[Federal Register Volume 75, Number 73 (Friday, April 16, 2010)]
[Proposed Rules]
[Pages 19909-19915]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-8649]


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 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. 75, No. 73 / Friday, April 16, 2010 / 
Proposed Rules  

[[Page 19909]]



FEDERAL HOUSING FINANCE AGENCY

5 CFR Chapter LXXX

RINs 2590-AA02, 3209-AA15


Supplemental Standards of Ethical Conduct for Employees of the 
Federal Housing Finance Agency

AGENCY: Federal Housing Finance Agency.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Housing Finance Agency (FHFA) is issuing and 
seeking comment on a proposed regulation, with the concurrence of the 
Office of Government Ethics, which would supplement the Standards of 
Ethical Conduct for Employees of the Executive Branch. To ensure a 
comprehensive and effective ethics program at FHFA and to address 
ethical issues unique to FHFA, the proposed regulation would establish 
prohibitions on the ownership of certain financial interests and 
restrictions on outside employment and business activities.

DATES: Comments regarding the notice of proposed rulemaking must be 
received on or before May 17, 2010. For additional information, see 
SUPPLEMENTARY INFORMATION.

ADDRESSES: You may submit your comments on the proposed rulemaking, 
identified by ``RIN 2590-AA02,'' by any of the following methods:
     U.S. Mail, United Parcel Service, Federal Express, or 
Other Mail Service: The mailing address for comments is: Alfred M. 
Pollard, General Counsel; Attention: Comments/RIN 2590-AA02, Federal 
Housing Finance Agency, Fourth Floor, 1700 G Street, NW., Washington, 
DC 20552.
     Hand Delivery/Courier: The hand delivery address is: 
Alfred M. Pollard, General Counsel; Attention: Comments/RIN 2590-AA02, 
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, 
may be sent by e-mail at [email protected]. Please include ``RIN 
2590-AA02'' in the subject line of the message.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.

FOR FURTHER INFORMATION CONTACT: Isabella Sammons, Deputy General 
Counsel, telephone (202) 414-3790 (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 comment on all 
aspects of the proposed regulation, and will take all relevant comments 
into consideration before issuing the final regulation.
    Copies of all comments will be posted on the FHFA internet Web site 
at http://www.fhfa.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 at (202) 414-3751.

II. Background

    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.) 
(Safety and Soundness Act), and the Federal Home Loan Bank Act (12 
U.S.C. 1421-1449) 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 Safety and 
Soundness Act and rules, regulations, guidelines and orders issued by 
the Director of FHFA, and the respective authorizing statutes of the 
regulated entities; and carry out their missions through activities 
authorized and consistent with the Safety and Soundness 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, Sec.  1101 of HERA.
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    The Office of Federal Housing Enterprise Oversight (OFHEO) and the 
Federal Housing Finance Board (FHFB) were 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 sections 1302 and 1312 of HERA.
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    Executive Order 12674, as amended by Executive Order 12731, 
authorized the United States Office of Government Ethics (OGE) to 
establish a single, comprehensive and clear set of executive-branch 
standards of conduct. On August 7, 1992, OGE published the Standards of 
Ethical Conduct for Employees of the Executive Branch (Standards).\3\ 
Codified at 5 CFR part 2635, the Standards took effect on February 3, 
1993, and established uniform standards of ethical conduct for all 
executive branch employees.
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    \3\ See 57 FR 35006-35067, as corrected at 57 FR 48557 and 57 FR 
52583, with additional grace period extensions at 59 FR 4779-4780, 
60 FR 6390-6391, 60 FR 66857-66858 and 61 FR 40950-40952.
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    With the concurrence of OGE, 5 CFR 2635.105 authorizes executive 
branch agencies to publish agency-specific supplemental regulations 
necessary to implement their respective ethics programs. The FHFA, with 
the concurrence of OGE, has determined that the following supplemental 
rules contained in the proposed regulation, which would add a new 5 CFR 
chapter LXXX, consisting of part 9001, are necessary to implement 
successfully the ethics program of FHFA in light of the

[[Page 19910]]

unique programs and operations of FHFA.

III. Section-by-Section Analysis

    The following is a section by section analysis of the proposed 
regulation.

Section 9001.101 General

    Proposed Sec.  9001.101 explains that the proposed regulation would 
apply to all employees of FHFA and would supplement the Standards found 
in 5 CFR part 2635. It would also require that employees of FHFA must 
comply with the Standards, this part, guidance, and procedures 
established pursuant to this part, and any additional rules of conduct 
that FHFA is authorized to issue. It also notes that employees should 
contact the Designated Agency Ethics Official (DAEO) if they have 
questions about any provision of this regulation or other ethics-
related matters.
    The proposed section also contains cross-references to other 
executive branch ethics regulations and a subsequent employment 
restriction of section 1317D of the Safety and Soundness Act, 12 U.S.C. 
4523, applicable to certain highly compensated former FHFA officers and 
employees, including the FHFA Director, along with an annual employee 
notification requirement as to that statutory restriction. Section 
1317D prohibits such highly compensated former FHFA officers and 
employees, and the Director, from accepting compensation from an 
enterprise under section 1317D of the Safety and Soundness Act for two 
years after leaving FHFA.

