[Federal Register Volume 77, Number 151 (Monday, August 6, 2012)]
[Rules and Regulations]
[Pages 46601-46606]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-19150]



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  Federal Register / Vol. 77, No. 151 / Monday, August 6, 2012 / Rules 
and Regulations  

[[Page 46601]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

5 CFR Part 7501

[Docket No. FR-5542-F-02]
RIN 2501-AD55


Supplemental Standards of Ethical Conduct for Employees of the 
Department of Housing and Urban Development

AGENCY: Office of the Secretary, Department of Housing and Urban 
Development.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Department of Housing and Urban Development (HUD), with 
the concurrence of the Office of Government Ethics (OGE), is finalizing 
the proposed rule to amend its existing Supplemental Standards of 
Ethical Conduct, which are regulations for HUD officers and employees 
that supplement OGE's Standards of Ethical Conduct for Employees of the 
Executive Branch (Standards). To ensure a comprehensive and effective 
ethics program at HUD, and to address ethical issues unique to HUD, 
this final rule reflects statutory changes that were enacted subsequent 
to the codification of HUD's Supplemental Standards of Conduct 
regulation in 1996. Significantly, this final rule reflects the 
transfer of general regulatory authority over the Federal National 
Mortgage Association and the Federal Home Loan Mortgage Corporation 
from HUD to the Federal Housing Finance Agency (FHFA). This final rule 
also revises definitions used in HUD's Supplemental Standards of 
Conduct to reflect updated titles and positions and clarifies existing 
prohibitions on certain financial interests and outside employment to 
better guide employee conduct, while upholding the integrity of HUD in 
the administration of its programs. Finally, this final rule more 
clearly describes the role and responsibility of the HUD Office of 
Inspector General in the agency's ethics program. This rule follows 
publication of a March 14, 2012, proposed rule and considers public 
comment on the proposed rule, but makes no changes at this final rule 
stage.

DATES: Effective Date: September 5, 2012.

FOR FURTHER INFORMATION CONTACT: Robert H. Golden, Assistant General 
Counsel, Ethics Law Division, telephone number 202-402-6334, or Peter 
J. Constantine, Associate General Counsel for Ethics and Personnel Law, 
Office of General Counsel, Department of Housing and Urban Development, 
451 7th Street SW., Washington, DC 20410, telephone number 202-402-
2377. Persons with hearing or speech impairments may access this number 
through TTY by calling the toll-free Federal Relay Service at 800-877-
8339.

SUPPLEMENTARY INFORMATION:

I. Background

    On March 14, 2012 (77 FR 14977, republished on March 22, 2012, at 
77 FR 16761), HUD, with OGE's concurrence, published for comment a 
proposed rule to amend its Supplemental Standards of Ethical Conduct 
for Employees of the Department of Housing and Urban Development 
(Supplemental Standards of Conduct), codified at 5 CFR part 7501. The 
HUD Supplemental Standards of Conduct supplement OGE's government-wide 
Standards of Ethical Conduct for Employees of the Executive Branch 
(Standards), codified at 5 CFR part 2635, and addresses ethical issues 
unique to HUD officers and employees. HUD published its March 14, 2012, 
proposed rule to strengthen the integrity of the Department in the 
operation and administration of its program by ensuring that its ethics 
program reflected significant statutory changes to HUD's programs and 
operations enacted subsequent to the codification of its current 
Supplemental Standards of Conduct in 1996.
    In this regard, one significant statutory change to HUD programs 
and operations was made by the Housing and Economic Recovery Act of 
2008 (HERA) (Pub. L. 110-289, approved July 30, 2008). HERA transferred 
regulatory authority over the Federal National Mortgage Association 
(Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie 
Mac) (collectively referred to as the Government Sponsored Enterprises, 
or GSEs) from HUD to the Federal Housing Finance Agency (FHFA). Based 
on this transfer of regulatory authority, HUD proposed removing 
provisions of its Supplemental Standards of Conduct that prohibit all 
HUD employees from owning certain financial interests issued by the 
GSEs. In addition, HUD proposed removing Sec.  7501.106 entitled, 
``Additional rules for certain Department employees involved in the 
regulation or oversight of Government sponsored enterprises,'' which 
prohibits employees whose duties involve the regulation or oversight of 
the GSEs from, among other things, owning financial interests in 
certain mortgage institutions and from performing any work, either 
compensated or uncompensated, for or on behalf of a mortgage 
institution. The removal of these sections was based on HUD's 
determination that they were no longer necessary to ensuring the 
impartiality and integrity in the administration of HUD's programs.
    In addition, the proposed rule revised definitions used in HUD's 
Supplemental Standards of Conduct to reflect updated titles and 
positions and clarify existing prohibitions on certain financial 
interests and outside employment to better guide employee conduct, 
while upholding the integrity of HUD in the administration of its 
programs. The rule also proposed to add a new Sec.  7501.106 to clarify 
the authority of the HUD Office of Inspector General (OIG) in the 
agency's ethics program and establishes it as a separate component as 
provided by 5 CFR 2635.203(a).

