[Federal Register Volume 66, Number 38 (Monday, February 26, 2001)]
[Proposed Rules]
[Pages 12428-12431]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-4439]



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Part III





Department of Housing and Urban Development





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24 CFR Parts 320 and 330



Government National Mortgage Association Mortgage-Backed Securities 
Program--Payments to Security Holders; Proposed Rule

  Federal Register / Vol. 66 , No. 38 / Monday, February 26, 2001 / 
Proposed Rules  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 320 and 330

[Docket No. FR-4629-P-01]
RIN 2503-AA16


Government National Mortgage Association Mortgage-Backed 
Securities Program--Payments to Security Holders

AGENCY: Office of the Secretary, HUD.

ACTION: Proposed rule.

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SUMMARY: The Government National Mortgage Association (the 
``Association'' or ``Ginnie Mae'') is proposing regulations that will 
govern payments on Ginnie Mae I Modified Pass-Through Securities 
(``Ginnie Mae I MBS'') registered in the name of a securities 
depository intermediary (a ``Depository''). The proposed rule would 
require that payments on Ginnie Mae I MBS due to Depositories be made 
in immediately available funds and would supersede any current 
provisions allowing those payments to be made by check. Payments to 
other security holders may be made by check or other means provided the 
check is received by the security holder not later than the 15th day of 
each month. The regulation would also eliminate any requirement that a 
physical certificate representing a Ginnie Mae MBS be maintained by a 
Depository. For consistency, the regulation would also eliminate any 
requirement that a physical certificate representing a Ginnie Mae 
multiclass security be maintained by a Depository.

DATES: Comments Due Date: March 28, 2001.

ADDRESSES: Interested persons are invited to submit comments regarding 
this rule to the Rules Docket Clerk, Regulations Division, Office of 
General Counsel, Room 10276, Department of Housing and Urban 
Development, 451 Seventh Street, SW, Washington, DC 20410. 
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. weekdays at the 
above address. FAXED comments will not be accepted.

FOR FURTHER INFORMATION CONTACT: Thomas R. Weakland, Vice President for 
Program Administration, Government National Mortgage Association, 
Department of Housing and Urban Development, Room 6204, 451 Seventh 
Street, SW, Washington, DC 20410, telephone (202) 708-2884. A 
telecommunications device for deaf persons (TTY) is available at (202) 
708-9300. (The telephone numbers are not toll-free.)

SUPPLEMENTARY INFORMATION:

I. Background

    As stated in section 301 of the National Housing Act, Ginnie Mae's 
purpose is to ``establish secondary market facilities for residential 
mortgages, to provide that the operations thereof shall be financed by 
private capital to the maximum extent feasible, and to authorize such 
facilities to--
    (1) provide stability in the secondary market for residential 
mortgages;
    (2) respond appropriately to the private capital market;
    (3) provide ongoing assistance to the secondary market for 
residential mortgages (including activities relating to mortgages on 
housing for low- and moderate-income families involving a reasonable 
economic return that may be less than the return earned on other 
activities) by increasing the liquidity of mortgage investments and 
improving the distribution of investment capital available for 
residential mortgage financing;
    (4) promote access to mortgage credit throughout the Nation 
(including central cities, rural areas, and underserved areas) by 
increasing the liquidity of mortgage investments and improving the 
distribution of investment capital available for residential mortgage 
financing * * * .''
    As of September 15, 2000, the principal amount of Ginnie Mae I MBS 
outstanding was approximately $432 billion. Of this amount, 
approximately $426 billion or 98.6% was registered in the name of The 
Depository Trust & Clearing Corporation (``DTCC'') for the benefit of 
holders reflected on the books of DTCC.
    Effective October 1, 1998, Section 15-2(A)(1) of the Ginnie Mae 
Mortgage-Backed Securities Guide has provided with respect to Ginnie 
Mae I MBS that issuers must remit all payments due to security holders 
such that security holders will receive their installments as follows:
    (1) Payment by electronic transfer. For all securities registered 
in the name of the designated nominee for the depository, with an issue 
date of October 1, 1998 or later, issuers are required to make payments 
by ACH transaction or by Fed wire. For securities registered in the 
name of the designated nominee for the Depository, with an issue date 
prior to October 1, 1998, Ginnie Mae strongly encourages issuers to pay 
the Depository by ACH transaction or by Fed wire. If an issuer elects 
to remit payments to the Depository by ACH transaction or electronic 
transfer for securities with an issue date prior to October 1, 1998, it 
must continue to remit payments electronically while the securities are 
registered in the name of the Depository's nominee.
    The electronic transfer must be completed by the 15th calendar day 
of the month if the 15th is a business day. If the 15th calendar day is 
not a business day, the transfer must be completed by 1:00 PM, Eastern 
Time on the first business day following the 15th calendar day of the 
month.
    An issuer of securities that are not registered in the name of the 
Depository's nominee may make payments to a security holder by ACH 
transaction or fed wire, provided that it obtains the prior written 
approval of the security holder. If an issuer begins to make such 
payments by electronic transfer, it must continue to do so while the 
securities are registered in the name of that security holder.
    (2) Payment by check. If an issuer pays by check, the check must be 
received by the security holder not later than the 15th calendar day of 
each month.

