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--- schema: federal-register doc_type: fedreg source_file: FR-2005-07-28.xml --- 70 144 Thursday, July 28, 2005 Contents Census Census Bureau NOTICES Agency information collection activities; proposals, submissions, and approvals, 43680-43681 05-14908 Centers Centers for Disease Control and Prevention NOTICES Grant and cooperative agreement awards: Interstitial Cystitis Association, 43693-43694 05-14927 Meetings: Advisory Committee to Director, 43694 05-15019 Reports and guidance documents; availability, etc.:

Hepatitus A and trivalent influenza vaccines information materials, 43694-43699 05-14924 Coast Guard Coast Guard RULES Ports and waterways safety; regulated navigation areas, safety zones, security zones, etc.: Camp Rilea Offshore Small Arms Firing Range; Warrenton, OR, 43636-43638 05-14970 Commerce Commerce Department See Census Bureau See National Oceanic and Atmospheric Administration See Patent and Trademark Office NOTICES Agency information collection activities; proposals, submissions, and approvals, 05-14906 05-14907 43679-43680 05-14910 Corporation Corporation for National and Community Service NOTICES Agency information collection activities; proposals, submissions, and approvals, 43682-43683 05-14909 Drug Drug Enforcement Administration RULES Schedules of controlled substances:

Pregabalin; placement into Schedule V, 43633-43635 05-15036 Education Education Department NOTICES Grants and cooperative agreements; availability, etc.: Special education and rehabilitative services— Rehabilitation Continuing Education and Community Rehabilitation Programs, 43683-43686 05-14920 Employment Employment Standards Administration NOTICES Agency information collection activities; proposals, submissions, and approvals, 43718-43719 05-14903 Energy Energy Department See Federal Energy Regulatory Commission NOTICES Committees; establishment, renewal, termination, etc.:

Fusion Energy Sciences Advisory Committee, 43686 05-14929 EPA Environmental Protection Agency PROPOSED RULES Air quality implementation plans; approval and promulgation; various States: California, 43663-43673 05-14931 NOTICES Agency information collection activities; proposals, submissions, and approvals, 43688-43691 05-14933 05-14934 Reports and guidance documents; availability, etc.: Environmental Justice Strategic Plan (2006-2011); framework and outline, 43691 05-15041 Operator training grants; 2005 FY allocation, 43691-43692 05-14935 Physiologically-based pharmacokinetic models and supporting data in risk assessment; application approaches, 43692-43693 05-14932 FAA Federal Aviation Administration RULES Airworthiness directives:

Boeing, 43631-43633 05-14685 McDonnell Douglas, 43628-43631 05-14684 PROPOSED RULES Airworthiness directives: Rolls Royce plc, 43659-43661 05-14803 FBI Federal Bureau of Investigation PROPOSED RULES Privacy Act; implementation, 43661-43663 05-14850 NOTICES Privacy Act: System of records, 43715-43718 05-14849 Federal Election Federal Election Commission NOTICES Meetings; Sunshine Act, 43693 05-15068 Federal Energy Federal Energy Regulatory Commission NOTICES Electric rate and corporate regulation combined filings, 43688 E5-4022 *Applications, hearings, determinations, etc.:* Allegheny Energy, Inc., et al., 43687 E5-4020 La Paloma Acquisition Co., LLC, 43687 E5-4021 Federal Housing Federal Housing Enterprise Oversight Office RULES Safety and soundness:

Mortgage fraud reporting, 43625-43628 05-14957 Food Food and Drug Administration NOTICES Debarment orders: Rodgers, Thomas M., Jr., 43699-43701 05-14967 Human drugs: Patent extension; regulatory review period determinations— ZUBRIN, 43701-43702 05-14921 Health Health and Human Services Department See Centers for Disease Control and Prevention See Food and Drug Administration Homeland Homeland Security Department See Coast Guard Housing Housing and Urban Development Department See Federal Housing Enterprise Oversight Office Indian Indian Affairs Bureau NOTICES Tribal-State Compacts approval;

Class III (casino) gambling: Chickasaw Nation, OK, 43702 05-14966 Interior Interior Department See Indian Affairs Bureau See Land Management Bureau IRS Internal Revenue Service RULES Income taxes: Qualified amended returns; temporary regulations Correction, 43635-43636 05-14902 Justice Justice Department See Drug Enforcement Administration See Federal Bureau of Investigation See Parole Commission Labor Labor Department See Employment Standards Administration Land Land Management Bureau NOTICES Alaska Native claims selection:

K’oyitl’ots’ina, Ltd., 43703 05-14940 05-14942 Closure of public lands: California, 43703-43704 05-14936 Meetings: Resource Advisory Councils— Arizona, 43704 05-14926 Realty actions; sales, leases, etc.: Nevada, 43704-43705 05-14947 New Mexico, 43705-43706 05-14943 Utah, 43706-43707 05-14945 Recreation management restrictions, etc.: Meadowood Special Recreation Management Area, VA; supplementary rules, 43707-43709 05-14938 North Fruita Desert Special Recreation Management Area, CO; supplementary rules, 43709-43712 05-14946 Santa Rosa and San Jacinto Mountains National Monument, CA; hang glider, discharge of gas/air-propelled weapons, recreational shooting, and pet restrictions, 43712-43713 05-14937 West Eugene Wetlands, OR; supplementary rules, 43713-43715 05-14941 NOAA National Oceanic and Atmospheric Administration RULES Fishery conservation and management:

Alaska; fisheries of Exclusive Economic Zone— Yellowfin sole, 43644-43645 05-14950 PROPOSED RULES Fishery conservation and management: Magnuson-Stevens Act provisions— Bering Sea and Aleutian Islands king and tanner crabs; fishing capacity reduction program; industry fee system, 43673-43678 05-14951 NOTICES Committees; establishment, renewal, termination, etc.: Commercial Remote Sensing Advisory Committee, 43681 05-14928 Nuclear Nuclear Regulatory Commission PROPOSED RULES National Source Tracking System; manufacture, transfer, receipt, or disposal of nationally tracked sealed sources; reporting requirements, 43646-43659 05-14919 NOTICES Meetings:

Commercial nuclear power plants; review of emergency preparedness regulations and guidance, 43721-43725 E5-4011 *Applications, hearings, determinations, etc.:* FirstEnergy Nuclear Operating Co., 43719-43721 E5-4012 Hawes, David H., 43721 E5-4010 Office Office of Federal Housing Enterprise Oversight See Federal Housing Enterprise Oversight Office Parole Parole Commission NOTICES Meetings; Sunshine Act, 43718 05-15004 Patent Patent and Trademark Office NOTICES Agency information collection activities; proposals, submissions, and approvals, 43681-43682 05-14925 Pipeline Pipeline and Hazardous Materials Safety Administration RULES Hazardous materials transportation:

Person who offers or offeror; definition, 43638-43644 05-14912 SEC Securities and Exchange Commission NOTICES Agency information collection activities; proposals, submissions, and approvals, 43725 E5-4016 Meetings; Sunshine Act, 43725-43726 05-15103 Self-regulatory organizations; proposed rule changes: Chicago Board Options Exchange, Inc., 43726-43730 E5-4018 E5-4019 Depository Trust Co., 43730-43732 E5-4013 Options Clearing Corp., 43732-43733 E5-4017 Pacific Exchange, Inc., 43733 E5-4014 Philadelphia Stock Exchange, Inc., 43733-43735 E5-4015 SBA Small Business Administration NOTICES Disaster loan areas:

Alabama, 43735 05-14913 Florida, 43735 05-14914 Small business size standards: Nonmanufacturer rule; waivers— Sporting and athletic goods manufacturing, 43735-43736 05-14916 Transportation Transportation Department See Federal Aviation Administration See Pipeline and Hazardous Materials Safety Administration Treasury Treasury Department See Internal Revenue Service Veterans Veterans Affairs Department NOTICES Agency information collection activities; proposals, submissions, and approvals, E5-4006 43736-43738 E5-4007 E5-4008 E5-4009 Reader Aids Consult the Reader Aids section at the end of this issue for phone numbers, online resources, finding aids, reminders, and notice of recently enacted public laws.

To subscribe to the Federal Register Table of Contents LISTSERV electronic mailing list, go to http://listserv.access.gpo.gov and select Online mailing list archives, FEDREGTOC-L, Join or leave the list (or change settings); then follow the instructions. 70 144 Thursday, July 28, 2005 Rules and Regulations DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Office of Federal Housing Enterprise Oversight 12 CFR Part 1731 RIN 2550-AA31 Mortgage Fraud Reporting AGENCY: Office of Federal Housing Enterprise Oversight, HUD.