II. Public Comment on the Proposed Rule

    By the close of the public comment period on May 14, 2012, HUD 
received one public comment on the proposed rule. The commenter, a 
member of the public, expressed a concern regarding the removal of 
Sec.  7501.106, the provision that prohibits covered HUD employees from 
owning financial interests in or engaging in outside employment or 
certain other dealings with mortgage companies doing business with HUD. 
The commenter stated that such employees are in positions to possess 
insider information concerning the dealings of these companies and that 
the

[[Page 46602]]

removal of the ethics provision against dealings and ownership creates 
a circumstance where personal interests can easily cloud regulatory 
judgment. The commenter also stated that the removal of Sec.  7501.106 
opens the risk that these HUD employees could be charged with insider 
trading, creating a preventable public relations situation that would 
drain already strained budgets.
    HUD appreciates the commenter's insightful consideration of its 
proposed rule. HUD has considered the comment but has decided, however, 
not to accept the comment or change the proposal to remove Sec.  
7501.106. As discussed in the proposed rule preceding the codification 
of Sec.  7501.106 (60 FR 34420, July 30, 1995), the need for the 
provision resulted from the Federal Housing Enterprises Financial 
Safety and Soundness Act of 1992 (12 U.S.C. 4501, et seq.) (FHEFSSA), 
which significantly expanded HUD's authority to regulate Fannie Mae and 
Freddie Mac. Specifically, FHEFSSA provided broad regulatory authority 
to a newly established Office of Federal Housing Enterprise Oversight 
within HUD to ensure the financial safety and soundness of the GSEs. 
Based on this authority, Sec.  7501.106 was designed to protect against 
potential conflicts of interest and the appearance of conflicts of 
interest for HUD employees whose official duties involved the oversight 
or regulation of the GSEs, by prohibiting these employees from 
acquiring or obtaining the financial interests of certain mortgage 
institutions that conducted business with, or relied upon the GSEs. As 
stated in HUD's March 14, 2012, proposed rule, Title I of the Housing 
and Economic Recovery Act of 2008 (Pub. L. 110-289, approved July 30, 
2008) amended FHEFSSA to transfer regulatory authority over the GSEs 
from HUD to FHFA. As a result, HUD believes that the continued need for 
Sec.  7501.106, as well as the general prohibition on directly 
receiving, acquiring, or owning securities issued by the GSEs, no 
longer exists.
    While the purpose of Sec.  7501.106 related to HUD's regulatory 
authority over the GSEs, other ethical requirements protect against the 
commenter's broader point regarding insider trading and insider 
information as it relates to mortgage companies with which a HUD 
employee may work. These requirements include 18 U.S.C. 208, a federal 
criminal statute, which prohibits employees from participating 
personally and substantially in any particular matters that will have a 
direct and predictable effect on the employee's financial interests, 
and 5 CFR 2635.502, which provides that an employee should not 
participate in a particular matter when the employee or the agency 
designee determines that the circumstances may cause a reasonable 
person with knowledge of the relevant facts to question his or her 
impartiality in the matter. Additionally, the Supplemental Standards of 
Conduct at Sec.  7501.105 specifically prohibit HUD employees from 
outside employment with businesses related to real estate, which 
includes mortgage companies. Finally, the Stop Trading on Congressional 
Knowledge Act of 2012 (STOCK Act) (Pub. L. 112-105) also prohibits 
certain executive branch employees in senior positions from purchasing 
securities that are the subject of an initial public offering in any 
manner other than is available to members of the public generally. HUD 
believes that these provisions are sufficient to ensure the integrity 
of HUD in the operation and administration of its programs.

