[Federal Register Volume 73, Number 180 (Tuesday, September 16, 2008)]
[Rules and Regulations]
[Pages 53356-53359]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-21650]


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FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1231

RIN 2590-AA08


Golden Parachute Payments and Indemnification Payments

AGENCY: Federal Housing Finance Agency.

ACTION: Interim Final Regulation with Request for Comments.

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SUMMARY: The Federal Housing Finance Agency (FHFA) is issuing an 
interim final regulation, with a request for comments, setting forth 
factors to be considered by the Director of FHFA in acting upon the 
Director's authority to limit golden parachute payments to entity-
affiliated parties in connection with the Federal National Mortgage 
Association, the Federal Home Loan Mortgage Corporation, and the 
Federal Home Loan Banks.

DATES: Effective date: September 16, 2008.
    Comment date: Comments on the Interim Final Regulation must be 
received on or before October 31, 2008. For additional information, see 
SUPPLEMENTARY INFORMATION.

ADDRESSES: You may submit your comments on the interim final 
regulation, identified by regulatory information number ``RIN 2590-
AA08,'' by any of the following methods:
    <bullet> U.S. Mail, United Parcel Post, Federal Express, or Other 
Mail Service: The mailing address for comments is: Alfred M. Pollard, 
General Counsel (Office of Federal Housing Enterprise Oversight 
(OFHEO)) and Christopher Curtis, General Counsel (Federal Housing 
Finance Board (FHFB)), Attention: Comments/RIN 2590-AA08, Federal 
Housing Finance Agency, Fourth Floor, 1700 G Street, NW., Washington, 
DC 20552.
    <bullet> Hand Delivered/Courier: The hand delivery address is: 
Alfred M. Pollard, General Counsel (OFHEO) and Christopher Curtis, 
General Counsel (FHFB), Attention: Comments/RIN 2590-AA08, Federal 
Housing Finance Agency, Fourth Floor, 1700 G Street, NW., Washington, 
DC 20552. The package should be logged at the Guard Desk, First Floor, 
on business days between 9 a.m. and 5 p.m.
    <bullet> E-mail: Comments to Alfred M. Pollard, General Counsel 
(OFHEO) and Christopher Curtis, General Counsel (FHFB), may be sent by 
e-mail at <a href="/cdn-cgi/l/email-protection#2d7f484a6e4240404843595e6d6b656b6c034a425b"><span class="__cf_email__" data-cfemail="2f7d4a486c4042424a415b5c6f6967696e01484059">[email protected]</span></a>. Please include ``RIN 2590-AA08'' in the 
subject line of the message.
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.

FOR FURTHER INFORMATION CONTACT: Alfred M. Pollard, General Counsel 
(OFHEO), telephone (202) 414-3788 or Christopher Curtis, General 
Counsel (FHFB), telephone (202) 408-2802 (not toll-free numbers), 
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. Comments

    The Federal Housing Finance Agency (FHFA) invites comments on all 
aspects of the interim final regulation, and will take all comments 
into consideration before issuing the final regulation. FHFA requests 
that comments submitted in hard copy also be

[[Page 53357]]

accompanied by the electronic version in Microsoft[supreg] Word or in 
portable document format (PDF) on 3.5'' disk or CD-ROM.
    Copies of all comments will be posted on the Internet Web site at 
www.OFHEO.gov. In addition, copies of all comments received will be 
available for examination by the public on business days between the 
hours of 10 a.m. and 3 p.m., at the Federal Housing Finance Agency, 
Fourth Floor, 1700 G Street, NW., Washington, DC 20552. To make an 
appointment to inspect comments, please call the Office of General 
Counsel (OFHEO) at (202) 414-3751.

II. Background

    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\ 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 (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 until such 
regulations are supplanted by regulations promulgated by the FHFA.

