To protect the taxpayers of the United States by limiting the Federal payment of legal fees for current and former officers and affiliated parties of Fannie Mae and Freddie Mac.

Summary: GSE Legal Fee Reduction Act of 2011 - Amends the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 to require the Director of the Federal Housing Finance Agency (FHFA) to establish requirements prescribing the procedures and terms for advancement of amounts by a government-sponsored enterprise (GSE) for qualified indemnification payments for the benefit of any entity-affiliated party.

(The GSEs the FHFA supervises are the Federal National Mortgage Association [Fannie Mae], the Federal Home Loan Mortgage Corporation [Freddie Mac], the Federal Home Loan Banks, and the Office of Finance.)

Requires the Director to require any GSE obligated to make such a payment to propose criteria for determining whether the liability or legal expenses for which such payment is to be made are reasonable. Requires prompt review and approval or disapproval of such proposed criteria.

Requires the Director to require each GSE to adopt bylaws requiring any entity-affiliated party accused of fraud, moral turpitude, or breach of fiduciary duty to post collateral, security, bonding or other assurances of repayment.

Requires the Director to prohibit a GSE from using any Treasury funds to satisfy any settlement, judgment, order, or penalty. Requires settlement costs to be satisfied out of the sale of GSE assets.

Requires the Director to prohibit a GSE from entering into any consent decree or settlement of a claim, proceeding, or action involving an entity-affiliated party that will result in any qualified indemnification payments exceeding an aggregate of $1 million before 30 days after notice of the decree or settlement to specified congressional committees.

SECTION 1. SHORT TITLE.

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

SEC. 2. LIMITATIONS ON INDEMNIFICATION OF LEGAL FEES.

    (a) Limitations.--Section 1318 of the Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992 (12 U.S.C. 4518) is amended 
by adding at the end the following new subsection:
    ``(f) Procedures for Advancement and Indemnification of Legal 
Fees.--The Director shall, by regulation, establish requirements 
prescribing the procedures and terms for advancement of amounts by an 
enterprise for qualified indemnification payments for the benefit of 
any entity-affiliated party, which shall provide as follows:
            ``(1) Determination of reasonable expenses.--
                    ``(A) Proposed criteria.--If at any time an 
                enterprise is required, pursuant to law, regulation, 
                order, bylaw, or agreement or contract, to make a 
                qualified indemnification payment for the benefit of an 
                entity-affiliated party, the Director shall require the 
                enterprise to submit to the Director proposed criteria 
                to be used in determining, at the time for the 
                advancement of amounts for such payment, whether the 
                liability or legal expenses for which such payment is 
                to be made is reasonable, which shall include--
                            ``(i) methods and procedures for making 
                        such determinations;
                            ``(ii) a process for review and appeal of 
                        such determinations; and
                            ``(iii) terms and conditions for advancing 
                        amounts for liability or legal expenses 
                        determined to be reasonable.
                    ``(B) Review.--Upon receipt of proposed criteria 
                submitted pursuant to subparagraph (A), the Director 
                shall promptly review such proposed criteria and 
                approve or disapprove such criteria based on a 
                determination of whether such criteria will ensure that 
                amounts are advanced only for qualified indemnification 
                payments for liability or legal expenses that are 
                reasonable.
            ``(2) Claims of fraud, moral turpitude, and breach of 
        fiduciary duty.--
                    ``(A) Bylaws.--The Director shall require each 
                enterprise to adopt bylaws requiring any entity-
                affiliated party accused in any claim, proceeding, or 
                action, whether administrative, civil, or criminal of 
                fraud, moral turpitude, or breach of fiduciary duty to 
                post collateral, security, bonding, or other assurances 
                of repayment.
                    ``(B) Requirement to post bond.--The Director shall 
                require any entity-affiliated party accused in any 
                claim, proceeding, or action, whether administrative, 
                civil, or criminal, of fraud, moral turpitude, or 
                breach of fiduciary duty to post collateral, security, 
                bonding, or other assurances of repayment.
            ``(3) Prohibition of use of amounts borrowed from taxpayers 
        for settlement costs.--
                    ``(A) Prohibition.--The Director shall prohibit an 
                enterprise from using any Treasury funds to satisfy any 
                settlement, judgment, order, or penalty.
                    ``(B) Treasury funds.--For purposes of subparagraph 
                (A), the term `Treasury funds' means amounts obtained 
                by an enterprise pursuant to--
                            ``(i) purchase by the Secretary of the 
                        Treasury of obligations or securities of the 
                        enterprise pursuant to--
                                    ``(I) subsection (c) or (g) of 
                                section 304 of the Federal National 
                                Mortgage Association Charter Act (12 
                                U.S.C. 1719);
                                    ``(II) subsection (c) or (l) of 
                                section 306 of the Federal Home Loan 
                                Mortgage Corporation Act (12 U.S.C. 
                                1455); or
                                    ``(III) subsection (i) or (l) of 
                                section 11 of the Federal Home Loan 
                                Bank Act (12 U.S.C. 1431); or
                            ``(ii) any other lending, advance, subsidy, 
                        payment, appropriation, or purchase of any 
                        obligation or security, by the Federal 
                        Government or any agency or entity of the 
                        Federal Government.
                    ``(C) Assets to be used for settlement costs.--An 
                enterprise shall satisfy any settlement, judgment, 
                order, or penalty, to the maximum extent possible, with 
                proceeds from the sale of assets of the enterprise, 
                including assets in the retained portfolio of the 
                enterprise and real estate owned of the enterprise and 
                other physical assets of the enterprise.
            ``(4) Notification of settlement.--The Director shall 
        prohibit an enterprise from entering into any consent decree or 
        settlement of any claim, proceeding, or action involving an 
        entity-affiliated party that will result in any qualified 
        indemnification payments in an aggregate amount exceeding 
        $1,000,000 before the expiration of the 30-day period beginning 
        upon the submission by the Director to the Committee on 
        Financial Services of the House of Representatives and the 
        Committee on Banking, Housing, and Urban Affairs of the Senate 
        of notification of such proposed consent decree or settlement 
        and the terms and amount of the qualified indemnification 
        payments involved.
            ``(5) Definitions.--For purposes of this subsection, the 
        following definitions shall apply:
                    ``(A) Qualified indemnification payment.--The term 
                `qualified indemnification payment' means any payment 
                (or agreement to make any payment) by an enterprise for 
                the benefit of any person who is or was an entity-
                affiliated party, to pay or reimburse such person for 
                any liability or legal expense with regard to any 
                claim, proceeding, or action, whether administrative, 
                civil, or criminal.
                    ``(B) Other definitions.--The terms `liability or 
                legal expense' and `payment' have the meanings given 
                such terms in subsection (e)(5).''.
    (b) Applicability.--The amendment made by subsection (a) shall 
apply with respect to any advancement of amounts for a qualified 
indemnification payment for the benefit of an entity-affiliated party 
that is made after the date of the enactment of this Act.