[Federal Register Volume 60, Number 126 (Friday, June 30, 1995)]
[Proposed Rules]
[Pages 34420-34426]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16129]



      

[[Page 34419]]

_______________________________________________________________________

Part VI





Department of Housing and Urban Development





_______________________________________________________________________



5 CFR Chapter LXV



24 CFR Part 0



Supplemental Standards of Ethical Conduct; Proposed Rule

Federal Register / Vol. 60, No. 126 / Friday, June 30, 1995 / 
Proposed Rules

[[Page 34420]]


DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

5 CFR Chapter LXV

24 CFR Part 0

[Docket No. FR-3331-P-01]
RIN 2501-AB55, 13209-AA15


Supplemental Standards of Ethical Conduct for Employees of the 
Department of Housing and Urban Development

AGENCY: Office of the Secretary, Department of Housing and Urban 
Development (Department).

ACTION: Proposed rule.

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SUMMARY: The Department of Housing and Urban Development (Department), 
with the concurrence of the Office of Government Ethics (OGE), proposes 
to issue regulations for the officers and employees of the Department 
that supplement the Standards of Ethical Conduct for Employees of the 
Executive Branch issued by OGE. To ensure a comprehensive and effective 
ethics program at the Department and to address ethical issues unique 
to the Department, the proposed rule establishes prohibitions on the 
ownership of certain financial interests and restrictions on outside 
employment and business activities.

DATES: Comments are invited and must be received on or before August 
29, 1995.

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed rule to the Office of General Counsel, Rules Docket 
Clerk, Room 10276, Department of Housing and Urban Development, 451 
Seventh Street, SW, Washington, DC 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 between 7:30 a.m. and 5:30 p.m. at the above address. Comments 
by facsimile (FAX) are not acceptable.

FOR FURTHER INFORMATION CONTACT: Aaron Santa Anna, Assistant General 
Counsel, Ethics Law Division, at (202) 708-3815, or Sam E. Hutchinson, 
Associate General Counsel, Office of Human Resources Law, (202) 708-
2947; 451 Seventh Street, SW, Washington, DC 20810. Hearing or speech-
impaired individuals may call HUD's TDD number (202) 708-3259. 
(Telephone numbers are not toll-free.)

SUPPLEMENTARY INFORMATION

I. Background

    Executive Order 12674, as amended by Executive Order 12731, 
authorized the Office of Government Ethics (OGE) to establish a single, 
comprehensive and clear set of executive-branch standards of conduct. 
On August 7, 1992, OGE published the Standards of Ethical Conduct for 
Employees of the Executive Branch (Standards). See 57 FR 35006-35067, 
as corrected at 57 FR 48557 and 57 FR 52583 with additional grace 
period extensions at 59 FR 4779-4780 and 60 FR 6390-6391. Codified at 5 
CFR part 2635, the Standards took effect on February 3, 1993, and 
established uniform standards of ethical conduct for all executive 
branch employees.
    With the concurrence of OGE, 5 CFR 2635.105 authorizes executive 
branch agencies to publish agency-specific supplemental regulations 
necessary to implement their respective ethics programs. The 
Department, with OGE's concurrence, has determined that the following 
supplemental rules contained in the proposed regulation, which would 
add a new chapter LXV, consisting of part 7501, to 5 CFR, are necessary 
to implement successfully the Department's ethics program in light of 
the Department's unique programs and operations. The Department of 
Housing and Urban Development is simultaneously removing its superseded 
Standards of Conduct at 24 CFR part 0 and is replacing those provisions 
with a single section that provides a cross-reference to 5 CFR parts 
2634 and 2635, and to the Department's new supplemental regulations.

II. Analysis of the Regulation

    The following is a section by section analysis of the proposed 
rule.

Section 7501.101  Purpose

    Proposed Sec. 7501.101 explains that the regulations contained in 
the proposed rule would apply to all Department employees and would 
supplement the executive branch-wide Standards. Special Government 
employees, as that term is defined by 18 U.S.C. 202 and 5 CFR 
2635.102(l), however, would be exempt from Secs. 7501.104 and 7501.105. 
Proposed Sec. 7501.101 would also note that Department employees must 
comply with the Standards of Ethical Conduct for Employees of the 
Executive Branch, 5 CFR part 2635, the executive branch financial 
disclosure regulations at 5 CFR part 2634, this part, and any 
additional rules of conduct that the Department is authorized to issue. 
Upon finalization of this supplemental regulation, the Department will, 
as proposed, delete its present Standards of Conduct rule at 24 CFR 
part 0, except for a cross-reference to 5 CFR.

