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

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

5 CFR Part 7501

[Docket No. FR-5542-P-01]

RIN 2501-AD55

Supplemental Standards of Ethical Conduct for Employees of the

Department of Housing and Urban Development; Republication

Republication

Editorial Note: Proposed rule document 2012-06177 was originally

published on pages 14997 through 15003 in the issue of Wednesday,

March 14, 2012. In that publication an incorrect version of the

document was published. The corrected document is republished in its

entirety.

AGENCY: Office of the Secretary, Department of Housing and Urban

Development.

ACTION: Proposed rule.

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

the concurrence of the Office of Government Ethics (OGE), seeks

comments on the proposed amendments to HUD's Supplemental Standards of

Ethical Conduct, which are regulations for HUD officers and employees

that supplement the Standards of Ethical Conduct for Employees of the

Executive Branch (Standards) issued by OGE. To ensure a comprehensive

and effective ethics program at HUD, and to address ethical issues

unique to HUD, the proposed rule reflects statutory changes that were

enacted subsequent to the promulgation of HUD's Supplemental Standards

of Conduct regulation in 1996; significantly, the transfer of general

regulatory authority over the Federal National Mortgage Association and

the Federal Home Loan Mortgage Corporation from HUD to the Federal

Housing Finance Agency (FHFA). In addition, the proposed rule revises

definitions used in HUD's Supplemental Standards of Conduct to reflect

updated titles and positions and clarifies existing prohibitions on

certain financial interests and outside employment to better guide

employee conduct, while upholding the integrity of HUD in the

administration of its programs.

DATES: Comment Due Date: May 14, 2012.

[[Page 16762]]

ADDRESSES: Interested persons are invited to submit comments regarding

this proposed rule. All comments must be in writing and be addressed to

the Regulations Division, Office of General Counsel, Department of

Housing and Urban Development, 451 7th St. SW., Room 10276, Washington,

DC 20410-0500. There are two methods for submitting public comments.

All submissions must refer to the above docket number and title.

1. Submission of Comments by Mail. Comments may be submitted by

mail to the Regulations Division, Office of General Counsel, Department

of Housing and Urban Development, 451 7th Street SW., Room 10276,

Washington, DC 20410-0500.

2. Electronic Submission of Comments. Interested persons may submit

comments electronically through the Federal eRulemaking Portal at

www.regulations.gov. HUD strongly encourages commenters to submit

comments electronically. Electronic submission of comments allows the

commenter maximum time to prepare and submit a comment, ensures timely

receipt by HUD, and enables HUD to make them immediately available to

the public. Comments submitted electronically through the

www.regulations.gov Web site can be viewed by other commenters and

interested members of the public. Commenters should follow the

instructions provided on that site to submit comments electronically.

Note: To receive consideration as public comments, comments must

be submitted through one of the two methods specified above. Again,

all submissions must refer to the docket number and title of the

rule.

No Facsimile Comments. Facsimile (FAX) comments are not acceptable.

Public Inspection of Public Comments. All properly submitted

comments and communications submitted to HUD will be available for

public inspection and copying between 8 a.m. and 5 p.m. weekdays at the

above address. Due to security measures at the HUD Headquarters

building, an advance appointment to review the public comments must be

scheduled by calling the Regulations Division at (202) 402-3055 (this

is not a toll-free number). Individuals with speech or hearing

impairments may access this number via TTY by calling the Federal Relay

Service, toll-free, at (800) 877-8339. Copies of all comments submitted

are available for inspection and downloading at www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Robert H. Golden, Assistant General

Counsel, Ethics Law Division, telephone number 202-402-6334, or Peter

J. Constantine, Associate General Counsel for Ethics and Personnel Law,

Office of General Counsel, Department of Housing and Urban Development,

451 7th Street SW., Washington, DC 20410, telephone number (202) 402-

2377. Persons with hearing or speech impairments may access this number

through TTY by calling the toll-free Federal Relay Service at (800)

877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

Executive Order 12674, as amended by Executive Order 12731,

authorized OGE to establish a single, comprehensive, and clear set of

executive-branch standards of conduct. On August 7, 1992, OGE published

the Standards of Ethical Conduct for Employees of the Executive Branch

(Standards), as codified at 5 CFR part 2635. (See 57 FR 35006, as

corrected at 57 FR 48557 and 57 FR 52583.) The Standards, effective

February 3, 1993, set uniform ethical conduct standards applicable to

all executive branch personnel.

