[Federal Register Volume 60, Number 126 (Friday, June 30, 1995)]
[Proposed Rules]
[Pages 34420-34426]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16129]
[[Page 34419]]
_______________________________________________________________________
Part VI
Department of Housing and Urban Development
_______________________________________________________________________
5 CFR Chapter LXV
24 CFR Part 0
Supplemental Standards of Ethical Conduct; Proposed Rule
Federal Register / Vol. 60, No. 126 / Friday, June 30, 1995 /
Proposed Rules
[[Page 34420]]
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
5 CFR Chapter LXV
24 CFR Part 0
[Docket No. FR-3331-P-01]
RIN 2501-AB55, 13209-AA15
Supplemental Standards of Ethical Conduct for Employees of the
Department of Housing and Urban Development
AGENCY: Office of the Secretary, Department of Housing and Urban
Development (Department).
ACTION: Proposed rule.
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SUMMARY: The Department of Housing and Urban Development (Department),
with the concurrence of the Office of Government Ethics (OGE), proposes
to issue regulations for the officers and employees of the Department
that supplement the Standards of Ethical Conduct for Employees of the
Executive Branch issued by OGE. To ensure a comprehensive and effective
ethics program at the Department and to address ethical issues unique
to the Department, the proposed rule establishes prohibitions on the
ownership of certain financial interests and restrictions on outside
employment and business activities.
DATES: Comments are invited and must be received on or before August
29, 1995.
ADDRESSES: Interested persons are invited to submit comments regarding
this proposed rule to the Office of General Counsel, Rules Docket
Clerk, Room 10276, Department of Housing and Urban Development, 451
Seventh Street, SW, Washington, DC 20410-0500. Communications should
refer to the above docket number and title. A copy of each
communication submitted will be available for public inspection and
copying between 7:30 a.m. and 5:30 p.m. at the above address. Comments
by facsimile (FAX) are not acceptable.
FOR FURTHER INFORMATION CONTACT: Aaron Santa Anna, Assistant General
Counsel, Ethics Law Division, at (202) 708-3815, or Sam E. Hutchinson,
Associate General Counsel, Office of Human Resources Law, (202) 708-
2947; 451 Seventh Street, SW, Washington, DC 20810. Hearing or speech-
impaired individuals may call HUD's TDD number (202) 708-3259.
(Telephone numbers are not toll-free.)
SUPPLEMENTARY INFORMATION
I. Background
Executive Order 12674, as amended by Executive Order 12731,
authorized the Office of Government Ethics (OGE) to establish a single,
comprehensive and clear set of executive-branch standards of conduct.
On August 7, 1992, OGE published the Standards of Ethical Conduct for
Employees of the Executive Branch (Standards). See 57 FR 35006-35067,
as corrected at 57 FR 48557 and 57 FR 52583 with additional grace
period extensions at 59 FR 4779-4780 and 60 FR 6390-6391. Codified at 5
CFR part 2635, the Standards took effect on February 3, 1993, and
established uniform standards of ethical conduct for all executive
branch employees.
With the concurrence of OGE, 5 CFR 2635.105 authorizes executive
branch agencies to publish agency-specific supplemental regulations
necessary to implement their respective ethics programs. The
Department, with OGE's concurrence, has determined that the following
supplemental rules contained in the proposed regulation, which would
add a new chapter LXV, consisting of part 7501, to 5 CFR, are necessary
to implement successfully the Department's ethics program in light of
the Department's unique programs and operations. The Department of
Housing and Urban Development is simultaneously removing its superseded
Standards of Conduct at 24 CFR part 0 and is replacing those provisions
with a single section that provides a cross-reference to 5 CFR parts
2634 and 2635, and to the Department's new supplemental regulations.
II. Analysis of the Regulation
The following is a section by section analysis of the proposed
rule.
Section 7501.101 Purpose
Proposed Sec. 7501.101 explains that the regulations contained in
the proposed rule would apply to all Department employees and would
supplement the executive branch-wide Standards. Special Government
employees, as that term is defined by 18 U.S.C. 202 and 5 CFR
2635.102(l), however, would be exempt from Secs. 7501.104 and 7501.105.
Proposed Sec. 7501.101 would also note that Department employees must
comply with the Standards of Ethical Conduct for Employees of the
Executive Branch, 5 CFR part 2635, the executive branch financial
disclosure regulations at 5 CFR part 2634, this part, and any
additional rules of conduct that the Department is authorized to issue.
Upon finalization of this supplemental regulation, the Department will,
as proposed, delete its present Standards of Conduct rule at 24 CFR
part 0, except for a cross-reference to 5 CFR.
Section 7501.102 Definitions
Proposed Sec. 7501.102 defines the key terms used in the proposed
rule, and would include a definition of the term ``affiliate'' at
Sec. 7501.102.
