FEDERAL

of a security or money market instrument,
to remove any references or requirements
regarding credit ratings in them, and to adopt
appropriate alternative standards for determining
creditworthiness. Although OIG neither concurred
nor nonconcurred with the draft proposed rule,
it noted that the rule lacked sufficient discussion
about what factors the FHLBanks should consider
(and how) when assessing investment quality.
OIG urged FHFA to address how the FHLBanks
are expected to assess investment quality and to
emphasize the importance of independence. FHFA
did not address these concerns or implement
OIG’s suggestions in the published version of the
proposed rule.
3. FHFA Interim Final Rule: Executive
Compensation (RIN 2590-AA12, OIG
Comments Submitted on February 28, 2011)
FHFA drafted a proposed final rule to implement
its responsibility to prohibit and withhold
unreasonable and incomparable compensation for
executives of the GSEs pursuant to HERA. The
draft final rule was based upon a proposed rule,
which was published more than a year prior to the
commencement of OIG’s operations. See 74 Fed.
Reg. 26,989 (June 5, 2009).
OIG made three comments on the proposed
final rule. First, the draft final rule erred by
discarding the previously published proposed
rule’s provision authorizing enforcement actions
against noncompliant entities. FHFA published
an interim final rule on May 15, 2013, see 78 Fed.
Reg. 28,442, and FHFA neither reinstated the
enforcement provision of the proposed rule nor
included any comparable regulatory language that
allows FHFA to take supervisory action. Instead,
FHFA modified the preamble to explain that there
is statutory enforcement authority that allows
FHFA to obtain restitution or reimbursement
from entity-affiliated parties who have been
unjustly enriched.
Second, the draft final rule could lead to a
violation of the Administrative Procedures Act
(APA). The earlier proposed rule set specific
requirements for the entities when submitting to
FHFA executive compensation information (e.g.,
concrete time frames for submission). The draft
final rule, however, excised these requirements
in exchange for issuing informal guidance later.
In OIG’s view, these information submission
requirements qualify as a “legislative rule” for APA
purposes and, therefore, notice-and-comment
rulemaking is required for their adoption. See
5 U.S.C. § 553(a). Thus, issuing requirements later
as informal guidance without notice-and-comment
threatens to violate APA. Instead of reinstating
the proposed rule’s information submission
requirements, FHFA modified the language in the
interim final rule to indicate that the GSEs are not
required to submit particular information.
Third, the draft final rule should be revised to
clarify how FHFA will review compensation
arrangements put into place many years before
the enactment of HERA. Because HERA does
not appear to prohibit FHFA from evaluating
pre-HERA compensation arrangements, OIG
believes that FHFA should specify the criteria that
it will apply to such reviews to ensure that they are
conducted in a consistent, equitable, and auditable
manner. FHFA made no revisions to the interim
final rule in this regard.
4. FHFA Proposed Rule: Golden Parachute and
Indemnification Payments (RIN 2590-AA08,
OIG Comments Submitted on February 28,
2011)
During this reporting cycle, FHFA published a
proposed rule concerning golden parachute and
34 Federal Housing Finance Agency Office of Inspector General