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1217 The Housing Finance Reform and Taxpayer Protection Act of 2013
Sec. 1. Short title; table of contents. Sec. 2. Definitions. TITLE I—FEDERAL MORTGAGE INSURANCE CORPORATION Sec.101. Establishment. The Federal Mortgage Insurance Corporation (FMIC) is an independent federal agency whose purpose is to provide liquidity, transparency and access to mortgage credit by supporting a robust secondary mortgage market and the production of residential mortgage-backed securities; and to protect the taxpayer from having to absorb losses incurred in the secondary mortgage market during periods of economic stress. Sec.102. Director. The FMIC director will have technical, academic, or professional understanding of, and experience in, housing finance and will serve a five-year term. He or she will be appointed by the President and confirmed by the Senate. No individual may serve concurrently as Acting Director of FMIC and as Director of the Federal Housing Finance Agency (FHFA) and no individual that has served as the Director of the FHFA may serve as Director of FMIC. The Director will serve as a member of the Financial Stability Oversight Council. Sec.103. Board of Directors. FMIC will be managed by a Board of Directors comprised of five members, chaired by the Director with four other Directors who are appointed by the President and confirmed by the Senate. The Directors will have a demonstrated technical, academic or experience working in the fields of asset management, mortgage insurance markets, multifamily housing development, and working with lenders under $15 billion in consolidated assets. Board Members will be appointed for a 5-year term, will serve on a full-time basis, and will have a fiduciary relationship to FMIC. The Director of the FHFA will also serve as a non-voting member of the Board. Sec.104. Office of the Inspector General. An Office of the Inspector General (OIG) will be established within FMIC to conduct, supervise and coordinate audits and investigations relating to the programs and operations of the Corporation and to ensure that first loss position of FMICbacked securities is adequate to cover home price declines experienced during moderate to severe recessions experienced during the last 100 years. OIG will report annually on the adequacy of fees associated with securitization and the adequacy of the Mortgage Insurance Fund. Sec.105. Staff, experts, and consultants. The Board of Directors may appoint and set the compensation of the employees necessary to carry out the functions of the Corporation. Sec.106. Reports; testimony; audits. FMIC will provide annual written reports to the Senate Banking and House Financial Services Committees. The Chairperson of FMIC will provide biannual testimony to the Banking Committee and House Financial Services. The Comptroller General will perform an annual audit.

Sec.107. Initial funding. FMIC will establish an annual assessment from the enterprises to provide amounts sufficient for the reasonable costs of the FMIC from the date of enactment through the certification date. TITLE II—DUTIES, RESPONSIBILITIES, AND STRUCTURE OF THEFMIC Subtitle A—Duties and Authorities Sec.201. Duties and responsibilities of the FMIC. The principal duties of the FMIC will be to: minimize any potential long-term negative cost on the taxpayer; ensure to the maximum extent possible a liquid and resilient housing financial market and the availability of credit; develop standard form credit-risk sharing agreements with private capital in a first loss position; provide insurance on those covered securities; provide leadership to the housing finance market to help ensure that all geographic locations have access to mortgage credit; charge and collect fees in exchange for providing insurance that are sufficient to protect the taxpayer and fund the FMIC; establish and maintain a Mortgage Insurance Fund; facilitate the securitization of eligible mortgages originated by credit unions and community and mid-size banks without securitization capabilities; set standards for the approval of private mortgage insurers, servicers, issuers, and bond guarantors; establish and maintain a database of uniform loan level information and a registry system for eligible mortgages; develop standard securitization agreements for covered securities; oversee the common securitization platform and ensure non-discriminatory access for small lenders without volume discounts. Sec.202. Standard form credit risk-sharing mechanisms, products, structures, contracts, or other security agreements. Within 5 years of enactment, FMIC will examine various credit-risk sharing structures and will develop a standard form credit-risk sharing mechanism that requires private market holders to take a first loss position that is not less than 10% of the principal or face value of the security. FMIC will report to Congress within a year and upon relevant policy changes about these findings and how it made its determination for a standard form