[Federal Register Volume 66, Number 243 (Tuesday, December 18, 2001)]
[Rules and Regulations]
[Pages 65097-65102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-31166]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of Federal Housing Enterprise Oversight

12 CFR Part 1773

RIN 2550-AA21


Flood Insurance

AGENCY: Office of Federal Housing Enterprise Oversight, HUD.

[[Page 65098]]


ACTION: Final Regulation.

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SUMMARY: The Office of Federal Housing Enterprise Oversight (OFHEO) is 
issuing a final regulation to clarify and to codify OFHEO's authority 
and ongoing responsibility to oversee and enforce the statutory 
requirements affecting the operations of the Federal National Mortgage 
Association and the Federal Home Loan Mortgage Corporation under the 
National Flood Insurance Reform Act of 1994.

EFFECTIVE DATE: The effective date of this regulation is December 18, 
2001.

FOR FURTHER INFORMATION CONTACT: Luis E. Guzman, Counsel, telephone 
(202) 414-3832; David A. Felt, Associate General Counsel, telephone 
(202) 414-3750 (not toll free numbers), Office of General Counsel, 
Office of Federal Housing Enterprise Oversight, 1700 G Street, NW., 
Fourth Floor, Washington, DC 20552. The telephone number for the 
Telecommunications Device for the Deaf is (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Statutory Framework

    Title XIII of the Housing and Community Development Act of 1992, 
Public Law 102-550, entitled the ``Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992'' (the ``Act''),\1\ 
established the Office of Federal Housing Enterprise Oversight 
(``OFHEO'') as an independent office within the Department of Housing 
and Urban Development. OFHEO is the financial safety and soundness 
regulator of the nation's two largest housing-related Government-
sponsored enterprises: the Federal National Mortgage Association 
(``Fannie Mae'') and the Federal Home Loan Mortgage Corporation 
(``Freddie Mac'') (collectively, the ``Enterprises''). In addition to 
establishing OFHEO, the Act made amendments to the Enterprises' 
enabling statutes (collectively, ``the Charter Acts'') \2\ to, among 
other things, accommodate the restructured regulatory regime under the 
Act.
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    \1\ 12 U.S.C. 4501 et seq.
    \2\ Federal National Mortgage Association Charter Act (12 U.S.C. 
1716-1723i) and Federal Home Loan Mortgage Corporation Act (12 
U.S.C. 1451-1459).
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    The National Flood Insurance Act of 1968 (``NFIA'') \3\ and the 
Flood Disaster Protection Act of 1973 (``FDPA''),\4\ as amended by the 
National Flood Insurance Reform Act of 1994 (``NFIRA''),\5\ together 
establish a comprehensive National Flood Insurance Program (``NFIP'') 
that includes various provisions designed to ensure that structures 
built in flood plains are covered by, at least, specified statutory 
minimum amounts of flood insurance. NFIRA, among other things, added 
specific requirements explicitly applicable to the Enterprises; \6\ 
designated OFHEO as the Federal agency responsible for determining 
compliance of the Enterprises' flood insurance responsibilities; 
required OFHEO to report to Congress on the Enterprises' compliance in 
the agency's 1996, 1998 and 2000 annual reports; \7\ and authorized 
OFHEO to issue any regulations necessary to carry out the applicable 
provisions of NFIRA.\8\ NFIRA also explicitly authorized OFHEO to 
impose civil money penalties upon an Enterprise that fails to implement 
procedures reasonably designed to ensure that the loans it purchases 
comply with the mandatory flood insurance purchase requirements.\9\
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    \3\ 42 U.S.C. 4001 et seq. and other scattered sections of 42 
U.S.C.
    \4\ 42 U.S.C. 4002 et seq. and other scattered sections of 42 
U.S.C.
    \5\ Pub. L. 103-325 (Sept. 23, 1994) (codified, as amended, at 
42 U.S.C. 4001-4129).
    \6\ 42 U.S.C. 4012a(b)(3).
    \7\ 12 U.S.C. 4521(a)(4).
    \8\ 42 U.S.C. 4001 note.
    \9\ 42 U.S.C. 4012a(f)(3).
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    More specifically, NFIRA requires that the Enterprises each 
implement procedures reasonably designed to ensure that any mortgage 
loan that is purchased and is secured by property located in a 
designated flood hazard area is covered for the term of the loan by 
flood insurance in an amount at least equal to the lesser of (1) the 
outstanding principal balance of the loan or (2) the maximum limit of 
coverage made available for that type of property under the NFIP. OFHEO 
is authorized under NFIRA to levy a civil money penalty for each 
violation, not to exceed an aggregate maximum amount per year,\10\ 
against an Enterprise that it finds to have engaged in a pattern or 
practice of purchasing loans in violation of the procedures established 
pursuant to NFIRA.\11\
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    \10\ Pursuant to the Federal Civil Penalties Inflation 
Adjustment Act of 1990 (Inflation Adjustment Act), as amended by the 
Debt Collection Improvement Act of 1996, adjustments have been made 
to the civil money penalty amounts. The Inflation Adjustment Act's 
rounding rules require that each increase be rounded to the nearest 
multiple as follows: $10 in the case of penalties less than or equal 
to $100; $100 in the case of penalties greater than $100 but less 
than or equal to $1,000; $1,000 in the case of penalties greater 
than $1,000 but less than or equal to $10,000; $5,000 in the case of 
penalties greater than $10,000 but less than or equal to $100,000; 
$10,000 in the case of penalties greater than $100,000 but less than 
or equal to $200,000; and $25,000 in the case of penalties greater 
than $200,000.
    \11\ 42 U.S.C. 4012a(f)(3), (5).
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    OFHEO published a notice of proposed rulemaking (66 FR 47563, 
September 12, 2001) for public comment relating to its flood insurance 
oversight responsibilities. Comments on the proposed regulation were 
received only from the two Enterprises. Those comments were carefully 
considered in developing this final regulation. A discussion of those 
comments and OFHEO's response to them follows.

