deemed to have been entered into on the immediately 
succeeding day that is a business day for both parties, and both parties 
shall determine the day of execution with reference to that business 
day.
    Dealer has the meaning specified in section 3(a)(5) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(5)).
    Depository institution has the meaning specified in section 3(c) of 
the Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
    Derivatives clearing organization has the meaning specified in 
section 1a(15) of the Commodity Exchange Act of 1936 (7 U.S.C. 1a(15)).
    Eligible collateral means collateral described in Sec.1221.6.
    Eligible master netting agreement means a written, legally 
enforceable agreement provided that:
    (1) The agreement creates a single legal obligation for all 
individual transactions covered by the agreement upon an event of 
default following any stay permitted by paragraph (2) of this 
definition, including upon an event of receivership, conservatorship, 
insolvency, liquidation, or similar proceeding, of the counterparty;
    (2) The agreement provides the covered swap entity the right to 
accelerate, terminate, and close-out on a net basis all transactions 
under the agreement and to liquidate or set-off collateral promptly upon 
an event of default, including upon an event of receivership, 
conservatorship, insolvency, liquidation, or similar proceeding, of the 
counterparty, provided that, in any such case,
    (i) Any exercise of rights under the agreement will not be stayed or 
avoided under applicable law in the relevant jurisdictions, other than:
    (A) In receivership, conservatorship, or resolution under the 
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), Title II of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 
5381 et seq.), the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit 
Act of 1971, as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign 
jurisdictions that are substantially similar to the U.S. laws referenced 
in this paragraph (2)(i)(A) in order to facilitate the orderly 
resolution of the defaulting counterparty; or
    (B) Where the agreement is subject by its terms to, or incorporates, 
any of the laws referenced in paragraph (2)(i)(A) of this definition; 
and
    (ii) The agreement may limit the right to accelerate, terminate, and 
close-out on a net basis all transactions under the agreement and to 
liquidate or set-off collateral promptly upon an event of default of the 
counterparty to the extent necessary for the counterparty to comply with 
the requirements of part 47, Subpart I of part 252 or part 382 of Title 
12, as applicable;
    (3) The agreement does not contain a walkaway clause (that is, a 
provision that permits a non-defaulting counterparty to make a lower 
payment than it otherwise would make under the agreement, 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 
agreement); and
    (4) A covered swap entity that relies on the agreement for purposes 
of calculating the margin required by this part must:
    (i) Conduct sufficient legal review to conclude with a well-founded 
basis (and maintain sufficient written documentation of that legal 
review) that:
    (A) The agreement meets the requirements of paragraph (2) of this 
definition; and
    (B) In the event of a legal challenge (including one resulting from 
default or from receivership, conservatorship, insolvency, liquidation, 
or similar proceeding), the relevant court and administrative 
authorities would find the agreement to be legal, valid, binding, and 
enforceable under the law of the relevant jurisdictions; and
    (ii) Establish and maintain written procedures to monitor possible 
changes in relevant law and to ensure that the

[[Page 166]]

agreement continues to satisfy the requirements of this definition.
    Financial end user means:
    (1) Any counterparty that is not a swap entity and that is:
    (i) A bank holding company or an affiliate thereof; a savings and 
loan holding company; a U.S. intermediate holding company established or 
designated for purposes of compliance with 12 CFR 252.153; or a nonbank 
financial institution supervised by the Board of Governors of the 
Federal Reserve System under Title I of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (12 U.S.C. 5323);
    (ii) A depository institution; a foreign bank; a Federal credit 
union or State credit union as defined in section 2 of the Federal 
Credit Union Act (12 U.S.C. 1752(1) & (6)); an institution that 
functions solely in a trust or fiduciary capacity as described in 
section 2(c)(2)(D) of the Bank Holding Company Act (12 U.S.C. 
1841(c)(2)(D)); an industrial loan company, an industrial bank, or other 
similar institution described in section 2(c)(2)(H) of the Bank Holding 
Company Act (12 U.S.C. 1841(c)(2)(H));
    (iii) An entity that is state-licensed or registered as:
    (A) A credit or lending entity, including a finance company; money 
lender; installment lender; consumer lender or lending company; mortgage 
lender, broker, or bank; motor vehicle title pledge lender; payday or 
deferred deposit lender; premium finance company; commercial finance or 
lending company; or commercial mortgage company; except entities 
registered or licensed solely on account of financing the entity's 
direct sales of goods or services to customers;
    (B) A money services business, including a check casher; money 
transmitter; currency dealer or exchange; or money order or traveler's 
check issuer;
    (iv) A regulated entity as defined in section 1303(20) of the 
Federal Housing Enterprises Financial Safety and Soundness Act of 1992, 
as amended (12 U.S.C. 4502(20)) or any entity for which the Federal 
Housing Finance Agency or its successor is the primary federal 
regulator;
    (v) Any institution chartered in accordance with the Farm Credit Act 
of 1971, as amended, 12 U.S.C. 2001 et seq., that is regulated by the 
Farm Credit Administration;
    (vi) A securities holding company; a broker or dealer; an investment 
adviser as defined in section 202(a) of the Investment Advisers Act of 
1940 (15 U.S.C. 80b-2(a)); an investment company registered with the 
U.S. Securities and Exchange Commission under the Investment Company Act 
of 1940 (15 U.S.C. 80a-1 et seq.); or a company that has elected to be 
regulated as a business development company pursuant to section 54(a) of 
the Investment Company Act of 1940 (15 U.S.C. 80a-53(a));
    (vii) A private fund as defined in section 202(a) of the Investment 
Advisers Act of 1940 (15 U.S.C. 80-b-2(a)); an entity that would be an 
investment company under section 3 of the Investment Company Act of 1940 
(15 U.S.C. 80a-3) but for section 3(c)(5)(C); or an entity that is 
deemed not to be an investment company under section 3 of the Investment 
Company Act of 1940 pursuant to Investment Company Act Rule 3a-7 (17 CFR 
270.3a-7) of the U.S. Securities and Exchange Commission;
    (viii) A commodity pool, a commodity pool operator, or a commodity 
trading advisor as defined, respectively, in section 1a(10), 1a(11), and 
1a(12) of the Commodity Exchange Act of 1936 (7 U.S.C. 1a(10), 1a(11), 
and 1a(12)); a floor broker, a floor trader, or introducing broker as 
defined, respectively, in 1a(22), 1a(23) and 1a(31) of the Commodity 
Exchange Act of 1936 (7 U.S.C. 1a(22), 1a(23), and 1a(31)); or a futures 
commission merchant as defined in 1a(28) of the Commodity Exchange Act 
of 1936 (7 U.S.C. 1a(28));
    (ix) An employee benefit plan as defined in paragraphs (3) and (32) 
of section 3 of the Employee Retirement Income and Security Act of 1974 
(29 U.S.C. 1002);
    (x) An entity that is organized as an insurance company, primarily 
engaged in writing insurance or reinsuring risks underwritten by 
insurance companies, or is subject to supervision as such by a State 
insurance regulator or foreign insurance regulator;
    (xi) An entity, person or arrangement that is, or holds itself out 
as being, an entity, person, or arrangement that raises money from 
investors, accepts

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money from clients, or uses its own money primarily for the purpose of 
investing or trading or facilitating the investing or trading in loans, 
securities, swaps, funds or other assets for resale or other disposition 
or otherwise trading in loans, securities, swaps, funds or other assets; 
or
    (xii) An entity that would be a financial end user described in 
paragraph (1) of this definition or a swap entity, if it were organized 
under the laws of the United States or any State thereof.
    (2) The term ``financial end user'' does not include any 
counterparty that is:
    (i) A sovereign entity;
    (ii) A multilateral development bank;
    (iii) The Bank for International Settlements;
    (iv) An entity that is exempt from the definition of financial 
entity pursuant to section 2(h)(7)(C)(iii) of the Commodity Exchange Act 
of 1936 (7 U.S.C. 2(h)(7)(C)(iii)) and implementing regulations; or
    (v) An affiliate that qualifies for the exemption from clearing 
pursuant to section 2(h)(7)(D) of the Commodity Exchange Act of 1936 (7 
U.S.C. 2(h)(7)(D)) or section 3C(g)(4) of the Securities Exchange Act of 
1934 (15 U.S.C. 78c-3(g)(4)) and implementing regulations.
    Foreign bank means an organization that is organized under the laws 
of a foreign country and that engages directly in the business of 
banking outside the United States.
    Foreign exchange forward has the meaning specified in section 1a(24) 
of the Commodity Exchange Act of 1936 (7 U.S.C. 1a(24)).
    Foreign exchange swap has the meaning specified in section 1a(25) of 
the Commodity Exchange Act of 1936 (7 U.S.C. 1a(25)).
    Initial margin means the collateral as calculated in accordance with 
Sec.1221.8 that is posted or collected in connection with a non-
cleared swap or non-cleared security-based swap.
    Initial margin collection amount means:
    (1) In the case of a covered swap entity that does not use an 
initial margin model, the amount of initial margin with respect to a 
non-cleared swap or non-cleared security-based swap that is required 
under appendix A of this part; and
    (2) In the case of a covered swap entity that uses an initial margin 
model pursuant to Sec.1221.8, the amount of initial margin with 
respect to a non-cleared swap or non-cleared security-based swap that is 
required under the initial margin model.
    Initial margin model means an internal risk management model that:
    (1) Has been developed and designed to identify an appropriate, 
risk-based amount of initial margin that the covered swap entity must 
collect with respect to one or more non-cleared swaps or non-cleared 
security-based swaps to which the covered swap entity is a party; and
    (2) Has been approved by FHFA pursuant to Sec.1221.8.
    Initial margin threshold amount means an aggregate credit exposure 
of $50 million resulting from all non-cleared swaps and non-cleared 
security-based swaps between a covered swap entity and its affiliates, 
and a counterparty and its affiliates. For purposes of this calculation, 
an entity shall not count a swap or security-based swap that is exempt 
pursuant to Sec.1221.1(d).
    Major currency means:
    (1) United States Dollar (USD);
    (2) Canadian Dollar (CAD);
    (3) Euro (EUR);
    (4) United Kingdom Pound (GBP);
    (5) Japanese Yen (JPY);
    (6) Swiss Franc (CHF);
    (7) New Zealand Dollar (NZD);
    (8) Australian Dollar (AUD);
    (9) Swedish Kronor (SEK);
    (10) Danish Kroner (DKK);
    (11) Norwegian Krone (NOK); or
    (12) Any other currency as determined by FHFA.
    Margin means initial margin and variation margin.
    Market intermediary means a securities holding company; a broker or 
dealer; a futures commission merchant as defined in 1a(28) of the 
Commodity Exchange Act of 1936 (7 U.S.C. 1a(28)); a swap dealer as 
defined in section 1a(49) of the Commodity Exchange Act of 1936 (7 
U.S.C. 1a(49)); or a security-based swap dealer as defined in section 
3(a)(71) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(71)).

[[Page 168]]

    Material swaps exposure for an entity means that an entity and its 
affiliates have an average daily aggregate notional amount of non-
cleared swaps, non-cleared security-based swaps, foreign exchange 
forwards, and foreign exchange swaps with all counterparties for June, 
July, and August of the previous calendar year that exceeds $8 billion, 
where such amount is calculated only for business days. An entity shall 
count the average daily aggregate notional amount of a non-cleared swap, 
a non-cleared security-based swap, a foreign exchange forward or a 
foreign exchange swap between the entity and an affiliate only one time. 
For purposes of this calculation, an entity shall not count a swap or 
security-based swap that is exempt pursuant to Sec.1221.1(d).
    Multilateral development bank means the International Bank for 
Reconstruction and Development, the Multilateral Investment Guarantee 
Agency, the International Finance Corporation, the Inter-American 
Development Bank, the Asian Development Bank, the African Development 
Bank, the European Bank for Reconstruction and Development, the European 
Investment Bank, the European Investment Fund, the Nordic Investment 
Bank, the Caribbean Development Bank, the Islamic Development Bank, the 
Council of Europe Development Bank, and any other entity that provides 
financing for national or regional development in which the U.S. 
government is a shareholder or contributing member or which FHFA 
determines poses comparable credit risk.
    Non-cleared swap means a swap that is not cleared by a derivatives 
clearing organization registered with the Commodity Futures Trading 
Commission pursuant to section 5b(a) of the Commodity Exchange Act of 
1936 (7 U.S.C. 7a-1(a)) or by a clearing organization that the Commodity 
Futures Trading Commission has exempted from registration by rule or 
order pursuant to section 5b(h) of the Commodity Exchange Act of 1936 (7 
U.S.C. 7a-1(h)).
    Non-cleared security-based swap means a security-based swap that is 
not, directly or indirectly, submitted to and cleared by a clearing 
agency registered with the U.S. Securities and Exchange Commission 
pursuant to section 17A of the Securities Exchange Act of 1934 (15 
U.S.C. 78q-1) or by a clearing agency that the U.S. Securities and 
Exchange Commission has exempted from registration by rule or order 
pursuant to section 17A of the Securities Exchange Act of 1934 (15 
U.S.C. 78q-1).
    Prudential regulator has the meaning specified in section 1a(39) of 
the Commodity Exchange Act of 1936 (7 U.S.C. 1a(39)).
    Regulated entity means any regulated entity as defined in section 
1303(20) of the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992, as amended (12 U.S.C. 4502(20)).
    Savings and loan holding company has the meaning specified in 
section 10(n) of the Home Owners' Loan Act (12 U.S.C. 1467a(n)).
    Securities holding company has the meaning specified in section 618 
of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 
U.S.C. 1850a).
    Security-based swap has the meaning specified in section 3(a)(68) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(68)).
    Sovereign entity means a central government (including the U.S. 
government) or an agency, department, ministry, or central bank of a 
central government.
    State means any State, commonwealth, territory, or possession of the 
United States, the District of Columbia, the Commonwealth of Puerto 
Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, 
Guam, or the United States Virgin Islands.
    Subsidiary. A company is a subsidiary of another company if:
    (1) The company is consolidated by the other company on financial 
statements prepared in accordance with U.S. Generally Accepted 
Accounting Principles, the International Financial Reporting Standards, 
or other similar standards;
    (2) For a company that is not subject to such principles or 
standards, if consolidation as described in paragraph (1) of this 
definition would have occurred if such principles or standards had 
applied; or
    (3) FHFA has determined that the company is a subsidiary of another

[[Page 169]]

company, based on FHFA's conclusion that either company provides 
significant support to, or is materially subject to the risks of loss 
of, the other company.
    Swap has the meaning specified in section 1a(47) of the Commodity 
Exchange Act of 1936 (7 U.S.C. 1a(47)).
    Swap entity means a person that is registered with the Commodity 
Futures Trading Commission as a swap dealer or major swap participant 
pursuant to the Commodity Exchange Act of 1936 (7 U.S.C. 1 et seq.), or 
a person that is registered with the U.S. Securities and Exchange 
Commission as a security-based swap dealer or a major security-based 
swap participant pursuant to the Securities Exchange Act of 1934 (15 
U.S.C. 78a et seq.).
    U.S. Government-sponsored enterprise means an entity established or 
chartered by the U.S. government to serve public purposes specified by 
federal statute but whose debt obligations are not explicitly guaranteed 
by the full faith and credit of the U.S. government.
    Variation margin means collateral provided by one party to its 
counterparty to meet the performance of its obligations under one or 
more non-cleared swaps or non-cleared security-based swaps between the 
parties as a result of a change in value of such obligations since the 
last time such collateral was provided.
    Variation margin amount means the cumulative mark-to-market change 
in value to a covered swap entity of a non-cleared swap or non-cleared 
security-based swap, as measured from the date it is entered into (or, 
in the case of a non-cleared swap or non-cleared security-based swap 
that has a positive or negative value to a covered swap entity on the 
date it is entered into, such positive or negative value plus any 
cumulative mark-to-market change in value to the covered swap entity of 
a non-cleared swap or non-cleared security-based swap after such date), 
less the value of all variation margin previously collected, plus the 
value of all variation margin previously posted with respect to such 
non-cleared swap or non-cleared security-based swap.

[80 FR 74913, 74914, Nov. 30, 2015, as amended at 83 FR 50813, Oct. 10, 
2018]



Sec.1221.3  Initial margin.

    (a) Collection of margin. A covered swap entity shall collect 
initial margin with respect to any non-cleared swap or non-cleared 
security-based swap from a counterparty that is a financial end user 
with material swaps exposure or that is a swap entity in an amount that 
is no less than the greater of:
    (1) Zero; or
    (2) The initial margin collection amount for such non-cleared swap 
or non-cleared security-based swap less the initial margin threshold 
amount (not including any portion of the initial margin threshold amount 
already applied by the covered swap entity or its affiliates to other 
non-cleared swaps or non-cleared security-based swaps with the 
counterparty or its affiliates), as applicable.
    (b) Posting of margin. A covered swap entity shall post initial 
margin with respect to any non-cleared swap or non-cleared security-
based swap to a counterparty that is a financial end user with material 
swaps exposure. Such initial margin shall be in an amount at least as 
large as the covered swap entity would be required to collect under 
paragraph (a) of this section if it were in the place of the 
counterparty.
    (c) Timing. A covered swap entity shall comply with the initial 
margin requirements described in paragraphs (a) and (b) of this section 
on each business day, for a period beginning on or before the business 
day following the day of execution and ending on the date the non-
cleared swap or non-cleared security-based swap terminates or expires.
    (d) Other counterparties. A covered swap entity is not required to 
collect or post initial margin with respect to any non-cleared swap or 
non-cleared security-based swap described in Sec.1221.1(d). For any 
other non-cleared swap or non-cleared security-based swap between a 
covered swap entity and a counterparty that is neither a financial end 
user with a material swaps exposure nor a swap entity, the covered swap 
entity shall collect initial margin at such times and in such forms and 
such amounts (if any), that the covered swap entity determines 
appropriately addresses the credit risk posed by the

[[Page 170]]

counterparty and the risks of such non-cleared swap or non-cleared 
security-based swap.



Sec.1221.4  Variation margin.

    (a) General. After the date on which a covered swap entity enters 
into a non-cleared swap or non-cleared security-based swap with a swap 
entity or financial end user, the covered swap entity shall collect 
variation margin equal to the variation margin amount from the 
counterparty to such non-cleared swap or non-cleared security-based swap 
when the amount is positive and post variation margin equal to the 
variation margin amount to the counterparty to such non-cleared swap or 
non-cleared security-based swap when the amount is negative.
    (b) Timing. A covered swap entity shall comply with the variation 
margin requirements described in paragraph (a) of this section on each 
business day, for a period beginning on or before the business day 
following the day of execution and ending on the date the non-cleared 
swap or non-cleared security based swap terminates or expires.
    (c) Other counterparties. A covered swap entity is not required to 
collect or post variation margin with respect to any non-cleared swap or 
non-cleared security-based swap described in Sec.1221.1(d). For any 
other non-cleared swap or non-cleared security-based swap between a 
covered swap entity and a counterparty that is neither a financial end 
user nor a swap entity, the covered swap entity shall collect variation 
margin at such times and in such forms and such amounts (if any), that 
the covered swap entity determines appropriately addresses the credit 
risk posed by the counterparty and the risks of such non-cleared swap or 
non-cleared security-based swap.



Sec.1221.5  Netting arrangements, minimum transfer amount,
and satisfaction of collecting and posting requirements.

    (a) Netting arrangements. (1) For purposes of calculating and 
complying with the initial margin requirements of Sec..3 using an 
initial margin model as described in Sec.1221.8, or with the variation 
margin requirements of Sec.1221.4, a covered swap entity may net non-
cleared swaps or non-cleared security-based swaps in accordance with 
this subsection.
    (2) To the extent that one or more non-cleared swaps or non-cleared 
security-based swaps are executed pursuant to an eligible master netting 
agreement between a covered swap entity and its counterparty that is a 
swap entity or financial end user, a covered swap entity may calculate 
and comply with the applicable requirements of this part on an aggregate 
net basis with respect to all non-cleared swaps and non-cleared 
security-based swaps governed by such agreement, subject to paragraph 
(a)(3) of this section.
    (3)(i) Except as permitted in paragraph (a)(3)(ii) of this section, 
if an eligible master netting agreement covers non-cleared swaps and 
non-cleared security-based swaps entered into on or after the applicable 
compliance date set forth in Sec.1221.1(e) or (g), all the non-cleared 
swaps and non-cleared security-based swaps covered by that agreement are 
subject to the requirements of this part and included in the aggregate 
netting portfolio for the purposes of calculating and complying with the 
margin requirements of this part.
    (ii) An eligible master netting agreement may identify one or more 
separate netting portfolios that independently meet the requirements in 
paragraph (1) of the definition of ``Eligible master netting agreement'' 
in Sec.1221.2 and to which collection and posting of margin applies on 
an aggregate net basis separate from and exclusive of any other non-
cleared swaps or non-cleared security-based swaps covered by the 
eligible master netting agreement. Any such netting portfolio that 
contains any non-cleared swap or non-cleared security-based swap entered 
into on or after the applicable compliance date set forth in Sec.
1221.1(e) or (g) is subject to the requirements of this part. Any such 
netting portfolio that contains only non-cleared swaps or non-cleared 
security-based swaps entered into before the applicable compliance date 
is not subject to the requirements of this part.
    (4) If a covered swap entity cannot conclude after sufficient legal 
review

[[Page 171]]

with a well-founded basis that the netting agreement described in this 
section meets the definition of eligible master netting agreement set 
forth in Sec.1221.2, the covered swap entity must treat the non-
cleared swaps and non-cleared security based swaps covered by the 
agreement on a gross basis for the purposes of calculating and complying 
with the requirements of this part to collect margin, but the covered 
swap entity may net those non-cleared swaps and non-cleared security-
based swaps in accordance with paragraphs (a)(1) through (3) of this 
section for the purposes of calculating and complying with the 
requirements of this part to post margin.
    (b) Minimum transfer amount. Notwithstanding Sec.1221.3 or Sec.
1221.4, a covered swap entity is not required to collect or post margin 
pursuant to this part with respect to a particular counterparty unless 
and until the combined amount of initial margin and variation margin 
that is required pursuant to this part to be collected or posted and 
that has not yet been collected or posted with respect to the 
counterparty is greater than $500,000.
    (c) Satisfaction of collecting and posting requirements. A covered 
swap entity shall not be deemed to have violated its obligation to 
collect or post margin from or to a counterparty under Sec.1221.3, 
Sec.1221.4, or Sec.1221.6(e) if:
    (1) The counterparty has refused or otherwise failed to provide or 
accept the required margin to or from the covered swap entity; and
    (2) The covered swap entity has:
    (i) Made the necessary efforts to collect or post the required 
margin, including the timely initiation and continued pursuit of formal 
dispute resolution mechanisms, or has otherwise demonstrated upon 
request to the satisfaction of FHFA that it has made appropriate efforts 
to collect or post the required margin; or
    (ii) Commenced termination of the non-cleared swap or non-cleared 
security-based swap with the counterparty promptly following the 
applicable cure period and notification requirements.



Sec.1221.6  Eligible collateral.

    (a) Non-cleared swaps and non-cleared security-based swaps with a 
swap entity. For a non-cleared swap or non-cleared security-based swap 
with a swap entity, a covered swap entity shall collect initial margin 
and variation margin required pursuant to this part solely in the form 
of the following types of collateral:
    (1) Immediately available cash funds that are denominated in:
    (i) U.S. dollars or another major currency; or
    (ii) The currency of settlement for the non-cleared swap or non-
cleared security-based swap;
    (2) With respect to initial margin only:
    (i) A security that is issued by, or unconditionally guaranteed as 
to the timely payment of principal and interest by, the U.S. Department 
of the Treasury;
    (ii) A security that is issued by, or unconditionally guaranteed as 
to the timely payment of principal and interest by, a U.S. government 
agency (other than the U.S. Department of Treasury) whose obligations 
are fully guaranteed by the full faith and credit of the United States 
government;
    (iii) A security that is issued by, or fully guaranteed as to the 
payment of principal and interest by, the European Central Bank or a 
sovereign entity that is assigned no higher than a 20 percent risk 
weight under 12 CFR part 324;
    (iv) A publicly traded debt security issued by, or an asset-backed 
security fully guaranteed as to the payment of principal and interest 
by, a U.S. Government-sponsored enterprise that is operating with 
capital support or another form of direct financial assistance received 
from the U.S. government that enables the repayments of the U.S. 
Government-sponsored enterprise's eligible securities;
    (v) A publicly traded debt security that meets the definition of 
``Investment quality'' in Sec.1267.1 of this chapter and is issued by 
a U.S. Government-sponsored enterprise not operating with capital 
support or another form of direct financial assistance from the U.S. 
government, and is not an asset-backed security;
    (vi) A security that is issued by, or fully guaranteed as to the 
payment of principal and interest by, the Bank for

[[Page 172]]

International Settlements, the International Monetary Fund, or a 
multilateral development bank;
    (vii) A security solely in the form of:
    (A) Publicly traded debt not otherwise described in paragraph (a)(2) 
of this section that meets the definition of ``Investment quality'' in 
Sec.1267.1 of this chapter and is not an asset-backed security;
    (B) Publicly traded common equity that is included in:
    (1) The Standard & Poor's Composite 1500 Index or any other similar 
index of liquid and readily marketable equity securities as determined 
by FHFA; or
    (2) An index that a covered swap entity's supervisor in a foreign 
jurisdiction recognizes for purposes of including publicly traded common 
equity as initial margin under applicable regulatory policy, if held in 
that foreign jurisdiction;
    (viii) Securities in the form of redeemable securities in a pooled 
investment fund representing the security-holder's proportional interest 
in the fund's net assets and that are issued and redeemed only on the 
basis of the market value of the fund's net assets prepared each 
business day after the security-holder makes its investment commitment 
or redemption request to the fund, if:
    (A) The fund's investments are limited to the following:
    (1) Securities that are issued by, or unconditionally guaranteed as 
to the timely payment of principal and interest by, the U.S. Department 
of the Treasury, and immediately-available cash funds denominated in 
U.S. dollars; or
    (2) Securities denominated in a common currency and issued by, or 
fully guaranteed as to the payment of principal and interest by, the 
European Central Bank or a sovereign entity that is assigned no higher 
than a 20 percent risk weight under 12 CFR part 324, and immediately-
available cash funds denominated in the same currency; and
    (B) Assets of the fund may not be transferred through securities 
lending, securities borrowing, repurchase agreements, reverse repurchase 
agreements, or other means that involve the fund having rights to 
acquire the same or similar assets from the transferee; or
    (ix) Gold.
    (b) Non-cleared swaps and non-cleared security-based swaps with a 
financial end user. For a non-cleared swap or non-cleared security-based 
swap with a financial end user, a covered swap entity shall collect and 
post initial margin and variation margin required pursuant to this part 
solely in the form of the following types of collateral:
    (1) Immediately available cash funds that are denominated in:
    (i) U.S. dollars or another major currency; or
    (ii) The currency of settlement for the non-cleared swap or non-
cleared security-based swap;
    (2) A security that is issued by, or unconditionally guaranteed as 
to the timely payment of principal and interest by, the U.S. Department 
of the Treasury;
    (3) A security that is issued by, or unconditionally guaranteed as 
to the timely payment of principal and interest by, a U.S. government 
agency (other than the U.S. Department of Treasury) whose obligations 
are fully guaranteed by the full faith and credit of the United States 
government;
    (4) A security that is issued by, or fully guaranteed as to the 
payment of principal and interest by, the European Central Bank or a 
sovereign entity that is assigned no higher than a 20 percent risk 
weight under 12 CFR part 324;
    (5) A publicly traded debt security issued by, or an asset-backed 
security fully guaranteed as to the payment of principal and interest 
by, a U.S. Government-sponsored enterprise that is operating with 
capital support or another form of direct financial assistance received 
from the U.S. government that enables the repayments of the U.S. 
Government-sponsored enterprise's eligible securities;
    (6) A publicly traded debt security that meets the definition of 
``Investment quality'' in Sec.1267.1 of this chapter and is issued by 
a U.S. Government-sponsored enterprise not operating with capital 
support or another form of direct financial assistance from the U.S. 
government, and is not an asset-backed security;

[[Page 173]]

    (7) A security that is issued by, or fully guaranteed as to the 
payment of principal and interest by, the Bank for International 
Settlements, the International Monetary Fund, or a multilateral 
development bank;
    (8) A security solely in the form of:
    (i) Publicly traded debt not otherwise described in this paragraph 
(b) that meets the definition of ``Investment quality'' in Sec.1267.1 
of this chapter and is not an asset-backed security;
    (ii) Publicly traded common equity that is included in:
    (A) The Standard & Poor's Composite 1500 Index or any other similar 
index of liquid and readily marketable equity securities as determined 
by FHFA; or
    (B) An index that a covered swap entity's supervisor in a foreign 
jurisdiction recognizes for purposes of including publicly traded common 
equity as initial margin under applicable regulatory policy, if held in 
that foreign jurisdiction;
    (9) Securities in the form of redeemable securities in a pooled 
investment fund representing the security-holder's proportional interest 
in the fund's net assets and that are issued and redeemed only on the 
basis of the market value of the fund's net assets prepared each 
business day after the security-holder makes its investment commitment 
or redemption request to the fund, if:
    (i) The fund's investments are limited to the following:
    (A) Securities that are issued by, or unconditionally guaranteed as 
to the timely payment of principal and interest by, the U.S. Department 
of the Treasury, and immediately-available cash funds denominated in 
U.S. dollars; or
    (B) Securities denominated in a common currency and issued by, or 
fully guaranteed as to the payment of principal and interest by, the 
European Central Bank or a sovereign entity that is assigned no higher 
than a 20 percent risk weight under 12 CFR part 324, and immediately-
available cash funds denominated in the same currency; and
    (ii) Assets of the fund may not be transferred through securities 
lending, securities borrowing, repurchase agreements, reverse repurchase 
agreements, or other means that involve the fund having rights to 
acquire the same or similar assets from the transferee; or
    (10) Gold.
    (c)(1) The value of any eligible collateral collected or posted to 
satisfy margin requirements pursuant to this part is subject to the sum 
of the following discounts, as applicable:
    (i) An 8 percent discount for variation margin collateral 
denominated in a currency that is not the currency of settlement for the 
non-cleared swap or non-cleared security-based swap, except for 
immediately available cash funds denominated in U.S. dollars or another 
major currency;
    (ii) An 8 percent discount for initial margin collateral denominated 
in a currency that is not the currency of settlement for the non-cleared 
swap or non-cleared security-based swap, except for eligible types of 
collateral denominated in a single termination currency designated as 
payable to the non-posting counterparty as part of the eligible master 
netting agreement; and
    (iii) For variation and initial margin non-cash collateral, the 
discounts described in appendix B of this part.
    (2) The value of variation margin or initial margin collateral is 
computed as the product of the cash or market value of the eligible 
collateral asset times one minus the applicable discounts pursuant to 
paragraph (c)(1) of this section expressed in percentage terms. The 
total value of all variation margin or initial margin collateral is 
calculated as the sum of those values for each eligible collateral 
asset.
    (d) Notwithstanding paragraphs (a) and (b) of this section, eligible 
collateral for initial margin and variation margin required by this part 
does not include a security issued by:
    (1) The party or an affiliate of the party pledging such collateral;
    (2) A bank holding company, a savings and loan holding company, a 
U.S. intermediate holding company established or designated for purposes 
of compliance with 12 CFR 252.153, a foreign bank, a depository 
institution, a market intermediary, a company that would be any of the 
foregoing if it were organized under the laws of the United States or 
any State, or an affiliate of any of the foregoing institutions; or

[[Page 174]]

    (3) A nonbank financial institution supervised by the Board of 
Governors of the Federal Reserve System under Title I of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (12 U.S.C. 5323).
    (e) A covered swap entity shall monitor the market value and 
eligibility of all collateral collected and posted to satisfy the 
minimum initial margin and minimum variation margin requirements of this 
part. To the extent that the market value of such collateral has 
declined, the covered swap entity shall promptly collect or post such 
additional eligible collateral as is necessary to maintain compliance 
with the margin requirements of this part. To the extent that the 
collateral is no longer eligible, the covered swap entity shall promptly 
collect or post sufficient eligible replacement collateral to comply 
with the margin requirements of this part.
    (f) A covered swap entity may collect or post initial margin and 
variation margin that is required by Sec.1221.3(d) or Sec.1221.4(c) 
or that is not required pursuant to this part in any form of collateral.

[80 FR 74914, Nov. 30, 2015]



Sec.1221.7  Segregation of collateral.

    (a) A covered swap entity that posts any collateral other than for 
variation margin with respect to a non-cleared swap or a non-cleared 
security-based swap shall require that all funds or other property other 
than variation margin provided by the covered swap entity be held by one 
or more custodians that are not the covered swap entity or counterparty 
and not affiliates of the covered swap entity or the counterparty.
    (b) A covered swap entity that collects initial margin required by 
Sec.1221.3(a) with respect to a non-cleared swap or a non-cleared 
security-based swap shall require that such initial margin be held by 
one or more custodians that are not the covered swap entity or 
counterparty and not affiliates of the covered swap entity or the 
counterparty.
    (c) For purposes of paragraphs (a) and (b) of this section, the 
custodian must act pursuant to a custody agreement that:
    (1) Prohibits the custodian from rehypothecating, repledging, 
reusing, or otherwise transferring (through securities lending, 
securities borrowing, repurchase agreement, reverse repurchase agreement 
or other means) the collateral held by the custodian, except that cash 
collateral may be held in a general deposit account with the custodian 
if the funds in the account are used to purchase an asset described in 
Sec.1221.6(a)(2) or (b), such asset is held in compliance with this 
Sec.1221.7, and such purchase takes place within a time period 
reasonably necessary to consummate such purchase after the cash 
collateral is posted as initial margin; and
    (2) Is a legal, valid, binding, and enforceable agreement under the 
laws of all relevant jurisdictions, including in the event of 
bankruptcy, insolvency, or a similar proceeding.
    (d) Notwithstanding paragraph (c)(1) of this section, a custody 
agreement may permit the posting party to substitute or direct any 
reinvestment of posted collateral held by the custodian, provided that, 
with respect to collateral collected by a covered swap entity pursuant 
to Sec.1221.3(a) or posted by a covered swap entity pursuant to Sec.
1221.3(b), the agreement requires the posting party to:
    (1) Substitute only funds or other property that would qualify as 
eligible collateral under Sec.1221.6, and for which the amount net of 
applicable discounts described in appendix B of this part would be 
sufficient to meet the requirements of Sec.1221.3; and
    (2) Direct reinvestment of funds only in assets that would qualify 
as eligible collateral under Sec.1221.6, and for which the amount net 
of applicable discounts described in appendix B of this part would be 
sufficient to meet the requirements of Sec.1221.3.



Sec.1221.8  Initial margin models and standardized amounts.

    (a) Standardized amounts. Unless a covered swap entity's initial 
margin model conforms to the requirements of this section, the covered 
swap entity shall calculate the amount of initial margin required to be 
collected or posted for one or more non-cleared swaps or non-cleared 
security-based

[[Page 175]]

swaps with a given counterparty pursuant to Sec.1221.3 on a daily 
basis pursuant to appendix A of this part.
    (b) Use of initial margin models. A covered swap entity may 
calculate the amount of initial margin required to be collected or 
posted for one or more non-cleared swaps or non-cleared security-based 
swaps with a given counterparty pursuant to Sec.1221.3 on a daily 
basis using an initial margin model only if the initial margin model 
meets the requirements of this section.
    (c) Requirements for initial margin model. (1) A covered swap entity 
must obtain the prior written approval of FHFA before using any initial 
margin model to calculate the initial margin required in this part.
    (2) A covered swap entity must demonstrate that the initial margin 
model satisfies all of the requirements of this section on an ongoing 
basis.
    (3) A covered swap entity must notify FHFA in writing 60 days prior 
to:
    (i) Extending the use of an initial margin model that FHFA has 
approved under this section to an additional product type;
    (ii) Making any change to any initial margin model approved by FHFA 
under this section that would result in a material change in the covered 
swap entity's assessment of initial margin requirements; or
    (iii) Making any material change to modeling assumptions used by the 
initial margin model.
    (4) FHFA may rescind its approval of the use of any initial margin 
model, in whole or in part, or may impose additional conditions or 
requirements if FHFA determines, in its sole discretion, that the 
initial margin model no longer complies with this section.
    (d) Quantitative requirements. (1) The covered swap entity's initial 
margin model must calculate an amount of initial margin that is equal to 
the potential future exposure of the non-cleared swap, non-cleared 
security-based swap or netting portfolio of non-cleared swaps or non-
cleared security-based swaps covered by an eligible master netting 
agreement. Potential future exposure is an estimate of the one-tailed 99 
percent confidence interval for an increase in the value of the non-
cleared swap, non-cleared security-based swap or netting portfolio of 
non-cleared swaps or non-cleared security-based swaps due to an 
instantaneous price shock that is equivalent to a movement in all 
material underlying risk factors, including prices, rates, and spreads, 
over a holding period equal to the shorter of ten business days or the 
maturity of the non-cleared swap, non-cleared security-based swap or 
netting portfolio.
    (2) All data used to calibrate the initial margin model must be 
based on an equally weighted historical observation period of at least 
one year and not more than five years and must incorporate a period of 
significant financial stress for each broad asset class that is 
appropriate to the non-cleared swaps and non-cleared security-based 
swaps to which the initial margin model is applied.
    (3) The covered swap entity's initial margin model must use risk 
factors sufficient to measure all material price risks inherent in the 
transactions for which initial margin is being calculated. The risk 
categories must include, but should not be limited to, foreign exchange 
or interest rate risk, credit risk, equity risk, and commodity risk, as 
appropriate. For material exposures in significant currencies and 
markets, modeling techniques must capture spread and basis risk and must 
incorporate a sufficient number of segments of the yield curve to 
capture differences in volatility and imperfect correlation of rates 
along the yield curve.
    (4) In the case of a non-cleared cross-currency swap, the covered 
swap entity's initial margin model need not recognize any risks or risk 
factors associated with the fixed, physically-settled foreign exchange 
transaction associated with the exchange of principal embedded in the 
non-cleared cross-currency swap. The initial margin model must recognize 
all material risks and risk factors associated with all other payments 
and cash flows that occur during the life of the non-cleared cross-
currency swap.
    (5) The initial margin model may calculate initial margin for a non-
cleared swap or non-cleared security-based swap or a netting portfolio 
of non-cleared swaps or non-cleared security-

[[Page 176]]

based swaps covered by an eligible master netting agreement. It may 
reflect offsetting exposures, diversification, and other hedging 
benefits for non-cleared swaps and non-cleared security-based swaps that 
are governed by the same eligible master netting agreement by 
incorporating empirical correlations within the following broad risk 
categories, provided the covered swap entity validates and demonstrates 
the reasonableness of its process for modeling and measuring hedging 
benefits: Commodity, credit, equity, and foreign exchange or interest 
rate. Empirical correlations under an eligible master netting agreement 
may be recognized by the initial margin model within each broad risk 
category, but not across broad risk categories.
    (6) If the initial margin model does not explicitly reflect 
offsetting exposures, diversification, and hedging benefits between 
subsets of non-cleared swaps or non-cleared security-based swaps within 
a broad risk category, the covered swap entity must calculate an amount 
of initial margin separately for each subset within which such 
relationships are explicitly recognized by the initial margin model. The 
sum of the initial margin amounts calculated for each subset of non-
cleared swaps and non-cleared security-based swaps within a broad risk 
category will be used to determine the aggregate initial margin due from 
the counterparty for the portfolio of non-cleared swaps and non-cleared 
security-based swaps within the broad risk category.
    (7) The sum of the initial margin amounts calculated for each broad 
risk category will be used to determine the aggregate initial margin due 
from the counterparty.
    (8) The initial margin model may not permit the calculation of any 
initial margin collection amount to be offset by, or otherwise take into 
account, any initial margin that may be owed or otherwise payable by the 
covered swap entity to the counterparty.
    (9) The initial margin model must include all material risks arising 
from the nonlinear price characteristics of option positions or 
positions with embedded optionality and the sensitivity of the market 
value of the positions to changes in the volatility of the underlying 
rates, prices, or other material risk factors.
    (10) The covered swap entity may not omit any risk factor from the 
calculation of its initial margin that the covered swap entity uses in 
its initial margin model unless it has first demonstrated to the 
satisfaction of FHFA that such omission is appropriate.
    (11) The covered swap entity may not incorporate any proxy or 
approximation used to capture the risks of the covered swap entity's 
non-cleared swaps or non-cleared security-based swaps unless it has 
first demonstrated to the satisfaction of FHFA that such proxy or 
approximation is appropriate.
    (12) The covered swap entity must have a rigorous and well-defined 
process for re-estimating, re-evaluating, and updating its internal 
margin model to ensure continued applicability and relevance.
    (13) The covered swap entity must review and, as necessary, revise 
the data used to calibrate the initial margin model at least annually, 
and more frequently as market conditions warrant, to ensure that the 
data incorporate a period of significant financial stress appropriate to 
the non-cleared swaps and non-cleared security-based swaps to which the 
initial margin model is applied.
    (14) The level of sophistication of the initial margin model must be 
commensurate with the complexity of the non-cleared swaps and non-
cleared security-based swaps to which it is applied. In calculating an 
initial margin collection amount, the initial margin model may make use 
of any of the generally accepted approaches for modeling the risk of a 
single instrument or portfolio of instruments.
    (15) FHFA may in its sole discretion require a covered swap entity 
using an initial margin model to collect a greater amount of initial 
margin than that determined by the covered swap entity's initial margin 
model if FHFA determines that the additional collateral is appropriate 
due to the nature, structure, or characteristics of the covered swap 
entity's transaction(s), or is commensurate with the risks associated 
with the transaction(s).

[[Page 177]]

    (e) Periodic review. A covered swap entity must periodically, but no 
less frequently than annually, review its initial margin model in light 
of developments in financial markets and modeling technologies, and 
enhance the initial margin model as appropriate to ensure that the 
initial margin model continues to meet the requirements for approval in 
this section.
    (f) Control, oversight, and validation mechanisms. (1) The covered 
swap entity must maintain a risk control unit that reports directly to 
senior management and is independent from the business trading units.
    (2) The covered swap entity's risk control unit must validate its 
initial margin model prior to implementation and on an ongoing basis. 
The covered swap entity's validation process must be independent of the 
development, implementation, and operation of the initial margin model, 
or the validation process must be subject to an independent review of 
its adequacy and effectiveness. The validation process must include:
    (i) An evaluation of the conceptual soundness of (including 
developmental evidence supporting) the initial margin model;
    (ii) An ongoing monitoring process that includes verification of 
processes and benchmarking by comparing the covered swap entity's 
initial margin model outputs (estimation of initial margin) with 
relevant alternative internal and external data sources or estimation 
techniques. The benchmark(s) must address the chosen model's 
limitations. When applicable, the covered swap entity should consider 
benchmarks that allow for non-normal distributions such as historical 
and Monte Carlo simulations. When applicable, validation shall include 
benchmarking against observable margin standards to ensure that the 
initial margin required is not less than what a derivatives clearing 
organization or a clearing agency would require for similar cleared 
transactions; and
    (iii) An outcomes analysis process that includes backtesting the 
initial margin model. This analysis must recognize and compensate for 
the challenges inherent in back-testing over periods that do not contain 
significant financial stress.
    (3) If the validation process reveals any material problems with the 
initial margin model, the covered swap entity must promptly notify FHFA 
of the problems, describe to FHFA any remedial actions being taken, and 
adjust the initial margin model to ensure an appropriately conservative 
amount of required initial margin is being calculated.
    (4) The covered swap entity must have an internal audit function 
independent of business-line management and the risk control unit that 
at least annually assesses the effectiveness of the controls supporting 
the covered swap entity's initial margin model measurement systems, 
including the activities of the business trading units and risk control 
unit, compliance with policies and procedures, and calculation of the 
covered swap entity's initial margin requirements under this part. At 
least annually, the internal audit function must report its findings to 
the covered swap entity's board of directors or a committee thereof.
    (g) Documentation. The covered swap entity must adequately document 
all material aspects of its initial margin model, including the 
management and valuation of the non-cleared swaps and non-cleared 
security-based swaps to which it applies, the control, oversight, and 
validation of the initial margin model, any review processes and the 
results of such processes.
    (h) Escalation procedures. The covered swap entity must adequately 
document internal authorization procedures, including escalation 
procedures, that require review and approval of any change to the 
initial margin calculation under the initial margin model, demonstrable 
analysis that any basis for any such change is consistent with the 
requirements of this section, and independent review of such 
demonstrable analysis and approval.



Sec.1221.9  Cross-border application of margin requirements.

    (a) Transactions to which this rule does not apply. The requirements 
of Sec. Sec.1221.3 through 1221.8 and Sec. Sec.1221.10 through 
1221.12 shall not apply to any foreign non-cleared swap or foreign non-

[[Page 178]]

cleared security-based swap of a foreign covered swap entity.
    (b) For purposes of this section, a foreign non-cleared swap or 
foreign non-cleared security-based swap is any non-cleared swap or non-
cleared security-based swap with respect to which neither the 
counterparty to the foreign covered swap entity nor any party that 
provides a guarantee of either party's obligations under the non-cleared 
swap or non-cleared security-based swap is:
    (1) An entity organized under the laws of the United States or any 
State (including a U.S. branch, agency, or subsidiary of a foreign bank) 
or a natural person who is a resident of the United States;
    (2) A branch or office of an entity organized under the laws of the 
United States or any State; or
    (3) A swap entity that is a subsidiary of an entity that is 
organized under the laws of the United States or any State.
    (c) For purposes of this section, a foreign covered swap entity is 
any covered swap entity that is not:
    (1) An entity organized under the laws of the United States or any 
State, including a U.S. branch, agency, or subsidiary of a foreign bank;
    (2) A branch or office of an entity organized under the laws of the 
United States or any State; or
    (3) An entity that is a subsidiary of an entity that is organized 
under the laws of the United States or any State.
    (d) Transactions for which substituted compliance determination may 
apply--(1) Determinations and reliance. For non-cleared swaps and non-
cleared security-based swaps entered into by covered swap entities 
described in paragraph (d)(3) of this section, a covered swap entity may 
satisfy the provisions of this part by complying with the foreign 
regulatory framework for non-cleared swaps and non-cleared security-
based swaps that the prudential regulators jointly, conditionally or 
unconditionally, determine by public order satisfy the corresponding 
requirements of Sec. Sec.1221.3 through 1221.8 and Sec. Sec.1221.10 
through 1221.12.
    (2) Standard. In determining whether to make a determination under 
paragraph (d)(1) of this section, the prudential regulators will 
consider whether the requirements of such foreign regulatory framework 
for non-cleared swaps and non-cleared security-based swaps applicable to 
such covered swap entities are comparable to the otherwise applicable 
requirements of this part and appropriate for the safe and sound 
operation of the covered swap entity, taking into account the risks 
associated with non-cleared swaps and non-cleared security-based swaps.
    (3) Covered swap entities eligible for substituted compliance. A 
covered swap entity may rely on a determination under paragraph (d)(1) 
of this section only if:
    (i) The covered swap entity's obligations under the non-cleared swap 
or non-cleared security-based swap do not have a guarantee from:
    (A) An entity organized under the laws of the United States or any 
State (other than a U.S. branch or agency of a foreign bank) or a 
natural person who is a resident of the United States; or
    (B) A branch or office of an entity organized under the laws of the 
United States or any State; and
    (ii) The covered swap entity is:
    (A) A foreign covered swap entity;
    (B) A U.S. branch or agency of a foreign bank; or
    (C) An entity that is not organized under the laws of the United 
States or any State and is a subsidiary of a depository institution, 
Edge corporation, or agreement corporation.
    (4) Compliance with foreign margin collection requirement. A covered 
swap entity satisfies its requirement to post initial margin under Sec.
1221.3(b) by posting to its counterparty initial margin in the form and 
amount, and at such times, that its counterparty is required to collect 
pursuant to a foreign regulatory framework, provided that the 
counterparty is subject to the foreign regulatory framework and the 
prudential regulators have made a determination under paragraph (d)(1) 
of this section, unless otherwise stated in that determination, and the 
counterparty's obligations under the non-cleared swap or non-cleared 
security-based swap do not have a guarantee from:
    (i) An entity organized under the laws of the United States or any 
State (including a U.S. branch, agency, or

[[Page 179]]

subsidiary of a foreign bank) or a natural person who is a resident of 
the United States; or
    (ii) A branch or office of an entity organized under the laws of the 
United States or any State.
    (e) Requests for determinations. (1) A covered swap entity described 
in paragraph (d)(3) of this section may request that the prudential 
regulators make a determination pursuant to this section. A request for 
a determination must include a description of:
    (i) The scope and objectives of the foreign regulatory framework for 
non-cleared swaps and non-cleared security-based swaps;
    (ii) The specific provisions of the foreign regulatory framework for 
non-cleared swaps and non-cleared security-based swaps that govern:
    (A) The scope of transactions covered;
    (B) The determination of the amount of initial margin and variation 
margin required and how that amount is calculated;
    (C) The timing of margin requirements;
    (D) Any documentation requirements;
    (E) The forms of eligible collateral;
    (F) Any segregation and rehypothecation requirements; and
    (G) The approval process and standards for models used in 
calculating initial margin and variation margin;
    (iii) The supervisory compliance program and enforcement authority 
exercised by a foreign financial regulatory authority or authorities in 
such system to support its oversight of the application of the non-
cleared swap or non-cleared security-based swap regulatory framework and 
how that framework applies to the non-cleared swaps or non-cleared 
security-based swaps of the covered swap entity; and
    (iv) Any other descriptions and documentation that the prudential 
regulators determine are appropriate.
    (2) A covered swap entity described in paragraph (d)(3) of this 
section may make a request under this section only if the non-cleared 
swap or non-cleared security-based swap activities of the covered swap 
entity are directly supervised by the authorities administering the 
foreign regulatory framework for non-cleared swaps and non-cleared 
security-based swaps.
    (f) Segregation unavailable. Sections 1221.3(b) and 1221.7 do not 
apply to a non-cleared swap or non-cleared security-based swap entered 
into by:
    (1) A foreign branch of a covered swap entity that is a depository 
institution; or
    (2) A covered swap entity that is not organized under the laws of 
the United States or any State and is a subsidiary of a depository 
institution, Edge corporation, or agreement corporation, if:
    (i) Inherent limitations in the legal or operational infrastructure 
in the foreign jurisdiction make it impracticable for the covered swap 
entity and the counterparty to post any form of eligible initial margin 
collateral recognized pursuant to Sec.1221.6(b) in compliance with the 
segregation requirements of Sec.1221.7;
    (ii) The covered swap entity is subject to foreign regulatory 
restrictions that require the covered swap entity to transact in the 
non-cleared swap or non-cleared security-based swap with the 
counterparty through an establishment within the foreign jurisdiction 
and do not accommodate the posting of collateral for the non-cleared 
swap or non-cleared security-based swap outside the jurisdiction;
    (iii) The counterparty to the non-cleared swap or non-cleared 
security-based swap is not, and the counterparty's obligations under the 
non-cleared swap or non-cleared security-based swap do not have a 
guarantee from:
    (A) An entity organized under the laws of the United States or any 
State (including a U.S. branch, agency, or subsidiary of a foreign bank) 
or a natural person who is a resident of the United States; or
    (B) A branch or office of an entity organized under the laws of the 
United States or any State;
    (iv) The covered swap entity collects initial margin for the non-
cleared swap or non-cleared security-based swap in accordance with Sec.
1221.3(a) in the form of cash pursuant to Sec.1221.6(b)(1), and posts 
and collects variation margin in accordance with Sec.1221.4(a) in the 
form of cash pursuant to Sec.1221.6(b)(1); and

[[Page 180]]

    (v) FHFA provides the covered swap entity with prior written 
approval for the covered swap entity's reliance on this paragraph (f) 
for the foreign jurisdiction.
    (g) Guarantee means an arrangement pursuant to which one party to a 
non-cleared swap or non-cleared security-based swap has rights of 
recourse against a third-party guarantor, with respect to its 
counterparty's obligations under the non-cleared swap or non-cleared 
security-based swap. For these purposes, a party to a non-cleared swap 
or non-cleared security-based swap has rights of recourse against a 
guarantor if the party has a conditional or unconditional legally 
enforceable right to receive or otherwise collect, in whole or in part, 
payments from the guarantor with respect to its counterparty's 
obligations under the non-cleared swap or non-cleared security-based 
swap. In addition, any arrangement pursuant to which the guarantor has a 
conditional or unconditional legally enforceable right to receive or 
otherwise collect, in whole or in part, payments from any other third 
party guarantor with respect to the counterparty's obligations under the 
non-cleared swap or non-cleared security-based swap, such arrangement 
will be deemed a guarantee of the counterparty's obligations under the 
non-cleared swap or non-cleared security-based swap by the other 
guarantor.



Sec.1221.10  Documentation of margin matters.

    A covered swap entity shall execute trading documentation with each 
counterparty that is either a swap entity or financial end user 
regarding credit support arrangements that:
    (a) Provides the covered swap entity and its counterparty with the 
contractual right to collect and post initial margin and variation 
margin in such amounts, in such form, and under such circumstances as 
are required by this part; and
    (b) Specifies:
    (1) The methods, procedures, rules, and inputs for determining the 
value of each non-cleared swap or non-cleared security-based swap for 
purposes of calculating variation margin requirements; and
    (2) The procedures by which any disputes concerning the valuation of 
non-cleared swaps or non-cleared security-based swaps, or the valuation 
of assets collected or posted as initial margin or variation margin, may 
be resolved; and
    (c) Describes the methods, procedures, rules, and inputs used to 
calculate initial margin for non-cleared swaps and non-cleared security 
based swaps entered into between the covered swap entity and the 
counterparty.



Sec.1221.11  Special rules for affiliates.

    (a) Affiliates. This part applies to a non-cleared swap or non-
cleared security-based swap of a covered swap entity with its affiliate, 
unless the swap or security-based swap is excluded from coverage under 
Sec.1221.1(d) or as otherwise provided in this section. To the extent 
of any inconsistency between this section and any other provision of 
this part, this section will apply.
    (b) Initial margin--(1) Posting of initial margin. The requirement 
for a covered swap entity to post initial margin under Sec.1221.3(b) 
does not apply with respect to any non-cleared swap or non-cleared 
security-based swap with a counterparty that is an affiliate. A covered 
swap entity shall calculate the amount of initial margin that would be 
required to be posted to an affiliate that is a financial end user with 
material swaps exposure pursuant to Sec.1221.3(b) and provide 
documentation of such amount to each affiliate on a daily basis.
    (2) Initial margin threshold amount. For purposes of calculating the 
amount of initial margin to be collected from an affiliate counterparty 
in accordance with Sec.1221.3(a) or calculating the amount of initial 
margin that would have been posted to an affiliate counterparty in 
accordance with paragraph (b)(1) of this section, the initial margin 
threshold amount is an aggregate credit exposure of $20 million 
resulting from all non-cleared swaps and non-cleared security-based 
swaps between the covered swap entity and that affiliate. For purposes 
of this calculation, an entity shall not count a non-cleared swap or 
non-cleared security-based swap that is exempt pursuant to Sec.
1221.1(d).

[[Page 181]]

    (c) Variation margin. A covered swap entity shall collect and post 
variation margin with respect to a non-cleared swap or non-cleared 
security-based swap with any counterparty that is an affiliate as 
provided in Sec.1221.4.
    (d) Custodian for non-cash collateral. To the extent that a covered 
swap entity collects initial margin required by Sec.1221.3(a) from an 
affiliate with respect to any non-cleared swap or non-cleared security-
based swap in the form of collateral other than cash collateral, the 
custodian for such collateral may be the covered swap entity or an 
affiliate of the covered swap entity.
    (e) Model holding period and netting--(1) Model holding period. For 
any non-cleared swap or non-cleared security-based swap (or netting 
portfolio) between a covered swap entity and an affiliate that would be 
subject to the clearing requirements of section 2(h)(1)(A) of the 
Commodity Exchange Act of 1936 or section 3C(a)(1) of the Securities 
Exchange Act of 1934 but for an exemption under section 2(h)(7)(C)(iii) 
or (D) or section 4(c)(1) of the Commodity Exchange Act of 1936 or 
regulations of the Commodity Futures Trading Commission or section 
3C(g)(4) of the Securities Exchange Act of 1934 or regulations of the 
U.S. Securities and Exchange Commission, the covered swap entity's 
initial margin model calculation as described in Sec.1221.8(d)(1) may 
use a holding period equal to the shorter of five business days or the 
maturity of the non-cleared swap or non-cleared security-based swap (or 
netting portfolio).
    (2) Netting arrangements. Any netting portfolio that contains any 
non-cleared swap or non-cleared security-based swap with a model holding 
period equal to the shorter of five business days or the maturity of the 
non-cleared swap or non-cleared security-based swap pursuant to 
paragraph (e)(1) of this section must be identified and separate from 
any other netting portfolio for purposes of calculating and complying 
with the initial margin requirements of this part.
    (f) Standardized amounts. If a covered swap entity's initial margin 
model does not conform to the requirements of Sec.1221.8, the covered 
swap entity shall calculate the amount of initial margin required to be 
collected for one or more non-cleared swaps or non-cleared security-
based swaps with a given affiliate counterparty pursuant to section 
Sec.1221.3 on a daily basis pursuant to Appendix A with the gross 
initial margin multiplied by 0.7.



Sec.1221.12  Capital.

    A covered swap entity shall comply with the capital levels or such 
other amounts applicable to it as required by the Director of FHFA 
pursuant to 12 U.S.C. 4611.

[80 FR 74914, Nov. 30, 2015]



   Sec. Appendix A to Part 1221--Standardized Minimum Initial Margin 
Requirements for Non-cleared Swaps and Non--cleared Security-based Swaps

Table A--Standardized Minimum Gross Initial Margin Requirements for Non-
          cleared Swaps and Non-cleared Security-Based Swaps\1\
------------------------------------------------------------------------
                                                           Gross initial
                                                           margin (% of
                       Asset Class                           notional
                                                             exposure)
------------------------------------------------------------------------
Credit: 0-2 year duration...............................               2
Credit: 2-5 year duration...............................               5
Credit: 5+ year duration................................              10
Commodity...............................................              15
Equity..................................................              15
Foreign Exchange/Currency...............................               6
Cross Currency Swaps: 0-2 year duration.................               1
Cross-Currency Swaps: 2-5 year duration.................               2
Cross-Currency Swaps: 5+ year duration..................               4
Interest Rate: 0-2 year duration........................               1
Interest Rate: 2-5 year duration........................               2
Interest Rate: 5+ year duration.........................               4

[[Page 182]]

 
Other...................................................              15
------------------------------------------------------------------------
\1\ The initial margin amount applicable to multiple non-cleared swaps
  or non-cleared security-based swaps subject to an eligible master
  netting agreement that is calculated according to Appendix A will be
  computed as follows:
Initial Margin=0.4xGross Initial Margin +0.6x NGRxGross Initial Margin
where;
Gross Initial Margin = the sum of the product of each non-cleared swap's
  or non-cleared security-based swap's effective notional amount and the
  gross initial margin requirement for all non-cleared swaps and non-
  cleared security-based swaps subject to the eligible master netting
  agreement;
and
NGR = the net-to-gross ratio (that is, the ratio of the net current
  replacement cost to the gross current replacement cost). In
  calculating NGR, the gross current replacement cost equals the sum of
  the replacement cost for each non-cleared swap and non-cleared
  security-based swap subject to the eligible master netting agreement
  for which the cost is positive. The net current replacement cost
  equals the total replacement cost for all non-cleared swaps and non-
  cleared security-based swaps subject to the eligible master netting
  agreement. In cases where the gross replacement cost is zero, the NGR
  should be set to 1.0.



Sec. Appendix B to Part 1221--Margin Values for Eligible Noncash Margin 
                               Collateral.

      Table B--Margin Values for Eligible Noncash Margin Collateral
------------------------------------------------------------------------
                       Asset class                         Discount (%)
------------------------------------------------------------------------
Eligible government and related (e.g., central bank,                 0.5
 multilateral development bank, GSE securities
 identified in Sec. 1221.6(a)(2)(iv) or (b)(5) debt:
 residual maturity less than one-year...................
Eligible government and related (e.g., central bank,                 2.0
 multilateral development bank, GSE securities
 identified in Sec. 1221.6(a)(2)(iv) or (b)(5) debt:
 residual maturity between one and five years...........
Eligible government and related (e.g., central bank,                 4.0
 multilateral development bank, GSE securities
 identified in Sec. 1221.6(a)(2)(iv) or (b)(5) debt:
 residual maturity greater than five years..............
Eligible GSE debt securities not identified in Sec.1.0
 1221.6(a)(2)(iv) or (b)(5): residual maturity less than
 one-year...............................................
Eligible GSE debt securities not identified in Sec.4.0
 1221.6(a)(2)(iv) or (b)(5): residual maturity between
 one and five years:....................................
Eligible GSE debt securities not identified in Sec.8.0
 1221.6(a)(2)(iv) or (b)(5): residual maturity greater
 than five years:.......................................
Other eligible publicly traded debt: residual maturity               1.0
 less than one-year.....................................
Other eligible publicly traded debt: residual maturity               4.0
 between one and five years.............................
Other eligible publicly traded debt: residual maturity               8.0
 greater than five years................................
Equities included in S&P 500 or related index...........            15.0
Equities included in S&P 1500 Composite or related index            25.0
 but not S&P 500 or related index.......................
Gold....................................................            15.0
------------------------------------------------------------------------
\1\ The discount to be applied to an eligible investment fund is the
  weighted average discount on all assets within the eligible investment
  fund at the end of the prior month. The weights to be applied in the
  weighted average should be calculated as a fraction of the fund's
  total market value that is invested in each asset with a given
  discount amount. As an example, an eligible investment fund that is
  comprised solely of $100 of 91 day Treasury bills and $100 of 3 year
  US Treasury bonds would receive a discount of (100/200)*0.5+(100/
  200)*2.0=(0.5)*0.5+(0.5)*2.0=1.25 percent.



PART 1222_APPRAISALS--Table of Contents



         Subpart A_Requirements for Higher-Priced Mortgage Loans

Sec.
1222.1 Purpose and scope.
1222.2 Reservation of authority.

       Subpart B_Appraisal Management Company Minimum Requirements

1222.20 Authority, purpose, and scope.
1222.21 Definitions.
1222.22 Appraiser panel--annual size calculation.
1222.23 Appraisal management company registration.
1222.24 Ownership limitations for State-registered appraisal management 
          companies.
1222.25 Requirements for Federally regulated appraisal management 
          companies.
1222.26 Information to be presented to the Appraisal Subcommittee by 
          participating States.

Subparts C to Z [Reserved]

    Authority: 12 U.S.C. 4501 et seq., 12 U.S.C. 4526 and 15 U.S.C. 
1639h.

[[Page 183]]


    Source: 78 FR 10446, Feb. 13, 2013, unless otherwise noted.



         Subpart A_Requirements for Higher-Priced Mortgage Loans



Sec.1222.1  Purpose and scope.

    This subpart cross-references the requirement that creditors 
extending credit in the form of higher-priced mortgage loans comply with 
Section 129H of the Truth-in-Lending Act (TILA), 15 U.S.C. 1639h, and 
its implementing regulations in Regulation Z, 12 CFR 1026.35. Neither 
the Banks nor the Enterprises are subject to Section 129H of TILA or 12 
CFR 1026.35. Originators of higher-priced mortgage loans, including Bank 
members and institutions that sell mortgage loans to the Enterprises, 
are subject to those provisions. A failure of those institutions to 
comply with Section 129H of TILA and 12 CFR 1026.35 may limit their 
ability to sell such loans to the Banks or Enterprises or to pledge such 
loans to the Banks as collateral, to the extent provided in the parties' 
agreements.



Sec.1222.2  Reservation of authority.

    Nothing in this subpart A shall be read to limit the authority of 
the Director of the Federal Housing Finance Agency to take supervisory 
or enforcement action, including action to address unsafe and unsound 
practices or conditions, or violations of law. In addition, nothing in 
this subpart A shall be read to limit the authority of the Director to 
impose requirements for any purchase of higher-priced mortgage loans by 
an Enterprise or a Federal Home Loan Bank, or acceptance of higher-
priced mortgage loans as collateral to secure advances by a Federal Home 
Loan Bank.



       Subpart B_Appraisal Management Company Minimum Requirements

    Source: 80 FR 32687, June 9, 2015, unless otherwise noted.



Sec.1222.20  Authority, purpose, and scope.

    (a) Authority. This subpart is issued by the Federal Housing Finance 
Agency pursuant to 12 U.S.C. 4501 et seq., 12 U.S.C. 4526, and Title XI 
of the Financial Institutions Reform, Recovery, and Enforcement Act 
(FIRREA), as amended by the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (the Dodd-Frank Act) (Pub. L. 111-203, 124 Stat. 1376 
(2010)), 12 U.S.C. 3331 et seq.
    (b) Purpose. The purpose of this subpart is to implement sections 
1109, 1117, 1121, and 1124 of FIRREA Title XI, 12 U.S.C. 3338, 3346, 
3350, and 3353.
    (c) Scope. This subpart applies to States and to appraisal 
management companies (AMCs) providing appraisal management services in 
connection with consumer credit transactions secured by a consumer's 
principal dwelling or securitizations of those transactions.
    (d) Rule of construction. Nothing in this subpart should be 
construed to prevent a State from establishing requirements in addition 
to those in this subpart. In addition, nothing in this subpart should be 
construed to alter guidance in, and applicability of, the Interagency 
Appraisal and Evaluation Guidelines \1\ or other relevant agency 
guidance that cautions banks, bank holding companies, Federal savings 
associations, state savings associations, and credit unions, as 
applicable, that each such entity is accountable for overseeing the 
activities of third-party service providers and ensuring that any 
services provided by a third party comply with applicable laws, 
regulations, and supervisory guidance applicable directly to the 
financial institution.
---------------------------------------------------------------------------

    \1\ 75 FR 77450 (December 10, 2010).
---------------------------------------------------------------------------



Sec.1222.21  Definitions.

    For purposes of this subpart:
    (a) Affiliate has the meaning provided in 12 U.S.C. 1841.
    (b) AMC National Registry means the registry of State-registered 
AMCs and Federally regulated AMCs maintained by the Appraisal 
Subcommittee.
    (c)(1) Appraisal management company (AMC) means a person that:
    (i) Provides appraisal management services to creditors or to 
secondary mortgage market participants, including affiliates;

[[Page 184]]

    (ii) Provides such services in connection with valuing a consumer's 
principal dwelling as security for a consumer credit transaction or 
incorporating such transactions into securitizations; and
    (iii) Within a given 12-month period, as defined in Sec.
1222.22(d), oversees an appraiser panel of more than 15 State-certified 
or State-licensed appraisers in a State or 25 or more State-certified or 
State-licensed appraisers in two or more States, as described in Sec.
1222.22;
    (2) An AMC does not include a department or division of an entity 
that provides appraisal management services only to that entity.
    (d) Appraisal management services means one or more of the 
following:
    (1) Recruiting, selecting, and retaining appraisers;
    (2) Contracting with State-certified or State-licensed appraisers to 
perform appraisal assignments;
    (3) Managing the process of having an appraisal performed, including 
providing administrative services such as receiving appraisal orders and 
appraisal reports, submitting completed appraisal reports to creditors 
and secondary market participants, collecting fees from creditors and 
secondary market participants for services provided, and paying 
appraisers for services performed; and
    (4) Reviewing and verifying the work of appraisers.
    (e) Appraiser panel means a network, list or roster of licensed or 
certified appraisers approved by an AMC to perform appraisals as 
independent contractors for the AMC. Appraisers on an AMC's ``appraiser 
panel'' under this part include both appraisers accepted by the AMC for 
consideration for future appraisal assignments in covered transactions 
or for secondary mortgage market participants in connection with covered 
transactions and appraisers engaged by the AMC to perform one or more 
appraisals in covered transactions or for secondary mortgage market 
participants in connection with covered transactions. An appraiser is an 
independent contractor for purposes of this subpart if the appraiser is 
treated as an independent contractor by the AMC for purposes of Federal 
income taxation.
    (f) Appraisal Subcommittee means the Appraisal Subcommittee of the 
Federal Financial Institutions Examination Council.
    (g) Consumer credit means credit offered or extended to a consumer 
primarily for personal, family, or household purposes.
    (h) Covered transaction means any consumer credit transaction 
secured by the consumer's principal dwelling.
    (i) Creditor means:
    (1) A person who regularly extends consumer credit that is subject 
to a finance charge or is payable by written agreement in more than four 
installments (not including a down payment), and to whom the obligation 
is initially payable, either on the face of the note or contract, or by 
agreement when there is no note or contract.
    (2) A person regularly extends consumer credit if the person 
extended credit (other than credit subject to the requirements of 12 CFR 
1026.32) more than 5 times for transactions secured by a dwelling in the 
preceding calendar year. If a person did not meet these numerical 
standards in the preceding calendar year, the numerical standards shall 
be applied to the current calendar year. A person regularly extends 
consumer credit if, in any 12-month period, the person originates more 
than one credit extension that is subject to the requirements of 12 CFR 
1026.32 or one or more such credit extensions through a mortgage broker.
    (j) Dwelling means:
    (1) A residential structure that contains one to four units, whether 
or not that structure is attached to real property. The term includes an 
individual condominium unit, cooperative unit, mobile home, and trailer, 
if it is used as a residence.
    (2) A consumer can have only one ``principal'' dwelling at a time. 
Thus, a vacation or other second home would not be a principal dwelling. 
However, if a consumer buys or builds a new dwelling that will become 
the consumer's principal dwelling within a year or upon the completion 
of construction, the new dwelling is considered the principal dwelling 
for purposes of this section.
    (k) Federally regulated AMC means an AMC that is owned and 
controlled by

[[Page 185]]

an insured depository institution, as defined in 12 U.S.C. 1813 and that 
is regulated by the Office of the Comptroller of the Currency, the Board 
of Governors of the Federal Reserve System, or the Federal Deposit 
Insurance Corporation.
    (l) Federally related transaction regulations means regulations 
established by the Office of the Comptroller of the Currency, the Board 
of Governors of the Federal Reserve System, the Federal Deposit 
Insurance Corporation, or the National Credit Union Administration, 
pursuant to sections 1112, 1113, and 1114 of FIRREA Title XI, 12 U.S.C. 
3341-3343.
    (m) Person means a natural person or an organization, including a 
corporation, partnership, proprietorship, association, cooperative, 
estate, trust, or government unit.
    (n) Secondary mortgage market participant means a guarantor or 
insurer of mortgage-backed securities, or an underwriter or issuer of 
mortgage-backed securities. Secondary mortgage market participant only 
includes an individual investor in a mortgage-backed security if that 
investor also serves in the capacity of a guarantor, insurer, 
underwriter, or issuer for the mortgage-backed security.
    (o) States mean the 50 States and the District of Columbia and the 
territories of Guam, Mariana Islands, Puerto Rico, and the U.S. Virgin 
Islands.
    (p) Uniform Standards of Professional Appraisal Practice (USPAP) 
means the appraisal standards promulgated by the Appraisal Standards 
Board of the Appraisal Foundation.



Sec.1222.22  Appraiser panel--annual size calculation.

    For purposes of determining whether, within a 12-month period, an 
AMC oversees an appraiser panel of more than 15 State-certified or 
State-licensed appraisers in a State or 25 or more State-certified or 
State-licensed appraisers in two or more States pursuant to Sec.
1222.21(c)(1)(iii)--
    (a) An appraiser is deemed part of the AMC's appraiser panel as of 
the earliest date on which the AMC:
    (1) Accepts the appraiser for the AMC's consideration for future 
appraisal assignments in covered transactions or for secondary mortgage 
market participants in connection with covered transactions; or
    (2) Engages the appraiser to perform one or more appraisals on 
behalf of a creditor for a covered transaction or secondary mortgage 
market participant in connection with covered transactions.
    (b) An appraiser who is deemed part of the AMC's appraiser panel 
pursuant to paragraph (a) of this section is deemed to remain on the 
panel until the date on which the AMC:
    (1) Sends written notice to the appraiser removing the appraiser 
from the appraiser panel, with an explanation of its action; or
    (2) Receives written notice from the appraiser asking to be removed 
from the appraiser panel or notice of the death or incapacity of the 
appraiser.
    (c) If an appraiser is removed from an AMC's appraiser panel 
pursuant to paragraph (b) of this section, but the AMC subsequently 
accepts the appraiser for consideration for future assignments or 
engages the appraiser at any time during the twelve months after the 
AMC's removal, the removal will be deemed not to have occurred, and the 
appraiser will be deemed to have been part of the AMC's appraiser panel 
without interruption.
    (d) The period for purposes of counting appraisers on an AMC's 
appraiser panel may be the calendar year or a 12-month period 
established by law or rule of each State with which the AMC is required 
to register.



Sec.1222.23  Appraisal management company registration.

    Each State electing to register AMCs pursuant to paragraph (b)(1) of 
this section must:
    (a) Establish and maintain within the State appraiser certifying and 
licensing agency a licensing program that is subject to the limitations 
set forth in Sec.1222.24 and with the legal authority and mechanisms 
to:
    (1) Review and approve or deny an AMC's application for initial 
registration;
    (2) Review and renew or review and deny an AMC's registration 
periodically;

[[Page 186]]

    (3) Examine the books and records of an AMC operating in the State 
and require the AMC to submit reports, information, and documents;
    (4) Verify that the appraisers on the AMC's panel hold valid State 
certifications or licenses, as applicable;
    (5) Conduct investigations of AMCs to assess potential violations of 
applicable appraisal-related laws, regulations, or orders;
    (6) Discipline, suspend, terminate, or deny renewal of the 
registration of an AMC that violates applicable appraisal-related laws, 
regulations, or orders; and
    (7) Report an AMC's violation of applicable appraisal-related laws, 
regulations, or orders, as well as disciplinary and enforcement actions 
and other relevant information about an AMC's operations, to the 
Appraisal Subcommittee.
    (b) Impose requirements on AMCs that are not owned and controlled by 
an insured depository institution and not regulated by a Federal 
financial institutions regulatory agency to:
    (1) Register with and be subject to supervision by the State 
appraiser certifying and licensing agency;
    (2) Engage only State-certified or State-licensed appraisers for 
Federally related transactions in conformity with any Federally related 
transaction regulations;
    (3) Establish and comply with processes and controls reasonably 
designed to ensure that the AMC, in engaging an appraiser, selects an 
appraiser who is independent of the transaction and who has the 
requisite education, expertise, and experience necessary to competently 
complete the appraisal assignment for the particular market and property 
type;
    (4) Direct the appraiser to perform the assignment in accordance 
with USPAP; and
    (5) Establish and comply with processes and controls reasonably 
designed to ensure that the AMC conducts its appraisal management 
services in accordance with the requirements of section 129E(a)-(i) of 
the Truth in Lending Act, 15 U.S.C. 1639e(a)-(i), and regulations 
thereunder.



Sec.1222.24  Ownership limitations for State-registered appraisal
management companies.

    (a) Appraiser certification or licensing of owners. (1) An AMC 
subject to State registration pursuant to Sec.1222.23 shall not be 
registered by a State or included on the AMC National Registry if such 
AMC, in whole or in part, directly or indirectly, is owned by any person 
who has had an appraiser license or certificate refused, denied, 
cancelled, surrendered in lieu of revocation, or revoked in any State 
for a substantive cause, as determined by the appropriate State 
appraiser certifying and licensing agency.
    (2) An AMC subject to State registration pursuant to Sec.1222.23 
is not barred by paragraph (a)(1) of this section from being registered 
by a State or included on the AMC National Registry if the license or 
certificate of the appraiser with an ownership interest was not revoked 
for a substantive cause and has been reinstated by the State or States 
in which the appraiser was licensed or certified.
    (b) Good moral character of owners. An AMC shall not be registered 
by a State if any person that owns more than 10 percent of the AMC--
    (1) Is determined by the State appraiser certifying and licensing 
agency not to have good moral character; or
    (2) Fails to submit to a background investigation carried out by the 
State appraiser certifying and licensing agency.



Sec.1222.25  Requirements for Federally regulated appraisal management
companies.

    (a) Requirements in providing services. To provide appraisal 
management services for a creditor or secondary mortgage market 
participant relating to a covered transaction, a Federally regulated AMC 
must comply with the requirements in Sec.1222.23(b)(2) through (5).
    (b) Ownership limitations. (1) A Federally regulated AMC shall not 
be included on the AMC National Registry if such AMC, in whole or in 
part, directly or indirectly, is owned by any person who has had an 
appraiser license or certificate refused, denied, cancelled,

[[Page 187]]

surrendered in lieu of revocation, or revoked in any State for a 
substantive cause, as determined by the ASC.
    (2) A Federally regulated AMC is not barred pursuant to paragraph 
(b)(1) of this section from being included on the AMC National Registry 
if the license or certificate of the appraiser with an ownership 
interest was not revoked for substantive cause and has been reinstated 
by the State or States in which the appraiser was licensed or certified.
    (c) Reporting information for the AMC National Registry. A Federally 
regulated AMC must report to the State or States in which it operates 
the information required to be submitted by the State to the Appraisal 
Subcommittee pursuant to the Appraisal Subcommittee's policies regarding 
the determination of the AMC National Registry fee, including but not 
necessarily limited to the collection of information related to the 
limitations set forth in this section, as applicable.



Sec.1222.26  Information to be presented to the Appraisal Subcommittee
by participating States.

    Each State electing to register AMCs for purposes of permitting AMCs 
to provide appraisal management services relating to covered 
transactions in the State must submit to the Appraisal Subcommittee the 
information required to be submitted by Appraisal Subcommittee 
regulations or guidance concerning AMCs that operate in the State.



PART 1223_MINORITY AND WOMEN INCLUSION--Table of Contents



                            Subpart A_General

Sec.
1223.1 Definitions.
1223.2 Policy, purpose, and scope.
1223.3 Limitations.
1223.4-1223.9 [Reserved]

Subpart B [Reserved]

   Subpart C_Minority and Women Inclusion and Diversity at Regulated 
                                Entities

1223.20 Office of Minority and Women Inclusion.
1223.21 Promoting diversity and ensuring inclusion in all business and 
          activities.
1223.22 Regulated entity reports.
1223.23 Annual reports--format and contents.
1223.24 Enforcement.
1223.25 Office of Finance.

    Authority: 12 U.S.C. 4520 and 4526; 12 U.S.C. 1833e; E.O. 11478.

    Source: 75 FR 81402, Dec. 28, 2010. Redesignated at 82 FR 14994, 
Mar. 24, 2017, unless otherwise noted.



                            Subpart A_General



Sec.1223.1  Definitions.

    The following definitions apply to the terms used in this part:
    Applicant means an individual who submits an expression of interest 
in employment in conjunction with all of the following:
    (1) The regulated entity acted to fill a particular position;
    (2) The individual followed the regulated entity's standard process 
for submitting an application;
    (3) The individual's expression of interest indicates that the 
individual possesses the basic qualifications for the position; and
    (4) The individual has not removed him or herself from consideration 
or otherwise indicated that he or she is no longer interested in the 
position.
    Business and activities means operational, commercial, and economic 
endeavors of any kind, whether for profit or not for profit and whether 
regularly or irregularly engaged in by a regulated entity or the Office 
of Finance, and includes, but is not limited to, management of the 
regulated entity or the Office of Finance, employment, procurement, 
insurance, and all types of contracts, including contracts for the 
issuance or guarantee of any debt, equity, or mortgage-related 
securities, the management of mortgage and securities portfolios, the 
making of equity investments, the purchase, sale and servicing of 
single- and multi-family mortgage loans, and the implementation of 
affordable housing or community investment programs and initiatives.
    Disability has the same meaning as defined in 29 CFR 1630.2(g) and 
1630.3 and Appendix to Part 1630--Interpretive Guidance on title I of 
the Americans with Disabilities Act.

[[Page 188]]

    Disabled-owned business means a business, and includes, but is not 
limited to, financial institutions, firms engaged in mortgage banking, 
investment banking, financial services, asset management, investment 
consultants or advisors, underwriters, accountants, brokers, broker-
dealers, and providers of legal services--
    (1) Qualified as a Service-Disabled Veteran-Owned Small Business 
Concern as defined in 13 CFR 125.8 through 125.13; or
    (2) More than fifty percent (50%) of the ownership or control of 
which is held, directly or indirectly, by one or more persons with a 
disability; and
    (3) More than fifty percent (50%) of the net profit or loss of which 
accrues to one or more persons with a disability.
    D&I strategic planning is the process of analyzing the business and 
activities of a regulated entity to develop strategies for promoting 
diversity and ensuring the inclusion of minorities, women, individuals 
with disabilities, and MWDOBs in all activities and at every level of 
the organization, including management, employment, and contracting. A 
D&I strategic plan serves as the primary means to communicate the board 
of directors' long-term D&I vision for the organization, to establish 
measurable goals and objectives for achieving the vision, and to ensure 
accountability for achieving those goals and objectives.
    Diversity spend with non-diverse-owned businesses means the dollar 
amount(s) paid by a regulated entity to a prime contractor that is not a 
minority-, women-, or disabled-owned business for professional services 
(i.e., the amount paid for work performed, as may be adjusted, in 
connection with providing legal, accounting, or other professional or 
consulting services) provided by or allocated to a partner, member, or 
other equity owner who is a minority, woman, or an individual with a 
disability.
    Minority means any Black (or African) American, Native American (or 
American Indian), Hispanic (or Latino) American, or Asian American.
    Minority-owned business means a business, and includes, but is not 
limited to, financial institutions, firms engaged in mortgage banking, 
investment banking, financial services, and asset management, investment 
consultants or advisors, underwriters, accountants, brokers, broker-
dealers, and providers of legal services--
    (1) More than fifty percent (50%) of the ownership or control of 
which is held, directly or indirectly, by one or more minority 
individuals; and
    (2) More than fifty percent (50%) of the net profit or loss of which 
accrues to one or more minority individuals.
    Prime contractor (tier 1) means a supplier that enters into a 
contract with a regulated entity to provide goods and/or services 
directly to that regulated entity.
    Promotion means the advancement of an employee within a regulated 
entity and may be the result of an employee's proactive pursuit of a 
higher job ranking or a reward for good performance. A promotion is 
typically associated with an increase in an employee's pay due to 
additional or enhanced job responsibilities.
    Reasonable accommodation has the same meaning as defined in 29 CFR 
1630.2(o) and Appendix to Part 1630--Interpretive Guidance on title I of 
the Americans with Disabilities Act.
    Subcontractor (tier 2) means a supplier that enters into a contract 
with a prime contractor (tier 1) of a regulated entity to provide goods 
and/or services to that prime contractor (tier 1) for the benefit of the 
regulated entity.
    Women-owned business means a business and includes, but is not 
limited to, financial institutions, firms engaged in mortgage banking, 
investment banking, financial services, and asset management, investment 
consultants or advisors, underwriters, accountants, brokers, broker-
dealers, and providers of legal services--
    (1) More than fifty percent (50%) of the ownership or control of 
which is held, directly or indirectly, by one or more women; and
    (2) More than fifty percent (50%) of the net profit or loss of which 
accrues to one or more women.

[75 FR 81402, Dec. 28, 2010, as amended at 82 FR 34394, July 25, 2017]

[[Page 189]]



Sec.1223.2  Policy, purpose, and scope.

    (a) General policy. FHFA's policy is to promote non-discrimination, 
diversity and, at a minimum, the inclusion of women, minorities, and 
individuals with disabilities in its own activities and in the business 
and activities of the regulated entities.
    (b) Purpose. This part establishes minimum standards and 
requirements for the regulated entities to promote diversity and ensure, 
to the maximum extent possible, in balance with financially safe and 
sound business practices, the inclusion and utilization of minorities, 
women, individuals with disabilities, and minority-, women-, and 
disabled-owned businesses at all levels, in management and employment, 
in all business and activities, and in all contracts for services of any 
kind, including services that require the services of investment 
banking, asset management entities, broker-dealers, financial services 
entities, underwriters, accountants, investment consultants, and 
providers of legal services.
    (c) Scope. This part applies to each regulated entity's development, 
implementation, and adherence to diversity, inclusion, and non-
discrimination policies, practices, and principles, including 
opportunities to award contracts for goods and/or services.

[75 FR 81402, Dec. 28, 2010, as amended at 82 FR 34395, July 25, 2017]



Sec.1223.3  Limitations.

    (a) Except as expressly provided herein for enforcement by FHFA, the 
regulations in this part do not, are not intended to, and should not be 
construed to create any right or benefit, substantive or procedural, 
enforceable at law, in equity, or through administrative proceeding, by 
any party against the United States, its departments, agencies, or 
entities, its officers, employees, or agents, a regulated entity, their 
officers, employees or agents, or any other person.
    (b) The contract clause required by Sec.1223.21(b)(9) and the 
itemized data reporting on numbers of contracts and amounts involved 
required under Sec. Sec.1223.22 and 1223.23(b)(13) through (22) apply 
only to contracts for services in any amount and to contracts for goods 
that equal or exceed $25,000 in annual value, whether in a single 
contract, multiple contracts, a series of contracts or renewals of 
contracts, with a single vendor.
    (c) Within ninety (90) days after August 24, 2017 each regulated 
entity shall submit to FHFA a list of the types of contracts it 
considers exempt under Sec.1223.3(b) and any thresholds, exceptions, 
and limitations the regulated entity establishes for the implementation 
of Sec.1223.21(c)(2). The submission shall address the criteria 
identified in Sec.1223.21(b)(9).
    (d) Each regulated entity shall notify FHFA within thirty (30) days 
after any change in the types of contracts it considers exempt under 
Sec.1223.3(b) or any change in the thresholds, exceptions, and 
limitations the regulated entity establishes for the implementation of 
Sec.1223.21(c)(2).

[75 FR 81402, Dec. 28, 2010, as amended at 82 FR 34395, July 25, 2017; 
83 FR 39326, Aug. 9, 2018]



Sec. Sec.1223.4-1223.9  [Reserved]

Subpart B [Reserved]



   Subpart C_Minority and Women Inclusion and Diversity at Regulated 
                                Entities



Sec.1223.20  Office of Minority and Women Inclusion.

    (a) Establishment. Each regulated entity shall establish and 
maintain an Office of Minority and Women Inclusion, or designate and 
maintain an office to perform the responsibilities of this part, under 
the direction of an officer of the regulated entity who reports directly 
to either the Chief Executive Officer or the Chief Operating Officer, or 
the equivalent. Each regulated entity shall notify the Director within 
thirty (30) days after any change in the designation of the office 
performing the responsibilities of this part.
    (b) Adequate resources. The board of directors of each regulated 
entity will ensure that the Office of Minority and Women Inclusion, or 
office designated to lead the regulated entity in performing the 
responsibilities of this

[[Page 190]]

part, is provided relevant resources including, but not limited to, 
human, technological, and financial resources sufficient to fulfill the 
requirements of this part. The regulated entity will also ensure that 
any officer(s) designated to direct and oversee its D&I programs has the 
necessary knowledge, skills, competencies, and abilities to effectively 
implement the minimum standards and requirements found in this part.
    (c) Responsibilities. Each Office of Minority and Women Inclusion, 
or the office designated to perform the responsibilities of this part, 
is responsible for leading the regulated entity's board-approved 
strategies, for fulfilling the requirements of this part, 12 U.S.C. 
1833e(b) and 4520, and such standards and requirements as the Director 
may issue hereunder.

[75 FR 81402, Dec. 28, 2010, as amended at 82 FR 34395, July 25, 2017]



Sec.1223.21  Promoting diversity and ensuring inclusion in all 
business and activities.

    (a) Equal opportunity notice. Each regulated entity shall publish a 
statement, endorsed by its Chief Executive Officer and approved by its 
Board of Directors, confirming its commitment to the principles of equal 
opportunity in employment and in contracting, at a minimum, regardless 
of race, color, religion, sex, national origin, disability status, 
genetic information, age, sexual orientation, gender identity, or status 
as a parent. The notice also shall confirm commitment against 
retaliation or reprisal. Publication shall include, at a minimum, 
conspicuous posting in all regulated entity physical facilities, 
including through alternative media formats, as necessary, and 
accessible posting on the regulated entity's Web site. The notice shall 
be updated and re-published, re-endorsed by the Chief Executive Officer 
and re-approved by the Board of Directors annually.
    (b) Policies and procedures. Each regulated entity shall develop, 
implement, and maintain policies and procedures to ensure, to the 
maximum extent possible in balance with financially safe and sound 
business practices, the inclusion and utilization of minorities, women, 
individuals with disabilities, and minority-, women-, and disabled-owned 
businesses in all business and activities and at all levels of the 
regulated entity, including in management, employment, procurement, 
insurance, and all types of contracts. The policies and procedures of 
each regulated entity, at a minimum, shall:
    (1) Confirm its adherence to the principles of equal opportunity and 
non-discrimination in employment and in contracting;
    (2) Describe its practices and principles for prohibiting 
discrimination in employment and contracting;
    (3) Describe its processes for giving consideration to MWDOBs when 
reviewing and evaluating contract proposals and hiring service providers 
as required under Sec.1223.2(c);
    (4) Establish a process for receiving and attempting to resolve 
complaints of discrimination in employment and in contracting. 
Publication will include, at a minimum, making the procedure 
conspicuously accessible to employees and applicants through print, 
electronic, or alternative media formats, as necessary, and through the 
regulated entity's Web site;
    (5) Establish a process for accepting, reviewing, and granting or 
denying requests for reasonable accommodations of disabilities from 
employees or applicants for employment;
    (6) Establish a process for accepting, reviewing, and granting or 
denying requests for reasonable accommodations for religious beliefs or 
practices from employees or applicants for employment;
    (7) Encourage the consideration of diversity in nominating or 
soliciting nominees for positions on boards of directors and engage in 
recruiting and outreach directed at encouraging individuals who are 
minorities, women and individuals with disabilities to seek or apply for 
employment with the regulated entity;
    (8) Establish a process for developing a stand-alone D&I strategic 
plan or incorporating into its existing strategic plan a D&I plan that 
proactively focuses on promoting the advancement of D&I. The stand-alone 
D&I strategic plan and the incorporated D&I plan are hereinafter 
referred to as the D&I strategic plan;

[[Page 191]]

    (9) Except as limited by Sec.1223.3(b), require that each contract 
it enters contains a material clause committing the contractor to 
practice the principles of equal employment opportunity and non-
discrimination in all its business activities and requiring each such 
contractor to include the clause in each subcontract it enters for 
services or goods provided to the regulated entity;
    (10) Identify the types of contracts the regulated entity considers 
exempt under Sec.1223.3(b) and any thresholds, exceptions, and 
limitations the regulated entity establishes for implementing paragraph 
(c)(2) of this section. The policies and procedures must describe the 
following:
    (i) The rationale and need for the thresholds, exceptions, or 
limitations;
    (ii) The criteria used to implement the thresholds, exceptions, or 
limitations; and
    (iii) Any negative or adverse impact the implementation of the 
thresholds, exceptions, or limitations would likely have on contracting 
opportunities for minorities, women, individuals with disabilities, and 
MWDOBs;
    (11) Be published and made accessible to employees, applicants for 
employment, contractors, potential contractors, and members of the 
public through print, electronic, or alternative media formats, as 
necessary, and through the regulated entity's Web site; and
    (12) Be reviewed at the direction of the officer immediately 
responsible for directing the Office of Minority and Women Inclusion, or 
other office designated to perform the responsibilities of this part, at 
least annually to assess their effectiveness and to incorporate 
appropriate changes.
    (c) Outreach for contracting. Each regulated entity shall establish 
a program for outreach designed to ensure to the maximum extent possible 
the inclusion in contracting opportunities of minorities, women, 
individuals with disabilities, and minority-, women-, and disabled-owned 
businesses. The program at a minimum shall:
    (1) Apply to all contracts entered into by the regulated entity, 
including contracts with financial institutions, investment banking 
firms, investment consultants or advisors, financial services entities, 
mortgage banking firms, asset management entities, underwriters, 
accountants, brokers, brokers-dealers, and providers of legal services;
    (2) Establish policies, procedures and standards requiring the 
publication of contracting opportunities designed to encourage 
contractors that are minorities, women, individuals with disabilities, 
and minority-, women-, and disabled-owned businesses to submit offers or 
bid for the award of such contracts; and
    (3) Ensure the consideration of the diversity of a contractor when 
the regulated entity reviews and evaluates offers from contractors.
    (d) D&I strategic planning. By no later than January 25, 2018 the 
board of directors of each regulated entity shall adopt a D&I strategic 
plan for promoting D&I of minorities, women, individuals with 
disabilities, and MWDOBs. The board of directors of each regulated 
entity shall review the D&I strategic plan at least annually and shall 
readopt the plan, including any interim amendments, at least every three 
years.
    (e) Contents of the D&I strategic plan. The D&I strategic plan shall 
include the following:
    (1) A vision and/or mission statement that addresses the importance 
of promoting diversity and ensuring the inclusion of minorities, women, 
and individuals with disabilities in order to fulfill Sec.1223.2;
    (2) Measurable strategic goals and objectives for accomplishing the 
agreed-upon priorities and intended outcomes developed to advance 
diversity and ensure the inclusion of minorities, women, and individuals 
with disabilities at the regulated entity in accordance with Sec.
1223.2; and
    (3) A requirement to create and implement action plans to achieve 
the strategic goals and objectives and management reporting requirements 
for monitoring the implementation of those goals and objectives.

[75 FR 81402, Dec. 28, 2010, as amended at 82 FR 34396, July 25, 2017; 
83 FR 39326, Aug. 9, 2018]



Sec.1223.22  Regulated entity reports.

    (a) General. Each regulated entity, through its Office of Minority 
and

[[Page 192]]

Women Inclusion or other office designated to perform the 
responsibilities of this part, shall report in writing, in such format 
as the Director may require, to the Director describing its efforts to 
promote diversity and ensure the inclusion and utilization of 
minorities, women, individuals with disabilities, and MWDOBs at all 
levels, in management and employment, in all business and activities, 
and in all contracts for services and those contracts for goods above 
the material clause threshold in Sec.1223.3(b) and the results of such 
efforts.
    (1) Within 180 days after the effective date of this regulation each 
regulated entity and the Office of Finance shall submit to the Director 
or his or her designee a preliminary status report describing actions 
taken, plans for and progress toward implementing the provisions of 12 
U.S.C. 4520 and this part; and including to the extent available the 
data and information required by this part to be included in an annual 
report.
    (2) FHFA intends to use the preliminary status report solely for the 
purpose of examining the submitting regulated entity or the Office of 
Finance and reporting to the institution on its operations and the 
condition of its program.
    (b) FHFA use of reports. The data and information reported to FHFA 
under this part (except for the initial report under paragraph (a)(1) of 
this section) are intended to be used for any permissible supervisory 
and regulatory purpose, including examinations, enforcement actions, 
identification of matters requiring attention, and production of FHFA 
examination, operating and condition reports related to one or more of 
the regulated entities. FHFA may use the information and data submitted 
to issue aggregate reports and data summaries that each regulated entity 
may use to assess its own progress and accomplishments, or to the public 
as it deems necessary. FHFA is not requiring, and does not desire, that 
reports under this part contain personally identifiable information.
    (c) Frequency of reports. Each regulated entity shall submit an 
annual report on or before March 31 of each year, reporting on the 
period of January 1 through December 31 of the preceding year, and such 
other reports as the Director may require. If the date for submission 
falls on a Saturday, Sunday, or Federal holiday, the report is due no 
later than the next business day that is not a Saturday, Sunday, or 
Federal holiday.
    (d) Annual summary. Each regulated entity shall include in its 
annual report to the Director (pursuant to 12 U.S.C. 1723a(k), 1456(c), 
or 1440, with respect to the regulated entities) a summary of its 
activities under this part during the previous year, including at a 
minimum, detailed information describing the actions taken by the 
regulated entity pursuant to 12 U.S.C. 4520 and a statement of the total 
amounts paid by the regulated entity to contractors during the previous 
year and the percentage of such amounts paid to contractors that are 
minorities or minority-owned businesses, women or women-owned 
businesses, and individuals with disabilities and disabled-owned 
businesses respectively, as limited by Sec.1207.3(b).

[75 FR 81402, Dec. 28, 2010, as amended at 80 FR 25215, May 4, 2015; 82 
FR 34395, July 25, 2017]



Sec.1223.23  Annual reports--format and contents.

    (a) Format. Each annual report shall consist of a detailed summary 
of the regulated entity's activities during the reporting year to carry 
out the requirements of this part, which report may also be made a part 
of the regulated entity's annual report to the Director. The report 
shall contain a table of contents and conclude with a certification by 
the regulated entity's officer responsible for the annual report that 
the data and information presented in the report are accurate, and are 
approved for submission.
    (b) Contents. The annual report shall contain the information 
provided in the regulated entity's annual summary pursuant to Sec.
1223.22(d) and shall include:
    (1) The EEO-1 Employer Information Report (Form EEO-1 used by the 
Equal Employment Opportunity Commission (EEOC) and the Office of Federal 
Contract Compliance Programs (OFCCP)

[[Page 193]]

to collect certain demographic information) or similar reports filed by 
the regulated entity during the reporting year. If the regulated entity 
does not file Form EEO-1 or similar reports, the regulated entity shall 
submit to FHFA a completed Form EEO-1;
    (2) All other reports or plans the regulated entity submitted to the 
EEOC, the Department of Labor, OFCCP or Congress (``reports or plans'' 
is not intended to include separate complaints or charges of 
discrimination or responses thereto) during the reporting year;
    (3) Data showing by minority and gender the number of applicants for 
employment with the regulated entity in each occupational or job 
category identified on the Form EEO-1 during the reporting year;
    (4) Data showing by minority and gender the number of individuals 
hired for employment with the regulated entity in each occupational or 
job category identified on the Form EEO-1 during the reporting year;
    (5) Data showing by minority, gender and disability classification, 
and categorized as voluntary or involuntary, the number of separations 
from employment with the regulated entity in each occupational or job 
category identified on the Form EEO-1 during the reporting year;
    (6) Data showing the number of requests for reasonable accommodation 
received from employees and applicants for employment, the number of 
requests granted, and the disabilities accommodated and the types of 
accommodation granted during the reporting year;
    (7) Data showing for the reporting year by minority, gender, and 
disability classification the number of applicants for promotion at the 
regulated entity--
    (i) Within each occupational or job category identified on the Form 
EEO-1; and
    (ii) From one such occupational or job category to another;
    (8) Data showing by minority, gender, and disability classification 
the number of individuals--
    (i) Promoted at the regulated entity within each occupational or job 
category identified on the Form EEO-1, after applying for such a 
promotion;
    (ii) Promoted at the regulated entity within each occupational or 
job category identified on the Form EEO-1, without applying for such a 
promotion; and
    (iii) Promoted at the regulated entity from one occupational or job 
category identified on the Form EEO-1 to another such category, after 
applying for such a promotion;
    (9) Data showing for the reporting year by minority, gender, and 
disability classification--
    (i) The number of individuals responsible for supervising employees 
and/or managing the functions or departments of the regulated entity; 
and
    (ii) A description of the strategies, initiatives, and activities 
executed during the preceding year to promote diverse individuals to 
supervisory and management roles;
    (10)(i) Data showing for the reporting year by minority and gender 
classification, the number of individuals on the board of directors of 
each Bank and the Office of Finance--
    (A) Using data collected by each Bank and the Office of Finance 
through an information collection requesting each director's voluntary 
self-identification of his or her minority and gender classification 
without personally identifiable information;
    (B) Using the same classifications as those on the Form EEO-1; and
    (ii) A description of the outreach activities and strategies 
executed during the preceding year to promote diversity in nominating or 
soliciting nominees for positions on boards of directors of the Banks 
(consistent with 12 CFR 1261.9) and the Office of Finance;
    (11) A comparison of the data reported by Fannie Mae and Freddie Mac 
under paragraphs (b)(1) through (8) of this section, and by the Banks 
under paragraphs (b)(1) through (9) of this section, to such data as 
reported in the previous year together with a narrative analysis;
    (12) A provision addressing the strategies, initiatives, and 
activities that the regulated entity has undertaken during the prior 
year to:
    (i) Communicate with minority serving organizations to help identify 
ways

[[Page 194]]

in which it might be able to improve MWDOB business with the regulated 
entity by enhancing MWDOB customer access, including in affordable 
housing and community investment programs;
    (ii) Evaluate the regulated entity's processes for identifying, 
considering, and selecting MWDOBs to participate in financial 
transactions, which evaluation shall include an assessment of the 
regulated entity's internal policies and practices that may have 
presented unique challenges to MWDOBs' participation in financial 
transactions of the regulated entity.
    (13) Descriptions of all regulated entity outreach activity during 
the reporting year to recruit individuals who are minorities, women, or 
persons with disabilities for employment, to solicit or advertise for 
minority or minority-owned, women or women-owned, and disabled-owned 
contractors or contractors who are individuals with disabilities to 
offer proposals or bids to enter into business with the regulated 
entity, or to inform such contractors of the regulated entity's 
contracting process, including the identification of any partners, 
organizations, or government offices with which the regulated entity 
participated in such outreach activity;
    (14) Cumulative data separately showing the total number of 
contracts in place at the beginning of the reporting year as well as 
those entered into during the reporting year;
    (15) Cumulative data separately showing the total amount paid for 
contracts in place at the beginning of the reporting year as well as 
those entered into during the reporting year;
    (16) Cumulative data separately showing the total number of 
contracts entered into during the reporting year that were--
    (i) Considered exempt under Sec.1223.3(b);
    (ii) Prime contracts (tier 1) entered into with minorities, women, 
individuals with disabilities, or MWDOBs;
    (iii) Subcontractor (tier 2) contracts that prime contractors (tier 
1) entered into with minorities, women, individuals with disabilities, 
or MWDOBs;
    (17) Cumulative data separately showing the total amount paid for 
contracts entered into during the reporting year that were--
    (i) Considered exempt under Sec.1223.3(b);
    (ii) To prime contractors (tier 1) that are minorities, women, 
individuals with disabilities, or MWDOBs in place at the beginning of 
the reporting year as well as those entered into during the reporting 
year;
    (iii) To subcontractors (tier 2) that are minorities, women, 
individuals with disabilities, or MWDOBs in place at the beginning of 
the reporting year;
    (18) Cumulative data separately showing the total diversity spend 
with non-diverse-owned businesses during the reporting year;
    (19) The annual total of amounts paid to prime contractors (tier 1) 
and subcontractors (tier 2) and the percentage of which was paid 
separately through prime contracts and subcontracts to minorities, 
women, individuals with disabilities, or MWDOBs during the reporting 
year;
    (20) Certification of compliance with Sec. Sec.1223.20 and 
1223.21, together with sufficient documentation to verify compliance;
    (21) Data for the reporting year showing, separately, the number of 
equal opportunity complaints (including administrative agency charges or 
complaints, arbitral or judicial claims) against the regulated entity 
that--
    (i) Claim employment discrimination, by basis or kind of the alleged 
discrimination (race, sex, disability, etc.) and by result (settlement, 
favorable, or unfavorable outcome);
    (ii) Claim discrimination in any aspect of the contracting process 
or administration of contracts, by basis of the alleged discrimination 
and by result; and
    (iii) Were resolved through the regulated entity's internal 
processes;
    (22) Data showing for the reporting year amounts paid to claimants 
by the regulated entity for settlements or judgments on discrimination 
complaints--
    (i) In employment, by basis of the alleged discrimination; and
    (ii) In any aspect of the contracting process or in the 
administration of contracts, by basis of the alleged discrimination;
    (23) A comparison of the data reported under paragraphs (b)(13)

[[Page 195]]

through (19) of this section with the same information reported for the 
previous year;
    (24) A narrative identification and analysis of the reporting year's 
activities the regulated entity considers successful and unsuccessful in 
achieving the purpose and policy of regulations in this part and a 
description of progress made from the previous year; and
    (25) A narrative identification and analysis of business activities, 
levels, and areas in which the regulated entity's efforts need to 
improve with respect to achieving the purpose and policy of regulations 
in this part, together with a description of anticipated efforts and 
results the regulated entity expects in the succeeding year.

[75 FR 81402, Dec. 28, 2010, as amended at 80 FR 25215, May 4, 2015; 82 
FR 34396, July 25, 2017; 83 FR 39326, Aug. 9, 2018]



Sec.1223.24  Enforcement.

    The Director may enforce this regulation and standards issued under 
it in any manner and through any means within his or her authority, 
including through identifying matters requiring attention, corrective 
action orders, directives, or enforcement actions under 12 U.S.C. 4513b 
and 4514. The Director may conduct examinations of a regulated entity's 
activities under and in compliance with this part pursuant to 12 U.S.C. 
4517.

[75 FR 81402, Dec. 28, 2010, as amended at 82 FR 34397, July 25, 2017]



Sec.1223.25  Office of Finance.

    All sections of this part and the standards issued under it shall 
apply to the Office of Finance, as defined in Sec.1201.1 of this 
chapter, in the same manner in which it applies to the regulated 
entities, unless the Office of Finance is otherwise specifically 
addressed or excluded.

[82 FR 34397, July 25, 2017]

Subparts C-Z [Reserved]



PART 1225_MINIMUM CAPITAL_TEMPORARY INCREASE--Table of Contents



Sec.
1225.1 Purpose.
1225.2 Definitions.
1225.3 Procedures.
1225.4 Standards and factors.
1225.5 Guidances.

    Authority: 12 U.S.C. 4513, 4526 and 4612.

    Source: 76 FR 11674, Mar. 3, 2011, unless otherwise noted.



Sec.1225.1  Purpose.

    FHFA is responsible for ensuring the safe and sound operation of 
regulated entities. In furtherance of that responsibility, this part 
sets forth standards and procedures FHFA will employ to determine 
whether to require or rescind a temporary increase in the minimum 
capital levels for a regulated entity or entities pursuant to 12 U.S.C. 
4612(d).



Sec.1225.2  Definitions.

    For purposes of this part, the term:
    Minimum capital level means the lowest amount of capital meeting any 
regulation or orders issued pursuant to 12 U.S.C. 1426(a)(2) and 12 
U.S.C. 4612, or any similar requirement established for a Federal Home 
Loan Bank by regulation, order or other action.
    Rescission means a removal in whole or in part of an increase in the 
temporary minimum capital level.

[76 FR 11674, Mar. 3, 2011, as amended at 78 FR 2323, Jan. 11, 2013]



Sec.1225.3  Procedures.

    (a) Information--(1) Information to the regulated entity or 
entities. If the Director determines, based on standards enunciated in 
this part, that a temporary increase in the minimum capital level is 
necessary, the Director will provide notice to the affected regulated 
entity or entities 30 days in advance of the date that the temporary 
minimum capital requirement becomes effective, unless the Director 
determines that an exigency exists that does not permit such notice or 
the Director determines a longer time period would be appropriate.
    (2) Information to the Government. The Director shall inform the 
Secretary of the Treasury, the Secretary of Housing and Urban 
Development, and the Chairman of the Securities and Exchange Commission 
of a temporary increase in

[[Page 196]]

the minimum capital level contemporaneously with informing the affected 
regulated entity or entities.
    (b) Comments. The affected regulated entity or entities may provide 
comments regarding or objections to the temporary increase to FHFA 
within 15 days or such other period as the Director determines 
appropriate under the circumstances. The Director may determine to 
modify, delay, or rescind the announced temporary increase in response 
to such comments or objection, but no further notice is required for the 
temporary increase to become effective upon the date originally 
determined by the Director.
    (c) Communication. The Director shall transmit notice of a temporary 
increase or rescission of a temporary increase in the minimum capital 
level in writing, using electronic or such other means as appropriate. 
Such communication shall set forth, at a minimum, the bases for the 
Director's determination, the amount of increase or decrease in the 
minimum capital level, the anticipated duration of such increase, and a 
description of the procedures for requesting a rescission of the 
temporary increase in the minimum capital level.
    (d) Written plan. In making a finding under this part, the Director 
may require a written plan to augment capital to be submitted on a 
timely basis to address the methods by which such temporary increase may 
be attained and the time period for reaching the new temporary minimum 
capital level.
    (e) Time frame for review of temporary increase for purpose of 
rescission. (1) Absent an earlier determination to rescind in whole or 
in part a temporary increase in the minimum capital level for a 
regulated entity or entities, the Director shall no less than every 12 
months, consider the need to maintain, modify, or rescind such increase.
    (2) A regulated entity or regulated entities may at any time request 
in writing such review by the Director.



Sec.1225.4  Standards and factors.

    (a) Standard for imposing a temporary increase. In making a 
determination to increase temporarily a minimum capital requirement for 
a regulated entity or entities, the Director will consider the necessity 
and consistency of such an increase with the prudential regulation and 
the safe and sound operations of a regulated entity. The Director may 
impose a temporary minimum-capital increase if consideration of one or 
more of the following factors leads the Director to the judgment that 
the current minimum capital requirement for a regulated entity is 
insufficient to address the entity's risks:
    (1) Current or anticipated declines in the value of assets held by a 
regulated entity; the amounts of mortgage-backed securities issued or 
guaranteed by the regulated entity; and, its ability to access liquidity 
and funding;
    (2) Credit (including counterparty), market, operational and other 
risks facing a regulated entity, especially where an increase in risks 
is foreseeable and consequential;
    (3) Current or projected declines in the capital held by a regulated 
entity;
    (4) A regulated entity's material non-compliance with regulations, 
written orders, or agreements;
    (5) Housing finance market conditions;
    (6) Level of reserves or retained earnings;
    (7) Initiatives, operations, products, or practices that entail 
heightened risk;
    (8) With respect to a Bank, the ratio of the market value of its 
equity to par value of its capital stock where the market value of 
equity is the value calculated and reported by the Bank as ``market 
value of total capital'' under 12 CFR 932.5(a)(1)(ii)(A); or
    (9) Other conditions as detailed by the Director in the notice 
provided under Sec.1225.3.
    (b) Standard for rescission of a temporary increase. In making a 
determination to rescind a temporary increase in the minimum capital 
level for a regulated entity or entities, whether in full or in part, 
the Director will consider the consistency of such a rescission with the 
prudential regulation and safe and sound operations of a regulated 
entity. The Director will rescind, in full or in part, a temporary 
minimum capital increase if consideration of one or more of the 
following factors leads the Director to the judgment that rescission of 
a temporary minimum-capital

[[Page 197]]

increase for a regulated entity is appropriate considering the entity's 
risks:
    (1) Changes to the circumstances or facts that led to the imposition 
of a temporary increase in the minimum capital levels;
    (2) The meeting of targets set for a regulated entity in advance of 
any capital or capital-related plan agreed to by the Director;
    (3) Changed circumstances or facts based on new developments 
occurring since the imposition of the temporary increase in the minimum 
capital level, particularly where the original problems or concerns have 
been successfully addressed or alleviated in whole or in part; or
    (4) Such other standard as the Director may consider as detailed by 
the Director in the notice provided under Sec.1225.3.



Sec.1225.5  Guidances.

    The Director may determine, from time to time, issue guidance to 
elaborate, to refine or to provide new information regarding standards 
or procedures contained herein.



PART 1227_SUSPENDED COUNTERPARTY PROGRAM--Table of Contents



                            Subpart A_General

Sec.
1227.1 Purpose.
1227.2 Definitions.
1227.3 Scope of suspension orders.
1227.4 Regulated entity reports on covered misconduct.
1227.5 Proposed suspension order.
1227.6 Final suspension order.
1227.7 Appeal to the Director.
1227.8 Posting of final suspension orders.
1227.9 Request for reconsideration.
1227.10 Exception to final suspension order in effect.

Subpart B [Reserved]

    Authority: 12 U.S.C. 4513, 4513b, 4514, 4526.

    Source: 78 FR 63012, Oct. 23, 2013, unless otherwise noted.



                            Subpart A_General



Sec.1227.1  Purpose.

    This part sets forth the procedures FHFA follows under its Suspended 
Counterparty Program, the purpose of which is to protect the safety and 
soundness of the regulated entities. The procedures require the 
regulated entities to submit reports when they become aware that a 
person with whom they have engaged or are engaging in a covered 
transaction within the past three (3) years has engaged in covered 
misconduct. The procedures set forth a process for FHFA to issue 
suspension orders directing the regulated entities to cease or refrain 
from engaging in covered transactions with such persons and any 
affiliates thereof for a specified period of time or permanently. A 
suspension order is not intended to be, and may not be issued as, a form 
of punishment for the suspended person. The procedures include options 
for:
    (a) Appeal of a final suspension order to the Director;
    (b) Request for reconsideration of a final suspension order after 
twelve (12) months have elapsed; and
    (c) Request for an exception to a final suspension order in effect 
in order to engage in a particular covered transaction with the 
suspended person.



Sec.1227.2  Definitions.

    For purposes of this part:
    Administrative sanction means debarment or suspension imposed by any 
Federal agency, or any similar administrative action that has the effect 
of limiting the ability of a person to do business with a Federal 
agency, including Limited Denials of Participation, Temporary Denials of 
Participation, or settlements of proposed administrative sanctions if 
the terms of the settlement restrict the person's ability to do business 
with the Federal agency in question.
    Affiliate means a party that either controls or is controlled by 
another person, whether directly or indirectly, including one or more 
persons that are controlled by the same third person.
    Conviction means:
    (1) A judgment or any other determination of guilt of a criminal 
offense by any court of competent jurisdiction,

[[Page 198]]

whether entered upon a verdict or plea; or
    (2) Any other resolution that is the functional equivalent of a 
judgment of guilt of a criminal offense, including probation before 
judgment and deferred prosecution. A disposition without the 
participation of the court is the functional equivalent of a judgment 
only if it includes an admission of guilt.
    Covered misconduct means:
    (1) Any conviction or administrative sanction within the past three 
(3) years if the basis of such action involved fraud, embezzlement, 
theft, conversion, forgery, bribery, perjury, making false statements or 
claims, tax evasion, obstruction of justice, or any similar offense, in 
each case in connection with a mortgage, mortgage business, mortgage 
securities or other lending product.
    (2) FHFA may impute covered misconduct among affiliates as follows:
    (i) Conduct imputed from an individual to an organization. FHFA may 
impute the covered misconduct of any officer, director, shareholder, 
partner, employee, or other individual associated with an organization, 
to that organization when the conduct occurred in connection with the 
individual's performance of duties for or on behalf of that 
organization, or with the organization's knowledge, approval, or 
acquiescence. The organization's acceptance of the benefits derived from 
the conduct is evidence of knowledge, approval, or acquiescence.
    (ii) Conduct imputed from an organization to an individual, or 
between individuals. FHFA may impute the covered misconduct of any 
organization to an individual, or from one individual to another 
individual, if the individual to whom the conduct is imputed either 
participated in, had knowledge of, or had reason to know of the conduct.
    (iii) Conduct imputed from one organization to another organization. 
FHFA may impute the covered misconduct of one organization to another 
organization when the conduct occurred in connection with a partnership, 
joint venture, joint application, association, or similar arrangement, 
or when the organization to whom the conduct is imputed has the power to 
direct, manage, control, or influence the activities of the organization 
responsible for the conduct. Acceptance of the benefits derived from the 
conduct is evidence of knowledge, approval, or acquiescence and hence is 
a basis for imputation of conduct.
    Covered transaction means a contract, agreement, or financial or 
business relationship between a regulated entity and a person and any 
affiliates thereof.
    Person means an individual, sole proprietor, partnership, 
corporation, unincorporated association, trust, joint venture, pool, 
syndicate, organization, or other entity.
    Respondent means a person and any affiliate thereof that is the 
subject of a proposed or final suspension order.
    Suspending official means the Director, or any other FHFA official 
with delegated authority to sign proposed and final suspension orders 
and their accompanying notices.
    Suspension means an action taken by a suspending official pursuant 
to a final suspension order that requires a regulated entity to cease or 
refrain from engaging in any covered transactions with a person and any 
affiliates thereof for a specified period of time or permanently.



Sec.1227.3  Scope of suspension orders.

    (a) General. A suspending official may issue a final suspension 
order to the regulated entities directing them to cease or refrain from 
engaging in any covered transactions with a particular person and any 
affiliates thereof for a specified period of time or permanently, 
pursuant to the requirements of this part.
    (b) No effect on other actions by FHFA. Nothing in this part shall 
limit the authority of FHFA to pursue any other regulatory or 
supervisory action with respect to any regulated entity or any other 
person and any affiliates thereof, whether instead of or in addition to 
any action taken under this part.
    (c) No effect on other actions by a regulated entity. Nothing in 
this part shall limit the authority of any regulated entity to take any 
action it determines appropriate to address risks from any person and 
any affiliates thereof with which it engages in covered transactions.

[[Page 199]]

    (d) No effect on residential mortgage loans secured by respondent's 
own personal or household residence. A final suspension order issued 
pursuant to this part shall have no effect on any transaction involving 
a residential mortgage loan if the loan is secured by the respondent's 
own personal or household residence.

[78 FR 63012, Oct. 23, 2013, as amended at 80 FR 79680, Dec. 23, 2015]



Sec.1227.4  Regulated entity reports on covered misconduct.

    (a) General. A regulated entity shall submit a report to FHFA when 
the regulated entity becomes aware that a person or any affiliates 
thereof with which the regulated entity is engaging or has engaged in a 
covered transaction within the past three (3) years has engaged in 
covered misconduct. A regulated entity is aware of covered misconduct 
when the regulated entity has reliable information that such misconduct 
has occurred.
    (b) Content of reports. Each report on covered misconduct shall:
    (1) Include sufficient information for FHFA to identify the person 
or persons that are the subject of the report, as well as any affiliates 
thereof if such affiliates are known to the regulated entity;
    (2) Describe the nature and extent of any covered transaction that 
the regulated entity has or had with any persons and any affiliates 
thereof identified in the report; and
    (3) Include a description of the covered misconduct, including the 
date of the covered misconduct, documents evidencing the covered 
misconduct if in the possession of the regulated entity, and any other 
relevant information that the regulated entity chooses to submit.
    (c) Timing of reports. (1) A regulated entity shall submit a report 
to FHFA on covered misconduct no later than thirty (30) calendar 
daysafter the regulated entity becomes aware of such misconduct, even if 
the regulated entity lacks sufficient information to submit a complete 
report.
    (2) A regulated entity may supplement the submission of any covered 
misconduct report by submitting additional relevant information to FHFA 
at any time.

[78 FR 63012, Oct. 23, 2013, as amended at 80 FR 79680, Dec. 23, 2015]



Sec.1227.5  Proposed suspension order.

    (a) A suspending official may base a proposed suspension order upon 
evidence of covered misconduct from any of the following sources:
    (1) A required report submitted by a regulated entity;
    (2) A referral submitted by FHFA's Office of Inspector General; or
    (3) Any other source of information.
    (b) Grounds for issuance. A suspending official may issue a proposed 
suspension order with respect to a particular person and any affiliates 
thereof if the suspending official determines that there is evidence 
that:
    (1) The person or any affiliates thereof has engaged in covered 
misconduct, which evidence may include copies of any order or other 
documents documenting a conviction or administrative sanction for such 
conduct; and
    (2) The covered misconduct is of a type that would be likely to 
cause significant financial or reputational harm to a regulated entity 
or otherwise threaten the safe and sound operation of a regulated 
entity.
    (c) Notice required. If a suspending official determines that 
grounds exist under paragraph (b) of this section for issuance of a 
proposed suspension order with respect to a particular person and any 
affiliates thereof, the suspending official may issue a written notice 
of proposed suspension to the person and any affiliates thereof, and 
shall provide a copy of such notice to the regulated entity and to all 
of the other regulated entities.
    (d) Content of notice. The notice of proposed suspension shall 
include:
    (1) The time period during which the suspension will apply;
    (2) A statement of the suspending official's proposed suspension 
determination and supporting grounds;
    (3) The proposed suspension order;
    (4) Instructions on how to respond; and
    (5) The date by which any response must be received, which must be 
at least thirty (30) calendar days after the date on which the notice is 
sent.

[[Page 200]]

    (e) Method of sending notice. The suspending official shall send the 
notice of proposed suspension to the last known street address, 
facsimile number, or email address of:
    (1) The person, the person's counsel, or an agent for service of 
process; and
    (2) Any affiliates of the person, the counsel for those affiliates, 
or an agent for service of process, if suspension is also being proposed 
for such affiliates.
    (f) Response from respondent--(1) Timing of response. Any response 
from the affected person and any affiliates thereof must be submitted to 
FHFA within the time period specified in the notice. If a response is 
submitted after the specified deadline, the suspending official may 
consider or disregard such response, in the suspending official's 
discretion.
    (2) Content of response. The response shall identify:
    (i) Any information and argument in opposition to the proposed 
suspension;
    (ii) Any specific facts that contradict the statements contained in 
the notice of proposed suspension. A general denial is insufficient to 
raise a genuine dispute over facts material to the suspension;
    (iii) All criminal and civil proceedings not included in the notice 
of proposed suspension that grew out of facts relevant to the bases for 
the proposed suspension stated in such notice;
    (iv) All existing, proposed, or prior exclusions under regulations 
implementing Executive Order 12549 and all similar actions taken by 
Federal, state, or local agencies, including administrative agreements 
that affect only those agencies; and
    (v) The names and identifying information for any affiliates of the 
affected person.
    (g) Response from regulated entities--(1) Timing of response. Any 
response from the regulated entities must be submitted to FHFA within 
the time period specified in the notice. If a response is submitted 
after the specified deadline, the suspending official may consider or 
disregard such response, in the suspending official's discretion.
    (2) Content of response. (i) The response shall include:
    (A) Any information that would indicate that suspension of the 
person in question could reasonably be expected to have a negative 
financial impact or other significant adverse effect on the financial or 
operating performance of the regulated entity; and
    (B) Any existing contractual relationship with the person in 
question for which the regulated entity might request a limitation or 
qualification.
    (ii) The response may include any other information that the 
regulated entity believes would be relevant to the proposed suspension 
determination, including but not limited to:
    (A) Any information related to the factual basis for the proposed 
suspension;
    (B) Any information about other known affiliates of the person;
    (C) Recommendations for alternatives to suspension that could 
mitigate the risks presented by engaging in covered transactions with 
the respondent; and
    (D) Recommendations for limitations or qualifications on the scope 
of the proposed suspension.

[78 FR 63012, Oct. 23, 2013, as amended at 80 FR 79680, Dec. 23, 2015]



Sec.1227.6  Final suspension order.

    (a) Grounds for issuance. A suspending official may issue a final 
suspension order with respect to a respondent proposed for suspension 
if, based solely on the written record, the suspending official 
determines that there is adequate evidence that:
    (1) The respondent engaged in covered misconduct; and
    (2) The covered misconduct is of a type that would be likely to 
cause significant financial or reputational harm to a regulated entity 
or otherwise threaten the safe and sound operation of a regulated 
entity.
    (b) Written record. The written record shall include any material 
submitted by the respondent and any material submitted by the regulated 
entities, as well as any other material that was considered by the 
suspending official in making the final determination, including any 
information related to the factors in paragraph (c) of this section. 
FHFA may independently obtain information relevant to the suspension 
determination for inclusion in the written record.

[[Page 201]]

    (c) Factors that may be considered by the suspending official. In 
determining whether or not to issue a final suspension order with 
respect to the respondent where the grounds for suspension are 
satisfied, the suspending official may also consider any factors that 
the suspending official determines may be relevant in light of the 
circumstances of the particular case, including but not limited to:
    (1) The actual or potential harm or impact that results or may 
result from the covered misconduct;
    (2) The frequency of incidents or duration of the covered 
misconduct;
    (3) Whether there is a pattern of prior covered misconduct;
    (4) Whether and to what extent the respondent planned, initiated, or 
carried out the covered misconduct;
    (5) Whether the respondent has accepted responsibility for the 
covered misconduct and recognizes its seriousness;
    (6) Whether the respondent has paid or agreed to pay all criminal, 
civil and administrative penalties or liabilities for the covered 
misconduct, including any investigative or administrative costs incurred 
by the government, and has made or agreed to make full restitution;
    (7) Whether the covered misconduct was pervasive within the 
respondent's organization;
    (8) The kind of positions held by the individuals involved in the 
covered misconduct;
    (9) Whether the respondent's organization took appropriate 
corrective action or remedial measures, such as establishing ethics 
training and implementing programs to prevent recurrence of the covered 
misconduct;
    (10) Whether the respondent brought the covered misconduct to the 
attention of the appropriate government agency in a timely manner;
    (11) Whether the respondent has fully investigated the circumstances 
surrounding the covered misconduct and, if so, made the result of the 
investigation available to the suspending official;
    (12) Whether the respondent had effective standards of conduct and 
internal control systems in place at the time the covered misconduct 
occurred;
    (13) Whether the respondent has taken appropriate disciplinary 
action against the individuals responsible for the covered misconduct; 
or
    (14) Whether the respondent has had adequate time to eliminate the 
circumstances within the organization that led to the covered 
misconduct.
    (d) Deadline for decision. The suspending official shall make a 
determination on whether to issue a final suspension order with respect 
to the respondent within thirty (30) calendar days of the deadline given 
for the respondent's response in the notice of proposed suspension, 
unless the suspending official notifies the respondent in writing that 
additional time is needed.
    (e) Determination not to issue final suspension order. If the 
suspending official determines that suspension is not appropriate with 
respect to the respondent, the suspending official shall provide prompt 
written notice of that determination to the respondent, the regulated 
entity, and all of the other regulated entities.
    (f) Issuance of final suspension order--(1) General. If the 
suspending official makes a final determination to suspend the 
respondent, the suspending official shall issue a final suspension order 
to each regulated entity regarding the respondent.
    (2) Content of final suspension order. A final suspension order 
shall include:
    (i) A statement of the suspension determination and supporting 
grounds, including a discussion of any relevant information submitted by 
the respondent or regulated entities;
    (ii) Identification of each person and any affiliates thereof to 
which the suspension applies;
    (iii) A description of the scope of the suspension, including the 
time period to which the suspension applies; and
    (iv) A description of any limitations or qualifications that apply 
to the scope of the suspension, including modification of the conduct of 
covered transactions that may be engaged in with the respondent.
    (3) Notice to respondent required. The suspending official shall 
provide prompt written notice to the respondent of the final suspension 
order issued

[[Page 202]]

to the regulated entities with respect to such respondent.
    (4) Content of notice. The notice of a final suspension order shall 
include:
    (i) A statement of the suspension determination and supporting 
grounds, including a discussion of any relevant information submitted by 
the respondent; and
    (ii) A copy of the final suspension order.
    (g) Effective date. A final suspension order shall take effect on 
the date specified in the order, which shall be at least forty-five (45) 
calendar days after the date on which the order is signed by the 
suspending official.

[78 FR 63012, Oct. 23, 2013, as amended at 80 FR 79680, Dec. 23, 2015]



Sec.1227.7  Appeal to the Director.

    (a) Opportunity to appeal. A respondent may submit an appeal to the 
Director within thirty (30) calendar days after the date a final 
suspension order has been signed. If the Director signed the final 
suspension order as the suspension official, the respondent has no 
appeal right under this section. The appeal shall be accompanied by a 
written brief specifically identifying the respondent's objections to 
the final suspension order and the supporting reasons for such 
objections.
    (b) Decision on appeal. The Director shall issue a written final 
decision on an appeal of a final suspension order based on the record 
submitted by the suspending official, together with any material 
submitted with an appeal. The Director may affirm, vacate or amend the 
suspension, or remand to the suspending official for further 
proceedings, in the discretion of the Director. If the Director does not 
take action on an appeal prior to the effective date of the order, the 
order shall take effect as if it had been affirmed by the Director, on 
the date specified in the order.
    (c) Final agency action. The written final decision of the Director 
on an appeal of a final suspension order shall be the final agency 
action. If the Director does not take action on an appeal prior to the 
effective date of the order, the order shall be the final agency action.
    (d) Exhaustion of administrative remedies. In order to fulfill the 
requirement to exhaust administrative remedies, a respondent must appeal 
a final suspension order to the Director as provided in this section 
prior to seeking judicial review of such order.



Sec.1227.8  Posting of final suspension orders.

    (a) Required posting. FHFA will publish on its Web site all final 
suspension orders issued by FHFA on the effective date of the order.
    (b) Content of posting. Each posting on FHFA's Web site shall 
include:
    (1) The full name (where available) of each suspended person and any 
affiliates thereof subject to the final suspension order, in 
alphabetical order;
    (2) A description of the time period for which the suspension 
applies; and
    (3) A copy of each final suspension order applicable to the person 
and any affiliates thereof.
    (c) Removal of names. FHFA will remove from the Web site all 
references to the suspension of a person and any affiliates thereof at 
such time as the suspension expires or is otherwise vacated.



Sec.1227.9  Request for reconsideration.

    (a) Time period for request. A suspended person may submit a request 
to the Director for reconsideration of a final suspension order at any 
time after the expiration of a twelve (12)-month period from the date 
the order took effect, but no such request may be made within twelve 
(12) months of a previous request for reconsideration from such person.
    (b) Content of request. A request for reconsideration must be 
submitted in writing and state the specific grounds for relief from the 
final suspension order, which shall be limited to any new information 
that may indicate that engaging in covered transactions with a regulated 
entity would no longer present a risk of significant financial or 
reputational harm or threat to the safe and sound operation of a 
regulated entity.
    (c) Decision on request. The Director may approve a request for 
reconsideration if the Director determines that engaging in covered 
transactions with a regulated entity is no longer likely to result in 
significant financial or

[[Page 203]]

reputational harm to a regulated entity or otherwise threaten the safe 
and sound operation of a regulated entity. The Director will inform the 
requestor of the decision on the request for reconsideration in a timely 
manner. A decision on a request for reconsideration shall not constitute 
an appealable order.



Sec.1227.10  Exception to final suspension order in effect.

    (a) Request for exception. A regulated entity to which a final 
suspension order in effect is applicable may request an exception from 
such order to allow it to engage in a particular covered transaction 
with a suspended person and any affiliates thereof. Any such request 
shall clearly state any reasons supporting an exception, as well as any 
steps the regulated entity will take to mitigate any risks presented by 
the exception. An exception may not be requested by a suspended person 
or any affiliates thereof.
    (b) Decision on exception. A suspending official may approve an 
exception from a final suspension order in effect to permit a regulated 
entity to engage in a particular covered transaction with a suspended 
person and any affiliates thereof for reasons consistent with those for 
which the suspending official may limit or qualify the scope or effect 
of a final suspension order under Sec.1227.6(f)(2)(iv) of this part. 
The decision on a request for an exception shall not constitute an 
appealable order.
    (c) Notice required. FHFA shall provide written notice in a timely 
manner to the regulated entity, the suspended person and any affiliates 
thereof, and the other regulated entities of any exception approved for 
a particular covered transaction.

Subpart B [Reserved]



PART 1228_RESTRICTIONS ON THE ACQUISITION OF, OR TAKING SECURITY 
INTERESTS IN, MORTGAGES ON PROPERTIES ENCUMBERED BY CERTAIN PRIVATE
TRANSFER FEE COVENANTS AND RELATED SECURITIES--Table of Contents



Sec.
1228.1 Definitions.
1228.2 Restrictions.
1228.3 Prospective application and effective date.
1228.4 State restrictions unaffected.

    Authority: 12 U.S.C. 4511, 4513, 4526, 4616, 4617, 4631.

    Source: 77 FR 15574, Mar. 16, 2012, unless otherwise noted.



Sec.1228.1  Definitions.

    For the purposes of this part, the following definitions apply:
    Adjacent or contiguous property means property that borders the 
burdened community, provided that such adjacent or contiguous property 
may be separated from the burdened community by public right of way.
    Burdened community means a community comprising all of the parcels 
or interests in real property encumbered by a single private transfer 
fee covenant or a series of separate private transfer fee covenants that 
require payment of private transfer fees to the same entity to be used 
for the same purposes.
    Covered association means a nonprofit mandatory membership 
organization comprising owners of homes, condominiums, cooperatives, 
manufactured homes, or any interest in real property, created pursuant 
to a declaration, covenant or other applicable law; or an organization 
described in section 501(c)(3) or section 501(c)(4) of the Internal 
Revenue Code. A covered association may include master and sub-
associations, each of which is also a covered association.
    Direct benefit means that the proceeds of a private transfer fee are 
used exclusively to support maintenance and improvements to encumbered 
properties, and acquisition, improvement, administration, and 
maintenance of property owned by the covered association of which the 
owners of the burdened property are members and used primarily

[[Page 204]]

for their benefit. Direct benefit also includes cultural, educational, 
charitable, recreational, environmental, conservation or other similar 
activities that--
    (1) Are conducted in or protect the burdened community or adjacent 
or contiguous property, or
    (2) Are conducted on other property that is used primarily by 
residents of the burdened community.
    Excepted transfer fee covenant means a private transfer fee covenant 
that requires payment of a private transfer fee to a covered association 
and limits the use of such transfer fees exclusively to purposes which 
provide a direct benefit to the real property encumbered by the private 
transfer fee covenants.
    Private transfer fee means a transfer fee, including a charge or 
payment, imposed by a covenant, restriction, or other similar document 
and required to be paid in connection with or as a result of a transfer 
of title to real estate, and payable on a continuing basis each time a 
property is transferred (except for transfers specifically excepted) for 
a period of time or indefinitely. A private transfer fee does not 
include fees, charges, payments, or other obligations--
    (1) Imposed by or payable to the Federal government or a State or 
local government; or
    (2) That defray actual costs of the transfer of the property, 
including transfer of membership in the relevant covered association.
    Private transfer fee covenant means a covenant that:
    (1) Purports to run with the land or to bind current owners of, and 
successors in title to, such real property; and
    (2) Obligates a transferee or transferor of all or part of the 
property to pay a private transfer fee upon transfer of an interest in 
all or part of the property, or in consideration for permitting such 
transfer.
    Transfer means, with respect to real property, the sale, gift, 
grant, conveyance, assignment, inheritance, or other transfer of an 
interest in the real property.

[77 FR 15574, Mar. 16, 2012, as amended at 78 FR 2323, Jan. 11, 2013]



Sec.1228.2  Restrictions.

    The regulated entities shall not purchase, invest or otherwise deal 
in any mortgages on properties encumbered by private transfer fee 
covenants, securities backed by such mortgages, or securities backed by 
the income stream from such covenants, unless such covenants are 
excepted transfer fee covenants. The Federal Home Loan Banks shall not 
accept such mortgages or securities as collateral, unless such covenants 
are excepted transfer fee covenants.



Sec.1228.3  Prospective application and effective date.

    This part shall apply only to mortgages on properties encumbered by 
private transfer fee covenants if those covenants are created on or 
after February 8, 2011. This part shall not apply to mortgages on 
properties encumbered by private transfer fee covenants if those 
covenants are created pursuant to an agreement entered into before 
February 8, 2011, applicable to land that is identified in the 
agreement, and the agreement was in settlement of litigation or approved 
by a government agency or body. This part also applies to securities 
backed by mortgages to which this part applies, and to securities issued 
after February 8, 2011, backed by revenue from private transfer fees 
regardless of when the covenants were created. The regulated entities 
shall comply with this part not later July 16, 2012.



Sec.1228.4  State restrictions unaffected.

    This part does not affect state restrictions or requirements with 
respect to private transfer fee covenants, such as with respect to 
validity, enforceability, disclosures, or duration.



PART 1229_CAPITAL CLASSIFICATIONS AND PROMPT CORRECTIVE ACTION--
Table of Contents



                    Subpart A_Federal Home Loan Banks

Sec.
1229.1 Definitions.
1229.2 Determination of a Bank's capital classification.
1229.3 Criteria for a Bank's capital classification.

[[Page 205]]

1229.4 Reclassification by the Director.
1229.5 Capital distributions for adequately capitalized Banks.
1229.6 Mandatory actions applicable to undercapitalized Banks.
1229.7 Discretionary actions applicable to undercapitalized Banks.
1229.8 Mandatory actions applicable to significantly undercapitalized 
          Banks.
1229.9 Discretionary actions applicable to significantly 
          undercapitalized Banks.
1229.10 Actions applicable to critically undercapitalized Banks.
1229.11 Capital restoration plans.
1229.12 Procedures related to capital classification and other actions.

                          Subpart B_Enterprises

1229.13 Definitions.

    Authority: 12 U.S.C. 1426, 4513, 4526, 4613, 4614, 4615, 4616, 4617, 
4618, 4622, 4623.

    Source: 74 FR 5604, Jan. 30, 2009, unless otherwise noted.



                    Subpart A_Federal Home Loan Banks



Sec.1229.1  Definitions.

    For purposes of this subpart:
    Capital distribution means any payment by the Bank, whether in cash 
or stock, of a dividend, any return of capital or retained earnings by 
the Bank to its shareholders, any transaction in which the Bank redeems 
or repurchases capital stock, or any transaction in which the Bank 
redeems, repurchases or retires any other instrument which is included 
in the calculation of its total capital.
    Class A stock means capital stock issued by a Bank, including 
subclasses, that has the characteristics specified in section 
6(a)(4)(A)(i) of the Bank Act (12 U.S.C. 1426(a)(4)(A)(i)) and related 
regulations.
    Class B stock means capital stock issued by a Bank, including 
subclasses, that has the characteristics specified in section 
6(a)(4)(A)(ii) of the Bank Act (12 U.S.C. 1426(a)(4)(A)(ii)) and related 
regulations.
    Critical capital level for a Bank means an amount equal to 2 percent 
of the Bank's total assets.
    Executive officer means for a Bank any of the following persons, 
provided that the Director may from time to time add or remove persons, 
positions, or functions to or from the list (individually for one or 
more Banks or jointly for all the Banks) by communication to the 
affected Banks:
    (1) Executive officers about whom the Banks must publicly disclose 
detailed compensation information under Regulation S-K, 17 CFR part 229, 
issued by the Securities and Exchange Commission;
    (2) Any other executive who occupies one of the following positions 
or is in charge of one of the following subject areas:
    (i) Overall Bank operations, such as the Chief Operating Officer or 
an equivalent employee;
    (ii) Chief Financial Officer or an equivalent employee;
    (iii) Chief Administrative Officer or an equivalent employee;
    (iv) Chief Risk Officer or an equivalent employee;
    (v) Asset and Liability Management officer, or an equivalent 
employee;
    (vi) Chief Accounting Officer or an equivalent employee;
    (vii) General Counsel or an equivalent employee;
    (viii) Strategic Planning officer or an equivalent employee;
    (ix) Internal Audit officer or an equivalent employee; or
    (x) Chief Information Officer or an equivalent employee; or
    (3) Any other individual, without regard to title:
    (i) Who is in charge of a principal business unit, division or 
function; or
    (ii) Who reports directly to the Bank's chairman of the board of 
directors, vice chairman of the board of directors, president or chief 
operating officer.
    Minimum capital requirement means the leverage and total capital 
requirements established for a Bank under section 6(a)(2) of the Bank 
Act (12 U.S.C. 1426(a)(2)) and related regulations, as such requirements 
may be revised by the Director, or any similar requirement established 
for a Bank by regulation, order, written agreement or other action.
    New business activity when used in this subpart has the same meaning 
set forth in Sec.1272.1 of this chapter.

[[Page 206]]

    Permanent capital means the retained earnings of a Bank, determined 
in accordance with generally accepted accounting principles in the 
United States (GAAP), plus the amount paid-in for the Bank's Class B 
stock.
    Risk-based capital requirement means any capital requirement 
established for a Bank under section 6(a)(3) of the Bank Act (12 U.S.C. 
1426(a)(3)) and related regulations that ensures a Bank will hold 
sufficient permanent capital and reserves to support the risks that 
arise from its operations.
    Tangible equity means, for a Bank, the paid-in value of its 
outstanding capital stock plus its retained earnings calculated in 
accordance with generally accepted accounting principles in the United 
States (GAAP) less the amount of any assets that would be intangible 
assets under GAAP.
    Total capital means the sum of the Bank's permanent capital, the 
amount paid-in for its Class A stock, the amount of any general 
allowances for losses, and the amount of any other instruments 
identified in a Bank's capital plan that the Director has determined to 
be available to absorb losses incurred by such Bank.

[74 FR 5604, Jan. 30, 2009, as amended at 78 FR 2323, Jan. 11, 2013; 81 
FR 76295, Nov. 2, 2016]



Sec.1229.2  Determination of a Bank's capital classification.

    (a) Quarterly determination. The Director shall determine the 
capital classification for each Bank no less often than once a quarter 
based on the capital classifications in Sec.1229.3 of this subpart. 
The Director may make a determination with regard to a capital 
classification for a Bank more often than the minimum required under 
this paragraph or make a determination for one or more Banks without 
making a determination for all the Banks.
    (b) Notification to a Bank. Before finalizing any action to classify 
a Bank under this section, the Director shall provide a Bank written 
notice describing the proposed action and an opportunity to submit 
information that the Bank considers relevant to the proposed action in 
accordance with Sec.1229.12 of this subpart.
    (c) Notification to the FHFA. A Bank shall provide written 
notification within ten calendar days of any event or development that 
has caused or is likely to cause its permanent or total capital to fall 
below the level necessary to maintain its capital classification at the 
level assigned in the most recent capital classification or 
reclassification determination by the Director or that is contained in 
the most recent notice of a proposed capital classification or 
reclassification provided under Sec.1229.12(a) of this subpart.



Sec.1229.3  Criteria for a Bank's capital classification.

    (a) Adequately capitalized. Except where the Director has exercised 
authority to reclassify a Bank, a Bank shall be considered adequately 
capitalized if, at the time of the determination under Sec.1229.2(a) 
of this subpart, the Bank has sufficient permanent and total capital, as 
applicable, to meet or exceed its risk-based and minimum capital 
requirements.
    (b) Undercapitalized. Except where the Director has exercised 
authority to reclassify a Bank, a Bank shall be considered 
undercapitalized if, at the time of the determination under Sec.
1229.2(a) of this subpart, the Bank does not have sufficient permanent 
or total capital, as applicable, to meet any one or more of its risk-
based or minimum capital requirements but such deficiency is not of a 
magnitude to classify the Bank as significantly undercapitalized or 
critically undercapitalized.
    (c) Significantly undercapitalized. Except where the Director has 
exercised authority to reclassify a Bank, a Bank shall be considered 
significantly undercapitalized if, at the time of the determination 
under Sec.1229.2(a) of this subpart, the amount of permanent or total 
capital held by the Bank is less than 75 percent of what is required to 
meet any one of its risk-based or minimum capital requirements but the 
magnitude of the Bank's deficiency in total capital is not sufficient to 
classify it as critically undercapitalized.
    (d) Critically undercapitalized. Except where the Director has 
exercised authority to reclassify a Bank, a Bank

[[Page 207]]

shall be considered critically undercapitalized if, at the time of the 
determination under Sec.1229.2(a) of this subpart, the total capital 
held by the Bank is less than or equal to the critical capital level for 
a Bank as defined under Sec.1229.1 of this subpart.



Sec.1229.4  Reclassification by the Director.

    (a) Discretionary reclassification. Where the Director determines 
that any of the grounds described in paragraph (b) of this section 
exist, the Director may reclassify a Bank as:
    (1) Undercapitalized, if it is otherwise classified as adequately 
capitalized;
    (2) Significantly undercapitalized, if it is otherwise classified as 
undercapitalized; or
    (3) Critically undercapitalized if it is otherwise classified as 
significantly undercapitalized.
    (b) Grounds for discretionary reclassification. Notwithstanding any 
other provision of this subpart, the Director may at any time reclassify 
a Bank under this section if:
    (1) The Director determines in writing that:
    (i) The Bank is engaging in conduct that could result in the rapid 
depletion of permanent or total capital;
    (ii) The value of collateral pledged to the Bank has decreased 
significantly; or
    (iii) The value of property subject to mortgages owned by the Bank 
has decreased significantly.
    (2) The Director determines, after notice to the Bank and 
opportunity for an informal hearing before the Director, that a Bank is 
in an unsafe and unsound condition; or
    (3) The Director finds, under Sec.1371(b) of Safety and Soundness 
Act (12 U.S.C. 4631(b)), that the Bank is engaging in an unsafe and 
unsound practice because the Bank's asset quality, management, earnings 
or liquidity were found to be less than satisfactory during the most 
recent examination, and any deficiency has not been corrected.
    (c) Procedures. Before finalizing any action to reclassify a Bank 
under this section, the Director shall provide a Bank written notice 
describing the proposed action and an opportunity to submit information 
that the Bank considers relevant to the Director's proposed action in 
accordance with Sec.1229.12 of this subpart.
    (d) Duration. Any condition, action or inaction by a Bank that is 
the basis for a decision to reclassify a Bank under this section or 
under any other authority provided the Director may be considered by the 
Director and form the basis of further, subsequent actions to reclassify 
the Bank until such time as the Bank remedies such condition or takes 
necessary action to correct such situation to the satisfaction of the 
Director.
    (e) Reservation of authority. Nothing in this section shall prevent 
the Director from exercising any other authority under the Safety and 
Soundness Act, the Bank Act or any regulation to reclassify a Bank for 
reasons not set forth in paragraph (b) of this section or to take any 
other action against a Bank.



Sec.1229.5  Capital distributions for adequately capitalized Banks.

    (a) Restriction. An adequately capitalized Bank may not make a 
capital distribution if after doing so the Bank's capital would be 
insufficient to maintain a classification of adequately capitalized. A 
Bank may not make a capital distribution if such distribution would 
violate any restriction on the redemption or repurchase of capital stock 
or the payment of a dividend set forth in section 6 of the Bank Act (12 
U.S.C. 1426) and any other applicable regulation.
    (b) Exception. Notwithstanding the restriction in paragraph (a) of 
this section, the Director may permit a Bank to repurchase or redeem its 
shares of stock if the transaction is made in connection with the 
issuance of additional Bank shares or obligations in at least an 
equivalent amount to the shares that are redeemed or repurchased and 
will reduce the Bank's financial obligations or otherwise improve its 
financial condition. Any transaction under this paragraph also must 
conform with any restriction on the redemption or repurchase of Bank 
stock set forth in section 6 of the Bank Act (12 U.S.C. 1426) and in any 
other applicable regulation.

[[Page 208]]



Sec.1229.6  Mandatory actions applicable to undercapitalized Banks.

    (a) Mandatory Actions by the Bank. A Bank that is classified as 
undercapitalized shall:
    (1) Submit to the Director for approval a capital restoration plan 
that complies with the requirements and procedures established by Sec.
1229.11 of this part and receive approval from the Director for such 
plan;
    (2) Fulfill all terms, conditions and obligations contained in the 
capital restoration plan as approved by the Director;
    (3) Not make any capital distribution unless:
    (i) The distribution meets the requirements of Sec.1229.5(b) and 
paragraphs (a)(3)(ii) and (iii) of this section and the Director has 
provided permission for such distribution as set forth in Sec.
1229.5(b);
    (ii) The capital distribution will not result in the Bank being 
reclassified as significantly undercapitalized or critically 
undercapitalized; and
    (iii) The capital distribution does not violate any restriction on 
the redemption or repurchase of capital stock or the declaration or 
payment of a dividend set forth in section 6 of the Bank Act (12 U.S.C. 
1426) or in any other applicable regulation;
    (4) Not permit its average total assets in any calendar quarter to 
exceed its average total assets during the preceding calendar quarter, 
where such average is calculated based on the total amount of assets 
held by the Bank for each day in a quarter, unless:
    (i) The Director has approved the Bank's capital restoration plan; 
and
    (ii) The Director determines that:
    (A) The increase in total assets is consistent with the approved 
capital restoration plan; and
    (B) The ratio of tangible equity to the Bank's total assets is 
increasing at a rate sufficient to enable the Bank to become adequately 
capitalized within a reasonable time and consistent with any schedule 
established in the capital restoration plan; and
    (5) Not acquire, directly or indirectly, an equity interest in any 
operating entity (other than as necessary to enforce a security interest 
granted to the Bank) nor engage in any new business activity unless:
    (i) The Director has approved the Bank's capital restoration plan, 
the Bank is implementing the capital restoration plan and the Director 
determines that proposed acquisition or activity will further 
achievement of the goals set forth in that plan; or
    (ii) The Director determines that the proposed acquisition or 
activity will be consistent with the safe and sound operation of the 
Bank and will further the Bank's compliance with its risk-based and 
minimum capital requirements in a reasonable period of time.
    (b) Mandatory reclassification by the Director. The Director shall 
reclassify an undercapitalized Bank as significantly undercapitalized 
if:
    (1) The Bank does not submit a capital restoration plan that is 
substantially in compliance with Sec.1229.11 of this subpart and 
within the time frame required.
    (2) The Director does not approve the capital restoration plan 
submitted by the Bank; or
    (3) The Director determines that the Bank has failed in any material 
respect to comply with its approved capital restoration plan or fulfill 
any schedule for action established by that plan.
    (c) Monitoring. The Director shall monitor the condition of any 
undercapitalized Bank and monitor the Bank's compliance with the capital 
restoration plan and any restrictions imposed under this section or 
Sec.1229.7 of this subpart. As part of this process, the Director 
shall review the capital restoration plan and any restrictions or 
requirements imposed on the undercapitalized Bank to determine whether 
such plan, restrictions or requirements are consistent with the safe and 
sound operation of the Bank and will further the Bank's compliance with 
its risk-based and minimum capital requirements in a reasonable period 
of time.

[74 FR 5604, Jan. 30, 2009, as amended at 74 FR 38513, Aug. 4, 2009; 81 
FR 76295, Nov. 2, 2016]



Sec.1229.7  Discretionary actions applicable to undercapitalized Banks.

    (a) Discretionary safeguards. The Director may take any action with 
regard to an undercapitalized Bank that

[[Page 209]]

may be taken with regard to a significantly undercapitalized Bank under 
section 1366 of the Safety and Soundness Act (12 U.S.C. 4616) or Sec.
1229.8 or Sec.1229.9 if the Director determines that such action is 
necessary to assure the safe and sound operation of the Bank and the 
Bank's compliance with its risk-based and minimum capital requirements 
in a reasonable period of time.
    (b) Procedures. Before finalizing any action under this section, the 
Director shall provide a Bank written notice describing the proposed 
action or actions and an opportunity to submit information that the Bank 
considers relevant to the Director's decision to take such action in 
accordance with Sec.1229.12 of this subpart.

[74 FR 5604, Jan. 30, 2009, as amended at 81 FR 76295, Nov. 2, 2016]



Sec.1229.8  Mandatory actions applicable to significantly
undercapitalized Banks.

    A Bank that is classified as significantly undercapitalized:
    (a) Shall submit to the Director for approval a capital restoration 
plan that complies with the requirements and procedures established by 
Sec.1229.11 of this part and receive approval from the Director for 
such plan;
    (b) Fulfill all terms, conditions and obligations contained in the 
capital restoration plan once the plan is approved by the Director;
    (c) Shall not make any capital distribution that would result in the 
Bank being reclassified as critically undercapitalized or that would 
violate any restriction on the redemption or repurchase of capital stock 
or the payment of a dividend set forth in section 6 of the Bank Act (12 
U.S.C. 1426) or any applicable regulation;
    (d) Shall not make any capital distribution not otherwise prohibited 
under paragraph (c) of this section absent the prior written approval of 
the Director, provided that the Director may approve such distribution 
only if the Director determines that:
    (1) The capital distribution will enhance the ability of the Bank to 
meet its risk-based and minimum capital requirements promptly;
    (2) The capital distribution will contribute to the long-term 
financial safety and soundness of the Bank; or
    (3) The capital distribution is otherwise in the public interest;
    (e) Shall not without prior written approval of the Director pay a 
bonus to any executive officer, provided that for purposes of this 
paragraph a bonus shall include any amount paid or accruing to an 
executive officer under a profit sharing arrangement;
    (f) Shall not without the prior written approval of the Director 
compensate an executive officer at a rate exceeding the average rate of 
compensation of that officer during the 12 months preceding the calendar 
month in which the Bank became significantly undercapitalized, provided 
however, that for purposes of calculating the executive officer's 
average rate of compensation, such compensation shall not include any 
bonus or profit sharing paid or accruing to the officer during the 12 
month period;
    (g) Comply with Sec.1229.6(a)(4) and (a)(5) of this subpart; and
    (h) Comply with any on-going restrictions or obligations that were 
imposed on the Bank by the Director under Sec.1229.7 of this subpart.

[74 FR 5604, Jan. 30, 2009, as amended at 74 FR 38513, Aug. 4, 2009]



Sec.1229.9  Discretionary actions applicable to significantly
undercapitalized Banks.

    (a) Actions by the Director. The Director shall carry out this 
section by taking, at any time, one or more of the following actions 
with respect to a significantly undercapitalized Bank:
    (1) Limit the increase in any obligations or class of obligations of 
the Bank, including any off-balance sheet obligations. Such limitation 
may be stated in an absolute dollar amount, as a percentage of current 
obligations or in any other form chosen by the Director;
    (2) Reduce the amount of any obligations or class of obligations 
held by the Bank, including any off-balance sheet obligations. Such 
reduction may be stated in an absolute dollar amount, as a percentage of 
current obligations or in any other form chosen by the Director;

[[Page 210]]

    (3) Limit the increase in, or prohibit the growth of any asset or 
class of assets held by the Bank. Such limitation may be stated in an 
absolute dollar amount, as a percentage of current assets or in any 
other form chosen by the Director;
    (4) Reduce the amount of any asset or class of asset held by the 
Bank. Such reduction may be stated in an absolute dollar amount, as a 
percentage of current obligations or in any other form chosen by the 
Director;
    (5) Acquire new capital in the form and amount determined by the 
Director, which specifically may include requiring a Bank to increase 
its level of retained earnings;
    (6) Modify, limit or terminate any activity of the Bank that the 
Director determines creates excessive risk;
    (7) Take steps to improve the management at the Bank by:
    (i) Ordering a new election for the Bank's board of directors in 
accordance with procedures established by the Director;
    (ii) Dismissing particular directors or executive officers, in 
accordance with section 1366(b)(5)(B) of the Safety and Soundness Act 
(12 U.S.C. 4616(b)(5)(B)), who held office for more than 180 days 
immediately prior to the date on which the Bank became undercapitalized, 
provided further that such dismissals shall not be considered removal 
pursuant to an enforcement action under section 1377 of the Safety and 
Soundness Act (12 U.S.C. 4636a) and shall not be subject to the 
requirements necessary to remove an officer or director under that 
section; or
    (iii) Ordering the Bank to hire qualified executive officers, the 
hiring of whom, prior to employment by the Bank and at of the option of 
the Director, may be subject to review and approval by the Director; or
    (8)(i) Reclassify a significantly undercapitalized Bank as 
critically undercapitalized if:
    (A) The Bank does not submit a capital restoration plan that is 
substantially in compliance with Sec.1229.11 of this part and within 
the time frame required;
    (B) The Director does not approve the capital restoration plan 
submitted by the Bank; or
    (C) The Director determines that the Bank has failed to make 
reasonable, good faith efforts to comply with its approved capital 
restoration plan and fulfill any schedule established by that plan.
    (ii) Subject to paragraph (c) of this section, the Director may 
reclassify a significantly undercapitalized Bank under paragraph 
(a)(8)(i) of this section at any time the grounds for such action exist, 
notwithstanding the fact that such grounds had formed the basis on which 
the Director reclassified a Bank from undercapitalized to significantly 
undercapitalized.
    (b) Additional safeguards. The Director may require a significantly 
undercapitalized Bank to take any other action not specifically listed 
in this section if the Director determines such action will help ensure 
the safe and sound operation of the Bank and the Bank's compliance with 
its risk-based and minimum capital requirements in a reasonable period 
of time more than any action specifically authorized under paragraph (a) 
of this section.
    (c) Procedures. Before finalizing any action under this section, the 
Director shall provide a Bank written notice describing the proposed 
action or actions and an opportunity to submit information that the Bank 
considers relevant to the Director's decision to take such action in 
accordance with Sec.1229.12 of this subpart.



Sec.1229.10  Actions applicable to critically undercapitalized Banks.

    (a) Appointment of conservator or receiver. Notwithstanding any 
other provision of federal or state law, the Director may appoint the 
FHFA as conservator or receiver of any Bank at any time after the 
Director determines that the Bank is, or the Director otherwise 
exercises authority to reclassify the Bank as, critically 
undercapitalized.
    (b) Periodic determination--(1) Determination. Not later than 30 
calendar days after the Director first determines that a Bank is, or the 
Director otherwise exercises authority to reclassify

[[Page 211]]

the Bank as, critically undercapitalized, and a least once during each 
succeeding 30-day calendar period, the Director make a determination in 
writing as to whether:
    (i) The assets of the Bank are, and during the preceding 60 calendar 
days have been, less than its obligations to its creditors and others, 
provided that the Director shall consider as an obligation only that 
amount of outstanding consolidated obligations for which the Bank is 
primary obligor or for which the Bank has been ordered to make payments 
of principal or interest on behalf of another Bank, or is actually 
making payments of principal or interest on behalf of another Bank; or
    (ii) The Bank is not, and during the previous 60 calendar days has 
not been paying its debts on a regular basis as such debts become due, 
provided that this provision does not apply to any unpaid debts that are 
the subject of a bona fide dispute.
    (2) Mandatory receivership. If the Director determines that the 
conditions described in either paragraph (b)(1)(i) or (b)(1)(ii) of this 
section applies to a Bank, the Director shall appoint the FHFA as 
receiver for the Bank. The appointment of the FHFA as receiver under 
this paragraph shall immediately terminate any conservatorship 
established for the Bank.
    (3) Determination not required. A determination under paragraph 
(b)(1) of this section shall not be required during any period in which 
the FHFA serves as receiver for a Bank.
    (c) Judicial review. If the Director appoints the FHFA as 
conservator or receiver of a Bank under paragraph (a) or (b)(2) of this 
section, the Bank may within 30 days of such appointment bring an action 
in the United States district court for the judicial district in which 
the Bank was established pursuant to section 3 of the Bank Act (12 
U.S.C. 1423) or in the United States District Court for the District of 
Columbia, for an order requiring the FHFA to remove itself as 
conservator or receiver.
    (d) Other applicable actions. Until such time as FHFA is appointed 
as conservator or receiver for a critically undercapitalized Bank, a 
critically undercapitalized Bank shall be subject to all mandatory 
restrictions or obligations applicable to a significantly 
undercapitalized Bank under Sec.1229.8 of this subpart and will remain 
subject to any on-going restrictions or obligations that the Director 
imposed on the Bank under Sec.1229.7 or Sec.1229.9 of this subpart, 
or any restrictions or obligations that are applicable to the Bank under 
the terms of an approved capital restoration plan.

[74 FR 5604, Jan. 30, 2009, as amended at 74 FR 38513, Aug. 4, 2009]



Sec.1229.11  Capital restoration plans.

    (a) Contents. Each capital restoration plan submitted by a Bank 
shall set forth a plan to restore its permanent and total capital to 
levels sufficient to fulfill its risk-based and minimum capital 
requirements within a reasonable period of time. Such plan must be 
feasible given general market conditions and the conditions of the Bank 
and, at a minimum, shall:
    (1) Describe the actions the Bank will take, including any changes 
that the Bank will make to member stock purchase requirements, to assure 
that it will become adequately capitalized within the meaning of Sec.
1229.3(a) of this subpart and, if appropriate, to resolve any structural 
or long term causes for the capital deficiency;
    (2) Specify the level of permanent and total capital the Bank will 
achieve and maintain and provide quarterly projections indicating how 
each component of total and permanent capital and the major components 
of income, assets and liabilities are expected to change over the term 
of the plan;
    (3) Specify the types and levels of activities in which the Bank 
will engage during the term of the plan, including any new business 
activities that it intends to begin during such term;
    (4) Describe any other actions the Bank intends to take to comply 
with any other requirements imposed on it under this subpart A of part 
1229;
    (5) Provide a schedule which sets forth dates for meeting specific 
goals and benchmarks and taking other actions described in the proposed 
capital restoration plan, including setting forth a schedule for it to 
restore its permanent and total capital to levels necessary for meeting 
its risk-based

[[Page 212]]

and minimum capital requirements; and
    (6) Address such other items that the Director shall provide in 
writing in advance of such submission.
    (b) Deadline for submission. A Bank must submit a proposed capital 
restoration plan no later than 15 business-days after it receives 
written notification that such a plan is required either because the 
notice specifically states that the Director has required the submission 
of a plan or the notice indicates that the Bank's capital classification 
or reclassification is to a category for which a capital restoration 
plan is a mandatory action required of the Bank. The Director may extend 
this deadline if the Director determines that such extension is 
necessary. Any such extension shall be in writing and provide a specific 
date by which the Bank must submit its proposed capital restoration 
plan.
    (c) Review of the plan by the Director. The Director shall have 30 
calendar days from the date the Bank submits a proposed capital 
restoration plan to approve or disapprove the plan. The Director may 
extend the period for consideration of a capital restoration plan for a 
single 30 calendar day period by providing the Bank with written 
notification that the decision deadline has been extended. The Director 
shall provide the Bank with written notification of the decision to 
approve or not approve a proposed capital restoration plan. If the 
Director does not approve the capital restoration plan, the written 
notification of such decision shall provide the reasons for the 
disapproval.
    (d) Resubmission. If the Director does not approve the Bank's 
proposed capital restoration plan, the Bank shall submit a new capital 
restoration plan acceptable to the Director within 30 calendar days of 
the date that the Bank was notified of the disapproval. The Director may 
extend the period for the Bank's submission of a new acceptable capital 
restoration plan upon a determination that such extension is in the 
public interest. The Director shall provide the Bank written notice of 
the extension and include in such notice the date by which the Bank must 
submit an acceptable plan.
    (e) Amendments. The Director, in his or her sole discretion, may 
approve amendments to an approved capital restoration plan if, after 
consideration of changes in conditions of the Bank, changes in market 
conditions and other relevant factors, the Director determines that such 
amendments are consistent with the restoration of the Bank's capital to 
levels necessary to meet its risk-based and minimum capital requirements 
in a reasonable period of time and with the safe and sound operations of 
the Bank.
    (f) Effectiveness of provisions. A Bank is obligated to implement 
and fulfill all provisions of an approved capital restoration plan. 
Unless expressly addressed by the terms of the capital restoration plan, 
a Bank remains bound by each and every obligation and requirement set 
forth in the approved capital restoration plan until such requirement or 
obligation is amended under paragraph (e) of this section or terminated 
in writing by the Director.
    (g) Appointment of conservator or receiver. Notwithstanding any 
other provision of federal or state law, the Director may appoint the 
FHFA as conservator or receiver of any Bank that is classified as 
undercapitalized or significantly undercapitalized if the Bank fails to 
submit a capital restoration plan acceptable to the Director within the 
time frames established by this section or if the Bank materially fails 
to implement any capital restoration plan that has been approved by the 
Director. A Bank may within 30 days of such appointment bring an action 
in the United States district court for the judicial district in which 
the Bank is established pursuant to section 3 of the Bank Act (12 U.S.C. 
1423) or in the United States District Court for the District of 
Columbia, for an order requiring the FHFA to remove itself as 
conservator or receiver.

[74 FR 5604, Jan. 30, 2009, as amended at 74 FR 38513, Aug. 4, 2009]



Sec.1229.12  Procedures related to capital classification and other
actions.

    (a) Classification or reclassification of a Bank. Before finalizing 
any decision to classify a Bank under Sec.1229.2(a) of this subpart or 
reclassify the Bank under Sec.1229.4(a) of this subpart, the Director

[[Page 213]]

shall provide the Bank with written notification of the proposed action 
that states the reasons for the proposed action and describes the 
information on which the proposed action is based. The notice required 
under this paragraph may be combined with the notice of a proposed 
supervisory action required under paragraph (b) of this section. The 
Director also may combine a notice informing the Bank of its capital 
classification and simultaneously informing the Bank that the Director 
intends to reclassify a Bank to a lower capital classification category.
    (b) Notice of a supervisory action. Before finalizing any action or 
actions authorized under Sec.1229.7 or Sec.1229.9 of this subpart, 
the Director shall provide the Bank with written notification of the 
proposed action that states the reasons for the proposed action and 
describes the information on which the proposed action is based. The 
notice required under this paragraph may be combined with the notice of 
a proposed action to classify or reclassify the Bank required under 
paragraph (a) of this section.
    (c) Bank response. During the 30 calendar day period beginning on 
the date that the Bank is provided notice under paragraph (a) or (b) of 
this section of a proposed action or actions, a Bank may submit to the 
Director any information that the Bank considers relevant or appropriate 
for the Director to consider in determining whether to finalize the 
proposed action. The Director may, in his or her sole discretion, 
convene an informal hearing with representatives of the Bank to receive 
or discuss any such information. The Director, in his or her sole 
discretion, also may extend the period in which the Bank may respond to 
a notice for an additional 30 calendar days for good cause, or shorten 
such comment period if the Director determines the condition of the Bank 
requires faster action or a shorter comment period or if the Bank 
consents to a shorter comment period. The Director shall inform the Bank 
in writing, which may be provided as part of the notice required under 
paragraphs (a) or (b) of this section, of any decision to extend or 
shorten the comment period. The failure of a Bank to provide information 
during the allotted comment period will waive any right of the Bank to 
comment on the proposed action.
    (d) Final action. At the earlier of the completion of the comment 
period established under paragraph (c) or the receipt of information 
provided by the Bank during such period, the Director shall determine 
whether to take the proposed action or actions that were the subject of 
the notice under paragraphs (a) or (b) of this section, after taking 
into consideration any information provided by the Bank. Such notice 
shall respond to any information submitted by the Bank. Any final order 
that the Bank take action, refrain from action or comply with any other 
requirement that was the subject of a notice under paragraph (b) of this 
section shall take effect upon the Bank's receipt of the notice required 
under this paragraph, unless a different effective date is set forth in 
this notice, and shall remain in effect and binding on the Bank until 
terminated in writing by the Director or until any terms and conditions 
for termination, as set forth in the notice, have been met.
    (e) Final actions under this section. Any final decision that the 
Bank take action, refrain from action or comply with any other 
requirement that was the subject of a notice under paragraph (b) of this 
section shall constitute an order under the Safety and Soundness Act. 
The Director in his or her discretion may apply to the United States 
District Court for the District of Columbia or to the United States 
district court for the judicial district in which the Bank in question 
is established pursuant to section 3 of the Bank Act (12 U.S.C. 1423) 
for the enforcement of such order, as allowed under Sec.1375 of the 
Safety and Soundness Act (12 U.S.C. 4635) . In addition, a Bank or any 
executive officer or director of a Bank can be subject to enforcement 
action, including the imposition of civil monetary penalties, under 
Sec.1371, Sec.1372 or Sec.1376 of the Safety and Soundness Act (12 
U.S.C. 4631, 4632, or 4636) for failure to comply with such an order.
    (f) Judicial review. A Bank that is not classified as critically 
undercapitalized may obtain judicial review of any final capital 
classification decision or of any final decision to take supervisory 
action made by the Director under

[[Page 214]]

Sec.1229.2, Sec.1229.4, Sec.1229.7 or Sec.1229.9 in accordance 
with the requirements and procedures set forth in Sec.1369D of the 
Safety and Soundness Act (12 U.S.C. 4623).



                          Subpart B_Enterprises

    Authority: 12 U.S.C. 4513b, 4526, 4613, 4614, 4615, 4616, 4617.

    Source: 76 FR 35733, June 20, 2011, unless otherwise noted.



Sec.1229.13  Definitions.

    For purposes of this subpart:
    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;
    (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 the Internal Revenue Code 
of 1986 (26 U.S.C. 401 et seq.) or any substantially equivalent plan as 
determined by the Director of FHFA in writing in advance; and
    (3) Any payment of any claim, whether or not reduced to judgment, 
liquidated or unliquidated, fixed, contingent, matured or unmatured, 
disputed or undisputed, legal, equitable, secured or unsecured, arising 
from rescission of a purchase or sale of an equity security of an 
Enterprise or for damages arising from the purchase, sale, or retention 
of such a security.



PART 1230_EXECUTIVE COMPENSATION--Table of Contents



Sec.
1230.1 Purpose.
1230.2 Definitions.
1230.3 Prohibition and withholding of executive compensation.
1230.4 Prior approval of termination agreements of Enterprises.
1230.5 Submission of supporting information.

    Authority: 12 U.S.C. 1427, 1431(l)(5), 1452(h), 4502(6), 4502(12), 
4513, 4514, 4517, 4518, 4518a, 4526, 4631, 4632, 4636, and 1723a(d).

    Source: 79 FR 4393, Jan. 28, 2014, unless otherwise noted.



Sec.1230.1  Purpose.

    The purpose of this part is to implement requirements relating to 
the supervisory authority of FHFA under the Safety and Soundness Act 
with respect to compensation provided by the regulated entities and the 
Office of Finance to their executive officers. This part also 
establishes a structured process for submission of relevant information 
by the regulated entities and the Office of Finance, in order to 
facilitate and enhance the efficiency of FHFA's oversight of executive 
compensation.



Sec.1230.2  Definitions.

    The following definitions apply to the terms used in this part:
    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.
    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.
    Enterprise means the Federal National Mortgage Association and the 
Federal Home Loan Mortgage Corporation (collectively, Enterprises) and, 
except as provided by the Director, any affiliate thereof.
    Executive officer means:
    (1) With respect to an Enterprise:

[[Page 215]]

    (i) The chairman of the board of directors, chief executive officer, 
chief financial officer, chief operating officer, president, vice 
chairman, any executive vice president, any senior vice president, any 
individual in charge of a principal business unit, division, or 
function, and any individual who performs functions similar to such 
positions whether or not the individual has an official title; and
    (ii) Any other officer as identified by the Director;
    (2) With respect to a Bank:
    (i) The president, the chief financial officer, and the three other 
most highly compensated officers; and
    (ii) Any other officer as identified by the Director.
    (3) With respect to the Office of Finance:
    (i) The chief executive officer, chief financial officer, and chief 
operating officer; and
    (ii) Any other officer identified by the Director.
    Reasonable and comparable means compensation that is:
    (1) Reasonable--compensation, taken in whole or in part, that would 
be appropriate for the position and based on a review of relevant 
factors including, but not limited to:
    (i) The duties and responsibilities of the position;
    (ii) Compensation factors that indicate added or diminished risks, 
constraints, or aids in carrying out the responsibilities of the 
position; and
    (iii) Performance of the regulated entity, the specific employee, or 
one of the entity's significant components with respect to achievement 
of goals, consistency with supervisory guidance and internal rules of 
the entity, and compliance with applicable law and regulation.
    (2) Comparable--compensation that, taken in whole or in part, does 
not materially exceed compensation paid at institutions of similar size 
and function for similar duties and responsibilities.
    Regulated entity means any Enterprise and any Federal Home Loan 
Bank.



Sec.1230.3  Prohibition and withholding of executive compensation.

    (a) In general. The Director may review the compensation 
arrangements for any executive officer of a regulated entity or the 
Office of Finance at any time, and shall prohibit the regulated entity 
or the Office of Finance from providing compensation to any such 
executive officer that the Director determines is not reasonable and 
comparable with compensation for employment in other similar businesses 
involving similar duties and responsibilities. No regulated entity or 
the Office of Finance shall pay compensation to an executive officer 
that is not reasonable and comparable with compensation paid by such 
similar businesses involving similar duties and responsibilities. No 
Enterprise in conservatorship shall pay a bonus to any senior executive 
during the period of that conservatorship.
    (b) Factors to be taken into account. In determining whether 
compensation provided by a regulated entity or the Office of Finance to 
an executive officer is not reasonable and comparable, the Director may 
take into consideration any factors the Director considers relevant, 
including any wrongdoing on the part of the executive officer, such as 
any fraudulent act or omission, breach of trust or fiduciary duty, 
violation of law, rule, regulation, order, or written agreement, and 
insider abuse with respect to the regulated entity or the Office of 
Finance.
    (c) Prohibition on setting compensation by Director. In carrying out 
paragraph (a) of this section, the Director may not prescribe or set a 
specific level or range of compensation.
    (d) Advance notice to Director of certain compensation actions. (1) 
A regulated entity or the Office of Finance shall not, without providing 
the Director at least 60 days' advance written notice, enter into any 
written arrangement that provides incentive awards to any executive 
officer or officers.
    (2) A regulated entity or the Office of Finance shall not, without 
providing the Director at least 30 days' advance written notice, enter 
into any written arrangement that:

[[Page 216]]

    (i) Provides an executive officer a term of employment for a term of 
six months or more; or
    (ii) In the case of a Bank or the Office of Finance, provides 
compensation to any executive officer in connection with the termination 
of employment, or establishes a policy of compensation in connection 
with the termination of employment.
    (3) A regulated entity or the Office of Finance shall not, without 
providing the Director at least 30 days' advance written notice, pay, 
disburse, or transfer to any executive officer, annual compensation 
(where the annual amount has changed); pay for performance or other 
incentive pay; any amounts under a severance plan, change-in-control 
agreement, or other separation agreement; any compensation that would 
qualify as direct compensation for purposes of securities filings; or 
any other element of compensation identified by the Director prior to 
the notice period.
    (4) Notwithstanding the foregoing review periods, a regulated entity 
or the Office of Finance shall provide five business days' advance 
written notice to the Director before committing to pay compensation of 
any amount or type to an executive officer who is being newly hired.
    (5) The Director reserves the right to extend any of the foregoing 
review periods, and may do so in the Director's discretion, upon notice 
to the regulated entity or the Office of Finance. Any such notice shall 
set forth the number of business or calendar days by which the review 
period is being extended.
    (e) Withholding, escrow, prohibition. During the review period 
required by paragraph (d) of this section, or any extension thereof, a 
regulated entity or the Office of Finance shall not execute the 
compensation action that is under review unless the Director provides 
written notice of approval or non-objection. During a review under 
paragraph (a) or (d) of this section, or at any time before an executive 
compensation action has been taken, the Director may, by written notice, 
require a regulated entity or the Office of Finance to withhold any 
payment, transfer, or disbursement of compensation to an executive 
officer, or to place such compensation in an escrow account, or may 
prohibit the action.



Sec.1230.4  Prior approval of termination agreements of Enterprises.

    (a) In general. An Enterprise may not enter into any agreement or 
contract to provide any payment of money or other thing of 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.
    (b) Covered agreements or contracts. An agreement or contract that 
provides for termination payments to an executive officer of an 
Enterprise that was entered into before October 28, 1992,\1\ is not 
retroactively subject to approval or disapproval by the Director. 
However, any renegotiation, amendment, or change to such an agreement or 
contract shall be considered as entering into an agreement or contract 
that is subject to approval by the Director.
---------------------------------------------------------------------------

    \1\ This date refers to the date of enactment of the Federal Housing 
Enterprises Financial Safety and Soundness Act of 1992.
---------------------------------------------------------------------------

    (c) Factors to be taken into account. In making the determination 
whether to approve or disapprove termination benefits, the Director may 
consider:
    (1) Whether the benefits provided under the agreement or contract 
are comparable to benefits provided under such agreements or contracts 
for officers of other public or private entities involved in financial 
services and housing interests who have comparable duties and 
responsibilities;
    (2) The factors set forth in Sec.1230.3(b); and
    (3) Such other information as deemed appropriate by the Director.
    (d) Exception to prior approval. An employment agreement or contract 
subject to prior approval of the Director under this section may be 
entered into prior to that approval, provided that such agreement or 
contract specifically provides notice that termination benefits under 
the agreement or contract shall not be effective and no payments shall 
be made under such agreement or contract unless and until approved by 
the Director. Such notice

[[Page 217]]

should make clear that alteration of benefit plans subsequent to FHFA 
approval under this section, which 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.
    (e) Effect of prior approval of an agreement or contract. The 
Director's approval of an executive officer's termination of employment 
benefits shall not preclude the Director from making any subsequent 
determination under this section to prohibit and withhold executive 
compensation.
    (f) Form of approval. The Director's approval pursuant to this 
section may occur in such form and manner as the Director shall provide 
through written notice to the regulated entities or the Office of 
Finance.



Sec.1230.5  Submission of supporting information.

    In support of the reviews and decisions provided for in this part, 
the Director may issue guidance, orders, or notices on the subject of 
information submissions by the regulated entities and the Office of 
Finance.



PART 1231_GOLDEN PARACHUTE AND INDEMNIFICATION PAYMENTS--
Table of Contents



Sec.
1231.1 Purpose.
1231.2 Definitions.
1231.3 Golden parachute payments.
1231.4 Indemnification payments.
1231.5 Applicability in the event of receivership.
1231.6 Filing instructions.

    Authority: 12 U.S.C. 4511, 4513, 4517, 4518, 4518a, 4526, and 4617.

    Source: 73 FR 53357, Sept. 16, 2008, unless otherwise noted.

    Editorial Note: Nomenclature changes to part appear at 83 FR 49993, 
Oct. 4, 2018.



Sec.1231.1  Purpose.

    The purpose of this part is to implement section 1318(e) of the 
Safety and Soundness Act (12 U.S.C. 4518(e)) by setting forth the 
factors that the Director will take into consideration in determining 
whether to limit or prohibit golden parachute payments and agreements 
and by setting forth conditions for prohibited and permissible 
indemnification payments that regulated entities and the Office of 
Finance (OF) may make to affiliated parties.

[83 FR 65289, Dec. 20, 2018]



Sec.1231.2  Definitions.