Section 7501.102  Definitions

    Proposed Sec. 7501.102 defines the key terms used in the proposed 
rule, and would include a definition of the term ``affiliate'' at 
Sec. 7501.102.
    Proposed Sec. 7501.102 would, for purposes of the proposed rule and 
5 CFR part 2635, delegate to the Associate General Counsel, Office of 
Human Resources Law, the Assistant General Counsel, Ethics Law 
Division, and the Field Assistant General Counsels, the authority to 
serve as agency designees and agency ethics officials for all 
Department employees. These proposed sections would also delegate to 
the Inspector General the authority to serve as agency designee and 
agency ethics official for Department employees in the Office of the 
Inspector General. Finally, the General Counsel, Office of Federal 
Housing Enterprise Oversight, would be delegated authority to act as 
agency designee and agency ethics official for Department employees in 
the Office of Federal Housing Enterprise Oversight.
    ``Assistance'' would be defined broadly by proposed Sec. 7501.102 
to include any contract, grant, loan, subsidy, guarantee, cooperative 
agreement or any other financial assistance under a program 
administered by the Secretary. The definition is intended to include 
``assistance'' awarded by the Department that is subsequently 
redistributed competitively to a second tier of applicants. The term 
does not include, however, single family mortgage insurance provided 
under a program administered by the Secretary.
    ``Employment'' would be defined broadly at Sec. 7501.102 as 
proposed to cover any form of non-Federal employment or business 
relationship involving the provision of personal services, including 
writing when done under an arrangement with another person for 
production or publication of the written product.
    The term ``security'' also would be defined broadly at 
Sec. 7501.102 of the proposed rule. The proposed definition is based, 
in part, on the definition of ``financial interest'' at 5 CFR 
2635.403(c) and would include any interest in debt or equity 
instruments, such as stocks, bonds and commercial paper. The definition 
also would extend to loans securitized by mortgages or deeds of trust 
and securities backed by such instruments, but would not include 
deposit accounts. 

[[Page 34421]]


Section 7501.103  Waivers

    Proposed Sec. 7501.103 would authorize the Designated Agency Ethics 
Official (DAEO) to grant HUD employees written waivers of any provision 
of the proposed Department rule based upon a determination that the 
waiver will not result in conduct inconsistent with 5 CFR part 2635 or 
otherwise prohibited by law, and that application of the provision 
would not be necessary to ensure public confidence in the impartiality 
and objectivity with which the Department's programs are administered. 
Authority to waive provisions of the Department's conduct regulations 
has been included in 24 CFR 0.735-106. Under proposed Sec. 7501.103, 
the DAEO could grant a written waiver but require the employee to take 
further action, including executing a written disqualification 
statement. This provision is intended, in appropriate cases, to ease 
the burden that these supplemental regulations may impose on Department 
employees while ensuring that employees do not engage in actions or 
hold financial interests that may interfere with the objective and 
impartial performance of their official duties.

Section 7501.104  Prohibited Financial Interests

    General Requirement. Proposed Sec. 7501.104 would prohibit 
Department employees from receiving, acquiring, or owning certain 
financial interests that are related to or affected by Department 
operations, such as securities issued or collateralized by the Federal 
National Mortgage Association or the Federal Home Loan Mortgage 
Corporation. It would incorporate, with one addition, the restrictions 
implemented in 1987 through the promulgation of 24 CFR 0.735-204 of the 
Department's existing standards regulation. The additional restriction 
that would be imposed by paragraph (a)(2) reflects the Secretary's more 
recently acquired authority over the Federal Home Loan Mortgage 
Corporation under the Financial Institutions Reform, Recovery and 
Enforcement Act of 1989. (12 U.S.C. 4511). In accordance with 5 CFR 
2635.403(a), these prohibitions are proposed on the basis of the 
Department's determination that the acquisition or holding by 
Department employees of the six categories of financial interests 
listed in proposed Sec. 7501.104(a) would cause reasonable persons to 
question the impartiality and objectivity with which Department 
programs are administered.
    Exceptions to prohibition for certain interests. Proposed 
Sec. 7501.104(b) is substantially identical to the provision which it 
was designed to replace, 24 CFR 0.735-204(b). One provision which was 
modified, paragraph (b)(1), would permit employees to own interests in 
publicly traded or publicly available mutual or other investment funds 
which contain within their portfolios interests that they would be 
prohibited from holding by proposed Sec. 7501.104(a). Under this 
provision, ownership of investment funds would be permitted as long as 
the employee does not have the ability to control the fund or its 
portfolio, and the fund does not have an objective or practice of 
concentrating its investments in residential mortgages or securities 
backed by residential mortgages other than those of the Government 
National Mortgage Association.
    Reporting and Divestiture. Proposed Sec. 7501.104(c) is loosely 
based on 24 CFR 0.735-204(c). It would require new employees, within 30 
days of commencing employment, to report to the appropriate agency 
ethics official financial interests acquired prior to the commencement 
of their employment with the Department that they are prohibited from 
holding by Sec. 7501.104(a). Employees would be required to divest such 
interests within 90 days of the date reported unless they receive a 
written waiver from the Designated Agency Ethics Official in accordance 
with Sec. 7501.103. The proposed section would impose a similar 
reporting and divestiture requirement upon employees who acquire, 
without specific intent, financial interests prohibited by 
Sec. 7501.104(a).

