Federal Register / Vol. 75, No. 248 / Tuesday, December 28, 2010 / Rules and Regulations 81405 

(i) Within each occupational or job 

category identified on the Form EEO–1; 

and 

(ii) From one such occupational or job 

category to another; 

(8) Data showing by minority, gender, 

and disability classification the number 

of individuals— 

(i) Promoted at the regulated entity or 

the Office of Finance within each 

occupational or job category identified 

on the Form EEO–1, after applying for 

such a promotion; 

(ii) Promoted at the regulated entity or 

the Office of Finance within each 

occupational or job category identified 

on the Form EEO–1, without applying 

for such a promotion; and 

(iii) Promoted at the regulated entity 

or the Office of Finance from one 

occupational or job category identified 

on the Form EEO–1 to another such 

category, after applying for such a 

promotion; 

(9) A comparison of the data reported 

under paragraphs (b)(1) through (b)(8) of 

this section to such data as reported in 

the previous year together with a 

narrative analysis; 

(10) Descriptions of all regulated 

entity or Office of Finance outreach 

activity during the reporting year to 

recruit individuals who are minorities, 

women, or persons with disabilities for 

employment, to solicit or advertise for 

minority or minority-owned, women or 

women-owned, and disabled-owned 

contractors or contractors who are 

individuals with disabilities to offer 

proposals or bids to enter into business 

with the regulated entity or Office of 

Finance, or to inform such contractors 

of the regulated entity’s or Office of 

Finance’s contracting process, including 

the identification of any partners, 

organizations, or government offices 

with which the regulated entity or the 

Office of Finance participated in such 

outreach activity; 

(11) Cumulative data separately 

showing the number of contracts 

entered with minorities or minorityowned businesses, women or womenowned businesses and individuals with 

disabilities or disabled-owned 

businesses during the reporting year; 

(12) Cumulative data separately 

showing for the reporting year the total 

amount the regulated entity or the 

Office of Finance paid to contractors 

that are minorities or minority-owned 

businesses, women or women-owned 

and individuals with disabilities or 

disabled-owned businesses; 

(13) The annual total of amounts paid 

to contractors and the percentage of 

which was paid separately to minorities 

or minority-owned businesses, women 

or women-owned businesses and 

individuals with disabilities or 

disabled-owned businesses during the 

reporting year; 

(14) Certification of compliance with 

§§ 1207.20 and 1207.21, together with 

sufficient documentation to verify 

compliance; 

(15) Data for the reporting year 

showing, separately, the number of 

equal opportunity complaints 

(including administrative agency 

charges or complaints, arbitral or 

judicial claims) against the regulated 

entity or the Office of Finance that— 

(i) Claim employment discrimination, 

by basis or kind of the alleged 

discrimination (race, sex, disability, 

etc.) and by result (settlement, favorable, 

or unfavorable outcome); 

(ii) Claim discrimination in any 

aspect of the contracting process or 

administration of contracts, by basis of 

the alleged discrimination and by result; 

and 

(iii) Were resolved through the 

regulated entity’s or the Office of 

Finance’s internal processes; 

(16) Data showing for the reporting 

year amounts paid to claimants by the 

regulated entity or the Office of Finance 

for settlements or judgments on 

discrimination complaints— 

(i) In employment, by basis of the 

alleged discrimination; and 

(ii) In any aspect of the contracting 

process or in the administration of 

contracts, by basis of the alleged 

discrimination; 

(17) A comparison of the data 

reported under paragraphs (b)(12) and 

(b)(13) of this section with the same 

information reported for the previous 

year; 

(18) A narrative identification and 

analysis of the reporting year’s activities 

the regulated entity or the Office of 

Finance considers successful and 

unsuccessful in achieving the purpose 

and policy of regulations in this part 

and a description of progress made from 

the previous year; and 

(19) A narrative identification and 

analysis of business activities, levels, 

and areas in which the regulated entity’s 

or the Office of Finance’s efforts need to 

improve with respect to achieving the 

purpose and policy of regulations in this 

part, together with a description of 

anticipated efforts and results the 

regulated entity or the Office of Finance 

expects in the succeeding year. 

§ 1207.24 Enforcement. 

