[Federal Register Volume 77, Number 56 (Thursday, March 22, 2012)]
[Proposed Rules]
[Pages 16761-16768]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: R1-2012-6177]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
5 CFR Part 7501
[Docket No. FR-5542-P-01]
RIN 2501-AD55
Supplemental Standards of Ethical Conduct for Employees of the
Department of Housing and Urban Development; Republication
Republication
Editorial Note: Proposed rule document 2012-06177 was originally
published on pages 14997 through 15003 in the issue of Wednesday,
March 14, 2012. In that publication an incorrect version of the
document was published. The corrected document is republished in its
entirety.
AGENCY: Office of the Secretary, Department of Housing and Urban
Development.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Department of Housing and Urban Development (HUD), with
the concurrence of the Office of Government Ethics (OGE), seeks
comments on the proposed amendments to HUD's Supplemental Standards of
Ethical Conduct, which are regulations for HUD officers and employees
that supplement the Standards of Ethical Conduct for Employees of the
Executive Branch (Standards) issued by OGE. To ensure a comprehensive
and effective ethics program at HUD, and to address ethical issues
unique to HUD, the proposed rule reflects statutory changes that were
enacted subsequent to the promulgation of HUD's Supplemental Standards
of Conduct regulation in 1996; significantly, the transfer of general
regulatory authority over the Federal National Mortgage Association and
the Federal Home Loan Mortgage Corporation from HUD to the Federal
Housing Finance Agency (FHFA). In addition, the proposed rule revises
definitions used in HUD's Supplemental Standards of Conduct to reflect
updated titles and positions and clarifies existing prohibitions on
certain financial interests and outside employment to better guide
employee conduct, while upholding the integrity of HUD in the
administration of its programs.
DATES: Comment Due Date: May 14, 2012.
[[Page 16762]]
ADDRESSES: Interested persons are invited to submit comments regarding
this proposed rule. All comments must be in writing and be addressed to
the Regulations Division, Office of General Counsel, Department of
Housing and Urban Development, 451 7th St. SW., Room 10276, Washington,
DC 20410-0500. There are two methods for submitting public comments.
All submissions must refer to the above docket number and title.
1. Submission of Comments by Mail. Comments may be submitted by
mail to the Regulations Division, Office of General Counsel, Department
of Housing and Urban Development, 451 7th Street SW., Room 10276,
Washington, DC 20410-0500.
2. Electronic Submission of Comments. Interested persons may submit
comments electronically through the Federal eRulemaking Portal at
www.regulations.gov. HUD strongly encourages commenters to submit
comments electronically. Electronic submission of comments allows the
commenter maximum time to prepare and submit a comment, ensures timely
receipt by HUD, and enables HUD to make them immediately available to
the public. Comments submitted electronically through the
www.regulations.gov Web site can be viewed by other commenters and
interested members of the public. Commenters should follow the
instructions provided on that site to submit comments electronically.
Note: To receive consideration as public comments, comments must
be submitted through one of the two methods specified above. Again,
all submissions must refer to the docket number and title of the
rule.
No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
Public Inspection of Public Comments. All properly submitted
comments and communications submitted to HUD will be available for
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the
above address. Due to security measures at the HUD Headquarters
building, an advance appointment to review the public comments must be
scheduled by calling the Regulations Division at (202) 402-3055 (this
is not a toll-free number). Individuals with speech or hearing
impairments may access this number via TTY by calling the Federal Relay
Service, toll-free, at (800) 877-8339. Copies of all comments submitted
are available for inspection and downloading at www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: Robert H. Golden, Assistant General
Counsel, Ethics Law Division, telephone number 202-402-6334, or Peter
J. Constantine, Associate General Counsel for Ethics and Personnel Law,
Office of General Counsel, Department of Housing and Urban Development,
451 7th Street SW., Washington, DC 20410, telephone number (202) 402-
2377. Persons with hearing or speech impairments may access this number
through TTY by calling the toll-free Federal Relay Service at (800)
877-8339.
SUPPLEMENTARY INFORMATION:
I. Background
Executive Order 12674, as amended by Executive Order 12731,
authorized OGE to establish a single, comprehensive, and clear set of
executive-branch standards of conduct. On August 7, 1992, OGE published
the Standards of Ethical Conduct for Employees of the Executive Branch
(Standards), as codified at 5 CFR part 2635. (See 57 FR 35006, as
corrected at 57 FR 48557 and 57 FR 52583.) The Standards, effective
February 3, 1993, set uniform ethical conduct standards applicable to
all executive branch personnel.