With the concurrence of OGE, 5 CFR 2635.105 authorizes executive

branch agencies to publish agency-specific supplemental regulations

necessary to implement their respective ethics programs. Pursuant to

this authority, HUD, with OGE's concurrence, published on July 9, 1996,

a final rule to establish its supplementary standards of ethical

conduct for HUD employees (61 FR 36246). HUD, with OGE's concurrence,

now proposes to amend its supplemental standards in order to

successfully implement HUD's ethics program in light of recent

statutory changes to HUD's programs and operations. One of the most

significant statutory changes to HUD programs and operations was made

by the Housing and Economic Recovery Act of 2008 (HERA) (Pub. L. 110-

289, approved July 30, 2008). HERA transfers regulatory authority over

the Federal National Mortgage Association (Fannie Mae) and the Federal

Home Loan Mortgage Corporation (Freddie Mac) (collectively referred to

as the Government Sponsored Enterprises, or GSEs) from HUD to the

Federal Housing Finance Agency (FHFA). Based on this transfer of

regulatory authority, HUD has decided to remove provisions of its

Supplemental Standards of Conduct that prohibit all HUD employees from

owning certain financial interests issued by the GSEs. In addition, HUD

has decided to remove Sec. 7501.106 of its Supplemental Standards of

Conduct that apply to employees whose duties involve the regulation or

oversight of the GSEs. Section 7501.106 prohibits covered employees

from, among other things, owning financial interests in certain

mortgage institutions and from performing any work, either compensated

or uncompensated, for or on behalf of a mortgage institution. The

removal of Sec. 7501.106 is based on HUD's determination that this

section is no longer necessary to ensuring the impartiality and

integrity in the administration of HUD's programs.

In addition, this proposed rule revises definitions used in HUD's

Supplemental Standards of Conduct to reflect updated titles and

positions and clarifies existing prohibitions on certain financial

interests and outside employment to better guide employee conduct,

while upholding the integrity of HUD in the administration of its

programs. This rule also proposes to add a new Sec. 7501.106 that

clarifies the authority of the HUD OIG in the agency's ethics program

and establishes it as a separate component as provided by 5 CFR

2635.203(a).

II. Amendments Proposed by This Rule

The following is a section-by-section overview of the amendments

proposed by this rule.

Section 7501.101 Purpose

This section remains unchanged.

Section 7501.102 Definitions

Proposed Sec. 7501.102 updates and clarifies key terms already in

the current regulation. In addition, it adds new terms to reflect

current HUD policy and removes terms that are no longer used in the

regulation. Specifically, the proposed definitions of ``Agency

designee'' and ``Designated Agency Ethics Official (DAEO)'' are revised

to reflect updated office names and titles within the current HUD

organization. Definitions of ``Bureau,'' ``Bureau Ethics Counselor,''

and ``Deputy Bureau Ethics Counselor,'' are proposed to clarify the

Office of Inspector General's responsibilities in HUD's ethics program.

Additionally, the reference to the Inspector General (IG) is removed

from the definition of ``agency designee'' in favor of adding

definitions for ``Bureau,'' ``Bureau Ethics Counselor,'' and ``Deputy

Bureau Ethics Counselor.'' ``Bureau'' would be defined to mean the

Office of the Inspector General (OIG). ``Bureau Ethics Counselor'' and

``Deputy Bureau Ethics Counselor'' would be defined to mean,

respectively, the General Counsel for OIG and the OIG employees to whom

the OIG General Counsel delegates responsibility to make

determinations, issue explanatory guidance, or establish

[[Page 16763]]

procedures necessary to implement this part, subpart I of 5 CFR part

2634, and 5 CFR part 2635 for Bureau employees. HUD is proposing these

amendments to make the structure of its ethics program more consistent

with the structure used by other federal agencies and to more clearly

describe the role and responsibilities of the IG in HUD's ethics

program.

The proposed definition of ``employment'' is also clarified to

provide that employment includes uncompensated activity, such as

volunteer work for others while off-duty.

The terms ``assistance'' and ``security'' are proposed to be

removed from Sec. 7501.102, because these terms are no longer used in

HUD's supplemental regulations.

Section 7501.103 Waivers

Proposed Sec. 7501.103 clarifies the procedure for requesting a

waiver, and makes other minor changes to make the section clearer.

Proposed Sec. 7501.103 adds the requirement that a waiver request be

submitted in writing to an agency designee and should include the

employee's office and division; a description of the employee's

official duties; the nature and extent of the waiver; a detailed

statement of facts to support the request; and the basis for the

request, such as hardship. This amendment codifies HUD practice that a

waiver request must be in writing, and provides direction to employees

on what should be included in a waiver request for a thorough analysis

to be conducted. The amendment further confirms HUD practice that

hardship and other exigent circumstances are legitimate reasons for a

waiver request, and such a request will be considered in light of HUD's

need to ensure public confidence in the impartiality and objectivity

with which HUD programs are administered. This section also proposes to

delegate authority to the Bureau Ethics Counselor to waive provisions

of this part.

The proposed section also makes minor textual changes in order to

make the regulation easier to understand. These textual changes are not

intended to change the meaning of the section.

Section 7501.104 Prohibited Financial Interests

Proposed Sec. 7501.104 is amended to remove the reference to

covered employees under Sec. 7501.106(b)(1). This change reflects the

proposed removal of Sec. 7501.106 as discussed in more detail below in

this preamble. The proposed regulation continues to apply to all HUD

employees, except special government employees, and to the employee's

spouse and minor children, because HUD has determined that ownership of

the financial interests listed in this section by these individuals

constitutes a significant risk of an apparent conflict of interest.