Section 9001.102 Definitions

    Proposed Sec.  9001.102 defines the key terms used in the proposed 
regulation.
    Affiliate would be defined as any entity that controls, is 
controlled by, or is under common control with another entity.
    Designated Agency Ethics Official, or DAEO, as also used in 5 CFR 
part 2635, and ``alternate DAEO'' would be defined as the individuals 
so designated by the Director, FHFA. The DAEO is responsible for 
designating agency ethics officials and ethics designees, as such terms 
are used in 5 CFR part 2635. As proposed, the alternate DAEO would act 
as the DAEO in the DAEO's absence.
    Director would be defined as the Director of FHFA or his or her 
designee.
    Employee would be defined as an officer or employee of FHFA, 
including a special Government employee. For purposes of this part, it 
also would be defined as an individual on detail from another agency to 
FHFA for a period of more than 30 days.
    Enterprise would be defined as the Federal National Mortgage 
Association or the Federal Home Loan Mortgage Corporation.
    Federal Home Loan Bank or Bank would be defined as a Bank 
established under the Federal Home Loan Bank Act; the term ``Federal 
Home Loan Banks'' means, collectively, all the Federal Home Loan Banks.
    Federal Home Loan Bank System would be defined as the Federal Home 
Loan Banks under the supervision of FHFA.
    Regulated entity would be defined as 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 the 
Federal Home Loan Banks.
    Safety and Soundness Act would be defined to mean the Federal 
Housing Enterprises Financial Safety and Soundness Act of 1992 (12 
U.S.C. 4501 et seq.), as amended by the Housing and Economic Recovery 
Act of 2008 (HERA), Public Law 110-289, 122 Stat. 2654 (2008).
    Security would be defined as all interests in debt or equity 
instruments. The term includes, without limitation, secured and 
unsecured bonds, debentures, notes, securitized assets and commercial 
paper including loans securitized by mortgages or deeds of trust and 
securities backed by such instruments, as well as all types of 
preferred and common stock. The term encompasses current and contingent 
ownership interests including any beneficial or legal interest derived 
from a trust. Such interest includes any right to acquire or dispose of 
any long or short position in such securities and also includes, 
without limit, interests convertible into such securities, as well as 
options, rights, warrants, puts, calls and straddles with respect 
thereto. The term shall not, however, be construed to include deposit 
accounts, such as checking, savings, or money market deposit accounts.

Section 9001.103 Waivers

    Proposed Sec.  9001.103 would authorize the DAEO to grant employees 
of FHFA written waivers of any provision of the proposed FHFA 
regulation based upon a determination that the waiver will not result 
in conduct inconsistent with 5 CFR part 2635 or otherwise prohibited by 
law, and that application of the provision would not be necessary to 
ensure public confidence in the impartiality and objectivity with which 
the programs of FHFA are administered. In granting a waiver under 
proposed Sec.  9001.103, the DAEO may require the employee to take 
further action, including executing a written disqualification 
statement. This proposed provision is intended, in appropriate cases, 
to ease the burden that these supplemental regulations as proposed 
would impose on employees of FHFA while ensuring that employees do not 
engage in actions or hold financial interests that may interfere with 
the objective and impartial performance of their official duties.

Section 9001.104 Prohibited Financial Interests

    Proposed Sec.  9001.104(a) would prohibit FHFA employees and the 
employees' spouse and minor children from owning or controlling certain 
financial interests that are related to or affected by the operations 
of FHFA, such as securities owned, issued, guaranteed, securitized, or 
collateralized by the regulated entities. This prohibition would not 
apply to special Government employees.\4\ The prohibition of proposed 
Sec.  9001.104(a) is based on the view of FHFA that permitting FHFA 
employees and their spouse and minor children directly or indirectly to 
own or control securities owned, issued, guaranteed, securitized, or 
collateralized by the regulated entities would cause a reasonable 
person to question the impartiality with which FHFA programs are 
administered. Specifically, FHFA believes that there is a direct and 
appropriate nexus between the prohibition against owning or controlling 
such securities as applied both to employees and to the spouses and 
minor children of employees and the efficiency of the service.
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    \4\ The term ``special Government employee'' is defined in 5 CFR 
2635.102 to mean ``those executive branch officers or employees 
specified in 18 U.S.C. 202(a). A special Government employee is 
retained, designated, appointed, or employed to perform temporary 
duties either on a full-time or intermittent basis, with or without 
compensation, for a period not to exceed 130 days during any 
consecutive 365-day period.''
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    In addition, while Federal conflict of interest statutes and the 
Standards prohibit an employee of FHFA from participating in matters in 
which the employee or the employee's spouse or minor children have a 
conflicting financial interest, FHFA has determined that a broader ban 
would be more effective in ensuring that no reasonable

