[Federal Register Volume 61, Number 132 (Tuesday, July 9, 1996)]
[Rules and Regulations]
[Pages 36246-36251]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-17450]



[[Page 36245]]


_______________________________________________________________________

Part V





Department of Housing and Urban Development





_______________________________________________________________________



5 CFR Chapter LXV



24 CFR Part 0



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

  Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Rules 
and Regulations  

[[Page 36246]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

5 CFR Chapter LXV

24 CFR Part 0

[Docket No. FR-3331-F-01]
RIN 2501-AB55, 3209-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 (HUD or Department).

ACTION: Final rule.

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

SUMMARY: The Department of Housing and Urban Development, with the 
concurrence of the Office of Government Ethics (OGE), is issuing a 
final rule establishing uniform standards of ethical conduct for 
employees of the Department to supplement the Standards of Ethical 
Conduct for Employees of the Executive Branch issued by OGE. The final 
rule is a necessary supplement to the executive branch-wide Standards 
because it addresses ethical issues unique to the Department. The final 
rule will become effective 30 days after the date of publication, and 
will establish regulations prohibiting certain financial interests and 
restricting certain outside employment.

EFFECTIVE DATE: This rule is effective on August 8, 1996.

FOR FURTHER INFORMATION CONTACT: Aaron Santa Anna, Assistant General 
Counsel, Ethics Law Division, 202-708-3815; or Sam E. Hutchinson, 
Associate General Counsel, Office of Human Resources Law, 202-708-0888. 
Hearing or speech-impaired individuals may call HUD's TDD number 202-
708-3259. (Telephone numbers are not toll-free.)

SUPPLEMENTARY INFORMATION:

I. Background

    On June 30, 1995, the Department, with OGE's concurrence, published 
for comment a proposed rule to establish supplemental standards of 
ethical conduct for HUD employees (60 FR 34420-34426). The proposed 
rule was intended to supplement the Standards of Ethical Conduct for 
Employees of the Executive Branch (Standards) published by OGE on 
August 7, 1992, and effective February 3, 1993 (57 FR 35006-35067, as 
corrected at 57 FR 48557, 57 FR 52583, and 60 FR 51667, with additional 
grace period extensions for certain exisiting agency standards of 
conduct at 59 FR 4779-4780, 60 FR 6390-6391, and 60 FR 66857-66858). 
The executive branch-wide Standards, codified at 5 CFR part 2635, 
establish uniform standards of ethical conduct for executive branch 
employees. The proposed rule was issued pursuant to 5 CFR 2635.105, 
which authorizes executive branch agencies to publish agency-specific 
supplemental regulations necessary to implement their respective ethics 
programs. The Department, with OGE's concurrence, determined that the 
supplemental regulations contained in the proposed rule were necessary 
to implement the Department's ethics program successfully, in light of 
the Department's unique programs and operations.
    The proposed rule prescribed a 60-day comment period and invited 
comments from all interested parties. The Department received one 
public comment, and after careful consideration of it, has made 
appropriate modifications to the rule. In addition, the Department has 
made appropriate modifications to the rule based on various intra-
departmental comments. The Department, with OGE's concurrence, is now 
publishing as a final rule the Supplemental Standards of Ethical 
Conduct for Employees of the Department of Housing and Urban 
Development, to be codified in a new chapter LXV of 5 CFR, consisting 
of part 7501.

II. Summary of the Comments

    The Department received one public comment; it was from the Federal 
Home Loan Mortgage Corporation (``Freddie Mac''). The Department also 
received six intra-departmental comments. Freddie Mac's comments 
focused primarily on three distinct areas under the proposed rule: 
scope of coverage, ownership interests, and outside employment. The 
intra-departmental comments contained both requests for substantive 
changes and for additional clarification regarding the application of 
the rule in general or specific sections.