Section 7501.105  Outside Employment and Other Outside Activities

    The proposed rule is designed to balance several important ethical 
principles against an employee's right to engage in outside activities. 
Proposed Sec. 7501.105(a) would incorporate, with minor modification, 
the substance of 24 CFR 0.735-203(b)(4), a provision which was 
promulgated in 1987. The proposed section prohibits paid and unpaid 
employment with businesses dealing with or related to real estate or 
manufactured housing. The Department has determined that maintaining 
the policy against active participation in such businesses is necessary 
to protect against questions regarding the impartiality and objectivity 
of employees and the administration of the Department's programs. It 
would hinder the Department in meeting its missions if members of the 
public question whether Department employees are using their public 
positions or Department connections to advance their real estate 
careers.
    In addition, since the parties involved in any real estate 
transaction, such as real estate agents, brokers, mortgagees, 
settlement attorneys, title and property insurance companies, 
appraisers, and developers, may do business with, or may be regulated 
by, the Department, an employee engaged in outside real estate 
transactions with these parties on a regular basis may be perceived as 
providing these persons preferential treatment in order to further his 
or her real estate-related business. In determining whether an employee 
is actively participating in a business related to real estate, the 
Department will consider a number of factors, including whether the 
employee maintains an office, advertises or solicits clients or 
business, hires staff, uses business stationery or similar materials, 
or establishes a formal or informal association with an existing 
business. The number of transactions over a period of time will also be 
considered in determining whether an employee is actively participating 
in a business.
    Proposed Sec. 7501.105(a)(2) and (a)(3) would incorporate, with 
minor revision, restrictions promulgated in 24 CFR 0.735-203(b)(5) and 
(b)(6). The additional employment restriction of proposed 
Sec. 7501.105(a)(4) against employment with certain mortgage 
institutions was considered necessary in view of the Department's role 
as regulator under the authority of the Financial Institutions Reform, 
Recovery and Enforcement Act of 1989.
    Proposed Sec. 7501.105(b) would create exceptions to the 
prohibitions in Sec. 7501.105(a) which would ensure that employees are 
not prohibited from serving as officers or directors of Federal credit 
unions or of certain cooperative or condominium associations. It would 
also give the Designated Agency Ethics Official authority to exempt 
service as an officer or director of other entities which would not be 
expected to raise appearance concerns.
    Proposed Sec. 7501.105(c) lists the circumstances under which an 
employee is required to obtain the approval of an agency ethics 
official prior to engaging in certain compensated or uncompensated 
outside employment activities. The requirement in proposed 
Sec. 7501.105(c)(1)(i) to obtain prior approval to serve in a position 
of authority with any organization that receives Department assistance 
is new. Because these organizations interact with the Department and 
are affected by Department programs and operations, proposed 
Sec. 7501.105(c)(1)(i) will ensure 

[[Page 34422]]
that employees do not violate 18 U.S.C. 203, 205 and 208. In this 
regard, it is noted that the financial interests of an organization in 
which an employee serves as officer, director, trustee, general partner 
or employee are imputed to the employee by 18 U.S.C. 208.
    Proposed Sec. 7501(c)(1)(ii) and (c)(1)(iii) reflect the practice 
of the Department since 1982, and under 24 CFR 0.735-203(d) of the 
current HUD standards regulation to require employees to obtain 
approval prior to engaging in any outside activities which are in the 
same professional field as that of the employee's official position or 
which are with a State or local government. For purposes of this 
section, professions subject to the prior approval requirement are 
those that require specialized knowledge and often long and intensive 
training. As noted in 5 CFR 2636.305, it is a characteristic of a 
profession that those in the profession, through force of organization 
or concerted opinion, establish and maintain high standards of 
achievement and conduct. Secretarial and clerical positions are not, 
for purposes of this rule, included within the term ``profession.''
    Proposed Sec. 7501.105(c)(2) would establish the standards against 
which requests for prior approval of outside activities would be 
judged. In this regard, it is noted that requests will be approved 
unless inconsistent with the conflict of interest laws, executive 
branch-wide Standards or this part.
    Proposed Sec. 7501.105(d) reflects the policy of the Department to 
encourage its employees to volunteer their time to nonprofit 
organizations. This paragraph recognizes, however, that such service 
must be consistent with applicable law and regulation, including 18 
U.S.C. 205 and 208.

Section 7501.106  Additional Rules for Certain Department Employees 
Involved in the Regulation or Oversight of Government Sponsored 
Enterprises