    The following definitions apply to the terms used in this part:
    Affiliated party means:
    (1) With respect to a golden parachute payment:
    (i) Any director, officer, or employee of a regulated entity or the 
OF; and
    (ii) Any other person as determined by the Director (by regulation 
or on a case-by-case basis) who participates or participated in the 
conduct of the affairs of the regulated entity or the OF, provided that 
a member of a Federal Home Loan Bank shall not be deemed to have 
participated in the affairs of that Federal Home Loan Bank solely by 
virtue of being a shareholder of, and obtaining advances from, that 
Federal Home Loan Bank; and
    (2) With respect to an indemnification payment:
    (i) By the OF, any director, officer, or manager of the OF; and
    (ii) By a regulated entity:
    (A) Any director, officer, employee, or controlling stockholder of, 
or agent for, a regulated entity;
    (B) Any shareholder, affiliate, consultant, or joint venture partner 
of a regulated entity, and any other person as determined by the 
Director (by regulation or on a case-by-case basis) that participates in 
the conduct of the affairs of a regulated entity, provided that a member 
of a Federal Home Loan Bank shall not be deemed to have participated in 
the affairs of that Federal Home Loan Bank solely by virtue of being a 
shareholder of, and obtaining advances from, that Federal Home Loan 
Bank;
    (C) Any independent contractor for a regulated entity (including any 
attorney, appraiser, or accountant) if:
    (1) The independent contractor knowingly or recklessly participates 
in any violation of any law or regulation, any breach of fiduciary duty, 
or any unsafe or unsound practice; and
    (2) Such violation, breach, or practice caused, or is likely to 
cause, more than

[[Page 218]]

a minimal financial loss to, or a significant adverse effect on, the 
regulated entity; or
    (D) Any not-for-profit corporation that receives its principal 
funding, on an ongoing basis, from any regulated entity.
    Agreement means, with respect to a golden parachute payment, any 
plan, contract, arrangement, or other statement setting forth conditions 
for any payment by a regulated entity or the OF to an affiliated party.
    Bona fide deferred compensation plan or arrangement means any plan, 
contract, agreement, or other arrangement:
    (1) Whereby an affiliated party 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); 
or
    (2) That is established as a nonqualified deferred compensation or 
supplemental retirement plan, other than an elective deferral plan 
described in paragraph (1) of this definition:
    (i) Primarily for the purpose of providing benefits for certain 
affiliated parties in excess of the limitations on contributions and 
benefits imposed by sections 401(a)(17), 402(g), 415, or any other 
applicable provision of the Internal Revenue Code of 1986 (26 U.S.C. 
401(a)(17), 402(g), 415); 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; and
    (3) In the case of any plans as described in paragraphs (1) and (2) 
of this definition, the following requirements shall apply:
    (i) The affiliated party has a vested right, as defined under the 
applicable plan document, at the time of termination of employment to 
payments under such plan;
    (ii) 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);
    (iii) 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 one year prior to the regulated entity or 
the OF becoming a troubled institution;
    (iv) The regulated entity or the OF 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 and related expenses, 
except that the assets of such trust may be available to satisfy claims 
of the troubled institution's creditors in the case of insolvency; and
    (v) Payments pursuant to such plans shall not be in excess of the 
accrued liability computed in accordance with GAAP.
    Executive officer means an ``executive officer'' as defined in 12 
CFR 1230.2, and includes any director, officer, employee or other 
affiliated party whose participation in the conduct of the business of 
the regulated entity or the OF has been determined by the Director to be 
so substantial as to justify treatment as an ``executive officer.''
    Golden parachute payment means any payment in the nature of 
compensation made by a troubled institution for the benefit of any 
current or former affiliated party that is contingent on or provided in 
connection with the termination of such party's primary employment or 
affiliation with the troubled institution.
    Indemnification payment means any payment (or any agreement to make 
any payment) by any regulated entity or the OF for the benefit of any 
current or former affiliated party, to pay or reimburse such person for 
any liability or legal expense.
    Individually negotiated settlement agreement means an agreement that 
settles a claim, or avoids a claim reasonably anticipated to be brought, 
against a troubled institution by an affiliated party and involves a 
payment in association with termination to, and a release of claims by, 
the affiliated party.
    Liability or legal expense means--

[[Page 219]]

    (1) Any legal or other professional expense 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 action; and
    (3) The amount of, and any cost incurred in connection with, any 
judgment or penalty imposed with respect to any claim, proceeding, or 
action.
    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 any benefit, including but not limited to 
stock options and stock appreciation rights; and
    (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.
    Permitted means, with regard to any agreement, that the agreement 
either does not require the Director's consent under this part or has 
received the Director's consent in accordance with this part.
    Troubled institution means a regulated entity or the OF that is:
    (1) Insolvent;
    (2) In conservatorship or receivership;
    (3) Subject to a cease-and-desist order or written agreement issued 
by FHFA that requires action to improve its financial condition or is 
subject to a proceeding initiated by the Director, which contemplates 
the issuance of an order that requires action to improve its financial 
condition, unless otherwise informed in writing by FHFA;
    (4) Assigned a composite rating of 4 or 5 by FHFA under its CAMELSO 
examination rating system as it may be revised from time to time;
    (5) Informed in writing by the Director that it is a troubled 
institution for purposes of the requirements of this part on the basis 
of the most recent report of examination or other information available 
to FHFA, on account of its financial condition, risk profile, or 
management deficiencies; or
    (6) In contemplation of the occurrence of an event described in 
paragraphs (1) through (5) of this definition. A regulated entity or the 
OF is subject to a rebuttable presumption that it is in contemplation of 
the occurrence of such an event during the 90 day period preceding such 
occurrence.

[83 FR 65289, Dec. 20, 2018]



Sec.1231.3  Golden parachute payments and agreements.

    (a) In general, FHFA consent is required. No troubled institution 
shall make or agree to make any golden parachute payment without the 
Director's consent, except as provided in this part.
    (b) Exempt agreements and payments. The following agreements and 
payments, including payments associated with an agreement, are not 
golden parachute agreements or payments for purposes of this part and, 
for that reason, may be made without the Director's consent:
    (1) Any pension or retirement plan that is qualified (or is intended 
to be qualified) under section 401 of the Internal Revenue Code of 1986 
(26 U.S.C. 401);
    (2) Any ``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)), other than:
    (i) Any deferred compensation plan or arrangement; and
    (ii) Any severance pay plan or agreement;
    (3) Any benefit plan that:
    (i) Is a ``nondiscriminatory employee plan or program'' for the 
purposes of section 280G of the Internal Revenue Code of 1986 (26 U.S.C. 
280G) and applicable regulations; or

[[Page 220]]

    (ii) Has been submitted to the Director for review in accordance 
with this part and that the Director has determined to be 
nondiscriminatory, unless such a plan is otherwise specifically 
addressed by this part;
    (4) Any ``bona fide deferred compensation plan or arrangement'' as 
defined in this part provided that the plan:
    (i) Was in effect for, and not materially amended to increase 
benefits payable thereunder (except for changes required by law) within, 
the one-year period prior to the regulated entity or the OF becoming a 
troubled institution; or
    (ii) Has been determined to be permissible by the Director;
    (5) Any payment made by reason of:
    (i) Death; or
    (ii) Termination caused by disability of the affiliated party; and
    (6) Any severance or similar payment that is required to be made 
pursuant to a state statute that is applicable to all employers within 
the appropriate jurisdiction (with the exception of employers that are 
exempt due to their small number of employees or other similar 
criteria).
    (c) Golden parachute payment agreements for which FHFA consent is 
not required. A troubled institution may enter into the following 
agreements to make a golden parachute payment without the Director's 
consent:
    (1) With any affiliated party where the agreement is expressly 
directed or established by the Director exercising authority conferred 
by 12 U.S.C. 4617.
    (2) With an affiliated party who is not an executive officer where 
the agreement:
    (i) Is an individually negotiated settlement agreement, and the 
conditions of paragraph (e)(2) of this section are met; or
    (ii) Provides for a golden parachute payment that, when aggregated 
with all other golden parachute payments to the affiliated party, does 
not exceed $5,000 (subject to any adjustment for inflation pursuant to 
paragraph (g) of this section).
    (d) Golden parachute payments for which FHFA consent is not 
required. A troubled institution may make the following golden parachute 
payments without the Director's consent:
    (1) To any affiliated party where:
    (i) The payment is required to be made pursuant to a permitted 
individually negotiated settlement agreement; or
    (ii) The Director previously consented to such payment in a written 
notice to the troubled institution (which may be included in the 
Director's consent to the agreement), the payment is made in accordance 
with a permitted agreement, and the troubled institution has met any 
conditions established by the Director for making the payment.
    (2) To an executive officer where the payment recognizes a 
significant life event and does not exceed $500 in value (subject to any 
adjustment for inflation pursuant to paragraph (g) of this section).
    (3) To an affiliated party who is not an executive officer, where:
    (i) The payment is made in accordance with a permitted agreement and 
the conditions of paragraph (e)(2) of this section are met; or
    (ii) The payment when aggregated with other golden parachute 
payments to the affiliated party does not exceed $5,000 (subject to any 
adjustment for inflation pursuant to paragraph (g) of this section).
    (e) Required due diligence review; due diligence standard--(1) 
Agreements and payments where consent is requested. A troubled 
institution making a request for consent to enter into a golden 
parachute payment agreement with, or to make a golden parachute payment 
to, an individual affiliated party shall conduct due diligence 
appropriate to the level and responsibility of the affiliated party 
covered by the agreement or to whom payment would be made, to determine 
whether there is information, evidence, documents, or other materials 
that indicate there is a reasonable basis to believe, at the time the 
request is submitted, that the affiliated party:
    (i) Has committed any fraudulent act or omission, breach of trust or 
fiduciary duty, or insider abuse with regard to the regulated entity or 
the OF

[[Page 221]]

that is likely to have a material adverse effect on the regulated entity 
or the OF;
    (ii) Is substantially responsible for the regulated entity or the OF 
being a troubled institution;
    (iii) Has materially violated any applicable Federal or State law or 
regulation that has had or is likely to have a material effect on the 
regulated entity or the OF; or
    (iv) Has violated or conspired to violate sections 215, 657, 1006, 
1014, or 1344 of title 18 of the United States Code, or section 1341 or 
1343 of such title affecting a ``financial institution'' as the term is 
defined in title 18 of the United States Code (18 U.S.C. 20).
    (2) Agreements and payments permitted without the Director's 
consent. No troubled institution shall enter into an agreement pursuant 
to paragraph (c)(2)(i) of this section or make a payment pursuant to 
paragraph (d)(3)(i) of this section unless it is reasonably assured, 
following due diligence in accordance with paragraph (e)(1) of this 
section, that the affiliated party to whom payment would be made has not 
engaged in any of the actions listed in paragraphs (e)(1)(i) through 
(iv) of this section.
    (3) Required notice to FHFA. If a troubled institution determines it 
is unable to enter into an agreement pursuant to paragraph (c)(2)(i) of 
this section or make a payment pursuant to (d)(3)(i) of this section 
without the Director's consent because it cannot meet the standard set 
forth in paragraph (e)(2) of this section, and thereafter does not 
request the Director's consent to make the payment, then the troubled 
institution shall provide notice to FHFA of each reason for which it 
cannot meet the standard set forth in paragraph (e)(2) of this section, 
within 15 business days of its determination.
    (f) Factors for Director consideration. In making a determination 
under this section, the Director may consider:
    (1) Whether, and to what degree, the affiliated party was in a 
position of managerial or fiduciary responsibility;
    (2) The length of time the affiliated party was affiliated with the 
regulated entity or the OF, and the degree to which the proposed payment 
represents a reasonable payment for services rendered over the period of 
affiliation;
    (3) Whether the golden parachute payment would be made pursuant to 
an employee benefit plan that is usual and customary;
    (4) Whether the golden parachute payment or agreement is excessive 
or abusive or threatens the financial condition of the troubled 
institution; and
    (5) Any other factor the Director determines relevant to the facts 
and circumstances surrounding the golden parachute payment or agreement, 
including any fraudulent act or omission, breach of fiduciary duty, 
violation of law, rule, regulation, order, or written agreement, and the 
level of willful misconduct, breach of fiduciary duty, and malfeasance 
on the part of the affiliated party.
    (g) Adjustment for inflation. Monetary amounts set forth in this 
part may be adjusted for inflation by increasing the dollar amount set 
forth in this part by the percentage, if any, by which the Consumer 
Price Index for all-urban consumers published by the Department of Labor 
(``CPI-U'') for December of the calendar year preceding payment exceeds 
the CPI-U for the month of November 2018, with the resulting sum rounded 
up to the nearest whole dollar.

[83 FR 62590, Dec. 20, 2018]



Sec.1231.4  Indemnification payments.

    (a) Prohibited indemnification payments. Except as permitted in 
paragraph (b) of this section, a regulated entity or the OF may not make 
indemnification payments with respect to an administrative proceeding or 
civil action that has been initiated by FHFA.
    (b) Permissible indemnification payments. A regulated entity or the 
OF may pay:
    (1) Premiums for any commercial insurance policy or fidelity bonds 
for directors and officers, to the extent that the insurance or fidelity 
bond covers expenses and restitution, but not a judgment in favor of 
FHFA or a civil money penalty imposed by FHFA.
    (2) Expenses of defending an action, subject to the affiliated 
party's agreement to repay those expenses if the affiliated party 
either:
    (i) When the proceeding results in a final and non-reviewable order, 
is found

[[Page 222]]

culpable for violating a law or regulation that is the basis for the 
charges to which the expenses specifically relate; or
    (ii) Enters into a settlement of those charges in which the 
affiliated party admits culpability with respect to them; or
    (iii) Is subject to a final and non-reviewable prohibition order 
under 12 U.S.C. 4636a.
    (3) Amounts due under an indemnification agreement entered into with 
a named affiliated party on or prior to September 20, 2016.
    (c) Process; factors. With respect to payments under paragraph 
(b)(2) of this section:
    (1) The board of directors of the regulated entity or the OF must 
conduct a due investigation and make a written determination in good 
faith that:
    (i) The affiliated party acted in good faith and in a manner that he 
or she reasonably believed to be in the best interests of the regulated 
entity or the OF; and
    (ii) Such payments will not materially adversely affect the safety 
and soundness of the regulated entity or the OF.
    (2) The affiliated party may not participate in the board's 
deliberations or decision.
    (3) If a majority of the board are respondents in the action, the 
remaining board members may approve payment after obtaining a written 
opinion of outside counsel that the conditions of this regulation have 
been met.
    (4) If all of the board members are respondents, they may approve 
payment after obtaining a written opinion of outside counsel that the 
conditions of this regulation have been met.
    (d) Scope. This section does not apply to a regulated entity 
operating in conservatorship or receivership or to a limited-life 
regulated entity.

[83 FR 49993, Oct. 4, 2018]



Sec.1231.5  Applicability in the event of receivership.

    The provisions of this part, or any consent or approval granted 
under the provisions of this part by FHFA, shall not in any way bind any 
receiver of a regulated entity. Any consent or approval granted under 
the provisions of this part by FHFA shall not in any way obligate FHFA 
as receiver to pay any claim or obligation pursuant to any golden 
parachute, severance, indemnification, or other agreement, or otherwise 
improve any claim of any affiliated party on or against FHFA as 
receiver. Nothing in this part may be construed to permit the payment of 
salary or any liability or legal expense of an affiliated party contrary 
to section 1318(e)(3) of the Safety and Soundness Act (12 U.S.C. 
4518(e)(3)).

[83 FR 65291, Dec, 20, 2018]



Sec.1231.6  Filing instructions.

    (a) Scope. This section contains procedures for requesting the 
consent of the Director and for filing any notice, where consent or 
notice is required by Sec.1231.3.
    (b) Where to file. A troubled institution must submit any request 
for consent or notice required by Sec.1231.3 to the Manager, Executive 
Compensation Branch, or to such other person as FHFA may direct.
    (c) Content of a request for FHFA consent. A request pursuant to 
Sec.1231.3 must:
    (1) Be in writing;
    (2) State the reasons why the troubled institution seeks to enter 
into the agreement or make the payment;
    (3) Identify the affiliated party or describe of the class or group 
of affiliated parties who would receive or be eligible to receive 
payment;
    (4) Include a copy of any agreement, including any plan document, 
contract, other agreement or policy regarding the subject matter of the 
request;
    (5) State the cost of the proposed payment or payments, and the 
impact on the capital and earnings of the troubled institution;
    (6) State the reasons why consent to the agreement or payment, or to 
both the agreement and payment, should be granted;
    (7) For any plan that the troubled institution believes is a 
nondiscriminatory benefit plan, other than a plan covered by Sec.
1231.3(b)(3)(i), state the basis for the conclusion that the plan is 
nondiscriminatory;
    (8) For any bona fide deferred compensation plan or arrangement, 
state whether the plan would be exempt

[[Page 223]]

under this part but for the fact that it was either established or 
materially amended to increase benefits payable thereunder (except for 
changes required by law) within the one-year period prior to the 
regulated entity or the OF becoming a troubled institution;
    (9) For any agreement with an individual affiliated party, or for 
any payment, either:
    (i) State that the troubled institution is reasonably assured that 
the affiliated party has not engaged in any of the actions listed in 
Sec.1231.3(e)(1)(i) through (iv), or,
    (ii) If the troubled institution is not reasonably assured that the 
affiliated party has not engaged in any of the actions listed in Sec.
1231.3(e)(1)(i) through (iv) but nonetheless wishes to request consent, 
describe the results of its due diligence and, in light of those 
results, the reason why consent to the agreement or payment should be 
granted.
    (d) FHFA decision on a request. FHFA shall provide the troubled 
institution with written notice of the decision on a request as soon as 
practicable after it is rendered.
    (e) Content of notice to FHFA. A notice pursuant to Sec.
1231.3(e)(3) must:
    (1) Be in writing;
    (2) Identify the affiliated party who would receive or be eligible 
to receive payment;
    (3) Include a copy of any agreement or policy regarding the subject 
matter of the request; and
    (4) State each reason why the troubled institution cannot meet the 
standard set forth in Sec.1231.3(e)(2).
    (f) Waiver of form or content requirements. FHFA may waive or modify 
any requirement related to the form or content of a request or notice, 
in circumstances deemed appropriate by FHFA.
    (g) Additional information. FHFA may request additional information 
at any time during the processing of the request or after receiving a 
notice.

[83 FR 65291, Dec. 20, 2018]



PART 1233_REPORTING OF FRAUDULENT FINANCIAL INSTRUMENTS--
Table of Contents



Sec.
1233.1 Purpose.
1233.2 Definitions.
1233.3 Reporting.
1233.4 Internal controls, policies, procedures, and training.
1233.5 Protection from liability for reports.
1233.6 Supervisory action.

    Authority: 12 U.S.C. 4511, 4513, 4514, 4526, 4642.

    Source: 75 FR 4258, Jan. 27, 2010, unless otherwise noted.



Sec.1233.1  Purpose.

    The purpose of this part is to implement the Safety and Soundness 
Act by requiring each regulated entity to report to FHFA upon discovery 
that it has purchased or sold a fraudulent loan or financial instrument, 
or suspects a possible fraud relating to the purchase or sale of any 
loan or financial instrument. In addition, each regulated entity must 
establish and maintain internal controls, policies, procedures, and 
operational training to discover such transactions.



Sec.1233.2  Definitions.

    The following definitions apply to the terms used in this part:
    Entity-affiliated party means--
    (1) Any director, officer, employee, or controlling stockholder of, 
or agent for, a regulated entity;
    (2) Any shareholder, affiliate, consultant, or joint venture partner 
of a regulated entity, and any other person, as determined by the 
Director (by regulation or on a case-by-case basis) that participates in 
the conduct of the affairs of a regulated entity, provided that a member 
of a Federal Home Loan Bank shall not be deemed to have participated in 
the affairs of that Federal Home Loan Bank solely by virtue of being a 
shareholder of, and obtaining advances from, that Federal Home Loan 
Bank;
    (3) Any independent contractor for a regulated entity (including any 
attorney, appraiser, or accountant);
    (4) Any not-for-profit corporation that receives its principal 
funding, on an ongoing basis, from any regulated entity; and
    (5) The Office of Finance.
    Financial instrument means any legally enforceable agreement, 
certificate, or other writing, in hardcopy or electronic form, having 
monetary

[[Page 224]]

value including, but not limited to, any agreement, certificate, or 
other writing evidencing an asset pledged as collateral to a Bank by a 
member to secure an advance by the Bank to that member.
    Fraud means a misstatement, misrepresentation, or omission that 
cannot be corrected and that was relied upon by a regulated entity to 
purchase or sell a loan or financial instrument.
    Possible fraud means that a regulated entity has a reasonable 
belief, based upon a review of information available to the regulated 
entity, that fraud may be occurring or has occurred.
    Purchased or sold or relating to the purchase or sale means any 
transaction involving a financial instrument including, but not limited 
to, any purchase, sale, other acquisition, or creation of a financial 
instrument by the member of a Bank to be pledged as collateral to the 
Bank to secure an advance by the Bank to that member, the pledging by a 
member to a Bank of such financial instrument to secure such an advance, 
the making of a grant by a Bank under its affordable housing program or 
community investment program, and the effecting of a wire transfer or 
other form of electronic payments transaction by the Bank.

[75 FR 4258, Jan. 27, 2010, as amended at 78 FR 2323, Jan. 11, 2013]



Sec.1233.3  Reporting.

    (a) Timeframe for reporting. (1) A regulated entity shall submit to 
the Director a timely written report upon discovery by the regulated 
entity that it has purchased or sold a fraudulent loan or financial 
instrument, or suspects a possible fraud relating to the purchase or 
sale of any loan or financial instrument.
    (2) In addition to submitting a report in accordance with paragraph 
(a)(1) of this section, in any situation that would have a significant 
impact on the regulated entity, the regulated entity shall immediately 
report any fraud or possible fraud to the Director by telephone or 
electronic communication.
    (b) Format for reporting. (1) The report shall be in such format and 
shall be filed in accordance with such procedures that the Director may 
prescribe.
    (2) The Director may require a regulated entity to provide such 
additional or continuing information relating to such fraud or possible 
fraud that the Director deems appropriate.
    (3) A regulated entity may satisfy the reporting requirements of 
this section by submitting the required information on a form or in 
another format used by any other regulatory agency, provided it has 
first obtained the prior written approval of the Director.
    (c) Retention of records. A regulated entity or entity-affiliated 
party 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.
    (d) Nondisclosure. (1) A regulated entity or entity-affiliated party 
may not disclose to any person that it has submitted a report to the 
Director pursuant to this section, unless it has first obtained the 
prior written approval of the Director.
    (2) The restriction in paragraph (d)(1) of this section does not 
prohibit a regulated entity from--
    (i) Disclosing or reporting such fraud or possible fraud pursuant to 
legal requirements, including reporting to appropriate law enforcement 
or other governmental authorities; or
    (ii) Taking any legal or business action it may deem appropriate, 
including any action involving the party or parties connected with the 
fraud or possible fraud.
    (e) No waiver of privilege. A regulated entity does not waive any 
privilege it may possess under any applicable law as a consequence of 
reporting fraud or possible fraud under this part.



Sec.1233.4  Internal controls, policies, procedures, and training.

    (a) In general. Each regulated entity shall establish and maintain 
adequate and efficient internal controls, policies, procedures, and an 
operational training program to discover and report fraud or possible 
fraud in connection with the purchase or sale of any loan or financial 
instrument.
    (b) Examination. The examination by FHFA of fraud reporting programs 
of

[[Page 225]]

each regulated entity includes an evaluation of the effectiveness of the 
internal controls, policies, procedures, and operational training 
program in place to minimize risks from fraud and to report fraud or 
possible fraud to FHFA in accordance with this regulation.



Sec.1233.5  Protection from liability for reports.

    As provided by section 1379E of the Safety and Soundness Act (12 
U.S.C. 4642(b)), a regulated entity that, in good faith, submits a 
report pursuant to this part, and any entity-affiliated party, that, in 
good faith, submits or requires a person to submit a report pursuant to 
this part, shall not be liable to any person under any provision of law 
or regulation, any constitution, law, or regulation of any State or 
political subdivision of any State, or under any contract or other 
legally enforceable agreement (including any arbitration agreement) for 
such report, or for any failure to provide notice of such report to the 
person who is the subject of such report, or any other persons 
identified in the report.



Sec.1233.6  Supervisory action.

    Failure by a regulated entity to comply with this part may subject 
the regulated entity or the board members, officers, or employees 
thereof to supervisory action by FHFA, including but not limited to, 
cease-and-desist proceedings and civil money penalties.



PART 1234_CREDIT RISK RETENTION--Table of Contents



           Subpart A_Authority, Purpose, Scope and Definitions

Sec.
1234.1 Purpose, scope and reservation of authority.
1234.2 Definitions.

                     Subpart B_Credit Risk Retention

1234.3 Base risk retention requirement.
1234.4 Standard risk retention.
1234.5 Revolving pool securitizations.
1234.6 Eligible ABCP conduits.
1234.7 Commercial mortgage-backed securities.
1234.8 Federal National Mortgage Association and Federal Home Loan 
          Mortgage Corporation ABS.
1234.9 Open market CLOs.
1234.10 Qualified tender option bonds.

                  Subpart C_Transfer of Risk Retention

1234.11 Allocation of risk retention to an originator.
1234.12 Hedging, transfer and financing prohibitions.

                   Subpart D_Exceptions and Exemptions

1234.13 Exemption for qualified residential mortgages.
1234.14 Definitions applicable to qualifying commercial real estate 
          loans.
1234.15 Qualifying commercial real estate loans.
1234.16 [Reserved]
1234.17 Underwriting standards for qualifying CRE loans.
1234.18 [Reserved]
1234.19 General exemptions.
1234.20 Safe harbor for certain foreign-related transactions.
1234.21 Additional exemptions.
1234.22 Periodic review of the QRM definition, exempted three-to-four 
          unit residential mortgage loans, and community-focused 
          residential mortgage exemption.

    Authority: 12 U.S.C. 4511(b), 4526, 4617; 15 U.S.C. 78o-11(b)(2).

    Source: 79 FR 77740, Dec. 24, 2014, unless otherwise noted.



           Subpart A_Authority, Purpose, Scope and Definitions



Sec.1234.1  Purpose, scope and reservation of authority.

    (a) Purpose. This part requires securitizers to retain an economic 
interest in a portion of the credit risk for any residential mortgage 
asset that the securitizer, through the issuance of an asset-backed 
security, transfers, sells, or conveys to a third party in a transaction 
within the scope of section 15G of the Exchange Act. This part specifies 
the permissible types, forms, and amounts of credit risk retention, and 
it establishes certain exemptions for securitizations collateralized by 
assets that meet specified underwriting standards or that otherwise 
qualify for an exemption.
    (b) Scope. (1) Effective December 24, 2015, this part will apply to 
any securitizer that is an entity regulated by the Federal Housing 
Finance Agency with respect to a securitization

[[Page 226]]

transaction collateralized by residential mortgages.
    (2) Effective December 24, 2016, this part will apply to any 
securitizer that is an entity regulated by the Federal Housing Finance 
Agency with respect to a securitization transaction collateralized by 
assets other than residential mortgages.
    (c) Reservation of authority. Nothing in this part shall be read to 
limit the authority of the Director of the Federal Housing Finance 
Agency to take supervisory or enforcement action, including action to 
address unsafe or unsound practices or conditions, or violations of law.

[79 FR 77765, Dec. 24, 2014]



Sec.1234.2  Definitions.

    For purposes of this part, the following definitions apply:
    ABS interest means:
    (1) Any type of interest or obligation issued by an issuing entity, 
whether or not in certificated form, including a security, obligation, 
beneficial interest or residual interest (other than an uncertificated 
regular interest in a REMIC that is held by another REMIC, where both 
REMICs are part of the same structure and a single REMIC in that 
structure issues ABS interests to investors, or a non-economic residual 
interest issued by a REMIC), payments on which are primarily dependent 
on the cash flows of the collateral owned or held by the issuing entity; 
and
    (2) Does not include common or preferred stock, limited liability 
interests, partnership interests, trust certificates, or similar 
interests that:
    (i) Are issued primarily to evidence ownership of the issuing 
entity; and
    (ii) The payments, if any, on which are not primarily dependent on 
the cash flows of the collateral held by the issuing entity; and
    (3) Does not include the right to receive payments for services 
provided by the holder of such right, including servicing, trustee 
services and custodial services.
    Affiliate of, or a person affiliated with, a specified person means 
a person that directly, or indirectly through one or more 
intermediaries, controls, or is controlled by, or is under common 
control with, the person specified.
    Appropriate Federal banking agency has the same meaning as in 
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813).
    Asset means a self-liquidating financial asset (including but not 
limited to a loan, lease, mortgage, or receivable).
    Asset-backed security has the same meaning as in section 3(a)(79) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(79)).
    Collateral means, with respect to any issuance of ABS interests, the 
assets that provide the cash flow and the servicing assets that support 
such cash flow for the ABS interests irrespective of the legal structure 
of issuance, including security interests in assets or other property of 
the issuing entity, fractional undivided property interests in the 
assets or other property of the issuing entity, or any other property 
interest in or rights to cash flow from such assets and related 
servicing assets. Assets or other property collateralize an issuance of 
ABS interests if the assets or property serve as collateral for such 
issuance.
    Commercial real estate loan has the same meaning as in Sec.
1234.14.
    Commission means the Securities and Exchange Commission.
    Control including the terms ``controlling,'' ``controlled by'' and 
``under common control with'':
    (1) Means the possession, direct or indirect, of the power to direct 
or cause the direction of the management and policies of a person, 
whether through the ownership of voting securities, by contract, or 
otherwise.
    (2) Without limiting the foregoing, a person shall be considered to 
control another person if the first person:
    (i) Owns, controls or holds with power to vote 25 percent or more of 
any class of voting securities of the other person; or
    (ii) Controls in any manner the election of a majority of the 
directors, trustees or persons performing similar functions of the other 
person.
    Credit risk means:
    (1) The risk of loss that could result from the failure of the 
borrower in the case of a securitized asset, or the issuing entity in 
the case of an ABS interest in the issuing entity, to make

[[Page 227]]

required payments of principal or interest on the asset or ABS interest 
on a timely basis;
    (2) The risk of loss that could result from bankruptcy, insolvency, 
or a similar proceeding with respect to the borrower or issuing entity, 
as appropriate; or
    (3) The effect that significant changes in the underlying credit 
quality of the asset or ABS interest may have on the market value of the 
asset or ABS interest.
    Creditor has the same meaning as in 15 U.S.C. 1602(g).
    Depositor means:
    (1) The person that receives or purchases and transfers or sells the 
securitized assets to the issuing entity;
    (2) The sponsor, in the case of a securitization transaction where 
there is not an intermediate transfer of the assets from the sponsor to 
the issuing entity; or
    (3) The person that receives or purchases and transfers or sells the 
securitized assets to the issuing entity in the case of a securitization 
transaction where the person transferring or selling the securitized 
assets directly to the issuing entity is itself a trust.
    Eligible horizontal residual interest means, with respect to any 
securitization transaction, an ABS interest in the issuing entity:
    (1) That is an interest in a single class or multiple classes in the 
issuing entity, provided that each interest meets, individually or in 
the aggregate, all of the requirements of this definition;
    (2) With respect to which, on any payment date or allocation date on 
which the issuing entity has insufficient funds to satisfy its 
obligation to pay all contractual interest or principal due, any 
resulting shortfall will reduce amounts payable to the eligible 
horizontal residual interest prior to any reduction in the amounts 
payable to any other ABS interest, whether through loss allocation, 
operation of the priority of payments, or any other governing 
contractual provision (until the amount of such ABS interest is reduced 
to zero); and
    (3) That, with the exception of any non-economic REMIC residual 
interest, has the most subordinated claim to payments of both principal 
and interest by the issuing entity.
    Eligible horizontal cash reserve account means an account meeting 
the requirements of Sec.1234.4(b).
    Eligible vertical interest means, with respect to any securitization 
transaction, a single vertical security or an interest in each class of 
ABS interests in the issuing entity issued as part of the securitization 
transaction that constitutes the same proportion of each such class.
    Federal banking agencies means the Office of the Comptroller of the 
Currency, the Board of Governors of the Federal Reserve System, and the 
Federal Deposit Insurance Corporation.
    GAAP means generally accepted accounting principles as used in the 
United States.
    Issuing entity means, with respect to a securitization transaction, 
the trust or other entity:
    (1) That owns or holds the pool of assets to be securitized; and
    (2) In whose name the asset-backed securities are issued.
    Majority-owned affiliate of a person means an entity (other than the 
issuing entity) that, directly or indirectly, majority controls, is 
majority controlled by or is under common majority control with, such 
person. For purposes of this definition, majority control means 
ownership of more than 50 percent of the equity of an entity, or 
ownership of any other controlling financial interest in the entity, as 
determined under GAAP.
    Originator means a person who:
    (1) Through an extension of credit or otherwise, creates an asset 
that collateralizes an asset-backed security; and
    (2) Sells the asset directly or indirectly to a securitizer or 
issuing entity.
    REMIC has the same meaning as in 26 U.S.C. 860D.
    Residential mortgage means:
    (1) A transaction that is a covered transaction as defined in Sec.
1026.43(b) of Regulation Z (12 CFR 1026.43(b)(1));
    (2) Any transaction that is exempt from the definition of ``covered 
transaction'' under Sec.1026.43(a) of Regulation Z (12 CFR 
1026.43(a)); and

[[Page 228]]

    (3) Any other loan secured by a residential structure that contains 
one to four units, whether or not that structure is attached to real 
property, including an individual condominium or cooperative unit and, 
if used as a residence, a mobile home or trailer.
    Retaining sponsor means, with respect to a securitization 
transaction, the sponsor that has retained or caused to be retained an 
economic interest in the credit risk of the securitized assets pursuant 
to subpart B of this part.
    Securitization transaction means a transaction involving the offer 
and sale of asset-backed securities by an issuing entity.
    Securitized asset means an asset that:
    (1) Is transferred, sold, or conveyed to an issuing entity; and
    (2) Collateralizes the ABS interests issued by the issuing entity.
    Securitizer means, with respect to a securitization transaction, 
either:
    (1) The depositor of the asset-backed securities (if the depositor 
is not the sponsor); or
    (2) The sponsor of the asset-backed securities.
    Servicer means any person responsible for the management or 
collection of the securitized assets or making allocations or 
distributions to holders of the ABS interests, but does not include a 
trustee for the issuing entity or the asset-backed securities that makes 
allocations or distributions to holders of the ABS interests if the 
trustee receives such allocations or distributions from a servicer and 
the trustee does not otherwise perform the functions of a servicer.
    Servicing assets means rights or other assets designed to assure the 
servicing or timely distribution of proceeds to ABS interest holders and 
rights or other assets that are related or incidental to purchasing or 
otherwise acquiring and holding the issuing entity's securitized assets. 
Servicing assets include amounts received by the issuing entity as 
proceeds of securitized assets, including proceeds of rights or other 
assets, whether as remittances by obligors or as other recoveries.
    Single vertical security means, with respect to any securitization 
transaction, an ABS interest entitling the sponsor to a specified 
percentage of the amounts paid on each class of ABS interests in the 
issuing entity (other than such single vertical security).
    Sponsor means a person who organizes and initiates a securitization 
transaction by selling or transferring assets, either directly or 
indirectly, including through an affiliate, to the issuing entity.
    State has the same meaning as in Section 3(a)(16) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(16)).
    United States or U.S. means the United States of America, including 
its territories and possessions, any State of the United States, and the 
District of Columbia.
    Wholly-owned affiliate means a person (other than an issuing entity) 
that, directly or indirectly, wholly controls, is wholly controlled by, 
or is wholly under common control with, another person. For purposes of 
this definition, ``wholly controls'' means ownership of 100 percent of 
the equity of an entity.



                     Subpart B_Credit Risk Retention



Sec.1234.3  Base risk retention requirement.

    (a) Base risk retention requirement. Except as otherwise provided in 
this part, the sponsor of a securitization transaction (or majority-
owned affiliate of the sponsor) shall retain an economic interest in the 
credit risk of the securitized assets in accordance with any one of 
Sec. Sec.1234.4 through 1234.10. Credit risk in securitized assets 
required to be retained and held by any person for purposes of 
compliance with this part, whether a sponsor, an originator, an 
originator-seller, or a third-party purchaser, except as otherwise 
provided in this part, may be acquired and held by any of such person's 
majority-owned affiliates (other than an issuing entity).
    (b) Multiple sponsors. If there is more than one sponsor of a 
securitization transaction, it shall be the responsibility of each 
sponsor to ensure that at least one of the sponsors of the 
securitization transaction (or at least one of their majority-owned or 
wholly-owned affiliates, as applicable) retains an economic interest in 
the credit risk of the securitized assets in accordance

[[Page 229]]

with any one of Sec. Sec.1234.4, 1234.5, 1234.8, 1234.9, or 1234.10.



Sec.1234.4  Standard risk retention.

    (a) General requirement. Except as provided in Sec. Sec.1234.5 
through 1234.10, the sponsor of a securitization transaction must retain 
an eligible vertical interest or eligible horizontal residual interest, 
or any combination thereof, in accordance with the requirements of this 
section.
    (1) If the sponsor retains only an eligible vertical interest as its 
required risk retention, the sponsor must retain an eligible vertical 
interest in a percentage of not less than 5 percent.
    (2) If the sponsor retains only an eligible horizontal residual 
interest as its required risk retention, the amount of the interest must 
equal at least 5 percent of the fair value of all ABS interests in the 
issuing entity issued as a part of the securitization transaction, 
determined using a fair value measurement framework under GAAP.
    (3) If the sponsor retains both an eligible vertical interest and an 
eligible horizontal residual interest as its required risk retention, 
the percentage of the fair value of the eligible horizontal residual 
interest and the percentage of the eligible vertical interest must equal 
at least five.
    (4) The percentage of the eligible vertical interest, eligible 
horizontal residual interest, or combination thereof retained by the 
sponsor must be determined as of the closing date of the securitization 
transaction.
    (b) Option to hold base amount in eligible horizontal cash reserve 
account. In lieu of retaining all or any part of an eligible horizontal 
residual interest under paragraph (a) of this section, the sponsor may, 
at closing of the securitization transaction, cause to be established 
and funded, in cash, an eligible horizontal cash reserve account in the 
amount equal to the fair value of such eligible horizontal residual 
interest or part thereof, provided that the account meets all of the 
following conditions:
    (1) The account is held by the trustee (or person performing similar 
functions) in the name and for the benefit of the issuing entity;
    (2) Amounts in the account are invested only in cash and cash 
equivalents; and
    (3) Until all ABS interests in the issuing entity are paid in full, 
or the issuing entity is dissolved:
    (i) Amounts in the account shall be released only to:
    (A) Satisfy payments on ABS interests in the issuing entity on any 
payment date on which the issuing entity has insufficient funds from any 
source to satisfy an amount due on any ABS interest; or
    (B) Pay critical expenses of the trust unrelated to credit risk on 
any payment date on which the issuing entity has insufficient funds from 
any source to pay such expenses and:
    (1) Such expenses, in the absence of available funds in the eligible 
horizontal cash reserve account, would be paid prior to any payments to 
holders of ABS interests; and
    (2) Such payments are made to parties that are not affiliated with 
the sponsor; and
    (ii) Interest (or other earnings) on investments made in accordance 
with paragraph (b)(2) of this section may be released once received by 
the account.
    (c) Disclosures. A sponsor relying on this section shall provide, or 
cause to be provided, to potential investors, under the caption ``Credit 
Risk Retention'', a reasonable period of time prior to the sale of the 
asset-backed securities in the securitization transaction the following 
disclosures in written form and within the time frames set forth in this 
paragraph (c):
    (1) Horizontal interest. With respect to any eligible horizontal 
residual interest held under paragraph (a) of this section, a sponsor 
must disclose:
    (i) A reasonable period of time prior to the sale of an asset-backed 
security issued in the same offering of ABS interests,
    (A) The fair value (expressed as a percentage of the fair value of 
all of the ABS interests issued in the securitization transaction and 
dollar amount (or corresponding amount in the foreign currency in which 
the ABS interests are issued, as applicable)) of the eligible horizontal 
residual interest that the sponsor expects to retain at

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the closing of the securitization transaction. If the specific prices, 
sizes, or rates of interest of each tranche of the securitization are 
not available, the sponsor must disclose a range of fair values 
(expressed as a percentage of the fair value of all of the ABS interests 
issued in the securitization transaction and dollar amount (or 
corresponding amount in the foreign currency in which the ABS interests 
are issued, as applicable)) of the eligible horizontal residual interest 
that the sponsor expects to retain at the close of the securitization 
transaction based on a range of bona fide estimates or specified prices, 
sizes, or rates of interest of each tranche of the securitization. A 
sponsor disclosing a range of fair values based on a range of bona fide 
estimates or specified prices, sizes or rates of interest of each 
tranche of the securitization must also disclose the method by which it 
determined any range of prices, tranche sizes, or rates of interest.
    (B) A description of the material terms of the eligible horizontal 
residual interest to be retained by the sponsor;
    (C) A description of the valuation methodology used to calculate the 
fair values or range of fair values of all classes of ABS interests, 
including any portion of the eligible horizontal residual interest 
retained by the sponsor;
    (D) All key inputs and assumptions or a comprehensive description of 
such key inputs and assumptions that were used in measuring the 
estimated total fair value or range of fair values of all classes of ABS 
interests, including the eligible horizontal residual interest to be 
retained by the sponsor.
    (E) To the extent applicable to the valuation methodology used, the 
disclosure required in paragraph (c)(1)(i)(D) of this section shall 
include, but should not be limited to, quantitative information about 
each of the following:
    (1) Discount rates;
    (2) Loss given default (recovery);
    (3) Prepayment rates;
    (4) Default rates;
    (5) Lag time between default and recovery; and
    (6) The basis of forward interest rates used.
    (F) The disclosure required in paragraphs (c)(1)(i)(C) and (D) of 
this section shall include, at a minimum, descriptions of all inputs and 
assumptions that either could have a material impact on the fair value 
calculation or would be material to a prospective investor's ability to 
evaluate the sponsor's fair value calculations. To the extent the 
disclosure required in this paragraph (c)(1) includes a description of a 
curve or curves, the description shall include a description of the 
methodology that was used to derive each curve and a description of any 
aspects or features of each curve that could materially impact the fair 
value calculation or the ability of a prospective investor to evaluate 
the sponsor's fair value calculation. To the extent a sponsor uses 
information about the securitized assets in its calculation of fair 
value, such information shall not be as of a date more than 60 days 
prior to the date of first use with investors; provided that for a 
subsequent issuance of ABS interests by the same issuing entity with the 
same sponsor for which the securitization transaction distributes 
amounts to investors on a quarterly or less frequent basis, such 
information shall not be as of a date more than 135 days prior to the 
date of first use with investors; provided further, that the balance or 
value (in accordance with the transaction documents) of the securitized 
assets may be increased or decreased to reflect anticipated additions or 
removals of assets the sponsor makes or expects to make between the cut-
off date or similar date for establishing the composition of the asset 
pool collateralizing such asset-backed security and the closing date of 
the securitization.
    (G) A summary description of the reference data set or other 
historical information used to develop the key inputs and assumptions 
referenced in paragraph (c)(1)(i)(D) of this section, including loss 
given default and default rates;
    (ii) A reasonable time after the closing of the securitization 
transaction:
    (A) The fair value (expressed as a percentage of the fair value of 
all of the ABS interests issued in the securitization transaction and 
dollar amount (or corresponding amount in

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the foreign currency in which the ABS are issued, as applicable)) of the 
eligible horizontal residual interest the sponsor retained at the 
closing of the securitization transaction, based on actual sale prices 
and finalized tranche sizes;
    (B) The fair value (expressed as a percentage of the fair value of 
all of the ABS interests issued in the securitization transaction and 
dollar amount (or corresponding amount in the foreign currency in which 
the ABS are issued, as applicable)) of the eligible horizontal residual 
interest that the sponsor is required to retain under this section; and
    (C) To the extent the valuation methodology or any of the key inputs 
and assumptions that were used in calculating the fair value or range of 
fair values disclosed prior to sale and required under paragraph 
(c)(1)(i) of this section materially differs from the methodology or key 
inputs and assumptions used to calculate the fair value at the time of 
closing, descriptions of those material differences.
    (iii) If the sponsor retains risk through the funding of an eligible 
horizontal cash reserve account:
    (A) The amount to be placed (or that is placed) by the sponsor in 
the eligible horizontal cash reserve account at closing, and the fair 
value (expressed as a percentage of the fair value of all of the ABS 
interests issued in the securitization transaction and dollar amount (or 
corresponding amount in the foreign currency in which the ABS interests 
are issued, as applicable)) of the eligible horizontal residual interest 
that the sponsor is required to fund through the eligible horizontal 
cash reserve account in order for such account, together with other 
retained interests, to satisfy the sponsor's risk retention requirement;
    (B) A description of the material terms of the eligible horizontal 
cash reserve account; and
    (C) The disclosures required in paragraphs (c)(1)(i) and (ii) of 
this section.
    (2) Vertical interest. With respect to any eligible vertical 
interest retained under paragraph (a) of this section, the sponsor must 
disclose:
    (i) A reasonable period of time prior to the sale of an asset-backed 
security issued in the same offering of ABS interests,
    (A) The form of the eligible vertical interest;
    (B) The percentage that the sponsor is required to retain as a 
vertical interest under this section; and
    (C) A description of the material terms of the vertical interest and 
the amount that the sponsor expects to retain at the closing of the 
securitization transaction.
    (ii) A reasonable time after the closing of the securitization 
transaction, the amount of the vertical interest the sponsor retained at 
closing, if that amount is materially different from the amount 
disclosed under paragraph (c)(2)(i) of this section.
    (d) Record maintenance. A sponsor must retain the certifications and 
disclosures required in paragraphs (a) and (c) of this section in its 
records and must provide the disclosure upon request to the Commission 
and its appropriate Federal banking agency, if any, until three years 
after all ABS interests are no longer outstanding.



Sec.1234.5  Revolving pool securitizations.

    (a) Definitions. For purposes of this section, the following 
definitions apply:
    Revolving pool securitization means an issuing entity that is 
established to issue on multiple issuance dates more than one series, 
class, subclass, or tranche of asset-backed securities that are 
collateralized by a common pool of securitized assets that will change 
in composition over time, and that does not monetize excess interest and 
fees from its securitized assets.
    Seller's interest means an ABS interest or ABS interests:
    (1) Collateralized by the securitized assets and servicing assets 
owned or held by the issuing entity, other than the following that are 
not considered a component of seller's interest:
    (i) Servicing assets that have been allocated as collateral only for 
a specific series in connection with administering the revolving pool 
securitization, such as a principal accumulation or interest reserve 
account; and

[[Page 232]]

    (ii) Assets that are not eligible under the terms of the 
securitization transaction to be included when determining whether the 
revolving pool securitization holds aggregate securitized assets in 
specified proportions to aggregate outstanding investor ABS interests 
issued; and
    (2) That is pari passu with each series of investor ABS interests 
issued, or partially or fully subordinated to one or more series in 
identical or varying amounts, with respect to the allocation of all 
distributions and losses with respect to the securitized assets prior to 
early amortization of the revolving securitization (as specified in the 
securitization transaction documents); and
    (3) That adjusts for fluctuations in the outstanding principal 
balance of the securitized assets in the pool.
    (b) General requirement. A sponsor satisfies the risk retention 
requirements of Sec.1234.3 with respect to a securitization 
transaction for which the issuing entity is a revolving pool 
securitization if the sponsor maintains a seller's interest of not less 
than 5 percent of the aggregate unpaid principal balance of all 
outstanding investor ABS interests in the issuing entity.
    (c) Measuring the seller's interest. In measuring the seller's 
interest for purposes of meeting the requirements of paragraph (b) of 
this section:
    (1) The unpaid principal balance of the securitized assets for the 
numerator of the 5 percent ratio shall not include assets of the types 
excluded from the definition of seller's interest in paragraph (a) of 
this section;
    (2) The aggregate unpaid principal balance of outstanding investor 
ABS interests in the denominator of the 5 percent ratio may be reduced 
by the amount of funds held in a segregated principal accumulation 
account for the repayment of outstanding investor ABS interests, if:
    (i) The terms of the securitization transaction documents prevent 
funds in the principal accumulation account from being applied for any 
purpose other than the repayment of the unpaid principal of outstanding 
investor ABS interests; and
    (ii) Funds in that account are invested only in the types of assets 
in which funds held in an eligible horizontal cash reserve account 
pursuant to Sec.1234.4 are permitted to be invested;
    (3) If the terms of the securitization transaction documents set 
minimum required seller's interest as a proportion of the unpaid 
principal balance of outstanding investor ABS interests for one or more 
series issued, rather than as a proportion of the aggregate outstanding 
investor ABS interests in all outstanding series combined, the 
percentage of the seller's interest for each such series must, when 
combined with the percentage of any minimum seller's interest set by 
reference to the aggregate outstanding investor ABS interests, equal at 
least 5 percent;
    (4) The 5 percent test must be determined and satisfied at the 
closing of each issuance of ABS interests to investors by the issuing 
entity, and
    (i) At least monthly at a seller's interest measurement date 
specified under the securitization transaction documents, until no ABS 
interest in the issuing entity is held by any person not a wholly-owned 
affiliate of the sponsor; or
    (ii) If the revolving pool securitization fails to meet the 5 
percent test as of any date described in paragraph (c)(4)(i) of this 
section, and the securitization transaction documents specify a cure 
period, the 5 percent test must be determined and satisfied within the 
earlier of the cure period, or one month after the date described in 
paragraph (c)(4)(i).
    (d) Measuring outstanding investor ABS interests. In measuring the 
amount of outstanding investor ABS interests for purposes of this 
section, ABS interests held for the life of such ABS interests by the 
sponsor or its wholly-owned affiliates may be excluded.
    (e) Holding and retention of the seller's interest; legacy trusts. 
(1) Notwithstanding Sec.1234.12(a), the seller's interest, and any 
offsetting horizontal retention interest retained pursuant to paragraph 
(g) of this section, must be retained by the sponsor or by one or more 
wholly-owned affiliates of the sponsor, including one or more depositors 
of the revolving pool securitization.

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    (2) If one revolving pool securitization issues collateral 
certificates representing a beneficial interest in all or a portion of 
the securitized assets held by that securitization to another revolving 
pool securitization, which in turn issues ABS interests for which the 
collateral certificates are all or a portion of the securitized assets, 
a sponsor may satisfy the requirements of paragraphs (b) and (c) of this 
section by retaining the seller's interest for the assets represented by 
the collateral certificates through either of the revolving pool 
securitizations, so long as both revolving pool securitizations are 
retained at the direction of the same sponsor or its wholly-owned 
affiliates.
    (3) If the sponsor retains the seller's interest associated with the 
collateral certificates at the level of the revolving pool 
securitization that issues those collateral certificates, the proportion 
of the seller's interest required by paragraph (b) of this section 
retained at that level must equal the proportion that the principal 
balance of the securitized assets represented by the collateral 
certificates bears to the principal balance of the securitized assets in 
the revolving pool securitization that issues the ABS interests, as of 
each measurement date required by paragraph (c) of this section.
    (f) Offset for pool-level excess funding account. The 5 percent 
seller's interest required on each measurement date by paragraph (c) of 
this section may be reduced on a dollar-for-dollar basis by the balance, 
as of such date, of an excess funding account in the form of a 
segregated account that:
    (1) Is funded in the event of a failure to meet the minimum seller's 
interest requirements or other requirement to maintain a minimum balance 
of securitized assets under the securitization transaction documents by 
distributions otherwise payable to the holder of the seller's interest;
    (2) Is invested only in the types of assets in which funds held in a 
horizontal cash reserve account pursuant to Sec.1234.4 are permitted 
to be invested; and
    (3) In the event of an early amortization, makes payments of amounts 
held in the account to holders of investor ABS interests in the same 
manner as payments to holders of investor ABS interests of amounts 
received on securitized assets.
    (g) Combined seller's interests and horizontal interest retention. 
The 5 percent seller's interest required on each measurement date by 
paragraph (c) of this section may be reduced to a percentage lower than 
5 percent to the extent that, for all series of investor ABS interests 
issued after the applicable effective date of this Sec.1234.5, the 
sponsor, or notwithstanding Sec.1234.12(a) a wholly-owned affiliate of 
the sponsor, retains, at a minimum, a corresponding percentage of the 
fair value of ABS interests issued in each series, in the form of one or 
more of the horizontal residual interests meeting the requirements of 
paragraphs (h) or (i).
    (h) Residual ABS interests in excess interest and fees. The sponsor 
may take the offset described in paragraph (g) of this section for a 
residual ABS interest in excess interest and fees, whether certificated 
or uncertificated, in a single or multiple classes, subclasses, or 
tranches, that meets, individually or in the aggregate, the requirements 
of this paragraph (h);
    (1) Each series of the revolving pool securitization distinguishes 
between the series' share of the interest and fee cash flows and the 
series' share of the principal repayment cash flows from the securitized 
assets collateralizing the revolving pool securitization, which may 
according to the terms of the securitization transaction documents, 
include not only the series' ratable share of such cash flows but also 
excess cash flows available from other series;
    (2) The residual ABS interest's claim to any part of the series' 
share of the interest and fee cash flows for any interest payment period 
is subordinated to all accrued and payable interest due on the payment 
date to more senior ABS interests in the series for that period, and 
further reduced by the series' share of losses, including defaults on 
principal of the securitized assets collateralizing the revolving pool 
securitization (whether incurred in that period or carried over from 
prior periods) to the extent that such payments would have been included 
in

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amounts payable to more senior interests in the series;
    (3) The revolving pool securitization continues to revolve, with one 
or more series, classes, subclasses, or tranches of asset-backed 
securities that are collateralized by a common pool of assets that 
change in composition over time; and
    (4) For purposes of taking the offset described in paragraph (g) of 
this section, the sponsor determines the fair value of the residual ABS 
interest in excess interest and fees, and the fair value of the series 
of outstanding investor ABS interests to which it is subordinated and 
supports using the fair value measurement framework under GAAP, as of:
    (i) The closing of the securitization transaction issuing the 
supported ABS interests; and
    (ii) The seller's interest measurement dates described in paragraph 
(c)(4) of this section, except that for these periodic determinations 
the sponsor must update the fair value of the residual ABS interest in 
excess interest and fees for the numerator of the percentage ratio, but 
may at the sponsor's option continue to use the fair values determined 
in (h)(4)(i) for the outstanding investor ABS interests in the 
denominator.
    (i) Offsetting eligible horizontal residual interest. The sponsor 
may take the offset described in paragraph (g) of this section for ABS 
interests that would meet the definition of eligible horizontal residual 
interests in Sec.1234.2 but for the sponsor's simultaneous holding of 
subordinated seller's interests, residual ABS interests in excess 
interests and fees, or a combination of the two, if:
    (1) The sponsor complies with all requirements of paragraphs (b) 
through (e) of this section for its holdings of subordinated seller's 
interest, and paragraph (h) for its holdings of residual ABS interests 
in excess interests and fees, as applicable;
    (2) For purposes of taking the offset described in paragraph (g) of 
this section, the sponsor determines the fair value of the eligible 
horizontal residual interest as a percentage of the fair value of the 
outstanding investor ABS interests in the series supported by the 
eligible horizontal residual interest, determined using the fair value 
measurement framework under GAAP:
    (i) As of the closing of the securitization transaction issuing the 
supported ABS interests; and
    (ii) Without including in the numerator of the percentage ratio any 
fair value based on:
    (A) The subordinated seller's interest or residual ABS interest in 
excess interest and fees;
    (B) the interest payable to the sponsor on the eligible horizontal 
residual interest, if the sponsor is including the value of residual ABS 
interest in excess interest and fees pursuant to paragraph (h) of this 
section in taking the offset in paragraph (g) of this section; and,
    (C) the principal payable to the sponsor on the eligible horizontal 
residual interest, if the sponsor is including the value of the seller's 
interest pursuant to paragraphs (b) through (f) of this section and 
distributions on that seller's interest are available to reduce charge-
offs that would otherwise be allocated to reduce principal payable to 
the offset eligible horizontal residual interest.
    (j) Specified dates. A sponsor using data about the revolving pool 
securitization's collateral, or ABS interests previously issued, to 
determine the closing-date percentage of a seller's interest, residual 
ABS interest in excess interest and fees, or eligible horizontal 
residual interest pursuant to this Sec.1234.5 may use such data 
prepared as of specified dates if:
    (1) The sponsor describes the specified dates in the disclosures 
required by paragraph (k) of this section; and
    (2) The dates are no more than 60 days prior to the date of first 
use with investors of disclosures required for the interest by paragraph 
(k) of this section, or for revolving pool securitizations that make 
distributions to investors on a quarterly or less frequent basis, no 
more than 135 days prior to the date of first use with investors of such 
disclosures.
    (k) Disclosure and record maintenance. (1) Disclosure. A sponsor 
relying on this section shall provide, or cause to be provided, to 
potential investors, under the caption ``Credit Risk Retention'' the 
following disclosure in written

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form and within the time frames set forth in this paragraph (k):
    (i) A reasonable period of time prior to the sale of an asset-backed 
security, a description of the material terms of the seller's interest, 
and the percentage of the seller's interest that the sponsor expects to 
retain at the closing of the securitization transaction, measured in 
accordance with the requirements of this Sec.1234.5, as a percentage 
of the aggregate unpaid principal balance of all outstanding investor 
ABS interests issued, or as a percentage of the aggregate unpaid 
principal balance of outstanding investor ABS interests for one or more 
series issued, as required by the terms of the securitization 
transaction;
    (ii) A reasonable time after the closing of the securitization 
transaction, the amount of seller's interest the sponsor retained at 
closing, if that amount is materially different from the amount 
disclosed under paragraph (k)(1)(i) of this section; and
    (iii) A description of the material terms of any horizontal residual 
interests offsetting the seller's interest in accordance with paragraphs 
(g), (h), and (i) of this section; and
    (iv) Disclosure of the fair value of those horizontal residual 
interests retained by the sponsor for the series being offered to 
investors and described in the disclosures, as a percentage of the fair 
value of the outstanding investor ABS interests issued, described in the 
same manner and within the same timeframes required for disclosure of 
the fair values of eligible horizontal residual interests specified in 
Sec.1234.4(c).
    (2) Adjusted data. Disclosures required by this paragraph (k) to be 
made a reasonable period of time prior to the sale of an asset-backed 
security of the amount of seller's interest, residual ABS interest in 
excess interest and fees, or eligible horizontal residual interest may 
include adjustments to the amount of securitized assets for additions or 
removals the sponsor expects to make before the closing date and 
adjustments to the amount of outstanding investor ABS interests for 
expected increases and decreases of those interests under the control of 
the sponsor.
    (3) Record maintenance. A sponsor must retain the disclosures 
required in paragraph (k)(1) of this section in its records and must 
provide the disclosure upon request to the Commission and its 
appropriate Federal banking agency, if any, until three years after all 
ABS interests are no longer outstanding.
    (l) Early amortization of all outstanding series. A sponsor that 
organizes a revolving pool securitization that relies on this Sec.
1234.5 to satisfy the risk retention requirements of Sec.1234.3, does 
not violate the requirements of this part if its seller's interest falls 
below the level required by Sec.1234. 5 after the revolving pool 
securitization commences early amortization, pursuant to the terms of 
the securitization transaction documents, of all series of outstanding 
investor ABS interests, if:
    (1) The sponsor was in full compliance with the requirements of this 
section on all measurement dates specified in paragraph (c) of this 
section prior to the commencement of early amortization;
    (2) The terms of the seller's interest continue to make it pari 
passu with or subordinate in identical or varying amounts to each series 
of outstanding investor ABS interests issued with respect to the 
allocation of all distributions and losses with respect to the 
securitized assets;
    (3) The terms of any horizontal interest relied upon by the sponsor 
pursuant to paragraph (g) to offset the minimum seller's interest amount 
continue to require the interests to absorb losses in accordance with 
the terms of paragraph (h) or (i) of this section, as applicable; and
    (4) The revolving pool securitization issues no additional ABS 
interests after early amortization is initiated to any person not a 
wholly-owned affiliate of the sponsor, either at the time of issuance or 
during the amortization period.



Sec.1234.6  Eligible ABCP conduits.

    (a) Definitions. For purposes of this section, the following 
additional definitions apply:
    100 percent liquidity coverage means an amount equal to the 
outstanding balance of all ABCP issued by the conduit

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plus any accrued and unpaid interest without regard to the performance 
of the ABS interests held by the ABCP conduit and without regard to any 
credit enhancement.
    ABCP means asset-backed commercial paper that has a maturity at the 
time of issuance not exceeding 397 days, exclusive of days of grace, or 
any renewal thereof the maturity of which is likewise limited.
    ABCP conduit means an issuing entity with respect to ABCP.
    Eligible ABCP conduit means an ABCP conduit, provided that:
    (1) The ABCP conduit is bankruptcy remote or otherwise isolated for 
insolvency purposes from the sponsor of the ABCP conduit and from any 
intermediate SPV;
    (2) The ABS interests acquired by the ABCP conduit are:
    (i) ABS interests collateralized solely by assets originated by an 
originator-seller and by servicing assets;
    (ii) Special units of beneficial interest (or similar ABS interests) 
in a trust or special purpose vehicle that retains legal title to leased 
property underlying leases originated by an originator-seller that were 
transferred to an intermediate SPV in connection with a securitization 
collateralized solely by such leases and by servicing assets;
    (iii) ABS interests in a revolving pool securitization 
collateralized solely by assets originated by an originator-seller and 
by servicing assets; or
    (iv) ABS interests described in paragraph (2)(i), (ii), or (iii) of 
this definition that are collateralized, in whole or in part, by assets 
acquired by an originator-seller in a business combination that 
qualifies for business combination accounting under GAAP, and, if 
collateralized in part, the remainder of such assets are assets 
described in paragraph (2)(i), (ii), or (iii) of this definition; and
    (v) Acquired by the ABCP conduit in an initial issuance by or on 
behalf of an intermediate SPV:
    (A) Directly from the intermediate SPV,
    (B) From an underwriter of the ABS interests issued by the 
intermediate SPV, or
    (C) From another person who acquired the ABS interests directly from 
the intermediate SPV;
    (3) The ABCP conduit is collateralized solely by ABS interests 
acquired from intermediate SPVs as described in paragraph (2) of this 
definition and servicing assets; and
    (4) A regulated liquidity provider has entered into a legally 
binding commitment to provide 100 percent liquidity coverage (in the 
form of a lending facility, an asset purchase agreement, a repurchase 
agreement, or other similar arrangement) to all the ABCP issued by the 
ABCP conduit by lending to, purchasing ABCP issued by, or purchasing 
assets from, the ABCP conduit in the event that funds are required to 
repay maturing ABCP issued by the ABCP conduit. With respect to the 100 
percent liquidity coverage, in the event that the ABCP conduit is unable 
for any reason to repay maturing ABCP issued by the issuing entity, the 
liquidity provider shall be obligated to pay an amount equal to any 
shortfall, and the total amount that may be due pursuant to the 100 
percent liquidity coverage shall be equal to 100 percent of the amount 
of the ABCP outstanding at any time plus accrued and unpaid interest 
(amounts due pursuant to the required liquidity coverage may not be 
subject to credit performance of the ABS interests held by the ABCP 
conduit or reduced by the amount of credit support provided to the ABCP 
conduit and liquidity support that only funds performing loans or 
receivables or performing ABS interests does not meet the requirements 
of this section).
    Intermediate SPV means a special purpose vehicle that:
    (1) (i) Is a direct or indirect wholly-owned affiliate of the 
originator-seller; or
    (ii) Has nominal equity owned by a trust or corporate service 
provider that specializes in providing independent ownership of special 
purpose vehicles, and such trust or corporate service provider is not 
affiliated with any other transaction parties;
    (2) Is bankruptcy remote or otherwise isolated for insolvency 
purposes from the eligible ABCP conduit and from each originator-seller 
and each majority-owned affiliate in each case

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that, directly or indirectly, sells or transfers assets to such 
intermediate SPV;
    (3) Acquires assets from the originator-seller that are originated 
by the originator-seller or acquired by the originator-seller in the 
acquisition of a business that qualifies for business combination 
accounting under GAAP or acquires ABS interests issued by another 
intermediate SPV of the originator-seller that are collateralized solely 
by such assets; and
    (4) Issues ABS interests collateralized solely by such assets, as 
applicable.
    Originator-seller means an entity that originates assets and sells 
or transfers those assets, directly or through a majority-owned 
affiliate, to an intermediate SPV, and includes (except for the purposes 
of identifying the sponsorship and affiliation of an intermediate SPV 
pursuant to this Sec.1234.6) any affiliate of the originator-seller 
that, directly or indirectly, majority controls, is majority controlled 
by or is under common majority control with, the originator-seller. For 
purposes of this definition, majority control means ownership of more 
than 50 percent of the equity of an entity, or ownership of any other 
controlling financial interest in the entity, as determined under GAAP.
    Regulated liquidity provider means:
    (1) A depository institution (as defined in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813));
    (2) A bank holding company (as defined in 12 U.S.C. 1841), or a 
subsidiary thereof;
    (3) A savings and loan holding company (as defined in 12 U.S.C. 
1467a), provided all or substantially all of the holding company's 
activities are permissible for a financial holding company under 12 
U.S.C. 1843(k), or a subsidiary thereof; or
    (4) A foreign bank whose home country supervisor (as defined in 
Sec.211.21 of the Federal Reserve Board's Regulation K (12 CFR 
211.21)) has adopted capital standards consistent with the Capital 
Accord of the Basel Committee on Banking Supervision, as amended, and 
that is subject to such standards, or a subsidiary thereof.
    (b) In general. An ABCP conduit sponsor satisfies the risk retention 
requirement of Sec.1234.3 with respect to the issuance of ABCP by an 
eligible ABCP conduit in a securitization transaction if, for each ABS 
interest the ABCP conduit acquires from an intermediate SPV:
    (1) An originator-seller of the intermediate SPV retains an economic 
interest in the credit risk of the assets collateralizing the ABS 
interest acquired by the eligible ABCP conduit in the amount and manner 
required under Sec.1234.4 or Sec.1234.5; and
    (2) The ABCP conduit sponsor:
    (i) Approves each originator-seller permitted to sell or transfer 
assets, directly or indirectly, to an intermediate SPV from which an 
eligible ABCP conduit acquires ABS interests;
    (ii) Approves each intermediate SPV from which an eligible ABCP 
conduit is permitted to acquire ABS interests;
    (iii) Establishes criteria governing the ABS interests, and the 
securitized assets underlying the ABS interests, acquired by the ABCP 
conduit;
    (iv) Administers the ABCP conduit by monitoring the ABS interests 
acquired by the ABCP conduit and the assets supporting those ABS 
interests, arranging for debt placement, compiling monthly reports, and 
ensuring compliance with the ABCP conduit documents and with the ABCP 
conduit's credit and investment policy; and
    (v) Maintains and adheres to policies and procedures for ensuring 
that the requirements in this paragraph (b) of this section have been 
met.
    (c) Originator-seller compliance with risk retention. The use of the 
risk retention option provided in this section by an ABCP conduit 
sponsor does not relieve the originator-seller that sponsors ABS 
interests acquired by an eligible ABCP conduit from such originator-
seller's obligation to comply with its own risk retention obligations 
under this part.
    (d) Disclosures--(1) Periodic disclosures to investors. An ABCP 
conduit sponsor relying upon this section shall provide, or cause to be 
provided, to each purchaser of ABCP, before or contemporaneously with 
the first sale of ABCP to such purchaser and at least monthly

[[Page 238]]

thereafter, to each holder of commercial paper issued by the ABCP 
conduit, in writing, each of the following items of information, which 
shall be as of a date not more than 60 days prior to date of first use 
with investors:
    (i) The name and form of organization of the regulated liquidity 
provider that provides liquidity coverage to the eligible ABCP conduit, 
including a description of the material terms of such liquidity 
coverage, and notice of any failure to fund.
    (ii) With respect to each ABS interest held by the ABCP conduit:
    (A) The asset class or brief description of the underlying 
securitized assets;
    (B) The standard industrial category code (SIC Code) for the 
originator-seller that will retain (or has retained) pursuant to this 
section an interest in the securitization transaction; and
    (C) A description of the percentage amount of risk retention 
pursuant to the rule by the originator-seller, and whether it is in the 
form of an eligible horizontal residual interest, vertical interest, or 
revolving pool securitization seller's interest, as applicable.
    (2) Disclosures to regulators regarding originator-sellers. An ABCP 
conduit sponsor relying upon this section shall provide, or cause to be 
provided, upon request, to the Commission and its appropriate Federal 
banking agency, if any, in writing, all of the information required to 
be provided to investors in paragraph (d)(1) of this section, and the 
name and form of organization of each originator-seller that will retain 
(or has retained) pursuant to this section an interest in the 
securitization transaction.
    (e) Sale or transfer of ABS interests between eligible ABCP 
conduits. At any time, an eligible ABCP conduit that acquired an ABS 
interest in accordance with the requirements set forth in this section 
may transfer, and another eligible ABCP conduit may acquire, such ABS 
interest, if the following conditions are satisfied:
    (1) The sponsors of both eligible ABCP conduits are in compliance 
with this section; and
    (2) The same regulated liquidity provider has entered into one or 
more legally binding commitments to provide 100 percent liquidity 
coverage to all the ABCP issued by both eligible ABCP conduits.
    (f) Duty to comply. (1) The ABCP conduit sponsor shall be 
responsible for compliance with this section.
    (2) An ABCP conduit sponsor relying on this section:
    (i) Shall maintain and adhere to policies and procedures that are 
reasonably designed to monitor compliance by each originator-seller 
which is satisfying a risk retention obligation in respect of ABS 
interests acquired by an eligible ABCP conduit with the requirements of 
paragraph (b)(1) of this section; and
    (ii) In the event that the ABCP conduit sponsor determines that an 
originator-seller no longer complies with the requirements of paragraph 
(b)(1) of this section, shall:
    (A) Promptly notify the holders of the ABCP, and upon request, the 
Commission and its appropriate Federal banking agency, if any, in 
writing of:
    (1) The name and form of organization of any originator-seller that 
fails to retain risk in accordance with paragraph (b)(1) of this section 
and the amount of ABS interests issued by an intermediate SPV of such 
originator-seller and held by the ABCP conduit;
    (2) The name and form of organization of any originator-seller that 
hedges, directly or indirectly through an intermediate SPV, its risk 
retention in violation of paragraph (b)(1) of this section and the 
amount of ABS interests issued by an intermediate SPV of such 
originator-seller and held by the ABCP conduit; and
    (3) Any remedial actions taken by the ABCP conduit sponsor or other 
party with respect to such ABS interests; and
    (B) Take other appropriate steps pursuant to the requirements of 
paragraphs (b)(2)(iv) and (v) of this section which may include, as 
appropriate, curing any breach of the requirements in this section, or 
removing from the eligible ABCP conduit any ABS interest that does not 
comply with the requirements in this section.

[[Page 239]]



Sec.1234.7  Commercial mortgage-backed securities.

    (a) Definitions. For purposes of this section, the following 
definition shall apply:
    Special servicer means, with respect to any securitization of 
commercial real estate loans, any servicer that, upon the occurrence of 
one or more specified conditions in the servicing agreement, has the 
right to service one or more assets in the transaction.
    (b) Third-party purchaser. A sponsor may satisfy some or all of its 
risk retention requirements under Sec.1234.3 with respect to a 
securitization transaction if a third party (or any majority-owned 
affiliate thereof) purchases and holds for its own account an eligible 
horizontal residual interest in the issuing entity in the same form, 
amount, and manner as would be held by the sponsor under Sec.1234.4 
and all of the following conditions are met:
    (1) Number of third-party purchasers. At any time, there are no more 
than two third-party purchasers of an eligible horizontal residual 
interest. If there are two third-party purchasers, each third-party 
purchaser's interest must be pari passu with the other third-party 
purchaser's interest.
    (2) Composition of collateral. The securitization transaction is 
collateralized solely by commercial real estate loans and servicing 
assets.
    (3) Source of funds. (i) Each third-party purchaser pays for the 
eligible horizontal residual interest in cash at the closing of the 
securitization transaction.
    (ii) No third-party purchaser obtains financing, directly or 
indirectly, for the purchase of such interest from any other person that 
is a party to, or an affiliate of a party to, the securitization 
transaction (including, but not limited to, the sponsor, depositor, or 
servicer other than a special servicer affiliated with the third-party 
purchaser), other than a person that is a party to the transaction 
solely by reason of being an investor.
    (4) Third-party review. Each third-party purchaser conducts an 
independent review of the credit risk of each securitized asset prior to 
the sale of the asset-backed securities in the securitization 
transaction that includes, at a minimum, a review of the underwriting 
standards, collateral, and expected cash flows of each commercial real 
estate loan that is collateral for the asset-backed securities.
    (5) Affiliation and control rights. (i) Except as provided in 
paragraph (b)(5)(ii) of this section, no third-party purchaser is 
affiliated with any party to the securitization transaction (including, 
but not limited to, the sponsor, depositor, or servicer) other than 
investors in the securitization transaction.
    (ii) Notwithstanding paragraph (b)(5)(i) of this section, a third-
party purchaser may be affiliated with:
    (A) The special servicer for the securitization transaction; or
    (B) One or more originators of the securitized assets, as long as 
the assets originated by the affiliated originator or originators 
collectively comprise less than 10 percent of the unpaid principal 
balance of the securitized assets included in the securitization 
transaction at the cut-off date or similar date for establishing the 
composition of the securitized assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction.
    (6) Operating Advisor. The underlying securitization transaction 
documents shall provide for the following:
    (i) The appointment of an operating advisor (the Operating Advisor) 
that:
    (A) Is not affiliated with other parties to the securitization 
transaction;
    (B) Does not directly or indirectly have any financial interest in 
the securitization transaction other than in fees from its role as 
Operating Advisor; and
    (C) Is required to act in the best interest of, and for the benefit 
of, investors as a collective whole;
    (ii) Standards with respect to the Operating Advisor's experience, 
expertise and financial strength to fulfill its duties and 
responsibilities under the applicable transaction documents over the 
life of the securitization transaction;
    (iii) The terms of the Operating Advisor's compensation with respect 
to the securitization transaction;
    (iv) When the eligible horizontal residual interest has been reduced 
by principal payments, realized losses, and

[[Page 240]]

appraisal reduction amounts (which reduction amounts are determined in 
accordance with the applicable transaction documents) to a principal 
balance of 25 percent or less of its initial principal balance, the 
special servicer for the securitized assets must consult with the 
Operating Advisor in connection with, and prior to, any material 
decision in connection with its servicing of the securitized assets, 
including, without limitation:
    (A) Any material modification of, or waiver with respect to, any 
provision of a loan agreement (including a mortgage, deed of trust, or 
other security agreement);
    (B) Foreclosure upon or comparable conversion of the ownership of a 
property; or
    (C) Any acquisition of a property.
    (v) The Operating Advisor shall have adequate and timely access to 
information and reports necessary to fulfill its duties under the 
transaction documents, including all reports made available to holders 
of ABS interests and third-party purchasers, and shall be responsible 
for:
    (A) Reviewing the actions of the special servicer;
    (B) Reviewing all reports provided by the special servicer to the 
issuing entity or any holder of ABS interests;
    (C) Reviewing for accuracy and consistency with the transaction 
documents calculations made by the special servicer; and
    (D) Issuing a report to investors (including any third-party 
purchasers) and the issuing entity on a periodic basis concerning:
    (1) Whether the Operating Advisor believes, in its sole discretion 
exercised in good faith, that the special servicer is operating in 
compliance with any standard required of the special servicer in the 
applicable transaction documents; and
    (2) Which, if any, standards the Operating Advisor believes, in its 
sole discretion exercised in good faith, the special servicer has failed 
to comply.
    (vi)(A) The Operating Advisor shall have the authority to recommend 
that the special servicer be replaced by a successor special servicer if 
the Operating Advisor determines, in its sole discretion exercised in 
good faith, that:
    (1) The special servicer has failed to comply with a standard 
required of the special servicer in the applicable transaction 
documents; and
    (2) Such replacement would be in the best interest of the investors 
as a collective whole; and
    (B) If a recommendation described in paragraph (b)(6)(vi)(A) of this 
section is made, the special servicer shall be replaced upon the 
affirmative vote of a majority of the outstanding principal balance of 
all ABS interests voting on the matter, with a minimum of a quorum of 
ABS interests voting on the matter. For purposes of such vote, the 
applicable transaction documents shall specify the quorum and may not 
specify a quorum of more than the holders of 20 percent of the 
outstanding principal balance of all ABS interests in the issuing 
entity, with such quorum including at least three ABS interest holders 
that are not affiliated with each other.
    (7) Disclosures. The sponsor provides, or causes to be provided, to 
potential investors a reasonable period of time prior to the sale of the 
asset-backed securities as part of the securitization transaction and, 
upon request, to the Commission and its appropriate Federal banking 
agency, if any, the following disclosure in written form under the 
caption ``Credit Risk Retention'':
    (i) The name and form of organization of each initial third-party 
purchaser that acquired an eligible horizontal residual interest at the 
closing of a securitization transaction;
    (ii) A description of each initial third-party purchaser's 
experience in investing in commercial mortgage-backed securities;
    (iii) Any other information regarding each initial third-party 
purchaser or each initial third-party purchaser's retention of the 
eligible horizontal residual interest that is material to investors in 
light of the circumstances of the particular securitization transaction;
    (iv) The fair value (expressed as a percentage of the fair value of 
all of the ABS interests issued in the securitization transaction and 
dollar amount (or corresponding amount in the foreign currency in which 
the ABS

[[Page 241]]

interests are issued, as applicable)) of the eligible horizontal 
residual interest that will be retained (or was retained) by each 
initial third-party purchaser, as well as the amount of the purchase 
price paid by each initial third-party purchaser for such interest;
    (v) The fair value (expressed as a percentage of the fair value of 
all of the ABS interests issued in the securitization transaction and 
dollar amount (or corresponding amount in the foreign currency in which 
the ABS interests are issued, as applicable)) of the eligible horizontal 
residual interest in the securitization transaction that the sponsor 
would have retained pursuant to Sec.1234.4 if the sponsor had relied 
on retaining an eligible horizontal residual interest in that section to 
meet the requirements of Sec.1234.3 with respect to the transaction;
    (vi) A description of the material terms of the eligible horizontal 
residual interest retained by each initial third-party purchaser, 
including the same information as is required to be disclosed by 
sponsors retaining horizontal interests pursuant to Sec.1234.4;
    (vii) The material terms of the applicable transaction documents 
with respect to the Operating Advisor, including without limitation:
    (A) The name and form of organization of the Operating Advisor;
    (B) A description of any material conflict of interest or material 
potential conflict of interest between the Operating Advisor and any 
other party to the transaction;
    (C) The standards required by paragraph (b)(6)(ii) of this section 
and a description of how the Operating Advisor satisfies each of the 
standards; and
    (D) The terms of the Operating Advisor's compensation under 
paragraph (b)(6)(iii) of this section; and
    (viii) The representations and warranties concerning the securitized 
assets, a schedule of any securitized assets that are determined not to 
comply with such representations and warranties, and what factors were 
used to make the determination that such securitized assets should be 
included in the pool notwithstanding that the securitized assets did not 
comply with such representations and warranties, such as compensating 
factors or a determination that the exceptions were not material.
    (8) Hedging, transfer and pledging--(i) General rule. Except as set 
forth in paragraph (b)(8)(ii) of this section, each third-party 
purchaser and its affiliates must comply with the hedging and other 
restrictions in Sec.1234.12 as if it were the retaining sponsor with 
respect to the securitization transaction and had acquired the eligible 
horizontal residual interest pursuant to Sec.1234.4; provided that, 
the hedging and other restrictions in Sec.1234.12 shall not apply on 
or after the date that each CRE loan (as defined in Sec.1234.14) that 
serves as collateral for outstanding ABS interests has been defeased. 
For purposes of this section, a loan is deemed to be defeased if:
    (A) cash or cash equivalents of the types permitted for an eligible 
horizontal cash reserve account pursuant to Sec.1234.4 whose maturity 
corresponds to the remaining debt service obligations, have been pledged 
to the issuing entity as collateral for the loan and are in such amounts 
and payable at such times as necessary to timely generate cash 
sufficient to make all remaining debt service payments due on such loan; 
and
    (B) the issuing entity has an obligation to release its lien on the 
loan.
    (ii) Exceptions--(A) Transfer by initial third-party purchaser or 
sponsor. An initial third-party purchaser that acquired an eligible 
horizontal residual interest at the closing of a securitization 
transaction in accordance with this section, or a sponsor that acquired 
an eligible horizontal residual interest at the closing of a 
securitization transaction in accordance with this section, may, on or 
after the date that is five years after the date of the closing of the 
securitization transaction, transfer that interest to a subsequent 
third-party purchaser that complies with paragraph (b)(8)(ii)(C) of this 
section. The initial third-party purchaser shall provide the sponsor 
with complete identifying information for the subsequent third-party 
purchaser.
    (B) Transfer by subsequent third-party purchaser. At any time, a 
subsequent third-party purchaser that acquired an eligible horizontal 
residual interest

[[Page 242]]

pursuant to this section may transfer its interest to a different third-
party purchaser that complies with paragraph (b)(8)(ii)(C) of this 
section. The transferring third-party purchaser shall provide the 
sponsor with complete identifying information for the acquiring third-
party purchaser.
    (C) Requirements applicable to subsequent third-party purchasers. A 
subsequent third-party purchaser is subject to all of the requirements 
of paragraphs (b)(1), (b)(3) through (5), and (b)(8) of this section 
applicable to third-party purchasers, provided that obligations under 
paragraphs (b)(1), (b)(3) through (5), and (b)(8) of this section that 
apply to initial third-party purchasers at or before the time of closing 
of the securitization transaction shall apply to successor third-party 
purchasers at or before the time of the transfer of the eligible 
horizontal residual interest to the successor third-party purchaser.
    (c) Duty to comply. (1) The retaining sponsor shall be responsible 
for compliance with this section by itself and for compliance by each 
initial or subsequent third-party purchaser that acquired an eligible 
horizontal residual interest in the securitization transaction.
    (2) A sponsor relying on this section:
    (i) Shall maintain and adhere to policies and procedures to monitor 
each third-party purchaser's compliance with the requirements of 
paragraphs (b)(1), (b)(3) through (5), and (b)(8) of this section; and
    (ii) In the event that the sponsor determines that a third-party 
purchaser no longer complies with one or more of the requirements of 
paragraphs (b)(1), (b)(3) through (5), or (b)(8) of this section, shall 
promptly notify, or cause to be notified, the holders of the ABS 
interests issued in the securitization transaction of such noncompliance 
by such third-party purchaser.



Sec.1234.8  Federal National Mortgage Association and Federal Home
Loan Mortgage Corporation ABS.

    (a) In general. A sponsor satisfies its risk retention requirement 
under this part if the sponsor fully guarantees the timely payment of 
principal and interest on all ABS interests issued by the issuing entity 
in the securitization transaction and is:
    (1) The Federal National Mortgage Association or the Federal Home 
Loan Mortgage Corporation operating under the conservatorship or 
receivership of the Federal Housing Finance Agency pursuant to section 
1367 of the Federal Housing Enterprises Financial Safety and Soundness 
Act of 1992 (12 U.S.C. 4617) with capital support from the United 
States; or
    (2) Any limited-life regulated entity succeeding to the charter of 
either the Federal National Mortgage Association or the Federal Home 
Loan Mortgage Corporation pursuant to section 1367(i) of the Federal 
Housing Enterprises Financial Safety and Soundness Act of 1992 (12 
U.S.C. 4617(i)), provided that the entity is operating with capital 
support from the United States.
    (b) Certain provisions not applicable. The provisions of Sec.
1234.12(b), (c), and (d) shall not apply to a sponsor described in 
paragraph (a)(1) or (2) of this section, its affiliates, or the issuing 
entity with respect to a securitization transaction for which the 
sponsor has retained credit risk in accordance with the requirements of 
this section.
    (c) Disclosure. A sponsor relying on this section shall provide to 
investors, in written form under the caption ``Credit Risk Retention'' 
and, upon request, to the Federal Housing Finance Agency and the 
Commission, a description of the manner in which it has met the credit 
risk retention requirements of this part.



Sec.1234.9  Open market CLOs.

    (a) Definitions. For purposes of this section, the following 
definitions shall apply:
    CLO means a special purpose entity that:
    (i) Issues debt and equity interests, and
    (ii) Whose assets consist primarily of loans that are securitized 
assets and servicing assets.
    CLO-eligible loan tranche means a term loan of a syndicated facility 
that meets the criteria set forth in paragraph (c) of this section.
    CLO manager means an entity that manages a CLO, which entity is 
registered as an investment adviser under

[[Page 243]]

the Investment Advisers Act of 1940, as amended (15 U.S.C. 80b-1 et 
seq.), or is an affiliate of such a registered investment adviser and 
itself is managed by such registered investment adviser.
    Commercial borrower means an obligor under a corporate credit 
obligation (including a loan).
    Initial loan syndication transaction means a transaction in which a 
loan is syndicated to a group of lenders.
    Lead arranger means, with respect to a CLO-eligible loan tranche, an 
institution that:
    (i) Is active in the origination, structuring and syndication of 
commercial loan transactions (as defined in Sec.1234.14) and has 
played a primary role in the structuring, underwriting and distribution 
on the primary market of the CLO-eligible loan tranche.
    (ii) Has taken an allocation of the funded portion of the syndicated 
credit facility under the terms of the transaction that includes the 
CLO-eligible loan tranche of at least 20 percent of the aggregate 
principal balance at origination, and no other member (or members 
affiliated with each other) of the syndication group that funded at 
origination has taken a greater allocation; and
    (iii) Is identified in the applicable agreement governing the CLO-
eligible loan tranche; represents therein to the holders of the CLO-
eligible loan tranche and to any holders of participation interests in 
such CLO-eligible loan tranche that such lead arranger satisfies the 
requirements of paragraph (i) of this definition and, at the time of 
initial funding of the CLO-eligible tranche, will satisfy the 
requirements of paragraph (ii) of this definition; further represents 
therein (solely for the purpose of assisting such holders to determine 
the eligibility of such CLO-eligible loan tranche to be held by an open 
market CLO) that in the reasonable judgment of such lead arranger, the 
terms of such CLO-eligible loan tranche are consistent with the 
requirements of paragraphs (c)(2) and (3) of this section; and covenants 
therein to such holders that such lead arranger will fulfill the 
requirements of paragraph (c)(1) of this section.
    Open market CLO means a CLO:
    (i) Whose assets consist of senior, secured syndicated loans 
acquired by such CLO directly from the sellers thereof in open market 
transactions and of servicing assets,
    (ii) That is managed by a CLO manager, and
    (iii) That holds less than 50 percent of its assets, by aggregate 
outstanding principal amount, in loans syndicated by lead arrangers that 
are affiliates of the CLO or the CLO manager or originated by 
originators that are affiliates of the CLO or the CLO manager.
    Open market transaction means:
    (i) Either an initial loan syndication transaction or a secondary 
market transaction in which a seller offers senior, secured syndicated 
loans to prospective purchasers in the loan market on market terms on an 
arm's length basis, which prospective purchasers include, but are not 
limited to, entities that are not affiliated with the seller, or
    (ii) A reverse inquiry from a prospective purchaser of a senior, 
secured syndicated loan through a dealer in the loan market to purchase 
a senior, secured syndicated loan to be sourced by the dealer in the 
loan market.
    Secondary market transaction means a purchase of a senior, secured 
syndicated loan not in connection with an initial loan syndication 
transaction but in the secondary market.
    Senior, secured syndicated loan means a loan made to a commercial 
borrower that:
    (i) Is not subordinate in right of payment to any other obligation 
for borrowed money of the commercial borrower,
    (ii) Is secured by a valid first priority security interest or lien 
in or on specified collateral securing the commercial borrower's 
obligations under the loan, and
    (iii) The value of the collateral subject to such first priority 
security interest or lien, together with other attributes of the obligor 
(including, without limitation, its general financial condition, ability 
to generate cash flow available for debt service and other demands for 
that cash flow), is adequate (in the commercially reasonable judgment of 
the CLO manager exercised at the time of investment) to repay the

[[Page 244]]

loan and to repay all other indebtedness of equal seniority secured by 
such first priority security interest or lien in or on the same 
collateral, and the CLO manager certifies, on or prior to each date that 
it acquires a loan constituting part of a new CLO-eligible tranche, that 
it has policies and procedures to evaluate the likelihood of repayment 
of loans acquired by the CLO and it has followed such policies and 
procedures in evaluating each CLO-eligible loan tranche.
    (b) In general. A sponsor satisfies the risk retention requirements 
of Sec.1234.3 with respect to an open market CLO transaction if:
    (1) The open market CLO does not acquire or hold any assets other 
than CLO-eligible loan tranches that meet the requirements of paragraph 
(c) of this section and servicing assets;
    (2) The governing documents of such open market CLO require that, at 
all times, the assets of the open market CLO consist of senior, secured 
syndicated loans that are CLO-eligible loan tranches and servicing 
assets;
    (3) The open market CLO does not invest in ABS interests or in 
credit derivatives other than hedging transactions that are servicing 
assets to hedge risks of the open market CLO;
    (4) All purchases of CLO-eligible loan tranches and other assets by 
the open market CLO issuing entity or through a warehouse facility used 
to accumulate the loans prior to the issuance of the CLO's ABS interests 
are made in open market transactions on an arms-length basis;
    (5) The CLO manager of the open market CLO is not entitled to 
receive any management fee or gain on sale at the time the open market 
CLO issues its ABS interests.
    (c) CLO-eligible loan tranche. To qualify as a CLO-eligible loan 
tranche, a term loan of a syndicated credit facility to a commercial 
borrower must have the following features:
    (1) A minimum of 5 percent of the face amount of the CLO-eligible 
loan tranche is retained by the lead arranger thereof until the earliest 
of the repayment, maturity, involuntary and unscheduled acceleration, 
payment default, or bankruptcy default of such CLO-eligible loan 
tranche, provided that such lead arranger complies with limitations on 
hedging, transferring and pledging in Sec.1234.12 with respect to the 
interest retained by the lead arranger.
    (2) Lender voting rights within the credit agreement and any 
intercreditor or other applicable agreements governing such CLO-eligible 
loan tranche are defined so as to give holders of the CLO-eligible loan 
tranche consent rights with respect to, at minimum, any material waivers 
and amendments of such applicable documents, including but not limited 
to, adverse changes to the calculation or payments of amounts due to the 
holders of the CLO-eligible tranche, alterations to pro rata provisions, 
changes to voting provisions, and waivers of conditions precedent; and
    (3) The pro rata provisions, voting provisions, and similar 
provisions applicable to the security associated with such CLO-eligible 
loan tranches under the CLO credit agreement and any intercreditor or 
other applicable agreements governing such CLO-eligible loan tranches 
are not materially less advantageous to the holder(s) of such CLO-
eligible tranche than the terms of other tranches of comparable 
seniority in the broader syndicated credit facility.
    (d) Disclosures. A sponsor relying on this section shall provide, or 
cause to be provided, to potential investors a reasonable period of time 
prior to the sale of the asset-backed securities in the securitization 
transaction and at least annually with respect to the information 
required by paragraph (d)(1) of this section and, upon request, to the 
Commission and its appropriate Federal banking agency, if any, the 
following disclosure in written form under the caption ``Credit Risk 
Retention'':
    (1) Open market CLOs. A complete list of every asset held by an open 
market CLO (or before the CLO's closing, in a warehouse facility in 
anticipation of transfer into the CLO at closing), including the 
following information:
    (i) The full legal name, Standard Industrial Classification (SIC) 
category code, and legal entity identifier (LEI)

[[Page 245]]

issued by a utility endorsed or otherwise governed by the Global LEI 
Regulatory Oversight Committee or the Global LEI Foundation (if an LEI 
has been obtained by the obligor) of the obligor of the loan or asset;
    (ii) The full name of the specific loan tranche held by the CLO;
    (iii) The face amount of the entire loan tranche held by the CLO, 
and the face amount of the portion thereof held by the CLO;
    (iv) The price at which the loan tranche was acquired by the CLO; 
and
    (v) For each loan tranche, the full legal name of the lead arranger 
subject to the sales and hedging restrictions of Sec.1234.12; and
    (2) CLO manager. The full legal name and form of organization of the 
CLO manager.



Sec.1234.10  Qualified tender option bonds.

    (a) Definitions. For purposes of this section, the following 
definitions shall apply:
    Municipal security or municipal securities shall have the same 
meaning as the term ``municipal securities'' in Section 3(a)(29) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29)) and any rules 
promulgated pursuant to such section.
    Qualified tender option bond entity means an issuing entity with 
respect to tender option bonds for which each of the following applies:
    (i) Such entity is collateralized solely by servicing assets and by 
municipal securities that have the same municipal issuer and the same 
underlying obligor or source of payment (determined without regard to 
any third-party credit enhancement), and such municipal securities are 
not subject to substitution.
    (ii) Such entity issues no securities other than:
    (A) A single class of tender option bonds with a preferred variable 
return payable out of capital that meets the requirements of paragraph 
(b) of this section, and
    (B) One or more residual equity interests that, in the aggregate, 
are entitled to all remaining income of the issuing entity.
    (C) The types of securities referred to in paragraphs (ii)(A) and 
(B) of this definition must constitute asset-backed securities.
    (iii) The municipal securities held as assets by such entity are 
issued in compliance with Section 103 of the Internal Revenue Code of 
1986, as amended (the ``IRS Code'', 26 U.S.C. 103), such that the 
interest payments made on those securities are excludable from the gross 
income of the owners under Section 103 of the IRS Code.
    (iv) The terms of all of the securities issued by the entity are 
structured so that all holders of such securities who are eligible to 
exclude interest received on such securities will be able to exclude 
that interest from gross income pursuant to Section 103 of the IRS Code 
or as ``exempt-interest dividends'' pursuant to Section 852(b)(5) of the 
IRS Code (26 U.S.C. 852(b)(5)) in the case of regulated investment 
companies under the Investment Company Act of 1940, as amended.
    (v) Such entity has a legally binding commitment from a regulated 
liquidity provider as defined in Sec.1234.6(a), to provide a 100 
percent guarantee or liquidity coverage with respect to all of the 
issuing entity's outstanding tender option bonds.
    (vi) Such entity qualifies for monthly closing elections pursuant to 
IRS Revenue Procedure 2003-84, as amended or supplemented from time to 
time.
    Tender option bond means a security which has features which entitle 
the holders to tender such bonds to the issuing entity for purchase at 
any time upon no more than 397 days' notice, for a purchase price equal 
to the approximate amortized cost of the security, plus accrued 
interest, if any, at the time of tender.
    (b) Risk retention options. Notwithstanding anything in this 
section, the sponsor with respect to an issuance of tender option bonds 
may retain an eligible vertical interest or eligible horizontal residual 
interest, or any combination thereof, in accordance with the 
requirements of Sec.1234.4. In order to satisfy its risk retention 
requirements under this section, the sponsor with respect to an issuance 
of tender option bonds by a qualified tender option bond entity may 
retain:

[[Page 246]]

    (1) An eligible vertical interest or an eligible horizontal residual 
interest, or any combination thereof, in accordance with the 
requirements of Sec.1234.4; or
    (2) An interest that meets the requirements set forth in paragraph 
(c) of this section; or
    (3) A municipal security that meets the requirements set forth in 
paragraph (d) of this section; or
    (4) Any combination of interests and securities described in 
paragraphs (b)(1) through (b)(3) of this section such that the sum of 
the percentages held in each form equals at least five.
    (c) Tender option termination event. The sponsor with respect to an 
issuance of tender option bonds by a qualified tender option bond entity 
may retain an interest that upon issuance meets the requirements of an 
eligible horizontal residual interest but that upon the occurrence of a 
``tender option termination event'' as defined in Section 4.01(5) of IRS 
Revenue Procedure 2003-84, as amended or supplemented from time to time 
will meet the requirements of an eligible vertical interest.
    (d) Retention of a municipal security outside of the qualified 
tender option bond entity. The sponsor with respect to an issuance of 
tender option bonds by a qualified tender option bond entity may satisfy 
its risk retention requirements under this Section by holding municipal 
securities from the same issuance of municipal securities deposited in 
the qualified tender option bond entity, the face value of which 
retained municipal securities is equal to 5 percent of the face value of 
the municipal securities deposited in the qualified tender option bond 
entity.
    (e) Disclosures. The sponsor shall provide, or cause to be provided, 
to potential investors a reasonable period of time prior to the sale of 
the asset-backed securities as part of the securitization transaction 
and, upon request, to the Commission and its appropriate Federal banking 
agency, if any, the following disclosure in written form under the 
caption ``Credit Risk Retention'':
    (1) The name and form of organization of the qualified tender option 
bond entity;
    (2) A description of the form and subordination features of such 
retained interest in accordance with the disclosure obligations in Sec.
1234.4(c);
    (3) To the extent any portion of the retained interest is claimed by 
the sponsor as an eligible horizontal residual interest (including any 
interest held in compliance with Sec.1234.10(c)), the fair value of 
that interest (expressed as a percentage of the fair value of all of the 
ABS interests issued in the securitization transaction and as a dollar 
amount);
    (4) To the extent any portion of the retained interest is claimed by 
the sponsor as an eligible vertical interest (including any interest 
held in compliance with Sec.1234.10(c)), the percentage of ABS 
interests issued represented by the eligible vertical interest; and
    (5) To the extent any portion of the retained interest claimed by 
the sponsor is a municipal security held outside of the qualified tender 
option bond entity, the name and form of organization of the qualified 
tender option bond entity, the identity of the issuer of the municipal 
securities, the face value of the municipal securities deposited into 
the qualified tender option bond entity, and the face value of the 
municipal securities retained by the sponsor or its majority-owned 
affiliates and subject to the transfer and hedging prohibition.
    (f) Prohibitions on Hedging and Transfer. The prohibitions on 
transfer and hedging set forth in Sec.1234.12, apply to any interests 
or municipal securities retained by the sponsor with respect to an 
issuance of tender option bonds by a qualified tender option bond entity 
pursuant to of this section.



                  Subpart C_Transfer of Risk Retention



Sec.1234.11  Allocation of risk retention to an originator.

    (a) In general. A sponsor choosing to retain an eligible vertical 
interest or an eligible horizontal residual interest (including an 
eligible horizontal cash reserve account), or combination thereof under 
Sec.1234.4, with respect to a securitization transaction may offset 
the amount of its risk retention requirements under Sec.1234.4 by the

[[Page 247]]

amount of the eligible interests, respectively, acquired by an 
originator of one or more of the securitized assets if:
    (1) At the closing of the securitization transaction:
    (i) The originator acquires the eligible interest from the sponsor 
and retains such interest in the same manner and proportion (as between 
horizontal and vertical interests) as the sponsor under Sec.1234.4, as 
such interest was held prior to the acquisition by the originator;
    (ii) The ratio of the percentage of eligible interests acquired and 
retained by the originator to the percentage of eligible interests 
otherwise required to be retained by the sponsor pursuant to Sec.
1234.4, does not exceed the ratio of:
    (A) The unpaid principal balance of all the securitized assets 
originated by the originator; to
    (B) The unpaid principal balance of all the securitized assets in 
the securitization transaction;
    (iii) The originator acquires and retains at least 20 percent of the 
aggregate risk retention amount otherwise required to be retained by the 
sponsor pursuant to Sec.1234.4; and
    (iv) The originator purchases the eligible interests from the 
sponsor at a price that is equal, on a dollar-for-dollar basis, to the 
amount by which the sponsor's required risk retention is reduced in 
accordance with this section, by payment to the sponsor in the form of:
    (A) Cash; or
    (B) A reduction in the price received by the originator from the 
sponsor or depositor for the assets sold by the originator to the 
sponsor or depositor for inclusion in the pool of securitized assets.
    (2) Disclosures. In addition to the disclosures required pursuant to 
Sec.1234.4(c), the sponsor provides, or causes to be provided, to 
potential investors a reasonable period of time prior to the sale of the 
asset-backed securities as part of the securitization transaction and, 
upon request, to the Commission and its appropriate Federal banking 
agency, if any, in written form under the caption ``Credit Risk 
Retention'', the name and form of organization of any originator that 
will acquire and retain (or has acquired and retained) an interest in 
the transaction pursuant to this section, including a description of the 
form and amount (expressed as a percentage and dollar amount (or 
corresponding amount in the foreign currency in which the ABS interests 
are issued, as applicable)) and nature (e.g., senior or subordinated) of 
the interest, as well as the method of payment for such interest under 
paragraph (a)(1)(iv) of this section.
    (3) Hedging, transferring and pledging. The originator and each of 
its affiliates complies with the hedging and other restrictions in Sec.
1234.12 with respect to the interests retained by the originator 
pursuant to this section as if it were the retaining sponsor and was 
required to retain the interest under subpart B of this part.
    (b) Duty to comply. (1) The retaining sponsor shall be responsible 
for compliance with this section.
    (2) A retaining sponsor relying on this section:
    (i) Shall maintain and adhere to policies and procedures that are 
reasonably designed to monitor the compliance by each originator that is 
allocated a portion of the sponsor's risk retention obligations with the 
requirements in paragraphs (a)(1) and (3) of this section; and
    (ii) In the event the sponsor determines that any such originator no 
longer complies with any of the requirements in paragraphs (a)(1) and 
(3) of this section, shall promptly notify, or cause to be notified, the 
holders of the ABS interests issued in the securitization transaction of 
such noncompliance by such originator.



Sec.1234.12  Hedging, transfer and financing prohibitions.

    (a) Transfer. Except as permitted by Sec.1234.7(b)(8), and subject 
to Sec.1234.5, a retaining sponsor may not sell or otherwise transfer 
any interest or assets that the sponsor is required to retain pursuant 
to subpart B of this part to any person other than an entity that is and 
remains a majority-owned affiliate of the sponsor and each such 
majority-owned affiliate shall be subject to the same restrictions.
    (b) Prohibited hedging by sponsor and affiliates. A retaining 
sponsor and its

[[Page 248]]

affiliates may not purchase or sell a security, or other financial 
instrument, or enter into an agreement, derivative or other position, 
with any other person if:
    (1) Payments on the security or other financial instrument or under 
the agreement, derivative, or position are materially related to the 
credit risk of one or more particular ABS interests that the retaining 
sponsor (or any of its majority-owned affiliates) is required to retain 
with respect to a securitization transaction pursuant to subpart B of 
this part or one or more of the particular securitized assets that 
collateralize the asset-backed securities issued in the securitization 
transaction; and
    (2) The security, instrument, agreement, derivative, or position in 
any way reduces or limits the financial exposure of the sponsor (or any 
of its majority-owned affiliates) to the credit risk of one or more of 
the particular ABS interests that the retaining sponsor (or any of its 
majority-owned affiliates) is required to retain with respect to a 
securitization transaction pursuant to subpart B of this part or one or 
more of the particular securitized assets that collateralize the asset-
backed securities issued in the securitization transaction.
    (c) Prohibited hedging by issuing entity. The issuing entity in a 
securitization transaction may not purchase or sell a security or other 
financial instrument, or enter into an agreement, derivative or 
position, with any other person if:
    (1) Payments on the security or other financial instrument or under 
the agreement, derivative or position are materially related to the 
credit risk of one or more particular ABS interests that the retaining 
sponsor for the transaction (or any of its majority-owned affiliates) is 
required to retain with respect to the securitization transaction 
pursuant to subpart B of this part; and
    (2) The security, instrument, agreement, derivative, or position in 
any way reduces or limits the financial exposure of the retaining 
sponsor (or any of its majority-owned affiliates) to the credit risk of 
one or more of the particular ABS interests that the sponsor (or any of 
its majority-owned affiliates) is required to retain pursuant to subpart 
B of this part.
    (d) Permitted hedging activities. The following activities shall not 
be considered prohibited hedging activities under paragraph (b) or (c) 
of this section:
    (1) Hedging the interest rate risk (which does not include the 
specific interest rate risk, known as spread risk, associated with the 
ABS interest that is otherwise considered part of the credit risk) or 
foreign exchange risk arising from one or more of the particular ABS 
interests required to be retained by the sponsor (or any of its 
majority-owned affiliates) under subpart B of this part or one or more 
of the particular securitized assets that underlie the asset-backed 
securities issued in the securitization transaction; or
    (2) Purchasing or selling a security or other financial instrument 
or entering into an agreement, derivative, or other position with any 
third party where payments on the security or other financial instrument 
or under the agreement, derivative, or position are based, directly or 
indirectly, on an index of instruments that includes asset-backed 
securities if:
    (i) Any class of ABS interests in the issuing entity that were 
issued in connection with the securitization transaction and that are 
included in the index represents no more than 10 percent of the dollar-
weighted average (or corresponding weighted average in the currency in 
which the ABS interests are issued, as applicable) of all instruments 
included in the index; and
    (ii) All classes of ABS interests in all issuing entities that were 
issued in connection with any securitization transaction in which the 
sponsor (or any of its majority-owned affiliates) is required to retain 
an interest pursuant to subpart B of this part and that are included in 
the index represent, in the aggregate, no more than 20 percent of the 
dollar-weighted average (or corresponding weighted average in the 
currency in which the ABS interests are issued, as applicable) of all 
instruments included in the index.
    (e) Prohibited non-recourse financing. Neither a retaining sponsor 
nor any of its affiliates may pledge as collateral

[[Page 249]]

for any obligation (including a loan, repurchase agreement, or other 
financing transaction) any ABS interest that the sponsor is required to 
retain with respect to a securitization transaction pursuant to subpart 
B of this part unless such obligation is with full recourse to the 
sponsor or affiliate, respectively.
    (f) Duration of the hedging and transfer restrictions--(1) General 
rule. Except as provided in paragraph (f)(2) of this section, the 
prohibitions on sale and hedging pursuant to paragraphs (a) and (b) of 
this section shall expire on or after the date that is the latest of:
    (i) The date on which the total unpaid principal balance (if 
applicable) of the securitized assets that collateralize the 
securitization transaction has been reduced to 33 percent of the total 
unpaid principal balance of the securitized assets as of the cut-off 
date or similar date for establishing the composition of the securitized 
assets collateralizing the asset-backed securities issued pursuant to 
the securitization transaction;
    (ii) The date on which the total unpaid principal obligations under 
the ABS interests issued in the securitization transaction has been 
reduced to 33 percent of the total unpaid principal obligations of the 
ABS interests at closing of the securitization transaction; or
    (iii) Two years after the date of the closing of the securitization 
transaction.
    (2) Securitizations of residential mortgages. (i) If all of the 
assets that collateralize a securitization transaction subject to risk 
retention under this part are residential mortgages, the prohibitions on 
sale and hedging pursuant to paragraphs (a) and (b) of this section 
shall expire on or after the date that is the later of:
    (A) Five years after the date of the closing of the securitization 
transaction; or
    (B) The date on which the total unpaid principal balance of the 
residential mortgages that collateralize the securitization transaction 
has been reduced to 25 percent of the total unpaid principal balance of 
such residential mortgages at the cut-off date or similar date for 
establishing the composition of the securitized assets collateralizing 
the asset-backed securities issued pursuant to the securitization 
transaction.
    (ii) Notwithstanding paragraph (f)(2)(i) of this section, the 
prohibitions on sale and hedging pursuant to paragraphs (a) and (b) of 
this section shall expire with respect to the sponsor of a 
securitization transaction described in paragraph (f)(2)(i) of this 
section on or after the date that is seven years after the date of the 
closing of the securitization transaction.
    (3) Conservatorship or receivership of sponsor. A conservator or 
receiver of the sponsor (or any other person holding risk retention 
pursuant to this part) of a securitization transaction is permitted to 
sell or hedge any economic interest in the securitization transaction if 
the conservator or receiver has been appointed pursuant to any provision 
of federal or State law (or regulation promulgated thereunder) that 
provides for the appointment of the Federal Deposit Insurance 
Corporation, or an agency or instrumentality of the United States or of 
a State as conservator or receiver, including without limitation any of 
the following authorities:
    (i) 12 U.S.C. 1811;
    (ii) 12 U.S.C. 1787;
    (iii) 12 U.S.C. 4617; or
    (iv) 12 U.S.C. 5382.
    (4) Revolving pool securitizations. The provisions of paragraphs 
(f)(1) and (2) are not available to sponsors of revolving pool 
securitizations with respect to the forms of risk retention specified in 
Sec.1234.5.



                   Subpart D_Exceptions and Exemptions



Sec.1234.13  Exemption for qualified residential mortgages.

    (a) Definitions. For purposes of this section, the following 
definitions shall apply:
    Currently performing means the borrower in the mortgage transaction 
is not currently thirty (30) days or more past due, in whole or in part, 
on the mortgage transaction.
    Qualified residential mortgage means a ``qualified mortgage'' as 
defined in section 129C of the Truth in Lending Act

[[Page 250]]

(15 U.S.C.1639c) and regulations issued thereunder, as amended from time 
to time.
    (b) Exemption. A sponsor shall be exempt from the risk retention 
requirements in subpart B of this part with respect to any 
securitization transaction, if:
    (1) All of the assets that collateralize the asset-backed securities 
are qualified residential mortgages or servicing assets;
    (2) None of the assets that collateralize the asset-backed 
securities are asset-backed securities;
    (3) As of the cut-off date or similar date for establishing the 
composition of the securitized assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction, each 
qualified residential mortgage collateralizing the asset-backed 
securities is currently performing; and
    (4)(i) The depositor with respect to the securitization transaction 
certifies that it has evaluated the effectiveness of its internal 
supervisory controls with respect to the process for ensuring that all 
assets that collateralize the asset-backed security are qualified 
residential mortgages or servicing assets and has concluded that its 
internal supervisory controls are effective; and
    (ii) The evaluation of the effectiveness of the depositor's internal 
supervisory controls must be performed, for each issuance of an asset-
backed security in reliance on this section, as of a date within 60 days 
of the cut-off date or similar date for establishing the composition of 
the asset pool collateralizing such asset-backed security; and
    (iii) The sponsor provides, or causes to be provided, a copy of the 
certification described in paragraph (b)(4)(i) of this section to 
potential investors a reasonable period of time prior to the sale of 
asset-backed securities in the issuing entity, and, upon request, to the 
Commission and its appropriate Federal banking agency, if any.
    (c) Repurchase of loans subsequently determined to be non-qualified 
after closing. A sponsor that has relied on the exemption provided in 
paragraph (b) of this section with respect to a securitization 
transaction shall not lose such exemption with respect to such 
transaction if, after closing of the securitization transaction, it is 
determined that one or more of the residential mortgage loans 
collateralizing the asset-backed securities does not meet all of the 
criteria to be a qualified residential mortgage provided that:
    (1) The depositor complied with the certification requirement set 
forth in paragraph (b)(4) of this section;
    (2) The sponsor repurchases the loan(s) from the issuing entity at a 
price at least equal to the remaining aggregate unpaid principal balance 
and accrued interest on the loan(s) no later than 90 days after the 
determination that the loans do not satisfy the requirements to be a 
qualified residential mortgage; and
    (3) The sponsor promptly notifies, or causes to be notified, the 
holders of the asset-backed securities issued in the securitization 
transaction of any loan(s) included in such securitization transaction 
that is (or are) required to be repurchased by the sponsor pursuant to 
paragraph (c)(2) of this section, including the amount of such 
repurchased loan(s) and the cause for such repurchase.



Sec.1234.14  Definitions applicable to qualifying commercial real
estate loans.

    The following definitions apply for purposes of Sec. Sec.1234.15 
and 1234.17 :
    Appraisal Standards Board means the board of the Appraisal 
Foundation that develops, interprets, and amends the Uniform Standards 
of Professional Appraisal Practice (USPAP), establishing generally 
accepted standards for the appraisal profession.
    Combined loan-to-value (CLTV) ratio means, at the time of 
origination, the sum of the principal balance of a first-lien mortgage 
loan on the property, plus the principal balance of any junior-lien 
mortgage loan that, to the creditor's knowledge, would exist at the 
closing of the transaction and that is secured by the same property, 
divided by:
    (1) For acquisition funding, the lesser of the purchase price or the 
estimated market value of the real property based on an appraisal that 
meets the requirements set forth in Sec.1234.17(a)(2)(ii); or

[[Page 251]]

    (2) For refinancing, the estimated market value of the real property 
based on an appraisal that meets the requirements set forth in Sec.
1234.17(a)(2)(ii).
    Commercial real estate (CRE) loan means:
    (1) A loan secured by a property with five or more single family 
units, or by nonfarm nonresidential real property, the primary source 
(50 percent or more) of repayment for which is expected to be:
    (i) The proceeds of the sale, refinancing, or permanent financing of 
the property; or
    (ii) Rental income associated with the property;
    (2) Loans secured by improved land if the obligor owns the fee 
interest in the land and the land is leased to a third party who owns 
all improvements on the land, and the improvements are nonresidential or 
residential with five or more single family units; and
    (3) Does not include:
    (i) A land development and construction loan (including 1- to 4-
family residential or commercial construction loans);
    (ii) Any other land loan; or
    (iii) An unsecured loan to a developer.
    Debt service coverage (DSC) ratio means the ratio of:
    (1) The annual NOI less the annual replacement reserve of the CRE 
property at the time of origination of the CRE loan(s); to
    (2) The sum of the borrower's annual payments for principal and 
interest (calculated at the fully indexed rate) on any debt obligation.
    Environmental risk assessment means a process for determining 
whether a property is contaminated or exposed to any condition or 
substance that could result in contamination that has an adverse effect 
on the market value of the property or the realization of the collateral 
value.
    First lien means a lien or encumbrance on property that has priority 
over all other liens or encumbrances on the property.
    Junior lien means a lien or encumbrance on property that is lower in 
priority relative to other liens or encumbrances on the property.
    Loan-to-value (LTV) ratio means, at the time of origination, the 
principal balance of a first-lien mortgage loan on the property divided 
by:
    (1) For acquisition funding, the lesser of the purchase price or the 
estimated market value of the real property based on an appraisal that 
meets the requirements set forth in Sec.1234.17(a)(2)(ii); or
    (2) For refinancing, the estimated market value of the real property 
based on an appraisal that meets the requirements set forth in Sec.
1234.17(a)(2)(ii).
    Net operating income (NOI) refers to the income a CRE property 
generates for the owner after all expenses have been deducted for 
federal income tax purposes, except for depreciation, debt service 
expenses, and federal and state income taxes, and excluding any unusual 
and nonrecurring items of income.
    Operating affiliate means an affiliate of a borrower that is a 
lessor or similar party with respect to the commercial real estate 
securing the loan.
    Purchase money security interest means a security interest in 
property that secures the obligation of the obligor incurred as all or 
part of the price of the property.
    Qualifying leased CRE loan means a CRE loan secured by commercial 
nonfarm real property, other than a multi-family property or a hotel, 
inn, or similar property:
    (1) That is occupied by one or more qualified tenants pursuant to a 
lease agreement with a term of no less than one (1) month; and
    (2) Where no more than 20 percent of the aggregate gross revenue of 
the property is payable from one or more tenants who:
    (i) Are subject to a lease that will terminate within six months 
following the date of origination; or
    (ii) Are not qualified tenants.
    Qualifying multi-family loan means a CRE loan secured by any 
residential property (excluding a hotel, motel, inn, hospital, nursing 
home, or other similar facility where dwellings are not leased to 
residents):
    (1) That consists of five or more dwelling units (including 
apartment buildings, condominiums, cooperatives

[[Page 252]]

and other similar structures) primarily for residential use; and
    (2) Where at least 75 percent of the NOI is derived from residential 
rents and tenant amenities (including income from parking garages, 
health or swim clubs, and dry cleaning), and not from other commercial 
uses.
    Rental income means:
    (1) Income derived from a lease or other occupancy agreement between 
the borrower or an operating affiliate of the borrower and a party which 
is not an affiliate of the borrower for the use of real property or 
improvements serving as collateral for the applicable loan; and
    (2) Other income derived from hotel, motel, dormitory, nursing home, 
assisted living, mini-storage warehouse or similar properties that are 
used primarily by parties that are not affiliates or employees of the 
borrower or its affiliates.
    Replacement reserve means the monthly capital replacement or 
maintenance amount based on the property type, age, construction and 
condition of the property that is adequate to maintain the physical 
condition and NOI of the property.
    Uniform Standards of Professional Appraisal Practice (USPAP) means 
generally accepted standards for professional appraisal practice issued 
by the Appraisal Standards Board of the Appraisal Foundation.

[79 FR 77740, Dec. 24, 2014, as amended at 79 FR 77765, Dec. 24, 2014]



Sec.1234.15  Qualifying commercial real estate loans.

    (a) General exception. Commercial real estate loans that are 
securitized through a securitization transaction shall be subject to a 0 
percent risk retention requirement under subpart B of this part, 
provided that the following conditions are met:
    (1) The CRE assets meet the underwriting standards set forth in 
Sec.1234.17;
    (2) The securitization transaction is collateralized solely by CRE 
loans and by servicing assets;
    (3) The securitization transaction does not permit reinvestment 
periods; and
    (4) The sponsor provides, or causes to be provided, to potential 
investors a reasonable period of time prior to the sale of asset-backed 
securities of the issuing entity, and, upon request, to the Commission, 
and to the FHFA, in written form under the caption ``Credit Risk 
Retention'' a description of the manner in which the sponsor determined 
the aggregate risk retention requirement for the securitization 
transaction after including qualifying CRE loans with 0 percent risk 
retention.
    (b) Risk retention requirement. For any securitization transaction 
described in paragraph (a) of this section, the percentage of risk 
retention required under Sec.1234.3(a) is reduced by the percentage 
evidenced by the ratio of the unpaid principal balance of the qualifying 
CRE loans to the total unpaid principal balance of CRE loans that are 
included in the pool of assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction (the 
qualifying asset ratio); provided that;
    (1) The qualifying asset ratio is measured as of the cut-off date or 
similar date for establishing the composition of the securitized assets 
collateralizing the asset-backed securities issued pursuant to the 
securitization transaction;
    (2) If the qualifying asset ratio would exceed 50 percent, the 
qualifying asset ratio shall be deemed to be 50 percent; and
    (3) The disclosure required by paragraph (a)(4) of this section also 
includes descriptions of the qualifying CRE loans and descriptions of 
the CRE loans that are not qualifying CRE loans, and the material 
differences between the group of qualifying CRE loans and CRE loans that 
are not qualifying loans with respect to the composition of each group's 
loan balances, loan terms, interest rates, borrower credit information, 
and characteristics of any loan collateral.
    (c) Exception for securitizations of qualifying CRE only. 
Notwithstanding other provisions of this section, the risk retention 
requirements of subpart B of this part shall not apply to securitization 
transactions where the transaction is collateralized solely by servicing 
assets and qualifying CRE loans.

[[Page 253]]

    (d) Record maintenance. A regulated entity must retain the 
disclosures required in paragraphs (a) and (b) of this section and the 
certification required in Sec.1234.17(a)(10) of this part, in its 
records until three years after all ABS interests issued in the 
securitization are no longer outstanding. The regulated entity must 
provide the disclosures and certifications upon request to the 
Commission and the FHFA.

[79 FR 77765, Dec. 24, 2014]



Sec.1234.16  [Reserved]



Sec.1234.17  Underwriting standards for qualifying CRE loans.

    (a) Underwriting, product and other standards. (1) The CRE loan must 
be secured by the following:
    (i) An enforceable first lien, documented and recorded appropriately 
pursuant to applicable law, on the commercial real estate and 
improvements;
    (ii)(A) An assignment of:
    (1) Leases and rents and other occupancy agreements related to the 
commercial real estate or improvements or the operation thereof for 
which the borrower or an operating affiliate is a lessor or similar 
party and all payments under such leases and occupancy agreements; and
    (2) All franchise, license and concession agreements related to the 
commercial real estate or improvements or the operation thereof for 
which the borrower or an operating affiliate is a lessor, licensor, 
concession granter or similar party and all payments under such other 
agreements, whether the assignments described in this paragraph 
(a)(1)(ii)(A)(2) are absolute or are stated to be made to the extent 
permitted by the agreements governing the applicable franchise, license 
or concession agreements;
    (B) An assignment of all other payments due to the borrower or due 
to any operating affiliate in connection with the operation of the 
property described in paragraph (a)(1)(i) of this section; and
    (C) The right to enforce the agreements described in paragraph 
(a)(1)(ii)(A) of this section and the agreements under which payments 
under paragraph (a)(1)(ii)(B) of this section are due against, and 
collect amounts due from, each lessee, occupant or other obligor whose 
payments were assigned pursuant to paragraphs (a)(1)(ii)(A) or (B) of 
this section upon a breach by the borrower of any of the terms of, or 
the occurrence of any other event of default (however denominated) 
under, the loan documents relating to such CRE loan; and
    (iii) A security interest:
    (A) In all interests of the borrower and any applicable operating 
affiliate in all tangible and intangible personal property of any kind, 
in or used in the operation of or in connection with, pertaining to, 
arising from, or constituting, any of the collateral described in 
paragraphs (a)(1)(i) or (ii) of this section; and
    (B) In the form of a perfected security interest if the security 
interest in such property can be perfected by the filing of a financing 
statement, fixture filing, or similar document pursuant to the law 
governing the perfection of such security interest;
    (2) Prior to origination of the CRE loan, the originator:
    (i) Verified and documented the current financial condition of the 
borrower and each operating affiliate;
    (ii) Obtained a written appraisal of the real property securing the 
loan that:
    (A) Had an effective date not more than six months prior to the 
origination date of the loan by a competent and appropriately State-
certified or State-licensed appraiser;
    (B) Conforms to generally accepted appraisal standards as evidenced 
by the USPAP and the appraisal requirements \1\ of the Federal banking 
agencies; and
---------------------------------------------------------------------------

    \1\ 12 CFR part 34, subpart C (OCC); 12 CFR part 208, subpart E, and 
12 CFR part 225, subpart G (Board); and 12 CFR part 323 (FDIC).
---------------------------------------------------------------------------

    (C) Provides an ``as is'' opinion of the market value of the real 
property, which includes an income approach; \2\
---------------------------------------------------------------------------

    \2\ See USPAP, Standard 1.
---------------------------------------------------------------------------

    (iii) Qualified the borrower for the CRE loan based on a monthly 
payment amount derived from level monthly payments consisting of both 
principal and interest (at the fully-indexed rate) over the term of the 
loan, not exceeding 25 years, or 30 years for a qualifying multi-family 
property;

[[Page 254]]

    (iv) Conducted an environmental risk assessment to gain 
environmental information about the property securing the loan and took 
appropriate steps to mitigate any environmental liability determined to 
exist based on this assessment;
    (v) Conducted an analysis of the borrower's ability to service its 
overall debt obligations during the next two years, based on reasonable 
projections (including operating income projections for the property);
    (vi)(A) Determined that based on the two years' actual performance 
immediately preceding the origination of the loan, the borrower would 
have had:
    (1) A DSC ratio of 1.5 or greater, if the loan is a qualifying 
leased CRE loan, net of any income derived from a tenant(s) who is not a 
qualified tenant(s);
    (2) A DSC ratio of 1.25 or greater, if the loan is a qualifying 
multi-family property loan; or
    (3) A DSC ratio of 1.7 or greater, if the loan is any other type of 
CRE loan;
    (B) If the borrower did not own the property for any part of the 
last two years prior to origination, the calculation of the DSC ratio, 
for purposes of paragraph (a)(2)(vi)(A) of this section, shall include 
the property's operating income for any portion of the two-year period 
during which the borrower did not own the property;
    (vii) Determined that, based on two years of projections, which 
include the new debt obligation, following the origination date of the 
loan, the borrower will have:
    (A) A DSC ratio of 1.5 or greater, if the loan is a qualifying 
leased CRE loan, net of any income derived from a tenant(s) who is not a 
qualified tenant(s);
    (B) A DSC ratio of 1.25 or greater, if the loan is a qualifying 
multi-family property loan; or
    (C) A DSC ratio of 1.7 or greater, if the loan is any other type of 
CRE loan.
    (3) The loan documentation for the CRE loan includes covenants that:
    (i) Require the borrower to provide the borrower's financial 
statements and supporting schedules to the servicer on an ongoing basis, 
but not less frequently than quarterly, including information on 
existing, maturing and new leasing or rent-roll activity for the 
property securing the loan, as appropriate; and
    (ii) Impose prohibitions on:
    (A) The creation or existence of any other security interest with 
respect to the collateral for the CRE loan described in paragraphs 
(a)(1)(i) and (a)(1)(ii)(A) of this section, except as provided in 
paragraph (a)(4) of this section;
    (B) The transfer of any collateral for the CRE loan described in 
paragraph (a)(1)(i) or (a)(1)(ii)(A) of this section or of any other 
collateral consisting of fixtures, furniture, furnishings, machinery or 
equipment other than any such fixture, furniture, furnishings, machinery 
or equipment that is obsolete or surplus; and
    (C) Any change to the name, location or organizational structure of 
any borrower, operating affiliate or other pledgor unless such borrower, 
operating affiliate or other pledgor shall have given the holder of the 
loan at least 30 days advance notice and, pursuant to applicable law 
governing perfection and priority, the holder of the loan is able to 
take all steps necessary to continue its perfection and priority during 
such 30-day period.
    (iii) Require each borrower and each operating affiliate to:
    (A) Maintain insurance that protects against loss on collateral for 
the CRE loan described in paragraph (a)(1)(i) of this section for an 
amount no less than the replacement cost of the property improvements, 
and names the originator or any subsequent holder of the loan as an 
additional insured or lender loss payee;
    (B) Pay taxes, charges, fees, and claims, where non-payment might 
give rise to a lien on collateral for the CRE loan described in 
paragraphs (a)(1)(i) and (ii) of this section;
    (C) Take any action required to:
    (1) Protect the security interest and the enforceability and 
priority thereof in the collateral described in paragraphs (a)(1)(i) and 
(a)(1)(ii)(A) of this section and defend such collateral against claims 
adverse to the originator's or any subsequent holder's interest; and

[[Page 255]]

    (2) Perfect the security interest of the originator or any 
subsequent holder of the loan in any other collateral for the CRE loan 
to the extent that such security interest is required by this section to 
be perfected;
    (D) Permit the originator or any subsequent holder of the loan, and 
the servicer, to inspect any collateral for the CRE loan and the books 
and records of the borrower or other party relating to any collateral 
for the CRE loan;
    (E) Maintain the physical condition of collateral for the CRE loan 
described in paragraph (a)(1)(i) of this section;
    (F) Comply with all environmental, zoning, building code, licensing 
and other laws, regulations, agreements, covenants, use restrictions, 
and proffers applicable to collateral for the CRE loan described in 
paragraph (a)(1)(i) of this section;
    (G) Comply with leases, franchise agreements, condominium 
declarations, and other documents and agreements relating to the 
operation of collateral for the CRE loan described in paragraph 
(a)(1)(i) of this section, and to not modify any material terms and 
conditions of such agreements over the term of the loan without the 
consent of the originator or any subsequent holder of the loan, or the 
servicer; and
    (H) Not materially alter collateral for the CRE loan described in 
paragraph (a)(1)(i) of this section without the consent of the 
originator or any subsequent holder of the loan, or the servicer.
    (4) The loan documentation for the CRE loan prohibits the borrower 
and each operating affiliate from obtaining a loan secured by a junior 
lien on collateral for the CRE loan described in paragraph (a)(1)(i) or 
(a)(1)(ii)(A) of this section, unless:
    (i) The sum of the principal amount of such junior lien loan, plus 
the principal amount of all other loans secured by collateral described 
in paragraph (a)(1)(i) or (a)(1)(ii)(A) of this section, does not exceed 
the applicable CLTV ratio in paragraph (a)(5) of this section, based on 
the appraisal at origination of such junior lien loan; or
    (ii) Such loan is a purchase money obligation that financed the 
acquisition of machinery or equipment and the borrower or operating 
affiliate (as applicable) pledges such machinery and equipment as 
additional collateral for the CRE loan.
    (5) At origination, the applicable loan-to-value ratios for the loan 
are:
    (i) LTV less than or equal to 65 percent and CLTV less than or equal 
to 70 percent; or
    (ii) LTV less than or equal to 60 percent and CLTV less than or 
equal to 65 percent, if an appraisal used to meet the requirements set 
forth in paragraph (a)(2)(ii) of this section used a direct 
capitalization rate, and that rate is less than or equal to the sum of:
    (A) The 10-year swap rate, as reported in the Federal Reserve's H.15 
Report (or any successor report) as of the date concurrent with the 
effective date of such appraisal; and
    (B) 300 basis points.
    (iii) If the appraisal required under paragraph (a)(2)(ii) of this 
section included a direct capitalization method using an overall 
capitalization rate, that rate must be disclosed to potential investors 
in the securitization.
    (6) All loan payments required to be made under the loan agreement 
are:
    (i) Based on level monthly payments of principal and interest (at 
the fully indexed rate) to fully amortize the debt over a term that does 
not exceed 25 years, or 30 years for a qualifying multifamily loan; and
    (ii) To be made no less frequently than monthly over a term of at 
least ten years.
    (7) Under the terms of the loan agreement:
    (i) Any maturity of the note occurs no earlier than ten years 
following the date of origination;
    (ii) The borrower is not permitted to defer repayment of principal 
or payment of interest; and
    (iii) The interest rate on the loan is:
    (A) A fixed interest rate;
    (B) An adjustable interest rate and the borrower, prior to or 
concurrently with origination of the CRE loan, obtained a derivative 
that effectively results in a fixed interest rate; or
    (C) An adjustable interest rate and the borrower, prior to or 
concurrently with origination of the CRE loan, obtained a derivative 
that established a cap on the interest rate for the term of

[[Page 256]]

the loan, and the loan meets the underwriting criteria in paragraphs 
(a)(2)(vi) and (vii) of this section using the maximum interest rate 
allowable under the interest rate cap.
    (8) The originator does not establish an interest reserve at 
origination to fund all or part of a payment on the loan.
    (9) At the cut-off date or similar date for establishing the 
composition of the securitized assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction, all 
payments due on the loan are contractually current.
    (10)(i) The depositor of the asset-backed security certifies that it 
has evaluated the effectiveness of its internal supervisory controls 
with respect to the process for ensuring that all qualifying CRE loans 
that collateralize the asset-backed security and that reduce the 
sponsor's risk retention requirement under Sec.1234.15 meet all of the 
requirements set forth in paragraphs (a)(1) through (9) of this section 
and has concluded that its internal supervisory controls are effective;
    (ii) The evaluation of the effectiveness of the depositor's internal 
supervisory controls referenced in paragraph (a)(10)(i) of this section 
shall be performed, for each issuance of an asset-backed security, as of 
a date within 60 days of the cut-off date or similar date for 
establishing the composition of the asset pool collateralizing such 
asset-backed security;
    (iii) The sponsor provides, or causes to be provided, a copy of the 
certification described in paragraph (a)(10)(i) of this section to 
potential investors a reasonable period of time prior to the sale of 
asset-backed securities in the issuing entity, and, upon request, to its 
appropriate Federal banking agency, if any; and
    (11) Within two weeks of the closing of the CRE loan by its 
originator or, if sooner, prior to the transfer of such CRE loan to the 
issuing entity, the originator shall have obtained a UCC lien search 
from the jurisdiction of organization of the borrower and each operating 
affiliate, that does not report, as of the time that the security 
interest of the originator in the property described in paragraph 
(a)(1)(iii) of this section was perfected, other higher priority liens 
of record on any property described in paragraph (a)(1)(iii) of this 
section, other than purchase money security interests.
    (b) Cure or buy-back requirement. If a sponsor has relied on the 
exception provided in Sec.1234.15 with respect to a qualifying CRE 
loan and it is subsequently determined that the CRE loan did not meet 
all of the requirements set forth in paragraphs (a)(1) through (9) and 
(a)(11) of this section, the sponsor shall not lose the benefit of the 
exception with respect to the CRE loan if the depositor complied with 
the certification requirement set forth in paragraph (a)(10) of this 
section, and:
    (1) The failure of the loan to meet any of the requirements set 
forth in paragraphs (a)(1) through (9) and (a)(11) of this section is 
not material; or;
    (2) No later than 90 days after the determination that the loan does 
not meet one or more of the requirements of paragraphs (a)(1) through 
(9) or (a)(11) of this section, the sponsor:
    (i) Effectuates cure, restoring conformity of the loan to the unmet 
requirements as of the date of cure; or
    (ii) Repurchases the loan(s) from the issuing entity at a price at 
least equal to the remaining principal balance and accrued interest on 
the loan(s) as of the date of repurchase.
    (3) If the sponsor cures or repurchases pursuant to paragraph (b)(2) 
of this section, the sponsor must promptly notify, or cause to be 
notified, the holders of the asset-backed securities issued in the 
securitization transaction of any loan(s) included in such 
securitization transaction that is required to be cured or repurchased 
by the sponsor pursuant to paragraph (b)(2) of this section, including 
the principal amount of such repurchased loan(s) and the cause for such 
cure or repurchase.



Sec.1234.18  [Reserved]



Sec.1234.19  General exemptions.

    (a) Definitions. For purposes of this section, the following 
definitions shall apply:
    Community-focused residential mortgage means a residential mortgage 
exempt from the definition of ``covered

[[Page 257]]

transaction'' under Sec.1026.43(a)(3)(iv) and (v) of the CFPB's 
Regulation Z (12 CFR 1026.43(a)).
    First pay class means a class of ABS interests for which all 
interests in the class are entitled to the same priority of payment and 
that, at the time of closing of the transaction, is entitled to 
repayments of principal and payments of interest prior to or pro-rata 
with all other classes of securities collateralized by the same pool of 
first-lien residential mortgages, until such class has no principal or 
notional balance remaining.
    Inverse floater means an ABS interest issued as part of a 
securitization transaction for which interest or other income is payable 
to the holder based on a rate or formula that varies inversely to a 
reference rate of interest.
    Qualifying three-to-four unit residential mortgage loan means a 
mortgage loan that is:
    (i) Secured by a dwelling (as defined in 12 CFR 1026.2(a)(19)) that 
is owner occupied and contains three-to-four housing units;
    (ii) Is deemed to be for business purposes for purposes of 
Regulation Z under 12 CFR part 1026, Supplement I, paragraph 3(a)(5)(i); 
and
    (iii) Otherwise meets all of the requirements to qualify as a 
qualified mortgage under Sec.1026.43(e) and (f) of Regulation Z (12 
CFR 1026.43(e) and (f)) as if the loan were a covered transaction under 
that section.
    (b) This part shall not apply to:
    (1) U.S. Government-backed securitizations. Any securitization 
transaction that:
    (i) Is collateralized solely by residential, multifamily, or health 
care facility mortgage loan assets that are insured or guaranteed (in 
whole or in part) as to the payment of principal and interest by the 
United States or an agency of the United States, and servicing assets; 
or
    (ii) Involves the issuance of asset-backed securities that:
    (A) Are insured or guaranteed as to the payment of principal and 
interest by the United States or an agency of the United States; and
    (B) Are collateralized solely by residential, multifamily, or health 
care facility mortgage loan assets or interests in such assets, and 
servicing assets.
    (2) Certain agricultural loan securitizations. Any securitization 
transaction that is collateralized solely by loans or other assets made, 
insured, guaranteed, or purchased by any institution that is subject to 
the supervision of the Farm Credit Administration, including the Federal 
Agricultural Mortgage Corporation, and servicing assets;
    (3) State and municipal securitizations. Any asset-backed security 
that is a security issued or guaranteed by any State, or by any 
political subdivision of a State, or by any public instrumentality of a 
State that is exempt from the registration requirements of the 
Securities Act of 1933 by reason of section 3(a)(2) of that Act (15 
U.S.C. 77c(a)(2)); and
    (4) Qualified scholarship funding bonds. Any asset-backed security 
that meets the definition of a qualified scholarship funding bond, as 
set forth in section 150(d)(2) of the Internal Revenue Code of 1986 (26 
U.S.C. 150(d)(2)).
    (5) Pass-through resecuritizations. Any securitization transaction 
that:
    (i) Is collateralized solely by servicing assets, and by asset-
backed securities:
    (A) For which credit risk was retained as required under subpart B 
of this part; or
    (B) That were exempted from the credit risk retention requirements 
of this part pursuant to subpart D of this part;
    (ii) Is structured so that it involves the issuance of only a single 
class of ABS interests; and
    (iii) Provides for the pass-through of all principal and interest 
payments received on the underlying asset-backed securities (net of 
expenses of the issuing entity) to the holders of such class.
    (6) First-pay-class securitizations. Any securitization transaction 
that:
    (i) Is collateralized solely by servicing assets, and by first-pay 
classes of asset-backed securities collateralized by first-lien 
residential mortgages on properties located in any state:
    (A) For which credit risk was retained as required under subpart B 
of this part; or

[[Page 258]]

    (B) That were exempted from the credit risk retention requirements 
of this part pursuant to subpart D of this part;
    (ii) Does not provide for any ABS interest issued in the 
securitization transaction to share in realized principal losses other 
than pro rata with all other ABS interests issued in the securitization 
transaction based on the current unpaid principal balance of such ABS 
interests at the time the loss is realized;
    (iii) Is structured to reallocate prepayment risk;
    (iv) Does not reallocate credit risk (other than as a consequence of 
reallocation of prepayment risk); and
    (v) Does not include any inverse floater or similarly structured ABS 
interest.
    (7) Seasoned loans. (i) Any securitization transaction that is 
collateralized solely by servicing assets, and by seasoned loans that 
meet the following requirements:
    (A) The loans have not been modified since origination; and
    (B) None of the loans have been delinquent for 30 days or more.
    (ii) For purposes of this paragraph, a seasoned loan means:
    (A) With respect to asset-backed securities collateralized by 
residential mortgages, a loan that has been outstanding and performing 
for the longer of:
    (1) A period of five years; or
    (2) Until the outstanding principal balance of the loan has been 
reduced to 25 percent of the original principal balance.
    (3) Notwithstanding paragraphs (b)(7)(ii)(A)(1) and (2) of this 
section, any residential mortgage loan that has been outstanding and 
performing for a period of at least seven years shall be deemed a 
seasoned loan.
    (B) With respect to all other classes of asset-backed securities, a 
loan that has been outstanding and performing for the longer of:
    (1) A period of at least two years; or
    (2) Until the outstanding principal balance of the loan has been 
reduced to 33 percent of the original principal balance.
    (8) Certain public utility securitizations. (i) Any securitization 
transaction where the asset-back securities issued in the transaction 
are secured by the intangible property right to collect charges for the 
recovery of specified costs and such other assets, if any, of an issuing 
entity that is wholly owned, directly or indirectly, by an investor 
owned utility company that is subject to the regulatory authority of a 
State public utility commission or other appropriate State agency.
    (ii) For purposes of this paragraph:
    (A) Specified cost means any cost identified by a State legislature 
as appropriate for recovery through securitization pursuant to specified 
cost recovery legislation; and
    (B) Specified cost recovery legislation means legislation enacted by 
a State that:
    (1) Authorizes the investor owned utility company to apply for, and 
authorizes the public utility commission or other appropriate State 
agency to issue, a financing order determining the amount of specified 
costs the utility will be allowed to recover;
    (2) Provides that pursuant to a financing order, the utility 
acquires an intangible property right to charge, collect, and receive 
amounts necessary to provide for the full recovery of the specified 
costs determined to be recoverable, and assures that the charges are 
non-bypassable and will be paid by customers within the utility's 
historic service territory who receive utility goods or services through 
the utility's transmission and distribution system, even if those 
customers elect to purchase these goods or services from a third party; 
and
    (3) Guarantees that neither the State nor any of its agencies has 
the authority to rescind or amend the financing order, to revise the 
amount of specified costs, or in any way to reduce or impair the value 
of the intangible property right, except as may be contemplated by 
periodic adjustments authorized by the specified cost recovery 
legislation.
    (c) Exemption for securitizations of assets issued, insured or 
guaranteed by the United States. This part shall not apply to any 
securitization transaction if the asset-backed securities issued in the 
transaction are:

[[Page 259]]

    (1) Collateralized solely by obligations issued by the United States 
or an agency of the United States and servicing assets;
    (2) Collateralized solely by assets that are fully insured or 
guaranteed as to the payment of principal and interest by the United 
States or an agency of the United States (other than those referred to 
in paragraph (b)(1)(i) of this section) and servicing assets; or
    (3) Fully guaranteed as to the timely payment of principal and 
interest by the United States or any agency of the United States;
    (d) Federal Deposit Insurance Corporation securitizations. This part 
shall not apply to any securitization transaction that is sponsored by 
the Federal Deposit Insurance Corporation acting as conservator or 
receiver under any provision of the Federal Deposit Insurance Act or of 
Title II of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act.
    (e) Reduced requirement for certain student loan securitizations. 
The 5 percent risk retention requirement set forth in Sec.1234.4 shall 
be modified as follows:
    (1) With respect to a securitization transaction that is 
collateralized solely by student loans made under the Federal Family 
Education Loan Program (``FFELP loans'') that are guaranteed as to 100 
percent of defaulted principal and accrued interest, and servicing 
assets, the risk retention requirement shall be 0 percent;
    (2) With respect to a securitization transaction that is 
collateralized solely by FFELP loans that are guaranteed as to at least 
98 percent but less than 100 percent of defaulted principal and accrued 
interest, and servicing assets, the risk retention requirement shall be 
2 percent; and
    (3) With respect to any other securitization transaction that is 
collateralized solely by FFELP loans, and servicing assets, the risk 
retention requirement shall be 3 percent.
    (f) Community-focused lending securitizations. (1) This part shall 
not apply to any securitization transaction if the asset-backed 
securities issued in the transaction are collateralized solely by 
community-focused residential mortgages and servicing assets.
    (2) For any securitization transaction that includes both community-
focused residential mortgages and residential mortgages that are not 
exempt from risk retention under this part, the percent of risk 
retention required under Sec.1234.4(a) is reduced by the ratio of the 
unpaid principal balance of the community-focused residential mortgages 
to the total unpaid principal balance of residential mortgages that are 
included in the pool of assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction (the 
community-focused residential mortgage asset ratio); provided that:
    (i) The community-focused residential mortgage asset ratio is 
measured as of the cut-off date or similar date for establishing the 
composition of the pool assets collateralizing the asset-backed 
securities issued pursuant to the securitization transaction; and
    (ii) If the community-focused residential mortgage asset ratio would 
exceed 50 percent, the community-focused residential mortgage asset 
ratio shall be deemed to be 50 percent.
    (g) Exemptions for securitizations of certain three-to-four unit 
mortgage loans. A sponsor shall be exempt from the risk retention 
requirements in subpart B of this part with respect to any 
securitization transaction if:
    (1)(i) The asset-backed securities issued in the transaction are 
collateralized solely by qualifying three-to-four unit residential 
mortgage loans and servicing assets; or
    (ii) The asset-backed securities issued in the transaction are 
collateralized solely by qualifying three-to-four unit residential 
mortgage loans, qualified residential mortgages as defined in Sec.
1234.13, and servicing assets.
    (2) The depositor with respect to the securitization provides the 
certifications set forth in Sec.1234.13(b)(4) with respect to the 
process for ensuring that all assets that collateralize the asset-backed 
securities issued in the transaction are qualifying three-to-four unit 
residential mortgage loans, qualified residential mortgages, or 
servicing assets; and
    (3) The sponsor of the securitization complies with the repurchase 
requirements in Sec.1234.13(c) with respect to a

[[Page 260]]

loan if, after closing, it is determined that the loan does not meet all 
of the criteria to be either a qualified residential mortgage or a 
qualifying three-to-four unit residential mortgage loan, as appropriate.
    (h) Rule of construction. Securitization transactions involving the 
issuance of asset-backed securities that are either issued, insured, or 
guaranteed by, or are collateralized by obligations issued by, or loans 
that are issued, insured, or guaranteed by, the Federal National 
Mortgage Association, the Federal Home Loan Mortgage Corporation, or a 
Federal home loan bank shall not on that basis qualify for exemption 
under this part.



Sec.1234.20  Safe harbor for certain foreign-related transactions.

    (a) Definitions. For purposes of this section, the following 
definition shall apply:
    U.S. person means:
    (i) Any of the following:
    (A) Any natural person resident in the United States;
    (B) Any partnership, corporation, limited liability company, or 
other organization or entity organized or incorporated under the laws of 
any State or of the United States;
    (C) Any estate of which any executor or administrator is a U.S. 
person (as defined under any other clause of this definition);
    (D) Any trust of which any trustee is a U.S. person (as defined 
under any other clause of this definition);
    (E) Any agency or branch of a foreign entity located in the United 
States;
    (F) Any non-discretionary account or similar account (other than an 
estate or trust) held by a dealer or other fiduciary for the benefit or 
account of a U.S. person (as defined under any other clause of this 
definition);
    (G) Any discretionary account or similar account (other than an 
estate or trust) held by a dealer or other fiduciary organized, 
incorporated, or (if an individual) resident in the United States; and
    (H) Any partnership, corporation, limited liability company, or 
other organization or entity if:
    (1) Organized or incorporated under the laws of any foreign 
jurisdiction; and
    (2) Formed by a U.S. person (as defined under any other clause of 
this definition) principally for the purpose of investing in securities 
not registered under the Act; and
    (ii) ``U.S. person(s)'' does not include:
    (A) Any discretionary account or similar account (other than an 
estate or trust) held for the benefit or account of a person not 
constituting a U.S. person (as defined in paragraph (i) of this section) 
by a dealer or other professional fiduciary organized, incorporated, or 
(if an individual) resident in the United States;
    (B) Any estate of which any professional fiduciary acting as 
executor or administrator is a U.S. person (as defined in paragraph (i) 
of this section) if:
    (1) An executor or administrator of the estate who is not a U.S. 
person (as defined in paragraph (i) of this section) has sole or shared 
investment discretion with respect to the assets of the estate; and
    (2) The estate is governed by foreign law;
    (C) Any trust of which any professional fiduciary acting as trustee 
is a U.S. person (as defined in paragraph (i) of this section), if a 
trustee who is not a U.S. person (as defined in paragraph (i) of this 
section) has sole or shared investment discretion with respect to the 
trust assets, and no beneficiary of the trust (and no settlor if the 
trust is revocable) is a U.S. person (as defined in paragraph (i) of 
this section);
    (D) An employee benefit plan established and administered in 
accordance with the law of a country other than the United States and 
customary practices and documentation of such country;
    (E) Any agency or branch of a U.S. person (as defined in paragraph 
(i) of this section) located outside the United States if:
    (1) The agency or branch operates for valid business reasons; and
    (2) The agency or branch is engaged in the business of insurance or 
banking and is subject to substantive insurance or banking regulation, 
respectively, in the jurisdiction where located;

[[Page 261]]

    (F) The International Monetary Fund, the International Bank for 
Reconstruction and Development, the Inter-American Development Bank, the 
Asian Development Bank, the African Development Bank, the United 
Nations, and their agencies, affiliates and pension plans, and any other 
similar international organizations, their agencies, affiliates and 
pension plans.
    (b) In general. This part shall not apply to a securitization 
transaction if all the following conditions are met:
    (1) The securitization transaction is not required to be and is not 
registered under the Securities Act of 1933 (15 U.S.C. 77a et seq.);
    (2) No more than 10 percent of the dollar value (or equivalent 
amount in the currency in which the ABS interests are issued, as 
applicable) of all classes of ABS interests in the securitization 
transaction are sold or transferred to U.S. persons or for the account 
or benefit of U.S. persons;
    (3) Neither the sponsor of the securitization transaction nor the 
issuing entity is:
    (i) Chartered, incorporated, or organized under the laws of the 
United States or any State;
    (ii) An unincorporated branch or office (wherever located) of an 
entity chartered, incorporated, or organized under the laws of the 
United States or any State; or
    (iii) An unincorporated branch or office located in the United 
States or any State of an entity that is chartered, incorporated, or 
organized under the laws of a jurisdiction other than the United States 
or any State; and
    (4) If the sponsor or issuing entity is chartered, incorporated, or 
organized under the laws of a jurisdiction other than the United States 
or any State, no more than 25 percent (as determined based on unpaid 
principal balance) of the assets that collateralize the ABS interests 
sold in the securitization transaction were acquired by the sponsor or 
issuing entity, directly or indirectly, from:
    (i) A majority-owned affiliate of the sponsor or issuing entity that 
is chartered, incorporated, or organized under the laws of the United 
States or any State; or
    (ii) An unincorporated branch or office of the sponsor or issuing 
entity that is located in the United States or any State.
    (c) Evasions prohibited. In view of the objective of these rules and 
the policies underlying Section 15G of the Exchange Act, the safe harbor 
described in paragraph (b) of this section is not available with respect 
to any transaction or series of transactions that, although in technical 
compliance with paragraphs (a) and (b) of this section, is part of a 
plan or scheme to evade the requirements of section 15G and this part. 
In such cases, compliance with section 15G and this part is required.



Sec.1234.21  Additional exemptions.

    (a) Securitization transactions. The federal agencies with 
rulewriting authority under section 15G(b) of the Exchange Act (15 
U.S.C. 78o-11(b)) with respect to the type of assets involved may 
jointly provide a total or partial exemption of any securitization 
transaction as such agencies determine may be appropriate in the public 
interest and for the protection of investors.
    (b) Exceptions, exemptions, and adjustments. The Federal banking 
agencies and the Commission, in consultation with the Federal Housing 
Finance Agency and the Department of Housing and Urban Development, may 
jointly adopt or issue exemptions, exceptions or adjustments to the 
requirements of this part, including exemptions, exceptions or 
adjustments for classes of institutions or assets in accordance with 
section 15G(e) of the Exchange Act (15 U.S.C. 78o-11(e)).



Sec.1234.22  Periodic review of the QRM definition, exempted 
three-to-four unit residential mortgage loans, and community-focused
residential mortgage exemption
          

    (a) The Federal banking agencies and the Commission, in consultation 
with the Federal Housing Finance Agency and the Department of Housing 
and Urban Development, shall commence a review of the definition of 
qualified residential mortgage in Sec.1234.13, a review of the 
community-focused residential mortgage exemption in Sec.1234.19(f), 
and a review of the exemption for qualifying three-to-four unit

[[Page 262]]

residential mortgage loans in Sec.1234.19(g):
    (1) No later than four years after the effective date of the rule 
(as it relates to securitizers and originators of asset-backed 
securities collateralized by residential mortgages), five years 
following the completion of such initial review, and every five years 
thereafter; and
    (2) At any time, upon the request of any Federal banking agency, the 
Commission, the Federal Housing Finance Agency or the Department of 
Housing and Urban Development, specifying the reason for such request, 
including as a result of any amendment to the definition of qualified 
mortgage or changes in the residential housing market.
    (b) The Federal banking agencies, the Commission, the Federal 
Housing Finance Agency and the Department of Housing and Urban 
Development shall publish in the Federal Register notice of the 
commencement of a review and, in the case of a review commenced under 
paragraph (a)(2) of this section, the reason an agency is requesting 
such review. After completion of any review, but no later than six 
months after the publication of the notice announcing the review, unless 
extended by the agencies, the agencies shall jointly publish a notice 
disclosing the determination of their review. If the agencies determine 
to amend the definition of qualified residential mortgage, the agencies 
shall complete any required rulemaking within 12 months of publication 
in the Federal Register of such notice disclosing the determination of 
their review, unless extended by the agencies.



PART 1235_RECORD RETENTION FOR REGULATED ENTITIES AND 
OFFICE OF FINANCE--Table of Contents



Sec.
1235.1 Purpose and scope.
1235.2 Definitions.
1235.3 Establishment and evaluation of a record retention program.
1235.4 Minimum requirements of a record retention program.
1235.5 Record hold.
1235.6 Access to records.
1235.7 Supervisory action.

    Authority: 12 U.S.C. 4511(b), 4513(a), 4513b(a)(10) and (11), 4526.

    Source: 76 FR 33127, June 8, 2011, unless otherwise noted.



Sec.1235.1  Purpose and scope.

    The purpose of this part is to set forth minimum requirements for a 
record retention program for each regulated entity and the Office of 
Finance. The requirements are intended to further prudent management as 
well as to ensure that complete and accurate records of each regulated 
entity and the Office of Finance are readily accessible to FHFA.



Sec.1235.2  Definitions.

    For purposes of this part, the term--
    Electronic record means a record created, generated, communicated, 
or stored by electronic means.
    E-mail means a document created or received on a computer network 
for transmitting messages electronically, and any attachments which may 
be transmitted with the document.
    Employee means any officer or employee of a regulated entity or the 
Office of Finance.
    Record means any information, whether generated internally or 
received from outside sources by a regulated entity or the Office of 
Finance, related to the conduct of the business of a regulated entity or 
the Office of Finance (which business, in the case of the Office of 
Finance, shall include any functions performed with respect to the 
Financing Corporation) or to legal or regulatory requirements, 
regardless of the following--
    (1) Form or format, including hard copy documents (e.g., files, 
logs, and reports), 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 or recorded telephone line 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 regulated 
entity or

[[Page 263]]

Office of Finance equipment, or on personal or home computer systems of 
an employee; or
    (4) Whether the information is active or inactive.
    Record hold means a requirement, an order, or a directive from a 
regulated entity, the Office of Finance, or FHFA that the regulated 
entity or the Office of Finance is to retain records relating to a 
particular issue in connection with an actual or a potential FHFA 
examination, investigation, enforcement proceeding, or litigation of 
which the regulated entity or the Office of Finance has received notice 
from FHFA or otherwise has knowledge.
    Record retention schedule means a schedule that details the 
categories of records a regulated entity or the Office of Finance 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.
    Retention period means the length of time that records must be kept 
before they are destroyed, as determined by the organization's record 
retention schedule. Records not authorized for destruction have a 
retention period of ``permanent.''

[76 FR 33127, June 8, 2011, as amended at 78 FR 2324, Jan. 11, 2013]



Sec.1235.3  Establishment and evaluation of a record retention program.

    (a) Establishment. Each regulated entity and the Office of Finance 
shall establish and maintain a written record retention program and 
provide a copy of such program to the Deputy Director of the Division of 
Enterprise Regulation, or his or her designee, or the Deputy Director 
for the Division of Federal Home Loan Bank Regulation, or his or her 
designee, as appropriate, within 180 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 each regulated entity and the Office 
of Finance shall evaluate in writing the adequacy and effectiveness of 
the record retention program at least every two years and provide a copy 
of the evaluation to the board of directors and the Director.



Sec.1235.4  Minimum requirements of a record retention program.

    (a) General minimum requirements. The record retention program 
established and maintained by each regulated entity and the Office of 
Finance under Sec.1235.3 shall:
    (1) Assure that retained records are complete and accurate;
    (2) Assure that the form of retained records and the retention 
period--
    (i) Are appropriate to support administrative, business, external 
and internal audit functions, and litigation of the regulated entity or 
the Office of Finance; and
    (ii) Comply with requirements of applicable laws and regulations, 
including this part;
    (3) Assign in writing the authorities and responsibilities for 
record retention activities for employees, including line managers and 
corporate management;
    (4) Include policies and procedures concerning record holds, 
consistent with Sec.1235.5, and, as appropriate, integrate them with 
policies and procedures throughout the organization;
    (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, operational, and business requirements;
    (6) Include appropriate security and internal controls to protect 
records from unauthorized access and data alteration;
    (7) Provide for appropriate back-up and recovery of electronic 
records to ensure the same accuracy as the primary records;
    (8) Provide for a periodic testing of the ability to access records; 
and
    (9) Provide for the proper disposition of records.
    (b) Minimum storage requirements for electronic records. Electronic 
records, preferably searchable, must be maintained on immutable, non-
rewritable storage in a manner that provides for both ready access by 
any person who is

[[Page 264]]

entitled to access the records, including staff of FHFA, and accurate 
reproduction for later reference by transmission, printing or other 
means.
    (c) Communication and training--(1) The record retention program 
established and maintained by each regulated entity and the Office of 
Finance under Sec.1235.3 shall provide for periodic training and 
communication throughout the organization.
    (2) The record retention program shall:
    (i) Provide for communication throughout the organization on record 
retention policies, procedures, and record retention schedule updates; 
and
    (ii) 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 a 
regulated entity or the Office of Finance, as appropriate, consistent 
with their respective roles and responsibilities to the regulated entity 
or the Office of Finance.



Sec.1235.5  Record hold.

    (a) Notification by FHFA. In the event that FHFA is requiring a 
record hold, FHFA shall notify the chief executive officer of the 
regulated entity or the Office of Finance. Regulated entities and the 
Office of Finance must have a written policy for handling notice of a 
record hold.
    (b) Notification by a regulated entity or the Office of Finance. The 
record retention program of a regulated entity and the Office of Finance 
shall--
    (1) Address how employees and, as appropriate, how agents or 
independent contractors consistent with their respective roles and 
responsibilities to the regulated entity or the Office of Finance, 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 regulated entity or Office of Finance, who has 
received notice of a potential investigation, enforcement proceeding, or 
litigation by FHFA involving the regulated entity or the Office of 
Finance 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 or the 
individual providing legal services as well as senior management of the 
regulated entity or the Office of Finance and shall retain any records 
that may be relevant in any way to such investigation, enforcement 
proceeding, or litigation.
    (c) Method of record retention during a record hold. The record 
retention program of each regulated entity and the Office of Finance 
shall address the method by which the regulated entity or the Office of 
Finance will retain records during a record hold. Specifically, the 
program shall describe the method for the continued preservation of 
electronic records, including e-mail, and, as applicable, the conversion 
of records from paper to electronic form as well as any alternative 
storage method.
    (d) Access to and retrieval of records during a record hold. The 
record retention program of each regulated entity or the Office of 
Finance shall ensure access to and retrieval of records by the regulated 
entity and the Office of Finance, and access, upon request, by FHFA, 
during a record hold. Such access shall be by reasonable means, 
consistent with the nature and availability of the records and existing 
information technology.



Sec.1235.6  Access to records.

    Each regulated entity and the Office of Finance shall make its 
records available promptly upon request by FHFA, at a location and in a 
form and manner acceptable to FHFA.



Sec.1235.7  Supervisory action.

    (a) Supervisory action. Failure by a regulated entity or the Office 
of Finance to comply with this part may

[[Page 265]]

subject the regulated entity or the Office of Finance or the board 
members, officers, or employees thereof to supervisory action by FHFA 
under the Safety and Soundness 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 FHFA to act under its safety and soundness mandate, in 
accordance with the Safety and Soundness 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 1236_PRUDENTIAL MANAGEMENT AND OPERATIONS STANDARDS--
Table of Contents



Sec.
1236.1 Purpose.
1236.2 Definitions.
1236.3 Prudential standards as guidelines.
1236.4 Failure to meet a standard; corrective plans.
1236.5 Failure to submit a corrective plan; noncompliance.

Appendix to Part 1236--Prudential Management and Operations Standards

    Authority: 12 U.S.C. 4511, 4513(a) and (f), 4513b, and 4526.

    Source: 77 FR 33959, June 8, 2012, unless otherwise noted.



Sec.1236.1  Purpose.

    This part establishes the prudential management and operations 
standards that are required by 12 U.S.C. 4513b and the processes by 
which FHFA can notify a regulated entity of its failure to operate in 
accordance with the standards and can direct the entity to take 
corrective action. This part further specifies the possible consequences 
for any regulated entity that fails to operate in accordance with the 
standards or otherwise fails to comply with this part.



Sec.1236.2  Definitions.

    Unless otherwise indicated, terms used in this part have the 
meanings that they have in the Federal Housing Enterprises Financial 
Safety and Soundness Act, 12 U.S.C. 4501 et seq., or the Federal Home 
Loan Bank Act, 12 U.S.C. 1421 et seq.
    Extraordinary growth--(1) For purposes of 12 U.S.C. 4513b(b)(3)(C), 
means:
    (i) With respect to a Bank, growth of non-advance assets in excess 
of 30 percent over the six calendar quarter period preceding the date on 
which FHFA notified the Bank that it was required to submit a corrective 
plan; and
    (ii) With respect to an Enterprise, quarterly non-annualized growth 
of assets in excess of 7.5 percent in any calendar quarter during the 
six calendar quarter period preceding the date on which FHFA notified 
the Enterprise that it was required to submit a corrective plan.
    (2) For purposes of calculating an increase in assets, assets 
acquired through merger or acquisition approved by FHFA are not to be 
included.
    Standards means any one or more of the prudential management and 
operations standards established by the Director pursuant to 12 U.S.C. 
4513b(a), as modified from time to time pursuant to Sec.1236.3(b), 
including the introductory statement of general responsibilities of 
boards of directors and senior management of the regulated entities.

[77 FR 33959, June 8, 2012, as amended at 78 FR 2324, Jan. 11, 2013; 80 
FR 72336, Nov. 19, 2015]



Sec.1236.3  Prudential standards as guidelines.

    (a) The Standards constitute the prudential management and 
operations standards required by 12 U.S.C. 4513b.
    (b) The Standards have been adopted as guidelines, as authorized by 
12 U.S.C. 4513b(a), and the Director may modify, revoke, or add to the 
Standards, or any one or more of them, at any time by order or notice.
    (c) In the case of a direct conflict between a Standard and an FHFA 
regulation, when it is not possible to comply with both the Standard and 
the FHFA regulation, the regulation shall control.
    (d) Failure to meet any Standard may constitute an unsafe and 
unsound practice for purposes of the enforcement provisions of 12 U.S.C. 
chapter 46, subchapter III.

[[Page 266]]



Sec.1236.4  Failure to meet a standard; corrective plans.

    (a) Determination. FHFA may, based upon an examination, inspection 
or any other information, determine that a regulated entity has failed 
to meet one or more of the Standards.
    (b) Submission of corrective plan. If FHFA determines that a 
regulated entity has failed to meet any Standard, FHFA may require the 
entity to submit a corrective plan, in which case FHFA shall, by written 
notice, inform the regulated entity of that determination and the 
requirement to submit a corrective plan.
    (c) Corrective plans--(1) Contents of plan. A corrective plan shall 
describe the actions the regulated entity will take to correct its 
failure to meet any one or more of the Standards, and the time within 
which each action will be taken.
    (2) Filing deadline--(i) In general. A regulated entity must file a 
written corrective plan with FHFA within thirty (30) calendar days of 
being notified by FHFA of its failure to meet a Standard and need to 
file a corrective plan, unless FHFA notifies the regulated entity in 
writing that the plan must be filed within a different time period.
    (ii) Other plans. If a regulated entity must file a capital 
restoration plan submitted pursuant to 12 U.S.C. 4622, it may submit the 
corrective plan required under this section as part of the capital 
restoration plan, subject to the deadline in paragraph (c)(2)(i) of this 
section. If a regulated entity currently is operating under a cease-and-
desist order entered into pursuant to 12 U.S.C. 4631 or 4632, or a 
formal or informal agreement, or must file a response to a report of 
examination or report of inspection, it may, with the permission of 
FHFA, submit the corrective plan required under this section as part of 
the regulated entity's compliance with that order, agreement or 
response, subject to the deadline in paragraph (c)(2)(i) of this 
section, but the corrective plan would not become a part of the order, 
agreement, or response.
    (d) Amendment of corrective plan. A regulated entity that is 
operating in accordance with an approved corrective plan may submit a 
written request to FHFA to amend the plan as necessary to reflect any 
changes in circumstance. Until such time that FHFA approves a proposed 
amendment, the regulated entity must continue to operate in accordance 
with the terms of the corrective plan as previously approved.
    (e) Review of corrective plans and amendments. Within thirty (30) 
calendar days of receiving a corrective plan or proposed amendment to a 
plan, FHFA will notify the regulated entity in writing of its decision 
on the plan, will direct the regulated entity to submit additional 
information, or will notify the regulated entity in writing that FHFA 
has established a different deadline.



Sec.1236.5  Failure to submit a corrective plan; noncompliance.

    (a) Remedies. If a regulated entity fails to submit an acceptable 
corrective plan under Sec.1236.4(b), or fails in any material respect 
to implement or otherwise comply with an approved corrective plan, FHFA 
shall order the regulated entity to correct that deficiency, and may:
    (1) Prohibit the regulated entity from increasing its average total 
assets, as defined in 12 U.S.C. 4516(b)(4), for any calendar quarter 
over its average total assets for the preceding calendar quarter, or may 
otherwise restrict the rate at which the average total assets of the 
regulated entity may increase from one calendar quarter to another;
    (2) Prohibit the regulated entity from paying dividends;
    (3) Prohibit the regulated entity from redeeming or repurchasing 
capital stock;
    (4) Require the regulated entity to maintain or increase its level 
of retained earnings;
    (5) Require an Enterprise to increase its ratio of core capital to 
assets, or require a Bank to increase its ratio of total capital, as 
defined in 12 U.S.C. 1426(a)(5), to assets; or
    (6) Require the regulated entity to take any other action that the 
Director determines will better carry out the purposes of the statute by 
bringing the regulated entity into conformance with the Standards.
    (b) Extraordinary growth. If a regulated entity that has failed to 
submit an acceptable corrective plan or has

[[Page 267]]

failed in any material respect to implement or otherwise comply with an 
approved corrective plan, also has experienced extraordinary growth, 
FHFA shall impose at least one of the sanctions listed in paragraph (a) 
of this section, consistently with the requirements of 12 U.S.C. 
4513b(b)(3).
    (c) Orders--(1) Notice. Except as provided in paragraph (c)(4) of 
this section, FHFA will notify a regulated entity in writing of its 
intent to issue an order requiring the regulated entity to correct its 
failure to submit or its failure in any material respect to implement or 
otherwise comply with an approved corrective plan. Any such notice will 
include:
    (i) A statement that the regulated entity has failed to submit a 
corrective plan under Sec.1236.4, or has not implemented or otherwise 
has not complied in any material respect with an approved plan;
    (ii) A description of any sanctions that FHFA intends to impose and, 
in the case of the mandatory sanctions required by 12 U.S.C. 
4513b(b)(3), a statement that FHFA believes that the regulated entity 
has experienced extraordinary growth; and
    (iii) The proposed date when any sanctions would become effective or 
the proposed date for completion of any required actions.
    (2) Response to notice. A regulated entity may file a written 
response to a notice of intent to issue an order, which must be 
delivered to FHFA within fourteen (14) calendar days of the date of the 
notice, unless FHFA determines that a different time period is 
appropriate in light of the safety and soundness of the regulated entity 
or other relevant circumstances. The response should include:
    (i) An explanation why the regulated entity believes that the action 
proposed by FHFA is not an appropriate exercise of discretion;
    (ii) Any recommended modification of the proposed order; and
    (iii) Any other relevant information, mitigating circumstances, 
documentation or other evidence in support of the position of the 
regulated entity regarding the proposed order.
    (3) Failure to file response. A regulated entity's failure to file a 
written response within the specified time period will constitute a 
waiver of the opportunity to respond and will constitute consent to 
issuance of the order.
    (4) Immediate issuance of final order. FHFA may issue an order 
requiring a regulated entity immediately to take actions to correct a 
Standards deficiency or to take or refrain from taking other actions 
pursuant to paragraph (a) of this section. Within fourteen (14) calendar 
days of the issuance of an order under this paragraph, or other time 
period specified by FHFA, a regulated entity may submit a written appeal 
of the order to FHFA. FHFA will respond in writing to a timely filed 
appeal within sixty (60) days after receiving the appeal. During this 
period, the order will remain in effect unless FHFA stays the 
effectiveness of the order.
    (d) Request for modification or rescission of order. A regulated 
entity subject to an order under this part may submit a written request 
to FHFA for an amendment to the order to reflect a change in 
circumstance. Unless otherwise ordered by FHFA, the order shall continue 
in place while such a request is pending before FHFA.
    (e) Agency review and determination. FHFA will respond in writing 
within thirty (30) days after receiving a response or amendment request, 
unless FHFA notifies the regulated entity in writing that it will 
respond within a different time period. After considering a regulated 
entity's response or amendment request, FHFA may:
    (1) Issue the order as proposed or in modified form;
    (2) Determine not to issue the order and instead issue a different 
order; or
    (3) Seek additional information or clarification of the response 
from the regulated entity, or any other relevant source.



    Sec. Appendix to Part 1236--Prudential Management and Operations 
                                Standards

    The following provisions constitute the prudential management and 
operations standards established pursuant to 12 U.S.C. 4513b(a).

[[Page 268]]

General Responsibilities of the Board of Directors and Senior Management

    The following provisions address the general responsibilities of the 
boards of directors and senior management of the regulated entities as 
they relate to the matters addressed by each of the Standards. The 
descriptions are not a comprehensive listing of the responsibilities of 
either the boards or senior management, each of whom have additional 
duties and responsibilities to those described in these Standards.

               Responsibilities of the Board of Directors

    1. With respect to the subject matter addressed by each Standard, 
the board of directors is responsible for adopting business strategies 
and policies that are appropriate for the particular subject matter. The 
board should review all such strategies and policies periodically. It 
should review and approve all major strategies and policies at least 
annually and make any revisions that are necessary to ensure that such 
strategies and policies remain consistent with the entity's overall 
business plan.
    2. The board of directors is responsible for overseeing management 
of the regulated entity, which includes ensuring that management 
includes personnel who are appropriately trained and competent to 
oversee the operation of the regulated entity as it relates to the 
functions and requirements addressed by each Standard, and that 
management implements the policies set forth by the board.
    3. The board of directors is responsible for remaining informed 
about the operations and condition of the regulated entity, including 
operating consistently with the Standards, and senior management's 
implementation of the strategies and policies established by the board 
of directors.
    4. The board of directors must remain sufficiently informed about 
the nature and level of the regulated entity's overall risk exposures, 
including market, credit, and counterparty risk, so that it can 
understand the possible short- and long-term effects of those exposures 
on the financial health of the regulated entity, including the possible 
short- and long-term consequences to earnings, liquidity, and economic 
value. The board of directors should: establish the regulated entity's 
risk tolerances and should provide management with clear guidance 
regarding the level of acceptable risks; review the regulated entity's 
entire market risk management framework, including policies and entity-
wide risk limits at least annually; oversee the adequacy of the actions 
taken by senior management to identify, measure, manage, and control the 
regulated entity's risk exposures; and ensure that management takes 
appropriate corrective measures whenever market risk limit violations or 
breaches occur.

                  Responsibilities of Senior Management

    5. With respect to the subject matter addressed by each Standard, 
senior management is responsible for developing the policies, procedures 
and practices that are necessary to implement the business strategies 
and policies adopted by the board of directors. Senior management should 
ensure that such items are clearly written, sufficiently detailed, and 
are followed by all personnel. Senior management also should ensure that 
the regulated entity has personnel who are appropriately trained and 
competent to carry out their respective functions and that all delegated 
responsibilities are performed.
    6. Senior management should ensure that the regulated entity has 
adequate resources, systems and controls available to execute 
effectively the entity's business strategies, policies and procedures, 
including operating consistently with each of the Standards.
    7. Senior management should provide the board of directors with 
periodic reports relating to the regulated entity's condition and 
performance, including the subject matter addressed by each of the 
Standards, that are sufficiently detailed to allow the board of 
directors to remain fully informed about the business of the regulated 
entity.
    8. Senior management should regularly review and discuss with the 
board of directors information regarding the regulated entity's risk 
exposures that is sufficient in detail and timeliness to permit the 
board of directors to understand and assess the performance of 
management in identifying and managing the various risks to which the 
regulated entity is exposed.

    Responsibilities of the Board of Directors and Senior Management

    9. The board of directors and senior management should conduct 
themselves in such a manner as to promote high ethical standards and a 
culture of compliance throughout the organization.
    10. The board of directors and senior management should ensure that 
the regulated entity's overall risk profile is aligned with its mission 
objectives.

          Standard 1--Internal Controls and Information Systems

               Responsibilities of the Board of Directors

    1. Regarding internal controls and information systems, the board of 
directors of each regulated entity should adopt appropriate policies, 
ensure personnel are appropriately trained and competent, approve and 
periodically review overall business strategies, approve the 
organizational structure,

[[Page 269]]

and assess the adequacy of senior management's oversight of this 
function.

                  Responsibilities of Senior Management

    2. Regarding internal controls and information systems, senior 
management should implement strategies and policies approved by the 
board of directors, establish appropriate policies, monitor the adequacy 
and effectiveness of this function, and ensure personnel are 
appropriately trained and competent. The organizational structure should 
clearly assign responsibility, authority, and reporting relationships.

    Responsibilities of the Board of Directors and Senior Management

    3. Regarding internal controls and information systems, both the 
board of directors and senior management should promote high ethical 
standards, create a culture that emphasizes the importance of this 
function, and promptly address any issues in need of remediation.

                                Framework

    4. The regulated entity should have an adequate and effective system 
of internal controls, which should include a board approved 
organizational structure that clearly assigns responsibilities, 
authority, and reporting relationships, and establishes an appropriate 
segregation of duties that ensures that personnel are not assigned 
conflicting responsibilities.
    5. The regulated entity should establish appropriate internal 
control policies and should monitor the adequacy and effectiveness of 
its internal controls and information systems on an ongoing basis 
through a formal self-assessment process.
    6. The regulated entity should have an organizational culture that 
emphasizes and demonstrates to personnel at all levels the importance of 
internal controls.
    7. The regulated entity should address promptly any violations, 
findings, weaknesses, deficiencies, and other issues in need of 
remediation relating to the internal control systems.

                     Risk Recognition and Assessment

    8. A regulated entity should have an effective risk assessment 
process that ensures that management recognizes and continually assesses 
all material risks, including credit risk, market risk, interest rate 
risk, liquidity risk, and operational risk.

              Control Activities and Segregation of Duties

    9. A regulated entity should have an effective internal control 
system that defines control activities at every business level.
    10. A regulated entity's control activities should include:
    a. Board of directors and senior management reviews of progress 
toward goals and objectives;
    b. Appropriate activity controls for each business unit;
    c. Physical controls to protect property and other assets and limit 
access to property and systems;
    d. Procedures for monitoring compliance with exposure limits and 
follow-up on non-compliance;
    e. A system of approvals and authorizations for transactions over 
certain limits; and
    f. A system for verification and reconciliation of transactions.

                      Information and Communication

    11. A regulated entity should have information systems that provide 
relevant, accurate and timely information and data.
    12. A regulated entity should have secure information systems that 
are supported by adequate contingency arrangements.
    13. A regulated entity should have effective channels of 
communication to ensure that all personnel understand and adhere to 
policies and procedures affecting their duties and responsibilities.

            Monitoring Activities and Correcting Deficiencies

    14. A regulated entity should monitor the overall effectiveness of 
its internal controls and key risks on an ongoing basis and ensure that 
business units and internal and external audit conduct periodic 
evaluations.
    15. Internal control deficiencies should be reported to senior 
management and the board of directors on a timely basis and addressed 
promptly.

               Applicable Laws, Regulations, and Policies

    16. A regulated entity should comply with all applicable laws, 
regulations, and supervisory guidance (e.g., advisory bulletins) 
governing internal controls and information systems.

     Standard 2--Independence and Adequacy of Internal Audit Systems

                             Audit Committee

    1. A regulated entity's board of directors should have an audit 
committee that exercises proper oversight and adopts appropriate 
policies and procedures designed to ensure the independence of the 
internal audit function. The audit committee should ensure that the 
internal audit department includes personnel who are appropriately 
trained and competent to oversee the internal audit function.
    2. The board of directors should review and approve the audit 
committee charter at least every three years.

[[Page 270]]

    3. The audit committee of the board of directors is responsible for 
monitoring and evaluating the effectiveness of the regulated entity's 
internal audit function.
    4. Issues reported by the internal audit department to the audit 
committee should be promptly addressed and satisfactorily resolved.

                         Internal Audit Function

    5. A regulated entity should have an internal audit function that 
provides for adequate testing of the system of internal controls.
    6. A regulated entity should have an independent and objective 
internal audit department that reports directly to the audit committee 
of the board of directors.
    7. A regulated entity's internal audit department should be 
adequately staffed with properly trained and competent personnel.
    8. The internal audit department should conduct risk-based audits.
    9. The internal audit department should conduct adequate testing and 
review of internal control and information systems.
    10. The internal audit department should determine whether 
violations, findings, weaknesses and other issues reported by 
regulators, external auditors, and others have been promptly addressed.

               Applicable Laws, Regulations, and Policies

    11. A regulated entity should comply with applicable laws, 
regulations, and supervisory guidance (e.g., advisory bulletins) 
governing the independence and adequacy of internal audit systems.

             Standard 3--Management of Market Risk Exposure

               Responsibilities of the Board of Directors

    1. Regarding the overall management of market risk exposure, the 
board of directors should remain sufficiently informed about the nature 
and level of the regulated entity's market risk exposures. At least 
annually, the board should review the entire market risk framework, 
including policies and risk limits, and provide an assessment of 
compliance.
    2. Regarding the policies, practices and procedures surrounding the 
management of market risk, the board of directors should approve all 
major strategies and policies relating to the management of market risk, 
ensure all major strategies and policies are consistent with the overall 
business plan, establish and communicate a market risk tolerance, and 
ensure appropriate corrective measures are taken when market risk limit 
violations or breaches occur.
    3. The board, or a board appointed committee, should oversee the 
adequacy of actions taken by senior management to identify, measure, 
manage, and control market risk exposures, ensure market risk policies 
establish lines of authority and responsibility, and review risk 
exposures on a periodic basis.

                  Responsibilities of Senior Management

    4. Regarding the overall management of market risk exposure, senior 
management should provide sufficient and timely information to the board 
of directors, ensure personnel are appropriately trained and competent, 
ensure adequate systems and resources are available to manage and 
control market risk, report any breaches to the board of directors (or 
the appropriate board committee), and take appropriate remedial action.
    5. Regarding the policies, practices, and procedures surrounding 
market risk exposure, senior management should ensure market risk 
policies and procedures are clearly written, sufficiently detailed, and 
followed. Approved policies and procedures should include clear market 
risk limits and lines of authority for managing market risk.

                          Market Risk Strategy

    6. A regulated entity should have a clearly defined and well-
documented strategy for managing market risk, which must be consistent 
with its overall business plan, must enable the regulated entity to 
identify, manage, monitor, and control the regulated entity's risk 
exposures on a business unit and an enterprise-wide basis, and must 
ensure that the lines of authority and responsibility for managing 
market risk and monitoring market risk limits are clearly identified. 
The strategy should specify a target account, or target accounts, for 
managing market risk (e.g., specify whether the objective is to control 
risk to earnings, net portfolio value, or some other target, or some 
combination of targets), and, if a market risk limit is breached, should 
require that the breach be reported to the board of directors, or the 
appropriate board committee, and that appropriate remedial action, 
including any ordered by the board of directors, should be taken.
    7. Management should ensure that the board of directors is made 
aware of the advantages and disadvantages of the regulated entity's 
chosen market risk management strategy, as well as those of alternative 
strategies, so that the board of directors can make an informed judgment 
about the relative efficacy of the different strategies.
    8. A Bank's strategy for managing market risk should take into 
account the importance of maintaining the market value of equity of 
member stock commensurate with the par value of that stock so that the 
Bank is able to redeem and repurchase member stock at par value.

[[Page 271]]

    9. A regulated entity should comply with all applicable laws, 
regulations, and supervisory guidance, (e.g., advisory bulletins) 
governing the independence and adequacy of the management of market risk 
exposure.

Standard 4--Management of Market Risk--Measurement Systems, Risk Limits, 
              Stress Testing, and Monitoring and Reporting

                         Risk Measurement Systems

    1. A regulated entity should have a risk measurement system (a model 
or models) that capture(s) all material sources of market risk and 
provide(s) meaningful and timely measures of the regulated entity's risk 
exposures, as well as personnel who are appropriately trained and 
competent to operate and oversee the risk measurement system.
    2. The risk measurement system should be capable of estimating the 
effect of changes in interest rates and other key risk factors on the 
regulated entity's earnings and market value of equity over a range of 
scenarios.
    3. The measurement system should be capable of valuing all financial 
assets and liabilities in the regulated entity's portfolio.
    4. The measurement system should address all material sources of 
market risk including repricing risk, yield curve risk, basis risk, and 
options risk.
    5. Management should ensure the integrity and timeliness of the data 
inputs used to measure the regulated entity's market risk exposures, and 
should ensure that assumptions and parameters are reasonable and 
properly documented.
    6. The measurement system's methodologies, assumptions, and 
parameters should be thoroughly documented, understood by management, 
and reviewed on a regular basis.
    7. A regulated entity's market risk model should be upgraded 
periodically to incorporate advances in risk modeling technology.
    8. A regulated entity should have a documented approval process for 
model changes that requires model changes to be authorized by a party 
independent of the party making the change.
    9. A regulated entity should ensure that its models are 
independently validated on a regular basis.

