Risk-Based Capital Guidelines; Capital Adequacy Guidelines; Capital Maintenance; Capital-Residential Mortgage Loans Modified Pursuant to the Making Home Affordable Program, 31160-31167 [E9-15507]

Download as PDF 31160 Federal Register / Vol. 74, No. 124 / Tuesday, June 30, 2009 / Rules and Regulations requirements of paragraph (d)(2)(iii) of this section. (Approved by the Office of Management and Budget under control numbers 0579–0088 and 0579–0336) DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency 12 CFR Part 3 3. Section 301.32–5 is amended as follows: ■ a. In paragraph (a)(1)(iii), by removing the word ‘‘and’’ and adding the word ‘‘or’’ in its place. ■ b. By adding a new paragraph (a)(1)(iv) to read as set forth below. ■ c. By revising the OMB citation at the end of the section to read as set forth below. [Docket ID: OCC–2009–0007] § 301.32–5 Issuance and cancellation of certificates and limited permits. 12 CFR Part 325 ■ (Approved by the Office of Management and Budget under control numbers 0579–0088 and 0579–0336) PART 319—FOREIGN QUARANTINE NOTICES 4. The authority citation for part 319 continues to read as follows: ■ Authority: 7 U.S.C. 450, 7701–7772, and 7781–7786; 21 U.S.C. 136 and 136a; 7 CFR 2.22, 2.80, and 371.3. [Amended] 5. Section 319.56–30 is amended by removing paragraph (c)(2)(ii) and redesignating paragraphs (c)(2)(iii) through (c)(2)(vi) as paragraphs (c)(2)(ii) through (c)(2)(v), respectively. ■ Done in Washington, DC, this 24th day of June 2009. Kevin Shea, Acting Administrator, Animal and Plant Health Inspection Service. [FR Doc. E9–15416 Filed 6–29–09; 8:45 am] rmajette on PRODPC74 with RULES BILLING CODE 3410–34–P VerDate Nov<24>2008 14:04 Jun 29, 2009 Jkt 217001 FEDERAL RESERVE SYSTEM 12 CFR Parts 208 and 225 [Regulations H and Y; Docket No. R–1361] FEDERAL DEPOSIT INSURANCE CORPORATION RIN 3064–AD42 (a) * * * (1) * * * (iv) The regulated articles are Hass variety avocados that have been harvested, safeguarded, and packed in accordance with the conditions in § 301.32–4(d); and * * * * * § 319.56–30 RIN 1557–AD25 DEPARTMENT OF THE TREASURY Office of Thrift Supervision 12 CFR Part 567 [No. OTS–2009–0007] RIN 1550–AC34 Risk-Based Capital Guidelines; Capital Adequacy Guidelines; Capital Maintenance; Capital—Residential Mortgage Loans Modified Pursuant to the Making Home Affordable Program AGENCIES: Office of the Comptroller of the Currency, Department of the Treasury; Board of Governors of the Federal Reserve System; Federal Deposit Insurance Corporation; and Office of Thrift Supervision, Department of the Treasury. ACTION: Interim final rule with request for public comment. SUMMARY: To support and facilitate the timely implementation and acceptance of the Making Home Affordable Program (Program) announced by the U.S. Department of the Treasury (Treasury) and to promote the stability of banks, savings associations, bank holding companies (collectively, banking organizations) and the financial system, the Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Board), Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift Supervision (OTS) (collectively, the agencies) have adopted this interim final rule (interim final rule or rule). The rule provides that mortgage loans modified under the Program will retain the risk weight assigned to the loan prior to the modification, so long as the loan continues to meet other applicable prudential criteria. PO 00000 Frm 00008 Fmt 4700 Sfmt 4700 DATES: The interim final rule is effective June 30, 2009. Comments must be received by July 30, 2009. ADDRESSES: Comments should be directed to: OCC: Because paper mail in the Washington, DC area and at the agencies is subject to delay, commenters are encouraged to submit comments by the Federal eRulemaking Portal or e-mail, if possible. Please use the title ‘‘RiskBased Capital Guidelines—Residential Mortgage Loans Modified Pursuant to the Making Home Affordable Program’’ to facilitate the organization and distribution of the comments. You may submit comments by any of the following methods: • Federal eRulemaking Portal— ‘‘Regulations.gov’’: Go to https:// www.regulations.gov. Under the ‘‘More Search Options’’ tab click next to the ‘‘Advanced Docket Search’’ option where indicated, select ‘‘Comptroller of the Currency’’ from the agency dropdown menu, then click ‘‘Submit.’’ In the ‘‘Docket ID’’ column, select ‘‘OCC– 2009–0007’’ to submit or view public comments and to view supporting and related materials for this interim final rule. The ‘‘How to Use This Site’’ link on the Regulations.gov home page provides information on using Regulations.gov, including instructions for submitting or viewing public comments, viewing other supporting and related materials, and viewing the docket after the close of the comment period. • E-mail: regs.comments@occ.treas.gov. • Mail: Office of the Comptroller of the Currency, 250 E Street, SW., Mail Stop 2–3, Washington, DC 20219. • Fax: (202) 874–5274. • Hand Delivery/Courier: 250 E Street, SW., Mail Stop 2–3, Washington, DC 20219. Instructions: You must include ‘‘OCC’’ as the agency name and ‘‘Docket Number OCC–2009–0007’’ in your comment. In general, the OCC will enter all comments received into the docket and publish them on the Regulations.gov Web site without change, including any business or personal information that you provide such as name and address information, e-mail addresses, or phone numbers. Comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not enclose any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure. You may review comments and other related materials that pertain to this E:\FR\FM\30JNR1.SGM 30JNR1 rmajette on PRODPC74 with RULES Federal Register / Vol. 74, No. 124 / Tuesday, June 30, 2009 / Rules and Regulations interim final rule by any of the following methods: • Viewing Comments Electronically: Go to https://www.regulations.gov, under the ‘‘More Search Options’’ tab click next to the ‘‘Advanced Document Search’’ option where indicated, select ‘‘Comptroller of the Currency’’ from the agency drop-down menu, then click ‘‘Submit.’’ In the ‘‘Docket ID’’ column, select ‘‘OCC–2009–0007’’ to view public comments for this rulemaking action. • Viewing Comments Personally: You may personally inspect and photocopy comments at the OCC, 250 E Street, SW., Washington, DC. For security reasons, the OCC requires that visitors make an appointment to inspect comments. You may do so by calling (202) 874–4700. Upon arrival, visitors will be required to present valid government-issued photo identification and submit to security screening in order to inspect and photocopy comments. • Docket: You may also view or request available background documents and project summaries using the methods described above. Board: You may submit comments, identified by Docket No. R–1361, by any of the following methods: • Agency Web Site: https:// www.federalreserve.gov. Follow the instructions for submitting comments at https://www.federalreserve.gov/ generalinfo/foia/ProposedRegs.cfm. • Federal eRulemaking Portal: https:// www.regulations.gov. Follow the instructions for submitting comments. • E-mail: regs.comments@federalreserve.gov. Include docket number in the subject line of the message. • FAX: (202) 452–3819 or (202) 452– 3102. • Mail: Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, NW., Washington, DC 20551. All public comments are available from the Board’s Web site at https:// www.federalreserve.gov/generalinfo/ foia/ProposedRegs.cfm as submitted, unless modified for technical reasons. Accordingly, your comments will not be edited to remove any identifying or contact information. Public comments may also be viewed electronically or in paper form in Room MP–500 of the Board’s Martin Building (20th and C Street, NW.) between 9 a.m. and 5 p.m. on weekdays. FDIC: You may submit by any of the following methods: VerDate Nov<24>2008 14:04 Jun 29, 2009 Jkt 217001 • Federal eRulemaking Portal: https:// www.regulations.gov. Follow the instructions for submitting comments. • Agency Web site: https:// www.FDIC.gov/regulations/laws/ federal/propose.html. • Mail: Robert E. Feldman, Executive Secretary, Attention: Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 20429. • Hand Delivered/Courier: The guard station at the rear of the 550 17th Street Building (located on F Street), on business days between 7 a.m. and 5 p.m. • E-mail: comments@FDIC.gov. Instructions: Comments submitted must include ‘‘FDIC’’ and ‘‘RIN 3064–AD42.’’ Comments received will be posted without change to https://www.FDIC.gov/ regulations/laws/federal/propose.html, including any personal information provided. OTS: You may submit comments, identified by OTS–2009–0007, by any of the following methods: • Federal eRulemaking Portal: ‘‘Regulations.gov’’: Go to https:// www.regulations.gov. Under the ‘‘more Search Options’’ tab click next to the ‘‘Advanced Docket Search’’ option where indicated, select ‘‘Office of Thrift Supervision’’ from the agency drop down menu, then click ‘‘Submit.’’ In the ‘‘Docket ID’’ column, select ‘‘OTS– 2009–0007’’ to submit or view public comments and to view supporting and related materials for this proposed rulemaking. The ‘‘How to Use This Site’’ link on the Regulations.gov home page provides information on using Regulations.gov, including instructions for submitting or viewing public comments, viewing other supporting and related materials, and viewing the docket after the close of the comment period. • Mail: Regulation Comments, Chief Counsel’s Office, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, Attention: OTS– 2009–0007. • Facsimile: (202) 906–6518. • Hand Delivery/Courier: Guard’s Desk, East Lobby Entrance, 1700 G Street, NW., from 9 a.m. to 4 p.m. on business days, Attention: Regulation Comments, Chief Counsel’s Office, Attention: OTS–2009–0007. • Instructions: All submissions received must include the agency name and docket number for this rulemaking. All comments received will be posted without change, including any personal information provided. Comments, including attachments and other supporting materials received are part of the public record and subject to public PO 00000 Frm 00009 Fmt 4700 Sfmt 4700 31161 disclosure. Do not enclose any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure. • Viewing Comments Electronically: Go to https://www.regulations.gov, under the ‘‘More Search Options’’ tab click next to the ‘‘Advanced Document Search’’ option where indicated, select ‘‘Office of Thrift Supervision’’ from the agency drop-down menu, then click ‘‘Submit.’’ In the ‘‘Docket ID’’ column, select ‘‘OTS–2009–0007’’ to view public comments for this notice of proposed rulemaking action. • Viewing Comments On-Site: You may inspect comments at the Public Reading Room, 1700 G Street, NW., by appointment. To make an appointment for access, call (202) 906–5922, send an e-mail to public.info@ots.treas.gov, or send a facsimile transmission to (202) 906–6518. (Prior notice identifying the materials you will be requesting will assist us in serving you.) We schedule appointments on business days between 10 a.m. and 4 p.m. In most cases, appointments will be available the next business day following the date we receive a request. FOR FURTHER INFORMATION CONTACT: OCC: Margot Schwadron, Senior Risk Expert, Capital Policy Division, (202) 874–6022, or Carl Kaminski, Senior Attorney, or Ron Shimabukuro, Senior Counsel, Legislative and Regulatory Activities Division, (202) 874–5090, Office of the Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219. Board: Barbara J. Bouchard, Associate Director, (202) 452–3072, or William Tiernay, Senior Supervisory Financial Analyst, (202) 872–7579, Division of Banking Supervision and Regulation; or April Snyder, Counsel, (202) 452–3099, or Benjamin W. McDonough, Senior Attorney, (202) 452–2036, Legal Division. For the hearing impaired only, Telecommunication Device for the Deaf (TDD), (202) 263–4869. FDIC: Ryan Sheller, Senior Capital Markets Specialist, (202) 898–6614, Capital Markets Branch, Division of Supervision and Consumer Protection; or Mark Handzlik, Senior Attorney, (202) 898–3990, or Michael Phillips, Counsel, (202) 898–3581, Supervision Branch, Legal Division. OTS: Teresa A. Scott, Senior Policy Analyst, (202) 906–6478, Capital Risk, or Marvin Shaw, Senior Attorney, (202) 906–6639, Legislation and Regulation Division, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552. E:\FR\FM\30JNR1.SGM 30JNR1 31162 Federal Register / Vol. 74, No. 124 / Tuesday, June 30, 2009 / Rules and Regulations On March 4, 2009, Treasury announced guidelines under the Program to promote sustainable loan modifications for homeowners at risk of losing their homes due to foreclosure.1 The Program provides a detailed framework for servicers to modify mortgages on owneroccupied residential properties and offers financial incentives to lenders and servicers that participate in the Program.2 The Program also provides financial incentives for homeowners whose mortgages are modified pursuant to Program guidelines to remain current on their mortgages after modification.3 Taken together, these incentives should help responsible homeowners remain in their homes and avoid foreclosure, which in turn should help ease the current downward pressures on house prices and the costs that families, communities, and the economy incur from unnecessary foreclosures. Under the Program, Treasury will partner with lenders and loan services to offer at-risk homeowners loan modifications under which the homeowners may obtain more affordable monthly mortgage payments. The Program applies to a spectrum of outstanding loans, some of which meet all of the prudential criteria under the agencies’ general risk-based capital rules and receive a 50 percent risk weight and some of which otherwise receive a 100 percent risk weight under the agencies’ general risk-based capital rules.4 Servicers who elect to participate in the Program are required to modify all eligible loans 5 in accordance with the Program guidelines unless explicitly prohibited by the governing pooling and servicing agreement and/or other lender servicing agreements. The Program guidelines require the lender to first rmajette on PRODPC74 with RULES SUPPLEMENTARY INFORMATION: 1 Further details about the Program, including Program terms and borrower eligibility criteria, are available at https://www.makinghomeaffordable.gov. 2 For ease of reference, the term servicer refers both to servicers that service loans held by other entities and to lenders who service loans that they hold themselves. The term lender refers to the beneficial owner or owners of the mortgage. 3 The Program also provides incentives for refinancing certain mortgage loans owned or guaranteed by Fannie Mae or Freddie Mac. This interim rule does not cover such loans. 