credit-risk sharing mechanism. Sec.203. Mortgage Insurance Fund. The Mortgage Insurance Fund, administered by FMIC, will be used to cover losses on covered securities when those losses exceed the first position losses absorbed by private market holders. The Mortgage Insurance Fund will be funded by guarantee fees and will endeavor to achieve a reserve balance of 1.25% of the sum of the outstanding principal balance of covered securities within 5 years of the certification date, and 2.5% within 10 year of the certification date. Sec.204. Insurance. FMIC will insure the payment of principal and interest on a covered security against losses in exchange for the guarantee fee. The full faith and credit of the United States is pledged to the payment of all amounts which may be require to be paid under any insurance provided under this section. Sec.205. Authority to protect taxpayers in unusual and exigent market conditions. In unusual and exigent market conditions, the FMIC Director, Federal Reserve Chairman, and the Treasury Secretary in consultation with the HUD Secretary may provide insurance regardless of
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whether there is adequate first loss private capital for up to six months. This authority may not be exercised more than once in any given 3-year period. Sec.206. General powers. FMIC will have the general powers of a corporation. Sec.207. Exemptions. All FMIC covered securities will be exempt securities under the SEC insofar as securities that are a direct obligation of or guaranteed by the U.S. are considered exempt. Covered securities insured by FMIC are exempt from Qualified Residential Mortgage requirements. Subtitle B—Oversight of Market Participants Sec.211. Approval of private mortgage insurers. FMIC will establish standards for approving private mortgage insurers to provide private mortgage insurance on eligible mortgages. Sec.212. Approval of servicers. FMIC will establish standards approving servicers to administer eligible mortgages. Sec.213. Approval of issuers. FMIC will establish standards for approving issuers to issue FMIC-covered securities. FMIC will limit issuers to 15% of the total market as measured by the total outstanding principal balance at origination, with the exception of issuers which only securitize loans originated by the issuer or an affiliate. Sec.214. Approval of bond guarantors. FMIC will establish standards for approving bond guarantors, who guarantee the timely payment of principal and interest on securities that are collateralized by eligible mortgages and insured by FMIC. Sec.215. Authority to establish FMIC Mutual Securitization Company. The FMIC Mutual Securitization Company is created to meet the needs of credit unions, community and mid-size banks, and non-depository mortgage originators up to $15 billion in total consolidated assets with respect to issuing covered securities. The Mutual will purchase eligible mortgage loans from member participants to securitize in a covered security. Sec.216. Additional authority relating to oversight of market participants. FMIC may also develop, publish, and adopt additional standards or requirements to ensure competition, competitive pricing, and liquidity, transparency, and access to mortgage credit in the secondary market. Sec.217. Civil money penalties. FMIC may impose a civil money penalty on any approved private mortgage insurer, servicer, issuer, or bond guarantor that violates any standard adopted pursuant to this Act. Sec.218. Protection of privilege and other matters relating to disclosures by market participants. FMIC may share information with the Federal banking agencies in a consultative process.

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Subtitle C—Transparency in Market Operations Sec.221. Review of loan documents; disclosures. Private market investors in a first loss position will have access to documents relating to eligible mortgage loans and servicing reports for all mortgages in the covered security. Sec.222. Investor immunity. Any private market investor that has invested in a covered security will have immunity and protection from civil liability with respect to whether eligible mortgages that collateralize a FMIC-covered security have complied with the requirements of this Act. Sec.223. Uniform securitization agreements. FMIC will develop standard uniform securitization agreements for FMIC-insured securities. The uniform securitization agreement will include terms relating to: pooling and servicing; representation and warranties; indemnification and remedies; and the qualification, responsibilities, and duties of trustees. Sec.224. Uniform mortgage database. FMIC will develop a database of uniform loan level information on eligible mortgages relating to: loan characteristics; borrower information; the property securing the eligible mortgages; loan data required at the time of application for FMIC insurance; quality and consistency of appraisal and collateral data on eligible mortgages; and industry-wide