[Federal Register Volume 77, Number 50 (Wednesday, March 14, 2012)]
[Proposed Rules]
[Pages 14997-15003]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-6177]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 77, No. 50 / Wednesday, March 14, 2012 / 
Proposed Rules

[[Page 14997]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

5 CFR Part 7501

[Docket No. FR-5542-P-01]
RIN 2501-AD55


Supplemental Standards of Ethical Conduct for Employees of the 
Department of Housing and Urban Development

AGENCY: Office of the Secretary, Department of Housing and Urban 
Development.

ACTION: Proposed rule.

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SUMMARY: The Department of Housing and Urban Development (HUD), with 
the concurrence of the Office of Government Ethics (OGE), seeks 
comments on the proposed amendments to HUD's Supplemental Standards of 
Ethical Conduct, which are regulations for HUD officers and employees 
that supplement the Standards of Ethical Conduct for Employees of the 
Executive Branch (Standards) issued by OGE. To ensure a comprehensive 
and effective ethics program at HUD, and to address ethical issues 
unique to HUD, the proposed rule reflects statutory changes that were 
enacted subsequent to the promulgation of HUD's Supplemental Standards 
of Conduct regulation in 1996; significantly, the transfer of general 
regulatory authority over the Federal National Mortgage Association and 
the Federal Home Loan Mortgage Corporation from HUD to the Federal 
Housing Finance Agency (FHFA). In addition, the proposed rule revises 
definitions used in HUD's Supplemental Standards of Conduct to reflect 
updated titles and positions and clarifies existing prohibitions on 
certain financial interests and outside employment to better guide 
employee conduct, while upholding the integrity of HUD in the 
administration of its programs.

DATES: Comment Due Date: May 14, 2012.

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed rule. All comments must be in writing and be addressed to 
the Regulations Division, Office of General Counsel, Department of 
Housing and Urban Development, 451 7th St. SW., Room 10276, Washington, 
DC 20410-0500. There are two methods for submitting public comments. 
All submissions must refer to the above docket number and title.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street SW., Room 10276, 
Washington, DC 20410-0500.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
www.regulations.gov. HUD strongly encourages commenters to submit 
comments electronically. Electronic submission of comments allows the 
commenter maximum time to prepare and submit a comment, ensures timely 
receipt by HUD, and enables HUD to make them immediately available to 
the public. Comments submitted electronically through the 
www.regulations.gov Web site can be viewed by other commenters and 
interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.

    Note: To receive consideration as public comments, comments must 
be submitted through one of the two methods specified above. Again, 
all submissions must refer to the docket number and title of the 
rule.

    No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
    Public Inspection of Public Comments. All properly submitted 
comments and communications submitted to HUD will be available for 
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the 
above address. Due to security measures at the HUD Headquarters 
building, an advance appointment to review the public comments must be 
scheduled by calling the Regulations Division at 202-402-3055 (this is 
not a toll-free number). Individuals with speech or hearing impairments 
may access this number via TTY by calling the Federal Relay Service, 
toll-free, at 800-877-8339. Copies of all comments submitted are 
available for inspection and downloading at www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Robert H. Golden, Assistant General 
Counsel, Ethics Law Division, telephone number 202-402-6334, or Peter 
J. Constantine, Associate General Counsel for Ethics and Personnel Law, 
Office of General Counsel, Department of Housing and Urban Development, 
451 7th Street SW., Washington, DC 20410, telephone number 202-402-
2377. Persons with hearing or speech impairments may access this number 
through TTY by calling the toll-free Federal Relay Service at 800-877-
8339.

SUPPLEMENTARY INFORMATION:

I. Background

    Executive Order 12674, as amended by Executive Order 12731, 
authorized OGE to establish a single, comprehensive, and clear set of 
executive-branch standards of conduct. On August 7, 1992, OGE published 
the Standards of Ethical Conduct for Employees of the Executive Branch 
(Standards), as codified at 5 CFR part 2635. (See 57 FR 35006, as 
corrected at 57 FR 48557 and 57 FR 52583.) The Standards, effective 
February 3, 1993, set uniform ethical conduct standards applicable to 
all executive branch personnel.
    With the concurrence of OGE, 5 CFR 2635.105 authorizes executive 
branch agencies to publish agency-specific supplemental regulations 
necessary to implement their respective ethics programs. Pursuant to 
this authority, HUD, with OGE's concurrence, published on July 9, 1996, 
a final rule to establish its supplementary standards of ethical 
conduct for HUD employees (61 FR 36246). HUD, with OGE's concurrence, 
now proposes to amend its supplemental standards in order to 
successfully implement HUD's ethics program in light of recent 
statutory changes to HUD's programs and operations. One of the most 
significant statutory changes to HUD programs and operations was made 
by the Housing and Economic Recovery Act of 2008 (HERA) (Pub. L. 110-
289, approved July 30, 2008). HERA transfers regulatory authority over 
the Federal National Mortgage Association (Fannie Mae) and the Federal 
Home Loan Mortgage Corporation (Freddie Mac) (collectively referred to 
as the Government Sponsored Enterprises, or GSEs) from

[[Page 14998]]

