I 

114TH CONGRESS 

2D SESSION H. R. 6500 

To establish a Mortgage Credit Risk Sharing Pilot Program at Fannie Mae 

and Freddie Mac, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

DECEMBER 8, 2016 

Mr. DELANEY (for himself, Mr. CARNEY, and Mr. HIMES) introduced the following bill; which was referred to the Committee on Financial Services, 

and in addition to the Committee on 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 establish a Mortgage Credit Risk Sharing Pilot Program 

at Fannie Mae and Freddie Mac, 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 ‘‘Moving Housing For5 ward Act of 2016’’. 

6 SEC. 2. DEFINITIONS. 

7 (a) INCORPORATION OF DEFINITIONS.—Except as 

8 otherwise provided in this Act, the terms used in this Act 


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1 have the meaning given those terms, respectively, under 

2 section 1303 of the Federal Housing Enterprises Finan3 cial Safety and Soundness Act of 1992 (12 U.S.C. 4502). 

4 (b) OTHER DEFINITIONS.—For purposes of this Act: 

5 (1) CATASTROPHIC CREDIT LOSS.—The term 

6 ‘‘catastrophic credit loss’’ means all potential credit 

7 loss that exceeds both expected and unexpected cred8 it loss. 

9 (2) COUNTERPARTY RISK.—The term ‘‘counter10 party risk’’ means, with regard to an enterprise, the 

11 risk that any person contractually obligated to the 

12 enterprise in any transaction will fail to perform in 

13 accordance with the terms of the contractual obliga14 tion. 

15 (3) CREDIT RISK.—The term ‘‘credit risk’’ 

16 means the risk of loss to an enterprise on a residen17 tial mortgage loan held or guaranteed by the enter18 prise or on any security guaranteed by the enter19 prise that could result from a mortgagor’s failure to 

20 repay the loan in accordance with its terms. 

21 (4) CREDIT RISK TRANSFER.—The term ‘‘credit 

22 risk transfer’’ means, with regard to an enterprise, 

23 the sale or disposition of credit risk on loans guaran24 teed by an enterprise to another party, who assumes 


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1 the credit risk in accordance with agreed upon 

2 terms. 

3 (5) EXCLUDED REFINANCING.—The term ‘‘ex4 cluded refinancing’’ means a single family residential 

5 mortgage loan that was originated under the Home 

6 Affordable Refinance Program established by FHFA 

7 or any other mortgage loan refinanced under a tem8 porary program that FHFA has determined not to 

9 include in a credit risk transfer transaction entered 

10 into by an enterprise prior to the date of enactment 

11 of this Act. Such a determination not to include any 

12 refinanced mortgage loan may be demonstrated by 

13 prior actual exclusion and no other determination by 

14 FHFA is required. 

15 (6) EXPECTED CREDIT LOSS.—The term ‘‘ex16 pected credit loss’’ means credit loss that is reason17 ably anticipated under baseline economic conditions. 

18 (7) FHFA.—The term ‘‘FHFA’’ means the 

19 Federal Housing Finance Agency. 

20 (8) PARI PASSU.—The term ‘‘pari passu’’ 

21 means having equal rights of payment and equal se22 niority. 

23 (9) UNEXPECTED CREDIT LOSS.—The term 

24 ‘‘unexpected credit loss’’ means credit loss that is 

25 reasonably anticipated under stressful, yet plausible, 


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1 economic conditions, and does not include expected 

2 loss or catastrophic loss. 

3 SEC. 3. MORTGAGE CREDIT RISK SHARING PILOT PRO4 GRAM. 

5 (a) SENSE OF CONGRESS.—It is the sense of Con6 gress that— 

7 (1) at the direction of FHFA, the enterprises 

8 have entered into transactions to transfer credit risk 

9 they assume by guaranteeing the payment of prin10 cipal and interest on securities backed by certain 

11 residential mortgage loans; and 

12 (2) credit risk transfer transactions should be 

13 encouraged that reduce taxpayer exposure to credit 

14 risk assumed by an enterprise and do not expose an 

15 enterprise to excessive counterparty risk. 

16 (b) ESTABLISHMENT.—Subject to the requirements 

17 of this section, the Director shall require each enterprise 

18 to establish a Mortgage Credit Risk Sharing Pilot Pro19 gram (in this section referred to as the ‘‘Pilot Program’’). 