[[Page 19911]]

person could question the impartiality and objectivity of the agency's 
actions. The broader ban of Sec.  9001.104(a) establishes a clear 
prohibition that will be easily understood by observers of FHFA.
    Moreover, the proposed prohibition would substantially reduce the 
burden on the FHFA and FHFA employees to determine the scope of the 
prohibition for each employee. By promulgating a broad ban that 
excludes all securities owned, issued, guaranteed, securitized, or 
collateralized by the regulated entities, proposed Sec.  9001.104(a) 
would substantially reduce the need for FHFA employees, the DAEO, and 
other agency ethics officials or counselors to determine the financial 
interests prohibited by each employee's duties. The proposed rule 
should be easier for FHFA to implement and for employees to follow.
    Proposed Sec.  9001.104(b) also would attribute to an FHFA 
employee, or to the employee's spouse and minor children, securities he 
or she would be prohibited from holding directly by Sec.  9001.104(a) 
that are held by certain described third-party entities.
    Proposed Sec.  9001.104(c) would permit an FHFA employee and the 
employee's spouse and minor children to own interests in publicly-
traded or publicly-available diversified mutual or other collective 
diversified investment funds that contain within their portfolios 
interests that they would be prohibited from holding by proposed Sec.  
9001.104(c). Under this provision, ownership of such investment funds 
would be permitted as long as the employee or the employee's spouse or 
minor children do not have the ability to control the fund or its 
portfolio, and the fund does not have an objective or practice of 
concentrating its investments in securities of a regulated entity or 
the regulated entities generally, and less than 25 percent of the total 
holdings of the fund are comprised of securities owned, issued, 
guaranteed, securitized, or collateralized by one or more regulated 
entities.
    This exception to proposed Sec.  9001.104(a) reflects the view of 
FHFA that the prohibition on owning or controlling securities of the 
regulated entities should not be extended to publicly-traded or 
publicly-available mutual funds or other collective investment funds 
that are diversified and over which employees have no control, since it 
would be unreasonable to require employees to divest themselves of such 
mutual funds based on investment decisions in which they played no 
role. FHFA believes that allowing an FHFA employee and the employee's 
spouse and minor children to own interests in publicly-traded or 
publicly-available diversified mutual funds and collective investment 
funds would not endanger the impartiality or objectivity of FHFA, even 
if these funds held some limited interest in securities owned, issued, 
securitized, guaranteed, or collateralized by one or more of the 
regulated entities.
    Proposed Sec.  9001.104(d) would require new employees of FHFA, 
within 30 days of commencing employment, to provide to the DAEO in 
writing all financial interests acquired prior to the commencement of 
their employment with FHFA that they are prohibited from holding by 
Sec.  9001.104(a). Employees would be required to divest such 
interests, within 90 days of the date reported, unless they receive a 
written waiver from the DAEO in accordance with Sec.  9001.103. The 
proposed section would impose a similar reporting and divestiture 
requirement upon employees who acquire, without specific intent, 
financial interests prohibited by Sec.  9001.104(a).

