I 111th CONGRESS 2d Session H. R. 4889 IN THE HOUSE OF REPRESENTATIVES March 19, 2010 Mr. Hensarling (for himself, Mr. Pence, Mr. Price of Georgia, Mr. Flake, Mr. Marchant, Mr. Akin, Mr. Bartlett, Mr. Latta, Mr. Pitts, Mrs. Schmidt, Mr. Garrett of New Jersey, Mr. Olson, Mr. Duncan, Mr. Platts, and Mr. Smith of Texas) introduced the following bill; which was referred to the Committee on Financial Services A BILL To establish a term certain for the conservatorships of Fannie Mae and Freddie Mac, to provide conditions for continued operation of such enterprises, and to provide for the wind down of such operations and the dissolution of such enterprises.

1.

Short title

This Act may be cited as the GSE Bailout Elimination and Taxpayer Protection Act.

2.

Definitions

For purposes of this Act, the following definitions shall apply: (1)

Charter

The term charter means— (A)with respect to the Federal National Mortgage Association, the Federal National Mortgage Association Charter Act (12 U.S.C. 1716 et seq.); and (B)with respect to the Federal Home Loan Mortgage Corporation, the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1451 et seq.). (2)

Director

The term Director means the Director of the Federal Housing Finance Agency. (3)

Enterprise

The term enterprise means— (A)the Federal National Mortgage Association; and (B)the Federal Home Loan Mortgage Corporation. (4)

Guarantee

The term guarantee means, with respect to an enterprise, the credit support of the enterprise that is provided by the Federal Government through its charter as a government-sponsored enterprise.

3.

Termination of current conservatorship

(a)

In general

Upon the expiration of the period referred to in subsection (b), the Director of the Federal Housing Finance Agency shall determine, with respect to each enterprise, if the enterprise is financially viable at that time and— (1)if the Director determines that the enterprise is financially viable, immediately take all actions necessary to terminate the conservatorship for the enterprise that is in effect pursuant to section 1367 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4617); or (2)if the Director determines that the enterprise is not financially viable, immediately appoint the Federal Housing Finance Agency as receiver under section 1367 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 and carry out such receivership under the authority of such section. (b)

Timing

The period referred to in this subsection is, with respect to an enterprise— (1)except as provided in paragraph (2), the 24-month beginning upon the date of the enactment of this Act; or (2)if the Director determines before the expiration of the period referred to in paragraph (1) that the financial markets would be adversely affected without the extension of such period under this paragraph with respect to that enterprise, and upon making such determination notifies the Congress in writing of such determination, the 30-month period beginning upon the date of the enactment of this Act. (c)

Financial viability

The Director may not determine that an enterprise is financially viable for purposes of subsection (a) if the Director determines that any of the conditions for receivership set forth in paragraph (3) or (4) of section 1367(a) of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4617(a)) exists at the time with respect to the enterprise.

4.

Limitation of enterprise authority upon emergence from conservatorship

(a)

Revised authority

Upon the expiration of the period referred to in section 3(b), if the Director makes the determination under section 3(a)(1), the following provisions shall take effect: (1)

Repeal of housing goals

(A)

Repeal

The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 is amended by striking sections 1331 through 1336 (12 U.S.C. 4561–6). (B)

Conforming amendments

Federal Housing Enterprises Financial Safety and Soundness Act of 1992 is amended— (i)in section 1303(28) (12 U.S.C. 4502(28)), by striking and, for the purposes and all that follows through designated disaster areas; (ii)in section 1324(b)(1)(A) (12 U.S.C. 4544(b)(1)(A))— (I)by striking clauses (i), (ii), and (iv); (II)in clause (iii), by inserting and after the semicolon at the end; and (III)by redesignating clauses (iii) and (v) as clauses (i) and (ii), respectively; (iii)in section 1338(c)(10) (12 U.S.C. 4568(c)(10)), by striking subparagraph (E); (iv)in section 1339(h) (12 U.S.C. 4569), by striking paragraph (7); (v)in section 1341 (12 U.S.C. 4581)— (I)in subsection (a)— (aa)in paragraph (1), by inserting or after the semicolon at the end; (bb)in paragraph (2), by striking the semicolon at the end and inserting a period; and (cc)by striking paragraphs (3) and (4); and (II)in subsection (b)(2)— (aa)in subparagraph (A), by inserting or after the semicolon at the end; (bb)by striking subparagraphs (B) and (C); and (cc)by redesignating subparagraph (D) as subparagraph (B); (vi)in section 1345(a) (12 U.S.C. 4585(a))— (I)in paragraph (1), by inserting or after the semicolon at the end; (II)in paragraph (2), by striking the semicolon at the end and inserting a period; and (III)by striking paragraphs (3) and (4); and (vii)in section 1371(a)(2) (12 U.S.C. 4631(a)(2))— (I)by striking with any housing goal established under subpart B of part 2 of subtitle A of this title,; and (II)by striking section 1336 or. (2)

Portfolio limitations

Subtitle B of title XIII of the Housing and Community Development Act of 1992 (12 U.S.C. 4611 et seq.) is amended by adding at the end the following new section:

1369E.

