[Federal Register Volume 75, Number 25 (Monday, February 8, 2010)]
[Proposed Rules]
[Pages 6151-6154]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-2677]
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FEDERAL HOUSING FINANCE AGENCY
12 CFR Part 1225
RIN 2590-AA01
Minimum Capital
AGENCY: Federal Housing Finance Agency.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Federal Housing Finance Agency (FHFA) is issuing and
seeking comment on a proposed rule to effect a provision of the Federal
Housing Enterprises Financial Safety and Soundness Act that provides
for a temporary increase in the minimum capital level for entities
regulated by FHFA--Federal National Mortgage Association, Federal Home
Loan Mortgage Corporation or the Federal Home Loan Banks. The proposed
rule provides clarity regarding standards for imposing a temporary
increase, for rescinding such an increase and a time frame for review
of such an increase.
DATES: Comments on the proposed rule must be received on or before
April 9, 2010. For additional information, see SUPPLEMENTARY
INFORMATION.
ADDRESSES: You may submit your comments on the proposed rulemaking,
identified by ``[RIN 2590-AA01],'' by any one of the following methods:
E-mail: Comments to Alfred M. Pollard, General Counsel,
may be sent by e-mail to RegComments@fhfa.gov. Please include ``[RIN
2590-AA01]'' in the subject line of the message.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments. If you submit your
comment to the Federal eRulemaking Portal, please also send it by e-
mail to FHFA at RegComments@fhfa.gov to ensure timely receipt by the
agency. Include the following information in the subject line of your
submission: ``Minimum Capital Proposed Rule, [RIN 2590-AA01].''
U.S. Mail, United Parcel Post, Federal Express, or Other
Mail Service: The mailing address for comments is: Alfred M. Pollard,
General Counsel, Attention: Comments/[RIN 2590-AA01], Federal Housing
Finance Agency, Fourth Floor, 1700 G Street, NW., Washington, DC 20552.
Hand Delivery/Courier: The hand delivery address is:
Alfred M. Pollard, General Counsel, Attention: Comments/[RIN 2590-
AA01], Federal Housing Finance Agency, Fourth Floor, 1700 G Street,
NW., Washington, DC 20552. The package should be logged at the Guard
Desk, First Floor, on business days between 9 a.m. and 5 p.m.
FOR FURTHER INFORMATION CONTACT: Christopher T. Curtis, Senior Deputy
General Counsel, Christopher.Curtis@fhfa.gov, (202) 414-8947 or Jamie
Schwing, Associate General Counsel, Jamie.Schwing@fhfa.gov, (202) 414-
3787, (not toll-free numbers), Federal Housing Finance Agency, Fourth
Floor, 1700 G Street, NW., Washington, DC 20552. The telephone number
for the Telecommunications Device for the Deaf is (800) 877-8339.
SUPPLEMENTARY INFORMATION:
I. Comments
The Federal Housing Finance Agency (FHFA) invites comment on all
aspects of the proposed rule, and will take all relevant comments into
consideration before issuing the final regulation. Copies of all
comments will be posted
[[Page 6152]]
without change, including any personal information you provide, such as
your name and address, on the FHFA Internet Web site at http://www.fhfa.gov. In addition, copies of all comments received will be
available for examination by the public on business days between the
hours of 10 a.m. and 3 p.m. at the Federal Housing Finance Agency,
Fourth Floor, 1700 G Street, NW., Washington, DC 20552. To make an
appointment to inspect comments, please call the Office of General
Counsel at (202) 414-3751.
II. Background
The Housing and Economic Recovery Act of 2008 (HERA), Public Law
110-289, 122 Stat. 2654, amended the Federal Housing Enterprises
Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501 et seq.)
(Safety and Soundness Act) to establish FHFA as an independent agency
of the Federal Government. FHFA was established to oversee the
prudential operations of the Federal National Mortgage Association, the
Federal Home Loan Mortgage Corporation (collectively, Enterprises), and
the Federal Home Loan Banks (Banks) (collectively, regulated entities)
and to ensure they operate in a safe and sound manner including being
capitalized adequately; foster liquid, efficient, competitive and
resilient national housing finance markets; comply with the Safety and
Soundness Act and other authorizing statutes, and with rules,
regulations, guidelines and orders issued under these statutes and the
charters of the Enterprises and the Banks; carry out their missions
through activities authorized and consistent with the Safety and
Soundness Act and their charters; and, that the activities and
operations of the entities are consistent with the public interest.\1\
The regulated entities continue to operate under regulations
promulgated by the Office of Federal Housing Enterprise Oversight and
the Federal Housing Finance Board until such time as the existing
regulations are supplanted by regulations promulgated by the FHFA.\2\
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\1\ 12 U.S.C. 4513.
\2\ See sections 1302 and 1312 of HERA.
