[Congressional Record (Bound Edition), Volume 156 (2010), Part 6]
[Senate]
[Pages 7726-7748]
[From the U.S. Government Publishing Office, www.gpo.gov]




     RESTORING AMERICAN FINANCIAL STABILITY ACT OF 2010--Continued

  Mr. DODD. Mr. President, I ask unanimous consent that the following 
be the next amendments in order: Bennet of Colorado amendment No. 3928; 
Corker amendment No. 3955; Merkley-Klobuchar amendment No. 3962, a 
side-by-side to the Corker amendment; that the Senate resume 
consideration of S. 3217; that Senator Bennet of Colorado be recognized 
to call up his amendment; that after his statement, the amendment be 
set aside and Senator Corker be recognized to call up his amendment; 
that immediately after the amendment is reported by number it be 
temporarily set aside and Senators Merkley and Klobuchar be recognized 
to call up their side-by-side amendment.
  Mr. SHELBY. Mr. President, reserving the right to object, I ask the 
chairman, after the Corker amendment is disposed of, is it possible to 
bring up the Klobuchar-Hutchison amendment and have a debate and vote 
tomorrow?
  Mr. DODD. After the side-by-side on Senators Corker and Merkley--
after that, I would be happy to set a time and either debate this 
evening and vote in the morning, however the Senators want to do it.
  Mr. SHELBY. Can we agree on that, to have a vote at what time in the 
morning?
  Mrs. HUTCHISON. Could the vote be at 9:30 in the morning?
  Mr. SHELBY. Can they have a vote tonight?
  Mr. DODD. I am worried about an obligation that we all have this 
evening. We are getting pressed. I want to be careful about asking 
Members to hang around when we all have an obligation--100 of us. I 
suggest that we enter into an agreement if we can. I am hopeful this 
can be worked out. There may be a side-by-side. I would be agreeable to 
setting a time certain tonight--preferably tomorrow, with debate 
tonight and a vote in the morning--maybe an hour after we come in, or a 
half hour after we come in. We will have to make sure the leadership is 
fine with that.
  Mrs. HUTCHISON. Mr. President, we could certainly have 30 minutes 
equally divided on the Hutchison-Klobuchar amendment, and we can agree 
to vote 30 minutes after we come in, whatever time that is.
  Mr. DODD. We will work this out. Let's get the vote here.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The Senator from Colorado is recognized.


                Amendment No. 3928 to Amendment No. 3739

  Mr. BENNET. Mr. President, I will reserve 2 minutes for Senator 
Tester out of my time.
  As I mentioned earlier this week, we have an important opportunity to 
safeguard our economy from the conditions that drove our country into 
this catastrophic financial meltdown.
  The Wall Street reform bill we have before us takes critically 
important steps forward, helping to stabilize and safeguard our 
financial institutions, our financial system for consumers and 
businesses alike. But we should not stop here. This debate must be 
about making the underlying bill better.
  I rise today to suggest one substantial way that we can rebuild the 
credibility of our financial system, save taxpayers billions of 
dollars, and finally move to end the TARP.
  Mr. President, I have an amendment at the desk, No. 3928, and I wish 
to call it up and ask unanimous consent to add Senator Brown of 
Massachusetts as a cosponsor.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The clerk will report.
  The legislative clerk read as follows:

       The Senator from Colorado (Mr. Bennet), for himself, Mr. 
     Tester, Mr. Isakson, Ms. Klobuchar, Mr. Begich, Mr. Udall of 
     Colorado, Mr. LeMieux, and Mr. Brown of Massachusetts, 
     proposes an amendment numbered 3928 to Amendment No. 3739.


[[Page 7727]]


  The amendment is as follows:

(Purpose: To apply recaptured taxpayer investments toward reducing the 
                             national debt)

       At the end of the bill, insert the following:

                      TITLE XIII--PAY IT BACK ACT

     SEC. 1301. SHORT TITLE.

       This title may be cited as the ``Pay It Back Act''.

     SEC. 1302. AMENDMENT TO REDUCE TARP AUTHORIZATION.

       Section 115(a) of the Emergency Economic Stabilization Act 
     of 2008 (12 U.S.C. 5225(a)) is amended--
       (1) in paragraph (3)--
       (A) by striking ``If'' and inserting ``Except as provided 
     in paragraph (4), if'';
       (B) by striking ``, $700,000,000,000, as such amount is 
     reduced by $1,259,000,000, as such amount is reduced by 
     $1,244,000,000'' and inserting ``$550,000,000,000''; and
       (C) by striking ``outstanding at any one time''; and
       (2) by adding at the end the following:
       ``(4) If the Secretary, with the concurrence of the 
     Chairman of the Board of Governors of the Federal Reserve 
     System, determines that there is an immediate and substantial 
     threat to the economy arising from financial instability, the 
     Secretary is authorized to purchase troubled assets under 
     this Act in an amount equal to amounts received by the 
     Secretary before, on, or after the date of enactment of the 
     Pay It Back Act for repayment of the principal of financial 
     assistance by an entity that has received financial 
     assistance under the TARP or any other program enacted by the 
     Secretary under the authorities granted to the Secretary 
     under this Act, but only--
       ``(A) to the extent necessary to address the threat; and
       ``(B) upon transmittal of such determination, in writing, 
     to the appropriate committees of Congress.''.

     SEC. 1303. REPORT.

       Section 106 of the Emergency Economic Stabilization Act of 
     2008 (12 U.S.C. 5216) is amended by inserting at the end the 
     following:
       ``(f) Report.--The Secretary of the Treasury shall report 
     to Congress every 6 months on amounts received and 
     transferred to the general fund under subsection (d).''.

     SEC. 1304. AMENDMENTS TO HOUSING AND ECONOMIC RECOVERY ACT OF 
                   2008.

       (a) Sale of Fannie Mae Obligations and Securities by the 
     Treasury; Deficit Reduction.--Section 304(g)(2) of the 
     Federal National Mortgage Association Charter Act (12 U.S.C. 
     1719(g)(2)) is amended--
       (1) by redesignating subparagraph (C) as subparagraph (D); 
     and
       (2) by inserting after subparagraph (B) the following:
       ``(C) Deficit reduction.--The Secretary of the Treasury 
     shall deposit in the General Fund of the Treasury any amounts 
     received by the Secretary from the sale of any obligation 
     acquired by the Secretary under this subsection, where such 
     amounts shall be--
       ``(i) dedicated for the sole purpose of deficit reduction; 
     and
       ``(ii) prohibited from use as an offset for other spending 
     increases or revenue reductions.''.
       (b) Sale of Freddie Mac Obligations and Securities by the 
     Treasury; Deficit Reduction.--Section 306(l)(2) of the 
     Federal Home Loan Mortgage Corporation Act (12 U.S.C. 
     1455(l)(2)) is amended--
       (1) by redesignating subparagraph (C) as subparagraph (D); 
     and
       (2) by inserting after subparagraph (B) the following:
       ``(C) Deficit reduction.--The Secretary of the Treasury 
     shall deposit in the General Fund of the Treasury any amounts 
     received by the Secretary from the sale of any obligation 
     acquired by the Secretary under this subsection, where such 
     amounts shall be--
       ``(i) dedicated for the sole purpose of deficit reduction; 
     and
       ``(ii) prohibited from use as an offset for other spending 
     increases or revenue reductions.''.
       (c) Sale of Federal Home Loan Banks Obligations by the 
     Treasury; Deficit Reduction.--Section 11(l)(2) of the Federal 
     Home Loan Bank Act (12 U.S.C. 1431(l)(2)) is amended--
       (1) by redesignating subparagraph (C) as subparagraph (D); 
     and
       (2) by inserting after subparagraph (B) the following:
       ``(C) Deficit reduction.--The Secretary of the Treasury 
     shall deposit in the General Fund of the Treasury any amounts 
     received by the Secretary from the sale of any obligation 
     acquired by the Secretary under this subsection, where such 
     amounts shall be--
       ``(i) dedicated for the sole purpose of deficit reduction; 
     and
       ``(ii) prohibited from use as an offset for other spending 
     increases or revenue reductions.''.
       (d) Repayment of Fees.--Any periodic commitment fee or any 
     other fee or assessment paid by the Federal National Mortgage 
     Association or Federal Home Loan Mortgage Corporation to the 
     Secretary of the Treasury as a result of any preferred stock 
     purchase agreement, mortgage-backed security purchase 
     program, or any other program or activity authorized or 
     carried out pursuant to the authorities granted to the 
     Secretary of the Treasury under section 1117 of the Housing 
     and Economic Recovery Act of 2008 (Public Law 110-289; 122 
     Stat. 2683), including any fee agreed to by contract between 
     the Secretary and the Association or Corporation, shall be 
     deposited in the General Fund of the Treasury where such 
     amounts shall be--
       (1) dedicated for the sole purpose of deficit reduction; 
     and
       (2) prohibited from use as an offset for other spending 
     increases or revenue reductions.

     SEC. 1305. FEDERAL HOUSING FINANCE AGENCY REPORT.

       The Director of the Federal Housing Finance Agency shall 
     submit to Congress a report on the plans of the Agency to 
     continue to support and maintain the Nation's vital housing 
     industry, while at the same time guaranteeing that the 
     American taxpayer will not suffer unnecessary losses.

     SEC. 1306. REPAYMENT OF UNOBLIGATED ARRA FUNDS.

       (a) Rejection of ARRA Funds by State.--Section 1607 of the 
     American Recovery and Reinvestment Act of 2009 (Public Law 
     111-5; 123 Stat. 305) is amended by adding at the end the 
     following:
       ``(d) Statewide Rejection of Funds.--If funds provided to 
     any State in any division of this Act are not accepted for 
     use by the Governor of the State pursuant to subsection (a) 
     or by the State legislature pursuant to subsection (b), then 
     all such funds shall be--
       ``(1) rescinded; and
       ``(2) deposited in the General Fund of the Treasury where 
     such amounts shall be--
       ``(A) dedicated for the sole purpose of deficit reduction; 
     and
       ``(B) prohibited from use as an offset for other spending 
     increases or revenue reductions.''.
       (b) Withdrawal or Recapture of Unobligated Funds.--Title 
     XVI of the American Recovery and Reinvestment Act of 2009 
     (Public Law 111-5; 123 Stat. 302) is amended by adding at the 
     end the following:

     ``SEC. 1613. WITHDRAWAL OR RECAPTURE OF UNOBLIGATED FUNDS.

       ``Notwithstanding any other provision of this Act, if the 
     head of any executive agency withdraws or recaptures for any 
     reason funds appropriated or otherwise made available under 
     this division, and such funds have not been obligated by a 
     State to a local government or for a specific project, such 
     recaptured funds shall be--
       ``(1) rescinded; and
       ``(2) deposited in the General Fund of the Treasury where 
     such amounts shall be--
       ``(A) dedicated for the sole purpose of deficit reduction; 
     and
       ``(B) prohibited from use as an offset for other spending 
     increases or revenue reductions.''.
       (c) Return of Unobligated Funds by End of 2012.--Section 
     1603 of the American Recovery and Reinvestment Act of 2009 
     (Public Law 111-5; 123 Stat. 302) is amended by--
       (1) striking ``All funds'' and inserting ``(a) In 
     General.--All funds''; and
       (2) adding at the end the following:
       ``(b) Repayment of Unobligated Funds.--Any discretionary 
     appropriations made available in this division that have not 
     been obligated as of December 31, 2012, are hereby rescinded, 
     and such amounts shall be deposited in the General Fund of 
     the Treasury where such amounts shall be--
       ``(1) dedicated for the sole purpose of deficit reduction; 
     and
       ``(2) prohibited from use as an offset for other spending 
     increases or revenue reductions.
       ``(c) Presidential Waiver Authority.--
       ``(1) In general.--The President may waive the requirements 
     under subsection (b), if the President determines that it is 
     not in the best interest of the Nation to rescind a specific 
     unobligated amount after December 31, 2012.
       ``(2) Requests.--The head of an executive agency may also 
     apply to the President for a waiver from the requirements 
     under subsection (b).''.

  Mr. BENNET. Mr. President, my amendment is based on bipartisan 
legislation I introduced earlier this Congress called the Pay It Back 
Act. I was greatly encouraged at that time by the broad bipartisan 
support in this body for winding down the TARP, getting serious about 
deficit reduction, and spurring our economy back to health.
  As I talk with Coloradans all across my State, I hear the same 
concerns again and again. People are deeply concerned and worried about 
the economy. They worry about jobs and they worry about our rising 
Federal deficit. But mostly they just want a fair shake--a chance to 
achieve their own vision of success through hard work.
  That is why they don't understand the behavior of some of our largest 
financial institutions. They don't understand how these behemoths could 
have made bad bets, lose billions of dollars, and then be bailed out by 
the Federal Government. That doesn't make sense to most people in 
Colorado, and it certainly doesn't make sense to anybody running a 
business.

[[Page 7728]]

  This pay it back amendment takes a big step forward in our efforts to 
wind down and eventually end the TARP. It prevents further government 
spending, recaptures taxpayers' investments in financial institutions, 
and ensures that repaid funds are used for deficit reduction.
  It does this in a couple of ways. First, it reduces the TARP's 
authority by about $150 billion, which will ensure that unused TARP 
funds are not used for new government spending.
  Chairman Dodd's bill sends a strong message to Wall Street and our 
broader markets that there is no longer an implicit guarantee of 
government support for excessive and sloppy risk taking. This amendment 
reinforces this important principle by reducing TARP's authority. In 
short, it begins to wind down the TARP and ensures that the government 
doesn't use the excess funding for new spending initiatives. It is a 
commonsense way forward for a program whose time has come and 
thankfully is almost gone.
  But that is not enough. As we wind down TARP, we need to make sure 
that taxpayers realize a fair return on their investment. That is why 
the second element of the Pay It Back Act amendment is that it takes 
captured, repaid TARP funds and applies them to deficit reduction. It 
does it by severely restricting TARP's revolving door of credit.
  Although some companies have already repaid the money they received, 
TARP currently allows the Treasury to keep $700 billion ``outstanding 
at any one time.''
  Let me make this clear. The Treasury has already received about $180 
billion in repaid funds from banks that are now in a position to repay 
the taxpayers. But right now, Treasury can turn around and lend that 
same money to some other financial institution. It can use our money 
again and again. And since the TARP money is borrowed against our kids' 
and grandkids' futures, that is using their money again and again and 
again. I can tell you for sure that my daughters don't want to be stuck 
footing the bill for keeping the TARP around even 1 day longer than we 
have to. By supporting my amendment, this body can move forcefully 
toward ending the TARP and restoring fiscal sanity.
  The amendment also creates a sunset for unused Recovery Act funds. 
Any funds not obligated by the Federal Government by December 31, 2012, 
will be returned to the Treasury to pay down the national deficit. 
Congress passed the Recovery Act to jolt our struggling economy back to 
life and help create and save jobs now. Yet, if funds have not been 
used by the end of 2012, can we say they have been used to ease our 
current recession? The taxpayers deserve to see stimulus funds used for 
real stimulus. If not, they should be used to pay down our debt.
  The pay it back amendment sets a schedule for getting the government 
out of the business of owning businesses. It lets excessive risk takers 
know that Washington no longer provides a backstop for greed, 
overleveraging, reckless levels of risk, and irresponsibility. If big 
financial institutions want to behave that way, they must know that 
they do so without the TARP--without money from Main Street--to bail 
them out any longer.
  In short, it is time for this assistance to come to a responsible 
end. At the heart of the Wall Street reform bill is an effort to 
prevent future bailouts. So let's start by finally winding down the 
biggest bailout of them all and making sure taxpayers get the best 
possible return on their money.
  I thank my colleagues who are cosponsors of the bill, and I ask all 
of my colleagues to support this important amendment. I thank Senator 
Dodd and Senator Lincoln and the ranking members of the Banking and 
Agriculture Committees for their hard work to bring Wall Street reform 
to the floor.
  I know the Senator from Montana wants to take a couple of minutes. I 
will say this. Americans have been watching the news in Europe this 
week, and they are seeing what is happening in Greece and the rest of 
Europe. If we don't think that is a canary in the coal mine, we do that 
at our peril. This bill will not solve our deficit and debt problem, 
but it takes a stand that says we are not going to leave a legacy of 
$12 trillion behind for our kids and grandkids.
  With that, I yield the floor.
  The PRESIDING OFFICER. The Senator from Montana is recognized.
  Mr. TESTER. Mr. President, I rise to speak in strong support of 
Senator Bennet's amendment to begin winding down the Wall Street 
bailout once and for all.
  I also want to express my appreciation for Senator Bennet's 
effectiveness and stick-to-itiveness in working on this for some time 
and being able to get this through. This is a very important amendment. 
As Senator Bennet has said, it will not solve our debt problems, but it 
is a step in the right direction. I appreciate his vision and 
leadership.
  Montanans were disgusted by the reckless actions of big, greedy Wall 
Street banks that brought this country to the brink of another 
Depression.
  I voted against both the bailouts of Wall Street and the U.S. auto 
industry because I thought taxpayers were getting a raw deal. I don't 
believe in bailouts.
  Why? Whether you are a family farmer or a hot-shot executive, the 
opportunity that allows us to fail is the same opportunity that allows 
us to succeed.
  And America's taxpayers--Main Street small businesses and working 
families--should never have to pay for the sins of Wall Street.
  That is why I am pleased to join Senator Bennet on this amendment to 
ensure that we get the maximum value for the taxpayer dollars spent 
through the TARP bailout.
  I opposed the bailout then and I oppose it now. But at a minimum, we 
should recapture taxpayer investments and unused Recovery Act funds to 
pay down the debt.
  This amendment not only achieves that but also begins to wind down 
TARP by reducing its authority by over $190 billion. And it prevents 
the Treasury from redirecting funds for other purposes.
  The amendment would also establish a sunset for unused Recovery Act 
funds and improve oversight of unused funds.
  Additionally, it would ensure that the proceeds from taxpayer 
investments in Fannie and Freddie are used to pay down the debt.
  We have a commitment to the American people to spend their hard-
earned money as wisely as we would spend our own.
  Our national debt is something both parties have ignored for far too 
long. How do we get our arms around it?
  It is going to take smart--and very tough--decisions. It is going to 
take working together. and it is going to take rebuilding our economy 
by creating jobs and new opportunities, not more taxpayer-funded 
bailouts.
  This amendment will get things back on track to return taxpayer 
dollars. And to begin paying down the debt that we have inherited.
  Once again, I thank Senator Bennet for his leadership.
  With that, I yield the floor.
  The PRESIDING OFFICER. The Senator from Connecticut.
  Mr. DODD. Mr. President, very briefly, I commend our colleague from 
Colorado for reaching out on this. The amendment is authored by the 
Senator from Colorado, and he has attracted good bipartisan support 
from Senators Tester, Isakson, Klobuchar, Begich, LeMieux, Mark Udall, 
and Brown of Massachusetts on how this ought to be done. The substance 
of the amendment is critically important. He worked with Treasury to 
ensure that we are responsibly winding down the TARP and getting the 
government out of the business of owning businesses. We can all agree 
with that, and I commend him for that amendment. It also ensures that 
unused TARP funds are used to pay down the deficit. We have heard a lot 
of talk about fiscal responsibility and watching what is happening in 
Europe and other countries and knowing the fiscal problems of those 
nations are the root cause of a lot of the problems they are going 
through today.
  This amendment actually dedicates these resources to deficit 
reduction. I think all of us applaud his leadership on it.

[[Page 7729]]

  There are signs our economy is recovering. In the last 3 months of 
2010, our economy added roughly 187,000 jobs a month. Last year, it was 
290,000 jobs, which is the largest number in over 4 years. Compare that 
to the first 3 months of 2009 when we were losing 750,000 jobs a month. 
In the first quarter, the economy grew 3.2 percent, a swing upwards of 
nearly 10 percent in 1 year, something many economists say is largely 
due to the Recovery Act. Just over a year ago, the economy was 
shrinking about 6 percent on an annual basis.
  This amendment is tremendously valuable to this bill. We have all had 
discussions about it--our colleague from Georgia, Senator Isakson, 
Senator LeMieux, and Senator Tester. Because of the leadership of Mike 
Bennet, he has brought us to this point. I thank him immensely. I thank 
all of our colleagues.
  I am prepared to do a voice vote, unless someone objects to a voice 
vote on the Bennet amendment, so we can move to finalize how we deal 
with the Corker amendment and the other issues before us.
  Mr. SHELBY. We have no objection to the Bennet amendment.
  The PRESIDING OFFICER (Mr. Pryor). Is there further debate? If not, 
the question is on agreeing to the amendment.
  The amendment (No. 3928) was agreed to.
  Mr. DODD. Mr. President, I move to reconsider the vote, and I move to 
lay that motion on the table.
  The motion to lay on the table was agreed to.
  The PRESIDING OFFICER. The Senator from Tennessee.