III. Analysis of the Comments

Section 7501.102  Definitions

    One commenter within the Department recommended that one portion of 
the definition of ``security'' be modified to read that the term 
``includes'' any right to acquire or dispose of any long or short term 
position in securites. The Department agrees that the suggested 
language is more reflective of the Department's intent than the 
originally proposed language and has, therefore, implemented this 
revision to the definition of ``security'' in Sec. 7501.102 of the 
final rule.
    Freddie Mac suggested that the Department include definitions for 
``employee'' and ``special Government employee.'' The Department has 
not adopted this recommendation because the definitions of those terms 
in the executive branch-wide Standards, at 5 CFR 2635.102 (h) and (l), 
apply to supplemental regulations unless otherwise specified.

Section 7501.104  Prohibited Financial Interests

    One commenter within the Department recommended that special 
Government employees assigned to work in one of the program offices 
listed in Sec. 7501.106(b)(1) not be excluded from the coverage of the 
financial interest prohibitions in Sec. 7501.104 of the rule, since 
such employees would have access to the same types of confidential 
information as would other employees in those officies. The Department 
has adopted this recommendation to protect against the appearance that 
any HUD employee is using confidential information for private gain. 
The proposed exclusion of special Government employees from the 
coverage of this section has been eliminated.
    Another commenter within the Department recommended that the first 
sentence of the description of prohibited financial interests in real 
estate, at Sec. 7501.104(a)(4), be amended to read: ``Stock or another 
financial interest in a multifamily project or single family dwelling, 
cooperative unit or condominium unit, which is owned or subsidized by 
the Department, or which is subject to a note and mortgage or other 
security instrument insured by the Secretary, except to the extent that 
the stock or other interest represents the employee's principal 
residence.'' The Department has decided to adopt this language as a 
better characterization of the Department's interest in various real 
estate interests covered by the final rule.

Section 7501.105  Outside Employment

    One commenter within the Department recommended that the Department 
include a provision regarding an employee's service on the board of a 
non-Federal organization in an official capacity, similar to prior 24 
CFR 0.735-210 of HUD's old departmental standards of conduct. In 
response, a Note has been added to this section to clarify that while 
service in an official capacity on the Board of a non-Federal 
organization is not outside employment or other activity subject to

[[Page 36247]]

this section, employees need to be aware that such service is subject 
to other applicable laws.
    While generally supportive of the outside employment provisions in 
this section, Freddie Mac wanted the requirements in the section to 
extend to any type of writing by employees. The Department has included 
within the coverage of this section those types of outside employment 
which the Department believes pose the greatest potential for employees 
to engage in conduct which might violate applicable laws or 
regulations, and is not convinced that the suggested extension of 
coverage is warranted.
    In addition, Freddie Mac suggested that the public impact of an 
outside activity in relation to the employee's official position be 
taken into consideration when deciding whether to grant a waiver, under 
Sec. 7501.103 of the rule, from the prohibitions in this section. The 
specific inclusion of the suggested factors in the final rule is 
uncalled for, because the factors are largely covered by the terms of 
the waiver standard at Sec. 7501.103, i.e., that application of the 
prohibition is not necessary to ensure public confidence in the 
impartiality and objectivity with which the Department's programs are 
administered.

