Proprietary Information Submitted by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation; Notice DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

SUMMARY: This Notice sets forth the Order of the Secretary of Housing

and Urban Development that certain information submitted by the Federal

National Mortgage Association (``Fannie Mae'', ``Government-Sponsored

Enterprise'', or ``GSE'') and the Federal Home Loan Mortgage

Corporation (``Freddie Mac'', ``Government-Sponsored Enterprise'', or

``GSE'') to the Department of Housing and Urban Development (``HUD'')

is proprietary and shall not be disclosed to the public at this time.

EFFECTIVE DATE OF THE ORDER: May 31, 1994.

COMMENTS: Interested persons are invited to submit comments regarding

this Notice of Temporary Order to the Rules Docket Clerk, room 10276,

Office of the General Counsel, Department of Housing and Urban

Development, 451 Seventh Street SW., Washington, DC 20410-0500.

Comments will be considered in developing any subsequent order and

regulations implementing the Secretary's regulatory authority

respecting Fannie Mae and Freddie Mac to be proposed this summer. While

no deadline has been set for comments to be considered in developing

the regulations, comments must be received prior to the deadline date

established in the proposed regulations.

Communications should refer to the above docket number and title.

Facsimilie (FAX) comments are not acceptable. A copy of each

communication submitted will be available for public inspection and

copying during regular business hours (7:30 a.m. to 5:30 p.m. Eastern

Time) at the above address.

FOR FURTHER INFORMATION CONTACT:

Harold L. Bunce, Acting Director, Financial Institutions Regulation

Staff, telephone (202) 708-1464 or Kenneth A. Markison, Assistant

General Counsel for Government-Sponsored Enterprises/RESPA, telephone

(202) 708-3137; Department of Housing and Urban Development, 451

Seventh Street SW., Washington, DC 20410. A telecommunications device

(TDD) for hearing- or speech-impaired persons (TDD) is available at

(202) 708-0770. (These are not toll-free telephone numbers.)

SUPPLEMENTARY INFORMATION:

The Temporary Order

By the authority vested in me as Secretary of Housing and Urban

Development, under sections 1323 and 1326 of the Federal Housing

Enterprise Financial Safety and Soundness Act, 12 U.S.C. 4543 and 4546,

I have determined that certain information, identified in the attached

Exhibit A, contained in the loan-level data files which were submitted

by the Federal National Mortgage Association and the Federal Home Loan

Mortgage Corporation to the Department of Housing and Urban

Development, as required under the Interim Housing Goals, should be

deemed proprietary information. Accordingly, under the authority of

section 1326 of the Act, I hereby order that this information be

withheld from public disclosure at this time. The basis and terms of

this Temporary Order are set forth fully below.

Background

The Federal Housing Enterprise Financial Safety and Soundness Act

of 1992, enacted as Title XIII of the Housing and Community Development

Act of 1992, (Pub. L. 102-550, approved October 28, 1992), codified

generally at 12 U.S.C. 4501-4561 (``the Act''),\1\ requires the

Secretary to establish and monitor the performance of Fannie Mae and

Freddie Mac in meeting annual goals for mortgage purchases on housing

for low- and moderate-income families, housing located in central

cities, and special affordable housing, i.e., housing meeting the needs

of and affordable to low-income families in low-income areas and very

low-income families. On October 13, 1993, the Secretary published the

housing goals and requirements for the GSEs' mortgage purchases for the

1993-94 transition period in Notices of Interim Housing Goals (``the

Notices''). 58 FR 53047-53096.

---------------------------------------------------------------------------

\1\Unless otherwise specified, all section cites herein are

cites to the Federal Housing Enterprises Financial Safety and

Soundness Act of 1992. Sections 1331-1336 of that Act are codified

at 12 U.S.C. 4561-66.

---------------------------------------------------------------------------

Under the Notices, the Secretary required the GSEs to submit

certain data on their mortgage purchases by March 1, 1994. This

information is to assist the Secretary in monitoring the GSEs'

performance under the goals and to satisfy the requirements of

subsections 309(m)-(n) of the Federal National Mortgage Association

Charter Act, 12 U.S.C. 1723a(m)-(n), and subsections 307(e)-(f) of the

Federal Home Loan Mortgage Corporation Act, 12 U.S.C. 1456(e)-(f).

Sections 309(m) and 307(e) under these Acts mandate that the GSEs

collect, maintain and provide to the Secretary data relating to their

mortgages on single family and multifamily housing and sections 309(n)

and 307(f) require that the GSEs report aggregate information on their

mortgages to Congress.

Under the Notices, the Secretary required each GSE to provide

information in two forms--loan-level data files that provide detailed

information on each mortgage loan purchased by the GSE, and data

reports that aggregate data on mortgage loans in various ways. In

addition, the Secretary required each GSE to provide a written report

discussing its performance under the housing goals. The information

required in the loan-level data files includes detailed information on

individual loans purchased by the GSEs including: The borrower(s')

annual income, race, and gender; census tract; other geographic

identifiers; loan-to-value ratio; number of units; owner-occupancy

status; and other details on the mortgage, the property, and the

borrower(s). The information required for the data reports includes

aggregate data concerning: The amount of mortgage purchases that

qualify towards each housing goal, classified by number of units and

dollar volume; mortgagors' income; race; location of property; and

various other categories.

Legal Requirements Regarding Proprietary Information

Section 1323 of the Act, 12 U.S.C. 4543, provides that the

Secretary shall make available to the public the data submitted by the

GSEs in the reports required under section 309(m) of the Federal

National Mortgage Association Charter Act and section 307(e) of the

Federal Home Loan Mortgage Corporation Act except the data that the

Secretary determines by regulation or order pursuant to section 1326,

12 U.S.C. 4546, is proprietary. Section 1323(b)(2) of the Act, 12

U.S.C. 4543(b)(2), specifically provides that the Secretary may not

restrict access to data consisting of income, census tract location,

race, and gender of mortgagors of single family properties. Section

1326 provides that the Secretary may by regulation or order provide

that certain information shall be treated as proprietary and, pending

the issuance of a final decision on the matter, the material may not be

disclosed.