                               Risk Limits

    10. Risk limits should be consistent with the regulated entity's 
strategy for managing interest rate risk and should take into account 
the financial condition of the regulated entity, including its capital 
position.
    11. Risk limits should address the potential impact of changes in 
market interest rates on net interest income, net income, and the 
regulated entity's market value of equity.

                             Stress Testing

    12. A regulated entity should conduct stress tests on a regular 
basis for a variety of institution-specific and market-wide stress 
scenarios to identify potential vulnerabilities and to ensure that 
exposures are consistent with the regulated entity's tolerance for risk.
    13. A regulated entity should use stress test outcomes to adjust its 
market risk management strategies, policies, and positions and to 
develop effective contingency plans.
    14. Special consideration should be given to ensuring that complex 
financial instruments, including instruments with complex option 
features, are properly valued under stress scenarios and that the risks 
associated with options exposures are properly understood.
    15. Management should ensure that the regulated entity's board of 
directors or a committee thereof considers the results of stress tests 
when establishing and reviewing its strategies, policies, and limits for 
managing and controlling interest rate risk.
    16. The board of directors and senior management should review 
periodically the design of stress tests to ensure that they encompass 
the kinds of market conditions under which the regulated entity's 
positions and strategies would be most vulnerable.

                        Monitoring and Reporting

    17. A regulated entity should have an adequate management 
information system for reporting market risk exposures.
    18. The board of directors, senior management, and the appropriate 
line managers should be provided with regular, accurate, informative, 
and timely market risk reports.

               Applicable Laws, Regulations, and Policies

    19. A regulated entity should comply with all applicable laws, 
regulations, and supervisory guidance (e.g., advisory bulletins) 
governing the management of market risk.

     Standard 5--Adequacy and Maintenance of Liquidity and Reserves

               Responsibilities of the Board of Directors

    1. Regarding the adequacy and maintenance of liquidity and reserves, 
the board of directors should review (at least annually) all major 
strategies and policies governing this area, approve appropriate 
revisions to such strategies and policies, and ensure senior management 
are appropriately trained to effectively manage liquidity.

                  Responsibilities of Senior Management

    2. Regarding the adequacy and maintenance of liquidity and reserves, 
senior management should develop strategies, policies, and practices to 
manage liquidity risk, ensure personnel are appropriately trained and

[[Page 272]]

competent, and provide the board of directors with periodic reports on 
the regulated entity's liquidity position.

                   Policies, Practices, and Procedures

    3. A regulated entity should establish a liquidity management 
framework that ensures it maintains sufficient liquidity to withstand a 
range of stressful events.
    4. A regulated entity should articulate a liquidity risk tolerance 
that is appropriate for its business strategy and its mission goals and 
objectives.
    5. A regulated entity should have a sound process for identifying, 
measuring, monitoring, controlling, and reporting its liquidity position 
and its liquidity risk exposures.
    6. A regulated entity should establish a funding strategy that 
provides effective diversification in the sources and tenor of funding.
    7. A regulated entity should conduct stress tests on a regular basis 
for a variety of institution-specific and market-wide stress scenarios 
to identify sources of potential liquidity strain and to ensure that 
current exposures remain in accordance with each regulated entity's 
established liquidity risk tolerance.
    8. A regulated entity should use stress test outcomes to adjust its 
liquidity management strategies, policies, and positions and to develop 
effective contingency plans.
    9. A regulated entity should have a formal contingency funding plan 
that clearly sets out the strategies for addressing liquidity shortfalls 
in emergencies. Where practical, contingent funding sources should be 
tested or drawn on periodically to assess their reliability and 
operational soundness.
    10. A regulated entity should maintain adequate reserves of liquid 
assets, including adequate reserves of unencumbered, marketable 
securities that can be liquidated to meet unexpected needs.

               Applicable Laws, Regulations, and Policies

    11. A regulated entity should comply with all applicable laws, 
regulations, and supervisory guidance (e.g., advisory bulletins) 
governing the adequacy and maintenance of liquidity and reserves.

     Standard 6--Management of Asset and Investment Portfolio Growth

    Responsibilities of the Board of Directors and Senior Management

    1. Regarding the management of asset and investment portfolio 
growth, the board of directors is responsible for overseeing the 
management of growth in these areas, ensuring senior management are 
appropriately trained and competent, establishing policies governing the 
regulated entity's assets and investment growth, with prudential limits 
on the growth of mortgages and mortgage-backed securities, and reviewing 
policies at least annually.
    2. Regarding the management of asset and investment portfolio 
growth, senior management should adhere to board-approved policies 
governing growth in these areas, and ensure personnel are appropriately 
trained and competent to manage the growth.

                Risk Measurement, Monitoring, and Control

    3. A regulated entity should manage its asset growth and investment 
growth in a prudent manner that is consistent with the regulated 
entity's business strategy, board-approved policies, risk tolerances, 
and safe and sound operations, and should establish prudential limits on 
the growth of its portfolios of mortgage loans and mortgage backed 
securities.
    4. A regulated entity should manage asset growth and investment 
growth in a way that is compatible with mission goals and objectives.
    5. A regulated entity should manage investments and acquisition of 
assets in a way that complies with all applicable laws, regulations, and 
supervisory guidance (e.g., advisory bulletins).

           Standard 7--Investments and Acquisitions of Assets

    Responsibilities of the Board of Directors and Senior Management

    1. The board of directors is responsible for overseeing the 
regulated entity's investments and acquisition of other assets, ensuring 
senior management are appropriately trained and competent, and 
establishing, approving and periodically reviewing policies and 
procedures governing investments and acquisitions of other assets.

                   Policies, Practices, and Procedures

    2. A regulated entity should have a board-approved investment policy 
that establishes clear and explicit guidelines that are appropriate to 
the regulated entity's mission and objectives. The investment policy 
should establish the regulated entity's investment objectives, risk 
tolerances, investment constraints, and policies and procedures for 
selecting investments.
    3. A regulated entity should have a board-approved policy governing 
acquisitions of major categories of assets other than investments. The 
policy should establish clear and explicit guidelines for asset 
acquisitions that are appropriate to the regulated entity's mission and 
objectives.
    4. A regulated entity should manage investments and acquisitions of 
assets prudently and in a manner that is consistent with mission goals 
and objectives.

[[Page 273]]

    5. Each Bank's investment policies and acquisition of assets should 
take into account the importance of maintaining the market value of 
member stock commensurate with the par value of that stock so that the 
Bank is able to redeem and repurchase member stock at par value at all 
times.
    6. A regulated entity should manage investments and acquisitions of 
assets in a way that complies with all applicable laws, regulations, and 
supervisory guidance (e.g., advisory bulletins).

              Standard 8--Overall Risk Management Processes

               Responsibilities of the Board of Directors

    1. Regarding overall risk management processes, the board of 
directors is responsible for overseeing the process, ensuring senior 
management are appropriately trained and competent, ensuring processes 
are in place to identify, manage, monitor and control risk exposures 
(this function may be delegated to a board appointed committee), 
approving all major risk limits, and ensuring incentive compensation 
measures for senior management capture a full range of risks.

           Responsibilities of the Board and Senior Management

    2. Regarding overall risk management processes, the board of 
directors and senior management should establish and sustain a culture 
that promotes effective risk management. This culture includes timely, 
accurate and informative risk reports, alignment of the regulated 
entity's overall risk profile with its mission objectives, and the 
annual review of comprehensive self-assessments of material risks.

                  Independent Risk Management Function

    3. A regulated entity should have an independent risk management 
function, or unit, with responsibility for risk measurement and risk 
monitoring, including monitoring and enforcement of risk limits.
    4. The chief risk officer should head the risk management function.
    5. The chief risk officer should report directly to the chief 
executive officer and the risk committee of the board of directors.
    6. The risk management function should have adequate resources, 
including a well-trained and capable staff.

                Risk Measurement, Monitoring, and Control

    7. A regulated entity should measure, monitor, and control its 
overall risk exposures, reviewing market, credit, liquidity, and 
operational risk exposures on both a business unit (or business segment) 
and enterprise-wide basis.
    8. A regulated entity should have the risk management systems to 
generate, at an appropriate frequency, the information needed to manage 
risk. Such systems should include systems for market, credit, 
operational, and liquidity risk analysis, asset and liability 
management, regulatory reporting, and performance measurement.
    9. A regulated entity should have a comprehensive set of risk limits 
and monitoring procedures to ensure that risk exposures remain within 
established risk limits, and a mechanism for reporting violations and 
breaches of risk limits to senior management and the board of directors.
    10. A regulated entity should ensure that it has sufficient controls 
around risk measurement models to ensure the completeness, accuracy, and 
timeliness of risk information.
    11. A regulated entity should have adequate and well-tested disaster 
recovery and business resumption plans for all major systems and have 
remote facilitates to limit the impact of disruptive events.

               Applicable Laws, Regulations, and Policies

    12. A regulated entity should comply with all applicable laws, 
regulations, and supervisory guidance (e.g., advisory bulletins) 
governing the management of risk.

         Standard 9--Management of Credit and Counterparty Risk

    Responsibilities of the Board of Directors and Senior Management

    1. Regarding the management of credit and counterparty risk, the 
board of directors and senior management are responsible for ensuring 
that the regulated entity has appropriate policies, procedures, and 
systems that cover all aspects of credit administration, including 
credit pricing, underwriting, credit limits, collateral standards, and 
collateral valuation procedures. This should also include derivatives 
and the use of clearing houses. They are also responsible for ensuring 
personnel are appropriately trained, competent, and equipped with the 
necessary tools, procedures and systems to assess risk.
    2. Senior management should provide the board of directors with 
regular briefings and reports on credit exposures.

               Policies, Procedures, Controls, and Systems

    3. A regulated entity should have policies that limit concentrations 
of credit risk and systems to identify concentrations of credit risk.
    4. A regulated entity should establish prudential limits to restrict 
exposures to a single counterparty that are appropriate to its business 
model.
    5. A regulated entity should establish prudential limits to restrict 
exposures to groups

[[Page 274]]

of related counterparties that are appropriate to its business model.
    6. A regulated entity should have policies, procedures, and systems 
for evaluating credit risk that will enable it to make informed credit 
decisions.
    7. A regulated entity should have policies, procedures, and systems 
for evaluating credit risk that will enable it to ensure that claims are 
legally enforceable.
    8. A regulated entity should have policies and procedures for 
addressing problem credits.
    9. A regulated entity should have an ongoing credit review program 
that includes stress testing and scenario analysis.

               Applicable Laws, Regulations, and Policies

    10. A regulated entity should manage credit and counterparty risk in 
a way that complies with applicable laws, regulations, and supervisory 
guidance (e.g., advisory bulletins).

              Standard 10--Maintenance of Adequate Records

    1. A regulated entity should maintain financial records in 
compliance with Generally Accepted Accounting Principles (GAAP), FHFA 
guidelines, and applicable laws and regulations.
    2. A regulated entity should ensure that assets are safeguarded and 
financial and operational information is timely and reliable.
    3. A regulated entity should have a records retention program 
consistent with laws and corporate policies, including accounting 
policies, as well as personnel that are appropriately trained and 
competent to oversee and implement the records management plan.
    4. A regulated entity, with oversight from the board of directors, 
should conduct a review and approval of the records retention program 
and records retention schedule for all types of records at least once 
every two years.
    5. A regulated entity should ensure that reporting errors are 
detected and corrected in a timely manner.
    6. A regulated entity should comply with all applicable laws, 
regulations, and supervisory guidance (e.g., advisory bulletins) 
governing the maintenance of adequate records.

[77 FR 33959, June 8, 2012, as amended at 80 FR 72336, Nov. 19, 2015]



PART 1237_CONSERVATORSHIP AND RECEIVERSHIP--Table of Contents



Sec.
1237.1 Purpose and applicability.
1237.2 Definitions.

                            Subpart A_Powers

1237.3 Powers of the Agency as conservator or receiver.
1237.4 Receivership following conservatorship; administrative expenses.
1237.5 Contracts entered into before appointment of a conservator or 
          receiver.
1237.6 Authority to enforce contracts.

                            Subpart B_Claims

1237.7 Period for determination of claims.
1237.8 Alternate procedures for determination of claims.
1237.9 Priority of expenses and unsecured claims.

                Subpart C_Limited-Life Regulated Entities

1237.10 Limited-life regulated entities.
1237.11 Authority of limited-life regulated entities to obtain credit.

                             Subpart D_Other

1237.12 Capital distributions while in conservatorship.
1237.13 Payment of Securities Litigation Claims while in 
          conservatorship.
1237.14 Golden parachute payments [Reserved]

    Authority: 12 U.S.C. 4513b, 4526, 4617.

    Source: 76 FR 35733, June 20, 2011, unless otherwise noted.



Sec.1237.1  Purpose and applicability.

    The provisions of this part shall apply to the appointment and 
operations of the Federal Housing Finance Agency (``Agency'') as 
conservator or receiver of a regulated entity. These provisions 
implement and supplement the procedures and process set forth in the 
Federal Housing Enterprises Financial Safety and Soundness Act of 1992, 
as amended, by the Housing and Economic Recovery Act of 2008 (HERA), 
Public Law 110-289 for conduct of a conservatorship or receivership of 
such entity.



Sec.1237.2  Definitions.

    For the purposes of this part the following definitions shall apply:
    Agency means the Federal Housing Finance Agency (``FHFA'') 
established under 12 U.S.C. 4511, as amended.
    Authorizing statutes mean--
    (1) The Federal National Mortgage Association Charter Act,
    (2) The Federal Home Loan Mortgage Corporation Act, and

[[Page 275]]

    (3) The Federal Home Loan Bank Act.
    Capital distribution has, with respect to a Bank, the definition 
stated in Sec.1229.1 of this chapter, and with respect to an 
Enterprise, the definition stated in Sec.1229.13 of this chapter.
    Compensation means any payment of money or the provision of any 
other thing of current or potential value in connection with employment.
    Conservator means the Agency as appointed by the Director as 
conservator for a regulated entity.
    Default; in danger of default:
    (1) Default means, with respect to a regulated entity, any official 
determination by the Director, pursuant to which a conservator or 
receiver is appointed for a regulated entity.
    (2) In danger of default means, with respect to a regulated entity, 
the definition under section 1303(8)(B) of the Safety and Soundness Act 
or applicable FHFA regulations.
    Entity-affiliated party means any party meeting the definition of an 
entity-affiliated party under section 1303(11) of the Safety and 
Soundness Act or applicable FHFA regulations.
    Equity security of any person shall mean any and all shares, 
interests, rights to purchase or otherwise acquire, warrants, options, 
participations or other equivalents of or interests (however designated) 
in equity, ownership or profits of such person, including any preferred 
stock, any limited or general partnership interest and any limited 
liability company membership interest, and any securities or other 
rights or interests convertible into or exchangeable for any of the 
foregoing.
    Executive officer means, with respect to an Enterprise, any person 
meeting the definition of executive officer under section 1303(12) of 
the Safety and Soundness Act and applicable FHFA regulations under that 
section, and, with respect to a Bank, an executive officer as defined in 
applicable FHFA regulations.
    Golden parachute payment means, with respect to a regulated entity, 
the definition under 12 CFR part 1231 or other applicable FHFA 
regulations.
    Limited-life regulated entity means an entity established by the 
Agency under section 1367(i) of the Safety and Soundness Act with 
respect to a Federal Home Loan Bank in default or in danger of default, 
or with respect to an Enterprise in default or in danger of default.
    Receiver means the Agency as appointed by the Director to act as 
receiver for a regulated entity.
    Securities litigation claim means any claim, whether or not reduced 
to judgment, liquidated or unliquidated, fixed, contingent, matured or 
unmatured, disputed or undisputed, legal, equitable, secured or 
unsecured, arising from rescission of a purchase or sale of an equity 
security of a regulated entity or for damages arising from the purchase, 
sale, or retention of such a security.
    Transfer means every mode, direct or indirect, absolute or 
conditional, voluntary or involuntary, of disposing of or parting with 
property or with an interest in property, including retention of title 
as a security interest and foreclosure of the equity of redemption of 
the regulated entity.

[76 FR 35733, June 20, 2011, as amended at 78 FR 2324, Jan. 11, 2013; 80 
FR 72336, Oct. 22, 2015]



                            Subpart A_Powers



Sec.1237.3  Powers of the Agency as conservator or receiver.

    (a) Operation of the regulated entity. The Agency, as it determines 
appropriate to its operations as either conservator or receiver, may:
    (1) Take over the assets of and operate the regulated entity with 
all the powers of the shareholders (including the authority to vote 
shares of any and all classes of voting stock), the directors, and the 
officers of the regulated entity and conduct all business of the 
regulated entity;
    (2) Continue the missions of the regulated entity;
    (3) Ensure that the operations and activities of each regulated 
entity foster liquid, efficient, competitive, and resilient national 
housing finance markets;
    (4) Ensure that each regulated entity operates in a safe and sound 
manner;
    (5) Collect all obligations and money due the regulated entity;

[[Page 276]]

    (6) Perform all functions of the regulated entity in the name of the 
regulated entity that are consistent with the appointment as conservator 
or receiver;
    (7) Preserve and conserve the assets and property of the regulated 
entity (including the exclusive authority to investigate and prosecute 
claims of any type on behalf of the regulated entity, or to delegate to 
management of the regulated entity the authority to investigate and 
prosecute claims); and
    (8) Provide by contract for assistance in fulfilling any function, 
activity, action, or duty of the Agency as conservator or receiver.
    (b) Agency as receiver. The Agency, as receiver, shall place the 
regulated entity in liquidation, employing the additional powers 
expressed in 12 U.S.C. 4617(b)(2)(E).
    (c) Powers as conservator or receiver. The Agency, as conservator or 
receiver, shall have all powers and authorities specifically provided by 
section 1367 of the Safety and Soundness Act and paragraph (a) of this 
section, including incidental powers, which include the authority to 
suspend capital classifications under section 1364(e)(1) of the Safety 
and Soundness Act during the duration of the conservatorship or 
receivership of that regulated entity.
    (d) Transfer or sale of assets and liabilities. The Agency may, as 
conservator or receiver, transfer or sell any asset or liability of the 
regulated entity in default, and may do so without any approval, 
assignment, or consent with respect to such transfer or sale. Exercise 
of this authority by the Agency as conservator will nullify any 
restraints on sales or transfers in any agreement not entered into by 
the Agency as conservator. Exercise of this authority by the Agency as 
receiver will nullify any restraints on sales or transfers in any 
agreement not entered into by the Agency as receiver.



Sec.1237.4  Receivership following conservatorship; administrative
expenses.

    If a receivership immediately succeeds a conservatorship, the 
administrative expenses of the conservatorship shall also be deemed to 
be administrative expenses of the subsequent receivership.



Sec.1237.5  Contracts entered into before appointment of a conservator
or receiver.

    (a) The conservator or receiver for any regulated entity may 
disaffirm or repudiate any contract or lease to which such regulated 
entity is a party pursuant to section 1367(d) of the Safety and 
Soundness Act.
    (b) For purposes of section 1367(d)(2) of the Safety and Soundness 
Act, a reasonable period shall be defined as a period of 18 months 
following the appointment of a conservator or receiver.



Sec.1237.6  Authority to enforce contracts.

    The conservator or receiver may enforce any contract entered into by 
the regulated entity pursuant to the provisions and subject to the 
restrictions of section 1367(d)(13) of the Safety and Soundness Act.



                            Subpart B_Claims



Sec.1237.7  Period for determination of claims.

    Before the end of the 180-day period beginning on the date on which 
any claim against a regulated entity is filed with the Agency as 
receiver, the Agency shall determine whether to allow or disallow the 
claim and shall notify the claimant of any determination with respect to 
such claim. This period may be extended by a written agreement between 
the claimant and the Agency as receiver, which may include an agreement 
to toll any applicable statute of limitations.



Sec.1237.8  Alternate procedures for determination of claims.

    Claimants seeking a review of the determination of claims may seek 
alternative dispute resolution from the Agency as receiver in lieu of a 
judicial determination. The Director may by order, policy statement, or 
directive establish alternative dispute resolution procedures for this 
purpose.

[[Page 277]]



Sec.1237.9  Priority of expenses and unsecured claims.

    (a) General. The receiver will grant priority to unsecured claims 
against a regulated entity or the receiver for that regulated entity 
that are proven to the satisfaction of the receiver in the following 
order:
    (1) Administrative expenses of the receiver (or an immediately 
preceding conservator).
    (2) Any other general or senior liability of the regulated entity 
(that is not a liability described under paragraph (a)(3) or (a)(4) of 
this section).
    (3) Any obligation subordinated to general creditors (that is not an 
obligation described under paragraph (a)(4) of this section).
    (4) Any claim by current or former shareholders or members arising 
as a result of their current or former status as shareholders or 
members, including, without limitation, any securities litigation claim. 
Within this priority level, the receiver shall recognize the priorities 
of shareholder claims inter se, such as that preferred shareholder 
claims are prior to common shareholder claims. This subparagraph (a)(4) 
shall not apply to any claim by a current or former member of a Federal 
Home Loan Bank that arises from transactions or relationships distinct 
from the current or former member's ownership, purchase, sale, or 
retention of an equity security of the Federal Home Loan Bank.
    (b) Similarly situated creditors. All claimants that are similarly 
situated shall be treated in a similar manner, except that the receiver 
may take any action (including making payments) that does not comply 
with this section, if:
    (1) The Director determines that such action is necessary to 
maximize the value of the assets of the regulated entity, to maximize 
the present value return from the sale or other disposition of the 
assets of the regulated entity, or to minimize the amount of any loss 
realized upon the sale or other disposition of the assets of the 
regulated entity; and
    (2) All claimants that are similarly situated under paragraph (a) of 
this section receive not less than the amount such claimants would have 
received if the receiver liquidated the assets and liabilities of the 
regulated entity in receivership and such action had not been taken.
    (c) Priority determined at default. The receiver will determine 
priority based on a claim's status at the time of default, such default 
having occurred at the time of entry into the receivership, or if a 
conservatorship immediately preceded the receivership, at the time of 
entry into the conservatorship provided the claim then existed.



                Subpart C_Limited-Life Regulated Entities



Sec.1237.10  Limited-life regulated entities.

    (a) Status. The United States Government shall be considered a 
person for purposes of section 1367(i)(6)(C)(i) of the Safety and 
Soundness Act.
    (b) Investment authority. The requirements of section 1367(i)(4) 
shall apply only to the liquidity portfolio of a limited-life regulated 
entity.
    (c) Policies and procedures. The Agency may draft such policies and 
procedures with respect to limited-life regulated entities as it 
determines to be necessary and appropriate, including policies and 
procedures regarding the timing of the creation of limited-life 
regulated entities.



Sec.1237.11  Authority of limited-life regulated entities to obtain
credit.

    (a) Ability to obtain credit. A limited-life regulated entity may 
obtain unsecured credit and issue unsecured debt.
    (b) Inability to obtain credit. If a limited-life regulated entity 
is unable to obtain unsecured credit or issue unsecured debt, the 
Director may authorize the obtaining of credit or the issuance of debt 
by the limited-life regulated entity with priority over any and all of 
the obligations of the limited-life regulated entity, secured by a lien 
on property of the limited-life regulated entity that is not otherwise 
subject to a lien, or secured by a junior lien on property of the 
limited-life regulated entity that is subject to a lien.
    (c) Limitations. The Director, after notice and a hearing, may 
authorize a limited-life regulated entity to obtain credit or issue debt 
that is secured by

[[Page 278]]

a senior or equal lien on property of the limited-life regulated entity 
that is already subject to a lien (other than mortgages that 
collateralize the mortgage-backed securities issued or guaranteed by an 
Enterprise) only if the limited-life regulated entity is unable to 
obtain such credit or issue such debt otherwise on commercially 
reasonable terms and there is adequate protection of the interest of the 
holder of the earlier lien on the property with respect to which such 
senior or equal lien is proposed to be granted.
    (d) Adequate protection. The adequate protection referred to in 
paragraph (c) of this section may be provided by:
    (1) Requiring the limited-life regulated entity to make a cash 
payment or periodic cash payments to the holder of the earlier lien, to 
the extent that there is likely to be a decrease in the value of such 
holder's interest in the property subject to the lien;
    (2) Providing to the holder of the earlier lien an additional or 
replacement lien to the extent that there is likely to be a decrease in 
the value of such holder's interest in the property subject to the lien; 
or
    (3) Granting the holder of the earlier lien such other relief, other 
than entitling such holder to compensation allowable as an 
administrative expense under section 1367(c) of the Safety and Soundness 
Act, as will result in the realization by such holder of the equivalent 
of such holder's interest in such property.



                             Subpart D_Other



Sec.1237.12  Capital distributions while in conservatorship.

    (a) Except as provided in paragraph (b) of this section, a regulated 
entity shall make no capital distribution while in conservatorship.
    (b) The Director may authorize, or may delegate the authority to 
authorize, a capital distribution that would otherwise be prohibited by 
paragraph (a) of this section if he or she determines that such capital 
distribution:
    (1) Will enhance the ability of the regulated entity to meet the 
risk-based capital level and the minimum capital level for the regulated 
entity;
    (2) Will contribute to the long-term financial safety and soundness 
of the regulated entity;
    (3) Is otherwise in the interest of the regulated entity; or
    (4) Is otherwise in the public interest.
    (c) This section is intended to supplement and shall not replace or 
affect any other restriction on capital distributions imposed by statute 
or regulation.



Sec.1237.13  Payment of Securities Litigation Claims while 
in conservatorship.

    (a) Payment of Securities Litigation Claims while in 
conservatorship. The Agency, as conservator, will not pay a Securities 
Litigation Claim against a regulated entity, except to the extent the 
Director determines is in the interest of the conservatorship.
    (b) Claims against limited-life regulated entities. A limited-life 
regulated entity shall not assume, acquire, or succeed to any obligation 
that a regulated entity for which a receiver has been appointed may have 
to any shareholder of the regulated entity that arises as a result of 
the status of that person as a shareholder of the regulated entity, 
including any Securities Litigation Claim. No creditor of the regulated 
entity shall have a claim against a limited-life regulated entity unless 
the receiver has transferred that liability to the limited-life 
regulated entity. The charter of the regulated entity, or of the 
limited-life regulated entity, is not an asset against which any claim 
can be made by any creditor or shareholder of the regulated entity.



Sec.1237.14  Golden parachute payments [Reserved]



PART 1238_STRESS TESTING OF REGULATED ENTITIES--Table of Contents



Sec.
1238.1 Authority and purpose.
1238.2 Definitions.
1238.3 Annual stress test.
1238.4 Methodologies and practices.
1238.5 Required report to FHFA and the FRB of stress test results and 
          related information.
1238.6 Post-assessment actions by regulated entities.
1238.7 Publication of results by regulated entities.

[[Page 279]]

1238.8 Additional implementing action.

    Authority: 12 U.S.C. 1426; 4513; 4526; 4612; 5365(i).

    Source: 78 FR 59222, Sept. 26, 2013, unless otherwise noted.



Sec.1238.1  Authority and purpose.

    (a) Authority. This part is issued by the FHFA under section 165(i) 
of Title I of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act (Dodd-Frank Act) (Pub. L. 111-203, 124 Stat. 1376, 1423-32 (2010), 
12 U.S.C. 5365(i)), the Safety and Soundness Act, as amended (12 U.S.C. 
4513, 4526, 4612), and the Bank Act (12 U.S.C. 1426).
    (b) Purpose. (1) This part implements section 165(i)(2) of the Dodd-
Frank Act, which requires all large financial companies that have total 
consolidated assets of more than $10 billion, and are regulated by a 
primary federal financial regulatory agency, to conduct annual stress 
tests. To ensure the safety and soundness of the regulated entities, the 
Director reserves and retains the discretion to apply this part to any 
regulated entity with less than $10 billion total consolidated assets in 
a particular year.
    (2) This part establishes requirements that apply to each regulated 
entity's performance of annual stress tests. The purpose of the annual 
stress test is to provide the regulated entities, FHFA, and the FRB with 
additional, forward-looking information that will help them to assess 
capital adequacy at the regulated entities under various scenarios; to 
review the regulated entities' stress test results; and to increase 
public disclosure of the regulated entities' capital condition by 
requiring broad dissemination of the stress test scenarios and results.

[78 FR 59222, Sept. 26, 2013, as amended at 81 FR 76295, Nov. 2, 2016]



Sec.1238.2  Definitions.

    For purposes of this part, the following definitions apply:
    Planning horizon means the period of time over which the stress 
projections must extend. The planning horizon cannot be less than nine 
quarters.
    Scenarios are sets of economic and financial conditions used in the 
regulated entities' stress tests, including baseline, adverse, and 
severely adverse.
    Stress test is a process to assess the potential impact on a 
regulated entity of economic and financial conditions (``scenarios'') on 
the consolidated earnings, losses, and capital of the regulated entity 
over a set planning horizon, taking into account the current condition 
of the regulated entity and the regulated entity's risks, exposures, 
strategies, and activities.

[78 FR 59222, Sept. 26, 2013, as amended at 81 FR 76295, Nov. 2, 2016]



Sec.1238.3  Annual stress test.

    (a) In general. Each regulated entity:
    (1) Shall complete an annual stress test of itself based on its data 
as of December 31 of the preceding calendar year;
    (2) The stress test shall be conducted in accordance with this 
section and the methodologies and practices described in Sec.1238.4 
and in any supplemental guidance or Order.
    (b) Scenarios provided by FHFA. In conducting its annual stress 
tests under this section, each regulated entity must use scenarios 
provided by FHFA, which shall be generally consistent with and 
comparable to those established by the FRB, that reflect a minimum of 
three sets of economic and financial conditions, including a baseline, 
adverse, and severely adverse scenario. Not later than 30 days after the 
FRB publishes its scenarios, FHFA will issue to all regulated entities a 
description of the baseline, adverse, and severely adverse scenarios 
that each regulated entity shall use to conduct its annual stress tests 
under this part.

[78 FR 59222, Sept. 26, 2013, as amended at 80 FR 73092, Nov. 24, 2015]



Sec.1238.4  Methodologies and practices.

    (a) Potential impact. Except as noted in this subpart, in conducting 
a stress test under Sec.1238.3, each regulated entity shall calculate 
how each of the following is affected during each quarter of the stress 
test planning horizon, for each scenario:
    (1) Potential losses, pre-provision net revenues, allowance for loan 
losses, and future pro forma capital positions over the planning 
horizon; and

[[Page 280]]

    (2) Capital levels and capital ratios, including regulatory capital 
and net worth, each Bank's leverage and permanent capital ratios, and 
any other capital ratios, specified by FHFA.
    (b) Planning horizon. Each regulated entity must use a planning 
horizon of at least nine quarters over which the impact of specified 
scenarios would be assessed.
    (c) Additional analytical techniques. If FHFA determines that the 
stress test methodologies and practices of a regulated entity are 
deficient, FHFA may determine that additional or alternative analytical 
techniques and exercises are appropriate for a regulated entity to use 
in identifying, measuring, and monitoring risks to the financial 
soundness of the regulated entity, and require a regulated entity to 
implement such techniques and exercises in order to fulfill the 
requirements of this part. In addition, FHFA will issue guidance 
annually to describe the baseline, adverse, and severely adverse 
scenarios, and methodologies to be used in conducting the annual stress 
test.
    (d) Controls and oversight of stress testing processes. (1) The 
appropriate senior management of each regulated entity must ensure that 
the regulated entity establishes and maintains a system of controls, 
oversight, and documentation, including policies and procedures, 
designed to ensure that the stress testing processes used by the 
regulated entity are effective in meeting the requirements of this part. 
These policies and procedures must, at a minimum, describe the regulated 
entity's testing practices and methodologies, validation and use of 
stress test results, and processes for updating the regulated entity's 
stress testing practices consistent with relevant supervisory guidance;
    (2) The board of directors, or a designated committee thereof, shall 
review and approve the policies and procedures established to comply 
with this part as frequently as economic conditions or the condition of 
the regulated entity warrants, but at least annually; and
    (3) Senior management of the regulated entity and each member of the 
board of directors shall receive a summary of the stress test results.



Sec.1238.5  Required report to FHFA and the FRB of stress test
results and related information.

    (a) Report required for stress tests. On or before May 20 of each 
year, the Enterprises must report the results of the stress tests 
required under Sec.1238.3 to FHFA, and to the FRB, in accordance with 
paragraph (b) of this section; and on or before August 31 of each year, 
the Banks must report the results of the stress tests required under 
Sec.1238.3 to FHFA, and to the FRB, in accordance with paragraph (b) 
of this section;
    (b) Content of report for annual stress test. Each regulated entity 
must file a report in the manner and form established by FHFA.
    (c) Confidential treatment of information submitted. Reports 
submitted to FHFA under this part are FHFA property and records (as 
defined in 12 CFR part 1202 of this chapter). The reports are and 
include non-public information contained in or related to examination, 
operating, or condition reports prepared by, on behalf of, or for the 
use of, FHFA in connection with the performance of the agency's 
responsibilities regulating or supervising its regulated entities. 
Disclosure of any reports submitted to FHFA or the information contained 
in any such report is prohibited unless authorized by this part, legal 
obligation, or otherwise by the Director of FHFA.

[78 FR 59222, Sept. 26, 2013, as amended at 80 FR 73092, Nov. 24, 2015]



Sec.1238.6  Post-assessment actions by regulated entities.

    Each regulated entity shall take the results of the stress test 
conducted under Sec.1238.3 into account in making changes, as 
appropriate, to the regulated entity's capital structure (including the 
level and composition of capital); its exposures, concentrations, and 
risk positions; any plans for recovery and resolution; and to improve 
overall risk management. If a regulated entity is under FHFA 
conservatorship, any post-assessment actions shall require prior FHFA 
approval.



Sec.1238.7  Publication of results by regulated entities.

    (a) Public disclosure of results required for stress tests of 
regulated entities. The

[[Page 281]]

Enterprises must disclose publicly a summary of the stress test results 
for the severely adverse scenario not earlier than August 1 and not 
later than August 15 of each year. Each Bank must disclose publicly a 
summary of the stress test results for the severely adverse scenario not 
earlier than November 15 and not later than November 30 of each year. 
The summary may be published on the regulated entity's Web site or in 
any other form that is reasonably accessible to the public;
    (b) Information to be disclosed in the summary. The information 
disclosed by each regulated entity shall, at a minimum, include--
    (1) A description of the types of risks being included in the stress 
test;
    (2) A high-level description of the scenario provided by FHFA, 
including key variables (such as GDP, unemployment rate, housing prices, 
foreclosure rate, etc.);
    (3) A general description of the methodologies employed to estimate 
losses, pre-provision net revenue, allowance for loan losses, and 
changes in capital positions over the planning horizon;
    (4) A general description of the use of the required stress test as 
one element in a regulated entity's overall capital planning and capital 
adequacy assessment. If a regulated entity is under FHFA 
conservatorship, this description shall be coordinated with FHFA;
    (5) Aggregate losses, pre-provision net revenue, allowance for loan 
losses, net income, net worth, and each Bank's leverage and permanent 
capital ratios, pro forma capital levels and capital ratios (including 
regulatory and any other capital ratios specified by FHFA) over the 
planning horizon, under the scenario; and
    (6) Such other data fields, in such form (e.g., aggregated), as the 
Director may require.

[78 FR 59222, Sept. 26, 2013, as amended at 80 FR 73092, Nov. 24, 2015]



Sec.1238.8  Additional implementing action.

    The Director may, in circumstances considered appropriate, require 
any regulated entity not subject to this part to conduct stress testing 
hereunder; and from time to time, issue such guidance and orders as may 
be necessary to facilitate implementation of this part.



PART 1239_RESPONSIBILITIES OF BOARDS OF DIRECTORS, CORPORATE PRACTICES,
AND CORPORATE GOVERNANCE--Table of Contents



                            Subpart A_General

Sec.
1239.1 Purpose.
1239.2 Definitions.

Subpart B_Corporate Practices and Procedures Applicable to All Regulated 
                                Entities

1239.3 Law applicable to corporate governance and indemnification 
          practices.
1239.4 Duties and responsibilities of directors.
1239.5 Board committees.

    Subpart C_Other Requirements Applicable to All Regulated Entities

1239.10 Code of conduct and ethics.
1239.11 Risk management.
1239.12 Compliance program.
1239.13 Regulatory reports.
1239.14 Strategic business plan.

               Subpart D_Enterprise Specific Requirements

1239.20 Board of directors of the Enterprises.
1239.21 Compensation of Enterprise board members.

                  Subpart E_Bank Specific Requirements

1239.30 Bank member products policy.
1239.31 [Reserved]
1239.32 Audit committee.
1239.33 Dividends.

    Authority: 12 U.S.C. 1426, 1427, 1432(a), 1436(a), 1440, 4511(b), 
4513(a), 4513(b), 4526, and 15 U.S.C. 78oo(b).

    Source: 80 FR 72336, Nov. 19, 2015, unless otherwise noted.



                            Subpart A_General



Sec.1239.1  Purpose.

    FHFA is responsible for supervising and ensuring the safety and 
soundness of the regulated entities. In furtherance of those 
responsibilities, this part

[[Page 282]]

sets forth minimum standards with respect to responsibilities of boards 
of directors, corporate practices, and corporate governance matters of 
the regulated entities.



Sec.1239.2  Definitions.

    As used in this part, (unless otherwise noted):
    Board member means a member of the board of directors of a regulated 
entity.
    Board of directors means the board of directors of a regulated 
entity.
    Business risk means the risk of an adverse impact on a regulated 
entity'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.
1263.1 of this chapter.
    Compensation means any payment of money or the provision of any 
other thing of current or potential value in connection with employment 
or in connection with service as a director.
    Credit risk is the potential that a borrower or counterparty will 
fail to meet its financial obligations in accordance with agreed terms.
    Employee means an individual, other than an executive officer, who 
works part-time, full-time, or temporarily for a regulated entity.
    Executive officer means the chief executive officer, chief financial 
officer, chief operating officer, president, any executive vice 
president, any senior vice president, and any individual with similar 
responsibilities, without regard to title, who is in charge of a 
principal business unit, division, or function, or who reports directly 
to the chairperson, vice chairperson, chief operating officer, or chief 
executive officer or president of a regulated entity.
    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 a regulated entity.
    Liquidity risk means the risk that a regulated entity will be unable 
to meet its financial 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 regulated entity's 
portfolio will decline as a result of changes in interest rates, foreign 
exchange rates, or equity or commodity prices.
    NYSE means the New York Stock Exchange.
    Operational risk means the risk of loss resulting from inadequate or 
failed internal processes, people, or systems, or from external events 
(including legal risk but excluding strategic and reputational risk).
    Risk appetite means the aggregate level and types of risk the board 
of directors and management are willing to assume to achieve the 
regulated entity's strategic objectives and business plan, consistent 
with applicable capital, liquidity, and other regulatory requirements.
    Significant deficiency means a deficiency, or a combination of 
deficiencies, in internal control that is less severe than a material 
weakness, yet important enough to merit attention by those charged with 
governance.



Subpart B_Corporate Practices and Procedures Applicable to All Regulated 
                                Entities



Sec.1239.3  Law applicable to corporate governance and indemnification
practices.

    (a) General. The corporate governance practices and procedures of 
each regulated entity, and practices and procedures relating to 
indemnification (including advancement of expenses), shall comply with 
and be subject to the applicable authorizing statutes and other Federal 
law, rules, and regulations, and shall be consistent with the safe and 
sound operations of the regulated entities.
    (b) Election and designation of body of law. (1) To the extent not 
inconsistent with paragraph (a) of this section, each regulated entity 
shall elect to follow the corporate governance and indemnification 
practices and procedures set forth in one of the following:
    (i) The law of the jurisdiction in which the principal office of the 
regulated entity is located;

[[Page 283]]

    (ii) The Delaware General Corporation Law (Del. Code Ann. Title 8); 
or
    (iii) The Revised Model Business Corporation Act.
    (2) Each regulated entity shall designate in its bylaws the body of 
law elected for its corporate governance and indemnification practices 
and procedures pursuant to this paragraph, and shall do so by no later 
than March 18, 2016.
    (c) Indemnification. (1) Subject to paragraphs (a) and (b) of this 
section, to the extent applicable, a regulated entity shall indemnify 
(and advance the expenses of) its directors, officers, and employees 
under such terms and conditions as are determined by its board of 
directors. The regulated entity is authorized to maintain insurance for 
its directors and any other officer or employee.
    (2) Each regulated entity shall have in place policies and 
procedures consistent with this section for indemnification of its 
directors, officers, and employees. Such policies and procedures shall 
address how the board of directors is to approve or deny requests for 
indemnification from current and former directors, officers, and 
employees, and shall include standards relating to indemnification, 
investigations by the board of directors, and review by independent 
counsel.
    (3) Nothing in this paragraph (c) shall affect any rights to 
indemnification (including the advancement of expenses) that a director 
or any other officer or employee had with respect to any actions, 
omissions, transactions, or facts occurring prior to the effective date 
of this paragraph.
    (4) FHFA has the authority under the Safety and Soundness Act to 
review a regulated entity's indemnification policies, procedures, and 
practices to ensure that they are conducted in a safe and sound manner, 
and that they are consistent with the body of law adopted by the board 
of directors under paragraph (b) of this section.
    (d) No rights created. Nothing in this part shall create or be 
deemed to create any rights in any third party, including in any member 
of a Bank, nor shall it cause or be deemed to cause any regulated entity 
to become subject to the jurisdiction of any state court with respect to 
the entity's corporate governance or indemnification practices or 
procedures.



Sec.1239.4  Duties and responsibilities of directors.

    (a) Management of a regulated entity. The management of each 
regulated entity shall be by or under the direction of its board of 
directors. While a board of directors may delegate the execution of 
operational functions to officers and employees of the regulated entity, 
the ultimate responsibility of each entity's board of directors for that 
entity's oversight is non-delegable. The board of directors of a 
regulated entity is responsible for directing the conduct and affairs of 
the entity in furtherance of the safe and sound operation of the entity 
and shall remain reasonably informed of the condition, activities, and 
operations of the entity.
    (b) Duties of directors. Each director of a regulated entity 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 
regulated entity, and with such care, including reasonable inquiry, as 
is required under the Revised Model Business Corporation Act or the 
other body of law that the entity's board of directors has chosen to 
follow for its corporate governance and indemnification practices and 
procedures in accordance with Sec.1239.3(b);
    (2) For Bank directors, administer the affairs of the regulated 
entity fairly and impartially and without discrimination in favor of or 
against any member institution;
    (3) At the time of 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 regulated entity's 
balance sheet and income statement and to ask substantive questions of 
management and the internal and external auditors;
    (4) Direct the operations of the regulated entity in conformity with 
the requirements set forth in the authorizing statutes, the Safety and 
Soundness Act, and this chapter; and
    (5) Adopt and maintain in effect at all times bylaws governing the 
manner

[[Page 284]]

in which the regulated entity administers its affairs. Such bylaws shall 
be consistent with applicable laws and regulations administered by FHFA, 
and with the body of law designated for the entity's corporate 
governance practices and procedures in accordance with Sec.1239.3(b).
    (c) Director responsibilities. The responsibilities of the board of 
directors include having in place adequate policies to assure its 
oversight of, among other matters, the following:
    (1) The risk management and compensation programs of the regulated 
entity;
    (2) The processes for providing accurate financial reporting and 
other disclosures, and communications with stockholders; and
    (3) The responsiveness of executive officers in providing accurate 
and timely reports to FHFA and in addressing all supervisory concerns of 
FHFA in a timely and appropriate manner.
    (d) Authority regarding staff and outside consultants. (1) In 
carrying out its duties and responsibilities under the authorizing 
statutes, the Safety and Soundness Act, and this chapter, each regulated 
entity'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 regulated entity.
    (2) The board of directors and its committees may require that staff 
of the regulated entity that provides services to the board or any 
committee under paragraph (d)(1) of this section report directly to the 
board or such committee, as appropriate.



Sec.1239.5  Board committees.

    (a) General. The board of directors may rely, in directing a 
regulated entity, 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 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) Required committees. The board of directors of each regulated 
entity shall have committees, however styled, that address each of the 
following areas of responsibility: Risk management; audit; compensation; 
and corporate governance (in the case of the Banks, including the 
nomination of independent board of director candidates, and, in the case 
of the Enterprises, including the nomination of all board of director 
candidates). The risk management committee and the audit committee shall 
not be combined with any other committees. The board of directors may 
establish any other committees that it deems necessary or useful to 
carrying out its responsibilities, subject to the provisions of this 
section. In the case of the Enterprises, board committees shall comply 
with the charter, independence, composition, expertise, duties, 
responsibilities, and other requirements set forth under rules issued by 
the NYSE, and the audit committees shall also comply with the 
requirements set forth under section 301 of the Sarbanes-Oxley Act of 
2002, Public Law 107-204.
    (c) Charter. The board of directors shall adopt a formal written 
charter for each committee that specifies the scope of a committee's 
powers and responsibilities, as well as the committee's structure, 
processes, and membership requirements.
    (d) Frequency of meetings. Each committee of the board of directors 
shall meet regularly and with sufficient frequency to carry out its 
obligations and duties under applicable laws, rules, regulations, and 
guidelines. Committees that are structured to meet only on an as-needed 
basis shall meet in the manner specified by their charter. All such 
committees shall also meet with sufficient timeliness as necessary in 
light of relevant conditions and circumstances to fulfill their 
obligations and duties.



    Subpart C_Other Requirements Applicable to All Regulated Entities



Sec.1239.10  Code of conduct and ethics.

    (a) General. A regulated entity shall establish and administer a 
written code of conduct and ethics that is reasonably designed to assure 
that its directors, officers, and employees discharge

[[Page 285]]

their duties and responsibilities in an objective and impartial manner 
that promotes honest and ethical conduct, compliance with applicable 
laws, rules, and regulations, accountability for adherence to the code, 
and prompt internal reporting of violations of the code to appropriate 
persons identified in the code. The code also shall include provisions 
applicable to the regulated entity's principal executive officer, 
principal financial officer, principal accounting officer or controller, 
or persons performing similar functions, that are reasonably designed to 
promote full, fair, accurate, and understandable disclosure in reports 
and other documents filed with the Securities and Exchange Commission 
and in other public communications reporting on the entity's financial 
condition.
    (b) Review. Not less often than once every three years, a regulated 
entity shall review the adequacy of its code of conduct and ethics for 
consistency with practices appropriate to the entity and make any 
appropriate revisions to such code.



Sec.1239.11  Risk management.

    (a) Risk management program--(1) Adoption. Each regulated entity's 
board of directors shall approve, have in effect at all times, and 
periodically review an enterprise-wide risk management program that 
establishes the regulated entity's risk appetite, aligns the risk 
appetite with the regulated entity's strategies and objectives, 
addresses the regulated entity's exposure to credit risk, market risk, 
liquidity risk, business risk and operational risk, and complies with 
the requirements of this part and with all applicable FHFA regulations 
and policies.
    (2) Risk appetite. The board of directors shall ensure that the risk 
management program aligns with the regulated entity's risk appetite.
    (3) Risk management program requirements. The risk management 
program shall include:
    (i) Risk limitations appropriate to each business line of the 
regulated entity;
    (ii) Appropriate policies and procedures relating to risk management 
governance, risk oversight infrastructure, and processes and systems for 
identifying and reporting risks, including emerging risks;
    (iii) Provisions for monitoring compliance with the regulated 
entity's risk limit structure and policies relating to risk management 
governance, risk oversight, and effective and timely implementation of 
corrective actions; and
    (iv) Provisions specifying management's authority and independence 
to carry out risk management responsibilities, and the integration of 
risk management with management's goals and compensation structure.
    (b) Risk committee. The board of each regulated entity shall 
establish and maintain a risk committee of the board of directors that 
assists the board in carrying out its duties to oversee the enterprise-
wide risk management program at the regulated entity.
    (1) Committee structure. The risk committee shall:
    (i) Be chaired by a director not serving in a management capacity of 
the regulated entity;
    (ii) Have at least one member with risk management experience that 
is commensurate with the regulated entity's capital structure, risk 
appetite, complexity, activities, size, and other appropriate risk-
related factors;
    (iii) Have committee members that have, or that will acquire within 
a reasonable time after being elected to the committee, a practical 
understanding of risk management principles and practices relevant to 
the regulated entity;
    (iv) Fully document and maintain records of its meetings, including 
its risk management decisions and recommendations; and
    (v) Report directly to the board and not as part of, or combined 
with, another committee.
    (2) Committee responsibilities. The risk committee shall:
    (i) Periodically review and recommend for board approval an 
appropriate enterprise-wide risk management program that is commensurate 
with the regulated entity's capital structure, risk appetite, 
complexity, activities, size, and other appropriate risk-related 
factors;
    (ii) Receive and review regular reports from the regulated entity's 
chief

[[Page 286]]

risk officer, as required under paragraph (c)(5) of this section ; and
    (iii) Periodically review the capabilities for, and adequacy of 
resources allocated to, enterprise-wide risk management.
    (c) Chief Risk Officer.--(1) Appointment of a chief risk officer 
(CRO). Each regulated entity shall appoint a CRO to implement and 
maintain appropriate enterprise-wide risk management practices for the 
regulated entity.
    (2) Organizational structure of the risk management function. The 
CRO shall head an independent enterprise-wide risk management function, 
or unit, and shall report directly to the risk committee and to the 
chief executive officer.
    (3) Responsibilities of the CRO. The CRO shall be responsible for 
the enterprise-wide risk management function, including:
    (i) Allocating risk limits and monitoring compliance with such 
limits;
    (ii) Establishing appropriate policies and procedures relating to 
risk management governance, practices, and risk controls, and developing 
appropriate processes and systems for identifying and reporting risks, 
including emerging risks;
    (iii) Monitoring risk exposures, including testing risk controls and 
verifying risk measures; and
    (iv) Communicating within the organization about any risk management 
issues and/or emerging risks, and ensuring that risk management issues 
are effectively resolved in a timely manner.
    (4) The CRO should have risk management expertise that is 
commensurate with the regulated entity's capital structure, risk 
appetite, complexity, activities, size, and other appropriate risk 
related factors.
    (5) The CRO shall report regularly to the risk committee and to the 
chief executive officer on significant risk exposures and related 
controls, changes to risk appetite, risk management strategies, results 
of risk management reviews, and emerging risks. The CRO shall also 
report regularly on the regulated entity's compliance with, and the 
adequacy of, its current risk management policies and procedures, and 
shall recommend any adjustments to such policies and procedures that he 
or she considers necessary or appropriate.
    (6) The compensation of a regulated entity's CRO shall be 
appropriately structured to provide for an objective and independent 
assessment of the risks taken by the regulated entity.



Sec.1239.12  Compliance program.

    A regulated entity shall establish and maintain a compliance program 
that is reasonably designed to assure that the regulated entity complies 
with applicable laws, rules, regulations, and internal controls. The 
compliance program shall be headed by a compliance officer, however 
styled, who reports directly to the chief executive officer. The 
compliance officer also shall report regularly to the board of 
directors, or an appropriate committee thereof, on the adequacy of the 
entity's compliance policies and procedures, including the entity's 
compliance with them, and shall recommend any revisions to such policies 
and procedures that he or she considers necessary or appropriate.



Sec.1239.13  Regulatory reports.

    (a) Reports. Each regulated entity shall file Regulatory Reports 
with FHFA in accordance with the forms, instructions, and schedules 
issued by FHFA from time to time. If no regularly scheduled reporting 
dates are established, Regulatory Reports shall be filed as requested by 
FHFA.
    (b) Definition. For purposes of this section, the term Regulatory 
Report means any report to FHFA of information or raw or summary data 
needed to evaluate the safe and sound condition or operations of a 
regulated entity, or to determine compliance with any:
    (1) Provision in the Bank Act, Safety and Soundness Act, or other 
law, order, rule, or regulation;
    (2) Condition imposed in writing by FHFA in connection with the 
granting of any application or other request by a regulated entity; or
    (3) Written agreement entered into between FHFA and a regulated 
entity.



Sec.1239.14  Strategic business plan.

    (a) Adoption of strategic business plan. Each board of directors 
shall adopt and have in effect at all times a strategic

[[Page 287]]

business plan for the regulated entity that describes, at a minimum, how 
the significant business activities of the regulated entity will achieve 
its mission and public purposes consistent with its authorizing statute, 
the Safety and Soundness Act, and, in the case of a Bank, part 1265 of 
this chapter. Specifically, each regulated entity's strategic business 
plan shall at a minimum:
    (1)(i) In the case of a Bank, articulate measurable goals and 
objectives for each significant business activity and for all authorized 
new business activities, which must include plans for maximizing 
activities that further the Bank's housing finance and community lending 
mission, consistent with part 1265 of this chapter;
    (ii) In the case of an Enterprise, articulate measurable goals and 
objectives for each significant existing activity and for significant 
authorized new activities;
    (2) Discuss how the regulated entity will address credit needs and 
market opportunities identified through ongoing market research and 
stakeholder consultations;
    (3) Describe any significant activities in which the regulated 
entity is planning to be engaged, including any significant changes to 
business strategy or approach that the regulated entity is planning to 
undertake, and discuss how such activities would further the regulated 
entity's mission and public purposes;
    (4)(i) In the case of a Bank, be supported by appropriate and timely 
research and analysis of relevant market developments and member and 
housing associate demand for Bank products and services;
    (ii) In the case of an Enterprise, be supported by appropriate and 
timely research and analysis of relevant market developments; and
    (5) Identify current and emerging risks associated with the 
regulated entity's significant existing activities or new activities, 
and discuss how the regulated entity plans to address such risks while 
furthering its public purposes and mission in a safe and sound manner.
    (b) Review and monitoring. Each board of directors shall:
    (1) Review the regulated entity's strategic business plan at least 
annually;
    (2) Re-adopt the strategic business plan for the regulated entity at 
least every three years; and
    (3) Establish management reporting requirements and monitor 
implementation of the strategic business plan and the goals and 
objectives contained therein.

[83 FR 52954, Oct. 19, 2018]



               Subpart D_Enterprise Specific Requirements



Sec.1239.20  Board of directors of the Enterprises.

    (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; and
    (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.
    (3) Segregation of duties. The position of chairperson of the board 
of directors shall be filled by a person other than the chief executive 
officer, who shall also be a director of the Enterprise that is 
independent, as defined under the 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.

[[Page 288]]

    (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 be informed of significant changes to the requirements 
of laws, rules, regulations, and guidelines that are applicable to its 
activities and duties.



Sec.1239.21  Compensation of Enterprise board members.

    Each Enterprise may pay its directors reasonable and appropriate 
compensation for the time required of them, and their necessary and 
reasonable expenses, in the performance of their duties.



                  Subpart E_Bank Specific Requirements



Sec.1239.30  Bank member products policy.

    (a) Adoption and review of member products policy--(1) Adoption. 
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 Bank Act, paragraph (b) of this 
section, and all applicable FHFA 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.
1266.5(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 1292 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.1271.6(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.



Sec.1239.31    [Reserved]



Sec.1239.32  Audit committee.

    (a) Establishment. The audit committee of each Bank established as 
required by Sec.1239.5(b) shall be 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

[[Page 289]]

criteria of independence set forth in paragraph (c) of this section.
    (2) The audit committee shall include, to the extent practicable, a 
balance of representatives of:
    (i) Community financial institutions and other members; and
    (ii) Independent directors and member directors of the Bank, both as 
defined in the Bank Act.
    (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 review and 
assess the adequacy of the Bank's audit committee charter on an annual 
basis, and shall recommend to the board of directors any amendments that 
it believes to be appropriate;
    (2) The board of directors of each Bank shall review and assess the 
adequacy of the audit committee charter on an annual basis, shall amend 
the audit committee charter whenever it deems it appropriate to do so, 
and shall reapprove the audit committee charter not less often than 
every three years; and
    (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;
    (iii) Provide that the audit committee shall be directly responsible 
for the appointment, compensation, retention, and oversight of the work 
of the external auditor;
    (iv) Provide that the external auditor shall report directly to the 
audit committee;
    (v) 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; and
    (vi) Provide that the Bank shall make available appropriate funding, 
as determined by the audit committee, for payment of compensation to the 
external auditor, to any independent advisors or counsel engaged by the 
audit committee, and ordinary administrative expenses that are necessary 
or appropriate for the audit committee to carry out its duties.
    (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 thereof) 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:

[[Page 290]]

    (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; and
    (ii) Reviewing the performance 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 significant deficiencies 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 established by senior management to assess 
and monitor implementation of the Bank's strategic business plan and the 
operating goals and objectives contained therein;
    (9) Report periodically its findings to the Bank's board of 
directors; and
    (10) Establish procedures for the receipt, retention, and treatment 
of complaints received by the Bank regarding accounting, internal 
accounting controls, or auditing matters, and for the confidential, 
anonymous submission by employees of the Bank of concerns regarding 
questionable accounting or auditing matters.
    (f) Meetings. The audit committee shall prepare written minutes of 
each audit committee meeting.

[80 FR 72336, Nov. 19, 2015, as amended at 81 FR 76295, Nov. 2, 2016]



Sec.1239.33  Dividends.

    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.

[[Page 291]]



                        SUBCHAPTER C_ENTERPRISES





PART 1248_UNIFORM MORTGAGE-BACKED SECURITIES--Table of Contents



Sec.
1248.1 Definitions.
1248.2 Purpose.
1248.3 General alignment.
1248.4 Enterprise consultation.
1248.5 Misalignment.
1248.6 Covered programs, policies, and practices.
1248.7 Remedial actions.
1248.8 De minimis exception.

    Authority: 12 U.S.C. 1451 note; 1716; 4511; and 4526.

    Source: 84 FR 7799, Mar. 5, 2019, unless otherwise noted.



Sec.1248.1  Definitions.

    The definitions below are used to define terms for purposes of this 
part:
    Align or alignment means to cause to be sufficiently similar, or 
have sufficient similarity, as to produce a conditional prepayment rate 
(CPR) divergence of less than 2 percentage points in the three-month CPR 
for a cohort, and less than 5 percentage points in the three-month CPR 
for a the fastest paying quartile of a cohort (or less than the 
prevailing percentage thresholds for alignment set by FHFA, per Sec.
1248.5(c)).
    Cohort means all TBA-eligible securities with the same coupon, 
maturity, and loan-origination year where the combined unpaid principal 
balance of such securities issued by both Enterprises exceeds $10 
billion.
    Conditional Prepayment Rate or CPR, also known as the constant 
prepayment rate, means the rate at which investors receive outstanding 
principal in advance of scheduled principal payments. This includes 
receipts of principal that result from borrower prepayments and for any 
other reason. The CPR is expressed as a compound annual rate.
    Covered Programs, Policies, or Practices means management decisions 
or actions that have reasonably foreseeable effects on cash flows to 
TBA-eligible MBS investors (e.g., effects that result from prepayment 
rates and the circumstances under which mortgage loans are removed from 
MBS). These generally include management decisions or actions about: 
Single-family guarantee fees; loan level price adjustments and delivery 
fee portions of single-family guarantee fees; the spread between the 
note rate on the mortgage and the pass-through coupon on the TBA-
eligible MBS; eligibility standards for sellers and servicers; financial 
and operational standards for private mortgage insurers; requirements 
related to the servicing of distressed loans that collateralize TBA-
eligible securities; streamlined modification and refinance programs; 
removal of mortgage loans from securities; servicer compensation; 
proposals that could materially change the credit risk profile of the 
single-family mortgages securitized by an Enterprise; selling guide 
requirements for documenting creditworthiness, ability to repay, and 
adherence to collateral standards; refinances of HARP-eligible loans; 
contract provisions under which certain sellers commit to sell to an 
Enterprise a minimum share of the mortgage loans they originate that are 
eligible for sale to the Enterprises; loan modification offerings; loss 
mitigation practices during disasters; alternatives to repurchase for 
representation and warranty violations; and other actions.
    Fastest paying quartile of a cohort means the quartile of a cohort 
that has the fastest prepayment speeds as measured by the three-month 
CPR. The quartiles shall be determined by ranking outstanding TBA-
eligible securities with the same coupon, maturity, and loan-origination 
year by the three-month CPR, excluding specified pools, and dividing 
each cohort into four parts such that the total unpaid principal balance 
of the pools included in each part is equal.
    Material misalignment means divergence of at least 3 percentage 
points in the three-month CPR for a cohort or at least 8 percentage 
points in the three-month CPR for a fastest paying quartile of a cohort, 
or a prolonged misalignment (as determined by FHFA), or divergence 
greater than either of the

[[Page 292]]

corresponding prevailing percentage thresholds set by FHFA, per Sec.
1248.5(c).
    Misalign or misalignment means to diverge by, or a divergence of, 2 
percentage points or more, in the three-month CPR for a cohort or 5 
percentage points or more, in the three-month CPR for a fastest paying 
quartile of a cohort (or more than either of the corresponding 
prevailing percentage thresholds set by FHFA, per Sec.1248.5(c)).
    Mortgage-backed security or MBS means securities collateralized by a 
pool or pools of single-family mortgages.
    Specified pools means pools of mortgages backing TBA-eligible MBS 
that have a maximum loan size of $200,000, a minimum loan-to-value ratio 
at the time of loan origination of 80 percent, or a maximum FICO score 
of 700, or where all mortgages in the pool finance investor-owned 
properties or properties in the states of New York or Texas or the 
Commonwealth of Puerto Rico.
    Supers means single-class re-securitizations of UMBS.
    Three-month conditional prepayment rate (CPR3) means the annualized 
measure of prepayments for a three month interval calculated as follows:

CPR3t = 1 - ((1 - SMMt-2) *(1 - SMMt-1) 
* (1 - SMMt))\4\,


where t indicates the month andSMM is the single month mortality rate, 
which equals(PMTt - It - Pt)/
(UPBt - Pt),where PMTt is the actual 
payments received in the month,It is the scheduled payments 
of interest, Pt is the scheduled payments of principal, and 
UPBt is the beginning unpaid principal balance.
    To-Be-Announced Eligible Mortgage-Backed Security (TBA-Eligible MBS) 
means Enterprise MBS (including Freddie Mac Participation Certificates, 
Giants, MBS, UMBS, and Supers; and Fannie Mae MBS, Megas, UMBS, and 
Supers) that meet criteria such that the market considers them 
sufficiently fungible to be forward traded in the TBA market.
    Uniform Mortgage Backed Security or UMBS means a single-class MBS 
backedby fixed-rate mortgage loans on one-to-four unit (single-family) 
properties issued byeither Enterprise which has the same characteristics 
(such as payment delay, poolingprefixes, and minimum pool submission 
amounts) regardless of which Enterprise is the issuer.



Sec.1248.2  Purpose.

    The purpose of this part is to:
    (a) Enhance liquidity in the MBS marketplace, and to that end, 
enable adoption of the UMBS, by achieving sufficient similarity of cash 
flows on cohorts of TBA-eligible MBS such that investors will accept 
delivery of UMBS from either issuer in settlement of trades on the TBA 
market.
    (b) Provide transparency and durability into the process for 
creating alignment.



Sec.1248.3  General alignment.

    Each Enterprise's covered programs, policies, and practices must 
align with the other Enterprise's covered programs, policies, and 
practices.
    (a) When aligning covered programs, policies, and practices, the 
Enterprises must consider:
    (1) The effect of the alignment on TBA-eligible securities' pricing 
and particularly on the prepayment speeds of mortgages underlying TBA-
eligible MBS.
    (2) Options that provide the greatest benefit for investors, 
lenders, and mortgage borrowers.
    (b) [Reserved]



Sec.1248.4  Enterprise consultation.

    When and in the manner instructed by FHFA, the Enterprises shall 
consult with each other on any issues, including changes to covered 
programs, policies, and practices that potentially or actually cause 
cash flows to TBA-eligible MBS investors to misalign. The Enterprises 
shall report to FHFA on the results of any such consultation.



Sec.1248.5  Misalignment.

    (a) The Enterprises must report any misalignment to FHFA.
    (b) The Enterprises must submit, in a timely manner, a written 
report to FHFA on any material misalignment describing, at a minimum, 
the likely cause of material misalignment and the Enterprises' plan to 
address the material misalignment.
    (c) FHFA will temporarily adjust the percentages in the definitions 
of align,

[[Page 293]]

misalignment, and material misalignment, if FHFA determines that market 
conditions dictate that an adjustment is appropriate.
    (1) In adjusting the percentages, FHFA will consider:
    (i) The prevailing level and volatility of interest rates;
    (ii) The level of credit risk embedded in the Enterprises' TBA-
eligible MBS; and
    (iii) Such other factors as FHFA may, in consultation with the 
Enterprises, determine to be appropriate to promote market confidence in 
the alignment of cash flows to TBA-eligible MBS investors and to foster 
the efficiency and liquidity of the secondary mortgage market.
    (2) FHFA will publicly announce any temporary adjustment to the 
percentages in the definition of align, misalignment, and material 
misalignment in a timely manner.
    (3) If adjusted percentages remain in effect for six months or more, 
FHFA will amend this part's definitions by Federal Register Notice, with 
opportunity for public comment.
    (4) Temporarily adjusted percentages will remain in effect until six 
months after the date on which FHFA announced the temporary adjustment 
unless within six months of that date--
    (i) FHFA announces a reversion to the previously prevailing 
percentages; or
    (ii) FHFA initiates the notice and comment process, in which case 
the temporary percentages will remain in effect until the conclusion of 
that process.
    (d) FHFA will temporarily adjust the definitions of cohort, fastest 
paying quartile of a cohort, and specified pools, if FHFA determines 
that changes in market practices or conditions dictate that an 
adjustment is appropriate.
    (1) In adjusting those definitions, FHFA will consider:
    (i) Changes in prevailing market practices related to the 
identification of specified pools;
    (ii) The prevailing interest rates environment;
    (iii) Observed relationships between pool characteristics and 
prepayment behavior of the Enterprises' TBA-eligible MBS; and
    (iv) Such other factors as FHFA may, in consultation with the 
Enterprises, determine to be appropriate to promote market confidence in 
the alignment of cash flows to TBA-eligible MBS investors and to foster 
the efficiency and liquidity of the secondary mortgage market.
    (2) FHFA will publicly announce any temporary adjustment to the 
definitions of cohort and specified pools in a timely manner.
    (3) If adjusted definitions remain in effect for six months or more, 
FHFA will amend this part's definitions by Federal Register Notice, with 
opportunity for public comment.
    (4) Temporarily adjusted definitions will remain in place until six 
months after the date on which FHFA announced the temporary adjustment 
unless within six months of that date--
    (i) FHFA announces a reversion to the previously prevailing 
definitions; or
    (ii) FHFA initiates the notice and comment process, in which case 
the temporary definitions will remain in effect until the conclusion of 
that process.



Sec.1248.6  Covered programs, policies, and practices.

    (a) Enterprise Change Management Processes. Each Enterprise must 
establish and maintain an Enterprise-wide governance process to ensure 
that any proposed changes to covered programs, policies, and practices 
that may cause misalignment are identified, reviewed, escalated, and 
submitted, in writing, to FHFA for review and approval in a timely 
manner, including proposed changes to covered programs, policies, and 
practices that were previously aligned at the direction of FHFA as 
conservator.
    (1) Submissions to FHFA must include projections for prepayment 
rates and for removals of delinquent loans under a range of interest 
rate environments and assumptions concerning borrower defaults.
    (2) Submissions to FHFA must include an analysis of the impact on 
borrowers and impact on the fastest paying quartile of each cohort.

[[Page 294]]

    (3) Submissions to FHFA must include an analysis of identified risks 
and may include potential mitigating actions.
    (b) Enterprise Monitoring. Any changes to covered programs, 
policies, and practices that an Enterprise reasonably should identify as 
having been a likely cause of an unanticipated divergence between 
Enterprises in the three-month CPR of the same cohort shall be reported 
promptly to FHFA in writing.
    (c) FHFA Monitoring. FHFA will monitor changes to covered programs, 
policies, and practices for effects on cash flows to TBA-eligible MBS 
investors.



Sec.1248.7  Remedial actions.

    (a) Based on its review of reports submitted by the Enterprises and 
reports issued by independent parties, if FHFA determines that there is 
misalignment, or the risk of misalignment, FHFA may:
    (1) Require an Enterprise to undertake additional analysis, 
monitoring, or reporting to further the purposes of this part.
    (2) Require an Enterprise to change covered programs, policies, and 
practices that FHFA determines conflict with the purposes of this part.
    (b) To address material misalignment, FHFA may require additional 
and expedient Enterprise actions based on:
    (1) Consultation with the Enterprises regarding the cause of the 
material misalignment;
    (2) Review of Enterprise compliance with previously agreed upon or 
FHFA-required actions; and
    (3) Review of the effectiveness of such actions to determine whether 
they are achieving the purpose of this part.
    (c) Depending on the severity and cause of any material 
misalignment, FHFA, in its discretion, may:
    (1) Require an Enterprise to terminate a program, policy, or 
practice; or
    (2) Require the competing Enterprise to implement a comparable 
program, policy, or practice.
    (d) When requiring an Enterprise to terminate a program, policy, or 
practice, or implement a comparable program, policy, or practice, FHFA 
will consider:
    (1) The effect on TBA-eligible securities pricing and particularly 
on the prepayment speeds of mortgages underlying TBA-eligible MBS; and
    (2) The costs borne by and the benefits likely to accrue to 
investors, lenders, and mortgage borrowers.



Sec.1248.8  De minimis exception.

    FHFA may exclude from the requirements of this part covered 
programs, policies, or practices of an Enterprise as long as those 
covered programs, policies, or practices do not affect more than $5 
billion in unpaid principal balance of that Enterprises' TBA-eligible 
MBS.



PART 1249_BOOK	ENTRY PROCEDURES--Table of Contents



Sec.
1249.10 Definitions.
1249.11 Maintenance of Enterprise Securities.
1249.12 Law governing rights and obligations of United States, Federal 
          Reserve Banks, and Enterprises; rights of any person against 
          United States, Federal Reserve Banks, and Enterprises; law 
          governing other interests.
1249.13 Creation of Participant's Security Entitlement; security 
          interests.
1249.14 Obligations of Enterprises; no adverse claims.
1249.15 Authority of Federal Reserve Banks.
1249.16 Withdrawal of Eligible Book-entry Enterprise Securities for 
          conversion to definitive form.
1249.17 Waiver of regulations.
1249.18 Liability of Enterprises and Federal Reserve Banks.
1249.19 Additional provisions.

    Authority: 12 U.S.C. 4501, 4502, 4511, 4513, 4526.

    Source: 75 FR 55928, Sept. 14, 2010, unless otherwise noted.



Sec.1249.10  Definitions.

    (a) General. Unless the context requires otherwise, terms used in 
this part that are not defined in this part, have the meanings as set 
forth in 31 CFR 357.2 and in 12 CFR 1282.1. Definitions and terms used 
in 31 CFR part 357 should read as though modified to effectuate their 
application to the Enterprises.
    (b) Other terms. As used in this part, the term:

[[Page 295]]

    Book-entry Enterprise Security means an Enterprise Security issued 
or maintained in the Book-entry System. Book-entry Enterprise Security 
also means the separate interest and principal components of a Book-
entry Enterprise Security if such security has been designated by the 
Enterprise as eligible for division into such components 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 
Enterprises, on which Book-entry Enterprise Securities are issued, 
recorded, transferred and maintained in book-entry form.
    Definitive Enterprise Security means an Enterprise Security in 
engraved or printed form, or that is otherwise represented by a 
certificate.
    Eligible Book-entry Enterprise Security means a Book-entry 
Enterprise Security issued or maintained in the Book-entry System which 
by the terms of its Securities Documentation is eligible to be converted 
from book-entry form into definitive form.
    Enterprise Security means any security or obligation of Fannie Mae 
or Freddie Mac issued under its respective Charter Act in the form of a 
Definitive Enterprise Security or a Book-entry Enterprise Security.
    Entitlement Holder means a Person or an Enterprise to whose account 
an interest in a Book-entry Enterprise Security is credited on the 
records of a Securities Intermediary.
    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 Book-entry Securities accounts 
(including Book-entry Enterprise Securities) and transfers Book-entry 
Securities (including Book-entry Enterprise Securities).
    Participant means a Person or Enterprise that maintains a 
Participant's Securities Account with a Federal Reserve Bank.
    Person, as used in this part, 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, an 
Enterprise, or a Federal Reserve Bank.
    Revised Article 8 has the same meaning as in 31 CFR 357.2.
    Securities Documentation means the applicable statement of terms, 
trust indenture, securities agreement or other documents establishing 
the terms of a Book-entry Enterprise Security.
    Security means any mortgage participation certificate, note, bond, 
debenture, evidence of indebtedness, collateral-trust certificate, 
transferable share, certificate of deposit for a security, or, in 
general, any interest or instrument commonly known as a ``security''.
    Transfer message means an instruction of a Participant to a Federal 
Reserve Bank to effect a transfer of a Book-entry Security (including a 
Book-entry Enterprise Security) maintained in the Book-entry System, as 
set forth in Federal Reserve Bank Operating Circulars.



Sec.1249.11  Maintenance of Enterprise Securities.

    An Enterprise Security may be maintained in the form of a Definitive 
Enterprise Security or a Book-entry Enterprise Security. A Book-entry 
Enterprise Security shall be maintained in the Book-entry System.



Sec.1249.12  Law governing rights and obligations of United States,
Federal Reserve Banks, and Enterprises; rights of any person against
United States,Federal Reserve Banks, and Enterprises; law governing 
other interests.
          

    (a) Except as provided in paragraph (b) of this section, the 
following rights and obligations are governed solely by the book-entry 
regulations contained in this part, the Securities Documentation, and 
Federal Reserve Bank Operating Circulars (but not including any choice 
of law provisions in the Securities Documentation to the extent such 
provisions conflict with the Book-entry regulations contained in this 
part):
    (1) The rights and obligations of an Enterprise and the Federal 
Reserve Banks with respect to:
    (i) A Book-entry Enterprise Security or Security Entitlement; and

[[Page 296]]

    (ii) The operation of the Book-entry System as it applies to 
Enterprise Securities; and
    (2) The rights of any Person, including a Participant, against an 
Enterprise and the Federal Reserve Banks with respect to:
    (i) A Book-entry Enterprise Security or Security Entitlement; and
    (ii) The operation of the Book-entry System as it applies to 
Enterprise 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.1249.13(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.1249.13(c)(1), 
is governed by the law determined in the manner specified in paragraph 
(d) of this section.
    (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 paragraph (b) of this section shall be the law 
of that State as though Revised Article 8 had been adopted by that 
State.
    (d) To the extent not otherwise inconsistent with this part, and 
notwithstanding any provision in the Securities Documentation setting 
forth a choice of law, the provisions set forth in 31 CFR 357.11 
regarding law governing other interests apply and shall be read as 
though modified to effectuate the application of 31 CFR 357.11 to the 
Enterprises.



Sec.1249.13  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 Enterprise 
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 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, 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) An Enterprise 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, an Enterprise, 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, including a

[[Page 297]]

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.1249.12(b) or (d). 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 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.1249.14  Obligations of Enterprises; 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.
1249.13(c)(1), for the purposes of this part, each Enterprise and the 
Federal Reserve Banks shall treat the Participant to whose Securities 
Account an interest in a Book-entry Enterprise 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 an Enterprise shall be liable to a 
Person asserting or having an adverse claim to a Security Entitlement or 
to a Book-entry Enterprise Security in a Participant's Securities 
Account, including any such claim arising as a result of the transfer or 
disposition of a Book-entry Enterprise 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 Enterprise to make payments (including 
payments of interest and principal) with respect to Book-entry 
Enterprise Securities is discharged at the time payment in the 
appropriate amount is made as follows:
    (1) Interest or other payments on Book-entry Enterprise Securities 
is either credited by a Federal Reserve Bank to a Funds Account 
maintained at such Federal Reserve Bank or otherwise paid as directed by 
the Participant.
    (2) Book-entry Enterprise 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 
redemption proceeds, where applicable, to a Funds Account at such 
Federal Reserve Bank or otherwise paying such redemption proceeds as 
directed by the Participant. No action by the Participant ordinarily is 
required in connection with the redemption of a Book-entry Enterprise 
Security.



Sec.1249.15  Authority of Federal Reserve Banks.

    (a) Each Federal Reserve Bank is hereby authorized as fiscal agent 
of the Enterprises to perform the following functions with respect to 
the issuance of Book-entry Enterprise Securities offered and sold by an 
Enterprise to which this part applies, in accordance with the Securities 
Documentation, Federal Reserve Bank Operating Circulars, this part, and 
any procedures established by the Director consistent with these 
authorities:
    (1) To service and maintain Book-entry Enterprise Securities in 
accounts established for such purposes;
    (2) To make payments with respect to such securities, as directed by 
the Enterprise;
    (3) To effect transfer of Book-entry Enterprise Securities between 
Participants' Securities Accounts as directed by the Participants;
    (4) To effect conversions between Book-entry Enterprise Securities 
and Definitive Enterprise Securities with respect to those securities as 
to which conversion rights are available pursuant to the applicable 
Securities Documentation; and
    (5) To perform such other duties as fiscal agent as may be requested 
by the Enterprise.
    (b) Each Federal Reserve Bank may issue Federal Reserve Bank 
Operating Circulars not inconsistent with this

[[Page 298]]

part, governing the details of its handling of Book-entry Enterprise 
Securities, Security Entitlements, and the operation of the Book-entry 
System under this part.



Sec.1249.16  Withdrawal of Eligible Book-entry Enterprise Securities
for conversion to definitive form.

    (a) Eligible Book-entry Enterprise Securities may be withdrawn from 
the Book-entry System by requesting delivery of like Definitive 
Enterprise Securities.
    (b) A Federal Reserve Bank shall, upon receipt of appropriate 
instructions to withdraw Eligible Book-entry Enterprise Securities from 
book-entry in the Book-entry System, convert such securities into 
Definitive Enterprise Securities and deliver them in accordance with 
such instructions. No such conversion shall affect existing interests in 
such Enterprise Securities.
    (c) All requests for withdrawal of Eligible Book-entry Enterprise 
Securities must be made prior to the maturity or date of call of the 
securities.
    (d) Enterprise Securities which are to be delivered upon withdrawal 
may be issued in either registered or bearer form, to the extent 
permitted by the applicable Securities Documentation.



Sec.1249.17  Waiver of regulations.

    The Director reserves the right, in the Director's discretion, to 
waive any provision(s) of this part in any case or class of cases for 
the convenience of an Enterprise, the United States, or in order to 
relieve any person(s) of unnecessary hardship, if such action is not 
inconsistent with law, does not adversely affect any substantial 
existing rights, and the Director is satisfied that such action will not 
subject an Enterprise or the United States to any substantial expense or 
liability.



Sec.1249.18  Liability of Enterprises and Federal Reserve Banks.

    An Enterprise and the Federal Reserve Banks may rely on the 
information provided in a Transfer Message, and are not required to 
verify the information. An Enterprise and the Federal Reserve Banks 
shall not be liable for any action taken in accordance with the 
information set out in a Transfer Message, or evidence submitted in 
support thereof.



Sec.1249.19  Additional provisions.

    (a) Additional requirements. In any case or any class of cases 
arising under this part, an Enterprise may require such additional 
evidence and a bond of indemnity, with or without surety, as may in the 
judgment of the Enterprise be necessary for the protection of the 
interests of the Enterprise.
    (b) Notice of attachment for Enterprise Securities in Book-entry 
System. 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. These regulations 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.



PART 1250_FLOOD INSURANCE--Table of Contents



Sec.
1250.1 Purpose.
1250.2 Procedural requirements.
1250.3 Civil money penalties.

    Authority: 12 U.S.C. 4521(a)(4) and 4526; 28 U.S.C. 2461 note; 42 
U.S.C. 4001 note; 42 U.S.C. 4012a(f)(3), (4), (5), (8), (9), and (10).

    Source: 74 FR 2349, Jan. 15, 2009, unless otherwise noted.



Sec.1250.1  Purpose.

    The purpose of this part is to set forth the responsibilities of the 
Federal National Mortgage Association and the Federal Home Loan Mortgage 
Corporation (collectively, Enterprises) under the Flood Disaster 
Protection Act of 1973 (FDPA), as amended (42 U.S.C. 4002 et seq.) and 
the procedures to be used by the Federal Housing Finance Agency (FHFA) 
in any proceeding to assess civil money penalties against an Enterprise.

[[Page 299]]



Sec.1250.2  Procedural requirements.

    (a) Procedures. An 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 National Flood Insurance Act of 1968 (42 U.S.C. 4001 
et seq.), as amended and purchased by the Enterprise, 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 National Flood Insurance Act of 1968, as 
amended.
    (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.1250.3  Civil money penalties.

    (a) In general. If an Enterprise is determined by the Director of 
FHFA, or his or her designee, to have a pattern or practice of 
purchasing loans in violation of the procedures established pursuant to 
Sec.1250.2, the Director of FHFA, or his or her designee, 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 to the Enterprise.
    (c) Amount. The maximum civil money penalty amount is $554 for each 
violation that occurs before April 17, 2019, with total penalties not to 
exceed $159,743. For violations that occur on or after April 17, 2019, 
the civil money penalty under this section may not exceed $568 for each 
violation, with total penalties assessed under this section against an 
Enterprise during any calendar year not to exceed $163,772.
    (d) Deposit of penalties. Any penalties under this section shall be 
paid into the National Flood Mitigation Fund in accordance with section 
1367 of the National Flood Insurance Act of 1968 (42 U.S.C. 4104d.), as 
amended.
    (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.

[74 FR 2349, Jan. 15, 2009, as amended at 81 FR 8642, Feb. 22, 2016; 81 
FR 43031, July 1, 2016; 83 FR 43968, Aug. 29, 2018; 84 FR 9704, Mar. 18, 
2019]



PART 1251_CONTRIBUTIONS TO THE HOUSING TRUST AND CAPITAL MAGNET FUNDS
--Table of Contents



Sec.
1251.1 Purpose.
1251.2 Definitions.
1251.3 Prohibition on pass-through of cost of allocation; enforcement.
1251.4 Submission of information.

    Authority: 12 U.S.C. 1452(c), 1718(b), 4511(b), 4513(a), 4514(a), 
4526(a), and 4567.

    Source: 79 FR 74597, Dec. 16, 2014, unless otherwise noted.



Sec.1251.1  Purpose.

    The purpose of this part is to implement a prohibition against an 
Enterprise redirecting the cost of any allocation to the Housing Trust 
Fund or the Capital Magnet Fund to originators of mortgages purchased or 
securitized by an Enterprise.



Sec.1251.2  Definitions.

    The following definitions apply to the terms used in and related 
specifically to this part. Definitions of other terms may be found in 12 
CFR part 1201, General Definitions Applying to

[[Page 300]]

All Federal Housing Finance Agency Regulations:
    Capital Magnet Fund means that Fund established at section 1339(a) 
of the Safety and Soundness Act, 12 U.S.C. 4569(a).
    Housing Trust Fund means that Fund established by section 1338(a) of 
the Safety and Soundness Act, 12 U.S.C. 4568(a).



Sec.1251.3  Prohibition on pass-through of cost of allocation; 
enforcement.

    (a) In general. No Enterprise shall re-direct or pass through the 
cost of any allocation to the Housing Trust Fund or the Capital Magnet 
Fund required pursuant to section 1337(a) of the Safety and Soundness 
Act, 12 U.S.C. 4567(a), through increased charges or fees, or decreased 
premiums, or in any other manner, to the originators of mortgages 
purchased or securitized by the Enterprise.
    (b) Enforcement. Compliance by each Enterprise with the foregoing 
prohibition shall be enforced under subpart 3 of part B of the Safety 
and Soundness Act, 12 U.S.C. 4581-89.



Sec.1251.4  Submission of information.

    The Director may issue guidance, orders, or notices on compliance 
with section 1337 and this part by the Enterprises, which may include 
information submissions by the Enterprises.



PART 1252_PORTFOLIO HOLDINGS--Table of Contents



Sec.
1252.1 Enterprise portfolio holdings criteria.
1252.2 Effective duration.

    Authority: 12 U.S.C. 4624.

    Source: 74 FR 5618, Jan. 30, 2009, unless otherwise noted.



Sec.1252.1  Enterprise portfolio holding criteria.

    The Enterprises are required to comply with the portfolio holdings 
criteria set forth in their respective Senior Preferred Stock Purchase 
Agreements with the Department of the Treasury, as they may be amended 
from time to time.



Sec.1252.2  Effective duration.

    This part shall be in effect for each Enterprise so long as--
    (a) This part has not been superseded through amendment, and
    (b) The Enterprise remains subject to the terms and obligations of 
the respective Senior Preferred Stock Purchase Agreement.



PART 1253_PRIOR APPROVAL FOR ENTERPRISE PRODUCTS--Table of Contents



Sec.
1253.1 Purpose and authority.
1253.2 Definitions.
1253.3 Notice of new activity.
1253.4 New product approval.
1253.5 Confidential information.
1253.6 Certifying and nullifying an approval.
1253.7 Failure to comply.
1253.8 Availability of new product to an Enterprise after it has been 
          approved for the other Enterprise.
1253.9 Preservation of authority.

Appendix to Part 1253--Prior Approval for Enterprise Products: 
          Instructions and Notice of New Activity Form

    Authority: 12 U.S.C. 4526; 12 U.S.C. 4541.

    Source: 74 FR 31604, July 2, 2009, unless otherwise noted.



Sec.1253.1  Purpose and authority.

    The purpose of this part is to establish policies and procedures 
implementing the prior approval authority for enterprise products, in 
accordance with section 1321 of the Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992 (Safety and Soundness Act) 
(12 U.S.C. 4541), as amended.



Sec.1253.2  Definitions.

    For purposes of this part:
    Authorizing statute means, in the case of Fannie Mae, the Federal 
National Mortgage Association Charter Act (12 U.S.C. 1716 et seq.) and, 
in the case of Freddie Mac, the Federal Home Loan Mortgage Corporation 
Act (12 U.S.C. 1451 et seq.).
    Director means the Director of the Federal Housing Finance Agency or 
his or her designee.
    Enterprise means the Federal National Mortgage Association (Fannie 
Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac).

[[Page 301]]

    FHFA means the Federal Housing Finance Agency.
    New activity means with respect to an Enterprise, any business line, 
business practice, or service, including guarantee, financial 
instrument, consulting, or marketing, that is proposed to be undertaken 
by the Enterprise either on a standalone basis or as an incident to 
providing one or more Enterprise products to the market, and which was--
    (a) Not initially engaged in prior to July 30, 2008;
    (b) Commenced by the Enterprise prior to July 30, 2008, but which, 
after July 30, 2008, the Enterprise ceased to engage in, and presently 
intends to resume; or
    (c) Offered or engaged in by the Enterprise after July 30, 2008, at 
a significantly different level, or in a significantly different manner, 
in terms of the activity's effect on public interest or risk to the 
Enterprise or the mortgage finance or financial system.
    The term ``new activity'' does not include--
    (1) Any Enterprise business practice, transactions, or conduct 
performed solely as an incident to the administration of the 
Enterprise's internal affairs to conduct its business; or
    (2) Any business practice or service undertaken by an Enterprise 
that is de minimis in scope, volume, risk, or duration.
    New product means any activity that the Director determines merits 
public notice and comment on matters of compliance with the applicable 
authorizing statute, safety and soundness, or public interest. ``New 
product'' does not include--
    (a) The automated loan underwriting system of an Enterprise in 
existence as of July 30, 2008, including any upgrade to the technology, 
operating system, or software to operate the underwriting system;
    (b) Any modification to the mortgage terms and conditions or 
mortgage underwriting criteria relating to the mortgages that are 
purchased or guaranteed by the Enterprise, provided that such 
modifications do not alter the underlying transaction so as to include 
services or financing, other than residential mortgage financing;
    (c) Any activity that is substantially similar to the activities 
described in paragraphs (a) or (b) of this section;
    (d) Any activity that is substantially similar to an activity or 
product that has been approved in accordance with this part for either 
Enterprise; or
    (e) Any activity that is substantially similar to an activity or 
product continuously undertaken by the other Enterprise since prior to 
July 30, 2008.
    Substantially similar. In considering whether an activity is 
``substantially similar'' to any activity described in section 
1321(e)(1)(A) and (B) of the Safety and Soundness Act, 12 U.S.C. 
4541(e)(1)(A) and in paragraphs (a) or (b) of this section under the 
definition of new product, or to any activity approved in accordance 
with this part, or continuously engaged in by the other Enterprise as 
referenced in paragraphs (d) and (e) of this section under the 
definition of new product, the Director may consider if the activity in 
question--
    (1) Is a product;
    (2) Is authorized under the applicable authorizing statute;
    (3) Represents an upgrade to the way an approved product is 
delivered;
    (4) Poses a significant change in risk to the Enterprise or the 
mortgage finance system from a previously approved product or activity;
    (5) Involves a significant change in terms, conditions, or 
limitations expressly contained in any prior approval granted under this 
part;
    (6) Poses a significant change in its effect on the public interest 
compared to a previously approved product or activity;
    (7) Poses a significant change from a previously approved product or 
activity and if so, does a tradeoff exist in the composite of risk, 
public interest, and safety and soundness elements in the proposed new 
activity;
    (8) Is likely to have significantly more enterprise resources 
dedicated to it;
    (9) Requires approval by regulators other than FHFA, including 
Federal, State, or local regulators;
    (10) Involves new classes or types of borrowers, investors, or 
counterparties;
    (11) Involves new classes or types of collateral; or

[[Page 302]]

    (12) Such other factor as the Director determines to be appropriate.



Sec.1253.3  Notice of new activity.

    (a) Before commencing a new activity, an Enterprise must submit a 
Notice of New Activity (Notice) to the FHFA, and either receive a 
determination that the new activity is not a new product, await passage 
of the 15 business-day period as described in paragraph (d) of this 
section, or, where FHFA determines the new activity to be a new product, 
await approval of the new product under Sec.1253.4. In addition, for 
any new activity that an Enterprise seeks to engage in which FHFA had 
previously approved in accordance with this part for the other 
Enterprise, or in which the other Enterprise had engaged continuously 
since prior to July 30, 2008, the Enterprise must submit a Notice to 
FHFA. In support of its Notice, the Enterprise shall submit information 
sufficient to allow the Director to make a determination on the Notice 
pursuant to section 1321 of the Safety and Soundness Act (12 U.S.C. 
4541), as amended, including any information required by FHFA by 
regulation or otherwise. The Enterprise shall provide a thorough, 
meaningful, complete and specific description of the new activity such 
that the public will be able to provide fully informed comment on the 
new activity if FHFA determines the new activity to be a new product. 
Such information shall include that contained in the FHFA Notice Form 
and the Instructions for the FHFA Notice of New Activity Form (Notice 
Form Instructions) that appear in the appendix of this part. The Notice 
Form and Notice Form Instructions may be amended from time to time by 
written direction of the Director. Requests for confidential treatment 
for any portion of an Enterprise's submission must be made consistent 
with Sec.1253.5.
    (b) FHFA will evaluate a Notice to establish whether the submission 
contains sufficient information for FHFA to make a determination whether 
the new activity is a new product subject to prior approval. Upon 
establishing that the Notice contains sufficient information, FHFA shall 
deem the submission complete and ``received'' for purposes of section 
1321(e)(2)(B) of the Safety and Soundness Act (12 U.S.C. 4541(e)(2)(B)), 
and shall notify the Enterprise accordingly.
    (c) No later than 15 business-days after the Notice is deemed 
completed and ``received'' for purposes of section 1321(e)(2)(B) of the 
Safety and Soundness Act (12 U.S.C. 4541(e)(2)(B)), the Director will 
make a written determination on the Notice, and shall notify the 
Enterprise accordingly. The Director may also approve the new activity 
subject to such terms, conditions, or limitations on the Enterprise's 
engagement in the new activity as the Director determines to be 
appropriate.
    (d) If the Director fails to make a determination within the 15 
business-day period specified in paragraph (c) of this section, the 
Enterprise may commence the new activity. The Director's failure to make 
a determination within the 15-day period does not limit or restrict the 
Director's safety and soundness authority or the authority of the 
Director to review the new activity to determine whether the activity is 
consistent with the statutory mission of the Enterprise.



Sec.1253.4  New product approval.

    (a) Public notice. If the Director determines that the new activity 
is a new product, FHFA shall publish a public notice soliciting comments 
on the proposed product for a 30 calendar-day period.
    (1) The public notice will describe the new product and state the 
closing date of the public comment period. The public notice will 
provide instructions for submission of public comment.
    (2) The Director will consider all public comments received by the 
closing date of the comment period.
    (3) In computing the 30 calendar-day public comment period, FHFA 
excludes the day on which the public notice is published in the Federal 
Register, from which the period begins to run, and includes the last day 
of the period, regardless of whether it is a Saturday, Sunday, or legal 
holiday.
    (b) Director's determination. (1) No later than 30 calendar-days 
after the end of the public comment period, the Director will provide 
the Enterprise with a written determination on

[[Page 303]]

whether it may proceed with the new product. The written determination 
will specify the grounds for the Director's determination.
    (2) The Director will approve the new product if the Director 
determines that the new product complies with the applicable authorizing 
statute, is in the public interest, and is consistent with the safety 
and soundness of the Enterprise and the mortgage finance and financial 
system. The Enterprise may then offer the new product subject to any 
terms, conditions, or limitations as may be established by the Director.
    (3) Among the factors that the Director may consider when 
determining whether a new product is in the public interest are--
    (i) The degree to which the new product might reasonably be expected 
to advance any of the purposes of the Enterprise under the applicable 
authorizing statute;
    (ii) The degree to which the new product serves underserved markets 
as set forth in section 1335 of the Safety and Soundness Act (12 U.S.C. 
4565);
    (iii) The degree to which the new product is being supplied or could 
be supplied by non-government-sponsored-enterprise firms;
    (iv) Other alternatives for providing the new product;
    (v) The degree to which the new product promotes competition in the 
marketplace or, to the contrary, would result in less competition and 
greater concentration of economic activity or risk;
    (vi) The degree to which Enterprise provision of the new product 
overcomes natural market barriers or inefficiencies;
    (vii) The degree to which Enterprise provision of the new product 
might raise or mitigate systemic risks to the mortgage, mortgage finance 
or other financial markets;
    (viii) The degree to which the new product furthers fair housing; 
and
    (ix) Such other factors determined appropriate by the Director.
    (4) The Director will disapprove the new product if the Director 
determines that approval is inconsistent with applicable law, 
regulation, or FHFA policy thereunder, or contrary to public interest or 
the safety and soundness of the Enterprise or the mortgage finance or 
financial system. If the Director disapproves the new product, the 
Enterprise may not offer the new product.
    (5) The Director may establish terms, conditions, or limitations on 
the Enterprise's offering of the new product to ensure that the product 
offering is consistent with applicable statutory and regulatory 
standards, FHFA policies, public interest, or the safety and soundness 
of the Enterprise or the mortgage finance or financial system.
    (6) If the Director fails to make a determination within the 30 
calendar-day period that begins on the day after the end of the public 
comment period, the Enterprise may offer the new product. The Director's 
failure to make a determination within such 30-day period does not limit 
or restrict the Director's safety and soundness authority or the 
authority of the Director to review the new product to determine that 
the product is consistent with the statutory mission of the Enterprise.
    (c) Temporary approval. (1) FHFA may approve a new product without 
first seeking public comments as described in Sec.1253.4(c) if--
    (i) The Enterprise submits a specific request for Temporary Approval 
that describes the exigent circumstances that make the delay associated 
with the 30-day public comment period contrary to the public interest 
and the Director determines that exigent circumstances exist and that 
delay associated with first seeking public comment would be contrary to 
the public interest; or
    (ii) Notwithstanding the absence of a request by the Enterprise for 
Temporary Approval, the Director determines on his or her own initiative 
that there are exigent circumstances that make the delay associated with 
first seeking public comment contrary to the public interest.
    (2) The Director may impose terms, conditions, or limitations on the 
Temporary Approval to ensure that the new product offering is consistent 
with applicable statutory and regulatory standards, FHFA policies, 
public interest, and the safety and soundness of the Enterprise or the 
mortgage finance system.

[[Page 304]]

    (3) If the Director grants Temporary Approval, the Director will 
notify the Enterprise in writing of the Director's decision, and include 
the period for which it is effective and any terms, conditions or 
limitations. Upon granting of Temporary Approval, FHFA will also publish 
the request for public comment to begin the process for permanent 
approval.
    (4) If the Director denies a request for Temporary Approval, the 
Director will notify the Enterprise in writing of the Director's 
decision, and will evaluate the new product in accordance with 
paragraphs (a) through (c) of this section.
    (d) Additional information. The Director may request any information 
in addition to that supplied in the completed Notice if, as a result of 
public comment or otherwise in the course of considering the Notice, the 
Director believes that the information is necessary for his or her 
decision. The Director may disapprove a new product if he or she does 
not receive the information requested from the Enterprise in sufficient 
time to permit adequate evaluation of the information within the time 
periods set forth in paragraph (c) of this section.



Sec.1253.5  Confidential information.

    (a) Information presumed public. FHFA will treat all information an 
Enterprise submits in a Notice as public information, except as provided 
in paragraphs (b) through (d) of this section. FHFA will also treat 
information provided by a commenter, in response to a notice requesting 
comment on an Enterprise new product, as public information, except as 
provided in paragraphs (b) through (d) of this section.
    (b) Confidential treatment request. An Enterprise or commenter may 
designate specific information as confidential and request that it not 
be made publicly available. For any information that an Enterprise or 
commenter seeks confidential treatment, the Enterprise or commenter is 
required to submit a complete copy of the Notice or comment, with a 
specific request for confidential treatment. Simultaneously, the 
Enterprise or commenter is required to submit a copy of the Notice or 
comment containing only those portions for which no request for 
confidential treatment is made, and from which those portions for which 
confidential treatment is requested have been redacted. The Enterprise 
or commenter must specify the bases for designated information not being 
made public as set forth in paragraph (c) of this section.
    (c) Required information. The Enterprise or commenter is required to 
provide the following information in support of its request for 
confidential treatment of the designated information--
    (1) Identification of the specific information for which 
confidential treatment is sought, and the specific Notice for which the 
information is being submitted;
    (2) Explanation of the bases for the proposed confidential treatment 
including, but not limited to, why the information is ``commercial or 
financial information obtained from a person and privileged or 
confidential'' as that phrase is used in Exemption 4 of the Freedom of 
Information Act (FOIA), 5 U.S.C. 552(b)(4), and Sec.1202.4(a)(4) of 
this chapter;
    (3) Explanation of the relevance and necessity of the information to 
whether the Notice should be approved or denied;
    (4) Explanation of how disclosure of the information would result in 
substantial harm to the competitive position of the Enterprise or 
commenter;
    (5) Explanation of whether the information is available to the 
public and the extent of any previous disclosure to third parties;
    (6) Justification of the time period during which the Enterprise or 
commenter asserts that the material should not be available for public 
disclosure; and
    (7) Any other information that the Enterprise or commenter seeking 
confidential treatment believes may be useful in assessing whether its 
request for confidentiality should be granted.
    (d) FHFA determination. FHFA will determine whether the designated 
information may be withheld from public disclosure and will notify the 
Enterprise or commenter of the determination. In the event that FHFA 
determines the information may not be

[[Page 305]]

withheld from public disclosure, the Enterprise or commenter may 
withdraw the information or consent to public disclosure. Requests for 
confidential treatment that do not comply with paragraphs (b) and (c) of 
this section will not be considered.



Sec.1253.6  Certifying and nullifying an approval.

    (a) An Enterprise shall certify, through an executive officer, as 
that term is defined by Sec.1770.3(g) of this title, that any filing 
or supporting material submitted to FHFA pursuant to regulations in this 
part contains no material misrepresentations or omissions. FHFA may 
review and verify any information filed in connection with a Notice. If 
FHFA discovers a material misrepresentation or omission after the 
Director has rendered a decision on the filing, FHFA may nullify any 
approval or modify the terms, conditions, and limitations to such 
approval. For purposes of this paragraph, an Enterprise's authority to 
offer a new product or engage in a new activity by reason of the 
Director's not having made an explicit determination within the 
statutory time period constitutes an approval.
    (b) Any person responsible for any material misrepresentation or 
omission in a submission or supporting materials may be subject to 
enforcement action and other penalties, including criminal penalties 
provided in 18 U.S.C. 1001.



Sec.1253.7  Failure to comply.

    (a) Unless the Director otherwise informs the Enterprise in writing, 
an Enterprise must cease offering a new product or engaging in a new 
activity immediately upon discovering or receiving notice from the 
Director that the Enterprise has--
    (1) Offered a new product or commenced a new activity without 
submitting a Notice;
    (2) Offered a new product or commenced a new activity after 
submitting a Notice but before approval is granted, and before the 
expiration of the time provided for the Director to make a determination 
under Sec. Sec.1253.3 and 1253.4;
    (3) Offered a new product after the Director disapproved it; or
    (4) Failed to adhere to any terms, conditions or limitations 
established by the Director in his or her approval of a new product or 
activity.
    (b) Within five (5) business-days of the discovery or notice of any 
of the events described in paragraph (a) of this section, the Enterprise 
must provide the Director a written description of the failure or 
failures of controls that resulted in the offering of the new product or 
commencement of the new activity in contravention of this regulation, 
and the steps that the Enterprise has taken or will take to remediate 
the control failures. The Enterprise must provide the board of directors 
of the Enterprise and chief risk officer, internal audit, and compliance 
officer of the Enterprise with a copy of the written description on the 
same date the description is provided to the Director of FHFA.
    (c) In the event that the Enterprise elects to resubmit the Notice 
of a new product or new activity that was undertaken in contravention of 
this regulation, the resubmission must provide sufficient documentation 
of the effectiveness of the remediation efforts described in paragraph 
(b) of this section.
    (d) Failure to comply with paragraphs (a) or (b) of this section 
above may result in FHFA's taking enforcement action, including pursuant 
to 12 U.S.C. 4631 (orders to cease and desist), 12 U.S.C. 4632 
(temporary orders to cease and desist), and 12 U.S.C. 4636 (civil money 
penalties).



Sec.1253.8  Availability of new product to an Enterprise after it has
been approved for the other Enterprise.

    (a) If the Director approves a new product for one Enterprise or the 
new product is otherwise available to that Enterprise under Sec.
1253.4, the other Enterprise may also undertake that new product, 
subject to submitting a request to the Director in the form of a Notice 
under Sec.1253.3 and approval by the Director.
    (b) The Director may require such further information from the 
requesting Enterprise as he or she deems necessary to approve or deny 
the request. Approving the request does not require public notice and 
comment.

[[Page 306]]



Sec.1253.9  Preservation of authority.

    (a) The Director's exercise of his or her authority pursuant to the 
prior approval authority for products under section 1321 of the Safety 
and Soundness Act (12 U.S.C. 4541), and this regulation and other 
issuances in no way restricts--
    (1) The safety and soundness authority of the Director over all new 
and existing products or activities; or
    (2) The authority of the Director to review all new and existing 
products or activities to determine that such products or activities are 
consistent with the statutory mission of an Enterprise.

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PART 1254_VALIDATION AND APPROVAL OF CREDIT SCORE MODELS--
Table of Contents



Sec.
1254.1 Purpose and scope.
1254.2 Definitions.
1254.3 Computation of time.
1254.4 Requirements for use of a credit score.
1254.5 Solicitation of applications.
1254.6 Submission and initial review of applications.
1254.7 Credit Score Assessment.
1254.8 Enterprise Business Assessment.
1254.9 Determinations on applications.
1254.10 Withdrawal of application.
1254.11 Pilot programs.

    Authority: 12 U.S.C. 4511, 4513, 4526 and Sec. 310, Pub. L. 115-174, 
132 Stat. 1296.

    Source: 84 FR 41904, Aug. 16, 2019, unless otherwise noted.



Sec.1254.1  Purpose and scope.

    (a) The purpose of this part is to set forth standards and criteria 
for the process an Enterprise must establish to validate and approve any 
credit score model that produces any credit score that the Enterprise 
requires in its mortgage purchase procedures and systems.
    (b) The validation and approval process for a credit score model 
includes the following phases: Solicitation of Applications, Submission 
of Applications and Initial Review, Credit Score Assessment, and 
Enterprise Business Assessment.



Sec.1254.2  Definitions.

    For purposes of this part, the following definitions apply. 
Definitions of other terms may be found in 12 CFR part 1201, General 
Definitions Applying to All Federal Housing Finance Agency Regulations.
    Credit score means a numerical value or a categorization created by 
a third party derived from a statistical tool or modeling system used by 
a person who makes or arranges a loan to predict the likelihood of 
certain credit behaviors, including default.
    Credit score model means a statistical tool or algorithm created by 
a third party used to produce a numerical value or categorization to 
predict the likelihood of certain credit behaviors.
    Credit score model developer means any person with ownership rights 
in the intellectual property of a credit score model.
    Days means calendar days.
    Mortgage means a residential mortgage as that term is defined at 12 
U.S.C. 1451(h).
    Person means an individual, sole proprietor, partnership, 
corporation, unincorporated association, trust, joint venture, pool, 
syndicate, organization, or other legal entity.



Sec.1254.3  Computation of time.

    For purposes of this part, each time period begins on the day after 
the relevant event occurs (e.g., the day after a submission is made) and 
continues through the last day of the relevant period. When the last day 
is a Saturday, Sunday, or Federal holiday, the period runs until the end 
of the next business day.



Sec.1254.4  Requirements for use of a credit score.

    (a) Enterprise use of a credit score. An Enterprise is not required 
to use a credit score for any business purpose. However, if an 
Enterprise conditions its purchase of a mortgage on the provision of a 
credit score for the borrower:
    (1) The credit score must be derived from a credit score model that 
has been approved by the Enterprise in accordance with this part; and
    (2) The Enterprise must provide for the use of the credit score by 
any automated underwriting system that uses a credit score and any other 
procedures and systems used by the Enterprise that use a credit score 
for mortgage purchases.
    (b) Replacement of credit score model. An Enterprise may replace any 
credit score model then in use after a new credit score model has been 
approved in accordance with this part.
    (c) No right to continuing use. Enterprise use of a particular 
credit score model does not create any right to or expectation of 
continuing, future, or permanent use of that credit score model by an 
Enterprise.

[[Page 317]]



Sec.1254.5  Solicitation of applications.

    (a) Required solicitations. FHFA periodically will require the 
Enterprises to solicit applications from credit score model developers. 
FHFA will determine whether a solicitation should be initiated. FHFA 
will establish the solicitation requirement by notice to the 
Enterprises, which will include:
    (1) The requirement to submit a Credit Score Solicitation to FHFA 
for review;
    (2) A deadline for submission of the Credit Score Solicitation; and
    (3) A timeframe for the solicitation period.
    (b) Credit Score Solicitation. In connection with each required 
solicitation, an Enterprise must submit to FHFA a Credit Score 
Solicitation including:
    (1) The opening and closing dates of the solicitation time period 
during which the Enterprise will accept applications from credit score 
model developers;
    (2) A description of the information that must be submitted with an 
application;
    (3) A description of the process by which the Enterprise will obtain 
data for the assessment of the credit score model;
    (4) A description of the process for the Credit Score Assessment and 
the Enterprise Business Assessment; and
    (5) Any other requirements as determined by the Enterprise.
    (c) Review by FHFA. Within 45 days of an Enterprise submission of 
its Credit Score Solicitation to FHFA, FHFA will either approve or 
disapprove the Enterprise's Credit Score Solicitation. FHFA may extend 
the time period for its review as needed. FHFA may impose such terms, 
conditions, or limitations on the approval of a Credit Score 
Solicitation as FHFA determines to be appropriate.
    (d) Publication. Upon approval by FHFA, the Enterprise must publish 
the Credit Score Solicitation on its website for at least 90 days prior 
to the start of the solicitation time period.
    (e) Initial solicitation. Each Enterprise must submit its initial 
Credit Score Solicitation to FHFA within 60 days of the effective date 
of this regulation. The initial solicitation time period will begin on a 
date determined by FHFA and will extend for 120 days.



Sec.1254.6  Submission and initial review of applications.

    (a) Application requirements. Each application submitted in response 
to a Credit Score Solicitation must meet the requirements set forth in 
the Credit Score Solicitation to which it responds. Each application 
must include the following elements, and any additional requirements 
that may be set forth in the Credit Score Solicitation:
    (1) Application fee. Each application must include an application 
fee established by the Enterprise. An Enterprise may address conditions 
for refunding a portion of a fee in the Credit Score Solicitation. The 
application fee is intended to cover the direct costs to the Enterprise 
of conducting the Credit Score Assessment.
    (2) Fair lending certification and compliance. Each application must 
address compliance of the credit score model and credit scores produced 
by it with federal fair lending requirements, including information on 
any fair lending testing and evaluation of the model conducted. Each 
application must include a certification that no characteristic that is 
based directly on or is highly correlated solely with a classification 
prohibited under the Equal Credit Opportunity Act (15 U.S.C. 
1691(a)(1)), the Fair Housing Act (42 U.S.C. 3605(a)), or the Safety and 
Soundness Act (12 U.S.C. 4545(1)) was used in the development of the 
credit score model or is used as a factor in the credit score model to 
produce credit scores.
    (3) Use of model by industry. Each application must demonstrate use 
of the credit score by creditors to make a decision whether to extend 
credit to a prospective borrower. An Enterprise may address criteria for 
such demonstration in the Credit Score Solicitation. An Enterprise may 
permit such demonstration of use to include submission of testimonials 
by creditors (mortgage or non-mortgage) who use the applicant's credit 
score when making a determination to approve the extension of credit.

[[Page 318]]

    (4) Qualification of credit score model developer. Each application 
must include any information that an Enterprise may require to evaluate 
the credit score model developer (i.e., relevant experience and 
financial capacity). Such information must include a detailed 
description of the credit score model developer's:
    (i) Corporate structure, including any business relationship to any 
other person through any degree of common ownership or control;
    (ii) Governance structure; and
    (iii) Past financial performance.
    (5) Other requirements. Each application must include any other 
information an Enterprise may require.
    (b) Historical consumer credit data. An Enterprise may obtain any 
historical consumer credit data necessary for the Enterprise to test a 
credit score model's historical record of measuring and predicting 
default rates and other credit behaviors. An Enterprise may assess the 
applicant for any costs associated with obtaining or receiving such data 
unless such costs were included in the up-front application fee.
    (c) Acceptance of applications. Each application submitted in 
response to a Credit Score Solicitation within the solicitation time 
period must be reviewed for acceptance by the Enterprise.
    (1) Notice of status. Within 60 days of an applicant's submission, 
the Enterprise must provide the applicant with an Application Status 
Notice, which will indicate whether the application requires additional 
information to be provided by the applicant. An applicant may submit 
additional information through the end of the solicitation period.
    (2) Complete application. Completeness of an application will be 
determined by the Enterprise. An application is complete when an 
Enterprise determines that required information has been received by the 
Enterprise from the applicant and from any third party. Information from 
a third party for a specific application may be received by the 
Enterprise after the solicitation period closes. The Enterprise must 
notify the applicant upon determining that the application is complete 
with a Complete Application Notice.



Sec.1254.7  Credit Score Assessment.

    (a) Requirement for Credit Score Assessment. An Enterprise will 
undertake a Credit Score Assessment of each application that the 
Enterprise determines to be complete. An Enterprise must determine 
whether an application passes the Credit Score Assessment.
    (b) Testing for Credit Score Assessment. An Enterprise must conduct 
statistical tests for accuracy and reliability that use one or more 
industry standard statistical tests for demonstrating divergence among 
borrowers' propensity to repay using the industry standard definition of 
default, applied to mortgages purchased by an Enterprise (including 
subgroups), as identified by the Enterprise.
    (c) Criteria for Credit Score Assessment. The Credit Score 
Assessment is based on the following criteria:
    (1) Testing for accuracy. A credit score model is accurate if it 
produces a credit score that appropriately reflects a borrower's 
propensity to repay a mortgage loan in accordance with its terms, 
permitting a credit score user to rank order the risk that the borrower 
will not repay the obligation in accordance with its terms relative to 
other borrowers.
    (i) Initial Credit Score Assessment. For the Credit Score Assessment 
of applications submitted in response to the initial solicitation under 
Sec.1254.5(e), a credit score model meets the test for accuracy if it 
produces credit scores that meet a benchmark established by the 
Enterprise in the initial Credit Score Solicitation, as demonstrated by 
appropriate testing.
    (ii) Subsequent Credit Score Assessments. For the Credit Score 
Assessment of applications submitted in response to any later 
solicitation under this part, a credit score model meets the test for 
accuracy if it produces credit scores that are more accurate than the 
credit scores produced by any credit score model that is required by the 
Enterprise at the time the test is conducted, as demonstrated by 
appropriate testing.
    (2) Testing for reliability. A credit score model is reliable if it 
produces credit scores that maintain accuracy through the economic 
cycle. The Credit Score Assessment must evaluate

[[Page 319]]

whether a new credit score model produces credit scores that are at 
least as reliable as the credit scores produced by any credit score 
model that is required by the Enterprise at the time the test is 
conducted, as demonstrated by appropriate testing. Testing for 
reliability must demonstrate accuracy at a minimum of two points in the 
economic cycle when applied to mortgages purchased by an Enterprise 
(including subgroups), as identified by the Enterprise.
    (3) Testing for integrity. A credit score model has integrity if, 
when producing a credit score, it uses relevant data that reasonably 
encompasses the borrower's credit history and financial performance. The 
Credit Score Assessment must evaluate whether a credit score model 
applicant has demonstrated that the model has integrity, based on 
appropriate testing or requirements identified by the Enterprise (which 
may address, for example, the level of aggregation of data or whether 
observable data has been omitted or discounted when producing a credit 
score).
    (4) Other requirements. An Enterprise may establish requirements for 
the Credit Score Assessment in addition to the criteria established by 
FHFA.
    (c) Third-party testing. Testing required for the Credit Score 
Assessment may be conducted by:
    (1) An Enterprise; or
    (2) An independent third party selected or approved by an 
Enterprise.
    (d) Timing of Credit Score Assessment. (1) An Enterprise must notify 
the applicant when the Enterprise begins the Credit Score Assessment. 
The Credit Score Assessment will begin no earlier than the close of the 
solicitation time period, unless FHFA has determined that an Enterprise 
should begin a Credit Score Assessment sooner. The Credit Score 
Assessment will extend for 180 days. FHFA may authorize not more than 
two extensions of time for the Credit Score Assessment, which shall not 
exceed 30 days each, upon a written request and showing of good cause by 
the Enterprise.
    (2) An Enterprise must provide notice to the applicant within 30 
days of a determination that the application has passed the Credit Score 
Assessment.



Sec.1254.8  Enterprise Business Assessment.

    (a) Requirement for Enterprise Business Assessment. An Enterprise 
will undertake an Enterprise Business Assessment of each application 
that the Enterprise determines to have passed the Credit Score 
Assessment. An Enterprise must determine whether an application passes 
the Enterprise Business Assessment.
    (b) Criteria for Enterprise Business Assessment. The Enterprise 
Business Assessment is based on the following criteria:
    (1) Accuracy; reliability. The Enterprise Business Assessment must 
evaluate whether a new credit score model produces credit scores that 
are more accurate than and at least as reliable as credit scores 
produced by any credit score model currently in use by the Enterprise. 
This evaluation must consider credit scores as used by the Enterprise 
within its systems or processes that use a credit score for mortgage 
purchases.
    (2) Fair lending assessment. The Enterprise Business Assessment must 
evaluate the fair lending risk and fair lending impact of the credit 
score model in accordance with standards and requirements related to the 
Equal Credit Opportunity Act (15 U.S.C. 1691(a)(1)), the Fair Housing 
Act (42 U.S.C. 3605(a)), and the Safety and Soundness Act (12 U.S.C. 
4545(1)) (including identification of potential impact, comparison of 
the new credit score model with any credit score model currently in use, 
and consideration of potential methods of using the new credit score 
model). This evaluation must consider credit scores as used by the 
Enterprise within its systems or processes that use a credit score for 
mortgage purchases. The fair lending assessment must also consider any 
impact on access to credit related to the use of a particular credit 
score model.
    (3) Impact on Enterprise operations and risk management, and impact 
on industry. The Enterprise Business Assessment must evaluate the impact 
using the credit score model would have on Enterprise operations 
(including any impact on purchase eligibility criteria and loan pricing) 
and risk management

[[Page 320]]

(including counterparty risk management) in accordance with standards 
and requirements related to prudential management and operations and 
governance set forth at parts 1236 and 1239 of this chapter. This 
evaluation must consider whether the benefits of using credit scores 
produced by that model can reasonably be expected to exceed the adoption 
and ongoing costs of using such credit scores, considering projected 
benefits and costs to the Enterprises. The Enterprise Business 
Assessment must evaluate the impact of using the credit score model on 
industry operations and mortgage market liquidity, including costs 
associated with implementation of a newly approved credit score. This 
evaluation must consider whether the benefits of using credit scores 
produced by that model can reasonably be expected to exceed the adoption 
and ongoing costs of using such credit scores, considering projected 
benefits and costs to the Enterprises and borrowers, including market 
liquidity and cost and availability of credit.
    (4) Competitive effects. The Enterprise Business Assessment must 
evaluate whether using the credit score model could have an impact on 
competition in the industry. This evaluation must consider whether use 
of a credit score model could have an impact on competition due to any 
ownership or other business relationship between the credit score model 
developer and any other institution.
    (5) Third-Party Provider Review. The Enterprise Business Assessment 
must evaluate the credit score model developer under the Enterprise 
standards for approval of third-party providers.
    (6) Other requirements. An Enterprise may establish requirements for 
the Enterprise Business Assessment in addition to the criteria 
established by FHFA.
    (c) Timing of Enterprise Business Assessment. The Enterprise 
Business Assessment must be completed within 240 days.
    (d) FHFA Evaluation. FHFA will conduct an independent analysis of 
the potential impacts of any change to an Enterprise's credit score 
model. FHFA will initiate its analysis no later than the beginning of 
the Enterprise Business Assessment. Based on its analysis, FHFA may:
    (1) Require an Enterprise to undertake additional analysis, 
monitoring, or reporting to further the purposes of this part;
    (2) Require an Enterprise to permit the use of a single credit score 
model or multiple credit score models; or
    (3) Require any other change to an Enterprise program, policy, or 
practice related to the Enterprise's use of credit scores.



Sec.1254.9  Determinations on applications.

    (a) Enterprise determinations subject to prior review and approval 
by FHFA. An Enterprise must submit to FHFA a proposed determination of 
approval or disapproval for each application. Within 45 days of an 
Enterprise submission, FHFA must approve or disapprove the Enterprise's 
proposed determination. FHFA may extend the time period for its review 
as needed. FHFA may impose such terms, conditions, or limitations on the 
approval or disapproval of the Enterprise's proposed determination as 
FHFA determines to be appropriate.
    (b) Approval of a credit score model. If an Enterprise approves an 
application for a credit score model following FHFA review of its 
proposed determination, the Enterprise must implement the credit score 
model in its mortgage purchase systems that use a credit score for 
mortgage purchases. The Enterprise must provide written notice to the 
applicant and the public within 30 days after the FHFA decision on the 
proposed determination.
    (c) Disapproval of a credit score model. If an Enterprise 
disapproves an application for a credit score model following FHFA 
review of its proposed determination, the Enterprise must provide 
written notice to the applicant within 30 days after the FHFA decision 
on the proposed determination. An application may be disapproved under 
this section at any time during the validation and approval process 
based on any of the criteria identified in the Credit Score 
Solicitation. The notice to the applicant must provide a description of 
the reasons for disapproval.

[[Page 321]]



Sec.1254.10  Withdrawal of application.

    At any time during the validation and approval process, an applicant 
may withdraw its application by notifying an Enterprise. The Enterprise 
may, in its sole discretion, determine whether to return any portion of 
the application fee paid by the applicant.



Sec.1254.11  Pilot programs.

    (a) Pilots permitted; duration of pilots. An Enterprise may 
undertake pilot programs to evaluate credit score models. If a pilot 
program involves a credit score model not in current use by an 
Enterprise, the credit score model is not required to be approved under 
this part.
    (b) Prior notice to FHFA. Before commencing a pilot program, an 
Enterprise must submit the proposed pilot program to FHFA for review and 
approval. The Enterprise's submission to FHFA must include a complete 
and specific description of the pilot program, including its purpose, 
duration, and scope. FHFA may impose such terms, conditions, or 
limitations on the pilot program as FHFA determines to be appropriate.

[[Page 322]]



                  SUBCHAPTER D_FEDERAL HOME LOAN BANKS





PART 1260_SHARING OF INFORMATION AMONG FEDERAL HOME LOAN BANKS--
Table of Contents



Sec.
1260.1 Definitions.
1260.2 Bank information to be shared.
1260.3 Requests to withhold proprietary information.
1260.4 Timing and form of information distribution.
1260.5 Control and disclosure of shared information.

    Authority: 12 U.S.C. 1440a, 4511 and 4513.

    Source: 78 FR 73413, Dec. 6, 2013, unless otherwise noted.



Sec.1260.1  Definitions.

    As used in this part:
    Non-public information has the meaning set forth in Sec.1214.1 of 
this chapter.
    Proprietary information means trade secrets, or privileged or 
confidential commercial or financial information that, if shared among 
the Banks and the Office of Finance as provided under this part, would 
likely cause substantial competitive harm to the Bank to which the 
information pertains.



Sec.1260.2  Bank information to be shared.

    (a) General. In order to enable each Bank to evaluate the financial 
condition of any one or more of the other Banks and the Bank System, 
FHFA shall distribute to each Bank and to the Office of Finance, or 
shall require each Bank to distribute directly to each other Bank and 
the Office of Finance, such categories of financial and supervisory 
information regarding each Bank and the Bank system as it determines to 
be appropriate, subject to the requirements of this part.
    (b) Notice. FHFA shall prepare and issue to each Bank and the Office 
of Finance a notice setting forth the categories of information to be 
distributed, which it shall review from time to time and revise as 
necessary to ensure that the information distributed remains useful to 
the Banks in evaluating the financial strength of the other Banks and 
the Bank System. Prior to issuing a new or revised notice, FHFA shall 
notify each Bank and the Office of Finance of its proposed contents and 
allow them a reasonable period within which to comment.
    (c) Director's orders. The Director or his designee may issue such 
orders as are necessary to effect the distribution of the information 
set forth in the notice issued under paragraph (b) of this section and 
to carry out the provisions of this part.



Sec.1260.3  Requests to withhold proprietary information.

    (a) General. A Bank may request in writing that FHFA withhold from 
distribution, or determine that the Bank may withhold from distribution, 
particular information relating to the Bank that may otherwise be 
subject to distribution under Sec.1260.2 on the basis that it is 
proprietary information and the public interest requires that it not be 
shared. Any such request shall identify the particular information the 
Bank believes should not be distributed and provide support for the 
assertions that it is proprietary information and that withholding it 
from the other Banks and the Office of Finance is necessary to protect 
the public interest.
    (b) Timing of requests. (1) General. Unless otherwise specified as 
described in paragraph (b)(2) of this section, the period within which a 
Bank may make a request to withhold proprietary information under 
paragraph (a) of this section shall be as follows:
    (i) For information that a Bank submits to FHFA, the request shall 
be delivered to FHFA no later than the time at which the Bank submits 
the subject information to FHFA.
    (ii) For information that FHFA creates (not including compilations 
of data submitted by the Banks), prior to distributing any information 
relating to a particular Bank, FHFA shall provide that Bank with a copy 
of the information to be distributed, after which the Bank shall have 
ten (10) business days within which to deliver the request to FHFA.
    (iii) For information that a Bank is required to distribute directly 
to the other Banks and the Office of Finance,

[[Page 323]]

the request shall be delivered to FHFA no later than ten (10) business 
days prior to the date on which the Bank would otherwise be required to 
distribute the information.
    (2) As otherwise specified by FHFA. Any notice issued by FHFA under 
Sec.1260.2(b) may establish requirements for the timing of requests to 
withhold proprietary information that are different from those specified 
under paragraph (b)(1) of this section for any category of information 
to be distributed thereunder. In establishing such requirements, FHFA 
shall give due regard to the volume and complexity of the information to 
be reviewed, the Bank's existing familiarity with the information, the 
frequency of submission or distribution of the information, the 
likelihood that the information will contain proprietary information, 
and the effect that any delay in the distribution of the information 
would have on the fulfillment of the purposes of section 20A(a) of the 
Bank Act.
    (c) Determination and notice by FHFA. After receiving a written 
request that meets the requirements of paragraphs (a) and (b) of this 
section, the Director or his designee shall promptly determine whether 
FHFA will, or the Bank may, withhold any information from distribution 
pursuant to the request, which determination shall be final. FHFA shall 
promptly notify the affected Bank of that determination and shall not 
distribute any information that is the subject of the request until it 
has provided the required notice to the Bank.



Sec.1260.4  Timing and form of information distribution.

    (a) Timing of distribution by FHFA. FHFA may distribute information 
as provided in the notice issued under Sec.1260.2(b) after the 
expiration of the applicable time period specified in Sec.1260.3(b) 
unless, within that time period, the affected Bank has filed with FHFA a 
written request to withhold particular proprietary information that 
meets the requirements of Sec.1260.3(a). When a Bank has filed such a 
request, FHFA shall not distribute the information that is the subject 
of the request until the Director or his designee has made the 
determination and provided the notice required by Sec.1260.3(c) and 
shall distribute or withhold the subject information in conformity with 
that determination.
    (b) Timing of distribution by Banks. A Bank that is required to 
distribute information directly to the other Banks and the Office of 
Finance shall distribute that information at the time specified in the 
notice issued under Sec.1260.2(b) unless, within the time period 
specified in Sec.1260.3(b)(1)(iii), the Bank has submitted to FHFA a 
request to withhold particular proprietary information that meets the 
requirements of Sec.1260.3(a). If the Bank has filed such a request, 
it need not distribute the information that is the subject of the 
request until the Director or his designee has made the determination 
and provided the notice required by Sec.1260.3(c). Thereafter, the 
Bank shall distribute or withhold the subject information in conformity 
with that determination.
    (c) Form. FHFA may distribute information, or require a Bank to 
distribute information, under this part in either tangible or electronic 
form, as it deems appropriate.



Sec.1260.5  Control and disclosure of shared information.

    (a) No waiver of privilege. The release of information under this 
part does not constitute a waiver by FHFA of any privilege, or of its 
right to control, supervise or impose limitations on the subsequent use 
and disclosure of any information concerning a Bank. To the extent that 
any information provided to a Bank or the Office of Finance pursuant to 
this part qualifies as non-public information under part 1214 of this 
chapter, that information shall continue to qualify as such and shall 
continue to be subject to the restrictions on disclosure set forth in 
part 1214, provided that a Bank shall not be deemed to have violated any 
provision of Sec.1214.3 of this chapter by disclosing in its filings 
with the SEC non-public information about another Bank that was obtained 
pursuant to this part if the disclosure is limited to a recital of the 
relevant factual content of the underlying information and the Bank has 
provided the notice required by paragraph (b) of this section.

[[Page 324]]

    (b) Disclosures under the Federal securities laws. If a Bank 
determines in good faith that it is required by any applicable provision 
of the 1934 Act or of 17 CFR chapter II to disclose non-public 
information relating to another Bank that it has received pursuant to 
this part, it shall provide to FHFA and to the Bank to which the 
information pertains prior written notice of such determination and of 
the content and anticipated timing of the disclosure, which notice shall 
be provided as far in advance of the anticipated disclosure as is 
feasible under the circumstances.
    (c) Safeguarding of information. A Bank may use non-public 
information distributed pursuant to this part only for the purposes 
described in section 20A(a) of the Bank Act. Except as otherwise 
provided in this part, neither the Office of Finance, nor any Bank, nor 
any officer, director or employee thereof, may disclose or permit the 
use or disclosure of any non-public information regarding another Bank 
received pursuant to this part in any manner or for any purpose. Each 
Bank and the Office of Finance shall implement policies and procedures 
to prevent the improper disclosure of such information and to limit the 
access of its personnel to such information, which policies and 
procedures shall be no less stringent than those that apply to the 
entity's own confidential and supervisory information.
    (d) Information regarding the Office of Finance. A Bank president 
that receives any information regarding the Office of Finance in his or 
her capacity as a member of the board of directors of the Office of 
Finance may share the information with the board of directors of the 
Bank at which he or she is employed, as well as with the appropriate 
officers and employees of the Bank, subject to the limitations of this 
part.



PART 1261_FEDERAL HOME LOAN BANK DIRECTORS--Table of Contents



                          Subpart A_Definitions

Sec.
1261.1 [Reserved]

 Subpart B_Federal Home Loan Bank Boards of Directors: Eligibility and 
                                Elections

1261.2 Definitions.
1261.3 General provisions.
1261.4 Designation of member directorships.
1261.5 Director eligibility.
1261.6 Determination of member votes.
1261.7 Nominations for member and independent directorships.
1261.8 Election process.
1261.9 Actions affecting director elections.
1261.10 Independent director conflict of interests.
1261.11 Conflict-of-interests policy for Bank directors.
1261.12 Reporting requirements for Bank directors.
1261.13 Ineligible Bank directors.
1261.14 Vacant Bank directorships.
1261.15 Minimum number of member directorships.
1261.16 [Reserved]

  Subpart C_Federal Home Loan Bank Directors' Compensation and Expenses

1261.20 Definitions.
1261.21 General.
1261.22 Directors' compensation policy.
1261.23 Director disapproval.
1261.24 Board meetings.

Subpart D [Reserved]

    Authority: 12 U.S.C. 1426, 1427, 1432, 4511 and 4526.

    Source: 73 FR 55715, Sept. 26, 2008, unless otherwise noted.



                          Subpart A_Definitions

    Source: 75 FR 17039, May 5, 2010, unless otherwise noted.



Sec.1261.1  [Reserved]



 Subpart B_Federal Home Loan Bank Boards of Directors: Eligibility and 
                                Elections



Sec.1261.2  Definitions.

    As used in this Subpart B:
    Advisory Council means the Advisory Council each Bank is required to 
establish pursuant to section 10(j)(11) of the Bank Act (12 U.S.C. 
1430(j)(11)), and part 1291 of this chapter.
    Bona fide resident of a Bank district means an individual who:
    (1) Maintains a principal residence in the Bank district; or

[[Page 325]]

    (2) If serving as an independent director, owns or leases in his or 
her own name a residence in the Bank district and is employed in a 
voting state in the Bank district.
    FHFA ID number means the number assigned to a member by FHFA and 
used by FHFA and the Banks to identify a particular member.
    Independent directorship means a directorship, as defined by section 
7(a)(4)(A) of the Bank Act, 12 U.S.C. 1427(a)(4)(A), that is filled by a 
plurality vote of the members at large by an individual having the 
qualifications specified by section 7(a)(3)(B)(i) or (ii), 12 U.S.C. 
1427(a)(3)(B)(i) or (ii).
    Member directorship means a directorship, as defined by section 
7(a)(4)(A) of the Bank Act, 12 U.S.C. 1427(a)(4)(A), that is filled by a 
plurality vote of the members located in a particular State by an 
individual who is an officer or director of a member located in that 
State.
    Method of equal proportions means the mathematical formula used by 
FHFA to allocate member directorships among the States in a Bank's 
district based on the relative amounts of Bank stock required to be held 
as of the record date by members located in each State.
    Public interest director means an individual serving in a public 
interest directorship.
    Public interest directorship means an independent directorship 
filled by an individual with more than four years of experience 
representing consumer or community interests in banking services, credit 
needs, housing or consumer financial protections.
    Record date means December 31 of the calendar year immediately 
preceding the election year.
    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 12 CFR part 1263, or any 
successor provision, 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 is 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 is Hawaii.

[73 FR 55715, Sept. 26, 2008, as amended at 74 FR 51460, Oct. 7, 2009. 
Redesignated and amended at 75 FR 17039, 17040, Apr. 5, 2010; 81 FR 
76296, Nov. 2, 2016]



Sec.1261.3  General provisions.

    (a) Board size and composition. Annually, the FHFA Director will 
determine the size of the board of directors for each Bank and will 
designate at least a majority, but no more than 60 percent, of the 
directorships as member directorships and the remainder as independent 
directorships. Annually, the board of directors of each Bank shall 
determine how many, if any, of the independent directorships with terms 
beginning the following January 1 shall be public interest 
directorships, ensuring that at all times the Bank will have at least 
two public interest independent directorships.
    (b) Term of directorships. The term of office of each directorship 
shall be four years, except as adjusted pursuant to section 7(d) of the 
Bank Act (12 U.S.C 1427(d)) to achieve a staggered board, and shall 
commence on January 1 of the calendar year so designated by FHFA.
    (c) Annual elections. Each Bank annually shall conduct an election 
the purpose of which is to fill all directorships designated by FHFA as 
commencing on January 1 of the calendar year immediately following the 
year in which such election is commenced. Subject to the provisions of 
the Bank Act and in accordance with the requirements of this subpart, 
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.
    (d) Location of members. In accordance with section 7(c) of the Bank 
Act (12 U.S.C 1427(c)), for purposes of the election of member 
directors, a member is deemed to be located in its voting state, unless 
otherwise designated by the Director.

[[Page 326]]

    (e) Dates. If any date specified in this subpart for action by a 
Bank, or specified by a Bank pursuant to this subpart, falls on a 
Saturday, Sunday, or Federal holiday, the relevant time period is deemed 
to be extended to the next calendar day that is not a Saturday, Sunday, 
or Federal holiday.

[73 FR 55715, Sept. 26, 2008, as amended at 74 FR 51460, Oct. 7, 2009. 
Redesignated at 75 FR 17039, Apr. 5, 2010; 81 FR 76296, Nov. 2, 2016]



Sec.1261.4  Designation of member directorships.

    (a) Capital stock reports. (1) On or before April 10 of each year, 
each Bank shall deliver to FHFA 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 FHFA 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 FHFA 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 holding requirement as of the record 
date.
    (2) The number of shares of Bank stock that any member was required 
to hold as of the record date shall be determined in accordance with the 
minimum investment established by the capital plan for that Bank.
    (b) Designation of member directorships. Using the method of equal 
proportions, the Director annually will conduct a designation of member 
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 the record date. 
If a Bank has issued more than one class of stock, the Director will 
designate the directorships for each State in that Bank district based 
on the combined number of shares required to be held by the members in 
that State. For purposes of conducting the designation, the number of 
shares of Bank stock required to be held by members as of that date 
shall be determined in accordance with the minimum investment 
established by the capital plan for that Bank. In all cases, the 
Director will designate the directorships by using the information 
provided by each Bank in its capital stock report required by paragraph 
(a)(1) of this section.
    (c) Allocation of directorships. The member directorships designated 
by the Director will be allocated among the States by the Director in 
accordance with section 7(b) and (c) of the Bank Act.
    (d) Notification. On or before June 1 of each year, FHFA will notify 
each Bank in writing of the total number of directorships established 
for the Bank and the number of member directorships designated as 
representing the members in each voting state in the Bank district.
    (e) Change of state. If the annual designation of member 
directorships results in an existing directorship being redesignated as 
representing members in a different State, that directorship shall be 
deemed to terminate in the previous State as of December 31 of that 
year, and a new directorship to begin in the succeeding State as of 
January 1 of the next year. The new directorship shall be filled by vote 
of the members in the succeeding State and, in order to maintain the 
staggered terms of directorships, shall be adjusted to a term equal to 
the remaining term of the previous directorship if it had not been 
redesignated to another State.

[74 FR 51460, Oct. 7, 2009. Redesignated and amended at 75 FR 17039, 
17040, Apr. 5, 2010; 81 FR 76296, Nov. 2, 2016]



Sec.1261.5  Director eligibility.

    (a) Eligibility requirements for member directors. Each member 
director, and each nominee to a member directorship, shall be:
    (1) A citizen of the United States; and
    (2) An officer or director of a member that is located in the 
district in which the Bank is located and that meets all minimum capital 
requirements established by its appropriate Federal banking agency or 
appropriate State regulator. In the case of a director elected by the 
members, the institution of

[[Page 327]]

which the director is an officer or director must have been a member as 
of the record date. In the case of a director elected by a Bank's board 
of directors to fill a vacancy, the institution of which the director is 
an officer or director must be a member at the time the board acts.
    (b) State designation for member directors. Each member director, 
and each nominee to a member directorship, shall be an officer or 
director of a member that is located in the State to which the Director 
has allocated such directorship under Sec.1261.4(c).
    (c) Eligibility requirements for independent directors. Each 
independent director, and each nominee to an independent directorship, 
shall be:
    (1) A citizen of the United States; and
    (2) A bona fide resident of the district in which the Bank is 
located.
    (d) Restrictions. (1) A nominee is not eligible if he or she:
    (i) Is an incumbent 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 Bank Act (12 U.S.C. 1427(d)); or
    (ii) Is a former director whose service would be barred by the term 
limit provision of section 7(d) of the Bank Act.
    (2) For purposes of applying the term limit provision of section 
7(d) of the Bank Act (12 U.S.C. 1427(d)):
    (i) A term of office that is adjusted after July 30, 2008 to a 
period of fewer than four years shall not be deemed to be a full term;
    (ii) Any member director's election and service to a directorship 
with a three year term of office prior to July 30, 2008 shall be deemed 
to be a full term;
    (iii) Any three-year term of office that ends immediately before a 
term of office that is adjusted after July 30, 2008 to a period of fewer 
than four years, and any term of office commencing immediately following 
such adjusted term of office, shall constitute consecutive full terms of 
office; and
    (iv) Any period of time served by a director who has been elected by 
the board of directors to fill a vacancy shall not be deemed to 
constitute a full term.
    (e) Loss of eligibility. A director shall become ineligible to 
remain in office if, during his or her term of office, the directorship 
to which he or she has been elected is eliminated. The incumbent 
director shall become ineligible after the close of business on December 
31 of the year in which the directorship is eliminated.

[73 FR 55715, Sept. 26, 2008, as amended at 74 FR 51461, Oct. 7, 2009; 
75 FR 17039, 17040, Apr. 5, 2010; 81 FR 76296, Nov. 2, 2016]



Sec.1261.6  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.
    (b) Number of votes. For each member directorship and each 
independent directorship that is to be filled in an election, each 
member 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 required to be held as of the record date 
by all members located in the same 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, using the 
total number of members in a State as the denominator, 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. 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 requirement established by the Bank's capital plan.
    (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 supersede the provisions of paragraph (b) of this 
section that otherwise would allow

[[Page 328]]

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 the provisions of section 7(b) of the Bank 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.

[73 FR 55715, Sept. 26, 2008, as amended at 74 FR 51461, Oct. 7, 2009. 
Redesignated and amended at 75 FR 17039, Apr. 5, 2010; 81 FR 76296, Nov. 
2, 2016]



Sec.1261.7  Nominations for member and independent directorships.

    Within a reasonable time in advance of an election, a Bank shall 
notify each member in its district of the commencement of the election 
process. Such notice shall include:
    (a) Election announcement.
    (1) The number of member directorships designated for each voting 
state in the Bank district and the number of independent directorships 
for the Bank;
    (2) The name of each incumbent Bank director, the name and location 
of the member at which each member director serves, and the name and 
location of the organization with which each independent 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.1261.9 and the Bank has elected to provide the 
results of the assessment to the members;
    (4) An attachment indicating the name, location, and FHFA 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 by such 
members, as determined in accordance with Sec.1261.6; and
    (5) If a member directorship is to be filled by members in a State, 
a nominating certificate for those members.
    (b) Member directorship nominations. (1) Any member that is entitled 
to vote in the election may nominate an eligible individual to fill each 
available member directorship for its voting state by delivering to its 
Bank, prior to a deadline to be established by the Bank and set forth in 
the notice required in paragraph (a) of this section, a nominating 
certificate duly adopted by the member's governing body or by an 
individual authorized by the member's governing body to act on its 
behalf.
    (2) The nominating certificate shall include the name of the nominee 
and the name, location, and FHFA ID number of the member the nominee 
serves as an officer or director.
    (3) The Bank shall establish a deadline for delivery of nominating 
certificates, which shall be no earlier than 30 calendar days after the 
date on which the Bank delivers 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 accepted nominating 
certificates for at least two years after the date of the election.
    (c) Accepting member directorship nominations. Promptly after 
receipt of any nominating certificate, a Bank shall notify in writing 
any individual nominated for a member directorship. An individual may 
accept the nomination only by delivering to the Bank, prior to a 
deadline established by the Bank and set forth in its notice, an 
executed director eligibility certification form prescribed by FHFA. A 
Bank shall allow each nominee at least 30 calendar days after the date 
the Bank delivered the notice of nomination within which to deliver the 
executed form. A nominee may decline the nomination by so advising the 
Bank in writing, or by failing to deliver a properly executed director 
eligibility certification form 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.
    (d) Independent directorship nominations. (1) Any individual who 
seeks to be an independent director of the board of directors of a Bank 
may deliver to the Bank, on or before the deadline set by the Bank for 
delivery of nominating

[[Page 329]]

certificates, an executed independent director application form 
prescribed by FHFA that demonstrates that the individual both is 
eligible and has either of the following qualifications:
    (i) More than four years of experience representing consumer or 
community interests in banking services, credit needs, housing, or 
consumer financial protections; or
    (ii) Knowledge of or experience in one or more of the areas set 
forth in paragraph (e) of this section.
    (2) Any other interested party may recommend to the Bank that it 
consider a particular individual as a nominee for an independent 
directorship, but the Bank shall not nominate any individual unless the 
individual has delivered to the Bank, on or before the date the Bank has 
set for delivery of nominating certificates, an executed independent 
director application form prescribed by FHFA. The application form 
prescribed by FHFA will provide a means by which an individual can 
indicate an intent to be considered for a public interest directorship. 
The board of directors of the Bank may consider any individual for any 
independent directorship nomination, provided it has determined that the 
individual is eligible and qualified, but the board shall nominate for a 
public interest directorship only an individual who indicates on the 
application form a desire to be considered for a public interest 
directorship. The board of directors of the Bank shall consult with the 
Bank's Advisory Council before nominating any individual for any 
independent directorship. Each Bank shall include in its bylaws the 
procedures it intends to use for the nomination and election of the 
independent directors, and shall retain all information received under 
this paragraph for at least two years after the date of the election.
    (3) Each Bank shall determine the number of public interest 
directorships to be included among its authorized independent 
directorships, provided that each Bank shall at all times have at least 
two such directorships, and shall announce that number to its members in 
the notice required by paragraph (a) of this section. In submitting 
nominations to its members, each Bank shall nominate at least as many 
individuals as there are independent directorships to be filled in that 
year's election.
    (e) Independent director qualifications. (1) Each independent 
director and each nominee for an independent directorship, other than a 
public interest directorship, shall have experience in, or knowledge of, 
one or more of the following areas: auditing and accounting, 
derivatives, financial management, organizational management, project 
development, risk management practices, and the law. Before nominating 
any individual for an independent directorship, other than a public 
interest directorship, the board of directors of a Bank shall determine 
that such knowledge or experience of the nominee is commensurate with 
that needed to oversee a financial institution with a size and 
complexity that is comparable to that of the Bank.
    (2) Each public interest independent director and each nominee for a 
public interest directorship shall have more than four years of 
experience representing consumer or community interests in banking 
services, credit needs, housing or consumer financial protection.
    (f) Eligibility verification. Using the information provided on 
member director eligibility forms prescribed by FHFA, each Bank shall 
verify that each nominee for each member directorship meets all the 
eligibility requirements for such directorship. Using the information 
provided on independent director application forms prescribed by FHFA, 
each Bank shall verify that each nominee for each public interest 
independent directorship and each other independent directorship meets 
all eligibility requirements and any knowledge or experience 
qualifications for such directorship, as set forth in the Bank Act and 
this subpart. Before announcing any independent director nominee, the 
Bank shall deliver to FHFA, for the Director's review, a copy of the 
independent director application forms executed by the individuals 
nominated for independent directorships. If within two weeks of such 
delivery FHFA provides comments to the Bank on any independent director 
nominee, the board of directors of the Bank shall

[[Page 330]]

consider the FHFA's comments in determining whether to proceed with 
those nominees or to reopen the nomination.

[73 FR 55715, Sept. 26, 2008, as amended at 74 FR 51461, Oct. 7, 2009. 
Redesignated and amended at 75 FR 17039, Apr. 5, 2010; 81 FR 76296, Nov. 
2, 2016]



Sec.1261.8  Election process.

    (a) Ballots. Promptly after fulfilling the requirements of Sec.
1261.7(f), each Bank shall prepare and deliver a ballot to each member 
that was a member as of the record date. The Bank shall include with 
each ballot a closing date for the Bank's receipt of voted ballots, 
which date shall be no earlier than 30 calendar days after the date such 
ballot is delivered to the member.
    (1) A ballot shall include at least the following provisions:
    (i) For states in which one or more member directorships are to be 
filled in the election, an alphabetical listing of the names of each 
nominee for such directorship, the name, location, and FHFA ID number of 
the member each nominee serves, the nominee's title or position with the 
member, and the number of member directorships to be filled by the 
members in that voting state in the election;
    (ii) An alphabetical listing of the names of each nominee for a 
public interest independent directorship and a brief description of each 
nominee's experience representing consumer and community interests;
    (iii) An alphabetical listing of the names of each nominee for the 
other independent directorships and a brief description of each 
nominee's qualifications, including his or her knowledge or experience 
in the areas of financial management, auditing and accounting, risk 
management practices, derivatives, project development, organizational 
management, and any other area of knowledge or experience set forth in 
Sec.1261.7(e);
    (iv) A statement that write-in candidates are not permitted; and
    (v) A confidentiality statement prohibiting the Bank from disclosing 
how any 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 nominee for a member directorship.
    (b) Statement on skills and experience. If a Bank has conducted an 
annual assessment permitted by Sec.1261.9 and has included the results 
of the assessment as part of the notice to members required in Sec.
1261.7(a), it may include with each ballot a statement of the results of 
that assessment or any subsequent assessment. If the statement differs 
from the statement provided under Sec.1261.7(a)(3), the Bank also 
shall include an explanation of why the statements differ.
    (c) Lack of member directorship nominees. If, for any voting State, 
the number of nominees for the member directorships for that State is 
equal to or fewer than the number of such directorships to be filled in 
that year's election, the Bank shall deliver a notice to the members in 
the affected voting State (in lieu of including any member directorship 
nominees on the ballot for that State) that such nominees shall be 
deemed elected without further action, due to an insufficient number of 
nominees to warrant balloting. Thereafter, the Bank shall declare 
elected all such eligible nominees. The nominees declared elected shall 
be included as directors-elect in the report of election required under 
paragraph (g) of this section. Any member directorship that is not 
filled due to a lack of nominees shall be deemed vacant as of January 1 
of the following year and shall be filled by the Bank's board of 
directors in accordance with Sec.1261.14(a).
    (d) Voting. For each directorship to be filled, a member may cast 
the number of votes determined by the Bank pursuant to Sec.1261.6. A 
member may not split its votes among multiple nominees for a single 
directorship, and, where there are multiple directorships to be filled, 
either within the member's voting state or at large, in the case of 
independent directorships, a member may not cumulatively vote for a 
single nominee. If any member votes, it shall by resolution of its 
governing body either authorize the voting for specific nominees or 
delegate to an individual the authority to vote for specific nominees. 
To vote, a member shall:
    (1) Mark on the ballot the name of not more than one of the nominees 
for

[[Page 331]]

each directorship to be filled. Each nominee so selected shall receive 
all of the votes that the member is entitled to cast.
    (2) Execute and deliver the ballot to the Bank on or before the 
closing date. A Bank shall not allow a member to change a ballot after 
it has been delivered to the Bank.
    (e) Counting ballots. A Bank shall not review any ballot until after 
the closing date, and shall not include in the election results any 
ballot received after the closing date. Promptly after the closing date, 
each Bank shall tabulate the votes cast in the election: for the member 
directorships, the Bank shall tabulate votes by each voting state; for 
the independent directorships, the Bank shall tabulate votes for the 
district at-large. Any ballots cast in violation of paragraph (d) of 
this section shall be void.
    (f) Declaring results-- (1) For member directorships. The Bank shall 
declare elected the nominee receiving the highest number of votes. If 
more than one member directorship is to be filled for a particular 
State, the Bank shall declare elected each successive nominee receiving 
the next highest number of votes until all such open directorships are 
filled.
    (2) For independent directorships. (i) The bank shall tabulate 
separately the votes received for public interest independent director 
nominees and those received for other independent director nominees, in 
each case in accordance with paragraph (f)(2)(ii) of this section.
    (ii) If the number of nominees exceeds the number of directorships 
to be filled, the Bank shall declare elected the nominee receiving the 
highest number of votes. If more than one directorship is to be filled, 
the Bank shall declare elected each successive nominee receiving the 
next highest number of votes for such directorship until all such open 
directorships are filled.
    (iii) If the number of nominees is no more than the number of 
directorships to be filled, the Bank shall declare elected each nominee 
receiving at least 20 percent of the number of votes eligible to be cast 
in the election. If any directorship is not filled due to any nominee's 
failure to receive at least 20 percent of the votes eligible to be cast, 
the Bank shall continue the election process for that directorship under 
the procedures in paragraph (h) of this section.
    (3) Tie votes. In the event of a tie for the last available 
directorship, the disinterested incumbent members of the board of 
directors of the Bank, by a majority vote, shall declare elected one of 
the nominees for whom the number of votes cast was tied.
    (4) Eligibility. 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.
    (5) Record retention. 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.
    (g) Report of election. Promptly following the election, each Bank 
shall deliver a notice to its members, to each nominee, and to FHFA that 
contains the following information:
    (1) For each member directorship, the name of the director-elect, 
the name and location of the member at which he or she serves, his or 
her title or position at the member, the voting State represented, and 
the expiration date of the term of office;
    (2) For each independent directorship, the name of the director-
elect, whether the director-elect will fill a public interest 
directorship and, if so, the consumer or community interest represented 
by such directorship, any qualifications under Sec.1261.7(e), and the 
expiration date of the term of office;
    (3) For member directorships, the total number of eligible votes, 
the number of members voting in the election, and the total number of 
votes cast for each nominee, which shall be reported by State; and
    (4) For independent directorships, the total number of eligible 
votes, the number of members voting in the election, and the total 
number of votes cast for each nominee, which shall be reported for the 
district at large.
    (h) Failure to fill all independent directorships. If any 
independent directorship is not filled due to the failure of any nominee 
to receive at least 20 percent of the eligible vote, the Bank shall

[[Page 332]]

continue the election process for that directorship under the following 
procedures:
    (1) The Bank's board of directors, after again consulting with the 
Bank's Advisory Council, shall nominate at least as many individuals as 
there are independent directorships to be filled. It may nominate 
individuals who failed to be elected in the initial vote. The Bank 
thereafter shall deliver to FHFA a copy of the independent director 
application form executed by each nominee.
    (2) The Bank then shall follow the provisions in this section that 
are applicable to the election process for independent directors, except 
for the following:
    (i) The Bank shall not place the name of any nominee on a ballot 
without prior approval of FHFA; and
    (ii) The Bank may adopt a closing date that is earlier than 30 
calendar days after delivery of the ballots to the eligible voting 
members, provided the Bank determines that an earlier closing date 
provides a reasonable amount of time to vote the ballots.

[73 FR 55715, Sept. 26, 2008, as amended at 74 FR 51462, Oct. 7, 2009. 
Redesignated and amended at 75 FR 17039, 17040, Apr. 5, 2010; 81 FR 
76296, Nov. 2, 2016]



Sec.1261.9  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 individuals 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 individuals with particular 
qualifications, such as auditing and accounting, derivatives, financial 
management, organizational management, project development, risk 
management practices, or the law, it may identify those qualifications 
and so inform the members as part of its announcement of elections 
pursuant to Sec.1261.7(a).
    (b) Support for nomination or election. (1) A Bank director, 
officer, attorney, employee, or agent, acting in his or her personal 
capacity, may support the nomination or election of any individual for a 
member directorship, provided that no such individual shall purport to 
represent the views of the Bank or its board of directors in doing so.
    (2) A Bank director, officer, attorney, employee or agent and the 
board of directors and Advisory Council (including members of the 
Council) of a Bank may support the candidacy of any individual nominated 
by the board of directors for election to an independent directorship.
    (c) Prohibition. Except as provided in paragraphs (a) and (b) of 
this section, or Sec.1223.21(b)(7) of this chapter, no director, 
officer, attorney, employee, or agent of a Bank shall:
    (1) Communicate in any manner that a director, officer, attorney, 
employee, or agent of a Bank, directly or indirectly, supports or 
opposes the nomination or election of a particular individual for a 
directorship; or
    (2) Take any other action to influence the voting with respect to 
any particular individual.

[73 FR 55715, Sept. 26, 2008, as amended at 74 FR 51463, Oct. 7, 2009; 
81 FR 76297, Nov. 2, 2016; 83 FR 39326, Aug. 9, 2018]



Sec.1261.10  Independent director conflict of interests.

    (a) Employment interests. During any independent director's term of 
service, such director shall not serve as an officer, employee, or 
director of any member of the Bank on whose board the individual sits, 
or of any recipient of advances from such Bank, and shall not serve as 
an officer of any Bank. An independent director or nominee for any 
independent directorship shall disclose all such interests to the Bank 
on whose board of directors the individual serves or which is 
considering the individual for nomination to its board of directors.
    (b) Holding companies. Service as an officer, employee, or director 
of a holding company that controls one or more members of, or one or 
more recipients of advances from, the Bank on whose board an independent 
director serves is not deemed to be service as an officer, employee or 
director of a member or recipient of advances if the assets of all

[[Page 333]]

such members or all such recipients of advances constitute less than 35 
percent of the assets of the holding company, on a consolidated basis.
    (c) Attribution. For purposes of determining compliance with this 
section, a Bank shall attribute to the independent director any officer 
position, employee position, or directorship of the director's spouse.

[73 FR 55715, Sept. 26, 2008, as amended at 74 FR 51463, Oct. 7, 2009]



Sec.1261.11  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 members of 
its board of 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;
    (2) Require independent directors to comply with Sec.1261.10(a);
    (3) Prohibit the use of a director's official position for personal 
gain;
    (4) Require directors to disclose actual or apparent conflicts of 
interests and establish procedures for addressing such conflicts;
    (5) Require the establishment of internal controls to ensure that 
conflict-of-interests reports are made and filed and that conflict-of-
interests issues are disclosed and resolved; 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 financial interests 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 business matter or 
proposed business matter involving the Bank and any other person or 
entity. A director shall disclose fully the nature of his or her 
interests 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 any financial interest.
    (c) Confidential Information. Directors shall not disclose or use 
confidential information they receive solely by reason of their position 
with the Bank to obtain any benefit for themselves or for any other 
individual or entity.
    (d) Gifts. No Bank director shall accept, and each Bank director 
shall discourage the director's immediate family members from accepting, 
any gift that the director believes or has reason to believe is given 
with the intent to influence the director's actions as a member of the 
Bank's board of directors, or where acceptance of such gift would have 
the appearance of intending to influence the director's actions as a 
member of the board. Any insubstantial gift would not be expected to 
trigger this prohibition.
    (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 available generally 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

[[Page 334]]

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.

[73 FR 55715, Sept. 26, 2008, as amended at 74 FR 51463, Oct. 7, 2009]



Sec.1261.12  Reporting requirements for Bank directors.

    (a) Annual reporting. Annually, each Bank shall require each of its 
directors to execute and deliver to the Bank the appropriate director 
eligibility certification form prescribed by FHFA for the type of 
directorship held by such director. The Bank promptly shall deliver to 
FHFA a copy of the certification form delivered to it by each director.
    (b) Report of noncompliance. At any time that any director believes 
or has reason to believe that he or she no longer meets the eligibility 
requirements set forth in the Bank Act or this subpart, the director 
promptly shall so notify the Bank and FHFA in writing. At any time that 
a Bank believes or has reason to believe that any director no longer 
meets the eligibility requirements set forth in the Bank Act or this 
subpart, the Bank promptly shall notify FHFA in writing.

[74 FR 51463, Oct. 7, 2009]



Sec.1261.13  Ineligible Bank directors.

    Upon a determination by FHFA or a Bank that any director of the Bank 
no longer satisfies the eligibility requirements set forth in the Bank 
Act or this subpart, or has failed to comply with the reporting 
requirements of Sec.1261.12, the directorship shall immediately become 
vacant. Any director that is determined to have failed to comply with 
any of these requirements shall not continue to serve as a Bank 
director. Whenever a Bank makes such a determination, the Bank promptly 
shall notify the Bank director and FHFA in writing.

[74 FR 51464, Oct. 7, 2009, as amended at 81 FR 76297, Nov. 2, 2016]



Sec.1261.14  Vacant Bank directorships.

    (a) Filling unexpired terms. (1) When a vacancy occurs on the board 
of directors of any Bank, the board of directors of the Bank shall 
elect, by a majority vote of the remaining Bank directors sitting as a 
board, an individual to fill the unexpired term of office of the vacant 
directorship, regardless of whether the remaining Bank directors 
constitute a quorum of the Bank's board of directors.
    (2) The board of directors of the Bank may fill an anticipated 
vacancy prior to the effective date of the vacancy, provided the board 
does so no sooner than the date of the regularly scheduled board meeting 
that occurs immediately prior to the effective date of the vacancy.
    (3) The board of directors shall elect only an individual who 
satisfies all the eligibility requirements in the Bank Act and in this 
subpart that applied to his or her predecessor and, for independent 
directorships, also satisfies any of the qualifications in the Bank Act 
or this subpart. If a Bank does not have at least two sitting public 
interest independent directors, the board of directors of the Bank shall 
designate the directorship as a public interest directorship and shall 
elect an individual who satisfies a public interest independent 
directorship qualification in the Bank Act or in this subpart.
    (b) Verifying eligibility. Prior to any election by the board of 
directors, the Bank shall obtain an executed member director eligibility 
certification form prescribed by FHFA from each individual being 
considered to fill a member directorship and an executed independent 
director application form prescribed by FHFA from each individual being 
considered to fill an independent directorship. Using the executed 
forms, each Bank shall verify each individual's eligibility and, as to 
independent directors, also shall verify the individual's 
qualifications. Before any independent director is elected by the board 
of directors of a Bank, the Bank shall deliver to FHFA for its review a

[[Page 335]]

copy of the application form of each individual being considered by the 
board. The Bank shall retain the information it receives in accordance 
with Sec.1261.7(c) and (d).
    (c) Notification. Promptly after allowing the individual to assume 
the directorship, as provided in paragraph (b) of this section, a Bank 
shall notify FHFA and each member located in the Bank's district in 
writing of the following:
    (1) For each member directorship filled by the board of a Bank, the 
name of the director, the name, location, and FHFA ID number of the 
member the director serves, the director's title or position with the 
member, the voting State that the director represents, and the 
expiration date of the director's term of office; and
    (2) For each independent directorship filled by the board of a Bank, 
the name of the director, the name and location of the organization with 
which the director is affiliated, if any, the director's title or 
position with such organization, and the expiration date of the 
director's term of office.

[74 FR 51464, Oct. 7, 2009, as amended at 75 FR 17039, Apr. 5, 2010]



Sec.1261.15  Minimum number of member directorships.

    Except with respect to member directorships of a Bank resulting from 
the merger of any two or more Banks, the number of member directorships 
allocated to each state shall not be less than the number of 
directorships allocated to that state on December 31, 1960. The 
following table sets forth the states within Bank districts not created 
from the merger of two or more Banks whose members held more than one 
directorship on December 31, 1960:

------------------------------------------------------------------------
                                                      Number of elective
                       State                           directorships on
                                                      December 31, 1960
------------------------------------------------------------------------
California.........................................                   3
Colorado...........................................                   2
Illinois...........................................                   4
Indiana............................................                   5
Kansas.............................................                   3
Kentucky...........................................                   2
Louisiana..........................................                   2
Massachusetts......................................                   3
Michigan...........................................                   3
New Jersey.........................................                   4
New York...........................................                   4
Ohio...............................................                   4
Oklahoma...........................................                   2
Pennsylvania.......................................                   6
Tennessee..........................................                   2
Texas..............................................                   3
Wisconsin..........................................                   4
------------------------------------------------------------------------


[81 FR 76297, Nov. 2, 2016]



Sec.1261.16  [Reserved]



  Subpart C_Federal Home Loan Bank Directors' Compensation and Expenses

    Source: 75 FR 17040, Apr. 5, 2010, unless otherwise noted.



Sec.1261.20  Definitions.

    As used in this subpart C:
    Compensation means any payment of money or the provision of any 
other thing of current or potential value in connection with service as 
a director. Compensation includes all direct and indirect payments of 
benefits, both cash and non-cash, granted to or for the benefit of any 
director.
    Expenses means necessary and reasonable travel, subsistence and 
other related expenses incurred in connection with the performance of 
official duties as are payable to senior officers of the Bank under the 
Bank's travel policy, except gift or entertainment expenses.



Sec.1261.21  General.

    (a) Standard. Each Bank may pay its directors reasonable 
compensation for the time required of them, and their necessary 
expenses, in the performance of their duties, as determined by a 
resolution adopted by the board of directors of the Bank and subject to 
the provisions of this subpart.
    (b) Reporting-- (1) Following calendar year. By December 31 of each 
calendar year, each Bank shall report to the Director the compensation 
it anticipates paying to its directors for the following calendar year.
    (2) Preceding calendar year. No later than the tenth business day of 
each calendar year, each Bank shall report to the Director the following 
information relating to director compensation, expenses and meeting 
attendance for

[[Page 336]]

the immediately preceding calendar year:
    (i) The total compensation paid to each director;
    (ii) The total expenses paid to each director;
    (iii) The total compensation paid to all directors;
    (iv) The total expenses paid to all directors;
    (v) The total of all expenses incurred at group functions that are 
not reimbursed to individual directors, such as the cost of group meals 
in connection with board and committee meetings;
    (vi) The total number of meetings held by the board and its 
designated committees; and
    (vii) The number of board and designated committee meetings each 
director attended in-person or through electronic means such as video or 
teleconferencing.



Sec.1261.22  Directors' compensation policy.

    (a) General. Each Bank's board of directors annually shall adopt a 
written compensation policy to provide for the payment of reasonable 
compensation and expenses to the directors for the time required of them 
in performing their duties as directors. Payments under the directors' 
compensation policy may be based on any factors that the board of 
directors determines reasonably to be appropriate, subject to the 
requirements in this subpart.
    (b) Minimum contents. The compensation policy shall address the 
activities or functions for which director attendance or participation 
is necessary and which may be compensated, and shall explain and justify 
the methodology used to determine the amount of compensation to be paid 
to the Bank directors. The compensation policy shall require that any 
compensation paid to a director reflect the amount of time the director 
has spent on official Bank business, and shall require that compensation 
be reduced, as necessary to reflect lesser attendance or performance at 
board or committee meetings during a given year.
    (c) Prohibited payments. A Bank shall not pay a director who 
regularly fails to attend board or committee meetings, and shall not pay 
fees to a director that do not reflect the director's performance of 
official Bank business conducted prior to the payment of such fees.
    (d) Submission requirements. No later than the tenth business day 
after adopting its annual policy for director compensation and expenses, 
and at least 30 days prior to disbursing the first payment to any 
director, each Bank shall submit to the Director a copy of the policy, 
along with all studies or other supporting materials upon which the 
board relied in determining the level of compensation and expenses to 
pay to its directors.



Sec.1261.23  Director disapproval.

    The Director may determine, based upon his or her review of a Bank's 
director compensation policy, methodology and/or other related 
materials, that the compensation and/or expenses to be paid to the 
directors are not reasonable. In such case, the Director may order the 
Bank to refrain from making any further payments under that compensation 
policy. Any such order shall apply prospectively only and will not 
affect either compensation or expenses that have been earned but not yet 
paid or reimbursed or payments that had been made prior to the date of 
the Director's determination and order.



Sec.1261.24  Board meetings.

    (a) Number of meetings. The board of directors of each Bank shall 
hold as many meetings each year as necessary and appropriate to carry 
out its fiduciary responsibilities with respect to the effective 
oversight of Bank management and such other duties and obligations as 
may be imposed by applicable laws, provided the board of directors of a 
Bank must hold a minimum of six in-person meetings in any year.
    (b) Site of meetings. The bank usually should hold board of director 
and committee meetings within the district served by the Bank. The Bank 
shall not hold board of director or committee meetings in any location 
that is not within the United States, including its possessions and 
territories.

Subpart D [Reserved]

[[Page 337]]



PART 1263_MEMBERS OF THE BANKS--Table of Contents



                          Subpart A_Definitions

Sec.
1263.1 Definitions.

                Subpart B_Membership Application Process

1263.2 Membership application requirements.
1263.3 Decision on application.
1263.4 Automatic membership.
1263.5 Appeals.

                   Subpart C_Eligibility Requirements

1263.6 General eligibility requirements.
1263.7 Duly organized requirement.
1263.8 Subject to inspection and regulation requirement.
1263.9 Makes long-term home mortgage loans requirement.
1263.10 Ten percent requirement for certain insured depository 
          institution applicants.
1263.11 Financial condition requirement for depository institutions and 
          CDFI credit unions.
1263.12 Character of management requirement.
1263.13 Home financing policy requirement.
1263.14 De novo insured depository institution applicants.
1263.15 Recently consolidated applicants.
1263.16 Financial condition requirement for insurance company and 
          certain CDFI applicants.
1263.17 Rebuttable presumptions.
1263.18 Determination of appropriate Bank district for membership.
1263.19 Non-federally-insured credit unions.

                      Subpart D_Stock Requirements

1263.20 Stock purchase.
1263.21 [Reserved]
1263.22 Annual calculation of stock holdings.
1263.23 Excess stock.

           Subpart E_Withdrawal, Termination, and Readmission

1263.24 Consolidations involving members.
1263.25 [Reserved]
1263.26 Voluntary withdrawal from membership.
1263.27 Involuntary termination of membership.
1263.28 [Reserved]
1263.29 Disposition of claims.
1263.30 Readmission to membership.

                  Subpart F_Other Membership Provisions

1263.31 Reports and examinations.
1263.32 Official membership insignia.

    Authority: 12 U.S.C. 1422, 1423, 1424, 1426, 1430, 1442, 4511, 4513.

    Source: 81 FR 3277, Jan. 20, 2016, unless otherwise noted.



                          Subpart A_Definitions



Sec.1263.1  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.
    Affiliate means any entity that controls, is controlled by, or is 
under common control with another entity. For purposes of this 
definition, one entity controls another if it:
    (1) Directly or indirectly, or acting through one or more other 
persons, owns, controls, or has the power to vote twenty-five (25) 
percent or more of the outstanding shares of any class of voting 
securities of the other entity, including shares of common or preferred 
stock, general or limited partnership shares or interests, or similar 
interests that entitle the holder:
    (i) To vote for or to select directors, trustees, or partners (or 
individuals exercising similar functions) of that entity; or
    (ii) To vote on or to direct the conduct of the operations or other 
significant policies of that entity;
    (2) Controls in any manner the election of a majority of the 
directors, trustees, or general partners (or individuals exercising 
similar functions) of the other entity; or
    (3) Otherwise has the power to exercise, directly or indirectly, a 
controlling influence over the management or policies of the other 
entity through a management agreement, common directors or management 
officials, or by any other means.
    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.

[[Page 338]]

    Allowance for loan and lease losses means a specified balance-sheet 
account held to fund potential losses on loans or leases, which is 
reported on a regulatory financial report.
    Appropriate regulator means:
    (1) In the case of an insured depository institution or a CDFI 
credit union, an appropriate Federal banking agency or appropriate State 
regulator, as applicable; or
    (2) In the case of an insurance company, an appropriate State 
regulator accredited by the NAIC.
    Captive means an entity that holds an insurance license or charter 
under the laws of a State, but that does not meet the definition of 
``insurance company'' set forth in this section or fall within any other 
category of institution that may be eligible for membership.
    CDFI credit union means a State-chartered credit union that does not 
have Federal share insurance and that has been certified as a CDFI by 
the CDFI Fund.
    CDFI Fund means the Community Development Financial Institutions 
Fund established under section 104(a) of the Community Development 
Banking and Financial Institutions Act of 1994 (12 U.S.C. 4703(a)).
    CFI asset cap means $1 billion, as adjusted annually by FHFA, 
beginning in 2009, 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.
    Class A stock means capital stock issued by a Bank, including 
subclasses, that has the characteristics specified in section 
6(a)(4)(A)(i) of the Bank Act (12 U.S.C. 1426(a)(4)(A)(i)) and 
applicable FHFA regulations.
    Class B stock means capital stock issued by a Bank, including 
subclasses, that has the characteristics specified in section 
6(a)(4)(A)(ii) of the Bank Act (12 U.S.C. 1426(a)(4)(A)(ii)) and 
applicable FHFA regulations.
    Combination business or farm property means real property for which 
the total appraised value is attributable to residential, and business 
or farm uses.
    Community development financial institution or CDFI means an 
institution that is certified as a community development financial 
institution by the CDFI Fund under the Community Development Banking and 
Financial Institutions Act of 1994 (12 U.S.C. 4701 et seq.), other than 
a bank or savings association insured under the Federal Deposit 
Insurance Act (12 U.S.C. 1811 et seq.), a holding company for such a 
bank or savings association, or a credit union that has Federal share 
insurance.
    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
    (2) The total assets of which, as of the date of a particular 
transaction, are less than the CFI asset cap, with total assets being 
calculated as an average of total assets over three years, with such 
average being based on the institution's regulatory financial reports 
filed with its appropriate regulator for the most recent calendar 
quarter and the immediately preceding 11 calendar quarters.
    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), including a CAMELS rating or other 
similar rating, contained in a written regulatory examination report.
    Consolidation means a combination of two or more business entities, 
and includes a consolidation of two or more entities into a new entity, 
a merger of one or more entities into another entity, or a purchase of 
substantially all of the assets and assumption of substantially all of 
the liabilities of an entity by another entity.
    CRA means the Community Reinvestment Act of 1977 (12 U.S.C. 2901 et 
seq.).
    CRA performance evaluation means, unless otherwise specified, a 
formal performance evaluation of an institution prepared by its 
appropriate regulator as required by the CRA or, if such a formal 
evaluation is unavailable for a particular institution, an informal or 
preliminary evaluation.

[[Page 339]]

    De novo insured depository institution means an insured depository 
institution with a charter approved by its appropriate regulator within 
the three years prior to the date the institution applies for Bank 
membership.
    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. An 
``enforcement action'' does not include a board of directors' resolution 
adopted by the applicant in response to examination weaknesses 
identified by such regulator.
    Federal share insurance means insurance coverage of credit union 
member accounts provided by the National Credit Union Share Insurance 
Fund under subchapter II of the Federal Credit Union Act (12 U.S.C. 1781 
et seq.).
    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.
    Gross revenues means, in the case of a CDFI applicant, total 
revenues received from all sources, including grants and other donor 
contributions and earnings from operations.
    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 fifty 
(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 security representing:
    (i) A right to receive a portion of the cash flows from a pool of 
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) An interest in other securities, all of which meet the 
requirements of paragraph (2)(i) of this definition.
    Insurance company means an entity that holds an insurance license or 
charter under the laws of a State and whose primary business is the 
underwriting of insurance for persons or entities that are not its 
affiliates.
    Insured depository institution means:
    (1) An insured depository institution as defined in section 2(9) of 
the Bank Act, as amended (12 U.S.C. 1422(9)); and
    (2) To the extent provided under Sec.1263.19, a non-federally-
insured credit union.
    Long-term means a term to maturity of five years or greater at the 
time of origination.
    Manufactured housing means a manufactured home as defined in section 
603(6) of the National Manufactured Housing 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.
    NAIC means the National Association of Insurance Commissioners.
    Non-federally-insured credit union means a State-chartered credit 
union that does not have Federal share insurance and that has not been 
certified as a CDFI by the CDFI Fund.

[[Page 340]]

    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.
    Operating expenses means, in the case of a CDFI applicant, expenses 
for business operations, including, but not limited to, staff salaries 
and benefits, professional fees, interest, loan loss provision, and 
depreciation, contained in the applicant's audited financial statements.
    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 CAMELS rating or other 
similar rating.
    Regulatory financial report means a financial report that an 
institution is required to file with its appropriate regulator on a 
specific periodic basis, including the quarterly call report for 
commercial banks and savings associations, quarterly or semi-annual call 
report for credit unions, NAIC's annual or quarterly statement for 
insurance companies, or other similar report, including such report 
maintained by the appropriate regulator in an electronic database.
    Residential mortgage loan means any one of the following types of 
loans, whether or not fully amortizing:
    (1) A home mortgage loan;
    (2) A funded residential construction loan;
    (3) A loan secured by manufactured housing whether or not defined by 
State law as secured by an interest in real property;
    (4) A loan secured by a junior lien on one-to-four family property 
or multifamily property;
    (5) A security representing:
    (i) A right to receive a portion of the cash flows from a pool of 
loans, provided that, at the time of issuance of the security, all of 
the loans meet the requirements of one of paragraphs (1) through (4) of 
this definition; or
    (ii) An interest in other securities that meet the requirements of 
paragraph (5)(i) of this definition;
    (6) A home mortgage loan 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
    (7) A loan that finances one or more properties or activities that, 
if made by a member, would satisfy the statutory requirements for the 
Community Investment Program established under

[[Page 341]]

section 10(i) of the Bank Act (12 U.S.C. 1430(i)), or the regulatory 
requirements established for any Community Investment Cash Advance 
program.
    Restricted assets means both permanently restricted assets and 
temporarily restricted assets, as those terms are used in Financial 
Accounting Standard No. 117, or any successor publication.
    Total assets means the total assets reported on a regulatory 
financial report or, in the case of a CDFI applicant, the total assets 
contained in the applicant's audited financial statements.
    Unrestricted cash and cash equivalents means, in the case of a CDFI 
applicant, cash and highly liquid assets that can be easily converted 
into cash that are not restricted in a manner that prevents their use in 
paying expenses, as contained in the applicant's audited financial 
statements.

[81 FR 3277, Jan. 20, 2016, as amended at 82 FR 25722, June 5, 2017]



                Subpart B_Membership Application Process



Sec.1263.2  Membership application requirements.

    (a) Application. Except as otherwise specified in this part, no 
institution may become a member of a Bank unless it has submitted 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. The applicant has reviewed the requirements of 
this part and, as required by this part, has provided to the best of its 
knowledge the most recent, accurate, and complete information available; 
and
    (2) Duty to supplement. The applicant will promptly supplement the 
application with any relevant information that comes to its 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.
1263.5, prior to resolution of any appeal by FHFA.
    (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.1263.6 to 1263.19, the Bank's findings, and 
the reasons therefor. In preparing a digest for an applicant whose 
satisfaction of the membership eligibility requirements of Sec.
1263.6(a) is contingent upon its meeting the definition of ``insurance 
company'' set forth in Sec.1263.1, the Bank shall state its conclusion 
as to whether the applicant meets that definition and summarize the 
bases for that conclusion. In preparing a digest for a non-federally-
insured credit union applicant, the Bank shall summarize the manner in 
which the applicant has complied with the requirements of Sec.
1263.19(a).
    (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 or, in the case of an appeal to FHFA, for 
three years after the resolution of the appeal. 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.1263.6 
to 1263.19, including documents required to establish or rebut a 
presumption under this part, shall be described in and attached to the 
digest. The Bank is not required to retain in the file portions of 
regulatory financial reports that are not relevant to its decision on 
the membership application. 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.
1263.3(b).

[81 FR 3277, Jan. 20, 2016, as amended at 82 FR 25722, June 5, 2017]



Sec.1263.3  Decision on application.

    (a) Authority. FHFA hereby authorizes the Banks to approve or deny 
all applications for membership, subject

[[Page 342]]

to the requirements of this part. The authority to approve membership 
applications may be exercised only by 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) 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:
    (i) 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
    (ii) The applicant meets all of the membership eligibility criteria 
of the Bank 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 the 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 suspend the 60-day 
processing period until the Bank again deems the application to be 
complete, at which time the processing period shall resume. The Bank 
shall notify an applicant in writing when it deems the applicant's 
application to be complete, and shall maintain a copy of the notice in 
the applicant's membership file. The Bank shall notify an applicant 
whenever it suspends or resumes the 60-day processing period, and shall 
maintain a written record of those notifications in the applicant's 
membership file. Within three business days of a Bank's decision on an 
application, the Bank shall provide the applicant and FHFA with a copy 
of the Bank's decision resolution.

[81 FR 3277, Jan. 20, 2016, as amended at 82 FR 25722, June 5, 2017]



Sec.1263.4  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 the 
conversion, provided that the converted 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 that relocates 
its principal place of business to another Bank district or that 
redesignates its principal place of business to another Bank district 
pursuant to Sec.1263.18(c) automatically shall become a member of the 
Bank of that district upon the purchase of the minimum amount of Bank 
stock required for membership in that Bank, as required by Sec.
1263.20.
    (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

[[Page 343]]

institutions) was a member immediately prior to the effective date of 
the consolidation, automatically become a member of such Bank upon the 
purchase of the minimum amount of Bank stock required for membership in 
that Bank, as required by Sec.1263.20, provided that:
    (i) 90 percent or more of the consolidated institution's total 
assets are derived from the total assets of the disappearing member 
institution (or institutions); and
    (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.1263.24(b)(4)(i) shall apply, and upon 
approval of automatic membership by the Bank, the provisions of Sec.
1263.24(c) shall apply.



Sec.1263.5  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 
FHFA.
    (2) Documents. The applicant's appeal shall be addressed to the 
Deputy Director for Federal Home Loan Bank Regulation, Federal Housing 
Finance Agency, 400 Seventh Street SW., Washington, DC 20219, 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. An applicant must provide a statement of the 
basis for the appeal with sufficient facts, information, analysis, and 
explanation to rebut any applicable presumptions, or otherwise to 
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 FHFA with a copy of the applicant's complete 
membership file. Until FHFA resolves the appeal, the appellee Bank shall 
supplement the materials provided to FHFA as any new materials are 
received.
    (2) Additional information. FHFA may request additional information 
or further supporting arguments from the appellant, the appellee Bank, 
or any other party that FHFA deems appropriate.
    (c) Deciding appeals. FHFA shall consider the record for appeal 
described in paragraph (b) of this section and shall resolve the appeal 
based on the requirements of the Bank Act and this part within 90 
calendar days of the date the appeal is filed with FHFA. In deciding the 
appeal, FHFA shall apply the presumptions in this part, unless the 
appellant or appellee Bank presents evidence to rebut a presumption as 
provided in Sec.1263.17.



