[Federal Register Volume 68, Number 15 (Thursday, January 23, 2003)]
[Proposed Rules]
[Pages 3194-3196]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-1298]


 ========================================================================
 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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 

  Federal Register / Vol. 68, No. 15 / Thursday, January 23, 2003 / 
Proposed Rules  

[[Page 3194]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of Federal Housing Enterprise Oversight

12 CFR Part 1730

RIN 2550-AA25


Public Disclosure of Financial and Other Information

AGENCY: Office of Federal Housing Enterprise Oversight, HUD.

ACTION: Proposed regulation.

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SUMMARY: The Office of Federal Housing Enterprise Oversight is 
proposing a regulation to set forth public disclosure requirements with 
respect to financial and other information by the Federal National 
Mortgage Association and the Federal Home Loan Mortgage Corporation.

DATES: Written comments on the proposed regulation must be received by 
March 24, 2003.

ADDRESSES: Send written comments concerning the proposed regulation to 
Alfred M. Pollard, General Counsel, Office of Federal Housing 
Enterprise Oversight, Fourth Floor, 1700 G Street, NW., Washington, DC 
20552. Written comments may also be sent to Mr. Pollard by electronic 
mail at [email protected]. OFHEO requests that written comments 
submitted in hard copy also be accompanied by the electronic version in 
MS Word or in portable document format (PDF) on 3.5'' disk.

FOR FURTHER INFORMATION CONTACT: David W. Roderer, Deputy General 
Counsel, or Tina Dion, Associate General Counsel, telephone (202) 414-
6924 (not a toll-free number); Office of Federal Housing Enterprise 
Oversight, Fourth Floor, 1700 G Street, NW., Washington, DC 20552. The 
telephone number for the Telecommunications Device for the Deaf is 
(800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Comments

    The Office of Federal Housing Enterprise Oversight (OFHEO) invites 
comments on all aspects of the proposed regulation, including legal and 
policy considerations, and will take all comments into consideration 
before issuing the final regulation. Copies of all comments received 
will be available for examination by the public at the Office of 
Federal Housing Enterprise Oversight, Fourth Floor, 1700 G Street, NW., 
Washington, DC 20552, or on the OFHEO Web site at http://www.ofheo.gov.

II. Background

A. Introduction

    Title XIII of the Housing and Community Development Act of 1992, 
Pubic Law 102-550, entitled the ``Federal Housing Enterprises Financial 
Safety and Soundness Act of 1992'' (Act) (12 U.S.C. 4501 et seq.), 
established OFHEO as an independent office within the Department of 
Housing and Urban Development to ensure that the Federal National 
Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage 
Corporation (Freddie Mac) (collectively, the Enterprises) are 
capitalized adequately and operate safely and in compliance with 
applicable laws, rules, and regulations.
    The relationship of the government-sponsored enterprises to 
financial markets is critical to their viability. To accomplish their 
missions, the Enterprises must have access to capital markets. In 
supporting the primary mortgage markets, secondary market players, 
including the Enterprises, access domestic and global financing sources 
and offer a variety of issuances demanded by these markets. The 
Enterprises are significant as participants in mortgage-backed 
securities and agency debt markets, and in related hedging activities, 
and as issuers and guarantors of securities.
    As users of and participants in the financial markets, the success 
of the Enterprises in meeting their public policy missions and in 
maintaining their safe and sound operations is inextricably tied to 
full and robust disclosure.\1\ Disclosure may provide information about 
the corporate operations of a firm, the intricacies of a given 
securities offering, or specialized information concerning particular 
events or business practices. In addition, Enterprise securities have 
become increasingly significant to domestic and foreign market 
participants. The business practices of the Enterprises affect large 
and small investors, debt markets and international debt holders alike. 
Access to the markets and the price of that access are directly 
affected by investor perceptions of the transparency of the Enterprises 
and the safety and soundness of their operations. In such an 
environment, as the Enterprises themselves acknowledge, they have an 
interest in providing ``best in class'' disclosures.\2\
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    \1\ See, Freddie Mac and Fannie Mae Enhancements to Capital 
Strength, Disclosure and Market Discipline, 3-4 News, Archives 
(October 19, 20000), available at http://www.freddiemac.com/; and 
Franklin Raines, FDIC Panel: ``The Rise of Risk Management: 
Challenges for Policy Makers,'' 1, 6 Media, Speeches (July 31, 
2002), available at http://www.fanniemae.com/.
    \2\ Id. See, for example, Fannie Mae, Franklin Raines, FDIC 
Panel.
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B. Disclosure and Safe and Sound Operations