                Amendment No. 3955 to Amendment No. 3739

  (Purpose: To provide for a study of the asset-backed securitization 
     process and for residential mortgage underwriting standards.)

  Mr. CORKER. Mr. President, I call up amendment No. 3955.
  The PRESIDING OFFICER. The clerk will report the amendment.
  The assistant legislative clerk read as follows:

       The Senator from Tennessee [Mr. Corker], for himself, Mr. 
     Gregg, Mr. LeMieux, Mr. Coburn, and Mr. Brown of 
     Massachusetts, proposes an amendment numbered 3955 to 
     amendment No. 3739.

  Mr. CORKER. Mr. President, I ask unanimous consent that the reading 
of the amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (The amendment is printed in today's Record under ``Text of 
Amendments.'')
  Mr. CORKER. Mr. President, my understanding is we have about 30 
minutes on each side--is that correct--on this amendment--30 minutes on 
this amendment and 30 minutes on Merkley; is that correct?
  The PRESIDING OFFICER. There is no order in effect.
  Mr. CORKER. I know Senator Isakson, Senator Gregg, and Senator Shelby 
wish to speak on our side.
  Mr. DODD. Technically, there is no time agreement.
  Mr. CORKER. I will be very brief.
  The PRESIDING OFFICER. The Senator from New Hampshire.
  Mr. GREGG. Mr. President, I ask unanimous consent that after Senator 
Corker finishes his remarks, Senator Isakson be recognized and then I 
be recognized. If Senator Shelby wants to be recognized, he should be 
recognized before Senator Isakson. Senator Shelby should start, then 
Senator Isakson, and then myself.
  Mr. DODD. If a Member on this side somewhere in the midst of this can 
be heard as well----
  Mr. GREGG. That would be totally reasonable.
  Mr. DODD. That was not a sophisticated request.
  Mr. CORKER. If we can move along on our side----
  Mr. DODD. Move along.
  Mr. CORKER. It sounds like there was no objection, Mr. President.
  The PRESIDING OFFICER. Is there objection to the sequence the Senator 
from----
  Mr. CORKER. To restate, Senator Shelby, Senator Isakson, Senator 
Gregg, and then anybody else on our side.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. CORKER. Mr. President, the Dodd bill attempts to deal with 
quarterly liquidation. I know there have been discussions about the 
pros and cons. There have been attempts to deal with the derivatives 
title. My sense is, before it is all said and done, there is a chance 
that may work out well. I think we have overly dealt with consumer 
protection and hope that somehow in this body we will bring that back 
into balance.
  This bill glaringly does not deal with some of the core issues of 
this last crisis. We just voted on GSEs, an amendment that would have 
dealt with that over the next couple of years in a way that does not 
prescribe exactly a solution but makes sure we deal with it. We just 
voted it down.
  Even more glaring, the Dodd bill does not deal with the essence of 
what created this last crisis. At the base of this crisis--an inverted 
pyramid--was the fact that we had a lot of loans that were written that 
should never have been written. Those loans were done by companies that 
were leveraged 30, 40, 50 to 1, and then $600 trillion worth of 
notional value of these loans that should never have been written were 
spread across the world. That, in essence, brought down our financial 
system.
  It seems to me if we are going to do a financial regulation bill, we 
ought to at least deal with the core issue, which is very poor 
underwriting. I have offered an amendment. I know there is going to be 
a side-by-side. I might add, the side-by-side--and I want to make sure 
the people on my side know this--lets the consumer protection agency 
deal with underwriting, which is pretty incredible to me.
  It seems to me that what we want to ensure is that the underwriting 
we do does not undermine the safety and soundness of our financial 
institutions and, therefore, should be dealt with by those regulators.
  This amendment is very simple. It does some things that have been 
very basic to making our country strong as it relates to residential 
lending. Here is what it does: It establishes that there will be a 
minimum of a 5-percent downpayment. If I was left to my own accord, I 
might do something more stringent than that. It causes any loan that is 
written at above an 85 percent loan to value to have private mortgage 
insurance. It actually requests the persons's income; that this loan 
has to be fully documented, including credit history and employment 
history. It seems this is something at a minimum in this country we 
would like to see happen as it relates to residential lending.
  Then there has to be a method for determining the borrower's ability 
to repay--a no-brainer--considering their debt-to-income ratio.
  Those four simple requirements are put into law so we do not have the 
same type of underwriting problems we just had with this last episode. 
This does not apply to the VA. VA is an entitlement, something we have 
given to those who serve our country. It does not apply to rural 
housing. Regulators have to update the standards no less than every 5 
years.
  For those people who may be concerned about organizations such as 
Habitat for Humanity and others that use sweat equity and do not use 
money down, this gives the regulators the ability to exempt nonprofits 
that meet certain criteria on a case-by-case basis. So if there is a 
nonprofit in your community that is involved in allowing people to 
create sweat equity for housing, they would not be hurt. This requires 
a review of exemptions every 2 years to make sure they are within that 
criteria and it prohibits an exemption going to organizations that are 
prohibited from receiving Federal funding. We know of some of those. 
This also requires a study of FHA to make sure their underwriting 
standards are intact.
  The way the Dodd bill addresses underwriting, it deals with something 
called risk retention on securitizations. I think most people realize 
that is a flawed model. It has nothing to do with the loans underneath 
those securities. I think Chairman Dodd is even trying to find a better 
solution.
  This bill also strikes the 5-percent retention that most people in 
this room

[[Page 7730]]

think is going to actually shut down the securitization process and 
make less credit available, especially in the commercial areas. This, 
instead, puts in place a study so we can actually determine the best 
way to look at securitizations and know what type of risk retention 
should be in place.
  I urge all colleagues on both sides of the aisle to do something that 
is real, that is substantive, that gets at the heart of this issue, 
that actually causes us to put in law proper underwriting standards. I 
cannot imagine there are many people in America who do not think this, 
at a minimum, ought to be done as part of underwriting home mortgages.
  I yield time now to the Senator from Alabama, who may not be here. I 
divert and yield to Senator Isakson from Georgia.
  The PRESIDING OFFICER. The Senator from Georgia.
  Mr. ISAKSON. Mr. President, I thank the Senator from Tennessee. I 
commend the Senator from Tennessee who has worked tirelessly for months 
on this legislation but in particular has worked tirelessly on this 
particular amendment.
  I rise to try and make my point as strongly as I can. This body, I 
know, always wants to do the right thing. We want to address the 
concerns that made the market begin to collapse 2 years ago. We want to 
restore confidence in real estate finance. We want to bring back the 
vibrant housing industry. We do not want to reincarnate subprime loans. 
And we ought to do one simple thing today: We ought to learn from 
history. I want to give everybody a small history lesson.
  The underlying bill answers the question of better underwriting by 
putting risk retention as a requirement on a newly originated mortgage, 
a risk retention of 5 percent. The tier 1 minimum capital requirement 
of a nationally chartered bank is 8 percent. You are going to tell me 
the banks of America are going to reserve another 5 percent against the 
mortgages they originate? No, they are just not going to originate 
mortgages whatsoever.
  Secondly, risk retention is no insurance for a better mortgage having 
been made. The fact is, in the late 1980s, the American savings and 
loan industry, which was chartered for the purpose of financing 
American homes, went under, and they had a 100-percent risk retention.
  What causes bad lending is bad underwriting. Risk retention has 
nothing to do with it if you have bad underwriting or, as we had in 
late 2007, 2008, 2009, no underwriting at all.
  First of all, Senator Corker's amendment is an outstanding amendment 
that strikes at the heart of the problem that got us here, while at the 
same time according the opportunity for the American finance industry 
to bring back competitive mortgage lending. If it is not FHA and it is 
not VA and it is not a Freddie Mac or Fannie Mae loan right now, you 
are not getting one. We do not have people in the market anymore 
because they are scared. There is no standard.
  This brings us back to a standard of underwriting that is right. It 
recognizes somebody has a job, has an ability to pay, has reasonable 
credit, and has some skin in the game so they will pay that loan back. 
Historically, the default rate on the mortgage industry in the United 
States of America, outside the last 3 years, was around 1.2 percent to 
1.4 percent--very little; in fact, probably the highest best risk 
investment an investor could make.
  What happened was, when underwriting failed and we got into exotic 
instruments, when Congress told Freddie and Fannie to make affordable 
loans and they created market subprime loans, the genie got out of the 
bottle and everything failed.
  I want to say to the body, if we let this bill pass with risk 
retention in it thinking we have done something, the only thing we will 
have accomplished is a total absence of mortgage money for the American 
home buyer and American real estate industry. That is a bad mistake.
  Facts are stubborn things. If a guy has a job, makes a downpayment, 
he will repay his loan. If he does not, he might not.
  Let's get back to the roots that got us to where we are as a great 
country. Let's restore home ownership and ability to finance it, but 
let's recognize the weakness was in underwriting. It was not in the 
retained risk of the originator.
  I commend Senator Corker, Senator Shelby, Senator Gregg, Senator 
LeMieux, and the others who have worked on this issue. If this 
amendment fails, then this entire legislation fails in meeting the 
standard it set upon itself. That would be a tragedy and a mistake for 
the United States of America.
  I yield to the distinguished Senator from New Hampshire.
  The PRESIDING OFFICER. The Senator from New Hampshire.
  Mr. GREGG. Mr. President, I wish to join in congratulating Senator 
Corker, Senator Isakson, Senator Shelby, and others who have come 
together around this issue of better underwriting standards.
  It is hard for me to understand why this would be resisted in this 
bill because this has been outlined both by Senator Corker and by 
Senator Isakson. It was underwriting that created the problems which 
led our Nation to the brink of a fiscal collapse.
  The way I have described it is this: What we had was an inverted 
pyramid. We had this situation where an individual made a loan to 
another individual or a corporation made a loan to an individual based 
on the value of a piece of property. Unfortunately, when that loan was 
made, it was made in a way where nobody looked at the value of the 
property relative to the loan and nobody looked at whether the person 
who was getting the loan could pay it back because the system no longer 
had strong underwriting standards.
  Then that loan was taken and it was syndicated, it was securitized, 
it was synthesized, and it became multiplied, as the Senator from 
Tennessee said, into $600 trillion of notional value. We ended up with 
this huge pyramid of debt built on the basis of this loan down here at 
the bottom between this corporation and this individual, this loan 
which was based on value which was not there, and ability to repay, 
which was not there once the rates of the loan were reset.
  Why did this happen? Why was this loan so inappropriately made? It 
was inappropriately made because we had a breakdown in underwriting 
standards. I have been through three of these events in my professional 
career: once in the late seventies when I was involved in representing 
a bank in New Hampshire, once in the late eighties when I was Governor 
of New Hampshire, and now. Three major financial disruptions which were 
created almost entirely by a failure in underwriting standards, where 
people were making loans that couldn't be paid back based on asset 
value which wasn't there. It just was aggravated radically this time 
because of the way the system suddenly took these loans and exploded 
them through the securitization process and the syndication process.
  So if you are going to fix this problem, if you are going to put in 
place a regulatory reform system which actually fixes the issues which 
caused the crisis, you have to address underwriting standards. That is 
why the Corker amendment is so critical, because this bill does not 
address underwriting standards in any other way, in any significant 
manner. So if you are going to have a legitimate effort to try to make 
sure this type of an event doesn't occur again, you have to put in 
place underwriting standards which establish the rules of the road, 
which say that in the future America will not allow this sort of 
proliferation of lending which is not properly secured, where we know 
that the person getting the loan can't repay the obligation. 
Ironically, in this situation, these loans were made, in some 
instances, with the full understanding that this wouldn't happen, that 
they couldn't repay and the value wasn't there. Why? Because we 
separated underwriting standards from the process of actually making 
the loan. The people making loans were only interested in making a

[[Page 7731]]

fee. They were not interested in making sure there was value of the 
security. They weren't interested in making sure the people could 
repay. They were just interested in the fee.
  This should stop. The language Senator Corker has put before us would 
accomplish that. It would put in place not unusual underwriting 
standards, not new underwriting standards, it would simply go back 
essentially to the types of standards--and they are not quite as 
strict, honestly--we had at a prior time when we didn't have this kind 
of risk in the marketplace because people knew when they borrowed money 
to buy a house they were going to have to put money down, and if they 
didn't put the full amount of the value down, they would have to have 
insurance to cover the difference. They knew their creditworthiness was 
going to be checked, and thoroughly checked, and their ability to pay 
the loan was going to be checked. So it is a totally reasonable 
approach.
  If you are going to do one thing in this bill to avoid a future event 
like the one we confronted in late 2008 where basically the entire 
financial industry of this country almost melted down, if you are going 
to do one thing to prevent that event, you should adopt the Corker 
amendment. This should be a bipartisan amendment. I don't understand 
any opposition to it. I don't understand the concept which would oppose 
it because it is basically good banking and good lending. It is also 
good for the people who borrow money because they are not going to get 
money just arbitrarily but only if they have the value in the asset 
they are borrowing on and if they have the ability to repay. So I 
certainly hope this amendment will be approved.
  The PRESIDING OFFICER. The Senator from Alabama.
  Mr. SHELBY. Mr. President, I rise specifically to support the 
important steps the Corker amendment takes to establish sound 
underwriting standards for mortgages. If there is any clear message 
from the crisis we have been through, it is that much of what went 
wrong began when loans were made to individuals who couldn't repay 
them.
  The Corker amendment makes commonsense changes. It requires minimum 
downpayments on mortgages, which makes it more likely that borrowers 
remain committed to paying their mortgages. It requires, among other 
things, that lenders verify a borrower's income and their ability to 
repay these loans. These might sound simple, but remarkably they have 
been overlooked by the Dodd bill. In the past, they have worked. We 
used to not have these kinds of problems. The Corker amendment, if we 
adopt this--and I urge my colleagues to vote for it--will go a long way 
in taking the right steps to bring common sense to our mortgage market.
  Mr. CORKER. Mr. President, how much time remains of our 30 minutes?
  The PRESIDING OFFICER. There is 13 minutes 40 seconds remaining.
  Mr. CORKER. I yield a few minutes, if I could, to the Senator from 
Florida.
  The PRESIDING OFFICER. The Senator from Florida.
  Mr. LeMIEUX. Mr. President, I wish to congratulate my colleague from 
Tennessee on his amendment, and I rise in support of it.
  In Florida, we know this was the very problem that started this whole 
crisis. We called them NINJO loans--no income, no job. Underwriting 
standards went out the window because of the hunger of Wall Street to 
suck up these mortgages, to bundle them into these large securitized 
packages and then sell them off. So as Wall Street demanded more and 
more, underwriting went out the window. And what does the bank or the 
mortgage broker care if they can just ship off their mortgage and sell 
it off to Wall Street? What do they care if the person they are giving 
the mortgage to can't pay it back? What do they care if that person 
can't afford the home to start with? So we got ourselves into this 
perfect storm of a situation, and one of the key elements that allowed 
this to happen was the fact that there weren't underwriting standards.
  When I bought my first home back in 1995, I didn't have 20 percent to 
put down; I had 15 percent. So I had to get mortgage insurance to cover 
the other 5 percent of my downpayment. Until such time as my family--my 
wife and I at the time, before we had any of our kids--could make a 
payoff to get the 20 percent of equity value to the loan, we had to pay 
for the mortgage insurance. Once we did, we no longer had to pay for 
that.
  Well, in the late 1990s and the early 2000s, that went out the 
window. No longer were these underwriting standards in place. We now 
know, looking back on the debacle that happened in 2008, that one of 
the key reasons it happened, one of the key things that made it fertile 
for this problem to grow was the fact that there weren't underwriting 
standards.
  What Senator Corker does in his bill is he puts these mortgage 
underwriting standards back into law the way they were when everything 
operated the right way--a 5-percent downpayment, credit enhancement to 
get you to an 80-percent loan to value, fully documented income, 
including credit history and employment history, and a method for 
determining the borrower's ability to repay. All those things make 
common sense. But that common sense didn't prevail in the mid-2000s.
  Last year, in an initiative the Wall Street Journal put forward, it 
talked about the 20 most important things that could be done to avert 
the financial collapse that happened, and the No. 1 most important 
thing was to strengthen underwriting standards. But this bill we are 
considering which is supposed to get at the problems that caused this 
meltdown in 2008--it is 1,409 pages long--doesn't address perhaps the 
No. 1 biggest reason we had a financial failure in 2008.
  Senator Corker, along with Senators Isakson, Shelby, Gregg, and to a 
smaller extent myself, have worked on this, and I commend my colleague 
from Tennessee. There is absolutely no reason not to pass this. If any 
of our colleagues are serious about really reforming our financial 
system and preventing this problem from happening again, then they must 
support this very fine amendment.
  I thank the Chair.
  Mr. CORKER. Mr. President, not seeing other Senators at this time 
wishing to speak, I want to recap, if I could.
  We spend a year and a half working on financial regulation in this 
body, and there are a lot of fancy things we are looking at that 
certainly need to be looked at, no question. We are looking at clearing 
trades with derivatives. We are looking at all kinds of section 106 
issues and other kinds of things, many of which I have issues with. But 
it is amazing that after all this time, we are still not dealing with 
the core issue.
  It is hard for me to imagine that anybody in this body would think 
that a 5-percent downpayment on a loan would be something that is 
extraordinary. This puts in place, as the other Senators have 
mentioned--and I certainly appreciate those who have joined me in 
cosponsoring. I have had a couple of folks on the other side of the 
aisle today come up and say: Look, this makes common sense. I am going 
to support this. It is amazing to me that we are not focusing on those 
very things that we think are the core issues.
  We had a chance a minute ago to deal with Fannie Mae and Freddie Mac, 
and, of course, we didn't. I know it is a complex issue, but I felt the 
McCain amendment gave us a timeframe within which we could deal with 
Fannie Mae and Freddie Mac. We didn't. We decided to have another 
study.
  But I would say to my friends on the other side of the aisle, while 
there is an unwillingness to deal with the issues over Fannie Mae and 
Freddie Mac and some of the problems that exist right now within FHFA, 
what this amendment would do is to put in place underwriting standards 
that would at least ensure the mortgages Fannie Mae and Freddie Mac are 
purchasing themselves would have proper underwriting standards. I think 
that is very important.
  It is amazing that sometimes we will spend a year and a half in this 
body--a year, 6 months, whatever--on different types of issues, and we 
focus on lots of things that industry brings us, that other people 
bring us, but we don't

[[Page 7732]]

get down to just the commonsense core issues that Americans know work.
  I thank the Senator from Florida and others who have joined in this 
effort to ensure we have appropriate underwriting standards. Again, let 
me just recap. These are not Draconian steps. Basically, Federal 
banking regulators themselves--the regulators of our financial 
institutions--would set criteria for underwriting. There would be a 
minimum of a 5-percent downpayment. Any loan that is above 80 percent 
loan to value would have a credit enhancement--such as has been done 
for years in the past--of private mortgage insurance. There would be 
fully documented income--I can't imagine anybody in this body not 
thinking that wouldn't be a good idea for people taking out a loan that 
many people expect to pay off over a 30-year period--including a credit 
history and employment history. There would be a method for determining 
the borrower's ability to repay. This is something the regulators 
themselves would get together and lay out. It would also include 
consideration--imagine this--of the debt-to-income ratio--again, just a 
basic element of lending. This does not apply to VA, where we have made 
guarantees to veterans. It does not apply to rural housing.
  For those people who may hear from some of the nonprofit 
organizations that I have worked with and some others in this body have 
worked with--I helped create one in Chattanooga in 1986 that helped 
over 10,000 families have decent housing--those types of organizations 
have the ability to be exempted if they are the types that allow 
people, through sweat equity and other kinds of things, to have sort of 
skin in the game in other ways. We applaud those efforts and applaud 
people who go out and volunteer and take care of their fellow citizens 
by helping them have homes, helping people who are less fortunate. I 
know all of us support that. We go to events where we thank people who 
volunteer in that way. This amendment does nothing other than allow 
them to operate as they do through exemptions through our regulators.
  I know the other side of the aisle, as I mentioned earlier, has tried 
to deal with this issue, and they haven't figured out a way to deal 
with it yet. I know we have a side-by-side amendment that is coming up, 
and I thank those on the other side of the aisle who have put some 
effort into trying to do this same thing. But this, again, is a 
commonsense effort. And my guess is that if you laid this out in front 
of most citizens back home in every State we come from, they would say: 
You know, this is just basic. If you are going to loan money to 
someone, these basic underwriting standards ought to be in place.
  Mr. President, I urge everyone in this body to please at least look 
at this seriously. This is one thing we can do that is tangible, that 
is not a study, that is not putting something off and hoping regulators 
might do something down the road. This is something tangible that we 
can do to ensure that the core issue that created this financial crisis 
over the last 24 months is dealt with and that the individual loan that 
is made from a lender to somebody who is borrowing money is done with 
proper underwriting standards in place.
  Mr. President, I see the Senator from Connecticut is ready to move on 
to the next issue, so I yield the rest of my time, and I thank the 
Chair for his patience.
  The PRESIDING OFFICER. The Senator from Oregon.


