I 112th CONGRESS 1st Session H. R. 2428 IN THE HOUSE OF REPRESENTATIVES July 6, 2011 Mr. Neugebauer (for himself, Mr. Bachus, Mr. Garrett, Mr. Jones, Mr. Canseco, and Mr. Posey) introduced the following bill; which was referred to the Committee on Financial Services A BILL To protect the taxpayers of the United States by limiting the Federal payment of legal fees for current and former officers and affiliated parties of Fannie Mae and Freddie Mac.

1.

Short title

This Act may be cited as the GSE Legal Fee Reduction Act of 2011.

2.

Limitations on indemnification of legal fees

(a)

Limitations

Section 1318 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4518) is amended by adding at the end the following new subsection: (f)

Procedures for advancement and indemnification of legal fees

The Director shall, by regulation, establish requirements prescribing the procedures and terms for advancement of amounts by an enterprise for qualified indemnification payments for the benefit of any entity-affiliated party, which shall provide as follows: (1)

Determination of reasonable expenses

(A)

Proposed criteria

If at any time an enterprise is required, pursuant to law, regulation, order, bylaw, or agreement or contract, to make a qualified indemnification payment for the benefit of an entity-affiliated party, the Director shall require the enterprise to submit to the Director proposed criteria to be used in determining, at the time for the advancement of amounts for such payment, whether the liability or legal expenses for which such payment is to be made is reasonable, which shall include— (i)methods and procedures for making such determinations; (ii)a process for review and appeal of such determinations; and (iii)terms and conditions for advancing amounts for liability or legal expenses determined to be reasonable. (B)

Review

Upon receipt of proposed criteria submitted pursuant to subparagraph (A), the Director shall promptly review such proposed criteria and approve or disapprove such criteria based on a determination of whether such criteria will ensure that amounts are advanced only for qualified indemnification payments for liability or legal expenses that are reasonable. (2)

Claims of fraud, moral turpitude, and breach of fiduciary duty

(A)

Bylaws

The Director shall require each enterprise to adopt bylaws requiring any entity-affiliated party accused in any claim, proceeding, or action, whether administrative, civil, or criminal of fraud, moral turpitude, or breach of fiduciary duty to post collateral, security, bonding, or other assurances of repayment. (B)

Requirement to post bond

The Director shall require any entity-affiliated party accused in any claim, proceeding, or action, whether administrative, civil, or criminal, of fraud, moral turpitude, or breach of fiduciary duty to post collateral, security, bonding, or other assurances of repayment. (3)

Prohibition of use of amounts borrowed from taxpayers for settlement costs

(A)

Prohibition

The Director shall prohibit an enterprise from using any Treasury funds to satisfy any settlement, judgment, order, or penalty. (B)

Treasury funds

For purposes of subparagraph (A), the term Treasury funds means amounts obtained by an enterprise pursuant to— (i)purchase by the Secretary of the Treasury of obligations or securities of the enterprise pursuant to— (I)subsection (c) or (g) of section 304 of the Federal National Mortgage Association Charter Act (12 U.S.C. 1719); (II)subsection (c) or (l) of section 306 of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1455); or (III)subsection (i) or (l) of section 11 of the Federal Home Loan Bank Act (12 U.S.C. 1431); or (ii)any other lending, advance, subsidy, payment, appropriation, or purchase of any obligation or security, by the Federal Government or any agency or entity of the Federal Government. (C)

Assets to be used for settlement costs

An enterprise shall satisfy any settlement, judgment, order, or penalty, to the maximum extent possible, with proceeds from the sale of assets of the enterprise, including assets in the retained portfolio of the enterprise and real estate owned of the enterprise and other physical assets of the enterprise. (4)

Notification of settlement

The Director shall prohibit an enterprise from entering into any consent decree or settlement of any claim, proceeding, or action involving an entity-affiliated party that will result in any qualified indemnification payments in an aggregate amount exceeding $1,000,000 before the expiration of the 30-day period beginning upon the submission by the Director to the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate of notification of such proposed consent decree or settlement and the terms and amount of the qualified indemnification payments involved. (5)

Definitions

For purposes of this subsection, the following definitions shall apply: (A)

Qualified indemnification payment

The term qualified indemnification payment means any payment (or agreement to make any payment) by an enterprise for the benefit of any person who is or was an entity-affiliated party, to pay or reimburse such person for any liability or legal expense with regard to any claim, proceeding, or action, whether administrative, civil, or criminal. (B)

Other definitions

The terms liability or legal expense and payment have the meanings given such terms in subsection (e)(5). . (b)

Applicability

The amendment made by subsection (a) shall apply with respect to any advancement of amounts for a qualified indemnification payment for the benefit of an entity-affiliated party that is made after the date of the enactment of this Act.