4 See 12 CFR part 3, Appendix A, sections 3(a)(3)(iii) and 3(a)(4) (OCC); 12 CFR parts 208 and 225, Appendix A, sections III.C.3. and III.C.4. (Board); 12 CFR part 325, Appendix A, section II.C (FDIC); and 12 CFR 567.1 and 567.6 (OTS). 5 For a mortgage to be eligible for the Program, the property securing the mortgage loan must be a oneto-four family owner occupied property that is the primary residence of the mortgagee, not vacant, and not condemned. The mortgage also must have an unpaid principal balance (prior to capitalization of arrearages) at or below the Federal National Mortgage Association conforming loan limit for the type of property. VerDate Nov<24>2008 14:04 Jun 29, 2009 Jkt 217001 reduce payments on eligible first-lien loans to an amount representing no greater than a 38 percent initial frontend debt-to-income ratio.6 Treasury then will match further reductions in monthly payments with the lender dollar-for-dollar to achieve a 31 percent front-end debt-to-income ratio.7 Borrowers whose back-end debt-toincome ratio exceeds 55 percent must agree to work with a foreclosure prevention counselor approved by the Department of Housing and Urban Development.8 In addition to the incentives for lenders, servicers are eligible for other incentive payments to encourage participation in the Program; borrowers can likewise receive incentive payments for remaining current on their monthly payments. Servicers will receive an upfront servicer incentive payment of $1,000 for each eligible first-lien modification. Lenders and servicers are eligible for one-time incentive payments of $1,500 and $500, respectively, for early modifications of first-lien mortgages—that is, modifications made while a borrower is still current on mortgage payments but at risk of imminent default. To encourage ongoing performance of modified loans, servicers also will receive ‘‘Pay for Success’’ incentive payments of up to $1,000 per year for up to three years for first-lien mortgages as long as borrowers remain in the program. Borrowers can likewise receive ‘‘Pay for Performance Success’’ incentive payments that reduce the principal balance on their first-lien mortgage up to $1,000 per year for up to five years in exchange for remaining current on monthly payments on their modified first-lien mortgages. Lenders also may receive a home price depreciation reserve payment to offset any losses if a modified loan subsequently defaults. For second-lien mortgages, lenders are eligible to receive incentive payments based on the difference between the interest rate on the modified first-lien mortgage and the reduced interest rate (either 1 percent or 2 percent) on the 6 A front-end debt-to-income ratio measures how much of the borrower’s gross (pretax) monthly income is represented by the borrower’s required payment on the first-lien mortgage, including real estate taxes and insurance. 7 To qualify for the Treasury match, servicers must follow an established sequence of actions (capitalize arrearages, reduce interest rate, extend term or amortization period, and then defer principal) to reduce the front-end ratio on the loan from 38 percent to 31 percent, but may reduce principal on the loan at any stage during the modification sequence to meet affordability targets. 8 A back-end debt-to-income ratio measures how much of a borrower’s gross (pretax) monthly income would go toward monthly mortgage and nonmortgage debt service obligations. PO 00000 Frm 00010 Fmt 4700 Sfmt 4700 second-lien mortgage following modification.9 Services may receive a one-time $500 incentive payment for successful second-lien modifications, as well as additional incentive payments of up to $250 per year for up to three years for second-lien mortgages as long as both the modified first-lien and secondlien mortgages remain current. A borrower also may receive incentive payments of up to $250 dollars per year for a modified second-lien mortgage loan for up to five years for remaining current on the loan, which amounts will be paid to reduce the unpaid principal of the first-lien mortgage. However, second-lien modification incentives only will be paid with respect to a given property if the first-lien mortgage on the property also is modified under the Program.10 Treatment Under Risk-Based Capital Rules Under the agencies’ general risk-based capital rules, loans that are fully secured by first liens on one-to-four family residential properties, either owneroccupied or rented, and that meet certain prudential criteria (qualifying mortgage loans) are risk-weighted at 50 percent. If a banking organization holds both a first-lien and a junior-lien mortgage on the same property, and no other party holds an intervening lien, the loans are treated as a single loan secured by a first-lien mortgage and risk-weighted at 50 percent if the two loans, when aggregated, meet the conditions to be a qualifying mortgage loan.11 Other junior-lien mortgage loans are risk-weighted at 100 percent.12 In general, to qualify for a 50 percent risk weight, a mortgage loan must have been made in accordance with prudent underwriting standards and may not be 90 days or more past due or carried in nonaccrual status. Mortgage loans that do not qualify for a 50 percent risk weight are assigned a 100 percent risk 9 Participating servicers will be required to follow certain steps in modifying amortizing second-lien mortgages, including reducing the interest rate to 1 percent. Lenders may receive an incentive payment from Treasury equal to half of the difference between (i) the interest rate on the first lien as modified and (ii) 1 percent, subject to a floor. 10 In some cases when appropriately tailored to the borrower, servicers also may choose to accept a lump-sum payment from Treasury to extinguish some or all of a second-lien mortgage under a preset formula. 11 See 12 CFR part 3, Appendix A, section 3(a)(3)(iii) (OCC); 12 CFR parts 208 and 225, Appendix A, section III.C.3. (Board); 12 CFR part 325, Appendix A, section II.C (FDIC); and 12 CFR 567.1 (OTS). 12 See 12 CFR part 3, Appendix A, section 3(a)(3)(iii) (OCC); 12 CFR parts 208 and 225, Appendix A, section III.C.4. (Board); 12 CFR part 325, Appendix A, section II.C. (FDIC); and 12 CFR 567.6(1)(iv) (OTS). E:\FR\FM\30JNR1.SGM 30JNR1 Federal Register / Vol. 74, No. 124 / Tuesday, June 30, 2009 / Rules and Regulations rmajette on PRODPC74 with RULES weight. Under the OCC’s general riskbased capital rules for national banks, ‘‘not restructured’’ is listed among the criteria that mortgage loans must meet in order to receive a 50 percent risk weight.13 Under the Board’s general risk-based capital rules for bank holding companies and state member banks, mortgage loans must be ‘‘performing in accordance with their original terms’’ in order to receive a 50 percent risk weight.14 Generally, mortgage loans that have been modified are considered to have been restructured (OCC), or are not considered to be performing in accordance with their original terms (Board). Therefore, under the OCC’s and Board’s current general risk-based capital rules, such loans must be risk weighted at 100 percent. Under the FDIC’s general risk-based capital rules, a state nonmember bank may assign a 50 percent risk weight to any modified mortgage loan, so long as the loan, as modified, is not 90 days or more past due or in nonaccrual status and meets other applicable criteria for a 50 percent risk weight.15 Under the OTS’s general risk-based capital rules, a savings bank may assign a 50 percent risk weight to any modified residential mortgage loan, so long as the loan, as modified, is not 90 days or more past due and meets other applicable criteria for a 50 percent risk weight.16 Thus, the revisions provided under this interim final rule relative to the FDIC’s and OTS’s risk-based capital rules are clarifying in nature. After carefully considering the specific features of the Program, the agencies have adopted this interim final rule to provide that mortgage loans modified under the Program will retain the risk weight appropriate to the mortgage loan prior to the modification, as long as other applicable prudential criteria remain satisfied. Accordingly, under the interim final rule, a qualifying mortgage loan appropriately risk weighted at 50 percent before modification under the Program would continue to be risk weighted at 50 percent after modification, and a mortgage loan risk weighted at 100 percent prior to modification under the Program would continue to be risk weighted at 100 percent after modification. Consistent with the agencies’ current treatment, if a mortgage loan were to become 90 days or more past due or carried in non13 12 CFR part 3, Appendix A, section 3(a)(3)(iii) (OCC). 14 12 CFR parts 208 and 225, Appendix A, section III.C.3. (Board). 15 12 CFR Part 325, Appendix A, section II.C. (FDIC) 16 12 CFR 567.1 (OTS). VerDate Nov<24>2008 14:04 Jun 29, 2009 Jkt 217001 accrual status or otherwise restructured after being modified under the Program, the loan would be assigned a risk weight of 100 percent. Also consistent with current practice, the agencies intend to continue to allow past due and nonaccrual loans that receive a 100 percent risk weight to return to a 50 percent risk weight under certain circumstances, including after demonstration of a sustained period of repayment performance. If a banking organization holds both a qualifying first-lien mortgage loan and a second-lien mortgage loan on the same property, with no intervening lien, and both loans are modified under the Program, the banking organization may continue to apply the risk weights appropriate to the loans prior to the modification, as long as other prudential criteria remain satisfied. Additionally, in certain circumstances under the general risk-based capital rules (as with, for example, a direct credit substitute or recourse obligation), a banking organization is permitted to look through an exposure to the risk weight of a residential mortgage loan underlying that exposure. In these cases, the banking organization would follow the capital treatment provided in this interim final rule in the event that the underlying residential mortgage loan has been modified pursuant to the Program. The agencies believe that treating mortgage loans modified under the Program in the manner described above is appropriate in light of the special and unique incentive features of the Program and the fact that the Program is offered by the U.S. government in order to achieve the public policy objective of promoting sustainable loan modifications for homeowners at risk of foreclosure in a way that balances the interests of borrowers, servicers, and lenders. As previously described, the Program requires that a borrower’s frontend debt-to-income ratio on a first-lien mortgage modified under the Program be reduced to no greater than 31 percent—which should improve the borrower’s ability to repay the modified loan—and, importantly, provides for Treasury to match reductions in monthly payments dollar-for-dollar to reduce the borrower’s front-end debt-toincome ratio from 38 percent to 31 percent. In addition, as described above, the Program provides material financial incentives for servicers and lenders to take actions to reduce the likelihood of defaults, as well as to servicers and borrowers designed to help borrowers remain current on modified loans. The structure and amount of these cash payments meaningfully align the PO 00000 Frm 00011 Fmt 4700 Sfmt 4700 31163 financial incentives of servicers, lenders, and borrowers to encourage and increase the likelihood of participating borrowers remaining current on their mortgages. Each of these incentives is important to the agencies’ determination with respect to the appropriate regulatory capital treatment of mortgage loans modified under the Program. For the reasons discussed above, the agencies have adopted this interim final rule. The agencies seek comment on all aspects of this interim final rule. Regulatory Analysis Administrative Procedure Act Pursuant to sections 553(b) and (d) of the Administrative Procedure Act,17 the agencies find that there is good cause for issuing this interim final rule and making the rule effective immediately upon publication, and that it is impracticable, unnecessary, or contrary to the public interest to issue a notice of proposed rulemaking and provide an opportunity to comment before the effective date. The agencies have adopted the rule in light of, and to help address, the continuing stressed conditions in the housing and financial markets and the continuing unusual and urgent needs of homeowners. The rule will allow banking organizations to continue to risk weight loans modified under the Program at their premodification risk weights, thereby promoting stability in the banking and financial markets and promoting sustainable modifications of mortgages on owner-occupied residential properties. The agencies believe it is important to address immediately the risk-based capital treatment of mortgage loans modified under the Program in order to facilitate timely implementation and acceptance of the Program. The agencies note again that the Program has already been adopted and is in effect. The agencies are soliciting comment on all aspects of the rule and will make such changes that they consider appropriate or necessary after review of any comments received. Riegle Community Development and Regulatory Improvement Act Section 302 of Riegle Community Development and Regulatory Improvement Act generally requires that regulations that impose additional reporting, disclosure, or other requirements on insured depository institutions take effect on the first day of a calendar quarter unless the relevant agency finds good cause that the 17 See E:\FR\FM\30JNR1.SGM 5 U.S.C. 553(b) and (d). 30JNR1 31164 Federal Register / Vol. 74, No. 124 / Tuesday, June 30, 2009 / Rules and Regulations regulations should become effective sooner and publishes its finding with the rule.18 For the reasons discussed above, the agencies find good cause for making this interim final rule effective immediately. In addition, making the rule effective immediately will allow affected insured depository institutions and bank holding companies to take advantage of the rule in calculating their risk-based capital ratios at the end of the second quarter 2009. If banking organizations are required to hold residential mortgage loans modified pursuant to the Program at a 100 percent risk weight, the resulting risk-based capital requirements could be excessive in light of the risks associated with those assets. This interim final rule will ensure that banking organizations maintain appropriate risk-based capital levels with respect to modified residential mortgage loans in calculating their risk-based capital ratios for the second quarter 2009. requirements on banks or savings associations, including small banking organizations, nor does it duplicate, overlap or conflict with other Federal rules. The rule also will benefit small banking organizations that are subject to the agencies’ general risk-based capital rules by allowing mortgage loans modified under the Program to retain the risk weight assigned to the loan prior to the modification. Further, the agencies are requesting public comment on this rule and will modify the rule as appropriate after reviewing the comments. Regulatory Flexibility Act OCC/OTS Executive Order 12866 Executive Order 12866 requires Federal agencies to prepare a regulatory impact analysis for agency actions that are found to be ‘‘significant regulatory actions.’’ Significant regulatory actions include, among other things, rulemakings that ‘‘have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities.’’ The OCC and the OTS each determined that its portion of the interim final rule is not a significant regulatory action under Executive Order 12866. rmajette on PRODPC74 with RULES The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA), generally requires that, in connection with a notice of proposed rulemaking, an agency prepare and make available for public comment an initial regulatory flexibility analysis that describes the impact of a proposed rule on small entities.19 Under regulations issued by the Small Business Administration,20 a small entity includes a commercial bank, bank holding company, or savings association with assets of $175 million or less (a small banking organization). As of December 31, 2008, there were approximately 2,586 small bank holding companies, 394 small savings associations, 850 small national banks, 432 small State member banks, and 3,116 small State nonmember banks. As a general matter, the Board’s general risk-based capital rules apply only to a bank holding company that has consolidated assets of $500 million or more. Therefore, the changes to the Board’s capital adequacy guidelines for bank holding companies will not affect small bank holding companies. This rulemaking does not involve the issuance of a notice of proposed rulemaking and, therefore, the requirements of the RFA do not apply. However, the agencies note that the rule does not impose any additional obligations, restrictions, burdens, or reporting, recordkeeping or compliance 18 See 12 U.S.C. 4802(b)(1). Other exceptions to this calendar-quarter requirement also exist that are not relevant here. 19 See 5 U.S.C. 603(a). 20 See 13 CFR 121.201. VerDate Nov<24>2008 14:04 Jun 29, 2009 Jkt 217001 Paperwork Reduction Act In accordance with the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3506), the agencies have reviewed the interim final rule to assess any information collections. There are no collections of information as defined by the Paperwork Reduction Act in the final rule. OCC/OTS Unfunded Mandates Reform Act of 1995 Determination The Unfunded Mandates Reform Act of 1995 21 (UMRA) requires that an agency prepare a budgetary impact statement before promulgating a rule that includes a Federal mandate that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector of $100 million or more (adjusted annually for inflation) in any one year. If a budgetary impact statement is required, section 205 of the UMRA also requires an agency to identify and consider a reasonable number of regulatory alternatives before promulgating a rule. The OCC and the OTS each have determined that its interim final rule will not result in expenditures by State, local, and tribal governments, in the 21 See PO 00000 Public Law 104–4. Frm 00012 Fmt 4700 Sfmt 4700 aggregate, or by the private sector, of $100 million or more in any one year. Accordingly, neither the OCC nor the OTS has prepared a budgetary impact statement or specifically addressed the regulatory alternatives considered. Solicitation of Comments on Use of Plain Language Section 722 of the GLBA required the agencies to use plain language in all proposed and final rules published after January 1, 2000. The agencies invite comment on how to make this proposed rule easier to understand. For example: • Have the agencies organized the material to suit your needs? If not, how could they present the rule more clearly? • Are the requirements in the rule clearly stated? If not, how could the rule be more clearly stated? • Do the regulations contain technical language or jargon that is not clear? If so, which language requires clarification? • Would a different format (grouping and order of sections, use of headings, paragraphing) make the regulation easier to understand? If so, what changes would achieve that? • Is this section format adequate? If not, which of the sections should be changed and how? • What other changes can the agencies incorporate to make the regulation easier to understand? List of Subjects 12 CFR Part 3 Administrative practice and procedure, Banks, Banking, Capital, National banks, Reporting and recordkeeping requirements, Risk. 12 CFR Part 208 Confidential business information, Crime, Currency, Federal Reserve System, Mortgages, Reporting and recordkeeping requirements, Risk. 12 CFR Part 225 Administrative practice and Procedure, Banks, Banking, Federal Reserve System, Holding companies, Reporting and recordkeeping requirements, Securities. 12 CFR Part 325 Administrative practice and procedure, Banks, Banking, Capital adequacy, Reporting and recordkeeping requirements, Savings associations, State nonmember banks. 12 CFR Part 567 Capital, Reporting and recordkeeping requirements, Risk, Savings associations. E:\FR\FM\30JNR1.SGM 30JNR1 Federal Register / Vol. 74, No. 124 / Tuesday, June 30, 2009 / Rules and Regulations 1831r–1, 1831w, 1831x, 1835a, 1882, 2901– 2907, 3105, 3310, 3331–3351, and 3905– 3909; 15 U.S.C. 78b, 78I(b), 78l(i), 780– 4(c)(5), 78q, 78q–1, and 78w, 1681s, 1681w, 6801, and 6805; 31 U.S.C. 5318; 42 U.S.C. 4012a, 4104a, 4104b, 4106 and 4128. Department of the Treasury Office of the Comptroller of the Currency 12 CFR Chapter I Authority and Issuance For the reasons stated in the common preamble, the Office of the Comptroller of the Currency amends Part 3 of chapter I of Title 12, Code of Federal Regulations as follows: ■ PART 3—MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES 1. The authority citation for part 3 continues to read as follows: ■ Authority: 12 U.S.C. 93a, 161, 1818, 1828(n), 1828 note, 1831n note, 1835, 3907, and 3909. 2. In appendix A to part 3, in section 3, revise paragraph (a)(3)(iii) to read as follows: ■ Appendix A to Part 3—Risk-Based Capital Guidelines Section 3. Risk Categories/Weights for OnBalance Sheet Assets and Off-Balance Sheet Items * * * * * (a) * * * (3) * * * (iii) Loans secured by first mortgages on one-to-four family residential properties, either owner occupied or rented, provided that such loans are not otherwise 90 days or more past due, or on nonaccrual or restructured. It is presumed that such loans will meet the prudent underwriting standards. For the purposes of the risk-based capital guidelines, a loan modified solely pursuant to the U.S. Department of Treasury’s Making Home Affordable Program will not be considered to have been restructured. * * * * * Board of Governors of the Federal Reserve System 12 CFR Chapter II Authority and Issuance For the reasons stated in the common preamble, the Board of Governors of Federal Reserve System amends parts 208 and 225 of Chapter II of title 12 of the Code of Federal Regulations as follows: ■ PART 208—MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL RESERVE SYSTEM (REGULATION H) 3. The authority citation for part 208 continues to read as follows: rmajette on PRODPC74 with RULES ■ Authority : 12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321–338a, 371d, 461, 481–486, 601, 611, 1814, 1816, 1818, 1820(d)(9), 1833(j), 1828(o), 1831, 1831o, 1831p–1, VerDate Nov<24>2008 14:04 Jun 29, 2009 Jkt 217001 4. In appendix A to part 208, revise Section III. C.3., to read as follows: ■ Appendix A to Part 208–Capital Adequacy Guidelines for State Member Banks: Risk-Based Measure * * * * * III. * * * C. * * * 3. Category 3: 50 percent. This category includes loans fully secured by first liens 41 on 1- to 4-family residential properties, either owner-occupied or rented, or on multifamily residential properties,42 that meet certain criteria.43 Loans included in this category must have been made in accordance with prudent underwriting standards; 44 be performing in accordance with their original terms; and not be 90 days or more past due or carried in nonaccrual status. For purposes of this 50 percent risk weight category, a loan 41 If a bank holds the first and junior lien(s) on a residential property and no other party holds an intervening lien, the transaction is treated as a single loan secured by a first lien for the purposes of determining the loan-to-value ratio and assigning a risk weight. 42 Loans that qualify as loans secured by 1-to 4family residential properties or multifamily residential properties are listed in the instructions to the commercial bank Call Report. In addition, for risk-based capital purposes, loans secured by 1- to 4-family residential properties include loans to builders with substantial project equity for the construction of 1- to 4-family residences that have been presold under firm contracts to purchasers who have obtained firm commitments for permanent qualifying mortgage loans and have made substantial earnest money deposits. Such loans to builders will be considered prudently underwritten only if the bank has obtained sufficient documentation that the buyer of the home intends to purchase the home (i.e., has a legally binding written sales contract) and has the ability to obtain a mortgage loan sufficient to purchase the home (i.e., has a firm written commitment for permanent financing of the home upon completion). 43 Residential property loans that do not meet all the specified criteria or that are made for the purpose of speculative property development are placed in the 100 percent risk category. 44 Prudent underwriting standards include a conservative ratio of the current loan balance to the value of the property. In the case of a loan secured by multifamily residential property, the loan-tovalue ratio is not conservative if it exceeds 80 percent (75 percent if the loan is based on a floating interest rate). Prudent underwriting standards also dictate that a loan-to-value ratio used in the case of originating a loan to acquire a property would not be deemed conservative unless the value is based on the lower of the acquisition cost of the property or appraised (or if appropriate, evaluated) value. Otherwise, the loan-to-value ratio generally would be based upon the value of the property as determined by the most current appraisal, or if appropriate, the most current evaluation. All appraisals must be made in a manner consistent with the Federal banking agencies’ real estate appraisal regulations and guidelines and with the bank’s own appraisal guidelines. PO 00000 Frm 00013 Fmt 4700 Sfmt 4700 31165 modified solely pursuant to the U. S. Department of Treasury’s Making Home Affordable Program will be considered to be performing in accordance with its original terms. The following additional criteria must also be applied to a loan secured by a multifamily residential property that is included in this category: all principal and interest payments on the loan must have been made on time for at least the year preceding placement in this category, or in the case where the existing property owner is refinancing a loan on that property, all principal and interest payments on the loan being refinanced must have been made on time for at least the year preceding placement in this category; amortization of the principal and interest must occur over a period of not more than 30 years and the minimum original maturity for repayment of principal must not be less than 7 years; and the annual net operating income (before debt service) generated by the property during its most recent fiscal year must not be less than 120 percent of the loan’s current annual debt service (115 percent if the loan is based on a floating interest rate) or, in the case of a cooperative or other not-for-profit housing project, the property must generate sufficient cash flow to provide comparable protection to the institution. Also included in this category are privately-issued mortgagebacked securities provided that (1) The structure of the security meets the criteria described in section III(B)(3) above; (2) If the security is backed by a pool of conventional mortgages, on 1- to 4-family residential or multifamily residential properties each underlying mortgage meets the criteria described above in this section for eligibility for the 50 percent risk category at the time the pool is originated; (3) If the security is backed by privately issued mortgage-backed securities, each underlying security qualifies for the 50 percent risk category; and (4) If the security is backed by a pool of multifamily residential mortgages, principal and interest payments on the security are not 30 days or more past due. Privately-issued mortgage-backed securities that do not meet these criteria or that do not qualify for a lower risk weight are generally assigned to the 100 percent risk category. Also assigned to this category are revenue (non-general obligation) bonds or similar obligations, including loans and leases, that are obligations of states or other political subdivisions of the U.S. (for example, municipal revenue bonds) or other countries of the OECD-based group, but for which the government entity is committed to repay the debt with revenues from the specific projects financed, rather than from general tax funds. Credit equivalent amounts of derivative contracts involving standard risk obligors (that is, obligors whose loans or debt securities would be assigned to the 100 percent risk category) are included in the 50 percent category, unless they are backed by collateral or guarantees that allow them to be placed in a lower risk category. The instructions to the Call Report also discuss the treatment of loans, including multifamily housing loans, that are sold E:\FR\FM\30JNR1.SGM 30JNR1 31166 Federal Register / Vol. 74, No. 124 / Tuesday, June 30, 2009 / Rules and Regulations subject to a pro rata loss sharing arrangement. Such an arrangement should be treated by the selling bank as sold (and excluded from balance sheet assets) to the extent that the sales agreement provides for the purchaser of the loan to share in any loss incurred on the loan on a pro rata basis with the selling bank. In such a transaction, from the standpoint of the selling bank, the portion of the loan that is treated as sold is not subject to the riskbased capital standards. In connection with sales of multifamily housing loans in which the purchaser of a loan shares in any loss incurred on the loan with the selling institution on other than a pro rata basis, these other loss sharing arrangements are taken into account for purposes of determining the extent to which such loans are treated by the selling bank as sold (and excluded from balance sheet assets) under the risk-based capital framework in the same as prescribed for reporting purposes in the instructions to the Call Report. PART 225—BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL (REGULATION Y) 5. The authority for part 225 continues to read as follows: ■ Authority : 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331–3351, 3907, and 3909; 15 U.S.C. 1681s, 1681w, 6801 and 6805. 