[Federal Register Volume 60, Number 156 (Monday, August 14, 1995)]
[Rules and Regulations]
[Pages 42012-42020]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19968]
[[Page 42011]]
_______________________________________________________________________
Part V
Department of Housing and Urban Development
_______________________________________________________________________
24 CFR Part 300 et al.
GNMA--Streamlining Existing Regulations and Implementation of Issuer
Eligibility and Integrity Reforms; Final Rule
Federal Register / Vol. 60, No. 156 / Monday, August 14, 1995 / Rules
and Regulations
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Government National Mortgage Association
24 CFR Parts 300, 310, 320, 330, 340, 350, 360, 370, 380, 390, and
395
[Docket No. FR-2908-F-02]
RIN: 2503-AA07
GNMA--Streamlining Existing Regulations and Implementation of
Issuer Eligibility and Integrity Reforms
AGENCY: Government National Mortgage Association, HUD.
ACTION: Final rule.
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SUMMARY: The Government National Mortgage Association (the
``Association'' or ``GNMA'') is revising its regulations to remove
references to terminated programs, place proper emphasis on the
Association's current programs, remove obsolete references and simplify
the language of all remaining sections.
In addition, this publication implements a revision to the
regulations that prescribe the standards by which issuers are approved
to participate in the Association's Mortgage-Backed Securities (MBS)
program, and by which approved issuers maintain their approval status,
which was initiated by a proposed rule published in 1993.
EFFECTIVE DATE: September 13, 1995.
FOR FURTHER INFORMATION CONTACT: Guy S. Wilson, Vice President,
Government National Mortgage Association, Room 6151, 451 Seventh Street
SW, Washington, DC 20410-9000, telephone (202) 401-8970. Hearing or
speech-impaired individuals may call HUD's TDD number (202) 708-3649.
(These telephone numbers are not toll free.)
SUPPLEMENTARY INFORMATION:
I. Background
A. Streamlining Existing Regulations
By the direction of the President, the Association performed a
page-by-page review of its existing regulations to eliminate or revise
those regulations that are outdated or otherwise in need of reform. The
Association is revising the entirety of the GNMA rules, which are found
in the 300 series in title 24 of the Code of Federal Regulations. This
rule removes outdated parts and sections of parts to trim the
Association's regulations to only those necessary to operate current
programs. Other than as noted below, substantive changes are not
intended by virtue of the revisions included herein.
The former 24 CFR parts 320, 330, 340, 350, 360 and 370 have been
eliminated, because the programs formerly regulated under those
sections have been abolished. The former 24 CFR part 380, Fiduciary
Activities, has been moved to 24 CFR part 340. The former 24 CFR part
390, Guaranty of Mortgage-Backed Securities, has been moved to 24 CFR
part 320, to reflect its status as the most active of the Association's
programs. The former Part 395, Guaranty of Multiclass Securities, has
been moved to Part 330 to reflect its status as a program that flows
directly from the mortgage-backed securities program. The Bylaws of the
Association are no longer published as an appendix to 24 CFR part 310,
but will be kept current in the Office of the President of the
Association and may be published in the GNMA I Mortgage-Backed
Securities Guide and the GNMA II Mortgage-Backed Securities Guide
(collectively, the ``GNMA Guides'').
With respect to these streamlining changes, the publication of a
final rule without previous solicitation of public comment is
justified, in accordance with 24 CFR part 10, because solicitation of
public comment is unnecessary and would be contrary to the public
interest. The types of changes being made are not controversial or
substantive. It is in the public interest to have succinct regulations
that reflect only the provisions needed to operate current programs.
Therefore, solicitation of public comment before adoption of these
changes is unnecessary, and the associated delay in effectiveness would
be contrary to the public interest.
1. Part 300
Section 300.1
The reference to regional offices has been removed. All of the
Association's business is conducted out of one office.
Section 300.3
The references to the Association purchasing, servicing and selling
mortgages has been removed. The Association no longer conducts this
business. A reference is added clarifying that the Association is
commonly referred to as Ginnie Mae or GNMA.
Section 300.9
All references to carrying on the Association's business through
the Federal National Mortgage Association (Fannie Mae) have been
removed. None of the Association's business is carried out by Fannie
Mae.
Section 300.11
This section has been added to notify the public of the authority
of the officers of the Association. This authority is set forth in the
Bylaws of the Association, which were formerly published as an appendix
to the regulations. This appendix is being removed, necessitating the
addition of this section.
Section 300.13 (formerly Section 300.11)
This section has been streamlined by removing the laundry list of
actions that may be undertaken by an attorney-in-fact for the
Association. The section as rewritten provides that the Association may
appoint attorneys-in-fact by publication in the Federal Register or by
written document executed by the President of the Association and that
such attorney-in-fact shall have the power outlined in the publication
or appointment.
Section 300.17 (formerly Section 390.60)
This section has been moved from the former Subpart E,
Miscellaneous Provisions, to Subpart A, General Provisions, in order to
provide a better organizational structure to the regulations. It has
also been revised to clarify that audits and examinations may be
performed by designees of the Association.
2. Part 310
The Bylaws of the Association, formerly an appendix to Part 310,
have been removed. The Bylaws will be maintained in the Office of the
President of the Association and may be published in the GNMA I
Mortgage-Backed Securities Guide and the GNMA II Mortgage-Backed
Securities Guide.
3. Former Parts 320, 330, 340 and 350
These parts have been eliminated because the authority for the
Association's Special Assistance Functions (implemented by Subchapter B
of Chapter III, Special Assistance Functions, containing these parts)
was repealed by section 483(a) of Pub. L. 98-181, approved November 30,
1983, 97 Stat. 1240.
4. Parts 360 and 370
These parts (contained in Subchapter C of Chapter III, Management
and Liquidating Functions) have been eliminated because the Association
no longer performs Management and Liquidating Functions.
