Protecting American Taxpayers and Homeowners Act of 2018

the FHA may exercise (in addition to powers set forth in section 552) any authority and undertake any responsibilities of the Secretary of Housing and Urban Development under the National Housing Act (as amended by this title) relating to mortgage insurance, except as otherwise provided in this title and except that any authority that requires an appropriation may be conducted only to the extent that amounts are so appropriated;

any amounts in the Mutual Mortgage Insurance Fund under section 202(a) of the National Housing Act (12 U.S.C. 1708(a)), any amounts in the General Insurance Fund and Special Risk Insurance Fund under sections 519 and 238(b), respectively, of such Act (12 U.S.C. 1735c, 1715z–3(b)), and any amounts in the Cooperative Management Housing Insurance Fund under section 213(k) of such Act (12 U.S.C. 1715e(k)), shall be used by the FHA only—

the FHA may exercise any authority of the FHA under this title.

Mortgage amount

The mortgage shall involve a principal obligation (including such initial service charges, appraisal, inspection, and other fees as the FHA shall approve) in an amount not to exceed the following amounts:

Downpayment

The mortgage shall be executed by a mortgagor who shall have paid on account of the property subject to the mortgage an amount, in cash or its equivalent, equal to or exceeding 3.5 percent of the appraised value of the property, as determined by the FHA.

Prohibited mortgages

The mortgage is not—

Public purpose requirement

The mortgage shall meet the requirements of any one of the following subparagraphs:

by striking paragraph (2); and

in paragraph (9)—

In general

The Administrator shall annually cede a portion of the risk with respect to the mortgages insured by the FHA to the private reinsurance or capital markets, or any combination thereof, and at rates and terms that the Administrator determines to be reasonable and appropriate, in an amount that—

Development and implementation

Establishment

The model and standards established under this section shall include guidelines for the qualification of persons or entities to participate in risk transfer and other credit enhancement activities with the FHA.

Procedures

In establishing such guidelines, the FHA shall review the guidelines established by the Director for qualification of persons or entities to participate in risk transfer, risk-sharing, and other credit enhancement activities with the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation. The FHA shall determine whether such guidelines for such enterprises are sufficient for purposes of the FHA, including whether such guidelines meet the requirements under paragraph (3), and—

Content

Such guidelines shall ensure that—

Requirement

After the expiration of the 24-month period referred to in subsection (a)(2)(A), the FHA shall ensure that, in each fiscal year, not less than 10 percent of any new business in mortgages on 1- to 4-family residential property is insured pursuant to a risk transfer agreement with respect to such mortgage that complies with the standards established pursuant to subsection (a).

Limitation

In any fiscal year, the FHA may not comply with paragraph (1) by entering into risk transfer agreements with respect only to one or a limited number of types or categories of mortgages, or mortgages having only particular, or a particular range of, original principal obligation amounts, but shall enter into risk transfer agreements for all types and amounts of mortgages insured by the FHA, to the extent required under paragraph (1).

New business

For purposes of this subsection, with respect to a fiscal year, the term new business means the aggregate dollar amount of the principal obligations of mortgages for which a commitment to insure is made pursuant to the National Housing Act or this title, as applicable, during such fiscal year.

LTV equal to or exceeding 80 percent

In the case of a mortgage for which the outstanding principal obligation is equal to or exceeds 80 percent of the appraised value of the property, the annual premium payment shall be an amount that is not less than 0.55 percent of the remaining insured principal balance (excluding the portion of the remaining balance attributable to any premium collected at the time of insurance and without taking into account delinquent payments or prepayments), as the FHA shall establish.

LTV less than 80 percent

In the case of a mortgage for which the outstanding principal obligation is less than 80 percent of the appraised value of the property, the annual premium payment shall be an amount that is less than the amount of the annual premium payment established pursuant to paragraph (1), as the FHA shall establish.

costs of providing mortgage insurance coverage under this title;

costs for administration, operations, management, and technology systems for the FHA for carrying out this title;

the capital ratio required for the Mutual Mortgage Insurance Fund under section 216(b) and under section 219 with respect to mortgage insurance for mortgages on multifamily properties; and

salaries and expenses for officers and personnel of the FHA.

Requirement

Upon any termination of the insurance obligation of the Mutual Mortgage Insurance Fund by payment of any mortgage insured thereunder, which termination occurs after the expiration of the 24-month period beginning on the date of the enactment of this Act, the FHA shall distribute to the mortgagor a share of the Participating Reserve Account of the Mutual Mortgage Insurance Fund in such manner and amount as the Secretary shall determine to be equitable and in accordance with sound actuarial and accounting practice.

Amount

In no event shall any distributable share pursuant to paragraph (1) exceed the aggregate scheduled annual premiums of the mortgagor to the year of termination of the insurance.

Statute of limitations

The Secretary shall not distribute any share to an eligible mortgagor under this subsection beginning on the date which is 6 years after the date the Secretary first transmitted written notification of eligibility to the last known address of the mortgagor, unless the mortgagor has applied in accordance with procedures prescribed by the Secretary for payment of the share within the 6-year period.

Applicability

This subsection shall apply with respect only to mortgages insured under the Mutual Mortgage Insurance Fund after the date of the enactment of this Act.

Establishment

Subject to sections 216 and 219, the FHA may establish any reserve that the FHA determines is necessary for the business operations of the FHA.

