To exempt qualified residential mortgages from credit risk retention requirements.

SA 3956. Ms. LANDRIEU (for herself, Mr. Isakson, Mrs. Hagan, Mr.
Warner, and Mr. Menendez) submitted an amendment intended to be
proposed to amendment SA 3739 proposed by Mr. Reid (for Mr. Dodd (for
himself and Mrs. Lincoln)) to the bill S. 3217, to promote the
financial stability of the United States by improving accountability
and transparency in the financial system, to end ``too big to fail'',
to protect the American taxpayer by ending bailouts, to protect
consumers from abusive financial services practices, and for other
purposes; which was ordered to lie on the table; as follows:

On page 1047, strike line 4 and all that follows through
line 20 and insert the following:
``(i) not less than 5 percent of the credit risk for any
asset--

``(I) that is not a qualified residential mortgage that is
transferred, sold, or conveyed through the issuance of an
asset-backed security by the securitizer; or
``(II) that is a qualified residential mortgage that is
transferred, sold, or conveyed through the issuance of an
asset-backed security by the securitizer, if 1 or more of the
assets that collateralize the asset-backed security are not
qualified residential mortgages; or

``(ii) less than 5 percent of the credit risk for an asset
that is not a qualified residential mortgage that is
transferred, sold, or conveyed through the issuance of an
asset-backed security by the securitizer, if the originator
of the asset meets the underwriting standards prescribed
under paragraph (2)(B);
``(C) specify--
``(i) the permissible forms of risk retention for purposes
of this section;
``(ii) the minimum duration of the risk retention required
under this section; and
``(iii) that a securitizer is not required to retain any
part of the credit risk for an asset that is transferred,
sold or conveyed through the issuance of an asset-backed
security by the securitizer, if all of the assets that
collateralize the asset-backed security are qualified
residential mortgages;

On page 1051, between lines 3 and 4, insert the following:
``(4) Exemption for qualified residential mortgages.--
``(A) In general.--The Federal banking agencies, the
Commission, the Secretary of Housing and Urban Development,
and the Director of the Federal Housing Finance Agency shall
jointly issue regulations to exempt qualified residential
mortgages from the risk retention requirements of this
subsection.
``(B) Qualified residential mortgage.--The Federal banking
agencies, the Commission, the Secretary of Housing and Urban
Development, and the Director of the Federal Housing Finance
Agency shall jointly define the term `qualified residential
mortgage' for purposes of this subsection, taking into
consideration underwriting and product features that
historical loan performance data indicate result in a lower
risk of default, such as--
``(i) documentation and verification of the financial
resources relied upon to qualify the mortgagor;
``(ii) standards with respect to--

``(I) the residual income of the mortgagor after all
monthly obligations;
``(II) the ratio of the housing payments of the mortgagor
to the monthly income of the mortgagor;
``(III) the ratio of total monthly installment payments of
the mortgagor to the income of the mortgagor;

[[Page S3553]]

``(iii) mitigating the potential for payment shock on
adjustable rate mortgages through product features and
underwriting standards;
``(iv) mortgage guarantee insurance obtained at the time of
origination for loans with combined loan-to-value ratios of
greater than 80 percent; and
``(v) prohibiting or restricting 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.
``(5) Condition for qualified residential mortgage
exemption.--The regulations issued under paragraph (4) shall
provide that an asset-backed security that is collateralized
by tranches of other asset-backed securities shall not be
exempt from the risk retention requirements of this
subsection.
``(6) Certification.--The Commission shall require an
issuer to certify, for each issuance of an asset-backed
security collateralized exclusively by qualified residential
mortgages, that the issuer has evaluated the effectiveness of
the internal supervisory controls of the issuer with respect
to the process for ensuring that all assets that
collateralize the asset-backed security are qualified
residential mortgages.
______