[Federal Register Volume 73, Number 198 (Friday, October 10, 2008)]
[Proposed Rules]
[Pages 60198-60201]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-24043]


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FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1250

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of Federal Housing Enterprise Oversight

12 CFR Part 1773

RIN 2590-AA09


Flood Insurance

AGENCIES: Federal Housing Finance Agency; Office of Federal Housing 
Enterprise Oversight.

ACTION: Notice of proposed rulemaking; request for comments.

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SUMMARY: The Federal Housing Finance Agency (FHFA) is requesting public 
comments on issuance of a proposed Flood Insurance regulation. The 
proposed regulation would codify the authority and responsibility of 
FHFA 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 Flood Disaster Protection Act 
of 1973, as amended, and to effect congressionally mandated adjustments 
to the civil money penalties applicable to violations of that law.

DATES: Comments on the proposed regulation must be received in writing 
on or before December 9, 2008. For additional information, see 
SUPPLEMENTARY INFORMATION.

ADDRESSES: You may submit your comments on the proposed regulation, 
identified by regulatory information number (RIN) 2590-AA09, 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)), Attention: Comments/RIN 2590-AA09, 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), Attention: Comments/RIN 
2590-AA09, 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 may be sent by e-mail at [email protected]. Please 
include ``RIN 2590-AA09'' in the subject line of the message.

FOR FURTHER INFORMATION CONTACT: Andra Grossman, Counsel, telephone 
(202) 343-1313 (not a toll-free number); 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 proposed regulation, and will take all comments into 
consideration before issuing the final regulation. FHFA requests that 
comments submitted in hard copy also be 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 agency internet Web 
site at: https://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) 414-6924.

II. Background

A. Establishment of the Federal Housing Finance Agency

    The Housing and Economic Recovery Act of 2008 (HERA), Public Law 
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

[[Page 60199]]

Federal Government.\1\ The 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 (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 and such 
regulations are enforceable by the Director of FHFA until such 
regulations are modified, terminated, set aside, or superseded by the 
Director of FHFA.\2\
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    \2\ See sec. 1302 and sec. 1312 of HERA.
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B. Flood Insurance Responsibilities

    The National Flood Insurance Act of 1968 \3\ and the Flood Disaster 
Protection Act of 1973,\4\ as amended by the National Flood Insurance 
Reform Act of 1994 (NFIRA),\5\ together create a comprehensive National 
Flood Insurance Program that includes various provisions designed to 
ensure that structures built in flood plains are covered by statutory 
minimum amounts of flood insurance. The NFIRA has specific requirements 
explicitly applicable to the Enterprises.\6\ It originally designated 
OFHEO as the Federal agency responsible for determining compliance of 
the Enterprises' flood insurance responsibilities and provided OFHEO 
with the authority to issue any regulations necessary to carry out the 
applicable provisions of NFIRA.\7\ The NFIRA also 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.\8\
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    \3\ Codified at 42 U.S.C. 4001 et seq. and other scattered 
sections of 42 U.S.C.
    \4\ Codified at 42 U.S.C. 4002 et seq. and other scattered 
sections of 42 U.S.C.
    \5\ Title V of the Riegle Community Development and Regulatory 
Improvement Act of 1994, Public Law 103-325 (Sept. 23, 1994) 
(codified, as amended, at 42 U.S.C. 4001-4129, and other sections of 
the United States Code.
    \6\ 42 U.S.C. 4012a(b)(3).
    \7\ 42 U.S.C. 4001 note (Pub. L. 103-325, Title V, Sec. 583).
    \8\ 42 U.S.C. 4012a(f)(3).
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    Section 1161(e) of HERA amended section 102(f)(3)(A) of the Flood 
Disaster Protection Act of 1973, as amended (42 U.S.C. 4012a(f)(3)(a)), 
by replacing OFHEO with FHFA as the agency responsible for determining 
compliance of the Enterprises' flood insurance responsibilities. Thus, 
FHFA is proposing to issue a regulation to codify the authority and 
responsibility of FHFA to oversee and enforce the statutory 
requirements affecting the operations of the Enterprises under the 
Flood Disaster Insurance Act of 1973, as amended, and to effect 
congressionally mandated adjustments to the civil money penalties 
applicable to violations of that law. The proposed regulation, when 
published in its final form, would supersede the OFHEO Flood Insurance 
regulation, 12 CFR Part 1773.
    The Enterprises have a key role in the implementation of the 
Federal government's 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. 
More specifically, each Enterprise is required to 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.\9\
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    \9\ 42 U.S.C. 4012a(b)(3).
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C. Adjustment of Civil Money Penalties for Inflation