20 (c) PILOT PROGRAM REQUIREMENTS.—Under the 

21 Pilot Program, FHFA shall direct each enterprise to, each 

22 quarter beginning with the first quarter following the end 

23 of the 9-month period beginning on the date of the enact24 ment of this Act, conduct risk-sharing transactions that 

25 provide for an enterprise to share credit risk on a pool 


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1 of single-family residential mortgage loans that back secu2 rities on which the enterprise guarantees the timely pay3 ment of principal and interest with the private sector. 

4 Such transactions shall meet the following requirements: 

5 (1) TARGETED LOANS.—Credit risk shall be 

6 transferred on targeted loans. Targeted loans are 

7 residential mortgage loans that— 

8 (A) are single family residential mortgage 

9 loans; 

10 (B) are not the result of an excluded refi11 nancing, as determined by FHFA; and 

12 (C) are a representative sample of the un13 paid principal balance loans eligible for the to14 be-announced market. 

15 (2) LOSSES TRANSFERRED THROUGH THE

16 PILOT PROGRAM.— 

17 (A) IN GENERAL.—Each enterprise shall 

18 transfer to the private sector— 

19 (i) either all or the majority of the ag20 gregate risk shared on a pari passu basis 

21 of the expected and unexpected loss on the 

22 unpaid principal balance on the trans23 actions; and 

24 (ii) a target of at least 10 percent in 

25 a vertical position of the risk of all of the 


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1 catastrophic credit loss on the unpaid prin2 cipal balance on the transactions. 

3 (B) AUTHORITY OF THE DIRECTOR.—The 

4 Director may permit an enterprise to transfer 

5 less than 10 percent in a vertical position of the 

6 risk of catastrophic credit loss during a transi7 tion period, up until 15 months after the date 

8 of the enactment of this Act, to compliance with 

9 the 10 percent target of the Pilot Program. 

10 (C) TREATMENT OF CATASTROPHIC

11 RISK.—Risk of catastrophic credit loss shall be 

12 transferred on a pari passu basis. 

13 (3) SCOPE OF THE PILOT PROGRAM.—The Di14 rector shall require that credit risk on at least 5 per15 cent of new acquisitions, as defined by the Director, 

16 of targeted loans described in paragraph (1) shall be 

17 transferred through the Pilot Program. Each enter18 prise may vary the percentage of new acquisitions of 

19 targeted loans transferred through the Pilot Pro20 gram, provided that the average annual percentage 

21 over each year of the Pilot Program is not less than 

22 5 percent. 

23 (4) MEASUREMENTS.—In carrying out the Pilot 

24 Program, FHFA shall measure the credit risk and 

25 the amount of risk transferred. 


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1 (5) ADDITIONAL REQUIREMENTS.—In carrying 

2 out the Pilot Program, the enterprises shall— 

3 (A) collect and disclose loan-level data on 

4 each of the mortgage loans backing the credit 

5 risk transactions, including consumer credit 

6 score information and the loan-to-value ratio of 

7 the loan; and 

8 (B) refine transaction structure designs to 

9 improve execution. 

10 (d) PROMOTION OF MARKET FOR CREDIT RISK

11 TRANSACTIONS.—With respect to all credit risk transfer 

12 transactions of an enterprise, including any transaction 

13 under the Pilot Program, the Director shall do the fol14 lowing: 

15 (1) Work to ensure a secondary market for 

16 credit risk transfer products that will give investors 

17 as deep and liquid a market. 

18 (2) Not later than 1 year after the date of the 

19 enactment of this Act, in consultation with the Secu20 rities Exchange Commission, the Commodity Fu21 tures Trading Commission, and any Federal banking 

22 agency as appropriate, issue a report to the Com23 mittee on Financial Services of the House of Rep24 resentatives and the Committee on Banking, Hous25 ing, and Urban Affairs of the Senate that provides 


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1 recommendations on how to incentivize additional 

2 sources of private capital to participate in credit risk 

3 transfer transactions, including regulatory actions 

4 taken and recommendations for legislative proposals 

5 to remove impediments to such participation. Noth6 ing in the preceding sentence is intended to prevent 

7 or delay FHFA or another agency from developing 

8 and implementing a regulatory action to remove any 

9 impediment to or incentivize such participation prior 

10 to issuance of such report as authorized under cur11 rent law. 

