[Federal Register Volume 88, Number 139 (Friday, July 21, 2023)]
[Proposed Rules]
[Pages 47077-47084]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-14723]
=======================================================================
-----------------------------------------------------------------------
FEDERAL HOUSING FINANCE AGENCY
12 CFR Part 1227
RIN 2590-AB23
Suspended Counterparty Program
AGENCY: Federal Housing Finance Agency.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Federal Housing Finance Agency (FHFA) is proposing to
amend the existing Suspended Counterparty
[[Page 47078]]
Program (SCP) regulation. FHFA proposes to expand the categories of
covered misconduct on which a suspension could be based to include
sanctions arising from certain forms of civil enforcement. The proposed
rule would also eliminate the requirement that any final suspension
order be preceded by a proposed suspension order, but only when the
suspension is based on an administrative sanction.
DATES: Comments must be received on or before September 19, 2023.
ADDRESSES: You may submit your comments on the proposed rule,
identified by regulatory information number (RIN) 2590-AB23, by any one
of the following methods:
Agency Website: www.fhfa.gov/open-for-comment-or-input.
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments. If you submit your
comment to the Federal eRulemaking Portal, please also send it by email
to FHFA at [email protected] to ensure timely receipt by FHFA.
Include the following information in the subject line of your
submission: Comments/RIN 2590-AB23.
Hand Delivered/Courier: The hand delivery address is:
Clinton Jones, General Counsel, Attention: Comments/RIN 2590-AB23,
Federal Housing Finance Agency, 400 Seventh Street SW, Washington, DC
20219. Deliver the package at the Seventh Street entrance Guard Desk,
First Floor, on business days between 9 a.m. and 5 p.m.
U.S. Mail, United Parcel Service, Federal Express, or
Other Mail Service: The mailing address for comments is: Clinton Jones,
General Counsel, Attention: Comments/RIN 2590-AB23, Federal Housing
Finance Agency, 400 Seventh Street SW, Washington, DC 20219. Please
note that all mail sent to FHFA via U.S. Mail is routed through a
national irradiation facility, a process that may delay delivery by
approximately two weeks. For any time-sensitive correspondence, please
plan accordingly.
FOR FURTHER INFORMATION CONTACT: Marshall Adam Pecsek, Assistant
General Counsel, at (202) 649-3380 (not a toll-free number),
[email protected]. 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. Background
The SCP requires a regulated entity--the Federal Home Loan Mortgage
Corporation and any affiliate thereof, the Federal National Mortgage
Association and any affiliate thereof (individually, an Enterprise and
together, the Enterprises), and any Federal Home Loan Bank (Bank)--to
submit a report to FHFA if it becomes aware that an individual or
institution with which it does business has been found within the past
three years to have committed certain forms of misconduct. FHFA may
issue proposed and final suspension orders based on the reports it has
received from the regulated entities or based on other information.
FHFA offers the affected individual or institution and the regulated
entities an opportunity to respond to any proposed suspension order.
FHFA may issue a final suspension order if FHFA determines that the
underlying misconduct is of a type that would be likely to cause
significant financial or reputational harm to a regulated entity. Final
suspension orders direct the regulated entities to cease or refrain
from doing business with the suspended counterparties, subject to terms
as provided in the orders.
The reporting that is required under the SCP is authorized by
sections 1313 and 1314 of the Federal Housing Enterprises Financial
Safety and Soundness Act of 1992, as amended (Safety and Soundness
Act). Section 1314(a) of the Safety and Soundness Act authorizes FHFA
to require the regulated entities to submit regular reports on their
activities and operations, as the Director considers appropriate. See
12 U.S.C. 4514(a).
The orders issued under the SCP fall within FHFA's general
supervisory authority over the regulated entities, and specifically its
authority under sections 1313, 1313B, and 1319G of the Safety and
Soundness Act. Section 1313B of the Safety and Soundness Act authorizes
FHFA to establish standards, by regulation or guideline, for each
regulated entity regarding prudential management of risks. See 12
U.S.C. 4513b. The Director may also require by order that the regulated
entities take any action that will best carry out the purposes of that
section. See 12 U.S.C. 4513(b)(2)(B)(iii). Section 1319G(a) of the
Safety and Soundness Act authorizes FHFA to issue any regulations,
guidelines, or orders necessary to ensure that the purposes of the
Safety and Soundness Act and the Enterprise charter acts are
accomplished. See 12 U.S.C. 4526(a). Finally, section 1313(a)(2) of the
Safety and Soundness Act authorizes FHFA to exercise such incidental
powers as may be necessary in the supervision and regulation of each
regulated entity. See 12 U.S.C. 4513(a)(2).
FHFA established the SCP in June 2012 by letter to the regulated
entities. The requirements and procedures for the SCP were generally
codified at 12 CFR part 1227 by the interim final rule published on
October 23, 2013. 78 FR 63007. FHFA amended the SCP regulation via
final rule published on December 23, 2015. 80 FR 79675.
