Rules of Practice and Procedure, 49314-49350 [2010-19567]

Agencies

• Federal Housing Enterprise Oversight Office
• Federal Housing Finance Board
• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
• FEDERAL HOUSING FINANCE AGENCY
• Office of Federal Housing Enterprise Oversight

[Federal Register Volume 75, Number 155 (Thursday, August 12, 2010)]
[Proposed Rules]
[Pages 49314-49350]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-19567]



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Part IV

Federal Housing Finance Board
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Federal Housing Finance Agency
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Department of Housing and Urban Development
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Office of Federal Housing Enterprise Oversight



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12 CFR Parts 908, 1209, 1780



Rules of Practice and Procedure; Proposed Rule

Federal Register / Vol. 75, No. 155 / Thursday, August 12, 2010 / 
Proposed Rules

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FEDERAL HOUSING FINANCE BOARD

12 CFR Part 908

FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1209

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of Federal Housing Enterprise Oversight

12 CFR Part 1780

RIN 2590-AA14


Rules of Practice and Procedure

AGENCY: Federal Housing Finance Board; Federal Housing Finance Agency; 
and Office of Federal Housing Enterprise Oversight, HUD.

ACTION: Notice of proposed rulemaking; request for comment.

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SUMMARY: The Federal Housing Finance Agency (FHFA) solicits written 
comment on a proposed rule to implement the Housing and Economic 
Recovery Act of 2008 (HERA) amendments to the Federal Housing 
Enterprises Financial Safety and Soundness Act of 1992 (Safety and 
Soundness Act) and the Federal Home Loan Bank Act (Bank Act) pertaining 
to the civil enforcement powers of FHFA, and the Rules of Practice and 
Procedure for enforcement proceedings. The Safety and Soundness Act, as 
amended by sections 1151-1158 of HERA, authorizes FHFA to initiate 
enforcement proceedings against the Federal National Mortgage 
Association and the Federal Home Loan Mortgage Corporation (together, 
the Enterprises) and the Federal Home Loan Banks (the Banks) 
(collectively, the regulated entities), and entity-affiliated parties 
as defined in the Safety and Soundness Act. When final, the rule will 
replace the existing Rules of Practice and Procedure promulgated by the 
Office of Federal Housing Enterprise Oversight (OFHEO) and the Federal 
Housing Finance Board (Finance Board) formerly charged with overseeing 
the regulated entities. The proposed rule may provide FHFA personnel, 
the regulated entities, entity-affiliated parties, and other interested 
parties with the clear guidance necessary to prepare for and 
participate in the administrative enforcement action process to 
increase the efficiency and transparency of FHFA's administrative 
enforcement hearings.

DATES: Comments on the proposed rule must be received in writing on or 
before October 12, 2010.

ADDRESSES: You may submit your written comments on the proposed 
rulemaking, identified by RIN number 2590-AA14, by any of the following 
methods:
     E-mail: Comments to Alfred M. Pollard, General Counsel, 
may be sent by e-mail at RegComments@fhfa.gov. Please include ``RIN 
2590-AA14'' in the subject line of the message.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments. If you submit your 
comment to the Federal eRulemaking Portal, please also send it by e-
mail to FHFA at RegComments@fhfa.gov to ensure timely receipt by the 
Agency. Please include ``RIN 2590-AA14'' in the subject line of the 
message.
     U.S. Mail, United Parcel Service, Federal Express, or 
Other Mail Service: The mailing address for comments is: Alfred M. 
Pollard, General Counsel, Attention: Comments/RIN 2590-AA14, Federal 
Housing Finance Agency, Fourth Floor, 1700 G Street, NW., Washington, 
DC 20552.
     Hand Delivery/Courier: The hand delivery address is: 
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA14, 
Federal Housing Finance Agency, Fourth Floor, 1700 G Street, NW., 
Washington, DC 20552. A hand-delivered package should be logged at the 
Guard Desk, First Floor, on business days between 9 a.m. and 5 p.m.

FOR FURTHER INFORMATION CONTACT: Charlotte A. Reid, Associate General 
Counsel, Federal Housing Finance Agency, 1700 G Street, NW., Fourth 
Floor, Washington, DC 20552, telephone (202) 414-3810 (not a toll-free 
number). The telephone number for the Telecommunications Device for the 
Deaf is: (800) 877-8339.

SUPPLEMENTARY INFORMATION: The Supplementary Information is organized 
according to this table of contents:

I. Comments
II. Background
III. Synopsis of the Proposed Rule
IV. Section-by-Section Analysis and Discussion
V. Regulatory Impact

I. Comments

    The Federal Housing Finance Agency (FHFA) invites comments on all 
aspects of the proposed Rules of Practice and Procedure (proposed 
rule), including legal and policy considerations, and will take all 
comments into consideration before issuing the final rule. All comments 
received by the deadline will be posted for public inspection on FHFA 
Web site at https://www.fhfa.gov. Copies of all comments timely received 
will be available for public inspection and copying at the address 
above on government-business days between the hours of 10 a.m. and 3 
p.m. To make an appointment to inspect comments please call the Office 
of General Counsel at (202) 414-6924.

II. Background

A. Establishment of FHFA

    Effective July 30, 2008, Division A of HERA, Public Law 110-289, 
122 Stat. 2654 (2008), titled the Federal Housing Finance Regulatory 
Reform Act of 2008, created FHFA as an independent agency of the 
Federal government.\1\ HERA amended the Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992 (Safety and Soundness Act) 
(12 U.S.C. 4501 et seq.) and the Federal Home Loan Bank Act (Bank Act) 
(12 U.S.C. 1421 through 1449), respectively, to provide that the 
Federal National Mortgage Association (Fannie Mae) and the Federal Home 
Loan Mortgage Corporation (Freddie Mac) (together, the Enterprises) and 
the Federal Home Loan Banks (Banks) (collectively, the regulated 
entities), are subject to the supervision and regulation of FHFA.\2\
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    \1\ See generally, HERA, Division A, Titles I-III, Public Law 
110-289, 122 Stat. 2654, sections 1101 et seq. (July 30, 2008). 
Specifically, section 1101 of HERA amended section 1311(a) of the 
Federal Housing Enterprises Financial Safety and Soundness Act of 
1992 (Safety and Soundness Act), Title XIII, Public Law 102-550, 106 
Stat. 3672, 3941-4012, sections 1301 et seq. (1993), to establish 
FHFA as an independent agency of the Federal government. See 12 
U.S.C. 4511(a).
    \2\ See section 1101 of HERA, amending section 1311(b)(1) of the 
Safety and Soundness Act, which provides that each regulated entity 
[defined at section 1303(20) of the Safety and Soundness Act to 
include the Enterprises and Banks] is subject to the supervision and 
regulation of FHFA. 12 U.S.C. 4511(b)(1).
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    Additionally, section 1101 of HERA amended section 1311(b)(2) of 
the Safety and Soundness Act to provide that the regulated entities and 
the Office of Finance are subject to the general regulatory authority 
of the Director of FHFA. 12 U.S.C. 4511(b)(2).\3,4\ Under this 
provision the Director has broad general regulatory authority to 
``ensure that the purposes of [HERA], the