HUD to the Federal Housing Finance Agency (FHFA). Based on this 
transfer of regulatory authority, HUD has decided to remove provisions 
of its Supplemental Standards of Conduct that prohibit all HUD 
employees from owning certain financial interests issued by the GSEs. 
In addition, HUD has decided to remove Sec.  7501.106 of its 
Supplemental Standards of Conduct that apply to employees whose duties 
involve the regulation or oversight of the GSEs. Section 7501.106 
prohibits covered employees from, among other things, owning financial 
interests in certain mortgage institutions and from performing any 
work, either compensated or uncompensated, for or on behalf of a 
mortgage institution. The removal of Sec.  7501.106 is based on HUD's 
determination that this section is no longer necessary to ensuring the 
impartiality and integrity in the administration of HUD's programs.
    In addition, this proposed rule revises definitions used in HUD's 
Supplemental Standards of Conduct to reflect updated titles and 
positions and clarifies existing prohibitions on certain financial 
interests and outside employment to better guide employee conduct, 
while upholding the integrity of HUD in the administration of its 
programs. This rule also proposes to add a new Sec.  7501.106 that 
clarifies the authority of the HUD OIG in the agency's ethics program 
and establishes it as a separate component as provided by 5 CFR 
2635.203(a).

II. Amendments Proposed by This Rule

    The following is a section-by-section overview of the amendments 
proposed by this rule.

Section 7501.101 Purpose

    This section remains unchanged.

Section 7501.102 Definitions

    Proposed Sec.  7501.102 updates and clarifies key terms already in 
the current regulation. In addition, it adds new terms to reflect 
current HUD policy and removes terms that are no longer used in the 
regulation. Specifically, the proposed definitions of ``Agency 
designee'' and ``Designated Agency Ethics Official (DAEO)'' are revised 
to reflect updated office names and titles within the current HUD 
organization. Definitions of ``Bureau,'' ``Bureau Ethics Counselor,'' 
and ``Deputy Bureau Ethics Counselor,'' are proposed to clarify the 
Office of Inspector General's responsibilities in HUD's ethics program. 
Additionally, the reference to the Inspector General (IG) is removed 
from the definition of ``agency designee'' in favor of adding 
definitions for ``Bureau,'' ``Bureau Ethics Counselor,'' and ``Deputy 
Bureau Ethics Counselor.'' ``Bureau'' would be defined to mean the 
Office of the Inspector General (OIG). ``Bureau Ethics Counselor'' and 
``Deputy Bureau Ethics Counselor'' would be defined to mean, 
respectively, the General Counsel for OIG and the OIG employees to whom 
the OIG General Counsel delegates responsibility to make 
determinations, issue explanatory guidance, or establish procedures 
necessary to implement this part, subpart I of 5 CFR part 2634, and 5 
CFR part 2635 for Bureau employees. HUD is proposing these amendments 
to make the structure of its ethics program more consistent with the 
structure used by other federal agencies and to more clearly describe 
the role and responsibilities of the IG in HUD's ethics program.
    The proposed definition of ``employment'' is also clarified to 
provide that employment includes uncompensated activity, such as 
volunteer work for others while off-duty.
    The terms ``assistance'' and ``security'' are proposed to be 
removed from Sec.  7501.102, because these terms are no longer used in 
HUD's supplemental regulations.

Section 7501.103 Waivers

    Proposed Sec.  7501.103 clarifies the procedure for requesting a 
waiver, and makes other minor changes to make the section clearer. 
Proposed Sec.  7501.103 adds the requirement that a waiver request be 
submitted in writing to an agency designee and should include the 
employee's office and division; a description of the employee's 
official duties; the nature and extent of the waiver; a detailed 
statement of facts to support the request; and the basis for the 
request, such as hardship. This amendment codifies HUD practice that a 
waiver request must be in writing, and provides direction to employees 
on what should be included in a waiver request for a thorough analysis 
to be conducted. The amendment further confirms HUD practice that 
hardship and other exigent circumstances are legitimate reasons for a 
waiver request, and such a request will be considered in light of HUD's 
need to ensure public confidence in the impartiality and objectivity 
with which HUD programs are administered. This section also proposes to 
delegate authority to the Bureau Ethics Counselor to waive provisions 
of this part.
    The proposed section also makes minor textual changes in order to 
make the regulation easier to understand. These textual changes are not 
intended to change the meaning of the section.