Restriction on mortgage assets of enterprises

(a)

Restriction

No enterprise shall own, as of any applicable date in this subsection or thereafter, mortgage assets in excess of— (1)upon the expiration of the period referred to in section 3(b) of the GSE Bailout Elimination and Taxpayer Protection Act or thereafter, $850,000,000,000; (2)upon the expiration of the 1-year period that begins on the date described in paragraph (1) or thereafter, $700,000,000,000; (3)upon the expiration of the 2-year period that begins on the date described in paragraph (1) or thereafter, $500,000,000,000; and (4)upon the expiration of the 3-year period that begins on the date described in paragraph (1), $250,000,000,000. (b)

Definition of mortgage assets

For purposes of this section, the term mortgage assets means, with respect to an enterprise, assets of such enterprise consisting of mortgages, mortgage loans, mortgage-related securities, participation certificates, mortgage-backed commercial paper, obligations of real estate mortgage investment conduits and similar assets, in each case to the extent such assets would appear on the balance sheet of such enterprise in accordance with generally accepted accounting principles in effect in the United States as of September 7, 2008 (as set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board from time to time; and without giving any effect to any change that may be made after September 7, 2008, in respect of Statement of Financial Accounting Standards No. 140 or any similar accounting standard).

. (3)

Increase in minimum capital requirement

Section 1362 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4612), as amended by section 1111 of the Housing and Economic Recovery Act of 2008 (Public Law 110–289), is amended— (A)in subsection (a), by striking For purposes of this subtitle, the minimum capital level for each enterprise shall be and inserting The minimum capital level established under subsection (g) for each enterprise may not be lower than; (B)in subsection (c)— (i)by striking subsections (a) and and inserting subsection; (ii)by striking regulated entities the first place such term appears and inserting Federal Home Loan Banks; (iii)by striking for the enterprises,; (iv)by striking , or for both the enterprises and the banks,; (v)by striking the level specified in subsection (a) for the enterprises or; and (vi)by striking the regulated entities operate and inserting such banks operate; (C)in subsection (d)(1)— (i)by striking subsections (a) and and inserting subsection; and (ii)by striking regulated entity each place such term appears and inserting Federal home loan bank; (D)in subsection (e), by striking regulated entity each place such term appears and inserting Federal home loan bank; (E)in subsection (f)— (i)by striking the amount of core capital maintained by the enterprises,; and (ii)by striking regulated entities and inserting banks; and (F)by adding at the end the following new subsection: (g)

Establishment of revised minimum capital levels

(1)

In general

The Director shall cause the enterprises to achieve and maintain adequate capital by establishing minimum levels of capital for such the enterprises and by using such other methods as the Director deems appropriate. (2)

Authority

The Director shall have the authority to establish such minimum level of capital for an enterprise in excess of the level specified under subsection (a) as the Director, in the Director’s discretion, deems to be necessary or appropriate in light of the particular circumstances of the enterprise. (h)

Failure To maintain revised minimum capital levels

(1)

Unsafe and unsound practice or condition

Failure of a enterprise to maintain capital at or above its minimum level as established pursuant to subsection (g) of this section may be deemed by the Director, in his discretion, to constitute an unsafe and unsound practice or condition within the meaning of this title. (2)

Directive to achieve capital level

(A)

Authority

In addition to, or in lieu of, any other action authorized by law, including paragraph (1), the Director may issue a directive to an enterprise that fails to maintain capital at or above its required level as established pursuant to subsection (g) of this section. (B)

Plan

Such directive may require the enterprise to submit and adhere to a plan acceptable to the Director describing the means and timing by which the enterprise shall achieve its required capital level. (C)

Enforcement

Any such directive issued pursuant to this paragraph, including plans submitted pursuant thereto, shall be enforceable under the provisions of subtitle C of this title to the same extent as an effective and outstanding order issued pursuant to subtitle C of this title which has become final. (3)

Adherence to plan

(A)