II. Analysis of Proposed Rule
A. Civil Enforcement
The SCP regulation authorizes suspension only if the applicable
counterparty has committed covered misconduct, as that term is defined
at 12 CFR 1227.2.\1\ ``Covered misconduct'' is defined to include
``administrative sanctions'' and ``convictions,'' each of which is also
defined at 12 CFR 1227.2.\2\ The definition of ``conviction'' is
limited solely to judgments of guilt of criminal offense, or certain
other dispositions that are the functional equivalent of such
judgments. The standards reflected in these definitions have allowed
FHFA to significantly reduce the risks to which the regulated entities
are exposed, by prohibiting them from doing business with
counterparties that have committed various offenses, including but not
limited to mortgage fraud. However, in FHFA's experience of
administering the SCP, it has determined that this standard is too
narrow; specifically, it does not authorize suspension of
counterparties that have been found to have committed various forms of
[[Page 47079]]
misconduct in the context of civil enforcement actions. Counterparties
determined to have committed certain forms of misconduct in the context
of civil enforcement actions may pose a significant risk to the
regulated entities, even though their conduct might not rise to the
level of criminal sanction, or might rise to this level, but the
relevant criminal enforcement authority has declined to prosecute or
has yet to prosecute.
---------------------------------------------------------------------------
\1\ ``Covered misconduct'' is defined, in relevant part, to mean
``[a]ny conviction or administrative sanction within the past three
(3) years if the basis of such action involved fraud, embezzlement,
theft, conversion, forgery, bribery, perjury, making false
statements or claims, tax evasion, obstruction of justice, or any
similar offense, in each case in connection with a mortgage,
mortgage business, mortgage securities or other lending product.''
12 CFR 1227.2 (definition of ``covered misconduct'').
\2\ ``Administrative sanction'' is defined to mean ``debarment
or suspension imposed by any Federal agency, or any similar
administrative action that has the effect of limiting the ability of
a person to do business with a Federal agency, including Limited
Denials of Participation, Temporary Denials of Participation, or
settlements of proposed administrative sanctions if the terms of the
settlement restrict the person's ability to do business with the
Federal agency in question.'' Id. (definition of ``administrative
sanction''). ``Conviction'' is defined as follows: ``(1) [a]
judgment or any other determination of guilt of a criminal offense
by any court of competent jurisdiction, whether entered upon a
verdict or plea; or (2) [a]ny other resolution that is the
functional equivalent of a judgment of guilt of a criminal offense,
including probation before judgment and deferred prosecution. A
disposition without the participation of the court is the functional
equivalent of a judgment only if it includes an admission of
guilt.'' Id. (definition of ``conviction'').
---------------------------------------------------------------------------
To address this limitation in the SCP regulation, the proposed rule
would amend the definition of ``conviction'' at Sec. 1227.2 to include
an order or judgment by a Federal or state agency or court in a civil
matter to which a Federal or state agency or government, or private
citizen asserting claims on behalf of the government, is a party,
constituting or including a finding that the person committed one of
the offenses enumerated in the definition of ``covered misconduct''--
e.g., fraud, embezzlement, etc. FHFA intends the expansion of the SCP
suspension authority to cover civil enforcement actions to be applied
broadly, to all manner of civil enforcement proceedings, including
civil enforcement actions before a court in the relevant judicial
branch--e.g., a court organized under Article III of the United States
Constitution in the Federal system or state equivalent--those before an
administrative body convened by the issuing agency (e.g., agency
enforcement action presided over by an administrative law judge), as
well as actions properly undertaken by a private citizen on behalf of
the Federal or a state government (e.g., qui tam actions under the
False Claims Act).
In addition, the proposed amendments would also include findings
that a counterparty knowingly committed a material breach of contract.
Certain, although possibly not all, of the enumerated offenses in the
definition of ``covered misconduct'' have analogs in a non-criminal
context (e.g., fraud); hence, the proposed amendment to the definition
of ``conviction'' would simply incorporate, via reference, those
enumerated offences. However, a counterparty's breach of contract,
which generally would not be criminally actionable, may pose a
significant risk to the regulated entities, particularly knowing,
material breaches. These two qualifiers--``knowing'' and ``material,''
which generally relate to intent and significance, respectively--are
appropriate insofar as FHFA's authority should be limited to those
types of breaches that are likely to evince a risk of significant
financial or reputation harm to the regulated entities, or otherwise
threaten their safe and sound operation. Selection of this standard is
prompted by the authority provided at 42 U.S.C. 1437z-1, under which
the United States Department of Housing and Urban Development (HUD) may
impose monetary penalties under the Section 8 program for certain
knowing, material contractual violations, including the failure under a
Section 8 contract ``to provide decent, safe, and sanitary housing.''
