[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