[Federal Register Volume 81, Number 243 (Monday, December 19, 2016)]
[Rules and Regulations]
[Pages 91690-91694]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-30245]


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FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1272

RIN 2590-AA84


Federal Home Loan Bank New Business Activities

AGENCY: Federal Housing Finance Agency.

ACTION: Final rule.

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[[Page 91691]]

SUMMARY: The Federal Housing Finance Agency (FHFA) is amending its 
regulations addressing requirements for the Federal Home Loan Banks' 
(Banks) new business activity (NBA) notices. The final rule reduces the 
scope of activities requiring submission of an NBA notice, modifies the 
submission requirements, and establishes new timelines for agency 
review and approval of such notices. The final rule also reorganizes a 
part of the regulations to clarify the protocol for FHFA review of NBA 
notices.

DATES: The final rule is effective on January 18, 2017.

FOR FURTHER INFORMATION CONTACT: Lara Worley, Principal Financial 
Analyst, [email protected], 202-649-3324, Division of Federal Home 
Loan Bank Regulation; or Winston Sale, Assistant General Counsel, 
[email protected], 202-649-3081 (these are not toll-free numbers), 
Office of General Counsel, Federal Housing Finance Agency, Constitution 
Center, 400 Seventh Street SW., Washington, DC 20219. The telephone 
number for the Telecommunications Device for the Hearing Impaired is 
800-877-8339.

SUPPLEMENTARY INFORMATION: 

I. Background

    On August 23, 2016, FHFA published a proposed rule that would have 
modified FHFA's regulation establishing the process for the submission, 
review, and agency approval of Bank NBA notices. The proposed rule 
would have narrowed the scope of activities requiring submission of an 
NBA notice to those that entail ``material risks not previously managed 
by the Bank'' and would have excluded from the definition of ``new 
business activity'' the acceptance of new types of advance collateral. 
The proposed rule would have streamlined the NBA notice content 
requirements, thereby providing the Banks with greater flexibility to 
tailor their notices to the nature of the particular activity in which 
they seek to engage. The proposed rule also would have established new 
30 and 80 business-day review timelines, under which FHFA would approve 
or deny notices. Those time periods could be tolled while FHFA awaited 
responses from the Banks for additional information, or in the event 
that the FHFA Director (Director) determined that the notice raised 
significant policy, supervisory, or legal issues that require 
additional time to resolve. The proposed rule generally provided that 
if FHFA were to fail to respond to, approve, or deny the notice, as 
applicable, within the appropriate timeline, then the notice would be 
deemed to have been approved as of the end of the applicable time 
period. The proposed rule also included an exception to the deemed to 
be approved concept for those notices for which the Director has 
elected to extend the review timeline by an additional 60 business 
days. For such notices, FHFA's affirmative approval would be required 
before the requesting Bank could commence the proposed activity. The 
proposed rule also would have delegated to the Deputy Director for 
Federal Home Loan Bank Regulation (Deputy Director) the authority to 
approve NBA notices, which delegation is in substance identical to the 
similar delegations of authority set forth in FHFA's procedures 
regulations, under which the Deputy Director can grant approvals and 
issue non-objection letters on behalf of the Director.\1\
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    \1\ See 12 CFR 1211.3 and 1211.4.
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II. Consideration of Differences Between the Banks and the Enterprises

    When promulgating regulations relating to the Banks, section 
1313(f) of the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992 requires the Director to consider the differences 
among the Federal National Mortgage Association and the Federal Home 
Loan Mortgage Corporation (together, the Enterprises) and the Banks 
with respect to the Banks' cooperative ownership structure; mission of 
providing liquidity to members; affordable housing and community 
development mission; capital structure; and joint and several 
liability.\2\ The changes in this rulemaking apply exclusively to the 
Banks and generally affect the scope and timing of their NBA 
notifications. Apart from those changes, the substance of this final 
rule is substantially similar to that of the existing NBA regulation. 
In preparing the proposed and final rules the Director has considered 
the differences between the Banks and the Enterprises as they relate to 
the above factors and has determined that none of the statutory factors 
would be implicated by the final rule. The proposed rule requested 
public comments on the extent to which the rule would implicate any of 
the statutory factors, but none of the comment letters addressed this 
requirement.
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    \2\ See 12 U.S.C. 4513(f).
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III. Response to Comment Letters