Section 7501.104 Prohibited Financial Interests

    Proposed Sec.  7501.104 is amended to remove the reference to 
covered employees under Sec.  7501.106(b)(1). This change reflects the 
proposed removal of Sec.  7501.106 as discussed in more detail below in 
this preamble. The proposed regulation continues to apply to all HUD 
employees, except special government employees, and to the employee's 
spouse and minor children, because HUD has determined that ownership of 
the financial interests listed in this section by these individuals 
constitutes a significant risk of an apparent conflict of interest. 
Additionally, this section is revised to reflect the changes to HUD 
regulatory authority as the result of HERA, which transferred all 
general regulatory authority over Fannie Mae and Freddie Mac from HUD 
to the FHFA.
    Existing Sec.  7501.104(a)(1) is proposed to be removed. The 
prohibition in this section was promulgated in 1968 after Congress 
provided HUD with general regulatory authority over Fannie Mae through 
the Federal National Mortgage Association Charter Act (12 U.S.C. 1716 
et seq.). Under this 1968 statute, HUD was directed to establish 
housing goals for Fannie Mae, specifically a goal for low- and 
moderate-income housing and a goal for housing located in central 
cities. Beginning in 1968, HUD's Standards of Conduct prohibited 
employees from owning securities issued by Fannie Mae or securities 
collateralized by Fannie Mae securities. (See 24 CFR 0.735.205(a)(3) 
(1968).) Section 7501.104(a)(1) is no longer necessary since HERA 
transferred the general regulatory functions over Fannie Mae to FHFA.
    Existing Sec.  7501.104(a)(2) is also proposed to be removed. In 
1989, Congress passed the Financial Institutions Reform, Recovery, and 
Enforcement Act (FIRREA) and granted HUD essentially the same authority 
over Freddie Mac as it had over Fannie Mae. In response to this 
additional authority, HUD's standards of conduct were updated to 
include a prohibition against owning securities issued by Freddie Mac 
or securities collateralized by Freddie Mac securities. HUD has 
determined that the prohibition is no longer necessary because of HERA.
    The remaining provisions are redesignated accordingly.
    Proposed Sec.  7501.104(a)(1) adopts language from the current 
Sec.  7501.104(a)(3).
    Proposed Sec.  7501.104(a)(2) is based on current Sec.  
7501.104(a)(4), but is revised to add clarity. Specifically, the 
revised

[[Page 14999]]

section replaces the phrase ``in a multifamily project or single family 
dwelling, cooperative unit, or condominium unit'' with the term 
``project'' in order to cover all HUD subsidized or insured projects 
that exist or may come to exist in the future. Employee ownership of 
homes with mortgages insured under programs of the Federal Housing 
Administration (FHA) and the purchase by employees of HUD-owned homes, 
which was an exception within the prohibition of Sec.  7501.104(a)(4), 
is now addressed in exceptions under proposed Sec.  7501.104(b). All 
remaining HUD projects, including multifamily projects, assisted living 
facilities, nursing homes, and hospitals, are now included in the 
revised prohibition in Sec.  7501.104(a)(2). Finally, proposed Sec.  
7501.104(a)(2) now uses the term ``financial interest'' to replace 
``stock or other financial interest'' and references OGE regulations at 
5 CFR 2635.403(c) for a complete definition of the term ``financial 
interest,'' including examples.
    Proposed Sec.  7501.104(a)(3) revises the language in current Sec.  
7501.104(a)(5). A new exception is proposed that allows all new HUD 
employees who already have a tenant receiving Section 8 subsidies to 
retain that tenant until the tenant terminates his or her lease. 
Proposed Sec.  7501.104(a)(3)(i)(E) adds a new exception permitting HUD 
employees to receive a Section 8 subsidy for the rental of properties 
located in areas of Presidentially declared emergency or natural 
disaster with prior written approval from an agency designee. HUD's 
experience demonstrates that in rare instances (e.g., Hurricane Katrina 
in 2005 or the 2008 flooding in Cedar Rapids, Iowa), there may be an 
extreme shortage of affordable housing in an area due to a natural 
disaster or other emergency. This exception would permit HUD employees 
with rentable properties in these areas to accept new tenants receiving 
Section 8 subsidies. These supplemental ethics regulations are intended 
to uphold the integrity of HUD's administration of the Section 8 
program and are not intended to further restrict the availability of 
Section 8 housing, especially in times of acute housing shortages.
    The exceptions provided by proposed Sec.  7501.104(a)(3) continue 
as long as the tenant continues to reside in the property and as long 
as the rent charged the tenant is not increased above the annual rate 
adjustments permitted by the Section 8 program. This first condition 
codifies HUD's intent not to require an employee to terminate the 
rental arrangement early or require a Section 8 tenant to move based 