Proposed Sec. 7501.102 would, for purposes of the proposed rule and
5 CFR part 2635, delegate to the Associate General Counsel, Office of
Human Resources Law, the Assistant General Counsel, Ethics Law
Division, and the Field Assistant General Counsels, the authority to
serve as agency designees and agency ethics officials for all
Department employees. These proposed sections would also delegate to
the Inspector General the authority to serve as agency designee and
agency ethics official for Department employees in the Office of the
Inspector General. Finally, the General Counsel, Office of Federal
Housing Enterprise Oversight, would be delegated authority to act as
agency designee and agency ethics official for Department employees in
the Office of Federal Housing Enterprise Oversight.
``Assistance'' would be defined broadly by proposed Sec. 7501.102
to include any contract, grant, loan, subsidy, guarantee, cooperative
agreement or any other financial assistance under a program
administered by the Secretary. The definition is intended to include
``assistance'' awarded by the Department that is subsequently
redistributed competitively to a second tier of applicants. The term
does not include, however, single family mortgage insurance provided
under a program administered by the Secretary.
``Employment'' would be defined broadly at Sec. 7501.102 as
proposed to cover any form of non-Federal employment or business
relationship involving the provision of personal services, including
writing when done under an arrangement with another person for
production or publication of the written product.
The term ``security'' also would be defined broadly at
Sec. 7501.102 of the proposed rule. The proposed definition is based,
in part, on the definition of ``financial interest'' at 5 CFR
2635.403(c) and would include any interest in debt or equity
instruments, such as stocks, bonds and commercial paper. The definition
also would extend to loans securitized by mortgages or deeds of trust
and securities backed by such instruments, but would not include
deposit accounts.
[[Page 34421]]
Section 7501.103 Waivers
Proposed Sec. 7501.103 would authorize the Designated Agency Ethics
Official (DAEO) to grant HUD employees written waivers of any provision
of the proposed Department rule based upon a determination that the
waiver will not result in conduct inconsistent with 5 CFR part 2635 or
otherwise prohibited by law, and that application of the provision
would not be necessary to ensure public confidence in the impartiality
and objectivity with which the Department's programs are administered.
Authority to waive provisions of the Department's conduct regulations
has been included in 24 CFR 0.735-106. Under proposed Sec. 7501.103,
the DAEO could grant a written waiver but require the employee to take
further action, including executing a written disqualification
statement. This provision is intended, in appropriate cases, to ease
the burden that these supplemental regulations may impose on Department
employees while ensuring that employees do not engage in actions or
hold financial interests that may interfere with the objective and
impartial performance of their official duties.
Section 7501.104 Prohibited Financial Interests
General Requirement. Proposed Sec. 7501.104 would prohibit
Department employees from receiving, acquiring, or owning certain
financial interests that are related to or affected by Department
operations, such as securities issued or collateralized by the Federal
National Mortgage Association or the Federal Home Loan Mortgage
Corporation. It would incorporate, with one addition, the restrictions
implemented in 1987 through the promulgation of 24 CFR 0.735-204 of the
Department's existing standards regulation. The additional restriction
that would be imposed by paragraph (a)(2) reflects the Secretary's more
recently acquired authority over the Federal Home Loan Mortgage
Corporation under the Financial Institutions Reform, Recovery and
Enforcement Act of 1989. (12 U.S.C. 4511). In accordance with 5 CFR
2635.403(a), these prohibitions are proposed on the basis of the
Department's determination that the acquisition or holding by
Department employees of the six categories of financial interests
listed in proposed Sec. 7501.104(a) would cause reasonable persons to
question the impartiality and objectivity with which Department
programs are administered.
Exceptions to prohibition for certain interests. Proposed
Sec. 7501.104(b) is substantially identical to the provision which it
was designed to replace, 24 CFR 0.735-204(b). One provision which was
modified, paragraph (b)(1), would permit employees to own interests in
publicly traded or publicly available mutual or other investment funds
which contain within their portfolios interests that they would be
prohibited from holding by proposed Sec. 7501.104(a). Under this
provision, ownership of investment funds would be permitted as long as
the employee does not have the ability to control the fund or its
portfolio, and the fund does not have an objective or practice of
concentrating its investments in residential mortgages or securities
backed by residential mortgages other than those of the Government
National Mortgage Association.
Reporting and Divestiture. Proposed Sec. 7501.104(c) is loosely
based on 24 CFR 0.735-204(c). It would require new employees, within 30
days of commencing employment, to report to the appropriate agency
ethics official financial interests acquired prior to the commencement
of their employment with the Department that they are prohibited from
holding by Sec. 7501.104(a). Employees would be required to divest such
interests within 90 days of the date reported unless they receive a
written waiver from the Designated Agency Ethics Official in accordance
with Sec. 7501.103. The proposed section would impose a similar
reporting and divestiture requirement upon employees who acquire,
without specific intent, financial interests prohibited by
Sec. 7501.104(a).