III. Final Rule

    At this final rule stage, HUD adopts the March 14, 2012, proposed 
rule without change. Significantly, HUD is removing provisions from its 
Supplemental Standards of Conduct that prohibit all HUD employees from 
owning certain financial interests issued by the GSEs. In addition, HUD 
is removing Sec.  7501.106 entitled, ``Additional rules for certain 
Department employees involved in the regulation or oversight of 
Government sponsored enterprises.'' HUD's action is based on its 
determination that these provisions are no longer necessary to ensure 
public confidence in the impartiality and objectivity with which HUD 
programs are administered.

IV. Analysis of the Regulation

    The following is a section-by-section overview of the significant 
amendments made by this final rule. Members of the public are invited 
to review the preamble to HUD's March 14, 2012, proposed rule for a 
fuller discussion of the revisions made by this final rule.

Section 7501.102 Definitions

    Section 7501.102 updates and clarifies key terms used in the 
Supplemental Standard of Conduct. Specifically, the definitions of 
``Agency designee'' and ``Designated Agency Ethics Official (DAEO)'' 
are revised to reflect updated office names and titles within the 
current HUD organization. Additionally, the reference to the Inspector 
General (IG) is removed from the definition of ``agency designee'' in 
favor of adding definitions for ``Bureau,'' ``Bureau Ethics 
Counselor,'' and ``Deputy Bureau Ethics Counselor.'' ``Bureau'' is 
defined to mean the Office of the Inspector General (OIG). ``Bureau 
Ethics Counselor'' and ``Deputy Bureau Ethics Counselor'' are defined 
to mean, respectively, the General Counsel for OIG and the OIG 
employees to whom the OIG General Counsel delegates responsibility to 
make determinations, issue explanatory guidance, or establish 
procedures necessary to implement this part, subpart I of 5 CFR 2634, 
and 5 CFR part 2635 for Bureau employees. The definition of 
``employment'' is also revised to provide that employment includes 
uncompensated activity, such as volunteer work for others while off-
duty.

Section 7501.103 Waivers

    Section 7501.103 is revised to codify HUD practice that a waiver 
request must be in writing, and to guide employees on what should be 
included in a waiver request. It also confirms HUD practice that 
hardship and other exigent circumstances are legitimate reasons for a 
waiver request, and such a request will be considered in light of HUD's 
need to ensure public confidence in the impartiality and objectivity 
with which HUD programs are administered. This section also delegates 
authority to the Bureau Ethics Counselor to waive provisions of this 
part.

Section 7501.104 Prohibited Financial Interests

    This final rule removes from Sec.  7501.104(a) the reference to 
covered employees. This reflects HUD's decision to remove Sec.  
7501.106, which provided rules for employees involved in the regulation 
or oversight of GSEs. Section 7501.104(a) is also revised by removing 
provisions prohibiting HUD employees from receiving, acquiring, or 
owning securities issued by Fannie Mae or Freddie Mac and securities 
collateralized by Fannie Mae or Freddie Mac. HUD has determined that 
these prohibitions are no longer necessary based on the transfer of 
regulatory authority from HUD under HERA.
    This final rule revises Sec.  7501.104(a)(2), the provision 
prohibiting employees, their spouses, and minor children from holding 
stock or another financial interest ``in a multifamily project or 
single family dwelling, cooperative unit, or condominium unit'' that is 
owned or subsidized by the Department, by removing that term and 
replacing it with the term ``project.'' The final rule also removes the 
term ``stock or other financial interest,'' substitutes the term 
``financial interest,'' and references

