12428 Federal Register / Vol. 66, No. 38 / Monday, February 26, 2001 / Proposed Rules

DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT

24 CFR Parts 320 and 330

[Docket No. FR–4629–P–01]

RIN 2503–AA16

Government National Mortgage

Association Mortgage-Backed

Securities Program—Payments to

Security Holders

AGENCY: Office of the Secretary, HUD.

ACTION: Proposed rule.

SUMMARY: The Government National

Mortgage Association (the

‘‘Association’’ or ‘‘Ginnie Mae’’) is

proposing regulations that will govern

payments on Ginnie Mae I Modified

Pass-Through Securities (‘‘Ginnie Mae I

MBS’’) registered in the name of a

securities depository intermediary (a

‘‘Depository’’). The proposed rule would

require that payments on Ginnie Mae I

MBS due to Depositories be made in

immediately available funds and would

supersede any current provisions

allowing those payments to be made by

check. Payments to other security

holders may be made by check or other

means provided the check is received by

the security holder not later than the

15th day of each month. The regulation

would also eliminate any requirement

that a physical certificate representing a

Ginnie Mae MBS be maintained by a

Depository. For consistency, the

regulation would also eliminate any

requirement that a physical certificate

representing a Ginnie Mae multiclass

security be maintained by a Depository.

DATES: Comments Due Date: March 28,

2001.

ADDRESSES: Interested persons are

invited to submit comments regarding

this rule to the Rules Docket Clerk,

Regulations Division, Office of General

Counsel, Room 10276, Department of

Housing and Urban Development, 451

Seventh Street, SW, Washington, DC

20410. Communications should refer to

the above docket number and title. A

copy of each communication submitted

will be available for public inspection

and copying between 7:30 a.m. and 5:30

p.m. weekdays at the above address.

FAXED comments will not be accepted.

FOR FURTHER INFORMATION CONTACT:

Thomas R. Weakland, Vice President for

Program Administration, Government

National Mortgage Association,

Department of Housing and Urban

Development, Room 6204, 451 Seventh

Street, SW, Washington, DC 20410,

telephone (202) 708–2884. A

telecommunications device for deaf

persons (TTY) is available at (202) 708–

9300. (The telephone numbers are not

toll-free.)

SUPPLEMENTARY INFORMATION:

I. Background

As stated in section 301 of the

National Housing Act, Ginnie Mae’s

purpose is to ‘‘establish secondary

market facilities for residential

mortgages, to provide that the

operations thereof shall be financed by

private capital to the maximum extent

feasible, and to authorize such facilities

to—

(1) provide stability in the secondary

market for residential mortgages;

(2) respond appropriately to the

private capital market;

(3) provide ongoing assistance to the

secondary market for residential

mortgages (including activities relating

to mortgages on housing for low- and

moderate-income families involving a

reasonable economic return that may be

less than the return earned on other

activities) by increasing the liquidity of

mortgage investments and improving

the distribution of investment capital

available for residential mortgage

financing;

(4) promote access to mortgage credit

throughout the Nation (including

central cities, rural areas, and

underserved areas) by increasing the

liquidity of mortgage investments and

improving the distribution of

investment capital available for

residential mortgage financing * * * .’’

As of September 15, 2000, the

principal amount of Ginnie Mae I MBS

outstanding was approximately $432

billion. Of this amount, approximately

$426 billion or 98.6% was registered in

the name of The Depository Trust &

Clearing Corporation (‘‘DTCC’’) for the

benefit of holders reflected on the books

of DTCC.

Effective October 1, 1998, Section 15–

2(A)(1) of the Ginnie Mae MortgageBacked Securities Guide has provided

with respect to Ginnie Mae I MBS that

issuers must remit all payments due to

security holders such that security

holders will receive their installments

as follows:

(1) Payment by electronic transfer. For

all securities registered in the name of

the designated nominee for the

depository, with an issue date of

October 1, 1998 or later, issuers are

required to make payments by ACH

transaction or by Fed wire. For

securities registered in the name of the

designated nominee for the Depository,

with an issue date prior to October 1,

1998, Ginnie Mae strongly encourages

issuers to pay the Depository by ACH

transaction or by Fed wire. If an issuer

elects to remit payments to the

Depository by ACH transaction or

electronic transfer for securities with an

issue date prior to October 1, 1998, it

must continue to remit payments

electronically while the securities are

registered in the name of the

Depository’s nominee.

The electronic transfer must be

completed by the 15th calendar day of

the month if the 15th is a business day.

If the 15th calendar day is not a

business day, the transfer must be

completed by 1:00 PM, Eastern Time on

the first business day following the 15th

calendar day of the month.

