Prior Approval for Enterprise Products, 31602-31618 [E9-15304]

Agencies

• FEDERAL HOUSING FINANCE AGENCY

[Federal Register Volume 74, Number 126 (Thursday, July 2, 2009)]
[Rules and Regulations]
[Pages 31602-31618]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-15304]



[[Page 31602]]

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FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1253

RIN 2590-AA17


Prior Approval for Enterprise Products

AGENCY: Federal Housing Finance Agency.

ACTION: Interim final rule; request for comments.

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SUMMARY: The Federal Housing Finance Agency (FHFA or Agency) is 
promulgating and seeking comment on an interim final regulation to 
implement section 1321 of the Federal Housing Enterprises Financial 
Safety and Soundness Act of 1992, as amended by section 1123 of the 
Housing and Economic Recovery Act of 2008. The regulation establishes a 
process for the Federal National Mortgage Association (Fannie Mae) and 
the Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, 
the Enterprises) to obtain prior approval from the FHFA Director for a 
new product and provide prior notice to the Director of a new activity. 
Specifically, the interim final regulation implements section 1321 and 
is designed to ensure that the FHFA Director has the opportunity to 
determine prior to an Enterprise commencing a new activity whether the 
new activity is a new product, and if it is a new product, to determine 
whether the new product is authorized by the Enterprise's charter, is 
in the public interest, and is consistent with the safety and soundness 
of the Enterprise or the mortgage finance or financial system. FHFA 
invites public comment on all aspects of the regulation.

DATES: Effective Date: July 2, 2009.
    Comment Date: FHFA will accept written comments on the interim 
final regulation on or before August 31, 2009.

ADDRESSES: Submit comments to FHFA using any one of the following 
methods:
     E-mail: regcomments@fhfa.gov. Please include ``Public 
Comment--RIN 2590-AA17 (Prior Approval for Enterprise Products)'' in 
the subject line of the message.
     Mail/Hand Delivery: Federal Housing Finance Agency, 1700 G 
Street, NW., Washington, DC 20552, Attention: Public Comment--RIN 2590-
AA17 (Prior Approval for Enterprise Products). The package should be 
logged at the Guard Desk, First Floor, on business days between 9 a.m. 
and 5 p.m.
     Federal eRulemaking: https://www.regulations.gov. Follow 
the instructions for submitting comments. If you submit your comment to 
the Federal eRulemaking Portal, please also send it by e-mail to FHFA 
at regcomments@fhfa.gov to ensure timely receipt by the Agency. Include 
the following information in the subject line of your submission: 
``Public Comment--RIN 2590-AA17 (Prior Approval for Enterprise 
Products)''.
    We will post all public comments we receive without change, 
including any personal information you provide, such as your name and 
address, on the FHFA Web site at https://www.fhfa.gov.

FOR FURTHER INFORMATION CONTACT: Carol Connelly, 202-414-8910 (not a 
toll-free number), e-mail: carol.connelly@fhfa.gov, Office of 
Supervision--Office of Supervision Infrastructure; or Ming-Yuen Meyer-
Fong, 202-414-3798 (not a toll-free number), e-mail: ming-yuen.meyer-fong@fhfa.gov, Office of General Counsel, Federal Housing Finance 
Agency, 1700 G Street, NW., Washington, DC 20552. The telephone number 
for the Telecommunications Device for the Deaf is: 800-877-8339.

SUPPLEMENTARY INFORMATION: 

I. Comments and Access

    This interim final regulation as well as any comments posted may be 
accessed via the Internet. Users can access the FHFA Web page at https://www.fhfa.gov; select Supervision and Regulations Tab; select 
Regulations, Notices and Public Comments; then, select the link titled 
``Prior Approval for Enterprise Products.'' In addition, copies of all 
comments received will be available for examination by the public on 
business days between the hours of 10 a.m. and 3 p.m., at the Federal 
Housing Finance Agency, 1700 G Street, NW., Washington, DC 20552. To 
make an appointment to inspect comments, please call the Office of 
General Counsel at 202-414-6924.

