[Federal Register Volume 59, Number 108 (Tuesday, June 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13783]
[[Page Unknown]]
[Federal Register: June 7, 1994]
_______________________________________________________________________
Part IV
Department of Housing and Urban Development
_______________________________________________________________________
Office of the Secretary
_______________________________________________________________________
Proprietary Information Submitted by the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation; Notice
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Secretary
[Docket No. N-94-3786; FR-3734-N-01]
Proprietary Information Submitted by the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation
AGENCY: Office of the Secretary, Housing and Urban Development.
ACTION: Notice of temporary order.
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SUMMARY: This Notice sets forth the Order of the Secretary of Housing
and Urban Development that certain information submitted by the Federal
National Mortgage Association (``Fannie Mae'', ``Government-Sponsored
Enterprise'', or ``GSE'') and the Federal Home Loan Mortgage
Corporation (``Freddie Mac'', ``Government-Sponsored Enterprise'', or
``GSE'') to the Department of Housing and Urban Development (``HUD'')
is proprietary and shall not be disclosed to the public at this time.
EFFECTIVE DATE OF THE ORDER: May 31, 1994.
COMMENTS: Interested persons are invited to submit comments regarding
this Notice of Temporary Order to the Rules Docket Clerk, room 10276,
Office of the General Counsel, Department of Housing and Urban
Development, 451 Seventh Street SW., Washington, DC 20410-0500.
Comments will be considered in developing any subsequent order and
regulations implementing the Secretary's regulatory authority
respecting Fannie Mae and Freddie Mac to be proposed this summer. While
no deadline has been set for comments to be considered in developing
the regulations, comments must be received prior to the deadline date
established in the proposed regulations.
Communications should refer to the above docket number and title.
Facsimilie (FAX) comments are not acceptable. A copy of each
communication submitted will be available for public inspection and
copying during regular business hours (7:30 a.m. to 5:30 p.m. Eastern
Time) at the above address.
FOR FURTHER INFORMATION CONTACT:
Harold L. Bunce, Acting Director, Financial Institutions Regulation
Staff, telephone (202) 708-1464 or Kenneth A. Markison, Assistant
General Counsel for Government-Sponsored Enterprises/RESPA, telephone
(202) 708-3137; Department of Housing and Urban Development, 451
Seventh Street SW., Washington, DC 20410. A telecommunications device
(TDD) for hearing- or speech-impaired persons (TDD) is available at
(202) 708-0770. (These are not toll-free telephone numbers.)
SUPPLEMENTARY INFORMATION:
The Temporary Order
By the authority vested in me as Secretary of Housing and Urban
Development, under sections 1323 and 1326 of the Federal Housing
Enterprise Financial Safety and Soundness Act, 12 U.S.C. 4543 and 4546,
I have determined that certain information, identified in the attached
Exhibit A, contained in the loan-level data files which were submitted
by the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation to the Department of Housing and Urban
Development, as required under the Interim Housing Goals, should be
deemed proprietary information. Accordingly, under the authority of
section 1326 of the Act, I hereby order that this information be
withheld from public disclosure at this time. The basis and terms of
this Temporary Order are set forth fully below.
Background
The Federal Housing Enterprise Financial Safety and Soundness Act
of 1992, enacted as Title XIII of the Housing and Community Development
Act of 1992, (Pub. L. 102-550, approved October 28, 1992), codified
generally at 12 U.S.C. 4501-4561 (``the Act''),\1\ requires the
Secretary to establish and monitor the performance of Fannie Mae and
Freddie Mac in meeting annual goals for mortgage purchases on housing
for low- and moderate-income families, housing located in central
cities, and special affordable housing, i.e., housing meeting the needs
of and affordable to low-income families in low-income areas and very
low-income families. On October 13, 1993, the Secretary published the
housing goals and requirements for the GSEs' mortgage purchases for the
1993-94 transition period in Notices of Interim Housing Goals (``the
Notices''). 58 FR 53047-53096.
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\1\Unless otherwise specified, all section cites herein are
cites to the Federal Housing Enterprises Financial Safety and
Soundness Act of 1992. Sections 1331-1336 of that Act are codified
at 12 U.S.C. 4561-66.
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Under the Notices, the Secretary required the GSEs to submit
certain data on their mortgage purchases by March 1, 1994. This
information is to assist the Secretary in monitoring the GSEs'
performance under the goals and to satisfy the requirements of
subsections 309(m)-(n) of the Federal National Mortgage Association
Charter Act, 12 U.S.C. 1723a(m)-(n), and subsections 307(e)-(f) of the
Federal Home Loan Mortgage Corporation Act, 12 U.S.C. 1456(e)-(f).
Sections 309(m) and 307(e) under these Acts mandate that the GSEs
collect, maintain and provide to the Secretary data relating to their
mortgages on single family and multifamily housing and sections 309(n)
and 307(f) require that the GSEs report aggregate information on their
mortgages to Congress.
Under the Notices, the Secretary required each GSE to provide
information in two forms--loan-level data files that provide detailed
information on each mortgage loan purchased by the GSE, and data
reports that aggregate data on mortgage loans in various ways. In
addition, the Secretary required each GSE to provide a written report
discussing its performance under the housing goals. The information
required in the loan-level data files includes detailed information on
individual loans purchased by the GSEs including: The borrower(s')
annual income, race, and gender; census tract; other geographic
identifiers; loan-to-value ratio; number of units; owner-occupancy
status; and other details on the mortgage, the property, and the
borrower(s). The information required for the data reports includes
aggregate data concerning: The amount of mortgage purchases that
qualify towards each housing goal, classified by number of units and
dollar volume; mortgagors' income; race; location of property; and
various other categories.
