[Federal Register Volume 87, Number 247 (Tuesday, December 27, 2022)]
[Rules and Regulations]
[Pages 79217-79232]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-27942]


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FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1253

RIN 2590-AA17


Prior Approval for Enterprise Products

AGENCY: Federal Housing Finance Agency.

ACTION: Final rule.

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SUMMARY: The Federal Housing Finance Agency (FHFA or Agency) is 
adopting a final rule that establishes a process for the Federal 
National Mortgage Association (Fannie Mae) and the Federal Home Loan 
Mortgage Corporation (Freddie Mac) (collectively, the Enterprises) to 
provide advance notice to the FHFA Director before offering a new 
activity to the market and to obtain prior approval from the Director 
before offering a new product to the market.

DATES: This final rule is effective February 27, 2023.

FOR FURTHER INFORMATION CONTACT: Susan Cooper, Senior Policy Analyst, 
Office of Housing and Regulatory Policy, (202) 649-3121, 
[email protected]; or Dinah Knight, Assistant General Counsel, 
Office of General Counsel, (202) 748-7801, [email protected], 
Federal Housing Finance Agency, 400 Seventh Street SW, Washington, DC 
20219. These are not toll-free numbers. For TTY/TRS users with hearing 
and speech disabilities, dial 711 and ask to be connected to any of the 
contact numbers above.

SUPPLEMENTARY INFORMATION: 

I. Introduction

A. Statutory Background

    In recognition of the significant impact that the activities of the 
Enterprises have on the U.S. housing finance system, market 
participants, and the broader economy, section 1321 of the Federal 
Housing Enterprises Financial Safety and Soundness Act of 1992, as 
amended (12 U.S.C. 4501 et seq.) (the Safety and Soundness Act or Act) 
requires the FHFA Director to review new Enterprise activities and to 
approve new Enterprise products before these activities and products 
can be offered to the market.
    Specifically, the Act requires an Enterprise to provide ``written 
notice'' to the Director for a determination of whether a new activity 
is a new product subject to prior approval under section 1321. See 
section 1321(e)(2) of the Safety and Soundness Act (12 U.S.C. 
4541(e)(2)). If the Director determines that the new activity is a new 
product,

[[Page 79218]]

the Enterprise shall ``obtain the approval of the Director . . . before 
initially offering the product.'' See section 1321(a) of the Safety and 
Soundness Act (12 U.S.C. 4541(a)). In considering any request for 
approval of a new product, the Director shall determine whether the 
proposed new product is authorized pursuant to certain sections of the 
Enterprises' authorizing statutes,\1\ in the public interest, and 
consistent with the safety and soundness of the Enterprise or the 
mortgage finance system. See section 1321(b) of the Safety and 
Soundness Act (12 U.S.C. 4541(b)).
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    \1\ Fannie Mae's authorizing statute is the Federal National 
Mortgage Association Charter Act (12 U.S.C. 1716 et seq.). Freddie 
Mac's authorizing statute is the Federal Home Loan Mortgage 
Corporation Act (12 U.S.C. 1451 et seq.).
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    Certain activities are excluded from the review and approval 
requirements under the Act, including: (1) the Enterprises' automated 
loan underwriting systems as in existence on July 30, 2008 (AUS), and 
any upgrades to the technology, operating systems, or software to 
operate the underwriting systems; (2) any modifications to mortgage 
terms and conditions or underwriting criteria relating to mortgages 
that are purchased or guaranteed by an Enterprise but that do not alter 
the nature of the underlying transaction as residential mortgage 
financing; and (3) activities that are substantially similar to the 
activities in (1) and (2) and to new products that have been approved 
by the Director (substantially similar activities). See section 1321(e) 
of the Safety and Soundness Act (12 U.S.C. 4541(e)). The Act prescribes 
timeframes for FHFA to complete its review and to provide the public 
with notice and an opportunity to comment on a proposed new product. 
See sections 1321(c) and (e) of the Safety and Soundness Act (12 U.S.C. 
4541(c) and (e)).

B. The Interim Final Rule and Notice of Proposed Rulemaking

    FHFA adopted an interim final rule for Prior Approval for 
Enterprise Products which became effective on July 2, 2009, and which 
remains in effect until the effective date of this final rule. See 
interim final rule, 12 CFR part 1253.\2\ On November 9, 2020, FHFA 
published in the Federal Register a Notice of Proposed Rulemaking on 
Prior Approval for Enterprise Products (Proposed Rule) that, if 
finalized, would replace the interim final rule. See Proposed Rule, 85 
FR 71276. FHFA requested public comment on all aspects of the Proposed 
Rule. The final rule reflects adoption, clarifications, or changes 
based on the comments received, as well as other technical and 
conforming changes. A full discussion of the comments received, the 
Agency's responses, and a section-by-section analysis of the final rule 
are included in the subsequent sections.
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    \2\ 74 FR 31602 (July 2, 2009).
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II. Discussion of Comments and Agency Response

A. Overview of Comments Received

    FHFA received 17 comments on the Proposed Rule. Commenters included 
the Enterprises, National Association of Home Builders, National 
Taxpayer Union, American Enterprise Institute, Community Home Lenders 
Association, National Association of Federal Credit Unions, American 
Bankers Association, Mortgage Bankers Association, Center for 
Responsible Lending, Independent Community Bankers of America, Housing 
Policy Council, U.S. Mortgage Insurers, National Association of 
Realtors, Manufactured Housing Institute, Consumer Federation of 
America, and one lender. Most commenters were generally supportive of 
the Proposed Rule and many suggested areas where it could be improved 
or clarified.
    Comments received and FHFA's responses are summarized by topic 
below. In general, commenters raised concerns with the proposed 
submission process for a new activity, one aspect of which provided 
that the determination of whether a new activity was a new product 
would be subject to Agency discretion. Some commenters praised the 
explicit inclusion of pilots in the scope of a new activity while also 
sharing their concerns about how pilots are conducted by the 
Enterprises. Other commenters preferred that pilots be excluded from 
the requirements of the final rule. Several commenters suggested 
further changes to the descriptions of a new activity and a new 
product, including an expansion of the exclusions to reference 
technology that assists the Enterprises in performing their core 
functions. Commenters also suggested additional public interest factors 
that should be considered when evaluating a new product, particularly 
within the context of the impact of a proposed new product on 
competition. Many commenters also noted that the Proposed Rule, unlike 
the interim final rule, did not include a provision for requesting 
confidential treatment of information submitted to FHFA. Lastly, 
commenters recommended that the final rule impose on FHFA a requirement 
to report on the Enterprises' new activity submissions and FHFA's 
decisions on those submissions.

B. FHFA Determination and Approval of a New Product

    Submission Process. FHFA proposed a notice process that would have 
required an Enterprise to make a single submission for a new activity 
and a new product (notice of new activity). FHFA would evaluate the 
notice and determine whether the new activity was subject to prior 
approval as a new product. The Director would make the new product 
determination based on whether the new activity merited public notice 
and comment on matters of compliance with the Enterprise's authorizing 
statute, safety and soundness of the Enterprise or the mortgage finance 
system, or serving the public interest. FHFA also proposed streamlined 
and simplified content for the notice of new activity that consolidated 
interrelated content from the sets of instructions in the interim final 
rule but would still be sufficient to conduct a complete assessment of 
associated risks and to weigh those risks against the benefits to 
public interest.
    Commenters had varying views on the submission process. Two 
commenters supported the proposed submission process, with one noting 
that the scope of information was sufficient and guidelines for 
submission were appropriate ``and should help FHFA develop public 
notices that provide potential commenters with relevant information 
about future Enterprise activities.'' However, other commenters 
expressed concerns with and/or provided recommendations for the 
submission process. First, many found the breadth of information 
requested for a new activity disproportionately burdensome since only 
advance notice to FHFA is required by statute. These commenters instead 
viewed the scope of information as more appropriate for a request for 
prior approval of a new product. One commenter observed that the 
Proposed Rule requires the same information, at the same level of 
detail, for a new activity and for a new product. Another commenter 
urged FHFA to develop a streamlined process to permit the Enterprises 
to submit new activities to FHFA without the extensive detail required 
for new products. Commenters also believed that the valuable time and 
resources used to prepare detailed notices for new activities would 
inhibit the Enterprises' ability to pursue initiatives. In addition, 
the Enterprises believed that requiring an executive officer to certify 
that the notice of new activity did not contain material 
misrepresentations or

[[Page 79219]]

