under authority prior to the enactment of the Pilot 
Program. 
(2) ANALYSIS.—After the Pilot Program is exe-
cuted for 3 years, the Director shall examine the ec-
onomics of developing the Pilot Program into a con-
tinuous risk sharing program. 
SEC. 4. REGULATORY IMPLEMENTATION OF CREDIT RISK- 
SHARING MARKET. 
(a) APPLICATION OF SECTION 3 OF THE INVEST-
MENT COMPANY ACT
OF 1940.—For any credit risk 
transfer transaction approved by the Director, including 
a transaction in which credit risk is transferred on mort-
gage 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 acquir-
ing 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 en-
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terprise 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 en-
terprise 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 se-
cured 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 pur-
poses of section 7701(i) of the Code. 
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(4) REGULATIONS.—The Secretary of the 
Treasury shall prescribe such regulations or admin-
istrative guidance as may be necessary or appro-
priate 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.—Sec-
tion 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.’’. 
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(2) RULE OF APPLICATION.—The amendments 
made by paragraph (1) shall apply in the case of 
any credit risk transfer transaction and any finan-
cial 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. 
Æ 
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