II. Background

A. Establishment of the Federal Housing Finance Agency

    On July 30, 2008, the President signed the Housing and Economic 
Recovery Act (Pub. L. 110-289, 122 Stat. 2654) (HERA). Among other 
things, HERA amended the Federal Housing Enterprises Financial Safety 
and Soundness Act of 1992 (12 U.S.C. 4501 et seq.) (Safety and 
Soundness Act) to establish a new independent agency of the Federal 
Government known as the Federal Housing Finance Agency (FHFA) and 
transferred the supervisory and oversight responsibilities for Fannie 
Mae and Freddie Mac (the Enterprises) from the Office of Federal 
Housing Enterprise Oversight (OFHEO) and components of the Department 
of Housing and Urban Development to FHFA. The Enterprises are 
government-sponsored enterprises chartered by Congress for the purposes 
of establishing secondary market facilities for residential mortgages. 
12 U.S.C. 1716 et seq. (Fannie Mae Charter Act) and 12 U.S.C. 1451 et 
seq. (Freddie Mac Corporation Act) (the authorizing statutes).
    Congress established FHFA, among other things, to oversee the 
prudential operations of the Enterprises, and to ensure that: (1) The 
Enterprises operate in a safe and sound manner, including maintenance 
of adequate capital and internal controls; (2) The activities of the 
Enterprises foster liquid, efficient, competitive, and resilient 
national housing finance markets; (3) The Enterprises comply with the 
Safety and Soundness Act and the rules, regulations, guidelines, and 
orders issued under the Safety and Soundness Act and the authorizing 
statutes; and (4) The Enterprises carry out their public missions 
through activities and operations that are authorized by and consistent 
with the Safety and Soundness Act, their respective authorizing 
statutes, and the public interest. See section 1313(a)(1)(B) of the 
Safety and Soundness Act, as amended (12 U.S.C. 4513(a)(1)(B)).

B. Prior Approval Authority for Products and Activities

    Through products offered to the marketplace and their activities in 
the housing finance system, Freddie Mac and Fannie Mae, together, own 
or guarantee nearly $5.4 trillion of residential mortgages in the 
United States. Their products play a key role in housing finance and 
the U.S. economy. However, the Enterprises also take on risks, and 
create risks for themselves and the mortgage finance and financial 
system, through their activities and product offerings. The 
configuration of particular products may also raise questions of how 
successfully such products achieve the Enterprises' public missions 
while balancing the risks borne or created through such products. 
Because of the significant effects Enterprise products and activities 
have and could have on the market and market participants, the Safety 
and Soundness Act empowered the FHFA Director to review products prior 
to being offered. Specifically, the Safety and Soundness Act requires 
``each Enterprise to obtain the approval of the Director for any 
product of the enterprise before initially offering the product.'' See 
section 1321(a) of the

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Safety and Soundness Act (12 U.S.C. 4541(a)).
    Before commencing a new activity that an Enterprise does not 
consider to be a new product, the Safety and Soundness Act requires an 
Enterprise to provide ``written notice'' to the Director for a 
determination of whether such a new activity is a new product subject 
to prior approval under section 1321. See section 1321(e)(2) of the 
Safety and Soundness Act (12 U.S.C. 4541(e)(2)). If the Director 
determines such a new activity to be a new product, the Enterprise 
shall ``obtain the approval of the Director for any product of the 
enterprise before initially offering the product.'' See id. at section 
1321(a) of the Safety and Soundness Act (12 U.S.C. 4541(a)).

III. Analysis of the Interim Final Rule

A. Synopsis of the Interim Final Rule

    The structure of the statute superficially suggests that an 
Enterprise has a choice of two types of submission to make to FHFA: 
First, a request for prior approval of a new product; and second, a 
notice of a new activity that the Enterprise does not believe to be a 
new product. However, the statute does not define either ``product'' or 
``activity,'' nor does it direct the agency to define those terms. The 
standards for determining when an activity must be published for public 
notice and comment--thereby constituting a new product--include 
considerations of charter compliance, safety and soundness, and the 
public interest. These factors are of a high-level character, 
implicating many considerations in each case that may be difficult to 
define or identify in advance. FHFA concludes that the determination 
whether a new activity is a new product in specific instances is 
committed to agency discretion by law.
    The agency does not believe that it is practical to require an 
Enterprise to identify a new product--as distinct from a new activity 
that is not a product--in advance for purposes of determining which 
type of submission to make to the agency. For that reason, the 
regulation meets the statutory mandate through employing a streamlined 
``notice'' process. It requires an Enterprise to make a single form of 
submission--a notice of new activity. The Director will then decide 
whether the new activity is a new product that must be published for 
public notice and comment. In exigent circumstances, the Director may 
decide to allow an Enterprise to undertake a new product before the 
public notice and comment period.
    To avoid duplication of review, a product undertaken by an 
Enterprise which is substantially similar to a product previously 
approved under this part for either Enterprise is not a new product. 
The definition of new product also does not include a product that is 
substantially similar to a product that has been continuously 
undertaken by either Enterprise since prior to the effective date of 
HERA of July 30, 2008. However, in either case, an Enterprise seeking 
to undertake such a product for the first time must provide notice to 
FHFA of the product as a new activity and obtain the Director's 
approval. FHFA reserves its authority to review such a new activity to 
ensure compliance with the Enterprise's authorizing statute, safety and 
soundness considerations, and the public interest, and to deny or to 
impose any terms, conditions, or limitations on the Enterprise's 
ability to undertake such a new activity. We note that 12 CFR part 
1750, Subpart B, App. A (Risk-based capital) provides for a definition 
for new activity which applies to the relevant section of that 
appendix, and is not controlling for purposes of 12 CFR part 1253.
    The Director's exercise of his authority under the regulations in 
this part in no way restricts his safety and soundness authority over 
all new and existing products or activities of an Enterprise, or his 
authority to review all new and existing products or activities to 
determine that such products or activities are consistent with the 
statutory mission of an Enterprise.

