Moving Housing Forward Act of 2016

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Moving Housing Forward Act of 
2016''.

SEC. 2. DEFINITIONS.

    (a) Incorporation of Definitions.--Except as otherwise provided in 
this Act, the terms used in this Act have the meaning given those 
terms, respectively, under section 1303 of the Federal Housing 
Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 
4502).
    (b) Other Definitions.--For purposes of this Act:
            (1) Catastrophic credit loss.--The term ``catastrophic 
        credit loss'' means all potential credit loss that exceeds both 
        expected and unexpected credit loss.
            (2) Counterparty risk.--The term ``counterparty risk'' 
        means, with regard to an enterprise, the risk that any person 
        contractually obligated to the enterprise in any transaction 
        will fail to perform in accordance with the terms of the 
        contractual obligation.
            (3) Credit risk.--The term ``credit risk'' means the risk 
        of loss to an enterprise on a residential mortgage loan held or 
        guaranteed by the enterprise or on any security guaranteed by 
        the enterprise that could result from a mortgagor's failure to 
        repay the loan in accordance with its terms.
            (4) Credit risk transfer.--The term ``credit risk 
        transfer'' means, with regard to an enterprise, the sale or 
        disposition of credit risk on loans guaranteed by an enterprise 
        to another party, who assumes the credit risk in accordance 
        with agreed upon terms.
            (5) Excluded refinancing.--The term ``excluded 
        refinancing'' means a single family residential mortgage loan 
        that was originated under the Home Affordable Refinance Program 
        established by FHFA or any other mortgage loan refinanced under 
        a temporary program that FHFA has determined not to include in 
        a credit risk transfer transaction entered into by an 
        enterprise prior to the date of enactment of this Act. Such a 
        determination not to include any refinanced mortgage loan may 
        be demonstrated by prior actual exclusion and no other 
        determination by FHFA is required.
            (6) Expected credit loss.--The term ``expected credit 
        loss'' means credit loss that is reasonably anticipated under 
        baseline economic conditions.
            (7) FHFA.--The term ``FHFA'' means the Federal Housing 
        Finance Agency.
            (8) Pari passu.--The term ``pari passu'' means having equal 
        rights of payment and equal seniority.
            (9) Unexpected credit loss.--The term ``unexpected credit 
        loss'' means credit loss that is reasonably anticipated under 
        stressful, yet plausible, economic conditions, and does not 
        include expected loss or catastrophic loss.

SEC. 3. MORTGAGE CREDIT RISK SHARING PILOT PROGRAM.