II. Background

    The Enterprises have a key role in the implementation of the 
National Flood Insurance Program, particularly with regard to lenders 
that are not subject to direct supervision by a Federal regulatory 
agency. The Enterprises use their seller/servicer guidelines and other 
quality control review procedures to ensure that lenders with whom they 
contract comply with the applicable flood insurance laws. The 
Enterprises are required to establish procedures designed to prevent 
their purchase of loans that do not comply with these laws. NFIRA tasks 
OFHEO with reviewing the adequacy of such procedures as well as the 
Enterprises' compliance with them.
    A primary purpose of the final regulation is to reiterate the 
relevant statutory provisions specifically applicable to the 
Enterprises and to OFHEO and to codify them in OFHEO's regulations. The 
final regulation is intended to provide guidance as to the procedures 
to be applied if an enforcement action were to be required, to add 
statutory civil money penalty amounts for infractions of the flood 
insurance requirements to the schedule of penalties in OFHEO's 
regulations and to adjust such penalty amounts as contemplated by law 
for inflation.

The Inflation Adjustment Act

    The Federal Civil Penalties Inflation Adjustment Act of 1990, as 
amended by the Debt Collection Improvement Act of 1996 (the Inflation 
Adjustment Act),\12\ requires Federal agencies with the authority to 
issue civil money penalties, to adopt regulations to adjust each civil 
money penalty authorized by law that the agency has jurisdiction to 
administer. The purpose of these adjustments is to maintain the 
deterrent effect of civil money penalties and promote compliance with 
the law. The Inflation Adjustment Act requires agencies to make an 
initial adjustment of their civil money penalties upon the statute's 
enactment, and to make additional adjustments on an ongoing basis, at 
least once every four years following the initial adjustment.
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    \12\ 28 U.S.C. 2461 note.

