[Federal Register Volume 66, Number 66 (Thursday, April 5, 2001)]
[Rules and Regulations]
[Pages 18040-18045]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-8425]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of Federal Housing Enterprise Oversight

12 CFR Part 1780

RIN 2550-AA16


Rules of Practice and Procedure

AGENCY: Office of Federal Housing Enterprise Oversight, HUD.

ACTION: Final rule.

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SUMMARY: The Office of Federal Housing Enterprise Oversight (OFHEO) is 
issuing a final rule amending OFHEO's rules governing administrative 
enforcement proceedings. The amendments summarize OFHEO's statutory 
authority to issue cease and desist orders and to impose various 
corrective and remedial sanctions, including, among other things, civil 
money penalties, against the Federal National Mortgage Association 
(Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie 
Mac), as well as their respective executive officers and directors, in 
appropriate cases. By describing the grounds on which such actions 
might be instituted, and providing examples of the terms and conditions 
the agency might impose, OFHEO seeks to ensure greater transparency to 
and public awareness of the agency's supervisory regime and the 
safeguards affecting Freddie Mac and Fannie Mae.

EFFECTIVE DATE: May 7, 2001.

FOR FURTHER INFORMATION CONTACT: David W. Roderer, Deputy General 
Counsel, (202) 414-6924, Jamey Basham, Counsel (202) 414-8906 (not 
toll-free numbers), 1700 G Street NW, Fourth Floor, Washington, DC 
20552. The telephone number for the Telecommunications Device for the 
Deaf is: (800) 877-8339 (TDD only).

SUPPLEMENTARY INFORMATION:

Background

    Title XIII of the Housing and Community Development Act of 1992, 
Pub. L. No. 102-550, entitled the Federal Housing Enterprises Financial 
Safety and Soundness Act of 1992 (the Act), established OFHEO. OFHEO is 
an independent office within the Department of Housing and Urban 
Development (HUD) with responsibility for ensuring that Fannie Mae and 
Freddie Mac (collectively, the Enterprises) are adequately capitalized 
and operate safely and in conformity to the requirements of applicable 
statutes, rules and regulations, including their respective charter 
acts. The Enterprises are Federal instrumentalities established under 
Federal law to effect various broad public policy purposes.\1\ These 
include providing liquidity to the residential mortgage market and 
promoting the availability of mortgage credit benefiting low-and 
moderate-income families and areas that are underserved by lending 
institutions.
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    \1\ See Federal Home Loan Mortage Corporation Act, 12 U.S.C. 
1451 et seq.; Federal National Mortgage Association Charter Act, 12 
U.S.C. 1716 et seq.; Act at 12 U.S.C. 4561-67, 4562 note.
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    The enumerated statutory authorities of the Director explicitly 
include the authority to issue rules to carry out the duties of the 
Director,\2\ as well as other broad supervisory powers similar to those 
of the Federal bank regulatory agencies. OFHEO is empowered, among 
other things, to conduct examinations of the Enterprises; to require 
the Enterprises to provide reports; \3\ to establish capital standards 
for the Enterprises; \4\ and, in appropriate circumstances, to take 
prompt corrective action against an Enterprise that fails to remain 
adequately capitalized, including but not limited to possible 
imposition of a conservatorship.\5\
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    \2\ 12 U.S.C. 4513(b)(1).
    \3\ 12 U.S.C. 4514, 4517, 1456(c), 1723a(k).
    \4\ 12 U.S.C. 4611-4614.
    \5\ 12 U.S.C. 4615-4623.
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    In addition, the Act grants OFHEO administrative enforcement 
authority similar to that granted by Congress to the Federal bank 
regulatory agencies, including the power to issue temporary and 
permanent cease and desist orders to an Enterprise or its executive 
officers or directors, and to impose sanctions, including civil money 
penalties when appropriate.\6\ Prior to issuing a cease and desist 
order, OFHEO is to conduct a hearing on the record and provide the 
subject of an order with notice and the opportunity to participate in 
such hearings.\7\ Prior to imposing civil money penalties, OFHEO is to 
provide notice and the opportunity for a hearing to the persons subject 
to the penalties.\8\ Part 1780 of OFHEO's rules and regulations 
currently sets out the procedural rules under which such notices are 
provided and hearings conducted.
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    \6\ 12 U.S.C. 4631-4641.
    \7\ 12 U.S.C. 4631(c), 4633.
    \8\ 12 U.S.C. 4636(c), 4633.