[[Page 46603]]

OGE's regulations at 5 CFR 2635.403(c) for a complete definition of the 
term ``financial interest,'' including examples. These changes provide 
clarity to the prohibition and will continue to prohibit HUD employees 
from holding ownership interests in all HUD-subsidized or -insured 
projects that exist or may come to exist in the future.
    Section 7501.104(a)(3) continues to permit HUD employees to 
receive, on behalf of a tenant, a Section 8 subsidy under certain 
conditions. A new exception permits all new HUD employees who already 
have a tenant receiving Section 8 subsidies to retain that tenant until 
the tenant terminates his or her lease. In addition, Sec.  
7501.104(a)(3)(i)(E) adds a new exception that permits HUD employees to 
receive a Section 8 subsidy for the rental of properties located in 
areas of Presidentially declared emergency or natural disaster with 
prior written approval from an agency designee.
    Section 7501.104(b) provides exceptions to Sec.  7501.104(a). This 
final rule expands the exceptions by removing a prohibition on owning 
investment funds that concentrate in residential mortgages or mortgage-
backed securities. HUD has determined that this prohibition is no 
longer needed in light of the fact that HUD no longer has regulatory 
authority over Fannie Mae and Freddie Mac.
    This final rule continues to permit HUD employee to own homes 
financed with mortgages insured under programs of the Federal Housing 
Administration (FHA), and continues to permit the purchase by HUD 
employees of HUD-owned homes. The provisions permitting HUD employees 
to own or acquire these assets are established as exceptions to Sec.  
7501.104(a) at Sec. Sec.  7501.104(b)(2) and (b)(3), respectively. In 
both sections, this final rule provides that employees must adhere to 
the procedures established by the Assistant Secretary for Housing-FHA 
Commissioner in order to obtain FHA insurance or to purchase a HUD-held 
property.
    Section 7501.104(b)(4) provides that the employment compensation 
and benefits package for an employee's spouse is not a prohibited 
financial interest even if the employee's spouse is employed by an 
entity that has interests in HUD projects prohibited under Sec.  
7501.104(a)(2). Finally, Sec.  7501.104(b)(5) continues to permit 
employees, or their spouses or minor children, to hold Government 
National Mortgage Association (GNMA) securities.

