Chapter 3. Handling and Protecting Securities

3-1. Policy. It is the policy of HUD to fully protect and

preserve at all times the securities (both marketable and

nonmarketable) which pass through or are retained in

Headquarters and Field Offices. This portion of the

Handbook sets forth the procedures to be followed by

all elements of HUD in the safekeeping of securities in

a\. the assignment of custodial responsibilities;

b\. the designation of depositors and safekeeping locations;

c\. the selection of appropriate storage facilities;

d\. the transfer of accountability by various shipment

methods; and,

e\. the records to be maintained to accurately and

promptly detect and report lost, missing, or stolen

documents.

The security processing procedures of this Handbook

apply to Headquarters, Field Offices, and Corporations

(GNMA) under the jurisdiction of HUD. This does not

apply to investing \"reserves for replacements and residual

receipts funds\" of projects with HUD-Held Mortgages.

Local managers shall determine the detailed requirements

under this chapter based on local conditions.

3-2. Control Over and Accountability for Securities

It is HUD policy that local managers will develop the

required detailed procedures to implement the minimum

standards cited in this chapter. Local procedures must be

documented and available for review by Headquarters,

Regional, and other authorized personnel. All employees

in local offices having a need to process or administratively

use securities shall be given a copy of the procedures.

a\. Receiving Securities. Establishing securities receiving

points in HUD is of primary importance to control. The

objectives are to limit the number of receiving points to

the minimum number commensurate with efficient and

effective processing; to assure that only authorized Personnel

receive and process securities; and to record each

security as soon as it is received. To this end, local

management should assure that securities sent to HUD are

delivered to authorized personnel, by courier, or to post

office boxes where access is controlled. Every effort

shall be made to keep securities separated from other

HUD mail.

b\. Recording Securities. All securities must be recorded at

the securities receiving points as soon as they are

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received. Securities shall be recorded in sufficient detail to

assure that copies or replacements can be secured, or

that a claim for loss can be supported. Regardless of

whether the system used to record securities is manual

or automated, the system must provide a record of all

securities received, track the location of each security,

and record the transfer of safekeeping or final disposition

of each security. In effect, the system shall provide a

perpetual inventory of the securities activity at the

receiving point.

c\. Storage of Securities. The requirements for storage are

linked to whether they are negotiable or replaceable.

A negotiable security may be easily converted to cash

(sold). Factors related to negotiability are: whether there

is a market (conversion mechanism) for the security; the

security could be readily converted on the market

(demand); and, the form of the security (bearer/registered

/book entry).

A replaceable security is one where an equivalent

substitute can be obtained.

The following standards are stated as minimums and

may be exceeded by Office Directors when they determine

more stringent measures are required.

\(1\) Limited Access. Access to securities storage areas

should be restricted to employees of the immediate staff

of the custodial office. Areas accessible to the general

public shall not be used as securities storage areas.

Access to the safes/files or other immediate storage

facility shall be limited to the securities custodian and

alternate. Suitable provisions for emergency access, in the

event of absence of both custodians, shall be made in

each office.

\(2\) Storage Facilities. Local managers shall determine the

appropriate storage facilities keeping in mind the minimum

requirements stated in this Handbook. At a minimum,

storage areas shall be in rooms with lockable interior

doors. The storage facilities shall be locking file

cabinets. The minimum storage facility for highly negotiable

securities, such as bearer instruments, is a fire-proof

safe with a built-in combination lock.

\(3\) Separation of Securities Registers and Securities. The

securities register shall be maintained in a location separate

and apart from the securities themselves so that in

the event of fire, theft, or other loss, a new register may

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be prepared from the securities, or the securities may be

replaced, or a claim filed based on the register. In those

instances where the securities register is automated, a

back-up copy of the data will be maintained separate and

apart from the securities.

\(4\) Periodic Inventory. An annual physical inventory shall

be taken in each office that maintains securities. The

securities on hand shall be matched against the securities

register and a written report stating that all securities are

accounted for, or identifying missing securities, shall be

sent to the RAD or Director, OFA. It is the responsibility

of the local Office Manager to assure replacement securities

are secured, or to take other appropriate action

as directed by the RAD or Director, OFA. Inventories

shall be taken as of June 30, 19XX and the report issued

by July 31, 19XX.

d\. Security Safekeeping Reviews. Annually, the securities

handling practices shall be reviewed. These reviews are

to be performed by OFA\'s Financial Management Systems

Staff in Headquarters and by the Regional Accounting

Divisions or designees in the Field. Managers

should use the checklist specified in Appendix 5 as a

guide for their own reviews.