Amounts

The FHA may hold as a reserve in any financing account, as defined in section 502 of the Congressional Budget Act of 1974 (2 U.S.C. 661a), such amounts as the FHA considers necessary to comply with the capital requirements established for the FHA under sections 216 and 219 of this title and to fulfill the purposes of this title.

In general

The Director shall produce and submit to the Director of the Office of Management and Budget the annual credit subsidy cost estimates for the FHA and the Rural Housing Service programs referred to in section 211(a) required for the President’s budget. Such estimates shall be consistent with the estimates of performance generated by the risk-based capital model developed in accordance with section 217(b), and with the President’s economic forecast.

Unified estimates

The annual credit subsidy cost estimates produced under this subsection by the Director shall be reported on a unified basis, which shall be based upon the business of the FHA, and the Rural Housing Service programs referred to in section 211(a), as a whole.

imposed prior to October 1 of each year;

allocated among the FHA and the Secretary of Agriculture proportionally based on the costs and expenses of the Agency of carrying out the duties under this subtitle with respect to FHA and the Rural Housing Service program referred to in section 211(a), respectively;

collected at such time or times during each assessment year as determined necessary or appropriate by the Director; and

treated in the same manner as provided under section 1316(f) of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992(12 U.S.C. 4516(f)) with respect to amounts received by the Director from assessments under section 1316 of such Act, except that amounts from assessments under this section may be used only for expenses of the Director and the Agency relating to the functions and responsibilities under this subtitle.

Capital attributable to new business.

Capital attributable to mortgages that become insured before the expiration of the transition period under section 551.

Capital

The term capital means the economic net worth of the account of the Fund that is established pursuant to subsection (a)(1) of this section, as determined by the FHA under the annual audit required under section 538 of the National Housing Act (12 U.S.C. 1735f–16).

Capital ratio

The term capital ratio means the ratio of capital to unamortized insurance-in-force.

Economic net worth

The term economic net worth means the current cash available to the account of the Fund that is established pursuant to subsection (a)(1) of this section, plus the net present value of all future cash inflows and outflows expected to result from outstanding new business.

Fund

The term Fund means the Mutual Mortgage Insurance Fund established under section 205 of the National Housing Act (12 U.S.C. 1711).

New business

The term new business means mortgages that are obligations of the Mutual Mortgage Insurance Fund that become insured by the FHA after the expiration of the transition period under section 551.

Unamortized insurance in force

The term unamortized insurance-in-force means the remaining obligation on outstanding new business, as estimated by the FHA.

in subparagraph (A), by striking Mutual Mortgage Insurance Fund and inserting account of the Mutual Mortgage Insurance Fund that is established pursuant to section 216(a)(2) of the Protecting American Taxpayers and Homeowners Act of 2018 ;

in subparagraph (C)—

in subparagraph (D), by inserting before the comma the following: and become insured before the expiration of the transition period under section 551 of the Protecting American Taxpayers and Homeowners Act of 2018 .

Adequately capitalized

At any time that the capital ratio (as such term is defined in section 216(c)(2) of this title) is greater than 4.0 percent, the account for the Mutual Mortgage Insurance Fund established pursuant to section 216(a)(1) shall be classified as adequately capitalized for purposes of this subtitle.

Undercapitalized

At any time that the capital ratio is greater than 0.0 percent and is less than 4.0 percent, the account for the Mutual Mortgage Insurance Fund established pursuant to section 216(a)(1) shall be classified as undercapitalized for purposes of this subtitle.

Significantly undercapitalized

At any time that the capital ratio is less than 0.0 percent—

Quarterly determination of capital ratio

The Director shall determine the capital ratio and the capital classification of the account for the Mutual Mortgage Insurance Fund established pursuant to section 216(a)(1) for purposes of this subtitle not less frequently than each calendar quarter.

In general

The Director shall develop a risk-based capital model to determine the amount of capital that is sufficient for the FHA to maintain positive capital during a period of economic stress. The model shall incorporate the assumptions under paragraphs (2) and (3).

Credit risk

For purposes of paragraph (1), the Director shall assume that, during the period of economic stress referred to in paragraph (1), credit losses occur at a rate consistent with a nationwide economic recession of average severity based on nationwide economic recessions since 1950.

Other risks

For purposes of paragraph (1), the Director shall make assumptions about such other aspects of the period of economic stress as the Director determines are appropriate and consistent.

Timing

Not later than the expiration of the 180-day period beginning on the date of the enactment of this Act, the Director shall submit the risk-based capital model developed pursuant to this to the Congress. The Director may not implement or otherwise employ such risk-based capital model before the expiration of the 120-day period beginning upon the submission of such model to the Congress.

submit to the Director a capital restoration plan meeting the requirements of section 218(d) for raising or restoring the capital of such account to an amount not less than the amount required for such account to be classified as adequately capitalized; and

upon approval by the Director, carry out such plan.