6. In appendix A to part 225, revise section III.C.3., to read as follows: ■ Appendix A to Part 225–Capital Adequacy Guidelines for Bank Holding Companies: Risk-Based Measure * * * * * III. * * * rmajette on PRODPC74 with RULES C. * * * 3. Category 3: 50 percent. This category includes loans fully secured by first liens 48 on 1- to 4-family residential properties, either owner-occupied or rented, or on multifamily residential properties,49 that meet certain 48 If a banking organization holds the first and junior lien(s) on a residential property and no other party holds an intervening lien, the transaction is treated as a single loan secured by a first lien for the purposes of determining the loan-to-value ratio and assigning a risk weight. 49 Loans that qualify as loans secured by 1- to 4family residential properties or multifamily residential properties are listed in the instructions to the FR Y–9C Report. In addition, for risk-based capital purposes, loans secured by 1- to 4-family residential properties include loans to builders with substantial project equity for the construction of 1to 4-family residences that have been presold under firm contracts to purchasers who have obtained firm commitments for permanent qualifying mortgage loans and have made substantial earnest money deposits. Such loans to builders will be considered prudently underwritten only if the bank holding company has obtained sufficient documentation that the buyer of the home intends to purchase the home (i.e., has a legally binding written sales contract) and has the ability to obtain a mortgage loan sufficient to purchase the home (i.e., has a firm written commitment for permanent financing of the home upon completion). VerDate Nov<24>2008 14:42 Jun 29, 2009 Jkt 217001 criteria.50 Loans included in this category must have been made in accordance with prudent underwriting standards;51 be performing in accordance with their original terms; and not be 90 days or more past due or carried in nonaccrual status. For purposes of this 50 percent risk weight category, a loan modified or restructured solely pursuant to the U.S. Department of Treasury’s Making Home Affordable Program will be considered to be performing in accordance with its original terms. The following additional criteria must also be applied to a loan secured by a multifamily residential property that is included in this category: all principal and interest payments on the loan must have been made on time for at least the year preceding placement in this category, or in the case where the existing property owner is refinancing a loan on that property, all principal and interest payments on the loan being refinanced must have been made on time for at least the year preceding placement in this category; amortization of the principal and interest must occur over a period of not more than 30 years and the minimum original maturity for repayment of principal must not be less than 7 years; and the annual net operating income (before debt service) generated by the property during its most recent fiscal year must not be less than 120 percent of the loan’s current annual debt service (115 percent if the loan is based on a floating interest rate) or, in the case of a cooperative or other not-for-profit housing project, the property must generate sufficient cash flow to provide comparable protection to the institution. Also included in this category are privately-issued mortgagebacked securities provided that: (1) The structure of the security meets the criteria described in section III(B)(3) above; (2) if the security is backed by a pool of conventional mortgages, on 1- to 4-family residential or multifamily residential properties, each underlying mortgage meets the criteria described above in this section for eligibility for the 50 percent risk category at the time the pool is originated; (3) If the security is backed by privatelyissued mortgage-backed securities, each underlying security qualifies for the 50 percent risk category; and (4) If the security is backed by a pool of multifamily residential mortgages, principal and interest payments on the security are not 30 days or more past due. Privately-issued mortgage-backed securities that do not meet these criteria or that do not qualify for a lower risk weight are generally assigned to the 100 percent risk category. Also assigned to this category are revenue (non-general obligation) bonds or similar obligations, including loans and leases, that are obligations of states or other political subdivisions of the U.S. (for example, municipal revenue bonds) or other countries of the OECD-based group, but for which the government entity is committed to repay the debt with revenues from the specific projects financed, rather than from general tax funds. Credit equivalent amounts of derivative contracts involving standard risk obligors (that is, obligors whose loans or debt securities would be assigned to the 100 percent risk category) are included in the 50 percent category, unless they are backed by collateral or guarantees that allow them to be placed in a lower risk category. 50 Residential property loans that do not meet all the specified criteria or that are made for the purpose of speculative property development are placed in the 100 percent risk category. 51 Prudent underwriting standards include a conservative ratio of the current loan balance to the value of the property. In the case of a loan secured by multifamily residential property, the loan-tovalue ratio is not conservative if it exceeds 80 percent (75 percent if the loan is based on a floating interest rate). Prudent underwriting standards also dictate that a loan-to-value ratio used in the case of originating a loan to acquire a property would not be deemed conservative unless the value is based on the lower of the acquisition cost of the property or appraised (or if appropriate, evaluated) value. Otherwise, the loan-to-value ratio generally would be based upon the value of the property as determined by the most current appraisal, or if appropriate, the most current evaluation. All appraisals must be made in a manner consistent with the Federal banking agencies’ real estate appraisal regulations and guidelines and with the banking organization’s own appraisal guidelines. ■ PO 00000 Frm 00014 Fmt 4700 Sfmt 4700 * * * * * * * * * * Federal Deposit Insurance Corporation 12 CFR Chapter III Authority for Issuance For the reasons stated in the common preamble, the Federal Deposit Insurance Corporation amends Part 325 of Chapter III of Title 12, Code of the Federal Regulations as follows: ■ PART 325—CAPITAL MAINTENANCE 7. The authority citation for part 325 continues to read as follows: ■ Authority: 12 U.S.C. 1814(a), 1815(b), 1816, 1818(a), 1818(b), 1815, 1818(a), 1818(b), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n), 1828(o), 1835, 3907, 3909, 4808; Pub. L. 102–233, 105 Stat. 1761, 1789, 1790, (12 U.S.C. 1831n, note); Pub. L. 102–242, 105 Stat. 2236, 2355, 2386 (12 U.S.C. 1828 note). 8. Amend Appendix A to part 325 by revising footnote 39 to read as follows: Appendix A to Part 325—Statement of Policy on Risk Based Capital * * * * * * * * II * * * C. * * * * * 39 This category would also include a firstlien residential mortgage loan on a one-tofour family property that was appropriately assigned a 50 percent risk weight pursuant to this section immediately prior to modification under the Making Home Affordable Program established by the U.S. Department of Treasury, so long as the loan, as modified, is not 90 days or more past due or in nonaccrual status and meets other applicable criteria for a 50 percent risk E:\FR\FM\30JNR1.SGM 30JNR1 Federal Register / Vol. 74, No. 124 / Tuesday, June 30, 2009 / Rules and Regulations weight. In addition, real estate loans that do not meet all of the specified criteria or that are made for the purpose of property development are placed in the 100 percent risk category. DEPARTMENT OF TRANSPORTATION Department of the Treasury Office of Thrift Supervision [Docket No. FAA–2009–0544; Directorate Identifier 2009–NE–17–AD; Amendment 39– 15952; AD 2009–12–51] 12 CFR Chapter V RIN 2120–AA64 For reasons set forth in the common preamble, the Office of Thrift Supervision amends part 567 of Chapter V of title 12 of the Code of Federal Regulations as follows: Airworthiness Directives; Turbomeca S.A. Arriel 1A1, 1A2, 1B, 1C, 1C1, 1C2, 1D, 1D1, 1E2, 1K1, 1S, and 1S1 Turboshaft Engines ■ PART 567—CAPITAL 9. The authority citation for part 567 continues to read as follows: ■ Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1828 (note). 10. Section 576.1 is amended by adding paragraph (4) to the definition Qualifying mortgage loan to read as follows: ■ § 576.1 Definitions. * * * * * Qualifying mortgage loan. * * * * * (4) A loan that meets the requirements of this section prior to modification under the U.S. Department of Treasury’s Making Home Affordable Program may be included as a qualifying mortgage loan, so long as the loan is not 90 days or more past due. * * * * * Dated: June 15, 2009. John C. Dugan, Comptroller of Currency. By order of the Board of Governors of the Federal Reserve System, June 24, 2009. Jennifer J. Johnson, Secretary of the Board. Dated at Washington DC, this 23rd day of June 2009. Federal Deposit Insurance Corporation. Valerie J. Best, Assistant Executive Secretary. Dated: June 17, 2009. By the Office of the Thrift Supervision. John E. Bowman, Acting Director. [FR Doc. E9–15507 Filed 6–29–09; 8:45 am] rmajette on PRODPC74 with RULES BILLING CODE 6210–02–P VerDate Nov<24>2008 14:04 Jun 29, 2009 Jkt 217001 Federal Aviation Administration 14 CFR Part 39 AGENCY: Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Final rule; request for comments. SUMMARY: This document publishes in the Federal Register an amendment adopting emergency airworthiness directive (AD) 2009–12–51 that was sent previously to all known U.S. owners and operators of Turbomeca S.A. Arriel 1A1, 1A2, 1B, 1C, 1C1, 1C2, 1D, 1D1, 1E2, 1K1, 1S, and 1S1 turboshaft engines. This AD requires initial and repetitive visual inspections of certain reduction gearboxes (module M05) for oil leakage, repair if leaking, and repair of all affected modules as terminating action to the repetitive inspections. This AD results from reports of oil leaks from certain reduction gearbox (module M05) front casings. The engine manufacturer reported that the lubrication duct plug was not properly bonded/glued in place. We are issuing this AD to prevent uncommanded in-flight engine shutdown, possible engine fire, and an emergency autorotation landing. DATES: This AD becomes effective July 15, 2009 to all persons except those persons to whom it was made immediately effective by emergency AD 2009–12–51, issued on June 4, 2009, which contained the requirements of this amendment. The Director of the Federal Register approved the incorporation by reference of certain publications listed in the regulations as of July 15, 2009. We must receive any comments on this AD by August 31, 2009. ADDRESSES: Use one of the following addresses to comment on this AD. • Federal eRulemaking Portal: Go to https://www.regulations.gov and follow the instructions for sending your comments electronically. • Mail: Docket Management Facility, U.S. Department of Transportation, 1200 New Jersey Avenue, SE., West Building Ground Floor, Room W12–140, Washington, DC 20590–0001. PO 00000 Frm 00015 Fmt 4700 Sfmt 4700 31167 • Hand Delivery: Deliver to Mail address above between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. • Fax: (202) 493–2251. Contact Turbomeca, 40220 Tarnos, France; telephone (33) 05 59 74 40 00, fax (33) 05 59 74 45 15 for the service information identified in this AD. FOR FURTHER INFORMATION CONTACT: James Lawrence, Aerospace Engineer, Engine Certification Office, FAA, Engine and Propeller Directorate, 12 New England Executive Park, Burlington, MA 01803; e-mail: james.lawrence@faa.gov; telephone (781) 238–7176; fax (781) 238–7199. SUPPLEMENTARY INFORMATION: On June 4, 2009, the FAA issued emergency AD 2009–12–51, that applies to Turbomeca S.A. Arriel 1A1, 1A2, 1B, 1C, 1C1, 1C2, 1D, 1D1, 1E2, 1K1, 1S, and 1S1 turboshaft engines. That AD requires initial and repetitive visual inspections of certain reduction gearboxes (module M05) for oil leakage, repair if leaking, and repair of all affected modules as terminating action to the repetitive inspections. This condition, if not corrected, could result in uncommanded in-flight engine shutdown, possible engine fire, and an emergency autorotation landing. Relevant Service Information We have reviewed and approved the technical contents of Turbomeca S.A. Mandatory Service Bulletin (MSB) No. A292 72 0825, Version A, dated May 27, 2009, that describes procedures for visual inspections of affected reduction gearboxes (module M05) for oil leakage, repair if leaking, and repair of all affected modules as terminating action to the repetitive inspections. FAA’s Determination and Requirements of This AD Since the unsafe condition described is likely to exist or develop on other engines of the same type design, we issued emergency AD 2009–12–51 to prevent uncommanded in-flight engine shutdown, possible engine fire, and an emergency autorotation landing. This AD requires initial and repetitive visual inspections of certain reduction gearboxes (module M05) for oil leakage, repair if leaking, and repair of all affected modules as terminating action to the repetitive inspections. You must use the service information described previously to perform the actions required by this AD. FAA’s Determination of the Effective Date Since an unsafe condition exists that requires the immediate adoption of this E:\FR\FM\30JNR1.SGM 30JNR1

