Prior Approval for Enterprise Products, 71276-71286 [2020-23452]

Agencies

• FEDERAL HOUSING FINANCE AGENCY

[Federal Register Volume 85, Number 217 (Monday, November 9, 2020)]
[Proposed Rules]
[Pages 71276-71286]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-23452]


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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: Notice of proposed rulemaking: request for comments.

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SUMMARY: The Federal Housing Finance Agency (FHFA or Agency) is seeking 
comment on a proposed rule 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. This proposed rule, if adopted, would replace a 2009 interim 
final rule that established 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.

DATES: Written comments must be received on or before January 8, 2021.

ADDRESSES: You may submit your comments on the proposed rule, 
identified by regulatory information number (RIN) 2590-AA17, by any one 
of the following methods:
     Agency website: www.fhfa.gov/open-for-comment-or-input.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments. If you submit your 
comment to the Federal eRulemaking Portal, please also send it by email 
to FHFA at [email protected] to ensure timely receipt by FHFA. 
Include the following information in the subject line of your 
submission: Comments/RIN 2590-AA17.
     Hand Delivered/Courier: The hand delivery address is: 
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA17, 
Federal Housing Finance Agency, Eighth Floor, 400 Seventh Street SW, 
Washington, DC 20219. Deliver the package at the Seventh Street SW, 
entrance Guard Desk, First Floor, on business days between 9 a.m. and 5 
p.m.
     U.S. Mail, United Parcel Service, Federal Express, or 
Other Mail Service: The mailing address for comments is: Alfred M. 
Pollard, General Counsel, Attention: Comments/RIN 2590-AA17, Federal 
Housing Finance Agency, Eighth Floor, 400 Seventh Street SW, 
Washington, DC 20219. Please note that all mail sent to FHFA via U.S. 
Mail is routed through a national irradiation facility, a process that 
may delay delivery by approximately two weeks. For any time-sensitive 
correspondence, please plan accordingly.

FOR FURTHER INFORMATION CONTACT: Susan Cooper (202) 649-3121, 
[email protected], Office of Housing and Regulatory Policy; or 
Miriam Smolen (202) 230-2987, [email protected], Office of General 
Counsel, Federal Housing Finance Agency, 400 Seventh Street SW, 
Washington, DC 20219. These are not toll-free numbers. The telephone 
number for the Telecommunications Device for the Deaf is (800) 877-
8339.

SUPPLEMENTARY INFORMATION:

I. Comments and Access

    FHFA invites comments on all aspects of the proposed rule and will 
take all comments into consideration before issuing a final rule. 
Copies of all comments will be posted without change, and will include 
any personal information you provide such as your name, address, email 
address, and telephone number, on the FHFA website at https://www.fhfa.gov. In addition, copies of all comments received will be 
available for examination by the public through the electronic 
rulemaking docket for this proposed rule also located on the FHFA 
website.

II. Background

A. Statutory Background

    Through products offered to the marketplace and their activities in 
the housing finance system, Fannie Mae and Freddie Mac, together, own 
or guarantee nearly $5.6 \1\ trillion of residential mortgages in the 
United States as of Q1 2020. Their products play a key role in housing 
finance and the U.S. economy. The Enterprises, while continuing to 
serve their public missions, are motivated to seek out new 
technological advances and pursue innovations, which can create new 
opportunities to provide the public, counterparties, and the market 
more access to and options for products. However, the Enterprises also 
take on risks, and create risks for themselves and the mortgage 
finance, financial system and the broader economy, through their 
activities and product offerings. The parameters of certain new 
activities and products may also raise questions of how successfully 
such new activities and products achieve the Enterprises' public 
missions against the risks created through such actions.
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    \1\ See https://fred.stlouisfed.org/release/tables?rid=52&eid=1192326.
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    Recognizing the significant effects that Enterprise products and 
activities have on the market and market participants, the Federal 
Housing Enterprises Financial Safety and Soundness Act of 1992, as 
amended (12 U.S.C. 4501 et seq.) (the Safety and Soundness Act or Act) 
empowered the FHFA Director to review products prior to the products 
being offered to the market. Specifically, the Safety and Soundness Act 
requires ``each [E]nterprise to obtain the approval of the

[[Page 71277]]

Director for any product of the [E]nterprise before initially offering 
the product.'' See section 1321(a) of the Safety and Soundness Act (12 
U.S.C. 4541(a)).
    The Safety and Soundness Act makes a distinction between an 
activity and a product, and provides for the Enterprise to submit 
information to FHFA so that the Director may make certain 
determinations related to that distinction. The Safety and Soundness 
Act uses the term ``product'' when discussing products which are new 
for an Enterprise, and the language ``new and existing products or 
activities'' when discussing products and activities both new and 
already in existence. For ease of understanding, the proposed rule and 
this supplementary information use the term ``new product'' and ``new 
activity'' consistently to describe a product and activity which either 
does not exist at all, or exists in a different form, at the time of 
the effective date of the proposed rule when it becomes final.
    Before commencing a new activity that an Enterprise does not 
consider to be a product, the Safety and Soundness Act requires an 
Enterprise to provide ``written notice'' to the Director for a 
determination of whether such an activity is a 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 [E]nterprise before 
initially offering the product.'' See section 1321(a) of the Safety and 
Soundness Act (12 U.S.C. 4541(a)). In considering any request for 
approval of a new product, the Director shall make a determination 
whether the product is authorized pursuant to certain sections of the 
Enterprises' authorizing statutes,\2\ whether it is in the public 
interest, and whether it is consistent with the safety and soundness of 
the Enterprise or the mortgage finance system. See section 1321(b) of 
the Safety and Soundness Act (12 U.S.C. 4541(b)). As part of the 
process for the Director's approval of a new product, the Safety and 
Soundness Act provides a timeline for receipt and review of public 
comment regarding the proposed product. See section 1321(c) of the 
Safety and Soundness Act (12 U.S.C. 4541(c)).
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    \2\ Fannie Mae's authorizing statute is the Federal National 
Mortgage Association Charter Act (12 U.S.C. 1716 et seq.). Freddie 
Mac's authorizing statute is the Federal Home Loan Mortgage 
Corporation Act (12 U.S.C. 1451 et seq.).
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    The Safety and Soundness Act excludes automated loan underwriting 
systems and mortgage terms and conditions, and certain upgrades and 
modifications to those activities, from the requirements of section 
1321 of the Safety and Soundness Act (12 U.S.C. 4541). See section 
1321(e) of the Safety and Soundness Act (12 U.S.C. 4541(e)). The Act 
also excludes ``any other activity that is substantially similar'' to 
the above activities, and to ``activities that have been approved by 
the Director in accordance with this section.'' Id. The Director's 
safety and soundness authority is not restricted by this provision of 
the Safety and Soundness Act, nor is his authority to determine that 
the Enterprise's activities are consistent with its statutory mission. 
See section 1321(f) of the Safety and Soundness Act (12 U.S.C. 
4541(f)).

