Government National Mortgage Association Guaranteed Multiclass Securities

SUMMARY: This final rule codifies the provisions of two Notices

published in the Federal Register on May 26, 1994 and September 30,

1994, as authorized by Congress. Both Notices provided for a comment

period. The September 30 Notice responded to comments on the May 26

Notice. This rule provides guidance to entities wishing to participate

in the GNMA guaranteed multiclass securities program and describes

certain other aspects of the program.

EFFECTIVE DATE: March 20, 1995.

FOR FURTHER INFORMATION CONTACT: Guy S. Wilson, Vice President,

Government National Mortgage Association, Room 6151, 451 Seventh Street

SW., Washington, DC 20410-9000, telephone (202) 401-8970. Hearing or

speech-impaired individuals may call HUD's TDD number (202) 708-3649.

(These telephone numbers are not toll-free.) Copies of this rule will

be made available on tape or large print for those with impaired vision

that request them. They may be obtained at the above address.

SUPPLEMENTARY INFORMATION:

I. Background

Section 3004 of the Omnibus Budget Reconciliation Act of 1993

provides for initial implementation of the Government National Mortgage

Association (the ``Association'' or ``GNMA'') guaranteed multiclass

securities program by a Notice published in the Federal Register,

effective upon publication, by adding section 306(g)(3)(E)(ii) to the

National Housing Act (12 U.S.C. 1721(g)(3)(E)(ii)). The implementation

Notice for the initial stage of this program, which provided for

participation by a limited number of entities, was published on May 26,

1994 (59 FR 27290) (``May 26 Notice''). A supplemental Notice was

published on September 30, 1994 (59 FR 50148) (``September 30 Notice'')

to implement the full participation stage.

Under section 306(g)(3)(E)(ii), GNMA is required to publish a final

rule not later than 12 months after publication of the initial notice,

which is May 26, 1995. GNMA has developed the multiclass securities

program, and is now ready to publish the final rule.

II. Program Revisions for Final Rule

The Department has decided to make one program revision in this

rule to the provisions of the September 30 Notice. For structured

securities, GNMA has decided to require applications from Sponsors and

Co-sponsors, but not from other participants.

The Sponsor selects the other participants (trust counsel,

accounting firms). The Sponsor selects a trustee from institutions

approved by GNMA. However, the participants selected by the Sponsor

must comply with GNMA program requirements, such as those described in

Secs. 395.15 and 395.20.

III. Comments and Responses

No comments were received on the September 30 Notice.

IV. Findings and Certifications

A. Environmental Review

A Finding of No Significant Impact with respect to the environment

was made when the May 26 Notice was published, in accordance with HUD

regulations at 24 CFR Part 50 that implement section 102(2)(C) of the

National Environmental Policy Act of 1969, 42 U.S.C. 4332. The changes

made in the September 30 Notice and in this final rule do not affect

the validity of that Finding. The Finding of No Significant Impact is

available for public inspection and copying during regular business

hours in the Office of the Rules Docket Clerk, Room 10276, 451 Seventh

Street, SW., Washington, DC 20410-0500.

B. Regulatory Review

The material in this rule has been reviewed by OMB under Executive

Order 12866 as a significant regulatory action. Any changes made as a

result of that review are clearly identified in the docket file for

this rule, which is available for public inspection in the Office of

HUD's Rules Docket Clerk, Room 10276, 451 Seventh Street, SW,

Washington, DC 20410-0500.

C. Federalism Impact

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

of Executive Order 12612, Federalism, has determined that this rule

does not have ``federalism implications'' because it does not have

substantial direct effects on the States (including their political

subdivisions), or on the distribution of power and responsibilities

among the various levels of government. This rule only affects

participants and investors in the GNMA guaranteed single and multiclass

securities industry. States and their political subdivisions would not

be affected.

D. Impact on the Family

The General Counsel, as the Designated Official under Executive

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

potential significant impact on family formation, maintenance, and

general well-being because it only affects participants and investors

in GNMA guaranteed single and multiclass securities.