3-3. Shipment of Securities. Each mailing, shipment, or

delivery by messenger shall be made by the most protective

method available. Shipments of valuables, i.e., marketable

securities, shall be governed by the provisions of

the Government Losses-in Shipment Act (P.L. 192, 75th

Congress 7-8-37). Nonmarketable securities are not

included under the provision of the Act. The use of mail

service or commercial armored transport service will be

used to the fullest extent possible when transporting

securities between buildings of HUD, between cities, and

between HUD and other agencies, depositories, or

individuals. Use of messengers, particularly unarmed and/or

untrained HUD employees, will be discouraged. However,

transfers between offices within a HUD building can

utilize courier or hand-delivery of documents. Each

mailing, shipment, or delivery by messenger must be

receipted for by the recipient organization. Such receipts

will be retained by the surrendering custodian as

evidence of relief of accountability.

3-4. Appointing Securities Custodian Officer. Each

director of an office, Region, and corporation (GNMA) shall

appoint a Securities Custodian Officer for the organization.

If the office handles more securities than can reasonably

be controlled by one person, a Securities Custodian

Officer for each division of the organization may be

designated. Designation of Securities Custodian Officers

shall be in writing, and a copy of the letter of appointment

will be sent to the RAD, or to the Director, OFA.

The letter of appointment will specify those classes of

securities for which custodial responsibility is assigned.

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3-5. Custodial Responsibilities. Securities custodian

officers will be responsible for the following functions:

a\. The receipt and acceptance of all securities, both

marketable and nonmarketable, entering the office.

b\. The establishment of registers of securities received

and the continued control of securities through the

record.

c\. The scheduling and direction of the annual physical

inventory of securities.

d\. Determining the proper method of shipment and

ascertaining that shipment is accomplished.

e\. Limiting the access of unauthorized personnel to

securities storage areas, or offices in which securities are

processed.

f\. Reporting of lost, stolen, counterfeit or missing

securities to the Securities and Exchange Commission

Information System.

g\. Informing all office personnel of securities protection

and safekeeping policy and procedures.

h\. Making recommendations to the director on safekeeping

matters.

3-6. Distinction between Marketable and Nonmarketable

Securities. It is important to HUD operations for all

security custodians to be aware of the distinction between

marketable and nonmarketable securities, since HUD

receives, processes, and keeps in storage both types of

securities. In the nonmarketable securities classification,

HUD processes a number of securities which are unique

to real property transactions, such as mortgage notes,

deeds of trust, and project loan notes, which must be

safeguarded to a degree consistent with the importance

and replaceability of the document(s).

a\. Marketable Securities. These are generally characterized as:

\(1\) readily and easily converted to cash upon receipt;

and,

\(2\) require a high degree of protection in storage and

shipment.

Securities in the marketable classification are:

\(1\) Bearer Instruments

\(2\) FHA Debentures

\(3\) GNMA Participation Certificates and Mortgage

Backed Securities

\(4\) U.S. Treasury Bills, Notes and Bonds

\(5\) Tax Anticipation Warrants

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\(6\) Passbooks for Assigned Multifamily Project Escrow

Funds

\(7\) Time Deposit Certificates for Assigned Multifamily

Projects

\(8\) Stock Certificates

\(9\) Debentures

\(10\) Certificates of Deposit

\(11\) Money Market Accounts

\(12\) Letters-of-Credit

\(13\) GNMA Deposit Agreements

b\. Nonmarketable Securities. The characteristics of these

securities are: (1) difficulty in conversion to cash due to

limited secondary market and lack of value, except to

maker; (2) only reasonable protection against loss in

shipment and storage required; and (3) extensive use

throughout HUD mortgage and grant administration

processes to evidence indebtedness to HUD. Securities

in the nonmarketable classification are:

\(1\) Original mortgage notes made to HUD, or endorsed

to HUD by a mortgagee

\(2\) Section 312 Notes

\(3\) Title I Promissory Notes

\(4\) Low-Rent Project Loan Notes

\(5\) Urban Renewal Project Loan Notes

\(6\) Housing for Elderly Project Loan Notes

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