B. Interim Final Rule

    FHFA adopted an Interim Final Rule for Prior Approval for 
Enterprise Products (Interim Final Rule) which became effective on July 
2, 2009, and remains in effect. Interim Final Rule, 12 CFR 1253.\3\ 
That rule established an interim approach to implementing the Act's 
provisions pertaining to the process for 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. This proposed rule, if 
adopted as final, would replace the Interim Final Rule. However, until 
this proposed rule becomes final and effective, the Prior Approval for 
Enterprise Products regulation established under the Interim Final Rule 
shall remain in force and effect.
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    \3\ References to the Interim Final Rule, at 74 FR 31602 (July 
2, 2009), will include the description ``Interim Final Rule, 12 CFR 
part 1253 or 12 CFR and the corresponding section.'' References to 
the proposed rule will refer to the section of the proposed rule in 
part 1253.
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    The Interim Final Rule provides the requirements for an Enterprise 
to gain prior approval for an Enterprise product. The Interim Final 
Rule also provides that an Enterprise must submit a Notice of New 
Activity regarding a new activity or new product, and the Rule included 
a Notice of New Activity form in an appendix. See Interim Final Rule, 
Appendix to 12 CFR part 1253. The form includes instructions on 
providing the required information, and additional instructions are 
also provided in the Appendix, including criteria for identifying a new 
activity and new product.
    FHFA received a small number of comments on the Interim Final Rule, 
including from the Enterprises. While FHFA has reviewed those comments, 
the lengthy passage of time and the change in circumstance for the 
Enterprises from 2009, support providing those parties and other 
members of the public an opportunity to provide new comments on this 
proposed rule.

C. Conservatorship

    On September 6, 2008, the Director of FHFA appointed FHFA as 
conservator of the Enterprises in accordance with the Safety and 
Soundness Act to stabilize the Enterprises and to help assure 
performance of their public mission. In September 2019, the U.S. 
Treasury Department released its housing reform plan that recommended 
that FHFA begin the process to end each Enterprises' conservatorship in 
a manner consistent with the preconditions set forth in that plan.\4\ 
In October 2019, FHFA issued a new Strategic Plan and Scorecard for the 
Enterprises that stated that ``[e]nding the conservatorships of Fannie 
Mae and Freddie Mac is a central and necessary element of this new 
roadmap.''
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    \4\ Treasury, Housing Reform Plan at 26 (Sept. 2019), available 
at https://home.treasury.gov/system/files/136/Treasury-Housing-Finance-Reform-Plan.pdf.
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    The Interim Final Rule has been in effect during the majority of 
the time of the conservatorships of the Enterprises. In light of FHFA's 
obligation to end the conservatorships, this proposed rule, if adopted 
as a final rule, would be in operation both during and after the 
Enterprises' transition from conservatorship. Therefore, FHFA believes 
it is important to propose the Prior Approval for Enterprise Products 
rule which will replace the Interim Final Rule to afford interested 
parties an opportunity to comment on the scope of the proposed rule and 
the process for submission and FHFA review of a new activity and new 
product.

III. Discussion of Proposed Rule

A. Overview of the Proposed Rule

    The proposed rule would provide the criteria for what is a new 
activity and a new product, and the process for that activity's review 
and approval by the Director. Although the Act does not provide 
definitions for a product or an activity, or for how to identify what 
is ``new,'' the proposed rule provides distinguishing characteristics 
in order to implement the statutory mandate for the Director to approve 
a new product prior to an Enterprise offering that product. The 
standard for approving a new product includes determinations that the 
product complies with the

[[Page 71278]]

Enterprises' authorizing statutes, that it is in the public interest, 
and that it is consistent with the safety and soundness of the 
Enterprise or the mortgage finance system. See section 1321(b) of the 
Safety and Soundness Act (12 U.S.C. 4541(b)). Because of the lack of 
definitions, and the breadth of the considerations relevant to 
approval, FHFA concludes that the determination of whether a new 
activity is a new product in specific instances is committed to Agency 
discretion by law.
    The Act has separate provisions for a request for prior approval of 
a new product and for a notice of a new activity that the Enterprise 
does not believe to be a new product. However, FHFA does not believe 
that it is practical to require an Enterprise to identify a new product 
in advance--as distinct from a new activity that is not a new product--
for purposes of determining which type of submission to make to the 
Agency. For that reason, the proposed rule provides for a unified 
notice process which requires an Enterprise to make a single form of 
submission--a Notice of New Activity. A single submission will also 
streamline the review conducted by FHFA.
    Both the Act and the Interim Final Rule set the parameters of the 
activities that fall within the scope of the Act through a set of 
exclusions to the requirements of the Act. Not all new activities, even 
if ``new'' by virtue of date, are to be reviewed as a possible new 
product if they are excluded through either statutory, or additional 
regulatory, exclusions. Both the Interim Final Rule and proposed rule 
follow the Act's framework, but also provide criteria for how to 
identify a new activity. The Interim Final Rule provided a form for the 
Notice of New Activity and instructions regarding the content for the 
form and to aid the Enterprise in identifying a new activity and new 
product. The proposed rule incorporates the Interim Final Rule's 
substantive criteria for a new activity and new product into the 
regulation text in a reorganized and more streamlined format. In 
addition, in the proposed rule, FHFA seeks to streamline and simplify 
the content and submission of a Notice of New Activity by incorporating 
the required content into the regulation text rather than in a specific 
form as part of an appendix to the regulation.
    In establishing the criteria by which to identify a new activity, 
the proposed rule would employ, as much as possible, objective 
characteristics that can be commonly understood. The proposed rule 
limits the use of terms such as ``substantial,'' ``significant,'' or 
``de minimis'' because of the lack of a clear, common understanding of 
such subjective terms. Where those terms are used, additional guidance 
is provided in this supplementary information to align the meaning of 
the terms.
    As provided in the Safety and Soundness Act, 12 U.S.C. 4541(f), the 
Director's exercise of his or her authority under the regulations in 
this part in no way restricts the Director's safety and soundness 
authority over all new and existing products or activities of an 
Enterprise, or the Director's 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. New Activity and New Product

