[Federal Register Volume 74, Number 10 (Thursday, January 15, 2009)]
[Rules and Regulations]
[Pages 2347-2350]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-809]


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FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1250

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of Federal Housing Enterprise Oversight

12 CFR Part 1773

RIN 2590-AA09


Flood Insurance

AGENCIES: Federal Housing Finance Agency; Office of Federal Housing 
Enterprise Oversight.

ACTION: Final regulation.

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SUMMARY: The Federal Housing Finance Agency (FHFA) is issuing a final 
regulation that codifies the authority and responsibility of FHFA to 
oversee and enforce the statutory requirements affecting the operations 
of the Federal National Mortgage Association and the Federal Home Loan 
Mortgage

[[Page 2348]]

Corporation under the Flood Disaster Protection Act of 1973, as 
amended, and to effect congressionally mandated adjustments to the 
civil money penalties applicable to violations of that law.

DATES: The final regulation is effective February 17, 2009.

FOR FURTHER INFORMATION CONTACT: Andra Grossman, Counsel, telephone 
(202) 343-1313 (not a toll-free number); Federal Housing Finance 
Agency, Fourth Floor, 1700 G Street, NW., Washington, DC 20552. The 
telephone number for the Telecommunications Device for the Deaf is 
(800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Proposed Rulemaking

    The FHFA published a proposed Flood Insurance regulation for public 
comment in the Federal Register, 73 FR 60198 (October 10, 2008). No 
comments were received. Accordingly, the proposed regulation is adopted 
as a final regulation with technical changes as described below under 
Section II.C. Background, Adjustment of civil money penalties for 
inflation.

II. Background

A. Establishment of the Federal Housing Finance Agency

    The Housing and Economic Recovery Act of 2008 (HERA), Public Law 
No. 110-289, 122 Stat. 2654, amended the Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501 et seq.) 
(Act) to establish FHFA as an independent agency of the Federal 
Government.\1\ The FHFA was established to oversee the prudential 
operations of the Federal National Mortgage Association, the Federal 
Home Loan Mortgage Corporation (collectively, Enterprises), and the 
Federal Home Loan Banks (collectively, Regulated Entities) and to 
ensure that they operate in a safe and sound manner including being 
capitalized adequately; foster liquid, efficient, competitive and 
resilient national housing finance markets; comply with the Act and 
rules, regulation, guidelines and orders issued under the Act, and the 
respective authorizing statutes of the Regulated Entities; and carry 
out their missions through activities authorized and consistent with 
the Act and their authorizing statutes; and, that the activities and 
operations of the Regulated Entities are consistent with the public 
interest.
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    \1\ See Division A, titled the ``Federal Housing Finance 
Regulatory Reform Act of 2008,'' TITLE I, Section 1101 of HERA.
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    The Office of Federal Housing Enterprise Oversight (OFHEO) and the 
Federal Housing Finance Board (FHFB) will be abolished one year after 
enactment of the HERA. However, the Regulated Entities continue to 
operate under regulations promulgated by OFHEO and FHFB and such 
regulations are enforceable by the Director of FHFA until such 
regulations are modified, terminated, set aside, or superseded by the 
Director of FHFA.\2\
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    \2\ See sections 1302 and 1312 of HERA.
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B. Flood Insurance Responsibilities