Section 7501.105 Outside Activities

    Section 7501.105 governs the outside activities of HUD employees. 
HUD has determined that maintaining the policy against employment in 
businesses related to real estate or manufactured housing is necessary 
to protect against questions regarding the impartiality and objectivity 
of employees in the administration of HUD programs. Allowing such 
activity would hinder HUD in meeting its missions if members of the 
public question whether HUD employees are using their public positions 
or HUD connections to advance their outside real estate-related 
employment. To clarify the intent of this prohibition and support its 
consistent application, this final rule amends Sec.  7501.105(a)(1) by 
removing the phrase ``involving active participation'' with a real 
estate-related business. Additionally, this final rule separates the 
prohibition against the ownership activities of operating and managing 
a real estate-related business involving investment properties from the 
employment prohibition by adding Sec.  7501.105(a)(2), which prohibits 
the operation or management of investment properties to the extent that 
doing so rises to the level of a real estate business. To make the 
prohibition more transparent, HUD is also codifying longstanding policy 
by listing several factors that it uses to consider whether the 
employee's actions of operating or managing investment properties rise 
to the level of a real estate business that falls within the 
prohibition. These changes do not change the application of the 
prohibition.
    This final rule also removes the specific restriction on employees 
having outside positions with Fannie Mae and Freddie Mac. As previously 
discussed, HUD no longer has general regulatory authority over Fannie 
Mae and Freddie Mac. HUD employees, under Sec.  7501.105(a)(1), 
continue to be prohibited from employment with a business related to 
real estate. This prohibition also covers employment with Fannie Mae 
and Freddie Mac.
    This final rule adds Sec.  7501.105(b)(2), which codifies HUD's 
longstanding policy that employees with a real estate agent's license 
may continue to hold such license. An employee may only use his or her 
license in relation to purchasing or selling a single-family property 
for use as the employee's primary residence, or for the primary 
residence of an immediate family of the employee. Employees seeking to 
use their real estate license for this purpose, however, must obtain 
the prior written approval of an agency ethics official. Section 
7501.105(c) is revised to add the requirement for prior written 
approval from an agency ethics official for employees seeking to use 
their real estate license for this purpose.
    Section 7501.105(c)(1) requires an employee to receive written 
approval prior to accepting a position of authority with a prohibited 
source. This section has been expanded to include all prohibited 
sources because HUD has determined that taking a position of authority 
with any prohibited source, not just those that receive HUD funding, 
creates the appearance of a conflict of interest and should therefore 
be examined by an agency ethics official. As discussed in this 
preamble, HUD has added the requirement at Sec.  7501.105(c)(1)(iv) for 
prior written approval from an agency ethics official for employees 
seeking to use their real estate license in relation to purchasing or 
selling a single-family property for use as the employee's primary 
residence or as the primary residence of an immediate family member of 
the employee.
    Finally, this final rule adds Sec.  7501.105(d) to incorporate 
HUD's policy regarding liaison representatives, which was previously 
provided as a Note. This change will avoid any confusion over the 
concept and its authority.

Section 7501.106 Bureau Instructions and Designation of Separate Agency 
Components

    Former Sec.  7501.106 entitled, ``Additional rules for certain 
Department employees involved in the regulation or oversight of 
Government sponsored enterprises,'' is removed. As previously discussed 
in this preamble, HUD no longer has regulatory authority over Fannie 
Mae and Freddie Mac and has determined that removing this provision 
would not compromise the integrity of HUD's programs and operations.
    In its place, HUD is adding a new Sec.  7501.106 that clarifies the 
authority of the OIG in the agency's ethics program and establishes it 
as a separate component as provided for by 5 CFR 2635.203(a). 
Specifically, new Sec.  7501.106(a) delegates to the Bureau Ethics 
Counselor the authority to designate Deputy Bureau Ethics Counselors to 
make determinations, issue explanatory guidance, and establish 
procedures necessary to implement this part, subpart I of 5 CFR 2634, 
and 5 CFR part 2635 for their bureau. In addition, new Sec.  
7501.106(b) designates the OIG as a separate agency component.

[[Page 46604]]

V. Matters of Regulatory Procedure

Executive Order 12866 and Executive Order 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if the 
regulation is necessary, to select the regulatory approach that 
maximizes net benefits. Because this rule relates solely to the 
internal operations of HUD, this rule was determined to be not a 
significant regulatory action under section 3(f) of Executive Order 
12866, Regulatory Planning and Review, and therefore was not reviewed 
by the Office of Management and Budget (OMB).

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) generally 
requires an agency to conduct a regulatory flexibility analysis of any 
rule subject to notice and comment rulemaking requirements, unless the 
agency certifies that the rule will not have a significant economic 
impact on a substantial number of small entities. This rule would not 
have a significant economic impact on a substantial number of small 
entities because this rule pertains only to HUD employees.

Information Collection Requirements

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) does not 
apply to this regulation because it does not contain information 
collection requirements subject to the approval of OMB.