    Proposed Sec. 7501.106 would apply to certain Department employees 
whose official duties involve implementing the Federal Housing 
Enterprises Financial Safety and Soundness Act of 1992 (the Act). These 
rules would be in addition to those which would apply to these 
employees under Secs. 7501.101-7501.105.
    The need for these rules results from the authority granted the 
Department by the Act. The Act significantly expanded the Department's 
authority to regulate the Federal National Mortgage Association (Fannie 
Mae or FNMA) and the Federal Home Loan Mortgage Corporation (Freddie 
Mac or FHLMC), collectively referred to as Government sponsored 
enterprises (GSEs). In enacting this legislation, Congress sought to 
ensure, given the size of the GSEs and the fact that their securities 
are perceived as guaranteed by the Federal Government, the continued 
financial stability of the GSEs. In addition, Congress sought to 
establish a mechanism to ensure that the GSEs fulfill their public 
missions to stimulate the growth of affordable housing.
    To achieve these goals, the Act divided the regulatory 
responsibility over the GSEs between a newly established Office of 
Federal Housing Enterprise Oversight (OFHEO) within the Department and 
the Secretary. OFHEO was given substantial independence in matters 
relating to the financial health and security of the GSEs. The Director 
of OFHEO has authority, for example, to issue the risk-based capital 
standards for the GSEs and to periodically conduct broad-based 
examinations of the GSEs without Secretarial review. To ensure that the 
GSEs are in compliance with the capital standards and are operating 
safely, the Director has exclusive authority to bring a broad range of 
enforcement actions against an enterprise, including final and 
temporary cease-and-desist actions and civil money penalties. In its 
financial safety and soundness mission, OFHEO is analogous to other 
Federal financial regulators.
    The Act also granted the Secretary more specific authority over the 
housing missions and fair lending responsibilities of the GSEs. Under 
the Act, the Secretary has the authority to establish and monitor goals 
for the GSEs' purchase of mortgages financing housing for low- and 
moderate-income families, and to establish and monitor goals for the 
GSEs' purchase of mortgages financing housing located in rural areas, 
central cities, and other underserved areas. The Secretary also was 
provided authority to enforce fair lending requirements for the GSEs 
and to require the GSEs to assist the Department in investigating 
whether a mortgage lender has failed to comply with the Fair Housing 
Act and Equal Credit Opportunity Act. The Secretary is also authorized 
to approve new programs prior to the GSEs' implementation of such 
programs. To enforce compliance with these housing goals, the Secretary 
is authorized to hold hearings, issue cease-and-desist orders, and 
assess civil monetary penalties.
    Based on the authority granted under the Act, the Department 
proposes to promulgate new restrictions which would, among other 
things, prohibit certain employees whose official duties involve 
implementing the Department's statutory responsibilities under the Act 
from acquiring or owning the financial interests of certain mortgage 
institutions which do business with or rely upon the GSEs.
    Definitions. Proposed Sec. 7501.106(b) would define the terms 
``covered employee'' and ``mortgage institution'' for the purpose of 
Sec. 7501.106. The term ``covered employee'' would include employees 
required to file public or confidential financial disclosure reports 
and who are employed in OFHEO and certain other Departmental offices 
that have responsibilities under the Act. By virtue of this definition, 
the term would include employees involved in auditing and reviewing the 
GSEs for financial soundness, establishing housing goals for the GSEs, 
reviewing the lending policies and practices of the GSEs, bringing 
regulatory actions against the GSEs or the lending institutions with 
which they do business or reviewing new GSE programs. It would also 
include employees who have access to financial data about the GSEs or 
the lenders with which they do business or are involved in developing 
or implementing new Federal Housing Administration (FHA) programs to 
meet the Secretary's housing goals.
    ``Mortgage institution'' would include any person or entity which 
originates or services mortgages that are owned or guaranteed by FNMA 
or FHLMC. The term would also include any person or entity which 
insures mortgages owned or guaranteed by FNMA or FHLMC.
    Prohibited Financial Interests. Proposed Sec. 7501.106 would 
prohibit covered employees and their spouses and minor children from 
owning securities issued by certain ``mortgage institutions.'' The 
Department has determined, consistent with 5 CFR 2635.403(a), that 
prohibiting covered employees from acquiring or holding financial 
interests in the mortgage institutions specified in proposed 
Secs. 7501.106(c)(1)(i)-(iii) is necessary to maintain public 
confidence in the impartiality and objectivity with which the 
Department fulfills its statutory and regulatory functions to regulate 
the GSEs and establish housing goals. This prohibition also would 
ensure that widespread disqualifications of covered employees from 
official matters because of their financial interests do not adversely 
affect the Department's ability to carry out its mission. Moreover, 
actions taken by the Department may affect the market value of the 
securities of the mortgage institutions with which the GSEs deal. 

[[Page 34423]]

