Housing Bill Gives SEC Role in Oversight of Fannie Mae and Freddie Mac
Fannie Mae and Freddie Mac are now SEC reporting companies and also subject to Exchange Act proxy and insider reporting rules as part of the overhauled of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The Housing and Economic Recovery Act (HR 3221) also requires the Federal Home Loan Banks to register their securities under the Exchange Act, but Congress gave them a number of exemptions from the 1934Act. The SEC Chair is also a member of a four-person oversight board that will oversee the new independent federal regulator for the GSEs, the Federal Housing Finance Agency (FHFA), which will have broad regulatory powers over the operations, activities, corporate governance, safety and soundness, and mission of the GSEs. The Federal Housing Finance Agency would be headed by a Director, appointed by the President and confirmed by the Senate for a 5-year term.
In addition to the SEC Chair, the oversight board is composed of the Director, the Treasury Secretary, and the HUD Secretary. Any member of the board may require a special meeting of the board. Otherwise, the board will meet quarterly. The board must testify annually before Congress on a number of matters involving the GSEs, including their safety and soundness and any material deficiencies in their operation. The testimony must also include an evaluation of the performance of the regulated entities in carrying out their respective missions, as well as a discussion of their overall operational status.
The Act adds a new Section 38 to the Securities Exchange Act to require the registration of the securities of the GSEs. For Fannie Mae and Freddie Mac, the statute provides no class of their equity securities will be exempt from the registration provisions of the Exchange Act, and also provides that there will be no exemption from the internal controls, proxy, and insider reporting provisions of the 1934 Act.
As of July 18, 2008, Freddie Mac and Fannie Mae have voluntarily registered their common stock under the Exchange Act and are now subject to the Act's periodic and current reporting requirements.
Section 16(a) is the insider reporting statute of the Exchange Act, which requires corporate officers and directors and 10 percent shareholders to file public reports in connection with trading in the equity securities of their companies. Section 16(a) is a disclosure statute based on a legislative belief that prompt publicity is a potent weapon in the battle to curb the abuse of inside information. Section 16(a) is also designed to give investors information about purchases and sales by insiders that might indicate the insider’s private opinion about the company.
SEC rules under Section 16(a) and federal court rulings deem officers with significant policymaking duties as subject to Section 16 reporting. Such as: CEO, President, CFO, Controller, any VP in charge of a principal business unit or division or function, such as sales or finance.
Federal Home Loan Banks
The Federal Home Loan Banks are directed by Section 38 to register a class of their common stock under the Exchange Act within 120 days of enactment and thereafter maintain such registration.
Section 38 also imposes some Sarbanes-Oxley governance requirements on the Federal Home Loan Banks by requiring them to comply with the audit committee independence mandates of Section 301 of Sarbanes-Oxley and the SEC rules adopted under it. Specifically, the federal home loan banks must have independent audit committees whose members cannot accept consulting fees or become affiliated persons of the banks.
The Act amends Section 105(b) of the Sarbanes-Oxley Act by adding the Federal Housing Finance Agency to the list of those federal agencies with which the PCAOB may share information without loss of confidentiality.
The Act specifically exempts federal home loan banks from a number of provisions of the federal securities laws. The banks are exempt from the proxy rules, for example. They are also exempt from the broker-dealer registration and transfer agent provisions of Sections 15 and 17A of the Exchange Act. They are exempt from the entire Trust Indenture Act.
The members of the Federal Home Loan Bank System are exempt from compliance with the beneficial ownership reporting and insider reporting provisions of the Exchange Act and related SEC regulations with respect to their ownership of or transactions in the capital stock of the federal home loan banks.
The Act also exempts the Federal Home Loan Banks from periodic reporting requirements under the securities laws pertaining to the disclosure of related party transactions that occur in the ordinary course of the business of the banks with members and the unregistered sales of equity securities. Also, SEC tender offer rules will not apply in connection with transactions in the capital stock of the federal home loan banks.
The Act directs the SEC to adopt regulations in the public interest regarding the exemptions. In issuing regulations, the SEC is ordered to consider the distinctive characteristics of the federal home loan banks when evaluating the accounting treatment with respect to the payment to the Resolution Funding Corporation and the role of the combined financial statements of the banks. In its rulemaking, the Commission must also consider the accounting classification of redeemable capital stock and the accounting treatment related to the joint and several nature of the obligations of the banks.