Section 9001.105 Outside Employment

    The proposed regulation is designed to balance several important 
ethical principles against an employee's right to engage in outside 
activities. Paragraph (a) of the proposed section would prohibit an 
FHFA employee, except for a special Government employee, from engaging 
in paid or unpaid employment with (1) a person, other than a State or 
local government, who is a registered lobbyist engaged in lobbying 
activities concerning the FHFA programs; (2) any regulated entity, or 
(3) the Office of Finance of the Federal Home Loan Bank System. FHFA is 
of the view that such a policy against active participation in such 
businesses is necessary to protect against questions regarding the 
impartiality and objectivity of employees and the administration of the 
programs of FHFA. FHFA believes that it would hinder FHFA in meeting 
its missions if members of the public could question whether employees 
are using their public positions or connections at FHFA to advance 
alternate careers.
    Furthermore, in accordance with 5 CFR 2635.803, FHFA is of the view 
that it is necessary or desirable for the purpose of administering its 
ethics program to require FHFA employees to obtain approval before 
engaging in outside employment or activities. An approval requirement 
would help to ensure that potential ethical problems are resolved 
before employees begin outside employment or activities that could 
involve a violation of applicable statutes and standards of conduct.
    Thus, proposed Sec.  9001.105(b) would provide that an FHFA 
employee, other than a special Government employee, must obtain advance 
written approval from the employee's supervisor and the concurrence of 
the DAEO before engaging in any outside employment. Proposed paragraph 
(c) to Sec.  9001.105 broadly defines outside employment to cover any 
form of non-Federal employment or business relationship involving the 
provision of personal services, whether or not for compensation, other 
than in the discharge of official duties. It also includes writing when 
done under an arrangement with another person or entity for production 
or publication of the written product. It does not, however, include 
participation in the activities of nonprofit charitable, religious, 
professional, social, fraternal, educational, recreational, public 
service, or civic organizations, unless such activities are for 
compensation other than reimbursement of expenses, the organization's 
activities are devoted substantially to matters relating to the 
employee's official duties as defined in 5 CFR 2635.807(a)(2)(i)(B) 
through (E) and the employee will serve as officer or director of the 
organization, or the activities will involve the provision of 
consultative or professional services. Consultative services is 
proposed to mean the provision of personal services by an employee, 
including the rendering of advice or consultation, which requires 
advanced knowledge in a field of science or learning customarily 
acquired by a course of specialized instruction and study in an 
institution of higher education, hospital, or similar facility. 
Professional services is proposed to mean the provision of personal 
services by an employee, including the rendering of advice or 
consultation, which involves application of the skills of a profession 
as defined in 5 CFR 2636.305(b)(1) or involves a fiduciary relationship 
as defined in 5 CFR 2636.305(b)(2).
    A note following proposed paragraph (c) of Sec.  9001.105 pertains 
to the special approval requirement set out in both 18 U.S.C. 203(d) 
and 205(e), respectively, for certain representational activities 
otherwise covered by the conflict of interest restrictions on 
compensation and activities of employees in claims against and other 
matters affecting the Government. The note, as proposed, explains that 
an employee who wishes to act as agent or attorney for, or otherwise 
represent his or her parents, spouse, children, or any person for whom, 
or any estate for which, he or she is serving as guardian, executor,

[[Page 19912]]

administrator, trustee, or other personal fiduciary in such matters 
must obtain the approval required by law of the Government official 
responsible for the employee's appointment in addition to the 
regulatory approval that would be required in proposed Sec.  9001.105.
    As proposed, Sec.  9001.105(d) sets out the procedures for 
requesting prior approval to engage in outside employment initially, or 
within seven calendar days of a significant change in the nature or 
scope of the outside employment or the employee's official position. 
Proposed paragraph (e) of Sec.  9001.105 would provide that approval 
would be granted only upon a determination that the outside employment 
is not expected to involve conduct prohibited by statute or Federal 
regulation, including 5 CFR part 2635 and this proposed part.
    Proposed Sec.  9001.105(f) would provide that the DAEO may issue 
written instructions governing the submission of requests for approval 
of outside employment, which may exempt categories of employment from 
the prior approval requirement based on a determination that employment 
within those categories would generally be approved and would likely 
not involve conduct prohibited by Federal law or regulation, including 
5 CFR part 2635 and this proposed part.

Section 9001.106 Restrictions Resulting From Employment of Family and 
Household Members

    Proposed Sec.  9001.106 would prohibit an employee of FHFA from 
participating in any matter in which a regulated entity is a party if 
the regulated entity employs, as an employee or consultant, his or her 
spouse, child, parent, or sibling, or member of his or her household 
unless the DAEO has authorized the employee to participate in the 
matter using the standard in 5 CFR 2635.502(d). Proposed Sec.  9001.106 
would require such an employee to make a written report to the DAEO 
within 30 days of the employment by a regulated entity of the 
employee's spouse, child, parent, sibling, or member of his or her 
household. This requirement is intended to eliminate the potential for 
any appearance of preferential treatment in those instances where 
employment of a family member or a member of the employee's household 
would be likely to raise questions regarding the appropriateness of 
actions taken by the employee or FHFA.

Section 9001.107 Other Limitations

    Proposed Sec.  9001.107(a) would reference the statutory 
restriction on financial interests applicable to the Director, the 
Deputy Director of the Division of Enterprise Regulation, the Deputy 
Director of the Division of Federal Home Loan Bank Regulation, and the 
Deputy Director for Housing Mission and Goals. These individuals are 
subject to additional financial interest limitations set forth in 
section 1312(g) of the Safety and Soundness Act (12 U.S.C. 4512(g)). 
Section 1312(g) provides that the Director and each Deputy Director may 
not--
    (1) Have any direct or indirect financial interest in any regulated 
entity or entity-affiliated party; \5\
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    \5\ The term ``entity-affiliated party'' is defined in section 
1301(11) of the Safety and Soundness Act (12 U.S.C. 4502(11)).
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    (2) Hold any office, position, or employment in any regulated 
entity or entity-affiliated party; or
    (3) Have served as an executive officer or director of any 
regulated entity or entity-affiliated party at any time during the 3-
year period preceding the date of appointment or designation of such 
individual as Director or Deputy Director, as applicable.
    Proposed paragraph (b) of Sec.  9001.107 would provide that if an 
employee or the spouse or minor children of the employee directly or 
indirectly owns a financial interest in a member of a Bank or in a 
financial institution such as a mortgage bank, mortgage broker, bank, 
thrift, or other financial institution that originates, insures, or 
services mortgages that are owned, issued, guaranteed, securitized, or 
collateralized by a regulated entity, the employee is cautioned not to 
violate the statutory prohibition against financial conflicts of 
interest set forth in 18 U.S.C. 208. The proposed language would note 
that the government-wide de minimis and other exceptions set forth in 5 
CFR 2640.202 are applicable to the ownership or control of interests in 
such financial institutions. Employees are encouraged to seek a 
determination from the DAEO as to whether the financial interest in the 
member of a Bank or in the financial institution creates a financial 
conflict of interest or an appearance of a conflict of interest and 
whether the employee should disqualify himself or herself from 
participating in an official capacity in a particular matter involving 
the financial institution.