the account for the Mutual Mortgage Insurance Fund established pursuant to section 216(a)(1) is classified under section 217(a) as significantly undercapitalized;

the account for the Mutual Mortgage Insurance Fund established pursuant to section 216(a)(1) is classified under section 217(a) as undercapitalized and—

the FHA is engaging or has engaged, or the Director has reasonable cause to believe that the FHA is about to engage in—

to cease and desist from any conduct or activity that—

to take corrective or remedial action, including—

set forth a feasible plan for raising or restoring the capital of the Fund for which it is prepared;

specify the level of capital to be achieved and maintained;

be submitted to the Director within 45 days from the date of notification, or if the Director determines that an extension is necessary, within such additional time as the Director so determines;

describe the actions that the FHA shall take for such Fund to become classified as adequately capitalized;

establish a schedule for completing the actions set forth in the plan; and

specify the types and levels of activities (including existing and new business activities) in which the FHA shall engage during the term of the plan.

the General Insurance Fund established under section 519 of the National Housing Act (12 U.S.C. 1735c);

the Special Risk Insurance Fund established under section 238(b) of such Act (12 U.S.C. 1715z–3(b));

the Cooperative Management Housing Insurance Fund established under section 213(k) of such Act (12 U.S.C. 1715e(k));

the Rural Housing Insurance Fund established under title V of the Housing Act of 1949 (42 U.S.C. 1471), or the various accounts of such Fund; and

the Home Equity Conversion Insurance Fund established under section 255(s) of the National Housing Act (12 U.S.C. 1715–20(s)).

available credit throughout the United States or a significant portion of the United States for the purchase of the types of residences for which mortgages that obligations of such Fund are made has contracted significantly, as measured by the credit availability measure of the Office of the Comptroller of the Currency;

housing prices throughout the United States or a significant portion of the United States have declined significantly, as measured by the applicable housing price index of the Federal Housing Finance Agency; or

available credit for the purchase of housing or such other economic conditions exist sufficient to evidence a significant contraction of capital throughout the United States or a significant portion of the United States, as measured by a metric identified by the Director and the Chief Risk Officer in a written notice made publicly available, and provided to the Congress, in advance of such determination.

in the case of a temporary capital ratio for the Mutual Mortgage Insurance Fund, subsections (a) and (c) of section 217 and section 218 shall not apply;

such temporary and alternative capital classifications as the Director shall establish shall be in effect with respect to such Fund; and

the Director shall require the FHA to submit and carry out a capital restoration plan for such Fund meeting the requirements under section 218(d) and may take actions under section 218(b) with respect to such Fund only in accordance with such standards relating to such temporary and alternative capital classifications for such Fund as the Director shall establish.

the expiration of the 18-month period beginning upon the date that notification under subsection (c) is provided to the Congress of the determination under subsection (a); or

the occurrence of the conditions identified pursuant to subsection (b).

In general

Except as provided in paragraph (2), with respect to any mortgage on a 1- to 4-family residential property that is foreclosed upon, during the 7-year period beginning upon the date of such foreclosure, the FHA may not newly insure, under any provision of this title, the National Housing Act, or any FHA program, any other mortgage under which the mortgagor is the individual who was the mortgagor under the mortgage that was foreclosed upon.

Waiver

The FHA shall provide, by regulation, for the FHA to waive the applicability of paragraph (1) with respect to a mortgagor in cases in which hardship circumstances materially contributed to the default and foreclosure of the mortgage. For purposes of this subsection, such hardship circumstances may include divorce, job or other income loss, health problems, death in the family, and such other situations as the FHA may prescribe.

the number of loans that—

Manual

The FHA shall, pursuant to its existing regulatory authority, issue and update annually a manual, handbook, or guide that collects all of the origination and underwriting requirements that a mortgagee must follow to make residential mortgage loans eligible for insurance by the FHA which shall—

Requirements

The FHA shall—

In general

Notwithstanding any other provision of law, the FHA may not newly insure, under any provision of this title, the National Housing Act, or any FHA program, any mortgage that is secured by a structure or dwelling unit that is located within a county that contains any structure or dwelling unit that secures or secured a residential mortgage loan which mortgage loan was obtained by the State during the preceding 120 months by exercise of the power of eminent domain.

Definitions

For purposes of this paragraph, the following definitions shall apply:

In general

This section and the amendment made by this section shall take effect on the date of the enactment of this Act.

Transition period

During the transition period under section 551—

any assets of the mortgagor other than the property subject to such mortgage; and

any monthly obligations of the mortgagor with respect to mortgage payments, insurance payment, and taxes for the property subject to the mortgage, income and other taxes, maintenance, and utility expenses for the property, child care expenses, auto, consumer, and any other debt obligations, alimony and child support expenses, and such other expenses as the FHA may provide.

Formation

Subject to the terms of this subtitle and any regulations issued by the Director, a person or entity may file an application with the Director to establish the Exchange. The Exchange may be established as a corporation, mutual association, partnership, limited liability corporation, cooperative, or any other organizational form that the applicant may deem appropriate.

Contents of application

An application for establishment of the Exchange shall include—

Directors

The Exchange shall be governed by a board of directors—

Selection of applicant

The Director shall select the applicant to establish the Exchange that the Director determines, in the Director’s sole discretion, has the managerial, financial, and operational resources to succeed, consistent with the purposes of this subtitle

Not a Federal Government instrumentality

The Exchange is not, and shall not be deemed to be, a department, agency, or instrumentality of the United States Government.