    The proposed rule at Sec.  1253.3 would describe the criteria for 
identifying a new activity and also describe the activities that are 
excluded from the requirements of the proposed rule.\5\ New activities 
meeting these criteria merit review by FHFA because they may implicate 
considerations of compliance with the Enterprises' authorizing 
statutes, safety and soundness, and the public interest.
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    \5\ OFHEO capital regulation for the Enterprises, 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. In any event, 12 CFR part 1750 in its entirety is proposed to 
be removed as part of the proposed rule for Enterprise Regulatory 
Capital Framework, 12 CFR part 1240, at 85 FR 39274 (June 30, 2020).
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    Section 1253.3(a)(1) of the proposed rule would provide a 
description of the nature of an ``activity'' to distinguish the 
universe of actions that are within the scope of the proposed rule from 
the total business operations of an Enterprise. An activity would be a 
business line, business practice, offering or service, including 
guarantee, financial instrument, consulting or marketing, that the 
Enterprise provides to the market either on a standalone basis or as 
part of a business line, business practice, offering, or service.
    Section 1253.3(a)(2) of the proposed rule would provide the 
specific criteria that identify an activity as ``new.'' A threshold 
criterion for a new activity is timing--that an activity is not 
currently engaged by the Enterprise as of the effective date of this 
proposed rule when final, or is an enhancement, alteration, or 
modification to an existing activity that the Enterprise currently 
engages in as of the effective date of this proposed rule when final.
    The proposed rule would set the trigger date for new activities to 
be the effective date of the final rule. This is different than the 
Interim Final Rule which used the trigger date of July 30, 2008. To the 
extent that the Enterprises have initiated new activities in the time 
period between July 30, 2008 and what will be the effective date of the 
final rule, the Interim Final rule has been in effect. Importantly 
also, during this time period, both Enterprises have, and continue to 
be, in conservatorship which provides special conservator review of 
Enterprise activities in addition to FHFA's standard supervisory and 
regulatory oversight. Given the passage of time and the evolution of 
the Enterprises' business activities since the date of the Interim 
Final Rule, FHFA determined that the appropriate trigger date for the 
proposed rule would be the effective date of a final rule so the 
proposed rule looks forward, rather than retroactively.
    In addition to meeting the requirements of proposed Sec.  
1253.3(a)(1) and (2), a new activity must be an activity which is 
described by one or more of the criteria provided at proposed Sec.  
1253.3(a)(3). The first three of these criteria are that an activity: 
(1) Requires a new type of resource, a new type of data, a new policy 
or modification to an existing policy, a new process or infrastructure; 
(2) Expands the scope or increases the level of credit risk, market 
risk, or operational risk to the Enterprise; or (3) Involves a new 
category of borrowers, investors, counterparties, or collateral.
    These elements use objective criteria to distinguish a new activity 
from an ongoing activity and to identify common attributes that may 
appear in business activities that are innovations or different from 
ongoing activity. For example, a new activity that uses a new type of 
data would include collecting a data item from an external party that 
had not been collected or used before by an Enterprise versus an 
activity that uses or collects the same type of data but uses it in a 
different format or captures an additional field for use in the same 
way. Similarly, an expansion of an existing activity that requires 
additional resources of the type already in use would not be captured 
by the resource criterion; however, a new type of resource that 
indicates a new activity could be a new organizational division, or 
newly contracted vendors for a different type of service. While 
expansion of an existing activity is not, per se, a new activity, that 
expansion may indicate a new activity if that enlargement expands the 
scope or increases the level of credit risk, market risk, or 
operational risk to the Enterprise.

[[Page 71279]]

    Section 1253.3(a)(3)(iv) of the proposed rule provides that a new 
activity can be identified if it would substantially impact the 
mortgage finance system, the Enterprise's safety and soundness, 
compliance with the Enterprise's authorizing statute, or the public 
interest. FHFA expects that the Enterprise will identify as a new 
activity an activity which would raise these systemic, statutory, or 
regulatory issues.
    Section 1253.3(a)(3)(v) and (vi) of the proposed rule provides the 
final two categories for identifying a new activity: (1) A pilot; or 
(2) An activity resulting from a pilot that is described by one of the 
criteria discussed above. The Interim Final Rule also specifically 
identified pilots as being in scope of a new activity. See Interim 
Final Rule, Appendix to 12 CFR part 1253, Section (A)(1). The proposed 
rule would define a pilot to be an activity that has a defined term and 
scope for purposes of understanding the viability of a new offering. 
For purposes of inclusion in the proposed rule, a pilot includes 
activities called by various other names such as testing initiative, 
test and learn, or temporary authorization. Unless a pilot falls into 
one of the exclusions set forth at proposed Sec.  1253.3(b), FHFA would 
expect a Notice of New Activity to be submitted even if the pilot did 
not trigger one of the other paragraphs of proposed Sec.  1253.3(a), 
such as increasing the level of risk to the Enterprise or requiring new 
resources. Despite possible limited size or financial impact on the 
Enterprises and the markets, pilots sometimes have an outsized effect 
in other areas such as furthering technological change or concerning 
the Enterprise mission. An additional variable is that pilots often 
extend for lengthy periods of time and sometimes change form as a 
natural consequence of conducting exploratory types of business.
    If an Enterprise decides that an activity should emerge from its 
pilot status to be a continuing activity, an Enterprise should evaluate 
whether that activity triggers one of the criteria discussed above and, 
if so, should again submit a Notice of New Activity. An activity 
emerging from a pilot is not an ``enhancement, alteration or 
modification'' to the existing pilot but a new activity that needs to 
be submitted in a new Notice of New Activity. As discussed below in 
Section III.G, regarding the content of a Notice of New Activity, the 
Enterprise should plan to include as part of the Notice, an analysis on 
the effectiveness of, and modifications to, the pilot as part of its 
rationale for a broader offering. This will assist FHFA in its review 
as to whether the activity emerging from the pilot requires a public 
notice and comment review.
    FHFA recognizes that providing examples to help explain when FHFA 
would consider an activity to be a new activity is useful for 
commenters. The examples given are for illustrative purposes only and 
should not be construed as a position that FHFA may take on whether an 
activity is permissible under the Enterprise's authorizing statute, or 
would be a new activity or a new product under the proposed rule. All 
the examples presume that the activity meets the baseline criteria that 
are set out in proposed Sec.  1253.3.
1. Example--Activity Which Is a Business Line Offering
    Currently, the Enterprises do not acquire personal property loans 
for manufactured housing (chattel loans). Under the proposed rule, if 
an Enterprise planned to offer a chattel loan product offering, such an 
activity would fall within at least three categories under proposed 
Sec.  1253.3. To support such an offering, an Enterprise would need to 
develop new policies or modify existing ones, as well as implement new 
processes or infrastructure, in order to acquire and securitize chattel 
loans. This activity would expand the scope or increase the level of 
credit risk, market risk, or operational risk to the Enterprise given 
the nature of the underlying collateral. Also, this is an activity that 
would involve a new category of collateral because it is not titled as 
real estate, and possibly a new category of borrowers, investors, or 
counterparties. A chattel loan product may also have a substantial 
impact on the public interest because of the affordable nature of 
manufactured housing and the potential for enhancing consumer 
protections through the origination and servicing requirements 
established by an Enterprise. In this example, the Enterprise must 
submit a Notice of New Activity prior to offering this product to the 
market.
2. Example--Activity Which Is a Pilot
    While in conservatorship, the Enterprises have previously engaged 
in pilots within their multifamily business lines that facilitated 
financing for institutional operators of single-family rental (SFR) 
properties; they are not actively engaged in this type of pilot 
currently. Under the proposed rule, if an Enterprise wanted to re-
engage in this type of pilot, the category for pilots would trigger the 
requirement to submit a Notice of New Activity to FHFA.
    Should an Enterprise decide to offer a product that facilitated the 
financing for institutional operators of SFR properties, there are 
other categories under proposed Sec.  1253.3 that would trigger the 
requirement to submit a Notice of New Activity to FHFA. For instance, 
such an offering for SFR properties would not only introduce a new type 
of collateral for an Enterprise's multifamily business line, but also 
would have an impact on the public interest because the product 
offering could place constraints on the single-family mortgage market 
by reducing the inventory of single-family homes available for purchase 
in a particular community.
3. Example--Activity Which Is a Loan Product Previously Offered But Not 
Offered as of the Effective Date of the Final Rule
    In December 2008, Fannie Mae retired its reverse mortgage product 
Home Keeper, and in October 2010 it stopped acquiring the U.S. 
Department of Housing and Urban Development's (HUD) Home Equity 
Conversion Mortgage (HECM).\6\ Under the proposed rule, if Fannie Mae 
wanted to resume acquisition of a reverse mortgage product after the 
effective date of the final rule, at least two of the categories under 
proposed Sec.  1253.3 would trigger the requirement to submit a Notice 
of New Activity to FHFA. In order to resume acquisitions, Fannie Mae 
would have to re-establish the policies, processes, and infrastructure 
to support new acquisitions. The activity would also include an 
increased level of credit risk, market risk, or operational risk to the 
Enterprise. This example illustrates that even though an Enterprise 
previously offered a product and then stopped offering it prior to the 
effective date of the final rule, the Enterprise must submit a Notice 
of New Activity to FHFA prior to offering the product to the market.
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    \6\ Fannie Mae still has Home Keeper mortgages and HECMs in its 
retained portfolio and maintains servicing requirements for these 
mortgages in its Servicing Guide. Freddie Mac did not offer a 
reverse mortgage product.
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    1. FHFA requests comments on the scope of the criteria for 
identifying a new activity, specifically on whether they are sufficient 
for capturing an activity that would require an Enterprise to submit 
Notice of a New Activity to FHFA.
    2. FHFA requests comments on whether the criteria used to identify 
a new activity are unambiguous and transparent or, if not, how they can 
be improved.

