I 

114TH CONGRESS 

2D SESSION H. R. 6487 

To require Fannie Mae and Freddie Mac to engage in credit risk transfer 

transactions, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

DECEMBER 8, 2016 

Mr. ROYCE (for himself and Ms. MOORE) introduced the following bill; which 

was referred to the Committee on Financial Services, and in addition to 

the Committees on Agriculture, and Ways and Means, for a period to be 

subsequently determined by the Speaker, in each case for consideration 

of such provisions as fall within the jurisdiction of the committee concerned 

A BILL 

To require Fannie Mae and Freddie Mac to engage in credit 

risk transfer transactions, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Taxpayer Protections 

5 and Market Access for Mortgage Finance Act of 2016’’. 

6 SEC. 2. CREDIT RISK-TRANSFER TRANSACTIONS. 

7 (a) REQUIREMENT FOR ENTERPRISES.—Subpart A 

8 of part 2 of subtitle A of the Federal Housing Enterprises 


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1 Financial Safety and Soundness Act of 1992 (12 U.S.C. 

2 4541 et seq.) is amended by adding at the end the fol3 lowing new section: 

4 ‘‘SEC. 1328. ENTERPRISE CREDIT RISK-TRANSFER TRANS5 ACTIONS. 

6 ‘‘(a) REQUIREMENT.—Not later than 12 months 

7 after the date of enactment of this Act, the Director shall, 

8 after taking into consideration market conditions and the 

9 safety and soundness of the enterprises, establish guide10 lines requiring that each enterprise engage in significant 

11 and increasing credit risk-transfer transactions. 

12 ‘‘(b) CONSIDERATIONS.—In establishing the guide13 lines under subsection (a), the Director shall— 

14 ‘‘(1) seek to promote a deep, broad market for 

15 a variety of structures that together insulate the tax16 payer from losses, minimize ongoing risks to the en17 terprises, remain stable through the economic cycle, 

18 maintain adequate access to the secondary market 

19 for lenders of all sizes, and promote credit for bor20 rowers in all communities; 

21 ‘‘(2) continue and seek to increase the amount 

22 and types of risk-transfer transactions that the en23 terprises engaged in during the previous year with 

24 the goal that the risk transferred by an enterprise 

25 by all credit risk-transfer transactions shall be at 


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1 least 400 basis points of risk in total, starting from 

2 the first dollar of credit loss among all the different 

3 credit risk-transfer structures; 

4 ‘‘(3) continue and seek to increase front-end 

5 risk transfer transactions; and 

6 ‘‘(4) continue and seek to increase transactions 

7 in which the first loss position is transferred or 

8 shared and through structures that are scalable and 

9 transparent. 

10 ‘‘(c) GUARANTEE FEES.—The enterprises shall set 

11 and publish guarantee fees, including up-front delivery 

12 fees and loan level price adjustments, commensurate with 

13 the enterprises’ reduced credit risk resulting from any new 

14 risk-transfer transaction. 

15 ‘‘(d) APA COMPLIANCE.—The guidelines required 

16 under subsection (a) shall be issued and made available 

17 to the public pursuant to section 553 of title 5, United 

18 States Code. 

19 ‘‘(e) COMPENSATION.—The Director shall adjust in20 dividual and corporate scorecards used in determining 

21 compensation for relevant enterprise employees to align 

22 with the considerations of subsection (b). 

23 ‘‘(f) EXEMPTION FROM COMMODITY EXCHANGE ACT; 

24 CONSULTATION.— 


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1 ‘‘(1) EXEMPTION.—A swap (as such term is de2 fined in section 1a of the Commodity Exchange Act 

3 (7 U.S.C. 1a)) entered into for the purpose of trans4 ferring or sharing credit risk in connection with a 

5 risk-transfer transaction shall not be deemed to be 

6 a commodity interest (as such term is defined in sec7 tion 1.3(yy) of the regulations of the Commodity Fu8 tures Trading Commission (17 C.F.R. 1.3(yy))), and 

9 no swap counterparty or other person sponsoring or 

10 arranging a risk-transfer transaction shall be 

11 deemed to be a commodity pool operator (as such 

12 term is defined in section 1.3(cc) of such regula13 tions), solely by virtue of entering into or sponsoring 

14 or arranging such a swap in connection with such 

15 transaction. 