42 U.S.C. 1437z-1(b)(2)(A). However, the proposed rule would not merely
authorize FHFA to suspend business where the counterparty has been
found by HUD or, pursuant to judicial review of HUD final agency
action, a federal court, to have knowingly committed a material breach
under a Section 8 contract, but any finding by relevant authority in
the context of civil enforcement actions where a counterparty has been
found to have committed such a breach under any contract. Given the
otherwise applicable restrictions under the SCP--most notably the
requirement that covered misconduct occur in connection with a
mortgage, mortgage business, etc. or in connection with the management
or ownership of real property (a proposed revision separately addressed
in section II.C.1 below)--the risk of any such breach to the regulated
entities is apparent and it would be appropriate to authorize
suspension in event of such a breach, not only those for which
penalties are authorized under 42 U.S.C. 1437z-1.
This amendment would also include resolutions that are the
equivalent of the above-referenced judgments or orders--e.g., consent
orders--regardless of whether the resolution includes an admission of
misconduct by the subject counterparty. The current SCP regulation
authorizes suspension where the covered misconduct is the disposition
of a criminal offense that is the functional equivalent of a judgment
of guilt (e.g., deferred prosecution agreement). However, it also
provides that ``[a] disposition without the participation of the court
is the functional equivalent of a judgment only if it includes an
admission of guilt.'' 12 CFR 1227.2 (par. (2) of definition of
``covered misconduct''). The proposed rule would not establish such a
restriction with respect to civil enforcement. In FHFA's experience,
admissions of misconduct in the context of civil enforcement are
uncommon. Imposing such a restriction on suspensions based on settled
civil enforcement actions would significantly hinder the SCP's purpose.
FHFA is not proposing to eliminate the corresponding restriction in the
context of criminal enforcement, because FHFA does not wish the SCP to
have chilling effect on such dispositions. However, in the civil
context, where the stakes for the applicable counterparties may be
lower and where the costs of any such chilling effects would therefore
be more limited, FHFA has determined that it is appropriate to permit
suspension where enforcement claims are resolved without admission of
misconduct.
Accordingly, for the aforementioned reasons, the proposed rule
would amend the definition of ``conviction'' in Sec. 1227.2 to include
an order or judgment by a Federal or state agency or court in a civil
matter to which a Federal or state agency or government, or private
citizen asserting claims on behalf of the government, is a party,
constituting or including a finding that the respondent committed one
of the offenses enumerated in the definition of ``covered misconduct''
or knowingly committed a material breach of contract, or any other
resolution that is the functional equivalent of such a judgment or
order, such as a consent order, regardless of whether it includes any
admission of misconduct.
B. Administrative Sanctions
1. Immediate Suspension Orders
The SCP regulation establishes a series of procedures governing the
issuance of a final order of suspension. FHFA must first issue a
proposed order of suspension and provide the relevant counterparty and
each regulated entity an opportunity to respond. Only then does the
regulation authorize issuance of a final suspension order, and any such
suspension order may not be effective sooner than 45 days after
signature by the suspending official. Although these procedures are
appropriate under most circumstances, ensuring that affected
counterparties and the regulated entities are given the opportunity to
provide FHFA with relevant information prior to issuance of a final
suspension order, and that the regulated entities are provided adequate
time to cease transactions with the relevant counterparties, there are
circumstances under which these procedures excessively constrain FHFA.
Specifically, FHFA has determined that these procedures should be
modified where the covered misconduct is an administrative sanction,
which is defined to mean ``debarment or suspension imposed by any
Federal agency, or any similar administrative action that has the
effect of limiting the ability of a person to do business with a
Federal agency, including Limited
[[Page 47080]]
Denials of Participation, Temporary Denials of Participation, or
settlements of proposed administrative sanctions if the terms of the
settlement restrict the person's ability to do business with the
Federal agency in question.'' 12 CFR 1227.2 (definition of
``administrative sanction''). Accordingly, where the covered misconduct
is an administrative sanction, the proposed rule would add new Sec.
1227.11 allowing FHFA to issue a suspension order--designated as an
``immediate suspension order''--that is effective as early as the date
signed by the suspending official and without first issuing a proposed
suspension order.
Because FHFA does not conduct independent fact-finding
investigations or adjudications in response to discovery of covered
misconduct, it must defer to the judgment of third-party authorities
(e.g., a criminal court). A proposed suspension order provides an
important opportunity for subject counterparties and regulated entities
to provide information that FHFA might find relevant in determining
whether to issue a final suspension order, including but not limited to
information that the subject counterparty believes would undermine one
or more of the factual determinations on which the order is based. FHFA
believes, however, that where another Federal agency has concluded that
a counterparty's right to do business with the government should be
limited, particular deference to that conclusion is warranted. In
addition, whereas a conviction represents a judgment by a court of
competent jurisdiction that a counterparty has engaged in certain forms
of misconduct--or the functional equivalent of such a judgment--an
administrative sanction reflects a specific determination by a Federal
agency that the subject counterparty's right to do business with the
Federal government should be limited or prohibited. Given FHFA's
obligation to protect the safe and sound operation of the regulated
entities and the authority under the SCP to restrict the entities'
rights to conduct business with third parties, such determinations by
Federal agencies are of unique significance. Accordingly, FHFA has
determined that where the covered misconduct is based on an
administrative sanction, it should be authorized to restrict the
relevant counterparty's business with the regulated entities without
excessive delay.