II. This Proposed Rule

    Most issuers of Ginnie Mae I MBS responded affirmatively to Ginnie 
Mae's encouragement that payments be made by electronic transfer when 
the payee was DTCC. As of September 15, 2000, (i) approximately 80% of 
all payments to DTCC on all Ginnie Mae I MBS were made by electronic 
transfer, (ii) approximately 71% of all payments to DTCC on Ginnie Mae 
I MBS issued before October 1, 1998, were made by electronic transfer, 
and (iii) 91% of issuers made all Ginnie Mae I MBS payments to DTCC by 
electronic transfer.

III. Reasons for Proposed Rule

A. Securities Held Through Intermediaries

    Against this background, Ginnie Mae is proposing promulgation of a 
regulation requiring that all payments to be made on Ginnie Mae I MBS 
to a Depository be made electronically in immediately available funds. 
The reasons for the proposal are:
    (1) Fungibility/Liquidity. Ginnie Mae is charged with maintaining 
stability and liquidity in the secondary market for residential 
mortgage securities. Under existing program requirements, funds are 
transferred at different times on securities that should have the same 
payment characteristics. This is an unsatisfactory discrepancy when the

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goal is uniformity for the purpose of enhancing fungibility and thereby 
liquidity of Ginnie Mae I MBS.
    (2) Access to Alternative Payment Systems. Ginnie Mae has created 
uniformity where it would not otherwise exist through the establishment 
of a relationship with DTCC. As a consequence of Ginnie Mae's program 
requirements, it is more expensive to invest in Ginnie Mae securities 
than it need be, to the detriment of mortgagors, mortgagees and 
secondary market investors. The additional expense is ultimately 
reflected in the interest rate that is charged homeowners, therefore 
making homeownership less affordable.
    Equally important, existing program requirements have impaired the 
ability of Ginnie Mae to consider alternative payment systems. In 
particular, in response to comments from capital markets investors, 
Ginnie Mae is considering utilizing the payment systems of the Federal 
Reserve Bank for payments on Ginnie Mae I MBS. Crediting payments 
through the Federal Reserve's systems would make the crediting process 
consistent with that for United States Treasury securities and for 
mortgage-backed securities issue by Fannie Mae and Freddie Mac. Ginnie 
Mae has also been advised that the use of Federal Reserve systems would 
enhance the market for Ginnie Mae I MBS in overseas capital markets. 
Because the Federal Reserve's systems do not accommodate payments made 
otherwise than electronically in immediately available funds, mandating 
electronic transfer is a prerequisite to the use of those payment 
options.
    (3) Credit/Stability. Only when a check fails to clear is it known 
that funds were not available that the system assumes were available at 
the required time of payment. Requiring that all payments due on Ginnie 
Mae I MBS be made in immediately available funds better assures the 
certainty and integrity of the Ginnie Mae system and the timeliness of 
all required payments, because, among other things, Ginnie Mae 
appropriately does not default an issuer and make payment with its 
funds until there is actual evidence of an issuer default.
    (4) Efficiency. Securities markets and securities payment systems 
are moving rapidly away from paper. A system that must accommodate 
paper is more costly than one that does not. This is evidenced by the 
fact that payments are made electronically on all Treasury Securities 
and the mortgage-backed securities issued by Fannie Mae and Freddie 
Mac. The Association in proposing these rules has considered that in 
the past some issuers of Ginnie Mae I MBS have enjoyed a benefit from 
the inefficiency of the cash collection system. That benefit, however, 
has been at the expense of the efficiency of the secondary market for 
mortgage-backed securities. The proposed regulations address this 
arrangement and return the benefits to the homeowners.
    Furthermore, since October 1, 1998, all payments on newly issued 
Ginnie Mae I MBS registered in the name of the Depository have been 
made electronically. Thus, Ginnie Mae issuers have systems in place to 
make payments electronically. Electronic payment is not only feasible, 
but also the most efficient means for effecting payments on Ginnie Mae 
I MBS

B. Securities Not Registered in the Name of a Depository's Nominee

    As noted above, only approximately 1.4% of outstanding Ginnie Mae I 
MBS are not registered in the name of the nominee of DTCC 
(``certificated MBS''). Ginnie Mae is considering whether (i) to 
require issuers to make payments on certificated MBS by wire transfer 
of immediately available funds, (ii) to deny investors in certificated 
MBS the right to receive payment by check, and (iii) whether holders of 
certificated MBS that elect to receive payments electronically may 
later elect to receive payments by check. Wire transfer for payments on 
certificated MBS would be consistent with the trend in the capital 
markets to paperless transactions, but Ginnie Mae is mindful that 
issuers and investors may appropriately desire payment by check for 
expense or other reasons. Accordingly, the Association is soliciting 
comments on the effect and desirability of mandating electronic 
payments on certificated MBS.