[[Page 71280]]

C. Exclusions From New Activity and New Product

    Section 1253.3(b) of the proposed rule would set forth those 
activities, as defined by the Act and the regulation, that are excluded 
from the requirements of the proposed rule. For purposes of consistency 
and practical application, the proposed rule provides that the 
exclusions apply when an activity is being evaluated for whether it is 
a new activity. Since only an activity that meets the criteria for a 
new activity is required to be evaluated as a new product, the 
exclusions apply to new products as well. For all but one of the 
exclusions, no notice or submission to FHFA is required prior to 
engaging in these activities because these activities are outside the 
scope of the prior approval requirements.
    The Safety and Soundness Act and the Interim Final Rule expressly 
exclude activities involving the Enterprises respective automated 
underwriting systems in existence as of July 30, 2008 (Fannie Mae's 
Desktop Underwriter and Freddie Mac's Loan Product Advisor), including 
any upgrade to the technology, operating system, or software to operate 
the underwriting system. Since July 30, 2008, the Enterprises have made 
many upgrades to their automated underwriting systems and these 
upgrades fall within the exclusion.
    However, technology systems which are not part of the automated 
underwriting systems would not fall into the exclusion. For example, 
the technology systems that evaluate the appraised value of a property, 
such as Fannie Mae's Collateral Underwriter (CU) or Freddie Mac's Home 
Value Explorer (HVE) or Loan Collateral Advisor, would not fall within 
this exclusion. These particular technologies predate the effective 
date of the proposed rule (when it is finalized) and so are outside the 
rule's scope. However, if changes are made to these systems which 
demonstrate one of the criteria of a new activity (such as a new type 
of data), those changes would need to be submitted in a Notice of New 
Activity.
    The Safety and Soundness Act and proposed rule at proposed Sec.  
1253.3(b)(2) also exclude Enterprise activities that involve any 
modification to the Enterprise's mortgage product terms and conditions 
or mortgage underwriting criteria, provided that the modifications do 
not alter the underlying transaction to include services or financing 
for anything other than residential mortgages. For example, if an 
Enterprise modifies the maximum loan-to-value ratio for certain product 
offerings, such a modification would be excluded from the requirements 
of the proposed rule.
    The Safety and Soundness Act and proposed rule at proposed Sec.  
1253.3(b)(3) excludes activities that are ``substantially similar'' to 
the automated underwriting systems and mortgage terms activities 
discussed above. As a guideline, the proposed rule would explain that 
if the activity is described by one or more of the criteria describing 
a new activity at proposed Sec.  1253.3(a)(3)(i) through (iv)--such as 
requiring a new type of data or a new policy--the activity is not 
substantially similar and the Enterprise should submit a Notice of New 
Activity for review under the provisions of this section and may not 
proceed with the new activity except pursuant to the requirements in 
this section.
    Section 1253.3(b)(5) of the proposed rule would include an 
additional regulatory exclusion, also included in the Interim Final 
Rule, which is for ``[a]ny Enterprise business practice, transactions, 
or conduct performed solely to facilitate the administration of an 
Enterprise's internal affairs to conduct its business.'' This exclusion 
clarifies that administration of the Enterprise's internal affairs are 
not subject to the proposed rule. This exclusion, however, is limited 
to an Enterprise's internal affairs--such as human resources--and does 
not exclude activity which ultimately impacts an offering to the 
public. No notice or submission to FHFA is required prior to engaging 
in the above described exclusions.
    The final exclusion at proposed Sec.  1253.3(b)(4) is an exclusion 
for an activity substantially similar to an approved new product. 
Unlike the exclusions described above, notice to FHFA is required prior 
to engaging in an activity falling within the scope of this exclusion. 
A detailed discussion of this exclusion is provided in Section F below.
    3. FHFA requests comments on how the exclusion for the automated 
underwriting systems as set forth in the Safety and Soundness Act 
should be applied to related but independent systems and to future 
technology systems.
    4. FHFA requests comments on whether the exclusions should be 
narrowed or expanded, consistent with the Safety and Soundness Act.

D. Public Notice and Comment for a New Product Review

    Whether a new activity is a new product depends on whether the 
Director determines that the new activity merits public notice and 
comment on matters of: Compliance with the authorizing statutes of 
Fannie Mae or Freddie Mac; safety and soundness of the Enterprise or 
the mortgage finance system; or serving the public interest. Proposed 
Sec.  1253.4 would set forth the factors that the Director may consider 
when determining whether a new product is in the public interest. These 
factors remain unchanged from the Interim Final Rule, apart from the 
deletion of the factor which stated ``other alternatives for providing 
the new product'' (Interim Final Rule, 12 CFR 1253.4(b)(3)(iv)), 
because that information is already requested in other factors. The 
Director retains the discretion to include other factors determined to 
be appropriate to consider during the approval process. The factors are 
ones the public should take into consideration in compiling their 
comments about a potential new product to inform the Director.
    5. FHFA requests comment on any other factors FHFA should include 
in the consideration of whether a new product is in the public 
interest.

