9530 Federal Register / Vol. 60, No. 33 / Friday, February 17, 1995 / Rules and Regulations

DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT

Government National Mortgage

Association

24 CFR Parts 390 and 395

[Docket No. R–95–1698; FR–3554–F–01]

Government National Mortgage

Association Guaranteed Multiclass

Securities

AGENCY: Government National Mortgage

Association, HUD.

ACTION: Final rule.

SUMMARY: This final rule codifies the

provisions of two Notices published in

the Federal Register on May 26, 1994

and September 30, 1994, as authorized

by Congress. Both Notices provided for

a comment period. The September 30

Notice responded to comments on the

May 26 Notice. This rule provides

guidance to entities wishing to

participate in the GNMA guaranteed

multiclass securities program and

describes certain other aspects of the

program.

EFFECTIVE DATE: March 20, 1995.

FOR FURTHER INFORMATION CONTACT: Guy

S. Wilson, Vice President, Government

National Mortgage Association, Room

6151, 451 Seventh Street SW.,

Washington, DC 20410–9000, telephone

(202) 401–8970. Hearing or speechimpaired individuals may call HUD’s

TDD number (202) 708–3649. (These

telephone numbers are not toll-free.)

Copies of this rule will be made

available on tape or large print for those

with impaired vision that request them.

They may be obtained at the above

address.

SUPPLEMENTARY INFORMATION:

I. Background

Section 3004 of the Omnibus Budget

Reconciliation Act of 1993 provides for

initial implementation of the

Government National Mortgage

Association (the ‘‘Association’’ or

‘‘GNMA’’) guaranteed multiclass

securities program by a Notice

published in the Federal Register,

effective upon publication, by adding

section 306(g)(3)(E)(ii) to the National

Housing Act (12 U.S.C.

1721(g)(3)(E)(ii)). The implementation

Notice for the initial stage of this

program, which provided for

participation by a limited number of

entities, was published on May 26, 1994

(59 FR 27290) (‘‘May 26 Notice’’). A

supplemental Notice was published on

September 30, 1994 (59 FR 50148)

(‘‘September 30 Notice’’) to implement

the full participation stage.

Under section 306(g)(3)(E)(ii), GNMA

is required to publish a final rule not

later than 12 months after publication of

the initial notice, which is May 26,

1995. GNMA has developed the

multiclass securities program, and is

now ready to publish the final rule.

II. Program Revisions for Final Rule

The Department has decided to make

one program revision in this rule to the

provisions of the September 30 Notice.

For structured securities, GNMA has

decided to require applications from

Sponsors and Co-sponsors, but not from

other participants.

The Sponsor selects the other

participants (trust counsel, accounting

firms). The Sponsor selects a trustee

from institutions approved by GNMA.

However, the participants selected by

the Sponsor must comply with GNMA

program requirements, such as those

described in §§ 395.15 and 395.20.

III. Comments and Responses

No comments were received on the

September 30 Notice.

IV. Findings and Certifications

A. Environmental Review

A Finding of No Significant Impact

with respect to the environment was

made when the May 26 Notice was

published, in accordance with HUD

regulations at 24 CFR Part 50 that

implement section 102(2)(C) of the

National Environmental Policy Act of

1969, 42 U.S.C. 4332. The changes made

in the September 30 Notice and in this

final rule do not affect the validity of

that Finding. The Finding of No

Significant Impact is available for public

inspection and copying during regular

business hours in the Office of the Rules

Docket Clerk, Room 10276, 451 Seventh

Street, SW., Washington, DC 20410–

0500.

B. Regulatory Review

The material in this rule has been

reviewed by OMB under Executive

Order 12866 as a significant regulatory

action. Any changes made as a result of

that review are clearly identified in the

docket file for this rule, which is

available for public inspection in the

Office of HUD’s Rules Docket Clerk,

Room 10276, 451 Seventh Street, SW,

Washington, DC 20410–0500.

C. Federalism Impact

The General Counsel, as the

Designated Official under section 6(a) of

Executive Order 12612, Federalism, has

determined that this rule does not have

‘‘federalism implications’’ because it

does not have substantial direct effects

on the States (including their political

subdivisions), or on the distribution of

power and responsibilities among the

various levels of government. This rule

only affects participants and investors

in the GNMA guaranteed single and

multiclass securities industry. States

and their political subdivisions would

not be affected.