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

    Freddie Mac noted that the supplemental regulation is not 
specifically applicable to individuals who serve pursuant to a 
consulting agreement with the Department. The Department has decided 
not to make the regulation specifically applicable to consultants, 
since the generic term ``consultants'' may include individuals who are 
independent contractors as well as those who are deemed employees of 
the Department. Whether a consultant will be deemed an employee of the 
Department for these purposes depends on various factors, including the 
type of functions or activities being performed by the consultant for 
the Department, and the extent of the consultant's supervision by an 
officer or employee of the Department. A consultant deemed an employee 
of the Department would be subject to the executive branch-wide 
Standards and these rules.
    Freddie Mac also recommended that the description of prohibited 
financial interests in Sec. 7501.106(c)(ii) be amended to parallel the 
description of prohibited financial interests in Sec. 7501.104(a), by 
adding the terms ``issued'' and ``collateralized'' in the description 
of prohibited securities in a mortgage institution, a certain 
percentage of whose originated mortgages involve the Federal National 
Mortgage Association or Freddie Mac in various specified capacities. 
This recommendation was adopted to attain uniformity.
    A commenter within the Department suggested that employees of the 
Office of Inspector General and all employees of the Office of Federal 
Housing Enterprise Oversight be included in the list at 
Sec. 7501.106(b)(1) of employees covered by the prohibition in this 
section. The Department has adopted this recommendation to make the 
prohibitions contained in Sec. 7501.106 uniformly applicable to all 
employees whose official duties require that they have access to 
information regarding a Government sponsored enterprise (GSE). 
Similarly, another commenter within the Department recommended that the 
Department's Office of Lead-Based Paint and Poisoning Prevention be 
excluded from coverage under Sec. 7501.106(b)(1), since it is not 
involved in the regulation or oversight of GSEs. This recommendation 
was adopted for the reason asserted by the commenter.
    This same commenter also recommended that the definition of 
mortgage institution be amended to include entities that insure 
mortgages. The Department has adopted this recommendation as a more 
specific reflection of its intent. In addition, the Department has 
adopted this commenter's recommendation that an institution's most 
recent annual financial statement be used to determine whether it 
exceeds the thresholds contained in Sec. 7501.106(c)(1).
    This same commenter also expressed concern that the definition of 
covered employee in Sec. 7501.106(b)(1), which encompasses only 
employees who are required to file financial disclosure reports, 
excludes many employees whose primary job responsibilities 
significantly include the regulation or oversight of GSEs. To address 
this concern, the Department has modified proposed 
Sec. 7501.106(b)(1)(viii) to include the DAEO in the list of those 
individuals who may designate an employee as a ``covered employee'' to 
ensure compliance with the principles set forth in 5 CFR 2635.403. To 
ensure that the prohibition in this section is not unnecessarily 
burdensome, the Department has also added a new Sec. 7501.106(b)(2) 
(the prior proposed paragraph (b)(2) has been redesignated paragraph 
(b)(3)), which permits the DAEO, upon recommendation of the appropriate 
individual of Assistant Secretary rank, to exclude in writing an 
employee otherwise designated as a ``covered employee'' if the 
employee's official duties do not substantially involve the regulation 
or oversight of GSEs and ownership of the interests prohibited by 
Sec. 7501.106(c) would not cause a reasonable person to question the 
impartiality and objectivity with which the Department's programs are 
administered.
    In response to another comment from within the Department, the 
Department has specifically included the Federal National Mortgage 
Association and the Federal Home Loan Mortgage Corporation under 
Sec. 7501.106(e) to make clear that special Government employees who 
are covered employees under Sec. 7501.106(b)(1) cannot be employed by 
any of these organizations or their affiliates. This modification is 
required to ensure compliance with 5 CFR 2635.403 and because special 
Government employees are not otherwise subject to the outside 
employment and other activities provisions of Sec. 7501.105.

IV. Other Changes

    An exception is being added to the prohibition in 
Sec. 7501.104(a)(5) against an employee receiving any Department 
subsidy provided pursuant to Section 8 of the United States Housing Act 
of 1937, as amended (42 U.S.C. 1437f). Under new 
Sec. 7501.104(a)(5)(iii), an employee may receive such a subsidy if the 
tenant of the subsidized unit is the parent, child, grandchild, or 
sibling of the employee, but only if there is no increase in that 
tenant's rent upon the commencement of subsidy payments other than 
normal annual adjustments. This change from the proposed rule reflects 
current Departmental practice.
    In addition, the Department has decided to exclude special 
Government employees (SGEs) from the prior approval requirement at 
Sec. 7501.105(c) of the final rule. Proposed Sec. 7501.105(c)(1) would 
have required all employees of the Department to obtain approval before 
engaging in certain types of outside employment or activities. Special 
Government Employees have been subject to this requirement because they 
are included within the meaning of ``employee,'' as used in the 
supplemental regulation. However, SGEs were not required to obtain 
prior approval for outside employment under the Department's old 
Standards of Conduct. Moreover, SGEs are excluded from the outside 
employment prohibitions at Sec. 7501.105(a) of the final rule. 
Accordingly, the Department has concluded that it would be unreasonable 
to apply the prior approval requirement to SGEs, and is providing in 
Sec. 7501.103(c)(1) of the final

