IN THE SENATE OF THE UNITED STATES
December 8, 2011
Mr. Isakson introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs
To revoke the charters for the Federal National Mortgage Corporation and the Federal Home Loan Mortgage Corporation upon resolution of their obligations, to create a new Mortgage Finance Agency for the securitization of single family and multifamily mortgages, and for other purposes.
Short title; findings
This Act may be cited
Mortgage Finance Act of
Congress finds that—
dependable, transparent, and liquid primary and secondary markets for high-quality residential and multifamily mortgages are critical to a safe and sound housing market;
Congress wishes to terminate the Congressional charters and operations of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, and to wind them down through an orderly receivership process, without disrupting the housing markets;
taxpayers have expended billions of dollars on behalf of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation during the period of their conservatorship, and such expenditures should be recouped;
increased participation by the private sector to provide mortgage market liquidity and credit risk mitigation is necessary and desirable to reduce dependence on Government guarantees, and to make remote any future needs for taxpayer assistance;
this Act creates a new transitional facility to guarantee securitizations of high-quality residential mortgages, to ensure a sound and stable housing market;
multiple layers of private capital and the creation of an industry-funded Catastrophic Fund will make future risk to taxpayers highly remote; and
this Act provides for the privatization of the transitional facility after 10 years, with proceeds being paid to the United States Treasury.
For purposes of this Act, unless the context otherwise requires, the following definitions shall apply:
Board of directors
The term Board of Directors means the Board of Directors of the MFA.
The term charter means—
with respect to the Federal National Mortgage Association, the Federal National Mortgage Association Charter Act (12 U.S.C. 1716 et seq.); and
with respect to the Federal Home Loan Mortgage Corporation, the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1451 et seq.).
The term Director, other than in the context of the Director of the FHFA, means the director of the Mortgage Finance Agency.
The term enterprise means—
the Federal National Mortgage Association; and
the Federal Home Loan Mortgage Corporation.
The term FHFA means the Federal Housing Finance Agency.
Mortgage Finance Agency; MFA
MFA mean the agency established under title
MFA certification date
The term MFA certification date means the date on which the Director certifies that the MFA is operational and able to perform the guarantee function for qualified mortgage-backed securities collateralized by qualified residential mortgages, as provided in this Act, which date shall be not later than 18 months after the date of enactment of this Act.
The term qualified issuer means a person who originates or purchases, and services, a qualified residential mortgage or a qualified multifamily mortgage, and is approved to issue securities guaranteed by the MFA, in accordance with this Act and with the guidelines issued by the MFA under section 302.
Qualified mortgage-backed securities
The term qualified mortgage-backed securities means securities collateralized by qualified residential mortgages or qualified multifamily mortgages, as the case may be, issued by a qualified issuer and guaranteed by the MFA with respect to the timely payment of principal and interest, all in accordance with this Act.
Qualified multifamily mortgage
mortgage means a commercial real estate loan secured by a property with
5 or more single family units, the primary source of repayment for which is
expected to be derived from the proceeds of the sale, refinancing, or permanent
financing of the property, or rental income generated by the property,
has been originated with an initial loan to value ratio of not more than 75 percent and with an initial debt service coverage ratio of at least 1.25; or
with respect to which, the mortgage lender retains a pro rata vertical slice of credit risk in an amount to be determined by the MFA.
Qualified residential mortgage
The term qualified residential mortgage means a residential real estate loan secured by a property with 1 to 4 single family units that has been originated in compliance with the following underwriting standards and product features:
Documentation and verification of the financial resources relied upon to qualify the mortgagor.
Standards with respect to the income and scheduled debt payments of the mortgagor, including—
one or more of—
the residual income of the mortgagor after all monthly obligations;
the ratio of the housing payments of the mortgagor to the monthly income of the mortgagor; and
the ratio of total monthly installment payments of the mortgagor to the income of the mortgagor; and
mitigation of the potential for payment shock on adjustable rate mortgages.
Downpayments which shall be equal to not less than 5 percent of purchase price, and—
in the case of such mortgages with downpayments equal to not less than 5 percent but less than 30 percent of the purchase price, the mortgage is covered by private mortgage insurance purchased at the time of origination in an amount sufficient to cover each loan to the equivalent of not less than a 30 percent downpayment; and
such mortgage insurance is issued by an entity that is subject to regulation as a mortgage guaranty insurer by the State of domicile of such entity or by the Federal Insurance Office (which regulation includes risk-based capital and reserve requirements).