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[[Page 18041]]

    On December 27, 2000, OFHEO issued a Notice of Proposed Rulemaking 
(NPR), in which OFHEO proposed to clarify the agency's enforcement 
rules at part 1780 by describing briefly various circumstances in which 
OFHEO may initiate enforcement actions, the procedures involved, as 
well as the types of remedies and sanctions OFHEO may impose through a 
cease and desist order or civil money penalty. 65 FR 81,775. OFHEO 
received two comments on the NPR, one from each of the Enterprises. 
Copies of the comments are posted on the OFHEO web site at http://www.ofheo.gov. After careful consideration of the comments received, as 
discussed below, OFHEO has decided to adopt the proposed rule as a 
final rule, without substantive change.

Comments on the Proposed Rule

    OFHEO received comments from Fannie Mae and Freddie Mac. In 
general, Fannie Mae largely concurred with the goals and language of 
the proposed rule, and Freddie Mac endorsed OFHEO's efforts to bring 
greater transparency to OFHEO's supervisory oversight and standards. 
However, both Enterprises lodged two broad objections to the proposed 
rule, as discussed below.
    First, both Enterprises assert that Sec. 1780.1(b) of the proposed 
rule, summarizing OFHEO's statutory authority to institute cease and 
desist proceedings under 12 U.S.C. 4631, should be expanded to address 
the extent to which the Department of Housing and Urban Development 
(HUD) holds authority over the Enterprises under Part 2 of the 1992 Act 
(12 U.S.C. 4541-4589).
    OFHEO has determined to issue Sec. 1780.1(b) without change. The 
language of Sec. 1780.1(b) accurately recites OFHEO's authority under 
12 U.S.C. 4631. In connection with their comments seeking changes to 
the rule to address this ancillary matter of intragovernmental 
coordination and cooperation, the Enterprises both stressed a different 
section of the 1992 Act, 12 U.S.C. 4513. Section 4513(b) enumerates 
certain authorities under the 1992 Act that are held exclusively by the 
Director of OFHEO. Section 4513(c) also provides that determinations, 
actions, and functions of the Director not referred to in section 
4513(b) are subject to the review and approval of the Secretary of HUD. 
Section 4513(c) is outside the scope of part 1780. Whenever the 
Director's determination to issue a notice of charges under section 
4631 constitutes, within the meaning of section 4513(c), an ``action * 
* * of the Director not referred to in subsection [4513(b)],'' the 
Director will obtain the ``review and approval of the Secretary'' of 
HUD, as contemplated by section 4513(c). Part 1780 more narrowly 
addresses, however, the procedures by which the Director's 
determinations set forth in a notice of charges are to be adjudicated. 
The scope of part 1780 does not extend to OFHEO's procedures before a 
notice of charges has been issued by the Director.
    Second, both Enterprises object to a portion of 
Sec. 1780.1(b)(1)(iv) of the proposed rule that describes OFHEO's 
authority under 12 U.S.C. 4631 to institute a cease and desist action 
on the basis of unsafe or unsound conduct by an Enterprise or an 
executive officer or director thereof or based on the unsound condition 
of an Enterprise. In their comments, the Enterprises objected to this 
provision on a twofold basis.
    Both Enterprises asserted that section 4631 does not contain 
language authorizing OFHEO to institute a cease and desist proceeding 
on the basis of unsafe or unsound conduct. To the contrary, as set 
forth in the preamble of the proposed rule, the 1992 Act necessarily 
and explicitly authorizes OFHEO to pursue cease and desist proceedings 
on the basis of unsafe and unsound practices or conditions. In 
particular, section 4631(a)(3)(A) authorizes OFHEO to issue a notice of 
charges for violations of the 1992 Act. The 1992 Act subjects the 
