[Federal Register Volume 68, Number 66 (Monday, April 7, 2003)]
[Rules and Regulations]
[Pages 16715-16718]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-8379]
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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: Final regulation.
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SUMMARY: The Office of Federal Housing Enterprise Oversight is issuing
a final regulation that sets forth public disclosure requirements with
respect to financial and other information by the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation.
EFFECTIVE DATE: April 30, 2003.
FOR FURTHER INFORMATION CONTACT: David W. Roderer, Deputy General
Counsel, or Christine C. 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. Background
A. Introduction
Title XIII of the Housing and Community Development Act of 1992,
Pub. L. 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
[[Page 16716]]
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, 2000), 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 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.
Public Disclosure of Financial and Other Information Regulation
OFHEO issued a proposed Public Disclosure of Financial and Other
Information regulation, which was published in the Federal Register on
January 23, 2003.\8\ The proposed regulation complements the
examination and supervisory programs of OFHEO and ensures that the
disclosure policies and practices of the Enterprises comport with
safety and soundness standards.
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\8\ 68 FR 3194 (January 23, 2003).
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II. Response to Comments
OFHEO received six comment letters on the proposed regulation.
Comment letters were received from Fannie Mae; Freddie Mac; America's
Community Bankers, a national trade association for community banks of
all charter types; FM Watch, a coalition of financial services and
housing-related trade associations; Mr. James G. McDonald, a self-
described civil rights attorney from Virginia, and Ms. Yvonne M.
Wohlers from Williamsburg, Virginia.
Comments
The comments addressed both general and specific elements of the
proposed rule. All comments endorsed increased public disclosure of
information by the Enterprises.
The comment letters of Mr. McDonald and Ms. Wohlers, while
supporting broad disclosure of Enterprise information, raised issues
relating to immigration matters that are not germane to the purpose or
scope of the proposed regulation that focuses on securities and other
financial disclosures.
FM Watch characterized the proposed regulation as an interim
measure stating its position that parity of securities regulation can
result only through enactment of legislation that would repeal the
exempt status of Enterprise securities under the Federal securities
laws. FM Watch suggested revising the proposed regulation in several
areas. FM Watch recommended that the regulation specify the procedures
to be used by, and the sanctions available to, OFHEO to enforce
compliance with disclosure requirements.
As noted in the preamble to the proposed regulation, OFHEO
possesses a broad range of explicit and implied authorities to address
the Enterprises' disclosure practices. The Office has at its disposal a
variety of supervisory tools to require full and meaningful disclosure.
As stated in section 1730.1(b) of the proposed and final rule, the
regulation in no way limits or restricts the authority of OFHEO to act
under its safety and soundness mandate to regulate the Enterprises,
including, but not limited to, ``enforcing compliance with applicable
laws, rules and regulations.'' For these reasons, OFHEO has determined
that it is not necessary to include a separate enforcement or
compliance provision in this regulation.
FM Watch also suggested that the proposed regulation be
supplemented with additional sections that would delineate the
respective responsibilities and remedies of OFHEO and the SEC with
respect to Enterprise disclosures. In addition, FM Watch recommended
that OFHEO enter into a Memorandum of Understanding with the SEC
regarding compliance issues and establish a procedure for the receipt
and processing of investor grievances.
As noted in the preamble to the proposed regulation, voluntary
registration triggers the attendant rules and regulations of the SEC,
including SEC enforcement authorities. OFHEO proposed this regulation,
in large part, to facilitate the process of voluntary registration by
the Enterprises under the Exchange Act. Moreover, OFHEO has a broad
statutory mandate to adopt regulations, rules, and guidances to assure
safe and sound operations of the Enterprises including appropriate
disclosures. OFHEO regularly communicates with the SEC. Further, OFHEO
regularly receives comments from private persons and groups on a range
of topics and a regulation need not establish a specialized procedure
for receipt of comments. In sum, the enforcement policies and practices
of OFHEO with respect to Enterprise disclosures do not require
additional elaboration in this rulemaking.
FM Watch also recommended that the proposed regulation be revised
by adding a section detailing various disclosure commitments made by
the
[[Page 16717]]
Enterprises since October 2000 in order to ensure that such commitments
are strictly adhered to by the Enterprises. OFHEO has determined that
such a recitation of Enterprise disclosure commitments is unnecessary
in this regulation. OFHEO has indicated previously that it monitors
these disclosure commitments.
FM Watch also recommended that the regulation require the
Enterprises to adopt internal rules with respect to insider
transactions. OFHEO's existing regulations and guidances address the
maintenance of appropriate internal guidelines and procedures by the
Enterprises.\9\
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\9\ For example, among others, 12 CFR 1710 and 1720 (Appendix
A).
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Both Freddie Mac and Fannie Mae commented on proposed paragraph (a)
of section 1730.3 that would require the preparation of disclosures
relating to an Enterprise's financial condition, results of operation,
business developments, and management expectations that include
supporting financial information and certifications. The requirements
in paragraph (a) will be satisfied through compliance by an Enterprise
with SEC disclosure requirements specified in paragraph (b)(1)-(3) of
the section.
