[Congressional Record Volume 154, Number 149 (Thursday, September 18, 2008)]
[Senate]
[Pages S9032-S9034]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Ms. SNOWE:
  S. 3522. A bill to establish a Federal Board of Certification to 
enhance the transparency, credibility, and stability of financial 
markets, and for other purposes; to the Committee on Banking, Housing, 
and Urban Affairs.
  Ms. SNOWE. Mr. President, I rise today to offer legislation that will 
increase the trustworthiness of our Nation's mortgage security market 
by creating the Federal Board of Certification for mortgage securities.
  The recent collapse of Lehman Brothers, and the Federal Reserve's 
bailout of American International Group, Fannie Mae, Freddie Mac and 
Bear Stearns, along the huge losses suffered throughout the financial 
industry, demonstrates a catastrophic failure to accurately assess the 
dangers of imprudently made subprime mortgages to the American public 
and our financial markets. In hindsight, it appears that it was the 
inability to gauge risk in mortgage-backed securities that caused much 
of this financial turmoil. For markets to operate properly, it is 
imperative that they have effective metrics for calculating the level 
of risk securities pose to investors.
  The secondary mortgage market has been a largely unregulated 
playground where poorly underwritten, low-quality loans were sold as 
high-quality investment products. Although mortgage backed securities 
can be a positive market force, which increases the available pool of 
credit for borrowers, without an accurate picture of the risk involved 
in each mortgage security, buyers have no idea whether they are buying 
a high-risk investment or a safe, secure investment. My legislation 
would work to curb the excesses of the secondary market, combat future 
attempts at deception, and protect investors by making scrutinized 
mortgage investments more reliable and trust-worthy.
  The inability of major corporations to properly assess the risk of 
the mortgage securities they were trading is a problem whose effects 
have not been confined to Wall Street. To put it simply: when big banks 
sneeze, the rest of America gets a cold. By 2009, more than a trillion 
dollars of the subprime mortgages originated during the housing boom 
will reset to higher interest rates. Currently, according to the 
Mortgage Bankers Association, 43 percent of subprime adjustable rate 
mortgages are already in foreclosure. In my home State of Maine, we are 
struggling with falling home prices and a record number of 
foreclosures. Some Maine borrowers, with rising monthly payments, are 
unable to refinance out of their predatory loans. Small business 
owners, many already hurt by the economic downturn, are also finding 
credit tight. The bad economic climate caused by the subprime credit 
crunch is roiling the stock market causing Americans to loose billions 
in their IRAs and retirement funds.

  We need to fix this crisis before it gets any worse and make sure it 
never happens again. Francis Bacon said that ``knowledge is power.'' My 
bill would give investors the knowledge to make intelligent 
calculations of risk and as a result, it would give them the power to 
decide how much risk they could collectively handle.
   Turning to specifics, my bill creates the Federal Board of 
Certification, which would certify that the mortgages within a security 
instrument meet the underlying standards they claim in regards to 
documentation, loan to value ratios, debt service to income ratios, and 
borrowers' credit

[[Page S9033]]

standards. The purpose of the certification process is to increase the 
transparency, predictability, and reliability of securitized mortgage 
products. Certification would aid in creating settled investor 
expectations and increase transparency by ensuring that the mortgages 
within a mortgage security conform to the claims made by the mortgage 
product's sellers.
   The proposed Federal Board of Certification would not override any 
current regulations and would not, in any way, stifle any attempts by 
private business to rate mortgage securities. This legislation would, 
however, create incentives for improving industry rating practices. 
Open publication of the Board's certification criteria would augment 
the efforts of private ratings agencies by providing incentives for 
increased transparency in the ratings process. The Board's 
certification would also serve as a check on the industry to ensure 
that ratings agencies carefully scrutinize the content of mortgage 
products before issuing evaluations of mortgage backed securities.
  Significantly, the Federal Board of Certification would also be 
voluntary and funded by an excise tax. Users could choose to pay the 
costs for the Board to rate their security, or they could elect not to 
submit their product to the Board.
  We must quickly restore confidence in the U.S. mortgage securities if 
we are to stabilize our housing markets and enable families to 
refinance their expensive loans. To do this, we must certify the 
quality and content of our mortgage securities and enable those markets 
working again to create liquidity and lending. This is why it is urgent 
to create the Federal Board of Certification for mortgage securities. 
This legislation would create a ``good housekeeping seal of approval'' 
for the mortgage security industry and certify that the mortgage 
products are in fact what they claim to be. Accordingly, I call on 
Congress to take up and pass this common-sense amendment as 
expeditiously as possible.
  I encourage my colleagues to strongly support the creation of the 
Federal Board of Certification. This legislation will restore trust in 
U.S. financial markets and mortgage securities which will help American 
businesses and ultimately, most crucially, American families.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 3522

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Federal Board of 
     Certification Act of 2008''.