The Freedom of Information Act (FOIA) under Exemption 4, 5 U.S.C.

552(b)(4), allows confidential business information to be protected

from disclosure, and the Trade Secrets Act, 18 U.S.C. 1905, forbids

Government officers and employees from releasing trade secret and other

confidential business information. Executive Order No. 12,600, 3 CFR at

235 (1988), requires that agencies notify submitters of confidential

business information of requests under FOIA for such information and

that agencies afford submitters an opportunity to comment on release of

the requested information. If an agency determines to release

notwithstanding a submitted objection, the Executive Order requires

that the agency notify the submitter reasonably prior to release. The

President of the United States, by memorandum, dated October 4, 1993,

to Heads of Departments and Agencies, emphasized the importance of

public disclosures under FOIA and an implementing memorandum from the

Attorney General, attached to the President's memorandum, instructed

agencies to disclose information unless disclosure would harm an

interest protected by a FOIA exemption. The President's and the

Attorney General's memoranda do not alter Executive Order No. 12,600.

In addition to the legal requirements respecting proprietary

information, the Privacy Act of 1974, 5 U.S.C. 552a, and FOIA Exemption

6, 5 U.S.C. 552(b)(6), pertain to the disclosure of information on

individuals. Accordingly, even if information is not withheld as

proprietary, it still may be withheld pursuant to the Privacy Act or

Exemption 6.

Information Regarded as Proprietary by the GSEs

Prior to March 1, 1994, Departmental staff met separately with

staff of each GSE to discuss the subject of proprietary information in

view of the impending deadline for receipt of materials by HUD in

accordance with the Notices. Fannie Mae staff advised that,

notwithstanding that it considered most of the information submitted

under the Notice to be proprietary, Fannie Mae sought for HUD to

withhold only certain data from the loan-level data files because, if

released, such data would cause substantial competitive harm to Fannie

Mae.

Both GSEs pointed out that, because the Act requires the Secretary

to release information on census tract location of properties,

releasing other details on specific loans such as unpaid principal

balance (UPB), date of mortgage note, loan type, loan-to-value ratio

(LTV), and similar terms would cause competitive harm by permitting the

other GSE or other market competitors to gain competitive advantage

from the information. For example the GSEs argue that: Releasing loan-

level information on each properties' UPB and census tract location

will reveal what size loans a GSE is willing to buy in a particular

area, at what prices and on what terms, and that such information will

assist competitors in the same market and other markets. Likewise,

customers will use the information to obtain insight into each GSEs'

pricing and marketing strategies.

Correspondence from the GSEs details the GSEs' objections to

release of items in the loan-level data files. This correspondence,

attached to and incorporated in this Notice of Temporary Order,

includes: Exhibit B--a letter from Anthony F. Marra, Senior Vice

President and Deputy General Counsel of Fannie Mae, to Kenneth A.

Markison, Assistant General Counsel for Administrative Law, dated March

11, 1994; and Exhibit C--a letter from Allan G. Ratner, Vice President

and Deputy General Counsel of Freddie Mac, to Mr. Markison, dated May

9, 1994. This correspondence lists the particular data items that each

GSE requested be withheld.

Freddie Mac requested the withholding of more items than Fannie

Mae. Both GSEs requested that the Secretary treat the GSEs' information

the same so that any information deemed proprietary for one GSE is

deemed proprietary for the other GSE. Accordingly, where only one GSE

requested proprietary treatment for a particular category of

information, this Temporary Order provides that such information is

treated as proprietary for both GSEs. Exhibit A identifies the items

requested to be withheld as proprietary: Solely by Freddie Mac (marked

with an ``*''); solely by Fannie Mae (marked with ``**''); and by both

Freddie Mac and Fannie Mae (unmarked).

Conclusion

The Department will comply fully with the requirements of the Act

and will make available to the public data submitted to HUD by the

GSEs, consisting of income, census tract location, race, and gender of

mortgagors of single family properties. However, having considered the

views of the GSEs concerning the disclosure of the remainder of the

data and the statutory requirements concerning withholding proprietary

information, it is concluded that a Temporary Order is necessary to

protect other information submitted by the GSEs, not in the foregoing

categories, which the GSEs regard as proprietary.

The legislative history of the Act characterizes the lack of

information on the GSEs' performance as ``an information vacuum.'' S.

Rep. No. 102-282, 102d Cong., 2d Sess. 39 (1992). The legislative

history notes that ``public access and disclosure of information is a

key tool for permitting appropriate public scrutiny and oversight of

the activities of the [GSEs] and in evaluating possible improvements in

housing finance markets.'' ID. at 44. On the other hand, the Act also

protects proprietary information from release. Based on the submissions

of both GSEs, the information in the attached Exhibit A shall be deemed

proprietary. The Secretary further concludes, however, that: This Order

should be temporary; the public should be accorded full opportunity to

comment during the regulatory process; and this Temporary Order should

expire no later than the date regulations fully addressing this subject

are effective.

This Temporary Order does not extend to aggregated data information

in the data reports and the written reports submitted by Fannie Mae and

Freddie Mac. Such data are not regarded as causing substantial

competitive harm by the GSEs and, at such time as this information is

requested by the public, it will be released. Even though loan-level

information is not deemed proprietary under this Temporary Order, other

statutes, including the Privacy Act of 1974 and Exemption 6 of FOIA,

may pertain and result in withholding of information.

Expiration and Modification of This Temporary Order

This Temporary Order shall be effective until such time as it is

determined necessary and/or appropriate to withdraw or modify it. Final

GSE regulations will fully address the disclosure and withholding of

information under the Act and this Temporary Order will, in any event,

expire when the final regulations are published. Pending final

regulations, the Department will work with the GSEs to narrow the list

of items withheld and develop ways that information deemed proprietary

under this Temporary Order may be released without disclosing

proprietary information. This Temporary Order may be modified if it is

determined that additional information should be made available to the

public. Any such determination will be conducted in accordance with the

Act. In any event, in responding to FOIA requests, the Department will

follow the procedures in Executive Order 12,600, as applicable.