Environmental Impact

    In accordance with 40 CFR 1508.4 of the regulations of the Council 
on Environmental Quality and 24 CFR 50.20(k) of HUD regulations, the 
policies and procedures contained in this rule relate only to internal 
administrative procedures whose content does not constitute a 
development decision nor affect the physical condition of project areas 
or building sites, and therefore, are categorically excluded from the 
requirements of the National Environmental Policy Act.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits, to the 
extent practicable and permitted by law, an agency from promulgating a 
regulation that has federalism implications and either imposes 
substantial direct compliance costs on state and local governments and 
is not required by statute or preempts state law, unless the relevant 
requirements of section 6 of the Executive Order are met. This rule 
does not have federalism implications and does not impose substantial 
direct compliance costs on state and local governments or preempt state 
law within the meaning of the Executive Order.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) (UMRA) establishes requirements for federal agencies to 
assess the effects of their regulatory actions on state, local, and 
tribal governments, and on the private sector. Since it is only 
directed toward HUD employees, this rule would not impose any federal 
mandates on any state, local, or tribal governments, or on the private 
sector, within the meaning of the UMRA.

List of Subjects in 5 CFR Part 7501

    Conflicts of interests.

    Accordingly, for the reasons described in the preamble, HUD, with 
the concurrence of OGE, revises 5 CFR part 7501 to read as follows:

PART 7501--SUPPLEMENTAL STANDARDS OF ETHICAL CONDUCT FOR EMPLOYEES 
OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Sec.
7501.101 Purpose.
7501.102 Definitions.
7501.103 Waivers.
7501.104 Prohibited financial interests.
7501.105 Outside activities.
7501.106 Bureau instructions and designation of separate agency 
component.

    Authority: 5 U.S.C. 301, 7301, 7351, 7353; 5 U.S.C. App. (Ethics 
in Government Act of 1978); 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, 2635.203(a), 2635.403(a), 2635.803, 
2635.807.


Sec.  7501.101  Purpose.

    In accordance with 5 CFR 2635.105, the regulations in this part 
apply to employees of the Department of Housing and Urban Development 
(HUD or Department) and supplement the Standards of Ethical Conduct for 
Employees of the Executive Branch contained in 5 CFR part 2635. 
Employees are required to comply with 5 CFR part 2635, this part, and 
any additional rules of conduct that the Department is authorized to 
issue.


Sec.  7501.102  Definitions.

    For purposes of this part, and otherwise as indicated, the 
following definitions shall apply:
    Affiliate means any entity that controls, is controlled by, or is 
under common control with another entity.
    Agency designee, as used also in 5 CFR part 2635, means the 
Associate General Counsel for Ethics and Personnel Law, the Assistant 
General Counsel for the Ethics Law Division, and the HUD Regional 
Counsels.
    Agency ethics official, as used also in 5 CFR part 2635, means the 
agency designees as specified above.
    Bureau means the Office of the Inspector General.
    Bureau Ethics Counselor means the General Counsel for the Bureau.
    Deputy Bureau Ethics Counselor means the Bureau employee or 
employees who the Bureau Ethics Counselor has delegated responsibility 
to act under Sec.  7501.106 for the Bureau.
    Designated Agency Ethics Official (DAEO) means the General Counsel 
of HUD or the Deputy General Counsel for Operations in the absence of 
the General Counsel.
    Employment means any compensated or uncompensated (including 
volunteer work for others while off-duty) form of non-federal activity 
or business relationship, including self-employment, that involves the 
provision of personal services by the employee. It includes, but is not 
limited to, personal services as an officer, director, employee, agent, 
attorney, consultant, contractor, general partner, trustee, teacher, or 
speaker. It includes writing when done under an arrangement with 
another person for production or publication of the written product.


Sec.  7501.103  Waivers.

    The Designated Agency Ethics Official, or the Bureau Ethics 
Counselor for a Bureau employee may waive any provision of this part 
upon finding that the waiver will not result in conduct inconsistent 
with 5 CFR part 2635 and is not otherwise prohibited by law and that 
application of the provision is not necessary to ensure public 
confidence in the Department's impartial and objective administration 
of its programs. 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, such as requiring the employee's 
execution of a written disqualification statement. A waiver will be 
considered only in response to a written waiver request submitted to an 
agency ethics official. The waiver request should include:
    (a) The requesting employee's Branch, Unit, and a detailed 
description of his or her official duties;

[[Page 46605]]

    (b) The nature and extent of the proposed waiver;
    (c) A detailed statement of the facts supporting the request; and
    (d) The basis for the request, such as undue hardship or other 
exigent circumstances.