solely on these regulations. The second condition preserves the current 
language of the exceptions.
    Current Sec.  7501.104(a)(6) is proposed to be removed. The current 
prohibition against ``direct creditor interests'' is undefined and 
unclear.
    Proposed Sec.  7501.104(b), which provides exceptions to this 
section on prohibited financial interests, is revised to add the phrase 
``directly or indirectly receiving, acquiring or owning'' to ensure 
consistency with Sec.  7501.104(a). Additionally, this section proposes 
to expand the exceptions by eliminating from current Sec.  
7501.104(b)(1) the prohibition on owning investment funds that 
concentrate in residential mortgages or mortgage-backed securities. 
This prohibition is no longer needed to maintain the integrity of HUD 
in light of the fact that HUD no longer has regulatory authority over 
Fannie Mae and Freddie Mac.
    Proposed Sec.  7501.104(b)(1) also provides an exception to the 
interests prohibited under proposed Sec.  7501.104(a)(2). Section 
7501.104(b)(1) allows the employee, or the employee's spouse or minor 
child, to have a financial interest in a publicly available or publicly 
traded investment fund that may include interests that are prohibited 
under Sec.  7501.104(a)(2), as long as the employee, or the employee's 
spouse or minor child, neither exercises control nor has the ability to 
exercise control over the fund or the financial interests held in the 
fund. This exception allows the employee, or the employee's spouse or 
minor child, to have an interest in an investment fund that may hold 
interests in HUD subsidized projects. HUD's experience has been that it 
is extremely difficult to determine which investment funds have 
interests in HUD-subsidized projects, since that information is not 
readily available. Therefore, HUD has decided that this type of 
interest does not present an appearance problem and is therefore 
permissible.
    Current Sec.  7501.104(b)(2) is proposed to be removed. Read 
literally, this exception had no possible application to a limited 
partnership holding. Also, limited partnerships create no less of an 
appearance issue than other legal entities that could be used as an 
investment vehicle and do not warrant the specific exception.
    Proposed Sec.  7501.104(b)(2) provides that a HUD employee may 
obtain mortgage insurance provided by FHA under section 203 of the 
National Housing Act (12 U.S.C. 1709) to assist in his or her purchase 
of a single-family home that serves as the employee's principal 
residence and of one other single-family residence. Proposed Sec.  
7501.104(b)(2) provides notice to HUD employees that they must adhere 
to the procedures established by the Assistant Secretary for Housing-
FHA Commissioner in order to obtain FHA insurance. This exception was 
previously found in Sec.  7501.104(b)(3).
    Proposed Sec.  7501.104(b)(3) covers HUD employees' purchases of 
HUD-owned homes. This provision is currently an exception within the 
prohibition of Sec.  7501.104(a)(4); however, since the provision is 
permissive, HUD has moved the exception to proposed Sec.  7501.104(b), 
where the other exceptions to the prohibitions to Sec.  7501.104(a) are 
located. Current Sec.  7501.104(a)(4) notifies employees that the 
purchase of HUD-held properties must be consistent with an Office of 
Housing handbook that is now outdated. To avoid the codification of 
references to HUD handbooks that may become obsolete, and thus create a 
discrepancy with the supplemental standards, proposed Sec.  
7501.104(b)(3) does not reference a specific Office of Housing 
handbook, but simply provides notice to HUD employees that they must 
adhere to the procedures established by the Assistant Secretary for 
Housing--FHA Commissioner in order to purchase a HUD-held property.
    Proposed Sec.  7501.104(b)(4) has been added to ensure that the 
employment compensation and benefits package for an employee's spouse 
is not covered as a prohibited financial interest if the employee's 
spouse is employed by an entity that may have interests in HUD projects 
that are prohibited under proposed Sec.  7501.104(a)(2). For example, 
an employee's spouse is not restricted from earning a salary and other 
benefits as compensation for employment with a real estate development 
company that does multifamily business with HUD.
    Proposed Sec.  7501.104(b)(5) contains a revised provision that 
permits employees, or their spouses or minor children, to hold 
Government National Mortgage Association (GNMA) securities. The 
ownership of GNMA securities is currently addressed in Sec.  
7501.104(b)(1). Under this provision, an employee or the spouse or 
minor child of an employee may not own an interest in an investment 
fund that has an objective or practice of investing in residential 
mortgages or securities backed by residential mortgages except those of 
GNMA. Since HUD is proposing to revise Sec.  7501.104(b)(1), the 
provision addressing ownership of GNMA securities is established as a 
separate exception.

