[Federal Register Volume 59, Number 189 (Friday, September 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24360]
[[Page Unknown]]
[Federal Register: September 30, 1994]
_______________________________________________________________________
Part IX
Department of Housing and Urban Development
_______________________________________________________________________
Government National Mortgage Association Guaranteed Multiclass
Securities; Notice
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
[Docket No. R-94-1698; FR-3555-N-04]
RIN 2503-ZA00
Government National Mortgage Association Guaranteed Multiclass
Securities
AGENCY: Government National Mortgage Association, HUD.
ACTION: Supplemental Notice for GNMA Multiclass Securities Program.
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SUMMARY: In its May 26, 1994 Federal Register Notice, the Government
National Mortgage Association (``GNMA'') implemented a new program
under which GNMA would guarantee multiclass mortgage-backed securities.
The Notice provided for implementation in two stages, the initial stage
and the full participation stage. With the completion of the initial
stage, GNMA is now commencing the full participation stage of its
multiclass securities program. The program is intended to benefit
borrowers using federally insured or guaranteed mortgages by increasing
investment demand for GNMA guaranteed mortgage-backed securities
(``MBS'') that are backed by these mortgages, thus reducing financing
costs for these mortgages; and raise revenues through the receipt of
guarantee and other fees by GNMA.
DATES: Effective date: September 30, 1994.
Comments due date: November 29, 1994.
ADDRESSES: Interested persons are invited to submit comments regarding
this Notice to the Office of General Counsel, Rules Docket Clerk, Room
10276, Department of Housing and Urban Development, Washington, D.C.
20410-0500. Communications should refer to the above docket number and
title. A copy of each communication submitted will be available for
public inspection and copying on weekdays between 7:30 a.m. and 5:30
p.m. at the above address. Facsimile (FAX) comments are not acceptable.
FOR FURTHER INFORMATION CONTACT: Guy S. Wilson, Vice President,
Government National Mortgage Association, Room 6151, 451 Seventh
Street, S.W., Washington, D.C. 20410-9000, telephone (202) 401-8970.
Hearing or speech-impaired individuals may call HUD's TDD number (202)
708-3649. (These telephone numbers are not toll-free.)
SUPPLEMENTARY INFORMATION:
I. Background
GNMA published a Notice in the Federal Register on May 26, 1994 (59
FR 27290) (``May 26 Notice'') which implemented a new program under
which GNMA guarantees real estate mortgage investment conduits
(``REMICs''). GNMA began its program with an ``initial stage''. During
the initial stage, participation was limited to firms selected through
a Competitive Application Procedure (``CAP''), standard documents were
drafted, internal control procedures and information gathering and
retention processes were developed, and a Multiclass Securities Guide
was produced. This Guide will be updated from time to time to reflect
changes in the policies governing the program, in accordance with usual
GNMA procedures, and consistent with any regulations established for
the program.
GNMA received two comments regarding participation by minority and
women-owned firms, both of which recommended that GNMA mandate
participation by minority and women-owned businesses. GNMA considered
these comments in the development of its policy as discussed below in
section IV. One of these comments also recommended that GNMA pay the
transaction costs from its guaranty fee. GNMA has decided not to take
this approach, for the reasons discussed in section II.
GNMA is now commencing the full participation stage, which GNMA is
implementing with the publication of this Notice. Changes in GNMA's
multiclass securities program are noted in this Notice. Any provisions
in the May 26 Notice that are not revised in this Notice remain in full
force and effect.
II. Program Revisions for Full Participation Stage
A. Types of Eligible Securities
For the full participation stage, GNMA is expanding its multiclass
securities program to include multiclass securities in addition to
those issued by trusts electing REMIC status. Section 306(g) of the
National Housing Act (12 U.S.C. 1721(g)), authorizes GNMA to guarantee
``securities . . . based on or backed by a trust or pool composed of
mortgages. * * *'' This language does not limit GNMA to any specific
type of security so long as it is based on or backed by a trust or pool
composed of eligible mortgages. In addition, section 3004 of the
Omnibus Budget Reconciliation Act of 1993, which revised GNMA's
statutory provisions relating to guaranty fees, referred to fees
charged for GNMA's guaranty of ``multiclass securities backed by a
trust or pool of securities or notes guaranteed by the Association
under this subsection. * * *''
B. Sponsors
GNMA is willing to undertake a variety of transactions, provided
that GNMA determines in its sole discretion that they enhance the goals
of the program and provide protection against any loss to GNMA for
which it would not otherwise be responsible.
