Supplemental Standards of Ethical Conduct for Employees of the Department of Housing and Urban Development

SUMMARY: The Department of Housing and Urban Development (Department),

with the concurrence of the Office of Government Ethics (OGE), proposes

to issue regulations for the officers and employees of the Department

that supplement the Standards of Ethical Conduct for Employees of the

Executive Branch issued by OGE. To ensure a comprehensive and effective

ethics program at the Department and to address ethical issues unique

to the Department, the proposed rule establishes prohibitions on the

ownership of certain financial interests and restrictions on outside

employment and business activities.

DATES: Comments are invited and must be received on or before August

29, 1995.

ADDRESSES: Interested persons are invited to submit comments regarding

this proposed rule to the Office of General Counsel, Rules Docket

Clerk, Room 10276, Department of Housing and Urban Development, 451

Seventh Street, SW, Washington, DC 20410-0500. Communications should

refer to the above docket number and title. A copy of each

communication submitted will be available for public inspection and

copying between 7:30 a.m. and 5:30 p.m. at the above address. Comments

by facsimile (FAX) are not acceptable.

FOR FURTHER INFORMATION CONTACT: Aaron Santa Anna, Assistant General

Counsel, Ethics Law Division, at (202) 708-3815, or Sam E. Hutchinson,

Associate General Counsel, Office of Human Resources Law, (202) 708-

2947; 451 Seventh Street, SW, Washington, DC 20810. Hearing or speech-

impaired individuals may call HUD's TDD number (202) 708-3259.

(Telephone numbers are not toll-free.)

SUPPLEMENTARY INFORMATION

I. Background

Executive Order 12674, as amended by Executive Order 12731,

authorized the Office of Government Ethics (OGE) to establish a single,

comprehensive and clear set of executive-branch standards of conduct.

On August 7, 1992, OGE published the Standards of Ethical Conduct for

Employees of the Executive Branch (Standards). See 57 FR 35006-35067,

as corrected at 57 FR 48557 and 57 FR 52583 with additional grace

period extensions at 59 FR 4779-4780 and 60 FR 6390-6391. Codified at 5

CFR part 2635, the Standards took effect on February 3, 1993, and

established uniform standards of ethical conduct for all executive

branch employees.

With the concurrence of OGE, 5 CFR 2635.105 authorizes executive

branch agencies to publish agency-specific supplemental regulations

necessary to implement their respective ethics programs. The

Department, with OGE's concurrence, has determined that the following

supplemental rules contained in the proposed regulation, which would

add a new chapter LXV, consisting of part 7501, to 5 CFR, are necessary

to implement successfully the Department's ethics program in light of

the Department's unique programs and operations. The Department of

Housing and Urban Development is simultaneously removing its superseded

Standards of Conduct at 24 CFR part 0 and is replacing those provisions

with a single section that provides a cross-reference to 5 CFR parts

2634 and 2635, and to the Department's new supplemental regulations.

II. Analysis of the Regulation

The following is a section by section analysis of the proposed

rule.

Section 7501.101 Purpose

Proposed Sec. 7501.101 explains that the regulations contained in

the proposed rule would apply to all Department employees and would

supplement the executive branch-wide Standards. Special Government

employees, as that term is defined by 18 U.S.C. 202 and 5 CFR

2635.102(l), however, would be exempt from Secs. 7501.104 and 7501.105.

Proposed Sec. 7501.101 would also note that Department employees must

comply with the Standards of Ethical Conduct for Employees of the

Executive Branch, 5 CFR part 2635, the executive branch financial

disclosure regulations at 5 CFR part 2634, this part, and any

additional rules of conduct that the Department is authorized to issue.

Upon finalization of this supplemental regulation, the Department will,

as proposed, delete its present Standards of Conduct rule at 24 CFR

part 0, except for a cross-reference to 5 CFR.

Section 7501.102 Definitions

Proposed Sec. 7501.102 defines the key terms used in the proposed

rule, and would include a definition of the term ``affiliate'' at

Sec. 7501.102.

Proposed Sec. 7501.102 would, for purposes of the proposed rule and

5 CFR part 2635, delegate to the Associate General Counsel, Office of

Human Resources Law, the Assistant General Counsel, Ethics Law

Division, and the Field Assistant General Counsels, the authority to

serve as agency designees and agency ethics officials for all

Department employees. These proposed sections would also delegate to

the Inspector General the authority to serve as agency designee and

agency ethics official for Department employees in the Office of the

Inspector General. Finally, the General Counsel, Office of Federal

Housing Enterprise Oversight, would be delegated authority to act as

agency designee and agency ethics official for Department employees in

the Office of Federal Housing Enterprise Oversight.