The Director may enforce this 

regulation and standards issued under it 

in any manner and through any means 

within his or her authority, including 

through identifying matters requiring 

attention, corrective action orders, 

directives, or enforcement actions under 

12 U.S.C. 4513b and 4514. The Director 

may conduct examinations of a 

regulated entity’s or the Office of 

Finance’s activities under and in 

compliance with this part pursuant to 

12 U.S.C. 4517. 

Dated: December 20, 2010. 

Edward J. DeMarco, 

Acting Director, Federal Housing Finance 

Agency. 

[FR Doc. 2010–32541 Filed 12–27–10; 8:45 am] 

BILLING CODE 8070–01–P 

FEDERAL HOUSING FINANCE 

AGENCY 

12 CFR Part 1252 

RIN 2590–AA22 

Portfolio Holdings 

AGENCY: Federal Housing Finance 

Agency. 

ACTION: Final rule; response to 

comments on the interim final rule. 

SUMMARY: The Federal Housing Finance 

Agency (FHFA) is issuing a final 

regulation that will govern the portfolio 

holdings of Fannie Mae and Freddie 

Mac (collectively, the Enterprises) 

during the pendency of the 

conservatorships. The final regulation 

adopts FHFA’s interim final rule on 

portfolio holdings, without change. See 

74 FR 5609, January 30, 2009. That 

interim rule adopted the portfolio limits 

specified in each Enterprise’s Senior 

Preferred Stock Purchase Agreement 

(PSPA) with the Department of the 

Treasury (Treasury) as the regulation 

limits. Specifically, it provides that each 

Enterprise comply with the portfolio 

limits contained in the respective 

PSPAs, as they may be amended from 

time to time. The interim regulation also 

stipulated that the regulation is to be in 

effect until amended or the Enterprises 

are no longer subject to the PSPAs. 

DATES: Effective December 28, 2010, the 

interim final rule published on January 

30, 2009 (74 FR 5609), which was 

effective January 30, 2009, is confirmed 

as final. 

FOR FURTHER INFORMATION CONTACT: 

Ming-Yuen Meyer-Fong, Office of the 

General Counsel, (202) 414–3798, or 

Valerie Smith, Office of Policy Analysis 

and Research, (202) 414–3770, Federal 

Housing Finance Agency, 1700 G Street, 

NW., Washington, DC 20552. The 

telephone number for the 

Telecommunications Device for the Deaf 

is (800) 877–8339. For more information 

on this Final Regulation, see the 


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81406 Federal Register / Vol. 75, No. 248 / Tuesday, December 28, 2010 / Rules and Regulations 

SUPPLEMENTARY INFORMATION section of 

this document. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Federal Housing Finance Agency and 

Recent Legislation 

On July 30, 2008, the Housing and 

Economic Recovery Act (HERA) (Pub. L. 

110–289, 122 Stat. 2564) was signed 

into law. Among other things, HERA 

established FHFA as a new independent 

agency and transferred the supervisory 

and oversight responsibilities for Fannie 

Mae and Freddie Mac from the Office of 

Federal Housing Enterprise Oversight 

(OFHEO) to FHFA. HERA amended the 

Federal Housing Enterprises Financial 

Safety and Soundness Act of 1992 

(Safety and Soundness Act), Public Law 

102–550 (codified at 12 U.S.C. 4501 et 

seq.). The Safety and Soundness Act 

required FHFA to establish criteria, by 

regulation, governing the portfolio 

holdings of the Enterprises. 12 U.S.C. 

4624. The purpose of such regulation is 

to ensure that the portfolio holdings are 

backed by sufficient capital and 

consistent with the mission and the safe 

and sound operations of the Enterprises. 

12 U.S.C. 4624(a). In establishing 

criteria governing the portfolio holdings 

of the Enterprises, the Safety and 

Soundness Act directed FHFA to 

consider the ability of the Enterprises to 

provide a liquid secondary market 

through securitization activities, the 

portfolio holdings in relation to the 

overall mortgage market, and adherence 

to standards of prudential management 

and operations established by FHFA in 

accordance with section 1313B of the 

Safety and Soundness Act. 12 U.S.C. 

4624. The Safety and Soundness Act 

further required that any criteria 

governing Enterprise portfolio holdings 

ensure that such holdings be consistent 

with the Enterprises’ mission, which 

includes facilitating the financing of 

affordable housing for low- and 

moderate-income families in a manner 

consistent with their overall public 

purposes. 12 U.S.C. 4624(a); 12 U.S.C. 

4501(7). 