Section 9001.108 Prohibited Recommendations

    Proposed Sec.  9001.108 would prohibit an employee of FHFA from 
recommending, suggesting, or giving advice to any person with respect 
to financial transactions or investment actions involving the 
acquisition, sale, or divestiture of securities of a regulated entity. 
The Standards at 5 CFR 2635.703 prohibit an employee from allowing the 
improper use of nonpublic information to further his or her private 
interest or that of another, whether through advice or recommendation 
or by knowing unauthorized disclosure. The proposed section would 
supplement 5 CFR 2635.703 in that the section expressly would prohibit 
FHFA employees from using or creating the appearance of using 
information that is not available to the general public to further a 
private interest. The proposed prohibition is also intended to 
eliminate any misunderstanding or harm that could result from such a 
recommendation. For example, an investor should not be misled into 
believing, pursuant to the recommendation of an FHFA employee, that the 
securities of a particular regulated entity regulated by FHFA is a 
sound buy because the investor believes that the employee may have 
access to inside information.

Section 9001.109 Prohibited Purchase of Assets

    Proposed Sec.  9001.109 would prohibit employees, the spouses of 
employees and the minor children of employees of FHFA from purchasing 
real or personal property from the regulated entities unless it is sold 
at public auction or by other means that would ensure that the selling 
price of the property is the asset's fair market value. It is proposed 
as a supplement to the general prohibition in 5 CFR 2635.702 against 
the use of public office for private gain.

Regulatory Impacts

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 does 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 
proposed regulation under the Regulatory

[[Page 19913]]

Flexibility Act. FHFA certifies that the proposed 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 
employees of FHFA.

List of Subjects in 5 CFR Part 9001

    Administration, Conflicts of interest, Ethics, Government 
employees.

    Accordingly, for the reasons stated in the preamble, FHFA, with the 
concurrence of OGE, is proposing to amend title 5 of the Code of 
Federal Regulations by adding a new chapter LXXX, consisting of part 
9001, to read as follows:

CHAPTER LXXX--FEDERAL HOUSING FINANCE AGENCY

PART 9001--SUPPLEMENTAL STANDARDS OF ETHICAL CONDUCT FOR EMPLOYEES 
OF THE FEDERAL HOUSING FINANCE AGENCY

Sec.
9001.101 General.
9001.102 Definitions.
9001.103 Waivers.
9001.104 Prohibited financial interests.
9001.105 Outside employment.
9001.106 Restrictions resulting from employment of family and 
household members.
9001.107 Other limitations.
9001.108 Prohibited recommendations.
9001.109 Prohibited purchase of assets.

    Authority: 5 U.S.C. 7301; 5 U.S.C. App. (Ethics in Government 
Act of 1978); 12 U.S.C. 4526; E.O. 12674, 54 FR 15159; 3 CFR, 1989 
Comp., p. 215, as modified by E.O. 12731, 55 FR 42547; 3 CFR, 1990 
Comp., p. 306; 5 CFR 2635.105, 2635.402(c), 2635.403(a), 
2635.502(e), 2635.604, 2635.702, 2635.703, 2635.802(a), 2635.803.


Sec.  9001.101  General.

    (a) Purpose and scope. In accordance with 5 CFR 2635.105, the 
purpose of this regulation is to supplement the Standards of Ethical 
Conduct for Employees of the Executive Branch contained in 5 CFR part 
2635. The regulation applies to employees of the Federal Housing 
Finance Agency (FHFA). Employees are required to comply with 5 CFR part 
2635, this part, guidance and procedures established pursuant to this 
part, and any additional rules of conduct that the FHFA is authorized 
to issue. Employees should contact the DAEO if they have questions 
about any provision of this regulation or other ethics-related matters.
    (b) Cross-references--(1) Regulations. FHFA employees are also 
subject to the regulations concerning executive branch financial 
disclosure contained in 5 CFR part 2634, the regulations concerning 
executive branch financial interests contained in 5 CFR part 2640, and 
the regulations concerning executive branch employee responsibilities 
and conduct contained in 5 CFR part 735.
    (2)(i) Statutory restriction. Section 1319D of the Act, 12 U.S.C. 
4523, prohibits the Director or any former officer or employee of the 
FHFA who, while employed by the FHFA, was compensated at a rate in 
excess of the lowest rate for a position classified higher than GS-15 
of the General Schedule under section 5107 of title 5, United States 
Code, from accepting compensation from an enterprise during the two-
year period beginning on the date of his or her separation from 
employment by the FHFA.
    (ii) Notice to employees. The DAEO shall notify employees on an 
annual basis of the rate of compensation that triggers the subsequent 
employment restriction.