Sec.  7501.104  Prohibited financial interests.

    (a) General requirement. This section applies to all HUD employees 
except special Government employees. Except as provided in paragraph 
(b) of this section, the employee, or the employee's spouse or minor 
child, shall not directly or indirectly receive, acquire, or own:
    (1) Federal Housing Administration (FHA) debentures or certificates 
of claim;
    (2) A financial interest in a project, including any single family 
dwelling or unit, which is subsidized by the Department, or which is 
subject to a note or mortgage or other security interest insured by the 
Department. The definition of ``financial interest'' is found at 5 CFR 
2635.403(c);
    (3)(i) Any Department subsidy provided pursuant to Section 8 of the 
United States Housing Act of 1937, as amended (42 U.S.C. 1437f), to or 
on behalf of a tenant of property owned by the employee or the 
employee's spouse or minor child. However, such subsidy is permitted 
when:
    (A) The employee, or the employee's spouse or minor child acquires, 
without specific intent as through inheritance, a property in which a 
tenant receiving such a subsidy already resides;
    (B) The tenant receiving such a subsidy lived in the rental 
property before the employee worked for the Department;
    (C) The tenant receiving such a subsidy is a parent, child, 
grandchild, or sibling of the employee;
    (D) The employee's, or the employee's spouse or minor child's, 
rental property has an incumbent tenant who has not previously received 
such a subsidy and becomes the beneficiary thereof; or
    (E) The location of the rental property is in a Presidentially 
declared emergency or natural disaster area and the employee receives 
prior written approval from an agency designee.
    (ii) The exception provided by paragraph (a)(3)(i) of this section 
continues only as long as:
    (A) The tenant continues to reside in the property; and
    (B) There is no increase in that tenant's rent upon the 
commencement of subsidy payments other than normal annual adjustments 
under the Section 8 program.
    (b) Exception to prohibition for certain interests. Nothing in this 
section prohibits the employee, or the employee's spouse or minor child 
from directly or indirectly receiving, acquiring, or owning:
    (1) A financial interest in a publicly available or publicly traded 
investment fund that includes financial interests prohibited by 
paragraph (a)(2) of this section, so long as the employee neither 
exercises control nor has the ability to exercise control over the fund 
or the financial interests held in the fund;
    (2) Mortgage insurance provided pursuant to section 203 of the 
National Housing Act (12 U.S.C. 1709) on the employee's principal 
residence and any one other single family residence. Employees must 
adhere to the procedures established by the Assistant Secretary for 
Housing--FHA Commissioner in order to obtain FHA insurance;
    (3) Department-owned single family property. Employees must adhere 
to the procedures established by the Assistant Secretary for Housing--
FHA Commissioner in order to purchase a HUD-held property;
    (4) Employment compensation and benefit packages provided by the 
employer of an employee's spouse that include financial interests 
prohibited by paragraph (a)(2) of this section; or
    (5) Government National Mortgage Association (GNMA) securities.
    (c) Reporting and divestiture. An employee must report, in writing, 
to the appropriate agency ethics official, any interest prohibited 
under paragraph (a) of this section acquired prior to the commencement 
of employment with the Department or without specific intent, as 
through gift, inheritance, or marriage, within 30 days from the date of 
the start of employment or acquisition of such interest. Such interest 
must be divested within 90 days from the date reported unless waived by 
the Designated Agency Ethics Official in accordance with Sec.  
7501.103.


Sec.  7501.105  Outside activities.