    (a) Sense of Congress.--It is the sense of Congress that--
            (1) at the direction of FHFA, the enterprises have entered 
        into transactions to transfer credit risk they assume by 
        guaranteeing the payment of principal and interest on 
        securities backed by certain residential mortgage loans; and
            (2) credit risk transfer transactions should be encouraged 
        that reduce taxpayer exposure to credit risk assumed by an 
        enterprise and do not expose an enterprise to excessive 
        counterparty risk.
    (b) Establishment.--Subject to the requirements of this section, 
the Director shall require each enterprise to establish a Mortgage 
Credit Risk Sharing Pilot Program (in this section referred to as the 
``Pilot Program'').
    (c) Pilot Program Requirements.--Under the Pilot Program, FHFA 
shall direct each enterprise to, each quarter beginning with the first 
quarter following the end of the 9-month period beginning on the date 
of the enactment of this Act, conduct risk-sharing transactions that 
provide for an enterprise to share credit risk on a pool of single-
family residential mortgage loans that back securities on which the 
enterprise guarantees the timely payment of principal and interest with 
the private sector. Such transactions shall meet the following 
requirements:
            (1) Targeted loans.--Credit risk shall be transferred on 
        targeted loans. Targeted loans are residential mortgage loans 
        that--
                    (A) are single family residential mortgage loans;
                    (B) are not the result of an excluded refinancing, 
                as determined by FHFA; and
                    (C) are a representative sample of the unpaid 
                principal balance loans eligible for the to-be-
                announced market.
            (2) Losses transferred through the pilot program.--
                    (A) In general.--Each enterprise shall transfer to 
                the private sector--
                            (i) either all or the majority of the 
                        aggregate risk shared on a pari passu basis of 
                        the expected and unexpected loss on the unpaid 
                        principal balance on the transactions; and
                            (ii) a target of at least 10 percent in a 
                        vertical position of the risk of all of the 
                        catastrophic credit loss on the unpaid 
                        principal balance on the transactions.
                    (B) Authority of the director.--The Director may 
                permit an enterprise to transfer less than 10 percent 
                in a vertical position of the risk of catastrophic 
                credit loss during a transition period, up until 15 
                months after the date of the enactment of this Act, to 
                compliance with the 10 percent target of the Pilot 
                Program.
                    (C) Treatment of catastrophic risk.--Risk of 
                catastrophic credit loss shall be transferred on a pari 
                passu basis.
            (3) Scope of the pilot program.--The Director shall require 
        that credit risk on at least 5 percent of new acquisitions, as 
        defined by the Director, of targeted loans described in 
        paragraph (1) shall be transferred through the Pilot Program. 
        Each enterprise may vary the percentage of new acquisitions of 
        targeted loans transferred through the Pilot Program, provided 
        that the average annual percentage over each year of the Pilot 
        Program is not less than 5 percent.
            (4) Measurements.--In carrying out the Pilot Program, FHFA 
        shall measure the credit risk and the amount of risk 
        transferred.
            (5) Additional requirements.--In carrying out the Pilot 
        Program, the enterprises shall--
                    (A) collect and disclose loan-level data on each of 
                the mortgage loans backing the credit risk 
                transactions, including consumer credit score 
                information and the loan-to-value ratio of the loan; 
                and
                    (B) refine transaction structure designs to improve 
                execution.
    (d) Promotion of Market for Credit Risk Transactions.--With respect 
to all credit risk transfer transactions of an enterprise, including 
any transaction under the Pilot Program, the Director shall do the 
following:
            (1) Work to ensure a secondary market for credit risk 
        transfer products that will give investors as deep and liquid a 
        market.
            (2) Not later than 1 year after the date of the enactment 
        of this Act, in consultation with the Securities Exchange 
        Commission, the Commodity Futures Trading Commission, and any 
        Federal banking agency as appropriate, issue a report to the 
        Committee on Financial Services of the House of Representatives 
        and the Committee on Banking, Housing, and Urban Affairs of the 
        Senate that provides recommendations on how to incentivize 
        additional sources of private capital to participate in credit 
        risk transfer transactions, including regulatory actions taken 
        and recommendations for legislative proposals to remove 
        impediments to such participation. Nothing in the preceding 
        sentence is intended to prevent or delay FHFA or another agency 
        from developing and implementing a regulatory action to remove 
        any impediment to or incentivize such participation prior to 
        issuance of such report as authorized under current law.
            (3) Require the enterprises to make 60 percent of mortgages 
        available to be subject to credit risk transactions in the 
        first fiscal year after the date of the enactment of this Act, 
        70 percent in the second fiscal year after such date of 
        enactment, and 80 percent in the third fiscal year after such 
        date of enactment.
    (e) Capital Standards.--
            (1) In general.--The Director may set capital or collateral 
        requirements for participants in the Pilot Program.
            (2) Use of certain capital markets transactions.--In 
        setting capital standards under paragraph (1), the Director 
        shall allow participants to prudently reduce or eliminate any 
        capital requirements for credit-risk sharing transactions 
        through the use of capital markets transactions that pre-fund 
        the risk, including credit-linked notes.
    (f) Economic Considerations.--If the Director of the FHFA and the 
Secretary of the Treasury determine that the Pilot Program is 
economically unreasonable due to housing market conditions, the 
Director may lower the percentage amounts specified under subsection 
(c)(2), (c)(3), or (d)(1)(C).
    (g) FHFA Reports.--
            (1) In general.--Not later than 1 year after the date of 
        the enactment of this Act, and annually thereafter, the 
        Director shall provide a report to the Committee on Financial 
        Services of the House of Representatives and the Committee on 
        Banking, Housing, and Urban Affairs of the Senate containing--
                    (A) information on credit risk transfer transaction 
                pricing on quarterly basis;
                    (B) the amount of credit risk that has been 
                transferred from the enterprises on a quarterly basis;
                    (C) metrics and annual goals regarding the Pilot 
                Program;
                    (D) the percentage of the unpaid principal balance 
                of mortgage loans covered under the Pilot Program in 
                each year;
                    (E) a description of how the FHFA intends to move 
                forward with mortgage insurance focused transactions 
                following the recently finalized mortgage insurance 
                master policy requirements and private mortgage insurer 
                eligibility requirements, and how the FHFA evaluates 
                the remaining counterparty risk with mortgage insurers;
                    (F) a description of new credit risk transfer pilot 
                programs that FHFA intends an enterprise to undertake 
                over the next three years and steps FHFA intends to 
                take to solicit new ideas for new and innovative ways 
                to transfer credit risk away from the enterprises and 
                the taxpayers, including transfers of expected, 
                unexpected, and catastrophic credit loss; and
                    (G) a description of how FHFA plans to transition 
                from credit risk sharing pilot programs to a regular 
                standardized program of credit risk transfers that 
                establish a stable and liquid market for mortgage 
                credit risk.
            (2) Solicitation of public feedback.--In preparing any 
        report required under paragraph (1), the Director shall solicit 
        public feedback, including feedback to--
                    (A) generate new potential forms of credit risk 
                transfer; and
                    (B) identify potential barriers to entry for 
                private sector parties to invest in such transactions.
            (3) Confidentiality.--In issuing any report under paragraph 
        (1), the Director shall protect counterparty proprietary data, 
        including in making information available about the Pilot 
        Program.
    (h) Rule of Construction.--Nothing in this section shall be 
construed to limit the ability of the Director to conduct customized 
risk sharing transactions as authorized under current law.
    (i) Duration of the Pilot Program.--
            (1) In general.--The Pilot Program shall last a minimum of 
        3 years after the first transfer of catastrophic credit loss. 
        The Director may continue to direct the enterprises to transfer 
        risk of credit loss, including risk of catastrophic credit 
        loss, and may continue to enter into credit risk transfer 
        transactions to transfer such risk after the end of 3 years 
        under authority prior to the enactment of the Pilot Program.
            (2) Analysis.--After the Pilot Program is executed for 3 
        years, the Director shall examine the economics of developing 
        the Pilot Program into a continuous risk sharing program.