Additionally, this section is revised to reflect the changes to HUD

regulatory authority as the result of HERA, which transferred all

general regulatory authority over Fannie Mae and Freddie Mac from HUD

to the FHFA.

Existing Sec. 7501.104(a)(1) is proposed to be removed. The

prohibition in this section was promulgated in 1968 after Congress

provided HUD with general regulatory authority over Fannie Mae through

the Federal National Mortgage Association Charter Act (12 U.S.C. 1716

et seq.). Under this 1968 statute, HUD was directed to establish

housing goals for Fannie Mae, specifically a goal for low- and

moderate-income housing and a goal for housing located in central

cities. Beginning in 1968, HUD's Standards of Conduct prohibited

employees from owning securities issued by Fannie Mae or securities

collateralized by Fannie Mae securities. (See 24 CFR Sec.

0.735.205(a)(3) (1968).) Section 7501.104(a)(1) is no longer necessary

since HERA transferred the general regulatory functions over Fannie Mae

to FHFA.

Existing Sec. 7501.104(a)(2) is also proposed to be removed. In

1989, Congress passed the Financial Institutions Reform, Recovery, and

Enforcement Act (FIRREA) and granted HUD essentially the same authority

over Freddie Mac as it had over Fannie Mae. In response to this

additional authority, HUD's standards of conduct were updated to

include a prohibition against owning securities issued by Freddie Mac

or securities collateralized by Freddie Mac securities. HUD has

determined that the prohibition is no longer necessary because of HERA.

The remaining provisions are redesignated accordingly.

Proposed Sec. 7501.104(a)(1) adopts language from the current

Sec. 7501.104(a)(3).

Proposed Sec. 7501.104(a)(2) is based on current Sec.

7501.104(a)(4), but is revised to add clarity. Specifically, the

revised section replaces the phrase ``in a multifamily project or

single family dwelling, cooperative unit, or condominium unit'' with

the term ``project'' in order to cover all HUD subsidized or insured

projects that exist or may come to exist in the future. Employee

ownership of homes with mortgages insured under programs of the Federal

Housing Administration (FHA) and the purchase by employees of HUD-owned

homes, which was an exception within the prohibition of Sec.

7501.104(a)(4), is now addressed in exceptions under proposed Sec.

7501.104(b). All remaining HUD projects, including multifamily

projects, assisted living facilities, nursing homes, and hospitals, are

now included in the revised prohibition in Sec. 7501.104(a)(2).

Finally, proposed Sec. 7501.104(a)(2) now uses the term ``financial

interest'' to replace ``stock or other financial interest'' and

references OGE regulations at 5 CFR 2635.403(c) for a complete

definition of the term ``financial interest,'' including examples.

Proposed Sec. 7501.104(a)(3) revises the language in current Sec.

7501.104(a)(5). A new exception is proposed that allows all new HUD

employees who already have a tenant receiving Section 8 subsidies to

retain that tenant until the tenant terminates his or her lease.

Proposed Sec. 7501.104(a)(3)(i)(E) adds a new exception permitting HUD

employees to receive a Section 8 subsidy for the rental of properties

located in areas of Presidentially declared emergency or natural

disaster with prior written approval from an agency designee. HUD's

experience demonstrates that in rare instances (e.g., Hurricane Katrina

in 2005 or the 2008 flooding in Cedar Rapids, Iowa), there may be an

extreme shortage of affordable housing in an area due to a natural

disaster or other emergency. This exception would permit HUD employees

with rentable properties in these areas to accept new tenants receiving

Section 8 subsidies. These supplemental ethics regulations are intended

to uphold the integrity of HUD's administration of the Section 8

program and are not intended to further restrict the availability of

Section 8 housing, especially in times of acute housing shortages.

The exceptions provided by proposed Sec. 7501.104(a)(3) continue

as long as the tenant continues to reside in the property and as long

as the rent charged the tenant is not increased above the annual rate

adjustments permitted by the Section 8 program. This first condition

codifies HUD's intent not to require an employee to terminate the

rental arrangement early or require a Section 8 tenant to move based

solely on these regulations. The second condition preserves the current

language of the exceptions.

Current Sec. 7501.104(a)(6) is proposed to be removed. The current

prohibition against ``direct creditor interests'' is undefined and

unclear.

Proposed Sec. 7501.104(b), which provides exceptions to this

section on

[[Page 16764]]

prohibited financial interests, is revised to add the phrase ``directly

or indirectly receiving, acquiring or owning'' to ensure consistency

with Sec. 7501.104(a). Additionally, this section proposes to expand

the exceptions by eliminating from current Sec. 7501.104(b)(1) the

prohibition on owning investment funds that concentrate in residential

mortgages or mortgage-backed securities. This prohibition is no longer

needed to maintain the integrity of HUD in light of the fact that HUD

no longer has regulatory authority over Fannie Mae and Freddie Mac.