                Amendment No. 3962 to Amendment No. 3739

   (Purpose: To prohibit certain payments to loan originators and to 
 require verification by lenders of the ability of consumers to repay 
                                 loans)

  Mr. MERKLEY. Mr. President, I call up amendment No. 3962, the 
Merkley-Klobuchar amendment.
  The PRESIDING OFFICER. The clerk will report.
  The assistant legislative clerk read as follows:

       The Senator from Oregon (Mr. Merkley), for himself, Ms. 
     Klobuchar, Mr. Schumer, Ms. Snowe, Mr. Brown of 
     Massachusetts, Mr. Begich, Mrs. Boxer, Mr. Dodd, Mr. Kerry, 
     Mr. Franken, and Mr. Levin, proposes an amendment numbered 
     3962 to amendment No. 3739.

  Mr. MERKLEY. I ask unanimous consent to dispense with the reading of 
the amendment.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (The text of the amendment is printed in today's Record under ``Text 
of Amendments.'')
  Mr. MERKLEY. I ask unanimous consent Senator Kerry, Senator Franken, 
and Senator Levin be added as cosponsors.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. MERKLEY. Mr. President, I thank the bipartisan cosponsors of this 
amendment, including Senator Snowe, Senator Scott Brown, and Members on 
both sides--my colleague, Senator Klobuchar, will be speaking in a 
moment--Senator Begich, Senator Boxer, as I mentioned, Senator Kerry, 
Senator Franken, and Senator Schumer.
  I would like to applaud my colleague from Tennessee. Virtually every 
word that Senator Corker stated tonight is an argument for this 
amendment that Senator Klobuchar and I are cosponsoring. I will get 
into the details later because I want to yield time to my colleague 
from Minnesota and then my colleague from Connecticut to speak to the 
bill. Then I will offer my remarks.
  I do think it is important to recognize that the bulk of what Senator 
Corker addressed goes right to the heart of this amendment as well. 
There is a point of distinction between the two amendments, a critical 
point of distinction; that is, the 5-percent underwriting absolute 
line. That line is a line of great concern for those of us who have had 
experience with first-time home buyers, those who have had experience 
with families who are at the bottom of the income spectrum. I should 
make it clear that the downpayment is only a portion of the skin in the 
game that such families have because there are tremendous closing costs 
associated with these loans that the families must bear as well. So the 
inflexibility of that standard is a great concern and a great point of 
distinction between these two amendments.
  I will continue on after my colleagues have spoken to address some of 
the major challenges this amendment addresses, but I would like to 
yield 5 minutes to Senator Klobuchar.
  The PRESIDING OFFICER. The Senator is recognized.
  Ms. KLOBUCHAR. Mr. President, I thank Senator Merkley for his 
leadership on this issue. I was proud to work with him on this issue. I 
thank Chairman Dodd as well for advancing this amendment, for the work 
he has done in this area. I also want to mention my good colleague in 
the House, Representative Ellison, who was a leader on this in the 
State legislature in Minnesota and now in Congress. We worked on this 
issue in this bill together.
  Complex and deceitful lending practices were at the heart of the 
financial crisis, and as we work to reform Wall Street we must ensure 
that the homes and the home equity of Americans are not put at 
unnecessary risk. With 1 in 7 homeowners--1 in 7, who would have ever 
thought that--delinquent on their mortgage or already in foreclosure, 
and many home loans delinquent, the housing market continues to slow 
economic recovery.
  It has been estimated that each year predatory mortgage lending 
results in a loss of $1.9 billion for American families. It is critical 
that families have access to safe, fair, and affordable mortgages.
  I see my colleague from Illinois, Senator Durbin, who has seen 
firsthand in his State people losing their homes, people at the mercy 
of call-lines where they cannot reach anyone when they are calling for 
help.
  Important borrower protections such as those we have in Minnesota 
should be a national policy to help safeguard families across the 
country. A decade ago, just 5 percent of mortgage loan originations 
were subprime, meaning they were made to borrowers who would not 
qualify for regular mortgages--only 5 percent. By 2005 it was 20 
percent of mortgages that were subprime. It was a disaster waiting to 
happen.
  This expanded home ownership to millions of people, but it also 
greatly

[[Page 7733]]

increased the risk to our financial system. In Minnesota, in 2000 there 
were 8,347 subprime mortgages issued. By 2005 it had increased more 
than fivefold to more than 47,000 subprime mortgages. However, we now 
know that between 60 and 65 percent of people who ended up with 
subprime mortgages actually qualified for traditional mortgages. We 
need to make sure this never happens again.
  That is why last year I introduced the Homeowner Fairness Act, which 
is comprehensive housing reform legislation that proposes tough new 
national standards based on the successes of the Minnesota mortgage 
lending law passed in 2007. That is why I have joined Senator Merkley 
on an amendment that will ensure several key ideas from this bill are 
included in the Wall Street reform bill.
  These are not radical ideas. The fact that practices were ever 
allowed to take place should be shocking to those who have not even 
heard about them.
  First, this amendment would require all mortgage originators to 
verify a borrower has the ability to repay a mortgage before giving 
loan approval. Let me repeat that. This amendment would require 
mortgage originators to verify a borrower has the ability to repay a 
mortgage before they approve the loan. It may just sound like common 
sense that you wouldn't loan someone money without first figuring out 
if they were able to pay, but these lenders never intended to keep the 
loans they originated long enough for it to matter. They simply sold 
their risky bets to someone else and put the profits on the bank.
  Second, this amendment would prohibit a mortgage originator from 
steering a borrower toward terms that are more expensive than those for 
which he can qualify. In recent years, loan originators were often paid 
more if they got borrowers to take out predatory subprime loans, even 
when the borrower qualified for a prime loan. It is important to 
remember that the crisis we are addressing today with this 
comprehensive Wall Street reform bill was first triggered by the 
downturn in the national housing market. This downturn brought to light 
the prevalence of unsound lending practices, especially predatory 
lending tactics in the subprime market.
  Ultimately, this disregard for underwriting standards spread risk 
throughout the financial system as these unsound loans were securitized 
and sold, chopped up and sold again. No one had any skin in the game.
  Although the market for some prime mortgages was less than 1 percent 
of global financial assets, the faults in the system that started with 
unscrupulous origination practices allowed the turmoil in the housing 
market to spill over into other sectors. When sound mortgage loans are 
made they provide families with a piece of the American dream. But when 
loans are made recklessly, without concern for the consumer, these 
loans become nightmares--not just for the families who are left on the 
hook but for our entire economy. We need to make sure those abusive and 
exploitative mortgage practices come to an end.
  For far too long, subprime lenders have put the homes and home equity 
of Americans at unnecessary risk. These commonsense protections are 
essential to restoring our economy and preventing a future crisis in 
the housing market.
  I ask my colleagues to support the Merkley-Klobuchar amendment, and I 
yield the floor to my friend and great leader on this issue, Senator 
Merkley of Oregon.
  The PRESIDING OFFICER. The Senator from Oregon.
  Mr. MERKLEY. Mr. President, I compliment my colleague from Minnesota 
for the incredibly solid and important work she has done on this topic. 
It goes right to the heart of building a family's financial 
foundations. There is a lot of movement that needs to be made to 
restore a framework that will build those foundations rather than 
destroy those foundations.
  I yield to my colleague from Connecticut if he wishes to make remarks 
on this amendment?
  The PRESIDING OFFICER. The Senator from Connecticut is recognized.
  Mr. DODD. Mr. President, first let me thank my colleague from Oregon 
and my colleague from Minnesota as well for their contribution. While 
he has left the floor, I would be remiss if I did not express my 
gratitude to Bob Corker from Tennessee. Putting aside whatever 
differences we may have on this amendment, he has been a very valuable 
member of our committee.
  This bill that is right here, all 1400 pages of it--substantial parts 
of this bill can be attributed to the work of Bob Corker of Tennessee. 
I want my colleagues to know how grateful I am to him, to his staff, 
and others for some valuable ideas and thoughts. While not every one 
was included in the bill, he played a consistent role, showing up every 
time there was a meeting or gathering on this legislation. He spent a 
lot of hours with our colleague from Virginia, Mark Warner, 
particularly on titles I and II of this bill. I will say more about 
Senator Corker's contribution during debate on this bill, but I wanted 
at least at the outset of this debate and discussion to thank him for 
his wonderful efforts on this legislation.
  Let me begin and thank, of course, Senator Merkley and Senator 
Klobuchar, as well as their other cosponsors of this, for the 
bipartisan support for their amendment. I will ask to have printed in 
the Record some correspondence. I have a letter we sent out in 2006. It 
will give you an idea--it was 4 years ago. It was signed by myself, 
Wayne Allard, who is no longer with us, of Colorado, Senator Sarbanes, 
Jim Bunning of Kentucky, Jack Reed of Rhode Island, and Chuck Schumer.
  The letter was pushing the regulators to establish some underwriting 
guidance for subprime mortgages. That is in 2006 that we sent that 
first letter. We were in the minority, we Democrats.
  In April of 2007 we sent another letter to Chairman Bernanke. Here we 
said that our committee had held two hearings this year on the problem 
in subprime mortgage rates. This was in February and March of 2007, 3 
years ago.

       At the hearings, a number of committee members raised 
     concerns that the regulators have not kept pace with 
     deteriorating credit standards on the growth of abusive, 
     unfair and deceptive lending practices. In addition, we are 
     concerned that the Federal Reserve Board has not exercised 
     its obligations under the Home Ownership and Equity 
     Protection Act of 1994 to issue regulations that address the 
     problems of predatory lending.

  The letter goes on for two or three pages. That was signed by myself, 
Senator Reed, Senator Schumer, Senator Bayh, Senator Carper, Senator 
Menendez, Senator Akaka, Senator Sherrod Brown, Senator Bob Casey, and 
Senator Tester.
  In December of 2007 we sent another letter to Chairman Bernanke.

       In light of the deepening crisis in the mortgage markets, a 
     crisis you correctly attribute to abusive practices and lax 
     underwriting standards in the subprime market, we want to 
     reiterate to you the importance of acting forcefully to 
     protect consumers in the rulemaking the Federal Reserve Board 
     is currently undertaking under the Homeowners Equity 
     Protection Act.

  We go on for two or three pages. Again, I say respectfully, but not a 
single member of our committee from the other side signed that letter 
or the one in April of 2007. This letter was signed by myself, Senator 
Johnson, Senator Reed, Senator Schumer, Senator Bayh, Senator Carper, 
Senator Menendez, Senator Akaka, Senator Brown, Senator Casey, Senator 
Tester, and Senator John Kerry of Massachusetts.
  Those are just three pieces of correspondence going back years ago, 
trying to get some attention to the predatory lending practices that 
were going on. Had we acted in 2006 or even in 2007, we would not even 
be close to the disastrous effects that have occurred with 7 million 
homes lost, 4 million today underwater in the country--in danger of 
falling into foreclosure, 250,000. A quarter of a million homes this 
year have been seized in foreclosure proceedings. Here were three 
pieces of lengthy correspondence signed, in one case on a bipartisan 
basis in 2006; in 2007 unfortunately on a partisan basis--not because 
we didn't seek additional signatures on the letter--to highlight

[[Page 7734]]

the importance of underwriting standards and the need to step up.
  I also want to add at this point a letter from the National 
Association of REALTORS, expressing strong opposition to the Corker-
Gregg amendment. In their letter to the Senate--to all Senators, this 
letter went--they say the following.

       The Corker-Gregg-Isakson amendment replaces the risk 
     retention provisions . . . of the credit risk retention with 
     a study on a feasibility of risk retention requirements for 
     financial institutions and implements the residential 
     mortgage underwriting standards that include a mandatory 5 
     percent downpayment for all mortgages. As our Nation 
     continues to recover from the worst economic downturn since 
     the Great Depression, REALTORS are cognizant that lax 
     underwriting standards brought us to this point. It must be 
     curtailed. However we caution that swinging the pendulum too 
     far in the opposite direction may reverse the fragile 
     recovery.
       Based on data from the National Association of REALTORS, of 
     home buyers and sellers, 11 percent of all home purchasers 
     surveyed had downpayments of 5 percent or less. When 
     considering only first-time home buyers, the percentage 
     utilizing a downpayment of under 5 percent increases to 18 
     percent of all purchases. Improving underwriting to ensure 
     that the consumer has the ability to pay their obligation is 
     in the best interests of everyone, but eliminating the 
     possibility for some creditworthy customers to buy a home 
     will have significant detrimental ramifications for American 
     families, the housing sector, and those businesses that 
     support it.

  Let me take a couple of minutes. I know my colleague from Texas is 
here, and others, but this is important, that people understand what 
happened. Because 5 percent sounds pretty reasonable. Why not 5 
percent? Let me explain why that provision poses some risk to all of 
us. The Senator's amendment as offered has two parts to it. They almost 
kind of run into each other in a way.
  The first half of the amendment strikes the government-imposed risk 
retention requirements in the underlying bill. These requirements, as 
explained before, and I will in a second again, would result in strong 
market-based underwriting standards in the residential mortgage market.
  Then in the second half of the amendment, the amendment puts in 
government-dictated, hard-wired underwriting standards that would have 
very serious consequences, as the National Association of Realtors 
points out, for first-time home buyers, minority home buyers, and 
others who are seeking to attain the American dream of home ownership.
  Like the earlier debates we have had, it does this at a time, as we 
all know, that the housing markets are just starting to recover, 
potentially putting that recovery at risk.
  Let me start by discussing the first part of this amendment. The 
bill, section 941 of our bill, requires securitizers to retain an 
economic interest in the material portion of the credit risk for any 
asset that securitizers transfer, sell, or convey to a third party. 
What does this mean? Very simply put, it is skin in the game. Skin in 
the game--a skin-in-the game requirement that creates incentives that 
encourage sound lending practices, restores investor confidence, and 
permits securitization markets to resume their important role as a 
source of credit for households and businesses.
  Excesses and abuses in the securitization process played a very major 
role in this crisis under what is called the ``originate to 
distribute'' model. Loans were made expressly to be sold into the 
securitization pools, which meant the lenders did not expect to bear 
the credit risk of borrower default.
  What does that mean? Well, if you are the broker out cutting the 
deal, what was the first piece of advice on their Web page to the 
brokers, the unregulated brokers? The first piece of advice to them 
was, from their association: Convince the borrower. Convince the 
borrower you are their financial adviser.
  Well, of course, they were anything but their financial adviser. 
Their job was, of course, to get people to sign up and commit to these 
mortgages, which they knew, in too many cases, could never, ever be 
met; that is, they, the borrower, would never possibly meet it.
  If you had some skin in the game if you are the broker, you may be a 
little more careful about that. But, of course, the broker was acting 
on behalf of the lending institutions. Now you think, well, the lending 
institution is going to care about this. You know, when I bought my 
first home back X numbers of years ago, my mortgage stayed at the Old 
Stone Bank. I signed those papers. I could go down every day and I 
could pull out that drawer, wherever it was, and look at my mortgage. 
It did not leave the Old Stone Bank. It stayed right there.
  Let me tell you, that fellow at the Old Stone Bank wanted to make 
darn sure that this young lawyer in Connecticut was going to meet his 
financial obligations. So they had underwriting standards for me. It 
did not cost me a lot on a downpayment. I was a new buyer, first-time 
home buyer. I had just gotten licensed to practice law in Connecticut, 
so they had a little confidence I might be able to meet my obligations. 
So they had underwriting standards.
  Today it is vastly different. That fellow, a young lawyer today, who 
goes and gets that mortgage, the lending institution frankly could care 
less whether you have the underwriting standards. Why? Because it is 
going to sell that mortgage. That is what securitization is: I am going 
to sell it. On average they hold your mortgage 8 to 10 weeks. Then they 
sell it. It goes right out the door. So the broker could care less. He 
got me to sign up with a deal I could not afford. The old bank does not 
care anymore, because they are selling it, and bundling them together 
and shipping them out the door, and some unwitting investor may be 
purchasing these. Because they have been branded by the rating agencies 
as AAA or AA, they think they are pretty good.
  So why am I putting skin in the game? Because if you do not have skin 
in the game, if you do not have a vested interest financially in the 
outcome, you do not care what happens, unfortunately, in too many 
cases. You have been paid. You have got out your dollar. You have been 
compensated as the broker; you have been compensated as the lending 
institution; you wash your hands of the whole thing.
  That is what created this domino effect, because there were not 
people watching and caring what went on. So in my bill I said: Well, 
why not keep a little skin in the game or drop the skin in the game but 
write underwriting standards. You make the choice. But if you have got 
skin in the game, I suspect you are going to be careful about 
underwriting standards. If you write the underwriting standards, I do 
not want to take a pound of your flesh from the lending institution, if 
you are going to meet those obligations.
  That is exactly what Senator Merkley and our colleague from Minnesota 
and others are suggesting here: Let's get good underwriting standards 
here. That is why I support what they are talking about. So I apologize 
for going into all of that ``originate to distribute,'' but originate 
the mortgage to distribute it. That is exactly what it means.
  This led to significant, of course, deterioration in credit and loan 
underwriting standards, particularly in residential mortgages. With the 
onset of the crisis, there was widespread uncertainty regarding the 
true financial condition of holders of asset-backed securities, for 
obvious reasons, freezing interbank lending, constricting the general 
flow of credit. Complexity and opacity in the securitization markets 
prolonged and deepened the crisis, and it made recovery efforts that 
much more difficult.
  My proposal in the bill has a measured approach which requires, of 
course, separate rulemaking requirements for different assets. I will 
not bother you with all of that.
  A lot of people support this, by the way, including the Consumer 
Federation of America, the Investors Working Group, the America 
Securitization Forum, CalPERS, the Group of 30, even a former 
Republican Secretary of the Treasury, John Snow. And he says:

       Because of the lack of participant accountability, the 
     originate-to-distribute model of mortgage finance, with its 
     once great promise of managing risk, became itself a massive 
     generator of risk.


[[Page 7735]]


  A study is not a credible response. I say that respectfully of the 
amendment of the Senator from Tennessee. He calls for a study in all of 
this. Our bill provides for comprehensive regulation of securitization 
markets, to prevent excesses and eliminate a potential source of 
financial instability.
  Let me add quickly, I am a strong supporter of securitization. That 
has provided liquidity, which has made home ownership more available to 
more people. But you have got to do it carefully. If you are packaging 
these mortgages with no regard to whether they are available, and 
sending them out the door to be sold off, then you jeopardize 
securitization. If you get good underwriting standards, as the Senator 
from Oregon and Minnesota are requiring, then you are going to build in 
some safeguards; then securitization, with proper branding of what they 
are worth, and you are back on track again, and we can start to see 
housing improve for everybody.
  The Corker amendment also requires, of course, here a 5-percent 
downpayment for all loans, no matter what the circumstance. That is a 
government-mandated requirement in a sense in this amendment. Even with 
FHA loans, hardwiring in statutes that as a requirement is very ill-
considered, I would say.
  The key cause of the crisis, as I have said many times over the past 
almost 4 years on the floor of this body, was the unscrupulous mortgage 
brokers and mortgage lenders who sold unaffordable mortgages to people 
who could not pay those mortgages.
  In the majority of the cases, those loans were refinance loans, they 
were not even original mortgages. It was refinancing. No downpayments 
are required in refinancing at all. Downpayments did not even come up 
or come into play for these borrowers. But the mortgages were still 
outrageous and unaffordable. They still led to the foreclosures and 
contributed to the economic crisis we are in.
  Why was this? Well, it was because the brokers and bankers had no 
skin in the game. So they not only did not pay attention, in too many 
cases they did not even care whether the borrowers had the ability to 
pay back those loans. The Merkley-Klobuchar amendment specifically 
addresses this problem, by specifically requiring that lenders take 
into account the borrower's ability to pay, and laying out important 
criteria for determining that.
  It will end the steering payments that caused so much of the trouble 
in the first place. And while the 5-percent downpayment may sound 
reasonable, and in some cases it is, there are many lending programs 
out there that allow for downpayments that are lower than 5 percent: 
FHA, which is struggling now, has traditionally allowed for 
downpayments less than 5 percent. FHA has been a path to home 
ownership, as we know, for millions of our fellow citizens. Many 
nonprofits such as Habitat for Humanity, the Enterprise Foundation, 
church-related housing groups--in fact, I have a letter signed by a 
number of these nonprofit organizations in opposition to the Corker 
amendment. I ask unanimous consent that all these letters I have 
referred to be printed in the Record. 
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                              National Association


                                                 of REALTORS,

                                      Washington, DC, May 6, 2010.
     U.S. Senate,
     Washington, DC.
       Dear Senator: On behalf of more than 1.1 million members of 
     the National Association of REALTORS (NAR) involved in 
     residential and commercial real estate as brokers, sales 
     people, property managers, appraisers, counselors, and others 
     engaged in all aspects of the real estate industry, I 
     respectfully request that you oppose the Corker-Gregg (#3834) 
     and the McCain-Shelby-Gregg (#3839) amendments to S. 3217, 
     the Restoring American Financial Stability Act of 2010.