C. Physical Certificates

    In accordance with modern practice and the desires of financial 
intermediaries with respect to the risk and expense of maintaining 
custody of actual physical certificates, the Association is proposing 
that on the effective date of the rule, ownership of Ginnie Mae MBS and 
Ginnie Mae multiclass securities registered in the name of a Depository 
will be conclusively established by registration of the Ginnie Mae MBS 
or Ginnie Mae multiclass security reflected on the books of the 
registrar of the Ginnie Mae MBS or Ginnie Mae multiclass security. 
Accordingly, it will no longer be necessary for a Depository to 
maintain custody of physical certificates representing ownership of 
Ginnie Mae MBS or Ginnie Mae multiclass securities.

D. Guaranty

    The Ginnie Mae guarantee only goes to the registered holder of the 
Ginnie Mae security, and it is desirable to clarify that Ginnie Mae 
does not guarantee performance by a Depository in whose name the Ginnie 
Mae security is registered.

IV. Justification for Reduced Public Comment Period

    It is the general practice of the Department to provide a 60-day 
public comment period on all proposed rules. The Department, however, 
is reducing its usual 60-day public comment period to 30 days for this 
proposed rule since most issuers are not affected and the rule does not 
implement changes that would be considered controversial by the general 
public. Given the narrow effect of the proposed rule and the fact that 
the shortened comment period will expedite implementation of a more 
efficient payment system, the Department believes that a 30-day public 
comment period is justified.

V. Findings and Certifications

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed and approved this proposed rule, and in so 
doing certifies that this rule will not have a significant economic 
impact on a substantial number of small entities. This rule addresses 
ministerial functions associated with the Ginnie Mae MBS program, such 
as the manner of dividend payments and the method used to document 
ownership of certificates. Notwithstanding HUD's determination that 
this rule will not have a significant economic impact on a substantial 
number of small entities, HUD specifically invites comments regarding 
any less burdensome alternatives to this rule that will meet HUD's 
objectives as described in the preamble.

Environmental Impact

    This proposed rule encompasses activities of the Government 
National Mortgage Association under Title III of the National Housing 
Act (12 U.S.C. 1716, et seq.). Therefore, in accordance with 24 CFR 
50.19(c)(19) of HUD's regulations, this rule is categorically excluded 
from environmental review under the National Environmental Policy Act 
of 1969 (42 U.S.C. 4321 et seq.).

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from

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publishing any rule that has federalism implications if the rule either 
imposes substantial direct compliance costs on State and local 
governments and is not required by statute, or the rule preempts State 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Executive Order. This proposed rule would not have 
federalism implications and would not impose substantial direct 
compliance costs on State and local governments.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (Public Law 
104-4, approved March 22, 1995) (UMRA) establishes requirements for 
Federal agencies to assess the effects of their regulatory actions on 
State, local, and tribal governments, and on the private sector. This 
proposed rule does not impose any Federal mandates on any State, local, 
or tribal governments, or on the private sector, within the meaning of 
the UMRA.

List of Subjects in 24 CFR Parts 320 and 330

    Mortgages, Securities.
    Accordingly, parts 320 and 330 of title 24 of the Code of Federal 
Regulations are proposed to be amended as follows:

PART 320--GUARANTY OF MORTGAGE-BACKED SECURITIES

    1. The authority citation for 24 CFR part 320 continues to read as 
follows:

    Authority: 12 U.S.C. 1721(g) and 1723a(a); and 42 U.S.C. 
3535(d).
    2. Section 320.5 is amended by revising paragraph (g) and adding 
paragraphs (h), (i) and (j) to read as follows:


Sec. 320.5  Securities.

