[Federal Register Volume 62, Number 249 (Tuesday, December 30, 1997)]
[Proposed Rules]
[Pages 68060-68061]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33731]



[[Page 68059]]

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Part IV





Department of Housing and Urban Development





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24 CFR Part 81



The Secretary of HUD's Regulation of the Federal National Mortgage 
Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation 
(Freddie Mac); Proposed Rule

Federal Register / Vol. 62, No. 249 / Tuesday, December 30, 1997 / 
Proposed Rules

[[Page 68060]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 81

[Docket No. FR-4297-A-01]
RIN 2501-AC41


The Secretary of HUD's Regulation of the Federal National 
Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage 
Corporation (Freddie Mac); Advance Notice of Proposed Rulemaking

AGENCY: Office of the Secretary, HUD.

ACTION: Advance Notice of Proposed Rulemaking.

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SUMMARY: Through this notice HUD seeks comments from the public 
regarding a possible future proposed rule on non-mortgage investments 
to amend HUD's regulations at 24 CFR Part 81 governing the Federal Home 
Loan Mortgage Corporation (Freddie Mac) and Federal National Mortgage 
Association (Fannie Mae) (both are known as Government Sponsored 
Enterprises or GSEs). Under their respective Charters, the GSEs have 
broad authority to invest their funds. The Secretary of HUD, however, 
has general regulatory power over the GSEs to ensure that the purposes 
of the Federal Housing Enterprises Financial Safety and Soundness Act 
of 1992, the Federal National Mortgage Association Charter Act, and the 
Federal Home Loan Mortgage Corporation Act are accomplished. HUD's 
current GSE regulations do not contain specific provisions concerning 
non-mortgage investments by the GSEs. Accordingly, HUD seeks the 
public's comments regarding possible regulations concerning these 
investments. Such comments may include, but should not be limited to, 
whether regulations should be issued governing the GSEs' non-mortgage 
investments and, if so, what specific requirements should be considered 
for such regulations including reporting of non-mortgage investments 
and any limits on such investments. This notice solicits public 
comments on this subject prior to publication of a possible proposed 
rule.

COMMENT DUE DATE: Deadline for comments on this Notice, including 
comments on the proposed information collection requirements: March 30, 
1997.

ADDRESSES: Interested persons are invited to submit comments to the 
Rules Docket Clerk, Office of General Counsel, Room 10276, Department 
of Housing and Urban Development, 451 Seventh Street, SW, Washington, 
DC 20410-0500. Communications should refer to the above docket number 
and title. Facsimile (FAX) comments are not acceptable. A copy of each 
response submitted will be available for public inspection and copying 
between 7:30 a.m. and 5:30 p.m. Eastern Time, weekdays at the above 
address.

FOR FURTHER INFORMATION CONTACT: Janet Tasker, Director, Office of 
Government Sponsored Enterprise Oversight, Room 6154, Department of 
Housing and Urban Development, Washington, DC 20410; telephone (202) 
708-2224; or (for legal questions) Kenneth A. Markison, Assistant 
General Counsel for GSE/RESPA, Room 9262, Department of Housing and 
Urban Development, Washington, DC 20410; telephone (202) 708-1550. 
(These are not toll free numbers.) Persons with hearing or speech 
impairments may access this number via TTY by calling the Federal 
Information Relay Service at (800) 877-8339, which is a toll-free 
number.