[[Page 15000]]

Section 7501.105 Outside Activities

    Proposed Sec.  7501.105 governs the outside activities of HUD 
employees. This proposed section has been revised to account for 
changes in HUD's regulatory authority and to provide clarity on 
restricted real estate activities. The proposed rule is designed to 
balance several important ethical principles against an employee's 
right to engage in outside activities.
    HUD has determined that maintaining the policy against employment 
in businesses related to real estate or manufactured housing is 
necessary to protect against questions regarding the impartiality and 
objectivity of employees in the administration of HUD programs. 
Allowing such activity would hinder HUD in meeting its missions if 
members of the public question whether HUD employees are using their 
public positions or HUD connections to advance their outside real 
estate-related employment. While HUD has determined that this concern 
remains valid, HUD has also concluded that implementing this rule in 
its current form has led to inconsistent application and confusion. 
Therefore, HUD is proposing a number of amendments to clarify the 
intent of the prohibition.
    Proposed Sec.  7501.105(a)(1) is amended by removing the phrase 
``involving active participation'' with a real estate-related business. 
By removing this term, HUD does not intend to change the application of 
the prohibition contained in Sec.  7501.105(a)(1) of the current rule; 
rather, HUD intends to make the prohibition less confusing and more 
transparent. The term ``involving active participation'' with a real 
estate-related business encompasses two prohibitions. First, it 
prohibits employment with a real estate-related business and, second, 
it prohibits ownership of a real estate-related business. The term led 
to some confusion in the application of these prohibitions by 
conflating the concepts of employment in a business related to real 
estate and the ownership activities of operating or managing investment 
properties. To rectify any confusion, HUD has separated the prohibition 
against the ownership activities of operating and managing a real 
estate-related business involving investment properties from the 
employment prohibition, by adding Sec.  7501.105(a)(2), which prohibits 
the operation or management of investment properties to the extent that 
doing so rises to the level of a real estate business. To make the 
prohibition more transparent, HUD has decided to codify longstanding 
policy by listing several factors that it uses to consider whether the 
employee's actions of operating or managing investment properties rises 
to the level of a real estate business and falls within the 
prohibition. HUD first announced these factors in the 1995 preamble to 
the proposed version of the current rule. By listing these factors in 
the rule, HUD has not changed the scope of the current prohibition; 
rather, it has made the prohibition more transparent by including in 
the rule the factors that are used to determine a violation of the 
prohibition. Therefore, HUD employees may continue to own or manage 
investment properties, so long as that ownership or management does not 
rise to the level of operation or management of a real estate-related 
business. In a further effort to make the rule more transparent, HUD 
has decided to codify existing policy by stating in Sec.  
7501.105(a)(2) that HUD will consider these situations on an individual 
basis.
    Proposed Sec.  7501.105(a)(3) is amended to prohibit outside 
employment with a registered lobbying organization that is registered 
to lobby HUD. The current regulation cites a repealed statute. The 
proposed change would incorporate the definition of a lobbyist under 
the Lobbying Disclosure Act (2 U.S.C. 1601, et seq.), although applying 
only to entities that lobby HUD. This change will allow easier 
compliance by employees and review by ethics staff because of the ease 
of checking the lobbying database of the U.S. House of Representatives 
and the U.S. Senate to determine if a potential employer is prohibited.
    Proposed Sec.  7501.105(a)(4) is amended to remove the specific 
restriction on employees having outside positions with Fannie Mae and 
Freddie Mac. As previously discussed, HUD no longer has general 
regulatory authority over Fannie Mae and Freddie Mac. Further, under 
proposed Sec.  7501.105(a)(1), employees would be prohibited from 
employment with a business related to real estate. This prohibition 
would cover employment with Fannie Mae and Freddie Mac. Therefore, a 
specific prohibition is not necessary.
    Proposed Sec.  7501.105(b)(1)(ii) is amended to clarify that the 
outside employment prohibitions do not prohibit employees from serving 
as a member of an employee's homeowners' association. HUD previously 
permitted serving on the board of a cooperative and condominium 
association, and HUD has determined that serving on the board of a 
homeowners' association does not create additional ethics concerns.
    HUD has added Sec.  7501.105(b)(2), which codifies HUD's 
longstanding policy that employees with a real estate agent's license 
may continue to hold such license. An employee may only use his or her 
license in relation to purchasing or selling a single-family property 
for use as the employee's primary residence, or for the primary 
residence of an immediate family of the employee. Employees seeking to 
use their real estate license for this purpose, however, must obtain 
the prior written approval of an agency ethics official. HUD has 
revised Sec.  7501.105(c) to add the requirement for prior written 
approval from an agency ethics official for employees seeking to use 
their real estate license for this purpose.
    Proposed Sec.  7501.105(c)(1) would require an employee to receive 
written approval prior to accepting a position of authority with a 
prohibited source. This section had previously extended only to 
organizations that directly or indirectly received HUD assistance. This 
section has been expanded to include all prohibited sources, because 
HUD has determined that taking a position of authority with any 
prohibited source, not just those which receive HUD funding, could 
create the appearance of a conflict of interest and should therefore be 
examined by an agency ethics official. Further, the section will now be 
easier for employees to understand, because prohibited source is a term 
with which they are familiar. As discussed, HUD proposes to add the 
requirement at Sec.  7501.105(c)(1)(iv) for prior written approval from 
an agency ethics official for employees seeking to use their real 
estate license in relation to purchasing or selling a single-family 
property for use as the employee's primary residence or as the primary 
residence of an immediate family member of the employee.
    Proposed Sec.  7501.105 would eliminate the reference to voluntary 
services. That section cited only other regulations, and HUD has 
determined that it is no longer needed to ensure public confidence in 
the impartiality and objectivity with which HUD programs are 
administered.
    Proposed Sec.  7501.105(d) incorporates HUD's policy regarding 
liaison representatives, which was previously provided as a Note. This 
change will avoid any confusion over the concept and its authority.

Section 7501.106 Bureau Instructions and Designation of Separate Agency 
Components

    HUD proposes to remove this section as currently codified. As 
previously discussed in this preamble, HUD no longer has general 
regulatory authority over Fannie Mae and Freddie Mac. In its place, HUD 
is proposing to add a new Sec.  7501.106 that clarifies the authority 
of

[[Page 15001]]