16 ‘‘(2) PRIOR CONSULTATION REQUIREMENT.— 

17 Before the execution of a risk-transfer transaction 

18 that would be exempt from the Commodity Ex19 change Act pursuant to paragraph (1), the Director 

20 shall consult with the Commodity Futures Trading 

21 Commission. 

22 ‘‘(g) REPORT.—The Director shall submit a report, 

23 not later than October 30 of each year, to the Committee 

24 on Financial Services of the House of Representatives and 

25 the Committee on Banking, Housing, and Urban Affairs 


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1 of the Senate, on the activities of each enterprise in meet2 ing the guidelines established under subsection (a) and 

3 any obstacles the Director has determined have impeded 

4 the ability of the enterprises to meet such guidelines. 

5 ‘‘(h) DEFINITIONS.—For purposes of this section, the 

6 following definitions shall apply: 

7 ‘‘(1) CREDIT RISK.—The term ‘credit risk’ 

8 means, with respect to a residential mortgage loan 

9 held or guaranteed, or intended to be held or guar10 anteed, by an enterprise or any security backed by 

11 residential mortgage loans held or guaranteed by the 

12 enterprise, the risk of loss to the enterprise that 

13 could result from a mortgagor’s failure to repay any 

14 such loan in accordance with its terms. 

15 ‘‘(2) FIRST LOSS.—The term ‘first-loss’ means 

16 the risk of loss for an enterprise on a mortgage loan 

17 or security backed by residential mortgage loans, be18 ginning with the first dollar of loss. 

19 ‘‘(3) FRONT-END RISK TRANSFER.—The term 

20 ‘front-end risk transfer’ means, with respect to a 

21 residential mortgage loan or any security backed by 

22 residential mortgage loans, a risk transfer or risk 

23 share that occurs before or simultaneous with the 

24 acquisition of such loan or security by an enterprise. 


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1 ‘‘(4) GUARANTEE FEE.—The term ‘guarantee 

2 fee’ has the meaning given such term in section 

3 1327(a) (12 U.S.C. 4547(a)). 

4 ‘‘(5) RISK-TRANSFER TRANSACTION.—The term 

5 ‘risk-transfer transaction’ means any transaction 

6 that provides for— 

7 ‘‘(A) the sale, disposition, retention, or 

8 transfer within the private sector of credit risk 

9 on any single-family residential mortgage loan 

10 or a pool of such loans that back securities on 

11 which the enterprise guarantees the timely pay12 ment of principal and interest; or 

13 ‘‘(B) the retention by the private sector of 

14 any such credit risk in connection with the sale 

15 of any such loan or security to an enterprise.’’. 

16 (b) CONFORMING AMENDMENT TO COMMODITY EX17 CHANGE ACT.—Paragraph (10) of section 1a of the Com18 modity Exchange Act (7 U.S.C. 1a(10)) is amended by 

19 adding at the end the following new subparagraph: 

20 ‘‘(C) RULE OF CONSTRUCTION.—A swap 

21 (as such term is defined in section 1a) entered 

22 into for the purpose of transferring or sharing 

23 credit risk in connection with a risk-transfer 

24 transaction shall not be considered to be a com25 modity interest (as such term is defined in secVerDate Sep 11 2014 00:32 Dec 14, 2016 Jkt 069200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H6487.IH H6487

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1 tion 1.3(yy) of title 17, Code of Federal Regula2 tions), and no swap counterparty or other per3 son sponsoring or arranging a risk-transfer 

4 transaction shall be considered to be a com5 modity pool operator (as such term is defined 

6 in section 1.3(cc) of such title), solely by virtue 

7 of entering into or sponsoring or arranging 

8 such a swap in connection with such trans9 action.’’. 