                   Subpart C_Eligibility Requirements



Sec.1263.6  General eligibility requirements.

    (a) Requirements. Any building and loan association, savings and 
loan association, cooperative bank, homestead association, insurance 
company, savings bank, community development financial institution 
(including a CDFI credit union), or insured depository institution shall 
be eligible for Bank membership if:
    (1) It is duly organized under tribal law, or 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 or, in 
the case of a CDFI, is certified by the CDFI Fund;
    (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;
    (6) Its home financing policy is consistent with sound and 
economical home financing; and
    (7) It has complied with any applicable requirement of paragraphs 
(b) and (c) of this section.
    (b) Additional eligibility requirement for insured depository 
institutions other than community financial institutions. In

[[Page 344]]

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 
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 provided in paragraph (e) of this 
section, an institution that does not satisfy the requirements of this 
part shall be ineligible for membership.
    (e) Treatment of captives previously admitted to membership. A Bank 
that admitted one or more captives to membership prior to February 19, 
2016 shall wind down its relationship with, and terminate the membership 
of, each of those captives as provided in this paragraph (e).
    (1) Captives admitted prior to September 12, 2014.--(i) A Bank shall 
have until February 19, 2021 to wind down its business transactions with 
any captive that it had admitted to membership prior to September 12, 
2014, notwithstanding the captive's ineligibility for Bank membership. 
The Bank may make or renew an advance to such a captive only if:
    (A) After making or renewing the advance, its total outstanding 
advances to that captive would not exceed 40 percent of the captive's 
total assets; and
    (B) The new or renewed advance has a maturity date no later than 
February 19, 2021.
    (ii) A Bank shall terminate the membership of any captive described 
in paragraph (e)(1)(i) of this section no later than February 19, 2021, 
as provided under Sec.1263.27. After termination, the Bank shall 
require the liquidation of any outstanding indebtedness owed by, and the 
settlement of all other outstanding business transactions with, such 
terminated captive, and shall redeem or repurchase the Bank stock owned 
by the captive in accordance with Sec.1263.29; provided that the Bank 
may allow the captive to repay any outstanding advance made or last 
renewed in accordance with the applicable requirements then in effect 
and having a maturity date later than its date of termination in 
accordance with its terms and delay the repurchase of any Bank stock 
held in support of that advance until after the advance has been repaid, 
in accordance with the Bank's capital plan.
    (2) Captives admitted on or after September 12, 2014.--(i) A Bank 
shall have until February 19, 2017 to wind down its business 
transactions with any captive that it had admitted to membership on or 
after September 12, 2014, notwithstanding the captive's ineligibility 
for Bank membership. The Bank shall not make or renew any advance to 
such a captive.
    (ii) A Bank shall terminate the membership of any captive described 
in paragraph (e)(2)(i) of this section no later than February 19, 2017, 
as provided under Sec.1263.27. Upon termination, the Bank shall 
require the liquidation of any outstanding indebtedness owed by, and the 
settlement of all other outstanding business transactions with, such 
terminated captive, and shall redeem or repurchase the Bank stock owned 
by the captive in accordance with Sec.1263.29; provided that all 
advances outstanding to that member must be repaid in full by the 
termination date.



Sec.1263.7  Duly organized requirement.

    An applicant shall be deemed to be duly organized, as required by 
section 4(a)(1)(A) of the Bank Act (12 U.S.C. 1424(a)(1)(A)) and Sec.
1263.6(a)(1), 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 or, in the case of a CDFI applicant, is 
incorporated under State or tribal law.



Sec.1263.8  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 Bank Act (12 U.S.C. 
1424 (a)(1)(B)) and Sec.1263.6(a)(2) if, in the case of an insured

[[Page 345]]

depository institution or insurance company applicant, it is subject to 
inspection and regulation by its appropriate regulator. A CDFI applicant 
that is certified by the CDFI Fund is not subject to this requirement.



Sec.1263.9  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 Bank Act (12 U.S.C. 
1424(a)(1)(C)) and Sec.1263.6(a)(3), if, based on the applicant's most 
recent regulatory financial report filed with its appropriate regulator, 
or other documentation provided to the Bank, in the case of a CDFI 
applicant that does not file such reports, the applicant originates or 
purchases long-term home mortgage loans.



Sec.1263.10  Ten 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 Bank Act (12 U.S.C. 
1424(a)(2)(A)) and Sec.1263.6(b) shall be deemed to comply with that 
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-backed securities as 
described in paragraph (5) of the definition of ``residential mortgage 
loan'' set forth in Sec.1263.1 shall not be used to meet this 
requirement.



Sec.1263.11  Financial condition requirement for depository 
institutions and CDFI credit unions.

    (a) Review requirement. In determining whether a building and loan 
association, savings and loan association, cooperative bank, homestead 
association, savings bank, insured depository institution, or CDFI 
credit union has complied with the financial condition requirements of 
section 4(a)(2)(B) of the Bank Act (12 U.S.C. 1424(a)(2)(B)) and Sec.
1263.6(a)(4), 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--
    (i) 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;
    (ii) The most recent independent audit of the applicant's parent 
holding company 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;
    (iii) The most recent directors' examination of the applicant 
conducted in accordance with generally accepted auditing standards by a 
certified public accounting firm;
    (iv) The most recent directors' examination of the applicant 
performed by other external auditors;
    (v) The most recent review of the applicant's financial statements 
by external auditors;
    (vi) The most recent compilation of the applicant's financial 
statements by external auditors; or
    (vii) 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

[[Page 346]]

    (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 of the type described in paragraph (a) 
of this section shall be deemed to be in compliance with the financial 
condition requirement of section 4(a)(2)(B) of the Bank Act (12 U.S.C. 
1424(a)(2)(B)) and Sec.1263.6(a)(4), 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) Except as provided in 
paragraph (b)(3)(iii) of this section, the applicant's most recent 
composite regulatory examination rating from its appropriate regulator 
within the past two years was ``1'', or the most recent rating 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 four of the six 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 
semi-annual basis.
    (iii) An applicant that is a CDFI credit union or a non-federally-
insured credit union must meet the performance trend criteria in 
paragraph (b)(3)(i) of this section irrespective of its composite 
regulatory examination rating.
    (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 Bank 
Act (12 U.S.C. 1424(a)(2)(B)) and Sec.1263.6(a)(4).

[81 FR 3277, Jan. 20, 2016, as amended at 82 FR 25722, June 5, 2017]



Sec.1263.12  Character of management requirement.

    (a) General. A building and loan association, savings and loan 
association, cooperative bank, homestead association, savings bank, 
insured depository institution, insurance company, and CDFI credit union 
shall be deemed to be in compliance with the character of management 
requirements of section 4(a)(2)(C) of the Bank Act (12 U.S.C. 
1424(a)(2)(C)) and Sec.1263.6(a)(5) 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:
    (1) 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;
    (2) 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
    (3) 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

[[Page 347]]

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.
    (b) CDFIs other than CDFI credit unions. A CDFI applicant, other 
than a CDFI credit union, shall be deemed to be in compliance with the 
character of management requirement of Sec.1263.6(a)(5), if the 
applicant provides 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:
    (1) 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 in the past 
three years; and
    (2) 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 arising within the past three years that are significant 
to the applicant's operations.



Sec.1263.13  Home financing policy requirement.

    (a) Standard. An applicant shall be deemed to be in compliance with 
the home financing policy requirements of section 4(a)(2)(C) of the Bank 
Act (12 U.S.C. 1424(a)(2)(C)) and Sec.1263.6(a)(6), if the applicant 
has received a CRA rating of ``Satisfactory'' or better on its most 
recent 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.



Sec.1263.14  De novo insured depository institution applicants.

    (a) Presumptive compliance. A de novo insured depository institution 
applicant shall be deemed to meet the duly organized, subject to 
inspection and regulation, financial condition, and character of 
management requirements of Sec. Sec.1263.7, 1263.8, 1263.11 and 
1263.12, respectively.
    (b) Makes long-term home mortgage loans requirement. A de novo 
insured depository institution applicant shall be deemed to make long-
term home mortgage loans, as required by section 4(a)(1)(C) of the Bank 
Act (12 U.S.C. 1424(a)(1)(C)) and Sec.1263.6(a)(3), 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) Conditional approval. If a de novo 
insured depository institution applicant that commenced its initial 
business operations less than one year before applying for Bank 
membership is subject to, but cannot yet meet, the 10 percent 
requirement of section 4(a)(2)(A) of the Bank Act (12 U.S.C. 
1424(a)(2)(A)) and Sec.1263.6(b) as provided in Sec.1263.10, a Bank 
may conditionally approve that applicant for membership if it meets all 
other applicable requirements.
    (2) Approval may become final. If, within one year after 
commencement of its initial business operations, an institution that was 
conditionally approved for membership under paragraph (c)(1) of this 
section supplies evidence acceptable to the Bank that it satisfies the 
10 percent requirement as provided under Sec.1263.10, its membership 
approval shall become final.
    (3) Approval may become void. If an institution that was 
conditionally approved for membership under paragraph (c)(1) does not 
satisfy the requirements of paragraph (c)(2) of this section, it shall 
be deemed to be out of compliance with the 10 percent requirement, and 
its conditional membership approval shall become void.
    (d) Home financing policy requirement.--(1) Conditional approval. If 
a de

[[Page 348]]

novo insured depository institution applicant cannot meet the home 
financing policy requirement of section 4(a)(2)(C) of the Bank Act (12 
U.S.C. 1424(a)(2)(C)) and Sec.1263.6(a)(6) as provided under Sec.
1263.13 because it has not received its first CRA performance 
evaluation, a Bank may conditionally approve that applicant for 
membership if it meets all other applicable requirements and has 
included in its application 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.
    (2) Approval may become final. If an institution that was 
conditionally approved for membership under paragraph (d)(1) of this 
section supplies evidence acceptable to the Bank that it has satisfied 
the home financing policy requirement as provided under Sec.1263.13 by 
receiving a CRA rating of ``Satisfactory'' or better on its first CRA 
performance evaluation, its membership approval shall cease to be 
conditional.
    (3) Approval may become void. If an institution that was 
conditionally approved for membership under paragraph (d)(1) of this 
section receives a rating of ``Needs to Improve'' or ``Substantial Non-
Compliance'' on its first CRA performance evaluation, and fails to rebut 
the presumption of non-compliance with the home financing policy 
requirement as provided under Sec.1263.17(f), it shall be deemed to be 
out of compliance with that requirement and its conditional membership 
approval shall become void.
    (e) Other rules. An institution that has been conditionally approved 
for membership under paragraph (c)(1) or (d)(1) of this section shall be 
subject to all regulations applicable to members generally, including 
those relating to stock purchase requirements and or collateral, 
notwithstanding that its membership may be conditional for some period 
of time. If an institution's conditional membership approval becomes 
void as provided in paragraphs (c)(3) or (d)(3) of this section, then 
the Bank shall liquidate any outstanding indebtedness owed by the 
institution to the Bank and redeem or repurchase its capital stock in 
accordance with Sec.1263.29.



Sec.1263.15  Recently consolidated applicants.

    An applicant that has recently consolidated with another institution 
is subject to the requirements of Sec. Sec.1263.7 to 1263.13 except as 
provided in this section.
    (a) Financial condition requirement. For purposes of Sec.
1263.11(a)(1) and 1263.11(b)(3)(i)(A), a recently consolidated applicant 
that has not yet filed regulatory financial reports as a consolidated 
entity for six quarters or three calendar year-ends shall provide to the 
Bank:
    (1) All regulatory financial reports that the applicant has filed as 
a consolidated entity; and
    (2) Pro forma combined financial statements for those quarters for 
which actual combined regulatory financial reports are unavailable.
    (b) Home financing policy requirement. For purposes of Sec.
1263.13, a recently consolidated applicant that has not yet received its 
first CRA performance evaluation as a consolidated entity 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.
1263.9 and 1263.10, a Bank may, in its discretion, permit a recently 
consolidated applicant that has not yet filed a regulatory financial 
report as a consolidated entity to provide the pro forma financial 
statement for the consolidated entity that the consolidating entities 
filed with the regulator that approved the consolidation.



Sec.1263.16  Financial condition requirement for insurance company 
and certain CDFI applicants.

    (a) Insurance companies.--(1) An insurance company applicant shall 
be deemed to meet the financial condition requirement of Sec.
1263.6(a)(4) if the Bank determines:
    (i) Based on the information contained in the applicant's most 
recent regulatory financial report filed with

[[Page 349]]

its appropriate regulator, that the applicant meets all of its minimum 
statutory and regulatory capital requirements and the capital standards 
established by the NAIC; and
    (ii) Based on the applicant's most recent audited financial 
statements, that the applicant's financial condition is such that the 
Bank can safely make advances to it.
    (2) In making the determination required under paragraph (a)(1)(ii) 
of this section, the Bank shall use audited financial statements that 
have been prepared in accordance with generally accepted accounting 
principles, if they are available. If they are not available, the Bank 
may use audited financial statements prepared in accordance with 
statutory accounting principles.
    (b) CDFIs other than CDFI credit unions.--(1) Review requirement. In 
order for a Bank to determine whether a CDFI applicant, other than a 
CDFI credit union, has complied with the financial condition requirement 
of Sec.1263.6(a)(4), the applicant shall submit, as a part of its 
membership application, each of the following documents, and the Bank 
shall consider all such information prior to acting on the application 
for membership:
    (i) Financial statements. An independent audit conducted within the 
prior year in accordance with generally accepted auditing standards by a 
certified public accounting firm, plus more recent quarterly statements, 
if available, and financial statements for the two years prior to the 
most recent audited financial statement. At a minimum, all such 
financial statements must include income and expense statements, 
statements of activities, statements of financial position, and 
statements of cash flows. The financial statement for the most recent 
year must include separate schedules or disclosures of the financial 
position of each of the applicant's affiliates, descriptions of their 
lines of business, detailed financial disclosures of the relationship 
between the applicant and its affiliates (such as indebtedness or 
subordinate debt obligations), disclosures of interlocking directorships 
with each affiliate, and identification of temporary and permanently 
restricted funds and the requirements of these restrictions;
    (ii) CDFI Fund certification. The certification that the applicant 
has received from the CDFI Fund. If the certification is more than three 
years old, the applicant must also submit a written statement attesting 
that there have been no material events or occurrences since the date of 
certification that would adversely affect its strategic direction, 
mission, or business operations; and
    (iii) Additional information. Any other relevant document or 
information a Bank requests concerning the applicant's financial 
condition that is not contained in the applicant's financial statements, 
as well as any other information that the applicant believes 
demonstrates that it satisfies the financial condition requirement of 
Sec.1263.6(a)(4), notwithstanding its failure to meet any of the 
financial condition standards of paragraph (b)(2) of this section.
    (2) Standards. A CDFI applicant, other than a CDFI credit union, 
shall be deemed to be in compliance with the financial condition 
requirement of Sec.1263.6(a)(4) if it meets all of the following 
minimum financial standards--
    (i) Net asset ratio. The applicant's ratio of net assets to total 
assets is at least 20 percent, with net and total assets including 
restricted assets, where net assets is calculated as the residual value 
of assets over liabilities and is based on information derived from the 
applicant's most recent financial statements;
    (ii) Earnings. The applicant has shown positive net income, where 
net income is calculated as gross revenues less total expenses, is based 
on information derived from the applicant's most recent financial 
statements, and is measured as a rolling three-year average;
    (iii) Loan loss reserves. The applicant's ratio of loan loss 
reserves to loans and leases 90 days or more delinquent (including loans 
sold with full recourse) is at least 30 percent, where loan loss 
reserves are a specified balance sheet account that reflects the amount 
reserved for loans expected to

[[Page 350]]

be uncollectible and are based on information derived from the 
applicant's most recent financial statements;
    (iv) Liquidity. The applicant has an operating liquidity ratio of at 
least 1.0 for the four most recent quarters, and for one or both of the 
two preceding years, where the numerator of the ratio includes 
unrestricted cash and cash equivalents and the denominator of the ratio 
is the average quarterly operating expense.



Sec.1263.17  Rebuttable presumptions.

    (a) Rebutting presumptive compliance. The presumption that an 
applicant meeting the requirements of Sec. Sec.1263.7 to 1263.16 is in 
compliance with the corresponding eligibility requirements of section 
4(a) of the Bank Act (12 U.S.C. 1424(a)) and Sec.1263.6(a) and (b), 
may be rebutted, and the Bank may deny membership to an 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.1263.8, 
1263.11, 1263.12, 1263.13, or 1263.16, is not in compliance with the 
corresponding eligibility requirement of section 4(a) of the Bank Act 
(12 U.S.C. 1424(a)) and Sec.1263.6(a) may be rebutted and the 
applicant shall be deemed to be in compliance with an eligibility 
requirement, if it satisfies the applicable requirements in this 
section.
    (c) Presumptive noncompliance by insurance company applicant with 
``subject to inspection and regulation'' requirement of Sec.1263.8. If 
an insurance company applicant is not subject to inspection and 
regulation by an appropriate State regulator accredited by the NAIC, as 
required by Sec.1263.8, 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.1263.6(a)(2), notwithstanding the regulator's lack of 
NAIC accreditation.
    (d) Presumptive noncompliance with financial condition requirements 
of Sec. Sec.1263.11 and 1263.16--(1) Applicants subject to Sec.
1263.11. For applicants subject to Sec.1263.11, in the case of an 
applicant's lack of a composite regulatory examination rating within the 
two-year period required by Sec.1263.11(b)(1), a variance from the 
rating required by Sec.1263.11(b)(3)(i), or a variance from a 
performance trend criterion required by Sec.1263.11(b)(3)(i), 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.
1263.6(a)(4), notwithstanding the lack of rating or variance.
    (2) Applicants subject to Sec.1263.16. For applicants subject to 
Sec.1263.16, in the case of an insurance company applicant's variance 
from a capital requirement or standard of Sec.1263.16(a) or, in the 
case of a CDFI applicant's variance from the standards of Sec.
1263.16(b), 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.1263.6(a)(4), notwithstanding the 
variance.
    (e) Presumptive noncompliance with character of management 
requirement of Sec.1263.12--(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.

[[Page 351]]

    (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 or, in the case of a CDFI 
applicant, during the past three years, 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 an enforcement action; or
    (ii) Written analysis. A written analysis acceptable to the Bank 
indicating that the proceedings will not likely result in an enforcement 
action or, in the case of a CDFI applicant, that the proceedings will 
not likely have a significantly deleterious effect on the applicant's 
operations. 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 or, 
in the case of a CDFI applicant, occurring within the past three years, 
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.1263.11(b)(2) 
and 1263.16(a); 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.1263.11(b)(2) or Sec.1263.16(a), or the net asset 
ratio set forth in Sec.1263.16(b)(2)(i). 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.1263.13 and 1263.14(d). If an applicant 
received a ``Substantial Non-Compliance'' rating on its most recent CRA 
performance evaluation, or a ``Needs to Improve'' CRA rating on its most 
recent CRA performance evaluation and a CRA rating of ``Needs to 
Improve'' or better on any immediately preceding formal CRA performance 
evaluation, the applicant shall provide or the Bank shall obtain:
    (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.



Sec.1263.18  Determination of appropriate Bank district for membership.

    (a) Eligibility. (1) An institution eligible to be a member of a 
Bank under the Bank Act and this part may be 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 FHFA in writing of any such relocation.
    (2) An institution eligible to become a member of a Bank under the 
Bank Act and this part may be 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 FHFA.

[[Page 352]]

    (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 and from which the institution conducts 
business operations.
    (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 that, 
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, FHFA, 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 Bank of which the subject institution is eligible to 
be a member.
    (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 
FHFA make the designation.
    (d) Transfer of membership. (1) In the case of a member whose 
principal place of business has been designated as a State located in 
another Bank district in accordance with paragraph (c) of this section, 
or in the case of a member that has relocated its principal place of 
business to a State in another Bank district, the transfer of membership 
from one Bank to another Bank shall not take effect until the Banks 
involved reach an agreement on a method of orderly transfer.
    (2) In the event that the Banks involved fail to agree on a method 
of orderly transfer, FHFA 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 year of the transfer and shall not be subject to the 
provisions on termination of membership set forth in section 6 of the 
Bank Act (12 U.S.C. 1426) or Sec. Sec.1263.26 and 1263.27, nor the 
restriction on reacquiring Bank membership set forth in Sec.1263.30.
    (f) Insurance companies and CDFIs. (1) For an insurance company or 
CDFI that cannot satisfy the requirements of paragraphs (b) or (c) of 
this section for designating its principal place of business, a Bank 
shall designate as the principal place of business the geographic 
location from which the institution actually conducts the predominant 
portion of its business activities.
    (2) A Bank may deem an institution to conduct the predominant 
portion of its business activities in a particular State if any two of 
the following three factors are present:
    (i) The institution's largest office, as measured by the number of 
employees, is located in that State;
    (ii) A plurality of the institution's employees are located in that 
State; or
    (iii) The places of employment for a plurality of the institution's 
senior executives are located in that State.
    (3) If a Bank cannot designate a State as the principal place of 
business under paragraph (f)(1) of this section,

[[Page 353]]

and cannot otherwise identify a geographic location from which the 
institution actually conducts the predominant portion of its business 
activities, it shall designate the State of domicile or incorporation as 
the principal place of business for that institution.
    (4) For purposes of paragraph (f)(2) of this section, the term 
``senior executive'' means all officers at or above the level of 
``senior vice president'' and includes the positions of president, 
executive vice president, chief executive officer, chief financial 
officer, chief operating officer, general counsel, as well as any 
individuals who perform functions similar to those positions whether or 
not the individual has an official title.
    (g) Records. A Bank designating the principal place of business for 
a member under this section shall document the bases for its 
determination in writing and shall include that documentation in the 
membership digest and application file for the institution that are 
required under Sec.1263.2.



Sec.1263.19  Non-federally-insured credit unions.

    (a) Applicants. Except where otherwise provided, a non-federally-
insured credit union applying to become a member of a Bank shall be 
treated as an insured depository institution for purposes of determining 
its eligibility for membership under this part, provided that all of the 
following requirements have been met:
    (1) Notice. Upon receiving from a non-federally-insured credit union 
an application for membership, a Bank shall promptly notify the 
applicant in writing that its application will not be deemed complete or 
be acted upon by the Bank until the applicant has, in addition to 
satisfying all other generally applicable requirements, complied with 
paragraph (a)(2) of this section and subsequently provided one of the 
items listed in paragraph (a)(3) of this section.
    (2) Request to regulator. After receiving the notice required under 
paragraph (a)(1) of this section, a non-federally-insured credit union 
applicant shall send to its appropriate State regulator a written 
request for a determination that the applicant met all of the 
eligibility requirements for Federal share insurance as of the date of 
the request. The applicant shall provide to the Bank a copy of that 
request simultaneously with its transmittal to the regulator.
    (3) Completion of application. A Bank may deem the application of a 
non-federally-insured credit union to be complete and may act upon the 
application, as provided under Sec.1263.3(c), only if it has received 
from the applicant one of the following items:
    (i) A written statement from the applicant's appropriate State 
regulator that the applicant met all of the eligibility requirements for 
Federal share insurance as of the date of the request sent pursuant to 
paragraph (a)(2) of this section;
    (ii) A written statement from the applicant's appropriate State 
regulator that it cannot or will not make a determination regarding the 
applicant's eligibility for Federal share insurance; or
    (iii) A written statement from the applicant, prepared no earlier 
than the end of the six-month period beginning on the date of the 
request sent pursuant to paragraph (a)(2) of this section, certifying 
that the applicant did not receive from its appropriate State regulator 
within that six-month period either a response as described in paragraph 
(a)(3)(i) or (ii) of this section or a response stating that the 
applicant did not meet all of the eligibility requirements for Federal 
share insurance as of the date of the request sent pursuant to paragraph 
(a)(2) of this section.
    (b) Members canceling Federal share insurance. A Bank member that is 
a federally insured credit union and that subsequently cancels its 
Federal share insurance may remain a member of the Bank, subject to all 
regulatory provisions applicable to insured depository institution 
members, provided that the Bank has determined that the institution has 
canceled its Federal share insurance voluntarily.

[82 FR 25723, June 5, 2017]

[[Page 354]]



                      Subpart D_Stock Requirements



Sec.1263.20  Stock purchase.

    (a) Minimum purchase requirement. An institution that has been 
approved for membership in a Bank as provided in this part shall become 
a member of that Bank upon purchasing the amount of stock required under 
the membership stock purchase provisions of that Bank's capital 
structure plan. If an institution fails to purchase the minimum amount 
of stock required for membership within 60 calendar days after the date 
on which it is approved for membership, the membership approval shall 
become void and that institution may not become a member of that Bank 
until after it has filed a new application and the Bank has approved 
that application pursuant to the requirements of this part.
    (b) Issuance of stock. After approving an institution for 
membership, and in return for payment in full of the par value, a Bank 
shall issue to that institution the amount of capital stock required to 
be purchased under the Bank's capital structure plan.
    (c) Reports. Each Bank shall report to FHFA information regarding 
the minimum investment in Bank capital stock made by each new member 
referred to in paragraph (a) of this section, in accordance with the 
instructions provided in the Data Reporting Manual.



Sec.1263.21  [Reserved]



Sec.1263.22  Annual calculation of stock holdings.

    A Bank shall calculate annually each member's required minimum 
holdings of Bank stock using calendar year-end financial data provided 
by the member to the Bank, pursuant to Sec.1263.31(d), and shall 
notify each member of the result. 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 purchase requirement or 
with the identification of its voting State may request FHFA to review 
the Bank's determination. FHFA shall promptly determine the member's 
minimum required holdings and its proper voting State, which 
determination shall be final.



Sec.1263.23  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 one 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 one percent of its total assets.



            Subpart E_Withdrawal, Termination and Readmission



Sec.1263.24  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 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

[[Page 355]]

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.1263.29.
    (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.1263.29.
    (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.
1263.29, 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 necessary, when combined with any Bank stock acquired from the 
disappearing member, to satisfy the minimum stock purchase requirements 
established by the Bank's capital structure plan.
    (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.1263.29.
    (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 
applicable FHFA regulations.



Sec.1263.25  [Reserved]



Sec.1263.26  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. The Bank need not commit to providing any 
further services, including advances, to a withdrawing member that would 
mature or otherwise

[[Page 356]]

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 FHFA 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.



Sec.1263.27  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 Bank Act, any 
regulation adopted by FHFA, 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.
    (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.



Sec.1263.28  [Reserved]



Sec.1263.29  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.

[[Page 357]]



Sec.1263.30  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 five 
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.



                  Subpart F_Other Membership Provisions



Sec.1263.31  Reports and examinations.

    As a condition precedent to Bank membership, each member:
    (a) Consents to such examinations as the Bank or FHFA may require 
for purposes of the Bank Act;
    (b) Agrees that reports of examination by local, State, or Federal 
agencies or institutions, or by any private entity providing share 
insurance to a member that is a non-federally-insured credit union or a 
CDFI credit union, may be furnished by such authorities or entities to 
the Bank or FHFA 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.
1263.22; and
    (e) To the extent applicable, agrees to provide to the Bank, within 
20 days of filing, copies of reports of condition and operations 
required to be filed with:
    (1) The member's appropriate Federal banking agency;
    (2) The member's appropriate State regulator; or
    (3) Any private entity providing share insurance to a member that is 
a non-federally-insured credit union or a CDFI credit union.

[81 FR 3277, Jan. 20, 2016, as amended at 82 FR 25723, June 5, 2017]



Sec.1263.32  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.''



PART 1264_FEDERAL HOME LOAN BANK HOUSING ASSOCIATES--Table of Contents



Sec.
1264.1 Definitions.
1264.2 Bank authority to make advances to housing associates.
1264.3 Housing associate eligibility requirements.
1264.4 Satisfaction of eligibility requirements.
1264.5 Housing associate application process.
1264.6 Appeals.

    Authority: 12 U.S.C. 1430b, 4511, 4513 and 4526.

    Source: 65 FR 44426, July 18, 2000, unless otherwise noted. 
Redesignated at 75 FR 8240, Feb. 24, 2010.

    Editorial Note: Nomenclature changes to part 1264 appear at 78 FR 
2324, Jan. 11, 2013.



Sec.1264.1  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,

[[Page 358]]

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; 
75 FR 8240, Feb. 24, 2010; 78 FR 2324, Jan. 11, 2013]



Sec.1264.2  Bank authority to make advances to housing associates.

    Subject to the provisions of the Bank Act and part 1266 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.

[65 FR 44426, July 18, 2000, as amended at 75 FR 8240, Feb. 24, 2010; 81 
FR 76297, Nov. 2, 2016]



Sec.1264.3  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.1264.4:
    (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.1266.17(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.1264.1.

[65 FR 44426, July 18, 2000, as amended at 75 FR 8240, Feb. 24, 2010; 75 
FR 76622, Dec. 9, 2010]



Sec.1264.4  Satisfaction of eligibility requirements.

    (a) HUD approval requirement. An applicant shall be deemed to meet 
the requirement in section 10b(a) of the Bank Act (12 U.S.C. 1430b(a)) 
and Sec.1264.3(a)(1) that it be approved under title II of the 
National Housing Act if it submits a current HUD Yearly Verification 
Report 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 Bank Actand Sec.1264.3(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 Bank Act (12 U.S.C. 1430b(a)) and Sec.1264.3(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

[[Page 359]]

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 Bank Act 
(12 U.S.C. 1430b(a)) and Sec.1264.3(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.1264.3(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; 75 FR 8240, Feb. 24, 2010]



Sec.1264.5  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 Bank 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 Bank Act and this part to the Bank of the district 
in which the applicant's principal place of business, as determined in 
accordance with part 925 of this title, 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 FHFA with a 
copy of the Bank's decision resolution.
    (3) File. The Bank shall maintain a certification file for each 
applicant for

[[Page 360]]

at least three years after the date the Bank decides whether to approve 
or deny certification or the date the FHFA 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; 75 
FR 8240, Feb. 24, 2010]



Sec.1264.6  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 FHFA 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. Send appeals to the Deputy Director 
for Federal Home Loan Bank Regulation, Federal Housing Finance Agency, 
400 7th Street SW., Seventh Floor, Washington, DC 20219, 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 FHFA a complete copy 
of the applicant's certification file maintained by the Bank under Sec.
1264.5(c)(3). Until the FHFA resolves the appeal, the Bank shall 
promptly provide to the FHFA any relevant new materials it receives. The 
FHFA may request additional information or further supporting arguments 
from the applicant, the Bank, or any other party that the FHFA deems 
appropriate.
    (c) Deciding appeals. Within 90 calendar days of the date an 
applicant files an appeal with the FHFA, the FHFA shall consider the 
record for appeal described in paragraph (b) of this section and resolve 
the appeal based on the requirements of the Bank Act and this part.

[65 FR 44426, July 18, 2000, as amended at 70 FR 9510, Feb. 28, 2005; 75 
FR 8240, Feb. 24, 2010; 80 FR 80233, Dec. 24, 2015]



PART 1265_CORE MISSION ACTIVITIES--Table of Contents



Sec.
1265.1 Definitions.
1265.2 Mission of the Banks.
1265.3 Core mission activities.

    Authority: 12 U.S.C. 1430, 1430b, 1431, 4511, 4513 and 4526.

    Source: 65 FR 25278, May 1, 2000, unless otherwise noted. 
Redesignated at 75 FR 8240, Feb. 24, 2010.



Sec.1265.1  Definitions.

    As used in this part:
    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 
obligations; and
    (3) Fully secured by collateral in accordance with the Federal Home 
Loan Bank Act (12 U.S.C. 1421 through 1449) and applicable regulations.
    SBIC means a small business investment company formed pursuant to 
section 301 of the Small Business Investment Act (15 U.S.C. 681).
    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; and
    (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.

[75 FR 8240, Feb. 24, 2010, as amended at 78 FR 2324, Jan. 11, 2013]



Sec.1265.2  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

[[Page 361]]

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.1265.3  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 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 1266_ADVANCES--Table of Contents



                      Subpart A_Advances to Members

Sec.
1266.1 Definitions.
1266.2 Authorization and application for advances; obligation to repay 
          advances.
1266.3 Purpose of long-term advances; Proxy text.
1266.4 Limitations on access to advances.
1266.5 Terms and conditions for advances.
1266.6 Fees.
1266.7 Collateral.
1266.8 Banks as secured creditors.
1266.9 Pledged collateral; verification.
1266.10 Collateral valuation; appraisals.
1266.11 [Reserved]
1266.12 Intradistrict transfer of advances.
1266.13 Special advances to savings associations.
1266.14 Advances to the Savings Association Insurance Fund.
1266.15 Liquidation of advances upon termination of membership.

                Subpart B_Advances to Housing Associates

1266.16 Scope.
1266.17 Advances to housing associates.


[[Page 362]]


    Authority: 12 U.S.C. 1426, 1429, 1430, 1430b, 1431, 4511(b), 4513, 
4526(a).

    Source: 58 FR 29469, May 20, 1993, unless otherwise noted. 
Redesignated at 65 FR 8256, Feb. 18, 2000, and 75 FR 76622, Dec. 9, 
2010.

    Editorial Note: Nomenclature changes to part 1266 appear at 75 FR 
76622, Dec. 9, 2010.



                      Subpart A_Advances to Members



Sec.1266.1  Definitions.

    As used in this part:
    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 Bank Act and 
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.1263.1 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.1263.1 
of this chapter) filed with its appropriate regulator (as defined in 
Sec.1263.1 of this chapter) for the three most recent calendar year-
ends; and
    (2) Annually, and shall be effective April 1 of each year.
    Community development has the same meaning as under the definition 
set forth in the Community Reinvestment rule for the Federal Reserve 
System (12 CFR part 228), Federal Deposit Insurance Corporation (12 CFR 
part 345), the Office of Thrift Supervision (12 CFR part 563e) or the 
Office of the Comptroller of the Currency (12 CFR part 25), whichever is 
the CFI member's primary Federal regulator.
    Community development loan means a loan, or a participation interest 
in such loan, that has as its primary purpose community development, but 
such loans shall not include:
    (1) Any loan or instrument that qualifies as eligible security for 
an advance under Sec.1266.7(a) of this part;
    (2) Any loan that qualifies as a small agri-business loan, small 
business loan or small farm loan, under definitions set forth in this 
section; or
    (3) Consumer loans or credit extended to one or more individuals for 
household, family or other personal expenditures.
    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 
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:

[[Page 363]]

    (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 FHFA 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 providing financing for economic 
development projects for targeted beneficiaries;
    (5) Loans secured by manufactured housing, regardless of whether 
such housing qualifies as residential real property;
    (6) Any loans or investments which FHFA, in its discretion, 
otherwise determines to be residential housing finance assets; and
    (7) For CFI members, and to the extent not already included in 
categories (1) through (6), small business loans, small farm loans, 
small agri-business loans, or community development loans.
    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 364]]

    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.1264.1 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 a member's 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 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. In addition, for 
those members that are insurance companies and that do not file or 
otherwise prepare financial statements based on GAAP, Banks may base 
this calculation on the member's financial statements prepared using 
Statutory Accounting Principles as implemented by the insurance company 
member's appropriate state regulator.
    Targeted beneficiaries has the meaning set forth in Sec.952.1 of 
this title.

[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; 75 FR 
76622, Dec. 9, 2010; 78 FR 2324, Jan. 11, 2013; 81 FR 76297, Nov. 2, 
2016]



Sec.1266.2  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 Bank Act, the provisions of 
this part and policy guidelines established by the FHFA.
    (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

[[Page 365]]

of directors, or a committee thereof specifically authorized by the 
board of directors to approve such forms.
    (e) Status of secured lending. All secured transactions, regardless 
of the form of the transaction, for money borrowed from a Bank by a 
member of any Bank shall be considered an advance subject to the 
requirements of this part.

[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; 75 FR 76623, Dec. 9, 2010]



Sec.1266.3  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.
    (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.

[75 FR 76623, Dec. 9, 2010]



Sec.1266.4  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 FHFA 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 
FHFA 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

[[Page 366]]

from the appropriate federal banking agency or insurer which re-
establishes the member's ability to use advances.
    (e) Reporting. (1) Each Bank shall provide the FHFA 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 FHFA, 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.1266.2(b)(2) of 
this part; or
    (ii) The written advances application required by Sec.1266.2(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.1266.5  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 title, 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

[[Page 367]]

advance prior to the stated maturity date of such advance, the Bank 
shall offer to provide replacement funding to 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.1266.6  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 
title. 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.1266.7  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 FHFA 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

[[Page 368]]

credit of the United States, and such insurance, guarantee or other 
backing 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 1272 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, small agri-business loans, or 
community development loans, in each case fully secured by collateral 
other than real estate, or securities representing a whole interest in 
such secured 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 Bank Act (12 U.S.C. 1430).
    (e) Bank stock as collateral. (1) Pursuant to section 10(c) of the 
Bank 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

[[Page 369]]

section 10(e) of the Bank Act (12 U.S.C. 1430(e)).
    (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 FHFA 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; 75 FR 76623, Dec. 9, 2010]



Sec.1266.8  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.1266.9  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.1266.2(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.1266.10  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

[[Page 370]]

member products policy established pursuant to Sec.1239.30 of this 
chapter.
    (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, as amended at 81 FR 76297, Nov. 2, 2016]



Sec.1266.11  [Reserved]



Sec.1266.12  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.1266.13  Special advances to savings associations.

    (a) Eligible institutions. (1) A Bank, upon receipt of a written 
request from the OCC, with respect to a federal savings association, or 
from the FDIC, with respect to a state chartered savings association, 
may make short-term advances to a savings association member pursuant to 
section 10(h) of the Bank Act (12 U.S.C. 1430(h)).
    (2) Such request must certify that the savings association member:
    (i) Is solvent but presents a supervisory concern to the OCC or 
FDIC, as appropriate, 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 Bank 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; 81 FR 76298, 
Nov. 2, 2016]



Sec.1266.14  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 a copy of such 
request to the FHFA.
    (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.1266.15  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

[[Page 371]]

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.1266.16  Scope.

    Except as otherwise provided in Sec. Sec.1266.14 and 1266.17, the 
requirements of subpart A apply to this subpart.

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



Sec.1266.17  Advances to housing associates.

    (a) Authority. Subject to the provisions of the Bank 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 1263 
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.1264.3(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.1266.7(a)(1) or (2).
    (B) The collateral described in Sec.1266.7(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.1264.3(b).
    (C) The other real estate-related collateral described in Sec.
1266.7(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.
    (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.1266.5(b). Wherever the term ``member'' 
appears in Sec.1266.5(b) the term shall be construed also to mean 
``housing associate.''
    (ii) A Bank shall apply the pricing criteria identified in Sec.
1266.5(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

[[Page 372]]

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 Bank Act, this 
subpart and part 1264 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 Bank Act, this subpart and part 1264 
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 at 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; 81 FR 
76298, Nov. 2, 2016]



PART 1267_FEDERAL HOME LOAN BANK INVESTMENTS--Table of Contents



Sec.
1267.1 Definitions.
1267.2 Authorized investments and transactions.
1267.3 Prohibited investments and prudential rules.
1267.4 Limitations and prudential requirements on use of derivative 
          instruments.

    Authority: 12 U.S.C. 1429, 1430, 1430b, 1431, 1436, 4511, 4513, 
4526.

    Source: 76 FR 29151, May 20, 2011, unless otherwise noted.



Sec.1267.1  Definitions.

    As used in this part:
    Asset-backed security means a debt instrument backed by loans, but 
does not include debt instruments that meet the definition of a 
mortgage-backed security.
    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 sale of Federal funds to:
    (i) An insured depository institution, as defined in section 2(9) of 
the Bank Act, that is designated by the Bank's board of directors;
    (ii) A trust company that is a member of the Federal Reserve System 
or insured by the Federal Deposit Insurance Corporation and is 
designated by the 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 supervision of the Board of Governors of the Federal 
Reserve System and is designated by the Bank's board of directors.
    Derivative contract means generally a financial contract the value 
of which is derived from the values of one or more referenced assets, 
rates, or indices of asset values, or credit-related events. Derivative 
contracts include interest rate derivative contracts, foreign exchange 
rate derivative contracts, equity derivative contracts, precious metals 
derivative contracts, commodity derivative contracts and credit 
derivatives, and any other instruments that pose similar risks.
    Indexed principal swap means an interest rate swap agreement in 
which the notional principal balance amortizes based upon the prepayment 
experience of a specified group of mortgage-backed securities or asset-
backed securities or the behavior of an interest rate index.
    Interest-only stripped security means a class of mortgage-backed or 
asset-backed security that is allocated only the interest payments made 
on the underlying mortgages or loans and receives no principal payments.
    Investment quality means a determination made by the Bank with 
respect to a security or obligation that, based on documented analysis, 
including consideration of the sources for repayment on the security or 
obligation:
    (1) There is adequate financial backing so that full and timely 
payment of principal and interest on such security or obligation is 
expected; and
    (2) There is minimal risk that the timely payment of principal or 
interest would not occur because of adverse

[[Page 373]]

changes in economic and financial conditions during the projected life 
of the security or obligation.
    Mortgage-backed security means a security or instrument, including 
collateralized mortgage obligations (CMOs), and Real Estate Mortgage 
Investment Trusts (REMICS), that represents an interest in, or is 
secured by, one or more pools of mortgage loans.
    Principal-only stripped security means a class of mortgage-backed or 
asset-backed security that is allocated only the principal payments made 
on the underlying mortgages or loans and receives no interest payments.
    Total capital shall have the meaning set forth in Sec.1229.1 of 
this chapter.

[76 FR 29151, May 20, 2011, as amended at 78 FR 2324, Jan. 11, 2013; 78 
FR 67008, Nov. 8, 2013; 81 FR 76298, Nov. 2, 2016]



Sec.1267.2  Authorized investments and transactions.

    (a) In addition to assets enumerated in parts 1266 and 1268 of this 
chapter and subject to the applicable limitations set forth in this 
part, and in part 1272 of this chapter, each Bank may invest in:
    (1) Obligations of the United States;
    (2) Deposits in banks or trust companies;
    (3) Obligations, participations or other instruments of, or issued 
by, the Federal National Mortgage Association or the Government National 
Mortgage Association;
    (4) Mortgages, obligations, or other securities that are, or ever 
have been, sold by the Federal Home Loan Mortgage Corporation pursuant 
to section 305 or 306 of the Federal Home Loan Mortgage Corporation Act 
(12 U.S.C. 1454 or 1455);
    (5) Stock, obligations, or other securities of any small business 
investment company formed pursuant to 15 U.S.C. 681, to the extent such 
investment is made for purposes of aiding members of the Bank; and
    (6) 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.
    (b) Subject to any applicable limitations set forth in this part and 
in part 1272 of this chapter, a Bank also may enter into the following 
types of transactions:
    (1) Derivative contracts;
    (2) Standby letters of credit, pursuant to the requirements of part 
1269 of this title;
    (3) Forward asset purchases and sales;
    (4) Commitments to make advances; and
    (5) Commitments to make or purchase other loans.

[76 FR 29151, May 20, 2011, as amended at 81 FR 91688, Dec. 19, 2016]



Sec.1267.3  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.1265.3(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 investment quality, except:
    (i) Investments described in Sec.1265.3(e) of this chapter; and
    (ii) Debt instruments that a Bank determined became less than 
investment quality because of developments or events that occurred after 
acquisition of the instrument by the Bank;
    (4) Whole mortgages or other whole loans, or interests in mortgages 
or loans, except:
    (i) Acquired member assets;
    (ii) Investments described in Sec.1265.3(e) of this chapter;
    (iii) Marketable direct obligations of state, local, or Tribal 
government units or agencies, that are investment quality, 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 are not otherwise prohibited under paragraphs (a)(5) through (a)(7) 
of this section; and

[[Page 374]]

    (v) Loans held or acquired pursuant to section 12(b) of the Bank Act 
(12 U.S.C. 1432(b)).
    (5) Residual interest and interest accrual classes of securities;
    (6) Interest-only and principal-only stripped securities; and
    (7) Fixed rate mortgage-backed securities or eligible asset-backed 
securities or floating rate mortgage-backed securities or eligible 
asset-backed securities that on the trade date are at rates equal to 
their contractual cap, with average lives that vary more than six years 
under an assumed instantaneous interest rate change of 300 basis points, 
unless the instrument qualifies as an acquired member asset under part 
955 of this title.
    (b) Foreign currency or commodity positions prohibited. A Bank may 
not take a position in any commodity or foreign currency. The Banks may 
issue consolidated obligations denominated in a currency other than U.S. 
Dollars or linked to equity or commodity prices, provided that the Banks 
meet the requirements of Sec.1270.9(d) of this chapter, and all other 
applicable requirements related to issuing consolidated obligations.
    (c) Limits on certain investments. (1) A purchase, otherwise 
authorized under this part, of mortgage-backed securities or asset-
backed securities, may not cause the aggregate value of all such 
securities held by the Bank to exceed 300 percent of the Bank's total 
capital. For purposes of this limitation, such aggregate value will be 
measured as of the transaction trade date for such purchase, and total 
capital will be the most recent amount reported by a Bank to FHFA. A 
Bank will not be required to divest securities solely to bring the level 
of its holdings into compliance with the limits of this paragraph, 
provided that the original purchase of the securities complied with the 
limits in this paragraph.
    (2) A Bank's purchase of any mortgage-backed or asset-backed 
security may not cause the value of its total holdings of mortgage-
backed and asset-backed securities, measured as of the transaction trade 
date for such purchase, to increase in any calendar quarter by more than 
50 percent of its total capital as of the beginning of such quarter.
    (3) For purposes of applying the limits under this paragraph (c), 
the value of relevant mortgage-backed or asset-backed securities shall 
be calculated based on amortized historical costs for securities 
classified as held-to-maturity or available-for-sale and on fair value 
for trading securities.

[76 FR 29151, May 20, 2011, as amended at 79 FR 67009, Nov. 8, 2013]



Sec.1267.4  Limitations and prudential requirements on use of
derivative instruments.

    (a) Non-speculative use. 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) Additional Prohibitions. (1) A Bank may not enter into interest 
rate swaps that amortize according to behavior of instruments described 
in Sec.1267.3(a)(5) or (6) of this part.
    (2) A Bank may not enter into indexed principal swaps that have 
average lives that vary by more than six years under an assumed 
instantaneous change in interest rates of 300 basis points, unless they 
are entered into in conjunction with the issuance of consolidated 
obligations or the purchase of permissible investments or entry into a 
permissible transaction in which all interest rate risk is passed 
through to the investor or counterparty.
    (c) Documentation requirements. (1) Derivative 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

[[Page 375]]

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.



PART 1268_ACQUIRED MEMBER ASSETS--Table of Contents



Sec.
1268.1 Definitions.
1268.2 Authorization for acquired member assets.
1268.3 Asset requirement.
1268.4 Member or housing associate nexus requirement.
1268.5 Credit risk-sharing requirement.
1268.6 Servicing of AMA loans.
1268.7 Reporting requirements for acquired member assets.
1268.8 Administrative transactions and agreements between Banks.

    Authority: 12 U.S.C. 1430, 1430b, 1431, 4511, 4513, 4526.

    Source: 81 FR 91688, Dec. 19, 2016, unless otherwise noted.



Sec.1268.1  Definitions.

    As used in this part:
    Affiliate means any business entity that controls, is controlled by, 
or is under common control with, a member.
    AMA investment grade means a determination made by the Bank with 
respect to an asset or pool, based on documented analysis, including 
consideration of applicable insurance, credit enhancements, and other 
sources for repayment on the asset or pool, that the Bank has a high 
degree of confidence that it will be paid principal and interest in all 
material respects, even under reasonably likely adverse changes to 
expected economic conditions.
    AMA product means a structure that is defined by a specific set of 
terms and conditions that comply with this part 1268 and that is 
established by a Bank for purposes of governing the Bank's purchase of 
AMA-eligible loans.
    AMA program means a Bank-established program to buy mortgage loans 
that meet the requirements of this part, which may comprise multiple AMA 
products.
    Expected losses means the loss on the asset or pool given the 
expected future economic and market conditions in the model or 
methodology used by the Bank under Sec.1268.5 and applicable to an AMA 
product.
    Participating financial institution means a member or housing 
associate of a Bank that is authorized to sell, credit enhance, or 
service mortgage loans to or for its own Bank through an AMA program, or 
a member or housing associate of another Bank that has been authorized 
to sell, credit enhance, or service mortgage loans to or for the other 
Bank pursuant to an agreement between the Bank acquiring the AMA product 
and the Bank of which the selling institution is a member or housing 
associate.
    Pool means a group of loans acquired under one or more loan funding 
commitments, contractual agreements, or similar arrangements.
    Qualified insurer means an insurer that a Bank approves in 
accordance with Sec.1268.5(e)(1) to provide any form of mortgage 
insurance coverage on assets and pools purchased under an AMA program.
    Residential real property has the meaning set forth in Sec.1266.1 
of this chapter.



Sec.1268.2  Authorization for acquired member assets.

    (a) General. Each Bank is authorized to invest in assets that 
qualify as AMA, subject to the requirements of this part and part 1272 
of this chapter.
    (b) Grandfathered transactions. Notwithstanding paragraph (a), a 
Bank may continue to hold as AMA assets that were previously authorized 
by the Federal Housing Finance Board or FHFA for purchase as AMA, 
provided that the assets were purchased, and continue to be held, in 
compliance with that authorization.



Sec.1268.3  Asset requirement.

    Assets that qualify as AMA shall be limited to the following:
    (a) Whole loans that are eligible to secure advances under Sec.
1266.7(a)(1)(i),
    (a)(2)(ii), (a)(4), or (b)(1) of this chapter, excluding:

[[Page 376]]

    (1) Single-family mortgage loans where the loan amount exceeds the 
limits established pursuant to 12 U.S.C. 1717(b)(2), unless the loan is 
guaranteed or insured by an agency or department of the U.S. government, 
in which case the limits in 12 U.S.C. 1717(b)(2) do not apply; and
    (2) Loans made to an entity, or secured by property, not located in 
a state;
    (b) Whole loans secured by manufactured housing, regardless of 
whether such housing qualifies as residential real property under 
applicable state law;
    (c) State and local housing finance agency bonds; or
    (d) Certificates representing interests in whole loans if:
    (1) The loans qualify as AMA under paragraphs (a) or (b) of this 
section and meet the nexus requirement of Sec.1268.4; and
    (2) The certificates:
    (i) Meet the credit enhancement requirements of Sec.1268.5;
    (ii) Are issued pursuant to an agreement between the Bank and a 
participating financial institution to share risks consistent with the 
requirements of this part; and
    (iii) Are acquired substantially by the initiating Bank or Banks.



Sec.1268.4  Member or housing associate nexus requirement.

    (a) General provision. To qualify as AMA, any assets described in 
Sec.1268.3 must be acquired in a purchase or funding transaction only 
from:
    (1) A participating financial institution, provided that the asset 
was:
    (i) Originated or issued by, through, or on behalf of the 
participating financial institution, or an affiliate thereof; or
    (ii) Held for a valid business purpose by the participating 
financial institution, or an affiliate thereof, prior to acquisition by 
the Bank; or
    (2) Another Bank, provided that the asset was originally acquired by 
the selling Bank consistent with this section.
    (b) Special provision for housing finance agency bonds. In the case 
of housing finance agency bonds acquired by a Bank from a housing 
associate located in the district of another Bank (local Bank), the 
arrangement required by the definition of ``participating financial 
institution'' in Sec.1268.1 between the acquiring Bank and the local 
Bank may be reached in accordance with the following process:
    (1) The housing finance agency shall first offer the local Bank 
right of first refusal to purchase, or negotiate the terms of, its 
proposed bond offering;
    (2) If the local Bank indicates, within three business days, it will 
negotiate in good faith to purchase the bonds, the housing finance 
agency may not offer to sell or negotiate the terms of a purchase with 
another Bank; and
    (3) If the local Bank declines the offer, or has failed to respond 
within three business days, 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 housing 
finance agency.



Sec.1268.5  Credit risk-sharing requirement.

    (a) General credit risk-sharing requirement. For each AMA product, 
the Bank shall implement and have in place at all times, a credit risk-
sharing structure that:
    (1) Requires a participating financial institution to provide the 
credit enhancement necessary to enhance an eligible asset or pool to the 
credit quality specified by the terms and conditions of the AMA product, 
provided, however, that such credit enhancement results in the eligible 
asset or pool being at least AMA investment grade, as defined in Sec.
1268.1; and
    (2) Meets the requirements of this section.
    (b) Determination of necessary credit enhancement. (1) No later than 
30 calendar days after the purchase of the asset or after a pool closes, 
the Bank shall determine the total credit enhancement necessary to 
enhance the asset or pool to at least AMA investment grade and to be 
consistent with the terms and conditions of a specific AMA product. The 
enhancement shall be for the life of the asset or pool. The Bank shall 
make this determination for each AMA product using a model and 
methodology that the Bank deems

[[Page 377]]

appropriate, subject to paragraph (f) of this section.
    (2) A Bank shall document its basis for concluding that the 
contractual credit enhancement required from each participating 
financial institution with regard to a particular asset or pool will 
equal or exceed the credit enhancement level specified in the terms and 
conditions of the AMA product and determined in accordance with 
paragraph (b)(1) of this section.
    (c) Credit risk-sharing structure. Under any credit risk-sharing 
structure, the credit enhancement provided by the participating 
financial institution shall at all times meet the following 
requirements:
    (1) The participating financial institution that is providing the 
credit enhancement required under this paragraph (c) shall in all cases:
    (i) Bear the direct economic consequences of actual credit losses on 
the asset or pool:
    (A) From the first dollar of loss up to the amount of expected 
losses; or
    (B) Immediately following expected losses, but in an amount equal to 
or exceeding the amount of expected losses; and
    (ii) Fully secure its direct credit enhancement obligation in 
accordance with Sec.1266.7; and
    (2) The participating financial institution also may provide all or 
a portion of the credit enhancement, with the approval of the Bank, by:
    (i) Contracting with an insurance affiliate of that participating 
financial institution to provide an enhancement, but only where such 
insurance is positioned in the credit risk-sharing structure so as to 
cover only losses remaining after the participating financial 
institution has borne losses as required under paragraph (c)(1)(i) of 
this section;
    (ii) Purchasing loan-level insurance only where:
    (A) The participating financial institution is legally obligated at 
all times to maintain such insurance with a qualified insurer; and
    (B) Such insurance is positioned in the credit enhancement structure 
so as to cover only losses remaining after the participating financial 
institution has borne losses as required under paragraph (c)(1)(i) of 
this section;
    (iii) Purchasing pool-level insurance only where:
    (A) The participating financial institution is legally obligated at 
all times to maintain such insurance with a qualified insurer;
    (B) Such insurance insures that portion of the required credit 
enhancement attributable to the geographic concentration and size of the 
pool; and
    (C) Such insurance 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;
    (iv) Contracting with another participating financial institution in 
the Bank's district to provide a credit enhancement consistent with this 
section, in return for compensation; or
    (v) Contracting with a participating financial institution in 
another Bank's district, pursuant to an arrangement between the two 
Banks, to provide a credit enhancement consistent with this section, in 
return for compensation.
    (d) Loans guaranteed or insured by a department or agency of the 
U.S. government. Instead of the structure set forth in paragraph (c) of 
this section, a participating financial institution also may provide the 
required credit enhancement through loan-level insurance that is issued 
by an agency or department of the U.S. government or is a guarantee from 
an agency or department of the U.S. government, provided that the 
government insurance or guarantee remains in place for as long as the 
Bank owns the loan.
    (e) Qualified insurers. (1) Within one year of January 18, 2017, 
each Bank must develop, and subsequently maintain, written financial and 
operational standards that an insurer must meet for the Bank to approve 
it as a qualified insurer. A Bank shall review qualified insurers at 
least once every two years to determine whether they still meet the 
financial and operational standards set by the Bank. A Bank may delegate 
responsibility for development of these standards and approval of 
qualified insurers to another

[[Page 378]]

Bank or group of Banks pursuant to Sec.1268.8.
    (2) Only qualified insurers may provide private loan insurance on 
AMA eligible assets or the loan or pool insurance allowed as part of the 
credit enhancement structure for AMA products under paragraphs 
(c)(2)(ii) or (iii) of this section.
    (f) Appropriate methodology for calculating credit enhancement. A 
Bank shall use a model and methodology for estimating the amount of 
credit enhancement for an asset or pool. A Bank shall provide to FHFA 
upon request information about the model and methodology, including and 
without limitation results of any model runs and the results of any 
tests of the model performed by the Bank. FHFA reserves the right to 
direct a Bank to make changes to its model and methodology, and a Bank 
promptly shall institute any such FHFA-directed changes.



Sec.1268.6  Servicing of AMA loans.

    (a) Servicing of AMA loans may be performed by or transferred to any 
institution, including an institution that is not a member of the Bank 
System, provided that the loans, after such transfer, continue to meet 
all requirements to qualify as AMA under Sec. Sec.1268.3, 1268.4, and 
1268.5.
    (b) The transfer of mortgage servicing rights and responsibilities 
must be approved by the Bank or Banks that own the loan or a 
participation interest in the loan.
    (c) A Bank shall have in place policies and procedures to ensure 
that the transfer of mortgage servicing rights does not negatively 
affect the credit enhancement on the loans in question or substantially 
increase the Bank's exposure to the credit risk for the asset or pool.



Sec.1268.7  Reporting requirements 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 FHFA, 
as amended from time to time.



Sec.1268.8  Administrative transactions and agreements 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 FHFA, or previously examined 
and approved by the Federal Housing 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 financial institution as part of any AMA-related 
agreements signed with that participating financial institution. A Bank 
may contract with one or more parties, including without limitation 
another Bank, to provide services related to the administration of its 
own AMA program or the AMA program of another Bank for which it has been 
delegated administrative responsibility, without the necessity for 
further disclosure to the participating financial institutions.
    (b) Termination of agreements. Any agreement made between two or 
more Banks in connection with the administration of any AMA program may 
be terminated by any 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, pursuant to 
contractual provisions among the parties.



PART 1269_STANDBY LETTERS OF CREDIT--Table of Contents



Sec.
1269.1 Definitions.
1269.2 Standby letters of credit on behalf of members.
1269.3 Standby letters of credit on behalf of housing associates.
1269.4 Obligation to Bank under all standby letters of credit.
1269.5 Additional provisions applying to all standby letters of credit.

    Authority: 12 U.S.C. 1429, 1430, 1430b, 1431, 4511, 4513 and 4526.

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

[[Page 379]]

FR 12853, Mar. 20, 2002, and 75 FR 8240, Feb. 24, 2010.



Sec.1269.1  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.
    Community lending means providing financing for economic development 
projects for targeted beneficiaries, and, for community financial 
institutions (as defined in Sec.1263.1 of this title), purchasing or 
funding small business loans, small farm loans or small agri-business 
loans (as defined in Sec.1266.1 of this chapter).
    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.
    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.1266.1 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.1264.1 of this 
chapter, and that has met the requirements of Sec.1269.3(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; 75 FR 8240, Feb. 24, 2010; 75 FR 76623, Dec. 9, 2010; 78 FR 
2324, Jan. 11, 2013; 78 FR 67009, Nov. 8, 2013]



Sec.1269.2  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.
1269.4(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 accordance with the 
requirements for advances under Sec.1266.7 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, where such obligations have a readily ascertainable

[[Page 380]]

value, can be reliably discounted to account for liquidation and other 
risks, and can be liquidated in due course.

[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; 75 FR 8240, Feb. 24, 2010; 75 FR 76623, Dec. 9, 2010; 78 FR 
67009, Nov. 8, 2013]



Sec.1269.3  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.1266.17(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.1266.17(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; 75 FR 8240, Feb. 24, 2010; 75 FR 76623, Dec. 9, 
2010]



Sec.1269.4  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.
1266.17(b)(2)(i)(B), 1266.17(d), or 1270.3 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 Bank Act (12 U.S.C. 
1430, 1430(b)) and part 1266 of this title.

[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; 75 FR 8240, Feb. 24, 2010; 75 FR 76623, Dec. 9, 2010; 78 FR 
2324, Jan. 11, 2013; 81 FR 76298, Nov. 2, 2016]



Sec.1269.5  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.1269.2 
or Sec.1269.3.3 of this part.
    (2) Collateral pledged by a member or housing associate to secure a 
letter of

[[Page 381]]

credit issued or confirmed on its behalf by a Bank shall be subject to 
the provisions of Sec. Sec.1266.7(d), 1266.7(e), 1266.8, 1266.9 and 
1266.10 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; 75 FR 8240, Feb. 24, 2010]



PART 1270_LIABILITIES--Table of Contents



                          Subpart A_Definitions

Sec.
1270.1 Definitions.

                       Subpart B_Sources of Funds

1270.2 Authorized liabilities.
1270.3 Deposits from members.

                   Subpart C_Consolidated Obligations

1270.4 Issuance of consolidated obligations.
1270.5 Bank operations.
1270.6 Transactions in consolidated obligations.
1270.7 Lost, stolen, destroyed, mutilated or defaced consolidated 
          obligations.
1270.8 Administrative provision.
1270.9 Conditions for issuance of consolidated obligations.
1270.10 Joint and several liability.
1270.11 Savings clause.

       Subpart D_Book-Entry Procedure for Consolidated Obligations

1270.12 Law governing rights and obligations of Banks, FHFA, Office of 
          Finance, United States and Federal Reserve Banks; rights of 
          any Person against Banks, FHFA, Office of Finance, United 
          States and Federal Reserve Banks.
1270.13 Law governing other interests.
1270.14 Creation of Participant's Security Entitlement; security 
          interests.
1270.15 Obligations of the Banks and the Office of Finance; no Adverse 
          Claims.
1270.16 Authority of Federal Reserve Banks.
1270.17 Liability of Banks, FHFA, Office of Finance and Federal Reserve 
          Banks.
1270.18 Additional requirements; notice of attachment for Book-entry 
          consolidated obligations.
1270.19 Reference to certain Department of Treasury commentary and 
          determinations.
1270.20 Consolidated obligations are not obligations of the United 
          States or guaranteed by the United States.

    Authority: 12 U.S.C. 1431, 1432, 1435, 4511, 4512, 4513, and 4526.

    Source: 76 FR 18369, Apr. 4, 2011, unless otherwise noted.



                          Subpart A_Definitions



Sec.1270.1  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.
    Consolidated obligation means any bond, debenture or note on which 
the Banks are jointly and severally liable and which was issued under 
section 11 of the Bank Act (12 U.S.C. 1431) and in accordance with any 
implementing regulations, whether or not such instrument was originally 
issued jointly by the Banks or by the Federal Housing Finance Board on 
behalf of the Banks.
    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(9)(A) 
of the Bank Act (12 U.S.C. 1422(9)(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 Federal Reserve Board, and is 
designated by a Bank's board of directors.
    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.

[[Page 382]]

    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.
    Federal Reserve Board means the Board of Governors of the Federal 
Reserve System.
    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.
    Non-complying Bank means a Bank that has failed to provide the 
liquidity certification as required under Sec.1270.10(b)(1).
    Office of Finance means the Office of Finance, a joint office of the 
Banks established under part 1273 of this chapter and referenced in the 
Bank Act and the Safety and Soundness Act, including 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 Director, FHFA, the Office of Finance, the United 
States, or a Federal Reserve Bank.
    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.
    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.
    SBIC means a small business investment company formed pursuant to 
section 301 of the Small Business Investment Act (15 U.S.C. 681).
    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, 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 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.

[76 FR 18369, Apr. 4, 2011, as amended at 78 FR 2324, Jan. 11, 2013; 78 
FR 67009, Nov. 8, 2013]

[[Page 383]]



                       Subpart B_Sources of Funds



Sec.1270.2  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 this part;
    (b) Accepting time or demand deposits from members, other Banks or 
instrumentalities of the United States, and cash accounts from 
associates or members pursuant to Sec. Sec.1266.17(b)(2)(i)(B), 
1266.17(d) and 1269.4(a)(1) of this chapter, or Sec.1270.3 of this 
part, or from other institutions for which the Bank is providing 
correspondent services pursuant to section 11(e) of the Bank Act (12 
U.S.C. 1431(e));
    (c) Purchasing Federal funds; and
    (d) Entering into repurchase agreements.



Sec.1270.3  Deposits from members.

    (a) 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.
    (b) Each Bank shall at all times have at least an amount equal to 
the current deposits received from its members invested in:
    (1) Obligations of the United States;
    (2) Deposits in banks or trust companies; or
    (3) Advances with a remaining maturity not to exceed five years that 
are made to members in conformity with part 1266 of this chapter.



                   Subpart C_Consolidated Obligations



Sec.1270.4  Issuance of consolidated obligations.

    (a) Consolidated obligations issued by the Banks--(1) Subject to the 
provisions of this part and such other rules, regulations, terms, and 
conditions as the Director may prescribe, the Banks may issue joint debt 
under section 11(c) of the Bank Act (12 U.S.C. 1431(c)), which shall be 
consolidated obligations, on which the Banks shall be jointly and 
severally liable in accordance with Sec.1270.10 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 1273 of 
this chapter.
    (3) All consolidated obligations shall be issued in pari passu.
    (b) Negative pledge requirement. Each Bank shall at all times 
maintain assets described in paragraphs (b)(1) through (b)(5) 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 and equal to such Bank's participation in all such 
consolidated obligations 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 
(b). 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; and
    (5) Investments described in section 16(a) of the Bank Act (12 
U.S.C. 1436(a)).

[76 FR 18369, Apr. 4, 2011, as amended at 78 FR 67009, Nov. 8, 2013]



Sec.1270.5  Bank operations.

    The Banks, individually and collectively, shall operate in such 
manner

[[Page 384]]

and take any actions necessary, including without limitation reducing 
leverage, to ensure that consolidated obligations maintain a high level 
of acceptance by financial markets and are generally perceived by 
investors as presenting a low level of credit risk.

[78 FR 67009. Nov. 8, 2013]



Sec.1270.6  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 subpart C of this part, so far as applicable and 
as necessarily modified to relate to consolidated obligations, as the 
regulations of FHFA for similar transactions on consolidated 
obligations. The book-entry procedure for consolidated obligations is 
contained in subpart D of this part.



Sec.1270.7  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 
FHFA for the issuance of substitute consolidated obligations or the 
payment of lost, stolen, destroyed, mutilated or defaced consolidated 
obligations.



Sec.1270.8  Administrative provision.

    The Secretary of the Treasury or the Acting Secretary of the 
Treasury is hereby authorized and empowered, as the agent of FHFA and 
the Banks, to administer Sec. Sec.1270.6 and 1270.7, 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 FHFA 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.1270.9  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 consolidated obligations, as necessary, and authorize the 
maturities, rates of interest, terms and conditions thereof, subject to 
the provisions of 31 U.S.C. 9108.
    (b) Consolidated obligations may be offered for sale only to the 
extent that Banks are committed to take the proceeds.
    (c) Consolidated obligations shall not be purchased by any Bank as 
part of an initial issuance whether such consolidated obligation is 
purchased directly from the Office of Finance or indirectly from an 
underwriter.
    (d) If the Banks issue consolidated obligations denominated in a 
currency other than U.S. Dollars or linked to equity or commodity 
prices, then any Bank accepting proceeds from those consolidated 
obligations shall meet the following requirements with regard to such 
consolidated obligations:
    (1) The relevant foreign exchange, equity price or commodity price 
risks associated with the consolidated obligation must be hedged in 
accordance with Sec.1267.4 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 consolidated obligation, the Bank shall enter into a 
replacement contract in a timely manner and as soon as market conditions 
permit.

[76 FR 18369, Apr. 4, 2011, as amended at 81 FR 76298, Nov. 2, 2016]



Sec.1270.10  Joint and several liability.

    (a) In general--(1) Each and every Bank, individually and 
collectively, has an obligation to make full and

[[Page 385]]

timely payment of all principal and interest on consolidated 
obligations 
when due.
    (2) Each and every Bank, individually and collectively, shall ensure 
that the 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 any consolidated obligation.
    (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 FHFA 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 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 FHFA 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 FHFA.
    (c) Consolidated obligation payment plans--(1) A Bank promptly shall 
file a consolidated obligation payment plan for FHFA 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 FHFA 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 FHFA 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) FHFA payment orders; Obligation to reimburse--(1) FHFA, in its 
discretion and notwithstanding any other provision in this section, may 
at any time order any Bank to make any principal or interest payment due 
on any consolidated obligation.

[[Page 386]]

    (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 FHFA).
    (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 FHFA 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 FHFA 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 FHFA has data, or 
otherwise as FHFA may prescribe.
    (f) Reservation of authority. Nothing in this section shall affect 
the Director'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 Director's authority under the Safety and Soundness Act 
or the Bank 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.1270.11  Savings clause.

    Any agreements or other instruments entered into in connection with 
the issuance of consolidated obligations prior to the amendments made to 
this part shall continue in effect with respect to all consolidated 
obligations issued under the authority of section 11 of the Bank 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.



       Subpart D_Book-Entry Procedure for Consolidated Obligations



Sec.1270.12  Law governing rights and obligations of Banks, FHFA, 
Office of Finance, United States and Federal Reserve Banks; rights
of any Person against Banks, FHFA, 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, FHFA, the Director, 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, 
FHFA, the Director, 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 FHFA, including the regulations of this part 1270, 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

[[Page 387]]

Sec.1270.14(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.1270.14(c)(1), is governed by the law determined in the manner 
specified in Sec.1270.13.
    (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.



Sec.1270.13  Law governing other interests.

    (a) To the extent not inconsistent with this part 1270, 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 
paragraphs (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 
paragraphs (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.

[[Page 388]]



Sec.1270.14  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, FHFA, the Director, 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.
    (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.1270.12(b) or Sec.1270.13. 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.



Sec.1270.15  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.
1270.14(c)(1), for the purposes of this part 1270, 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, FHFA, the Director, 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

[[Page 389]]

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.



Sec.1270.16  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.
    (b) Each Federal Reserve Bank may issue Operating Circulars not 
inconsistent with this part 1270, governing the details of its handling 
of Book-entry consolidated obligations, Security Entitlements, and the 
operation of the Book-entry system under this part 1270.



Sec.1270.17  Liability of Banks, FHFA, Office of Finance and Federal
Reserve Banks.

    The Banks, FHFA, the Director, 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, FHFA, the Director, 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.



Sec.1270.18  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 1270, 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 FHFA, be necessary for the protection of the interests of the Banks, 
FHFA, 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 1270 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 390]]



Sec.1270.19  Reference to certain Department of Treasury commentary
and determinations.

    Notwithstanding provisions in Sec.1270.6 regarding Department of 
Treasury regulations set forth in 31 CFR part 357:
    (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 subpart D of 
this part.
    (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 subpart D of this part.



Sec.1270.20  Consolidated obligations are not obligations of the 
United States or guaranteed by the United States.

    Consolidated obligations are not obligations of the United States 
and are not guaranteed by the United States.



PART 1271_MISCELLANEOUS FEDERAL HOME LOAN BANK OPERATIONS 
AND AUTHORITIES--Table of Contents



 Subpart A_Collection, Settlement, and Processing of Payment Instruments

Sec.
1271.1 Definitions.
1271.2 Authority and scope.
1271.3 General provisions.
1271.4 Incidental powers.
1271.5 Operations.
1271.6 Pricing of services.
1271.7 Rights, powers, responsibilities, duties, and liabilities.

                Subpart B_Miscellaneous Bank Authorities

1271.10 Transfer of funds between Banks.
1271.11 Trustee powers.

                 Subpart C_Bank Requests for Information

1271.15 Definitions.
1271.16 Scope.
1271.17 Request for confidential regulatory information.
1271.18 Form of request.
1271.19 Storage of confidential regulatory information.
1271.20 Access to confidential regulatory information.
1271.21 Third party requests for confidential regulatory information.
1271.22 Computer data.

               Subpart D_Financing Corporation Operations

1271.30 Definitions.
1271.31 General authority.
1271.32 Authority to establish investment policies and procedures.
1271.33 Book-entry procedure for Financing Corporation obligations.
1271.34 Bank and Office of Finance employees.
1271.35 Budget and expenses.
1271.36 Administrative expenses.
1271.37 Non-administrative expenses; assessments.
1271.38 Reports to FHFA.
1271.39 Review of books and records.

   Subpart E_Authority for Bank Assistance of the Resolution Funding 
                               Corporation

1271.41 Bank employees.

    Authority: 12 U.S.C. 1430, 1431, 1432, 1441(b)(8), (c), (j), 1442, 
4511(b), 4513(a), 4526.

    Source: 78 FR 2324, Jan. 11, 2013, unless otherwise noted.



 Subpart A_Collection, Settlement, and Processing of Payment Instruments



Sec.1271.1  Definitions.

    Unless otherwise defined in this subpart, the terms used in this 
subpart shall conform, in the following order, to: Regulations of FHFA, 
the Uniform Commercial Code, regulations of the Federal Reserve System, 
and general banking usage. As used in this subpart:
    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.

[[Page 391]]

    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 Bank Act 
(12 U.S.C. 1424), including any building and loan association, savings 
and loan association, cooperative bank, homestead association, insurance 
company, savings bank, community development financial institution, or 
any insured depository institution (as defined in section 2(9) of the 
Bank Act (12 U.S.C. 1422(9))), 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.



Sec.1271.2  Authority and scope.

    (a) Pursuant to section 11(e)(2) of the Bank Act (12 U.S.C. 
1431(e)(2)), FHFA has promulgated this subpart governing the collection, 
processing, and settlement, and services incidental 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 subpart: 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 Bank Act (12 
U.S.C. 1431(e)(2)) shall be governed by the provisions of this subpart.



Sec.1271.3  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.



Sec.1271.4  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 FHFA shall, from time to time, after 
notice and comment, find necessary for the exercise of the authority of 
this subpart.



Sec.1271.5  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

[[Page 392]]

any powers or functions under this subpart.



Sec.1271.6  Pricing of services.

    (a) General. Banks shall charge for services authorized in this 
subpart in a manner consistent with the principles of section 11A(c) of 
the Federal Reserve Act (12 U.S.C. 248a(c)), as interpreted by this 
subpart.
    (b) Payment instrument account services. (1) In determining the fees 
for services provided under this subpart, 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 
subpart.
    (c) Review and publication. For any year during which any Bank 
actually provides services authorized by this subpart:
    (1) FHFA shall from time to time and at least annually review the 
cost of capital adjustment factor and review prices for services 
authorized in this subpart for compliance with the principles set forth 
in paragraphs (a) and (b) of this section, and
    (2) FHFA shall annually publish in the Federal Register all prices 
for Bank services authorized in this subpart except those for fees 
charged to an applicant for draws made by a beneficiary under a standby 
letter of credit.



Sec.1271.7  Rights, powers, responsibilities, duties, and liabilities.

    To the extent it is not inconsistent with other provisions of this 
subpart, the Uniform Commercial Code governs the rights, powers, 
responsibilities, duties, and liabilities of Banks in the exercise of 
their authority under this subpart. For purposes of this paragraph, the 
term ``bank,'' as used in the Uniform Commercial Code and clearinghouse 
rules, includes Banks and their members and eligible institutions.



                Subpart B_Miscellaneous Bank Authorities



Sec.1271.10  Transfer of funds between Banks.

    Inter-Bank borrowing shall be through unsecured deposits bearing 
interest at rates negotiated between Banks.



Sec.1271.11  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, 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.



                 Subpart C_Bank Requests for Information



Sec.1271.15  Definitions.

    As used in this subpart:
    Confidential regulatory 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 Bank Act.
    Financial regulatory agency means any of the following:
    (1) The Department of the Treasury, including the Comptroller of the 
Currency;
    (2) The Board of Governors of the Federal Reserve System;
    (3) The National Credit Union Administration; or
    (4) The Federal Deposit Insurance Corporation.
    Third party means any person or entity except a director, officer, 
employee or agent of either:

[[Page 393]]

    (1) A Bank in possession of any particular confidential regulatory 
information; or
    (2) The financial regulatory agency that supplied the particular 
confidential regulatory information to such Bank.



Sec.1271.16  Scope.

    This subpart governs the procedure by which a Bank will request and 
receive confidential regulatory information pursuant to section 22 of 
the Bank Act (12 U.S.C. 1442).



Sec.1271.17  Request for confidential regulatory information.

    A Bank shall make all requests for confidential regulatory 
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 subpart as well as any procedures of general 
applicability for requesting information promulgated by such financial 
regulatory agency. This subpart and its procedures may be supplemented 
by a confidentiality agreement between a Bank and a financial regulatory 
agency.



Sec.1271.18  Form of request.

    A request by a Bank to a financial regulatory agency for 
confidential regulatory 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 Bank 
Act (12 U.S.C. 1442), as amended, and this regulation, and shall 
describe the confidential regulatory information requested and identify 
its intended use pursuant to the Bank Act. The request shall be signed 
or otherwise made by any duly authorized Bank officer or employee.



Sec.1271.19  Storage of confidential regulatory information.

    Each Bank shall:
    (a) Store all identified confidential regulatory 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 regulatory information in 
its possession; and
    (c) Establish an internal review of its procedures for storing 
confidential regulatory information and maintaining its confidentiality, 
as a part of its internal audit process.



Sec.1271.20  Access to confidential regulatory information.

    Each Bank shall ensure that access to the confidential regulatory 
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 regulatory information in accordance 
with the Bank's own procedures for maintaining the confidentiality of 
its members' privileged or non-public information.



Sec.1271.21  Third party requests for confidential regulatory information.

    (a) General. In the event a Bank receives a request for confidential 
regulatory information in its possession from any third party, the Bank 
shall forward such request to the financial regulatory agency from which 
the confidential regulatory information was obtained.
    (b) Subpoena. In the event a Bank receives a subpoena for 
confidential regulatory 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 regulatory information was obtained, 
unless such notice is prohibited by applicable law. Except as limited in 
this subpart, the Bank may disclose confidential regulatory 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 regulatory 
information has become final with all rights of appeal either exhausted 
or lapsed.

[[Page 394]]

    (c) Nondisclosure to third parties. Except as provided in paragraph 
(b) of this section, a Bank shall not disclose confidential regulatory 
information to any third party. A Bank shall refer all third party 
requests for such confidential regulatory information to the financial 
regulatory agency that released the confidential regulatory information 
to the Bank.
    (d) Disclosure to FHFA. (1) Neither this subpart nor any 
confidentiality agreement executed between a Bank and a financial 
regulatory agency shall prevent a Bank from disclosing confidential 
regulatory information in its possession to FHFA whenever disclosure is 
necessary to accomplish FHFA's supervision of Bank membership 
applications or Bank director eligibility issues, or disclosing any 
confidential regulatory information in its possession if such disclosure 
is made pursuant to an audit conducted pursuant to Sec.1271.19 or 
section 20 of the Bank Act (12 U.S.C. 1440).
    (2) FHFA shall keep all confidential regulatory information received 
under this paragraph (d) in strict confidence.



Sec.1271.22  Computer data.

    Nothing in this subpart shall preclude a Bank from arranging with 
any financial regulatory agency to transmit or allow access to 
confidential regulatory 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.



               Subpart D_Financing Corporation Operations



Sec.1271.30  Definitions.

    As used in this subpart:
    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.
    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 Bank 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 
Bank Act (12 U.S.C. 1441(b)) to manage the Financing Corporation.
    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 Bank Act (12 U.S.C. 1441(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

[[Page 395]]

section 21B of the Bank Act (12 U.S.C. 1441b).



Sec.1271.31  General authority.

    Subject to the limitations and interpretations in this subpart and 
such orders and directions as FHFA may prescribe, the Financing 
Corporation shall have authority to exercise all powers and authorities 
granted to it by the Bank Act and by its charter and bylaws regardless 
of whether the powers and authorities are specifically implemented in 
regulation.



Sec.1271.32  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 Bank Act (12 U.S.C. 1441(g)). 
The Directorate shall promptly notify FHFA in writing of any changes to 
the investment policies and procedures.



Sec.1271.33  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 1270 of this 
chapter. Wherever the terms ``Bank(s),'' ``consolidated obligation(s)'' 
or ``Book-entry consolidated obligation(s)'' appear in part 1270, 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.



Sec.1271.34  Bank and Office of Finance employees.

    Without further approval of FHFA, 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.1271.35  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) FHFA approval. The Directorate shall submit annually to FHFA 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 FHFA pursuant 
to paragraph (b) of this section, or as it may be amended by the 
Directorate within limits set by FHFA.
    (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 FHFA 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 FHFA for approval.



Sec.1271.36  Administrative expenses.

    (a) Payment by Banks. The Banks shall pay all administrative 
expenses of the Financing Corporation approved pursuant to Sec.
1271.35.
    (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 Bank 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

[[Page 396]]

the Banks for administrative expenses in the prior calendar year.



Sec.1271.37  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.1271.35, 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 (12 U.S.C. 1817).
    (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 Bank Act (12 U.S.C. 1441(f)(2)) and 
paragraph (b)(1) of this section.
    (ii) 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 Bank 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 Bank 
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.1271.35, 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 Bank 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.1271.35.
    (d)(1) Final assessments. All Financing Corporation assessments 
collected during 2019 shall be final. Subsequent to March 29, 2019, no 
insured depository institution shall have any right to receive refunds 
for any overpayment of any prior Financing Corporation assessments nor 
shall it be billed for any underpayment of any prior Financing 
Corporation assessments that arise as a result of an amendment to any 
Consolidated Reports of Condition and Income on which the prior 
Financing Corporation assessment had been based.
    (2) Amendments to call reports. Amendments to an institution's 
Consolidated Reports of Condition and Income for quarters prior to and 
including the fourth quarter of 2018 shall not affect an institution's 
Financing Corporation assessments after March 26, 2019.
    (3) June 2019 assessment. In the event Financing Corporation 
assessments are collected in June 2019, amendments to an institution's 
first quarter 2019 Consolidated Reports of Condition and Income that are 
submitted after June 25, 2019 shall not affect the institution's 
Financing Corporation assessment.

[78 FR 2324, Jan. 11, 2013, as amended at 83 FR 63058, Dec. 7, 2018]



Sec.1271.38  Reports to FHFA.

    The Financing Corporation shall file such reports as FHFA shall 
direct.



Sec.1271.39  Review of books and records.

    FHFA 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 Bank Act (12 
U.S.C. 1441) and this subpart.

[[Page 397]]



   Subpart E_Authority for Bank Assistance of the Resolution Funding 
                               Corporation



Sec.1271.41  Bank employees.

    Upon the request of the Directorate of the Resolution Funding 
Corporation, established pursuant to section 21B(b) of the Bank 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 Bank Act (12 U.S.C. 1441b(c)(6)(B)).



PART 1272_NEW BUSINESS ACTIVITIES--Table of Contents



Sec.
1272.1 Definitions.
1272.2 Limitation on Bank authority to undertake new business 
          activities.
1272.3 New business activity notice requirement.
1272.4 Review process.
1272.5 Additional information.
1272.6 Examinations.
1272.7 Approval of notices.

    Authority: 12 U.S.C. 1431(a), 1432(a), 4511(b), 4513, 4526(a).

    Source: 81 FR 91694, Dec. 19, 2016, unless otherwise noted.



Sec.1272.1  Definitions.

    As used in this part:
    Business Day means any calendar day other than a Saturday, Sunday, 
or legal public holiday listed in 5 U.S.C. 6103.
    NBA Notice Date means the date on which FHFA receives a new business 
activity notice.
    New business activity (NBA) means any business activity undertaken, 
transacted, conducted, or engaged in by a Bank that entails material 
risks not previously managed by the Bank. A Bank's acceptance of a new 
type of advance collateral does not constitute an NBA.



Sec.1272.2  Limitation on Bank authority to undertake new business activities.

    No Bank shall undertake an NBA except in accordance with the 
procedures set forth in this part.



Sec.1272.3  New business activity notice requirement.

    Prior to undertaking an NBA, a Bank shall submit a written notice of 
the proposed NBA that provides a thorough, meaningful, complete, and 
specific description of the activity such that FHFA will be able to make 
an informed decision regarding the proposed activity. At a minimum, the 
notice should include the following information:
    (a) A written opinion of counsel identifying the specific statutory, 
regulatory, or other legal authorities under which the NBA is authorized 
and, for submissions raising legal questions of first impression, a 
reasoned analysis explaining how the cited authorities can be construed 
to authorize the new activity;
    (b) A full description of the proposed activity, including, when 
applicable, infographics and definitions of key terms. In addition, the 
Bank shall indicate whether the proposed activity represents a 
modification to a previously approved activity in which the Bank is 
engaged or is an activity that FHFA has approved for any other Banks, if 
known to the requesting Bank, and if applicable;
    (c) A discussion of why the Bank proposes to engage in the new 
activity and how the activity supports the housing finance and community 
investment mission of the Bank;
    (d) A discussion of the risks presented by the new activity and how 
the Bank will manage these risks; and
    (e) A good faith estimate of the anticipated dollar volume of the 
activity, and the income and expenses associated with implementing and 
operating the new activity, over the initial three years of operation.



Sec.1272.4  Review process.

    (a) Within 30 business days of the NBA Notice Date, FHFA will take 
one of the following actions:
    (1) Approve the proposed NBA;

[[Page 398]]

    (2) Deny the proposed activity; or
    (3) Inform the Bank that the activity raises policy, legal, or 
supervisory issues that require further evaluation. If FHFA fails to 
take any of those actions by the 30th business day following the NBA 
Notice Date, the NBA notice shall be deemed to have been approved and 
the Bank may commence the activity for which the notice was submitted.
    (b) In the case of any notice that FHFA has determined requires 
further evaluation, FHFA will approve or deny the notice by no later 
than the 80th business day following the NBA Notice Date. If FHFA fails 
to approve or deny a NBA notice by that date, and the Director has not 
extended the review period, the NBA notice shall be deemed to have been 
approved and the Bank may commence the activity for which the notice was 
submitted.
    (c) For purposes of calculating the review period, no days will be 
counted between the date that FHFA has requested additional information 
from the Bank pursuant to Sec.1272.5 and the date that the Bank 
responds to all questions communicated.
    (d) Notwithstanding anything contained in this part, the Director 
may extend the 80 business-day review period by an additional 60 
business days if the Director determines that additional time is 
required to consider the notice. In such a case, FHFA will inform the 
Bank of any such extension before the 80th business day following the 
NBA Notice Date, and the Bank may not commence the NBA until FHFA has 
affirmatively approved the notice.
    (e) In considering any NBA notice, FHFA will assess whether the 
proposed activity will be conducted in a safe and sound manner and is 
consistent with the housing finance, community investment, and liquidity 
missions of the Banks and the cooperative nature of the Bank System. 
FHFA may deny an NBA notice or may approve the notice, which approval 
may be made subject to the Bank's compliance with any conditions that 
FHFA determines are appropriate to ensure that the Bank conducts the new 
activity in a safe and sound manner and in compliance with applicable 
laws or regulations and the Bank's mission.



Sec.1272.5  Additional information.

    FHFA may request additional information from a Bank necessary to 
issue a determination regarding an NBA. After an initial request for 
information, FHFA may make subsequent requests for information only to 
the extent that the information provided by the Bank does not fully 
respond to a previous request, the subsequent request seeks information 
needed to clarify the Bank's previous response, or the information 
provided by the Bank raises new legal, policy, or supervisory issues not 
evident based on the Bank's NBA notice or responses to previous requests 
for information. Nothing contained in this paragraph shall limit the 
Director's authority to request additional information from a Bank 
regarding an NBA for which the Director has extended the review period.



Sec.1272.6  Examinations.

    Nothing in this part shall limit in any manner the right of FHFA to 
conduct any examination of any Bank relating to its implementation of an 
NBA, including pre- or post-implementation safety and soundness 
examinations, or review of contracts or other agreements between the 
Bank and any other party.



Sec.1272.7  Approval of notices.

    The Deputy Director for Federal Home Loan Bank Regulation may 
approve requests from a Bank seeking approval of any NBA notice 
submitted in accordance with this part. The Director reserves the right 
to modify, rescind, or supersede any such approval granted by the Deputy 
Director, with such action being effective only on a prospective basis.



PART 1273_OFFICE OF FINANCE--Table of Contents



Sec.
1273.1 Definitions.
1273.2 Authority of the OF.
1273.3 Functions of the OF.
1273.4 FHFA oversight.
1273.5 Funding of the OF.
1273.6 Debt management duties of the OF.
1273.7 Structure of the OF board of directors.

[[Page 399]]

1273.8 General duties of the OF board of directors.
1273.9 Audit Committee.

Appendix A to Part 1273--Exceptions to the General Disclosure Standards

    Authority: 12 U.S.C. 1431, 1440, 4511(b), 4513, 4514(a), 4526(a).

    Source: 75 FR 23161, May 3, 2010, unless otherwise noted.



Sec.1273.1  Definitions.

    For purposes of this part:
    Audit Committee means the OF Independent Directors acting as the 
committee established in accordance with Sec.1273.9 of this part.
    Chair means the chairperson of the board of directors of the Office 
of Finance.
    Chief Executive Officer or CEO means the chief executive officer of 
the Office of Finance.
    Independent Director means a member of the OF board of directors who 
meets the qualifications set forth in Sec.1273.7(a)(2) of this part.

[75 FR 23161, May 3, 2010, as amended at 78 FR 2328, Jan. 13, 2013; 81 
FR 76298, Nov. 2, 2016]



Sec.1273.2  Authority of the OF.

    (a) General. The OF shall enjoy such incidental powers under section 
12(a) of the Bank 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 the Banks in issuing consolidated obligations 
and 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.1273.5 of this 
part.



Sec.1273.3  Functions of the OF.

    (a) Joint debt issuance. Subject to part 1270, subparts B and C, of 
this chapter, and this part, the OF, as agent for the Banks, shall 
offer, issue, and service (including making timely payments on principal 
and interest due) consolidated obligations.
    (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.1273.6(b) and 
appendix A of this part, using consistent accounting policies and 
procedures as provided in Sec.1273.9(b) 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 FICO as may be 
required under part 1271, subpart D, of this chapter, or for REFCORP as 
may be required under part 1271, subpart E, of this chapter or 
authorized by FHFA pursuant to section 21B(c)(6)(B) of the Bank Act (12 
U.S.C. 1441b(c)(6)(B)).

[75 FR 23161, May 3, 2010, as amended at 81 FR 76298, Nov. 2, 2016]



Sec.1273.4  FHFA oversight.

    (a) Oversight and enforcement actions. FHFA shall have such 
oversight authority over the OF, the OF board of directors, the 
officers, employees, agents, attorneys, accountants, or other OF staff 
as set forth in the Bank Act, the Safety and Soundness Act, and FHFA 
regulations issued thereunder.
    (b) Examinations. Pursuant to section 20 of the Bank Act (12 U.S.C. 
1440), FHFA shall examine the OF, all funds and accounts that may be 
established pursuant to this part 1273, and the operations and 
activities of the OF, as provided for in the Bank Act, the Safety and 
Soundness Act, or any regulations promulgated pursuant thereto.
    (c) Combined financial reports. FHFA shall determine whether a 
combined Bank System annual or quarterly financial report complies with 
the standards of this part.



Sec.1273.5  Funding of the OF.

    (a) Generally. The Banks are responsible for jointly funding all the 
expenses of the OF, including the costs of indemnifying the members of 
the OF board of directors, the Chief Executive Officer, and other 
officers and employees of the OF, as provided for in this part.

[[Page 400]]

    (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 OF 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 Chief Executive Officer or other persons 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 a 
reasonable formula approved by the OF board of directors. Such formula 
shall be subject to the review of FHFA, and the OF board of directors 
shall make any changes to the formula as may be ordered by FHFA from 
time to time.
    (c) Alternative funding method. With the prior approval of FHFA, the 
OF board of directors may, by contract with a Bank or Banks, 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 Chief Executive Officer pursuant to the 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 Chief 
Executive Officer, 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 segregated. 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.



Sec.1273.6  Debt management duties of the OF.

    (a) Issuing and servicing of consolidated obligations. The OF, as 
agent for the Banks, shall issue and service (including making timely 
payments on principal and interest due, subject to Sec. Sec.1270.9 and 
1270.10 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, under the 
oversight of the Audit Committee, 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 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 generally accepted accounting principles regarding 
business segment disclosure applied to the combined annual and quarterly 
financial reports of the Bank System, and shall be presented using 
consistent accounting policies and procedures as provided in Sec.
1273.9(b) of this part.
    (3) The standards set forth in paragraphs (b)(1) and (b)(2) of this 
section are subject to the exceptions set forth in Appendix A to this 
part.
    (4) The combined Bank System annual financial reports shall be filed 
with FHFA and distributed to each Bank and Bank member within 90 days 
after the end of the fiscal year. The combined Bank System quarterly 
financial reports shall be filed with FHFA and distributed to each Bank 
and Bank member within 45 days after the end of the of the first three 
fiscal quarters of each year.
    (5) The Audit Committee shall ensure that the combined Bank System 
annual or quarterly financial reports comply with the standards of this 
part.
    (6) The OF and the OF board of directors, including the Audit 
Committee,

[[Page 401]]

shall comply promptly with any directive of FHFA 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 shall provide capital markets 
information concerning debt to the Banks.
    (d) NRSROs. The OF shall manage the 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, and 
compile relevant data on, each Bank's and the Bank System's unsecured 
credit exposure to individual counterparties.

[75 FR 23161, May 3, 2010, as amended at 81 FR 76298, Nov. 2, 2016]



Sec.1273.7  Structure of the OF board of directors.

    (a) Membership. The OF board of directors shall consist of part-time 
members as follows:
    (1) Each of the Bank presidents, ex officio, provided that if the 
presidency of any Bank becomes vacant, the person designated by the 
Bank's board of directors to temporarily fulfill the duties of president 
of that Bank shall serve on the OF board of directors until the 
presidency is filled permanently; and
    (2) Five Independent Directors who--
    (i) Each shall be a citizen of the United States;
    (ii) As a group, shall have substantial experience in financial and 
accounting matters; and
    (iii) Shall not have any material relationship with a Bank, or the 
OF (directly or as a partner, shareholder, or officer of an 
organization), as determined under criteria set forth in a policy 
adopted by the OF board of directors. At a minimum, such policy shall 
provide that an Independent Director may not:
    (A) Be an officer, director, or employee of any Bank or member of a 
Bank, or have been an officer, director, or employee of a Bank or member 
of a Bank during the previous three years;
    (B) Be an officer or employee of the OF, or have been an officer or 
employee of the OF during the previous three years; or
    (C) Be affiliated with any consolidated obligations selling or 
dealer group under contract with OF, or hold shares or any other 
financial interest in any entity that is part of a consolidated 
obligations seller or dealer group in an amount greater than the lesser 
of $250,000 or 0.01% of the market capitalization of the seller or 
dealer group, or in an amount that exceeds $1,000,000 for all entities 
that are part of any consolidated obligations seller dealer group, 
combined. For purposes of this paragraph (a)(2)(iii)(C), a holding 
company of an entity that is part of a consolidated obligations seller 
or dealer group shall be deemed to be part of the consolidated 
obligations selling or dealer group if the assets of the holding 
company's subsidiaries that are part of a consolidated obligation seller 
or dealer group constitute 35% or more of the consolidated assets of the 
holding company.
    (b) Terms. (1) Except as provided in paragraph (b)(2) of this 
section, each Independent Director shall serve for five-year terms 
(which shall be staggered so that no more than one Independent Director 
seat would be scheduled to become vacant in any one year), and shall be 
subject to removal or suspension in accordance with Sec.1273.4(a). An 
Independent Director may not serve more than two full, consecutive 
terms, provided that any partial term served by an Independent Director 
pursuant to paragraph (b)(2) of this section shall not count as a term 
for purposes of this restriction.
    (2) The OF board of directors shall fill any vacancy among the 
Independent Directors occurring prior to the scheduled end of a term by 
majority vote, subject to FHFA's review of, and non-objection to, the 
new Independent Director. The OF board of directors shall provide FHFA 
with the same biographic and background information about the new 
Independent Director required under paragraph (c) of this section, and 
FHFA shall have the same rights of non-objection to the

[[Page 402]]

Independent Director (and to appoint a different Independent Director) 
as set forth in paragraph (c) of this section. A person shall be elected 
(or otherwise appointed by FHFA) under this paragraph (b)(2) to serve 
only for the remainder of the term associated with the vacant 
directorship.
    (c) Election of Independent Directors. The Independent Directors 
shall be elected by majority vote of the OF board of directors, subject 
to FHFA's review of, and non-objection to, each Independent Director. 
The OF board of directors shall provide FHFA with relevant biographic 
and background information, including information demonstrating that the 
new Independent Director meets the requirements of paragraph (a)(2) of 
this section, at least 20 business days before the person assumes any 
duties as a member of the OF board of directors. If the OF board of 
directors, in FHFA's judgment, fails to elect a suitably qualified 
person, FHFA may appoint some other person who meets the requirements of 
paragraph (a)(2) of this section. FHFA will provide notice of its 
objection to a particular Independent Director prior to the date that 
such Director is to assume duties as a member of the OF board of 
directors. Such notice shall indicate whether, given FHFA's objection, 
FHFA intends to fill the seat through appointment or a new election 
should be held by the OF board of directors.
    (d) Election of Chair and Vice-Chair. (1) The Chair shall be elected 
by majority vote of the OF board of directors from among the Independent 
Directors then serving on the OF board of directors, and the Vice Chair 
shall be elected by majority vote of the OF board of directors from 
among all directors.
    (2) The OF board of directors shall promptly inform FHFA of the 
election of a Chair or Vice Chair. If FHFA objects to any Chair or Vice 
Chair elected by the OF board of directors, FHFA shall provide written 
notice of its objection within 20 business days of the date that FHFA 
first receives the notice of the election of the Chair and or Vice 
Chair, and the OF board of directors must then promptly elect a new 
Chair or Vice Chair, as appropriate.
    (e) By-laws and Committees. (1) The OF board of directors shall 
adopt by-laws governing the manner in which the board conducts its 
affairs, which shall be consistent with the requirements of this part 
and other applicable laws and regulations as administered by FHFA. The 
by-laws of the board of directors shall be subject to review and 
approval by FHFA.
    (2) In addition to the Audit Committee required under Sec.1273.9, 
the OF board of directors may establish other committees, including an 
Executive Committee. The duties and powers of such committee, including 
any powers delegated by the OF board of directors, shall be specified in 
the by-laws of the board of directors or the charter of the committee.
    (f) Compensation. (1) The Bank presidents shall not receive any 
additional compensation or reimbursement as a result of their service as 
a director of the OF board.
    (2) The OF shall pay reasonable compensation and expenses to the 
Independent Directors in accordance with the requirements for payment of 
compensation and expenses to Bank directors as set forth in part 1261 of 
this chapter.
    (g) Corporate Governance and Indemnification--(1) General. The 
corporate governance practices and procedures of the OF, and practices 
and procedures related to indemnification (including advancement of 
expenses) shall comply with applicable Federal law, rules, and 
regulations.
    (2) Election and designation of body of law. (i) To the extent not 
inconsistent with paragraph (g)(1) of this section, the OF shall elect 
to follow the corporate governance and indemnification practices and 
procedures set forth in one of the following:
    (A) The law of the jurisdiction in which the principal office of the 
OF is located;
    (B) The Delaware General Corporation Law (Del. Code Ann. Title 8); 
or
    (C) The Revised Model Business Corporation Act.
    (ii) The OF board of directors shall designate in its by-laws the 
body of law elected pursuant to this paragraph (g)(2).

[[Page 403]]

    (3) Indemnification. Subject to paragraphs (g)(1) and (2) of this 
section, to the extent applicable, the OF shall indemnify (and advance 
the expenses of) its directors, officers, and employees under such terms 
and conditions as are determined by the OF board of directors. The OF 
shall be authorized to maintain insurance for its directors, the CEO, 
and any other officer or employee of the OF. Nothing in this paragraph 
(g)(3) shall affect any rights to indemnification (including the 
advancement of expenses) that a director, the CEO, or any other officer 
or employee of the OF had with respect to any actions, omissions, 
transactions, or facts occurring prior to December 2, 2016.
    (h) Delegation. In addition to any delegation to a committee allowed 
under paragraph (e) of this section, the OF board of directors may 
delegate any of its authority or duties to any employee of the OF in 
order to enable OF to carry out its functions.
    (i) Outside staff and consultants. In carrying out its duties and 
responsibilities, the OF board of directors, or any committee thereof, 
shall have authority to retain staff and outside counsel, independent 
accountants, or other outside consultants at the expense of the OF.

[81 FR 76298, Nov. 2, 2016]



Sec.1273.8  General duties of the OF board of directors.

    (a) General. Each 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 OF and 
the Bank System, 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 OF fairly and impartially and 
without discrimination in favor of or against any Bank;
    (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 
Banks' combined balance sheets and income statements and the relevant 
financial statements of the OF and to ask substantive questions of 
management and the internal and external auditors with regard to both 
the combined financial statements of the Bank System and the operations 
and financial statements of the OF, as appropriate; and
    (4) Direct the operations of the OF in conformity with the 
requirements set forth in the Bank Act, Safety and Soundness Act, and 
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 by-laws, and shall hold no fewer than six in-person 
meetings annually. Due notice shall be given to FHFA by the Chair prior 
to each meeting. A quorum, for purposes of meetings of the OF board of 
directors, shall require a majority of sitting board members, which must 
include a majority of sitting Independent Directors.
    (c) Duties regarding COs. The OF board of directors shall oversee 
the establishment of 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;

[[Page 404]]

    (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 
OF;
    (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 GSEs;
    (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.1239.14 of this chapter, as appropriate;
    (3) Select, employ, determine the compensation for, and assign the 
duties and functions of a Chief Executive Officer of the OF who shall--
    (i) Be head of the OF and direct the implementation of the OF board 
of directors' policies;
    (ii) Serve as a member of the Directorate of the FICO, pursuant to 
section 21(b)(1)(A) of the Bank Act (12 U.S.C. 1441(b)(1)(A)); and
    (iii) Serve as a member of the Directorate of the REFCORP, pursuant 
to section 21B(c)(1)(A) of the Bank Act (12 U.S.C. 1441b(c)(1)(A)).
    (4) Review and approve all contracts of the OF, except for contracts 
for which exclusive authority is provided to the Audit Committee by 
paragraphs (b)(5) and (b)(6) of Sec.1273.9; and
    (5) Assume any other responsibilities that may from time to time be 
assigned to it by FHFA.
    (e) No rights created. Nothing in this part shall create or be 
deemed to create any rights in any third party.

[75 FR 23161, May 3, 2010, as amended at 81 FR 76299, Nov. 2, 2016; 83 
FR 52954, Oct. 19, 2018]



Sec.1273.9  Audit Committee.

    (a) Composition. The Independent Directors shall serve as the Audit 
Committee. The Audit Committee shall elect its chairperson from among 
its members. The Chairperson of the OF may also serve as chairperson of 
the Audit Committee, if the Audit Committee members so decide.
    (b) Responsibilities. (1) The Audit Committee shall be responsible 
for overseeing the audit function of the OF and the preparation and the 
accurate and meaningful combination of information submitted by the 
Banks in the Bank System's combined financial reports.
    (2) For purposes of the combined financial reports, the Audit 
Committee shall ensure that the Banks adopt consistent accounting 
policies and procedures to the extent necessary for information 
submitted by the Banks to the OF to be combined to create accurate and 
meaningful combined financial reports.
    (3) The Audit Committee, in consultation with FHFA, may establish 
common accounting policies and procedures for the information submitted 
by the Banks to the OF for the combined financial reports where the 
Committee determines such information provided by the several Banks is 
inconsistent and that consistent policies and procedures regarding that 
information are necessary to create accurate and meaningful combined 
financial reports.
    (4) To the extent possible the Audit Committee shall operate 
consistent with the requirements pertaining to audit committee reports 
set forth in Item 407(d)(3) of Regulation S-K promulgated by the 
Securities and Exchange Commission.
    (5) The Audit Committee shall oversee internal audit activities, 
including the selection, evaluation, compensation, and, where 
appropriate, replacement of the internal auditor. The internal auditor 
shall report directly to the Audit Committee on substantive matters, and 
is ultimately accountable to the Audit Committee and the board of 
directors.
    (6) The Audit Committee shall have the exclusive authority to employ 
and contract for the services of an independent, external auditor for 
the

[[Page 405]]

Banks' annual and quarterly combined financial statements and of an 
independent, external auditor for OF.
    (7) The Audit Committee shall direct senior management to maintain 
the reliability and integrity of the accounting policies and financial 
reporting of the OF.
    (8) The Audit Committee shall review the basis for the OF's 
financial statements and the external auditor's opinion rendered with 
respect to such financial statements.
    (9) The Audit Committee shall ensure that senior management has 
established and is maintaining an adequate internal control system 
within the OF by:
    (i) Reviewing the OF'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 OF designed to 
ensure compliance with applicable laws, regulations, and policies and 
monitoring the results of these compliance efforts.
    (10) The Audit Committee shall review the policies and procedures 
established by senior management to assess and monitor implementation of 
the OF strategic business plan and the operating goals and objectives 
contained therein.
    (11) The Audit Committee shall provide an independent, direct 
channel of communication between the OF's board of directors and the 
internal and external auditors.
    (12) The Audit Committee shall conduct or authorize investigations 
into any matters within the Audit Committee's scope of responsibilities.
    (13) The Audit Committee shall report periodically its findings to 
the OF's board of directors.
    (14) The Audit Committee shall prepare written minutes of each Audit 
Committee meeting.
    (c) Charter. (1) The Audit Committee shall adopt, and the OF board 
of directors shall approve, a formal written charter, consistent with 
the duties and authority set forth in this section, that specifies the 
scope of the Audit Committee's powers and responsibilities. The Audit 
Committee and the OF board of directors shall:
    (i) Review, and assess the adequacy of and, where appropriate, amend 
the Audit Committee charter on an annual basis; and
    (ii) Re-adopt and re-approve, respectively, the Audit Committee 
charter not less often than every three years.
    (2) The charter of the Audit Committee shall be subject to review 
and approval by FHFA.
    (d) No delegation. The Audit Committee may not delegate the 
responsibilities assigned to it under this section to any person, or to 
any other committee or sub-committee of the OF board of directors.

[75 FR 23161, May 3, 2010, as amended at 81 FR 76299, Nov. 2, 2016]



   Sec. Appendix A to Part 1273--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. The combined financial report will also disclose the top ten 
holders of advances in the Bank System by holding company, where the 
advances of all affiliates within a holding company are aggregated.
    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 members of the OF board of directors, including the 
Bank presidents, the Chair and Vice-Chair of the board of directors of 
each Bank, and the Chief Executive Officer of 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 CEO of the OF.
    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.

[[Page 406]]

    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. The combined financial report will also disclose the 
top ten holders of Bank stock in the Bank System by holding company, 
where the Bank stock of all affiliates within a holding company is 
aggregated.

[75 FR 23161, May 3, 2010, as amended at 81 FR 76299, Nov. 2, 2016]



PART 1274_FINANCIAL STATEMENTS OF THE BANKS--Table of Contents



Sec.
1274.1 Definitions.
1274.2 Audit requirements.
1274.3 Requirements to provide financial and other information to FHFA 
          and the OF.

    Authority: 12 U.S.C. 1426, 1431, 4511(b), 4513, 4526(a).

    Source: 75 FR 23166, May 3, 2010, unless otherwise noted.



Sec.1274.1  Definitions.

    For purposes of this part:
    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 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.

[75 FR 23166, May 3, 2010, as amended at 78 FR 2328, Jan. 11, 2013; 81 
FR 76300, Nov. 2, 2016]



Sec.1274.2  Audit requirements.

    (a) Each Bank, the OF, and the FICO shall obtain annually an 
independent external audit of and an audit report on its individual 
financial statement.
    (b) The OF audit committee 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 audit committee of OF, 
and the FICO Directorate.
    (e) FHFA 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.



Sec.1274.3  Requirements to provide financial and other information
to FHFA and the OF.

    In order to facilitate the preparation by the OF of combined Bank 
System annual and quarterly reports, each Bank shall provide to the OF 
in such form and within such timeframes as FHFA or the OF shall specify, 
all financial and other information and assistance that the OF shall 
request for that purpose. Nothing in this section shall contravene or be 
deemed to circumscribe in any manner the authority of FHFA to obtain any 
information from any Bank related to the preparation or review of any 
financial report.

[[Page 407]]



PART 1277_FEDERAL HOME LOAN BANK CAPITAL REQUIREMENTS, CAPITAL STOCK
AND CAPITAL PLANS--Table of Contents



                          Subpart A_Definitions

Sec.
1277.1 Definitions.

                   Subpart B_Bank Capital Requirements

1277.2 Total capital requirement.
1277.3 Risk-based capital requirement.
1277.4 Credit risk capital requirement.
1277.5 Market risk capital requirement.
1277.6 Operational risk capital requirement.
1277.7 Limits on unsecured extensions of credit; reporting requirements.
1277.8 Reporting requirements.

                      Subpart C_Bank Capital Stock

1277.20 Classes of capital stock.
1277.21 Issuance of capital stock.
1277.22 Minimum investment in capital stock.
1277.23 Dividends.
1277.24 Liquidation, merger, or consolidation.
1277.25 Transfer of capital stock.
1277.26 Redemption and repurchase of capital stock.
1277.27 Other restrictions on the repurchase or redemption of Bank 
          stock.

                      Subpart D_Bank Capital Plans

1277.28 Bank capital plans.
1277.29 Amendments to a Bank's capital plan.

    Authority: 12 U.S.C. 1426, 1436(a), 1440, 1443, 1446, 4511, 4513, 
4514, 4526, 4612.

    Source: 80 FR 12755, Mar. 11, 2015, unless otherwise noted.



                          Subpart A_Definitions



Sec.1277.1  Definitions.

    As used in this part:
    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.
    Bankruptcy remote means, in the context of any asset that a Bank has 
posted as collateral to a counterparty, that the asset would be excluded 
from that counterparty's estate in receivership, insolvency, 
liquidation, or similar proceeding.
    Class A stock means capital stock issued by a Bank, including 
subclasses, that has the characteristics specified by Sec.1277.20(a).
    Class B stock means capital stock issued by a Bank, including 
subclasses, that has the characteristics specified by Sec.1277.20(b).
    Collateralized mortgage obligation, or CMO, means any instrument 
backed or collateralized by residential mortgages or residential 
mortgage securities, that includes two or more tranches or classes, or 
is otherwise structured in any manner other than as a pass-through 
security.
    Commitment to make an advance or acquire a loan subject to 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.
    Credit derivative 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 the creditworthiness of the obligor.
    Derivatives clearing organization means an organization that clears 
derivative contracts and is registered with the Commodity Futures 
Trading Commission as a derivatives clearing organization pursuant to 
section 5b(a) of the Commodity Exchange Act (7 U.S.C. 7a-1), or that the 
Commodity Futures Trading Commission has exempted from registration by 
rule or order pursuant to section 5b(h) of the Commodity Exchange Act (7 
U.S.C. 7a-1(h)), or is registered with the Securities and Exchange 
Commission as a clearing agency pursuant to section 17A of the 
Securities Exchange Act of 1934 (15 U.S.C. 78q-1), or that the SEC has 
exempted from registration as a clearing agency under section 17A of the 
Securities Exchange Act of 1934 (15 U.S.C. 78q-1(k)).
    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

[[Page 408]]

indices of asset values, or credit-related events. Derivative contracts 
include interest rate, foreign exchange rate, equity, precious metals, 
commodity, and credit derivative contracts, and any other instruments 
that pose similar counterparty credit risks.
    Eligible master netting agreement has the same meaning as set forth 
in Sec.1221.2 of this chapter.
    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.
    Former member means an institution for which the membership in a 
Bank has been terminated but which continues to hold stock in the Bank 
as required by the Bank's capital plan, and includes any successor to 
such institution that continues to hold the stock in the Bank that had 
been issued to the acquired institution.
    General allowance for losses means an allowance established by the 
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 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.
    Internal cash-flow model means a model developed and used by a Bank 
to estimate the potential evolving changes in the cash flows and market 
values of a portfolio for each month, extending out for a period of 
years, subject to a variety of plausible time paths of changes in 
interest rates, volatilities, and option adjusted spreads, and that 
incorporates assumptions about new or revolving business, including the 
roll-off and possible replacement of assets and liabilities as required.
    Internal market-risk model means a model developed and used by a 
Bank to estimate the potential change in the market value of a portfolio 
subject to an instantaneous change in interest rates, volatilities, and 
option-adjusted spreads.
    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, or equity or commodity prices.
    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.1277.5.
    Minimum investment means the minimum amount of stock that an 
institution 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.1277.22.
    Non-mortgage asset means an asset held by a Bank other than an 
advance, a non-rated asset, a residential mortgage asset, a 
collateralized mortgage obligation, or a derivative contract.
    Non-rated asset means a Bank's cash, premises, plant and equipment, 
and investments authorized pursuant to Sec.1265.3(e) and (f) of this 
chapter.
    Operational risk means the risk of loss resulting from inadequate or 
failed internal processes, people and systems, or from external events.
    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 capital requirements means the minimum amounts of 
permanent and total capital that a Bank is required to maintain under 
section 6(a) of the Bank Act (12 U.S.C. 1426(a)) and any related 
regulations, as such requirements may be modified by the Director, or 
any similar requirement established for a Bank by regulation, order, 
written agreement or other action.
    Repurchase means the acquisition by a Bank of excess stock prior to 
the expiration of the six-month or five-year

[[Page 409]]

statutory redemption period for the stock.
    Residential mortgage means a loan secured by a residential structure 
that contains one-to-four dwelling units, regardless of whether the 
structure is attached to real property. The term encompasses, among 
other things, loans secured by individual condominium or cooperative 
units and manufactured housing, whether or not the manufactured housing 
is considered real property under state law, and participation interests 
in such loans.
    Residential mortgage asset, or RMA, means any residential mortgage, 
residential mortgage pool, or residential mortgage security.
    Residential mortgage security means any instrument representing an 
undivided interest in a pool of residential mortgages.
    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 mean the total assets of a Bank, as determined in 
accordance with generally accepted accounting principles (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 Director has determined to be available to absorb 
losses incurred by such Bank.

[80 FR 12755, Mar. 11, 2015, as amended at 84 FR 5325, Feb. 20, 2019]



                   Subpart B_Bank Capital Requirements

    Source: 84 FR 5326, Feb. 20, 2019, unless otherwise noted.



Sec.1277.2  Total capital requirement.

    Each Bank shall maintain at all times:
    (a) Total capital in an amount at least equal to 4.0 percent of the 
Bank's total assets; and
    (b) 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 this 
leverage ratio, total capital shall be computed by multiplying the 
Bank's permanent capital by 1.5 and adding to this product all other 
components of total capital.



Sec.1277.3  Risk-based capital requirement.

    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 operational risk capital 
requirement, calculated in accordance with Sec. Sec.1277.4, 1277.5, 
and 1277.6, respectively.



Sec.1277.4  Credit risk capital requirement.

    (a) General requirement. Each Bank's credit risk capital requirement 
shall equal the sum of the Bank's individual credit risk capital charges 
for all advances, residential mortgage assets, CMOs, non-mortgage 
assets, non-rated assets, off-balance sheet items, and derivative 
contracts, as calculated in accordance with this section.
    (b) Credit risk capital charge for residential mortgage assets and 
collateralized mortgage obligations. The credit risk capital charge for 
residential mortgages, residential mortgage pools, residential mortgage 
securities, and collateralized mortgage obligations shall be determined 
as set forth in paragraph (g) of this section.
    (c) Credit risk capital charge for advances, non-mortgage assets, 
and non-rated assets. Except as provided in paragraph (j) of this 
section, each Bank's credit risk capital charge for advances, non-
mortgage assets, and non-rated assets shall be equal to the amortized 
cost of the asset multiplied by the credit risk percentage requirement 
assigned to that asset pursuant to paragraph (f)(1) or (2) of this 
section. For any such asset carried at fair value where any change in 
fair value is recognized in the Bank's income, the Bank shall calculate 
the capital charge based on the fair value of the asset rather than its 
amortized cost.
    (d) 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

[[Page 410]]

equivalent amount of such item, as determined pursuant to paragraph (h) 
of this section, multiplied by the credit risk percentage requirement 
assigned to that item pursuant to paragraph (f)(1) of this section and 
Table 2 to this section, except that the credit risk percentage 
requirement applied to the credit equivalent amount for a standby letter 
of credit shall be that for an advance with the same remaining maturity 
as that of the standby letter of credit, as specified in Table 1 to this 
section.
    (e) Derivative contracts. (1) Except as provided in paragraphs 
(e)(4) (transactions with members) and (5) (cleared transactions and 
foreign exchange rate contracts) of this section, the credit risk 
capital charge for a derivative contract entered into by a Bank shall 
equal, after any adjustment allowed under paragraph (e)(2) of this 
section, the sum of:
    (i) The current credit exposure for the derivative contract, 
calculated in accordance with paragraph (i)(1) of this section, 
multiplied by the credit risk percentage requirement assigned to that 
derivative contract pursuant to Table 2 to this section, provided that a 
Bank shall use the credit risk percentages from the column for 
instruments with maturities of one year or less for all such derivative 
contracts; plus
    (ii) The potential future credit exposure for the derivative 
contract, calculated in accordance with paragraph (i)(2) of this 
section, multiplied by the credit risk percentage requirement assigned 
to that derivative contract pursuant to Table 2 to this section, where a 
Bank uses the actual remaining maturity of the derivative contract for 
the purpose of applying Table 2 to this section; plus
    (iii) A credit risk capital charge applicable to the undiscounted 
amount of collateral posted by the Bank with respect to a derivative 
contract that exceeds the Bank's current payment obligation under that 
derivative contract, where the charge equals the amount of such excess 
collateral multiplied by the credit risk percentage requirement assigned 
under Table 2 to this section for the custodian or other party that 
holds the collateral, and where a Bank deems the exposure to have a 
remaining maturity of one year or less when applying Table 2 to this 
section.
    (2)(i) A Bank may reduce the credit risk capital charge calculated 
under paragraph (e)(1) of this section by the amount of the discounted 
value of any collateral that is held by or on behalf of the Bank against 
an exposure from the derivative contract, and that satisfies the 
requirements of paragraph (e)(3) of this section. If the total amount of 
the discounted value of the collateral is less than the credit risk 
capital charge calculated under paragraph (e)(1) of this section for a 
particular derivative contract, then the credit risk capital charge for 
the derivative contract shall equal the amount of the initial charge 
that remains after having been reduced by the collateral. A Bank that 
uses a counterparty's pledged collateral to reduce the capital charge 
against a derivative contract under this provision, shall also apply a 
capital charge to the amount of the pledged collateral that it has used 
to reduce its credit exposure on the derivative contract. The amount of 
that capital charge shall be equal to the capital charge that would be 
required under paragraph (b) or (c) of this section, whichever applies 
to the type of collateral, as if the Bank were to own the collateral 
directly. In reducing the capital charge on a particular derivative 
contract, the Bank shall apply the discounted value of the collateral 
for that derivative contract in the following manner:
    (A) First, to reduce the current credit exposure of the derivative 
contract subject to the capital charge; and
    (B) Second, and only if the total discounted value of the collateral 
held exceeds the current credit exposure of the contract, any remaining 
amounts may be applied to reduce the amount of the potential future 
credit exposure of the derivative contract subject to the capital 
charge.
    (ii) If a counterparty's payment obligations to a Bank under a 
derivative contract are unconditionally guaranteed by a third-party, 
then the credit risk percentage requirement applicable to the derivative 
contract may be that associated with the guarantor, rather than the 
Bank's counterparty.

[[Page 411]]

    (3) The credit risk capital charge may be reduced as described in 
paragraph (e)(2)(i) of this section for collateral held against the 
derivative contract exposure only if the collateral is:
    (i) Held by, or has been paid to, the Bank or held by an 
independent, third-party custodian on behalf of the Bank pursuant to a 
custody agreement that meets the requirements of Sec.1221.7(c) and (d) 
of this chapter;
    (ii) Legally available to absorb losses;
    (iii) Of a readily determinable value at which it can be liquidated 
by the Bank; and
    (iv) Subject to an appropriate discount to protect against price 
decline during the holding period and the costs likely to be incurred in 
the liquidation of the collateral, provided that such discount shall 
equal at least the minimum discount required under appendix B to part 
1221 of this chapter for collateral listed in that appendix, or shall be 
estimated by the Bank based on appropriate assumptions about the price 
risks and liquidation costs for collateral not listed in appendix B to 
part 1221.
    (4) The credit risk capital charge for any derivative contracts 
entered into between a Bank and its members shall be calculated in 
accordance with paragraph (e)(1) of this section, except that the Bank 
shall use the credit risk percentage requirements from Table 1 to this 
section, which sets forth the credit risk percentage requirements for 
advances.
    (5) Notwithstanding any other provision in this paragraph (e), the 
credit risk capital charge for:
    (i) A foreign exchange rate contract (excluding gold contracts) with 
an original maturity of 14 calendar days or less shall be zero; and
    (ii) A derivative contract cleared by a derivatives clearing 
organization shall equal 0.16 percent times the sum of the following:
    (A) The current credit exposure for the derivative contract, 
calculated in accordance with paragraph (i)(1)(i) of this section;
    (B) The potential future credit exposure for the derivative contract 
calculated in accordance with paragraph (i)(2) of this section; and
    (C) The amount of collateral posted by the Bank and held by the 
derivatives clearing organization, clearing member, or custodian in a 
manner that is not bankruptcy remote, but only to the extent the amount 
exceeds the Bank's current credit exposure to the derivatives clearing 
organization.
    (f) Determination of credit risk percentage requirements--(1) 
General. (i) Each Bank shall determine the credit risk percentage 
requirement applicable to each advance and each non-rated asset by 
identifying the appropriate category from Table 1 or 3 to this section, 
respectively, to which the advance or non-rated asset belongs. Except as 
provided in paragraphs (f)(2) and (3) of this section, each Bank shall 
determine the credit risk percentage requirement applicable to each non-
mortgage asset, off-balance sheet item, and derivative contract by 
identifying the appropriate category set forth in Table 2 to this 
section to which the asset, item, or contract belongs as determined in 
accordance with paragraph (f)(1)(ii) of this section, and remaining 
maturity. Each Bank shall use the applicable credit risk percentage 
requirement to calculate the credit risk capital charge for each asset, 
item, or contract in accordance with paragraph (c), (d), or (e) of this 
section, respectively. The relevant categories and credit risk 
percentage requirements are provided in the following Tables 1 through 3 
to this section--

           Table 1 to Sec. 1277.4--Requirement for Advances
------------------------------------------------------------------------
                                                              Percentage
                    Maturity of advances                      applicable
                                                             to advances
------------------------------------------------------------------------
Advances with:
  Remaining maturity <=4 years.............................         0.09
  Remaining maturity 4 years to 7 years.........         0.23
  Remaining maturity 7 years to 10 years........         0.35
  Remaining maturity 10 years...................         0.51
------------------------------------------------------------------------


[[Page 412]]


  Table 2 to Sec. 1277.4--Requirement for Internally Rated Non-Mortgage Assets, Off-Balance Sheet Items, and
                                              Derivative Contracts
                                    [Based on remaining contractual maturity]
----------------------------------------------------------------------------------------------------------------
                                                               Applicable percentage
                                 -------------------------------------------------------------------------------
       FHFA Credit Rating                          1    3    7    10
                                     <=1 year       yr to 3 yrs    yrs to 7 yrs    yrs to 10 yrs        yrs
----------------------------------------------------------------------------------------------------------------
U.S. Government Securities......            0.00            0.00            0.00            0.00            0.00
    FHFA 1......................            0.20            0.59            1.37            2.28            3.32
    FHFA 2......................            0.36            0.87            1.88            3.07            4.42
    FHFA 3......................            0.64            1.31            2.65            4.22            6.01
    FHFA 4......................            3.24            4.79            7.89           11.51           15.64
    FHFA 5......................            9.24           11.46           15.90           21.08           27.00
    FHFA 6......................           15.99           18.06           22.18           26.99           32.49
    FHFA 7......................          100.00          100.00          100.00          100.00          100.00
----------------------------------------------------------------------------------------------------------------


       Table 3 to Sec. 1277.4--Requirement for Non-Rated Assets
------------------------------------------------------------------------
                                                              Applicable
                   Type of unrated asset                      percentage
------------------------------------------------------------------------
Cash.......................................................         0.00
Premises, Plant and Equipment..............................         8.00
Investments Under 12 CFR 1265.3(e) & (f)...................         8.00
------------------------------------------------------------------------

    (ii) Each Bank shall develop a methodology to be used to assign an 
internal credit risk rating to each counterparty, asset, item, and 
contract that is subject to Table 2 to this section. The methodology 
shall involve an evaluation of counterparty or asset risk factors, and 
may incorporate, but must not rely solely on, credit ratings prepared by 
credit rating agencies. Each Bank shall align its various internal 
credit ratings to the appropriate categories of FHFA Credit Ratings 
included in Table 2 to this section. In doing so, FHFA Categories 7 
through 1 shall include assets of progressively higher credit quality. 
After aligning its internal credit ratings to the appropriate categories 
of Table 2 to this section, each Bank shall assign each counterparty, 
asset, item, and contract to the appropriate FHFA Credit Rating category 
based on the applicable internal credit rating.
    (2) Exception for assets subject to a guarantee or secured by 
collateral. (i) When determining the applicable credit risk percentage 
requirement from Table 1 to this section for a non-mortgage asset that 
is subject to an unconditional guarantee by a third-party guarantor or 
is secured as set forth in paragraph (f)(2)(ii) of this section, the 
Bank may substitute the credit risk percentage requirement associated 
with the guarantor or the collateral, as appropriate, for the credit 
risk percentage requirement associated with that portion of the asset 
subject to the guarantee or covered by the collateral.
    (ii) For purposes of paragraph (f)(2)(i) of this section, a non-
mortgage asset shall be considered to be secured if the collateral is:
    (A) Actually held by the Bank, or an independent third-party 
custodian on the Bank's behalf, or, if posted by a Bank member and 
permitted under the Bank's collateral agreement with that member, by the 
Bank's member or an affiliate of that member where the term 
``affiliate'' has the same meaning as in Sec.1266.1 of this chapter;
    (B) Legally available to absorb losses;
    (C) Of a readily determinable value at which it can be liquidated by 
the Bank;
    (D) Held in accordance with the provisions of the Bank's member 
products policy established pursuant to Sec.1239.30 of this chapter, 
if the collateral has been posted by a member or an affiliate of a 
member; and
    (E) Subject to an appropriate discount to protect against price 
decline during the holding period and the costs likely to be incurred in 
the liquidation of the collateral.
    (3) Exception for obligations of the Enterprises. A Bank may use a 
credit risk capital charge of zero for any debt instrument or obligation 
issued by an Enterprise, other than a residential mortgage security or a 
collateralized mortgage obligation, provided that, and only for so long 
as, the Enterprise receives capital support or other form of direct 
financial assistance from the United States government that enables

[[Page 413]]

the Enterprise to repay those obligations.
    (4) Methodology and model review. A Bank shall provide to FHFA upon 
request the methodology, model, and any analyses used by the Bank to 
assign any non-mortgage asset, off-balance sheet item, or derivative 
contract to an FHFA Credit Rating category. FHFA may direct a Bank to 
promptly revise its methodology or model to address any deficiencies 
identified by FHFA.
    (g) Credit risk capital charges for residential mortgage assets--(1) 
Bank determination of credit risk percentage. (i) Each Bank's credit 
risk capital charge for a residential mortgage, residential mortgage 
pool, residential mortgage security, or collateralized mortgage 
obligation shall be equal to the asset's amortized cost multiplied by 
the credit risk percentage requirement assigned to that asset pursuant 
to paragraph (g)(1)(ii) or (g)(2) of this section. For any such asset 
carried at fair value where any change in fair value is recognized in 
the Bank's income, the Bank shall calculate the capital charge based on 
the fair value of the asset rather than its amortized cost.
    (ii) Each Bank shall determine the credit risk percentage 
requirement applicable to each residential mortgage, residential 
mortgage pool, and residential mortgage security by identifying the 
appropriate FHFA RMA category set forth in the following Table 4 to this 
section to which the asset belongs, and shall determine the credit risk 
percentage requirement applicable to each collateralized mortgage 
obligation by identifying the appropriate FHFA CMO category set forth in 
Table 4 to this section to which the asset belongs, with the appropriate 
categories being determined in accordance with paragraph (g)(1)(iii) of 
this section.
    (iii) Each Bank shall develop a methodology to estimate the 
potential future stress losses on its residential mortgages, residential 
mortgage pools, residential mortgage securities, and collateralized 
mortgage obligations, as may yet occur from the current amortized cost 
(or fair value) of those assets, and that converts those loss estimates 
into a stress loss percentage for each asset, expressed as a percentage 
of its amortized cost (or fair value). A Bank shall use the stress loss 
percentage for each asset to determine the appropriate FHFA RMA or CMO 
ratings category for that asset, as set forth in Table 4 to this 
section. A Bank shall do so by assigning each such asset to the category 
whose credit risk percentage requirement equals the asset's stress loss 
percentage, or to the category with the next highest credit risk 
percentage requirement. For residential mortgages and residential 
mortgage pools, the methodology shall involve an evaluation of the 
residential mortgages and residential mortgage pools and any credit 
enhancements or guarantees, including an assessment of the 
creditworthiness of the providers of such enhancements or guarantees. In 
the case of a residential mortgage security or collateralized mortgage 
obligation, the methodology shall involve an evaluation of the 
underlying mortgage collateral, the structure of the security, and any 
credit enhancements or guarantees, including an assessment of the 
creditworthiness of the providers of such enhancements or guarantees.

  Table 4 to Sec. 1277.4--Requirement for Residential Mortgage Assets
                                and CMOs
------------------------------------------------------------------------
                                                             Credit risk
                                                              percentage
------------------------------------------------------------------------
Categories for residential mortgage assets:
  FHFA RMA 1...............................................         0.37
  FHFA RMA 2...............................................         0.60
  FHFA RMA 3...............................................         0.86
  FHFA RMA 4...............................................         1.20
  FHFA RMA 5...............................................         2.40
  FHFA RMA 6...............................................         4.80
  FHFA RMA 7...............................................        34.00
Categories for Collateralized Mortgage Obligations:
  FHFA CMO 1...............................................         0.37
  FHFA CMO 2...............................................         0.60
  FHFA CMO 3...............................................         1.60
  FHFA CMO 4...............................................         4.45
  FHFA CMO 5...............................................        13.00
  FHFA CMO 6...............................................        34.00
  FHFA CMO 7...............................................       100.00
------------------------------------------------------------------------

    (2) Exceptions. (i) A Bank may use a credit risk capital charge of 
zero for any residential mortgage asset or collateralized mortgage 
obligation, or portion thereof, guaranteed by an Enterprise as to 
payment of principal and interest, provided that, and only for so long 
as, the Enterprise receives capital support or other form of direct 
financial assistance from the United States

[[Page 414]]

government that enables the Enterprise to repay those obligations;
    (ii) A Bank may use a credit risk capital charge of zero for any 
residential mortgage asset or collateralized mortgage obligation, or any 
portion thereof, guaranteed or insured as to payment of principal and 
interest by a department or agency of the United States government that 
is backed by the full faith and credit of the United States; and
    (iii) A Bank shall provide to FHFA upon request the methodology, 
model, and any analyses used to estimate the potential future stress 
losses on its residential mortgages, residential mortgage pools, 
residential mortgage securities, and collateralized mortgage 
obligations, and to determine a stress loss percentage for each such 
asset. FHFA may direct a Bank to promptly revise its methodology or 
model to address any deficiencies identified by FHFA.
    (h) 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 an FHFA-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 
by the following Table 5 to this section, subject to the exceptions in 
paragraph (h)(2) of this section.

   Table 5 to Sec. 1277.4--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 Table 5 to this section would otherwise apply credit conversion 
factors of 50 percent or 20 percent, respectively, if the commitments 
are unconditionally cancelable, or effectively provide for automatic 
cancellation due to the deterioration in a borrower's creditworthiness, 
at any time by the Bank without prior notice.
    (i) Calculation of credit exposures for derivative contracts--(1) 
Current credit exposure--(i) Single derivative contract. The current 
credit exposure for derivative contracts that are not subject to an 
eligible master netting agreement shall be:
    (A) If the mark-to-market value of the contract is positive, the 
mark-to-market value of the contract; or
    (B) If the mark-to-market value of the contract is zero or negative, 
zero.
    (ii) Derivative contracts subject to an eligible master netting 
agreement. The current credit exposure for multiple uncleared derivative 
contracts executed with a single counterparty and subject to an eligible 
master netting agreement shall be calculated on a net basis and shall 
equal:
    (A) The net sum of all positive and negative mark-to-market values 
of the individual derivative contracts subject to the eligible master 
netting agreement, if the net sum of the mark-to-market values is 
positive; or
    (B) 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 derivative contracts, including derivative contracts with a 
negative mark-to-market value, shall be calculated:
    (i) Using an internal initial margin model that meets the 
requirements of Sec.1221.8 of this chapter and is approved by FHFA for 
use by the Bank, or using an initial margin model that has been approved 
under regulations similar to Sec.1221.8 of this chapter for use by the

[[Page 415]]

Bank's counterparty to calculate initial margin for those derivative 
contracts for which the calculation is being done; or
    (ii) By applying the standardized approach in appendix A to part 
1221 of this chapter; or
    (iii) Using an initial margin model that is employed by a 
derivatives clearing organization.
    (j) Credit risk capital charge for non-mortgage assets hedged with 
credit derivatives--(1) Credit derivatives with a remaining maturity of 
one year or more. The credit risk capital charge for a non-mortgage 
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 (j)(3) or (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 a non-mortgage 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 (j)(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 non-
mortgage asset and the credit derivative provides substantial protection 
against credit losses.
    (3) Credit risk capital charge reduced to zero. The credit risk 
capital charge for a non-mortgage asset shall be zero if a credit 
derivative is used to hedge the credit risk on that asset in accordance 
with paragraph (j)(1) or (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 
non-mortgage asset, and either:
    (A) The non-mortgage asset referenced in the credit derivative is 
identical to the hedged non-mortgage asset; or
    (B) The non-mortgage asset referenced in the credit derivative is 
different from the hedged non-mortgage asset, but only if the asset 
referenced in the credit derivative and the hedged non-mortgage 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 non-
mortgage asset and has the same maturity as the hedged non-mortgage 
asset, and cross-default clauses apply; and
    (ii) The credit risk capital charge for the credit derivative 
contract calculated pursuant to paragraph (e) of this section is still 
applied.
    (4) Capital charge reduction in certain other cases. The credit risk 
capital charge for a non-mortgage asset hedged with a credit derivative 
in accordance with paragraph (j)(1) of this section shall equal the sum 
of the credit risk capital charges for the hedged and unhedged portion 
of the non-mortgage asset provided that:
    (i) The remaining maturity for the credit derivative is less than 
the remaining maturity for the hedged non-mortgage asset and either:
    (A) The non-mortgage asset referenced in the credit derivative is 
identical to the hedged non-mortgage asset; or
    (B) The non-mortgage asset referenced in the credit derivative is 
different from the hedged non-mortgage asset, but only if the asset 
referenced in the credit derivative and the hedged non-mortgage 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 non-
mortgage asset and has the same maturity as the hedged non-mortgage 
asset, and cross-default clauses apply; and
    (ii) The credit risk capital charge for the unhedged portion of the 
non-mortgage asset equals:
    (A) The credit risk capital charge for the non-mortgage asset, 
calculated as the amortized cost, or fair value, of the non-mortgage 
asset multiplied by that asset's credit risk percentage requirement 
assigned pursuant to paragraph (f)(1) of this section where the 
appropriate credit rating is that for the non-mortgage asset and the 
appropriate maturity is the remaining maturity of the non-mortgage 
asset; minus
    (B) The credit risk capital charge for the non-mortgage asset, 
calculated as the amortized cost, or fair value, of the non-mortgage 
asset multiplied by that

[[Page 416]]

asset's credit risk percentage requirement assigned pursuant to 
paragraph (f)(1) of this section where the appropriate credit rating is 
that for the non-mortgage 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 
non-mortgage asset is equal to the credit risk capital charge for the 
credit derivative, calculated in accordance with paragraph (e) of this 
section.
    (k) Frequency of calculations. Each Bank shall perform all 
calculations required by this section at least quarterly, unless 
otherwise directed by FHFA, using the advances, residential mortgages, 
residential mortgage pools, residential mortgage securities, 
collateralized mortgage obligations, non-rated assets, non-mortgage 
assets, off-balance sheet items, and derivative contracts held by the 
Bank, and, if applicable, the values of, or FHFA Credit Ratings 
categories for, such assets, off-balance sheet items, or derivative 
contracts as of the close of business of the last business day of the 
calendar period for which the credit risk capital charge is being 
calculated.



Sec.1277.5  Market risk capital requirement.

    (a) General requirement. (1) Each Bank's market risk capital 
requirement shall equal 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 FHFA.
    (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 FHFA approval of the internal cash-flow model 
and of the assumptions to be applied to the model; and
    (ii) The Bank demonstrates to FHFA 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 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, option-adjusted spreads, and shape of the yield curve,

[[Page 417]]

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 1998;
    (iii) The total number of, and specific historical observations 
identified by the Bank as, stress scenarios shall be:
    (A) Satisfactory to FHFA;
    (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 resulting from 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;
    (iii) The total number of, and specific historical observations 
identified by the Bank as, stress scenarios shall be:
    (A) Satisfactory to FHFA;
    (B) Representative of the periods of the 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 
Bank. Alternatively, the Bank may obtain independent validation by an 
outside party qualified to make such determinations. Validations shall 
be done periodically, commensurate with the risk associated with the use 
of the model, or as frequently as required by FHFA.
    (2) The results of such independent validations shall be reviewed by 
the Bank's board of directors and provided promptly to FHFA.
    (d) FHFA approval of Bank internal market-risk model or internal 
cash-flow model. (1) Each Bank shall obtain FHFA 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 FHFA.
    (2) A model and any material adjustments to such model that were 
approved by FHFA or the Federal Housing Finance Board shall be deemed to 
meet the requirements of paragraph (d)(1) of this section, unless such 
approval is revoked or amended by FHFA.
    (e) Frequency of calculations. Each Bank shall perform any 
calculations or estimates required under this section at least 
quarterly, unless otherwise directed by FHFA, using the assets, 
liabilities, and off-balance sheet items (including derivative contracts 
and options) 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 
calendar period for which the market risk capital requirement is being 
calculated.



Sec.1277.6  Operational risk capital requirement.

    (a) General requirement. Except as authorized under paragraph (b) of 
this section, each Bank's operational risk

[[Page 418]]

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 FHFA, each Bank 
may have an operational 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 operational risk capital requirement; or
    (2) The Bank obtains insurance to cover operational risk from an 
insurer acceptable to FHFA and on terms acceptable to FHFA.



Sec.1277.7  Limits on unsecured extensions of credit; reporting 
requirements.

    (a) Unsecured extensions of credit to a single counterparty. A Bank 
shall not extend unsecured credit to any single counterparty (other than 
a GSE described in and subject to the requirements of paragraph (c) of 
this section) in an amount that would exceed the limits of this 
paragraph (a). If a third-party provides an irrevocable, unconditional 
guarantee of repayment of a credit (or any part thereof), the third-
party guarantor may be considered the counterparty for purposes of 
calculating and applying the unsecured credit limits of this section 
with respect to the guaranteed portion of the transaction.
    (1) General 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 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 the following Table 1 to this section, 
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 (in each case 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 limit set forth in paragraph (a)(1) of this 
section, when applied to the marketable direct obligations of state, 
local, or tribal government units or agencies that are excluded from the 
prohibition against investments in whole mortgage loans or other types 
of whole loans, or interests in such loans, by Sec.1267.3(a)(4)(iii) 
of this chapter, shall be calculated based on the Bank's total capital 
and the internal credit rating assigned to the particular obligation, as 
determined in accordance with paragraph (a)(4) 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 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. A Bank shall determine the maximum capital exposure limit for 
each counterparty by assigning the counterparty to the appropriate FHFA 
Credit Rating category of Table 1 to this section, based upon the Bank's 
internal credit rating for that counterparty. In all cases, a Bank shall 
use the same FHFA Credit Rating category for a particular counterparty 
when determining its unsecured credit limit under this section as it 
would use under Table 2 to Sec.1277.4 for determining the risk-based 
capital

[[Page 419]]

charge for obligations issued by that counterparty under Sec.
1277.4(f).

   Table 1 to Sec. 1277.7--Maximum Limits on Unsecured Extensions of
     Credit to a Single Counter-party by FHFA Credit Rating Category
------------------------------------------------------------------------
                                                        Maximum capital
                  FHFA Credit Rating                     exposure limit
                                                          (in percent)
------------------------------------------------------------------------
FHFA 1...............................................                 15
FHFA 2...............................................                 14
FHFA 3...............................................                  9
FHFA 4...............................................                  3
FHFA 5 and Below.....................................                  1
------------------------------------------------------------------------

    (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 30 percent of 
the Bank's total capital.
    (2) Relation to individual limits. The aggregate limits calculated 
under paragraph (b)(1) of this section 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 certain GSEs. Unsecured extensions of credit 
by a Bank that arise from the Bank's on- and off-balance sheet and 
derivative transactions, including from the purchase of any debt or 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, with a GSE that 
is operating with capital support or another form of direct financial 
assistance from the United States government that enables the GSE to 
repay those obligations, shall not exceed the Bank's total capital.
    (d) Extensions of unsecured credit after reduced rating. If a Bank 
revises its internal credit rating for any counterparty or obligation, 
it shall assign the counterparty or obligation to the appropriate FHFA 
Credit Rating category based on the revised rating. If the revised 
internal rating results in a lower FHFA Credit Rating category, then any 
subsequent extensions of unsecured credit shall comply with the maximum 
capital exposure limit applicable to that lower rating category, but a 
Bank need not unwind or liquidate any existing transaction or position 
that complied with the limits of this section at the time it was 
entered. For purposes of this paragraph (d), 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 a subsequent 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 FHFA 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 (in 
each case as defined by the 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 FHFA 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 FHFA any extension of unsecured credit that exceeds any 
limit set forth in paragraph (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

[[Page 420]]

the limit, and a brief explanation of the circumstances that 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 (other than a derivative 
transaction addressed by paragraph (f)(1)(iii) of this section), an 
amount equal to the sum of the amortized cost of the item plus net 
payments due the Bank. For any such item carried at fair value where any 
change in fair value would be recognized in the Bank's income, the Bank 
shall measure the unsecured extension of credit based on the fair value 
of the item, rather than its amortized cost;
    (ii) For off-balance sheet transactions, an amount equal to the 
credit equivalent amount of such item, calculated in accordance with 
Sec.1277.4(h); and
    (iii) For derivative transactions not cleared by a derivatives 
clearing organization, an amount equal to the sum of:
    (A) The Bank's current and potential future credit exposures under 
the derivative contract, where those values are calculated in accordance 
with Sec.1277.4(i)(1) and (2) respectively, reduced by the amount of 
any collateral held by or on behalf of the Bank against the credit 
exposure from the derivative contract, as allowed in accordance with the 
requirements of Sec.1277.4(e)(2) and (3); and
    (B) The value of any collateral posted by the Bank that exceeds the 
current amount owed by the Bank to its counterparty under the derivative 
contract, where the collateral is held by a person or entity other than 
a third-party custodian that is acting under a custody agreement that 
meets the requirements of Sec.1221.7(c) and (d) of this chapter.
    (2) Status of debt obligations purchased by the Bank. Any debt 
obligation or debt security (other than mortgage-backed or other asset-
backed securities or acquired member assets) purchased by a Bank shall 
be considered an unsecured extension of credit for the purposes of this 
section, except for:
    (i) Any amount owed the Bank against which the Bank holds collateral 
in accordance with Sec.1277.4(f)(2)(ii); or
    (ii) Any amount which FHFA has determined on a case-by-case basis 
shall not be considered an unsecured extension of credit.
    (g) Exceptions to unsecured credit limits. The following items are 
not subject to the limits of this section:
    (1) Obligations of, or guaranteed by, the United States;
    (2) A derivative transaction accepted for clearing by a derivatives 
clearing organization, including collateral posted by the Bank with the 
derivatives clearing organization associated with that derivative 
transaction;
    (3) Any extension of credit from one Bank to another Bank; and
    (4) A bond issued by a state housing finance agency, if the Bank 
documents that the obligation in question is:
    (i) Principally secured by high quality mortgage loans or high 
quality mortgage-backed securities (or funds derived from payments on 
such assets or from payments from any guarantees or insurance associated 
with such assets);
    (ii) The most senior class of obligation, if the bond has more than 
one class; and
    (iii) Determined by the Bank to be rated no lower than FHFA 2, in 
accordance with this section.



Sec.1277.8  Reporting requirements.

    Each Bank shall report information related to capital and other 
matters addressed by this part in accordance with instructions provided 
in the Data Reporting Manual issued by FHFA, as amended from time to 
time.



                      Subpart C_Bank Capital Stock



Sec.1277.20  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

[[Page 421]]

    (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.
    (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.1277.21  Issuance of capital stock.

    A Bank may issue either one or both classes of its capital stock 
(including subclasses), as authorized by Sec.1277.20, and shall not 
issue any other class of capital stock. A Bank shall issue its stock 
only to its members, or to former members to the extent those 
institutions are required to maintain a minimum stock investment for 
existing activities under the capital plan, and only in book-entry form. 
The Bank shall act as its own transfer agent. All capital stock shall be 
issued in accordance with the Bank's capital plan.



Sec.1277.22  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 
regulatory 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 shall require each member and former member to 
maintain its minimum investment for as long as the institution engages 
in any activity with the Bank for which the capital plan requires the 
institution to maintain capital stock.
    (b) A Bank may establish the minimum investment as a percentage of 
the total assets of an institution, as a percentage of the advances 
outstanding to that institution, as a percentage of any other business 
activity conducted with the institution, on any other basis that is 
approved by the Director, or any combination thereof.
    (c) A Bank may require that the minimum investment requirement be 
satisfied 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 to the extent the requirement is met through 
investment in Class B stock than if the requirement is met through 
investment in Class A stock, provided that such reduced investment 
provides sufficient capital for the Bank to remain in compliance with 
its regulatory capital requirements.
    (d) Each member, or if applicable, former 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 
under the Bank's capital plan.



Sec.1277.23  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

[[Page 422]]

the Bank with a notice of intent to withdraw from membership, or a 
former member shall be entitled to receive any dividends that a Bank 
declares on its capital stock while such institution 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 regulatory capital requirements, nor 
shall a Bank that is not in compliance with any of its regulatory 
capital requirements declare or pay any dividend on its capital stock.



Sec.1277.24  Liquidation, merger, or consolidation.

    The respective rights of the Class A and Class B stockholders, in 
the event that the Bank is liquidated, merged, or otherwise consolidated 
with another Bank, shall be determined in accordance with the capital 
plan of the Bank, provided, however, that nothing in the capital plan 
shall be construed to limit any rights or authority granted FHFA under 
the Bank Act or the Safety and Soundness Act to issue any regulation or 
order or to take any other action that may affect or otherwise alter the 
rights or privileges of stock holders in a liquidation, merger, or 
consolidation of a Bank.



Sec.1277.25  Transfer of capital stock.

    A Bank in its capital plan may allow a member or former member to 
transfer any excess stock to a 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 that the 
transfer be approved by the Bank before such transfer can occur.



Sec.1277.26  Redemption and repurchase of capital stock.

    (a) Redemption. (1) A member or former member may have its stock in 
a Bank redeemed by providing written notice to the Bank in accordance 
with this section. A member or former member shall provide six-months 
written notice for Class A stock and five-years written notice for Class 
B stock. The notice shall indicate the number of shares of Bank stock 
that are to be redeemed. No more than one notice of redemption may be 
outstanding at one time for the same shares of Bank stock. At the 
expiration of the applicable notice period, the Bank shall pay to the 
member or other institution holding the stock the stated par value of 
that stock in cash.
    (2) 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) with respect to any cancellation of a pending notice of 
redemption. 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.
    (3) A Bank 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 excess stock in accordance 
with the capital plan of that Bank. A Bank undertaking such a stock 
repurchase at its own initiative shall provide 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 in cash. A member's submission of a notice of intent to 
withdraw from membership, or its

[[Page 423]]

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 its regulatory capital requirements, or if the member or former 
member would fail to maintain its minimum investment in the stock of the 
Bank, as required by Sec.1277.22.



Sec.1277.27  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 Director if the 
Director 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 currently in compliance with 
its regulatory capital requirements, and shall remain in effect for 
however long the Bank continues to incur such charges or until the 
Director 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 regulatory 
capital requirements, would prevent the Bank from maintaining adequate 
capital against a potential risk that may not be adequately reflected in 
its regulatory capital requirements, or would otherwise prevent the Bank 
from operating in a safe and sound manner. A Bank shall notify the 
Director in writing within two business days of the date of the decision 
to suspend the redemption of stock, providing the reasons for the 
suspension and the Bank's strategies and time frames for addressing the 
conditions that led to the suspension. The Director may require the Bank 
to re-institute the redemption of stock. A Bank shall not repurchase any 
stock without the written permission of the Director during any period 
in which the Bank has suspended redemption of stock under this 
paragraph.



                      Subpart D_Bank Capital Plans



Sec.1277.28  Bank capital plans.

    Each Bank shall have in place a capital plan approved by the Bank's 
board of directors and the Director. The capital plan shall include, at 
a minimum, provisions addressing the following matters:
    (a) Minimum investment. (1) The capital plan shall require each 
member, and if applicable each former member, to purchase and maintain a 
minimum investment in the capital stock of the Bank and prescribe the 
manner for calculating the minimum investment, in accordance with Sec.
1277.22.
    (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 to obtain advances from, or to 
engage in other business transactions with, the Bank. If a Bank requires 
that the minimum investment be satisfied 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 option of satisfying the minimum investment through the 
purchase of any such combination of stock.
    (3) 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 outstanding stock remains sufficient for the Bank to comply 
with its regulatory capital requirements. The plan shall require each 
member or, where required by the plan, former member, to comply promptly 
with any adjusted minimum investment established by the board of 
directors of the Bank, but may allow a reasonable time to do so and may 
allow a reduction in 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

[[Page 424]]

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.1261.6 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 regulatory capital requirement or if 
after paying the dividend it would not be in compliance with any 
regulatory capital requirement.
    (d) 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:
    (1) Shall provide that the Bank may not issue stock other than in 
accordance with Sec.1277.21;
    (2) Shall provide that the stock of the Bank may be issued only to 
and held only by the members of that Bank, and by former members to the 
extent necessary to meet requirements set forth in a capital plan;
    (3) Shall specify whether the stock of the Bank may be transferred, 
as allowed under Sec.1277.25, and, if such transfer is allowed, shall 
specify the procedures to effect such transfer, and provide that the 
transfer shall be undertaken only in accordance with Sec.1277.25;
    (4) Shall specify that the stock of the Bank may be traded only 
among the Bank and its members, and former members;
    (5) May provide for a minimum investment based on investment in 
Class B stock that is lower than a minimum investment based on 
investment in 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 upon cancellation 
of a request to redeem Bank stock or upon cancellation of a request to 
withdraw from membership; and
    (7) Shall specify the period of notice that the Bank will provide 
before the Bank, on its own initiative, determines to repurchase any 
excess Bank stock.
    (e) 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 such 
institutions, including claims resulting from prepayment of advances 
prior to their stated maturity.



Sec.1277.29  Amendments to a Bank's capital plan.

    (a) In general. A Bank's board of directors shall approve any 
amendments to the Bank's capital plan and submit such amendment to the 
Director for approval. No such amendment may take effect until it has 
been approved by the Director.
    (b) Submission of amendments for approval. Any request for approval 
of capital plan amendments should be submitted to the Deputy Director 
for the Division of Federal Home Loan Bank Regulation and should include 
the following:
    (1) The name of the Bank making the request and the name, title, and 
contact information of the official filing the request;
    (2) The name, title and contact information of the staff member(s) 
whom FHFA may contact for additional information;
    (3) A certification by an executive officer of the Bank with 
knowledge of the facts that the representations made in the request are 
accurate and complete.

[[Page 425]]

The following form of certification may be used: ``I hereby certify that 
the statements contained in the submission are true and complete to the 
best of my knowledge. [Name and Title]'';
    (4) A written, narrative description of the proposed amendments to 
the Bank's capital plan and a discussion of the Bank's reasons for the 
proposed changes;
    (5) The amended capital plan as approved by the Bank's board of 
directors;
    (6) A version of the Bank's capital plan showing all proposed 
changes to its previously approved capital plan;
    (7) Resolutions of the Bank's board of directors:
    (i) Approving the proposed capital plan amendments; and
    (ii) Authorizing the filing of the application for approval of the 
amendments and concurring in substance with the supporting documentation 
provided;
    (8) An opinion of counsel demonstrating that the proposed amendments 
comply with the Bank Act, FHFA regulations and any other applicable law 
or regulation. If the amendments would be identical in substance to 
provisions approved for other Banks' capital plans, a Bank's legal 
analysis may reference the other capital plans that contain the 
provisions in question;
    (9) An analysis of the effect of the proposed amendments, if any, on 
the Bank's capital levels and the Bank's ability to meet its regulatory 
capital requirements;
    (10) Pro forma financial statements from the end of the quarter 
immediately prior to the date of submission of the request for approval 
through at least the end of the next two years, showing the impact of 
the proposed changes, if any, on capital levels; and
    (11) A discussion of and an explanation for changes to the Bank's 
strategic plan, if any, which may be related to the capital plan 
amendments.
    (c) FHFA consideration of the amendment. The Director may approve 
any amendment to a Bank's capital plan as submitted or may condition 
approval on the Bank's compliance with certain stated conditions.



PART 1278_VOLUNTARY MERGERS OF FEDERAL HOME LOAN BANKS--
Table of Contents



Sec.
1278.1 Definitions.
1278.2 Authority.
1278.3 Merger agreement.
1278.4 Merger application.
1278.5 Approval by Director.
1278.6 Ratification by Bank members.
1278.7 Consummation of the merger.

    Authority: 12 U.S.C. 1432(a), 1446, 4511.

    Source: 76 FR 72833, Nov. 28, 2011, unless otherwise noted.



Sec.1278.1  Definitions.

    Constituent Bank means a Bank that is proposing to merge with one or 
more other Banks. Each Bank entering into a merger is a Constituent 
Bank, regardless of whether it is also a Continuing Bank.
    Continuing Bank means a Bank that will exist as the result of a 
merger of two or more Constituent Banks, and when used in the singular 
shall include the plural.
    Disclosure Statement means a written document that contains, to the 
extent applicable, all of the items that a Bank would be required to 
include in a Form S-4 Registration Statement under the Securities Act of 
1933 (or any successor form promulgated by the United States Securities 
and Exchange Commission governing disclosure required for securities 
issued in business combination transactions) when prepared as a 
prospectus as directed in Part I of the form, if the Bank were required 
to provide such a prospectus to its shareholders in connection with a 
merger.
    Effective Date means the date on which the organization certificate 
of the Continuing Bank becomes effective as provided under Sec.1278.7.
    Financial Statements means statements of condition, income, capital, 
and cash flows, with explanatory notes, in such form as the Banks are 
required to include in their filings made under the Securities and 
Exchange Act of 1934.
    Merge or Merger means:
    (1) A merger of one or more Banks into another Bank;
    (2) A consolidation of two or more Banks resulting in a new Bank;

[[Page 426]]

    (3) A purchase of substantially all of the assets, and assumption of 
substantially all of the liabilities, of one or more Banks by another 
Bank or Banks; or
    (4) Any other business combination of two or more Banks into one or 
more resulting Banks.
    Record Date means the date established by a Bank's board of 
directors for determining the members that are entitled to vote on the 
ratification of the merger agreement and the number of ballots that may 
be cast by each in the election.

[76 FR 72833, Nov. 28, 2011, as amended at 78 FR 2328, Jan. 11, 2013; 81 
FR 76300, Nov. 2, 2016]



Sec.1278.2  Authority.

    Any two or more Banks may merge voluntarily under authority of 
section 26(b) of the Bank Act, provided that each of the following 
requirements has been satisfied:
    (a) The Constituent Banks have executed a written merger agreement 
that satisfies all requirements of Sec.1278.3;
    (b) The Constituent Banks have jointly filed a merger application 
with FHFA that satisfies all requirements of Sec.1278.4;
    (c) The Director has approved the merger application in accordance 
with the requirements of Sec.1278.5;
    (d) The members of each Constituent Bank have ratified the merger 
agreement as provided under Sec.1278.6; and
    (e) The Director has determined that the Constituent Banks have 
satisfied all conditions imposed in connection with the approval of the 
merger application, and has accepted the properly executed organization 
certificate of the Continuing Bank, as provided under Sec.1278.7.



Sec.1278.3  Merger agreement.

    A merger of Banks under the authority of Sec.1278.2 shall require 
a written merger agreement that:
    (a) Has been authorized by the affirmative vote of a majority of a 
quorum of the board of directors of each Constituent Bank at a meeting 
on the record and has been executed by authorized signing officers of 
each Constituent Bank; and
    (b) Sets forth all material terms and conditions of the merger, 
including, without limitation, provisions addressing each of the 
following matters--
    (1) The proposed Effective Date and the proposed acquisition date 
for purposes of accounting for the transaction under GAAP, if that date 
is to be different from the Effective Date;
    (2) The proposed organization certificate and bylaws of the 
Continuing Bank;
    (3) The proposed capital structure plan for the Continuing Bank;
    (4) The proposed size and structure of the board of directors for 
the Continuing Bank;
    (5) The formula to be used to exchange the stock of the Constituent 
Banks for the stock of the Continuing Bank, and a provision prohibiting 
the issuance of fractional shares of stock;
    (6) Any conditions that must be satisfied prior to the Effective 
Date, which must include approval by the Director and ratification by 
the members of the Constituent Banks;
    (7) A statement of the representations or warranties, if any, made 
or to be made by any Constituent Bank;
    (8) A description of the legal or accounting opinions or rulings, if 
any, that are required to be obtained or furnished by any party in 
connection with the proposed merger; and
    (9) A statement that the board of directors of a Constituent Bank 
may terminate the merger agreement before the Effective Date upon a 
determination that:
    (i) The information disclosed to members contained material errors 
or omissions;
    (ii) Material misrepresentations were made to members regarding the 
impact of the merger;
    (iii) Fraudulent activities were used to obtain members' approval; 
or
    (iv) An event occurred subsequent to the members' vote that would 
have a significant adverse impact on the future viability of the 
Continuing Bank.



Sec.1278.4  Merger application.

    (a) Contents of application. Any two or more Banks that wish to 
merge shall submit to FHFA a merger application that addresses all 
material aspects of the proposed merger. As provided in

[[Page 427]]

Sec.1202.8 of this chapter, a Bank may submit separately any portions 
of the application that it believes contain confidential or privileged 
trade secrets or commercial or financial information, which portions 
will be handled in accordance with FHFA's Freedom of Information Act 
regulations set forth in part 1202 of this chapter. The application 
shall include, at a minimum, the following:
    (1) A written statement that includes--
    (i) A summary of the material features of the proposed merger;
    (ii) The reasons for the proposed merger;
    (iii) The effect of the proposed merger on the Constituent Banks and 
their members;
    (iv) The proposed Effective Date, the proposed acquisition date for 
purposes of accounting for the transaction under GAAP, if that date is 
to be different from the Effective Date (including the reasons for 
designating a different acquisition date), and the Record Date 
established by each Constituent Bank's board of directors;
    (v) If the Constituent Banks contemplate that the proposed merger 
will be one of two or more related transactions, a summary of the 
material features of any related transactions and the bearing that the 
consummation of, or failure to consummate, the related transactions is 
expected to have upon the proposed merger;
    (vi) If not addressed by the merger agreement, the Banks' proposal 
for the ultimate size and composition of the board of directors for the 
Continuing Bank and their plan for reducing the board to its ultimate 
size and composition, as well as the names of the persons proposed to 
serve as directors and senior executive officers of the Continuing Bank 
immediately after the merger;
    (vii) A description of all proposed material operational changes 
including, but not limited to, reductions in the existing staffs of the 
Constituent Banks (to the extent such information is known), whether and 
how Bank operations will be combined, and whether any Constituent Bank 
will continue to operate as a branch of the Continuing Bank;
    (viii) Information demonstrating that the Continuing Bank will 
comply with all applicable capital requirements after the Effective 
Date;
    (ix) A statement explaining all officer and director indemnification 
provisions; and
    (x) An undertaking that the Constituent Banks will continue to 
disclose all material information, and update all items of the 
application, as appropriate;
    (2) A copy of the executed merger agreement and a certified copy of 
the resolution of the board of directors of each Constituent Bank 
authorizing the merger agreement;
    (3) A copy of the proposed organization certificate of the 
Continuing Bank;
    (4) A copy of the proposed bylaws of the Continuing Bank;
    (5) A copy of the proposed capital structure plan of the Continuing 
Bank;
    (6) The most recent annual audited Financial Statements, and any 
interim quarterly financial statements for the year-to-date, for each 
Constituent Bank; and
    (7) Pro forma Financial Statements for the Continuing Bank as of the 
date of the most recent statement of condition supplied under paragraph 
(a)(6) of this section, and forecasted pro forma Financial Statements 
for each of at least two years following such date.
    (b) Additional information. FHFA may require the Constituent Banks 
to submit any additional information FHFA deems necessary to evaluate 
the proposed merger. If FHFA has determined a merger application to be 
complete as provided in paragraph (c) of this section, FHFA may require 
the Constituent Banks to submit additional information only with respect 
to matters derived from or prompted by the materials already submitted, 
or matters of a material nature that were not reasonably apparent 
previously, including matters concealed by the Constituent Banks or 
relating to developments that arose after the determination of 
completeness. If the Constituent Banks fail to provide the additional 
information in a timely manner, the Director may deem the failure to 
provide the required information as grounds to deny the application.

[[Page 428]]

    (c) Completion of application. Within 30 days of the receipt of a 
merger application, FHFA shall determine whether the application is 
complete and whether FHFA has all information necessary for the Director 
to evaluate the proposed merger.
    (1) If FHFA determines that the application is complete and that it 
has all information necessary to evaluate the proposed merger, it shall 
so inform the Constituent Banks in writing.
    (2) If FHFA determines that the application is incomplete, or that 
it requires additional information in order to evaluate the application, 
it shall so inform the Constituent Banks in writing, and shall specify 
the number of days within which the Constituent Banks must provide any 
additional information or materials. Within 15 days of receipt of the 
additional information or materials, FHFA shall inform the Constituent 
Banks in writing whether the merger application is complete.



Sec.1278.5  Approval by Director.

    (a) Standards. In determining whether to approve a merger of Banks 
under the authority of Sec.1278.2, the Director shall take into 
consideration the financial and managerial resources of the Constituent 
Banks, the future prospects of the Continuing Bank, and the effect of 
the proposed merger on the safety and soundness of the Continuing Bank 
and the Bank system.
    (b) Determination by Director. After FHFA determines that a merger 
application is complete, as provided in Sec.1278.4(c), the Director 
shall, within 30 days, either approve or deny the merger application. An 
approval of a merger application may include any conditions the Director 
determines to be appropriate, and shall in all cases be conditioned on 
each Constituent Bank demonstrating that it has obtained its members' 
ratification of the merger agreement in accordance with the requirements 
of Sec.1278.6 by submitting to FHFA:
    (1) A certified copy of the members' resolution ratifying the merger 
agreement, on which the members cast their votes; and
    (2) A certification of the member vote from the Bank's corporate 
secretary or from an independent third party.
    (c) Notice. If the Director approves the merger application, FHFA 
shall provide written notice of the approval and any conditions to each 
Constituent Bank, as well as to each other Bank and the Office of 
Finance. If the Director denies the merger application, FHFA shall 
provide written notice of the denial to each Constituent Bank, as well 
as to each other Bank and the Office of Finance, and the notice to the 
Constituent Banks shall include a statement of the reasons for the 
denial.



Sec.1278.6  Ratification by Bank Members.

    (a) Requirements for member vote. No merger of Banks under the 
authority of Sec.1278.2 may be consummated unless a merger agreement 
meeting the requirements of Sec.1278.3 has been ratified by the 
affirmative vote of the members of each Constituent Bank in a voting 
process that meets the following requirements:
    (1) Notice of vote. Each Constituent Bank shall submit the 
authorized merger agreement to its members for ratification by 
delivering to each institution that was a member as of the Record Date--
    (i) A ballot that permits the member to vote for or against the 
ratification of the merger agreement, or to abstain from such vote; and
    (ii) A Disclosure Statement that establishes a closing date for the 
Bank's receipt of completed ballots that is no earlier than 30 days 
after the date that the ballot and Disclosure Statement are delivered to 
its members.
    (2) Voting rights and requirements. In the vote to ratify the merger 
agreement, each member of each Constituent Bank shall be entitled to 
cast one vote for each share of Bank stock that the member was required 
to own as of the Record Date, provided that the number of votes that any 
member may cast shall not exceed the average number of shares of Bank 
stock required to be held by all members of that Bank, calculated on a 
district-wide basis, as of the Record Date. A member must cast all of 
its votes either for or against the ratification of the merger 
agreement, or may abstain

[[Page 429]]

with respect to all of its votes. Each member's vote shall be made by 
resolution of its governing body, either authorizing the specific vote, 
or delegating to an individual the authority to vote.
    (3) Determination of result. No Constituent Bank shall review any 
ballot until after the closing date established in the Disclosure 
Statement or include in the tabulation any ballot received after the 
closing date. A Constituent Bank shall tabulate the votes cast 
immediately after the closing date. The members of a Constituent Bank 
shall be considered to have ratified a merger agreement if a majority of 
votes cast in the election have been cast in favor of the ratification 
of the merger agreement. The Constituent Bank, or the Continuing Bank, 
as appropriate, shall retain all ballots received for at least two years 
after the date of the election, and shall not disclose how any member 
voted.
    (4) Notice of result. Within 10 days of the closing date, a 
Constituent Bank shall deliver to its members, to each Constituent Bank 
with which it proposes to merge, and to FHFA a statement of--
    (i) The total number of eligible votes;
    (ii) The number of members voting in the election; and
    (iii) The total number of votes cast both for and against 
ratification of the merger agreement, as well as those that were 
eligible to be cast by members that abstained and by members who failed 
to return completed ballots.
    (b) False and misleading statements. In connection with a proposed 
merger, no Bank, nor any director, officer, or employee thereof, shall 
make any statement, written or oral, which, at the time and in the light 
of the circumstances under which it is made, is false or misleading with 
respect to any material fact, or which omits to state any material fact 
necessary in order to make the statement not false or misleading, or 
necessary to correct any earlier statement that has become false or 
misleading.



Sec.1278.7  Consummation of the merger.

    (a) Post-approval submissions. After the members of each Constituent 
Bank have voted to ratify the merger agreement, the Constituent Banks 
shall submit to FHFA:
    (1) Evidence acceptable to the Director that all conditions imposed 
in connection with the approval of the merger application under Sec.
1278.5 have been satisfied, including the items specified in Sec. Sec.
1278.5(b)(1) and (2); and
    (2) An organization certificate for the Continuing Bank, in such 
form as FHFA may specify, that has been executed by the individuals who 
will constitute the board of directors of the Continuing Bank.
    (b) Acceptance of organization certificate. Upon determining that 
all conditions have been satisfied and that the organization certificate 
meets the requirements of Sec.1278.7(a)(2), the Director shall accept 
the organization certificate of the Continuing Bank by endorsing thereon 
the date of acceptance and the Effective Date, which date shall be:
    (1) The proposed Effective Date set forth in the merger agreement 
or, if the merger agreement expresses the proposed Effective Date in 
terms of a range of dates, a date within the applicable range of dates; 
or
    (2) If the proposed Effective Date set forth in the merger agreement 
has passed, the earlier of:
    (i) The 10th business day following the date of acceptance of the 
organization certificate by the Director; or
    (ii) The last business day preceding any date specified in the 
merger agreement by which the merger agreement will terminate if the 
merger has not become effective.
    (c) Effectiveness of merger. After the Director has accepted the 
organization certificate of the Continuing Bank as provided in Sec.
1278.7(b), and as of the commencement of the Effective Date specified on 
such organization certificate:
    (1) The Continuing Bank shall become or remain a body corporate 
(depending on the type of transaction) operating under such organization 
certificate with all powers granted to a Bank under the Bank Act;
    (2) The Continuing Bank shall succeed to all rights, titles, powers, 
privileges, books, records, assets, and liabilities of the Constituent 
Banks, as provided in the merger agreement; and

[[Page 430]]

    (3) The corporate existence of any Constituent Bank that is not a 
Continuing Bank shall cease, unless otherwise provided in the merger 
agreement.
    (d) Notice. After accepting the organization certificate for the 
Continuing Bank, the Director shall provide to the Constituent Banks, 
and to each other Bank and the Office of Finance, prompt written notice 
of that fact, which shall include the date of acceptance and the 
Effective Date of the organization certificate.

[[Page 431]]



                 SUBCHAPTER E_HOUSING GOALS AND MISSION





PART 1281_FEDERAL HOME LOAN BANK HOUSING GOALS--Table of Contents



                            Subpart A_General

Sec.
1281.1 Definitions.

                         Subpart B_Housing Goals

1281.10 General.
1281.11 Bank housing goals.
1281.12 General counting requirements.
1281.13 Special counting requirements.
1281.14 Determination of compliance with housing goals; notice of 
          determination.
1281.15 Housing plans.

                    Subpart C_Reporting Requirements

1281.20 General.
1281.21 Mortgage Reports.
1281.22 Periodic reports.
1281.23 Bank data integrity.

    Authority: 12 U.S.C. 1430c.

    Source: 75 FR 81105, Dec. 27, 2010, unless otherwise noted.



                            Subpart A_General



Sec.1281.1  Definitions.

    As used in this part:
    Acquired Member Assets (AMA) program means a program that authorizes 
a Bank to hold assets acquired from or through Bank members or housing 
associates by means of either a purchase or funding transaction, subject 
to the requirements of parts 1268 and 1272 of this chapter.
    AMA-approved mortgage means a mortgage that meets the requirements 
of an AMA program at part 1268 of this chapter, which program has been 
approved to be implemented under part 1272 of this chapter.
    Balloon mortgage means a mortgage providing for payments at regular 
intervals, with a final payment (balloon payment) that is at least 5 
percent more than the periodic payments. The periodic payments may cover 
some or all of the periodic principal or interest. Typically, the 
periodic payments are level monthly payments that would fully amortize 
the mortgage over a stated term and the balloon payment is a single 
payment due after a specific period (but before the mortgage would fully 
amortize) and pays off or satisfies the outstanding balance of the 
mortgage.
    Borrower income means the total gross income relied on in making the 
credit decision.
    Conforming mortgage means, with respect to a Bank, a conventional 
AMA-approved single-family mortgage having an original principal 
obligation that does not exceed the dollar limitation in effect at the 
time of such origination and applicable to such mortgage under 12 CFR 
955.2(a)(1)(i) and 12 U.S.C. 1717(b)(2), as these sections may be 
amended.
    Conventional mortgage means a mortgage other than a mortgage as to 
which a Bank has the benefit of any guaranty, insurance or other 
obligation by the United States or any of its agencies or 
instrumentalities.
    Day means a calendar day.
    Designated disaster area means any census tract that is located in a 
county designated by the federal government as adversely affected by a 
declared major disaster administered by FEMA, where individual 
assistance payments were authorized by FEMA. A census tract shall be 
treated as a ``designated disaster area'' for purposes of this part 
beginning on the January 1 after the FEMA designation of the county, or 
such earlier date as determined by FHFA, and continuing through December 
31 of the third full calendar year following the FEMA designation. This 
time period may be adjusted for a particular disaster area by notice 
from FHFA to the Banks.
    Dwelling unit means a room or unified combination of rooms intended 
for use, in whole or in part, as a dwelling by one or more persons, and 
includes a dwelling unit in a single-family property, multifamily 
property, or other residential or mixed-use property.
    Families in low-income areas means:
    (1) Any family that resides in a census tract or block numbering 
area in which the median income does not exceed 80 percent of the area 
median income;

[[Page 432]]

    (2) Any family with an income that does not exceed area median 
income that resides in a minority census tract; and
    (3) Any family with an income that does not exceed area median 
income that resides in a designated disaster area.
    Family means one or more individuals who occupy the same dwelling 
unit.
    FEMA means the Federal Emergency Management Agency.
    HMDA means the Home Mortgage Disclosure Act of 1975 (12 U.S.C. 2801, 
et seq.), as amended.
    HOEPA mortgage means a mortgage covered by section 103(aa) of the 
Truth in Lending Act (15 U.S.C. 1602(aa)), as amended by the Home 
Ownership Equity Protection Act (HOEPA), as implemented by the Board of 
Governors of the Federal Reserve System.
    HUD means the United States Department of Housing and Urban 
Development.
    Low-income means income not in excess of 80 percent of area median 
income.
    Median income means, with respect to an area, the unadjusted median 
family income for the area as most recently determined by HUD. FHFA will 
provide the Banks annually with information specifying how the median 
family income estimates for metropolitan areas are to be applied for the 
purposes of determining median family income.
    Metropolitan area means a metropolitan statistical area (MSA), or a 
portion of such an area, including Metropolitan Divisions, for which 
median family income estimates are determined by HUD.
    Minority means any individual who is included within any one or more 
of the following racial and ethnic categories:
    (1) American Indian or Alaskan Native--a person having origins in 
any of the original peoples of North and South America (including 
Central America), and who maintains tribal affiliation or community 
attachment;
    (2) Asian--a person having origins in any of the original peoples of 
the Far East, Southeast Asia, or the Indian subcontinent, including, for 
example, Cambodia, China, India, Japan, Korea, Malaysia, Pakistan, the 
Philippine Islands, Thailand, and Vietnam;
    (3) Black or African American--a person having origins in any of the 
black racial groups of Africa;
    (4) Hispanic or Latino--a person of Cuban, Mexican, Puerto Rican, 
South or Central American, or other Spanish culture or origin, 
regardless of race; and
    (5) Native Hawaiian or Other Pacific Islander--a person having 
origins in any of the original peoples of Hawaii, Guam, Samoa, or other 
Pacific Islands.
    Minority census tract means a census tract that has a minority 
population of at least 30 percent and a median income of less than 100 
percent of the area median income.
    Moderate-income means income not in excess of area median income.
    Mortgage means a member of such classes of liens, including 
subordinate 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, together with 
the credit instruments, if any, secured thereby, and includes interests 
in mortgages. ``Mortgage'' includes a mortgage, lien, including a 
subordinate lien, or other security interest on the stock or membership 
certificate issued to a tenant-stockholder or resident-member by a 
cooperative housing corporation, as defined in section 216 of the 
Internal Revenue Code of 1986, and on the proprietary lease, occupancy 
agreement, or right of tenancy in the dwelling unit of the tenant-
stockholder or resident-member in such cooperative housing corporation.
    Mortgage data means data obtained by the Director from the Bank or 
Banks under this part and/or the Data Reporting Manual.
    Mortgage purchase means a transaction in which a Bank bought or 
otherwise acquired a mortgage.
    Mortgage with unacceptable terms or conditions means a single-family 
mortgage, including a reverse mortgage, or a group or category of such 
mortgages, with one or more of the following terms or conditions:
    (1) Excessive fees, where the total points and fees charged to a 
borrower exceed the greater of 5 percent of the loan amount or a maximum 
dollar amount of $1,000, or an alternative

[[Page 433]]

amount requested by a Bank and determined by the Director as appropriate 
for small mortgages;
    (i) For purposes of this definition, points and fees include:
    (A) Origination fees;
    (B) Underwriting fees;
    (C) Broker fees;
    (D) Finder's fees; and
    (E) Charges that the member imposes as a condition of making the 
loan, whether they are paid to the member or a third party;
    (ii) For purposes of this definition, points and fees do not 
include:
    (A) Bona fide discount points;
    (B) Fees paid for actual services rendered in connection with the 
origination of the mortgage, such as attorneys' fees, notary's fees, and 
fees paid for property appraisals, credit reports, surveys, title 
examinations and extracts, flood and tax certifications, and home 
inspections;
    (C) The cost of mortgage insurance or credit-risk price adjustments;
    (D) The costs of title, hazard, and flood insurance policies;
    (E) State and local transfer taxes or fees;
    (F) Escrow deposits for the future payment of taxes and insurance 
premiums; and
    (G) Other miscellaneous fees and charges that, in total, do not 
exceed 0.25 percent of the loan amount;
    (2) An annual percentage rate that exceeds by more than 8 percentage 
points the yield on Treasury securities with comparable maturities as of 
the fifteenth day of the month immediately preceding the month in which 
the application for the extension of credit was received;
    (3) Prepayment penalties, except where:
    (i) The mortgage provides some benefit to the borrower in exchange 
for the prepayment penalty (e.g., a rate or fee reduction for accepting 
the prepayment premium);
    (ii) The borrower is offered the choice of another mortgage that 
does not contain payment of such a premium;
    (iii) The terms of the mortgage provision containing the prepayment 
penalty are adequately disclosed to the borrower; and
    (iv) The prepayment penalty is not charged when the mortgage debt is 
accelerated as the result of the borrower's default in making his or her 
mortgage payments;
    (4) The sale or financing of prepaid single-premium credit life 
insurance products in connection with the origination of the mortgage;
    (5) Underwriting practices contrary to the Interagency Guidance on 
Nontraditional Mortgage Product Risks (71 FR 58609) (Oct. 4, 2006), the 
Interagency Statement on Subprime Mortgage Lending (72 FR 37569) (July 
10, 2007), or similar guidance subsequently issued by federal banking 
agencies;
    (6) Failure to comply with fair lending requirements; or
    (7) Other terms or conditions that are determined by the Director to 
be an unacceptable term or condition of a mortgage.
    Non-metropolitan area means a county, or a portion of a county, 
including those counties that comprise Micropolitan Statistical Areas, 
located outside any metropolitan area for which median family income 
estimates are published annually by HUD.
    Owner-occupied housing means single-family housing in which a 
mortgagor resides, including two- to four-unit owner-occupied properties 
where one or more units are used for rental purposes.
    Purchase money mortgage means a mortgage given to secure a loan used 
for the purchase of a single-family residential property.
    Refinancing mortgage means a mortgage undertaken by a borrower that 
satisfies or replaces an existing mortgage of such borrower. The term 
does not include:
    (1) A renewal of a single payment obligation with no change in the 
original terms;
    (2) A reduction in the annual percentage rate of the mortgage as 
computed under the Truth in Lending Act, with a corresponding change in 
the payment schedule;
    (3) An agreement involving a court proceeding;
    (4) A workout agreement, in which a change in the payment schedule 
or collateral requirements is agreed to as a

[[Page 434]]

result of the mortgagor's default or delinquency, unless the rate is 
increased or the new amount financed exceeds the unpaid balance plus 
earned finance charges and premiums for the continuation of insurance;
    (5) The renewal of optional insurance purchased by the mortgagor and 
added to an existing mortgage; or
    (6) A conversion of a balloon mortgage note on a single-family 
property to a fully amortizing mortgage note where the Bank already owns 
or has an interest in the balloon note at the time of the conversion.
    Residence means a property where one or more families reside.
    Residential mortgage means a mortgage on single-family housing.
    Seasoned mortgage means a mortgage on which the date of the mortgage 
note is more than one year before the Bank purchased the mortgage.
    Second mortgage means any mortgage that has a lien position 
subordinate only to the lien of the first mortgage.
    Secondary residence means a dwelling where the mortgagor maintains 
(or will maintain) a part-time place of abode and typically spends (or 
will spend) less than the majority of the calendar year. A person may 
have more than one secondary residence at a time.
    Single-family housing means a residence consisting of one to four 
dwelling units. Single-family housing includes condominium dwelling 
units and dwelling units in cooperative housing projects.
    Very low-income means income not in excess of 50 percent of area 
median income.