Prohibition of or restrictions on the use of balloon payments, negative amortization, prepayment penalties, interest-only payments, and other features that have been demonstrated to exhibit a higher risk of borrower default.
The term Secretary means the Secretary of the Treasury.
Termination of Fannie Mae and Freddie Mac Charters
Receivership of the enterprises
Effective on the MFA certification date, the FHFA is appointed receiver of the enterprises, and the enterprises shall be placed into irrevocable receivership by the FHFA, in accordance with section 1367 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4617), except that—
paragraphs (1) through (5) of subsection (a) of that section 1367 do not apply with respect to such appointment; and
prior to the MFA certification date, the enterprises shall be permitted to engage in the business of guaranteeing the timely payment of principal and interest on qualified mortgage-backed securities and to undertake all functions necessary to carry out such business, to the extent that such guarantees are necessary to provide a dependable, transparent, and liquid market for high quality mortgages for securitization.
Commencement of liquidation
Immediately upon placement of the enterprises into receivership, the FHFA shall commence liquidation of the enterprises.
Repeal of GSE charters
The charter of the Federal National Mortgage Association, is repealed, effective 90 days after the date on which liquidation thereof is complete, in accordance with this Act.
The charter of the Federal Home Loan Mortgage Corporation, is repealed, effective 90 days after the date on which liquidation thereof is complete, in accordance with this Act.
Rule of construction
For purposes of any provision of Federal law that refers to or relies on a decision by the Director of the FHFA to place an enterprise into receivership, such determination shall be deemed to have been made by operation of the placement of the enterprises into receivership under subsection (a).
Repayment of Government assistance; maximizing return to taxpayers
After fully satisfying the outstanding obligations of the enterprises in a manner consistent with their receivership status, all remaining proceeds from the operations of the enterprises in receivership shall be paid by the FHFA to the General Fund of the United States Treasury in repayment of Government assistance provided in connection with ensuring the solvency and resolution of the enterprises prior to the date of enactment of this Act.
Maximum return to taxpayer
The combined assets of the enterprises, including on-balance sheet portfolios, shall be managed by the FHFA as receiver to obtain resolutions that maximize the return for the taxpayer, to the extent that—
such resolutions are consistent with the goal of supporting a sound, stable, and liquid housing market; and
such resolutions are consistent with applicable law.
Transfer of proceeds of privatization and catastrophic fund
The proceeds from privatization of the MFA upon termination of its authority in accordance with section 304 shall be deposited into the General Fund of the United States Treasury. Upon such termination of the authority of the MFA, the Catastrophic Fund shall be transferred to the General Fund of the United States Treasury, and the United States Treasury shall assume responsibility for and honor any remaining obligations of the MFA, of whatever nature and until such time as they are extinguished.
Report to Congress
Upon the resolution of all valid claims of the enterprises, the Director of the FHFA shall submit a report by the FHFA as receiver of the enterprises to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee Financial Services of the House of Representatives, certifying the completion of the receivership.
Mortgage Finance Agency
Establishment of MFA
There is established the Mortgage Finance Agency, which shall be an independent agency of the Federal Government.
The MFA shall be headed, on a day-to-day basis, by a Director, appointed by the President, by and with the advice and consent of the Senate. Such appointment shall be made not later than 6 months after the date of enactment of this Act.
The Director shall have general regulatory authority over the MFA, and shall exercise such general regulatory authority as necessary to carry out this Act.
The Director shall serve for a term of 5 years. An individual may serve as Director after the expiration of the term for which appointed, until a successor has been appointed and qualified.
A vacancy in the office of the Director shall be filled in the same manner as the original appointment.
The Director shall be compensated at the rate prescribed for level II of the Executive Schedule under section 5313 of title 5, United States Code.
Board of directors
The operations of the MFA shall be directed by a 5-member board of directors, including the Director, who shall serve as the chairperson of the Board of Directors, a Vice Chairman, who shall be appointed by the President, the Chairman of the Securities and Exchange Commission, or a designee thereof, the Secretary of the Department of Housing and Urban Development, or a designee thereof, and the Chairman of the Board of Governors of the Federal Reserve System, or a designee thereof.
A majority vote of all members of the Board of Directors is necessary to resolve all voting issues of the MFA.
The Board of Directors shall meet at the call of the Director, but in no event less frequently than once in each calendar quarter.
The members of the Board of Directors shall serve without additional pay (or benefits in the nature of compensation) for service as a member of the Board of Directors.
Members of the Board of Directors shall be entitled to receive travel expenses, including per diem in lieu of subsistence, equivalent to those set forth in subchapter I of chapter 57 of title 5, United States Code.
