Suspended Counterparty Program, 47077-47084 [2023-14723]

Agencies

• FEDERAL HOUSING FINANCE AGENCY

[Federal Register Volume 88, Number 139 (Friday, July 21, 2023)]
[Proposed Rules]
[Pages 47077-47084]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-14723]


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FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1227

RIN 2590-AB23


Suspended Counterparty Program

AGENCY: Federal Housing Finance Agency.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Housing Finance Agency (FHFA) is proposing to 
amend the existing Suspended Counterparty

[[Page 47078]]

Program (SCP) regulation. FHFA proposes to expand the categories of 
covered misconduct on which a suspension could be based to include 
sanctions arising from certain forms of civil enforcement. The proposed 
rule would also eliminate the requirement that any final suspension 
order be preceded by a proposed suspension order, but only when the 
suspension is based on an administrative sanction.

DATES: Comments must be received on or before September 19, 2023.

ADDRESSES: You may submit your comments on the proposed rule, 
identified by regulatory information number (RIN) 2590-AB23, 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-AB23.
     Hand Delivered/Courier: The hand delivery address is: 
Clinton Jones, General Counsel, Attention: Comments/RIN 2590-AB23, 
Federal Housing Finance Agency, 400 Seventh Street SW, Washington, DC 
20219. Deliver the package at the Seventh Street 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: Clinton Jones, 
General Counsel, Attention: Comments/RIN 2590-AB23, Federal Housing 
Finance Agency, 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: Marshall Adam Pecsek, Assistant 
General Counsel, at (202) 649-3380 (not a toll-free number), 
[email protected]. For TTY/TRS users with hearing and speech 
disabilities, dial 711 and ask to be connected to any of the contact 
numbers above.

SUPPLEMENTARY INFORMATION:

I. Background

    The SCP requires a regulated entity--the Federal Home Loan Mortgage 
Corporation and any affiliate thereof, the Federal National Mortgage 
Association and any affiliate thereof (individually, an Enterprise and 
together, the Enterprises), and any Federal Home Loan Bank (Bank)--to 
submit a report to FHFA if it becomes aware that an individual or 
institution with which it does business has been found within the past 
three years to have committed certain forms of misconduct. FHFA may 
issue proposed and final suspension orders based on the reports it has 
received from the regulated entities or based on other information. 
FHFA offers the affected individual or institution and the regulated 
entities an opportunity to respond to any proposed suspension order. 
FHFA may issue a final suspension order if FHFA determines that the 
underlying misconduct is of a type that would be likely to cause 
significant financial or reputational harm to a regulated entity. Final 
suspension orders direct the regulated entities to cease or refrain 
from doing business with the suspended counterparties, subject to terms 
as provided in the orders.
    The reporting that is required under the SCP is authorized by 
sections 1313 and 1314 of the Federal Housing Enterprises Financial 
Safety and Soundness Act of 1992, as amended (Safety and Soundness 
Act). Section 1314(a) of the Safety and Soundness Act authorizes FHFA 
to require the regulated entities to submit regular reports on their 
activities and operations, as the Director considers appropriate. See 
12 U.S.C. 4514(a).
    The orders issued under the SCP fall within FHFA's general 
supervisory authority over the regulated entities, and specifically its 
authority under sections 1313, 1313B, and 1319G of the Safety and 
Soundness Act. Section 1313B of the Safety and Soundness Act authorizes 
FHFA to establish standards, by regulation or guideline, for each 
regulated entity regarding prudential management of risks. See 12 
U.S.C. 4513b. The Director may also require by order that the regulated 
entities take any action that will best carry out the purposes of that 
section. See 12 U.S.C. 4513(b)(2)(B)(iii). Section 1319G(a) of the 
Safety and Soundness Act authorizes FHFA to issue any regulations, 
guidelines, or orders necessary to ensure that the purposes of the 
Safety and Soundness Act and the Enterprise charter acts are 
accomplished. See 12 U.S.C. 4526(a). Finally, section 1313(a)(2) of the 
Safety and Soundness Act authorizes FHFA to exercise such incidental 
powers as may be necessary in the supervision and regulation of each 
regulated entity. See 12 U.S.C. 4513(a)(2).
    FHFA established the SCP in June 2012 by letter to the regulated 
entities. The requirements and procedures for the SCP were generally 
codified at 12 CFR part 1227 by the interim final rule published on 
October 23, 2013. 78 FR 63007. FHFA amended the SCP regulation via 
final rule published on December 23, 2015. 80 FR 79675.