With the concurrence of OGE, 5 CFR 2635.105 authorizes executive
branch agencies to publish agency-specific supplemental regulations
necessary to implement their respective ethics programs. Pursuant to
this authority, HUD, with OGE's concurrence, published on July 9, 1996,
a final rule to establish its supplementary standards of ethical
conduct for HUD employees (61 FR 36246). HUD, with OGE's concurrence,
now proposes to amend its supplemental standards in order to
successfully implement HUD's ethics program in light of recent
statutory changes to HUD's programs and operations. One of the most
significant statutory changes to HUD programs and operations was made
by the Housing and Economic Recovery Act of 2008 (HERA) (Pub. L. 110-
289, approved July 30, 2008). HERA transfers regulatory authority over
the Federal National Mortgage Association (Fannie Mae) and the Federal
Home Loan Mortgage Corporation (Freddie Mac) (collectively referred to
as the Government Sponsored Enterprises, or GSEs) from HUD to the
Federal Housing Finance Agency (FHFA). Based on this transfer of
regulatory authority, HUD has decided to remove provisions of its
Supplemental Standards of Conduct that prohibit all HUD employees from
owning certain financial interests issued by the GSEs. In addition, HUD
has decided to remove Sec. 7501.106 of its Supplemental Standards of
Conduct that apply to employees whose duties involve the regulation or
oversight of the GSEs. Section 7501.106 prohibits covered employees
from, among other things, owning financial interests in certain
mortgage institutions and from performing any work, either compensated
or uncompensated, for or on behalf of a mortgage institution. The
removal of Sec. 7501.106 is based on HUD's determination that this
section is no longer necessary to ensuring the impartiality and
integrity in the administration of HUD's programs.
In addition, this proposed rule revises definitions used in HUD's
Supplemental Standards of Conduct to reflect updated titles and
positions and clarifies existing prohibitions on certain financial
interests and outside employment to better guide employee conduct,
while upholding the integrity of HUD in the administration of its
programs. This rule also proposes to add a new Sec. 7501.106 that
clarifies the authority of the HUD OIG in the agency's ethics program
and establishes it as a separate component as provided by 5 CFR
2635.203(a).
II. Amendments Proposed by This Rule
The following is a section-by-section overview of the amendments
proposed by this rule.
Section 7501.101 Purpose
This section remains unchanged.
Section 7501.102 Definitions
Proposed Sec. 7501.102 updates and clarifies key terms already in
the current regulation. In addition, it adds new terms to reflect
current HUD policy and removes terms that are no longer used in the
regulation. Specifically, the proposed definitions of ``Agency
designee'' and ``Designated Agency Ethics Official (DAEO)'' are revised
to reflect updated office names and titles within the current HUD
organization. Definitions of ``Bureau,'' ``Bureau Ethics Counselor,''
and ``Deputy Bureau Ethics Counselor,'' are proposed to clarify the
Office of Inspector General's responsibilities in HUD's ethics program.
Additionally, the reference to the Inspector General (IG) is removed
from the definition of ``agency designee'' in favor of adding
definitions for ``Bureau,'' ``Bureau Ethics Counselor,'' and ``Deputy
Bureau Ethics Counselor.'' ``Bureau'' would be defined to mean the
Office of the Inspector General (OIG). ``Bureau Ethics Counselor'' and
``Deputy Bureau Ethics Counselor'' would be defined to mean,
respectively, the General Counsel for OIG and the OIG employees to whom
the OIG General Counsel delegates responsibility to make
determinations, issue explanatory guidance, or establish
[[Page 16763]]
procedures necessary to implement this part, subpart I of 5 CFR part
2634, and 5 CFR part 2635 for Bureau employees. HUD is proposing these
amendments to make the structure of its ethics program more consistent
with the structure used by other federal agencies and to more clearly
describe the role and responsibilities of the IG in HUD's ethics
program.
The proposed definition of ``employment'' is also clarified to
provide that employment includes uncompensated activity, such as
volunteer work for others while off-duty.
The terms ``assistance'' and ``security'' are proposed to be
removed from Sec. 7501.102, because these terms are no longer used in
HUD's supplemental regulations.
Section 7501.103 Waivers
Proposed Sec. 7501.103 clarifies the procedure for requesting a
waiver, and makes other minor changes to make the section clearer.
Proposed Sec. 7501.103 adds the requirement that a waiver request be
submitted in writing to an agency designee and should include the
employee's office and division; a description of the employee's
official duties; the nature and extent of the waiver; a detailed
statement of facts to support the request; and the basis for the
request, such as hardship. This amendment codifies HUD practice that a
waiver request must be in writing, and provides direction to employees
on what should be included in a waiver request for a thorough analysis
to be conducted. The amendment further confirms HUD practice that
hardship and other exigent circumstances are legitimate reasons for a
waiver request, and such a request will be considered in light of HUD's
need to ensure public confidence in the impartiality and objectivity
with which HUD programs are administered. This section also proposes to
delegate authority to the Bureau Ethics Counselor to waive provisions
of this part.
The proposed section also makes minor textual changes in order to
make the regulation easier to understand. These textual changes are not
intended to change the meaning of the section.
Section 7501.104 Prohibited Financial Interests
Proposed Sec. 7501.104 is amended to remove the reference to
covered employees under Sec. 7501.106(b)(1). This change reflects the
proposed removal of Sec. 7501.106 as discussed in more detail below in
this preamble. The proposed regulation continues to apply to all HUD
employees, except special government employees, and to the employee's
spouse and minor children, because HUD has determined that ownership of
the financial interests listed in this section by these individuals
constitutes a significant risk of an apparent conflict of interest.
Additionally, this section is revised to reflect the changes to HUD
regulatory authority as the result of HERA, which transferred all
general regulatory authority over Fannie Mae and Freddie Mac from HUD
to the FHFA.