Enterprises to an overarching obligation to conduct their operations in 
a manner that maintains the safe and sound condition of the Enterprise, 
the parameters of which may be determined by OFHEO, as the safety and 
soundness regulator, in its supervisory discretion.
    As both Enterprises otherwise recognized in their comments, 
Congress constituted OFHEO with broad authorities, described above, 
sufficient to empower the agency to serve as a strong financial 
institution regulatory agency with the responsibility of ensuring the 
Enterprises are adequately capitalized and operate safely (i.e., in a 
safe and sound manner and in compliance with applicable laws, rules, 
and regulations). The commenters assert, however, that OFHEO's reading 
of the 1992 Act, and particularly of section 4631(a)(3)(A), does not 
comport with congressional intent, and that, in effect, Congress 
intentionally refrained from empowering OFHEO to compel a Enterprise to 
cease demonstrably unsafe and unsound conduct. The language of the 1992 
Act makes clear that Congress constituted OFHEO as more than a mere 
advisory oversight body for the Enterprises on safety and soundness 
issues and concerns.
    In addition, both Enterprises objected to the manner in which 
Sec. 1780.1(b)(1)(iv) of the proposed rule describes an unsafe and 
unsound practice as conduct that is contrary to prudent standards of 
operation that might cause loss or damage to the Enterprise, or is 
likely to cause such loss or damage in the future if continued 
unabated. In their comments, both Enterprises cited to judicial 
precedents construing a provision of the Federal Deposit Insurance Act, 
12 U.S.C. 1818(b), under which the Federal bank regulatory agencies may 
institute cease and desist proceedings to halt, among other things, 
``unsafe or unsound practices.'' As noted by the Enterprises, some 
courts construing section 1818(b) suggest that the statute requires the 
practice in question to threaten the financial integrity of the 
institution.
    Case law construing section 1818(b), however, is informative but 
not determinative of the scope of OFHEO's authority. Congress did not 
wholly import the bank regulatory framework or specific enforcement 
statutes into the 1992 Act, so enforcement standards applicable to 
thousands of insured banks under banking law do not necessarily serve 
as the sole foundation for the standards applying to the two 
Enterprises under the 1992 Act. Nevertheless, to the extent such case 
law arguably has a bearing on these issues, the language of 
Sec. 1780.1(b)(1)(iv), as proposed, fairly describes judicial views of 
section 1818(b), under which an unsafe or unsound practice exists if 
the practice is deemed contrary to accepted standards of banking 
operations which might result in abnormal risk or loss to a banking 
institution or shareholder.\9\ Moreover, the cases that suggest an 
unsafe or unsound practice must threaten the very financial integrity 
of an institution do not look at the unencumbered language of section 
1818(b) or its legislative history. No reference to such a heightened 
standard is included in either section 1818(b) or its legislative 
history.
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    \9\ See, e.g., Greene County Bank v. FDIC, 92 F.3d 633 (8th Cir. 
1996), cert. denied, 519 U.S. 1109 (1997); Doolittle v. NCUA, 992 
F.2d 1531 (11th Cir. 1993), cert. denied, 516 U.S. 987 (1995); 
Hoffman v. FDIC, 912 F.2d 1172 (9th Cir. 1990).
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    Taken in the full context of the 1992 Act and the responsibilities 
of OFHEO thereunder--both similar to and distinct from those of the 
Federal bank regulatory agencies--OFHEO's rule articulates a standard 
that comports with the intent of Congress and a robust safety and 
soundness regime. The 1992

[[Page 18042]]

