Federal Register: January 15, 2009 (Volume 74, Number 10)
DOCID: fr15ja09-6 FR Doc E9-809
FEDERAL HOUSING FINANCE AGENCY
Federal Housing Financing Agency
CFR Citation: 12 CFR Part 1250
NOTICE: RULES
DOCID: fr15ja09-6
DOCUMENT ACTION: Final regulation.
SUBJECT CATEGORY:
Office of Federal Housing Enterprise Oversight
DATES: The final regulation is effective February 17, 2009.
DOCUMENT SUMMARY:
The Federal Housing Finance Agency (FHFA) is issuing a final
regulation that codifies the authority and responsibility of FHFA to
oversee and enforce the statutory requirements affecting the operations
of the Federal National Mortgage Association and the Federal Home Loan Mortgage
[[Page 2348]]
Corporation under the Flood Disaster Protection Act of 1973, as
amended, and to effect congressionally mandated adjustments to the
civil money penalties applicable to violations of that law.
SUMMARY:
Flood Insurance
DOCUMENT BODY 2:
12 CFR Part 1773
RIN 2590AA09
Flood Insurance
SUPPLEMENTAL INFORMATION
I. Proposed Rulemaking
The FHFA published a proposed Flood Insurance regulation for public
comment in the Federal Register, 73 FR 60198 (October 10, 2008). No
comments were received. Accordingly, the proposed regulation is adopted
as a final regulation with technical changes as described below under
Section II.C. Background, Adjustment of civil money penalties for inflation.
II. Background
A. Establishment of the Federal Housing Finance Agency
The Housing and Economic Recovery Act of 2008 (HERA), Public Law
No. 110289, 122 Stat. 2654, amended the Federal Housing Enterprises
Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501 et seq.)
(Act) to establish FHFA as an independent agency of the Federal
Government.\1\ The FHFA was established to oversee the prudential
operations of the Federal National Mortgage Association, the Federal
Home Loan Mortgage Corporation (collectively, Enterprises), and the
Federal Home Loan Banks (collectively, Regulated Entities) and to
ensure that they operate in a safe and sound manner including being
capitalized adequately; foster liquid, efficient, competitive and
resilient national housing finance markets; comply with the Act and
rules, regulation, guidelines and orders issued under the Act, and the
respective authorizing statutes of the Regulated Entities; and carry
out their missions through activities authorized and consistent with
the Act and their authorizing statutes; and, that the activities and
operations of the Regulated Entities are consistent with the public interest.
\1\ See Division A, titled the ``Federal Housing Finance
Regulatory Reform Act of 2008,'' TITLE I, Section 1101 of HERA.
The Office of Federal Housing Enterprise Oversight (OFHEO) and the
Federal Housing Finance Board (FHFB) will be abolished one year after
enactment of the HERA. However, the Regulated Entities continue to
operate under regulations promulgated by OFHEO and FHFB and such
regulations are enforceable by the Director of FHFA until such
regulations are modified, terminated, set aside, or superseded by the Director of FHFA.\2\
\2\ See sections 1302 and 1312 of HERA.
B. Flood Insurance Responsibilities
The National Flood Insurance Act of 1968 \3\ and the FDPA,\4\ as
amended by the National Flood Insurance Reform Act of 1994 (NFIRA),\5\
together create a comprehensive National Flood Insurance Program that
includes various provisions designed to ensure that structures built in
flood plains are covered by statutory minimum amounts of flood
insurance. The NFIRA has specific requirements explicitly applicable to
the Enterprises.\6\ It originally designated OFHEO as the Federal
agency responsible for determining compliance of the Enterprises' flood
insurance responsibilities and provided OFHEO with the authority to
issue any regulations necessary to carry out the applicable provisions
of NFIRA.\7\ The NFIRA also authorized OFHEO to impose civil money
penalties upon an Enterprise that fails to implement procedures
reasonably designed to ensure that the loans it purchases comply with the mandatory flood insurance purchase requirements.\8\
\3\ Codified at 42 U.S.C. 4001 et seq. and other scattered sections of 42 U.S.C.
\4\ Codified at 42 U.S.C. 4002 et seq. and other scattered sections of 42 U.S.C.
\5\ Title V of the Riegle Community Development and Regulatory
Improvement Act of 1994, Public Law No. 103325 (Sept. 23, 1994)
(codified, as amended, at 42 U.S.C. 40014129, and other sections of the United States Code).