Existing Sec. 7501.104(a)(1) is proposed to be removed. The
prohibition in this section was promulgated in 1968 after Congress
provided HUD with general regulatory authority over Fannie Mae through
the Federal National Mortgage Association Charter Act (12 U.S.C. 1716
et seq.). Under this 1968 statute, HUD was directed to establish
housing goals for Fannie Mae, specifically a goal for low- and
moderate-income housing and a goal for housing located in central
cities. Beginning in 1968, HUD's Standards of Conduct prohibited
employees from owning securities issued by Fannie Mae or securities
collateralized by Fannie Mae securities. (See 24 CFR Sec.
0.735.205(a)(3) (1968).) Section 7501.104(a)(1) is no longer necessary
since HERA transferred the general regulatory functions over Fannie Mae
to FHFA.
Existing Sec. 7501.104(a)(2) is also proposed to be removed. In
1989, Congress passed the Financial Institutions Reform, Recovery, and
Enforcement Act (FIRREA) and granted HUD essentially the same authority
over Freddie Mac as it had over Fannie Mae. In response to this
additional authority, HUD's standards of conduct were updated to
include a prohibition against owning securities issued by Freddie Mac
or securities collateralized by Freddie Mac securities. HUD has
determined that the prohibition is no longer necessary because of HERA.
The remaining provisions are redesignated accordingly.
Proposed Sec. 7501.104(a)(1) adopts language from the current
Sec. 7501.104(a)(3).
Proposed Sec. 7501.104(a)(2) is based on current Sec.
7501.104(a)(4), but is revised to add clarity. Specifically, the
revised section replaces the phrase ``in a multifamily project or
single family dwelling, cooperative unit, or condominium unit'' with
the term ``project'' in order to cover all HUD subsidized or insured
projects that exist or may come to exist in the future. Employee
ownership of homes with mortgages insured under programs of the Federal
Housing Administration (FHA) and the purchase by employees of HUD-owned
homes, which was an exception within the prohibition of Sec.
7501.104(a)(4), is now addressed in exceptions under proposed Sec.
7501.104(b). All remaining HUD projects, including multifamily
projects, assisted living facilities, nursing homes, and hospitals, are
now included in the revised prohibition in Sec. 7501.104(a)(2).
Finally, proposed Sec. 7501.104(a)(2) now uses the term ``financial
interest'' to replace ``stock or other financial interest'' and
references OGE regulations at 5 CFR 2635.403(c) for a complete
definition of the term ``financial interest,'' including examples.
Proposed Sec. 7501.104(a)(3) revises the language in current Sec.
7501.104(a)(5). A new exception is proposed that allows all new HUD
employees who already have a tenant receiving Section 8 subsidies to
retain that tenant until the tenant terminates his or her lease.
Proposed Sec. 7501.104(a)(3)(i)(E) adds a new exception permitting HUD
employees to receive a Section 8 subsidy for the rental of properties
located in areas of Presidentially declared emergency or natural
disaster with prior written approval from an agency designee. HUD's
experience demonstrates that in rare instances (e.g., Hurricane Katrina
in 2005 or the 2008 flooding in Cedar Rapids, Iowa), there may be an
extreme shortage of affordable housing in an area due to a natural
disaster or other emergency. This exception would permit HUD employees
with rentable properties in these areas to accept new tenants receiving
Section 8 subsidies. These supplemental ethics regulations are intended
to uphold the integrity of HUD's administration of the Section 8
program and are not intended to further restrict the availability of
Section 8 housing, especially in times of acute housing shortages.
The exceptions provided by proposed Sec. 7501.104(a)(3) continue
as long as the tenant continues to reside in the property and as long
as the rent charged the tenant is not increased above the annual rate
adjustments permitted by the Section 8 program. This first condition
codifies HUD's intent not to require an employee to terminate the
rental arrangement early or require a Section 8 tenant to move based
solely on these regulations. The second condition preserves the current
language of the exceptions.
Current Sec. 7501.104(a)(6) is proposed to be removed. The current
prohibition against ``direct creditor interests'' is undefined and
unclear.
Proposed Sec. 7501.104(b), which provides exceptions to this
section on
[[Page 16764]]
prohibited financial interests, is revised to add the phrase ``directly
or indirectly receiving, acquiring or owning'' to ensure consistency
with Sec. 7501.104(a). Additionally, this section proposes to expand
the exceptions by eliminating from current Sec. 7501.104(b)(1) the
prohibition on owning investment funds that concentrate in residential
mortgages or mortgage-backed securities. This prohibition is no longer
needed to maintain the integrity of HUD in light of the fact that HUD
no longer has regulatory authority over Fannie Mae and Freddie Mac.
Proposed Sec. 7501.104(b)(1) also provides an exception to the
interests prohibited under proposed Sec. 7501.104(a)(2). Section
7501.104(b)(1) allows the employee, or the employee's spouse or minor
child, to have a financial interest in a publicly available or publicly
traded investment fund that may include interests that are prohibited
under Sec. 7501.104(a)(2), as long as the employee, or the employee's
spouse or minor child, neither exercises control nor has the ability to
exercise control over the fund or the financial interests held in the
fund. This exception allows the employee, or the employee's spouse or
minor child, to have an interest in an investment fund that may hold
interests in HUD subsidized projects. HUD's experience has been that it
is extremely difficult to determine which investment funds have
interests in HUD-subsidized projects, since that information is not
readily available. Therefore, HUD has decided that this type of
interest does not present an appearance problem and is therefore
permissible.