ACTION: Final rule. SUMMARY: The Office of Federal Housing Enterprise Oversight (OFHEO) is issuing a final regulation that sets forth safety and soundness requirements with respect to mortgage fraud reporting in furtherance of the supervisory responsibilities of OFHEO under the Federal Housing Enterprises Financial Safety and Soundness Act of 1992. EFFECTIVE DATE: August 29, 2005. FOR FURTHER INFORMATION CONTACT: Isabella W. Sammons, Deputy General Counsel, telephone

(202)414-3790 (not a toll-free number); Office of Federal Housing Enterprise Oversight, Fourth Floor, 1700 G Street, NW., Washington, DC 20552. The telephone number for the Telecommunications Device for the Deaf is

(800)877-8339. SUPPLEMENTARY INFORMATION: Background Title XIII of the Housing and Community Development Act of 1992, Pub. L. 102-550, titled the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501 *et seq.* ) established OFHEO as an independent office within the Department of Housing and Urban Development to ensure that the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, the Enterprises) are adequately capitalized and operate safely and soundly in compliance with applicable laws, rules, and regulations. To carry out its statutory responsibilities, OFHEO may, among other things, require an Enterprise to submit reports. 1 1 12 U.S.C. 4514. On February 25, 2005, OFHEO published for comment a proposed regulation, at 70 FR 9255, which set forth proposed safety and soundness requirements with respect to mortgage fraud reporting. The 30-day comment period was extended until April 4, 2005. 2 All comments received have been made available to the public in the OFHEO Public Reading Room and also posted on the OFHEO Web site at *http://www.OFHEO.gov* . 2 70 FR 15018 (March 24, 2005). Comments Received Comments were received from the Inspector General for the Office of Housing and Urban Development; the Mortgage Asset Research Institute, a subsidiary of ChoicePoint Services Inc.; the Mortgage Bankers Association, a national association representing the real estate finance industry; the National Association of Mortgage Brokers; Freddie Mac; Fannie Mae; the Consumer Mortgage Coalition, a trade group of national residential mortgage lenders, servicers and service providers; AMCO, a valuation management firm; and various private citizens. All comments were taken into consideration. A discussion of the significant comments as they relate to the proposed sections of the regulation follows. Purpose and Scope Several commenters questioned the necessity for a regulation expressly requiring reporting of mortgage fraud and possible mortgage fraud and the benefits of such reporting to the Enterprises and the mortgage industry. Two commenters recommended that OFHEO consider alternative approaches, such as reliance on private industry “ineligible” lists. The purpose of the regulation is to set forth safety and soundness requirements and expectations with respect to the reporting of mortgage fraud in furtherance of the supervisory responsibilities of OFHEO, that is, ensuring the safe and sound operations of the Enterprises. OFHEO must gain timely information on actual or possible mortgage fraud to assure that adequate internal controls and systems exist to protect the Enterprises from risks associated with such fraud. The information provided will be the subject of review by the examination force of OFHEO, as well as other appropriate OFHEO offices. The information will assist OFHEO in assessing internal controls, security efforts, management of risks, including reputation risk, and other factors relevant to the safe and sound operation of the Enterprises. The oversight by OFHEO of programs to detect and avoid mortgage fraud will provide public understanding of the expectation that the Enterprises will remain vigilant in resisting fraudulent practices and should have a deterrent effect. OFHEO will develop a process for sharing of information it acquires with law enforcement authorities, while assuring that the Enterprises do not encounter liability issues. The Federal Bureau of Investigation