``Assistance'' would be defined broadly by proposed Sec. 7501.102

to include any contract, grant, loan, subsidy, guarantee, cooperative

agreement or any other financial assistance under a program

administered by the Secretary. The definition is intended to include

``assistance'' awarded by the Department that is subsequently

redistributed competitively to a second tier of applicants. The term

does not include, however, single family mortgage insurance provided

under a program administered by the Secretary.

``Employment'' would be defined broadly at Sec. 7501.102 as

proposed to cover any form of non-Federal employment or business

relationship involving the provision of personal services, including

writing when done under an arrangement with another person for

production or publication of the written product.

The term ``security'' also would be defined broadly at

Sec. 7501.102 of the proposed rule. The proposed definition is based,

in part, on the definition of ``financial interest'' at 5 CFR

2635.403(c) and would include any interest in debt or equity

instruments, such as stocks, bonds and commercial paper. The definition

also would extend to loans securitized by mortgages or deeds of trust

and securities backed by such instruments, but would not include

deposit accounts.

[[Page 34421]]

Section 7501.103 Waivers

Proposed Sec. 7501.103 would authorize the Designated Agency Ethics

Official (DAEO) to grant HUD employees written waivers of any provision

of the proposed Department rule based upon a determination that the

waiver will not result in conduct inconsistent with 5 CFR part 2635 or

otherwise prohibited by law, and that application of the provision

would not be necessary to ensure public confidence in the impartiality

and objectivity with which the Department's programs are administered.

Authority to waive provisions of the Department's conduct regulations

has been included in 24 CFR 0.735-106. Under proposed Sec. 7501.103,

the DAEO could grant a written waiver but require the employee to take

further action, including executing a written disqualification

statement. This provision is intended, in appropriate cases, to ease

the burden that these supplemental regulations may impose on Department

employees while ensuring that employees do not engage in actions or

hold financial interests that may interfere with the objective and

impartial performance of their official duties.

Section 7501.104 Prohibited Financial Interests

General Requirement. Proposed Sec. 7501.104 would prohibit

Department employees from receiving, acquiring, or owning certain

financial interests that are related to or affected by Department

operations, such as securities issued or collateralized by the Federal

National Mortgage Association or the Federal Home Loan Mortgage

Corporation. It would incorporate, with one addition, the restrictions

implemented in 1987 through the promulgation of 24 CFR 0.735-204 of the

Department's existing standards regulation. The additional restriction

that would be imposed by paragraph (a)(2) reflects the Secretary's more

recently acquired authority over the Federal Home Loan Mortgage

Corporation under the Financial Institutions Reform, Recovery and

Enforcement Act of 1989. (12 U.S.C. 4511). In accordance with 5 CFR

2635.403(a), these prohibitions are proposed on the basis of the

Department's determination that the acquisition or holding by

Department employees of the six categories of financial interests

listed in proposed Sec. 7501.104(a) would cause reasonable persons to

question the impartiality and objectivity with which Department

programs are administered.

Exceptions to prohibition for certain interests. Proposed

Sec. 7501.104(b) is substantially identical to the provision which it

was designed to replace, 24 CFR 0.735-204(b). One provision which was

modified, paragraph (b)(1), would permit employees to own interests in

publicly traded or publicly available mutual or other investment funds

which contain within their portfolios interests that they would be

prohibited from holding by proposed Sec. 7501.104(a). Under this

provision, ownership of investment funds would be permitted as long as

the employee does not have the ability to control the fund or its

portfolio, and the fund does not have an objective or practice of

concentrating its investments in residential mortgages or securities

backed by residential mortgages other than those of the Government

National Mortgage Association.

Reporting and Divestiture. Proposed Sec. 7501.104(c) is loosely

based on 24 CFR 0.735-204(c). It would require new employees, within 30

days of commencing employment, to report to the appropriate agency

ethics official financial interests acquired prior to the commencement

of their employment with the Department that they are prohibited from

holding by Sec. 7501.104(a). Employees would be required to divest such

interests within 90 days of the date reported unless they receive a

written waiver from the Designated Agency Ethics Official in accordance

with Sec. 7501.103. The proposed section would impose a similar

reporting and divestiture requirement upon employees who acquire,

without specific intent, financial interests prohibited by

Sec. 7501.104(a).

Section 7501.105 Outside Employment and Other Outside Activities

The proposed rule is designed to balance several important ethical

principles against an employee's right to engage in outside activities.

Proposed Sec. 7501.105(a) would incorporate, with minor modification,

the substance of 24 CFR 0.735-203(b)(4), a provision which was

promulgated in 1987. The proposed section prohibits paid and unpaid

employment with businesses dealing with or related to real estate or

manufactured housing. The Department has determined that maintaining

the policy against active participation in such businesses is necessary

to protect against questions regarding the impartiality and objectivity

of employees and the administration of the Department's programs. It

would hinder the Department in meeting its missions if members of the

public question whether Department employees are using their public

positions or Department connections to advance their real estate

careers.

