[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

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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