PART 1227—SUSPENDED COUNTERPARTY PROGRAM Authority: 12 U.S.C. 4513, 4513b, 4514, 4526. Source: 78 FR 63012, Oct. 23, 2013, unless otherwise noted. Subpart A—General § 1227.1 Purpose. This part sets forth the procedures FHFA follows under its Suspended Counterparty Program, the purpose of which is to protect the safety and soundness of the regulated entities. The procedures require the regulated entities to submit reports when they become aware that a person with whom they have engaged or are engaging in a covered transaction within the past three (3) years has engaged in covered misconduct. The procedures set forth a process for FHFA to issue suspension orders directing the regulated entities to cease or refrain from engaging in covered transactions with such persons and any affiliates thereof for a specified period of time or permanently. A suspension order is not intended to be, and may not be issued as, a form of punishment for the suspended person. The procedures include options for: (a) Appeal of a final suspension order to the Director; (b) Request for reconsideration of a final suspension order after twelve (12) months have elapsed; and (c) Request for an exception to a final suspension order in effect in order to engage in a particular covered transaction with the suspended person. § 1227.2 Definitions. For purposes of this part: Administrative sanction Affiliate Conviction (1) A judgment or any other determination of guilt of a criminal offense by any court of competent jurisdiction, whether entered upon a verdict or plea; or (2) Any other resolution that is the functional equivalent of a judgment of guilt of a criminal offense, including probation before judgment and deferred prosecution. A disposition without the participation of the court is the functional equivalent of a judgment only if it includes an admission of guilt. Covered misconduct (1) Any conviction or administrative sanction within the past three (3) years if the basis of such action involved fraud, embezzlement, theft, conversion, forgery, bribery, perjury, making false statements or claims, tax evasion, obstruction of justice, or any similar offense, in each case in connection with a mortgage, mortgage business, mortgage securities or other lending product. (2) FHFA may impute covered misconduct among affiliates as follows: (i) Conduct imputed from an individual to an organization. (ii) Conduct imputed from an organization to an individual, or between individuals. (iii) Conduct imputed from one organization to another organization. Covered transaction Person Respondent Suspending official Suspension § 1227.3 Scope of suspension orders. (a) General. (b) No effect on other actions by FHFA. (c) No effect on other actions by a regulated entity. (d) No effect on residential mortgage loans secured by respondent's own personal or household residence. [78 FR 63012, Oct. 23, 2013, as amended at 80 FR 79680, Dec. 23, 2015] § 1227.4 Regulated entity reports on covered misconduct. (a) General. (b) Content of reports. (1) Include sufficient information for FHFA to identify the person or persons that are the subject of the report, as well as any affiliates thereof if such affiliates are known to the regulated entity; (2) Describe the nature and extent of any covered transaction that the regulated entity has or had with any persons and any affiliates thereof identified in the report; and (3) Include a description of the covered misconduct, including the date of the covered misconduct, documents evidencing the covered misconduct if in the possession of the regulated entity, and any other relevant information that the regulated entity chooses to submit. (c) Timing of reports. (2) A regulated entity may supplement the submission of any covered misconduct report by submitting additional relevant information to FHFA at any time. [78 FR 63012, Oct. 23, 2013, as amended at 80 FR 79680, Dec. 23, 2015] § 1227.5 Proposed suspension order. (a) A suspending official may base a proposed suspension order upon evidence of covered misconduct from any of the following sources: (1) A required report submitted by a regulated entity; (2) A referral submitted by FHFA's Office of Inspector General; or (3) Any other source of information. (b) Grounds for issuance. (1) The person or any affiliates thereof has engaged in covered misconduct, which evidence may include copies of any order or other documents documenting a conviction or administrative sanction for such conduct; and (2) The covered misconduct is of a type that would be likely to cause significant financial or reputational harm to a regulated entity or otherwise threaten the safe and sound operation of a regulated entity. (c) Notice required. (d) Content of notice. (1) The time period during which the suspension will apply; (2) A statement of the suspending official's proposed suspension determination and supporting grounds; (3) The proposed suspension order; (4) Instructions on how to respond; and (5) The date by which any response must be received, which must be at least thirty (30) calendar days after the date on which the notice is sent. (e) Method of sending notice. (1) The person, the person's counsel, or an agent for service of process; and (2) Any affiliates of the person, the counsel for those affiliates, or an agent for service of process, if suspension is also being proposed for such affiliates. (f) Response from respondent Timing of response. (2) Content of response. (i) Any information and argument in opposition to the proposed suspension; (ii) Any specific facts that contradict the statements contained in the notice of proposed suspension. A general denial is insufficient to raise a genuine dispute over facts material to the suspension; (iii) All criminal and civil proceedings not