Consideration

The Director may consider such enterprise’s progress in adhering to any plan required under this subsection whenever such enterprise seeks the requisite approval of the Director for any proposal which would divert earnings, diminish capital, or otherwise impede such enterprise’s progress in achieving its minimum capital level. (B)

Denial

The Director may deny such approval where it determines that such proposal would adversely affect the ability of the enterprise to comply with such plan. . (4)

Repeal of increases to conforming loan limits

(A)

Repeal of temporary increases

(i)

Continuing Appropriations Resolution, 2010

Section 167 of the Continuing Appropriations Resolution, 2010 (as added by section 104 of division B of Public Law 111–88; 123 Stat. 2973) is hereby repealed. (ii)

American Recovery and Reinvestment Act of 2009

Section 1203 of division A of the American Recovery and Reinvestment Act of 2009 (Public Law 111–5; 123 Stat. 225) is hereby repealed. (iii)

Economic Stimulus Act of 2008

Section 201 of the Economic Stimulus Act of 2008 (Public Law 110–185; 122 Stat. 619) is hereby repealed. (B)

Repeal of general limit and permanent high-cost area increase

Paragraph (2) of section 302(b) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1717(b)(2)) and paragraph (2) of section 305(a) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)(2)) are each amended to read as such sections were in effect immediately before the enactment of the Housing and Economic Recovery Act of 2008 (Public Law 110–289). (C)

Repeal of new housing price index

Section 1322 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as added by section 1124(d) of the Housing and Economic Recovery Act of 2008 (Public Law 110–289), is hereby repealed. (D)

Repeal

Section 1124 of the Housing and Economic Recovery Act of 2008 (Public Law 110–289) is hereby repealed. (E)

Establishment of conforming loan limit

For the year in which the expiration of the period referred to in section 3(b) of this section occurs, the limitations governing the maximum original principal obligation of conventional mortgages that may be purchased by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, referred to in section 302(b)(2) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1717(b)(2)) and section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)(2)), respectively, shall be considered to be— (i)$417,000 for a mortgage secured by a single-family residence, (ii)$533,850 for a mortgage secured by a 2-family residence, (iii)$645,300 for a mortgage secured by a 3-family residence, and (iv)$801,950 for a mortgage secured by a 4-family residence, and such limits shall be adjusted effective each January 1 thereafter in accordance with such sections 302(b)(2) and 305(a)(2).(F)

Prohibition of purchase of mortgages exceeding median area home price

(i)

Fannie mae

Section 302(b)(2) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1717(b)(2)) is amended by adding at the end the following new sentence: Notwithstanding any other provision of this title, the corporation may not purchase any mortgage for a property having a principal obligation that exceeds the median home price, for properties of the same size, for the area in which such property subject to the mortgage is located.. (ii)

Freddie mac

Section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)(2)) is amended by adding at the end the following new sentence: Notwithstanding any other provision of this title, the Corporation may not purchase any mortgage for a property having a principal obligation that exceeds the median home price, for properties of the same size, for the area in which such property subject to the mortgage is located.. (5)

Requirement of minimum downpayment for mortgages purchased

(A)

Fannie mae

Subsection (b) of section 302 of the Federal National Mortgage Association Charter Act (12 U.S.C. 1717(b)) is amended by adding at the end the following new paragraph: (7)Notwithstanding any other provision of this Act, the corporation may not newly purchase any mortgage unless the mortgagor has paid, in cash or its equivalent on account of the property securing repayment such mortgage, in accordance with regulations issued by the Director of the Federal Housing Finance Agency, not less than— (A)for any mortgage purchased during the 12-month period beginning upon the expiration of the period referred to in section 3(b) of the GSE Bailout Elimination and Taxpayer Protection Act, 5 percent of the appraised value of the property; (B)for any mortgage purchased during the 12-month period beginning upon the expiration of the 12-month period referred to in subparagraph (A) of this paragraph, 7.5 percent of the appraised value of the property; and (C)for any mortgage purchased during the 12-month period beginning upon the expiration of the 12-month period referred to in subparagraph (B) of this paragraph, 10 percent of the appraised value of the property. . (B)

Freddie Mac

Subsection (a) of section 305 of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)) is amended by adding at the end the following new paragraph: (6)Notwithstanding any other provision of this Act, the Corporation may not newly purchase any mortgage unless the mortgagor has paid, in cash or its equivalent on account of the property securing repayment such mortgage, in accordance with regulations issued by the Director of the Federal Housing Finance Agency, not less than— (A)for any mortgage purchased during the 12-month period beginning upon the expiration of the period referred to in section 3(b) of the GSE Bailout Elimination and Taxpayer Protection Act, 5 percent of the appraised value of the property; (B)for any mortgage purchased during the 12-month period beginning upon the expiration of the 12-month period referred to in subparagraph (A) of this paragraph, 7.5 percent of the appraised value of the property; and (C)for any mortgage purchased during the 12-month period beginning upon the expiration of the 12-month period referred to in subparagraph (B) of this paragraph, 10 percent of the appraised value of the property. . (6)