E. Process for Submission and Review of Notice of New Activity

    Section 1253.5 of the proposed rule would establish the 
requirements for submission of a Notice of New Activity, and the review 
and determination process by FHFA, incorporating the timelines 
established by the Safety and Soundness Act. Before commencing any new 
activity, an Enterprise must submit to FHFA a written Notice of New 
Activity, the content of which is described in proposed Sec.  1253.9. 
An Enterprise includes any of its affiliates, see 12 CFR 1201.1, and, 
if the new activity is to be offered by an affiliate, either the 
Enterprises or their affiliates may submit the Notice of New Activity. 
The Notice of New Activity 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.
    A Notice of New Activity will not be considered complete and 
received for processing until the information required by proposed 
Sec.  1253.9 has been submitted, including any follow-up information 
required by FHFA. Section 1253.5(b) of the proposed rule would provide 
that nothing in the rule limits or restricts FHFA from reviewing the 
Notice of New Activity under any other applicable regulation or 
statute, as part of FHFA's authorities to review for safety and 
soundness and for consistency with an Enterprise's statutory mission. 
FHFA may conduct

[[Page 71281]]

such a review as part of its determination that the submission is 
complete. For example, if a proposed new activity necessitated a review 
for compliance with the Uniform Mortgage-Backed Security regulation (12 
CFR part 1248), being in receipt of the information to be able to 
conduct that review may be part of FHFA's determination that the 
submission is complete and has been received.
    The proposed rule would provide that an Enterprise may not commence 
a new activity unless the Director makes a written determination that 
the new activity is not a new product within 15 days, or the 15 days 
pass and no determination is made. If the Director determines that the 
new activity is a new product, the Enterprise must await approval of 
the new product under proposed Sec.  1253.6. If there is a 
determination that the new activity is not a new product, or the 15 
days pass with no determination, the Enterprise may begin the new 
activity, however undertaking the new activity may be subject to terms, 
conditions, or limitations as the Director may establish.

F. New Product Approval

    Section 1253.6 of the proposed rule provides for public notice and 
comment of a new product. If the Director determines that the new 
activity is a new product, the proposed rule would provide that FHFA 
publish a public notice soliciting comments on the new product for a 
30-day period. FHFA would include in that public notice enough 
information from the Notice of New Activity to sufficiently describe 
the new product, so that the public can provide comment. The public 
notice will state the closing date of the public comment period and 
will provide instructions for submission of public comment. As is the 
practice with other requests for information and proposed rules, 
comments submitted by the public on a new product will be made public 
and are posted on an FHFA website. The proposed rule does not include 
the confidentiality provision from the Interim Final Rule (Sec.  
1253.5) as the proposed rule follows common practice that public 
comments will be made public. The Interim Final Rule confidentiality 
provision had also applied to the Enterprises' submission of 
information; in the proposed rule, FHFA will determine what information 
is necessary for the public notice.
    In making the determination on approval of the new product, the 
Director will consider all public comments received by the closing date 
of the comment period. The proposed regulation incorporates the Safety 
and Soundness Act's approval requirements and would provide that the 
Director may approve the new product if the Director determines that 
the new product: In the case of Fannie Mae, is authorized under 12 
U.S.C. 1717(b)(2), (3), (4), or (5) or 12 U.S.C. 1719; or in the case 
of Freddie Mac, is authorized under 12 U.S.C. 1454(a)(1), (4), or (5); 
is in the public interest; and is consistent with the safety and 
soundness of the Enterprise or the mortgage finance system.
    In accordance with the statutory timelines, the Director will make 
a determination on the new product no later than 30 days after the 
close of the public comment period. If no determination is made within 
that time frame, the Enterprise may offer the new product. As with a 
new activity, a new product may be subject to any terms, conditions, or 
limitations as the Director may establish. Also, as with a new 
activity, the Director's authority to review for safety and soundness 
or consistency with the Enterprise's statutory mission is not 
compromised by any time limit provided for in the Act and reflected in 
the proposed rule.
    Section 1253.7 of the proposed rule incorporates the statutory 
provision concerning making a new product available without first 
seeking public comment. 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 exigent circumstances exist that make 
the delay associated with seeking public comment contrary to public 
interest. See section 1321 paragraphs (c)(2) through (c)(4) of the 
Safety and Soundness Act (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. The proposed rule would provide that 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. The Enterprise may 
request a Temporary Approval, or FHFA may act on its own initiative. 
The Director may impose terms, conditions or limitations on the 
Temporary Approval, and will also provide for a public comment period 
after granting the Temporary Approval.
    Section 1253.8 of the proposed rule would describe the scope of the 
``substantially similar'' exclusion for approved new products that 
appears at proposed Sec.  1253.3(b)(4). The Safety and Soundness Act 
provides an exclusion to its requirements for prior approval for 
``other activities that have been approved by the Director in 
accordance with this section.'' See section 1321(e) of the Safety and 
Soundness Act (12 U.S.C. 4541(e)). Once the Director determines that a 
new activity submitted in a Notice of New Activity is a new product, 
the new product will be published in a notice soliciting public 
comments. The Safety and Soundness Act provides that an Enterprise may 
offer a product if the Director approves the product, or if the 
Director does not make a determination within 30 days after the end of 
the public comment period; this requirement is incorporated in the 
proposed rule at proposed Sec.  1253.6(c) and (g). See section 1321(e) 
of the Safety and Soundness Act (12 U.S.C. 4541(e)). The proposed rule 
would set out how the substantially similar exclusion for approved new 
products operates for the two types of circumstances leading to the 
offering of a new product for both the Enterprise that originally 
submitted the Notice of New Activity and the other Enterprise.
    Section 1253.8 of the proposed rule would provide that either 
Enterprise may offer a new product that the Director has approved for 
the other Enterprise, or a new product that may be offered because no 
determination was made within the time period. This section covers both 
an activity which is the same as the original new product, and an 
activity that is substantially similar to the original new product. In 
either case, public notice and comment is not required because public 
notice and comment has already occurred in connection with the original 
offering. An Enterprise must notify FHFA of its intent to offer the new 
product at least 15 days prior, so that FHFA may exercise its 
regulatory and supervisory responsibilities. The notice is an 
abbreviated notice (not a Notice of New Activity) and the proposed 
content is the activity name and description, and, if the activity is 
substantially similar, why the Enterprise believes that to be the case. 
Notice is required here, unlike for the other exclusions which do not 
require notice, to ensure the product is the same or substantially 
similar to the original product and to ensure compliance with any 
conditions the Director may have placed on offering the original new 
product.

[[Page 71282]]

    The Director may determine that the activity is not substantially 
similar to the original new product. If that is the case, the 
Enterprise would be required to submit a Notice of New Activity and 
proceed through the full approval process. As a guidepost, the proposed 
rule explains that if an activity is described by one or more of the 
criteria for determining whether an activity is a new activity--such as 
involving a new policy or a new category of borrower--the Director may 
determine that the activity is not substantially similar. This 
``substantially similar'' exclusion does not cover a new activity which 
is not determined by the Director to be a new product as that new 
activity does not go through the public comment and approval process. 
This is consistent with the provision in the Interim Final Rule which 
limited this exclusion to the definition of ``New product.'' See 
Interim Final Rule Sec.  1253.2.
    Figure 1: Decision Tree below describes the decision paths for an 
original new product, for the same new product offered by the other 
Enterprise, and for a substantially similar new product for either 
Enterprise.
[GRAPHIC] [TIFF OMITTED] TP09NO20.004

    6. FHFA requests comment on whether the scope of the exclusion 
described in proposed Sec.  1253.8 is too broad or too narrow, given 
the requirements of the Safety and Soundness Act.