    In response to the proposed rule, FHFA received four substantive 
comment letters, a joint letter from the Banks and one letter each from 
the National Association of Home Builders (NAHB), the Independent 
Community Bankers of America, and a private citizen. Most of the 
letters generally supported the proposed rule, but also recommended 
different ways in which FHFA should revise certain aspects of the rule. 
In response to these recommendations, FHFA has incorporated two 
revisions into the final rule, which are discussed below. The following 
sections of this document describe the issues raised by the commenters, 
along with FHFA's responses, which are included as part of FHFA's 
descriptions of the particular provisions of the final rule for which 
the commenters had suggested revisions. For other provisions of the 
proposed rule about which the commenters raised no issues, FHFA has 
adopted them without change.

IV. Final Rule

    FHFA has made two revisions to the regulatory text of the final 
rule in response to comments received on the proposed rule, each of 
which is discussed below. Apart from those revisions, the regulatory 
text of the final rule is unchanged from that of the proposed rule. 
FHFA has declined to make certain revisions recommended by the 
commenters, which also are discussed below.

A. Comments Incorporated Into the Final Rule

1. Submission Requirements (1272.3)
    Section 1272.3 of the rule describes the types of information that 
a Bank must include as part of its NBA notice. The proposed rule had 
required that a Bank indicate in its NBA notice whether the 
contemplated activity had been previously approved by FHFA for any 
other Bank. FHFA had included this requirement in the proposed rule to 
help expedite its review of NBA notices in cases in which a Bank is 
seeking approval of an activity it knows to have been approved for 
another Bank, and thus should raise no new legal or policy issues. The 
Banks commented that this requirement should be limited to instances 
where the requesting Bank actually has knowledge that FHFA has approved 
the same activity for another Bank. The Banks explained that FHFA 
should have the most comprehensive information on which Banks have 
previously been approved for particular activities, and that because 
NBA notices, and any corresponding FHFA approvals, are not public 
documents, a Bank would not necessarily know whether FHFA has 
previously approved a given activity for another Bank. The

[[Page 91692]]

Banks offered specific revisions to the regulatory text to address 
their concern. FHFA agrees with this recommendation and has revised the 
final rule by adding the language suggested by the Banks to limit the 
applicability of this provision to instances where the requesting Bank 
has actual knowledge that FHFA has previously approved the activity for 
another Bank.
2. Approval Standard (1272.4)
    Section 1272.4(e) of the proposed rule would have added a new, 
explicit standard under which FHFA would approve NBA notices. In 
substance, that standard would have provided that FHFA would approve an 
NBA notice only if it determined that the Bank could conduct the 
proposed activities in a safe and sound manner, and that the activity 
would be consistent with the housing finance and community investment 
mission of the Banks, and with the cooperative nature of the Federal 
Home Loan Bank System (Bank System). The Banks commented that the 
proposed approval standard failed to reference that portion of the 
Banks' statutory mission that requires them to be a source of liquidity 
for their members, and did not encompass certain other services that 
they are legally authorized to provide to their members. The Banks also 
objected to the use of the phrase ``cooperative nature of the Bank 
System'' as part of the approval standard, contending that it is vague 
and is not supported by statutory language. FHFA agrees that the Banks' 
overall mission includes serving as a source of liquidity for their 
members and has incorporated language into the final rule's approval 
standard reflecting the same.\3\ The final rule, however, retains the 
language referring to the ``cooperative nature of the Bank System'' as 
part of the approval standard. By statutory design, the Banks are 
cooperative institutions, meaning that they provide products and 
services to their member institutions, and only to their members, and 
those members collectively own the Bank. Moreover, the very provision 
of the statute that the Banks cited in support of their request to 
include a liquidity element as part of the approval standard also 
refers to the ``cooperative ownership structure'' of the Banks.\4\
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    \3\ See 12 U.S.C. 4513(f)(1)(B).
    \4\ See 12 U.S.C. 4513(f)(1)(A).
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    FHFA's intent in including this language in the standard was to 
ensure that before approving a Bank's request to engage in any new type 
of activity FHFA would confirm that the proposed activity would in some 
manner benefit the members of the Bank. Examples of activities that 
would be consistent with the cooperative nature of the Bank System, and 
which have been the subject of prior NBA notice approvals, would 
include proposals to purchase mortgage loans from Bank members or 
otherwise facilitate the members' sale of such loans, as well as 
proposals to allow members to pledge new types of collateral to support 
their borrowing from the Banks, which would no longer require an NBA 
notice under the final rule. With respect to the Banks' comment that 
the proposed standard also should consider certain services the Banks 
are legally authorized to provide to their members, the intent of this 
provision of the rule is to articulate a general standard against which 
FHFA can assess a proposed activity in deciding whether to approve the 
notice. It is not intended to be a list of all products or services 
that a Bank may provide to its members or of all investments and 
activities in which the Banks now engage.