An issuer of securities that are not

registered in the name of the

Depository’s nominee may make

payments to a security holder by ACH

transaction or fed wire, provided that it

obtains the prior written approval of the

security holder. If an issuer begins to

make such payments by electronic

transfer, it must continue to do so while

the securities are registered in the name

of that security holder.

(2) Payment by check. If an issuer

pays by check, the check must be

received by the security holder not later

than the 15th calendar day of each

month.

II. This Proposed Rule

Most issuers of Ginnie Mae I MBS

responded affirmatively to Ginnie Mae’s

encouragement that payments be made

by electronic transfer when the payee

was DTCC. As of September 15, 2000, (i)

approximately 80% of all payments to

DTCC on all Ginnie Mae I MBS were

made by electronic transfer, (ii)

approximately 71% of all payments to

DTCC on Ginnie Mae I MBS issued

before October 1, 1998, were made by

electronic transfer, and (iii) 91% of

issuers made all Ginnie Mae I MBS

payments to DTCC by electronic

transfer.

III. Reasons for Proposed Rule

A. Securities Held Through

Intermediaries

Against this background, Ginnie Mae

is proposing promulgation of a

regulation requiring that all payments to

be made on Ginnie Mae I MBS to a

Depository be made electronically in

immediately available funds. The

reasons for the proposal are:

(1) Fungibility/Liquidity. Ginnie Mae

is charged with maintaining stability

and liquidity in the secondary market

for residential mortgage securities.

Under existing program requirements,

funds are transferred at different times

on securities that should have the same

payment characteristics. This is an

unsatisfactory discrepancy when the

Federal Register / Vol. 66, No. 38 / Monday, February 26, 2001 / Proposed Rules 12429

goal is uniformity for the purpose of

enhancing fungibility and thereby

liquidity of Ginnie Mae I MBS.

(2) Access to Alternative Payment

Systems. Ginnie Mae has created

uniformity where it would not

otherwise exist through the

establishment of a relationship with

DTCC. As a consequence of Ginnie

Mae’s program requirements, it is more

expensive to invest in Ginnie Mae

securities than it need be, to the

detriment of mortgagors, mortgagees and

secondary market investors. The

additional expense is ultimately

reflected in the interest rate that is

charged homeowners, therefore making

homeownership less affordable.

Equally important, existing program

requirements have impaired the ability

of Ginnie Mae to consider alternative

payment systems. In particular, in

response to comments from capital

markets investors, Ginnie Mae is

considering utilizing the payment

systems of the Federal Reserve Bank for

payments on Ginnie Mae I MBS.

Crediting payments through the Federal

Reserve’s systems would make the

crediting process consistent with that

for United States Treasury securities

and for mortgage-backed securities issue

by Fannie Mae and Freddie Mac. Ginnie

Mae has also been advised that the use

of Federal Reserve systems would

enhance the market for Ginnie Mae I

MBS in overseas capital markets.

Because the Federal Reserve’s systems

do not accommodate payments made

otherwise than electronically in

immediately available funds, mandating

electronic transfer is a prerequisite to

the use of those payment options.

(3) Credit/Stability. Only when a

check fails to clear is it known that

funds were not available that the system

assumes were available at the required

time of payment. Requiring that all

payments due on Ginnie Mae I MBS be

made in immediately available funds

better assures the certainty and integrity

of the Ginnie Mae system and the

timeliness of all required payments,

because, among other things, Ginnie

Mae appropriately does not default an

issuer and make payment with its funds

until there is actual evidence of an

issuer default.

(4) Efficiency. Securities markets and

securities payment systems are moving

rapidly away from paper. A system that

must accommodate paper is more costly

than one that does not. This is

evidenced by the fact that payments are

made electronically on all Treasury

Securities and the mortgage-backed

securities issued by Fannie Mae and

Freddie Mac. The Association in

proposing these rules has considered

that in the past some issuers of Ginnie

Mae I MBS have enjoyed a benefit from

the inefficiency of the cash collection

system. That benefit, however, has been

at the expense of the efficiency of the

secondary market for mortgage-backed

securities. The proposed regulations

address this arrangement and return the

benefits to the homeowners.

Furthermore, since October 1, 1998,

all payments on newly issued Ginnie

Mae I MBS registered in the name of the

Depository have been made

electronically. Thus, Ginnie Mae issuers

have systems in place to make payments

electronically. Electronic payment is not

only feasible, but also the most efficient

means for effecting payments on Ginnie

Mae I MBS

B. Securities Not Registered in the Name

of a Depository’s Nominee

As noted above, only approximately

1.4% of outstanding Ginnie Mae I MBS

are not registered in the name of the

nominee of DTCC (‘‘certificated MBS’’).