Agencies

[Federal Register Volume 74, Number 124 (Tuesday, June 30, 2009)]
[Rules and Regulations]
[Pages 31160-31167]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-15507]

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 3

[Docket ID: OCC-2009-0007]
RIN 1557-AD25

FEDERAL RESERVE SYSTEM

12 CFR Parts 208 and 225

[Regulations H and Y; Docket No. R-1361]

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 325

RIN 3064-AD42

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 567

[No. OTS-2009-0007]
RIN 1550-AC34

Risk-Based Capital Guidelines; Capital Adequacy Guidelines;
Capital Maintenance; Capital--Residential Mortgage Loans Modified
Pursuant to the Making Home Affordable Program

AGENCIES: Office of the Comptroller of the Currency, Department of the
Treasury; Board of Governors of the Federal Reserve System; Federal
Deposit Insurance Corporation; and Office of Thrift Supervision,
Department of the Treasury.

ACTION: Interim final rule with request for public comment.

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SUMMARY: To support and facilitate the timely implementation and
acceptance of the Making Home Affordable Program (Program) announced by
the U.S. Department of the Treasury (Treasury) and to promote the
stability of banks, savings associations, bank holding companies
(collectively, banking organizations) and the financial system, the
Office of the Comptroller of the Currency (OCC), Board of Governors of
the Federal Reserve System (Board), Federal Deposit Insurance
Corporation (FDIC), and the Office of Thrift Supervision (OTS)
(collectively, the agencies) have adopted this interim final rule
(interim final rule or rule). The rule provides that mortgage loans
modified under the Program will retain the risk weight assigned to the
loan prior to the modification, so long as the loan continues to meet
other applicable prudential criteria.

DATES: The interim final rule is effective June 30, 2009. Comments must
be received by July 30, 2009.

ADDRESSES: Comments should be directed to:
OCC: Because paper mail in the Washington, DC area and at the
agencies is subject to delay, commenters are encouraged to submit
comments by the Federal eRulemaking Portal or e-mail, if possible.
Please use the title ``Risk-Based Capital Guidelines--Residential
Mortgage Loans Modified Pursuant to the Making Home Affordable
Program'' to facilitate the organization and distribution of the
comments. You may submit comments by any of the following methods:
Federal eRulemaking Portal--``Regulations.gov'': Go to
https://www.regulations.gov. Under the ``More Search Options'' tab click
next to the ``Advanced Docket Search'' option where indicated, select
``Comptroller of the Currency'' from the agency drop-down menu, then
click ``Submit.'' In the ``Docket ID'' column, select ``OCC-2009-0007''
to submit or view public comments and to view supporting and related
materials for this interim final rule. The ``How to Use This Site''
link on the Regulations.gov home page provides information on using
Regulations.gov, including instructions for submitting or viewing
public comments, viewing other supporting and related materials, and
viewing the docket after the close of the comment period.
E-mail: regs.comments@occ.treas.gov.
Mail: Office of the Comptroller of the Currency, 250 E
Street, SW., Mail Stop 2-3, Washington, DC 20219.
Fax: (202) 874-5274.
Hand Delivery/Courier: 250 E Street, SW., Mail Stop 2-3,
Washington, DC 20219.
Instructions: You must include ``OCC'' as the agency name and
``Docket Number OCC-2009-0007'' in your comment. In general, the OCC
will enter all comments received into the docket and publish them on
the Regulations.gov Web site without change, including any business or
personal information that you provide such as name and address
information, e-mail addresses, or phone numbers. Comments received,
including attachments and other supporting materials, are part of the
public record and subject to public disclosure. Do not enclose any
information in your comment or supporting materials that you consider
confidential or inappropriate for public disclosure.
You may review comments and other related materials that pertain to
this

[[Page 31161]]

interim final rule by any of the following methods:
Viewing Comments Electronically: Go to https://www.regulations.gov, under the ``More Search Options'' tab click next
to the ``Advanced Document Search'' option where indicated, select
``Comptroller of the Currency'' from the agency drop-down menu, then
click ``Submit.'' In the ``Docket ID'' column, select ``OCC-2009-0007''
to view public comments for this rulemaking action.
Viewing Comments Personally: You may personally inspect
and photocopy comments at the OCC, 250 E Street, SW., Washington, DC.
For security reasons, the OCC requires that visitors make an
appointment to inspect comments. You may do so by calling (202) 874-
4700. Upon arrival, visitors will be required to present valid
government-issued photo identification and submit to security screening
in order to inspect and photocopy comments.
Docket: You may also view or request available background
documents and project summaries using the methods described above.

Board: You may submit comments, identified by Docket No. R-1361, by
any of the following methods:

Agency Web Site: https://www.federalreserve.gov. Follow the
instructions for submitting comments at https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: regs.comments@federalreserve.gov. Include docket
number in the subject line of the message.
FAX: (202) 452-3819 or (202) 452-3102.
Mail: Jennifer J. Johnson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue,
NW., Washington, DC 20551.

All public comments are available from the Board's Web site at https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted,
unless modified for technical reasons. Accordingly, your comments will
not be edited to remove any identifying or contact information. Public
comments may also be viewed electronically or in paper form in Room MP-
500 of the Board's Martin Building (20th and C Street, NW.) between 9
a.m. and 5 p.m. on weekdays.

FDIC: You may submit by any of the following methods:

Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Agency Web site: https://www.FDIC.gov/regulations/laws/federal/propose.html.
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th
Street, NW., Washington, DC 20429.
Hand Delivered/Courier: The guard station at the rear of
the 550 17th Street Building (located on F Street), on business days
between 7 a.m. and 5 p.m.
E-mail: comments@FDIC.gov.

Instructions: Comments submitted must include ``FDIC'' and ``RIN 3064-
AD42.'' Comments received will be posted without change to https://www.FDIC.gov/regulations/laws/federal/propose.html, including any
personal information provided.

OTS: You may submit comments, identified by OTS-2009-0007, by any
of the following methods:
Federal eRulemaking Portal: ``Regulations.gov'': Go to
https://www.regulations.gov. Under the ``more Search Options'' tab click
next to the ``Advanced Docket Search'' option where indicated, select
``Office of Thrift Supervision'' from the agency drop down menu, then
click ``Submit.'' In the ``Docket ID'' column, select ``OTS-2009-0007''
to submit or view public comments and to view supporting and related
materials for this proposed rulemaking. The ``How to Use This Site''
link on the Regulations.gov home page provides information on using
Regulations.gov, including instructions for submitting or viewing
public comments, viewing other supporting and related materials, and
viewing the docket after the close of the comment period.
Mail: Regulation Comments, Chief Counsel's Office, Office
of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552,
Attention: OTS-2009-0007.
Facsimile: (202) 906-6518.
Hand Delivery/Courier: Guard's Desk, East Lobby Entrance,
1700 G Street, NW., from 9 a.m. to 4 p.m. on business days, Attention:
Regulation Comments, Chief Counsel's Office, Attention: OTS-2009-0007.
Instructions: All submissions received must include the
agency name and docket number for this rulemaking. All comments
received will be posted without change, including any personal
information provided. Comments, including attachments and other
supporting materials received are part of the public record and subject
to public disclosure. Do not enclose any information in your comment or
supporting materials that you consider confidential or inappropriate
for public disclosure.
Viewing Comments Electronically: Go to https://www.regulations.gov, under the ``More Search Options'' tab click next
to the ``Advanced Document Search'' option where indicated, select
``Office of Thrift Supervision'' from the agency drop-down menu, then
click ``Submit.'' In the ``Docket ID'' column, select ``OTS-2009-0007''
to view public comments for this notice of proposed rulemaking action.
Viewing Comments On-Site: You may inspect comments at the
Public Reading Room, 1700 G Street, NW., by appointment. To make an
appointment for access, call (202) 906-5922, send an e-mail to
public.info@ots.treas.gov">public.info@ots.treas.gov, or send a facsimile transmission to (202)
906-6518. (Prior notice identifying the materials you will be
requesting will assist us in serving you.) We schedule appointments on
business days between 10 a.m. and 4 p.m. In most cases, appointments
will be available the next business day following the date we receive a
request.

FOR FURTHER INFORMATION CONTACT:
OCC: Margot Schwadron, Senior Risk Expert, Capital Policy Division,
(202) 874-6022, or Carl Kaminski, Senior Attorney, or Ron Shimabukuro,
Senior Counsel, Legislative and Regulatory Activities Division, (202)
874-5090, Office of the Comptroller of the Currency, 250 E Street, SW.,
Washington, DC 20219.
Board: Barbara J. Bouchard, Associate Director, (202) 452-3072, or
William Tiernay, Senior Supervisory Financial Analyst, (202) 872-7579,
Division of Banking Supervision and Regulation; or April Snyder,
Counsel, (202) 452-3099, or Benjamin W. McDonough, Senior Attorney,
(202) 452-2036, Legal Division. For the hearing impaired only,
Telecommunication Device for the Deaf (TDD), (202) 263-4869.
FDIC: Ryan Sheller, Senior Capital Markets Specialist, (202) 898-
6614, Capital Markets Branch, Division of Supervision and Consumer
Protection; or Mark Handzlik, Senior Attorney, (202) 898-3990, or
Michael Phillips, Counsel, (202) 898-3581, Supervision Branch, Legal
Division.
OTS: Teresa A. Scott, Senior Policy Analyst, (202) 906-6478,
Capital Risk, or Marvin Shaw, Senior Attorney, (202) 906-6639,
Legislation and Regulation Division, Office of Thrift Supervision, 1700
G Street, NW., Washington, DC 20552.