In addition, since the parties involved in any real estate

transaction, such as real estate agents, brokers, mortgagees,

settlement attorneys, title and property insurance companies,

appraisers, and developers, may do business with, or may be regulated

by, the Department, an employee engaged in outside real estate

transactions with these parties on a regular basis may be perceived as

providing these persons preferential treatment in order to further his

or her real estate-related business. In determining whether an employee

is actively participating in a business related to real estate, the

Department will consider a number of factors, including whether the

employee maintains an office, advertises or solicits clients or

business, hires staff, uses business stationery or similar materials,

or establishes a formal or informal association with an existing

business. The number of transactions over a period of time will also be

considered in determining whether an employee is actively participating

in a business.

Proposed Sec. 7501.105(a)(2) and (a)(3) would incorporate, with

minor revision, restrictions promulgated in 24 CFR 0.735-203(b)(5) and

(b)(6). The additional employment restriction of proposed

Sec. 7501.105(a)(4) against employment with certain mortgage

institutions was considered necessary in view of the Department's role

as regulator under the authority of the Financial Institutions Reform,

Recovery and Enforcement Act of 1989.

Proposed Sec. 7501.105(b) would create exceptions to the

prohibitions in Sec. 7501.105(a) which would ensure that employees are

not prohibited from serving as officers or directors of Federal credit

unions or of certain cooperative or condominium associations. It would

also give the Designated Agency Ethics Official authority to exempt

service as an officer or director of other entities which would not be

expected to raise appearance concerns.

Proposed Sec. 7501.105(c) lists the circumstances under which an

employee is required to obtain the approval of an agency ethics

official prior to engaging in certain compensated or uncompensated

outside employment activities. The requirement in proposed

Sec. 7501.105(c)(1)(i) to obtain prior approval to serve in a position

of authority with any organization that receives Department assistance

is new. Because these organizations interact with the Department and

are affected by Department programs and operations, proposed

Sec. 7501.105(c)(1)(i) will ensure

[[Page 34422]]

that employees do not violate 18 U.S.C. 203, 205 and 208. In this

regard, it is noted that the financial interests of an organization in

which an employee serves as officer, director, trustee, general partner

or employee are imputed to the employee by 18 U.S.C. 208.

Proposed Sec. 7501(c)(1)(ii) and (c)(1)(iii) reflect the practice

of the Department since 1982, and under 24 CFR 0.735-203(d) of the

current HUD standards regulation to require employees to obtain

approval prior to engaging in any outside activities which are in the

same professional field as that of the employee's official position or

which are with a State or local government. For purposes of this

section, professions subject to the prior approval requirement are

those that require specialized knowledge and often long and intensive

training. As noted in 5 CFR 2636.305, it is a characteristic of a

profession that those in the profession, through force of organization

or concerted opinion, establish and maintain high standards of

achievement and conduct. Secretarial and clerical positions are not,

for purposes of this rule, included within the term ``profession.''

Proposed Sec. 7501.105(c)(2) would establish the standards against

which requests for prior approval of outside activities would be

judged. In this regard, it is noted that requests will be approved

unless inconsistent with the conflict of interest laws, executive

branch-wide Standards or this part.

Proposed Sec. 7501.105(d) reflects the policy of the Department to

encourage its employees to volunteer their time to nonprofit

organizations. This paragraph recognizes, however, that such service

must be consistent with applicable law and regulation, including 18

U.S.C. 205 and 208.

Section 7501.106 Additional Rules for Certain Department Employees

Involved in the Regulation or Oversight of Government Sponsored

Enterprises

Proposed Sec. 7501.106 would apply to certain Department employees

whose official duties involve implementing the Federal Housing

Enterprises Financial Safety and Soundness Act of 1992 (the Act). These

rules would be in addition to those which would apply to these

employees under Secs. 7501.101-7501.105.

The need for these rules results from the authority granted the

Department by the Act. The Act significantly expanded the Department's

authority to regulate the Federal National Mortgage Association (Fannie

Mae or FNMA) and the Federal Home Loan Mortgage Corporation (Freddie

Mac or FHLMC), collectively referred to as Government sponsored

enterprises (GSEs). In enacting this legislation, Congress sought to

ensure, given the size of the GSEs and the fact that their securities

are perceived as guaranteed by the Federal Government, the continued

financial stability of the GSEs. In addition, Congress sought to

establish a mechanism to ensure that the GSEs fulfill their public

missions to stimulate the growth of affordable housing.