Release in Response to Requests on Behalf of Congressional Committee or

Subcommittee, the Comptroller General, a Subpoena or Other Legal

Process

If the Department receives a request on behalf of a Congressional

Committee or Subcommittee, the Comptroller General, a subpoena from a

court of competent jurisdiction, or is otherwise compelled by law to

release information determined to be proprietary under this Temporary

Order, the Department will provide the information in accordance with

the request without regard to the provisions of this Temporary Order.

In releasing requested information under this paragraph, the Department

will include a statement with the information to the effect that the

Secretary has determined that the information is subject to this

Temporary Order, the GSEs' regard the information as proprietary, and

public disclosure of the information may cause competitive harm to the

GSEs. To the extent practical, the Department will provide notice to

the GSEs after a request under this paragraph is received and before

the information is provided in response to the request.

Dated: May 31, 1994.

Henry G. Cisneros,

Secretary.

Exhibit A

List of Proprietary Information Contained in Loan Level Data Files

Submitted by Freddie Mac and Fannie Mae

------------------------------------------------------------------------

Field description Field position

------------------------------------------------------------------------

Single Family:

Acquisition UPB*................................ 80-85

Loan-to-Value Ratio at Origination.............. 86-88

Date of Mortgage Note*.......................... 89-94

Date of Acquisition*............................ 95-100

Purpose of Loan**............................... 101

Cooperative Unit Mortgage....................... 102

Refinancing Loan From Own Portfolio............. 103

Special Affordable, Seasoned Loan Proceeds 104

Recycled*.

Product Type.................................... 105-106

RTC/FDIC........................................ 108

Term of Mortgage at Origination*................ 109-111

Amortization Term*.............................. 112-114

Seller Institution.............................. 115

Mortgage Purchased Under GSE's Community Lending 118

Program.

Acquisition Type................................ 119

GSE Real Estate Owned*.......................... 120

Public Subsidy Program.......................... 121

Occupancy Code.................................. 132

Number of Units................................. 133

Unit 1 Number of Bedrooms (if property has 2-4 134

units)*.

Unit 1 Owner-Occupied (if property has 2-4 135

units)*.

Unit 1 Affordability Category (if property has 2- 136

4 units)*.

Unit 1 Reported Rent Level (if property has 2-4 137-141

units)*.

Unit 1 Reported Rent Plus Utilities (if property 142-146

has 2-4 units)*.

Unit 2 Number of Bedrooms*...................... 147

Unit 2 Owner-Occupied*.......................... 148

Unit 2 Affordability Category*.................. 149

Unit 2 Reported Rent Level*..................... 150-154

Unit 2 Reported Rent Plus Utilities*............ 155-159

Unit 3 Number of Bedrooms*...................... 160

Unit 3 Owner-Occupied*.......................... 161

Unit 3 Affordability Category*.................. 162

Unit 3 Reported Rent Level*..................... 163-167

Unit 3 Reported Rent Plus Utilities*............ 168-172

Unit 4 Number of Bedrooms*...................... 173

Unit 4 Owner-Occupied*.......................... 174

Unit 4 Affordability Category*.................. 175

Unit 4 Reported Rent Level*..................... 176-180

Unit 4 Reported Rent Plus Utilities*............ 181-185

Multifamily:

U.S. Postal Zip Code............................ 13-17

Affordability Category*......................... 70

Acquisition UPB................................. 71-76

Participation Percent*.......................... 77-80

Date of Mortgage Note........................... 81-86

Date of Acquisition*............................ 87-92

Purpose of Loan**............................... 93

Cooperative Project Loan........................ 94

Refinancing Loan From Own Portfolio*............ 95

Special Affordable, Seasoned Loans: Are Proceeds 96

Recycled?*.

Mortgagor Type*................................. 97

Term of Mortgage at Origination................. 98-100

Loan Type....................................... 101

Amortization Term*.............................. 102-104

Seller Institution*............................. 105

Acquisition Type................................ 107

GSE Real Estate Owned*.......................... 108

Public Subsidy Program*......................... 109

Total Number of Units........................... 110-114

Special Affordable--45 percent*................. 115-123

Special Affordable--55 percent*................. 124-132

Unit Type XX--Number of Bedroom(s)*............. 133

Unit Type XX--Number of Units*.................. ###

Unit Type XX--Average Reported Rent Level....... ###-###

Unit Type XX--Average Reported Rent Plus ###-###

Utilities.

Unit Type XX--Affordability Level*.............. ###-###

------------------------------------------------------------------------

*Only Freddie Mac asserted that this data was proprietary.

**Only Fannie Mae asserted that this data was proprietary.

Exhibit B

March 11, 1994.

Mr. Kenneth A. Markison, Assistant General Counsel for

Administrative Law, Department of Housing and Urban Development,

Room 10252, 451 Seventh St. SW., Washington, DC 20410.

Re: Supplemental Information Regarding Confidentiality of Certain

Data Submitted March 1, 1994 by Fannie Mae.

Dear Mr. Markison: This letter summarizes Fannie Mae's views on

the issue of proprietary information contained in its March 1

submission to the Secretary of Housing and Urban Development, which

contained tapes of loan level detail relating to our purchase of

single-family and multifamily mortgages.

We believe that all the information contained in the tapes

submitted on March 1 is entitled to receive confidential treatment,

because it is the product of a substantial investment by Fannie Mae.

Such information is not available publicly and is treated as

extremely confidential information and closely held within the

corporation.

However, in the spirit of providing HUD our fullest cooperation

as it administers the new public disclosure provisions of 12 U.S.C.