5. Part 320 (formerly Part 390)
The former part 390 has been moved to this part to reflect its
status as the most active of the Association's programs.
[[Page 42013]]
Sections 320.1, 320.5 and 320.13 (formerly Sections 390.1, 390.5 and
390.13)
These sections have been amended to remove reference to ``straight
pass through'' securities, which are no longer guaranteed by the
Association.
Section 320.15 (formerly Section 390.15)
This section has been amended to remove reference to ``straight
pass through'' securities, which are no longer guaranteed by the
Association. This section also has been amended to remove the specific
procedures followed by the Association upon the declaration of a
default. To the extent necessary, these procedures are outlined in the
Guides and/or the guaranty agreement with the issuer.
6. Part 330 (formerly part 395)
The former part 395, Multiclass Securities, has been moved to part
330, following part 320 dealing with the mortgage-backed securities
program, to reflect its status as a program that flows directly from
the mortgage-backed securities program. Some language has been removed
because it is duplicative of language in Parts 300 and 320.
B. Issuer Eligibility and Integrity Reforms
On December 9, 1993 (58 FR 64713), the Department published a
proposed rule to reform the Association's issuer eligibility and
integrity requirements for new issuer approval and maintenance of
approved issuer status. A total of nine comments were received. The
commenters included one approved issuer, one mortgage company, one
federal savings bank, the Federal Home Loan Mortgage Corporation
(Freddie Mac), the Federal Deposit Insurance Corporation (FDIC), the
Office of Thrift Supervision (OTS), the Office of the Comptroller of
the Currency (OCC), the Independent Bankers Association of America and
the Mortgage Bankers Association of America.
The commenters expressed general support for the Department's
objectives of strengthening the issuer requirements. The commenters
were especially supportive of the closer alignment of the Association's
rules with those of Fannie Mae and Freddie Mac, and they expressed a
desire for GNMA to continue in that direction. Some commenters opposed
parts of the proposed rule, and some provided specific suggestions for
changes. On the basis of these comments and further development of the
concepts set forth in the proposed rule, the Department has made
changes to the rule. These Changes are discussed in the following
sections of this preamble.
1. Section 320.3 (formerly Section 390.3) Eligible Issuers
There were four commenters on the paragraph dealing with Fannie Mae
and Freddie Mac approval (former Section 390.3(a)(2), including Freddie
Mac. Currently, Fannie Mae approval is required for program entry for
single family issuers. This section proposed to include Freddie Mac
approved seller/servicers as applicants and to limit the Fannie Mae/
Freddie Mac approval requirement to single family issuer applicants.
While all comments on the proposed language were favorable, certain
changes have been made as a result of the Association's own continued
analysis of this section. The Association has decided to open its
mortgage-backed securities program to issuers without Fannie Mae or
Freddie Mac approval. Under the final rule, the Association will
consider all applicants, although Fannie Mae and/or Freddie Mac
approved applicants will be given special consideration in the approval
process. Applicants with neither Fannie Mae nor Freddie Mac approval
will be subject to a more stringent set of requirements to provide
additional assurances that they are capable of performing the
responsibilities of an issuer. These requirements will be set out in
the applicable Guides.
The phrase limiting the applicability of this section to single
family issuers has been dropped, since an alternative is now being
provided to the Fannie Mae/Freddie Mac approval requirement. After an
issuer is accepted into the MBS program, loss of either Fannie Mae or
Freddie Mac approval continues to remain a basis for issuer default
even in cases where the issuer qualified for program entry without
Fannie Mae or Freddie Mac approval. In summary, as a result of further
analysis, this section is being republished to reflect that (1) this
section is applicable to all issuer types, and (2) Association approval
is an acceptable alternative to Fannie Mae/Freddie Mac approval. [Note:
The ``or the Association'' language in the original regulations
referred to the Tandem program which has been terminated.]
There were two commenters on the paragraph dealing with capacity to
issue and service (former Section 390.3(a)(3). One comment agreed with
the changes. The other commenter wants to expand the scope of the rule
to allow the sale of servicing on pooled loans without requiring a
change of issuer. The commenter stated that this would eliminate the
mortgage assignment costs currently incurred when servicing is sold and
the issuer is substituted. Issuers may presently (1) service their
pools themselves, (2) obtain subservicers for their pools, while
remaining the issuer of record with full responsibility for those
pools, (3) act as a subservicer for another issuer's pools, or (4)
transfer issuer responsibility (and servicing) to another issuer. The
Association believes these options give issuers the flexibility to
manage their business while providing the Association with an adequate
level of risk protection. The purpose of this section of the rule is to
formally recognize that an issuer may choose to act as an issuer of
pools or servicer or both. The Association is not prepared to make a
major scope change to the rule to permit the sale of servicing without
a change in issuer. Therefore the servicing language is not being
changed. This section of the rule, however, is being republished with a
minor change to clarify that the experience of the management of an
issuer is a criterion for issuer eligibility.
There were three commenters on increasing the single family base
net worth requirement to $250,000. One commenter stated that the
increase would be too costly for small lenders, while the other two
commenters, both trade associations, agreed with the increase. One of
these trade associations requested that GNMA consider special net worth
requirements for small and minority lenders, and the other stated that
the $250,000 level would ``increase the safety of the program yet not
prohibit smaller institutions from participating.''
There were two commenters on the requirement to index base Net
Worth for inflation (former Section 390.3). One commenter generally
agreed with the indexing. The other commenter questioned the need for
indexing. It believes that the incremental component of net worth
already takes inflationary concerns into account, and that smaller
issuers may be adversely affected. It also requested that if indexing
is implemented, that the Association (1) phase-in indexing over a
minimum of 6 months, (2) reconsider whether the consumer price index
(CPI) is the appropriate index, (3) allow decreases for inflation as
long as the new value is not below $250,000, and (4) place an annual
cap on the potential increase.