The Board of Directors may prescribe, amend, and repeal such bylaws as may be necessary for carrying out the functions of the Board of Directors.
A majority of the Board of Directors shall constitute a quorum.
Privatization Advisory Board
There shall be appointed by the President a 10-member privatization advisory board. To the extent practicable, the President shall seek at all times to have advisory board members with expertise in—
single family housing finance;
multifamily housing finance;
residential real estate development and sales;
secondary market structuring and pricing;
private mortgage insurance;
privatization structuring and execution; and
The roles of the advisory board shall be—
to advise the Board of Directors on the privatization of the MFA upon termination of its authority under this Act, including how best to facilitate a smooth, efficient, and orderly transition of the guarantee business;
to review and opine on the status of the planning for privatization; and
concurrently with the plan and annual and quarterly reports presented by the MFA to Congress under section 304(c), to present to Congress its own independent reports on the plan for privatization and the status thereof.
There shall be within the MFA an Inspector General, who shall be appointed by the President in accordance with section 3(a) of the Inspector General Act of 1978 not later than 6 months after the date of enactment of this Act.
Annual appropriations to the MFA shall be based upon a budget submitted to Congress by the MFA and approved by the Board of Directors. In accordance with section 303(a)(2), amounts appropriated shall be recouped through collection of the guarantee fee.
Not later than 12 months after the date of the appointment of the Director, the MFA shall issue such regulations, guidelines, orders, requirements, and standards as may be required for the establishment and operation of the MFA.
Report to Congress
Not later than 6 months after the date of the appointment of the Director, the Board of Directors shall provide to Congress a progress report on the drafting of regulations and other conditions precedent to the MFA becoming fully operational.
Appearances before congress
The Director shall appear before Congress annually regarding—
the safety and soundness of the MFA and the Catastrophic Fund, including, beginning one year after the date on which the MFA becomes operational, a report by the Inspector General of the MFA, and a report of an independent actuary, regarding the adequacy of guarantee fees, the adequacy of the Catastrophic Fund and the adequacy of the percentage of the guarantee fee that is being allocated to the Catastrophic Fund;
any material deficiencies in the conduct of the operations of the MFA;
the overall operational status of the MFA;
operations, resources, and performance of the Board of Directors; and
such other relevant matters relating to the Board of Directors and the MFA.
Staff, experts, and consultants
The MFA may appoint and fix the compensation of such officers, attorneys, economists, examiners, and other employees as may be necessary for carrying out its functions. The MFA shall appoint a Chief Risk Officer not later than 90 days after the date of the appointment of the Director.
Rates of pay
Rates of basic pay for all employees of the MFA may be set and adjusted by the MFA without regard to the provisions of chapter 51 or subchapter III of chapter 53 of title 5, United States Code.
The MFA may provide additional compensation and benefits to employees of the MFA, if the same type of compensation or benefits are then being provided by any agency referred to under section 1206 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 1833b) or, if not then being provided, could be provided by such an agency under applicable provisions of law, rule, or regulation. In setting and adjusting the total amount of compensation and benefits for employees, the MFA shall consult with, and seek to maintain comparability with, the agencies referred to under section 1206 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 1833b).
Detail of government employees
Upon request of the Director, any Federal Government employee may be detailed to the MFA or the Board of Directors without reimbursement, and such detail shall be without interruption or loss of civil service status or privilege.
Experts and consultants
The Director shall procure the services of experts and consultants as the Director considers necessary or appropriate.
Duties and responsibilities of the MFA
The MFA is authorized—
to guarantee securities issued by qualified issuers and collateralized by pools of qualified residential mortgages in order to provide a dependable, transparent, and liquid market for high quality mortgages for securitization;
to guarantee securities issued by qualified issuers and collateralized by pools of qualified multifamily mortgages, in order to provide a dependable, transparent, and liquid market for high quality multifamily mortgages for securitization;
to charge and collect a guarantee fee sufficient to protect the MFA and the United States Treasury from the risks of guaranteeing the timely payment of principal and interest on qualified mortgage-backed securities;
to establish and maintain a Catastrophic Fund to minimize the burden on the Federal Government, by setting aside amounts that will be available solely to pay obligations under the MFA guarantee in the event of any future mortgage market collapse; and
to purchase supplemental insurance coverage, as provided in section 303(d).