Section 7501.105 Outside Employment and Other Outside Activities
The proposed rule is designed to balance several important ethical
principles against an employee's right to engage in outside activities.
Proposed Sec. 7501.105(a) would incorporate, with minor modification,
the substance of 24 CFR 0.735-203(b)(4), a provision which was
promulgated in 1987. The proposed section prohibits paid and unpaid
employment with businesses dealing with or related to real estate or
manufactured housing. The Department has determined that maintaining
the policy against active participation in such businesses is necessary
to protect against questions regarding the impartiality and objectivity
of employees and the administration of the Department's programs. It
would hinder the Department in meeting its missions if members of the
public question whether Department employees are using their public
positions or Department connections to advance their real estate
careers.
In addition, since the parties involved in any real estate
transaction, such as real estate agents, brokers, mortgagees,
settlement attorneys, title and property insurance companies,
appraisers, and developers, may do business with, or may be regulated
by, the Department, an employee engaged in outside real estate
transactions with these parties on a regular basis may be perceived as
providing these persons preferential treatment in order to further his
or her real estate-related business. In determining whether an employee
is actively participating in a business related to real estate, the
Department will consider a number of factors, including whether the
employee maintains an office, advertises or solicits clients or
business, hires staff, uses business stationery or similar materials,
or establishes a formal or informal association with an existing
business. The number of transactions over a period of time will also be
considered in determining whether an employee is actively participating
in a business.
Proposed Sec. 7501.105(a)(2) and (a)(3) would incorporate, with
minor revision, restrictions promulgated in 24 CFR 0.735-203(b)(5) and
(b)(6). The additional employment restriction of proposed
Sec. 7501.105(a)(4) against employment with certain mortgage
institutions was considered necessary in view of the Department's role
as regulator under the authority of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989.
Proposed Sec. 7501.105(b) would create exceptions to the
prohibitions in Sec. 7501.105(a) which would ensure that employees are
not prohibited from serving as officers or directors of Federal credit
unions or of certain cooperative or condominium associations. It would
also give the Designated Agency Ethics Official authority to exempt
service as an officer or director of other entities which would not be
expected to raise appearance concerns.
Proposed Sec. 7501.105(c) lists the circumstances under which an
employee is required to obtain the approval of an agency ethics
official prior to engaging in certain compensated or uncompensated
outside employment activities. The requirement in proposed
Sec. 7501.105(c)(1)(i) to obtain prior approval to serve in a position
of authority with any organization that receives Department assistance
is new. Because these organizations interact with the Department and
are affected by Department programs and operations, proposed
Sec. 7501.105(c)(1)(i) will ensure
[[Page 34422]]
that employees do not violate 18 U.S.C. 203, 205 and 208. In this
regard, it is noted that the financial interests of an organization in
which an employee serves as officer, director, trustee, general partner
or employee are imputed to the employee by 18 U.S.C. 208.
Proposed Sec. 7501(c)(1)(ii) and (c)(1)(iii) reflect the practice
of the Department since 1982, and under 24 CFR 0.735-203(d) of the
current HUD standards regulation to require employees to obtain
approval prior to engaging in any outside activities which are in the
same professional field as that of the employee's official position or
which are with a State or local government. For purposes of this
section, professions subject to the prior approval requirement are
those that require specialized knowledge and often long and intensive
training. As noted in 5 CFR 2636.305, it is a characteristic of a
profession that those in the profession, through force of organization
or concerted opinion, establish and maintain high standards of
achievement and conduct. Secretarial and clerical positions are not,
for purposes of this rule, included within the term ``profession.''
Proposed Sec. 7501.105(c)(2) would establish the standards against
which requests for prior approval of outside activities would be
judged. In this regard, it is noted that requests will be approved
unless inconsistent with the conflict of interest laws, executive
branch-wide Standards or this part.
Proposed Sec. 7501.105(d) reflects the policy of the Department to
encourage its employees to volunteer their time to nonprofit
organizations. This paragraph recognizes, however, that such service
must be consistent with applicable law and regulation, including 18
U.S.C. 205 and 208.
Section 7501.106 Additional Rules for Certain Department Employees
Involved in the Regulation or Oversight of Government Sponsored
Enterprises
Proposed Sec. 7501.106 would apply to certain Department employees
whose official duties involve implementing the Federal Housing
Enterprises Financial Safety and Soundness Act of 1992 (the Act). These
rules would be in addition to those which would apply to these
employees under Secs. 7501.101-7501.105.
The need for these rules results from the authority granted the
Department by the Act. The Act significantly expanded the Department's
authority to regulate the Federal National Mortgage Association (Fannie
Mae or FNMA) and the Federal Home Loan Mortgage Corporation (Freddie
Mac or FHLMC), collectively referred to as Government sponsored
enterprises (GSEs). In enacting this legislation, Congress sought to
ensure, given the size of the GSEs and the fact that their securities
are perceived as guaranteed by the Federal Government, the continued
financial stability of the GSEs. In addition, Congress sought to
establish a mechanism to ensure that the GSEs fulfill their public
missions to stimulate the growth of affordable housing.