B. The Enterprises, Generally 

Fannie Mae and Freddie Mac are 

government-sponsored enterprises 

(GSEs) chartered by Congress for the 

purposes of establishing secondary 

market facilities for residential 

mortgages. 12 U.S.C. 1716 et seq. 

(Fannie Mae Charter Act) and 12 U.S.C. 

1451, et seq. (Freddie Mac Corporation 

Act). Specifically, Congress established 

the Enterprises to provide stability in 

the secondary market for residential 

mortgages, respond appropriately to the 

private capital market, provide ongoing 

assistance to the secondary market for 

residential mortgages, and promote 

access to mortgage credit throughout the 

country. 12 U.S.C. 4624(b). 

The Enterprises grew rapidly during 

the late 1990s into the early 2000’s— 

nearly doubling their combined net 

holdings of mortgage assets from 1996 to 

1999 and more than tripling those net 

holdings from 1996 to 2002. Accounting 

and other internal control issues caused 

the Enterprises to slow the growth of, 

and in the case of Fannie Mae, shrink, 

their mortgage asset portfolios after 

2003. Because of increased operational 

risk, OFHEO, predecessor to FHFA, 

imposed on each Enterprise a 30 percent 

capital surcharge, and in mid-2006, the 

Enterprises agreed to cap the growth of 

their mortgage portfolio holdings due to 

their accounting, internal control, and 

risk management weaknesses. 

At the end of 2009, the Enterprises 

had combined assets of just over $1.7 

trillion and combined mortgage assets of 

approximately $1.5 trillion. At that 

time, the Enterprises guaranteed the 

credit risk of mortgage loans backing 

nearly $3.9 trillion of mortgage-backed 

securities (MBS). In total, Fannie Mae 

and Freddie Mac owned and guaranteed 

approximately 46.7 percent of the 

nation’s residential mortgage debt 

outstanding as of the end of 2009. 

C. Establishment of the 

Conservatorships 

The U.S. housing markets began 

deteriorating in mid-2007, and the 

deterioration continued throughout 

2008. The price volatility and liquidity 

problems in financial markets that 

ensued led to sizeable credit and market 

losses at both Enterprises, depletion of 

their capital, and an inability of the 

Enterprises to raise new capital and to 

access debt markets in their customary 

way. Significant safety and soundness 

issues and risk that the Enterprises 

would be unable to fulfill their missions 

caused FHFA, with the concurrence of 

the Secretary of the Treasury and the 

Chairman of the Board of Governors of 

the Federal Reserve, on September 6, 

2008, to place the Enterprises into 

conservatorship. By board approval, 

each Enterprise consented to the 

appointment of a conservator. The goals 

of FHFA in placing the Enterprises into 

conservatorship included enhancing the 

capacity of each Enterprise to fulfill its 

mission of providing liquidity and 

stability to the mortgage markets and 

mitigating the systemic risk which each 

poses and which had contributed to 

instability in mortgage and broader 

financial markets. 

Critical to the establishment of the 

conservatorships were the actions taken 

at the same time by the Treasury— 

consistent with its authority granted in 

HERA—to provide ongoing financial 

support to the Enterprises to ensure they 

remain active participants in the 

marketplace. Upon establishment of 

conservatorships for the Enterprises, 

FHFA acting on behalf of each 

Enterprise entered into separate PSPAs 

with the Treasury on September 7, 2008. 

The PSPAs prevent Enterprise capital 

from being exhausted and are the 

cornerstone of the financial support that 

the Treasury is providing to Fannie Mae 

and Freddie Mac. Under the PSPAs, 

each Enterprise’s business operations 

was fortified through an initial 

commitment by the Treasury to acquire 

up to $100 billion of senior preferred 

stock in each Enterprise as necessary to 

ensure that the Enterprise avoids a 

negative net worth, determined in 

accordance with generally accepted 

accounting principles. 

In return for the support provided 

through the PSPAs, Fannie Mae and 

Freddie Mac provided certain 

compensation to the Treasury and 

accepted various restrictions. The 

compensation to the Treasury initially 

included the issuance by each 

Enterprise of $1 billion in senior 

preferred stock and warrants for the 

purchase of common stock representing 

79.9 percent of its outstanding common 

stock. In addition, the Enterprises 

agreed to limitations on their business 

activities. In particular, while the PSPAs 

do not restrict how each Enterprise can 

increase its net MBS outstanding (MBS 

held by others), they initially limited 

the growth of each Enterprise’s mortgage 

asset portfolio to a maximum balance of 

$850 billion at the end of 2009. 