To achieve these goals, the Act divided the regulatory

responsibility over the GSEs between a newly established Office of

Federal Housing Enterprise Oversight (OFHEO) within the Department and

the Secretary. OFHEO was given substantial independence in matters

relating to the financial health and security of the GSEs. The Director

of OFHEO has authority, for example, to issue the risk-based capital

standards for the GSEs and to periodically conduct broad-based

examinations of the GSEs without Secretarial review. To ensure that the

GSEs are in compliance with the capital standards and are operating

safely, the Director has exclusive authority to bring a broad range of

enforcement actions against an enterprise, including final and

temporary cease-and-desist actions and civil money penalties. In its

financial safety and soundness mission, OFHEO is analogous to other

Federal financial regulators.

The Act also granted the Secretary more specific authority over the

housing missions and fair lending responsibilities of the GSEs. Under

the Act, the Secretary has the authority to establish and monitor goals

for the GSEs' purchase of mortgages financing housing for low- and

moderate-income families, and to establish and monitor goals for the

GSEs' purchase of mortgages financing housing located in rural areas,

central cities, and other underserved areas. The Secretary also was

provided authority to enforce fair lending requirements for the GSEs

and to require the GSEs to assist the Department in investigating

whether a mortgage lender has failed to comply with the Fair Housing

Act and Equal Credit Opportunity Act. The Secretary is also authorized

to approve new programs prior to the GSEs' implementation of such

programs. To enforce compliance with these housing goals, the Secretary

is authorized to hold hearings, issue cease-and-desist orders, and

assess civil monetary penalties.

Based on the authority granted under the Act, the Department

proposes to promulgate new restrictions which would, among other

things, prohibit certain employees whose official duties involve

implementing the Department's statutory responsibilities under the Act

from acquiring or owning the financial interests of certain mortgage

institutions which do business with or rely upon the GSEs.

Definitions. Proposed Sec. 7501.106(b) would define the terms

``covered employee'' and ``mortgage institution'' for the purpose of

Sec. 7501.106. The term ``covered employee'' would include employees

required to file public or confidential financial disclosure reports

and who are employed in OFHEO and certain other Departmental offices

that have responsibilities under the Act. By virtue of this definition,

the term would include employees involved in auditing and reviewing the

GSEs for financial soundness, establishing housing goals for the GSEs,

reviewing the lending policies and practices of the GSEs, bringing

regulatory actions against the GSEs or the lending institutions with

which they do business or reviewing new GSE programs. It would also

include employees who have access to financial data about the GSEs or

the lenders with which they do business or are involved in developing

or implementing new Federal Housing Administration (FHA) programs to

meet the Secretary's housing goals.

``Mortgage institution'' would include any person or entity which

originates or services mortgages that are owned or guaranteed by FNMA

or FHLMC. The term would also include any person or entity which

insures mortgages owned or guaranteed by FNMA or FHLMC.

Prohibited Financial Interests. Proposed Sec. 7501.106 would

prohibit covered employees and their spouses and minor children from

owning securities issued by certain ``mortgage institutions.'' The

Department has determined, consistent with 5 CFR 2635.403(a), that

prohibiting covered employees from acquiring or holding financial

interests in the mortgage institutions specified in proposed

Secs. 7501.106(c)(1)(i)-(iii) is necessary to maintain public

confidence in the impartiality and objectivity with which the

Department fulfills its statutory and regulatory functions to regulate

the GSEs and establish housing goals. This prohibition also would

ensure that widespread disqualifications of covered employees from

official matters because of their financial interests do not adversely

affect the Department's ability to carry out its mission. Moreover,

actions taken by the Department may affect the market value of the

securities of the mortgage institutions with which the GSEs deal.

[[Page 34423]]

Restrictions Arising from Third Party Relationships. Proposed

Sec. 7501.106(d) would attribute to a covered employee securities he or

she would be prohibited from holding by Sec. 7501.106(c) that are held

by the entities described in this subsection. A covered employee with

an attributed interest would be required to report the interest to the

appropriate agency ethics official and could be required to terminate

the relationship with the entity, disqualify himself or herself from a

matter or take other appropriate action as determined by the agency

ethics official to avoid a violation of the conflict of interest

statutes, the executive branch-wide Standards, or these supplemental

regulations.

Prohibited Outside Employment. Proposed Sec. 7501.106(e) is

intended to highlight for covered employees that they are prohibited by

Sec. 7501.105(a) from engaging in employment with or on behalf of a

mortgage institution. Employment with or on behalf of a mortgage

institution means performing any work, whether compensated or

uncompensated, for or to be provided to a mortgage organization through

its employees, contractors, or agents.

Prohibited Recommendations. Proposed Sec. 7501.106(f) would

prohibit a covered employee from recommending, suggesting or giving

advice to any person with respect to financial transactions or

investment actions involving FHLMC or FNMA securities. This provision

would supplement 5 CFR 2635.704 with a provision designed specifically

for covered employees which would prohibit them from using or creating

the appearance of using information which is not available to the

general public to further a private interest.