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[[Page 65099]]

    Under the Inflation Adjustment Act, the inflation adjustment for 
each applicable civil money penalty is determined by increasing the 
maximum civil money penalty amount by a cost-of-living adjustment. As 
is described in detail below, the Inflation Adjustment Act provides 
that this cost-of-living adjustment is to reflect the percentage 
increase in the Consumer Price Index since the civil money penalties 
were last adjusted or established.
    NFIRA sets forth the procedures under which the Director of OFHEO 
could impose civil money penalties against an Enterprise and the 
amounts of these civil money penalties. In this rulemaking, the amounts 
of these civil money penalties are being adjusted in accordance with 
the requirements of the Inflation Adjustment Act. The increases in 
maximum civil money penalty amounts contained in this final rule do not 
mandate the amount of any civil money penalty that OFHEO may seek for a 
particular violation; OFHEO would determine each civil money penalty on 
a case-by-case basis in light of the circumstances of the case.
    The Inflation Adjustment Act directs Federal agencies to calculate 
each civil money penalty adjustment as the percentage by which the CPI-
U for June of the calendar year preceding the adjustment exceeds the 
CPI-U for June of the calendar year in which the amount of such civil 
money penalty was last set or adjusted pursuant to law. OFHEO has not 
previously adjusted these CMP amounts, so the base period is 1995, the 
year the statutory requirements became applicable to the Enterprises. 
Because OFHEO is making these adjustments in calendar year 2001, and 
the statutory requirements became applicable to the Enterprises in 
1995, the inflation adjustment amount for each civil money penalty was 
calculated by comparing the CPI-U for June 1995 (152.5) with the CPI-U 
for June 2000 (172.4), resulting in an inflation adjustment of 13.05 
percent. For each civil money penalty, the product of this inflation 
adjustment and the previous maximum penalty amount was then rounded in 
accordance with the specific requirements of the Inflation Adjustment 
Act,\13\ then added to the previous maximum penalty amount to determine 
the new adjusted maximum penalty amount. However, the Inflation 
Adjustment Act further specifies that the first adjustment of any civil 
money penalty pursuant to such Act may not exceed ten percent of the 
penalty. Accordingly, the original civil money penalty maximum of $350 
under NFIRA is increased to $385 for each violation and the civil money 
penalty maximum of $100,000 is increased to $110,000 for the total 
assessed penalties against any Enterprise during any calendar year.
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    \13\ The statute's rounding rules require that each increase be 
rounded to the nearest multiple as follows: $10 in the case of 
penalties less than or equal to $100; $100 in the case of penalties 
greater than $100 but less than or equal to $1,000; $1,000 in the 
case of penalties greater than $1,000 but less than or equal to 
$10,000; $5,000 in the case of penalties greater than $10,000 but 
less than or equal to $100,000; $10,000 in the case of penalties 
greater than $100,000 but less than or equal to $200,000; and 
$25,000 in the case of penalties greater than $200,000.
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Section-By-Section Analysis