4543, Fannie Mae is requesting ``proprietary'' and ``confidential''

designations for only the elements in the database that would

advantage competitors or customers at our expense. These elements

(only 23 of the 108 we are providing) would, if disclosed,

compromise our efficiency and competitive position in the market

where we compete day-to-day throughout the country with both Freddie

Mac and highly innovative Wall Street firms. Disclosure of such

information would also hurt our bargaining position with companies

with whom we conduct business. The specific elements for which

confidentiality is requested are listed and discussed in detail

below.

We also request that HUD extend proprietary treatment

reciprocally both to Fannie Mae and Freddie Mac, so that any element

specifically deemed proprietary or confidential for one corporation

would be deemed proprietary or confidential also for the other,

regardless of whether both firms specifically requested such

treatment.

Pursuant to 12 U.S.C. 4546(c), governing disclosure of

proprietary information, we believe that HUD is required to issue a

final written decision regarding classification of our data

submission as ``proprietary'' prior to releasing any such

information. This decision requirement is an express predicate for

data disclosure under 12 U.S.C. 4543. We believe that it also should

govern any release under the Freedom of Information Act (``FOIA''),

5 U.S.C. 552, by virtue of the enactment of 12 U.S.C. 4546 after

FOIA, its greater specificity, and Congress' decision not to

establish any exception regarding FOIA requests.

Further, it is our understanding that independent of its

obligations under 12 U.S.C. 4546, HUD will observe the provisions of

Executive Order No. 12,600 (52 FR 23,781 (1987)) for all data that

Fannie Mae classifies as proprietary and confidential commercial or

financial information. That Order recognizes the procedural rights

of submitters of confidential commercial data to the government, and

mandates that a recipient agency provide notice and a reasonable

response time whenever the agency determines that it may be required

to disclose the requested data. The Order further mandates that if

an agency overrules a submitter's objection, it must notify the

submitter in writing and provide an explanation of its decision. The

agency must provide such an explanation a reasonable number of days

prior to a specified disclosure date, to afford the submitter an

opportunity to seek judicial relief if necessary.

Adherence to the procedures set forth in Executive Order No.

12,600 accords with existing arrangements between HUD and Fannie Mae

for treatment of confidential business information submitted by

Fannie Mae as required by HUD regulations (see letter dated February

15, 1979 from Irving Margulies, Acting HUD Deputy General Counsel,

to Bernard Carl, Fannie Mae's outside counsel). These arrangements

have been in place for over 15 years and have provided a reasonable

framework for us to submit very sensitive business information to

HUD. Last year, in response to a FOIA request, HUD had the

opportunity to implement the agreed-upon procedures for

notification, and we were able to provide HUD with the reasons that

certain of the business information previously provided to HUD

should continue to remain confidential.

Finally, we request that HUD observe certain additional

safeguards for requests from Congress regarding data identified by

Fannie Mae to be proprietary or confidential commercial information.

In such cases, we request that HUD also provide Fannie Mae with

notice upon receipt of a congressional request for proprietary or

confidential data, as well as notice prior to HUD's delivery of

requested data to Congress, to give us the opportunity to explain to

Congress the need to protect such data. We also request that HUD

provide requested confidential data only when accompanied by a

legend stating that HUD has determined that the material is

proprietary and exempt from public disclosure under both 5 U.S.C.

552 and 12 U.S.C. 4546, and that public disclosure would result in

substantial competitive harm.

Basis for Non-Disclosure to Public

We have listed below specific data elements contained in the

Fannie Mae Multifamily Acquisitions, Multifamily Units, and Single-

Family Acquisitions Files that have been submitted to HUD. We are

requesting HUD's designation of these data elements as both

``proprietary'' within the meaning of 12 U.S.C. 4543, 4546,\1\ and

confidential commercial or financial information pursuant to

Exemption 4 of FOIA, 5 U.S.C. 552(b)(4). Specifically, the following

data elements are entitled to such designation:

---------------------------------------------------------------------------

\1\Sections 1323 and 1326 of Pub. L. 102-550 (1992).

---------------------------------------------------------------------------

Multifamily Acquisitions

1. Zip code (Ref. 3)

2. Acquisition UPB (Ref. 17)

3. Date of mortgage note (Ref. 19)

4. Coop flag (Ref. 22)

5. Term at origination (Ref. 26)

6. Loan type (more properly amortization) (Ref. 27)

7. Acquisition type (Ref. 31)

8. Total number of units (Ref. 34)

9. Purpose of loan (Ref. 21)

Multifamily Units

1. Average reported rent per bedroom type (Ref. 4)

2. Average reported rent plus utilities per bedroom type (Ref. 5)

Single-Family Acquisitions

1. Loan-to-value LTV ratio at origination (Ref. 19)

2. Product Type (Ref. 26)

3. Seller Institutions (Ref. 31)

4. Purpose of Loan (Ref. 22)

5. Occupancy Code (Ref. 44)

6. Number of Units (Ref. 45)

7. Cooperative Unit Mortgage (Ref. 23)

8. RTC/FDIC (Ref. 28)

9. Public Subsidy Program (Ref. 37)

10. Refinancing from Own Portfolio (Ref. 24)

11. Acquisition Type (Ref. 35)

12. Community Lending Mortgage (Ref. 34)

The basis for our request derives from the major precedents

interpreting the FOIA's Exemption 4. The leading case in determining

whether information provided to the government is ``privileged and

confidential'' and therefore entitled to be withheld under Exemption

4 is National Parks & Conservation Association v. Morton, 498 F. 2d

765 (D.C. Cir. 1974). In National Parks, the DC Circuit Court of

Appeals held that the test for confidentiality is an objective one

that could be determined by a two prong test:

To summarize, commercial or financial matter is ``confidential'' for

purposes of the exemption if disclosure of the information is likely

to have either of the following effects: (1) To impair the

Government's ability to obtain necessary information in the future;

or (2) to cause substantial harm to the competitive position of the

person from whom the information was obtained. Id. at 770.

The second prong of National Parks is applicable to each of the

referenced items because, when combined with each other and with

information on unpaid principal balance (``UPB''), income, and

precise geographic markers, disclosure would cause us substantial

competitive harm.

