Procedures and General Definitions
FHFA received three comment letters in response to the proposed rule, one each from the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Bank of Atlanta, and the Federal Home Loan Bank of San Francisco (San Francisco Bank). Each of the comment letters recommended ways in which FHFA could revise certain aspects of the proposed rule. In considering those recommendations, FHFA has decided to revise two provisions of the proposed rule that pertain to which executives must sign submissions made under these procedures and the circumstances in which a resolution of the board of directors must accompany the submission. In all other respects, the final rule is unchanged from the proposed rule. The following paragraphs describe the two revisions being made to the final rule, as well as the reasons why FHFA has not revised the regulation in response to any of the other recommendations made by the commenters.
The proposed rule required all submissions under part 1211 to be signed by the president of the regulated entity or by the chairperson of the board of directors of the OF. Currently, part 907 of the Finance Board regulations only requires this for requests for no-action letters and permits the other types of submissions to be signed by authorized representatives of the entity. All three commenters argued that the proposal was too stringent, principally because there are likely to be circumstances in which executives other than the president or chairperson will be more familiar with the particular matter and thus would be the appropriate person for submitting the requests. Commenters also suggested that it would be more appropriate to allow each entity to decide which of its officers should sign submissions made under these rules. In addition, different regulated entities use different terms for their principal executive officers. The Enterprises are managed by “chief executive officers,” while the term for that officer used by the Banks, incorporated in the Bank Act and in FHFA’s regulations, is “president.” FHFA agrees with the commenters and is revising § 1211.6(b) of the final rule so that it would permit the principal executive officer or any other authorized executive officer of a regulated entity to sign any submissions made under part 1211. The final rule makes a similar change with respect to the OF, which allows for the chairperson of the board of directors or any authorized executive officer to sign submissions under these procedures.
The proposed rule would have carried over from the Finance Board regulations a provision requiring an entity seeking a waiver or approval to submit a resolution of its board of directors concurring in the substance of the submission and authorizing its filing, which would be in addition to the requirement that the submission be signed by the entity’s president. Fannie Mae contended this requirement was not necessary and also could be burdensome in light of the limited number of board meetings that an entity may have each year. FHFA agrees that although the Finance Board may have had policy reasons for requiring evidence of the board’s approval of waivers and approvals when these procedures were first adopted, there is no compelling reason to require a board resolution in support of a request for a waiver or approval when board resolutions are not required for regulatory interpretations or non-objection letters. Most submissions that have been made under these procedures generally are related to operational matters, which are the responsibility of management. Accordingly, FHFA is persuaded that it is not necessary for the board of directors to formally endorse these requests, and this requirement has been eliminated from the final rule.
Alternative Procedures for Approvals
Section 1211.3(b) of the proposed rule carried over from the Finance Board regulations a provision that stated that the procedures for obtaining FHFA’s approval under part 1211 would not apply if
Informal Procedures for Obtaining a Non-Objection
Fannie Mae stated that from time to time it informally asks that FHFA, in its conservatorship capacity, agree to a proposed activity by stating that it has no objection to the Enterprise undertaking the activity. Fannie Mae expressed concern that the extension of the formal procedures in part 1211 to the Enterprises could adversely affect these existing informal arrangements between the conservator and the Enterprises. To prevent that from happening, Fannie Mae has asked that FHFA codify these existing informal arrangements into the final rule. As was stated in the proposed rule, and as the final rule continues to state, the procedures of part 1211 apply only to regulatory matters pertaining to the Enterprises and the Banks. They do not apply to conservatorship matters. For that reason, it would be inappropriate to codify these existing informal conservatorship arrangements in this regulation. Moreover, because the final rule does not apply to any conservatorship matters, it will not affect the functioning of the existing channels through which the Enterprises currently obtain guidance or non-objection from FHFA in its capacity as conservator.