Act, as interpreted in Sec. 1780.1(b)(1)(iv) of the proposed rule, 
imposes upon the Enterprises an affirmative obligation to conduct their 
operations safely, that is, in a manner that reasonably maintains the 
safe and sound condition of the Enterprise.\10\ The parameters of 
safety and soundness are to be determined by OFHEO, as the safety and 
soundness regulator, in its supervisory discretion. If an Enterprise 
fails to operate within such boundaries, it violates the 1992 Act for 
purposes of 12 U.S.C. 4631. Viewed in this light, judicial precedents 
that address the setting of standards by a financial safety and 
soundness regulator, based on safety and soundness concerns, are 
instructive. The courts in these cases have long acknowledged that 
safety and soundness regulators may take action against practices that 
the agency, in its expert judgment, determines are likely to be 
detrimental to the institution or the industry.\11\ This case law does 
not impose standards limiting the regulator's authority to those 
practices having dire consequences for the institution; the 1992 Act at 
several points contemplates action long before the Enterprises reach 
such critical stages of corporate survival.
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    \10\ As is discussed in the ``Background'' material above, OFHEO 
exercises exclusive authority for matters relating the the 
Enterprises' safety and soundness, and is vested with broad powers 
to that end. See, e.g., 12 U.S.C. 4513(a), 4513(b)(5), 4517(a), and 
4521(a)(2)-(3).
    \11\ See, e.g., Independent Bankers Ass'n of America v. Heimann, 
613 F.2d 1164 (D.C. Cir. 1979), cert. denied, 449 U.S. 823 (1980).
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    It is also important to note that, in adopting the final version of 
12 U.S.C. Sec. 4631, Congress abandoned language in Senate Bill S. 
2733, the Senate version of the legislation, which would have 
prohibited OFHEO from taking any cease and desist action against an 
adequately capitalized Enterprise unless the conduct or violation in 
question threatened to cause a significant depletion of the 
Enterprise's capital. S. Rep. No. 102-282, 102nd Cong., 2nd Sess. 25-
26, 120 (1992). That Congress considered and rejected a limiting 
standard for cease and desist proceedings counsels against engrafting 
one by regulation as the Enterprises suggest.
    Each Enterprise expressed concerns about the practical implications 
of Sec. 1780.1(b)(1)(iv) of the proposed rule and apprehension that 
OFHEO might use the rule to micro-manage the Enterprises. The 
Enterprises posit that, in the absence of an explicit requirement that 
the conduct in question threaten the very integrity of the Enterprise, 
the standard in Sec. 1780.1(b)(1)(iv) would permit OFHEO to take action 
against any business activity, given that every business activity 
involves some element of risk. To the contrary, the rule does not 
assert unfettered authority for OFHEO to impose its business judgment 
on the Enterprises, as the comments suggest. As Sec. 1780.1(b)(1)(iv) 
states, the challenged conduct must, in addition to causing loss or 
being likely to cause loss in the future, also be contrary to prudent 
standards of operation. Further, and as a practical matter, cease and 
desist proceedings are not resorted to by the agency routinely, and are 
comparatively protracted in nature and subject to immediate judicial 
review. Moreover, the standard reiterated in Sec. 1780.1(b)(1)(iv) is 
that which OFHEO has employed in connection with its safety and 
soundness supervision of the Enterprise since OFHEO's inception. In 
light of these considerations and the due process attendant to OFHEO's 
enforcement proceedings, concerns about micro-management are misplaced. 
Under the enforcement process, OFHEO may not superimpose its business 
judgment upon the Enterprises; the safety and soundness of the 
Enterprise must be addressed by the agency on a case-specific basis.
    As another matter, Freddie Mac's comments on the rule addressed 
proposed Sec. 1780.1(c)(4)(xii). This subsection includes ``candor and 
cooperation after the fact'' in the list of factors that may be 
considered by OHFEO in determining the appropriateness and amount of 
civil money penalties. More particularly, Freddie Mac recommended 
clarifying that an Enterprise's decision to assert a legal privilege, 
such as the attorney-client privilege, would not adversely affect 
OFHEO's evaluation of the Enterprise's candor and cooperation. Freddie 
Mac asserted that without such a clarification, the proposed factor 
might dissuade an Enterprise from asserting its full legal privileges 
due to a perceived threat that larger civil money penalties would be 
imposed for doing so.
    OFHEO has adopted Sec. 1780.1(c)(4)(xii) without change. Section 
4636(c)(2) of Title 12 enumerates various factors that the Director of 
OFHEO is to consider and allows the Director to consider ``any other 
factors that the Director may determine by regulation to be 
appropriate.'' OFHEO has determined to take the candor and cooperation 
of an Enterprise, executive officer, or director into account as a 
mitigating factor in assessing a civil money penalty. The language of 
Sec. 1780.1(c)(4)(xii) includes no implication that an assertion of a 
valid legal privilege will be viewed as an aggravating circumstance 
resulting in to higher civil money penalty amounts. Similarly, it is 
the practice of the Federal bank regulatory agencies to consider the 
cooperation of regulated entities as a mitigating factor in determining 
civil money penalties.\12\ The extent to which an Enterprise, executive 
officer, or director receives the benefit of this mitigating factor in 
the face of an assertion of a valid legal privilege is a case-specific 
issue. The degree of mitigation may depend in part upon whether the 
assertion is consistent with candor and cooperativeness meriting 
reduction in the amount of the penalty that is otherwise appropriate in 
light of the seriousness of the offense.
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    \12\ See, e.g., FDIC Manual of Examination Policies, Section 
10.2 (CMP Matrix).
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Final Rule