10 (c) CONFORMING AMENDMENTS TO EXISTING

11 LAWS.— 

12 (1) INVESTMENT COMPANY ACT OF 1940.—Sec13 tion 3(c)(5) of the Investment Company Act of 1940 

14 (15 U.S.C. 80a–3(c)(5)) is amended by inserting be15 fore the period the following: ‘‘, including notes, 

16 bonds, other evidences of indebtedness, certificates, 

17 securities, and other interests, that are a risk-trans18 fer transaction (as such term is defined in section 

19 1328(h) of the Federal Housing Enterprises Finan20 cial Safety and Soundness Act of 1992)’’. 

21 (2) ASSET AND INCOME TEST CLARIFICATION

22 FOR ENTERPRISE RISK-TRANSFER TRANSACTIONS.— 

23 The Internal Revenue Code of 1986 is amended— 

24 (A) in subparagraph (B) of section 

25 856(c)(3) (26 U.S.C. 856(c)(3)(B)), by insertVerDate Sep 11 2014 00:32 Dec 14, 2016 Jkt 069200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H6487.IH H6487

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1 ing before the semicolon at the end the fol2 lowing ‘‘, and gross income resulting from par3 ticipation in any transaction, including notes, 

4 bonds, other evidences of indebtedness, certifi5 cates, securities, and other interests, that are 

6 risk-transfer transactions (as such term is de7 fined in section 1328(h) of the Federal Housing 

8 Enterprises Financial Safety and Soundness 

9 Act of 1992)’’; and 

10 (B) in subparagraph (B) of section 

11 856(c)(5) (26 U.S.C. 856(c)(5)(B)), by insert12 ing before the period at the end of the first sen13 tence the following: ‘‘, and participation in any 

14 transaction, including notes, bonds, other evi15 dences of indebtedness, certificates, securities, 

16 and other interests, that are risk-transfer trans17 actions (as such term is defined in section 

18 1328(h) of the Federal Housing Enterprises Fi19 nancial Safety and Soundness Act of 1992)’’. 

20 SEC. 3. PILOT PROGRAM FOR SMALL LENDER RISK TRANS21 FER. 

22 Not later than one year after the date of the enact23 ment of this Act, the Director of the Federal Housing Fi24 nance Agency shall require each enterprise to establish a 

25 pilot program under which the enterprise shall annually 


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1 engage, for each of the next 5 consecutive years, in at least 

2 one front-end risk sharing transaction for which both bank 

3 and non-bank mortgage originators having under 

4 $10,000,000,000 in assets are eligible participants. 

5 SEC. 4. PILOT PROGRAM FOR MORTGAGE INSURANCE RISK 

6 TRANSFER. 

7 (a) IN GENERAL.—Not later than one year after the 

8 date of the enactment of this Act, the Director of the Fed9 eral Housing Finance Agency shall require the enterprises 

10 jointly to establish a pilot program to increase the amount 

11 of risk that is transferred by the enterprises using private 

12 mortgage insurance. 

13 (b) PROGRAM REQUIREMENTS.—The pilot program 

14 established pursuant to subsection (a) shall meet the fol15 lowing requirements: 

16 (1) DURATION.—The pilot program shall have 

17 a duration of 5 years. 

18 (2) AMOUNT OF MORTGAGE PURCHASES.— 

19 (A) IN GENERAL.—Except as provided in 

20 subparagraph (B), in each year the enterprises 

21 shall purchase under the pilot program suffi22 cient qualifying loans or pools of qualifying 

23 loans such that the aggregate unpaid principal 

24 balance of all qualifying loans or loan pools purVerDate Sep 11 2014 00:32 Dec 14, 2016 Jkt 069200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H6487.IH H6487

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1 chased or issued by both enterprises is not less 

2 than $50,000,000,000. 

3 (B) EXCEPTION.—The amount of quali4 fying loans that the enterprises are required to 

5 purchase each year under paragraph (1) may be 

6 reduced if the Director and the Secretary of the 

7 Treasury jointly— 

8 (i) make a determination that such a 

9 reduction is necessary to prevent an ad10 verse impact to the housing market; and 

11 (ii) submit to the Congress a report 

12 describing the justification for the deter13 mination referred to in clause (i). 