* * * * *
    (g) Registered Ownership. On and after [the Effective Date of the 
Final Rule], ownership of securities registered in the name of a 
Depository shall be conclusively established by registration in the 
name of the Depository as owner on the Association's central registry 
and it shall be unnecessary for a Depository to maintain custody of any 
physical certificates evidencing such ownership.
    (h) Payments on Ginnie Mae I MBS. On and after [the Effective Date 
of the Final Rule], issuers must remit all payments due to holders of 
Ginnie Mae I MBS such that holders will receive their installments as 
follows:
    (1) Payment to a Depository. (i) For all securities registered in 
the name of a Depository or the designated nominee for a Depository, 
issuers are required to make payments in immediately available funds by 
ACH transaction, Fed wire, or by such other method as directed and/or 
authorized by Ginnie Mae pursuant to the MBS Guide.
    (ii) Payment must be made by the hour specified in the MBS Guide on 
the 15th calendar day of the month if the 15th is a business day. If 
the 15th calendar day is not a business day, the transfer must be made 
by the hour specified in the MBS Guide on the first business day 
following the 15th calendar day of the month.
    (2) Payments to other holders. An issuer of Ginnie Mae I securities 
that are not registered in the name of a Depository or its nominee may 
make payments to a security holder by ACH transaction or Fed wire, 
provided that it obtains the prior written approval of the holder of 
the Ginnie Mae I MBS. If an issuer begins to make such payments by 
electronic transfer, it must continue to do so while the securities are 
registered in the name of that security holder. If an issuer makes 
payments on Ginnie Mae I MBS by check, the check must be received by 
the security holder not later than the 15th calendar day of each month.
    (i) Guaranty. The Association's guaranty is a guaranty that payment 
will be made to the registered owner of securities as reflected in the 
Association's central registry. The Association makes no other 
guaranty, including any guaranty that a Depository will appropriately 
credit payments to beneficial owners of Ginnie Mae MBS. The 
Association's guarantee of securities payable to a Depository or its 
nominee becomes effective when the Depository or its nominee is 
registered as the registered owner of the securities on the 
Association's central registry.
    (j) Definition of Depository. As used in this section, Depository 
means a clearing agency, bank or other institution that maintains 
systems by which ownership and transfer of interests in Ginnie Mae MBS 
are made through entries on the books of the institution.

PART 330--GUARANTY OF MULTICLASS SECURITIES

    3. The authority citation for 24 CFR part 330 continues to read as 
follows:

    Authority: 12 U.S.C. 1721(g) and 1723a(a); and 42 U.S.C. 
3535(d).

    4. Revise Sec. 330.5 to read as follows:


Sec. 330.5  Definitions.

    As used in this part, the following terms shall have the meanings 
indicated:
    Consolidated securities. A series of multiclass securities, each 
class of which provides for payments proportionate with payments on the 
underlying eligible collateral.
    Depositor. The entity that deposits, or executes an agreement to 
deposit, as contained in the Multiclass Guide, eligible collateral into 
a trust in exchange for consolidated securities.
    Depository. A clearing agency, bank or other institution that 
maintains systems by which ownership and transfer of interests in 
Ginnie Mae multiclass securities are made through entries on the books 
of the institution.
    GNMA electronic bulletin board. An information distribution system 
established by the Association for the Multiclass Securities program.
    GNMA MBS certificates. The guaranteed mortgage backed securities 
issued under part 320 of this chapter.
    Government mortgages. Mortgages that are eligible under section 
306(g) (12 U.S.C. 1721(g)) for inclusion in GNMA mortgage-backed 
securities pools.
    Multiclass Registrar. The institution that is specified by the 
Association as the registrar of the related class and series of 
multiclass securities.
    Participant. For structured securities, the sponsor, co-sponsor, 
trustee, trust counsel, and accounting firm. For consolidated 
securities, the depositor. Other entities may be designated as 
participants in the Multiclass Guide.
    Sponsor. With respect to structured securities, the entity that 
establishes the required trust executing the trust agreement and 
depositing the eligible collateral in the trust in exchange for the 
structured securities.
    Structured securities. Securities of a series at least one class of 
which provides for payments of principal or interest disproportionately 
from payments on the underlying eligible collateral.
    5. Revise Sec. 330.30 to read as follows:


Sec. 330.30  GNMA guaranty.

    (a) Securities held by Depositories. On and after [the Effective 
Date of the Final Rule], ownership of multiclass securities registered 
in the name of a Depository shall be conclusively established by 
registration in the name of the Depository as owner on the books and 
records of the Multiclass Registrar, and it shall be unnecessary for a 
Depository to maintain custody of any physical certificates evidencing 
such ownership.
    (b) Guaranty. The Association's guaranty is a guaranty that payment 
will be made to the registered owner of securities as reflected on the 
books and records of the Multiclass Registrar.
    (1) The Association makes no other guaranty, including any guaranty 
that a

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Depository will appropriately credit payments to beneficial owners of 
GNMA multiclass securities. The Association's guarantee of securities 
payable to a Depository or its nominee becomes effective when the 
Depository or its nominee is registered as the registered owner of the 
securities on the books and records of the Multiclass Registrar.
    (2) The Association guarantees the timely payment of principal and 
interest as provided by the terms of the multiclass security. The 
Association's guaranty is backed by the full faith and credit of the 
United States.

    Dated: February 15, 2001.
Mel Martinez,
Secretary.
[FR Doc. 01-4439 Filed 2-23-01; 8:45 am]
BILLING CODE 4210-01-P