[Federal Register Volume 73, Number 180 (Tuesday, September 16, 2008)]
[Rules and Regulations]
[Pages 53356-53359]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-21650]
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FEDERAL HOUSING FINANCE AGENCY
12 CFR Part 1231
RIN 2590-AA08
Golden Parachute Payments and Indemnification Payments
AGENCY: Federal Housing Finance Agency.
ACTION: Interim Final Regulation with Request for Comments.
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SUMMARY: The Federal Housing Finance Agency (FHFA) is issuing an
interim final regulation, with a request for comments, setting forth
factors to be considered by the Director of FHFA in acting upon the
Director's authority to limit golden parachute payments to entity-
affiliated parties in connection with the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, and the
Federal Home Loan Banks.
DATES: Effective date: September 16, 2008.
Comment date: Comments on the Interim Final Regulation must be
received on or before October 31, 2008. For additional information, see
SUPPLEMENTARY INFORMATION.
ADDRESSES: You may submit your comments on the interim final
regulation, identified by regulatory information number ``RIN 2590-
AA08,'' by any of the following methods:
U.S. Mail, United Parcel Post, Federal Express, or Other
Mail Service: The mailing address for comments is: Alfred M. Pollard,
General Counsel (Office of Federal Housing Enterprise Oversight
(OFHEO)) and Christopher Curtis, General Counsel (Federal Housing
Finance Board (FHFB)), Attention: Comments/RIN 2590-AA08, Federal
Housing Finance Agency, Fourth Floor, 1700 G Street, NW., Washington,
DC 20552.
Hand Delivered/Courier: The hand delivery address is:
Alfred M. Pollard, General Counsel (OFHEO) and Christopher Curtis,
General Counsel (FHFB), Attention: Comments/RIN 2590-AA08, Federal
Housing Finance Agency, Fourth Floor, 1700 G Street, NW., Washington,
DC 20552. The package should be logged at the Guard Desk, First Floor,
on business days between 9 a.m. and 5 p.m.
E-mail: Comments to Alfred M. Pollard, General Counsel
(OFHEO) and Christopher Curtis, General Counsel (FHFB), may be sent by
e-mail at [email protected]. Please include ``RIN 2590-AA08'' in the
subject line of the message.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
FOR FURTHER INFORMATION CONTACT: Alfred M. Pollard, General Counsel
(OFHEO), telephone (202) 414-3788 or Christopher Curtis, General
Counsel (FHFB), telephone (202) 408-2802 (not toll-free numbers),
Federal Housing Finance Agency, 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 Federal Housing Finance Agency (FHFA) invites comments on all
aspects of the interim final regulation, and will take all comments
into consideration before issuing the final regulation. FHFA requests
that comments submitted in hard copy also be
[[Page 53357]]
accompanied by the electronic version in Microsoft[supreg] Word or in
portable document format (PDF) on 3.5'' disk or CD-ROM.
Copies of all comments will be posted on the Internet Web site at
www.OFHEO.gov. In addition, copies of all comments received will be
available for examination by the public on business days between the
hours of 10 a.m. and 3 p.m., at the Federal Housing Finance Agency,
Fourth Floor, 1700 G Street, NW., Washington, DC 20552. To make an
appointment to inspect comments, please call the Office of General
Counsel (OFHEO) at (202) 414-3751.
II. Background
The Housing and Economic Recovery Act of 2008 (HERA), Public Law
No. 110-289, 122 Stat. 2654, amended the Federal Housing Enterprises
Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501 et seq.)
(Act) to establish FHFA as an independent agency of the Federal
Government.\1\ FHFA was established to oversee the prudential
operations of the Federal National Mortgage Association, the Federal
Home Loan Mortgage Corporation (collectively, Enterprises), and the
Federal Home Loan Banks (Banks) (collectively, regulated entities) and
to ensure that they operate in a safe and sound manner including being
capitalized adequately; foster liquid, efficient, competitive and
resilient national housing finance markets; comply with the Act and
rules, regulation, guidelines and orders issued under the Act, and the
respective authorizing statutes of the regulated entities; and carry
out their missions through activities authorized and consistent with
the Act and their authorizing statutes; and, that the activities and
operations of the regulated entities are consistent with the public
interest.
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\1\ See Division A, titled the ``Federal Housing Finance
Regulatory Reform Act of 2008,'' TITLE I, Section 1101 of HERA.
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The Office of Federal Housing Enterprise Oversight (OFHEO) and the
Federal Housing Finance Board (FHFB) will be abolished one year after
enactment of the HERA. However, the regulated entities continue to
operate under regulations promulgated by OFHEO and FHFB until such
regulations are supplanted by regulations promulgated by the FHFA.
II. Interim Final Regulation and Request for Comments
Section 1114 of HERA amended 12 U.S.C. 4518 to provide additional
authorities for FHFA in addressing certain compensation and benefits,
specifically golden parachute payments and indemnification payments.