E. Impact on Small Entities

The Secretary, in accordance with the Regulatory Flexibility Act (5

U.S.C. 605(b)), has reviewed this final rule before publication and by

approving it certifies that this rule will not have a significant

impact on a substantial number of small entities.

F. Regulatory Agenda

This rule was listed as item number 1858 under GNMA in the

Department's Semiannual Regulatory Agenda published on November 14,

1994 (59 FR 57632, 57666), under Executive Order 12866 and the

Regulatory Flexibility Act.

G. Catalog

There is no catalog of Federal Domestic Assistance number for the

program affected by this rule.

List of Subjects

24 CFR Part 390

Mortgages, Securities.

24 CFR Part 395

Mortgages, Securities.

Accordingly and under the authority of 42 U.S.C. 3535(d), Chapter

III, Government National Mortgage Association, of Title 24 of the Code

of Federal Regulations, is amended as follows:

1. A new subchapter D is added to chapter III as set forth below.

2. In Chapter III, part 390 is transferred from subchapter C to the

newly established subchapter D.

3. A new part 395, consisting of Secs. 395.1 through 395.60, is

added to subchapter D to read as follows: [[Page 9531]]

SUBCHAPTER D--GUARANTEE OF MORTGAGE-BACKED AND MULTICLASS SECURITIES

PART 395--MULTICLASS SECURITIES

Sec.

395.1 Scope of part.

395.5 Definitions.

395.10 Eligible collateral.

395.15 Participation requirements.

395.20 Eligible participants.

395.25 Fees.

395.30 GNMA guaranty.

395.35 Investors.

395.40 Consultation.

395.45 Limitation on GNMA liability.

395.50 Administration of multiclass securities.

395.55 Basis for removal from participation.

395.60 Removal procedure.

Authority: 12 U.S.C. 1721(g) and 1723a(a); and 42 U.S.C.

3535(d).

Sec. 395.1 Scope of part.

The Government National Mortgage Association is authorized by

section 306(g) of the National Housing Act, upon such terms and

conditions as it may deem appropriate, to guarantee the timely payment

of principal of and interest on securities that are based on and backed

by a trust or pool composed of mortgages that are eligible under

section 306(g). The Association's guaranty of mortgage-backed

securities is backed by the full faith and credit of the United States.

This part is limited to multiclass securities. It does not purport to

set forth all the procedures and requirements that apply to the

issuance and guaranty of such securities. All such transactions are

governed by the specific terms and provisions of the contracts entered

into by the parties and by the GNMA Multiclass Securities Guide.

Further information and copies of the Guide may be obtained from the

Government National Mortgage Association, 451 Seventh Street, S.W.,

Washington, D.C. 20410.

Sec. 395.5 Definitions.

As used in this part, the following terms shall have the meanings

indicated.

Association. The Government National Mortgage Association.

Consolidated securities. A series of multiclass securities each

class of which provides for payments proportionate with payments on the

underlying eligible collateral.

Depositor. The entity that deposits, or executes an agreement to

deposit, as contained in the GNMA Multiclass Securities Guide, eligible

collateral into a trust in exchange for consolidated securities.

GNMA. Government National Mortgage Association.

GNMA electronic bulletin board. An information distribution system

established by GNMA for the Multiclass Securities program.

GNMA MBS certificates. The GNMA guaranteed mortgage-backed

securities issued under part 390.

Government mortgages. Mortgages that are eligible under section

306(g) (12 U.S.C. 1721(g)) for inclusion in GNMA mortgage-backed

securities pools.

Participant. For structured securities, the sponsor, co-sponsor,

trustee, trust counsel, accounting firm, and their contractors. For

consolidated securities, the depositor. Other entities may be

designated as participants in the GNMA Multiclass Securities Guide.

Sponsor. With respect to structured securities, the entity that

establishes the required trust by executing the trust agreement and

depositing the eligible collateral in the trust in exchange for the

structured securities.