Thereafter, the PSPAs stipulated that 

the mortgage asset portfolios must 

shrink by at least 10 percent per year 

until each Enterprise’s holdings of 

mortgage assets reached a balance of 

$250 billion, at which point, no further 

reduction would be required by the 

PSPA. 

The PSPAs were amended in 

September 2008 and in May 2009. The 

latter amendment, among other things, 

doubled Treasury’s funding 

commitment to each Enterprise to $200 

billion from $100 billion, and increased 

the size of each Enterprise’s mortgage 

asset portfolio allowed under the PSPAs 

by $50 billion to $900 billion. The 

revised and amended PSPAs left 

unchanged the requirement that after 

December 31, 2009, the portfolio 

holdings of each Enterprise be reduced 

by at least 10 percent per year from the 

amount of mortgage assets held at the 


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Federal Register / Vol. 75, No. 248 / Tuesday, December 28, 2010 / Rules and Regulations 81407 

1Besides amending the provisions relating to the 

Enterprises’ portfolios, the Second Amendment to 

Amended and Restated Senior Preferred Stock 

Purchase Agreement (Second Amendment to PSPA) 

also increased the Treasury’s funding commitment 

to each Enterprise. Specifically, the definition of 

‘‘maximum amount’’ was amended to mean ‘‘as of 

any date of determination, the greater of (a) 

$200,000,000,000 (two hundred billion dollars), or 

(b) $200,000,000,000 plus the cumulative total of 

Deficiency Amounts determined for calendar 

quarters in calendar years 2010, 2011, and 2012, 

less any Surplus Amount determined as of 

December 31, 2012, and in the case of either (a) or 

(b), less the aggregate amount of funding under the 

Commitment prior to such date.’’ Second 

Amendment to Amended and Restated Senior 

Preferred Stock Purchase Agreement (Terms and 

Conditions, para. 3). 

close of the preceding year until each 

Enterprise’s portfolio holdings of 

mortgage assets reached a size of $250 

billion. 

To further solidify Treasury support 

for the Enterprises and the role they 

continue to play in the housing and 

mortgage markets during the current 

crisis, the Treasury and FHFA, on 

December 24, 2009, again amended the 

PSPAs.1 That amendment let stand the 

maximum allowable amount of 

mortgage assets each Enterprise could 

own on December 31, 2009—$900 

billion. However, the covenant requiring 

the Enterprises to reduce their mortgage 

assets was revised such that it is based 

on the maximum amount that they were 

permitted to own as of December 31 of 

the immediately preceding calendar 

year, rather than the amounts they 

actually owned at that time. As revised, 

beginning on December 31, 2010 and 

each year thereafter, each Enterprise is 

required to reduce its mortgage assets to 

at most 90 percent of the maximum 

allowable amount each was permitted to 

own as of December 31 of the 

immediately preceding calendar year, 

until the amount of their respective 

mortgage assets reaches $250 billion, at 

which point, no further reduction is 

required by the PSPA. As noted in 

FHFA’s February 2, 2010 letter to the 

leaders of the Senate Banking 

Committee and the House Financial 

Services Committee on the status and 

future of the conservatorship, the 

amendment to the portfolio limits 

provides the Enterprises with flexibility 

to purchase delinquent loans out of 

guaranteed mortgage-backed securities 

pools as necessary. 

Since the establishment of the 

conservatorships, the combined losses 

at the two Enterprises depleted all of 

their capital and required them to draw 

$150.8 billion of senior preferred stock 

pursuant to the PSPAs through 

September 2010. By providing a capital 

backstop to the Enterprises, the 

Treasury’s commitment under the 

PSPAs effectively eliminated any 

mandatory triggering of receivership 

and ensures that the Enterprises have 

the ability to fulfill their financial 

obligations and perform their statutory 

mission without increasing their 

systemic risk. 

D. Interim Final Rule 

On January 30, 2009, FHFA published 

in the Federal Register an interim final 

regulation which added new subchapter 

C of part 1252 to 12 CFR Chapter XII. 

See 74 FR 5609. The interim final 

regulation adopted, by reference, the 

portfolio holdings criteria established in 

the PSPAs, as may be amended from 

time to time. The establishment of 

criteria governing Enterprise portfolio 

holdings in the PSPAs in the interim 

final rule represented an exercise of 

authority consistent with the authority 

granted by Congress under section 

1369E of the Safety and Soundness Act. 