Legal Requirements Regarding Proprietary Information
Section 1323 of the Act, 12 U.S.C. 4543, provides that the
Secretary shall make available to the public the data submitted by the
GSEs in the reports required under section 309(m) of the Federal
National Mortgage Association Charter Act and section 307(e) of the
Federal Home Loan Mortgage Corporation Act except the data that the
Secretary determines by regulation or order pursuant to section 1326,
12 U.S.C. 4546, is proprietary. Section 1323(b)(2) of the Act, 12
U.S.C. 4543(b)(2), specifically provides that the Secretary may not
restrict access to data consisting of income, census tract location,
race, and gender of mortgagors of single family properties. Section
1326 provides that the Secretary may by regulation or order provide
that certain information shall be treated as proprietary and, pending
the issuance of a final decision on the matter, the material may not be
disclosed.
The Freedom of Information Act (FOIA) under Exemption 4, 5 U.S.C.
552(b)(4), allows confidential business information to be protected
from disclosure, and the Trade Secrets Act, 18 U.S.C. 1905, forbids
Government officers and employees from releasing trade secret and other
confidential business information. Executive Order No. 12,600, 3 CFR at
235 (1988), requires that agencies notify submitters of confidential
business information of requests under FOIA for such information and
that agencies afford submitters an opportunity to comment on release of
the requested information. If an agency determines to release
notwithstanding a submitted objection, the Executive Order requires
that the agency notify the submitter reasonably prior to release. The
President of the United States, by memorandum, dated October 4, 1993,
to Heads of Departments and Agencies, emphasized the importance of
public disclosures under FOIA and an implementing memorandum from the
Attorney General, attached to the President's memorandum, instructed
agencies to disclose information unless disclosure would harm an
interest protected by a FOIA exemption. The President's and the
Attorney General's memoranda do not alter Executive Order No. 12,600.
In addition to the legal requirements respecting proprietary
information, the Privacy Act of 1974, 5 U.S.C. 552a, and FOIA Exemption
6, 5 U.S.C. 552(b)(6), pertain to the disclosure of information on
individuals. Accordingly, even if information is not withheld as
proprietary, it still may be withheld pursuant to the Privacy Act or
Exemption 6.
Information Regarded as Proprietary by the GSEs
Prior to March 1, 1994, Departmental staff met separately with
staff of each GSE to discuss the subject of proprietary information in
view of the impending deadline for receipt of materials by HUD in
accordance with the Notices. Fannie Mae staff advised that,
notwithstanding that it considered most of the information submitted
under the Notice to be proprietary, Fannie Mae sought for HUD to
withhold only certain data from the loan-level data files because, if
released, such data would cause substantial competitive harm to Fannie
Mae.
Both GSEs pointed out that, because the Act requires the Secretary
to release information on census tract location of properties,
releasing other details on specific loans such as unpaid principal
balance (UPB), date of mortgage note, loan type, loan-to-value ratio
(LTV), and similar terms would cause competitive harm by permitting the
other GSE or other market competitors to gain competitive advantage
from the information. For example the GSEs argue that: Releasing loan-
level information on each properties' UPB and census tract location
will reveal what size loans a GSE is willing to buy in a particular
area, at what prices and on what terms, and that such information will
assist competitors in the same market and other markets. Likewise,
customers will use the information to obtain insight into each GSEs'
pricing and marketing strategies.
Correspondence from the GSEs details the GSEs' objections to
release of items in the loan-level data files. This correspondence,
attached to and incorporated in this Notice of Temporary Order,
includes: Exhibit B--a letter from Anthony F. Marra, Senior Vice
President and Deputy General Counsel of Fannie Mae, to Kenneth A.
Markison, Assistant General Counsel for Administrative Law, dated March
11, 1994; and Exhibit C--a letter from Allan G. Ratner, Vice President
and Deputy General Counsel of Freddie Mac, to Mr. Markison, dated May
9, 1994. This correspondence lists the particular data items that each
GSE requested be withheld.
Freddie Mac requested the withholding of more items than Fannie
Mae. Both GSEs requested that the Secretary treat the GSEs' information
the same so that any information deemed proprietary for one GSE is
deemed proprietary for the other GSE. Accordingly, where only one GSE
requested proprietary treatment for a particular category of
information, this Temporary Order provides that such information is
treated as proprietary for both GSEs. Exhibit A identifies the items
requested to be withheld as proprietary: Solely by Freddie Mac (marked
with an ``*''); solely by Fannie Mae (marked with ``**''); and by both
Freddie Mac and Fannie Mae (unmarked).
Conclusion
The Department will comply fully with the requirements of the Act
and will make available to the public data submitted to HUD by the
GSEs, consisting of income, census tract location, race, and gender of
mortgagors of single family properties. However, having considered the
views of the GSEs concerning the disclosure of the remainder of the
data and the statutory requirements concerning withholding proprietary
information, it is concluded that a Temporary Order is necessary to
protect other information submitted by the GSEs, not in the foregoing
categories, which the GSEs regard as proprietary.
The legislative history of the Act characterizes the lack of
information on the GSEs' performance as ``an information vacuum.'' S.
Rep. No. 102-282, 102d Cong., 2d Sess. 39 (1992). The legislative
history notes that ``public access and disclosure of information is a
key tool for permitting appropriate public scrutiny and oversight of
the activities of the [GSEs] and in evaluating possible improvements in
housing finance markets.'' ID. at 44. On the other hand, the Act also
protects proprietary information from release. Based on the submissions
of both GSEs, the information in the attached Exhibit A shall be deemed
proprietary. The Secretary further concludes, however, that: This Order
should be temporary; the public should be accorded full opportunity to
comment during the regulatory process; and this Temporary Order should
expire no later than the date regulations fully addressing this subject
are effective.
This Temporary Order does not extend to aggregated data information
in the data reports and the written reports submitted by Fannie Mae and
Freddie Mac. Such data are not regarded as causing substantial
competitive harm by the GSEs and, at such time as this information is
requested by the public, it will be released. Even though loan-level
information is not deemed proprietary under this Temporary Order, other
statutes, including the Privacy Act of 1974 and Exemption 6 of FOIA,
may pertain and result in withholding of information.