G. Notice of New Activity

    The scope of the information required in a Notice of New Activity, 
as set out in proposed Sec.  1253.9, serves to allow FHFA to: (1) 
Assess the impact, risks, and benefits of a new activity; and (2) 
Determine whether the new activity is a new product that merits public 
notice and comment. Sufficient information is needed to have a complete 
assessment and understanding of associated risks to support adequate 
oversight and control, and to weigh those risks against the benefits to 
public interest. Should FHFA determine that a new activity is a new 
product that merits public notice and comment, the content of the 
Notice of New Activity will also provide the public the information it 
needs to review and meaningfully comment on the proposed new product.
    In the Interim Final Rule, the content for a Notice of New Activity 
is set forth in a form in the Appendix to 12 CFR part 1253, which 
includes instructions for providing the required content. The Appendix 
also includes additional general and supplemental instructions to aid 
the Enterprise in identifying an activity and new product, and to 
complete the form.
    In the proposed rule, FHFA seeks to streamline and simplify the 
content and submission of a Notice of New Activity by incorporating the 
content into the regulation text rather than in a specific form as part 
of an appendix to the regulation. This approach also allows for more 
flexibility in how the information is submitted by an Enterprise and 
received by FHFA. Requiring a static form might be inconsistent with 
the most effective means for the Enterprise to present data, images, or 
other information. The proposed rule also consolidates interrelated 
content from the sets of instructions in the Interim Final Rule for 
clarity and to reduce duplication.
    For example, the Interim Final rule requires a separate description 
of unusual and unique characteristics of the new activity (Interim 
Final Rule, 12 CFR part 1253, Notice of New Activity Form, Item 3), 
which FHFA would expect an Enterprise to describe under the requirement 
for a complete and specific description of the new activity under 
proposed Sec.  1253.9(a)(2). Another area of consolidation in the 
proposed rule involves the information that must be provided on the 
business requirements for a new activity, which includes a description 
of the technology requirements, the business unit(s) involved and 
reporting lines, as well as any affiliation or subsidiary 
relationships, any third-party relationships, and the roles of each. In 
the Interim Final Rule there are three distinct items on the form 
requiring a

[[Page 71283]]

description of: (1) The business unit(s) and responsible personnel for 
the new activity (Item 5); (2) Relationships with non-secondary market 
participants (Item 9); and (3) Whether an acquisition by an Enterprise 
is involved with the new activity (Item 11). FHFA believes that 
streamlining the content of a Notice of New Activity will facilitate an 
Enterprise's compliance with the requirements of the regulation without 
impeding FHFA's ability to determine whether a new activity is a new 
product that merits public notice and comment.
    7. FHFA requests comment on the content of a Notice of New 
Activity, specifically whether the requirements are clearly stated and 
sufficient for evaluating a New Activity.
    8. FHFA requests comment on whether it should retain a pdf form for 
the Notice of New Activity similar to the form included in the Appendix 
to the Interim Final Rule.

H. Preservation of Authority

    Section 1253.10 of the propose rule would confirm 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)). Under this authority, for 
example, the Director could find that certain conditions or terms are 
appropriate for an ongoing activity. This section would also inform the 
Enterprise that failure to comply with the provisions of this 
regulation may result in FHFA requiring the Enterprise to submit a 
Notice of New Activity subject to the review and approval requirements 
of this section, without regard to whether the Enterprise has already 
commenced such activity, or taking enforcement actions, 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), or other steps authorized by law.
    9. FHFA requests comment on aspects of the proposed Prior Approval 
for Enterprise Products rule that are changes or deletions from the 
Interim Final Rule.
    10. In addition to the questions asked above, FHFA requests 
comments on any aspect of the proposed Prior Approval for Enterprise 
Products rule.

IV. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq) requires that 
a regulation that has a significant economic impact on a substantial 
number of small entities, or small organizations must include an 
initial regulatory flexibility analysis describing the regulation's 
impact on small entities. Such an analysis need not be undertaken if 
the agency has certified that the regulation will not have a 
significant economic impact on a substantial number of small entities 
(5 U.S.C 605(b)). FHFA has considered the impact of the proposed rule 
under the Regulatory Flexibility Act. The General Counsel of FHFA 
certifies that the proposed rule, if adopted as a final rule, will not 
have a significant economic impact on a substantial number of small 
entities because the regulation only applies to Fannie Mae and Freddie 
Mac, which are not small entities for purposes of the Regulatory 
Flexibility Act.

V. Paperwork Reduction Act

    The proposed rule 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

    Accordingly, for the reasons stated in the preamble, under the 
authorities of 12 U.S.C. 4526 and 12 U.S.C. 4541, FHFA proposes to 
amend Chapter XII of Title 12, Code of Federal Regulations as follows:

CHAPTER XII--FEDERAL HOUSING FINANCE AGENCY

Subchapter C--Enterprises

0
1. Revise part 1253 to read as follows:

PART 1253--PRIOR APPROVAL FOR ENTERPRISE PRODUCTS

Sec.
1253.1 Purpose and authority.
1253.2 Definitions.
1253.3 New Activity description and exclusions.
1253.4 New Product.
1253.5 Review of Notice of New Activity.
1253.6 New Product approval.
1253.7 Temporary approval of a New Product.
1253.8 Availability of an approved New Product and substantially 
similar approved New Product to the other Enterprise.
1253.9 Notice of New Activity.
1253.10 Preservation of authority.

    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 (12 U.S.C. 4541), as amended 
(Safety and Soundness Act).


Sec.  1253.2  Definitions.

    For purposes of this part:
    Authorizing statute means the Federal National Mortgage Association 
Charter Act and the Federal Home Loan Mortgage Corporation Act, as 
applicable.
    Credit risk is the potential that a borrower or counterparty will 
fail to meet its obligations in accordance with agreed terms. Credit 
risk includes the decline in measured quality of a credit exposure that 
might result in increased capital costs, provisioning expenses, and a 
reduction in economic return.
    Days means calendar days.
    Market risk means the risk that the market value, or estimated fair 
value if the market value is not available, of a regulated entity's 
portfolio will decline as a result of changes in interest rates, 
foreign exchange rates, or equity or commodity prices.
    New Activity has the meaning provided in Sec.  1253.3.
    New Product has the meaning provided in Sec.  1253.4.
    Operational risk means the risk of loss resulting from inadequate 
or failed internal processes, people, or systems, or from external 
events, including all direct and indirect economic losses related to 
legal liability. This includes reputational risk, which is the 
potential for substantial negative publicity regarding an institution's 
business practices.
    Pilot means an activity that has a defined term and scope for 
purposes of understanding the viability of a new offering. A pilot may 
also be referred to as testing initiative, test and learn, temporary 
authorization, or other names.


Sec.  1253.3  New Activity description and exclusions.