14 (3) SELECTION OF MORTGAGE INSURANCE.— 

15 For each transaction under the pilot program involv16 ing a qualifying loan, the loan originator shall select 

17 an eligible mortgage insurance provider or providers, 

18 consistent with existing market practice. 

19 (4) MORTGAGE INSURANCE PREMIUMS.—Mort20 gage insurance premiums applicable to qualifying 

21 loans purchased by the enterprises under the pilot 

22 program shall be subject to requirements and limita23 tions under State laws. 

24 (5) GUARANTEE FEES.—The enterprises shall 

25 set and publish guarantee fees, including up-front 


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1 delivery fees and loan level price adjustments, com2 mensurate with the enterprises’ reduced credit risk 

3 resulting from any new risk-transfer transaction 

4 under the pilot program. 

5 (c) REPORT.—Not later than the conclusion of the 

6 fifth year of the pilot program, the Director shall submit 

7 a report to the Congress that assesses the extent to which 

8 the pilot program under this section has— 

9 (1) transferred credit risk from the Federal 

10 Government to the private sector; 

11 (2) resulted in reduced guarantee fees for mort12 gage originators; and 

13 (3) produced benefits or costs for borrowers 

14 under qualifying loans under the program. 

15 (d) EXTENSION OF PROGRAM.—Based on the assess16 ments in the report required under subsection (c), the Di17 rector may extend the program beyond its fifth year of 

18 operation if the Director determines that such extension 

19 would be in the public interest. 

20 (e) MITIGATING COUNTERPARTY RISK.—Nothing in 

21 this section shall prevent the Director from establishing 

22 additional requirements on participants in the pilot pro23 gram necessary to mitigate counterparty risk to the enter24 prises comparably with other credit risk-transfer struc25 tures. 


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1 (f) DEFINITIONS.—For purposes of this section, the 

2 following definitions shall apply: 

3 (1) DIRECTOR.—The term ‘‘Director’’ means 

4 the Director of the Federal Housing Finance Agen5 cy. 

6 (2) ELIGIBLE MORTGAGE INSURANCE PRO7 VIDER.—The term ‘‘eligible mortgage insurance pro8 vider’’ means a company that— 

9 (A) is regulated as a mortgage guaranty 

10 insurance company by its State of domicile; 

11 (B) provides qualifying mortgage insur12 ance; and 

13 (C) satisfies— 

14 (i)(I) minimum requirements estab15 lished or recognized by the Director, pur16 suant to public notice and comment, with 

17 respect to capital, leverage, and reserve re18 quirements, or 

19 (II) Private Mortgage Insurer Eligi20 bility Requirements published by the enter21 prises on April 17, 2015; and 

22 (ii) any additional requirements added 

23 by subsection (e) of this section. 

24 (3) ENTERPRISE.—The term ‘‘enterprise’’ has 

25 the meaning given such term in section 1303 of the 


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1 Federal Housing Enterprises Financial Safety and 

2 Soundness Act of 1992 (12 U.S.C. 4502). 

3 (4) QUALIFYING LOAN.—The term ‘‘qualifying 

4 loan’’ means a first mortgage loan that— 

5 (A) is secured by a one-to-four family resi6 dence; and 

7 (B) is subject to qualifying mortgage in8 surance. 

9 (5) QUALIFYING MORTGAGE INSURANCE.—The 

10 term ‘‘qualifying mortgage insurance’’ means, with 

11 respect to a qualifying loan, primary mortgage guar12 anty insurance for such qualifying loan that— 

13 (A) is placed at the time the qualifying 

14 loan is originated; 

15 (B) guarantees or insures that portion of 

16 the unpaid principal balance of the qualifying 

17 loan that is in excess of 50 percent of the value 

18 of the property securing the mortgage; and 

19 (C) is provided by an eligible mortgage in20 surance provider. 

Æ 


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