FHFA’s goals for the conservatorship 

include fortifying the capacity of the 

Enterprises to support the secondary 

mortgage market. The initial criteria for 

Enterprise portfolio holdings 

established in the PSPAs provided the 

Enterprises with some immediate 

capacity to provide stability and 

liquidity to the secondary mortgage 

market, while mitigating systemic risk, 

and facilitating Enterprise efforts to 

achieve a balance between their mission 

and safe and sound operations in the 

intermediate term. The February PSPA 

amendments provided some additional 

capacity to address market conditions. 

The December PSPA amendments 

provided additional flexibility to allow 

for the purchase of delinquent 

mortgages. Despite having some 

additional capacity to grow their 

retained portfolios since the 

establishment of the conservatorships, 

the primary source of Enterprise 

retained portfolio purchases has been 

delinquent mortgages. The Enterprises 

remain on track to be below the $810 

billion retained portfolio limit as of 

December 31, 2010. The retained 

portfolio reduction provided for in the 

PSPAs avoids the need for potentially 

destabilizing liquidation in the near 

term, while ensuring that in the future 

the potential for systemic risk associated 

with these portfolios is reduced. 

The interim final regulation also 

solicited comments on the overall 

interim final rule and to a series of 

questions that relate to portfolio 

holdings when the Enterprises are no 

longer subject to their respective PSPAs. 

Specifically, the interim final rule raised 

a number of general questions related to 

the benefits of the Enterprises’ 

purchases and holdings of mortgage 

assets and the risks, including systemic 

risk, posed by the mortgage asset 

holdings, and the mission-related need 

for the portfolios. The interim final rule 

also posed specific questions related to 

the size, composition, and funding of 

the Enterprises’ mortgage asset 

portfolios. 

Finally, the interim final rule solicited 

comments on a series of general 

questions related to the Enterprises’ 

holding of non-mortgage assets as well 

as specific questions on the size and 

composition of the non-mortgage assets 

portfolios. While the portfolio holdings 

criteria set forth in the PSPAs do not 

address Enterprise holdings of nonmortgage assets, FHFA noted in the 

interim final regulation the need for the 

Enterprises to maintain adequate levels 

of liquidity in order to carry out their 

day-to-day operating activities. 

Adequate levels of liquidity strengthen 

the Enterprises’ ability to meet their 

statutory mission of providing stability 

and liquidity to the secondary mortgage 

market, during good times and during 

periods of market stress, without 

incurring extraordinary financing costs. 

The comment period for the interim 

final rule closed on June 1, 2009; eight 

(8) comment letters were received. 

Those letters are available at the FHFA 

Web site, http://www.fhfa.gov/

Default.aspx?Page=89&ListNumber=5

&ListID=278&ListYear=2009

&SortBy=#278. 

II. Discussion of Comments 

FHFA requested comments on all 

aspects of the interim final rule as well 

as comments on the issues and 

questions set forth in the preamble 

concerning criteria governing Enterprise 

portfolio holdings that will apply when 

the Enterprises are no longer subject to 

the PSPAs. In response to that request, 

FHFA received eight (8) comment 

letters. Commenters represented trade 

and special interest groups of various 

sectors of the housing and mortgage 

markets. There were no comments from 

researchers, policymakers, lawmakers, 

or Enterprise competitors or 

counterparties. 

Two comments included discussion 

of the interim final regulation. The 

majority (five) of the public comments 

included responses to the questions 

posed regarding Enterprise portfolio 

holdings when the Enterprises are no 

longer subject to the PSPAs. Only two 

(2) commenters touched on Enterprise 

portfolio holdings while the Enterprises 

are in conservatorship. One commenter 

suggested strategies for reengineering 

the nation’s mortgage finance system. In 

general, commenters were silent on 


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81408 Federal Register / Vol. 75, No. 248 / Tuesday, December 28, 2010 / Rules and Regulations 

questions regarding the Enterprises’ 

non-mortgage portfolio holdings. 

While FHFA considered all comments 

received, it is important to note that the 

final rule is based on the fact that the 

Enterprises are in conservatorship, and 

that the question of their future status 

has not yet been resolved. 