    Full and adequate disclosure of information by the Enterprises 
regarding their financial conditions and risks is an important part of 
OFHEO's supervisory program. Full disclosure enhances market 
discipline.\3\ OFHEO possesses both explicit and implied authorities to 
address the Enterprises' disclosure practices.\4\ The office has at its 
disposal a range of supervisory tools to require full and meaningful 
disclosures.\5\
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    \3\ See Basel Committee on Banking Supervision's consultative 
paper entitled, ``A New Capital Adequacy Framework.'' (Basel 
Committee Publications No. 50 (June 1999)).
    \4\ In general. see 12 U.S.C. 4513, 12 U.S.C. 4631, 4632, and 
4636; 12 U.S.C. 4514; 12 U.S.C. 4501(6) as well as the chartering 
acts for the Enterprises at 12 U.S.C. 1723a(k)(2) and 12 U.S.C. 
1456(c)(2) and (3).
    \5\ An unsafe or unsound practice may serve as a basis for 
enforcement action by OFHEO pursuant to 12 CFR parts 1777 and 1780.
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    While the offer and sale of their securities are exempt from the 
registration requirements of the Securities Act of 1933 \6\ and their 
securities are exempted securities under the Securities Exchange Act of 
1934 (Exchange Act),\7\ the Enterprises last July indicated that they 
would voluntarily register their common stock

[[Page 3195]]

with the Securities and Exchange Commission (SEC) under the provisions 
of section 12(g) of the Exchange Act, 15 U.S.C. 78l(g). That section 
permits companies not covered by the Exchange Act and its requirements 
for periodic disclosures to submit voluntarily to SEC rules. Voluntary 
registration triggers the attendant rules and regulations of the SEC, 
including SEC enforcement authorities. Once a company volunteers, it 
must remain under the strictures of the law, unless permitted to remove 
itself by the SEC. OFHEO is proposing this regulation, in part, to 
facilitate the process of voluntary registration by the Enterprises 
under the Exchange Act.
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    \6\ 15 U.S.C. 77a through 77aa.
    \7\ 15 U.S.C. 78a through 78jj.
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    OFHEO has a broad statutory mandate to adopt regulations, rules, 
and guidances deemed to be appropriate to assuring the safety and 
soundness of the Enterprises including appropriate disclosures that aid 
in promoting market discipline. OFHEO is empowered fully to mandate 
financial and securities disclosure and to take related actions to 
implement such regulatory requirements through filings and submissions, 
examination and oversight of disclosures. OFHEO anticipates no 
duplication of regulation as it administers its broad safety and 
soundness obligations.

III. Section-by-Section Analysis

Section 1730.1 Purpose

    This part would require the Enterprises to prepare and submit 
financial and other disclosures as specified by OFHEO. The required 
disclosures are intended to complement the supervisory efforts of OFHEO 
to ensure the capital strength of the Enterprises and to promote safe 
and sound operations within each Enterprise and the mortgage-finance 
system.
    This section also would note that this regulation does not limit or 
restrict the authority of OFHEO to act under its safety and soundness 
mandate to regulate the Enterprises, including conducting examinations, 
requiring reports and disclosures, and enforcing compliance with 
applicable laws, rules and regulations.

Section 1730.2 Definitions

    This section would set forth definitions relevant to the proposed 
regulation.

Section 1730.3 Periodic Disclosures

    This section would require each Enterprise to prepare disclosures 
relating to its financial condition, results of operation, business 
developments and management expectations that include supporting 
financial information and certification thereof.
    An Enterprise would satisfy the proposed requirement for periodic 
disclosures required in the section if:
    1. In the case of an Enterprise having a class of securities 
registered pursuant to section 12 of the Exchange Act, the Enterprise 
prepares an annual report, quarterly report, and current reports, and 
such other materials that may be required under the rules and 
regulations of the Commission, including interpretations by the 
Commission and its staff and rules governing audited financial 
statements;
    2. The Enterprise files with the Commission all reports, statements 
and forms required pursuant to section 14(a) and (c) of the Exchange 
Act and by rules and regulations adopted by the Commission under that 
section; and
    3. The officers and members of the board of directors of the 
Enterprise file with the Commission all reports and forms relating to 
the common stock of the Enterprises required pursuant to section 16 of 
the Exchange Act and by rules and regulations adopted by the Commission 
under that section.

Section 1730.4 Submission of Disclosures

    This section would require that, unless otherwise directed by 
OFHEO, the Enterprises must provide to OFHEO on a concurrent basis 
copies of all disclosures filed with the SEC under Sec.  1730.3.

Regulatory Impact

Executive Order 12866, Regulatory Planning and Review

    The proposed regulation would 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. The proposed 
regulation, however, has been submitted to the Office of Management and 
Budget (OMB) for review under other provisions of Executive Order 12866 
as a significant regulatory action.

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 proposed regulation, if adopted, is 
not likely to have a significant economic impact on a substantial 
number of small business entities because the regulation is applicable 
only to the Enterprises, which are not small entities for purposes of 
the Regulatory Flexibility Act.