To achieve these goals, the Act divided the regulatory
responsibility over the GSEs between a newly established Office of
Federal Housing Enterprise Oversight (OFHEO) within the Department and
the Secretary. OFHEO was given substantial independence in matters
relating to the financial health and security of the GSEs. The Director
of OFHEO has authority, for example, to issue the risk-based capital
standards for the GSEs and to periodically conduct broad-based
examinations of the GSEs without Secretarial review. To ensure that the
GSEs are in compliance with the capital standards and are operating
safely, the Director has exclusive authority to bring a broad range of
enforcement actions against an enterprise, including final and
temporary cease-and-desist actions and civil money penalties. In its
financial safety and soundness mission, OFHEO is analogous to other
Federal financial regulators.
The Act also granted the Secretary more specific authority over the
housing missions and fair lending responsibilities of the GSEs. Under
the Act, the Secretary has the authority to establish and monitor goals
for the GSEs' purchase of mortgages financing housing for low- and
moderate-income families, and to establish and monitor goals for the
GSEs' purchase of mortgages financing housing located in rural areas,
central cities, and other underserved areas. The Secretary also was
provided authority to enforce fair lending requirements for the GSEs
and to require the GSEs to assist the Department in investigating
whether a mortgage lender has failed to comply with the Fair Housing
Act and Equal Credit Opportunity Act. The Secretary is also authorized
to approve new programs prior to the GSEs' implementation of such
programs. To enforce compliance with these housing goals, the Secretary
is authorized to hold hearings, issue cease-and-desist orders, and
assess civil monetary penalties.
Based on the authority granted under the Act, the Department
proposes to promulgate new restrictions which would, among other
things, prohibit certain employees whose official duties involve
implementing the Department's statutory responsibilities under the Act
from acquiring or owning the financial interests of certain mortgage
institutions which do business with or rely upon the GSEs.
Definitions. Proposed Sec. 7501.106(b) would define the terms
``covered employee'' and ``mortgage institution'' for the purpose of
Sec. 7501.106. The term ``covered employee'' would include employees
required to file public or confidential financial disclosure reports
and who are employed in OFHEO and certain other Departmental offices
that have responsibilities under the Act. By virtue of this definition,
the term would include employees involved in auditing and reviewing the
GSEs for financial soundness, establishing housing goals for the GSEs,
reviewing the lending policies and practices of the GSEs, bringing
regulatory actions against the GSEs or the lending institutions with
which they do business or reviewing new GSE programs. It would also
include employees who have access to financial data about the GSEs or
the lenders with which they do business or are involved in developing
or implementing new Federal Housing Administration (FHA) programs to
meet the Secretary's housing goals.
``Mortgage institution'' would include any person or entity which
originates or services mortgages that are owned or guaranteed by FNMA
or FHLMC. The term would also include any person or entity which
insures mortgages owned or guaranteed by FNMA or FHLMC.
Prohibited Financial Interests. Proposed Sec. 7501.106 would
prohibit covered employees and their spouses and minor children from
owning securities issued by certain ``mortgage institutions.'' The
Department has determined, consistent with 5 CFR 2635.403(a), that
prohibiting covered employees from acquiring or holding financial
interests in the mortgage institutions specified in proposed
Secs. 7501.106(c)(1)(i)-(iii) is necessary to maintain public
confidence in the impartiality and objectivity with which the
Department fulfills its statutory and regulatory functions to regulate
the GSEs and establish housing goals. This prohibition also would
ensure that widespread disqualifications of covered employees from
official matters because of their financial interests do not adversely
affect the Department's ability to carry out its mission. Moreover,
actions taken by the Department may affect the market value of the
securities of the mortgage institutions with which the GSEs deal.
[[Page 34423]]
Restrictions Arising from Third Party Relationships. Proposed
Sec. 7501.106(d) would attribute to a covered employee securities he or
she would be prohibited from holding by Sec. 7501.106(c) that are held
by the entities described in this subsection. A covered employee with
an attributed interest would be required to report the interest to the
appropriate agency ethics official and could be required to terminate
the relationship with the entity, disqualify himself or herself from a
matter or take other appropriate action as determined by the agency
ethics official to avoid a violation of the conflict of interest
statutes, the executive branch-wide Standards, or these supplemental
regulations.
Prohibited Outside Employment. Proposed Sec. 7501.106(e) is
intended to highlight for covered employees that they are prohibited by
Sec. 7501.105(a) from engaging in employment with or on behalf of a
mortgage institution. Employment with or on behalf of a mortgage
institution means performing any work, whether compensated or
uncompensated, for or to be provided to a mortgage organization through
its employees, contractors, or agents.