                     Corker-Gregg-Isakson Amendment

       The Corker-Gregg-Isakson (#3834) amendment replaces the 
     risk retention provisions of S. 3217, Title VII, Subtitle D, 
     (b) Credit Risk Retention--with a study on the feasibility of 
     risk retention requirements for financial institutions and 
     implements residential mortgage underwriting standards that 
     include a mandatory 5% down payment for all mortgages. As our 
     nation continues to recover from the worst economic downturn 
     since the Great Depression, REALTORS are cognizant that lax 
     underwriting standards brought us to this point, and must be 
     curtailed. However, we caution that swinging the pendulum too 
     far in the opposite direction may reverse our fragile 
     recovery.
       Based on data from NAR's 2009 Profile of Home Buyers and 
     Sellers, 11% of all home purchasers surveyed had downpayments 
     of 5% or less. When considering only first-time homebuyers, 
     the percentage utilizing a downpayment below 5% increases to 
     18%. Improving underwriting to ensure that the consumer has 
     the ability to repay their obligation is in the best interest 
     of everyone, but eliminating the possibility for some 
     creditworthy consumers to buy a home will have significant 
     detrimental ramifications for American families, the housing 
     sector and those businesses that support it.


                     McCain-Shelby-Gregg Amendment

       The McCain-Shelby-Gregg (#3839) amendment, which creates 
     Title XII to S. 3217, places Fannie Mae and Freddie Mac on 
     the fast track to dissolution. REALTORS believe that reform 
     of these institutions, that have played a pivotal role in the 
     evolution of the U.S. housing market, is necessary; however, 
     now is not the time for drastic action. Especially, 
     considering their current role in stabilizing the housing 
     market, and that the McCain-Shelby-Gregg amendment does not 
     offer a replacement to fill the enormous gap that the 
     shuttered GSEs will leave.
       As NAR mentioned in our testimony before the House 
     Financial Services Committee, March 23rd, 2010, on the 
     ``Future of the Housing Finance,'' the transition of these 
     organizations to their new form must be conducted in a 
     fashion that is the least disruptive to the marketplace and 
     ensures mortgage capital continues to flow to all markets in 
     all market conditions. The establishment of aggressive 
     timetables for the GSEs to return to profitability, prior to 
     the full recovery of our nation's economy and housing market, 
     pre-disposes them to failure, and will cause significant 
     angst for homebuyers and the nation's housing markets.
       Furthermore, the requirements that this amendment places on 
     Fannie Mae and Freddie Mac, when they become viable, will 
     effectively prohibit them from participating in the secondary 
     mortgage market.
       First, the aggressive reduction of their portfolio will 
     prevent them from being an effective buffer during future 
     economic downturns. A key element of NAR's recommendation for 
     the restructure of the GSEs is that their portfolios should 
     only be large enough to support their business needs and 
     ensure a stable supply of mortgage capital when necessary 
     because of insufficient private investment. The requirements 
     established in this amendment would thwart the GSEs ability 
     to be an effective buffer.
       Second, the amendment repeals all increases to loan limits, 
     both permanent and temporary. The loan limits would return 
     to: $417,000. Moreover, the GSEs would be prohibited from 
     purchasing homes that had prices over the median-home price, 
     for properties of the same size, for the area in which the 
     property was purchased. This would reduce loan limits to less 
     than $100,000 in some areas, less than half the current FHA 
     floor.
       NAR advocated for the increase of the loan limits for high 
     cost areas and is actively advocating that the current limits 
     be made permanent in order to ensure that creditworthy 
     homebuyers have access to affordable capital. The housing 
     market remains fragile, and private capital has not returned 
     to either the mortgage or MBS markets to the extent that is 
     needed to support the housing industry. Reducing the GSEs' 
     loan limits to the suggested levels will significantly limit 
     the ability of homebuyers to obtain mortgage funding 
     throughout the country, and damage the business sectors 
     supported by mortgage finance.
       Third, the amendment establishes an escalating mandatory 
     down payment percentage that REALTORS believe unfairly and 
     unnecessarily denies the opportunity to many families who 
     have the potential to succeed as homeowners. Beginning 1-year 
     after the 24-month assessment period, the minimum down 
     payment requirement will be 5%. 2-years out, the down payment 
     will be 7.5%. After three years, the down payment will be 10% 
     for conventional-conforming loans.
       The removal of flexible down payment options will 
     significantly reduce the ability of creditworthy consumers to 
     purchase a home. As mentioned with regard to the Corker-Greg-
     Isakson amendment, a 5% down payment requirement excludes 11% 
     of all current homebuyers and 18% of all current first-time 
     homebuyers, based on NAR's most recent homebuyers survey. 
     Increasing the down payment to requirement to 10% would 
     exclude nearly 25% of all current creditworthy borrowers, and 
     up to 37% of current creditworthy first-time homebuyers. 
     Underwriting standards have already been corrected and loans 
     are only available for borrowers who can afford them. There 
     is no reason to over-correct by imposing higher downpayment 
     requirements.
       As we have seen, without the GSEs, the current crisis would 
     have been even more catastrophic for the housing market and 
     the

[[Page 7736]]

     overall economy, as virtually no activity would have occurred 
     within the housing sector because little private capital 
     would have been available. REALTORS support reforming our 
     housing finance system, and the GSEs. However, taking a 
     measured approach is critical to ensuring that our economic 
     recovery remains viable.
       I appreciate the opportunity to share with you the views of 
     more than 1.1 million real estate practitioners respectfully 
     request that you oppose the McCain-Shelby-Gregg (# ) and the 
     Corker-Gregg-Isakson (# ) amendments to S. 3217, the 
     Restoring American Financial Stability Act of 2010.
           Sincerely,

                                             Vicki Cox Golder,

                                                   2010 President,
                                           National Association of
     REALTORS.
                                  ____

                                                     May 11, 2010.
     Hon. Christopher Dodd,
     Chairman, Senate Committee on Banking, Housing, and Urban 
         Affairs, Russell Senate Office Building, Washington, DC.
     Hon. Richard Shelby,
     Ranking Member, Senate Committee on Banking, Housing, and 
         Urban Affairs, Russell Senate Office Building, 
         Washington, DC.
       Dear Chairman Dodd and Senator Shelby: We write in 
     opposition to amendments to the Restoring American Financial 
     Stability Act that would mandate a one-size-fits-all approach 
     to mortgage underwriting and those amendments that would 
     undercut the current mortgage finance system by eliminating 
     Government Sponsor Enterprises (GSEs) without having a 
     successor system in place.
       Certain amendments currently being considered, such as a 
     mandatory 5 percent down payment requirement, would undermine 
     successful first-time homebuyer and workforce housing 
     programs offered by qualified nonprofits and state and local 
     governments. Unlike the broader mortgage market, these 
     nonprofit and government sponsored lending programs require 
     borrower financial education and have very low default rates. 
     For example, the program administered by NYC's Department of 
     Housing Preservation and Development had only five 
     foreclosures out of 17,000 loans. The reason is that programs 
     such as these utilize stringent underwriting standards that 
     were lacking in some segments of the mortgage finance market. 
     Yet, local government and nonprofit loan programs would be 
     virtually eliminated by a national mandate for a 5 percent 
     down payment because these programs utilize alternative down 
     payment requirements to ensure that the homebuyer has ``skin 
     in the game.'' For example, self-help homebuyer programs 
     allow hours spent in building homes to compensate as part of 
     the down payment. Other programs require extensive financial 
     literacy, including pre- and post-purchase counseling, and 
     state or local government issued loans coupled with sound 
     underwriting standards that have proved successful in 
     enabling low income and workforce families to achieve the 
     American dream of homeownership, build wealth, and remain in 
     their homes.
       Moreover, buyers who receive financial literacy training 
     and homeownership counseling with traditional loan products, 
     irrespective of the down payment percentage, are critical to 
     our nation's ability to address the foreclosure crisis and 
     stabilize the housing market. A one-size-fits-all approach 
     and flat down payment amounts eliminate the ability for local 
     communities to rely on the experience and strong track 
     records of local non-profit and government lenders who have 
     built successful homeownership programs that did not 
     contribute to the housing crisis.
       In addition to avoiding flat down payments and federally 
     mandated underwriting standards, we also believe that 
     Congress should employ a thoughtful and analytic approach to 
     examining the role of the two Government Sponsored Entities 
     (GSEs) in the mortgage crisis and what the future of the U.S. 
     mortgage finance system should look like versus an immediate 
     wind down of both GSEs. We urge Congress to ensure that a 
     successor system is in place prior to dissolving the two 
     firms. The GSEs have provided critical capital to the housing 
     market, ensuring that more Americans can benefit from 
     homeownership. Though we must be careful only to extend 
     mortgage loans to those who can afford to pay the loans over 
     the life of the mortgage, we must be equally careful not to 
     cut off mortgage lending at a time when the markets are 
     recovering.
       The problems in the housing market were caused by a 
     confluence of factors. We must address all of them, instead 
     of singling out one or two reasons or entities, and, 
     inadvertently, making homeownership unattainable for many 
     working families.
       Thank you for taking the time to address these concerns.
           Sincerely,
         Enterprise Community Partners; National NeighborWorks 
           Association; Habitat for Humanity International; 
           Community Resources and Housing Development 
           Corporation; National Community Reinvestment Coalition; 
           Kalamazoo Neighborhood Housing Services, Inc.; Nuestra 
           Comunidad Development Corporation; Manna, Inc; 
           Community Frameworks; UNHS NeighborWorks HomeOwnership 
           Center; Frontier Housing, Inc.; Boston LISC; Chicago 
           LISC; Connecticut Statewide LISC; Duluth LISC; Houston 
           LISC; Jacksonville LISC; Los Angeles LISC; Mid South 
           Delta LISC; New York City LISC; Philadelphia LISC; 
           Pittsburgh Partnership for Neighborhood Development 
           (SWPA LISC); San Diego LISC; Toledo LISC; Virginia 
           LISC; Impact Capital (Washington State LISC); Local 
           Initiatives Support Corporation; Housing Assistance 
           Council; Homes for America, Inc.; Housing Partnership 
           Network; Neighborhood Housing Services of Phoenix; 
           Cambridge Neighborhood Apartment Housing Services; NHS 
           of the Lehigh Valley, Inc.; NeighborWorks Columbus; 
           Ithaca Neighborhood Housing Services; Knox Housing 
           Partnership; NHS of Orange County; Buffalo LISC; 
           Greater Cincinnati & NE Kentucky LISC; Detroit LISC; 
           Hartford LISC; Indianapolis LISC; Greater Kansas City 
           LISC; Michigan Statewide LISC; Milwaukee LISC; Greater 
           Newark & Jersey City LISC; Phoenix LISC; Rhode Island 
           LISC; San Francisco Bay Area LISC; Twin Cities LISC; 
           Washington DC LISC.

  Mr. DODD. These are groups, it appears that, in fact, I should say in 
fairness to Senator Corker, in the latest version of his amendment, 
that allows for some exceptions on a case-by-case basis of these 
nonprofits, where each individual nonprofit has to go to the regulators 
for such an exemption. But they simply may not get it. They get to 
apply. It is optional to give that.
  Many insured depositors, of course, have mortgage programs that 
require less than 5-percent downpayments. They are performing well, and 
have done so in the past. And we want low- and moderate-income families 
to go to banks and get loans, qualified low- and moderate-income people 
to have to meet those standards. We do not want to simply shut them off 
to nonprofits. We want to get them into the financial mainstream.
  The Corker amendment would create a new barrier to accomplishing that 
goal. But the Merkley-Klobuchar amendment provides for those 
underwriting safeguards, does not put such tight restrictions, even on 
FHA mortgages, that would make it impossible for an awful lot of 
people.
  I thank my colleagues. I have spoken a long time here. I apologize. 
But I think it is important to know the history of how we got into the 
mess and what happened out there that led us to these difficulties, why 
underwriting is important.
  What Senator Merkley and Senator Klobuchar have offered is to get 
back to that sensible requirement here without writing these stringent 
requirements in this legislation that would be so difficult. So I urge 
my colleagues to support the Merkley-Klobuchar amendment and 
respectfully oppose the Corker amendment.
  By the way, their amendment is endorsed by a number of our colleagues 
on both sides of the aisle. I thank Senator Scott Brown of 
Massachusetts, who is involved with this amendment, by Senator Merkley 
and others. I commend him for it. It is a good proposal.
  The PRESIDING OFFICER (Mr. Udall of Colorado.) The Senator from Rhode 
Island.
  Mr. WHITEHOUSE. May I interject myself in this debate for 1 minute to 
ask unanimous consent with respect to the Whitehouse amendment that 
restores States rights to protect against exorbitant, out-of-State 
lenders doing business in one's own State.
  I ask unanimous consent that Senator Cochran of Mississippi be added 
as a cosponsor. I want to take a moment to let him know how much I 
appreciate his cosponsorship of what is now a bipartisan amendment, and 
I look forward to continuing to secure additional sponsors from both 
sides of the aisle.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The Senator from Oregon.
  Mr. MERKLEY. Mr. President, before I speak on this amendment, I want 
to applaud my colleague from Connecticut who spoke so passionately and 
knowledgeably about the challenge that had been faced by subprime 
underwriting gone astray.
  If only the letters that he and his colleagues wrote in 2006 and in 
2007, those multiple appeals, if only those who had the power to 
establish those

[[Page 7737]]

underwriting standards had been listened to, had been followed up on, 
then we would have a much smaller challenge today. We would not have 
had this big meltdown in 2008 and 2009, with so many millions of 
American families having the value of their home destroyed. I applaud 
him for his advocacy year after year after year.
  I am pleased to be able to join him in this effort now. I 
particularly applaud the efforts to establish standards for skin in the 
game. This is a very responsible way to create accountability for our 
mortgage originators. I do want to note that there are three issues 
that particularly contributed to dysfunction at the retail mortgage 
level.
  The first is liar loans, undocumented income, where a mortgage 
originator would tell the client: Well, we will just pencil in here 
that you earn $150,000. It does not matter. Don't you worry about what 
you are earning. We will put this in here. That obviously led to a 
complete corruption of the quality of the mortgage. Certainly the 
families involved had no prospect of paying for those mortgages and the 
interest rates they were being signed up for.
  A second was to fail to employ basic underwriting measures, measures 
like loan to value and credit history and employment history, and 
current obligations and debt to income, and so forth.
  These are the types of measures any responsible originator goes 
through to understand whether this loan makes sense for this family, 
whether there will be the ability to repay.
  The third piece is the incentives that were provided to mortgage 
originators put those originators 180 degrees out of sync with their 
customers. Essentially, it worked like this. If a loan was good for a 
family, it didn't make as much money for the lender. If it was bad for 
a family, it made a lot of money for the lender. So the lender and the 
home buyer have different interests; one wants a low-interest mortgage, 
a fair mortgage; the other wants a mortgage that has hidden clauses, 
prepayment penalties, and exploding interest rates. But incentive 
payments, sometimes called steering payments, technically called yield 
spread premiums--these were paid to the mortgage originators to induce 
them to sign those families they had taken into their trust into a loan 
that was good for the lender but not good for the family, corrupting a 
transaction at the heart of the most important financial moment in a 
family's experience, the moment of buying their family home.
  This amendment addresses all three of these core pieces of 
dysfunction in the mortgage market. It ends no-documentation or liar 
loans as they are called, where income is created like writing a work 
of fiction. It sets minimum underwriting standards related to loan to 
value, ability to repay, and ability to repay not based on some teaser 
rate but on any rate the loan could potentially go up to in the first 5 
years. So you make sure, if this has a variable rate clause, that this 
family will be able to manage those payments in the first 5 years and 
certainly verification of income in the process. So you have 
documentation and verification, essentially the sound underwriting 
process that was in place for decades before it all went awry over the 
last 10 years.
  This amendment will apply to all loans. It amends the Truth in 
Lending Act or TILA, which applies to all loans. It will base broker 
compensation on the size of the loan and on the loan value or the loan 
amount and the volume of loans a broker makes, rather than on the type 
of loan. We take this impossible situation that mortgage originators 
were put in, where their interests were 180 degrees reversed from the 
client. Yet it is a trust relationship, it puts them in sync, where the 
broker has no incentive to steer a family into an exploding interest 
rate, no incentive to steer a family into a loan with a prepayment 
penalty, no incentive to steer a family into a loan that has other 
hidden clauses designed to strip wealth from working families.
  Finally, this amendment provides a safe harbor to make sure mortgage 
originators are on sound ground if they follow this set of originating 
principles and, in the process, makes sure they do not do balloon 
payments or fees that exceed 3 percent, a series of sound business 
practices that serve the industry and serve the family.
  I mentioned before that my colleague from Tennessee has a bill that 
has many of these mortgage underwriting standards. I applaud him for 
his long experience and concern in helping families to succeed. But we 
do disagree about two provisions. One provision is stripping the skin 
in the game that makes sure mortgage originators have a stake in the 
quality of the mortgage. The second is to establish a solid line on a 
5-percent standard. Many families, when they are buying a modest home, 
have a significant expenditure in all kinds of closing costs, 
independent of their downpayment. They may well have thousands of 
dollars, $5,000, $8,000 of skin in the game before they ever get to the 
downpayment. So we want to create the flexibility for first-time home 
buyers and for families on the lower end of the income spectrum to be 
able to get into home ownership.
  In fact, frankly, it is these families for whom it is so important we 
make the mortgage process available. Because a young family who is able 
to buy that first home and do so with the responsible underwriting 
principles laid out in this amendment, in 5 years they will be buying 
their second home, maybe a bit nicer home, maybe an extra bedroom or 
two for the children, and maybe later on they are able to move up again 
to the sort of home they have always dreamed about having or the sort 
of yard with the trees in it that the treehouse is going into and so 
forth. That is the American dream, to be able to engage in this 
progression. You engage in that progression because you build equity. 
You build equity by getting into home ownership at the start. Having 
solid underwriting standards but not an inflexible line is the way to 
go on this.
  I do note that the amendment Senator Klobuchar and I are offering is 
supported by a host of organizations: The Center for American Progress, 
the Center for Responsible Lending, the National Association of 
Consumer Advocates, the National Consumer Law Center, the National Fair 
Housing Alliance, Consumer Action, the Housing Finance Alliance, and 
Mortgage Insurance Companies of America.
  This is a bipartisan sentiment to restore solid mortgage underwriting 
standards. I appreciate the thoughtfulness and energy that has gone 
into it from both sides of the aisle to craft ways to approach this. 
When we vote tomorrow morning, I ask all my colleagues to vote yes for 
strong underwriting standards. Vote yes for putting mortgage 
originators in sync with their clients rather than radically oppose the 
interests of their clients. Vote yes to end liar loans. Certainly, vote 
yes for the young families and those families with lower income who 
wish to get into that first home so they can get their share of the 
American dream.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Texas.


         Amendment No. 3759, as Modified, To Amendment No. 3739

  Mrs. HUTCHISON. Mr. President, I rise to talk about the Hutchison-
Klobuchar amendment, which will be in order after votes on the Merkley 
and Corker amendments. The votes will come tomorrow, but my colleague, 
Senator Klobuchar, and I are very concerned about the underlying bill 
only putting Fed supervision over bank holding companies that are $50 
billion and above. One of the key parts of regulatory reform in this 
financial arena is that nobody wants too big to fail anymore. My 
colleague, the cosponsor of this amendment, and I wish to assure there 
is no indication in any way that only bank holding companies that are 
$50 billion and above would be having supervision of and access to the 
Fed.
  We want to make sure of two things. First, that there is a level 
playing field, that everyone who wants to be a member of the Fed, who 
wants to have access to the Fed, will be able to do that, including 
State banks.
  The underlying bill would prohibit State banks from being able to be 
members of the Fed. That is a real concern for community bankers all 
over

[[Page 7738]]

America. The second concern is that we have regional Feds. When the 
Federal Reserve was established, there was a debate about whether we 
would have regional offices or whether there would just be the Federal 
Reserve Board sitting in Washington. The decision was made to have 
Federal banks in key parts all over the country that would be regional 
banks. The purpose was that we needed to know what was happening all 
over the country, not only in New York, not only in Washington, DC, but 
throughout the country, because it is the community banks that are the 
depository institutions that are the mainstay of our economy and our 
financial community. If you take the Federal Reserve supervisory 
authority away from all those community banks around the country and 
regional banks no longer have input into what is going on in smaller 
communities, we will have too big to fail in reality, and we will also 
have a monetary policy that is going to cater to the big financial 
institutions, which are what utterly failed in the last 2 years in the 
financial meltdown.
  Senator Klobuchar and I have an amendment that would go back to where 
we are today, that the Fed would have supervisory power over State 
banks that choose to go into the Fed, and it would be universal for all 
the holding companies and the banks in the system.
  Before my colleague from Minnesota speaks, I wish to submit for the 
Record a couple letters that have been written, one by the Independent 
Community Bankers of America.