B. Comments Not Incorporated Into the Final Rule

1. Definition of NBA (1272.1)
    The proposed rule would have narrowed the scope of the NBA 
regulation in two ways: (1) By limiting it to activities that introduce 
new material risks to the Bank; and (2) By eliminating the need to file 
an NBA notice prior to accepting new types of collateral. The final 
rule retains both of those provisions. In explaining the rationale for 
excluding new collateral types from the NBA definition, the 
supplementary information for the proposed rule stated that ``the 
remaining universe of new types of collateral that might potentially 
fall into the [other real estate related collateral] category is 
small.'' \5\ The Banks commented that this language could be 
interpreted either to limit the types of assets that qualify as other 
real estate related collateral to the specific items already approved 
by FHFA, or to limit the proposed exclusion from the NBA filing 
requirement to those types of collateral that FHFA has previously 
approved for other Banks. The Banks asked that FHFA confirm in the 
final rule that FHFA did not intend the statement in the proposed rule 
to have either of those effects. The intent of the statement in the 
proposed rule was simply to acknowledge that, as a practical matter, 
the Banks and their members likely have already identified most of the 
types of assets held by the members that could qualify as ``other real 
estate related collateral,'' and thus any new types of such collateral 
would likely not present any materially different risks beyond those 
that the Banks currently manage with their existing collateral. The 
language of the final rule is unqualified, meaning that all types of 
new collateral are excluded from the term ``new business activity'' and 
thus would not trigger the requirement to file an NBA notice.
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    \5\ See 81 FR 57501 (August 23, 2016).
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    The proposed rule did not specifically address the extent to which 
the NBA regulations would apply to the Banks' mortgage programs or 
products, including Acquired Member Asset (AMA) programs or products. 
Nonetheless, commenters requested that FHFA revise the definition of 
``new business activity'' to exclude: (1) Any new AMA product involving 
federally-insured or guaranteed loans; (2) any modifications that a 
Bank proposed to make to its existing AMA programs or products, and; 
(3) any proposals by one Bank to begin offering a new AMA program or 
product that FHFA has previously approved for another Bank. The three 
areas commenters identified for exclusion would likely encompass all 
activities related to mortgage programs and products. The Banks had 
raised similar comments in response to a separate proposed rulemaking 
to amend and relocate the current AMA regulations.\6\ FHFA has not 
included any of these revisions in the final rule. As noted above, 
under the final rule any new activity will require the submission of an 
NBA notice if it entails new material risks to the Bank. To the extent 
that modifications to a Bank's existing mortgage program or product, or 
the establishment of new products involving federally-insured or 
guaranteed loans, would present new material risks to the requesting 
Bank, they would require the submission of an NBA notice. Similarly, 
while a request to offer a mortgage program or product that FHFA has 
already approved for another Bank would not raise new legal or policy 
issues, it could raise supervisory issues with respect to the 
requesting Bank, such as with respect to its ability to manage the 
particular risks associated with the program or product. FHFA believes 
that a Bank should apply the new material risk standard equally to all 
types of new activities in which it might engage. FHFA does not believe 
that it should grant a blanket exclusion from its review of any 
particular area of the Banks' business.
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    \6\ See 80 FR 78689 (December 17, 2015).
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    FHFA expects that there may be instances in which a Bank is unsure