Freddie Mac characterized paragraph (a) as being ``an open-ended''
disclosure requirement. Freddie Mac also asserted that it is unclear
whether OFHEO is imposing a disclosure obligation in paragraph (a) that
is different from the legal standards governing other Exchange Act
registrants. Freddie Mac commented that, in order to eliminate any
ambiguity with respect to Enterprise disclosure obligations, proposed
section 1730.3 be revised by deleting paragraph (a) to merely require
the Enterprises to comply with SEC regulations specified in paragraph
(b) with respect to the submission of proxy statements and insider
trading reports by officers and directors. Similarly, Fannie Mae
commented that section 1730.3 of the proposed regulation goes beyond
filling in the regulatory ``gaps'' that the SEC would be unable to
reach notwithstanding its voluntary registration. Fannie Mae
characterized the proposed section as an assertion of parallel
authority for OFHEO to act as a ``back-up'' regulator regarding
regulations applicable to Fannie Mae by virtue of its registration with
the SEC. Fannie Mae expressed its view that Congress has not charged
OFHEO with the responsibility of investor protection. It further opined
that there is no basis in statute or public policy for OFHEO to raise
through its proposal the possibility that the agency might at some
point seek to substitute its judgment for that of the SEC with respect
to disclosure regulation and enforcement. Fannie Mae stated that
section 1730.3 (b)(1) would make failure to meet SEC requirements a
violation of OFHEO's rules as well. For those reasons, Fannie Mae urged
that paragraph (b)(1), which addresses periodic disclosures required by
registrants under section 12 of the Exchange Act, be deleted from the
final regulation.
OFHEO notes that section 1730.3(a) simply reiterates the overall
authority of OFHEO to regulate financial and other disclosures of the
Enterprises as part of its statutory safety and soundness
responsibilities. In supporting voluntary registration by the
Enterprises under the Exchange Act, the regulation in no way impinges
upon or contracts OFHEO's safety and soundness authorities. The
comments of Freddie Mac and Fannie Mae go to the possible scope and
exercise of those authorities that are not the focus of this section of
the regulation. Further, as indicated in the preamble to the proposed
rule, OFHEO's actions are guided by its statute that provides for
oversight of Enterprise safety and soundness. As indicated as well in
the preamble, OFHEO anticipates no duplication of regulation in meeting
its obligations. Additionally, OFHEO has tools at its disposal to
clarify and make certain any issue relating to the subsection's
requirements should such a need arise.
In addition to its general comments, Fannie Mae requested a
technical change to section 1730.3, paragraph (a) that requires each
Enterprise to prepare disclosures relating to ``its financial
condition, results of operation, business developments, and
management's expectations. * * *'' Fannie Mae requested that the text
be changed to read ``its financial condition, results of operation and
business'' as Fannie Mae stated that SEC rules regarding business
development and management expectations are more limited and will be
adequately addressed through the periodic reports it will be required
to file upon registration under the Exchange Act.
As noted earlier, however, this section addresses OFHEO's safety
and soundness authority and does not reference other statutes. OFHEO's
descriptions of its authorities, indeed, may be expected to be
different from language employed by another regulator acting under a
different statutory regime.
Both Freddie Mac and Fannie Mae commented on section 1730.3(b)(1)
of the proposed regulation, that requires an Enterprise satisfying its
disclosure obligations through compliance with various SEC regulations
to prepare and make public reports and other materials ``that may be
required under the rules and regulations of the [SEC], including
interpretations of the Commission and its staff. * * *'' Both
Enterprises asserted that this would be a new requirement, not imposed
on other SEC registrants. Also, they noted that SEC staff
interpretations do not establish legally binding and enforceable
disclosure requirements for SEC registrants. For these reasons, they
requested that reference to staff interpretations be deleted from
paragraph (b)(1) in the final regulation.
The provision is retained as proposed. SEC registrants are expected
to comply with staff interpretations that are applicable to those
registrants. The Enterprises can, of course, discuss with the SEC staff
the appropriate method for complying with interpretations.
Freddie Mac also commented on section 1730.4 of the proposed
regulation, which requires the Enterprises to provide to OFHEO copies
of all disclosures filed with the SEC. Freddie Mac requested that OFHEO
modify the section to indicate that OFHEO would provide confidential
treatment for such submissions similar to that provided by the SEC
under Rule 24b-2. OFHEO has existing procedures that address the
treatment of confidential Enterprise submissions. The procedures
provide case-by-case determinations and ensure that nonpublic,
confidential information is safeguarded whenever appropriate.
Accordingly, OFHEO has determined that it is not necessary to modify
section 1730.4 in the final regulation.
OFHEO is adopting the regulation as proposed.
Regulatory Impact
Executive Order 12866, Regulatory Planning and Review
This 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. This regulation, however, has
been submitted to the Office of Management and Budget
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(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 this
final regulation under the Regulatory Flexibility Act. The General
Counsel of OFHEO certifies that the regulation, as herein 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. This 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. This 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 this
final 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.
0
Accordingly, for the reasons stated in the preamble, OFHEO adds part
1730 to subchapter C of 12 CFR Chapter XVII to read as follows:
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 ``report[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) of this section 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: April 1, 2003.
Armando Falcon, Jr.,
Director, Office of Federal Housing Enterprise Oversight.
[FR Doc. 03-8379 Filed 4-4-03; 8:45 am]
BILLING CODE 4220-01-P