Current Sec. 7501.104(b)(2) is proposed to be removed. Read
literally, this exception had no possible application to a limited
partnership holding. Also, limited partnerships create no less of an
appearance issue than other legal entities that could be used as an
investment vehicle and do not warrant the specific exception.
Proposed Sec. 7501.104(b)(2) provides that a HUD employee may
obtain mortgage insurance provided by FHA under section 203 of the
National Housing Act (12 U.S.C. 1709) to assist in his or her purchase
of a single-family home that serves as the employee's principal
residence and of one other single-family residence. Proposed Sec.
7501.104(b)(2) provides notice to HUD employees that they must adhere
to the procedures established by the Assistant Secretary for Housing--
FHA Commissioner in order to obtain FHA insurance. This exception was
previously found in Sec. 7501.104(b)(3).
Proposed Sec. 7501.104(b)(3) covers HUD employees' purchases of
HUD-owned homes. This provision is currently an exception within the
prohibition of Sec. 7501.104(a)(4); however, since the provision is
permissive, HUD has moved the exception to proposed Sec. 7501.104(b),
where the other exceptions to the prohibitions to Sec. 7501.104(a) are
located. Current Sec. 7501.104(a)(4) notifies employees that the
purchase of HUD-held properties must be consistent with an Office of
Housing handbook that is now outdated. To avoid the codification of
references to HUD handbooks that may become obsolete, and thus create a
discrepancy with the supplemental standards, proposed Sec.
7501.104(b)(3) does not reference a specific Office of Housing
handbook, but simply provides notice to HUD employees that they must
adhere to the procedures established by the Assistant Secretary for
Housing--FHA Commissioner in order to purchase a HUD-held property.
Proposed Sec. 7501.104(b)(4) has been added to ensure that the
employment compensation and benefits package for an employee's spouse
is not covered as a prohibited financial interest if the employee's
spouse is employed by an entity that may have interests in HUD projects
that are prohibited under proposed Sec. 7501.104(a)(2). For example,
an employee's spouse is not restricted from earning a salary and other
benefits as compensation for employment with a real estate development
company that does multifamily business with HUD.
Proposed Sec. 7501.104(b)(5) contains a revised provision that
permits employees, or their spouses or minor children, to hold
Government National Mortgage Association (GNMA) securities. The
ownership of GNMA securities is currently addressed in Sec.
7501.104(b)(1). Under this provision, an employee or the spouse or
minor child of an employee may not own an interest in an investment
fund that has an objective or practice of investing in residential
mortgages or securities backed by residential mortgages except those of
GNMA. Since HUD is proposing to revise Sec. 7501.104(b)(1), the
provision addressing ownership of GNMA securities is established as a
separate exception.
Section 7501.105 Outside Activities
Proposed Sec. 7501.105 governs the outside activities of HUD
employees. This proposed section has been revised to account for
changes in HUD's regulatory authority and to provide clarity on
restricted real estate activities. The proposed rule is designed to
balance several important ethical principles against an employee's
right to engage in outside activities.
HUD has determined that maintaining the policy against employment
in businesses related to real estate or manufactured housing is
necessary to protect against questions regarding the impartiality and
objectivity of employees in the administration of HUD programs.
Allowing such activity would hinder HUD in meeting its missions if
members of the public question whether HUD employees are using their
public positions or HUD connections to advance their outside real
estate-related employment. While HUD has determined that this concern
remains valid, HUD has also concluded that implementing this rule in
its current form has led to inconsistent application and confusion.
Therefore, HUD is proposing a number of amendments to clarify the
intent of the prohibition.
Proposed Sec. 7501.105(a)(1) is amended by removing the phrase
``involving active participation'' with a real estate-related business.
By removing this term, HUD does not intend to change the application of
the prohibition contained in Sec. 7501.105(a)(1) of the current rule;
rather, HUD intends to make the prohibition less confusing and more
transparent. The term ``involving active participation'' with a real
estate-related business encompasses two prohibitions. First, it
prohibits employment with a real estate-related business and, second,
it prohibits ownership of a real estate-related business. The term led
to some confusion in the application of these prohibitions by
conflating the concepts of employment in a business related to real
estate and the ownership activities of operating or managing investment
properties. To rectify any confusion, HUD has separated the prohibition
against the ownership activities of operating and managing a real
estate-related business involving investment properties from the
employment prohibition, by adding Sec. 7501.105(a)(2), which prohibits
the operation or management of investment properties to the extent that
doing so rises to the level of a real estate business. To make the
prohibition more transparent, HUD has decided to codify longstanding
policy by listing several factors that it uses to consider whether the
employee's actions of operating or managing investment properties rises
to the level of a real estate business and falls within the
prohibition. HUD first announced these factors in the 1995 preamble to
the proposed version of the current rule. By listing these factors in
the rule, HUD has not changed the scope of the current prohibition;
rather, it has made the prohibition more transparent by
[[Page 16765]]
including in the rule the factors that are used to determine a
violation of the prohibition. Therefore, HUD employees may continue to
own or manage investment properties, so long as that ownership or
management does not rise to the level of operation or management of a
real estate-related business. In a further effort to make the rule more
transparent, HUD has decided to codify existing policy by stating in
Sec. 7501.105(a)(2) that HUD will consider these situations on an
individual basis.