[[Page 91693]]

whether the risks associated with a particular new activity or 
modification to an existing activity are material, for purposes of the 
new business activity regulation. As is the case under the current 
regulation, FHFA is available to consult with the Banks regarding the 
need to file an NBA notice with respect to a proposed activity, and 
will make every effort to promptly advise a Bank whether a filing is 
required. With respect to new activities that the Banks commence after 
determining that they do not present new material risks, FHFA will 
assess those the risks associated with those activities as part of its 
regular supervisory process, including examinations.
2. Review Process (1272.4)
    The proposed rule had used ``business days'' for calculating the 
length of the FHFA review periods. The Banks recommended that replacing 
that term with ``calendar days'' would be more convenient and 
consistent with other regulations. Doing so, however, also would have 
the effect of reducing the period of time available for FHFA to review 
and act on an NBA notice. FHFA had proposed the 30 and 80 business-day 
review periods based on its experience in considering prior NBA 
notices, some of which are straightforward and others of which present 
significant policy or legal issues, which require more time to assess. 
Accordingly, FHFA has decided to retain these time periods in the final 
rule, and does not believe that either it or the Banks would face any 
undue difficulty in determining the length of the review period based 
on business days.
    In the Supplementary Information to the proposed rule, FHFA stated 
that the 30 business-day review period established in Sec.  1272.4(a) 
would be ``generally intended for activities already approved for other 
Banks[.]'' \7\ The NAHB requested that the final rule explicitly 
provide that all NBA notices pertaining to activities that FHFA has 
previously approved for other Banks be required to be reviewed under 
the 30 business-day timeline. Although FHFA believes that in many cases 
it will in fact process such NBA notices within 30 business days, it 
declines to incorporate this request into the regulation because of the 
possibility that Bank-specific conditions could raise supervisory 
issues necessitating review under the 80 business-day timeline.
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    \7\ 81 FR 57502 (August 23, 2016).
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    The proposed rule included provisions that would deem any NBA 
notice to be approved if FHFA did not respond within the applicable 30 
or 80 business-day timeline. The proposed rule, however, did not 
include such an automatic approval provision for those notices for 
which the Director extended the review period for an additional 60 
business days, beyond the 80 business-day period. For those notices, 
the Banks could commence the activities only upon affirmative approval 
from FHFA. The Banks requested that FHFA revise the final rule so that 
even those notices that were subject to the Director's 60 business-day 
extended review period would also be subject to a deemed approved 
provision if the Director did not act by the end of the extended 
period. The Banks commented that the 80-day review period offers 
sufficient time for FHFA to act on a notice without the Director's 60-
day extension and that it is unclear what regulatory or public policy 
benefit would be served by extending the proposed time frame. FHFA 
declines to accept the Banks' suggestion, principally because notices 
for which the Director has extended the review period will most likely 
involve significant policy or legal issues, in which the Director will 
be directly involved. Such matters may present issues of first 
impression for the agency that require an extended period to fully vet, 
and thus do not lend themselves to being approved automatically by the 
passage of time. Moreover, such an automatic approval provision could 
inappropriately conflict with the Director's statutory oversight 
authority, which provides the Director with broad latitude to exercise 
such incidental powers necessary in the supervision and regulation of 
the Banks.\8\
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    \8\ See 12 U.S.C. 4513(a)(2)(B).
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3. Approval of Notices (1272.7)
    The proposed rule included a provision delegating authority to the 
Deputy Director to approve NBA notices for the agency. That provision 
mirrored existing regulatory delegations of authority to the Deputy 
Director for determining whether to grant ``approvals'' and to issue 
``non-objection letters'' under FHFA's procedures regulations.\9\ The 
delegation in the proposed rule, like those in the other regulations, 
included language to the effect that the Director reserved the right to 
modify, rescind, or supersede any approval granted by the Deputy 
Director under the delegation of authority. Commenters expressed 
concern that this reservation of authority to the Director would create 
uncertainty for Banks, which may have committed substantial resources 
to implement approved activities, as to the possibility that the 
Director might rescind the delegated approval well after the fact. To 
eliminate this uncertainty, commenters requested that the final rule 
require that the Director grant all NBA approvals. FHFA declines to 
accept the commenters' requests and has adopted the delegation of 
authority provision as proposed. FHFA included the delegation of 
authority provision within the proposed rule in large part to expedite 
the approval process for those NBA notices that do not raise 
significant policy, supervisory, or legal issues. This delegation of 
authority for the NBA notices is nearly identical to the existing 
delegations under which the Deputy Director has granted approvals for 
other transactions or issued non-objection letters to the Banks, and 
thus should create no greater uncertainty for the Banks than already 
exists with respect to approvals and non-objections letters. Further, 
as a matter of agency practice, the Deputy Director generally consults 
with the Director before granting any delegated authority approvals, 
particularly those raising significant supervisory, policy, or legal 
issues, and should continue to do so under the final rule.
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    \9\ See 12 CFR 1211.3(a) and 1211.4(a).
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V. Paperwork Reduction Act