The obligations of Sponsors with respect to any particular type of
GNMA multiclass securities transaction will be established from time to
time by GNMA and will be set forth in the Multiclass Securities Guide.
In general:
1. Sponsors are required to demonstrate their capacity to
accumulate those MBS needed for a securities issuance as to which GNMA
has committed to issue its guaranty.
2. Sponsors are required to represent the structural integrity of
the issuance under all cash flow scenarios and demonstrate to GNMA's
satisfaction their ability to indemnify GNMA for a breach of this
representation. Sponsors are required to have sufficient assets to back
their representations and commitments to GNMA, as specifically set
forth in the GNMA Multiclass Securities Guide.
3. For transactions involving the distribution of multiclass
securities in a public offering, the Sponsors are responsible for
assuring that distribution will be by licensed broker-dealers in good
standing under the Securities and Exchange Act of 1934.
GNMA requires entities wishing to participate in this program as
Sponsors to provide GNMA with certain information and meet certain
requirements. Currently, a Sponsor must have minimum capital assets of
$250 million in shareholders' equity, evidenced by the Sponsor's most
recent audited financial statements. GNMA also requires that Sponsors
have had at least one REMIC transaction with the Federal National
Mortgage Association (``FNMA'') or the Federal Home Loan Mortgage
Corporation (``FHLMC''). If an entity that wishes to sponsor GNMA
guaranteed transactions has not had this experience, GNMA requires an
alternative demonstration of experience, as GNMA determines
appropriate. A computer bulletin board, gREX, will be used to announce
revisions to this policy.
Entities that would like to obtain application forms or obtain
further information should contact Chemical New York, Inc., 1325 G St.,
N.W., Suite 640, Washington, D.C. 20005.
C. Selection of Trustee
GNMA has determined that the safety, integrity and efficiency of
the multiclass securities program will be best served if a limited
number of institutions act as trustee. In making this determination,
GNMA was particularly mindful of the long-term obligations associated
with acting as trustee for multiclass securities.
To secure trustee services, GNMA has requested applications from
qualified institutional trustees under a CAP. In the meantime, the
trustees approved for the initial stage will continue to serve as
trustees for multiclass securities transactions. Trustee services must
include tax administration as well as customary securities
administrative and payment functions. Trustees approved pursuant to the
CAP will be authorized to serve with respect to securities issued
during the period (not more than five years) specified in the request
for applications. Once a trustee is assigned to a specific transaction,
it will continue to act as trustee for the life of the security, unless
removed in accordance with the Trust Agreement. Sponsors will use
trustees approved pursuant to the CAP. Trustees will be paid from funds
related to the transaction.
D. Trust Counsel and Accounting Firms
Trust counsel selected by the Sponsor will provide customary
securities and tax opinions on the transactions, in accordance with
GNMA's requirements.
Accounting firms selected by the Sponsor will perform customary
procedures with respect to financial information included in the
offering documents and as part of the closing process, in accordance
with GNMA's requirements. GNMA currently requires entities wishing to
participate in GNMA guaranteed transactions to submit certain
information to GNMA. Interested parties may obtain the appropriate
forms from Chemical New York, Inc. (``Chemical Bank'') at the address
set out in section II.B. above.
E. The Guaranty Fee
GNMA will (1) make such multiclass guaranty fee adjustments as it
determines, in GNMA's sole discretion, to be appropriate to fulfill the
objectives of the program, and (2) establish and adjust from time to
time such guaranty fees as it determines to be appropriate for other
types of multiclass securities transactions in accordance with the
objectives of the program. Guaranty fees and changes in guaranty fees
will be announced on gREX (described below).