    (a) A New Activity is an activity that meets the requirements of 
this section:
    (1) An activity which is a business line, business practice, 
offering or service, including guarantee, financial instrument, 
consulting or marketing,

[[Page 71284]]

that the Enterprise provides to the market either on a standalone basis 
or as part of a business line, business practice, offering or service; 
and
    (2) An activity which:
    (i) Is not engaged in by the Enterprise as of the effective date of 
this section, or (ii) Is an enhancement, alteration, or modification to 
an existing activity that the Enterprise currently engages in as of the 
effective date of this section; and
    (3) An activity that is described by one or more of the following 
paragraphs:
    (i) Activity which requires one or more of the following: a new 
type of resource, a new type of data, a new policy or modification to 
an existing policy, a new process or infrastructure.
    (ii) Activity that expands the scope or increases the level of 
credit risk, market risk or operational risk to the Enterprise.
    (iii) Activity that involves a new category of borrower, investor, 
counterparty, or collateral.
    (iv) Activity that would substantially impact the mortgage finance 
system, safety and soundness of the Enterprise, compliance with the 
Enterprise's authorizing statute, or the public interest as identified 
in Sec.  1253.4(b).
    (v) Activity that is a pilot.
    (vi) Activity resulting from a pilot that is described by one or 
more of paragraphs (a)(3)(i) through (iv) of this section.
    (b) A New Activity excludes an activity which is described as:
    (1) The automated loan underwriting system of an Enterprise, 
including any upgrade to the technology, operating system, or software 
to operate the underwriting system.
    (2) Any modification to the mortgage terms and conditions or 
mortgage underwriting criteria relating to the mortgages that are 
purchased or guaranteed by an Enterprise, provided that such 
modifications do not alter the underlying transaction so as to include 
services or financing, other than residential mortgage financing.
    (3) Any activity that is substantially similar to the activities 
described in paragraph (b)(1) or (2) of this section. If the activity 
is described by one or more of paragraphs (a)(3)(i) through (iv) of 
this section, the activity is not substantially similar and the 
Enterprise must submit a Notice of New Activity for review under the 
provisions of this section and may not proceed with the New Activity 
except pursuant to the requirements in this section.
    (4) Pursuant to the requirements of Sec.  1253.8, any activity 
undertaken by an Enterprise that is the same as, or substantially 
similar to, a New Product that the Director has approved for the other 
Enterprise under Sec.  1253.6(a) through (e), or a New Product that is 
otherwise available to the other Enterprise under Sec.  1253.6(g).
    (5) Any Enterprise business practice, transactions, or conduct 
performed solely to facilitate the administration of an Enterprise's 
internal affairs to conduct its business.


Sec.  1253.4   New Product.

    (a) A New Product is any New Activity that the Director determines 
merits public notice and comment about whether it is:
    (1) In the case of Fannie Mae, authorized under 12 U.S.C. 
1717(b)(2), (3), (4), or (5) or 12 U.S.C. 1719; or
    (2) In the case of Freddie Mac, authorized under 12 U.S.C. 
1454(a)(1), (4), or (5); and
    (3) In the public interest; and
    (4) Consistent with the safety and soundness of the Enterprise or 
the mortgage finance system.
    (b) 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 advance any of the 
purposes of the Enterprise under its authorizing statute;
    (2) The degree to which the New Product serves underserved markets 
and housing goals 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 or could be 
supplied by other market participants;
    (4) The degree to which the New Product promotes competition in the 
marketplace or, to the contrary, would result in less competition;
    (5) The degree to which the New Product overcomes natural market 
barriers or inefficiencies;
    (6) The degree to which the New Product might raise or mitigate 
systemic risks to the mortgage finance or financial system;
    (7) The degree to which the New Product furthers fair housing and 
fair lending; and
    (8) Such other factors as determined appropriate by the Director.


Sec.  1253.5   Review of Notice of New Activity.

    (a) Before commencing a New Activity, an Enterprise must submit a 
Notice of New Activity to FHFA. FHFA will evaluate the Notice of New 
Activity to determine if the submission contains sufficient information 
for the Director to make a determination whether the New Activity is a 
New Product subject to prior approval. In support of its Notice of New 
Activity, the Enterprise shall submit information as described under 
Sec.  1253.9. The Enterprise shall provide thorough, complete, and 
specific information such that the public will be able to provide fully 
informed comments if the Director determines the New Activity to be a 
New Product. Once FHFA makes the determination that the submission is 
complete, FHFA will notify the Enterprise that the submission is 
``received'' for purposes of 12 U.S.C. 4541(e)(2)(B).
    (b) Nothing in this regulation limits or restricts FHFA from 
reviewing a Notice of New Activity under any other applicable law, 
under the Director's authority to review for safety and soundness, or 
to determine whether the activity complies with the Enterprise's 
authorizing statute. FHFA may conduct such a review as part of its 
determination that the Notice of New Activity submission is complete.
    (c) No later than 15 days after FHFA notifies the Enterprise that 
the submission is received, the Director will make a determination on 
the Notice of New Activity and will notify the Enterprise accordingly. 
If the Director determines that the New Activity is a New Product, the 
Enterprise must await approval or disapproval of the New Product under 
Sec.  1253.6.
    (d) If the Director determines that the New Activity is not a New 
Product, or if after passage of 15 days the Director does not make a 
determination whether the New Activity is a New Product, the Enterprise 
may commence the New Activity. The Director may establish terms, 
conditions, or limitations on the Enterprise's engagement in the New 
Activity as the Director determines to be appropriate and with which 
the Enterprise must comply in order to engage in the New Activity.
    (e) If the Director does not make a determination within the 15-day 
period, the absence of such determination does not limit or restrict 
the Director's safety and soundness authority or the Director's 
authority to review the New Activity to determine that the activity is 
consistent with the Enterprise's authorizing statute.


Sec.  1253.6  New Product approval.

    (a) If the Director determines that the New Activity is a New 
Product, FHFA shall publish a public notice soliciting comments on the 
New Product for a 30-day period.
    (1) The public notice will describe the New Product. FHFA will 
include such information from the Notice of New Activity as to provide 
the public with sufficient information to comment on the New Product. 
The public notice will state the closing date of the public comment 
period and will provide

[[Page 71285]]

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-day public comment period, FHFA includes 
the day on which the public notice is published, from which the period 
commences, and includes the last day of the period, regardless of 
whether it is a Saturday, Sunday, or legal holiday.
    (b) No later than 30 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.
    (c) The Director may approve the New Product if the Director 
determines that the New Product:
    (1) In the case of Fannie Mae, is authorized under 12 U.S.C. 
1717(b)(2), (3), (4), or (5) or 12 U.S.C. 1719; or
    (2) In the case of Freddie Mac, is authorized under 12 U.S.C. 
1454(a)(1), (4), or (5); and
    (3) Is in the public interest; and
    (4) Is consistent with the safety and soundness of the Enterprise 
or the mortgage finance system.
    (d) The Director may consider factors provided in Sec.  1253.4(b) 
when determining whether a New Product is in the public interest.
    (e) The Director may establish terms, conditions, or limitations on 
the Enterprise's offering of the New Product with which the Enterprise 
must comply in order to offer the New Product.
    (f) If the Director disapproves the New Product, the Enterprise may 
not offer the New Product.
    (g) If the Director does not make a determination within 30 days 
after the end of the public comment period, the Enterprise may offer 
the New Product. The absence of such a determination within 30 days 
does not limit or restrict the Director's safety and soundness 
authority or the Director's authority to review the New Product to 
determine that the product is consistent with the Enterprise's 
authorizing statute.
    (h) The Director may request any information in addition to that 
supplied in the completed Notice of New Activity if, as a result of 
public comment or otherwise in the course of considering the Notice of 
New Activity, the Director believes that the information is necessary 
for the Director's decision. The Director may disapprove a New Product 
if the Director 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 this section.