Single-Family Data Elements

Public disclosure of the entire Single-Family Acquisitions

database would provide customers and competitors with the elements

described above at loan level detail, in combination with loan

amount, race, income, gender, zip code, and census tract. Precise

details on such factors as loan-to-value ratios, when combined with

other basic loan level detail, would likely cause substantial

competitive injury to Fannie Mae by providing competitors and

customers with valuable insights about our business plans, risk

assessments and marketing strategies. These insights could lead to

changes in pricing or negotiating tactics detrimental to the

company.

Multifamily Data Elements

The multifamily elements (contained in the Multifamily

Acquisitions and Multifamily Units Files) that Fannie Mae is

classifying as proprietary and confidential are: Acquisition UPB;

date of mortgage note; coop status; term at origination; loan type

(more properly, amortization); acquisition type; total number of

units; average reported rent per bedroom type; average reported rent

plus utilities per bedroom type; purpose of loan, and zip code.

Public disclosure of this data would reveal key factors in our

business strategies and successes to our competitors and companies

with whom we do business. This would subsidize such firms at our

expense by providing them information they otherwise could acquire

only at great expense.

Conclusion

Disclosing the referenced data for both single-family and

multifamily elements would harm us by subsidizing the competitors'

acquisition of valuable market information, increasing their

efficiency at Fannie Mae's expense. Such consequences are precisely

the type that courts have held justify non-disclosure of information

under Exemption 4. See, e.g., Gulf & Western Indus. v. United

States, 615 F.2d 527, 530 (D.C. Cir. 1980); Braintree Electric Light

Dept. v. Department of Energy, 494 F. Supp. 287, 289 (D.D.C. 1980);

National Parks & Conservation Association v. Kleppe, 547 F.2d 673,

684 (DC Cir. 1976); and Westinghouse Elec. Corp. v. Schlesinger 392

F. Supp. 1246, 1249 (E.D. Va. 1974).

Specifically, case law establishes that Exemption 4 is designed

to protect a ``mosaic'' of data, to shield information that might

not cause competitive harm on a stand-alone basis, but would be

harmful in combination with other information available to the

requester. See e.g., Timken Co. v. United States Customs Serv., 491

F. Supp. 557, 559 (D.D.C. 1980). Under the precedents, information

also must be deemed proprietary and confidential if public

disclosure would displace a submitter from a level competitive

playing field--by forcing it to divulge sensitive business

information which competitors may access freely without incurring

any parallel disclosure obligation to the submitter of the

information.

The courts thus will direct ``close attention'' to proposed

agency disclosures that benefit competitors at the expense of

submitters, and have disfavored disclosure that affords a potential

windfall to competitors by providing them data at bargain rates

rather than the considerable funds that otherwise would be expended

in private research and development. Worthington Compressors, Inc.

v. Castle, 662 F.2d 45, 51 (D.C. Cir. 1981), supplemental opinion

sub. nom. Worthington Compressors, Inc. v. Gorsuch, 668 F.2d 1371

(DC Cir. 1981). See also Allnet Communication Servs., Inc. v. FCC,

800 F. Supp. 984, 988-89 (D.D.C. 1992); SMS Data Prods. Group, Inc.

v. United States Dept. of Air Force, 1989 U.S. Dist. LEXIS 3156, 35

Cont. Cas. Fed. (CCH) P 75644 (D.D.C. 1989) (noting that release

would allow competitors access to information that they would have

to spend ``considerable funds'' to develop on their own).

No competitor of Fannie Mae is subject to data disclosure

requirements of the breadth and detail included in the data elements

we have submitted to HUD. The information contained in our 1993

annual report on housing goals, the accompanying tables and the

proprietary information in the database, as to which we have not

requested confidential treatment, provide an unprecedented view of

our business. We have limited our request for confidential treatment

to only those parts of the database having the likelihood, if

released, to cause us substantial competitive harm. As a result, our

request is limited to only approximately 21 percent of the elements

in the database. Because release of the information, for which we

have asked for confidentiality, would have clearly adverse

commercial consequences for us, we request that HUD designate the

referenced items as ``proprietary pursuant to 12 U.S.C. 4546 and

invoke Exemption 4 to withhold release of such information.

I hope this discussion and information is helpful to you in

evaluating our confidentiality request.

Sincerely,

Anthony F. Marra,

AFM/pab.

Exhibit C

May 9, 1994.

Kenneth Markison, Esquire, U.S. Department of Housing and Urban

Development, 451 7th Street, SW., Washington, DC 20410.

Dear Mr. Markison: The Federal Home Loan Mortgage Corporation

(``Freddie Mac'') has submitted to the U.S. Department of Housing

and Urban Development (``HUD'') computer tapes that contain single-

family and multifamily loan registries for the mortgages that

Freddie Mac acquired during 1993. Freddie Mac requests that HUD

accord proprietary treatment to certain data elements of those loan

registries because they contain confidential, proprietary Freddie

Mac information.

In support of our request, I enclose a memorandum that discusses

the reasons those data elements must be accorded proprietary

treatment and an attachment that identifies the individual data

elements that contain confidential, proprietary Freddie Mac

information. We would have no objection to your publishing the

letter, memorandum and attachment in the Federal Register should you

find it appropriate to do so.

Please feel free to contact me if you wish to discuss this

matter or if there is anything further we can provide.

Sincerely,

Allan G. Ratner,

Vice President and Deputy General Counsel.

Enclosure

The Federal Home Loan Mortgage Corporation's Request for Proprietary

Treatment of Certain Loan-Registry Data Elements

The U.S. Department of Housing and Urban Development (``HUD'')

has required the Federal Home Loan Mortgage Corporation (``Freddie

Mac'') to provide HUD with extensive information on the mortgages

that Freddie Mac acquired in 1993. HUD identified the general types

of data required, in its Notice of Interim Housing Goals, 58 FR

53,047-53,096 (Oct. 13, 1993), and specified the form in which

Freddie Mac was to submit the data, in a letter dated January 14,

1994. As so directed, Freddie Mac submitted the required information

to HUD in the form of two sets of computer tapes and 19 tables.

