I 

111TH CONGRESS 

2D SESSION H. R. 4884 

To establish a covered bond regulatory oversight program, and for other 

purposes. 

IN THE HOUSE OF REPRESENTATIVES 

MARCH 18, 2010 

Mr. GARRETT of New Jersey (for himself, Mr. KANJORSKI, and Mr. BACHUS) 

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 covered bond regulatory oversight program, 

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 ‘‘United States Covered 

5 Bond Act of 2010’’. 

6 SEC. 2. DEFINITIONS. 

7 For purposes of this Act, the following definitions 

8 shall apply: 


smartinez on DSKB9S0YB1PROD with BILLS
2 

•HR 4884 IH

1 (1) ANCILLARY ASSET.—The term ‘‘ancillary 

2 asset’’ means, with respect to any cover pool— 

3 (A) any interest rate or currency swap as4 sociated with any eligible asset, substitute asset, 

5 or other ancillary asset in the cover pool; 

6 (B) any credit enhancement or liquidity ar7 rangement associated with any eligible asset, 

8 substitute asset, or other ancillary asset in the 

9 cover pool; 

10 (C) any guarantee, letter-of-credit right, or 

11 other secondary obligation that supports any 

12 payment or performance on an eligible asset, 

13 substitute asset, or other ancillary asset in the 

14 cover pool; and 

15 (D) any proceeds of, or other property in16 cident to, any eligible asset, substitute asset, or 

17 other ancillary asset in the cover pool. 

18 (2) CORPORATION.—The term ‘‘Corporation’’ 

19 means the Federal Deposit Insurance Corporation. 

20 (3) COVER POOL.—The term ‘‘cover pool’’ 

21 means a dynamic pool of assets that is comprised 

22 of— 

23 (A) 1 or more eligible assets from a single 

24 eligible asset class; 


smartinez on DSKB9S0YB1PROD with BILLS
3 

•HR 4884 IH

1 (B) substitute assets, without limitation; 

2 and 

3 (C) ancillary assets, without limitation. 

4 (4) COVERED BOND.—The term ‘‘covered 

5 bond’’ means any senior recourse debt obligation of 

6 an eligible issuer that— 

7 (A) has an original term to maturity of not 

8 less than 1 year; 

9 (B) is secured directly or indirectly by a 

10 perfected security interest in a cover pool which 

11 is owned directly or indirectly by the issuer of 

12 the obligation; 

13 (C) is issued under a covered bond pro14 gram that has been approved by the covered 

15 bond regulator and is identified in a register of 

16 covered bonds maintained by the covered bond 

17 regulator; and 

18 (D) is not a deposit (as defined in section 

19 3 of the Federal Deposit Insurance Act). 

20 (5) COVERED BOND PROGRAM.—The term 

21 ‘‘covered bond program’’ means any of the programs 

22 of an eligible issuer under which, on the security of 

23 a single cover pool, 1 or more series or tranches of 

24 covered bonds may be issued. 


smartinez on DSKB9S0YB1PROD with BILLS
4 

•HR 4884 IH

1 (6) COVERED BOND REGULATOR.—The term 

2 ‘‘covered bond regulator’’ means the Secretary of the 

3 Treasury or any officer of the Department of the 

4 Treasury designated by the Secretary for purposes 

5 of this Act. 

6 (7) ELIGIBLE ASSET.—The term ‘‘eligible 

7 asset’’ means any of the following assets within a 

8 particular eligible asset class: 

9 (A) In the case of the residential mortgage 

10 asset class— 

11 (i) any first-lien mortgage loan that is 

12 secured by 1-to-4 family residential prop13 erty and that is in compliance with super14 visory guidance applicable at the time of 

15 loan origination; 

16 (ii) any mortgage loan insured under 

17 the National Housing Act or any loan 

18 guaranteed, insured, or made under chap19 ter 37 of title 38, United States Code; and 

20 (iii) any residential mortgage-backed 

21 security of the highest investment grade 

22 that is backed by first-lien mortgage loans 

23 and any ancillary property (including any 

24 residential mortgage-backed security that 

25 is sponsored or issued by, or backed by 


smartinez on DSKB9S0YB1PROD with BILLS
5 

•HR 4884 IH

1 first-lien mortgage loans originated or ac2 quired by, the issuer of the covered bonds 

3 or any affiliate of such issuer), to the ex4 tent such securities do not exceed an 

5 amount equal to 20 percent of the out6 standing principal amount of the assets in 

7 a cover pool. 