B. Section-by-Section Analysis

    Section 1253.1 sets forth the purpose and authority of this part.
    Section 1253.2 sets forth definitions of terms used in this part 
which are discussed further below in the context that they are used.
    Section 1253.3 establishes that before commencing any new activity, 
an Enterprise must submit to FHFA a written Notice. As part of its 
submission, an Enterprise must complete the FHFA Notice of New Activity 
Form (Notice Form) and submit it to FHFA in the manner described in the 
Instructions for the Notice Form established through the appendix to 
this part, and which may be modified from time to time by written 
direction of the Director. The Notice Form provides a mechanism for the 
Director to determine whether the new activity is a new product in 
accordance with 12 U.S.C. 4541 and 12 CFR part 1253. The Notice Form 
also serves, where the Director determines the activity is not a new 
product, to provide information to FHFA necessary in exercising its 
authorities as safety and soundness regulator. A Notice will not be 
considered complete and received for processing until all of the 
information required by the Notice Form, along with any follow-up 
information required by FHFA upon review of the initially submitted 
information to enable a determination whether the new activity is a new 
product, has been submitted. FHFA will notify the Enterprise once a 
Notice Form is deemed complete and accepted for review.
    An Enterprise may not commence a new activity unless the Director 
makes a written determination that the new activity is not a new 
product, or at least 15 business-days have elapsed since the Enterprise 
was notified that a Notice was complete and received for processing 
without the Director having made a determination. If the Director 
determines that the new activity is a new product, the Enterprise must 
await approval of the new product under Sec.  1253.4.
    Section 1253.4 provides for public notice and comment of a new 
product to enable the Director to determine whether the new product is: 
(1) Authorized by the Charter Act (Fannie Mae) or Corporation Act 
(Freddie Mac); (2) In the public interest; and (3) Consistent with the 
safety and soundness of the Enterprise or the mortgage finance and 
financial system. Among the factors that the Director may consider when 
determining whether a new product is in the public interest are: (1) 
The degree to which the new product might reasonably be expected to 
advance any of the charter purposes of Fannie Mae or Freddie Mac; (2) 
The degree to which the new product serves underserved markets as set 
forth in section 1335 of the Safety and Soundness Act (12 U.S.C. 4565); 
(3) The degree to which the new product is being supplied or could be 
supplied by non-government-sponsored-enterprise firms; (4) Other 
alternatives for providing the new product to the market; (5) The 
degree to which the new product promotes competition in the marketplace 
or, to the contrary, would result in less competition and greater 
concentration of economic activity or risk; (6) The degree to which 
Enterprise provision of the service overcomes natural market barriers 
or inefficiencies; (7) The degree to which Enterprise provision of the 
new product might raise or mitigate systemic risks to the mortgage, 
mortgage finance or financial markets; (8) the degree to which the new 
product furthers fair housing; and (9) such other factors determined to 
be appropriate by the Director.

