68060 Federal Register / Vol. 62, No. 249 / Tuesday, December 30, 1997 / Proposed Rules

1Sections 301(b) of the Freddie Mac Act and 301

of the Fannie Mae Charter Act.

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.

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

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

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

• Are regulations governing the GSEs’

non-mortgage investments necessary

and appropriate?

2. Purposes of GSE Non-Mortgage

Investments

• 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 NonMortgage Investments

• Consistent with its oversight

responsibilities, should HUD establish

general restrictions on the GSEs’ nonmortgage 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?

• 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 NonMortgage Investments

• What criteria would be reasonable

and feasible for HUD to employ to

distinguish mortgage-related

investments from other investments?

• 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?

• Should HUD prohibit the GSEs

from borrowing for the purpose of

reinvesting the proceeds in nonmortgage 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

• What methods should HUD employ

to monitor the GSEs non-mortgage

investment holdings?

6. Reporting of GSE Non-Mortgage

Investments

• 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 nonmortgage investments by the GSEs?

Dated: December 19, 1997.

Andrew Cuomo,

Secretary.

[FR Doc. 97–33731 Filed 12–29–97; 8:45 am]

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