Ginnie Mae is considering whether (i) to

require issuers to make payments on

certificated MBS by wire transfer of

immediately available funds, (ii) to deny

investors in certificated MBS the right to

receive payment by check, and (iii)

whether holders of certificated MBS that

elect to receive payments electronically

may later elect to receive payments by

check. Wire transfer for payments on

certificated MBS would be consistent

with the trend in the capital markets to

paperless transactions, but Ginnie Mae

is mindful that issuers and investors

may appropriately desire payment by

check for expense or other reasons.

Accordingly, the Association is

soliciting comments on the effect and

desirability of mandating electronic

payments on certificated MBS.

C. Physical Certificates

In accordance with modern practice

and the desires of financial

intermediaries with respect to the risk

and expense of maintaining custody of

actual physical certificates, the

Association is proposing that on the

effective date of the rule, ownership of

Ginnie Mae MBS and Ginnie Mae

multiclass securities registered in the

name of a Depository will be

conclusively established by registration

of the Ginnie Mae MBS or Ginnie Mae

multiclass security reflected on the

books of the registrar of the Ginnie Mae

MBS or Ginnie Mae multiclass security.

Accordingly, it will no longer be

necessary for a Depository to maintain

custody of physical certificates

representing ownership of Ginnie Mae

MBS or Ginnie Mae multiclass

securities.

D. Guaranty

The Ginnie Mae guarantee only goes

to the registered holder of the Ginnie

Mae security, and it is desirable to

clarify that Ginnie Mae does not

guarantee performance by a Depository

in whose name the Ginnie Mae security

is registered.

IV. Justification for Reduced Public

Comment Period

It is the general practice of the

Department to provide a 60-day public

comment period on all proposed rules.

The Department, however, is reducing

its usual 60-day public comment period

to 30 days for this proposed rule since

most issuers are not affected and the

rule does not implement changes that

would be considered controversial by

the general public. Given the narrow

effect of the proposed rule and the fact

that the shortened comment period will

expedite implementation of a more

efficient payment system, the

Department believes that a 30-day

public comment period is justified.

V. Findings and Certifications

Regulatory Flexibility Act

The Secretary, in accordance with the

Regulatory Flexibility Act (5 U.S.C.

605(b)), has reviewed and approved this

proposed rule, and in so doing certifies

that this rule will not have a significant

economic impact on a substantial

number of small entities. This rule

addresses ministerial functions

associated with the Ginnie Mae MBS

program, such as the manner of

dividend payments and the method

used to document ownership of

certificates. Notwithstanding HUD’s

determination that this rule will not

have a significant economic impact on

a substantial number of small entities,

HUD specifically invites comments

regarding any less burdensome

alternatives to this rule that will meet

HUD’s objectives as described in the

preamble.

Environmental Impact

This proposed rule encompasses

activities of the Government National

Mortgage Association under Title III of

the National Housing Act (12 U.S.C.

1716, et seq.). Therefore, in accordance

with 24 CFR 50.19(c)(19) of HUD’s

regulations, this rule is categorically

excluded from environmental review

under the National Environmental

Policy Act of 1969 (42 U.S.C. 4321 et

seq.).

Executive Order 13132, Federalism

Executive Order 13132 (entitled

‘‘Federalism’’) prohibits an agency from

12430 Federal Register / Vol. 66, No. 38 / Monday, February 26, 2001 / Proposed Rules

publishing any rule that has federalism

implications if the rule either imposes

substantial direct compliance costs on

State and local governments and is not

required by statute, or the rule preempts

State law, unless the agency meets the

consultation and funding requirements

of section 6 of the Executive Order. This

proposed rule would not have

federalism implications and would not

impose substantial direct compliance

costs on State and local governments.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates

Reform Act of 1995 (Public Law 104–4,

approved March 22, 1995) (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. This proposed rule does 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 24 CFR Parts 320 and

330

Mortgages, Securities.

Accordingly, parts 320 and 330 of title

24 of the Code of Federal Regulations

are proposed to be amended as follows:

PART 320—GUARANTY OF

MORTGAGE-BACKED SECURITIES

1. The authority citation for 24 CFR

part 320 continues to read as follows:

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

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

2. Section 320.5 is amended by

revising paragraph (g) and adding

paragraphs (h), (i) and (j) to read as

follows:

§ 320.5 Securities.

* * * * *

(g) Registered Ownership. On and

after [the Effective Date of the Final

Rule], ownership of securities registered

in the name of a Depository shall be

conclusively established by registration

in the name of the Depository as owner

on the Association’s central registry and

it shall be unnecessary for a Depository

to maintain custody of any physical

certificates evidencing such ownership.