    Restrictions Arising from Third Party Relationships. Proposed 
Sec. 7501.106(d) would attribute to a covered employee securities he or 
she would be prohibited from holding by Sec. 7501.106(c) that are held 
by the entities described in this subsection. A covered employee with 
an attributed interest would be required to report the interest to the 
appropriate agency ethics official and could be required to terminate 
the relationship with the entity, disqualify himself or herself from a 
matter or take other appropriate action as determined by the agency 
ethics official to avoid a violation of the conflict of interest 
statutes, the executive branch-wide Standards, or these supplemental 
regulations.
    Prohibited Outside Employment. Proposed Sec. 7501.106(e) is 
intended to highlight for covered employees that they are prohibited by 
Sec. 7501.105(a) from engaging in employment with or on behalf of a 
mortgage institution. Employment with or on behalf of a mortgage 
institution means performing any work, whether compensated or 
uncompensated, for or to be provided to a mortgage organization through 
its employees, contractors, or agents.
    Prohibited Recommendations. Proposed Sec. 7501.106(f) would 
prohibit a covered employee from recommending, suggesting or giving 
advice to any person with respect to financial transactions or 
investment actions involving FHLMC or FNMA securities. This provision 
would supplement 5 CFR 2635.704 with a provision designed specifically 
for covered employees which would prohibit them from using or creating 
the appearance of using information which is not available to the 
general public to further a private interest.
    Prohibited Purchase of Assets. Proposed Sec. 7501.106(g) would 
prohibit covered employees from purchasing real or personal property 
from FHLMC or FNMA unless purchased under circumstances which ensure 
that the property is sold for fair market value. It is proposed as a 
supplement to the more general prohibition in 5 CFR 2635.702 against 
the use of public office for private gain.
    Pre-existing Interests. Proposed Sec. 7501.106(h) would require a 
covered employee, upon entering a covered position, to report any 
interest he or she would be prohibited from continuing to hold by 
Sec. 7501.106(c) to the agency ethics official within thirty days of 
the start of that covered employment. The covered employee would be 
required to divest such interest within 90 days of the date reported 
unless the employee receives a written waiver from the Designated 
Agency Ethics Official in accordance with Sec. 7501.103. A similar 
requirement would apply to covered employees who acquire financial 
interests prohibited by Sec. 7501.106(c) by gift or otherwise without 
specific intent on their part.

III. Removal of the Old Department Standards of Conduct Regulations

    Because the Department's Standards of Conduct have been largely 
superseded by the new executive branch financial disclosure regulations 
at 5 CFR part 2634 and by the new executive branch-wide Standards at 5 
CFR part 2635 as supplemented by the regulations contained in new 5 CFR 
part 7501, the Department is removing all of existing 24 CFR part 0. To 
ensure that employees are on notice of the ethical standards to which 
they are subject, the Department is replacing its old standards at 24 
CFR part 0 with a residual provision that cross-references 5 CFR parts 
2634, 2635 and 7501.

IV. Matters of Regulatory Procedure

Regulatory Flexibility Act

    The Secretary in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed and approved this rule, and in so doing 
certifies that this rule would not have a significant economic impact 
on a substantial number of small entities because it would affect only 
Federal employees.

Environmental Impact

    In accordance with 40 CFR 1508.4 of the regulations of the Council 
on Environmental Quality and 24 CFR 50.20(k) of the HUD regulations, 
the policies and procedures contained in this rule relate only to 
internal administrative procedures whose content does not constitute a 
development decision nor affect the physical condition of project areas 
or building sites, and therefore, are categorically excluded from the 
requirements of the National Environmental Policy Act.

Executive Order 12612, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that the policies 
contained in this rule will not have substantial direct effects on 
States or their political subdivisions, or the relationship between the 
Federal Government and the states, or on the distribution of power and 
responsibilities among the various levels of government. Specifically, 
this rule is only directed toward Federal employees and would not alter 
the established roles of HUD and the States and local governments. As a 
result, the rule is not subject to review under the order.

Executive Order 12606, the Family

    The General Counsel, as the Designated Official under Executive 
Order 12606, The Family, has determined that this rule does not have 
potential for significant impact on family formation, maintenance, and 
general well-being, and, thus, is not subject to review under the 
order. No significant change in existing HUD policies or programs would 
result from promulgation of this rule, as those policies and programs 
relate to family concerns.
Regulatory Agenda

    This rule was listed as item number 1367 in the Department's 
Semiannual Agenda of Regulations published on May 8, 1995 (60 FR 23368, 
23375) in accordance with Executive Order 12866 and the Regulatory 
Flexibility Act.

List of Subjects in 5 CFR Part 7501

    Conflict of interests, Government employees.

List of Subjects in 24 CFR Part 0

    Administrative practice and procedure, Conflict of interests.

    Dated: May 22, 1995.
Henry G. Cisneros,
Secretary of the Department of Housing and Urban Development.

    Approved: June 1, 1995.
Stephen D. Potts,
Director, Office of Government Ethics.

    For the reasons set forth in the preamble, the Department of 
Housing and Urban Development, with the concurrence of the Office of 
Government Ethics, is proposing to amend title 5 of the Code of Federal 
Regulations by adding a new chapter LXV, consisting of part 7501, and 
to amend title 24 of the Code of Federal Regulations by revising part 
0, to read as follows:
    1. In title 5, a new chapter LXV, consisting of part 7501, would be 
added to read as follows:

5 CFR CHAPTER LXV--DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

PART 7501--SUPPLEMENTAL STANDARDS OF ETHICAL CONDUCT FOR EMPLOYEES 
OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Sec.
7501.101  Purpose.
7501.102  Definitions. 

[[Page 34424]]

7501.103  Waivers.
7501.104  Prohibited financial interests.
7501.105  Outside employment.
7501.106  Additional rules for certain Department employees involved 
in the regulation or oversight of Government sponsored enterprises.