Expiration and Modification of This Temporary Order
This Temporary Order shall be effective until such time as it is
determined necessary and/or appropriate to withdraw or modify it. Final
GSE regulations will fully address the disclosure and withholding of
information under the Act and this Temporary Order will, in any event,
expire when the final regulations are published. Pending final
regulations, the Department will work with the GSEs to narrow the list
of items withheld and develop ways that information deemed proprietary
under this Temporary Order may be released without disclosing
proprietary information. This Temporary Order may be modified if it is
determined that additional information should be made available to the
public. Any such determination will be conducted in accordance with the
Act. In any event, in responding to FOIA requests, the Department will
follow the procedures in Executive Order 12,600, as applicable.
Release in Response to Requests on Behalf of Congressional Committee or
Subcommittee, the Comptroller General, a Subpoena or Other Legal
Process
If the Department receives a request on behalf of a Congressional
Committee or Subcommittee, the Comptroller General, a subpoena from a
court of competent jurisdiction, or is otherwise compelled by law to
release information determined to be proprietary under this Temporary
Order, the Department will provide the information in accordance with
the request without regard to the provisions of this Temporary Order.
In releasing requested information under this paragraph, the Department
will include a statement with the information to the effect that the
Secretary has determined that the information is subject to this
Temporary Order, the GSEs' regard the information as proprietary, and
public disclosure of the information may cause competitive harm to the
GSEs. To the extent practical, the Department will provide notice to
the GSEs after a request under this paragraph is received and before
the information is provided in response to the request.
Dated: May 31, 1994.
Henry G. Cisneros,
Secretary.
Exhibit A
List of Proprietary Information Contained in Loan Level Data Files
Submitted by Freddie Mac and Fannie Mae
------------------------------------------------------------------------
Field description Field position
------------------------------------------------------------------------
Single Family:
Acquisition UPB*................................ 80-85
Loan-to-Value Ratio at Origination.............. 86-88
Date of Mortgage Note*.......................... 89-94
Date of Acquisition*............................ 95-100
Purpose of Loan**............................... 101
Cooperative Unit Mortgage....................... 102
Refinancing Loan From Own Portfolio............. 103
Special Affordable, Seasoned Loan Proceeds 104
Recycled*.
Product Type.................................... 105-106
RTC/FDIC........................................ 108
Term of Mortgage at Origination*................ 109-111
Amortization Term*.............................. 112-114
Seller Institution.............................. 115
Mortgage Purchased Under GSE's Community Lending 118
Program.
Acquisition Type................................ 119
GSE Real Estate Owned*.......................... 120
Public Subsidy Program.......................... 121
Occupancy Code.................................. 132
Number of Units................................. 133
Unit 1 Number of Bedrooms (if property has 2-4 134
units)*.
Unit 1 Owner-Occupied (if property has 2-4 135
units)*.
Unit 1 Affordability Category (if property has 2- 136
4 units)*.
Unit 1 Reported Rent Level (if property has 2-4 137-141
units)*.
Unit 1 Reported Rent Plus Utilities (if property 142-146
has 2-4 units)*.
Unit 2 Number of Bedrooms*...................... 147
Unit 2 Owner-Occupied*.......................... 148
Unit 2 Affordability Category*.................. 149
Unit 2 Reported Rent Level*..................... 150-154
Unit 2 Reported Rent Plus Utilities*............ 155-159
Unit 3 Number of Bedrooms*...................... 160
Unit 3 Owner-Occupied*.......................... 161
Unit 3 Affordability Category*.................. 162
Unit 3 Reported Rent Level*..................... 163-167
Unit 3 Reported Rent Plus Utilities*............ 168-172
Unit 4 Number of Bedrooms*...................... 173
Unit 4 Owner-Occupied*.......................... 174
Unit 4 Affordability Category*.................. 175
Unit 4 Reported Rent Level*..................... 176-180
Unit 4 Reported Rent Plus Utilities*............ 181-185
Multifamily:
U.S. Postal Zip Code............................ 13-17
Affordability Category*......................... 70
Acquisition UPB................................. 71-76
Participation Percent*.......................... 77-80
Date of Mortgage Note........................... 81-86
Date of Acquisition*............................ 87-92
Purpose of Loan**............................... 93
Cooperative Project Loan........................ 94
Refinancing Loan From Own Portfolio*............ 95
Special Affordable, Seasoned Loans: Are Proceeds 96
Recycled?*.
Mortgagor Type*................................. 97
Term of Mortgage at Origination................. 98-100
Loan Type....................................... 101
Amortization Term*.............................. 102-104
Seller Institution*............................. 105
Acquisition Type................................ 107
GSE Real Estate Owned*.......................... 108
Public Subsidy Program*......................... 109
Total Number of Units........................... 110-114
Special Affordable--45 percent*................. 115-123
Special Affordable--55 percent*................. 124-132
Unit Type XX--Number of Bedroom(s)*............. 133
Unit Type XX--Number of Units*.................. ###
Unit Type XX--Average Reported Rent Level....... ###-###
Unit Type XX--Average Reported Rent Plus ###-###
Utilities.
Unit Type XX--Affordability Level*.............. ###-###
------------------------------------------------------------------------
*Only Freddie Mac asserted that this data was proprietary.
**Only Fannie Mae asserted that this data was proprietary.
Exhibit B
March 11, 1994.
Mr. Kenneth A. Markison, Assistant General Counsel for
Administrative Law, Department of Housing and Urban Development,
Room 10252, 451 Seventh St. SW., Washington, DC 20410.
Re: Supplemental Information Regarding Confidentiality of Certain
Data Submitted March 1, 1994 by Fannie Mae.
Dear Mr. Markison: This letter summarizes Fannie Mae's views on
the issue of proprietary information contained in its March 1
submission to the Secretary of Housing and Urban Development, which
contained tapes of loan level detail relating to our purchase of
single-family and multifamily mortgages.
We believe that all the information contained in the tapes
submitted on March 1 is entitled to receive confidential treatment,
because it is the product of a substantial investment by Fannie Mae.
Such information is not available publicly and is treated as
extremely confidential information and closely held within the
corporation.
However, in the spirit of providing HUD our fullest cooperation
as it administers the new public disclosure provisions of 12 U.S.C.