8 (B) In the case of the home equity asset 

9 class— 

10 (i) any home equity loan that is se11 cured by 1-to-4 family residential property 

12 and that is in compliance with supervisory 

13 guidance applicable at the time of loan 

14 origination; and 

15 (ii) any asset-backed security of the 

16 highest investment grade that is backed by 

17 home equity loans and any ancillary prop18 erty (including any asset-backed security 

19 that is sponsored or issued by, or backed 

20 by home equity loans originated or ac21 quired by, the issuer of the covered bonds 

22 or any affiliate of such issuer), to the ex23 tent such securities do not exceed an 

24 amount equal to 20 percent of the outVerDate Nov 24 2008 03:33 Mar 19, 2010 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H4884.IH H4884

smartinez on DSKB9S0YB1PROD with BILLS
6 

•HR 4884 IH

1 standing principal amount of the assets in 

2 a cover pool. 

3 (C) In the case of the commercial mort4 gage asset class— 

5 (i) any commercial mortgage loan (in6 cluding any multifamily mortgage loan) 

7 that is in compliance with supervisory 

8 guidance applicable at the time of loan 

9 origination; and 

10 (ii) any commercial mortgage-backed 

11 security of the highest investment grade 

12 that is backed by commercial mortgage 

13 loans (including multifamily mortgage 

14 loans) and any ancillary property (includ15 ing any commercial mortgage-backed secu16 rity that is sponsored or issued by, or 

17 backed by commercial mortgage loans 

18 originated or acquired by, the issuer of the 

19 covered bonds or any affiliate of such 

20 issuer), to the extent such securities do not 

21 exceed an amount equal to 20 percent of 

22 the outstanding principal amount of the 

23 assets in a cover pool. 

24 (D) In the case of the public sector asset 

25 class— 


smartinez on DSKB9S0YB1PROD with BILLS
7 

•HR 4884 IH

1 (i) investment-grade securities issued 

2 by 1 or more States or municipalities; 

3 (ii) loans (excluding securities) made 

4 to 1 or more States or municipalities; and 

5 (iii) loans, securities, or other obliga6 tions that are insured or guaranteed, in 

7 full or substantially in full, by the full faith 

8 and credit of the United States (whether 

9 or not such loans, securities, or other obli10 gations are also part of another eligible 

11 asset class). 

12 (E) In the case of the auto asset class— 

13 (i) any auto loan or lease that is in 

14 compliance with supervisory guidance ap15 plicable at the time of loan or lease origi16 nation; and 

17 (ii) any asset-backed security of the 

18 highest investment grade that is backed by 

19 auto loans or leases and any ancillary 

20 property (including any asset-backed secu21 rity sponsored or issued by, or backed by 

22 loans or leases originated or acquired by, 

23 the issuer of the covered bonds or any af24 filiate of such issuer), to the extent such 

25 securities do not exceed an amount equal 


smartinez on DSKB9S0YB1PROD with BILLS
8 

•HR 4884 IH

1 to 20 percent of the outstanding principal 

2 amount of the assets in a cover pool. 

3 (F) In the case of the student loan asset 

4 class— 

5 (i) any student loan (whether guaran6 teed or nonguaranteed) that is in compli7 ance with supervisory guidance applicable 

8 at the time of loan origination; and 

9 (ii) any asset-backed security of the 

10 highest investment grade that is backed by 

11 student loans and any ancillary property 

12 (including any asset-backed security spon13 sored or issued by, or backed by loans 

14 originated or acquired by, the issuer of the 

15 covered bonds or any affiliate of such 

16 issuer), to the extent such securities do not 

17 exceed an amount equal to 20 percent of 

18 the outstanding principal amount of the 

19 assets in a cover pool. 

20 (G) In the case of the credit or charge 

21 card asset class— 

22 (i) any credit or charge card loan that 

23 is in compliance with supervisory guidance 

24 applicable at the time of loan origination; 

25 and 


smartinez on DSKB9S0YB1PROD with BILLS
9 

•HR 4884 IH

1 (ii) any asset-backed security of the 

2 highest investment grade that is backed by 

3 credit or charge card loans and any ancil4 lary property (including any asset-backed 

5 security sponsored or issued by, or backed 

6 by loans originated or acquired by, the 

7 issuer of the covered bonds or any affiliate 

8 of such issuer), to the extent such securi9 ties do not exceed an amount equal to 20 

10 percent of the outstanding principal 

11 amount of the assets in a cover pool. 