A. Comments Relating to the Questions 

Posed in the Interim Final Rulemaking 

Several commenters argued that the 

mortgage asset portfolios of Fannie Mae 

and Freddie Mac were beneficial 

because of the limited or lack of access 

to secondary markets for certain 

mortgage products. One commenter 

noted in particular, the absence of a 

secondary mortgage market for Home 

Equity Conversion Mortgages and 

argued that holding those mortgages in 

portfolio is the only way of providing 

liquidity to that segment of the mortgage 

market. 

Commenters also responded to 

FHFA’s question concerning the ability 

of the Enterprises to fulfill their mission 

without the mortgage portfolios. One 

commenter stated that the Enterprises, 

through the 1990s, had fulfilled their 

mission without portfolios. Some 

others, however, thought that some 

portfolio capacity is necessary to 

provide price stability and liquidity 

during periods of market stress. A 

number of commenters expressed 

concern about the implication of 

shrinking the portfolios on, for instance, 

multifamily and some non-standard 

loans. 

Several commenters argued that the 

Enterprises’ purchase of mortgage assets 

should vary over the credit cycle or 

conditions in the secondary markets. 

One commenter suggested that the 

portfolios should be viewed as a ‘‘safety 

valve’’ for providing liquidity when 

secondary market conditions are 

adverse or mortgage credit conditions 

drive away other lending sources. 

Relative to the question about the type 

of mortgage assets the Enterprises 

should be allowed to hold, one 

commenter saw little rationale for 

allowing the Enterprises to hold their 

own, Ginnie Mae, or private-label 

mortgage-backed securities (MBS), 

except during periods of market 

illiquidity. That commenter suggested 

that the portfolios should generally be 

used only to meet mission goals that 

cannot be met though securitization. 

With respect to the question 

concerning the use of portfolio holdings 

criteria and the capital regulations and 

other supervisory tools to address the 

Enterprises’ exposure to additional risk 

posed by their holdings, one commenter 

suggested that FHFA establish riskbased capital requirements to cover all 

portfolio activities. Another commenter 

suggested that the Enterprises’ capital 

requirements be calibrated in such a 

manner as to provide incentives for the 

Enterprises to minimize their portfolio 

holdings. Still another commenter urged 

that the Enterprises be held to similar 

portfolio capitalization standards as 

commercial banks, noting also that 

loans held, which have interest rate and 

credit risk, should be differentiated from 

loans sold as MBS, which primarily 

have credit risk for the Enterprises. 

Given that the future status of the 

Enterprises is not yet resolved, FHFA 

has determined that it is premature to 

establish criteria or to address the 

substantive questions raised in the 

supplementary information to the 

interim final rule at this stage. There is 

currently no resolution as to the 

necessary reforms for the housing 

finance system or to the question of 

what form the Enterprises will take if or 

when they emerge from 

conservatorship. These issues affect the 

appropriate regulatory framework. 

Given these fundamental unresolved 

issues, the final rule adopts the portfolio 

limits set forth in the PSPAs. FHFA may 

revisit the rule when circumstances 

warrant. 

B. Comments Relating to the Interim 

Final Rule 

The commenters raised several issues 

relating to the interim final rule. In one 

instance, a commenter suggested 

incorporating the Treasury portfolio 

limits by restating them in the rule 

itself, rather than reference the PSPAs. 

The commenter expressed concern over 

not knowing how long the PSPAs would 

remain in effect and over the lack of 

public notice and comment when the 

PSPAs are modified or terminated. The 

commenter noted that the May 2009 

amendment to the PSPAs increasing the 

portfolio limits to $900 billion for each 

Enterprise was accomplished without 

notice and comment. Accordingly, the 

commenter suggested specifying the 

portfolio limits in the regulation, which 

would provide an opportunity for 

public notice and comment when 

modifications are made to those 

portfolio limits, and would ensure that 

limits remain in place should the PSPAs 

terminate. 

FHFA determined that the proposed 

change is not necessary or prudent at 

this time. Section 1369E of the Safety 

and Soundness Act, as amended by 

section 1109 of HERA, provides for 

regulatory portfolio criteria governing 

the Enterprises as self-sustaining, 

privately managed and owned 

companies, and does not specifically 

address an Enterprise’s portfolio 

holdings when the Enterprise is in 

conservatorship. Currently, both 

Enterprises are in conservatorship and 

require regular Treasury capital 

infusions under the PSPAs to remain 

solvent. 