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authorizing statutes, and any other applicable law are carried out.'' 
See id. 4511(b)(2).\5\
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    \3\ The Office of Finance acts as agent of the Banks in the 
issuance of Bank debt called consolidated obligations. See 12 U.S.C. 
1431. HERA defined the Office of Finance as an ``entity-affiliated 
party.'' 12 U.S.C. 4502(11)(E). In some cases, under the HERA 
amendments, executive officers, directors or management of the 
Office of Finance may be subject to the requirements of the 
enforcement provisions and rules.
    \4\ Section 1101 of HERA established the position of Director, 
as head of FHFA, in section 1312(a) of the Safety and Soundness Act. 
12 U.S.C. 4512(a).
    \5\ Section 1303(3) of the Safety and Soundness Act, as amended 
by section 1002 of HERA, provides that the term ``authorizing 
statutes'' means the Federal National Mortgage Association Charter 
Act, the Federal Home Loan Mortgage Corporation Act, and the Federal 
Home Loan Bank Act. See 12 U.S.C. 4502(3).
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    HERA transferred to FHFA the supervisory, mission, and oversight 
responsibilities over the Enterprises and Banks from the U.S. 
Department of Housing and Urban Development (HUD), including OFHEO, and 
the Federal Housing Finance Board (Finance Board), respectively.\6\ 
FHFA was established as the financial safety and soundness regulator to 
oversee the prudential operations of the Enterprises and Banks (i.e., 
the regulated entities) and to ensure that they operate in a safe and 
sound manner; remain adequately capitalized; foster liquid, efficient, 
competitive and resilient national housing finance markets; comply with 
the Safety and Soundness Act and their respective authorizing statutes, 
as well as all rules, regulations, guidelines, and orders issued under 
law; and carry out their missions through activities that are 
authorized by law and are consistent with the public interest.\7\
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    \6\ HERA abolished OFHEO and the Finance Board one year after 
the date of its enactment. By operation of law, the regulated 
entities and the Office of Finance continue to operate under 
existing regulations promulgated by OFHEO and the Finance Board. 
Those existing regulations are enforceable by the Director until 
such time as they are modified, terminated, set aside, or superseded 
by the Director. See sections 1302 and 1312 of HERA, 122 Stat. 2795, 
2798. When final, FHFA Rules of Practice and Procedure (12 CFR part 
1209) will supersede the Rules of Practice and Procedure previously 
promulgated by OFHEO (12 CFR part 1780) and the Finance Board (12 
CFR part 908). See also note 17, and accompanying text.
    \7\ See Section 1102 of HERA, amending section 1313 of the 
Safety and Soundness Act (12 U.S.C. 4513).
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B. Statutory Background

    Together, Freddie Mac and Fannie Mae owned or guaranteed nearly 
$5.34 trillion of residential mortgages in the United States (U.S.) as 
of December 31, 2009. The Banks support the U.S. housing market by 
making advances (i.e., loans secured by eligible collateral) to their 
member commercial banks, thrifts, and credit unions, assuring a ready 
flow of mortgage funding. Bank advances stood at $631.2 billion as of 
December 31, 2009. Thus, the regulated entities play a key role in 
housing finance and the U.S. economy.
    The mission of FHFA is to provide effective supervision, 
regulation, and housing mission oversight of the Enterprises and the 
Banks to promote their safety and soundness, support housing finance 
and affordable housing, and support a stable and liquid mortgage 
market. Accordingly, the HERA amendments to the Safety and Soundness 
Act make explicit the general regulatory and supervisory authority of 
FHFA and the Director, and grant specific supervisory and enforcement 
powers to the Director. See e.g., 12 U.S.C. 4511, 4513, 4517, 4518, 
4526, 4631 through 4641.
    By design, the Safety and Soundness Act provides the Director with 
broad supervisory and regulatory authority to ensure the safety and 
soundness of the regulated entities: the Director ``shall exercise such 
general regulatory authority, including such duties and authorities set 
forth under section 1313 of the Safety and Soundness Act, to ensure 
that the purposes of this Act, the authorizing statutes, and any other 
applicable law are carried out.'' See 12 U.S.C. 4511(b)(2). The 
Director's general regulatory authority is joined to more specific 
powers, such as those invoked under section 1313 of the Safety and 
Soundness Act, and the examination authority under section 1317 of the 
Safety and Soundness Act, thereby constructing a comprehensive 
framework for safety and soundness regulation of the regulated 
entities. See 12 U.S.C. 4513, 4517.
    Specifically, section 1313(a)(1) of the Safety and Soundness Act 
prescribes the principal duties of the Director. The Director shall 
``oversee the prudential operations of each regulated entity.'' 12 
U.S.C. 4513(a)(1)(A). Similarly, section 1313(a)(1)(B) of the Safety 
and Soundness Act enumerates the principal duties of the Director to 
ensure that: each regulated entity operates in a safe and sound manner, 
including maintenance of adequate capital and internal controls; the 
operations and activities of each regulated entity promote the 
efficiency, competitiveness, and liquidity of national housing finance 
markets; each regulated entity complies with the Safety and Soundness 
Act and the rules, regulations, guidelines, and orders issued under the 
Safety and Soundness Act and the authorizing statutes; each regulated 
entity executes its statutory mission through authorized activities; 
and the activities of each regulated entity are consistent with the 
public interest. 12 U.S.C. 4513(a)(1)(B).\8\
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    \8\ See 12 U.S.C. 4513(a)(1)(B)(i) through (v).
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    Further underscoring the Director's ongoing authority to ensure 
that the operations and management of the regulated entities comport 
with the Safety and Soundness Act and their respective authorizing 
statutes, section 1313(a)(2)(B) of the Safety and Soundness Act 
expressly authorizes the Director to ``exercise such incidental powers 
as may be necessary or appropriate to fulfill the duties and 
responsibilities of the Director in the supervision and regulation of 
each regulated entity.'' See 12 U.S.C. 4513(a)(2)(B).\9\ Thus, the 
Director may undertake such regulatory and supervisory actions as 
deemed to be necessary or appropriate to fulfilling the duties and 
responsibilities of FHFA with respect to the regulated entities.\10\
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    \9\ The Supreme Court has held that the incidental powers 
provision applicable to national banks constitutes ``an independent 
grant of authority,'' and that courts should view ``the specific 
powers set forth thereafter as exemplary, not exclusive.'' 
NationsBank of N.C., N.A. v. Variable Annuity Life Ins. Co., 513 
U.S. 251, 258 (1995).
    \10\ Furthermore, other provisions in the Safety and Soundness 
Act reinforce the independence and general regulatory authority of 
the Director. For example, section 1311(c) of the Safety and 
Soundness Act, as amended by section 1101 of HERA, provides that the 
authority of the Director ``to take actions under subtitles B and C 
[of Title I of Division A of HERA] shall not in any way limit the 
general supervisory and regulatory authority granted to the Director 
under subsection (b).'' See 12 U.S.C. 4511(c). Section 1313B of the 
Safety and Soundness Act provides that the Director shall establish 
certain prudential management and operations standards, by 
regulation or guideline, for each regulated entity. See 12 U.S.C. 
4513b. Finally, section 1319G(a) of the Safety and Soundness Act 
provides ample, independent authority for the issuance of ``any 
regulations, guidelines, or orders necessary to carry out the duties 
of the Director under this title or the authorizing statutes, and to 
ensure that the purposes of this title and the authorizing statutes 
are accomplished.'' 12 U.S.C. 4526
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    When promulgating regulations that may relate to the Banks, under 
section 1313(f)[sic] of the Safety and Soundness Act (as amended by 
section 1201 of HERA) the Director is required 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. See 12 
U.S.C. 4513(f)[sic].\11\ In preparing the proposed rule, the Director 
considered the differences between the Banks and the Enterprises as 
they relate to the above factors. The Director is requesting comments 
from the public about whether differences related to these factors 
should result in a revision of the proposed rule as it may relate to 
the Banks.
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    \11\ So in original; paragraph designation should be (d).