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    Section 1321(c) of the Safety and Soundness Act (12 U.S.C. 4541(c)) 
authorizes the Director to grant ``temporary approval'' of the new 
product if a delay associated with seeking public comment is contrary 
to public interest. See id. at section 1321 paragraphs (c)(2) through 
(c)(4) (12 U.S.C. 4541(c)(2) through (c)(4)). Accordingly, once FHFA 
determines that a new activity is a new product, FHFA will publish 
notice along with a description of the new product for a 30-day public 
comment period, unless the Director determines that delay associated 
with first seeking public comment is contrary to public interest. Where 
the Director determines that exigent circumstances exist such that 
delay associated with seeking public comment is contrary to public 
interest, the Director may consider and temporarily approve the new 
product without providing an advance public comment period. In such 
circumstances, the Director will provide for a public comment period 
after granting the Temporary Approval.
    In making a determination, the Director will consider all public 
comments received by the closing date of the comment period. The 
Director will make a determination on the new product no later than 30 
calendar-days after the close of the public comment period. If the 
Director fails to make a determination on the new product within the 
30-day time period, the Enterprise may offer the new product. If the 
Director approves the new product, the Director may condition such 
approval upon terms, conditions, and limitations with which the 
Enterprise must comply. If the Director denies a new product, the 
Enterprise may not offer the new product.
    Where, as a result of public comment or otherwise in the course of 
considering the new product, FHFA believes that any information in 
addition to that supplied by the Enterprise is necessary for its 
decision, FHFA may request such information. FHFA may deny a new 
product if it does not receive the information requested from the 
Enterprise in sufficient time to permit adequate evaluation of the 
information.
    Section 1253.5 states that confidential information submitted in 
support of either a Notice or a public comment submission, is presumed 
public. An Enterprise or commenter may request confidential treatment, 
and FHFA will consider such requests upon Enterprise or commenter 
compliance with the specified requirements.
    Section 1253.6 sets forth certification requirements and grounds to 
nullify an approval. The Notice, any applicable Forms, and supporting 
information must be certified by an executive officer as that term is 
defined by 12 CFR 1770.3(g). We note that 12 CFR 1770.3(g) is in the 
process of being replaced, and Sec.  1230.2 will become the relevant 
reference. 74 FR 26989 (June 5, 2009). If FHFA discovers a material 
misrepresentation or omission after the Director has rendered a 
decision, FHFA may nullify any approval, or terms, conditions, and 
limitations to such approval. Any person responsible for any material 
misrepresentation or omission in a filing or supporting materials may 
be subject to enforcement action and other penalties, including 
criminal penalties provided in 18 U.S.C. 1001.
    Section 1253.7 states penalties for failure to comply. If an 
Enterprise: (1) Offers a new product or commences a new activity 
without submitting a Notice; (2) offers a new product or commences a 
new activity after submitting a Notice before the expiration of time 
provided for the Director to make a determination; (3) offers a new 
product after the Director disapproves it; or (4) fails to adhere to 
any terms, conditions, or limitations established by the Director, the 
Enterprise must cease offering the new product or engaging in the new 
activity immediately upon discovery or notice of the events described 
in this section, unless otherwise informed by the Director in writing.
    Upon discovery or notice of any one of these occurrences, the 
Enterprise must provide the FHFA Director and its board of directors, 
chief risk officer, internal audit, and compliance officer, a written 
description of the failure or failures of controls that resulted in the 
offering of the new product or commencement of new activity in 
contravention of regulations in this part. The Enterprise must also 
provide information regarding the steps it has taken and will take to 
remediate the control failures. Failure to comply with these steps may 
result in FHFA taking enforcement action.
    Section 1253.8 provides that, if the Director approves a new 
product for one Enterprise, or the new product is otherwise available 
to that Enterprise under Sec.  1253.4, the other Enterprise may also 
offer that new product, subject to submitting a request to the Director 
in the form of a Notice under Sec.  1253.3 and approval by the 
Director.
    Section 1253.9 states that the Director's authority is preserved. 
The Director's exercise of the Safety and Soundness Act's provisions on 
prior approval authority for products in no way restricts the safety 
and soundness authority of the Director over all new and existing 
products or activities, or the authority of the Director to review all 
new and existing products or activities to determine that such products 
or activities are consistent with the statutory mission of an 
Enterprise. See section 1321(f) of the Safety and Soundness Act (12 
U.S.C. 4541(f)).

IV. Notice and Public Participation

    The notice and comment procedure required by the Administrative 
Procedure Act is inapplicable to this interim final regulation because 
it is in the public interest to implement section 1123 of HERA that 
amends section 1321 of the Safety and Soundness Act (12 U.S.C. 4541) 
immediately. See 5 U.S.C. 553(b)(B). The regulation facilitates the 
Enterprises' continued ability to meet their public mission in 
conservatorship, enabling them to contribute to combating the 
continuing deterioration and volatility of the residential mortgage 
market. Also, the regulation establishes procedures for the Enterprises 
to submit notices of new activities and new products for approval. 
However, because FHFA believes that public comments are valuable, it 
encourages comments on all aspects of the interim final regulation, and 
will consider all comments received on or before August 31, 2009 in 
adopting a final regulation.

V. Effective Date

    For the reasons stated in section IV., above, the FHFA for good 
cause finds that the interim final regulation is immediately effective 
on July 2, 2009. See id. at para. (d)(3).

VI. Regulatory Flexibility Act

    FHFA is promulgating this regulation in the form of an interim 
final regulation and not as a proposed regulation. Therefore, the 
provisions of the Regulatory Flexibility Act do not apply. See 5 U.S.C. 
601(2) and 603(a).

VII. Paperwork Reduction Act

    The interim final regulation does not contain any information 
collection requirement that requires the approval of the Office of 
Management and Budget under the Paperwork Reduction Act (44 U.S.C. 3501 
et seq.).

List of Subjects in 12 CFR Part 1253

    Government-sponsored enterprises; Mortgages; New activities; New 
products.