12 (H) In the case of the small business asset 

13 class— 

14 (i) any loan made under a program 

15 established by the Small Business Admin16 istration (whether guaranteed or non17 guaranteed); and 

18 (ii) any asset-backed security of the 

19 highest investment grade that is backed by 

20 loans made under 1 or more programs es21 tablished by the Small Business Adminis22 tration and any ancillary property (includ23 ing any asset-backed security sponsored or 

24 issued by, or backed by loans originated or 

25 acquired by, the issuer of the covered 


smartinez on DSKB9S0YB1PROD with BILLS
10 

•HR 4884 IH

1 bonds or any affiliate of such issuer), to 

2 the extent such securities do not exceed an 

3 amount equal to 20 percent of the out4 standing principal amount of the assets in 

5 a cover pool. 

6 (I) In the case of any other eligible asset 

7 class designated by the covered bond regulator, 

8 the assets designated by the covered bond regu9 lator for such class. 

10 (8) ELIGIBLE ASSET CLASS.—The term ‘‘eligi11 ble asset class’’ means each of the following classes 

12 of assets: 

13 (A) Residential mortgage asset class. 

14 (B) Home equity asset class. 

15 (C) Commercial mortgage asset class. 

16 (D) Public sector asset class. 

17 (E) Auto asset class. 

18 (F) Student loan asset class. 

19 (G) Credit or charge card asset class. 

20 (H) Small business asset class. 

21 (I) Such other eligible asset classes as may 

22 be designated by the covered bond regulator. 

23 (9) ELIGIBLE ISSUER.—The term ‘‘eligible 

24 issuer’’ means— 


smartinez on DSKB9S0YB1PROD with BILLS
11 

•HR 4884 IH

1 (A) any insured depository institution (as 

2 defined in section 3 of the Federal Deposit In3 surance Act) and any subsidiary of any such in4 stitution; 

5 (B) any bank holding company (as defined 

6 in section 2 of the Bank Holding Company Act 

7 of 1956) or any savings and loan holding com8 pany (as defined in section 10 of the Home 

9 Owners’ Loan Act); and 

10 (C) any issuing entity that is sponsored by 

11 1 or more eligible issuers for the sole purpose 

12 of issuing covered bonds on a pooled basis. 

13 (10) OVERSIGHT PROGRAM.—The term ‘‘over14 sight program’’ means the covered bonds regulatory 

15 oversight program established under section 3(a). 

16 (11) SUBSTITUTE ASSET.—The term ‘‘sub17 stitute asset’’ means— 

18 (A) cash; 

19 (B) any direct obligation of the United 

20 States Government, and any security or other 

21 obligation whose full principal and interest are 

22 insured or guaranteed by the full faith and 

23 credit of the United States Government; 

24 (C) any direct obligation of a United 

25 States Government corporation or GovernmentVerDate Nov 24 2008 03:33 Mar 19, 2010 Jkt 089200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H4884.IH H4884

smartinez on DSKB9S0YB1PROD with BILLS
12 

•HR 4884 IH

1 sponsored enterprise of the highest investment 

2 grade, and any other security or other obliga3 tion of the highest investment grade whose full 

4 principal and interest are insured or guaranteed 

5 by any such corporation or enterprise (including 

6 any mortgage-backed security issued, insured, 

7 or guaranteed by any such corporation or enter8 prise); 

9 (D) any overnight investment in Federal 

10 funds; and 

11 (E) any deposit account or securities ac12 count into which only substitute assets may be 

13 deposited or credited. 

14 SEC. 3. REGULATORY OVERSIGHT OF COVERED BOND PRO15 GRAMS ESTABLISHED. 

16 (a) ESTABLISHMENT.— 

17 (1) IN GENERAL.—The covered bond regulator 

18 shall issue regulations establishing a covered bond 

19 regulatory oversight program that meets the require20 ments of this section and that provides for covered 

21 bond programs to be maintained in a manner con22 sistent with safe and sound banking practices. 

23 (2) APPROVAL OF EACH COVERED BOND PRO24 GRAM.— 


smartinez on DSKB9S0YB1PROD with BILLS
13 

•HR 4884 IH

1 (A) APPROVAL BY COVERED BOND REGU2 LATOR.—A covered bond shall be subject to this 

3 Act only if such covered bond is issued by an 

4 eligible issuer under a covered bond program 

5 that is approved by the covered bond regulator. 

6 An eligible issuer may have 1 or more covered 

7 bond programs. The covered bond regulator 

8 may approve a covered bond program that is al9 ready in existence, and upon such approval, all 

10 covered bonds under such covered bond pro11 gram shall be subject to this Act regardless of 

12 when the covered bonds are issued. 

13 (B) CONSULTATION WITH ANY FEDERAL

14 PRIMARY REGULATOR.—Before approving any 

15 covered bond program of any eligible issuer, the 

16 covered bond regulator shall consult with the 

17 primary Federal regulator, if any, of such 

18 issuer. 