Sec.  9001.102  Definitions.

    For purposes of this part, the term:
    Affiliate means any entity that controls, is controlled by, or is 
under common control with another entity.
    Designated Agency Ethics Official, or DAEO, as also used in 5 CFR 
part 2635, and ``alternate DAEO'' mean the individuals so designated by 
the Director, FHFA. The DAEO is responsible for designating agency 
ethics officials and ethics designees, as such terms are used in 5 CFR 
part 2635. The alternate DAEO acts as the DAEO in the DAEO's absence.
    Director means the Director of FHFA or his or her designee.
    Employee means an officer or employee of FHFA, including a special 
Government employee. For purposes of this part, it also means an 
individual on detail from another agency to FHFA for a period of more 
than 30 days.
    Enterprise means the Federal National Mortgage Association or the 
Federal Home Loan Mortgage Corporation.
    Federal Home Loan Bank or Bank means a Bank established under the 
Federal Home Loan Bank Act; the term ``Federal Home Loan Banks'' means, 
collectively, all the Federal Home Loan Banks.
    Federal Home Loan Bank System means the Federal Home Loan Banks 
under the supervision of the Federal Housing Finance Agency.
    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 the Federal Home 
Loan Banks.
    Safety and Soundness Act means the Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501 et seq.), as 
amended by the Housing and Economic Recovery Act of 2008 (HERA), Public 
Law 110-289, 122 Stat. 2654 (2008).
    Security means all interests in debt or equity instruments. The 
term includes, without limitation, secured and unsecured bonds, 
debentures, notes, securitized assets and commercial paper including 
loans securitized by mortgages or deeds of trust and securities backed 
by such instruments, as well as all types of preferred and common 
stock. The term encompasses current and contingent ownership interests 
including any beneficial or legal interest derived from a trust. Such 
interest includes any right to acquire or dispose of any long or short 
position in such securities and also includes, without limit, interests 
convertible into such securities, as well as options, rights, warrants, 
puts, calls and straddles with respect thereto. The term shall not, 
however, be construed to include deposit accounts, such as checking, 
savings, or money market deposit accounts.


Sec.  9001.103  Waivers.

    (a) General. The DAEO may waive any provision of this part upon 
finding that the waiver will not result in conduct inconsistent with 5 
CFR part 2635 or otherwise prohibited by law, and that application of 
the provision is not necessary to ensure public confidence in the 
impartiality and objectivity with which the programs of the FHFA are 
administered. Each waiver shall be in writing and supported by a 
statement of the facts and findings upon which it is based and may 
impose appropriate conditions, including but not limited to requiring 
the employee to execute a written disqualification statement or an 
agreement not to acquire additional securities.
    (b) Waiver of prohibitions relating to ownership or control of 
securities. The DAEO may grant a waiver permitting the employee or the 
employee's spouse or minor children to own or control, directly or 
indirectly, any security prohibited under Sec.  9001.104, if, in 
addition to the standards under paragraph (a) of this section:
    (1) Extenuating circumstances exist, such as ownership or control 
of the security was acquired:
    (i) Prior to employment with FHFA;
    (ii) Through inheritance, gift, merger, acquisition, or other 
change in corporate structure, or otherwise without specific

[[Page 19914]]

intent on the part of the employee, or employee's spouse or minor 
children, to acquire the security; or
    (iii) By an employee's spouse or minor children as part of a 
compensation package in connection with employment or prior to marriage 
to the employee;
    (2) The amount of the prohibited financial interest has a market 
value of less than the de minimis amount set forth in 5 CFR 
2640.202(a);
    (3) The employee makes a prompt and complete written disclosure of 
the interest; and
    (4) If the employee is required to disqualify himself or herself 
from certain assignments, the disqualification does not unduly 
interfere with the full performance of the employee's duties.


Sec.  9001.104  Prohibited financial interests.