Proposed Sec. 7501.104(b)(1) also provides an exception to the

interests prohibited under proposed Sec. 7501.104(a)(2). Section

7501.104(b)(1) allows the employee, or the employee's spouse or minor

child, to have a financial interest in a publicly available or publicly

traded investment fund that may include interests that are prohibited

under Sec. 7501.104(a)(2), as long as the employee, or the employee's

spouse or minor child, neither exercises control nor has the ability to

exercise control over the fund or the financial interests held in the

fund. This exception allows the employee, or the employee's spouse or

minor child, to have an interest in an investment fund that may hold

interests in HUD subsidized projects. HUD's experience has been that it

is extremely difficult to determine which investment funds have

interests in HUD-subsidized projects, since that information is not

readily available. Therefore, HUD has decided that this type of

interest does not present an appearance problem and is therefore

permissible.

Current Sec. 7501.104(b)(2) is proposed to be removed. Read

literally, this exception had no possible application to a limited

partnership holding. Also, limited partnerships create no less of an

appearance issue than other legal entities that could be used as an

investment vehicle and do not warrant the specific exception.

Proposed Sec. 7501.104(b)(2) provides that a HUD employee may

obtain mortgage insurance provided by FHA under section 203 of the

National Housing Act (12 U.S.C. 1709) to assist in his or her purchase

of a single-family home that serves as the employee's principal

residence and of one other single-family residence. Proposed Sec.

7501.104(b)(2) provides notice to HUD employees that they must adhere

to the procedures established by the Assistant Secretary for Housing--

FHA Commissioner in order to obtain FHA insurance. This exception was

previously found in Sec. 7501.104(b)(3).

Proposed Sec. 7501.104(b)(3) covers HUD employees' purchases of

HUD-owned homes. This provision is currently an exception within the

prohibition of Sec. 7501.104(a)(4); however, since the provision is

permissive, HUD has moved the exception to proposed Sec. 7501.104(b),

where the other exceptions to the prohibitions to Sec. 7501.104(a) are

located. Current Sec. 7501.104(a)(4) notifies employees that the

purchase of HUD-held properties must be consistent with an Office of

Housing handbook that is now outdated. To avoid the codification of

references to HUD handbooks that may become obsolete, and thus create a

discrepancy with the supplemental standards, proposed Sec.

7501.104(b)(3) does not reference a specific Office of Housing

handbook, but simply provides notice to HUD employees that they must

adhere to the procedures established by the Assistant Secretary for

Housing--FHA Commissioner in order to purchase a HUD-held property.

Proposed Sec. 7501.104(b)(4) has been added to ensure that the

employment compensation and benefits package for an employee's spouse

is not covered as a prohibited financial interest if the employee's

spouse is employed by an entity that may have interests in HUD projects

that are prohibited under proposed Sec. 7501.104(a)(2). For example,

an employee's spouse is not restricted from earning a salary and other

benefits as compensation for employment with a real estate development

company that does multifamily business with HUD.

Proposed Sec. 7501.104(b)(5) contains a revised provision that

permits employees, or their spouses or minor children, to hold

Government National Mortgage Association (GNMA) securities. The

ownership of GNMA securities is currently addressed in Sec.

7501.104(b)(1). Under this provision, an employee or the spouse or

minor child of an employee may not own an interest in an investment

fund that has an objective or practice of investing in residential

mortgages or securities backed by residential mortgages except those of

GNMA. Since HUD is proposing to revise Sec. 7501.104(b)(1), the

provision addressing ownership of GNMA securities is established as a

separate exception.

Section 7501.105 Outside Activities

Proposed Sec. 7501.105 governs the outside activities of HUD

employees. This proposed section has been revised to account for

changes in HUD's regulatory authority and to provide clarity on

restricted real estate activities. The proposed rule is designed to

balance several important ethical principles against an employee's

right to engage in outside activities.

HUD has determined that maintaining the policy against employment

in businesses related to real estate or manufactured housing is

necessary to protect against questions regarding the impartiality and

objectivity of employees in the administration of HUD programs.

Allowing such activity would hinder HUD in meeting its missions if

members of the public question whether HUD employees are using their

public positions or HUD connections to advance their outside real

estate-related employment. While HUD has determined that this concern

remains valid, HUD has also concluded that implementing this rule in

its current form has led to inconsistent application and confusion.

Therefore, HUD is proposing a number of amendments to clarify the

intent of the prohibition.

Proposed Sec. 7501.105(a)(1) is amended by removing the phrase

``involving active participation'' with a real estate-related business.