19 (3) REGISTRY.—Under the oversight program, 

20 the covered bond regulator shall maintain a registry 

21 on a Web site available to the public containing the 

22 name of each approved covered bond program and 

23 information on all outstanding covered bonds issued 

24 under each approved covered bond program. 


smartinez on DSKB9S0YB1PROD with BILLS
14 

•HR 4884 IH

1 (4) FEES.—The covered bond regulator shall 

2 levy fees on issuers of covered bonds in an amount, 

3 in the aggregate, equal to the costs of the covered 

4 bond regulator in carrying out the provisions of this 

5 Act. 

6 (b) MINIMUM OVER-COLLATERALIZATION REQUIRE7 MENTS.— 

8 (1) ESTABLISHMENT REQUIRED.—The covered 

9 bond regulator from time to time shall establish 

10 minimum over-collateralization requirements for cov11 ered bonds backed by each of the eligible asset class12 es based on the credit, collection, and interest-rate 

13 risks, but not the liquidity risks, associated with 

14 such eligible asset class. 

15 (2) RELIANCE ON FEDERAL RESERVE SYSTEM

16 STANDARDS.—In establishing requirements under 

17 paragraph (1), the covered bond regulator may rely 

18 on over-collateralization levels required for the same 

19 or similar asset classes by the Board of Governors 

20 of the Federal Reserve System when extending cred21 it to depository institutions under the Federal Re22 serve Act. 

23 (3) TESTING.—Each cover pool securing cov24 ered bonds shall be required at all times to satisfy 

25 an asset-coverage test. The asset-coverage test shall 


smartinez on DSKB9S0YB1PROD with BILLS
15 

•HR 4884 IH

1 measure (as such term is defined by the covered 

2 bond regulator) whether the eligible assets and the 

3 substitute assets in a cover pool satisfy the min4 imum over-collateralization requirements established 

5 by the covered bond regulator for covered bonds 

6 backed by the applicable eligible asset class. Each 

7 issuer of covered bonds shall be required to perform 

8 the asset-coverage test monthly on each of its cover 

9 pools and to disclose the results to the primary Fed10 eral regulator of such issuer, if any, the covered 

11 bond regulator, and the applicable covered bond12 holders. Each issuer of covered bonds also shall be 

13 required to appoint the indenture trustee for such 

14 covered bonds or another unaffiliated entity as an 

15 independent asset monitor for the applicable cover 

16 pool, and such asset monitor shall be required, on an 

17 annual or more frequent basis, to verify whether 

18 such cover pool satisfies the asset-coverage test and 

19 to disclose the results to the primary Federal regu20 lator of such issuer, if any, the covered bond regu21 lator, and the applicable covered bondholders. 

22 (4) NO LOSS OF STATUS.—Covered bonds shall 

23 remain subject to this Act regardless of whether the 

24 applicable cover pool ceases to satisfy the asset-cov25 erage test at any time after issuance. If a cover pool 


smartinez on DSKB9S0YB1PROD with BILLS
16 

•HR 4884 IH

1 securing covered bonds fails to satisfy the asset-cov2 erage test and if such failure is not cured within the 

3 time specified in the related transaction documents, 

4 such failure shall constitute a default that results in 

5 the creation of an estate under section 4. 

6 (c) ELIGIBILITY REQUIREMENTS.— 

7 (1) SINGLE ELIGIBLE ASSET CLASS.—No cover 

8 pool may include eligible assets from more than one 

9 eligible asset class. 

10 (2) INELIGIBLE ASSETS.—A loan shall not 

11 qualify as an eligible asset while such loan is delin12 quent for more than 60 consecutive days. A security 

13 shall not qualify as an eligible asset while such secu14 rity does not meet any investment-grade requirement 

15 under this Act. 

16 (d) OTHER REQUIREMENTS.— 

17 (1) BOOKS AND RECORDS OF ISSUER.—Each 

18 issuer of covered bonds shall clearly mark its books 

19 and records to identify the assets that comprise the 

20 applicable cover pool. 

21 (2) SCHEDULE OF ELIGIBLE ASSETS AND SUB22 STITUTE ASSETS.—Each issuer of covered bonds 

23 shall deliver to the applicable indenture trustee, on 

24 at least a monthly basis, a schedule of all eligible asVerDate Nov 24 2008 03:33 Mar 19, 2010 Jkt 089200 PO 00000 Frm 00016 Fmt 6652 Sfmt 6201 E:\BILLS\H4884.IH H4884

smartinez on DSKB9S0YB1PROD with BILLS
17 

•HR 4884 IH

1 sets and substitute assets in the applicable cover 

2 pool. 