The computer tapes contain loan-level information for every

mortgage that Freddie Mac acquired during 1993. One set of tapes

includes information on Freddie Mac's 1993 single-family mortgages,

and it includes from 51 to 66 required data elements for each loan,

depending on the number of units in the property. The other set of

tapes contains comparable information for Freddie Mac's 1993

multifamily mortgages, and it includes a minimum of 42 elements for

each loan, with additional sets of elements for each additional

``unit type'' in the property. These two sets of tapes are referred

to as the ``loan registries.''

Freddie Mac requests that HUD accord proprietary treatment to

certain of the data elements contained in the loan registries

because they contain confidential, proprietary Freddie Mac

information. Freddie Mac does not, however, object to the public

release of the 19 tables submitted on March 31, 1994, which contain

much of the categories of information that Freddie Mac seeks to

protect from public disclosure--but which disclose the information

in an aggregated form that is both useful and less likely to reveal

confidential, proprietary Freddie Mac information.

We discuss below the reasons that certain loan-registry data

elements must be treated as proprietary information, and we

designate the specific data elements affected in an attachment to

this request. Freddie Mac also requests that any confidential

treatment accorded to Fannie Mae data apply equally to data

submitted by Freddie Mac, and vice-versa, so that the same data

elements will be treated equally for both enterprises.

I. Proprietary Information Generally

A. The Proprietary-Information Balance

HUD requested the loan registries under section 307(e) of the

Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1456(e)).

While HUD is generally authorized to make such section 307(e) loan-

registry data available to the public (section 1323 of the Federal

Housing Enterprises Safety and Soundness Act of 1992 (``FHEFSSA''),

12 U.S.C. 4543), HUD is expressly not permitted to make proprietary

loan-registry data available to the public (FHEFSSA 1326, 12 U.S.C.

4546). In fact, FHEFSSA provides that no such information is to be

made available to the public unless and until a final decision has

been made that the data are not proprietary (FHEFSSA 1326(c), 12

U.S.C. 4546(c)).

In effect, FHEFSSA recognizes the inherent tension between (1)

the provision that directs HUD to make available data that might be

useful for housing-related research and (2) the provision that

directs HUD to prevent the financial or competitive harm to the

enterprises that could flow from providing public access to

proprietary information. FHEFSSA, however, also provides guidance on

how the balance between these conflicting directives is to be

struck.

That is, FHEFSSA suggests that where reasonable people might

disagree as to whether information is proprietary or not, the issue

should be resolved in favor of according the data proprietary

treatment. Under FHEFSSA, information is not to be made public until

HUD makes a final determination as to whether the information is

proprietary. It follows, therefore, that where HUD is unable to make

that determination to a reasonable degree of certainty, the

information should not be made public. This treatment of data where

its proprietary character is uncertain would seem to be especially

appropriate during the 1993-1994 interim time period.

The approach that the balance is to be struck against public

disclosure presumably reflects a recognition on Congress' part that,

in the long run, Freddie Mac and Fannie Mae will be able to

contribute most effectively to the nation's housing needs if they

retain one of the key attributes of every viable business--the

ability to protect the confidentiality of business strategies and

plans. That is, in close cases, the need to protect the fundamentals

of the enterprises' ability to perform is presumed to outweigh the

short-term benefits of placing more information on the public

record.

B. What is ``Proprietary'' Information?

The term ``proprietary'' is not defined in FHEFSSA and, on the

face of the term, it could apply to virtually every data element of

the loan registries: All were developed by Freddie Mac and are

Freddie Mac's property, and nearly all are the types of information

that Freddie Mac does not customarily provide to the public.

However, reading the term in the context of the two competing

directives described above, the legislative history of the Act and

analogous case law, it may be more appropriate to interpret

proprietary information to mean information that Freddie Mac does

not customarily release to the public--where the release of that

information could tend to cause financial or competitive injury to

Freddie Mac, or could tend to impair competition between Freddie Mac

and Fannie Mae.

That more-limited interpretation is consistent with the

legislative history of FHEFSSA. For example, the issue of the scope

of the term ``proprietary'' information was discussed directly in a

floor debate of section 515 of the Senate bill (the precursor to the

proprietary provision of FHEFSSA) involving Senators Seymore and

Garn:

Mr. SEYMORE. It is my understanding that section 515 of the bill

prohibits the Director [the Director was to administer the housing

goals under the Senate bill] from disclosing to the public

information provided by the enterprises that the Director determines

to be proprietary. What types of information does this legislation

contemplate would be treated as proprietary?

Mr. GARN. As a general matter, courts have construed various

types of business information to be proprietary if it might cause

competitive or financial harm to the company.

While the legislation contemplates that the Director will

determine what information is proprietary consistent with current

legal precedents applicable to other companies, section 515 is

intended to protect especially information relating to pricing and

fees. If one of the enterprises learned of the other's pricing and

fee strategy, it would create an extraordinary competitive

disadvantage.

Maintining competition between Fannie Mae and Freddie Mac is

essential because there are only two GSE's involved in mortgage

finance. Congress created the two GSE's expressly for the purpose of

ensuring competition. This competition has resulted in lowering

prices and enhancing efficiency to the housing finance market, which

ultimately benefits homeowners and renters.

Mr. SEYMORE. So, if I understand the Senator correctly, section

515 should ensure that information on pricing, fees and other key

aspects of business strategy will be considered proprietary and

therefore protected from disclosure to the public.

Mr. GARN. That is correct. By including this provision in the

legislation, it was intended that the Director protect from public

disclosure a broad range of information that might impair

competition between these two GSE's.

138 Cong. Rec. S8778-S8779 (daily ed. June 24, 1992).

That interpretation also is consistent with case law

interpreting Exemption 4 of the Freedom of Information Act

(``FOIA'') (5 U.S.C. 552(b)(4)), which is probably the case law to

which the two senators had referred. The term ``proprietary

information'' does not appear in FOIA, but the principles underlying

that exemption are similar--but not identical--to those underlying

section 1326 of FHEFSSA.