omissions was unduly burdensome for a new activity (but not a new 
product) because it would entail establishing processes and dedicating 
resources to support such a certification. One Enterprise asserted that 
``robust internal controls are sufficient to ensure quality submissions 
[for a new activity] without the need for an accuracy and completeness 
certification to FHFA.''
    Next, commenters recommended that the Enterprises, not FHFA, should 
make the initial determination on whether a new activity is a new 
product. Under that approach, the Enterprise would need to determine 
whether to submit either a notice of new activity or a request for 
prior approval of a new product. One commenter believed that the ``. . 
. enhanced definitions of a new activity and a new product in the 
proposed rule are sufficient for an Enterprise to make that 
determination.'' The commenter recommended that FHFA re-introduce from 
the interim final rule the concept of an Enterprise consulting with 
FHFA prior to submitting a notice of new activity to determine whether 
a new activity is a new product. Another commenter stated that ``. . . 
whether FHFA ultimately adopts a one- or two-step submission process, 
the final rule should make clear that an Enterprise may withdraw a 
submission at any time.''
    Lastly, some commenters expressed concerns about the level of 
discretion that the Director would have in determining whether a new 
activity was a new product. One commenter argued that the discretionary 
authority granted to the Director in the Proposed Rule appeared to 
circumvent Congress's requirement that all Enterprise offerings 
classified as new products be subject to public notice and comment. 
Other commenters were concerned that the discretion granted under the 
final rule could result in opaque decision-making.
    After careful consideration, FHFA is modifying the submission 
process to address commenters' concerns about burden. FHFA agrees with 
commenters that the information required for FHFA to review a new 
activity (versus a new product) can be distinguished without 
compromising FHFA's ability to complete its assessment. FHFA also 
agrees that even for the review of a new product the information 
requirements could be further streamlined. The final rule reflects 
changes accordingly. These changes should alleviate some of the burden 
associated with the submission process and conserve valuable resources 
at the Enterprises, as well as FHFA. However, FHFA disagrees with the 
Enterprises' assertion that requiring an executive officer to certify 
to the accuracy of a new activity submission is unduly burdensome and 
will retain that requirement in the final rule. As stated by one 
Enterprise, it already has robust internal controls and governance 
processes for developing and offering a new activity, and these 
controls and processes invariably involve an executive officer's 
judgement, expertise, and approval. Therefore, FHFA does not believe it 
is an undue burden to require an executive officer to certify to the 
accuracy of the information contained in a notice of new activity.
    In terms of allowing an Enterprise to make the initial 
determination whether to provide prior notice of a new activity or 
request prior approval for a new product, FHFA still believes that it 
is not practical to require an Enterprise to identify in advance a new 
product--as distinct from a new activity that is not a new product--for 
purposes of determining which type of submission to make to the Agency. 
The Act does not provide definitions for a product or an activity. As a 
result, the Proposed Rule provided distinguishing characteristics to 
implement the statutory mandate for the Director to approve a new 
product prior to an Enterprise offering that product. The statutory 
standard for approving a new product includes determinations that the 
product complies with an Enterprise's authorizing statute, is in the 
public interest, and is consistent with the safety and soundness of the 
Enterprise or the mortgage finance system. See section 1321(b) of the 
Safety and Soundness Act (12 U.S.C. 4541(b)). Because of the lack of 
statutory definitions, and the breadth of the statutory considerations 
relevant to approval, FHFA concludes that a more precise definition of 
a new product is not feasible, and that the Director must be able to 
consider each new activity, and whether that new activity should be 
deemed a new product, based on a broad consideration of all the facts 
and circumstances it presents.\3\
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    \3\ When adopting the interim final rule, FHFA concluded that 
``the determination whether a new activity is a new product in 
specific instances is committed to agency discretion by law,'' 74 FR 
31602, 31603 (July 2, 2009). See Samuels v. FHFA, 54 F. Supp. 3d 
1328 (S.D. Fla. 2014).
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    However, FHFA agrees that the final rule should have an explicit 
provision that allows an Enterprise to consult with FHFA prior to 
submitting a notice of new activity. If, based on that consultation, 
the Director determines that a new activity is a new product, then the 
review process could be expedited. FHFA believes that including a 
consultation provision and pairing it with abbreviated submission 
requirements for new activities and more detailed information 
requirements for new products (that still reflect streamlining of the 
information requirements from the Proposed Rule) should facilitate the 
Enterprises' compliance with the final rule. Further, even though the 
Proposed Rule implicitly permitted an Enterprise to withdraw a 
submission at any time, FHFA has also included language in the final 
rule that explicitly permits an Enterprise to discontinue its efforts 
to pursue a new activity once the Director has determined it to be a 
new product.
    Timeframes for FHFA Review and Public Comment Period. FHFA proposed 
that before commencing any new activity, an Enterprise must submit a 
notice of new activity, which would not be considered complete and 
received for processing until the information required by the Proposed 
Rule had been submitted, including any follow-up information requested 
by FHFA. After FHFA deemed the submission complete and received, the 
Director would have 15 days to determine whether the new activity was a 
new product. If the Director determined that the new activity was a new 
product, FHFA would publish a public notice soliciting comments on the 
new product for a 30-day period. The Director would approve or 
disapprove the proposed new product no later than 30 days after the 
close of the public comment period. The Proposed Rule defined ``days'' 
as calendar days. The 15 days for FHFA to review a new activity and 
make a new product determination, the 30-day public comment period, and 
the 30 days for FHFA to complete its review of a proposed new product 
following the close of the public comment period are established by 
statute. The Act also provides that the Enterprise may offer the new 
activity or new product to the market if FHFA does not render a 
decision within the statutory timeframes for review.
    Several commenters noted that the Proposed Rule did not provide 
specific timeframes for FHFA to deem a submission complete or publish a 
notice for public comment once the Director determined that a new 
activity was a new product and recommended that the final rule include 
such timeframes. One commenter stated that ``[a]llowing FHFA unlimited 
time to notify the Enterprises that a submission is complete and 
received practically renders moot the expedited 15-day review,'' and 
that this unlimited time period should be reconsidered. Another 
commenter argued that the 15-day period for a new activity review 
should

[[Page 79220]]

start the day that FHFA receives the notice and that ``the period 
should be tolled . . . any time FHFA determines a submission to be 
incomplete . . . resuming only when the Enterprise delivers the 
information requested.'' Another commenter believed that the final rule 
should establish a specific timeframe for FHFA to prepare a public 
notice, stating that ``at most, a five business-day deadline for FHFA 
to publish the public notice should provide FHFA with a reasonable 
period to prepare the notice based on the information provided by the 
Enterprise.'' A few commenters also recommended that the final rule 
have a comment period longer than 30 days. One commenter recommended 
that FHFA ``provide, within the statutory constraints, the public with 
more time to provide comments on new products'' by excluding ``all 
weekends and holidays (as is the current practice under the interim 
final rule).''
    After considering these comments, FHFA is not including in the 
final rule specific timeframes for deeming a submission complete and 
received or for publishing a public notice. However, FHFA will act 
expeditiously in its review of a submission, and the final rule states 
that FHFA will publish a public notice ``without delay.'' FHFA 
recognizes that the Act is designed to ensure that FHFA moves quickly 
in its review. However, the Agency also recognizes that it has a 
responsibility to conduct due diligence and review a submission to 
ensure that the Enterprise has provided the required information for 
the Director to make the determination of whether a new activity is a 
new product. Similarly, FHFA believes that it has a responsibility to 
carefully prepare a notice for public comment that accurately reflects 
the Enterprise's proposed new product and provides the public with 
enough information to provide meaningful comments. Regarding comments 
to extend the public notice and comment period, FHFA will apply the 
practice it uses when publishing proposed and final regulations, which 
is to publish the public notice on the Agency's website the same day 
that it submits it to the Federal Register. Given that the Federal 
Register is unlikely to publish the public notice for a new product 
immediately, the public will have the opportunity to preview the notice 
on FHFA's website before the comment period officially begins.
    Standards for Approval. In line with the Act, FHFA proposed that 
the Director may approve a new product if the Director determined that 
it was authorized under the relevant sections of the Enterprise's 
charter, in the public interest, and consistent with the safety and 
soundness of the Enterprise or the mortgage finance system. Two 
commenters recommended enhancements to the final rule that would also 
create explicit review standards for a new activity. One commenter 
suggested that a new activity should be subject to review under four 
standards: (1) any applicable law; (2) the Director's safety and 
soundness authority; (3) an Enterprise's authorizing statute; and (4) 
the public interest, and that the final rule should give equal weight 
to safety and soundness and the public interest. Another commenter 
recommended that FHFA establish ``a list of questions to evaluate the 
product or activity[, which] would provide a baseline that would ensure 
more consistent and objective evaluation of the public interest . . .''
    After considering these comments, FHFA is not changing the 
standards for approval. The standards for approval of a new product are 
established by statute. These standards are not weighted, as suggested 
by one commenter, and are considered comprehensively. The Act does not 
establish standards for approval for a new activity because unlike a 
new product, a new activity need not be approved by the Director but 
instead is reviewed to determine whether it is a new product. As noted 
by commenters, FHFA has the authority to review new activities and new 
products under any applicable regulation or statute, as part of FHFA's 
authority to review for safety and soundness and for consistency with 
an Enterprise's statutory mission. Also, FHFA believes that 
establishing a list of questions to review a new activity or approve a 
new product is duplicative of the public interest factors that are to 
be considered by the Director in determining whether a new activity is 
a new product and in determining whether to approve a proposed new 
product. The public interest factors are discussed in more detail in 
Section D below.

C. New Activity and New Product

    Scope of New Activity. FHFA proposed that an ``activity'' is a 
business line, business practice, offering or service, including a 
guarantee, a financial instrument, consulting, or marketing, that the 
Enterprise provides to the market, and defined it as a ``new'' activity 
if the Enterprise is not engaged in the activity as of the effective 
date of the final rule or if the Enterprise enhances, alters, or 
modifies an existing activity. In addition, the Proposed Rule required 
that a new activity must be described by one or more of the following 
criteria: (1) requires a new type of resource, type of data, policy, or 
modification to an existing policy, process, or infrastructure; (2) 
expands the scope or increases the level of credit risk, market risk, 
or operational risk to the Enterprise; (3) involves a new category of 
borrowers, investors, counterparties, or collateral; (4) substantially 
impacts the mortgage finance system, the Enterprise's safety and 
soundness, compliance with the Enterprise's authorizing statute, or the 
public interest; (5) is a pilot; or (6) results from a pilot. FHFA 
specifically requested comment on whether the criteria were 
unambiguous, transparent, and sufficient for identifying a new 
activity, and if not, how they could be improved.
    When responding to FHFA's questions, commenters fell into two 
distinct groups. Some commenters believed the criteria to be 
unambiguous and sufficient for identifying a new activity, while other 
commenters did not. Among the former, one commenter viewed the criteria 
as ``inclusive of most scenarios that [an Enterprise] could possibly 
face when adding a new activity or product.'' Another commenter 
supported the more objective approach to identifying new activities as 
contained in the Proposed Rule rather than relying solely on exclusions 
as had been done in the interim final rule. However, other commenters 
viewed the criteria as overly broad and in need of clarification. One 
commenter stated that the ``definition of new activity should not be so 
broad that it includes every minor deviation of an existing program or 
small process/policy changes.'' Other commenters, including the 
Enterprises, were concerned that the criteria could capture a large 
volume of routine activities, including revisions and updates to 
internal risk management policies and selling and servicing guides. 
Some commenters recommended that FHFA clarify the criteria by including 
a materiality standard or re-introducing qualifiers from the interim 
final rule, such as ``significantly,'' ``de minimis,'' or numerical 
thresholds, to ensure that immaterial increases in risk do not trigger 
notification under the final rule.
    FHFA purposely designed the criteria to be broad because, as 
recognized by a few commenters, the Agency's review of new activities 
functions as a screening process for identifying new products. While 
FHFA is not changing the criteria to narrow their scope, FHFA agrees 
that certain changes to improve clarity are appropriate and would 
enhance

[[Page 79221]]