included in the notice of proposed suspension that grew out of facts relevant to the bases for the proposed suspension stated in such notice; (iv) All existing, proposed, or prior exclusions under regulations implementing Executive Order 12549 and all similar actions taken by Federal, state, or local agencies, including administrative agreements that affect only those agencies; and (v) The names and identifying information for any affiliates of the affected person. (g) Response from regulated entities Timing of response. (2) Content of response. (A) Any information that would indicate that suspension of the person in question could reasonably be expected to have a negative financial impact or other significant adverse effect on the financial or operating performance of the regulated entity; and (B) Any existing contractual relationship with the person in question for which the regulated entity might request a limitation or qualification. (ii) The response may include any other information that the regulated entity believes would be relevant to the proposed suspension determination, including but not limited to: (A) Any information related to the factual basis for the proposed suspension; (B) Any information about other known affiliates of the person; (C) Recommendations for alternatives to suspension that could mitigate the risks presented by engaging in covered transactions with the respondent; and (D) Recommendations for limitations or qualifications on the scope of the proposed suspension. [78 FR 63012, Oct. 23, 2013, as amended at 80 FR 79680, Dec. 23, 2015] § 1227.6 Final suspension order. (a) Grounds for issuance. (1) The respondent engaged in covered misconduct; and (2) The covered misconduct is of a type that would be likely to cause significant financial or reputational harm to a regulated entity or otherwise threaten the safe and sound operation of a regulated entity. (b) Written record. (c) Factors that may be considered by the suspending official. (1) The actual or potential harm or impact that results or may result from the covered misconduct; (2) The frequency of incidents or duration of the covered misconduct; (3) Whether there is a pattern of prior covered misconduct; (4) Whether and to what extent the respondent planned, initiated, or carried out the covered misconduct; (5) Whether the respondent has accepted responsibility for the covered misconduct and recognizes its seriousness; (6) Whether the respondent has paid or agreed to pay all criminal, civil and administrative penalties or liabilities for the covered misconduct, including any investigative or administrative costs incurred by the government, and has made or agreed to make full restitution; (7) Whether the covered misconduct was pervasive within the respondent's organization; (8) The kind of positions held by the individuals involved in the covered misconduct; (9) Whether the respondent's organization took appropriate corrective action or remedial measures, such as establishing ethics training and implementing programs to prevent recurrence of the covered misconduct; (10) Whether the respondent brought the covered misconduct to the attention of the appropriate government agency in a timely manner; (11) Whether the respondent has fully investigated the circumstances surrounding the covered misconduct and, if so, made the result of the investigation available to the suspending official; (12) Whether the respondent had effective standards of conduct and internal control systems in place at the time the covered misconduct occurred; (13) Whether the respondent has taken appropriate disciplinary action against the individuals responsible for the covered misconduct; or (14) Whether the respondent has had adequate time to eliminate the circumstances within the organization that led to the covered misconduct. (d) Deadline for decision. (e) Determination not to issue final suspension order. (f) Issuance of final suspension order General. (2) Content of final suspension order. (i) A statement of the suspension determination and supporting grounds, including a discussion of any relevant information submitted by the respondent or regulated entities; (ii) Identification of each person and any affiliates thereof to which the suspension applies; (iii) A description of the scope of the suspension, including the time period to which the suspension applies; and (iv) A description of any limitations or qualifications that apply to the scope of the suspension, including modification of the conduct of covered transactions that may be engaged in with the respondent. (3) Notice to respondent required. (4) Content of notice. (i) A statement of the suspension determination and supporting grounds, including a discussion of any relevant information submitted by the respondent; and (ii) A copy of the final suspension order. (g) Effective date. [78 FR 63012, Oct. 23, 2013, as amended at 80 FR 79680, Dec. 23, 2015] § 1227.7 Appeal to the Director. (a) Opportunity to appeal. (b) Decision on appeal. (c) Final agency action. (d) Exhaustion of administrative remedies. § 1227.8 Posting of final suspension orders. (a) Required posting. (b) Content of posting. (1) The full name (where available) of each suspended person and any affiliates thereof subject to the final suspension order, in alphabetical order; (2) A description of the time period for which the suspension applies; and (3) A copy of each final suspension order applicable to the person and any affiliates thereof. (c) Removal of names. § 1227.9 Request for reconsideration. (a) Time period for request. (b) Content of request. (c) Decision on request. § 1227.10 Exception to final suspension order in effect. (a) Request for exception. (b) Decision on exception. (c) Notice required. Subpart B [Reserved]