S.Amdt. 4001

SA 4001. Ms. LANDRIEU (for herself and Mr. Isakson) 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
page 1051, line 3, 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;
``(D) apply, regardless of whether the securitizer is an
insured depository institution; and
``(E) provide for--
``(i) a total or partial exemption of any securitization,
as may be appropriate in the public interest and for the
protection of investors; and
``(ii) the allocation of risk retention obligations between
a securitizer and an originator in the case of a securitizer
that purchases assets from an originator, as the Federal
banking agencies and the Commission jointly determine
appropriate.
``(2) Asset classes.--
``(A) Asset classes.--The regulations prescribed under
subsection (b) shall establish asset classes with separate
rules for securitizers of different classes of assets,
including residential mortgages, commercial mortgages,
commercial loans, auto loans, and any other class of assets
that the Federal banking agencies and the Commission deem
appropriate.
``(B) Contents.--For each asset class established under
subparagraph (A), the regulations prescribed under subsection
(b) shall establish underwriting standards that specify the
terms, conditions, and characteristics of a loan within the
asset class that indicate a reduced credit risk with respect
to the loan.
``(d) Originators.--In determining how to allocate risk
retention obligations between a securitizer and an originator
under subsection (c)(1)(E)(ii), the Federal banking agencies
and the Commission shall--
``(1) reduce the percentage of risk retention obligations
required of the securitizer by the percentage of risk
retention obligations required of the originator; and
``(2) consider--
``(A) whether the assets sold to the securitizer have
terms, conditions, and characteristics that reflect reduced
credit risk;
``(B) whether the form or volume of transactions in
securitization markets creates incentives for imprudent
origination of the type of loan or asset to be sold to the
securitizer; and
``(C) the potential impact of the risk retention
obligations on the access of consumers and businesses to
credit on reasonable terms, which may not include the
transfer of credit risk to a third party.
``(e) Exemptions, Exceptions, and Adjustments.--
``(1) In general.--The Federal banking agencies and the
Commission may jointly adopt or issue exemptions, exceptions,
or adjustments to the rules issued under this section,
including exemptions, exceptions, or adjustments for classes
of institutions or assets relating to the risk retention
requirement and the prohibition on hedging under subsection
(c)(1).
``(2) Applicable standards.--Any exemption, exception, or
adjustment adopted or issued by the Federal banking agencies
and the Commission under this paragraph shall--
``(A) help ensure high quality underwriting standards for
the securitizers and originators of assets that are
securitized or available for securitization; and
``(B) encourage appropriate risk management practices by
the securitizers and originators of assets, improve the
access of consumers and businesses to credit on reasonable
terms, or otherwise be in the public interest and for the
protection of investors.
``(3) Farm credit system institutions.--A Farm Credit
System institution, including the Federal Agricultural
Mortgage Corporation, that is chartered and subject to the
provisions of the Farm Credit Act of 1971, as amended (12
U.S.C. 2001 et seq.), shall be exempt from the risk retention
provisions of this subsection.
``(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;

``(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.
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