    The Paperwork Reduction Act (PRA) (44 U.S.C. 3501 et seq.) requires 
that regulations involving the collection of information receive 
clearance from the Office of Management and Budget (OMB). The final 
rule contains no such collection of information requiring OMB approval 
under the PRA. Consequently, no information has been submitted to OMB 
for review.

VI. Regulatory Flexibility Act

    The final rule applies only to the Banks, which do not come within 
the meaning of small entities as defined in the Regulatory Flexibility 
Act (RFA). See 5 U.S.C. 601(6). Therefore, in accordance with section 
605(b) of the RFA, FHFA certifies that this final rule is not likely to 
have a significant economic impact on a substantial number of small 
entities.

List of Subjects in 12 CFR Part 1272

    Federal home loan banks, Reporting and recordkeeping requirements.

Authority and Issuance

0
Accordingly, for reasons stated in the preamble and under the authority 
of 12 U.S.C. 1431(a), 1432(a), 4511(b), 4513, 4526(a), FHFA hereby 
amends subchapter D of chapter XII of title 12 of the Code of Federal 
Regulations by revising part 1272 to read as follows:

[[Page 91694]]

PART 1272--NEW BUSINESS ACTIVITIES

Sec.
1272.1 Definitions.
1272.2 Limitation on Bank authority to undertake new business 
activities.
1272.3 New business activity notice requirement.
1272.4 Review process.
1272.5 Additional information.
1272.6 Examinations.
1272.7 Approval of notices.

    Authority: 12 U.S.C. 1431(a), 1432(a), 4511(b), 4513, 4526(a).


Sec.  1272.1  Definitions.

    As used in this part:
    Business Day means any calendar day other than a Saturday, Sunday, 
or legal public holiday listed in 5 U.S.C. 6103.
    NBA Notice Date means the date on which FHFA receives a new 
business activity notice.
    New business activity (NBA) means any business activity undertaken, 
transacted, conducted, or engaged in by a Bank that entails material 
risks not previously managed by the Bank. A Bank's acceptance of a new 
type of advance collateral does not constitute an NBA.


Sec.  1272.2  Limitation on Bank authority to undertake new business 
activities.

    No Bank shall undertake an NBA except in accordance with the 
procedures set forth in this part.


Sec.  1272.3  New business activity notice requirement.