D. Impact on the Family

The General Counsel, as the

Designated Official under Executive

Order 12606, the Family, has

determined that this rule does not have

potential significant impact on family

formation, maintenance, and general

well-being because it only affects

participants and investors in GNMA

guaranteed single and multiclass

securities.

E. Impact on Small Entities

The Secretary, in accordance with the

Regulatory Flexibility Act (5 U.S.C.

605(b)), has reviewed this final rule

before publication and by approving it

certifies that this rule will not have a

significant impact on a substantial

number of small entities.

F. Regulatory Agenda

This rule was listed as item number

1858 under GNMA in the Department’s

Semiannual Regulatory Agenda

published on November 14, 1994 (59 FR

57632, 57666), under Executive Order

12866 and the Regulatory Flexibility

Act.

G. Catalog

There is no catalog of Federal

Domestic Assistance number for the

program affected by this rule.

List of Subjects

24 CFR Part 390

Mortgages, Securities.

24 CFR Part 395

Mortgages, Securities.

Accordingly and under the authority

of 42 U.S.C. 3535(d), Chapter III,

Government National Mortgage

Association, of Title 24 of the Code of

Federal Regulations, is amended as

follows:

1. A new subchapter D is added to

chapter III as set forth below.

2. In Chapter III, part 390 is

transferred from subchapter C to the

newly established subchapter D.

3. A new part 395, consisting of

§§ 395.1 through 395.60, is added to

subchapter D to read as follows:
Federal Register / Vol. 60, No. 33 / Friday, February 17, 1995 / Rules and Regulations 9531

SUBCHAPTER D—GUARANTEE OF

MORTGAGE-BACKED AND MULTICLASS

SECURITIES

PART 395—MULTICLASS SECURITIES

Sec.

395.1 Scope of part.

395.5 Definitions.

395.10 Eligible collateral.

395.15 Participation requirements.

395.20 Eligible participants.

395.25 Fees.

395.30 GNMA guaranty.

395.35 Investors.

395.40 Consultation.

395.45 Limitation on GNMA liability.

395.50 Administration of multiclass

securities.

395.55 Basis for removal from participation.

395.60 Removal procedure.

Authority: 12 U.S.C. 1721(g) and 1723a(a);

and 42 U.S.C. 3535(d).

§ 395.1 Scope of part.

The Government National Mortgage

Association is authorized by section

306(g) of the National Housing Act,

upon such terms and conditions as it

may deem appropriate, to guarantee the

timely payment of principal of and

interest on securities that are based on

and backed by a trust or pool composed

of mortgages that are eligible under

section 306(g). The Association’s

guaranty of mortgage-backed securities

is backed by the full faith and credit of

the United States. This part is limited to

multiclass securities. It does not purport

to set forth all the procedures and

requirements that apply to the issuance

and guaranty of such securities. All

such transactions are governed by the

specific terms and provisions of the

contracts entered into by the parties and

by the GNMA Multiclass Securities

Guide. Further information and copies

of the Guide may be obtained from the

Government National Mortgage

Association, 451 Seventh Street, S.W.,

Washington, D.C. 20410.

§ 395.5 Definitions.

As used in this part, the following

terms shall have the meanings

indicated.

Association. The Government

National Mortgage Association.

Consolidated securities. A series of

multiclass securities each class of which

provides for payments proportionate

with payments on the underlying

eligible collateral.

Depositor. The entity that deposits, or

executes an agreement to deposit, as

contained in the GNMA Multiclass

Securities Guide, eligible collateral into

a trust in exchange for consolidated

securities.

GNMA. Government National

Mortgage Association.

GNMA electronic bulletin board. An

information distribution system

established by GNMA for the Multiclass

Securities program.

GNMA MBS certificates. The GNMA

guaranteed mortgage-backed securities

issued under part 390.

Government mortgages. Mortgages

that are eligible under section 306(g) (12

U.S.C. 1721(g)) for inclusion in GNMA

mortgage-backed securities pools.

Participant. For structured securities,

the sponsor, co-sponsor, trustee, trust

counsel, accounting firm, and their

contractors. For consolidated securities,

the depositor. Other entities may be

designated as participants in the GNMA

Multiclass Securities Guide.