    (a) Prohibited outside activities. Subject to the exceptions set 
forth in paragraph (b) of this section, HUD employees, except special 
Government employees, shall not engage in:
    (1) Employment with a business related to real estate or 
manufactured housing including, but not limited to, real estate 
brokerage, management and sales, architecture, engineering, mortgage 
lending, property insurance, appraisal services, title search services, 
construction, construction financing, land planning, or real estate 
development;
    (2) The operation or management of investment properties to the 
extent that it rises to the level of a real estate-related business. 
HUD will determine whether an employee is operating or managing 
investment properties to an extent that it rises to the level of a real 
estate business based on the totality of the circumstances, and will 
consider whether the employee maintains an office; advertises or 
otherwise solicits clients or business; hires staff or employees; uses 
business stationary or other similar materials; files the business as a 
corporation, limited liability company, partnership, or other type of 
business association with a state government; establishes a formal or 
informal association with an existing business; hires a management 
company; and the nature and number of its investment properties;
    (3) Employment with a person or entity who registered as a lobbyist 
or lobbyist organization pursuant to 2 U.S.C 1603(a) and engages in 
lobbying activity concerning the Department;
    (4) Employment as an officer or director with a Department-approved 
mortgagee, a lending institution, or an organization that services 
securities for the Department; or
    (5) Employment with the Federal Home Loan Bank System or any 
affiliate thereof.
    (b) Exceptions to employment prohibitions. The prohibitions set 
forth in paragraph (a) of this section do not apply to:
    (1) Serving as an officer or a member of the Board of Directors of:
    (i) A Federal Credit Union;
    (ii) A cooperative, condominium association, or homeowners 
association for a housing project that is not subject to regulation by 
the Department or, if so regulated, in which the employee personally 
resides; or
    (iii) An entity designated in writing by the Designated Agency 
Ethics Official.
    (2) Holding a real estate agent's license; however, use of the 
license is limited as provided by paragraph (c) of this section.
    (c) Prior approval requirement. (1) Employees, except special 
Government employees, shall obtain the prior written approval of an 
Agency Ethics Official before accepting compensated or uncompensated 
employment:
    (i) As an officer, director, trustee, or general partner of, or in 
any other position of authority with a prohibited source, as defined at 
5 CFR 2635.203(d);
    (ii) With a state or local government;
    (iii) In the same professional field as that of the employee's 
official position; or
    (iv) As a real estate agent in relation to purchasing or selling a 
single family

[[Page 46606]]

property for use as the employee's primary residence, or the primary 
residence of the employee's immediate family member.
    (2) Approval shall be granted unless the conduct is inconsistent 
with 5 CFR part 2635 or this part.
    (d) Liaison representative. An employee designated to serve in an 
official capacity as the Department's liaison representative to an 
outside organization is not engaged in an outside activity to which 
this section applies. Notwithstanding, an employee may be designated to 
serve as the Department's liaison representative only as authorized by 
law, and as approved by the Department under applicable procedures.


Sec.  7501.106  Bureau instructions and designation of separate agency 
component.

    (a) Bureau instructions. With the concurrence of the Designated 
Agency Ethics Official, the Bureau Ethics Counselor is authorized, 
consistent with 5 CFR 2635.105(c), to designate Deputy Bureau Ethics 
Counselors, to make a determination, issue explanatory guidance, and 
establish procedures necessary to implement this part, subpart I of 5 
CFR part 2634, and 5 CFR part 2635 for the Bureau.
    (b) Designation of separate agency component. Pursuant to 5 CFR 
2635.203(a), the Office of the Inspector General is designated as a 
separate agency for purposes of the regulations contained in subpart B 
of 5 CFR part 2635, governing gifts from outside sources; and 5 CFR 
2635.807, governing teaching, speaking, or writing.

    Dated: July 18, 2012.
Shaun Donovan,
Secretary.
Don W. Fox,
Acting Director, Office of Government Ethics.
[FR Doc. 2012-19150 Filed 8-3-12; 8:45 am]
BILLING CODE 4210-67-P