    Authority: 5 U.S.C. 301, 7301, 7351, 7353; 5 U.S.C. App. (Ethics 
in Government Act of 1978); E.O. 12674, 54 FR 15159, 3 CFR, 1989 
Comp., p. 215, as modified by E.O. 12731, 55 FR 42547, 3 CFR, 1990 
Comp., p. 306; 5 CFR 2635.105, 2635.203(a), 2635.403(a), 2635.803, 
2635.807.


Sec. 7501.101  Purpose.

    In accordance with 5 CFR 2635.105, the regulations in this part 
apply to employees of the Department of Housing and Urban Development 
(HUD or Department) and supplement the Standards of Ethical Conduct for 
Employees of the Executive Branch contained in 5 CFR part 2635. 
Employees are required to comply with 5 CFR part 2635, this part, and 
any additional rules of conduct that the Department is authorized to 
issue.


Sec. 7501.102  Definitions.

    For purposes of this part, and otherwise as indicated, the 
following definitions shall apply:
    Affiliate means any entity that controls, is controlled by, or is 
under common control with another entity.
    Agency designee, as used also in 5 CFR part 2635, means the 
Associate General Counsel for Human Resources Law, the Assistant 
General Counsel, Ethics Law Division, and the HUD Field Office 
Assistant General Counsels; the Inspector General, for employees 
assigned to the Office of the Inspector General; and the General 
Counsel, Office of Federal Housing Enterprise Oversight, for employees 
assigned to the Office of Federal Housing Enterprise Oversight.
    Agency ethics official, as used also in 5 CFR part 2635, means the 
agency designees as specified above.
    Assistance means any contract, grant, loan, subsidy, guarantee, 
cooperative agreement or other financial assistance under a program 
administered by the HUD Secretary, and includes ``assistance'' awarded 
by the Department that is competitively redistributed to a second tier 
of applicants or awardees. The term does not include single family 
mortgage insurance provided under a program administered by the 
Secretary.
    Designated Agency Ethics Official (DAEO) means the General Counsel 
of HUD or the Deputy General Counsel (Operations) in the absence of the 
General Counsel.
    Employment means any compensated or uncompensated form of non-
Federal employment or business relationship, including self-employment, 
involving the provision of personal services by the employee. It 
includes, but is not limited to, personal services as an officer, 
director, employee, agent, attorney, consultant, contractor, general 
partner, trustee, teacher or speaker. It includes writing when done 
under an arrangement with another person for production or publication 
of the written product.
    Security means all interests in debt or equity instruments. The 
term includes, without limitation, secured and unsecured bonds, 
debentures, notes, securitized assets and commercial paper including 
loans securitized by mortgages or deeds of trust and securities backed 
by such instruments, as well as all types of preferred and common 
stock. The term encompasses current and contingent ownership interests 
including any beneficial or legal interest derived from a trust. It 
extends to any right to acquire or dispose of any long or short 
position in such securities and includes, without limit, interests 
convertible into such securities, as well as, options, rights, 
warrants, puts, calls and straddles with respect thereto. The term 
shall not, however, be construed to include deposit accounts.


Sec. 7501.103  Waivers.

    The Designated Agency Ethics Official (DAEO) may waive any 
provision of this part upon finding that the waiver will not result in 
conduct inconsistent with 5 CFR part 2635 or otherwise prohibited by 
law and that application of the provision is not necessary to ensure 
public confidence in the impartiality and objectivity with which the 
Department's programs are administered. Each waiver shall be in writing 
and supported by a statement of the facts and findings upon which it is 
based and may impose appropriate conditions, such as requiring the 
employee's execution of a written disqualification statement.


Sec. 7501.104  Prohibited financial interests.

    (a) General requirement. This section applies to all HUD employees 
except special Government employees. Except as provided in paragraph 
(b) of this section, an employee, or an employee's spouse or minor 
child, shall not directly or indirectly receive, acquire or own:
    (1) Securities issued by the Federal National Mortgage Association 
(FNMA) or securities collateralized by FNMA securities;
    (2) Securities issued by the Federal Home Loan Mortgage Corporation 
(FHLMC) or securities collateralized by FHLMC securities;
    (3) FHA debentures or certificates of claim;
    (4) Stock or another financial interest in a Department-owned, 
insured or subsidized multifamily project or single family dwelling, 
cooperative unit, or condominium unit, except to the extent that the 
stock or other interest represents the employee's principal residence. 
Employees who wish to purchase a Department-held property as a 
principal residence must adhere to the procedures established by the 
Assistant Secretary for Housing for the administration of the property 
disposition program set forth in HUD Handbook 4310.5;
    (5) Any Department subsidy provided pursuant to Section 8 of the 
United States Housing Act of 1937, as amended, (42 U.S.C. 1437f) to or 
on behalf of a tenant of property owned by the employee. However, an 
employee may receive such a subsidy when:
    (i) The employee acquires without specific intent, as through gift 
or inheritance, a property which at the time of acquisition has a 
tenant receiving such a subsidy, but only as long as that tenant 
continues to reside in the property; or
    (ii) An incumbent tenant who has not previously received such a 
subsidy becomes the beneficiary thereof, but only if there is no 
increase in that tenant's rent upon the commencement of subsidy 
payments other than normal annual adjustments; or
    (6) Any direct creditor interest in a mortgage insured by the 
Department.
    (b) Exception to prohibition for certain interests. Nothing in this 
section prohibits an employee, or the spouse or minor child of an 
employee, from acquiring, owning, or controlling:
    (1) An interest in a publicly traded or publicly available 
investment fund which, in its prospectus, does not indicate the 
objective or practice of concentrating its investments in residential 
mortgages or securities backed by residential mortgages, except those 
of Government National Mortgage Association (GNMA), and the employee 
neither exercises control nor has the ability to exercise control over 
the financial interests held in the fund;
    (2) A limited partnership interest in a partnership which has at 
least 5,000 partnership interests, of which less than 25% of the assets 
are Department insured or subsidized projects; or
    (3) Mortgage insurance provided pursuant to section 203 of the 
National Housing Act (12 U.S.C. 1709) on the employee's principal 
residence and any one other single family residence. 

