Taxpayer Protections and Market Access for Mortgage Finance Act of 2016

Summary: Taxpayer Protections and Market Access for Mortgage Finance Act of 2016  This bill amends the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 to direct the Federal Housing Finance Agency (FHFA) to establish guidelines to require the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) to engage in significant and increasing credit risk transfer transactions.  A &quot;risk transfer transaction&quot; provides for: (1) the sale, disposition, retention, or transfer within the private sector of credit risk on any single-family residential mortgage loan or a pool of such loans that back securities on which the enterprise guarantees the timely payment of principal and interest; or (2) the retention by the private sector of any such credit risk in connection with the sale of any such loan or security to an enterprise.  The enterprises may set and publish guarantee fees commensurate with the reduced credit risk resulting from any new risk transfer transactions. The bill exempts certain swaps entered into for the purpose of transferring or sharing credit risk in connection with a risk transfer transaction from the Commodity Exchange Act.  The FHFA must also require Fannie Mae and Freddie Mac to: (1) establish a five-year pilot program under which each enterprise must annually engage in at least one front-end (before or simultaneous with the acquisition of the loan or security by the enterprise) risk sharing transaction for which both bank and non-bank mortgage originators having under $10 billion in assets are eligible participants, and (2) jointly establish a pilot program to increase the amount of risk that is transferred by the enterprises using private mortgage insurance. 

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Taxpayer Protections and Market 
Access for Mortgage Finance Act of 2016''.

SEC. 2. CREDIT RISK-TRANSFER TRANSACTIONS.

    (a) Requirement for Enterprises.--Subpart A of part 2 of subtitle A 
of the Federal Housing Enterprises Financial Safety and Soundness Act 
of 1992 (12 U.S.C. 4541 et seq.) is amended by adding at the end the 
following new section:

``SEC. 1328. ENTERPRISE CREDIT RISK-TRANSFER TRANSACTIONS.