Prohibited Recommendations. Proposed Sec. 7501.106(f) would
prohibit a covered employee from recommending, suggesting or giving
advice to any person with respect to financial transactions or
investment actions involving FHLMC or FNMA securities. This provision
would supplement 5 CFR 2635.704 with a provision designed specifically
for covered employees which would prohibit them from using or creating
the appearance of using information which is not available to the
general public to further a private interest.
Prohibited Purchase of Assets. Proposed Sec. 7501.106(g) would
prohibit covered employees from purchasing real or personal property
from FHLMC or FNMA unless purchased under circumstances which ensure
that the property is sold for fair market value. It is proposed as a
supplement to the more general prohibition in 5 CFR 2635.702 against
the use of public office for private gain.
Pre-existing Interests. Proposed Sec. 7501.106(h) would require a
covered employee, upon entering a covered position, to report any
interest he or she would be prohibited from continuing to hold by
Sec. 7501.106(c) to the agency ethics official within thirty days of
the start of that covered employment. The covered employee would be
required to divest such interest within 90 days of the date reported
unless the employee receives a written waiver from the Designated
Agency Ethics Official in accordance with Sec. 7501.103. A similar
requirement would apply to covered employees who acquire financial
interests prohibited by Sec. 7501.106(c) by gift or otherwise without
specific intent on their part.
III. Removal of the Old Department Standards of Conduct Regulations
Because the Department's Standards of Conduct have been largely
superseded by the new executive branch financial disclosure regulations
at 5 CFR part 2634 and by the new executive branch-wide Standards at 5
CFR part 2635 as supplemented by the regulations contained in new 5 CFR
part 7501, the Department is removing all of existing 24 CFR part 0. To
ensure that employees are on notice of the ethical standards to which
they are subject, the Department is replacing its old standards at 24
CFR part 0 with a residual provision that cross-references 5 CFR parts
2634, 2635 and 7501.
IV. Matters of Regulatory Procedure
Regulatory Flexibility Act
The Secretary in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed and approved this rule, and in so doing
certifies that this rule would not have a significant economic impact
on a substantial number of small entities because it would affect only
Federal employees.
Environmental Impact
In accordance with 40 CFR 1508.4 of the regulations of the Council
on Environmental Quality and 24 CFR 50.20(k) of the HUD regulations,
the policies and procedures contained in this rule relate only to
internal administrative procedures whose content does not constitute a
development decision nor affect the physical condition of project areas
or building sites, and therefore, are categorically excluded from the
requirements of the National Environmental Policy Act.
Executive Order 12612, Federalism
The General Counsel, as the Designated Official under section 6(a)
of Executive Order 12612, Federalism, has determined that the policies
contained in this rule will not have substantial direct effects on
States or their political subdivisions, or the relationship between the
Federal Government and the states, or on the distribution of power and
responsibilities among the various levels of government. Specifically,
this rule is only directed toward Federal employees and would not alter
the established roles of HUD and the States and local governments. As a
result, the rule is not subject to review under the order.
Executive Order 12606, the Family
The General Counsel, as the Designated Official under Executive
Order 12606, The Family, has determined that this rule does not have
potential for significant impact on family formation, maintenance, and
general well-being, and, thus, is not subject to review under the
order. No significant change in existing HUD policies or programs would
result from promulgation of this rule, as those policies and programs
relate to family concerns.
Regulatory Agenda
This rule was listed as item number 1367 in the Department's
Semiannual Agenda of Regulations published on May 8, 1995 (60 FR 23368,
23375) in accordance with Executive Order 12866 and the Regulatory
Flexibility Act.
List of Subjects in 5 CFR Part 7501
Conflict of interests, Government employees.
List of Subjects in 24 CFR Part 0
Administrative practice and procedure, Conflict of interests.
Dated: May 22, 1995.
Henry G. Cisneros,
Secretary of the Department of Housing and Urban Development.
Approved: June 1, 1995.
Stephen D. Potts,
Director, Office of Government Ethics.
For the reasons set forth in the preamble, the Department of
Housing and Urban Development, with the concurrence of the Office of
Government Ethics, is proposing to amend title 5 of the Code of Federal
Regulations by adding a new chapter LXV, consisting of part 7501, and
to amend title 24 of the Code of Federal Regulations by revising part
0, to read as follows:
1. In title 5, a new chapter LXV, consisting of part 7501, would be
added to read as follows:
5 CFR CHAPTER LXV--DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
PART 7501--SUPPLEMENTAL STANDARDS OF ETHICAL CONDUCT FOR EMPLOYEES
OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Sec.
7501.101 Purpose.
7501.102 Definitions.
[[Page 34424]]
7501.103 Waivers.
7501.104 Prohibited financial interests.
7501.105 Outside employment.
7501.106 Additional rules for certain Department employees involved
in the regulation or oversight of Government sponsored enterprises.