Prohibited Purchase of Assets. Proposed Sec. 7501.106(g) would

prohibit covered employees from purchasing real or personal property

from FHLMC or FNMA unless purchased under circumstances which ensure

that the property is sold for fair market value. It is proposed as a

supplement to the more general prohibition in 5 CFR 2635.702 against

the use of public office for private gain.

Pre-existing Interests. Proposed Sec. 7501.106(h) would require a

covered employee, upon entering a covered position, to report any

interest he or she would be prohibited from continuing to hold by

Sec. 7501.106(c) to the agency ethics official within thirty days of

the start of that covered employment. The covered employee would be

required to divest such interest within 90 days of the date reported

unless the employee receives a written waiver from the Designated

Agency Ethics Official in accordance with Sec. 7501.103. A similar

requirement would apply to covered employees who acquire financial

interests prohibited by Sec. 7501.106(c) by gift or otherwise without

specific intent on their part.

III. Removal of the Old Department Standards of Conduct Regulations

Because the Department's Standards of Conduct have been largely

superseded by the new executive branch financial disclosure regulations

at 5 CFR part 2634 and by the new executive branch-wide Standards at 5

CFR part 2635 as supplemented by the regulations contained in new 5 CFR

part 7501, the Department is removing all of existing 24 CFR part 0. To

ensure that employees are on notice of the ethical standards to which

they are subject, the Department is replacing its old standards at 24

CFR part 0 with a residual provision that cross-references 5 CFR parts

2634, 2635 and 7501.

IV. Matters of Regulatory Procedure

Regulatory Flexibility Act

The Secretary in accordance with the Regulatory Flexibility Act (5

U.S.C. 605(b)), has reviewed and approved this rule, and in so doing

certifies that this rule would not have a significant economic impact

on a substantial number of small entities because it would affect only

Federal employees.

Environmental Impact

In accordance with 40 CFR 1508.4 of the regulations of the Council

on Environmental Quality and 24 CFR 50.20(k) of the HUD regulations,

the policies and procedures contained in this rule relate only to

internal administrative procedures whose content does not constitute a

development decision nor affect the physical condition of project areas

or building sites, and therefore, are categorically excluded from the

requirements of the National Environmental Policy Act.

Executive Order 12612, Federalism

The General Counsel, as the Designated Official under section 6(a)

of Executive Order 12612, Federalism, has determined that the policies

contained in this rule will not have substantial direct effects on

States or their political subdivisions, or the relationship between the

Federal Government and the states, or on the distribution of power and

responsibilities among the various levels of government. Specifically,

this rule is only directed toward Federal employees and would not alter

the established roles of HUD and the States and local governments. As a

result, the rule is not subject to review under the order.

Executive Order 12606, the Family

The General Counsel, as the Designated Official under Executive

Order 12606, The Family, has determined that this rule does not have

potential for significant impact on family formation, maintenance, and

general well-being, and, thus, is not subject to review under the

order. No significant change in existing HUD policies or programs would

result from promulgation of this rule, as those policies and programs

relate to family concerns.

Regulatory Agenda

This rule was listed as item number 1367 in the Department's

Semiannual Agenda of Regulations published on May 8, 1995 (60 FR 23368,

23375) in accordance with Executive Order 12866 and the Regulatory

Flexibility Act.

List of Subjects in 5 CFR Part 7501

Conflict of interests, Government employees.

List of Subjects in 24 CFR Part 0

Administrative practice and procedure, Conflict of interests.

Dated: May 22, 1995.

Henry G. Cisneros,

Secretary of the Department of Housing and Urban Development.

Approved: June 1, 1995.

Stephen D. Potts,

Director, Office of Government Ethics.

For the reasons set forth in the preamble, the Department of

Housing and Urban Development, with the concurrence of the Office of

Government Ethics, is proposing to amend title 5 of the Code of Federal

Regulations by adding a new chapter LXV, consisting of part 7501, and

to amend title 24 of the Code of Federal Regulations by revising part

0, to read as follows:

1. In title 5, a new chapter LXV, consisting of part 7501, would be

added to read as follows:

5 CFR CHAPTER LXV--DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

PART 7501--SUPPLEMENTAL STANDARDS OF ETHICAL CONDUCT FOR EMPLOYEES

OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Sec.

7501.101 Purpose.

7501.102 Definitions.

[[Page 34424]]

7501.103 Waivers.

7501.104 Prohibited financial interests.

7501.105 Outside employment.

7501.106 Additional rules for certain Department employees involved

in the regulation or oversight of Government sponsored enterprises.

Authority: 5 U.S.C. 301, 7301, 7351, 7353; 5 U.S.C. App. (Ethics

in Government Act of 1978); E.O. 12674, 54 FR 15159, 3 CFR, 1989

Comp., p. 215, as modified by E.O. 12731, 55 FR 42547, 3 CFR, 1990

Comp., p. 306; 5 CFR 2635.105, 2635.203(a), 2635.403(a), 2635.803,

2635.807.