Enterprise compliance with the final rule.
    FHFA is not adopting the commenters' suggestions to add qualifying 
language or numerical thresholds to the criteria because the 
suggestions do not resolve the issues that FHFA identified with the 
interim final rule. In the Proposed Rule, FHFA sought not only to 
describe what is a new activity (rather than what is not a new activity 
as was the case in the interim final rule) but also to establish 
objective criteria that distinguish a new activity from an on-going 
activity. Furthermore, FHFA believes that it is difficult to measure 
and consistently apply numerical thresholds or other qualifiers such as 
``de minimis,'' across all Enterprise business lines, business 
practices, offerings, and services.
    Exclusions. In conjunction with the proposed criteria for 
identifying a new activity, the Proposed Rule incorporated the 
statutory exclusions from the review and approval requirements of the 
Act. The Proposed Rule described the statutory exclusions, which are 
either the specific activities or substantially similar activities as 
described in Section I.A above. The specific activities excluded from 
the scope of the Proposed Rule were: (1) the Enterprises' AUS (Fannie 
Mae's Desktop Underwriter and Freddie Mac's Loan Product Advisor) and 
upgrades to the technology, operating system or software to operate an 
AUS; and (2) any modifications to mortgage terms and conditions or 
underwriting criteria relating to mortgages that are purchased or 
guaranteed by an Enterprise but that do not alter the nature of the 
underlying transaction as residential mortgage financing. The Proposed 
Rule also made explicit that business practices, transactions, or 
services performed or conducted solely to facilitate the administration 
of an Enterprise's internal affairs would be excluded as well. FHFA 
requested comment on how the exclusion for the AUS should apply to 
existing technology systems that are related but independent from the 
AUS, as well as to future technology systems, and whether the 
exclusions overall should be narrowed or expanded. Comments and 
questions related to the exclusions for substantially similar 
activities are addressed in a separate discussion below under the 
heading ``Exclusions for Substantially Similar Activities.''
    In responding to the questions about the AUS exclusion and whether 
the exclusions overall should be expanded, one commenter was supportive 
of the proposed exclusions, believing them to be appropriate and 
consistent with the ``need for a rigorous review process that is not 
unduly time-consuming or stifling.'' Another commenter stated that the 
exclusion for activities involving the AUS should be narrowed and apply 
only to the capabilities of the AUS as of the effective date of the 
final rule. The commenter further argued that ``any new benefit, 
protection, right, relief, or change to the origination process--as 
well as activities traditionally associated with the primary mortgage 
market--should be considered new activities and outside the scope of 
the proposed exclusion.'' However, several commenters recommended that 
the exclusions be expanded to include technology systems that are 
related but independent from an AUS, such as the models and 
applications that assist an AUS in assessing the risk of a mortgage. 
One Enterprise asserted that an AUS is not a single technology system 
but is a collection of interrelated and integrated technology systems 
that embody the mortgage terms and conditions or underwriting criteria 
that are published in the Enterprises' respective selling and servicing 
guides, and therefore should be excluded, as was intended by the 
statute. The commenters who favored expanding the exclusion believe 
that subjecting these technology systems to the requirements of this 
final rule could unduly delay updates that incorporate new types of 
data or resources, potentially rendering the AUS obsolete over time 
because the market is moving or shifting faster than an Enterprise can 
update it through the new activity or new product process, and 
consequently exposing the Enterprise to increased risk. Two commenters 
and the Enterprises requested that the exclusions be expanded to name 
the actual integrated or interrelated technologies, such as Collateral 
Underwriter and Loan Collateral Advisor, among others. One commenter 
also suggested that technology innovations that merely enhance ease of 
access to housing data should also be excluded from the requirements of 
the final rule.
    FHFA has carefully considered the commenters' suggestions for 
expanding the exclusion related to the AUS and believes it should 
remain as proposed. In retaining the exclusion as proposed, FHFA is 
striking a balance between excluding an activity that is part of an 
Enterprise's core business from prior notice requirements and including 
an activity that introduces new technology to the mortgage industry 
that may serve a primary market function. However, FHFA recognizes that 
some technologies perform functions similar to the AUS because they 
assist in applying the Enterprise's underwriting criteria and assessing 
the credit risk of the mortgage and that other technologies mirror the 
mortgage terms and conditions and underwriting criteria that are 
reflected in an Enterprise's selling and servicing guide. As a result, 
FHFA is revising the exclusion for substantially similar activities to 
include the technologies (other than the AUS) that apply underwriting 
criteria or mortgage terms and conditions to residential mortgages 
purchased or guaranteed by the Enterprises so that changes to systems 
such as Fannie Mae's Collateral Underwriter or Loan Delivery and 
Freddie Mac's Loan Collateral Advisor or Loan Selling Advisor do not 
require a notice of new activity. By revising the exclusions for 
substantially similar activities rather than the exclusions for an 
Enterprise AUS, FHFA achieves the balance it is seeking. In contrast to 
activities that fall under the AUS exclusion, an Enterprise must submit 
advance notice to FHFA before engaging in a substantially similar 
activity (notice of substantially similar activity). By reviewing a 
notice of substantially similar activity, the Agency can assess 
technological enhancements to ensure that they are substantially 
similar to the AUS or mortgage terms and conditions or underwriting 
criteria and are not a new activity or a new product.
    As discussed previously, some commenters feared that the final rule 
could capture a large volume of routine activities, including revisions 
and updates to the Enterprises' internal risk management policies and 
selling and servicing guides. Conversely, another commenter felt that 
the public and FHFA should have the opportunity to assess potential 
changes to an Enterprise's underwriting criteria that would materially 
impact its credit box or consumer access to credit because the 
Enterprises ``essentially set the rules for the market.'' Commenters 
were also concerned that the underwriting and servicing policy changes 
put in place in response to the COVID-19 pandemic could have been 
treated as new activities under the Proposed Rule even though the 
changes did not result in a new product offering to the market. In a 
related comment, both Enterprises mentioned the significant number of 
lender letters and bulletins issued that addressed housing issues 
related to the pandemic, which kept borrowers and renters in their 
homes and made closings possible under social distancing requirements 
and shutdowns. Other commenters mentioned new loss mitigation 
activities

[[Page 79222]]

made available during the pandemic that should be explicitly excluded, 
such as the introduction of the Enterprises' new home retention 
repayment option that allows borrowers to defer unpaid mortgage 
payments and turn them into a noninterest-bearing balance due when the 
mortgage is paid off.
    FHFA disagrees that routine activities, updates to the Enterprises' 
respective selling and servicing guides, or changes to underwriting 
criteria or mortgage terms and conditions are captured or should be 
captured under the final rule. In reviewing the comments, FHFA noted 
that many commenters did not seem to understand the scope of the 
exclusions, which, in keeping with the Act, are designed to exclude 
changes to mortgage terms and conditions or underwriting criteria 
relating to residential mortgages purchased or guaranteed by an 
Enterprise, such as an Enterprise's core activities involving its 
Single-Family and Multifamily business lines. For example, changes to 
an Enterprise's underwriting criteria or servicing and loss mitigation 
policies in response to the COVID-19 pandemic would not require an 
Enterprise to submit a notice of new activity to FHFA. However, several 
commenters seemed to believe that such changes, though specifically 
excluded by the Act, could and would be considered a new activity and 
require the Enterprise to submit a notice of new activity. FHFA 
believes the Act and the Proposed Rule clearly exclude activities that 
involve any modification to the mortgage terms and conditions or 
underwriting criteria for residential mortgage financing, such as those 
activities that resulted in temporary loss mitigation policies or 
underwriting flexibilities or restrictions in response to the pandemic. 
However, given that commenters had difficulty understanding the 
exclusions, FHFA is making changes to enhance clarity but retain the 
scope of the exclusions as proposed.
    The Enterprises requested that the exclusions in the final rule be 
expanded to exclude activities under the Duty to Serve Regulation (12 
CFR part 1282, subpart C). The Enterprises argued that those activities 
have already undergone a review by FHFA and were made available for 
public notice and comment, and therefore it would be a duplicative 
regulatory burden to make them subject to the final rule. The 
Enterprises also requested that the exclusion for any Enterprise 
business practice performed solely to facilitate the administration of 
an Enterprise's internal affairs be revised to make clear that the 
activities performed to mitigate their risk on mortgages that they 
purchase or guarantee are also excluded from the definition of a new 
activity.
    FHFA is not adopting the Enterprises' requested changes to the 
exclusions in the final rule. An FHFA non-objection to an Enterprise's 
Duty to Serve plan--or an Equitable Housing Finance Plan, for that 
matter--applies only to the plan itself and not to the underlying 
activities. Therefore, it is not a duplicative regulatory burden but 
rather completely appropriate for such activities to be subject to the 
final rule if they meet one or more of the new activity criteria. 
Regarding the exclusion for business practices internal to the 
Enterprises, FHFA is not revising this exclusion because, as proposed, 
the exclusion already captures those risk mitigation activities that 
are internal to an Enterprise such as those mentioned by Freddie Mac in 
its comment letter (``establishing internal controls, updating obsolete 
systems and technologies, and improving efficiencies related to 
analyzing, processing, and documenting internal information''). 
However, if an Enterprise's risk mitigation activities are ultimately 
provided to the market in the form of an offering or service, they are 
no longer exclusively internal to the Enterprise and will be subject to 
the final rule if the activity meets one or more of the new activity 
criteria and is otherwise not excluded.
    Exclusions for Substantially Similar Activities. As mentioned 
previously, FHFA proposed an exclusion for substantially similar 
activities as described in Section I.A. above. Several commenters found 
this exclusion confusing, with one stating that the Proposed Rule 
``provides no clarity or definition as to what `substantially similar' 
means for purposes of [the] exclusion.'' Another commenter recommended 
the removal of the provision in the final rule that stated that if an 
activity met one or more of the new activity criteria, it could not be 
considered substantially similar. A few commenters requested that the 
final rule clarify that the exclusion for an activity that is 
substantially similar to an approved new product is available to 
``either'' Enterprise and not only to the Enterprise that did not 
obtain the original new product approval. Lastly, one Enterprise 
suggested that existing and future technology systems that are integral 
to an Enterprise's mortgage terms, conditions, and underwriting and 
have functions similar to the AUS could be considered ``substantially 
similar'' to the AUS system or to modifications to mortgage terms, 
conditions and underwriting criteria.
    In response to these comments, FHFA is changing this section in the 
final rule to make it clear that this exclusion applies to ``either'' 
Enterprise. FHFA is also revising the final rule to adjust and clarify 
the scope of the exclusion in two principal ways. First, the final rule 
distinguishes the criteria used for determining whether an activity is 
substantially similar to activities that are otherwise excluded from 
the review and approval requirements under the Safety and Soundness Act 
(i.e., changes to the AUS, mortgage terms and conditions, and 
underwriting criteria) from the criteria used for determining whether 
an activity is substantially similar to a new product that an 
Enterprise is authorized to offer to the market. The criteria for 
determining whether an activity is substantially similar to a new 
product are more rigorous than for determining whether an activity is 
substantially similar to an excluded activity. For example, activities 
like modifying the Enterprises' loan delivery systems or other 
technology systems to apply updated Qualified Mortgage criteria are not 
likely to merit public notice and comment because--like updates to the 
statutorily excluded AUS--they tend to be routine activities. However, 
under the Proposed Rule, this type of update to a technology system 
would require a notice of new activity. Similarly, simple changes to 
the risk scores provided by Collateral Underwriter or Loan Collateral 
Advisor may not satisfy the criteria for substantially similar and 
could require a notice of new activity each time a modification is 
made. Treating these types of modifications as new activities would be 
unduly burdensome on the Agency and on the Enterprises. To mitigate 
this burden, FHFA is revising the final rule so that the Director may 
determine that any technology that applies mortgage terms and 
conditions or underwriting criteria relating to residential mortgages 
that are purchased or guaranteed by an Enterprise or any modifications 
to those technologies (e.g., modifications to Collateral Underwriter 
and Loan Collateral Advisor) are substantially similar to the 
statutorily excluded AUS, mortgage terms and conditions, or 
underwriting criteria.
    Second, with respect to activities that are substantially similar 
to new products, FHFA recognizes that describing what are not 
substantially similar activities for purposes of the exclusion is 
potentially confusing and is revising this section to affirmatively 
describe what are substantially similar activities. Additionally, FHFA 
is