the Office of the Inspector General in the agency's ethics program and 
establishes it as a separate component as provided for by 5 CFR 
2635.203(a).
    In 1992, Congress enacted the Federal Housing Enterprise Financial 
Safety and Soundness Act (FHEFSSA) (12 U.S.C. 4501 et seq.), which 
revamped the statutory requirements and regulatory structure of the 
GSEs by separating the GSEs' financial regulation from its mission 
regulation. FHEFSSA also established the Office of Federal Housing 
Enterprise Oversight as an independent regulatory office within HUD to 
ensure the GSEs' financial safety and soundness, while the Secretary of 
HUD retained responsibility for the mission regulation and all other 
general regulatory powers. FHEFSSA also required HUD to prohibit the 
GSEs from discriminating in their mortgage purchases. The fair housing 
authority was twofold: first, to take remedial action against lenders 
found to have engaged in discriminatory lending practices and second, 
to periodically review and comment on the GSEs' underwriting and 
appraisal guidelines to ensure consistency with the Fair Housing Act 
(42 U.S.C. 3601 et seq.). In 2008, HERA transferred all regulatory 
oversight of the GSEs from HUD to FHFA, except for this fair housing 
component.
    HUD's only remaining direct regulation of the GSEs is the periodic 
review of their underwriting and appraisal guidelines by the Office of 
Systemic Investigation of HUD's Office of Fair Housing and Equal 
Opportunity and by the Fair Housing Enforcement Division of HUD's 
Office of General Counsel. For employees involved in these compliance 
reviews, 18 U.S.C. 208, which prohibits employees from participating in 
matters that may affect their financial interests, would prohibit them 
from participating in official matters such as these reviews if the 
employee also owns a financial interest that could be affected by the 
review. Therefore, these employees would be required to recuse 
themselves from the official matter or divest their financial interest 
without the need for an additional HUD-specific regulation. The 
criminal statute is sufficient to insure against conflicts in those HUD 
employees when the periodic review is underway.
    HUD has determined that the prohibitions in the current Sec.  
7501.106 are unnecessary given HUD's very limited role regarding the 
GSEs. The current Sec.  7501.106 prohibits certain employees that were 
involved with GSEs from owning securities in certain mortgage 
institutions that originate, insure, or service mortgages owned or 
guaranteed by the GSEs. However, HUD employees no longer regulate the 
GSEs in a way that could affect the stock value of these mortgage 
institutions.
    Additionally, there are other regulations that cover an appearance 
issue that might arise for those employees working on fair housing 
compliance review of the GSEs. Specifically, OGE regulations at 5 CFR 
2635.502 would apply and would limit the activity that employees who 
are involved in the periodic review of the GSEs can engage in with 
respect to a financial interest in a mortgage institution that 
currently originates, insures, or services mortgages owned or 
guaranteed by the GSEs.
    Accordingly removing these prohibitions would not compromise the 
integrity of HUD's functions.
    The new proposed Sec.  7501.106(a) delegates to the Bureau Ethics 
Counselor the authority to designate Deputy Bureau Ethics Counselors to 
make determinations, issue explanatory guidance, and establish 
procedures necessary to implement this part, subpart I of 5 CFR 2634, 
and 5 CFR part 2635 for his or her bureau. The proposed rule also 
includes the concurrence of the Designated Agency Ethics Official on 
the delegation. This designation is consistent with 5 CFR 2635.105(c), 
more clearly describes the role and responsibility of the OIG in the 
agency's ethics program, and maintains the independence of the IG as 
provided for by the Inspector General Act, as amended.
    Additionally, consistent with 5 CFR 2635.203(a), new proposed Sec.  
7501.106(b) designates the OIG as a separate agency component. HUD is 
designating the OIG as a separate agency component to make the 
structure of its ethics program more consistent with the structure used 
by other federal agencies. HUD's changes are intended to more clearly 
describe the role and responsibility of the OIG in the agency's ethics 
program, and maintain the independence and authority of the IG. The 
designation as a separate agency component authorizes Bureau Ethics 
Counselors within the OIG to render legal ethics advice regarding the 
regulations contained in subpart B of 5 CFR part 2635, governing gifts 
from outside sources; and 5 CFR 2635.807, governing teaching, speaking, 
or writing.

III. Matters of Regulatory Procedure

Administrative Procedure Act

    Interested persons are invited to submit written comments on this 
proposed amendatory rulemaking, to be received by DATES section of this 
proposed rule. The comments will be carefully considered and 
appropriate changes will be made before a final rule is adopted and 
published in the Federal Register.

Executive Order 12866 and Executive Order 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if the 
regulation is necessary, to select the regulatory approach that 
maximizes net benefits. Because this rule relates solely to the 
internal operations of HUD, this rule was determined to be not a 
significant regulatory action under section 3(f) of Executive Order 
12866, Regulatory Planning and Review, and therefore was not reviewed 
by the Office of Management and Budget (OMB).

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) generally 
requires an agency to conduct a regulatory flexibility analysis of any 
rule subject to notice and comment rulemaking requirements, unless the 
agency certifies that the rule will not have a significant economic 
impact on a substantial number of small entities. This rule would not 
have a significant economic impact on a substantial number of small 
entities because this rule pertains only to HUD employees.

Information Collection Requirements

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) does not 
apply to this regulation because it does not contain information 
collection requirements subject to the approval of OMB.

Environmental Impact

    In accordance with 40 CFR 1508.4 of the regulations of the Council 
on Environmental Quality and 24 CFR 50.20(k) of the HUD regulations, 
the policies and procedures contained in this rule relate only to 
internal administrative procedures whose content does not constitute a 
development decision nor affect the physical condition of project areas 
or building sites, and therefore, are categorically excluded from the 
requirements of the National Environmental Policy Act.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits, to the 
extent practicable and permitted by law, an agency from promulgating a 
regulation

[[Page 15002]]

that has federalism implications and either imposes substantial direct 
compliance costs on state and local governments and is not required by 
statute or preempts state law, unless the relevant requirements of 
section 6 of the Executive Order are met. This rule does not have 
federalism implications and does not impose substantial direct 
compliance costs on state and local governments or preempt state law 
within the meaning of the Executive Order.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) (UMRA) establishes requirements for federal agencies to 
assess the effects of their regulatory actions on state, local, and 
tribal governments, and on the private sector. Since it is only 
directed toward HUD employees, this rule would not impose any federal 
mandates on any state, local, or tribal governments, or on the private 
sector, within the meaning of the UMRA

List of Subjects in 5 CFR Part 7501

    Conflicts of interests.

    Accordingly, for the reasons described in the preamble, HUD, with 
the concurrence of OGE, proposes to amend 5 CFR part 7501, as follows:

PART 7501--SUPPLEMENTAL STANDARDS OF ETHICAL CONDUCT FOR EMPLOYEES 
OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Sec.
7501.101 Purpose.
7501.102 Definitions.
7501.103 Waivers.
7501.104 Prohibited financial interests.
7501.105 Outside activities.
7501.106 Bureau instructions and designation of separate agency 
component.