3 SEC. 4. DEFAULT AND INSOLVENCY. 

4 (a) DEFAULT ON COVERED BONDS PRIOR TO CON5 SERVATORSHIP, RECEIVERSHIP, LIQUIDATION, OR BANK6 RUPTCY.— 

7 (1) CREATION OF SEPARATE ESTATE.—If an 

8 uncured default occurs with respect to a covered 

9 bond before the issuer of such covered bond enters 

10 conservatorship, receivership, liquidation, or bank11 ruptcy, an estate shall be automatically created by 

12 operation of law and shall exist separate and apart 

13 from such issuer or any subsequent conservatorship, 

14 receivership, liquidating agency, or estate in bank15 ruptcy for such issuer or any of its other assets. 

16 (2) ASSETS AND LIABILITIES OF ESTATE.—Any 

17 estate created under paragraph (1) shall be com18 prised of the applicable cover pool, which shall be 

19 automatically released to and held by such estate 

20 free and clear of any right, title, interest, or claim 

21 of the issuer or any conservator, receiver, liquidating 

22 agent, or trustee in bankruptcy for the issuer or any 

23 of its other assets, and such estate shall be fully lia24 ble on all covered bonds and related obligations of 

25 the issuer (including obligations under related derivVerDate Nov 24 2008 03:33 Mar 19, 2010 Jkt 089200 PO 00000 Frm 00017 Fmt 6652 Sfmt 6201 E:\BILLS\H4884.IH H4884

smartinez on DSKB9S0YB1PROD with BILLS
18 

•HR 4884 IH

1 ative transactions) that are secured by such cover 

2 pool. 

3 (3) RETENTION OF CLAIMS.—Any holder of a 

4 covered bond or related obligation secured by a cover 

5 pool for which an estate has been created under 

6 paragraph (1) shall retain a claim against the issuer 

7 for any deficiency with respect to such covered bond 

8 or related obligation. 

9 (4) RESIDUAL INTEREST.—Upon the creation 

10 of an estate under paragraph (1), a residual interest 

11 in such estate shall be automatically issued by oper12 ation of law to the issuer. The residual interest 

13 shall— 

14 (A) be an exempted security as described 

15 in section 5; 

16 (B) represent the right to any surplus 

17 from the cover pool after the applicable covered 

18 bonds and all other liabilities of such estate 

19 have been paid in full; and 

20 (C) be evidenced by a certificate executed 

21 by the covered bond regulator as trustee of such 

22 estate. 

23 (5) OBLIGATION OF ISSUER.—After the cre24 ation of an estate under paragraph (1), the issuer 

25 shall be obligated to cooperate in effecting a transfer 


smartinez on DSKB9S0YB1PROD with BILLS
19 

•HR 4884 IH

1 to the covered bond regulator or its designee of all 

2 tangible or electronic books, records, files, and other 

3 documents or materials relating to the assets and li4 abilities of such estate and, at the election of the 

5 covered bond regulator, shall continue servicing the 

6 cover pool for 120 days after the creation of such es7 tate in return for a fair-market-value fee. 

8 (6) TRUSTEE, SERVICER, AND ADMINIS9 TRATOR.— 

10 (A) IN GENERAL.—The covered bond regu11 lator shall— 

12 (i) act as the trustee of any estate 

13 created under paragraph (1); and 

14 (ii) appoint 1 or more servicers or ad15 ministrators for the cover pool held by 

16 such estate. 

17 (B) POWERS AND DUTIES OF SERVICER OR

18 ADMINISTRATOR.—Any servicer or adminis19 trator appointed for an estate— 

20 (i) shall collect, realize on (by liquida21 tion or other means), and otherwise man22 age the cover pool held by such estate; 

23 (ii) may borrow or otherwise procure 

24 funds for the benefit of such estate on a 

25 secured or unsecured basis; 


smartinez on DSKB9S0YB1PROD with BILLS
20 

•HR 4884 IH

1 (iii) shall invest and use the proceeds 

2 and funds received to make all remaining 

3 interest and principal payments on the ap4 plicable covered bonds according to their 

5 terms (or, if an acceleration or similar 

6 event occurs under the related transaction 

7 documents, at the times specified in such 

8 transaction documents) and to satisfy any 

9 other liabilities of such estate; and 

10 (iv) shall, in the event of a liquidity 

11 constraint caused by a timing mismatch 

12 among the assets and the liabilities of an 

13 estate, pursue private market alternatives 

14 to provide the needed liquidity. 