Section 1211.5(a) of the proposed rule carried over from the Finance Board regulations language allowing the General Counsel to issue a regulatory interpretation providing guidance with respect to a proposed transaction or activity. The Supplementary Information discussion of that provision further explained that requests for a regulatory interpretation must not relate to a hypothetical situation. Fannie Mae expressed concern about the reference to a hypothetical situation, believing that it may be difficult in practice to distinguish between a proposed business transaction that is at an early stage of development, and for which some interpretive guidance is needed, and a hypothetical situation. Fannie Mae contended that, without the ability to obtain FHFA guidance at an early stage in a proposal’s development, it could expend significant resources on developing a proposal only to have FHFA later decline to issue an interpretation that would have authorized the contemplated transaction. Fannie Mae recommended that FHFA address this issue by deleting from the final rule the reference to “proposed transaction or activity” and allowing the General Counsel to determine on a case-by-case basis whether a particular proposal was sufficiently developed to allow the issuance of a regulatory interpretation. FHFA agrees that the reference to “hypothetical situations” could cause confusion and wishes to make clear that the operative language of § 1211.5(a)—“proposed transaction or activity”—does not mean that a specific business proposal needs to be fully developed in order for a regulated entity to request a regulatory interpretation. However, FHFA does not believe it would be appropriate to delete the reference to “proposed transaction or activity” from the regulatory text. In order for FHFA to properly consider a request to interpret its statutes or regulations in a particular manner, it needs some factual context within which to frame and assess the legal issues. By retaining the requirement that a request for a regulatory interpretation must pertain to a proposed transaction or activity FHFA believes that it is more likely to receive a well-reasoned legal analysis as part of the request, and that the regulatory interpretation will be justified by an actual need.
Prospective Effect of FHFA Action
The proposed rule explicitly reserved to the Director the right to modify, rescind, or supersede any previously granted waiver, approval, non-objection letter, or regulatory interpretation, provided that any such action by the Director would be effective only on a prospective basis. The San Francisco Bank expressed concern that such actions taken by the Director might inadvertently impair existing contractual rights that had been established in reliance on the previously issued guidance. To avoid that possibility, the San Francisco Bank recommended that FHFA amend part 1211 to explicitly state that any such action by the Director would not adversely affect any existing contractual rights that had been established in reliance on previously granted guidance. FHFA does not believe that it is necessary for the regulatory text to state that actions by the Director that are effective only on a prospective basis also do not have retrospective effect. FHFA believes that the commonly understood meaning of a regulatory action that is to be “effective only on a prospective basis” is that it affects only actions to be taken subsequently, and does not affect any actions taken by the regulated entities prior to the date of the Director’s action, which would include any contractual rights established in reliance on the prior guidance. As a general proposition, FHFA evaluates actions taken by the regulated entities based on the law or regulations in effect at the time that the regulated entity acted, regardless of whether the statute, regulation or, in this case, regulatory guidance were to change at a subsequent date.
The introductory language of § 1211.6 of the proposed rule stated that requests submitted under these procedures “shall pertain to regulatory matters relating to the Banks or Enterprises, and not to conservatorship matters.” The preamble to the proposed rule repeated that statement. The intent behind that provision was to recognize that FHFA, as conservator, has established a series of procedures for communications between the conservator and the Enterprises relating to their business operations, and to make clear that matters that are currently handled under those conservatorship protocols and letters of instruction should continue to be handled under those procedures, rather than the part 1211 procedures. Fannie Mae has expressed concern that it could be difficult for an Enterprise to distinguish between a conservatorship matter and a regulatory matter, given the breadth and complexity of the conservatorship operations, which could create uncertainty about whether a particular matter should be addressed under the existing conservatorship protocols or under the part 1211 procedures. To avoid that uncertainty, Fannie Mae has recommended that FHFA amend part 1211 to permit the Enterprises to submit all requests for guidance to the conservator, who could then decide whether it involved a regulatory matter to be considered under part 1211 or a conservatorship matter to be considered under the existing conservatorship procedures. FHFA acknowledges that, by themselves, the terms “regulatory matters” and “conservatorship matters” are imprecise, but also believes that within the context of the conservatorships, including the procedures that the conservator has established for communications with the Enterprises while in conservatorship and the types of matters that have been subject to those procedures, both Enterprises should be able to determine which requests for agency guidance fall within the conservatorship procedures and which would be more appropriate for submission under part 1211. Accordingly, the final rule does not include the revisions requested by Fannie Mae but instead retains the language from the proposed rule distinguishing “conservatorship matters” from “regulatory matters.” To the extent that an Enterprise is unable to determine which procedures to follow in a particular case, it should raise the matter with the conservator under the informal channels of communication that they currently use for discussions about a variety of other matters.
