have the meaning given those terms, respectively, under 
section 1303 of the Federal Housing Enterprises Finan-
cial 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 cred-
it loss. 
(2) COUNTERPARTY RISK.—The term ‘‘counter-
party 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 obliga-
tion. 
(3) CREDIT
RISK.—The term ‘‘credit risk’’ 
means the risk of loss to an enterprise on a residen-
tial mortgage loan held or guaranteed by the enter-
prise or on any security guaranteed by the enter-
prise 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 guaran-
teed by an enterprise to another party, who assumes 
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the credit risk in accordance with agreed upon 
terms. 
(5) EXCLUDED REFINANCING.—The term ‘‘ex-
cluded 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 tem-
porary 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 ‘‘ex-
pected credit loss’’ means credit loss that is reason-
ably 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 se-
niority. 
(9) UNEXPECTED
CREDIT
LOSS.—The term 
‘‘unexpected credit loss’’ means credit loss that is 
reasonably anticipated under stressful, yet plausible, 
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economic conditions, and does not include expected 
loss or catastrophic loss. 
SEC. 3. MORTGAGE CREDIT RISK SHARING PILOT PRO-
GRAM. 
(a) SENSE OF CONGRESS.—It is the sense of Con-
gress that— 
(1) at the direction of FHFA, the enterprises 
have entered into transactions to transfer credit risk 
they assume by guaranteeing the payment of prin-
cipal 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 Pro-
gram (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 enact-
ment of this Act, conduct risk-sharing transactions that 
provide for an enterprise to share credit risk on a pool 
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of single-family residential mortgage loans that back secu-
rities on which the enterprise guarantees the timely pay-
ment 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 refi-
nancing, as determined by FHFA; and 
(C) are a representative sample of the un-
paid 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 ag-
gregate risk shared on a pari passu basis 
of the expected and unexpected loss on the 
unpaid principal balance on the trans-
actions; and 
(ii) a target of at least 10 percent in 
a vertical position of the risk of all of the 
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catastrophic credit loss on the unpaid prin-
cipal 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 transi-
tion 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 Di-
rector shall require that credit risk on at least 5 per-
cent of new acquisitions, as defined by the Director, 
of targeted loans described in paragraph (1) shall be 
transferred through the Pilot Program. Each enter-
prise may vary the percentage of new acquisitions of 
targeted loans transferred through the Pilot Pro-
gram, 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. 
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