The circumstances of the portfolio 

regulation are such that it is not 

reasonable to interpret the Safety and 

Soundness Act’s portfolio provision as 

requiring notice-and-comment 

rulemaking in order to change the 

portfolio limits when the Enterprises are 

in conservatorship and supported by 

Treasury infusions of capital. The 

principal concerns of the statute are 

safety and soundness, capital adequacy, 

and limiting systemic risk posed by the 

Enterprises’ retained portfolios. Those 

concerns are addressed in 

conservatorship through the vehicles of 

the PSPAs and FHFA’s on-going 

oversight of the Enterprises’ risk 

management practices. Under the 

PSPAs, the Treasury provides capital, 

while enumerated significant business 

decisions require Treasury approval. 

While the Enterprises are operating 

under conservatorship, FHFA maintains 

continual oversight of the risk 

management practices associated with 

the Enterprises’ retained portfolios, even 

more directly than it does in its capacity 

as regulator. In terms of systemic risk, 

the PSPAs prescribe an orderly 

reduction in the portfolios, reducing 

risk to the Enterprises while at the same 

time providing market stability by not 

requiring a too-rapid sell-off of portfolio 

assets. In addition, allowing room 

within the portfolio limits for 

repurchases of delinquent mortgages 

from outstanding MBS is necessary for 

loan modifications, which also 

contribute to overall market stability. 

Balancing these competing needs in a 

time of market stress such as the present 

requires greater flexibility in portfolio 

management than notice-and-comment 

rulemaking permits, and therefore in 

these circumstances, when the 

Enterprises are in conservatorship, we 

do not interpret the statute as requiring 

it. Accordingly, the final regulation 

retains the language from the interim 

final regulation. 

Another commenter suggested that, 

pursuant to HERA, FHFA establish a 

formal process of reviewing the 

Enterprises’ portfolio holdings and a 

mechanism for adjusting the portfolio 

limits based on such reviews. Such a 

process would allow formal periodic 

adjustment of the portfolio parameters 

in response to conditions in the market. 

Related to the process of adjusting the 

portfolio parameters, a third commenter 

expressed concern over the 10 percent 


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Federal Register / Vol. 75, No. 248 / Tuesday, December 28, 2010 / Rules and Regulations 81409 

reduction in the Enterprise portfolios 

after December 31, 2009. This 

commenter asks for greater flexibility 

during times of crisis. FHFA monitors 

the Enterprises’ portfolios through 

supervisory and conservatorship 

channels. If market conditions dictate a 

need to consider the portfolio reduction 

provisions in the PSPAs, FHFA will 

take the appropriate actions to seek 

amendments to the PSPAs. FHFA thus 

concludes no change to the interim final 

rule in this regard is necessary at this 

time. 

III. Final Rule 

FHFA adopts the portfolio holdings 

criteria established by the PSPAs, as 

may be amended from time to time, as 

the standard governing the holding of 

mortgage assets by the Enterprises. 

Under the PSPAs, which currently have 

the same portfolio holdings criteria for 

both Enterprises, beginning on 

December 31, 2010, and each year 

thereafter, each Enterprise is required to 

reduce its mortgage assets to 90 percent 

of the maximum allowable amount it 

was permitted to hold as of December 

31 of the immediately preceding 

calendar year, until the maximum 

amount of the mortgage assets owned by 

each Enterprise reaches $250 billion. 

Thus, the maximum allowable amount 

of mortgage assets that each Enterprise 

may own as of December 31, 2010, is 

$810 billion. 

This regulation will remain in effect 

until amended or the Enterprises are no 

longer subject to the PSPAs. 

Amendments to the portfolio limits and 

criteria on the limits can be made by 

amendment of the PSPAs. Under the 

final regulation, the Enterprises are to 

comply with the PSPA portfolio limits 

as amended from time to time. 

While the final regulatory criteria 

incorporate the PSPAs’ portfolio limits 

as agreed upon by the Treasury and 

FHFA as conservator, the Safety and 

Soundness Act provides that the 

Director monitor the portfolio of each 

Enterprise and authorizes the Director to 

order an Enterprise to dispose of or 

acquire any asset under terms and 

conditions to be determined by the 

Director, if the Director determines that 

such action is consistent with the 

purposes of the Safety and Soundness 

Act or the authorizing statute of the 

Enterprise. 12 U.S.C. 4624(c). 