Authority and Issuance

0
Accordingly, for the reasons stated in the preamble, under the 
authorities of

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12 U.S.C. 4526 and 12 U.S.C. 4541, the Federal Housing Finance Agency 
hereby amends Chapter XII of Title 12, Code of Federal Regulations as 
follows:

CHAPTER XII--FEDERAL HOUSING FINANCE AGENCY

Subchapter C--Enterprises

0
1. Add part 1253 to subchapter C to read as follows:

PART 1253--PRIOR APPROVAL FOR ENTERPRISE PRODUCTS

Sec.
1253.1 Purpose and authority.
1253.2 Definitions.
1253.3 Notice of new activity.
1253.4 New product approval.
1253.5 Confidential information.
1253.6 Certifying and nullifying an approval.
1253.7 Failure to comply.
1253.8 Availability of new product to an Enterprise after it has 
been approved for the other Enterprise.
1253.9 Preservation of authority.
Appendix to Part 1253--Prior Approval for Enterprise Products: 
Instructions and Notice of New Activity Form

    Authority: 12 U.S.C. 4526; 12 U.S.C. 4541.


Sec.  1253.1  Purpose and authority.

    The purpose of this part is to establish policies and procedures 
implementing the prior approval authority for enterprise products, in 
accordance with section 1321 of the Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992 (Safety and Soundness Act) 
(12 U.S.C. 4541), as amended.


Sec.  1253.2  Definitions.

    For purposes of this part:
    Authorizing statute means, in the case of Fannie Mae, the Federal 
National Mortgage Association Charter Act (12 U.S.C. 1716 et seq.) and, 
in the case of Freddie Mac, the Federal Home Loan Mortgage Corporation 
Act (12 U.S.C. 1451 et seq.).
    Director means the Director of the Federal Housing Finance Agency 
or his or her designee.
    Enterprise means the Federal National Mortgage Association (Fannie 
Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac).
    FHFA means the Federal Housing Finance Agency.
    New activity means with respect to an Enterprise, any business 
line, business practice, or service, including guarantee, financial 
instrument, consulting, or marketing, that is proposed to be undertaken 
by the Enterprise either on a standalone basis or as an incident to 
providing one or more Enterprise products to the market, and which 
was--
    (a) Not initially engaged in prior to July 30, 2008;
    (b) Commenced by the Enterprise prior to July 30, 2008, but which, 
after July 30, 2008, the Enterprise ceased to engage in, and presently 
intends to resume; or
    (c) Offered or engaged in by the Enterprise after July 30, 2008, at 
a significantly different level, or in a significantly different 
manner, in terms of the activity's effect on public interest or risk to 
the Enterprise or the mortgage finance or financial system.
    The term ``new activity'' does not include--
    (1) Any Enterprise business practice, transactions, or conduct 
performed solely as an incident to the administration of the 
Enterprise's internal affairs to conduct its business; or
    (2) Any business practice or service undertaken by an Enterprise 
that is de minimis in scope, volume, risk, or duration.
    New product means any activity that the Director determines merits 
public notice and comment on matters of compliance with the applicable 
authorizing statute, safety and soundness, or public interest. ``New 
product'' does not include--
    (a) The automated loan underwriting system of an Enterprise in 
existence as of July 30, 2008, including any upgrade to the technology, 
operating system, or software to operate the underwriting system;
    (b) Any modification to the mortgage terms and conditions or 
mortgage underwriting criteria relating to the mortgages that are 
purchased or guaranteed by the Enterprise, provided that such 
modifications do not alter the underlying transaction so as to include 
services or financing, other than residential mortgage financing;
    (c) Any activity that is substantially similar to the activities 
described in paragraphs (a) or (b) of this section;
    (d) Any activity that is substantially similar to an activity or 
product that has been approved in accordance with this part for either 
Enterprise; or
    (e) Any activity that is substantially similar to an activity or 
product continuously undertaken by the other Enterprise since prior to 
July 30, 2008.
    Substantially similar. In considering whether an activity is 
``substantially similar'' to any activity described in section 
1321(e)(1)(A) and (B) of the Safety and Soundness Act, 12 U.S.C. 
4541(e)(1)(A) and in paragraphs (a) or (b) of this section under the 
definition of new product, or to any activity approved in accordance 
with this part, or continuously engaged in by the other Enterprise as 
referenced in paragraphs (d) and (e) of this section under the 
definition of new product, the Director may consider if the activity in 
question--
    (1) Is a product;
    (2) Is authorized under the applicable authorizing statute;
    (3) Represents an upgrade to the way an approved product is 
delivered;
    (4) Poses a significant change in risk to the Enterprise or the 
mortgage finance system from a previously approved product or activity;
    (5) Involves a significant change in terms, conditions, or 
limitations expressly contained in any prior approval granted under 
this part;
    (6) Poses a significant change in its effect on the public interest 
compared to a previously approved product or activity;
    (7) Poses a significant change from a previously approved product 
or activity and if so, does a tradeoff exist in the composite of risk, 
public interest, and safety and soundness elements in the proposed new 
activity;
    (8) Is likely to have significantly more enterprise resources 
dedicated to it;
    (9) Requires approval by regulators other than FHFA, including 
Federal, State, or local regulators;
    (10) Involves new classes or types of borrowers, investors, or 
counterparties;
    (11) Involves new classes or types of collateral; or
    (12) Such other factor as the Director determines to be 
appropriate.