The Association agrees that there are numerous factors to be
considered in determining how the net worth element is implemented, and
the impact on smaller issuers is certainly an important consideration.
Since economic factors
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influencing appropriate net worth requirements change regularly, the
Association has determined that in the spirit of streamlining its
regulations and to provide as much flexibility as possible to the
issuer qualification process, net worth requirements will not be
published as regulations, but will be published in the GNMA Guides.
2. Former Section 390.12
There was one comment on the provisions concerning control changes
(formerly Sec. 390.12(c)), which was in agreement with the language.
While the only comment was favorable, upon the Association's own
internal analysis of this section, it was decided that both the time
requirement pertaining to the notification of change and the definition
of what constitutes a change in control be placed in the applicable
Guides, rather than in the regulations. Therefore, this section is
being republished with changes to (1) remove the 30 day requirement,
and (2) remove the Generally Accepted Accounting Practices (GAAP)
definition.
There were five commenters on the provisions concerning cross-
default agreements (formerly Sec. 390.12(d)). One commenter agreed with
the language. Another commenter expressed concern that the agreement
may not be consistent with the requirements of some Federal regulators.
In addition, this commenter requested that (1) the general terms of the
agreement be open to public comment, and (2) both entry into and
enforcement of a cross-default agreement be waived when it can be
proved that related companies have been operated independently in a
safe and sound manner such that there is no attempt to defraud the
Association. The other three commenters were the FDIC, OTS, and OCC.
FDIC and OTS also included an attachment with their comments from the
Federal Reserve Board. All of these Federal agencies believe that
cross-default agreements may not be consistent with section 23A of the
Federal Reserve Act which contains limitations and collateralization
requirements on guaranties between depository institutions and
affiliates.
Based on meetings and discussions with the four Federal regulators,
the Association has modified the rule language to allow for an
exemption from the cross-default agreement when an issuer can provide
an acceptable legal opinion that demonstrates that the agreement would
be prohibited by the issuer's Federal regulator. While Section 23A was
considered in the Association's analysis, the primary reason for the
exemption is that the Association's experience to date has demonstrated
that regulated issuers present less of a default risk than non-
regulated issuers. Furthermore, based on additional analysis, this
section has been revised to remove the GAAP (Generally Accepted
Accounting Principles) definition of related issuers (detailed guidance
will be provided in the Guides), and to provide for the option of
default rather than the obligation to default. In summary, this section
is being republished with changes to (1) provide a possible exemption
for certain classes of Federally regulated issuers, (2) remove the GAAP
definition, and (3) provide for the option of default.
3. Section 320.10 Classified Balance Sheet
There was one comment on this section, which was in agreement with
the proposed language. This section is being republished without any
changes.
4. Section 320.12 Integrity
There were two comments on the provisions concerning key personnel
(Sec. 320.12(a)), and both were in agreement with the proposed
language. This section is being republished with a minor change to
clarify that local agencies are included with Federal, state, and
government-related entities in respect to required disclosures of key
personnel backgrounds.
There were four comments on the provisions concerning status with
other agencies (section 320.12(b)). Two of the comments were in
agreement with the proposed language. The commenters with concerns were
the FDIC and OCC. These federal agencies stated that certain
disclosures may be prohibited under their respective regulations. The
FDIC also expressed concern that if issuers were to disclose FDIC
actions, the agency's ability to promote safety may be impaired. The
Association believes that notice of agency actions will enhance its
ability to monitor issuers, and that cooperation between Federal
agencies is necessary to properly protect the Government's interest.
However, the Association believes that it should not compel issuers to
make disclosures that are specifically prohibited by other agencies.
Therefore, this section is being republished with a change to reflect
that disclosures that are specifically prohibited by agencies are
exempted from this section. Furthermore, the section is also being
amended to clarify that state and local mortgage and regulatory
agencies are included as covered parties requiring issuer disclosure of
material status changes.
II. Other Matters
Regulatory Flexibility Act
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed this rule before publication and, by
approving it, certifies that this rule does not have a significant
economic impact on a substantial number of small entities. The
eligibility and performance requirements of this rule are consistent
with requirements already established by other government agencies for
lender eligibility. Accordingly, the economic impact of this rule would
be minimal, and it is expected to affect small and large entities
equally.
Environmental Impact
A Finding of No Significant Impact with respect to the environment
was made in accordance with HUD regulations at 24 CFR part 50, which
implement section 102(2)(C) of the National Environmental Policy Act of
1969 (42 U.S.C. 4332) in connection with the development of the
proposed rule. The Finding of No Significant Impact remains applicable
to this final rule, and is available for public inspection and copying
Monday through Friday, 7:30 a.m. until 5:30 p.m. in the office of the
Rules Docket Clerk, Office of General Counsel, room 10276, 451 Seventh
Street, SW, Washington, DC 20410.
Regulatory Agenda
The issuer eligibility and integrity reforms portion of this rule
was listed as sequence number 1501 in the Department's Semiannual
Agenda of Regulations published on May 8, 1995 (60 FR 23368, 23396) in
accordance with Executive Order 12866 and the Regulatory Flexibility
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 do not have federalism implications and, thus,
are not subject to review under the Order. This rule is limited to
streamlining existing regulations and imposing additional eligibility
and integrity requirements on private lenders. No programmatic or
policy changes result from its promulgation which would affect existing
relationship between the Federal government and State and local
governments.
Executive Order 12606, The Family
The General Counsel, as the Designated Official under Executive
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Order 12606, The Family, has determined that this rule does not have a
potential 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, as
those policies relate to family concerns, will result from promulgation
of this rule.
List of Subjects
24 CFR Part 300
Lawyers, Organization and functions (Government agencies).
24 CFR Part 310
Organization and functions (Government agencies).
24 CFR Parts 320, 330, 340, 350, and 370
Mortgages.