    The National Flood Insurance Act of 1968 \3\ and the FDPA,\4\ as 
amended by the National Flood Insurance Reform Act of 1994 (NFIRA),\5\ 
together create a comprehensive National Flood Insurance Program that 
includes various provisions designed to ensure that structures built in 
flood plains are covered by statutory minimum amounts of flood 
insurance. The NFIRA has specific requirements explicitly applicable to 
the Enterprises.\6\ It originally designated OFHEO as the Federal 
agency responsible for determining compliance of the Enterprises' flood 
insurance responsibilities and provided OFHEO with the authority to 
issue any regulations necessary to carry out the applicable provisions 
of NFIRA.\7\ The NFIRA also authorized OFHEO to impose civil money 
penalties upon an Enterprise that fails to implement procedures 
reasonably designed to ensure that the loans it purchases comply with 
the mandatory flood insurance purchase requirements.\8\
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    \3\ Codified at 42 U.S.C. 4001 et seq. and other scattered 
sections of 42 U.S.C.
    \4\ Codified at 42 U.S.C. 4002 et seq. and other scattered 
sections of 42 U.S.C.
    \5\ Title V of the Riegle Community Development and Regulatory 
Improvement Act of 1994, Public Law No. 103-325 (Sept. 23, 1994) 
(codified, as amended, at 42 U.S.C. 4001-4129, and other sections of 
the United States Code).
    \6\ 42 U.S.C. 4012a(b)(3).
    \7\ 42 U.S.C. 4001 note (Pub. L. 103-325, Title V, Section 583).
    \8\ 42 U.S.C. 4012a(f)(3).
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    Section 1161(e) of HERA amended section 102(f)(3)(A) of the FDPA 
(42 U.S.C. 4012a(f)(3)(a)), by replacing OFHEO with FHFA as the agency 
responsible for determining compliance of the Enterprises' flood 
insurance responsibilities. Thus, FHFA issues this regulation to codify 
the authority and responsibility of FHFA to oversee and enforce the 
statutory requirements affecting the operations of the Enterprises 
under the FDPA, and to effect congressionally mandated adjustments to 
the civil money penalties applicable to violations of that law. This 
final regulation, when effective, will supersede the OFHEO Flood 
Insurance regulation at 12 CFR part 1773.
    The Enterprises have a key role in the implementation of the 
Federal government's flood insurance program, particularly with regard 
to lenders that are not subject to direct supervision by a Federal 
regulatory agency. The Enterprises use their seller/servicer guidelines 
and other quality control review procedures to ensure that lenders with 
whom they contract comply with the applicable flood insurance laws. 
More specifically, each Enterprise is required to implement procedures 
reasonably designed to ensure that any mortgage loan that is purchased 
and is secured by property located in a designated flood hazard area is 
covered for the term of the loan by flood insurance in an amount at 
least equal to the lesser of (1) the outstanding principal balance of 
the loan or (2) the maximum limit of coverage made available for that 
type of property.\9\
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    \9\ 42 U.S.C. 4012a(b)(3).
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C. Adjustment of Civil Money Penalties for Inflation

    The FDPA sets forth the procedures under which the Director of FHFA 
may impose civil money penalties against an Enterprise and the amounts 
of these civil money penalties.\10\ This regulation adjusts the amounts 
of these civil money penalties in accordance with the requirements of 
the Federal Civil Penalties Inflation Adjustment Act of 1990, as 
amended by the Debt Collection Improvement Act of 1996 (Inflation 
Adjustment Act).\11\ The increases in maximum civil money penalty 
amounts do not mandate the amount of any civil money penalty that FHFA 
may seek for a particular violation. FHFA continues to determine each 
civil money penalty on a case-by-case basis in light of the 
circumstances of the case.
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    \10\ 42 U.S.C. 4012a(f)(3).
    \11\ 28 U.S.C. 2461 note.
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    The Inflation Adjustment Act requires Federal agencies that have 
authority to issue civil money penalties to issue regulations that 
adjust each civil money penalty that the agency has jurisdiction to 
administer. The purpose of these adjustments is to maintain the 
deterrent effect of civil money penalties and promote compliance with 
the law. The Inflation Adjustment Act requires agencies to make an 
initial adjustment of their civil money penalties upon the statute's 
enactment, and to make additional adjustments on an ongoing basis, at 
least once every four years following the initial adjustment.

[[Page 2349]]

    Under the Inflation Adjustment Act, the inflation adjustment for 
each applicable civil money penalty is determined by increasing the 
maximum civil money penalty amount by a cost-of-living adjustment. As 
is described in detail below, the Inflation Adjustment Act provides 
that this cost-of-living adjustment is to reflect the percentage 
increase in the Consumer Price Index for All Urban Consumers (CPI-U) 
since the civil money penalties were last adjusted or established.
    The Inflation Adjustment Act directs Federal agencies to calculate 
each civil money penalty adjustment as the percentage by which the CPI-
U for June of the calendar year preceding the adjustment exceeds the 
CPI-U for June of the calendar year in which the amount of such civil 
money penalty was last set or adjusted pursuant to law. When OFHEO 
issued the Flood Insurance regulation in 2001, the maximum civil money 
amounts of $350 (for each violation) and $100,000 (maximum annual 
amount for each Enterprise), found at 42 U.S.C. 4012a(f)(5), were 
adjusted to $385 and $110,000, respectively.\12\
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    \12\ 66 FR 65101 (Dec. 18, 2001); 12 CFR part 1773.
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    OFHEO did not subsequently adjust these civil money penalty 
amounts. Because FHFA is making this adjustment in calendar year 2009, 
rather than in 2008 as indicated in the proposed regulation, the 
inflation amount for each civil money penalty is calculated by 
comparing the CPI-U for June 2001 (178.000), the calendar year OFHEO 
last adjusted the civil money penalty, with the CPI-U for June 2008 
(218.815), rather than with the CPI-U for June 2007 (208.235). This 
results in an inflation adjustment of 22.93 percent in 2009, rather 
than an inflation adjustment of 17.05 percent if the Flood Insurance 
regulation had been published as final in 2008. For each civil money 
penalty, the product of this inflation adjustment and the previous 
maximum penalty amount is then rounded in accordance with the specific 
requirements of the Inflation Adjustment Act and added to the previous 
maximum penalty amount to determine the new adjusted penalty 
amount.\13\ Accordingly, the civil money penalty maximum of $385 is 
increased to $485 for each violation, as was proposed. The civil money 
penalty maximum of $110,000 is increased to $140,000 in 2009, rather 
than increased to $130,000 as proposed, for the total assessed 
penalties against an Enterprise during any calendar year. The increase 
would apply only to violations which occur after the effective date of 
this regulation.
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    \13\ The rounding rules of the Inflation Adjustment Act require 
that each increase be rounded to the nearest multiple as follows: 
$10 in the case of penalties less than or equal to $100; $100 in the 
case of penalties greater than $100 but less than or equal to 
$1,000; $1,000 in the case of penalties greater than $1,000 but less 
than or equal to $10,000; $5,000 in the case of penalties greater 
than $10,000 but less than or equal to $100,000; $10,000 in the case 
of penalties greater than $100,000 but less than or equal to 
$200,000; and $5,000 in the case of penalties greater than $200,000.
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III. Section-by-Section Analysis