    OFHEO is adopting the proposed rule as a final rule without 
substantive change. The text of the proposed rule and a description 
thereof are contained in OFHEO's NPR at 65 FR 81775 (December 27, 
2000). OFHEO is making one technical change. The authority citation in 
the NPR inadvertently omitted the citation to the Federal Civil 
Penalties Inflation Adjustment Act of 1990, as amended by the Debt 
Collection Improvement Act of 1996. The final rule adds a citation for 
this act. OFHEO is also making one editorial change. Proposed 
Sec. 1780.1(b)(1)(iv) included the wholly redundant phrase ``in the 
future'' which has been deleted from the final rule.

Regulatory Impact

Executive Order 12866, Regulatory Planning and Review

    The final rule is not classified as a significant rule under 
Executive Order 12866 because it will not result in an annual effect on 
the economy of $100 million or more or a major increase in costs or 
prices for consumers, individual industries, Federal, State, or local 
government agencies, or geographic regions; or have significant adverse 
effects on competition, employment, investment, productivity, 
innovation, or on the ability of United States-based Enterprises to 
compete with foreign-based enterprises in domestic or foreign markets. 
Accordingly, no regulatory impact assessment is required and this 
proposed regulation has not been submitted to the Office of Management 
and Budget for review.

[[Page 18043]]

Unfunded Mandates Reform Act of 1995

    This final rule does not include a Federal mandate that may result 
in the expenditure by State, local, and tribal governments, in the 
aggregate, or by the private sector, of $100,000,000 or more (adjusted 
annually for inflation) in any one year. As a result, the proposed rule 
does not warrant the preparation of an assessment statement in 
accordance with the Unfunded Mandates Reform Act of 1995.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that 
a regulation that has a significant economic impact on a substantial 
number of small entities, small businesses, or small organizations must 
include an initial regulatory flexibility analysis describing the 
regulation's impact on small entities. Such an analysis need not be 
undertaken if the agency has certified that the regulation will not 
have a significant economic impact on a substantial number of small 
entities. 5 U.S.C. 605(b). OFHEO has considered the impact of the 
proposed regulation under the Regulatory Flexibility Act. The General 
Counsel of OFHEO certifies that the final regulation is not likely to 
have a significant economic impact on a substantial number of small 
business entities because the regulation only affects the Enterprises, 
their executive officers, and their directors.

Paperwork Reduction Act of 1995

    This final rule contains no information collection requirements 
that require the approval of the Office of Management and Budget 
pursuant to the Paperwork Reduction Act, 44 U.S.C. 3501-3520.

List of Subjects in 12 CFR Part 1780

    Administrative practice and procedure, Penalties.


    Accordingly, for the reasons set out in the preamble, the Office of 
Federal Housing Enterprise Oversight amends 12 CFR part 1780 as 
follows:

PART 1780--RULES OF PRACTICE AND PROCEDURE

    1. The authority citation for part 1780 is revised to read as 
follows:

    Authority: 12 U.S.C. 4501, 4513, 4517, 4521, 4631-4641, 28 
U.S.C. 2461 note.

Subpart A--General Rules

    2. Revise Sec. 1780.1 to read as follows:


Sec. 1780.1  Scope.