    The Flood Disaster Protection Act of 1973, as amended, 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.\10\ The proposed regulation would adjust the amounts 
of these civil money penalties in accordance with the requirements of 
the Federal Civil Penalties Inflation Adjustment Act of 1990, as 
amended by the Debt Collection Improvement Act of 1996 (Inflation 
Adjustment Act).\11\ The proposed increases in maximum civil money 
penalty amounts do not mandate the amount of any civil money penalty 
that FHFA may seek for a particular violation. FHFA would continue to 
determine each civil money penalty on a case-by-case basis in light of 
the circumstances of the case.
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    \10\ 42 U.S.C. 4012a(f)(3).
    \11\ 28 U.S.C. 2461 note.
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    The Inflation Adjustment Act requires Federal agencies that have 
authority to issue civil money penalties to issue regulations that 
adjust each civil money penalty 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.
    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 for All Urban Consumers (CPI-U) 
since the civil money penalties were last adjusted or established.
    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. When OFHEO 
issued the Flood Insurance regulation in 2001, the maximum civil money 
amounts of $350 (for each violation) and $100,000 (maximum annual 
amount for each Enterprise), found at 42 U.S.C. 4012a(f)(5), were 
adjusted to $385 and $110,000, respectively.\12\
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    \12\ 66 FR 65101 (Dec. 18, 2001); 12 CFR part 1773.
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    OFHEO did not subsequently adjust these civil money penalty 
amounts. Because FHFA is making this adjustment in calendar year 2008, 
the inflation amount for each civil money

[[Page 60200]]

penalty is calculated by comparing the CPI-U for June 2001 (178.00), 
the calendar year OFHEO last adjusted the civil money penalty, with the 
CPI-U for June 2007 (208.35), resulting in an inflation adjustment of 
17.05 percent. For each civil money penalty, the product of this 
inflation adjustment and the previous maximum penalty amount is then 
rounded in accordance with the specific requirements of the Inflation 
Adjustment Act and added to the previous maximum penalty amount to 
determine the new adjusted penalty amount.\13\ Accordingly, the civil 
money penalty maximum of $385 would be increased to $485 for each 
violation and the civil money penalty maximum of $110,000 would be 
increased to $130,000 for the total assessed penalties against any 
Enterprise during any calendar year. The increase would apply only to 
violations which occur after the date the increase takes effect.
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    \13\ The rounding rules of the Inflation Adjustment Act 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 $5,000 in the case of penalties greater than $200,000.
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III. Section-by-Section Analysis

Section 1250.1 Purpose

    This section provides that the purpose of the regulation as 
proposed is to set forth the responsibilities of the Enterprises under 
the Flood Disaster Protection Act of 1973, as amended (FDPA), and the 
procedures to be used by FHFA in any proceeding to assess civil money 
penalties against an Enterprise under FDPA.

Section 1250.2 Procedural Requirements

    Section 1250.2 would set forth the requirement that each Enterprise 
is to implement procedures reasonably designed to ensure that 
properties securing particular loans are properly insured in accordance 
with the National Flood Insurance Act of 1968. Consistent with 42 
U.S.C. 4012a(4), it also would set forth that that the procedures need 
apply only to loans made, increased, extended, or renewed after 
September 22, 1995. The proposed section further provides that the 
procedural requirements do 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.\14\
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    \14\ 42 U.S.C. 4012a(c)(2).
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Section 1250.3 Civil Money Penalties