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C. Enforcement Authority of the Director Under Sections 1371 Through 
1379D of the Safety and Soundness Act, as Amended by HERA

    To carry out its statutory mission, FHFA must have effective 
enforcement tools. The HERA amendments to the Safety and Soundness Act 
and the Bank Act provide that clear authority. The Enterprises and 
entity-affiliated parties are subject to administrative enforcement 
proceedings as provided in sections 1371 through 1379D of the Safety 
and Soundness Act, as amended by sections 1151 through 1158 of HERA (12 
U.S.C. 4631 through 4641). HERA also amended the Bank Act and the 
Safety and Soundness Act to provide that the Banks and the Office of 
Finance, respectively, are subject to this enforcement framework.\12\ 
As amended, sections 1371 through 1379D of the Safety and Soundness Act 
(12 U.S.C. 4631 through 4641) subject the Enterprises, the Banks, the 
Office of Finance, and entity-affiliated parties to the authority of 
the Director to initiate proceedings to issue cease and desist orders, 
to issue temporary cease and desist orders, to impose civil money 
penalties, or to obtain removal and prohibition orders, in accordance 
with applicable law.
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    \12\ Section 1204 of HERA repealed the enforcement authority of 
the Finance Board over the Banks and specified parties in section 
2B(a)(5) of the Bank Act (12 U.S.C. 1422b(a)(5)). Therefore, the 
Banks, the Office of Finance, and specified parties are subject to 
FHFA enforcement authority as set forth in sections 1371 through 
1379D of subtitle C of the Safety and Soundness Act, as amended. See 
12 U.S.C. 4631 through 4641.
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    In particular, the HERA provisions in section 1377(a) of the Safety 
and Soundness Act (12 U.S.C. 4636a(a)), give the Director express 
authority to suspend or remove from office, or to prohibit any further 
participation in the conduct of the affairs of a regulated entity, an 
entity-affiliated party, or any officer, director, or management of the 
Office of Finance, for any violation, practice, or breach of such 
party's fiduciary duty, as set forth therein. Additionally, in 
accordance with section 1377(b) of the Safety and Soundness Act (12 
U.S.C. 4636a(b)), the Director can take immediate action to suspend or 
remove from office, or to prohibit the participation in any manner in 
the conduct of the affairs of the regulated entity, any party subject 
to an action under section 1377(a) of the Safety and Soundness Act.
    Finally, under section 1377(h) of the Safety and Soundness Act (12 
U.S.C. 4636a(h)), with respect to any entity-affiliated party who is 
charged with a Federal or State crime involving dishonesty or breach of 
trust, which is punishable by imprisonment for more than one year, in 
any criminal information, indictment or complaint, the Director is 
authorized to suspend such party from office or prohibit him or her 
from any further involvement in the conduct of the affairs of a 
regulated entity if continued service or participation by such party 
could pose a threat to, or impair public confidence in, the regulated 
entity. See 12 U.S.C. 4636a(h)(1)(A). The statute prescribes that a 
copy of the suspension notice shall be served on each relevant 
regulated entity. See 12 U.S.C. 4636a(h)(1)(B)(i).
    Thus, under these enhanced powers, the Director has at his or her 
disposal a broad range of enforcement actions to enforce, as needed, 
applicable law, rules, orders, and agreements pertaining to the safe 
and sound operation of the Enterprises and Banks.\13\ Because this 
enforcement authority parallels that of the enforcement tools available 
to bank regulatory agencies, the procedures for pursuing such actions, 
by design, are similar. The Federal bank and thrift regulators' uniform 
rules of practice and procedure for enforcement actions adopted under 
section 916 of the Financial Institutions Reform, Recovery and 
Enforcement Act of 1989 (FIRREA), Public Law 101-73, 103 Stat. 183 
(1989) (the Uniform Rules) set the standard for formal enforcement 
proceedings, and served as the model for the enforcement regulations 
later adopted by OFHEO and the Finance Board.\14\ Thus, the proposed 
regulation builds upon the Uniform Rules, as well as the existing 
enforcement regulations adopted by OFHEO in 1999 (and amended in 2001) 
(12 CFR part 1780), and the Finance Board's Rules of Practice and 
Procedure adopted in 2002 (12 CFR part 908).
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    \13\ The Director has broad safety and soundness enforcement 
authority under sections 1371 through 1379D of the Safety and 
Soundness Act, (subtitle C--Enforcement Provisions) (12 U.S.C. 4631 
through 4641), in furtherance of the Director's general safety and 
soundness regulatory authority. Additionally, the Director has 
authority under subtitle B of the Safety and Soundness Act (sections 
1361 through 1369E) to set and enforce capital levels or appoint 
FHFA as conservator or receiver for a regulated entity. More 
important, as amended by HERA, section 1311(c) of the Safety and 
Soundness Act expressly preserves these powers in addition to the 
Director's general supervisory and regulatory authority under 
subsection (b) of section 1311 of the Safety and Soundness Act, as 
amended: ``[t]he authority of the Director to take actions under 
subtitles B and C shall not in any way limit the general supervisory 
and regulatory authority granted to the Director under subsection 
(b).'' See 12 U.S.C. 4511(c).
    \14\ The Federal Financial Institutions Examination Council 
(FFIEC) members adopted the Uniform Rules as noted: the Office of 
the Comptroller of the Currency (OCC), 12 CFR part 19 (56 FR 38028, 
August 9, 1991) (as amended 61 FR 20334, May 6, 1996; 70 FR 69638, 
November 17, 2005); the Office of Thrift Supervision (OTS), 12 CFR 
Part 509 (56 FR 38306, August 12, 1991) (as amended 56 FR 59866, 
November 26, 1991; 61 FR 20353, May 6, 1996; 70 FR 69641, November 
17, 2005, and 72 FR 25955, May 8, 2007); the Federal Deposit 
Insurance Corporation (FDIC), 12 CFR Part 308 (56 FR 37975, August 
9, 1991) (as amended 61 FR 20347, May 6, 1996; 70 FR 69639, November 
17, 2005); the Board of Governors of the Federal Reserve (FED) 12 
CFR Part 263 (56 FR 38052, August 9, 1991) (as amended 61 FR 20341, 
May 6, 1996; 70 FR 69638, Nov. 17, 2005; 73 FR 58032, Oct. 6, 2008); 
and the National Credit Union Administration (NCUA), 12 CFR Part 747 
(56 FR 37767, August 8, 1991) (as amended 57 FR 523, January 7, 
1992; 61 FR 28024, June 4, 1996; 71 FR 67440, November 22, 2006).
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    Cease and desist enforcement proceedings are commenced by serving a 
notice of charges that is to set forth the facts constituting the 
practice or violation and fix a time and place for a hearing to 
determine on the record whether an order to cease and desist from such 
practice or violation should issue. See 12 U.S.C. 4631(c)(1). Such 
hearings are governed by section 1373 of the Safety and Soundness Act. 
See generally, 12 U.S.C. 4633. In fact, section 1373(a)(1) of the 
Safety and Soundness Act (12 U.S.C. 4633(a)(1)) provides that any 
hearing under sections 1371 (cease and desist order), 1376(c) (civil 
money penalty assessment) or 1377 (removal or suspension orders; except 
removal actions under section 1377(h) of the Safety and Soundness Act) 
be held on the record. See 12 U.S.C. 4633(a)(1). Therefore, prior to 
issuing a cease-and-desist order, imposing civil money penalties, or 
ordering the suspension or removal of an entity-affiliated party or any 
officer, director, or management of the Office of Finance, FHFA must 
conduct a hearing on the record and provide the subject of such an 
order with notice and the opportunity to participate in a hearing that 
is to be conducted in accordance with chapter 5 of title 5 of the 
United States Code.\15\ Sections 554, 556, and 557 of the 
Administrative Procedure Act govern hearings on the record.\16\ The 
Rules of Practice and Procedure as proposed (proposed rule) establish 
the procedural requirements for any hearing on the record in an 
enforcement proceeding brought under subtitle C of the Safety