Sec.  1253.3  Notice of new activity.

    (a) Before commencing a new activity, an Enterprise must submit a 
Notice of New Activity (Notice) to the FHFA, and either receive a 
determination that the new activity is not a new product, await passage 
of the 15 business-day period as described in paragraph (d) of this 
section, or, where FHFA determines the new activity to be a new 
product, await approval of the new product under Sec.  1253.4. In 
addition, for any new activity that an Enterprise seeks to engage in 
which FHFA had previously approved in accordance with this part for the 
other Enterprise, or in which the other Enterprise had engaged 
continuously since prior to July 30, 2008, the Enterprise must submit a 
Notice to FHFA. In support of its Notice, the Enterprise shall submit 
information sufficient to allow the Director to make a determination on 
the Notice pursuant to section 1321 of the Safety and Soundness Act (12 
U.S.C. 4541), as amended, including any information required by FHFA by 
regulation or otherwise. The Enterprise shall provide a thorough, 
meaningful, complete and

[[Page 31606]]

specific description of the new activity such that the public will be 
able to provide fully informed comment on the new activity if FHFA 
determines the new activity to be a new product. Such information shall 
include that contained in the FHFA Notice Form and the Instructions for 
the FHFA Notice of New Activity Form (Notice Form Instructions) that 
appear in the appendix of this part. The Notice Form and Notice Form 
Instructions may be amended from time to time by written direction of 
the Director. Requests for confidential treatment for any portion of an 
Enterprise's submission must be made consistent with Sec.  1253.5.
    (b) FHFA will evaluate a Notice to establish whether the submission 
contains sufficient information for FHFA to make a determination 
whether the new activity is a new product subject to prior approval. 
Upon establishing that the Notice contains sufficient information, FHFA 
shall deem the submission complete and ``received'' for purposes of 
section 1321(e)(2)(B) of the Safety and Soundness Act (12 U.S.C. 
4541(e)(2)(B)), and shall notify the Enterprise accordingly.
    (c) No later than 15 business-days after the Notice is deemed 
completed and ``received'' for purposes of section 1321(e)(2)(B) of the 
Safety and Soundness Act (12 U.S.C. 4541(e)(2)(B)), the Director will 
make a written determination on the Notice, and shall notify the 
Enterprise accordingly. The Director may also approve the new activity 
subject to such terms, conditions, or limitations on the Enterprise's 
engagement in the new activity as the Director determines to be 
appropriate.
    (d) If the Director fails to make a determination within the 15 
business-day period specified in paragraph (c) of this section, the 
Enterprise may commence the new activity. The Director's failure to 
make a determination within the 15-day period does not limit or 
restrict the Director's safety and soundness authority or the authority 
of the Director to review the new activity to determine whether the 
activity is consistent with the statutory mission of the Enterprise.


Sec.  1253.4  New product approval.