This amendment would, of course, not preclude FHFA from adhering to
the current procedures and issuing a proposed suspension order where an
immediate suspension order is authorized, but would merely provide the
Agency with additional flexibility to timely respond to the discovery
of covered misconduct as appropriate. Similarly, the amendments would
not require that immediate suspension orders be effective upon
signature by the suspending official. FHFA expects that there would be
circumstances under which such an effective date would be unduly
disruptive to the regulated entities, who may require additional time
to wind down business with the relevant counterparties. The proposed
amendment would simply permit FHFA to issue an immediate suspension
order that is effective upon signature by the suspending official where
necessary and appropriate to protect the safe and sound operation of
the regulated entities, without the burden of the 45-day requirement,
but would also permit issuance of an immediate suspension order
effective at some future date specified in the order. In addition,
subject counterparties and the regulated entities would have the
opportunity to provide a response for FHFA's consideration. However,
whereas this response period precedes the effective date of a final
suspension order under the current procedures, the proposed rule would
allow for issuance of an immediate suspension order with an effective
date preceding the deadline by which a response must be provided. The
procedures governing issuance of an immediate suspension order,
including but not limited to those governing the content of the order
and notice, are described in more detail in section II C below.
2. Request To Vacate
The proposed rule would add new Sec. 1227.12, establishing
procedures allowing for the vacation of a final suspension order where
the administrative sanction was imposed under authority that does not
guarantee advance notice or an opportunity to present an opposition
before the sanction is imposed. As noted above, FHFA does not conduct
investigations or adjudicate facts regarding subject counterparties'
conduct. Rather, FHFA relies on findings made by other authorities.
Accordingly, FHFA's suspension authority is generally limited to
judgments by authorities issued with certain procedural protections in
place--e.g., notice and hearing opportunity in criminal proceedings.
Under certain circumstances, however, a Federal agency may issue an
administrative sanction without such protections. Specifically, the
Office of Management and Budget (OMB) Guidelines to Agencies on
Government-wide Debarment and Suspension (Nonprocurement) in 2 CFR part
180, subpart G provides agencies with the authority, pursuant to
implementing regulations promulgated by those agencies, to issue
immediately effective orders of suspension without advance notice or an
opportunity for hearing, pending resolution of a related proceeding
(e.g., debarment proceeding). This suspension is generally meant to be
temporary, pending outcome of the related proceeding, although it may
be superseded by a more permanent sanction (e.g., debarment). See 2 CFR
180.760.
Due to the comparatively limited procedural protections afforded to
counterparties subject to such suspensions, FHFA has determined that it
would be appropriate to vacate suspension orders based on an
administrative sanction imposed without prior notice and opportunity to
present an opposition, once those orders are no longer in effect. The
proposed rule would allow for a request to vacate, which FHFA would
grant upon a finding that these conditions have been satisfied. The
rule would require that the request be initiated by the subject
counterparty and include such information as is necessary for FHFA to
determine that the conditions are satisfied. The procedures governing
vacation of such suspension orders are described in more detail in the
section-by-section passage immediately below.
C. Section-by-Section Analysis
1. Sec. 1227.2 Definitions
As discussed above in section II.A, the proposed rule would amend
the definition of ``conviction'' to include an order or judgment by a
Federal or state agency or court in a civil matter to which a Federal
or state agency or government, or private citizen asserting claims on
behalf of the government, is a party, constituting or including a
finding that the respondent committed one of the offenses enumerated in
the definition of ``covered misconduct'' or knowingly committed a
material breach of contract, or any other resolution that is the
functional equivalent of such a judgment or order, such as a consent
order, regardless of whether it includes any admission of misconduct.
In addition, the proposed rule would amend the definition of
``covered misconduct'' to include misconduct in connection with the
management or ownership of real property. Real property management is a
significant function performed by certain regulated entity
counterparties, particularly
[[Page 47081]]
participants in Enterprise multifamily loan transactions. Misconduct in
connection with real property management or ownership--e.g., submission
of fraudulent reports in connection with real property management
service contracts, failure to maintain safe housing in accordance with
assisted housing contracts, etc.--demonstrates a potential risk to the
regulated entities, even in the absence of a close nexus between the
misconduct and financing (e.g., mortgage origination fraud).
Accordingly, the proposed rule would amend paragraph (1) of the
definition of ``covered misconduct'' to read ``[a]ny conviction or
administrative sanction within the past three (3) years if the basis of
such action involved fraud, embezzlement, theft, conversion, forgery,
bribery, perjury, making false statements or claims, tax evasion,
obstruction of justice, or any similar offense, in each case in
connection with a mortgage, mortgage business, mortgage securities or
other lending product, or in connection with the management or
ownership of real property.''