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and Soundness Act in conformity with the APA.
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    \15\ See section 1373(a)(3) of the Safety and Soundness Act (12 
U.S.C. 4633(a)(3)).
    \16\ Public Law 89-554, 80 Stat. 381 (1966) (codified at 5 
U.S.C. 551-559; 701-706). Formal adjudications (i.e., hearings ``on 
the record'') are governed by chapters 5 and 7 of the Administrative 
Procedure Act (5 U.S.C. 554, 556, and 557) (APA). The APA grants 
each agency ``the authority necessary to comply with the 
requirements of [chapter 5] through the issuance of rules or 
otherwise.'' See 5 U.S.C. 559.
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D. Rules of Practice and Procedure

    As stated, the proposed Rules of Practice and Procedure are 
designed to govern hearings on the following matters that FHFA by law 
must conduct on the record in accordance with APA formal hearing 
requirements:
    (1) Enforcement proceedings under sections 1371 through 1379D of 
the Safety and Soundness Act (12 U.S.C. 4631 through 4641) (except 
section 1377(h) (12 U.S.C. 4636a));
    (2) Removal, prohibition, and civil money penalty proceedings for 
violations of post-employment restrictions imposed by applicable law; 
and
    (3) Proceedings under section 102 of the Flood Disaster Protection 
Act of 1973, as amended (42 U.S.C. 4012a) to assess civil money 
penalties.
    To ensure that comprehensive hearing procedures are in place to 
conduct such hearings, the proposed rule departs from the 
organizational structure of the existing OFHEO rule and delinks the 
procedural steps for hearings on the record from the underlying 
statutory enforcement authority set forth in sections 1371 through 
1379D of the Safety and Soundness Act (12 U.S.C. 4631 through 4641). To 
make this distinction clear, the enforcement authority is set out in 
subpart B of the proposed rule, whereas the formal hearing procedures 
are separately stated in subpart C of the proposed rule.
    The stand alone formal hearing procedures in subpart C of Part 1209 
also could govern civil money penalty proceedings authorized under 
section 1345 of the Safety and Soundness Act that require a hearing on 
the record, but that specifically provides for remedies that differ 
from those under sections 1371 and 1376 of the Safety and Soundness 
Act. See 12 U.S.C. 4582, 4585, 4631(a)(2) and 4636(a). In addition to 
the housing goals enforcement proceedings under sections 1341 and 1345 
of the Safety and Soundness Act, the formal hearing procedures in 
subpart C of this part could apply to the enforcement of the regulated 
entities' reporting requirements under section 1314 of the Safety and 
Soundness Act (12 U.S.C. 4514).
    The Rules of Practice and Procedure, when final, will replace the 
Rules of Practice and Procedure previously adopted by OFHEO (12 CFR 
part 1780) and the Finance Board (12 CFR part 908).\17\ The OFHEO rule 
serves as the template for the proposed rule.\18\ Specifically, the 
proposed rule sets out the requirements for the commencement of an 
enforcement proceeding by service of a notice of charges; the 
appointment of a presiding officer; hearing procedures and permissible 
activities; the conduct of the trial-like testimonial phase of the 
hearing process; the presiding officer's filing with the Director of a 
recommended decision and order, along with the hearing record; the 
decision by the Director; and the qualifications and disciplinary rules 
for practice before FHFA.\19\ During the course of the hearing, the 
presiding officer controls virtually all aspects of the proceeding. In 
particular, the presiding officer: determines the hearing schedule; 
presides over all conferences; rules on non-dispositive motions, 
discovery, and evidentiary issues; and ensures that the proceeding is 
prompt, fair, and impartial, and allows for the creation of a written 
record upon which the recommended decision is based.\20\
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    \17\ The Finance Board's enforcement authority, as enacted in 
sections 2B(a)(2) and (5) of the Bank Act in 1999, was derived in 
part from OFHEO's enforcement authority under sections 1371 through 
1379D of the Safety and Soundness Act of 1992. Compare 12 U.S.C. 
1422b(a)(2), (5) with 12 U.S.C. 4631 through 4641. With the 
exception of the grounds for cease and desist actions and removal 
authority accorded the Finance Board, the provisions were nearly 
indistinguishable. Accordingly, the Finance Board Rules of Practice 
and Procedure (12 CFR part 908) were highly aligned with the pre-
existing OFHEO Rules of Practice and Procedure (12 CFR part 1780). 
In many respects these procedural rules are nearly identical. The 
term ``existing provision,'' is used to refer to those co-extensive 
provisions.
    \18\ As stated, the Finance Board Rules of Practice and 
Procedure (12 CFR part 908) were modeled on, and are nearly 
identical to, the OFHEO rule in most procedural respects. For 
convenience, the OFHEO rule served as the basic template for the 
proposed FHFA rule. In some cases, however, the Finance Board rule 
informed the drafting, for example, in defining certain terms such 
as notice (i.e., notice of charges), hearing, and the Safety and 
Soundness Act.
    \19\ 5 U.S.C. 1305 sets forth the authority of the Office of 
Personnel Management (OPM) relating to the appointment of an 
administrative law judge (ALJ). In practice, an OPM-appointed ALJ 
serves as presiding officer.
    \20\ As with the Uniform Rules, parties to an FHFA enforcement 
proceeding have the right to present evidence and to examine and 
cross-examine the witnesses at the evidentiary hearing stage. Upon 
completion of the testimonial phase of the hearing, the parties may 
submit proposed findings of fact and conclusions of law and a 
proposed order. After taking the evidence and considering the 
record, the presiding officer makes a recommended decision and 
submits the complete record to the Director, which includes 
recommended findings of fact and conclusions of law, and a proposed 
order. The record also includes all transcripts, exhibits, rulings, 
motions, briefs and memoranda, expert witness reports, and all 
supporting papers filed in connection with the hearing.
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    The current requirement that the Director issue a final ruling 
within ninety (90) days of the date on which the Director serves notice 
upon the parties that the hearing record is complete and the case has 
been submitted for final decision also is retained in the proposed FHFA 
Rules of Practice and Procedure. Importantly, the presiding officer 
does not have the authority to make a ruling that disposes of the 
proceeding. Only the Director has the authority to dismiss the 
proceeding, in whole or in part, or to make a final determination of 
the merits of the proceeding. This ensures that FHFA and the respondent 
receive full and fair consideration of the matters at issue.
    Many of the proposed revisions to the Rules of Practice and 
Procedure were informed by OFHEO's prior experience in conducting 
enforcement proceedings under its rule. From that practice, FHFA has 
identified certain issues for clarification. Accordingly, FHFA is 
suggesting revisions in the proposed rule to make the adjudication 
process more efficient, fair, and transparent. For example, the 
proposed rule includes a definition of ``notice of charges.'' The 
notice of charges is the charging document that is served by FHFA on a 
regulated entity or party as provided in sections 1371 through 1377 of 
the Safety and Soundness Act (12 U.S.C. 4631 through 4636a) to initiate 
enforcement proceedings. Additionally, to resolve any confusion, the 
definition as proposed in Sec.  1209.3 clarifies that a ``notice of 
charges'' is to be distinguished from an ``effective notice'' within 
the meaning of 12 U.S.C. 4635(a), and that that provision does not 
confer jurisdiction upon a Federal district court over an agency 
enforcement proceeding.
    FHFA also is proposing to make the presiding officer's authority 
more explicit in several respects. First, Sec.  1209.11 of the proposed 
rule (Authority of the Presiding Officer) affords the presiding officer 
support for holding an initial scheduling conference to control the 
proceedings. Thus, Sec.  1209.11(b)(1) of the proposed rule states that 
the date for the testimonial phase of the hearing is to be set in a 
scheduling order issued in conjunction with the initial scheduling 
conference set under Sec.  1209.36 of the proposed rule. Second, the 
proposed rule permits the presiding officer more leeway to control the 
pace and context of discovery; and, if necessary, discretion to 
prohibit unnecessary or burdensome discovery. Accordingly, Sec.  
1209.11(b)(5) of the proposed rule confirms that, among other things, 
the presiding officer may issue and enforce discovery orders. Section 
1209.11(b)(8) of the proposed rule restates the broad powers of the