servicing data standards. Sec.225. Electronic registration of eligible mortgages. FMIC will have an electronic registry system for eligible mortgages that collateralize a FMIC-insured security to improve the process of tracking changes in servicing rights and beneficial ownership interest in such those mortgages. Subtitle D—FMIC Structure Sec.231. Office of Underwriting. The Office of Underwriting will ensure that eligible mortgages that collateralize a covered FMIC-insured security comply with the requirements of this Act. Sec.232. Office of Securitization. The Office of Securitization will oversee the common securitization platform; ensure that credit unions, community and mid-size banks, and small nondepository lenders have equitable access to the platform; and coordinate and consult with the Federal Home Loan Bank System to establish a securitization platform that addresses the needs of its members Sec.233. Office of Federal Home Loan Bank Supervision. The Office of Federal Home Loan Bank Supervision will oversee, coordinate, and supervise the Federal Home Loan Banks and FHLB System. TITLE III—TRANSFER OF POWERS, PERSONNEL, AND PROPERTY TO FMIC FROM FHFA Sec.301. Powers and duties transferred. All of the functions of the FHFA relating to the supervision of the FHLBanks and the FHLB System are transferred to FMIC. Any of the rules or
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regulations related to the powers that FHFA cedes to FMIC are enforceable until modified. FMIC may use any of the property and services of FHFA to perform transferred functions until such date as the FHFA is abolished. Sec.302.Transfer and rights of employees of the FHFA. Employees of FHFA that are employed in connection with functions that are transferred to FMIC will be transferred as employees to FMIC. Employees transferred shall be guaranteed a position with the same status, tenure, grade, and pay as that held on the day immediately preceding the transfer. Sec.303.Abolishment of FHFA. FHFA and the Director of FHFA are abolished as of the FMIC certification date. Sec.304.Transfer of property and facilities. All property of FHFA will transfer to FMIC effective upon the FMIC certification date. Sec.305.Technical and conforming amendments. TITLE IV—IMPROVING TRANSPARENCY, ACCOUNTABILITY, AND EFFICACY WITHIN AFFORDABLE HOUSING Sec.401. Affordable housing allocations. In each fiscal year, FMIC shall collect a fee of five to ten basis points on the outstanding principal balance of eligible mortgages collateralizing covered securities. Eighty percent of the amount collected will go to the purposes of the National Housing Trust Fund as described in Sec. 402, and the remaining twenty percent will go to the Capital Magnet Fund. FMIC can temporarily suspend these allocations if they contribute to the financial instability of the Mortgage Insurance Fund. Sec.402. Housing Trust Fund. The National Housing Trust Fund eligible activities would be expanded to include grants and loans to support the research and development of sustainable homeownership and affordable rental programs, and credit enhancement for products and services that will increase the rate of homeownership and affordable rental housing. For these purposes, eligible households are those below 120% of the area median income In each fiscal year, 35% of funds in this section shall be used for the production, preservation, and rehabilitation of rental housing for households; 5% shall be used for the production, preservation, and rehabilitation of housing for homeownership, and; 60% shall be used for the expanded purposes mentioned above. Each State will ensure that the funds it receives are distributed proportionally to non-entitlement areas in that State, and will perform targeted outreach to nonentitlement areas with populations of less than 20,000. Sec.403. Capital Magnet Fund. The Capital Magnet Fund will receive funding through the FMIC. The ban from using Capital Magnet funding for the affordable housing goals of Fannie Mae and Freddie Mac is void after the charters are repealed and therefore is removed. Sec.404. Additional taxpayer protections. To ensure that amounts collected per Title IV only support citizens and lawful permanent residents, the HUD Secretary and Treasury Secretary shall ensure that grant amounts are only allocated to eligible and covered recipients. Funds cannot be