24 CFR Part 360
Mortgages, Trusts and trustees.
24 CFR Part 380
Mortgages, Trusts and trustees.
24 CFR Part 390
Mortgages, Securities.
Accordingly, Chapter III of Title 24 of the Code of Federal
Regulations is amended as follows:
1. The subchapter designations and headings are removed from the
chapter.
2. Part 300 is revised in its entirety, to read as follows:
PART 300--GENERAL
Sec.
300.1 Scope of chapter.
300.3 Description.
300.5 Creation and status.
300.7 Area of operations.
300.9 Office.
300.11 Authority of officers.
300.13 Power of attorney.
300.15 Exceptions.
300.17 Audits and reports.
Authority: 12 U.S.C. 1723a, unless otherwise noted, and 42
U.S.C. 3535(d).
Sec. 300.1 Scope of chapter.
This chapter consists of general information and does not purport
to set forth all of the procedures and requirements that apply to the
operations of the Association. Complete specific information as to any
aspect of such operations may be obtained from the office listed in
Sec. 300.9.
Sec. 300.3 Description.
The Government National Mortgage Association (hereinafter in this
chapter called the Association) furnishes fiduciary services to itself
and other departments and agencies of the Government, and guarantees
privately issued securities backed by trusts or pools of mortgages or
loans which are insured or guaranteed by the Federal Housing
Administration (FHA), the Department of Veterans Affairs (VA) or the
Farmers Home Administration (FmHA). In the course of its business, the
Association is commonly referred to as Ginnie Mae or GNMA.
Sec. 300.5 Creation and status.
The Association is a Government corporation in the Department of
Housing and Urban Development. It is derived from the Federal National
Mortgage Association, which was partitioned by the Congress into two
corporations effective September 1, 1968, one of which is the
Association. The operations of the Association are conducted under its
statutory charter contained in title III of the National Housing Act,
12 U.S.C. 1716, et seq.
Sec. 300.7 Area of operations.
The Association is authorized to conduct its business in any State
of the United States, the District of Columbia, the Commonwealth of
Puerto Rico, the Commonwealth of the Northern Mariana Islands, and the
territories and possessions of the United States.
Sec. 300.9 Office.
The Association directs its operations from its office located at
451 Seventh Street, SW., Washington DC 20410.
Sec. 300.11 Authority of officers.
The President, each Vice President, and each Assistant Vice
President of the Association are severally expressly empowered in the
name of the Association to sign all contracts and other documents,
instruments, and writings which call for execution by the Association
in the conduct of its business and affairs, and to encumber, mortgage,
pledge, convey or otherwise alien any property which the Association
may own or in which it may have an estate, right, title or interest. In
addition, the President, each Vice President, each Assistant Vice
President, the Secretary of the Association, each Assistant Secretary,
the Treasurer and the Controller shall have the authority as may be
provided in the Bylaws of the Association or as may be delegated to
them in a manner not inconsistent with the Bylaws.
Sec. 300.13 Power of attorney.
In order to efficiently carry out the purposes of the Association,
the Association may appoint any person its true and lawful attorney-in-
fact by publication in the Federal Register or by appointment from the
President of the Association in writing. Any such attorney-in-fact
shall have the power outlined in the publication or appointment.
Sec. 300.15 Exceptions.
In the conduct of its affairs, in individual cases or classes of
cases, the Association reserves the right, consistent with law, without
prior notice and at any time, to alter or waive any of the requirements
contained in this chapter or elsewhere or to impose other and
additional requirements; it further reserves the right, without prior
notice and at any time, to amend or rescind any or all of the material
set forth herein.
Sec. 300.17 Audits and reports.
The Association and its designees may at any reasonable time audit
the books and examine the records of any issuer, mortgage servicer,
trustee, agent or other person bearing on compliance with the
requirements of the Association's programs, and the Association may
require reasonable and necessary reports from such persons.
3. Part 310 consisting of Sec. 310.1 is revised in its entirety, to
read as follows:
PART 310--BYLAWS OF THE GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
Authority: 12 U.S.C. 1723 and 42 U.S.C. 3535(d).
Sec. 310.1 Bylaws of the Association.
The bylaws of the Association shall be duly adopted by the
Secretary of Housing and Urban Development pursuant to section 308 of
the National Housing Act (12 U.S.C. 1723) and shall govern the
performance of the powers and duties granted to or imposed upon the
Association by law.
4. Part 320 is revised in its entirety, to read as follows:
PART 320--GUARANTY OF MORTGAGE-BACKED SECURITIES
Subpart A--Pass-Through Type Securities
Sec.
320.1 General.
320.3 Eligible issuers of securities.
320.5 Securities.
320.7 Mortgages.
320.9 Pool administration.
320.10 Financial reporting.
320.11 Insurance coverage.
320.12 Integrity.
320.13 Guaranty.
320.15 Default.
320.17 Fees.
Subpart B--Bond-Type Securities
320.21 General.
320.23 Eligible issuers.
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320.25 Securities.
320.27 Mortgages.
320.29 Guaranty.
320.31 Default.
320.33 Fees.
Authority: 12 U.S.C. 1721(g) and 1723a(a); and 42 U.S.C.
3535(d).
Subpart A--Pass-Through Type Securities
Sec. 320.1 General.
The Association is authorized by section 306(g) of the National
Housing Act (12 U.S.C. 1721(g)) upon such terms and conditions as it
may deem appropriate, to guarantee the timely payment of principal of
and interest on securities that are based on and backed by a trust or
pool composed of mortgages which are insured or guaranteed by FHA, FmHA
or VA. The Association's guaranty of mortgage-backed securities is
backed by the full faith and credit of the United States. This subpart
is limited to ``modified pass-through'' securities, and does not
purport to set forth all the procedures and requirements that apply to
the issuance and guaranty of such securities. All such transactions are
governed by the specific terms and provisions of the Association's
Mortgage-Backed Securities Guides (MBS Guides) and contracts entered
into by the parties.