Sponsor. With respect to structured

securities, the entity that establishes the

required trust by executing the trust

agreement and depositing the eligible

collateral in the trust in exchange for the

structured securities.

Structured securities. Securities of a

series at least one class of which

provides for payments of principal or

interest disproportionately from

payments on the underlying eligible

collateral.

§ 395.10 Eligible collateral.

GNMA, in its discretion, shall

determine what collateral is eligible for

inclusion in the Multiclass Securities

program. Eligible collateral may include

GNMA MBS certificates, government

mortgages, consolidated securities, and

other securities approved by GNMA.

Categories of these GNMA MBS

certificates, government mortgages,

consolidated securities, and other

securities as approved by GNMA

become eligible collateral when they are

published as eligible collateral in the

GNMA Multiclass Securities Guide or

on the GNMA electronic bulletin board.

Eligibility of collateral previously

designated as eligible may be

withdrawn by publication in the GNMA

Multiclass Securities Guide or on the

GNMA electronic bulletin board.

Eligible collateral may differ for various

GNMA guaranteed multiclass securities.

§ 395.15 Participation requirements.

To participate in the GNMA

Multiclass Securities program, a

participant must meet the following

criteria:

(a) Certification. A participant must

submit such certifications and other

documents as are required by the

GNMA Multiclass Securities Guide.

(b) Compliance with GNMA

Multiclass Securities Guide. By

completing a multiclass securities

transaction, a participant is deemed to

have represented and warranted to

GNMA that it has complied with, and

that it agrees to comply with, the GNMA

Multiclass Securities Guide in effect as

of the date that GNMA’s guaranty is

placed on the securities.

(c) Material changes in status. A

participant must report, as required in

the GNMA Multiclass Securities Guide,

material adverse changes in status

including voluntary and non-voluntary

terminations, defaults, fines and

findings of material non-conformance

with rules and policies of state and

federal agencies and federal government

sponsored enterprises.

(d) Integrity. The participant must

conduct its business operations in

accordance with industry practices,

ethics and standards, and maintain its

books and records in an appropriate

manner, as determined by the

Association.

§ 395.20 Eligible participants.

In addition to requirements set forth

in this part, a participant must meet the

following requirements.

(a) Structured securities—(1)

Description. GNMA guarantees the

payment of principal and interest on

structured securities issued by trusts

organized by sponsors in accordance

with procedures established and

approved by GNMA. The structured

securities are backed by eligible

collateral, as described in this part, held

by the trustee.

(2) Eligibility requirements for

participants—(i) Sponsors. A sponsor

must:

(A) Apply and be approved;

(B) Demonstrate to the satisfaction of

the Association its capacity to

accumulate the eligible collateral, as

described in this part, needed for a

proposed structured securities issuance;

(C) Be in good standing with and

either have been responsible for at least

one structured securities transaction

with the Federal National Mortgage

Association or the Federal Home Loan

Mortgage Corporation, or have

demonstrated to GNMA’s satisfaction its

capability to act as sponsor of GNMA

guaranteed structured securities;

(D) Have the minimum required

amount, as set forth in the Multiclass

Securities Guide, in shareholders’

equity or partners’ capital, evidenced by

the sponsor’s audited financial

statements, which must have been

issued within the preceding 12-month

period;

(E) Represent the structural integrity

of the issuance under all cash flow

scenarios and demonstrate to GNMA’s

satisfaction its ability to indemnify

GNMA for a breach of this

representation;
9532 Federal Register / Vol. 60, No. 33 / Friday, February 17, 1995 / Rules and Regulations

(F) Comply with GNMA’s policies

regarding participation by minority and/

or women-owned businesses and take

appropriate measures to assure

compliance by the other participants as

specified in the GNMA Multiclass

Securities Guide; and

(G) Provide GNMA with the opinions

of trust counsel and accounting firms

which are acceptable to GNMA and on

which GNMA may rely.

(ii) Co-sponsors. A Co-sponsor must

submit an application and a

certification, as set forth in the GNMA

Multiclass Securities Guide, as to its

status as a minority and/or womenowned business.