By removing this term, HUD does not intend to change the application of

the prohibition contained in Sec. 7501.105(a)(1) of the current rule;

rather, HUD intends to make the prohibition less confusing and more

transparent. The term ``involving active participation'' with a real

estate-related business encompasses two prohibitions. First, it

prohibits employment with a real estate-related business and, second,

it prohibits ownership of a real estate-related business. The term led

to some confusion in the application of these prohibitions by

conflating the concepts of employment in a business related to real

estate and the ownership activities of operating or managing investment

properties. To rectify any confusion, HUD has separated the prohibition

against the ownership activities of operating and managing a real

estate-related business involving investment properties from the

employment prohibition, by adding Sec. 7501.105(a)(2), which prohibits

the operation or management of investment properties to the extent that

doing so rises to the level of a real estate business. To make the

prohibition more transparent, HUD has decided to codify longstanding

policy by listing several factors that it uses to consider whether the

employee's actions of operating or managing investment properties rises

to the level of a real estate business and falls within the

prohibition. HUD first announced these factors in the 1995 preamble to

the proposed version of the current rule. By listing these factors in

the rule, HUD has not changed the scope of the current prohibition;

rather, it has made the prohibition more transparent by

[[Page 16765]]

including in the rule the factors that are used to determine a

violation of the prohibition. Therefore, HUD employees may continue to

own or manage investment properties, so long as that ownership or

management does not rise to the level of operation or management of a

real estate-related business. In a further effort to make the rule more

transparent, HUD has decided to codify existing policy by stating in

Sec. 7501.105(a)(2) that HUD will consider these situations on an

individual basis.

Proposed Sec. 7501.105(a)(3) is amended to prohibit outside

employment with a registered lobbying organization that is registered

to lobby HUD. The current regulation cites a repealed statute. The

proposed change would incorporate the definition of a lobbyist under

the Lobbying Disclosure Act (2 U.S.C. 1601, et seq.), although applying

only to entities that lobby HUD. This change will allow easier

compliance by employees and review by ethics staff because of the ease

of checking the lobbying database of the U.S. House of Representatives

and the U.S. Senate to determine if a potential employer is prohibited.

Proposed Sec. 7501.105(a)(4) is amended to remove the specific

restriction on employees having outside positions with Fannie Mae and

Freddie Mac. As previously discussed, HUD no longer has general

regulatory authority over Fannie Mae and Freddie Mac. Further, under

proposed Sec. 7501.105(a)(1), employees would be prohibited from

employment with a business related to real estate. This prohibition

would cover employment with Fannie Mae and Freddie Mac. Therefore, a

specific prohibition is not necessary.

Proposed Sec. 7501.105(b)(1)(ii) is amended to clarify that the

outside employment prohibitions do not prohibit employees from serving

as a member of an employee's homeowners' association. HUD previously

permitted serving on the board of a cooperative and condominium

association, and HUD has determined that serving on the board of a

homeowners' association does not create additional ethics concerns.

HUD has added Sec. 7501.105(b)(2), which codifies HUD's

longstanding policy that employees with a real estate agent's license

may continue to hold such license. An employee may only use his or her

license in relation to purchasing or selling a single-family property

for use as the employee's primary residence, or for the primary

residence of an immediate family of the employee. Employees seeking to

use their real estate license for this purpose, however, must obtain

the prior written approval of an agency ethics official. HUD has

revised Sec. 7501.105(c) to add the requirement for prior written

approval from an agency ethics official for employees seeking to use

their real estate license for this purpose.

Proposed Sec. 7501.105(c)(1) would require an employee to receive

written approval prior to accepting a position of authority with a

prohibited source. This section had previously extended only to

organizations that directly or indirectly received HUD assistance. This

section has been expanded to include all prohibited sources, because

HUD has determined that taking a position of authority with any

prohibited source, not just those which receive HUD funding, could

create the appearance of a conflict of interest and should therefore be

examined by an agency ethics official. Further, the section will now be

easier for employees to understand, because prohibited source is a term

with which they are familiar. As discussed, HUD proposes to add the

requirement at Sec. 7501.105(c)(1)(iv) for prior written approval from

an agency ethics official for employees seeking to use their real

estate license in relation to purchasing or selling a single-family

property for use as the employee's primary residence or as the primary

residence of an immediate family member of the employee.

Proposed Sec. 7501.105 would eliminate the reference to voluntary

services. That section cited only other regulations, and HUD has

determined that it is no longer needed to ensure public confidence in

the impartiality and objectivity with which HUD programs are

administered.

Proposed Sec. 7501.105(d) incorporates HUD's policy regarding

liaison representatives, which was previously provided as a Note. This

change will avoid any confusion over the concept and its authority.

Section 7501.106 Bureau Instructions and Designation of Separate Agency

Components

HUD proposes to remove this section as currently codified. As

previously discussed in this preamble, HUD no longer has general

regulatory authority over Fannie Mae and Freddie Mac. In its place, HUD

is proposing to add a new Sec. 7501.106 that clarifies the authority

of the Office of the Inspector General in the agency's ethics program

and establishes it as a separate component as provided for by 5 CFR

2635.203(a).

In 1992, Congress enacted the Federal Housing Enterprise Financial

Safety and Soundness Act (FHEFSSA) (12 U.S.C. 4501 et seq.), which

revamped the statutory requirements and regulatory structure of the

GSEs by separating the GSEs' financial regulation from its mission

regulation. FHEFSSA also established the Office of Federal Housing

Enterprise Oversight as an independent regulatory office within HUD to

ensure the GSEs' financial safety and soundness, while the Secretary of

HUD retained responsibility for the mission regulation and all other

general regulatory powers. FHEFSSA also required HUD to prohibit the

GSEs from discriminating in their mortgage purchases. The fair housing

authority was twofold: first, to take remedial action against lenders

found to have engaged in discriminatory lending practices and second,

to periodically review and comment on the GSEs' underwriting and

appraisal guidelines to ensure consistency with the Fair Housing Act

(42 U.S.C. 3601 et seq.). In 2008, HERA transferred all regulatory

oversight of the GSEs from HUD to FHFA, except for this fair housing

component.