II. Analysis of Proposed Rule

A. Civil Enforcement

    The SCP regulation authorizes suspension only if the applicable 
counterparty has committed covered misconduct, as that term is defined 
at 12 CFR 1227.2.\1\ ``Covered misconduct'' is defined to include 
``administrative sanctions'' and ``convictions,'' each of which is also 
defined at 12 CFR 1227.2.\2\ The definition of ``conviction'' is 
limited solely to judgments of guilt of criminal offense, or certain 
other dispositions that are the functional equivalent of such 
judgments. The standards reflected in these definitions have allowed 
FHFA to significantly reduce the risks to which the regulated entities 
are exposed, by prohibiting them from doing business with 
counterparties that have committed various offenses, including but not 
limited to mortgage fraud. However, in FHFA's experience of 
administering the SCP, it has determined that this standard is too 
narrow; specifically, it does not authorize suspension of 
counterparties that have been found to have committed various forms of

[[Page 47079]]

misconduct in the context of civil enforcement actions. Counterparties 
determined to have committed certain forms of misconduct in the context 
of civil enforcement actions may pose a significant risk to the 
regulated entities, even though their conduct might not rise to the 
level of criminal sanction, or might rise to this level, but the 
relevant criminal enforcement authority has declined to prosecute or 
has yet to prosecute.
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    \1\ ``Covered misconduct'' is defined, in relevant part, to mean 
``[a]ny conviction or administrative sanction within the past three 
(3) years if the basis of such action involved fraud, embezzlement, 
theft, conversion, forgery, bribery, perjury, making false 
statements or claims, tax evasion, obstruction of justice, or any 
similar offense, in each case in connection with a mortgage, 
mortgage business, mortgage securities or other lending product.'' 
12 CFR 1227.2 (definition of ``covered misconduct'').
    \2\ ``Administrative sanction'' is defined to mean ``debarment 
or suspension imposed by any Federal agency, or any similar 
administrative action that has the effect of limiting the ability of 
a person to do business with a Federal agency, including Limited 
Denials of Participation, Temporary Denials of Participation, or 
settlements of proposed administrative sanctions if the terms of the 
settlement restrict the person's ability to do business with the 
Federal agency in question.'' Id. (definition of ``administrative 
sanction''). ``Conviction'' is defined as follows: ``(1) [a] 
judgment or any other determination of guilt of a criminal offense 
by any court of competent jurisdiction, whether entered upon a 
verdict or plea; or (2) [a]ny other resolution that is the 
functional equivalent of a judgment of guilt of a criminal offense, 
including probation before judgment and deferred prosecution. A 
disposition without the participation of the court is the functional 
equivalent of a judgment only if it includes an admission of 
guilt.'' Id. (definition of ``conviction'').
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    To address this limitation in the SCP regulation, the proposed rule 
would amend the definition of ``conviction'' at Sec.  1227.2 to include 
an order or judgment by a Federal or state agency or court in a civil 
matter to which a Federal or state agency or government, or private 
citizen asserting claims on behalf of the government, is a party, 
constituting or including a finding that the person committed one of 
the offenses enumerated in the definition of ``covered misconduct''--
e.g., fraud, embezzlement, etc. FHFA intends the expansion of the SCP 
suspension authority to cover civil enforcement actions to be applied 
broadly, to all manner of civil enforcement proceedings, including 
civil enforcement actions before a court in the relevant judicial 
branch--e.g., a court organized under Article III of the United States 
Constitution in the Federal system or state equivalent--those before an 
administrative body convened by the issuing agency (e.g., agency 
enforcement action presided over by an administrative law judge), as 
well as actions properly undertaken by a private citizen on behalf of 
the Federal or a state government (e.g., qui tam actions under the 
False Claims Act).
    In addition, the proposed amendments would also include findings 
that a counterparty knowingly committed a material breach of contract. 