II. Interim Final Regulation and Request for Comments

    Section 1114 of HERA amended 12 U.S.C. 4518 to provide additional 
authorities for FHFA in addressing certain compensation and benefits, 
specifically golden parachute payments and indemnification payments. 
HERA added a new paragraph (e) to section 4518 addressing regulation 
and prohibition of these benefits. While paragraphs (e)(1) and (e)(3)-
(6) are self executing, Congress provided that for paragraph (e)(2) 
addressing factors to be taken into account when acting regarding 
golden parachutes and indemnification, FHFA prescribe, by regulation, 
factors to be considered. The factors set forth in (e)(2) are explicit 
and provide strong guidance to the Director in taking an action under 
the statute. Therefore, FHFA is promulgating an interim final rule and 
requesting comment on paragraph (2) of section 4518(e). FHFA will 
consider other comments regarding section 4518(e) as part of the public 
notice and comment period.
    The FHFA is issuing this regulation as an interim final rule in 
order to provide clarity on the standards it will employ in addressing 
golden parachutes and indemnification payments as provided in statute. 
Additionally, with payments at issue for separating employees, an 
interim final rule provides clarity for the standards the agency will 
employ in exercising its authority; at the same time, comments are to 
be taken regarding the rule. For these reasons, FHFA finds that there 
is good cause, and that it is in the public interest, to make the rule 
effective immediately upon publication in the Federal Register and 
allow for public comment after publication. See 5 U.S.C. 553(b) and 
(d). The language of the rule reflects congressional intent embodied in 
the statute.
    The interim final rule provides parties an opportunity to comment 
on all aspects of the regulation and for future revision, if necessary 
or appropriate, by the FHFA. Comments are specifically requested with 
respect to the definition of the term ``troubled condition,'' with 
respect to other factors the Director should consider in determining 
whether golden parachute payments should be limited or prohibited, and 
what payments made pursuant to a bona fide deferred compensation plan 
or arrangement should be determined to be permissible golden parachute 
payments.
    Section 1313(f) of the Act, as amended by section 1201 of HERA, 
requires the Director, when promulgating regulations relating to the 
Banks, to consider the differences between the Banks and the 
Enterprises with respect to the Banks' cooperative ownership structure; 
mission of providing liquidity to members; affordable housing and 
community development mission; capital structure; and joint and several 
liability. The Director may also consider any other differences that 
are deemed appropriate. In preparing the interim final rule, the 
Director considered the differences between the Banks and the 
Enterprises as they relate to the above factors. The Director requests 
comments from the public about whether differences related to these 
factors should result in a revision to the interim final rule as they 
relate to the Banks.

Regulatory Impacts

Paperwork Reduction Act

    The interim final 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). FHFA has considered the impact of the 
interim final regulation under the Regulatory Flexibility Act. FHFA 
certifies that the interim final 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 regulated 
entities, which are not small entities for the purposes of the 
Regulatory Flexibility Act.

List of Subjects in 12 CFR Part 1231

    Golden parachutes, Government-sponsored enterprises, 
Indemnification.

0
Accordingly, for the reasons stated in the preamble, FHFA establishes a 
new 12 CFR Chapter XII, consisting of part 1231, to read as follows:

PART 1231--GOLDEN PARACHUTE PAYMENTS AND INDEMNIFICATION PAYMENTS

Sec.
1231.1 Purpose.
1231.2 Definitions.
1231.3 Golden parachute payments.
1231.4 Indemnification payments.
1231.5 Factors to be taken into account.

    Authority:  12 U.S.C. 4518(e).

[[Page 53358]]

Sec.  1231.1  Purpose.

    The purpose of this part is to implement section 1318(e) of the Act 
by setting forth the standards which the Director will take into 
consideration in determining whether to limit or prohibit golden 
parachute payments or indemnification payments to entity-affiliated 
parties.


Sec.  1231.2  Definitions.