HUD's only remaining direct regulation of the GSEs is the periodic

review of their underwriting and appraisal guidelines by the Office of

Systemic Investigation of HUD's Office of Fair Housing and Equal

Opportunity and by the Fair Housing Enforcement Division of HUD's

Office of General Counsel. For employees involved in these compliance

reviews, 18 U.S.C. 208, which prohibits employees from participating in

matters that may affect their financial interests, would prohibit them

from participating in official matters such as these reviews if the

employee also owns a financial interest that could be affected by the

review. Therefore, these employees would be required to recuse

themselves from the official matter or divest their financial interest

without the need for an additional HUD-specific regulation. The

criminal statute is sufficient to insure against conflicts in those HUD

employees when the periodic review is underway.

HUD has determined that the prohibitions in current Sec. 7501.106

are unnecessary given HUD's very limited role regarding the GSEs. The

current Sec. 7501.106 prohibits certain employees that were involved

with GSEs from owning securities in certain mortgage institutions that

originate, insure, or service mortgages owned or guaranteed by the

GSEs. However, HUD employees no longer regulate the GSEs in a way that

could affect the stock value of these mortgage institutions.

Additionally, there are other regulations that cover an appearance

issue that might arise for those employees working on fair housing

compliance review of the GSEs.

[[Page 16766]]

Specifically, OGE regulations at 5 CFR 2635.502 would apply and would

limit the activity that employees who are involved in the periodic

review of the GSEs can engage in with respect to a financial interest

in a mortgage institution that currently originates, insures, or

services mortgages owned or guaranteed by the GSEs.

Accordingly removing these prohibitions would not compromise the

integrity of HUD's functions.

The new proposed Sec. 7501.106(a) delegates to the Bureau Ethics

Counselor the authority to designate Deputy Bureau Ethics Counselors to

make determinations, issue explanatory guidance, and establish

procedures necessary to implement this part, subpart I of 5 CFR 2634,

and 5 CFR part 2635 for his or her bureau. The proposed rule also

includes the concurrence of the Designated Agency Ethics Official on

the delegation. This designation is consistent with 5 CFR 2635.105(c),

more clearly describes the role and responsibility of the OIG in the

agency's ethics program, and maintains the independence of the IG as

provided for by the Inspector General Act, as amended.

Additionally, consistent with 5 CFR 2635.203(a), new proposed Sec.

7501.106(b) designates the OIG as a separate agency component. HUD is

designating the OIG as a separate agency component to make the

structure its ethics program more consistent with the structure used by

other federal agencies. HUD's changes are intended to more clearly

describe the role and responsibility of the OIG in the agency's ethics

program, and maintain the independence and authority of the IG. The

designation as a separate agency component authorizes Bureau Ethics

Counselors within the OIG to render legal ethics advice regarding the

regulations contained in subpart B of 5 CFR part 2635, governing gifts

from outside sources; and 5 CFR 2635.807, governing teaching, speaking,

or writing.

III. Matters of Regulatory Procedure

Administrative Procedure Act

Interested persons are invited to submit written comments on this

proposed amendatory rulemaking, to be received by DATE section of this

proposed rule. The comments will be carefully considered and

appropriate changes will be made before a final rule is adopted and

published in the Federal Register.

Executive Order 12866 and Executive Order 13563

Executive Orders 12866 and 13563 direct agencies to assess all

costs and benefits of available regulatory alternatives and, if the

regulation is necessary, to select the regulatory approach that

maximizes net benefits. Because this rule relates solely to the

internal operations of HUD, this rule was determined to be not a

significant regulatory action under section 3(f) of Executive Order

12866, Regulatory Planning and Review, and therefore was not reviewed

by the Office of Management and Budget (OMB).

Regulatory Flexibility Act

The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) generally

requires an agency to conduct a regulatory flexibility analysis of any

rule subject to notice and comment rulemaking requirements, unless the

agency certifies that the rule will not have a significant economic

impact on a substantial number of small entities. This rule would not

have a significant economic impact on a substantial number of small

entities because this rule pertains only to HUD employees.

Information Collection Requirements

The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) does not

apply to this regulation because it does not contain information

collection requirements subject to the approval of OMB.

Environmental Impact

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

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

the policies and procedures contained in this rule relate only to

internal administrative procedures whose content does not constitute a

development decision nor affect the physical condition of project areas

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

requirements of the National Environmental Policy Act.

Executive Order 13132, Federalism

Executive Order 13132 (entitled ``Federalism'') prohibits, to the

extent practicable and permitted by law, an agency from promulgating a

regulation that has federalism implications and either imposes

substantial direct compliance costs on state and local governments and

is not required by statute or preempts state law, unless the relevant

requirements of section 6 of the Executive Order are met. This rule

does not have federalism implications and does not impose substantial

direct compliance costs on state and local governments or preempt state

law within the meaning of the Executive Order.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C.