    (a) Public notice. If the Director determines that the new activity 
is a new product, FHFA shall publish a public notice soliciting 
comments on the proposed product for a 30 calendar-day period.
    (1) The public notice will describe the new product and state the 
closing date of the public comment period. The public notice will 
provide instructions for submission of public comment.
    (2) The Director will consider all public comments received by the 
closing date of the comment period.
    (3) In computing the 30 calendar-day public comment period, FHFA 
excludes the day on which the public notice is published in the Federal 
Register, from which the period begins to run, and includes the last 
day of the period, regardless of whether it is a Saturday, Sunday, or 
legal holiday.
    (b) Director's determination. (1) No later than 30 calendar-days 
after the end of the public comment period, the Director will provide 
the Enterprise with a written determination on whether it may proceed 
with the new product. The written determination will specify the 
grounds for the Director's determination.
    (2) The Director will approve the new product if the Director 
determines that the new product complies with the applicable 
authorizing statute, is in the public interest, and is consistent with 
the safety and soundness of the Enterprise and the mortgage finance and 
financial system. The Enterprise may then offer the new product subject 
to any terms, conditions, or limitations as may be established by the 
Director.
    (3) Among the factors that the Director may consider when 
determining whether a new product is in the public interest are--
    (i) The degree to which the new product might reasonably be 
expected to advance any of the purposes of the Enterprise under the 
applicable authorizing statute;
    (ii) The degree to which the new product serves underserved markets 
as set forth in section 1335 of the Safety and Soundness Act (12 U.S.C. 
4565);
    (iii) The degree to which the new product is being supplied or 
could be supplied by non-government-sponsored-enterprise firms;
    (iv) Other alternatives for providing the new product;
    (v) The degree to which the new product promotes competition in the 
marketplace or, to the contrary, would result in less competition and 
greater concentration of economic activity or risk;
    (vi) The degree to which Enterprise provision of the new product 
overcomes natural market barriers or inefficiencies;
    (vii) The degree to which Enterprise provision of the new product 
might raise or mitigate systemic risks to the mortgage, mortgage 
finance or other financial markets;
    (viii) The degree to which the new product furthers fair housing; 
and
    (ix) Such other factors determined appropriate by the Director.
    (4) The Director will disapprove the new product if the Director 
determines that approval is inconsistent with applicable law, 
regulation, or FHFA policy thereunder, or contrary to public interest 
or the safety and soundness of the Enterprise or the mortgage finance 
or financial system. If the Director disapproves the new product, the 
Enterprise may not offer the new product.
    (5) The Director may establish terms, conditions, or limitations on 
the Enterprise's offering of the new product to ensure that the product 
offering is consistent with applicable statutory and regulatory 
standards, FHFA policies, public interest, or the safety and soundness 
of the Enterprise or the mortgage finance or financial system.
    (6) If the Director fails to make a determination within the 30 
calendar-day period that begins on the day after the end of the public 
comment period, the Enterprise may offer the new product. The 
Director's failure to make a determination within such 30-day period 
does not limit or restrict the Director's safety and soundness 
authority or the authority of the Director to review the new product to 
determine that the product is consistent with the statutory mission of 
the Enterprise.
    (c) Temporary approval. (1) FHFA may approve a new product without 
first seeking public comments as described in Sec.  1253.4(c) if--
    (i) The Enterprise submits a specific request for Temporary 
Approval that describes the exigent circumstances that make the delay 
associated with the 30-day public comment period contrary to the public 
interest and the Director determines that exigent circumstances exist 
and that delay associated with first seeking public comment would be 
contrary to the public interest; or
    (ii) Notwithstanding the absence of a request by the Enterprise for 
Temporary Approval, the Director determines on his or her own 
initiative that there are exigent circumstances that make the delay 
associated with first seeking public comment contrary to the public 
interest.
    (2) The Director may impose terms, conditions, or limitations on 
the Temporary Approval to ensure that the new product offering is 
consistent with applicable statutory and regulatory standards, FHFA 
policies, public interest, and the safety and soundness of the 
Enterprise or the mortgage finance system.
    (3) If the Director grants Temporary Approval, the Director will 
notify the Enterprise in writing of the Director's

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decision, and include the period for which it is effective and any 
terms, conditions or limitations. Upon granting of Temporary Approval, 
FHFA will also publish the request for public comment to begin the 
process for permanent approval.
    (4) If the Director denies a request for Temporary Approval, the 
Director will notify the Enterprise in writing of the Director's 
decision, and will evaluate the new product in accordance with 
paragraphs (a) through (c) of this section.
    (d) Additional information. The Director may request any 
information in addition to that supplied in the completed Notice if, as 
a result of public comment or otherwise in the course of considering 
the Notice, the Director believes that the information is necessary for 
his or her decision. The Director may disapprove a new product if he or 
she does not receive the information requested from the Enterprise in 
sufficient time to permit adequate evaluation of the information within 
the time periods set forth in paragraph (c) of this section.


Sec.  1253.5  Confidential information.

    (a) Information presumed public. FHFA will treat all information an 
Enterprise submits in a Notice as public information, except as 
provided in paragraphs (b) through (d) of this section. FHFA will also 
treat information provided by a commenter, in response to a notice 
requesting comment on an Enterprise new product, as public information, 
except as provided in paragraphs (b) through (d) of this section.
    (b) Confidential treatment request. An Enterprise or commenter may 
designate specific information as confidential and request that it not 
be made publicly available. For any information that an Enterprise or 
commenter seeks confidential treatment, the Enterprise or commenter is 
required to submit a complete copy of the Notice or comment, with a 
specific request for confidential treatment. Simultaneously, the 
Enterprise or commenter is required to submit a copy of the Notice or 
comment containing only those portions for which no request for 
confidential treatment is made, and from which those portions for which 
confidential treatment is requested have been redacted. The Enterprise 
or commenter must specify the bases for designated information not 
being made public as set forth in paragraph (c) of this section.
    (c) Required information. The Enterprise or commenter is required 
to provide the following information in support of its request for 
confidential treatment of the designated information--
    (1) Identification of the specific information for which 
confidential treatment is sought, and the specific Notice for which the 
information is being submitted;
    (2) Explanation of the bases for the proposed confidential 
treatment including, but not limited to, why the information is 
``commercial or financial information obtained from a person and 
privileged or confidential'' as that phrase is used in Exemption 4 of 
the Freedom of Information Act (FOIA), 5 U.S.C. 552(b)(4), and Sec.  
1202.4(a)(4) of this chapter;
    (3) Explanation of the relevance and necessity of the information 
to whether the Notice should be approved or denied;
    (4) Explanation of how disclosure of the information would result 
in substantial harm to the competitive position of the Enterprise or 
commenter;
    (5) Explanation of whether the information is available to the 
public and the extent of any previous disclosure to third parties;
    (6) Justification of the time period during which the Enterprise or 
commenter asserts that the material should not be available for public 
disclosure; and
    (7) Any other information that the Enterprise or commenter seeking 
confidential treatment believes may be useful in assessing whether its 
request for confidentiality should be granted.
    (d) FHFA determination. FHFA will determine whether the designated 
information may be withheld from public disclosure and will notify the 
Enterprise or commenter of the determination. In the event that FHFA 
determines the information may not be withheld from public disclosure, 
the Enterprise or commenter may withdraw the information or consent to 
public disclosure. Requests for confidential treatment that do not 
comply with paragraphs (b) and (c) of this section will not be 
considered.