    (a) Types of proceedings governed by these rules. This part 
prescribes rules of practice and procedure applicable to the following 
adjudicatory proceedings:
    (1) Cease-and-desist proceedings under sections 1371 and 1373, 
title XIII of the Housing and Community Development Act of 1992, Pub. 
L. No. 102-550, entitled The Federal Housing Enterprises Financial 
Safety and Soundness Act of 1992 (1992 Act) (12 U.S.C. 4631 and 4633);
    (2) Civil money penalty assessment proceedings under sections 1373 
and 1376 of the 1992 Act (12 U.S.C. 4633 and 4636);
    (3) Civil money penalty assessment proceedings under section 102 of 
the Flood Disaster Protection Act of 1973, as amended, 42 U.S.C. 4012a; 
and
    (4) Other adjudications required by statute to be determined on the 
record after opportunity for hearing, except to the extent otherwise 
provided for in the regulations specifically governing such an 
adjudication.
    (b) Cease and desist orders. (1) Grounds for instituting 
proceedings. Sections 1371(a) and (b) of the 1992 Act specify when the 
Director of OFHEO may issue a notice of charges instituting cease and 
desist proceedings, to be conducted according to the procedural rules 
in this part. The Director may issue a notice of charges as described 
in Sec. 1780.20 if the Director determines, or the Director has 
reasonable cause to believe that, an Enterprise or an executive officer 
or director thereof has engaged in, or it is about to engage in, any of 
the following conduct or violations:
    (i) For an adequately capitalized Enterprise, any conduct which 
threatens to cause a significant depletion of the Enterprise's core 
capital; or for an Enterprise which is not in the adequately 
capitalized category, any conduct that is likely to result in a 
material depletion of the Enterprise's core capital;
    (ii) Any conduct that may result in the issuance of a cease and 
desist order that requires an executive officer or director of an 
Enterprise to make restitution, provide reimbursement, indemnification 
or guarantee against loss to the Enterprise, where such person was 
either unjustly enriched or engaged in knowing misconduct likely to 
cause substantial loss to the Enterprise;
    (iii) Any conduct that violates a written agreement entered into by 
an Enterprise with the Director; or
    (iv) Any conduct that violates the 1992 Act, the Federal National 
Mortgage Association Charter Act (12 U.S.C. 1716 et seq.), the Federal 
Home Loan Mortgage Corporation Act (12 U.S.C. 1451 et seq.), or any 
regulation, rule, or order under such Acts, or any unsafe and unsound 
practice (in that it is contrary to prudent standards of operation 
which might cause loss or damage to the Enterprise, or is likely to 
cause such loss or damage if continued unabated), or any unsafe and 
unsound condition, except that the Director may not enforce compliance 
with housing goals established under subpart B of part 2 of subtitle A 
of the 1992 Act (12 U.S.C. 4561 through 4567), with section 1336 or 
1337 of the 1992 Act (12 U.S.C. 4566 or 4567), or with subsection (m) 
or (n) of section 309 of the Federal National Mortgage Association 
Charter Act (12 U.S.C. 4566 or 4567), or subsection (e) or (f) of 
section 307 of the Federal Home Loan Mortgage Corporation Act (12 
U.S.C. 1456(e) or (f)).
    (2) Remedial provisions of cease and desist orders. As provided by 
sections 1371(c) and (d) of the 1992 Act, a cease and desist order 
issued as set out in Sec. 1780.55 may require the Enterprise, or an 
executive officer or director thereof, to refrain from engaging in 
conduct or violations specified in paragraphs (b)(1)(i) through (iv) of 
this section and/or require correction of an unsafe or unsound 
condition specified in paragraph (b)(1)(iv) of this section, as found 
by the Director, and may also require the Enterprise, an executive 
officer, or director thereof to take such action as the Director 
determines to be appropriate to correct or remedy the conditions 
resulting from such conduct or violation. This may include, but is not 
limited to, provisions to:
    (i) Require the Enterprise to seek restitution, or to obtain 
reimbursement, indemnification, or guarantee against loss;
    (ii) Require the Enterprise to obtain new capital;
    (iii) Restrict asset or liability growth of the Enterprise;
    (iv) Require the Enterprise to dispose of any asset involved;
    (v) Require the Enterprise to improve design or implementation of 
internal policies, compliance efforts, internal controls, risk 
measurement and limits, and management reporting systems;
    (vi) Require the Enterprise to employ qualified officers or 
employees (who may be subject to approval by the Director at the 
direction of the Director);
    (vii) Require the Enterprise, an executive officer or director 
thereof to adhere to limits on activities or functions; or