       Dear Senator,
       On behalf of the nearly 5,000 members of the Independent 
     Community Bankers of America, I write to urge your support 
     for an amendment to S. 3217 to be offered by Senators 
     Hutchison and Klobuchar . . . that would restore the Federal 
     Reserve's authority to examine state-chartered community 
     banks and small bank holding companies.

  That is the amendment we are discussing tonight.
  I ask unanimous consent to have this letter printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                             Independent Community


                               Bankers of America',

                                      Washington, DC, May 6, 2010.
       Dear Senator: On behalf of the nearly 5,000 members of the 
     Independent Community Bankers of America, I write to urge 
     your support for an amendment to S. 3217 to be offered by 
     Senators Hutchison and Klobuchar (#3759) that would restore 
     the Federal Reserve's authority to examine state-chartered 
     community banks and small bank holding companies.
       The Federal Reserve System comprises 12 regional Federal 
     Reserve Banks overseen by a Board in Washington. The virtue 
     of this structure is that it prevents the Federal Reserve 
     from being focused exclusively on the power-centers of 
     Washington and New York. Through their examination of state-
     chartered community banks and bank holding companies, the 
     regional Federal Reserve Banks keep their finger on the pulse 
     of a diverse range of institutions in diverse regional 
     economies and the Main Street small businesses and 
     municipalities served by these institutions. As Chairman 
     Bernanke has testified, the Federal Reserve's authority gives 
     them insight into what's happening in the entire banking 
     system. This insight is crucial not only to the Federal 
     Reserve's exercise of its monetary functions, but to its 
     ability to gauge the impact of banking regulations across 
     diverse institutions.
       The Federal Reserve must be the central bank of the United 
     States, not the central bank of Wall Street and a handful of 
     too-big-to-fail institutions. Your support for the Hutchison/
     Klobuchar amendment will help ensure that the Federal Reserve 
     serves the entire economy.
       Thank you for your attention to this matter.
           Sincerely,
                                                   Camden R. Fine,
                                                President and CEO.

  Mrs. HUTCHISON. I also will include a letter from the Chamber of 
Commerce of the United States of America, signed by the executive vice 
president.

       The U.S. Chamber of Commerce, the world's largest business 
     federation representing the interests of more than three 
     million businesses and organizations of every size, sector, 
     and region, strongly supports an amendment expected to be 
     offered by Sens. Hutchison and Klobuchar to S. 3217 . . . 
     which would maintain Federal Reserve Board oversight of state 
     member banks and smaller holding companies.

  I ask unanimous consent to have this letter printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                        Chamber of Commerce of the


                                     United States of America,

                                      Washington, DC, May 6, 2010.
       To the Members of the United States Senate: The U.S. 
     Chamber of Commerce, the world's largest business federation 
     representing the interests of more than three million 
     businesses and organizations of every size, sector, and 
     region, strongly supports an amendment expected to be offered 
     by Senators Hutchison and Klobuchar to S. 3217, the 
     ``Restoring American Financial Stability Act of 2010 
     (RAFSA),'' which would maintain Federal Reserve Board 
     oversight of state member banks and smaller holding 
     companies.
       S. 3217 would focus the attention of the Federal Reserve on 
     just the largest institutions and could serve to limit the 
     Federal Reserve's understanding of the importance of 
     community banks. Federal Reserve supervision enhances the 
     ability of the Federal Reserve to assess credit impact in 
     local communities. Smaller banks tend to fund smaller 
     businesses, which is an important source of jobs for the 
     economy. Removing Federal Reserve supervision of community 
     banks could mean the Federal Reserve would lose timely 
     information about the flow of credit to small businesses.
       The Chamber looks forward to working with the Senate on 
     meaningful, bipartisan legislation to ensure that the U.S. 
     financial system is protected and that small businesses 
     continue to have access to the capital they need to sustain, 
     grow, and create jobs.
           Sincerely,
                                                  R. Bruce Josten.

  Mrs. HUTCHISON. I also wish to read a couple excerpts from a letter 
by the Federal Reserve Bank of Kansas City to Senator Bennet. It goes 
into a lot of other things, but the relevant part says:

       Unfortunately, if the Senate divides the oversight of the 
     [bank holding companies] between the banking regulators, it 
     will multiply and complicate this oversight significantly. 
     This is hardly an improvement. And, limiting the regional 
     Reserve Banks' source of industry information gained through 
     their contact with all institutions and bank regulators will 
     greatly compromise its ability to understand industry trends 
     and deal with future crises. This is a mistake and I hope you 
     will consider it carefully in your deliberations.

  That is signed by Thomas Hoenig, president of the Federal Reserve 
Bank of Kansas City.
  In addition, the President of the Dallas Federal Reserve Bank, 
Richard Fisher, came to my office to make this point most 
affirmatively, that he wanted to make sure he still had the supervisory 
power and the ability to learn from the State banks, the community 
banks in the whole region where the Dallas Federal Reserve Bank sits.
  Last, I wish to read an excerpt from the alert of the American 
Bankers Association:

       As you know, S. 3217, the regulatory restructuring bill, 
     contains language that would move oversight of state banks 
     that are members of the Federal Reserve and their holding 
     companies to the [FDIC]. [The American Bankers Association] 
     is strongly opposed to this provision, as this would take 
     away the Federal Reserve's ability to regulate state member 
     banks and would undermine the Federal Reserve's ability to 
     fully understand small and mid-size institutions and the 
     communities they serve.
       As early as Wednesday, May 5, the Senate will consider an 
     ABA-supported amendment . . . by Senators Kay Bailey 
     Hutchison and Amy Klobuchar that would restore current law by 
     returning oversight of state member banks and holding 
     companies to the Federal Reserve.

  It is very important that our amendment be passed by the Senate. It 
will make a great improvement to this bill in that it will restore the 
law as it is today. It will not have the mixup of the varying 
regulatory bodies having control in one area, where a bank across the 
street does not have the ability to go to the Fed and one across the 
street does. We don't need that. What we want in this regulatory reform 
is to allow all the banks to be members of the Federal Reserve, to have 
the same discounts, the same backing of that supervisory authority so 
Federal Reserve banks all over our country will have the input of the 
community banks in our system rather than making monetary policy from 
New York and Washington, DC. The last thing we need is more people who 
are out of touch with mainstream America doing the regulation of our 
financial industry.
  Mr. President, I commend my colleague, Senator Klobuchar from 
Minnesota, and would like to ask her to

[[Page 7739]]

speak at this time because I think this bipartisan amendment will 
improve this bill greatly, and I look forward to having the vote 
tomorrow.
  The PRESIDING OFFICER. The Senator from Minnesota.
  Ms. KLOBUCHAR. Mr. President, I thank my colleague, Senator 
Hutchison, for her great leadership on this issue. We have worked 
together from the beginning on this amendment, and you can see there is 
support for this amendment from the Lone Star State to the North Star 
State, spanning this country--as you look at the many States across 
this country that truly believe it is important to have the regional 
Federal Reserve involved in decisions, not have anything and everything 
concentrated in Washington and New York City, which we believe got us 
into lots of this trouble in the first place.
  The amendment we have offered is important because what it does is 
seek to preserve a system that ensures that the institution charged 
with our Nation's monetary policy has a connection to Main Street, not 
just Wall Street--Main Street in Benson, MN; Main Street in Austin, TX; 
Main Street in Denver, CO. That is what we are talking about.
  As I have said before, Main Street banks pretty much stayed away from 
the high flying, way-too-risky deals of the past decade, and when the 
pavement on Wall Street began to buckle and collapse, these banks--
these small community banks--did not panic and run to Washington with 
tin cups and outstretched hands.
  Like the rest of Main Street, they suffered because of bad bets made 
on Wall Street. But they kept doing their work. They kept serving their 
customers. So now, with us debating a Wall Street reform that will 
affect how these small banks, these community banks do business, I 
think they have a right to speak up. That is what this amendment is 
about.
  I would like to give a lot of credit to Chairman Dodd, who is here as 
usual in the late evening hours, as well as Ranking Member Shelby, 
along with the rest of their Banking Committee who worked so incredibly 
hard. Chairman Dodd has been working with us on this amendment and has 
been working with us on many issues affecting the community banks. I 
thank him for that.
  I think we took another important step yesterday when we passed the 
Tester-Hutchison amendment that will make sure community banks pay only 
their fair share when it comes to Federal bank insurance.
  But the issue my colleague, Senator Hutchison, so eloquently 
discussed is whether the Federal Reserve will continue to oversee our 
State member community banks. That issue still remains.
  Like I am sure all of you have, I have heard from my community banks. 
I have heard from the Fed. I have thought about this a lot. I just want 
to give you an example of what those community banks--the bankers out 
there in the heartland, who basically are standing out there with their 
feet firmly on the ground, with their briefcases in their hands. They 
were not there as these credit default swaps swallowed and swirled 
around their heads. They were there just doing their job.
  Here is what Noah Wilcox, the president of Grand Rapids State Bank in 
Grand Rapids, MN--Grand Rapids, MN, home of the Judy Garland Museum. If 
you ever want to go there, you can actually put your head in a cut-out 
hole of the Tin Man. Yes, you can. The Tin Man--right--needed a heart. 
The lion needed courage. And the scare crow needed a brain. You could 
go there to Grand Rapids.
  Well, this is what the president of the Grand Rapids State Bank said:

       All Senators should be reminded that the Federal Reserve 
     System was created to serve all of America, not just Wall 
     Street.

  From the Lone Star State to the North Star State.
  When Congress established the Federal Reserve in 1913, Congress 
purposely created a system of regional banks, overseen by a board in 
Washington, to ensure that the power of this institution would not be 
concentrated far from these banks and the communities they serve. That 
is why I believe Mr. Wilcox's--the guy from Grand Rapids, the banker--
statement rings especially true. He was not just advocating for his 
bank or other banks in Minnesota or across the country. He said the 
Federal Reserve was created for ``all of America.''
  The Federal Reserve Bank of Minneapolis just does not supervise 
banks, it also partners with the communities it serves by providing 
resources and sharing expertise. I will give you one example. We have 
Art Rolnick, known nationally for the work he has done on early 
childhood development. He works with the Federal Reserve. He is one of 
their policy experts. He is retiring this summer. He has literally 
devoted the last few years of his career looking at early childhood 
development--the investment. He has put out numbers. He has put out 
studies straight from the Federal Reserve because he had that 
information on the ground to show the kind of return of investment you 
get when you invest in kids early on. I do not think we would see that 
coming out of the Federal Reserve in Washington. This came out of the 
regional banks.
  This interaction with regional banks can clearly be seen in the 
interdisciplinary research it conducts in Minnesota with the University 
of Minnesota and in its partnerships with financial institutions and 
community-based organizations to provide investment in low- and 
moderate-income communities.
  Together the regional banks provide a presence across this country 
that gives the Fed grassroots connections--not just in board rooms in 
New York, not just in the hallways of Congress in Washington, but right 
there in Grand Rapids, MN, on Main Street--insights into local 
economies. What is happening with the timber industry? What is 
happening with the medical device industry? They know that on the front 
line. What is happening to the high-tech industry? What is happening 
with the telecommunications industry in Denver? That is what the 
regional banks do for us.
  They also provide legitimacy when they have to make tough decisions--
when the Fed has to make those tough decisions--to have those regional 
banks out there with legitimacy in the banking community and the 
business community to say: This is not just about Wall Street; this is 
also about Main Street.
  Their geographic diversity also allows the regional banks to develop 
unique expertise. For instance, the Federal Reserve Bank in Minneapolis 
has a wide breadth of knowledge in the agricultural economies of 
Minnesota and the other States in its district. You are not going to 
get that in the middle of New York City. You are not going to get that 
in the middle of Washington, DC. Through the Federal Reserve of 
Minneapolis, the community banks they supervise have a better 
understanding of the markets that ultimately aid them in their loan 
making decisions.
  Through their working relationships with community banks, the 
regional Federal Reserve banks also collect and analyze important 
information about the movements and trends in local economies. Because 
community banks interact with so many parts of the economy--from the 
ordinary folks who bank with them, to the small businesses they provide 
loans, to real estate developers, and even local governments--their 
connections to the communities they serve provide a unique perspective 
for the Fed to tap.
  This relationship is a two-way street, as it also provides a voice 
for our community banks that would be lost if the Federal Reserve were 
to only supervise the largest banks. A system like this would certainly 
limit, and potentially distort, the picture the Federal Reserve gets of 
what is happening in our Nation's banking system.
  I repeat, this crisis did not happen because of this little bank in 
Grand Rapids, MN. It happened because eyes were not watching what was 
going on on Wall Street. Eyes were not watching what was going on in 
these big banks. The rest of these guys--these small banks--they were 
the ones who were the victims of this crisis.

[[Page 7740]]

  As the president of the Federal Reserve Bank in Minneapolis pointed 
out in a speech this past March, it would be shortsighted to conclude 
that the Federal Reserve ``can safely be stripped of its role as a 
supervisor of small banks.'' As he noted, disruptions in the financial 
system can come from all sectors and the connection the regional 
Federal Reserve banks provide to local economies can be vital in 
ensuring the stability of the financial system.
  Opponents will argue that the Federal Reserve does not need to 
supervise banks to gain insight into them, that they can get this 
information by other means and through other sources. But, currently, 
much of the Federal Reserve's interaction with community banks comes 
from the supervision done by its examiners. Many of these examiners 
have lived and worked in the districts they serve for many years, and 
the information they provide is critical to the Fed's understanding of 
local economies.
  This system--a system that serves all Americans--is threatened if we 
do not act. Currently, the Federal Reserve Bank of Minneapolis--and I 
am sure you see this in Texas, in Missouri, in Colorado, and the 
Federal Reserve's banks all across this country--currently, the Federal 
Reserve Bank of Minneapolis oversees over 600 banks in the Ninth 
District. Without this amendment, it would oversee one--one--bank.
  This is what my friend, the Senator from Texas, is talking about. You 
would go from 600 banks--in an area that did not cause this financial 
crisis, that was simply a victim of this financial crisis--you would 
take 600 banks from them, send them out somewhere in a consolidated way 
to Washington and New York, and they would oversee one. All they would 
have is a bank holding company with over $50 billion in assets. This 
means connections to over 600 communities will be lost, not just in 
Minnesota, but in Montana, North Dakota, South Dakota, Wisconsin, and 
Michigan. That is the region.
  The Federal Reserve System was designed to prevent it from being 
focused just on Wall Street, at the expense of Main Street. That is why 
the Hutchison-Klobuchar amendment is so important, to put this bill in 
a place where we not only get the great accountability of the bill, 
with the great work that is being done in every single sector, so we do 
not make these mistakes again that were made that brought us to the 
brink of a financial crisis that allowed all of these banks to be on 
the verge of collapse--and some of them, in fact, collapsed on Wall 
Street--that is an important piece--but it is equally important to make 
sure our Main Street community banks get a fair shake and that the 
Federal Reserve in the regional areas of this country--from the Lone 
Star State to the North Star State--be allowed to continue to get the 
information they need to do their job.
  I urge other Senators to join Senator Hutchison and me in supporting 
this amendment, to make sure the voices of our community banks, the 
voices of our small towns across the country and the local economies 
they serve, continue to be heard.
  Mr. President, I yield back to Senator Hutchison.
  The PRESIDING OFFICER. The Senator from Texas.
  Mrs. HUTCHISON. Mr. President, I call up the amendment Senator 
Klobuchar and I have just been discussing, and the amendment, as 
modified, is at the desk. It is No. 3759, as modified.
  The PRESIDING OFFICER. Without objection, the clerk will report the 
amendment, as modified.
  The assistant editor of the Daily Digest read as follows:

       The Senator from Texas [Mrs. Hutchison], for herself, Ms. 
     Klobuchar, Mr. Johanns, Mr. Corker, Mr. Vitter, Mr. Bond, Mr. 
     Shelby, Mr. Crapo, Mr. Brown of Massachusetts, and Mr. 
     Bennett proposes an amendment numbered 3759, as modified, to 
     amendment No. 3739.

  Mrs. HUTCHISON. Mr. President, I ask unanimous consent that reading 
of the amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment, as modified, is as follows:

    (Purpose: To maintain the role of the Board of Governors as the 
        supervisor of holding companies and State member banks)

       On page 299, strike line 3 and all that follows through 
     page 367, line 19, and insert the following:

     SEC. 312. POWERS AND DUTIES TRANSFERRED.

       (a) Effective Date.--This section, and the amendments made 
     by this section, shall take effect on the transfer date.
       (b) Functions of the Office of Thrift Supervision.--
       (1) Savings and loan holding company functions 
     transferred.--There are transferred to the Board of Governors 
     all functions of the Office of Thrift Supervision and the 
     Director of the Office of Thrift Supervision (including the 
     authority to issue orders) relating to--
       (A) the supervision of--
       (i) any savings and loan holding company; and
       (ii) any subsidiary (other than a depository institution) 
     of a savings and loan holding company; and
       (B) all rulemaking authority of the Office of Thrift 
     Supervision and the Director of the Office of Thrift 
     Supervision relating to savings and loan holding companies.
       (2) All other functions transferred.--
       (A) Board of governors.--All rulemaking authority of the 
     Office of Thrift Supervision and the Director of the Office 
     of Thrift Supervision under section 11 of the Home Owners' 
     Loan Act (12 U.S.C. 1468) relating to transactions with 
     affiliates and extensions of credit to executive officers, 
     directors, and principal shareholders and under section 5(q) 
     of such Act relating to tying arrangements is transferred to 
     the Board of Governors.
       (B) Comptroller of the currency.--Except as provided in 
     paragraph (1) and subparagraph (A), there are transferred to 
     the Comptroller of the Currency all functions of the Office 
     of Thrift Supervision and the Director of the Office of 
     Thrift Supervision relating to Federal savings associations.
       (C) Corporation.--Except as provided in paragraph (1) and 
     subparagraph (A), all functions of the Office of Thrift 
     Supervision and the Director of the Office of Thrift 
     Supervision relating to State savings associations are 
     transferred to the Corporation.
       (D) Comptroller of the currency and the corporation.--
     Except as provided in paragraph (1) and subparagraph (A), all 
     rulemaking authority of the Office of Thrift Supervision and 
     the Director of the Office of Thrift Supervision relating to 
     savings associations is transferred to the Office of the 
     Comptroller of the Currency.
       (c) Conforming Amendments.--
       (1) Federal deposit insurance act.--Section 3(q) of the 
     Federal Deposit Insurance Act (12 U.S.C. 1813(q)) is amended 
     by striking paragraphs (1) through (4) and inserting the 
     following:
       ``(1) the Office of the Comptroller of the Currency, in the 
     case of--
       ``(A) any national banking association;
       ``(B) any Federal branch or agency of a foreign bank; and
       ``(C) any Federal savings association;
       ``(2) the Federal Deposit Insurance Corporation, in the 
     case of--
       ``(A) any insured State nonmember bank;
       ``(B) any foreign bank having an insured branch; and
       ``(C) any State savings association;
       ``(3) the Board of Governors of the Federal Reserve System, 
     in the case of--
       ``(A) any State member bank;
       ``(B) any branch or agency of a foreign bank with respect 
     to any provision of the Federal Reserve Act which is made 
     applicable under the International Banking Act of 1978;
       ``(C) any foreign bank which does not operate an insured 
     branch;
       ``(D) any agency or commercial lending company other than a 
     Federal agency;
       ``(E) supervisory or regulatory proceedings arising from 
     the authority given to the Board of Governors under section 
     7(c)(1) of the International Banking Act of 1978, including 
     such proceedings under the Financial Institutions Supervisory 
     Act of 1966;
       ``(F) any bank holding company and any subsidiary (other 
     than a depository institution) of a bank holding company; and
       ``(G) any savings and loan holding company and any 
     subsidiary (other than a depository institution) of a savings 
     and loan holding company.''.
       (2) Federal deposit insurance act.--
       (A) Application.--Section 8(b)(3) of the Federal Deposit 
     Insurance Act (12 U.S.C. 1818(b)(3)) is amended to read as 
     follows:
       ``(3) Application to Bank Holding Companies, Savings and 
     Loan Holding Companies, and Edge and Agreement 
     Corporations.--
       ``(A) Application.--This subsection, subsections (c) 
     through (s) and subsection (u) of this section, and section 
     50 shall apply to--
       ``(i) any bank holding company, and any subsidiary (other 
     than a bank) of a bank holding company, as those terms are 
     defined in section 2 of the Bank Holding Company Act of 1956 
     (12 U.S.C. 1841), as if such company or subsidiary was an 
     insured depository institution for which the appropriate 
     Federal banking agency for the bank holding company was the 
     appropriate Federal banking agency;

[[Page 7741]]

       ``(ii) any savings and loan holding company, and any 
     subsidiary (other than a depository institution) of a savings 
     and loan holding company, as those terms are defined in 
     section 10 of the Home Owners' Loan Act (12 U.S.C. 1467a), as 
     if such company or subsidiary was an insured depository 
     institution for which the appropriate Federal banking agency 
     for the savings and loan holding company was the appropriate 
     Federal banking agency; and
       ``(iii) any organization organized and operated under 
     section 25A of the Federal Reserve Act (12 U.S.C. 611 et 
     seq.) or operating under section 25 of the Federal Reserve 
     Act (12 U.S.C. 601 et seq.) and any noninsured State member 
     bank, as if such organization or bank was a bank holding 
     company.
       ``(B) Rules of construction.--
       ``(i) Effect on other authority.--Nothing in this paragraph 
     may be construed to alter or affect the authority of an 
     appropriate Federal banking agency to initiate enforcement 
     proceedings, issue directives, or take other remedial action 
     under any other provision of law.
       ``(ii) Holding companies.--Nothing in this paragraph or 
     subsection (c) may be construed as authorizing any Federal 
     banking agency other than the appropriate Federal banking 
     agency for a bank holding company or a savings and loan 
     holding company to initiate enforcement proceedings, issue 
     directives, or take other remedial action against a bank 
     holding company, a savings and loan holding company, or any 
     subsidiary thereof (other than a depository institution).''.
       (B) Conforming amendment.--Section 8(b)(9) of the Federal 
     Deposit Insurance Act (12 U.S.C. 1818(b)(9)) is amended to 
     read as follows:
       ``(9) [Reserved].''.
       (d) Consumer Protection.--Nothing in this section may be 
     construed to limit or otherwise affect the transfer of powers 
     under title X.