1531-1538) (UMRA) establishes requirements for federal agencies to

assess the effects of their regulatory actions on state, local, and

tribal governments, and on the private sector. Since it is only

directed toward HUD employees, this rule would not impose any federal

mandates on any state, local, or tribal governments, or on the private

sector, within the meaning of the UMRA

List of Subjects in 5 CFR Part 7501

Conflicts of interests.

Accordingly, for the reasons described in the preamble, HUD, with

the concurrence of OGE, proposes to amend 5 CFR part 7501, as follows:

PART 7501--SUPPLEMENTAL STANDARDS OF ETHICAL CONDUCT FOR EMPLOYEES

OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Sec.

7501.101 Purpose.

7501.102 Definitions.

7501.103 Waivers.

7501.104 Prohibited financial interests.

7501.105 Outside activities.

7501.106 Bureau instructions and designation of separate agency

component.

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

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

1989 Comp., p. 215, as modified by E.O. 12731, 55 FR 42547, 3 CFR,

1990 Comp., p. 306; 5 CFR 2635.105, 2635.203(a), 2635.403(a),

2635.803, 2635.807.

Sec. 7501.101 Purpose.

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

apply to employees of the Department of Housing and Urban Development

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

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

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

any additional rules of conduct that the Department is authorized to

issue.

Sec. 7501.102 Definitions.

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

following definitions shall apply:

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

Associate General Counsel for Ethics and

[[Page 16767]]

Personnel Law, the Assistant General Counsel for the Ethics Law

Division, and the HUD Regional Counsels.

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

agency designees as specified above.

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

under common control with another entity.

Bureau means the Office of the Inspector General.

Bureau Ethics Counselor means the General Counsel for the Bureau.

Deputy Bureau Ethics Counselor means the Bureau employee or

employees who the Bureau Ethics Counselor has delegated responsibility

to act under Sec. 7501.106 for the Bureau.

Designated Agency Ethics Official (DAEO) means the General Counsel

of HUD or the Deputy General Counsel for Operations in the absence of

the General Counsel.

Employment means any compensated or uncompensated (including

volunteer work for others while off-duty) form of non-Federal activity

or business relationship, including self-employment, that involves the

provision of personal services by the employee. It includes, but is not

limited to, personal services as an officer, director, employee, agent,

attorney, consultant, contractor, general partner, trustee, teacher, or

speaker. It includes writing when done under an arrangement with

another person for production or publication of the written product.

Sec. 7501.103 Waivers.

The Designated Agency Ethics Official, or the Bureau Ethics

Counselor for a Bureau employee may waive any provision of this part

upon finding that the waiver will not result in conduct inconsistent

with 5 CFR part 2635 and is not otherwise prohibited by law and that

application of the provision is not necessary to ensure public

confidence in the Department's impartial and objective administration

of its programs. Each waiver shall be in writing and supported by a

statement of the facts and findings upon which it is based and may

impose appropriate conditions, such as requiring the employee's

execution of a written disqualification statement. A waiver will be

considered only in response to a written waiver request submitted to an

agency ethics official. The waiver request should include:

(1) The requesting employee's Branch, Unit, and a detailed

description of his or her official duties;

(2) The nature and extent of the proposed waiver;

(3) A detailed statement of the facts supporting the request; and

(4) The basis for the request, such as undue hardship or other

exigent circumstances.

Sec. 7501.104 Prohibited financial interests.

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

except special Government employees. Except as provided in paragraph

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

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

(1) Federal Housing Administration (FHA) debentures or certificates

of claim.

(2) A financial interest in a project, including any single family

dwelling or unit, which is subsidized by the Department, or which is

subject to a note or mortgage or other security interest insured by the

Department. The definition of ``financial interest'' is found at 5 CFR

2635.403(c).

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

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

on behalf of a tenant of property owned by the employee or the

employee's spouse or minor child. However, such subsidy is permitted

when:

(A) The employee, or the employee's spouse or minor child acquires,

without specific intent as through inheritance, a property in which a

tenant receiving such a subsidy already resides;

(B) The tenant receiving such a subsidy lived in the rental

property before the employee worked for the Department;

(C) The tenant receiving such a subsidy is a parent, child,

grandchild, or sibling of the employee;

(D) The employee's, or the employee's spouse or minor child's,

rental property has an incumbent tenant who has not previously received

such a subsidy and becomes the beneficiary thereof; or

(E) The location of the rental property is in a Presidentially

declared emergency or natural disaster area and the employee receives

prior written approval from an agency designee.

(ii) The exception provided by paragraph (a)(3)(i) of this section

continues only as long as:

(A) The tenant continues to reside in the property; and

(B) There is no increase in that tenant's rent upon the

commencement of subsidy payments other than normal annual adjustments

under the Section 8 program.