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rule that the prior approval requirement therein applies to employees 
of the Department, ``except special Government employees.''
    Finally, the Department has decided not to exclude employees who 
file public or confidential financial disclosure reports in the Office 
of Housing's Office of Deputy Assistant Secretary for Operations from 
the list of ``covered employees'' in Sec. 7501.106(b)(1). Section 
7501.106 sets forth additional rules for certain employees involved in 
the regulation or oversight of the Government sponsored enterprises. 
The reason for this change is that the Office of Housing has been 
reorganized since the publication of the proposed rule to give the 
Deputy Assistant Secretary for Operations programmatic responsibility 
over matters that affect the Government sponsored enterprises. 
Accordingly, the exclusionary clause ``with the exception of the Office 
of Deputy Assistant Secretary for Operations'' has been deleted from 
paragraph (b)(1)(ii) containing the definition of ``covered employee'' 
for purposes of Sec. 7501.106.

V. Removal of Old Department Standards of Conduct Regulations and 
Revision of the Residual Cross-Reference Provision

    On April 5, 1996, the Department published a final rule that 
provided for removal of all of the then existing provisions in the 
Department's old Standards of Conduct regulation at 24 CFR part 0, and 
their replacement with a single section that provides a cross-reference 
to 5 CFR parts 2634 and 2635, effective May 6, 1996 (61 FR 15350). To 
prevent an untimely lapse in enforcement authority for the two sections 
of 24 CFR part 0 that had temporarily remained in effect pursuant to 
the extended grace periods in the Standards--Sec. 0.735-203 regarding 
outside employment and other activities, and Sec. 0.735-204 regarding 
financial interests--the Department published a correction to the final 
rule on May 1, 1996, effective May 6, 1996, preserving those two 
sections at 24 CFR 0.2 and 0.3. (61 FR 19187-19188). Upon the effective 
date of the Department's supplemental standards of ethical conduct as a 
final rule, the Department is amending 24 CFR part 0 to remove the 
temporarily preserved sections regarding outside employment and 
financial interests, and to include in the residual cross-reference 
provision a notation of the Department's newly issued supplemental 
standards of ethical conduct at 5 CFR part 7501.

VI. Matters of Regulatory Procedure

Regulatory Flexibility Act

    It is hereby certified that this rule will not have significant 
economic impact on a substantial number of small entities. This rule 
affects only Federal employees and their immediate families.

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.

List of Subjects

5 CFR Part 7501

    Conflict of interests, Government employees.

24 CFR Part 0

    Administrative practice and procedure, Conflict of interests.

    Dated: July 2, 1996.
Henry G. Cisneros,
Secretary of the Department of Housing and Urban Development.
    Approved: July 2, 1996.
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 amending title 5 and title 24, subtitle A, of the 
Code of Federal Regulations as follows:

TITLE 5--[AMENDED]

    1. A new chapter LXV, consisting of part 7501, is added to 5 CFR to 
read as follows:

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.
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,