Sec. 7501.101 Purpose.

In accordance with 5 CFR 2635.105, the regulations in this part

apply to employees of the Department of Housing and Urban Development

(HUD or Department) and supplement the Standards of Ethical Conduct for

Employees of the Executive Branch contained in 5 CFR part 2635.

Employees are required to comply with 5 CFR part 2635, this part, and

any additional rules of conduct that the Department is authorized to

issue.

Sec. 7501.102 Definitions.

For purposes of this part, and otherwise as indicated, the

following definitions shall apply:

Affiliate means any entity that controls, is controlled by, or is

under common control with another entity.

Agency designee, as used also in 5 CFR part 2635, means the

Associate General Counsel for Human Resources Law, the Assistant

General Counsel, Ethics Law Division, and the HUD Field Office

Assistant General Counsels; the Inspector General, for employees

assigned to the Office of the Inspector General; and the General

Counsel, Office of Federal Housing Enterprise Oversight, for employees

assigned to the Office of Federal Housing Enterprise Oversight.

Agency ethics official, as used also in 5 CFR part 2635, means the

agency designees as specified above.

Assistance means any contract, grant, loan, subsidy, guarantee,

cooperative agreement or other financial assistance under a program

administered by the HUD Secretary, and includes ``assistance'' awarded

by the Department that is competitively redistributed to a second tier

of applicants or awardees. The term does not include single family

mortgage insurance provided under a program administered by the

Secretary.

Designated Agency Ethics Official (DAEO) means the General Counsel

of HUD or the Deputy General Counsel (Operations) in the absence of the

General Counsel.

Employment means any compensated or uncompensated form of non-

Federal employment or business relationship, including self-employment,

involving the provision of personal services by the employee. It

includes, but is not limited to, personal services as an officer,

director, employee, agent, attorney, consultant, contractor, general

partner, trustee, teacher or speaker. It includes writing when done

under an arrangement with another person for production or publication

of the written product.

Security means all interests in debt or equity instruments. The

term includes, without limitation, secured and unsecured bonds,

debentures, notes, securitized assets and commercial paper including

loans securitized by mortgages or deeds of trust and securities backed

by such instruments, as well as all types of preferred and common

stock. The term encompasses current and contingent ownership interests

including any beneficial or legal interest derived from a trust. It

extends to any right to acquire or dispose of any long or short

position in such securities and includes, without limit, interests

convertible into such securities, as well as, options, rights,

warrants, puts, calls and straddles with respect thereto. The term

shall not, however, be construed to include deposit accounts.

Sec. 7501.103 Waivers.

The Designated Agency Ethics Official (DAEO) may waive any

provision of this part upon finding that the waiver will not result in

conduct inconsistent with 5 CFR part 2635 or otherwise prohibited by

law and that application of the provision is not necessary to ensure

public confidence in the impartiality and objectivity with which the

Department's programs are administered. Each waiver shall be in writing

and supported by a statement of the facts and findings upon which it is

based and may impose appropriate conditions, such as requiring the

employee's execution of a written disqualification statement.

Sec. 7501.104 Prohibited financial interests.

(a) General requirement. This section applies to all HUD employees

except special Government employees. Except as provided in paragraph

(b) of this section, an employee, or an employee's spouse or minor

child, shall not directly or indirectly receive, acquire or own:

(1) Securities issued by the Federal National Mortgage Association

(FNMA) or securities collateralized by FNMA securities;

(2) Securities issued by the Federal Home Loan Mortgage Corporation

(FHLMC) or securities collateralized by FHLMC securities;

(3) FHA debentures or certificates of claim;

(4) Stock or another financial interest in a Department-owned,

insured or subsidized multifamily project or single family dwelling,

cooperative unit, or condominium unit, except to the extent that the

stock or other interest represents the employee's principal residence.

Employees who wish to purchase a Department-held property as a

principal residence must adhere to the procedures established by the

Assistant Secretary for Housing for the administration of the property

disposition program set forth in HUD Handbook 4310.5;

(5) Any Department subsidy provided pursuant to Section 8 of the

United States Housing Act of 1937, as amended, (42 U.S.C. 1437f) to or

on behalf of a tenant of property owned by the employee. However, an

employee may receive such a subsidy when:

(i) The employee acquires without specific intent, as through gift

or inheritance, a property which at the time of acquisition has a

tenant receiving such a subsidy, but only as long as that tenant

continues to reside in the property; or

(ii) An incumbent tenant who has not previously received such a

subsidy becomes the beneficiary thereof, but only if there is no

increase in that tenant's rent upon the commencement of subsidy

payments other than normal annual adjustments; or

(6) Any direct creditor interest in a mortgage insured by the

Department.