4543, Fannie Mae is requesting ``proprietary'' and ``confidential''
designations for only the elements in the database that would
advantage competitors or customers at our expense. These elements
(only 23 of the 108 we are providing) would, if disclosed,
compromise our efficiency and competitive position in the market
where we compete day-to-day throughout the country with both Freddie
Mac and highly innovative Wall Street firms. Disclosure of such
information would also hurt our bargaining position with companies
with whom we conduct business. The specific elements for which
confidentiality is requested are listed and discussed in detail
below.
We also request that HUD extend proprietary treatment
reciprocally both to Fannie Mae and Freddie Mac, so that any element
specifically deemed proprietary or confidential for one corporation
would be deemed proprietary or confidential also for the other,
regardless of whether both firms specifically requested such
treatment.
Pursuant to 12 U.S.C. 4546(c), governing disclosure of
proprietary information, we believe that HUD is required to issue a
final written decision regarding classification of our data
submission as ``proprietary'' prior to releasing any such
information. This decision requirement is an express predicate for
data disclosure under 12 U.S.C. 4543. We believe that it also should
govern any release under the Freedom of Information Act (``FOIA''),
5 U.S.C. 552, by virtue of the enactment of 12 U.S.C. 4546 after
FOIA, its greater specificity, and Congress' decision not to
establish any exception regarding FOIA requests.
Further, it is our understanding that independent of its
obligations under 12 U.S.C. 4546, HUD will observe the provisions of
Executive Order No. 12,600 (52 FR 23,781 (1987)) for all data that
Fannie Mae classifies as proprietary and confidential commercial or
financial information. That Order recognizes the procedural rights
of submitters of confidential commercial data to the government, and
mandates that a recipient agency provide notice and a reasonable
response time whenever the agency determines that it may be required
to disclose the requested data. The Order further mandates that if
an agency overrules a submitter's objection, it must notify the
submitter in writing and provide an explanation of its decision. The
agency must provide such an explanation a reasonable number of days
prior to a specified disclosure date, to afford the submitter an
opportunity to seek judicial relief if necessary.
Adherence to the procedures set forth in Executive Order No.
12,600 accords with existing arrangements between HUD and Fannie Mae
for treatment of confidential business information submitted by
Fannie Mae as required by HUD regulations (see letter dated February
15, 1979 from Irving Margulies, Acting HUD Deputy General Counsel,
to Bernard Carl, Fannie Mae's outside counsel). These arrangements
have been in place for over 15 years and have provided a reasonable
framework for us to submit very sensitive business information to
HUD. Last year, in response to a FOIA request, HUD had the
opportunity to implement the agreed-upon procedures for
notification, and we were able to provide HUD with the reasons that
certain of the business information previously provided to HUD
should continue to remain confidential.
Finally, we request that HUD observe certain additional
safeguards for requests from Congress regarding data identified by
Fannie Mae to be proprietary or confidential commercial information.
In such cases, we request that HUD also provide Fannie Mae with
notice upon receipt of a congressional request for proprietary or
confidential data, as well as notice prior to HUD's delivery of
requested data to Congress, to give us the opportunity to explain to
Congress the need to protect such data. We also request that HUD
provide requested confidential data only when accompanied by a
legend stating that HUD has determined that the material is
proprietary and exempt from public disclosure under both 5 U.S.C.
552 and 12 U.S.C. 4546, and that public disclosure would result in
substantial competitive harm.
Basis for Non-Disclosure to Public
We have listed below specific data elements contained in the
Fannie Mae Multifamily Acquisitions, Multifamily Units, and Single-
Family Acquisitions Files that have been submitted to HUD. We are
requesting HUD's designation of these data elements as both
``proprietary'' within the meaning of 12 U.S.C. 4543, 4546,\1\ and
confidential commercial or financial information pursuant to
Exemption 4 of FOIA, 5 U.S.C. 552(b)(4). Specifically, the following
data elements are entitled to such designation:
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\1\Sections 1323 and 1326 of Pub. L. 102-550 (1992).
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Multifamily Acquisitions
1. Zip code (Ref. 3)
2. Acquisition UPB (Ref. 17)
3. Date of mortgage note (Ref. 19)
4. Coop flag (Ref. 22)
5. Term at origination (Ref. 26)
6. Loan type (more properly amortization) (Ref. 27)
7. Acquisition type (Ref. 31)
8. Total number of units (Ref. 34)
9. Purpose of loan (Ref. 21)
Multifamily Units
1. Average reported rent per bedroom type (Ref. 4)
2. Average reported rent plus utilities per bedroom type (Ref. 5)
Single-Family Acquisitions
1. Loan-to-value LTV ratio at origination (Ref. 19)
2. Product Type (Ref. 26)
3. Seller Institutions (Ref. 31)
4. Purpose of Loan (Ref. 22)
5. Occupancy Code (Ref. 44)
6. Number of Units (Ref. 45)
7. Cooperative Unit Mortgage (Ref. 23)
8. RTC/FDIC (Ref. 28)
9. Public Subsidy Program (Ref. 37)
10. Refinancing from Own Portfolio (Ref. 24)
11. Acquisition Type (Ref. 35)
12. Community Lending Mortgage (Ref. 34)
The basis for our request derives from the major precedents
interpreting the FOIA's Exemption 4. The leading case in determining
whether information provided to the government is ``privileged and
confidential'' and therefore entitled to be withheld under Exemption
4 is National Parks & Conservation Association v. Morton, 498 F. 2d
765 (D.C. Cir. 1974). In National Parks, the DC Circuit Court of
Appeals held that the test for confidentiality is an objective one
that could be determined by a two prong test:
To summarize, commercial or financial matter is ``confidential'' for
purposes of the exemption if disclosure of the information is likely
to have either of the following effects: (1) To impair the
Government's ability to obtain necessary information in the future;
or (2) to cause substantial harm to the competitive position of the
person from whom the information was obtained. Id. at 770.