Supervision

Notwithstanding any other provision of law—

Exemption from taxation

The Exchange shall be exempt from all taxation imposed by the United States, any territory, dependency, or possession of the United States or any State, county, municipality, or local taxing authority, except that any real property of the Repository shall be subject to State, territorial, county, municipal, or local taxation to the same extent according to its value as other real property.

adopt and use a corporate seal;

determine a State whose law will govern the corporate business activities of the Exchange;

adopt, amend, and repeal by-laws;

sue or be sued, subject to section 334 (relating to judicial review);

make contracts, incur liabilities, and borrow money;

purchase, receive, hold, and use real and personal property and other assets necessary for the conduct of its operations;

elect or appoint directors, officers, employees and agents, subject to section 311(d); and

upon receipt of the Director’s prior written approval, establish subsidiaries or affiliates that shall be subject to the same rights, duties and responsibilities as the Exchange.

develop standards and disclosures related to originating, pooling, and securitizing residential mortgage loans in accordance with subtitle B;

develop standards and disclosures related to servicing residential mortgage loans in accordance with subtitle B;

operate and maintain the Platform and establish fees for use of the Platform;

establish basic rules for use of the Platform;

establish the Repository and establish fees for registration of mortgage-related documents and maintenance and use of data of the Repository, in accordance with subtitle C;

perform any other service or engage in any other activity that the Director determines, by regulation or order, to be incidental to the activities enumerated in this subsection; and

establish fees for the provision of other related or incidental services not inconsistent with the purposes of this subtitle.

own, originate, aggregate, issue, service, insure, or guarantee any residential mortgage or other financial instrument that is associated with a residential mortgage;

guarantee timely payment of principal or interest on any mortgage-related security;

adopt access rules or fees for the Platform the effect of which is to discriminate against loan originators, aggregators, or issuers based on size, composition, business line, or loan volume; or

perform any service or engage in any activity other than those authorized under this subtitle, unless such activity has been determined by the Director to be incidental to an authorized activity.

Developing a Common Securitization Platform—

Developing a uniform contractual and disclosure framework that facilitates a deep, liquid, and resilient secondary mortgage market for mortgage-backed securities.

Developing functions to support the non-Government guaranteed securitization market.

Continuing, advancing, or developing any other initiative as authorized by the CSS Board of Managers, with the approval of the Director, to enhance efficiency, liquidity, and security in the secondary market for residential mortgage loans, provided such initiative does not conflict with or unreasonably delay the completion of the goals described under paragraph (1), (2), or (3).

Size

The size of the membership of the CSS Board of Managers shall be fixed at:

Appointment and qualifications

The Director shall appoint the additional members required under paragraph (1) from among individuals that—

Fiduciary duty

All members of CSS Board of Managers shall owe a fiduciary duty to the enterprises prior to the Transfer Date.

In general

Prior to the Transfer Date, Common Securitization Solutions shall develop, promulgate, and finalize standards that—

Approval and modifications of standards

Issuing securities and ensuring capabilities

Transfer of funds from the enterprises

At a time established by the Director, but not later than the Transfer Date, the Agency shall transfer to Common Securitization Solutions such funds from the enterprises as the Director, after consultation with the CSS Board of Managers, determines may be reasonably necessary for Common Securitization Solutions to begin carrying out the operations and activities of the Common Securitization Platform and the contractual and disclosure framework.

Quarterly report on development

Not later than 1 year after the date of enactment of this Act, and every quarter thereafter until the Transfer Date, the Director shall submit to Congress a report on the status of the development of the Common Securitization Platform and the contractual and disclosure framework, which shall include—

Report on transition

Not later than 2 years after the date of enactment of this Act, the Director shall develop a plan, and submit to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives a report on such plan, to transition, by the Transfer Date, the Common Securitization Platform and the contractual and disclosure framework from Common Securitization Solutions into a private, nonprofit entity that best facilitates a deep, liquid, and resilient secondary mortgage market for mortgage-backed securities.

Annual report on the Common Securitization Platform

The Inspector General of the Agency shall issue an annual report to the Congress on the status of the Common Securitization Platform until the Transfer Date.

Designated transfer date

The Director shall establish a Transfer Date for the transition of ownership of the Common Securitization Platform and the contractual disclosure framework, including any associated intellectual property, technology, systems, and infrastructure, from the enterprises and Common Securitization Solutions to the Exchange.

Public notice

In establishing the Transfer Date under paragraph (1), the Director shall provide notice to the public of such date, including on the website of the Agency.

Deadline

The Transfer Date established under paragraph (1) shall be no earlier than 2 years after the date of the enactment of this Act and no later than the date on which both charters of the enterprises are terminated pursuant to section 1367(k) of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992.

In general

At a time established by the Director, but not later than the Transfer Date, the Director shall direct the enterprises or Common Securitization Solutions to transfer or sell to the Exchange any property, including intellectual property, technology, systems, and infrastructure (including technology, systems, and infrastructure developed by the enterprises for the Common Securitization Platform), as well as any other legacy systems, infrastructure, and processes that may be necessary to carry out their operations and activities.

Contractual and other legal obligations

As may be necessary for the Agency and the enterprises to comply with legal, contractual, or other obligations, the Director shall have the authority to require that any transfer authorized under paragraph (1) occurs as an exchange for value, including through the provision of appropriate compensation to the enterprises or other entities responsible for creating, or contracting with, the Exchange.