HERA added a new paragraph (e) to section 4518 addressing regulation
and prohibition of these benefits. While paragraphs (e)(1) and (e)(3)-
(6) are self executing, Congress provided that for paragraph (e)(2)
addressing factors to be taken into account when acting regarding
golden parachutes and indemnification, FHFA prescribe, by regulation,
factors to be considered. The factors set forth in (e)(2) are explicit
and provide strong guidance to the Director in taking an action under
the statute. Therefore, FHFA is promulgating an interim final rule and
requesting comment on paragraph (2) of section 4518(e). FHFA will
consider other comments regarding section 4518(e) as part of the public
notice and comment period.
The FHFA is issuing this regulation as an interim final rule in
order to provide clarity on the standards it will employ in addressing
golden parachutes and indemnification payments as provided in statute.
Additionally, with payments at issue for separating employees, an
interim final rule provides clarity for the standards the agency will
employ in exercising its authority; at the same time, comments are to
be taken regarding the rule. For these reasons, FHFA finds that there
is good cause, and that it is in the public interest, to make the rule
effective immediately upon publication in the Federal Register and
allow for public comment after publication. See 5 U.S.C. 553(b) and
(d). The language of the rule reflects congressional intent embodied in
the statute.
The interim final rule provides parties an opportunity to comment
on all aspects of the regulation and for future revision, if necessary
or appropriate, by the FHFA. Comments are specifically requested with
respect to the definition of the term ``troubled condition,'' with
respect to other factors the Director should consider in determining
whether golden parachute payments should be limited or prohibited, and
what payments made pursuant to a bona fide deferred compensation plan
or arrangement should be determined to be permissible golden parachute
payments.
Section 1313(f) of the Act, as amended by section 1201 of HERA,
requires the Director, when promulgating regulations relating to the
Banks, to consider the differences between the Banks and the
Enterprises with respect to the Banks' cooperative ownership structure;
mission of providing liquidity to members; affordable housing and
community development mission; capital structure; and joint and several
liability. The Director may also consider any other differences that
are deemed appropriate. In preparing the interim final rule, the
Director considered the differences between the Banks and the
Enterprises as they relate to the above factors. The Director requests
comments from the public about whether differences related to these
factors should result in a revision to the interim final rule as they
relate to the Banks.
Regulatory Impacts
Paperwork Reduction Act
The interim final regulation does not contain any information
collection requirement that requires the approval of OMB under the
Paperwork Reduction Act (44 U.S.C. 3501 et seq.).
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). FHFA has considered the impact of the
interim final regulation under the Regulatory Flexibility Act. FHFA
certifies that the interim final regulation 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 regulated
entities, which are not small entities for the purposes of the
Regulatory Flexibility Act.
List of Subjects in 12 CFR Part 1231
Golden parachutes, Government-sponsored enterprises,
Indemnification.
0
Accordingly, for the reasons stated in the preamble, FHFA establishes a
new 12 CFR Chapter XII, consisting of part 1231, to read as follows:
PART 1231--GOLDEN PARACHUTE PAYMENTS AND INDEMNIFICATION PAYMENTS
Sec.
1231.1 Purpose.
1231.2 Definitions.
1231.3 Golden parachute payments.
1231.4 Indemnification payments.
1231.5 Factors to be taken into account.
Authority: 12 U.S.C. 4518(e).
[[Page 53358]]
Sec. 1231.1 Purpose.
The purpose of this part is to implement section 1318(e) of the Act
by setting forth the standards which the Director will take into
consideration in determining whether to limit or prohibit golden
parachute payments or indemnification payments to entity-affiliated
parties.
Sec. 1231.2 Definitions.
The following definitions apply to the terms used in this part:
(a) Act means the Federal Housing Enterprises Financial Safety and
Soundness Act of 1992 (12 U.S.C. 4501 et seq.), as amended by the
Federal Housing Finance Regulatory Reform Act of 2008, enacted under
Division A of the HERA.
(b) Director means the Director of FHFA or his or her designee.
(c) Enterprise means the Federal National Mortgage Association and
the Federal Home Loan Mortgage Corporation (collectively, Enterprises)
and, except as provided by the Director, any affiliate thereof.
(d) Entity-affiliated party means--
(1) Any director, officer, employee, or controlling stockholder of,
or agent for, a regulated entity;
(2) Any shareholder, affiliate, consultant, or joint venture
partner of a regulated entity, and any other person, as determined by
the Director (by regulation or on a case-by-case basis) that
participates in the conduct of the affairs of a regulated entity,
provided that a member of a Bank shall not be deemed to have
participated in the affairs of that Bank solely by virtue of being a
shareholder of, and obtaining advances from, that Bank;
(3) Any independent contractor for a regulated entity (including
any attorney, appraiser, or accountant), if--
(i) The independent contractor knowingly or recklessly participates
in--
(A) Any violation of any law or regulation;
(B) Any breach of fiduciary duty; or
(C) Any unsafe or unsound practice; and
(ii) Such violation, breach, or practice caused, or is likely to
cause, more than a minimal financial loss to, or a significant adverse
effect on, the regulated entity;
(4) Any not-for-profit corporation that receives its principal
funding, on an ongoing basis, from any regulated entity; and
(5) The Office of Finance.