[[Page 79223]]

slightly expanding the scope of the exclusion in the final rule in a 
manner that is consistent with the goal of screening to confirm that 
the activity is not a new activity. For example, where the Proposed 
Rule provided that an activity would not be substantially similar to an 
approved new product if the activity required a new resource, type of 
data, policy, process, or infrastructure, the final rule provides that 
the Director may determine that an activity is substantially similar to 
an approved new product if the activity requires the same or similar 
resource, type of data, policy, process, or infrastructure as the 
approved new product. These changes should provide the clarity that 
commenters and the Enterprises are seeking for this exclusion.
    Treatment of Pilots. As part of the new activity description and 
exclusions, FHFA proposed to include activities that are pilots or that 
result from a pilot as among the criteria that would identify a new 
activity. Under the Proposed Rule, a pilot was defined as an activity 
that had a defined term and scope for the purposes of understanding the 
viability of a new offering, and FHFA recognized that pilots are 
referred to in different ways, such as a testing initiative, test and 
learn, or temporary authorization.
    FHFA received a wide range of comments about including pilots as 
one of the criteria for identifying a new activity. Several commenters 
supported their explicit inclusion in the scope of a new activity to 
help minimize ``pilot creep.'' Some commenters suggested that the final 
rule should have formal constraints on the duration and volume for 
pilots that would require the Enterprise to submit a new notice when 
the pilot reached those limits. Other commenters and the Enterprises 
took the opposite position and stated that including pilots in the 
scope of a new activity is too broad and would stifle innovation. One 
commenter argued that the word ``pilot'' should be removed from the 
definition of a new activity ``. . . as the word has never been clearly 
defined or consistently applied throughout the industry.'' The same 
commenter also suggested that pilots should be excluded from the new 
activity description. Finally, several commenters stressed that there 
is a lack of transparency and inclusivity for pilots, giving some 
market participants an advantage over others, which they believe FHFA 
should address through the final rule.
    FHFA disagrees with the commenters who suggested that pilots should 
be excluded from the scope of a new activity. As noted by several other 
commenters, a pilot is how an Enterprise typically determines the 
viability of a future offering. In general, Enterprise products and 
activities have significant effects on the market and market 
participants. Regardless of the size of a pilot, it could have a 
significant effect on the public interest. Therefore, it is critical 
for FHFA to review pilots as new activities to determine whether they 
are indeed new products that merit public notice and comment.
    FHFA agrees with commenters that there should be process 
requirements for reviewing pilots beyond what was proposed, and has 
added language to the final rule that requires an Enterprise to submit 
a notice of new activity both when a pilot is initiated and when 
modifications to the volume and duration of the pilot are made after it 
commences. FHFA recognizes that pilots can extend for lengthy periods 
of time or change form as a natural consequence of conducting 
exploratory business, which is why the notice of new activity, as 
proposed, required the Enterprise to establish the parameters, such as 
the duration and volume of the pilot. FHFA also believes that requiring 
a subsequent notice of new activity for a pilot when there are changes 
to the duration and volume would help manage ``pilot creep'' and 
facilitate a determination of whether the activity is a new product 
that merits public notice and comment.
    While several commenters recommended that the final rule should 
require an Enterprise to be inclusive when selecting participants for a 
pilot, FHFA believes that such requirements are not within the scope of 
this final rule and are already in place in the broader regulatory 
framework governing an Enterprise's activities. FHFA's Minority and 
Women Inclusion and Diversity Regulation at 12 CFR 1223.2 requires the 
Enterprises ``to promote diversity and ensure . . . the inclusion and 
utilization of minorities, women, individuals with disabilities, and 
minority--, women--, and disabled-owned businesses at all levels, in 
management and employment, in all business and activities, and in all 
contracts for services of any kind.'' That Regulation governs not just 
an Enterprise's new activities as described in the final rule, but all 
Enterprise activities.

D. Public Interest Factors

    FHFA proposed eight factors that the Director may consider when 
determining whether a new product is in the public interest. These are 
the same factors on which the Director would seek public comment to 
inform the decision as to whether to approve or disapprove a new 
product. The public interest factors fall into three broad categories: 
(1) the impact of the new product on the Enterprise's public mission; 
(2) the impact of the new product in terms of risk to the mortgage 
finance or financial system; and (3) the impact of the new product on 
the competitiveness of the market. In addition, the Director retained 
the discretion to seek public comment on and consider any other public 
interest factors determined to be appropriate to consider during the 
approval process.
    More than half of the commenters, including both Enterprises, 
provided comments on factors that FHFA should or should not include in 
the consideration of whether a new product is in the public interest. 
Several commenters suggested additional factors that, if incorporated, 
would inform the degree to which the new product would promote 
competition in the marketplace, or to the contrary would result in less 
competition. One commenter suggested that FHFA include a factor focused 
on the degree to which a new product would enable the Enterprise to 
``compete against market participants that they effectively regulate.'' 
Several commenters requested that the public interest factors make 
explicit reference to the degree to which the new product would have a 
disruptive or inequitable impact on different types or sizes of 
lenders. While most commenters sought the inclusion of factors that 
would contribute to an evaluation of whether the new product would harm 
competition, other commenters (including the Enterprises) viewed the 
public interest factors as overly protective of competition, with one 
Enterprise arguing that the public interest analysis ``should focus on 
protecting competition, not competitors.'' These commenters requested 
the removal of the public interest factor that prompts an evaluation of 
the degree to which the new product is being or could be supplied by 
other market participants.
    FHFA has considered the feedback from commenters and has determined 
that the public interest factors, as proposed, enable FHFA to conduct a 
holistic evaluation of the impact of a new product on competition. 
There are numerous ways that a new product could help or hinder 
competition. The Proposed Rule specifically enumerated two such factors 
for evaluation--the degree to which the new product would overcome 
natural market barriers or inefficiencies and the degree to which the 
new product could be supplied by

[[Page 79224]]

other market participants. These factors are in addition to a catchall 
provision that prompts the evaluation of the degree to which the new 
product would promote competition in the marketplace, or to the 
contrary would result in less competition. Together, these factors will 
enable FHFA to seek public comment and form a holistic and balanced 
view of the impact of the new product on competition.
    In addition to the comments related to competition, commenters 
suggested a variety of public interest factors that should be included 
in FHFA's evaluation. For example, one commenter wanted the public 
interest factors to prompt an evaluation of the impact of the new 
product on housing costs for low- and moderate-income borrowers, while 
another commenter indicated that the public interest factors should 
include the degree to which the new product would aid in addressing 
natural disasters. FHFA has considered these comments and determined 
that the concerns are adequately addressed by specific public interest 
factors (such as the degree to which the new product serves underserved 
markets and housing goals) or through the discretion retained by the 
Director to seek public comment and evaluate any other appropriate 
factor. The discretion retained by the Director provides an avenue to 
address considerations that may not be relevant for all new products at 
all times, such as the degree to which the new product would aid in 
addressing natural disasters.

E. Enterprise Confidentiality

    Confidential Treatment of Enterprise Submissions; Public notices. 
FHFA did not propose explicit protections for confidential information 
provided to FHFA by an Enterprise in connection with a notice of new 
activity. Several commenters, including both Enterprises, recommended 
that the final rule include such protections. Reasons cited included 
the need to avoid discouraging innovation, the need to protect an 
Enterprise's ability to comply with contractual obligations to third 
parties, and the need to protect an Enterprise from competitive harm. 
One commenter noted that ``this is one of the trickiest elements of the 
entire Proposed Rule,'' acknowledging that it is ``challenging to 
provide sufficient details to elicit meaningful public commentary 
without requiring an Enterprise to disclose key business details'' 
which might ``discourage future innovations.'' The Enterprises also 
commented that the treatment of confidential information in the 
Proposed Rule was inconsistent with FHFA's treatment of confidential 
information in other contexts, such as its rules on application of the 
Freedom of Information Act (FOIA) (5 U.S.C. 552; 12 CFR part 1202) and 
Enterprise Duty to Serve (12 CFR 1282.32(g)(2)). The Enterprises noted 
that, at a minimum, FHFA should provide the same protections for 
information contained in a new activity or new product submission that 
FHFA provides for many other communications between FHFA and its 
regulated entities.
    FHFA has considered the comments and determined that no changes to 
the treatment of confidential information are warranted for the final 
rule. FHFA's treatment of confidential information in the final rule is 
appropriate to the context and in line with the intent of the 
underlying statute.
    An Enterprise may request that information provided to FHFA in any 
context, including as part of a new activity or new product submission, 
be afforded protection from public disclosure under FOIA and FHFA's 
implementing regulation, 12 CFR part 1202. The fact that the final rule 
does not mention FOIA does not mean protections provided to an 
Enterprise under FOIA are unavailable. However, FOIA protections are 
triggered only when a member of the public requests that FHFA disclose 
information that an Enterprise has requested be kept confidential. As a 
general matter, FOIA does not limit or preclude FHFA from disclosing 
confidential, proprietary, or other non-public information at its own 
initiative. FHFA's independent decision to disclose non-public 
information in connection with the publication of a notice soliciting 
public comments on a proposed Enterprise new product is governed by 
FHFA's Availability of Non-public Information Regulation (12 CFR part 
1214).
    FHFA's Availability of Non-public Information Regulation grants the 
Director broad discretion to authorize the disclosure of non-public 
information. The Director's discretion is informed by statutory duties 
under the Safety and Soundness Act, including duties to ensure that the 
Enterprises operate in a safe and sound manner, that the operations and 
activities of the Enterprises foster liquid, efficient, competitive, 
and resilient housing finance markets, and that the activities of the 
Enterprises and the manner in which they operate are consistent with 
the public interest. The Director's exercise of discretion is also 
subject to privacy and other laws and regulations that may limit 
certain disclosures. Within this complex framework, FHFA must always be 
mindful of the need to protect sensitive information from public 
disclosure. Where the Director exercises discretion to authorize 
disclosure of non-public information, the Director, in view of the 
statutory and regulatory framework that governs such disclosure, 
balances the need for disclosure against other statutory 
responsibilities that may be facilitated by protecting sensitive 
information.
    Striking the appropriate balance is context specific. Where the 
statutory or regulatory framework requires or encourages FHFA to 
publish the regulatory submissions prepared by an Enterprise or a 
Federal Home Loan Bank, FHFA's practice has been to omit confidential 
information from those publications (e.g., Duty to Serve Underserved 
Markets Plans). In some cases--for example, under the Enterprise 
Resolution Planning Regulation (12 CFR part 1242) and the Federal Home 
Loan Bank Housing Goals Regulation (12 CFR part 1281)--this practice is 
facilitated by requesting that the regulated entity segregate 
confidential and non-confidential information into separate documents 
so that the non-confidential submissions can be published in their 
entirety.
    The final rule strikes the appropriate balance between the need for 
disclosure and protecting sensitive information. In recognition of the 
fact that a substantial portion of an Enterprise's new product 
submission is likely to contain information that an Enterprise would 
prefer to remain confidential, FHFA does not expect to publish the 
submission or supporting documentation in whole. Instead, FHFA will 
review the submissions and, based on the information it contains, 
prepare a notice that provides the public with enough information to 
comment on the extent to which the proposed new product would serve the 
public interest. The public notice may include information that an 
Enterprise would prefer to be kept confidential. However, this approach 
is consistent with the statutory intent that FHFA disclose information 
to the public about a potential Enterprise new product prior to it 
being offered to the market. But for the statute, this information 
customarily would not be made public. The Director would make any such 
disclosures in view of the regulatory framework that governs FHFA's 
disclosure of non-public information, the statutory intent underpinning 
the final rule, and the Director's other statutory duties.