[[Page 34425]]

    (c) Reporting and divestiture. An employee must report, in writing, 
to the appropriate agency ethics official, any interest prohibited 
under paragraph (a) of this section acquired prior to the commencement 
of employment with the Department or without specific intent, as 
through gift, inheritance, or marriage, within 30 days from the start 
of employment or acquisition of such interest. Such interest must be 
divested within 90 days from the date reported unless waived by the 
Designated Agency Ethics Official in accordance with Sec. 7501.103.


Sec. 7501.105  Outside employment.

    (a) Prohibited outside employment. Subject to the exceptions set 
forth in paragraph (b) of this section, HUD employees, except special 
Government employees, shall not engage in:
    (1) Employment involving active participation in a business dealing 
with or related to real estate or manufactured housing including but 
not limited to real estate brokerage, management and sales, 
architecture, engineering, mortgage lending, property insurance, 
appraisal services, construction, construction financing, land 
planning, or real estate development;
    (2) Employment with a person, other than a State or local 
government, who engages in lobbying activities concerning Department 
programs or who is required to report expenditures for lobbying 
activities or register as a lobbyist under 42 U.S.C. 3537b or similar 
statutes which require the registration of persons who attempt to 
influence the decisions of officers or employees of the Department;
    (3) Employment as an officer or director of a person who is a 
Department-approved mortgagee, a lending institution or an organization 
which services securities for the Department; or
    (4) Employment with the Federal National Mortgage Association, the 
Federal Home Loan Mortgage Corporation, the Federal Housing Finance 
Board or any affiliate thereof.
    (b) Exceptions to employment prohibitions. The prohibitions set 
forth in paragraph (a) of this section do not apply to serving as an 
officer or a member of the Board of Directors of:
    (1) A Federal Credit Union;
    (2) A cooperative or condominium association for a housing project 
which is not subject to regulation by the Department or, if so 
regulated, in which the employee personally resides; or
    (3) An entity designated in writing by the Designated Agency Ethics 
Official.
    (c) Prior approval requirement. (1) Employees shall obtain the 
prior written approval of an agency ethics official before accepting 
compensated or uncompensated employment:
    (i) As an officer, director, trustee, or general partner of, or in 
any other position of authority with, either a for-profit or non-profit 
organization which directly or indirectly receives assistance from the 
Department.
    (ii) With a State or local government; or
    (iii) In the same professional field as that of the employee's 
official position.
    (2) Approval shall be granted unless the conduct is inconsistent 
with 5 CFR part 2635 or this part.
    (d) Voluntary services. Subject to the restrictions and 
requirements contained in the conflict of interest laws, 5 CFR part 
2635 and this part, employees are encouraged to volunteer their 
personal time to nonprofit organizations.


Sec. 7501.106  Additional rules for certain Department employees 
involved in the regulation or oversight of Government sponsored 
enterprises.