Waiver of the Entire Regulation
Section 1211.6(d) of the proposed rule would allow FHFA, for supervisory reasons or administrative efficiency, to accept from a regulated entity a submission or class of submissions that does not comply with all of the requirements of the proposed procedures. Fannie Mae speculated that there could be circumstances in which the application of any portion of part 1211 would not be appropriate, and thus suggested that FHFA amend the final rule to allow FHFA to waive the entirety of part 1211 if that need were to arise. FHFA does not believe that it would be appropriate to add such a blanket waiver provision to the final rule, principally because the existing provision, which authorizes the agency to accept any submissions that do not comply with the requirements of part 1211, affords significant latitude for a regulated entity to submit, and for FHFA to consider, a request for guidance that includes less information than might otherwise be required. Moreover, procedures established under part 1211 are for situations in which a regulated entity initiates the communication with the agency in order to obtain guidance on a regulatory matter that is not fully addressed by the statute or regulations. The part 1211 procedures do not address or limit the informal communications that occur between a regulated entity and FHFA as part of the regulatory or examination processes.
The proposed rule would have repealed a portion of the Finance Board regulations that allowed the Banks to seek “case-by-case determinations” from the agency for any legal or policy issues of first impression. FHFA reasoned that those procedures, which have never been used, are apt to be cumbersome and inefficient, in that they require a quasi-judicial hearing before the agency that would be binding only on the parties appearing before the agency, and that they do not allow the same broad public airing of proposed changes to FHFA policy as is provided by a notice and comment rulemaking. The San Francisco Bank objected to the proposed repeal of these provisions, contending that they could serve as an efficient means to resolve certain issues. For the reasons stated above and in the proposed rule, FHFA believes that there is little benefit to preserving these never-used procedures for case-by-case determinations of policy issues, and that matters of revisions to the agency’s regulatory policy are better addressed through an administrative rulemaking process.
The Finance Board regulations had permitted the Banks, members of the Banks, the Office of Finance, and other interested parties to seek regulatory guidance under these procedures. The proposed rule would have limited the universe of requesters to the Banks, the Enterprises, and the Office of Finance because those are the only institutions that FHFA regulates. The San Francisco Bank believes that because Bank members and other parties may be indirectly affected by FHFA regulations, they also should be permitted to file submissions under part 1211. FHFA appreciates that regulations that directly affect the Banks may have some indirect effect on the members of the Banks. That said, FHFA has no direct regulatory authority over members and has few, if any, regulations that apply directly to the members. Similarly, FHFA has no authority over other third parties who may have an interest in Bank matters and has no regulations that would apply solely to third parties. Therefore, FHFA remains of the view that it is not appropriate for entities that are not subject to FHFA’s regulatory oversight to invoke these procedures, which are primarily intended to provide a means by which the entities that are subject to the statute and regulations may obtain guidance about how the provisions are to be applied to them. To the extent that Bank members or other third parties wish to bring matters to the attention of the agency, they can do so through other avenues, such as through the FHFA ombudsman or through correspondence to the agency. The Finance Board procedures were rarely, if ever, used by such third parties.
The final rule relocates the definition of the term “Authorizing Statutes,” which refers to the Bank Act and the chartering act of each Enterprise, from part 1211 to part 1201, the general definitions section for all FHFA regulations. No substantive modifications are being made to the definition, and FHFA believes that this relocation will facilitate the use of the term throughout FHFA’s regulations.