F. FHFA Transparency and Reporting

    While some commenters expressed the need to protect the 
confidentiality of Enterprise submissions, most commenters sought 
greater transparency

[[Page 79225]]

into Enterprise new activities. Commenters expressed various 
perspectives on how transparency could be enhanced. Several commenters 
suggested that FHFA should report on Enterprise new activities on a 
monthly, quarterly, or annual basis. Commenters' suggestions on the 
content of that reporting can be grouped into two categories--
transparency about the new activities themselves and transparency into 
FHFA's decision-making.
    With respect to the new activities, one commenter noted that the 
reporting should identify the Enterprise that submitted the notice and 
describe the basic parameters of a proposed activity, but not be so 
specific as to disclose operational details that might reveal 
confidential aspects of the work under development ``that are not ready 
for public consumption.'' In contrast, another commenter seemed to 
suggest that reporting on a new activity should be ongoing and include 
a list of all new activities and the market participants involved. 
Along the same lines, another commenter recommended that FHFA conduct 
an ex post evaluation of each new product after six months and that the 
resulting analysis should be made publicly available.
    Several commenters also requested that FHFA publish a summary of 
its determinations on Enterprise new activity submissions. One 
commenter noted that this disclosure could provide some insight into 
Enterprise reaction to market trends and would give stakeholders a more 
informed ``view of the dedication of Enterprise time and resources to 
innovation and a clearer picture of the types of activities that FHFA 
will and will not deem to be permissible for an Enterprise[ ] to 
pursue.'' Another commenter remarked that in the absence of insight 
into why a proposed product was denied approval, the Enterprises and 
other market participants might refrain from investing human and 
financial resources into developing Enterprise new products.
    FHFA agrees with the commenters suggestions that the final rule 
should have a provision that requires Agency reporting on the 
Enterprises' new activity and new product submissions and FHFA's 
decisions. FHFA anticipates leveraging existing reports, such as the 
Annual Report to Congress or annual Performance and Accountability 
Report, to include a section that identifies new activity and new 
product submissions by Enterprise, describes the basic parameters of 
proposed activities or products, and summarizes FHFA's new product 
determinations, approvals, and disapprovals and the basis for those 
decisions. Reporting under this new provision would omit confidential 
and proprietary information not already published in connection with 
the public notice for a new product since the report is for information 
only and the public would not be asked to comment.

III. Section-by-Section Analysis of the Final Rule

A. Purpose and Authority; Definitions--Sec. Sec.  1253.1 and 1253.2

    Section 1253.1 of the final rule sets out the purpose and authority 
of the rule, which is to implement the Director's authority under 
section 1321 of the Safety and Soundness Act to review and approve new 
Enterprise products before they are offered to the market. Section 
1253.2 of the final rule defines key terms used in the regulation. Of 
particular significance, the final rule defines ``activity'' as a 
business line, business practice, offering, or service, including a 
guarantee, a financial instrument, consulting or marketing, that the 
Enterprise provides to the market either on a standalone basis or as 
part of a business line, business practice, offering, or service. While 
this definition was implied by the Proposed Rule, it was not stated 
explicitly. In line with the Proposed Rule, Sec.  1253.2 of the final 
rule also defines ``pilot'' as an activity that has a limited term and 
scope for purposes of evaluating the viability of the activity, 
regardless of the name assigned to the activity. The word ``limited'' 
has been added to enhance clarity. ``New activity'' and ``new product'' 
have the meanings assigned to them under Sec. Sec.  1253.3 and 1253.4 
of the final rule, respectively.

B. New Activity Description and Exclusions--Sec.  1253.3

    New Activities. Section 1253.3 of the final rule describes the 
criteria for identifying a new activity and describes the activities 
which are excluded from the review and approval requirements by 
statute. Because the final rule includes an explicit definition for 
``activity,'' the structure of this section has changed from the 
Proposed Rule to reflect that addition and to improve clarity. A 
threshold criterion for distinguishing an ongoing activity from a new 
activity is timing. Under Sec.  1253.3(a)(1) of the final rule, an 
activity is a ``new activity'' if it is not engaged in by the 
Enterprise on or before the effective date of the regulation. However, 
Sec.  1253.3(a)(2) of the final rule provides that if an Enterprise 
does engage in an activity on or before the effective date of the 
regulation, but the Enterprise enhances, alters, or modifies the 
activity after the effective date of the regulation so as to: (1) 
require a new resource, type of data, policy (or modification to an 
existing policy), process, or infrastructure; (2) expand the scope or 
increase the level of credit risk, market risk, or operational risk to 
the Enterprise; or (3) involve a new category of borrower, investor, 
counterparty, or collateral, then the resultant activity would be 
considered a ``new activity.'' This approach simplifies the criteria 
for determining whether an activity is a new activity that was 
presented in the Proposed Rule without altering the scope of activities 
captured.
    Section 1253.3(a)(3) and (4) of the final rule include two 
additional categories of new activities that are intended to 
comprehensively capture an Enterprise's activities related to pilots. 
Section 1253.3(a)(3) of the final rule classifies as a new activity: 
(1) any pilot engaged in by an Enterprise after the effective date of 
the regulation; and (2) any modification to the volume or duration of a 
pilot that occurs after the effective date of the regulation, 
regardless of whether the Enterprise initially engaged in the pilot 
before or after the effective date of the regulation. Section 
1253.3(a)(4) of the final rule captures the transition from a pilot 
into an ongoing activity, regardless of whether the Enterprise 
initially engaged in the pilot before or after the effective date of 
the regulation. While an Enterprise's activities related to pilots are 
likely to also fall within the scope of Sec.  1253.3(a)(1) or (2) of 
the final rule, including targeted provisions on pilots in the final 
rule emphasizes FHFA's commitment to closely scrutinize them. For this 
reason, the final rule expands the scope of pilots captured as new 
activities to include modifications to the volume or duration of a 
pilot. Unless a pilot or an activity resulting from a pilot falls into 
one of the exclusions set forth at Sec.  1253.3(b) of the final rule, 
an Enterprise must submit a notice of new activity or a request for 
prior approval as a new product, as appropriate.
    The final rule does not reflect one element of the new activity 
description from the Proposed Rule. Section 1253.3(a)(3)(iv) of the 
Proposed Rule provided that an activity could be a new activity if it 
would substantially impact the mortgage finance system, the 
Enterprise's safety and soundness, compliance with the Enterprise's 
authorizing statute, or the public interest. On further reflection, 
FHFA has determined that it would be unreasonable to hold the 
Enterprises to account for failing to file a notice of new

[[Page 79226]]

activity based on the subjective determinations required by this 
provision.
    Exclusions. As noted above, the following activities are excluded 
from the review and approval requirements under the Safety and 
Soundness Act: (1) the Enterprises' AUS, and any upgrades to the 
technology, operating system, or software to operate the underwriting 
system; (2) any modifications to mortgage terms and conditions or 
underwriting criteria relating to mortgages that are purchased or 
guaranteed by an Enterprise but that do not alter the nature of the 
underlying transaction as residential mortgage financing; and (3) 
substantially similar activities, as defined in Section I.A above. See 
section 1321(e) of the Safety and Soundness Act (12 U.S.C. 4541(e)). 
Section 1253.3(b) of the final rule incorporates these statutory 
exclusions and makes clear that activities conducted to facilitate the 
administration of an Enterprise's internal affairs but which are not 
provided to the market are also excluded from the review and approval 
requirements of section 1321 of the Safety and Soundness Act.
    The final rule clarifies the scope of the exclusions related to the 
AUS and mortgage terms and conditions or underwriting criteria but does 
not modify the scope of the exclusions, which remain as proposed. To 
further enhance clarity of the exclusions, the final rule interprets 
``upgrades'' to an Enterprises' AUS and ``modifications'' to mortgage 
terms and conditions or underwriting criteria in a way that ensures 
that these types of changes are not inadvertently captured by the new 
activity description. Accordingly, a new activity does not include any 
enhancement, alteration, or modification to the technology, operating 
system, or software to operate the AUS or to mortgage terms and 
conditions or underwriting criteria that does not alter the nature of 
the underlying transaction as residential mortgage financing is 
excluded from the new activity description, even if that change: (1) 
requires a new resource, type of data, policy (or modification to an 
existing policy), process, or infrastructure; (2) expands the scope or 
increases the level of credit risk, market risk, or operational risk to 
the Enterprise; or (3) involves a new category of borrower, investor, 
counterparty, or collateral.
    The final rule also revises the description of substantially 
similar activities in a manner that makes the exclusion easier to 
understand and more closely aligned with the statute, including with 
respect to the treatment of technology systems that apply or mirror the 
Enterprises' mortgage terms and conditions or underwriting criteria. A 
more detailed discussion of these revisions is found in Section G 
below.

C. New Product Determination--Sec.  1253.4

    Under Sec.  1253.4(a) of the final rule, a new activity is a new 
product if the Director determines that the new activity merits public 
notice and comment about whether the proposed activity serves the 
public interest. This reflects a simplified approach from the Proposed 
Rule under which the Director would make the determination whether the 
new activity is a new product based on whether the new activity merits 
public notice and comment on three criteria: (1) compliance with 
specific provisions of the Enterprises' respective authorizing 
statutes; (2) the safety and soundness of the Enterprise or the 
mortgage finance system; and (3) the public interest.
    The revisions to the new product determination criteria have been 
made for two reasons. First, FHFA is unlikely to seek public comment on 
redundant topics. FHFA proposed eight factors that the Director may 
consider when determining whether a new product is in the public 
interest. These are the same factors on which the Director would seek 
public comment to inform the decision as to whether approval of a new 
product would be in the public interest. To a large extent, the 
determination criteria in Sec.  1253.4(a) of the Proposed Rule 
overlapped with the public interest factors in proposed Sec.  
1253.4(b). For example, one of the public interest factors examines the 
degree to which the proposed new product would advance the purposes of 
the Enterprise under its authorizing statute, which is similar to the 
determination criterion in Sec.  1253.4(a) of the Proposed Rule about 
the new activity's compliance with specific provisions of the 
Enterprise's authorizing statute. Another public interest factor 
examines the degree to which the proposed new product might raise or 
mitigate risks to the mortgage finance or financial system, which is 
similar to the criterion in Sec.  1253.4(a) of the Proposed Rule about 
the safety and soundness of the Enterprise or the mortgage finance 
system. While two of determination criteria have been deleted, the 
public interest factors remain unchanged from the Proposed Rule, and 
the Director retains the discretion to include other factors deemed 
appropriate to consider during the approval process. Second, one 
Enterprise raised a concern that seeking public input on the 
determination criteria in the Proposed Rule would likely require the 
public disclosure of confidential or privileged information. FHFA 
believes that it can adequately assess compliance with specific 
provisions of the Enterprises' respective authorizing statutes, as well 
as the safety and soundness of the Enterprise or the mortgage finance 
system, without seeking public input beyond what would be sought 
through the public interest factors.