Sec. 320.3 Eligible issuers of securities.
(a) Eligibility requirements. A mortgage lender, including an
instrumentality of a State or local government, to be eligible to issue
or service mortgage-backed securities guaranteed by the Association
must satisfy all of the following standards:
(1) Be in good standing as a mortgagee approved by the FHA;
(2) Be in good standing as a mortgage seller or servicer approved
by the Federal National Mortgage Association (FNMA), the Federal Home
Loan Mortgage Corporation (FHLMC), or the Association. Loss of either
FNMA approval or FHLMC approval may cause the issuer to become
ineligible to issue and service the Association's mortgage-backed
securities and constitute a default under the applicable guaranty or
contractual agreement whether or not the issuer qualified for new
issuer approval on the basis of FNMA or FHLMC approval;
(3) Have management with adequate experience, and access to
adequate facilities to issue or service mortgage-backed securities, as
determined by the Association;
(4) Maintain the applicable minimum net worth discussed in
paragraph (c) of this section; and
(5) Meet the requirements, conditions, and limitations prescribed
by the Association in this part or the applicable MBS Guides.
(b) Time of eligibility. The Association shall not commit to
guarantee, or guarantee any issue of mortgage-backed securities unless
the mortgage lender requesting such commitment or guaranty qualifies as
an eligible issuer both at the time of commitment approval and at the
time of the issuance of the guaranty.
(c) Net worth requirements. Issuers shall maintain at all times a
net worth acceptable to the Association of not less than the applicable
minimum amount. The applicable minimum amount shall be published in the
MBS Guides.
(d) Disqualification. A mortgage lender shall not qualify as an
eligible issuer at any time in which:
(1) The lending policies of the issuer permit any discrimination
based on race, religion, color, national origin, age, or sex of a
borrower; or
(2) The issuer is not in compliance with any rules, regulations, or
orders issued under title VI of the Civil Rights Act of 1964; Executive
Order 11063, Equal Opportunity in Housing, November 20, 1962; Executive
Order 11246, Equal Employment Opportunity, issued on September 24, 1965
and amended on October 13, 1967; title VII of the Civil Rights Act of
1968; title VIII of the Civil Rights Act of 1968 as amended by the Fair
Housing Amendments Act of 1988; or by the FHA or VA.
(e) Ethics and standards. A mortgage lender shall qualify as an
eligible issuer only so long as it conducts its business operations in
accordance with accepted mortgage banking practices, ethics, and
standards, as determined by the Association, and maintains its books
and records in accordance with generally accepted accounting
principles.
(f) Change in control. Issuers shall notify the Association of any
change in issuer control. A change in control occurs whenever a new
party obtains significant influence over an issuer, as defined by the
Association. In a merger where the surviving party is not the approved
issuer and in a consolidation, the surviving party must apply formally
for approval as a new issuer prior to the merger or consolidation
taking place. In other business combinations, such as a stock sale of
an existing issuer, which result in a change in control of issuer, the
issuer shall demonstrate that it continues to meet all issuer
eligibility requirements prior to the business combination being
finalized.
(g) Cross-Default. Related issuers, as defined by the Association,
shall execute a cross-default agreement, in a form prescribed by the
Association, that authorizes the default of one or more related issuers
in the event of a default by any one of the related issuers. Issuers
may be granted an exemption from this section, provided that they
submit a legal opinion, acceptable to the Association, which
demonstrates that the execution of a cross-default agreement would be
prohibited by the issuer's Federal regulator.
(h) Failure to comply. In the event that an issuer subsequently
fails to comply with any of the requirements prescribed in this part or
the applicable MBS Guide, as determined by the Association, the
Association may, among other things, withhold further commitments to
guarantee securities until such time as the Association is satisfied
that the issuer has resumed business operations in compliance with such
requirements.
(Approved by the Office of Management and Budget under control
numbers 2503-0003, 2503-0004, 2503-0006, 2503-0007, and 2503-0026)
Sec. 320.5 Securities.
(a) Instruments. Securities issued pursuant to the provisions of
this subpart must be modified pass-through securities, that provide for
payment, whether or not collected, of both specified principal
installments and interest on the unpaid principal balance, with all
prepayments and other unscheduled recoveries of principal being passed
through to the holder. In the case of delinquent mortgages in a pool
backing modified pass-through securities, the issuer is required to
make advances if necessary to maintain the specified schedule of
interest and principal payments to the holders, or at its option, at
any time 90 days or more after default of any such mortgage, the issuer
may repurchase such mortgage for an amount equal to the unpaid
principal balance of the mortgage. The securities must specify the
dates by which payments are to be made to the holders thereof, and must
indicate the accounting period for collections on the pool's mortgages
relating to each such payment, and the securities must also specify a
date on which the entire principal will have been paid or will be
payable.
(b) Issue amount. Each issue of guaranteed securities must be in a
minimum face amount as specified in the applicable MBS Guide. The total
face amount of any issue of securities cannot exceed the aggregate
unpaid principal balances of the mortgages in
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the pool. The Association may provide for issuers to submit packages of
mortgages that may be consolidated, with other packages of similar
types of mortgages, into multiple issuer pools.
(c) Face amount of securities. The face amount of any security
cannot be less than $25,000.
(d) Transferability. Securities are transferable, but the share of
the proceeds collected on account of the pool of mortgages is payable
only to the registered holder of a security according to the policies
established by the Association.
Sec. 320.7 Mortgages.
Each issue of guaranteed securities must be backed by a separate
pool of mortgages which meet the requirements of the applicable MBS
Guide.
Sec. 320.9 Pool administration.
The Association will only guarantee securities if the issuer
executes a guaranty agreement or contractual agreement in the form
prescribed by the Association. Pool administration requirements are set
forth in such agreements or the applicable MBS Guide.