[[Page 49318]]

presiding officer to regulate the scope, timing, and completion of 
discovery of any non-privileged matter that is materially relevant to 
the charges or allowable defenses in the proceeding. Third, FHFA has 
determined to make more explicit the requirement that matters or 
documents subject to discovery must be ``materially relevant'' to the 
charges or allowable defenses in the proceeding to support the 
presiding officer's ability to deny discovery requests that are not so 
framed. (``Materially relevant'' is generally understood to mean that 
the information sought must have a logical connection to a 
consequential fact that tends to prove or disprove a matter in issue.) 
Similarly, Sec.  1209.11(b)(11) of the proposed rule underscores that 
the presiding officer has ample authority to admit, exclude, or limit 
evidence according to its material relevance to the legally cognizable 
claims and defenses presented by a notice of charges. Finally, as a 
corollary to the authority of the presiding officer to set the date of 
the evidentiary hearing in a scheduling order, Sec.  1209.23 of the 
proposed rule clarifies that the notice of charges is to specify that 
the testimonial hearing date will be determined when the presiding 
officer holds the initial scheduling conference and issues a scheduling 
order within thirty (30) to sixty (60) days of service of the notice of 
charges.
    FHFA believes that these and other enhancements to the rule as 
proposed will ensure that any enforcement action taken by FHFA is 
governed by a process that is expeditious, thorough, and fair.

III. Synopsis of the Proposed Rule

    FHFA is proposing to revise the Rules of Practice and Procedure to 
be codified in a new part 1209 that would supersede the existing OFHEO 
and Finance Board Rules of Practice and Procedure governing enforcement 
proceedings, which are nearly identical procedurally. For ease of 
drafting, the template for the proposed rule is the OFHEO Rules of 
Practice and Procedure (12 CFR part 1708).\21\ In addition, the 
proposed rule is faithful to the model Uniform Rules and meets or 
exceeds all applicable APA requirements for formal hearings. Part 1209 
will govern the conduct of FHFA administrative hearings on the record 
for enforcement proceedings as provided in the Safety and Soundness 
Act. Many of the provisions in the existing OFHEO rule (and their 
identical counterparts in the Finance Board rule) are to be adopted 
unchanged. Other provisions, as noted below, are to be modified to 
reflect actual practices or current law, to make the process more 
efficient, or to ensure that the procedures, on their face, are fair 
and transparent.
---------------------------------------------------------------------------

    \21\ As stated, when it was originally adopted, the Finance 
Board rule (12 CFR part 908) was based on the OFHEO rule (12 CFR 
part 1780), and the procedural requirements are substantively 
identical, unless otherwise noted. See notes 17 and 18 with 
accompanying text.
---------------------------------------------------------------------------

    The proposed rule is organized as follows: Part 1209 is to be 
divided into several topical subparts in order to more clearly 
delineate the specific enforcement authority of the Director under 
sections 1371 through 1379D of the Safety and Soundness Act (12 U.S.C. 
4631 through 4641) as distinct from the procedural steps for hearings 
on the record for enforcement actions and proceedings as enumerated 
below. Thus, part 1209 of this title is segmented into subparts as 
follows:
    Subpart A (Scope and Authority) sets out the purpose and authority 
of the rule, the rules of construction, and the definitions that have 
general applicability to part 1209, and provides that the rules of 
practice and procedure governing agency hearings on the record shall 
apply to:
    (1) Enforcement proceedings under sections 1371 through 1379D of 
the Safety and Soundness Act (12 U.S.C. 4631 through 4641);
    (2) Removal, prohibition, and civil money penalty proceedings for 
violations of post-employment restrictions imposed by applicable law; 
and
    (3) Civil money penalty proceedings under section 102 of the Flood 
Disaster Protection Act of 1973, as amended (42 U.S.C. 4012a).
    Subpart B (Enforcement Proceedings under sections 1371 through 
1379D) summarizes the controlling law for enforcement proceedings set 
out in sections 1371 through 1379D of the Safety and Soundness Act (12 
U.S.C. 4631 through 4641).
    Subpart C (Rules of Practice and Procedure) the principal 
procedural subpart sets out the requisite procedures for formal agency 
hearings held on the record in accordance with this part.
    Subpart D (Parties and Representational Practice before the Federal 
Housing Finance Agency; Standards of Conduct) sets out the 
responsibilities that govern every party or party's representative 
appearance in hearings on the record under these rules, or in any 
appearance before the Director or any agency representative.
    Subpart E (Civil Money Penalty Inflation Adjustments) provides a 
stand alone framework for making inflation adjustments to the civil 
money penalty amounts periodically required (not less than every four 
years) under the Federal Civil Penalties Inflation Adjustment Act of 
1990, Public Law. 101-410, 104 Stat. 890, as amended by the Debt 
Collection Improvement Act of 1996, Public Law 104-134, title III, sec. 
31001(s)(1), Apr. 26, 1996, 110 Stat. 1321-373; Public Law 105-362, 
title XIII, sec. 1301(a), Nov. 10, 1998, 112 Stat. 3293 (28 U.S.C. 2461 
note) (Inflation Adjustment Act).
    Subpart F (Suspension or Removal of Entity-Affiliated Party Charged 
with Felony) specifies the procedures for a hearing following 
suspension or removal of an entity-affiliated party charged with a 
felony under section 1377(h) of the Safety and Soundness Act (12 U.S.C. 
4636a(h)) that are not governed by subpart C (Rules of Practice and 
Procedure).
    The section-by-section analysis and discussion of subparts A-F 
address each section in more detail below.