Proposed Sec. 7501.105(a)(3) is amended to prohibit outside
employment with a registered lobbying organization that is registered
to lobby HUD. The current regulation cites a repealed statute. The
proposed change would incorporate the definition of a lobbyist under
the Lobbying Disclosure Act (2 U.S.C. 1601, et seq.), although applying
only to entities that lobby HUD. This change will allow easier
compliance by employees and review by ethics staff because of the ease
of checking the lobbying database of the U.S. House of Representatives
and the U.S. Senate to determine if a potential employer is prohibited.
Proposed Sec. 7501.105(a)(4) is amended to remove the specific
restriction on employees having outside positions with Fannie Mae and
Freddie Mac. As previously discussed, HUD no longer has general
regulatory authority over Fannie Mae and Freddie Mac. Further, under
proposed Sec. 7501.105(a)(1), employees would be prohibited from
employment with a business related to real estate. This prohibition
would cover employment with Fannie Mae and Freddie Mac. Therefore, a
specific prohibition is not necessary.
Proposed Sec. 7501.105(b)(1)(ii) is amended to clarify that the
outside employment prohibitions do not prohibit employees from serving
as a member of an employee's homeowners' association. HUD previously
permitted serving on the board of a cooperative and condominium
association, and HUD has determined that serving on the board of a
homeowners' association does not create additional ethics concerns.
HUD has added Sec. 7501.105(b)(2), which codifies HUD's
longstanding policy that employees with a real estate agent's license
may continue to hold such license. An employee may only use his or her
license in relation to purchasing or selling a single-family property
for use as the employee's primary residence, or for the primary
residence of an immediate family of the employee. Employees seeking to
use their real estate license for this purpose, however, must obtain
the prior written approval of an agency ethics official. HUD has
revised Sec. 7501.105(c) to add the requirement for prior written
approval from an agency ethics official for employees seeking to use
their real estate license for this purpose.
Proposed Sec. 7501.105(c)(1) would require an employee to receive
written approval prior to accepting a position of authority with a
prohibited source. This section had previously extended only to
organizations that directly or indirectly received HUD assistance. This
section has been expanded to include all prohibited sources, because
HUD has determined that taking a position of authority with any
prohibited source, not just those which receive HUD funding, could
create the appearance of a conflict of interest and should therefore be
examined by an agency ethics official. Further, the section will now be
easier for employees to understand, because prohibited source is a term
with which they are familiar. As discussed, HUD proposes to add the
requirement at Sec. 7501.105(c)(1)(iv) for prior written approval from
an agency ethics official for employees seeking to use their real
estate license in relation to purchasing or selling a single-family
property for use as the employee's primary residence or as the primary
residence of an immediate family member of the employee.
Proposed Sec. 7501.105 would eliminate the reference to voluntary
services. That section cited only other regulations, and HUD has
determined that it is no longer needed to ensure public confidence in
the impartiality and objectivity with which HUD programs are
administered.
Proposed Sec. 7501.105(d) incorporates HUD's policy regarding
liaison representatives, which was previously provided as a Note. This
change will avoid any confusion over the concept and its authority.
Section 7501.106 Bureau Instructions and Designation of Separate Agency
Components
HUD proposes to remove this section as currently codified. As
previously discussed in this preamble, HUD no longer has general
regulatory authority over Fannie Mae and Freddie Mac. In its place, HUD
is proposing to add a new Sec. 7501.106 that clarifies the authority
of the Office of the Inspector General in the agency's ethics program
and establishes it as a separate component as provided for by 5 CFR
2635.203(a).
In 1992, Congress enacted the Federal Housing Enterprise Financial
Safety and Soundness Act (FHEFSSA) (12 U.S.C. 4501 et seq.), which
revamped the statutory requirements and regulatory structure of the
GSEs by separating the GSEs' financial regulation from its mission
regulation. FHEFSSA also established the Office of Federal Housing
Enterprise Oversight as an independent regulatory office within HUD to
ensure the GSEs' financial safety and soundness, while the Secretary of
HUD retained responsibility for the mission regulation and all other
general regulatory powers. FHEFSSA also required HUD to prohibit the
GSEs from discriminating in their mortgage purchases. The fair housing
authority was twofold: first, to take remedial action against lenders
found to have engaged in discriminatory lending practices and second,
to periodically review and comment on the GSEs' underwriting and
appraisal guidelines to ensure consistency with the Fair Housing Act
(42 U.S.C. 3601 et seq.). In 2008, HERA transferred all regulatory
oversight of the GSEs from HUD to FHFA, except for this fair housing
component.
HUD's only remaining direct regulation of the GSEs is the periodic
review of their underwriting and appraisal guidelines by the Office of
Systemic Investigation of HUD's Office of Fair Housing and Equal
Opportunity and by the Fair Housing Enforcement Division of HUD's
Office of General Counsel. For employees involved in these compliance
reviews, 18 U.S.C. 208, which prohibits employees from participating in
matters that may affect their financial interests, would prohibit them
from participating in official matters such as these reviews if the
employee also owns a financial interest that could be affected by the
review. Therefore, these employees would be required to recuse
themselves from the official matter or divest their financial interest
without the need for an additional HUD-specific regulation. The
criminal statute is sufficient to insure against conflicts in those HUD
employees when the periodic review is underway.