F. Information Distribution System (gREX)
GNMA has established a multiclass securities bulletin board, named
``gREX'', which is operated by GNMA's Information Agent, which at
present is Chemical Bank. Financial information and offering circular
disclosure information for multiclass securities transactions will be
posted on gREX. Interested parties may obtain gREX software by
contacting Chemical Bank at 1-800-2341-REX, or at the address set out
in section II.B. above. Users must pay for their connect time and
software.
G. Eligible MBS
The May 26, 1994 Notice identified eligible MBS as GNMA I MBS
backed by single family mortgages that were issued on or after February
1, 1993. GNMA intends to expand the program to include other MBS and
perhaps other securities. Announcements of additional eligible
securities will be made on gREX.
H. Distribution Date
With the expansion of eligible collateral and securities, GNMA may
vary the distribution date, referred to as the ``Payment Date'' in the
May 26, 1994 Notice, based on the type of multiclass transaction.
Announcements of any changes in the distribution date of multiclass
securities will be made on gREX.
I. Transaction Expenses
During the initial stage, GNMA had no liability for payment of any
fees or expenses, other than those of GNMA's Legal Advisor, in
connection with the GNMA guaranty of multiclass securities. One
commentor suggested that GNMA include the transaction expenses in its
guaranty fee, citing the practice of FNMA and FHLMC. GNMA notes that
these entities have different programs from GNMA in that both of these
entities issue securities as well as guaranteeing the securities.
GNMA has decided to continue the initial stage approach. Therefore,
GNMA will not be liable for transaction expenses, other than the Legal
Advisor's fees. Subject to GNMA requirements, during the full
participation stage, the Sponsors generally will select the program
participants to be used for each transaction and negotiate the fees
(other than those of the Financial Advisor) to be paid to the other
program participants.
III. Combination of Outstanding MBS
There are a large number of outstanding MBS in current principal
amounts that are not large enough to be traded efficiently in the
current MBS market. In addition, there are certain multiclass
securities transactions that can be effected most efficiently if the
trust issuing the multiclass securities is funded by GNMA MBS having
large outstanding principal amounts. As necessary, to facilitate other
multiclass securities transactions, to enhance the secondary market for
MBS and to raise revenues through the receipt of guarantee fees by
GNMA, GNMA is implementing a program to permit the combination of MBS
into a new GNMA combined multiclass security entitled to the payments
on the underlying MBS. The guaranty fees to be charged to effect
combination transactions will be established by GNMA from time to time
and announced on gREX.
IV. Participation by Minority and Women-Owned Firms
A. Sponsor Responsibilities
Pursuant to Executive Order 12138 of May 18, 1979, 3 CFR, 1979
Comp., p. 393, as amended, and Executive Order 12432 of July 14, 1983,
3 CFR, 1983 Comp., p. 198, GNMA anticipates meaningful participation by
minority and women-owned businesses (``MWOBs'') and minority and women-
owned law firms (``MWOLFs'') in the GNMA multiclass securities program.
Sponsors are required to develop and implement a plan that sets goals
for meaningful participation by MWOBs as Co-sponsors. Also, Sponsors
are required to ensure that the trust counsel they engage for
transactions develop and implement a plan that sets goals for
meaningful participation by MWOLFs.
1. Co-sponsor Participation
GNMA considers meaningful participation for MWOB Co-sponsors to be
the use of one of the following two options. Sponsors may increase the
level of participation by Co-sponsors.
a. Best Efforts Option. Under the Best Efforts Option, the Co-
sponsor is provided the opportunity to sell at least 10 percent of the
transaction, computed on the basis of the original principal balance,
for a 24-hour period, prior to the Sponsor's or other's marketing of
the allocated percentage of the transaction.
b. Underwriting Option. Under the Underwriting Option, the Co-
sponsor is provided the opportunity to acquire, at the option of the
Co-sponsor, at least 10 percent of the transaction, at prices
negotiated between the Sponsor and the Co-sponsor. In addition to the
sales price, and in lieu of a schedule of discounts, the Sponsor pays
the Co-sponsor an amount equal to 1/8th of 1 percent of the principal
amount purchased.