Sec.  1253.6  Certifying and nullifying an approval.

    (a) An Enterprise shall certify, through an executive officer, as 
that term is defined by Sec.  1770.3(g) of this title, that any filing 
or supporting material submitted to FHFA pursuant to regulations in 
this part contains no material misrepresentations or omissions. FHFA 
may review and verify any information filed in connection with a 
Notice. If FHFA discovers a material misrepresentation or omission 
after the Director has rendered a decision on the filing, FHFA may 
nullify any approval or modify the terms, conditions, and limitations 
to such approval. For purposes of this paragraph, an Enterprise's 
authority to offer a new product or engage in a new activity by reason 
of the Director's not having made an explicit determination within the 
statutory time period constitutes an approval.
    (b) Any person responsible for any material misrepresentation or 
omission in a submission or supporting materials may be subject to 
enforcement action and other penalties, including criminal penalties 
provided in 18 U.S.C. 1001.


Sec.  1253.7  Failure to comply.

    (a) Unless the Director otherwise informs the Enterprise in 
writing, an Enterprise must cease offering a new product or engaging in 
a new activity immediately upon discovering or receiving notice from 
the Director that the Enterprise has--
    (1) Offered a new product or commenced a new activity without 
submitting a Notice;
    (2) Offered a new product or commenced a new activity after 
submitting a Notice but before approval is granted, and before the 
expiration of the time provided for the Director to make a 
determination under Sec. Sec.  1253.3 and 1253.4;
    (3) Offered a new product after the Director disapproved it; or
    (4) Failed to adhere to any terms, conditions or limitations 
established by the Director in his or her approval of a new product or 
activity.
    (b) Within five (5) business-days of the discovery or notice of any 
of the events described in paragraph (a) of this section, the 
Enterprise must provide the Director a written description of the 
failure or failures of controls that resulted in the offering of the 
new product or commencement of the new activity in contravention of 
this regulation, and the steps that the Enterprise has taken or will 
take to remediate the control failures. The Enterprise must provide the 
board of directors of the Enterprise and chief risk officer, internal 
audit, and compliance officer of the Enterprise with a copy of the 
written description on the same date the description is provided to the 
Director of FHFA.
    (c) In the event that the Enterprise elects to resubmit the Notice 
of a new product or new activity that was undertaken in contravention 
of this regulation, the resubmission must provide sufficient 
documentation of the effectiveness of the remediation efforts described 
in paragraph (b) of this section.

[[Page 31608]]

    (d) Failure to comply with paragraphs (a) or (b) of this section 
above may result in FHFA's taking enforcement action, including 
pursuant to 12 U.S.C. 4631 (orders to cease and desist), 12 U.S.C. 4632 
(temporary orders to cease and desist), and 12 U.S.C. 4636 (civil money 
penalties).


Sec.  1253.8  Availability of new product to an Enterprise after it has 
been approved for the other Enterprise.

    (a) If the Director approves a new product for one Enterprise or 
the new product is otherwise available to that Enterprise under Sec.  
1253.4, the other Enterprise may also undertake that new product, 
subject to submitting a request to the Director in the form of a Notice 
under Sec.  1253.3 and approval by the Director.
    (b) The Director may require such further information from the 
requesting Enterprise as he or she deems necessary to approve or deny 
the request. Approving the request does not require public notice and 
comment.


Sec.  1253.9  Preservation of authority.

    (a) The Director's exercise of his or her authority pursuant to the 
prior approval authority for products under section 1321 of the Safety 
and Soundness Act (12 U.S.C. 4541), and this regulation and other 
issuances in no way restricts--
    (1) The safety and soundness authority of the Director over all new 
and existing products or activities; or
    (2) The authority of the Director to review all new and existing 
products or activities to determine that such products or activities 
are consistent with the statutory mission of an Enterprise.

Appendix to Part 1253--Prior Approval for Enterprise Products--
Instructions and Notice of New Activity Form

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    Dated: June 22, 2009.
James B. Lockhart III,
Director, Federal Housing Finance Agency.
[FR Doc. E9-15304 Filed 7-1-09; 8:45 am]
BILLING CODE 8070-01-P