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

section prohibits the employee, or the employee's spouse or minor child

from directly or indirectly receiving, acquiring, or owning:

(1) A financial interest in a publicly available or publicly traded

investment fund that includes financial interests prohibited by

paragraph (a)(2) of this section, so long as the employee neither

exercises control nor has the ability to exercise control over the fund

or the financial interests held in the fund;

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

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

residence and any one other single family residence. Employees must

adhere to the procedures established by the Assistant Secretary for

Housing--FHA Commissioner in order to obtain FHA insurance;

(3) Department-owned single family property. Employees must adhere

to the procedures established by the Assistant Secretary for Housing--

FHA Commissioner in order to purchase a HUD-held property;

(4) Employment compensation and benefit packages provided by the

employer of an employee's spouse that include financial interests

prohibited by paragraph (a)(2) of this section; or

(5) Government National Mortgage Association (GNMA) securities.

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

to the appropriate agency ethics official, any interest prohibited

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

of employment with the Department or without specific intent, as

through gift, inheritance, or marriage, within 30 days from the date of

the start of employment or acquisition of such interest. Such interest

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

the Designated Agency Ethics Official in accordance with Sec.

7501.103.

Sec. 7501.105 Outside activities.

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

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

Government employees, shall not engage in:

(1) Employment with a business related to real estate or

manufactured housing including, but not limited to, real estate

brokerage, management and sales, architecture, engineering, mortgage

lending, property insurance, appraisal services, title search services,

construction, construction financing, land planning, or real estate

development;

(2) The operation or management of investment properties to the

extent that it rises to the level of a real estate-related business.

HUD will determine whether an employee is operating or managing

investment properties to an

[[Page 16768]]

extent that it rises to the level of a real estate business based on

the totality of the circumstances, and will consider whether the

employee maintains an office; advertises or otherwise solicits clients

or business; hires staff or employees; uses business stationary or

other similar materials; files the business as a corporation, limited

liability company, partnership, or other type of business association

with a state government; establishes a formal or informal association

with an existing business; hires a management company; and the nature

and number of its investment properties;

(3) Employment with a person or entity who registered as a lobbyist

or lobbyist organization pursuant to 2 U.S.C. 1603(a) and engages in

lobbying activity concerning the Department;

(4) Employment as an officer or director with a Department-approved

mortgagee, a lending institution, or an organization that services

securities for the Department; or

(5) Employment with the Federal Home Loan Bank System or any

affiliate thereof.

(b) Exceptions to employment prohibitions. The prohibitions set

forth in paragraph (a) of this section do not apply to:

(1) Serving as an officer or a member of the Board of Directors of:

(i) A Federal Credit Union;

(ii) A cooperative, condominium association, or homeowners

association for a housing project that is not subject to regulation by

the Department or, if so regulated, in which the employee personally

resides; or

(iii) An entity designated in writing by the Designated Agency

Ethics Official.

(2) Holding a real estate agent's license; however, use of the

license is limited as provided by paragraph (c) of this section.

(c) Prior approval requirement. (1) Employees, except special

Government employees, shall obtain the prior written approval of an

Agency Ethics Official before accepting compensated or uncompensated

employment:

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

any other position of authority with a prohibited source, as defined at

5 CFR 2635.203(d);

(ii) With a state or local government;

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

official position; or

(iv) As a real estate agent in relation to purchasing or selling a

single family property for use as the employee's primary residence, or

the primary residence of the employee's immediate family member.

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

with 5 CFR part 2635 or this part.

(d) Liaison representative. An employee designated to serve in an

official capacity as the Department's liaison representative to an

outside organization is not engaged in an outside activity to which

this section applies. Notwithstanding, an employee may be designated to

serve as the Department's liaison representative only as authorized by

law, and as approved by the Department under applicable procedures.

Sec. 7501.106 Bureau instructions and designation of separate agency

component.

(a) Bureau instructions. With the concurrence of the Designated

Agency Ethics Official, the Bureau Ethics Counselor is authorized,

consistent with 5 CFR 2635.105(c), to designate Deputy Bureau Ethics

Counselors, to make a determination, issue explanatory guidance, and

establish procedures necessary to implement this part, subpart I of 5

CFR part 2634, and 5 CFR part 2635 for the Bureau.

(b) Designation of separate agency component. Pursuant to 5 CFR

2635.203(a), the Office of the Inspector General is designated as a

separate agency for purposes of the regulations contained in subpart B

of 5 CFR part 2635, governing gifts from outside sources; and 5 CFR

2635.807, governing teaching, speaking, or writing.

Dated: February 15, 2012.

Shaun Donovan,

Secretary.

Don W. Fox,

Principal Deputy Director, Office of Government Ethics.

[FR Doc. 2012-6177 Filed 3-13-12; 8:45 am]

Editorial Note: Proposed rule document 2012-06177 was originally

published on pages 14997 through 15003 in the issue of Wednesday,

March 14, 2012. In that publication an incorrect version of the

document was published. The corrected document is republished in its

entirety.

[FR Doc. R1-2012-6177 Filed 3-21-12; 8:45 am]

BILLING CODE 1505-01-D