Establishment of mortgage classifications

The Exchange shall prescribe classifications for residential mortgages having various degrees of credit risk, ranging from a classification of mortgages having little to no credit risk to a classification of mortgages having higher credit risk. In prescribing such classifications the Exchange shall seek to allow for the pricing of credit risk, allow for the trading of securities collateralized by each classification of mortgages established pursuant to this subsection in the forward market, and maintain well-functioning liquid markets in securities collateralized by each of the classifications of mortgages established pursuant to this subsection.

Underwriting Criteria

For each classification of mortgages established under paragraph (1), the Exchange shall establish standards for each of the following underwriting criteria:

Definitions

The Exchange shall, for purposes of this subsection, prescribe definitions for each of the following terms:

In General

The Exchange shall develop, adopt, and publish standards for an issuer to qualify as a qualified issuer. Such standards shall only include—

Application process

Review and revocation of qualified status

In general

The Exchange shall develop, adopt, and publish standard form securitization agreements for collateral that will be used to back qualified securities.

Required Content

The standard form securitization agreements to be developed under paragraph (1) shall include terms relating to—

servicing standards, including for the modification, restructuring, or work-out of any mortgage that serves as collateral for a qualified security; and

a servicer succession plan, which may include provisions for—

Data Standards

The Exchange shall develop, adopt, and publish standard data definitions for all aspects of loan origination, appraisals, and servicing. In developing such definitions, the Exchange shall consider the data standard-setting work undertaken by the Mortgage Industry Standards Maintenance Organization through the enterprises’ Uniform Mortgage Data Program announced by the Agency on May 24, 2010.

Disclosure Standards

The Exchange shall develop, adopt, and publish standards for disclosure of loan origination, appraisal, and servicing data, including data required in subsection (a)(2) (relating to underwriting criteria) for residential mortgage loans that comprise qualified securities.

Coordination

In developing the data and disclosure standards required by this subsection, the Exchange shall ensure that such standards are coordinated.

Privacy Protections

In prescribing the definitions and standards required under this subsection, the Exchange shall take into consideration issues of consumer privacy and all statutes, rules, and regulations related to privacy of consumer credit information and personally identifiable information. Such standards shall expressly prohibit the identification of specific borrowers.

Consultation

When reviewing any disclosure standards established under this subsection, the Director shall consult with the Securities and Exchange Commission.

In General

There shall at all times be one or more trustee for each pool of mortgages that acts as collateral for a qualified security.

Rulemaking

The Director shall issue regulations regarding the qualifications of trustees under paragraph (1) that shall, to the extent practicable, be consistent with the qualification provisions applicable to trustees under section 310(a) of the Trust Indenture Act of 1939 (15 U.S.C. 77jjj(a)).

Conflicts of Interest

The Director shall issue conflicts of interest regulations that apply to a qualified trustee. Such regulations shall, to the extent practicable, be consistent with those conflicts of interest provisions applicable to an indenture trustee under section 310(b) of the Trust Indenture Act of 1939 (15 U.S.C. 77jjj(b)).

Reporting of Claims

Any time a trustee brings a claim against a qualified issuer on behalf of investors with respect to a standard form securitization agreement, the trustee shall notify the Director of such claim.

Protection of Investor Rights

For the purpose of protecting investor rights, each trustee shall—

No Liability for Certain Communications

A trustee shall not be liable for the content of any information provided to the trustee by an investor (beneficial owner) that the trustee communicates to another investor (beneficial owner).

Investor (Beneficial Owner) Notification of Trustee

A person who becomes an investor (beneficial owner) in a qualified security shall promptly notify the trustee of such security of the change in ownership.

be granted access to the loan documents for the mortgage loans backing such security and all servicing reports the servicer provides to investors (beneficial owners) or the trustee;

be granted access to the list of investors (beneficial owners) maintained by the trustee, on the condition that the independent third party will not make the list available to the investors (beneficial owners); and

have the right, on behalf of the investors (beneficial owners), to inform the trustee of such securities of any breach of the securitization agreement identified by the third party.

In general

All disputes between an owner of a qualified security and the qualified issuer of such security relating to representations and warranties shall be subject to mandatory arbitration procedures established by the Exchange, in accordance with current market practices.

Selection of Arbitrator

Investors (beneficial owners) and issuers subject to a dispute described under paragraph (1) shall have the right to agree on an independent arbitrator. If the parties cannot agree on an independent arbitrator, the Exchange shall select an independent arbitrator for the parties.

Reporting Duty of Arbitrator

Timing

The Director shall issue any regulations required by this section not later than the end of the 12-month period beginning on the date of the enactment of this Act. The Exchange shall issue any definitions, standards, rules, processes, or procedures required by this section not later than the end of the 12-month period beginning on the date of the establishment of the Exchange.

Agency review

Any definition, standard, rule, process or procedure established by the Exchange shall be submitted to the Director for review and approval prior to its implementation if, in the Director’s discretion, the Director requires such submission. Any definition, standard, rule, process or procedure that the Director requires be submitted to the Agency for review and approval shall be reviewed within three months of submission.