2. Trust Counsel Participation
GNMA considers meaningful participation of MWOLFs to be at least
ten percent of the billing for the work completed for each transaction.
B. Minority and Women-Owned Businesses as Sponsors
GNMA encourages MWOBs to become Sponsors, either individually or as
joint venturers, by providing a 15 percent reduction in the GNMA
guaranty fee for transactions closed and securities sold solely by MWOB
Sponsors and Co-sponsors.
C. Certification
Sponsors are required to provide GNMA with two annual
certifications:
1. With respect to Co-sponsors:
a. Certification that the Sponsor has developed and implemented a
plan that sets goals for meaningful participation by Co-sponsors, and
b. Certification of the extent to which MWOBs have been
participants in the Sponsor's transactions as Co-sponsors.
2. With respect to Co-trust Counsel:
a. Certification from trust counsel used for transactions by the
Sponsor that the trust counsel has developed and implemented a plan
that sets goals for meaningful participation by MWOLFs, and
b. Certification from such trust counsel of the extent to which
MWOLFs have been participants in the transactions for the Sponsor.
D. Applicability
The requirements described in this Section IV are not applicable to
securities that GNMA guarantees under the program described in Section
III.
E. Inclusion in Guide
This policy on minority participation is included in the GNMA
Multiclass Securities Guide.
V. Delegations of Authority
The President, each Vice President and each Assistant Vice
President of GNMA have been given general signing authority on behalf
of GNMA pursuant to the existing GNMA Bylaws, found at 24 CFR Part 310.
In addition, the Vice President in charge of multiclass securities has
delegated authority to sign all contracts and other documents,
instruments and writings that call for execution by GNMA in order to
affix the GNMA guaranty on a multiclass securities transaction, to the
Director of Multiclass Securities. Further, the Vice President in
charge of multiclass securities has delegated authority to execute the
Transaction Initiation Letter in the form specified by the Multiclass
Securities Guide to the Senior Multiclass Securities Specialist.
VI. Waiver
Section 300.13 of Title 24 of the Code of Federal Regulations
permits GNMA to waive or alter any of its requirements, to impose
additional requirements, to amend or rescind any or all of its
regulations. GNMA considers this regulation applicable to the May 26,
1994 Notice, this Notice, the GNMA Multiclass Securities Guide and its
multiclass regulations when issued, as well as the existing MBS
regulations. The operation of a securities guaranty program requires
that GNMA have the ability to revise its requirements and operations in
accordance with program objectives and the needs and fluctuations of
the financial markets.
VII. Terms and Conditions for Participants
As a condition of participation in the program, each participant
must agree to the conditions set out below.
A. Participant Certifications
Each Sponsor, Co-sponsor, all participating trust counsel and
accounting firms, and other persons or entities designated by GNMA from
time to time in the Multiclass Securities Guide, must certify as of
January 1 each year that neither the corporate nor partnership entity,
nor any officer, partner or professional presently employed and who
will work on the subject matter of this Notice, has been convicted of,
or found liable in a civil action for, fraud, forgery, bribery,
falsification or destruction of records, making false statements or any
other offense indicating a lack of business integrity that seriously
and directly affects the present responsibility of the officer, partner
or professional, and no entity or individual to which this
certification is applicable is currently suspended or debarred by a
State or the Federal government. Participants must report any event
which would necessitate a change in this certification to GNMA within
60 days of its occurrence.
Material adverse changes in status including voluntary and non-
voluntary terminations, defaults, fines, and agency findings of
material non-compliance or non-conformance with agency rules and
policies with state and federal agencies and government sponsored
enterprises must be reported to GNMA within 60 business days of their
occurrence.
B. Compliance with the GNMA Multiclass Securities Guide
Participants will comply with the requirements of the GNMA
Multiclass Securities Guide.
VIII. Appropriate Investors
GNMA guaranteed multiclass securities may not be suitable
investments for all investors. No investor should purchase securities
of any class unless the investor understands, and is able to bear, the
prepayment, yield, liquidity and market risks associated with that
class.