HUD has determined that the prohibitions in current Sec. 7501.106
are unnecessary given HUD's very limited role regarding the GSEs. The
current Sec. 7501.106 prohibits certain employees that were involved
with GSEs from owning securities in certain mortgage institutions that
originate, insure, or service mortgages owned or guaranteed by the
GSEs. However, HUD employees no longer regulate the GSEs in a way that
could affect the stock value of these mortgage institutions.
Additionally, there are other regulations that cover an appearance
issue that might arise for those employees working on fair housing
compliance review of the GSEs.
[[Page 16766]]
Specifically, OGE regulations at 5 CFR 2635.502 would apply and would
limit the activity that employees who are involved in the periodic
review of the GSEs can engage in with respect to a financial interest
in a mortgage institution that currently originates, insures, or
services mortgages owned or guaranteed by the GSEs.
Accordingly removing these prohibitions would not compromise the
integrity of HUD's functions.
The new proposed Sec. 7501.106(a) delegates to the Bureau Ethics
Counselor the authority to designate Deputy Bureau Ethics Counselors to
make determinations, issue explanatory guidance, and establish
procedures necessary to implement this part, subpart I of 5 CFR 2634,
and 5 CFR part 2635 for his or her bureau. The proposed rule also
includes the concurrence of the Designated Agency Ethics Official on
the delegation. This designation is consistent with 5 CFR 2635.105(c),
more clearly describes the role and responsibility of the OIG in the
agency's ethics program, and maintains the independence of the IG as
provided for by the Inspector General Act, as amended.
Additionally, consistent with 5 CFR 2635.203(a), new proposed Sec.
7501.106(b) designates the OIG as a separate agency component. HUD is
designating the OIG as a separate agency component to make the
structure its ethics program more consistent with the structure used by
other federal agencies. HUD's changes are intended to more clearly
describe the role and responsibility of the OIG in the agency's ethics
program, and maintain the independence and authority of the IG. The
designation as a separate agency component authorizes Bureau Ethics
Counselors within the OIG to render legal ethics advice regarding the
regulations contained in subpart B of 5 CFR part 2635, governing gifts
from outside sources; and 5 CFR 2635.807, governing teaching, speaking,
or writing.
III. Matters of Regulatory Procedure
Administrative Procedure Act
Interested persons are invited to submit written comments on this
proposed amendatory rulemaking, to be received by DATE section of this
proposed rule. The comments will be carefully considered and
appropriate changes will be made before a final rule is adopted and
published in the Federal Register.
Executive Order 12866 and Executive Order 13563
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if the
regulation is necessary, to select the regulatory approach that
maximizes net benefits. Because this rule relates solely to the
internal operations of HUD, this rule was determined to be not a
significant regulatory action under section 3(f) of Executive Order
12866, Regulatory Planning and Review, and therefore was not reviewed
by the Office of Management and Budget (OMB).
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) generally
requires an agency to conduct a regulatory flexibility analysis of any
rule subject to notice and comment rulemaking requirements, unless the
agency certifies that the rule will not have a significant economic
impact on a substantial number of small entities. This rule would not
have a significant economic impact on a substantial number of small
entities because this rule pertains only to HUD employees.
Information Collection Requirements
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) does not
apply to this regulation because it does not contain information
collection requirements subject to the approval of OMB.
Environmental Impact
In accordance with 40 CFR 1508.4 of the regulations of the Council
on Environmental Quality and 24 CFR 50.20(k) of the HUD regulations,
the policies and procedures contained in this rule relate only to
internal administrative procedures whose content does not constitute a
development decision nor affect the physical condition of project areas
or building sites, and therefore, are categorically excluded from the
requirements of the National Environmental Policy Act.
Executive Order 13132, Federalism
Executive Order 13132 (entitled ``Federalism'') prohibits, to the
extent practicable and permitted by law, an agency from promulgating a
regulation that has federalism implications and either imposes
substantial direct compliance costs on state and local governments and
is not required by statute or preempts state law, unless the relevant
requirements of section 6 of the Executive Order are met. This rule
does not have federalism implications and does not impose substantial
direct compliance costs on state and local governments or preempt state
law within the meaning of the Executive Order.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C.
1531-1538) (UMRA) establishes requirements for federal agencies to
assess the effects of their regulatory actions on state, local, and
tribal governments, and on the private sector. Since it is only
directed toward HUD employees, this rule would not impose any federal
mandates on any state, local, or tribal governments, or on the private
sector, within the meaning of the UMRA
List of Subjects in 5 CFR Part 7501
Conflicts of interests.
Accordingly, for the reasons described in the preamble, HUD, with
the concurrence of OGE, proposes to amend 5 CFR part 7501, as follows:
PART 7501--SUPPLEMENTAL STANDARDS OF ETHICAL CONDUCT FOR EMPLOYEES
OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Sec.
7501.101 Purpose.
7501.102 Definitions.
7501.103 Waivers.
7501.104 Prohibited financial interests.
7501.105 Outside activities.
7501.106 Bureau instructions and designation of separate agency
component.