    ``(a) Requirement.--Not later than 12 months after the date of 
enactment of this Act, the Director shall, after taking into 
consideration market conditions and the safety and soundness of the 
enterprises, establish guidelines requiring that each enterprise engage 
in significant and increasing credit risk-transfer transactions.
    ``(b) Considerations.--In establishing the guidelines under 
subsection (a), the Director shall--
            ``(1) seek to promote a deep, broad market for a variety of 
        structures that together insulate the taxpayer from losses, 
        minimize ongoing risks to the enterprises, remain stable 
        through the economic cycle, maintain adequate access to the 
        secondary market for lenders of all sizes, and promote credit 
        for borrowers in all communities;
            ``(2) continue and seek to increase the amount and types of 
        risk-transfer transactions that the enterprises engaged in 
        during the previous year with the goal that the risk 
        transferred by an enterprise by all credit risk-transfer 
        transactions shall be at least 400 basis points of risk in 
        total, starting from the first dollar of credit loss among all 
        the different credit risk-transfer structures;
            ``(3) continue and seek to increase front-end risk transfer 
        transactions; and
            ``(4) continue and seek to increase transactions in which 
        the first loss position is transferred or shared and through 
        structures that are scalable and transparent.
    ``(c) Guarantee Fees.--The enterprises shall set and publish 
guarantee fees, including up-front delivery fees and loan level price 
adjustments, commensurate with the enterprises' reduced credit risk 
resulting from any new risk-transfer transaction.
    ``(d) APA Compliance.--The guidelines required under subsection (a) 
shall be issued and made available to the public pursuant to section 
553 of title 5, United States Code.
    ``(e) Compensation.--The Director shall adjust individual and 
corporate scorecards used in determining compensation for relevant 
enterprise employees to align with the considerations of subsection 
(b).
    ``(f) Exemption From Commodity Exchange Act; Consultation.--
            ``(1) Exemption.--A swap (as such term is defined in 
        section 1a of the Commodity Exchange Act (7 U.S.C. 1a)) entered 
        into for the purpose of transferring or sharing credit risk in 
        connection with a risk-transfer transaction shall not be deemed 
        to be a commodity interest (as such term is defined in section 
        1.3(yy) of the regulations of the Commodity Futures Trading 
        Commission (17 C.F.R. 1.3(yy))), and no swap counterparty or 
        other person sponsoring or arranging a risk-transfer 
        transaction shall be deemed to be a commodity pool operator (as 
        such term is defined in section 1.3(cc) of such regulations), 
        solely by virtue of entering into or sponsoring or arranging 
        such a swap in connection with such transaction.
            ``(2) Prior consultation requirement.--Before the execution 
        of a risk-transfer transaction that would be exempt from the 
        Commodity Exchange Act pursuant to paragraph (1), the Director 
        shall consult with the Commodity Futures Trading Commission.
    ``(g) Report.--The Director shall submit a report, not later than 
October 30 of each year, to the Committee on Financial Services of the 
House of Representatives and the Committee on Banking, Housing, and 
Urban Affairs of the Senate, on the activities of each enterprise in 
meeting the guidelines established under subsection (a) and any 
obstacles the Director has determined have impeded the ability of the 
enterprises to meet such guidelines.
    ``(h) Definitions.--For purposes of this section, the following 
definitions shall apply:
            ``(1) Credit risk.--The term `credit risk' means, with 
        respect to a residential mortgage loan held or guaranteed, or 
        intended to be held or guaranteed, by an enterprise or any 
        security backed by residential mortgage loans held or 
        guaranteed by the enterprise, the risk of loss to the 
        enterprise that could result from a mortgagor's failure to 
        repay any such loan in accordance with its terms.
            ``(2) First loss.--The term `first-loss' means the risk of 
        loss for an enterprise on a mortgage loan or security backed by 
        residential mortgage loans, beginning with the first dollar of 
        loss.
            ``(3) Front-end risk transfer.--The term `front-end risk 
        transfer' means, with respect to a residential mortgage loan or 
        any security backed by residential mortgage loans, a risk 
        transfer or risk share that occurs before or simultaneous with 
        the acquisition of such loan or security by an enterprise.
            ``(4) Guarantee fee.--The term `guarantee fee' has the 
        meaning given such term in section 1327(a) (12 U.S.C. 4547(a)).
            ``(5) Risk-transfer transaction.--The term `risk-transfer 
        transaction' means any transaction that provides for--
                    ``(A) the sale, disposition, retention, or transfer 
                within the private sector of credit risk on any single-
                family residential mortgage loan or a pool of such 
                loans that back securities on which the enterprise 
                guarantees the timely payment of principal and 
                interest; or
                    ``(B) the retention by the private sector of any 
                such credit risk in connection with the sale of any 
                such loan or security to an enterprise.''.
    (b) Conforming Amendment to Commodity Exchange Act.--Paragraph (10) 
of section 1a of the Commodity Exchange Act (7 U.S.C. 1a(10)) is 
amended by adding at the end the following new subparagraph:
                    ``(C) Rule of construction.--A swap (as such term 
                is defined in section 1a) entered into for the purpose 
                of transferring or sharing credit risk in connection 
                with a risk-transfer transaction shall not be 
                considered to be a commodity interest (as such term is 
                defined in section 1.3(yy) of title 17, Code of Federal 
                Regulations), and no swap counterparty or other person 
                sponsoring or arranging a risk-transfer transaction 
                shall be considered to be a commodity pool operator (as 
                such term is defined in section 1.3(cc) of such title), 
                solely by virtue of entering into or sponsoring or 
                arranging such a swap in connection with such 
                transaction.''.
    (c) Conforming Amendments to Existing Laws.--
            (1) Investment company act of 1940.--Section 3(c)(5) of the 
        Investment Company Act of 1940 (15 U.S.C. 80a-3(c)(5)) is 
        amended by inserting before the period the following: ``, 
        including notes, bonds, other evidences of indebtedness, 
        certificates, securities, and other interests, that are a risk-
        transfer transaction (as such term is defined in section 
        1328(h) of the Federal Housing Enterprises Financial Safety and 
        Soundness Act of 1992)''.
            (2) Asset and income test clarification for enterprise 
        risk-transfer transactions.--The Internal Revenue Code of 1986 
        is amended--
                    (A) in subparagraph (B) of section 856(c)(3) (26 
                U.S.C. 856(c)(3)(B)), by inserting before the semicolon 
                at the end the following ``, and gross income resulting 
                from participation in any transaction, including notes, 
                bonds, other evidences of indebtedness, certificates, 
                securities, and other interests, that are risk-transfer 
                transactions (as such term is defined in section 
                1328(h) of the Federal Housing Enterprises Financial 
                Safety and Soundness Act of 1992)''; and
                    (B) in subparagraph (B) of section 856(c)(5) (26 
                U.S.C. 856(c)(5)(B)), by inserting before the period at 
                the end of the first sentence the following: ``, and 
                participation in any transaction, including notes, 
                bonds, other evidences of indebtedness, certificates, 
                securities, and other interests, that are risk-transfer 
                transactions (as such term is defined in section 
                1328(h) of the Federal Housing Enterprises Financial 
                Safety and Soundness Act of 1992)''.

SEC. 3. PILOT PROGRAM FOR SMALL LENDER RISK TRANSFER.

    Not later than one year after the date of the enactment of this 
Act, the Director of the Federal Housing Finance Agency shall require 
each enterprise to establish a pilot program under which the enterprise 
shall annually engage, for each of the next 5 consecutive years, in at 
least one front-end risk sharing transaction for which both bank and 
non-bank mortgage originators having under $10,000,000,000 in assets 
are eligible participants.