2. Sec. 1227.11 Immediate Suspension Order
For the reasons provided above in section II B, the proposed rule
would establish a new Sec. 1227.11 governing the issuance of immediate
suspension orders. Paragraph (a) would establish the grounds under
which such an order could be issued; specifically, such an order would
be issued where the subject counterparty committed covered misconduct,
the basis of which is an administrative sanction, and where the covered
misconduct is of a type that would be likely to cause significant
financial or reputational harm to a regulated entity or otherwise
threaten the safe and sound operation of a regulated entity. This
second requirement mirrors the corresponding standard, found in
Sec. Sec. 1227.5(b)(2) and 1227.6(a)(2), authorizing issuance of
proposed and final suspension orders, respectively.
Paragraph (b) would establish the factors that FHFA may consider
when determining whether to issue an immediate suspension order. It
incorporates, by reference, the factors that FHFA may consider when
determining whether to issue a final suspension order enumerated at
Sec. 1227.6(c).
Paragraph (c) would establish procedures governing issuance of an
immediate suspension order, which generally correspond to those
currently governing issuance of proposed and final suspension orders.
It would provide that, where the suspending official makes a
determination to suspend a person under Sec. 1227.11, the suspending
official must issue an immediate suspension order to each regulated
entity, mirroring similar requirements provided with respect to final
suspension orders at Sec. 1227.6(f)(1). It would establish
requirements for the content of the required order, incorporating by
reference the content requirements for a final suspension order at
Sec. 1227.6(f)(2); however, whereas a final suspension order must
include a discussion of any relevant information submitted by the
respondent or regulated entities, because an immediate suspension order
is not preceded by a notice of proposed suspension that would provide
the respondent or regulated entities with the opportunity to provide
such information prior to issuance, reference to this information would
be omitted in Sec. 1227.11(c).
Paragraph (c) would also require that FHFA provide each respondent
and regulated entity with a notice of the immediate suspension order
and establish requirements for the content of the notice, incorporating
by reference analogous requirements governing issuance of proposed
suspension orders at Sec. 1227.5(d) and (e). These elements include,
but are not limited to, information instructing the subject
counterparty on how to provide a response.
Paragraph (d) would provide that the effective date of the
immediate suspension order be included in the order, as is the case
with respect to final suspension orders. However, whereas final
suspension orders may be effective no sooner than 45 days after
signature by the suspending official, immediate suspension orders may
be effective immediately upon signature.
Paragraph (e) would establish requirements for the written record
and would provide for FHFA's evaluation of information provided by
respondents and regulated entities following issuance of an immediate
suspension order. The proposed rule would require that the written
record include any material submitted by the respondent and any
material submitted by the regulated entities, as well as any other
material that was considered by the suspending official in making the
determination, including any information related to the factors in
paragraph (b) of this section. It would specify that FHFA may
independently obtain information relevant to the suspension
determination for inclusion in the written record.
As discussed above in section II.B, in contrast to a proposed
suspension order, which is issued in anticipation of the issuance of a
final suspension order and which will not be effective until after the
deadline for response has passed, an immediate suspension order may be
effective before such a deadline, and is not issued in anticipation of
a subsequent order. Nevertheless, FHFA welcomes input from respondent
and regulated entities in response to an immediate suspension order.
Accordingly, paragraph (e) would provide that FHFA will consider any
material submitted by the respondent and regulated entities by the
deadline provided in the notice and document its determination whether
or not to vacate or modify the terms of the immediate suspension order.
The rule would provide that if FHFA elects to vacate or modify the
terms of an immediate suspension order, notice will be provided to the
respondent and regulated entities, and a modified order, as applicable,
will replace the immediate suspension order on FHFA's website. However,
if FHFA declines to vacate or modify the terms of the immediate
suspension order, no notice of this determination would be provided,
and the immediate suspension order would persist until it is later
modified or vacated, or expires per the terms of the order.
Finally, paragraph (f) would specify, as is noted above, that an
immediate suspension order has the full force and effect of a final
suspension order. FHFA acknowledges that the addition of a new category
of order might create confusion among certain members of the public,
but expects that this can be addressed through the text of the
immediate suspension order itself and accompanying notice--e.g., in
contrast to a notice of proposed suspension, which by historical
practice notes that the referenced proposed order is only proposed and
will not go into effect unless finalized, a notice of immediate
suspension would read that the referenced order will go into effect on
the identified effective date. Nevertheless, to more explicitly clarify
what might otherwise be unclear, paragraph (f) distinguishes immediate
from proposed suspension orders, providing that the former has the full
force and effect of a final suspension order.