[75 FR 81105, Dec. 27, 2010, as amended at 78 FR 2328, Jan. 11, 2013; 81 
FR 76300, Nov. 2, 2016; 81 FR 91690, Dec. 19, 2016]



                         Subpart B_Housing Goals



Sec.1281.10  General.

    Pursuant to the requirements of the Bank Act, as amended (12 U.S.C. 
1430c), this subpart establishes:
    (a) Three single-family owner-occupied purchase money mortgage 
housing goals, and one single-family refinancing mortgage housing goal;
    (b) A volume threshold for the application of the housing goals to a 
Bank;
    (c) Requirements for measuring performance under the housing goals; 
and
    (d) Procedures for monitoring and enforcing the housing goals.



Sec.1281.11  Bank housing goals.

    (a) Volume threshold. The housing goals established in this section 
shall apply to a Bank for a calendar year only if the unpaid principal 
balance (UPB) of the Bank's purchases of AMA-approved mortgages in that 
year exceeds $2.5 billion.
    (b) Market-based housing goals. A Bank that is subject to the 
housing goals shall be in compliance with a housing goal if its 
performance under the housing goal meets or exceeds the share of the 
market that qualifies for the housing goal. The size of the market for 
each housing goal shall be established annually by FHFA for each Bank 
district based on data reported pursuant to the Home Mortgage Disclosure 
Act for a given year. Unless otherwise adjusted by FHFA, the size of the 
market for each Bank district shall be determined based on the following 
criteria:
    (1) Only owner-occupied, conventional loans secured by property 
located in that Bank district shall be considered;
    (2) Purchase money mortgages and refinancing mortgages shall be 
counted only for the applicable housing goal or goals;
    (3) All mortgages flagged as HOEPA loans or subordinate lien loans 
shall be excluded;
    (4) All mortgages with original principal balances above the 
conforming loan limits for single unit properties for the year being 
evaluated (rounded to the nearest $1,000) shall be excluded;
    (5) All mortgages with rate spreads of 150 basis points or more 
above the applicable average prime offer rate as reported in the Home 
Mortgage Disclosure Act data shall be excluded; and
    (6) All mortgages that are missing information necessary to 
determine appropriate counting under the housing goals shall be 
excluded.
    (c) Low-income families housing goal. For a Bank that is subject to 
the housing goals, the percentage share of such Bank's total purchases 
of purchase money AMA-approved mortgages on

[[Page 435]]

owner-occupied single-family housing that consists of mortgages for low-
income families shall meet or exceed the share of such mortgages in the 
market as defined in paragraph (b) of this section.
    (d) Low-income areas housing goal. For a Bank that is subject to the 
housing goals, the percentage share of such Bank's total purchases of 
purchase money AMA-approved mortgages on owner-occupied single-family 
housing that consists of mortgages for families in low-income areas 
shall meet or exceed the share of such mortgages in the market as 
defined in paragraph (b) of this section.
    (e) Very low-income families housing goal. For a Bank that is 
subject to the housing goals, the percentage share of such Bank's total 
purchases of purchase money AMA-approved mortgages on owner-occupied 
single-family housing that consists of mortgages for very low-income 
families shall meet or exceed the share of such mortgages in the market 
as defined in paragraph (b) of this section.
    (f) Refinancing housing goal. For a Bank that is subject to the 
housing goals, the percentage share of such Bank's total purchases of 
refinancing AMA-approved mortgages on owner-occupied single-family 
housing that consists of refinancing mortgages for low-income families 
shall meet or exceed the share of such mortgages in the market as 
defined in paragraph (b) of this section.



Sec.1281.12  General counting requirements.

    (a) Calculating the numerator and denominator for the housing goals. 
Performance under each of the housing goals shall be measured using a 
fraction that is converted into a percentage. Neither the numerator nor 
the denominator shall include Bank transactions or activities that are 
not AMA-approved mortgage purchases as defined by FHFA or that are 
specifically excluded as ineligible under Sec.1281.13(b).
    (1) The numerator. The numerator of each fraction is the number of 
AMA-approved mortgage purchases of a Bank in a particular year that 
finance owner-occupied single-family properties that count toward 
achievement of a particular housing goal.
    (2) The denominator. The denominator of each fraction is the total 
number of AMA-approved mortgage purchases of a Bank in a particular year 
that finance owner-occupied, single-family properties. A separate 
denominator shall be calculated for purchase money mortgages and for 
refinancing mortgages.
    (b) Missing data or information for the housing goals. (1) When a 
Bank lacks sufficient data or information to determine whether the 
purchase of a mortgage originated after 1992 counts toward achievement 
of a particular housing goal, that mortgage purchase shall be included 
in the denominator for that housing goal and shall not be included in 
the numerator for that housing goal.
    (2) Mortgage purchases financing owner-occupied single-family 
properties shall be evaluated based on the income of the mortgagors and 
the area median income at the time the mortgage was originated. To 
determine whether mortgages may be counted under a particular family 
income level (i.e., low- or very low-income), the income of the 
mortgagors is compared to the median income for the area at the time of 
the mortgage application, using the appropriate percentage factor 
provided under Sec.1281.1.
    (c) Credit toward multiple goals. A mortgage purchase by a Bank in a 
particular year shall count toward the achievement of each housing goal 
for which such purchase qualifies in that year.
    (d) Application of median income. For purposes of determining an 
area's median income under Sec.1281.1, the area is:
    (1) The metropolitan area, if the property which is the subject of 
the mortgage is in a metropolitan area; and
    (2) In all other areas, the county in which the property is located, 
except that where the State nonmetropolitan median income is higher than 
the county's median income, the area is the State nonmetropolitan area.
    (e) Sampling not permitted. Performance under the housing goals for 
each year shall be based on a complete tabulation of mortgage purchases 
for that year; a sampling of such purchases is not acceptable.

[[Page 436]]

    (f) Newly available data. When a Bank uses data to determine whether 
a mortgage purchase counts toward achievement of any housing goal, and 
new data is released after the start of a calendar quarter, the Bank 
need not use the new data until the start of the following quarter.



Sec.1281.13  Special counting requirements.

    (a) General. FHFA shall determine whether a Bank shall receive full, 
partial, or no credit toward achievement of any of the housing goals for 
a transaction that otherwise qualifies under this part.
    (b) Not counted. The following transactions or activities shall not 
be counted for purposes of the housing goals and shall not be included 
in the numerator or the denominator in calculating a Bank's performance 
under the housing goals, even if the transaction or activity would 
otherwise be counted under paragraph (c) of this section:
    (1) Purchases of non-conventional single-family mortgages;
    (2) Commitments to buy mortgages at a later date or time;
    (3) Options to acquire mortgages;
    (4) Rights of first refusal to acquire mortgages;
    (5) Any interests in mortgages that the Director determines, in 
writing, shall not be treated as interests in mortgages;
    (6) Mortgage purchases to the extent they finance any dwelling units 
that are secondary residences;
    (7) Single-family refinancing mortgages that result from conversion 
of balloon notes to fully amortizing notes, if a Bank already owns, or 
has an interest in, the balloon note at the time conversion occurs;
    (8) Purchases of subordinate lien mortgages (second mortgages);
    (9) Purchases of mortgages that were previously counted by a Bank 
under any current or previous housing goal within the five years 
immediately preceding the current performance year;
    (10) Purchases of mortgages where the property has not been approved 
for occupancy; and
    (11) Any combination of factors in paragraphs (b)(1) through (b)(10) 
of this section.
    (c) Other special rules. Subject to FHFA's determination of whether 
a Bank shall receive full, partial, or no credit for a transaction 
toward achievement of any of the housing goals as provided in paragraph 
(a) of this section, the transactions and activities identified in this 
paragraph (c) shall be treated as mortgage purchases as described. A 
transaction or activity that is covered by more than one paragraph below 
must satisfy the requirements of each such paragraph. The mortgages from 
each such transaction or activity shall be included in the denominator 
in calculating a Bank's performance under the housing goals, and shall 
be included in the numerator, as appropriate.
    (1) Cooperative housing and condominiums. The purchase by a Bank of 
a mortgage on a cooperative housing unit (``a share loan'') or a 
mortgage on a condominium unit shall be treated as a mortgage purchase 
for purposes of the housing goals.
    (2) Seasoned mortgages. The purchase of a seasoned mortgage by a 
Bank shall be treated as a mortgage purchase for purposes of the housing 
goals, except where the Bank has already counted the mortgage under any 
current or previous housing goal within the five years immediately 
preceding the current performance year.
    (3) Purchase of refinancing mortgages. The purchase of a refinancing 
mortgage by a Bank shall be treated as a mortgage purchase for purposes 
of the housing goals only if the refinancing is an arms-length 
transaction that is borrower-driven.
    (d) HOEPA mortgages and mortgages with unacceptable terms or 
conditions. The purchase by a Bank of HOEPA mortgages and mortgages with 
unacceptable terms or conditions, as defined in Sec.1281.1, shall be 
treated as mortgage purchases for purposes of the housing goals and 
shall be included in the denominator for each applicable housing goal, 
but such mortgages shall not be counted in the numerator for any housing 
goal.
    (e) FHFA review of transactions. FHFA may determine whether and how 
any transaction or class of transactions shall be counted for purposes 
of the housing goals. FHFA will notify each

[[Page 437]]

Bank in writing of any determination regarding the treatment of any 
transaction or class of transactions under the housing goals.



Sec.1281.14  Determination of compliance with housing goals; 
notice of determination.

    (a) Determination of compliance with housing goals. On an annual 
basis, the Director shall determine whether each Bank has exceeded the 
volume threshold. For each Bank that has exceeded the volume threshold 
in a year, the Director shall determine the Bank's performance under 
each housing goal.
    (b) Failure to meet a housing goal. If the Director determines that 
a Bank has failed to meet any housing goal, the Director shall notify 
the Bank in writing of such preliminary determination. Any notification 
to a Bank of a preliminary determination under this section shall 
provide the Bank with an opportunity to respond in writing in accordance 
with the following procedures:
    (1) Notice. The Director shall provide written notice to a Bank of a 
preliminary determination under this section, the reasons for such 
determination, and the information on which the Director based the 
determination.
    (2) Response period--(i) In general. During the 30-day period 
beginning on the date on which notice is provided under paragraph (b)(1) 
of this section, the Bank may submit to the Director any written 
information that the Bank considers appropriate for consideration by the 
Director in finally determining whether such failure has occurred or 
whether the achievement of such goal was feasible.
    (ii) Extended period. The Director may extend the period under 
paragraph (b)(2)(i) of this section for good cause for not more than 30 
additional days.
    (iii) Shortened period. The Director may shorten the period under 
paragraph (b)(2)(i) of this section for good cause.
    (iv) Failure to respond. The failure of a Bank to provide 
information during the 30-day period under this paragraph (b)(2), as 
extended or shortened, shall waive any right of the Bank to comment on 
the proposed determination or action of the Director.
    (3) Consideration of information and final determination-- (i) In 
general. After the expiration of the response period under paragraph 
(b)(2) of this section or receipt of information provided during such 
period by a Bank, the Director shall issue a final determination on:
    (A) Whether the Bank has failed to meet the housing goal; and
    (B) Whether, taking into consideration market and economic 
conditions and the financial condition of the Bank, the achievement of 
the housing goal was feasible.
    (ii) Considerations. In making a final determination under paragraph 
(b)(3)(i) of this section, the Director shall take into consideration 
any relevant information submitted by a Bank during the response period.



Sec.1281.15  Housing plans.

    (a) Housing plan requirement. If the Director determines that a Bank 
has failed to meet any housing goal and that the achievement of the 
housing goal was feasible, the Director may require the Bank to submit a 
housing plan for approval by the Director.
    (b) Nature of plan. If the Director requires a housing plan, the 
housing plan shall:
    (1) Be feasible;
    (2) Be sufficiently specific to enable the Director to monitor 
compliance periodically;
    (3) Describe the specific actions that the Bank will take to achieve 
the housing goal for the next calendar year; and
    (4) Address any additional matters relevant to the plan as required, 
in writing, by the Director.
    (c) Deadline for submission. The Bank shall submit the housing plan 
to the Director within 45 days after issuance of a notice requiring the 
Bank to submit a housing plan. The Director may extend the deadline for 
submission of a plan, in writing and for a time certain, to the extent 
the Director determines an extension is necessary.
    (d) Review of housing plan. The Director shall review and approve or 
disapprove a housing plan as follows:
    (1) Approval. The Director shall review each submission by a Bank, 
including a housing plan submitted under this section and, not later 
than 30 days after submission, approve or disapprove

[[Page 438]]

the plan or other action. The Director may extend the period for 
approval or disapproval for a single additional 30-day period if the 
Director determines it necessary. The Director shall approve any plan 
that the Director determines is likely to succeed, and conforms with the 
Bank Act, this part, and any other applicable provision of law.
    (2) Notice of approval and disapproval. The Director shall provide 
written notice to a Bank submitting a housing plan of the approval or 
disapproval of the plan, which shall include the reasons for any 
disapproval of the plan, and of any extension of the period for approval 
or disapproval.
    (e) Resubmission. If the Director disapproves an initial housing 
plan submitted by a Bank, the Bank shall submit an amended plan 
acceptable to the Director not later than 15 days after the Director's 
disapproval of the initial plan; the Director may extend the deadline if 
the Director determines an extension is in the public interest. If the 
amended plan is not acceptable to the Director, the Director may afford 
the Bank 15 days to submit a new plan.
    (f) Enforcement of housing plan. If the Director finds that a Bank 
has failed to meet any housing goal, and that the achievement of the 
housing goal was feasible, and has required the Bank to submit a housing 
plan under this section, the Director may issue a cease and desist 
order, or impose civil money penalties, if the Bank refuses to submit 
such a plan, fails to submit an acceptable plan, or fails to comply with 
the approved plan. In taking such action, the Director shall follow 
procedures consistent with those provided in 12 U.S.C. 4581 through 4588 
with respect to actions to enforce the housing goals.



                    Subpart C_Reporting Requirements



Sec.1281.20  General.

    This subpart establishes data submission and reporting requirements 
to provide the Director with mortgage and other information relating to 
the Banks' performance in connection with the housing goals, as 
supplemented from time to time in the Banks' Data Reporting Manual 
(DRM).



Sec.1281.21  Mortgage Reports.

    (a) Loan-level data elements. To implement the data collection and 
submission requirements for mortgage data, and to assist the Director in 
monitoring the Banks' housing goal activities, each Bank shall collect 
and compile computerized loan-level data on each AMA-approved mortgage 
purchase, as described in the DRM. The Director may, from time to time, 
issue a list in the DRM specifying the loan-level data elements to be 
collected and maintained by the Banks and provided to the Director. The 
Director may revise the DRM list by written notice to the Banks.
    (b) Semi-annual Mortgage Reports. Each Bank shall submit to the 
Director, on a semi-annual basis, a Mortgage Report. The second semi-
annual Mortgage Report each year shall serve as the annual Mortgage 
Report and shall be designated as such. Each Mortgage Report shall 
include:
    (1) Aggregations of the loan-level mortgage data compiled by each 
Bank under paragraph (a) of this section for year-to-date AMA-approved 
mortgage purchases, in the format specified in writing by the Director;
    (2) Year-to-date dollar volume, number of units, and number of AMA-
approved mortgages on owner-occupied properties purchased by each Bank 
that do, and do not, qualify under each housing goal as set forth in 
this part; and
    (3) Year-to-date computerized loan-level data consisting of the data 
elements required under paragraph (a) of this section.
    (c) Timing of Reports. Each Bank shall submit its first semi-annual 
Mortgage Report within two calendar months of the end of the second 
quarter. Each Bank shall submit its annual Mortgage Report within two 
calendar months of the end of the calendar year.
    (d) Format. The Banks shall submit to the Director computerized 
loan-level data with the Mortgage Report, in the format specified in 
writing by the Director.

[75 FR 81105, Dec. 27, 2010, as amended at 76 FR 79051, Dec. 21, 2010]

[[Page 439]]



Sec.1281.22  Periodic reports.

    Each Bank shall provide to the Director such reports, information 
and data as the Director may request from time to time, or as may be 
supplemented in the DRM.



Sec.1281.23  Bank data integrity.

    (a) Certification. (1) The senior officer of each Bank who is 
responsible for submitting the annual Mortgage Report, or for submitting 
any other report(s), data or other information for which certification 
is requested in writing by the Director, shall certify such report(s), 
data or information.
    (2) The certification shall state as follows: ``To the best of my 
knowledge and belief, the information provided herein is true, correct 
and complete.''
    (b) Adjustment to correct errors, omissions or discrepancies. FHFA 
shall determine on an annual basis the official housing goals 
performance figures for a Bank that is subject to the housing goals. 
FHFA may resolve any error, omission or discrepancy by adjusting the 
Bank's official housing goals performance figure. If the Director 
determines that the year-end data reported by a Bank for a year 
preceding the latest year for which data on housing goals performance 
was reported to FHFA contained a material error, omission or 
discrepancy, the Director may increase the corresponding housing goal 
for the current year by the number of mortgages that the Director 
determines were overstated in the prior year's goal performance.



PART 1282_ENTERPRISE HOUSING GOALS AND MISSION--Table of Contents



                            Subpart A_General

Sec.
1282.1 Definitions.

                         Subpart B_Housing Goals

1282.11 General.
1282.12 Single-family housing goals.
1282.13 Multifamily special affordable housing goal and subgoals.
1282.14 Discretionary adjustment of housing goals.
1282.15 General counting requirements.
1282.16 Special counting requirements.
1282.17 Affordability--Income level definitions--family size and income 
          known (owner-occupied units, actual tenants, and prospective 
          tenants).
1282.18 Affordability--Income level definitions--family size not known 
          (actual or prospective tenants).
1282.19 Affordability--Rent level definitions--tenant income is not 
          known.
1282.20 Determination of compliance with housing goals; notice of 
          determination.
1282.21 Housing plans.

               Subpart C_Duty to Serve Underserved Markets

1282.31 General.
1282.32 Underserved Markets Plan.
1282.33 Manufactured housing market.
1282.34 Affordable housing preservation market.
1282.35 Rural markets.
1282.36 Evaluations, ratings, and Evaluation Guidance.
1282.37 General requirements for credit.
1282.38 General requirements for loan purchases.
1282.39 Special requirements for loan purchases.
1282.40 Failure to comply.
1282.41 Housing plans.

                    Subpart D_Reporting Requirements

1282.61 General.
1282.62 Mortgage reports.
1282.63 Annual Housing Activities Report.
1282.64 Periodic reports.
1282.65 Enterprise data integrity.
1282.66 Enterprise reports on duty to serve.f

    Authority: 12 U.S.C. 4501, 4502, 4511, 4513, 4526, 4561-4566.

    Source: 75 FR 55930, Sept. 14, 2010, unless otherwise noted.



                            Subpart A_General



Sec.1282.1  Definitions.

    (a) Statutory terms. All terms defined in the Safety and Soundness 
Act are used in accordance with their statutory meaning unless otherwise 
defined in paragraph (b) of this section.
    (b) Other terms. As used in this part, the term:
    Additional Activity, for purposes of subpart C of this part, means 
an activity in an Enterprise's Underserved Markets Plan that is not a 
Statutory Activity or Regulatory Activity.
    Agricultural worker, for purposes of subpart C of this part, means 
any person that meets the definition of an agricultural worker under a 
federal, state, tribal or local program.

[[Page 440]]

    AHAR means the Annual Housing Activities Report that an Enterprise 
submits to the Director under section 309(n) of the Fannie Mae Charter 
Act or section 307(f) of the Freddie Mac Act.
    AHAR information means data or information contained in the AHAR.
    Area of concentrated poverty, for purposes of subpart C of this 
part, means a census tract designated by HUD as a Qualified Census 
Tract, pursuant to 26 U.S.C. 42(d)(5)(B)(ii), or as a Racially- or 
Ethnically-Concentrated Area of Poverty, pursuant to 24 CFR 5.152, 
during any year covered by an Underserved Markets Plan or in the year 
prior to a Plan's effective date.
    Balloon mortgage means a mortgage providing for payments at regular 
intervals, with a final payment (``balloon payment'') that is at least 5 
percent more than the periodic payments. The periodic payments may cover 
some or all of the periodic principal or interest. Typically, the 
periodic payments are level monthly payments that would fully amortize 
the mortgage over a stated term and the balloon payment is a single 
payment due after a specified period (but before the mortgage would 
fully amortize) and pays off or satisfies the outstanding balance of the 
mortgage.
    Borrower income means the total gross income relied on in making the 
credit decision.
    Charter Act means the Fannie Mae Charter Act, as amended, or the 
Freddie Mac Act, as amended.
    Colonia, for purposes of subpart C of this part, means an 
identifiable community that meets the definition of a colonia under a 
federal, State, tribal, or local program.
    Community development financial institution, for purposes of subpart 
C of this part, has the meaning in 12 CFR 1263.1.
    Conventional mortgage means a mortgage other than a mortgage as to 
which an Enterprise has the benefit of any guaranty, insurance or other 
obligation by the United States or any of its agencies or 
instrumentalities.
    Day means a calendar day.
    Designated disaster area means any census tract that is located in a 
county designated by the federal government as adversely affected by a 
declared major disaster administered by FEMA, where individual 
assistance payments were authorized by FEMA. A census tract shall be 
treated as a ``designated disaster area'' for purposes of this part 
beginning on the January 1 after the FEMA designation of the county, or 
such earlier date as determined by FHFA, and continuing through December 
31 of the third full calendar year following the FEMA designation. This 
time period may be adjusted for a particular disaster area by notice 
from FHFA to the Enterprises.
    Dwelling unit means a room or unified combination of rooms with 
plumbing and kitchen facilities intended for use, in whole or in part, 
as a dwelling by one or more persons, and includes a dwelling unit in a 
single-family property, multifamily property, or other residential or 
mixed-use property.
    Efficiency means a dwelling unit having no separate bedrooms or 0 
bedrooms.
    Evaluation Guidance, for purposes of subpart C of this part, means 
separate FHFA-prepared guidance that includes the information required 
under this subpart, as well as additional guidance on the Underserved 
Markets Plans, how the quantitative and qualitative assessments will be 
conducted, the role of extra credit for extra-credit eligible activities 
such as residential economic diversity, how final ratings will be 
determined, and other matters as may be appropriate.
    Extremely low-income means:
    (i) In the case of owner-occupied units, income not in excess of 30 
percent of area median income; and
    (ii) In the case of rental units, income not in excess of 30 percent 
of area median income, with adjustments for smaller and larger families 
in accordance with this part.
    Families in low-income areas means:
    (i) Any family that resides in a census tract in which the median 
income does not exceed 80 percent of the area median income;
    (ii) Any family with an income that does not exceed area median 
income that resides in a minority census tract; and
    (iii) Any family with an income that does not exceed area median 
income that resides in a designated disaster area.

[[Page 441]]

    Family means one or more individuals who occupy the same dwelling 
unit.
    Fannie Mae Charter Act means the Federal National Mortgage 
Association Charter Act, as amended (12 U.S.C. 1715 et seq.).
    Federally insured credit union, for purposes of subpart C of this 
part, has the meaning in 12 U.S.C. 1752(7).
    Federally recognized Indian tribe, for purposes of subpart C of this 
part, has the meaning in 25 CFR 83.1.
    FEMA means the Federal Emergency Management Agency.
    FOIA means the Freedom of Information Act, as amended (5 U.S.C. 
552).
    Freddie Mac Act means the Federal Home Loan Mortgage Corporation 
Act, as amended (12 U.S.C. 1451 et seq.).
    High-needs rural population, for purposes of subpart C of this part, 
means any of the following populations provided the population is 
located in a rural area:
    (i) Members of a Federally recognized Indian tribe located in an 
Indian area; or
    (ii) Agricultural workers.
    High-needs rural region, for purposes of subpart C of this part, 
means any of the following regions provided the region is located in a 
rural area:
    (i) Middle Appalachia;
    (ii) The Lower Mississippi Delta;
    (iii) A colonia; or
    (iv) A tract located in a persistent poverty county and not included 
in Middle Appalachia, the Lower Mississippi Delta, or a colonia.
    High opportunity area, for purposes of subpart C of this part, 
means:
    (i) An area designated by HUD as a ``Difficult Development Area,'' 
pursuant to 26 U.S.C. 42(d)(5)(B)(iii), during any year covered by an 
Underserved Markets Plan or in the year prior to an Underserved Markets 
Plan's effective date, whose poverty rate is lower than the rate 
specified by FHFA in the Evaluation Guidance; or
    (ii) An area designated by a state or local Qualified Allocation 
Plan as a high opportunity area and which meets a definition FHFA has 
identified as eligible for duty to serve credit in the Evaluation 
Guidance.
    HOEPA mortgage means a mortgage covered by section 103(bb) of the 
Home Ownership and Equity Protection Act (HOEPA) (15 U.S.C. 1602(bb)), 
as implemented by the Bureau of Consumer Financial Protection.
    Indian area, for purposes of subpart C of this part, has the meaning 
in 24 CFR 1000.10.
    Insured depository institution, for purposes of subpart C of this 
part, means an institution whose deposits are insured under the Federal 
Deposit Insurance Act (12 U.S.C. 1811 et seq.).
    Lender means any entity that makes, originates, sells, or services 
mortgages, and includes the secured creditors named in the debt 
obligation and document creating the mortgage.
    Low-income means:
    (i) In the case of owner-occupied units, income not in excess of 80 
percent of area median income; and
    (ii) In the case of rental units, income not in excess of 80 percent 
of area median income, with adjustments for smaller and larger families 
in accordance with this part.
    Lower Mississippi Delta, for purposes of subpart C of this part, 
means the Lower Mississippi Delta counties designated by Public Laws 
100-460, 106-554, and 107-171, along with any future updates made by 
Congress.
    Manufactured home, for purposes of subpart C of this part, means a 
manufactured home as defined in section 603(6) of the National 
Manufactured Housing Construction and Safety Standards Act of 1974, as 
amended, 42 U.S.C. 5401 et seq., and implementing regulations.
    Manufactured housing community, for purposes of subpart C of this 
part, means a tract of land under unified ownership and developed for 
the purposes of providing individual rental spaces for the placement of 
manufactured homes for residential purposes within its boundaries.
    Median income means, with respect to an area, the unadjusted median 
family income for the area as determined by FHFA. FHFA will provide the 
Enterprises annually with information specifying how the median family 
income estimates for metropolitan and non-metropolitan areas are to be 
applied for purposes of determining median income.
    Metropolitan area means a metropolitan statistical area (MSA), or a 
portion

[[Page 442]]

of such an area, including Metropolitan Divisions, for which median 
incomes are determined by FHFA.
    Middle Appalachia, for purposes of subpart C of this part, means the 
``central'' Appalachian subregion under the Appalachian Regional 
Commission's subregional classification of Appalachia.
    Minority means any individual who is included within any one or more 
of the following racial and ethnic categories:
    (i) American Indian or Alaskan Native--a person having origins in 
any of the original peoples of North and South America (including 
Central America), and who maintains Tribal affiliation or community 
attachment;
    (ii) Asian--a person having origins in any of the original peoples 
of the Far East, Southeast Asia, or the Indian subcontinent, including, 
for example, Cambodia, China, India, Japan, Korea, Malaysia, Pakistan, 
the Philippine Islands, Thailand, and Vietnam;
    (iii) Black or African American--a person having origins in any of 
the black racial groups of Africa;
    (iv) Hispanic or Latino--a person of Cuban, Mexican, Puerto Rican, 
South or Central American, or other Spanish culture or origin, 
regardless of race; and
    (v) Native Hawaiian or Other Pacific Islander--a person having 
origins in any of the original peoples of Hawaii, Guam, Samoa, or other 
Pacific Islands.
    Minority census tract means a census tract that has a minority 
population of at least 30 percent and a median income of less than 100 
percent of the area median income.
    Mixed-income housing, for purposes of subpart C of this part, means 
a multifamily property or development that may include or comprise 
single-family units that serves very low-, low-, or moderate-income 
families where:
    (i) A minimum percentage of the units are unaffordable to low-income 
families, or to families at higher income levels, as specified in the 
Evaluation Guide; and
    (ii) A minimum percentage of the units are affordable to low-income 
families, or to families at lower income levels, as specified in the 
Evaluation Guide.
    Moderate-income means:
    (i) In the case of owner-occupied units, income not in excess of 
area median income; and
    (ii) In the case of rental units, income not in excess of area 
median income, with adjustments for smaller and larger families in 
accordance with this part.
    Mortgage means a member of such classes of liens, including 
subordinate 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, together with 
the credit instruments, if any, secured thereby, and includes interests 
in mortgages. ``Mortgage'' includes a mortgage, lien, including a 
subordinate lien, or other security interest on the stock or membership 
certificate issued to a tenant-stockholder or resident-member by a 
cooperative housing corporation, as defined in section 216 of the 
Internal Revenue Code of 1986, and on the proprietary lease, occupancy 
agreement, or right of tenancy in the dwelling unit of the tenant-
stockholder or resident-member in such cooperative housing corporation.
    Mortgage data means data obtained by the Director from the 
Enterprises under section 309(m) of the Fannie Mae Charter Act and 
section 307(e) of the Freddie Mac Act.
    Mortgage purchase means a transaction in which an Enterprise bought 
or otherwise acquired a mortgage or an interest in a mortgage for 
portfolio, resale, or securitization.
    Mortgage revenue bond means a tax-exempt bond or taxable bond issued 
by a State or local government or agency where the proceeds from the 
bond issue are used to finance residential housing.
    Multifamily housing means a residence consisting of more than four 
dwelling units. The term includes cooperative buildings and condominium 
projects.
    Non-metropolitan area means a county, or a portion of a county, 
including those counties that comprise Micropolitan Statistical Areas, 
located outside any metropolitan area, for which median incomes are 
determined by FHFA.
    Owner-occupied housing means single-family housing in which a 
mortgagor resides, including two- to four-unit

[[Page 443]]

owner-occupied properties where one or more units are used for rental 
purposes.
    Participation means a fractional interest in the principal amount of 
a mortgage.
    Persistent poverty county, for purposes of subpart C of this part, 
means a county in a rural area that has had 20 percent or more of its 
population living in poverty over the past 30 years, as measured by the 
most recent successive decennial censuses.
    Private label security means any mortgage-backed security that is 
neither issued nor guaranteed by Fannie Mae, Freddie Mac, Ginnie Mae, or 
any other government agency.
    Proprietary information means all mortgage data and all AHAR 
information that the Enterprises submit to the Director in the AHARs 
that contain trade secrets or privileged or confidential, commercial, or 
financial information that, if released, would be likely to cause 
substantial competitive harm.
    Public data means all mortgage data and all AHAR information that 
the Enterprises submit to the Director in the AHARs that the Director 
determines are not proprietary and may appropriately be disclosed 
consistent with other applicable laws and regulations.
    Purchase money mortgage means a mortgage given to secure a loan used 
for the purchase of a single-family residential property.
    Refinancing mortgage means a mortgage undertaken by a borrower that 
satisfies or replaces an existing mortgage of such borrower. The term 
does not include:
    (i) A renewal of a single payment obligation with no change in the 
original terms;
    (ii) A reduction in the annual percentage rate of the mortgage as 
computed under the Truth in Lending Act (15 U.S.C. 1601 et seq.), with a 
corresponding change in the payment schedule;
    (iii) An agreement involving a court proceeding;
    (iv) A workout agreement, in which a change in the payment schedule 
or collateral requirements is agreed to as a result of the mortgagor's 
default or delinquency, unless the rate is increased or the new amount 
financed exceeds the unpaid balance plus earned finance charges and 
premiums for the continuation of insurance;
    (v) The renewal of optional insurance purchased by the mortgagor and 
added to an existing mortgage;
    (vi) A renegotiated balloon mortgage on a multifamily property where 
the balloon payment was due within 1 year after the date of the closing 
of the renegotiated mortgage; and
    (vii) A conversion of a balloon mortgage note on a single-family 
property to a fully amortizing mortgage note where the Enterprise 
already owns or has an interest in the balloon note at the time of the 
conversion.
    Regulatory Activity, for purposes of subpart C of this part, means 
an activity in an Enterprise's Underserved Markets Plan that is 
designated as a Regulatory Activity in Sec. Sec.1282.33(c), 
1282.34(d), or 1282.35(c).
    Rent means the actual rent or average rent by unit size for a 
dwelling unit.
    (i) Rent is determined based on the total combined rent for all 
bedrooms in the dwelling unit, including fees or charges for management 
and maintenance services and any utility charges that are included.
    (A) Rent concessions shall not be considered, i.e., the rent is not 
decreased by any rent concessions.
    (B) Rent is net of rental subsidies, i.e., the rent is decreased by 
any rental subsidy.
    (ii) When the rent does not include all utilities, the rent shall 
also include:
    (A) The actual cost of utilities not included in the rent;
    (B) The nationwide average utility allowance, as issued periodically 
by FHFA;
    (C) The utility allowance established under the HUD Section 8 
Program (42 U.S.C. 1437f) for the area where the property is located; or
    (D) The utility allowance for the area in which the property is 
located, as established by the state or local housing finance agency for 
determining the affordability of low-income housing tax credit 
properties under section 42 of the Internal Revenue Code (26 U.S.C. 42).

[[Page 444]]

    Rental unit means a dwelling unit that is not owner-occupied and is 
rented or available to rent.
    Residence means a property where one or more families reside.
    Resident-owned manufactured housing community, for purposes of 
subpart C of this part, means a manufactured housing community for which 
the terms and conditions of residency, policies, operations and 
management are controlled by at least 51 percent of the residents, 
either directly or through an entity formed under the laws of the state.
    Residential economic diversity activity, for purposes of subpart C 
of this part, means an eligible Enterprise activity, other than an 
energy or water efficiency improvement activity or other activity that 
FHFA determines to be ineligible, in connection with mortgages on:
    (i) Affordable housing in a high opportunity area; or
    (ii) Mixed-income housing in an area of concentrated poverty.
    Residential mortgage means a mortgage on single-family or 
multifamily housing.
    Rural area, for purposes of subpart C of this part, means:
    (i) A census tract outside of a metropolitan statistical area as 
designated by the Office of Management and Budget; or
    (ii) A census tract in a metropolitan statistical area as designated 
by the Office of Management and Budget that is outside of the 
metropolitan statistical area's Urbanized Areas as designated by the 
U.S. Department of Agriculture's (USDA) Rural-Urban Commuting Area 
(RUCA) Code 1, and outside of tracts with a housing density of over 64 
housing units per square mile for USDA's RUCA Code 2.
    Seasoned mortgage means a mortgage on which the date of the mortgage 
note is more than 1 year before the Enterprise purchased the mortgage.
    Second mortgage means any mortgage that has a lien position 
subordinate only to the lien of the first mortgage.
    Secondary residence means a dwelling where the mortgagor maintains 
(or will maintain) a part-time place of abode and typically spends (or 
will spend) less than the majority of the calendar year. A person may 
have more than one secondary residence at a time.
    Single-family housing means a residence consisting of one to four 
dwelling units. Single-family housing includes condominium dwelling 
units and dwelling units in cooperative housing projects.
    Small financial institution, for purposes of subpart C of this part, 
means a financial institution with less than $304 million in assets.
    Small multifamily property means any multifamily property with at 
least 5 dwelling units but no more than 50 dwelling units.
    Small multifamily rental property, for purposes of subpart C of this 
part, means any property of 5 to 50 rental units.
    Statutory Activity, for purposes of subpart C of this part, means an 
Enterprise activity relating to housing projects under the programs set 
forth in 12 U.S.C. 4565(a)(1)(B) and Sec.1282.34(c).
    Underserved Markets Plan, for purposes of subpart C of this part, 
means a plan prepared by an Enterprise describing the activities and 
objectives it will undertake to meet its duty to serve each of the three 
underserved markets.
    Utilities means charges for electricity, piped or bottled gas, 
water, sewage disposal, fuel (oil, coal, kerosene, wood, solar energy, 
or other), and garbage and trash collection. Utilities do not include 
charges for subscription-based television, telephone, or internet 
service.
    Very low-income means:
    (i) In the case of owner-occupied units, income not in excess of 50 
percent of area median income; and
    (ii) In the case of rental units, income not in excess of 50 percent 
of area median income, with adjustments for smaller and larger families 
in accordance with this part.

[75 FR 55930, Sept. 14, 2010, as amended at 78 FR 2328, Jan. 11, 2013; 
80 FR 53430, Sept. 3, 2015; 81 FR 76300, Nov. 2, 2016; 81 FR 96292, Dec. 
29, 2016; 83 FR 5899, Feb. 12, 2018]



                         Subpart B_Housing Goals



Sec.1282.11  General.

    (a) General. Pursuant to the requirements of the Safety and 
Soundness Act

[[Page 445]]

(12 U.S.C. 4561-4564, 4566), this subpart establishes:
    (1) Three single-family owner-occupied purchase money mortgage 
housing goals, a single-family owner-occupied purchase money mortgage 
housing subgoal, a single-family refinancing mortgage housing goal, a 
multifamily special affordable housing goal, and two multifamily special 
affordable housing subgoals;
    (2) Requirements for measuring performance under the goals; and
    (3) Procedures for monitoring and enforcing the goals.
    (b) Annual goals. Each housing goal shall be established by 
regulation no later than December 1 of the preceding year, except that 
any housing goal may be adjusted by regulation to reflect subsequent 
available data and market developments.

[75 FR 55930, Sept. 14, 2010, as amended at 80 FR 53430, Sept. 3, 2015]



Sec.1282.12  Single-family housing goals.

    (a) Single-family housing goals. An Enterprise shall be in 
compliance with a single-family housing goal if its performance under 
the housing goal meets or exceeds either:
    (1) The share of the market that qualifies for the goal; or
    (2) The benchmark level for the goal.
    (b) Size of market. The size of the market for each goal shall be 
established annually by FHFA based on data reported pursuant to the Home 
Mortgage Disclosure Act for a given year. Unless otherwise adjusted by 
FHFA, the size of the market shall be determined based on the following 
criteria:
    (1) Only owner-occupied, conventional loans shall be considered;
    (2) Purchase money mortgages and refinancing mortgages shall only be 
counted for the applicable goal or goals;
    (3) All mortgages flagged as HOEPA loans or subordinate lien loans 
shall be excluded;
    (4) All mortgages with original principal balances above the 
conforming loan limits for single unit properties for the year being 
evaluated (rounded to the nearest $1,000) shall be excluded;
    (5) All mortgages with rate spreads of 150 basis points or more 
above the applicable average prime offer rate as reported in the Home 
Mortgage Disclosure Act data shall be excluded; and
    (6) All mortgages that are missing information necessary to 
determine appropriate counting under the housing goals shall be 
excluded.
    (c) Low-income families housing goal. The percentage share of each 
Enterprise's total purchases of purchase money mortgages on owner-
occupied single-family housing that consists of mortgages for low-income 
families shall meet or exceed either:
    (1) The share of such mortgages in the market as defined in 
paragraph (b) of this section in each year; or
    (2) The benchmark level, which for 2018, 2019 and 2020 shall be 24 
percent of the total number of purchase money mortgages purchased by 
that Enterprise in each year that finance owner-occupied single-family 
properties.
    (d) Very low-income families housing goal. The percentage share of 
each Enterprise's total purchases of purchase money mortgages on owner-
occupied single-family housing that consists of mortgages for very low-
income families shall meet or exceed either:
    (1) The share of such mortgages in the market as defined in 
paragraph (b) of this section in each year; or
    (2) The benchmark level, which for 2018, 2019 and 2020 shall be 6 
percent of the total number of purchase money mortgages purchased by 
that Enterprise in each year that finance owner-occupied single-family 
properties.
    (e) Low-income areas housing goal. The percentage share of each 
Enterprise's total purchases of purchase money mortgages on owner-
occupied single-family housing that consists of mortgages for families 
in low-income areas shall meet or exceed either:
    (1) The share of such mortgages in the market as defined in 
paragraph (b) of this section in each year; or
    (2) A benchmark level which shall be set annually by FHFA notice 
based on the benchmark level for the low-income areas housing subgoal, 
plus an adjustment factor reflecting the additional incremental share of 
mortgages for moderate-income families in designated disaster areas in 
the most recent year for which such data is available.

[[Page 446]]

    (f) Low-income areas housing subgoal. The percentage share of each 
Enterprise's total purchases of purchase money mortgages on owner-
occupied single-family housing that consists of mortgages for families 
in low-income census tracts or for moderate-income families in minority 
census tracts shall meet or exceed either:
    (1) The share of such mortgages in the market as defined in 
paragraph (b) of this section in each year; or
    (2) The benchmark level, which for 2018, 2019 and 2020 shall be 14 
percent of the total number of purchase money mortgages purchased by 
that Enterprise in each year that finance owner-occupied single-family 
properties.
    (g) Refinancing housing goal. The percentage share of each 
Enterprise's total purchases of refinancing mortgages on owner-occupied 
single-family housing that consists of refinancing mortgages for low-
income families shall meet or exceed either:
    (1) The share of such mortgages in the market as defined in 
paragraph (b) of this section in each year; or
    (2) The benchmark level, which for 2018, 2019 and 2020 shall be 21 
percent of the total number of refinancing mortgages purchased by that 
Enterprise in each year that finance owner-occupied single-family 
properties.

[80 FR 53430, Sept. 3, 2015, as amended at 83 FR 5899, Feb. 12, 2018]



Sec.1282.13  Multifamily special affordable housing goal and subgoals.

    (a) Multifamily housing goal and subgoals. An Enterprise shall be in 
compliance with a multifamily housing goal or subgoal if its performance 
under the housing goal or subgoal meets or exceeds the benchmark level 
for the goal or subgoal, respectively.
    (b) Multifamily low-income housing goal. The benchmark level for 
each Enterprise's purchases of mortgages on multifamily residential 
housing affordable to low-income families shall be at least 315,000 
dwelling units affordable to low-income families in multifamily 
residential housing financed by mortgages purchased by the Enterprise in 
each year for 2018, 2019, and 2020.
    (c) Multifamily very low-income housing subgoal. The benchmark level 
for each Enterprise's purchases of mortgages on multifamily residential 
housing affordable to very low-income families shall be at least 60,000 
dwelling units affordable to very low-income families in multifamily 
residential housing financed by mortgages purchased by the Enterprise in 
each year for 2018, 2019, and 2020.
    (d) Small multifamily low-income housing subgoal. The benchmark 
level for each Enterprise's purchases of mortgages on small multifamily 
properties affordable to low-income families shall be at least 10,000 
dwelling units affordable to low-income families in small multifamily 
properties financed by mortgages purchased by the Enterprise in each 
year for 2018, 2019, and 2020.

[83 FR 5899, Feb. 12, 2018]



Sec.1282.14  Discretionary adjustment of housing goals.

    (a) An Enterprise may petition the Director in writing during any 
year to reduce any goal or subgoal for that year.
    (b) The Director shall seek public comment on any such petition for 
a period of 30 days.
    (c) The Director shall make a determination regarding the petition 
within 30 days after the end of the public comment period. If the 
Director requests additional information from the Enterprise after the 
end of the public comment period, the Director may extend the period for 
a final determination for a single additional 15-day period.
    (d) The Director may reduce a goal or subgoal pursuant to a petition 
for reduction only if:
    (1) Market and economic conditions or the financial condition of the 
Enterprise require such a reduction; or
    (2) Efforts to meet the goal or subgoal would result in the 
constraint of liquidity, over-investment in certain market segments, or 
other consequences contrary to the intent of the Safety and Soundness 
Act or the purposes of the Charter Acts (12 U.S.C. 1716; 12 U.S.C. 1451 
note).



Sec.1282.15  General counting requirements.

    (a) Calculating the numerator and denominator for single-family 
housing goals. Performance under each of the single-family housing goals 
shall be measured

[[Page 447]]

using a fraction that is converted into a percentage. Neither the 
numerator nor the denominator shall include Enterprise transactions or 
activities that are not mortgage purchases as defined by FHFA or that 
are specifically excluded as ineligible under Sec.1282.16(b).
    (1) The numerator. The numerator of each fraction is the number of 
mortgage purchases of an Enterprise in a particular year that finance 
owner-occupied single-family properties that count toward achievement of 
a particular single-family housing goal.
    (2) The denominator. The denominator of each fraction is the total 
number of mortgage purchases of an Enterprise in a particular year that 
finance owner-occupied single-family properties. A separate denominator 
shall be calculated for purchase money mortgages and for refinancing 
mortgages.
    (b) Counting owner-occupied units. (1) Mortgage purchases financing 
owner-occupied single-family properties shall be evaluated based on the 
income of the mortgagors and the area median income at the time the 
mortgage was originated. To determine whether mortgages may be counted 
under a particular family income level, i.e., low- or very low-income, 
the income of the mortgagors is compared to the median income for the 
area at the time the mortgage was originated, using the appropriate 
percentage factor provided under Sec.1282.17.
    (2) Mortgage purchases financing owner-occupied single-family 
properties for which the income of the mortgagors is not available shall 
be included in the denominator for the single-family housing goals and 
subgoal, but such mortgages shall not be counted in the numerator of any 
single-family housing goal or subgoal.
    (c) Counting dwelling units for multifamily housing goal and 
subgoals. Performance under the multifamily housing goal and subgoals 
shall be measured by counting the number of dwelling units that count 
toward achievement of a particular housing goal or subgoal in all 
multifamily properties financed by mortgages purchased by an Enterprise 
in a particular year. Only dwelling units that are financed by mortgage 
purchases, as defined by FHFA, and that are not specifically excluded as 
ineligible under Sec.1282.16(b), may be counted for purposes of the 
multifamily housing goal and subgoals.
    (d) Counting rental units--(1) Use of rent. For purposes of counting 
rental units toward achievement of the multifamily housing goal and 
subgoals, mortgage purchases financing such units shall be evaluated 
based on rent and whether the rent is affordable to the income group 
targeted by the housing goal and subgoals. A rent is affordable if the 
rent does not exceed the maximum levels as provided in Sec.1282.19.
    (2) Affordability of rents based on housing program requirements. 
Where a multifamily property is subject to an affordability restriction 
under a housing program that establishes the maximum permitted income 
level for a tenant or a prospective tenant or the maximum permitted 
rent, the affordability of units in the property may be determined based 
on the maximum permitted income level or maximum permitted rent 
established under such housing program for those units. If using income, 
the maximum income level must be no greater than the maximum income 
level for each goal, adjusted for family or unit size as provided in 
Sec.1282.17 or Sec.1282.18, as appropriate. If using rent, the 
maximum rent level must be no greater than the maximum rent level for 
each goal, adjusted for unit size as provided in Sec.1282.19.
    (3) Unoccupied units. Anticipated rent for unoccupied units may be 
the market rent for similar units in the neighborhood as determined by 
the lender or appraiser for underwriting purposes. A unit in a 
multifamily property that is unoccupied because it is being used as a 
model unit or rental office may be counted for purposes of the 
multifamily housing goal and subgoals only if an Enterprise determines 
that the number of such units is reasonable and minimal considering the 
size of the multifamily property.
    (4) Timeliness of information. In evaluating affordability under the 
multifamily housing goal and subgoals, each Enterprise shall use tenant 
and rental information as of the time of mortgage acquisition.
    (e) Missing data or information for multifamily housing goal and 
subgoals. (1)

[[Page 448]]

Rental units for which bedroom data are missing shall be considered 
efficiencies for purposes of calculating unit affordability.
    (2) When an Enterprise lacks sufficient information to determine 
whether a rental unit in a property securing a multifamily mortgage 
purchased by an Enterprise counts toward achievement of the multifamily 
housing goal or subgoals because rental data is not available, an 
Enterprise's performance with respect to such unit may be evaluated 
using estimated affordability information by multiplying the number of 
rental units with missing affordability information in properties 
securing multifamily mortgages purchased by the Enterprise in each 
census tract by the percentage of all rental dwelling units in the 
respective tracts that would count toward achievement of each goal and 
subgoal, as determined by FHFA.
    (3) The estimation methodology in paragraph (e)(2) of this section 
may be used up to a nationwide maximum of 5 percent of the total number 
of rental units in properties securing multifamily mortgages purchased 
by the Enterprise in the current year. Multifamily rental units in 
excess of this maximum, and any units for which estimation information 
is not available, shall not be counted for purposes of the multifamily 
housing goal and subgoals.
    (f) Credit toward multiple goals. A mortgage purchase (or dwelling 
unit financed by such purchase) by an Enterprise in a particular year 
shall count toward the achievement of each housing goal for which such 
purchase (or dwelling unit) qualifies in that year.
    (g) Application of median income. For purposes of determining an 
area's median income under Sec. Sec.1282.17 through 1282.19 and the 
definitions in Sec.1282.1, the area is:
    (1) The metropolitan area, if the property which is the subject of 
the mortgage is in a metropolitan area; and
    (2) In all other areas, the county in which the property is located, 
except that where the State non-metropolitan median income is higher 
than the county's median income, the area is the State non-metropolitan 
area.
    (h) Sampling not permitted. Performance under the housing goals for 
each year shall be based on a complete tabulation of mortgage purchases 
(or dwelling units) for that year; a sampling of such purchases (or 
dwelling units) is not acceptable.
    (i) Newly available data. When an Enterprise uses data to determine 
whether a mortgage purchase (or dwelling unit) counts toward achievement 
of any goal and new data is released after the start of a calendar 
quarter, the Enterprise need not use the new data until the start of the 
following quarter.

[75 FR 55930, Sept. 14, 2010, as amended at 80 FR 53431, Sept. 3, 2015; 
83 FR 5899, Feb. 12, 2018]



Sec.1282.16  Special counting requirements.

    (a) General. FHFA shall determine whether an Enterprise shall 
receive full, partial, or no credit toward achievement of any of the 
housing goals for a transaction that otherwise qualifies under this 
part. In this determination, FHFA will consider whether a transaction or 
activity of the Enterprise is substantially equivalent to a mortgage 
purchase and either creates a new market or adds liquidity to an 
existing market, provided however that such mortgage purchase actually 
fulfills the Enterprise's purposes and is in accordance with its Charter 
Act.
    (b) Not counted. The following transactions or activities shall not 
be counted for purposes of the housing goals and shall not be included 
in the numerator or the denominator in calculating either Enterprise's 
performance under the housing goals, even if the transaction or activity 
would otherwise be counted pursuant to paragraph (c) of this section:
    (1) Equity investments in low-income housing tax credits;
    (2) Purchases of State and local government housing bonds except as 
provided in paragraph (c)(8) of this section;
    (3) Purchases of single-family non-conventional mortgages and 
multifamily non-conventional mortgages, except:
    (i) Multifamily mortgages acquired under a risk-sharing arrangement 
with a Federal agency;

[[Page 449]]

    (ii) Multifamily mortgages under other multifamily mortgage programs 
involving Federal guarantees, insurance or other Federal obligation 
where FHFA determines in writing that the financing needs addressed by 
the particular mortgage program are not well served and that the 
mortgage purchases under such program should count under the housing 
goals;
    (4) Commitments to buy mortgages at a later date or time;
    (5) Options to acquire mortgages;
    (6) Rights of first refusal to acquire mortgages;
    (7) Any interests in mortgages that the Director determines, in 
writing, shall not be treated as interests in mortgages;
    (8) Mortgage purchases to the extent they finance any dwelling units 
that are secondary residences;
    (9) Single-family refinancing mortgages that result from conversion 
of balloon notes to fully amortizing notes, if the Enterprise already 
owns or has an interest in the balloon note at the time conversion 
occurs;
    (10) Purchases of subordinate lien mortgages (second mortgages);
    (11) Purchases of mortgages or interests in mortgages that were 
previously counted by the Enterprise under any current or previous 
housing goal within the five years immediately preceding the current 
performance year;
    (12) Purchases of mortgages where the property, or any units within 
the property, have not been approved for occupancy;
    (13) Purchases of private label securities;
    (14) Enterprise contributions to the Housing Trust Fund (12 U.S.C. 
4568) or the Capital Magnet Fund (12 U.S.C. 4569), and mortgage 
purchases funded with such grant amounts; and
    (15) Any combination of factors in paragraphs (b)(1) through (b)(14) 
of this section.
    (c) Other special rules. Subject to FHFA's determination of whether 
an Enterprise shall receive full, partial, or no credit for a 
transaction toward achievement of any of the housing goals as provided 
in paragraph (a) of this section, the transactions and activities 
identified in this paragraph (c) shall be treated as mortgage purchases 
as described. A transaction or activity that is covered by more than one 
paragraph below must satisfy the requirements of each such paragraph. 
The mortgages (or dwelling units, for the multifamily housing goals) 
from each such transaction or activity shall be included in the 
denominator in calculating the Enterprise's performance under the 
housing goals, and shall be included in the numerator, as appropriate.
    (1) Credit enhancements. (i) Mortgages (or dwelling units) financed 
under a credit enhancement entered into by an Enterprise shall be 
treated as mortgage purchases for purposes of the housing goals only 
when:
    (A) The Enterprise provides a specific contractual obligation to 
ensure timely payment of amounts due under a mortgage or mortgages 
financed by the issuance of housing bonds (such bonds may be issued by 
any entity, including a State or local housing finance agency); and
    (B) The Enterprise assumes a credit risk in the transaction 
substantially equivalent to the risk that would have been assumed by the 
Enterprise if it had securitized the mortgages financed by such bonds.
    (ii) When an Enterprise provides a specific contractual obligation 
to ensure timely payment of amounts due under any mortgage originally 
insured by a public purpose mortgage insurance entity or fund, the 
Enterprise may, on a case-by-case basis, seek approval from the Director 
for such activities to count toward achievement of the housing goals.
    (2) [Reserved]
    (3) Risk-sharing. Mortgages purchased under risk-sharing 
arrangements between an Enterprise and any Federal agency under which 
the Enterprise is responsible for a substantial amount of the risk shall 
be treated as mortgage purchases for purposes of the housing goals.
    (4) Participations. Participations purchased by an Enterprise shall 
be treated as mortgage purchases for purposes of the housing goals only 
when the Enterprise's participation in the mortgage is 50 percent or 
more.
    (5) Cooperative housing and condominiums. (i) The purchase of a 
mortgage on

[[Page 450]]

a cooperative housing unit (``a share loan'') or a mortgage on a 
condominium unit shall be treated as a mortgage purchase for purposes of 
the housing goals. Such a purchase shall be counted in the same manner 
as a mortgage purchase of single-family owner-occupied units.
    (ii) The purchase of a blanket mortgage on a cooperative building or 
a mortgage on a condominium project shall be treated as a mortgage 
purchase for purposes of the housing goals. The purchase of a blanket 
mortgage on a cooperative building shall be counted in the same manner 
as a mortgage purchase of a multifamily rental property, except that 
affordability must be determined based solely on the comparable market 
rents used in underwriting the blanket loan. If the underwriting rents 
are not available, the loan shall not be treated as a mortgage purchase 
for purposes of the housing goals. The purchase of a mortgage on a 
condominium project shall be counted in the same manner as a mortgage 
purchase of a multifamily rental property.
    (iii) Where an Enterprise purchases both a blanket mortgage on a 
cooperative building and share loans for units in the same building, 
both the mortgage on the cooperative building and the share loans shall 
be treated as mortgage purchases for purposes of the housing goals. 
Where an Enterprise purchases both a mortgage on a condominium project 
and mortgages on individual dwelling units in the same project, both the 
mortgage on the condominium project and the mortgages on individual 
dwelling units shall be treated as mortgage purchases for purposes of 
the housing goals.
    (6) Seasoned mortgages. An Enterprise's purchase of a seasoned 
mortgage shall be treated as a mortgage purchase for purposes of the 
housing goals, except where the Enterprise has already counted the 
mortgage under any current or previous housing goal within the five 
years immediately preceding the current performance year.
    (7) Purchase of refinancing mortgages. The purchase of a refinancing 
mortgage by an Enterprise shall be treated as a mortgage purchase for 
purposes of the housing goals only if the refinancing is an arms-length 
transaction that is borrower-driven.
    (8) Mortgage revenue bonds. The purchase or guarantee by an 
Enterprise of a mortgage revenue bond issued by a State or local housing 
finance agency shall be treated as a purchase of the underlying 
mortgages for purposes of the housing goals only to the extent the 
Enterprise has sufficient information to determine whether the 
underlying mortgages or mortgage-backed securities qualify for inclusion 
in the numerator for one or more housing goal.
    (9) [Reserved]
    (10) Loan modifications. An Enterprise's permanent modification, in 
accordance with the Making Home Affordable program announced on March 4, 
2009, of a loan that is held in the Enterprise's portfolio or that is in 
a pool backing a security guaranteed by the Enterprise, shall be treated 
as a mortgage purchase for purposes of the housing goals. Each such 
permanent loan modification shall be counted in the same manner as a 
purchase of a refinancing mortgage.
    (11)-(13) [Reserved]
    (14) Seller dissolution option. (i) Mortgages acquired through 
transactions involving seller dissolution options shall be treated as 
mortgage purchases for purposes of the housing goals, only when:
    (A) The terms of the transaction provide for a lockout period that 
prohibits the exercise of the dissolution option for at least one year 
from the date on which the transaction was entered into by the 
Enterprise and the seller of the mortgages; and
    (B) The transaction is not dissolved during the one-year minimum 
lockout period.
    (ii) The Director may grant an exception to the one-year minimum 
lockout period described in paragraphs (c)(14)(i)(A) and (B) of this 
section, in response to a written request from an Enterprise, if the 
Director determines that the transaction furthers the purposes of the 
Safety and Soundness Act and the Enterprise's Charter Act.
    (iii) For purposes of this paragraph (c)(14), ``seller dissolution 
option'' means an option for a seller of mortgages to the Enterprises to 
dissolve or

[[Page 451]]

otherwise cancel a mortgage purchase agreement or loan sale.
    (d) HOEPA mortgages. HOEPA mortgages shall be treated as mortgage 
purchases for purposes of the housing goals and shall be included in the 
denominator for each applicable single-family housing goal, but such 
mortgages shall not be counted in the numerator for any housing goal.
    (e) FHFA review of transactions. FHFA may determine whether and how 
any transaction or class of transactions shall be counted for purposes 
of the housing goals, including treatment of missing data. FHFA will 
notify each Enterprise in writing of any determination regarding the 
treatment of any transaction or class of transactions under the housing 
goals. FHFA will make any such determinations available to the public on 
FHFA's Web site, www.fhfa.gov.

[75 FR 55930, Sept. 14, 2010, as amended at 80 FR 53432, Sept. 3, 2015]



Sec.1282.17  Affordability--Income level definitions--family size and
income known (owner-occupied units, actual tenants, and prospective 
tenants).

    In determining whether a dwelling unit is affordable where income 
information (and family size, for rental units) is known to the 
Enterprise, the affordability of the unit shall be determined as 
follows:
    (a) Moderate-income means:
    (1) In the case of owner-occupied units, income not in excess of 100 
percent of area median income; and
    (2) In the case of rental units, where the income of actual or 
prospective tenants is available, income not in excess of the following 
percentages of area median income corresponding to the following family 
sizes:

------------------------------------------------------------------------
                                                           Percentage of
               Number of persons in family                  area median
                                                              income
------------------------------------------------------------------------
1.......................................................              70
2.......................................................              80
3.......................................................              90
4.......................................................             100
5 or more...............................................               *
------------------------------------------------------------------------
*100% plus (8% multiplied by the number of persons in excess of 4).

    (b) Low-income (80%) means:
    (1) In the case of owner-occupied units, income not in excess of 80 
percent of area median income; and
    (2) In the case of rental units, where the income of actual or 
prospective tenants is available, income not in excess of the following 
percentages of area median income corresponding to the following family 
sizes:

------------------------------------------------------------------------
                                                           Percentage of
               Number of persons in family                  area median
                                                              income
------------------------------------------------------------------------
1.......................................................              56
2.......................................................              64
3.......................................................              72
4.......................................................              80
5 or more...............................................               *
------------------------------------------------------------------------
*80% plus (6.4% multiplied by the number of persons in excess of 4).

    (c) Low-income (60%) means:
    (1) In the case of owner-occupied units, income not in excess of 60 
percent of area median income; and
    (2) In the case of rental units, where the income of actual or 
prospective tenants is available, income not in excess of the following 
percentages of area median income corresponding to the following family 
sizes:

------------------------------------------------------------------------
                                                           Percentage of
               Number of persons in family                  area median
                                                              income
------------------------------------------------------------------------
1.......................................................              42
2.......................................................              48
3.......................................................              54
4.......................................................              60
5 or more...............................................               *
------------------------------------------------------------------------
*60% plus (4.8% multiplied by the number of persons in excess of 4).

    (d) Very low-income means:
    (1) In the case of owner-occupied units, income not in excess of 50 
percent of area median income; and
    (2) In the case of rental units, where the income of actual or 
prospective tenants is available, income not in excess of the following 
percentages of area median income corresponding to the following family 
sizes:

------------------------------------------------------------------------
                                                           Percentage of
               Number of persons in family                  area median
                                                              income
------------------------------------------------------------------------
1.......................................................              35
2.......................................................              40
3.......................................................              45
4.......................................................              50

[[Page 452]]

 
5 or more...............................................               *
------------------------------------------------------------------------
*50% plus (4.0% multiplied by the number of persons in excess of 4).

    (e) Extremely low-income means:
    (1) In the case of owner-occupied units, income not in excess of 30 
percent of area median income; and
    (2) In the case of rental units, where the income of actual or 
prospective tenants is available, income not in excess of the following 
percentages of area median income corresponding to the following family 
sizes:

------------------------------------------------------------------------
                                                           Percentage of
               Number of persons in family                  area median
                                                              income
------------------------------------------------------------------------
1.......................................................              21
2.......................................................              24
3.......................................................              27
4.......................................................              30
5 or more...............................................               *
------------------------------------------------------------------------
*30% plus (2.4% multiplied by the number of persons in excess of 4).


[75 FR 55930, Sept. 14, 2010, as amended at 80 FR 53432, Sept. 3, 2015]



Sec.1282.18  Affordability--Income level definitions--family size not
known (actual or prospective tenants).

    In determining whether a rental unit is affordable where family size 
is not known to the Enterprise, income will be adjusted using unit size, 
and affordability determined as follows:
    (a) For moderate-income, the income of prospective tenants shall not 
exceed the following percentages of area median income with adjustments, 
depending on unit size:

------------------------------------------------------------------------
                                                           Percentage of
                        Unit size                           area median
                                                              income
------------------------------------------------------------------------
Efficiency..............................................              70
1 bedroom...............................................              75
2 bedrooms..............................................              90
3 bedrooms or more......................................               *
------------------------------------------------------------------------
*104% plus (12% multiplied by the number of bedrooms in excess of 3).

    (b) For low-income (80%), income of prospective tenants shall not 
exceed the following percentages of area median income with adjustments, 
depending on unit size:

------------------------------------------------------------------------
                                                           Percentage of
                        Unit size                           area median
                                                              income
------------------------------------------------------------------------
Efficiency..............................................              56
1 bedroom...............................................              60
2 bedrooms..............................................              72
3 bedrooms or more......................................               *
------------------------------------------------------------------------
*83.2% plus (9.6% multiplied by the number of bedrooms in excess of 3).

    (c) For low-income (60%), income of prospective tenants shall not 
exceed the following percentages of area median income with adjustments, 
depending on unit size:

------------------------------------------------------------------------
                                                           Percentage of
                        Unit size                           area median
                                                              income
------------------------------------------------------------------------
Efficiency..............................................              42
1 bedroom...............................................              45
2 bedrooms..............................................              54
3 bedrooms or more......................................               *
------------------------------------------------------------------------
*62.4% plus (7.2% multiplied by the number of bedrooms in excess of 3).

    (d) For very low-income, income of prospective tenants shall not 
exceed the following percentages of area median income with adjustments, 
depending on unit size:

------------------------------------------------------------------------
                                                          Percentage of
                       Unit size                           area median
                                                              income
------------------------------------------------------------------------
Efficiency.............................................             35
1 bedroom..............................................             37.5
2 bedrooms.............................................             45
3 bedrooms or more.....................................              *
------------------------------------------------------------------------
*52% plus (6.0% multiplied by the number of bedrooms in excess of 3).

    (e) For extremely low-income, income of prospective tenants shall 
not exceed the following percentages of area median income with 
adjustments, depending on unit size:

------------------------------------------------------------------------
                                                          Percentage of
                       Unit size                           area median
                                                              income
------------------------------------------------------------------------
Efficiency.............................................             21
1 bedroom..............................................             22.5
2 bedrooms.............................................             27
3 bedrooms or more.....................................              *
------------------------------------------------------------------------
*31.2% plus (3.6% multiplied by the number of bedrooms in excess of 3).



Sec.1282.19  Affordability--Rent level definitions--tenant income 
is not known.

    For purposes of determining whether a rental unit is affordable 
where the income of the family in the dwelling unit

[[Page 453]]

is not known to the Enterprise, the affordability of the unit is 
determined based on unit size as follows:
    (a) For moderate-income, maximum affordable rents to count as 
housing for moderate-income families shall not exceed the following 
percentages of area median income with adjustments, depending on unit 
size:

------------------------------------------------------------------------
                                                          Percentage of
                       Unit size                           area median
                                                              income
------------------------------------------------------------------------
Efficiency.............................................             21
1 bedroom..............................................             22.5
2 bedrooms.............................................             27
3 bedrooms or more.....................................              *
------------------------------------------------------------------------
*31.2% plus (3.6% multiplied by the number of bedrooms in excess of 3).

    (b) For low-income (80%), maximum affordable rents to count as 
housing for low-income (80%) families shall not exceed the following 
percentages of area median income with adjustments, depending on unit 
size:

------------------------------------------------------------------------
                                                          Percentage of
                       Unit size                           area median
                                                              income
------------------------------------------------------------------------
Efficiency.............................................             16.8
1 bedroom..............................................             18
2 bedrooms.............................................             21.6
3 bedrooms or more.....................................              *
------------------------------------------------------------------------
*24.96% plus (2.88% multiplied by the number of bedrooms in excess of
  3).

    (c) For low-income (60%), maximum affordable rents to count as 
housing for low-income (60%) families shall not exceed the following 
percentages of area median income with adjustments, depending on unit 
size:

------------------------------------------------------------------------
                                                          Percentage of
                       Unit size                           area median
                                                              income
------------------------------------------------------------------------
Efficiency.............................................             12.6
1 bedroom..............................................             13.5
2 bedrooms.............................................             16.2
3 bedrooms or more.....................................              *
------------------------------------------------------------------------
*18.72% plus (2.16% multiplied by the number of bedrooms in excess of
  3).

    (d) For very low-income, maximum affordable rents to count as 
housing for very low-income families shall not exceed the following 
percentages of area median income with adjustments, depending on unit 
size:

------------------------------------------------------------------------
                                                          Percentage of
                       Unit size                           area median
                                                             income
------------------------------------------------------------------------
Efficiency............................................             10.5
1 bedroom.............................................             11.25
2 bedrooms............................................             13.5
3 bedrooms or more....................................              *
------------------------------------------------------------------------
*15.6% plus (1.8% multiplied by the number of bedrooms in excess of 3).

    (e) For extremely low-income, maximum affordable rents to count as 
housing for extremely low-income families shall not exceed the following 
percentages of area median income with adjustments, depending on unit 
size:

------------------------------------------------------------------------
                                                           Percentage of
                        Unit size                           area median
                                                              income
------------------------------------------------------------------------
Efficiency..............................................            6.3
1 bedroom...............................................            6.75
2 bedrooms..............................................            8.1
3 bedrooms or more......................................            *
------------------------------------------------------------------------
* 9.36% plus (1.08% multiplied by the number of bedrooms in excess of
  3).


[75 FR 55930, Sept. 14, 2010, as amended at 80 FR 53432, Sept. 3, 2015]



Sec.1282.20  Determination of compliance with housing goals; 
notice of determination.

    (a) Single-family housing goals. The Director shall evaluate each 
Enterprise's performance under the low-income families housing goal, the 
very low-income families housing goal, the low-income areas housing 
goal, the low-income areas housing subgoal, and the refinancing 
mortgages housing goal on an annual basis. If the Director determines 
that an Enterprise has failed, or there is a substantial probability 
that an Enterprise will fail, to meet a single-family housing goal 
established by this subpart, the Director shall notify the Enterprise in 
writing of such preliminary determination.
    (b) Multifamily housing goal and subgoals. The Director shall 
evaluate each Enterprise's performance under the multifamily low-income 
housing goal, the multifamily very low-income housing subgoal, and the 
small multifamily low-income housing subgoal, on an annual basis. If the 
Director determines that an Enterprise has failed, or there is a 
substantial probability that an Enterprise will fail, to meet a 
multifamily housing goal or subgoal established by this subpart, the 
Director shall notify the Enterprise in writing of such preliminary 
determination.

[[Page 454]]

    (c) Any notification to an Enterprise of a preliminary determination 
under this section shall provide the Enterprise with an opportunity to 
respond in writing in accordance with the procedures at 12 U.S.C. 
4566(b).

[75 FR 55930, Sept. 14, 2010, as amended at 80 FR 53433, Sept. 3, 2015]



Sec.1282.21  Housing plans.

    (a) General. If the Director determines that an Enterprise has 
failed, or there is a substantial probability that an Enterprise will 
fail, to meet any housing goal and that the achievement of the housing 
goal was or is feasible, the Director may require the Enterprise to 
submit a housing plan for approval by the Director.
    (b) Nature of plan. If the Director requires a housing plan, the 
housing plan shall:
    (1) Be feasible;
    (2) Be sufficiently specific to enable the Director to monitor 
compliance periodically;
    (3) Describe the specific actions that the Enterprise will take in a 
time period determined by the Director to improve the Enterprise's 
performance under the housing goal; and
    (4) Address any additional matters relevant to the plan as required, 
in writing, by the Director.
    (c) Deadline for submission. The Enterprise shall submit the housing 
plan to the Director within 45 days after issuance of a notice requiring 
the Enterprise to submit a housing plan. The Director may extend the 
deadline for submission of a plan, in writing and for a time certain, to 
the extent the Director determines an extension is necessary.
    (d) Review of housing plans. The Director shall review and approve 
or disapprove housing plans in accordance with 12 U.S.C. 4566(c)(4) and 
(c)(5).
    (e) Resubmission. If the Director disapproves an initial housing 
plan submitted by an Enterprise, the Enterprise shall submit an amended 
plan acceptable to the Director not later than 15 days after the 
Director's disapproval of the initial plan; the Director may extend the 
deadline if the Director determines an extension is in the public 
interest. If the amended plan is not acceptable to the Director, the 
Director may afford the Enterprise 15 days to submit a new plan.

[75 FR 55930, Sept. 14, 2010, as amended at 83 FR 5899, Feb. 12, 2018]



               Subpart C_Duty to Serve Underserved Markets

    Source: 81 FR 96294, Dec. 29, 2016, unless otherwise noted.



Sec.1282.31  General.

    (a) This subpart sets forth the Enterprise duty to serve three 
underserved markets as required by section 1335 of the Safety and 
Soundness Act (12 U.S.C. 4565). This subpart also establishes standards 
and procedures for annually evaluating and rating Enterprise compliance 
with the duty to serve underserved markets.
    (b) Nothing in this subpart permits or requires an Enterprise to 
engage in any activity that would otherwise be inconsistent with its 
Charter Act or the Safety and Soundness Act.



Sec.1282.32  Underserved Markets Plan.

    (a) General. Each Enterprise must submit to FHFA an Underserved 
Markets Plan describing the activities and objectives it will undertake 
to meet its duty to serve each of the three underserved markets. Plan 
activities and objectives may cover a single year or multiple years.
    (b) Term of Plan. Each Enterprise's Plan must cover a period of 
three years.
    (c) Effective date of Plans. Where an underserved market in a Plan 
receives a Non-Objection from FHFA by December 1 of the prior year, the 
effective date for that underserved market in the Plan will be January 1 
of the first evaluation year for which the Plan is applicable. Where an 
underserved market in a Plan does not receive a Non-Objection from FHFA 
by December 1 of the prior year, the effective date for that underserved 
market in the Plan will be as determined by FHFA.
    (d) Plan content.--(1) Consideration of minimum number of 
activities. The Enterprises must consider and address in their Plans a 
minimum number of Statutory Activities or Regulatory Activities for each 
underserved market.

[[Page 455]]

The minimum number will be determined by FHFA and stated in the 
Evaluation Guidance as provided for in Sec.1282.36(d). An Enterprise 
will select the specific Statutory Activities or Regulatory Activities 
to address in its Plan under this requirement. For the activities 
selected by the Enterprise, the Enterprise must address in its Plan 
either how it will undertake the activities and related objectives, or 
the reasons why it will not undertake the activities. The statutory 
programs in Sec.1282.34(c)(5) and (c)(6) are excluded for this 
purpose.
    (2) Additional Activities. An Enterprise may also include in its 
Plan Additional Activities eligible to serve an underserved market. For 
the Additional Activities included by the Enterprise, the Enterprise 
must address in its Plan how it will undertake the activities and 
related objectives.
    (3) Residential economic diversity activities. If an Enterprises 
chooses to undertake a residential economic diversity activity for extra 
credit under Sec.1282.36(c)(3), the Enterprise must describe the 
activity and related objectives in its Plan.
    (e) Objectives. Each Statutory Activity, Regulatory Activity, and 
Additional Activity in an Enterprise's Plan must comprise one or more 
objectives, which are the specific action items that the Enterprises 
will identify for each activity. Each objective must meet all of the 
following requirements:
    (1) Strategic. Directly or indirectly maintain or increase liquidity 
to an underserved market;
    (2) Measurable. Provide measurable benchmarks, which may include 
numerical targets, that enable FHFA to determine whether the Enterprise 
has achieved the objective;
    (3) Realistic. Be calibrated so that the Enterprise has a reasonable 
chance of meeting the objective with appropriate effort;
    (4) Time-bound. Be subject to a specific timeframe for completion by 
being tied to Plan calendar year evaluation periods; and
    (5) Tied to analysis of market opportunities. Be based on 
assessments and analyses of market opportunities in each underserved 
market, taking into account safety and soundness considerations.
    (f) Evaluation areas. Each Plan objective must meet at least one of 
the evaluation areas set forth in Sec.1282.36(b). An Enterprise must 
designate in its Plan the one evaluation area under which each Plan 
objective will be evaluated.
    (g) Plan procedures.--(1) Submission of proposed Plans.--(i) First 
proposed Plan. An Enterprise's first proposed Plan must be submitted to 
FHFA within 90 days after FHFA posts the proposed Evaluation Guidance on 
FHFA's Web site pursuant to Sec.1282.36(d)(3).
    (ii) Subsequent proposed Plans. For subsequent proposed Plans after 
the first Plan, FHFA will provide timelines 300 days before the 
termination date of the Plan in effect, or a later date if additional 
time is necessary, for proposed Plan submission, public input periods, 
and Non-Objection to an underserved market in a Plan. Unless otherwise 
directed by FHFA, each Enterprise must submit a proposed Plan to FHFA at 
least 210 days before the termination date of the Enterprise's Plan in 
effect.
    (2) Posting of proposed Plans. As soon as practical after an 
Enterprise submits its proposed Plan to FHFA for review, FHFA will post 
the proposed Plan on FHFA's Web site, with any confidential and 
proprietary data and information omitted.
    (3) Public input.--(i) For the first proposed Plans, the public will 
have 60 days from the date the proposed Plans are posted on FHFA's Web 
site to provide input on the proposed Plans.
    (ii) The Enterprises' subsequent proposed Plans will be available 
for public input pursuant to the timeframe and procedures established by 
FHFA.
    (4) Enterprise review. Each Enterprise may, in its discretion, make 
revisions to its proposed Plan based on the public input.
    (5) FHFA review.--(i) FHFA review of first proposed Plans. FHFA will 
review each Enterprise's first proposed Plan and inform the Enterprise 
of any FHFA comments on the proposed Plan within 60 days from the end of 
the public input period on the proposed Plan, or such additional time as 
may be necessary. The Enterprise must address FHFA's comments, as 
appropriate, through revisions to its proposed Plan pursuant

[[Page 456]]

to the timeframe and procedures established by FHFA.
    (ii) FHFA review of subsequent proposed Plans. For subsequent 
proposed Plans after the first proposed Plans, FHFA will establish a 
timeframe and procedures for FHFA review, comments, and any required 
Enterprise revisions.
    (iii) Designation of Statutory Activity or Regulatory Activity. FHFA 
may, in its discretion, designate in the Evaluation Guidance one 
Statutory Activity or Regulatory Activity in each underserved market 
that FHFA will significantly consider in determining whether to provide 
a Non-Objection to that underserved market in a proposed Plan.
    (iv) FHFA Non-Objections to underserved markets in a proposed Plan. 
After FHFA is satisfied that all of its comments on an underserved 
market in a proposed Plan have been addressed, FHFA will issue a Non-
Objection for that underserved market in the Plan.
    (6) Effective date of an underserved market in a Plan. Where an 
underserved market in a Plan receives a Non-Objection from FHFA by 
December 1 of the prior year, the effective date for that underserved 
market in the Plan will be January 1 of the first evaluation year for 
which the Plan is applicable. Where an underserved market in a Plan does 
not receive a Non-Objection from FHFA by December 1 of the prior year, 
the effective date for that underserved market in the Plan will be as 
determined by FHFA.
    (7) Posting of an underserved market section in a Plan. As soon as 
practicable after FHFA issues a Non-Objection to an underserved market 
in a Plan, that section of the Plan will be posted on the Enterprise's 
and FHFA's respective Web sites, with any confidential and proprietary 
data and information omitted.
    (h) Modification of a Plan. At any time after implementation of a 
Plan, an Enterprise may request to modify its Plan during the three-year 
term, subject to FHFA Non-Objection of the proposed modifications. FHFA 
may also require an Enterprise to modify its Plan during the three-year 
term. FHFA and the Enterprise may seek public input on proposed 
modifications to a Plan if FHFA determines that public input would 
assist its consideration of the proposed modifications. If a Plan is 
modified, the modified Plan, with any confidential and proprietary 
information and data omitted, will be posted on the Enterprise's and 
FHFA's respective Web sites.



Sec.1282.33  Manufactured housing market.

    (a) Duty in general. Each Enterprise must develop loan products and 
flexible underwriting guidelines to facilitate a secondary market for 
eligible mortgages on manufactured homes for very low-, low-, and 
moderate-income families. Enterprise activities under this section must 
serve each such income group in the year for which the Enterprise is 
evaluated and rated.
    (b) Eligible activities. Enterprise activities eligible to be 
included in an Underserved Markets Plan for the manufactured housing 
market are activities that facilitate a secondary market for mortgages 
on residential properties for very low-, low-, or moderate-income 
families consisting of manufactured homes titled as real property or 
personal property; and manufactured housing communities.
    (c) Regulatory Activities. Enterprise activities related to the 
following are eligible to receive duty to serve credit under the 
manufactured housing market:
    (1) Manufactured homes titled as real property. Mortgages on 
manufactured homes titled as real property;
    (2) Chattel. Loans on manufactured homes titled as personal 
property, including both pilot and ongoing initiatives;
    (3) Manufactured housing communities owned by a governmental entity, 
nonprofit organization, or residents. Mortgages on manufactured housing 
communities that are owned by a governmental unit or instrumentality, a 
nonprofit organization, or residents; and
    (4) Manufactured housing communities with certain pad lease 
protections. Manufactured housing communities with pad leases that have 
the following pad lease protections at a minimum, or manufactured 
housing communities that are subject to state or local laws requiring

[[Page 457]]

pad lease protections that equal or exceed the following pad lease 
protections:
    (i) One-year renewable lease term unless there is good cause for 
nonrenewal;
    (ii) Thirty-day written notice of rent increases;
    (iii) Five-day grace period for rent payments and right to cure 
defaults on rent payments;
    (iv) Tenant has the right to sell the manufactured home without 
having to first relocate it out of the community;
    (v) Tenant has the right to sublease or assign the pad lease for the 
unexpired term to the new buyer of the tenant's manufactured home 
without any unreasonable restraint;
    (vi) Tenant has the right to post ``For Sale'' signs;
    (vii) Tenant has the right to sell the manufactured home in place 
within a reasonable time period after eviction by the manufactured 
housing community owner; and
    (viii) Tenant has the right to receive at least 60 days advance 
notice of a planned sale or closure of the manufactured housing 
community.
    (d) Additional Activities. An Enterprise may include in its Plan 
other activities to serve very low-, low-, or moderate-income families 
in the manufactured housing market consistent with paragraph (b) of this 
section, subject to FHFA determination of whether the Additional 
Activity is eligible to receive duty to serve credit.



Sec.1282.34  Affordable housing preservation market.


    (a) Duty in general. Each Enterprise must develop loan products and 
flexible underwriting guidelines to facilitate a secondary market to 
preserve housing affordable to very low-, low-, and moderate-income 
families under eligible housing programs or activities. Enterprise 
activities under this section must serve each such income group in the 
year for which the Enterprise is evaluated and rated.
    (b) Eligible activities. Enterprise activities eligible to be 
included in an Underserved Markets Plan for the affordable housing 
preservation market are activities that facilitate a secondary market 
for mortgages on residential properties for very low-, low-, or 
moderate-income families consisting of affordable rental housing 
preservation and affordable homeownership preservation.
    (c) Statutory Activities. Enterprise activities related to housing 
projects under the following programs in the Safety and Soundness Act 
(12 U.S.C. 4565(a)(1)(B)) are eligible to receive duty to serve credit 
under the affordable housing preservation market:
    (1) Section 8. The project-based and tenant-based rental assistance 
housing programs under section 8 of the U.S. Housing Act of 1937, 42 
U.S.C. 1437f;
    (2) Section 236. The rental and cooperative housing program for 
lower income families under section 236 of the National Housing Act, 12 
U.S.C. 1715z-1;
    (3) Section 221(d)(4). The housing program for moderate-income and 
displaced families under section 221(d)(4) of the National Housing Act, 
12 U.S.C. 1715l;
    (4) Section 202. The supportive housing program for the elderly 
under section 202 of the Housing Act of 1959, 12 U.S.C. 1701q;
    (5) Section 811. The supportive housing program for persons with 
disabilities under section 811 of the Cranston-Gonzalez National 
Affordable Housing Act, 42 U.S.C. 8013;
    (6) McKinney-Vento Homeless Assistance. Permanent supportive housing 
projects subsidized under Title IV of the McKinney-Vento Homeless 
Assistance Act, 42 U.S.C. 11361, et seq.;
    (7) Section 515. The rural rental housing program under section 515 
of the Housing Act of 1949, 42 U.S.C. 1485;
    (8) Low-income housing tax credits. Low-income housing tax credits 
under section 42 of the Internal Revenue Code of 1986, 26 U.S.C. 42; and
    (9) Other comparable state or local affordable housing programs. 
Other comparable affordable housing programs administered by a state or 
local government that preserve housing affordable to very low-, low-, 
and moderate-income families. An Enterprise may include in its Plan 
statutory programs pursuant to this paragraph (c)(9), subject to FHFA 
determination that the program is comparable to one of the statutory 
programs in this paragraph (c) in the way it provides subsidy and

[[Page 458]]

preserves affordable housing for the income-eligible households.
    (d) Regulatory Activities. Enterprise activities related to the 
following are eligible to receive duty to serve credit under the 
affordable housing preservation market:
    (1) Financing of small multifamily rental properties. Financing of 
small multifamily rental properties by a community development financial 
institution, insured depository institution, or federally insured credit 
union, where the entity's total assets are $10 billion or less;
    (2) Energy or water efficiency improvements on multifamily rental 
properties. Energy or water efficiency improvements on multifamily 
rental properties provided there are projections made based on credible 
and generally accepted standards that the improvements financed by the 
loan will reduce energy or water consumption by the tenant or the 
property by at least 15 percent, and the energy or water savings 
generated over an improvement's expected life will exceed the cost of 
installation;
    (3) Energy or water efficiency improvements on single-family, first 
lien properties. Energy or water efficiency improvements on single-
family, first-lien properties, provided there are projections made based 
on credible and generally accepted standards that the improvements 
financed by the loan will reduce energy or water consumption by the 
homeowner, the tenant, or the property by at least 15 percent, and the 
utility savings generated over an improvement's expected life will 
exceed the cost of installation;
    (4) Shared equity programs for affordable homeownership 
preservation.--(i) Affordable homeownership preservation through one of 
the following shared equity homeownership programs:
    (A) Resale restriction programs administered by community land 
trusts, other nonprofit organizations, or state or local governments or 
instrumentalities; or
    (B) Shared appreciation loan programs administered by community land 
trusts, other nonprofit organizations, or state or local governments or 
instrumentalities that may or may not partner with a for-profit 
institution to invest in, originate, sell, or service shared 
appreciation loans.
    (ii) A program in paragraph (d)(4)(i) must:
    (A) Provide homeownership opportunities to very low-, low-, or 
moderate-income households;
    (B) Utilize a ground lease, deed restriction, subordinate loan, or 
similar legal mechanism that includes provisions stating that the 
program will keep the home affordable for subsequent very low-, low-, or 
moderate-income families, the affordability term is at least 30 years 
after recordation, a resale formula applies that limits the homeowner's 
proceeds upon resale, and the program administrator or its assignee has 
a preemptive option to purchase the homeownership unit from the 
homeowner at resale; and
    (C) Support homebuyers and homeowners to promote sustainable 
homeownership, including reviewing and pre-approving refinances and home 
equity lines of credit.
    (5) HUD Choice Neighborhoods Initiative. The HUD Choice 
Neighborhoods Initiative, as authorized by 42 U.S.C. 1437v;
    (6) HUD Rental Assistance Demonstration program. The HUD Rental 
Assistance Demonstration program, as authorized by 42 U.S.C.1437f note; 
and
    (7) Purchase or rehabilitation of certain distressed properties. 
Lending programs for the purchase or rehabilitation by very low-, low-, 
or moderate-income families, or by nonprofit organizations or local or 
tribal governments serving such families, of homes eligible for short 
sale, homes eligible for foreclosure sale, or properties that a lender 
acquires as a result of foreclosure.
    (e) Additional Activities. An Enterprise may include in its Plan 
other activities to serve very low-, low-, or moderate-income families 
in the affordable housing preservation market consistent with paragraph 
(b) of this section, subject to FHFA determination of whether the 
activities are eligible to receive duty to serve credit.



Sec.1282.35  Rural markets.

    (a) Duty in general. Each Enterprise must develop loan products and 
flexible underwriting guidelines to facilitate a secondary market for 
eligible

[[Page 459]]

mortgages on housing for very low-, low-, and moderate-income families 
in rural areas. Enterprise activities under this section must serve each 
such income group in the year for which the Enterprise is evaluated and 
rated.
    (b) Eligible activities. Enterprise activities eligible to be 
included in an Underserved Markets Plan for the rural market are 
activities that facilitate a secondary market for mortgages on 
residential properties for very low-,low-, or moderate-income families 
in rural areas.
    (c) Regulatory Activities. Enterprise activities related to the 
following are eligible to receive duty to serve credit under the rural 
market:
    (1) High-needs rural regions. Housing in high-needs rural regions;
    (2) High-needs rural populations. Housing for high-needs rural 
populations;
    (3) Financing by small financial institutions of rural housing. 
Financing by a small financial institution of housing in a rural area; 
and
    (4) Small multifamily rental properties in rural areas. Small 
multifamily rental properties that are located in a rural area.
    (d) Additional Activities. An Enterprise may include in its Plan 
other activities to serve very low-, low-, or moderate-income families 
in rural areas consistent with paragraph (b) of this section, subject to 
FHFA determination of whether the activities are eligible to receive 
duty to serve credit.



Sec.1282.36  Evaluations, ratings, and Evaluation Guidance.

    (a) Evaluation of compliance. In determining whether an Enterprise 
has complied with the duty to serve each underserved market, FHFA will 
annually evaluate and rate the Enterprise's duty to serve performance 
based on the Enterprise's implementation of its Underserved Markets Plan 
during the relevant evaluation year. FHFA's evaluation will be in 
accordance with separate, FHFA-prepared Evaluation Guidance as provided 
for in paragraph (d) of this section.
    (b) Evaluation areas. As provided in Sec.1282.32(f), an Enterprise 
must specify in its Plan the evaluation area under which each Plan 
objective will be evaluated. FHFA will evaluate an Enterprise's 
performance of each of its Plan objectives under one of the following 
four evaluation areas, as designated by the Enterprise in its Plan:
    (1) Outreach. The extent of the Enterprise's outreach to qualified 
loan sellers and other market participants in each underserved market;
    (2) Loan product. The Enterprise's development of loan products, 
more flexible underwriting guidelines, and other innovative approaches 
to providing financing in each underserved market;
    (3) Loan purchase. The volume of loan purchases by the Enterprise in 
each underserved market relative to the market opportunities available 
to the Enterprise; and
    (4) Investments and grants. The amount of the Enterprise's 
investments and grants in projects that assist in meeting the needs of 
each underserved market.
    (c) Evaluation process. At the end of each evaluation year, FHFA 
will evaluate each Enterprise's performance under its Plan based on 
quantitative and qualitative assessments of the Enterprise's 
accomplishment of the objectives for the activities under each 
underserved market in its Plan. Following the quantitative and 
qualitative assessments, FHFA may provide extra credit for extra credit-
eligible residential economic diversity activities in an underserved 
market in a Plan, and for other extra credit-eligible activities in an 
underserved market in a Plan as may be designated by FHFA in the 
Evaluation Guidance.
    (1) Quantitative assessment. FHFA will conduct a quantitative 
assessment which will evaluate the level of an Enterprise's 
accomplishment of each objective for each activity in an underserved 
market in its Plan, based on the level of accomplishment needed for the 
objectives in order to receive a passing rating for compliance with the 
Duty to Serve an underserved market in a Plan, as established by FHFA in 
the Evaluation Guidance. At the conclusion of the quantitative 
assessment for an underserved market in a Plan, FHFA will determine 
whether an Enterprise has passed or failed the required level of 
accomplishment.
    (2) Qualitative assessment. FHFA will conduct a qualitative 
assessment

[[Page 460]]

which will evaluate the Enterprise's accomplishment of each objective 
for each activity in an underserved market in its Plan, based on the 
method and criteria established by FHFA in the Evaluation Guidance, such 
as how skillfully an objective was implemented, the impact of the 
objective, and such other criteria as FHFA may set forth in the 
Evaluation Guidance.
    (3) Extra credit-eligible activities. FHFA may provide extra credit 
for extra credit-eligible residential economic diversity activities 
included in an underserved market in a Plan, and for other extra credit-
eligible activities included in an underserved market in a Plan, where 
such other activities are designated by FHFA in the Evaluation Guidance. 
FHFA will conduct its assessment of an Enterprise's accomplishment of 
activities that are eligible for extra credit based on the method and 
criteria established by FHFA in the Evaluation Guidance, such as how 
skillfully an objective was implemented, the impact of the objective, 
and such other criteria as FHFA may set forth in the Evaluation 
Guidance.
    (4) Ratings.--(i) Assignment of ratings. Based on the quantitative, 
qualitative and extra credit assessments, FHFA will assign a rating of 
Exceeds, High Satisfactory, Low Satisfactory, Minimally Passing, or 
Fails to the Enterprise's performance for each underserved market in its 
Plan. A rating of Exceeds, High Satisfactory, Low Satisfactory, or 
Minimally Passing will constitute compliance by the Enterprise with the 
duty to serve that underserved market. A rating of Fails will constitute 
noncompliance by the Enterprise with the duty to serve that underserved 
market.
    (ii) Ongoing Assessment of Evaluation and Rating Process. FHFA will 
make such determinations as appropriate based on evaluation of the 
program's parameters and operation, pursuant to the Evaluation Guidance, 
regarding implementation of the evaluation and rating process.
    (d) Evaluation Guidance.--(1) Three-year term. FHFA will prepare 
Evaluation Guidance for use by both Enterprises for a three-year term.
    (2) Contents. The Evaluation Guidance will include the information 
required under this subpart, as well as additional guidance on 
Enterprise Plans, how the quantitative and qualitative assessments will 
be conducted, the role of extra credit, how final ratings will be 
determined, and other matters as may be appropriate.
    (3) Timelines for Evaluation Guidance.--(i) For the first Plan.--(A) 
FHFA will provide to the Enterprises the proposed Evaluation Guidance 
for the first Plan within 30 days after the posting of this subpart on 
FHFA's Web site. FHFA will post the proposed Evaluation Guidance on 
FHFA's Web site as soon as practicable after providing it to the 
Enterprises.
    (B) The proposed Evaluation Guidance will be available for public 
input for a period of 120 days following its posting on FHFA's Web site.
    (C) FHFA will provide the Evaluation Guidance to the Enterprises no 
later than the time FHFA provides comments to the Enterprises on their 
proposed Plans.
    (ii) For subsequent Plans. FHFA will provide timelines for the 
Evaluation Guidance for subsequent Plans after the first Plan, including 
public input periods, 300 days before the termination date of the Plan 
in effect, or a later date if additional time is necessary.
    (4) Posting of Evaluation Guidance. The final Evaluation Guidance 
will be posted on the Enterprises' and FHFA's respective Web sites as 
soon as practicable after the Evaluation Guidance is finalized.
    (5) Modification of Evaluation Guidance. From time to time, FHFA may 
modify the Evaluation Guidance prior to or during the Evaluation 
Guidance's three-year term. FHFA may seek public input on proposed 
modifications to the Evaluation Guidance if FHFA determines that public 
input would assist its consideration of the proposed modifications. 
Modified Evaluation Guidance will be effective on January 1 of the year 
after the modified Evaluation Guidance is posted. FHFA will post the 
modified Evaluation Guidance on FHFA's Web site as soon as practicable 
after modified.

[[Page 461]]



Sec.1282.37  General requirements for credit.

    (a) General. FHFA will determine whether an activity included in an 
Enterprise's Underserved Markets Plan will receive duty to serve credit 
or extra credit under an underserved market in the Plan. In this 
determination, FHFA will consider whether the activity facilitates a 
secondary market for financing mortgages: On manufactured homes for very 
low-, low-, and moderate-income families; to preserve housing affordable 
to very low-, low-, and moderate-income families; and on housing for 
very low-, low-, and moderate-income families in rural areas. If FHFA 
determines that an activity will receive duty to serve credit or extra 
credit under an underserved market in the Plan, the activity will 
receive such credit under the relevant evaluation area for each 
underserved market it serves.
    (b) No credit under any evaluation area. Enterprise activities 
related to the following are not eligible to receive duty to serve 
credit under any evaluation area under an underserved market, even if 
the activity otherwise would receive credit under any other section of 
this subpart, except as provided in this section:
    (1) Contributions to the Housing Trust Fund (12 U.S.C. 4568) and the 
Capital Magnet Fund (12 U.S.C. 4569), and mortgage purchases funded with 
such grant amounts;
    (2) HOEPA mortgages;
    (3) Subordinate liens on multifamily properties, except for 
subordinate liens originated for energy or water efficiency improvements 
on multifamily rental properties that meet the requirements in Sec.
1282.34(d)(2);
    (4) Subordinate liens on single-family properties, except for shared 
appreciation loans that satisfy all of the requirements in Sec.
1282.34(d)(4) of this part;
    (5) Low-Income Housing Tax Credit equity investments in a property, 
except where the property is located in a rural area;
    (6) Permanent construction take-out loans and Additional Activities 
under the affordable housing preservation market, except as provided in 
paragraph (c) of this section; and
    (7) Any combination of factors in paragraphs (b)(1) through (b)(6) 
of this section.
    (c) Credit for certain permanent construction take-out loans and 
Additional Activities under the affordable housing preservation market. 
Enterprise activities related to permanent construction take-out loans 
and Additional Activities under the affordable housing preservation 
market are eligible for duty to serve credit, provided the following 
requirements are met, as applicable:
    (1) Permanent construction take-out loans.--(i) The permanent 
construction take-out loans preserve existing subsidies on affordable 
housing with regulatory periods of required affordability that are at 
least as restrictive as the longest affordability restriction applicable 
to the subsidy or subsidies being preserved; or
    (ii) The permanent construction take-out loans are for housing 
developed under state or local inclusionary zoning, real estate tax 
abatement, or loan programs, where the property owner has agreed to 
restrict a portion of the units for occupancy by very low-, low-, or 
moderate-income families, and to restrict the rents that can be charged 
for those units at affordable rents to those populations, or where the 
property is developed for a shared equity program that meets the 
requirements under Sec.1282.34(d)(4), and where there is a regulatory 
agreement, recorded use restriction, or deed restriction in place that 
maintains affordability for the term defined by the state or local 
program.
    (2) Additional Activities. Additional Activities that either:
    (i) Involve preserving existing subsidy where the term of 
affordability required for the subsidy is followed, or where there is a 
deed restriction for affordability for the life of the loan; or
    (ii) Involve preserving the affordability of properties in 
conjunction with state or local inclusionary zoning, real estate tax 
abatement, or loan programs, where a regulatory agreement, recorded use 
restriction, or deed restriction maintains affordability of a portion of 
the property's units for the term defined by the state or local program.

[[Page 462]]

    (d) No credit under loan purchase evaluation area. The following 
activities are not eligible to receive duty to serve credit under the 
loan purchase evaluation area, even if the activity otherwise would 
receive duty to serve credit under Sec.1282.38:
    (1) Purchases of mortgages to the extent they finance any dwelling 
units that are secondary residences;
    (2) Single-family refinancing mortgages that result from conversion 
of balloon notes to fully amortizing notes, if the Enterprise already 
owns or has an interest in the balloon note at the time conversion 
occurs;
    (3) Purchases of mortgages or interests in mortgages that previously 
received credit under any underserved market within the five years 
immediately preceding the current performance year;
    (4) Purchases of mortgages where the property or any units within 
the property have not been approved for occupancy;
    (5) Any interests in mortgages that FHFA determines will not be 
treated as interests in mortgages;
    (6) Purchases of state and local government housing bonds except as 
provided in Sec.1282.39(h); and
    (7) Any combination of factors in paragraphs (d)(1) through (d)(6) 
of this section.
    (e) FHFA review of activities or objectives. FHFA may determine 
whether and how any activity or objective will receive duty to serve 
credit under an underserved market in a Plan, including treatment of 
missing data. FHFA will notify each Enterprise in writing of any 
determination regarding the treatment of any activity or objective. FHFA 
will make any such determinations available to the public on FHFA's Web 
site.
    (f) The year in which an activity or objective will receive credit. 
An activity or objective that FHFA determines will receive duty to serve 
credit under an underserved market in a Plan will receive such credit in 
the year in which the activity or objective is completed. FHFA may 
determine that credit is appropriate for an activity or objective in 
which an Enterprise engages, but does not complete, in a particular 
year, except that activities or objectives under the loan purchase 
evaluation area will receive credit in the year in which the Enterprise 
purchased the mortgage.
    (g) Credit under one evaluation area. An activity or objective will 
receive duty to serve credit under only one evaluation area in a 
particular underserved market.
    (h) Credit under multiple underserved markets. An activity or 
objective, including financing of dwelling units by an Enterprise's 
mortgage purchase, will receive duty to serve credit under each 
underserved market for which the activity or objective qualifies in that 
year.



Sec.1282.38  General requirements for loan purchases.

    (a) General. This section applies to Enterprise mortgage purchases 
that may receive duty to serve credit under the loan purchase evaluation 
area for a particular underserved market in a Plan. Only dwelling units 
securing a mortgage purchased by the Enterprise in that year and not 
specifically excluded under Sec.1282.37(b) and (d) may receive credit.
    (b) Counting dwelling units. Performance under the loan purchase 
evaluation area will be measured by counting dwelling units affordable 
to very low-, low-, and moderate-income families.
    (c) Credit for owner-occupied units.--(1) Mortgage purchases 
financing owner-occupied single-family properties will be evaluated 
based on the income of the mortgagor(s) and the area median income at 
the time the mortgage was originated. To determine whether mortgages may 
receive duty to serve credit under a particular family income level, 
i.e., very low-, low-, or moderate-income, the income of the 
mortgagor(s) is compared to the median income for the area at the time 
the mortgage was originated, using the appropriate percentage factor 
provided under Sec.1282.17.
    (2) Mortgage purchases financing owner-occupied single-family 
properties for which the income of the mortgagor(s) is not available 
will not receive duty to serve credit under the loan purchase evaluation 
area.
    (d) Credit for rental units.--(1) Use of rent. For Enterprise 
mortgage purchases financing single-family rental

[[Page 463]]

units and multifamily rental units, affordability is determined based on 
rent and whether the rent is affordable to the income groups targeted by 
the duty to serve. A rent is affordable if the rent does not exceed the 
maximum levels as provided in Sec.1282.19.
    (2) Affordability of rents based on housing program requirements. 
Where a multifamily property is subject to an affordability restriction 
under a housing program that establishes the maximum permitted income 
level for a tenant or a prospective tenant or the maximum permitted 
rent, the affordability of units in the property may be determined based 
on the maximum permitted income level or maximum permitted rent 
established under such housing program for those units. If using income, 
the maximum income level must be no greater than the maximum income 
level for each income group targeted by the duty to serve, adjusted for 
family or unit size as provided in Sec.1282.17 or Sec.1282.18, as 
appropriate. If using rent, the maximum rent level must be no greater 
than the maximum rent level for each income group targeted by the duty 
to serve, adjusted for unit size as provided in Sec.1282.19.
    (3) Unoccupied units. Anticipated rent for unoccupied units may be 
the market rent for similar units in the neighborhood as determined by 
the lender or appraiser for underwriting purposes. A unit in a 
multifamily property that is unoccupied because it is being used as a 
model unit or rental office may receive duty to serve credit only if the 
Enterprise determines that the number of such units is reasonable and 
minimal considering the size of the multifamily property.
    (4) Timeliness of information. In evaluating affordability for 
single-family rental properties, an Enterprise must use tenant income 
and area median income available at the time the mortgage was 
originated. For multifamily rental properties, the Enterprise must use 
tenant income and area median income available at the time the mortgage 
was acquired.
    (e) Missing data or information for rental units.--(1) When 
calculating unit affordability, rental units for which bedroom data are 
missing will be considered efficiencies.
    (2) When an Enterprise lacks sufficient information to determine 
whether a rental unit in a single-family or multifamily property 
securing a mortgage purchased by the Enterprise receives duty to serve 
credit under the loan purchase evaluation area because rental data are 
not available, the Enterprise's performance with respect to such unit 
may be evaluated using estimated affordability information, except that 
an Enterprise may not estimate affordability of rental units for 
purposes of receiving extra credit for residential economic diversity 
activities. The estimated affordability information is calculated by 
multiplying the number of rental units with missing affordability 
information in properties securing the mortgages purchased by the 
Enterprise in each census tract by the percentage of all moderate-income 
rental dwelling units in the respective tracts, as determined by FHFA.
    (f) Affordability of manufactured housing communities. For an 
Enterprise purchase of a blanket loan on a manufactured housing 
community, unless otherwise determined by FHFA, the affordability of the 
homes in the community shall be determined using one of the 
methodologies in paragraphs (f)(1) or (f)(2) of this section, as 
applicable, except that for purposes of determining extra credit for 
residential economic diversity activities or objectives, the methodology 
in paragraph (f)(2) of this section may not be used.
    (1) Methodology for government-, nonprofit- or resident-owned 
manufactured housing communities. For a manufactured housing community 
owned by a government unit or instrumentality, a nonprofit organization, 
or the residents, if laws or regulations governing the affordability of 
the community, or the community's or ownership entity's founding, 
chartering, governing, or financing documents, require that a certain 
number or percentage of the community's homes be affordable consistent 
with paragraph (d)(1) of this section, then any homes subject to such 
affordability restriction are treated as affordable.

[[Page 464]]

    (2) Census tract methodology for any type of manufactured housing 
community. For any type of manufactured housing community, except for 
purposes of determining extra credit for residential economic diversity 
activities or objectives, the affordability of the homes in the 
community is determined as follows:
    (i) If the median income of the census tract in which the 
manufactured housing community is located is less than or equal to the 
area median income, then all homes in the community are treated as 
affordable;
    (ii) If the median income of the census tract in which the 
manufactured housing community is located exceeds the area median 
income, then the number of homes that are treated as affordable is 
determined by dividing the area median income by the median income of 
the census tract in which the community is located and multiplying the 
resulting ratio by the total number of homes in the community.
    (g) Application of median income.--(1) To determine an area's median 
income under Sec. Sec.1282.17 through 1282.19 and the definitions in 
Sec.1282.1, the area is:
    (i) The metropolitan area, if the property which is the subject of 
the mortgage is in a metropolitan area; and
    (ii) In all other areas, the county in which the property is 
located, except that where the State non-metropolitan median income is 
higher than the county's median income, the area is the State non-
metropolitan area.
    (2) When an Enterprise cannot precisely determine whether a mortgage 
is on dwelling unit(s) located in one area, the Enterprise must 
determine the median income for the split area in the manner prescribed 
by the Federal Financial Institutions Examination Council for reporting 
under the Home Mortgage Disclosure Act (12 U.S.C. 2801 et seq.), if the 
Enterprise can determine that the mortgage is on dwelling unit(s) 
located in:
    (i) A census tract; or
    (ii) A census place code.
    (h) Newly available data. When an Enterprise uses data to determine 
whether a dwelling unit may receive duty to serve credit under the loan 
purchase evaluation area and new data is released after the start of a 
calendar quarter, the Enterprise need not use the new data until the 
start of the following quarter.



Sec.1282.39  Special requirements for loan purchases.

    (a) General. Subject to FHFA's determination of whether an activity 
or objective will receive duty to serve credit under a particular 
underserved market, the activities or objectives identified in this 
section will be treated as mortgage purchases as described and receive 
credit under the loan purchase evaluation area. An activity or objective 
that is covered by more than one paragraph below must satisfy the 
requirements of each such paragraph.
    (b) Credit enhancements.--(1) Dwelling units financed under a credit 
enhancement entered into by an Enterprise will be treated as mortgage 
purchases only when:
    (i) The Enterprise provides a specific contractual obligation to 
ensure timely payment of amounts due under a mortgage or mortgages 
financed by the issuance of housing bonds (such bonds may be issued by 
any entity, including a State or local housing finance agency); and
    (ii) The Enterprise assumes a credit risk in the transaction 
substantially equivalent to the risk that would have been assumed by the 
Enterprise if it had securitized the mortgages financed by such bonds.
    (2) When an Enterprise provides a specific contractual obligation to 
ensure timely payment of amounts due under any mortgage originally 
insured by a public purpose mortgage insurance entity or fund, the 
Enterprise may, on a case-by-case basis, seek approval from the Director 
for such transactions to receive credit under the loan purchase 
evaluation area for a particular underserved market.
    (c) Risk-sharing. Mortgages purchased under risk-sharing 
arrangements between an Enterprise and any federal agency under which 
the Enterprise is responsible for a substantial amount of the risk will 
be treated as mortgage purchases.
    (d) Participations. Participations purchased by an Enterprise will 
be treated as mortgage purchases only when the

[[Page 465]]

Enterprise's participation in the mortgage is 50 percent or more.
    (e) Cooperative housing and condominiums.--(1) The purchase of a 
mortgage on a cooperative housing unit (``a share loan'') or a mortgage 
on a condominium unit will be treated as a mortgage purchase. Such a 
purchase will receive duty to serve credit in the same manner as a 
mortgage purchase of single-family owner-occupied units, i.e., 
affordability is based on the income of the mortgagor(s).
    (2) The purchase of a blanket mortgage on a cooperative building or 
a mortgage on a condominium project will be treated as a mortgage 
purchase. The purchase of a blanket mortgage on a cooperative building 
will receive duty to serve credit in the same manner as a mortgage 
purchase of a multifamily rental property, except that affordability 
must be determined based solely on the comparable market rents used in 
underwriting the blanket loan. If the underwriting rents are not 
available, the loan will not be treated as a mortgage purchase. The 
purchase of a mortgage on a condominium project will receive duty to 
serve credit in the same manner as a mortgage purchase of a multifamily 
rental property.
    (3) Where an Enterprise purchases both a blanket mortgage on a 
cooperative building and share loans for units in the same building, 
both the mortgage on the cooperative building and the share loans will 
be treated as mortgage purchases. Where an Enterprise purchases both a 
mortgage on a condominium project and mortgages on individual dwelling 
units in the same project, both the mortgage on the condominium project 
and the mortgages on individual dwelling units will be treated as 
mortgage purchases.
    (f) Seasoned mortgages. An Enterprise's purchase of a seasoned 
mortgage will be treated as a mortgage purchase.
    (g) Purchase of refinancing mortgages. The purchase of a refinancing 
mortgage by an Enterprise will be treated as a mortgage purchase only if 
the refinancing is an arms-length transaction that is borrower-driven.
    (h) Mortgage revenue bonds. The purchase or guarantee by an 
Enterprise of a mortgage revenue bond issued by a state or local housing 
finance agency will be treated as a purchase of the underlying mortgages 
only to the extent the Enterprise has sufficient information to 
determine whether the underlying mortgages or mortgage-backed securities 
serve the income groups targeted by the duty to serve.
    (i) Seller dissolution option.--(1) Mortgages acquired through 
transactions involving seller dissolution options will be treated as 
mortgage purchases only when:
    (i) The terms of the transaction provide for a lockout period that 
prohibits the exercise of the dissolution option for at least one year 
from the date on which the transaction was entered into by the 
Enterprise and the seller of the mortgages; and
    (ii) The transaction is not dissolved during the one-year minimum 
lockout period.
    (2) FHFA may grant an exception to the one-year minimum lockout 
period described in paragraphs (i)(1)(i) and (i)(1)(ii) of this section, 
in response to a written request from an Enterprise, if FHFA determines 
that the transaction furthers the purposes of the Enterprise's Charter 
Act and the Safety and Soundness Act.
    (3) For purposes of paragraph (i) of this section, ``seller 
dissolution option'' means an option for a seller of mortgages to the 
Enterprises to dissolve or otherwise cancel a mortgage purchase 
agreement or loan sale.



Sec.1282.40  Failure to comply.

    If the Director determines that an Enterprise has not complied with, 
or there is a substantial probability that an Enterprise will not comply 
with, the duty to serve a particular underserved market in a given year 
and the Director determines that such compliance is or was feasible, the 
Director will follow the procedures in 12 U.S.C. 4566(b).



Sec.1282.41  Housing plans.

    (a) General. If the Director determines that an Enterprise did not 
comply with, or there is a substantial probability that an Enterprise 
will not comply with, the duty to serve a particular underserved market 
in a given

[[Page 466]]

year, the Director may require the Enterprise to submit a housing plan 
for approval by the Director.
    (b) Nature of housing plan. If the Director requires a housing plan, 
the housing plan must:
    (1) Be feasible;
    (2) Be sufficiently specific to enable the Director to monitor 
compliance periodically;
    (3) Describe the specific actions that the Enterprise will take:
    (i) To comply with the duty to serve a particular underserved market 
for the next calendar year; or
    (ii) To make such improvements and changes in its operations as are 
reasonable in the remainder of the year, if the Director determines that 
there is a substantial probability that the Enterprise will fail to 
comply with the duty to serve a particular underserved market in such 
year; and
    (4) Address any additional matters relevant to the housing plan as 
required, in writing, by the Director.
    (c) Deadline for submission. The Enterprise must submit the housing 
plan to the Director within 45 days after issuance of a notice requiring 
the Enterprise to submit a housing plan. The Director may extend the 
deadline for submission of a housing plan, in writing and for a time 
certain, to the extent the Director determines an extension is 
necessary.
    (d) Review of housing plans. The Director will review and approve or 
disapprove housing plans in accordance with 12 U.S.C. 4566(c)(4) and 
(c)(5).
    (e) Resubmission. If the Director disapproves an initial housing 
plan submitted by an Enterprise, the Enterprise must submit an amended 
housing plan acceptable to the Director not later than 15 days after the 
Director's disapproval of the initial housing plan. The Director may 
extend the deadline if the Director determines that an extension is in 
the public interest. If the amended housing plan is not acceptable to 
the Director, the Director may afford the Enterprise 15 days to submit a 
new housing plan.



                    Subpart D_Reporting Requirements



Sec.1282.61  General.

    This subpart establishes data submission and reporting requirements 
to carry out the requirements of the Enterprises' Charter Acts and the 
Safety and Soundness Act.



Sec.1282.62  Mortgage reports.

    (a) Loan-level data elements. To implement the data collection and 
submission requirements for mortgage data, and to assist the Director in 
monitoring the Enterprises' housing goal activities, each Enterprise 
shall collect and compile computerized loan-level data on each mortgage 
purchased in accordance with 12 U.S.C. 1456(e) and 1723a(m). The 
Director may, from time to time, issue a list entitled ``Required Loan-
level Data Elements'' specifying the loan-level data elements to be 
collected and maintained by the Enterprises and provided to the 
Director. The Director may revise the list by written notice to the 
Enterprises.
    (b) Quarterly Mortgage Reports. Each Enterprise shall submit to the 
Director a quarterly Mortgage Report. The fourth quarter Mortgage Report 
shall serve as the Annual Mortgage Report and shall be designated as 
such. Each Mortgage Report shall include:
    (1) Aggregations of the loan-level mortgage data compiled by the 
Enterprise under paragraph (a) of this section for year-to-date mortgage 
purchases, in the format specified in writing by the Director;
    (2) Year-to-date dollar volume, number of units, and number of 
mortgages on owner-occupied and rental properties purchased by the 
Enterprise that do, and do not, qualify under each housing goal as set 
forth in this part; and
    (3) Year-to-date computerized loan-level data consisting of the data 
elements required under paragraph (a) of this section.
    (c) Timing of Reports. The Enterprises shall submit the Mortgage 
Report for each of the first 3 quarters of each year within 60 days of 
the end of the quarter. Each Enterprise shall submit its Annual Mortgage 
Report within 75 days after the end of the calendar year.

[[Page 467]]

    (d) Revisions to Reports. At any time before submission of its 
Annual Mortgage Report, an Enterprise may revise any of its quarterly 
reports for that year.
    (e) Format. The Enterprises shall submit to the Director 
computerized loan-level data with the Mortgage Report, in the format 
specified in writing by the Director.



Sec.1282.63  Annual Housing Activities Report.

    To comply with the requirements in sections 309(n) of the Fannie Mae 
Charter Act and 307(f) of the Freddie Mac Act and assist the Director in 
preparing the Director's Annual Report to Congress, each Enterprise 
shall submit to the Director an AHAR including the information listed in 
those sections of the Charter Acts. Each Enterprise shall submit such 
report within 75 days after the end of each calendar year, to the 
Director, the Committee on Financial Services of the House of 
Representatives, and the Committee on Banking, Housing, and Urban 
Affairs of the Senate. Each Enterprise shall make its AHAR available to 
the public online and at its principal and regional offices. Before 
making any such report available to the public, the Enterprise may 
exclude from the report any information that the Director has deemed 
proprietary.



Sec.1282.64  Periodic reports.

    Each Enterprise shall provide to the Director such reports, 
information and data as the Director may request from time to time.



Sec.1282.65  Enterprise data integrity.

    (a) Certification. (1) The senior officer of each Enterprise who is 
responsible for submitting the fourth quarter Annual Mortgage Report and 
the AHAR under sections 309(m) and (n) of the Fannie Mae Charter Act or 
sections 307(e) and (f) of the Freddie Mac Act, as applicable, or for 
submitting any other report(s), data or information for which 
certification is requested in writing by the Director, shall certify 
such report(s), data or information.
    (2) The certification shall state as follows: ``To the best of my 
knowledge and belief, the information provided herein is true, correct 
and complete.''
    (b) Adjustment to correct errors, omissions or discrepancies in AHAR 
data. FHFA shall determine the official housing goal performance figure 
for each Enterprise under the housing goals on an annual basis. FHFA may 
resolve any error, omission or discrepancy by adjusting the Enterprise's 
official housing goal performance figure. If the Director determines 
that the year-end data reported by an Enterprise for a year preceding 
the latest year for which data on housing goals performance was reported 
to FHFA contained a material error, omission or discrepancy, the 
Director may increase the corresponding housing goal for the current 
year by the number of mortgages (or dwelling units) that the Director 
determines were overstated in the prior year's goal performance.



Sec.1282.66  Enterprise reports on duty to serve.

    (a) First and third quarter reports. Each Enterprise must submit to 
FHFA a first and third quarter report on its activities and objectives 
under each underserved market in its Underserved Markets Plan for the 
loan purchase evaluation area. The report must include detailed year-to-
date information on the Enterprise's progress towards meeting the 
activities and objectives in its Plan. The Enterprise must submit the 
first and third quarter reports to FHFA within 60 days of the end of the 
respective quarter.
    (b) Second quarter report. Each Enterprise must submit to FHFA a 
second quarter report on all of the activities and objectives under each 
underserved market in its Underserved Markets Plan. The report must 
include detailed year-to-date information on the Enterprise's progress 
towards meeting the activities and objectives under each underserved 
market in its Plan, and contain narrative and summary statistical 
information for the Plan objectives, supported by appropriate 
transaction level detail. The Enterprise must submit the second quarter 
report to FHFA within 60 days of the end of the second quarter.
    (c) Annual report. To comply with the requirements in sections 
309(n) of the

[[Page 468]]

Fannie Mae Charter Act and 307(f) of the Freddie Mac Act and for 
purposes of FHFA's Annual Housing Report to Congress, each Enterprise 
must submit to FHFA an annual report on all of the activities and 
objectives under each underserved market in its Underserved Markets Plan 
no later than 75 days after the end of each calendar year. For each 
underserved market, the Enterprise's annual report must include, at a 
minimum: A description of the Enterprise's market opportunities for loan 
purchases during the evaluation year to the extent data is available; 
the volume of qualifying loans purchased by the Enterprise during the 
evaluation year; a comparison of the Enterprise's loan purchases with 
its loan purchases in prior years; a comparison of market opportunities 
with the size of the relevant markets in the past, to the extent data is 
available; and narrative and summary statistical information for the 
Plan objectives, supported by appropriate transaction level data.
    (d) Public disclosure of information from reports. FHFA will make 
public certain information from the first, second, and third quarter 
reports at a reasonable time after the end of the calendar year for 
which they apply, with any confidential and proprietary information and 
data omitted. FHFA will make public certain information from the annual 
reports at a reasonable time after receiving them from the Enterprises, 
with any confidential and proprietary information and data omitted. In 
the third year of the Underserved Markets Plans, FHFA will make public 
certain narrative information from the year's second quarter report, 
excluding data under the loan purchase evaluation area and any 
confidential and proprietary information and data, at a reasonable time 
after receiving it within the calendar year.

[81 FR 96300, Dec. 29, 2016]



PART 1290_COMMUNITY SUPPORT REQUIREMENTS--Table of Contents



Sec.
1290.1 Definitions.
1290.2 Community support requirements.
1290.3 Community support standards.
1290.4 FHFA review and decision on Community Support Statements.
1290.5 Probation or restriction on member access to long-term Bank 
          advances.
1290.6 Bank community support programs.
1290.7 Bank Advisory Council Annual Reports.
1290.8 Compliance dates.

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

    Source: 80 FR 30342, May 28, 2015, unless otherwise noted.



Sec.1290.1  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 Bank Act (12 U.S.C. 
1430(j)(11)) and part 1291 of this chapter.
    CDFI Fund means the Community Development Financial Institutions 
Fund established under section 104(a) of the Community Development 
Banking and Financial Institutions Act of 1994 (12 U.S.C. 4703(a)).
    Community development financial institution or CDFI means an 
institution that is certified as a community development financial 
institution by the CDFI Fund under the Community Development Banking and 
Financial Institutions Act of 1994 (12 U.S.C. 4701 et seq.).
    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

[[Page 469]]

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 means providing financing for economic 
development projects for targeted beneficiaries.

[80 FR 30342, May 28, 2015, as amended at 81 FR 76300, Nov. 2, 2016]



Sec.1290.2  Community support requirements.

    (a) Bank notice to members. By a date designated by FHFA notice 
pursuant to paragraph (f) of this section, each Bank must provide 
written notice to each of its members subject to community support 
review that each such member must submit to FHFA a completed Community 
Support Statement in accordance with the requirements of paragraph (b) 
of this section. Unless instructed otherwise by FHFA, the Bank must 
provide to each member a blank Community Support Statement Form upon 
request by the member. FHFA will provide a copy of this blank form to 
the Bank. Upon a member's request, the Bank must provide assistance to 
the member in completing the Community Support Statement.
    (b) Community Support Statement submission requirements. Except as 
provided in paragraphs (d) and (e) of this section, in each odd-numbered 
year, each member must submit to FHFA a completed Community Support 
Statement (and any other related information FHFA may require) in 
accordance with the submission dates designated by FHFA notice pursuant 
to paragraph (f) of this section. The member's completed Community 
Support Statement must be executed by an appropriate senior officer of 
the member and must be submitted to FHFA pursuant to FHFA's submission 
instructions.
    (c) Notice to public.--(1) By the Banks. By a date designated by 
FHFA notice pursuant to paragraph (f) of this section, each Bank must 
provide written notice to its Advisory Council, and to interested 
nonprofit housing developers, community groups, and other interested 
parties in its district, and include a notice on its public website, of 
the opportunity to submit comments on the community support programs and 
activities of Bank members, with the name and address of each member 
subject to community support review, and the deadline and FHFA contact 
information for submission of any comments to FHFA.
    (2) By FHFA. FHFA may publish a notice in the Federal Register 
notifying the public of the opportunity to submit comments on the 
community support programs and activities of Bank members, with the 
deadline and FHFA contact information for submission of any comments to 
FHFA.
    (3) Consideration of comments. In reviewing a member for compliance 
with the community support requirements, FHFA will take into 
consideration any public comments it has received concerning the member.
    (d) Non-Depository Community Development Financial Institutions. A 
member that has been certified as a community development financial 
institution by the CDFI Fund, other than a member that also is an 
insured depository institution or a CDFI credit union (as defined in 12 
CFR 1263.1), is deemed to be in compliance with the community support 
requirements of section 10(g) of the Federal Home Loan Bank Act (12 
U.S.C. 1430(g)) and this part, by virtue of that certification. Such 
non-depository CDFIs, therefore, are not required to submit Community 
Support Statements to FHFA under paragraph (b) of this section and are 
not subject to community support review under this part.

[[Page 470]]

    (e) New Bank members. A member of a Bank is not required to submit a 
Community Support Statement under paragraph (b) of this section if the 
institution has been a member of a Bank for a total of less than one 
year as of March 31 of the year in which submissions are due under 
paragraph (b) of this section.
    (f) Designation of submission and notice dates. FHFA will designate 
applicable dates for each biennial review cycle via written notice to 
the Banks. The notice will designate the date by which FHFA will begin 
accepting Community Support Statements and the date by which Community 
Support Statements must be submitted, as well as the dates by which the 
Banks must notify members under paragraph (a) of this section and the 
public under paragraph (c)(1) of this section. FHFA's written notice to 
the Banks will be issued at least 90 days prior to the date by which the 
Banks must notify members under paragraph (a).

[83 FR 52117, Oct. 16, 2018]



Sec.1290.3  Community support standards.

    (a) In general. A member subject to community support review meets 
the community support requirements of this part if it submits a 
completed Community Support Statement that demonstrates to FHFA's 
satisfaction that the member complies with both the CRA standard, if the 
member is subject to the requirements of the CRA, and the first-time 
homebuyer standard.
    (b) CRA standard. A member meets the CRA standard if it is subject 
to the requirements of the CRA and the rating in the member's most 
recent CRA evaluation is ``Outstanding'' or ``Satisfactory.''
    (c) First-time homebuyer standard. A member meets the first-time 
homebuyer standard if at least one of the following is satisfied:
    (1) The member is subject to the requirements of the CRA and the 
rating in the member's most recent CRA evaluation is ``Outstanding'';
    (2) The member has an established record of lending to first-time 
homebuyers;
    (3) The member has a program whereby it actively seeks to lend or 
support lending to first-time homebuyers, including, but not limited to, 
the following--
    (i) Providing special credit products with flexible underwriting 
standards for first-time homebuyers;
    (ii) Participating in Federal, State, or local government, or 
nationwide homeownership lending programs that benefit, serve, or are 
targeted to, first-time homebuyers; or
    (iii) Participating in loan consortia for first-time homebuyer loans 
or loans that serve predominantly low- or moderate-income borrowers;
    (4) The member 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--
    (i) Providing, participating in, or supporting special counseling 
programs or other homeownership education activities that benefit, 
serve, or are targeted to, first-time homebuyers;
    (ii) Providing or participating in marketing plans and related 
outreach programs targeted to first-time homebuyers;
    (iii) Providing technical assistance or financial support to 
organizations that assist first-time homebuyers;
    (iv) Participating with or financially supporting community or 
nonprofit groups that assist first-time homebuyers;
    (v) Holding investments or making loans that support first-time 
homebuyer programs;
    (vi) Holding mortgage-backed securities that may include a pool of 
loans to low- and moderate-income homebuyers;
    (vii) Participating or investing in service organizations that 
assist credit unions in providing mortgages to first-time homebuyers or 
low- or moderate-income households; or
    (viii) Participating in a Bank Affordable Housing Program or other 
Bank targeted community investment or development program;
    (5) The member engages in other activities, not covered by 
paragraphs (c)(1) through (c)(4) of this section, that demonstrate to 
FHFA's satisfaction

[[Page 471]]

the member's support for first-time homebuyers financing; or
    (6) FHFA determines that mitigating factors affect the member's 
ability to engage in activities to assist first-time or potential first-
time homebuyers as described in paragraphs (c)(1) through (c)(5) of this 
section.



Sec.1290.4  FHFA review and decision on Community Support Statements.

    (a) Review by FHFA. FHFA will review each member approximately once 
every two years for compliance with the community support requirements 
of this part.
    (b) Complete Community Support Statements. A Community Support 
Statement is complete when a member has provided to FHFA all of the 
information required by this part.
    (c) Decision on Community Support Statements. FHFA will provide 
written notice to the member's Bank of FHFA's determination regarding 
the Community Support Statement submitted by the member. A notice 
placing a member on probation or restricting the member's access to 
long-term Bank advances will identify the reasons for FHFA's 
determination. The Bank must promptly notify the member of FHFA's 
determination regarding the member's Community Support Statement.



Sec.1290.5  Probation or restriction on member access to long-term Bank advances.

    (a) Probation. FHFA will place a member on probation if the member 
is subject to the CRA, its most recent CRA rating was ``Needs to 
Improve,'' and either the member has not received any other CRA rating 
or its second-most recent CRA rating was ``Outstanding'' or 
``Satisfactory.''
    (b) Restriction. FHFA will restrict a member's access to long-term 
advances if:
    (1) The member failed to sign its Community Support Statement 
submitted to FHFA pursuant to Sec.1290.2(b), failed to include its CRA 
rating in its Community Support Statement submitted to FHFA if subject 
to the CRA, or failed to submit a Community Support Statement at all to 
FHFA;
    (2) The member is subject to the CRA and its most recent CRA rating 
was ``Substantial Noncompliance'';
    (3) The member is subject to the CRA, its most recent CRA rating was 
``Needs to Improve,'' and its second-most recent CRA rating was ``Needs 
to Improve'';
    (4) The member is subject to the CRA, its most recent CRA rating was 
``Needs to Improve,'' its second-most recent CRA rating was 
``Substantial Noncompliance,'' and its third-most recent CRA rating was 
``Needs to Improve'' or ``Substantial Noncompliance''; or
    (5) The member has not demonstrated compliance with the first-time 
homebuyer standard.
    (c) Effective dates.--(1) Probation. A probationary period under 
Sec.1290.5(a) will extend until the member's appropriate Federal 
banking agency completes its next CRA evaluation and issues a rating for 
the member. Probation will take effect on the date the notice required 
under Sec.1290.4(c) is sent by FHFA to the Bank. The member will be 
eligible to receive long-term advances during the probationary period.
    (2) Restriction. A restriction on access to long-term advances will 
take effect 30 days after the date the notice required under Sec.
1290.4(c) is sent by FHFA to the Bank, unless the member demonstrates 
compliance with the requirements of this part before the end of the 30-
day period.
    (d) Removing a restriction.--(1) FHFA may remove a restriction on a 
member's access to long-term advances imposed under this section if FHFA 
determines that application of the restriction may adversely affect the 
safety and soundness of the member. A member may submit a written 
request to FHFA to remove a restriction on access to long-term advances 
under this paragraph (d)(1). The written request must include 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. FHFA

[[Page 472]]

will consider each written request within 30 calendar days of receipt.
    (2) FHFA may remove a restriction on a member's access to long-term 
advances imposed under this section if FHFA determines that the member 
subsequently has complied with the requirements of this part. A member 
may submit a written request to FHFA to remove a restriction on access 
to long-term advances under this paragraph (d)(2). The written request 
must state with specificity how the member has complied with the 
requirements of this part. FHFA will consider each written request 
within 30 calendar days of receipt.
    (3) FHFA may remove a restriction on a member's access to long-term 
advances imposed under this section and place the member on probation if 
the member is subject to the CRA, its most recent CRA rating was ``Needs 
to Improve,'' its second-most recent CRA rating was ``Substantial 
Noncompliance,'' and either the member has not received any other CRA 
rating or its third-most recent CRA rating was ``Outstanding'' or 
``Satisfactory.''
    (4) FHFA will provide written notice to the member's Bank of any 
determination to remove a restriction under this paragraph (d). The Bank 
shall promptly notify the member of FHFA's determination to remove a 
restriction. FHFA's determination shall take effect on the date the 
notice is sent by FHFA to the Bank.
    (e) Bank Affordable Housing Programs and other Bank Community 
Investment Cash Advance Programs. A member that is subject to a 
restriction on access to long-term advances under this part is not 
eligible to participate in the Bank's Affordable Housing Program (AHP) 
under part 1291 of this chapter or in other Bank Community Investment 
Cash Advance (CICA) programs offered under part 1292 of this chapter. 
The restriction in this paragraph (e) does not apply to AHP or other 
CICA applications or funding approved before the date the restriction is 
imposed.

[80 FR 30342, May 28, 2015, as amended at 83 FR 52118, Oct. 16, 2018]



Sec.1290.6  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. The Bank's 
board of directors shall not delegate to a committee of the board, Bank 
officers, or other Bank employees the responsibility to adopt or amend 
the Targeted Community Lending Plan. The Targeted Community Lending Plan 
shall:
    (i) Reflect market research conducted 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) Be developed in consultation with (and may only be amended 
after consultation with) its Advisory Council and with members, housing 
associates, and public and private economic development organizations in 
the Bank's district;
    (iv) Establish quantitative targeted community lending performance 
goals;
    (v) Identify and assess significant affordable housing needs in its 
district that will be addressed through its Affordable Housing Program 
under 12 CFR part 1291, reflecting market research conducted or obtained 
by the Bank; and

[[Page 473]]

    (vi) For any Targeted Funds established by the Bank under its 
Affordable Housing Program, specify, from among the identified 
affordable housing needs, the particular affordable housing needs the 
Bank plans to address through such Targeted Funds.
    (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.
    (c) Public access. A Bank shall publish its current Targeted 
Community Lending Plan on its publicly available website, and shall 
publish any amendments to its Targeted Community Lending Plan on the 
website within 30 days after the date of their adoption by the Bank's 
board of directors. If a Bank plans to establish any Targeted Funds 
under its Affordable Housing Program, the Bank must publish its Targeted 
Community Lending Plan (as amended) on the website on or before the date 
of publication of its annual Affordable Housing Program Implementation 
Plan, and at least 90 days before the first day that applications may be 
submitted to the Targeted Fund, unless the Targeted Fund is specifically 
targeted to address a federal- or state-declared disaster.

[80 FR 30342, May 28, 2015, as amended at 83 FR 61231, Nov. 28, 2018]



Sec.1290.7  Bank Advisory Council Annual Reports.

    Each Annual Report submitted by a Bank's Advisory Council to FHFA 
pursuant to section 10(j)(11) of the Bank Act (12 U.S.C. 1430(j)(11)) 
must include an analysis of the Bank's targeted community lending and 
affordable housing activities.



Sec.1290.8  Compliance dates.

    From December 28, 2018 to December 31, 2020, a Bank shall comply 
with either prior part 1290 (in 12 CFR part 1290 (January 1, 2018 
edition)) or this part 1290. On and after January 1, 2021, a Bank shall 
comply with this part 1290.

[83 FR 61231, Nov. 28, 2018]



PART 1291_FEDERAL HOME LOAN BANKS' AFFORDABLE HOUSING PROGRAM--
Table of Contents



                            Subpart A_General

Sec.
1291.1 Definitions.
1291.2 Compliance dates.

             Subpart B_Program Administration and Governance

1291.10 Required annual AHP contribution.
1291.11 Temporary suspension of AHP contributions.
1291.12 Allocation of required annual AHP contribution.
1291.13 Targeted Community Lending Plan; AHP Implementation Plan.
1291.14 Advisory Councils.
1291.15 Agreements.
1291.16 Conflicts of interest.

                Subpart C_General Fund and Targeted Funds

1291.20 Establishment of programs.
1291.21 Eligible applicants.
1291.22 Funding rounds; application process.
1291.23 Eligible projects.
1291.24 Eligible uses.
1291.25 Scoring methodologies.
1291.26 Scoring criteria for the General Fund.
1291.27 Scoring criteria for Targeted Funds.
1291.28 Approval of AHP applications under the General Fund and Targeted 
          Funds.
1291.29 Modifications of approved AHP applications.
1291.30 Procedures for funding.
1291.31 Lending and re-lending of AHP direct subsidy by revolving loan 
          funds.
1291.32 Use of AHP subsidy in loan pools.

               Subpart D_Homeownership Set-Aside Programs

1291.40 Establishment of programs.
1291.41 Eligible applicants.
1291.42 Eligibility requirements.
1291.43 Approval of AHP applications.
1291.44 Procedures for funding.

[[Page 474]]

                          Subpart E_Monitoring

1291.50 Monitoring under General Fund and Targeted Funds.
1291.51 Monitoring under Homeownership Set-Aside Programs.

              Subpart F_Remedial Actions for Noncompliance

1291.60 Remedial actions for project noncompliance.
1291.61 Recovery of subsidy for member noncompliance.
1291.62 Bank reimbursement of AHP fund.
1291.63 Suspension and debarment.
1291.64 Use of repaid AHP subsidies.
1291.65 Transfer of Program administration.

                Subpart G_Affordable Housing Reserve Fund

1291.70 Affordable Housing Reserve Fund.

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

    Source: 83 FR 61231, Nov. 28, 2018, unless otherwise noted.



                            Subpart A_General



Sec.1291.1  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 
definition 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 means the Affordable Housing Program required to be established 
by the Banks pursuant to 12 U.S.C. 1430(j) and this part.
    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 a Bank's General Fund and any Targeted Funds.
    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 General Fund and any 
Targeted Funds 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.
    Extremely low-income household means a household that has an income 
at or below 30 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 selected from those 
enumerated in the definition of ``median income for the area,'' unless 
such median income standard has no household size adjustment 
methodology.
    Family member means any individual related to a person by blood, 
marriage, or adoption.
    Funding round means a time period, as determined by a Bank, during 
which the Bank accepts AHP applications for subsidy under its General 
Fund and any Targeted Funds.
    General Fund means a program that each Bank is required to establish 
and under which the Bank approves (i.e., awards) applications for AHP 
subsidy through a competitive application

[[Page 475]]

scoring process and disburses the subsidy, pursuant to the requirements 
of this part.
    Homeownership Set-Aside Program means a program established by a 
Bank, in its discretion, under which the Bank approves (i.e., awards) 
applications for AHP direct subsidy through a noncompetitive process 
developed by the Bank and disburses the subsidy, pursuant to the 
requirements of this part.
    Household's investment means the following, to the extent paid by 
the household and documented (in the Closing Disclosure or other 
settlement statement, if applicable, or elsewhere) to the Bank or its 
designee:
    (1) Reasonable and customary costs paid by the household in 
connection with the purchase of the unit (including real estate broker's 
commission, attorney's fees, and title search fees);
    (2) Any down payment paid in connection with the household's 
purchase of the unit;
    (3) The cost of any capital improvements made after the household's 
purchase of the unit until the time of the subsequent sale, transfer, 
assignment of title or deed, or refinancing; and
    (4) The amount of principal on any mortgage senior to the AHP 
subsidy lien or other legally enforceable AHP subsidy repayment 
obligation repaid by the household.
    LIHTC means Low-Income Housing Tax Credits under section 42 of the 
Internal Revenue Code (26 U.S.C. 42).
    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 selected from those 
enumerated in the definition of ``median income for the area,'' unless 
such median income standard has no household size adjustment 
methodology.
    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
    (5) The median income for an applicable definable geographic area, 
as published by a federal, state, or local government entity, and 
approved by FHFA, at the request of a Bank, for use under the AHP.
    Multifamily building means a structure with five or more dwelling 
units.
    Net earnings of a Bank means the net earnings of a Bank for a 
calendar year before declaring or paying any dividend under section 16 
of the Bank 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.''
    Net proceeds means:
    (1) In the case of a sale, transfer, or assignment of title or deed 
of an AHP-assisted unit by a household during the AHP five-year 
retention period, the sales price minus reasonable and customary costs 
paid by the household in connection with the transaction (including real 
estate broker's commission, attorney's fees, and title search fees) and 
outstanding debt superior to the AHP subsidy lien or other legally 
enforceable AHP subsidy repayment obligation;
    (2) In the case of a refinancing of an AHP-assisted unit by a 
household during the AHP five-year retention period, the principal 
amount of the new mortgage minus reasonable and customary costs paid by 
the household in connection with the transaction (including attorney's 
fees and title search fees) and the principal amount of the refinanced 
mortgage.
    Owner-occupied project means, for purposes of a Bank's General Fund 
and

[[Page 476]]

any Targeted Funds, 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 two to four 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 a Bank's General Fund and any 
Targeted Funds, 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 communities.
    Retention period means:
    (1) Five years from closing for an AHP-assisted owner-occupied unit 
where the AHP subsidy is used for purchase of the unit or for purchase 
in conjunction with rehabilitation of the unit; and
    (2) Fifteen years from the date of 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 one to four 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.
    Targeted Fund means a program established by a Bank, in its 
discretion, to address specific affordable housing needs within its 
district that are unmet, have proven difficult to address through its 
General Fund, or align with objectives identified in its strategic plan, 
under which the Bank approves (i.e., awards) applications for AHP 
subsidy through a competitive application scoring process developed by 
the Bank and disburses the subsidy, pursuant to the requirements of this 
part.
    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 selected from those enumerated in 
the definition of ``median income for the area,'' 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 34 inches wide, offering 32 inches 
of clear passage space.



Sec.1291.2  Compliance dates.

    (a) General January 1, 2021 compliance date. Except as provided in 
paragraph (b) of this section, from December 28, 2018 to December 31, 
2020, a Bank shall comply with either prior part 1291 (in 12 CFR part 
1291 (January 1, 2018 edition)) or this part 1291, and on and after

[[Page 477]]

January 1, 2021, a Bank shall comply with this part 1291.
    (b) January 1, 2020 compliance date for owner-occupied retention 
agreements; exception for adoption of proxies. From December 28, 2018 to 
December 31, 2019, a Bank shall comply with either prior Sec.
1291.9(a)(7) (in 12 CFR part 1291 (January 1, 2018 edition)) or Sec.
1291.15(a)(7), and on and after January 1, 2020, a Bank shall comply 
with Sec.1291.15(a)(7), except that a Bank shall comply with Sec.
1291.15(a)(7)(ii)(B) on the date set forth in the FHFA guidance on 
proxies referenced therein.



             Subpart B_Program Administration and Governance



Sec.1291.10  Required annual AHP contribution.

    Each Bank shall contribute annually to its Program the greater of:
    (a) 10 percent of the Bank's net earnings for the previous year; or
    (b) 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.



Sec.1291.11  Temporary suspension of AHP contributions.

    (a) Request to FHFA. If a Bank finds that the contributions required 
pursuant to Sec.1291.10 are contributing to the financial instability 
of the Bank, the Bank may apply in writing to FHFA for a temporary 
suspension of such contributions.
    (b) Director review--(1) Financial instability. In determining the 
financial instability of a Bank, the Director 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 Director 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.



Sec.1291.12  Allocation of required annual AHP contribution.

    Each Bank, after consultation with its Advisory Council and pursuant 
to written policies adopted by the Bank's board of directors, shall meet 
the following requirements for allocation of its required annual AHP 
contribution.
    (a) General Fund. Each Bank shall allocate annually at least 50 
percent of its required annual AHP contribution to provide funds to 
members through a General Fund established and administered by the Bank 
pursuant to the requirements of this part.
    (b) Homeownership Set-Aside Programs. A Bank may, in its discretion, 
allocate annually, in the aggregate, up to the greater of $4.5 million 
or 35 percent of its required annual AHP contribution to provide funds 
to members participating in Homeownership Set-Aside Programs established 
and administered by the Bank pursuant to the requirements of this part, 
provided that at least one-third of the Bank's aggregate annual set-
aside allocation to such programs is allocated to assist first-time 
homebuyers or households for owner-occupied rehabilitation, or a 
combination of both.
    (c) Targeted Funds--phase-in requirements for funding allocations. 
Unless otherwise directed by FHFA and subject to the phase-in 
requirements for the number of Targeted Funds in Sec.1291.20(b), a 
Bank may, in its discretion, allocate annually, up to:
    (1) 20 percent, in the aggregate, of its required annual AHP 
contribution to any Targeted Funds;
    (2) 30 percent, in the aggregate, of its required annual AHP 
contribution to any Targeted Funds, provided that it allocated at least 
20 percent, in the aggregate, of its required annual AHP contribution to 
one or more Targeted Funds in any preceding year; or
    (3) 40 percent, in the aggregate, of its required annual AHP 
contribution to any Targeted Funds, provided that it

[[Page 478]]

allocated at least 30 percent, in the aggregate, of its required annual 
AHP contribution to one or more Targeted Funds in any preceding year.
    (d) Acceleration of funding. A Bank may, in its discretion, 
accelerate to its current year's Program from future required annual AHP 
contributions an amount up to the greater of $5 million or 20 percent of 
its required annual AHP contribution for the current year. The Bank may 
credit the amount of the accelerated contribution against required AHP 
contributions under this part 1291 over one or more of the subsequent 
five years.
    (e) No delegation. A Bank's board of directors shall not delegate to 
a committee of the board, Bank officers, or other Bank employees the 
responsibility for adopting the Bank's policies for its General Fund and 
any Targeted Funds and Homeownership Set-Aside Programs.



Sec.1291.13  Targeted Community Lending Plan; AHP Implementation Plan.

    (a) Targeted Community Lending Plan--(1) Identification of housing 
needs. Pursuant to the requirements of 12 CFR 1290.6(a)(5)(v) and (vi), 
a Bank's annual Targeted Community Lending Plan adopted under its 
community support program shall, among other things, identify the 
significant affordable housing needs in its district that will be 
addressed through its AHP, as well as any specific affordable housing 
needs it plans to address through any Targeted Funds as set forth in its 
AHP Implementation Plan.
    (2) Public access. A Bank shall publish its current Targeted 
Community Lending Plan on its publicly available website, and shall 
publish any amendments to its Targeted Community Lending Plan on the 
website within 30 days after the date of their adoption by the Bank's 
board of directors. If a Bank plans to establish any Targeted Funds 
under its AHP, the Bank must publish its Targeted Community Lending Plan 
(as amended) on the website on or before the date of publication of its 
annual AHP Implementation Plan, and at least 90 days before the first 
day that applications may be submitted to the Targeted Fund, unless the 
Targeted Fund is specifically targeted to address a federal- or state-
declared disaster.
    (3) Notification of Plan amendments to FHFA. A Bank shall notify 
FHFA of any amendments to its Targeted Community Lending Plan within 30 
days after the date of their adoption by the Bank's board of directors.
    (b) AHP Implementation Plan. Each Bank's board of directors, 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 for such prior consultations with the Advisory 
Council, and shall not delegate to a committee of the board, Bank 
officers, or other Bank employees the responsibility for 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.1291.1.
    (2) For the General Fund established by the Bank pursuant to Sec.
1291.20(a), the Bank's requirements for the General Fund, including the 
Bank's scoring methodology, including its scoring tie-breaker policy 
adopted pursuant to Sec. Sec.1291.25(c) and 1291.28(c), and any policy 
on approving AHP application alternates for funding pursuant to 
Sec. Sec.1291.25(c)(6) and 1291.28(b).
    (3) For each Targeted Fund established by the Bank, if any, pursuant 
to Sec.1291.20(b), the Bank's requirements for the Targeted Fund, 
including the Bank's scoring methodology for each Fund, including its 
scoring tie-breaker policy adopted pursuant to Sec. Sec.1291.25(c) and 
1291.28(c), and any policy on approving AHP application alternates for 
funding pursuant to Sec. Sec.1291.25(c)(6) and 1291.28(b), and the 
parameters adopted pursuant to Sec.1291.20(b)(2).
    (4) The Bank's policy on how it will determine under which Fund to 
approve an application for the same project that is submitted to more 
than one Fund at a Bank in a calendar year and scores high enough to be 
approved

[[Page 479]]

under each Fund, pursuant to Sec.1291.28(d).
    (5) For each Homeownership Set-Aside Program established by the 
Bank, if any, pursuant to Sec.1291.40, the Bank's requirements for the 
program, including the Bank's application and subsidy disbursement 
methodology.
    (6) The Bank's retention agreement requirements for projects and 
households under its General Fund, any Targeted Funds, and any 
Homeownership Set-Aside Programs, pursuant to Sec.1291.15(a)(7) and 
(8), including the proxy or proxies selected by the Bank for determining 
a subsequent purchaser's income pursuant to FHFA guidance under Sec.
1291.15(a)(7)(ii)(B).
    (7) The Bank's standards for approving a relocation plan for current 
occupants of rental projects pursuant to Sec.1291.23(a)(2)(ii)(B).
    (8) Any optional Bank district eligibility requirements adopted by 
the Bank pursuant to Sec.1291.24(c).
    (9) The Bank's requirements for funding revolving loan funds, if 
adopted by the Bank pursuant to Sec.1291.31;
    (10) The Bank's requirements for funding loan pools, if adopted by 
the Bank pursuant to Sec.1291.32;
    (11) The Bank's requirements for monitoring under its General Fund 
and any Targeted Funds and Homeownership Set-Aside Programs pursuant to 
Sec. Sec.1291.50 and 1291.51.
    (12) The Bank's requirements, including time limits, for re-use of 
repaid AHP direct subsidy in the same project, if adopted by the Bank 
pursuant to Sec.1291.64(b).
    (c) 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.
    (d) Notification of Plan amendments to FHFA. A Bank shall notify 
FHFA 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.
    (e) Public access. A Bank shall publish its current AHP 
Implementation Plan on its publicly available website, and shall publish 
any amendments to the AHP Implementation Plan on the website within 30 
days after the date of their adoption by the Bank's board of directors.



Sec.1291.14  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. Community organizations include for-profit organizations.
    (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 three 
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 one or two years solely for 
purposes of reconfiguring the staggering of the three-year terms. No 
Advisory Council member may be appointed to serve for more than three 
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.

[[Page 480]]

    (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 Bank's Targeted Community Lending Plan, and any amendments 
thereto, pursuant to 12 CFR 1290.6(a)(5)(iii);
    (B) The amount of AHP funds to be allocated to the Bank's General 
Fund and any Targeted Funds and Homeownership Set-Aside Programs, 
including how the set-aside funds should be apportioned under the one-
third funding allocation requirement in Sec.1291.12(b);
    (C) The AHP Implementation Plan and any subsequent amendments 
thereto;
    (D) The Bank's scoring methodologies, related definitions, and any 
additional optional district eligibility requirements for the General 
Fund and any Targeted Funds; and
    (E) The eligibility requirements and any priority criteria for any 
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 rounds.
    (3) Annual analysis; public access. (i) Each Advisory Council 
annually shall submit to FHFA 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 FHFA, the Bank shall publish the analysis on 
its publicly available website.
    (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 FHFA.
    (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 Bank Act (12 U.S.C. 
1430(j)(11)).



Sec.1291.15  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 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 owner in 
which the project sponsor or 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.1291.61.
    (ii) Noncompliance by a project sponsor or owner--(A) Agreement. The 
member

[[Page 481]]

shall have in place an agreement with each project sponsor or owner in 
which the project sponsor or owner agrees to repay AHP subsidies to the 
member or the Bank in accordance with the requirements of Sec.1291.60.
    (B) Recovery of AHP subsidies. The member shall recover from the 
project sponsor or owner and repay to the Bank AHP subsidies in 
accordance with the requirements of Sec.1291.60 (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. Sec.1291.50 and 1291.51.
    (ii) Agreement; LIHTC noncompliance notice. The member shall have in 
place an agreement with each project sponsor and owner, in which the 
project sponsor and owner agree to comply with the monitoring 
requirements applicable to such parties, as established by the Bank in 
its monitoring policies pursuant to Sec.1291.50. The member's 
agreement shall also include an agreement by the project owner to 
provide prompt written notice to the Bank if the project also received 
LIHTC and the project is in material and unresolved noncompliance with 
the LIHTC income targeting or rent requirements at any time during the 
AHP 15-year retention period.
    (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) Owner-occupied units--required provisions for retention 
agreements. The member shall ensure that where a household receives AHP 
subsidy for purchase, or purchase in conjunction with rehabilitation, of 
an owner-occupied unit, the unit is subject to a deed restriction or 
other legally enforceable retention agreement or mechanism requiring 
that:
    (i) Notice. The Bank, and in its discretion any designee of the 
Bank, shall be given notice of any sale, transfer, assignment of title 
or deed, or refinancing of the unit by the household occurring during 
the AHP five-year retention period;
    (ii) Repayment of subsidy; exceptions. In the case of a sale, 
transfer, assignment of title or deed, or refinancing of the unit by the 
household during the retention period, the amount of AHP subsidy 
calculated in accordance with paragraph (a)(7)(v) of this section shall 
be repaid to the Bank, unless one of the following exceptions applies:
    (A) The unit was assisted with a permanent mortgage loan funded by 
an AHP subsidized advance;
    (B) The subsequent purchaser, transferee, or assignee is a low- or 
moderate-income household, as determined by the Bank. For any sale, 
transfer, or assignment that occurs after the date established by FHFA 
in guidance on the use of proxies, the Bank or its designee shall 
determine the household's income using one or more proxies that are 
reliable indicators of the subsequent purchaser's income, which may be 
selected by the Bank pursuant to the FHFA guidance and shall be included 
in the Bank's AHP Implementation Plan, unless documentation 
demonstrating that household's actual income is available. The Bank or 
its designee is not required to request or obtain such documentation, 
but must use it in lieu of a proxy if available;
    (C) The amount of the AHP subsidy that would be required to be 
repaid in accordance with the calculation in paragraph (a)(7)(v) of this 
section is $2,500 or less; or
    (D) 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);

[[Page 482]]

    (iii) Subsidy repayments to Bank, member, or project sponsor. 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.1291.64(b) 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 re-use 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.1291.64(b);
    (iv) Termination of subsidy repayment obligation. The obligation to 
repay AHP subsidy to the Bank shall terminate after any event of 
foreclosure, transfer by deed-in-lieu of foreclosure, an assignment of a 
Federal Housing Administration first mortgage to HUD, or death of the 
AHP-assisted homeowner; and
    (v) Calculation of AHP subsidy repayment based on net proceeds and 
household's investment. The Bank shall be repaid the lesser of:
    (A) The AHP subsidy, reduced on a pro rata basis per month until the 
unit is sold, transferred, or its title or deed transferred, or is 
refinanced, during the AHP five-year retention period; or
    (B) Any net proceeds from the sale, transfer, or assignment of title 
or deed of the unit, or the refinancing, as applicable, minus the AHP-
assisted household's investment.
    (8) Rental projects--required provisions for retention agreements. 
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) Income and rent commitments. 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 AHP 15-year 
retention period;
    (ii) Notice. The Bank, and in its discretion any designee of the 
Bank, shall be given notice of any sale, transfer, assignment of title 
or deed, or refinancing of the project by the project owner occurring 
during the retention period;
    (iii) Repayment of subsidy; exceptions. In the case of a sale, 
transfer, assignment of title or deed, or refinancing of the project by 
the project owner during the retention period, the full amount of the 
AHP subsidy received by the project owner shall be repaid to the Bank, 
unless one of the following exceptions applies:
    (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 AHP 15-year 
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 AHP 15-year retention period; and
    (iv) Termination of income and rent restrictions. 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.
1291.31(d).
    (10) Special provisions where members obtain AHP subsidized 
advances--(i) Repayment schedule. The term of an AHP

[[Page 483]]

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.
    (b) Agreements between Banks and project sponsors or owners--(1) 
Repayment of subsidies. A Bank may have in place an agreement with each 
project sponsor or owner, in which the project sponsor or owner agrees 
to repay AHP subsidies directly to the Bank in accordance with the 
requirements of Sec.1291.60.
    (2) Project sponsor qualifications. A Bank's AHP subsidy application 
form and AHP subsidy disbursement form for each subsidy disbursement (or 
other related documents) must include a requirement for the project 
sponsor to provide a certification that it meets the project sponsor 
qualifications criteria established by the Bank and that it has not 
engaged in, and is not engaging in, covered misconduct as defined in 
FHFA's Suspended Counterparty Program regulation (12 CFR part 1227), or 
as defined by the Bank, provided the Bank's definition incorporates the 
definition in 12 CFR part 1227 at a minimum.
    (c) Application to existing AHP agreements. The requirements of 
section 10(j) of the Bank Act (12 U.S.C. 1430(j)) and the provisions of 
this part, as amended, are incorporated into all AHP agreements between 
a Bank and any member, project sponsor, or project owner receiving AHP 
subsidies under the General Fund and any Targeted Funds, and between a 
Bank and any member or unit owner under any Homeownership Set-Aside 
Programs. 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.1291.16  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

[[Page 484]]

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.



                Subpart C_General Fund and Targeted Funds



Sec.1291.20  Establishment of programs.

    (a) General Fund--(1) Establishment. A Bank shall establish a 
General Fund pursuant to the requirements of this part.
    (2) Eligibility requirements. A Bank may not adopt eligibility 
requirements for its General Fund except as specifically authorized in 
this part.
    (b) Targeted Funds--(1) Establishment; number of Targeted Funds and 
funding allocation amounts. A Bank may establish, in its discretion, up 
to three Targeted Funds to address specified affordable housing needs in 
its district pursuant to the phase-in funding allocation requirements in 
Sec.1291.12(c)(1), the following phase-in requirements for the number 
of Targeted Funds unless otherwise directed by FHFA, and any other 
applicable requirements of this part:
    (i) One Targeted Fund;
    (ii) Two Targeted Funds to be administered in the same calendar 
year, provided that the Bank administered at least one Targeted Fund in 
any preceding year; or
    (iii) Three Targeted Funds to be administered in the same calendar 
year, provided that the Bank administered at least two Targeted Funds in 
any preceding year.
    (2) Eligibility requirements. (i) A Bank shall adopt and implement 
parameters, which shall be included in its AHP Implementation Plan, for 
ensuring that each Targeted Fund is designed to receive sufficient 
numbers of applicants for the amount of AHP funds allocated to the 
Targeted Fund to enable the Bank to facilitate a robust competitive 
scoring process.
    (ii) A Bank may not adopt eligibility requirements for its Targeted 
Funds except as specifically authorized in this part.



Sec.1291.21  Eligible applicants.

    (a) Member applicants. A Bank shall accept applications for AHP 
subsidy under its General Fund and any Targeted Funds only from 
institutions that are members of the Bank at the time the application is 
submitted to the Bank.
    (b) Project sponsor qualifications--(1) In general. A project 
sponsor must be qualified and able to perform its responsibilities as 
committed to in the application for AHP subsidy funding the project.
    (2) 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.1291.31 shall:
    (i) Provide audited financial statements that its operations are 
consistent with sound business practices; and
    (ii) Demonstrate the ability to re-lend AHP subsidy repayments on a 
timely basis and track the use of the AHP subsidy.
    (3) 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.1291.32 shall:
    (i) Provide evidence of sound asset/liability management practices;
    (ii) Provide audited financial statements that its operations are 
consistent with sound business practices; and

[[Page 485]]

    (iii) Demonstrate the ability to track the use of the AHP subsidy.



Sec.1291.22  Funding rounds; application process.

    (a) Funding rounds. A Bank may accept applications from proposed 
projects for AHP subsidy under its General Fund and any Targeted Funds 
during a specified number of funding rounds each year, as determined by 
the Bank.
    (b) Submission of applications. Except as provided in Sec.
1291.29(a), a Bank shall require applications for AHP subsidy to contain 
information sufficient for the Bank to:
    (1) Determine that the proposed AHP project meets the eligibility 
requirements of this part; and
    (2) Evaluate the application pursuant to the scoring methodology 
adopted by the Bank pursuant to Sec. Sec.1291.25, 1291.26, and 
1291.27, as applicable.
    (c) Review of applications submitted. Except as provided in Sec.
1291.29(b), a Bank shall review the applications for AHP subsidy to 
determine that the proposed AHP project meets the eligibility 
requirements of this part, and shall evaluate the applications pursuant 
to the Bank's scoring methodology adopted pursuant to Sec. Sec.
1291.25, 1291.26, and 1291.27, as applicable.



Sec.1291.23  Eligible projects.

    Projects receiving AHP subsidies pursuant to a Bank's General Fund 
and any Targeted Funds must meet the following eligibility requirements:
    (a) Owner-occupied or rental housing. The AHP subsidy shall be used 
exclusively for:
    (1) Owner-occupied housing. The purchase, construction, or 
rehabilitation of an owner-occupied project for very low-income or low- 
or moderate-income households, where the housing is to be used as the 
household's primary residence. 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;
    (2) 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.
    (i) Projects that are not occupied. For a rental project that is not 
occupied at the time the AHP application is submitted to the Bank for 
approval, a household must have an income meeting the income targeting 
commitments in the approved AHP application upon initial occupancy of 
the rental unit.
    (ii) Projects that are occupied. (A) Except as provided in paragraph 
(a)(2)(ii)(B) of this section, for a rental project involving purchase 
or rehabilitation that is occupied at the time the AHP application is 
submitted to the Bank for approval, a household must have an income 
meeting the income targeting commitments in the approved AHP application 
at the time of such submission.
    (B) If the project has a relocation plan for current occupants that 
is approved by one of its federal, state, or local government funders, 
or a reasonable relocation plan for current occupants that is otherwise 
approved by the Bank according to standards included in the Bank's AHP 
Implementation Plan, a household may have an income meeting the income 
targeting commitments upon initial occupancy of the rental unit after 
completion of the purchase or rehabilitation.
    (b) Project feasibility--(1) 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.
    (2) 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.
    (c) 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.

[[Page 486]]

    (d) Retention agreements--(1) Owner-occupied projects. Each AHP-
assisted unit in an owner-occupied project for which the AHP subsidy was 
used for purchase, or for purchase in conjunction with rehabilitation, 
of the unit by the AHP-assisted household, is, or is committed to be, 
subject to a five-year retention agreement described in Sec.
1291.15(a)(7).
    (2) Rental projects. AHP-assisted rental projects are, or are 
committed to be, subject to a 15-year retention agreement as described 
in Sec.1291.15(a)(8).
    (e) 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.



Sec.1291.24  Eligible uses.

    (a) Eligible uses of AHP subsidy. AHP subsidies shall be used only 
for:
    (1) Owner-occupied housing. The purchase, construction, or 
rehabilitation of owner-occupied housing.
    (2) Rental housing. The purchase, construction, or rehabilitation of 
rental housing.
    (3) Need for AHP subsidy--(i) Review of project development budget. 
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 (excluding AHP 
subsidy) 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) Cash sources of funds. 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 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) Cash uses. 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.
    (4) 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

[[Page 487]]

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.
    (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) Counseling costs. Counseling costs, provided:
    (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.
    (7) Refinancing. Refinancing of an existing single-family or 
multifamily 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 part.
    (8) 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 Sec.
1291.30(d).
    (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.
    (b) Prohibited uses of AHP subsidy. AHP subsidy may not be used to 
pay for:
    (1) Certain prepayment fees. Prepayment fees imposed by a Bank on a 
member for a subsidized advance that is prepaid, unless:
    (i) The project is in financial distress that cannot be remedied 
through a project modification pursuant to Sec.1291.29;
    (ii) The prepayment of the subsidized advance is necessary to retain 
the project's affordability and income targeting commitments;
    (iii) 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;
    (iv) Any unused AHP subsidy is returned to the Bank and made 
available for other AHP projects or households; and
    (v) The amount of AHP subsidy used for the prepayment fee may not 
exceed the amount of the member's prepayment fee to the Bank;
    (2) Cancellation fees. Cancellation fees and penalties imposed by a 
Bank on a member for a subsidized advance commitment that is canceled;
    (3) Processing fees. Processing fees charged by members for 
providing AHP direct subsidies to a project; or
    (4) Reserves and certain expenses. Capitalized reserves, periodic 
deposits to reserve accounts, operating expenses, or supportive services 
expenses.
    (c) Optional Bank 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:

[[Page 488]]

    (1) 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, per 
project sponsor, per project, or per project unit in a single AHP 
funding round. A Bank may establish only one maximum subsidy limit per 
member, per sponsor, per project, or per project unit for the General 
Fund and for each Targeted Fund, which shall apply to all applicants to 
the specific Fund, but the maximum subsidy limit per project or per 
project unit may differ among the Funds; or
    (2) 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.
    (d) Applications to multiple Funds--subsidy amount. If an 
application for a project is submitted to more than one Fund at the same 
time, the application for each Fund must be for the same amount of AHP 
subsidy.



Sec.1291.25  Scoring methodologies.

    (a)(1) Written scoring methodologies. A Bank shall establish a 
written scoring methodology for its General Fund and for any Targeted 
Fund setting forth the Bank's scoring point allocations as required in 
paragraph (a)(2) of this section, scoring criteria adopted pursuant to 
the requirements of Sec. Sec.1291.26 and 1291.27, as applicable, and 
related definitions. The scoring methodology for each Fund may be 
different. A Bank shall not adopt scoring points allocations or scoring 
criteria for its General Fund and any Targeted Funds except as 
specifically authorized under this paragraph (a)(1) and Sec. Sec.
1291.26 and 1291.27, respectively.
    (2) Scoring points allocations--(i) General Fund. A Bank shall 
allocate 100 points among all of the scoring criteria adopted by the 
Bank for its General Fund pursuant to Sec.1291.26. The scoring 
criterion for targeting in Sec.1291.26(d) shall be allocated at least 
20 points. The remaining scoring criteria shall be allocated at least 5 
points each, except that if a Bank adopts the scoring criterion for home 
purchase by low- or moderate-income households in Sec.1291.26(c) as an 
optional scoring criterion, the Bank may allocate fewer than the full 5 
points to it, with the remainder of such points allocated to one or a 
combination of the other scoring criteria in Sec.1291.26 other than to 
the scoring criterion for Bank district priorities in Sec.1291.26(h). 
If a Bank adopts a scoring criterion under its Bank district priorities 
for housing located in the Bank's district, the Bank may not allocate 
points to the scoring criterion in a way that excludes all out-of-
district projects from its General Fund.
    (ii) Targeted Funds. A Bank shall allocate 100 points among all of 
the scoring criteria adopted by the Bank for each Targeted Fund pursuant 
to Sec.1291.27. A Bank may not allocate more than 50 points to any one 
scoring criterion for a Targeted Fund.
    (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 that 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 scoring criterion in Sec.1291.26(d) as a variable-point 
criterion.
    (b) Satisfaction of scoring criteria. A Bank shall award scoring 
points to applications to a particular Fund based on satisfaction of the 
scoring criteria in the Bank's scoring methodology for that Fund.
    (c) Scoring tied applications. A Bank shall establish and implement, 
as necessary, a scoring tie-breaker policy to

[[Page 489]]

address the case of two or more applications to its General Fund or any 
Targeted Fund receiving identical scores in the same AHP funding round 
and there is insufficient AHP subsidy to approve all of the tied 
applications but sufficient subsidy to approve one of them. A Bank shall 
meet the following requirements in establishing its scoring tie-breaker 
policy:
    (1) The Bank shall consult with its Advisory Council prior to 
adoption of its policy;
    (2) The Bank shall adopt the policy in advance of an AHP funding 
round and include it in its AHP Implementation Plan;
    (3) The policy shall include the methodology used to break a scoring 
tie, which may differ for each Fund, and which shall be drawn from the 
particular Fund's scoring criteria adopted in the Bank's AHP 
Implementation Plan;
    (4) The scoring tie-breaker methodology shall be reasonable, 
transparent, verifiable, and impartial;
    (5) The scoring tie-breaker methodology shall be used solely to 
break a scoring tie and may not affect the eligibility of the 
applications, including financial feasibility, or their scores and 
resultant rankings;
    (6) The Bank shall approve a tied application as an alternate 
pursuant to Sec.1291.28(b) if the application does not prevail under 
the scoring tie-breaker methodology, or if the application is tied with 
another application but requested more subsidy than the amount of AHP 
funds that remain to be awarded, if the Bank has a written policy to 
approve alternates for funding under the applicable Fund; and
    (7) The Bank shall document in writing its analysis and results for 
each use of the scoring tie-breaker methodology.



Sec.1291.26  Scoring criteria for the General Fund.

    A Bank shall adopt in its scoring methodology for its General Fund 
all of the following categories of scoring criteria, including at least 
one housing need under each of paragraphs (e), (f), and (g) of this 
section, except that a Bank is not required to adopt the scoring 
criterion for homeownership by low- or moderate-income households in 
paragraph (c) of this section if the Bank allocates at least 10 percent 
of its required annual AHP contribution to any Homeownership Set-Aside 
Programs, and a Bank is not required to adopt the scoring criterion for 
Bank district priorities in paragraph (h) of this section:
    (a) 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:
    (1) Land or units donated or conveyed by the federal government or 
any agency or instrumentality thereof; or
    (2) 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.
    (b) 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.
    (c) Home purchase by low- or moderate-income households. The 
financing of home purchases by low- or moderate-income households.
    (d) Income targeting. The extent to which a project provides housing 
for very low- and low- or moderate-income households, as follows:
    (1) 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

[[Page 490]]

or below 80 percent of the median income for the area.
    (2) Owner-occupied projects. Applications for owner-occupied 
projects shall be awarded points based on a declining scale to be 
determined by the Bank in its AHP Implementation Plan, taking into 
consideration percentages of units and targeted income levels.
    (3) Separate scoring. For purposes of this scoring criterion, 
applications for owner-occupied projects and rental projects may be 
scored separately.
    (e) Underserved communities and populations. The financing of 
housing for underserved communities or populations, by addressing one or 
more of the following specific housing needs:
    (1) 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'' defined by the Bank in its AHP Implementation Plan.
    (2) Housing for special needs populations. The financing of housing 
in which at least 20 percent of the units are reserved for households 
with specific special needs, such as: The elderly; persons with 
disabilities; formerly incarcerated persons; persons recovering from 
physical abuse or alcohol or drug abuse; victims of domestic violence, 
dating violence, sexual assault or stalking; persons with HIV/AIDS; or 
unaccompanied youth; or the financing of housing that is visitable by 
persons with physical disabilities who are not occupants of such 
housing. A Bank may, in its discretion, adopt a requirement that 
projects provide supportive services, or access to supportive services, 
for specific special needs populations identified by the Bank in order 
for the project to receive scoring points under this paragraph (e)(2).
    (3) Housing for other targeted populations. The financing of housing 
in which at least 20 percent of the units are reserved for households 
specifically in need of housing, such as agricultural workers, military 
veterans, Native Americans, households requiring large units, or kinship 
care households in which children are in the care of cohabitating 
relatives, such as grandparents, aunts or uncles, or cohabitating close 
family friends.
    (4) Housing in rural areas. The financing of housing located in a 
rural area, as defined by the Bank in its AHP Implementation Plan.
    (5) Rental housing for extremely low-income households. The 
financing of rental housing in which a minimum percentage of the units, 
as defined by the Bank in its AHP Implementation Plan, are reserved for 
extremely low-income households. Points awarded under this criterion 
shall be awarded in addition to any points awarded for income targeting 
under paragraph (d)(1) of this section, such that the points awarded to 
a project under this criterion and the income targeting criterion, 
combined, may exceed the maximum number of possible points awarded under 
the income targeting criterion.
    (6) Other. The financing of other housing addressing specific 
housing needs of underserved communities or populations as FHFA may 
provide by guidance.
    (f) Creating economic opportunity. The financing of housing that 
facilitates economic opportunity for the residents by addressing one or 
more of the following specific housing needs:
    (1) Promotion of empowerment. The provision of housing in 
combination with a program offering services that assist residents in 
attaining life skills or moving toward better economic opportunities, 
such as: Employment; education; training; homebuyer, homeownership or 
tenant counseling; child care; adult daycare services; afterschool care; 
tutoring; health services, including mental health and behavioral health 
services; resident involvement in decision making affecting the creation 
or operation of the project; or workforce preparation and integration.
    (2) Residential economic diversity. The financing of either 
affordable housing in a high opportunity area, or mixed-income housing 
in an area designated by the Bank, with those terms defined and area 
designated by the Bank in its AHP Implementation Plan.

[[Page 491]]

    (3) Other. The financing of other housing that facilitates economic 
opportunity as FHFA may provide by guidance.
    (g) Community stability, including affordable housing preservation. 
The promotion of community stability, such as by preserving affordable 
housing, rehabilitating vacant or abandoned properties, or being an 
integral part of a community revitalization or economic development 
strategy approved by a unit of state or local government or 
instrumentality thereof, 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.
    (h) Bank district priorities. The satisfaction of one or more 
housing needs in the Bank's district, as defined by the Bank in its AHP 
Implementation Plan, that the Bank has not otherwise adopted under this 
section.



Sec.1291.27  Scoring criteria for Targeted Funds.

    A Bank shall adopt in its scoring methodology for each Targeted Fund 
established by the Bank at least three different scoring criteria, as 
determined by the Bank in its discretion, that allow the Bank to select 
applications that meet the specific affordable housing need or needs 
being addressed by the Targeted Fund.



Sec.1291.28  Approval of AHP applications under the General Fund 
and Targeted Funds.

    (a) Approval of AHP applications. Subject to the requirements in 
paragraphs (c) and (d) of this section, a Bank shall approve 
applications for AHP subsidy under its General Fund and any Targeted 
Funds that meet all of the applicable AHP eligibility requirements in 
this part in descending order, starting with the highest scoring 
application until the total funding amount for the particular AHP 
funding round, except for any amount insufficient to fund the next 
highest scoring application, has been approved.
    (b) AHP application alternates. For the General Fund and any 
Targeted Funds, the Bank also may, in its discretion, approve a 
specified number, as determined by the Bank, of the next highest scoring 
applications as alternates eligible for funding, and may approve any 
tied applications as alternates eligible for funding pursuant to 
paragraph (c)(2) of this section, if any previously committed AHP 
subsidies become available, pursuant to a written policy on approving 
alternates for funding established by the Bank and included in the 
Bank's AHP Implementation Plan. If a Bank has established such a policy 
for approving alternates for funding and sufficient previously committed 
AHP subsidies become available within one year of application approval, 
the Bank shall approve the designated alternates for funding within that 
one-year period.
    (c) Tied applications. (1) Where two or more applications to a 
General Fund or Targeted Fund have identical scores in the same AHP 
funding round and there is insufficient AHP subsidy to approve all of 
the tied applications but sufficient subsidy to approve one of them, a 
Bank shall approve the tied application that prevails under the Bank's 
scoring tie-breaker methodology in its policy adopted pursuant to Sec.
1291.25(c).
    (2) A tied application that does not prevail under the Bank's 
scoring tie-breaker methodology, or is tied with another application but 
requested more subsidy than the amount of AHP funds that remain to be 
awarded under the Fund, shall be approved as an alternate for funding if 
the Bank has a written policy to approve alternates for funding under 
the Fund.
    (d) Applications to multiple Funds--approval under one Fund. If an 
application for the same project is submitted to more than one Fund at a 
Bank in a calendar year and the application scores high enough to be 
approved under each Fund, the Bank shall approve the application under 
only one of the Funds pursuant to the Bank's policy established in its 
AHP Implementation Plan.
    (e) No delegation. A Bank's board of directors may not delegate to 
Bank officers or other Bank employees the responsibility to approve or 
disapprove the AHP subsidy applications, as well as any alternates under 
the Bank's General Fund and any Targeted Fund if

[[Page 492]]

the Bank has a written policy to approve alternates for funding under 
such Fund.



Sec.1291.29  Modifications of approved AHP applications.

    (a) Modification procedure. If, prior to or after final disbursement 
of funds to a project from all funding sources, in order to remedy 
noncompliance or receive additional subsidy, there is or will be a 
change in the project that would change the score that the project 
application received in the AHP funding round in which it was originally 
scored and approved, had the changed facts been operative at that time, 
a Bank shall approve in writing a request for a modification to the 
terms of the approved application, provided that:
    (1) The Bank first requests that the project sponsor or owner make a 
reasonable effort to cure any noncompliance within a reasonable period 
of time, and the noncompliance could not be cured within a reasonable 
period of time;
    (2) The project, incorporating any such changes, would meet the 
eligibility requirements of this part;
    (3) The application, as reflective of such changes, continues to 
score high enough to have been approved in the AHP funding round in 
which the application was originally scored and approved by the Bank, 
which is as high as the lowest ranking alternate approved for funding by 
the Bank if the Bank has a written policy to approve alternates for 
funding; and
    (4) There is good cause for the modification, which may not be 
solely remediation of noncompliance, and the analysis and justification 
for the modification, including why a cure of noncompliance was not 
successful or attempted, are documented by the Bank in writing.
    (b) AHP subsidy increases; no delegation--(1) AHP subsidy increases. 
A Bank's board of directors may, in its discretion, approve or 
disapprove requests for modifications involving an increase in AHP 
subsidy in accordance with the requirements of paragraph (a) of this 
section.
    (2) No delegation. The authority to approve or disapprove requests 
for modifications involving an increase in AHP subsidy shall not be 
delegated by the Bank's board of directors to Bank officers or other 
Bank employees.



Sec.1291.30  Procedures for funding.

    (a) Disbursement of AHP subsidies to members. (1) 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.
    (2) 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.
    (b) 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 or households.
    (c) Compliance upon disbursement of AHP subsidies. A Bank shall 
establish and implement policies for determining, prior to its initial 
disbursement of AHP subsidy for an approved project, and prior to each 
subsequent disbursement, that the project meets the eligibility 
requirements of this part 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 this 
part, the Bank shall make the AHP subsidies available for other AHP-
eligible projects or households.
    (d) 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

[[Page 493]]

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.
    (e) 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.
    (f) Project sponsor notification of re-use 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.1291.64(b), 
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.



Sec.1291.31  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 General Fund or any 
Targeted Funds 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:
    (a) Submission of application. (1) An application for AHP subsidy 
under this section 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.
    (2) The information in the application shall be sufficient for the 
Bank to:
    (i) 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 Sec.1291.23; and
    (ii) Evaluate the criteria for the initial lending of the subsidy, 
and the specific proposed project if applicable, pursuant to the scoring 
methodology established by the Bank pursuant to Sec. Sec.1291.25, 
1291.26, and 1291.27, as applicable.
    (b) 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 Sec.1291.23, and 
shall evaluate the criteria for the initial lending of the subsidy and 
the specific proposed project, if applicable, pursuant to the scoring 
methodology established by the Bank pursuant to Sec. Sec.1291.25, 
1291.26, and 1291.27, as applicable.
    (c) Initial lending of subsidy. (1) The revolving loan fund's 
initial lending of the AHP subsidy shall meet the eligibility 
requirements of paragraph (a) of this section, shall be to projects or 
households meeting the commitments in the approved application for AHP 
subsidy, and shall be subject to the requirements in Sec. Sec.1291.15 
and 1291.50, respectively.
    (2) If an owner-occupied unit or project funded under this paragraph 
(c)

[[Page 494]]

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.1291.15(a)(7), 
1291.15(a)(8), and 1291.60, 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 owner-occupied 
unit or project meeting the initial lending requirements of this 
paragraph (c) for the remainder of the retention period.
    (d) Subsequent lending of AHP subsidy principal and interest 
repayments. (1) 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 (d), 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 (d).
    (2) 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 (d).
    (3) 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.
    (e) 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 section.



Sec.1291.32  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 General Fund or any 
Targeted Funds 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:
    (a) Eligibility requirements. The loan pool sponsor's use of the AHP 
subsidies shall meet the requirements under this section, and shall not 
be used 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.
    (b) Forward commitment. (1) 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 one year from the date of approval of the AHP application.
    (2) 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 one year from

[[Page 495]]

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.
    (c) 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. Sec.1291.15, 1291.50, and 1291.60, 
respectively.
    (d) 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.



               Subpart D_Homeownership Set-Aside Programs



Sec.1291.40  Establishment of programs.

    A Bank may establish, in its discretion, one or more Homeownership 
Set-Aside Programs pursuant to the requirements of this part.



Sec.1291.41  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.



Sec.1291.42  Eligibility requirements.