Section 1250.1 Purpose

    This section sets forth the responsibilities of the Enterprises 
under the FDPA and the procedures to be used by FHFA in any proceeding 
to assess civil money penalties against an Enterprise under FDPA.

Section 1250.2 Procedural Requirements

    Section 1250.2 sets forth the requirement that each Enterprise is 
to implement procedures reasonably designed to ensure that properties 
securing particular loans are properly insured in accordance with the 
National Flood Insurance Act of 1968, as amended. Consistent with 42 
U.S.C. 4012a(4), it also sets forth that the procedures need apply only 
to loans made, increased, extended, or renewed after September 22, 
1995. The section further provides that the procedural requirements do 
not apply to any loan having an original outstanding principal balance 
of $5,000 or less and a repayment term of one year or less.\14\
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    \14\ 42 U.S.C. 4012a(c)(2).
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Section 1250.3 Civil Money Penalties

    Section 1250.3 sets forth procedures under which the Director of 
FHFA may impose civil money penalties against an Enterprise. The 
Director may assess a civil money penalty against an Enterprise 
determined by the Director to have a pattern or practice of purchasing 
loans in violation of the procedures established pursuant to Sec.  
1250.2. The increase applies only to violations which occur after the 
date the increase takes effect.
    The section also sets forth notice and hearing requirements prior 
to the imposition of civil money penalties. A civil money penalty may 
be issued only after notice and an opportunity for a hearing on the 
record has been provided.
    In addition, the section sets forth the maximum amount of civil 
money penalties that may be imposed on an Enterprise under the 
regulation. A civil money penalty may not exceed the adjusted statutory 
amount of $485 for each violation and the total amount of penalties 
assessed against an Enterprise during any calendar year may not exceed 
the adjusted statutory cap of $140,000.
    Furthermore, in accordance with 42 U.S.C. 4012a(f)(8), (9), and 
(10), Sec.  1250.3 provides that--
    (1) Any civil money penalties collected under this section are to 
be paid into the National Flood Mitigation Fund in accordance with 42 
U.S.C. 4104d,
    (2) Any civil money penalty is in addition to any civil remedy or 
criminal penalty otherwise available, and
    (3) No penalty may be imposed after the expiration of the four-year 
period beginning on the date of the occurrence of the violation for 
which the penalty is authorized.

Regulatory Impact

Paperwork Reduction Act

    This regulation does not contain any information collection 
requirement that requires the approval of OMB under the Paperwork 
Reduction Act (44 U.S.C. 3501 et seq.).

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that 
a regulation that has a significant economic impact on a substantial 
number of small entities, small businesses, or small organizations must 
include an initial regulatory flexibility analysis describing the 
regulation's impact on small entities. Such an analysis need not be 
undertaken if the agency has certified that the regulation will not 
have a significant economic impact on a substantial number of small 
entities. 5 U.S.C. 605(b). The FHFA has considered the impact of the 
regulation under the Regulatory Flexibility Act. The FHFA certifies 
that the regulation is not likely to have a significant economic impact 
on a substantial number of small business entities because the 
regulation is applicable only to the Enterprises, which are not small 
entities for purposes of the Regulatory Flexibility Act.