Certain, although possibly not all, of the enumerated offenses in the 
definition of ``covered misconduct'' have analogs in a non-criminal 
context (e.g., fraud); hence, the proposed amendment to the definition 
of ``conviction'' would simply incorporate, via reference, those 
enumerated offences. However, a counterparty's breach of contract, 
which generally would not be criminally actionable, may pose a 
significant risk to the regulated entities, particularly knowing, 
material breaches. These two qualifiers--``knowing'' and ``material,'' 
which generally relate to intent and significance, respectively--are 
appropriate insofar as FHFA's authority should be limited to those 
types of breaches that are likely to evince a risk of significant 
financial or reputation harm to the regulated entities, or otherwise 
threaten their safe and sound operation. Selection of this standard is 
prompted by the authority provided at 42 U.S.C. 1437z-1, under which 
the United States Department of Housing and Urban Development (HUD) may 
impose monetary penalties under the Section 8 program for certain 
knowing, material contractual violations, including the failure under a 
Section 8 contract ``to provide decent, safe, and sanitary housing.'' 
42 U.S.C. 1437z-1(b)(2)(A). However, the proposed rule would not merely 
authorize FHFA to suspend business where the counterparty has been 
found by HUD or, pursuant to judicial review of HUD final agency 
action, a federal court, to have knowingly committed a material breach 
under a Section 8 contract, but any finding by relevant authority in 
the context of civil enforcement actions where a counterparty has been 
found to have committed such a breach under any contract. Given the 
otherwise applicable restrictions under the SCP--most notably the 
requirement that covered misconduct occur in connection with a 
mortgage, mortgage business, etc. or in connection with the management 
or ownership of real property (a proposed revision separately addressed 
in section II.C.1 below)--the risk of any such breach to the regulated 
entities is apparent and it would be appropriate to authorize 
suspension in event of such a breach, not only those for which 
penalties are authorized under 42 U.S.C. 1437z-1.
    This amendment would also include resolutions that are the 
equivalent of the above-referenced judgments or orders--e.g., consent 
orders--regardless of whether the resolution includes an admission of 
misconduct by the subject counterparty. The current SCP regulation 
authorizes suspension where the covered misconduct is the disposition 
of a criminal offense that is the functional equivalent of a judgment 
of guilt (e.g., deferred prosecution agreement). However, it also 
provides that ``[a] disposition without the participation of the court 
is the functional equivalent of a judgment only if it includes an 
admission of guilt.'' 12 CFR 1227.2 (par. (2) of definition of 
``covered misconduct''). The proposed rule would not establish such a 
restriction with respect to civil enforcement. In FHFA's experience, 
admissions of misconduct in the context of civil enforcement are 
uncommon. Imposing such a restriction on suspensions based on settled 
civil enforcement actions would significantly hinder the SCP's purpose. 
FHFA is not proposing to eliminate the corresponding restriction in the 
context of criminal enforcement, because FHFA does not wish the SCP to 
have chilling effect on such dispositions. However, in the civil 
context, where the stakes for the applicable counterparties may be 
lower and where the costs of any such chilling effects would therefore 
be more limited, FHFA has determined that it is appropriate to permit 
suspension where enforcement claims are resolved without admission of 
misconduct.
    Accordingly, for the aforementioned reasons, the proposed rule 
would amend the definition of ``conviction'' in Sec.  1227.2 to include 
an order or judgment by a Federal or state agency or court in a civil 
matter to which a Federal or state agency or government, or private 
citizen asserting claims on behalf of the government, is a party, 
constituting or including a finding that the respondent committed one 
of the offenses enumerated in the definition of ``covered misconduct'' 
or knowingly committed a material breach of contract, or any other 
resolution that is the functional equivalent of such a judgment or 
order, such as a consent order, regardless of whether it includes any 
admission of misconduct.