     SEC. 2. PURPOSE.

       It is the purpose of this Act to establish a Federal Board 
     of Certification, which shall certify that the mortgages 
     within a security instrument meet the underlying standards 
     they claim to meet with regards to mortgage characteristics 
     including but not limited to: documentation, loan to value 
     ratios, debt service to income ratios, and borrower credit 
     standards and geographic concentration. The purpose of this 
     certification process is to increase the transparency, 
     predictability and reliability of securitized mortgage 
     products.

     SEC. 3. DEFINITIONS.

       As used in this Act--
       (1) the term ``Board'' means the Federal Board of 
     Certification established under this Act;
       (2) the term ``mortgage security'' means an investment 
     instrument that represents ownership of an undivided interest 
     in a group of mortgages;
       (3) the term ``insured depository institution'' has the 
     same meaning as in section 3 of the Federal Deposit Insurance 
     Act (12 U.S.C. 1803); and
       (4) the term ``Federal financial institutions regulatory 
     agency'' has the same meaning as in section 1003 of the 
     Federal Financial Institutions Examination Council Act of 
     1978 (12 U.S.C. 3302).

     SEC. 4. VOLUNTARY PARTICIPATION.

       Market participants, including firms that package mortgage 
     loans into mortgage securities, may elect to have their 
     mortgage securities evaluated by the Board.

     SEC. 5. STANDARDS.

       The Board is authorized to promulgate regulations 
     establishing enumerated security standards which the Board 
     shall use to certify mortgage securities. The Board shall 
     promulgate standards which shall certify that the mortgages 
     within a security instrument meet the underlying standards 
     they claim to meet with regards to documentation, loan to 
     value ratios, debt service to income rations and borrower 
     credit standards. The standards should protect settled 
     investor expectations, and increase the transparency, 
     predictability and reliability of securitized mortgage 
     products.

     SEC. 6. COMPOSITION.

       (a) Establishment; Composition.--There is established the 
     Federal Board of Certification, which shall consist of--
       (1) the Comptroller of the Currency;
       (2) the Secretary of Housing and Urban Development;
       (3) a Governor of the Board of Governors of the Federal 
     Reserve System designated by the Chairman of the Board;
       (4) the Undersecretary of the Treasury for Domestic 
     Finance; and
       (5) the Chairman of the Securities and Exchange Commission.
       (b) Chairperson.--The members of the Board shall select the 
     first chairperson of the Board. Thereafter the position of 
     chairperson shall rotate among the members of the Board.
       (c) Term of Office.--The term of each chairperson of the 
     Board shall be 2 years.
       (d) Designation of Officers and Employees.--The members of 
     the Board may, from time to time, designate other officers or 
     employees of their respective agencies to carry out their 
     duties on the Board.
       (e) Compensation and Expenses.--Each member of the Board 
     shall serve without additional compensation, but shall be 
     entitled to reasonable expenses incurred in carrying out 
     official duties as such a member.

     SEC. 7. EXPENSES.

       The costs and expenses of the Board, including the salaries 
     of its employees, shall be paid for by excise fees collected 
     from applicants for security certification from the Board, 
     according to fee scales set by the Board.

     SEC. 8. BOARD RESPONSIBILITIES.