    (a) The following rules apply to certain Department employees whose 
duties involve the regulation or oversight of Government Sponsored 
Enterprises, specifically the Federal National Mortgage Association 
(FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). This 
section is in addition to Secs. 7501.101 to 7501.105.
    (b) Definitions. For purposes of this section, the following 
definitions are applicable:
    (1) Covered employee means an employee required to file a public or 
confidential financial disclosure report under 5 CFR part 2634 in:
    (i) the Office of the HUD Secretary;
    (ii) the Office of Federal Housing Enterprise Oversight;
    (iii) the Office of the Assistant Secretary for Housing-Federal 
Housing Commissioner, with the exception of the Office of the Deputy 
Assistant Secretary for Operations;
    (iv) the Office of Financial Institutions Regulation in the Office 
of the Assistant Secretary for Policy Development and Research;
    (v) the Offices of Investigation, Program Standards and Evaluation, 
and Regulatory Initiatives and Federal Coordination within the Office 
of the Assistant Secretary for Fair Housing and Equal Opportunity;
    (vi) the Offices of Insured Housing, Finance and Regulatory 
Enforcement, Legislation and Regulations, and the Fair Housing 
Enforcement Division in the Office of the General Counsel;
    (vii) the official superiors of the employees listed in paragraphs 
(b)(1)(iv), (b)(1)(v) and (b)(1)(vi) of this definition; and
    (viii) any other employee in the offices listed above who is 
designated in writing by the Secretary or the appropriate individual of 
Assistant Secretary rank, or his or her designee, to ensure compliance 
with the principles set forth in 5 CFR 2635.403.
    (2) Mortgage institution means mortgage bankers, mortgage brokers, 
banks, savings and loans, and other institutions that originate or 
service mortgages that are owned or guaranteed by the Federal National 
Mortgage Association (FNMA) or the Federal Home Loan Mortgage 
Corporation (FHLMC).
    (c) Prohibited financial interests. (1) Except as provided in 
paragraph (c)(2) of this section, a covered employee, or a spouse or 
minor child of a covered employee, shall not receive, acquire, or own 
securities of:
    (i) a mortgage institution if more than 20 percent of the 
institution's assets consist of mortgages;
    (ii) a mortgage institution in which 20 percent or less of the 
institution's assets consist of mortgages and more than 40 percent of 
the mortgages originated by the institution are sold to or guaranteed 
by FNMA and/or FHLMC; or
    (iii) a mortgage institution which services or insures mortgages if 
more than 20 percent of the gross income of such institution is derived 
from either or both of these activities.
    (2) The prohibitions in paragraph (c)(1) of this section do not 
apply to ownership of securities held in a publicly traded or publicly 
available investment fund, or profit-sharing, retirement, or similar 
plan which in its prospectus or governing documents does not indicate 
the objective or practice of concentrating its investments in the 
financial services sector, and the employee neither exercises control 
nor has the ability to exercise control over the financial interests 
held in the fund.
    (3) The mortgage institution's most recent financial statement 
shall be used in determining the applicability of the prohibitions in 
paragraph (c)(1) of this section.
    (d) Restrictions arising from third party relationships. If any of 
the entities listed below have securities that a covered employee would 
be prohibited from owning by paragraph (c) of this section, the 
employee shall report such interest to the appropriate Agency Ethics 
Official. The Agency Ethics Official may require the employee to 
terminate the third party relationship, undertake an appropriate 
disqualification, or take other appropriate action determined to be 
necessary consistent with 5 CFR part 

[[Page 34426]]
2635 and this part. This paragraph applies to a:
    (1) Partnership in which the covered employee, or a spouse or minor 
child of the employee is a general partner;
    (2) Partnership in which the covered employee, or spouse or minor 
child of the employee, individually or jointly holds more than a 10 
percent limited partnership interest;
    (3) Closely held corporation in which the covered employee, or 
spouse or minor child of the employee, individually or jointly holds 
more than a 10 percent equity interest;
    (4) Trust in which the covered employee, or spouse or minor child 
of the employee, has a legal or beneficial interest;
    (5) Investment club or similar informal investment arrangement 
between the covered employee, or spouse or minor child of the employee 
and others; or
    (6) Other entity in which the covered employee, or spouse or minor 
child of the employee, individually or jointly holds more than a 10 
percent equity interest.
    (e) Prohibited outside employment. In accordance with 
Sec. 7501.105(a)(1), covered employees shall not engage in employment 
with or on behalf of a mortgage institution.
    (f) Prohibited recommendations. Covered employees shall not make 
any recommendation or suggestion, directly or indirectly, concerning 
the acquisition, sale, or divestiture of securities of FHLMC or FNMA.
    (g) Prohibited purchase of assets. Covered employees, their spouses 
or minor children shall not purchase, directly or indirectly, any real 
or personal property from FHLMC or FNMA, unless it is sold at public 
auction or by other means which would assure that the selling price is 
the asset's fair market value.
    (h) Pre-existing interests. Covered employees must report, in 
writing, to the appropriate Agency Ethics Official, any interest 
prohibited under paragraph (c) of this section acquired prior to either 
the commencement of employment as a covered employee or the effective 
date of this part, or acquired without specific intent, as through 
gift, inheritance, or marriage, within 30 days from the start of 
covered employment or acquisition of such interest. Such interest must 
be divested within 90 days from the date it is reported unless waived 
by the Designated Agency Ethics Official in accordance with 
Sec. 7501.103.

24 CFR Subtitle A--Office of the Secretary Department of Housing 
and Urban Development

PART 0--STANDARDS OF CONDUCT

    2. 24 CFR part 0 consisting of Sec. 0.1 would be revised to read as 
follows:


Sec. 0.1  Cross-reference to employees ethical conduct standards and 
financial disclosure regulations.

    Employees of the Department of Housing and Urban Development 
(Department) are subject to the executive branch-wide standards of 
ethical conduct at 5 CFR part 2635 and the Department regulation at 5 
CFR Chapter LXV which supplements the executive branch-wide standards, 
and the executive branch-wide financial disclosure regulation at 5 CFR 
part 2634.

(5 U.S.C. 7301; 42 U.S.C. 3535(d)).

[FR Doc. 95-16129 Filed 6-29-95; 8:45 am]
BILLING CODE 4210-32-P