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Section 1111 of HERA amended section 1362 of the Safety and
Soundness Act to provide additional authorities for FHFA regarding
minimum capital requirements. Section 1362(a) establishes a minimum
capital level for the Enterprises, while section 1362(b) incorporates
the minimum capital level for the Federal Home Loan Banks established
by the Federal Home Loan Bank Act (Bank Act).\3\ The section explicitly
authorizes the Director, by regulation, to provide for capital levels
higher than the minimum levels specified for the Enterprises or the
Banks or for both to promote safe and sound operations.\4\ Also,
section 1362(e) provides for additional capital and reserve
requirements to be issued by order or regulation with respect to a
product or activity.\5\ Section 1362(f) provides for a periodic review
of core capital maintained by an Enterprise, the amount of capital
retained by the Banks and the minimum capital levels set forth for the
regulated entities required under this section.\6\
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\3\ The Bank Act's current minimum capital requirements apply to
the eleven banks that have converted to the capital structure
provided in the Bank Act as amended by the Gramm-Leach-Bliley Act of
1999, see Bank Act section 6(a)(2), 12 U.S.C. 1426(a)(2), but do not
apply to the Federal Home Loan Bank of Chicago. The Federal Home
Loan Bank of Chicago is subject to capital requirements as set forth
in a 2007 Cease and Desist Order, as amended. See 74 FR 5597
(January 30, 2009). As a result, the definition of ``minimum capital
level'' as set forth in the proposed regulation is structured to
take into account the current supervisory status of the Federal Home
Loan Bank of Chicago.
\4\ 12 U.S.C. 4612(c).
\5\ 12 U.S.C. 4612(e).
\6\ 12 U.S.C. 4612(f).
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In addition, section 1362(d) provides that the Director, by order,
may temporarily increase an established minimum capital level, when the
director determines ``that such an increase is necessary and consistent
with the prudential regulation and the safe and sound operations of a
regulated entity.'' \7\ The section also provides that the Director
shall rescind the temporary minimum capital level when the Director
determines circumstances no longer justify the temporary level.\8\ To
effect the higher temporary minimum capital level, the Director must
issue regulations setting forth standards for the imposition of a
temporary increase, standards and procedures that will be used to make
the determination regarding rescission and a time frame for periodic
review of any temporary increase in the minimum capital level to make a
determination regarding rescission.\9\
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\7\ 12 U.S.C. 4612(d)(1).
\8\ 12 U.S.C. 4612(d)(2).
\9\ 12 U.S.C. 4612(d)(3).
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Especially in times of economic stress such as the present, it is
important that the Director be able to respond when necessary to
conditions affecting a regulated entity by imposing an appropriately
higher capital requirement in an expeditious manner. Section 1362(d)
recognizes that need, and the proposed rule would implement that
authority. The proposed rule sets forth procedures and standards as
required in the Safety and Soundness Act for a temporary increase in
the minimum capital levels of the Enterprises or the Banks, including a
determination to order an increase, to rescind all or part of the
increase and the time for periodic review of an increase as provided in
section 1362(d). The standards that the Director would apply in
determining whether to impose a temporary capital increase, and its
amount, are those that experience has shown are indicators of the
financial health of an institution and, in the worst case, of its risk
of failure.
Regulatory Impacts
Paperwork Reduction Act
The proposed regulation does not contain any information collection
requirement that requires the approval of OMB under the Paperwork
Reduction Act (44 U.S.C. 3501 et seq.).
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that
a regulation that has a significant economic impact on a substantial
number of small entities, small businesses, or small organizations must
include an initial regulatory flexibility analysis describing the
regulation's impact on small entities. Such an analysis need not be
undertaken if the agency has certified that the regulation does not
have a significant economic impact on a substantial number of small
entities 5 U.S.C. 605(b). FHFA has considered the impact of the
proposed rule under the Regulatory Flexibility Act. The Director of
FHFA certifies that the proposed rule is not likely to have a
significant economic impact on a substantial number of small business
entities because the rule is applicable only to the regulated entities,
which are not small entities for purposes of the Regulatory Flexibility
Act.
List of Subjects
Capital, Federal Home Loan Banks, Federal National Mortgage
Association, Federal Home Loan Mortgage Corporation, Filings, Minimum
Capital, Procedures, Standards.
Accordingly, for the reasons stated in the preamble, under the
authority of 12 U.S.C. 4513, 4526 and 4612, the Federal Housing Finance
Agency proposes to amend Chapter XII of title 12 of the Code of Federal
Regulations by adding part 1225 to Subchapter B to read as follows:
[[Page 6153]]
Subchapter B--Entity Regulations
PART 1225--MINIMUM CAPITAL--TEMPORARY INCREASES
Sec.
1225.1 Purpose.
1225.2 Definitions.
1225.3 Procedures.
1225.4 Standards and Factors.
Authority: 12 U.S.C. 4513, 4526 and 4612.
Sec. 1225.1 Purpose.
FHFA is responsible for ensuring the safe and sound operation of
regulated entities. In furtherance of that responsibility, this part
sets forth standards and procedures FHFA will employ to determine
whether to require or rescind a temporary increase in the minimum
capital levels for a regulated entity or entities pursuant to 12 U.S.C.
4612(d).
Sec. 1225.2 Definitions.
For purposes of this part, the term:
Enterprise means the Federal National Mortgage Association or the
Federal Home Loan Mortgage Corporation; and the term Enterprises means,
collectively, the Federal National Mortgage Association and the Federal
Home Loan Mortgage Corporation.