3. Sec. 1227.12 Request To Vacate
The proposed rule would add new Sec. 1227.12 to provide
respondents subject to an immediate suspension order with the
opportunity to request that FHFA vacate the order under certain
circumstances. Paragraph (a) would provide the general grounds that
[[Page 47082]]
must be satisfied in order for FHFA to grant the request. These include
that: (i) the covered misconduct on which the suspension order was
based does not include a conviction; (ii) each administrative sanction
on which the order was based was imposed pursuant to authority that
does not guarantee prior notice and a prior opportunity to present an
opposition; and (iii) each administrative sanction on which the order
was based is no longer in effect.
Paragraph (b) would establish requirements for the content of a
request to vacate. A request must include: (i) a copy of the final
order of suspension for which the request to vacate applies; (ii)
documentation from the agency imposing the administrative sanction
citing the authority under which the sanction was imposed; (iii)
documentation from the agency imposing the administrative sanction
demonstrating that the sanction is no longer in effect; and (iv) all
existing, proposed, or prior exclusions under regulations implementing
Executive Order 12549 and all similar actions taken by Federal, state,
or local agencies, including administrative agreements that affect only
those agencies. This information would allow FHFA to determine whether
the preconditions that would be established in paragraph (a) are
satisfied.
Paragraph (c) would establish requirements for FHFA's review of the
request and any response. It would provide that FHFA must approve a
request to vacate if it has been presented with evidence sufficient to
demonstrate that the preconditions in paragraph (a) have been
satisfied, unless FHFA discovers covered misconduct that has not formed
the basis for a previously issued order of suspension, provided that
the covered misconduct is of a type that would be likely to cause
significant financial or reputational harm to a regulated entity or
otherwise threaten the safe and sound operation of a regulated entity.
Discovery of this additional covered misconduct may justify denial of
the request, and any denial of a request to vacate would be regarded as
final agency action and would not be appealable to the Director. Under
these circumstances--i.e., where the administrative sanction initially
justifying the suspension is no longer in effect but where continuation
of the suspension is justified by discovery of additional covered
misconduct--the public suspension order would not reflect all of the
grounds on which the suspension's continuation is based. FHFA regards
this as a negligible concern, however. By necessity, the immediate
suspension order would have satisfied the appropriate regulatory
requirements upon issuance, and both the respondent and regulated
entities would have had an opportunity to respond to the order. In
addition, the proposed rule would require that FHFA timely notify the
respondent of its decision and that a denial of the vacation request
specify the reasons for the denial, which would include identification
of the additional covered misconduct.
Paragraph (d) would specify that a request to vacate under Sec.
1227.12 is distinct from a request for reconsideration under Sec.
1227.9. A respondent may, for example, submit a request to vacate an
immediate suspension order concurrently with a request for
consideration, in which case FHFA would evaluate each independently. If
FHFA were to determine that the request to vacate should be granted,
then the request for reconsideration would be rendered moot. If,
however, FHFA were to determine that the request to vacate should be
denied, because the necessary preconditions have not been satisfied, it
may still grant a request for reconsideration based on the standard
provided in Sec. 1227.9(c). The time constraints governing requests
for reconsideration would not apply to requests to vacate.
4. Miscellaneous Provisions
The proposed rule would amend Sec. 1227.6(a) to specify that a
final suspension order may be issued only if preceded by a proposed
suspension order, pursuant to the requirements of Sec. 1227.5.
Although this is implicitly apparent under the current regulation, it
would be appropriate, in light of the proposed addition of immediate
suspension order authority, to explicitly provide the circumstances
under which a final suspension order may be issued. Finally, the
proposed rule would make a series of conforming revisions throughout
part 1227 to include a reference to immediate suspension orders, where
the SCP regulation currently only references final suspension orders--
e.g., the requirement, found at Sec. 1227.8(a), that FHFA publish
final suspension orders on its website. These amended provisions are:
Sec. Sec. 1227.1(c); 1227.2 (definitions of ``respondent,''
``suspending official'' and ``suspension''); 1227.3(a); and 1227.8
section heading, paragraphs (a) and (b)(3).
D. Solicitation of Comments
FHFA solicits comments on every aspect of this proposed rule.
However, FHFA solicits input in particular with respect to the
following questions:
1. Should the scope of misconduct included in the definition of
``covered misconduct'' be expanded beyond what is being proposed? If
so, what additional forms of misconduct should be included?
2. Should the illustrative list of forms of misconduct--e.g.,
fraud, embezzlement, etc.--provided in the definition of ``covered
misconduct'' be otherwise changed? If so, what should be added or
removed?
3. Should the regulation be amended to allow for suspension based
on specific additional sanctions imposed by other Federal agencies,
including but not limited to sanctions that restrict a counterparty's
rights to participate in federally insured mortgage programs--e.g., the
Federal Housing Administration's revocation of a mortgagee's right to
participate in mortgage insurance programs under Title I or Title II of
the National Housing Act--regardless of whether the underlying
misconduct was related to fraud, embezzlement, etc.?