[[Page 31162]]

SUPPLEMENTARY INFORMATION: On March 4, 2009, Treasury announced
guidelines under the Program to promote sustainable loan modifications
for homeowners at risk of losing their homes due to foreclosure.\1\ The
Program provides a detailed framework for servicers to modify mortgages
on owner-occupied residential properties and offers financial
incentives to lenders and servicers that participate in the Program.\2\
The Program also provides financial incentives for homeowners whose
mortgages are modified pursuant to Program guidelines to remain current
on their mortgages after modification.\3\ Taken together, these
incentives should help responsible homeowners remain in their homes and
avoid foreclosure, which in turn should help ease the current downward
pressures on house prices and the costs that families, communities, and
the economy incur from unnecessary foreclosures.
---------------------------------------------------------------------------

\1\ Further details about the Program, including Program terms
and borrower eligibility criteria, are available at https://www.makinghomeaffordable.gov.
\2\ For ease of reference, the term servicer refers both to
servicers that service loans held by other entities and to lenders
who service loans that they hold themselves. The term lender refers
to the beneficial owner or owners of the mortgage.
\3\ The Program also provides incentives for refinancing certain
mortgage loans owned or guaranteed by Fannie Mae or Freddie Mac.
This interim rule does not cover such loans.
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Under the Program, Treasury will partner with lenders and loan
services to offer at-risk homeowners loan modifications under which the
homeowners may obtain more affordable monthly mortgage payments. The
Program applies to a spectrum of outstanding loans, some of which meet
all of the prudential criteria under the agencies' general risk-based
capital rules and receive a 50 percent risk weight and some of which
otherwise receive a 100 percent risk weight under the agencies' general
risk-based capital rules.\4\ Servicers who elect to participate in the
Program are required to modify all eligible loans \5\ in accordance
with the Program guidelines unless explicitly prohibited by the
governing pooling and servicing agreement and/or other lender servicing
agreements. The Program guidelines require the lender to first reduce
payments on eligible first-lien loans to an amount representing no
greater than a 38 percent initial front-end debt-to-income ratio.\6\
Treasury then will match further reductions in monthly payments with
the lender dollar-for-dollar to achieve a 31 percent front-end debt-to-
income ratio.\7\ Borrowers whose back-end debt-to-income ratio exceeds
55 percent must agree to work with a foreclosure prevention counselor
approved by the Department of Housing and Urban Development.\8\
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\4\ See 12 CFR part 3, Appendix A, sections 3(a)(3)(iii) and
3(a)(4) (OCC); 12 CFR parts 208 and 225, Appendix A, sections
III.C.3. and III.C.4. (Board); 12 CFR part 325, Appendix A, section
II.C (FDIC); and 12 CFR 567.1 and 567.6 (OTS).
\5\ For a mortgage to be eligible for the Program, the property
securing the mortgage loan must be a one-to-four family owner
occupied property that is the primary residence of the mortgagee,
not vacant, and not condemned. The mortgage also must have an unpaid
principal balance (prior to capitalization of arrearages) at or
below the Federal National Mortgage Association conforming loan
limit for the type of property.
\6\ A front-end debt-to-income ratio measures how much of the
borrower's gross (pretax) monthly income is represented by the
borrower's required payment on the first-lien mortgage, including
real estate taxes and insurance.
\7\ To qualify for the Treasury match, servicers must follow an
established sequence of actions (capitalize arrearages, reduce
interest rate, extend term or amortization period, and then defer
principal) to reduce the front-end ratio on the loan from 38 percent
to 31 percent, but may reduce principal on the loan at any stage
during the modification sequence to meet affordability targets.
\8\ A back-end debt-to-income ratio measures how much of a
borrower's gross (pretax) monthly income would go toward monthly
mortgage and nonmortgage debt service obligations.
---------------------------------------------------------------------------

In addition to the incentives for lenders, servicers are eligible
for other incentive payments to encourage participation in the Program;
borrowers can likewise receive incentive payments for remaining current
on their monthly payments. Servicers will receive an up-front servicer
incentive payment of $1,000 for each eligible first-lien modification.
Lenders and servicers are eligible for one-time incentive payments of
$1,500 and $500, respectively, for early modifications of first-lien
mortgages--that is, modifications made while a borrower is still
current on mortgage payments but at risk of imminent default. To
encourage ongoing performance of modified loans, servicers also will
receive ``Pay for Success'' incentive payments of up to $1,000 per year
for up to three years for first-lien mortgages as long as borrowers
remain in the program. Borrowers can likewise receive ``Pay for
Performance Success'' incentive payments that reduce the principal
balance on their first-lien mortgage up to $1,000 per year for up to
five years in exchange for remaining current on monthly payments on
their modified first-lien mortgages. Lenders also may receive a home
price depreciation reserve payment to offset any losses if a modified
loan subsequently defaults.
For second-lien mortgages, lenders are eligible to receive
incentive payments based on the difference between the interest rate on
the modified first-lien mortgage and the reduced interest rate (either
1 percent or 2 percent) on the second-lien mortgage following
modification.\9\ Services may receive a one-time $500 incentive payment
for successful second-lien modifications, as well as additional
incentive payments of up to $250 per year for up to three years for
second-lien mortgages as long as both the modified first-lien and
second-lien mortgages remain current. A borrower also may receive
incentive payments of up to $250 dollars per year for a modified
second-lien mortgage loan for up to five years for remaining current on
the loan, which amounts will be paid to reduce the unpaid principal of
the first-lien mortgage. However, second-lien modification incentives
only will be paid with respect to a given property if the first-lien
mortgage on the property also is modified under the Program.\10\
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\9\ Participating servicers will be required to follow certain
steps in modifying amortizing second-lien mortgages, including
reducing the interest rate to 1 percent. Lenders may receive an
incentive payment from Treasury equal to half of the difference
between (i) the interest rate on the first lien as modified and (ii)
1 percent, subject to a floor.
\10\ In some cases when appropriately tailored to the borrower,
servicers also may choose to accept a lump-sum payment from Treasury
to extinguish some or all of a second-lien mortgage under a pre-set
formula.
---------------------------------------------------------------------------

Treatment Under Risk-Based Capital Rules

Under the agencies' general risk-based capital rules, loans that
are fully secured by first liens on one-to-four family residential
properties, either owner-occupied or rented, and that meet certain
prudential criteria (qualifying mortgage loans) are risk-weighted at 50
percent. If a banking organization holds both a first-lien and a
junior-lien mortgage on the same property, and no other party holds an
intervening lien, the loans are treated as a single loan secured by a
first-lien mortgage and risk-weighted at 50 percent if the two loans,
when aggregated, meet the conditions to be a qualifying mortgage
loan.\11\ Other junior-lien mortgage loans are risk-weighted at 100
percent.\12\
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\11\ See 12 CFR part 3, Appendix A, section 3(a)(3)(iii) (OCC);
12 CFR parts 208 and 225, Appendix A, section III.C.3. (Board); 12
CFR part 325, Appendix A, section II.C (FDIC); and 12 CFR 567.1
(OTS).
\12\ See 12 CFR part 3, Appendix A, section 3(a)(3)(iii) (OCC);
12 CFR parts 208 and 225, Appendix A, section III.C.4. (Board); 12
CFR part 325, Appendix A, section II.C. (FDIC); and 12 CFR
567.6(1)(iv) (OTS).
---------------------------------------------------------------------------

In general, to qualify for a 50 percent risk weight, a mortgage
loan must have been made in accordance with prudent underwriting
standards and may not be 90 days or more past due or carried in
nonaccrual status. Mortgage loans that do not qualify for a 50 percent
risk weight are assigned a 100 percent risk

[[Page 31163]]

weight. Under the OCC's general risk-based capital rules for national
banks, ``not restructured'' is listed among the criteria that mortgage
loans must meet in order to receive a 50 percent risk weight.\13\ Under
the Board's general risk-based capital rules for bank holding companies
and state member banks, mortgage loans must be ``performing in
accordance with their original terms'' in order to receive a 50 percent
risk weight.\14\ Generally, mortgage loans that have been modified are
considered to have been restructured (OCC), or are not considered to be
performing in accordance with their original terms (Board). Therefore,
under the OCC's and Board's current general risk-based capital rules,
such loans must be risk weighted at 100 percent.
---------------------------------------------------------------------------

\13\ 12 CFR part 3, Appendix A, section 3(a)(3)(iii) (OCC).
\14\ 12 CFR parts 208 and 225, Appendix A, section III.C.3.
(Board).
---------------------------------------------------------------------------

Under the FDIC's general risk-based capital rules, a state
nonmember bank may assign a 50 percent risk weight to any modified
mortgage loan, so long as the loan, as modified, is not 90 days or more
past due or in nonaccrual status and meets other applicable criteria
for a 50 percent risk weight.\15\ Under the OTS's general risk-based
capital rules, a savings bank may assign a 50 percent risk weight to
any modified residential mortgage loan, so long as the loan, as
modified, is not 90 days or more past due and meets other applicable
criteria for a 50 percent risk weight.\16\ Thus, the revisions provided
under this interim final rule relative to the FDIC's and OTS's risk-
based capital rules are clarifying in nature.
---------------------------------------------------------------------------

\15\ 12 CFR Part 325, Appendix A, section II.C. (FDIC)
\16\ 12 CFR 567.1 (OTS).
---------------------------------------------------------------------------

After carefully considering the specific features of the Program,
the agencies have adopted this interim final rule to provide that
mortgage loans modified under the Program will retain the risk weight
appropriate to the mortgage loan prior to the modification, as long as
other applicable prudential criteria remain satisfied. Accordingly,
under the interim final rule, a qualifying mortgage loan appropriately
risk weighted at 50 percent before modification under the Program would
continue to be risk weighted at 50 percent after modification, and a
mortgage loan risk weighted at 100 percent prior to modification under
the Program would continue to be risk weighted at 100 percent after
modification. Consistent with the agencies' current treatment, if a
mortgage loan were to become 90 days or more past due or carried in
non-accrual status or otherwise restructured after being modified under
the Program, the loan would be assigned a risk weight of 100 percent.
Also consistent with current practice, the agencies intend to continue
to allow past due and nonaccrual loans that receive a 100 percent risk
weight to return to a 50 percent risk weight under certain
circumstances, including after demonstration of a sustained period of
repayment performance.
If a banking organization holds both a qualifying first-lien
mortgage loan and a second-lien mortgage loan on the same property,
with no intervening lien, and both loans are modified under the
Program, the banking organization may continue to apply the risk
weights appropriate to the loans prior to the modification, as long as
other prudential criteria remain satisfied. Additionally, in certain
circumstances under the general risk-based capital rules (as with, for
example, a direct credit substitute or recourse obligation), a banking
organization is permitted to look through an exposure to the risk
weight of a residential mortgage loan underlying that exposure. In
these cases, the banking organization would follow the capital
treatment provided in this interim final rule in the event that the
underlying residential mortgage loan has been modified pursuant to the
Program.
The agencies believe that treating mortgage loans modified under
the Program in the manner described above is appropriate in light of
the special and unique incentive features of the Program and the fact
that the Program is offered by the U.S. government in order to achieve
the public policy objective of promoting sustainable loan modifications
for homeowners at risk of foreclosure in a way that balances the
interests of borrowers, servicers, and lenders. As previously
described, the Program requires that a borrower's front-end debt-to-
income ratio on a first-lien mortgage modified under the Program be
reduced to no greater than 31 percent--which should improve the
borrower's ability to repay the modified loan--and, importantly,
provides for Treasury to match reductions in monthly payments dollar-
for-dollar to reduce the borrower's front-end debt-to-income ratio from
38 percent to 31 percent. In addition, as described above, the Program
provides material financial incentives for servicers and lenders to
take actions to reduce the likelihood of defaults, as well as to
servicers and borrowers designed to help borrowers remain current on
modified loans. The structure and amount of these cash payments
meaningfully align the financial incentives of servicers, lenders, and
borrowers to encourage and increase the likelihood of participating
borrowers remaining current on their mortgages. Each of these
incentives is important to the agencies' determination with respect to
the appropriate regulatory capital treatment of mortgage loans modified
under the Program.
For the reasons discussed above, the agencies have adopted this
interim final rule.
The agencies seek comment on all aspects of this interim final
rule.