(Approved by the Office of Management and Budget under control
numbers 2503-0003, 2503-0004, 2503-0006, 2503-0007, and 2503-0026)
Sec. 320.10 Financial reporting.
Issuers shall submit to the Association audited annual financial
statements within 90 days of their fiscal year end. All financial
statements with a fiscal year end date on or after [one year after the
effective date of this rule] shall include a classified balance sheet
and a statement of operations and cash flows, prepared in accordance
with the standards for financial audits of the U.S. General Accounting
Office's Government Auditing Standards, issued by the Comptroller
General of the United States. The balance sheet shall show the division
of total assets into current, noncurrent and fixed assets and the
division of total liabilities into current and long-term liabilities.
Sec. 320.11 Insurance coverage.
The issuer shall maintain, for the benefit of the Association,
insurance, errors and omissions, fidelity bond and other coverage as
required by the Association and set forth in the appropriate MBS Guide.
Sec. 320.12 Integrity.
(a) Background. Issuers shall disclose the background of all
individuals serving on their Board of Directors and all individuals
acting as authorized signatories. The disclosures shall include any
prior convictions, fines or other adverse actions against these
individuals by a Federal, state or local agency, or a government-
related entity where the action is related to the responsibilities that
are commensurate with those of the financial services industry. The
term government-related entity includes, but is not limited to, FHA,
VA, FmHA, FNMA, FHLMC, Office of Thrift Supervision, Federal Deposit
Insurance Corporation, Office of the Comptroller of the Currency, Board
of Governors of the Federal Reserve System, and National Credit Union
Administration.
(b) Change in status. Issuers shall disclose material changes in
their status with other government-related entities and regulatory
agencies, or state or local agencies with similar authority, within 5
business days of their occurrence. The disclosures shall include, but
not be limited to, voluntary and non-voluntary terminations, defaults,
fines, and material non-compliance with agency rules and policies.
Disclosures that are specifically prohibited by an agency are exempted
from this section.
Sec. 320.13 Guaranty.
The Association guarantees the timely payment, whether or not
collected, of the interest on the outstanding balance and the specified
principal installments, as undertaken in the Association's guaranty
appearing on the face of the security. The Association's guaranty is
backed by the full faith and credit of the United States.
Sec. 320.15 Default.
(a) Issuer default. Any failure or inability of the issuer to make
payments as due as well as such other events as may be identified by
the Association and included in the applicable guaranty agreement,
contractual agreement or MBS Guide, shall constitute a default of the
issuer.
(b) Action upon default. Upon any default by the issuer, the
Association may:
(1) Institute a claim against the issuer's insurance, bond or other
coverage, as specified in Sec. 320.11;
(2) Pursuant to section 306(g) of the National Housing Act (12
U.S.C. 1721(g)), extinguish all the right, title, or other interest of
the issuer in the pooled mortgages; and
(3) Exercise such other rights and remedies as it may have.
Sec. 320.17 Fees.
The Association may impose application fees, guaranty fees,
securities transfer fees and other fees.
Subpart B--Bond-Type Securities
Sec. 320.21 General.
In addition to the ``pass-through'' securities dealt with in
subpart A of this part, the Association is authorized by section 306(g)
of the National Housing Act, 12 U.S.C. 1721(g), upon such terms and
conditions as it may deem appropriate, to guarantee the timely payment
of principal of and interest on ``bond-type'' securities which are
based on and backed by a trust or pool composed of mortgages which are
insured or guaranteed by FHA, FmHA or the VA. The Association's
guaranty of mortgage-backed securities is backed by the full faith and
credit of the United States. This subpart deals with such ``bond-type''
securities and does not purport to set forth all the procedures and
requirements that apply to the issuance and guaranty of such
securities. All such transactions are governed by the specific terms
and provisions of the contracts entered into by the parties and the
Bond-Type Securities Guide (the ``Bond Guide'').
Sec. 320.23 Eligible issuers.
Any corporation, trust, partnership, or other entity with a net
worth acceptable to the Association as set forth in the Bond Guide,
which has the capability to assemble acceptable and eligible mortgages
in sufficient quantity to support required minimum issuances of
securities and which meets such other requirements as are set forth in
the Bond Guide, may be approved to issue and service bond-type
securities guaranteed by the Association. Further, the Association
reserves the right to limit the number of issuers in the interest of
conducting an orderly market of securities of this type.
Sec. 320.25 Securities.
(a) Instruments. Securities to be issued pursuant to the provisions
of this subpart B may be in registered or bearer form. Each security
shall have terms acceptable to the Association as provided in the Bond
Guide.
(b) Issue amount. Each issue of guaranteed securities must be in a
minimum face amount as specified in the Bond Guide. The total face
amount of any issue of securities cannot exceed the aggregate unpaid
principal balances of the mortgages in the pool.
(c) Face amount of securities. The face amount of any security
cannot be less than $25,000.
(d) Transferability. Bearer securities are freely transferrable.
Registered securities are transferable only on the books of an agent,
as shall be agreed upon by the Association and the issuer.
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(e) Treasury approval. Issues of $100 million or larger will be
subject to approval of the Secretary of the Treasury.
Sec. 320.27 Mortgages.
Guaranteed securities issued under these provisions must be based
on and backed by mortgages pooled under trust arrangements satisfactory
to the Association. Such mortgages must meet the requirements of the
Bond Guide.
Sec. 320.29 Guaranty.
With respect to bond-type securities, the Association will
guarantee the timely payment of principal of and interest on such
securities, subject to the terms and conditions of the securities. The
Association's guaranty is backed by the full faith and credit of the
United States.
Sec. 320.31 Default.