(h) Payments on Ginnie Mae I MBS.

On and after [the Effective Date of the

Final Rule], issuers must remit all

payments due to holders of Ginnie Mae

I MBS such that holders will receive

their installments as follows:

(1) Payment to a Depository. (i) For all

securities registered in the name of a

Depository or the designated nominee

for a Depository, issuers are required to

make payments in immediately

available funds by ACH transaction, Fed

wire, or by such other method as

directed and/or authorized by Ginnie

Mae pursuant to the MBS Guide.

(ii) Payment must be made by the

hour specified in the MBS Guide on the

15th calendar day of the month if the

15th is a business day. If the 15th

calendar day is not a business day, the

transfer must be made by the hour

specified in the MBS Guide on the first

business day following the 15th

calendar day of the month.

(2) Payments to other holders. An

issuer of Ginnie Mae I securities that are

not registered in the name of a

Depository or its nominee may make

payments to a security holder by ACH

transaction or Fed wire, provided that it

obtains the prior written approval of the

holder of the Ginnie Mae I MBS. If an

issuer begins to make such payments by

electronic transfer, it must continue to

do so while the securities are registered

in the name of that security holder. If an

issuer makes payments on Ginnie Mae

I MBS by check, the check must be

received by the security holder not later

than the 15th calendar day of each

month.

(i) Guaranty. The Association’s

guaranty is a guaranty that payment will

be made to the registered owner of

securities as reflected in the

Association’s central registry. The

Association makes no other guaranty,

including any guaranty that a

Depository will appropriately credit

payments to beneficial owners of Ginnie

Mae MBS. The Association’s guarantee

of securities payable to a Depository or

its nominee becomes effective when the

Depository or its nominee is registered

as the registered owner of the securities

on the Association’s central registry.

(j) Definition of Depository. As used in

this section, Depository means a

clearing agency, bank or other

institution that maintains systems by

which ownership and transfer of

interests in Ginnie Mae MBS are made

through entries on the books of the

institution.

PART 330—GUARANTY OF

MULTICLASS SECURITIES

3. The authority citation for 24 CFR

part 330 continues to read as follows:

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

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

4. Revise § 330.5 to read as follows:

§ 330.5 Definitions.

As used in this part, the following

terms shall have the meanings

indicated:

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 Multiclass Guide,

eligible collateral into a trust in

exchange for consolidated securities.

Depository. A clearing agency, bank or

other institution that maintains systems

by which ownership and transfer of

interests in Ginnie Mae multiclass

securities are made through entries on

the books of the institution.

GNMA electronic bulletin board. An

information distribution system

established by the Association for the

Multiclass Securities program.

GNMA MBS certificates. The

guaranteed mortgage backed securities

issued under part 320 of this chapter.

Government mortgages. Mortgages

that are eligible under section 306(g) (12

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

mortgage-backed securities pools.

Multiclass Registrar. The institution

that is specified by the Association as

the registrar of the related class and

series of multiclass securities.

Participant. For structured securities,

the sponsor, co-sponsor, trustee, trust

counsel, and accounting firm. For

consolidated securities, the depositor.

Other entities may be designated as

participants in the Multiclass Guide.

Sponsor. With respect to structured

securities, the entity that establishes the

required trust 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.

5. Revise § 330.30 to read as follows:

§ 330.30 GNMA guaranty.

(a) Securities held by Depositories. On

and after [the Effective Date of the Final

Rule], ownership of multiclass

securities registered in the name of a

Depository shall be conclusively

established by registration in the name

of the Depository as owner on the books

and records of the Multiclass Registrar,

and it shall be unnecessary for a

Depository to maintain custody of any

physical certificates evidencing such

ownership.

(b) Guaranty. The Association’s

guaranty is a guaranty that payment will

be made to the registered owner of

securities as reflected on the books and

records of the Multiclass Registrar.

(1) The Association makes no other

guaranty, including any guaranty that a

Federal Register / Vol. 66, No. 38 / Monday, February 26, 2001 / Proposed Rules 12431

Depository will appropriately credit

payments to beneficial owners of GNMA

multiclass securities. The Association’s

guarantee of securities payable to a

Depository or its nominee becomes

effective when the Depository or its

nominee is registered as the registered

owner of the securities on the books and

records of the Multiclass Registrar.

(2) 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.

Dated: February 15, 2001.

Mel Martinez,

Secretary.

[FR Doc. 01–4439 Filed 2–23–01; 8:45 am]

BILLING CODE 4210–01–P