    Prior to undertaking an NBA, a Bank shall submit a written notice 
of the proposed NBA that provides a thorough, meaningful, complete, and 
specific description of the activity such that FHFA will be able to 
make an informed decision regarding the proposed activity. At a 
minimum, the notice should include the following information:
    (a) A written opinion of counsel identifying the specific 
statutory, regulatory, or other legal authorities under which the NBA 
is authorized and, for submissions raising legal questions of first 
impression, a reasoned analysis explaining how the cited authorities 
can be construed to authorize the new activity;
    (b) A full description of the proposed activity, including, when 
applicable, infographics and definitions of key terms. In addition, the 
Bank shall indicate whether the proposed activity represents a 
modification to a previously approved activity in which the Bank is 
engaged or is an activity that FHFA has approved for any other Banks, 
if known to the requesting Bank, and if applicable;
    (c) A discussion of why the Bank proposes to engage in the new 
activity and how the activity supports the housing finance and 
community investment mission of the Bank;
    (d) A discussion of the risks presented by the new activity and how 
the Bank will manage these risks; and
    (e) A good faith estimate of the anticipated dollar volume of the 
activity, and the income and expenses associated with implementing and 
operating the new activity, over the initial three years of operation.


Sec.  1272.4  Review process.

    (a) Within 30 business days of the NBA Notice Date, FHFA will take 
one of the following actions:
    (1) Approve the proposed NBA;
    (2) Deny the proposed activity; or
    (3) Inform the Bank that the activity raises policy, legal, or 
supervisory issues that require further evaluation. If FHFA fails to 
take any of those actions by the 30th business day following the NBA 
Notice Date, the NBA notice shall be deemed to have been approved and 
the Bank may commence the activity for which the notice was submitted.
    (b) In the case of any notice that FHFA has determined requires 
further evaluation, FHFA will approve or deny the notice by no later 
than the 80th business day following the NBA Notice Date. If FHFA fails 
to approve or deny a NBA notice by that date, and the Director has not 
extended the review period, the NBA notice shall be deemed to have been 
approved and the Bank may commence the activity for which the notice 
was submitted.
    (c) For purposes of calculating the review period, no days will be 
counted between the date that FHFA has requested additional information 
from the Bank pursuant to Sec.  1272.5 and the date that the Bank 
responds to all questions communicated.
    (d) Notwithstanding anything contained in this part, the Director 
may extend the 80 business-day review period by an additional 60 
business days if the Director determines that additional time is 
required to consider the notice. In such a case, FHFA will inform the 
Bank of any such extension before the 80th business day following the 
NBA Notice Date, and the Bank may not commence the NBA until FHFA has 
affirmatively approved the notice.
    (e) In considering any NBA notice, FHFA will assess whether the 
proposed activity will be conducted in a safe and sound manner and is 
consistent with the housing finance, community investment, and 
liquidity missions of the Banks and the cooperative nature of the Bank 
System. FHFA may deny an NBA notice or may approve the notice, which 
approval may be made subject to the Bank's compliance with any 
conditions that FHFA determines are appropriate to ensure that the Bank 
conducts the new activity in a safe and sound manner and in compliance 
with applicable laws or regulations and the Bank's mission.


Sec.  1272.5  Additional information.

    FHFA may request additional information from a Bank necessary to 
issue a determination regarding an NBA. After an initial request for 
information, FHFA may make subsequent requests for information only to 
the extent that the information provided by the Bank does not fully 
respond to a previous request, the subsequent request seeks information 
needed to clarify the Bank's previous response, or the information 
provided by the Bank raises new legal, policy, or supervisory issues 
not evident based on the Bank's NBA notice or responses to previous 
requests for information. Nothing contained in this paragraph shall 
limit the Director's authority to request additional information from a 
Bank regarding an NBA for which the Director has extended the review 
period.


Sec.  1272.6  Examinations.

    Nothing in this part shall limit in any manner the right of FHFA to 
conduct any examination of any Bank relating to its implementation of 
an NBA, including pre- or post-implementation safety and soundness 
examinations, or review of contracts or other agreements between the 
Bank and any other party.


Sec.  1272.7  Approval of notices.

    The Deputy Director for Federal Home Loan Bank Regulation may 
approve requests from a Bank seeking approval of any NBA notice 
submitted in accordance with this part. The Director reserves the right 
to modify, rescind, or supersede any such approval granted by the 
Deputy Director, with such action being effective only on a prospective 
basis.

    Dated: December 12, 2016.
Melvin L. Watt,
Director, Federal Housing Finance Agency.
[FR Doc. 2016-30245 Filed 12-16-16; 8:45 am]
 BILLING CODE 8070-01-P