D. Notice of New Activity--Sec.  1253.5

    Section 1253.5 of the final rule establishes the procedural 
framework for Enterprise submission and FHFA review of a notice of new 
activity. Before commencing any new activity, an Enterprise must submit 
to FHFA a written notice, the content of which is described in Sec.  
1253.9 of the final rule. Consistent with the Proposed Rule, an 
Enterprise includes any of its affiliates (see 12 U.S.C. 4502; 12 CFR 
1201.1) and if the new activity is to be offered by an affiliate, 
either the Enterprise or its affiliate may submit the required notice. 
In contrast to the Proposed Rule and in response to comments, the final 
rule explicitly states that an Enterprise may request prior 
consultation with FHFA about whether a notice of new activity is 
required. Circumstances which may merit a consultation could include 
when the Enterprise is uncertain about whether a notice of new activity 
is required.
    A notice of new activity will not be considered complete and 
received for processing until the information required by Sec.  1253.9 
of the final rule has been submitted, including any follow-up 
information required by FHFA. Section 1253.5(c) of the final rule 
provides that nothing in the rule limits or restricts FHFA from 
reviewing the notice of new activity under any other applicable 
regulation or statute, as part of FHFA's authority to review for safety 
and soundness and for consistency with an Enterprise's statutory 
mission. For example, if a proposed new activity necessitated a review 
for compliance with the Uniform Mortgage-Backed Securities Regulation 
(12 CFR part 1248), FHFA's receipt of information necessary for that 
review may be part of FHFA's determination that the notice of new 
activity is complete and has been received.
    The final rule provides that an Enterprise may not commence a new 
activity unless the Director makes a written determination that the new 
activity is not a new product within 15 days, or the 15 days pass and 
no

[[Page 79227]]

determination is made. If the Director determines that the new activity 
is a new product, the Enterprise must elect to submit a request for 
prior approval of a new product and await approval of the new product 
under Sec.  1253.6 of the final rule or it must discontinue its plan to 
offer the new product to the market. Providing this optionality for the 
Enterprises reflects a change from the Proposed Rule in response to the 
Enterprises' request to be permitted to decide whether to continue to 
pursue the offering following a new product determination. If FHFA 
issues a determination that the new activity is not a new product, or 
the 15 days pass without any determination, the Enterprise may begin 
the new activity, subject to such terms, conditions, or limitations as 
the Director may establish.

E. Request for Prior Approval of a New Product; Public Notice; 
Standards for Approval--Sec.  1253.6

    The final rule introduces the concept of a request for prior 
approval of a new product that is distinct from a notice of new 
activity. This change responds to commenters' concerns that the 
Proposed Rule did not provide this distinction and accommodates the 
changes made to Sec.  1253.5 of the final rule that permit an 
Enterprise to decide whether it still wants to pursue an offering 
following a new product determination. Section 1253.6 of the final rule 
establishes the procedural framework for Enterprise submission and FHFA 
review of a request for prior approval of a new product. An Enterprise 
must submit a request for prior approval of a new product to FHFA 
before offering a new product to the market. However, since a 
determination by the Director under Sec.  1253.4 of the final rule is 
required for a new activity to be classified as a new product, an 
Enterprise may only submit a request for prior approval of a new 
product if the Director has made such a determination. The Director may 
make a determination that a new activity is a new product at the 
conclusion of the Agency's review of a new activity or at the 
conclusion of an Enterprise's voluntary consultation with FHFA.
    A request for prior approval of a new product will not be 
considered complete and received for processing until the information 
required by Sec.  1253.9 of the final rule has been submitted, 
including any additional information requested by FHFA. In response to 
commenters' concerns that FHFA has an unlimited amount of time to 
prepare a public notice, the final rule makes clear that once FHFA 
makes the determination that the request for prior approval is 
``received,'' FHFA will publish a public notice soliciting comments on 
the proposed new product without delay. FHFA will include in that 
public notice enough information from the request for prior approval of 
a new product to sufficiently describe the new product so that the 
public can provide meaningful comment. The final rule clarifies that 
the public notice will be published on FHFA's website and in the 
Federal Register. In response to public comments that requested FHFA to 
maximize time for public comment, the statutory 30-day comment period 
will commence on the date that the notice is published in the Federal 
Register, which is expected to be later than the date on which the 
notice is published on FHFA's website. The public notice will provide 
instructions for submission of public comments. As is the practice with 
other requests for information and proposed rules, comments submitted 
by the public on a new product will be made public and posted on FHFA's 
website.
    In determining whether to approve a new product, the Director will 
consider all public comments received by the closing date of the 
comment period. The final rule incorporates the Safety and Soundness 
Act's approval requirements by providing that the Director may approve 
the new product if the Director determines that the new product: (1) in 
the case of Fannie Mae, is authorized under 12 U.S.C. 1717(b)(2), (3), 
(4), or (5) or 12 U.S.C. 1719; or (2) in the case of Freddie Mac, is 
authorized under 12 U.S.C. 1454(a)(1), (4), or (5); (3) is in the 
public interest; and (4) is consistent with the safety and soundness of 
the Enterprise or the mortgage finance system.
    In accordance with the statutory timelines, the Director will make 
a determination on the new product no later than 30 days after the 
close of the public comment period. If no determination is made within 
that timeframe, the Enterprise may offer the new product. As with a new 
activity, a new product may be subject to any terms, conditions, or 
limitations as the Director may establish. Also, as with a new 
activity, the Director may review for safety and soundness or 
consistency with the Enterprise's statutory mission at any time; 
exercise of that authority is not constrained by any time limit 
provided for in the Act or reflected in the final rule.

F. Temporary Approval of a New Product--Sec.  1253.7

    Section 1253.7 of the final rule incorporates the statutory 
provision empowering the Director to make a new product temporarily 
available to the market without first seeking public comment. Section 
1321(c) of the Safety and Soundness Act (12 U.S.C. 4541(c)) authorizes 
the Director to grant temporary approval of a new product if the 
Director finds ``that the existence of exigent circumstances makes [the 
delay associated with seeking public comment] contrary to the public 
interest.'' Section 1321(c)(4)(C) of the Act (12 U.S.C. 4541(c)(4)(C)). 
Under the final rule, an Enterprise may request temporary approval of a 
new product, or FHFA may act on its own initiative. The Director may 
impose terms, conditions, or limitations on the temporary approval, and 
upon the granting of a temporary approval for a new product, FHFA will 
begin the process for permanent decision on the proposed new product in 
accordance with Sec.  1253.6 of the final rule, including issuing a 
notice for public comment without delay. This section remains unchanged 
from the Proposed Rule, except for conforming paragraph numbering.

G. Substantially Similar Activities--Sec.  1253.8

    As noted above, ``substantially similar activities'' are excluded 
from the review and approval requirements of the Safety and Soundness 
Act. Section 1253.8 of the final rule establishes the procedural 
framework for an Enterprise to offer a substantially similar activity. 
An Enterprise must provide written notice to FHFA of its intent to 
offer the substantially similar activity at least 15 days prior to 
offering the activity to the market. In contrast to the other statutory 
exclusions which do not require notice (e.g., the AUS and enhancements, 
alterations, or modifications to mortgage terms and conditions or 
underwriting criteria), advance notice to FHFA is required for any 
substantially similar activity so that FHFA may exercise its regulatory 
and supervisory responsibilities to ensure that the activity qualifies 
for the exclusion.
    The notice of substantially similar activity required under Sec.  
1253.8 of the final rule is distinct from a notice of new activity. 
Section 1253.8(d) of the final rule provides that a notice of 
substantially similar activity must include the name and a complete and 
specific description of the activity, as well as an explanation of why 
the Enterprise believes the activity qualifies as a substantially 
similar activity under Sec.  1253.8(b) of the final rule. However, if 
the Director determines that the activity is not a substantially 
similar activity, the Enterprise must submit a notice of new activity 
under Sec.  1253.5 of the final

[[Page 79228]]

rule or a request for prior approval of a new product under Sec.  
1253.6 of the final rule and may not proceed with the activity until 
the requirements of those sections, as applicable, have been satisfied.
    The final rule revises the description of substantially similar 
activities in a manner that makes the exclusion easier to understand 
and aligns more closely with the statute, including with respect to the 
treatment of technology systems that are related but independent of an 
Enterprise's AUS. The final rule distinguishes the criteria used for 
determining whether an activity is substantially similar to activities 
that are otherwise excluded from the review and approval requirements 
under the Safety and Soundness Act (e.g., the AUS) from the criteria 
used for determining whether an activity is substantially similar to a 
new product that an Enterprise is authorized to offer to the market. 
The final rule also clarifies the criteria related to the latter 
category of substantially similar activities. Accordingly, under Sec.  
1253.8(b) of the final rule, the Director may determine that an 
activity is substantially similar to: (1) the AUS, including any 
enhancement, alteration, or modification to the technology, operating 
system, or software to operate the AUS; or (2) any enhancement, 
alteration, or modification to mortgage terms and conditions or 
underwriting criteria relating to residential mortgages that are 
purchased or guaranteed by an Enterprise if the activity is a 
technological implementation of mortgage terms and conditions or 
underwriting criteria relating to residential mortgages that are 
purchased or guaranteed by an Enterprise. Under Sec.  1253.8(c) of the 
final rule, the Director may determine that an activity is 
substantially similar to a new product that the Director has approved 
for either Enterprise or that is permissible for either Enterprise to 
offer because the statutory timeframe lapsed without the Director 
rendering a decision on a request for prior approval of a new product, 
if the activity: (1) requires the same or a similar resource, type of 
data, policy, process, and infrastructure; (2) entails the same or 
similar levels of credit risk, market risk, and operational risk to the 
Enterprise; and (3) involves the same or a similar category of 
borrower, investor, counterparty, and collateral. In contrast, the 
Proposed Rule used a single set of negative criteria to identify which 
(if any) activities would qualify as substantially similar. The 
Proposed Rule also indicated that the exclusion for activities that 
were substantially similar to approved new products was available only 
to the Enterprise that did not receive approval for the original 
product, a result which is inconsistent with the provisions of the Act.

H. New Activity and New Product Submission Requirements--Sec.  1253.9

    In response to comments regarding the burdensome submission 
process, Sec.  1253.9 of the final rule introduces a two-step process 
for an Enterprise to submit information to FHFA with respect to a 
potential new product and makes minor adjustments to the required 
content. The scope of the information required for a notice of new 
activity is set out in Sec.  1253.9(a) of the final rule. These 
streamlined information requirements include the five requirements from 
the Proposed Rule that are most critical to enable FHFA to assess the 
impact, risks, and benefits of a new activity and determine whether the 
new activity is a new product. If the Director determines that the new 
activity is a new product (following the review of a notice of new 
activity or following an Enterprise's voluntary consultation with 
FHFA), and the Enterprise elects to proceed with a request for prior 
approval of a new product, then the Enterprise must provide the 
additional information set out in Sec.  1253.9(b) of the final rule. 
Those information requirements are substantially more detailed than 
what is required in connection with a notice of new activity, to ensure 
that FHFA can provide the public with sufficient information to review 
and meaningfully comment on the proposed new product and that the 
Director has the information required to inform any determination under 
the statutory standards for approval of a new product. The final rule 
removes one element of required content from the Proposed Rule--an 
Enterprise would not be required to indicate its view as to whether a 
new activity is a new product since the request for prior approval of a 
new product would only occur after the Director made such a 
determination.