Section 1773.1  Authority and Scope
    Section 1773.1 sets forth the authority upon which this final 
regulation is based, namely the National Flood Insurance Act of 1968 
and the Flood Disaster Protection Act of 1973, as amended by the 
National Flood Insurance Reform Act of 1994. The National Flood 
Insurance Reform Act of 1994 requires OFHEO to examine the Enterprises 
to ascertain their compliance with these statutes and to report to 
Congress on their compliance, and provides OFHEO with the authority to 
issue any regulations necessary to carry out the applicable provisions 
of NFIRA. OFHEO is authorized to impose civil money penalties on an 
Enterprise for violation of procedures established pursuant to the 
National Flood Insurance Act of 1968, as amended, or rules or 
regulations adopted pursuant thereto.\14\
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    \14\ 42 U.S.C. 4012a(f)(3).
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Section 1773.2  Requirements
    Section 1773.2(a) sets forth the requirement that each Enterprise 
is to implement procedures reasonably designed to ensure that the 
properties securing particular loans described in paragraph (a) are 
properly insured in accordance with the National Flood Insurance Act of 
1968 and the Flood Disaster Protection Act of 1973, as amended by the 
National Flood Insurance Reform Act of 1994. This requirement applies 
to any loan purchased by an Enterprise that is secured by improved real 
estate or a mobile home located in an area that has been identified, at 
the time of the origination of the loan or at any time during the term 
of the loan, by the Director of the Federal Emergency Management Agency 
as an area having special flood hazards and in which flood insurance is 
available under the National Flood Insurance Program. As explained in 
this section, the Enterprise is required to ensure that a building or 
mobile home, and any personal property securing such loan are covered 
for the term of the loan by flood insurance in an amount at least equal 
to the lesser of the outstanding principal balance of the loan or the 
maximum limit of coverage made available with respect to the particular 
type of property under the National Flood Insurance Program.
    Section 1773.2(b) sets forth that the procedures in section 
1773.2(a) need apply only to loans made, increased, extended, or 
renewed after September 22, 1995. It further provides that paragraph 
(a) does not apply to any loan having an original outstanding principal 
balance of $5,000 or less and a repayment term of one year or less.
Section 1773.3  Civil Money Penalties
    Section 1773.3 sets forth procedures under this final section under 
which the Director of OFHEO may impose civil money penalties against an 
Enterprise. Section 1773.3(a) sets forth that the Director of OFHEO may 
assess a civil money penalty against an Enterprise determined by the 
Director to have engaged in a pattern or practice of purchasing loans 
in violation of the procedures established pursuant to Sec. 1773.2.
    Section 1773.3(b) sets forth notice and hearing requirements prior 
to the imposition of civil money penalties under this section. A civil 
money penalty may be issued only after notice and an opportunity for a 
hearing on the record has been provided under 12 CFR part 1780.
    Section 1773.3(c) sets forth the maximum amount of civil money 
penalties that may be imposed on an Enterprise under this section. A 
civil money penalty under this section may not exceed the adjusted 
statutory amount of $385 for each violation and the total amount of 
penalties assessed under this section against an Enterprise during any 
calendar year may not exceed the adjusted statutory cap of $110,000 for 
such total penalties.
    Section 1773.3(d) sets forth procedures for the deposit of civil 
money penalties. Any civil money penalties collected under this section 
shall be paid into the National Flood Mitigation Fund in accordance 
with 42 U.S.C. 4104d.
    Section 1773.3(e) provides that any civil money penalty under this 
section shall be in addition to any civil remedy or criminal penalty 
otherwise available.
    Section 1773.3(f) provides that no penalty may be imposed under 
this section after the expiration of the four-year period beginning on 
the date of the occurrence of the violation for which the penalty is 
authorized.

[[Page 65100]]

III. Comments on the Proposed Flood Insurance Regulation

Enterprise Compliance

    Fannie Mae's first comment concerned proposed new 12 CFR 1773.2(a), 
which sets forth the requirement that each Enterprise is to implement 
procedures reasonably designed to ensure that the properties securing 
particular loans described in paragraph (a) are properly insured in 
accordance with the National Flood Insurance Act of 1968 and the Flood 
Disaster Protection Act of 1973, as amended by the National Flood 
Insurance Reform Act of 1994. Both Enterprises assert that they have 
implemented procedures consistent with these statutes and have also 
consistently complied with all statutory requirements for flood 
insurance. Fannie Mae noted that neither the proposed regulation nor 
the preamble of the proposal suggest that the proposal, should it be 
adopted, is intended to require the Enterprises to readdress or revise 
the procedures they already have developed and implemented that comply 
with the relevant statutes. Fannie Mae suggested that OFHEO confirm 
this interpretation in connection with final rulemaking so as to avoid 
any confusion on this point.
    It would not be germaine, however, to the purposes of a rulemaking 
to issue a pronouncement that an Enterprises has fully developed and 
implemented adequate procedures that comply with their statutory 
responsibilities. The Enterprises' obligation to institute statutorily 
mandated procedures is subject to ongoing oversight by OFHEO as part of 
its routine examination process. This rulemaking is not intended to 
imply any deficiency in compliance or inadequacy of existing policies 
or practices of the Enterprises under the law.