12 (3) Require the enterprises to make 60 percent 

13 of mortgages available to be subject to credit risk 

14 transactions in the first fiscal year after the date of 

15 the enactment of this Act, 70 percent in the second 

16 fiscal year after such date of enactment, and 80 per17 cent in the third fiscal year after such date of enact18 ment. 

19 (e) CAPITAL STANDARDS.— 

20 (1) IN GENERAL.—The Director may set capital 

21 or collateral requirements for participants in the 

22 Pilot Program. 

23 (2) USE OF CERTAIN CAPITAL MARKETS TRANS24 ACTIONS.—In setting capital standards under para25 graph (1), the Director shall allow participants to 


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1 prudently reduce or eliminate any capital require2 ments for credit-risk sharing transactions through 

3 the use of capital markets transactions that pre-fund 

4 the risk, including credit-linked notes. 

5 (f) ECONOMIC CONSIDERATIONS.—If the Director of 

6 the FHFA and the Secretary of the Treasury determine 

7 that the Pilot Program is economically unreasonable due 

8 to housing market conditions, the Director may lower the 

9 percentage amounts specified under subsection (c)(2), 

10 (c)(3), or (d)(1)(C). 

11 (g) FHFA REPORTS.— 

12 (1) IN GENERAL.—Not later than 1 year after 

13 the date of the enactment of this Act, and annually 

14 thereafter, the Director shall provide a report to the 

15 Committee on Financial Services of the House of 

16 Representatives and the Committee on Banking, 

17 Housing, and Urban Affairs of the Senate con18 taining— 

19 (A) information on credit risk transfer 

20 transaction pricing on quarterly basis; 

21 (B) the amount of credit risk that has 

22 been transferred from the enterprises on a 

23 quarterly basis; 

24 (C) metrics and annual goals regarding the 

25 Pilot Program; 


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1 (D) the percentage of the unpaid principal 

2 balance of mortgage loans covered under the 

3 Pilot Program in each year; 

4 (E) a description of how the FHFA in5 tends to move forward with mortgage insurance 

6 focused transactions following the recently fi7 nalized mortgage insurance master policy re8 quirements and private mortgage insurer eligi9 bility requirements, and how the FHFA evalu10 ates the remaining counterparty risk with mort11 gage insurers; 

12 (F) a description of new credit risk trans13 fer pilot programs that FHFA intends an en14 terprise to undertake over the next three years 

15 and steps FHFA intends to take to solicit new 

16 ideas for new and innovative ways to transfer 

17 credit risk away from the enterprises and the 

18 taxpayers, including transfers of expected, un19 expected, and catastrophic credit loss; and 

20 (G) a description of how FHFA plans to 

21 transition from credit risk sharing pilot pro22 grams to a regular standardized program of 

23 credit risk transfers that establish a stable and 

24 liquid market for mortgage credit risk. 


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1 (2) SOLICITATION OF PUBLIC FEEDBACK.—In 

2 preparing any report required under paragraph (1), 

3 the Director shall solicit public feedback, including 

4 feedback to— 

5 (A) generate new potential forms of credit 

6 risk transfer; and 

7 (B) identify potential barriers to entry for 

8 private sector parties to invest in such trans9 actions. 

10 (3) CONFIDENTIALITY.—In issuing any report 

11 under paragraph (1), the Director shall protect 

12 counterparty proprietary data, including in making 

13 information available about the Pilot Program. 

14 (h) RULE OF CONSTRUCTION.—Nothing in this sec15 tion shall be construed to limit the ability of the Director 

16 to conduct customized risk sharing transactions as author17 ized under current law. 

18 (i) DURATION OF THE PILOT PROGRAM.— 

19 (1) IN GENERAL.—The Pilot Program shall last 

20 a minimum of 3 years after the first transfer of cat21 astrophic credit loss. The Director may continue to 

22 direct the enterprises to transfer risk of credit loss, 

23 including risk of catastrophic credit loss, and may 

24 continue to enter into credit risk transfer trans25 actions to transfer such risk after the end of 3 years 


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1 under authority prior to the enactment of the Pilot 

2 Program. 

3 (2) ANALYSIS.—After the Pilot Program is exe4 cuted for 3 years, the Director shall examine the ec5 onomics of developing the Pilot Program into a con6 tinuous risk sharing program. 