Authority: 5 U.S.C. 301, 7301, 7351, 7353; 5 U.S.C. App. (Ethics
in Government Act of 1978); E.O. 12674, 54 FR 15159, 3 CFR, 1989
Comp., p. 215, as modified by E.O. 12731, 55 FR 42547, 3 CFR, 1990
Comp., p. 306; 5 CFR 2635.105, 2635.203(a), 2635.403(a), 2635.803,
2635.807.
Sec. 7501.101 Purpose.
In accordance with 5 CFR 2635.105, the regulations in this part
apply to employees of the Department of Housing and Urban Development
(HUD or Department) and supplement the Standards of Ethical Conduct for
Employees of the Executive Branch contained in 5 CFR part 2635.
Employees are required to comply with 5 CFR part 2635, this part, and
any additional rules of conduct that the Department is authorized to
issue.
Sec. 7501.102 Definitions.
For purposes of this part, and otherwise as indicated, the
following definitions shall apply:
Affiliate means any entity that controls, is controlled by, or is
under common control with another entity.
Agency designee, as used also in 5 CFR part 2635, means the
Associate General Counsel for Human Resources Law, the Assistant
General Counsel, Ethics Law Division, and the HUD Field Office
Assistant General Counsels; the Inspector General, for employees
assigned to the Office of the Inspector General; and the General
Counsel, Office of Federal Housing Enterprise Oversight, for employees
assigned to the Office of Federal Housing Enterprise Oversight.
Agency ethics official, as used also in 5 CFR part 2635, means the
agency designees as specified above.
Assistance means any contract, grant, loan, subsidy, guarantee,
cooperative agreement or other financial assistance under a program
administered by the HUD Secretary, and includes ``assistance'' awarded
by the Department that is competitively redistributed to a second tier
of applicants or awardees. The term does not include single family
mortgage insurance provided under a program administered by the
Secretary.
Designated Agency Ethics Official (DAEO) means the General Counsel
of HUD or the Deputy General Counsel (Operations) in the absence of the
General Counsel.
Employment means any compensated or uncompensated form of non-
Federal employment or business relationship, including self-employment,
involving the provision of personal services by the employee. It
includes, but is not limited to, personal services as an officer,
director, employee, agent, attorney, consultant, contractor, general
partner, trustee, teacher or speaker. It includes writing when done
under an arrangement with another person for production or publication
of the written product.
Security means all interests in debt or equity instruments. The
term includes, without limitation, secured and unsecured bonds,
debentures, notes, securitized assets and commercial paper including
loans securitized by mortgages or deeds of trust and securities backed
by such instruments, as well as all types of preferred and common
stock. The term encompasses current and contingent ownership interests
including any beneficial or legal interest derived from a trust. It
extends to any right to acquire or dispose of any long or short
position in such securities and includes, without limit, interests
convertible into such securities, as well as, options, rights,
warrants, puts, calls and straddles with respect thereto. The term
shall not, however, be construed to include deposit accounts.
Sec. 7501.103 Waivers.
The Designated Agency Ethics Official (DAEO) may waive any
provision of this part upon finding that the waiver will not result in
conduct inconsistent with 5 CFR part 2635 or otherwise prohibited by
law and that application of the provision is not necessary to ensure
public confidence in the impartiality and objectivity with which the
Department's programs are administered. Each waiver shall be in writing
and supported by a statement of the facts and findings upon which it is
based and may impose appropriate conditions, such as requiring the
employee's execution of a written disqualification statement.
Sec. 7501.104 Prohibited financial interests.
(a) General requirement. This section applies to all HUD employees
except special Government employees. Except as provided in paragraph
(b) of this section, an employee, or an employee's spouse or minor
child, shall not directly or indirectly receive, acquire or own:
(1) Securities issued by the Federal National Mortgage Association
(FNMA) or securities collateralized by FNMA securities;
(2) Securities issued by the Federal Home Loan Mortgage Corporation
(FHLMC) or securities collateralized by FHLMC securities;
(3) FHA debentures or certificates of claim;
(4) Stock or another financial interest in a Department-owned,
insured or subsidized multifamily project or single family dwelling,
cooperative unit, or condominium unit, except to the extent that the
stock or other interest represents the employee's principal residence.
Employees who wish to purchase a Department-held property as a
principal residence must adhere to the procedures established by the
Assistant Secretary for Housing for the administration of the property
disposition program set forth in HUD Handbook 4310.5;
(5) Any Department subsidy provided pursuant to Section 8 of the
United States Housing Act of 1937, as amended, (42 U.S.C. 1437f) to or
on behalf of a tenant of property owned by the employee. However, an
employee may receive such a subsidy when:
(i) The employee acquires without specific intent, as through gift
or inheritance, a property which at the time of acquisition has a
tenant receiving such a subsidy, but only as long as that tenant
continues to reside in the property; or
(ii) An incumbent tenant who has not previously received such a
subsidy becomes the beneficiary thereof, but only if there is no
increase in that tenant's rent upon the commencement of subsidy
payments other than normal annual adjustments; or
(6) Any direct creditor interest in a mortgage insured by the
Department.
