Source: http://www.thefederalregister.com/d.p/2008-10-10-E8-24043
Timestamp: 2013-05-21 10:20:49
Document Index: 635227897

Matched Legal Cases: ['art 7114', 'art 3944', 'art 6726', 'art 140', 'art 5250', 'art 1739', 'art 30206', 'art 514', 'art 9740', 'art 180', 'art 1250', 'art 1773', 'art 1773', 'art 1773', 'art 1250', 'ART 1250', 'ART 1773', 'art 1773']

Flood Insurance, Daily Rules, Proposed Rules, and Notices of the Federal Government
14 CFR Part 7114 CFR Part 3944 CFR Part 6726 CFR Part 140 CFR Part 5250 CFR Part 1739 CFR Part 30206 CFR Part 514 CFR Part 9740 CFR Part 180	Federal Register: October 10, 2008 (Volume 73, Number 198)
DOCID: fr10oc08-20
FR Doc E8-24043
CFR Citation: 12 CFR Part 1250
DOCUMENT ACTION: Notice of proposed rulemaking; request for comments.
SUBJECT CATEGORY: Office of Federal Housing Enterprise Oversight DATES: Comments on the proposed regulation must be received in writing on or before December 9, 2008. For additional information, see SUPPLEMENTARY INFORMATION.
DOCUMENT SUMMARY: The Federal Housing Finance Agency (FHFA) is requesting public comments on issuance of a proposed Flood Insurance regulation. The proposed regulation would codify 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 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.
SUMMARY: Flood Insurance, DOCUMENT BODY 2: 12 CFR Part 1773 RIN 2590AA09 Flood Insurance
I. Comments The Federal Housing Finance Agency (FHFA) invites comments on all aspects of the proposed regulation, and will take all comments into consideration before issuing the final regulation. FHFA requests that comments submitted in hard copy also be accompanied by the electronic version in Microsoft[supreg] Word or in portable document format (PDF) on 3.5 disk or CDROM. Copies of all comments will be posted on the agency internet Web site at: https://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) 4146924. II. Background
The Housing and Economic Recovery Act of 2008 (HERA), Public Law 110289, 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 [[Page 60199]]
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.
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\ \2\ See sec. 1302 and sec. 1312 of HERA.
The National Flood Insurance Act of 1968 \3\ and the Flood Disaster Protection Act of 1973,\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\
\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 103325 (Sept. 23, 1994) (codified, as amended, at 42 U.S.C. 40014129, 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. 103325, Title V, Sec. 583). \8\ 42 U.S.C. 4012a(f)(3). Section 1161(e) of HERA amended section 102(f)(3)(A) of the Flood Disaster Protection Act of 1973, as amended (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 is proposing to issue a regulation to codify the authority and responsibility of FHFA to oversee and enforce the statutory requirements affecting the operations of the Enterprises under the Flood Disaster Insurance Act of 1973, as amended, and to effect congressionally mandated adjustments to the civil money penalties applicable to violations of that law. The proposed regulation, when published in its final form, would supersede the OFHEO Flood Insurance regulation, 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\ \9\ 42 U.S.C. 4012a(b)(3).
The Flood Disaster Protection Act of 1973, as amended, sets forth the procedures under which the Director of OFHEO could impose civil money penalties against an Enterprise and the amounts of these civil money penalties.\10\ The proposed regulation would adjust 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 proposed 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 would continue to determine each civil money penalty on a casebycase basis in light of the circumstances of the case. \10\ 42 U.S.C. 4012a(f)(3).
\11\ 28 U.S.C. 2461 note.
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 costofliving adjustment. As is described in detail below, the Inflation Adjustment Act provides that this costofliving adjustment is to reflect the percentage increase in the Consumer Price Index for All Urban Consumers (CPIU) 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 CPIU 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\
\12\ 66 FR 65101 (Dec. 18, 2001); 12 CFR part 1773.
OFHEO did not subsequently adjust these civil money penalty amounts. Because FHFA is making this adjustment in calendar year 2008, the inflation amount for each civil money [[Page 60200]]
penalty is calculated by comparing the CPIU for June 2001 (178.00), the calendar year OFHEO last adjusted the civil money penalty, with the CPIU for June 2007 (208.35), resulting in an inflation adjustment of 17.05 percent. 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 would be increased to $485 for each violation and the civil money penalty maximum of $110,000 would be increased to $130,000 for the total assessed penalties against any Enterprise during any calendar year. The increase would apply only to violations which occur after the date the increase takes effect.
\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. III. SectionbySection Analysis
Section 1250.1 Purpose
Section 1250.2 Procedural Requirements
Section 1250.2 would set 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. Consistent with 42 U.S.C. 4012a(4), it also would set forth that that the procedures need apply only to loans made, increased, extended, or renewed after September 22, 1995. The proposed 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\ \14\ 42 U.S.C. 4012a(c)(2).
Section 1250.3 Civil Money Penalties
Section 1250.3 would set forth procedures under which the Director of FHFA may impose civil money penalties against an Enterprise. The Director of FHFA would 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 shall only apply to violations which occur after the date the increase takes effect. The proposed section also would set 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 proposed section would set forth the maximum amount of civil money penalties that may be imposed on an Enterprise under this section. A civil money penalty under this section may not exceed the adjusted statutory amount of $485 for each violation and the total amount of penalties assessed under this section against an Enterprise during any calendar year may not exceed the adjusted statutory cap of $130,000 for total penalties. Furthermore, in accordance with 42 U.S.C. 4012a(f)(8), (9), and (10), Sec. 1250.3 would provide that
(3) No penalty may be imposed under this section after the expiration of the fouryear period beginning on the date of the occurrence of the violation for which the penalty is authorized. Regulatory Impact
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 proposed regulation under the Regulatory Flexibility Act. The FHFA certifies that the proposed regulation, if adopted, 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
Governmentsponsored enterprises, Flood insurance, Penalties, Reporting and Recordkeeping requirements.
Administrative practice and procedure, Flood insurance, Penalties, Reporting and Recordkeeping requirements.
CHAPTER XIIFEDERAL HOUSING FINANCE AGENCY
1. Add Subchapter C, consisting of part 1250 to read as follows: Subchapter CEnterprises PART 1250FLOOD INSURANCE Sec. 1250.1 Purpose. 1250.2 Procedural requirements.
1250.3 Civil money penalties.
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 (Enterprise) under the Flood Disaster Protection Act of 1973, 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. [[Page 60201]] 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.), 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. (b) Applicability.
(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 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.
(f) Statute of limitations. No civil money penalty may be imposed under this section after the expiration of the fouryear period beginning on the date of the occurrence of the violation for which the penalty is authorized under this section.
CHAPTER XVIIOFFICE OF FEDERAL HOUSING ENTERPRISE OVERSIGHT, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT PART 1773[REMOVED] 2. Remove part 1773. Dated: October 1, 2008. James B. Lockhart III, Director, Federal Housing Finance Agency. [FR Doc. E824043 Filed 10908; 8:45 am]
BILLING CODE 807001P
Andra Grossman, Counsel, telephone (202) 3431313 (not a tollfree 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) 8778339.