Executive Order 13132, Federalism

    Executive Order 13132 requires that Executive departments and 
agencies identify regulatory actions that have significant federalism 
implications. A regulation has federalism implications if it has 
substantial direct effects on the States, on the relationship or 
distribution of power between the Federal government and the States, or 
on the distribution of power and responsibilities among various levels 
of government. The Enterprises are federally chartered corporations 
supervised by OFHEO. The proposed regulation sets forth minimum 
disclosure standards with which the Enterprises must comply for Federal 
supervisory purposes and address the safety and soundness authorities 
of the agency. The proposed regulation does not affect in any manner 
the powers and authorities of any State with respect to the Enterprises 
or alter the distribution of power and responsibilities between State 
and Federal levels of government. Therefore, OFHEO has determined that 
the proposed regulation has no federalism implications that warrant the 
preparation of a Federalism Assessment in accordance with Executive 
Order 13132.

List of Subjects in 12 CFR Part 1730

    Government-sponsored enterprises, Financial disclosure, Reporting 
and recordkeeping requirements, Records.

    Accordingly, for the reasons stated in the preamble, OFHEO proposes 
to add part 1730 to subchapter C of 12 CFR chapter XVII to read as 
follows:

[[Page 3196]]

Subchapter C--Safety and Soundness

PART 1730--DISCLOSURE OF FINANCIAL AND OTHER INFORMATION

Sec.
1730.1 Purpose.
1730.2 Definitions.
1730.3 Periodic disclosures.
1730.4 Submission of disclosures.

    Authority: 12 U.S.C. 4513; 12 U.S.C. 4514; 12 U.S.C. 4631; and, 
12 U.S.C. 4632.


Sec.  1730.1  Purpose.

    (a) The purpose of this part is to require the Enterprises to 
prepare and submit financial and other disclosures as specified by 
OFHEO.
    (b) This part does not limit or restrict the authority of OFHEO to 
act under its safety and soundness mandate to regulate the Enterprises, 
including conducting examinations, requiring reports and disclosures, 
and enforcing compliance with applicable laws, rules and regulations.


Sec.  1730.2  Definitions.

    For purposes of this part, the term:
    (a) Commission means the Securities and Exchange Commission (or 
SEC).
    (b) Disclosure or disclosures means any report[s], form[s], or 
other information submitted by the Enterprises pursuant to this part 
and may be used interchangeably with the terms ``reports[s]'' or 
``form[s].''
    (c) Enterprise means the Federal National Mortgage Association or 
the Federal Home Loan Mortgage Corporation; and the term 
``Enterprises'' means, collectively, the Federal National Mortgage 
Association and the Federal Home Loan Mortgage Corporation.
    (d) Exchange Act means the Securities Exchange Act of 1934.
    (e) OFHEO means the Office of Federal Housing Enterprise Oversight 
(or the office).


Sec.  1730.3  Periodic disclosures.

    (a) Each Enterprise shall prepare disclosures relating to its 
financial condition, results of operation, business developments, and 
management's expectations that include supporting financial information 
and certifications.
    (b) The requirement of paragraph (a) for disclosures will be 
satisfied if:
    (1) In the case of an Enterprise having a class of securities 
registered pursuant to section 12 of the Exchange Act, the Enterprise 
prepares and makes public an annual report, quarterly report and 
current reports and such other materials that may be required under the 
rules and regulations of the Commission, including interpretations of 
the Commission and its staff and rules governing audited financial 
statements;
    (2) The Enterprise files with the Commission all reports, 
statements, and forms required pursuant to sections 14(a) and (c) of 
the Exchange Act and by rules and regulations adopted by the Commission 
under those sections that would be required to be filed by the 
Enterprises if the Enterprises has a class of equity securities 
registered under section 12(g) of the Exchange Act that were not 
exempted securities under the Exchange Act; and
    (3) The officers and directors of the Enterprise file with the 
Commission all reports and forms relating to the common stock of the 
Enterprise that would be required to be filed by the officers and 
directors pursuant to section 16 of the Exchange Act and by rules and 
regulations adopted by the Commission under that section if the 
Enterprises had a class of equity securities registered under section 
12(g) of the Exchange Act that were not exempted securities under the 
Exchange Act.


Sec.  1730.4  Submission of disclosures.

    Unless otherwise required by OFHEO, the Enterprises shall provide 
to OFHEO on a concurrent basis copies of all disclosures filed with the 
SEC pursuant to Sec.  1730.3.

    Dated: January 15, 2003.
Armando Falcon, Jr.,
Director, Office of Federal Housing Enterprise Oversight.
[FR Doc. 03-1298 Filed 1-22-03; 8:45 am]
BILLING CODE 4220-01-P