Fannie Mae and Freddie Mac are now SEC reporting companies and also subject to Exchange Act proxy and insider reporting rules as part of the overhauled of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The Housing and Economic Recovery Act (HR 3221) also requires the Federal Home Loan Banks to register their securities under the Exchange Act, but Congress gave them a number of exemptions from the 1934Act. The SEC Chair is also a member of a four-person oversight board that will oversee the new independent federal regulator for the GSEs, the Federal Housing Finance Agency (FHFA), which will have broad regulatory powers over the operations, activities, corporate governance, safety and soundness, and mission of the GSEs. The Federal Housing Finance Agency would be headed by a Director, appointed by the President and confirmed by the Senate for a 5-year term.
In addition to the SEC Chair, the oversight board is composed of the Director, the Treasury Secretary, and the HUD Secretary. Any member of the board may require a special meeting of the board. Otherwise, the board will meet quarterly. The board must testify annually before Congress on a number of matters involving the GSEs, including their safety and soundness and any material deficiencies in their operation. The testimony must also include an evaluation of the performance of the regulated entities in carrying out their respective missions, as well as a discussion of their overall operational status.
The Act adds a new Section 38 to the Securities Exchange Act to require the registration of the securities of the GSEs. For Fannie Mae and Freddie Mac, the statute provides no class of their equity securities will be exempt from the registration provisions of the Exchange Act, and also provides that there will be no exemption from the internal controls, proxy, and insider reporting provisions of the 1934 Act.
As of July 18, 2008, Freddie Mac and Fannie Mae have voluntarily registered their common stock under the Exchange Act and are now subject to the Act's periodic and current reporting requirements.
Section 16(a) is the insider reporting statute of the Exchange Act, which requires corporate officers and directors and 10 percent shareholders to file public reports in connection with trading in the equity securities of their companies. Section 16(a) is a disclosure statute based on a legislative belief that prompt publicity is a potent weapon in the battle to curb the abuse of inside information. Section 16(a) is also designed to give investors information about purchases and sales by insiders that might indicate the insider’s private opinion about the company.
SEC rules under Section 16(a) and federal court rulings deem officers with significant policymaking duties as subject to Section 16 reporting. Such as: CEO, President, CFO, Controller, any VP in charge of a principal business unit or division or function, such as sales or finance.
Federal Home Loan Banks
The Federal Home Loan Banks are directed by Section 38 to register a class of their common stock under the Exchange Act within 120 days of enactment and thereafter maintain such registration.
Section 38 also imposes some Sarbanes-Oxley governance requirements on the Federal Home Loan Banks by requiring them to comply with the audit committee independence mandates of Section 301 of Sarbanes-Oxley and the SEC rules adopted under it. Specifically, the federal home loan banks must have independent audit committees whose members cannot accept consulting fees or become affiliated persons of the banks.
The Act amends Section 105(b) of the Sarbanes-Oxley Act by adding the Federal Housing Finance Agency to the list of those federal agencies with which the PCAOB may share information without loss of confidentiality.
The Act specifically exempts federal home loan banks from a number of provisions of the federal securities laws. The banks are exempt from the proxy rules, for example. They are also exempt from the broker-dealer registration and transfer agent provisions of Sections 15 and 17A of the Exchange Act. They are exempt from the entire Trust Indenture Act.
The members of the Federal Home Loan Bank System are exempt from compliance with the beneficial ownership reporting and insider reporting provisions of the Exchange Act and related SEC regulations with respect to their ownership of or transactions in the capital stock of the federal home loan banks.
The Act also exempts the Federal Home Loan Banks from periodic reporting requirements under the securities laws pertaining to the disclosure of related party transactions that occur in the ordinary course of the business of the banks with members and the unregistered sales of equity securities. Also, SEC tender offer rules will not apply in connection with transactions in the capital stock of the federal home loan banks.
The Act directs the SEC to adopt regulations in the public interest regarding the exemptions. In issuing regulations, the SEC is ordered to consider the distinctive characteristics of the federal home loan banks when evaluating the accounting treatment with respect to the payment to the Resolution Funding Corporation and the role of the combined financial statements of the banks. In its rulemaking, the Commission must also consider the accounting classification of redeemable capital stock and the accounting treatment related to the joint and several nature of the obligations of the banks.