Prudential Management And Operations Standards

§ 1236.1 — Purpose.

This part addresses prudential management and operations standards that are required and authorized by 12 U.S.C. 4513b, including the establishment of Standards by Federal Housing Finance Agency (FHFA) and the processes by which FHFA can notify a regulated entity or the Office of Finance of its failure to operate in accordance with a Standard and direct the regulated entity or the Office of Finance to take corrective action. This part further specifies the possible consequences if any regulated entity or the Office of Finance fails to operate in accordance with an applicable Standard or otherwise fails to comply with this part.

§ 1236.2 — Definitions.

Unless otherwise indicated, terms used in this part have the meanings that they have in part 1201 of this chapter, in the Safety and Soundness Act, 12 U.S.C. 4501 et seq., or in the Bank Act, 12 U.S.C. 1421 et seq.

Extraordinary growth—(1) For purposes of 12 U.S.C. 4513b(b)(3)(C), means:

(i) With respect to a Bank, growth of non-advance assets in excess of 30 percent over the six calendar quarter period preceding the date on which FHFA notified the Bank that it was required to submit a corrective plan; and

(ii) With respect to an Enterprise, quarterly non-annualized growth of assets in excess of 7.5 percent in any calendar quarter during the six calendar quarter period preceding the date on which FHFA notified the Enterprise that it was required to submit a corrective plan.

(2) For purposes of calculating an increase in assets, assets acquired through merger or acquisition approved by FHFA are not to be included.

Standard(s) means any one (or more) of the prudential management and operations standards established by the Director pursuant to 12 U.S.C. 4513b(a). Standard includes the introductory statement of general responsibilities of boards of directors and senior management of the regulated entities set forth in the appendix to this part.

§ 1236.3 — Prudential standards as regulations or guidelines.

(a) Form. As expressly authorized by 12 U.S.C. 4513b(a), FHFA may establish Standards as regulations or guidelines.

(b) Standards established as guidelines. Each Standard that has been established as a guideline is located in the appendix to this part. FHFA will provide public notice of, and seek public comment on, any Standard it plans to establish as a guideline, or on any material modification to any Standard established as a guideline. FHFA may revoke any Standard established as a guideline at any time by order or notice. Standards established as guidelines are subject to the remedial provisions of §§ 1236.4 and 1236.5.

(c) Standards established as regulations. When establishing a Standard as a regulation or amending such a Standard, FHFA shall follow applicable rulemaking procedures of the Administrative Procedure Act, 12 U.S.C. 553. Standards established as regulations may be set forth as subparts or provisions of this part; or as other parts or subparts, or as provisions of such other parts or subparts, of this chapter XII of title 12. When not set forth as a subpart of this part, the regulation or any provision thereof that is a Standard shall be identified as a Standard in the body of the regulation. Standards established as regulations are subject to this part, including the remedial provisions of §§ 1236.4 and 1236.5, and to the enforcement provisions of 12 U.S.C. chapter 46, subchapter III.

(d) Conflicts. In the case of a direct conflict between a Standard established as a guideline and any FHFA regulation, when it is not possible to comply with both that Standard and the FHFA regulation, the FHFA regulation shall control.

§ 1236.4 — Failure to meet a Standard; corrective plans.

(a) Determination. FHFA may determine, based upon an examination, inspection, or any other information, that a regulated entity or the Office of Finance has failed to meet one or more of the Standards. Failure to meet any Standard may constitute an unsafe and unsound practice for purposes of the enforcement provisions of 12 U.S.C. chapter 46, subchapter III.

(b) Submission of corrective plan. When a regulated entity or the Office of Finance is required to submit a corrective plan, FHFA shall inform the regulated entity or the Office of Finance of that requirement by written notice, which shall also set forth FHFA’s determination that the regulated entity or the Office of Finance has failed a particular Standard or Standards. FHFA shall require a regulated entity or the Office of Finance to submit a corrective plan if FHFA determines that the regulated entity or the Office of Finance has failed to meet a Standard established as a regulation. FHFA may require a regulated entity or the Office of Finance to submit a corrective plan for failure to meet a Standard established as a guideline.

(c) Corrective plans—(1) Contents of plan. A corrective plan shall be in writing and shall describe the actions the regulated entity or the Office of Finance will take to correct its failure(s) as determined by FHFA, and the time within which each action will be taken.

(2) Filing deadline—(i) In general. A regulated entity or the Office of Finance must file a corrective plan with FHFA within thirty (30) calendar days of being notified by FHFA of the requirement to file a corrective plan, unless FHFA notifies the regulated entity or the Office of Finance in writing that the plan must be filed within a different time period.

(ii) Other plans or submissions. If a regulated entity must file a capital restoration plan submitted pursuant to 12 U.S.C. 4622, it may submit the corrective plan required under this section as part of the capital restoration plan, subject to the deadline established in accordance with paragraph (c)(2)(i) of this section. If a regulated entity or the Office of Finance is operating under a cease-and-desist order entered into pursuant to 12 U.S.C. 4631 or 4632, or a formal or informal agreement, or must file a response to a report of examination or report of inspection, it may, with the permission of FHFA, submit the corrective plan required under this section as part of its compliance with that order, agreement, or response, subject to the deadline established in accordance with paragraph (c)(2)(i) of this section, but the corrective plan would not become a part of the order, agreement, or response. FHFA may also permit a regulated entity or the Office of Finance to submit a corrective plan required under this section as part of another type of required plan or submission by a regulated entity or the Office of Finance, as deemed appropriate by FHFA.