Civil Money Penalties (Sec. 1773.3(a)), and Other Available Sanctions

    Freddie Mac asserted that the general grant of authority to 
promulgate necessary regulations (granted to various agencies by 42 
U.S.C. 4001 note) does not override the National Flood Insurance Reform 
Act's implicit limitation on OFHEO's authority to impose penalties. In 
explanation, Freddie Mac asserts that OFHEO's explicit statutory 
authority to assess civil money penalties relating to flood insurance 
is limited solely to assessing penalties for patterns or practices of 
purchasing loans in violation of an Enterprise's procedures established 
pursuant to the National Flood Insurance Reform Act. Freddie Mac 
asserts, therefore, that OFHEO's authority to assess penalties does not 
extend to other violations of the proposed flood insurance regulation 
or the law. According to Freddie Mac, the proposed flood insurance 
regulation exceeds statutory limits to the extent that its language 
could be read to provide for regulatory action against other statutory 
or regulatory violations, or would permit regulatory sanctions other 
than civil money penalties.
    Fannie Mae expressed similar concerns that the language in proposed 
new 12 CFR 1773.3(a) is overbroad in suggesting that OFHEO may assess 
civil money penalties against an Enterprise that engages in a pattern 
or practice of purchasing loans in violation of procedures established 
pursuant to the National Flood Insurance Act. Fannie Mae urges OFHEO to 
substitute the reference to the National Flood Insurance Act for a 
reference to 42 U.S.C. 4012a(b)(3), inasmuch as the latter is 
assertedly the specific statutory provision to which OFHEO's civil 
money penalty authority in 42 U.S.C. 4012a(f)(3) relates.
    OFHEO disagrees. The regulatory scheme established under NFIA under 
which OFHEO is charged to ensure compliance by the Enterprises cannot 
be reasonably read to allow unlawful conduct to go without sanction or 
remedy. OFHEO is broadly empowered under its enabling law to ensure the 
safe and sound operations of the Enterprises, including authority to 
oversee compliance by the Enterprises with applicable laws. The 
extraordinary civil money penalty authority granted under NFIA does not 
explicitly limit or displace the general powers of OFHEO to enforce 
applicable laws using its general enforcement powers under the 1992 
Act.

Authority and Scope (Sec. 1773.1(a))

    Fannie Mae's third comment notes that proposed new 12 CFR 1773.1(a) 
states that the National Flood Insurance Reform Act of 1994 designates 
OFHEO as the federal agency responsible for determining the 
Enterprises' compliance with the National Flood Insurance Reform Act of 
1994 and the National Flood Insurance Act of 1968. Fannie Mae asserts 
that the asserted breadth of the proposed rule is overly broad because 
the only compliance role Congress explicitly assigned to OFHEO with 
regard to those Acts is confined to 42 U.S.C. 4012a. Fannie Mae 
therefore requests that OFHEO redraft this part of the proposed new 
rule to more narrowly reference only 42 U.S.C. 4012a.
    Freddie Mac also argues that the law narrowly charges OFHEO with 
enforcing the requirements of the National Flood Insurance Reform Act 
and empowers OFHEO with the authority to assessing civil money 
penalties. Freddie Mac asserts that to the extent proposed new 12 CFR 
1773.1(a) can be read more broadly to encompass more than what the 
statute contemplated it is invalid. That is, Freddie Mac asserts that 
the National Flood Insurance Reform Act establishes the only 
enforcement sanction applicable to the Enterprises to be civil money 
penalty assessments, and no other administrative action or sanction is 
available to OFHEO.
    Both commenters recommended that OFHEO amend proposed new 12 CFR 
1773.1(a) to more narrowly recite that OFHEO is charged solely with 
enforcing the requirements of 42 U.S.C. 4012a(b)(3) through the 
assessment of civil money penalties.
    Similarly, Fannie Mae asserts that to the extent proposed new 12 
CFR 1773.1(a) contemplates that OFHEO may enforce the requirements of 
the National Flood Insurance with respect to the Enterprises that 
language is overly broad inasmuch as OFHEO has no statutory basis for 
instituting an enforcement action against an Enterprise under the 
National Flood Insurance Reform Act beyond that explicitly set forth in 
42 U.S.C. 4012a. Fannie Mae further asserts that OFHEO's organic 
enforcement authority, found at 12 U.S.C. 4615 et seq., includes no 
explicit language relating to violations of the National Flood 
Insurance Reform Act.
    OFHEO disagrees. The Enterprises proposal to narrowly confine 
OFHEO's role under the National Flood Insurance Act would ignore 
OFHEO's pervasive authority under the 1992 Safety and Soundness Act to 
use its full array of preventative and remedial tools to ensure the 
safety and soundness of the Enterprises, including compliance with 
applicable federal laws and regulations. It is implausible that 
Congress would suggest a scheme that would allow violative conduct, 
constituting unsafe and unsound practice, to go without sanction or 
remedy.