Authority to revise

establish and operate a repository for mortgage-related documents;

establish standards for qualification of any depositor of mortgage-related documents to the Repository;

establish standards and procedures for submission of mortgage-related documents to the Repository, including required information and the type and format of information and data;

establish procedures for validation of mortgage-related documents and the data contained in the Repository;

establish standards and procedures for acceptance of mortgage-related documents (including electronic copies), and notice of acceptance, by the Repository;

establish standards and procedures for registration of any mortgage-related document with the Repository, including notice of registration and the assignment of a unique identifier, where such standards and procedures include a requirement that any such mortgage-related document must first be recorded in the appropriate local jurisdiction, as may be required under State or local law;

establish standards and procedures for recording the creation, assignment, or transfer of an interest in any registered mortgage-related document and for requiring the Repository to notify the appropriate local jurisdiction of such creation, assignment, or transfer;

establish standards and procedures for qualification of depositors and participants in the Repository;

establish procedures for proper demonstration of registration of mortgage-related documents with the Repository and recordation of an interest by the holder of an interest in any such document, subject to regulations issued by the Director in accordance with section 332 (relating to legal effect of registration with the Repository);

establish and maintain a catalog of the mortgage-related documents registered with the Repository;

establish standards and procedures for disposition of mortgage-related documents, including safekeeping, long-term storage, or destruction of paper documents;

establish standards and procedures for making data publicly available;

ensure that data collected and maintained by the Repository are kept secure and protected against unauthorized disclosure, taking into consideration issues of consumer privacy and all statutes, rules, and regulations related to privacy of consumer credit information and personally identifiable information, and prohibit the identification of specific borrowers;

establish a process, including notification from the public, for identification and correction of incorrect information submitted to or maintained by the Repository;

establish fees for registration of mortgage-related documents and maintenance and use of data, and for the provision of other related services not inconsistent with the purposes of this subtitle; and

perform any other service or engage in any other activity that the Director determines, by regulation or order, to be incidental to the activities enumerated in this subsection.

transfer or sell data maintained by the Repository to the parent or affiliated companies of the operator of the Exchange; and

use data maintained by the Repository for marketing or any other purpose not directly associated with the operation of the Exchange.

comply with such requirements as may be set by the Repository for using data maintained or created by the Repository; and

use such designation as the Repository may provide, such as a unique identifier.

In general

Not later than 180 days after the date of the enactment of this Act, the Secretary shall, by rule and in consultation with the covered bond regulators, establish a covered bond regulatory oversight program that provides for—

Approval of each covered bond program

Registry

Under the oversight program, the Secretary shall maintain a registry that is published on a Web site available to the public and that, for each covered bond program approved by a covered bond regulator, contains—

Fees

Each covered bond regulator may levy, on the issuers of covered bonds under the primary supervision of such covered bond regulator, reasonably apportioned fees that such covered bond regulator considers necessary, in the aggregate, to defray the costs of such covered bond regulator carrying out the provisions of this subtitle. Such funds shall not be construed to be Government funds or appropriated monies and shall not be subject to apportionment for purposes of chapter 15 of title 31, United States Code, or any other provision of law.

Requirements established

The Secretary, by rule and in consultation with the covered bond regulators, shall establish minimum over-collateralization requirements for covered bonds backed by each of the eligible asset classes. The minimum over-collateralization requirements shall be designed to ensure that sufficient eligible assets and substitute assets are maintained in the cover pool to satisfy all principal and interest payments on the covered bonds when due through maturity and shall be based on the credit, collection, and interest rate risks (excluding the liquidity risks) associated with the eligible asset class.

Asset coverage test

The eligible assets and the substitute assets in any cover pool shall be required, in the aggregate, to meet at all times the applicable minimum over-collateralization requirements.

Monthly reporting

On a monthly basis, each issuer of covered bonds shall submit a report on whether the cover pool that secures the covered bonds meets the applicable minimum over-collateralization requirements to—

Independent asset monitor

No loss of status

Covered bonds shall remain subject to this subtitle regardless of whether the applicable cover pool ceases to meet the applicable minimum over-collateralization requirements.

Failure to meet requirements

Requirements

Failure to meet requirements

Subject to paragraph (1)(D), if an asset in a cover pool does not satisfy any applicable requirement described in paragraph (1) or any other applicable standard or criterion described in this subtitle, the oversight program, or the related transaction documents, the asset shall not qualify as an eligible asset for purposes of the asset coverage test described in subsection (b)(2). A disqualified asset shall remain in the cover pool unless and until removed by the issuer in compliance with the provisions of this subtitle, the oversight program, and the related transaction documents. No disqualified asset may be removed from the cover pool after an estate has been created for the related covered bond program under section 343(b)(1) or 343(c)(2), except in connection with the management of the cover pool under section 343(d)(1)(E).

Books and records of issuer

Each issuer of covered bonds shall clearly mark its books and records to identify the assets that comprise the cover pool securing the covered bonds.

Schedule of eligible assets and substitute assets

Each issuer of covered bonds shall deliver to the applicable indenture trustee and the applicable independent asset monitor, on at least a monthly basis, a schedule that identifies all eligible assets and substitute assets in the cover pool securing the covered bonds.

Single eligible asset class

No cover pool described in section 341(3)(A) may include eligible assets from more than 1 eligible asset class. No cover pool described in section 341(3)(B) may include covered bonds backed by more than 1 eligible asset class.

Creation of separate estate

If an uncured default occurs on a covered bond before the issuer of the covered bond enters conservatorship, receivership, liquidation, or bankruptcy, an estate shall be immediately and automatically created by operation of law and shall exist and be administered separate and apart from the issuer or any subsequent conservatorship, receivership, liquidating agency, or estate in bankruptcy for the issuer or any other assets of the issuer. A separate estate shall be created for each affected covered bond program.