(d) Amendment of corrective plan. A regulated entity or the Office of Finance that is operating in accordance with an approved corrective plan may submit a written request to FHFA to amend the plan as necessary to reflect any changes in circumstance. Until such time that FHFA approves a proposed amendment, the regulated entity or the Office of Finance must continue to operate in accordance with the terms of the corrective plan as previously approved.

(e) Review of corrective plans and amendments. Within thirty (30) calendar days of receiving a corrective plan or proposed amendment to a plan, FHFA will notify the regulated entity or the Office of Finance in writing of its decision on the plan, will direct the regulated entity to submit additional information, or will notify the regulated entity in writing of any extended deadline for review that FHFA has established.

§ 1236.5 — Failure to submit a corrective plan; noncompliance.

(a) Remedies. If a regulated entity or the Office of Finance fails to submit an acceptable corrective plan under § 1236.4(b), or fails in any material respect to implement or otherwise comply with an approved corrective plan, FHFA shall order the regulated entity or the Office of Finance to correct that deficiency, and may:

(1) Prohibit the regulated entity from increasing its average total assets, as defined in 12 U.S.C. 4516(b)(4), for any calendar quarter over its average total assets for the preceding calendar quarter, or may otherwise restrict the rate at which the average total assets of the regulated entity may increase from one calendar quarter to another;

(2) Prohibit the regulated entity from paying dividends;

(3) Prohibit the regulated entity from redeeming or repurchasing capital stock;

(4) Require the regulated entity to maintain or increase its level of retained earnings;

(5) Require an Enterprise to increase its ratio of core capital to assets, or require a Bank to increase its ratio of total capital, as defined in 12 U.S.C. 1426(a)(5), to assets; or

(6) Require the regulated entity or the Office of Finance to take any other action that the Director determines will better carry out the purposes of the statute by bringing the regulated entity or the Office of Finance into conformance with the Standards.

(b) Extraordinary growth. If a regulated entity that has failed to submit an acceptable corrective plan or has failed in any material respect to implement or otherwise comply with an approved corrective plan, also has experienced extraordinary growth, FHFA shall impose at least one of the sanctions listed in paragraph (a) of this section, consistently with the requirements of 12 U.S.C. 4513b(b)(3).

(c) Orders—

(1) Notice. Except as provided in paragraph (c)(4) of this section, FHFA will notify a regulated entity or the Office of Finance in writing of FHFA’s intent to issue an order requiring the regulated entity or the Office of Finance to correct its failure to submit a corrective plan or its failure in any material respect to implement or otherwise comply with an approved corrective plan. Any such notice will include:

(i) A statement that the regulated entity or the Office of Finance has failed to submit a corrective plan under § 1236.4, or has not implemented or otherwise has not complied in any material respect with an approved plan;

(ii) A description of any sanctions that FHFA intends to impose and, in the case of the mandatory sanctions required by 12 U.S.C. 4513b(b)(3), a statement that FHFA believes that the regulated entity has experienced extraordinary growth; and

(iii) The proposed date when any sanctions would become effective or the proposed date for completion of any required actions.

(2) Response to notice. A regulated entity or the Office of Finance may file a written response to a notice of intent to issue an order, which must be delivered to FHFA within fourteen (14) calendar days of the date of the notice, unless FHFA determines that a different time period is appropriate in light of the safety and soundness of the regulated entity or the Office of Finance or other relevant circumstances. The response should include:

(i) An explanation of why the regulated entity or the Office of Finance believes that the action proposed by FHFA is not an appropriate exercise of discretion;

(ii) Any recommended modification of the proposed order; and

(iii) Any other relevant information, mitigating circumstances, documentation or other evidence in support of the position of the regulated entity or the Office of Finance regarding the proposed order.

(3) Failure to file response. The failure of a regulated entity or the Office of Finance to file a written response within the specified time period will constitute a waiver of the opportunity to respond and will constitute consent to issuance of the order.

(4) Immediate issuance of final order. FHFA may issue an order requiring a regulated entity or the Office of Finance immediately to take actions to correct a Standards deficiency or to take or refrain from taking other actions pursuant to paragraph (a) of this section. Within fourteen (14) calendar days of the issuance of an order under this paragraph, or other time period specified by FHFA, a regulated entity or the Office of Finance may submit a written appeal of the order to FHFA. FHFA will respond in writing to a timely filed appeal within sixty (60) days after receiving the appeal. During this period, the order will remain in effect unless FHFA stays the effectiveness of the order.

(d) Request for modification or rescission of order. A regulated entity or the Office of Finance subject to an order under this part may submit a written request to FHFA for an amendment to the order to reflect a change in circumstance. Unless otherwise ordered by FHFA, the order shall continue in place while such a request is pending before FHFA.

(e) Agency review and determination. FHFA will respond in writing within thirty (30) days after receiving a response or amendment request, unless FHFA notifies the regulated entity or the Office of Finance in writing that it will respond within a different time period. After considering the response or amendment request from a regulated entity or the Office of Finance, FHFA may:

(1) Issue the order as proposed or in modified form;

(2) Determine not to issue the order and instead issue a different order; or

(3) Seek additional information or clarification of the response from the regulated entity, or any other relevant source.