IV. Section-by-Section Analysis and Discussion

Subpart A--Scope and Authority

Section 1209.1 Scope
    This section sets out the authority for agency enforcement 
proceedings under sections 1371 through 1379D of the Safety and 
Soundness Act governing civil enforcement proceedings, including: 
removal, prohibition, and civil money penalty proceedings for 
violations of post-employment restrictions imposed by applicable law, 
and proceedings under section 102 of the Flood Disaster Protection Act 
of 1973, as amended (42 U.S.C. 4012a) to assess civil money penalties.
Section 1209.2 Rules of Construction
    This section prescribes general rules of construction and provides 
that unless stated otherwise a party's representative of record may 
take any action required of a party.
Section 1209.3 Definitions
    This section sets out definitions of terms applicable to this Part. 
Many of the definitions are drawn from the existing OFHEO and Finance 
Board rules. In addition, definitions of terms are added as required to 
address the HERA amendments to the Safety and Soundness Act and Bank 
Act, such as the inclusion of the Office of Finance and its executive 
officers, directors, or management where applicable under the HERA 
amendments, or where experience has shown that the process would 
benefit from greater clarity. In particular, the rule is to contain a 
definition of ``notice of charges'' to clarify that the term refers to 
the charging document served on a respondent in an enforcement

[[Page 49319]]

proceeding, and is not to be confused with an effective notice as that 
term is used in section 1375(a) of the Safety and Soundness Act (12 
U.S.C. 4635(a)). Similarly, any notice of removal or suspension or 
intent to impose civil money penalties, is akin to a notice of charges 
in that respect. These charging documents are to be distinguished from 
effective notices and orders that are of immediate and enforceable 
effect under the Safety and Soundness Act.

Subpart B--Scope and Authority-Enforcement Proceedings Under Sections 
1371-1379D

Section 1209.4 Scope and Authority
    This section states the authority for enforcement proceedings under 
sections 1371 through 1379D of the Safety and Soundness Act (12 U.S.C. 
4631 through 4641). Specifically, section 1373 of the Safety and 
Soundness Act (12 U.S.C. 4633) provides that the following actions must 
be held on the record: (1) Cease and desist proceedings under section 
1371 of the Safety and Soundness Act (12 U.S.C. 4631), (2) civil money 
penalty assessment proceedings under section 1376 of the Safety and 
Soundness Act (12 U.S.C. 4636), and (3) proceedings under the removal 
and prohibition authority of section 1377 of the Safety and Soundness 
Act (12 U.S.C. 4636a) (except proceedings under section 1377(h) of the 
Safety and Soundness Act for the suspension or removal of an entity-
affiliated party charged with a felony. (12 U.S.C. 4636a(h)).
    Additionally, this section states that the cease and desist and 
civil money penalty provisions of sections 1371 and 1376 of the Safety 
and Soundness Act (12 U.S.C. 4631 and 4636) do not apply to cease and 
desist or civil money penalty proceedings relative to the enforcement 
of housing goals under sections 1331 through 1348 of the Safety and 
Soundness Act. In particular, section 1336(c) of the Safety and 
Soundness Act (12 U.S.C. 4566(c)) provides that actions to enforce 
housing goals must proceed under sections 1341 and 1345 of the Safety 
and Soundness Act. See 12 U.S.C. 4581, 4585, and 4631(a)(2).\22\
    Prior to HERA, actions to enforce Enterprise housing goals were 
reserved to the Secretary of Housing and Urban Development (HUD). That 
division of enforcement authority was eliminated because HERA 
transferred to the Director of FHFA the responsibility for enforcing 
Enterprise housing goals. Thus, the requirement that housing goals 
enforcement actions are to proceed under sections 1341 through 1348 of 
the Safety and Soundness Act (12 U.S.C. 4581 through 4588) 
controls.\23\ The grounds for initiating such cease and desist 
proceedings relative to housing goals are set forth in section 1341 of 
the Safety and Soundness Act (12 U.S.C. 4581), and section 1345 of the 
Safety and Soundness Act provides for civil money penalties for such 
violations that differ from the civil money penalty provisions in 
section 1376 of the Safety and Soundness Act (12 U.S.C. 4636). See 12 
U.S.C. 4585. Like the enforcement proceedings under sections 1371 
through 1376 of the Safety and Soundness Act (12 U.S.C. 4631 et seq.), 
housing goals enforcement actions proceed following the issuance and 
service of a notice of charges and are conducted as a hearing on the 
record. See 12 U.S.C. 4582(a)(1). Thus, the formal hearing procedures 
set out in subpart C of part 1209 as proposed are well-suited to govern 
housing goals enforcement proceedings.
---------------------------------------------------------------------------

    \22\ The corollary provision in section 1371(a)(2) of the Safety 
and Soundness Act (12 U.S.C. 4631(a)(2)) states in pertinent part 
that the Director may not proceed under that section to ``enforce 
compliance with any housing goal established under [sections 1331 
through 1348 of the Safety and Soundness Act], with section 1336 or 
1337 of this title, with subsection (m) or (n) of section 309 [of 
Fannie Mae's authorizing statute] (12 U.S.C. 1723a(m), (n)), with 
subsection (e) or (f) of section 307 [of Freddie Mac's authorizing 
statute] (12 U.S.C. 1456(e), (f)), or with paragraph (5) of section 
10(j) of the Federal Home Loan Bank Act (12 U.S.C. 1430(j)).''
    \23\ Section 1205 of HERA added a new section 10C of the Bank 
Act to provide that the housing goals for the Banks should be 
consistent with the housing goals for the Enterprises and applied 
the enforcement provisions of section 1336 of the Safety and 
Soundness Act to the Banks in the same manner and to the same extent 
as that section applies to the Enterprises. That effectively applies 
the same enforcement authority under sections 1341 and 1345 of the 
Safety and Soundness Act to the Banks. See generally 12 U.S.C. 1421.
---------------------------------------------------------------------------