4. Should FHFA be authorized to issue immediate suspension orders
only with a prospective effective date (e.g., ten days after signature
by the suspending official)? If so, how long after signature by the
suspending official?
III. Consideration of Differences Between the Banks and the Enterprises
Section 1313(f) of the Safety and Soundness Act requires FHFA, when
promulgating regulations relating to the Banks, to consider the
differences between the Enterprises and the Banks with respect to the
Banks': cooperative ownership structure; mission of providing liquidity
to members; affordable housing and community development mission;
capital structure; joint and several liability; and any other
differences FHFA considers appropriate. See 12 U.S.C. 4513(f). In
preparing this proposed rule, FHFA considered the differences between
the Banks and the Enterprises as they relate to the above factors and
determined that the Banks should not be treated differently from the
Enterprises for purposes of the proposed rule.
IV. Paperwork Reduction Act
The proposed rule does not contain any information collection
requirement that requires the approval of OMB under the Paperwork
Reduction Act (44 U.S.C. 3501 et seq.). Therefore, FHFA has not
submitted any information to OMB for review.
[[Page 47083]]
V. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that
a regulation that has a significant economic impact on a substantial
number of small entities, small businesses, or small organizations must
include an initial regulatory flexibility analysis describing the
regulation's impact on small entities. 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 proposed rule
under the Regulatory Flexibility Act. FHFA certifies that the proposed
rule, if adopted as a final rule, would not have a significant economic
impact on a substantial number of small entities because the proposed
rule is applicable only to the regulated entities, which are not small
entities for purposes of the Regulatory Flexibility Act.
List of Subjects in 12 CFR Part 1227
Administrative practice and procedure, Federal home loan banks,
Government-sponsored enterprises, Reporting and recordkeeping
requirements.
Accordingly, for the reasons stated in the Preamble, FHFA proposes
to amend part 1227 of chapter XII of title 12 of the Code of Federal
Regulations as follows:
PART 1227--SUSPENDED COUNTERPARTY PROGRAM
0
1. The authority citation for part 1227 continues to read as follows:
Authority: 12 U.S.C. 4513, 4513b, 4514, 4526.
Sec. 1227.1 [Amended]
0
2. Amend Sec. 1227.1(c) by adding the words ``or immediate'' after
``Request for an exception to a final''.
0
3. Amend Sec. 1227.2 as follows:
0
a. In the definition of ``Conviction'':
0
i. In paragraph (1), by removing the word ``or'' after the ``;'';
0
ii. In paragraph (2), by removing the ``.'' and adding the word ``;
or'' after the words ``admission of guilt''; and
0
iii. by adding paragraph (3).
0
b. In the definition of ``Covered misconduct'' by revising paragraph
(1).
0
c. In the definition of ``Respondent'' by adding ``, immediate,'' after
the words ``subject of a proposed'';
0
d. In the definition of ``Suspending official'' by adding ``,
immediate'' after the words ``sign proposed'';
0
e. In the definition of ``Suspension'' by removing the word ``a'' after
the term ``pursuant to'' and adding in its place the words ``an
immediate or''.
The addition and revision read as follows:
Sec. 1227.2 Definitions.
* * * * *
Conviction * * *
(3) An order or judgment by a Federal or state agency or court in a
civil matter to which a Federal or state agency or government, or
private citizen asserting claims on behalf of the government, is a
party, constituting or including a finding that the respondent
committed one of the offenses enumerated in the definition of ``covered
misconduct'' or knowingly committed a material breach of contract, or
any other resolution that is the functional equivalent of such a
judgment or order, such as a consent order, regardless of whether it
includes any admission of misconduct.
Covered misconduct * * *
(1) Any conviction or administrative sanction within the past three
(3) years if the basis of such action involved fraud, embezzlement,
theft, conversion, forgery, bribery, perjury, making false statements
or claims, tax evasion, obstruction of justice, or any similar offense,
in each case in connection with a mortgage, mortgage business, mortgage
securities or other lending product, or in connection with the
management or ownership of real property.
* * * * *
Sec. 1227.3 [Amended]
0
3. Amend Sec. 1227.3(a) by removing the word ``a'' after the word
``issue'' and adding, in its place, the words ``an immediate or''.
0
4. Amend Sec. 1227.6(a) by adding a new first sentence in the
introductory text to read as follows:
Sec. 1227.6 Final suspension order.
(a) Grounds for issuance. A final suspension order may be issued
only if preceded by a proposed suspension order, pursuant to the
requirements of Sec. 1227.5. * * *
* * * * *
Sec. 1227.8 [Amended]
0
5. Amend Sec. 1227.8 by:
0
a. Adding the words ``and immediate'' after the word ``final'' in the
section heading and paragraph (a);
0
b. Adding the words ``or immediate'' after the word ``final'' in
paragraph (b)(3).
0
6. Add Sec. 1227.11 to read as follows:
Sec. 1227.11 Immediate suspension order.