(FBI)indicated in Financial Crimes Report to the Public (May 2005) that combating significant mortgage fraud is an FBI priority because mortgage lending and the housing market have a significant overall effect on the nation's economy. 3 The FBI explained that: 3 * http://www.fbi.gov/publications/financial/fcs_report052005/fcs_report052005.htm#d1* . A significant portion of the mortgage industry is void of any mandatory fraud reporting. In addition, mortgage fraud in the secondary market is often underreported. Therefore, the true level of mortgage fraud is largely unknown. The mortgage industry itself does not provide estimates on total industry fraud. Based on various industry reports and FBI analysis, mortgage fraud is pervasive and growing. In combating mortgage fraud, the FBI noted that it works actively to investigate such fraud and has been fostering relationships and partnerships with the mortgage industry, including the Enterprises. While OFHEO has no authority to “police” the mortgage industry for fraud or to prosecute mortgage fraud, OFHEO has noted that the Enterprises, as part of the financial system, should operate in a manner to deter fraud and thereby assist in system-wide efforts to make mortgage fraud an unattractive avenue for corrupt individuals or institutions. The Enterprises currently investigate and maintain information on mortgage fraud and possible mortgage fraud. A formal reporting requirement to OFHEO will focus Enterprise efforts on ensuring that internal policies, procedures, and training programs are in place to minimize the risks from mortgage fraud. No evidence exists that a formal reporting requirement will create or increase burdens on the Enterprises. The Enterprises currently investigate fraud or possible fraud, report fraud to law enforcement authorities, and provide reports to OFHEO as required; this regulation contemplates such routine reporting to OFHEO. Additionally, no evidence exists that a formal reporting requirement will require the mortgage industry as a whole to take on additional burdens. The Enterprises currently, when fraud is suspected, inquire of seller-servicers and others about business transactions and practices. Furthermore, law enforcement authorities have reported that much of the fraud involving secondary market parties relates to institutional fraud, not individuals seeking to secure financing. Thus, Enterprise efforts to report on possible or actual mortgage fraud should have no regulatory burden for the mortgage finance industry as the Enterprises already conduct due diligence in dealing with seller-servicers and others in the mortgage finance system. For the reasons set forth above and because of law enforcement reports of an increasing incidence of mortgage-related fraud—and the potential impact of such fraud on Enterprise profits, liquidity and reputation—OFHEO has determined to issue the mortgage fraud reporting regulation. Definition of the Terms “Mortgage Fraud” and “Possible Mortgage Fraud.” As proposed, the term “mortgage fraud” would be defined under § 1731.2 to mean a material misstatement, misrepresentation, or omission relied upon by an Enterprise to fund or purchase—or not to fund or purchase—a mortgage, mortgage backed security, or similar financial instrument. The term would include, but not be limited to, identification and employment documents, mortgagee or mortgagor identity, and appraisals that are fraudulent. The term “possible mortgage fraud” would be defined to mean that an Enterprise has cause to believe that that mortgage fraud is occurring or has occurred. OFHEO received a few comments on the definition of the term “mortgage fraud.” One commenter noted that the definition treats all mortgage-backed securities