    Section 1250.3 would set forth procedures under which the Director 
of FHFA may impose civil money penalties against an Enterprise. The 
Director of FHFA would assess a civil money penalty against an 
Enterprise determined by the Director to have a pattern or practice of 
purchasing loans in violation of the procedures established pursuant to 
Sec.  1250.2. The increase shall only apply to violations which occur 
after the date the increase takes effect.
    The proposed section also would set forth notice and hearing 
requirements prior to the imposition of civil money penalties. A civil 
money penalty may be issued only after notice and an opportunity for a 
hearing on the record has been provided.
    In addition, the proposed section would set 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 $485 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 $130,000 for total penalties.
    Furthermore, in accordance with 42 U.S.C. 4012a(f)(8), (9), and 
(10), Sec.  1250.3 would provide that--
    (1) 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,
    (2) Any civil money penalty would be in addition to any civil 
remedy or criminal penalty otherwise available, and
    (3) 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.

Regulatory Impact

Paperwork Reduction Act

    The proposed 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). The FHFA has considered the impact of the 
proposed regulation under the Regulatory Flexibility Act. The FHFA 
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.

List of Subjects

12 CFR Part 1250

    Government-sponsored enterprises, Flood insurance, Penalties, 
Reporting and Recordkeeping requirements.

12 CFR Part 1773

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

Authority and Issuance

    Accordingly, for the reasons stated in the preamble, under the 
authority of 12 U.S.C. 4526, the Federal Housing Finance Agency 
proposes to amend chapters XII and XVII of Title 12, Code of Federal 
Regulations, as follows:

CHAPTER XII--FEDERAL HOUSING FINANCE AGENCY

    1. Add Subchapter C, consisting of part 1250 to read as follows:

Subchapter C--Enterprises

PART 1250--FLOOD INSURANCE

Sec.
1250.1 Purpose.
1250.2 Procedural requirements.
1250.3 Civil money penalties.

    Authority: 12 U.S.C. 4521(a)(4) and 4526; 28 U.S.C. 2461 note; 
42 U.S.C. 4001 note; 42 U.S.C. 4012a(f)(3), (4), (5), (8), (9), and 
(10).


Sec.  1250.1  Purpose.

    The purpose of this part is to set forth the responsibilities of 
the Federal National Mortgage Association and the Federal Home Loan 
Mortgage Corporation (Enterprise) under the Flood Disaster Protection 
Act of 1973, as amended, (42 U.S.C. 4002 et seq.) and the procedures to 
be used by the Federal Housing Finance Agency (FHFA) in any proceeding 
to assess civil money penalties against an Enterprise.

[[Page 60201]]

Sec.  1250.2  Procedural requirements.

    (a) Procedures. An 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 National Flood Insurance Act of 1968 (42 U.S.C. 
4001 et seq.), and purchased by the Enterprise, 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 National Flood Insurance Act of 1968.
    (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.  1250.3  Civil Money Penalties.

    (a) In general. If an Enterprise is determined by the Director of 
FHFA, or his or designee, to have a pattern or practice of purchasing 
loans in violation of the procedures established pursuant to Sec.  
1250.2, the Director of FHFA, or his or her designee, 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 to the Enterprise.
    (c) Amount. The maximum civil money penalty amount is $385 for each 
violation that occurs before the effective date of this part, with 
total penalties not to exceed $110,000. For violations that occur on or 
after the effective date of this part, the civil money penalty under 
this section may not exceed $485 for each violation, with total 
penalties assessed under this section against an Enterprise during any 
calendar year not to exceed $130,000.
    (d) Deposit of penalties. Any penalties under this section shall be 
paid into the National Flood Mitigation Fund in accordance with section 
1367 of the National Flood Insurance Act of 1968 (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.

CHAPTER XVII--OFFICE OF FEDERAL HOUSING ENTERPRISE OVERSIGHT, 
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

PART 1773--[REMOVED]

    2. Remove part 1773.

    Dated: October 1, 2008.
James B. Lockhart III,
Director, Federal Housing Finance Agency.
[FR Doc. E8-24043 Filed 10-9-08; 8:45 am]
BILLING CODE 8070-01-P