IX. Authority and Full Faith and Credit of the United States
The General Counsel of the Department of Housing and Urban
Development has issued an opinion which concludes that GNMA has the
authority to guarantee multiclass securities and that such GNMA
guarantees will constitute general obligations of the United States
backed by the full faith and credit of the United States.
X. Other Matters
Information Collections
The information collection requirements contained in this notice
and the associated forms for application for participation in the
program have been submitted to the Office of Management and Budget
(``OMB'') for review under the Paperwork Reduction Act of 1980 (44
U.S.C. 3501-3520). HUD has published a notice of that information
collection approval request on September 28, 1994 (59 FR 49410), which
invited public comment on them. That notice requested expedited review
of these requirements by OMB. No person may be subjected to a penalty
for failure to comply with these information collection requirements
until they have been approved and assigned an OMB control number. The
OMB control number, when assigned, will be announced by separate notice
in the Federal Register.
Executive Order 12866, Regulatory Planning and Review
This Notice was reviewed by OMB under Executive Order 12866 as a
significant regulatory action. Any changes made in this Notice as a
result of that review are clearly identified in the docket file for
this Notice, which is available for public inspection in the Office of
HUD's Rules Docket Clerk, Room 10276, 451 Seventh Street, SW.,
Washington, DC 20410-0500.
Environmental Review
A Finding of No Significant Impact with respect to the environment
has been made for the May 26 Notice in accordance with HUD regulations
at 24 CFR Part 50, which implement section 102(2)(C) of the National
Environmental Policy Act of 1969. The Finding of No Significant Impact
is available for public inspection between 7:30 a.m. and 5:30 p.m.
weekdays in the Office of the Rules Docket Clerk, Office of the General
Counsel, Department of Housing and Urban Development, Room 10276, 451
Seventh Street, S.W., Washington, D.C. 20410. This Notice merely amends
the May 26 Notice.
Executive Order 12612, Federalism
The General Counsel, as the Designated Official under section 6(a)
of Executive Order 12612, Federalism, has determined that this Notice
does not have ``federalism implications'' because it does not have
substantial direct effects on the States (including their political
subdivisions), or on the distribution of power and responsibilities
among the various levels of government. This notice only affects
participants and investors in GNMA guaranteed single and multiclass
securities industry. States and their political subdivisions would not
be affected.
Executive Order 12606, the Family
The General Counsel, as the Designated Official under Executive
Order 12606, the Family, has determined that this Notice does not have
potential significant impact on family formation, maintenance, and
general well-being because it only affects participants and investors
in GNMA guaranteed single and multiclass securities.
Lobbying Activities
Section 13 of the Department of Housing and Urban Development Act
(42 U.S.C. 3537b) contains two provisions dealing with efforts to
influence HUD's decisions with respect to financial assistance. The
first imposes disclosure requirements on those who are typically
involved in these efforts--those who pay others to influence the award
of assistance or the taking of a management action by the Department
and those who are paid to provide the influence. The second restricts
the payment of fees to those who are paid to influence the award of HUD
assistance, if the fees are tied to the number of housing units
received or are based on the amount of assistance received, or if they
are contingent upon the receipt of assistance.
Section 13 was implemented by a final rule codified as 24 CFR Part
86. If readers are involved in any efforts to influence the Department
in these ways, they are urged to read Part 86, particularly the
examples contained in Appendix A of the regulation.
Any questions about that rule should be directed to the Office of
Ethics, Room 2158, Department of Housing and Urban Development, 451
Seventh Street, S.W., Washington, D.C. 20410-3000. Telephone: (202)
708-3815; TDD number (202) 708-1112. (These are not toll-free numbers.)
Forms necessary for compliance with the rule may be obtained from the
local HUD office.
Authority: Section 309, National Housing Act (12 U.S.C. 1723).
Dated: September 23, 1994.
Dwight P. Robinson,
President.
[FR Doc. 94-24360 Filed 9-29-94; 8:45 am]
BILLING CODE 4210-01-P