    A Bank's Homeownership Set-Aside Programs shall meet the eligibility 
requirements set forth in this section. A Bank may not adopt additional 
eligibility requirements for its Homeownership Set-Aside Programs except 
for eligible households pursuant to paragraph (b) of this section.
    (a) Member allocation criteria. AHP direct subsidies shall be 
provided to members pursuant to allocation criteria established by the 
Bank in its AHP Implementation Plan.
    (b) Eligible households. Members shall provide AHP direct subsidies 
only to households that:
    (1) 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 Programs, with such time of 
enrollment by the member defined by the Bank in its AHP Implementation 
Plan;
    (2) 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
    (3) Are first-time homebuyers or households receiving AHP subsidy 
for owner-occupied rehabilitation, in the case of households receiving 
subsidy pursuant to the one-third set-aside funding allocation 
requirement in Sec.1291.12(b), 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.
    (c) Maximum grant limit. Members shall provide AHP direct subsidies 
to households as a grant, in an amount up to a maximum established by 
the Bank, not to exceed $22,000 per household, which limit shall adjust 
upward on an annual basis in accordance with increases in FHFA's House 
Price Index (HPI). In the event of a decrease in the HPI, the subsidy 
limit shall remain at its then-current amount until the HPI increases 
above the subsidy limit, at which point the subsidy limit shall adjust 
to that higher amount. FHFA will notify the Banks annually of the 
maximum subsidy limit, based on the HPI. A Bank may establish a 
different maximum grant limit, up to the maximum grant limit, for each 
Homeownership Set-Aside Program it establishes. A Bank's maximum grant 
limit for each such program shall be included in its AHP Implementation 
Plan, which limit shall apply to all households in the specific program 
for which it is established.

[[Page 496]]

    (d) 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.
    (e) Retention agreement. An owner-occupied unit purchased, or 
purchased in conjunction with rehabilitation, using AHP direct subsidy, 
shall be subject to a five-year retention agreement described in Sec.
1291.15(a)(7).
    (f) 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.
    (g) 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.
    (h) Counseling costs. The AHP direct subsidies may be used to pay 
for counseling costs only where:
    (1) Such costs are incurred in connection with counseling of 
homebuyers who actually purchase an AHP-assisted unit; and
    (2) The cost of the counseling has not been covered by another 
funding source, including the member.
    (i) 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.



Sec.1291.43  Approval of AHP applications.

    A Bank shall approve applications for AHP direct subsidy under its 
Homeownership Set-Aside Programs in accordance with the Bank's criteria 
governing the allocation of funds.



Sec.1291.44  Procedures for funding.

    (a) Disbursement of AHP direct subsidies to members. (1) A Bank may 
disburse AHP direct subsidies under its Homeownership Set-Aside Programs 
only to institutions that are members of the Bank at the time they 
request a draw-down of the subsidies.
    (2) 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 AHP direct subsidies through another Bank to a member 
of that Bank that has assumed the institution's obligations under the 
approved AHP application.
    (b) Reservation of Homeownership Set-Aside Program subsidies. A Bank 
shall establish and implement policies for reservation of set-aside 
subsidies for households enrolled in the Bank's Homeownership Set-Aside 
Programs. The policies shall provide that set-aside subsidies be 
reserved no more than two 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 
allocation for the Homeownership Set-Aside Programs for the year in 
which the Bank makes the reservation.
    (c) 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

[[Page 497]]

the Homeownership Set-Aside Programs or for other AHP-eligible projects.



                          Subpart E_Monitoring



Sec.1291.50  Monitoring under the General Fund and Targeted Funds.

    (a) Initial monitoring policies for owner-occupied and rental 
projects. A Bank shall adopt written policies pursuant to which the Bank 
shall monitor each AHP owner-occupied project and rental project 
approved under its General Fund and any Targeted Funds prior to, and 
within a reasonable period of time after, project completion to verify, 
at a minimum, satisfaction of the requirements in this section.
    (1) Satisfactory progress. The Bank shall determine that:
    (i) 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; and
    (ii) Following completion of the project, satisfactory progress is 
being made towards occupancy of the project by eligible households.
    (2) Project sponsor or owner certification, rent roll and other 
documentation; backup and other project documentation. Within a 
reasonable period of time after project completion, the Bank shall 
review a certification from the project sponsor or owner, the project 
rent roll (which includes household incomes and rents), and any other 
documentation to verify that the project meets the following 
requirements, at a minimum:
    (i) The AHP subsidies were used for eligible purposes according to 
the commitments made in the approved AHP application;
    (ii) The household incomes and rents comply with the income 
targeting and rent commitments made in the approved AHP application;
    (iii) The project's 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, as determined 
pursuant to Sec.1291.24(a)(4);
    (iv) Each AHP-assisted unit of an owner-occupied project and rental 
project is subject to an AHP retention agreement that meets the 
requirements of Sec.1291.15(a)(7) and (8), respectively; and
    (v) The services and activities committed in the approved AHP 
application have been provided.
    (3) Back-up and other project documentation. The Bank's written 
monitoring policies shall include requirements for:
    (i) Bank review within a reasonable period of time after project 
completion of back-up project documentation regarding household incomes 
and rents (not including the rent roll) maintained by the project 
sponsor or owner, except for projects that received funds from other 
federal, state or local government entities whose programs meet the 
requirements in paragraphs (b)(1) and (2) of this section as specified 
in separate FHFA guidance, or projects that have also been allocated 
LIHTC; and
    (ii) Maintenance and Bank review of other project documentation in 
the Bank's discretion.
    (4) Sampling plan. The Bank shall not use a sampling plan to select 
the projects to be monitored under this paragraph (a), but may use a 
reasonable risk-based sampling plan to review the back-up project 
documentation.
    (b) Long-term monitoring--reliance on other governmental monitoring 
for certain rental projects. For completed AHP rental projects that also 
received funds from federal, state, or local government entities other 
than LIHTC, a Bank may, in its discretion, for purposes of long-term AHP 
monitoring under its General Fund and any Targeted Funds, 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:
    (1) The compliance profiles regarding income targeting, rent, and 
retention period requirements of the AHP and the other programs are 
substantively equivalent;
    (2) The entity has demonstrated and continues to demonstrate its 
ability to monitor the project;

[[Page 498]]

    (3) 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
    (4) The Bank reviews the reports from the monitoring entity to 
confirm that they comply with the Bank's monitoring policies.
    (c) Long-term monitoring policies for rental projects. In cases 
where a Bank does not rely on monitoring by a federal, state, or local 
government entity pursuant to paragraph (b) of this section, pursuant to 
written policies established by the Bank, the Bank shall monitor 
completed AHP rental projects approved under its General Fund and any 
Targeted Funds, commencing in the second year after project completion 
through the AHP 15-year retention period, to verify, at a minimum, 
satisfaction of the requirements in this section.
    (1) Annual project sponsor or owner certifications; backup and other 
project documentation. A Bank's written monitoring policies shall 
include requirements for:
    (i) Bank review of annual certifications by project sponsors or 
owners to the Bank that household incomes and rents are in compliance 
with the commitments made in the approved AHP application during the AHP 
15-year retention period, along with information on the ongoing 
financial viability of the project, including whether the project is 
current on its property taxes and loan payments, its vacancy rate, and 
whether it is in compliance with its commitments to other funding 
sources;
    (ii) Bank review of back-up project documentation regarding 
household incomes and rents, including the rent rolls, maintained by the 
project sponsor or owner, except for projects that also received funds 
from other federal, state or local government entities whose programs 
meet the requirements in paragraphs (b)(1) and (2) of this section as 
specified in separate FHFA guidance, or projects that have been 
allocated LIHTC, provided that the Bank shall review any LIHTC 
noncompliance notices received from project owners pursuant to Sec.
1291.15(a)(5)(ii) during the AHP 15-year retention period; and
    (iii) Maintenance and Bank review of other project documentation in 
the Banks' discretion.
    (2) Risk factors and other monitoring--(i) 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 
performance, and any monitoring of the project provided by a federal, 
state, or local government entity.
    (ii) 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 (c), and to review the back-up and any other project 
documentation. The risk-based sampling plan and its basis shall be in 
writing.
    (d) 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 General Fund and any Targeted Funds, 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.1291.1, 
for the household occupying the unit.



Sec.1291.51  Monitoring under Homeownership Set-Aside Programs.

    (a) 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:
    (1) The AHP subsidy was provided to households meeting all 
applicable eligibility requirements in Sec.1291.42(b) and the Bank's 
Homeownership Set-Aside Program policies; and
    (2) All other applicable eligibility requirements in Sec.1291.42 
and the Bank's Homeownership Set-Aside Program policies are met, 
including that the

[[Page 499]]

AHP-assisted units are subject to retention agreements, as required 
under Sec.1291.15(a)(7), where the AHP subsidy was used for purchase 
of the unit, or for purchase of the unit in conjunction with 
rehabilitation.
    (b) Member certifications; back-up and other documentation. The 
Bank's written monitoring policies shall include requirements for:
    (1) 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.
1291.42;
    (2) Bank review of back-up documentation regarding household incomes 
maintained by the member; and
    (3) Maintenance and Bank review of other documentation in the Bank's 
discretion.
    (c) 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) of this section. The sampling 
plan and its basis shall be in writing.



              Subpart F_Remedial Actions for Noncompliance



Sec.1291.60  Remedial actions for project noncompliance.

    (a) Scope. This section sets forth the requirements applicable to 
the Banks in the event of noncompliance by an AHP-assisted project with 
the commitments made in its application for AHP subsidies and the 
requirements of this part, including any use of AHP subsidy by the 
project sponsor or owner for purposes other than those committed to in 
the AHP application. This section does not apply to individual AHP-
assisted households or to the sale or refinancing by such households of 
their homes.
    (b) Elimination of project noncompliance--(1) Cure. In the event of 
project noncompliance, the Bank shall request that the project sponsor 
or owner make a reasonable effort to cure the noncompliance within a 
reasonable period of time. If the noncompliance cannot be cured within a 
reasonable period of time, the requirements for project modification in 
paragraph (b)(2) of this section shall apply. If the noncompliance is 
cured within a reasonable period of time, the Bank shall not require the 
project sponsor or owner to repay AHP subsidy to the Bank.
    (2) Project modification. If the project sponsor or owner cannot 
cure the noncompliance within a reasonable period of time, the Bank 
shall determine whether the circumstances of the noncompliance can be 
eliminated through a modification of the terms of the AHP application 
pursuant to Sec.1291.29. When the circumstances of the noncompliance 
can be eliminated through a modification, the Bank shall approve the 
modification and shall not require the project sponsor or owner to repay 
AHP subsidy to the Bank.
    (c) Reasonable collection efforts--(1) Demand for repayment. If the 
circumstances of a project's noncompliance cannot be eliminated through 
a cure or modification, the Bank, or the member if delegated the 
responsibility, shall make a demand on the project sponsor or owner for 
repayment of the full amount of the AHP subsidy not used in compliance 
with the commitments in the AHP application or the requirements of this 
part (plus interest, if appropriate). If the noncompliance is occupancy 
by households with incomes exceeding the income-targeting commitments in 
the AHP application, the amount of AHP subsidy due is calculated based 
on the number of units in noncompliance, the length of the 
noncompliance, and the portion of the AHP subsidy attributable to the 
noncompliant units.
    (2) Settlement. (i) If the demand for repayment of the full amount 
due is unsuccessful, the Bank, or the member if delegated the 
responsibility and in consultation with the Bank, shall make reasonable 
efforts to collect the subsidy from the project sponsor or owner, which 
may include settlement for less than the full amount due, taking into 
account factors such as the financial capacity of the project sponsor or 
owner, assets securing the AHP subsidy, other assets of the project 
sponsor or owner, the degree of culpability of the project sponsor or 
owner, and

[[Page 500]]

the extent of the Bank's or member's collection efforts.
    (ii) The settlement with the project sponsor or owner must be 
supported by 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 any factors in 
paragraph (c)(2)(i) of this section that were considered in reaching the 
settlement.



Sec.1291.61  Recovery of subsidy for member noncompliance.

    A Bank shall recover from a member the amount of any AHP subsidy 
(plus interest, if appropriate) not used in compliance with the 
commitments in the member's AHP application or the requirements of this 
part as a result of the actions or omissions of the member.



Sec.1291.62  Bank reimbursement of AHP fund.

    (a) By the Bank. A Bank shall reimburse its AHP fund in the amount 
of any AHP subsidies (plus interest, if appropriate) not used in 
compliance with the commitments in an AHP application or the 
requirements of this part as a result of the actions or omissions of the 
Bank.
    (b) By FHFA order. FHFA may order a Bank to reimburse its AHP fund 
in an appropriate amount upon determining that:
    (1) The Bank has failed to reimburse its AHP fund as required under 
paragraph (a) of this section; or
    (2) The Bank has failed to recover the full amount of AHP subsidy 
due from a project sponsor, project owner, or member pursuant to the 
requirements of Sec. Sec.1291.60 and 1291.61, and has not shown that 
such failure is reasonably justified, considering factors such as those 
in Sec.1291.60(c)(2)(i).



Sec.1291.63  Suspension and debarment.

    (a) 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.
    (b) At FHFA's initiative. FHFA 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.



Sec.1291.64  Use of repaid AHP subsidies.

    (a) Use of repaid AHP subsidies for other AHP-eligible projects or 
households. Except as provided in paragraph (b) 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 or households.
    (b) Re-use of repaid AHP direct subsidies in same project--(1) 
Requirements. AHP direct subsidy, including any interest, repaid to a 
member or project sponsor, as applicable, under a Bank's General Fund 
and any Targeted Funds 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:
    (i) 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 for purchase, 
or for purchase in conjunction with rehabilitation, of an owner-occupied 
unit pursuant to an approved AHP application;
    (ii) The AHP direct subsidy, including any interest, was repaid to 
the member or project sponsor as a result of a sale, transfer, or 
assignment of title or deed of the unit prior to the end of the 
retention period to a subsequent purchaser that is not a low- or 
moderate-income household; and
    (iii) 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-

[[Page 501]]

eligible household for purchase, or for purchase in conjunction with 
rehabilitation, of an owner-occupied unit in the same project in 
accordance with the terms of the approved AHP application.
    (2) 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 (b) of this section.



Sec.1291.65  Transfer of Program administration.

    Without limitation on other remedies, FHFA, 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 FHFA may prescribe.



                Subpart G_Affordable Housing Reserve Fund



Sec.1291.70  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.
1291.10(a), 90 percent of the unused or uncommitted amount shall be 
deposited by the Bank in an Affordable Housing Reserve Fund established 
and administered by FHFA. 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 AHP funds. Approval of applications for AHP 
funds from members sufficient to exhaust the amount a Bank is required 
to contribute pursuant to Sec.1291.10(a) 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 funds 
that have been returned to the Bank or de-committed from canceled 
projects, they are insufficient to fund:
    (1) AHP application alternates in the Bank's final funding round of 
the year for its General Fund or any Targeted Funds, if the Bank has a 
policy to approve alternates for funding under such Funds;
    (2) Pending applications for funds under the Bank's Homeownership 
Set-Aside Programs, if any; and
    (3) Project modifications for AHP subsidy increases 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 by the 
Bank for use or commitment in the following year in its General Fund, 
any Targeted Funds, or any Homeownership Set-Aside Programs.



PART 1292_COMMUNITY INVESTMENT CASH ADVANCE PROGRAMS--
Table of Contents



Sec.
1292.1 Definitions.
1292.2 Scope.
1292.3 Purpose.
1292.4 Targeted Community Lending Plan.
1292.5 Community Investment Cash Advance Programs.
1292.6 Reporting.
1292.7 Documentation.

    Authority: 12 U.S.C. 1430, 4511(b)(2).

    Source: 78 FR 2328, Jan. 11, 2013, unless otherwise noted.



Sec.1292.1  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.
1292.1 of this part; and

[[Page 502]]

    (4) Any other advance or grant program offered by a Bank using 
targeted beneficiaries and targeted income levels other than those 
specified in Sec.1292.1 of this part, established by the Bank with the 
prior approval of FHFA.
    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.
1292.5(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;
    (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 Director, 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 Director, 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

[[Page 503]]

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
    (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 FHFA.
    (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 FHFA, 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.

[[Page 504]]

    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
    (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 FHFA.
    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.



Sec.1292.2  Scope.

    Section 10(j)(10) of the Bank 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 1291 of this chapter.



Sec.1292.3  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 Bank Act (12 U.S.C. 
1430(j)(10)). Pursuant to this part, a Bank may offer RDF or UDF 
programs, or both, for targeted community lending using the targeted 
beneficiaries or targeted income levels specified in Sec.1292.1, 
without prior FHFA 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.1292.1, established by 
the Bank with the prior approval of FHFA. In addition, a Bank shall 
offer CICA programs under section 10(i) of the Bank Act (12 U.S.C. 
1430(i)) (Community Investment Program (CIP)) and section 10(j) of the 
Bank Act (12 U.S.C. 1430(j)) (AHP). A Bank may provide advances or 
grants under its CICA programs except for CIP programs, under which a 
Bank may only provide advances.



Sec.1292.4  Targeted Community Lending Plan.

    Each Bank shall develop and adopt an annual Targeted Community 
Lending Plan pursuant to Sec.1290.6 of this chapter.



Sec.1292.5  Community Investment Cash Advance Programs.

    (a) In general. (1) Each Bank shall offer an AHP in accordance with 
part 1291 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.1292.1 of this part, without prior FHFA 
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.1292.1 of this part, established by the Bank with the 
prior approval of FHFA.

[[Page 505]]

    (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 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.1266.5 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 Bank 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 1266 and 1291 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.1266.17 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 Bank 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.



Sec.1292.6  Reporting.

    (a) Each Bank annually shall provide to FHFA, on or before January 
31, a Targeted Community Lending Plan.
    (b) Each Bank shall provide such other reports concerning its CICA 
programs as FHHA may request from time to time.



Sec.1292.7  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.

                       PARTS 1293	1299 [RESERVED]

[[Page 507]]



           CHAPTER XIII--FINANCIAL STABILITY OVERSIGHT COUNCIL




  --------------------------------------------------------------------
Part                                                                Page
1300            [Reserved]

1301            Freedom of information......................         509
1310            Authority to require supervision and 
                    regulation of certain nonbank financial 
                    companies...............................         522
1320            Designation of financial market utilities...         559
1321-1399       [Reserved]

[[Page 509]]

                          PART 1300 [RESERVED]



PART 1301_FREEDOM OF INFORMATION--Table of Contents



Sec.
1301.1 General.
1301.2 Information made available.
1301.3 Publication in the Federal Register.
1301.4 Public inspection.
1301.5 Requests for Council records.
1301.6 Responsibility for responding to requests for Council records.
1301.7 Timing of responses to requests for Council records.
1301.8 Responses to requests for Council records.
1301.9 Classified information.
1301.10 Requests for business information provided to the Council.
1301.11 Administrative appeals and dispute resolution.
1301.12 Fees for processing requests for Council records.

    Authority: 12 U.S.C. 5322; 5 U.S.C. 552.

    Source: 82 FR 55744, Nov. 24, 2017, unless otherwise noted.



Sec.1301.1  General.

    This subpart contains the regulations of the Financial Stability 
Oversight Council (the ``Council'') implementing the Freedom of 
Information Act (``FOIA''), 5 U.S.C. 552, as amended. These regulations 
set forth procedures for requesting access to records maintained by the 
Council. These regulations should be read together with the FOIA, which 
provides additional information about this topic.



Sec.1301.2  Information made available.

    (a) General. The FOIA provides for access to records developed or 
maintained by a Federal agency. The provisions of the FOIA are intended 
to assure the right of the public to information. Generally, this 
section divides agency records into three major categories and provides 
methods by which each category of records is to be made available to the 
public. The three major categories of records are as follows:
    (1) Information required to be published in the Federal Register 
(see Sec.1301.3);
    (2) Information required to be made available for public inspection 
in an electronic format or, in the alternative, to be published and 
offered for sale (see Sec.1301.4); and
    (3) Information required to be made available to any member of the 
public upon specific request (see Sec. Sec.1301.5 through 1301.12).
    (b) Right of access. Subject to the exemptions and exclusions set 
forth in the FOIA (5 U.S.C. 552(b) and (c)), and the regulations set 
forth in this subpart, any person shall be afforded access to records.
    (c) Exemptions. (1) The disclosure requirements of 5 U.S.C. 552(a) 
do not apply to certain records which are exempt under 5 U.S.C. 552(b); 
nor do the disclosure requirements apply to certain records which are 
excluded under 5 U.S.C. 552(c).
    (2) The Council shall withhold records or information under the FOIA 
only when it reasonably foresees that disclosure would harm an interest 
protected by a FOIA exemption or when disclosure is prohibited by law. 
Whenever the Council determines that full disclosure of a requested 
record is not possible, the Council shall consider whether partial 
disclosure is possible and shall take reasonable steps to segregate and 
release nonexempt information. Nothing in this paragraph requires 
disclosure of information that is otherwise exempted from disclosure 
under 12 U.S.C. 552(b)(3).



Sec.1301.3  Publication in the Federal Register.

    Subject to the application of the FOIA exemptions and exclusions (5 
U.S.C. 552(b) and (c)) and subject to the limitations provided in 5 
U.S.C. 552(a)(1), the Council shall state, publish and maintain current 
in the Federal Register for the guidance of the public:
    (a) Descriptions of its central and field organization and the 
established places at which, the persons from whom, and the methods 
whereby, the public may obtain information, make submittals or requests, 
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;

[[Page 510]]

    (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 or interpretations of general 
applicability formulated and adopted by the Council; and
    (e) Each amendment, revision, or repeal of matters referred to in 
paragraphs (a) through (d) of this section.



Sec.1301.4  Public inspection.

    (a) In general. Subject to the application of the FOIA exemptions 
and exclusions (5 U.S.C. 552(b) and (c)), the Council shall, in 
conformance with 5 U.S.C. 552(a)(2), make available for public 
inspection in an electronic format, or, in the alternative, promptly 
publish and offer for sale:
    (1) Final opinions, including concurring and dissenting opinions, 
and orders, made in the adjudication of cases;
    (2) Those statements of policy and interpretations which have been 
adopted by the Council but which are not published in the Federal 
Register;
    (3) Its administrative staff manuals and instructions to staff that 
affect a member of the public;
    (4) Copies of all records, regardless of form or format, that have 
been released previously to any person under 5 U.S.C. 552(a)(3) and 
Sec. Sec.1301.5 through 1301.12, and that the Council determines have 
become or are likely to become the subject of subsequent requests for 
substantially the same records. When the Council receives three (3) or 
more requests for substantially the same records, then the Council shall 
place those requests in front of any existing processing backlog and 
make the released records available in the Council's public reading room 
and in the electronic reading room on the Council's Web site.
    (5) A general index of the records referred to in paragraph (a)(4) 
of this section.
    (b) Information made available online. For records required to be 
made available for public inspection in an electronic format pursuant to 
5 U.S.C. 552(a)(2) and paragraphs (a)(1) through (4) of this section, 
the Council shall make such records available on its Web site as soon as 
practicable but in any case no later than one year after such records 
are created.
    (c) Redaction. Based upon applicable exemptions in 5 U.S.C. 552(b), 
the Council may redact certain information contained in any matter 
described in paragraphs (a)(1) through (4) of this section before making 
such information available for inspection or publishing it. The 
justification for the redaction shall be explained in writing, and the 
extent of such redaction shall be indicated on the portion of the record 
which is made available or published, unless including that indication 
would harm an interest protected by the exemption in 5 U.S.C. 552(b) 
under which the redaction is made. If technically feasible, the extent 
of the redaction shall be indicated at the place in the record where the 
redaction was made.
    (d) Public reading room. The Council shall make available for public 
inspection in an electronic format, in a reading room or otherwise, the 
material described in paragraphs (a)(1) through (5) of this section. 
Fees for duplication shall be charged in accordance with Sec.1301.12. 
The location of the Council's reading room is the Department of the 
Treasury's Library. The Library is located in the Freedman's Bank 
Building (formerly the Treasury Annex), Room 1020, 1500 Pennsylvania 
Avenue NW., Washington, DC 20220. For building security purposes, 
visitors are required to make an appointment by calling (202) 622-0990.
    (e) Indices. (1) The Council shall maintain and make available for 
public inspection in an electronic format current indices identifying 
any material described in paragraphs (a)(1) through (3) of this section. 
In addition, the Council shall promptly publish, quarterly or more 
frequently, and distribute (by sale or otherwise) copies of each index 
or supplement unless the Council determines by order published in the 
Federal Register that the publication would be unnecessary and 
impractical, in which case the Council shall nonetheless provide copies 
of the index on request at a cost not to exceed the direct cost of 
duplication.

[[Page 511]]

    (2) The Council shall make the indices referred to in paragraphs 
(a)(5) and (e)(1) of this section available on its Web site.



Sec.1301.5  Requests for Council records.

    (a) In general. Except for records made available under 5 U.S.C. 
552(a)(1) and (a)(2) and subject to the application of the FOIA 
exemptions and exclusions (5 U.S.C. 552(b) and (c)), the Council shall 
promptly make its records available to any person pursuant to a request 
that conforms to the rules and procedures of this section.
    (b) Form and content of request. A request for records of the 
Council shall be made as follows:
    (1) The request for records shall be made in writing and submitted 
by mail or via the Internet and should state, both in the request itself 
and on any envelope that encloses it, that it comprises a FOIA request. 
A request that does not explicitly state that it is a FOIA request, but 
clearly indicates or implies that it is a request for records, may also 
be processed under the FOIA.
    (2) If a request is sent by mail, it shall be addressed and 
submitted as follows: FOIA Request--Financial Stability Oversight 
Council, U.S. Department of the Treasury, 1500 Pennsylvania Avenue NW., 
Washington DC 20220. If a request is made via the Internet, it shall be 
submitted as set forth on the Council's Web site.
    (3) In order to ensure the Council's ability to respond in a timely 
manner, a FOIA request must describe the records that the requester 
seeks in sufficient detail to enable Council personnel to locate them 
with a reasonable amount of effort. Whenever possible, the request must 
include specific information about each record sought, such as the date, 
title or name, author, recipient, and subject matter of the record. If 
known, the requester must include any file designations or descriptions 
for the records requested. In general, a requester is encouraged to 
provide more specific information about the records or types of records 
sought to increase the likelihood that responsive records can be 
located.
    (4) The request shall include the name of and contact information 
for the requester, including a mailing address, telephone number, and, 
if available, an email address at which the Council may contact the 
requester regarding the request.
    (5) For the purpose of determining any fees that may apply to 
processing a request, a requester shall indicate in the request whether 
the requester is a commercial user, an educational institution, non-
commercial scientific institution, representative of the news media, or 
``other'' requester, as those terms are defined in Sec.1301.12(c), or 
in the alternative, state how the records released will be used. The 
Council shall use this information solely for the purpose of determining 
the appropriate fee category that applies to the requester and shall not 
use this information to determine whether to disclose a record in 
response to the request.
    (6) If a requester seeks a waiver or reduction of fees associated 
with processing a request, then the request shall include a statement to 
that effect, pursuant to Sec.1301.12(f). Any request that does not 
seek a waiver or reduction of fees shall constitute an agreement of the 
requester to pay any and all fees (of up to $25) that may apply to the 
request, unless or until a request for waiver is sought and granted. The 
requester also may specify in the request an upper limit (of not less 
than $25) that the requester is willing to pay to process the request.
    (i) Any request for waiver or reduction of fees should be filed 
together with or as part of the FOIA request, or at a later time prior 
to the Council incurring costs to process the request.
    (ii) A waiver request submitted after the Council incurs costs will 
be considered in accordance with Sec.1301.12(f); however, the 
requester must agree in writing to pay the fees already incurred if the 
waiver is denied.
    (7) If a requester seeks expedited processing of a request, then the 
request must include a statement to that effect as is required by Sec.
1301.7(c).
    (c) Request receipt; effect of request deficiencies. The Council 
shall deem itself to have received a request on the date that it 
receives a complete request containing the information required by 
paragraph (b) of this section. The Council need not accept a request, 
process a request, or be bound by any

[[Page 512]]

deadlines in this subpart for processing a request that fails materially 
to conform to the requirements of paragraph (b) of this section. If the 
Council determines that it cannot process a request because the request 
is deficient, then the Council shall return it to the requester and 
advise the requester in what respect the request is deficient. The 
requester may then resubmit the request, which the Council shall treat 
as a new request. A determination by the Council that a request is 
deficient in any respect is not a denial of a request for records, and 
such determinations are not subject to appeal.
    (d) Processing of request containing technical deficiency. 
Notwithstanding paragraph (c) of this section, the Council shall not 
reject a request solely due to one or more technical deficiencies 
contained in the request. For the purposes of this paragraph, the term 
``technical deficiency'' means an error or omission with respect to an 
item of information required by paragraph (b) of this section which, by 
itself, does not prevent that part of the request from conforming to the 
applicable requirement, and includes without limitation a non-material 
error relating to the contact information for the requester, or similar 
error or omission regarding the date, title or name, author, recipient, 
or subject matter of the record requested.



Sec.1301.6  Responsibility for responding to requests for Council 
records.

    (a) In general. In determining which records are responsive to a 
request, the Council ordinarily will include only information contained 
in records that the Council maintains, or are in its possession and 
control, as of the date the Council begins its search for responsive 
records. If any other date is used, the Council shall inform the 
requester of that date.
    (b) Authority to grant or deny requests. The records officer shall 
be authorized to make an initial determination to grant or deny, in 
whole or in part, a request for a record.
    (c) Referrals. When the Council receives a request for a record or 
any portion of a record in its possession that originated with another 
agency, including but not limited to a constituent agency of the 
Council, it shall:
    (1) In the case of a record originated by a federal agency subject 
to the FOIA, refer the responsibility for responding to the request 
regarding that record to the originating agency to determine whether to 
disclose it; and
    (2) In the case of a record originated by a state agency, respond to 
the request after giving notice to the originating state agency and a 
reasonable opportunity to provide input or to assert any applicable 
privileges.
    (d) Notice of referral. Whenever the Council refers all or any part 
of the responsibility for responding to a request to another agency, the 
Council shall notify the requester of the referral and inform the 
requester of the name of each agency to which the request has been 
referred and of the part of the request that has been referred.



Sec.1301.7  Timing of responses to requests for Council records.

    (a) In general. Except as set forth in paragraphs (b) through (d) of 
this section, the Council shall respond to requests according to their 
order of receipt.
    (b) Multitrack processing. (1) The Council may establish tracks to 
process separately simple and complex requests. The Council may assign a 
request to the simple or complex track based on the amount of work and/
or time needed to process the request. The Council shall process 
requests in each track according to the order of their receipt.
    (2) The Council may provide a requester in its complex track with an 
opportunity to limit the scope of the request to qualify for faster 
processing within the specified limits of the simple track(s).
    (c) Requests for expedited processing. (1) The Council shall respond 
to a request out of order and on an expedited basis whenever a requester 
demonstrates a compelling need for expedited processing in accordance 
with the requirements of this paragraph (c).
    (2) Form and content of a request for expedited processing. A 
request for expedited processing shall be made as follows:

[[Page 513]]

    (i) A request for expedited processing shall be made in writing or 
via the Internet and submitted as part of the initial request for 
records. When a request for records includes a request for expedited 
processing, both the envelope and the request itself must be clearly 
marked ``Expedited Processing Requested.'' A request for expedited 
processing that is not clearly so marked, but satisfies the requirements 
in paragraphs (c)(2)(ii) and (iii) of this section, may nevertheless be 
granted.
    (ii) A request for expedited processing shall contain a statement 
that demonstrates a compelling need for the requester to obtain 
expedited processing of the requested records. A ``compelling need'' may 
be established under the standard in either paragraph (c)(2)(ii)(A) or 
(B) of this section by demonstrating that:
    (A) Failure to obtain the requested records on an expedited basis 
could reasonably be expected to pose an imminent threat to the life or 
physical safety of an individual. The requester shall fully explain the 
circumstances warranting such an expected threat so that the Council may 
make a reasoned determination that a delay in obtaining the requested 
records would pose such a threat; or
    (B) 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. A person ``primarily 
engaged in disseminating information'' does not include individuals who 
are engaged only incidentally in the dissemination of information. The 
standard of ``urgency to inform'' requires that the records requested 
pertain to a matter of current exigency to the American general public 
and that delaying a response to a request for records would compromise a 
significant recognized interest to and throughout the American general 
public. The requester must adequately explain the matter or activity and 
why the records sought are necessary to be provided on an expedited 
basis.
    (iii) The requester shall certify the written statement that 
purports to demonstrate a compelling need for expedited processing to be 
true and correct to the best of the requester's knowledge and belief. 
The certification must be in the form prescribed by 28 U.S.C. 1746: ``I 
declare under penalty of perjury that the foregoing is true and correct 
to the best of my knowledge and belief. Executed on [date].''
    (3) Determinations of requests for expedited processing. Within ten 
(10) calendar days of its receipt of a request for expedited processing, 
the Council shall decide whether to grant the request and shall notify 
the requester of the determination in writing.
    (4) Effect of granting expedited processing. If the Council grants a 
request for expedited processing, then the Council shall give the 
expedited request priority over non-expedited requests and shall process 
the expedited request as soon as practicable. The Council may assign 
expedited requests to their own simple and complex processing tracks 
based upon the amount of work and/or time needed to process them. Within 
each such track, an expedited request shall be processed in the order of 
its receipt.
    (5) Appeals of denials of requests for expedited processing. If the 
Council denies a request for expedited processing, then the requester 
shall have the right to submit an appeal of the denial determination in 
accordance with Sec.1301.11. The Council shall communicate this appeal 
right as part of its written notification to the requester denying 
expedited processing. The requester shall clearly mark its appeal 
request and any envelope that encloses it with the words ``Appeal for 
Expedited Processing.''
    (d) Time period for responding to requests for records. Ordinarily, 
the Council shall have twenty (20) days (excepting Saturdays, Sundays, 
and legal public holidays) from when a request that satisfies the 
requirements of Sec.1301.5(b) is received by the Council to determine 
whether to grant or deny a request for records. The twenty-day time 
period set forth in this paragraph shall not be tolled by the Council 
except that the Council may:
    (1) Make one reasonable demand to the requester for clarifying 
information about the request and toll the twenty-day time period while 
it awaits the clarifying information; or

[[Page 514]]

    (2) Toll the twenty-day time period while awaiting receipt of the 
requester's response to the Council's request for clarification 
regarding the assessment of fees.
    (e) Unusual circumstances--(1) In general. Except as provided in 
paragraph (e)(2) of this section, if the Council determines that, due to 
unusual circumstances, it cannot respond either to a request within the 
time period set forth in paragraph (d) of this section or to an appeal 
within the time period set forth in Sec.1301.11, the Council may 
extend the applicable time periods by informing the requester in writing 
of the unusual circumstances and of the date by which the Council 
expects to complete its processing of the request or appeal. Any 
extension or extensions of time shall not cumulatively total more than 
ten (10) days (exclusive of Saturdays, Sundays, and legal public 
holidays).
    (2) Additional time. If the Council determines that it needs 
additional time beyond a ten-day extension to process the request or 
appeal, then the Council shall notify the requester and provide the 
requester with an opportunity to limit the scope of the request or 
appeal or to arrange for an alternative time frame for processing the 
request or appeal or a modified request or appeal. The requester shall 
retain the right to define the desired scope of the request or appeal, 
as long as it meets the requirements contained in this part. To aid the 
requester, the Council shall make available its FOIA Public Liaison, who 
shall assist in defining the desired scope of the request, and shall 
notify the requester of the right to seek dispute resolution services 
from the Office of Government Information Services.
    (3) As used in this paragraph (e), ``unusual circumstances'' means, 
but only to the extent reasonably necessary to the proper processing of 
the particular requests:
    (i) The need to search for and collect the requested records from 
field facilities or other establishments that are separate from the 
office processing the request;
    (ii) 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
    (iii) 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 or 
component offices having substantial subject matter interest therein.
    (4) Where the Council reasonably believes that multiple requests 
submitted by a requester, or by a group of requesters acting in concert, 
constitute a single request that would otherwise involve unusual 
circumstances, and the requests involve clearly related matters, they 
may be aggregated. Multiple requests involving unrelated matters will 
not be aggregated. The Council may disaggregate and treat as separate 
requests a single request that has multiple unrelated components. The 
Council shall notify the requester if a request is disaggregated.



Sec.1301.8  Responses to requests for Council records.

    (a) Acknowledgement of requests. Upon receipt of a request that 
meets the requirements of Sec.1301.5(b), the Council ordinarily shall 
assign to the request a unique tracking number and shall send an 
acknowledgement letter or email to the requester that contains the 
following information:
    (1) A brief description of the request;
    (2) The applicable request tracking number;
    (3) The date of receipt of the request, as determined in accordance 
with Sec.1301.5(c); and
    (4) A confirmation, with respect to any fees that may apply to the 
request pursuant to Sec.1301.12, that the requester has sought a 
waiver or reduction in such fees, has agreed to pay any and all 
applicable fees, or has specified an upper limit (of not less than $25) 
that the requester is willing to pay in fees to process the request.
    (b) Initial determination to grant or deny a request--(1) In 
general. The Council records officer (as designated in Sec.1301.6(b)) 
shall make initial determinations to grant or to deny in whole or in 
part requests for records.

[[Page 515]]

    (2) Granting of request. If the request is granted in full or in 
part, the Council shall provide the requester with a copy of the 
releasable records, and shall do so in the format specified by the 
requester to the extent that the records are readily producible by the 
Council in the requested format. The Council also shall send the 
requester a statement of the applicable fees, broken down by search, 
review and duplication fees, either at the time of the determination or 
shortly thereafter. The Council shall also advise the requester of the 
right to seek assistance from the FOIA Public Liaison.
    (3) Denial of requests. If the Council determines that the request 
for records should be denied in whole or in part, the Council shall 
notify the requester in writing. The notification shall:
    (i) State the exemptions relied on in not granting the request;
    (ii) If technically feasible, indicate the volume of information 
redacted (including the number of pages withheld in part and in full) 
and the exemptions under which the redaction is made at the place in the 
record where such redaction is made (unless providing such indication 
would harm an interest protected by the exemption relied upon to deny 
such material);
    (iii) Set forth the name and title or position of the responsible 
official;
    (iv) Advise the requester of the right to administrative appeal in 
accordance with Sec.1301.11 and specify the official or office to 
which such appeal shall be submitted; and
    (v) Advise the requester of the right to seek assistance from the 
FOIA Public Liaison or seek dispute resolution services offered by the 
Office of Government Information Services.
    (4) No records found. If it is determined, after an adequate search 
for records by the responsible official or his/her delegate, that no 
records could be located, the Council shall so notify the requester in 
writing. The notification letter shall advise the requester of the right 
to seek assistance from the FOIA Public Liaison, seek dispute resolution 
services offered by the Office of Government Information Services, and 
administratively appeal the Council's determination that no records 
could be located (i.e., to challenge the adequacy of the Council's 
search for responsive records) in accordance with Sec.1301.11. The 
response shall specify the official to whom the appeal shall be 
submitted for review.



Sec.1301.9  Classified information.

    (a) Referrals of requests for classified information. Whenever a 
request is made for a record containing information that has been 
classified, or may be appropriate for classification, by another agency 
under Executive Order 13526 or any other executive order concerning the 
classification of records, the Council shall refer the responsibility 
for responding to the request regarding that information to the agency 
that classified the information, should consider the information for 
classification, or has the primary interest in it, as appropriate. 
Whenever a record contains information that has been derivatively 
classified by the Council because it contains information classified by 
another agency, the Council shall refer the responsibility for 
responding to the request regarding that information to the agency that 
classified the underlying information or shall consult with that agency 
prior to processing the record for disclosure or withholding.
    (b) Determination of continuing need for classification of 
information. Requests for information classified pursuant to Executive 
Order 13526 require the Council to review the information to determine 
whether it continues to warrant classification. Information which no 
longer warrants classification under the Executive Order's criteria 
shall be declassified and made available to the requester, unless the 
information is otherwise exempt from disclosure.



Sec.1301.10  Requests for business information provided to the Council.

    (a) In general. Business information provided to the Council by a 
submitter shall not be disclosed pursuant to a FOIA request except in 
accordance with this section.
    (b) Definitions. For purposes of this section:
    (1) Business information means information from a submitter that is 
trade

[[Page 516]]

secrets or other commercial or financial information that may be 
protected from disclosure under Exemption 4.
    (2) Submitter means any person or entity from whom the Council 
obtains business information, directly or indirectly. The term includes 
corporations, state, local, and tribal governments, and foreign 
governments.
    (3) Exemption 4 means Exemption 4 of the FOIA, 5 U.S.C. 552(b)(4).
    (c) Designation of business information. A submitter of business 
information shall use good-faith efforts to designate, by appropriate 
markings, either at the time of submission or at a reasonable time 
thereafter, any portions of its submission that it considers to be 
protected from disclosure under Exemption 4. These designations will 
expire ten (10) years after the date of the submission unless the 
submitter on his or her own initiative requests otherwise, and provides 
justification for, a longer designation period.
    (d) Notice to submitters. The Council shall provide a submitter with 
prompt written notice of receipt of a request or appeal encompassing the 
business information of the submitter whenever required in accordance 
with paragraph (e) of this section. Such written notice shall either 
describe the exact nature of the business information requested or 
provide copies of the records or portions of records containing the 
business information. When a voluminous number of submitters must be 
notified, the Council may post or publish such notice in a place 
reasonably likely to accomplish such notification.
    (e) When notice is required. The Council shall provide a submitter 
with notice of receipt of a request or appeal whenever:
    (1) The information has been designated in good faith by the 
submitter as information considered protected from disclosure under 
Exemption 4; or
    (2) The Council has reason to believe that the information may be 
protected from disclosure under Exemption 4 because disclosure could 
reasonably be expected to cause substantial competitive harm to the 
submitter.
    (f) Opportunity to object to disclosure. (1) Through the notice 
described in paragraph (d) of this section, the Council shall notify the 
submitter in writing that the submitter shall have ten (10) days from 
the date of the notice (exclusive of Saturdays, Sundays, and legal 
public holidays) to provide the Council with a detailed statement of any 
objection to disclosure. Such statement shall specify all grounds for 
withholding any of the information under Exemption 4, including a 
statement of why the information is considered to be a trade secret or 
commercial or financial information that is privileged or confidential. 
In the event that the submitter fails to respond to the notice within 
the time specified, the submitter shall be considered to have no 
objection to disclosure of the information. Information provided by a 
submitter pursuant to this paragraph (f) may itself be subject to 
disclosure under the FOIA.
    (2) When notice is given to a submitter under this section, the 
Council shall advise the requester that such notice has been given to 
the submitter. The requester shall be further advised that a delay in 
responding to the request may be considered a denial of access to 
records and that the requester may proceed with an administrative appeal 
or seek judicial review, if appropriate. However, the Council shall 
invite the requester to agree to an extension of time so that the 
Council may review the submitter's objection to disclosure.
    (g) Notice of intent to disclose. The Council shall consider 
carefully a submitter's objections and specific grounds for 
nondisclosure prior to determining whether to disclose business 
information responsive to the request. If the Council decides to 
disclose business information over the objection of a submitter, the 
Council shall provide the submitter with a written notice which shall 
include:
    (1) A statement of the reasons for which the submitter's disclosure 
objections were not sustained;
    (2) A description of the business information to be disclosed; and
    (3) A specified disclosure date which is not less than ten (10) days 
(exclusive of Saturdays, Sundays, and legal public holidays) after the 
notice of the final decision to release the requested information has 
been provided to the submitter. Except as otherwise prohibited

[[Page 517]]

by law, notice of the final decision to release the requested 
information shall be forwarded to the requester at the same time.
    (h) Notice of FOIA lawsuit. Whenever a requester brings suit seeking 
to compel disclosure of business information covered in paragraph (c) of 
this section, the Council shall promptly notify the submitter.
    (i) Exception to notice requirement. The notice requirements of this 
section shall not apply if:
    (1) The Council determines that the information shall 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 statute (other than 
the FOIA) or by a regulation issued in accordance with the requirements 
of Executive Order 12600 (3 CFR, 1987 Comp., p. 235).



Sec.1301.11  Administrative appeals and dispute resolution.

    (a) Grounds for administrative appeals. A requester may appeal an 
initial determination of the Council, including but not limited to a 
determination:
    (1) To deny access to records in whole or in part (as provided in 
Sec.1301.8(b)(3));
    (2) To assign a particular fee category to the requester (as 
provided in Sec.1301.12(c));
    (3) To deny a request for a reduction or waiver of fees (as provided 
in Sec.1301.12(f)(7));
    (4) That no records could be located that are responsive to the 
request (as provided in Sec.1301.8(b)(4)); or
    (5) To deny a request for expedited processing (as provided in Sec.
1301.7(c)(5)).
    (b) Time limits for filing administrative appeals. An appeal must be 
submitted within ninety (90) days of the date of the initial 
determination or the date of the letter transmitting the last records 
released, whichever is later, or, in the case of an appeal of a denial 
of expedited processing, within ninety (90) days of the date of the 
initial determination to deny expedited processing (see Sec.1301.7).
    (c) Form and content of administrative appeals. The appeal shall--
    (1) Be made in writing or, as set forth on the Council's Web site, 
via the Internet;
    (2) Be clearly marked on the appeal request and any envelope that 
encloses it with the words ``Freedom of Information Act Appeal'' and 
addressed to Financial Stability Oversight Council, U.S. Department of 
the Treasury, 1500 Pennsylvania Avenue NW., Washington, DC 20220;
    (3) Set forth the name of and contact information for the requester, 
including a mailing address, telephone number, and, if available, an 
email address at which the Council may contact the requester regarding 
the appeal;
    (4) Specify the date of the initial request and date of the letter 
of initial determination, and, where possible, enclose a copy of the 
initial request and the initial determination being appealed; and
    (5) Set forth specific grounds for the appeal.
    (d) Processing of administrative appeals. Appeals shall be stamped 
with the date of their receipt by the office to which addressed, and 
shall be processed in the approximate order of their receipt. The 
receipt of the appeal shall be acknowledged by the Council and the 
requester advised of the date the appeal was received and the expected 
date of response.
    (e) Determinations to grant or deny administrative appeals. The 
Chairperson of the Council or his/her designee is authorized to and 
shall decide whether to affirm or reverse the initial determination (in 
whole or in part), and shall notify the requester of this decision in 
writing within twenty (20) days (exclusive of Saturdays, Sundays, and 
legal public holidays) after the date of receipt of the appeal, unless 
extended pursuant to Sec.1301.7(e).
    (1) If it is decided that the appeal is to be denied (in whole or in 
part) the requester shall be--
    (i) Notified in writing of the denial;
    (ii) Notified of the reasons for the denial, including the FOIA 
exemptions relied upon;
    (iii) Notified of the name and title or position of the official 
responsible for the determination on appeal;

[[Page 518]]

    (iv) Provided with a statement that judicial review of the denial is 
available in the United States District Court for the judicial district 
in which the requester resides or has a principal place of business, the 
judicial district in which the requested records are located, or the 
District of Columbia in accordance with 5 U.S.C. 552(a)(4)(B); and
    (v) Provided with notification that mediation services may be 
available to the requester as a non-exclusive alternative to litigation 
through the Office of Government Information Services in accordance with 
5 U.S.C. 552(h)(3).
    (2) If the Council grants the appeal in its entirety, the Council 
shall so notify the requester and promptly process the request in 
accordance with the decision on appeal.
    (f) Dispute resolution. Requesters may seek dispute resolution by 
contacting the FOIA Public Liaison or the Office of Government 
Information Services as set forth on the Council's Web site.



Sec.1301.12  Fees for processing requests for Council records.

    (a) In general. The Council shall charge the requester for 
processing a request under the FOIA in the amounts and for the services 
set forth in paragraphs (b) through (d) of this section, except if a 
waiver or reduction of fees is granted under paragraph (f) of this 
section, or if, pursuant to paragraph (e)(2) of this section, the 
failure of the Council to comply with certain time limits precludes it 
from assessing certain fees. No fees shall be charged if the amount of 
fees incurred in processing the request is below $25.
    (b) Fees chargeable for specific services. The fees for services 
performed by the Council shall be imposed and collected as set forth in 
this paragraph (b).
    (1) Duplicating records. The Council shall charge a requester fees 
for the cost of copying records as follows:
    (i) $0.08 per page, up to 8\1/2\ x 14[sec], made by photocopy or 
similar process.
    (ii) Photographs, films, and other materials--actual cost of 
duplication.
    (iii) Other types of duplication services not mentioned above--
actual cost.
    (iv) Material provided to a private contractor for copying shall be 
charged to the requester at the actual cost charged by the private 
contractor.
    (2) Search services. The Council shall charge a requester for all 
time spent by its employees searching for records that are responsive to 
a request, including page-by-page or line-by-line identification of 
responsive information within records, even if no responsive records are 
found. The Council shall charge the requester fees for search time as 
follows:
    (i) Searches for other than electronic records. The Council shall 
charge for search time at the salary rate(s) (basic pay plus sixteen 
(16) percent) of the employee(s) who conduct the search. This charge 
shall also include transportation of employees and records at actual 
cost. Fees may be charged for search time even if the search does not 
yield any responsive records, or if records are exempt from disclosure.
    (ii) Searches for electronic records. The Council shall charge the 
requester for the actual direct cost of the search, including computer 
search time, runs, and the operator's salary. The fee for computer 
output shall be the actual direct cost. For a requester in the ``other'' 
category, when the cost of the search (including the operator time and 
the cost of operating the computer to process a request) equals the 
equivalent dollar amount of two hours of the salary of the person 
performing the search (i.e., the operator), the charge for the computer 
search will begin.
    (3) Review of records. The Council shall charge a requester for time 
spent by its employees examining responsive records to determine whether 
any portions of such record are withholdable from disclosure, pursuant 
to the FOIA exemptions of 5 U.S.C. 552(b). The Council shall also charge 
a requester for time spent by its employees redacting any such 
withholdable information from a record and preparing a record for 
release to the requester. The Council shall charge a requester for time 
spent reviewing records at the salary rate(s) (i.e., basic pay plus 
sixteen (16) percent) of the employees who conduct the review. Fees may 
be charged for review time even if records ultimately are not disclosed.
    (4) Inspection of records in the reading room. Fees for all services 
provided

[[Page 519]]

shall be charged whether or not copies are made available to the 
requester for inspection. However, no fee shall be charged for 
monitoring a requester's inspection of records.
    (5) Other services. Other services and materials requested which are 
not covered by this part nor required by the FOIA are chargeable at the 
actual cost to the Council. Charges permitted under this paragraph may 
include:
    (i) Certifying that records are true copies; and
    (ii) Sending records by special methods (such as by express mail, 
etc.).
    (c) Fees applicable to various categories of requesters--(1) 
Generally. The Council shall assess the fees set forth in paragraph (b) 
of this section in accordance with the requester fee categories set 
forth below.
    (2) Requester selection of fee category. A requester shall identify, 
in the initial FOIA request, the purpose of the request in one of the 
following categories:
    (i) Commercial. A commercial use request refers to a request from or 
on behalf of a person 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, which can include 
furthering those interests through litigation. The Council may determine 
from the use specified in the request that the requester is a commercial 
user.
    (ii) Educational institution. This refers to a preschool, a public 
or private elementary or secondary school, an institution of graduate 
higher education, an institution of undergraduate higher education, an 
institution of professional education, and an institution of vocational 
education, which operates a program or programs of scholarly research. 
This includes a request from a teacher or student at any such 
institution making the request in connection with his or her role at the 
educational institution.
    (iii) Non-commercial scientific institution. This refers to an 
institution that is not operated on a ``commercial'' basis, as that term 
is defined in paragraph (c)(2)(i) 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.
    (iv) Representative of the news media. This refers to any person or 
entity that gathers information of potential interest to a segment of 
the public, uses its editorial skills to turn the raw materials into a 
distinct work, and distributes that work to an audience. In this 
paragraph (c)(2)(iv), 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 are television or radio stations 
broadcasting to the public at large and publishers of periodicals (but 
only if such entities qualify as disseminators of ``news'') who make 
their products available for purchase by subscription or by free 
distribution to the general public. These examples are not all-
inclusive. Moreover, as methods of news delivery evolve (for example, 
the adoption of the electronic dissemination of newspapers through 
telecommunications services), such alternative media shall be considered 
to be news media entities. A freelance journalist shall be regarded as 
working for a news media entity if the journalist can demonstrate a 
solid basis for expecting publication through that entity, whether or 
not the journalist is actually employed by the entity. A publication 
contract would present a solid basis for such an expectation; the 
Council may also consider the past publication record of the requester 
in making such a determination.
    (v) Other requester. This refers to a requester who does not fall 
within any of the categories described in paragraphs (c)(2)(i)-(iv) of 
this section.
    (d) Fees applicable to each category of requester. The Council shall 
apply the fees set forth in this paragraph, for each category described 
in paragraph (c) of this section, to requests processed by the Council 
under the FOIA.
    (1) Commercial use. A requester seeking records for commercial use 
shall be charged the full direct costs of searching for, reviewing, and 
duplicating the records they request as set forth in paragraph (b) of 
this section. Moreover,

[[Page 520]]

when a request is received for disclosure that is primarily in the 
commercial interest of the requester, the Council is not required to 
consider a request for a waiver or reduction of fees based upon the 
assertion that disclosure would be in the public interest. The Council 
may recover the cost of searching for and reviewing records even if 
there is ultimately no disclosure of records or no records are located.
    (2) Educational and non-commercial scientific uses. A requester 
seeking records for educational or non-commercial scientific use shall 
be charged only for the cost of duplicating the records they request, 
except that the Council shall provide the first one hundred (100) pages 
of duplication free of charge. To be eligible, the requester must show 
that the request is made in connection with the requester's role at an 
educational institution or is made under the auspices of a non-
commercial scientific institution and that the records are not sought 
for a commercial use, but are sought in furtherance of scholarly (if the 
request is from an educational institution) or scientific (if the 
request is from a non-commercial scientific institution) research.
    (3) News media uses. A requester seeking records under the news 
media use category shall be charged only for the cost of duplicating the 
records they request, except that the Council shall provide the 
requester with the first one hundred (100) pages of duplication free of 
charge.
    (4) Other requests. A requester seeking records for any other use 
shall be charged the full direct cost of searching for and duplicating 
records that are responsive to the request, as set forth in paragraph 
(b) of this section, except that the Council shall provide the first one 
hundred (100) pages of duplication and the first two hours of search 
time free of charge. The Council may recover the cost of searching for 
records even if there is ultimately no disclosure of records, or no 
records are located.
    (e) Other circumstances when fees are not charged. (1) 
Notwithstanding paragraphs (b), (c), and (d) of this section, the 
Council may not charge a requester a fee for processing a FOIA request 
if--:
    (i) Services were performed without charge;
    (ii) The cost of collecting a fee would be equal to or greater than 
the fee itself; or
    (iii) The fees were waived or reduced in accordance with paragraph 
(f) of this section.
    (2) Notwithstanding paragraphs (b), (c), and (d) of this section, 
the Council may not charge a requester search fees or, in the case of a 
requester described in paragraphs (c)(2)(ii) through (iv) of this 
section, duplication fees if the Council fails to comply with any time 
limit under Sec.1301.7 or Sec.1301.11; provided that:
    (i) If unusual circumstances (as that term is defined in Sec.
1301.7(e)) apply to the processing of the request and the Council has 
provided a timely notice to the requester in accordance with Sec.
1301.7(e)(1), then a failure to comply with such time limit shall be 
excused for an additional ten days;
    (ii) If unusual circumstances (as that term is defined in Sec.
1301.7(e)) apply to the processing of the request, more than 5,000 pages 
are necessary to respond to the request, the Council has provided a 
timely written notice to the requester in accordance with Sec.
1301.7(e)(2), and the Council has discussed with the requester via 
written mail, electronic mail, or telephone (or made not less than three 
good-faith attempts to do so) how the requester could effectively limit 
the scope of the request in accordance with Sec.1301.7(e)(2), then the 
Council may charge a requester such fees; and
    (iii) If a court has determined that exceptional circumstances 
exist, then a failure to comply with such time limit shall be excused 
for the length of time provided by the court order.
    (f) Waiver or reduction of fees. (1) A requester shall be entitled 
to receive from the Council a waiver or reduction in the fees otherwise 
applicable to a FOIA request whenever the requester:
    (i) Requests such waiver or reduction of fees in writing and submits 
the written request to the Council together with or as part of the FOIA 
request, or at a later time consistent with Sec.1301.5(b)(7) to 
process the request; and

[[Page 521]]

    (ii) Demonstrates that the fee reduction or waiver request is in the 
public interest because:
    (A) Furnishing the information is likely to contribute significantly 
to public understanding of the operations or activities of the 
government; and
    (B) Furnishing the information is not primarily in the commercial 
interest of the requester.
    (2) To determine whether the requester has satisfied the 
requirements of paragraph (f)(1)(ii)(A) of this section, the Council 
shall consider:
    (i) The subject of the requested records must concern identifiable 
operations or activities of the federal government, with a connection 
that is direct and clear, not remote or attenuated;
    (ii) The disclosable portions of the requested records must be 
meaningfully informative about government operations or activities in 
order to be ``likely to contribute'' to an increased public 
understanding of those operations or activities. The disclosure of 
information that already is in the public domain, in either a 
duplicative or a substantially identical form, would not be as likely to 
contribute to such understanding where nothing new would be added to the 
public's understanding;
    (iii) The disclosure must contribute to the understanding of a 
reasonably broad audience of persons interested in the subject, as 
opposed to the individual understanding of the requester. A requester's 
expertise in the subject area and ability and intention to effectively 
convey information to the public shall be considered. It shall be 
presumed that a representative of the news media will satisfy this 
consideration.
    (iv) The public's understanding of the subject in question, as 
compared to the level of public understanding existing prior to the 
disclosure, must be enhanced by the disclosure to a significant extent.
    (3) To determine whether the requester satisfies the requirement of 
paragraph (f)(1)(ii)(B) of this section, the Council shall consider:
    (i) Any commercial interest of the requester (with reference to the 
definition of ``commercial use'' in paragraph (c)(2)(i) of this 
section), or of any person on whose behalf the requester may be acting, 
that would be furthered by the requested disclosure. In the 
administrative process, a requester may provide explanatory information 
regarding this consideration; and
    (ii) Whether the public interest is greater in magnitude than that 
of any identified commercial interest in disclosure. The Council 
ordinarily shall presume that, if a news media requester satisfies the 
public interest standard, the public interest will be the interest 
primarily served by disclosure to that requester. Disclosure to data 
brokers or others who merely compile and market government information 
for direct economic return shall not be presumed to primarily serve the 
public interest.
    (4) Where only some of the records to be released satisfy the 
requirements for a waiver or reduction of fees, a waiver or reduction 
shall be granted for those records.
    (5) Determination of request to reduce or waive fees. The Council 
shall notify the requester in writing regarding its determinations to 
reduce or waive fees.
    (6) Effect of denying request to reduce or waive fees. If the 
Council denies a request to reduce or waive fees, then the Council shall 
advise the requester, in the denial notification letter, that the 
requester may incur fees as a result of processing the request. In the 
denial notification letter, the Council shall advise the requester that 
the Council will not proceed to process the request further unless the 
requester, in writing, directs the Council to do so and either agrees to 
pay any fees that may apply to processing the request or specifies an 
upper limit (of not less than $25) that the requester is willing to pay 
to process the request. If the Council does not receive this written 
direction and agreement/specification within thirty (30) days of the 
date of the denial notification letter, then the Council shall deem the 
FOIA request to be withdrawn.
    (7) Appeals of denials of requests to reduce or waive fees. If the 
Council denies a request to reduce or waive fees, then the requester 
shall have the right to submit an appeal of the denial determination in 
accordance with Sec.1301.11. The Council shall communicate this

[[Page 522]]

appeal right as part of its written notification to the requester 
denying the fee reduction or waiver request. The requester shall clearly 
mark its appeal request and any envelope that encloses it with the words 
``Appeal for Fee Reduction/Waiver.''
    (g) Notice of estimated fees; advance payments. (1) When the Council 
estimates the fees for processing a request will exceed the limit set by 
the requester, and that amount is less than $250, the Council shall 
notify the requester of the estimated costs, broken down by search, 
review and duplication fees. The requester must provide an agreement to 
pay the estimated costs, except that the requester may reformulate the 
request in an attempt to reduce the estimated fees.
    (2) If the requester fails to state a limit and the costs are 
estimated to exceed $250, the requester shall be notified of the 
estimated costs, broken down by search, review and duplication fees, and 
must pay such amount prior to the processing of the request, or provide 
satisfactory assurance of full payment if the requester has a history of 
prompt payment of FOIA fees. Alternatively, the requester may 
reformulate the request in such a way as to constitute a request for 
responsive records at a reduced fee.
    (3) The Council reserves the right to request advance payment after 
a request is processed and before records are released.
    (4) If a requester previously has failed to pay a fee within thirty 
(30) calendar days of the date of the billing, the requester shall be 
required to pay the full amount owed plus any applicable interest, and 
to make an advance payment of the full amount of the estimated fee 
before the Council begins to process a new request or the pending 
request.
    (h) Form of payment. Payment may be made by check or money order 
paid to the Treasurer of the United States.
    (i) Charging interest. The Council may charge interest on any unpaid 
bill starting on the 31st day following the date of billing the 
requester. Interest charges will be assessed at the rate provided in 31 
U.S.C. 3717 and will accrue from the date of the billing until payment 
is received by the Council. The Council will follow the provisions of 
the Debt Collection Act of 1982 (Pub. L. 97-365, 96 Stat. 1749), as 
amended, and its administrative procedures, including the use of 
consumer reporting agencies, collection agencies, and offset.
    (j) Aggregating requests. If the Council reasonably determines that 
a requester or a group of requesters acting together is attempting to 
divide a request into a series of requests for the purpose of avoiding 
fees, the Council may aggregate those requests and charge accordingly. 
The Council may presume that multiple requests involving related matters 
submitted within a thirty (30) calendar day period have been made in 
order to avoid fees. The Council shall not aggregate multiple requests 
involving unrelated matters.



PART 1310_AUTHORITY TO REQUIRE SUPERVISION AND REGULATION OF CERTAIN
NONBANK FINANCIAL COMPANIES--Table of Contents



                            Subpart A_General

Sec.
1310.1 Authority and purpose.
1310.2 Definitions.
1310.3 Amendments.

                        Subpart B_Determinations

1310.10 Council determinations regarding nonbank financial companies.
1310.11 Considerations in making proposed and final determinations.
1310.12 Anti-evasion provision.

  Subpart C_Information Collection; Proposed and Final Determinations; 
                          Evidentiary Hearings

1310.20 Council information collection; consultation; coordination; 
          confidentiality.
1310.21 Proposed and final determinations; notice and opportunity for an 
          evidentiary hearing.
1310.22 Emergency exception to Sec.1310.21.
1310.23 Council reevaluation and rescission of determinations.

Appendix A to Part 1310--Financial Stability Oversight Council Guidance 
          for Nonbank Financial Company Determinations

    Authority: 12 U.S.C. 5321; 12 U.S.C. 5322; 12 U.S.C. 5323.

    Source: 77 FR 21651, Apr. 11, 2012, unless otherwise noted.

[[Page 523]]



                            Subpart A_General



Sec.1310.1  Authority and purpose.

    (a) Authority. This part is issued by the Council under sections 
111, 112 and 113 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (``Dodd-Frank Act'') (12 U.S.C. 5321, 5322, and 5323).
    (b) Purpose. The principal purposes of this part are to set forth 
the standards and procedures governing Council determinations under 
section 113 of the Dodd-Frank Act (12 U.S.C. 5323), including whether 
material financial distress at a nonbank financial company, or the 
nature, scope, size, scale, concentration, interconnectedness, or mix of 
the activities of the nonbank financial company, could pose a threat to 
the financial stability of the United States, and whether a nonbank 
financial company shall be supervised by the Board of Governors and 
shall be subject to prudential standards in accordance with title I of 
the Dodd-Frank Act.



Sec.1310.2  Definitions.

    The terms used in this part have the following meanings--
    Board of Governors. The term ``Board of Governors'' means the Board 
of Governors of the Federal Reserve System.
    Commission. The term ``Commission'' means the Securities and 
Exchange Commission, except in the context of the Commodity Futures 
Trading Commission.
    Council. The term ``Council'' means the Financial Stability 
Oversight Council.
    Federal Insurance Office. The term ``Federal Insurance Office'' 
means the office established within the Department of the Treasury by 
section 502(a) of the Dodd-Frank Act (31 U.S.C. 301 (note)).
    Foreign nonbank financial company. The term ``foreign nonbank 
financial company'' means a company (other than a company that is, or is 
treated in the United States as, a bank holding company) that is--
    (1) Incorporated or organized in a country other than the United 
States; and
    (2) ``Predominantly engaged in financial activities,'' as that term 
is defined in section 102(a)(6) of the Dodd-Frank Act (12 U.S.C. 
5311(a)(6)) and pursuant to any requirements for determining if a 
company is predominantly engaged in financial activities as established 
by regulation of the Board of Governors pursuant to section 102(b) of 
the Dodd-Frank Act (12 U.S.C. 5311(b)), including through a branch in 
the United States.
    Hearing date. The term ``hearing date'' means the latest of--
    (1) The date on which the Council has received all of the written 
materials timely submitted by a nonbank financial company for a hearing 
that is conducted without oral testimony pursuant to Sec.1310.21 or 
Sec.1310.22, as applicable;
    (2) The final date on which the Council or its representatives 
convene to hear oral testimony presented by a nonbank financial company 
pursuant to Sec.1310.21 or Sec.1310.22, as applicable; and
    (3) The date on which the Council has received all of the written 
materials timely submitted by a nonbank financial company to supplement 
any oral testimony and materials presented by the nonbank financial 
company pursuant to Sec.1310.21 or Sec.1310.22, as applicable.
    Member agency. The term ``member agency'' means an agency 
represented by a voting member of the Council under section 111(b)(1) of 
the Dodd-Frank Act (12 U.S.C. 5321).
    Nonbank financial company. The term ``nonbank financial company'' 
means a U.S. nonbank financial company or a foreign nonbank financial 
company.
    Office of Financial Research. The term ``Office of Financial 
Research'' means the office established within the Department of the 
Treasury by section 152 of the Dodd-Frank Act (12 U.S.C. 5342).
    Primary financial regulatory agency. The term ``primary financial 
regulatory agency'' means--
    (1) The appropriate Federal banking agency, with respect to 
institutions described in section 3(q) of the Federal Deposit Insurance 
Act (12 U.S.C. 1813(q)), except to the extent that an institution is or 
the activities of an institution are otherwise described in paragraph 
(2), (3), (4), or (5) of this definition;

[[Page 524]]

    (2) The Commission, with respect to--
    (i) Any broker or dealer that is registered with the Commission 
under the Securities Exchange Act of 1934, with respect to the 
activities of the broker or dealer that require the broker or dealer to 
be registered under that Act;
    (ii) Any investment company that is registered with the Commission 
under the Investment Company Act of 1940, with respect to the activities 
of the investment company that require the investment company to be 
registered under that Act;
    (iii) Any investment adviser that is registered with the Commission 
under the Investment Advisers Act of 1940, with respect to the 
investment advisory activities of such company and activities that are 
incidental to such advisory activities;
    (iv) Any clearing agency registered with the Commission under the 
Securities Exchange Act of 1934, with respect to the activities of the 
clearing agency that require the agency to be registered under such Act;
    (v) Any nationally recognized statistical rating organization 
registered with the Commission under the Securities Exchange Act of 
1934;
    (vi) Any transfer agent registered with the Commission under the 
Securities Exchange Act of 1934;
    (vii) Any exchange registered as a national securities exchange with 
the Commission under the Securities Exchange Act of 1934;
    (viii) Any national securities association registered with the 
Commission under the Securities Exchange Act of 1934;
    (ix) Any securities information processor registered with the 
Commission under the Securities Exchange Act of 1934;
    (x) The Municipal Securities Rulemaking Board established under the 
Securities Exchange Act of 1934;
    (xi) The Public Company Accounting Oversight Board established under 
the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.);
    (xii) The Securities Investor Protection Corporation established 
under the Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa et 
seq.); and
    (xiii) Any security-based swap execution facility, security-based 
swap data repository, security-based swap dealer or major security-based 
swap participant registered with the Commission under the Securities 
Exchange Act of 1934, with respect to the security-based swap activities 
of the person that require such person to be registered under such Act;
    (3) The Commodity Futures Trading Commission, with respect to--
    (i) Any futures commission merchant registered with the Commodity 
Futures Trading Commission under the Commodity Exchange Act (7 U.S.C. 1 
et seq.), with respect to the activities of the futures commission 
merchant that require the futures commission merchant to be registered 
under that Act;
    (ii) Any commodity pool operator registered with the Commodity 
Futures Trading Commission under the Commodity Exchange Act (7 U.S.C. 1 
et seq.), with respect to the activities of the commodity pool operator 
that require the commodity pool operator to be registered under that 
Act, or a commodity pool, as defined in that Act;
    (iii) Any commodity trading advisor or introducing broker registered 
with the Commodity Futures Trading Commission under the Commodity 
Exchange Act (7 U.S.C. 1 et seq.), with respect to the activities of the 
commodity trading advisor or introducing broker that require the 
commodity trading advisor or introducing broker to be registered under 
that Act;
    (iv) Any derivatives clearing organization registered with the 
Commodity Futures Trading Commission under the Commodity Exchange Act (7 
U.S.C. 1 et seq.), with respect to the activities of the derivatives 
clearing organization that require the derivatives clearing organization 
to be registered under that Act;
    (v) Any board of trade designated as a contract market by the 
Commodity Futures Trading Commission under the Commodity Exchange Act (7 
U.S.C. 1 et seq.);
    (vi) Any futures association registered with the Commodity Futures 
Trading Commission under the Commodity Exchange Act (7 U.S.C. 1 et 
seq.);

[[Page 525]]

    (vii) Any retail foreign exchange dealer registered with the 
Commodity Futures Trading Commission under the Commodity Exchange Act (7 
U.S.C. 1 et seq.), with respect to the activities of the retail foreign 
exchange dealer that require the retail foreign exchange dealer to be 
registered under that Act;
    (viii) Any swap execution facility, swap data repository, swap 
dealer, or major swap participant registered with the Commodity Futures 
Trading Commission under the Commodity Exchange Act (7 U.S.C. 1 et seq.) 
with respect to the swap activities of the person that require such 
person to be registered under that Act; and
    (ix) Any registered entity as defined in section 1a of the Commodity 
Exchange Act (7 U.S.C. 1a), with respect to the activities of the 
registered entity that require the registered entity to be registered 
under that Act;
    (4) The State insurance authority of the State in which an insurance 
company is domiciled, with respect to the insurance activities and 
activities that are incidental to such insurance activities of an 
insurance company that is subject to supervision by the State insurance 
authority under State insurance law; and
    (5) The Federal Housing Finance Agency, with respect to Federal Home 
Loan Banks or the Federal Home Loan Bank System, and with respect to the 
Federal National Mortgage Association or the Federal Home Loan Mortgage 
Corporation.
    Prudential standards. The term ``prudential standards'' means 
enhanced supervision and regulatory standards established by the Board 
of Governors under section 165 of the Dodd-Frank Act (12 U.S.C. 5365).
    Significant companies. The terms ``significant nonbank financial 
company'' and ``significant bank holding company'' have the meanings 
ascribed to such terms by regulation of the Board of Governors issued 
under section 102(a)(7) of the Dodd-Frank Act (12 U.S.C. 5311(a)(7)).
    U.S. nonbank financial company. The term ``U.S. nonbank financial 
company'' means a company (other than a bank holding company; a Farm 
Credit System institution chartered and subject to the provisions of the 
Farm Credit Act of 1971 (12 U.S.C. 2001 et seq.); a national securities 
exchange (or parent thereof), clearing agency (or parent thereof, unless 
the parent is a bank holding company), security-based swap execution 
facility, or security-based swap data repository registered with the 
Commission; a board of trade designated as a contract market by the 
Commodity Futures Trading Commission (or parent thereof); or a 
derivatives clearing organization (or parent thereof, unless the parent 
is a bank holding company), swap execution facility, or swap data 
repository registered with the Commodity Futures Trading Commission), 
that is--
    (1) Incorporated or organized under the laws of the United States or 
any State; and
    (2) ``Predominantly engaged in financial activities,'' as that term 
is defined in section 102(a)(6) of the Dodd-Frank Act (12 U.S.C. 
5311(a)(6)), and pursuant to any requirements for determining if a 
company is predominantly engaged in financial activities as established 
by regulation of the Board of Governors pursuant to section 102(b) of 
the Dodd-Frank Act (12 U.S.C. 5311(b)).



Sec.1310.3  Amendments.

    The Council shall not amend or rescind appendix A to this part 
without providing the public with notice and an opportunity to comment 
in accordance with the procedures applicable to legislative rules under 
5 U.S.C. 553.

[84 FR 8959, Mar. 13, 2019]



                        Subpart B_Determinations



Sec.1310.10  Council determinations regarding nonbank financial companies.

    (a) Determinations. The Council may determine that a nonbank 
financial company shall be supervised by the Board of Governors and 
shall be subject to prudential standards, in accordance with title I of 
the Dodd-Frank Act, if the Council determines that material financial 
distress at the nonbank financial company, or the nature, scope, size, 
scale, concentration, interconnectedness, or mix of the activities of 
the nonbank financial company, could pose a threat to the financial 
stability of the United States.

[[Page 526]]

    (b) Vote required. Any proposed or final determination under 
paragraph (a) of this section shall--
    (1) Be made by the Council and shall not be delegated by the 
Council; and
    (2) Require the vote of not fewer than two-thirds of the voting 
members of the Council then serving, including the affirmative vote of 
the Chairperson of the Council.
    (c) Back-up examination by the Board of Governors. (1) If the 
Council is unable to determine whether the financial activities of a 
U.S. nonbank financial company, including a U.S. nonbank financial 
company that is owned by a foreign nonbank financial company, pose a 
threat to the financial stability of the United States, based on 
information or reports obtained by the Council under Sec.1310.20, 
including discussions with management, and publicly available 
information, the Council may request the Board of Governors, and the 
Board of Governors is authorized, to conduct an examination of the U.S. 
nonbank financial company and its subsidiaries for the sole purpose of 
determining whether the nonbank financial company should be supervised 
by the Board of Governors for purposes of title I of the Dodd-Frank Act 
(12 U.S.C. 5311-5374).
    (2) The Council shall review the results of the examination of a 
nonbank financial company, including its subsidiaries, conducted by the 
Board of Governors under this paragraph (c) in connection with any 
proposed or final determination under paragraph (a) of this section with 
respect to the nonbank financial company.



Sec.1310.11  Considerations in making proposed and final determinations.

    (a) Considerations for U.S. nonbank financial companies. In making a 
proposed or final determination under Sec.1310.10(a) with respect to a 
U.S. nonbank financial company, the Council shall consider--
    (1) The extent of the leverage of the U.S. nonbank financial company 
and its subsidiaries;
    (2) The extent and nature of the off-balance-sheet exposures of the 
U.S. nonbank financial company and its subsidiaries;
    (3) The extent and nature of the transactions and relationships of 
the U.S. nonbank financial company and its subsidiaries with other 
significant nonbank financial companies and significant bank holding 
companies;
    (4) The importance of the U.S. nonbank financial company and its 
subsidiaries as a source of credit for households, businesses, and State 
and local governments and as a source of liquidity for the United States 
financial system;
    (5) The importance of the U.S. nonbank financial company and its 
subsidiaries as a source of credit for low-income, minority, or 
underserved communities, and the impact that the failure of such U.S. 
nonbank financial company would have on the availability of credit in 
such communities;
    (6) The extent to which assets are managed rather than owned by the 
U.S. nonbank financial company and its subsidiaries, and the extent to 
which ownership of assets under management is diffuse;
    (7) The nature, scope, size, scale, concentration, 
interconnectedness, and mix of the activities of the U.S. nonbank 
financial company and its subsidiaries;
    (8) The degree to which the U.S. nonbank financial company and its 
subsidiaries are already regulated by 1 or more primary financial 
regulatory agencies;
    (9) The amount and nature of the financial assets of the U.S. 
nonbank financial company and its subsidiaries;
    (10) The amount and types of the liabilities of the U.S. nonbank 
financial company and its subsidiaries, including the degree of reliance 
on short-term funding; and
    (11) Any other risk-related factor that the Council deems 
appropriate, either by regulation or on a case-by-case basis.
    (b) Considerations for foreign nonbank financial companies. In 
making a proposed or final determination under Sec.1310.10(a) with 
respect to a foreign nonbank financial company, the Council shall 
consider--
    (1) The extent of the leverage of the foreign nonbank financial 
company and its subsidiaries;

[[Page 527]]

    (2) The extent and nature of the United States related off-balance-
sheet exposures of the foreign nonbank financial company and its 
subsidiaries;
    (3) The extent and nature of the transactions and relationships of 
the foreign nonbank financial company and its subsidiaries with other 
significant nonbank financial companies and significant bank holding 
companies;
    (4) The importance of the foreign nonbank financial company and its 
subsidiaries as a source of credit for United States households, 
businesses, and State and local governments and as a source of liquidity 
for the United States financial system;
    (5) The importance of the foreign nonbank financial company and its 
subsidiaries as a source of credit for low-income, minority, or 
underserved communities in the United States, and the impact that the 
failure of such foreign nonbank financial company would have on the 
availability of credit in such communities;
    (6) The extent to which assets are managed rather than owned by the 
foreign nonbank financial company and its subsidiaries and the extent to 
which ownership of assets under management is diffuse;
    (7) The nature, scope, size, scale, concentration, 
interconnectedness, and mix of the activities of the foreign nonbank 
financial company and its subsidiaries;
    (8) The extent to which the foreign nonbank financial company and 
its subsidiaries are subject to prudential standards on a consolidated 
basis in the foreign nonbank financial company's home country that are 
administered and enforced by a comparable foreign supervisory authority;
    (9) The amount and nature of the United States financial assets of 
the foreign nonbank financial company and its subsidiaries;
    (10) The amount and nature of the liabilities of the foreign nonbank 
financial company and its subsidiaries used to fund activities and 
operations in the United States, including the degree of reliance on 
short-term funding; and
    (11) Any other risk-related factor that the Council deems 
appropriate, either by regulation or on a case-by-case basis.



Sec.1310.12  Anti-evasion provision.

    (a) Determinations. In order to avoid evasion of title I of the 
Dodd-Frank Act (12 U.S.C. 5311-5374) or this part, the Council, on its 
own initiative or at the request of the Board of Governors, may require 
that the financial activities of a company shall be supervised by the 
Board of Governors and subject to prudential standards if the Council 
determines that--
    (1) Material financial distress related to, or the nature, scope, 
size, scale, concentration, interconnectedness, or mix of, the financial 
activities conducted directly or indirectly by a company incorporated or 
organized under the laws of the United States or any State or the 
financial activities in the United States of a company incorporated or 
organized in a country other than the United States would pose a threat 
to the financial stability of the United States, based on consideration 
of the factors in--
    (i) Sec.1310.11(a) if the company is incorporated or organized 
under the laws of the United States or any State; or
    (ii) Sec.1310.11(b) if the company is incorporated or organized in 
a country other than the United States; and
    (2) The company is organized or operates in such a manner as to 
evade the application of title I of the Dodd-Frank Act (12 U.S.C. 5311-
5374) or this part.
    (b) Vote required. Any proposed or final determination under 
paragraph (a) of this section shall--
    (1) Be made by the Council and shall not be delegated by the 
Council; and
    (2) Require the vote of not fewer than two-thirds of the voting 
members of the Council then serving, including the affirmative vote of 
the Chairperson of the Council.
    (c) Definition of covered financial activities. For purposes of this 
section, the term ``financial activities''--
    (1) Means activities that are financial in nature (as defined in 
section 4(k) of the Bank Holding Company Act of 1956);
    (2) Includes the ownership or control of one or more insured 
depository institutions; and
    (3) Does not include internal financial activities conducted for the 
company or any affiliate thereof, including

[[Page 528]]

internal treasury, investment, and employee benefit functions.
    (d) Application of other provisions. Sections 1310.20(a), 
1310.20(b), 1310.20(c), 1310.20(e), 1310.21, 1310.22, and 1310.23, and 
the definitions referred to therein, shall apply to proposed and final 
determinations of the Council with respect to the financial activities 
of a company pursuant to this section in the same manner as such 
sections apply to proposed and final determinations of the Council with 
respect to nonbank financial companies.



  Subpart C_Information Collection; Proposed and Final Determinations; 
                          Evidentiary Hearings



Sec.1310.20  Council information collection; consultation; coordination; confidentiality.

    (a) Information collection from the Office of Financial Research, 
member agencies, the Federal Insurance Office, and other Federal and 
State financial regulatory agencies. The Council may receive, and may 
request the submission of, such data or information from the Office of 
Financial Research, member agencies, the Federal Insurance Office, and 
(acting through the Office of Financial Research, to the extent the 
Council determines necessary) other Federal and State financial 
regulatory agencies as the Council deems necessary to carry out the 
provisions of title I of the Dodd-Frank Act (12 U.S.C. 5311-5374) or 
this part.
    (b) Information collection from nonbank financial companies. (1) The 
Council may, to the extent the Council determines appropriate, direct 
the Office of Financial Research to require the submission of periodic 
and other reports from any nonbank financial company, including a 
nonbank financial company that is being considered for a proposed or 
final determination under Sec.1310.10(a), for the purpose of assessing 
the extent to which a nonbank financial company poses a threat to the 
financial stability of the United States.
    (2) Before requiring the submission of reports under this paragraph 
(b) from any nonbank financial company that is regulated by a member 
agency or any primary financial regulatory agency, the Council, acting 
through the Office of Financial Research, shall coordinate with such 
agency or agencies and shall, whenever possible, rely on information 
available from the Office of Financial Research or such agency or 
agencies.
    (3) Before requiring the submission of reports under this paragraph 
(b) from a company that is a foreign nonbank financial company, the 
Council shall, acting through the Office of Financial Research, to the 
extent appropriate, consult with the appropriate foreign regulator of 
such foreign nonbank financial company and, whenever possible, rely on 
information already being collected by such foreign regulator, with 
English translation.
    (4) The Council may, to the extent the Council determines 
appropriate, accept the submission of any data, information, and reports 
voluntarily submitted by any nonbank financial company that is being 
considered for a proposed or final determination under Sec.1310.10(a), 
for the purpose of assessing the extent to which a nonbank financial 
company poses a threat to the financial stability of the United States.
    (c) Consultation. The Council shall consult with the primary 
financial regulatory agency, if any, for each nonbank financial company 
or subsidiary of a nonbank financial company that is being considered 
for supervision by the Board of Governors under Sec.1310.10(a) in a 
timely manner before the Council makes any final determination under 
Sec.1310.10(a) with respect to such nonbank financial company.
    (d) International coordination. In exercising its duties under this 
part with respect to foreign nonbank financial companies and cross-
border activities and markets, the Council, acting through its 
Chairperson or other authorized designee, shall consult with appropriate 
foreign regulatory authorities, to the extent appropriate.
    (e) Confidentiality--(1) In general. The Council shall maintain the 
confidentiality of any data, information, and reports submitted under 
this part.
    (2) Retention of privilege. The submission of any non-publicly 
available data or information under this part shall not constitute a 
waiver of, or otherwise affect, any privilege arising under Federal or 
State law (including the rules of

[[Page 529]]

any Federal or State court) to which the data or information is 
otherwise subject.
    (3) Freedom of Information Act. Section 552 of title 5, United 
States Code, including the exceptions thereunder, and any regulations 
thereunder adopted by the Council, shall apply to any data, information, 
and reports submitted under this part.



Sec.1310.21  Proposed and final determinations; notice and opportunity 
for an evidentiary hearing.

    (a) Written notice of consideration of determination; submission of 
materials. Before providing a nonbank financial company written notice 
of a proposed determination pursuant to paragraph (b) of this section, 
the Council shall provide the nonbank financial company--
    (1) Written notice that the Council is considering whether to make a 
proposed determination with respect to the nonbank financial company 
under Sec.1310.10(a);
    (2) An opportunity to submit written materials, within such time as 
the Council determines to be appropriate (which shall be not less than 
30 days after the date of receipt by the nonbank financial company of 
the notice described in paragraph (a)(1)), to the Council to contest the 
Council's consideration of the nonbank financial company for a proposed 
determination, including materials concerning whether, in the nonbank 
financial company's view, material financial distress at the nonbank 
financial company, or the nature, scope, size, scale, concentration, 
interconnectedness, or mix of the activities of the nonbank financial 
company, could pose a threat to the financial stability of the United 
States; and
    (3) Notice when the Council deems its evidentiary record regarding 
such nonbank financial company to be complete.
    (b) Notice of proposed determination. If the Council determines 
under Sec.1310.10(a) that a nonbank financial company should be 
supervised by the Board of Governors and be subject to prudential 
standards, the Council shall provide to the nonbank financial company 
written notice of the proposed determination, including an explanation 
of the basis of the proposed determination and the date by which an 
evidentiary hearing may be requested by the nonbank financial company 
under paragraph (c) of this section.
    (c) Evidentiary hearing. (1) Not later than 30 days after the date 
of receipt by a nonbank financial company of the notice of proposed 
determination under paragraph (b) of this section, the nonbank financial 
company may request, in writing, an opportunity for a nonpublic, written 
or oral evidentiary hearing before the Council or its representatives to 
contest the proposed determination under Sec.1310.10(a).
    (2) Upon receipt by the Council of a timely request under paragraph 
(c)(1), the Council shall fix a time (not later than 30 days after the 
date of receipt by the Council of the request) and place at which such 
nonbank financial company may appear, personally or through counsel, for 
a nonpublic evidentiary hearing at which the nonbank financial company 
may submit written materials (or, at the sole discretion of the Council, 
oral testimony and oral argument) to contest the proposed determination 
under Sec.1310.10(a), including materials concerning whether, in the 
nonbank financial company's view, material financial distress at the 
nonbank financial company, or the nature, scope, size, scale, 
concentration, interconnectedness, or mix of the activities of the 
nonbank financial company, could pose a threat to the financial 
stability of the United States.
    (d) Final determination after evidentiary hearing. If the nonbank 
financial company makes a timely request for an evidentiary hearing 
under paragraph (c) of this section, the Council shall, not later than 
60 days after the hearing date--
    (1) Determine whether to make a final determination under Sec.
1310.10(a);
    (2) Notify the nonbank financial company, in writing, of any final 
determination of the Council under Sec.1310.10(a), which notice shall 
contain a statement of the basis for the decision of the Council; and
    (3) If the Council makes a final determination under Sec.
1310.10(a), publicly announce the final determination of the Council.

[[Page 530]]

    (e) No evidentiary hearing requested. If a nonbank financial company 
does not make a timely request for an evidentiary hearing under 
paragraph (c) of this section or notifies the Council in writing that it 
is not requesting an evidentiary hearing under paragraph (c) of this 
section, the Council shall, not later than 10 days after the date by 
which the nonbank financial company could have requested a hearing under 
paragraph (c) of this section or 10 days after the date on which the 
Council receives notice from the nonbank financial company that it is 
not requesting an evidentiary hearing, as applicable--
    (1) Determine whether to make a final determination under Sec.
1310.10(a);
    (2) Notify the nonbank financial company, in writing, of any final 
determination of the Council under Sec.1310.10(a), which notice shall 
contain a statement of the basis for the decision of the Council; and
    (3) If the Council makes a final determination under Sec.
1310.10(a), publicly announce the final determination of the Council.
    (f) Time period for consideration. (1) If the Council does not make 
a proposed determination under Sec.1310.10(a) with respect to a 
nonbank financial company within 180 days after the date on which the 
nonbank financial company receives the notice of completion of the 
Council's evidentiary record described in paragraph (a)(3) of this 
section, the nonbank financial company shall not be eligible for a 
proposed determination under Sec.1310.10(a) unless the Council issues 
a subsequent written notice of consideration of determination under 
paragraph (a) of this section to such nonbank financial company.
    (2) This paragraph (f) shall not limit the Council's ability to 
issue a subsequent written notice of consideration of determination 
under Sec.1310.21(a) to any nonbank financial company that, within 180 
days after the date on which such nonbank financial company received a 
notice described in paragraph (a)(3) of this section, does not become 
subject to a proposed determination under Sec.1310.10(a).



Sec.1310.22  Emergency exception to Sec.1310.21.

    (a) Exception to Sec.1310.21. Notwithstanding anything to the 
contrary in Sec.1310.21, the Council may waive or modify any or all of 
the notice and other procedural requirements of Sec.1310.21 with 
respect to a nonbank financial company if--
    (1) The Council determines that such waiver or modification is 
necessary or appropriate to prevent or mitigate threats posed by the 
nonbank financial company to the financial stability of the United 
States; and
    (2) The Council provides written notice of the waiver or 
modification under this section to the nonbank financial company as soon 
as practicable, but not later than 24 hours after the waiver or 
modification is granted. Any such notice shall set forth the manner and 
form for transmitting a request for an evidentiary hearing under 
paragraph (c) of this section.
    (b) Consultation. (1) In making a determination under paragraph (a) 
of this section with respect to a nonbank financial company, the Council 
shall consult with the primary financial regulatory agency, if any, for 
such nonbank financial company, in such time and manner as the Council 
may deem appropriate.
    (2) In making a determination under paragraph (a) of this section 
with respect to a foreign nonbank financial company, the Council shall 
consult with the appropriate home country supervisor, if any, of such 
foreign nonbank financial company, in such time and manner as the 
Council may deem appropriate.
    (c) Opportunity for evidentiary hearing. (1) If the Council, 
pursuant to paragraph (a) of this section, waives or modifies any of the 
notice or other procedural requirements of Sec.1310.21 with respect to 
a nonbank financial company, the nonbank financial company may request, 
in writing, an opportunity for a nonpublic, written or oral evidentiary 
hearing before the Council or its representatives to contest such waiver 
or modification, not later than 10 days after the date of receipt by the

[[Page 531]]

nonbank financial company of the notice described in paragraph (a)(2) of 
this section.
    (2) Upon receipt of a timely request for an evidentiary hearing 
under paragraph (c)(1), the Council shall fix a time (not later than 15 
days after the date of receipt by the Council of the request) and place 
at which the nonbank financial company may appear, personally or through 
counsel, for a nonpublic evidentiary hearing at which the nonbank 
financial company may submit written materials (or, at the sole 
discretion of the Council, oral testimony and oral argument) regarding 
the waiver or modification under this section.
    (d) Notice of final determination. If the nonbank financial company 
makes a timely request for an evidentiary hearing under paragraph (c) of 
this section, the Council shall, not later than 30 days after the 
hearing date--
    (1) Make a final determination regarding the waiver or modification 
under this Sec.1310.22;
    (2) Notify the nonbank financial company, in writing, of the final 
determination of the Council regarding the waiver or modification under 
this Sec.1310.22, which notice shall contain a statement of the basis 
for the final decision of the Council; and
    (3) If the Council makes a final determination under Sec.
1310.10(a), publicly announce the final determination of the Council.
    (e) Vote required. Any determination of the Council under paragraph 
(a)(1) of this section to waive or modify any of the notice or other 
procedural requirements of Sec.1310.21 shall--
    (1) Be made by the Council and shall not be delegated by the 
Council; and
    (2) Require the vote of not fewer than two-thirds of the voting 
members of the Council then serving, including the affirmative vote of 
the Chairperson of the Council.



Sec.1310.23  Council reevaluation and rescission of determinations.

    (a) Reevaluation and rescission. The Council shall, not less 
frequently than annually--
    (1) Reevaluate each currently effective determination made under 
Sec.1310.10(a); and
    (2) Rescind any such determination, if the Council determines that 
the nonbank financial company no longer meets the standard under Sec.
1310.10(a), taking into account the considerations in Sec.1310.11(a) 
or Sec.1310.11(b), as applicable.
    (b) Notice of reevaluation; submission of materials. The Council 
shall provide written notice to each nonbank financial company subject 
to a currently effective determination prior to the Council's 
reevaluation of such determination under paragraph (a) of this section 
and shall provide such nonbank financial company an opportunity to 
submit written materials, within such time as the Council determines to 
be appropriate (which shall be not less than 30 days after the date of 
receipt by the nonbank financial company of such notice), to the Council 
to contest the determination, including materials concerning whether, in 
the nonbank financial company's view, material financial distress at the 
nonbank financial company, or the nature, scope, size, scale, 
concentration, interconnectedness, or mix of the activities of the 
nonbank financial company, could pose a threat to the financial 
stability of the United States.
    (c) Vote required. Any determination of the Council under paragraph 
(a)(2) of this section to rescind a determination made with respect to a 
nonbank financial company shall--
    (1) Be made by the Council and shall not be delegated by the 
Council; and
    (2) Require the vote of not fewer than two-thirds of the voting 
members of the Council then serving, including the affirmative vote of 
the Chairperson of the Council.
    (d) Notice of rescission. If the Council rescinds a determination 
with respect to any nonbank financial company under paragraph (a) of 
this section, the Council shall notify the nonbank financial company, in 
writing, of such rescission and publicly announce such rescission.



[[Page 532]]



  Sec. Appendix A to Part 1310--Financial Stability Oversight Council 
          Guidance for Nonbank Financial Company Determinations

                             I. Introduction

    Section 113 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (the ``Dodd-Frank Act'') \1\ authorizes the Financial 
Stability Oversight Council (the ``Council'') to determine that a 
nonbank financial company will be supervised by the Board of Governors 
of the Federal Reserve System (the ``Board of Governors'') and be 
subject to prudential standards in accordance with title I of the Dodd-
Frank Act if either of two standards is met. Under the first standard, 
the Council may subject a nonbank financial company to supervision by 
the Board of Governors and prudential standards if the Council 
determines that ``material financial distress'' at the nonbank financial 
company could pose a threat to the financial stability of the United 
States. Under the second standard, the Council may determine that a 
nonbank financial company will be supervised by the Board of Governors 
and subject to prudential standards if the nature, scope, size, scale, 
concentration, interconnectedness, or mix of the activities of the 
nonbank financial company could pose a threat to U.S. financial 
stability. Section 113 of the Dodd-Frank Act also lists 10 
considerations that the Council must take into account in making a 
determination.\2\
---------------------------------------------------------------------------

    \1\ See 12 U.S.C. 5323.
    \2\ In addition to these considerations, the Council may consider 
any other risk-related factors that the Council deems appropriate. 12 
U.S.C. 5323(a)(2)(K) and (b)(2)(K).
---------------------------------------------------------------------------

    Section II of this document describes the manner in which the 
Council intends to apply the statutory standards and considerations in 
making determinations under section 113 of the Dodd-Frank Act. First, 
section II defines ``threat to the financial stability of the United 
States'' and describes channels through which a nonbank financial 
company could pose such a threat. Second, it discusses each of the two 
statutory standards for determination. Third, it describes the six-
category framework that the Council intends to use to evaluate nonbank 
financial companies under each of the 10 statutory considerations. 
Section II also includes lists of sample metrics that may be used to 
evaluate individual nonbank financial companies under each of the six 
categories.
    Section III of this document outlines the process that the Council 
intends to follow in non-emergency situations when determining whether 
to subject a nonbank financial company to Board of Governors supervision 
and prudential standards. Section III also provides a detailed 
description of the analysis that the Council intends to conduct during 
each stage of its review. In the first stage of the process, the Council 
will apply six uniform quantitative thresholds to nonbank financial 
companies to identify those nonbank financial companies that will be 
subject to further evaluation by the Council. Because the Council is 
relying in the first stage on quantitative thresholds using information 
available through existing public and regulatory sources, nonbank 
financial companies should be able to assess whether they will be 
subject to further evaluation by the Council. During the second stage of 
the evaluation process, the Council will analyze the identified nonbank 
financial companies using a broad range of information available to the 
Council primarily through existing public and regulatory sources. The 
third stage of the process will involve a comprehensive analysis of 
those nonbank financial companies using information collected directly 
from the nonbank financial company, as well as the information used in 
the first two stages.

            II. Council Determination Authority and Framework

    As noted above, the Council may determine that a nonbank financial 
company will be supervised by the Board of Governors and be subject to 
prudential standards if the Council determines that (i) material 
financial distress at the nonbank financial company could pose a threat 
to the financial stability of the United States (the ``First 
Determination Standard'') or (ii) the nature, scope, size, scale, 
concentration, interconnectedness, or mix of the activities of the 
nonbank financial company could pose a threat to the financial stability 
of the United States (the ``Second Determination Standard,'' and, 
together with the First Determination Standard, the ``Determination 
Standards'').
    The Council intends to interpret the term ``company'' broadly with 
respect to nonbank financial companies and other companies in connection 
with section 113 of the Dodd-Frank Act, to include any corporation, 
limited liability company, partnership, business trust, association, or 
similar organization.
    This section provides definitions of the terms ``threat to the 
financial stability of the United States'' and ``material financial 
distress'' and describes how the Council expects to apply the 
Determination Standards.

        a. Threat to the Financial Stability of the United States

    The Determination Standards require the Council to determine whether 
a nonbank financial company could pose a threat to the financial 
stability of the United States. The Council will consider a ``threat to 
the financial stability of the United States'' to exist

[[Page 533]]

if there would be an impairment of financial intermediation or of 
financial market functioning that would be sufficiently severe to 
inflict significant damage on the broader economy.
    In evaluating a nonbank financial company under one of the 
Determination Standards, the Council intends to assess how a nonbank 
financial company's material financial distress or activities could be 
transmitted to, or otherwise affect, other firms or markets, thereby 
causing a broader impairment of financial intermediation or of financial 
market functioning. An impairment of financial intermediation and 
financial market functioning can occur through several channels. The 
Council has identified the following channels as most likely to 
facilitate the transmission of the negative effects of a nonbank 
financial company's material financial distress or activities to other 
financial firms and markets:
     Exposure. A nonbank financial company's 
creditors, counterparties, investors, or other market participants have 
exposure to the nonbank financial company that is significant enough to 
materially impair those creditors, counterparties, investors, or other 
market participants and thereby pose a threat to U.S. financial 
stability. In its initial analysis of nonbank financial companies with 
respect to this channel, the Council expects to consider metrics 
including total consolidated assets, credit default swaps outstanding, 
derivative liabilities, total debt outstanding, and leverage ratio.
     Asset liquidation. A nonbank financial company 
holds assets that, if liquidated quickly, would cause a fall in asset 
prices and thereby significantly disrupt trading or funding in key 
markets or cause significant losses or funding problems for other firms 
with similar holdings. This channel would likely be most relevant for a 
nonbank financial company whose funding and liquid asset profile makes 
it likely that it would be forced to liquidate assets quickly when it 
comes under financial pressure. For example, this could be the case if a 
large nonbank financial company relies heavily on short-term funding. In 
its initial analysis of nonbank financial companies with respect to this 
channel, the Council expects to consider metrics including total 
consolidated assets and short-term debt ratio.
     Critical function or service. A nonbank financial 
company is no longer able or willing to provide a critical function or 
service that is relied upon by market participants and for which there 
are no ready substitutes. The analysis of this channel will incorporate 
a review of the competitive landscape for markets in which a nonbank 
financial company participates and for the services it provides 
(including the provision of liquidity to the U.S. financial system, the 
provision of credit to low-income, minority, or underserved communities, 
or the provision of credit to households, businesses and state and local 
governments), the nonbank financial company's market share, and the 
ability of other firms to replace those services. Due to the unique ways 
in which a nonbank financial company may provide a critical function or 
service to the market, the Council expects to apply company-specific 
analyses with respect to this channel, rather than applying a broadly 
applicable quantitative metric.
    The Council believes that the threat a nonbank financial company may 
pose to U.S. financial stability through the impairment of financial 
intermediation and financial market functioning is likely to be 
exacerbated if the nonbank financial company is sufficiently complex, 
opaque, or difficult to resolve in bankruptcy such that its resolution 
in bankruptcy would disrupt key markets or have a material adverse 
impact on other financial firms or markets.
    The Council intends to continue to evaluate additional transmission 
channels and may, at its discretion, consider other channels through 
which a nonbank financial company may transmit the negative effects of 
its material financial distress or activities and thereby pose a threat 
to U.S. financial stability.

      b. First Determination Standard: Material Financial Distress

    Under the First Determination Standard, the Council may subject a 
nonbank financial company to supervision by the Board of Governors and 
prudential standards if the Council determines that ``material financial 
distress'' at the nonbank financial company could pose a threat to U.S. 
financial stability. The Council believes that material financial 
distress exists when a nonbank financial company is in imminent danger 
of insolvency or defaulting on its financial obligations.
    For purposes of considering whether a nonbank financial company 
could pose a threat to U.S. financial stability under this Determination 
Standard, the Council intends to assess the impact of the nonbank 
financial company's material financial distress in the context of a 
period of overall stress in the financial services industry and in a 
weak macroeconomic environment. The Council believes this is appropriate 
because in such a context, a nonbank financial company's distress may 
have a greater effect on U.S. financial stability.

     c. Second Determination Standard: Nature, Scope, Size, Scale, 
         Concentration, Interconnectedness, or Mix of Activities

    Under the Second Determination Standard, the Council may subject a 
nonbank financial

[[Page 534]]

company to supervision by the Board of Governors and prudential 
standards if the Council determines that the nature, scope, size, scale, 
concentration, interconnectedness, or mix of the activities of the 
nonbank financial company could pose a threat to U.S. financial 
stability. The Council believes that this Determination Standard will be 
met if the Council determines that the nature of a nonbank financial 
company's business practices, conduct, or operations could pose a threat 
to U.S. financial stability, regardless of whether the nonbank financial 
company is experiencing financial distress. The Council expects that 
there likely will be significant overlap between the outcome of an 
assessment of a nonbank financial company under the First and Second 
Determination Standards, because, in many cases, a nonbank financial 
company that could pose a threat to U.S. financial stability because of 
the nature, scope, size, scale, concentration, interconnectedness, or 
mix of its activities could also pose a threat to U.S. financial 
stability if it were to experience material financial distress.

           d. Analytic Framework for Statutory Considerations

    As required by section 113 of the Dodd-Frank Act, the Council's 
determination will be based on its judgment that a firm meets one of the 
Determination Standards described above. In evaluating whether a firm 
meets one of the Determination Standards, the Council will consider each 
of the statutory considerations. The discussion below outlines the 
analytic framework that the Council intends to use to organize its 
evaluation of a nonbank financial company under the statutory 
considerations and provides additional detail on the key data and 
analyses that the Council intends to use to assess the considerations.

   1. Grouping of Statutory Considerations Into Six-Category Framework

    The Dodd-Frank Act requires the Council to consider 10 
considerations (described below) when evaluating the potential of a 
nonbank financial company to pose a threat to U.S. financial stability. 
The statute also authorizes the Council to consider ``any other risk-
related factors that the Council deems appropriate.'' These statutory 
considerations will help the Council to evaluate whether one of the 
Determination Standards, as described in sections II.b and II.c above, 
has been met. The Council has developed an analytic framework that 
groups all relevant factors, including the 10 statutory considerations 
and any additional risk-related factors, into six categories: size, 
interconnectedness, substitutability, leverage, liquidity risk and 
maturity mismatch, and existing regulatory scrutiny. The Council expects 
to use these six categories to guide its evaluation of whether a 
particular nonbank financial company meets either Determination 
Standard. However, the Council's ultimate determination decision 
regarding a nonbank financial company will not be based on a formulaic 
application of the six categories. Rather, the Council intends to 
analyze a nonbank financial company using quantitative and qualitative 
data relevant to each of the six categories, as the Council determines 
is appropriate with respect to the particular nonbank financial company.
    Each of the six categories reflects a different dimension of a 
nonbank financial company's potential to pose a threat to U.S. financial 
stability. Three of the six categories--size, substitutability, and 
interconnectedness--seek to assess the potential impact of the nonbank 
financial company's financial distress on the broader economy. Material 
financial distress at nonbank financial companies that are large, 
provide critical financial services for which there are few substitutes, 
or are highly interconnected with other financial firms or markets are 
more likely to have a financial or operational impact on other 
companies, markets, and consumers that could pose a threat to the 
financial stability of the United States. The remaining three 
categories--leverage, liquidity risk and maturity mismatch, and existing 
regulatory scrutiny of the nonbank financial company--seek to assess the 
vulnerability of a nonbank financial company to financial distress. 
Nonbank financial companies that are highly leveraged, have a high 
degree of liquidity risk or maturity mismatch, and are under little or 
no regulatory scrutiny are more likely to be more vulnerable to 
financial distress.
    Each of the statutory considerations in sections 113(a)(2) and 
(b)(2) of the Dodd-Frank Act would be considered as part of one or more 
of the six categories. This is reflected in the following table, using 
the considerations relevant to a U.S. nonbank financial company for 
illustrative purposes.\3\
---------------------------------------------------------------------------

    \3\ The corresponding statutory considerations for a foreign nonbank 
financial company would be considered under the relevant categories 
indicated in the table.

------------------------------------------------------------------------
                                              Category or categories in
         Statutory considerations:            which this consideration
                                                 would be addressed:
------------------------------------------------------------------------
(A) The extent of the leverage of the       Leverage.
 company.
(B) The extent and nature of the off-       Size; interconnectedness.
 balance-sheet exposures of the company.

[[Page 535]]

 
(C) The extent and nature of the            Interconnectedness.
 transactions and relationships of the
 company with other significant nonbank
 financial companies and significant bank
 holding companies.
(D) The importance of the company as a      Size; substitutability.
 source of credit for households,
 businesses, and State and local
 governments and as a source of liquidity
 for the United States financial system.
(E) The importance of the company as a      Substitutability.
 source of credit for low-income,
 minority, or underserved communities, and
 the impact that the failure of such
 company would have on the availability of
 credit in such communities.
(F) The extent to which assets are managed  Size; interconnectedness;
 rather than owned by the company, and the   substitutability.
 extent to which ownership of assets under
 management is diffuse.
(G) The nature, scope, size, scale,         Size; interconnectedness;
 concentration, interconnectedness, and      substitutability.
 mix of the activities of the company.
(H) The degree to which the company is      Existing regulatory
 already regulated by 1 or more primary      scrutiny.
 financial regulatory agencies.
(I) The amount and nature of the financial  Size; interconnectedness.
 assets of the company.
(J) The amount and types of the             Liquidity risk and maturity
 liabilities of the company, including the   mismatch; size;
 degree of reliance on short-term funding.   interconnectedness.
(K) Any other risk-related factors that     Appropriate category or
 the Council deems appropriate.              categories based on the
                                             nature of the additional
                                             risk-related factor.
------------------------------------------------------------------------

                        2. Six-Category Framework

    The discussion below describes each of the six categories and how 
these categories relate to a firm's likelihood to pose a threat to 
financial stability. The sample metrics set forth below under each 
category are representative, not exhaustive, and may not apply to all 
nonbank financial companies under evaluation. The Council may apply the 
sample metrics in the context of stressed market conditions.

                           Interconnectedness

    Interconnectedness captures direct or indirect linkages between 
financial companies that may be conduits for the transmission of the 
effects resulting from a nonbank financial company's material financial 
distress or activities. Examples of the key conduits through which the 
effects may travel are a nonbank financial company's direct or indirect 
exposures to counterparties (including creditors, trading and 
derivatives counterparties, investors, borrowers, and other participants 
in the financial markets). Interconnectedness depends not only on the 
number of counterparties that a nonbank financial company has, but also 
on the importance of that nonbank financial company to its 
counterparties and the extent to which the counterparties are 
interconnected with other financial firms, the financial system and the 
broader economy. The Council's assessment of interconnectedness is 
intended to determine whether a nonbank financial company's exposure to 
its counterparties would pose a threat to U.S. financial stability if 
that company encountered material financial distress.
    For example, metrics that may be used to assess interconnectedness 
include:
     Counterparties' exposures to a nonbank financial 
company, including derivatives, reinsurance, loans, securities borrowing 
and lending, and lines of credit that facilitate settlement and clearing 
activities.
     Number, size, and financial strength of a nonbank 
financial company's counterparties, including the proportion of its 
counterparties' exposure to the nonbank financial company relative to 
the counterparties' capital.
     Identity of a nonbank financial company's 
principal contractual counterparties, which reflects the concentration 
of the nonbank financial company's assets financed by particular firms 
and the importance of the nonbank financial company's counterparties to 
the market.
     Aggregate amounts of a nonbank financial 
company's gross or net derivatives exposures and the number of its 
derivatives counterparties.
     The amount of gross notional credit default swaps 
outstanding for which a nonbank financial company or its parent is the 
reference entity.
     Total debt outstanding, which captures a nonbank 
financial company's sources of funding.
     Reinsurance obligations, which measure the 
reinsurance risk assumed from non-affiliates net of retrocession.

                            Substitutability

    Substitutability captures the extent to which other firms could 
provide similar financial services in a timely manner at a similar price 
and quantity if a nonbank financial company withdraws from a particular 
market. Substitutability also captures situations in which a nonbank 
financial company is the primary or dominant provider of services in a 
market that the

[[Page 536]]

Council determines to be essential to U.S. financial stability. An 
example of the manner in which the Council may determine a nonbank 
financial company's substitutability is to consider its market share. 
The Council's evaluation of a nonbank financial company's market share 
regarding a particular product or service will include assessments of 
the ability of the nonbank financial company's competitors to expand to 
meet market needs; the costs that market participants would incur if 
forced to switch providers; the timeframe within which a disruption in 
the provision of the product or service would materially affect market 
participants or market functioning; and the economic implications of 
such a disruption. Concern about a potential lack of substitutability 
could be greater if a nonbank financial company and its competitors are 
likely to experience stress at the same time because they are exposed to 
the same risks. The Council may also analyze a nonbank financial 
company's core operations and critical functions and the importance of 
those operations and functions to the U.S. financial system and assess 
how those operations and functions would be performed by the nonbank 
financial company or other market participants in the event of the 
nonbank financial company's material financial distress. The Council 
also intends to consider substitutability with respect to any nonbank 
financial company with global operations to identify the 
substitutability of critical market functions that the company provides 
in the United States in the event of material financial distress of a 
foreign parent company.
    For example, metrics that may be used to assess substitutability 
include:
     The market share, using the appropriate 
quantitative measure (such as loans originated, loans outstanding, and 
notional transaction volume) of a nonbank financial company and its 
competitors in the market under consideration.
     The stability of market share across the firms in 
the market over time.
     The market share of the company and its 
competitors for products or services that serve a substantially similar 
economic function as the primary market under consideration.

                                  Size

    Size captures the amount of financial services or financial 
intermediation that a nonbank financial company provides. Size also may 
affect the extent to which the effects of a nonbank financial company's 
financial distress are transmitted to other firms and to the financial 
system. For example, financial distress at an extremely large nonbank 
financial company that is highly interconnected likely would transmit 
risk on a larger scale than would financial distress at a smaller 
nonbank financial company that is similarly interconnected. Size is 
conventionally measured by the assets, liabilities and capital of the 
firm. However, such measures of size may not provide complete or 
accurate assessments of the scale of a nonbank financial company's risk 
potential. Thus, the Council also intends to take into account off-
balance sheet assets and liabilities and assets under management in a 
manner that recognizes the unique and distinct nature of these classes. 
Other measures of size, such as numbers of customers and counterparties, 
may also be relevant.
    For example, metrics that may be used to assess size include:
     Total consolidated assets or liabilities, as 
determined under generally accepted accounting principles in the United 
States (``GAAP'') or the nonbank financial company's applicable 
financial reporting standards, depending on the availability of data and 
the stage of the determination process.
     Total risk-weighted assets, as appropriate for 
different industry sectors.
     Off-balance sheet exposures where a nonbank 
financial company has a risk of loss, including, for example, lines of 
credit. For foreign nonbank financial companies, this would be evaluated 
based on the extent and nature of U.S.-related off-balance sheet 
exposures.
     The extent to which assets are managed rather 
than owned by a nonbank financial company and the extent to which 
ownership of assets under management is diffuse.
     Direct written premiums, as reported by insurance 
companies. This is the aggregate of direct written premiums reported by 
insurance entities under all lines of business and serves as a proxy for 
the amount of insurance underwritten by the insurance entities.
     Risk in force, which is the aggregate risk 
exposure from risk underwritten in insurance related to certain 
financial risks, such as mortgage insurance.
     Total loan originations, by loan type, in number 
and dollar amount.

                                Leverage

    Leverage captures a company's exposure or risk in relation to its 
equity capital. Leverage amplifies a company's risk of financial 
distress in two ways. First, by increasing a company's exposure relative 
to capital, leverage raises the likelihood that a company will suffer 
losses exceeding its capital. Second, by increasing the size of a 
company's liabilities, leverage raises a company's dependence on its 
creditors' willingness and ability to fund its balance sheet. Leverage 
can also amplify the impact of a company's distress on other companies, 
both directly, by increasing the amount of exposure that other firms 
have to the company, and indirectly, by increasing the size of any asset

[[Page 537]]

liquidation that the company is forced to undertake as it comes under 
financial pressure. Leverage can be measured by the ratio of assets to 
capital, but it can also be defined in terms of risk, as a measure of 
economic risk relative to capital. The latter measurement can better 
capture the effect of derivatives and other products with embedded 
leverage on the risk undertaken by a nonbank financial company.
    For example, metrics that may be used to assess leverage include:
     Total assets and total debt measured relative to 
total equity, which is intended to measure financial leverage.
     Gross notional exposure of derivatives and off-
balance sheet obligations relative to total equity or to net assets 
under management, which is intended to show how much off-balance sheet 
leverage a nonbank financial company may have.
     The ratio of risk to statutory capital, which is 
relevant to certain insurance companies and is intended to show how much 
risk exposure a nonbank financial company has in relation to its ability 
to absorb loss.
     Changes in leverage ratios, which may indicate 
that a nonbank financial company is rapidly increasing its risk profile.

                  Liquidity Risk and Maturity Mismatch

    Liquidity risk generally refers to the risk that a company may not 
have sufficient funding to satisfy its short-term needs, either through 
its cash flows, maturing assets, or assets salable at prices equivalent 
to book value, or through its ability to access funding markets. For 
example, if a company holds assets that are illiquid or that are subject 
to significant decreases in market value during times of market stress, 
the company may be unable to liquidate its assets effectively in 
response to a loss of funding. In order to assess liquidity, the Council 
may examine a nonbank financial company's assets to determine if it 
possesses cash instruments or readily marketable securities, such as 
Treasury securities, which could reasonably be expected to have a liquid 
market in times of distress. The Council may also review a nonbank 
financial company's debt profile to determine if it has adequate long-
term funding, or can otherwise mitigate liquidity risk. Liquidity 
problems also can arise from a company's inability to roll maturing debt 
or to satisfy margin calls, and from demands for additional collateral, 
depositor withdrawals, draws on committed lines, and other potential 
draws on liquidity.
    A maturity mismatch generally refers to the difference between the 
maturities of a company's assets and liabilities. A maturity mismatch 
affects a company's ability to survive a period of stress that may limit 
its access to funding and to withstand shocks in the yield curve. For 
example, if a company relies on short-term funding to finance longer-
term positions, it will be subject to significant refunding risk that 
may force it to sell assets at low market prices or potentially suffer 
through significant margin pressure. However, maturity mismatches are 
not confined to the use of short-term liabilities and can exist at any 
point in the maturity schedule of a nonbank financial company's assets 
and liabilities. For example, in the case of a life insurance company, 
liabilities may have maturities of 30 years or more, whereas the market 
availability of equivalently long-term assets may be limited, exposing 
the company to interest rate fluctuations and reinvestment risk.
    For example, metrics that may be used to assess liquidity and 
maturity mismatch include:
     Fraction of assets that are classified as level 2 
and level 3 under applicable accounting standards, as a measure of how 
much of a nonbank financial company's balance sheet is composed of hard-
to-value and potentially illiquid securities.
     Liquid asset ratios, which are intended to 
indicate a nonbank financial company's ability to repay its short-term 
debt.
     The ratio of unencumbered and highly liquid 
assets to the net cash outflows that a nonbank financial company could 
encounter in a short-term stress scenario.
     Callable debt as a fraction of total debt, which 
provides one measure of a nonbank financial company's ability to manage 
its funding position in response to changes in interest rates.
     Asset-backed funding versus other funding, to 
determine a nonbank financial company's susceptibility to distress in 
particular credit markets.
     Asset-liability duration and gap analysis, which 
is intended to indicate how well a nonbank financial company is matching 
the re-pricing and maturity of the nonbank financial company's assets 
and liabilities.
     Short-term debt as a percentage of total debt and 
as a percentage of total assets, which indicates a nonbank financial 
company's reliance on short-term debt markets.

                      Existing Regulatory Scrutiny

    The Council will consider the extent to which nonbank financial 
companies are already subject to regulation, including the consistency 
of that regulation across nonbank financial companies within a sector, 
across different sectors, and providing similar services, and the 
statutory authority of those regulators.
    For example, metrics that may be used to assess existing regulatory 
scrutiny include:
     The extent of state or federal regulatory 
scrutiny, including processes or systems for peer review; inter-
regulatory coordination and cooperation; and whether existing regulators 
have the ability to impose detailed and timely reporting obligations, 
capital and

[[Page 538]]

liquidity requirements, and enforcement actions, and to resolve the 
company.
     Existence and effectiveness of consolidated 
supervision, and a determination of whether and how non-regulated 
entities and groups within a nonbank financial company are supervised on 
a group-wide basis.
     For entities based outside the United States, the 
extent to which a nonbank financial company is subject to prudential 
standards on a consolidated basis in its home country that are 
administered and enforced by a comparable foreign supervisory authority.

                     III. The Determination Process

    The Council expects generally to follow a three-stage process of 
increasingly in-depth evaluation and analysis leading up to a proposed 
determination (a ``Proposed Determination'') that a nonbank financial 
company could pose a threat to the financial stability of the United 
States. Quantitative metrics, together with qualitative analysis, will 
inform the judgment of the Council when it is evaluating a nonbank 
financial company for a Proposed Determination. The purpose of this 
process is to help determine whether a nonbank financial company could 
pose a threat to the financial stability of the United States.
    In the first stage of the process (``Stage 1''), a set of uniform 
quantitative metrics will be applied to a broad group of nonbank 
financial companies in order to identify nonbank financial companies for 
further evaluation and to provide clarity for nonbank financial 
companies that likely will not be subject to further evaluation. In 
Stage 1, the Council will rely solely on information available through 
existing public and regulatory sources. The purpose of Stage 1 is to 
enable the Council to identify a group of nonbank financial companies 
that are most likely to satisfy one of the Determination Standards.
    In the second stage (``Stage 2''), the nonbank financial companies 
identified in Stage 1 will be analyzed and prioritized, based on a wide 
range of quantitative and qualitative information available to the 
Council primarily through public and regulatory sources. The Council 
will also begin the consultation process with the primary financial 
regulatory agencies or home country supervisors, as appropriate. As part 
of that consultation process, the Council intends to consult with the 
primary financial regulatory agency, if any, of each significant 
subsidiary of the nonbank financial company, to the extent the Council 
deems appropriate. The Council also intends to fulfill its statutory 
obligation to rely whenever possible on information available through 
the Office of Financial Research (the ``OFR''), member agencies, or the 
nonbank financial company's primary financial regulatory agencies before 
requiring the submission of reports from any nonbank financial 
company.\4\
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    \4\ See 12 U.S.C. 5322(d)(3).
---------------------------------------------------------------------------

    Following Stage 2, nonbank financial companies that are selected for 
additional review will receive notice that they are being considered for 
a Proposed Determination and will be subject to in-depth evaluation 
during the third stage of review (``Stage 3''). Stage 3 will involve the 
evaluation of information collected directly from the nonbank financial 
company, in addition to the information considered during Stages 1 and 
2. At the end of Stage 3, the Council may consider whether to make a 
Proposed Determination with respect to the nonbank financial company. If 
a Proposed Determination is made by the Council, the nonbank financial 
company may request a hearing in accordance with section 113(e) of the 
Dodd-Frank Act and Sec.1310.21(c) of the Council's rule.\5\
---------------------------------------------------------------------------

    \5\ See 12 CFR 1310.21(c).
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    The Council expects to follow this three-stage process and to 
consider the categories, metrics, thresholds, and channels described in 
this guidance to assess a nonbank financial company's potential to pose 
a threat to U.S. financial stability. In addition to the information 
described herein that the Council generally expects to consider, the 
Council also will consider quantitative and qualitative information that 
it deems relevant to a particular nonbank financial company, as each 
determination will be made on a company-specific basis. The Council may 
consider any nonbank financial company for a Proposed Determination at 
any point in the three-stage evaluation process described in this 
guidance if the Council believes such company could pose a threat to 
U.S. financial stability.

 a. Stage 1: Initial Identification of Nonbank Financial Companies for 
                               Evaluation

    In Stage 1, the Council will seek to identify a set of nonbank 
financial companies that merit company-specific evaluation. In this 
stage, the Council intends to apply quantitative thresholds to a broad 
group of nonbank financial companies. A nonbank financial company that 
is selected for further evaluation during Stage 1 will be assessed 
during Stage 2. During the Stage 1 process, the Council will evaluate 
nonbank financial companies using only data available to the Council, 
such as publicly available information and information member agencies 
possess in their supervisory capacities.
    In the Stage 1 quantitative analysis, the Council intends to apply 
thresholds that relate to the framework categories of size, 
interconnectedness, leverage, and liquidity risk and maturity mismatch. 
These thresholds were selected based on (1) their applicability to 
nonbank financial companies that

[[Page 539]]

operate in different types of financial markets and industries, (2) the 
meaningful initial assessment that such thresholds provide regarding the 
potential for a nonbank financial company to pose a threat to financial 
stability in diverse financial markets, and (3) the current availability 
of data. These thresholds are intended to measure both the 
susceptibility of a nonbank financial company to financial distress and 
the potential for that nonbank financial company's financial distress to 
spread throughout the financial system. A nonbank financial company will 
be evaluated further in Stage 2 if it meets both the total consolidated 
assets threshold and any one of the other thresholds.\6\ The thresholds 
are:
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    \6\ While the Council expects that its determinations under section 
113 of the Dodd-Frank Act will be with respect to individual legal 
entities, the Council has authority to assess nonbank financial 
companies, and their relationships with other nonbank financial 
companies and market participants, in a manner that addresses the 
statutory considerations and such other factors as the Council deems 
appropriate. For example, for purposes of applying the six thresholds to 
investment funds (including private equity firms and hedge funds), the 
Council may consider the aggregate risks posed by separate funds that 
are managed by the same adviser, particularly if the funds' investments 
are identical or highly similar. In performing this analysis, the 
Council may use data reported on Form PF with the Securities and 
Exchange Commission or the Commodity Futures Trading Commission.
---------------------------------------------------------------------------

     Total Consolidated Assets. The Council intends to 
apply a size threshold of $50 billion in total consolidated assets. This 
threshold is consistent with the Dodd-Frank Act threshold of $50 billion 
in assets for subjecting bank holding companies to enhanced prudential 
standards.
     Credit Default Swaps Outstanding. The Council 
intends to apply a threshold of $30 billion in gross notional credit 
default swaps (``CDS'') outstanding for which a nonbank financial 
company is the reference entity. Gross notional value equals the sum of 
CDS contracts bought (or equivalently sold). If the amount of CDS sold 
on a particular nonbank financial company is greater than $30 billion, 
this indicates that a large number of institutions may be exposed to 
that nonbank financial company and that if the nonbank financial company 
fails, a significant number of financial market participants may be 
affected. This threshold was selected based on an analysis of the 
distribution of outstanding CDS data for nonbank financial companies 
included in a list of the top 1,000 CDS reference entities.
     Derivative Liabilities. The Council intends to 
apply a threshold of $3.5 billion of derivative liabilities. Derivative 
liabilities equal the fair value of derivative contracts in a negative 
position. For nonbank financial companies that disclose the effects of 
master netting agreements and cash collateral held with the same 
counterparty on a net basis, the Council intends to calculate derivative 
liabilities after taking into account the effects of these arrangements. 
This threshold serves as a proxy for interconnectedness, as a nonbank 
financial company that has a greater level of derivative liabilities 
would have higher counterparty exposure throughout the financial system.
     Total Debt Outstanding. The Council intends to 
apply a threshold of $20 billion in total debt outstanding. The Council 
will define total debt outstanding broadly and regardless of maturity to 
include loans (whether secured or unsecured), bonds, repurchase 
agreements, commercial paper, securities lending arrangements, surplus 
notes (for insurance companies), and other forms of indebtedness. This 
threshold serves as a proxy for interconnectedness, as nonbank financial 
companies with a large amount of outstanding debt are generally more 
interconnected with the broader financial system, in part because 
financial institutions hold a large proportion of outstanding debt. An 
analysis of the distribution of debt outstanding for a sample of nonbank 
financial companies was performed to determine the $20 billion 
threshold. Historical testing of this threshold demonstrated that it 
would have captured many of the nonbank financial companies that 
encountered material financial distress during the financial crisis in 
2007-2008, including Bear Stearns, Countrywide, and Lehman Brothers.
     Leverage Ratio. The Council intends to apply a 
threshold leverage ratio of total consolidated assets (excluding 
separate accounts) to total equity of 15 to 1. The Council intends to 
exclude separate accounts from this calculation because separate 
accounts are not available to claims by general creditors of a nonbank 
financial company. Measuring leverage in this manner benefits from 
simplicity, availability and comparability across industries. An 
analysis of the distribution of the historical leverage ratios of large 
financial institutions was used to identify the 15 to 1 threshold. 
Historical testing of this threshold demonstrated that it would have 
captured the major nonbank financial companies that encountered material 
financial distress and posed a threat to U.S. financial stability during 
the financial crisis, including Bear Stearns, Countrywide, IndyMac 
Bancorp, and Lehman Brothers.
     Short-Term Debt Ratio. The Council intends to 
apply a threshold ratio of total debt

[[Page 540]]

outstanding (as defined above) with a maturity of less than 12 months to 
total consolidated assets (excluding separate accounts) of 10 percent. 
An analysis of the historical distribution of the short-term debt ratios 
of large financial institutions was used to determine the 10 percent 
threshold. Historical testing of this threshold demonstrated that it 
would have captured a number of the nonbank financial companies that 
faced short-term funding issues during the financial crisis, including 
Bear Stearns and Lehman Brothers.
    The Council intends generally to apply the Stage 1 thresholds using 
GAAP when such information is available. If GAAP information with 
respect to a nonbank financial company is not available, the Council may 
rely on data reported under statutory accounting principles, 
international financial reporting standards, or such other data as are 
available to the Council.
    For purposes of evaluating any U.S. nonbank financial company, the 
Council intends to apply each of the Stage 1 thresholds based on the 
global assets, liabilities and operations of the company and its 
subsidiaries. In contrast, for purposes of evaluating any foreign 
nonbank financial company, the Council intends to calculate the Stage 1 
thresholds based solely on the U.S. assets, liabilities and operations 
of the foreign nonbank financial company and its subsidiaries.
    The Council intends to reapply the Stage 1 thresholds to nonbank 
financial companies using the most recently available data on a 
quarterly basis, or less frequently for nonbank financial companies with 
respect to which quarterly data are unavailable.
    The Council intends to review the appropriateness of both the Stage 
1 thresholds and the levels of the thresholds that are specified in 
dollars as needed, but at least every five years, and to adjust the 
thresholds and levels as the Council may deem advisable.
    The Stage 1 thresholds are intended to identify nonbank financial 
companies for further evaluation by the Council and to help a nonbank 
financial company predict whether such company will be subject to 
additional review. Because the uniform quantitative thresholds may not 
capture all types of nonbank financial companies and all of the 
potential ways in which a nonbank financial company could pose a threat 
to financial stability, the Council may initially evaluate any nonbank 
financial company based on other firm-specific qualitative or 
quantitative factors, irrespective of whether such company meets the 
thresholds in Stage 1.
    A nonbank financial company that is identified for further 
evaluation in Stage 1 would be further assessed during Stage 2 (the 
``Stage 2 Pool'').

          b. Stage 2: Review and Prioritization of Stage 2 Pool

    After the Stage 2 Pool has been identified, the Council intends to 
conduct a robust analysis of the potential threat that each of those 
nonbank financial companies could pose to U.S. financial stability. In 
general, this analysis will be based on information already available to 
the Council through existing public and regulatory sources, including 
information possessed by the company's primary financial regulatory 
agency or home country supervisor, as appropriate, and information 
voluntarily submitted by the company. In contrast to the application of 
uniform quantitative thresholds to a broad group of nonbank financial 
companies in Stage 1, the Council intends to evaluate the risk profile 
and characteristics of each individual nonbank financial company in the 
Stage 2 Pool based on a wide range of quantitative and qualitative 
industry-specific and company-specific factors. This analysis will use 
the six-category analytic framework described in section II.d above. In 
addition, the Stage 2 evaluation will include a review, based on 
available data, of qualitative factors, including whether the resolution 
of a nonbank financial company, as described below, could pose a threat 
to U.S. financial stability, and the extent to which the nonbank 
financial company is subject to regulation.
    Based on this analysis, the Council intends to contact those nonbank 
financial companies that the Council believes merit further evaluation 
in Stage 3 (the ``Stage 3 Pool'').

                   c. Stage 3: Review of Stage 3 Pool

    In Stage 3, the Council, working with the OFR, will conduct a review 
of each nonbank financial company in the Stage 3 Pool using information 
collected directly from the nonbank financial company, as well as the 
information used in the first two stages. The review will focus on 
whether the nonbank financial company could pose a threat to U.S. 
financial stability because of the company's material financial distress 
or the nature, scope, size, scale, concentration, interconnectedness, or 
mix of the activities of the company. The transmission channels 
discussed above, and other appropriate factors, will be used to evaluate 
a nonbank financial company's potential to pose a threat to U.S. 
financial stability. The analytic framework consisting of the six 
categories set forth above, and the metrics used to measure each of the 
six categories, will assist the Council in assessing the extent to which 
the transmission of material financial distress is likely to occur.
    Each nonbank financial company in the Stage 3 Pool will receive a 
notice (a ``Notice of Consideration'') that the nonbank financial 
company is under consideration for a

[[Page 541]]

Proposed Determination. The Notice of Consideration likely will include 
a request that the nonbank financial company provide information that 
the Council deems relevant to the Council's evaluation, and the nonbank 
financial company will be provided an opportunity to submit written 
materials to the Council.\7\ This information will generally be 
collected by the OFR.\8\ Before requiring the submission of reports from 
any nonbank financial company that is regulated by a member agency or 
any primary financial regulatory agency, the Council, acting through the 
OFR, will coordinate with such agencies and will, whenever possible, 
rely on information available from the OFR or such agencies. Council 
members and their agencies and staffs will maintain the confidentiality 
of such information in accordance with applicable law.
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    \7\ See section 1310.21(a) of the rule.
    \8\ Under section 112(d) of the Dodd-Frank Act, if the Council is 
unable to determine whether a U.S. nonbank financial company poses a 
threat to U.S. financial stability based on such information, the 
Council may request that the Board of Governors conduct an examination 
of the nonbank financial company to determine whether it should be 
supervised by the Board of Governors.
---------------------------------------------------------------------------

    Information requests likely will involve both qualitative and 
quantitative data. Information relevant to the Council's analysis may 
include confidential business information such as internal assessments, 
internal risk management procedures, funding details, counterparty 
exposure or position data, strategic plans, resolvability, potential 
acquisitions or dispositions, and other anticipated changes to the 
nonbank financial company's business or structure that could affect the 
threat to U.S. financial stability posed by the nonbank financial 
company.
    In evaluating qualitative factors during Stage 3, the Council 
expects to have access, to a greater degree than during earlier stages 
of review, to information relating to factors that are not easily 
quantifiable or that may not directly cause a company to pose a threat 
to financial stability, but could mitigate or aggravate the potential of 
a nonbank financial company to pose a threat to the United States. Such 
factors may include the opacity of the nonbank financial company's 
operations, its complexity, and the extent to which it is subject to 
existing regulatory scrutiny and the nature of such scrutiny.
    The Stage 3 analysis will also include an evaluation of a nonbank 
financial company's resolvability, which may mitigate or aggravate the 
potential of a nonbank financial company to pose a threat to U.S. 
financial stability. An evaluation of a nonbank financial company's 
resolvability entails an assessment of the complexity of the nonbank 
financial company's legal, funding, and operational structure, and any 
obstacles to the rapid and orderly resolution of the nonbank financial 
company in a manner that would mitigate the risk that the nonbank 
financial company's failure would have a material adverse effect on 
financial stability. In addition to the factors described above, a 
nonbank financial company's resolvability is also a function of legal 
entity and cross-border operations issues. These factors include the 
ability to separate functions and spin off services or business lines; 
the likelihood of preserving franchise value in a recovery or resolution 
scenario, and of maintaining continuity of critical services within the 
existing or in a new legal entity or structure; the degree of the 
nonbank financial company's intra-group dependency for liquidity and 
funding, payment operation, and risk management needs; and the size and 
nature of the nonbank financial company's intra-group transactions.
    The Council anticipates that the information necessary to conduct an 
in-depth analysis of a particular nonbank financial company may vary 
significantly based on the nonbank financial company's business and 
activities and the information already available to the Council from 
existing public sources and domestic or foreign regulatory authorities. 
The Council will also consult with the primary financial regulatory 
agency, if any, for each nonbank financial company or subsidiary of a 
nonbank financial company under consideration in a timely manner before 
the Council makes any final determination with respect to such nonbank 
financial company, and with appropriate foreign regulatory authorities, 
to the extent appropriate.
    Before making a Proposed Determination, the Council intends to 
notify each nonbank financial company in the Stage 3 Pool when the 
Council believes that the evidentiary record regarding such nonbank 
financial company is complete.
    Based on the analysis performed in Stages 2 and 3, a nonbank 
financial company will be considered for a Proposed Determination. 
Before a vote of the Council with respect to a particular nonbank 
financial company, the Council members will review information relevant 
to the consideration of the nonbank financial company for a Proposed 
Determination. After this review, the Council may, by a vote of two-
thirds of its members (including an affirmative vote of the Council 
Chairperson), make a Proposed Determination with respect to the nonbank 
financial company. Following a Proposed Determination, the Council 
intends to issue a written notice of the Proposed Determination to the 
nonbank financial company, which will include an explanation of the 
basis of the Proposed Determination. The Council expects to

[[Page 542]]

notify any nonbank financial company in the Stage 3 Pool if the nonbank 
financial company, either before or after a Proposed Determination of 
such nonbank financial company, ceases to be considered for 
determination. Any nonbank financial company that ceases to be 
considered at any time in the Council's determination process may be 
considered for a Proposed Determination in the future at the Council's 
discretion.
    A nonbank financial company that is subject to a Proposed 
Determination may request a nonpublic hearing to contest the Proposed 
Determination in accordance with section 113(e) of the Dodd-Frank Act. 
If the nonbank financial company requests a hearing in accordance with 
the procedures set forth in Sec.1310.21(c) of the Council's rule,\9\ 
the Council will set a time and place for such hearing. The Council will 
(after a hearing, if a hearing is requested), determine by a vote of 
two-thirds of the voting members of the Council (including the 
affirmative vote of the Chairperson) whether to subject such company to 
supervision by the Board of Governors and prudential standards. The 
Council will provide the nonbank financial company with written notice 
of the Council's final determination, including an explanation of the 
basis for the Council's decision. When practicable and consistent with 
the purposes of the determination process, the Council intends to 
provide a nonbank financial company with a notice of a final 
determination at least one business day before publicly announcing the 
determination pursuant to Sec.1310.21(d)(3), Sec.1310.21(e)(3) or 
Sec.1310.22(d)(3) of the Council's rule.\10\ The Council does not 
intend to publicly announce the name of any nonbank financial company 
that is under evaluation for a determination prior to a final 
determination with respect to such company. In accordance with section 
113(h) of the Dodd-Frank Act, a nonbank financial company that is 
subject to a final determination may bring an action in U.S. district 
court for an order requiring that the determination be rescinded.
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    \9\ See 12 CFR 1310.21(c).
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    \10\ See 12 CFR 1310.21(d)(3), 1310.21(e)(3) and 1310.22(d)(3).

    Effective Date Note: At 84 FR 71760, Dec. 30, 2019, part 1310, 
appendix A was revised, effective Jan. 29, 2020. For the convenience of 
the user, the revised text is set forth as follows:



  Sec. Appendix A to Part 1310--Financial Stability Oversight Council 
          Guidance for Nonbank Financial Company Determinations

                             I. Introduction

    Section 113 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (the ``Dodd-Frank Act'') \1\ authorizes the Financial 
Stability Oversight Council (the ``Council'') to determine that a 
nonbank financial company will be supervised by the Board of Governors 
of the Federal Reserve System (the ``Federal Reserve'') and be subject 
to prudential standards in accordance with Title I of the Dodd-Frank Act 
if either of two standards is met. Under the first standard, the Council 
may subject a nonbank financial company to supervision by the Federal 
Reserve and prudential standards if the Council determines that material 
financial distress at the nonbank financial company could pose a threat 
to the financial stability of the United States. Under the second 
standard, the Council may determine that a nonbank financial company 
will be supervised by the Federal Reserve and subject to prudential 
standards if the nature, scope, size, scale, concentration, 
interconnectedness, or mix of the activities of the nonbank financial 
company could pose a threat to U.S. financial stability. Section 113 of 
the Dodd-Frank Act also lists considerations that the Council must take 
into account in making a determination.
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    \1\ See Dodd-Frank Act section 113, 12 U.S.C. 5323.
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    Section II of this document describes the approach the Council 
intends to take in prioritizing its work to identify and address 
potential risks to U.S. financial stability using an activities-based 
approach. This approach reflects the Council's priorities of identifying 
potential risks on a system-wide basis, reducing the potential for 
competitive distortions that could arise from entity-specific 
determinations, and allowing relevant financial regulatory agencies \2\ 
to address identified potential risks. First, the Council will monitor 
markets to identify potential risks to U.S. financial stability and to 
assess those risks on a system-wide basis. Second, the Council will then 
work with relevant financial regulatory agencies to seek the 
implementation of actions intended to address identified potential risks 
to financial stability.
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    \2\ References in this appendix to ``relevant financial regulatory 
agencies'' may encompass a broader range of regulators than those 
included in the statutory definition of ``primary financial regulatory 
agency,'' which is defined in Dodd-Frank Act section 2(12), 12 U.S.C. 
5301(12).

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[[Page 543]]

    Section III of this appendix describes the manner in which the 
Council intends to apply the statutory standards and considerations in 
making determinations under section 113 of the Dodd-Frank Act, if the 
Council determines that potential risks to U.S. financial stability are 
not adequately addressed through the activities-based approach. Section 
III defines key terms used in the statute, including ``threat to the 
financial stability of the United States.'' Section III also includes a 
detailed description of the analysis that the Council intends to conduct 
during its reviews, including a discussion of channels through which 
risks from a company may be transmitted to other companies or markets, 
and the Council's assessment of the likelihood of the company's material 
financial distress and the benefits and costs of a determination.
    Section IV of this appendix outlines a two-stage process that the 
Council will follow in non-emergency situations when determining whether 
to subject a nonbank financial company to Federal Reserve supervision 
and prudential standards. In the first stage of the process, the Council 
will notify the company and its primary financial regulatory agency and 
conduct a preliminary analysis to determine whether the company should 
be subject to further evaluation by the Council. During the second stage 
of the evaluation process, the Council will conduct an in-depth 
evaluation if it determines in the first stage that the nonbank 
financial company merits additional review.
    The Council's practices set forth in this guidance to address 
potential risks to U.S. financial stability are intended to comply with 
its statutory purposes: (1) To identify risks to U.S. financial 
stability that could arise from the material financial distress or 
failure, or ongoing activities, of large, interconnected bank holding 
companies or nonbank financial companies, or that could arise outside 
the financial services marketplace; (2) to promote market discipline, by 
eliminating expectations on the part of shareholders, creditors, and 
counterparties of such companies that the government will shield them 
from losses in the event of failure; and (3) to respond to emerging 
threats to the stability of the U.S. financial system.\3\ Council 
actions seek to foster transparency and to avoid competitive distortions 
in markets for financial services and products. Further, nonbank 
financial companies should not benefit from an implicit federal 
financial safety net. Therefore, the Council emphasizes the importance 
of market discipline as a mechanism for addressing potential risks to 
U.S. financial stability posed by financial companies.
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    \3\ Dodd-Frank Act section 112(a)(1), 12 U.S.C. 5322(a)(1).
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    This interpretive guidance is not a binding rule, except to the 
extent that it sets forth rules of agency organization, procedure, or 
practice. This guidance is intended to assist financial companies and 
other market participants in understanding how the Council expects to 
exercise certain of its authorities under Title I of the Dodd-Frank Act. 
The Council retains discretion, subject to applicable statutory 
requirements, to consider factors relevant to the assessment of a 
potential risk or threat to U.S. financial stability on a case-by-case 
basis. If the Council were to depart from the interpretative guidance, 
it would need to provide a reasoned explanation for its action, which 
would ordinarily require acknowledging the change in position.\4\
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    \4\ See FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515 
(2009).
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                      II. Activities-Based Approach

    The Dodd-Frank Act gives the Council broad discretion in determining 
how to respond to potential threats to U.S. financial stability. A 
determination to subject a nonbank financial company to Federal Reserve 
supervision and prudential standards under section 113 of the Dodd-Frank 
Act is only one of several Council authorities for responding to 
potential risks to U.S. financial stability.\5\ The Council will 
prioritize its efforts to identify, assess, and address potential risks 
and threats to U.S. financial stability through a process that begins 
with an activities-based approach, and will pursue entity-specific 
determinations under section 113 of the Dodd-Frank Act only if a 
potential risk or threat cannot be adequately addressed through an 
activities-based approach. The Council anticipates it would consider a 
nonbank financial company for a potential determination under section 
113 only in rare instances, such as if the products, activities, or 
practices of a company that pose a potential threat to U.S. financial

[[Page 544]]

stability are outside the jurisdiction or authority of financial 
regulatory agencies. This approach reflects two priorities: (1) 
Identifying and addressing, in consultation with relevant financial 
regulatory agencies, potential risks and emerging threats on a system-
wide basis and to reduce the potential for competitive distortions among 
financial companies and in markets that could arise from entity-specific 
determinations, and (2) allowing relevant financial regulatory agencies, 
which generally possess greater information and expertise with respect 
to company, product, and market risks, to address potential risks, 
rather than subjecting the companies to new regulatory authorities.
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    \5\ For example, the Council has authority to make recommendations 
to the Federal Reserve concerning the establishment and refinement of 
prudential standards and reporting and disclosure requirements 
applicable to nonbank financial companies supervised by the Federal 
Reserve; make recommendations to primary financial regulatory agencies 
to apply new or heightened standards and safeguards for a financial 
activity or practice conducted by certain financial companies if the 
Council determines that such activity or practice could create or 
increase certain risks; and designate financial market utilities and 
payment, clearing, and settlement activities that the Council determines 
are, or are likely to become, systemically important. Dodd-Frank Act 
sections 115, 120, 804, 12 U.S.C. 5325, 5330, 5463.
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    As part of its activities-based approach, the Council will examine a 
range of financial products, activities, or practices that could pose 
risks to U.S. financial stability. These types of activities are often 
identified in the Council's annual reports, such as activities related 
to (1) the extension of credit, (2) the use of leverage or short-term 
funding, (3) the provision of guarantees of financial performance, and 
(4) other key functions critical to support the functioning of financial 
markets. The Council considers a risk to financial stability to mean a 
risk of an event or development that could impair financial 
intermediation or financial market functioning to a degree that would be 
sufficient to inflict significant damage on the broader economy. The 
Council's activities-based approach is intended to identify and address 
risks to financial stability using a two-step approach, described below.

 a. Step One of Activities-Based Approach: Identifying Potential Risks 
                 From Products, Activities, or Practices

                           Monitoring Markets

    The Council has a statutory duty to monitor the financial services 
marketplace in order to identify potential threats to U.S. financial 
stability.\6\ In the first step of the activities-based approach, to 
enable the Council to identify potential risks to U.S. financial 
stability, the Council, in consultation with relevant financial 
regulatory agencies, intends to monitor diverse financial markets and 
market developments to identify products, activities, or practices that 
could pose risks to U.S. financial stability. When monitoring potential 
risks to financial stability, the Council intends to consider the 
linkages across products, activities, and practices, and their 
interconnectedness across firms and markets.
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    \6\ Dodd-Frank Act section 112(a)(2), 12 U.S.C. 5322(a)(2).
---------------------------------------------------------------------------

    For example, the Council's monitoring may include:
     Corporate and sovereign debt and loan markets;
     equity markets;
     markets for other financial products, including 
structured products and derivatives;
     short-term funding markets;
     payment, clearing, and settlement functions;
     new or evolving financial products, activities, 
and practices; and
     developments affecting the resiliency of 
financial market participants.
    To monitor markets and market developments, the Council will review 
information such as historical data, research regarding the behavior of 
financial market participants, and new developments that arise in 
evolving marketplaces. The Council will regularly rely on data, 
research, and analysis from Council member agencies, the Office of 
Financial Research, industry participants, and other public sources. 
Consistent with its statutory obligations, the Council will, whenever 
possible, rely on information available from primary financial 
regulatory agencies.\7\
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    \7\ Dodd-Frank Act section 112(d)(3), 12 U.S.C. 5322(d)(3).
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                       Evaluating Potential Risks

    If the Council's monitoring of markets and market developments 
identifies a product, activity, or practice that could pose a potential 
risk to U.S. financial stability, the Council, in consultation with 
relevant financial regulatory agencies, will evaluate the potential risk 
to determine whether it merits further review or action. The Council's 
work in this step may include efforts such as sharing data, research, 
and analysis among Council members and member agencies and their staffs; 
consultations with regulators and other experts regarding the scope of 
potential risks and factors that may mitigate those risks; and the 
collaborative development of analyses for consideration by the Council. 
As part of this work, the Council may also engage with industry 
participants and other members of the public as it assesses potential 
risks.
    The Council will assess the extent to which characteristics such as 
the following could amplify potential risks to U.S. financial stability 
arising from products, activities, or practices:
     Asset valuation risk or credit risk;
     leverage, including leverage arising from debt, 
derivatives, off-balance sheet obligations, and other arrangements;
     liquidity risk or maturity mismatch, such as 
reliance on funding sources that could be susceptible to dislocations;
     counterparty risk and interconnectedness among 
financial market participants;

[[Page 545]]

     the transparency of financial markets, such as 
growth in financial transactions occurring outside of regulated sectors;
     operational risks, such as cybersecurity and 
operational resilience; or
     the risk of destabilizing markets for particular 
types of financial instruments, such as trading practices that 
substantially increase volatility in key markets.
    Various factors may exacerbate or mitigate each of these types of 
risks. For example, activities may pose greater risks if they are 
complex or opaque, are conducted without effective risk-management 
practices, are significantly correlated with other financial products, 
and are either highly concentrated or significant and widespread. In 
contrast, regulatory requirements or market practices may mitigate risks 
by, for example, limiting exposures or leverage, enhancing risk-
management practices, or restricting excessive risk-taking.
    While the contours of the Council's initial evaluation of any 
potential risk will depend on the type and scope of analysis relevant to 
the particular risk, the Council's analyses will generally focus on four 
framing questions:
    1. How could the potential risk be triggered? For example, could it 
be triggered by sharp reductions in the valuation of particular classes 
of financial assets?
    2. How could the adverse effects of the potential risk be 
transmitted to financial markets or market participants? For example, 
what are the direct or indirect exposures in financial markets to the 
potential risk?
    3. What impact could the potential risk have on the financial 
system? For example, what could be the scale of its adverse effects on 
other companies and markets, and would its effects be concentrated or 
distributed broadly among market participants? This analysis should take 
into account factors such as existing regulatory requirements or market 
practices that mitigate potential risks.
    4. Could the adverse effects of the potential risk impair the 
financial system in a manner that could harm the non-financial sector of 
the U.S. economy?
    In this evaluation, the Council will consult with relevant financial 
regulatory agencies and will take into account existing laws and 
regulations that may mitigate a potential risk to U.S. financial 
stability. The Council will also take into account the risk profiles and 
business models of market participants engaging in the products, 
activities, or practices under evaluation, and consider available 
evidence regarding the potential risk. Empirical data may not be 
available regarding all potential risks, and the type and scope of the 
Council's analysis will be tailored to the potential risk under 
consideration.
    If a product, activity, or practice creating a potential risk to 
financial stability is identified, the Council will work with relevant 
financial regulatory agencies to address the identified risk, as 
described in section II.b of this appendix.

  b. Step Two of Activities-Based Approach: Working With Regulators To 
                        Address Identified Risks

    If the Council identifies a potential risk to U.S. financial 
stability in step one of the activities-based approach, the Council will 
work with the relevant financial regulatory agencies at the federal and 
state levels to seek the implementation of appropriate actions to 
address the identified potential risk. The Council will coordinate among 
its members and member agencies and will follow up on supervisory or 
regulatory actions to ensure the potential risk is adequately addressed. 
The goal of this step would be for existing regulators to take 
appropriate action, such as modifying their regulation or supervision of 
companies or markets under their jurisdiction in order to mitigate 
potential risks to U.S. financial stability identified by the 
Council.\8\ If a potential risk identified by the Council relates to a 
product, activity, or practice arising at a limited number of individual 
financial companies, the Council nonetheless will prioritize a remedy 
that addresses the underlying risk across all companies that engage in 
the relevant activity. If the Council finds that a particular type of 
financial product could present risks to U.S. financial stability, there 
may be different approaches existing regulators could take, based on 
their authorities and the urgency of the risk, such as restricting or 
prohibiting the offering of that product, or requiring market 
participants to take additional risk-management steps that address the 
risks.
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    \8\ The Dodd-Frank Act provides that the Council's duties include to 
recommend to the member agencies general supervisory priorities and 
principles reflecting the outcome of discussions among the member 
agencies and to make recommendations to primary financial regulatory 
agencies to apply new or heightened standards and safeguards for 
financial activities or practices that could create or increase risks of 
significant liquidity, credit, or other problems spreading among bank 
holding companies, nonbank financial companies, and United States 
financial markets. Dodd-Frank Act sections 112(a)(2)(F), (K), 12 U.S.C. 
5322(a)(2)(F), (K).
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    If, after engaging with relevant financial regulatory agencies, the 
Council believes those regulators' actions are inadequate to address the 
identified potential risk to U.S. financial stability, the Council has 
authority

[[Page 546]]

to make formal public recommendations to primary financial regulatory 
agencies under section 120 of the Dodd-Frank Act. Under section 120, the 
Council may provide for more stringent regulation of a financial 
activity by issuing nonbinding recommendations, following consultation 
with the primary financial regulatory agency and public notice inviting 
comments on proposed recommendations, to the primary financial 
regulatory agency to apply new or heightened standards or safeguards for 
a financial activity or practice conducted by bank holding companies or 
nonbank financial companies under their jurisdiction.\9\ In addition, in 
any case in which no primary financial regulatory agency exists for the 
markets or companies conducting financial activities or practices 
identified by the Council as posing risks, the Council can consider 
reporting to Congress on recommendations for legislation that would 
prevent such activities or practices from threatening U.S. financial 
stability. The Council intends to make recommendations under section 120 
only to the extent that its recommendations are consistent with the 
statutory mandate of the primary financial regulatory agency to which 
the Council is making the recommendation.
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    \9\ Dodd-Frank Act section 120(a), 12 U.S.C. 5330(a).
---------------------------------------------------------------------------

    The authority to issue recommendations to primary financial 
regulatory agencies under section 120 is one of the Council's most 
formal tools for responding to potential risks to U.S. financial 
stability. The Council will make these recommendations only if it 
determines that the conduct, scope, nature, size, scale, concentration, 
or interconnectedness of the activity or practice could create or 
increase the risk of significant liquidity, credit, or other problems 
spreading among bank holding companies and nonbank financial companies, 
U.S. financial markets, or low-income, minority, or underserved 
communities.
    In its recommendations under section 120, the Council may suggest 
broad approaches to address the risks it has identified. When 
appropriate, the Council may make a more specific recommendation. To 
promote analytical rigor and avoid duplication, before making any 
recommendation under section 120, the Council will ascertain whether the 
relevant primary financial regulatory agency would be expected to 
perform a cost-benefit analysis of the actions it would take in response 
to the Council's contemplated recommendation. In cases where the primary 
financial regulatory agency would not be expected to conduct such an 
analysis, the Council itself will--prior to making a final 
recommendation--conduct an analysis, using empirical data, to the extent 
available, of the benefits and costs of the actions that the primary 
financial regulatory agency would be expected to take in response to the 
contemplated recommendation. Where the Council conducts its own such 
analysis, the specificity of its assessment of benefits and costs would 
be commensurate with the specificity of the contemplated recommendation. 
Furthermore, where the Council conducts its own analysis, the Council 
will make a recommendation under section 120 only if it believes that 
the results of its assessment of benefits and costs support the 
recommendation.
    Primary financial regulatory agencies have significant experience, 
knowledge, and expertise that can be useful in determining the most 
efficient way to address a particular risk within their regulatory 
jurisdiction. In every case, prior to issuing a recommendation under 
section 120, the Council will consult with the relevant primary 
financial regulatory agency and provide notice to the public and 
opportunity for comment as required by section 120.

  III. Analytic Framework for Nonbank Financial Company Determinations

    If the Council's collaboration and engagement with the relevant 
financial regulatory agencies during the activities-based approach does 
not adequately address a potential threat identified by the Council--or 
if a potential threat to U.S. financial stability is outside the 
jurisdiction or authority of financial regulatory agencies--and if the 
potential threat identified by the Council is one that could be 
effectively addressed by a Council determination regarding one or more 
nonbank financial companies, the Council may evaluate one or more 
nonbank financial companies for an entity-specific determination under 
section 113 of the Dodd-Frank Act, applying the analytic framework 
described below. This section describes the analysis the Council will 
conduct in general regarding individual nonbank financial companies that 
are considered for a potential determination, and section IV of this 
appendix describes the Council's process for those reviews.

                a. Statutory Standards and Considerations

    The Council may determine, by a vote of not fewer than two-thirds of 
the voting members of the Council then serving, including an affirmative 
vote by the Chairperson of the Council, that a nonbank financial company 
will be supervised by the Federal Reserve and be subject to prudential 
standards if the Council determines that (1) material financial distress 
at the nonbank financial company could pose a threat to the financial 
stability of the United States (the ``First Determination Standard'') or 
(2) the nature,

[[Page 547]]

scope, size, scale, concentration, interconnectedness, or mix of the 
activities of the nonbank financial company could pose a threat to the 
financial stability of the United States (the ``Second Determination 
Standard,'' and, together with the First Determination Standard, the 
``Determination Standards'').\10\ The analytic framework described below 
focuses primarily on the First Determination Standard because threats to 
financial stability (such as asset fire sales or financial market 
disruptions) are most commonly propagated through a nonbank financial 
company when it is in distress.
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    \10\ If the Council is unable to determine whether the financial 
activities of a U.S. nonbank financial company pose a threat to the 
financial stability of the United States based on certain information, 
the Council may request the Federal Reserve to conduct an examination of 
the U.S. nonbank financial company for the sole purpose of determining 
whether the company should be supervised by the Federal Reserve for 
purposes of Title I of the Dodd-Frank Act. Dodd-Frank Act section 
112(d)(4), 12 U.S.C. 5322(d)(4).
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    Several relevant terms used in the Dodd-Frank Act are not defined in 
the statute. The Council intends to interpret the term ``company'' to 
include any corporation, limited liability company, partnership, 
business trust, association, or similar organization.\11\ In addition, 
the Council intends to interpret ``nonbank financial company supervised 
by the Board of Governors'' as including any nonbank financial company 
that acquires, directly or indirectly, a majority of the assets or 
liabilities of a company that is subject to a final determination of the 
Council.\12\ The Council intends to interpret the term ``material 
financial distress'' as a nonbank financial company being in imminent 
danger of insolvency or defaulting on its financial obligations. The 
Council intends to interpret the term ``threat to the financial 
stability of the United States'' as meaning the threat of an impairment 
of financial intermediation or of financial market functioning that 
would be sufficient to inflict severe damage on the broader economy. For 
purposes of considering whether a nonbank financial company could pose a 
threat to U.S. financial stability under either Determination Standard, 
the Council intends to assess the company in the context of a period of 
overall stress in the financial services industry and in a weak 
macroeconomic environment, with market developments such as increased 
counterparty defaults, decreased funding availability, and decreased 
asset prices. The Council believes this is appropriate because in such a 
context, the risks posed by a nonbank financial company may have a 
greater effect on U.S. financial stability.
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    \11\ The statutory definition of ``nonbank financial company'' 
excludes bank holding companies and certain other types of companies. 
Dodd-Frank Act section 102(a)(4), 12 U.S.C. 5311(a)(4).
    \12\ As a result, if a nonbank financial company subject to a final 
determination of the Council sells or otherwise transfers a majority of 
its assets or liabilities, the acquirer will succeed to, and become 
subject to, the Council's determination. As discussed in section V 
below, a nonbank financial company that is subject to a final 
determination of the Council may request a reevaluation of the 
determination before the next required annual reevaluation, in 
appropriate cases. Such an acquirer can use this reevaluation process to 
seek a rescission of the determination upon consummation of its 
transaction.
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    The Dodd-Frank Act requires the Council to consider 10 specific 
considerations when determining whether a nonbank financial company 
satisfies either of the Determination Standards. These statutory 
considerations help the Council to evaluate whether one of the 
Determination Standards has been met: \13\
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    \13\ Dodd-Frank Act section 113(a)(2), 12 U.S.C. 5323(a)(2). This 
list of considerations is applicable to U.S. nonbank financial 
companies. With respect to foreign nonbank financial companies, the 
Council is required to take into account a similar list of 
considerations, in some cases limited to the companies' U.S. business or 
activities. See Dodd-Frank Act section 113(b)(2), 12 U.S.C. 5323(b)(2).
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     The extent of the leverage of the company;
     the extent and nature of the off-balance-sheet 
exposures of the company;
     the extent and nature of the transactions and 
relationships of the company with other significant nonbank financial 
companies and significant bank holding companies;
     the importance of the company as a source of 
credit for households, businesses, and state and local governments and 
as a source of liquidity for the U.S. financial system;
     the importance of the company as a source of 
credit for low-income, minority, or underserved communities, and the 
impact that the failure of such company would have on the availability 
of credit in such communities;
     the extent to which assets are managed rather 
than owned by the company, and the extent to which ownership of assets 
under management is diffuse;
     the nature, scope, size, scale, concentration, 
interconnectedness, and mix of the activities of the company;

[[Page 548]]

     the degree to which the company is already 
regulated by one or more primary financial regulatory agencies;
     the amount and nature of the financial assets of 
the company; and
     the amount and types of the liabilities of the 
company, including the degree of reliance on short-term funding.
    The statute also requires the Council to take into account any other 
risk-related factors that the Council deems appropriate. Any 
determination by the Council will be made based on a company-specific 
evaluation and an application of the standards and considerations set 
forth in section 113 of the Dodd-Frank Act, and taking into account 
qualitative and quantitative information the Council deems relevant to a 
particular nonbank financial company. The Council anticipates that the 
information relevant to an in-depth analysis of a nonbank financial 
company may vary based on the nonbank financial company's 
characteristics.
    The discussion below describes how the Council will apply the 
Determination Standards in its evaluation of a nonbank financial 
company, including how the Council will take into account the statutory 
considerations, and other risk-related factors that the Council will 
take into account. Due to the unique threat that each nonbank financial 
company could pose to U.S. financial stability and the nature of the 
inquiry required by the statutory considerations, the Council expects 
that its evaluations of nonbank financial companies will be firm-
specific and may include quantitative and qualitative information that 
the Council deems relevant to a particular nonbank financial company. 
The transmission channels, sample metrics, and other factors set forth 
below are not exhaustive and may not apply to all nonbank financial 
companies under evaluation.

                        b. Transmission Channels

    The Council's evaluation of any nonbank financial company under 
section 113 of the Dodd-Frank Act will seek to determine whether a 
nonbank financial company meets one of the Determination Standards 
described above. In its analysis of a nonbank financial company, the 
Council will assess how the negative effects of the company's material 
financial distress, or of the nature, scope, size, scale, concentration, 
interconnectedness, or mix of the company's activities, could be 
transmitted to or affect other firms or markets, thereby causing a 
broader impairment of financial intermediation or of financial market 
functioning. Such a transmission of risk can occur through various 
mechanisms, or channels. The Council has identified three transmission 
channels as most likely to facilitate the transmission of the negative 
effects of a nonbank financial company's material financial distress, or 
of the nature, scope, size, scale, concentration, interconnectedness, or 
mix of the company's activities, to other financial firms and markets: 
Exposure; asset liquidation; and critical function or service. These 
three transmission channels are described below. The Council may also 
consider other relevant channels through which risks could be 
transmitted from a particular nonbank financial company and thereby pose 
a threat to U.S. financial stability. The Council will take into account 
the 10 statutory considerations and any other risk-related factors the 
Council deems appropriate as part of its evaluation of a nonbank 
financial company under the three transmission channels and the other 
factors described below. Further, in its analyses under the transmission 
channels, the Council will consider applicable factors that may limit 
the transmission of risk, such as existing regulatory requirements, 
collateralization, bankruptcy-remote structures, or guarantee funds that 
reduce counterparties' exposures to the nonbank financial company or 
mitigate incentives for customers or counterparties to withdraw funding 
or assets.

                      Exposure Transmission Channel

    Under this transmission channel, the Council will evaluate whether a 
nonbank financial company's creditors, counterparties, investors, or 
other market participants have direct or indirect exposure to the 
nonbank financial company that is significant enough to materially and 
adversely affect those or other creditors, counterparties, investors, or 
other market participants and thereby pose a threat to U.S. financial 
stability.
    The Council expects that its analyses under the exposure 
transmission channel will generally include the factors described below. 
The potential threat to U.S. financial stability will generally be 
greater if the amounts of the exposures are larger; if the terms of the 
transactions provide less protection for the counterparty; and if the 
largest counterparties include large financial institutions.
    The Council also will consider a company's leverage and size. A 
company's leverage can amplify the risks posed by exposures, including 
off-balance sheet exposures, by reducing the company's ability to 
satisfy its obligations to creditors in the event of its material 
financial distress. Size is relevant to this analysis, as material 
financial distress at a larger nonbank financial company would generally 
transmit risk on a larger scale than distress at a smaller company. Size 
may be measured by the assets, liabilities, and capital of the firm.
    As required by statute, the Council will consider the extent to 
which assets are managed rather than owned by the company and the extent 
to which ownership of assets under management is diffuse. The Council's

[[Page 549]]

analysis will recognize the distinct nature of exposure risks when the 
company is acting as an agent rather than as principal.\14\ In 
particular, in the case of a nonbank financial company that manages 
assets on behalf of customers or other third parties, the third parties' 
direct financial exposures are often to the issuers of the managed 
assets, rather than to the nonbank financial company managing those 
assets.
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    \14\ Dodd-Frank Act section 113(a)(2)(F), 12 U.S.C. 5323(a)(2)(F).
---------------------------------------------------------------------------

    The Council will consider the exposures that counterparties and 
other market participants have to a nonbank financial company arising 
from the company's capital markets activities. This assessment includes 
an evaluation of the company's relationships with other significant 
nonbank financial companies and significant bank holding companies. In 
most cases, the Council will consider factors such as the amount and 
nature of, and counterparties to, the company's:
     Outstanding debt (regardless of term) and other 
liabilities (such as guaranteed investment contracts issued by an 
insurance company or Federal Home Loan Bank loans).
     Derivatives transactions (which may be measured 
on the basis of gross notional amount, net fair value, or potential 
future exposures).
     Securities financing transactions (i.e., 
repurchase agreements and securities lending transactions).
     Lines of credit.
     Credit-default swaps outstanding for which the 
company or an affiliate is the reference entity (generally focusing on 
single-name credit-default swaps).
    Relevant metrics may include the number, size, and financial 
strength of a nonbank financial company's counterparties, including the 
proportion of its counterparties' exposure to the nonbank financial 
company relative to the counterparties' capital. The potential risk 
arising under this transmission channel depends not only on the number 
of counterparties that a nonbank financial company has, but also on the 
importance of that nonbank financial company to its counterparties and 
the extent to which the counterparties are interconnected with other 
financial firms, the financial system, and the broader economy. 
Therefore, the Council will focus on exposures of large financial 
institutions to the nonbank financial company under review. This 
analysis will take into account both individual counterparty exposures 
as well as aggregate exposures of other financial institutions to the 
company under review. The amount and types of other exposures that 
counterparties and other market participants have to a nonbank financial 
company is highly dependent on the nature of the company's business. The 
Council's analysis will take these other fact-specific considerations 
into account.
    The Council also will consider applicable factors, including 
existing regulatory requirements, that may mitigate potential risks 
under the exposure transmission channel. For example, collateralization 
by high-quality, highly liquid securities, such as U.S. Treasury 
securities, the use of insurance funds to limit counterparty exposures, 
or other transactions that reallocate risk to well-capitalized entities, 
may reduce the potential for certain exposures to serve as a channel for 
the transmission of risk.
    Contagion. The negative effects of the material financial distress 
of a large, interconnected nonbank financial company are not necessarily 
limited to the amount of direct losses suffered by the firm's creditors, 
counterparties, investors, or other market participants. In general, the 
wider and more interconnected a company's network of financial 
counterparties, the greater the potential negative effect of the 
material financial distress of the company. Aggregate exposures to a 
nonbank financial company can create a potential threat to U.S. 
financial stability if they lead to contagion among financial 
institutions and financial markets more broadly. Contagion has the 
potential to spread distress quickly and seemingly unexpectedly. Such 
transmission is associated with opaque balance sheets, closely 
correlated markets, and coordination failures among investors. In such 
circumstances, fire sales by a highly leveraged and interconnected 
nonbank financial company may result in a loss of confidence in other 
financial companies that are perceived to have similar characteristics. 
The Council will seek evidence regarding the potential for contagion, 
including relevant industry-specific historical examples and the scope 
of the company's interconnectedness with large financial institutions, 
among other factors. Various market-based or regulatory factors can 
strongly mitigate the risk of contagion. Contagion should be viewed in 
conjunction with other factors described above when evaluating risk 
under the exposure transmission channel.

                 Asset Liquidation Transmission Channel

    Under this transmission channel, the Council will consider whether a 
nonbank financial company holds assets that, if liquidated quickly, 
could pose a threat to U.S. financial stability by, for example, causing 
a fall in asset prices that significantly disrupts trading or funding in 
key markets or causes significant losses or funding problems for other 
firms with similar holdings. This channel would likely be most relevant 
for a nonbank financial company that could be forced to liquidate assets 
quickly due to its

[[Page 550]]

funding and liquid asset profile. For example, this could be the case if 
a nonbank financial company relies heavily on short-term funding. The 
Council may also consider whether a deterioration in asset pricing or 
market functioning could pressure other financial firms to sell their 
holdings of affected assets in order to maintain adequate capital and 
liquidity, which, in turn, could produce a cycle of asset sales that 
could lead to further market disruptions. This analysis includes an 
assessment of any maturity mismatch at the company--the difference 
between the maturities of the company's assets and liabilities. A 
company's reliance on short-term funding to finance longer-term 
positions can subject the company to rollover or refinancing risk that 
may force it to sell assets rapidly at low market prices. The Council 
will also consider applicable factors that may mitigate potential risks 
under the asset liquidation transmission channel. As part of its 
analysis, the Council will consider the extent to which assets are 
managed rather than owned by the company.
    The Council's analyses of the asset liquidation transmission channel 
will focus on three central factors, described below.
    Liquidity of the company's liabilities. The first factor in the 
Council's assessment under this transmission channel is the amount and 
nature of the company's liabilities that are, or could become, short-
term in nature. This analysis involves an assessment of the company's 
liquidity risk. Liquidity risk generally refers to the risk that a 
company may not have sufficient funding to satisfy its short-term needs. 
For example, relevant factors may include:
     The company's short-term financial obligations 
(including outstanding commercial paper).
     Financial arrangements that can be terminated by 
counterparties and therefore become short-term (including callable debt, 
derivatives, securities lending, repurchase agreements, and off-balance-
sheet exposures).
     Long-term liabilities that may come due in a 
short-term period.
     Financial transactions that may require the 
company to provide additional margin or collateral to the counterparty.
     Products that allow customers rapidly to withdraw 
funds from the company.
     Liabilities related to other collateralized 
borrowings and deposits.
    The Council will quantitatively identify the scale of potential 
liquidity needs that could plausibly arise at the company. As part of 
this analysis, the Council will apply counterparty and customer 
withdrawal rates based on historical examples and other relevant models 
to assess the scope of plausible withdrawals. In addition, any ability 
of the company or its financial regulators to impose stays on 
counterparty terminations or withdrawals is relevant, because it may 
reduce the company's liquidity needs in an event of material financial 
distress. The Council also will consider the company's internal 
estimates of potential liquidity needs in a context of material 
financial distress.
    The company's leverage and short-term debt ratios are relevant to 
this analysis, as high leverage and reliance on short-term funding can 
increase the potential for a company to be subject to sudden liquidity 
strains that force it rapidly to sell assets. Leverage can be measured 
by the ratio of assets to capital or as a measure of economic risk 
relative to capital. The latter measurement can better capture the 
effect of derivatives and other products with embedded leverage on the 
risk undertaken by a nonbank financial company. Comparisons of leverage 
to peer financial institutions can help indicate the level of risk at 
the company. Metrics that may be used to assess leverage include:
     Total assets and total debt measured relative to 
total equity, which measures financial leverage.
     Derivatives liabilities and off-balance sheet 
obligations relative to total equity, which may show how much off-
balance sheet leverage a nonbank financial company may have.
     Securities financing transactions and funding 
agreements that provide alternative sources of liquidity or operating 
income, which indicate the use of operating leverage.
     Changes in leverage ratios, which may indicate 
that a nonbank financial company is increasing or decreasing its risk 
profile.
    Liquidity of the company's assets. The second factor under the asset 
liquidation transmission channel is an analysis of the company's assets 
that the company could rapidly liquidate, if necessary, to satisfy its 
obligations. In particular, the Council expects that this assessment 
will focus on the size and liquidity characteristics of the company's 
investment portfolio. The Council will assess the company's assets, 
grouped into categories such as highly liquid (for example, cash, U.S. 
Treasury securities, and U.S. agency mortgage-backed securities) and 
less-liquid (for example, corporate bonds, non-agency mortgage-backed 
securities, and mortgages and other loans) to determine if it holds cash 
instruments or readily marketable securities that could reasonably be 
expected to have a liquid market in times of broader market stress. To 
the extent that the company's assets are encumbered, those assets would 
generally not be considered to be available to satisfy short-term 
obligations.
    Potential fire sale impacts. The third factor in the asset 
liquidation transmission channel analysis is the potential effects of 
the company's asset liquidation on markets and market participants. As 
described above, the

[[Page 551]]

Council will assess the scale of potential liquidity needs that could 
plausibly arise at the company and the amount and nature of financial 
assets the company could sell to satisfy its obligations. In this step 
of the asset liquidation transmission channel analysis, the Council will 
apply quantitative models to assess how the company could satisfy the 
identified range of potential liquidity needs by rapidly selling its 
identified liquid assets. To assess this factor, the Council will 
compare the volume of the company's potential liquidation of particular 
categories of financial instruments with the average daily trading 
volume in the United States of those types of instruments. In general, a 
rapid liquidation of a significant amount of relatively illiquid 
financial instruments, or instruments that are widely held by other 
market participants, will have a greater effect on the market than a 
liquidation of the same amount of highly liquid instruments or 
instruments that are not widely held. The Council may also conduct an 
analysis to assess the relative impact of negative shocks to the equity 
or assets of certain financial institutions on other financial 
institutions. The Council expects that its analysis will generally focus 
on potential asset liquidation periods of 30 to 90 days.
    The order in which a nonbank financial company may liquidate assets 
is a factor in the extent of any fire sale risk, but is subject to 
considerable uncertainties. A company could liquidate a significant 
portion of its highly liquid assets first, in order to reduce the 
likelihood that the company would be forced to liquidate illiquid assets 
in the event of its material financial distress. However, in the event 
of the company's material financial distress, a company may also be 
expected to seek to maintain compliance with any applicable risk-based 
capital ratios and other requirements. Doing so might require a company 
to sell a mix of assets across a number of asset classes, rather than 
proceed with the sale of assets in order from most liquid to least 
liquid. Further, in the event of a significant market disruption, there 
could be a meaningful first-mover advantage to selling less-liquid 
assets first. For example, markets for less-liquid assets, such as 
private and public corporate bonds and asset-backed securities, could be 
prone to disruption in the event that a seller liquidated a large 
portion of its portfolio of those assets. Given these potential 
discounts, in some circumstances a company may be incentivized to sell a 
portion of its less-liquid assets first and to hold U.S. government 
securities and agency mortgage-backed securities, which tend to increase 
in value during a period of market turmoil. To the extent that a 
company's highly liquid assets are encumbered (for example, under 
securities financing transactions or as collateral for loans), the 
company would also need to sell less-liquid assets to satisfy its 
liquidity needs. Further, a company's holdings of liquid assets could be 
reduced before the company enters material financial distress. As a 
result, the Council may take into account company-specific factors in 
assessing the order in which the company might liquidate assets. One 
approach the Council may take is to assess the potential effects if the 
company sells pro rata portions of the more-liquid segments of its 
investment portfolio (such as cash and highly liquid instruments, U.S. 
agency securities, investment-grade public corporate debt securities, 
publicly traded equity securities, and asset backed-securities).

            Critical Function or Service Transmission Channel

    Under this transmission channel, the Council will consider the 
potential for a nonbank financial company to become unable or unwilling 
to provide a critical function or service that is relied upon by market 
participants and for which there are no ready substitutes and thereby 
pose a threat to U.S. financial stability. This factor is commonly 
referred to as ``substitutability.'' Substitutability captures the 
extent to which other firms could provide similar financial services in 
a timely manner at a similar price and quantity if a nonbank financial 
company withdraws from a particular market. Substitutability also 
captures situations in which a nonbank financial company is the primary 
or dominant provider of services in a market that the Council determines 
to be essential to U.S. financial stability. A risk under this 
transmission channel may be identified if a company provides a critical 
function or service that may not easily be substitutable. The Council's 
analysis will also consider applicable factors that may mitigate 
potential risks under the critical function or service transmission 
channel.
    Concern about a potential lack of substitutability could be greater 
if a nonbank financial company and its competitors are likely to 
experience stress at the same time because they are exposed to the same 
risks. The Council may also analyze the nonbank financial company's 
activities and critical functions and the importance of those activities 
and functions to the U.S. financial system and assess how those 
activities and functions would be performed by the nonbank financial 
company or other market participants in the event of the nonbank 
financial company's material financial distress. The Council also will 
consider the substitutability of critical market functions that the 
company provides in the United States in the event of material financial 
distress of a foreign parent company.