(a) Grounds for issuance. A suspending official may issue an
immediate suspension order with respect to a person if, based solely on
the written record, the suspending official determines that there is
adequate evidence that:
(1) The person engaged in covered misconduct, the basis for which
is an administrative sanction; and
(2) The covered misconduct is of a type that would be likely to
cause significant financial or reputational harm to a regulated entity
or otherwise threaten the safe and sound operation of a regulated
entity.
(b) Factors that may be considered by the suspending official. In
determining whether or not to issue an immediate suspension order with
respect to a person where the grounds for suspension are satisfied, the
suspending official may also consider any factors that the suspending
official determines may be relevant in light of the circumstances of
the particular case, including but not limited to any of the applicable
factors enumerated in Sec. 1227.6(c).
(c) Issuance of an immediate suspension order--(1) General. If the
suspending official makes a determination to suspend a person under
this section, the suspending official shall issue an immediate
suspension order to each regulated entity regarding the respondent.
(2) Content of immediate suspension order. The immediate suspension
order must include a statement of the suspension determination and
supporting grounds and each of the elements described in Sec.
1227.6(f)(2)(ii) through (iv).
(3) Notice to respondent required. The suspending official shall
provide prompt written notice to the respondent of the immediate
suspension order issued to the regulated entities with respect to such
respondent. It must be delivered pursuant to the requirements provided
in Sec. 1227.5(e).
(4) Content of notice. The notice of an immediate suspension order
shall include the elements prescribed for notice of a proposed
suspension order established in Sec. 1227.5(d), except that wherever
the term ``proposed'' appears in Sec. 1227.5(d), it shall be construed
to mean ``immediate.''
(d) Effective date. An immediate suspension order shall take effect
on the date specified in the order, which may be as early as the date
that the order is signed.
(e) Written record and post-issuance evaluation. The written record
shall include any material submitted by the respondent and any material
submitted by the regulated entities, as well as any other material that
was considered by the suspending official in making the determination,
including any information related to the factors in
[[Page 47084]]
paragraph (b) of this section. FHFA may independently obtain
information relevant to the suspension determination for inclusion in
the written record. FHFA will consider any material submitted by the
respondent and regulated entities by the deadline provided in the
notice and document its determination whether or not to vacate or
modify the terms of the immediate suspension order. If FHFA elects to
vacate or modify the terms of an immediate suspension order, notice
will be provided to the respondent and regulated entities, and a
modified order, as applicable, will replace the immediate suspension
order on FHFA's website. If FHFA declines to vacate or modify the terms
of the immediate suspension order, no notice of this determination will
be provided, and the immediate suspension order will persist until it
is later modified or vacated, or expires per the terms of the order.
(f) Relationship to final suspension order. An immediate suspension
order has the same force and effect of a final suspension order,
subject to the terms and conditions presented in the order.
0
7. Add Sec. 1227.12 to read as follows:
Sec. 1227.12 Request to vacate.
(a) Grounds. A respondent subject to an immediate suspension order
may petition FHFA for a request to vacate the order if each of the
following conditions is met:
(1) The covered misconduct on which the order was based does not
include a conviction;
(2) Each administrative sanction on which the order was based was
imposed pursuant to authority that does not guarantee prior notice and
a prior opportunity to present an opposition; and
(3) Each administrative sanction on which the order was based is no
longer in effect.
(b) Content of request. A request to vacate a final suspension
order that satisfies each of the conditions provided in this paragraph
(b) does not preclude FHFA from requesting additional information from
the respondent. The request must include:
(1) A copy of the final order of suspension for which the request
to vacate applies;
(2) Documentation from the agency imposing the administrative
sanction citing the authority under which the sanction was imposed;
(3) Documentation from the agency imposing the administrative
sanction demonstrating that the sanction is no longer in effect; and
(4) All existing, proposed, or prior exclusions under regulations
implementing Executive Order 12549 and all similar actions taken by
Federal, state, or local agencies, including administrative agreements
that affect only those agencies.
(c) Decision and response. FHFA will vacate the final order of
suspension if it has been presented with documentation demonstrating
that each of the conditions in paragraph (a) of this section has been
satisfied, unless FHFA is aware of any other covered misconduct that
has not formed the basis for a previously issued order of suspension,
which may justify denying the request to vacate if the covered
misconduct is of a type that would be likely to cause significant
financial or reputational harm to a regulated entity or otherwise
threaten the safe and sound operation of a regulated entity. FHFA will
notify the respondent of its decision in a timely manner. If FHFA
denies the request, its response will specify the reasons for the
denial. Any such rejection shall not be appealable to the Director and
shall constitute final agency action.
(d) Relationship to requests for reconsideration. A request to
vacate a final suspension order issued under this section is distinct
from a request for reconsideration issued under Sec. 1227.9.
Sandra L. Thompson,
Director, Federal Housing Finance Agency.
[FR Doc. 2023-14723 Filed 7-20-23; 8:45 am]
BILLING CODE 8070-01-P