SEC. 4. PILOT PROGRAM FOR MORTGAGE INSURANCE RISK TRANSFER.

    (a) In General.--Not later than one year after the date of the 
enactment of this Act, the Director of the Federal Housing Finance 
Agency shall require the enterprises jointly to establish a pilot 
program to increase the amount of risk that is transferred by the 
enterprises using private mortgage insurance.
    (b) Program Requirements.--The pilot program established pursuant 
to subsection (a) shall meet the following requirements:
            (1) Duration.--The pilot program shall have a duration of 5 
        years.
            (2) Amount of mortgage purchases.--
                    (A) In general.--Except as provided in subparagraph 
                (B), in each year the enterprises shall purchase under 
                the pilot program sufficient qualifying loans or pools 
                of qualifying loans such that the aggregate unpaid 
                principal balance of all qualifying loans or loan pools 
                purchased or issued by both enterprises is not less 
                than $50,000,000,000.
                    (B) Exception.--The amount of qualifying loans that 
                the enterprises are required to purchase each year 
                under paragraph (1) may be reduced if the Director and 
                the Secretary of the Treasury jointly--
                            (i) make a determination that such a 
                        reduction is necessary to prevent an adverse 
                        impact to the housing market; and
                            (ii) submit to the Congress a report 
                        describing the justification for the 
                        determination referred to in clause (i).
            (3) Selection of mortgage insurance.--For each transaction 
        under the pilot program involving a qualifying loan, the loan 
        originator shall select an eligible mortgage insurance provider 
        or providers, consistent with existing market practice.
            (4) Mortgage insurance premiums.--Mortgage insurance 
        premiums applicable to qualifying loans purchased by the 
        enterprises under the pilot program shall be subject to 
        requirements and limitations under State laws.
            (5) Guarantee fees.--The enterprises shall set and publish 
        guarantee fees, including up-front delivery fees and loan level 
        price adjustments, commensurate with the enterprises' reduced 
        credit risk resulting from any new risk-transfer transaction 
        under the pilot program.
    (c) Report.--Not later than the conclusion of the fifth year of the 
pilot program, the Director shall submit a report to the Congress that 
assesses the extent to which the pilot program under this section has--
            (1) transferred credit risk from the Federal Government to 
        the private sector;
            (2) resulted in reduced guarantee fees for mortgage 
        originators; and
            (3) produced benefits or costs for borrowers under 
        qualifying loans under the program.
    (d) Extension of Program.--Based on the assessments in the report 
required under subsection (c), the Director may extend the program 
beyond its fifth year of operation if the Director determines that such 
extension would be in the public interest.
    (e) Mitigating Counterparty Risk.--Nothing in this section shall 
prevent the Director from establishing additional requirements on 
participants in the pilot program necessary to mitigate counterparty 
risk to the enterprises comparably with other credit risk-transfer 
structures.
    (f) Definitions.--For purposes of this section, the following 
definitions shall apply:
            (1) Director.--The term ``Director'' means the Director of 
        the Federal Housing Finance Agency.
            (2) Eligible mortgage insurance provider.--The term 
        ``eligible mortgage insurance provider'' means a company that--
                    (A) is regulated as a mortgage guaranty insurance 
                company by its State of domicile;
                    (B) provides qualifying mortgage insurance; and
                    (C) satisfies--
                            (i)(I) minimum requirements established or 
                        recognized by the Director, pursuant to public 
                        notice and comment, with respect to capital, 
                        leverage, and reserve requirements, or
                            (II) Private Mortgage Insurer Eligibility 
                        Requirements published by the enterprises on 
                        April 17, 2015; and
                            (ii) any additional requirements added by 
                        subsection (e) of this section.
            (3) Enterprise.--The term ``enterprise'' has the meaning 
        given such term in section 1303 of the Federal Housing 
        Enterprises Financial Safety and Soundness Act of 1992 (12 
        U.S.C. 4502).
            (4) Qualifying loan.--The term ``qualifying loan'' means a 
        first mortgage loan that--
                    (A) is secured by a one-to-four family residence; 
                and
                    (B) is subject to qualifying mortgage insurance.
            (5) Qualifying mortgage insurance.--The term ``qualifying 
        mortgage insurance'' means, with respect to a qualifying loan, 
        primary mortgage guaranty insurance for such qualifying loan 
        that--
                    (A) is placed at the time the qualifying loan is 
                originated;
                    (B) guarantees or insures that portion of the 
                unpaid principal balance of the qualifying loan that is 
                in excess of 50 percent of the value of the property 
                securing the mortgage; and
                    (C) is provided by an eligible mortgage insurance 
                provider.