       (a) Establishment of Principles and Standards.--The Board 
     shall establish, by rule, uniform principles and standards 
     and report forms for the regular examination of mortgage 
     securities.
       (b) Development of Uniform Reporting System.--The Board 
     shall develop uniform reporting systems for use by the Board 
     in ascertaining mortgage security risk. The Board shall 
     assess, and publicly publish, how it evaluates and certifies 
     the composition of mortgage securities.
       (c) Affect on Federal Regulatory Agency Research and 
     Development of New Financial Institutions Supervisory 
     Agencies.--Nothing in this Act shall be construed to limit or 
     discourage Federal regulatory agency research and development 
     of new financial institutions supervisory methods and tools, 
     nor to preclude the field testing of any innovation devised 
     by any Federal regulatory agency.
       (d) Annual Report.--Not later than April 1 of each year, 
     the Board shall prepare and submit to Congress an annual 
     report covering its activities during the preceding year.
       (e) Reporting Schedule.--The Board shall determine whether 
     it wants to evaluate mortgage securities at issuance, on a 
     regular basis, or upon request.

     SEC. 9. BOARD AUTHORITY.

       (a) Authority of Chairperson.--The chairperson of the Board 
     is authorized to carry out and to delegate the authority to 
     carry out the internal administration of the Board, including 
     the appointment and supervision of employees and the 
     distribution of business among members, employees, and 
     administrative units.
       (b) Use of Personnel, Services, and Facilities of Federal 
     Financial Institutions Regulatory Agencies, and Federal 
     Reserve Banks.--In addition to any other authority conferred 
     upon it by this Act, in carrying out its functions under this 
     Act, the Board may utilize, with their consent and to the 
     extent practical, the personnel, services, and facilities of 
     the Federal financial institutions regulatory agencies, and 
     Federal Reserve banks, with or without reimbursement 
     therefor.
       (c) Compensation, Authority, and Duties of Officers and 
     Employees; Experts and Consultants.--The Board may--
       (1) subject to the provisions of title 5, United States 
     Code, relating to the competitive service, classification, 
     and General Schedule pay rates, appoint and fix the 
     compensation of such officers and employees as are necessary 
     to carry out the provisions of this Act, and to prescribe the 
     authority and duties of such officers and employees; and
       (2) obtain the services of such experts and consultants as 
     are necessary to carry out this Act.

     SEC. 10. BOARD ACCESS TO INFORMATION.

       For the purpose of carrying out this Act, the Board shall 
     have access to all books, accounts, records, reports, files, 
     memorandums, papers, things, and property belonging to or in 
     use by Federal financial institutions regulatory agencies, 
     including reports of examination of financial institutions, 
     their holding companies, or mortgage lending entities from 
     whatever source, together with work papers and correspondence 
     files related to such reports, whether or not a part of the 
     report, and all without any deletions.

     SEC. 11. REGULATORY REVIEW.

       (a) In General.--Not less frequently than once every 10 
     years, the Board shall conduct a review of all regulations 
     prescribed by the Board, in order to identify outdated or 
     otherwise unnecessary regulatory requirements imposed on 
     insured depository institutions.

[[Page S9034]]

       (b) Process.--In conducting the review under subsection 
     (a), the Board shall--
       (1) categorize the regulations described in subsection (a) 
     by type; and
       (2) at regular intervals, provide notice and solicit public 
     comment on a particular category or categories of 
     regulations, requesting commentators to identify areas of the 
     regulations that are outdated, unnecessary, or unduly 
     burdensome.
       (c) Complete Review.--The Board shall ensure that the 
     notice and comment period described in subsection (b)(2) is 
     conducted with respect to all regulations described in 
     subsection (a), not less frequently than once every 10 years.
       (d) Regulatory Response.--The Board shall--
       (1) publish in the Federal Register a summary of the 
     comments received under this section, identifying significant 
     issues raised and providing comment on such issues; and
       (2) eliminate unnecessary regulations to the extent that 
     such action is appropriate.
       (e) Report to Congress.--Not later than 30 days after 
     carrying out subsection (d)(1) of this section, the Board 
     shall submit to the Congress a report, which shall include a 
     summary of any significant issues raised by public comments 
     received by the Board under this section and the relative 
     merits of such issues.

     SEC. 12. LIABILITY.

       Any publication, transmission, or webpage containing an 
     advertisement for or invitation to buy a mortgage security 
     shall include the following notice, in conspicuous type: 
     ``Certification by the Federal Board of Certification can in 
     no way be considered a guarantee of the mortgage security. 
     Certification is merely a judgment by the Federal Board of 
     Certification of the degree of risk offered by the security 
     in question. The Federal Board of Certification is not liable 
     for any actions taken in reliance on such judgment of 
     risk.''.
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