    (a) General prohibition. This section applies to all employees, 
except special Government employees. Except as permitted in paragraph 
(c) of this section, an employee or an employee's spouse or minor 
children, shall not directly or indirectly own or control securities 
owned, issued, guaranteed, securitized, or collateralized by a 
regulated entity.
    (b) Restrictions arising from third-party relationships. If any of 
the entities listed in paragraphs (b)(1) through (6) of this section 
owns securities that an employee would be prohibited from owning 
directly by paragraph (a) of this section, the employee is deemed to 
hold the securities indirectly. The entities are--
    (1) A partnership in which the employee or employee's spouse or 
minor children are general partners;
    (2) A partnership in which the employee or employee's spouse or 
minor children individually or jointly hold more than a 10 percent 
limited partnership interest;
    (3) A closely held corporation in which the employee or employee's 
spouse or minor children individually or jointly hold more than a 10 
percent equity interest;
    (4) A trust in which the employee or employee's spouse or minor 
children have a legal or beneficial interest;
    (5) An investment club or similar informal investment arrangement 
between the employee or employee's spouse or minor children and others; 
or
    (6) Any other entity in which the employee or employee's spouse or 
minor children individually or jointly hold more than a 10 percent 
equity interest.
    (c) Exceptions to prohibition for certain interests. 
Notwithstanding paragraphs (a) and (b) of this section, an employee or 
an employee's spouse or minor children may directly or indirectly own 
or control:
    (1) A security for which a waiver has been granted pursuant to 
Sec.  9001.103; and
    (2) An interest in a publicly-traded or publicly-available 
diversified mutual fund or other collective diversified investment 
fund, including a widely-held pension or other retirement fund if:
    (i) Neither the employee, the employee's spouse, nor the employee's 
minor children exercise or have the ability to exercise control over 
the financial interests held by the fund; and
    (ii) The fund does not indicate in its prospectus the objective or 
practice of concentrating its investments in securities of a regulated 
entity or regulated entities generally, and less than 25 percent of the 
total holdings of the fund are comprised of securities owned, issued, 
guaranteed, securitized, or collateralized by one or more regulated 
entities.
    (d) Reporting and divestiture. An employee must provide, in 
writing, to the DAEO any financial interest prohibited under paragraph 
(a) of this section acquired prior to the commencement of employment 
with the FHFA or without specific intent, as through gift, inheritance, 
or marriage, within 30 days from the start of employment or acquisition 
of such interest. Such financial interest must be divested within 90 
days from the date reported unless a waiver is granted in accordance 
with Sec.  9001.103.


Sec.  9001.105  Outside employment.

    (a) Prohibited outside employment. Employees, except special 
Government employees, shall not engage in:
    (1) Employment with a person or entity, other than a State or local 
government, that is registered as a lobbyist under the Lobbying 
Disclosure Act of 1995 (2 U.S.C. chapter 26) and engages in lobbying 
activities concerning the FHFA programs; or
    (2) Employment with any regulated entity or with the Office of 
Finance of the Federal Home Loan Bank System.
    (b) Prior approval for other outside employment. Before engaging in 
any outside employment that is not prohibited under paragraph (a) of 
this section, with or without compensation, an employee of the FHFA, 
other than a special Government employee, must obtain written approval 
from the employee's supervisor and the concurrence of the DAEO. 
Nonetheless, special Government employees remain subject to other 
statutory and regulatory provisions governing their outside activities, 
including 18 U.S.C. 203(c) and 205(c), as well as applicable provisions 
of 5 CFR part 2635.
    (c) Definition of outside employment. For purposes of paragraph (b) 
of this section, outside employment means any form of non-Federal 
employment or business relationship involving the provision of personal 
services, whether or not for compensation. It includes, but is not 
limited to, services as an officer, director, employee, agent, advisor, 
attorney, consultant, contractor, general partner, trustee, teacher, or 
speaker. It includes writing when done under an arrangement with 
another person or entity for production or publication of the written 
product. The definition does not include positions as trustee for a 
family trust for which the only beneficiaries are the employee, the 
employee's spouse, the employee's minor or dependent children, or any 
combination thereof. The definition also does not include participation 
in the activities of a nonprofit charitable, religious, professional, 
social, fraternal, educational, recreational, public service or civic 
organization, unless:
    (1) The employee will receive compensation other than reimbursement 
of expenses;
    (2) The organization's activities are devoted substantially to 
matters relating to the employee's official duties as defined in 5 CFR 
2635.807(a)(2)(i)(B) through (E) and the employee will serve as officer 
or director of the organization; or
    (3) The activities will involve the provision of consultative or 
professional services. Consultative services means the provision of 
personal services by an employee, including the rendering of advice or 
consultation, which requires advanced knowledge in a field of science 
or learning customarily acquired by a course of specialized instruction 
and study in an institution of higher education, hospital, or similar 
facility. Professional services means the provision of personal 
services by an employee, including the rendering of advice or 
consultation, which involves application of the skills of a profession 
as defined in 5 CFR 2636.305(b)(1) or involves a fiduciary relationship 
as defined in 5 CFR 2636.305(b)(2).