[[Page 552]]

    The analysis of this channel incorporates a review of the 
competitive landscape for markets in which a nonbank financial company 
participates and for the services it provides (including the provision 
of liquidity to the U.S. financial system, the provision of credit to 
low-income, minority, or underserved communities, or the provision of 
credit to households, businesses and state and local governments), the 
ability of other firms to replace those services, and the nonbank 
financial company's market share. This analysis may focus on the 
company's market share in specific product lines and the ability of 
substitutes to replace a service or function provided by the company. 
The Council's evaluation of a nonbank financial company's market share 
regarding a particular product or service may include assessments of the 
ability of the nonbank financial company's competitors to expand to meet 
market needs during a period of overall stress in the financial services 
industry or in a weak macroeconomic environment; the costs that market 
participants would incur if forced to switch providers; the timeframe 
within which a disruption in the provision of the product or service 
would materially affect market participants or market functioning; and 
the economic implications of such a disruption.

                     c. Complexity and Resolvability

    The potential threat a nonbank financial company could pose to U.S. 
financial stability may be mitigated or aggravated by the company's 
complexity, opacity, or resolvability. In particular, a risk may be 
aggravated if a nonbank financial company's resolution under ordinary 
insolvency regimes could disrupt key markets or have a material adverse 
impact on other financial firms or markets. An evaluation of a nonbank 
financial company's complexity and resolvability entails an assessment 
of (1) the complexity of the nonbank financial company's legal, funding, 
and operational structure, and (2) any obstacles to the rapid and 
orderly resolution of the nonbank financial company:
     Legal structure factors may include the number of 
jurisdictions the company operates in, the number of subsidiaries, and 
the organizational structure.
     Funding structure factors may include the degree 
of interaffiliate dependency for liquidity and funding (such as 
intercompany loans or other affiliate support arrangements), payment 
operation (such as treasury operations), and risk-management.
     Operational structure factors may include the 
number of employees, the number of U.S. and non-U.S. locations, and the 
degree of inter-company dependency in regard to financial guarantees and 
support arrangements, the ability to separate functions and spin off 
services or business lines, the complexity and resiliency of 
intercompany and outsourced services and arrangements in resolution, and 
the likelihood of preserving franchise value in a recovery or resolution 
scenario.
     Cross-border operational factors may include size 
and complexity of the company's cross-border operations and impact of 
potential ring-fencing on an orderly resolution.
    Factors that would tend to increase the risk associated with a 
company's complexity and resolvability include large size or scope of 
activities; a complex legal or operational structure; multi-
jurisdictional operations and regulatory regimes; complex funding 
structures; the potential impact of a loss of key personnel; and shared 
services among affiliates. The opacity of a firm's structure--if the 
firm's structure and operations cannot readily or easily be determined--
may present an obstacle to resolution.

                     d. Existing Regulatory Scrutiny

    As noted above, one of the considerations the Council is statutorily 
required to take into account in making a determination under section 
113 of the Dodd-Frank Act is the degree to which the nonbank financial 
company is already regulated by one or more primary financial regulatory 
agencies.\15\ In its analysis of this statutory consideration, the 
Council will focus on the extent to which existing regulation of the 
company has mitigated the potential risks to financial stability 
identified by the Council. For example, factors that may be used to 
assess existing regulatory scrutiny include:
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    \15\ Dodd-Frank Act section 113(a)(2)(H), 12 U.S.C. 5323(a)(2)(H).
---------------------------------------------------------------------------

     The extent to which the company's primary 
financial regulator has imposed risk-management standards such as 
capital, liquidity, and reporting requirements, as relevant to the type 
of company, and has authority to supervise, examine, and bring 
enforcement actions, with respect to the company and its affiliates.
     Regulators' processes for inter-regulator 
coordination.
     For non-U.S. entities, the extent to which the 
company is supervised and subject to prudential standards on a 
consolidated basis in its home country that are administered and 
enforced by a comparable foreign supervisory authority.

e. Benefits and Costs of Determination; Likelihood of Material Financial 
                                Distress

    Determining whether the expected benefits of a potential Council 
determination justify the expected costs is necessary to ensure that the 
Council's actions are expected to

[[Page 553]]

provide a net benefit to U.S. financial stability and are consistent 
with thoughtful decisionmaking.\16\ Financial stability benefits may be 
difficult to quantify, and some of the costs may be difficult to 
forecast with precision. When possible, the Council will quantify 
reasonably estimable benefits and costs, using ranges, as appropriate, 
and based on empirical data when available. If such benefits or costs 
cannot be quantified in this manner, the Council will explain why such 
benefits or costs could not be quantified. The Council also expects to 
consider benefits and costs qualitatively.\17\ To the extent feasible, 
the Council will attempt to assess the relative importance of any such 
qualitative elements. The Council will make a determination under 
section 113 only if the expected benefits to financial stability from 
Federal Reserve supervision and prudential standards justify the 
expected costs that the determination would impose. As part of this 
analysis, the Council will assess the likelihood of a firm's material 
financial distress, in order to assess the extent to which a 
determination may promote U.S. financial stability.
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    \16\ See MetLife, Inc. v. Financial Stability Oversight Council, 177 
F. Supp.3d 219, 242 (D.D.C. 2016) (quoting 12 U.S.C. 5323(a)(2)(K) and 
Michigan v. Environmental Protection Agency, 135 S. Ct. 2699, 2707 
(2015)).
    \17\ The Council will also consider non-quantified benefits and 
costs. See Office of Management and Budget Circular A-4 (Sept. 17, 
2003), section (E) (Developing Benefit and Cost Estimates) (7).
---------------------------------------------------------------------------

    The key elements of regulatory analysis include (1) a statement of 
the need for the proposed action, (2) an examination of alternative 
approaches, and (3) an evaluation of the benefits and costs 
(quantitative and qualitative) of the proposed action and the main 
alternatives.\18\ The Council will conduct this analysis only in cases 
where the Council is concluding that the company meets one of the 
standards for a determination by the Council under section 113 of the 
Dodd-Frank Act, because in other cases doing so would not affect the 
outcome of the Council's analysis.
---------------------------------------------------------------------------

    \18\ See Office of Management and Budget Circular A-4 (Sept. 17, 
2003).
---------------------------------------------------------------------------

    Benefits. With respect to the benefits of a Council determination, 
the Council will consider the benefits of the determination itself, both 
to (1) the U.S. financial system and long-term economic growth and (2) 
the nonbank financial company due to additional regulatory requirements 
resulting from the determination, particularly the prudential standards 
adopted by the Federal Reserve under section 165 of the Dodd-Frank Act.
    One of the Council's statutory purposes is to respond to emerging 
threats to the stability of the U.S. financial system.\19\ The primary 
intended benefit of a determination under section 113 of the Dodd-Frank 
Act is a reduction in the likelihood or severity of a financial crisis. 
Therefore, the Council will consider potential benefits to the U.S. 
financial system and the U.S. economy arising from a Council 
determination. To the extent that a Council determination reduces the 
likelihood or severity of a potential financial crisis, the 
determination could enhance financial stability and mitigate the 
severity of economic downturns. The Council may use various measures of 
systemic risk to assess any improvement in financial stability. Such 
measures include S-Risk (which attempts to quantify the amount of 
capital a financial firm would need to raise in order to function 
normally in the event of a severe financial crisis), conditional value 
at risk, and certain estimates of fire sale risk, among others. To 
assess the benefit to the U.S. financial system and the U.S. economy 
from a determination, the Council may also consider historical analogues 
to the nonbank under review. In addition, the Council may compare the 
risks to financial stability posed by a particular nonbank to the risks 
posed by large bank holding companies, in order to produce an assessment 
of the relative risks the company may pose. Further, the loss of any 
implicit ``too big to fail'' or similar subsidy would be considered a 
benefit to the economy, even if it increases the nonbank financial 
company's cost of capital.
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    \19\ Dodd-Frank Act section 112(a)(1)(C), 12 U.S.C. 5322(a)(1)(C).
---------------------------------------------------------------------------

    Analysis of the benefits of a determination for the relevant nonbank 
financial company may include those arising directly from the Council's 
determination as well as any benefits arising from anticipated new or 
increased requirements resulting from the determination, such as 
additional supervision and enhanced capital, liquidity, or risk-
management requirements. For example, a nonbank financial company 
subject to a Council determination may benefit from a lower cost of 
capital or higher credit ratings upon meeting its post-determination 
regulatory requirements.
    Costs. With respect to the costs of a Council determination, the 
Council will consider the costs of the determination itself, both to (1) 
the nonbank financial company due to additional regulatory requirements 
resulting from the determination, including the costs of the prudential 
standards adopted by the Federal Reserve under section 165 of the Dodd 
Frank Act; and (2) the U.S. economy.

[[Page 554]]

    The Council will consider costs to the company arising from 
anticipated new or increased regulatory requirements resulting from the 
determination related to:
     Risk-management requirements, such as the costs 
of capital planning and stress testing.
     Supervision and examination, such as compliance 
costs to the firm of additional examination and supervision.
     Increased capital requirements, after accounting 
for offsetting benefits to taxpayers and to the holders of the firm's 
other liabilities.
     Liquidity requirements, such as the opportunity 
cost from any requirement to hold additional high-quality liquid assets, 
relative to the company's current investment portfolio.
    Because the Federal Reserve is required to tailor prudential 
standards to a nonbank financial company subject to a Council 
determination after the Council has made a determination regarding the 
company, the new regulatory requirements that result from the Council's 
determination will not be known to the Council during its analysis of 
the company. In cases where the nonbank financial company under review 
primarily engages in bank-like activities, the Council may consider, as 
a proxy, the costs that would be imposed on the nonbank if the Federal 
Reserve imposed prudential standards similar to those imposed on bank 
holding companies with at least $250 billion in total consolidated 
assets under section 165 of the Dodd-Frank Act.\20\
---------------------------------------------------------------------------

    \20\ Dodd-Frank Act section 165, 12 U.S.C. 5365.
---------------------------------------------------------------------------

    The Council also will consider the cost of a determination under 
section 113 of the Dodd-Frank Act to the U.S. economy by assessing the 
impact of the determination on the availability and cost of credit or 
financial products in relevant U.S. markets. To the extent that the 
markets in which the relevant nonbank participates have low 
concentration, the impact that the determination regarding one firm 
would have on credit conditions would generally be immaterial. However, 
if the relevant markets are concentrated, a Council determination 
regarding a significant market participant could have a material impact 
on credit conditions in that market. As part of this analysis, the 
Council may also consider the extent to which any reduction in financial 
services provided by the nonbank financial company under review would be 
offset by other market participants.
    Likelihood of Material Financial Distress. As part of the assessment 
of the overall impact of a Council determination for any company under 
review under the First Determination Standard, the Council will assess 
the likelihood of the company's material financial distress based on its 
vulnerability to a range of factors. For example, these factors may 
include leverage (both on- and off-balance sheet), potential risks 
associated with asset reevaluations (whether such reevaluations arise 
from market disruptions or severe macroeconomic conditions), reliance on 
short-term funding or other fragile funding markets, maturity 
transformation, and risks from exposures to counterparties or other 
market participants. This assessment may rely upon historical examples 
regarding the characteristics of financial companies that have 
experienced financial distress, but may also consider other risks that 
do not have historical precedent. The Council's analysis of the 
vulnerability of a nonbank financial company to material financial 
distress will be conducted taking into account a period of overall 
stress in the financial services industry and a weak macroeconomic 
environment. The Council may also consider the results of any stress 
tests that have previously been conducted by the company or by its 
primary financial regulatory agency.

                      IV. The Determination Process

    As described in section II above, the Council will prioritize an 
activities-based approach for identifying, assessing, and addressing 
potential risks to financial stability. However, if a potential risk or 
threat to U.S. financial stability cannot be adequately addressed 
through an activities-based approach, the Council may consider a nonbank 
financial company for a potential determination under section 113 of the 
Dodd-Frank Act. The Council anticipates it would consider a nonbank 
financial company for a potential determination under section 113 only 
in rare instances, such as if the products, activities, or practices of 
a company that pose a potential threat to U.S. financial stability are 
outside the jurisdiction or authority of financial regulatory agencies. 
The Council expects generally to follow a two-stage process of 
evaluation and analysis, as described below.
    In the first stage of the process (``Stage 1''), nonbank financial 
companies identified as potentially posing risks to U.S. financial 
stability will be notified and subject to a preliminary analysis, based 
on quantitative and qualitative information available to the Council 
primarily through public and regulatory sources. During Stage 1, the 
Council will permit, but not require, the company to submit relevant 
information. The Council will also consult with the primary financial 
regulatory agency or home country supervisor, as appropriate. This 
approach will enable the Council to fulfill its statutory obligation to 
rely whenever possible on information available through the Office of 
Financial Research (the ``OFR''), Council member

[[Page 555]]

agencies, or the nonbank financial company's primary financial 
regulatory agencies before requiring the submission of reports from any 
nonbank financial company.\21\
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    \21\ See Dodd-Frank Act section 112(d)(3), 12 U.S.C. 5322(d)(3).
---------------------------------------------------------------------------

    Following Stage 1, nonbank financial companies that are selected for 
additional review will receive notice that they are being considered for 
a proposed determination that the company could pose a threat to U.S. 
financial stability (a ``Proposed Determination'') and will be subject 
to in-depth evaluation during the second stage of review (``Stage 2''). 
Stage 2 will involve the evaluation of additional information collected 
directly from the nonbank financial company. At the end of Stage 2, the 
Council may consider whether to make a Proposed Determination with 
respect to the nonbank financial company. If a Proposed Determination is 
made by the Council, the nonbank financial company may request a hearing 
in accordance with section 113(e) of the Dodd-Frank Act and Sec.
1310.21(c) of the Council's rule.\22\ After making a Proposed 
Determination and holding any written or oral hearing if requested, the 
Council may vote to make a final determination.
---------------------------------------------------------------------------

    \22\ See 12 CFR 1310.21(c).
---------------------------------------------------------------------------

    a. Stage 1: Preliminary Evaluation of Nonbank Financial Companies

    Stage 1 involves a preliminary analysis of nonbank financial 
companies to assess the risks they could pose to U.S. financial 
stability.

             Identification of Company for Review in Stage 1

    If, as described in section II, the Council's consultation with and 
any recommendations to a nonbank financial company's primary financial 
regulatory agency do not adequately address a potential risk identified 
by the Council, the Council may evaluate one or more individual nonbank 
financial companies for an entity-specific determination under section 
113 of the Dodd-Frank Act. The Council will vote to commence review of a 
nonbank financial company in Stage 1. When evaluating the potential 
risks associated with a nonbank financial company, the Council may 
consider the company and its subsidiaries together. This approach 
enables the Council to consider potential risks arising across the 
consolidated organization, while retaining the ability to make a 
determination regarding either the parent or any individual nonbank 
financial company subsidiary (or neither), depending on which entity the 
Council determines could pose a threat to financial stability.

            Engagement With Company and Regulators in Stage 1

    The Council will provide a notice to any nonbank financial company 
under review in Stage 1. In Stage 1, the Council will consider available 
public and regulatory information; in addition, a company under review 
in Stage 1 may submit to the Council any information it deems relevant 
to the Council's evaluation and may, upon request, meet with staff of 
Council members and member agencies who are leading the Council's 
analysis. In order to reduce the burdens of review on the company, the 
Council will not require the company to submit information during Stage 
1. In addition, staff representing Council members will, upon request, 
provide the company with a list of the primary public sources of 
information being considered during the Stage 1 analysis, so that the 
company has an opportunity to understand the information the Council may 
rely upon during Stage 1. Through this engagement, the Council will seek 
to enable the company under review to understand the focus of the 
Council's analysis, which may enable the company to act to mitigate any 
risks to financial stability and thereby potentially avoid becoming 
subject to a Council determination.
    During the discussions in Stage 1 with the company, the Council 
intends for staff of Council members and member agencies to explain to 
the company the key risks that have been identified in the analysis. 
Because the review of the company is preliminary and continues to change 
until the Council makes a final determination, these identified risks 
may shift over time.
    The Council will also consider in Stage 1 information available from 
relevant existing regulators of the company. Under the Dodd-Frank Act, 
the Council is required to consult with the primary financial regulatory 
agency, if any, for each nonbank financial company or subsidiary of a 
nonbank financial company that is being considered for a determination 
before the Council makes any final determination with respect to such 
company.\23\ For any company under review in Stage 1 that is regulated 
by a primary financial regulatory agency or home country supervisor, the 
Council will notify the regulator or supervisor that the company is 
under review no later than such time as the company is notified. As part 
of that consultation process, the Council will consult with the primary 
financial regulatory agency, if any, of each significant subsidiary of 
the nonbank financial company, to the extent the Council deems 
appropriate in Stage 1. The Council will actively solicit the 
regulator's views regarding risks at the company

[[Page 556]]

and potential mitigants. In order to enable the regulator to provide 
relevant information, the Council will share its preliminary views 
regarding potential risks at the company, and request that the regulator 
provide information regarding those specific risks, including whether 
the risks are adequately mitigated by factors such as existing 
regulation or the company's business practices. During the determination 
process, the Council will continue to encourage the regulator to address 
any risks to U.S. financial stability using the regulator's existing 
authorities; if the Council believes the regulator's actions adequately 
address the potential risks to U.S. financial stability the Council has 
identified, the Council may discontinue its consideration of the firm 
for a potential determination under section 113 of the Dodd-Frank Act.
---------------------------------------------------------------------------

    \23\ Dodd-Frank Act section 113(g), 12 U.S.C. 5323(g).
---------------------------------------------------------------------------

    Based on the preliminary evaluation in Stage 1, the Council may vote 
to commence a more detailed analysis of the company by advancing the 
company to Stage 2, or it may decide not to evaluate the company 
further. If the Council determines not to advance a company that has 
been reviewed in Stage 1 to Stage 2, the Council will notify the company 
in writing of the Council's decision. The notice will clarify that a 
decision not to advance the company from Stage 1 to Stage 2 at that time 
does not preclude the Council from reinitiating review of the company in 
Stage 1. For example, the Council may reinitiate review of the company 
if material changes affecting the firm merit further evaluation.

                     b. Stage 2: In-Depth Evaluation

    Stage 2 involves an in-depth evaluation of any company that the 
Council has determined merits additional review.
    In Stage 2, the Council will review the relevant company using 
information collected directly from the nonbank financial company, 
through the OFR, as well as public and regulatory information. The 
review will focus on whether the nonbank financial company could pose a 
threat to U.S. financial stability because of the company's material 
financial distress or the nature, scope, size, scale, concentration, 
interconnectedness, or mix of the activities of the company. The Council 
expects that the transmission channels and the other factors described 
above will be used to evaluate a nonbank financial company's potential 
to pose a threat to U.S. financial stability.

            Engagement With Company and Regulators in Stage 2

    Each nonbank financial company to be evaluated in Stage 2 will 
receive a notice (a ``Notice of Consideration'') that the nonbank 
financial company is under consideration for a Proposed Determination. 
The Council also will submit to the company a request that the company 
provide information that the Council deems relevant to the Council's 
evaluation, and the nonbank financial company will be provided an 
opportunity to submit written materials to the Council.\24\ This 
information will generally be collected by the OFR. Before requiring the 
submission of reports from any nonbank financial company that is 
regulated by a Council member agency or any primary financial regulatory 
agency, the Council, acting through the OFR, will coordinate with such 
agencies and will, whenever possible, rely on information available from 
the OFR or such agencies. Council members and their agencies and staffs 
will maintain the confidentiality of such information in accordance with 
applicable law. During Stage 2, the company may also submit any other 
information that it deems relevant to the Council's evaluation. 
Information considered by the Council includes details regarding the 
company's financial activities, legal structure, liabilities, 
counterparty exposures, resolvability, and existing regulatory 
oversight.
---------------------------------------------------------------------------

    \24\ See 12 CFR 1310.21(a).
---------------------------------------------------------------------------

    Information requests likely will involve both qualitative and 
quantitative data. Information relevant to the Council's analysis may 
include confidential business information such as detailed information 
regarding financial assets, terms of funding arrangements, counterparty 
exposure or position data, strategic plans, and interaffiliate 
transactions.
    The Council will make staff representing Council members available 
to meet with the representatives of any company that enters Stage 2, to 
explain the evaluation process and the framework for the Council's 
analysis. If the analysis in Stage 1 has identified specific aspects of 
the company's operations or activities as the primary focus for the 
evaluation, staff will notify the company of those issues, although the 
issues will be subject to change based on the ongoing analysis. In 
addition, the Council expects that its Deputies Committee \25\ will 
grant a request to meet with a company in Stage 2 to allow the company 
to present any information or arguments it deems relevant to the 
Council's evaluation.
---------------------------------------------------------------------------

    \25\ The Council's Deputies Committee is composed of senior 
officials from each Council member and member agency. It coordinates and 
oversees the work of the Council's other interagency staff committees.
---------------------------------------------------------------------------

    During Stage 2 the Council will also seek to continue its 
consultation with the company's primary financial regulatory agency or 
home country supervisor in a timely manner before the Council makes any 
proposed or final determination with respect to such nonbank financial 
company. The Council

[[Page 557]]

will continue to encourage the regulator during the determination 
process to address any risks to U.S. financial stability using the 
regulator's existing authorities; as noted above, if the Council 
believes the regulator's actions adequately address the potential risks 
to U.S. financial stability the Council has identified, the Council may 
discontinue its consideration of the firm for a potential determination 
under section 113 of the Dodd-Frank Act.
    Before making a Proposed Determination regarding a nonbank financial 
company, the Council will notify the company when the Council believes 
that the evidentiary record regarding such nonbank financial company is 
complete. The Council will notify any nonbank financial company in Stage 
2 if the nonbank financial company ceases to be considered for a 
determination. Any nonbank financial company that ceases to be 
considered at any time in the Council's determination process may be 
considered for a Proposed Determination in the future at the Council's 
discretion, consistent with the processes described above.

                   c. Proposed and Final Determination

                         Proposed Determination

    Based on the analysis performed in Stage 2, a nonbank financial 
company may be considered for a Proposed Determination. A proposed 
determination requires a vote of two-thirds of the voting members of the 
Council then serving, including an affirmative vote by the Chairperson 
of the Council.\26\ Following a Proposed Determination, the Council will 
issue a written notice of the Proposed Determination to the nonbank 
financial company, which will include an explanation of the basis of the 
Proposed Determination.\27\ Promptly after the Council votes to make a 
proposed determination regarding a company, the Council will provide the 
company's primary financial regulatory agency or home country supervisor 
(subject to appropriate protections for confidential information) with 
the nonpublic written explanation of the basis of the Council's proposed 
or final determination. The Council also will publish the explanation of 
the basis of the Proposed Determination, subject to redactions to 
protect confidential information from the company or its regulators.
---------------------------------------------------------------------------

    \26\ 12 CFR 1310.10(b).
    \27\ Dodd-Frank Act section 113(e)(1), 12 U.S.C. 5323(e)(1).
---------------------------------------------------------------------------

                                 Hearing

    A nonbank financial company that is subject to a Proposed 
Determination may request a nonpublic hearing to contest the Proposed 
Determination in accordance with section 113(e) of the Dodd-Frank Act. 
If the nonbank financial company requests a hearing in accordance with 
the procedures set forth in Sec.1310.21(c) of the Council's rule,\28\ 
the Council will set a time and place for such hearing. The Council has 
published hearing procedures on its website.\29\ In light of the short 
statutory timeframe for conducting a hearing, and the fact that the 
purpose of the hearing is to benefit the company, if a company requests 
that the Council waive the statutory deadline for conducting the 
hearing, the Council may do so in appropriate circumstances.
---------------------------------------------------------------------------

    \28\ See 12 CFR 1310.21(c).
    \29\ Financial Stability Oversight Council Hearing Procedures for 
Proceedings Under Title I or Title VIII of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act, available at https://
www.treasury.gov/initiatives/fsoc/designations/Pages/Hearing-
Procedures.aspx.
---------------------------------------------------------------------------

                           Final Determination

    After making a Proposed Determination and holding any requested 
written or oral hearing, the Council may, by a vote of not fewer than 
two-thirds of the voting members of the Council then serving (including 
an affirmative vote by the Chairperson of the Council), make a final 
determination that the company will be subject to supervision by the 
Federal Reserve and prudential standards. If the Council makes a final 
determination, it will provide the company with a written notice of the 
Council's final determination, including an explanation of the basis for 
the Council's decision.\30\ The Council will also provide the company's 
primary financial regulatory agency or home country supervisor (subject 
to appropriate protections for confidential information) with the 
nonpublic written explanation of the basis of the Council's final 
determination. The Council expects that its explanation of the final 
basis for any determination will highlight the key risks that led to the 
determination and include clear guidance regarding the factors that were 
most important in the Council's determination. When practicable and 
consistent with the purposes of the determination process, the Council 
will provide a nonbank financial company with a notice of a final 
determination at least one business day before publicly announcing the 
determination pursuant to Sec.1310.21(d)(3), Sec.1310.21(e)(3), or 
Sec.1310.22(d)(3) of the Council's rule.\31\ In accordance with 
section 113(h) of the Dodd-Frank Act, a nonbank financial

[[Page 558]]

company that is subject to a final determination may bring an action in 
U.S. district court for an order requiring that the determination be 
rescinded.
---------------------------------------------------------------------------

    \30\ Dodd-Frank Act section 113(e)(3), 12 U.S.C. 5323(e)(3); see 
also 12 CFR 1310.21(d)(2) and (e)(2).
    \31\ See 12 CFR 1310.21(d)(3) and (e)(3) and 1310.22(d)(3).
---------------------------------------------------------------------------

    The Council does not intend to publicly announce the name of any 
nonbank financial company that is under evaluation prior to a final 
determination with respect to such company. However, if a company that 
is under review in Stage 1 or Stage 2 publicly announces the status of 
its review by the Council, the Council intends, upon the request of a 
third party, to confirm the status of the company's review. In addition, 
the Council will publicly release the explanation of the Council's basis 
for any nonbank financial company determination or rescission of a 
determination. The Council is subject to statutory and regulatory 
requirements to maintain the confidentiality of certain information 
submitted to it by a nonbank financial company or its regulators.\32\ In 
light of these confidentiality obligations, such confidential 
information will be redacted from the materials that the Council makes 
publicly available.
---------------------------------------------------------------------------

    \32\ See Dodd-Frank Act section 112(d)(5), 12 U.S.C. 5322(d)(5); see 
also 12 CFR 1310.20(e).
---------------------------------------------------------------------------

   V. Annual Reevaluations of Nonbank Financial Company Determinations

    After the Council makes a final determination regarding a company, 
the Council intends to encourage the company or its regulators to take 
steps to mitigate the potential risks identified in the Council's 
written explanation of the basis for its final determination. Except in 
cases where new material risks arise over time, if a company adequately 
addresses the potential risks identified in writing by the Council at 
the time of the final determination and in subsequent reevaluations, the 
Council should generally be expected to rescind its determination 
regarding the company.
    For any nonbank financial company that is subject to a final 
determination, the Council is required to reevaluate the determination 
at least annually, and to rescind the determination if the Council 
determines that the company no longer meets the statutory standards for 
a determination. The Council may also consider a request from a company 
for a reevaluation before the next required annual reevaluation, in the 
case of an extraordinary change that materially decreases the threat the 
nonbank financial company could pose to U.S. financial stability.\33\
---------------------------------------------------------------------------

    \33\ See note 12 above.
---------------------------------------------------------------------------

    The Council applies the same standards of review in its annual 
reevaluations as the standard for an initial determination regarding a 
nonbank financial company: Either the company's material financial 
distress, or the nature, scope, size, scale, concentration, 
interconnectedness, or mix of the company's activities, could pose a 
threat to U.S. financial stability. If the Council determines that the 
company no longer meets those standards, the Council will rescind its 
determination.
    The Council's annual reevaluations generally assess whether any 
material changes since the previous reevaluation and since the 
determination justify a rescission of the determination, based on the 
same transmission channels and other factors that are considered during 
a determination decision. The Council expects that its reevaluation 
process will focus on whether any material changes--including changes at 
the company, changes in its markets or its regulation, changes in the 
Council's own analysis, or otherwise--result in the company no longer 
meeting the standard for a determination. In light of the frequent 
reevaluations, the Council's analyses will generally focus on changes 
since the Council's previous review, but the ultimate question the 
Council will seek to assess is whether changes in the aggregate since 
the Council's determination regarding the company have caused the 
company to cease meeting the Determination Standards. The Council 
expects that its analysis in its annual reevaluations will generally be 
organized around the three transmission channels described above as well 
as existing regulatory scrutiny and the company's complexity and 
resolvability.
    Before the Council's annual reevaluation of a determination 
regarding a nonbank financial company, the Council will provide the 
company with an opportunity to meet with staff of Council members and 
member agencies to discuss the scope and process for the review and to 
present information regarding any change that may be relevant to the 
threat the company could pose to financial stability. Staff of Council 
members and member agencies will also be available to meet with the 
company during the annual reevaluation, at the company's request. In 
addition, during an annual reevaluation, a company may submit any 
written information to the Council the company considers relevant to the 
Council's analysis. During annual reevaluations, companies are 
encouraged to submit information regarding any changes related to the 
company's risk profile that mitigate the potential risks previously 
identified by the Council. Such changes could include updates regarding 
company restructurings, regulatory developments, market changes, or 
other factors. If the company has taken steps to address the potential 
risks previously identified by the Council, the Council will assess 
whether those risks have been adequately mitigated to merit a rescission 
of the determination regarding the company. If the company explains in 
detail potential changes it could

[[Page 559]]

make to its business to address the potential risks previously 
identified by the Council, staff of Council members and member agencies 
will endeavor to provide their feedback on the extent to which those 
changes may address the potential risks.
    If a company contests the Council's determination during the 
Council's annual reevaluation, the Council will vote on whether to 
rescind the determination and provide the company, its primary financial 
regulatory agency, and the primary financial regulatory agency of its 
significant subsidiaries with a notice explaining the primary basis for 
any decision not to rescind the determination. If the Council does not 
rescind the determination, the written notice provided to the company 
will address each of the material factors raised by the company in its 
submissions to the Council contesting the determination during the 
annual reevaluation. The written notice from the Council will also 
explain in detail why the Council did not find that the company no 
longer met the standard for a determination under section 113 of the 
Dodd-Frank Act. In general, due to the sensitive nature of its analyses 
in annual reevaluations, the Council may not in all cases publicly 
release the written findings that it provides to the company.
    Finally, the Council will provide each nonbank financial company 
subject to a Council determination with an opportunity for an oral 
hearing before the Council once every five years at which the company 
can contest the determination.



PART 1320_DESIGNATION OF FINANCIAL MARKET UTILITIES--Table of Contents



                            Subpart A_General

Sec.
1320.1 Authority and purpose.
1320.2 Definitions.

          Subpart B_Consultations, Determinations and Hearings

1320.10 Factors for consideration in designations.
1320.11 Consultation with financial market utility.
1320.12 Advance notice of proposed determination
1320.13 Council determination regarding systemic importance.
1320.14 Emergency exception.
1320.15 Notification of final determination regarding systemic 
          importance.
1320.16 Extension of time periods.

                    Subpart C_Information Collection

1320.20 Council information collection and coordination.

    Authority: 12 U.S.C. 5321; 12 U.S.C. 5322; 12 U.S.C. 5463; 12 U.S.C. 
5468; 12 U.S.C. 5469

    Source: 76 FR 44773, July 27, 2011, unless otherwise noted.



                            Subpart A_General



Sec.1320.1  Authority and purpose.

    (a) Authority. This part is issued by the Financial Stability 
Oversight Council under sections 111, 112, 804, 809, and 810 of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (``Dodd-Frank 
Act'') (12 U.S.C. 5321, 5322, 5463, 5468, and 5469).
    (b) Purpose. The purpose of this part is to set forth the standards 
and procedures governing the Council's designation of a financial market 
utility that the Council determines is, or is likely to become, 
systemically important.



Sec.1320.2  Definitions.

    The terms used in this part have the following meanings:
    Appropriate Federal banking agency. The term ``appropriate Federal 
banking agency'' has the same meaning as in section 3(q) of the Federal 
Deposit Insurance Act (12 U.S.C. 1813(q)), as amended.
    Board of Governors. The term ``Board of Governors'' means the Board 
of Governors of the Federal Reserve System.
    Council. The term ``Council'' means the Financial Stability 
Oversight Council.
    Designated clearing entity. The term ``designated clearing entity'' 
means a designated financial market utility that is a derivatives 
clearing organization registered under section 5b of the Commodity 
Exchange Act (7 U.S.C. 7a-1) or a clearing agency registered with the 
Securities and Exchange Commission under section 17A of the Securities 
Exchange Act of 1934 (15 U.S.C. 78q-1).
    Designated financial market utility. The term ``designated financial 
market utility'' means a financial market utility that the Council has 
designated as systemically important under Sec.1320.13.
    Financial institution. The term ``financial institution''--
    (1) Means--
    (i) A depository institution as defined in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813);

[[Page 560]]

    (ii) A branch or agency of a foreign bank, as defined in section 
1(b) of the International Banking Act of 1978 (12 U.S.C. 3101);
    (iii) An organization operating under section 25 or 25A of the 
Federal Reserve Act (12 U.S.C. 601-604a and 611 through 631);
    (iv) A credit union, as defined in section 101 of the Federal Credit 
Union Act (12 U.S.C. 1752);
    (v) A broker or dealer, as defined in section 3 of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c);
    (vi) An investment company, as defined in section 3 of the 
Investment Company Act of 1940 (15 U.S.C. 80a-3);
    (vii) An insurance company, as defined in section 2 of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2);
    (viii) An investment adviser, as defined in section 202 of the 
Investment Advisers Act of 1940 (15 U.S.C. 80b-2);
    (ix) A futures commission merchant, commodity trading advisor, or 
commodity pool operator, as defined in section 1a of the Commodity 
Exchange Act (7 U.S.C. 1a); and
    (x) Any company engaged in activities that are financial in nature 
or incidental to a financial activity, as described in section 4 of the 
Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)).
    (2) Does not include designated contract markets, registered futures 
associations, swap data repositories, and swap execution facilities 
registered under the Commodity Exchange Act (7 U.S.C. 1 et seq.), or 
national securities exchanges, national securities associations, 
alternative trading systems, securities information processors solely 
with respect to the activities of the entity as a securities information 
processor, security-based swap data repositories, and swap execution 
facilities registered under the Securities Exchange Act of 1934 (15 
U.S.C. 78a et seq.), or designated clearing entities, provided that the 
exclusions in this paragraph apply only with respect to the activities 
that require the entity to be so registered.
    Financial market utility. The term ``financial market utility''--
    (1) Means any person that manages or operates a multilateral system 
for the purpose of transferring, clearing, or settling payments, 
securities, or other financial transactions among financial institutions 
or between financial institutions and the person; and
    (2) Does not include--
    (i) Designated contract markets, registered futures associations, 
swap data repositories, and swap execution facilities registered under 
the Commodity Exchange Act (7 U.S.C. 1 et seq.), or national securities 
exchanges, national securities associations, alternative trading 
systems, security-based swap data repositories, and swap data execution 
facilities registered under the Securities Exchange Act of 1934 (15 
U.S.C. 78a et seq.), solely by reason of their providing facilities for 
comparison of data respecting the terms of settlement of securities or 
futures transactions effected on such exchange or by means of any 
electronic system operated or controlled by such entities, provided that 
the exclusions in this clause apply only with respect to the activities 
that require the entity to be so registered; and
    (ii) Any broker, dealer, transfer agent, or investment company, or 
any futures commission merchant, introducing broker, commodity trading 
advisor, or commodity pool operator, solely by reason of functions 
performed by such institution as part of brokerage, dealing, transfer 
agency, or investment company activities, or solely by reason of acting 
on behalf of a financial market utility or a participant therein in 
connection with the furnishing by the financial market utility of 
services to its participants or the use of services of the financial 
market utility by its participants, provided that services performed by 
such institution do not constitute critical risk management or 
processing functions of the financial market utility.
    Hearing date. The term ``hearing date'' means the later of--
    (1) The date on which the Council receives all of the written 
materials timely submitted by the financial market utility for a hearing 
that is conducted without oral testimony; or
    (2) The final date on which the Council convenes for the financial 
market utility to present oral testimony.
    Payment, clearing, or settlement activity.

[[Page 561]]

    (1) The term ``payment, clearing, or settlement activity'' means an 
activity carried out by 1 or more financial institutions to facilitate 
the completion of financial transactions, but shall not include any 
offer or sale of a security under the Securities Act of 1933 (15 U.S.C. 
77a et seq.), or any quotation, order entry, negotiation, or other pre-
trade activity or execution activity.
    (2) For purposes of paragraph (1) of this definition, the term 
``financial transaction'' includes--
    (i) Funds transfers;
    (ii) Securities contracts;
    (iii) Contracts of sale of a commodity for future delivery;
    (iv) Forward contracts;
    (v) Repurchase agreements;
    (vi) Swaps;
    (vii) Security-based swaps;
    (viii) Swap agreements;
    (ix) Security-based swap agreements;
    (x) Foreign exchange contracts;
    (xi) Financial derivatives contracts; and
    (xii) Any similar transaction that the Council determines to be a 
financial transaction for purposes of this part.
    (3) When conducted with respect to a financial transaction, payment, 
clearing, and settlement activities may include--
    (i) The calculation and communication of unsettled financial 
transactions between counterparties;
    (ii) The netting of transactions;
    (iii) Provision and maintenance of trade, contract, or instrument 
information;
    (iv) The management of risks and activities associated with 
continuing financial transactions;
    (v) Transmittal and storage of payment instructions;
    (vi) The movement of funds;
    (vii) The final settlement of financial transactions; and
    (viii) Other similar functions that the Council may determine.
    (4) Payment, clearing, and settlement activities shall not include 
public reporting of swap transactions under section 727 or 763(i) of the 
Dodd-Frank Act.
    Supervisory Agency. (1) The term ``Supervisory Agency'' means the 
Federal agency that--
    (i) Has primary jurisdiction over a designated financial market 
utility under Federal banking, securities, or commodity futures laws as 
follows--
    (A) The Securities and Exchange Commission, with respect to a 
designated financial market utility that is a clearing agency registered 
with the Securities and Exchange Commission;
    (B) The Commodity Futures Trading Commission, with respect to a 
designated financial market utility that is a derivatives clearing 
organization registered with the Commodity Futures Trading Commission;
    (C) The appropriate Federal banking agency, with respect to a 
designated financial market utility that is an institution described in 
section 3(q) of the Federal Deposit Insurance Act;
    (D) The Board of Governors, with respect to a designated financial 
market utility that is otherwise not subject to the jurisdiction of any 
agency listed in paragraphs (1)(i), (ii), and (iii) of this definition; 
or
    (ii) Would have primary jurisdiction over a financial market utility 
if the financial market utility were a designated financial market 
utility under paragraph (1) of this definition.
    (2) If a financial market utility is subject to the jurisdictional 
supervision of more than one agency listed in paragraph (1) of this 
definition, then such agencies should agree on one agency to act as the 
Supervisory Agency, and if such agencies cannot agree on which agency 
has primary jurisdiction, the Council shall decide which is the 
Supervisory Agency for purposes of this part.
    Systemically important and systemic importance. The terms 
``systemically important'' and ``systemic importance'' mean a situation 
where the failure of or a disruption to the functioning of a financial 
market utility could create, or increase, the risk of significant 
liquidity or credit problems spreading among financial institutions or 
markets and thereby threaten the stability of the financial system of 
the United States.

[[Page 562]]



          Subpart B_Consultations, Determinations and Hearings



Sec.1320.10  Factors for consideration in designations.

    In making any proposed or final determination with respect to 
whether a financial market utility is, or is likely to become, 
systemically important under this part, the Council shall take into 
consideration:
    (a) The aggregate monetary value of transactions processed by the 
financial market utility, including without limitation--
    (1) The number of transactions processed, cleared or settled;
    (2) The value of transactions processed, cleared or settled; and
    (3) The value of other financial flows.
    (b) The aggregate exposure of the financial market utility to its 
counterparties, including without limitation--
    (1) Credit exposures, which includes but is not limited to potential 
future exposures; and
    (2) Liquidity exposures.
    (c) The relationship, interdependencies, or other interactions of 
the financial market utility with other financial market utilities or 
payment, clearing, or settlement activities, including without 
limitation interactions with different types of participants in those 
utilities or activities.
    (d) The effect that the failure of or a disruption to the financial 
market utility would have on critical markets, financial institutions, 
or the broader financial system, including without limitation--
    (1) Role of the financial market utility in the market served;
    (2) Availability of substitutes;
    (3) Concentration of participants;
    (4) Concentration by product type;
    (5) Degree of tiering; and
    (6) Potential impact or spillover in the event of a failure or 
disruption.
    (e) Any other factors that the Council deems appropriate.



Sec.1320.11  Consultation with financial market utility.

    Before providing a financial market utility notice of a proposed 
determination under Sec.1320.12, the Council shall provide the 
financial market utility with--
    (a) Written notice that the Council is considering whether to make a 
proposed determination with respect to the financial market utility 
under Sec.1320.13; and
    (b) An opportunity to submit written materials to the Council, 
within such time as the Council determines to be appropriate, 
concerning--
    (1) Whether the financial market utility is systemically important 
taking into consideration the factors set out in Sec.1320.10; and
    (2) Proposed changes by the financial market utility that could--
    (i) Reduce or increase the inherent systemic risk the financial 
market utility poses and the need for designation under Sec.1320.13; 
or
    (ii) Reduce or increase the appropriateness of rescission under 
Sec.1320.13.
    (3) The Council shall consider any written materials timely 
submitted by the financial market utility under this section before 
making a proposed determination under section 1320.13.



Sec.1320.12  Advance notice of proposed determination.

    (a) Notice of proposed determination and opportunity for hearing. 
Before making any final determination on designation or rescission under 
Sec.1320.13, the Council shall propose a determination and provide the 
financial market utility with advance notice of the proposed 
determination, and proposed findings of fact supporting that 
determination. A proposed determination shall be made by a vote of the 
Council in the manner described in Sec.1320.13(c).
    (b) Request for hearing. Within 30 calendar days from the date of 
any provision of notice of the proposed determination of the Council, 
the financial market utility may request, in writing, an opportunity for 
a written or oral hearing before the Council to demonstrate that the 
proposed designation or rescission of designation is not supported by 
substantial evidence.
    (c) Written submissions. Upon receipt of a timely request, the 
Council shall fix a time, not more than 30 calendar days after receipt 
of the request, unless extended by the Council at the request of the 
financial market utility, and place at which the financial market

[[Page 563]]

utility may appear, personally or through counsel, to submit written 
materials, or, at the sole discretion of the Council, oral testimony and 
oral argument.



Sec.1320.13  Council determination regarding systemic importance.

    (a) Designation determination. The Council shall designate a 
financial market utility if the Council determines that the financial 
market utility is, or is likely to become, systemically important.
    (b) Rescission determination. The Council shall rescind a 
designation of systemic importance for a designated financial market 
utility if the Council determines that the financial market utility no 
longer meets the standards for systemic importance.
    (c) Vote required. Any determination under paragraph (a) or (b) of 
this section and any proposed determination under Sec.1320.12 shall--
    (1) Be made by the Council and must not be delegated by the Council; 
and
    (2) Require the vote of not fewer than two-thirds of the members of 
the Council then serving, including the affirmative vote of the 
Chairperson of the Council.
    (d) Consultations. Before making any determination under paragraph 
(a) or (b) of this section or any proposed determination under Sec.
1320.12, the Council shall consult with the relevant Supervisory Agency 
and the Board of Governors.



Sec.1320.14  Emergency exception.

    (a) Emergency exception. Notwithstanding Sec. Sec.1320.11 and 
1320.12, the Council may waive or modify any or all of the notice, 
hearing, and other requirements of Sec. Sec.1320.11 and 1320.12 with 
respect to a financial market utility if--
    (1) The Council determines that the waiver or modification is 
necessary to prevent or mitigate an immediate threat to the financial 
system posed by the financial market utility; and
    (2) The Council provides notice of the waiver or modification, and 
an explanation of the basis for the waiver or modification, to the 
financial market utility concerned, as soon as practicable, but not 
later than 24 hours after the waiver or modification.
    (b) Vote required. Any determination by the Council under paragraph 
(a) to waive or modify any of the requirements of Sec. Sec.1320.11 and 
1320.12 shall--
    (1) Be made by the Council; and
    (2) Require the affirmative vote of not fewer than two-thirds of 
members then serving, including the affirmative vote of the Chairperson 
of Council.
    (c) Request for hearing. Within 10 calendar days from the date of 
any provision of notice of waiver or modification of the Council, the 
financial market utility may request, in writing, an opportunity for a 
written or oral hearing before the Council to demonstrate that the basis 
for the waiver or modification is not supported by substantial evidence.
    (d) Written submissions. Upon receipt of a timely request, the 
Council shall fix a time, not more than 30 calendar days after receipt 
of the request, and place at which the financial market utility may 
appear, personally or through counsel, to submit written materials, or, 
at the sole discretion of the Counsel, oral testimony and oral argument.
    (e) Notification of hearing determination. If a financial market 
utility makes a timely request for a hearing under paragraph (c) of this 
section, the Council shall, not later than 30 calendar days after the 
hearing date, notify the financial market utility of the determination 
of the Council, which shall include a statement of the basis for the 
determination of the Council.



Sec.1320.15  Notification of final determination regarding systemic 
importance.

    (a) Notification of final determination after a hearing. Within 60 
calendar days of the hearing date, the Council shall provide to the 
financial market utility written notification of the final determination 
of the Council under Sec.1320.13, which shall include findings of fact 
upon which the determination of the Council is based.
    (b) Notification of final determination if no hearing. If the 
Council does not receive a timely request for a hearing under Sec.
1320.12, the Council shall provide the financial market utility written 
notification of the final determination of the Council under Sec.
1320.13 not

[[Page 564]]

later than 30 calendar days after the expiration of the date by which a 
financial market utility could have requested a hearing.



Sec.1320.16  Extension of time periods.

    The Council may extend any time period established in Sec.1320.12, 
Sec.1320.14, or Sec.1320.15 as the Council determines to be 
necessary or appropriate.



                    Subpart C_Information Collection



Sec.1320.20  Council information collection and coordination.

    (a) Information collection to assess systemic importance. The 
Council may require any financial market utility to submit such 
information to the Council as the Council may require for the sole 
purpose of assessing whether the financial market utility is 
systemically important.
    (b) Prerequisites to information collection. Before requiring any 
financial market utility to submit information to the Council under 
paragraph (a) of this section, the Council shall--
    (1) Determine that it has reasonable cause to believe that the 
financial market utility is, or is likely to become, systemically 
important, considering the standards set out in Sec.1320.10; or
    (2) Determine that it has reasonable cause to believe that the 
designated financial market utility is no longer, or is no longer likely 
to become, systemically important, considering the standards set out in 
Sec.1320.10; and
    (3) Coordinate with the Supervisory Agency for the financial market 
utility to determine if the information is available from, or may be 
obtained by, the Supervisory Agency in the form, format, or detail 
required by the Council.
    (c) Timing of response from the appropriate Supervisory Agency. If 
the information, reports, records, or data requested by the Council 
under paragraph (b)(3) of this section are not provided in full by the 
Supervisory Agency in less than 15 calendar days after the date on which 
the material is requested, the Council may request the information 
directly from the financial market utility with notice to the 
Supervisory Agency.
    (d) Notice to financial market utility of information collection 
requirement. In requiring a financial market utility to submit 
information to the Council, the Council shall provide to the financial 
market utility the following--
    (1) Written notice that the Council is considering whether to make a 
proposed determination under Sec.1320.12; and
    (2) A description of the basis for the Council's belief under 
paragraphs (b)(1) or (b)(2) of this section.

                       PARTS 1321	1399 [RESERVED]

[[Page 565]]



          CHAPTER XIV--FARM CREDIT SYSTEM INSURANCE CORPORATION




  --------------------------------------------------------------------
Part                                                                Page
1400            Organization and functions..................         567
1401            Employee responsibilities and conduct.......         567
1402            Releasing information.......................         567
1403            Privacy Act regulations.....................         576
1408            Collection of claims owed the United States.         579
1410            Premiums....................................         591
1411            Rules of practice and procedure.............         595
1412            Golden parachute and indemnification 
                    payments................................         595
1413-1499       [Reserved]

[[Page 567]]



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 Pub. L. 92-181, 85 Stat. 583 (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 568]]

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 569]]

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 90 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, McLean, Virginia 22102, and 
both the letter and envelope shall clearly be 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. You also have the right to seek dispute resolution services 
from the Corporation's FOIA Public Liaison, McLean, Virginia 22102, and 
the Office of Government Information Services, National Archives and 
Records Administration, 8601 Adelphi Road--OGIS, College Park, Maryland 
20740-6001.
    (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.

[[Page 570]]

    (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 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; 
81 FR 59438, Aug. 30, 2016]



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

[[Page 571]]

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.
    (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

[[Page 572]]

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 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

[[Page 573]]

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 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

[[Page 574]]

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 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) We will not assess fees if we fail to comply with any time limit 
under the FOIA or these regulations, and have not timely notified the 
requester, in writing, that an unusual circumstance exists. If an 
unusual circumstance exists, and timely, written notice is given to the 
requester, we may be excused an additional 10 working days before fees 
are automatically waived under this paragraph (h).
    (i) If we determine that unusual circumstances apply and more than 
5,000 pages are necessary to respond to a request, we may charge fees if 
we provided a timely, written notice to the requester and discussed with 
the requester via mail, Email, or telephone (or made at least three good 
faith attempts to do so) how the requester could effectively limit the 
scope of the request.
    (j) If a court has determined that exceptional circumstances exist, 
a failure to comply with time limits imposed by these regulations or 
FOIA shall be excused for the length of time provided by court order.
    (k) A receipt for fees paid will be given upon request.

[59 FR 24638, May 12, 1994, as amended at 81 FR 59438, Aug. 30, 2016]

[[Page 575]]



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 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

[[Page 576]]

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.



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

[[Page 577]]

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 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

[[Page 578]]

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.



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),

[[Page 579]]

(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.
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.

[[Page 580]]

    (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.
    (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.

[[Page 581]]



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;
    (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

[[Page 582]]

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.



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

[[Page 583]]

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 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:

[[Page 584]]

    (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 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

[[Page 585]]

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 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;

[[Page 586]]

    (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;
    (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

[[Page 587]]

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.
    (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

[[Page 588]]

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 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

[[Page 589]]

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.
    (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

[[Page 590]]

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 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

[[Page 591]]

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:
    (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: Secs. 12 U.S.C. 2020, 2277a-4, 2277a-5, 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 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

[[Page 592]]

section 7.6 of the Act, including, without limitation, agricultural 
credit associations and Federal land credit associations.
    (d) Government-guaranteed loans or investments means loans or 
credits or investments, or portions of loans or credits or investments, 
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 under part E of title V 
of the Act, including, without limitation, 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; 74 FR 17373, 
Apr. 15, 2009]



Sec.1410.3  Calculation and reporting of premiums due.

    (a) Reporting. For purposes of computing premiums, each insured bank 
shall, without limitation, report all information concerning the insured 
bank; each direct lending association that is receiving (or has 
received) funds provided through the insured bank; and each other 
financing institution that is receiving (or has received) funds provided 
through the insured bank; that the Corporation determines is necessary 
in order to compute the premiums due under the Act.
    (b) Calculating the premium payment for periods from July 1, 2008 
through December 31, 2008. (1) The premium payment for the 3rd Quarter 
2008 (defined for purposes of this section as the period from July 1, 
2008 through September 30, 2008) and the premium payment for the 4th 
Quarter 2008 (defined for purposes of this section as the period October 
1, 2008, through December 31, 2008) shall be equal to 25 percent of the 
amount computed by applying the premium calculation formulas contained 
in sections 5.55 and 5.56 of the Act (unless reduced by the Corporation 
acting under section 5.55(a)(3) of the

[[Page 593]]

Act or under paragraph (d) of this section) to the insured bank during 
the 3rd Quarter 2008 or 4th Quarter 2008, respectively.
    (2) In accord with paragraph (b)(1) of this section, the premium 
payment for the 3rd Quarter 2008 (having been reduced by the Corporation 
acting under section 5.55(a)(3) of the Act) shall be equal to 25 percent 
of the following amount:
    (i) The average outstanding insured obligations issued by the bank 
for the period, after deducting from the obligations the percentages of 
the guaranteed portions of loans and investments described in section 
5.55(a)(2) of the Act, multiplied by 0.0015; and
    (ii) The product obtained by multiplying--
    (A) The sum of--
    (1) The average principal outstanding for the period on loans made 
by the bank (computed in accord with section 5.55 of the Act) that are 
in nonaccrual status; and
    (2) The average amount outstanding for the period of other-than-
temporarily impaired investments made by the bank (computed in accord 
with section 5.55 of the Act);
    (B) By 0.0010.
    (3) In accord with paragraph (b)(1) of this section, the premium 
payment for the 4th Quarter 2008 (having been reduced by the Corporation 
acting under section 5.55(a)(3) of the Act) shall be equal to 25 percent 
of the following amount:
    (i) The average outstanding insured obligations issued by the bank 
for the period, after deducting from the obligations the percentages of 
the guaranteed portions of loans and investments described in section 
5.55(a)(2) of the Act, multiplied by 0.0018; and
    (ii) The product obtained by multiplying--
    (A) The sum of--
    (1) The average principal outstanding for the period on loans made 
by the bank (computed in accord with section 5.55 of the Act) that are 
in nonaccrual status; and
    (2) The average amount outstanding for the period of other-than-
temporarily impaired investments made by the bank (computed in accord 
with section 5.55 of the Act);
    (B) By 0.0010.
    (c) Calculating the premium payment for periods in 2009 and 
subsequent years. (1) The premium payment for periods in calendar year 
2009 and subsequent years shall be equal to the amount computed by 
applying the premium calculation formulas contained in sections 5.55 and 
5.56 of the Act (unless reduced by the Corporation acting under section 
5.55(a)(3) of the Act or under paragraph (d) of this section) to the 
insured bank during the period.
    (2) In accord with paragraph (c)(1) of this section, the premium 
payment for the period shall (unless reduced by the Corporation acting 
under section 5.55(a)(3) of the Act or under paragraph (d) of this 
section) be equal to:
    (i) The average outstanding insured obligations issued by the bank 
for the period, after deducting from the obligations the percentages of 
the guaranteed portions of loans and investments described in section 
5.55(a)(2), multiplied by 0.0020; and
    (ii) The product obtained by multiplying--
    (A) The sum of--
    (1) The average principal outstanding for the period on loans made 
by the bank (computed in accord with section 5.55 of the Act) that are 
in nonaccrual status; and
    (2) The average amount outstanding for the period of other than 
temporarily impaired investments made by the bank (computed in accord 
with section 5.55 of the Act);
    (B) By 0.0010.
    (d) Secure base amount. In addition to the Corporation's authority 
to reduce premiums under section 5.55(a)(3) of the Act, 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 paragraphs (b) and (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

[[Page 594]]

of the year prior to the January in which such premiums are to be paid.

[74 FR 17373, Apr. 15, 2009]



Sec.1410.4  Payment of premiums.

    (a) Payments. Each insured bank shall pay to the Corporation the 
amount of the premium due to the Corporation computed in accordance with 
sections 5.55 and 5.56 of the Act, and 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.
    (b) 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; 74 FR 17374, 
Apr. 15, 2009]



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 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.
    (b) Amendments to certified statements. In the event of an amendment 
or correction of a previously submitted certified statement, the 
amending insured

[[Page 595]]

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; 74 
FR 17374, Apr. 15, 2009]



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.
    (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: 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 Penalties Inflation Adjustment 
Act of 1990, as amended, a civil money penalty imposed pursuant to 
section 5.65(c) or (d) of the Farm Credit Act of 1971, as amended, shall 
not exceed $210 per day for each day the violation continues.

[84 FR 2437, Feb. 7, 2019]



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,

[[Page 596]]

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 
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

[[Page 597]]

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 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

[[Page 598]]

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) 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

[[Page 599]]

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 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,

[[Page 600]]

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 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

[[Page 601]]

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 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).

                       PARTS 1413	1499 [RESERVED]

[[Page 603]]



                 CHAPTER XV--DEPARTMENT OF THE TREASURY




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

                    SUBCHAPTER A--GENERAL PROVISIONS
Part                                                                Page
1500            Merchant banking investments................         605
1501            Financial subsidiaries......................         612
1502-1503       [Reserved]

1505-1507       [Reserved]

              SUBCHAPTER B--RESOLUTION FUNDING CORPORATION
1510            Resolution Funding Corporation operations...         615
1511            Book-entry procedure........................         618
1512-1599       [Reserved]

[[Page 605]]



                     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 606]]

    (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 607]]

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.225.28(b)(6) or Sec.
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 608]]

    (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 609]]

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 610]]

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 611]]

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 612]]

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 613]]

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 614]]

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 615]]



               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 616]]

    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 617]]

    (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 618]]

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 619]]

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 620]]



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 621]]

    (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 622]]

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 623]]

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.

                       PARTS 1512	1599 [RESERVED]

[[Page 625]]



  CHAPTER XVI--OFFICE OF FINANCIAL RESEARCH, DEPARTMENT OF THE TREASURY




  --------------------------------------------------------------------
Part                                                                Page
1600            Organization and functions of the Office of 
                    Financial Research......................         627
1601-1609       [Reserved]

1610            Regulatory data collections.................         629
1611-1699       [Reserved]

[[Page 627]]



PART 1600_ORGANIZATION AND FUNCTIONS OF THE OFFICE OF FINANCIAL 
RESEARCH--Table of Contents



    Authority: 5 U.S.C. 301, 7301, 31 U.S.C. 321, the Dodd-Frank Wall 
Street Reform and Consumer Protection Act (Dodd-Frank) (Pub. L. 111-
203); E.O. 12674, 3 CFR, 1989 Comp., p. 215, as modified by E.O. 12731, 
3 CFR, 1990 Comp., p. 306.

    Source: 76 FR 60708, Sept. 30, 2011, unless otherwise noted.



Sec.1600.1  Standards of ethical conduct.

    This section applies to the employees of the Office of Financial 
Research and is in addition to 5 CFR 3101.101-104, and 31 CFR part 0:
    (a) Definitions--For purposes of this subpart:
    (1) ``Business confidential information'' shall include trade secret 
or other formula, practice, process, design, instrument, pattern, or 
compilation of information which is not generally known or reasonably 
ascertainable, by which a business can obtain an economic advantage over 
competitors or customers. This shall include non-public position and 
transaction data, as well as data provided to supervisors or regulators 
that is unpublished.
    (2) ``Position data'' is defined as:
    (i) Data on financial assets or liabilities held on the balance 
sheet of a financial company, where positions are created or changed by 
the execution of a financial transaction; and
    (ii) Includes information that identifies counterparties, the 
valuation by the financial company of the position, and information that 
makes possible an independent valuation of the position.
    (3) ``Transaction data'' is defined as the structure and legal 
description of a financial contract, with sufficient detail to describe 
the rights and obligations between counterparties and make possible an 
independent valuation.
    (4) ``Micro-level data'' is defined as information specific to an 
individual transaction or position.
    (5) ``Masked data'' is defined as data that has been altered to 
prevent attribution to a particular financial company.
    (6) ``Financial company'' has the same meaning given to such term in 
title II of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act, 12 U.S.C. 5301 et seq. (2010), and includes an insured depository 
institution and an insurance company.
    (b) One-year post-employment restriction. (1) A current or former 
employee of the Office of Financial Research who has had access to the 
transaction or position data or business confidential information 
maintained by the Data Center about financial entities required to 
report to the Office may not, within one year after last having had 
access in the course of official duties to such transaction or position 
data or business confidential information, be employed by or provide 
advice or consulting services to a financial company, regardless of 
whether that financial company is required to report to the Office.
    (2) A current or former employee of the Office of Financial Research 
who has had limited access to the transaction or position data or 
business confidential information maintained by the Data Center about 
financial entities required to report to the Office may request a 
written waiver pursuant to paragraph (c) of this section from the 
Designated Agency Ethics Official to be employed by or provide advice or 
consulting services to a financial company, provided that the issuance 
of the waiver would not compromise any data or business confidential 
information.
    (c) Waivers--The post-employment restrictions set forth in section 
152(g) of the Dodd-Frank Wall Street Reform and Consumer Protection Act 
may be waived in whole or in part for an employee with limited access to 
the transaction or position data or business confidential information 
maintained by the Data Center if--
    (1) The Designated Agency Ethics Official, in consultation with the 
Director of the Office of Financial Research or the Department's General 
Counsel in instances where consultation with the Director poses a 
conflict or the Director's position is vacant, determines in writing 
that such waiver is unlikely to compromise any financial company's 
business confidential information, unfairly advantage or disadvantage 
any financial company, or affect

[[Page 628]]

the integrity or effectiveness of the Office of Financial Research.
    (2) Relevant factors to be considered by the Designated Agency 
Ethics Official and the Director or General Counsel include--
    (i) The nature and importance of the employee's position and the 
degree to which the employee had access to non-public or business 
confidential data for the purpose of analysis, standardization, or 
performing applied research or essential long-term research;
    (ii) Whether the information to which the employee had access 
revealed positions or transactions of an individual financial company;
    (iii) Whether the data, especially position data, remains sensitive 
considering changing circumstances or the passage of time;
    (iv) Whether the employee had access to micro-level data, as 
compared to aggregated information;
    (v) If the employee had access to micro-level data, whether it was 
sufficiently masked or coded to protect the identity of the provider or 
the subject financial company;
    (vi) Whether the information to which the employee had access would 
provide a financial company employer with a competitive commercial 
advantage;
    (vii) Whether the financial company employer has made a satisfactory 
representation that it has adopted screening measures which will 
effectively prevent a potential employee from sharing any transaction or 
position data or business confidential information acquired at the 
Office of Financial Research one year prior to accepting employment with 
the company;
    (viii) Whether granting the waiver would affect the willingness of a 
financial company to continue to provide transaction or position data or 
business confidential information to the Office; and
    (ix) Whether the proposed employment would create an appearance of 
impropriety or would otherwise adversely affect the interests of the 
government or compromise the integrity of the office.
    (d) The following examples are illustrative of how the OFR post-
employment prohibitions would apply under certain circumstances:
    (1) Example 1. (i) Fact pattern: OFR employs a business data manager 
and such employee has no access to the transaction or position data 
maintained by the Data Center or other business confidential information 
about financial entities required to report to OFR.
    (ii) Designated Agency Ethics Official's Determination: Upon 
termination of their employment by OFR, such employee would not be 
prohibited from being employed by or providing advice or consulting 
services to a financial company, regardless of whether that financial 
company is required to report to the Office.
    (2) Example 2. (i) Fact pattern: OFR employs a data analyst and such 
employee has access to transaction or position data across all sectors 
maintained by the Data Center or other business confidential information 
about specific financial entities required to report to OFR.
    (ii) Designated Agency Ethics Official's Determination: Upon 
termination of their employment by OFR, such employee would be 
prohibited, for a period of one year immediately after leaving OFR, from 
being employed by or providing advice or consulting services to a 
financial company, regardless of whether that financial company is 
required to report to the Office.
    (3) Example 3. (i) Fact pattern: OFR employs a data analyst and such 
employee has access to transaction or position data across all sectors 
maintained by the Data Center or other business confidential information 
about specific financial entities required to report to OFR. Employee 
last had access to such data six months before termination of her 
employment at OFR.
    (ii) Designated Agency Ethics Official's Determination: Upon 
termination of employment by OFR, such employee would be prohibited, for 
a period of six months immediately after leaving OFR, from being 
employed by or providing advice or consulting services to a financial 
company, regardless of whether that financial company is required to 
report to the Office.

[[Page 629]]

    (4) Example 4. (i) Fact pattern: OFR employs a researcher and such 
employee has access only to ``aggregated'' or ``masked'' transaction or 
position data maintained by the Data Center or other business 
confidential information about financial entities required to report to 
OFR.
    (ii) Designated Agency Ethics Official's Determination: Upon 
termination of their employment by OFR, such employee would not be 
prohibited from being employed by or providing advice or consulting 
services to a financial company, regardless of whether that financial 
company is required to report to the Office.
    (5) Example 5. (i) Fact pattern: OFR employs a data analyst and such 
employee has access to transaction or position data maintained by the 
Data Center or other business confidential information relating to a 
particular sector (i.e. banking).
    (ii) Designated Agency Ethics Official's Determination: Upon 
termination of employment by OFR, such employee would be prohibited, for 
a period of one year immediately after leaving OFR, from being employed 
by or providing advice or consulting services to a financial company in 
that particular sector (i.e. banking) where such employment or services 
involves employment or advice or consulting services, regardless of 
whether that financial company is required to report to the Office. Such 
employee would be granted a waiver to work in other designated sectors 
immediately after leaving OFR.
    (6) Example 6. (i) Fact pattern: OFR employs a data analyst and such 
employee has access to business confidential information in an area 
where data, such as equity mutual fund holdings, changes frequently. 
Employee last had access to such data six months before termination of 
her employment at OFR and, because of portfolio turnover, there is no 
risk of compromising business confidential information.
    (ii) Designated Agency Ethics Official's Determination: Upon 
termination of their employment by OFR, such employee would not be 
prohibited from being employed by or providing advice or consulting 
services to a financial company, regardless of whether that financial 
company is required to report to the Office.
    (7) Example 7. (i) Fact pattern: OFR employs an information 
technology specialist and such employee has access only to ``masked'' 
transaction or position data maintained by the Data Center or other 
``masked'' business confidential information about specific financial 
entities required to report to OFR.
    (ii) Designated Agency Ethics Official's Determination: Upon 
termination of their employment by OFR, such employee would not be 
prohibited from being employed by or providing advice or consulting 
services to a financial company, regardless of whether that financial 
company is required to report to the Office.

                       PARTS 1601	1609 [RESERVED]



PART 1610_REGULATORY DATA COLLECTIONS--Table of Contents



                     Subpart A_Collections Generally

Sec.
1610.1 General authority.
1610.2 General definitions.
1610.3 Treatment of collected information.
1610.4-1610.9 [Reserved]

                     Subpart B_Specific Collections

1610.10 Centrally cleared repurchase agreement data.

    Authority: 12 U.S.C. 5343 and 5344.

    Source: 84 FR 4984, Feb. 20, 2019, unless otherwise noted.



                     Subpart A_Collections Generally



Sec.1610.1  General authority.

    The collections under this part are made pursuant to the authority 
contained in 12 U.S.C. 5343(a) and (c)(1) and 5344(b).



Sec.1610.2  General definitions.

    Council means the Financial Stability Oversight Council.
    Legal Entity Identifier or LEI for an entity means the global legal 
entity identifier maintained for such entity by a utility accredited by 
the Global LEI Foundation or by a utility endorsed by the Regulatory 
Oversight

[[Page 630]]

Committee that satisfies the standards implemented by the Global LEI 
Foundation. As used in this definition:
    (1) Regulatory Oversight Committee means the Regulatory Oversight 
Committee (of the Global LEI System), whose charter was set forth by the 
Finance Ministers and Central Bank Governors of the Group of Twenty and 
the Financial Stability Board, or any successor thereof; and
    (2) Global LEI Foundation means the not-for-profit organization 
organized under Swiss law by the Financial Stability Board in 2014, or 
any successor thereof.
    Office means the U.S. Department of the Treasury's Office of 
Financial Research.



Sec.1610.3  Treatment of collected information.

    The Office will treat any financial transaction data or position 
data submitted to the Data Center under this part in accordance with the 
relevant provisions of law, including 12 U.S.C. 5343(b) and 5344(b).



Sec. Sec.1610.4-1610.9  [Reserved]



                     Subpart B_Specific Collections



Sec.1610.10  Centrally cleared repurchase agreement data.

    (a) Definitions.
    Central counterparty means a clearing agency that interposes itself 
between the counterparties to transactions, acting functionally as the 
buyer to every seller and the seller to every buyer.
    Clearing agency has the same meaning as set forth in 15 U.S.C. 
78c(a)(23).
    Covered reporter means any central counterparty for repurchase 
agreement transactions that meets the criteria set forth in paragraph 
(b)(2) of this section; provided, however, that any covered reporter 
shall cease to be a covered reporter only if it does not meet the dollar 
threshold specified in paragraph (b)(2) for at least four consecutive 
calendar quarters.
    General collateral trade means a repurchase agreement transaction in 
which the trade reported to the central counterparty is for a category 
of securities as opposed to a specific security.
    Repurchase agreement transaction or transaction means an agreement 
of a counterparty to transfer securities to another counterparty in 
exchange for the receipt of cash, and the simultaneous agreement of the 
former counterparty to later reacquire the same securities (or any 
subsequently substituted securities) from that same counterparty in 
exchange for the payment of cash; or an agreement of a counterparty to 
acquire securities from another counterparty in exchange for the payment 
of cash, and the simultaneous agreement of the former party to later 
transfer back the same securities (or any subsequently substituted 
securities) to the latter counterparty in exchange for the receipt of 
cash.
    Specific-security trade means a repurchase agreement transaction 
where the trade as reported to the central counterparty is for a 
mutually agreed upon specific security.
    (b) Purpose and scope--(1) Purpose. The purpose of this data 
collection is to require the reporting of certain information to the 
Office about repurchase agreement transactions cleared through a central 
counterparty. The information will be used by the Office to support the 
Council and Council member agencies by facilitating financial stability 
monitoring including research consistent with support of the Council and 
its member agencies, and to support the calculation of certain reference 
rates.
    (2) Scope of application. Reporting under this Section is required 
by any central counterparty for repurchase agreement transactions that 
meets the definition of financial company set forth in 12 U.S.C. 5341(2) 
and whose average daily total open commitments in repurchase agreement 
contracts (gross cash positions prior to netting) across all services 
over all business days during the prior calendar quarter is at least $50 
billion.
    (c) Data required. (1) Covered reporters shall report trade and 
collateral information on all repurchase agreement transactions cleared 
through any of its services, subject to paragraph (c)(2) of this 
section, in accordance with the prescribed reporting format in this 
section.

[[Page 631]]

    (2) Covered reporters shall only report trade and collateral 
information with respect to any repurchase agreement transaction for 
which there is a current or future delivery obligation as of the file 
observation date, including forward-starting transactions.
    (3) Covered reporters shall submit the following data elements for 
all general collateral trades:

         Table 1 to Sec. 1610.10(c)--General Collateral Trades
------------------------------------------------------------------------
         Data element                         Explanation
------------------------------------------------------------------------
File Observation Date........  The observation date of the file
                                (typically one business day before the
                                day the file is submitted).
Covered Reporter LEI.........  The Legal Entity Identifier of the
                                covered reporter.
Transaction ID...............  Respondent-generated unique transaction
                                identifier.
Submission Timestamp.........  Time that trade is first submitted to
                                clearing service.
Match Timestamp..............  Time that trade is matched by clearing
                                service.
Securities Asset Class         Asset class identifier.
 Identifier Value.
Securities Asset Class         Type of securities identifier used (the
 Identifier Type.               numbering system to which the identifier
                                belongs).
Cash Provider LEI............  The Legal Entity Identifier of the cash
                                provider.
Cash Provider Name...........  The legal name of the cash provider.
Cash Provider Internal         The internal identifier assigned by the
 Identifier.                    covered reporter to the cash provider.
Cash Provider Direct Clearing  The Legal Entity Identifier of the direct
 Member LEI.                    clearing member through which the cash
                                provider accessed the clearing service.
Cash Provider Direct Clearing  The legal name of the of the direct
 Member Name.                   clearing member through which the cash
                                provider accessed the clearing service.
Cash Provider Direct Clearing  The internal identifier assigned by the
 Member Internal Identifier.    covered reporter to the direct clearing
                                member through which the cash provider
                                accessed the clearing service.
Securities Provider LEI......  The Legal Entity Identifier of the
                                securities provider.
Securities Provider Name.....  The legal name of the securities
                                provider.
Securities Provider Internal   The internal identifier assigned by the
 Identifier.                    covered reporter to the securities
                                provider.
Securities Provider Direct     The Legal Entity Identifier of the direct
 Clearing Member LEI.           clearing member through which the
                                securities provider accessed the
                                clearing service.
Securities Provider Direct     The legal name of the direct clearing
 Clearing Member Name.          member through which the securities
                                provider accessed the clearing service.
Securities Provider Direct     The internal identifier assigned by the
 Clearing Member Internal       covered reporter to the direct clearing
 Identifier.                    member through which the securities
                                provider accessed the clearing service.
Broker LEI...................  The Legal Entity Identifier of the
                                broker.
Broker Name..................  The legal name of the broker.
Broker Internal Identifier...  The internal identifier assigned by the
                                covered reporter to the broker.
Start Date...................  The start date of the repurchase
                                agreement.
End Date.....................  The date the repurchase agreement
                                matures.
Rate.........................  The repurchase agreement rate, expressed
                                as an annual percentage rate on an
                                actual/360-day basis.
Principal....................  The amount of cash borrowed or lent.
Optionality..................  The type of optionality, if any, in the
                                repurchase agreement.
Minimum Maturity.............  The earliest possible date on which the
                                transaction could end in accordance with
                                its contractual terms (taking into
                                account optionality).
------------------------------------------------------------------------

    (4) Covered reporters shall submit the following data elements on 
the collateral delivered against net general collateral exposures for 
all general collateral trades:

      Table 2 to Sec. 1610.10(c)--General Collateral Net Exposure
------------------------------------------------------------------------
         Data element                         Explanation
------------------------------------------------------------------------
File Observation Date........  The observation date of the file
                                (typically one business day before the
                                day the file is submitted).
Covered Reporter LEI.........  The Legal Entity Identifier of the
                                covered reporter.
Direct Clearing Member LEI...  The Legal Entity Identifier of the direct
                                clearing member of the clearing service.
Direct Clearing Member Name..  The legal name of the direct clearing
                                member.
Direct Clearing Member         The internal identifier assigned by the
 Internal Identifier.           covered reporter to the direct clearing
                                member.
Transaction Side.............  Indicates the side of the transaction:
                                Collateral was received by or delivered
                                from the covered reporter.
Securities Identifier Value..  Identifier of securities transferred.

[[Page 632]]

 
Securities Identifier Type...  Type of securities identifier used (the
                                numbering system to which the identifier
                                belongs).
Securities Quantity..........  Par value or quantity (as applicable) of
                                securities transferred.
Securities Value.............  The market value as of most recent
                                valuation of securities transferred,
                                including accrued interest.
------------------------------------------------------------------------

    (5) Covered reporters shall submit the following data elements for 
all specific-security trades:

         Table 3 to Sec. 1610.10(c)--Specific-Security Trades
------------------------------------------------------------------------
         Data element                         Explanation
------------------------------------------------------------------------
File Observation Date........  The observation date of the file
                                (typically one business day before the
                                day the file is submitted).
Covered Reporter LEI.........  The Legal Entity Identifier of the
                                covered reporter.
Transaction ID...............  Respondent-generated unique transaction
                                identifier.
Cash Provider LEI............  The Legal Entity Identifier of the cash
                                provider.
Cash Provider Name...........  The legal name of the cash provider.
Cash Provider Internal         The internal identifier assigned by the
 Identifier.                    covered reporter to the cash provider.
Cash Provider Direct Clearing  The Legal Entity Identifier of the direct
 Member LEI.                    clearing member through which the cash
                                provider accessed the clearing service.
Cash Provider Direct Clearing  The legal name of the of the direct
 Member Name.                   clearing member through which the cash
                                provider accessed the clearing service.
Cash Provider Direct Clearing  The internal identifier assigned by the
 Member Internal Identifier.    covered reporter to the direct clearing
                                member through which the cash provider
                                accessed the clearing service.
Securities Provider LEI......  The Legal Entity Identifier of the
                                securities provider.
Securities Provider Name.....  The legal name of the securities
                                provider.
Securities Provider Internal   The internal identifier assigned by the
 Identifier.                    covered reporter to the securities
                                provider.
Securities Provider Direct     The Legal Entity Identifier of the direct
 Clearing Member LEI.           clearing member through which the
                                securities provider accessed the
                                clearing service.
Securities Provider Direct     The legal name of the direct clearing
 Clearing Member Name.          member through which the securities
                                provider accessed the clearing service.
Securities Provider Direct     The internal identifier assigned by the
 Clearing Member Internal       covered reporter to the direct clearing
 Identifier.                    member through which the securities
                                provider accessed the clearing service.
Broker LEI...................  The Legal Entity Identifier of the
                                broker.
Broker Name..................  The legal name of the broker.
Broker Internal Identifier...  The internal identifier assigned by the
                                covered reporter to the broker.
Submission Timestamp.........  Time that trade is first submitted to
                                clearing service.
Match Timestamp..............  Time that trade is matched by clearing
                                service.
Start Date...................  The start date of the repurchase
                                agreement.
End Date.....................  The date when the repurchase agreement
                                matures; the close leg settlement date.
Optionality..................  The type of optionality, if any.
Minimum Maturity.............  The earliest possible date on which the
                                transaction could end in accordance with
                                its contractual terms (taking into
                                account optionality).
Security Identifier Value....  Identifier of pledged security.
Securities Identifier Type...  Type of securities identifier used (the
                                numbering system to which the identifier
                                belongs).
Securities Quantity..........  Par value or quantity (as applicable) of
                                securities transferred.
Substitution Collateral        Asset class identifier or no
 Identifier Value.              substitution.
Substitution Collateral        Type of securities identifier used (the
 Identifier Type.               numbering system to which the identifier
                                belongs).
Cash Provider Start Leg        The amount of cash transferred by the
 Amount.                        cash provider on the open leg of the
                                transaction.
Securities Provider Start Leg  The amount of cash received by the
 Amount.                        securities provider on the open leg of
                                the transaction.
Cash Provider Rate...........  The rate of interest received by the cash
                                provider, expressed as an annual
                                percentage rate on an actual/360-day
                                basis.
Securities Provider Rate.....  The rate of interest paid by the
                                securities provider, expressed as an
                                annual percentage rate on an actual/360-
                                day basis.
Cash Provider Close Leg        The amount of cash received by the cash
 Settlement Amount.             provider on the close leg of the
                                transaction.
Securities Provider Close Leg  The amount of cash paid by the securities
 Settlement Amount.             provider on the close leg of the
                                transaction.
------------------------------------------------------------------------


[[Page 633]]

    (d) Reporting process and collection agent. The Office may designate 
a collection agent for the data reporting. Covered reporters shall 
submit the required data for each business day by 6:00 a.m. Eastern time 
on the following business day.
    (e) Compliance. (1) Any central counterparty that is a covered 
reporter as of the effective date of this Section shall comply with the 
reporting requirements pursuant to this Section in the following manner:
    (i) Subject to paragraph (e)(1)(iii) of this section, a covered 
reporter shall begin reporting all data elements required to be 
submitted pursuant to paragraph (c)(5) of this section within 180 days 
after April 22, 2019.
    (ii) Subject to paragraph (e)(1)(iii) of this section, a covered 
reporter shall begin reporting all data elements required to be 
submitted pursuant to paragraphs (c)(3) and (4) of this section within 
240 days after April 22, 2019.
    (iii) If a covered reporter is able to effect a rulemaking through 
the Securities and Exchange Commission requiring each direct clearing 
member, counterparty, and broker associated with a repurchase agreement 
transaction to obtain an LEI and provide it to the covered reporter, the 
covered reporter shall begin reporting all data elements requiring an 
LEI other than its own pursuant to paragraphs (c)(3) through (5) of this 
section by the later of the effective date of its rulemaking, or 420 
days April 22, 2019, and continue to report all data elements requiring 
a legal name or internal identifier until 365 days after the date the 
covered reporter begins reporting all data elements requiring an LEI 
pursuant to this section. If a covered reporter is unable to effect such 
a rulemaking, the covered reporter is not required to report any data 
elements requiring an LEI other than its own pursuant to paragraphs 
(c)(3) through (5) of this section, except, if available, the LEI for 
any direct clearing member, counterparty, or broker associated with a 
repurchase agreement transaction that has an LEI, and shall report all 
data elements requiring a legal name or internal identifier in any 
report submitted under this section regardless of whether the relevant 
entity has an LEI. A covered reporter shall report its own LEI in 
accordance with the schedules set forth in paragraphs (e)(1)(i) and (ii) 
of this section.
    (2) The first submission by any central counterparty that is a 
covered reporter as of the effective date of this Section shall be 
submitted on the first business day after the applicable compliance date 
under paragraph (e)(1) of this section.

    Note 1 to paragraph (e)(2): For example, if this section became 
effective on March 20, 2019, a central counterparty that meets the 
dollar threshold specified in paragraph (b)(2) of this section for the 
calendar quarter ending December 31, 2018, would be required to submit 
its first report under paragraph (e)(1)(i) of this section on the first 
business day after September 16, 2019, its first report under paragraph 
(e)(1)(ii) of this section on November 15, 2019, and its first report 
with data elements requiring an LEI (other than that of the covered 
reporter) on May 13, 2020 (if the covered reporter effected the 
rulemaking described in paragraph (e)(1)(iii) of this section).

    (3) Any central counterparty that becomes a covered reporter after 
the effective date of this Section shall comply with the reporting 
requirements pursuant to this Section beginning on the later of the 
schedule set forth in paragraphs (e)(1)(i) through (iii) of this section 
or the first business day of the third calendar quarter following the 
calendar quarter in which such central counterparty meets the dollar 
threshold specified in paragraph (b)(2) of this section.

    Note 2 to paragraph (e)(3): For example, if this section became 
effective on March 20, 2019, a central counterparty that first meets the 
dollar threshold specified in paragraph (b)(2) of this section for the 
calendar quarter ending June 30, 2019, would be required to submit its 
first report under paragraphs (e)(1)(i) and (ii) of this section on 
January 2, 2020, and its first report with data elements requiring an 
LEI (other than that of the covered reporter) on May 13, 2020 (if the 
covered reporter effected the rulemaking described in paragraph 
(e)(1)(iii) of this section by May 13, 2020).
    Note 3 to paragraph (e)(3): For example, if this section became 
effective on March 20, 2019, a central counterparty that first met the 
dollar threshold specified in paragraph (b)(2) for the calendar quarter 
ending June 30, 2020, would be required to comply with all of the 
reporting requirements under this section on January 2, 2021 (and would 
continue

[[Page 634]]

to be required to report all data elements requiring a legal name or 
internal identifier for at least 365 days after the effective date of 
the covered reporter's rulemaking described in paragraph (e)(1)(iii) if 
such effective date occurred after January 2, 2021).

                       PARTS 1611	1699 [RESERVED]

[[Page 635]]



CHAPTER XVII--OFFICE OF FEDERAL HOUSING ENTERPRISE OVERSIGHT, DEPARTMENT 
                    OF HOUSING AND URBAN DEVELOPMENT




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

        SUBCHAPTER A--OFHEO ORGANIZATION AND FUNCTIONS [RESERVED]
                         SUBCHAPTER B [RESERVED]
                   SUBCHAPTER C--SAFETY AND SOUNDNESS
Part                                                                Page
1700-1709       [Reserved]

1750            Capital.....................................         637
1777            Prompt corrective action....................         757
1778-1799       [Reserved]

[[Page 637]]



        SUBCHAPTER A_OFHEO ORGANIZATION AND FUNCTIONS [RESERVED]





                         SUBCHAPTER B [RESERVED]





                    SUBCHAPTER C_SAFETY AND SOUNDNESS



                       PARTS 1700	1709 [RESERVED]



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.

    Source: 61 FR 35620, July 8, 1996, unless otherwise noted.



                        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--
    (1) Means single currency interest rate swaps, basis swaps, forward 
rate agreements, interest rate options purchased (including caps, 
collars, and

[[Page 638]]

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\ United States Government agencies, or United States 
Government-sponsored

[[Page 639]]

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 the date for which the 
minimum capital report is filed, if different), and the three preceding 
quarter-ends.

[[Page 640]]



 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 governments of the OECD-based group 
of countries, United States Government agencies, or United States 
Government-sponsored

[[Page 641]]

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 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

[[Page 642]]

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
    (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).

[[Page 643]]

    (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 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

[[Page 644]]

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 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

[[Page 645]]

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
    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

[[Page 646]]

    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

           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.

[[Page 647]]

                                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
 Other off-balance sheet guarantees (e.g., guarantees 
of private-issue securities).

[[Page 648]]



                                  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 649]]

 
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 650]]

 
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 651]]



                                 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 652]]

 
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 654]]

 
                                                                            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 655]]

 
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 656]]

 
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 657]]

 
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 658]]

 
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 659]]

 
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 660]]

 
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 661]]

 
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 662]]

 
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 663]]

 
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 664]]

 
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 665]]

 
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 666]]

 
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 667]]

 
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 668]]

 
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 669]]

 
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 670]]

 
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 671]]

 
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 672]]

 
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 673]]

 
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 674]]

 
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 675]]

 
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 676]]

 
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 677]]

 
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 678]]

    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 679]]

 
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 680]]

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 681]]



             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 682]]

 
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 683]]

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 684]]

[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 
          contract

[[Page 685]]

          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 686]]

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).
    [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

[[Page 687]]

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:
[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

[[Page 688]]

 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.
    [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

[[Page 689]]

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 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 = 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.

             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)
----------------------------------------------------------------------------------------------------------------

[[Page 691]]

 
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
----------------------------------------------------------------------------------------------------------------
                                      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.)

[[Page 692]]

    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 MIRm = 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,
    [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 m\th\ 
          payment:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.023
          
4. Calculate Scheduled Interest Accrued (during month m-1) on account of 
          the m\th\ payment (SIAm)
          [GRAPHIC] [TIFF OMITTED] TR13SE01.024
          
5. Calculate the Scheduled Interest component of the m\th\ payment 
          (SIm)
          [GRAPHIC] [TIFF OMITTED] TR13SE01.025
          
6. Calculate Scheduled Principal for the m\th\ 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 
          m\th\ monthly payment (UPBm):
          [GRAPHIC] [TIFF OMITTED] TR13SE01.027
          

[[Page 693]]


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

           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.

[[Page 694]]

          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
----------------------------------------------------------------------------------------------------------------
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)
----------------------------------------------------------------------------------------------------------------


[[Page 695]]

        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:
[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, Bq\f\):
[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

[[Page 696]]

          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.
[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
----------------------------------------------------------------------------------------------------------------

[[Page 697]]

 
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.

        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

[[Page 701]]

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

[[Page 702]]

          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:
[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

[[Page 703]]

[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 m120, use MPR120 and 
          MDR120.
          [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

[[Page 704]]

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, 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
----------------------------------------------------------------------------------------------------------------

[[Page 705]]

 
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)
----------------------------------------------------------------------------------------------------------------

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


[[Page 706]]

                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.

           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:

[[Page 707]]

[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
------------------------------------------------------------------------

                  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

[[Page 708]]

    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 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-

[[Page 709]]

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

[[Page 710]]

 
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)
----------------------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------

[[Page 711]]

 
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:
          [GRAPHIC] [TIFF OMITTED] TR15MR02.007
          
Where:

m' = m, except for counterparties rated below BBB, where m' = 120
[GRAPHIC] [TIFF OMITTED] TR25JN08.000

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:

[[Page 712]]

[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:
          [GRAPHIC] [TIFF OMITTED] TR13SE01.069
          
Where:

ExpmC = 1 if the Contract has expired, i.e. if the 
          calendar month corresponding to the m\th\ 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:

[[Page 713]]

[GRAPHIC] [TIFF OMITTED] TR13SE01.072

Where:

ExpmC = 1 if the Contract has expired, i.e. if the 
          calendar month corresponding to the m\th\ 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
          
          [GRAPHIC] [TIFF OMITTED] TR15MR02.011
          
Where:

ELPIDCC,C = 0 if ELPFDCC,C = Y (Yes, indicating 
          that Contract C is an Enterprise Loss Position)
ELPIDCC,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


[[Page 714]]


    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] TR25JN08.000
    
    [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] TR25JN08.002
          
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:

[[Page 715]]

[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
------------------------------------------------------------------------

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

[[Page 716]]

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


[[Page 717]]


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

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

[[Page 718]]

 
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, 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 120 120.

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

[[Page 719]]

 
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

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).

[[Page 720]]

    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 
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.

[[Page 721]]



                          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)
----------------------------------------------------------------------------------------------------------------
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)
----------------------------------------------------------------------------------------------------------------

[[Page 722]]

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

[[Page 723]]

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

[[Page 724]]

 
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.

                   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
------------------------------------------------------------------------
000, 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 0 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
----------------------------------------------------------------------------------------------------------------

[[Page 726]]

 
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
----------------------------------------------------------------------------------------------------------------
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:

[[Page 727]]

[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 ORIG 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 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.

[[Page 728]]

                           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 (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

[[Page 729]]

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

    [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.

[[Page 730]]



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

[[Page 731]]

 
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)
------------------------------------------------------------------------
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
------------------------------------------------------------------------

[[Page 732]]

 
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
------------------------------------------------------------------------
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.

[[Page 733]]

           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.
    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.

[[Page 734]]

                   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, 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
------------------------------------------------------------------------

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

[[Page 735]]

          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).
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

[[Page 736]]

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 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

[[Page 737]]

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.

                         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:

[[Page 738]]

[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:
[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

[[Page 739]]

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
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

[[Page 740]]

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

            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

[[Page 741]]

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

[[Page 742]]

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

[[Page 743]]

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

[[Page 744]]

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

[[Page 745]]

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

    [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

[[Page 746]]

          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.
    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):

[[Page 747]]

[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 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

[[Page 748]]

          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 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

[[Page 749]]

(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 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

[[Page 750]]

          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 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:

[[Page 751]]

    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 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

[[Page 752]]

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 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

[[Page 753]]

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 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.

[[Page 754]]

                              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 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

[[Page 755]]

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 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

[[Page 756]]

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.

                                    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.

[[Page 757]]

                                    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; 73 FR 35895, June 25, 2008]



          Sec. Appendix B to Subpart B of Part 1750 [Reserved]



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 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

[[Page 758]]

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 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

[[Page 759]]

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 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

[[Page 760]]

    (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:
    (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

[[Page 761]]

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. 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.

[[Page 762]]

    (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.
    (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

[[Page 763]]

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 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

[[Page 764]]

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.



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

[[Page 765]]

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 
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

[[Page 766]]

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.



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.

[[Page 767]]

    (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.
    (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,

[[Page 768]]

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 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.

                       PARTS 1778	1799 [RESERVED]

[[Page 769]]



   CHAPTER XVIII--COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND, 
                       DEPARTMENT OF THE TREASURY




  --------------------------------------------------------------------
Part                                                                Page
1800-1804       [Reserved]

1805            Community Development Financial Institutions 
                    Program.................................         771
1806            Bank Enterprise Award Program...............         789
1807            Capital Magnet Fund.........................         801
1808            Community Development Financial Institutions 
                    Bond Guarantee Program..................         818
1815            Environmental quality.......................         849
1816-1899       [Reserved]

[[Page 771]]

                       PARTS 1800	1804 [RESERVED]



PART 1805_COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS PROGRAM
--Table of Contents



Sec.

                      Subpart A_General Provisions

1805.100 Purpose.
1805.101 Summary.
1805.102 Relationship to other CDFI Fund programs.
1805.103 Recipient not instrumentality.
1805.104 Definitions.
1805.105 Uniform Requirements; 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 Assistance Agreement; sanctions.
1805.802 Payment of funds.
1805.803 Data collection and reporting.
1805.804 Information.
1805.805 Compliance with government requirements.
1805.806 Conflict of interest requirements.
1805.807 Lobbying restrictions.
1805.808 Criminal provisions.
1805.809 CDFI Fund deemed not to control.
1805.810 Limitation on liability.
1805.811 Fraud, waste and abuse.

    Authority: 12 U.S.C. 4703, 4703 note, 4710, 4717; and 31 U.S.C. 321.

    Source: 80 FR 52382, Aug. 31, 2015, unless otherwise noted.



                      Subpart A_General Provisions



Sec.1805.100  Purpose.

    The purpose of the Community Development Financial Institutions 
(CDFI) Program is to promote economic revitalization and community 
development through investment in and assistance to Community 
Development Financial Institutions.



Sec.1805.101  Summary.

    Through the Community Development Financial Institutions Program, 
the CDFI Fund provides financial and technical assistance to Recipients 
selected by the CDFI Fund in order to enhance their ability to provide 
Financial Products, Financial Services and Development Services to and 
in their Target Markets. Each Recipient must serve an Investment 
Area(s), a Targeted Population(s), or both. The CDFI Fund will select 
Recipients to receive financial or technical assistance through a merit-
based, qualitative application process. Each Recipient must enter into 
an Assistance Agreement that requires it to achieve specific performance 
goals and abide by other terms and conditions pertinent to any 
assistance received under this part, as well as the Uniform 
Requirements, as applicable. All CDFI Program awards shall be made 
subject to funding availability.



Sec.1805.102  Relationship to other CDFI Fund programs.

    Restrictions on applying for, receiving, and using CDFI Program 
awards in conjunction with awards under other programs administered by 
the CDFI Fund (including, but not limited to, the Bank Enterprise Award 
Program, the Capital Magnet Fund, the CDFI

[[Page 772]]

Bond Guarantee Program, the Native American CDFI Assistance (NACA) 
Program, and the New Markets Tax Credit Program) are as set forth in the 
applicable Notice of Funds Availability, Notice of Guarantee 
Availability, or Notice of Allocation Availability.



Sec.1805.103  Recipient not instrumentality.

    No Recipient (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, the following terms shall have the 
following definitions:
    Act means the Community Development Banking and Financial 
Institutions Act of 1994, as amended (12 U.S.C. 4701 et se.);
    Affiliate means any company or entity that Controls, is Controlled 
by, or is under common Control with another company;
    Applicant means any entity submitting an application for CDFI 
Program assistance or funding under this part;
    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;
    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;
    Assistance Agreement means a formal agreement between the CDFI Fund 
and a Recipient, which agreement specifies the terms and conditions of 
assistance under this part;
    Community Development Financial Institution (or CDFI) means an 
entity currently meeting the requirements described in Sec.1805.201;
    Community Development Financial Institutions Fund (or CDFI Fund) 
means the Community Development Financial Institutions Fund established 
pursuant to section 104(a) (12 U.S.C. 4703(a)) of the Act;
    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;
    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;
    Community Facility means a facility where health care, childcare, 
educational, cultural, or social services are provided;
    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;
    Community-Owned means an entity in which the residents of an 
Investment Area(s) or members of a Targeted Population(s) have an 
aggregate ownership interest of greater than 50 percent;
    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 or a Recipient. A 
Community Partner may include a Depository Institution Holding Company, 
an Insured Depository Institution, an Insured Credit Union, a State-
Insured Credit Union, a non-profit or for-profit organization, a State 
or local government entity, a quasi-government entity, or an investment 
company authorized pursuant to the Small Business Investment Act of 1958 
(15 U.S.C. 661 et se.);
    Community Partnership means an agreement between an Applicant or 
Recipient and a Community Partner to provide collaboratively Financial 
Products and/or Financial Services or Development Services to an 
Investment Area(s) or a Targeted Population(s);
    Comprehensive Business Plan means a document, covering not less than 
the next five years, that demonstrates that the Applicant will be 
properly managed and will have the capacity to operate as a CDFI that 
will not be dependent upon assistance from the CDFI Fund for continued 
viability, and that meets the requirements described in an applicable 
Notice of Funds Availability;
    Control or Controlling means:

[[Page 773]]

    (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) Power to exercise, directly or indirectly, a controlling 
influence over the management, credit or investment decisions, or 
policies of any company.
    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));
    Development Services means activities undertaken by a CDFI, its 
Affiliate or contractor that promote community development and shall 
prepare or assist current or potential borrowers or investees to use the 
CDFI's Financial Products or Financial Services. For example, such 
activities include, financial or credit counseling; homeownership 
counseling; and business planning and management assistance;
    Equity Investment means an investment made by a CDFI that, in the 
judgment of the CDFI Fund, supports or enhances activities serving the 
CDFI's 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 CDFI 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 CDFI Fund); a purchase of 
secondary capital, or any other investment deemed by the CDFI Fund to be 
an Equity Investment;
    Financial Products means loans, Equity Investments and similar 
financing activities (as determined by the CDFI Fund) including the 
purchase of loans originated by certified CDFIs and the provision of 
loan guarantees; in the case of CDFI Intermediaries, Financial Products 
may also include loans 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;
    Financial Services means providing checking, savings accounts, check 
cashing, money orders, certified checks, automated teller machines, 
deposit taking, safe deposit box services, and other similar services;
    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 or established 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;
    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 se.). Each 
such Indian Tribe must be recognized as eligible for special programs 
and services provided by the United States to Indians because of their 
status as Indians;
    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, Subsidiary, 
Affiliate, or Community Partner;
    Insured CDFI means a CDFI that is an Insured Depository Institution 
or an Insured Credit Union;
    Insured Credit Union means any credit union, the member accounts of 
which are insured by the National Credit Union Share Insurance Fund;
    Insured Depository Institution means any bank or thrift, the 
deposits of which are insured by the Federal Deposit Insurance 
Corporation;
    Investment Area means a geographic area meeting the requirements of 
Sec.1805.201(b)(3);

[[Page 774]]

    Low-Income means 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;
    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;
    Non-Regulated CDFI means any entity meeting the eligibility 
requirements described in Sec.1805.200 and that is not a Depository 
Institution Holding Company, Insured Depository Institution, Insured 
Credit Union, or State-Insured Credit Union;
    Nonvoting Securities or Nonvoting Shares. Preferred shares, limited 
partnership shares or interests, or similar interests are Nonvoting 
Securities if:
    (1) 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 
preferences 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:
    (2) 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
    (3) 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 partners (or persons exercising similar 
functions) of the issuing company.
    Recipient means an Applicant selected by the CDFI Fund to receive 
assistance pursuant to this part;
    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;
    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;
    Subsidiary means any company that 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);
    Targeted Population means individuals or an identifiable group of 
individuals meeting the requirements of Sec.1805.201(b)(3);
    Target Market means an Investment Area(s) and/or a Targeted 
Population(s);
    Uniform Requirements means the Uniform Administrative Requirements, 
Cost Principles, and Audit Requirements for Federal Awards (2 CFR part 
1000), which is the Department of the Treasury's codification of the 
Office of Management and Budget (OMB) government-wide framework for 
grants management at 2 CFR part 200;
    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:
    (1) To vote for or select directors, trustees, or partners (or 
persons exercising similar functions of the issuing company); or
    (2) To vote on or to direct the conduct of the operations or other 
significant policies of the issuing company.



Sec.1805.105  Uniform Requirements; Waiver authority.

    (a) Uniform Requirements. The Uniform Requirements will be applied 
to all awards made pursuant to this part, as applicable.
    (b) Waiver authority. The CDFI 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

[[Page 775]]

the grounds forming the basis of the waiver. For a waiver in an 
individual case, the CDFI 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 CDFI 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 applicable, 
approved OMB Control Numbers associated with the CDFI Fund under 1559.



                          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)(3) of this section, will 
be eligible to apply for assistance under this part.
    (2)(i) An entity that proposes to become a CDFI is eligible to apply 
for assistance under this part if the CDFI Fund:
    (A) Receives a complete application for certification from the 
entity within the time period set forth in an applicable Notice of Funds 
Availability; and
    (B) 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.
    (ii) The CDFI Fund will not, however, make a payment of any 
financial assistance to such an entity before or unless it meets the 
requirements described in this section. Moreover, notwithstanding 
paragraphs (a)(1) and (a)(2)(i)(B) of this section, the CDFI 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.
    (3) The CDFI Fund shall require an entity to meet any additional 
eligibility requirements that the CDFI Fund deems appropriate.
    (4) The CDFI Fund, in its sole discretion, shall determine whether 
an entity 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) through (3) of this 
section, an entity 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 entity's voting shares, 
or otherwise controls, in any manner, the election of a majority of 
directors of the entity.



Sec.1805.201  Certification as a Community Development Financial 
Institution.

    (a) General. An entity may apply to the CDFI Fund for certification 
that it meets the CDFI eligibility requirements regardless of whether it 
is seeking financial or technical assistance from the CDFI Fund. 
Entities seeking such certification shall provide the information set 
forth in the application for certification. Certification by the CDFI 
Fund will verify that the entity meets the CDFI eligibility 
requirements. However, such certification shall not constitute an 
opinion by the CDFI Fund as to the financial viability of the CDFI or 
that the CDFI will be selected to receive an award from the CDFI Fund. 
The CDFI Fund, in its sole

[[Page 776]]

discretion, shall have the right to decertify a certified entity after a 
determination that the eligibility requirements of paragraph (b) of this 
section or Sec.1805.200(b) are no longer met.
    (b) Eligibility verification. An entity shall demonstrate whether it 
meets the eligibility requirements described in this paragraph (b) by 
providing the information described in the application for certification 
demonstrating that the entity meets the eligibility requirements 
described in paragraphs (b)(1) through (6) of this section. The CDFI 
Fund, in its sole discretion, shall determine whether an entity has 
satisfied the requirements of this paragraph.
    (1) Primary mission. A CDFI must have a primary mission of promoting 
community development. In determining whether an entity has such a 
primary mission, the CDFI Fund will consider whether the activities of 
the entity are purposefully directed toward improving the social and/or 
economic conditions of underserved people (which may include Low-Income 
persons or 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. (i) A CDFI shall be an entity whose 
predominant business activity is the provision, in arms-length 
transactions, of Financial Products and/or Financial Services. An entity 
may demonstrate that it meets this requirement if it is a(n):
    (A) Depository Institution Holding Company;
    (B) Insured Depository Institution, Insured Credit Union, or State-
Insured Credit Union; or
    (C) Organization that is deemed by the CDFI 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 certification application. In conducting 
such analysis, the CDFI Fund may take into consideration an entity's 
total assets and its use of personnel.
    (ii) For the sole purpose of participating as an Eligible CDFI in 
the CDFI Bond Guarantee Program (see 12 CFR1808), an Affiliate of a 
Controlling CDFI may be deemed to meet the financing entity requirement 
of this section by relying on the CDFI Fund's determination that the 
Controlling CDFI has met said requirement; provided, however, that the 
CDFI Fund reserves the right, in its sole discretion, to set additional 
parameters and restrictions on such, which parameters and restrictions 
shall be set forth in the applicable Notice of Guarantee Availability 
for a CDFI Bond Guarantee Program application round.
    (iii) Further, for the sole purpose of participating as an Eligible 
CDFI in the CDFI Bond Guarantee Program, the provision of Financial 
Products, Development Services, and/or other similar financing by an 
Affiliate of a Controlling CDFI need not be arms-length if such 
transaction is by and between the Affiliate and the Controlling CDFI, 
pursuant to an operating agreement that includes management and 
ownership provisions and is in form and substance acceptable to the CDFI 
Fund.
    (3) Target Market--(i) General. A CDFI must serve a Target Market by 
virtue of serving one or more Investment Areas and/or Targeted 
Populations. An entity may demonstrate that it meets this requirement by 
demonstrating that it provides Financial Products and/or Financial 
Services in an Investment Areas and/or Targeted Populations as described 
in this section. 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) of 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

[[Page 777]]

forth in paragraph (b)(3)(ii)(D) of this section and has significant 
unmet needs for loans, Equity Investments, Financial Products 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 that is a 
county (or equivalent area), minor civil division that is a unit of 
local government, incorporated place, census tract, or Indian 
Reservation. However, geographic units in Metropolitan Areas that are 
used to comprise an Investment Area shall be limited to census tracts, 
and Indian Reservations. An entity may designate one or more Investment 
Areas as part of a single certification application.
    (C) Designation. An entity may designate an Investment Area by 
selecting:
    (1) A geographic unit(s) that individually meets one of the criteria 
in paragraph (b)(3)(ii)(D) of this section; or
    (2) A group of contiguous geographic units that 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 entity demonstrates a pattern of unmet needs 
for Financial Products or Financial Services within such area.
    (F) Serving Investment Areas. An entity may serve an Investment Area 
directly or through borrowers or investees that serve the Investment 
Area.
    (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 entity's Target Market. 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 Targeted Populations. An entity may serve the members of 
a Targeted Population directly or indirectly or through borrowers or 
investees that directly serve such members.
    (4) Development Services. A CDFI directly, through an Affiliate, or 
through a contract with another provider, must

[[Page 778]]

have a track record of providing Development Services in conjunction 
with its Financial Products and/or Financial Services. An entity 
applying for CDFI certification must demonstrate that it meets this 
requirement.
    (5) Accountability. A CDFI must maintain accountability to residents 
of its Investment Area(s) or Targeted Population(s) through 
representation on its governing board and/or advisory board(s). An 
entity applying for CDFI certification must demonstrate that it meets 
this requirement.
    (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 applying for CDFI certification must demonstrate that it meets 
this requirement. 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.
    (c) Records and Review. The CDFI Fund will review a CDFI's 
certification status from time to time, as deemed appropriate by the 
CDFI Fund, to ensure that it meets the certification requirements of 
this section, as well as review its organizational capacity, lending 
activity, community impacts, and such other information that the CDFI 
Fund deems appropriate. Upon request, a CDFI shall provide such 
information and documentation to the CDFI Fund as is necessary to 
undertake such review.



               Subpart C_Use of Funds/Eligible Activities



Sec.1805.300  Purposes of financial assistance.

    The CDFI Fund may provide financial assistance through investment 
instruments described under subpart D of this part. Such financial 
assistance is intended to increase available capital and enhance the 
ability of a Recipient to provide Financial Products, Financial 
Services, and Development Services.



Sec.1805.301  Eligible activities.

    Recipients may use financial assistance provided under this part 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) Increase 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 homeownership 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 CDFI Fund.



Sec.1805.302  Restrictions on use of assistance.

    (a) A Recipient shall use assistance provided by the CDFI Fund and 
its corresponding matching funds only for the eligible activities 
approved by the CDFI Fund and described in the Assistance Agreement.
    (b) A Recipient may not distribute assistance to an Affiliate 
without the CDFI Fund's consent.
    (c) Assistance provided upon approval of an application involving a 
Community Partnership shall only be distributed to the Recipient and 
shall not be used to fund any activities carried out by a Community 
Partner or an Affiliate of a Community Partner.

[[Page 779]]



Sec.1805.303  Technical assistance.

    (a) General. The CDFI 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 CDFI 
Fund. The CDFI 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 or Recipient. The CDFI Fund may not 
provide any technical assistance funding to an Applicant for the purpose 
of assisting in the preparation of an application for federal 
assistance. The CDFI Fund may provide technical assistance to a CDFI 
directly, through grants, or by contracting with organizations that 
possess the appropriate expertise.
    (b) The CDFI 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 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 CDFI Fund will provide financial assistance to a Recipient 
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 CDFI 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 CDFI Fund may make non-voting equity investments in 
a Recipient, including, without limitation, the purchase of non-voting 
stock. Such stock shall be transferable and, in the discretion of the 
CDFI Fund, may provide for convertibility to voting stock upon transfer. 
The CDFI Fund shall not own more than 50 percent of the equity of a 
Recipient and shall not control its operations.
    (b) Grants. The CDFI Fund may award grants.
    (c) Loans. The CDFI Fund may make loans, if and as permitted by 
applicable law and regulation.
    (d) Deposits and credit union shares. The CDFI 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) General. 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 a Recipient 
and its Subsidiaries and Affiliates during any three-year period.
    (b) Additional amounts. If a Recipient proposes to establish a new 
Subsidiary or 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 Recipient or its Subsidiaries or 
Affiliates, the Recipient 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

[[Page 780]]

    (2) Must be distributed to a new Subsidiary or Affiliate that meets 
the eligibility requirements described in Sec.1805.200 and is selected 
for assistance pursuant to subpart G of this part.
    (c) A Recipient 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 CDFI Fund prior 
to the receipt of the application of said Recipient and within the 
current funding round.



Sec.1805.403  Authority to sell.

    The CDFI Fund may, at any time, sell its equity investments and 
loans, provided the CDFI 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 CDFI 
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 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 applicable 
Notice of Funds Availability and/or the corresponding Assistance 
Agreement. Funds that are used prior to the execution of the Assistance 
Agreement may nevertheless qualify as matching funds provided they were 
used as provided in the applicable Notice of Funds Availability and/or 
Assistance Agreement.



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 CDFI Fund (except as 
provided in Sec.1805.502). The CDFI 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 a Recipient that raises matching funds from more 
than one source, through different investment instruments, or under 
varying terms and conditions, the CDFI Fund may provide financial 
assistance in a manner that represents the combined characteristics of 
such instruments.
    (c) A Recipient 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 CDFI 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 CDFI 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.
    (c) The terms of the severe constraints waiver shall be provided in 
the applicable Notice of Funds Availability and Assistance Agreement.

[[Page 781]]



Sec.1805.503  Time frame for raising match.

    Applicants and Recipients shall satisfy matching funds requirements 
within the period set forth in the applicable Notice of Funds 
Availability and/or the corresponding Assistance Agreement.



Sec.1805.504  Retained earnings.

    (a) General. An Applicant or Recipient may use its retained earnings 
to match a request for a financial assistance grant from the CDFI Fund. 
An Applicant or Recipient that proposes to meet all or a portion of its 
matching funds requirements by committing available retained earnings 
from its operations shall be subject to the restrictions described in 
this section. Retained earnings shall be calculated as directed by the 
CDFI Fund in the applicable Notice of Funds Availability, the financial 
assistance application, and/or related guidance materials. The CDFI Fund 
shall make the final determination of the eligible amount of retained 
earnings that an Applicant or Recipient has available as matching funds.
    (b) Applicants other than Insured Credit Unions, State-Insured 
Credit Unions and Insured Depository Institutions. In the case of an 
Applicant or Recipient that is not an Insured Credit Union, State-
Insured Credit Union or Insured Depository Institution, 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), revenue minus expenses less any dividend payments) 
that has occurred over the Applicant's or Recipient's fiscal year as set 
forth in the applicable Notice of Funds Availability; or
    (2) The annual average of such increases that occurred over the 
Applicant's or Recipient's three consecutive fiscal years as set forth 
in the applicable Notice of Funds Availability.
    (c) Insured Credit Unions, State-Insured Credit Unions, and Insured 
Depository Institutions. (1) In the case of an Applicant or Recipient 
that is an Insured Credit Union, State-Insured Credit Union or Insured 
Depository Institution, 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 or Recipient's fiscal year as set forth in the applicable 
Notice of Funds Availability;
    (ii) The annual average of such increases that has occurred over the 
Applicant's or Recipient's three consecutive fiscal years as set forth 
in the applicable Notice of Funds Availability; or
    (iii) The entire retained earnings that have been accumulated since 
the inception of the Applicant or Recipient, provided that the 
Assistance Agreement shall require that:
    (A) The Recipient 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;
    (B) Such increase must be achieved by a date certain set forth in 
the applicable Notice of Funds Availability;
    (C) The level from which the achievement of said increases will be 
measured will be as of the date set forth in the applicable Notice of 
Funds Availability; and
    (D) Financial assistance shall be paid by the CDFI Fund only as the 
amount of increases described in paragraph (c)(1)(iii)(A) of this 
section is achieved.
    (2) The CDFI Fund will allow an Applicant or Recipient 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 or Recipient 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 prospective Applicants on how 
to obtain an application packet and will establish deadlines and other 
requirements. The Notice of

[[Page 782]]

Funds Availability may specify the application scoring criteria and any 
limitations, special rules, procedures, and restrictions for a 
particular funding round. After receipt of an application, the CDFI 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 CDFI Fund, to receive assistance based on a review process that may 
include an interview(s) and/or site visit(s) and that is intended to:
    (a) Ensure that Applicants are evaluated on a merit basis and in a 
fair and consistent manner;
    (b) Consider 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;
    (c) Ensure that each Recipient can successfully meet the goals of 
its Comprehensive Business Plan and achieve community development 
impact;
    (d) Ensure that Recipients represent a geographically diverse group 
of Recipients serving Metropolitan Areas, non-Metropolitan Areas, and 
Indian Reservations from different regions of the United States; and
    (e) Consider 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 CDFI Fund reserves the right to request additional 
information from the Applicant, if the CDFI Fund deems it appropriate.
    (b) Substantive review. In evaluating and selecting applications to 
receive assistance, the CDFI Fund will evaluate the feasibility of the 
Applicant's Comprehensive Business Plan goals, the likelihood of the 
Applicant meeting such goals, and the likelihood of the Applicant 
achieving its proposed community development impacts, by considering 
factors such as:
    (1) Community development track record, including, in the case of an 
Applicant with a prior history of serving a Target Market, the extent of 
success in serving such Target Market and whether it will expand its 
operations into a new Investment Area or serve a new Targeted 
Population, offer more Development Services, Financial Products and/or 
Financial Services, or increase the volume of its current business;
    (2) Operational capacity and risk mitigation strategies;
    (3) Financial track record and strength;
    (4) Capacity, skills, experience and background of the management 
team;
    (5) Understanding of its market context, including an analysis of 
the needs of the Investment Area or Targeted Population and a strategy 
for how the Applicant will attempt to meet those needs; such analysis of 
current and prospective customers will include 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 Loans, Equity 
Investments, Financial Products, Financial Services and Development 
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: A plan to 
coordinate use of a financial assistance award with existing Federal 
State, local and Tribal government assistance programs, and private 
sector financial services; A description of how the Applicant will 
coordinate with community organizations and financial institutions which 
will provide equity investments, loans, secondary markets, or other 
services to the Investment Area or Targeted Population; an assessment of 
its products and services,

[[Page 783]]

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 CDFI 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 the 
raising of needed external resources, including a detailed description 
of the Applicant's plans and likely sources of funds to match the amount 
of financial assistance requested from the CDFI Fund, 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 are consistent with existing 
economic, community, and housing development plans adopted by or 
applicable to the Investment Area or Targeted Population and will expand 
economic opportunities or promote community development within the 
designated Target Market;
    (9) The extent of need for the CDFI 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 CDFI 
Fund's assistance to carry out its Comprehensive Business Plan;
    (10) In the case of an Applicant that has previously received 
assistance under the CDFI Program, the CDFI 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 
CDFI Fund, the unexpended balance of assistance, and whether the 
Applicant will, with additional assistance from the CDFI 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 CDFI 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 CDFI 
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 CDFI Fund may consult 
with, and consider the views of, the Appropriate State Agency.
    (e) Recipient selection. The CDFI Fund will select Recipients 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.

[[Page 784]]



              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 CDFI Fund will, to the maximum extent 
practicable, ensure that Recipients that are Non-Regulated CDFIs are 
financially and managerially sound and maintain appropriate internal 
controls.



Sec.1805.801  Assistance Agreement; sanctions.

    (a) Prior to providing any Financial or Technical Assistance, the 
CDFI Fund and a Recipient shall execute an Assistance Agreement that 
requires a Recipient 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 CDFI Fund and a Recipient 
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 CDFI Fund.
    (b) A Recipient shall comply with performance goals that have been 
established or negotiated with the CDFI Fund and which are based upon 
the Comprehensive Business Plan submitted as part of the Recipient's 
application. Such performance goals may include measures that require a 
Recipient 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 Recipient'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 CDFI Fund.
    (c) The Assistance Agreement shall provide that, in the event of 
fraud, mismanagement, noncompliance with the Act and the CDFI Fund's 
regulations, or noncompliance with the terms and conditions of the 
Assistance Agreement on the part of the Recipient (or the Community 
Partner, if applicable), the CDFI Fund, in its discretion, may:
    (1) Require changes in the performance goals set forth in the 
Assistance Agreement;
    (2) Require changes in the Recipient's Comprehensive Business Plan;
    (3) Revoke approval of the Recipient's application;
    (4) Reduce or terminate the Recipient's assistance;
    (5) Require repayment of any assistance that has been distributed to 
the Recipient;
    (6) Bar the Recipient from reapplying for any assistance from the 
CDFI Fund; or
    (7) Take such other actions as the CDFI 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 CDFI Fund from directly enforcing the 
Assistance Agreement as provided for under the terms of the Act.
    (e) The CDFI 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 CDFI Fund shall not impose a sanction described in 
paragraph (c) of this section if the Appropriate Federal Banking Agency, 
in writing, and to the satisfaction of the CDFI Fund, not later than 30 
calendar days after receiving notice from the CDFI Fund:

[[Page 785]]

    (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 this section would be as effective as the sanction proposed by 
the CDFI Fund in securing compliance and deterring future noncompliance.
    (f) In reviewing the performance of a Recipient in which its 
Investment Area(s) includes an Indian Reservation or Targeted 
Population(s) includes an Indian Tribe, the CDFI 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 CDFI Fund shall, to the maximum extent 
practicable, provide the Recipient (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 
a Recipient or Community Partner with the right to any formal or 
informal hearing or comparable proceeding not otherwise required by law.



Sec.1805.802  Payment 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 CDFI 
Fund. The CDFI Fund shall not provide any assistance under this part 
until a Recipient has satisfied any required conditions set forth in its 
Assistance Agreement and, if the Recipient is to receive financial 
assistance, the Recipient has secured in-hand and/or firm commitments 
for the matching funds required for such assistance pursuant to the 
applicable Notice of Funds Availability.



Sec.1805.803  Data collection and reporting.

    (a) Data--General. A Recipient shall maintain such records as may be 
prescribed by the CDFI Fund that are necessary to:
    (1) Disclose the manner in which CDFI 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. A Recipient (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 CDFI 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. A Recipient (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 CDFI Fund or the Department 
of the 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 Department of the Treasury, the Comptroller 
General, and their duly authorized representatives, shall have full and 
free access to the Recipient'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 CDFI 
Fund, if it deems appropriate, may prescribe access to record 
requirements for entities that are borrowers of, or that receive 
investments from a Recipient.
    (d) Retention of records. A Recipient shall comply with all record 
retention requirements as set forth in the Uniform Requirements (as 
applicable).
    (e) Data collection and reporting. Each Recipient shall submit to 
the CDFI Fund information and documentation

[[Page 786]]

that will permit the CDFI Fund to review the Recipient's progress (and 
the progress of its Affiliates, Subsidiaries, 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 
audit and an annual report, which shall comprise the following 
components:
    (1) Audits and Audited Financial Statements. (i) All non-profit 
organizations that are required to have their financial statements 
audited pursuant to the Uniform Requirements, must submit their single-
audits no later than nine months after the end of the Recipient'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 the Uniform Requirements, must submit to 
the CDFI Fund a statement signed by the Recipient's Authorized 
Representative or certified public accountant, asserting that the 
Recipient is not required to have a single audit pursuant to the Uniform 
Requirements as indicated in the Assistance Agreement. In such 
instances, the CDFI Fund may require additional audits to be performed 
as stated in the applicable Notice of Funds Availability.
    (ii) For-profit organizations (excluding Insured CDFIs and State-
Insured Credit Unions) must submit to the CDFI Fund financial statements 
audited in conformity with generally accepted auditing standards as 
promulgated by the American Institute of Certified Public Accountants, 
no later than six months after the end of the Recipient's fiscal year.
    (iii) Insured CDFIs are not required to submit financial statements 
to the CDFI Fund. The CDFI Fund will obtain the necessary information 
from publicly available sources. State-Insured Credit Unions must submit 
to the CDFI Fund copies of the financial statements that they submit to 
the Appropriate State Agency.
    (iv) If multiple for-profit organizations sign the Assistance 
Agreement: The Recipient may submit combined financial statements and 
footnotes for the Recipient 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).
    (2) Annual Report. (i) Each Recipient shall submit to the CDFI Fund 
a performance and financial report at the times that shall be specified 
in the Assistance Agreement (Annual Report). The Annual Report consists 
of several components which may include, but are not limited to, an 
institution level report, transaction level report, use of financial or 
technical assistance report, explanation of any Recipient noncompliance, 
and shareholder report. The Annual Report components shall be specified 
and described in the Assistance Agreement.
    (ii) The CDFI Fund will use the Annual Report to collect data to 
assess the Recipient's compliance with its Performance Goals and the 
impact of the CDFI Program and the CDFI industry.
    (iii) Recipients 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 Reports, or other documentation that the CDFI Fund may 
require, the Recipient is responsible for ensuring that the information 
is submitted timely and complete. The CDFI Fund reserves the right to 
contact such additional signatories to the Assistance Agreement and 
require that additional information and documentation be provided.
    (3) The CDFI 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.
    (4) Public Access. The CDFI Fund shall make reports described in 
this section available for public inspection

[[Page 787]]

after deleting or redacting 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 
CDFI 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 
CDFI Fund.
    (2) If the information, reports, or records requested by the CDFI 
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 CDFI 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 CDFI 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 
CDFI Fund may 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 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 CDFI 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 CDFI Fund and the Appropriate Federal Banking Agency shall 
promptly notify each other of material concerns about a Recipient 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 CDFI 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 CDFI 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.



Sec.1805.804  Information.

    The CDFI 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.

[[Page 788]]



Sec.1805.805  Compliance with government requirements.

    In carrying out its responsibilities pursuant to an Assistance 
Agreement, the Recipient shall comply with all applicable Federal, 
State, and local laws, regulations, and ordinances, OMB Circulars, and 
Executive Orders. Furthermore, Recipients must comply with the CDFI 
Fund's Environmental Quality Regulations (12 CFR part 1815) as well as 
all other federal environmental requirements applicable to federal 
awards.



Sec.1805.806  Conflict of interest requirements.

    (a) Provision of credit to Insiders. (1) A Recipient that is a Non-
Regulated CDFI may not use any monies provided to it by the CDFI 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 
Recipient 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 
CDFI Fund.
    (2) A Recipient that is an Insured CDFI, a Depository Institution 
Holding Company or a State-Insured Credit 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) Recipient standards of conduct. A Recipient that is a Non-
Regulated CDFI shall maintain a code or standards of conduct acceptable 
to the CDFI 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 CDFI 
Fund. No Insider of a Recipient 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 Recipient's Insiders.



Sec.1805.807  Lobbying restrictions.

    No assistance made available under this part may be expended by a 
Recipient 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.1805.808  Criminal provisions.

    The criminal provisions of 18 U.S.C. 657 regarding embezzlement or 
misappropriation of funds are applicable to all Recipients and Insiders.



Sec.1805.809  CDFI Fund deemed not to control.

    The CDFI Fund shall not be deemed to Control a Recipient by reason 
of any assistance provided under the Act for the purpose of any 
applicable law.



Sec.1805.810  Limitation on liability.

    The liability of the CDFI 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 CDFI 
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.1805.811  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.

[[Page 789]]



PART 1806_BANK ENTERPRISE AWARD PROGRAM--Table of Contents



                      Subpart A_General Provisions

Sec.
1806.100 Purpose.
1806.101 Summary.
1806.102 Relationship to other CDFI Fund programs.
1806.103 Definitions.
1806.104 Uniform Administrative Requirements; waiver authority.
1806.105 OMB control number.

                          Subpart B_Eligibility

1806.200 Applicant eligibility.

               Subpart C_Use of Funds/Eligible Activities

1806.300 Eligible Activities.
1806.301 Restrictions on use of award.

                     Subpart D_Award Determinations

1806.400 General.
1806.401 Community eligibility and designation.
1806.402 Measuring and reporting Qualified Activities.
1806.403 Estimated award amounts.
1806.404 Selection process; actual award amounts.
1806.405 Applications for BEA Program Awards.]

              Subpart E_Terms and Conditions of Assistance

1806.500 Award Agreement; sanctions.
1806.501 Compliance with government requirements.
1806.502 Fraud, waste, and abuse.
1806.503 Books of account, records, and government access.
1806.504 Retention of records.

    Authority: 12 U.S.C. 1834a, 4703, 4703 note, 4713, 4717; 31 U.S.C. 
321.

    Source: 81 FR 52743, Aug. 10, 2016, unless otherwise noted.



                      Subpart A_General Provisions



Sec.1806.100  Purpose.

    The purpose of the Bank Enterprise Award (BEA) Program is to provide 
grants to Insured Depository Institutions that provide financial and 
technical assistance to Community Development Financial Institutions and 
increase their activities in Distressed Communities.



Sec.1806.101  Summary.

    Through the BEA Program, the CDFI Fund will provide monetary awards 
in the form of grants to Applicants selected by the CDFI Fund that 
increase their investments in or provide other support of CDFIs, 
increase their lending and investment activities in Distressed 
Communities, or increase their provision of certain services and 
assistance. Distressed Communities must meet minimum geographic, 
poverty, and unemployment criteria. Applicants are selected to receive 
BEA Program Awards through a merit-based, competitive application 
process. The amount of a BEA Program Award is based on the increase in 
Qualified Activities that are carried out by the Applicant during the 
Assessment Period. BEA Program Awards are disbursed by the CDFI Fund 
after the Recipient has successfully completed projected Qualified 
Activities. Each Recipient will enter into an Award Agreement, which 
will require it to abide by terms and conditions pertinent to any 
assistance received under this part, including the requirement that BEA 
Program Award proceeds must be used for Eligible Activities, and in 
accordance with the Uniform Administrative Requirements, as applicable. 
All BEA Program Awards are made subject to funding availability.



Sec.1806.102  Relationship to other CDFI Fund programs.

    (a) Restrictions using BEA Program Award in conjunction with other 
awards. (1) Restrictions are in place on applying for, receiving, and 
using BEA Program Awards in conjunction with awards under other programs 
administered by the CDFI Fund.
    (2) Other programs include, but not limited to, the Capital Magnet 
Fund, the CDFI Program, the CDFI Bond Guarantee Program, the Native 
American CDFI Assistance Program, and the New Markets Tax Credit 
Program, are as set forth in the applicable notice of funding 
opportunity or Notice of Allocation Availability.
    (b) Prohibition against double funding. (1) Qualified Activities may 
not include transactions funded in whole or in part with award proceeds 
from another

[[Page 790]]

CDFI Fund program or Federal program.
    (2) An Applicant that is a CDFI may not receive a BEA Program Award, 
either directly or through a community partnership if it has:
    (i) Received a CDFI Program award within the preceding 12-month 
period, or has a CDFI Program application pending; or
    (ii) Ever received a CDFI Program award based on the same activity 
during the same semiannual period for which the institution seeks a BEA 
Program Award.



Sec.1806.103  Definitions.

    For purposes of this part, the following terms shall have the 
following definitions:
    Act means the Community Development Banking and Financial 
Institutions Act of 1994, as amended (12 U.S.C. 4701 et seq.);
    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 60 percent of the 
units in such property are affordable, as may be defined in the 
applicable NOFA, to Eligible Residents who meet Low- and Moderate-Income 
requirements;
    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 an Eligible Resident 
who meets Low- and Moderate-Income requirements. Affordable Housing Loan 
may also refer to second (or otherwise subordinated) liens or ``soft 
second'' mortgages and other similar types of down payment 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 an Eligible 
Resident who meets Low- and Moderate-Income requirements;
    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;
    Appropriate Federal Banking Agency has the same meaning as in 
section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813);
    Assessment Period means an annual or semi-annual period specified in 
the applicable NOFA in which an Applicant will carry out, or has carried 
out, Qualified Activities;
    Award Agreement means a formal agreement between the CDFI Fund and a 
Recipient pursuant to Sec.1806.500;
    Bank Enterprise Award (or BEA Program Award) means an award made to 
an Applicant pursuant to this part;
    Bank Enterprise Award Program (or BEA Program) means the program 
authorized by section 114 of the Act and implemented under this part;
    Baseline Period means an annual or a semi-annual period specified in 
the applicable NOFA, in which an Applicant has previously carried out 
Qualified Activities;
    CDFI Partner means a CDFI that has been provided assistance in the 
form of CDFI Related Activities by an unaffiliated Applicant;
    CDFI Related Activities means Equity Investments, Equity-Like Loans 
and CDFI Support Activities;
    CDFI Support Activity means assistance provided by an Applicant or 
its Subsidiary to a CDFI that meets criteria set forth by the CDFI Fund 
in the applicable NOFA and that is Integrally Involved in a Distressed 
Community, in the form of the origination of a loan, Technical 
Assistance, or deposits, as further specified in the applicable NOFA;
    Commercial Loans and Investments means the following lending 
activity types: Affordable Housing Development Loans and related Project 
Investments; Small Business Loans and related Project Investments; and 
Commercial Real Estate Loans and related Project Investments;
    Commercial Real Estate Loan means an origination of a loan (other 
than an Affordable Housing Development Loan or Affordable Housing Loan) 
that is secured by real estate and used to finance the acquisition or 
rehabilitation of a building in a Distressed Community, or the 
acquisition, construction and or development of property in a

[[Page 791]]

Distressed Community, used for commercial purposes;
    Community Development Financial Institution (or CDFI) means an 
entity that has been certified as a CDFI by the CDFI Fund as of the date 
specified in the applicable NOFA;
    Community Development Financial Institutions Fund (or CDFI Fund) 
means the Community Development Financial Institutions Fund established 
pursuant to section 104(a)(12 U.S.C. 4703(a)) of the Act;
    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 and financial education to 
Eligible Residents regarding managing their personal finances;
    (2) Provision of Technical Assistance and consulting services to 
newly formed small businesses and nonprofit organizations located in the 
Distressed Community;
    (3) Provision of Technical Assistance and financial education to, or 
servicing the loans of, homeowners who are Eligible Residents and meet 
Low- and Moderate-Income requirements; and
    (4) Other services provided to Eligible Residents who meet Low- and 
Moderate-Income requirements or enterprises that are Integrally Involved 
in a Distressed Community, as deemed appropriate by the CDFI Fund, and 
other comparable services as may be specified by the CDFI Fund in the 
applicable NOFA;
    Consumer Loans means the following lending activity types: 
Affordable Housing Loans; Education Loans; Home Improvement Loans; and 
Small Dollar Consumer Loans;
    Deposit Liabilities means time or savings deposits or demand 
deposits. Any such deposit must be accepted from Eligible Residents at 
the offices of the Applicant or of the Subsidiary of the Applicant and 
located in the Distressed Community. Deposit Liabilities may only 
include deposits held by individuals in transaction accounts (e.g., 
demand deposits, negotiable order of withdrawal accounts, automated 
transfer service accounts, and telephone or preauthorized transfer 
accounts) or non-transaction accounts (e.g., money market deposit 
accounts, other savings deposits, and all time deposits), as defined by 
the Appropriate Federal Banking Agency;
    Development Service Activities 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. Development 
Service Activities include 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, financial management 
skills, and other comparable services as may be specified by the CDFI 
Fund in the applicable NOFA.
    Distressed Community means a geographically defined community that 
meets the minimum area eligibility requirements specified in Sec.
1806.401 and such additional criteria as may be set forth in the 
applicable NOFA;
    Distressed Community Financing Activities means:
    (1) Consumer Loans; or
    (2) Commercial Loans and Investments;
    Education Loan means an advance of funds to a student who is an 
Eligible Resident who meets Low- and Moderate-Income requirements for 
the purpose of financing a college or vocational education;
    Electronic Transfer Account (or ETA) means an account that meets the 
following requirements, and with respect to which the Applicant has 
satisfied the requirements:
    (1) Be an individually owned account at a Federally insured 
financial institution;
    (2) Be available to any individual who receives a Federal benefit, 
wage, salary, or retirement payment;
    (3) Accept electronic Federal benefit, wage, salary, and retirement 
payments and such other deposits as a financial institution agrees to 
permit;
    (4) Be subject to a maximum price of $3.00 per month;

[[Page 792]]

    (5) Have a minimum of four cash withdrawals and four balance 
inquiries per month, to be included in the monthly fee, through:
    (i) The financial institution's proprietary (on-us) automated teller 
machines (ATMs);
    (ii) Over-the-counter transactions at the main office or a branch of 
the financial institution; or
    (iii) Any combination of on-us ATM access and over-the-counter 
access at the option of the financial institution;
    (6) Provide the same consumer protections that are available to 
other account holders at the financial institution, including, for 
accounts that provide electronic access, Regulation E (12 CFR part 205) 
protections regarding disclosure, limitations on liability, procedures 
for reporting lost or stolen cards, and procedures for error resolution;
    (7) For financial institutions that are members of an on-line point-
of-sale (POS) network, allow on-line POS purchases, cash withdrawals, 
and cash back with purchases at no additional charge by the financial 
institution offering the ETA;
    (8) Require no minimum balance, except as required by Federal or 
State law;
    (9) At the option of the financial institution, be either an 
interest-bearing or a non-interest-bearing account; and
    (10) Provide a monthly statement.
    Eligible Activities means CDFI Related Activities, Distressed 
Community Financing Activities, and Service Activities, and as further 
described in the applicable NOFA and the Award Agreement;
    Eligible Resident means an individual who resides in a Distressed 
Community;
    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 CDFI Fund;
    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 that meets such criteria as set forth in the 
applicable NOFA;
    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 CDFI 
Fund in the applicable NOFA, that are provided by the Applicant to 
Eligible Residents or enterprises that are Integrally Involved in the 
Distressed Community;
    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 Indian Areas or Native 
American Areas (as each is defined by the U.S. Bureau of the Census), or 
other areas deemed appropriate by the CDFI Fund;
    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, where such 
borrower is an Eligible Resident who meets Low- and Moderate-Income 
requirements;
    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;
    Individual Development Account (or IDA) means a special savings 
account that matches the deposits of Eligible Residents who meet Low- 
and Moderate-Income requirements individuals and that enables such 
individuals to save money for a particular financial goal including, but 
not limited to, and as determined by the CDFI Fund: buying a home, 
paying for post-secondary education, or starting or expanding a small 
business;
    Insured Depository Institution means any bank or thrift, the 
deposits of

[[Page 793]]

which are insured by the Federal Deposit Insurance Corporation;
    Integrally Involved means, for a CDFI Partner, having provided or 
transacted the percentage of financial transactions or dollars (i.e., 
loans or Equity Investments), or Development Service Activities, in the 
Distressed Community identified by the Applicant or the CDFI Partner, as 
applicable, or having attained the percentage of market share for a 
particular product in a Distressed Community, set forth in the 
applicable NOFA;
    Low- and Moderate-Income or Low- and Moderate-Income requirements 
means borrower income that does not exceed 80 percent of the median 
income of the area involved, according to the U.S. Census Bureau data, 
set forth in the Applicable NOFA;
    Metropolitan Area means an area designated as such (as of the date 
of the BEA Program application) by the Office of Management and Budget 
pursuant to 44 U.S.C. 3504(e)(3), 31 U.S.C. 1104(d), and Executive Order 
10253 (3 CFR, 1949-1953 Comp., p. 758), as amended;
    Notice of Funding Availability (or NOFA) means the public notice of 
funding opportunity that announces the availability of BEA Program Award 
funds for a particular funding round and that advises prospective 
Applicants with respect to obtaining application materials, establishes 
application submission deadlines, and establishes other requirements or 
restrictions applicable for the particular funding round;
    Priority Factor means a numeric value assigned to the following, as 
established by the CDFI Fund in the applicable NOFA:
    (1) Each subcategory within the Distressed Community Financing 
Activities category of Qualified Activities; or
    (2) Each activity-type within the Service Activities and CDFI 
Related Activities categories of Qualified Activities.
    (3) A priority factor represents the CDFI 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;
    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 CDFI Fund), including Affordable 
Housing Development Loans, Affordable Housing Loans, Commercial Real 
Estate Loans, and Small Business Loans;
    Qualified Activities means CDFI Related Activities, Distressed 
Community Financing Activities, and Service Activities;
    Recipient means an Applicant that receives a BEA Program Award 
pursuant to this part and the applicable NOFA;
    Service Activities means the following activities: Deposit 
Liabilities; Financial Services; Community Services; Targeted Financial 
Services; and Targeted Retail Savings/Investment Products;
    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) 
and is located in a Distressed Community;
    Small Dollar Consumer Loan means affordable consumer lending 
products that serve as available alternatives in the marketplace for 
individuals who are Eligible Residents who meet Low- and Moderate-Income 
requirements and meet criteria further specified in the applicable NOFA;
    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;
    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

[[Page 794]]

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;
    Targeted Financial Services means ETAs, IDAs, and such other banking 
products targeted to Eligible Residents, as may be specified by the CDFI 
Fund in the applicable NOFA;
    Targeted Retail Savings/Investment Products means certificates of 
deposit, mutual funds, life insurance, and other similar savings or 
investment vehicles targeted to Eligible Residents, as may be specified 
by the CDFI Fund in the applicable NOFA;
    Technical Assistance means the provision of consulting services, 
resources, training, and other nonmonetary support relating to an 
organization, individual, or operation of a trade or business, as may be 
specified by the CDFI Fund in the applicable NOFA; and
    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  Uniform Administrative Requirements; waiver authority.

    (a) Uniform Administrative Requirements. The Uniform Administrative 
Requirements, Cost Principles, and Audit Requirements for Federal Awards 
(Uniform Administrative Requirements), codified by the Department of the 
Treasury at 2 CFR part 1000, apply to awards, regardless of type of 
award Recipient, made pursuant to this part.
    (b) Waiver authority. The CDFI 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 CDFI 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 CDFI 
Fund will publish notification of granted waivers in the Federal 
Register.



Sec.1806.105  OMB control number.

    The collections of information contained in this part have been 
reviewed and approved by the Office of Management and Budget (OMB) in 
accordance with the Paperwork Reduction Act of 1995 and assigned the 
applicable, approved OMB Control Numbers associated with the CDFI Fund 
under 1559.



                          Subpart B_Eligibility



Sec.1806.200  Applicant eligibility.

    An entity that is an Insured Depository Institution is eligible to 
apply for a BEA Program Award if the CDFI Fund receives a complete BEA 
Program Award application by the deadline set forth in the applicable 
Notice of Funding Availability (NOFA). Additional eligibility 
requirements are set forth in the applicable NOFA.



               Subpart C_Use of Funds/Eligible Activities



Sec.1806.300  Eligible Activities.

    Recipients of BEA Program Awards must use their payments for the 
following Eligible Activities:
    (a) CDFI Related Activities;
    (b) Distressed Community Financing Activities; and
    (c) Service Activities, and to comply with the Uniform 
Administrative Requirements as further described in the applicable NOFA 
and the Award Agreement.



Sec.1806.301  Restrictions of use of award.

    A Recipient may not distribute BEA Program Award funds to an 
Affiliate without the CDFI Fund's prior written consent.



                     Subpart D_Award Determinations



Sec.1806.400  General.

    The amount of a BEA Program Award shall be based on the Applicant's 
increases in Qualified Activities from the Baseline Period to the 
Assessment Period, as set forth in the applicable NOFA. When determining 
this increase, Applicants must consider all

[[Page 795]]

BEA Qualified Activities and all BEA qualified census tracts, as it 
relates to a given subcategory or activity type, as applicable.



Sec.1806.401  Community eligibility and designation.

    (a) General. If an Applicant reports that it has provided or engaged 
in Service Activities or Distressed Community Financing Activities, the 
Applicant shall identify one or more Distressed Communities in which it 
has provided or engaged in such activities. The Applicant may identify 
different Distressed Communities for each category or subcategory of 
activity. If an Applicant reports that it has provided or engaged in 
CDFI Support Activities, the Applicant shall provide evidence that the 
CDFI that the Applicant supported is Integrally Involved in a Distressed 
Community, as specified in the applicable NOFA.
    (b) Minimum area and eligibility requirements. A Distressed 
Community must meet the following minimum area and eligibility 
requirements:
    (1) Minimum area requirements. A Distressed Community:
    (i) Must be an area that is located within the jurisdiction of one 
(1) Unit of General Local Government;
    (ii) The boundaries of the area must be contiguous; and
    (iii) The area must:
    (A) Have a population, as determined by the most recent U.S. Bureau 
of the Census data available, of not less than 4,000 if any portion of 
the area is located within a Metropolitan Area with a population of 
50,000 or greater; or
    (B) Have a population, as determined by the most recent U.S. Bureau 
of the Census data available, of not less than 1,000 in any other case; 
or
    (C) Be located entirely within an Indian Reservation.
    (2) Eligibility requirements. A Distressed Community must be a 
geographic area where:
    (i) At least 30 percent of the Eligible Residents have incomes that 
are less than the national poverty level, as published by the U.S. 
Bureau of the Census or in other sources as set forth in guidance issued 
by the CDFI Fund;
    (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 recently published data, including estimates of unemployment 
developed using the U.S. Bureau of Labor Statistics' Census-Share 
calculation method, or in other sources as set forth in guidance issued 
by the CDFI Fund; and
    (iii) Such additional requirements as may be specified by the CDFI 
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 and 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 and 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. The CDFI Fund will provide a prospective Applicant 
with data and other information to help it identify areas eligible to be 
designated as a Distressed Community. If requested, applicants shall 
submit designation materials as instructed in the applicable NOFA.



Sec.1806.402  Measuring and reporting Qualified Activities.

    (a) General. An Applicant may receive a BEA Program 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 CDFI Fund may 
further qualify such Qualified Activities in the applicable NOFA, 
including such additional geographic and transaction size limitations as 
the CDFI Fund deems appropriate.
    (b) Reporting Qualified Activities. An Applicant should report only 
its Qualified Activities for the category or subcategory for which it is 
seeking a BEA Program Award.
    (1) If an Applicant elects to apply for an award in the CDFI Related 
Activities category, it may elect to report on

[[Page 796]]

one or both types of activities within the CDFI Related Activities 
category.
    (2) If an Applicant elects to apply for an award in the Distressed 
Community Financing Activities category, the Applicant must report on 
the following subcategories:
    (i) Aggregate Consumer Loans; or
    (ii) Aggregate Commercial Loans and Investments; or
    (iii) Both paragraphs (b)(2)(i) and (ii) separately; unless the 
Applicant provides a reasonable explanation, acceptable to the CDFI 
Fund, in its sole discretion, as to why the Applicant cannot report on 
aggregated activities in such subcategories.
    (3) If an Applicant elects to apply for an award in the Service 
Activities category, it may elect to report on one or more types of 
activities within the Service Activities category.
    (c) Area served. CDFI Related Activities must be provided to a CDFI. 
CDFI Partners that are the recipients of CDFI Support Activities must 
demonstrate that they are Integrally Involved in a Distressed Community. 
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 Eligible Residents or enterprises that are 
Integrally Involved in the Distressed Community.
    (d) Certain limitations on Qualified Activities. Activities funded 
with the proceeds of Federal funding or tax credit programs are 
ineligible for purposes of calculating or receiving a Bank Enterprise 
Award. Please see the applicable NOFA for each funding round's 
limitations on Qualified Activities. Qualified Activities shall not 
include loans to or investments in those business types set forth in the 
Uniform Administrative Requirements.
    (e) Measuring the value of Qualified Activities. Subject to such 
additional or alternative valuations as the CDFI Fund may specify in the 
applicable NOFA, the CDFI 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 
CDFI Fund will assess the value of the full amount of the rolled-over 
deposit. Where an existing loan is refinanced (meaning, a new loan is 
originated to pay off an existing loan, whether or not there is a change 
in the applicable loan terms), the CDFI 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 the net change in the amount of applicable funds on deposit 
at the Applicant during the Baseline Period with the net change in the 
amount of applicable funds on deposit at the Applicant during the 
Assessment Period, as described in paragraphs (e)(3)(i) and (ii) of this 
section:
    (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 set forth by the CDFI Fund in the applicable 
NOFA; and
    (5) Financial Services (other than those for which the CDFI 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 closed

[[Page 797]]

and 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 agreement 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 CDFI 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 CDFI 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 CDFI Fund.
    (g) Reporting period. An Applicant must 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 CDFI Fund in the applicable NOFA.



Sec.1806.403  Estimated award amounts.

    (a) General. An Applicant must calculate and submit to the CDFI Fund 
an estimated award amount as part of its BEA Program Award application.
    (b) Award percentages. The CDFI Fund will establish the award 
percentage for each category and subcategory of Qualified Activities in 
the applicable NOFA. Applicable award percentages for Qualified 
Activities undertaken by Applicants that are CDFIs will be equal to 
three times the award percentages for Qualified Activities undertaken by 
Applicants that are not CDFIs.
    (c) Calculating the estimated award amount for Qualified Activities. 
(1) The estimated award amount for the CDFI Related Activities category 
will be equal to the applicable award percentage of the net increase in 
each activity-type (i.e., Equity Investments/Equity Like-Loans; and CDFI 
Support Activities) under the CDFI Related Activities category between 
the Baseline Period and Assessment Period.
    (2) The estimated award amount for the Distressed Community 
Financing Activities category will be equal to the applicable award 
percentage of the weighted value of each subcategory of Distressed 
Community Financing Activities (i.e., Consumer Loans; and Commercial 
Loans and Investments) between the Baseline Period and Assessment 
Period. The weighted value of the applicable subcategories shall be 
calculated by:
    (i) Subtracting the Baseline Period value of such subcategory from 
the Assessment Period value of such subcategory to yield a difference; 
and
    (ii) Multiplying the difference by the applicable Priority Factor 
(as set forth in the applicable NOFA).
    (3) The estimated award amount for the Service Activities category 
will be equal to the applicable award percentage of the weighted value 
of each activity type between the Baseline Period and Assessment Period. 
The weighted value of the applicable activity type shall be calculated 
by:
    (i) Subtracting the Baseline Period value of such Qualified Activity 
from the Assessment Period value of such Qualified Activity to yield a 
difference; and
    (ii) Multiplying the difference by the applicable Priority Factor 
(as set forth in the applicable NOFA).
    (d) Estimated award eligibility review. The CDFI Fund will determine 
the eligibility of each transaction for which an Applicant has applied 
for a BEA Program Award. Based upon this review, the CDFI Fund will 
calculate the actual award amount for which such Applicant is eligible.



Sec.1806.404  Selection process; actual award amounts.

    (a) Sufficient funds available to cover estimated awards. All BEA 
Program Awards are subject to the availability of funds. If the amount 
of appropriated funds available during a funding round is sufficient to 
cover all estimated award amounts for which Applicants

[[Page 798]]

are eligible, in the CDFI 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 
CDFI Fund in the manner specified in Sec.1806.403.
    (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 CDFI Fund's determination, then the CDFI Fund will select Recipients 
and determine actual award amounts based on the process described in 
paragraph (c) of this section and any established maximum dollar amount 
of awards that may be awarded for the Distressed Community Financing 
Activities subcategories, as described in the applicable NOFA.
    (c) Priority of awards. In circumstances where there are 
insufficient funds to cover estimated awards, the CDFI Fund will rank 
Applicants based on whether the Applicant is a CDFI or a non-CDFI, and 
in each category of Qualified Activity (e.g., Service Activities) 
according to the priorities described in this paragraph (c). Selections 
within each priority category will be based on the Applicants' relative 
rankings within each category, and based on whether the Applicant is a 
CDFI or a non-CDFI, 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 CDFI Applicants that engaged in CDFI Related 
Activities, followed by non-CDFI Applicants that engaged in CDFI Related 
Activities ranked in the ratio as set forth in the applicable NOFA.
    (2) Second priority. If the amount of funds available during a 
funding round is sufficient for all first priority Applicants but 
insufficient for all remaining estimated award amounts, second priority 
will be given to CDFI Applicants that engaged in Distressed Community 
Financing Activities, followed by non-CDFI Applicants that engaged in 
Distressed Community Financing Activities, ranked in the ratio as set 
forth in the applicable NOFA.
    (3) Third priority. If the amount of funds available during a 
funding round is sufficient for all first and second priority 
Applicants, but insufficient for all remaining estimated award amounts, 
third priority will be given to CDFI Applicants that engaged in Service 
Activities, followed by non-CDFI Applicants that engaged in Service 
Activities, ranked in the ratio as set forth in the applicable NOFA.
    (d) Calculating actual award amounts. The CDFI 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 CDFI Fund will 
combine the award amounts into a single BEA Program Award.
    (e) Unobligated or deobligated funds. The CDFI 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 CDFI Fund, in its sole discretion, may deny or 
limit the amount of a BEA Program Award for any reason.



Sec.1806.405  Applications for BEA Program Awards.

    (a) Notice of funding availability; applications. Applicants must 
submit applications for BEA Program Awards in accordance with this 
section and the applicable NOFA. An Applicant's application must 
demonstrate a realistic course of action to ensure that it will meet the 
requirements described in subpart D of this part within the period set 
forth in the applicable NOFA. Detailed application content requirements 
are found in the related application and applicable NOFA. The CDFI Fund 
will not disburse an award to an Applicant before it meets the 
eligibility requirements described in the applicable NOFA. The CDFI Fund 
shall

[[Page 799]]

require an Applicant to meet any additional eligibility requirements 
that the CDFI Fund deems appropriate. After receipt of an application, 
the CDFI Fund may request clarifying or technical information related to 
materials submitted as part of such application and/or to verify that 
Qualified Activities were carried out in the manner prescribed in this 
part. The CDFI Fund, in its sole discretion, shall determine whether an 
applicant fulfills the requirements set for forth in this part and the 
applicable NOFA.
    (b) Application contents. An application for a BEA Program Award 
must contain:
    (1) A completed electronic application module that reports the 
increases in Qualified Activities actually carried out during the 
Assessment Period as compared to those carried out during the Baseline 
Period. If an Applicant has merged with another institution during the 
Assessment Period, it must determine the Baseline Period amounts and 
Assessment Period amounts of the Qualified Activities of the merged 
institutions, and report the increase;
    (2) An electronic application module which includes transactions to 
be considered for award calculation purposes. The transactions will 
include Qualified Activities that were closed during the Assessment 
Period. Applicants shall describe the original amount, census tract 
served (if applicable), dates of execution, initial disbursement, and 
final disbursement of the instrument for each transaction;
    (3) Documentation of Qualified Activities that meets the required 
thresholds and conditions described in Sec.1806.402(f) and the 
applicable NOFA;
    (4) Information necessary for the CDFI Fund to complete its 
environmental review requirements pursuant to part 1815 of this chapter;
    (5) Certifications, as described in the applicable NOFA and BEA 
Program Award application, that the information provided to the CDFI 
Fund is true and accurate 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 that engaged in Service Activities, 
or Distressed Community Financing Activities, the Applicant must 
confirm, by submitting documentation as described in the applicable NOFA 
and BEA Program application, the Service Activities or Distressed 
Community Financing Activities were provided to:
    (i) Eligible Residents; or
    (ii) A business located in a 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, as described in the applicable NOFA and BEA 
Program application; and
    (8) Any other information requested by the CDFI Fund, or specified 
by the CDFI Fund in the applicable NOFA or the BEA Program application, 
in order to document or otherwise assess the validity of information 
provided by the Applicant to the CDFI Fund.



              Subpart E_Terms and Conditions of Assistance



Sec.1806.500  Award Agreement; sanctions.

    (a) General. After the CDFI Fund selects a Recipient, the CDFI Fund 
and the Recipient will enter into an Award Agreement. In addition to the 
requirements of the Uniform Administrative Requirements, the Award 
Agreement will require that the Recipient:
    (1) Must carry out its Eligible Activities in accordance with 
applicable law, the approved BEA Program application, and all other 
applicable requirements;
    (2) Must comply with such other terms and conditions that the CDFI 
Fund may establish;
    (3) Will not receive any BEA Program Award payment until the CDFI 
Fund has determined that the Recipient has fulfilled all applicable 
requirements;
    (4) Must comply with performance goals that have been established by 
the CDFI Fund. Such performance goals will include measures that require 
the Recipient to use its BEA Program Award funds for Eligible 
Activities; and

[[Page 800]]

    (5) Must comply with all data collection and reporting requirements. 
Each Recipient must submit to the CDFI Fund such information and 
documentation that will permit the CDFI Fund to review the Recipient's 
progress in satisfying the terms and conditions of its Award Agreement, 
including:
    (i) Annual report. Each Recipient shall submit to the CDFI Fund at 
least annually and within 90 days after the end of each year of the 
Recipient's performance period, an annual report that will provide data 
that, among other things, demonstrates the Recipient's compliance with 
its performance goals (including a description of any noncompliance), 
its uses of the BEA Program Award funds, and the impact of the BEA 
Program and the CDFI industry. Recipients are responsible for the timely 
and complete submission of the annual report.
    (ii) Financial statement. A Recipient is not required to submit its 
financial statement to the CDFI Fund. The CDFI Fund may obtain the 
necessary information from publicly available sources.
    (b) Sanctions. In the event of any fraud, misrepresentation, or 
noncompliance with the terms of the Award Agreement by the Recipient, 
the CDFI Fund may terminate, reduce, or recapture the award, bar the 
Recipient and/or its Affiliates from applying for an award from the CDFI 
Fund for a period to be decided by the CDFI Fund in its sole discretion, 
and pursue any other available legal remedies.
    (c) Compliance with other CDFI Fund awards. In the event that an 
Applicant, Recipient, or its Subsidiary or Affiliate is not in 
compliance, as determined by the CDFI Fund, with the terms and 
conditions of any CDFI Fund award, the CDFI Fund may, in its sole 
discretion, bar said Applicant or Recipient from applying for future BEA 
Program Awards or withhold payment (either initial or subsequent) of BEA 
Program Award funds.
    (d) Notice. Prior to imposing any sanctions pursuant to this section 
or an Award Agreement, the CDFI Fund will provide the Recipient with 
written notice of the proposed sanction and an opportunity to respond. 
Nothing in this section, however, will provide a Recipient with the 
right to any formal or informal hearing or comparable proceeding not 
otherwise required by law.



Sec.1806.501  Compliance with government requirements.

    In carrying out its responsibilities pursuant to an Award Agreement, 
the Recipient must comply with all applicable Federal, State, and local 
laws, regulations (including but not limited to the Uniform 
Administrative Requirements, ordinances, and Executive Orders).



Sec.1806.502  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.1806.503  Books of account, records, and government access.

    (a) A Recipient 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 CDFI 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 
Recipient'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.
    (b) The Award Agreement provides that the provisions of the Act, 
this part, and the Award Agreement are 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 (b) precludes the CDFI Fund from directly enforcing 
the Award Agreement as provided for under the terms of the Act.

[[Page 801]]

    (c) The CDFI Fund will notify the Appropriate Federal Banking Agency 
before imposing any sanctions on a Recipient that is examined by or 
subject to the reporting requirements of that agency. The CDFI Fund will 
not impose a sanction described in Sec.1806.500(b) if the Appropriate 
Federal Banking Agency, in writing, not later than 30 calendar days 
after receiving notice from the CDFI 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 Recipient; or
    (ii) Impede or interfere with an enforcement action against that 
Recipient by the Appropriate Federal Banking Agency;
    (3) Proposes a comparable alternative action; and
    (4) Specifically explains:
    (i) The basis for the determination under paragraph (c)(2) of this 
section and, if appropriate, provides documentation to support the 
determination; and
    (ii) How the alternative action suggested pursuant to paragraph 
(c)(3) of this section would be as effective as the sanction proposed by 
the CDFI Fund in securing compliance and deterring future noncompliance.
    (d) Prior to imposing any sanctions pursuant to this section or an 
Award Agreement, the CDFI Fund shall, to the maximum extent practicable, 
provide the Recipient with written notice of the proposed sanction and 
an opportunity to comment. Nothing in this section, however, shall 
provide a Recipient to any formal or informal hearing or comparable 
proceeding not otherwise required by law.



Sec.1806.504  Retention of records.

    A Recipient must comply with all record retention requirements as 
set forth in the Uniform Administrative Requirements.



PART 1807_CAPITAL MAGNET FUND--Table of Contents



                      Subpart A_General Provisions

Sec.
1807.100 Purpose.
1807.101 Summary.
1807.102 Relationship to other CDFI Fund programs.
1807.103 Recipient not instrumentality.
1807.104 Definitions.
1807.105 Waiver authority.
1807.106 OMB control number.
1807.107 Applicability of regulations for CMF Awards.

                          Subpart B_Eligibility

1807.200 Applicant eligibility.

     Subpart C_Eligible Purposes; Eligible Activities; Restrictions

1807.300 Eligible purposes.
1807.301 Eligible activities.
1807.302 Restrictions on use of CMF Award.
1807.303 Authorized uses of Program Income.

              Subpart D_Qualification as Affordable Housing

1807.400 Affordable Housing--general.
1807.401 Affordable Housing--Rental Housing.
1807.402 Affordable Housing--Homeownership.

     Subpart E_Leveraged Costs; Eligible Project Costs; Commitment 
                              Requirements

1807.500 Leveraged Costs; Eligible Project Costs.
1807.501 Commitments; Payments.
1807.502 CMF Award limits.
1807.503 Projection Completion; Property standards.

Subpart F_Tracking Funds; Uniform Administrative Requirements; Nature of 
                                  Funds

1807.600 Tracking funds.
1807.601 Uniform Administrative Requirements.
1807.602 Nature of funds.

          Subpart G_Notice of Funds Availability; Applications

1807.700 Notice of funds availability.

           Subpart H_Evaluation and Selection of Applications

1807.800 Evaluation and selection--general.
1807.801 Evaluation of applications.

[[Page 802]]

               Subpart I_Terms and Conditions of CMF Award

1807.900 Assistance agreement.
1807.901 Payment of funds.
1807.902 Data collection and reporting.
1807.903 Compliance with government requirements.
1807.904 Lobbying restrictions.
1807.905 Criminal provisions.
1807.906 CDFI Fund deemed not to control.
1807.907 Limitation on liability.
1807.908 Fraud, waste and abuse.

    Authority: 12 U.S.C. 4569.

    Source: 81 FR 6437, Feb. 8, 2016, unless otherwise noted.



                      Subpart A_General Provisions



Sec.1807.100  Purpose.

    The purpose of the Capital Magnet Fund (CMF) is to attract private 
capital for and increase investment in Affordable Housing Activities and 
related Economic Development Activities.



Sec.1807.101  Summary.

    (a) Through the CMF, the CDFI Fund competitively awards grants to 
CDFIs and qualified Nonprofit Organizations to leverage dollars for:
    (1) The Development, Preservation, Rehabilitation or Purchase of 
Affordable Housing primarily for Low-Income Families; and
    (2) Financing Economic Development Activities.
    (b) The CDFI Fund will select Recipients to receive CMF Awards 
through a merit-based, competitive application process. CMF Awards may 
only be used for eligible uses set forth in subpart C of this part. Each 
Recipient will enter into an Assistance Agreement that will require it 
to leverage the CMF Award amount and abide by other terms and conditions 
pertinent to any assistance received under this part.



Sec.1807.102  Relationship to other CDFI Fund programs.

    Restrictions on applying for, receiving, and using CMF Awards in 
conjunction with awards under other programs administered by the CDFI 
Fund (including, but not limited to, the Bank Enterprise Award Program, 
the CDFI Program, the CDFI Bond Guarantee Program, the Native American 
CDFI Assistance (NACA) Program, and the New Markets Tax Credit Program) 
are as set forth in the applicable Notice of Funds Availability, Notice 
of Guarantee Availability, or Notice of Allocation Availability.



Sec.1807.103  Recipient not instrumentality.

    No Recipient shall be deemed to be an agency, department, or 
instrumentality of the United States.



Sec.1807.104  Definitions.

    For the purpose of this part:
    Act means the Housing and Economic Recovery Act of 2008, as amended, 
Public Law 110-289, section 1131;
    Affiliate means any entity that Controls, is Controlled by, or is 
under common Control with, an entity;
    Affordable Housing means housing that meets the requirements set 
forth in subpart D of this part;
    Affordable Housing Activities means the Development, Preservation, 
Rehabilitation, and/or Purchase of Affordable Housing;
    Affordable Housing Fund means a revolving loan, grant or investment 
fund that is:
    (1) Managed by the Recipient; and
    (2) Uses its capital to finance Affordable Housing Activities;
    Applicant means any entity submitting an application for a CMF 
Award;
    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;
    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;
    Assistance Agreement means a formal, written agreement between the 
CDFI Fund and a Recipient, which agreement specifies the terms and 
conditions of assistance under this part;
    Capital Magnet Fund (or CMF) means the program authorized by the Act 
and implemented under this part;
    CMF Award means the financial assistance in the form of a grant made 
by the CDFI Fund to a Recipient pursuant to this part;

[[Page 803]]

    Certified Community Development Financial Institution (or Certified 
CDFI) means an entity that has been determined by the CDFI Fund to meet 
the certification requirements set forth in 12 CFR 1805.201;
    Committed means that the Recipient is able to demonstrate, in 
written form and substance that is acceptable to the CDFI Fund, a 
commitment for use of CMF Award, as set forth in Sec.1807.501;
    Community Development Financial Institutions Fund (or CDFI Fund) 
means the Community Development Financial Institutions Fund, the U.S. 
Department of the Treasury, established pursuant to the Community 
Development Banking and Financial Institutions Act of 1994, as amended, 
12 U.S.C. 4701 et seq.;
    Community Service Facility means the physical structure in which 
service programs for residents or service programs for the broader 
community (including, but not limited to, health care, childcare, 
educational programs including literacy and after school programs, job 
training, food and nutrition services, cultural programs, and/or social 
services) operate that, In Conjunction With Affordable Housing 
Activities, implements a Concerted Strategy to stabilize or revitalize a 
Low-Income Area or Underserved Rural Area;
    Concerted Strategy means a formal planning document that evidences 
the connection between Affordable Housing Activities and Economic 
Development Activities. Such documents include, but are not limited to, 
a comprehensive, consolidated, or redevelopment plan, or some other 
local or regional planning document adopted or approved by the 
jurisdiction;
    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;
    Depository Institution Holding Company means a bank holding company 
or a savings and loan holding company as each are defined in the Federal 
Deposit Insurance Act, 12 U.S.C. 1813(w);
    Development means any combination of the following Project 
activities: Land acquisition, demolition of existing facilities, and 
construction of new facilities, which may include site improvement, 
utilities development and rehabilitation of utilities, necessary 
infrastructure, utility services, conversion, and other related 
activities resulting in Affordable Housing;
    Direct Administrative Expenses means direct costs incurred by the 
Recipient, related to the financing of the Project as described in 2 CFR 
200.413 of the Uniform Administrative Requirements;
    Economic Development Activity means the development, preservation, 
acquisition and/or rehabilitation of Community Service Facilities and/or 
other physical structures in which neighborhood-based businesses operate 
which, In Conjunction With Affordable Housing Activities, implements a 
Concerted Strategy to stabilize or revitalize a Low-Income Area or 
Underserved Rural Area;
    Effective Date means the date that the Assistance Agreement is 
effective; such date is determined by the CDFI Fund after the Recipient 
has returned an executed, original Assistance Agreement, along with all 
required supporting documentation, including the opinion of counsel, if 
required;
    Eligible-Income means:
    (1) Having, in the case of owner-occupied Housing units, annual 
income not in excess of 120 percent of the area median income adjusted 
for Family size in the same manner as HUD makes these adjustments for 
its other published income limits; and
    (2) Having, in the case of rental Housing units, annual income not 
in excess of 120 percent of the area median income, adjusted for Family 
size in the same manner as HUD makes these adjustments for its published 
income limits;
    Eligible Project Costs means Leveraged Costs plus those costs funded 
directly by a CMF Award;

[[Page 804]]

    Extremely Low-Income means:
    (1) Having, in the case of owner-occupied Housing units, income not 
in excess of 30 percent of the area median income, adjusted for Family 
size, as determined by HUD, except that HUD may establish income 
ceilings higher or lower than 30 percent of the median for the area on 
the basis of HUD findings that such variations are necessary because of 
prevailing levels of construction costs or fair market rents, or 
unusually high or low Family incomes and
    (2) Having, in the case of rental Housing units, income not in 
excess of 30 percent of the area median income, adjusted for Family 
size, as determined by HUD, except that HUD may establish income 
ceilings higher or lower than 30 percent of the median for the area on 
the basis of HUD findings that such variations are necessary because of 
prevailing levels of construction costs or fair market rents, or 
unusually high or low Family incomes;
    Family or Families means households that reside within the 
boundaries of the United Sates (which shall encompass any State of the 
United States, the District of Columbia or any territory of the United 
States, including Puerto Rico, Guam, American Samoa, the U. S. Virgin 
Islands, and the Northern Mariana Islands);
    HOME Program means the HOME Investment Partnership Program 
established by the HOME Investment Partnerships Act under title II of 
the Cranston-Gonzalez National Affordable Housing Act, as amended, 42 
U.S.C. 12701 et seq.;
    Homeownership means ownership in fee simple title interest in one- 
to four-unit Housing or in a condominium unit, or equivalent form of 
ownership approved by the CDFI Fund. The Recipient must determine 
whether ownership or membership in a cooperative or mutual housing 
project constitutes Homeownership under State law. The ownership 
interest is subject to the following additional requirements:
    (1) Except as otherwise provided in paragraphs (1)(i), (ii), and 
(iii) of this definition, the land may be owned in fee simple or the 
homeowner may have a 99-year ground lease;
    (i) For Housing located on Indian trust or restricted Indian lands, 
the ground lease must be for 50 years or more;
    (ii) For Housing located in Guam, the Northern Mariana Islands, the 
U. S. Virgin Islands, and American Samoa, the ground lease must be 40 
years or more;
    (iii) For manufactured housing, the ground lease must be for a 
minimum period of 10 years or such other applicable time period 
regarding location set forth in this definition of Homeownership at the 
time of purchase by the homeowner;
    (2) Ownership interest may not merely consist of a right to 
possession under a contract for deed, installment contract, or land 
contract (pursuant to which the deed is not given until the final 
payment is made);
    (3) Ownership interest may only be subject to the restrictions on 
resale permitted under the Assistance Agreement and this part; 
mortgages, deeds of trust, or other liens or instruments securing debt 
on the property; or any other restrictions or encumbrances that do not 
impair the good and marketable nature of title to the ownership 
interest;
    Housing means Single-family and Multi-family residential units 
including, but not limited to, manufactured housing and manufactured 
housing lots, permanent housing for disabled and/or homeless persons, 
transitional housing, single-room occupancy housing, and group homes. 
Housing also includes elder cottage housing opportunity (ECHO) units 
that are small, free- standing, barrier-free, energy-efficient, 
removable, and designed to be installed adjacent to existing single-
family dwellings. Housing does not include emergency shelters (including 
shelters for disaster victims) or facilities such as nursing homes, 
convalescent homes, hospitals, residential treatment facilities, 
correctional facilities, halfway houses, housing for students, or 
dormitories (including farmworker dormitories);
    HUD means the Department of Housing and Urban Development 
established under the Department of Housing and Urban Development Act of 
1965, 42 U.S.C. 3532 et seq.;

[[Page 805]]

    In Conjunction With Affordable Housing means:
    (1) Physically proximate to; and
    (2) Reasonably available to residents of Affordable Housing that is 
subject to Affordable Housing Activities. For a Metropolitan Area, In 
Conjunction With means located within the same census tract or within 1 
mile of such Affordable Housing. For a Non-Metropolitan Area, In 
Conjunction With means located within the same county, township, or 
village, or within 10 miles of such Affordable Housing;
    Insured CDFI means a Certified CDFI that is an Insured Depository 
Institution or an Insured Credit Union;
    Insured Credit Union means any credit union, the member accounts of 
which are insured by the National Credit Union Share Insurance Fund by 
the National Credit Union Administration pursuant to authority granted 
in 12 U.S.C. 1783 et seq.;
    Insured Depository Institution means any bank or thrift, the 
deposits of which are insured by the Federal Deposit Insurance 
Corporation as determined in 12 U.S.C. 1813(c)(2);
    Investment Period means the period beginning with the Effective Date 
and ending on the fifth year anniversary of the Effective Date, or such 
other period as may be established by the CDFI Fund in the Assistance 
Agreement;
    Leveraged Costs means costs for Affordable Housing Activities and 
Economic Development Activities that exceed the dollar amount of the CMF 
Award, as further described in Sec.1807.500;
    Loan Guarantee means the Recipient's use of CMF Award to support an 
agreement to indemnify the holder of a loan all or a portion of the 
unpaid principal balance in case of default by the borrower. The 
proceeds of the loan that is guaranteed with the CMF Award must be used 
for Affordable Housing Activities and/or Economic Development 
Activities;
    Loan Loss Reserves means proceeds from the CMF Award that the 
Recipient will set aside in the form of cash reserves, or through 
accounting-based accrual reserves, to cover losses on loans, accounts, 
and notes receivable for Affordable Housing Activities and/or Economic 
Development Activities, or for related purposes that the CDFI Fund deems 
appropriate;
    Low-Income means:
    (1) Having, in the case of owner-occupied Housing units, income not 
in excess of 80 percent of area median income, adjusted for Family size, 
as determined by HUD, except that HUD may establish income ceilings 
higher or lower than 80 percent of the median for the area on the basis 
of HUD findings that such variations are necessary because of prevailing 
levels of construction costs or fair market rents, or unusually high or 
low Family incomes; and
    (2) Having, in the case of rental Housing units, income not in 
excess of 80 percent of area median income, adjusted for Family size, as 
determined by HUD, except that HUD may establish income ceilings higher 
or lower than 80 percent of the median for the area on the basis of HUD 
findings that such variations are necessary because of prevailing levels 
of construction costs or fair market rents, or unusually high or low 
Family incomes;
    Low-Income Area or LIA means a census tract or block numbering area 
in which the median income does not exceed 80 percent of the median 
income for the area in which such census tract or block numbering area 
is located. With respect to a census tract or block numbering area 
located 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. 
In the case of a census tract or block numbering area located 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;
    Low Income Housing Credits (or LIHTCs) means credits against income 
tax under section 42 of the Internal Revenue Code of 1986, as amended, 
26 U.S.C. 42;
    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

[[Page 806]]

Executive Order 10253 (3 CFR, 1949-1953 Comp., p. 758), as amended;
    Multi-family housing means residential properties consisting of five 
or more dwelling units, such as a condominium unit, cooperative unit, 
apartment, or townhouse;
    Non-Metropolitan Area means counties that are designated as Non-
Metropolitan Counties by the Office of Management and Budget (OMB) 
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, and as made 
available by the CDFI Fund for a specific application funding round;
    Nonprofit Organization means any corporation, trust, association, 
cooperative, or other organization that is:
    (1) Designated as a nonprofit or not-for-profit entity under the 
laws of the organization's State of formation; and
    (2) Exempt from Federal income taxation pursuant to the Internal 
Revenue Code of 1986;
    Participating Jurisdiction means a jurisdiction designated by HUD as 
such under the HOME Program in accordance with the requirements of 24 
CFR 92.105;
    Payment means the transmission of CMF Award dollars from the CDFI 
Fund to the Recipient;
    Preservation means:
    (1) Activities to refinance, with or without Rehabilitation, Single-
family housing or Multi-family housing (rental) mortgages that, at the 
time of refinancing, are subject to affordability and use restrictions 
under the LIHTC statute or under State or Federal affordable housing 
programs, including but not limited to, the HOME Program, properties 
with Federal project-based rental assistance, or the USDA rental housing 
programs, hereinafter referred to as ``similar State or Federal 
affordable housing programs,'' where such refinancing has the effect of 
extending the term of any existing affordability and use restrictions on 
the properties by a minimum 10 years or as otherwise specified in the 
Assistance Agreement;
    (2) Activities to refinance and acquire Single-family housing or 
Multi-family housing that, at the time of refinancing or acquisition, 
were subject to affordability and use restrictions under similar State 
or Federal affordable housing programs or under the LIHTC statute, by 
the former tenants of such properties, where such refinancing has the 
effect of extending the term of any existing affordability and use 
restrictions on the properties by a minimum 10 years or as otherwise 
specified in the Assistance Agreement;
    (3) Activities to refinance the mortgages of owner-occupied, Single-
family housing that, at the time of refinancing, are subject to 
affordability and use restrictions under similar State or Federal 
affordable housing programs, where such refinancing has the effect of 
extending the term of any existing affordability and use restrictions on 
the properties by a minimum 10 years or as otherwise specified in the 
Assistance Agreement;
    (4) Activities to acquire Single-family housing or Multi-family 
housing, with or without Rehabilitation, with the commitment to subject 
the properties to the affordability qualifications set forth in subpart 
D of this part; or
    (5) Activities to refinance, with or without Rehabilitation, Single-
family housing or Multi-family housing, with the commitment to subject 
the properties to the affordability qualifications set forth in subpart 
D of this part;
    Program Income means gross income, as further described in 2 CFR 
part 1000;
    Project means the Affordable Housing Activity and/or Economic 
Development Activity that is financed with the CMF Award;
    Project Completion means that all of the requirements set forth at 
Sec.1807.503 for a Project have been met;
    Purchase means to provide direct financing to a Family for purposes 
of Homeownership. Before the Recipient provides any financing to a 
Family for Homeownership purposes, the Recipient must verify that the 
Family and the Single-family housing meet the qualifications set forth 
in subparts D and E of this part;
    Recipient means an Applicant selected by the CDFI Fund to receive a 
CMF Award pursuant to this part;
    Rehabilitation means any repairs and/or capital improvements that 
contribute to the long-term preservation,

[[Page 807]]

current building code compliance, habitability, sustainability, or 
energy efficiency of Affordable Housing;
    Revolving Loan Fund means a pool of funds managed by the Applicant 
or the Recipient wherein repayments on loans for Affordable Housing 
Activities or Economic Development Activities are used to refinance 
additional loans;
    Risk-Sharing Loan means loans for Affordable Housing Activities and/
or Economic Development Activities in which the risk of borrower default 
is shared by the Applicant or Recipient with other lenders (e.g., 
participation loans);
    Service Area means the geographic area in which the Applicant 
proposes to use the CMF Award, and the geographic area approved by the 
CDFI Fund in which the Recipient must use the CMF Award as set forth in 
its Assistance Agreement;
    Single-family housing means a one- to four-Family residence, a 
condominium unit, a cooperative unit, a combination of manufactured 
housing and lot, or a manufactured housing lot;
    State means the states of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the 
Northern Mariana Island, Guam, the U.S. Virgin Islands, American Samoa, 
the Trust Territory of the Pacific Islands, and any other territory of 
the United States;
    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;
    Subsidiary means any company that is owned or Controlled directly or 
indirectly by another company;
    Underserved Rural Area means:
    (1) A Non-Metropolitan Area that:
    (i) Qualifies as a Low-Income Area; and
    (ii) Is experiencing economic distress evidenced by 30 percent or 
more of resident households with one or more of these four housing 
conditions in the most recent census for which data are available:
    (A) Lacking complete plumbing;
    (B) Lacking complete kitchen;
    (C) Paying 30 percent or more of income for owner costs or tenant 
rent; or
    (D) Having more than 1 person per room;
    (2) An area as specified in the applicable NOFA and/or Assistance 
Agreement;
    Uniform Administrative Requirements means the Uniform Administrative 
Requirements, Cost Principles, and Audit Requirements for Federal Awards 
(2 CFR part 1000);
    Very Low-Income means:
    (1) Having, in the case of owner-occupied Housing, income not 
greater than 50 percent of the area median income with adjustments for 
Family size, as determined by HUD, except that HUD may establish income 
ceilings higher or lower than 50 percent of the median for the area on 
the basis of HUD findings that such variations are necessary because of 
prevailing levels of construction costs or fair market rents, or 
unusually high or low Family incomes; and
    (2) Having, in the case of rental Housing, income not greater than 
50 percent of the area median income, with adjustments for Family size, 
as determined by HUD, except that HUD may establish income ceilings 
higher or lower than 50 percent of the median for the area on the basis 
of HUD findings that such variations are necessary because of prevailing 
levels of construction costs or fair market rents, or unusually high or 
low Family incomes.



Sec.1807.105  Waiver authority.

    The CDFI 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 CDFI 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 CDFI Fund will 
publish notification of granted waivers in the Federal Register.



Sec.1807.106  OMB control number.

    The OMB control number for the CMF Award application is 1559-0036. 
The compliance date requirements for the collection of information in 
Sec.1807.902 is stayed indefinitely, pending

[[Page 808]]

Office of Management and Budget approval and assignment of an OMB 
control number.



Sec.1807.107  Applicability of regulations for CMF Awards.

    As of February 8, 2016, the regulations of this part are applicable 
for CMF Awards made pursuant to Notices of Funds Availability published 
after February 8, 2016.



                          Subpart B_Eligibility



Sec.1807.200  Applicant eligibility.

    (a) General requirements. An Applicant will be deemed eligible to 
apply for a CMF Award if it is:
    (1) A Certified CDFI. An entity may meet the requirements described 
in this paragraph (a)(1) if it is:
    (i) A Certified CDFI, as set forth in 12 CFR 1805.201,
    (ii) A Certified CDFI that has been in existence as a legally formed 
entity as set forth in the applicable Notice of Funds Availability 
(NOFA); or
    (2) A Nonprofit Organization having as one of its principal purposes 
the development or management of affordable housing. An entity may meet 
the requirements described in this paragraph (a)(2) if it:
    (i) Has been in existence as a legally formed entity as set forth in 
the applicable NOFA;
    (ii) Demonstrates, through articles of incorporation, by-laws, or 
other board-approved documents, that the development or management of 
affordable housing are among its principal purposes; and
    (iii) Can demonstrate that a certain percentage, set forth in the 
applicable NOFA, of the Applicant's total assets are dedicated to the 
development or management of affordable housing.
    (b) Eligibility verification. An Applicant shall demonstrate that it 
meets the eligibility requirements described in paragraph (a)(2) of this 
section by providing information described in the application, NOFA, 
and/or supplemental information, as may be requested by the CDFI Fund. 
For an Applicant seeking eligibility under paragraph (a)(1) of this 
section, the CDFI Fund will verify that the Applicant is a Certified 
CDFI during the application eligibility review.



     Subpart C_Eligible Purposes; Eligible Activities; Restrictions



Sec.1807.300  Eligible purposes.

    Each Recipient must use its CMF Award for the eligible activities 
described in Sec.1807.301 so long as such eligible activities increase 
private capital for and increase investment in:
    (a) Development, Preservation, Rehabilitation, and/or Purchase of 
Affordable Housing for primarily Extremely Low-Income, Very Low-Income, 
and Low-Income Families; and/or
    (b) Economic Development Activities.
    (1) Economic Development Activity must support Affordable Housing;
    (2) The Recipient may undertake Economic Development Activity In 
Conjunction With Affordable Housing Activities that are undertaken by 
parties other than the Recipient;
    (3) If the Recipient uses its CMF Award to fund an Economic 
Development Activity In Conjunction With Affordable Housing Activity, it 
must track the resulting Affordable Housing, as set forth in subpart D 
of this part, to the extent the Affordable Housing was financed by the 
CMF Award. For the purposes of meeting the 10-year affordability period 
requirement, Recipients are not required to track Affordable Housing 
that was financed by sources other than the CMF Award.



Sec.1807.301  Eligible activities.

    The Recipient must use its CMF Award to finance and support 
Affordable Housing Activities and/or Economic Development Activities 
through the following eligible activities:
    (a) To capitalize Loan Loss Reserves;
    (b) To capitalize a Revolving Loan Fund;
    (c) To capitalize an Affordable Housing Fund;
    (d) To capitalize a fund to support Economic Development Activities;
    (e) To make Risk-Sharing Loans; and
    (f) To provide Loan Guarantees.

[[Page 809]]



Sec.1807.302  Restrictions on use of CMF Award.

    (a) The Recipient may not use its CMF Award for the following:
    (1) Political activities;
    (2) Advocacy;
    (3) Lobbying, whether directly or through other parties;
    (4) Counseling services (including homebuyer or financial 
counseling);
    (5) Travel expenses;
    (6) Preparing or providing advice on tax returns;
    (7) Emergency shelters (including shelters for disaster victims);
    (8) Nursing homes;
    (9) Convalescent homes;
    (10) Residential treatment facilities;
    (11) Correctional facilities; or
    (12) Student dormitories.
    (b) The Recipient shall not use the CMF Award to finance or support 
Projects that include:
    (1) The operation of any private or commercial golf course, country 
club, massage parlor, hot tub facility, suntan facility, racetrack or 
other facility used for gambling, or any store the principal business of 
which is the sale of alcoholic beverages for consumption off premises; 
or
    (2) Farming activities (within the meaning of Internal Revenue Code 
(IRC) section 2032A(e)(5)(A) or (B)), if, as of the close of the taxable 
year of the taxpayer conducting such trade or business, the sum of the 
aggregate unadjusted bases (or, if greater, the fair market value) of 
the assets owned by the taxpayer that are used in such a trade or 
business, and the aggregate value of the assets leased by the taxpayer 
that are used in such a trade or business, exceeds $500,000.
    (c) In any given application round, no more than 30 percent of a CMF 
Award may be used for Economic Development Activities.
    (d) Any Recipient that uses its CMF Award for a Loan Guarantee or 
Loan Loss Reserves must ensure the underlying loan(s) are made to 
support Affordable Housing Activities and Economic Development 
Activities. The Affordable Housing resulting from the Recipient's Loan 
Guarantee or Loan Loss Reserve shall be tracked for 10 years, as set 
forth in subpart D of this part.
    (e) If loans that are made pursuant to a Loan Guarantee or Loan Loss 
Reserves are repaid during the Investment Period, the Recipient must use 
the repaid funds for Loan Guarantees or Loan Loss Reserves targeted to 
the income population (Extremely Low-Income, Very Low-Income, Low-
Income) set forth in the Recipient's Assistance Agreement, for the 
duration of the Investment Period.
    (f) The Recipient may not use more than five (5) percent of its CMF 
Award for Direct Administrative Expenses.



Sec.1807.303  Authorized uses of Program Income.

    (a) Program Income earned in the form of principal and equity 
repayments must be used by the Recipient for the approved, eligible CMF 
Award uses as further set forth in the Assistance Agreement for the 
duration of the Investment Period.
    (b) Program Income earned in the form of interest payments, and all 
other forms of Program Income (except for that which is earned as 
described in paragraph (a) of this section, must be used by the 
Recipient as set forth in the Assistance Agreement and in accordance 
with 2 CFR part 1000.



              Subpart D_Qualification as Affordable Housing



Sec.1807.400  Affordable Housing--general.

    Each Recipient that uses its CMF Award for Affordable Housing 
Activities must ensure that 100 percent of Eligible Project Costs are 
attributable to Affordable Housing; meaning, that they comply with the 
affordability qualifications set forth in this subpart for Eligible-
Income Families. Further, as a subset of said 100 percent, greater than 
50 percent of the Eligible Project Costs must be attributable to 
Affordable Housing that comply with the affordability qualifications set 
forth in this subpart for Low-Income, Very Low-Income, or Extremely Low-
Income Families, or as further set forth in the applicable NOFA and/or 
Assistance Agreement.

[[Page 810]]



Sec.1807.401  Affordable Housing--Rental Housing.