B. Administrative Sanctions

1. Immediate Suspension Orders
    The SCP regulation establishes a series of procedures governing the 
issuance of a final order of suspension. FHFA must first issue a 
proposed order of suspension and provide the relevant counterparty and 
each regulated entity an opportunity to respond. Only then does the 
regulation authorize issuance of a final suspension order, and any such 
suspension order may not be effective sooner than 45 days after 
signature by the suspending official. Although these procedures are 
appropriate under most circumstances, ensuring that affected 
counterparties and the regulated entities are given the opportunity to 
provide FHFA with relevant information prior to issuance of a final 
suspension order, and that the regulated entities are provided adequate 
time to cease transactions with the relevant counterparties, there are 
circumstances under which these procedures excessively constrain FHFA.
    Specifically, FHFA has determined that these procedures should be 
modified where the covered misconduct is an administrative sanction, 
which is defined to mean ``debarment or suspension imposed by any 
Federal agency, or any similar administrative action that has the 
effect of limiting the ability of a person to do business with a 
Federal agency, including Limited

[[Page 47080]]

Denials of Participation, Temporary Denials of Participation, or 
settlements of proposed administrative sanctions if the terms of the 
settlement restrict the person's ability to do business with the 
Federal agency in question.'' 12 CFR 1227.2 (definition of 
``administrative sanction''). Accordingly, where the covered misconduct 
is an administrative sanction, the proposed rule would add new Sec.  
1227.11 allowing FHFA to issue a suspension order--designated as an 
``immediate suspension order''--that is effective as early as the date 
signed by the suspending official and without first issuing a proposed 
suspension order.
    Because FHFA does not conduct independent fact-finding 
investigations or adjudications in response to discovery of covered 
misconduct, it must defer to the judgment of third-party authorities 
(e.g., a criminal court). A proposed suspension order provides an 
important opportunity for subject counterparties and regulated entities 
to provide information that FHFA might find relevant in determining 
whether to issue a final suspension order, including but not limited to 
information that the subject counterparty believes would undermine one 
or more of the factual determinations on which the order is based. FHFA 
believes, however, that where another Federal agency has concluded that 
a counterparty's right to do business with the government should be 
limited, particular deference to that conclusion is warranted. In 
addition, whereas a conviction represents a judgment by a court of 
competent jurisdiction that a counterparty has engaged in certain forms 
of misconduct--or the functional equivalent of such a judgment--an 
administrative sanction reflects a specific determination by a Federal 
agency that the subject counterparty's right to do business with the 
Federal government should be limited or prohibited. Given FHFA's 
obligation to protect the safe and sound operation of the regulated 
entities and the authority under the SCP to restrict the entities' 
rights to conduct business with third parties, such determinations by 
Federal agencies are of unique significance. Accordingly, FHFA has 
determined that where the covered misconduct is based on an 
administrative sanction, it should be authorized to restrict the 
relevant counterparty's business with the regulated entities without 
excessive delay.
    This amendment would, of course, not preclude FHFA from adhering to 
the current procedures and issuing a proposed suspension order where an 
immediate suspension order is authorized, but would merely provide the 
Agency with additional flexibility to timely respond to the discovery 
of covered misconduct as appropriate. Similarly, the amendments would 
not require that immediate suspension orders be effective upon 
signature by the suspending official. FHFA expects that there would be 
circumstances under which such an effective date would be unduly 
disruptive to the regulated entities, who may require additional time 
to wind down business with the relevant counterparties. The proposed 
amendment would simply permit FHFA to issue an immediate suspension 
order that is effective upon signature by the suspending official where 
necessary and appropriate to protect the safe and sound operation of 
the regulated entities, without the burden of the 45-day requirement, 
but would also permit issuance of an immediate suspension order 
effective at some future date specified in the order. In addition, 
subject counterparties and the regulated entities would have the 
opportunity to provide a response for FHFA's consideration. However, 
whereas this response period precedes the effective date of a final 
suspension order under the current procedures, the proposed rule would 
allow for issuance of an immediate suspension order with an effective 
date preceding the deadline by which a response must be provided. The 
procedures governing issuance of an immediate suspension order, 
including but not limited to those governing the content of the order 
and notice, are described in more detail in section II C below.
2. Request To Vacate
    The proposed rule would add new Sec.  1227.12, establishing 
procedures allowing for the vacation of a final suspension order where 
the administrative sanction was imposed under authority that does not 
guarantee advance notice or an opportunity to present an opposition 
before the sanction is imposed. As noted above, FHFA does not conduct 
investigations or adjudicate facts regarding subject counterparties' 
conduct. Rather, FHFA relies on findings made by other authorities. 
Accordingly, FHFA's suspension authority is generally limited to 
judgments by authorities issued with certain procedural protections in 
place--e.g., notice and hearing opportunity in criminal proceedings. 
Under certain circumstances, however, a Federal agency may issue an 
administrative sanction without such protections. Specifically, the 
Office of Management and Budget (OMB) Guidelines to Agencies on 
Government-wide Debarment and Suspension (Nonprocurement) in 2 CFR part 
180, subpart G provides agencies with the authority, pursuant to 
implementing regulations promulgated by those agencies, to issue 
immediately effective orders of suspension without advance notice or an 
opportunity for hearing, pending resolution of a related proceeding 
(e.g., debarment proceeding). This suspension is generally meant to be 
temporary, pending outcome of the related proceeding, although it may 
be superseded by a more permanent sanction (e.g., debarment). See 2 CFR 
180.760.
    Due to the comparatively limited procedural protections afforded to 
counterparties subject to such suspensions, FHFA has determined that it 
would be appropriate to vacate suspension orders based on an 
administrative sanction imposed without prior notice and opportunity to 
present an opposition, once those orders are no longer in effect. The 
proposed rule would allow for a request to vacate, which FHFA would 
grant upon a finding that these conditions have been satisfied. The 
rule would require that the request be initiated by the subject 
counterparty and include such information as is necessary for FHFA to 
determine that the conditions are satisfied. The procedures governing 
vacation of such suspension orders are described in more detail in the 
section-by-section passage immediately below.

C. Section-by-Section Analysis

1. Sec.  1227.2 Definitions
    As discussed above in section II.A, the proposed rule would amend 
the definition of ``conviction'' to include an order or judgment by a 
Federal or state agency or court in a civil matter to which a Federal 
or state agency or government, or private citizen asserting claims on 
behalf of the government, is a party, constituting or including a 
finding that the respondent committed one of the offenses enumerated in 
the definition of ``covered misconduct'' or knowingly committed a 
material breach of contract, or any other resolution that is the 
functional equivalent of such a judgment or order, such as a consent 
order, regardless of whether it includes any admission of misconduct.
    In addition, the proposed rule would amend the definition of 
``covered misconduct'' to include misconduct in connection with the 
management or ownership of real property. Real property management is a 
significant function performed by certain regulated entity 
counterparties, particularly

[[Page 47081]]