\6\ 42 U.S.C. 4012a(b)(3).
\7\ 42 U.S.C. 4001 note (Pub. L. 103325, Title V, Section 583). \8\ 42 U.S.C. 4012a(f)(3).
Section 1161(e) of HERA amended section 102(f)(3)(A) of the FDPA (42 U.S.C. 4012a(f)(3)(a)), by replacing OFHEO with FHFA as the agency responsible for determining compliance of the Enterprises' flood insurance responsibilities. Thus, FHFA issues this regulation to codify the authority and responsibility of FHFA to oversee and enforce the statutory requirements affecting the operations of the Enterprises under the FDPA, and to effect congressionally mandated adjustments to the civil money penalties applicable to violations of that law. This final regulation, when effective, will supersede the OFHEO Flood Insurance regulation at 12 CFR part 1773.
The Enterprises have a key role in the implementation of the
Federal government's flood insurance program, particularly with regard
to lenders that are not subject to direct supervision by a Federal
regulatory agency. The Enterprises use their seller/servicer guidelines
and other quality control review procedures to ensure that lenders with
whom they contract comply with the applicable flood insurance laws.
More specifically, each Enterprise is required to implement procedures
reasonably designed to ensure that any mortgage loan that is purchased
and is secured by property located in a designated flood hazard area is
covered for the term of the loan by flood insurance in an amount at
least equal to the lesser of (1) the outstanding principal balance of
the loan or (2) the maximum limit of coverage made available for that type of property.\9\
\9\ 42 U.S.C. 4012a(b)(3).
C. Adjustment of Civil Money Penalties for Inflation
The FDPA sets forth the procedures under which the Director of FHFA
may impose civil money penalties against an Enterprise and the amounts
of these civil money penalties.\10\ This regulation adjusts the amounts
of these civil money penalties in accordance with the requirements of
the Federal Civil Penalties Inflation Adjustment Act of 1990, as
amended by the Debt Collection Improvement Act of 1996 (Inflation
Adjustment Act).\11\ The increases in maximum civil money penalty
amounts do not mandate the amount of any civil money penalty that FHFA
may seek for a particular violation. FHFA continues to determine each civil money penalty on a casebycase basis in light of the
circumstances of the case.
\10\ 42 U.S.C. 4012a(f)(3).
\11\ 28 U.S.C. 2461 note.
The Inflation Adjustment Act requires Federal agencies that have authority to issue civil money penalties to issue regulations that adjust each civil money penalty that the agency has jurisdiction to administer. The purpose of these adjustments is to maintain the deterrent effect of civil money penalties and promote compliance with the law. The Inflation Adjustment Act requires agencies to make an initial adjustment of their civil money penalties upon the statute's enactment, and to make additional adjustments on an ongoing basis, at least once every four years following the initial adjustment. [[Page 2349]]
Under the Inflation Adjustment Act, the inflation adjustment for each applicable civil money penalty is determined by increasing the maximum civil money penalty amount by a costofliving adjustment. As is described in detail below, the Inflation Adjustment Act provides that this costofliving adjustment is to reflect the percentage increase in the Consumer Price Index for All Urban Consumers (CPIU) since the civil money penalties were last adjusted or established.
The Inflation Adjustment Act directs Federal agencies to calculate each civil money penalty adjustment as the percentage by which the CPI U for June of the calendar year preceding the adjustment exceeds the CPIU for June of the calendar year in which the amount of such civil money penalty was last set or adjusted pursuant to law. When OFHEO issued the Flood Insurance regulation in 2001, the maximum civil money amounts of $350 (for each violation) and $100,000 (maximum annual amount for each Enterprise), found at 42 U.S.C. 4012a(f)(5), were adjusted to $385 and $110,000, respectively.\12\
\12\ 66 FR 65101 (Dec. 18, 2001); 12 CFR part 1773.