15 (C) SUPERVISION OF SERVICER OR ADMIN16 ISTRATOR.—The covered bond regulator shall 

17 supervise any servicer or administrator that is 

18 appointed for an estate and, if in the best inter19 ests of the estate, may remove or replace any 

20 servicer or administrator. Each servicer or ad21 ministrator for an estate, as and when required 

22 by the covered bond regulator, shall deliver re23 ports that describe its activities on behalf of 

24 such estate and the performance of the cover 

25 pool held by such estate. All fees and expenses 


smartinez on DSKB9S0YB1PROD with BILLS
21 

•HR 4884 IH

1 of any servicer or administrator for an estate 

2 shall be approved by the covered bond regulator 

3 and shall be paid from such estate. 

4 (b) DEFAULT ON COVERED BONDS UPON CON5 SERVATORSHIP, RECEIVERSHIP, LIQUIDATION, OR BANK6 RUPTCY.— 

7 (1) FDIC CONSERVATORSHIP OR RECEIVER8 SHIP.— 

9 (A) IN GENERAL.—If the Corporation is 

10 appointed as conservator or receiver for an 

11 issuer of covered bonds before an uncured de12 fault results in the creation of an estate under 

13 subsection (a), the Corporation as conservator 

14 or receiver shall have an exclusive right, for 15 

15 days from the date of such appointment, to 

16 transfer any cover pool owned by such issuer in 

17 its entirety together with all covered bonds and 

18 related obligations secured by such cover pool to 

19 another eligible issuer that meets all conditions 

20 and requirements specified in the related trans21 action documents. 

22 (B) OBLIGATIONS DURING 15-DAY PE23 RIOD.—During the 15-day period described in 

24 subparagraph (A), the Corporation as conser25 vator or receiver shall satisfy all monetary and 


smartinez on DSKB9S0YB1PROD with BILLS
22 

•HR 4884 IH

1 nonmonetary obligations of the issuer under the 

2 covered bonds and the related transaction docu3 ments until any transfer to another eligible 

4 issuer is completed. 

5 (C) ASSUMPTION BY TRANSFEREE.—If the 

6 Corporation as conservator or receiver effects a 

7 transfer described in subparagraph (A) within 

8 the 15-day period, the transferee shall take 

9 ownership of the applicable cover pool and shall 

10 become fully liable on all covered bonds and re11 lated obligations of the issuer that are secured 

12 by such cover pool. 

13 (2) OTHER CIRCUMSTANCES.—If— 

14 (A) a conservator, receiver, liquidating 

15 agent, or trustee in bankruptcy, other than the 

16 Corporation, is appointed for an issuer of cov17 ered bonds before an uncured default results in 

18 the creation of an estate under subsection (a); 

19 or 

20 (B) in the case an issuer of covered bonds 

21 for which the Corporation is appointed as con22 servator or receiver as described in paragraph 

23 (1)(A), no transfer by the Corporation as con24 servator or receiver is completed within the 15- 

25 day period as described in such paragraph, an 


smartinez on DSKB9S0YB1PROD with BILLS
23 

•HR 4884 IH

1 estate shall be automatically created by oper2 ation of law and shall exist separate and apart 

3 from such issuer and the conservatorship, re4 ceivership, liquidating agency, or estate in 

5 bankruptcy for such issuer or any of its other 

6 assets. 

7 (3) ASSETS AND LIABILITIES OF ESTATE.—Any 

8 estate created under paragraph (2) shall be com9 prised of the applicable cover pool, which shall be 

10 automatically released to and held by such estate 

11 free and clear of any right, title, interest, or claim 

12 of the issuer or any conservator, receiver, liquidating 

13 agent, or trustee in bankruptcy for the issuer or any 

14 of its other assets, and such estate shall be fully lia15 ble on all covered bonds and related obligations of 

16 the issuer (including obligations under related deriv17 ative transactions) that are secured by such cover 

18 pool. 

19 (4) CONTINGENT CLAIM.—Any contingent claim 

20 for a deficiency with respect to a covered bond or re21 lated obligation for which an estate has been created 

22 under paragraph (2) shall be estimated by the con23 servator, receiver, liquidating agent, or bankruptcy 

24 court for purposes of allowing such claim as a prov25 able claim if awaiting the fixing of that contingent 


smartinez on DSKB9S0YB1PROD with BILLS
24 

•HR 4884 IH

1 claim would unduly delay the resolution of the con2 servatorship, receivership, liquidating agency, or 

3 bankruptcy case. 