participants in Enterprise multifamily loan transactions. Misconduct in 
connection with real property management or ownership--e.g., submission 
of fraudulent reports in connection with real property management 
service contracts, failure to maintain safe housing in accordance with 
assisted housing contracts, etc.--demonstrates a potential risk to the 
regulated entities, even in the absence of a close nexus between the 
misconduct and financing (e.g., mortgage origination fraud).
    Accordingly, the proposed rule would amend paragraph (1) of the 
definition of ``covered misconduct'' to read ``[a]ny conviction or 
administrative sanction within the past three (3) years if the basis of 
such action involved fraud, embezzlement, theft, conversion, forgery, 
bribery, perjury, making false statements or claims, tax evasion, 
obstruction of justice, or any similar offense, in each case in 
connection with a mortgage, mortgage business, mortgage securities or 
other lending product, or in connection with the management or 
ownership of real property.''
2. Sec.  1227.11 Immediate Suspension Order
    For the reasons provided above in section II B, the proposed rule 
would establish a new Sec.  1227.11 governing the issuance of immediate 
suspension orders. Paragraph (a) would establish the grounds under 
which such an order could be issued; specifically, such an order would 
be issued where the subject counterparty committed covered misconduct, 
the basis of which is an administrative sanction, and where the covered 
misconduct is of a type that would be likely to cause significant 
financial or reputational harm to a regulated entity or otherwise 
threaten the safe and sound operation of a regulated entity. This 
second requirement mirrors the corresponding standard, found in 
Sec. Sec.  1227.5(b)(2) and 1227.6(a)(2), authorizing issuance of 
proposed and final suspension orders, respectively.
    Paragraph (b) would establish the factors that FHFA may consider 
when determining whether to issue an immediate suspension order. It 
incorporates, by reference, the factors that FHFA may consider when 
determining whether to issue a final suspension order enumerated at 
Sec.  1227.6(c).
    Paragraph (c) would establish procedures governing issuance of an 
immediate suspension order, which generally correspond to those 
currently governing issuance of proposed and final suspension orders. 
It would provide that, where the suspending official makes a 
determination to suspend a person under Sec.  1227.11, the suspending 
official must issue an immediate suspension order to each regulated 
entity, mirroring similar requirements provided with respect to final 
suspension orders at Sec.  1227.6(f)(1). It would establish 
requirements for the content of the required order, incorporating by 
reference the content requirements for a final suspension order at 
Sec.  1227.6(f)(2); however, whereas a final suspension order must 
include a discussion of any relevant information submitted by the 
respondent or regulated entities, because an immediate suspension order 
is not preceded by a notice of proposed suspension that would provide 
the respondent or regulated entities with the opportunity to provide 
such information prior to issuance, reference to this information would 
be omitted in Sec.  1227.11(c).
    Paragraph (c) would also require that FHFA provide each respondent 
and regulated entity with a notice of the immediate suspension order 
and establish requirements for the content of the notice, incorporating 
by reference analogous requirements governing issuance of proposed 
suspension orders at Sec.  1227.5(d) and (e). These elements include, 
but are not limited to, information instructing the subject 
counterparty on how to provide a response.
    Paragraph (d) would provide that the effective date of the 
immediate suspension order be included in the order, as is the case 
with respect to final suspension orders. However, whereas final 
suspension orders may be effective no sooner than 45 days after 
signature by the suspending official, immediate suspension orders may 
be effective immediately upon signature.
    Paragraph (e) would establish requirements for the written record 
and would provide for FHFA's evaluation of information provided by 
respondents and regulated entities following issuance of an immediate 
suspension order. The proposed rule would require that the written 
record include any material submitted by the respondent and any 
material submitted by the regulated entities, as well as any other 
material that was considered by the suspending official in making the 
determination, including any information related to the factors in 
paragraph (b) of this section. It would specify that FHFA may 
independently obtain information relevant to the suspension 
determination for inclusion in the written record.
    As discussed above in section II.B, in contrast to a proposed 
suspension order, which is issued in anticipation of the issuance of a 
final suspension order and which will not be effective until after the 
deadline for response has passed, an immediate suspension order may be 
effective before such a deadline, and is not issued in anticipation of 
a subsequent order. Nevertheless, FHFA welcomes input from respondent 
and regulated entities in response to an immediate suspension order. 
Accordingly, paragraph (e) would provide that FHFA will consider any 
material submitted by the respondent and regulated entities by the 
deadline provided in the notice and document its determination whether 
or not to vacate or modify the terms of the immediate suspension order. 
The rule would provide that if FHFA elects to vacate or modify the 
terms of an immediate suspension order, notice will be provided to the 
respondent and regulated entities, and a modified order, as applicable, 
will replace the immediate suspension order on FHFA's website. However, 
if FHFA declines to vacate or modify the terms of the immediate 
suspension order, no notice of this determination would be provided, 
and the immediate suspension order would persist until it is later 
modified or vacated, or expires per the terms of the order.
    Finally, paragraph (f) would specify, as is noted above, that an 
immediate suspension order has the full force and effect of a final 
suspension order. FHFA acknowledges that the addition of a new category 
of order might create confusion among certain members of the public, 
but expects that this can be addressed through the text of the 
immediate suspension order itself and accompanying notice--e.g., in 
contrast to a notice of proposed suspension, which by historical 
practice notes that the referenced proposed order is only proposed and 
will not go into effect unless finalized, a notice of immediate 
suspension would read that the referenced order will go into effect on 
the identified effective date. Nevertheless, to more explicitly clarify 
what might otherwise be unclear, paragraph (f) distinguishes immediate 
from proposed suspension orders, providing that the former has the full 
force and effect of a final suspension order.
3. Sec.  1227.12 Request To Vacate
    The proposed rule would add new Sec.  1227.12 to provide 
respondents subject to an immediate suspension order with the 
opportunity to request that FHFA vacate the order under certain 
circumstances. Paragraph (a) would provide the general grounds that