Amount of Flood Insurance Coverage (Sec. 1773.2)

    Freddie Mac's comment notes that, with respect to the amount of 
required flood insurance, the proposed regulation reiterates the 
statutory requirement that the amount of flood insurance be at least 
equal to the lesser of the outstanding principal balance of the loan or 
the maximum limit of coverage made available with respect to the 
particular type of property under the NFIP.

[[Page 65101]]

Freddie Mac indicated that in implementing the law's requirements under 
NFIRA it requires flood insurance coverage levels at or above the 
statutory minimums. That is, Freddie Mac, requires seller/servicers to 
ensure that borrowers maintain insurance ``at least equal to the 
higher'' of: (a) 80% of the replacement cost of the insurable 
improvements, or (b) the lower of the outstanding loan balance or the 
full replacement cost of the improvements (provided that the insurance 
never needs to exceed the maximum amount available under the NFIP). The 
Enterprise asserts that it requires such higher coverage because 
borrowers are not fully protected against a partial loss under a NFIP 
flood insurance policy if the policy covers less than 80% of the 
replacement cost of the improvements. Freddie Mac asserts that the 
higher required coverage serves the best interests of Freddie Mac, the 
borrower and the public purpose of the NFIP.
    In order to avoid any doubt as to its authority to require such a 
higher coverage amount, Freddie Mac recommends that OFHEO add a 
provision to proposed section 1773.2(a) explicitly stating that nothing 
in the regulation precludes an Enterprise from requiring a higher level 
of coverage than is required by the regulation. Freddie Mac asserts 
that such a provision would assist the Enterprises in the cases in 
which lenders or borrowers assert that a higher level of coverage may 
not be allowed under law.
    Nothing in this regulation precludes the asserted authority of the 
Enterprises to require additional flood insurance coverage. This issue 
of authority encompasses questions of law and policy beyond the 
immediate parameters of the published proposal and request for comment. 
OFHEO will, however, refrain at this time from addressing the issue 
further absent a fuller exploration of the matter. The Enterprise or 
any other involved parties may nevertheless seek to otherwise clarify 
the issue through other appropriate means.

Regulatory Impact

Executive Order 12866, Regulatory Planning and Review
    This final rule is not deemed to be a significant rule under 
Executive Order 12866 because it will not result in (1) An annual 
effect on the economy of $100 million or more; (2) a major increase in 
costs or prices for consumers, individual industries, Federal, State, 
or local government agencies, or geographic regions; or (3) 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 final 
rule has not been submitted to the Office of Management and Budget for 
review.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that 
a rule 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 this 
final rule under the Regulatory Flexibility Act. The General Counsel 
certifies that this final rule will not have a significant economic 
impact on a substantial number of small business entities.
Paperwork Reduction Act
    This final rule does not contain any information collection 
requirements that require the approval of the Office of Management and 
Budget under the Paperwork Reduction Act (44 U.S.C. 3501 et seq.).
Unfunded Mandates Reform Act of 1995
    This final rule does not require the preparation of an assessment 
statement in accordance with the Unfunded Mandates Reform Act of 1995, 
2 U.S.C. 1531. Assessment statements are not required for regulations 
that incorporate requirements specifically set forth in law. As 
explained in the preamble, this rule implements specific statutory 
requirements. In addition, this 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 
million or more (adjusted annually for inflation) in any one year.

List of Subjects in 12 CFR Part 1773

    Administrative practice and procedure, Flood insurance, Penalties, 
Reporting and recordkeeping requirements.

    Accordingly, for the reasons stated in the preamble, OFHEO adds 12 
CFR part 1773 to subchapter C of Chapter XVII to read as follows:

PART 1773--FLOOD INSURANCE

Sec.
1773.1   Authority and scope.
1773.2   Requirements.
1773.3   Civil money penalties.