    The following definitions apply to the terms used in this part:
    (a) Act means the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992 (12 U.S.C. 4501 et seq.), as amended by the 
Federal Housing Finance Regulatory Reform Act of 2008, enacted under 
Division A of the HERA.
    (b) Director means the Director of FHFA or his or her designee.
    (c) Enterprise means the Federal National Mortgage Association and 
the Federal Home Loan Mortgage Corporation (collectively, Enterprises) 
and, except as provided by the Director, any affiliate thereof.
    (d) Entity-affiliated party means--
    (1) Any director, officer, employee, or controlling stockholder of, 
or agent for, a regulated entity;
    (2) Any shareholder, affiliate, consultant, or joint venture 
partner of a regulated entity, and any other person, as determined by 
the Director (by regulation or on a case-by-case basis) that 
participates in the conduct of the affairs of a regulated entity, 
provided that a member of a Bank shall not be deemed to have 
participated in the affairs of that Bank solely by virtue of being a 
shareholder of, and obtaining advances from, that Bank;
    (3) Any independent contractor for a regulated entity (including 
any attorney, appraiser, or accountant), if--
    (i) The independent contractor knowingly or recklessly participates 
in--
    (A) Any violation of any law or regulation;
    (B) Any breach of fiduciary duty; or
    (C) Any unsafe or unsound practice; and
    (ii) Such violation, breach, or practice caused, or is likely to 
cause, more than a minimal financial loss to, or a significant adverse 
effect on, the regulated entity;
    (4) Any not-for-profit corporation that receives its principal 
funding, on an ongoing basis, from any regulated entity; and
    (5) The Office of Finance.
    (e) Federal Home Loan Bank means a bank established under the 
Federal Home Loan Act; the term ``Federal Home Loan Banks'' means, 
collectively, all the Federal Home Loan Banks.
    (f)(1) Golden parachute payment means any payment (or any agreement 
to make any payment) in the nature of compensation by any regulated 
entity for the benefit of any current entity-affiliated party pursuant 
to an obligation of such regulated entity that--
    (i) Is contingent on, or by its terms is payable on or after, the 
termination of such party's primary employment or affiliation with the 
regulated entity; and
    (ii) Is received on or after the date on which--
    (A) The regulated entity became insolvent;
    (B) Any conservator or receiver is appointed for such regulated 
entity; or
    (C) The Director determines that the regulated entity is in a 
troubled condition.
    (2) The term ``golden parachute payment'' shall not include:
    (i) Any payment made pursuant to a pension or retirement plan which 
is qualified (or is intended within a reasonable period of time to be 
qualified) under section 401 of the Internal Revenue Code of 1986 (26 
U.S.C. 401) or pursuant to a pension or other retirement plan which is 
governed by the laws of any foreign country;
    (ii) Any payment made pursuant to a bona fide deferred compensation 
plan or arrangement which the Director determines, by regulation or 
order, to be permissible; or
    (iii) Any payment made by reason of death or by reason of 
termination caused by the disability of an entity-affiliated party.
    (3) Any payment which would be a golden parachute payment but for 
the fact that such payment was made before the date referred to in 
paragraph (f)(1)(ii) shall be treated as a golden parachute payment if 
the payment was made in contemplation of the occurrence of an event 
described that paragraph.
    (g) FHFA means the Federal Housing Finance Agency.
    (h) HERA means the Housing and Economic Recovery Act of 2008, 
Public Law No. 110-289, 122 Stat. 2654 (July 30, 2008).
    (i) Office of Finance means the Office of Finance of the Federal 
Home Loan Bank System (or any successor thereto).
    (j) Regulated entity means the Federal National Mortgage 
Association and any affiliate thereof; the Federal Home Loan Mortgage 
Corporation and any affiliate thereof; or any Federal Home Loan Bank; 
the term ``regulated entities'' means, collectively, the Federal 
National Mortgage Association and any affiliate thereof; the Federal 
Home Loan Mortgage Corporation and any affiliate thereof; and any 
Federal Home Loan Bank.
    (k) Troubled condition means a regulated entity that--
    (1) Is subject to a cease-and-desist order or written agreement 
issued by the FHFA that requires action to improve the financial 
condition of the regulated entity or is subject to a proceeding 
initiated by the Director, which contemplates the issuance of an order 
that requires action to improve the financial condition of the 
regulated entity, unless otherwise informed in writing by the FHFA; or
    (2) Is informed in writing by the Director that it is in a troubled 
condition for purposes of the requirements of this part on the basis of 
the regulated entity's most recent report of examination or other 
information available to the FHFA.
    (l)-(n) [Reserved]


Sec.  1231.3  Golden parachute payments.

    No regulated entity shall make or agree to make any golden 
parachute payment except with the concurrence of the Director.


Sec.  1231.4  Indemnification payments.

    No regulated entity shall make or agree to make any indemnification 
payment except with the concurrence of the Director.


Sec.  1231.5  Factors to be taken into account.

    In determining whether to prohibit or limit any golden parachute 
payment or indemnification payment, the Director shall consider the 
following factors--
    (a) Whether there is a reasonable basis to believe that the entity-
affiliated party has committed any fraudulent act or omission, breach 
of trust or fiduciary duty, or insider abuse with regard to the 
regulated entity that has had a material effect on the financial 
condition of the regulated entity;
    (b) Whether there is a reasonable basis to believe that the entity-
affiliated party is substantially responsible for the insolvency of the 
regulated entity, the appointment of a conservator or receiver for the 
regulated entity, or the troubled condition of the regulated entity (as 
defined in regulations prescribed by the Director);
    (c) Whether there is a reasonable basis to believe that the entity-
affiliated party has materially violated any applicable provision of 
Federal or State law or regulation that has had a material effect on 
the financial condition of the regulated entity;
    (d) Whether the entity-affiliated party was in a position of 
managerial or fiduciary responsibility;
    (e) The length of time that the party was affiliated with the 
regulated entity, and the degree to which the payment

[[Page 53359]]

reasonably reflects compensation earned over the period of employment 
and the compensation involved represents a reasonable payment for 
services rendered; and
    (f) Any other factor the Director determines relevant to the facts 
and circumstances surrounding the golden parachute or indemnification 
payment, including but not limited to negligence, gross negligence, 
neglect, willful misconduct, breach of fiduciary duty, and malfeasance 
on the part of an entity-affiliated party.

    Dated: September 11, 2008.
James B. Lockhart, III,
Director, Federal Housing Finance Agency.
[FR Doc. E8-21650 Filed 9-12-08; 11:15 am]
BILLING CODE 8070-01-P


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