Regulatory Analysis

Administrative Procedure Act
Pursuant to sections 553(b) and (d) of the Administrative Procedure
Act,\17\ the agencies find that there is good cause for issuing this
interim final rule and making the rule effective immediately upon
publication, and that it is impracticable, unnecessary, or contrary to
the public interest to issue a notice of proposed rulemaking and
provide an opportunity to comment before the effective date. The
agencies have adopted the rule in light of, and to help address, the
continuing stressed conditions in the housing and financial markets and
the continuing unusual and urgent needs of homeowners. The rule will
allow banking organizations to continue to risk weight loans modified
under the Program at their pre-modification risk weights, thereby
promoting stability in the banking and financial markets and promoting
sustainable modifications of mortgages on owner-occupied residential
properties. The agencies believe it is important to address immediately
the risk-based capital treatment of mortgage loans modified under the
Program in order to facilitate timely implementation and acceptance of
the Program. The agencies note again that the Program has already been
adopted and is in effect. The agencies are soliciting comment on all
aspects of the rule and will make such changes that they consider
appropriate or necessary after review of any comments received.
---------------------------------------------------------------------------

\17\ See 5 U.S.C. 553(b) and (d).
---------------------------------------------------------------------------

Riegle Community Development and Regulatory Improvement Act
Section 302 of Riegle Community Development and Regulatory
Improvement Act generally requires that regulations that impose
additional reporting, disclosure, or other requirements on insured
depository institutions take effect on the first day of a calendar
quarter unless the relevant agency finds good cause that the

[[Page 31164]]

regulations should become effective sooner and publishes its finding
with the rule.\18\ For the reasons discussed above, the agencies find
good cause for making this interim final rule effective immediately. In
addition, making the rule effective immediately will allow affected
insured depository institutions and bank holding companies to take
advantage of the rule in calculating their risk-based capital ratios at
the end of the second quarter 2009. If banking organizations are
required to hold residential mortgage loans modified pursuant to the
Program at a 100 percent risk weight, the resulting risk-based capital
requirements could be excessive in light of the risks associated with
those assets. This interim final rule will ensure that banking
organizations maintain appropriate risk-based capital levels with
respect to modified residential mortgage loans in calculating their
risk-based capital ratios for the second quarter 2009.
---------------------------------------------------------------------------

\18\ See 12 U.S.C. 4802(b)(1). Other exceptions to this
calendar-quarter requirement also exist that are not relevant here.
---------------------------------------------------------------------------

Regulatory Flexibility Act
The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA),
generally requires that, in connection with a notice of proposed
rulemaking, an agency prepare and make available for public comment an
initial regulatory flexibility analysis that describes the impact of a
proposed rule on small entities.\19\ Under regulations issued by the
Small Business Administration,\20\ a small entity includes a commercial
bank, bank holding company, or savings association with assets of $175
million or less (a small banking organization). As of December 31,
2008, there were approximately 2,586 small bank holding companies, 394
small savings associations, 850 small national banks, 432 small State
member banks, and 3,116 small State nonmember banks. As a general
matter, the Board's general risk-based capital rules apply only to a
bank holding company that has consolidated assets of $500 million or
more. Therefore, the changes to the Board's capital adequacy guidelines
for bank holding companies will not affect small bank holding
companies.
---------------------------------------------------------------------------

\19\ See 5 U.S.C. 603(a).
\20\ See 13 CFR 121.201.
---------------------------------------------------------------------------

This rulemaking does not involve the issuance of a notice of
proposed rulemaking and, therefore, the requirements of the RFA do not
apply. However, the agencies note that the rule does not impose any
additional obligations, restrictions, burdens, or reporting,
recordkeeping or compliance requirements on banks or savings
associations, including small banking organizations, nor does it
duplicate, overlap or conflict with other Federal rules. The rule also
will benefit small banking organizations that are subject to the
agencies' general risk-based capital rules by allowing mortgage loans
modified under the Program to retain the risk weight assigned to the
loan prior to the modification. Further, the agencies are requesting
public comment on this rule and will modify the rule as appropriate
after reviewing the comments.
Paperwork Reduction Act
In accordance with the requirements of the Paperwork Reduction Act
of 1995 (44 U.S.C. 3506), the agencies have reviewed the interim final
rule to assess any information collections. There are no collections of
information as defined by the Paperwork Reduction Act in the final
rule.
OCC/OTS Executive Order 12866
Executive Order 12866 requires Federal agencies to prepare a
regulatory impact analysis for agency actions that are found to be
``significant regulatory actions.'' Significant regulatory actions
include, among other things, rulemakings that ``have an annual effect
on the economy of $100 million or more or adversely affect in a
material way the economy, a sector of the economy, productivity,
competition, jobs, the environment, public health or safety, or State,
local, or tribal governments or communities.'' The OCC and the OTS each
determined that its portion of the interim final rule is not a
significant regulatory action under Executive Order 12866.
OCC/OTS Unfunded Mandates Reform Act of 1995 Determination
The Unfunded Mandates Reform Act of 1995 \21\ (UMRA) requires that
an agency prepare a budgetary impact statement before promulgating a
rule that includes a Federal mandate that may result in the expenditure
by State, local, and tribal governments, in the aggregate, or by the
private sector of $100 million or more (adjusted annually for
inflation) in any one year. If a budgetary impact statement is
required, section 205 of the UMRA also requires an agency to identify
and consider a reasonable number of regulatory alternatives before
promulgating a rule. The OCC and the OTS each have determined that its
interim final rule will not result in expenditures by State, local, and
tribal governments, in the aggregate, or by the private sector, of $100
million or more in any one year. Accordingly, neither the OCC nor the
OTS has prepared a budgetary impact statement or specifically addressed
the regulatory alternatives considered.
---------------------------------------------------------------------------

\21\ See Public Law 104-4.
---------------------------------------------------------------------------

Solicitation of Comments on Use of Plain Language
Section 722 of the GLBA required the agencies to use plain language
in all proposed and final rules published after January 1, 2000. The
agencies invite comment on how to make this proposed rule easier to
understand. For example:
Have the agencies organized the material to suit your
needs? If not, how could they present the rule more clearly?
Are the requirements in the rule clearly stated? If not,
how could the rule be more clearly stated?
Do the regulations contain technical language or jargon
that is not clear? If so, which language requires clarification?
Would a different format (grouping and order of sections,
use of headings, paragraphing) make the regulation easier to
understand? If so, what changes would achieve that?
Is this section format adequate? If not, which of the
sections should be changed and how?
What other changes can the agencies incorporate to make
the regulation easier to understand?

List of Subjects

12 CFR Part 3

Administrative practice and procedure, Banks, Banking, Capital,
National banks, Reporting and recordkeeping requirements, Risk.

12 CFR Part 208

Confidential business information, Crime, Currency, Federal Reserve
System, Mortgages, Reporting and recordkeeping requirements, Risk.

12 CFR Part 225

Administrative practice and Procedure, Banks, Banking, Federal
Reserve System, Holding companies, Reporting and recordkeeping
requirements, Securities.

12 CFR Part 325

Administrative practice and procedure, Banks, Banking, Capital
adequacy, Reporting and recordkeeping requirements, Savings
associations, State nonmember banks.

12 CFR Part 567

Capital, Reporting and recordkeeping requirements, Risk, Savings
associations.

[[Page 31165]]

Department of the Treasury

Office of the Comptroller of the Currency

12 CFR Chapter I

Authority and Issuance

0
For the reasons stated in the common preamble, the Office of the
Comptroller of the Currency amends Part 3 of chapter I of Title 12,
Code of Federal Regulations as follows:

PART 3--MINIMUM CAPITAL RATIOS; ISSUANCE OF DIRECTIVES

0
1. The authority citation for part 3 continues to read as follows:

Authority: 12 U.S.C. 93a, 161, 1818, 1828(n), 1828 note, 1831n
note, 1835, 3907, and 3909.

0
2. In appendix A to part 3, in section 3, revise paragraph (a)(3)(iii)
to read as follows:

Appendix A to Part 3--Risk-Based Capital Guidelines

Section 3. Risk Categories/Weights for On-Balance Sheet Assets and
Off-Balance Sheet Items

* * * * *
(a) * * *
(3) * * *
(iii) Loans secured by first mortgages on one-to-four family
residential properties, either owner occupied or rented, provided
that such loans are not otherwise 90 days or more past due, or on
nonaccrual or restructured. It is presumed that such loans will meet
the prudent underwriting standards. For the purposes of the risk-
based capital guidelines, a loan modified solely pursuant to the
U.S. Department of Treasury's Making Home Affordable Program will
not be considered to have been restructured.
* * * * *

Board of Governors of the Federal Reserve System

12 CFR Chapter II

Authority and Issuance

0
For the reasons stated in the common preamble, the Board of Governors
of Federal Reserve System amends parts 208 and 225 of Chapter II of
title 12 of the Code of Federal Regulations as follows:

PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL
RESERVE SYSTEM (REGULATION H)

0
3. The authority citation for part 208 continues to read as follows:

Authority : 12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321-
338a, 371d, 461, 481-486, 601, 611, 1814, 1816, 1818, 1820(d)(9),
1833(j), 1828(o), 1831, 1831o, 1831p-1, 1831r-1, 1831w, 1831x,
1835a, 1882, 2901-2907, 3105, 3310, 3331-3351, and 3905-3909; 15
U.S.C. 78b, 78I(b), 78l(i), 780-4(c)(5), 78q, 78q-1, and 78w, 1681s,
1681w, 6801, and 6805; 31 U.S.C. 5318; 42 U.S.C. 4012a, 4104a,
4104b, 4106 and 4128.