(b) Exception to prohibition for certain interests. Nothing in this

section prohibits an employee, or the spouse or minor child of an

employee, from acquiring, owning, or controlling:

(1) An interest in a publicly traded or publicly available

investment fund which, in its prospectus, does not indicate the

objective or practice of concentrating its investments in residential

mortgages or securities backed by residential mortgages, except those

of Government National Mortgage Association (GNMA), and the employee

neither exercises control nor has the ability to exercise control over

the financial interests held in the fund;

(2) A limited partnership interest in a partnership which has at

least 5,000 partnership interests, of which less than 25% of the assets

are Department insured or subsidized projects; or

(3) Mortgage insurance provided pursuant to section 203 of the

National Housing Act (12 U.S.C. 1709) on the employee's principal

residence and any one other single family residence.

[[Page 34425]]

(c) Reporting and divestiture. An employee must report, in writing,

to the appropriate agency ethics official, any interest prohibited

under paragraph (a) of this section acquired prior to the commencement

of employment with the Department or without specific intent, as

through gift, inheritance, or marriage, within 30 days from the start

of employment or acquisition of such interest. Such interest must be

divested within 90 days from the date reported unless waived by the

Designated Agency Ethics Official in accordance with Sec. 7501.103.

Sec. 7501.105 Outside employment.

(a) Prohibited outside employment. Subject to the exceptions set

forth in paragraph (b) of this section, HUD employees, except special

Government employees, shall not engage in:

(1) Employment involving active participation in a business dealing

with or related to real estate or manufactured housing including but

not limited to real estate brokerage, management and sales,

architecture, engineering, mortgage lending, property insurance,

appraisal services, construction, construction financing, land

planning, or real estate development;

(2) Employment with a person, other than a State or local

government, who engages in lobbying activities concerning Department

programs or who is required to report expenditures for lobbying

activities or register as a lobbyist under 42 U.S.C. 3537b or similar

statutes which require the registration of persons who attempt to

influence the decisions of officers or employees of the Department;

(3) Employment as an officer or director of a person who is a

Department-approved mortgagee, a lending institution or an organization

which services securities for the Department; or

(4) Employment with the Federal National Mortgage Association, the

Federal Home Loan Mortgage Corporation, the Federal Housing Finance

Board or any affiliate thereof.

(b) Exceptions to employment prohibitions. The prohibitions set

forth in paragraph (a) of this section do not apply to serving as an

officer or a member of the Board of Directors of:

(1) A Federal Credit Union;

(2) A cooperative or condominium association for a housing project

which is not subject to regulation by the Department or, if so

regulated, in which the employee personally resides; or

(3) An entity designated in writing by the Designated Agency Ethics

Official.

(c) Prior approval requirement. (1) Employees shall obtain the

prior written approval of an agency ethics official before accepting

compensated or uncompensated employment:

(i) As an officer, director, trustee, or general partner of, or in

any other position of authority with, either a for-profit or non-profit

organization which directly or indirectly receives assistance from the

Department.

(ii) With a State or local government; or

(iii) In the same professional field as that of the employee's

official position.

(2) Approval shall be granted unless the conduct is inconsistent

with 5 CFR part 2635 or this part.

(d) Voluntary services. Subject to the restrictions and

requirements contained in the conflict of interest laws, 5 CFR part

2635 and this part, employees are encouraged to volunteer their

personal time to nonprofit organizations.

Sec. 7501.106 Additional rules for certain Department employees

involved in the regulation or oversight of Government sponsored

enterprises.

(a) The following rules apply to certain Department employees whose

duties involve the regulation or oversight of Government Sponsored

Enterprises, specifically the Federal National Mortgage Association

(FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). This

section is in addition to Secs. 7501.101 to 7501.105.

(b) Definitions. For purposes of this section, the following

definitions are applicable:

(1) Covered employee means an employee required to file a public or

confidential financial disclosure report under 5 CFR part 2634 in:

(i) the Office of the HUD Secretary;

(ii) the Office of Federal Housing Enterprise Oversight;

(iii) the Office of the Assistant Secretary for Housing-Federal

Housing Commissioner, with the exception of the Office of the Deputy

Assistant Secretary for Operations;

(iv) the Office of Financial Institutions Regulation in the Office

of the Assistant Secretary for Policy Development and Research;

(v) the Offices of Investigation, Program Standards and Evaluation,

and Regulatory Initiatives and Federal Coordination within the Office

of the Assistant Secretary for Fair Housing and Equal Opportunity;

(vi) the Offices of Insured Housing, Finance and Regulatory

Enforcement, Legislation and Regulations, and the Fair Housing

Enforcement Division in the Office of the General Counsel;

(vii) the official superiors of the employees listed in paragraphs

(b)(1)(iv), (b)(1)(v) and (b)(1)(vi) of this definition; and

(viii) any other employee in the offices listed above who is

designated in writing by the Secretary or the appropriate individual of

Assistant Secretary rank, or his or her designee, to ensure compliance

with the principles set forth in 5 CFR 2635.403.