FOIA Exemption 4 applies to ``trade secrets and commercial or

financial information obtained from a person and privileged and

confidential,'' and courts have applied that exemption to protect

information that a person is required to submit to a federal agency

where

(1) The information was of the type ``which would customarily

not be released to the public by the person from whom it was

obtained,'' S. Rep. No. 813, 89th Cong., 2d Sess. 9 (1964),

reprinted in 1966 U.S.C.C.A.N. 2418 (quoted in Sterling Drug, Inc.

v. FTC, 450 F.2d 698, 709 (D.C. Cir. 1971) and Critical Mass Energy

Project v. NRC, 975 F.2d 871, 872-73 (D.C. Cir. 1992)), and

(2) The release of the information would be likely to cause

substantial competitive injury to the person submitting the

information, see Public Citizen Health Research Group v. FDA, 704

F.2d 1280, 1291 & n.30 (D.C. Cir. 1983); Gulf & Western Industries,

Inc. v. United States, 615 F.2d 527, 530 (DC Cir. 1979); National

Parks and Conservation Ass'n v. Morton, 498 F.2d 765, 770 (DC Cir.

1974); see also OCC Interpretive Letter from Chief Counsel P. Allan

Schott to James C. Goodale, 1989 WL 300373 (database FFIN-OCCIL)

(April 5, 1989) (based on Exemption 4, OCC denied FOIA request for

portions of documents describing commercial and financial facts

surrounding loan).

II. Reasons for Designating Certain Data Elements as Proprietary

While Congress wished to shed increased light on the affordable-

housing activities of Freddie Mac and Fannie Mae, it is virtually

impossible to be certain that the release of any particular data

from the loan registries would be harmless to Freddie Mac,

particularly during this interim period. Freddie Mac operates in an

environment in which its operations are constantly scrutinized by

analysts at Fannie Mae, on Wall Street, and in other sophisticated

financial institutions. Those analysts have access to information

from a variety of sources, and have increasing abilities to analyze

that information in ways that one may not immediately imagine.

The data elements Freddie Mac has designated contain the type

of information that Freddie Mac does not customarily release to the

public, and if all those data elements were to be publicly

disclosed, we believe a variety of competitive and financial harms

could be suffered by Freddie Mac. In some cases, this harm could

occur as a result of the disclosure of a data element standing on

its own; in other cases, the harm would occur because of a

correlation of one data element with another. The following are

examples of problems that disclosure of all the elements would pose:

(1) Both competitors and customers would be able to learn a

great deal about the types of loans we are targeting for purchase in

particular areas of the country, thereby enabling them to counter

our marketing strategy more effectively. Moreover, the data would be

available in one place, permitting competitors to obtain information

relatively cheaply;

(2) Competitors and customers would be able to learn far more

than they can learn now as to our philosophy and strategy concerning

the purchase of newly originated versus seasoned loans;

(3) Both customers and competitors would be able to learn more

about the cycles of Freddie Mac's business during the year, e.g.,

times at which we tend to be more busy than others, and the likely

implications of seasonality to our pricing strategy;

(4) By analyzing the types of products we are purchasing, and

where the purchases are occurring, customers and competitors would

be able to divine a great deal of nonpublic information about our

likely strategy for meeting the affordable housing goals;

(5) Customers and competitors would learn far more than they

currently know about how the mix of mortgage types that we purchase

varies by region, thereby affecting the course of business

negotiations in particular transactions in particular regions:

(6) Customers and competitors would be able to change the

dynamics of business negotiations regarding the disposition of real

estate owned (``REO''), since they would have access to far greater

information concerning our REO disposition strategies and practices.

In addition, by analyzing REO statistics, a competitor could learn

much about our default patterns;

(7) Customers and competitors would could use seemingly non-

proprietary data as a ``proxy'' for information that clearly is

proprietary, or could use seemingly non-proprietary data as a link

to other available information, so as to reveal other, previously

inaccessible proprietary information.

In each case, the disclosure of information would work to the

disadvantage of Freddie Mac, and to the advantage of other parties.

Also, in many cases--particuarly, but not exclusively, in the

multifamily field--the public release of all the data elements

listed in a fully correlated manner probably would permit reviewers

of the data to identify specific properties. This raises important

issues of personal privacy for homeowners, tenants, and lenders, who

could soon expect to become the targets of marketing efforts not

only by our competitors, but by other businesses seeking to market

their products in demographic niches. In comparable circumstances,

HUD has previously taken the position that it would not release

individual mortgage records in response to a request under the

Freedom of Information Act, 5 U.S.C. 552, because it would be an

unwarranted invasion of the borrowers' privacy interests. See

Schoettle v. Kemp, 733 F. Supp. 1395 (D. Haw. 1990) (upholding

denial of FOIA request based on Exemption 6, 5 U.S.C. 552(b)(6)):

see also Heights Community Congress v. Veterans Administration, 732

F.2d 526 (6th Cir. 1984) (court upholding VA's denial of FOIA

request for property address, loan amount and identity of lender on

VA-insured loans in certain city, based on FOIA Exemption 6).

In light of the above concerns, Freddie Mac has evaluated each

data element to determine whether or not its release would be

reasonably likely to cause Freddie Mac competitive or financial

harm, either standing alone or linked to other available

information. In the interest of making as much data as possible

available to the public, Freddie Mac also considered whether certain

data elements might be made available as separate files or packages

of data elements, so that they could be released without identifying

the location of the underlying property. Without a link to the

geographic data, there may be no reason for HUD to withhold certain

data elements as proprietary information. Similarly, we considered

whether certain data elements might be recoded so that HUD would not

need to withhold them as proprietary information. Such alternative

treatments would substantially reduce Freddie Mac's proprietary

concerns with respect to those data elements, while making more

information available to the public, consistent with the intent of

Congress. See S. Rep. No. 464, 102d Cong., 2d Sess. 44 (1992) (``The

Director is encouraged whenever possible to develop disclosure

methods that take into account any proprietary concerns, while

continuing public access to the information.''). The results of

Freddie Mac's evaluations, including proposed alternative treatments

of certain data elements, are summarized in the attachment to this

request.