(iii) Trustees. A trustee is selected by

the Sponsor from institutions approved

by GNMA using such procedures as

GNMA deems appropriate.

(b) Consolidated securities—(1)

Description. A depositor delivers, or

executes an agreement to deliver,

eligible collateral to a trust in exchange

for a single GNMA guaranteed

multiclass security, as set forth in the

GNMA Multiclass Securities Guide.

(2) Eligibility requirements for

participant. A Depositor must certify

that:

(i) It is an ‘‘accredited investor’’

within the meaning of 17 CFR

230.501(a)(1), (a)(3) or (a)(7);

(ii) It has authority to deliver, and will

deliver, the collateral to the trustee and

that the collateral is free and clear of all

liens and encumbrances; and

(iii) The information set forth by the

depositor regarding the eligible

collateral is true and correct.

(c) Other types of GNMA guaranteed

multiclass securities. GNMA will set

forth the requirements for the guaranty

by GNMA of other types of multiclass

securities, and the eligibility

requirements for the appropriate

participants, in the GNMA Multiclass

Securities Guide or on the GNMA

electronic bulletin board.

§ 395.25 Fees.

The Association, in its discretion,

through publication in the GNMA

Multiclass Securities Guide or on the

GNMA electronic bulletin board, may

impose fees for application, guaranty,

transfer, change from book entry to

certificated form, or other related fees.

Fees may vary, at GNMA’s discretion,

depending upon, but not limited to,

such factors as size, collateral

characteristics, expense or risk of the

guaranty transaction undertaken.

§ 395.30 GNMA guaranty.

The Association guarantees the timely

payment of principal and interest as

provided by the terms of the multiclass

security. The Association’s guaranty is

backed by the full faith and credit of the

United States.

§ 395.35 Investors.

GNMA guaranteed multiclass

securities may not be suitable

investments for all investors. No

investor should purchase securities of

any class unless the investor

understands, and is able to bear, the

prepayment, yield, liquidity and market

risks associated with the class. The

Association assumes no obligation or

liability to any person with regard to

determining the suitability of such

securities for such investor.

§ 395.40 Consultation.

The Association may consult with

persons or entities in such manner as

the Association deems appropriate to

ensure the efficient commencement and

operation of the Multiclass Securities

program.

§ 395.45 Limitation on GNMA liability.

Except for its guaranty, the

Association undertakes no obligation

and assumes no liability to any person

with regard to or on account of the

existence or operation of this part or the

conduct of any participants in the

Multiclass Securities program.

§ 395.50 Administration of multiclass

securities.

The GNMA guaranteed multiclass

securities will be administered in

accordance with GNMA requirements

described in the GNMA Multiclass

Securities Guide.

§ 395.55 Basis for removal from

participation.

A participant may be removed from

the Multiclass Securities program if

GNMA, in its discretion, determines

that any of the following exists or has

occurred:

(a) The participant, at any time, fails

to meet any condition for eligibility;

(b) The participant fails to comply

with any provision of the GNMA

Multiclass Securities Guide or this part;

(c) The participant is unable or fails

to truthfully, correctly or fully submit

such certifications as are required; and

(d) Such further reasons as GNMA

determines necessary to protect the

safety and soundness of the Multiclass

Securities program, as set out in the

GNMA Multiclass Securities Guide.

§ 395.60 Removal procedure.

(a) A participant may be suspended

from participation in the Multiclass

Securities program upon written notice

from GNMA, which shall include the

reasons for the suspension. The

participant shall have the opportunity to

submit a written presentation to the

President of GNMA, or designee, in

support of its reinstatement, subject to

such limitations as GNMA in its

discretion may impose as to length, time

for submission, or otherwise. A

determination by the President of

GNMA, or designee, shall exhaust the

participant’s administrative remedies.

(b) If a participant is suspended from

the Multiclass Securities program,

GNMA shall have no obligation to

complete a pending transaction

involving the participant.

(c) After a participant has been

removed from the Multiclass Securities

program, the participant may request

reinstatement. Approval of the

reinstatement is at the sole discretion of

the Association.

Dated: January 19, 1995.

Dwight P. Robinson,

President.

[FR Doc. 95–3853 Filed 2–16–95; 8:45 am]

BILLING CODE 4210–01–P