IV. Section by Section Analysis 

Section 1252.1 

Section 1252.1 adopts the portfolio 

holdings criteria established by the 

PSPAs, as they may be amended from 

time to time, as the standard for this 

rule. 

Under the current PSPAs, which have 

the same portfolio holdings criteria for 

both Enterprises, an Enterprise may 

hold mortgage assets up to $900 billion 

as of December 31, 2009. Starting on 

December 31, 2010, the Enterprise 

portfolio limits will decrease annually 

by 10 percent from the maximum limit 

in the preceding year until the limit 

reaches a level of $250 billion, at which 

point, no further decrease is currently 

required. Adjustments could be made to 

those criteria by amendment of the 

PSPAs. 

Compliance with the PSPAs is 

necessary to ensure that each Enterprise 

receives adequate capital to support its 

ongoing business operations. FHFA’s 

goals for the conservatorship include 

strengthening Enterprise capacity to 

support the secondary mortgage market. 

The criteria for Enterprise portfolio 

holdings established in the PSPAs 

provided the Enterprises capacity to 

provide stability and liquidity to the 

secondary mortgage market (including 

the purchase of delinquent mortgages), 

while mitigating systemic risk, and 

facilitating Enterprise efforts to achieve 

a balance between their mission and 

safe and sound operations in the 

intermediate term. The retained 

portfolio reduction provided for in the 

PSPAs avoids the need for potentially 

destabilizing liquidation in the near 

term, while ensuring that in the future 

the potential for systemic risk associated 

with these portfolios is reduced. 

FHFA’s establishment of PSPA 

portfolio criteria as its regulatory criteria 

represents an exercise of authority 

consistent with the authority granted by 

Congress under section 1369E of the 

Safety and Soundness Act. 

Section 1252.2 

Section 1252.2 addresses the effective 

duration of the interim rule. FHFA 

expects these regulations to be effective 

until any amendment or until the 

Enterprises are no longer subject to the 

terms and obligations of the PSPAs. 

V. Paperwork Reduction Act 

The regulation does not contain any 

collections of information pursuant to 

the Paperwork reduction Act of 1995 (44 

U.S.C. 3501 et seq.). Therefore, FHFA 

has not submitted any information to 

the Office of Management and Budget 

for review. 

VI. Regulatory Flexibility Act 

The regulation applies only to the 

Enterprises, which do not come within 

the meaning of small entities as defined 

in the Regulatory Flexibility Act (RFA). 

See 5 U.S.C. 601(6). Therefore, in 

accordance with section 605(b) of the 

RFA, 5 U.S.C. 605(b), FHFA, hereby, 

certifies that the regulation will not 

have a significant economic impact on 

a substantial number of small entities. 

List of Subjects in 12 CFR Part 1252 

Government-sponsored enterprises, 

Mortgages, Portfolio holdings. 

PART 1252—PORTFOLIO HOLDINGS 

Authority and Issuance 

■ Therefore, the Federal Housing 

Finance Agency hereby adopts the 

interim final rule, published at 74 FR 

5609 (January 30, 2009) as final without 

change. 

Dated: December 17, 2010. 

Edward J. DeMarco, 

Acting Director, Federal Housing Finance 

Agency. 

[FR Doc. 2010–32531 Filed 12–27–10; 8:45 am] 

BILLING CODE 8070–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2010–0437; Directorate 

Identifier 2009–NM–130–AD; Amendment 

39–16539; AD 2010–25–06] 

RIN 2120–AA64 

Airworthiness Directives; The Boeing 

Company Model 737–200, –300, –400, 

and –500 Series Airplanes 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Final rule. 

SUMMARY: We are adopting a new 

airworthiness directive (AD) for certain 

Model 737–200, –300, –400, and –500 

series airplanes. This AD requires 

repetitive inspections for cracking of 

certain fuselage frames and stub beams, 

and corrective actions if necessary. This 

AD also provides for an optional repair, 

which would terminate the repetitive 

inspections. For airplanes on which a 

certain repair is done, this AD also 

requires repetitive inspections for 

cracking of certain fuselage frames and 

stub beams, and corrective actions if 

necessary. This AD results from reports 

of the detection of fatigue cracks at 

certain frame sections, in addition to 

stub beam cracking, caused by high 

flight cycle stresses from both 

pressurization and maneuver loads. We 

are issuing this AD to detect and correct 

fatigue cracking of certain fuselage 

frames and stub beams and possible 


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