Section 1209.5 Cease and Desist Proceedings
    Generally, the statutory authority and requirements for cease and 
desist proceedings are set out in section 1371 of the Safety and 
Soundness Act (12 U.S.C. 4631), as amended by section 1151 of HERA. 
Assuming that the requisite conditions are met, a cease and desist 
proceeding is initiated by service of a notice of charges, and a 
hearing on the record is held to determine whether the grounds are 
satisfied. The hearing is administered by an independent presiding 
officer who makes recommended findings of fact and conclusions of law 
and transmits the entire administrative record to the Director who 
makes a final determination based on the record and issues an order.
    Judicial review of an order is available pursuant to section 1374 
of the Safety and Soundness Act (12 U.S.C. 4634), which provides that 
judicial review of any order issued under sections 1371, 1313B, 1376, 
or 1377 of the Safety and Soundness Act (12 U.S.C. 4631, 4513b, 4636, 
or 4636a) may be obtained by filing a petition in the United States 
Court of Appeals for the District of Columbia Circuit within thirty 
(30) days of the date of the order. An appeal does not operate as a 
stay of an order issued by the Director, unless specifically ordered by 
the court.
    Under section 1375(a) of the Safety and Soundness Act, it is within 
the Director's discretion to seek enforcement of an effective and 
outstanding notice or order issued under subtitle C or subtitle B of 
the Safety and Soundness Act. Section 1375(b) of the Safety and 
Soundness Act prescribes that, except as otherwise expressly conferred, 
no court shall have jurisdiction to affect the issuance or enforcement 
of any notice or order under sections 1371, 1372, 1313B, 1376, or 1377 
of the Safety and Soundness Act (12 U.S.C. 4631, 4513b, 4636, and 
4636a).
    The grounds for instituting cease and desist proceedings are set 
forth in section 1371(a) and (b) of the Safety and Soundness Act (12 
U.S.C. 4631(a) and (b)). Specifically, an unsafe or unsound practice in 
conducting the business of a regulated entity or the Office of Finance, 
or violation of a law, rule, regulation, order, or any condition 
imposed in writing by the Director, may be grounds for a cease and 
desist order. Service of a notice of charges is governed by section 
1371(c)(1) of the Safety and Soundness Act (12 U.S.C. 4631(c)(1)). 
Issuance of an order is governed by section 1371(c)(2) of the Safety 
and Soundness Act (12 U.S.C. 4631(c)(2)). If the Director finds on the 
basis of the record made at a hearing that any practice or violation 
has been established (or the regulated entity or entity-affiliated 
party consents to an order), the Director may issue and serve on the 
regulated entity or entity-affiliated party an order requiring the 
party to cease and desist from such practice or violation.
    Under section 1371(d) of the Safety and Soundness Act (12 U.S.C. 
4631(d)), a cease and desist order or a temporary cease and desist 
order may also require a party to take affirmative action to correct or 
remedy any condition resulting from any practice or violation with 
respect to which the order is issued. See 12 U.S.C. 4631(a), (c)(2), 
and (d). Additionally, section 1371(e) of the Safety and Soundness Act 
(12 U.S.C.

[[Page 49320]]

4631(e)), states the authority of the Director to place limitations on 
the activities or functions of the regulated entity or entity-
affiliated party or any executive officer or director of the regulated 
entity or entity-affiliated party in connection with the cease and 
desist order or temporary cease and desist order. Finally, section 
1371(f) of the Safety and Soundness Act (12 U.S.C. 4631(f)), specifies 
the effective date of a cease and desist order and provides that such 
order shall remain effective and enforceable as provided in the order, 
except to the extent that the order is stayed, modified, terminated or 
set aside by the Director or otherwise as provided under the Safety and 
Soundness Act.
Section 1209.6 Temporary Cease and Desist Orders
    Section 1372(a) of the Safety and Soundness Act (12 U.S.C. 4632(a)) 
provides that if the Director determines that the actions specified in 
the notice of charges served upon a regulated entity or any entity-
affiliated party, or the continuation thereof, is likely to cause 
insolvency or significant dissipation of assets or earnings of that 
entity, or is likely to weaken the condition of that entity prior to 
the completion of the proceedings conducted pursuant to sections 1371 
and 1373 of the Safety and Soundness Act (12 U.S.C. 4631, 4633), the 
Director may issue a temporary order requiring that party to cease and 
desist from any such violation or practice and that such party take 
affirmative action to prevent or remedy such insolvency, dissipation, 
condition, or prejudice pending completion of the proceedings.\24\ In 
addition, the order may include any limitations on the activities or 
functions of a regulated entity or any entity-affiliated party in 
connection with the temporary cease and desist order permitted under 
section 1371(d) of the Safety and Soundness Act (12 U.S.C. 4631(d)).
---------------------------------------------------------------------------

    \24\ FHFA notes that ``prejudice,'' which is a carryover in the 
statute as amended by HERA, without more may appear to be misplaced. 
But consider that the term by itself does not provide a separate 
ground for issuing a temporary cease and desist order that requires 
affirmative action. Presumably, acts or omissions prejudicial to the 
financial interests of a regulated entity would fall under the 
``dissipation of assets'' proviso, and actions prejudicial to other 
interests of the regulated entity could be subsumed by 
``condition.'' For that reason, FHFA has determined that it is not a 
term to be deleted as an anachronism, and invites public comment on 
this issue.
---------------------------------------------------------------------------

    Section 1372(b) of the Safety and Soundness Act (12 U.S.C. 4632(b)) 
provides that the effective date of a temporary order issued under 
section 1372(a) of the Safety and Soundness Act (12 U.S.C. 4632(a)) is 
the date of service on the party. Any such order, unless set aside, 
limited, or suspended by a court under the judicial review provisions 
of section 1372(d) of the Safety and Soundness Act (12 U.S.C. 4632(d)), 
shall remain in effect and enforceable pending the completion of the 
proceedings, and shall remain effective until the Director dismisses 
the charges or the order is superseded by a cease and desist order 
under section 1371 of the Safety and Soundness Act (12 U.S.C. 4631). 
See 12 U.S.C. 4632(b). Additionally, section 1372(c)(1) of the Safety 
and Soundness Act (12 U.S.C. 4632(c)(1)) prescribes the measures 
available where the notice of charges specifies that the books and 
records of the regulated entity are so incomplete or inaccurate that 
the Director is unable to determine the true financial condition of the 
regulated entity or the details of a transaction that may have a 
material effect on the financial condition of the entity. In brief, the 
Director may issue a temporary order requiring the entity to cease the 
practices giving rise to the incomplete or inaccurate records or take 
affirmative action to correct the records. See 12 U.S.C. 4631(c)(1).
    Section 1372(c)(2) of the Safety and Soundness Act (12 U.S.C. 
4632(c)(2)) specifies that the effective period of a temporary order 
pertaining to the books and records of an entity is effective upon 
service, and (unless set aside under 12 U.S.C. 4632(d)) shall remain in 
effect and enforceable until the earlier of the completion of the 
proceedings initiated under section 1371 of the Safety and Soundness 
Act (12 U.S.C. 4631) or the Director determines upon examination or 
otherwise that the books and records are accurate and reflect the 
financial condition of the regulated entity. Judicial review of a 
temporary order proceeds under section 1372(d) of the Safety and 
Soundness Act (12 U.S.C. 4632(d)) when a party served with a temporary 
order acts within ten (10) days to seek an injunction to set aside the 
order pending completion of the cease and desist proceeding. The 
district court's jurisdiction is limited to the issuance of such an 
injunction, and does not extend to the merits of the underlying 
enforcement proceeding. See 12 U.S.C. 4632(d). Without exception, the 
district court has no authority under this provision to assert subject 
matter jurisdiction over the underlying enforcement action or to remove 
the enforcement case from the presiding officer's jurisdiction to 
Federal district court.
    Finally, section 1372(e) of the Safety and Soundness Act (12 U.S.C. 
4632(e)), specifies that in the event of a violation or threatened 
violation of a temporary order issued under section 1372 of the Safety 
and Soundness Act (12 U.S.C. 4632), the Director may bring an action in 
the United States District Court for the District of Columbia for an 
injunction to enforce the order. The validity of the order is not at 
issue here and the court's action is a mandate. If the court finds any 
violation, threatened violation, or failure to obey an order issued 
under this provision, the court shall issue the injunction.
Section 1209.7 Civil Money Penalties
    Section 1376 of the Safety and Soundness Act, as revised by section 
1155 of HERA, governs civil money penalty enforcement proceedings under 
the Safety and Soundness Act, except as to housing goals violations 
addressed under section 1345(a) of the Safety and Soundness Act. See 12 
U.S.C. 4636(a). The Director may impose a civil money penalty on any 
regulated entity or an entity-affiliated party in accordance with 
section 1376 of the Safety and Soundness Act (12 U.S.C. 4636(a)). HERA 
amendments to section 1376 of the Safety and Soundness Act strengthened 
the statutory authority, preserved the three-tiered structure for 
assessing civil money penalties (Tiers 1-3), and increased (and, in the 
case of the higher tiers, significantly increased) the maximum penalty 
amounts for each tier. Under the HERA amendments to the provisions 
governing Tier 1, a regulated entity or entity-affiliated party shall 
forfeit and pay a civil penalty of not more than $10,000 for each day 
during which a violation continues, if such regulated entity or party 
violates--(1) Any provision of the Safety and Soundness Act, the 
authorizing statutes, or any order, condition, rule or regulation under 
the Safety and Soundness Act or authorizing statutes; (2) any final or 
temporary order issued under the Safety and Soundness Act; (3) any 
condition imposed by the Director in connection with the grant of any 
application or other request by the regulated entity; or (4) any 
written agreement between the regulated entity and the Director. See 12 
U.S.C. 4636(b)(1)(A)-(D) (Tier 1 violations).
    As amended by HERA, section 1376(b)(2) of the Safety and Soundness 
Act (12 U.S.C. 4636(b)(2)) sets forth broader standards for Tier 2 
violations and penalties. Moreover, with the addition of the caveat 
``notwithstanding paragraph (1),'' the revised section allows that Tier 
2 violations can stand independently of Tier 1 violations, while at the 
same time building on that set of violations. See 12 U.S.C. 4636(b)(2). 
Under the provisions