Structured securities. Securities of a series at least one class of

which provides for payments of principal or interest disproportionately

from payments on the underlying eligible collateral.

Sec. 395.10 Eligible collateral.

GNMA, in its discretion, shall determine what collateral is

eligible for inclusion in the Multiclass Securities program. Eligible

collateral may include GNMA MBS certificates, government mortgages,

consolidated securities, and other securities approved by GNMA.

Categories of these GNMA MBS certificates, government mortgages,

consolidated securities, and other securities as approved by GNMA

become eligible collateral when they are published as eligible

collateral in the GNMA Multiclass Securities Guide or on the GNMA

electronic bulletin board. Eligibility of collateral previously

designated as eligible may be withdrawn by publication in the GNMA

Multiclass Securities Guide or on the GNMA electronic bulletin board.

Eligible collateral may differ for various GNMA guaranteed multiclass

securities.

Sec. 395.15 Participation requirements.

To participate in the GNMA Multiclass Securities program, a

participant must meet the following criteria:

(a) Certification. A participant must submit such certifications

and other documents as are required by the GNMA Multiclass Securities

Guide.

(b) Compliance with GNMA Multiclass Securities Guide. By completing

a multiclass securities transaction, a participant is deemed to have

represented and warranted to GNMA that it has complied with, and that

it agrees to comply with, the GNMA Multiclass Securities Guide in

effect as of the date that GNMA's guaranty is placed on the securities.

(c) Material changes in status. A participant must report, as

required in the GNMA Multiclass Securities Guide, material adverse

changes in status including voluntary and non-voluntary terminations,

defaults, fines and findings of material non-conformance with rules and

policies of state and federal agencies and federal government sponsored

enterprises.

(d) Integrity. The participant must conduct its business operations

in accordance with industry practices, ethics and standards, and

maintain its books and records in an appropriate manner, as determined

by the Association.

Sec. 395.20 Eligible participants.

In addition to requirements set forth in this part, a participant

must meet the following requirements.

(a) Structured securities--(1) Description. GNMA guarantees the

payment of principal and interest on structured securities issued by

trusts organized by sponsors in accordance with procedures established

and approved by GNMA. The structured securities are backed by eligible

collateral, as described in this part, held by the trustee.

(2) Eligibility requirements for participants--(i) Sponsors. A

sponsor must:

(A) Apply and be approved;

(B) Demonstrate to the satisfaction of the Association its capacity

to accumulate the eligible collateral, as described in this part,

needed for a proposed structured securities issuance;

(C) Be in good standing with and either have been responsible for

at least one structured securities transaction with the Federal

National Mortgage Association or the Federal Home Loan Mortgage

Corporation, or have demonstrated to GNMA's satisfaction its capability

to act as sponsor of GNMA guaranteed structured securities;

(D) Have the minimum required amount, as set forth in the

Multiclass Securities Guide, in shareholders' equity or partners'

capital, evidenced by the sponsor's audited financial statements, which

must have been issued within the preceding 12-month period;

(E) Represent the structural integrity of the issuance under all

cash flow scenarios and demonstrate to GNMA's satisfaction its ability

to indemnify GNMA for a breach of this representation; [[Page 9532]]

(F) Comply with GNMA's policies regarding participation by minority

and/or women-owned businesses and take appropriate measures to assure

compliance by the other participants as specified in the GNMA

Multiclass Securities Guide; and

(G) Provide GNMA with the opinions of trust counsel and accounting

firms which are acceptable to GNMA and on which GNMA may rely.

(ii) Co-sponsors. A Co-sponsor must submit an application and a

certification, as set forth in the GNMA Multiclass Securities Guide, as

to its status as a minority and/or women-owned business.

(iii) Trustees. A trustee is selected by the Sponsor from

institutions approved by GNMA using such procedures as GNMA deems

appropriate.