    Authority: 5 U.S.C. 301, 7301, 7351, 7353; 5 U.S.C. App. (Ethics 
in Government Act of 1978); E.O. 12674, 54 FR 15159, 3 CFR, 1989 
Comp., p. 215, as modified by E.O. 12731, 55 FR 42547, 3 CFR, 1990 
Comp., p. 306; 5 CFR 2635.105, 2635.203(a), 2635.403(a), 2635.803, 
2635.807.


Sec.  7501.101  Purpose.

    In accordance with 5 CFR 2635.105, the regulations in this part 
apply to employees of the Department of Housing and Urban Development 
(HUD or Department) and supplement the Standards of Ethical Conduct for 
Employees of the Executive Branch contained in 5 CFR part 2635. 
Employees are required to comply with 5 CFR part 2635, this part, and 
any additional rules of conduct that the Department is authorized to 
issue.


Sec.  7501.102  Definitions.

    For purposes of this part, and otherwise as indicated, the 
following definitions shall apply:
    Agency designee, as used also in 5 CFR part 2635, means the 
Associate General Counsel for Ethics and Personnel Law, the Assistant 
General Counsel for the Ethics Law Division, and the HUD Regional 
Counsels.
    Agency ethics official, as used also in 5 CFR part 2635, means the 
agency designees as specified above.
    Affiliate means any entity that controls, is controlled by, or is 
under common control with another entity.
    Bureau means the Office of the Inspector General.
    Bureau Ethics Counselor means the General Counsel for the Bureau.
    Deputy Bureau Ethics Counselor means the Bureau employee or 
employees who the Bureau Ethics Counselor has delegated responsibility 
to act under Sec.  7501.106 for the Bureau.
    Designated Agency Ethics Official (DAEO) means the General Counsel 
of HUD or the Deputy General Counsel for Operations in the absence of 
the General Counsel.
    Employment means any compensated or uncompensated (including 
volunteer work for others while off-duty) form of non-Federal activity 
or business relationship, including self-employment, that involves the 
provision of personal services by the employee. It includes, but is not 
limited to, personal services as an officer, director, employee, agent, 
attorney, consultant, contractor, general partner, trustee, teacher, or 
speaker. It includes writing when done under an arrangement with 
another person for production or publication of the written product.


Sec.  7501.103  Waivers.

    The Designated Agency Ethics Official, or the Bureau Ethics 
Counselor for a Bureau employee may waive any provision of this part 
upon finding that the waiver will not result in conduct inconsistent 
with 5 CFR part 2635 and is not otherwise prohibited by law and that 
application of the provision is not necessary to ensure public 
confidence in the Department's impartial and objective administration 
of its programs. Each waiver shall be in writing and supported by a 
statement of the facts and findings upon which it is based and may 
impose appropriate conditions, such as requiring the employee's 
execution of a written disqualification statement. A waiver will be 
considered only in response to a written waiver request submitted to an 
agency ethics official. The waiver request should include:
    (1) The requesting employee's Branch, Unit, and a detailed 
description of his or her official duties;
    (2) The nature and extent of the proposed waiver;
    (3) A detailed statement of the facts supporting the request; and
    (4) The basis for the request, such as undue hardship or other 
exigent circumstances.


Sec.  7501.104  Prohibited financial interests.

    (a) General requirement. This section applies to all HUD employees 
except special Government employees. Except as provided in paragraph 
(b) of this section, the employee, or the employee's spouse or minor 
child, shall not directly or indirectly receive, acquire, or own:
    (1) Federal Housing Administration (FHA) debentures or certificates 
of claim.
    (2) A financial interest in a project, including any single family 
dwelling or unit, which is subsidized by the Department, or which is 
subject to a note or mortgage or other security interest insured by the 
Department. The definition of ``financial interest'' is found at 5 CFR 
2635.403(c).
    (3)(i) Any Department subsidy provided pursuant to Section 8 of the 
United States Housing Act of 1937, as amended (42 U.S.C. 1437f), to or 
on behalf of a tenant of property owned by the employee or the 
employee's spouse or minor child. However, such subsidy is permitted 
when:
    (A) The employee, or the employee's spouse or minor child acquires, 
without specific intent as through inheritance, a property in which a 
tenant receiving such a subsidy already resides;
    (B) The tenant receiving such a subsidy lived in the rental 
property before the employee worked for the Department;
    (C) The tenant receiving such a subsidy is a parent, child, 
grandchild, or sibling of the employee;
    (D) The employee's, or the employee's spouse or minor child's, 
rental property has an incumbent tenant who has not previously received 
such a subsidy and becomes the beneficiary thereof; or
    (E) The location of the rental property is in a Presidentially 
declared emergency or natural disaster area and the employee receives 
prior written approval from an agency designee.
    (ii) The exception provided by paragraph (a)(3)(i) of this section 
continues only as long as:
    (A) The tenant continues to reside in the property; and
    (B) There is no increase in that tenant's rent upon the 
commencement