OFHEO did not subsequently adjust these civil money penalty
amounts. Because FHFA is making this adjustment in calendar year 2009,
rather than in 2008 as indicated in the proposed regulation, the
inflation amount for each civil money penalty is calculated by
comparing the CPIU for June 2001 (178.000), the calendar year OFHEO
last adjusted the civil money penalty, with the CPIU for June 2008
(218.815), rather than with the CPIU for June 2007 (208.235). This
results in an inflation adjustment of 22.93 percent in 2009, rather
than an inflation adjustment of 17.05 percent if the Flood Insurance
regulation had been published as final in 2008. For each civil money
penalty, the product of this inflation adjustment and the previous
maximum penalty amount is then rounded in accordance with the specific
requirements of the Inflation Adjustment Act and added to the previous
maximum penalty amount to determine the new adjusted penalty
amount.\13\ Accordingly, the civil money penalty maximum of $385 is
increased to $485 for each violation, as was proposed. The civil money
penalty maximum of $110,000 is increased to $140,000 in 2009, rather
than increased to $130,000 as proposed, for the total assessed
penalties against an Enterprise during any calendar year. The increase
would apply only to violations which occur after the effective date of this regulation.
\13\ The rounding rules of the Inflation Adjustment Act require
that each increase be rounded to the nearest multiple as follows:
$10 in the case of penalties less than or equal to $100; $100 in the
case of penalties greater than $100 but less than or equal to
$1,000; $1,000 in the case of penalties greater than $1,000 but less
than or equal to $10,000; $5,000 in the case of penalties greater
than $10,000 but less than or equal to $100,000; $10,000 in the case
of penalties greater than $100,000 but less than or equal to
$200,000; and $5,000 in the case of penalties greater than $200,000. III. SectionbySection Analysis
Section 1250.1 Purpose
This section sets forth the responsibilities of the Enterprises under the FDPA and the procedures to be used by FHFA in any proceeding to assess civil money penalties against an Enterprise under FDPA. Section 1250.2 Procedural Requirements
Section 1250.2 sets forth the requirement that each Enterprise is to implement procedures reasonably designed to ensure that properties securing particular loans are properly insured in accordance with the National Flood Insurance Act of 1968, as amended. Consistent with 42 U.S.C. 4012a(4), it also sets forth that the procedures need apply only to loans made, increased, extended, or renewed after September 22, 1995. The section further provides that the procedural requirements do not apply to any loan having an original outstanding principal balance of $5,000 or less and a repayment term of one year or less.\14\ \14\ 42 U.S.C. 4012a(c)(2).
Section 1250.3 Civil Money Penalties
Section 1250.3 sets forth procedures under which the Director of FHFA may impose civil money penalties against an Enterprise. The Director may assess a civil money penalty against an Enterprise determined by the Director to have a pattern or practice of purchasing loans in violation of the procedures established pursuant to Sec. 1250.2. The increase applies only to violations which occur after the date the increase takes effect.
The section also sets forth notice and hearing requirements prior to the imposition of civil money penalties. A civil money penalty may be issued only after notice and an opportunity for a hearing on the record has been provided.
In addition, the section sets forth the maximum amount of civil money penalties that may be imposed on an Enterprise under the regulation. A civil money penalty may not exceed the adjusted statutory amount of $485 for each violation and the total amount of penalties assessed against an Enterprise during any calendar year may not exceed the adjusted statutory cap of $140,000.
Furthermore, in accordance with 42 U.S.C. 4012a(f)(8), (9), and (10), Sec. 1250.3 provides that
(1) Any civil money penalties collected under this section are to
be paid into the National Flood Mitigation Fund in accordance with 42 U.S.C. 4104d,
(2) Any civil money penalty is in addition to any civil remedy or criminal penalty otherwise available, and
(3) No penalty may be imposed after the expiration of the fouryear
period beginning on the date of the occurrence of the violation for which the penalty is authorized.
Regulatory Impact
Paperwork Reduction Act
This regulation 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.).
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. 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). The FHFA has considered the impact of the
regulation under the Regulatory Flexibility Act. The FHFA certifies
that the regulation is not likely to have a significant economic impact
on a substantial number of small business entities because the
regulation is applicable only to the Enterprises, which are not small entities for purposes of the Regulatory Flexibility Act.
List of Subjects
12 CFR Part 1250
Governmentsponsored enterprises, Flood insurance, Penalties, Reporting and recordkeeping requirements.
12 CFR Part 1773
Administrative practice and procedure, Flood insurance, Penalties, Reporting and recordkeeping requirements.