The second prong of National Parks is applicable to each of the
referenced items because, when combined with each other and with
information on unpaid principal balance (``UPB''), income, and
precise geographic markers, disclosure would cause us substantial
competitive harm.
Single-Family Data Elements
Public disclosure of the entire Single-Family Acquisitions
database would provide customers and competitors with the elements
described above at loan level detail, in combination with loan
amount, race, income, gender, zip code, and census tract. Precise
details on such factors as loan-to-value ratios, when combined with
other basic loan level detail, would likely cause substantial
competitive injury to Fannie Mae by providing competitors and
customers with valuable insights about our business plans, risk
assessments and marketing strategies. These insights could lead to
changes in pricing or negotiating tactics detrimental to the
company.
Multifamily Data Elements
The multifamily elements (contained in the Multifamily
Acquisitions and Multifamily Units Files) that Fannie Mae is
classifying as proprietary and confidential are: Acquisition UPB;
date of mortgage note; coop status; term at origination; loan type
(more properly, amortization); acquisition type; total number of
units; average reported rent per bedroom type; average reported rent
plus utilities per bedroom type; purpose of loan, and zip code.
Public disclosure of this data would reveal key factors in our
business strategies and successes to our competitors and companies
with whom we do business. This would subsidize such firms at our
expense by providing them information they otherwise could acquire
only at great expense.
Conclusion
Disclosing the referenced data for both single-family and
multifamily elements would harm us by subsidizing the competitors'
acquisition of valuable market information, increasing their
efficiency at Fannie Mae's expense. Such consequences are precisely
the type that courts have held justify non-disclosure of information
under Exemption 4. See, e.g., Gulf & Western Indus. v. United
States, 615 F.2d 527, 530 (D.C. Cir. 1980); Braintree Electric Light
Dept. v. Department of Energy, 494 F. Supp. 287, 289 (D.D.C. 1980);
National Parks & Conservation Association v. Kleppe, 547 F.2d 673,
684 (DC Cir. 1976); and Westinghouse Elec. Corp. v. Schlesinger 392
F. Supp. 1246, 1249 (E.D. Va. 1974).
Specifically, case law establishes that Exemption 4 is designed
to protect a ``mosaic'' of data, to shield information that might
not cause competitive harm on a stand-alone basis, but would be
harmful in combination with other information available to the
requester. See e.g., Timken Co. v. United States Customs Serv., 491
F. Supp. 557, 559 (D.D.C. 1980). Under the precedents, information
also must be deemed proprietary and confidential if public
disclosure would displace a submitter from a level competitive
playing field--by forcing it to divulge sensitive business
information which competitors may access freely without incurring
any parallel disclosure obligation to the submitter of the
information.
The courts thus will direct ``close attention'' to proposed
agency disclosures that benefit competitors at the expense of
submitters, and have disfavored disclosure that affords a potential
windfall to competitors by providing them data at bargain rates
rather than the considerable funds that otherwise would be expended
in private research and development. Worthington Compressors, Inc.
v. Castle, 662 F.2d 45, 51 (D.C. Cir. 1981), supplemental opinion
sub. nom. Worthington Compressors, Inc. v. Gorsuch, 668 F.2d 1371
(DC Cir. 1981). See also Allnet Communication Servs., Inc. v. FCC,
800 F. Supp. 984, 988-89 (D.D.C. 1992); SMS Data Prods. Group, Inc.
v. United States Dept. of Air Force, 1989 U.S. Dist. LEXIS 3156, 35
Cont. Cas. Fed. (CCH) P 75644 (D.D.C. 1989) (noting that release
would allow competitors access to information that they would have
to spend ``considerable funds'' to develop on their own).
No competitor of Fannie Mae is subject to data disclosure
requirements of the breadth and detail included in the data elements
we have submitted to HUD. The information contained in our 1993
annual report on housing goals, the accompanying tables and the
proprietary information in the database, as to which we have not
requested confidential treatment, provide an unprecedented view of
our business. We have limited our request for confidential treatment
to only those parts of the database having the likelihood, if
released, to cause us substantial competitive harm. As a result, our
request is limited to only approximately 21 percent of the elements
in the database. Because release of the information, for which we
have asked for confidentiality, would have clearly adverse
commercial consequences for us, we request that HUD designate the
referenced items as ``proprietary pursuant to 12 U.S.C. 4546 and
invoke Exemption 4 to withhold release of such information.
I hope this discussion and information is helpful to you in
evaluating our confidentiality request.
Sincerely,
Anthony F. Marra,
AFM/pab.
Exhibit C
May 9, 1994.
Kenneth Markison, Esquire, U.S. Department of Housing and Urban
Development, 451 7th Street, SW., Washington, DC 20410.
Dear Mr. Markison: The Federal Home Loan Mortgage Corporation
(``Freddie Mac'') has submitted to the U.S. Department of Housing
and Urban Development (``HUD'') computer tapes that contain single-
family and multifamily loan registries for the mortgages that
Freddie Mac acquired during 1993. Freddie Mac requests that HUD
accord proprietary treatment to certain data elements of those loan
registries because they contain confidential, proprietary Freddie
Mac information.
In support of our request, I enclose a memorandum that discusses
the reasons those data elements must be accorded proprietary
treatment and an attachment that identifies the individual data
elements that contain confidential, proprietary Freddie Mac
information. We would have no objection to your publishing the
letter, memorandum and attachment in the Federal Register should you
find it appropriate to do so.
Please feel free to contact me if you wish to discuss this
matter or if there is anything further we can provide.
Sincerely,
Allan G. Ratner,
Vice President and Deputy General Counsel.
Enclosure
The Federal Home Loan Mortgage Corporation's Request for Proprietary
Treatment of Certain Loan-Registry Data Elements
The U.S. Department of Housing and Urban Development (``HUD'')
has required the Federal Home Loan Mortgage Corporation (``Freddie
Mac'') to provide HUD with extensive information on the mortgages
that Freddie Mac acquired in 1993. HUD identified the general types
of data required, in its Notice of Interim Housing Goals, 58 FR
53,047-53,096 (Oct. 13, 1993), and specified the form in which
Freddie Mac was to submit the data, in a letter dated January 14,
1994. As so directed, Freddie Mac submitted the required information
to HUD in the form of two sets of computer tapes and 19 tables.