[[Page 49321]]

governing Tier 2 penalties, the Director can assess a higher daily 
civil money penalty of not more than $50,000 for each day during which 
a violation, practice, or breach continues, if (A) the regulated entity 
or entity-affiliated party: (1) Commits any Tier 1 violation described 
in 12 U.S.C. 4636(b)(1); (2) recklessly engages in an unsafe or unsound 
practice in conducting the affairs of the regulated entity; or (3) 
breaches any fiduciary duty, and (B) the violation, practice, or 
breach: (1) Is part of a pattern of misconduct, (2) causes or is likely 
to cause more than a minimal loss to the regulated entity, or (3) 
results in pecuniary gain or benefit to such party. See id.
    Thus, section 1376(b) of the Safety and Soundness Act, among other 
things deleted the predicate ``violation or conduct;'' substituted 
``more than minimal loss'' for the previous requirement of ``material 
loss;'' added both ``breach of fiduciary duty'' and ``results in 
pecuniary gain'' as culpability standards; deleted the requirement of 
``recklessness;'' and eliminated the distinction in the prior statutory 
scheme that had allowed for lesser penalty amounts to be assessed 
against individuals than for regulated entities for the same Tier 2 
violations. See id. The revised statutory scheme underscores the 
Congressional purpose behind strengthening the Director's civil money 
penalty enforcement authority.
    Section 1376(b)(3) of the Safety and Soundness Act, governs Tier 3 
conduct and penalties. As with Tier 2, Tier 3 also can stand 
independent of the lower tiers. Specifically, Tier 3 provides that a 
regulated entity or entity-affiliated party shall forfeit and pay a 
civil penalty, in the amounts described below, for each day during 
which such violation, practice, or breach continues, if such party 
knowingly (1) commits any violation described in the Tier 1 provisions, 
(2) engages in any unsafe or unsound practice in conducting the affairs 
of the regulated entity, or (3) breaches any fiduciary duty, and 
knowingly or recklessly causes a substantial loss to the regulated 
entity or a substantial pecuniary gain or other benefit to such party 
by reason of such violation, practice, or breach. See 12 U.S.C. 
4636(b)(3). The Tier 3 penalty provisions set the daily maximum penalty 
at $2 million for a regulated entity. Whereas, the Director can assess 
against an entity-affiliated party a daily penalty not to exceed $2 
million.
    Section 1376(c)(2) of the Safety and Soundness Act sets out the 
factors to be considered by the Director in determining the penalties 
to be assessed under this section (12 U.S.C. 4636(c)(2)). Section 
1376(c)(3) of the Safety and Soundness Act provides that the imposition 
of any penalty under section 1376 of the Safety and Soundness Act (12 
U.S.C. 4636) is not reviewable, except as provided for in section 1374 
of the Safety and Soundness Act (12 U.S.C. 4634). See 12 U.S.C. 
4636(c)(3). Additionally, these revised amounts, which represent a 
large increase in the daily maximum penalty amounts (particularly by 
bringing penalties to be assessed against entity-affiliated parties in 
line with those assessed on a regulated entity), are adjusted 
periodically under the Inflation Adjustment Act, as provided in subpart 
E of this part.
Section 1209.8 Removal and Suspension Proceedings
    Section 1153 of HERA provides that the statutory authority and 
requirements for removal and suspension enforcement proceedings are set 
forth in section 1377 of the Safety and Soundness Act (12 U.S.C. 
4636a). The removal or suspension of an entity-affiliated party, or the 
officers, directors, or management of the Office of Finance, a joint 
office of the Banks--where the requisite conditions are met, is 
initiated by service of a notice, and a hearing on the record is held 
to determine whether the grounds are satisfied, as provided by section 
1373(a)(1) of the Safety and Soundness Act (12 U.S.C. 4633(a)(1)). As 
with a cease and desist proceeding, the hearing (with the exception of 
removal proceedings under section 1377(h) of the Safety and Soundness 
Act (12 U.S.C. 4636a (h)) is presided over by an independent presiding 
officer who sets a date for an evidentiary hearing, presides over the 
proceeding, and then submits her recommended findings of fact and 
conclusions of law with the entire administrative record to the 
Director who makes a final determination on the merits and issues an 
order.
    In particular, section 1377(a)(1) of the Safety and Soundness Act 
authorized the Director to serve upon a party described in paragraph 
(a)(2) of the section, or any officer, director, or management of the 
Office of Finance, written notice of the intention of the Director to 
suspend or remove such party from office, or prohibit any further 
participation by such party, in any manner, in the conduct of the 
affairs of a regulated entity. See 12 U.S.C. 4636a(a)(1). For purposes 
of this section, under section 1377(a)(2) of the Safety and Soundness 
Act, a party is an entity-affiliated party or any officer, director, or 
management of the Office of Finance, if the Director determines that a 
party, officer, or director directly or indirectly violated a law, 
regulation, final cease and desist order, or any written condition in 
connection with an application, notice, or other request of a regulated 
entity; engaged or participated in any unsafe or unsound practice in 
connection with any regulated entity or business institution; or 
breached a fiduciary duty, and by reason of such violation, practice, 
or breach, the regulated entity or business institution suffered or 
probably will suffer financial loss or other damage, or such party 
received financial gain or other benefit, and the violation, practice, 
or breach involves either personal dishonesty on the part of such party 
or demonstrates willful or continuing disregard by that party for the 
safety or soundness of the regulated entity or b