(MBS)as equivalent to mortgages for purposes of mortgage fraud, whether issued or guaranteed by an Enterprise or whether issued or guaranteed by a third party. The commenter explained that MBS issued and guaranteed by a third party may present securities fraud issues, but not mortgage fraud issues, and requested that the definition make clear that it covers only MBS issued or guaranteed by an Enterprise. Two other commenters requested that the definition should include the concept that the material misstatement, misrepresentation, or omission be “knowingly made” or “intentionally made.” OFHEO has revised the definition of the term “mortgage fraud” to clarify that it covers MBS issued or guaranteed by an Enterprise. OFHEO does not believe that it is necessary to include the concept that the material misstatement, misrepresentation, or omission be “knowingly made” or “intentionally made.” Such language goes to the definition of fraud that is well established, as opposed to the definition of a particular type, that is, fraud related to mortgages. In addition, benchmarks or “triggers” for providing information to OFHEO, as discussed below, will be developed as the reporting requirements are implemented. The term “possible mortgage fraud” was proposed to be defined to mean that an Enterprise has cause to believe that mortgage fraud may be occurring or has occurred. Some commenters recommended that OFHEO should provide guidance, through regulation or through guidance documents, as to triggers and level of verification, otherwise the definition, they argued, is too broad. OFHEO agrees and will provide guidance, as requested, as to these and related matters as part of the implementation of the reporting requirements. One commenter recommended that the definition should include the element of good-faith judgment on the part of the Enterprise. Another commenter recommended that the definition should include the element of reasonable or justifiable cause to believe that mortgage fraud may be occurring or has occurred. OFHEO agrees that the definition should be modified to include “reasonable cause” and has clarified the definition of the term “possible mortgage fraud” accordingly. Unsafe and Unsound Conduct Proposed § 1731.3 would provide that an Enterprise may not require the repurchase of or may not decline to purchase a mortgage, mortgage backed security, or similar financial instrument because of possible mortgage fraud without promptly reporting to the Director under § 1731.4. One commenter requested that this section should clearly state that it does not prohibit the Enterprises from declining purchases or requiring repurchases if the Enterprises are properly reporting mortgage fraud or possible mortgage fraud. OFHEO agrees, and has clarified the language of § 1731.3 accordingly. Reporting Time-Period As proposed, § 1731.4 would set forth the procedures for reporting fraud and possible mortgage fraud to OFHEO. OFHEO would issue implementation instructions with respect to reporting such fraud. Section 1731.4 also would provide that if a situation requires the immediate attention of OFHEO, an Enterprise would report immediately by telephone or electronic communication. A few commenters recommended that the proposed four-day notification period was too short and recommended either a 30-day period or that notification be “prompt.” OFHEO agrees that a requirement for “prompt reporting” would permit flexibility in addressing different situations and changing needs in the implementation of the reporting requirement and has modified the definition accordingly to remove the fixed time period and will address notification requirements as part of the implementation of the rule. The requirement for immediate reporting, when appropriate, remains. One commenter recommended that the reporting requirement should not be retroactive and apply only to mortgages purchased or not purchased six months after the effective date of the regulation. OFHEO did not propose and does not intend that the regulation have retroactive application; OFHEO will work with the Enterprises for an effective transition while the Enterprises develop and implement or enhance reporting systems. Non-Disclosure and Safe Harbor As proposed, the section would prohibit the disclosure of reporting mortgage fraud or possible mortgage fraud to the parties connected with such fraud without the prior written approval of the Director. The proposed section expressly stated that the requirement would not prevent an Enterprise from disclosing or reporting such fraud pursuant to legal requirements, including reporting to appropriate law enforcement authorities. One commenter expressed a concern that the proposed section would discourage the Enterprises from reporting fraud; another argued that the Enterprises should be required to report fraud to law enforcement authorities. The Enterprises already have the authority to report fraud to law enforcement; the major focus of concern of the proposed regulation is the need to make routine reporting of possible mortgage fraud to OFHEO and for OFHEO to take actions regarding such possible fraud. Another commenter recommended the addition of a clarification that the requirement of this section does not limit the Enterprise from reporting fraud to a third party or from taking any legal or business action it may deem appropriate, including an action involving the party or parties connected with the mortgage fraud or possible mortgage fraud. OFHEO agrees that this clarification is useful and has modified the section accordingly. A few commenters addressed “safe harbor” concerns, in that the safe harbor provisions of the Bank Secrecy Act would not apply to the Enterprises reporting of mortgage fraud to OFHEO, and leave the Enterprises vulnerable to liability should OFHEO refer an Enterprise report to another government agency. OFHEO recognizes the liability concerns; nevertheless, OFHEO will continue to provide information on mortgage fraud to appropriate authorities while addressing concerns related to the absence of an explicit safe harbor. Except with respect to the clarifications of the proposed language as noted above, OFHEO has determined to issue the regulation as proposed. Regulatory Impact Executive Order 12866, Regulatory Planning and Review The regulation is not classified as an economically significant rule under Executive Order 12866 because it would not result in an annual effect on the economy of $100 million or more or a major increase in costs or prices for consumers, individual industries, Federal, state, or local government agencies, or geographic regions; or have significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreign-based enterprises in domestic or foreign markets. Accordingly, no regulatory impact assessment is required. Nevertheless, the proposed regulation was submitted to the Office of Management and Budget for review under other provisions of Executive Order 12866 as a significant regulatory action. Executive Order 13132, Federalism Executive Order 13132 requires that Executive departments and agencies identify regulatory actions that have significant federalism implications. A regulation has federalism implications if it has substantial direct effects on the states, on the relationship or distribution of power between the Federal Government and the states, or on the distribution of power and responsibilities among various levels of government. The Enterprises are federally chartered corporations supervised by OFHEO. The regulation would require reporting of mortgage fraud to OFHEO. It would not affect in any manner the powers and authorities of any state with respect to the Enterprises or alter the distribution of power and responsibilities between Federal and state levels of government. It would in no way limit the authority of any state to take actions for violations of its laws. Therefore, OFHEO has determined that the regulation has no federalism implications that warrant the preparation of a Federalism Assessment in accordance with Executive Order 13132. Regulatory Flexibility Act The Regulatory Flexibility Act (5 U.S.C. 601 *et seq.* ) requires that a regulation that has a significant economic impact on a substantial number of small entities, small businesses, or small organizations include an initial regulatory flexibility analysis describing the regulation's impact on small entities. Such an analysis need not be undertaken if the agency has certified that the regulation will not have a significant economic impact on a substantial number of small entities. 5 U.S.C. 605(b). OFHEO has considered the impact of the proposed regulation under the Regulatory Flexibility Act. The General Counsel of OFHEO certifies that the regulation would not be likely to have a significant economic impact on a substantial number of small business entities because it would be applicable only to the Enterprises, which are not small entities for purposes of the Regulatory Flexibility Act. List of Subjects in 12 CFR Part 1731 Administrative practice and procedure, Government sponsored enterprises. For the reasons stated in the preamble, part 1731 is added to chapter XVII, title 12 of the Code of Federal Regulations to read as follows: PART 1731—MORTGAGE FRAUD REPORTING Sec. 1731.1 Purpose and scope. 1731.2 Definitions. 1731.3 Unsafe and unsound conduct. 1731.4 Procedures for reporting. 1731.5 Internal controls, procedures, and training. 1731.6 Supervisory action. Authority: 12 U.S.C. 4513(a) and 4513(b)(1), (2), and (7). § 1731.1 Purpose and scope. The purpose of this section is to set forth safety and soundness requirements with respect to the reporting of mortgage fraud in furtherance of the supervisory responsibilities of OFHEO under the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501 *et seq.* ). § 1731.2 Definitions. For purposes of this part—