[[Page 2350]]
Authority and Issuance
Accordingly, for the reasons stated in the preamble, under the
authority of 12 U.S.C. 4526, the Federal Housing Finance Agency amends
chapters XII and XVII of Title 12, Code of Federal Regulations, as follows:
CHAPTER XIIFEDERAL HOUSING FINANCE AGENCY
1. Add Subchapter C, consisting of part 1250 to read as follows: Subchapter CEnterprises
PART 1250FLOOD INSURANCE
Sec.
1250.1 Purpose.
1250.2 Procedural requirements.
1250.3 Civil money penalties.
Authority: 12 U.S.C. 4521(a)(4) and 4526; 28 U.S.C. 2461 note; 42 U.S.C. 4001 note; 42 U.S.C. 4012a(f)(3), (4), (5), (8), (9), and (10).
Sec. 1250.1 Purpose.
The purpose of this part is to set forth the responsibilities of
the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation (collectively, Enterprises) under the Flood
Disaster Protection Act of 1973 (FDPA), as amended (42 U.S.C. 4002 et
seq.) and the procedures to be used by the Federal Housing Finance
Agency (FHFA) in any proceeding to assess civil money penalties against an Enterprise.
Sec. 1250.2 Procedural requirements.
(a) Procedures. An Enterprise shall implement procedures reasonably
designed to ensure for any loan that is secured by improved real estate
or a mobile home located in an area that has been identified, at the
time of the origination of the loan or at any time during the term of
the loan, by the Director of the Federal Emergency Management Agency as
an area having special flood hazards and in which flood insurance is
available under the National Flood Insurance Act of 1968 (42 U.S.C.
4001 et seq.), as amended and purchased by the Enterprise, the building
or mobile home and any personal property securing the loan is covered
for the term of the loan by flood insurance in an amount at least equal
to the lesser of the outstanding principal balance of the loan or the
maximum limit of coverage made available with respect to the particular
type of property under the National Flood Insurance Act of 1968, as amended.
(b) Applicability. (1) Paragraph (a) of this section shall apply
only with respect to any loan made, increased, extended, or renewed after September 22, 1995.
(2) Paragraph (a) of this section shall not apply to any loan
having an original outstanding balance of $5,000 or less and a repayment term of one year or less.
Sec. 1250.3 Civil money penalties.
(a) In general. If an Enterprise is determined by the Director of
FHFA, or his or her designee, to have a pattern or practice of
purchasing loans in violation of the procedures established pursuant to
Sec. 1250.2, the Director of FHFA, or his or her designee, may assess
civil money penalties against such Enterprise in such amount or amounts
as deemed to be appropriate under paragraph (c) of this section.
(b) Notice and hearing. A civil money penalty under this section
may be assessed only after notice and an opportunity for a hearing on the record has been provided to the Enterprise.
(c) Amount. The maximum civil money penalty amount is $385 for each
violation that occurs before the effective date of this part, with
total penalties not to exceed $110,000. For violations that occur on or
after the effective date of this part, the civil money penalty under
this section may not exceed $485 for each violation, with total
penalties assessed under this section against an Enterprise during any calendar year not to exceed $140,000.
(d) Deposit of penalties. Any penalties under this section shall be
paid into the National Flood Mitigation Fund in accordance with section
1367 of the National Flood Insurance Act of 1968 (42 U.S.C. 4104d.), as amended.
(e) Additional penalties. Any penalty under this section shall be
in addition to, and shall not preclude, any civil remedy, or criminal penalty otherwise available.
(f) Statute of limitations. No civil money penalty may be imposed
under this section after the expiration of the fouryear period
beginning on the date of the occurrence of the violation for which the penalty is authorized under this section.
CHAPTER XVIIOFFICE OF FEDERAL HOUSING ENTERPRISE OVERSIGHT, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
PART 1773[REMOVED]
2. Remove part 1773.
Dated: January 8, 2009.
James B. Lockhart III,
Director, Federal Housing Finance Agency.
[FR Doc. E9809 Filed 11409; 8:45 am]
BILLING CODE 807001P
FOR FURTHER INFORMATION CONTACT
Andra Grossman, Counsel, telephone (202) 3431313 (not a tollfree number); Federal Housing Finance Agency, Fourth Floor, 1700 G Street, NW., Washington, DC 20552. The telephone number for the Telecommunications Device for the Deaf is (800) 8778339.