SEC. 4. REGULATORY IMPLEMENTATION OF CREDIT RISK-SHARING MARKET.

    (a) Application of Section 3 of the Investment Company Act of 
1940.--For any credit risk transfer transaction approved by the 
Director, including a transaction in which credit risk is transferred 
on mortgage loans that do not directly back the securities being 
issued, the issuer shall be deemed to be a person primarily engaged in 
the business of purchasing or otherwise acquiring mortgages or other 
liens on and interests in real estate for purposes of section 3(c)(5) 
of the Investment Company Act of 1940 (15 U.S.C. 80a-3).
    (b) Federal Income Tax Treatment.--
            (1) Real estate mortgage investment conduits.--For purposes 
        of sections 860A through 860G of the Internal Revenue Code of 
        1986 (the ``Code'')--
                    (A) any financial instrument issued by an 
                enterprise (or a legal entity sponsored by an 
                enterprise to implement a credit risk transfer 
                transaction) as part of a credit risk transfer 
                transaction shall be treated as a ``qualified 
                mortgage''; and
                    (B) any amount includible in gross income with 
                respect to such a financial instrument shall be treated 
                as interest on a ``qualified mortgage''.
            (2) Real estate investment trusts.--For purposes of Code 
        sections 856 through 860--
                    (A) any financial instrument issued by an 
                enterprise (or a legal entity sponsored by an 
                enterprise to implement a credit risk transfer 
                transaction) as part of a credit risk transfer 
                transaction shall be treated as a ``real estate 
                asset''; and
                    (B) any amount includible in gross income with 
                respect to such a financial instrument shall be treated 
                as interest on an obligation secured by a mortgage on 
                real property.
            (3) Taxable mortgage pools.--A credit risk transfer 
        transaction entered into by an enterprise (or a legal entity 
        sponsored by an enterprise) shall not be treated as a ``taxable 
        mortgage pool'' for purposes of section 7701(i) of the Code.
            (4) Regulations.--The Secretary of the Treasury shall 
        prescribe such regulations or administrative guidance as may be 
        necessary or appropriate to carry out the purposes of this 
        subsection.
    (c) Rule of Application.--Subsections (a) and (b) shall apply in 
the case of any risk transfer transaction and any financial instrument 
issued by the enterprise (or a legal entity sponsored by an enterprise 
to implement a credit risk transfer transaction) as part of a credit 
risk transfer transaction that is outstanding on, or is issued after, 
the date of the enactment of this Act.
    (d) Conforming Amendments.--
            (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 adding at the end the following: ``For any credit 
        risk transfer transaction approved by the Director of the 
        Federal Housing Finance Agency, including a transaction in 
        which credit risk is transferred on mortgage loans that do not 
        directly back the securities being issued, the issuer shall be 
        deemed to be a person primarily engaged in the business of 
        purchasing or otherwise acquiring mortgages or other liens on 
        and interests in real estate.''.
            (2) Rule of application.--The amendments made by paragraph 
        (1) shall apply in the case of any credit risk transfer 
        transaction and any financial instrument issued by an 
        enterprise (or a legal entity sponsored by an enterprise to 
        implement a credit risk transfer transaction) as part of a 
        credit risk transfer transaction that is outstanding on, or is 
        issued after, the date of the enactment of this Act.

Summary: Moving Housing Forward Act of 2016 This bill directs the Federal Housing Finance Agency (FHFA) to require the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation to establish a pilot program that shares with the private sector the credit risk on a pool of single-family residential mortgage loans that back securities on which Fannie Mae and Freddie Mac guarantee the timely payment of principal and interest. The bill expresses the sense of Congress that credit risk transfer transactions should be encouraged that: (1) reduce taxpayer exposure to credit risk assumed by Fannie Mae and Freddie Mac, and (2) do not expose Fannie Mae and Freddie Mac to excessive counterparty risk that persons contractually obligated to them will fail to perform their obligations. After the pilot program is executed for three years, the FHFA must examine the economics of developing it into a continuous risk sharing program.