(b) Exception to prohibition for certain interests. Nothing in this
section prohibits an employee, or the spouse or minor child of an
employee, from acquiring, owning, or controlling:
(1) An interest in a publicly traded or publicly available
investment fund which, in its prospectus, does not indicate the
objective or practice of concentrating its investments in residential
mortgages or securities backed by residential mortgages, except those
of Government National Mortgage Association (GNMA), and the employee
neither exercises control nor has the ability to exercise control over
the financial interests held in the fund;
(2) A limited partnership interest in a partnership which has at
least 5,000 partnership interests, of which less than 25% of the assets
are Department insured or subsidized projects; or
(3) Mortgage insurance provided pursuant to section 203 of the
National Housing Act (12 U.S.C. 1709) on the employee's principal
residence and any one other single family residence.
[[Page 34425]]
(c) Reporting and divestiture. An employee must report, in writing,
to the appropriate agency ethics official, any interest prohibited
under paragraph (a) of this section acquired prior to the commencement
of employment with the Department or without specific intent, as
through gift, inheritance, or marriage, within 30 days from the start
of employment or acquisition of such interest. Such interest must be
divested within 90 days from the date reported unless waived by the
Designated Agency Ethics Official in accordance with Sec. 7501.103.
Sec. 7501.105 Outside employment.
(a) Prohibited outside employment. Subject to the exceptions set
forth in paragraph (b) of this section, HUD employees, except special
Government employees, shall not engage in:
(1) Employment involving active participation in a business dealing
with or related to real estate or manufactured housing including but
not limited to real estate brokerage, management and sales,
architecture, engineering, mortgage lending, property insurance,
appraisal services, construction, construction financing, land
planning, or real estate development;
(2) Employment with a person, other than a State or local
government, who engages in lobbying activities concerning Department
programs or who is required to report expenditures for lobbying
activities or register as a lobbyist under 42 U.S.C. 3537b or similar
statutes which require the registration of persons who attempt to
influence the decisions of officers or employees of the Department;
(3) Employment as an officer or director of a person who is a
Department-approved mortgagee, a lending institution or an organization
which services securities for the Department; or
(4) Employment with the Federal National Mortgage Association, the
Federal Home Loan Mortgage Corporation, the Federal Housing Finance
Board or any affiliate thereof.
(b) Exceptions to employment prohibitions. The prohibitions set
forth in paragraph (a) of this section do not apply to serving as an
officer or a member of the Board of Directors of:
(1) A Federal Credit Union;
(2) A cooperative or condominium association for a housing project
which is not subject to regulation by the Department or, if so
regulated, in which the employee personally resides; or
(3) An entity designated in writing by the Designated Agency Ethics
Official.
(c) Prior approval requirement. (1) Employees shall obtain the
prior written approval of an agency ethics official before accepting
compensated or uncompensated employment:
(i) As an officer, director, trustee, or general partner of, or in
any other position of authority with, either a for-profit or non-profit
organization which directly or indirectly receives assistance from the
Department.
(ii) With a State or local government; or
(iii) In the same professional field as that of the employee's
official position.
(2) Approval shall be granted unless the conduct is inconsistent
with 5 CFR part 2635 or this part.
(d) Voluntary services. Subject to the restrictions and
requirements contained in the conflict of interest laws, 5 CFR part
2635 and this part, employees are encouraged to volunteer their
personal time to nonprofit organizations.
Sec. 7501.106 Additional rules for certain Department employees
involved in the regulation or oversight of Government sponsored
enterprises.
(a) The following rules apply to certain Department employees whose
duties involve the regulation or oversight of Government Sponsored
Enterprises, specifically the Federal National Mortgage Association
(FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). This
section is in addition to Secs. 7501.101 to 7501.105.
(b) Definitions. For purposes of this section, the following
definitions are applicable:
(1) Covered employee means an employee required to file a public or
confidential financial disclosure report under 5 CFR part 2634 in:
(i) the Office of the HUD Secretary;
(ii) the Office of Federal Housing Enterprise Oversight;
(iii) the Office of the Assistant Secretary for Housing-Federal
Housing Commissioner, with the exception of the Office of the Deputy
Assistant Secretary for Operations;
(iv) the Office of Financial Institutions Regulation in the Office
of the Assistant Secretary for Policy Development and Research;
(v) the Offices of Investigation, Program Standards and Evaluation,
and Regulatory Initiatives and Federal Coordination within the Office
of the Assistant Secretary for Fair Housing and Equal Opportunity;
(vi) the Offices of Insured Housing, Finance and Regulatory
Enforcement, Legislation and Regulations, and the Fair Housing
Enforcement Division in the Office of the General Counsel;
(vii) the official superiors of the employees listed in paragraphs
(b)(1)(iv), (b)(1)(v) and (b)(1)(vi) of this definition; and
(viii) any other employee in the offices listed above who is
designated in writing by the Secretary or the appropriate individual of
Assistant Secretary rank, or his or her designee, to ensure compliance
with the principles set forth in 5 CFR 2635.403.