     SEC. 313. ABOLISHMENT.

       Effective 90 days after the transfer date, the Office of 
     Thrift Supervision and the position of Director of the Office 
     of Thrift Supervision are abolished.

     SEC. 314. AMENDMENTS TO THE REVISED STATUTES.

       (a) Amendment to Section 324.--Section 324 of the Revised 
     Statutes of the United States (12 U.S.C. 1) is amended to 
     read as follows:

     ``SEC. 324. COMPTROLLER OF THE CURRENCY.

       ``(a) Office of the Comptroller of the Currency 
     Established.--There is established in the Department of the 
     Treasury a bureau to be known as the `Office of the 
     Comptroller of the Currency' which is charged with assuring 
     the safety and soundness of, and compliance with laws and 
     regulations, fair access to financial services, and fair 
     treatment of customers by, the institutions and other persons 
     subject to its jurisdiction.
       ``(b) Comptroller of the Currency.--
       ``(1) In general.--The chief officer of the Office of the 
     Comptroller of the Currency shall be known as the Comptroller 
     of the Currency. The Comptroller of the Currency shall 
     perform the duties of the Comptroller of the Currency under 
     the general direction of the Secretary of the Treasury. The 
     Secretary of the Treasury may not delay or prevent the 
     issuance of any rule or the promulgation of any regulation by 
     the Comptroller of the Currency, and may not intervene in any 
     matter or proceeding before the Comptroller of the Currency 
     (including agency enforcement actions), unless otherwise 
     specifically provided by law.
       ``(2) Additional authority.--The Comptroller of the 
     Currency shall have the same authority with respect to 
     functions transferred to the Comptroller of the Currency 
     under the Enhancing Financial Institution Safety and 
     Soundness Act of 2010 (including matters that were within the 
     jurisdiction of the Director of the Office of Thrift 
     Supervision or the Office of Thrift Supervision on the day 
     before the transfer date under that Act) as was vested in the 
     Director of the Office of Thrift Supervision on the transfer 
     date under that Act.''.
       (b) Amendment to Section 329.--Section 329 of the Revised 
     Statutes of the United States (12 U.S.C. 11) is amended by 
     inserting before the period at the end the following: ``or 
     any Federal savings association''.
       (c) Effective Date.--This section, and the amendments made 
     by this section, shall take effect on the transfer date.

     SEC. 315. FEDERAL INFORMATION POLICY.

       Section 3502(5) of title 44, United States Code, is amended 
     by inserting ``Office of the Comptroller of the Currency,'' 
     after ``the Securities and Exchange Commission,''.

     SEC. 316. SAVINGS PROVISIONS.

       (a) Office of Thrift Supervision.--
       (1) Existing rights, duties, and obligations not 
     affected.--Sections 312(b) and 313 shall not affect the 
     validity of any right, duty, or obligation of the United 
     States, the Director of the Office of Thrift Supervision, the 
     Office of Thrift Supervision, or any other person, that 
     existed on the day before the transfer date.
       (2) Continuation of suits.--This title shall not abate any 
     action or proceeding commenced by or against the Director of 
     the Office of Thrift Supervision or the Office of Thrift 
     Supervision before the transfer date, except that, for any 
     action or proceeding arising out of a function of the 
     Director of the Office of Thrift Supervision or the Office of 
     Thrift Supervision that is transferred to the Comptroller of 
     the Currency, the Office of the Comptroller of the Currency, 
     the Chairperson of the Corporation, the Corporation, the 
     Chairman of the Board of Governors, or the Board of Governors 
     by this subtitle, the Comptroller of the Currency, the Office 
     of the Comptroller of the Currency, the Chairperson of the 
     Corporation, the Corporation, the Chairman of the Board of 
     Governors, or the Board of Governors shall be substituted for 
     the Director of the Office of Thrift Supervision or the 
     Office of Thrift Supervision, as appropriate, as a party to 
     the action or proceeding as of the transfer date.
       (b) Continuation of Existing Orders, Resolutions, 
     Determinations, Agreements, Regulations, and Other 
     Materials.--All orders, resolutions, determinations, 
     agreements, regulations, interpretative rules, other 
     interpretations, guidelines, procedures, and other advisory 
     materials that have been issued, made, prescribed, or allowed 
     to become effective by the Office of Thrift Supervision, or 
     by a court of competent jurisdiction, in the performance of 
     functions of the Office of Thrift Supervision that are 
     transferred by this subtitle and that are in effect on the 
     day before the transfer date, shall continue in effect 
     according to the terms of those materials, and shall be 
     enforceable by or against the Office of the Comptroller of 
     the Currency, the Corporation, or the Board of Governors, as 
     appropriate, until modified, terminated, set aside, or 
     superseded in accordance with applicable law by the Office of 
     the Comptroller of the Currency, the Corporation, or the 
     Board of Governors, as appropriate, by any court of competent 
     jurisdiction, or by operation of law.
       (c) Identification of Regulations Continued.--
       (1) By the office of the comptroller of the currency.--Not 
     later than the transfer date, the Office of the Comptroller 
     of the Currency shall--
       (A) in consultation with the Corporation, identify the 
     regulations continued under subsection (b) that will be 
     enforced by the Office of the Comptroller of the Currency; 
     and
       (B) publish a list of such regulations in the Federal 
     Register.
       (2) By the corporation.--Not later than the transfer date, 
     the Corporation shall--
       (A) in consultation with the Office of the Comptroller of 
     the Currency, identify the regulations continued under 
     subsection (b) that will be enforced by the Corporation; and
       (B) publish a list of such regulations in the Federal 
     Register.
       (3) By the board of governors.--Not later than the transfer 
     date, the Board of Governors shall--
       (A) in consultation with the Office of the Comptroller of 
     the Currency and the Corporation, identify the regulations 
     continued under subsection (b) that will be enforced by the 
     Board of Governors; and
       (B) publish a list of such regulations in the Federal 
     Register.
       (d) Status of Regulations Proposed or Not Yet Effective.--
       (1) Proposed regulations.--Any proposed regulation of the 
     Office of Thrift Supervision that the Office of Thrift 
     Supervision, in performing functions transferred by this 
     subtitle, has proposed before the transfer date, but has not 
     published as a final regulation before that date, shall be 
     deemed to be a proposed regulation of the Office of the 
     Comptroller of the Currency or the Board of Governors, as 
     appropriate, according to its terms.
       (2) Regulations not yet effective.--Any interim or final 
     regulation of the Office of Thrift Supervision that the 
     Office of Thrift Supervision, in performing functions 
     transferred by this subtitle, has published before the 
     transfer date, but which has not become effective before that 
     date, shall become effective as a regulation of the Office of 
     the Comptroller of the Currency or the Board of Governors, as 
     appropriate, according to its terms.

     SEC. 317. REFERENCES IN FEDERAL LAW TO FEDERAL BANKING 
                   AGENCIES.

       Except as provided in section 312(d)(2), on and after the 
     transfer date, any reference in Federal law to the Director 
     of the Office of Thrift Supervision or the Office of Thrift 
     Supervision, in connection with any function of the Director 
     of the Office of Thrift Supervision or the Office of Thrift 
     Supervision transferred under section 312(b) or any other 
     provision of this subtitle, shall be deemed to be a reference 
     to the Comptroller of the Currency, the Office of the 
     Comptroller of the Currency, the Chairperson of the 
     Corporation, the Corporation, the Chairman of the Board of 
     Governors, or the Board of Governors, as appropriate.

     SEC. 318. FUNDING.

       (a) Funding of Office of the Comptroller of the Currency.--
     Chapter 4 of title LXII of the Revised Statutes is amended by 
     inserting after section 5240 (12 U.S.C. 481, 482) the 
     following:
       ``Sec. 5240A.  The Comptroller of the Currency may collect 
     an assessment, fee, or other charge from any entity described 
     in

[[Page 7742]]

     section 3(q)(1) of the Federal Deposit Insurance Act (12 
     U.S.C. 1813(q)(1)), as the Comptroller determines is 
     necessary or appropriate to carry out the responsibilities of 
     the Office of the Comptroller of the Currency. In 
     establishing the amount of an assessment, fee, or charge 
     collected from an entity under this section, the Comptroller 
     of the Currency may take into account the funds transferred 
     to the Office of the Comptroller of the Currency under this 
     section, the nature and scope of the activities of the 
     entity, the amount and type of assets that the entity holds, 
     the financial and managerial condition of the entity, and any 
     other factor, as the Comptroller of the Currency determines 
     is appropriate. Funds derived from any assessment, fee, or 
     charge collected or payment made pursuant to this section may 
     be deposited by the Comptroller of the Currency in accordance 
     with the provisions of section 5234. 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. The authority of the Comptroller of the Currency under 
     this section shall be in addition to the authority under 
     section 5240.
       ``The Comptroller of the Currency shall have sole authority 
     to determine the manner in which the obligations of the 
     Office of the Comptroller of the Currency shall be incurred 
     and its disbursements and expenses allowed and paid, in 
     accordance with this section.''.
       (b) Funding of Board of Governors.--Section 11 of the 
     Federal Reserve Act (12 U.S.C. 248) is amended by adding at 
     the end the following:
       ``(s) Assessments, Fees, and Other Charges for Certain 
     Companies.--
       ``(1) In general.--The Board shall collect a total amount 
     of assessments, fees, or other charges from the companies 
     described in paragraph (2) that is equal to the total 
     expenses the Board estimates are necessary or appropriate to 
     carry out the responsibilities of the Board with respect to 
     such companies.
       ``(2) Companies.--The companies described in this paragraph 
     are--
       ``(A) all bank holding companies having total consolidated 
     assets of $50,000,000,000 or more;
       ``(B) all savings and loan holding companies having total 
     consolidated assets of $50,000,000,000 or more; and
       ``(C) all nonbank financial companies supervised by the 
     Board under section 113 of the Restoring American Financial 
     Stability Act of 2010.''.
       (c) Corporation Examination Fees.--Section 10(e) of the 
     Federal Deposit Insurance Act (12 U.S.C. 1820(e)) is amended 
     by striking paragraph (1) and inserting the following:
       ``(1) Regular and special examinations of depository 
     institutions.--The cost of conducting any regular examination 
     or special examination of any depository institution under 
     subsection (b)(2), (b)(3), or (d) or of any entity described 
     in section 3(q)(2) may be assessed by the Corporation against 
     the institution or entity to meet the expenses of the 
     Corporation in carrying out such examinations, or as the 
     Corporation determines is necessary or appropriate to carry 
     out the responsibilities of the Corporation.''.
       (d) Effective Date.--This section, and the amendments made 
     by this section, shall take effect on the transfer date.

     SEC. 319. CONTRACTING AND LEASING AUTHORITY.

       Notwithstanding the Federal Property and Administrative 
     Services Act of 1949 (41 U.S.C. 251 et seq.) or any other 
     provision of law, the Office of the Comptroller of the 
     Currency may--
       (1) enter into and perform contracts, execute instruments, 
     and acquire, in any lawful manner, such goods and services, 
     or personal or real property (or property interest) as the 
     Comptroller deems necessary to carry out the duties and 
     responsibilities of the Office of the Comptroller of the 
     Currency; and
       (2) hold, maintain, sell, lease, or otherwise dispose of 
     the property (or property interest) acquired under paragraph 
     (1).

                  Subtitle B--Transitional Provisions

     SEC. 321. INTERIM USE OF FUNDS, PERSONNEL, AND PROPERTY OF 
                   THE OFFICE OF THRIFT SUPERVISION.

       (a) In General.--Before the transfer date, the Office of 
     the Comptroller of the Currency, the Corporation, and the 
     Board of Governors shall--
       (1) consult and cooperate with the Office of Thrift 
     Supervision to facilitate the orderly transfer of functions 
     to the Office of the Comptroller of the Currency, the 
     Corporation, and the Board of Governors in accordance with 
     this title;
       (2) determine jointly, from time to time--
       (A) the amount of funds necessary to pay any expenses 
     associated with the transfer of functions (including expenses 
     for personnel, property, and administrative services) during 
     the period beginning on the date of enactment of this Act and 
     ending on the transfer date;
       (B) which personnel are appropriate to facilitate the 
     orderly transfer of functions by this title; and
       (C) what property and administrative services are necessary 
     to support the Office of the Comptroller of the Currency, the 
     Corporation, and the Board of Governors during the period 
     beginning on the date of enactment of this Act and ending on 
     the transfer date; and
       (3) take such actions as may be necessary to provide for 
     the orderly implementation of this title.
       (b) Agency Consultation.--When requested jointly by the 
     Office of the Comptroller of the Currency, the Corporation, 
     and the Board of Governors to do so before the transfer date, 
     the Office of Thrift Supervision shall--
       (1) pay to the Office of the Comptroller of the Currency, 
     the Corporation, or the Board of Governors, as applicable, 
     from funds obtained by the Office of Thrift Supervision 
     through assessments, fees, or other charges that the Office 
     of Thrift Supervision is authorized by law to impose, such 
     amounts as the Office of the Comptroller of the Currency, the 
     Corporation, and the Board of Governors jointly determine to 
     be necessary under subsection (a);
       (2) detail to the Office of the Comptroller of the 
     Currency, the Corporation, or the Board of Governors, as 
     applicable, such personnel as the Office of the Comptroller 
     of the Currency, the Corporation, and the Board of Governors 
     jointly determine to be appropriate under subsection (a); and
       (3) make available to the Office of the Comptroller of the 
     Currency, the Corporation, or the Board of Governors, as 
     applicable, such property and provide to the Office of the 
     Comptroller of the Currency, the Corporation, or the Board of 
     Governors, as applicable, such administrative services as the 
     Office of the Comptroller of the Currency, the Corporation, 
     and the Board of Governors jointly determine to be necessary 
     under subsection (a).
       (c) Notice Required.--The Office of the Comptroller of the 
     Currency, the Corporation, and the Board of Governors shall 
     jointly give the Office of Thrift Supervision reasonable 
     prior notice of any request that the Office of the 
     Comptroller of the Currency, the Corporation, and the Board 
     of Governors jointly intend to make under subsection (b).

     SEC. 322. TRANSFER OF EMPLOYEES.

       (a) In General.--
       (1) Office of thrift supervision employees.--
       (A) In general.--All employees of the Office of Thrift 
     Supervision shall be transferred to the Office of the 
     Comptroller of the Currency or the Corporation for employment 
     in accordance with this section.
       (B) Allocating employees for transfer to receiving 
     agencies.--The Director of the Office of Thrift Supervision, 
     the Comptroller of the Currency, and the Chairperson of the 
     Corporation shall--
       (i) jointly determine the number of employees of the Office 
     of Thrift Supervision necessary to perform or support the 
     functions that are transferred to the Office of the 
     Comptroller of the Currency or the Corporation by this title; 
     and
       (ii) consistent with the determination under clause (i), 
     jointly identify employees of the Office of Thrift 
     Supervision for transfer to the Office of the Comptroller of 
     the Currency or the Corporation.
       (2) Employees transferred; service periods credited.--For 
     purposes of this section, periods of service with a Federal 
     home loan bank, a joint office of Federal home loan banks, or 
     a Federal reserve bank shall be credited as periods of 
     service with a Federal agency.
       (3) Appointment authority for excepted service 
     transferred.--
       (A) In general.--Except as provided in subparagraph (B), 
     any appointment authority of the Office of Thrift Supervision 
     under Federal law that relates to the functions transferred 
     under section 312, including the regulations of the Office of 
     Personnel Management, for filling the positions of employees 
     in the excepted service shall be transferred to the 
     Comptroller of the Currency or the Chairperson of the 
     Corporation, as appropriate.
       (B) Declining transfers allowed.--The Office of the 
     Comptroller of the Currency or the Chairperson of the 
     Corporation may decline to accept a transfer of authority 
     under subparagraph (A) (and the employees appointed under 
     that authority) to the extent that such authority relates to 
     positions excepted from the competitive service because of 
     their confidential, policy-making, policy-determining, or 
     policy-advocating character.
       (4) Additional appointment authority.--Notwithstanding any 
     other provision of law, the Office of the Comptroller of the 
     Currency and the Corporation may appoint transferred 
     employees to positions in the Office of the Comptroller of 
     the Currency or the Corporation, respectively.
       (b) Timing of Transfers and Position Assignments.--Each 
     employee to be transferred under subsection (a)(1) shall--
       (1) be transferred not later than 90 days after the 
     transfer date; and
       (2) receive notice of the position assignment of the 
     employee not later than 120 days after the effective date of 
     the transfer of the employee.
       (c) Transfer of Functions.--
       (1) In general.--Notwithstanding any other provision of 
     law, the transfer of employees under this subtitle shall be 
     deemed a transfer of functions for the purpose of section 
     3503 of title 5, United States Code.
       (2) Priority.--If any provision of this subtitle conflicts 
     with any protection provided