Upon default of the issuer, the Association has the right, pursuant
to section 306(g) of the National Housing Act (12 U.S.C. 1721(g)), to
take title to the mortgages and other assets that are subject to the
trust arrangements, and to proceed against other assets of the issuer
to the extent necessary to satisfy its own claims and the rights of the
holders of securities then outstanding. Such action by the Association
shall be taken subject to an accounting to the issuer.
Sec. 320.33 Fees.
The Association may impose application and guaranty fees, which may
vary with relation to the size or risk of the guaranty transaction
undertaken.
5. Part 330 is revised in its entirety, to read as follows:
PART 330--GUARANTY OF MULTICLASS SECURITIES
Sec.
330.1 Scope of part.
330.5 Definitions.
330.10 Eligible collateral.
330.15 Participation requirements.
330.20 Eligible participants.
330.25 Fees.
330.30 GNMA guaranty.
330.35 Investors.
330.40 Consultation.
330.45 Limitation on GNMA liability.
330.50 Administration of multiclass securities.
330.55 Basis for removal from participation.
330.60 Removal procedure.
Authority: 12 U.S.C. 1721(g) and 1723a(a); and 42 U.S.C.
3535(d).
Sec. 330.1 Scope of part.
This part is limited to multiclass securities. It does not purport
to set forth all the procedures and requirements that apply to the
issuance and guaranty of such securities. All such transactions are
governed by the specific terms and provisions of the contracts entered
into by the parties and by the GNMA Multiclass Securities Guide
(Multiclass Guide).
Sec. 330.5 Definitions
As used in this part, the following terms shall have the meanings
indicated.
Consolidated securities. A series of multiclass securities each
class of which provides for payments proportionate with payments on the
underlying eligible collateral.
Depositor. The entity that deposits, or executes an agreement to
deposit, as contained in the Multiclass Guide, eligible collateral into
a trust in exchange for consolidated securities.
GNMA electronic bulletin board. An information distribution system
established by the Association for the Multiclass Securities program.
GNMA MBS certificates. The guaranteed mortgage-backed securities
issued under part 320 of this chapter.
Government mortgages. Mortgages that are eligible under section
306(g) (12 U.S.C. 1721(g)) for inclusion in GNMA mortgage-backed
securities pools.
Participant. For structured securities, the sponsor, co-sponsor,
trustee, trust counsel, accounting firm, and their contractors. For
consolidated securities, the depositor. Other entities may be
designated as participants in the Multiclass Guide.
Sponsor. With respect to structured securities, the entity that
establishes the required trust by executing the trust agreement and
depositing the eligible collateral in the trust in exchange for the
structured securities.
Structured securities. Securities of a series at least one class of
which provides for payments of principal or interest disproportionately
from payments on the underlying eligible collateral.
Sec. 330.10 Eligible collateral.
The Association, in its discretion, shall determine what collateral
is eligible for inclusion in the Multiclass Securities program.
Eligible collateral may include GNMA MBS certificates, government
mortgages, consolidated securities, and other securities approved by
the Association. Categories of these GNMA MBS certificates, government
mortgages, consolidated securities, and other securities as approved by
the Association become eligible collateral when they are published as
eligible collateral in the Multiclass Guide or on the GNMA electronic
bulletin board. Eligible collateral may differ for various Association
guaranteed multiclass securities.
Sec. 330.15 Participation requirements.
To participate in the Multiclass Securities program, a participant
must meet the following criteria:
(a) Certification. A participant must submit such certifications
and other documents as are required by the Multiclass Guide.
(b) Compliance with Multiclass Guide. By completing a multiclass
securities transaction, a participant is deemed to have represented and
warranted to the Association that it has complied with, and that it
agrees to comply with, the Multiclass Guide in effect as of the date
that the Association's guaranty is placed on the securities.
(c) Material changes in status. A participant must report, as
required in the Multiclass Guide, material adverse changes in status
including voluntary and non-voluntary termination, defaults, fines and
findings of material non-conformance with rules and policies of state
and federal agencies and federal government sponsored enterprises.
(d) Integrity. The participant must conduct its business operations
in accordance with industry practices, ethics and standards, and
maintain its books and records in an appropriate manner, as determined
by the Association.
(Approved by the Office of Management and Budget under control
number 2503-0030)
Sec. 330.20 Eligible participants.
In addition to requirements set forth in this part, a participant
must meet the following requirements.
(a) Structured securities.--(1) Description. The Association
guarantees the payment of principal and interest on structured
securities issued by trusts organized by sponsors in accordance with
procedures established and approved by the Association. The structured
securities are backed by eligible collateral, as described in this
part, held by the trustee.
(2) Eligibility requirements for participants. (i) Sponsors. A
sponsor must:
(A) Apply and be approved by the Association;
(B) Demonstrate to the satisfaction of the Association its capacity
to accumulate the eligible collateral, as described in this part,
needed for a proposed structured securities issuance;
(C) Be in good standing with and either have been responsible for
at least one structured securities transaction with FNMA or FHLMC, or
have demonstrated to the Association's
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satisfaction its capability to act as sponsor of GNMA guaranteed
structured securities;
(D) Have the minimum required amount, as set forth in the
Multiclass Guide, in shareholders' equity or partners' capital,
evidenced by the sponsor's audited financial statements, which must
have been issued within the preceding 12-month period;
(E) Represent the structural integrity of the issuance under all
cash flow scenarios and demonstrate to the Association's satisfaction
its ability to indemnify the Association for a breach of this
representation;
(F) Comply with the Association's policies regarding participation
by minority and/or women-owned businesses and take appropriate measures
to assure compliance by the other participants as specified in the
Multiclass Guide; and
(G) Provide the Association with the opinions of trust counsel and
accounting firms which are acceptable to the Association and on which
the Association may rely.
(ii) Co-sponsors. A Co-sponsor must submit to the Association an
application and a certification, as set forth in the Multiclass Guide,
as to its status as a minority and/or women-owned business.