The computer tapes contain loan-level information for every
mortgage that Freddie Mac acquired during 1993. One set of tapes
includes information on Freddie Mac's 1993 single-family mortgages,
and it includes from 51 to 66 required data elements for each loan,
depending on the number of units in the property. The other set of
tapes contains comparable information for Freddie Mac's 1993
multifamily mortgages, and it includes a minimum of 42 elements for
each loan, with additional sets of elements for each additional
``unit type'' in the property. These two sets of tapes are referred
to as the ``loan registries.''
Freddie Mac requests that HUD accord proprietary treatment to
certain of the data elements contained in the loan registries
because they contain confidential, proprietary Freddie Mac
information. Freddie Mac does not, however, object to the public
release of the 19 tables submitted on March 31, 1994, which contain
much of the categories of information that Freddie Mac seeks to
protect from public disclosure--but which disclose the information
in an aggregated form that is both useful and less likely to reveal
confidential, proprietary Freddie Mac information.
We discuss below the reasons that certain loan-registry data
elements must be treated as proprietary information, and we
designate the specific data elements affected in an attachment to
this request. Freddie Mac also requests that any confidential
treatment accorded to Fannie Mae data apply equally to data
submitted by Freddie Mac, and vice-versa, so that the same data
elements will be treated equally for both enterprises.
I. Proprietary Information Generally
A. The Proprietary-Information Balance
HUD requested the loan registries under section 307(e) of the
Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1456(e)).
While HUD is generally authorized to make such section 307(e) loan-
registry data available to the public (section 1323 of the Federal
Housing Enterprises Safety and Soundness Act of 1992 (``FHEFSSA''),
12 U.S.C. 4543), HUD is expressly not permitted to make proprietary
loan-registry data available to the public (FHEFSSA 1326, 12 U.S.C.
4546). In fact, FHEFSSA provides that no such information is to be
made available to the public unless and until a final decision has
been made that the data are not proprietary (FHEFSSA 1326(c), 12
U.S.C. 4546(c)).
In effect, FHEFSSA recognizes the inherent tension between (1)
the provision that directs HUD to make available data that might be
useful for housing-related research and (2) the provision that
directs HUD to prevent the financial or competitive harm to the
enterprises that could flow from providing public access to
proprietary information. FHEFSSA, however, also provides guidance on
how the balance between these conflicting directives is to be
struck.
That is, FHEFSSA suggests that where reasonable people might
disagree as to whether information is proprietary or not, the issue
should be resolved in favor of according the data proprietary
treatment. Under FHEFSSA, information is not to be made public until
HUD makes a final determination as to whether the information is
proprietary. It follows, therefore, that where HUD is unable to make
that determination to a reasonable degree of certainty, the
information should not be made public. This treatment of data where
its proprietary character is uncertain would seem to be especially
appropriate during the 1993-1994 interim time period.
The approach that the balance is to be struck against public
disclosure presumably reflects a recognition on Congress' part that,
in the long run, Freddie Mac and Fannie Mae will be able to
contribute most effectively to the nation's housing needs if they
retain one of the key attributes of every viable business--the
ability to protect the confidentiality of business strategies and
plans. That is, in close cases, the need to protect the fundamentals
of the enterprises' ability to perform is presumed to outweigh the
short-term benefits of placing more information on the public
record.
B. What is ``Proprietary'' Information?
The term ``proprietary'' is not defined in FHEFSSA and, on the
face of the term, it could apply to virtually every data element of
the loan registries: All were developed by Freddie Mac and are
Freddie Mac's property, and nearly all are the types of information
that Freddie Mac does not customarily provide to the public.
However, reading the term in the context of the two competing
directives described above, the legislative history of the Act and
analogous case law, it may be more appropriate to interpret
proprietary information to mean information that Freddie Mac does
not customarily release to the public--where the release of that
information could tend to cause financial or competitive injury to
Freddie Mac, or could tend to impair competition between Freddie Mac
and Fannie Mae.
That more-limited interpretation is consistent with the
legislative history of FHEFSSA. For example, the issue of the scope
of the term ``proprietary'' information was discussed directly in a
floor debate of section 515 of the Senate bill (the precursor to the
proprietary provision of FHEFSSA) involving Senators Seymore and
Garn:
Mr. SEYMORE. It is my understanding that section 515 of the bill
prohibits the Director [the Director was to administer the housing
goals under the Senate bill] from disclosing to the public
information provided by the enterprises that the Director determines
to be proprietary. What types of information does this legislation
contemplate would be treated as proprietary?
Mr. GARN. As a general matter, courts have construed various
types of business information to be proprietary if it might cause
competitive or financial harm to the company.
While the legislation contemplates that the Director will
determine what information is proprietary consistent with current
legal precedents applicable to other companies, section 515 is
intended to protect especially information relating to pricing and
fees. If one of the enterprises learned of the other's pricing and
fee strategy, it would create an extraordinary competitive
disadvantage.
Maintining competition between Fannie Mae and Freddie Mac is
essential because there are only two GSE's involved in mortgage
finance. Congress created the two GSE's expressly for the purpose of
ensuring competition. This competition has resulted in lowering
prices and enhancing efficiency to the housing finance market, which
ultimately benefits homeowners and renters.
Mr. SEYMORE. So, if I understand the Senator correctly, section
515 should ensure that information on pricing, fees and other key
aspects of business strategy will be considered proprietary and
therefore protected from disclosure to the public.
Mr. GARN. That is correct. By including this provision in the
legislation, it was intended that the Director protect from public
disclosure a broad range of information that might impair
competition between these two GSE's.