MFA Guarantee business
The MFA shall guarantee the timely payment of principal and interest to holders of qualified mortgage-backed securities. In the event of a payment default on a mortgage that collateralizes a qualified mortgage-backed security, the MFA guarantee shall cover any shortfalls to security holders after giving effect to proceeds, if any, from liquidation of the property securing the mortgage and from claims paid pursuant to any private mortgage insurance coverage (including supplemental insurance coverage, if any). The MFA guarantee of timely payment of principal and interest on qualified mortgage-backed securities shall be backed by the full faith and credit of the United States Government. The MFA shall charge a fee for such guarantee in accordance with section 303.
Qualified Residential Mortgages and Qualified Multifamily Mortgages
The MFA shall issue guidelines consistent with this Act specifying the terms and conditions of mortgages that satisfy—
the definition of a qualified residential mortgage, not later than 6 months after the date of confirmation of the Director; and
the definition of a qualified multifamily mortgage, not later than 1 year after the date of confirmation of the Director.
Not later than 12 months after the date of confirmation of the Director, the MFA shall issue guidelines designed to oversee the financial condition and origination and servicing standards of qualified issuers and servicers of qualified residential mortgages and qualified multifamily mortgages that collateralize qualified mortgage-backed securities.
Guidelines issued under this subsection shall—
include specific financial and operational standards for such qualified issuers and such servicers; and
broad participation in the issuance of qualified mortgage-backed securities by community banks, credit unions, national banks and State-licensed mortgage lenders;
that qualified issuers bear the risk of noncompliance with representations and warranties made in connection with the issuance of qualified mortgage-backed securities; and
that qualified issuers have the financial resources to support any obligations arising from any violations of representations and warranties made in connection with the issuance of qualified mortgage-backed securities.
Qualified residential mortgage loan limits
The MFA shall set loan limits for qualified residential mortgages that secure qualified mortgage-backed securities. Such loan limits shall be calculated and set annually, on a by-county basis, at an amount equal to not more than 150 percent of the area median home price for the preceding year, and not less than the national median home price for such year, in each case calculated using home price data compiled by FHFA or, if FHFA no longer compiles such data, by the MFA. In no event shall the loan limits in effect under this section in any county be lower than amounts applicable to single family mortgages insured by the Federal Housing Administration in such county.
Qualified multifamily mortgage loan limits
The MFA, in consultation with the Board of Directors, shall consider setting loan limits for qualified multifamily mortgages that secure qualified mortgage-backed securities, if such limits would foster competition between the MFA and private issuers in advance of the privatization of the MFA.
Prohibition on investment portfolio
The MFA shall not invest in mortgage-backed securities or otherwise maintain an investment portfolio, other than to the extent necessary for the MFA to carry out its responsibilities as guarantor of qualified mortgage-backed securities.
Guarantee fees; catastrophic fund; supplemental insurance
The MFA shall charge a guarantee fee under this section in connection with any guarantee issued by the MFA of timely payment of principal and interest on the qualified mortgage-backed securities. At all times, the guarantee fee shall be set at an equal amount for all qualified issuers. The amount of the guarantee fee shall be adjusted periodically, as necessary to fulfill the purposes described in paragraph (2).
The purposes of the guarantee fees are—
to fund the operations of the MFA;
to capitalize the Catastrophic Fund;
to cover any losses; and
to purchase supplemental insurance coverage, as provided in subsection (d).
The Board of Directors shall approve the amount of guarantee fees and any adjustments thereto, and shall determine the percentage of the guarantee fees, if any, that will be allocated to the Catastrophic Fund in accordance with subsection (b). Such percentage may be adjusted by the Board of Directors semiannually, as necessary to ensure that the Catastrophic Fund is adequately capitalized.
Creation of Catastrophic Fund
is established in the Treasury of the United States a fund to be known as the
Catastrophic Fund, which the MFA shall—
maintain and administer; and
use to carry out its insurance and guarantee functions, in the manner provided by this Act; and
invest in accordance with subsection (c).
The Catastrophic Fund shall be credited with—
the amount of guarantee fees, if any, that the Board of Directors determines should be allocated to the Catastrophic Fund to protect against catastrophic losses;
any amounts earned on investments of the Catastrophic Fund, other than as needed in connection with the routine operation of the guarantee business; and
such other amounts as may otherwise be credited to the Catastrophic Fund by the Board of Directors.
The Catastrophic Fund shall be solely available to the MFA for use by the MFA to satisfy obligations under its guarantee in accordance with this Act. Amounts remaining in the Catastrophic Fund following the repayment of all qualified mortgage-backed securities shall be distributed to the United States Treasury in accordance with section 102(c).