    Note to Sec.  9001.105(c):  There is a special approval 
requirement set out in both 18 U.S.C. 203(d) and 205(e), 
respectively, for certain representational activities otherwise 
covered by the conflict of interest restrictions on compensation and 
activities of employees in claims against and other matters 
affecting the Government. Thus, an employee who wishes to act as 
agent or attorney for, or otherwise represent his or her parents, 
spouse, children, or any person for whom, or any estate for which, 
he or she is serving as

[[Page 19915]]

guardian, executor, administrator, trustee, or other personal 
fiduciary in such matters must obtain the approval required by law 
of the Government official responsible for the employee's 
appointment in addition to the regulatory approval required in this 
section.

    (d) Procedure for requesting approval--(1) The approval required by 
paragraph (b) of this section shall be requested by e-mail or other 
form of written correspondence in advance of engaging in outside 
employment as defined in paragraph (c) of this section.
    (2) The request for approval to engage in outside employment or 
certain other activities shall set forth, at a minimum:
    (i) The name of the employer or organization;
    (ii) The nature of the legal activity or other work to be 
performed;
    (iii) The title of the position; and
    (iv) The estimated duration of the outside employment.
    (3) Upon a significant change in the nature or scope of the outside 
employment or in the employee's official position within FHFA, the 
employee must, within seven calendar days of the change, submit a 
revised request for approval.
    (e) Standard for approval. The DAEO may grant the approval required 
by paragraph (b) of this section only upon his or her written 
determination that the outside employment is not expected to involve 
conduct prohibited by statute or Federal regulation, including 5 CFR 
part 2635 and this part.
    (f) Issuance of instructions. The DAEO may issue written 
instructions governing the submission of requests for approval of 
outside employment under paragraph (d) of this section. The 
instructions may exempt categories of employment from the prior 
approval requirement of paragraph (b) of this section based on a 
determination by the DAEO that employment within those categories of 
employment would generally be approved and is not likely to involve 
conduct prohibited by Federal law or regulation, including 5 CFR part 
2635 and this part.


Sec.  9001.106  Restrictions resulting from employment of family and 
household members.

    (a) Disqualification of employee. An employee may not participate 
in any particular matter in which a regulated entity is a party if the 
regulated entity employs as an employee or a consultant his or her 
spouse, child, parent, or sibling, or member of his or her household 
unless the DAEO has authorized the employee to participate in the 
matter using the standard set forth in 5 CFR 2635.502(d).
    (b) Reporting certain relationships. Within 30 days of the spouse, 
child, parent, sibling, or member of the employee's household being 
employed by the regulated entity, the employee shall provide in writing 
notice of such employment to the DAEO.


Sec.  9001.107  Other limitations.

    (a) Director and Deputy Directors. The Director, the Deputy 
Director of the Division of Enterprise Regulation, the Deputy Director 
of the Division of Federal Home Loan Bank Regulation, and the Deputy 
Director for Housing Mission and Goals are subject to additional 
financial interest limitations as set forth in section 1312(g) of the 
Safety and Soundness Act, 12 U.S.C. 4512(g).
    (b) Financial interests in Bank members and other financial 
institutions. If an employee or the spouse or minor children of the 
employee directly or indirectly owns a financial interest in a member 
of a Bank or in a financial institution such as a mortgage bank, 
mortgage broker, bank, thrift, or other financial institution that 
originates, insures, or services mortgages that are owned, guaranteed, 
securitized, or collateralized by a regulated entity, the employee is 
cautioned not to violate the statutory prohibition against financial 
conflicts of interest set forth in 18 U.S.C. 208. The government-wide 
de minimis and other exceptions set forth in 5 CFR 2640.202 are 
applicable to the ownership or control of interests in such financial 
institutions. Employees are encouraged to seek a determination from the 
DAEO as to whether the financial interest in the member of the Bank or 
in the financial institution creates a financial conflict of interest 
or an appearance of a conflict of interest and whether the employee 
should disqualify himself or herself from participating in an official 
capacity in a particular matter involving the financial institution.


Sec.  9001.108  Prohibited recommendations.

    Employees shall not make any recommendation or suggestion, directly 
or indirectly, concerning the acquisition, sale, or divestiture of 
securities of a regulated entity.


Sec.  9001.109  Prohibited purchase of assets.

    An employee or the employee's spouse or minor children shall not 
purchase, directly or indirectly, any real or personal property from a 
regulated entity, unless it is sold at public auction or by other means 
which would assure that the selling price is the asset's fair market 
value.

    Dated: January 18, 2010.
Edward J. DeMarco,
Acting Director, Federal Housing Finance Agency.
    Approved: April 8, 2010.
Robert I. Cusick,
Director, Office of Government Ethics.
[FR Doc. 2010-8649 Filed 4-15-10; 8:45 am]
BILLING CODE 8070-01-P