[[Page 47082]]

must be satisfied in order for FHFA to grant the request. These include 
that: (i) the covered misconduct on which the suspension order was 
based does not include a conviction; (ii) each administrative sanction 
on which the order was based was imposed pursuant to authority that 
does not guarantee prior notice and a prior opportunity to present an 
opposition; and (iii) each administrative sanction on which the order 
was based is no longer in effect.
    Paragraph (b) would establish requirements for the content of a 
request to vacate. A request must include: (i) a copy of the final 
order of suspension for which the request to vacate applies; (ii) 
documentation from the agency imposing the administrative sanction 
citing the authority under which the sanction was imposed; (iii) 
documentation from the agency imposing the administrative sanction 
demonstrating that the sanction is no longer in effect; and (iv) all 
existing, proposed, or prior exclusions under regulations implementing 
Executive Order 12549 and all similar actions taken by Federal, state, 
or local agencies, including administrative agreements that affect only 
those agencies. This information would allow FHFA to determine whether 
the preconditions that would be established in paragraph (a) are 
satisfied.
    Paragraph (c) would establish requirements for FHFA's review of the 
request and any response. It would provide that FHFA must approve a 
request to vacate if it has been presented with evidence sufficient to 
demonstrate that the preconditions in paragraph (a) have been 
satisfied, unless FHFA discovers covered misconduct that has not formed 
the basis for a previously issued order of suspension, provided that 
the covered misconduct is of a type that would be likely to cause 
significant financial or reputational harm to a regulated entity or 
otherwise threaten the safe and sound operation of a regulated entity. 
Discovery of this additional covered misconduct may justify denial of 
the request, and any denial of a request to vacate would be regarded as 
final agency action and would not be appealable to the Director. Under 
these circumstances--i.e., where the administrative sanction initially 
justifying the suspension is no longer in effect but where continuation 
of the suspension is justified by discovery of additional covered 
misconduct--the public suspension order would not reflect all of the 
grounds on which the suspension's continuation is based. FHFA regards 
this as a negligible concern, however. By necessity, the immediate 
suspension order would have satisfied the appropriate regulatory 
requirements upon issuance, and both the respondent and regulated 
entities would have had an opportunity to respond to the order. In 
addition, the proposed rule would require that FHFA timely notify the 
respondent of its decision and that a denial of the vacation request 
specify the reasons for the denial, which would include identification 
of the additional covered misconduct.
    Paragraph (d) would specify that a request to vacate under Sec.  
1227.12 is distinct from a request for reconsideration under Sec.  
1227.9. A respondent may, for example, submit a request to vacate an 
immediate suspension order concurrently with a request for 
consideration, in which case FHFA would evaluate each independently. If 
FHFA were to determine that the request to vacate should be granted, 
then the request for reconsideration would be rendered moot. If, 
however, FHFA were to determine that the request to vacate should be 
denied, because the necessary preconditions have not been satisfied, it 
may still grant a request for reconsideration based on the standard 
provided in Sec.  1227.9(c). The time constraints governing requests 
for reconsideration would not apply to requests to vacate.
4. Miscellaneous Provisions
    The proposed rule would amend Sec.  1227.6(a) to specify that a 
final suspension order may be issued only if preceded by a proposed 
suspension order, pursuant to the requirements of Sec.  1227.5. 
Although this is implicitly apparent under the current regulation, it 
would be appropriate, in light of the proposed addition of immediate 
suspension order authority, to explicitly provide the circumstances 
under which a final suspension order may be issued. Finally, the 
proposed rule would make a series of conforming revisions throughout 
part 1227 to include a reference to immediate suspension orders, where 
the SCP regulation currently only references final suspension orders--
e.g., the requirement, found at Sec.  1227.8(a), that FHFA publish 
final suspension orders on its website. These amended provisions are: 
Sec. Sec.  1227.1(c); 1227.2 (definitions of ``respondent,'' 
``suspending official'' and ``suspension''); 1227.3(a); and 1227.8 
section heading, paragraphs (a) and (b)(3).

D. Solicitation of Comments

    FHFA solicits comments on every aspect of this proposed rule. 
However, FHFA solicits input in particular with respect to the 
following questions:
    1. Should the scope of misconduct included in the definition of 
``covered misconduct'' be expanded beyond what is being proposed? If 
so, what additional forms of misconduct should be included?
    2. Should the illustrative list of forms of misconduct--e.g., 
fraud, embezzlement, etc.--provided in the definition of ``covered 
misconduct'' be otherwise changed? If so, what should be added or 
removed?
    3. Should the regulation be amended to allow for suspension based 
on specific additional sanctions imposed by other Federal agencies, 
including but not limited to sanctions that restrict a counterparty's 
rights to participate in federally insured mortgage programs--e.g., the 
Federal Housing Administration's revocation of a mortgagee's right to 
participate in mortgage insurance programs under Title I or Title II of 
the National Housing Act--regardless of whether the underlying 
misconduct was related to fraud, embezzlement, etc.?
    4. Should FHFA be authorized to issue immediate suspension orders 
only with a prospective effective date (e.g., ten days after signature 
by the suspending official)? If so, how long after signature by the 
suspending official?