We trust that this request and attachment will be sufficient for

HUD to make its determination that the information contained in the

data elements designated in the attachment to this request contain

``proprietary'' information--that is, that the designated data

elements contain information that Freddie Mac does not customarily

release to the public and that the release of that information could

tend to cause financial or competitive injury to Freddie Mac, or

could tend to impair competition between Freddie Mac and Fannie Mae.

Alternatively, it should be sufficient for HUD to find that it

cannot determine that certain of those data elements do not contain

``proprietary'' information. In either case, the designated data

elements should not be made publicly available.

* * * * *

Attachment

Federal Home Loan Mortgage Corporation's Designation of Certain Loan-

Registry Data Elements as Proprietary\1\

I. Proprietary Confidential Data Elements

A. Single Family Data Elements

Acquisition UPB [positions 80-85]

---------------------------------------------------------------------------

\1\Each data element is identified by the field description and

the position numbers shown in the January 14, 1994, letter from HUD

that set forth the loan-registry requirements.

---------------------------------------------------------------------------

Loan-to-Value Ratio At Origination [positions 86-88]

Date of Mortgage Note [positions 89-94]

Date of Acquisition [positions 95-100]

Cooperative Unit Mortgage [position 102]

Refinancing Loan From Own Portfolio [position 103]

Special Affordable, Seasoned Loan Proceeds Recycled

[position 104]

Product Type [positions 105-106]

RTC/FDIC [position 108]

Term of Mortgage At Origination [positions 109-111]

Amortization Term [positions 112-114]

Seller Institution [position 115]

Mortgage Purchased Under FHLMC/FNMA Community Lending

Program [position 118]

Acquisition Type [position 119]

FHLMC's Real Estate Owned [position 120]

Public Subsidy Programs [position 121]

B. Multifamily Data Elements

U.S. Postal Zip Code [positions 13-17]

Acquisition UPB [positions 71-76]

Percent Participation [positions 77-80]

Date of Mortgage Note [positions 81-86]

Date of Acquisition [positions 87-92]

Refinancing Loan From Own Portfolio [position 95]

Special Affordable, Seasoned Loans: Are Proceeds Recycled?

[position 96]

Cooperative Project Loan [position 94]

Mortgagor Type [position 97]

Term of Mortgage At Origination [positions 98-100]

Loan Type [position 101]

Amortization term [positions 102-104]

Seller Institution [position 105]

Acquisition Type [position 107]

FHLMC's Real Estate Owned [position 108]

Public Subsidy Programs [position 109]

Special Affordable--45% [positions 115-123]

Special Affordable--55% [positions 124-132]

MF Unit Type XX--Affordability Level [position 133+4--fifth

unit-level field] Rather than making this data element available,

Freddie Mac suggests that HUD instead disclose the element

Affordability Category [position 70] (which is defined in terms of

four ``buckets'' or range of values rather than as a particular

percent)-- along with the unit-level data and in a manner that is

entirely severed from any information from which one might determine

location. Alternatively, or in addition, Affordability Level could

be recoded into ``buckets'' or ranges of values rather than being

expressed in terms of a specific percent of adjusted local median

income, and then could be released with the unit-level data as

described below.

II. Data Elements That Should Be Released Only in Unit-Level Files

We request that the following unit-level data for two- to four-

unit and multifamily properties be released only as a separate file

or ``package'' of data--severed entirely from the geographic and

other data:

A. Single-Family Unit-Level Data Files

We request that the following single-family elements for each

two- to four-unit property be released only in a separate file,

which file would contain no other data elements:

Number of Units [position 133]

Unit 1/2/3/4 Number of Bedrooms [positions 134, 147, 160,

173]

Unit 1/2/3/4 Owned-Occupied [or Tenant] [positions 135,

148, 161, 174]

Unit 1/2/3/4 Affordability Category [positions 136, 149,

162, 175]

Unit 1/2/3/4 Reported Rent Level [positions 137-141, 150-

154, 163-167, 176-180]

Unit 1/2/3/4 Reported Rent Level Plus Utilities [positions

142-146, 155-159, 168-172, 181-185]

B. Multifamily Unit-Level Data Files

Similarly, we request that the following multifamily elements

for each multifamily property be released only in a separate file,

which file would contain no other data elements:

Number of Units [positions 110-114]

Unit Type XX--Number of Bedrooms [position 133--first unit-

level field]

Unit Type XX--Numbers of Units [position 133+1--second

unit-level field]

Unit Type XX--Average Reported Rent Level [position 133+2--

third unit-level field]

Unit Type XX--Average Reported Rent Level Plus Utilities

[position 133+3--fourth unit-level field]

Unit Type XX--Affordability Level [position 133+4--fifth

unit-level field] As is described above, we would propose that this

data element be included in a unit-level file only after it is

recoded to show affordability level by ``bucket'' or range of values

rather than by a particular percent of adjusted local median income.

In its current form, the data element is proprietary and should not

be released--even in a unit-level file.

Affordability Category [position 70]

III. Data Element That Should Be Recoded Consistent With HMDA

Before Being Made Publicly Available

The data element Occupancy Code [position 132] indicates whether

a single-family mortgage purchased by Freddie Mac was for a

``Principal Residence/Owner Occupied,'' ``Second Home'' or

``Investment Property (Rental).'' We request that this element be

released only after it is recoded so that the second homes would be

combined with investment properties as ``Not owner Occupied''

consistent with the treatment of second homes under the Home

Mortgage Disclosure Act (``HMDA''). See 12 CFR part 203, App. A,

section V(A)(7)(a).

* * * * *

[FR Doc. 94-13783 Filed 6-6-94; 8:45 am]

BILLING CODE 4210-32-M