(iii) Trustees. A trustee is selected by the Sponsor from
institutions approved by the Association using such procedures as the
Association deems appropriate.
(b) Consolidated securities. (1) Description. A Depositor delivers,
or executes an agreement to deliver, eligible collateral to a trust in
exchange for a single Association guaranteed multiclass security, as
set forth in the Multiclass Guide.
(2) Eligibility requirements for participant. A Depositor must
certify that:
(i) It is an ``accredited investor'' within the meaning of 17 CFR
230.501(a)(1), (a)(3) or (a)(7);
(ii) It has authority to deliver, and will deliver, the collateral
to the trustee and that the collateral is free and clear of all liens
and encumbrances; and
(iii) The information set forth by the depositor regarding the
eligible collateral is true and correct.
(c) Other types of Association guaranteed multiclass securities.
The Association will set forth the requirements for the guaranty by the
Association of other types of multiclass securities, and the
eligibility requirements for the appropriate participants, in the
Multiclass Guide or on the GNMA electronic bulletin board.
Sec. 330.25 Fees.
The Association, in its discretion, through publication in the
Multiclass Guide or on the GNMA electronic bulletin board, may impose
fees for application, guaranty, transfer, change from book entry to
certificated form, or other related fees. Fees may vary, at the
Association's discretion, depending upon, but not limited to, such
factors as size, collateral characteristics, expense or risk of the
guaranty transaction undertaken.
Sec. 330.30 GNMA guaranty.
The Association guarantees the timely payment of principal and
interest as provided by the terms of the multiclass security. The
Association's guaranty is backed by the full faith and credit of the
United States.
Sec. 330.35 Investors.
Association guaranteed multiclass securities may not be suitable
investments for all investors. No investor should purchase securities
of any class unless the investor understands, and is able to bear, the
prepayment, yield, liquidity and market risks associated with the
class. The Association assumes no obligation or liability to any person
with regard to determining the suitability of such securities for such
investor.
Sec. 330.40 Consultation.
The Association may consult with persons or entities in such manner
as the Association deems appropriate to ensure the efficient
commencement and operation of the Multiclass Securities program.
Sec. 330.45 Limitation on GNMA liability.
Except for its guaranty, the Association undertakes no obligation
and assumes no liability to any person with regard to or on account of
the existence or operation of this part or the conduct of any
participants in the Multiclass Securities program.
Sec. 330.50 Administration of multiclass securities.
The GNMA guaranteed multiclass securities will be administered in
accordance with the Association's requirements described in the
Multiclass Guide.
Sec. 330.55 Basis for removal from participation.
A participant may be removed from the Multiclass Securities program
if the Association, in its discretion, determines that any of the
following exists or has occurred:
(a) The participant, at any time, fails to meet any condition for
eligibility;
(b) The participant fails to comply with any provision of the
Multiclass Guide or this part;
(c) The participant is unable or fails to truthfully, correctly or
fully submit such certifications as are required; and
(d) Such further reasons as the Association determines necessary to
protect the safety and soundness of the Multiclass Securities program,
as set out in the Multiclass Guide.
Sec. 330.60 Removal procedure.
(a) A participant may be suspended from participation in the
Multiclass Securities program upon written notice from the Association,
which shall include the reasons for the suspension. The participant
shall have the opportunity to submit a written presentation to the
President of the Association, or designee, in support of its
reinstatement, subject to such limitations as the Association in its
discretion may impose as to length, time for submission, or otherwise.
A determination by the President of the Association, or designee, shall
exhaust the participant's administrative remedies.
(b) If a participant is suspended from the Multiclass Securities
program, the Association shall have no obligation to complete a pending
transaction involving the participant.
(c) After a participant has been removed from the Multiclass
Securities program, the participant may request reinstatement. Approval
of the reinstatement is at the sole discretion of the Association.
6. Part 340 is revised in its entirety, to read as follows:
PART 340--FIDUCIARY ACTIVITIES
Sec.
340.1 General.
340.3 Appropriations.
Authority: 12 U.S.C. 1723a and 42 U.S.C. 3535(d).
Sec. 340.1 General.
The Association is authorized by section 302(c) of the National
Housing Act (12 U.S.C. 1717(c)) to create, accept, execute, and
administer trusts and other fiduciary undertakings appropriate for
financing purposes. Under this authority, the Association is authorized
to acquire and otherwise deal in any mortgages or other types of
obligations in which any department or agency of the United States
listed in section 302(c)(2) of such Act may have a financial interest.
Under its fiduciary powers, the Association may create, accept, and
administer trusts consisting of interests in mortgages and obligations,
sell to private investors
[[Page 42020]]
certificates of beneficial interest, or participations, in the
mortgages or obligations or in the interest and principal payments
derived therefrom, and provide for payment of interest and principal
and for retirement of the participations. The Association, in its
ordinary corporate capacity as contrasted to its fiduciary capacity, is
expressly authorized to guarantee the participations.
Sec. 340.3 Appropriations.
There is authority for Congress to appropriate such sums as may be
necessary to enable the trustor of any trust (as described in
Sec. 340.1) to pay to the Association, as trustee, any insufficiency in
aggregate receipts from the obligations subject to the trust to provide
for the timely payment by the trustee of all interest or principal on
the beneficial interests or participations related to such trust.
PART 350--[REMOVED]
7. Part 350 is removed.
PART 360--[REMOVED]
8. Part 360 is removed.
PART 370--[REMOVED]
9. Part 370 is removed.
PART 380--[REMOVED]
10. Part 380 is removed.
PART 390--[REMOVED]
11. Part 390 is removed.
PART 395--[REMOVED]
12. Part 395 is removed.
Dated: August 2, 1995.
Dwight P. Robinson,
President, Government National Mortgage Association.
[FR Doc. 95-19968 Filed 8-11-95; 8:45 am]
BILLING CODE 4210-01-P