0
4. In appendix A to part 208, revise Section III. C.3., to read as
follows:

Appendix A to Part 208-Capital Adequacy Guidelines for State Member
Banks: Risk-Based Measure

* * * * *

III. * * *

C. * * *

3. Category 3: 50 percent. This category includes loans fully
secured by first liens \41\ on 1- to 4-family residential
properties, either owner-occupied or rented, or on multifamily
residential properties,\42\ that meet certain criteria.\43\ Loans
included in this category must have been made in accordance with
prudent underwriting standards; \44\ be performing in accordance
with their original terms; and not be 90 days or more past due or
carried in nonaccrual status. For purposes of this 50 percent risk
weight category, a loan modified solely pursuant to the U. S.
Department of Treasury's Making Home Affordable Program will be
considered to be performing in accordance with its original terms.
The following additional criteria must also be applied to a loan
secured by a multifamily residential property that is included in
this category: all principal and interest payments on the loan must
have been made on time for at least the year preceding placement in
this category, or in the case where the existing property owner is
refinancing a loan on that property, all principal and interest
payments on the loan being refinanced must have been made on time
for at least the year preceding placement in this category;
amortization of the principal and interest must occur over a period
of not more than 30 years and the minimum original maturity for
repayment of principal must not be less than 7 years; and the annual
net operating income (before debt service) generated by the property
during its most recent fiscal year must not be less than 120 percent
of the loan's current annual debt service (115 percent if the loan
is based on a floating interest rate) or, in the case of a
cooperative or other not-for-profit housing project, the property
must generate sufficient cash flow to provide comparable protection
to the institution. Also included in this category are privately-
issued mortgage-backed securities provided that
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\41\ If a bank holds the first and junior lien(s) on a
residential property and no other party holds an intervening lien,
the transaction is treated as a single loan secured by a first lien
for the purposes of determining the loan-to-value ratio and
assigning a risk weight.
\42\ Loans that qualify as loans secured by 1-to 4-family
residential properties or multifamily residential properties are
listed in the instructions to the commercial bank Call Report. In
addition, for risk-based capital purposes, loans secured by 1- to 4-
family residential properties include loans to builders with
substantial project equity for the construction of 1- to 4-family
residences that have been presold under firm contracts to purchasers
who have obtained firm commitments for permanent qualifying mortgage
loans and have made substantial earnest money deposits. Such loans
to builders will be considered prudently underwritten only if the
bank has obtained sufficient documentation that the buyer of the
home intends to purchase the home (i.e., has a legally binding
written sales contract) and has the ability to obtain a mortgage
loan sufficient to purchase the home (i.e., has a firm written
commitment for permanent financing of the home upon completion).
\43\ Residential property loans that do not meet all the
specified criteria or that are made for the purpose of speculative
property development are placed in the 100 percent risk category.
\44\ Prudent underwriting standards include a conservative ratio
of the current loan balance to the value of the property. In the
case of a loan secured by multifamily residential property, the
loan-to-value ratio is not conservative if it exceeds 80 percent (75
percent if the loan is based on a floating interest rate). Prudent
underwriting standards also dictate that a loan-to-value ratio used
in the case of originating a loan to acquire a property would not be
deemed conservative unless the value is based on the lower of the
acquisition cost of the property or appraised (or if appropriate,
evaluated) value. Otherwise, the loan-to-value ratio generally would
be based upon the value of the property as determined by the most
current appraisal, or if appropriate, the most current evaluation.
All appraisals must be made in a manner consistent with the Federal
banking agencies' real estate appraisal regulations and guidelines
and with the bank's own appraisal guidelines.
---------------------------------------------------------------------------

(1) The structure of the security meets the criteria described
in section III(B)(3) above;
(2) If the security is backed by a pool of conventional
mortgages, on 1- to 4-family residential or multifamily residential
properties each underlying mortgage meets the criteria described
above in this section for eligibility for the 50 percent risk
category at the time the pool is originated;
(3) If the security is backed by privately issued mortgage-
backed securities, each underlying security qualifies for the 50
percent risk category; and
(4) If the security is backed by a pool of multifamily
residential mortgages, principal and interest payments on the
security are not 30 days or more past due.
Privately-issued mortgage-backed securities that do not meet
these criteria or that do not qualify for a lower risk weight are
generally assigned to the 100 percent risk category.
Also assigned to this category are revenue (non-general
obligation) bonds or similar obligations, including loans and
leases, that are obligations of states or other political
subdivisions of the U.S. (for example, municipal revenue bonds) or
other countries of the OECD-based group, but for which the
government entity is committed to repay the debt with revenues from
the specific projects financed, rather than from general tax funds.
Credit equivalent amounts of derivative contracts involving
standard risk obligors (that is, obligors whose loans or debt
securities would be assigned to the 100 percent risk category) are
included in the 50 percent category, unless they are backed by
collateral or guarantees that allow them to be placed in a lower
risk category.
The instructions to the Call Report also discuss the treatment
of loans, including multifamily housing loans, that are sold

[[Page 31166]]

subject to a pro rata loss sharing arrangement. Such an arrangement
should be treated by the selling bank as sold (and excluded from
balance sheet assets) to the extent that the sales agreement
provides for the purchaser of the loan to share in any loss incurred
on the loan on a pro rata basis with the selling bank. In such a
transaction, from the standpoint of the selling bank, the portion of
the loan that is treated as sold is not subject to the risk-based
capital standards. In connection with sales of multifamily housing
loans in which the purchaser of a loan shares in any loss incurred
on the loan with the selling institution on other than a pro rata
basis, these other loss sharing arrangements are taken into account
for purposes of determining the extent to which such loans are
treated by the selling bank as sold (and excluded from balance sheet
assets) under the risk-based capital framework in the same as
prescribed for reporting purposes in the instructions to the Call
Report.

PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
(REGULATION Y)

0
5. The authority for part 225 continues to read as follows:

Authority : 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-
1, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3907,
and 3909; 15 U.S.C. 1681s, 1681w, 6801 and 6805.

0
6. In appendix A to part 225, revise section III.C.3., to read as
follows:

Appendix A to Part 225-Capital Adequacy Guidelines for Bank Holding
Companies: Risk-Based Measure

* * * * *

III. * * *

C. * * *

3. Category 3: 50 percent. This category includes loans fully
secured by first liens \48\ on 1- to 4-family residential
properties, either owner-occupied or rented, or on multifamily
residential properties,\49\ that meet certain criteria.\50\ Loans
included in this category must have been made in accordance with
prudent underwriting standards;\51\ be performing in accordance with
their original terms; and not be 90 days or more past due or carried
in nonaccrual status. For purposes of this 50 percent risk weight
category, a loan modified or restructured solely pursuant to the
U.S. Department of Treasury's Making Home Affordable Program will be
considered to be performing in accordance with its original terms.
The following additional criteria must also be applied to a loan
secured by a multifamily residential property that is included in
this category: all principal and interest payments on the loan must
have been made on time for at least the year preceding placement in
this category, or in the case where the existing property owner is
refinancing a loan on that property, all principal and interest
payments on the loan being refinanced must have been made on time
for at least the year preceding placement in this category;
amortization of the principal and interest must occur over a period
of not more than 30 years and the minimum original maturity for
repayment of principal must not be less than 7 years; and the annual
net operating income (before debt service) generated by the property
during its most recent fiscal year must not be less than 120 percent
of the loan's current annual debt service (115 percent if the loan
is based on a floating interest rate) or, in the case of a
cooperative or other not-for-profit housing project, the property
must generate sufficient cash flow to provide comparable protection
to the institution. Also included in this category are privately-
issued mortgage-backed securities provided that:
---------------------------------------------------------------------------

\48\ If a banking organization holds the first and junior
lien(s) on a residential property and no other party holds an
intervening lien, the transaction is treated as a single loan
secured by a first lien for the purposes of determining the loan-to-
value ratio and assigning a risk weight.
\49\ Loans that qualify as loans secured by 1- to 4-family
residential properties or multifamily residential properties are
listed in the instructions to the FR Y-9C Report. In addition, for
risk-based capital purposes, loans secured by 1- to 4-family
residential properties include loans to builders with substantial
project equity for the construction of 1-to 4-family residences that
have been presold under firm contracts to purchasers who have
obtained firm commitments for permanent qualifying mortgage loans
and have made substantial earnest money deposits. Such loans to
builders will be considered prudently underwritten only if the bank
holding company has obtained sufficient documentation that the buyer
of the home intends to purchase the home (i.e., has a legally
binding written sales contract) and has the ability to obtain a
mortgage loan sufficient to purchase the home (i.e., has a firm
written commitment for permanent financing of the home upon
completion).
\50\ Residential property loans that do not meet all the
specified criteria or that are made for the purpose of speculative
property development are placed in the 100 percent risk category.
\51\ Prudent underwriting standards include a conservative ratio
of the current loan balance to the value of the property. In the
case of a loan secured by multifamily residential property, the
loan-to-value ratio is not conservative if it exceeds 80 percent (75
percent if the loan is based on a floating interest rate). Prudent
underwriting standards also dictate that a loan-to-value ratio used
in the case of originating a loan to acquire a property would not be
deemed conservative unless the value is based on the lower of the
acquisition cost of the property or appraised (or if appropriate,
evaluated) value. Otherwise, the loan-to-value ratio generally would
be based upon the value of the property as determined by the most
current appraisal, or if appropriate, the most current evaluation.
All appraisals must be made in a manner consistent with the Federal
banking agencies' real estate appraisal regulations and guidelines
and with the banking organization's own appraisal guidelines.
---------------------------------------------------------------------------

(1) The structure of the security meets the criteria described
in section III(B)(3) above;
(2) if the security is backed by a pool of conventional
mortgages, on 1- to 4-family residential or multifamily residential
properties, each underlying mortgage meets the criteria described
above in this section for eligibility for the 50 percent risk
category at the time the pool is originated;
(3) If the security is backed by privately-issued mortgage-
backed securities, each underlying security qualifies for the 50
percent risk category; and
(4) If the security is backed by a pool of multifamily
residential mortgages, principal and interest payments on the
security are not 30 days or more past due. Privately-issued
mortgage-backed securities that do not meet these criteria or that
do not qualify for a lower risk weight are generally assigned to the
100 percent risk category.
Also assigned to this category are revenue (non-general
obligation) bonds or similar obligations, including loans and
leases, that are obligations of states or other political
subdivisions of the U.S. (for example, municipal revenue bonds) or
other countries of the OECD-based group, but for which the
government entity is committed to repay the debt with revenues from
the specific projects financed, rather than from general tax funds.
Credit equivalent amounts of derivative contracts involving
standard risk obligors (that is, obligors whose loans or debt
securities would be assigned to the 100 percent risk category) are
included in the 50 percent category, unless they are backed by
collateral or guarantees that allow them to be placed in a lower
risk category.
* * * * *
* * * * *

Federal Deposit Insurance Corporation

12 CFR Chapter III

Authority for Issuance

0
For the reasons stated in the common preamble, the Federal Deposit
Insurance Corporation amends Part 325 of Chapter III of Title 12, Code
of the Federal Regulations as follows:

PART 325--CAPITAL MAINTENANCE

0
7. The authority citation for part 325 continues to read as follows:

Authority: 12 U.S.C. 1814(a), 1815(b), 1816, 1818(a), 1818(b),
1815, 1818(a), 1818(b), 1818(t), 1819(Tenth), 1828(c), 1828(d),
1828(i), 1828(n), 1828(o), 1835, 3907, 3909, 4808; Pub. L. 102-233,
105 Stat. 1761, 1789, 1790, (12 U.S.C. 1831n, note); Pub. L. 102-
242, 105 Stat. 2236, 2355, 2386 (12 U.S.C. 1828 note).

0
8. Amend Appendix A to part 325 by revising footnote 39 to read as
follows:

Appendix A to Part 325--Statement of Policy on Risk Based Capital

* * * * *

II * * *

C. * * *

* * * * *
\39\ This category would also include a first-lien residential
mortgage loan on a one-to-four family property that was
appropriately assigned a 50 percent risk weight pursuant to this
section immediately prior to modification under the Making Home
Affordable Program established by the U.S. Department of Treasury,
so long as the loan, as modified, is not 90 days or more past due or
in nonaccrual status and meets other applicable criteria for a 50
percent risk

[[Page 31167]]

weight. In addition, real estate loans that do not meet all of the
specified criteria or that are made for the purpose of property
development are placed in the 100 percent risk category.

Department of the Treasury

Office of Thrift Supervision

12 CFR Chapter V

0
For reasons set forth in the common preamble, the Office of Thrift
Supervision amends part 567 of Chapter V of title 12 of the Code of
Federal Regulations as follows:

PART 567--CAPITAL

0
9. The authority citation for part 567 continues to read as follows:

Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 1828
(note).

0
10. Section 576.1 is amended by adding paragraph (4) to the definition
Qualifying mortgage loan to read as follows:

Sec. 576.1 Definitions.

* * * * *
Qualifying mortgage loan.
* * * * *
(4) A loan that meets the requirements of this section prior to
modification under the U.S. Department of Treasury's Making Home
Affordable Program may be included as a qualifying mortgage loan, so
long as the loan is not 90 days or more past due.
* * * * *

Dated: June 15, 2009.
John C. Dugan,
Comptroller of Currency.
By order of the Board of Governors of the Federal Reserve
System, June 24, 2009.
Jennifer J. Johnson,
Secretary of the Board.
Dated at Washington DC, this 23rd day of June 2009.

Federal Deposit Insurance Corporation.
Valerie J. Best,
Assistant Executive Secretary.
Dated: June 17, 2009.

By the Office of the Thrift Supervision.
John E. Bowman,
Acting Director.
[FR Doc. E9-15507 Filed 6-29-09; 8:45 am]
BILLING CODE 6210-02-P

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