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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. Such 
interest includes any right to acquire or dispose of any long or short 
position in such securities and also 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 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 who are not ``covered employees'' 
as defined in Sec. 7501.106(b)(1) of this part. 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) Federal Housing Administration debentures or certificates of 
claim;
    (4) Stock or another financial interest in a multifamily project or 
single family dwelling, cooperative unit, or condominium unit, which is 
owned or subsidized by the Department, or which is subject to a note or 
mortgage or other security interest insured by the Department, 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;
    (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
    (iii) The tenant is the parent, child, grandchild, or sibling of 
the employee, 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 resi dential 
mortgages or securities backed by residential mortgages, except those 
of the 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, and no more than 25% of the gross 
value of the partnership interest constitutes projects subject to HUD 
held or insured mortgages or projects currently receiving the benefit 
of HUD subsidies; 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.
    (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

[[Page 36250]]

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 Home Loan Bank 
System 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, except special 
Government 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 inconsisent 
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.

    Note to Sec. 75.105: An employee assigned to serve in an 
official capacity as the Department's liaison representative to an 
outside organization is not engaged in an outside activity to which 
this section applies. Notwithstanding, an employee may be assigned 
to serve as the Department's liaison representative only as 
authorized by law, and as approved by the Department under 
applicable procedures.


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) Except as provided in paragraph (b)(2) of this section, 
``covered employee'' means all employees in the Office of Federal 
Housing Enterprise Oversight and employees required to file a public or 
confidential financial disclosure report under 5 CFR part 2634 in:
    (i) The Office of the HUD Secretary, with the exception of the 
Office of Lead-Based Paint Abatement and Poisoning Prevention;
    (ii) The Office of the Assistant Secretary for Housing--Federal 
Housing Commissioner;
    (iii) The Office of Financial Institutions Regulation in the Office 
of the Assistant Secretary for Policy Development and Research;
    (iv) 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;
    (v) The Office of General Counsel's Offices of Insured Housing, 
Government Sponsored Enterprises/Real Estate Settlement and Procedures 
Act Division in Finance and Regulatory Enforcement, Legislation and 
Regulations, and the Fair Housing Enforcement Division;
    (vi) The Office of Inspector General;
    (vii) The official superiors of the employees listed in paragraphs 
(b)(1)(iii), (b)(1)(iv) and (b)(1)(v) of this section;
    (viii) Any other employee who is designated in writing by the 
Secretary, the Designated Agency Ethics Official, 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 and 
who receives notice of such designation.
    (2) The DAEO, upon recommendation of the appropriate individual of 
Assistant Secretary rank, may exclude in writing an employee otherwise 
designated as a ``covered employee'' under Sec. 7501.106(b)(1)(i)-(vii) 
of this part if the employee's official duties do not substantially 
involve the regulation or oversight of Government sponsored enterprises 
and ownership of interests prohibited by Sec. 7501.106(c) would not 
cause a reasonable person to question the impartiality and objectivity 
with which the Department's programs are administered.
    (3) Mortgage institution means mortgage bankers, mortgage brokers, 
banks, savings and loans, and other institutions or entities that 
originate, insure, 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 issued, collateralized, 
sold 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 annual 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 has securities that a covered employee would 
be prohibited from owning by paragraph (c) of this section, the 
employee shall report such

[[Page 36251]]

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 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. Covered employees shall not 
engage in employment with or on behalf of the Federal National Mortgage 
Association, the Federal Home Loan Mortgage Corporation, a mortgage 
institution, or any of their affiliates.
    (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.

TITLE 24--[AMENDED]

SUBTITLE A--OFFICE OF THE SECRETARY, DEPARTMENT OF HOUSING AND URBAN 
DEVELOPMENT

PART O--STANDARDS OF CONDUCT

    2. In Part 0 of 24 CFR subtitle A, Sec. 0.1 is 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, the Department's regulation at 5 
CFR part 7501 which supplements the executive branch-wide standards, 
and the executive branch-wide financial disclosure regulation at 5 CFR 
part 2634.

    Authority: 5 U.S.C. 301, 7301; 42 U.S.C. 3535(d).

[FR Doc. 96-17450 Filed 7-8-96; 8:45 am]
BILLING CODE 4210-32-P