    Authority: 12 U.S.C. 4521(a)(4), 4513, 4536(a); 42 U.S.C. 4001 
note; 28 U.S.C. 2461 note; 42 U.S.C. 4012a(f)(3), (4), (8), (9), 
(10).


Sec. 1773.1  Authority and scope.

    (a) Authority. The National Flood Insurance Act of 1968, title XII 
of Public Law 90-448, Aug. 1, 1968, 42 U.S.C. 4002 et seq., and the 
Flood Disaster Protection Act of 1973, 42 U.S.C. 4002 et seq., as 
amended by the National Flood Insurance Reform Act of 1994 (``NFIRA''), 
Public Law 103-325, Sept. 23, 1994, 42 U.S.C. 4001-4129, together 
create the National Flood Insurance Program (``NFIP'') which 
established specific requirements applicable to the Enterprises. NFIRA 
designates OFHEO as the Federal agency responsible for determining 
compliance by the Enterprises with these statutes and with reporting to 
Congress biannually for six years on the Enterprises' compliance. OFHEO 
has the authority to issue any regulations necessary to carry out the 
applicable provisions of NFIRA. OFHEO is also charged with enforcing 
the requirements of NFIRA as to the Enterprises and provides for the 
assessment of civil money penalties for violations of the procedures 
established by the Enterprises pursuant to the law or implementing 
regulations.
    (b) Scope. This part sets forth the responsibilities of the 
Enterprises under NFIRA and the procedures to be used in any proceeding 
to assess civil money penalties against an Enterprise under NFIRA.


Sec. 1773.2  Requirements.

    (a) Procedures. Each Enterprise shall implement procedures 
reasonably designed to ensure for any loan that is secured by improved 
real estate or a mobile home located in an area that has been 
identified, at the time of the origination of the loan or at any time 
during the term of the loan, by the Director of the Federal Emergency 
Management Agency as an area having special flood hazards and in which 
flood insurance is available under the NFIP, and purchased by such 
entity, the building or mobile home and any personal property securing 
the loan is covered for the term of the loan by flood insurance in an 
amount at least equal to the lesser of the outstanding principal 
balance of the loan or the maximum limit of coverage made available 
with respect to the particular type of property under the NFIP.

[[Page 65102]]

    (b) Applicability. (1) Paragraph (a) of this section shall apply 
only with respect to any loan made, increased, extended, or renewed 
after September 22, 1995.
    (2) Paragraph (a) of this section shall not apply to any loan 
having an original outstanding balance of $5,000 or less and a 
repayment term of one year or less.


Sec. 1773.3  Civil money penalties.

    (a) In general. If an Enterprise is determined by the Director of 
OFHEO to have engaged in a pattern or practice of purchasing loans in 
violation of the procedures established pursuant to the NFIA, as 
amended, or to Sec. 1773.2, the Director may assess civil money 
penalties against such Enterprise in such amount or amounts as deemed 
to be appropriate under paragraph (c) of this section.
    (b) Notice and hearing. A civil money penalty under this section 
may be assessed only after notice and an opportunity for a hearing on 
the record has been provided under 12 CFR part 1780.
    (c) Amount. A civil money penalty under this section may not exceed 
$385 for each violation. The total amount of penalties assessed under 
this section against an Enterprise during any calendar year may not 
exceed $110,000.
    (d) Deposit of penalties. Any penalties collected under this 
section shall be paid into the National Flood Mitigation Fund in 
accordance with 42 U.S.C. 4104d.
    (e) Additional penalties. Any penalty under this section shall be 
in addition to, and shall not preclude, any civil remedy or criminal 
penalty otherwise available.
    (f) Statute of limitations. No civil money penalty may be imposed 
under this section after the expiration of the four-year period 
beginning on the date of the occurrence of the violation for which the 
penalty is authorized under this section.

    Dated: December 13, 2001.
Armando Falcon, Jr.,
Director, Office of Federal Housing Enterprise Oversight.
[FR Doc. 01-31166 Filed 12-17-01; 8:45 am]
BILLING CODE 4220-01-U