SUPPLEMENTARY INFORMATION:

Background

    The GSEs have authority to invest under their respective Charters. 
Fannie Mae's investment authority is contained in section 303(d) of its 
Charter Act (the Federal National Mortgage Association Charter Act, 12 
U.S.C. 1716-1723h) and Freddie Mac's authority is based on provisions 
of its Charter Act at section 309(a) (the Federal Home Loan Mortgage 
Corporation Act, 12 U.S.C. 1451-1459).
    The Secretary has general regulatory power over both GSEs. When 
Fannie Mae was first chartered as a GSE in 1968, the Secretary was 
given general regulatory power over Fannie Mae under its Charter Act, a 
power that the Senate report accompanying the Charter Act characterized 
as ``plenary''. S. Rep. No. 90-1123, at 82 n. 33 (1968). Section 731(c) 
of the Financial Institutions Reform Recovery and Enforcement Act 
(FIRREA), Public Law 101-73, Approved August 9, 1989, amended the 
Freddie Mac Charter Act at 12 U.S.C. 1451 to grant the Secretary 
general regulatory power over Freddie Mac.
    In 1992, under the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992 (FHEFSSA) (12 U.S.C. 4501-4641), Congress 
affirmed the Secretary's general regulatory power and conferred 
regulatory power on the Director of the Office of Federal Housing 
Enterprise Oversight for matters involving the GSEs' financial safety 
and soundness. FHEFSSA provides at 12 U.S.C. 4541:

    Except for the authority of the Director of the Office of 
Federal Housing Enterprise Oversight * * * and all other matters 
relating to the safety and soundness of the enterprises, the 
Secretary of Housing and Urban Development shall have general 
regulatory power over each enterprise and shall make such rules and 
regulations as shall be necessary and proper to ensure that this 
part and the purposes of the Federal National Mortgage Association 
Charter Act and the Federal Home Loan Mortgage Corporation Act are 
accomplished.
    Under the GSEs' Charters, the GSEs' purposes are to:
    (1) Provide stability in the secondary market for residential 
mortgages;
    (2) Respond appropriately to the private capital market;
    (3) Provide ongoing assistance to the secondary market for 
residential mortgages (including activities relating to mortgages on 
housing for low-and moderate-income families involving a reasonable 
economic return that may be less than the return earned on other 
activities) by increasing the liquidity of mortgage investments and 
improving the distribution of investment capital available for 
residential mortgage financing; and
    (4) Promote access to mortgage credit throughout the Nation 
(including central cities, rural areas, and other underserved areas) 
by increasing the liquidity of mortgage investments and improving 
the distribution of investment capital available for residential 
mortgage financing.\1\
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    \1\ Sections 301(b) of the Freddie Mac Act and 301 of the Fannie 
Mae Charter Act.

    In enacting FHEFSSA, Congress affirmed that ``[a]ll enterprise 
activities should conform with the Charter Act purposes of the 
enterprises.'' Senate Report on FHEFSSA, S. Rep. No. 102-282, at 15 
(1992) (``Senate Report''). The Senate Report on FHEFSSA stated in 
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part:

    * * * [T]he authority to ensure that the purposes of the Charter 
Acts are accomplished gives the Director and Secretary the ability 
to prevent any activities that are clearly inconsistent with the 
purposes for which these enterprises were created and which they 
continue to serve * * *

    Congress has indicated that HUD should not become involved in a 
GSE's ``internal affairs such as personnel, salary, and other usual 
corporate matters except where the exercise of such powers is * * * 
otherwise necessary to ensure that the purposes of the Charter Act are 
carried out.'' S. Rept. No. 1123, 90th Cong. 2d. Sess. p. 82 (1968).
    Earlier this year, as a result of GSE non-mortgage investment 
activities, Chairman James Leach of the House Committee on Banking and 
Financial Services requested that the Secretary review the GSEs' non-
mortgage investments. Chairman Leach also asked the General Accounting 
Office to investigate these investments. GAO's

[[Page 68061]]

response to Chairman Leach concluded in part, in relation to the GSEs' 
investment powers, that HUD's regulatory authority ``includes the 
power, at a minimum to determine whether an enterprise activity 
conflicts with the statutory mission and to respond appropriately.'' 
See Housing Enterprises: Investment Authority, Policies and Practices, 
B-277287, June 27, 1997, p. 14.
    HUD understands that both GSEs have investment policies that 
specify permissible credit ratings, maturities and concentration 
limits. Non-mortgage investments constituted about 16 percent of the 
on-balance sheet assets of Fannie Mae and 11 percent of Freddie Mac's 
as of the end of 1996. Over half of Freddie Mac's non-mortgage 
investments and over 40 percent of Fannie Mae's were short-term 
investments in cash, cash equivalents, term federal funds and 
eurodollar deposits. The GSEs have indicated that their principal 
reasons for holding non-mortgage investments are cash management and as 
an investment vehicle to employ capital for future demand to fund 
residential mortgages.