7 SEC. 4. REGULATORY IMPLEMENTATION OF CREDIT RISK8 SHARING MARKET. 

9 (a) APPLICATION OF SECTION 3 OF THE INVEST10 MENT COMPANY ACT OF 1940.—For any credit risk 

11 transfer transaction approved by the Director, including 

12 a transaction in which credit risk is transferred on mort13 gage loans that do not directly back the securities being 

14 issued, the issuer shall be deemed to be a person primarily 

15 engaged in the business of purchasing or otherwise acquir16 ing mortgages or other liens on and interests in real estate 

17 for purposes of section 3(c)(5) of the Investment Company 

18 Act of 1940 (15 U.S.C. 80a–3). 

19 (b) FEDERAL INCOME TAX TREATMENT.— 

20 (1) REAL ESTATE MORTGAGE INVESTMENT

21 CONDUITS.—For purposes of sections 860A through 

22 860G of the Internal Revenue Code of 1986 (the 

23 ‘‘Code’’)— 

24 (A) any financial instrument issued by an 

25 enterprise (or a legal entity sponsored by an enVerDate Sep 11 2014 22:21 Dec 14, 2016 Jkt 069200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\H6500.IH H6500

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1 terprise to implement a credit risk transfer 

2 transaction) as part of a credit risk transfer 

3 transaction shall be treated as a ‘‘qualified 

4 mortgage’’; and 

5 (B) any amount includible in gross income 

6 with respect to such a financial instrument 

7 shall be treated as interest on a ‘‘qualified 

8 mortgage’’. 

9 (2) REAL ESTATE INVESTMENT TRUSTS.—For 

10 purposes of Code sections 856 through 860— 

11 (A) any financial instrument issued by an 

12 enterprise (or a legal entity sponsored by an en13 terprise to implement a credit risk transfer 

14 transaction) as part of a credit risk transfer 

15 transaction shall be treated as a ‘‘real estate 

16 asset’’; and 

17 (B) any amount includible in gross income 

18 with respect to such a financial instrument 

19 shall be treated as interest on an obligation se20 cured by a mortgage on real property. 

21 (3) TAXABLE MORTGAGE POOLS.—A credit risk 

22 transfer transaction entered into by an enterprise 

23 (or a legal entity sponsored by an enterprise) shall 

24 not be treated as a ‘‘taxable mortgage pool’’ for pur25 poses of section 7701(i) of the Code. 


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1 (4) REGULATIONS.—The Secretary of the 

2 Treasury shall prescribe such regulations or admin3 istrative guidance as may be necessary or appro4 priate to carry out the purposes of this subsection. 

5 (c) RULE OF APPLICATION.—Subsections (a) and (b) 

6 shall apply in the case of any risk transfer transaction 

7 and any financial instrument issued by the enterprise (or 

8 a legal entity sponsored by an enterprise to implement a 

9 credit risk transfer transaction) as part of a credit risk 

10 transfer transaction that is outstanding on, or is issued 

11 after, the date of the enactment of this Act. 

12 (d) CONFORMING AMENDMENTS.— 

13 (1) INVESTMENT COMPANY ACT OF 1940.—Sec14 tion 3(c)(5) of the Investment Company Act of 1940 

15 (15 U.S.C. 80a–3(c)(5)) is amended by adding at 

16 the end the following: ‘‘For any credit risk transfer 

17 transaction approved by the Director of the Federal 

18 Housing Finance Agency, including a transaction in 

19 which credit risk is transferred on mortgage loans 

20 that do not directly back the securities being issued, 

21 the issuer shall be deemed to be a person primarily 

22 engaged in the business of purchasing or otherwise 

23 acquiring mortgages or other liens on and interests 

24 in real estate.’’. 


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1 (2) RULE OF APPLICATION.—The amendments 

2 made by paragraph (1) shall apply in the case of 

3 any credit risk transfer transaction and any finan4 cial instrument issued by an enterprise (or a legal 

5 entity sponsored by an enterprise to implement a 

6 credit risk transfer transaction) as part of a credit 

7 risk transfer transaction that is outstanding on, or 

8 is issued after, the date of the enactment of this Act. 

Æ 


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