I. Public Disclosure--Sec.  1253.10

    Section 1253.10 of the final rule provides a mechanism for FHFA to 
enhance the transparency of its decision-making on new product 
determinations, approvals, and disapprovals. The provision commits FHFA 
to publish information related to the Director's determinations on new 
activity and new product submissions within a reasonable time period 
after the end of the calendar year during which the Enterprises filed 
such submissions. Any reporting by FHFA under this provision would not 
disclose confidential or proprietary information provided to FHFA by an 
Enterprise.

J. Preservation of Authority--Sec.  1253.11

    The content of section 1253.11of the final rule is unchanged from 
Sec.  1253.10(a) of the Proposed Rule, but has been reformatted in the 
final rule. Section 1253.11 of the final rule confirms that the 
Director's exercise of authority to review new Enterprise activities 
and products under section 1321 of the Safety and Soundness Act in no 
way restricts any other authority of the Director over new and existing 
Enterprise activities or products, including the authority of the 
Director to review new and existing activities or products for safety 
and soundness or consistency with the statutory mission of the 
Enterprise. See section 1321(f) of the Safety and Soundness Act (12 
U.S.C. 4541(f)). Under this authority, for example, the Director could 
find that an ongoing activity should be subject to certain conditions 
or terms.
    Section 1253.10 (b) of the Proposed Rule, which as proposed set 
forth the actions that FHFA may take if an Enterprise fails to comply 
with the provisions of the rule, has been deleted from the final rule. 
FHFA has determined that it would be redundant to restate authorities 
contained elsewhere in the applicable legal and regulatory framework.

IV. Regulatory Analyses

A. 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 must include an initial regulatory flexibility 
analysis describing the regulation's impact on small entities. FHFA 
need not undertake such an analysis if the Agency has certified that 
the regulation will not have a significant economic impact on a 
substantial number of small entities (5 U.S.C. 605(b)). FHFA has 
considered the impact of the final rule under the Regulatory 
Flexibility Act, and FHFA certifies that the final rule will not have a 
significant economic impact on a substantial number of small entities 
because the regulation only applies to Fannie Mae and Freddie Mac, 
which are not small entities for purposes of the Regulatory Flexibility 
Act.

B. Paperwork Reduction Act

    The final rule does not contain any information collection 
requirement that requires the approval of the Office of

[[Page 79229]]

Management and Budget (OMB) under the Paperwork Reduction Act (44 
U.S.C. 3501 et seq.). Therefore, FHFA has not submitted any information 
to OMB for Paperwork Reduction Act review.

C. Congressional Review Act

    In accordance with the Congressional Review Act (5 U.S.C. 801 et 
seq.), FHFA has determined that this final rule is a major rule and has 
verified this determination with the Office of Information and 
Regulatory Affairs of OMB.

List of Subjects in 12 CFR Part 1253

    Government-sponsored enterprises, Mortgages, New activities, New 
products.

Authority and Issuance

0
For the reasons stated in the preamble, under the authority of 12 
U.S.C. 4526 and 12 U.S.C. 4541, FHFA amends Chapter XII of Title 12 of 
the Code of Federal Regulations by revising part 1253 to read as 
follows:

PART 1253--PRIOR APPROVAL FOR ENTERPRISE PRODUCTS

Sec.
1253.1 Purpose and authority.
1253.2 Definitions.
1253.3 New activity description and exclusions.
1253.4 New product determination.
1253.5 Notice of new activity.
1253.6 Request for prior approval of a new product; public notice; 
standards for approval.
1253.7 Temporary approval of a new product.
1253.8 Substantially similar activities.
1253.9 New activity and new product submission requirements.
1253.10 Public disclosure.
1253.11 Preservation of authority.

    Authority:  12 U.S.C. 4511; 12 U.S.C. 4513; 12 U.S.C. 4526; 12 
U.S.C. 4541.


Sec.  1253.1  Purpose and authority.

    The purpose of this part is to establish policies and procedures 
implementing the prior approval authority for Enterprise products, in 
accordance with section 1321 of the Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992 (12 U.S.C. 4541), as amended 
(Safety and Soundness Act).


Sec.  1253.2  Definitions.

    For purposes of this part:
    Activity means a business line, business practice, offering, or 
service, including a guarantee, a financial instrument, consulting or 
marketing, that the Enterprise provides to the market either on a 
standalone basis or as part of a business line, business practice, 
offering, or service.
    Authorizing statute means the Federal National Mortgage Association 
Charter Act and the Federal Home Loan Mortgage Corporation Act, as 
applicable.
    Credit risk is the potential that a borrower or counterparty will 
fail to meet its obligations in accordance with agreed terms. Credit 
risk includes the decline in measured quality of a credit exposure that 
might result in increased capital costs, provisioning expenses, or a 
reduction in economic return.
    Days means calendar days.
    Market risk means the risk that the market value, or estimated fair 
value if the market value is not available, of an Enterprise's 
portfolio will decline as a result of changes in interest rates, 
foreign exchange rates, or equity or commodity prices.
    New activity has the meaning provided in Sec.  1253.3.
    New product has the meaning provided in Sec.  1253.4.
    Operational risk means the risk of loss resulting from inadequate 
or failed internal processes, people, or systems, or from external 
events, including all direct and indirect economic losses related to 
legal liability. Operational risk includes reputational risk, which is 
the potential for substantial negative publicity regarding an 
Enterprise's business practices.
    Pilot means an activity that has a limited term and scope for 
purposes of evaluating the viability of the activity. A pilot may also 
be referred to as a testing initiative, test and learn, temporary 
authorization, or by other names.


Sec.  1253.3  New activity description and exclusions.

    (a) A new activity is any of the following if not engaged in by the 
Enterprise on or before February 27, 2023:
    (1) An activity;
    (2) An enhancement, alteration, or modification to an activity 
that--
    (i) Requires a new resource, type of data, policy, modification to 
an existing policy, process, or infrastructure;
    (ii) Expands the scope or increases the level of credit risk, 
market risk, or operational risk to the Enterprise; or
    (iii) Involves a new category of borrower, investor, counterparty, 
or collateral;
    (3) A pilot or a modification to the volume or duration of a pilot, 
including a modification to a pilot that commenced before February 27, 
2023; or
    (4) An activity that results from a pilot (including from a pilot 
that commenced before February 27, 2023) or an enhancement, alteration, 
or modification (as described by paragraphs (a)(2)(i) through (iii) of 
this section) to an activity that results from a pilot (including from 
a pilot that commenced before February 27, 2023).
    (b) A new activity excludes:
    (1) An enhancement, alteration, or modification (as described by 
paragraphs (a)(2)(i) through (iii) of this section) to the technology, 
operating system, or software to operate the automated loan 
underwriting system of an Enterprise that was in existence as of July 
30, 2008.
    (2) An enhancement, alteration, or modification (as described by 
paragraphs (a)(2)(i) through (iii) of this section) to the mortgage 
terms and conditions or mortgage underwriting criteria relating to the 
mortgages that are purchased or guaranteed by an Enterprise, provided 
that such enhancement, alteration, or modification does not alter the 
underlying transaction so as to include services or financing, other 
than residential mortgage financing.
    (3) Pursuant to the requirements of Sec.  1253.8, any activity 
undertaken by an Enterprise that is substantially similar to--
    (i) The automated loan underwriting system of an Enterprise that 
was in existence as of July 30, 2008, including or any enhancement, 
alteration, or modification to the technology, operating system, or 
software to operate the automated loan underwriting system;
    (ii) Any enhancement, alteration, or modification to mortgage terms 
and conditions or mortgage underwriting criteria relating to the 
mortgages that are purchased or guaranteed by an Enterprise, provided 
that such activity does not alter the underlying transaction so as to 
include services or financing, other than residential mortgage 
financing; and
    (iii) A new product that the Director has approved for either 
Enterprise under Sec.  1253.6(a) through (f) or Sec.  1253.7 or a new 
product that is otherwise available to either Enterprise under Sec.  
1253.6(h).
    (4) Any Enterprise business practice, transaction, or conduct 
performed solely to facilitate the administration of an Enterprise's 
internal affairs.


Sec.  1253.4  New product determination.

    (a) A new product is any new activity that the Director determines 
merits public notice and comment about whether it is in the public 
interest.
    (b) The factors that the Director may consider when determining 
whether a new product is in the public interest are:

[[Page 79230]]

    (1) The degree to which the new product might advance any of the 
purposes of the Enterprise under its authorizing statute;
    (2) The degree to which the new product serves underserved markets 
and housing goals as set forth in sections 1332-1335 of the Safety and 
Soundness Act (12 U.S.C. 4562-4565);
    (3) The degree to which the new product is being or could be 
supplied by other market participants;
    (4) The degree to which the new product promotes competition in the 
marketplace or, to the contrary, would result in less competition;
    (5) The degree to which the new product overcomes natural market 
barriers or inefficiencies;
    (6) The degree to which the new product might raise or mitigate 
risks to the mortgage finance or financial system;
    (7) The degree to which the new product furthers fair housing and 
fair lending; and
    (8) Such other factors as determined appropriate by the Director.


Sec.  1253.5  Notice of new activity.

    (a) Before commencing a new activity, an Enterprise must submit a 
notice of new activity to FHFA. An Enterprise may request prior 
consultation with FHFA about whether a notice of new activity is 
required.
    (b) In support of its notice of new activity, the Enterprise shall 
submit thorough, complete, and specific information as described under 
Sec.  1253.9(a). FHFA will evaluate the notice of new activity to 
determine if the submission contains sufficient information to enable 
the Director to determine whether the new activity is a new product 
subject to prior approval. Once FHFA makes the determination that the 
submission is complete, FHFA will notify the Enterprise that the 
submission is ``received'' for purposes of 12 U.S.C. 4541(e)(2)(B).
    (c) Nothing in this regulation limits or restricts FHFA from 
reviewing a notice of new activity under any other applicable law, 
under the Director's authority to review for safety and soundness, or 
to determine whether the activity complies with the Enterprise's 
authorizing statute. FHFA may conduct such a review as part of its 
determination that the notice of new activity submission is complete.
    (d) No later than 15 days after FHFA notifies the Enterprise that 
the submission is received, the Director will make a determination on 
the notice of new activity and will notify the Enterprise accordingly. 
If the Director determines that the new activity is a new product, the 
Enterprise must elect to either submit a request for prior approval of 
the new product under Sec.  1253.6 or discontinue its plan to offer the 
new product to the market.
    (e) If the Director determines that the new activity is not a new 
product, or if after the passage of 15 days the Director does not make 
a determination whether the new activity is a new product, the 
Enterprise may commence the new activity. The Director may establish 
terms, conditions, or limitations on the Enterprise's engagement in the 
new activity as the Director determines to be appropriate and with 
which the Enterprise must comply in order to engage in the new 
activity.
    (f) If the Director does not make a determination within the 15-day 
period, the absence of such determination does not limit or restrict 
the Director's safety and soundness authority or the Director's 
authority to review the new activity to confirm that the activity is 
consistent with the Enterprise's authorizing statute.


Sec.  1253.6  Request for prior approval of a new product; public 
notice; standards for approval.