(e) Federal Home Loan Bank means a bank established under the
Federal Home Loan Act; the term ``Federal Home Loan Banks'' means,
collectively, all the Federal Home Loan Banks.
(f)(1) Golden parachute payment means any payment (or any agreement
to make any payment) in the nature of compensation by any regulated
entity for the benefit of any current entity-affiliated party pursuant
to an obligation of such regulated entity that--
(i) Is contingent on, or by its terms is payable on or after, the
termination of such party's primary employment or affiliation with the
regulated entity; and
(ii) Is received on or after the date on which--
(A) The regulated entity became insolvent;
(B) Any conservator or receiver is appointed for such regulated
entity; or
(C) The Director determines that the regulated entity is in a
troubled condition.
(2) The term ``golden parachute payment'' shall not include:
(i) Any payment made pursuant to a pension or retirement plan which
is qualified (or is intended within a reasonable period of time to be
qualified) under section 401 of the Internal Revenue Code of 1986 (26
U.S.C. 401) or pursuant to a pension or other retirement plan which is
governed by the laws of any foreign country;
(ii) Any payment made pursuant to a bona fide deferred compensation
plan or arrangement which the Director determines, by regulation or
order, to be permissible; or
(iii) Any payment made by reason of death or by reason of
termination caused by the disability of an entity-affiliated party.
(3) Any payment which would be a golden parachute payment but for
the fact that such payment was made before the date referred to in
paragraph (f)(1)(ii) shall be treated as a golden parachute payment if
the payment was made in contemplation of the occurrence of an event
described that paragraph.
(g) FHFA means the Federal Housing Finance Agency.
(h) HERA means the Housing and Economic Recovery Act of 2008,
Public Law No. 110-289, 122 Stat. 2654 (July 30, 2008).
(i) Office of Finance means the Office of Finance of the Federal
Home Loan Bank System (or any successor thereto).
(j) Regulated entity means the Federal National Mortgage
Association and any affiliate thereof; the Federal Home Loan Mortgage
Corporation and any affiliate thereof; or any Federal Home Loan Bank;
the term ``regulated entities'' means, collectively, the Federal
National Mortgage Association and any affiliate thereof; the Federal
Home Loan Mortgage Corporation and any affiliate thereof; and any
Federal Home Loan Bank.
(k) Troubled condition means a regulated entity that--
(1) Is subject to a cease-and-desist order or written agreement
issued by the FHFA that requires action to improve the financial
condition of the regulated entity or is subject to a proceeding
initiated by the Director, which contemplates the issuance of an order
that requires action to improve the financial condition of the
regulated entity, unless otherwise informed in writing by the FHFA; or
(2) Is informed in writing by the Director that it is in a troubled
condition for purposes of the requirements of this part on the basis of
the regulated entity's most recent report of examination or other
information available to the FHFA.
(l)-(n) [Reserved]
Sec. 1231.3 Golden parachute payments.
No regulated entity shall make or agree to make any golden
parachute payment except with the concurrence of the Director.
Sec. 1231.4 Indemnification payments.
No regulated entity shall make or agree to make any indemnification
payment except with the concurrence of the Director.
Sec. 1231.5 Factors to be taken into account.
In determining whether to prohibit or limit any golden parachute
payment or indemnification payment, the Director shall consider the
following factors--
(a) Whether there is a reasonable basis to believe that the entity-
affiliated party has committed any fraudulent act or omission, breach
of trust or fiduciary duty, or insider abuse with regard to the
regulated entity that has had a material effect on the financial
condition of the regulated entity;
(b) Whether there is a reasonable basis to believe that the entity-
affiliated party is substantially responsible for the insolvency of the
regulated entity, the appointment of a conservator or receiver for the
regulated entity, or the troubled condition of the regulated entity (as
defined in regulations prescribed by the Director);
(c) Whether there is a reasonable basis to believe that the entity-
affiliated party has materially violated any applicable provision of
Federal or State law or regulation that has had a material effect on
the financial condition of the regulated entity;
(d) Whether the entity-affiliated party was in a position of
managerial or fiduciary responsibility;
(e) The length of time that the party was affiliated with the
regulated entity, and the degree to which the payment
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reasonably reflects compensation earned over the period of employment
and the compensation involved represents a reasonable payment for
services rendered; and
(f) Any other factor the Director determines relevant to the facts
and circumstances surrounding the golden parachute or indemnification
payment, including but not limited to negligence, gross negligence,
neglect, willful misconduct, breach of fiduciary duty, and malfeasance
on the part of an entity-affiliated party.
Dated: September 11, 2008.
James B. Lockhart, III,
Director, Federal Housing Finance Agency.
[FR Doc. E8-21650 Filed 9-12-08; 11:15 am]
BILLING CODE 8070-01-P