Minimum Capital Level means the lowest amount of capital meeting
any regulation or orders issued pursuant to 12 U.S.C. 1426(a)(2) and 12
U.S.C. 4612, or any similar requirement established for a Federal Home
Loan Bank by regulation, order or other action.
Regulated Entity means--
(1) The Federal National Mortgage Association and any affiliate
thereof;
(2) The Federal Home Loan Mortgage Corporation and any affiliate
thereof; and
(3) Any Federal Home Loan Bank.
Rescission means a removal in whole or in part of an increase in
the temporary minimum capital level.
Sec. 1225.3 Procedures.
(a) Information--(1) Information to the Regulated Entity or
Entities. If the Director determines, based on standards enunciated in
this part, that a temporary increase in the minimum capital level is
necessary, the Director will provide notice to the affected regulated
entity or entities 30 days in advance of the effective date of such
increase, unless the Director determines that an exigency exists that
does not permit such notice or the Director determines a longer time
period would be appropriate.
(2) Information to the Government. The Director shall inform the
Secretary of the Treasury, the Secretary of Housing and Urban
Development, and the Chairman of the Securities and Exchange Commission
of a temporary increase in the minimum capital level contemporaneously
with informing the affected regulated entity or entities.
(b) Comments. The affected regulated entity or entities may provide
comments regarding or objections to the temporary increase to FHFA
within 15 days or such other period as the Director determines
appropriate under the circumstances. The Director may determine to
modify, delay, or rescind the announced temporary increase in response
to such comments or objection, but no further notice is required for
the temporary increase to become effective upon the date originally
determined by the Director.
(c) Communication. The Director shall transmit notice of a
temporary increase or rescission of a temporary increase in the minimum
capital level by written, electronic, or such other means as
appropriate. Such communication shall set forth, at a minimum, the
bases for the Director's determination, the amount of increase or
decrease in the minimum capital level, the duration of such increase,
and a description of the procedures for requesting a rescission of the
temporary increase in the minimum capital level.
Sec. 1225.4 Standards and factors.
(a) Standard for Imposing a Temporary Increase. In making a
determination to increase temporarily a minimum capital requirement for
a regulated entity or entities, the Director will consider the
necessity and consistency of such an increase with the prudential
regulation and the safe and sound operations of a regulated entity. The
Director may impose a temporary minimum-capital increase if
consideration of one or more of the following factors leads the
Director to the judgment that the current minimum capital requirement
for a regulated entity is insufficient to address the entity's risks:
(1) Current or anticipated declines in the value of assets held by
a regulated entity; the amounts of a regulated entity's outstanding
mortgage backed securities; and, its ability to access liquidity and
funding;
(2) Credit (including counterparty), market, operational and other
risks facing a regulated entity, especially where a depreciation in the
value of its capital or assets, a decline in liquidity, or an increase
in risks is foreseeable and consequential;
(3) Current or projected declines in the capital held by a
regulated entity;
(4) The state of a regulated entity's compliance with regulations,
written orders, or agreements;
(5) Unsafe or unsound operations or practices, or circumstances
that reflect unsafe and unsound conduct by a regulated entity;
(6) Housing finance market conditions;
(7) Level of reserves or retained earnings;
(8) Initiatives, operations, products, or practices that entail
heightened risk;
(9) With respect to a Bank, the ratio of the market value of its
equity to the par value of its capital stock; or
(10) Other conditions as detailed by the Director in the notice
provided under Sec. 1225.3.
(11) In making a finding under this section, the Director may
require a written plan to augment capital to be submitted on a timely
basis to address the methods by which such temporary increase may be
attained and the time period for reaching the new temporary minimum
capital level.
(b) Rescission of a Temporary Increase. In making a determination
to rescind a temporary increase in the minimum capital level, whether
in full or in part, the Director shall consider the following
standards:
(1) Changes to the circumstances or facts that led to the
imposition of a temporary increase in the minimum capital levels;
(2) The meeting of targets set for a regulated entity in advance of
any capital or capital-related plan agreed to by the Director;
(3) Changed circumstances or facts based on new developments
occurring since the imposition of the temporary increase in the minimum
capital level, particularly where the original problems or concerns
have been successfully addressed or alleviated in whole or in part; or
(4) Such other standard as the Director may consider as detailed by
the Director in the notice provided under Sec. 1225.3.
(c) Time Frame for Review of Temporary Increase for Purpose of
Rescission. (1) Absent an earlier determination to rescind in whole or
in part a temporary increase in the minimum capital level for a
regulated entity or entities, the Director shall no less than every 12
months, consider the need to maintain, modify, or rescind such
increase.
(2) A regulated entity or regulated entities may at any time
request in writing such review by the Director.
(d) Guidances. The Director may determine, from time to time, issue
guidance to elaborate, to refine or to provide new information
regarding standards or procedures contained herein.
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Dated: January 31, 2010.
Edward J. DeMarco,
Acting Director, Federal Housing Finance Agency.
[FR Doc. 2010-2677 Filed 2-5-10; 8:45 am]
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