4 (5) RESIDUAL INTEREST.—Upon the creation 

5 of an estate under paragraph (2), and regardless of 

6 whether any contingent claim described in paragraph 

7 (4) becomes fixed or is estimated, a residual interest 

8 in such estate shall be automatically issued by oper9 ation of law to the conservator, receiver, liquidating 

10 agent, or trustee in bankruptcy for the issuer. The 

11 residual interest shall— 

12 (A) be an exempted security as described 

13 in section 5; 

14 (B) represent the right to any surplus 

15 from the cover pool after the applicable covered 

16 bonds and all other liabilities of such estate 

17 have been paid in full; and 

18 (C) be evidenced by a certificate executed 

19 by the covered bond regulator as trustee of such 

20 estate. 

21 (6) OBLIGATION OF ISSUER.—After the cre22 ation of an estate under paragraph (2), the issuer 

23 and its conservator, receiver, liquidating agent, or 

24 trustee in bankruptcy shall transfer to the covered 

25 bond regulator or its designee all tangible or elecVerDate Nov 24 2008 03:33 Mar 19, 2010 Jkt 089200 PO 00000 Frm 00024 Fmt 6652 Sfmt 6201 E:\BILLS\H4884.IH H4884

smartinez on DSKB9S0YB1PROD with BILLS
25 

•HR 4884 IH

1 tronic books, records, files, and other documents or 

2 materials relating to the assets and liabilities of such 

3 estate and, at the election of the covered bond regu4 lator (but subject to any right of repudiation or re5 jection held by such conservator, receiver, liquidating 

6 agent, or trustee in bankruptcy), shall continue serv7 icing the cover pool for 120 days after the creation 

8 of such estate in return for a fair-market-value fee. 

9 (7) TRUSTEE, SERVICER, AND ADMINIS10 TRATOR.— 

11 (A) IN GENERAL.—The covered bond regu12 lator shall— 

13 (i) act as the trustee of any estate 

14 created under paragraph (2); and 

15 (ii) appoint 1 or more servicers or ad16 ministrators for the cover pool held by 

17 such estate. 

18 (B) POWERS AND DUTIES OF SERVICER OR

19 ADMINISTRATOR.—Any servicer or adminis20 trator appointed for an estate— 

21 (i) shall collect, realize on (by liquida22 tion or other means), and otherwise man23 age the cover pool held by such estate; 


smartinez on DSKB9S0YB1PROD with BILLS
26 

•HR 4884 IH

1 (ii) may borrow or otherwise procure 

2 funds for the benefit of such estate on a 

3 secured or unsecured basis; 

4 (iii) shall invest and use the proceeds 

5 and funds received to make all remaining 

6 interest and principal payments on the ap7 plicable covered bonds according to their 

8 terms (or, if an acceleration or similar 

9 event occurs under the related transaction 

10 documents, at the times specified in such 

11 transaction documents) and to satisfy any 

12 other liabilities of such estate; and 

13 (iv) shall, in the event of a liquidity 

14 constraint caused by a timing mismatch 

15 among the assets and the liabilities of an 

16 estate, pursue private market alternatives 

17 to provide the needed liquidity. 

18 (C) SUPERVISION OF SERVICER OR ADMIN19 ISTRATOR.—The covered bond regulator shall 

20 supervise any servicer or administrator that is 

21 appointed for an estate and, if in the best inter22 ests of the estate, may remove or replace any 

23 servicer or administrator. Each servicer or ad24 ministrator for an estate, as and when required 

25 by the covered bond regulator, shall deliver reVerDate Nov 24 2008 03:33 Mar 19, 2010 Jkt 089200 PO 00000 Frm 00026 Fmt 6652 Sfmt 6201 E:\BILLS\H4884.IH H4884

smartinez on DSKB9S0YB1PROD with BILLS
27 

•HR 4884 IH

1 ports that describe its activities on behalf of 

2 such estate and the performance of the cover 

3 pool held by such estate. All fees and expenses 

4 of any servicer or administrator for an estate 

5 shall be approved by the covered bond regulator 

6 and shall be paid from such estate. 

7 SEC. 5. SECURITIES LAW PROVISIONS. 

8 (a) REGISTRATION.— 

9 (1) APPLICABILITY TO BANK ISSUERS.—Cov10 ered bonds that are offered and sold to the public 

11 by a bank (or a subsidiary of a bank) shall be— 

12 (A) subject to— 

13 (i) securities regulations issued by the 

14 primary Federal regulator of such bank; 

15 and 

16 (ii) applicable antifraud rules; and 

17 (B) exempt from all other Federal securi18 ties laws. 