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used for political activities, advocacy, lobbying, influencing nominations/elections/appointments, personal counseling services, traveling expenses, and preparing or providing advice on tax returns. If these rules are violated, a civil fine may be imposed on the recipient or individual of up to $1 million for each violation. Moreover, those who knowingly participate in a violation of the rules would face criminal penalties, including a fine up to $1 million and imprisonment of up to 5 years. TITLE V—WIND DOWN OF FANNIE MAE AND FREDDIE MAC Sec.501. Repeal of GSE charters. On the certification date, the Fannie Mae and Freddie Mac charters will be repealed, except that the provisions of the charters continue to apply with respect to mortgage-backed securities guarantee by Fannie and Freddie, as well as outstanding debt obligations, bonds, debentures, notes, capital lease obligations, letters of credit, bankers’ acceptances, and other similar instruments. The full faith and credit of the United States is pledged to the payment of amounts which may be required for the obligations above. Provisions related to the Senior Preferred Stock Purchase Agreement may not be amended except to facilitate the sale of assets of the enterprises. Otherwise the Agreement shall not be restated or otherwise changed and dividend schedules will remain in effect pursuant to the agreement from August 17, 2012 until the obligations are fully extinguished. Sec 502. Wind down. Upon enactment, and through a 5-year period until the FMIC certification date, the Director of the FHFA, in consultation with FMIC and the Secretary of the Treasury, will wind down the operations of Fannie and Freddie. Authority is created to establish a holding corporation and dissolution trust fund. The wind down of the enterprises must be managed to maximize the return to taxpayers. Any proceeds from the wind down will be paid first to the senior preferred shareholders, then to the preferred shareholders, then to the common shareholders. Sec.503. Aligning purpose of conservatorship with FMIC. Conforming amendments. Sec.504. Conforming loan limits. Beginning on the date of enactment of this Act, the limitations governing the maximum original principal obligations that may be purchased by Freddie Mae and Freddie Mac will not exceed $417,000 for the mortgage of a single-family residence, and that loan limit will be adjusted each year to reflect the net change in the HPI index. Exceptions are included for high-cost areas, Alaska, Hawaii, Guam, and the US Virgin Islands. In high cost areas, if 115% of the area median house price exceeds $417,000, then the lesser of 150% of $417,000 and 115% of the area median house price is used. Over a 5 year transition, 150% decreases to 125% of $417,000 or the HPI adjusted value. Sec.505. Portfolio reduction. Each enterprise will not own mortgage assets in excess of $552.5 billion as of December 31, 2013. Each subsequent year until the FMIC certification date, the mortgage assets cannot exceed 85% of the year before. FMIC will establish an allowable amount of enterprise-owned mortgage assets that may be retained only to allow the orderly wind down of the enterprises or appropriate loss mitigation measures on any legacy guarantees of the enterprises.

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Sec.506. Repeal of mandatory housing goals. The mandatory housing goals of Fannie and Freddie are repealed. TITLE VI—IMPROVEMENTS TO FUNCTIONING OF HOUSINGMARKET Sec.601. Continuation of multifamily business of the enterprises. All Fannie and Freddie property and functions related to the maintenance and operation of the multifamily guarantee business will be transferred to FMIC. Sec.602. Multiple lender issues. If a borrower enters into any credit transaction that would result in the creation of a new lien where the loan-to-value ratio is 80% or more, the creditor of such new mortgage will obtain the approval of the creditor of the senior eligible mortgage loan before any such credit transaction becomes valid and enforceable. Sec.603. GAO report on full privatization of secondary mortgage market. Not later than 8 years after the enactment of this Act, the GAO will submit a report to Senate Banking and House Financial Services on the feasibility of maintaining a fully privatized secondary mortgage market, including recommendations on how to best carry out any displacement of the FMIC insurance model. Six months after the GAO report is submitted, FMIC will submit a detailed plan to Congress specifying how to carry out a transition to a fully privatized secondary mortgage market and how to dissolve FMIC and the insurance model. TITLE VII—GENERAL PROVISIONS Sec.701. Authority to issue regulations. FMIC may prescribe such regulations and issue such guidelines, orders, requirements, or standards as are necessary to carry out this Act or any amendment made by this Act. Sec.702. Fair value accounting. In any evaluation analysis by FMIC of the cost of the Mortgage Insurance Fund, the insurance or guarantee activities, or financial transactions of FMIC, FMIC will use the fair-value accrual accounting method. Sec.703. Rule of construction. Nothing shall be construed to prohibit the ability of a holder of any loss position in any covered security insured under this Act from restructuring, retranching, or resecuritizing such position. Sec.704. Severability. If any provision of this Act or the application of any provision is held invalid, the application of such provision to other persons and the remainder of this Act shall not be affected thereby.

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