Beginning one year after the date on which the MFA becomes fully operational, and each year thereafter, the Board of Directors shall commission an independent actuarial study to determine the adequacy of the guarantee fees and of the capitalization of the Catastrophic Fund, the results of which study shall be made available to the public by the Board of Directors. The Board of Directors shall rely on such study to determine the amount of the guarantee fee that shall be charged and the percentage of the guarantee fees that shall be allocated to the Catastrophic Fund.
Amounts in the Catastrophic Fund that are not otherwise employed shall be invested in obligations of the United States or in obligations guaranteed as to principal and interest by the United States.
The MFA shall not sell or purchase any obligations described in paragraph (1) for its own account, at any one time aggregating in excess of $1,000,000, without the approval of the Secretary of the Treasury. The Secretary may approve a transaction or class of transactions subject to the provisions of this paragraph under such conditions as the Secretary may determine.
The MFA may use a portion of the guarantee fee to purchase supplemental insurance coverage on offerings of qualified mortgage-backed securities. The guarantee fee shall be set in an amount that is sufficient to cover the cost of such supplemental insurance, in addition to the other purposes set forth in subsection (a)(2). The supplemental insurance shall insure against losses, if any, after giving effect to the primary, first loss mortgage insurance coverage on mortgages collateralizing the mortgage-backed securities.
The supplemental insurance shall be structured to further reduce the exposure of the United States Government to losses arising under its guarantee on qualified mortgage-backed securities that are covered by supplemental insurance. Separate insurance coverage shall be provided for each new offering of qualified mortgage-backed securities.
Purchase of supplemental coverage required
Not later than 1 year after the MFA certification date, the Board of Directors shall issue guidelines to determine whether supplemental coverage—
is being offered on commercially reasonable terms; and
is reasonably likely to mitigate the risk that the MFA will have to make any payment pursuant to its guarantee.
Beginning not later than 3 years after the MFA certification date, the MFA shall purchase supplemental coverage for each offering of qualified mortgage-backed securities if the MFA determines that the supplemental coverage meets the guidelines issued by the Board of Directors under subparagraph (A).
Authority to purchase supplemental coverage
The MFA shall be authorized to purchase supplemental coverage from any mortgage insurance company authorized to provide mortgage insurance on a qualified residential mortgage, or from any other licensed insurance company with comparable regulatory oversight, capital, and reserve requirements.
No limit on private sector involvement; termination of authority
Private entities encouraged
Nothing in this Act may be construed as preventing the private sector from securitizing qualified residential mortgages, qualified multifamily mortgages, or other non-qualified residential single family or multifamily mortgages. Robust competition between the MFA and private issuers shall be encouraged to facilitate the soonest possible privatization of the MFA.
Termination of authority
The authority granted to the MFA under this Act shall expire 10 years after the date of enactment of this Act, and the MFA shall be terminated on that date. The MFA, in consultation with the Board of Directors, shall begin planning for such termination during the third year following the date of enactment of this Act.
Periodic Reports on Privatization
During the 5th year following the date of enactment of this Act, the MFA shall present to Congress a detailed plan for privatization of the MFA upon termination of its authority in accordance with subsection (b).
To ensure the transfer to privatization, the MFA shall report to Congress on the implementation of the detailed plan for privatization submitted under paragraph (1)—
annually through the 7th year following the date of enactment of this Act; and
quarterly, beginning in the 8th year following the date of enactment of this Act.
Amendments to Dodd-Frank Act
Section 15G of the Securities Exchange Act of 1934 (15 U.S.C. 78o–11) is amended—
in subsection (a)—
by redesignating paragraphs (3) and (4) as paragraphs (4) and (5), respectively; and
by inserting after paragraph (2) the following:
qualified residential mortgage has the same meaning as in
section 2 of the Mortgage Finance Act of
by adding at the end the following:
Exemption for qualified mortgage-backed securities
Qualified mortgage-backed securities, as defined in section 2 of the Mortgage Finance Act of 2011, and any other securitizations of qualified residential mortgages, shall be exempt from the risk retention provisions of subsection (c)(1)(B)(i).
Federal Housing Enterprises Financial Safety and Soundness Act of 1992
1303(20) of the Federal Housing Enterprises Financial Safety and Soundness Act
of 1992 (12 U.S.C. 4502(20)) is amended by striking
all that follows through
(C) any and inserting
Transfer of functions
All functions of the FHFA with respect to the enterprises, as that term is defined in section 1303 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, other than any function related to receivership of the enterprises, are transferred to the MFA, effective 90 days after the date on which liquidation of the enterprises is complete, in accordance with this Act.