III. Consideration of Differences Between the Banks and the Enterprises

    Section 1313(f) of the Safety and Soundness Act requires FHFA, when 
promulgating regulations relating to the Banks, to consider the 
differences between the Enterprises and the Banks with respect to the 
Banks': cooperative ownership structure; mission of providing liquidity 
to members; affordable housing and community development mission; 
capital structure; joint and several liability; and any other 
differences FHFA considers appropriate. See 12 U.S.C. 4513(f). In 
preparing this proposed rule, FHFA considered the differences between 
the Banks and the Enterprises as they relate to the above factors and 
determined that the Banks should not be treated differently from the 
Enterprises for purposes of the proposed rule.

IV. Paperwork Reduction Act

    The proposed rule does not contain any information collection 
requirement that requires the approval of OMB under the Paperwork 
Reduction Act (44 U.S.C. 3501 et seq.). Therefore, FHFA has not 
submitted any information to OMB for review.

[[Page 47083]]

V. 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, small businesses, or small organizations must 
include an initial regulatory flexibility analysis describing the 
regulation's impact on small entities. FHFA need not undertake such an 
analysis 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. FHFA certifies that the proposed 
rule, if adopted as a final rule, would not have a significant economic 
impact on a substantial number of small entities because the proposed 
rule is applicable only to the regulated entities, which are not small 
entities for purposes of the Regulatory Flexibility Act.

List of Subjects in 12 CFR Part 1227

    Administrative practice and procedure, Federal home loan banks, 
Government-sponsored enterprises, Reporting and recordkeeping 
requirements.

    Accordingly, for the reasons stated in the Preamble, FHFA proposes 
to amend part 1227 of chapter XII of title 12 of the Code of Federal 
Regulations as follows:

PART 1227--SUSPENDED COUNTERPARTY PROGRAM

0
1. The authority citation for part 1227 continues to read as follows:

    Authority: 12 U.S.C. 4513, 4513b, 4514, 4526.


Sec.  1227.1  [Amended]

0
2. Amend Sec.  1227.1(c) by adding the words ``or immediate'' after 
``Request for an exception to a final''.
0
3. Amend Sec.  1227.2 as follows:
0
a. In the definition of ``Conviction'':
0
i. In paragraph (1), by removing the word ``or'' after the ``;'';
0
ii. In paragraph (2), by removing the ``.'' and adding the word ``; 
or'' after the words ``admission of guilt''; and
0
iii. by adding paragraph (3).
0
b. In the definition of ``Covered misconduct'' by revising paragraph 
(1).
0
c. In the definition of ``Respondent'' by adding ``, immediate,'' after 
the words ``subject of a proposed'';
0
d. In the definition of ``Suspending official'' by adding ``, 
immediate'' after the words ``sign proposed'';
0
e. In the definition of ``Suspension'' by removing the word ``a'' after 
the term ``pursuant to'' and adding in its place the words ``an 
immediate or''.
    The addition and revision read as follows:


Sec.  1227.2  Definitions.

* * * * *
    Conviction * * *
    (3) An order or judgment by a Federal or state agency or court in a 
civil matter to which a Federal or state agency or government, or 
private citizen asserting claims on behalf of the government, is a 
party, constituting or including a finding that the respondent 
committed one of the offenses enumerated in the definition of ``covered 
misconduct'' or knowingly committed a material breach of contract, or 
any other resolution that is the functional equivalent of such a 
judgment or order, such as a consent order, regardless of whether it 
includes any admission of misconduct.
    Covered misconduct * * *
    (1) Any conviction or administrative sanction within the past three 
(3) years if the basis of such action involved fraud, embezzlement, 
theft, conversion, forgery, bribery, perjury, making false statements 
or claims, tax evasion, obstruction of justice, or any similar offense, 
in each case in connection with a mortgage, mortgage business, mortgage 
securities or other lending product, or in connection with the 
management or ownership of real property.
* * * * *


Sec.  1227.3  [Amended]

0
3. Amend Sec.  1227.3(a) by removing the word ``a'' after the word 
``issue'' and adding, in its place, the words ``an immediate or''.
0
4. Amend Sec.  1227.6(a) by adding a new first sentence in the 
introductory text to read as follows:


Sec.  1227.6  Final suspension order.

    (a) Grounds for issuance. A final suspension order may be issued 
only if preceded by a proposed suspension order, pursuant to the 
requirements of Sec.  1227.5. * * *
* * * * *


Sec.  1227.8  [Amended]

0
5. Amend Sec.  1227.8 by:
0
a. Adding the words ``and immediate'' after the word ``final'' in the 
section heading and paragraph (a);
0
b. Adding the words ``or immediate'' after the word ``final'' in 
paragraph (b)(3).
0
6. Add Sec.  1227.11 to read as follows:


Sec.  1227.11  Immediate suspension order.