138 Cong. Rec. S8778-S8779 (daily ed. June 24, 1992).
That interpretation also is consistent with case law
interpreting Exemption 4 of the Freedom of Information Act
(``FOIA'') (5 U.S.C. 552(b)(4)), which is probably the case law to
which the two senators had referred. The term ``proprietary
information'' does not appear in FOIA, but the principles underlying
that exemption are similar--but not identical--to those underlying
section 1326 of FHEFSSA.
FOIA Exemption 4 applies to ``trade secrets and commercial or
financial information obtained from a person and privileged and
confidential,'' and courts have applied that exemption to protect
information that a person is required to submit to a federal agency
where
(1) The information was of the type ``which would customarily
not be released to the public by the person from whom it was
obtained,'' S. Rep. No. 813, 89th Cong., 2d Sess. 9 (1964),
reprinted in 1966 U.S.C.C.A.N. 2418 (quoted in Sterling Drug, Inc.
v. FTC, 450 F.2d 698, 709 (D.C. Cir. 1971) and Critical Mass Energy
Project v. NRC, 975 F.2d 871, 872-73 (D.C. Cir. 1992)), and
(2) The release of the information would be likely to cause
substantial competitive injury to the person submitting the
information, see Public Citizen Health Research Group v. FDA, 704
F.2d 1280, 1291 & n.30 (D.C. Cir. 1983); Gulf & Western Industries,
Inc. v. United States, 615 F.2d 527, 530 (DC Cir. 1979); National
Parks and Conservation Ass'n v. Morton, 498 F.2d 765, 770 (DC Cir.
1974); see also OCC Interpretive Letter from Chief Counsel P. Allan
Schott to James C. Goodale, 1989 WL 300373 (database FFIN-OCCIL)
(April 5, 1989) (based on Exemption 4, OCC denied FOIA request for
portions of documents describing commercial and financial facts
surrounding loan).
II. Reasons for Designating Certain Data Elements as Proprietary
While Congress wished to shed increased light on the affordable-
housing activities of Freddie Mac and Fannie Mae, it is virtually
impossible to be certain that the release of any particular data
from the loan registries would be harmless to Freddie Mac,
particularly during this interim period. Freddie Mac operates in an
environment in which its operations are constantly scrutinized by
analysts at Fannie Mae, on Wall Street, and in other sophisticated
financial institutions. Those analysts have access to information
from a variety of sources, and have increasing abilities to analyze
that information in ways that one may not immediately imagine.
The data elements Freddie Mac has designated contain the type
of information that Freddie Mac does not customarily release to the
public, and if all those data elements were to be publicly
disclosed, we believe a variety of competitive and financial harms
could be suffered by Freddie Mac. In some cases, this harm could
occur as a result of the disclosure of a data element standing on
its own; in other cases, the harm would occur because of a
correlation of one data element with another. The following are
examples of problems that disclosure of all the elements would pose:
(1) Both competitors and customers would be able to learn a
great deal about the types of loans we are targeting for purchase in
particular areas of the country, thereby enabling them to counter
our marketing strategy more effectively. Moreover, the data would be
available in one place, permitting competitors to obtain information
relatively cheaply;
(2) Competitors and customers would be able to learn far more
than they can learn now as to our philosophy and strategy concerning
the purchase of newly originated versus seasoned loans;
(3) Both customers and competitors would be able to learn more
about the cycles of Freddie Mac's business during the year, e.g.,
times at which we tend to be more busy than others, and the likely
implications of seasonality to our pricing strategy;
(4) By analyzing the types of products we are purchasing, and
where the purchases are occurring, customers and competitors would
be able to divine a great deal of nonpublic information about our
likely strategy for meeting the affordable housing goals;
(5) Customers and competitors would learn far more than they
currently know about how the mix of mortgage types that we purchase
varies by region, thereby affecting the course of business
negotiations in particular transactions in particular regions:
(6) Customers and competitors would be able to change the
dynamics of business negotiations regarding the disposition of real
estate owned (``REO''), since they would have access to far greater
information concerning our REO disposition strategies and practices.
In addition, by analyzing REO statistics, a competitor could learn
much about our default patterns;
(7) Customers and competitors would could use seemingly non-
proprietary data as a ``proxy'' for information that clearly is
proprietary, or could use seemingly non-proprietary data as a link
to other available information, so as to reveal other, previously
inaccessible proprietary information.
In each case, the disclosure of information would work to the
disadvantage of Freddie Mac, and to the advantage of other parties.
Also, in many cases--particuarly, but not exclusively, in the
multifamily field--the public release of all the data elements
listed in a fully correlated manner probably would permit reviewers
of the data to identify specific properties. This raises important
issues of personal privacy for homeowners, tenants, and lenders, who
could soon expect to become the targets of marketing efforts not
only by our competitors, but by other businesses seeking to market
their products in demographic niches. In comparable circumstances,
HUD has previously taken the position that it would not release
individual mortgage records in response to a request under the
Freedom of Information Act, 5 U.S.C. 552, because it would be an
unwarranted invasion of the borrowers' privacy interests. See
Schoettle v. Kemp, 733 F. Supp. 1395 (D. Haw. 1990) (upholding
denial of FOIA request based on Exemption 6, 5 U.S.C. 552(b)(6)):
see also Heights Community Congress v. Veterans Administration, 732
F.2d 526 (6th Cir. 1984) (court upholding VA's denial of FOIA
request for property address, loan amount and identity of lender on
VA-insured loans in certain city, based on FOIA Exemption 6).
In light of the above concerns, Freddie Mac has evaluated each
data element to determine whether or not its release would be
reasonably likely to cause Freddie Mac competitive or financial
harm, either standing alone or linked to other available
information. In the interest of making as much data as possible
available to the public, Freddie Mac also considered whether certain
data elements might be made available as separate files or packages
of data elements, so that they could be released without identifying
the location of the underlying property. Without a link to the
geographic data, there may be no reason for HUD to withhold certain
data elements as proprietary information. Similarly, we considered
whether certain data elements might be recoded so that HUD would not
need to withhold them as proprietary information. Such alternative
treatments would substantially reduce Freddie Mac's proprietary
concerns with respect to those data elements, while making more
information available to the public, consistent with the intent of
Congress. See S. Rep. No. 464, 102d Cong., 2d Sess. 44 (1992) (``The
Director is encouraged whenever possible to develop disclosure
methods that take into account any proprietary concerns, while
continuing public access to the information.''). The results of
Freddie Mac's evaluations, including proposed alternative treatments
of certain data elements, are summarized in the attachment to this
request.