Authority: 5 U.S.C. 301, 7301, 7351, 7353; 5 U.S.C. App.
(Ethics in Government Act of 1978); E.O. 12674, 54 FR 15159, 3 CFR,
1989 Comp., p. 215, as modified by E.O. 12731, 55 FR 42547, 3 CFR,
1990 Comp., p. 306; 5 CFR 2635.105, 2635.203(a), 2635.403(a),
2635.803, 2635.807.
Sec. 7501.101 Purpose.
In accordance with 5 CFR 2635.105, the regulations in this part
apply to employees of the Department of Housing and Urban Development
(HUD or Department) and supplement the Standards of Ethical Conduct for
Employees of the Executive Branch contained in 5 CFR part 2635.
Employees are required to comply with 5 CFR part 2635, this part, and
any additional rules of conduct that the Department is authorized to
issue.
Sec. 7501.102 Definitions.
For purposes of this part, and otherwise as indicated, the
following definitions shall apply:
Agency designee, as used also in 5 CFR part 2635, means the
Associate General Counsel for Ethics and
[[Page 16767]]
Personnel Law, the Assistant General Counsel for the Ethics Law
Division, and the HUD Regional Counsels.
Agency ethics official, as used also in 5 CFR part 2635, means the
agency designees as specified above.
Affiliate means any entity that controls, is controlled by, or is
under common control with another entity.
Bureau means the Office of the Inspector General.
Bureau Ethics Counselor means the General Counsel for the Bureau.
Deputy Bureau Ethics Counselor means the Bureau employee or
employees who the Bureau Ethics Counselor has delegated responsibility
to act under Sec. 7501.106 for the Bureau.
Designated Agency Ethics Official (DAEO) means the General Counsel
of HUD or the Deputy General Counsel for Operations in the absence of
the General Counsel.
Employment means any compensated or uncompensated (including
volunteer work for others while off-duty) form of non-Federal activity
or business relationship, including self-employment, that involves the
provision of personal services by the employee. It includes, but is not
limited to, personal services as an officer, director, employee, agent,
attorney, consultant, contractor, general partner, trustee, teacher, or
speaker. It includes writing when done under an arrangement with
another person for production or publication of the written product.
Sec. 7501.103 Waivers.
The Designated Agency Ethics Official, or the Bureau Ethics
Counselor for a Bureau employee may waive any provision of this part
upon finding that the waiver will not result in conduct inconsistent
with 5 CFR part 2635 and is not otherwise prohibited by law and that
application of the provision is not necessary to ensure public
confidence in the Department's impartial and objective administration
of its programs. Each waiver shall be in writing and supported by a
statement of the facts and findings upon which it is based and may
impose appropriate conditions, such as requiring the employee's
execution of a written disqualification statement. A waiver will be
considered only in response to a written waiver request submitted to an
agency ethics official. The waiver request should include:
(1) The requesting employee's Branch, Unit, and a detailed
description of his or her official duties;
(2) The nature and extent of the proposed waiver;
(3) A detailed statement of the facts supporting the request; and
(4) The basis for the request, such as undue hardship or other
exigent circumstances.
Sec. 7501.104 Prohibited financial interests.
(a) General requirement. This section applies to all HUD employees
except special Government employees. Except as provided in paragraph
(b) of this section, the employee, or the employee's spouse or minor
child, shall not directly or indirectly receive, acquire, or own:
(1) Federal Housing Administration (FHA) debentures or certificates
of claim.
(2) A financial interest in a project, including any single family
dwelling or unit, which is subsidized by the Department, or which is
subject to a note or mortgage or other security interest insured by the
Department. The definition of ``financial interest'' is found at 5 CFR
2635.403(c).
(3)(i) Any Department subsidy provided pursuant to Section 8 of the
United States Housing Act of 1937, as amended (42 U.S.C. 1437f), to or
on behalf of a tenant of property owned by the employee or the
employee's spouse or minor child. However, such subsidy is permitted
when:
(A) The employee, or the employee's spouse or minor child acquires,
without specific intent as through inheritance, a property in which a
tenant receiving such a subsidy already resides;
(B) The tenant receiving such a subsidy lived in the rental
property before the employee worked for the Department;
(C) The tenant receiving such a subsidy is a parent, child,
grandchild, or sibling of the employee;
(D) The employee's, or the employee's spouse or minor child's,
rental property has an incumbent tenant who has not previously received
such a subsidy and becomes the beneficiary thereof; or
(E) The location of the rental property is in a Presidentially
declared emergency or natural disaster area and the employee receives
prior written approval from an agency designee.
(ii) The exception provided by paragraph (a)(3)(i) of this section
continues only as long as:
(A) The tenant continues to reside in the property; and
(B) There is no increase in that tenant's rent upon the
commencement of subsidy payments other than normal annual adjustments
under the Section 8 program.