Discussion

    With respect to non-mortgage investments by the GSEs, the Secretary 
seeks to ensure that in carrying out its regulatory responsibility, the 
Government has the necessary tools to ascertain and ensure that the 
purposes of the Charter Acts are accomplished. Accordingly, HUD is 
considering issuing regulations that implement its programmatic 
responsibilities relative to the GSEs' non-mortgage investments to 
ensure that the purposes of the Charter Acts are accomplished. While 
the Secretary does not support or seek intrusive or unnecessary 
regulation, it may be necessary to initiate further rulemaking to 
ensure that the GSEs' Charter purposes are accomplished. Accordingly, 
HUD is asking for comments on non-mortgage investments by the GSEs and 
options regarding the possible regulation of these investments as 
follows:

1. Need for Regulations Governing GSE Non-Mortgage Investments

    <bullet> Are regulations governing the GSEs' non-mortgage 
investments necessary and appropriate?

2. Purposes of GSE Non-Mortgage Investments

    <bullet> For what purposes is it legitimate for Fannie Mae or 
Freddie Mac to hold non-mortgage investments, consistent with their 
charter purposes?

3. Establishing Restrictions on GSE Non-Mortgage Investments

    <bullet> Consistent with its oversight responsibilities, should HUD 
establish general restrictions on the GSEs' non-mortgage investments, 
for example, limiting the GSEs only to those investments which do not 
conflict with their ability to ensure that the purposes of the Charter 
Acts are accomplished or to those relatively short term investments 
which are necessary for liquidity and cash management purposes? If HUD 
were to establish general or even more specific restrictions, what 
should they provide?
    <bullet> Should HUD establish numerical/percentage of asset limits 
on the GSEs' non-mortgage investments? Commenters should indicate the 
legal basis and justification in support of how particular limits 
suggested are appropriate to ensure that the purposes of the Charter 
Acts are accomplished.

4. Establishing Standards for GSE Non-Mortgage Investments

    <bullet> What criteria would be reasonable and feasible for HUD to 
employ to distinguish mortgage-related investments from other 
investments?
    <bullet> What would be a reasonable and feasible basis for HUD to 
use to limit the size (in dollars or relative to mortgage investments) 
and/or type of Fannie Mae's and Freddie Mac's short term and/or long 
term non-mortgage investment holdings?
    <bullet> Should HUD prohibit the GSEs from borrowing for the 
purpose of reinvesting the proceeds in non-mortgage investments in 
order to profit on the net yield or spread? If so, how should a 
restriction be formulated and what would be its legal basis?

5. Monitoring of GSE Non-Mortgage Investments

    <bullet> What methods should HUD employ to monitor the GSEs non-
mortgage investment holdings?

6. Reporting of GSE Non-Mortgage Investments

    <bullet> Under current rules, HUD may request reports from the GSEs 
whenever the Secretary determines that a report is appropriate to carry 
out its regulatory activities under the Charter Act or FHEFSSA. In 
order to ensure regular reports on GSE non-mortgage investments, what, 
if any, specific requirements should HUD establish in its reporting 
rules concerning non-mortgage investments by the GSEs?

    Dated: December 19, 1997.
Andrew Cuomo,
Secretary.
[FR Doc. 97-33731 Filed 12-29-97; 8:45 am]
BILLING CODE 4210-32-P