Assets and liabilities of estate

Any estate created under paragraph (1) shall be comprised of the cover pool (including over-collateralization in the cover pool) that secures the covered bond. The cover pool shall be immediately and automatically released to and held by the estate free and clear of any right, title, interest, or claim of the issuer or any conservator, receiver, liquidating agent, or trustee in bankruptcy for the issuer or any other assets of the issuer. Assets disqualified under section 342(c)(1)(D) shall not be released to the estate. The estate shall be fully liable on the covered bond and all other covered bonds and related obligations of the issuer (including obligations under related derivative transactions) that are secured by a perfected security interest in or other perfected lien on the cover pool when the estate is created. The estate shall not be liable on any obligation of the issuer that is not secured by a perfected security interest in or other perfected lien on the cover pool when the estate is created. No conservator, receiver, liquidating agent, or trustee in bankruptcy for the issuer may charge or assess the estate for any claim of the conservator, receiver, liquidating agent, or trustee in bankruptcy or the conservatorship, receivership, liquidating agency, or estate in bankruptcy and may not obtain or perfect a security interest in or other lien on the cover pool to secure such a claim.

Retention of claims

Any holder of a covered bond or related obligation for which an estate has become liable under paragraph (2) shall retain a claim against the issuer for any deficiency with respect to the covered bond or related obligation. If the issuer enters conservatorship, receivership, liquidation, or bankruptcy, any contingent claim for such a deficiency shall be allowed as a provable claim in the conservatorship, receivership, liquidating agency, or bankruptcy case. The contingent claim shall be estimated by the conservator, receiver, liquidating agent, or bankruptcy court for purposes of allowing the claim as a provable claim if awaiting the fixing of the contingent claim would unduly delay the resolution of the conservatorship, receivership, liquidating agency, or bankruptcy case.

Residual interest

Obligations of issuer

Corporation conservatorship or receivership

Other circumstances

An estate shall be immediately and automatically created by operation of law and shall exist and be administered separate and apart from an issuer of covered bonds and any conservatorship, receivership, liquidating agency, or estate in bankruptcy for the issuer or any other assets of the issuer, if—

Assets and liabilities of estate

Any estate created under paragraph (2) shall be comprised of the cover pool (including over-collateralization in the cover pool) that secures the covered bonds. The cover pool shall be immediately and automatically released to and held by the estate free and clear of any right, title, interest, or claim of the issuer or any conservator, receiver, liquidating agent, or trustee in bankruptcy for the issuer or any other assets of the issuer. The estate shall be fully liable on the covered bonds and all other covered bonds and related obligations of the issuer (including obligations under related derivative transactions) that are secured by a perfected security interest in or other perfected lien on the cover pool when the estate is created. The estate shall not be liable on any obligation of the issuer that is not secured by a perfected security interest in or other perfected lien on the cover pool when the estate is created. No conservator, receiver, liquidating agent, or trustee in bankruptcy for the issuer may charge or assess the estate for any claim of the conservator, receiver, liquidating agent, or trustee in bankruptcy or the conservatorship, receivership, liquidating agency, or estate in bankruptcy and may not obtain or perfect a security interest in or other lien on the cover pool to secure such a claim.

Contingent claim

Any contingent claim against an issuer for a deficiency with respect to a covered bond or related obligation for which an estate has become liable under paragraph (3) shall be allowed as a provable claim in the conservatorship, receivership, liquidating agency, or bankruptcy case for the issuer. The contingent claim shall be estimated by the conservator, receiver, liquidating agent, or bankruptcy court for purposes of allowing the claim as a provable claim if awaiting the fixing of the contingent claim would unduly delay the resolution of the conservatorship, receivership, liquidating agency, or bankruptcy case.

Residual interest

Obligations of issuer

Trustee, servicer, and administrator

Borrowings and credit

Distributions by estate

All payments or other distributions by an estate shall be made at the times, in the amounts, and in the manner set forth in the covered bonds, the related transaction documents, and any contracts executed by or on behalf of the estate in compliance with this subtitle and the oversight program. To the extent that the relative priority of the liabilities of the estate are not specified in or otherwise ascertainable from their terms, distributions shall be made on each distribution date under the covered bonds, the related transaction documents, or any contracts executed by or on behalf of the estate—

Distributions on residual interest

After all other claims against and interests in an estate have been fully and irrevocably paid or defeased, the trustee shall or shall cause a servicer or administrator to distribute the remainder of the estate to or at the direction of the owner of the residual interest. No interim distribution on the residual interest may be made before that time, unless the applicable covered bond regulator—

Closing of estate

After an estate has been fully administered, the trustee shall close the estate and, except as otherwise directed by the applicable covered bond regulator, shall destroy all records of the estate.

No loss to taxpayers

Taxpayers shall bear no losses from the resolution of an estate under this subtitle. To the extent that the Secretary and the Corporation jointly determine that the Deposit Insurance Fund incurred actual losses that are higher because the covered bond program of an insured depository institution was subject to resolution under this subtitle rather than as part of the receivership of the institution under the Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), the Corporation may exercise the powers available under section 7(b) of the Federal Deposit Insurance Act (12 U.S.C. 1817(b)) to recover an amount equal to those losses after consulting with the Secretary.