(b) Exception to prohibition for certain interests. Nothing in this
section prohibits the employee, or the employee's spouse or minor child
from directly or indirectly receiving, acquiring, or owning:
(1) A financial interest in a publicly available or publicly traded
investment fund that includes financial interests prohibited by
paragraph (a)(2) of this section, so long as the employee neither
exercises control nor has the ability to exercise control over the fund
or the financial interests held in the fund;
(2) Mortgage insurance provided pursuant to section 203 of the
National Housing Act (12 U.S.C. 1709) on the employee's principal
residence and any one other single family residence. Employees must
adhere to the procedures established by the Assistant Secretary for
Housing--FHA Commissioner in order to obtain FHA insurance;
(3) Department-owned single family property. Employees must adhere
to the procedures established by the Assistant Secretary for Housing--
FHA Commissioner in order to purchase a HUD-held property;
(4) Employment compensation and benefit packages provided by the
employer of an employee's spouse that include financial interests
prohibited by paragraph (a)(2) of this section; or
(5) Government National Mortgage Association (GNMA) securities.
(c) Reporting and divestiture. An employee must report, in writing,
to the appropriate agency ethics official, any interest prohibited
under paragraph (a) of this section acquired prior to the commencement
of employment with the Department or without specific intent, as
through gift, inheritance, or marriage, within 30 days from the date of
the start of employment or acquisition of such interest. Such interest
must be divested within 90 days from the date reported unless waived by
the Designated Agency Ethics Official in accordance with Sec.
7501.103.
Sec. 7501.105 Outside activities.
(a) Prohibited outside activities. Subject to the exceptions set
forth in paragraph (b) of this section, HUD employees, except special
Government employees, shall not engage in:
(1) Employment with a business related to real estate or
manufactured housing including, but not limited to, real estate
brokerage, management and sales, architecture, engineering, mortgage
lending, property insurance, appraisal services, title search services,
construction, construction financing, land planning, or real estate
development;
(2) The operation or management of investment properties to the
extent that it rises to the level of a real estate-related business.
HUD will determine whether an employee is operating or managing
investment properties to an
[[Page 16768]]
extent that it rises to the level of a real estate business based on
the totality of the circumstances, and will consider whether the
employee maintains an office; advertises or otherwise solicits clients
or business; hires staff or employees; uses business stationary or
other similar materials; files the business as a corporation, limited
liability company, partnership, or other type of business association
with a state government; establishes a formal or informal association
with an existing business; hires a management company; and the nature
and number of its investment properties;
(3) Employment with a person or entity who registered as a lobbyist
or lobbyist organization pursuant to 2 U.S.C. 1603(a) and engages in
lobbying activity concerning the Department;
(4) Employment as an officer or director with a Department-approved
mortgagee, a lending institution, or an organization that services
securities for the Department; or
(5) Employment with the Federal Home Loan Bank System or any
affiliate thereof.
(b) Exceptions to employment prohibitions. The prohibitions set
forth in paragraph (a) of this section do not apply to:
(1) Serving as an officer or a member of the Board of Directors of:
(i) A Federal Credit Union;
(ii) A cooperative, condominium association, or homeowners
association for a housing project that is not subject to regulation by
the Department or, if so regulated, in which the employee personally
resides; or
(iii) An entity designated in writing by the Designated Agency
Ethics Official.
(2) Holding a real estate agent's license; however, use of the
license is limited as provided by paragraph (c) of this section.
(c) Prior approval requirement. (1) Employees, except special
Government employees, shall obtain the prior written approval of an
Agency Ethics Official before accepting compensated or uncompensated
employment:
(i) As an officer, director, trustee, or general partner of, or in
any other position of authority with a prohibited source, as defined at
5 CFR 2635.203(d);
(ii) With a state or local government;
(iii) In the same professional field as that of the employee's
official position; or
(iv) As a real estate agent in relation to purchasing or selling a
single family property for use as the employee's primary residence, or
the primary residence of the employee's immediate family member.
(2) Approval shall be granted unless the conduct is inconsistent
with 5 CFR part 2635 or this part.
(d) Liaison representative. An employee designated to serve in an
official capacity as the Department's liaison representative to an
outside organization is not engaged in an outside activity to which
this section applies. Notwithstanding, an employee may be designated to
serve as the Department's liaison representative only as authorized by
law, and as approved by the Department under applicable procedures.
Sec. 7501.106 Bureau instructions and designation of separate agency
component.
(a) Bureau instructions. With the concurrence of the Designated
Agency Ethics Official, the Bureau Ethics Counselor is authorized,
consistent with 5 CFR 2635.105(c), to designate Deputy Bureau Ethics
Counselors, to make a determination, issue explanatory guidance, and
establish procedures necessary to implement this part, subpart I of 5
CFR part 2634, and 5 CFR part 2635 for the Bureau.
(b) Designation of separate agency component. Pursuant to 5 CFR
2635.203(a), the Office of the Inspector General is designated as a
separate agency for purposes of the regulations contained in subpart B
of 5 CFR part 2635, governing gifts from outside sources; and 5 CFR
2635.807, governing teaching, speaking, or writing.
Dated: February 15, 2012.
Shaun Donovan,
Secretary.
Don W. Fox,
Principal Deputy Director, Office of Government Ethics.
[FR Doc. 2012-6177 Filed 3-13-12; 8:45 am]
Editorial Note: Proposed rule document 2012-06177 was originally
published on pages 14997 through 15003 in the issue of Wednesday,
March 14, 2012. In that publication an incorrect version of the
document was published. The corrected document is republished in its
entirety.
[FR Doc. R1-2012-6177 Filed 3-21-12; 8:45 am]
BILLING CODE 1505-01-D