(a)*Director* means the Director of OFHEO, or his or her designee.

(b)*Enterprise* means the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation.

(c)*Mortgage fraud* means a material misstatement, misrepresentation, or omission relied upon by an Enterprise to fund or purchase—or not to fund or purchase—a mortgage, including a mortgage associated with a mortgage-backed security or similar financial instrument issued or guaranteed by an Enterprise. Such mortgage fraud includes, but is not limited to, a material misstatement, misrepresentation, or omission in identification and employment documents, mortgagee or mortgagor identity, and appraisals that are fraudulent.

(d)*OFHEO* means the Office of Federal Housing Enterprise Oversight.

(e)*Possible mortgage fraud* means that an Enterprise has a reasonable belief, based upon a review of information available to the Enterprise, that mortgage fraud may be occurring or has occurred. § 1731.3 Unsafe and unsound conduct. An Enterprise may not require the repurchase of or may not decline to purchase a mortgage, mortgage backed security, or similar financial instrument because of possible mortgage fraud without promptly reporting to the Director under § 1731.4. An Enterprise may decline such purchase or require such repurchase if it is reporting mortgage fraud or possible mortgage fraud in accordance with § 1731.4. § 1731.4 Procedures for reporting.

(a)*Procedures for reporting.*

(1)*Prompt report.* An Enterprise shall report promptly mortgage fraud or possible mortgage fraud in writing to the Director in such format and under such notification procedures as prescribed by OFHEO. The report shall describe the mortgage fraud or possible mortgage fraud in detail sufficient under OFHEO guidance. The Enterprise, at the sole discretion of the Director, may be required to provide additional or continuing information in connection with such mortgage fraud.

(2)*Immediate report.* In addition to reporting in writing under paragraph (a)(1) of this section, in any situation requiring immediate attention by OFHEO, an Enterprise shall report the mortgage fraud or possible mortgage fraud to the Director by telephone or electronic communication.

(b)*Retention of records.* An Enterprise shall maintain a copy of any report submitted to the Director and the original or business record equivalent of any supporting documentation for a period of five years from the date of submission.

(c)*Nondisclosure.* An Enterprise may not disclose, without the prior written approval of the Director, to the party or parties connected with the mortgage fraud or possible mortgage fraud that it has reported such fraud under this part. This restriction does not prohibit an Enterprise from—

(1)Disclosing or reporting such fraud pursuant to legal requirements, including reporting to appropriate law enforcement or other governmental authorities; or

(2)Taking any legal or business action it may deem appropriate, including any action involving the party or parties connected with the mortgage fraud or possible mortgage fraud.

(d)*Acceptance of other forms.* The Director may, upon written notice to each Enterprise, accept reports of mortgage fraud or possible mortgage fraud in formats promulgated by any Federal agency that has jurisdiction over the reporting of mortgage fraud or possible mortgage fraud by the Enterprises.

(e)*No waiver of privilege.* An Enterprise does not waive any privilege it may claim under law by reporting mortgage fraud or possible mortgage fraud under this part. § 1731.5 Internal controls, procedures, and training. An Enterprise shall establish adequate and efficient internal controls and procedures and an operational training program to assure an effective system to detect and report mortgage fraud or possible mortgage fraud under this part. § 1731.6 Supervisory action. Failure by an Enterprise to comply with §§ 1731.3, 1731.4, and 1731.5 may subject the Enterprise or the board members, officers, or employees thereof to supervisory action by OFHEO under the Federal Housing Enterprises Safety and Soundness Act of 1992 (12 U.S.C. 4501 *et seq.* ), including but not limited to, cease-and-desist proceedings and civil money penalties. Dated: July 25, 2005. Stephen A. Blumenthal, Acting Director, Office of Federal Housing Enterprise Oversight. [FR Doc. 05-14957 Filed 7-27-05; 8:45 am]

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