[[Page 15003]]

of subsidy payments other than normal annual adjustments under the 
Section 8 program.
    (b) Exception to prohibition for certain interests. Nothing in this 
section prohibits the employee, or the employee's spouse or minor child 
from directly or indirectly receiving, acquiring, or owning:
    (1) A financial interest in a publicly available or publicly traded 
investment fund that includes financial interests prohibited by 
paragraph (a)(2) of this section, so long as the employee neither 
exercises control nor has the ability to exercise control over the fund 
or the financial interests held in the fund;
    (2) Mortgage insurance provided pursuant to section 203 of the 
National Housing Act (12 U.S.C. 1709) on the employee's principal 
residence and any one other single family residence. Employees must 
adhere to the procedures established by the Assistant Secretary for 
Housing--FHA Commissioner in order to obtain FHA insurance;
    (3) Department-owned single family property. Employees must adhere 
to the procedures established by the Assistant Secretary for Housing--
FHA Commissioner in order to purchase a HUD-held property;
    (4) Employment compensation and benefit packages provided by the 
employer of an employee's spouse that include financial interests 
prohibited by paragraph (a)(2) of this section; or
    (5) Government National Mortgage Association (GNMA) securities.
    (c) Reporting and divestiture. An employee must report, in writing, 
to the appropriate agency ethics official, any interest prohibited 
under paragraph (a) of this section acquired prior to the commencement 
of employment with the Department or without specific intent, as 
through gift, inheritance, or marriage, within 30 days from the date of 
the start of employment or acquisition of such interest. Such interest 
must be divested within 90 days from the date reported unless waived by 
the Designated Agency Ethics Official in accordance with Sec.  
7501.103.


Sec.  7501.105  Outside activities.

    (a) Prohibited outside activities. Subject to the exceptions set 
forth in paragraph (b) of this section, HUD employees, except special 
Government employees, shall not engage in:
    (1) Employment with a business related to real estate or 
manufactured housing including, but not limited to, real estate 
brokerage, management and sales, architecture, engineering, mortgage 
lending, property insurance, appraisal services, title search services, 
construction, construction financing, land planning, or real estate 
development;
    (2) The operation or management of investment properties to the 
extent that it rises to the level of a real estate-related business. 
HUD will determine whether an employee is operating or managing 
investment properties to an extent that it rises to the level of a real 
estate business based on the totality of the circumstances, and will 
consider whether the employee maintains an office; advertises or 
otherwise solicits clients or business; hires staff or employees; uses 
business stationary or other similar materials; files the business as a 
corporation, limited liability company, partnership, or other type of 
business association with a state government; establishes a formal or 
informal association with an existing business; hires a management 
company; and the nature and number of its investment properties;
    (3) Employment with a person or entity who registered as a lobbyist 
or lobbyist organization pursuant to 2 U.S.C 1603(a) and engages in 
lobbying activity concerning the Department;
    (4) Employment as an officer or director with a Department-approved 
mortgagee, a lending institution, or an organization that services 
securities for the Department; or
    (5) Employment with the Federal Home Loan Bank System or any 
affiliate thereof.
    (b) Exceptions to employment prohibitions. The prohibitions set 
forth in paragraph (a) of this section do not apply to:
    (1) Serving as an officer or a member of the Board of Directors of:
    (i) A Federal Credit Union;
    (ii) A cooperative, condominium association, or homeowners 
association for a housing project that is not subject to regulation by 
the Department or, if so regulated, in which the employee personally 
resides; or
    (iii) An entity designated in writing by the Designated Agency 
Ethics Official.
    (2) Holding a real estate agent's license; however, use of the 
license is limited as provided by paragraph (c) of this section.
    (c) Prior approval requirement. (1) Employees, except special 
Government employees, shall obtain the prior written approval of an 
Agency Ethics Official before accepting compensated or uncompensated 
employment:
    (i) As an officer, director, trustee, or general partner of, or in 
any other position of authority with a prohibited source, as defined at 
5 CFR 2635.203(d);
    (ii) With a state or local government;
    (iii) In the same professional field as that of the employee's 
official position; or
    (iv) As a real estate agent in relation to purchasing or selling a 
single family property for use as the employee's primary residence, or 
the primary residence of the employee's immediate family member.
    (2) Approval shall be granted unless the conduct is inconsistent 
with 5 CFR part 2635 or this part.
    (d) Liaison representative. An employee designated to serve in an 
official capacity as the Department's liaison representative to an 
outside organization is not engaged in an outside activity to which 
this section applies. Notwithstanding, an employee may be designated to 
serve as the Department's liaison representative only as authorized by 
law, and as approved by the Department under applicable procedures.


Sec.  7501.106  Bureau instructions and designation of separate agency 
component.

    (a) Bureau instructions. With the concurrence of the Designated 
Agency Ethics Official, the Bureau Ethics Counselor is authorized, 
consistent with 5 CFR 2635.105(c), to designate Deputy Bureau Ethics 
Counselors, to make a determination, issue explanatory guidance, and 
establish procedures necessary to implement this part, subpart I of 5 
CFR part 2634, and 5 CFR part 2635 for the Bureau.
    (b) Designation of separate agency component. Pursuant to 5 CFR 
2635.203(a), the Office of the Inspector General is designated as a 
separate agency for purposes of the regulations contained in subpart B 
of 5 CFR part 2635, governing gifts from outside sources; and 5 CFR 
2635.807, governing teaching, speaking, or writing.

    Dated: February 15, 2012.
Don W. Fox,
Principal Deputy Director, Office of Government Ethics.
[FR Doc. 2012-6177 Filed 3-13-12; 8:45 am]
BILLING CODE 4210-67-P