List of Subjects

12 CFR Part 1250

    Government-sponsored enterprises, Flood insurance, Penalties, 
Reporting and recordkeeping requirements.

12 CFR Part 1773

    Administrative practice and procedure, Flood insurance, Penalties, 
Reporting and recordkeeping requirements.

[[Page 2350]]

Authority and Issuance

0
Accordingly, for the reasons stated in the preamble, under the 
authority of 12 U.S.C. 4526, the Federal Housing Finance Agency amends 
chapters XII and XVII of Title 12, Code of Federal Regulations, as 
follows:

CHAPTER XII--FEDERAL HOUSING FINANCE AGENCY

0
1. Add Subchapter C, consisting of part 1250 to read as follows:

Subchapter C--Enterprises

PART 1250--FLOOD INSURANCE

Sec.
1250.1 Purpose.
1250.2 Procedural requirements.
1250.3 Civil money penalties.

    Authority: 12 U.S.C. 4521(a)(4) and 4526; 28 U.S.C. 2461 note; 
42 U.S.C. 4001 note; 42 U.S.C. 4012a(f)(3), (4), (5), (8), (9), and 
(10).


Sec.  1250.1  Purpose.

    The purpose of this part is to set forth the responsibilities of 
the Federal National Mortgage Association and the Federal Home Loan 
Mortgage Corporation (collectively, Enterprises) under the Flood 
Disaster Protection Act of 1973 (FDPA), as amended (42 U.S.C. 4002 et 
seq.) and the procedures to be used by the Federal Housing Finance 
Agency (FHFA) in any proceeding to assess civil money penalties against 
an Enterprise.


Sec.  1250.2  Procedural requirements.

    (a) Procedures. An Enterprise shall implement procedures reasonably 
designed to ensure for any loan that is secured by improved real estate 
or a mobile home located in an area that has been identified, at the 
time of the origination of the loan or at any time during the term of 
the loan, by the Director of the Federal Emergency Management Agency as 
an area having special flood hazards and in which flood insurance is 
available under the National Flood Insurance Act of 1968 (42 U.S.C. 
4001 et seq.), as amended and purchased by the Enterprise, the building 
or mobile home and any personal property securing the loan is covered 
for the term of the loan by flood insurance in an amount at least equal 
to the lesser of the outstanding principal balance of the loan or the 
maximum limit of coverage made available with respect to the particular 
type of property under the National Flood Insurance Act of 1968, as 
amended.
    (b) Applicability. (1) Paragraph (a) of this section shall apply 
only with respect to any loan made, increased, extended, or renewed 
after September 22, 1995.
    (2) Paragraph (a) of this section shall not apply to any loan 
having an original outstanding balance of $5,000 or less and a 
repayment term of one year or less.


Sec.  1250.3  Civil money penalties.

    (a) In general. If an Enterprise is determined by the Director of 
FHFA, or his or her designee, to have a pattern or practice of 
purchasing loans in violation of the procedures established pursuant to 
Sec.  1250.2, the Director of FHFA, or his or her designee, may assess 
civil money penalties against such Enterprise in such amount or amounts 
as deemed to be appropriate under paragraph (c) of this section.
    (b) Notice and hearing. A civil money penalty under this section 
may be assessed only after notice and an opportunity for a hearing on 
the record has been provided to the Enterprise.
    (c) Amount. The maximum civil money penalty amount is $385 for each 
violation that occurs before the effective date of this part, with 
total penalties not to exceed $110,000. For violations that occur on or 
after the effective date of this part, the civil money penalty under 
this section may not exceed $485 for each violation, with total 
penalties assessed under this section against an Enterprise during any 
calendar year not to exceed $140,000.
    (d) Deposit of penalties. Any penalties under this section shall be 
paid into the National Flood Mitigation Fund in accordance with section 
1367 of the National Flood Insurance Act of 1968 (42 U.S.C. 4104d.), as 
amended.
    (e) Additional penalties. Any penalty under this section shall be 
in addition to, and shall not preclude, any civil remedy, or criminal 
penalty otherwise available.
    (f) Statute of limitations. No civil money penalty may be imposed 
under this section after the expiration of the four-year period 
beginning on the date of the occurrence of the violation for which the 
penalty is authorized under this section.

CHAPTER XVII--OFFICE OF FEDERAL HOUSING ENTERPRISE OVERSIGHT, 
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

PART 1773--[REMOVED]

0
2. Remove part 1773.

    Dated: January 8, 2009.
James B. Lockhart III,
Director, Federal Housing Finance Agency.
[FR Doc. E9-809 Filed 1-14-09; 8:45 am]
BILLING CODE 8070-01-P