[Federal Register Volume 60, Number 33 (Friday, February 17, 1995)]
[Rules and Regulations]
[Pages 9530-9532]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-3853]




[[Page 9529]]

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Part IV





Department of Housing and Urban Development





_______________________________________________________________________



Government National Mortgage Association



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24 CFR Parts 390 and 395



Guaranteed Multiclass Securities; Final Rule

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

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.

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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 
speech-impaired 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 
Secs. 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 Secs. 395.1 through 395.60, is 
added to subchapter D to read as follows: [[Page 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).


Sec. 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.
Sec. 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.


Sec. 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.


Sec. 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.


Sec. 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; [[Page 9532]] 
    (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 women-owned 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.


Sec. 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.


Sec. 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.


Sec. 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.


Sec. 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.


Sec. 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.


Sec. 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.


Sec. 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.


Sec. 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