    (a) An Enterprise must submit a request for prior approval of a new 
product to FHFA before offering a new product to the market.
    (1) An Enterprise may submit a request for prior approval of a new 
product if the Director determines that a new activity is a new product 
under Sec.  1253.5(d) or, following consultation with FHFA, if the 
Director authorizes the Enterprise to submit such a request without 
first submitting a notice of new activity. An Enterprise must submit a 
request for prior approval of a new product to FHFA before offering a 
new product to the market.
    (2) In support of its request for prior approval of a new product, 
the Enterprise shall submit thorough, complete, and specific 
information as described under Sec.  1253.9(b).
    (3) FHFA will evaluate the request to determine if the submission 
contains sufficient information for FHFA to prepare a public notice 
such that the public will be able to provide fully informed comments on 
the new product. Once FHFA makes the determination that the submission 
is complete, FHFA will notify the Enterprise that the submission is 
``received'' for purposes of 12 U.S.C. 4541(c)(2).
    (b) Following FHFA's determination that a submission is complete, 
FHFA will publish a public notice soliciting comments on the new 
product on FHFA's website and in the Federal Register without delay.
    (1) The public notice will describe the new product and will 
include such information from the request for prior approval of a new 
product as necessary to provide the public with sufficient notice and 
opportunity to comment on the new product. The public notice will 
provide instructions for the submission of public comments.
    (2) The public will have 30 days from the date that the public 
notice is published in the Federal Register to provide comments on the 
new product.
    (3) The Director will consider all public comments received by the 
closing date of the comment period.
    (c) No later than 30 days after the end of the public comment 
period, the Director will provide the Enterprise with a written 
determination on whether it may proceed with the new product. The 
written determination will specify the grounds for the Director's 
determination.
    (d) The Director may approve the new product if the Director 
determines that the new product:
    (1) In the case of Fannie Mae, is authorized under 12 U.S.C. 
1717(b)(2), (3), (4), or (5) or 12 U.S.C. 1719; or
    (2) In the case of Freddie Mac, is authorized under 12 U.S.C. 
1454(a)(1), (4), or (5); and
    (3) Is in the public interest; and
    (4) Is consistent with the safety and soundness of the Enterprise 
or the mortgage finance system.
    (e) The Director may consider the factors provided in Sec.  
1253.4(b) when determining whether a new product is in the public 
interest.
    (f) The Director may establish terms, conditions, or limitations on 
the Enterprise's offering of the new product with which the Enterprise 
must comply in order to offer the new product.
    (g) If the Director disapproves the new product, the Enterprise may 
not offer the new product.
    (h) If the Director does not make a determination within 30 days 
after the end of the public comment period, the Enterprise may offer 
the new product. The absence of such a determination within 30 days 
does not limit or restrict the Director's safety and soundness 
authority or the Director's authority to review the new product to 
confirm that the product is consistent with the Enterprise's 
authorizing statute.
    (i) The Director may request any information in addition to that 
supplied in the completed request for prior approval of a new product 
if, as a result of public comment or otherwise in the course of 
considering the request, the Director believes that the information is

[[Page 79231]]

necessary for the Director's decision. The Director may disapprove a 
new product if the Director does not receive the information requested 
from the Enterprise in sufficient time to permit adequate evaluation of 
the information within the time periods set forth in this section.


Sec.  1253.7  Temporary approval of a new product.

    (a) The Director may approve a new product without first seeking 
public comment as described in Sec.  1253.6 if:
    (1) In addition to the information required by Sec.  1253.9(b), the 
Enterprise submits a specific request for temporary approval that 
describes the exigent circumstances that make the delay associated with 
a 30-day public comment period contrary to the public interest and the 
Director determines that exigent circumstances exist and that delay 
associated with first seeking public comment would be contrary to the 
public interest; or
    (2) Notwithstanding the absence of a request by the Enterprise for 
temporary approval, the Director determines on the Director's own 
initiative that there are exigent circumstances that make the delay 
associated with first seeking public comment contrary to the public 
interest.
    (b) The Director may impose terms, conditions, or limitations on 
the temporary approval to ensure that the new product offering is 
consistent with the factors in Sec.  1253.6(d).
    (c) If the Director grants temporary approval, the Director will 
notify the Enterprise in writing of the Director's decision and include 
the period for which it is effective and any terms, conditions or 
limitations. Upon granting of temporary approval, FHFA will also 
publish the request for public comment to begin the process for 
permanent approval in accordance with Sec.  1253.6.
    (d) If the Director denies a request for temporary approval, the 
Director will notify the Enterprise in writing of the Director's 
decision and will evaluate the new product in accordance with this 
section.


Sec.  1253.8  Substantially similar activities.

    (a) An Enterprise shall notify FHFA of its intent to commence an 
activity that is substantially similar to any of the following 
activities at least 15 days prior to offering the activity:
    (1) The automated loan underwriting system of an Enterprise that 
was in existence as of July 30, 2008, including any enhancement, 
alteration, or modification to the technology, operating system, or 
software to operate the automated loan underwriting system;
    (2) Any enhancement, alteration, or modification to mortgage terms 
and conditions or underwriting criteria relating to mortgages that are 
purchased or guaranteed by an Enterprise, provided that such activity 
does not alter the underlying transaction so as to include services or 
financing, other than residential mortgage financing; or
    (3) A new product that the Director has approved for either 
Enterprise under Sec.  1253.6(a) through (f) or Sec.  1253.7 or a new 
product that is otherwise available to either Enterprise under Sec.  
1253.6(h).
    (b) The Director may determine that an activity is substantially 
similar to an activity described in paragraph (a)(1) or (2) of this 
section, if the activity is:
    (1) A technology system that applies mortgage terms and conditions 
or underwriting criteria to residential mortgages that are purchased or 
guaranteed by an Enterprise; or
    (2) An enhancement, alteration, or modification to the technology, 
operating system, or software to operate a technology system described 
in paragraph (b)(1) of this section.
    (c) The Director may determine that an activity is substantially 
similar to an activity described in paragraph (a)(3) of this section, 
if the activity:
    (1) Requires the same or a similar resource, type of data, policy, 
process, and infrastructure;
    (2) Entails the same or similar levels of credit risk, market risk, 
and operational risk to the Enterprise; and
    (3) Involves the same or a similar category of borrower, investor, 
counterparty, and collateral.
    (d) The notification is not required to be a notice of new 
activity. The notification shall include the name and a complete and 
specific description of the activity, as well as an explanation of why 
the Enterprise believes the activity qualifies as a substantially 
similar activity under paragraph (a) of this section.
    (e) Public notice and comment is not required in connection with 
offering substantially similar activities.
    (f) If the Director determines an activity is not a substantially 
similar activity, the Enterprise must submit a notice of new activity 
under Sec.  1253.5 or a request for prior approval of a new product 
under Sec.  1253.6 and may not proceed or continue with the activity 
except pursuant to the requirements in this part.


Sec.  1253.9  New activity and new product submission requirements.

    (a) A notice of new activity must provide the following items of 
information and appropriate supporting documentation. The corresponding 
paragraph number should be listed with the relevant information 
provided:
    (1) Provide the name of the new activity and a complete and 
specific description of the new activity that identifies under which 
paragraph(s) of Sec.  1253.3(a) the activity is described.
    (2) Describe the business rationale, the intended market, the 
business line, and what products are currently being offered or are 
proposed to be offered under such business line. Also, include a 
description of any market research performed relating to the new 
activity.
    (3) State the anticipated commencement date for the new activity. 
Provide analysis, including assumptions, development expenses, any 
applicable fees, expectations for the impact of and projections for the 
quarterly size (for example, in terms of cost, personnel, volume of 
activity, or risk metrics) of the new activity for at least the first 
12 months of deployment, as well as the impact of the new activity on 
the risk profile of the Enterprise and the key controls for the 
following risks: credit, market, and operational.
    (4) If the new activity is a pilot, include the parameters, such as 
duration, volume of activity, and performance. If the new activity is 
the result of a pilot, include an analysis on the effectiveness of the 
pilot that describes the pilot objectives and success criteria; volume 
of activity; performance; risk metrics and controls; and the 
modifications made for a broader offering and rationale.
    (5) Provide a fair housing and fair lending self-evaluation of the 
new activity. The self-evaluation should, at a minimum, include data on 
the predicted impact of the new activity for protected class 
categories; a summary of reasonable alternatives considered; if 
disparities are identified, the business justification for the new 
activity; and the extent to which the activity furthers fair housing 
and fair lending.
    (b) A request for prior approval of a new product must provide the 
following items of information with appropriate supporting 
documentation. The corresponding paragraph number should be listed with 
the relevant information provided:
    (1) Provide the information required for a notice of new activity 
as identified in paragraph (a) of this section.
    (2) Describe the business requirements for the new product 
including technology requirements. Describe the Enterprise business 
units involved in conducting the new product, including any affiliation 
or subsidiary relationships, any third-party

[[Page 79232]]

relationships, and the roles of each. Describe the reporting lines and 
planned oversight of the new product.
    (3) Provide a legal analysis as to whether the new product is--
    (i) In the case of Fannie Mae, authorized under 12 U.S.C. 
1717(b)(2), (3), (4), or (5) or 12 U.S.C. 1719; or
    (ii) In the case of Freddie Mac, authorized under 12 U.S.C. 
1454(a)(1), (4), or (5).
    (4) Provide copies of all notice and application documents, 
including any application for patents or trademarks, the Enterprise has 
submitted to other Federal, State or local government regulators 
relating to the new product.
    (5) Describe the impact of the new product on the public interest 
and provide information to address the factors listed in Sec.  
1253.4(b).
    (6) Describe how the new product is consistent with the safety and 
soundness of the Enterprise or the mortgage finance system.
    (7) Explain any accounting treatment proposed for the new product.
    (c) FHFA may require an Enterprise to submit such further 
information as the Director deems necessary to make a determination on 
a notice of new activity or a request for prior approval of a new 
product, at the time of the original submission or any time thereafter.
    (d) An Enterprise shall certify, through an executive officer, that 
a notice of new activity or a request for prior approval of a new 
product and any supporting material submitted to FHFA pursuant to this 
part contain no material misrepresentations or omissions. FHFA may 
review and verify any information filed in connection with a notice of 
new activity or request for prior approval of a new product.


Sec.  1253.10  Public disclosure.

    In addition to information disclosed in the public notice on a new 
product, FHFA will make public information related to the Director's 
determinations on new activity and new product submissions within a 
reasonable time period after the end of the calendar year during which 
either Enterprise filed such a submission. Any disclosure under this 
paragraph will omit any confidential and proprietary information not 
previously disclosed as part of a public notice on a new product.


Sec.  1253.11  Preservation of authority.

    The Director's exercise of the Director's authority pursuant to the 
prior approval authority for products under 12 U.S.C. 4541, and this 
regulation, in no way restricts:
    (a) The safety and soundness authority of the Director over all new 
and existing products or activities; or
    (b) The authority of the Director to review all new and existing 
products or activities to determine that such products or activities 
are consistent with the authorizing statute of an Enterprise.

Sandra L. Thompson,
Director, Federal Housing Finance Agency.
[FR Doc. 2022-27942 Filed 12-23-22; 8:45 am]
BILLING CODE 8070-01-P