Requirement to pay State and local taxes

(A)

Fannie mae

Paragraph (2) of section 309(c) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1723a(c)(2)) is amended— (i)by striking shall be exempt from and inserting shall be subject to; and (ii)by striking except that any and inserting and any. (B)

Freddie mac

Section 303(e) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1452(e)) is amended— (i)by striking shall be exempt from and inserting shall be subject to; and (ii)by striking except that any and inserting and any. (7)

Repeals relating to registration of securities

(A)

Fannie Mae

(i)

Mortgage-backed securities

Section 304(d) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1719(d)) is amended by striking the fourth sentence. (ii)

Subordinate obligations

Section 304(e) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1719(e)) is amended by striking the fourth sentence. (B)

Freddie Mac

Section 306 of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1455) is amended by striking subsection (g). (8)

Recoupment of costs for Federal guarantee

(A)

Assessments

The Director of the Federal Housing Finance Agency shall establish and collect from each enterprise assessments in the amount determined under subparagraph (B). In determining the method and timing for making such assessments, the Director shall take into consideration the determinations and conclusions of the study under subsection (b) of this section. (B)

Determination of costs of guarantee

Assessments under subparagraph (A) with respect to an enterprise shall be in such amount as the Director determines necessary to recoup to the Federal Government the full value of the benefit the enterprise receives from the guarantee provided by the Federal Government for the obligations and financial viability of the enterprise, based upon the dollar value of such benefit in the market to such enterprise when not operating under conservatorship or receivership. To determine such amount, the Director shall establish a risk-based pricing mechanism as the Director considers appropriate, taking into consideration the determinations and conclusions of the study under subsection (b) of this section. (C)

Treatment of recouped amounts

The Director shall cover into the general fund of the Treasury any amounts received from assessments made under this paragraph. (b)

GAO study regarding recoupment of costs for Federal Government guarantee

The Comptroller General of the United States shall conduct a study to determine a risk-based pricing mechanism to accurately determine the value of the benefit the enterprises receive from the guarantee provided by the Federal Government for the obligations and financial viability of the enterprises. Such study shall establish a dollar value of such benefit in the market to each enterprise when not operating under conservatorship or receivership, shall analyze various methods of the Federal Government assessing a charge for such value received (including methods involving an annual fee or a fee for each mortgage purchased or securitized), and shall make a recommendation of the best such method for assessing such charge. Not later than 12 months after the date of the enactment of this Act, the Comptroller General shall submit to the Congress a report setting forth the determinations and conclusions of such study.

5.

Required wind down of operations and dissolution of enterprise

(a)

Applicability

This section shall apply to an enterprise upon the expiration of the 3-year period referred to in section 3(b). (b)

Repeal of charter

Upon the applicability of this section to an enterprise, the charter for the enterprise is repealed and the enterprise shall have no authority to conduct new business under such charter, except that the provisions of such charter in effect immediately before such repeal shall continue to apply with respect to the rights and obligations of any holders of outstanding debt obligations and mortgage-backed securities of the enterprise. (c)

Wind down

Upon the applicability of this section to an enterprise, the Director and the Secretary of the Treasury shall jointly take such action, and may prescribe such regulations and procedures, as may be necessary to wind down the operations of an enterprise as an entity chartered by the United States Government over the duration of the 10-year period beginning upon the applicability of this section to the enterprise (pursuant to subsection (a)) in an orderly manner consistent with this Act and the ongoing obligations of the enterprise. (d)

Division of assets and liabilities; authority To establish holding corporation and dissolution trust fund

The action and procedures required under subsection (c)— (1)shall include the establishment and execution of plans to provide for an equitable division and distribution of assets and liabilities of the enterprise, including any liability of the enterprise to the United States Government or a Federal reserve bank that may continue after the end of the period described in subsection (ca); and (2)may provide for establishment of— (A)a holding corporation organized under the laws of any State of the United States or the District of Columbia for the purposes of the reorganization and restructuring of the enterprise; and (B)one or more trusts to which to transfer— (i)remaining debt obligations of the enterprise, for the benefit of holders of such remaining obligations; or (ii)remaining mortgages held for the purpose of backing mortgage-backed securities, for the benefit of holders of such remaining securities.