19 (2) APPLICABILITY TO ISSUERS SPONSORED BY

20 1 OR MORE BANKS WITH SAME REGULATOR.—Cov21 ered bonds that are offered and sold to the public 

22 by an issuing entity that is sponsored only by 1 or 

23 more banks with the same primary Federal regu24 lator shall be— 

25 (A) subject to— 


smartinez on DSKB9S0YB1PROD with BILLS
28 

•HR 4884 IH

1 (i) securities regulations issued by 

2 such primary Federal regulator; and 

3 (ii) applicable antifraud rules; and 

4 (B) exempt from all other Federal securi5 ties laws. 

6 (3) OTHER ISSUERS.—For covered bonds that 

7 are offered and sold to the public by any other eligi8 ble issuer and that are not otherwise exempted secu9 rities, the Securities and Exchange Commission shall 

10 develop a streamlined registration scheme. 

11 (4) EXTENSION OF EXEMPTIONS TO SEPARATE

12 ESTATES.—Each exemption described in paragraph 

13 (1) or (2) shall continue to apply to any estate cre14 ated under subsection (a) or (b) of section 4 and to 

15 any residual interest in such estate. 

16 (b) DISCLOSURE AND REPORTING.— 

17 (1) APPLICABILITY TO BANK ISSUERS.—At a 

18 reasonable time before the initial sale of a covered 

19 bond by a bank or a subsidiary of a bank, such bank 

20 or subsidiary shall make available to investors the 

21 information required by the securities regulations 

22 issued by such bank’s primary Federal regulator and 

23 applicable antifraud rules. 

24 (2) APPLICABILITY TO ISSUERS SPONSORED BY

25 1 OR MORE BANKS WITH SAME REGULATOR.—At a 


smartinez on DSKB9S0YB1PROD with BILLS
29 

•HR 4884 IH

1 reasonable time before the initial sale of a covered 

2 bond by an issuing entity that is sponsored only by 

3 1 or more banks with the same primary Federal reg4 ulator, such issuing entity shall make available to in5 vestors the information required by the securities 

6 regulations issued by such primary Federal regulator 

7 and applicable antifraud rules. 

8 (3) OTHER ISSUERS.—At a reasonable time be9 fore the initial sale of a covered bond that is not an 

10 exempted security by any other eligible issuer, such 

11 issuer shall make available to investors the informa12 tion required under the streamlined approach estab13 lished by the Securities and Exchange Commission 

14 under paragraph (a)(3) and applicable antifraud 

15 rules. 

16 (4) STANDARDS.—For each of the issuers de17 scribed in paragraphs (1) to (3), the content and 

18 frequency of reports to investors shall be determined 

19 according to the same standards that govern the ini20 tial information delivery requirement. 

21 SEC. 6. MISCELLANEOUS PROVISIONS. 

22 (a) DOMESTIC SECURITIES.—Section 106(a)(1) of 

23 the Secondary Mortgage Market Enhancement Act of 

24 1984 (15 U.S.C. 77r–1(a)(1)) is amended— 


smartinez on DSKB9S0YB1PROD with BILLS
30 

•HR 4884 IH

1 (1) in subparagraph (C), by striking ‘‘or’’ at 

2 the end; 

3 (2) in subparagraph (D), by adding ‘‘or’’ at the 

4 end; and 

5 (3) by inserting after subparagraph (D) the fol6 lowing: 

7 ‘‘(E) covered bonds (as defined under sec8 tion 2(3) of the United States Covered Bond 

9 Act of 2010),’’. 

10 (b) REAL ESTATE MORTGAGE INVESTMENT CON11 DUITS.—Section 860G(a)(3) of the Internal Revenue Code 

12 of 1986 is amended— 

13 (1) in subparagraph (B), by striking ‘‘and’’ at 

14 the end; 

15 (2) in subparagraph (C), by striking the period 

16 and inserting a comma; and 

17 (3) by inserting after subparagraph (C) the fol18 lowing: 

19 ‘‘(D) covered bonds secured by eligible as20 sets from the residential mortgage asset class, 

21 the home equity asset class, or the commercial 

22 mortgage asset class (within the meaning of 

23 section 2 of the United States Covered Bond 

24 Act of 2010).’’. 


smartinez on DSKB9S0YB1PROD with BILLS
31 

•HR 4884 IH

1 (c) TAX PROVISIONS.—Any estate created under sub2 section (a) or (b) of section 4 shall not be taxable as a 

3 separate entity. No transfer of any asset or liability to an 

4 estate under such subsections shall be a taxable event. The 

5 acquisition of any covered bond shall be treated as an ac6 quisition of a security, and not as an interest in a loan 

7 or a lending transaction, for purposes of determining the 

8 character of any related trade or business activity of the 

9 acquirer or any asset held by such acquirer. 

Æ 


smartinez on DSKB9S0YB1PROD with BILLS