Treatment of certain banks and other entities

Any covered bond issued or guaranteed by a bank or by an eligible issuer described in section 341(9)(D) and sponsored solely by 1 or more banks for the sole purpose of issuing covered bonds is and shall be treated as a security issued or guaranteed by a bank under section 3(a)(2) of the Securities Act of 1933 (15 U.S.C. 77c(a)(2)), section 3(c)(3) of the Investment Company Act of 1940 (15 U.S.C. 80a–3(c)(3)), and section 304(a)(4)(A) of the Trust Indenture Act of 1939 (15 U.S.C. 77ddd(a)(4)(A)). No covered bond issued or guaranteed by a bank or by an eligible issuer described in section 341(9)(D) and sponsored solely by 1 or more banks for the sole purpose of issuing covered bonds shall be treated as an asset-backed security (as defined in section 3 of the Securities and Exchange Act of 1934 (15 U.S.C. 78c)). Each covered bond regulator for 1 or more banks shall adopt disclosure and reporting regulations for offers or sales of covered bonds by a bank or an eligible issuer described in this paragraph. Such regulations shall provide for uniform and consistent standards for such covered bond issuers, to the extent possible, and shall be consistent with existing regulations governing offers or sales of nonconvertible debt.

Treatment of certain associations and cooperative banks

Any covered bond issued by an entity described in section 3(a)(5)(A) of the Securities Act of 1933 (15 U.S.C. 77c(a)(5)(A)) or by an eligible issuer described in section 341(9)(D) and sponsored solely by 1 or more such entities for the sole purpose of issuing covered bonds is and shall be treated as a security issued by such an entity under section 3(a)(5)(A) of the Securities Act of 1933 (15 U.S.C. 77c(a)(5)(A)), section 3(c)(3) of the Investment Company Act of 1940 (15 U.S.C. 80a–3(c)(3)), and section 304(a)(4)(A) of the Trust Indenture Act of 1939 (15 U.S.C. 77ddd(a)(4)(A)). No covered bond issued by an entity described in section 3(a)(5)(A) of the Securities Act of 1933 (15 U.S.C. 77c(a)(5)(A)) or by an eligible issuer described in section 341(9)(D) and sponsored solely by 1 or more such entities for the sole purpose of issuing covered bonds shall be treated as an asset-backed security (as defined in section 3 of the Securities and Exchange Act of 1934 (15 U.S.C. 78c)). Each covered bond regulator for 1 or more entities described in section 3(a)(5)(A) of the Securities Act of 1933 (15 U.S.C. 77c(a)(5)(A)) shall adopt, as part of the securities regulations of the covered bond regulator, a separate scheme of registration, disclosure, and reporting obligations and exemptions for offers or sales of covered bonds that are described in this paragraph. Such regulations shall provide for uniform and consistent standards for such covered bond issuers, to the extent possible, and shall be consistent with regulations governing offers or sales of similar securities.

Construction

No provision of this subtitle, including paragraph (1) or (2), may be construed or applied in a manner that impairs or limits any other exemption that is available under applicable securities laws.

shall be subject to the reporting requirements established by the applicable covered bond regulator under section 343(d)(1)(E)(iii); and

shall succeed to any requirement of the issuer to file such periodic information, documents, and reports in respect of the covered bonds as specified in section 13(a) of the Securities and Exchange Act of 1934 (15 U.S.C. 78m(a)) or rules established by an appropriate Federal banking agency.

in subparagraph (C), by striking or at the end;

in subparagraph (D), by adding or at the end; and

by inserting after subparagraph (D) the following:

Treatment of estates created under covered bond programs

Section 7701 of the Internal Revenue Code of 1986 is amended by redesignating subsection (p) as subsection (q) and by inserting after subsection (o) the following new subsection:

Treatment of certain transfers under covered bond programs

Section 1001 of such Code is amended by adding at the end the following new subsection:

Excise tax on estates created under covered bond programs by reason of default

Effective date

The amendments made by this subsection shall apply to estates created, and transfers made, after the date of the enactment of this Act.

if an estate created under section 343(b)(1) or 343(c)(2) is not treated as an entity subject to taxation separate from the owner of the residual interest for purposes of the Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.), no separate taxable entity shall be created with respect to the estate for purposes of any State or local law imposing a tax on or measured by income; and

if a transfer or assumption of an asset or liability to or by an estate or an eligible issuer under section 343(b) or 343(c) does not cause or constitute an event in which gain or loss is recognized under section 1001 of the Internal Revenue Code of 1986 (26 U.S.C. 1001), the transfer or assumption shall not cause or constitute a disposition for purposes of any provision assigning tax consequences to a disposition in connection with any State or local law imposing a tax on or measured by income.

submit a joint report to the Congress describing the current state of the covered bond market in the United States; and

testify on the current state of the covered bond market in the United States before the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate.

in section 306(g)(3)(D) (12 U.S.C. 1721(g)(3)(D)), by striking Secretary and inserting Association;

in section 307 (12 U.S.C. 1722), by striking Secretary of Housing and Urban Development and inserting Association; and

in section 317 (12 U.S.C. 1723i)—

In general

Section 308 of the National Housing Act (12 U.S.C. 1723(a)) is amended by striking subsection (a) and inserting the following new subsection:

Compensation