    (a) Grounds for issuance. A suspending official may issue an 
immediate suspension order with respect to a person if, based solely on 
the written record, the suspending official determines that there is 
adequate evidence that:
    (1) The person engaged in covered misconduct, the basis for which 
is an administrative sanction; and
    (2) The covered misconduct is of a type that would be likely to 
cause significant financial or reputational harm to a regulated entity 
or otherwise threaten the safe and sound operation of a regulated 
entity.
    (b) Factors that may be considered by the suspending official. In 
determining whether or not to issue an immediate suspension order with 
respect to a person where the grounds for suspension are satisfied, the 
suspending official may also consider any factors that the suspending 
official determines may be relevant in light of the circumstances of 
the particular case, including but not limited to any of the applicable 
factors enumerated in Sec.  1227.6(c).
    (c) Issuance of an immediate suspension order--(1) General. If the 
suspending official makes a determination to suspend a person under 
this section, the suspending official shall issue an immediate 
suspension order to each regulated entity regarding the respondent.
    (2) Content of immediate suspension order. The immediate suspension 
order must include a statement of the suspension determination and 
supporting grounds and each of the elements described in Sec.  
1227.6(f)(2)(ii) through (iv).
    (3) Notice to respondent required. The suspending official shall 
provide prompt written notice to the respondent of the immediate 
suspension order issued to the regulated entities with respect to such 
respondent. It must be delivered pursuant to the requirements provided 
in Sec.  1227.5(e).
    (4) Content of notice. The notice of an immediate suspension order 
shall include the elements prescribed for notice of a proposed 
suspension order established in Sec.  1227.5(d), except that wherever 
the term ``proposed'' appears in Sec.  1227.5(d), it shall be construed 
to mean ``immediate.''
    (d) Effective date. An immediate suspension order shall take effect 
on the date specified in the order, which may be as early as the date 
that the order is signed.
    (e) Written record and post-issuance evaluation. The written record 
shall include any material submitted by the respondent and any material 
submitted by the regulated entities, as well as any other material that 
was considered by the suspending official in making the determination, 
including any information related to the factors in

[[Page 47084]]

paragraph (b) of this section. FHFA may independently obtain 
information relevant to the suspension determination for inclusion in 
the written record. FHFA will consider any material submitted by the 
respondent and regulated entities by the deadline provided in the 
notice and document its determination whether or not to vacate or 
modify the terms of the immediate suspension order. If FHFA elects to 
vacate or modify the terms of an immediate suspension order, notice 
will be provided to the respondent and regulated entities, and a 
modified order, as applicable, will replace the immediate suspension 
order on FHFA's website. If FHFA declines to vacate or modify the terms 
of the immediate suspension order, no notice of this determination will 
be provided, and the immediate suspension order will persist until it 
is later modified or vacated, or expires per the terms of the order.
    (f) Relationship to final suspension order. An immediate suspension 
order has the same force and effect of a final suspension order, 
subject to the terms and conditions presented in the order.
0
7. Add Sec.  1227.12 to read as follows:


Sec.  1227.12  Request to vacate.

    (a) Grounds. A respondent subject to an immediate suspension order 
may petition FHFA for a request to vacate the order if each of the 
following conditions is met:
    (1) The covered misconduct on which the order was based does not 
include a conviction;
    (2) Each administrative sanction on which the order was based was 
imposed pursuant to authority that does not guarantee prior notice and 
a prior opportunity to present an opposition; and
    (3) Each administrative sanction on which the order was based is no 
longer in effect.
    (b) Content of request. A request to vacate a final suspension 
order that satisfies each of the conditions provided in this paragraph 
(b) does not preclude FHFA from requesting additional information from 
the respondent. The request must include:
    (1) A copy of the final order of suspension for which the request 
to vacate applies;
    (2) Documentation from the agency imposing the administrative 
sanction citing the authority under which the sanction was imposed;
    (3) Documentation from the agency imposing the administrative 
sanction demonstrating that the sanction is no longer in effect; and
    (4) All existing, proposed, or prior exclusions under regulations 
implementing Executive Order 12549 and all similar actions taken by 
Federal, state, or local agencies, including administrative agreements 
that affect only those agencies.
    (c) Decision and response. FHFA will vacate the final order of 
suspension if it has been presented with documentation demonstrating 
that each of the conditions in paragraph (a) of this section has been 
satisfied, unless FHFA is aware of any other covered misconduct that 
has not formed the basis for a previously issued order of suspension, 
which may justify denying the request to vacate if the covered 
misconduct is of a type that would be likely to cause significant 
financial or reputational harm to a regulated entity or otherwise 
threaten the safe and sound operation of a regulated entity. FHFA will 
notify the respondent of its decision in a timely manner. If FHFA 
denies the request, its response will specify the reasons for the 
denial. Any such rejection shall not be appealable to the Director and 
shall constitute final agency action.
    (d) Relationship to requests for reconsideration. A request to 
vacate a final suspension order issued under this section is distinct 
from a request for reconsideration issued under Sec.  1227.9.

Sandra L. Thompson,
Director, Federal Housing Finance Agency.
[FR Doc. 2023-14723 Filed 7-20-23; 8:45 am]
BILLING CODE 8070-01-P