(b) Consolidated securities--(1) Description. A depositor delivers,

or executes an agreement to deliver, eligible collateral to a trust in

exchange for a single GNMA guaranteed multiclass security, as set forth

in the GNMA Multiclass Securities Guide.

(2) Eligibility requirements for participant. A Depositor must

certify that:

(i) It is an ``accredited investor'' within the meaning of 17 CFR

230.501(a)(1), (a)(3) or (a)(7);

(ii) It has authority to deliver, and will deliver, the collateral

to the trustee and that the collateral is free and clear of all liens

and encumbrances; and

(iii) The information set forth by the depositor regarding the

eligible collateral is true and correct.

(c) Other types of GNMA guaranteed multiclass securities. GNMA will

set forth the requirements for the guaranty by GNMA of other types of

multiclass securities, and the eligibility requirements for the

appropriate participants, in the GNMA Multiclass Securities Guide or on

the GNMA electronic bulletin board.

Sec. 395.25 Fees.

The Association, in its discretion, through publication in the GNMA

Multiclass Securities Guide or on the GNMA electronic bulletin board,

may impose fees for application, guaranty, transfer, change from book

entry to certificated form, or other related fees. Fees may vary, at

GNMA's discretion, depending upon, but not limited to, such factors as

size, collateral characteristics, expense or risk of the guaranty

transaction undertaken.

Sec. 395.30 GNMA guaranty.

The Association guarantees the timely payment of principal and

interest as provided by the terms of the multiclass security. The

Association's guaranty is backed by the full faith and credit of the

United States.

Sec. 395.35 Investors.

GNMA guaranteed multiclass securities may not be suitable

investments for all investors. No investor should purchase securities

of any class unless the investor understands, and is able to bear, the

prepayment, yield, liquidity and market risks associated with the

class. The Association assumes no obligation or liability to any person

with regard to determining the suitability of such securities for such

investor.

Sec. 395.40 Consultation.

The Association may consult with persons or entities in such manner

as the Association deems appropriate to ensure the efficient

commencement and operation of the Multiclass Securities program.

Sec. 395.45 Limitation on GNMA liability.

Except for its guaranty, the Association undertakes no obligation

and assumes no liability to any person with regard to or on account of

the existence or operation of this part or the conduct of any

participants in the Multiclass Securities program.

Sec. 395.50 Administration of multiclass securities.

The GNMA guaranteed multiclass securities will be administered in

accordance with GNMA requirements described in the GNMA Multiclass

Securities Guide.

Sec. 395.55 Basis for removal from participation.

A participant may be removed from the Multiclass Securities program

if GNMA, in its discretion, determines that any of the following exists

or has occurred:

(a) The participant, at any time, fails to meet any condition for

eligibility;

(b) The participant fails to comply with any provision of the GNMA

Multiclass Securities Guide or this part;

(c) The participant is unable or fails to truthfully, correctly or

fully submit such certifications as are required; and

(d) Such further reasons as GNMA determines necessary to protect

the safety and soundness of the Multiclass Securities program, as set

out in the GNMA Multiclass Securities Guide.

Sec. 395.60 Removal procedure.

(a) A participant may be suspended from participation in the

Multiclass Securities program upon written notice from GNMA, which

shall include the reasons for the suspension. The participant shall

have the opportunity to submit a written presentation to the President

of GNMA, or designee, in support of its reinstatement, subject to such

limitations as GNMA in its discretion may impose as to length, time for

submission, or otherwise. A determination by the President of GNMA, or

designee, shall exhaust the participant's administrative remedies.

(b) If a participant is suspended from the Multiclass Securities

program, GNMA shall have no obligation to complete a pending

transaction involving the participant.

(c) After a participant has been removed from the Multiclass

Securities program, the participant may request reinstatement. Approval

of the reinstatement is at the sole discretion of the Association.

Dated: January 19, 1995.

Dwight P. Robinson,

President.

[FR Doc. 95-3853 Filed 2-16-95; 8:45 am]

BILLING CODE 4210-01-P