[[Page 7743]]

     to a transferred employee under section 3503 of title 5, 
     United States Code, the provisions of this subtitle shall 
     control.
       (d) Employee Status and Eligibility.--The transfer of 
     functions and employees under this subtitle, and the 
     abolishment of the Office of Thrift Supervision under section 
     313, shall not affect the status of the transferred employees 
     as employees of an agency of the United States under any 
     provision of law.
       (e) Equal Status and Tenure Positions.--
       (1) Status and tenure.--Each transferred employee from the 
     Office of Thrift Supervision shall be placed in a position at 
     the Office of the Comptroller of the Currency or the 
     Corporation with the same status and tenure as the 
     transferred employee held on the day before the date on which 
     the employee was transferred.
       (2) Functions.--To the extent practicable, each transferred 
     employee shall be placed in a position at the Office of the 
     Comptroller of the Currency or the Corporation, as 
     applicable, responsible for the same functions and duties as 
     the transferred employee had on the day before the date on 
     which the employee was transferred, in accordance with the 
     expertise and preferences of the transferred employee.
       (f) No Additional Certification Requirements.--An examiner 
     who is a transferred employee shall not be subject to any 
     additional certification requirements before being placed in 
     a comparable position at the Office of the Comptroller of the 
     Currency or the Corporation, if the examiner carries out 
     examinations of the same type of institutions as an employee 
     of the Office of the Comptroller of the Currency or the 
     Corporation as the employee was responsible for carrying out 
     before the date on which the employee was transferred.
       (g) Personnel Actions Limited.--
       (1) 2-year protection.--Except as provided in paragraph 
     (2), during the 2-year period beginning on the transfer date, 
     an employee holding a permanent position on the day before 
     the date on which the employee was transferred shall not be 
     involuntarily separated or involuntarily reassigned outside 
     the locality pay area (as defined by the Office of Personnel 
     Management) of the employee.
       (2) Exceptions.--The Comptroller of the Currency and the 
     Chairperson of the Corporation, as applicable, may--
       (A) separate a transferred employee for cause, including 
     for unacceptable performance; or
       (B) terminate an appointment to a position excepted from 
     the competitive service because of its confidential policy-
     making, policy-determining, or policy-advocating character.
       (h) Pay.--
       (1) 2-year protection.--Except as provided in paragraph 
     (2), during the 2-year period beginning on the date on which 
     the employee was transferred under this subtitle, a 
     transferred employee shall be paid at a rate that is not less 
     than the basic rate of pay, including any geographic 
     differential, that the transferred employee received during 
     the pay period immediately preceding the date on which the 
     employee was transferred.
       (2) Exceptions.--The Comptroller of the Currency or the 
     Chairman of the Board of Governors may reduce the rate of 
     basic pay of a transferred employee--
       (A) for cause, including for unacceptable performance; or
       (B) with the consent of the transferred employee.
       (3) Protection only while employed.--This subsection shall 
     apply to a transferred employee only during the period that 
     the transferred employee remains employed by Office of the 
     Comptroller of the Currency or the Corporation.
       (4) Pay increases permitted.--Nothing in this subsection 
     shall limit the authority of the Comptroller of the Currency 
     or the Chairperson of the Corporation to increase the pay of 
     a transferred employee.
       (i) Benefits.--
       (1) Retirement benefits for transferred employees.--
       (A) In general.--
       (i) Continuation of existing retirement plan.--Each 
     transferred employee shall remain enrolled in the retirement 
     plan of the transferred employee, for as long as the 
     transferred employee is employed by the Office of the 
     Comptroller of the Currency or the Corporation.
       (ii) Employer's contribution.--The Comptroller of the 
     Currency or the Chairperson of the Corporation, as 
     appropriate, shall pay any employer contributions to the 
     existing retirement plan of each transferred employee, as 
     required under each such existing retirement plan.
       (B) Definition.--In this paragraph, the term ``existing 
     retirement plan'' means, with respect to a transferred 
     employee, the retirement plan (including the Financial 
     Institutions Retirement Fund), and any associated thrift 
     savings plan, of the agency from which the employee was 
     transferred in which the employee was enrolled on the day 
     before the date on which the employee was transferred.
       (2) Benefits other than retirement benefits.--
       (A) During first year.--
       (i) Existing plans continue.--During the 1-year period 
     following the transfer date, each transferred employee may 
     retain membership in any employee benefit program (other than 
     a retirement benefit program) of the agency from which the 
     employee was transferred under this title, including any 
     dental, vision, long term care, or life insurance program to 
     which the employee belonged on the day before the transfer 
     date.
       (ii) Employer's contribution.--The Office of the 
     Comptroller of the Currency or the Corporation, as 
     appropriate, shall pay any employer cost required to extend 
     coverage in the benefit program to the transferred employee 
     as required under that program or negotiated agreements.
       (B) Dental, vision, or life insurance after first year.--
     If, after the 1-year period beginning on the transfer date, 
     the Office of the Comptroller of the Currency or the 
     Corporation determines that the Office of the Comptroller of 
     the Currency or the Corporation, as the case may be, will not 
     continue to participate in any dental, vision, or life 
     insurance program of an agency from which an employee was 
     transferred, a transferred employee who is a member of the 
     program may, before the decision takes effect and without 
     regard to any regularly scheduled open season, elect to 
     enroll in--
       (i) the enhanced dental benefits program established under 
     chapter 89A of title 5, United States Code;
       (ii) the enhanced vision benefits established under chapter 
     89B of title 5, United States Code; and
       (iii) the Federal Employees' Group Life Insurance Program 
     established under chapter 87 of title 5, United States Code, 
     without regard to any requirement of insurability.
       (C) Long term care insurance after 1st year.--If, after the 
     1-year period beginning on the transfer date, the Office of 
     the Comptroller of the Currency or the Corporation determines 
     that the Office of the Comptroller of the Currency or the 
     Corporation, as appropriate, will not continue to participate 
     in any long term care insurance program of an agency from 
     which an employee transferred, a transferred employee who is 
     a member of such a program may, before the decision takes 
     effect, elect to apply for coverage under the Federal Long 
     Term Care Insurance Program established under chapter 90 of 
     title 5, United States Code, under the underwriting 
     requirements applicable to a new active workforce member, as 
     described in part 875 of title 5, Code of Federal Regulations 
     (or any successor thereto).
       (D) Contribution of transferred employee.--
       (i) In general.--Subject to clause (ii), a transferred 
     employee who is enrolled in a plan under the Federal 
     Employees Health Benefits Program shall pay any employee 
     contribution required under the plan.
       (ii) Cost differential.--The Office of the Comptroller of 
     the Currency or the Corporation, as applicable, shall pay any 
     difference in cost between the employee contribution required 
     under the plan provided to transferred employees by the 
     agency from which the employee transferred on the date of 
     enactment of this Act and the plan provided by the Office of 
     the Comptroller of the Currency or the Corporation, as the 
     case may be, under this section.
       (iii) Funds transfer.--The Office of the Comptroller of the 
     Currency or the Corporation, as the case may be, shall 
     transfer to the Employees Health Benefits Fund established 
     under section 8909 of title 5, United States Code, an amount 
     determined by the Director of the Office of Personnel 
     Management, after consultation with the Comptroller of the 
     Currency or the Chairperson of the Corporation, as the case 
     may be, and the Office of Management and Budget, to be 
     necessary to reimburse the Fund for the cost to the Fund of 
     providing any benefits under this subparagraph that are not 
     otherwise paid for by a transferred employee under clause 
     (i).
       (E) Special provisions to ensure continuation of life 
     insurance benefits.--
       (i) In general.--An annuitant, as defined in section 8901 
     of title 5, United States Code, who is enrolled in a life 
     insurance plan administered by an agency from which employees 
     are transferred under this title on the day before the 
     transfer date shall be eligible for coverage by a life 
     insurance plan under sections 8706(b), 8714a, 8714b, or 8714c 
     of title 5, United States Code, or by a life insurance plan 
     established by the Office of the Comptroller of the Currency 
     or the Corporation, as applicable, without regard to any 
     regularly scheduled open season or any requirement of 
     insurability.
       (ii) Contribution of transferred employee.--

       (I) In general.--Subject to subclause (II), a transferred 
     employee enrolled in a life insurance plan under this 
     subparagraph shall pay any employee contribution required by 
     the plan.
       (II) Cost differential.--The Office of the Comptroller of 
     the Currency or the Corporation, as the case may be, shall 
     pay any difference in cost between the benefits provided by 
     the agency from which the employee transferred on the date of 
     enactment of this Act and the benefits provided under this 
     section.
       (III) Funds transfer.--The Office of the Comptroller of the 
     Currency or the Corporation, as the case may be, shall 
     transfer to the Federal Employees' Group Life Insurance

[[Page 7744]]

     Fund established under section 8714 of title 5, United States 
     Code, an amount determined by the Director of the Office of 
     Personnel Management, after consultation with the Comptroller 
     of the Currency or the Chairperson of the Corporation, as the 
     case may be, and the Office of Management and Budget, to be 
     necessary to reimburse the Federal Employees' Group Life 
     Insurance Fund for the cost to the Federal Employees' Group 
     Life Insurance Fund of providing benefits under this 
     subparagraph not otherwise paid for by a transferred employee 
     under subclause (I).
       (IV) Credit for time enrolled in other plans.--For any 
     transferred employee, enrollment in a life insurance plan 
     administered by the agency from which the employee 
     transferred, immediately before enrollment in a life 
     insurance plan under chapter 87 of title 5, United States 
     Code, shall be considered as enrollment in a life insurance 
     plan under that chapter for purposes of section 8706(b)(1)(A) 
     of title 5, United States Code.

       (j) Incorporation Into Agency Pay System.--Not later than 2 
     years after the transfer date, the Comptroller of the 
     Currency and the Chairperson of the Corporation shall place 
     each transferred employee into the established pay system and 
     structure of the appropriate employing agency.
       (k) Equitable Treatment.--In administering the provisions 
     of this section, the Comptroller of the Currency and the 
     Chairperson of the Corporation--
       (1) may not take any action that would unfairly 
     disadvantage a transferred employee relative to any other 
     employee of the Office of the Comptroller of the Currency or 
     the Corporation on the basis of prior employment by the 
     Office of Thrift Supervision; and
       (2) may take such action as is appropriate in an individual 
     case to ensure that a transferred employee receives equitable 
     treatment, with respect to the status, tenure, pay, benefits 
     (other than benefits under programs administered by the 
     Office of Personnel Management), and accrued leave or 
     vacation time for prior periods of service with any Federal 
     agency of the transferred employee.
       (l) Reorganization.--
       (1) In general.--If the Comptroller of the Currency or the 
     Chairperson of the Corporation determines, during the 2-year 
     period beginning 1 year after the transfer date, that a 
     reorganization of the staff of the Office of the Comptroller 
     of the Currency or the Corporation, respectively, is 
     required, the reorganization shall be deemed a ``major 
     reorganization'' for purposes of affording affected employees 
     retirement under section 8336(d)(2) or 8414(b)(1)(B) of title 
     5, United States Code.
       (2) Service credit.--For purposes of this subsection, 
     periods of service with a Federal home loan bank or a joint 
     office of Federal home loan banks shall be credited as 
     periods of service with a Federal agency.

     SEC. 323. PROPERTY TRANSFERRED.

       (a) Property Defined.--For purposes of this section, the 
     term ``property'' includes all real property (including 
     leaseholds) and all personal property, including computers, 
     furniture, fixtures, equipment, books, accounts, records, 
     reports, files, memoranda, paper, reports of examination, 
     work papers, and correspondence related to such reports, and 
     any other information or materials.
       (b) Property of the Office of Thrift Supervision.--Not 
     later than 90 days after the transfer date, all property of 
     the Office of Thrift Supervision that the Comptroller of the 
     Currency and the Chairperson of the Corporation jointly 
     determine is used, on the day before the transfer date, to 
     perform or support the functions of the Office of Thrift 
     Supervision transferred to the Office of the Comptroller of 
     the Currency or the Corporation under this title, shall be 
     transferred to the Office of the Comptroller of the Currency 
     or the Corporation in a manner consistent with the transfer 
     of employees under this subtitle.
       (c) Contracts Related to Property Transferred.--Each 
     contract, agreement, lease, license, permit, and similar 
     arrangement relating to property transferred to the Office of 
     the Comptroller of the Currency or the Corporation by this 
     section shall be transferred to the Office of the Comptroller 
     of the Currency or the Corporation, as appropriate, together 
     with the property to which it relates.
       (d) Preservation of Property.--Property identified for 
     transfer under this section shall not be altered, destroyed, 
     or deleted before transfer under this section.

     SEC. 324. FUNDS TRANSFERRED.

       The funds that, on the day before the transfer date, the 
     Director of the Office of Thrift Supervision (in consultation 
     with the Comptroller of the Currency, the Chairperson of the 
     Corporation, and the Chairman of the Board of Governors) 
     determines are not necessary to dispose of the affairs of the 
     Office of Thrift Supervision under section 325 and are 
     available to the Office of Thrift Supervision to pay the 
     expenses of the Office of Thrift Supervision--
       (1) relating to the functions of the Office of Thrift 
     Supervision transferred under section 312(b)(1)(B), shall be 
     transferred to the Office of the Comptroller of the Currency 
     on the transfer date;
       (2) relating to the functions of the Office of Thrift 
     Supervision transferred under section 312(b)(1)(C), shall be 
     transferred to the Corporation on the transfer date; and
       (3) relating to the functions of the Office of Thrift 
     Supervision transferred under section 312(b)(1)(A), shall be 
     transferred to the Board of Governors on the transfer date.

     SEC. 325. DISPOSITION OF AFFAIRS.

       (a) Authority of Director.--During the 90-day period 
     beginning on the transfer date, the Director of the Office of 
     Thrift Supervision--
       (1) shall, solely for the purpose of winding up the affairs 
     of the Office of Thrift Supervision relating to any function 
     transferred to the Office of the Comptroller of the Currency, 
     the Corporation, or the Board of Governors under this title--
       (A) manage the employees of the Office of Thrift 
     Supervision who have not yet been transferred and provide for 
     the payment of the compensation and benefits of the employees 
     that accrue before the date on which the employees are 
     transferred under this title; and
       (B) manage any property of the Office of Thrift 
     Supervision, until the date on which the property is 
     transferred under section 323; and
       (2) may take any other action necessary to wind up the 
     affairs of the Office of Thrift Supervision.
       (b) Status of Director.--
       (1) In general.--Notwithstanding the transfer of functions 
     under this subtitle, during the 90-day period beginning on 
     the transfer date, the Director of the Office of Thrift 
     Supervision shall retain and may exercise any authority 
     vested in the Director of the Office of Thrift Supervision on 
     the day before the transfer date, only to the extent 
     necessary--
       (A) to wind up the Office of Thrift Supervision; and
       (B) to carry out the transfer under this subtitle during 
     such 90-day period.
       (2) Other provisions.--For purposes of paragraph (1), the 
     Director of the Office of Thrift Supervision shall, during 
     the 90-day period beginning on the transfer date, continue to 
     be--
       (A) treated as an officer of the United States; and
       (B) entitled to receive compensation at the same annual 
     rate of basic pay that the Director of the Office of Thrift 
     Supervision received on the day before the transfer date.

     SEC. 326. CONTINUATION OF SERVICES.

       Any agency, department, or other instrumentality of the 
     United States, and any successor to any such agency, 
     department, or instrumentality, that was, before the transfer 
     date, providing support services to the Office of Thrift 
     Supervision in connection with functions transferred to the 
     Office of the Comptroller of the Currency, the Corporation or 
     the Board of Governors under this title, shall--
       (1) continue to provide such services, subject to 
     reimbursement by the Office of the Comptroller of the 
     Currency, the Corporation, or the Board of Governors, until 
     the transfer of functions under this title is complete; and
       (2) consult with the Comptroller of the Currency, the 
     Chairperson of the Corporation, or the Chairman of the Board 
     of Governors, as appropriate, to coordinate and facilitate a 
     prompt and orderly transition.
       On page 459, line 17, strike ``bank'' and insert 
     ``nonmember bank, and the Board may, by order, exempt a 
     transaction of a State member bank,''.
       On page 1045, line 19, insert after ``Currency'' the 
     following: ``, the Board of Governors of the Federal Reserve 
     System,''.

  Mrs. HUTCHISON. Mr. President, we are restoring section 605 of the 
underlying bill. But I just think it is so important we take this 
action. Senator Klobuchar made a great statement about what would 
happen with the Minnesota Fed going down to one bank. How are they 
going to have the input to talk to the Federal Reserve Board about 
monetary policy if their supervision is over one bank? In fact, I 
understood they might be closing some of the local offices of the Fed 
because there will be nothing to supervise, and there will be no input, 
there will be no knowledge of what is going on in some of the 
communities.
  I think the Federal Reserve Bank of Dallas is in much the same 
situation. It would also go down to one from about over 400. I will get 
the numbers exactly by tomorrow. But that is just going to make a huge 
difference in the knowledge base of our Federal Reserve Board. It would 
be unthinkable to have monetary policy made without the input from all 
of our States that the regional banks give at this time.
  The regional banks do a great job. I have dealt with many of the 
regional banks. They have great influence on monetary policy. The 
presidents of the regional banks rotate in the Open Market Committee 
that makes our Fed decisions, and it is a very good system. It was 
carefully put together so it would

[[Page 7745]]

be a monetary system that represents our whole country. That is 
probably one of the reasons why our economy has remained so stable 
through the years since the Federal Reserve was created.
  So I appreciate the support of the Senator from Minnesota. This is a 
truly bipartisan amendment. We have Republican cosponsors, Democratic 
cosponsors, and I am very hopeful we will have a vote early tomorrow in 
this mix because I think this will add a lot of support from our 
community banks to know they are not going to be shut out of access to 
the Federal Reserve, and that the Federal Reserve banks will not be 
shut out from the community banks that are so important for the 
knowledge base of our monetary policy that is made and, frankly, is the 
main stay of the stability of our economic system.
  So I thank the distinguished chairman of the committee for staying 
and letting us talk tonight, and I look forward to having the vote 
tomorrow on our amendment.
  The PRESIDING OFFICER. The Senator from Connecticut.
  Mr. DODD. First of all, let me just say regarding the Merkley-
Klobuchar amendment to the Corker--not amendment to it, but the side-
by-side--I wish to thank Senator Scott Brown of Massachusetts and 
Olympia Snowe of Maine for cosponsoring that amendment on the 
underwriting standards. I appreciate that very much.
  Let me say to both of my colleagues, Senator Hutchison and Senator 
Klobuchar, as my colleagues know, I started out many months ago with 
the idea of trying to come down to a single prudential regulator as one 
of the reforms in this bill. One of my concerns, as my colleagues know, 
was we had some nine agencies. It was an alphabet soup out there with a 
lot of overlap in terms of actually who is responsible, who is going to 
be accountable for things that occur. Obviously, we want to have a dual 
banking system, the State banks and so forth, that don't want to be 
drawn into a Federal system unnecessarily. So it began to break down 
from a single prudential regulator to maybe two.
  I say this with great respect, but I would point out that the Federal 
Reserve Board, of course, never implemented the requirements on 
mortgage lending that passed in 1994. A lot of the major financial 
institutions were basically unregulated institutions. My concern has 
been that the Fed did not exactly live up to its reputation during this 
period of time and contributed in major ways to the problems we are in 
today.
  So I have great respect for their monetary function, which is the 
core function; the payment system, which is their core function; their 
primarily monetary function, determining the credibility of our 
currency. We had an earlier debate today on that very issue. The system 
was established in 1914, 1917, almost 100 years ago.
  At some point down the road we are going to need to think about the 
Federal Reserve System. We have two Federal Reserve regional banks in 
the State of Missouri. The next one is in San Francisco. So I think the 
idea of thinking through how to make it more relevant is a legitimate 
issue. Obviously, we are not going to deal with that in this bill. We 
will leave that for a later Congress to work on those issues.
  I appreciate what my colleagues are trying to do, and I recognize the 
importance at these regional levels that want to maintain some 
involvement in all of this for the reasons that Senator Klobuchar and 
Senator Hutchison have identified. Again, I know how we have been 
talking about how to work on this a bit. Let me just make one plea. One 
of the major concerns that happened with this proliferation of 
regulators--it happened with AIG classically and in other cases; it 
happened back in the thrift crisis days as well--is that industries go 
out and shop and they look for the regulator of least resistance, the 
ones they can get away the most with. That was one of the major 
problems that happened here.
  So I want to avoid wherever possible this, what they call regulatory 
arbitrage; that is, the shopping that goes on: Let me find the 
regulator that will let me get away with the most. Of course, the 
Federal Reserve has a lot to demonstrate in the years ahead that they 
got the message, as they didn't do a very good job when they had the 
responsibility.
  So coming Congresses will have to keep an eye on this to make sure 
they are going to not only want the job, but also to assume the 
responsibility in doing this so we don't end up with problems running 
haywire again. It is true, small banks didn't create a problem. Only 
about 800 out of the 8,000 are regulated by the Federal Reserve. The 
overwhelming majority, of course, are not regulated by the Federal 
Reserve. And, of course, they didn't do much in it because they didn't 
get involved in subprime lending. So it wasn't a problem. There was a 
reason they didn't get involved in subprime lending, which is for 
another day, but nonetheless I understand they got in trouble with 
commercial loans which was their major problem.
  So I hope on the arbitrage issue that we try to create as much of a 
level playing field as possible so we don't find institutions shopping 
around because of assessment costs or other matters which can once 
again find this migration into an area, not because it is a right place 
to be but because it is where you would prefer to be. The decision by 
institutions as to where they want to be ought not be the criteria by 
which we determine regulation. We have to have a better set of rules 
than that or we end up back where we were before.
  My colleagues have done a great job. They have been faithful in 
reaching out and trying to find accommodation where they can. So I am 
very grateful to both of my colleagues and their cosponsors. We look 
forward to tomorrow having a vote. In the meantime, I have made an 
appeal to work on a couple of pieces of this thing. We would not go 
into that right now. I thank them both and I thank my colleagues. It 
has been a long day. We covered a lot of ground today--some major 
amendments. We will vote tomorrow and move along.
  Again, I make the point that this almost seems like a throwback. When 
I arrived some 30 years ago, this was the way we did things. We haven't 
had a single tabling motion. We haven't had a single filibuster. I 
would argue maybe this is one of the top two pieces of legislation to 
be considered in this Congress on regulatory reform. It is a major 
undertaking. The patience and the involvement of my colleagues has been 
terrific, and I wish to thank them as well.
  The PRESIDING OFFICER. The Senator from Minnesota.
  Ms. KLOBUCHAR. Mr. President, can I just commend Senator Dodd and 
Senator Shelby for setting this tone. There was an article this weekend 
about how we are working together on a major piece of legislation. As 
my colleagues can see from the amendment, Senator Hutchison and I have 
a bipartisan amendment, and I appreciate the chairman's openness to 
this amendment and his kind words. I thank him for his work.
  Mr. DODD. I thank you both.
  The PRESIDING OFFICER. The Senator from Texas.
  Mrs. HUTCHISON. Mr. President, I would also say that this shouldn't 
be a political bill. This should be a bill that is hammered out on the 
floor and that does have bipartisan amendments because it is 
complicated. It does have to fit together a lot of different needs, 
different regulatory standards, different types of banks and financial 
institutions and nonbank financial institutions. I hope it is going to 
be a product that--regardless of how big the vote is--will make the 
system better. I think this process has been the best I have seen this 
year in accommodating different concerns that have been raised by both 
sides.
  So I thank the chairman and the ranking member for that. I yield the 
floor.
  The PRESIDING OFFICER. The Senator from Connecticut.
  Mr. DODD. Mr. President, there is no more debate this evening.
  Mr. LEVIN. Mr. President, I come to the Senate floor today to speak 
in support of a package of amendments to