(2) Mortgage institution means mortgage bankers, mortgage brokers,

banks, savings and loans, and other institutions that originate or

service mortgages that are owned or guaranteed by the Federal National

Mortgage Association (FNMA) or the Federal Home Loan Mortgage

Corporation (FHLMC).

(c) Prohibited financial interests. (1) Except as provided in

paragraph (c)(2) of this section, a covered employee, or a spouse or

minor child of a covered employee, shall not receive, acquire, or own

securities of:

(i) a mortgage institution if more than 20 percent of the

institution's assets consist of mortgages;

(ii) a mortgage institution in which 20 percent or less of the

institution's assets consist of mortgages and more than 40 percent of

the mortgages originated by the institution are sold to or guaranteed

by FNMA and/or FHLMC; or

(iii) a mortgage institution which services or insures mortgages if

more than 20 percent of the gross income of such institution is derived

from either or both of these activities.

(2) The prohibitions in paragraph (c)(1) of this section do not

apply to ownership of securities held in a publicly traded or publicly

available investment fund, or profit-sharing, retirement, or similar

plan which in its prospectus or governing documents does not indicate

the objective or practice of concentrating its investments in the

financial services sector, and the employee neither exercises control

nor has the ability to exercise control over the financial interests

held in the fund.

(3) The mortgage institution's most recent financial statement

shall be used in determining the applicability of the prohibitions in

paragraph (c)(1) of this section.

(d) Restrictions arising from third party relationships. If any of

the entities listed below have securities that a covered employee would

be prohibited from owning by paragraph (c) of this section, the

employee shall report such interest to the appropriate Agency Ethics

Official. The Agency Ethics Official may require the employee to

terminate the third party relationship, undertake an appropriate

disqualification, or take other appropriate action determined to be

necessary consistent with 5 CFR part

[[Page 34426]]

2635 and this part. This paragraph applies to a:

(1) Partnership in which the covered employee, or a spouse or minor

child of the employee is a general partner;

(2) Partnership in which the covered employee, or spouse or minor

child of the employee, individually or jointly holds more than a 10

percent limited partnership interest;

(3) Closely held corporation in which the covered employee, or

spouse or minor child of the employee, individually or jointly holds

more than a 10 percent equity interest;

(4) Trust in which the covered employee, or spouse or minor child

of the employee, has a legal or beneficial interest;

(5) Investment club or similar informal investment arrangement

between the covered employee, or spouse or minor child of the employee

and others; or

(6) Other entity in which the covered employee, or spouse or minor

child of the employee, individually or jointly holds more than a 10

percent equity interest.

(e) Prohibited outside employment. In accordance with

Sec. 7501.105(a)(1), covered employees shall not engage in employment

with or on behalf of a mortgage institution.

(f) Prohibited recommendations. Covered employees shall not make

any recommendation or suggestion, directly or indirectly, concerning

the acquisition, sale, or divestiture of securities of FHLMC or FNMA.

(g) Prohibited purchase of assets. Covered employees, their spouses

or minor children shall not purchase, directly or indirectly, any real

or personal property from FHLMC or FNMA, unless it is sold at public

auction or by other means which would assure that the selling price is

the asset's fair market value.

(h) Pre-existing interests. Covered employees must report, in

writing, to the appropriate Agency Ethics Official, any interest

prohibited under paragraph (c) of this section acquired prior to either

the commencement of employment as a covered employee or the effective

date of this part, or acquired without specific intent, as through

gift, inheritance, or marriage, within 30 days from the start of

covered employment or acquisition of such interest. Such interest must

be divested within 90 days from the date it is reported unless waived

by the Designated Agency Ethics Official in accordance with

Sec. 7501.103.

24 CFR Subtitle A--Office of the Secretary Department of Housing

and Urban Development

PART 0--STANDARDS OF CONDUCT

2. 24 CFR part 0 consisting of Sec. 0.1 would be revised to read as

follows:

Sec. 0.1 Cross-reference to employees ethical conduct standards and

financial disclosure regulations.

Employees of the Department of Housing and Urban Development

(Department) are subject to the executive branch-wide standards of

ethical conduct at 5 CFR part 2635 and the Department regulation at 5

CFR Chapter LXV which supplements the executive branch-wide standards,

and the executive branch-wide financial disclosure regulation at 5 CFR

part 2634.

(5 U.S.C. 7301; 42 U.S.C. 3535(d)).

[FR Doc. 95-16129 Filed 6-29-95; 8:45 am]

BILLING CODE 4210-32-P