[[Page 18044]]

    (viii) Require the Enterprise to take such other action as the 
Director determines appropriate.
    (3) Restitution and indemnification by executive officers and 
directors. As part of the affirmative relief described in paragraph 
(b)(2) of this section, section 1371(d)(1) of the 1992 Act provides 
that the Director may require an executive officer or director of an 
Enterprise to make restitution or reimbursement to the Enterprise, or 
to provide indemnification or guarantee against loss, to the extent 
such person was:
    (i) Unjustly enriched in connection with the conduct or violation 
in question; or
    (ii) Engaged in such conduct or violation knowingly, and such 
conduct or violation caused or would be likely to cause a substantial 
loss to the Enterprise.
    (4) Temporary cease and desist orders. (i) Under sections 1372(a) 
and (b) of the 1992 Act, if the Director determines that any conduct or 
violation or threatened conduct or violation described in the notice of 
charges in cease and desist proceedings described under Sec. 1780.20 is 
likely to cause insolvency, to cause significant depletion of core 
capital, or to cause other irreparable harm to an Enterprise before 
proceedings described in this part will be completed, the Director may 
issue a temporary cease and desist order. Such order may direct the 
Enterprise, executive officer or director thereof to refrain from the 
conduct or violation, and to take whatever affirmative action the 
Director determines to be appropriate to prevent or remedy such 
insolvency, depletion, or harm pending completion of such cease and 
desist proceedings.
    (ii) In addition, section 1372(c) of the 1992 Act addresses cases 
in which the Director determines that the books and records of an 
Enterprise are so incomplete or inaccurate that the Director is unable 
through normal supervisory processes to determine either the financial 
condition of the Enterprise or the details or purpose of transactions 
that may have a material effect on the financial condition of the 
Enterprise. In connection with issuance of the notice of charges in 
cease and desist proceedings specified by Sec. 1780.20, the Director 
may issue a temporary order directing the Enterprise to cease the 
activity or practice that gave rise, whether in whole or in part, to 
the incomplete or inaccurate state of the records, and may require the 
Enterprise to take affirmative action to make the records complete and 
accurate.
    (c) Civil money penalties. (1) First tier CMPs. Section 1736 of the 
1992 Act authorizes the Director to assess civil money penalties 
against an Enterprise, in proceedings to be conducted according to the 
procedural rules in this part. The Director may issue a notice of 
charges to an Enterprise, as described in Sec. 1780.20, to impose money 
penalties of up to $5,000 (adjusted for inflation as described in 
Sec. 1780.80) for each day that the Enterprise engages in conduct that 
violates:
    (i) The 1992 Act, the Federal National Mortgage Association Charter 
Act, the Federal Home Loan Mortgage Corporation Act, or any regulation, 
rule, or order under such Acts, except with regard to housing goals 
established under subpart B of part 2 of subtitle A of the 1992 Act, 
with section 1336 or 1337 of the 1992 Act, or with subsection (m) or 
(n) of section 309 of the Federal National Mortgage Association Charter 
Act, or subsection (e) or (f) of section 307 of the Federal Home Loan 
Mortgage Corporation Act;
    (ii) Any written agreement entered into by the Enterprise with the 
Director; or
    (iii) Any permanent or temporary cease and desist order entered 
under sections 1371 or 1372 of the 1992 Act, or sections 1365 (12 
U.S.C. 4615, setting out supervisory actions applicable to 
undercapitalized Enterprises) or 1366 (12 U.S.C. 4616, setting out 
supervisory actions applicable to significantly undercapitalized 
institutions) of the 1992 Act.
    (2) Second tier CMPs. The Director may issue a notice of charges to 
an Enterprise to impose money penalties of up to $25,000 (adjusted for 
inflation as described in Sec. 1780.80) for each day that the 
Enterprise engages in the following violation or conduct, or to an 
executive officer or director of an Enterprise to impose money 
penalties of up to $10,000 (adjusted for inflation as described in 
Sec. 1780.80) for each day such person or persons engages in the 
following violation or conduct, if the Director finds that the 