[[Page 7746]]

the financial reform bill that is a result of an investigation by the 
Permanent Subcommittee on Investigations, which I chair. I am 
submitting these amendments with the support of my colleague, Senator 
Kaufman, who is not only a member of the subcommittee but also sat with 
me through hours of subcommittee hearings over a period of 2 weeks to 
examine some of the causes and consequences of the crisis that nearly 
brought down our financial system, that necessitated billions of 
dollars in taxpayer money to arrest, and that was a principal cause of 
the worst recession in nearly a century.
  We also are submitting the package as eight separate amendments to 
facilitate their consideration.
  Over nearly a year and a half, our bipartisan investigation examined 
millions of pages of documents, conducted over 100 interviews, and 
culminated in four hearings during April, with over 2,500 pages of 
hearing exhibits and more than 30 hours of testimony. The American 
people, having suffered so much in this crisis and having had to pay so 
much of their hard-earned money to keep it from getting even worse, 
deserve to know what happened.
  But more than establishing a record of what went wrong, we sought 
information to help keep us from repeating the same mistakes in the 
future. Like all of the subcommittee's investigations, our eye was on 
both establishing a factual record and on using that record to support 
legislation that would rebuild Main Street's defenses against the 
excesses of Wall Street.
  The recklessness, lax oversight, and conflicts of interest our 
investigation has uncovered cry out for legislated reform. The hearings 
revealed that mortgage lenders such as Washington Mutual dumped 
hundreds of billions of dollars of high risk and sometimes fraudulent 
home loans into the U.S. financial system; banking regulators, such as 
the Office of Thrift Supervision, observed and understood the flaws and 
the risks, failed to stop them, and even impeded the examination 
efforts of the Federal Deposit Insurance Corporation; credit rating 
agencies, such as Moody's and Standard & Poor's, gave inflated ratings 
to risky structured finance products in an effort to keep market share 
and please their investment bank clients; and investment banks such as 
Goldman Sachs, assembled, marketed, and sold high risk mortgage-related 
products, while betting against the very products they created.
  That is why I and Senator Kaufman have assembled a package of 
amendments to the financial regulatory reform bill now before the 
Senate. We believe these amendments would help stop the bad loans, 
misleading credit ratings, poor quality securitizations, and other 
problems we saw in our investigation, as well as slow down the existing 
revolving door for regulators. They are intended to strengthen an 
already strong bill that so many of our colleagues have worked so hard 
to bring to this point. Let me outline briefly what our amendments 
would accomplish.
  Ban on Stated-Income and Negative Amortization Loans. First, in 
response to the hundreds of billions of dollars in high-risk mortgage 
loans that began this crisis and that were featured in our first 
hearing, our amendment would sharply limit two of the most dubious 
practices: stated-income loans and negatively amortizing loans. Stated-
income loans, also known as ``liar loans,'' are ones in which lenders 
allow borrowers simply to state their income on the loan applications 
without any confirmation of the borrower's income or assets. Negative 
amortization loans are loans in which lenders allow the borrowers, for 
a specified period of time, to pay less than the monthly amount needed 
to cover the interest, resulting in loan balances that increase rather 
than decrease over time, and then impose a much higher loan payment to 
make up for the earlier low payments. That leads to payment shock and 
loan defaults by a large number of borrowers.
  Washington Mutual, which was the case history in our first hearing, 
used stated-income and negative amortization loans with disastrous 
results, leading to the largest bank failure in U.S. history. Stated-
income loans made up 90 percent of its home equity loans, for example, 
and 70 percent of its option ARMs, adjustable-rate mortgages, which 
often are negatively amortizing. Because both types of loans default at 
much higher rates than traditional 30-year fixed rate mortgages, 
lenders such as Washington Mutual quickly sold them to remove the risk 
from their books. But those high-risk loans did not disappear; they 
were packaged into securities and sold to investors, spreading risk 
throughout the financial system. Eventually, when housing prices 
stopped rising and borrowers could not refinance their mortgages, the 
loans defaulted in record numbers, the securities plummeted in value, 
and the securitization market crashed. Our amendment would ensure that 
stated-income and negative amortization loans could not again be used 
to foist high-risk, poor quality loans off on investors in 
securitizations.
  Skin in the Game Securitizations. Second, our amendment would 
strengthen an existing provision in the bill that requires financial 
firms to retain some of the risk of the mortgage-backed securities they 
assemble. Too often, lenders such as Washington Mutual and investment 
banks such as Goldman Sachs were in the business of packaging high-risk 
mortgages into structured financial instruments, slicing and dicing 
them in new ways, obtaining credit ratings indicating that portions of 
these instruments carried no more risk than Treasury securities but 
significantly higher returns, and then passing the risk to others, 
selling them to investors without retaining any risk on their books. In 
many cases, as our hearings showed, these financial institutions knew 
the products they had assembled were of dubious quality but were happy 
to sell them so long as they made a fee and knew that none of the risk 
could come back to harm them. This short-term pursuit of profits, with 
no concern for customers or for the toxic securities polluting the 
financial system, so damaged the securitization markets that they are 
still struggling to recover.
  Our amendment would help stop these short-sighted and dangerous 
securitization practices by requiring financial institutions that 
securitize mortgages to keep some of their own skin in the game. It 
would build on an existing provision in the Dodd bill by requiring that 
securitizers keep an ownership interest in the securities they create. 
While the existing provision would require securitizers to keep a 5 
percent interest in the securitization as a whole, it does not specify 
whether that 5 percent interest could be concentrated in a single 
portion, or tranche, of securities, such as the low-risk, supersenior 
tranche at the top or the high-risk equity tranche at the bottom, which 
is often what happened during the crisis. Our amendment would make it 
clear that the ownership interest would have to be distributed 
throughout the capital structure--not just in a single tranche--so that 
the securitizer's interests would be aligned with the interests of all 
levels of investors buying the securities and would give the 
securitizer a stake in the success of all of the tranches, not just 
one.
  In addition, our amendment would make it clear that regulators could 
allow lenders to go below the 5 percent requirement only if they are 
including high-quality, low-risk assets in their securities, such as 
30-year fixed rate mortgages. Inclusion of this low-risk standard in 
the provision allowing lenders to avoid the 5 percent requirement would 
create an enormous incentive for securitizers to use low-risk loans in 
their securitizations.
  Gustafson Fix. Third, we would address the effects of a 1995 Supreme 
Court ruling in the Gustafson case that has left investors in private 
securities offerings without protection from material misstatements or 
omissions in the security's prospectus. The Gustafson ruling 
interpreted the securities laws as depriving purchasers in private 
offerings of the same protections against material misstatements or 
omissions that apply to public offerings. Our amendment would restore

[[Page 7747]]

congressional intent and close that loophole.
  FDIC Examination Authority. Fourth, we would strengthen protections 
for the Federal deposit insurance fund and against the need for 
taxpayer bailouts by enhancing the FDIC's authority to initiate bank 
exams and enforcement actions. Under our amendment, the FDIC's 
chairperson would have the authority to initiate an exam, authority 
that now rests solely with the FDIC's board, which is cumbersome and 
includes other regulators that can prevent FDIC from acting quickly. 
During the subcommittee's second hearing, documents and testimony 
showed how the Office of Thrift Supervision thwarted FDIC efforts to 
participate in examinations of Washington Mutual and take enforcement 
action to reduce the bank's unsustainable high-risk lending. The 
Federal agency charged with protecting the deposit insurance fund 
should not have to jump through hoops to look at bank records or stop 
unsafe or unsound practices. Our amendment would make it clear that the 
FDIC can act decisively and quickly to deal with endangered financial 
institutions before their failure threatens the FDIC insurance fund or 
the safety of the financial system.
  Credit Rating Agencies. Fifth, our amendment would strengthen a host 
of provisions in the Dodd bill dealing with credit rating agencies. 
Credit rating agencies did not originate the bad loans or risky 
securities that led to the crisis. But their disastrously inaccurate 
ratings made those loans and securities easy to sell and helped spread 
risk throughout the financial system.
  The subcommittee's third hearing showed a clear conflict of interest 
inherent in the credit rating agencies' business model: They are 
dependent for revenue upon the same financial firms whose products they 
are supposed to impartially rate. Our amendment would eliminate that 
conflict by requiring rating agencies to receive their fees through an 
intermediary to be established or designated by the SEC.
  In addition, the amendment would strike the existing statutory ban 
that prohibits direct SEC oversight of the credit rating models, 
methodologies, and criteria that failed so catastrophically in this 
crisis, and would explicitly direct the SEC to oversee them. We would 
also require the agencies to rate as more risky products that, for 
example, lack past performance data; that are provided by an issuer 
with a history of issuing poorly performing instruments; that receive 
prior credit ratings already subject to downgrade; that consist of 
synthetic instruments in which no income is being contributed by actual 
assets; or that consist of instruments whose complexity or novelty make 
it difficult to reliably predict their performance. We would also build 
upon a Dodd provision requiring that certain information be provided 
about each credit rating issued by an agency, including a requirement 
that ratings come with an ``expiration date'' indicating whether they 
are intended to be effective for more or less than a year. We would 
also bar credit rating agencies from relying on due diligence reviews 
of financial products when the agencies have reason to believe that the 
due diligence is inadequate. Together, these provisions would help 
ensure that the SEC has the authority it needs to conduct vigorous and 
meaningful oversight of credit rating agencies, instead of the current 
system that provides for SEC oversight in theory but denies it in 
practice.
  Restriction on Synthetic Asset-Backed Securities. Sixth, we would 
rein in the pernicious effects of synthetic asset-backed securities on 
the financial system. These securities contain no real assets. Their 
value is tied to the assets that they reference, but the securitizer 
and the investors need not, and often do not, have any economic 
interest in those assets. Too often, these instruments have amounted to 
nothing more than bets on whether a security or other asset would go up 
or down in value. Such transactions, usually embodied in collateralized 
debt obligations, or CDOs, greatly magnified the damage that resulted 
when poor quality mortgage-backed securities defaulted and helped bring 
down storied financial firms such as Lehman Brothers and Bear Stearns.
  Under our amendment, synthetic asset-backed securities that lack any 
substantial or material economic purpose other than speculation on the 
value or condition of referenced assets could no longer be sold. Wall 
Street firms that claim a synthetic asset-backed security has a 
substantial economic benefit apart from wagering on asset values will 
have an opportunity to prove those claims to the SEC. We must end the 
pollution of the U.S. financial system with these dangerous financial 
instruments that spread risk without adding anything of substance to 
the real economy.
  Slowing the Revolving Door. Seventh, we would seek to slow down the 
revolving door between financial regulatory agencies and the financial 
sector by requiring a 1-year ``cooling off'' period before a Federal 
financial regulator could work for a financial institution he or she 
regulated. In 2005, we enacted a 1-year cooling off period for bank 
examiners, after Riggs Bank hired the bank examiner who used to oversee 
its operations and who took some questionable regulatory actions before 
switching his employment. That law has been on the books for 5 years, 
providing a healthy deterrent to bank examiners that get too close to 
the banks they regulate. Our amendment would expand this approach to 
all Federal financial regulators, from the Federal Reserve to the SEC 
to the CFTC to the new Consumer Financial Protection Bureau. It would 
prevent a regulator who participated personally and substantially in 
the regulation or oversight of a particular financial institution or 
took an enforcement action against a specific financial institution 
from taking a job with the same institution for at least a year.
  Foreign Bank Anti-Tax Evasion Remedy. Finally, based upon a number of 
previous subcommittee investigations showing how some foreign banks 
have been deliberately assisting U.S. clients to evade U.S. taxes, our 
amendment would give the Treasury Department discretionary authority to 
take measures against foreign financial institutions or foreign 
jurisdictions that impede U.S. tax enforcement. Those measures include 
such actions as imposing additional recordkeeping requirements, 
refusing to honor credit cards issued by a foreign bank or, in the most 
extreme cases, prohibiting U.S. financial institutions from doing 
business with the offending foreign financial institution or 
jurisdiction. This provision would build upon a Patriot Act provision 
that has proven highly effective in stopping foreign banks from 
engaging in money laundering activities and would take the same 
approach in discouraging foreign banks from aiding or abetting tax 
evasion.
  We offer this amendment in the hope of improving what is already a 
strong bill, either as a package or divided into its separate elements. 
It is not all that needs to be done--for example, I have joined with 
Senator Merkley in an amendment submitted to limit proprietary trading 
and conflicts of interest by financial institutions--additional 
problems examined during the subcommittee hearings. It is clear that 
the evidence revealed by the subcommittee's lengthy investigation and 
four hearings requires Congress to act now to protect Main Street from 
financial abuses that have so damaged our economy and American 
families.
  Mrs. FEINSTEIN. Mr. President, I rise to speak in support of an 
amendment I am offering to the Wall Street reform bill.
  The Dodd-Lincoln bill, as currently drafted, takes major steps to 
reform the $900 trillion derivative markets. It would require every 
trade to be reported in real time to the CFTC; require all cleared 
contracts to be traded on an exchange or on a swap execution facility; 
require speculative position limits set in ``aggregate'' for each 
commodity, instead of contract by contract; and require foreign boards 
of trade to adhere to minimum standards comparable to those in the 
United States, including reporting requirements--this provision is 
designed to address the underlying problem of the so-called London 
Loophole.

[[Page 7748]]

  I very much support these provisions. However, I am concerned that 
the bill doesn't go far enough to address the London loophole. This 
loophole has allowed for the trading of U.S. energy commodities--such 
as crude oil--on foreign exchanges without strong oversight from U.S. 
regulators.
  This means that there is no cop on the beat to shield U.S. oil prices 
from manipulation or excessive speculation when they are traded in 
foreign markets, like commodities exchanges in London or Shanghai.
  The amendment I am proposing would allow CFTC to require foreign 
boards of trade to register with CFTC, which would give CFTC the 
enforcement authority it needs. This provision was in President Obama's 
original proposed financial reform bill, and it is strongly supported 
by CFTC Chairman Gensler.
  First, let me explain what has become known as the London loophole.
  As Congress has taken steps to improve regulatory oversight of 
domestic commodity trading markets, Wall Street traders have 
increasingly turned to offshore markets to electronically trade U.S. 
energy futures--in order to evade American market oversight and 
speculation limits.
  This new regulatory loophole earned its nickname--the London 
loophole--because America's most important crude oil contract--known as 
West Texas Intermediate--is today traded on the Intercontinental 
Exchange in London. This contract has what is called a price discovery 
impact because it is commonly referenced as the standard market price 
of oil.
  The practical implication of this is that U.S. traders can use 
electronic exchanges based overseas to artificially drive up the prices 
of U.S. commodities--without any consequences from our Nation's market 
regulators. This is a major problem.
  A 2008 CFTC report found that traders using this London exchange to 
trade U.S. crude oil futures held positions far larger than would be 
allowed by American regulators. In fact, from 2006 to 2008 at least one 
trader position exceeded U.S. speculation limits every single week on 
the London exchange, and British regulators had done nothing about it.
  The good news is that some steps have been taken administratively to 
address this loophole.
  In 2008, the CFTC negotiated an agreement with British regulators to 
bring greater oversight to American commodities contracts traded in 
London. The agreement called for speculation limits for the electronic 
trading of U.S. energy commodities--like crude oil--on foreign 
exchanges, and required recording-keeping and an audit trail. But CFTC 
has limited legal authority to enforce this agreement.
  Bottom Line: We need to make sure the CFTC can oversee trading of 
American commodities, whether it happens through a computer server 
located on Wall Street or in Shanghai.
  The Dodd-Lincoln bill currently before us does include some important 
provisions to help close the London loophole. As drafted, the bill will 
require foreign boards of trade that provide access to American traders 
to comply with comparable rules enforced by a foreign regulator, 
publish trading information daily, supply data to CFTC, and enforce 
position limits.
  However, CFTC may be unable to force a Foreign Board of Trade to 
comply with these requirements.
  This is because the CFTC's current method of overseeing foreign 
exchanges has tenuous legal underpinnings, due to a Commodity Exchange 
Act provision forbidding CFTC from ``regulating'' foreign boards of 
trade.
  In many instances, the CFTC can take action against a U.S. trader on 
a foreign exchange to prevent manipulation or excessive speculation 
only with the cooperation and consent of the foreign regulator. The 
other, more controversial option is for the CFTC to completely ban the 
foreign exchange from all U.S. operations. Not surprisingly, the CFTC 
often shies away from enforcement, in the face of these regulatory 
obstacles.
  That is why I am offering a proposal to allow CFTC to require foreign 
boards of trade to register with CFTC, which would give CFTC the 
enforcement authority it needs.
  Here are the benefits of this amendment:
  First, the registration process itself would give CFTC the authority 
to impose appropriate regulatory requirements as a condition of 
registration.
  Second, a formal registration process would assure that foreign 
boards of trade all follow the same set of rules.
  Third, the registration process would provide a much clearer basis 
for CFTC decisions to refuse or withdraw permission to foreign boards 
of trade wishing to allow American traders on their exchange.
  Finally, and most importantly, all of CFTC's existing enforcement 
authorities apply to registered entities under the Commodity Exchange 
Act.
  This amendment would therefore allow CFTC to enforce its own statute 
with regard to foreign exchanges operating in the United States.
  This is a very moderate, practical amendment to assure that we give 
CFTC the authority to enforce the statutory provisions already in the 
proposed legislation. It would only provide the CFTC with equivalent 
authority to that held by virtually all foreign futures regulators--
including the British.
  I have worked for many years to bring about meaningful regulation of 
the derivatives markets, and that is why I am so pleased that Senators 
Lincoln and Dodd have brought forward the strongest derivatives 
regulatory proposal considered by this Congress.
  But as we crack down on traders in our markets, we must be ever 
vigilant to assure that traders sitting on Wall Street do not avoid our 
regulations by trading on electronic exchanges with computer servers in 
London, or Dubai, or Singapore.
  This amendment would improve the London loophole provisions in the 
Dodd-Lincoln bill, by making those provisions more easily enforceable.
  It is the final piece necessary to close the London loophole, 
ensuring that our government has what it needs to protect American 
markets from manipulation and excessive speculation, no matter where 
U.S. energy commodities are traded.
  I ask my colleagues to support this amendment.
  Mr. DODD. Mr. President, I ask unanimous consent that on Wednesday, 
May 12, following any leader time, the Senate then resume consideration 
of S. 3217, and that the time until 10 a.m. be for debate with respect 
to the following three amendments, with the time equally divided and 
controlled between the leaders or their designees; that at 10 a.m., the 
Senate proceed to vote in relation to the amendments in the order 
listed, with no amendments in order to the amendments prior to a vote, 
with 2 minutes of debate prior to the succeeding votes and with the 
succeeding votes limited to 10 minutes: Merkley amendment No. 3962, 
Corker amendment No 3955, Hutchison-Klobuchar amendment No. 3759, as 
modified; provided further, that the next two amendments in order would 
be the Landrieu-Isakson amendment regarding risk retention and the 
Snowe-Landrieu amendment No. 3918.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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