(2) Mortgage institution means mortgage bankers, mortgage brokers,
banks, savings and loans, and other institutions that originate or
service mortgages that are owned or guaranteed by the Federal National
Mortgage Association (FNMA) or the Federal Home Loan Mortgage
Corporation (FHLMC).
(c) Prohibited financial interests. (1) Except as provided in
paragraph (c)(2) of this section, a covered employee, or a spouse or
minor child of a covered employee, shall not receive, acquire, or own
securities of:
(i) a mortgage institution if more than 20 percent of the
institution's assets consist of mortgages;
(ii) a mortgage institution in which 20 percent or less of the
institution's assets consist of mortgages and more than 40 percent of
the mortgages originated by the institution are sold to or guaranteed
by FNMA and/or FHLMC; or
(iii) a mortgage institution which services or insures mortgages if
more than 20 percent of the gross income of such institution is derived
from either or both of these activities.
(2) The prohibitions in paragraph (c)(1) of this section do not
apply to ownership of securities held in a publicly traded or publicly
available investment fund, or profit-sharing, retirement, or similar
plan which in its prospectus or governing documents does not indicate
the objective or practice of concentrating its investments in the
financial services sector, and the employee neither exercises control
nor has the ability to exercise control over the financial interests
held in the fund.
(3) The mortgage institution's most recent financial statement
shall be used in determining the applicability of the prohibitions in
paragraph (c)(1) of this section.
(d) Restrictions arising from third party relationships. If any of
the entities listed below have securities that a covered employee would
be prohibited from owning by paragraph (c) of this section, the
employee shall report such interest to the appropriate Agency Ethics
Official. The Agency Ethics Official may require the employee to
terminate the third party relationship, undertake an appropriate
disqualification, or take other appropriate action determined to be
necessary consistent with 5 CFR part
[[Page 34426]]
2635 and this part. This paragraph applies to a:
(1) Partnership in which the covered employee, or a spouse or minor
child of the employee is a general partner;
(2) Partnership in which the covered employee, or spouse or minor
child of the employee, individually or jointly holds more than a 10
percent limited partnership interest;
(3) Closely held corporation in which the covered employee, or
spouse or minor child of the employee, individually or jointly holds
more than a 10 percent equity interest;
(4) Trust in which the covered employee, or spouse or minor child
of the employee, has a legal or beneficial interest;
(5) Investment club or similar informal investment arrangement
between the covered employee, or spouse or minor child of the employee
and others; or
(6) Other entity in which the covered employee, or spouse or minor
child of the employee, individually or jointly holds more than a 10
percent equity interest.
(e) Prohibited outside employment. In accordance with
Sec. 7501.105(a)(1), covered employees shall not engage in employment
with or on behalf of a mortgage institution.
(f) Prohibited recommendations. Covered employees shall not make
any recommendation or suggestion, directly or indirectly, concerning
the acquisition, sale, or divestiture of securities of FHLMC or FNMA.
(g) Prohibited purchase of assets. Covered employees, their spouses
or minor children shall not purchase, directly or indirectly, any real
or personal property from FHLMC or FNMA, unless it is sold at public
auction or by other means which would assure that the selling price is
the asset's fair market value.
(h) Pre-existing interests. Covered employees must report, in
writing, to the appropriate Agency Ethics Official, any interest
prohibited under paragraph (c) of this section acquired prior to either
the commencement of employment as a covered employee or the effective
date of this part, or acquired without specific intent, as through
gift, inheritance, or marriage, within 30 days from the start of
covered employment or acquisition of such interest. Such interest must
be divested within 90 days from the date it is reported unless waived
by the Designated Agency Ethics Official in accordance with
Sec. 7501.103.
24 CFR Subtitle A--Office of the Secretary Department of Housing
and Urban Development
PART 0--STANDARDS OF CONDUCT
2. 24 CFR part 0 consisting of Sec. 0.1 would be revised to read as
follows:
Sec. 0.1 Cross-reference to employees ethical conduct standards and
financial disclosure regulations.
Employees of the Department of Housing and Urban Development
(Department) are subject to the executive branch-wide standards of
ethical conduct at 5 CFR part 2635 and the Department regulation at 5
CFR Chapter LXV which supplements the executive branch-wide standards,
and the executive branch-wide financial disclosure regulation at 5 CFR
part 2634.
(5 U.S.C. 7301; 42 U.S.C. 3535(d)).
[FR Doc. 95-16129 Filed 6-29-95; 8:45 am]
BILLING CODE 4210-32-P