    To qualify as Affordable Housing, each rental Multi-family housing 
Project financed with CMF Award must have at least 20 percent of the 
units occupied by any combination of Low-Income, Very Low-Income, or 
Extremely Low-Income Families and must comply with the rent limits set 
forth herein. However, the CDFI Fund may require a greater percentage of 
the units per Project to be income-targeted and/or require a specific 
targeted income commitment in any given application round, as set forth 
in the NOFA and Assistance Agreement for that application round.
    (a) Rent limitation. The gross rent limits for Affordable Housing 
are determined under the provisions in IRC section 42(g)(2). In this 
determination, if this part imposes an income restriction on a unit that 
is greater than 60 percent of area median income, adjusted for Family 
size, then the provisions of IRC section 42(g)(2) are applied as if that 
income restriction on the unit satisfied IRC section 42(g)(1). The 
maximum rent is a rent that does not exceed:
    (1) For an Eligible-Income Family, 30 percent of the annual income 
of a Family whose annual income equals 120 percent of the area median 
income, with adjustments for number of bedrooms in the unit, as set 
forth in IRC section 42(g)(2).
    (2) For a Low-Income Family, 30 percent of the annual income of a 
Family whose annual income equals 80 percent of the area median income, 
with adjustments for number of bedrooms in the unit, as set forth in IRC 
section 42(g)(2). If the unit or tenant receives Federal or State rental 
subsidy, and the Family pays as a contribution towards rent not more 
than 30 percent of the Family's income, the maximum rent (i.e., tenant 
contribution plus rental subsidy) is the rent allowable under the 
Federal or State rental subsidy program;
    (3) For a Very Low-Income Family, 30 percent of the annual income of 
a Family whose annual income equals 50 percent of the area median 
income, with adjustments for number of bedrooms in the unit as described 
in paragraph (a) of this section. If the unit or tenant receives Federal 
or State rental subsidy, and the Family pays as a contribution towards 
rent not more than 30 percent of the Family's income, the maximum rent 
(i.e., tenant contribution plus rental subsidy) is the rent allowable 
under the Federal or State rental subsidy program; or
    (4) For an Extremely Low-Income Family, 30 percent of the annual 
income of a Family whose annual income equals 30 percent of the area 
median income, with adjustments for number of bedrooms in the unit as 
described in paragraph (a) of this section. If the unit or tenant 
receives Federal or State rental subsidy, and the Family pays as a 
contribution toward rent not more than 30 percent of the Family's 
income, the maximum rent (i.e., tenant contribution plus rental subsidy) 
is the rent allowable under the Federal or State rental subsidy program.
    (b) Nondiscrimination against rental assistance subsidy holders. The 
Recipient shall require that the owner of a rental unit cannot refuse to 
lease the unit to a Section 8 Program certificate or voucher holder (24 
CFR part 982, Section 8 Tenant-Based Assistance: Unified Rule for 
Tenant-Based Assistance under the Section 8 Rental Certificate Program 
and the Section 8 Rental Voucher Program) or to the holder of a 
comparable document evidencing participation in a HOME tenant-based 
rental assistance program because of the status of the prospective 
tenant as a holder of such certificate, voucher, or comparable HOME 
tenant-based assistance document.
    (c) Initial rent schedule and utility allowances. The Recipient 
shall ensure that utility allowances and submetering rules are 
consistent with regulations concerning utility allowances and 
submetering in buildings that are subject to gross rent restrictions 
under IRC section 42(g)(2).
    (d) Periods of affordability. Housing under this section must meet 
the affordability requirements for not less than 10 years, beginning 
after Project Completion and at initial occupancy. The affordability 
requirements apply without regard to the term of any loan

[[Page 811]]

or mortgage or the transfer of ownership and must be imposed by deed 
restrictions, covenants running with the land, or other recordable 
mechanisms. Other recordable mechanisms must be approved in writing and 
in advance by the CDFI Fund. The affordability restrictions may 
terminate upon foreclosure or transfer in lieu of foreclosure. However, 
the affordability restrictions shall be revived according to the 
original terms if, during the original affordability period, the owner 
of record before the foreclosure, or deed in lieu of foreclosure, or any 
entity that includes the former owner or those with whom the former 
owner has or had family or business ties, obtains an ownership interest 
in the Project.
    (e) Subsequent rents during the affordability period. Any increase 
in rent for a CMF-financed unit requires that tenants of those units be 
given at least 30 days prior written notice before the implementation of 
the rent increase. Regardless of changes in annual rents and in median 
income over time, the CMF rents for a Project are not required to be 
lower than the CMF rent limits for the Project in effect at the time 
when the Project is Committed for use.
    (f) Tenant income determination. (1) Each year during the period of 
affordability, the tenant's income shall be re-examined; tenant income 
examination and verification is ultimately the responsibility of the 
Recipient. Annual income shall include income from all household 
members. The Recipient must require the Project owner to obtain 
information on rents and occupancy of Affordable Housing financed or 
assisted with a CMF Award in order to demonstrate compliance with this 
section.
    (2) One of the following two definitions of ``annual income'' must 
be used to determine whether a Family is income-eligible:
    (i) Adjusted gross income as defined for purposes of reporting under 
Internal Revenue Service (IRS) Form 1040 series for individual Federal 
annual income tax purposes; or
    (ii) ``Annual Income'' as defined at 24 CFR 5.609 (except that when 
determining the income of a homeowner for an owner-occupied 
Rehabilitation Project, the value of the homeowner's principal residence 
may be excluded from the calculation of Net Family Assets, as defined in 
24 CFR 5.603).
    (3) Although either of the above two definitions of ``annual 
income'' is permitted, in order to calculate adjusted income, exclusions 
from income set forth at 24 CFR 5.611 shall be applied.
    (4) The CDFI Fund reserves the right to deem certain government 
programs, under which a Low-Income Family is a recipient, as income 
eligible for purposes of meeting the tenant income requirements under 
this section.
    (g) Over-income tenants. (1) CMF-financed or assisted units continue 
to qualify as Affordable Housing despite a temporary noncompliance 
caused by increases in the incomes of existing tenants if actions 
satisfactory to the CDFI Fund are being taken to ensure that all 
vacancies are filled in accordance with this section until the 
noncompliance is corrected.
    (2) Tenants whose incomes no longer qualify must pay rent no greater 
than the lesser of the amount payable by the tenant under State or local 
law or 30 percent of the Family's annual income, except if the gross 
rent of a unit is subject to the restrictions in IRC section 42(g)(2) or 
the restrictions in an extended low-income housing commitment under IRC 
section 42(h)(6), then the tenants of that unit must pay rent governed 
by those restrictions. Tenants who no longer qualify as Eligible-Income 
are not required to pay rent in excess of the market rent for 
comparable, unassisted units in the neighborhood.
    (3) If the income of a tenant of a CMF-financed or assisted unit no 
longer qualifies, the Recipient may designate another unit, within the 
CMF-financed or assisted Project, as a replacement unit that meets the 
affordability qualifications for the same income category as the 
original unit, as further set forth in the Recipient's Assistance 
Agreement. If there is not an available replacement unit, the Recipient 
must fill the first available vacancy with a tenant that meets the 
affordability qualifications for the same income category of the 
original unit as necessary to maintain compliance with

[[Page 812]]

the CMF requirements and the Assistance Agreement.



Sec.1807.402  Affordable Housing--Homeownership.

    (a) Purchase with or without Rehabilitation. A Recipient that uses 
the CMF Award for the eligible activities set forth in Sec.1807.301 
for Purchase must ensure the purchasing Family and Housing meets the 
affordability requirements of this subpart.
    (1) The Housing must be Single-family housing.
    (2) The Single-family housing price does not exceed 95 percent of 
the median purchase price for the area as used in the HOME Program and 
as determined by HUD and the applicable Participating Jurisdiction.
    (3) The Single-family housing must be purchased by a qualifying 
Family as set forth in Sec.1807.400. The Single-family housing must be 
the principal residence of the Family throughout the period described in 
paragraph (a)(4) of this section.
    (4) Periods of affordability. Single-family housing under this 
section must meet the affordability requirements for at least 10 years 
at the time of purchase by the Family.
    (5) Resale. To ensure that CMF Awards are being used for qualifying 
Families for the entire 10-year affordability period, recoupment and 
redeployment or resale strategies must be imposed by the Recipient. A 
recoupment strategy must ensure that, in the event the qualifying 
homeowner sells the Housing before the end of the 10-year affordability 
period and the new homeowner does not meet the affordability 
qualifications set forth in Sec.1807.400, an amount equal to the 
amount of the CMF Award investment in the Housing, whether recouped or 
not, is used to finance additional Affordable Housing Activities for a 
qualifying Family in the same income category for Affordable Housing 
Homeownership in the manner set forth in this section, except that the 
Housing must meet the affordability requirements only for the remaining 
duration of the affordability period. The Recipient may design and 
implement its own recoupment strategy. Deed restrictions, covenants 
running with the land, or other similar mechanisms may be used as the 
mechanism to impose a resale strategy. The Recipient shall report to the 
CDFI Fund the event of resale and/or recoupment and redeployment of the 
CMF Award, or an equivalent amount, in the manner described in the 
Assistance Agreement. The affordability restrictions may terminate upon 
occurrence of any of the following termination events: Foreclosure, 
transfer in lieu of foreclosure, or assignment of an FHA-insured 
mortgage to HUD. The Recipient may use purchase options, rights of first 
refusal or other preemptive rights to purchase the Housing before 
foreclosure to preserve affordability. The affordability restrictions 
shall be revived according to the original terms if, during the original 
affordability period, the owner of record before the termination event, 
obtains an ownership interest in the Housing. If there is a sale of 
Single-family housing funded by a CMF Award prior to the completion of 
the 10-year affordability period, the Recipient must demonstrate that it 
placed into service Single-family housing targeting the same income 
population (i.e., Extremely Low-Income, Very Low-Income, Low-Income) as 
the original Single-family housing, as set forth in the Assistance 
Agreement, financed with an equivalent amount to the recouped portion of 
the CMF Award, that will be tracked for the duration of the 
affordability period of the original Single-family housing.
    (b) Rehabilitation not involving Purchase. Single-family housing 
that is currently owned by a qualifying Family, as set forth in Sec.
1807.400, qualifies as Affordable Housing if it meets the requirements 
of this paragraph (b).
    (1) The estimated value of the Single-family housing, after 
Rehabilitation, does not exceed 95 percent of the median purchase price 
for the area, as used in the HOME Program and as determined by the 
applicable Participating Jurisdiction; or
    (2) The Single-family housing is the principal residence of a 
qualifying Family as set forth in Sec.1807.400, at the time that the 
CMF Award is Committed to the Single-family housing.

[[Page 813]]

    (3) Single-family housing under this paragraph (b) must meet the 
affordability requirements for at least 10 years after Rehabilitation is 
completed or meet the resale provisions of paragraph (a)(5) of this 
section.
    (c) Ownership interest. The ownership in the Single-family housing 
assisted under this section must meet the definition of Homeownership as 
defined in Sec.1807.104.
    (d) New construction without Purchase. Newly constructed Single-
family housing that is built on property currently owned by a Family 
that will occupy the Single-family housing upon completion, qualifies as 
Affordable Housing if it meets the requirements under paragraph (a) of 
this section.
    (e) Converting rental units to Homeownership units for existing 
tenants. CMF-financed rental units may be converted to Homeownership 
units by selling, donating, or otherwise conveying the units to the 
existing tenants to enable the tenants to become homeowners in 
accordance with the requirements of this section. The Homeownership 
units are subject to a minimum period of affordability equal to the 
remaining affordability period.



     Subpart E_Leveraged Costs; Eligible Project Costs; Commitment 
                              Requirements



Sec.1807.500  Leveraged Costs; Eligible Project Costs.

    (a) Each CMF Award must result in Eligible Project Costs in an 
amount that equals at least 10 times the amount of the CMF Award or some 
higher standard established by the CDFI Fund in the Recipient's 
Assistance Agreement. Such Eligible Project Costs must be for Affordable 
Housing Activities and Economic Development Activities, as set forth in 
the Assistance Agreement.
    (b) Leveraged Costs. (1) The applicable NOFA and/or the Assistance 
Agreement may set forth a required percentage of Leveraged Costs that 
must be funded by non-governmental sources.
    (2) The Recipient must report to the CDFI Fund all Leveraged Costs, 
with the following limitations:
    (i) No costs attributable to prohibited uses as set forth in Sec.
1807.302(a) and (b) may be reported as Leveraged Costs;
    (ii) All Leveraged Costs attributable to Affordable Housing 
Activities must be for Affordable Housing, as set forth in Sec.
1807.401 or Sec.1807.402, and as further described in the Assistance 
Agreement;
    (iii) All eligible Leveraged Costs attributable to Economic 
Development Activities shall be described in the Assistance Agreement.
    (c) Recipients must report Leveraged Costs information through forms 
or electronic systems provided by the CDFI Fund. Consequently, 
Recipients must maintain appropriate documentation, such as audited 
financial statements, wire transfers documents, pro-formas, and other 
relevant records, to support such reports.



Sec.1807.501  Commitments; Payments.

    (a) The CMF Award must be Committed by the Recipient for use by the 
date designated in its Assistance Agreement.
    (b) The Recipient must evidence such commitment with a written, 
legally binding agreement to provide CMF Award proceeds to the 
qualifying Family, developer or project sponsor for a Project whose:
    (1) Construction can reasonably be expected to start within 12 
months of the commitment agreement date;
    (2) Property title will be transferred within 6 months of the 
commitment agreement date; or
    (3) Construction schedule ensures Project Completion within 5 years 
of a date specified in the Assistance Agreement.
    (c) The CDFI Fund will make Payment of CMF Award based on a 
deployment schedule contained in the CMF Award application, in addition 
to any other documentation and/or forms that the CDFI Fund may require.
    (d) Upon receipt of CMF Award, the Recipient must make an initial 
disbursement of said CMF Award by the date designated in its Assistance 
Agreement. The CDFI Fund may make Payment of CMF Award in a lump sum or 
other manner, as determined appropriate by the CDFI Fund. The CDFI Fund 
will not provide any Payment until the Recipient has satisfied all

[[Page 814]]

conditions set forth in the applicable NOFA and Assistance Agreement.



Sec.1807.502  CMF Award limits.

    An eligible Applicant and its Subsidiaries and Affiliates may not be 
awarded more than 15 percent of the aggregate funds available for CMF 
Awards during any year.



Sec.1807.503  Project Completion; Property standards.

    (a) Upon Project Completion, the Project must be placed into service 
by the date designated in the Assistance Agreement. Project Completion 
occurs, as determined by the CDFI Fund, when:
    (1) All necessary title transfer requirements and construction work 
have been performed;
    (2) The property standards of paragraph (b) of this section have 
been met; and
    (3) The final drawdown of the CMF Award has been made to the project 
sponsor or developer;
    (4) When a CMF Award is used for Preservation, Project Completion 
occurs when the refinance and/or Rehabilitation is completed in addition 
to the requirements set forth in this paragraph (a).
    (b) By the Project Completion date, the Project must meet the 
requirements of this part, including the following property standards 
(which must be met for a period of at least 10 years after the Project 
Completion date):
    (1) Projects that are constructed or Rehabilitated with a CMF Award 
must meet all applicable State and local codes, Rehabilitation 
standards, ordinances, and zoning requirements at the time of Project 
Completion or, in the absence of a State or local building code, the 
International Residential Code or International Building Code (as 
applicable) of the International Code Council.
    (2) In addition, Projects must meet the following requirements:
    (i) Accessibility. The Project must meet all applicable 
accessibility requirements set forth at 24 CFR part 8, which implements 
section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794), and 
Titles II and III of the Americans with Disabilities Act (42 U.S.C. 
12131-12189) implemented at 28 CFR parts 35 and 36, as applicable. 
Multi-family housing, as defined in 24 CFR 100.201, must also meet all 
applicable design and construction requirements set forth in 24 CFR 
100.205, which implements the Fair Housing Act (42 U.S.C. 3601-3619).
    (ii) Disaster mitigation. The Project must meet all applicable State 
and local codes, ordinances, or other disaster mitigation requirements 
(e.g., earthquake, hurricanes, flooding, wild fires), or other 
requirements as the Department of Housing and Urban Development has 
established in 24 CFR part 93.
    (iii) Lead-based paint. The Project must meet all applicable lead-
based paint requirements, including those set forth in 24 CFR part 35.
    (3) Rehabilitation standards. In addition, all Rehabilitation that 
is financed with a CMF Award must meet the following requirements:
    (i) For rental Housing, if the remaining useful life of one or more 
major systems is less than the 10-year period of affordability, the 
Recipient must ensure that, at Project Completion, the developer or 
Project sponsor establishes a replacement reserve and that monthly 
payments are made to the reserve that are adequate to repair or replace 
the systems as needed. Major systems include: Structural support; 
roofing; cladding and weatherproofing (e.g., windows, doors, siding, 
gutters); plumbing; electrical; heating, ventilation, and air 
conditioning.
    (ii) For Homeownership Single-family housing, the Recipient must 
ensure that, at Project Completion, the Housing is decent, safe, 
sanitary, and in good repair. The Recipient must ensure that timely 
corrective and remedial actions are taken by the Project owner to 
address identified life threatening deficiencies.
    (4) Manufactured housing. Construction of all manufactured housing 
must meet the Manufactured Home Construction and Safety Standards set 
forth in 24 CFR part 3280. These standards preempt State and local laws 
or codes, which are not identical to the Federal standards for the new 
construction of manufactured housing. The installation of all 
manufactured

[[Page 815]]

housing units must comply with applicable State and local laws or codes. 
In the absence of such laws or codes, the installation must comply with 
the manufacturer's written instructions for installation of manufactured 
housing units. Manufactured housing that is rehabilitated using a CMF 
Award must meet the requirements set out in paragraph (b)(1) of this 
section.



Subpart F_Tracking Funds; Uniform Administrative Requirements; Nature of 
                                  Funds



Sec.1807.600  Tracking funds.

    The Recipient shall develop and maintain an internal tracking and 
reporting system that ensures that the CMF Award is used in accordance 
with this part and the Assistance Agreement.



Sec.1807.601  Uniform Administrative Requirements.

    The Uniform Administrative Requirements apply to all CMF Awards.



Sec.1807.602  Nature of funds.

    CMF Awards are Federal financial assistance with regard to the 
application of Federal civil rights laws. CMF Award funds retain their 
Federal character until the end of the Investment Period.



          Subpart G_Notice of Funds Availability; Applications



Sec.1807.700  Notice of funds availability.

    Each Applicant must submit a CMF Award application in accordance 
with the applicable Notice of Funds Availability (NOFA) published in the 
Federal Register. The NOFA will advise prospective Applicants on how to 
obtain and complete an application and will establish deadlines and 
other requirements. The NOFA will specify application evaluation factors 
and any limitations, special rules, procedures, and restrictions for a 
particular application round. After receipt of an application, the CDFI 
Fund may request clarifying or technical information on the materials 
submitted as part of the application.



           Subpart H_Evaluation and Selection of Applications



Sec.1807.800  Evaluation and selection--general.

    Each Applicant will be evaluated and selected, at the sole 
discretion of the CDFI Fund, to receive a CMF Award based on a review 
process that will include a paper or electronic application, and may 
include an interview(s) and/or site visit(s), and that is intended to:
    (a) Ensure that Applicants are evaluated on a merit basis and in a 
fair and consistent manner;
    (b) Ensure that each Recipient can successfully meet its leveraging 
goals and achieve Affordable Housing Activity and Economic Development 
Activity impacts;
    (c) Ensure that Recipients represent a geographically diverse group 
of Applicants serving Metropolitan Areas and Underserved Rural Areas 
across the United States that meet criteria of economic distress, which 
may include:
    (1) The percentage of Low-Income Families or the extent of poverty;
    (2) The rate of unemployment or underemployment;
    (3) The extent of disinvestment;
    (4) Economic Development Activities that target Extremely Low-
Income, Very Low-Income, and Low-Income Families within the Recipient's 
Service Area; and
    (5) Any other criteria the CDFI Fund shall set forth in the 
applicable NOFA; and
    (d) Take into consideration other factors as set forth in the 
applicable NOFA.



Sec.1807.801  Evaluation of applications.

    (a) Eligibility and completeness. An Applicant will not be eligible 
to receive a CMF Award if it fails to meet the eligibility requirements 
described in Sec.1807.200 and in the applicable NOFA, or if the 
Applicant has not submitted complete application materials. For the 
purposes of this paragraph (a), the CDFI Fund reserves the right to 
request additional information from the Applicant, if the CDFI Fund 
deems it appropriate.
    (b) Substantive review. In evaluating and selecting applications to 
receive

[[Page 816]]

assistance, the CDFI Fund will evaluate the Applicant's likelihood of 
success in meeting the factors set forth in the applicable NOFA 
including, but not limited to:
    (1) The Applicant's ability to use a CMF Award to generate 
additional investments, including private sources of funding;
    (2) The need for affordable housing in the Applicant's Service Area;
    (3) The ability of the Applicant to obligate amounts and undertake 
activities in a timely manner; and
    (4) In the case of an Applicant that has previously received 
assistance under any CDFI Fund program, the Applicant's level of success 
in meeting its performance goals, reporting requirements, and other 
requirements contained in the previously negotiated and executed 
assistance, allocation or award agreement(s) with the CDFI Fund, any 
undisbursed balance of assistance, and compliance with applicable 
Federal laws.
    (c) The CDFI Fund may consider any other factors that it deems 
appropriate in reviewing an application, as set forth in the applicable 
NOFA, the application and related guidance materials.
    (d) Consultation with appropriate regulatory agencies. In the case 
of an Applicant that is a Federally regulated financial institution, the 
CDFI Fund may consult with the Appropriate Federal Banking Agency or 
Appropriate State Agency prior to making a final award decision and 
prior to entering into an Assistance Agreement.
    (e) Recipient selection. The CDFI Fund will select Recipients based 
on the criteria described in paragraph (b) of this section and any other 
criteria set forth in this part or the applicable NOFA.



               Subpart I_Terms and Conditions of CMF Award



Sec.1807.900  Assistance agreement.

    (a) Each Applicant that is selected to receive a CMF Award must 
enter into an Assistance Agreement with the CDFI Fund. The Assistance 
Agreement will set forth certain required terms and conditions for the 
CMF Award that may include, but are not limited to, the following:
    (1) The amount of the CMF Award;
    (2) The approved uses of the CMF Award;
    (3) The approved Service Area;
    (4) The time period by which the CMF Award proceeds must be 
Committed;
    (5) The required documentation to evidence Project Completion; and
    (6) Performance goals that have been established by the CDFI Fund 
pursuant to this part, the NOFA, and the Recipient's application.
    (b) The Assistance Agreement shall provide that, in the event of 
fraud, mismanagement, noncompliance with the Act or these regulations, 
or noncompliance with the terms and conditions of the Assistance 
Agreement, on the part of the Recipient, the CDFI Fund, in its 
discretion, may make a determination to:
    (1) Require changes in the performance goals set forth in the 
Assistance Agreement;
    (2) Revoke approval of the Recipient's application;
    (3) Reduce or terminate the CMF Award;
    (4) Require repayment of any CMF Award that have been paid to the 
Recipient;
    (5) Bar the Recipient from applying for any assistance from the CDFI 
Fund; or
    (6) Take such other actions as the CDFI Fund deems appropriate or as 
set forth in the Assistance Agreement.
    (c) Prior to making a determination that the Recipient has failed to 
comply substantially with the Act or these regulations or an Assistance 
Agreement, the CDFI Fund shall provide the Recipient with reasonable 
notice and opportunity for hearing.



Sec.1807.901  Payment of funds.

    CMF Awards provided pursuant to this part may be provided in a lump 
sum payment or in some other manner, as determined appropriate by the 
CDFI Fund. The CDFI Fund shall not provide any Payment under this part 
until a Recipient has satisfied all conditions set forth in the 
applicable NOFA and Assistance Agreement.

[[Page 817]]



Sec.1807.902  Data collection and reporting.

    (a) Data; General. The Recipient must maintain such records as may 
be prescribed by the CDFI Fund that are necessary to:
    (1) Disclose the manner in which the CMF Award is used, including 
providing documentation to demonstrate Project Completion;
    (2) Demonstrate compliance with the requirements of this part and 
the Assistance Agreement; and
    (3) Evaluate the impact of the CMF Award.
    (b) Customer profiles. The Recipient must compile such data on the 
gender, race, ethnicity, national origin, or other information on 
individuals that are benefiting from the CMF Award, as the CDFI Fund 
shall prescribe in the Assistance Agreement. Such data will be used to 
determine whether residents of the Recipient's Service Area are 
adequately served and to evaluate the impact of the CMF Award.
    (c) Access to records. The Recipient 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 
CDFI Fund or the U.S. Department of the Treasury to ensure compliance 
with the requirements of this part and to evaluate the impact of the CMF 
Award. The United States Government, including the U.S. Department of 
the Treasury, the Comptroller General, and their duly authorized 
representatives, shall have full and free access to the Recipient'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 and audit or provide for an audit at least 
annually. The CDFI Fund, if it deems appropriate, may prescribe access 
to record requirements for entities that receive a CMF Award from the 
Recipient.
    (d) Retention of records. The Recipient shall comply with all 
applicable record retention requirements set forth in the Uniform 
Administrative Requirements (as applicable) and the Assistance 
Agreement.
    (e) Data collection and reporting--(1) Financial reporting, (i) All 
Nonprofit Organization Recipients that are required to have their 
financial statements audited pursuant to the Uniform Administrative 
Requirements, must submit their single-audits by a time set forth in the 
applicable NOFA or Assistance Agreement. Nonprofit Organization 
Recipients (excluding Insured CDFIs and State-Insured Credit Unions) 
that are not required to have financial statements audited pursuant to 
the Uniform Administrative Requirements, must submit to the CDFI Fund a 
statement signed by the Recipient's authorized representative or 
certified public accountant, asserting that the Recipient is not 
required to have a single-audit pursuant to the Uniform Administrative 
Requirements as indicated in the Assistance Agreement. In such 
instances, the CDFI Fund may require additional audits to be performed 
and/or submitted to the CDFI Fund as stated in the applicable Notice of 
Funds Availability and Assistance Agreement.
    (ii) For-profit Recipients (excluding Insured CDFIs and State-
Insured Credit Unions) must submit to the CDFI Fund financial statements 
audited in conformity with generally accepted auditing standards as 
promulgated by the American Institute of Certified Public Accountants by 
a time set forth in the applicable NOFA or Assistance Agreement.
    (iii) Insured CDFIs are not required to submit financial statements 
to the CDFI Fund. The CDFI Fund will obtain the necessary information 
from publicly available sources. State-Insured Credit Unions must submit 
to the CDFI Fund copies of the financial statements that they submit to 
the Appropriate State Agency.
    (2) Annual report. (i) The Recipient shall submit a performance and 
financial report that shall be specified in the Assistance Agreement 
(annual report). The annual report consists of several components which 
may include, but are not limited to, a report on performance goals and 
measures, explanation of any Recipient noncompliance, and such other 
information as may be required by the CDFI Fund. The annual report 
components shall be specified

[[Page 818]]

and described in the Assistance Agreement.
    (ii) The CDFI Fund will use the annual report to collect data to 
assess the Recipient's compliance with its performance goals and the 
impact of the CMF and the CDFI industry.
    (iii) The Recipient is 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. If such other 
entities are required to provide information for the annual report, or 
such other documentation that the CDFI Fund might require, the Recipient 
is responsible for ensuring that the information is submitted timely and 
complete. The CDFI Fund reserves the right to contact such other 
entities and require that additional information and documentation be 
provided.
    (iv) The CDFI Fund's review of the compliance of an Insured CDFI, a 
Depository Institution Holding Company or a State-Insured Credit Union 
with 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.
    (f) Public access. The CDFI Fund shall make reports described in 
this section available for public inspection after deleting or redacting 
any materials necessary to protect privacy or proprietary interests.



Sec.1807.903  Compliance with government requirements.

    In carrying out its responsibilities pursuant to an Assistance 
Agreement, the Recipient shall comply with all applicable Federal, 
State, and local laws, regulations, and ordinances, Uniform 
Administrative Requirements, and Executive Orders. Furthermore, 
Recipients must comply with the CDFI Fund's environmental quality 
regulations (12 CFR part 1815) as well as all other Federal 
environmental requirements applicable to Federal awards.



Sec.1807.904  Lobbying restrictions.

    No CMF Award may be expended by a Recipient 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.1807.905  Criminal provisions.

    The criminal provisions of 18 U.S.C. 657 regarding embezzlement or 
misappropriation of funds are applicable to all Recipients and insiders.



Sec.1807.906  CDFI Fund deemed not to control.

    The CDFI Fund shall not be deemed to control a Recipient by reason 
of any CMF Award provided under the Act for the purpose of any 
applicable law.



Sec.1807.907  Limitation on liability.

    The liability of the CDFI Fund and the United States Government 
arising out of any CMF Award shall be limited to the amount of the CMF 
Award. The CDFI 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.1807.908  Fraud, waste and abuse.

    Any person who becomes aware of the existence or apparent existence 
of fraud, waste or abuse of a CMF Award should report such incidences to 
the Office of Inspector General of the U.S. Department of the Treasury.



PART 1808_COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS BOND GUARANTEE 
PROGRAM--Table of Contents



                      Subpart A_General Provisions

Sec.
1808.100 Purpose.
1808.101 Summary.
1808.102 Definitions.
1808.103 Participant not instrumentality.
1808.104 Deviations.
1808.105 Relationship to other CDFI Fund programs.
1808.106 OMB control number.

[[Page 819]]

                          Subpart B_Eligibility

1808.200 Qualified Issuers.
1808.201 Designated Bonding Authority.
1808.202 Eligible CDFIs.

Subpart C_Interest Rates; Terms and Conditions of Bonds, Bond Loans, and 
                             Secondary Loans

1808.300 Interest rates.
1808.301 Eligible uses of Bond Proceeds.
1808.302 Bond terms and conditions.
1808.303 Risk-Share Pool.
1808.304 Eligible uses of Bond Loan proceeds.
1808.305 Bond Loan terms and conditions.
1808.306 Conditions precedent to Bond and Bond Loan.
1808.307 Secondary Loan Eligible Purposes; Terms and conditions.
1808.308 Relending Fund; Relending Account.
1808.309 Restrictions on uses of Bond Proceeds and Bond Loan proceeds.

        Subpart D_Applications for Guarantee and Qualified Issuer

1808.400 Notice of Guarantee Availability.
1808.401 Application requirements.

                   Subpart E_Evaluation and Selection

1808.500 Evaluation of Qualified Issuer Applications.
1808.501 Evaluation of Guarantee Applications.
1808.502 Evaluation of Designated Bonding Authority Applications.
1808.503 Consultation with Appropriate Regulatory Agencies.
1808.504 Selection of Qualified Issuers; Approval for Guarantee.

               Subpart F_Terms and Conditions of Guarantee

1808.600 Full faith and credit and incontestability of Guarantee.
1808.601 Assignment and transfer of Guarantee.
1808.602 Offer of Guarantee.
1808.603 Issuance of Guarantee.
1808.604 Agreement to Guarantee.
1808.605 Agency Administrative Fee.
1808.606 Program Administrator; Servicer; Master Servicer/Trustee.
1808.607 Representations and warranties of Qualified Issuer with respect 
          to Guarantee.
1808.608 Representations and warranties of Eligible CDFI with respect to 
          each Bond Loan.
1808.609 Representations and warranties of Secondary Borrower.
1808.610 Covenants of Qualified Issuer with respect to Guarantee.
1808.611 Covenants of Eligible CDFI with respect to Bond and each Bond 
          Loan.
1808.612 Specific financial covenants of Eligible CDFI.
1808.613 Negative covenants of Eligible CDFI.
1808.614 Covenants of Secondary Borrower with respect to Secondary Loan.
1808.615 Negative covenants of Secondary Borrower.
1808.616 Events of default and remedies with respect to Bonds.
1808.617 Events of default and remedies with respect to Bond Loans.
1808.618 Events of default and remedies with respect to Secondary Loans.
1808.619 Reporting requirements.
1808.620 Investments in Guaranteed Bonds ineligible for Community 
          Reinvestment Act Purposes.
1808.621 Conflict of interest requirements.
1808.622 Compliance with government requirements.
1808.623 Lobbying restrictions.
1808.624 Criminal provisions.
1808.625 CDFI Fund deemed not to control.
1808.626 Limitation on liability.
1808.627 Fraud, waste and abuse.

    Authority: The Small Business Jobs Act of 2010, Pub. L. 111-240, 
Sec. Sec.1134 and 1703; 12 U.S.C. 4713a.

    Source: 78 FR 8310, Feb. 5, 2013, unless otherwise noted.



                      Subpart A_General Provisions



Sec.1808.100  Purpose.

    The purpose of the Community Development Financial Institutions 
(CDFI) Bond Guarantee Program is to support CDFI lending by providing 
Guarantees for Bonds issued as part of a Bond Issue for Eligible 
Community or Economic Development Purposes, as authorized by sections 
1134 and 1703 of the Small Business Jobs Act of 2010 (Pub. L. 111-240; 
12 U.S.C. 4713a).



Sec.1808.101  Summary.

    This section provides a summary overview of certain key provisions 
of the interim rule, the detailed requirements of which are set forth in 
subsequent subparts.
    (a) Guarantee. Through the CDFI Bond Guarantee Program, the 
Guarantor will provide a Guarantee for Bonds issued by Qualified Issuers 
as part of a Bond Issue.

[[Page 820]]

    (b) Bonds. Pursuant to the Act at 12 U.S.C. 4713a(e), a Bond Issue 
shall comprise Bonds having a minimum aggregate principal amount of 
$100,000,000 and a maximum aggregate principal amount of $1,000,000,000. 
The principal amount of each Bond (or series of Bonds) shall not be less 
than $10,000,000. A Bond Rate for each advance of funds under a Bond 
will be established by the Bond Purchaser as of the date of the 
respective advance, as provided in the Bond.
    (c) Bond Loans to Eligible CDFIs. The Qualified Issuer will use Bond 
Proceeds to make Bond Loans to Eligible CDFIs for Eligible Purposes, as 
those terms are defined in section 1808.102. The CDFI Fund will evaluate 
each Eligible CDFI using standard Bond Loan Requirements to assess their 
creditworthiness and capacity to receive a Bond Loan. Each Eligible CDFI 
may borrow a Bond Loan in an amount that is at least $10,000,000. The 
Bond Loan Rate shall be the same as the Bond Rate on the particular 
advance of funds under the Bond that funds the Bond Loan. The aggregate 
of the principal amounts of the Bond Loans must not exceed the maximum 
principal amount of the corresponding Bond Issue. The Qualified Issuer 
must execute Bond Loan documents for 100 percent of the principal amount 
of each Bond on the Bond Issue Date. Bond Loan proceeds may not be drawn 
down from the Qualified Issuer until the Eligible CDFI has an immediate 
use for the Bond Loan proceeds. Five percent, or such other amount that 
is determined by the CDFI Fund in its sole discretion, of Bond Loan 
proceeds may be used by an Eligible CDFI to capitalize Loan Loss 
Reserves.
    (d) Secondary Loans to Secondary Borrowers. If the Eligible CDFI 
uses Bond Loan proceeds to make Secondary Loans, the Eligible CDFI must 
execute Secondary Loan documents (in the form of promissory notes) with 
Secondary Borrowers as follows:
    (1) Not later than 12 months after the Bond Issue Date, Secondary 
Loan documents representing at least 50 percent of such Eligible CDFI's 
Bond Loan proceeds allocated for Secondary Loans; and
    (2) Not later than 24 months after the Bond Issue Date, Secondary 
Loan documents representing 100 percent of such Eligible CDFI's Bond 
Loan proceeds allocated for Secondary Loans (excluding any amounts used 
for payment of Bond Issuance Fees pursuant to section 1808.304(b)).
    (e) Terms and conditions. Bonds, Bond Loans and Secondary Loans 
shall have terms and conditions as set forth in Subpart F of this 
interim rule including at a minimum, that:
    (1) Each Bond shall be a nonrecourse obligation of the Qualified 
Issuer, payable solely from amounts available pursuant to the Bond 
Documents. Each promissory note evidencing a Bond Loan shall be a 
general recourse obligation of the Eligible CDFI and secured by a first 
lien on collateral. Each Secondary Loan shall be secured by a first lien 
on collateral and payable solely from amounts available pursuant to the 
Secondary Loan documents;
    (2) The maturity date of a Bond shall not be later than 30 years 
after the Bond Issue Date. The maturity date of Bond Loans and Secondary 
Loans may be earlier than, but may not be later than, the maturity date 
of the corresponding Bond;
    (3) The Bonds shall be purchased by the Bond Purchaser on terms and 
conditions that are satisfactory to the Bond Purchaser, the Guarantor, 
and the CDFI Fund (under specific requirements set forth in Sec.
1808.302 and the Bond Documents); and
    (4) The Guarantor shall guarantee payments on Bonds issued as part 
of a Bond Issue in such forms and on such terms and conditions and 
subject to such covenants, representations, warranties and requirements 
(including requirements for audits) as set forth in this interim rule in 
Subpart F. These requirements may be expanded upon through the program's 
Notice of Guarantee Availability, the Bond Documents, and the Bond Loan 
documents. The Qualified Issuer shall enter into the applicable Bond 
Documents to evidence its acceptance of the terms and conditions of the 
Guarantee.

[[Page 821]]



Sec.1808.102  Definitions.

    For purposes of this part, capitalized terms used herein and not 
defined elsewhere are defined as follows:
    (a) Act means the Small Business Jobs Act of 2010, Pub. L. 111-240, 
sections 1134 and 1703, 12 U.S.C. 4713a;
    (b) Affiliate means any entity that Controls, is Controlled by, or 
is under common Control with, another entity. Control is defined as:
    (1) Ownership, control or power to vote 25 percent or more of the 
outstanding shares of any class of Voting Securities (as that term is 
defined in 12 CFR 1805.104(mm)) of any legal entity, directly or 
indirectly or acting through one or more other persons; or
    (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 legal entity; or
    (3) The power to exercise, directly or indirectly, a controlling 
influence, as determined by the CDFI Fund, over the management, credit 
decisions, investment decisions, or policies of any legal entity;
    (c) Agency Administrative Fee means a fee in an amount equal to 10 
basis points (0.1 percent) of the amount of the unpaid principal of the 
Bond Issue, payable annually to the CDFI Fund by a Qualified Issuer;
    (d) Agreement to Guarantee means the written agreement between the 
Guarantor and the Qualified Issuer which sets forth the terms and 
conditions on which the Guarantor will provide the Guarantee;
    (e) 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 an Insured Credit Union (as such term is 
defined in 12 CFR 1805.104(bb)), the National Credit Union 
Administration;
    (f) 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 (as such term is defined in 12 CFR 1805.104(e));
    (g) Bond means a security in the form of a draw-down bond or note 
issued by the Qualified Issuer, with each advance of funds thereunder 
bearing interest at an applicable Bond Rate established by the Bond 
Purchaser in accordance with section 1808.300 of this part, and sold to 
the Bond Purchaser, the proceeds of which will be used for Eligible 
Purposes, and which benefit from a Guarantee;
    (h) Bond Documents mean, for each Bond, the respective Bond, Bond 
Trust Indenture, Agreement to Guarantee, Bond purchase agreement, and 
all other instruments and documentation pertaining to the issuance of 
the Bond;
    (i) Bond Issuance Fees mean amounts paid by an Eligible CDFI for 
reasonable and appropriate expenses, administrative costs, and fees for 
services incurred in connection with the issuance of the Bond (but not 
including the Agency Administrative Fee) and the making of the Bond 
Loan;
    (j) Bond Issue means at least $100,000,000, and no more than 
$1,000,000,000, in aggregate principal amount of Bonds secured by a 
single Guarantee; each Bond (or series of Bonds) in the Bond Issue being 
in the minimum principal amount of at least $10,000,000;
    (k) Bond Issue Date means the date on which the Bond is deemed to be 
issued or originated;
    (l) Bond Loan means a loan of Bond Proceeds by a Qualified Issuer to 
an Eligible CDFI. A Bond Loan must be in an initial principal amount 
that is not less than $10,000,000, and Bond Loan proceeds must be used 
for Eligible Purposes;
    (m) Bond Loan Payment Default Rate means, in the event of a Bond 
Loan payment default, the applicable interest rate on any overdue amount 
from its due date to the date of actual payment and shall be calculated 
in the same manner as a late charge rate is calculated in the underlying 
Bond;
    (n) Bond Loan Rate means the rate of interest for each advance of 
funds under a Bond Loan, which shall be the same as the Bond Rate;
    (o) Bond Loan Requirements means the credit criteria, established by 
the CDFI Fund, for assessing the creditworthiness and capacity of each 
Eligible CDFI applicant to receive a Bond Loan;

[[Page 822]]

    (p) Bond Proceeds means the funds that are advanced by the Bond 
Purchaser to the Qualified Issuer under a Bond;
    (q) Bond Purchaser (or Bondholder) means the Federal Financing Bank, 
the body corporate and instrumentality of the Federal Government created 
by the Federal Financing Bank Act of 1973 (12 U.S.C. 2281 et seq.);
    (r) Bond Rate means the rate of interest for each advance of funds 
under a Bond;
    (s) Bond Trust Indenture means the agreement between the Qualified 
Issuer and the Master Servicer/Trustee that sets forth the rights, 
duties, responsibilities and remedies of the Qualified Issuer and Master 
Servicer/Trustee with respect to the Bonds, to include responsibilities 
regarding the management of the collateral, the management of the funds 
and accounts, the repayment and redemption of the Bonds, and the 
circumstances and processes surrounding any default;
    (t) Capital Distribution Plan means the component of the Guarantee 
Application that demonstrates the Qualified Issuer's comprehensive plan 
for lending, disbursing, servicing, and monitoring each Bond Loan and 
that meets the requirements of Sec.1808.401 of this interim rule and 
such other requirements as may be designated in the applicable Notice of 
Guarantee Availability. The Capital Distribution Plan includes, among 
other components (specified in Sec.1808.401 of this interim rule), a 
Statement of Proposed Sources and Uses of Funds, and shall include one 
or more Secondary Capital Distribution Plans;
    (u) CDFI Bond Guarantee Program (or Program) means the program of 
providing Guarantees for Bonds issued as part of a Bond Issue by 
Qualified Issuers to make Bond Loans to Eligible CDFIs for Eligible 
Purposes, as authorized by subsections 1134 and 1703 of the Act (12 
U.S.C. 4713a), and implemented under this part;
    (v) Certified Community Development Financial Institution (or 
Certified CDFI) means a financing entity that has a primary mission of 
promoting community development and that has been certified by the CDFI 
Fund as meeting the eligibility requirements set forth in 12 CFR 
1805.201;
    (w) Community Development Financial Institutions Fund (or CDFI Fund) 
means the Community Development Financial Institutions Fund, a wholly 
owned government corporation within the U.S. Department of the Treasury, 
established under the Riegle Community Development Banking and Financial 
Institutions Act of 1994 (12 U.S.C. 4701 et seq.), as amended;
    (x) Credit Enhancement means such instrument or document proffered 
by an Eligible CDFI to enhance the credit quality of a Bond and/or Bond 
Loan. Credit Enhancements may include, but are not limited to, pledges 
of financial resources and lines and letters of credit issued by: an 
Eligible CDFI; an Affiliate; a regulated financial institution; a 
foundation; or another entity. The Risk-Share Pool is not a form of 
Credit Enhancement;
    (y) Department Opinion means an internal opinion by the CDFI Fund 
regarding compliance by the Qualified Issuer with the requirements for 
approval of a Guarantee;
    (z) Designated Bonding Authority (or DBA) means a Qualified Issuer 
selected by the CDFI Fund to issue Bonds on behalf of certain Eligible 
CDFIs and make Bond Loans to such Eligible CDFIs, pursuant to this 
interim rule;
    (aa) Eligible Community Development Financial Institution (or 
Eligible CDFI) means a Certified CDFI that has submitted an application 
to a Qualified Issuer for a Bond Loan, has been deemed creditworthy 
based on the Bond Loan Requirements, and has received a Bond Loan;
    (bb) Eligible Community or Economic Development Purpose (or Eligible 
Purpose) means the allowable uses of Bond Proceeds and Bond Loan 
proceeds, which includes financing or Refinancing for community or 
economic development purposes described in 12 U.S.C. 4707(b), including 
but not limited to community or economic development purposes in Low-
Income Areas or Underserved Rural Areas, as deemed eligible by the CDFI 
Fund in its sole discretion; Bond Issuance Fees in an amount not to 
exceed one percent of Bond Loan proceeds; and capitalization of Loan 
Loss Reserves in an amount that is up to five percent of the par amount 
of the Bond Loan, or such

[[Page 823]]

other amount that is determined by the CDFI Fund in its sole discretion;
    (cc) Guarantee means the guarantee by the Guarantor, pursuant to an 
Agreement to Guarantee, of the repayment of 100 percent of the 
Verifiable Losses of Principal, Interest, and Call Premium, if any, on 
the corresponding Bonds issued as part of a Bond Issue; each Guarantee 
shall be for a Bond Issue of at least $100,000,000, plus the related 
interest and call premiums;
    (dd) Guarantee Application means the application document that a 
Qualified Issuer submits in order to apply for a Guarantee;
    (ee) Guarantor means the Secretary of the Treasury or the 
Secretary's designee;
    (ff) Investment Area means a geographic area meeting the 
requirements of 12 CFR 1805.201(b)(3)(ii);
    (gg) Loan Loss Reserves means the use of Bond Loan proceeds (secured 
by a Principal Loss Collateral Provision) for a set aside in the form of 
cash reserves that serve as a safeguard to protect the Eligible CDFI 
against future losses for any loans for community or economic 
development purposes described in 12 U.S.C. 4707 (b), including 
community or economic development purposes in Low-Income Areas or 
Underserved Rural Areas, within the Eligible CDFI's portfolio;
    (hh) 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: (1) 
80 percent of the area median family income; or (2) 80 percent of the 
Statewide non-Metropolitan Area median family income;
    (ii) Low-Income Area means a census tract or block numbering area in 
which the median income does not exceed 80 percent of the median income 
for the area in which such census tract or block numbering area is 
located. With respect to a census tract or block numbering area located 
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. 
In the case of a census tract or block numbering area located 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;
    (jj) Master Servicer/Trustee means a third party trust company or 
financial institution that is in the business of administering 
facilities similar to the Bonds and Bond Loans, has been deemed 
acceptable by the CDFI Fund, and whose duties include, among others, 
exercising fiduciary powers to enforce the terms of Bonds and Bond Loans 
pursuant to the Bond Trust Indenture entered into by and between the 
Master Servicer/Trustee and the Qualified Issuer, overseeing the 
activities of Servicers, and facilitating Bond principal and interest 
payments to the Bond Purchaser;
    (kk) Metropolitan Area means an area that contains an urban core 
based statistical area of 50,000 or more population and is designated as 
such by the Office of Management and Budget pursuant to 44 U.S.C. 
3504(e), 31 U.S.C. 1104(d) and Executive Order 10253 (3 CFR, 1949-1953 
Comp., p. 758), as amended;
    (ll) Notice of Guarantee Availability (or NOGA) means the notice, 
published by the CDFI Fund, that announces to all interested parties the 
opportunity to submit Qualified Issuer Applications and Guarantee 
Applications pursuant sections 1808.400 and 1808.401 of this interim 
rule;
    (mm) Principal Loss Collateral Provision means a cash or cash 
equivalent guarantee or facility provided in lieu of pledged collateral 
set forth in the Bond Documents and Bond Loan documents;
    (nn) Program Administrator means the Qualified Issuer, or an entity 
designated by the Qualified Issuer and approved by the CDFI Fund, that 
performs certain administrative duties related to application 
preparation, compliance monitoring, and reporting, as well as other 
duties set forth under section 1808.606 of this interim rule;
    (oo) Qualified Issuer means a Certified CDFI, or any entity 
designated by a Certified CDFI to issue Bonds on its behalf, that meets 
the qualification requirements set forth in section 1808.200

[[Page 824]]

of this interim rule, and that has been approved as such by the CDFI 
Fund pursuant to review and evaluation of the Qualified Issuer 
Application;
    (pp) Qualified Issuer Application means the application document 
that a Certified CDFI (or any entity designated by a Certified CDFI to 
issue Bonds on its behalf) submits to the CDFI Fund in order to be 
approved as a Qualified Issuer prior to, or simultaneously with, a 
Guarantee Application;
    (qq) Qualified Secondary Loan Receivable means payment receivables 
from the Secondary Loan(s) relating to the corresponding Bond Loan;
    (rr) Refinance (or Refinancing) means the use of Bond Proceeds to 
refinance an Eligible CDFI's or Secondary Borrower's existing loan, 
which must have been used for an Eligible Purpose;
    (ss) Relending Fund means the fund maintained by the Master 
Servicer/Trustee to allow an Eligible CDFI to relend Secondary Loan 
repayments for Eligible Purposes, not to exceed 10 percent of the 
principal amount outstanding of the Bonds, minus the Risk Share Pool; 
the Relending Fund will include a Relending Account for each Bond Issue; 
and each Relending Account will include a Relending Subaccount for each 
Bond Loan;
    (tt) Risk-Share Pool means an account maintained by the Master 
Servicer/Trustee throughout the term of a Guarantee to cover losses 
before the Guarantee is exercised; the Risk-Share Pool is capitalized by 
pro rata payments equal to three percent of the amount disbursed on the 
Bonds from all Eligible CDFIs within a Bond Issue; payments must be 
funded at each disbursement under the Bond and associated Bond Loan; 
amounts in the Risk-Share Pool will not be returned to the Eligible 
CDFIs until maturity of all of the Bonds, and termination of all Bond 
Loans, within a Bond Issue;
    (uu) Secondary Borrower means an entity that has made application to 
the Eligible CDFI for a Secondary Loan, been deemed creditworthy by the 
Eligible CDFI, meets the criteria set forth in the applicable Secondary 
Loan Requirements to receive a Secondary Loan, and has received a 
Secondary Loan;
    (vv) Secondary Capital Distribution Plan means the component of the 
Capital Distribution Plan that pertains to the making of Secondary 
Loans, demonstrates the Eligible CDFI's comprehensive plan for lending, 
disbursing, servicing and monitoring Secondary Loans, includes a 
description of how the proposed Secondary Loan will meet Eligible 
Purposes and meets such other the requirements as may be designated in 
the applicable Notice of Guarantee Availability;
    (ww) Secondary Loan means the use of Bond Loan proceeds by an 
Eligible CDFI to finance or Refinance a loan to a Secondary Borrower for 
Eligible Purposes, which meets the applicable Secondary Loan 
Requirements;
    (xx) Secondary Loan Requirements mean the minimum required criteria 
used by each Eligible CDFI (in addition to the Eligible CDFI's 
underwriting criteria) to evaluate a request by a Secondary Borrower 
applicant for a Secondary Loan. The Secondary Loan Requirements will be 
established by the CDFI Fund and incorporated into the Bond Loan 
documents;
    (yy) Servicer means the Qualified Issuer, or an entity designated by 
the Qualified Issuer and approved by the CDFI Fund, to perform various 
Bond Loan servicing duties, as set forth in this part;
    (zz) Special Servicer means the Master Servicer/Trustee, or an 
entity designated by the Master Servicer/Trustee and approved by the 
CDFI Fund, that performs certain administrative duties related to the 
restructuring of Bond Loans that are in or about to enter into an event 
of default as well as other duties set forth under section 1808.606(d) 
of this interim rule;
    (aaa) State means any of the States of the United States, the 
District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth 
of the Northern Mariana Island, Guam, the Virgin Islands, American 
Samoa, the Trust Territory of the Pacific Islands, and any other 
territory of the United States;
    (bbb) Statement of Proposed Sources and Uses of Funds means the 
component of the Guarantee Application that describes the proposed uses 
of Bond Proceeds and the proposed sources of

[[Page 825]]

funds to repay principal and interest on the Bonds and the Bond Loans;
    (ccc) Targeted Population means individuals or an identifiable group 
of individuals who are Low-Income persons or lack adequate access to 
Financial Products or Financial Services and meet the requirements of 12 
CFR 1805.201(b)(3)(iii);
    (ddd) Trust Estate means the Bond Loan agreement and promissory 
notes evidencing the Bond Loan, all funds and accounts related to the 
Bonds and held by the Master Servicer/Trustee pursuant to the Bond Trust 
Indenture including, but not limited to, the Revenue Accounts and the 
Relending Accounts (as such terms are defined in subsection 
1808.606(f)), and any additional collateral pledged directly by the 
Eligible CDFI;
    (eee) Underserved Rural Area means an area that has significant 
unmet needs for loans, Equity Investments, or Financial Services (as 
those terms are defined in 12 CFR 1805.104) and is not contained within 
either a Consolidated Metropolitan Statistical Areas (CMSA) or Primary 
Metropolitan Statistical Areas (PMSA), as such areas are defined in OMB 
Bulletin No. 99-04 (Revised Statistical Definitions of Metropolitan 
Areas (MAs) and Guidance on Uses of MA Definitions); and
    (fff) Verifiable Losses of Principal, Interest, and Call Premium 
means any portion of required debt payments related to or arising out of 
a Bond and Bond Loan, or the enforcement of either of them, that the 
Qualified Issuer is unable satisfy.



Sec.1808.103  Participant not instrumentality.

    No participant in the CDFI Bond Guarantee Program shall be deemed to 
be an agency, department, or instrumentality of the United States.



Sec.1808.104  Deviations.

    To the extent that such requirements are not specified by statute, 
the Secretary of the Treasury in consultation with the Office of 
Management and Budget, may authorize deviations on an individual or 
general basis from the requirements of this interim rule upon a finding 
that such deviation is essential to program objectives, and the special 
circumstances stated in the proposal make such deviation clearly in the 
best interest of the Federal Government. All proposals must be in 
writing and supported by a statement of the facts and the grounds 
forming the basis of the deviation. For deviations of general 
applicability, after a determination is made by the Secretary of the 
Treasury based on the deviation proposal, the CDFI Fund must publish 
notification of granted deviations in the Federal Register. Any 
deviation that was not captured in the original credit subsidy cost 
estimate will require either additional fees, or discretionary 
appropriations to cover the cost.



Sec.1808.105  Relationship to other CDFI Fund programs.

    Award funds received under any other CDFI Fund program cannot be 
used by any participant, including Qualified Issuers, Eligible CDFIs and 
Secondary Borrowers, to pay principal, interest, fees, administrative 
costs, or issuance costs (including Bond Issuance Fees) related to the 
CDFI Bond Guarantee Program, or to fund the Risk-Share Pool.



Sec.1808.106  OMB control number.

    The collection of information requirements in this part are subject 
to the review of the Office of Management and Budget (OMB).



                          Subpart B_Eligibility



Sec.1808.200  Qualified Issuers.

    (a) Requirements and qualifications. An applicant shall be deemed a 
Qualified Issuer if it is determined, in writing by the CDFI Fund, to 
meet the following criteria:
    (1) The applicant must be a Certified CDFI, or an entity designated 
by a Certified CDFI to issue Bonds on its behalf;
    (2) The applicant must have appropriate expertise, capacity, and 
experience, or otherwise be qualified to issue Bonds for Eligible 
Purposes;
    (3) The applicant must have appropriate expertise, capacity, and 
experience, or otherwise be qualified to make Bond Loans for Eligible 
Purposes;

[[Page 826]]

    (4) The applicant must have appropriate expertise, capacity, and 
experience to serve or have identified qualified entities that will 
serve as its Program Administrator and Servicer; and
    (5) The applicant must meet such other criteria as may be required 
by the CDFI Fund pursuant to this interim rule and the applicable Notice 
of Guarantee Availability.
    (b) Approval. The designation of an applicant as a Qualified Issuer 
does not ensure that the Guarantor will approve a Guarantee Application 
or issue a Guarantee. In order for the Guarantor to approve a Qualified 
Issuer's Guarantee Application, the Qualified Issuer must meet all 
applicable Guarantee Application requirements including, but not limited 
to, creditworthiness and other requirements.
    (c) Qualified Issuer responsibilities. The responsibilities of a 
Qualified Issuer shall include, but are not limited to:
    (1) Preparing and submitting the Guarantee Application on behalf of 
Eligible CDFI applicants that designated it to serve as Qualified 
Issuer, including providing any additional information needed for review 
by the CDFI Fund;
    (2) During the CDFI Fund's review and evaluation of the Guarantee 
Application, serving as primary point of contact between the CDFI Fund 
and the Eligible CDFI applicants that designated the Qualified Issuer to 
serve on their behalf;
    (3) Issuing the Bond for purchase by the Bond Purchaser;
    (4) Making Bond Loans to Eligible CDFIs, ensuring that 100 percent 
of Bond Proceeds are used to make Bond Loans;
    (5) Charging interest on the Bond Loans as set forth in this interim 
rule and Bond Loan documents, and providing for such a schedule of 
repayment of Bond Loans as will, upon the timely repayment of the Bond 
Loans, provide adequate and timely funds for the payment of principal 
and interest on the Bonds;
    (6) During the duration of the Bonds and the Bond Loans, serving as 
primary point of contact between the CDFI Fund and Eligible CDFIs;
    (7) Overseeing the work of, or serving in the capacity of, the 
Program Administrator and Servicer;
    (8) Enforcing the terms and requirements of the Bond Trust Indenture 
including, but not limited to: ensuring the repayment of Bond Loans in a 
timely manner pursuant to the terms of Bond Loan documents; assigning 
delinquent Bond Loans to the Guarantor upon demand by the CDFI Fund or 
the Guarantor; and ensuring that the Master Servicer/Trustee establishes 
and maintains the Risk-Share Pool throughout the term of the Guarantee;
    (9) Reviewing collateral and Credit Enhancement requirements for 
each Bond Loan and providing information on such collateral and Credit 
Enhancement, as requested, to the CDFI Fund;
    (10) Making payment of the Agency Administrative Fee to the CDFI 
Fund;
    (11) Submitting all required reports and additional documentation 
(including reconciling financial data and Capital Distribution Plan 
updates, as necessary); and
    (12) Such other duties and responsibilities as the CDFI Fund, the 
Guarantor, or the Bondholder may require.
    (d) Bond Issuance Fees. The Qualified Issuer may charge Bond 
Issuance Fees and all fees reasonable and necessary for administering 
and servicing the Bonds or the Bond Loans, post issuance, to Eligible 
CDFIs.
    (e) Restriction. A Qualified Issuer may not receive a Bond Loan 
under any Bond Issuance for which it serves as a Qualified Issuer.



Sec.1808.201  Designated Bonding Authority.

    (a) General. In its sole discretion, the CDFI Fund may solicit 
Qualified Issuer Applications from entities proposing to serve as the 
Designated Bonding Authority (DBA). The CDFI Bond Guarantee Program 
shall only have one DBA at any given time. In order to be selected to 
serve as the DBA, the entity must meet all qualifications of a Qualified 
Issuer set forth in section 1808.200 of this interim rule; additional 
qualifications may be set forth in the applicable NOGA as determined by 
the CDFI Fund.
    (b) Selection. The DBA will serve as a CDFI Fund-selected Qualified 
Issuer

[[Page 827]]

and designated Qualified Issuer for Eligible CDFIs that do not elect to 
designate another Qualified Issuer. The DBA will prepare and submit a 
Guarantee Application on behalf of such Eligible CDFI applicants, in 
accordance with such criteria set forth in this interim rule, the 
applicable Notice of Guarantee Availability and the Qualified Issuer 
Application.



Sec.1808.202  Eligible CDFIs.

    Each Eligible CDFI applicant seeking a Bond Loan must meet the 
following criteria:
    (a) Be certified by the CDFI Fund as meeting the eligibility 
requirements set forth in 12 CFR 1805.201;
    (b) Have the appropriate expertise, capacity, and experience, or 
otherwise be qualified to use the proceeds of Bond Loans for Eligible 
Purposes; and
    (c) Meet such other criteria and requirements set forth in the 
applicable Notice of Guarantee Availability, the Guarantee Application, 
the Bond Loan Requirements, related Bond and Bond Loan documents, and 
such other requirements of the CDFI Fund.



Subpart C_Interest Rates; Terms and Conditions of Bonds, Bond Loans, and 
                             Secondary Loans



Sec.1808.300  Interest rates.

    (a) Interest rates. (1) A Bond Rate will be established by the Bond 
Purchaser as of the date of the respective advance of funds, as provided 
in the Bond. The Bond Rate for each advance of funds must be fixed and 
consistent with Federal credit policies outlined in OMB Circular A-129. 
The FFB, as Bond Purchaser, will set rates to the borrower pursuant to 
section 6(b) of the Federal Financing Bank Act (12 U.S.C. 2285(b)) and 
the FFB Lending Policy. This rate will be indexed to the appropriate 
Treasury rate based on the Treasury yield curve and include a spread to 
be determined by the Bond Purchaser; variable Bond Rates are not 
permitted.
    (2) Interest on each advance of funds under a Bond shall be computed 
as provided in the Bond.
    (3) A principal and interest payment schedule will be determined and 
provided to the Qualified Issuer for each advance of funds under a Bond, 
based on the Bond Rate established for the respective advance. The final 
principal and interest payment schedule for amounts due under a Bond 
will be the aggregation of the individual principal and interest payment 
schedules for all advances of funds under the Bond.
    (4) The Bond Loan Rate shall be the same as the Bond Rate on the 
particular advance of funds under the Bond that funds the Bond Loan.
    (5) The rate of interest for each Secondary Loan shall be 
established by the Eligible CDFI in accordance with subsection 
1808.307(c), and may be subject to limitations specified in the 
applicable NOGA.
    (b) Bond Loan payment default interest rate. In the event of a 
payment default on a Bond Loan, the Eligible CDFI shall pay interest on 
any overdue amount from its due date to the date of actual payment at 
the Bond Loan Payment Default Rate. The Bond Loan Payment Default Rate 
shall be calculated in the same manner as a late charge is calculated 
under the underlying Bond.



Sec.1808.301  Eligible uses of Bond Proceeds.

    Bond Proceeds must be used by a Qualified Issuer to finance Bond 
Loans or Refinance loans to Eligible CDFIs for Eligible Purposes as 
defined in section 1808.102 of this interim rule. A Qualified Issuer 
that is also a Certified CDFI may not finance a Bond Loan to itself or 
refinance its own loan. One hundred percent of the principal amount of 
each Bond must be used to make Bond Loans. As a Bond Loan is repaid, 
such repaid Bond Loan proceeds in excess of those required for debt 
service payments on the Bond must be used to repay the Bond or held in 
the Relending Account and used for additional Secondary Loans, to the 
extent authorized under Sec.1808.308.



Sec.1808.302  Bond terms and conditions.

    (a) Maturity date. As required by 12 U.S.C. 4713a(e)(1)(D), the 
maturity date of a Bond shall not be later than 30 years after the Bond 
Issue Date. The maturity date for any advance of funds

[[Page 828]]

under a Bond shall not be later than the maturity date of the Bond.
    (b) Nonrecourse obligation. Each Bond shall be a nonrecourse 
obligation of the Qualified Issuer, payable solely from amounts 
available pursuant to the Bond Documents.
    (c) Terms. The Bonds may contain only terms that are consistent with 
the lending policies and terms of the Bond Purchaser.
    (d) No subordination. The Bonds or Bond Loans may not be 
subordinated to any new or existing liability and effective 
subordination of the Bonds or Bond Loans to tax-exempt obligations will 
render the Guarantee void, in accordance with OMB Circular No. A-129 
(Policies for Federal Credit Programs and Non-Tax Receivables) and 
applicable provisions of the Internal Revenue Code.
    (e) Other limitations. The CDFI Fund may impose other limitations as 
appropriate to administer the CDFI Bond Guarantee Program including, but 
not limited to, requiring Qualified Issuers to obtain Credit Enhancement 
to safeguard against the risk of default.
    (f) Terms for Bond issuance and disbursement of Bond Proceeds. (1) 
The Qualified Issuer must execute Bond Loan documents for 100 percent of 
the principal amount of each Bond on the Bond Issue Date. There will be 
an annual assessment to determine whether the Qualified Issuer is 
subject to the repayment provision established in 12 U.S.C. 4713a(c)(4). 
Terms and conditions for the annual assessment will be set forth in the 
applicable Notice of Guarantee Availability.
    (2) Disbursements of Bond Proceeds to the Qualified Issuer shall be 
made pursuant to an advance request process established by the Bond 
Purchaser and the CDFI Fund under which the Qualified Issuer shall 
request an advance of funds under a Bond.
    (g) Amortization of Bond. The principal amount of each advance of 
funds under a Bond shall amortize in level debt service payments of 
principal and interest, which payments shall be due either quarterly or 
semi-annually, as determined by the Qualified Issuer and the Bond 
Purchaser, and which shall begin on the first principal payment date 
specified in the Bond, as determined by the Qualified Issuer and the 
Bond Purchaser. Prior to the first principal payment date, interest 
accrued shall be due on the payment dates specified in the Bond, as 
determined by the Qualified Issuer and the Bond Purchaser.
    (h) Optional prepayment of Bonds. All or a portion of any advance of 
funds under a Bond, or the Bond in its entirety, may be prepaid by the 
Qualified Issuer at any time. Any partial prepayment of an advance shall 
be in an amount equal to at least $100,000 of principal. Each partial 
prepayment of an advance of funds under a Bond shall be applied in the 
manner set forth in the Bond. Any partial or full prepayment of an 
advance of funds under a Bond shall be subject to the payment of a 
prepayment price, as provided in the Bond Documents.
    (i) Mandatory prepayment of Bonds. (1) Any Bond shall be subject to 
mandatory prepayment if Bond Loans or Secondary Loans are not made in a 
timely manner, as follows:
    (i) On the Calculation Date (as defined in subsection 1808.308(e)) 
of each year, any amount retained in the Relending Subaccount that 
exceeds the Relending Subaccount Maximum (as defined in subsection 
1808.308(d)) by $100,000 or more shall be applied to prepay Bonds on the 
next succeeding payment date.
    (ii) Any amounts derived from the liquidation of collateral from the 
Bond Loan and/or Secondary Loan in connection with the exercise by the 
Guarantor, the Qualified Issuer or the Bondholder of remedies upon 
default of the Bond Loan shall be applied, immediately upon liquidation, 
in the following order (inclusive of reasonable fees and expenses 
associated therewith):
    (A) To the repayment of any amounts drawn under the Guarantee;
    (B) To the prepayment of Bonds, in a like amount;
    (C) To the replenishment of any funds drawn from the Risk-Share Pool 
Fund; and
    (D) To the Eligible CDFI for application in accordance with the 
Secondary Loan documents.
    (2) When an amount is required to be applied as a mandatory 
prepayment of

[[Page 829]]

Bonds, the Qualified Issuer may select which advances of funds under a 
Bond are to be prepaid. Any amount applied as a partial prepayment of an 
advance under a Bond shall be applied as provided in the Bond. Any 
partial or full prepayment of an advance of funds under a Bond shall be 
subject to the payment of a prepayment price, as provided in the Bond 
Documents.



Sec.1808.303  Risk-Share Pool.

    The Master Servicer/Trustee, on behalf of the Qualified Issuer and 
for the benefit of the Bondholder, shall establish a Risk-Share Pool 
that is funded at each disbursement of the Bond Loan proceeds by payment 
from each Eligible CDFI in accordance with 12 U.S.C. 4713a(d). The Risk-
Share Pool must remain in place throughout the term of the Guarantee. 
Amounts in the Risk Share Pool Fund will not be returned to Eligible 
CDFIs until maturity of all of the Bonds, and termination of all of the 
Bond Loans, within a Bond Issue.
    (a) At each disbursement of the Bond Loan proceeds, each Eligible 
CDFI shall deposit an amount that is equal to three percent of the 
disbursement, for a total of three percent of the guaranteed amount 
outstanding of the Bond, from monies other than Bond Loan proceeds, into 
the applicable subaccount of the Risk-Share Pool Fund. Such monies shall 
remain in said account throughout the term of the Bond.
    (b) Any interest on a Bond Loan in excess of the Bond Loan Rate 
derived by the Qualified Issuer during any period during which the Bond 
Loan Payment Default Rate applies shall also be deposited in the Risk-
Share Pool Fund.
    (c) The Risk-Share Pool Fund shall be applied by the Master 
Servicer/Trustee to payments of debt service on the Bond Issue in the 
event that the Eligible CDFI defaults in the corresponding payment of 
debt service on the Bond Loan. The defaulted Eligible CDFI's deposit 
shall be applied first to any such payment of debt service. After 
depletion of the defaulted Eligible CDFI's deposit, each remaining 
Eligible CDFI's deposit shall be applied prorata to any such payment of 
debt service. Monies on deposit in the Risk-Share Pool Fund shall be 
applied to such payments and shall be depleted in full prior to any draw 
on the Guarantee.
    (d) Eligible CDFIs (excluding the Eligible CDFI in default and 
responsible for a draw) shall not be required to replenish the Risk-
Share Pool Fund in the event of a draw.
    (e) The Risk Share Pool deposit shall be sufficient collateral to 
secure any draw on Bond Loan proceeds related to the costs of issuance 
pursuant to 1808.304(b).
    (f) In the event of a payment default on the Bond Loan by an 
Eligible CDFI, the Qualified Issuer shall notify the CDFI Fund and 
request permission to draw from the Risk-Share Pool to cover any default 
of principal and interest payments due to the Bond Purchaser.
    (g) Amounts in the Risk Share Pool Fund will not be returned to 
Eligible CDFIs until maturity of all of the Bonds, and termination of 
all of the Bond Loans, within a Bond Issue. Upon maturity of all of the 
Bonds, and termination of the Bond Loans, within a Bond Issue, the pro 
rata amount of each Eligible CDFI's payments in the Risk-Share Pool 
shall be returned to each Eligible CDFI; provided however, that such 
Eligible CDFI has properly replenished any draws on the Risk-Share Pool 
attributed to nonpayment of its Bond Loan and the corresponding Bond.



Sec.1808.304  Eligible uses of Bond Loan proceeds.

    (a) Eligible uses. Bond Loan proceeds shall be only used for 
Eligible Purposes, to prefund one monthly installment of Bond Loan 
payments, and to pay Bond Issuance Fees. As a Bond Loan is repaid, such 
repaid Bond Loan proceeds must be held in the Relending Account and used 
for additional Secondary Loans, to the extent authorized under Sec.
1808.308.
    (b) Bond Issuance Fees. (1) Amounts not to exceed one percent of 
Bond Loan proceeds may be applied to pay Bond Issuance Fees. Bond Loan 
proceeds that are used to pay Bond Issuance Fees shall be applied in the 
following order of priority:
    (i) To pay reasonable transaction fees and expenses of the Qualified 
Issuer, its

[[Page 830]]

advisors and consultants, related to the Bond issuance (but not 
including any salaries or administrative costs of the Qualified Issuer 
unrelated to the Bond issuance);
    (ii) To pay reasonable transaction fees and expenses of the Master 
Servicer/Trustee, its advisors and consultants, related to the Bond 
issuance; and
    (iii) To pay reasonable transaction fees and expenses of the 
Eligible CDFI, its advisors and consultants, related to the making of 
the Bond Loan.
    (2) Any fees and expenses arising out of each transaction which, in 
the aggregate, exceed the one percent limit on Bond Issuance Fees 
payable from Bond Loan proceeds must be paid by the Eligible CDFI from 
monies other than Bond Loan proceeds.
    (c) Prefunding of Bond Loan payments. Bond Loan proceeds may be used 
to prefund one monthly installment of Bond Loan payments.



Sec.1808.305  Bond Loan terms and conditions.

    (a) Maturity date. The maturity date of a Bond Loan shall not be 
later than 30 years after the Bond Issue Date. The maturity date of Bond 
Loans may be earlier than, but may not be later than, the maturity date 
of the corresponding Bond.
    (b) Bond Loan general recourse obligation; Collateral. (1) The Bond 
Loan shall be a general recourse obligation of the Eligible CDFI.
    (2) The Bond Loan shall be further secured by a first lien of the 
Master Servicer/Trustee, on behalf of the Bondholder, on:
    (i) The Trust Estate;
    (ii) Qualified Secondary Loan Receivables; and
    (iii) Either:
    (A) An assignment of the Secondary Loan collateral (other than a 
Principal Loss Collateral Provision) from the Eligible CDFI to the 
Master Servicer/Trustee; or
    (B) Provision of a Principal Loss Collateral Provision for the 
benefit of the Master Servicer/Trustee, in accordance with the Bond Loan 
Requirements and the Secondary Loan Requirements, as applicable.
    (3) The CDFI Fund may, in its sole discretion, approve alternative 
forms of Bond Loan collateral.
    (4) A parity first lien on pledged collateral may be accepted, in 
the sole discretion of the CDFI Fund.
    (5) If any collateral becomes non-performing during the term of the 
Bond Loan, the Guarantor may require the applicable Eligible CDFI to 
substitute other collateral that is of equal quality to the initial 
collateral, when performing, acceptable to the Guarantor in its sole 
discretion.
    (6) An Eligible CDFI's parent organization, Affiliate, or an entity 
that is related to the Eligible CDFI through its management structure, 
may assume limited recourse obligation for the Bond Loan if it provides 
Credit Enhancement and/or pledges financial resources or such other 
financial support or risk mitigation that would enhance the Eligible 
CDFI's creditworthiness and its ability to repay the Bond Loan, thereby 
decreasing the risk underlying the Guarantee.
    (c) Disbursement of Bond Loan proceeds. (1) Bond Loans shall be 
draw-down loans. Disbursements of Bond Loan proceeds to the Eligible 
CDFI shall be made pursuant to a requisition process established by the 
Bond Purchaser and the CDFI Fund, which shall include a process by which 
the Qualified Issuer shall request an advance from the Bondholder under 
the Bond and a process by which the Eligible CDFI shall request 
disbursement from the Qualified Issuer.
    (2) Each requisition shall be accompanied by invoices and 
certifications by the Eligible CDFI (and the Secondary Borrower, if 
applicable) as to expenditure of proceeds for Eligible Purposes.
    (3) No Bond Loan proceeds may be disbursed later than 60 months 
after the Bond Issue Date. Any Bond Loan proceeds not disbursed will 
have been forfeited by the Eligible CDFI.
    (4) Disbursements to capitalize the Eligible CDFI's Loan Loss 
Reserves shall be made pursuant to a requisition process established by 
the Qualified Issuer and the CDFI Fund.
    (d) Amortization of Bond Loan. Each Bond Loan shall amortize in the 
same manner as the corresponding Bond;

[[Page 831]]

provided that principal and/or interest on each Bond Loan shall be 
payable to the Qualified Issuer in monthly installments based on the 
required quarterly or semi-annual installments, as applicable, due on 
the corresponding Bond; provided further, that each Eligible CDFI shall 
prefund one monthly payment installment not later than the thirtieth day 
prior to the first payment date of the corresponding Bond so that on the 
thirtieth day prior to such Bond payment date, the Eligible CDFI shall 
have paid in full all amounts due on the Bond payment date.
    (e) Optional prepayment of Bond Loan. The Bond Loan shall be subject 
to prepayment, in whole or in part, at the option of the Eligible CDFI 
in accordance with the optional prepayment provisions of the 
corresponding Bond (including the required prepayment minimums of 
$100,000) and shall be subject to the payment of a prepayment price, as 
determined by the Bondholder in accordance with the corresponding Bond.
    (f) Mandatory prepayment of Bond Loan. The Bond Loan shall be 
subject to mandatory prepayment by the Eligible CDFI in accordance with 
the mandatory prepayment provisions of the corresponding Bond.



Sec.1808.306  Conditions precedent to Bond and Bond Loan.

    The ability of the Qualified Issuer to issue a Bond and make a Bond 
Loan shall be subject to the satisfaction of the following conditions 
precedent:
    (a) Evidence satisfactory to the Qualified Issuer that the Eligible 
CDFI will comply with the terms and conditions of the Bond Loan 
documents, including repayment of the Bond Loan;
    (b) Evidence satisfactory to the Qualified Issuer, the Guarantor, 
and the CDFI Fund that the Eligible CDFI has the authority to enter into 
the Bond Loan, has secured the Credit Enhancement, if any, demonstrated 
a reasonable prospect of repayment of the Bond Loan, and pledged the 
collateral (including executed security documents, UCC-1 financing 
statements or mortgages, as applicable);
    (c) A Guarantee Application that has been approved by the Guarantor;
    (d) A satisfactory credit review by the CDFI Fund and in compliance 
with the Bond Loan Requirements, including submission of complete and 
accurate Guarantee Application materials, submitted in a timely manner, 
demonstrating the Eligible CDFI's ability to repay the Bond Loan;
    (e) Opinions of legal counsel to the Qualified Issuer and the 
Eligible CDFI;
    (f) Executed Bond Loan documents;
    (g) Organizational documents of the Eligible CDFI;
    (h) Certifications by the Qualified Issuer and Eligible CDFIs that 
Bond Proceeds and Bond Loan proceeds will not be used for lobbying by 
recipients of Federal loans or guarantees;
    (i) A statement that no default, event of default, or due and 
unsatisfied liability has occurred and is continuing with respect to any 
obligations of the Qualified Issuer and each Eligible CDFI to the CDFI 
Fund, the Guarantor, the Bond Purchaser, the U.S. Internal Revenue 
Service, or any other agency, authority or instrumentality of the 
Federal Government; and
    (j) Any other conditions precedent set forth in the Bond Loan 
documents, including documentation that any credit enhancements have 
been secured by the Eligible CDFI.



Sec.1808.307  Secondary Loan Eligible Purposes; Terms and conditions.

    (a) Eligible Purposes. Eligible CDFIs must make Secondary Loans for 
Eligible Purposes. Secondary Loan proceeds may not be used to capitalize 
loan loss reserves.
    (b) Making Secondary Loans. (1) If the Eligible CDFI uses Bond Loan 
proceeds to make Secondary Loans, the Eligible CDFI must execute 
Secondary Loan documents (in the form of promissory notes) with 
Secondary Borrowers as follows:
    (i) Not later than 12 months after the Bond Issue Date, Secondary 
Loan documents representing at least 50 percent of the Eligible CDFIs' 
Bond Loan proceeds allocated for Secondary Loans; and
    (ii) Not later than 24 months after the Bond Issue Date, Secondary 
Loan documents representing 100 percent of the Eligible CDFIs' Bond Loan 
proceeds allocated for Secondary Loans

[[Page 832]]

(excluding any amounts used for payment of Bond Issuance Fees pursuant 
to section 1808.304(b)).
    (2) In the event that the Eligible CDFI does not comply with the 
foregoing requirements of paragraphs (b)(1)(i) and (ii) of this section, 
the available Bond Loan proceeds at the end of the applicable period 
shall be reduced by an amount equal to the difference between the amount 
required by paragraphs (b)(1)(i) and (ii) minus the amount previously 
committed to the Secondary Loans in the applicable period. Consistent 
with the corresponding Bond Loan, the Secondary Loans shall be drawn 
down by the Secondary Borrowers upon demonstration of an Eligible 
Purpose.
    (c) Secondary Loan interest rate. The rate of interest with respect 
to each Secondary Loan shall be determined by each Eligible CDFI in 
accordance with the following limitations:
    (1) With respect to each Secondary Loan, the Eligible CDFI will be 
required to propose to the CDFI Fund:
    (i) A minimum and maximum spread over the corresponding Bond Loan 
Rate which will represent the standard minimum and maximum interest rate 
(Minimum Secondary Loan Rate and Maximum Secondary Loan Rate, 
respectively); and
    (ii) A maximum spread over the Maximum Secondary Loan Rate in event 
of a Secondary Loan default (Maximum Secondary Loan Default Spread).
    (2) The CDFI Fund reserves the right to evaluate, approve, modify, 
or disapprove the proposed Minimum Secondary Loan Rate, Maximum 
Secondary Loan Rate, and Maximum Secondary Loan Default Spread before 
approving any Guarantee Application.
    (d) Secondary Loan default rate. The Eligible CDFI may charge a 
default rate on the Secondary Loan so long as such rate does not exceed 
the Maximum Secondary Rate, plus the Maximum Secondary Loan Default 
Spread.
    (e) Secondary Loan maturity. The maturity date with respect to the 
Secondary Loan shall be in accordance with the requirements of the 
applicable Secondary Loan Requirements. The maturity date of Secondary 
Loans may be earlier than, but may not be later than, the maturity date 
of the corresponding Bond.
    (f) Secondary Loan collateral. (1) The Secondary Loan shall be 
payable from amounts made available pursuant to the Secondary Loan 
documents, and secured by:
    (i) A first lien of the Eligible CDFI on pledged collateral in an 
amount that is consistent with the loan-to-value ratio requirements set 
forth in the Secondary Loan Requirements; or
    (ii) A Principal Loss Collateral Provision for the benefit of the 
Master Servicer/Trustee, in accordance with the Bond Loan Requirements 
and the Secondary Loan Requirements, as applicable.
    (2) Qualified Secondary Loan Receivables may be used as collateral; 
provided however, that such collateral is secured by a first lien on the 
Secondary Loan collateral in accordance with the Bond Loan Requirements 
and the Secondary Loan Requirements, as applicable.
    (3) A parity first lien on pledged collateral may be accepted, in 
the sole discretion of the CDFI Fund.
    (g) Commitments for Secondary Loans. Each proposed Secondary Loan 
shall be approved by the credit committee of the Eligible CDFI or its 
equivalent, in accordance with the applicable Secondary Loan 
Requirements and the Eligible CDFI's own underwriting requirements.
    (h) Disbursement of Secondary Loan proceeds. (1) Consistent with the 
corresponding Bond Loan, Secondary Loans shall be draw-down loans. 
Disbursements of Secondary Loan proceeds to the Secondary Borrower shall 
be made pursuant to a requisition process established by the Qualified 
Issuer and the CDFI Fund and shall mirror the requirements for the 
disbursement of Bond Proceeds.
    (2) Each requisition shall be accompanied by invoices and 
certifications by the Secondary Borrower as to expenditure of proceeds 
for Eligible Purposes. The Eligible CDFI must also attest that the 
Secondary Loan conforms to the requirements set forth in the applicable 
Secondary Loan Requirements. In the case of Refinancings, the Eligible 
CDFI must also attest that the

[[Page 833]]

original loan was used for an Eligible Purpose.
    (3) Secondary Loan proceeds shall be disbursed in accordance with 
the applicable Secondary Loan Requirements which shall set forth, among 
other requirements, that Secondary Loan disbursements shall be made in 
accordance with commercially reasonable standards and timeframes for 
disbursement based on the nature of the Eligible Purposes. The Secondary 
Loan Requirements shall also specify what constitutes a commercially 
reasonable timeframe for disbursement in connection with specific types 
of Eligible Purposes. Notwithstanding the foregoing, each Eligible CDFI 
shall propose a timeframe for disbursement in connection with each 
Secondary Loan, which timeframe shall be subject to the requirements set 
forth in the Secondary Loan Requirements.
    (i) Amortization of Secondary Loans. Secondary Loans shall amortize 
as determined by the Eligible CDFI; provided that Secondary Loan 
amortization installments shall conform to the requirements of the 
applicable Secondary Loan Requirements.
    (j) Prepayment of Secondary Loans. Secondary Loans shall be subject 
to prepayment as determined by the Eligible CDFI; provided that the 
Secondary Loan documents may provide for modification of Secondary Loan 
terms (so long as such modification does not affect the corresponding 
Bond or Bond Loan) and shall provide for mandatory prepayment of the 
Secondary Loan from liquidation of collateral upon the exercise of 
default remedies by the Eligible CDFI, the Qualified Issuer or the 
Guarantor as required by the Bond, the Bond Loan documents, or the 
Agreement to Guarantee, as applicable.
    (k) Repayment of Secondary Loans. As Secondary Loans are repaid, the 
Eligible CDFI may, through the Relending Fund, Refinance and substitute 
as collateral for the Bond Loan other loan(s) for Eligible Purposes that 
meet the required Secondary Loan Requirements, provided that the 
Eligible CDFI makes Bond Loan payments as required. If the outstanding 
principal balance of the Bond Loan exceeds the outstanding principal 
balance of the Bond Loan in use for the Eligible Purposes, the Eligible 
CDFI shall repay the difference, which shall be deposited in the 
Relending Account, and credited to the corresponding Relending 
Subaccount.



Sec.1808.308  Relending Fund; Relending Account.

    (a) General. As Bond Loans are repaid, such amounts in excess of 
those required for debt service payments on the Bonds may be held in the 
Relending Account and used for additional Secondary Loans, to the extent 
authorized in this section.
    (b) Application of funds to Secondary Loans. Amounts on deposit in 
the Relending Account shall be applied by the Eligible CDFI to make 
additional Secondary Loans, the term of which shall not exceed the 
maturity of the Bond.
    (c) Requirements of Secondary Loans from Relending Account. 
Secondary Loans made from the Relending Account shall meet all the 
requirements of the Secondary Loan Requirements, and conform to the 
following additional conditions:
    (1) The Qualified Issuer has received and approved a Bond Loan 
commitment request submitted by the Eligible CDFI;
    (2) No material event has occurred and is continuing or is 
threatened at the Eligible CDFI level or Qualified Issuer level that 
adversely affects the Eligible CDFI, the Bond or the Bond Loan;
    (3) No Eligible CDFI event of default has occurred and is continuing 
with respect to the Bond Loan;
    (4) No Qualified Issuer event of default has occurred and is 
continuing with respect to the Bond;
    (5) There exists no unreplenished draw on the Risk-Share Pool Fund 
by the Eligible CDFI;
    (6) The maturity of Secondary Loans made from the Relending Fund 
shall not extend beyond the maturity date of the corresponding Bond; and
    (7) Any other conditions set forth in this interim rule, the 
applicable Notice of Guarantee Availability, the Secondary Loan 
Requirements or the Bond Loan documents.

[[Page 834]]

    (d) Relending Subaccounts. The balance of each subaccount of the 
Relending Fund (each a Relending Subaccount) shall not equal more than 
10 percent of the principal amount outstanding of the Bond Loan, minus 
the prorata share of the Risk-Share Pool, as of the Calculation Date 
(the Relending Subaccount Maximum).
    (e) Notification Date. For purposes of this section, Notification 
Date means the date on which the Master Servicer/Trustee notifies the 
Eligible CDFI that the balance in the applicable Relending Subaccount 
exceeds the applicable Relending Subaccount Maximum. Calculation Date 
means, following the Notification Date, the earlier of:
    (1) The date on which the balance in such Relending Subaccount 
becomes less than or equal to the applicable Relending Subaccount 
Maximum, or
    (2) Six months following the Notification Date.
    (f) Mandatory redemption. Any amounts retained in the Relending 
Subaccount that exceeds the Relending Subaccount Maximum by $100,000 or 
more as of the applicable Calculation Date shall be transferred to the 
Redemption Account of the Debt Service Fund (as defined in Sec.
1808.606(f)) to effectuate a mandatory redemption of the corresponding 
Bond in accordance with the terms of the Bond Trust Indenture. The 
determination of the actual amount on deposit on any Calculation Date 
shall exclude amounts then obligated pursuant to any executed promissory 
notes, whether then disbursed or undisbursed.



Sec.1808.309  Restrictions on uses of Bond Proceeds and Bond Loan 
proceeds.

    Pursuant to 12 U.S.C. 47123a(c)(5), Bond Loan proceeds shall not be 
used for:
    (a) Political activities;
    (b) Lobbying, whether directly or through other parties;
    (c) Outreach;
    (d) Counseling services;
    (e) Travel expenses;
    (f) For the salaries or administrative costs of the Qualified Issuer 
or any recipients of Bond Proceeds, other than those costs covered by 
Bond Issuance Fees;
    (g) To fund the Risk-Share Pool;
    (h) To pay fees other than Bond Issuance Fees; or
    (i) Any other use as may be specified in the applicable Notice of 
Guarantee Availability.



        Subpart D_Applications for Guarantee and Qualified Issuer



Sec.1808.400  Notice of Guarantee Availability.

    Interested parties will be invited to submit Qualified Issuer 
Applications and Guarantee Applications in accordance with this interim 
rule and the applicable Notice of Guarantee Availability. The NOGA will 
set forth application and eligibility requirements for an entity that 
wishes to be designated as a Qualified Issuer (including, in the CDFI 
Fund's sole discretion, the Designated Bonding Authority) and a 
Qualified Issuer that wishes to be approved to receive a Guarantee. The 
NOGA may also contain eligibility requirements, application procedures, 
and additional terms and conditions for entities wishing to serve as 
Servicers, Program Administrators, and other roles as may be determined 
by the CDFI Fund. The NOGA will advise interested parties on how to 
apply and will establish criteria, deadlines, and other Qualified Issuer 
and Guarantee Application requirements, including specifying any 
additional terms and conditions, limitations, special rules, procedures, 
and restrictions for a given application period.



Sec.1808.401  Application requirements.

    (a) Qualified Issuer Application. A Qualified Issuer applicant shall 
provide all required information in its Qualified Issuer Application to 
establish that it meets all criteria for designation as a Qualified 
Issuer and can carry out all Qualified Issuer responsibilities and 
requirements including, but not limited to, information that 
demonstrates that the applicant has the appropriate expertise, capacity, 
and experience and is qualified to make, administer and service Bond 
Loans for Eligible Purposes. After receipt of a Qualified Issuer 
Application, the CDFI Fund may request additional information and 
clarifying or technical information on the materials submitted as

[[Page 835]]

part of the Qualified Issuer Application. The CDFI Fund will provide the 
template for the Qualified Issuer Application.
    (b) Guarantee Application. (1) A Qualified Issuer shall provide all 
required information in its Guarantee Application to establish that it 
meets all criteria set forth in this interim rule to receive a Guarantee 
and can carry out all Guarantee requirements including, but not limited 
to, information that demonstrates that the Qualified Issuer has the 
appropriate expertise, capacity, and experience and is qualified to 
make, administer and service Bond Loans for Eligible Purposes. The 
Guarantee Application shall include a Capital Distribution Plan and a 
Secondary Capital Distribution Plan for each potential Eligible CDFI, as 
well as any other requirements set forth in the applicable Notice of 
Guarantee Availability or as may be required by the CDFI Fund in its 
sole discretion for the evaluation and selection of Guarantee 
applicants. After receipt of a Guarantee Application, the CDFI Fund may 
request additional information and clarifying or technical information 
on the materials submitted as part of the Guarantee Application. The 
CDFI Fund will provide the template for the Guarantee Application.
    (2) The Capital Distribution Plan shall include, but not be limited 
to, the following information:
    (i) Statement of Proposed Sources and Uses of Funds;
    (ii) For the Qualified Issuer and each Certified CDFI seeking a Bond 
Loan, an organizational capacity statement, a plan that describes how 
the proposed Bond Loan will meet Eligible Purposes, and a description of 
Credit Enhancement, if any;
    (iii) A Secondary Capital Distribution Plan, if applicable; and
    (iv) Assurances and certifications that not less than 100 percent of 
the principal amount of Bonds will be used to make Bond Loans for 
Eligible Purposes beginning on the Bond Issue Date, and that Secondary 
Loans shall be made as set forth in subsection 1808.307(b).



                   Subpart E_Evaluation and Selection



Sec.1808.500  Evaluation of Qualified Issuer Applications.

    (a) General. Each Qualified Issuer Application will be evaluated by 
the CDFI Fund and, if acceptable, the applicant will be designated as a 
Qualified Issuer, at the sole discretion of the CDFI Fund. The Qualified 
Issuer Application review and evaluation process will be based on 
established standard operating procedures, which may include interviews 
of applicants and/or site visits to applicants conducted by the CDFI 
Fund. Through the application review process, the CDFI Fund will 
evaluate Qualified Issuer applicants on a merit basis and in a fair and 
consistent manner. Each Qualified Issuer applicant will be reviewed on 
its ability to successfully implement the activities proposed in its 
Qualified Issuer Application and carry out the responsibilities of a 
Qualified Issuer over the life of the Bond. The CDFI Fund will 
periodically reevaluate the Qualified Issuer over the life of the Bond 
to ensure it meets the performance standards over the life of the 
facilities.
    (b) Eligibility and completeness. A Qualified Issuer applicant will 
not be eligible to be designated as a Qualified Issuer if it fails to 
meet the eligibility requirements described in Sec.1808.200 of this 
part and the applicable NOGA, or if it has not submitted complete and 
timely Qualified Issuer Application materials. The CDFI Fund reserves 
the right to request additional information from the Qualified Issuer 
applicant, as the CDFI Fund deems appropriate.
    (c) Substantive review. When evaluating Qualified Issuer 
Applications and selecting applicants to be designated as Qualified 
Issuers, the CDFI Fund will apply the criteria set forth in the Act at 
12 U.S.C. 4713a(a)(8), this interim rule, and the applicable NOGA 
including, but not limited to, the following evaluation factors:
    (1) The extent to which the Qualified Issuer Application 
demonstrates that the applicant possesses the appropriate expertise, 
capacity and experience, or other qualifications to manage the Bond 
Issue on the terms and conditions

[[Page 836]]

set forth in this interim rule and the applicable NOGA;
    (2) The expertise and experience of its Program Administrator and 
Servicers;
    (3) The Qualified Issuer applicant's demonstrated performance of 
financially sound business practices relative to the industry norm for 
bond issuers, as evidenced by reports of Appropriate Federal Banking 
Agencies, Appropriate State Agencies, and/or auditors;
    (4) Information that demonstrates the applicant, its Program 
Administrator and Servicers have the appropriate expertise, capacity, 
and experience or otherwise be qualified to originate, underwrite, 
service and monitor loan portfolios that serve Eligible Purposes and are 
targeted toward Low-Income and Underserved Rural Areas; and
    (5) Such other criteria that the CDFI Fund deems appropriate for 
purposes of evaluating the merits of a Qualified Issuer Application.



Sec.1808.501  Evaluation of Guarantee Applications.

    (a) General. After being designated as a Qualified Issuer, the 
Qualified Issuer may submit a Guarantee Application, seeking authority 
to issue Bonds and receive a Guarantee on the proposed Bond Issue. A 
successful Guarantee Application must:
    (1) Demonstrate that the Qualified Issuer and the proposed Eligible 
CDFIs have a feasible plan to successfully repay the Bond (including 
principal, interest, and call premium) and Bond Loans according to their 
respective terms, to the satisfaction of the CDFI Fund; and
    (2) Meet any other requirements deemed appropriate by the CDFI Fund 
and the Guarantor.
    (b) Eligibility and completeness. A Qualified Issuer will not be 
eligible to receive a Guarantee if it fails to meet the eligibility 
requirements set forth in Sec.1808.200 of this part and the applicable 
NOGA, or if it has not submitted complete and timely Guarantee 
Application materials. The CDFI Fund reserves the right to request 
additional information from the Qualified Issuer, or to reject a 
Guarantee Application as the CDFI Fund may deem appropriate.
    (c) Substantive review. In evaluating Guarantee Applications and 
selecting a Qualified Issuer to receive a Guarantee, the CDFI Fund and 
the Guarantor will apply the criteria set forth in this interim rule and 
the applicable NOGA including, but not limited to, the following 
evaluation factors:
    (1) The extent to which the Guarantee Application proposes 
strategies that demonstrate the Qualified Issuer's ability to implement 
the Capital Distribution Plan;
    (2) The adequacy of proposed risk mitigation provisions designed to 
protect the financial interests of the Federal Government based on 
information that includes, but is not limited to: the amount and quality 
of any Credit Enhancements; the amount and quality of any other 
financial resources to be pledged or risk mitigation to be provided by 
an Affiliate to the Eligible CDFI through its management structure, that 
will assume limited obligation for the Bond Loan and enhance the 
Eligible CDFI's creditworthiness and its ability to repay the Bond Loan; 
and the provision for an orderly retirement of principal;
    (3) The extent to which the Guarantee Application demonstrates that 
the Qualified Issuer possesses the appropriate expertise, capacity and 
experience, or other qualifications to manage the Bond Issue on the 
terms and conditions set forth in this interim rule and the applicable 
NOGA;
    (4) The Qualified Issuer's demonstrated performance of financially 
sound business practices relative to the industry norm for bond issuers, 
as evidenced by financial audits and reports of Appropriate Federal 
Banking Agencies, Appropriate State Agencies, independent regulators, or 
auditors;
    (5) Information that demonstrates that the Qualified Issuer has the 
appropriate expertise, capacity, and experience or is otherwise 
qualified to make, service and monitor Bond Loans;
    (6) The extent to which the proposed Bond Loans are likely to serve 
Low-Income Areas or Underserved Rural Areas; and
    (7) Such other criteria that the CDFI Fund and the Guarantor deem 
appropriate for purposes of evaluating the merits of a Guarantee 
Application.

[[Page 837]]



Sec.1808.502  Evaluation of Designated Bonding Authority Applications.

    In addition to the evaluation criteria for Qualified Issuers set 
forth above, DBA applicants must demonstrate the existence of resources 
to perform functions of the DBA as set forth in section 1808.201 and 
meet any other criteria set forth in the applicable NOGA and that may be 
required by the CDFI Fund.



Sec.1808.503  Consultation with Appropriate Regulatory Agencies.

    In the case of any CDFI Bond Guarantee Program applicant that is a 
Federally regulated financial institution (or an Affiliate thereof), the 
CDFI Fund may consult with the Appropriate Federal Banking Agency or 
Appropriate State Agency prior to designating the applicant as a 
Qualified Issuer, Servicer, Master Servicer/Trustee, Program 
Administrator or other role, making a final Guarantee commitment, 
issuing a Guarantee, and/or entering into an Agreement to Guarantee. The 
CDFI Fund also reserves the right, in its sole discretion, to consult 
with the Appropriate Federal Banking Agency and Appropriate State Agency 
with respect to any Eligible CDFI that is proposed to receive a Bond 
Loan or any Secondary Borrower that is proposed to receive a Secondary 
Loan.



Sec.1808.504  Selection of Qualified Issuers; Approval for Guarantee.

    (a) General. Designation of an applicant as a Qualified Issuer shall 
be based on the foregoing evaluation criteria and processes, and any 
other requirements or processes that may be set forth in the applicable 
NOGA. An applicant may simultaneously apply for Qualified Issuer 
designation and a Guarantee; however, the entity must be designated as a 
Qualified Issuer before being selected to receive a Guarantee.
    (b) The Guarantor will determine whether a Qualified Issuer will be 
authorized to issue Bonds and receive a Guarantee based on the foregoing 
evaluation criteria and processes, and any other requirements or 
processes set forth in the applicable NOGA.
    (1) Not later than 30 days after receipt of a complete Guarantee 
Application (or 30 days after designation as a Qualified Issuer, if 
submitting simultaneous applications) by a Qualified Issuer, the CDFI 
Fund shall provide an internal Department Opinion regarding compliance 
by the Qualified Issuer with the requirements of the CDFI Bond Guarantee 
Program.
    (2) The Guarantor shall approve or deny a Guarantee Application no 
later than 90 days after receipt of a complete Guarantee Application, 
and all other required information by the CDFI Fund or the Guarantor 
with respect to a request for such Guarantee.
    (c) The Guarantor may limit the number of Guarantees made per year 
or Guarantee Applications accepted to ensure that a sufficient 
examination of Guarantee Applications is conducted.
    (d) The CDFI Fund shall notify the Qualified Issuer in writing of 
the Guarantor's approval or disapproval of a Guarantee Application.
    (e) The Guarantor reserves the sole discretion to approve a 
Guarantee Application for a Guarantee amount that is less than that 
which is requested.
    (f) In the event that there are material changes after submission of 
a Guarantee Application (including, but not limited to, a revision of 
the Capital Distribution Plan or a change in the Certified CDFIs that 
are proposed for receiving Bond Loans) prior to or after the designation 
as a Qualified Issuer or approval of a Guarantee Application or 
Guarantee, the Qualified Issuer or Guarantee applicant must notify the 
CDFI Fund of such material changes information in a timely and complete 
manner. The Guarantor will evaluate such material changes, along with 
the Guarantee Application, to approve or deny the Guarantee Application 
and/or determine whether to modify the terms and conditions of the 
Guarantee.



               Subpart F_Terms and Conditions of Guarantee



Sec.1808.600  Full faith and credit and incontestability of Guarantee.

    The full faith and credit of the Federal Government is pledged to 
the payment of all Bonds issued as part of a Bond Issue with respect to 
Verifiable Losses of Principal, Interest, and Call Premium. An executed 
Guarantee shall

[[Page 838]]

be conclusive evidence that: the Guarantee has been properly authorized; 
the underlying Bond qualified for such Guarantee; and, but for fraud or 
material misrepresentation, such Guarantee will be presumed to be 
legally valid, binding, and enforceable.



Sec.1808.601  Assignment and transfer of Guarantee.

    The Guarantee shall be fully assignable and transferrable to the 
capital markets, on terms and conditions that are consistent with 
comparable bonds guaranteed by the Federal Government and satisfactory 
to the Guarantor and the CDFI Fund.



Sec.1808.602  Offer of Guarantee.

    Upon approval of the Guarantee Application, the Qualified Issuer 
will receive from the Guarantor an offer of Guarantee that will set 
forth certain required terms and conditions to be fulfilled prior to 
issuance of the Guarantee.



Sec.1808.603  Issuance of Guarantee.

    (a) Conditions precedent. The commitment of the Guarantor to issue a 
Guarantee shall be subject to conditions precedent that are usual and 
customary for financings of this type or otherwise deemed appropriate by 
the Guarantor including, but not limited to, the following:
    (1) The conditions precedent to the Bond Issue and the making of the 
Bond Loan have been satisfied, including a credit review that indicates 
a reasonable prospect of repayment as demonstrated by the CDFI Fund's 
analysis of the cash flow and collateral provisions of the Eligible 
CDFI;
    (2) The Qualified Issuer shall have submitted to the CDFI Fund a 
complete Guarantee Application, containing all required information 
relating to the Bond and the Bond Loan, as required by the Guarantor;
    (3) There have been no material changes to the Bond and Bond Loan 
documents from the forms thereof approved by the Guarantor and the CDFI 
Fund;
    (4) The Bond Purchaser and the Qualified Issuer shall have executed 
a Bond Purchase Agreement; and
    (5) Such additional information or documents as may be required by 
the CDFI Fund, the Guarantor, or the Bond Purchaser.
    (b) Rescission of approval. The Guarantor, in its sole discretion, 
may rescind its approval of a Guarantee Application if:
    (1) The Guarantor or the CDFI Fund determines that the Qualified 
Issuer cannot, or is unwilling to, provide adequate documentation and 
proof of compliance with paragraph (a) of this section within the time 
provided for in the offer of Guarantee, or
    (2) The Guarantor or the CDFI Fund determines, in its sole 
discretion, that the Qualified Issuer no longer meets applicable CDFI 
Bond Guarantee Program criteria and requirements.



Sec.1808.604  Agreement to Guarantee.

    (a) General. The Qualified Issuer must enter into an Agreement to 
Guarantee that sets forth the terms and conditions on which the 
Guarantor will provide the Guarantee of the Bonds issued as part of a 
Bond Issue.
    (b) Terms and conditions. The terms and conditions of the Agreement 
to Guarantee may include, but are not limited to, the following:
    (1) The form and amount of Guarantee;
    (2) Any prohibited amendments of Bond Documents or limitations on 
transfer of the Guarantee;
    (3) Terms and conditions of the Risk-Share Pool and any Credit 
Enhancement that may be required by the CDFI Fund and the Guarantor;
    (4) Provisions regarding the Agency Administrative Fee;
    (5) Representations and warranties of the Qualified Issuer;
    (6) Pledged security;
    (7) Financial covenants;
    (8) Events of default and remedies;
    (9) Assignment of Bond Loans to the Guarantor;
    (10) Guarantor payment does not discharge Qualified Issuer; 
subrogation;
    (11) Undertakings for the benefit of the Bondholder including: 
notices, registration, prohibited amendments, prohibited transfers, and 
indemnification;
    (12) Governing law;
    (13) Terms and conditions of Bond Loans;

[[Page 839]]

    (14) Prohibition against subordination; and
    (15) Such other matters as the Guarantor or the CDFI Fund may deem 
necessary or appropriate.
    (c) Access to funds. In the event that the Qualified Issuer does not 
execute Bond Loan agreements for 100 percent of the Bond principal on 
the Bond Issue Date, the Qualified Issuer will have no further access to 
the amount of funds for which Bond Loan agreements were not executed.



Sec.1808.605  Agency Administrative Fee.

    The Qualified Issuer shall pay the CDFI Fund annually a fee equal to 
10 basis points (0.1 percent) of the amount of the unpaid principal of 
the Bond(s). The initial Agency Administrative Fee must be paid in full 
as a condition to closing any Agreement to Guarantee, no later than the 
effective date of the Agreement to Guarantee.



Sec.1808.606  Program Administrator; Servicer; Master Servicer/Trustee.

    (a) General. Bond Loans shall be overseen by qualified Program 
Administrators, Servicers, and a Master Servicer/Trustee. For purposes 
of maximizing efficiencies and minimizing costs, Program Administrator 
and Servicer duties may be consolidated and performed by Qualified 
Issuers.
    (b) Program Administrator-- (1) Duties. The duties of a Program 
Administrator, which may be performed by the Qualified Issuer, shall 
include, but not be limited to:
    (i) Approving and qualifying Eligible CDFI applications for 
participation in the Guarantee Application;
    (ii) Bond and Bond Loan packaging;
    (iii) Reviewing and approving Secondary Loan commitments from 
Eligible CDFIs for funds from the Bondholder or the Relending Account 
based on the Secondary Loan Requirements;
    (iv) Compliance monitoring of Bond Loans and Secondary Loans;
    (v) Preparing and submitting reports required by this interim rule; 
and
    (vi) All other duties and related services that are customarily 
expected of a Program Administrator, and as may be required by the CDFI 
Fund or the Guarantor.
    (2) Selection. There shall be one Program Administrator for each 
Bond Issue. The Qualified Issuer applicant shall provide, in its 
Qualified Issuer Application, information on its proposed Program 
Administrator that demonstrates the appropriate expertise, capacity and 
experience, as well as any additional information that may be required 
to meet the criteria set forth in the applicable Notice of Guarantee 
Availability, including, but not limited to, information on the entity's 
management and organization, loan administration, and financial 
capability.
    (3) Fees and expenses. The Program Administrator's administrative 
fees and expenses shall be paid by the Eligible CDFI in accordance with 
applicable financing documents.
    (c) Servicer-- (1) Duties. The duties of a Servicer, which may be 
performed by the Qualified Issuer, shall include, but not be limited to:
    (i) Billing and collecting Bond Loan payments from Eligible CDFIs;
    (ii) Initiating collection activities on past-due Bond Loans;
    (iii) Transferring Bond Loan payments to the respective funds and 
accounts managed by the Master Servicer/Trustee;
    (iv) Bond Loan administration and servicing;
    (v) Systematic and timely reporting of Bond Loan performance through 
remittance and servicing reports, and providing such reports as may be 
required by this interim rule;
    (vi) Proper measurement of annual outstanding Bond Loan 
requirements; and
    (vii) All other duties and related services that are customarily 
expected of Servicers, and as may be required by the CDFI Fund or the 
Guarantor.
    (2) Selection. There shall be one Servicer for each Bond Issue. Each 
Qualified Issuer applicant shall provide, in its Qualified Issuer 
Application, information on its proposed Servicer that demonstrates the 
appropriate expertise, capacity and experience, as well as any 
additional information that as may be required to meet the criteria set 
forth in the applicable Notice of Guarantee Availability

[[Page 840]]

including, but not limited to, information on the entity's management 
and organization, loan servicing, and financial capability.
    (3) Fees and expenses. The Servicer's administrative fees and 
expenses for each Bond Issue shall be paid by the associated Eligible 
CDFIs in accordance with applicable financing documents.
    (d) Special Servicer-- (1) Duties. The duties of the Special 
Servicer shall be performed by the Master Servicer/Trustee and shall 
include, but not be limited to:
    (i) Negotiating the restructuring of Bond Loans that are in or about 
to enter into an event of Default;
    (ii) Initiating foreclosure action and appointing a receiver; and
    (iii) Enforcing deficiency judgments.
    (2) Evaluation.The Master Servicer/Trustee applicant shall provide, 
in its Master Servicer/Trustee application, information on its proposed 
Special Servicer capabilities and experience. These capabilities may be 
performed by the Master Servicer/Trustee or an entity designated by the 
Master Servicer/Trustee. The CDFI Fund shall evaluate the Master 
Servicer/Trustee applicant's or its designee's ability to perform the 
duties of Special Servicer based on the capacity and experience in the 
following areas:
    (i) Restructuring, recovery, and foreclosure of loans that are 
similar to Bond Loans;
    (ii) Financial strength and capacity;
    (iii) Managing regional or national intake, processing, or servicing 
operational systems and infrastructure of loans that are similar to Bond 
Loans;
    (iv) Managing regional or national originator communication systems 
and infrastructure;
    (v) Developing and implementing training and other risk management 
strategies on a regional or national basis;
    (vi) Compliance monitoring and reporting; and
    (vii) Such other criteria that may be required by the CDFI Fund.
    (3) Fees and expenses. The Bond Trust Indenture will outline the 
Special Servicer's administrative fees and expenses; these fees shall be 
paid by the Eligible CDFI in accordance with the Bond Trust Indenture 
and related documents.
    (e) Master Servicer/Trustee-- (1) Duties. The duties of the Master 
Servicer/Trustee shall include, but not be limited to:
    (i) The fiduciary power to enforce the terms of Bonds and the Bond 
Loans pursuant to the Bond Trust Indenture;
    (ii) Establishing and managing the funds and accounts set forth in 
this interim rule;
    (iii) Providing such reports as required;
    (iv) Overseeing the activities of Servicers and managing loan 
administration;
    (v) Servicing and monitoring of Bond Issues with respect to 
repayment obligations to the Bondholder and the terms of the Agreement 
to Guarantee;
    (vi) Tracking the movement of funds between the accounts of the 
Master Servicer/Trustee and all Servicers;
    (vii) Ensuring orderly receipt of the monthly remittance and 
servicing reports of the Servicers;
    (viii) Monitoring collection and foreclosure actions;
    (ix) Aggregating the reporting and distribution of funds to the 
Qualified Issuer, CDFI Fund, and the Bondholder, as necessary;
    (x) Removing and replacing Servicers, as necessary;
    (xi) Performing systematic and timely reporting of Bond Loan 
performance compiled from Servicers' reports, and providing such reports 
as required in this interim rule;
    (xii) Ensuring proper distribution of funds to Eligible CDFIs, 
servicing the Bonds, and repayment to the Bondholder; and
    (xiii) All other duties and related services that are customarily 
expected of a Master Servicer/Trustee, and as may be required by the 
CDFI Fund.
    (2) Selection. There shall be one Master Servicer/Trustee for the 
CDFI Bond Guarantee Program. The CDFI Fund shall solicit applications 
and make a selection of a Master Servicer/Trustee based on the capacity 
and experience of the applicant in the areas set forth in paragraph 
(a)(1) of this section and in the following paragraphs (a)(2)(i) through 
(vi):

[[Page 841]]

    (i) Administration, servicing, and monitoring of loans that are 
similar to Bond Loans;
    (ii) Financial strength and capacity;
    (ii) Managing regional or national intake, processing, or servicing 
operational systems and infrastructure of loans that are similar to Bond 
Loans;
    (iii) Managing regional or national originator communication systems 
and infrastructure;
    (iv) Developing and implementing training and other risk management 
strategies on a regional or national basis;
    (v) Compliance monitoring and reporting; and
    (vi) Such other criteria that may be required by the CDFI Fund.
    (3) Fees and expenses. The Master Servicer/Trustee's administrative 
fees and expenses shall be paid by the Eligible CDFI in accordance with 
the Bond Trust Indenture and related documents.
    (f) Funds and accounts. The following funds shall be established by 
the Master Servicer/Trustee at the time of execution of the Bond Trust 
Indenture, on behalf of the Qualified Issuer and for the benefit of the 
Bondholder. On the Bond Issue Date, separate accounts shall be 
established therein for each Bond and, furthermore, within each account 
there shall be established a subaccount for each Bond Loan on the date 
of the closing of each Bond Loan:
    (1) The Project Fund, and therein a Project Account for each Bond: 
All disbursements of Bond Proceeds from the Bondholder pursuant to the 
requisition processes shall be deposited in the applicable Project 
Account or Subaccount, and the Master Servicer/Trustee shall disburse 
advances with respect to the Bond Loan to the Eligible CDFI therefrom;
    (2) The Revenue Fund, and therein a Revenue Account for each Bond: 
All payments of debt service or prepayments on the Bond Loan pursuant to 
the Bond Loan documents, other payments by the Eligible CDFI pursuant to 
the Bond Loan documents, and any investment income derived from the 
corresponding accounts or subaccounts in the Debt Service Fund shall be 
deposited in the accounts and subaccounts of the Revenue Fund;
    (3) The Debt Service Fund, and therein an Interest Account, a 
Principal Account and a Redemption Account for each Bond: Not later than 
30 days prior to a Bond payment date, the Master Servicer/Trustee shall 
make the following transfers from the applicable account or subaccount 
of the Revenue Fund:
    (i) All scheduled payments (amortization installments or at 
maturity) of principal received from the Eligible CDFI on the Bond Loan 
shall be transferred to the Principal Account or Subaccount;
    (ii) All scheduled payments (amortization installments or at 
maturity) of interest received from the Eligible CDFI on the Bond Loan 
shall be transferred to the Interest Account or Subaccount; and
    (iii) All prepayments of principal, interest and premium, if any, 
received from the Eligible CDFI on the Bond Loan shall be transferred to 
the Redemption Account or Subaccount;
    (4) The Administrative Fees Fund, and therein an Administrative Fees 
Account for each Bond: All fees necessary for administering and 
servicing the Bond or the Bond Loan (including the Agency Administrative 
Fee and Bond Issuance Fees), payable by the Eligible CDFI pursuant to 
the Bond Loan documents, shall be deposited in the applicable account or 
subaccount of the Administrative Fees Fund and, thereafter, shall be 
disbursed by the Master Servicer/Trustee to the subject recipient in 
accordance with the terms of each such payment;
    (5) The Risk-Share Pool Fund, and therein a Risk-Share Pool Account 
for each Bond, in accordance with Sec.1808.303 of this part;
    (6) The Relending Fund, and therein a Relending Account for each 
Bond, in accordance with Sec.1808.308 of this part; and
    (7) Such other funds and accounts as may be required by the CDFI 
Fund and the Qualified Issuer in connection with a Bond Issue, Bond or 
Bond Loan.
    (g) Other funds and accounts. The Master Servicer/Trustee shall be 
permitted to establish such other funds and accounts as deemed necessary 
to administer the requirements of the Bond Trust Indenture. Each account

[[Page 842]]

shall be designated by the name of the applicable Bond and each 
subaccount shall be designated by the name of the applicable Bond Loan.
    (h) No commingling of funds. No commingling of monies shall be 
permitted between accounts or subaccounts.
    (i) Permitted investments. Monies on deposit in the Revenue Fund, 
the Debt Service Fund, the Risk-Share Pool Fund, the Relending Fund, if 
invested, shall be invested in U.S. Treasury securities with maturities 
that do not exceed the dates on which monies will be required for 
anticipated purposes and may be sold to the extent funds are needed 
sooner than anticipated. All interest shall be credited to the relevant 
account in the relevant fund.

    Editorial Note: At 78 FR 8310, Feb. 5, 2013, part 1808 was added 
with two paragraphs (e)(2)(ii) in Sec.1808.606.



Sec.1808.607  Representations and warranties of Qualified Issuer 
with respect to Guarantee.

    The Qualified Issuer shall represent and warrant to the Guarantor, 
at the execution of any Agreement to Guarantee to which it is a party 
and thereafter at the closing of any Bond Loan and the issuance of any 
Bond, the following:
    (a) The Qualified Issuer is duly organized, validly existing and in 
good standing in its State of organization with the power and authority 
to enter into the agreements and consummate the transactions thereby 
contemplated;
    (b) The information contained in the Qualified Issuer Application is 
true and correct;
    (c) The Bonds, when executed, are and will be duly authorized, 
executed, valid, binding and enforceable obligations of the Qualified 
Issuer;
    (d) Except as disclosed to the Guarantor, no claim or litigation is 
pending or threatened which would materially adversely affect the 
Qualified Issuer's ability to consummate the transactions contemplated 
by the Agreement to Guarantee, the Bond, or the Bond Loan;
    (e) The consummation of the transactions contemplated by the 
Agreement to Guarantee, the Bond, and the Bond Loan will not conflict 
with or constitute an event of default under any law or agreement to 
which the Qualified Issuer is subject;
    (f) No authorization, approval or consent of a governmental 
authority is necessary on the part of the Qualified Issuer to consummate 
the transactions contemplated by the Bond or the Bond Loan which has not 
been obtained;
    (g) No funds from any other CDFI Fund program are being used to pay 
principal, interest, fees, administrative costs, or issuance costs 
(including Bond Issuance Fees) related to the CDFI Bond Guarantee 
Program, or to fund the Risk-Share Pool; and
    (h) Any other representation or warranty deemed appropriate by the 
Guarantor, the CDFI Fund or the Bond Purchaser.



Sec.1808.608  Representations and warranties of Eligible CDFI with
respect to each Bond Loan.

    The Eligible CDFI shall represent and warrant to the Qualified 
Issuer, at the execution of each set of Bond Loan documents and, 
thereafter, until repayment in full of such Bond Loan, the following:
    (a) The performance by the Eligible CDFI under the Bond Loan 
documents is duly authorized, does not require consent or approval of 
any governmental authority not already obtained, does not constitute a 
default of any law or agreement to which the Eligible CDFI is subject, 
will not result in the imposition of any lien (other than pursuant to 
the Bond Loan), and constitutes a valid, binding and enforceable 
obligation of the Eligible CDFI;
    (b) The information provided by the Eligible CDFI fairly represents 
the financial position (in conformity with generally accepted accounting 
principles), experience and capacity of the Eligible CDFI, and there 
have been no material adverse changes in the Eligible CDFI's financial 
condition since the date of such financial information;
    (c) No claim or litigation is pending or threatened which would 
materially adversely affect the Eligible CDFI's ability to consummate 
the transactions contemplated by the Bond Loan, or repay the Bond Loan;
    (d) No event of default or other material event which could become 
an event

[[Page 843]]

of default has occurred and is continuing;
    (e) The Eligible CDFI has filed all Federal, State and local tax 
returns required and paid all liabilities in connection therewith;
    (f) The Eligible CDFI has good and marketable title to the 
collateral;
    (g) The Bond Loan will be applied to Eligible Purposes;
    (h) The information provided in the Guarantee Application is true 
and accurate;
    (i) No default, event of default or due and unsatisfied liability 
has occurred and is continuing with respect to any obligations of the 
Eligible CDFI to the Guarantor, the CDFI Fund, the Bond Purchaser, the 
U. S. Internal Revenue Service, or any other agency, authority or 
instrumentality of the Federal Government;
    (j) No funds from any other CDFI Fund program are being used to pay 
principal, interest, fees, administrative costs, or issuance costs 
(including Bond Issuance Fees) related to the CDFI Bond Guarantee 
Program, or to fund the Risk-Share Pool; and
    (k) Any other representations and warranties set forth in the Bond 
Loan documents.



Sec.1808.609  Representations and warranties of Secondary Borrower.

    Each Secondary Borrower shall make identical representations and 
warranties as the Eligible CDFI and shall make specific representations 
and warranties with respect to the collateral and the project that is 
proposed to be financed by the Secondary Loan, upon which the Eligible 
CDFI, the Qualified Issuer, the Bondholder, the Guarantor, and the CDFI 
Fund may rely. These representation and warranties shall be to the 
satisfaction of the Guarantor and the CDFI Fund.



Sec.1808.610  Covenants of Qualified Issuer with respect to Guarantee.

    The Qualified Issuer shall covenant in the Agreement to Guarantee 
that it will:
    (a) Furnish to the CDFI Fund, at the Qualified Issuer's expense, all 
annual and periodic financial reporting as described in Sec.1808.619 
of this part;
    (b) Maintain books and records related to each Bond Loan, the 
collateral and the project that is to be financed by Bond Proceeds, and 
allow inspection thereof;
    (c) Preserve its corporate existence and Certified CDFI status, if 
applicable;
    (d) Comply with all laws to which it is subject;
    (e) Maintain its solvency;
    (f) To the extent it assigns any of its obligations under the 
agreement to an Affiliate, guarantee performance of such obligations;
    (g) Allow audits and investigations by the CDFI Fund, the Treasury 
Inspector General, the Comptroller General, or such other Federal 
Government offices as may be designated by the Guarantor or the CDFI 
Fund;
    (h) Provide such reports as required in Sec.1808.619 of this part;
    (i) Make, execute and deliver such instruments as the Guarantor or 
the CDFI Fund may reasonably request;
    (j) Sign and certify as true and correct all Bond Documents and Bond 
Loan documents;
    (k) Not amend or modify any agreement related to the Bond without 
the consent of the Bondholder, the Guarantor, or the CDFI Fund, as 
applicable;
    (l) Comply with the terms and conditions of the Agreement to 
Guarantee, the Bond Trust Indenture, and the Bond and Bond Loan 
documents;
    (m) Immediately notify the Guarantor and the CDFI Fund of any 
material change or event that affects any representation, warranty or 
covenant of the Guarantee, Bond or Bond Loan documents;
    (n) Pay and discharge all Federal, State and local taxes; andand
    (o) Comply with all other covenants set forth in the Bond Documents 
and Bond Loan documents.



Sec.1808.611  Covenants of Eligible CDFI with respect to Bond and
each Bond Loan.

    The Eligible CDFI shall covenant in the Bond Loan agreement that it 
will:
    (a) Furnish to the Qualified Issuer, at the Eligible CDFI's expense, 
certain annual and periodic financial and performance reporting;

[[Page 844]]

    (b) Maintain books and records related to the Bond Loan and 
Secondary Loans, the collateral and the project that is to be financed 
by Bond Loan proceeds, and allow inspection thereof;
    (c) Preserve its corporate existence and Certified CDFI status;
    (d) Comply with all laws to which it is subject;
    (e) Maintain insurance, as required by the Qualified Issuer, against 
such risks as would customarily be maintained by commercially reasonable 
companies in a similar line of business;
    (f) Pay and discharge all Federal, State and local taxes;
    (g) Ensure proper use of proceeds of the Bond Loan;
    (h) Pay all required administrative expenses;
    (i) Indemnify the Guarantor, the CDFI Fund, the Qualified Issuer and 
the Master Servicer/Trustee and their Affiliates;
    (j) Collaterally assign all rights, title, and interest in and to 
Secondary Loan collateral to the Master Servicer/Trustee;
    (k) Maintain the collateral;
    (l) Enforce the covenants against the Secondary Borrowers;
    (m) Be bound, to the extent applicable, to provisions of the Bond 
Trust Indenture;
    (n) Periodically, as directed by the CDFI Fund, furnish certain 
information designed to measure the impacts of the Bond Loan and the 
CDFI Bond Guarantee Program;
    (o) Periodically, as directed by the CDFI Fund, furnish to the 
Qualified Issuer and/or the CDFI Fund updates to the Capital 
Distribution Plan; and
    (p) Comply with all other representations and warranties set forth 
in the Bond Loan documents.



Sec.1808.612  Specific financial covenants of Eligible CDFI.

    The Eligible CDFI shall covenant in Bond Loan documents that it will 
comply with specific financial requirements as required by the Guarantor 
and the CDFI Fund. Such financial requirements will be determined based 
upon the quantity and the character of the existing loan facilities of 
the Eligible CDFI, among other factors. The specific financial covenants 
may include, but are not limited to, one or more of the following 
measures: consolidated net asset ratio; consolidated unrestricted net 
asset ratio; and minimum available liquidity (or, in the case of 
Eligible CDFIs that are regulated financial institutions, such ratios 
and information as may be required by the applicable Appropriate Federal 
Banking Agency or Appropriate State Agency). The specific financial 
requirements shall be measured based upon such Eligible CDFI's financial 
statements prepared in accordance with generally accepted accounting 
principles and consistent with historically applied accounting policies 
and practices.



Sec.1808.613  Negative covenants of Eligible CDFI.

    The Eligible CDFI will covenant in Bond Loan documents that it will 
comply with certain negative covenants, as required by the CDFI Fund 
including, but not limited to, that it will:
    (a) Not incur or issue additional long-term or short-term debt to 
the extent that the incurrence of such additional debt would violate the 
specific financial covenants of such Eligible CDFI under the Bond Loan; 
and
    (b) Not permit liens on all or any part of the Bond Loan collateral, 
except as permitted pursuant to the Bond Loan documents, and only then 
to the extent consistent with the applicable laws and regulations 
governing the Bond Loan and as approved by the CDFI Fund.



Sec.1808.614  Covenants of Secondary Borrower with respect
to Secondary Loan.

    In addition to making specific representations and warranties with 
respect to the collateral and the project being financed by the 
Secondary Loan proceeds, each Secondary Borrower shall covenant in the 
Secondary Loan agreement that it will:
    (a) Periodically, as directed by the Eligible CDFI, furnish to the 
Eligible CDFI certain annual and periodic financial and performance 
reporting;

[[Page 845]]

    (b) Maintain books and records related to the Secondary Loan, the 
collateral and the project that is to be financed by Bond Loan proceeds, 
and allow inspection thereof;
    (c) Preserve its corporate existence, as applicable;
    (d) Comply with all laws to which it is subject;
    (e) Maintain insurance, as directed by the Eligible CDFI, against 
such risks as would customarily be maintained by commercially reasonable 
companies in a similar line of business;
    (f) Pay and discharge all Federal, State and local taxes;
    (g) Ensure proper use of proceeds of the Secondary Loan;
    (h) Maintain the collateral;
    (i) Periodically, as directed by the Eligible CDFI, furnish to the 
Eligible CDFI certain information designed to measure the impacts of the 
Bond Loan and the CDFI Bond Guarantee Program; and
    (j) Comply with all other representations and warranties set forth 
in the Secondary Loan documents.



Sec.1808.615  Negative covenants of Secondary Borrower.

    Any additional debt of the Secondary Borrower shall be in accordance 
with the requirements set forth in the applicable Secondary Loan 
Requirements and the Secondary Loan agreement, and may include, but 
shall not be limited to, that:
    (a) The Secondary Borrower will not incur or issue additional long-
term or short-term debt payable from and having a lien on all or a 
portion of the Secondary Loan collateral that is
    (1) Equally and ratably secured; or
    (2) Superior or senior to the lien thereon of the Secondary Loan as 
more specifically set forth in the Secondary Loan agreement; and
    (b) So long as no event of default has occurred and is continuing, 
the Secondary Borrower may, subject to the approval of the Eligible 
CDFI, incur or issue at any time additional debt payable from and having 
a lien on all or a portion of the Secondary Loan collateral that is 
subordinate or junior to the lien thereon of the Secondary Loan and 
enter into subordinate credit facility agreements, provided that no 
events of default have occurred and are continuing under the Secondary 
Loan documents or any parity senior loan documents and that such debt 
meets the requirements set forth in paragraph (a) of this section.



Sec.1808.616  Events of default and remedies with respect to Bonds.

    (a) Events of default. An event of default with respect to any Bond 
shall include, but not be limited to:
    (1) Nonpayment of interest or the Agency Administrative Fee when due 
and payable;
    (2) Nonpayment of principal or prepayment price when due and 
payable;
    (3) The use of Bond Proceeds for any purpose other than an Eligible 
Purpose; and
    (4) Any other events of default set forth in the Bond or the Bond 
Trust Indenture.
    (b) Default of other Bonds. An event of default under one Bond shall 
not constitute an event of default under another Bond.
    (c) Remedies. Pursuant to the Agreement to Guarantee and the Bond 
Trust Indenture, remedies upon an event of default shall include, but 
not be limited to, the following:
    (1) Declaring the entire amount of unpaid principal and interest on 
the applicable Bond immediately due and payable; and
    (2) Exercising all remedies available under the applicable Agreement 
to Guarantee and the Bond Trust Indenture.
    (d) Notice and comment. Prior to imposing any remedies pursuant to 
this section or the Agreement to Guarantee, the Guarantor shall, to the 
maximum extent practicable, provide the Qualified Issuer with written 
notice of the proposed sanction and an opportunity to comment. Nothing 
in this section, however, shall provide a Qualified Issuer the right to 
any formal or informal hearing or comparable proceeding not otherwise 
required by law.



Sec.1808.617  Events of default and remedies with respect to
Bond Loans.

    (a) Events of default. The following shall constitute an event of 
default with respect to each Bond Loan:

[[Page 846]]

    (1) Nonpayment of interest when due and payable;
    (2) Nonpayment of principal or prepayment price when due and 
payable;
    (3) Failure of the Eligible CDFI to perform any condition or 
covenant under any Bond Loan document;
    (4) Any representation or warranty of the Eligible CDFI made in 
connection with the Guarantee Application or the Bond Loan is false or 
incorrect in any material respect;
    (5) Principal or interest on any indebtedness of the Eligible CDFI 
or any subsidiary of the Eligible CDFI in excess of $100,000 is not paid 
when due (subject to a cure period);
    (6) The holder of any junior or parity lien on collateral institutes 
a proceeding to enforce a lien on the collateral;
    (7) The Eligible CDFI files bankruptcy or consents to the 
appointment of a receiver or trustee for itself or the collateral;
    (8) Any money judgment is filed against the Eligible CDFI and 
remains unvacated for a period of 60 days from filing;
    (9) The use of Bond Loan proceeds for any purpose other than an 
Eligible Purpose; or
    (10) Any other events of default set forth in the Bond Loan 
documents.
    (b) Remedies. Remedies of the Qualified Issuer upon an event of 
default include, but are not limited to, the following:
    (1) Declaring the entire amount of unpaid principal and interest on 
the applicable Bond Loan immediately due and payable;
    (2) Applying for appointment of a receiver or trustee for the 
collateral;
    (3) At the direction of the Guarantor, terminating the Bond Loan 
agreement, declaring the entire amount of unpaid principal and interest 
on the applicable Bond Loan immediately due and payable; and
    (4) Exercising all remedies available under the applicable Bond Loan 
agreement, including declaring the Bond Loan Payment Default Rate in 
effect.
    (c) Enforcement rights. The Guarantor reserves all rights to enforce 
remedies upon an event of default.



Sec.1808.618  Events of default and remedies with respect to 
Secondary Loans.

    (a) Events of default. The following shall constitute an event of 
default with respect to each Secondary Loan:
    (1) Nonpayment of interest when due and payable;
    (2) Nonpayment of principal when due and payable;
    (3) Failure of the Secondary Borrower to perform any condition or 
covenant under any Secondary Loan document;
    (4) Any representation or warranty of the Secondary Borrower made in 
connection with the Secondary Loan application or the Secondary Loan 
documents is false or incorrect in any material respect;
    (5) Principal or interest on any indebtedness of the Secondary 
Borrower or any subsidiary of the Secondary Borrower in excess of 
$100,000 is not paid when due (subject to a cure period);
    (6) The holder of any junior or parity lien on collateral institutes 
a proceeding to enforce a lien on the collateral;
    (7) The Secondary Borrower files bankruptcy or consents to the 
appointment of a receiver or trustee for itself or the collateral;
    (8) Any money judgment is filed against the Secondary Borrower and 
remains unvacated for a period of 60 days from filing; or
    (9) Any other events of default set forth in the Secondary Loan 
documents.
    (b) Remedies. The Qualified Issuer and the Guarantor will reserve 
certain rights to enforce (or direct enforcement of) remedies upon an 
event of default under the Secondary Loan documents.



Sec.1808.619  Reporting requirements.

    The Bond Documents and Bond Loan documents shall specify such 
monitoring and financial reporting requirements as deemed appropriate by 
the CDFI Fund including, but not limited to the following:
    (a) Data--General. As long as the Bonds remain outstanding, a 
Qualified Issuer shall provide such reports and shall maintain such 
records as may be

[[Page 847]]

prescribed by the CDFI Fund that are necessary to:
    (1) Disclose the manner in which Bond Proceeds are used, including 
providing documentation to demonstrate proceeds of the Bond Loans were 
used for Eligible Purposes;
    (2) Demonstrate compliance with the requirements of this part and 
the Bond Documents;
    (3) Evaluate the impact of the CDFI Bond Guarantee Program;
    (4) Ensure the Qualified Issuer meets the performance standards over 
the life of the facilities; and
    (5) Accomplish such other purposes that the CDFI Fund may deem 
appropriate.
    (b) Customer profiles. The Qualified Issuer shall require each 
Eligible CDFI to compile such data on the gender, race, ethnicity, 
national origin, or other information on individuals and entities that 
utilize its products and services as the CDFI Fund shall prescribe and 
as is permissible under applicable law. In general, 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 Bond Guarantee Program.
    (c) Audits; Access to records. (1) The CDFI Fund may, if it deems 
appropriate, audit Qualified Issuers, Eligible CDFIs, Program 
Administrators, Servicers, and/or the Master Servicer/Trustee, or 
provide for or require an audit, at least annually. Portfolio management 
and loan monitoring will also employ risk-based, on-site verification of 
the Eligible CDFI's lending activities to Secondary Borrowers and 
compliance with the terms in Secondary Lending Requirements.
    (2) Qualified Issuers, Eligible CDFIs, Program Administrators, 
Servicers, the Master Servicer/Trustee, as applicable, 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 CDFI Fund to ensure compliance with the requirements of 
this interim rule and to evaluate the impact of the CDFI Bond Guarantee 
Program.
    (3) The Federal Government, including the U.S. Department of the 
Treasury, the Comptroller General, and their duly authorized 
representatives, shall have full and free access to such entities' 
offices and facilities and all books, documents, records, and financial 
statements relating to the Guarantee and may copy such documents as they 
deem appropriate
    (4) The CDFI Fund, if it deems appropriate, may prescribe audit and 
access to record requirements for Eligible CDFIs and Secondary 
Borrowers.
    (d) Retention of records. Qualified Issuers, Eligible CDFIs, Program 
Administrators, the Master Servicer/Trustee, and Servicers shall comply 
with all record retention requirements as set forth in OMB Circular A-
110 (as applicable).
    (e) Data collection and reporting. Qualified Issuers, Eligible 
CDFIs, the Program Administrator, the Master Servicer/Trustee, and 
Servicers, as applicable, shall submit to the CDFI Fund, monthly, 
quarterly, and annually, as specified in the Bond Documents, and as long 
as the Bond shall remain outstanding, such information and documentation 
that will permit the CDFI Fund to review compliance with the Capital 
Distribution Plan and the terms and conditions of the Bond Documents, 
and to perform adequate portfolio management and loan monitoring. The 
information and documentation may include, but not be limited to, the 
following:
    (1) Financial statements, including but not limited to:
    (i) Annual financial statements for the Qualified Issuer and each 
Eligible CDFI that have been audited in conformity with generally 
accepted auditing principles; and
    (ii) With respect to any nonprofit Qualified Issuer and any Eligible 
CDFI that is required to have its financial statements audited pursuant 
to OMB Circular A-133 Audits of States, Local Governments and Non-Profit 
Organizations, annual A-133 audited financial statements. Non-profit 
Qualified Issuers and Eligible CDFIs that are not required to have 
financial statements audited pursuant to OMB Circular A-133 must submit 
to the CDFI Fund a statement signed by the Qualified Issuer or Eligible 
CDFI's authorized

[[Page 848]]

representative or certified public accountant, asserting that a single 
audit pursuant OMB Circular A-133 is not required;
    (2) Pro forma projection of the Qualified Issuer's and Eligible 
CDFI's respective balance sheet, income statement, and statement of cash 
flows over the ensuing five years, or such other time period as 
specified by the CDFI Fund;
    (3) Such institution-level and transaction-level reports as may be 
required by the CDFI Fund;
    (4) Information necessary to measure the financial condition of the 
Eligible CDFI. This includes, but is not limited to, measuring solvency 
by collecting data on fixed charge coverage, capital adequacy, debt 
coverage, and measuring liquidity by collecting data on core financial 
ratios, including current ratios, quick ratios, working capital, and 
operating liquidity ratio. This will also include credit reporting, 
financial statement analysis, trend analysis of financial conditions, 
market valuation, loan performance (30/60/90 payment history) of Bond 
Loans and Secondary Loans, valuation and eligibility of Secondary Loan 
collateral, and management and organization changes;
    (5) Information necessary to assess Program impact performance and 
outcome measures, including information necessary to evaluate the 
credit-worthiness of loan applicants; and
    (6) Other such information and reports as may be requested by the 
CDFI Fund.
    (f) Qualified Issuer reports. Qualified Issuers are responsible for 
the timely and complete submission of all required information and 
reports, even if all or a portion of the documents actually are 
completed by the Eligible CDFI. The CDFI Fund reserves the right to 
contact the Qualified Issuer or Eligible CDFI and require that 
additional information and documentation be provided.
    (g) Regulator information. The CDFI Fund's review of a regulated 
Qualified Issuer's or regulated Eligible CDFI's performance or 
compliance with the Bond Documents may also include information provided 
by the Appropriate Federal Banking Agency or Appropriate State Agency, 
as the case may be.
    (h) Public inspection. The CDFI Fund shall make reports described in 
this section available for public inspection after deleting any 
materials necessary to protect privacy or proprietary interests pursuant 
to all applicable laws and regulations.
    (i) 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_circulars/); and
    (2) Government Accountability Office materials may be obtained from 
GAO Distribution, 700 4th Street NW., Suite 1100, Washington, DC 20548.



Sec.1808.620  Investments in Guaranteed Bonds ineligible for Community
Reinvestment Act Purposes.

    Notwithstanding any other provision of law, any investment by a 
financial institution in Bonds shall not be taken into account in 
assessing the record of such institution for purposes of the Community 
Reinvestment Act of 1977 (12 U.S.C. 2901). Other forms of participation 
by financial institutions in CDFI Bond Guarantee Program transactions 
may be eligible for inclusion in Community Reinvestment Act records to 
the extent permitted by the Appropriate Federal Banking Agency.



Sec.1808.621  Conflict of interest requirements.

    (a) Provision of Bond Loans or Secondary Loans to Affiliates. (1) A 
Qualified Issuer or Eligible CDFI that is not regulated by an 
Appropriate Federal Banking Agency or Appropriate State Agency may not 
use any Bond Proceeds or Bond Loan proceeds to make any Bond Loans or 
Secondary Loans available to an Affiliate unless it meets the following 
restrictions:
    (i) The loan must be provided pursuant to standard underwriting 
procedures, terms and conditions;
    (ii) The Affiliate receiving the loan shall not participate in any 
way in the decision-making regarding such loan;

[[Page 849]]

    (iii) The board of directors or other governing body of the lender 
shall approve the extension of the loan; and
    (iv) The loan must be provided in accordance with a policy regarding 
credit to Affiliates that has been approved in advance by the CDFI Fund.
    (2) A Qualified Issuer or Eligible CDFI that is an Insured CDFI, a 
Depository Institution Holding Company or a State-Insured Credit Union 
(as such terms are defined in 12 CFR 1805.104) 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) Standards of conduct. Qualified Issuers, Eligible CDFIs, Program 
Administrators, the Master Servicer, and Servicers shall maintain a code 
or standards of conduct acceptable to the CDFI Fund that govern the 
performance of employees engaged in the awarding and administration of 
any loan. No employee of a Qualified Issuer, Eligible CDFI, Program 
Administrators, the Master Servicer, and Servicer shall solicit or 
accept gratuities, favors or anything of monetary value from any actual 
or potential borrowers for such loans. Such policies shall provide for 
disciplinary actions to be applied for violation of the standards by 
employees.



Sec.1808.622  Compliance with government requirements.

    In carrying out its responsibilities pursuant to any agreements 
associated with the CDFI Bond Guarantee Program, all Qualified Issuers, 
Eligible CDFIs, Program Administrators, Servicers, and the Master 
Servicer/Trustee shall comply with all applicable Federal, State, and 
local laws, regulations, and ordinances, OMB Circulars, and Executive 
Orders, including restrictions on lending to entities with delinquent 
Federal debt.



Sec.1808.623  Lobbying restrictions.

    No fees or funds made available under this part may be expended by a 
party 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.1808.624  Criminal provisions.

    The criminal provisions of 18 U.S.C. 657 regarding embezzlement or 
misappropriation of funds are applicable to all CDFI Bond Guarantee 
Program participants and insiders.



Sec.1808.625  CDFI Fund deemed not to control.

    The CDFI Fund shall not be deemed to control a CDFI Bond Guarantee 
Program participant by reason of any Guarantee provided under the Act 
for the purpose of any applicable law.



Sec.1808.626  Limitation on liability.

    The liability of the Federal Government arising out of any fees or 
funds obtained by a CDFI Bond Guarantee Program participant in 
accordance with this interim rule shall be limited to the amount of the 
fees or funds obtained by the CDFI Bond Guarantee Program participant. 
The Federal Government 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.1808.627  Fraud, waste and abuse.

    Any person who becomes aware of the existence or apparent existence 
of fraud, waste or abuse of any Guarantee, Bond, Bond Loan or Secondary 
Loan provided under this interim rule must report such incidents to the 
Office of Inspector General of the U.S. Department of the Treasury.



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.

[[Page 850]]

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).

    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

[[Page 851]]

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 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.

[[Page 852]]



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 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

[[Page 853]]

    (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:
    (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

[[Page 854]]

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 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

[[Page 855]]

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 
number 1505-0153 (expires September 30, 1998).

                       PARTS 1816	1899 [RESERVED]

[[Page 857]]



                              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.


  Table of CFR Titles and Chapters
  Alphabetical List of Agencies Appearing in the CFR
  List of CFR Sections Affected

[[Page 859]]



                    Table of CFR Titles and Chapters




                     (Revised as of January 1, 2020)

                      Title 1--General Provisions

         I  Administrative Committee of the Federal Register 
                (Parts 1--49)
        II  Office of the Federal Register (Parts 50--299)
       III  Administrative Conference of the United States (Parts 
                300--399)
        IV  Miscellaneous Agencies (Parts 400--599)
        VI  National Capital Planning Commission (Parts 600--699)

                    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 2--199)
        II  Office of Management and Budget Guidance (Parts 200--
                299)
            Subtitle B--Federal Agency Regulations for Grants and 
                Agreements
       III  Department of Health and Human Services (Parts 300--
                399)
        IV  Department of Agriculture (Parts 400--499)
        VI  Department of State (Parts 600--699)
       VII  Agency for International Development (Parts 700--799)
      VIII  Department of Veterans Affairs (Parts 800--899)
        IX  Department of Energy (Parts 900--999)
         X  Department of the Treasury (Parts 1000--1099)
        XI  Department of Defense (Parts 1100--1199)
       XII  Department of Transportation (Parts 1200--1299)
      XIII  Department of Commerce (Parts 1300--1399)
       XIV  Department of the Interior (Parts 1400--1499)
        XV  Environmental Protection Agency (Parts 1500--1599)
     XVIII  National Aeronautics and Space Administration (Parts 
                1800--1899)
        XX  United States Nuclear Regulatory Commission (Parts 
                2000--2099)
      XXII  Corporation for National and Community Service (Parts 
                2200--2299)
     XXIII  Social Security Administration (Parts 2300--2399)
      XXIV  Department of Housing and Urban Development (Parts 
                2400--2499)
       XXV  National Science Foundation (Parts 2500--2599)
      XXVI  National Archives and Records Administration (Parts 
                2600--2699)

[[Page 860]]

     XXVII  Small Business Administration (Parts 2700--2799)
    XXVIII  Department of Justice (Parts 2800--2899)
      XXIX  Department of Labor (Parts 2900--2999)
       XXX  Department of Homeland Security (Parts 3000--3099)
      XXXI  Institute of Museum and Library Services (Parts 3100--
                3199)
     XXXII  National Endowment for the Arts (Parts 3200--3299)
    XXXIII  National Endowment for the Humanities (Parts 3300--
                3399)
     XXXIV  Department of Education (Parts 3400--3499)
      XXXV  Export-Import Bank of the United States (Parts 3500--
                3599)
     XXXVI  Office of National Drug Control Policy, Executive 
                Office of the President (Parts 3600--3699)
    XXXVII  Peace Corps (Parts 3700--3799)
     LVIII  Election Assistance Commission (Parts 5800--5899)
       LIX  Gulf Coast Ecosystem Restoration Council (Parts 5900--
                5999)

                        Title 3--The President

         I  Executive Office of the President (Parts 100--199)

                           Title 4--Accounts

         I  Government Accountability Office (Parts 1--199)

                   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)
        IV  Office of Personnel Management and Office of the 
                Director of National Intelligence (Parts 1400--
                1499)
         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)
       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)

[[Page 861]]

    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  U.S. International Development Finance Corporation 
                (Parts 4300--4399)
     XXXIV  Securities and Exchange Commission (Parts 4400--4499)
      XXXV  Office of Personnel Management (Parts 4500--4599)
     XXXVI  Department of Homeland Security (Parts 4600--4699)
    XXXVII  Federal Election Commission (Parts 4700--4799)
        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)
      XLIX  Federal Labor Relations Authority (Parts 5900--5999)
         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)
       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)
    LXVIII  Commission on Civil Rights (Parts 7800--7899)
      LXIX  Tennessee Valley Authority (Parts 7900--7999)
       LXX  Court Services and Offender Supervision Agency for the 
                District of Columbia (Parts 8000--8099)
      LXXI  Consumer Product Safety Commission (Parts 8100--8199)
    LXXIII  Department of Agriculture (Parts 8300--8399)

[[Page 862]]

     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)
      LXXX  Federal Housing Finance Agency (Parts 9000--9099)
   LXXXIII  Special Inspector General for Afghanistan 
                Reconstruction (Parts 9300--9399)
    LXXXIV  Bureau of Consumer Financial Protection (Parts 9400--
                9499)
    LXXXVI  National Credit Union Administration (Parts 9600--
                9699)
     XCVII  Department of Homeland Security Human Resources 
                Management System (Department of Homeland 
                Security--Office of Personnel Management) (Parts 
                9700--9799)
    XCVIII  Council of the Inspectors General on Integrity and 
                Efficiency (Parts 9800--9899)
      XCIX  Military Compensation and Retirement Modernization 
                Commission (Parts 9900--9999)
         C  National Council on Disability (Parts 10000--10049)
        CI  National Mediation Board (Part 10101)

                      Title 6--Domestic Security

         I  Department of Homeland Security, Office of the 
                Secretary (Parts 1--199)
         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)
        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  Agricultural Marketing Service (Federal Grain 
                Inspection Service, Fair Trade Practices Program), 
                Department of Agriculture (Parts 800--899)

[[Page 863]]

        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  [Reserved]
      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  [Reserved]
       XXV  Office of Advocacy and Outreach, Department of 
                Agriculture (Parts 2500--2599)
      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  National Institute of Food and Agriculture (Parts 
                3400--3499)
      XXXV  Rural Housing Service, Department of Agriculture 
                (Parts 3500--3599)
     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)

[[Page 864]]

                    Title 8--Aliens and Nationality

         I  Department of Homeland Security (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  Agricultural Marketing Service (Federal Grain 
                Inspection Service, Fair Trade Practices Program), 
                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 1300--
                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)
        II  Election Assistance Commission (Parts 9400--9499)

                      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)
         V  (Parts 600--699) [Reserved]
        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)
         X  Bureau of Consumer Financial Protection (Parts 1000--
                1099)
        XI  Federal Financial Institutions Examination Council 
                (Parts 1100--1199)
       XII  Federal Housing Finance Agency (Parts 1200--1299)
      XIII  Financial Stability Oversight Council (Parts 1300--
                1399)

[[Page 865]]

       XIV  Farm Credit System Insurance Corporation (Parts 1400--
                1499)
        XV  Department of the Treasury (Parts 1500--1599)
       XVI  Office of Financial Research (Parts 1600--1699)
      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 (Parts 400--499)
         V  Emergency Oil and Gas Guaranteed Loan Board (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--1199)
         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)
        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  National Technical Information Service, Department of 
                Commerce (Parts 1100--1199)

[[Page 866]]

      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) [Reserved]

                    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  U.S. 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)
        IV  U.S. Immigration and Customs Enforcement, Department 
                of Homeland Security (Parts 400--599) [Reserved]

                     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)

[[Page 867]]

        IV  Employees' Compensation Appeals Board, Department of 
                Labor (Parts 500--599)
         V  Employment and Training Administration, Department of 
                Labor (Parts 600--699)
        VI  Office of Workers' Compensation Programs, 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  Millennium 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)
        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)

[[Page 868]]

        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)
       XII  Office of Inspector General, Department of Housing and 
                Urban Development (Parts 2000--2099)
        XV  Emergency Mortgage Insurance and Loan Programs, 
                Department of Housing and Urban Development (Parts 
                2700--2799) [Reserved]
        XX  Office of Assistant Secretary for Housing--Federal 
                Housing Commissioner, Department of Housing and 
                Urban Development (Parts 3200--3899)
      XXIV  Board of Directors of the HOPE for Homeowners Program 
                (Parts 4000--4099) [Reserved]
       XXV  Neighborhood Reinvestment Corporation (Parts 4100--
                4199)

[[Page 869]]

                           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--899)
         V  Bureau of Indian Affairs, Department of the Interior, 
                and Indian Health Service, Department of Health 
                and Human Services (Part 900--999)
        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--End)

           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)
        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)

[[Page 870]]

        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  Bureau of Safety and Environmental Enforcement, 
                Department of the Interior (Parts 200--299)
        IV  Geological Survey, Department of the Interior (Parts 
                400--499)
         V  Bureau of Ocean Energy Management, Department of the 
                Interior (Parts 500--599)
       VII  Office of Surface Mining Reclamation and Enforcement, 
                Department of the Interior (Parts 700--999)
       XII  Office of Natural Resources Revenue, Department of the 
                Interior (Parts 1200--1299)

                 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)
        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)

[[Page 871]]

      VIII  Office of Investment Security, Department of the 
                Treasury (Parts 800--899)
        IX  Federal Claims Collection Standards (Department of the 
                Treasury--Department of Justice) (Parts 900--999)
         X  Financial Crimes Enforcement Network, Department of 
                the Treasury (Parts 1000--1099)

                      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  Department of Defense, 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, Department 
                of Defense (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)
        II  Office of Elementary and Secondary Education, 
                Department of Education (Parts 200--299)

[[Page 872]]

       III  Office of Special Education and Rehabilitative 
                Services, Department of Education (Parts 300--399)
        IV  Office of Career, Technical and Adult Education, 
                Department of Education (Parts 400--499)
         V  Office of Bilingual Education and Minority Languages 
                Affairs, Department of Education (Parts 500--599) 
                [Reserved]
        VI  Office of Postsecondary Education, Department of 
                Education (Parts 600--699)
       VII  Office of Educational Research and Improvement, 
                Department of Education (Parts 700--799) 
                [Reserved]
            Subtitle C--Regulations Relating to Education
        XI  (Parts 1100--1199) [Reserved]
       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)
        VI  [Reserved]
       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  U.S. Copyright Office, Library of Congress (Parts 
                200--299)
       III  Copyright Royalty Board, Library of Congress (Parts 
                300--399)
        IV  National Institute of Standards and Technology, 
                Department of Commerce (Parts 400--599)

[[Page 873]]

           Title 38--Pensions, Bonuses, and Veterans' Relief

         I  Department of Veterans Affairs (Parts 0--199)
        II  Armed Forces Retirement Home (Parts 200--299)

                       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)
      VIII  Gulf Coast Ecosystem Restoration Council (Parts 1800--
                1899)

          Title 41--Public Contracts and Property Management

            Subtitle A--Federal Procurement Regulations System 
                [Note]
            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)
   62--100  [Reserved]
            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)
  103--104  [Reserved]
       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)
  129--200  [Reserved]
            Subtitle D--Other Provisions Relating to Property 
                Management [Reserved]

[[Page 874]]

            Subtitle E--Federal Information Resources Management 
                Regulations System [Reserved]
            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)

                        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--699)
         V  Office of Inspector General-Health Care, Department of 
                Health and Human Services (Parts 1000--1099)

                   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 400--999)
        II  Bureau of Land Management, Department of the Interior 
                (Parts 1000--9999)
       III  Utah Reclamation Mitigation and Conservation 
                Commission (Parts 10000--10099)

             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)

[[Page 875]]

       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)
        IX  Denali Commission (Parts 900--999)
         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)
       XII  Corporation for National and Community Service (Parts 
                1200--1299)
      XIII  Administration for Children and Families, 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 of Fine Arts (Parts 2100--2199)
     XXIII  Arctic Research Commission (Parts 2300--2399)
      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)

[[Page 876]]

        IV  National Telecommunications and Information 
                Administration, Department of Commerce, and 
                National Highway Traffic Safety Administration, 
                Department of Transportation (Parts 400--499)
         V  The First Responder Network Authority (Parts 500--599)

           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)
        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) [Reserved]
        52  Department of the Navy Acquisition Regulations (Parts 
                5200--5299)
        53  Department of the Air Force Federal Acquisition 
                Regulation Supplement (Parts 5300--5399) 
                [Reserved]

[[Page 877]]

        54  Defense Logistics Agency, Department of Defense (Parts 
                5400--5499)
        57  African Development Foundation (Parts 5700--5799)
        61  Civilian Board of Contract Appeals, General Services 
                Administration (Parts 6100--6199)
        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)
         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 (Parts 1000--1399)
        XI  Research and Innovative Technology Administration, 
                Department of Transportation (Parts 1400--1499) 
                [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)

[[Page 878]]

        VI  Fishery Conservation and Management, National Oceanic 
                and Atmospheric Administration, Department of 
                Commerce (Parts 600--699)

[[Page 879]]





           Alphabetical List of Agencies Appearing in the CFR




                     (Revised as of January 1, 2020)

                                                  CFR Title, Subtitle or 
                     Agency                               Chapter

Administrative Conference of the United States    1, III
Advisory Council on Historic Preservation         36, VIII
Advocacy and Outreach, Office of                  7, XXV
Afghanistan Reconstruction, Special Inspector     5, LXXXIII
     General for
African Development Foundation                    22, XV
  Federal Acquisition Regulation                  48, 57
Agency for International Development              2, VII; 22, II
  Federal Acquisition Regulation                  48, 7
Agricultural Marketing Service                    7, I, VIII, IX, X, XI; 9, 
                                                  II
Agricultural Research Service                     7, V
Agriculture, Department of                        2, IV; 5, LXXIII
  Advocacy and Outreach, Office of                7, XXV
  Agricultural Marketing Service                  7, I, VIII, IX, X, XI; 9, 
                                                  II
  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
  Economic Research Service                       7, XXXVII
  Energy Policy and New Uses, 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
  Information Resources Management, Office of     7, XXVII
  Inspector General, Office of                    7, XXVI
  National Agricultural Library                   7, XLI
  National Agricultural Statistics Service        7, XXXVI
  National Institute of Food and Agriculture      7, XXXIV
  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 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 of                          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
Architectural and Transportation Barriers         36, XI
   Compliance Board
[[Page 880]]

Arctic Research Commission                        45, XXIII
Armed Forces Retirement Home                      5, XI; 38, II
Army, Department of                               32, V
  Engineers, Corps of                             33, II; 36, III
  Federal Acquisition Regulation                  48, 51
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
Career, Technical, and Adult Education, Office    34, IV
     of
Census Bureau                                     15, I
Centers for Medicare & Medicaid Services          42, IV
Central Intelligence Agency                       32, XIX
Chemical Safety and Hazard Investigation Board    40, VI
Chief Financial Officer, Office of                7, XXX
Child Support Enforcement, Office of              45, III
Children and Families, Administration for         45, II, III, IV, X, XIII
Civil Rights, Commission on                       5, LXVIII; 45, VII
Civil Rights, Office for                          34, I
Council of the Inspectors General on Integrity    5, XCVIII
     and Efficiency
Court Services and Offender Supervision Agency    5, LXX
     for the District of Columbia
Coast Guard                                       33, I; 46, I; 49, IV
Coast Guard (Great Lakes Pilotage)                46, III
Commerce, Department of                           2, XIII; 44, IV; 50, VI
  Census Bureau                                   15, I
  Economic Analysis, Bureau of                    15, VIII
  Economic Development Administration             13, III
  Emergency Management and Assistance             44, IV
  Federal Acquisition Regulation                  48, 13
  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; 37, IV
  National Marine Fisheries Service               50, II, IV
  National Oceanic and Atmospheric                15, IX; 50, II, III, IV, 
       Administration                             VI
  National Technical Information Service          15, XI
  National Telecommunications and Information     15, XXIII; 47, III, IV
       Administration
  National Weather Service                        15, IX
  Patent and Trademark Office, United States      37, I
  Secretary of Commerce, Office of                15, Subtitle A
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 Financial Protection Bureau              5, LXXXIV; 12, X
Consumer Product Safety Commission                5, LXXI; 16, 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    5, LXX; 28, VIII
     for the District of Columbia
Customs and Border Protection                     19, I
Defense Contract Audit Agency                     32, I
Defense, Department of                            2, XI; 5, XXVI; 32, 
                                                  Subtitle A; 40, VII
  Advanced Research Projects Agency               32, I
  Air Force Department                            32, VII
  Army Department                                 32, V; 33, II; 36, III; 
                                                  48, 51

[[Page 881]]

  Defense Acquisition Regulations System          48, 2
  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 of                             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
Denali Commission                                 45, IX
Disability, National Council on                   5, C; 34, XII
District of Columbia, Court Services and          5, LXX; 28, VIII
     Offender Supervision Agency for the
Drug Enforcement Administration                   21, II
East-West Foreign Trade Board                     15, XIII
Economic Analysis, Bureau of                      15, VIII
Economic Development Administration               13, III
Economic Research Service                         7, XXXVII
Education, Department of                          2, XXXIV; 5, LIII
  Bilingual Education and Minority Languages      34, V
       Affairs, Office of
  Career, Technical, and Adult Education, Office  34, IV
       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
Educational Research and Improvement, Office of   34, VII
Election Assistance Commission                    2, LVIII; 11, II
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 Policy, National Commission for        1, IV
Employment Standards Administration               20, VI
Endangered Species Committee                      50, IV
Energy, Department of                             2, IX; 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
  Environmental Quality, Council on               40, V
  Management and Budget, Office of                2, Subtitle A; 5, III, 
                                                  LXXVII; 14, VI; 48, 99
  National Drug Control Policy, Office of         2, XXXVI; 21, III
  National Security Council                       32, XXI; 47, 2
  Presidential Documents                          3
  Science and Technology Policy, Office of        32, XXIV; 47, II

[[Page 882]]

  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                       5, XXXVII; 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 Agency                    5, LXXX; 12, XII
Federal Housing Finance Board                     12, IX
Federal Labor Relations Authority                 5, XIV, XLIX; 22, XIV
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
Financial Crimes Enforcement Network              31, X
Financial Research Office                         12, XVI
Financial Stability Oversight Council             12, XIII
Fine Arts, Commission of                          45, XXI
Fiscal Service                                    31, II
Fish and Wildlife Service, United States          50, I, IV
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

[[Page 883]]

  Federal Management Regulation                   41, 102
  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
Gulf Coast Ecosystem Restoration Council          2, LIX; 40, VIII
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, XIII
  Community Services, Office of                   45, X
  Family Assistance, Office of                    45, II
  Federal Acquisition Regulation                  48, 3
  Food and Drug Administration                    21, I
  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                  2, XXX; 5, XXXVI; 6, I; 8, 
                                                  I
  Coast Guard                                     33, I; 46, I; 49, IV
  Coast Guard (Great Lakes Pilotage)              46, III
  Customs and Border Protection                   19, I
  Federal Emergency Management Agency             44, I
  Human Resources Management and Labor Relations  5, XCVII
       Systems
  Immigration and Customs Enforcement Bureau      19, IV
  Transportation Security Administration          49, XII
HOPE for Homeowners Program, Board of Directors   24, XXIV
     of
Housing and Urban Development, Department of      2, XXIV; 5, LXV; 24, 
                                                  Subtitle B
  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
Immigration and Customs Enforcement Bureau        19, IV
Immigration Review, Executive Office for          8, V
Independent Counsel, Office of                    28, VII
Independent Counsel, Offices of                   28, VI
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

[[Page 884]]

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
Inspector General
  Agriculture Department                          7, XXVI
  Health and Human Services Department            42, V
  Housing and Urban Development Department        24, XII, XV
Institute of Peace, United States                 22, XVII
Inter-American Foundation                         5, LXIII; 22, X
Interior, Department of                           2, XIV
  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
  National Indian Gaming Commission               25, III
  National Park Service                           36, I
  Natural Resource Revenue, Office of             30, XII
  Ocean Energy Management, Bureau of              30, V
  Reclamation, Bureau of                          43, I
  Safety and Enforcement Bureau, Bureau of        30, II
  Secretary of the Interior, Office of            2, XIV; 43, Subtitle A
  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 Development Finance Corporation,    5, XXXIII; 22, VII
     U.S.
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
Investment Security, Office of                    31, VIII
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 of                            2, XXVIII; 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
  Independent Counsel, Offices of                 28, VI
  Prisons, Bureau of                              28, V
  Property Management Regulations                 41, 128
Labor, Department of                              2, XXIX; 5, XLII
  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

[[Page 885]]

  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
  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, VII
Labor-Management Standards, Office of             29, II, IV
Land Management, Bureau of                        43, II
Legal Services Corporation                        45, XVI
Libraries and Information Science, National       45, XVII
     Commission on
Library of Congress                               36, VII
  Copyright Royalty Board                         37, III
  U.S. Copyright Office                           37, II
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
Military Compensation and Retirement              5, XCIX
     Modernization Commission
Millennium Challenge Corporation                  22, XIII
Mine Safety and Health Administration             30, I
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
Museum and Library Services, Institute of         2, XXXI
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   2, XXII; 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, VI
National Counterintelligence Center               32, XVIII
National Credit Union Administration              5, LXXXVI; 12, VII
National Crime Prevention and Privacy Compact     28, IX
     Council
National Drug Control Policy, Office of           2, XXXVI; 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 Geospatial-Intelligence Agency           32, I
National Highway Traffic Safety Administration    23, II, III; 47, VI; 49, V
National Imagery and Mapping Agency               32, I
National Indian Gaming Commission                 25, III
National Institute of Food and Agriculture        7, XXXIV
National Institute of Standards and Technology    15, II; 37, IV
National Intelligence, Office of Director of      5, IV; 32, XVII
National Labor Relations Board                    5, LXI; 29, I
National Marine Fisheries Service                 50, II, IV
National Mediation Board                          5, CI; 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
[[Page 886]]

National Technical Information Service            15, XI
National Telecommunications and Information       15, XXIII; 47, III, IV, V
     Administration
National Transportation Safety Board              49, VIII
Natural Resources Conservation Service            7, VI
Natural Resource Revenue, Office of               30, XII
Navajo and Hopi Indian Relocation, Office of      25, IV
Navy, Department of                               32, VI
  Federal Acquisition Regulation                  48, 52
Neighborhood Reinvestment Corporation             24, XXV
Northeast Interstate Low-Level Radioactive Waste  10, XVIII
     Commission
Nuclear Regulatory Commission                     2, XX; 5, XLVIII; 10, I
  Federal Acquisition Regulation                  48, 20
Occupational Safety and Health Administration     29, XVII
Occupational Safety and Health Review Commission  29, XX
Ocean Energy Management, Bureau of                30, V
Oklahoma City National Memorial Trust             36, XV
Operations Office                                 7, XXVIII
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                                       2, XXXVII; 22, III
Pennsylvania Avenue Development Corporation       36, IX
Pension Benefit Guaranty Corporation              29, XL
Personnel Management, Office of                   5, I, XXXV; 5, IV; 45, 
                                                  VIII
  Human Resources Management and Labor Relations  5, XCVII
       Systems, Department of Homeland Security
  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
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 Utilities Service                           7, XVII, XVIII, XLII
Safety and Environmental Enforcement, Bureau of   30, II
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                5, XXXIV; 17, II
Selective Service System                          32, XVI
Small Business Administration                     2, XXVII; 13, I
Smithsonian Institution                           36, V
Social Security Administration                    2, XXIII; 20, III; 48, 23

[[Page 887]]

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 of                              2, VI; 22, I; 28, XI
  Federal Acquisition Regulation                  48, 6
Surface Mining Reclamation and Enforcement,       30, VII
     Office of
Surface Transportation Board                      49, X
Susquehanna River Basin Commission                18, VIII
Tennessee Valley Authority                        5, LXIX; 18, XIII
Trade Representative, United States, Office of    15, XX
Transportation, Department of                     2, XII; 5, L
  Commercial Space Transportation                 14, III
  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; 47, IV; 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
  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 of the                       2, X;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                   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
  Financial Crimes Enforcement Network            31, X
  Fiscal Service                                  31, II
  Foreign Assets Control, Office of               31, V
  Internal Revenue Service                        26, I
  Investment Security, Office of                  31, VIII
  Monetary Offices                                31, I
  Secret Service                                  31, IV
  Secretary of the Treasury, Office of            31, Subtitle A
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
U.S. Copyright Office                             37, II
Utah Reclamation Mitigation and Conservation      43, III
     Commission
Veterans Affairs, Department of                   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
Wage and Hour Division                            29, V
Water Resources Council                           18, VI
Workers' Compensation Programs, Office of         20, I, VII
World Agricultural Outlook Board                  7, XXXVIII

[[Page 889]]



List of CFR Sections Affected



All changes in this volume of the Code of Federal Regulations (CFR) that 
were made by documents published in the Federal Register since January 
1, 2015 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, parts and 
subparts as well as sections for revisions.
For changes to this volume of the CFR prior to this listing, consult the 
annual edition of the monthly List of CFR Sections Affected (LSA). The 
LSA is available at www.govinfo.gov. For changes to this volume of the 
CFR prior to 2001, see the ``List of CFR Sections Affected, 1949-1963, 
1964-1972, 1973-1985, and 1986-2000'' published in 11 separate volumes. 
The ``List of CFR Sections Affected 1986-2000'' is available at 
www.govinfo.gov.

                                  2015

12 CFR
                                                                   80 FR
                                                                    Page
Chapter XII
1200.1 (b) amended.................................................80233
1200.2 (f) revised.................................................45599
    (g) amended....................................................80233
1200.3 (a) and (b) revised.........................................45599
    (c) amended....................................................80233
1202.5 (a) amended.................................................80233
1202.9 (a) amended.................................................80233
1203.29 Amended....................................................80233
1204.3 (b) amended.................................................80233
1204.5 (b)(2) amended..............................................80233
1207.22 (c) amended................................................25215
1207.23 (b)(9) through (19) redesignated as (b)(10) through (20); 
        new (b)(9) added; new (b)(10) revised......................25215
1209.15 (a) amended................................................80233
1209.102 (a)(1) amended............................................80233
1215.7 (b) amended.................................................80233
1221 Added; eff. 4-1-16............................................74898
    Amended; eff. 4-1-16...........................................74914
1221.1 (a), (b) and (c) added; eff. 4-1-16.........................74914
    (d) added; interim; eff. 4-1-16................................74924
1221.2 Amended; eff. 4-1-16........................................74914
1221.6 (a)(2)(iii), (v), (vii)(A), (viii)(A)(2), (b)(4), (6), 
        (8)(i) and (9)(i)(B) amended; eff. 4-1-16..................74914
1221.12 Added; eff. 4-1-16.........................................74914
1222 Authority citation revised....................................32687
1222.20--1222.26 (Subpart B) Added.................................32687
1227 Regulation at 78 FR 63012 confirmed; eff. 1-22-16.............79680
1227.3 (d) added; eff. 1-22-16.....................................79680
1227.4 (c)(1) amended; eff. 1-22-16................................79680
1227.5 (b)(1) amended; (e) revised; eff. 1-22-16...................79680
1227.6 (a)(1) amended; eff. 1-22-16................................79680
1236.2 Amended.....................................................72336
1236 Appendix amended..............................................72336
1238 Policy statement..............................................35188
1238.3 (a)(1) and (b) revised......................................73092
1238.5 (a) revised.................................................73092
1238.7 (a) revised.................................................73092
1239 Added.........................................................72336
1251 Added; interim................................................74597
    Regulation at 79 FR 74597 confirmed............................15887
1263.5 (a)(2) amended..............................................80233
1264.6 (a) amended.................................................80233
1266.4 (g)(2)(ii) amended; CFR correction..........................79461
1277 Added.........................................................12755
1282.1 (b) amended.................................................53430
1282.11 (a)(1) revised.............................................53430
1282.12 Revised....................................................53430
1282.13 Revised....................................................53431
1282.15 (b) through (e) and (g)(2) revised.........................53431

[[Page 890]]

1282.16 (c)(5), (d) and (e) revised................................53432
1282.17 Introductory text amended..................................53432
1282.19 (f) removed................................................53432
1282.20 (b) revised................................................53433
1290 Revised.......................................................30342
Chapter XVII
1710 Removed.......................................................72341
1720 Removed.......................................................72341
Chapter XVIII
1805 Revised; interim..............................................52382
1805.201 (b)(2) revised; interim...................................19196
1806 Revised; interim..............................................25582

                                  2016

12 CFR
                                                                   81 FR
                                                                    Page
Chapter XI
1101.4 (b)(3)(v)(B)(3)(i) through (iv) redesignated as 
        (b)(3)(v)(B)(4)(i) through (iv); first (b)(5)(iii) heading 
        first (A) and second (iv) removed; (a), (b)(1) 
        introductory text, (v), (2), (3)(v)(A), (B)(3), new 
        (4)(iv), (vi), (4)(i), (5)(ii) introductory text, (E), 
        (G), second (iii)(A) revised; (b)(3)(v)(B)(4), (v) and 
        (5)(v) added; interim......................................94939
Chapter XII
1200 Authority citation revised....................................76294
1200.4 Added.......................................................76294
1201.1 Amended.....................................................76295
    Amended; eff. 1-18-17..........................................91688
1209.80 Revised.....................................................8641
    Revised; interim...............................................43030
1209.81 Revised.....................................................8641
    Revised; interim...............................................43030
1217 Added; interim................................................43034
1221.1 Regulation at 80 FR 74924 confirmed.........................50613
1229.1 Amended.....................................................76295
1229.6 (a)(3) revised..............................................76295
1229.7 (a) amended.................................................76295
1238.1 (a) amended.................................................76295
1238.2 Amended.....................................................76295
1239 Authority citation revised....................................76295
1239.32 (d)(3) and (e)(4) revised; (e)(8) and (9) amended; (e)(10) 
        added......................................................76295
1250.3 (c) revised..................................................8642
    (c) revised; interim...........................................43031
1261.2 Amended.....................................................76296
1261.3 (b) and (e) amended.........................................76296
1261.4 (a) and (b) revised.........................................76296
1261.5 (b) amended; (e)(2) removed.................................76296
1261.6 (b) revised.................................................76296
1261.7 First (a)(1) redesignated as (a) introductory text; 
        (d)(1)(i) and (e)(2) amended...............................76296
1261.8 (a) and (c) revised.........................................76296
1261.9 (a) and (c) revised.........................................76297
1261.13 Amended....................................................76297
1261.15 Revised....................................................76297
1263 Revised........................................................3277
1264.2 Amended.....................................................76297
1266.1 Amended.....................................................76297
1266.10 (a) amended................................................76297
1266.11 Removed....................................................76298
1266.13 (a) revised................................................76298
1266.17 (c)(2)(i) amended..........................................76298
1266.25 (Subpart C) Removed........................................76298
1267.1 Amended.....................................................76298
1267.2 (a) amended; eff. 1-18-17...................................91688
1268 Added; eff. 1-18-17...........................................91688
1269.4 (a)(1) amended..............................................76298
1270.9 (d)(1) amended..............................................76298
1272 Revised; eff. 1-18-17.........................................91693
1273.1 Amended.....................................................76298
1273.3 (a) and (d) revised.........................................76298
1273.6 (a) amended.................................................76298
1273.7 Revised.....................................................76298
1273.8 (d)(2) amended; (d)(3) removed; (d)(4), (5) and (6) 
        redesignated as new (d)(3), (4) and (5)....................76299
1273.9 (b)(5) revised..............................................76299
1273.10 Removed....................................................76299
1273 Appendix A amended............................................76299
1274.1 Amended.....................................................76300
1278.1 Amended.....................................................76300
1281.1 Amended.....................................................76300
    Amended; eff. 1-18-17..........................................91690
1282.1 Amended; CFR correction.....................................26668
    Amended........................................................76300
    (b) amended; eff. 1-30-17......................................96292
1282.31--1282.41 (Subpart C) Added; eff. 1-30-17...................96294
1282.66 Added; eff. 1-30-17........................................96300
1290.1 Amended.....................................................76300
1291.4 (f) amended.................................................76300
Chapter XIII
1301 Revised; interim..............................................85402
Chapter XIV
1402 Authority citation revised....................................59438

[[Page 891]]

1402.14 (b) revised................................................59438
1402.22 (h) redesignated as (k); new (h), (i) and (j) added........59438
1411.1 Revised.....................................................30484
Chapter XVIII
1806 Revised; interim..............................................52743
1807 Revised; interim...............................................6437
    Regulation at 81 FR 6437 comment period extended...............14370

                                  2017

12 CFR
                                                                   82 FR
                                                                    Page
Chapter XI
1101.4 Correctly revised; interim..................................30726
    Regulation at 82 FR 30726 eff. date confirmed..................45697
1102 Authority citation revised....................................44501
1102.400--1102.403 (Subpart E) Added...............................44501
Chapter XII
1202 Revised; interim..............................................13745
1207 redesignated as Part 1223; added..............................14994
1223 redesignated from Part 1207...................................14994
1223.1 Amended.....................................................34394
1223.3 (a) and (b) amended; (c) revised............................34395
1223.20 (a) amended; (b) and (c) revised...........................34395
1223.21 (b)(3), (4), (5) and (6) through (9) redesignated as new 
        (b)(4), new (5), (7) and new (b)(9) through (12); new 
        (b)(3), new (6), new (8), (d) and (e) added; Heading, 
        (b)(2), new (4), new (5), new (10) and new (11) revised; 
        section, (a) and (b) introductory text amended.............34395
1223.22 Heading, (a) and (c) revised; (b) and (d) amended..........34396
1223.23 (b)(9), (10), (11), (12), (13) and (14) through (20) 
        redesignated as (b)(10), (11), (13), (14), (15) and (19) 
        through (25); (b)(3) and (7) amended; (b) introductory 
        text, new (14), new (15), new (19) and new (23) revised; 
        new (b)(9), new (12), new (16), new (17) and new (18) 
        added; (b)(3) and (7) amended..............................34396
1223.24 Amended....................................................34396
1223.25 Added......................................................34396
1223 (Subpart C) Heading revised...................................34395
1238 Orders........................................................17933
1263.1 Amended.....................................................25722
1263.2 (b) and section amended.....................................25722
1263.3 (c) amended.................................................25722
1263.11 (b)(3)(iii) amended........................................25722
1263.19 Transferred from Subpart D.................................25722
    Transferred to Subpart C.......................................25722
    Added..........................................................25723
1263.31 (b) and (e) revised........................................25723
Chapter XIII
1301 Revised.......................................................55744
Chapter XIV
1411 Authority citation revised.....................................8671
1411.1 Revised......................................................8671

                                  2018

12 CFR
                                                                   83 FR
                                                                    Page
Chapter XI
Chapter XI Policy statements........................................9144
1102 Amended.......................................................43739
Chapter XII
1200.4 (b) table amended...........................................39325
1202.2 Amended......................................................5683
1202.4 (b) and (e) removed; (c) and (d) redesignated as new (b) 
        and (c); new (b) and (c) revised............................5683
1202.5 (f) and (g) revised..........................................5683
1202.6 Introductory text and (b) revised............................5683
1202.7 (e), (f), and (g) redesignated as (f), (g), and (h); new 
        (e) added; (c) introductory text, (1), and new (h)(1) 
        introductory text amended; (d), new (f)(2), and new (h)(2) 
        revised.....................................................5683
1202.8 (d)(1) and (e)(4) revised....................................5684
1202.9 (e) and (g) revised..........................................5684
1202.10 (c) amended.................................................5684
1202.11 (d), (e), and (h) through (k) revised.......................5684
1202 Appendix A amended.............................................5685
1206.3 (a)(3) amended..............................................39326
1209.80 Revised....................................................43968
1209.81 Revised....................................................43968
1217.3 (a)(1) introductory text and (b)(1) introductory text 
        revised....................................................43968
1221.1 (e)(7) added................................................50813
1221.2 Amended.....................................................50813

[[Page 892]]

1223.3 (b) amended.................................................39326
1223.21 (b)(9) amended.............................................39326
1223.23 (b)(20) amended............................................39326
1231 Authority citation revised.............................49993, 65289
1231 Nomenclature change...........................................49993
1231.1 Revised.....................................................49993
1231.1 Revised; eff. 1-22-19.......................................65289
1231.2 Amended.....................................................49993
1231.2 Revised; eff. 1-22-19.......................................65289
1231.3 Revised; eff. 1-22-19.......................................65290
1231.4 Added.......................................................49993
1231.5 Revised; eff. 1-22-19.......................................65291
1231.6 Revised; eff. 1-22-19.......................................65291
1238 Orders........................................................18727
1239.14 Added......................................................52954
1239.31 Removed....................................................52954
1250.3 (c) revised.................................................43968
1261.9 (c) introductory text amended...............................39326
1271.37 (d) added; eff. 1-7-19.....................................63058
1273.8 (d)(2) amended..............................................52954
1282.1 Amended......................................................5899
1282.12 (c)(2), (d)(2), (f)(2), and (g)(2) revised..................5899
1282.13 Revised.....................................................5899
1282.15 (e)(2) amended; (g) revised.................................5899
1282.21 (b)(3) revised..............................................5899
1290 Authority citation revised....................................52117
1290.2 Revised.....................................................52117
1290.5 (b)(1) amended..............................................52118
1290.6 (a)(5) revised; (c) added...................................61231
1290.8 Added.......................................................61231
1291 Revised.......................................................61231
Chapter XIV
1411.1 Revised......................................................3563

                                  2019

12 CFR
                                                                   84 FR
                                                                    Page
Chapter XII
1209.80 Revised.....................................................9704
1209.81 Revised.....................................................9704
1217.3 (a)(1) introductory text and (b)(1) introductory text 
        revised.....................................................9704
1221.1 (h) added; interim...........................................9950
1238 Orders........................................................35811
1248 Added..........................................................7799
1248 Technical correction..........................................28202
1250.3 (c) revised..................................................9704
1254 Added.........................................................41904
1277.1 Amended......................................................5325
1277.2--1277.8 (Subpart B) Added....................................5326
Chapter XIII
1310.3 Added........................................................8959
1310 Appendix A revised; eff. 1-29-20..............................71760
Chapter XIV
1411.1 Revised......................................................2437
Chapter XVI
1610 Added..........................................................4984


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