We trust that this request and attachment will be sufficient for
HUD to make its determination that the information contained in the
data elements designated in the attachment to this request contain
``proprietary'' information--that is, that the designated data
elements contain information that Freddie Mac does not customarily
release to the public and that the release of that information could
tend to cause financial or competitive injury to Freddie Mac, or
could tend to impair competition between Freddie Mac and Fannie Mae.
Alternatively, it should be sufficient for HUD to find that it
cannot determine that certain of those data elements do not contain
``proprietary'' information. In either case, the designated data
elements should not be made publicly available.
* * * * *
Attachment
Federal Home Loan Mortgage Corporation's Designation of Certain Loan-
Registry Data Elements as Proprietary\1\
I. Proprietary Confidential Data Elements
A. Single Family Data Elements
Acquisition UPB [positions 80-85]
---------------------------------------------------------------------------
\1\Each data element is identified by the field description and
the position numbers shown in the January 14, 1994, letter from HUD
that set forth the loan-registry requirements.
---------------------------------------------------------------------------
Loan-to-Value Ratio At Origination [positions 86-88]
Date of Mortgage Note [positions 89-94]
Date of Acquisition [positions 95-100]
Cooperative Unit Mortgage [position 102]
Refinancing Loan From Own Portfolio [position 103]
Special Affordable, Seasoned Loan Proceeds Recycled
[position 104]
Product Type [positions 105-106]
RTC/FDIC [position 108]
Term of Mortgage At Origination [positions 109-111]
Amortization Term [positions 112-114]
Seller Institution [position 115]
Mortgage Purchased Under FHLMC/FNMA Community Lending
Program [position 118]
Acquisition Type [position 119]
FHLMC's Real Estate Owned [position 120]
Public Subsidy Programs [position 121]
B. Multifamily Data Elements
U.S. Postal Zip Code [positions 13-17]
Acquisition UPB [positions 71-76]
Percent Participation [positions 77-80]
Date of Mortgage Note [positions 81-86]
Date of Acquisition [positions 87-92]
Refinancing Loan From Own Portfolio [position 95]
Special Affordable, Seasoned Loans: Are Proceeds Recycled?
[position 96]
Cooperative Project Loan [position 94]
Mortgagor Type [position 97]
Term of Mortgage At Origination [positions 98-100]
Loan Type [position 101]
Amortization term [positions 102-104]
Seller Institution [position 105]
Acquisition Type [position 107]
FHLMC's Real Estate Owned [position 108]
Public Subsidy Programs [position 109]
Special Affordable--45% [positions 115-123]
Special Affordable--55% [positions 124-132]
MF Unit Type XX--Affordability Level [position 133+4--fifth
unit-level field] Rather than making this data element available,
Freddie Mac suggests that HUD instead disclose the element
Affordability Category [position 70] (which is defined in terms of
four ``buckets'' or range of values rather than as a particular
percent)-- along with the unit-level data and in a manner that is
entirely severed from any information from which one might determine
location. Alternatively, or in addition, Affordability Level could
be recoded into ``buckets'' or ranges of values rather than being
expressed in terms of a specific percent of adjusted local median
income, and then could be released with the unit-level data as
described below.
II. Data Elements That Should Be Released Only in Unit-Level Files
We request that the following unit-level data for two- to four-
unit and multifamily properties be released only as a separate file
or ``package'' of data--severed entirely from the geographic and
other data:
A. Single-Family Unit-Level Data Files
We request that the following single-family elements for each
two- to four-unit property be released only in a separate file,
which file would contain no other data elements:
Number of Units [position 133]
Unit 1/2/3/4 Number of Bedrooms [positions 134, 147, 160,
173]
Unit 1/2/3/4 Owned-Occupied [or Tenant] [positions 135,
148, 161, 174]
Unit 1/2/3/4 Affordability Category [positions 136, 149,
162, 175]
Unit 1/2/3/4 Reported Rent Level [positions 137-141, 150-
154, 163-167, 176-180]
Unit 1/2/3/4 Reported Rent Level Plus Utilities [positions
142-146, 155-159, 168-172, 181-185]
B. Multifamily Unit-Level Data Files
Similarly, we request that the following multifamily elements
for each multifamily property be released only in a separate file,
which file would contain no other data elements:
Number of Units [positions 110-114]
Unit Type XX--Number of Bedrooms [position 133--first unit-
level field]
Unit Type XX--Numbers of Units [position 133+1--second
unit-level field]
Unit Type XX--Average Reported Rent Level [position 133+2--
third unit-level field]
Unit Type XX--Average Reported Rent Level Plus Utilities
[position 133+3--fourth unit-level field]
Unit Type XX--Affordability Level [position 133+4--fifth
unit-level field] As is described above, we would propose that this
data element be included in a unit-level file only after it is
recoded to show affordability level by ``bucket'' or range of values
rather than by a particular percent of adjusted local median income.
In its current form, the data element is proprietary and should not
be released--even in a unit-level file.
Affordability Category [position 70]
III. Data Element That Should Be Recoded Consistent With HMDA
Before Being Made Publicly Available
The data element Occupancy Code [position 132] indicates whether
a single-family mortgage purchased by Freddie Mac was for a
``Principal Residence/Owner Occupied,'' ``Second Home'' or
``Investment Property (Rental).'' We request that this element be
released only after it is recoded so that the second homes would be
combined with investment properties as ``Not owner Occupied''
consistent with the treatment of second homes under the Home
Mortgage Disclosure Act (``HMDA''). See 12 CFR part 203, App. A,
section V(A)(7)(a).
* * * * *
[FR Doc. 94-13783 Filed 6-6-94; 8:45 am]
BILLING CODE 4210-32-M