Sec.  1253.7  Temporary approval of a New Product.

    The Director may approve a New Product without first seeking public 
comment as described in Sec.  1253.6 if:
    (a) The Enterprise submits a specific request for Temporary 
Approval that describes the exigent circumstances that make the delay 
associated with a 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
    (b) Notwithstanding the absence of a request by the Enterprise for 
Temporary Approval, the Director determines on the Director's own 
initiative that there are exigent circumstances that make the delay 
associated with first seeking public comment contrary to the public 
interest.
    (c) The Director may impose terms, conditions, or limitations on 
the Temporary Approval to ensure that the New Product offering is 
consistent with the factors in Sec.  1253.6(c).
    (d) If the Director grants Temporary Approval, the Director will 
notify the Enterprise in writing of the Director's 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.
    (e) 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 this 
section.


Sec.  1253.8  Availability of an approved New Product and substantially 
similar approved New Product to the other Enterprise.

    (a) Either Enterprise may offer a New Product that the Director has 
approved for the other Enterprise under Sec.  1253.6(a) through (e), or 
a New Product that is otherwise available to the other Enterprise under 
Sec.  1253.6(g).
    (1) An Enterprise shall notify FHFA of its intent to begin offering 
the New Product at least 15 days prior to offering the New Product.
    (2) The notification is not required to be a Notice of New 
Activity. The notification shall include the name of the New Product 
and a complete and specific description.
    (3) Public notice and comment is not required in connection with 
this offering.
    (b) Either Enterprise may offer an activity that is substantially 
similar to a New Product that the Director has approved for the other 
Enterprise under Sec.  1253.6(a) through (e), or a New Product that is 
otherwise available to the other Enterprise under Sec.  1253.6(g).
    (1) An Enterprise shall notify FHFA of its intent to begin offering 
the activity that is substantially similar to the New Product at least 
15 days prior to offering the activity that is substantially similar to 
the New Product.
    (2) The notification is not required to be a Notice of New 
Activity. The notification shall include the name of the activity that 
is substantially similar to the New Product and a complete and specific 
description. The notification shall include a description of why the 
Enterprise believes the activity is substantially similar to the New 
Product.
    (3) Public notice and comment is not required in connection with 
this offering.
    (4) If the activity is described by one or more of the paragraphs 
at Sec.  1253.3(a)(3)(i) through (iv), the Director may determine that 
the activity is not substantially similar. If the Director determines 
an activity is not substantially similar, the Enterprise must submit a 
Notice of New Activity for review under the provisions of this section 
and may not proceed with the New Activity except pursuant to the 
requirements in this section.


Sec.  1253.9  Notice of New Activity.

    (a) A Notice of New Activity must provide the following items of 
information and provide appropriate supporting documentation. The 
corresponding paragraph number should be listed with the relevant 
information provided:
    (1) Name of the New Activity.
    (2) Complete and specific description of the New Activity.
    (3) Identify under which paragraphs of Sec.  1253.3 the New 
Activity is described.
    (4) State the Enterprise's view as to whether the New Activity is a 
New Product.
    (5) Describe the business rationale, the intended market, the 
business line, and what products are currently being offered or propose 
to be offered under such business line.
    (6) State the anticipated commencement date, and duration, for the 
New Activity or New Product. Describe and provide analysis, including 
assumptions, development expenses, any applicable fees, expectations 
for the impact of and projections for the projected quarterly

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size (for example, in terms of cost, personnel, volume of activity, or 
risk metrics) of the New Activity or New Product for at least the first 
12 months of deployment. If the New Activity is a pilot, include the 
parameters that end the pilot, such as duration, volume of activity, 
and performance. If the New Activity is the result of a pilot, include 
an analysis on the effectiveness of the pilot that describes the pilot 
objectives and success criteria; volume of activity; performance; risk 
metrics and controls; and the modifications made for a broader offering 
and rationale. Describe any market research performed relating to the 
New Activity or New Product.
    (7) Describe, explain and provide analysis, including assumptions, 
expectations for the impact of, and projections for the anticipated 
impact to earnings and capital of the New Activity or New Product on a 
quarterly basis for the first 12 months from the New Activity or New 
Product's commencement.
    (8) Describe the impact of the New Activity or New Product on the 
risk profile of the Enterprise. Describe key controls for the following 
risks: credit, market and operational.
    (9) Describe the business requirements for the New Activity or New 
Product including technology requirements. Describe the Enterprise 
business units involved in conducting the New Activity or New Product, 
including any affiliation or subsidiary relationships, any third-party 
relationships, and the roles of each. Describe the reporting lines and 
planned oversight of the New Activity or New Product.
    (10) Provide a fair lending self-evaluation of the New Activity or 
New Product. The fair lending self-evaluation should, at a minimum, 
include data on the predicted impact of the New Activity or New Product 
for protected class categories if such an impact is expected, a summary 
of reasonable alternatives considered, and, if applicable, the business 
justification for the New Activity or New Product.
    (11) Provide an analysis and legal opinions as to whether the New 
Activity is a New Product and whether it is:
    (i) In the case of Fannie Mae, authorized under 12 U.S.C. 
1717(b)(2), (3), (4), or (5) or 12 U.S.C. 1719; or
    (ii) In the case of Freddie Mac, authorized under 12 U.S.C. 
1454(a)(1), (4), or (5).
    (12) Provide copies of all notice and application documents, 
including any application for patents or trademarks, the Enterprise has 
submitted to other federal, state or local government regulators 
relating to a New Activity or New Product.
    (13) Describe the impact of the New Activity or New Product on the 
public interest and provide information to address the factors listed 
in Sec.  1253.4(b).
    (14) Describe how the New Activity or New Product is consistent 
with the safety and soundness of the Enterprise and the mortgage 
finance system.
    (15) Explain any accounting treatment proposed for the New Activity 
and New Product.
    (b) FHFA may require an Enterprise to submit such further 
information as the Director deems necessary to review the submission or 
to make a determination, at the time of the original submission or 
anytime thereafter.
    (c) An Enterprise shall certify, through an executive officer, 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 of New Activity.


Sec.  1253.10  Preservation of authority.

    (a) The Director's exercise of the Director's authority pursuant to 
the prior approval authority for products under 12 U.S.C. 4541, and 
this regulation, 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 authorizing statute of an Enterprise.
    (b) Failure to comply with the provisions of this section may 
result in any of the following actions:
    (1) FHFA may require the Enterprise to submit a Notice of New 
Activity subject to the review and approval requirements of this 
section, without regard to whether the Enterprise has already commenced 
such activity;
    (2) FHFA may take enforcement actions, 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); and
    (3) FHFA may take any other steps authorized by law to address the 
Enterprise's failure to comply.

Mark A. Calabria,
Director, Federal Housing Finance Agency.
[FR Doc. 2020-23452 Filed 11-6-20; 8:45 am]
BILLING CODE 8070-01-P