violation or conduct was either part of a pattern of misconduct or 
involved recklessness and causes or is likely to cause a material loss 
to the Enterprise:
    (i) Any violation described in paragraphs (c)(1)(i) through (iii) 
of this section; or
    (ii) Any conduct that causes or is likely to cause a loss to the 
Enterprise.
    (3) Third tier CMPs. The Director may issue a notice of charges to 
an Enterprise to impose money penalties of up to $1,000,000 (adjusted 
for inflation as described in Sec. 1780.80) for each day that the 
Enterprise engages in a violation or conduct described in paragraphs 
(c)(2)(i) and (ii) of this section, or to an executive officer or 
director of an Enterprise to impose money penalties of up to $100,000 
(adjusted for inflation as described in Sec. 1780.80) for each day such 
person or persons engages in such violation or conduct described in 
paragraphs (c)(2)(i) and (ii) of this section, if the Director finds 
that the violation or conduct was knowing and caused or is likely to 
cause a substantial loss to the Enterprise.
    (4) Amount of CMPs. In determining the amount of a civil money 
penalty within the range of penalties described in paragraphs (c)(1) 
through (3) of this section, the Director may fashion sanctions in any 
such amount as deemed to be appropriate taking into consideration such 
factors as:
    (i) The gravity of the violation or conduct;
    (ii) Any loss or risk of loss to the Enterprise;
    (iii) Any benefits received;
    (iv) Any attempts at concealment;
    (v) Any history of prior violations or conduct;
    (vi) Any related or unrelated previous supervisory actions;
    (vii) Any injury to the public;
    (viii) Deterrence of future violations or conduct;
    (ix) The effect of the penalty on the safety and soundness of the 
Enterprise;
    (x) Any circumstances of hardship upon an executive officer or 
director;
    (xi) Promptness and effectiveness of any efforts to ameliorate the 
consequences of the violations or conduct; and
    (xii) Candor and cooperation after the fact.
    (d) Coordination with other supervisory actions. In addition to 
cease and desist and/or civil money penalty proceedings under this 
part, the 1992 Act grants the Director other authority to take 
supervisory action, including requiring mandatory and discretionary 
supervisory actions against an Enterprise that fails to remain 
adequately capitalized; appointment of a conservator for an Enterprise; 
entering into a written agreement the violation of which is actionable 
through proceedings under this part, or any other formal or informal 
agreement with an Enterprise as may be deemed by the Director to be 
appropriate. Under the 1992 Act, the selection of the form of 
supervisory action is within the Director's discretion, and the 
selection of one form of action or a combination of actions does not 
foreclose the Director from pursuing any other supervisory action.
    (e) Proceedings against affiliates. Under subtitle C of the 1992 
Act, the Director may institute proceedings as described under this 
part against an

[[Page 18045]]

affiliate of an Enterprise as well as an executive officer or director 
of such affiliate. An entity is affiliated with an Enterprise if the 
entity controls the Enterprise, is controlled by the Enterprise, or is 
under common control with the Enterprise. For purposes of this part, 
control means the ability to exercise a controlling influence over the 
management and policies of the entity or Enterprise, whether it be by 
ownership of or the power to vote a concentration of any class of 
voting securities, the ability to elect or appoint members of the board 
of directors or officers of the entity, or otherwise.
    (f) Public nature of proceedings. As described in Sec. 1780.6 of 
this part, all hearings shall be open to the public unless the Director 
in his discretion determines to the contrary based on public interest. 
The Director shall also make final orders available to the public, as 
well as modifications to or terminations thereof, except that the 
Director may determine in writing to delay public disclosure of such 
final orders for a reasonable time if immediate disclosure would 
seriously threaten the financial health or security of the Enterprise.

    Dated: April 2, 2001.
Armando Falcon, Jr.,
Director, Office of Federal Housing Enterprise Oversight.
[FR Doc. 01-8425 Filed 4-4-01; 8:45 am]
BILLING CODE 4220-01-U