business judgment when borrowing funds or 
otherwise obtaining credit under this paragraph 
(2) unless the servicer or administrator acted in 
bad faith or in willful disregard of its duties. 
(D) STUDY ON BORROWINGS AND CRED-
IT.—The Comptroller General of the United 
States shall conduct a study on whether the 
Federal reserve banks should be authorized to 
lend funds or otherwise extend credit to an es-
tate under this paragraph (2) and, if so, what 
conditions and limits should be established to 
mitigate any risk that the United States Gov-
ernment could absorb credit losses on the cover 
pool held by the estate. The Comptroller Gen-
eral shall submit a report to the Committee on 
Banking, Housing, and Urban Affairs of the 
Senate and the Committee on Financial Serv-
ices of the House of Representatives on the re-
sults of the study not later than 6 months after 
the date of enactment of this Act. 
(3) DISTRIBUTIONS BY ESTATE.—All payments 
or other distributions by an estate shall be made at 
the times, in the amounts, and in the manner set 
forth in the covered bonds, the related transaction 
documents, and any contracts executed by or on be-
VerDate Mar 15 2010 
03:38 Mar 09, 2011
Jkt 099200
PO 00000
Frm 00040
Fmt 6652
Sfmt 6201
E:\BILLS\H940.IH
H940
rfrederick on DSKD9S0YB1PROD with BILLS
half of the estate in compliance with this Act and 
the oversight program. To the extent that the rel-
ative priority of the liabilities of the estate are not 
specified in or otherwise ascertainable from their 
terms, distributions shall be made on each distribu-
tion date under the covered bonds, the related trans-
action documents, or any contracts executed by or 
on behalf of the estate— 
(A) first, to pay accrued and unpaid super-
priority claims under paragraph (2)(B)(ii); 
(B) second, to pay accrued and unpaid ad-
ministrative expense claims under paragraph 
(1)(I), paragraph (2)(B)(ii), section 4(b)(5)(A), 
or section 4(c)(6)(A); 
(C) third, to pay— 
(i) accrued and unpaid claims under 
the covered bonds and the related trans-
action documents according to their terms; 
and 
(ii) accrued and unpaid pari passu 
claims under paragraph (2)(B)(ii); and 
(D) fourth, to pay accrued and unpaid 
subordinated claims under paragraph (2)(B)(i). 
(4) DISTRIBUTIONS ON RESIDUAL INTEREST.— 
After all other claims against and interests in an es-
VerDate Mar 15 2010 
03:38 Mar 09, 2011
Jkt 099200
PO 00000
Frm 00041
Fmt 6652
Sfmt 6201
E:\BILLS\H940.IH
H940
rfrederick on DSKD9S0YB1PROD with BILLS
tate have been fully and irrevocably paid or 
defeased, the trustee shall or shall cause a servicer 
or administrator to distribute the remainder of the 
estate to or at the direction of the owner of the re-
sidual interest. No interim distribution on the resid-
ual interest may be made before that time, unless 
the applicable covered bond regulator— 
(A) approves the distribution after deter-
mining that all other claims against and inter-
ests in the estate will be fully, timely, and irrev-
ocably paid according to their terms; and 
(B) provides a guarantee, for the benefit of 
the estate, that all other claims against and in-
terests in the estate will be fully, timely, and ir-
revocably paid according to their terms. 
(5) CLOSING OF ESTATE.—After an estate has 
been fully administered, the trustee shall close the 
estate and, except as otherwise directed by the appli-
cable covered bond regulator, shall destroy all 
records of the estate. 
(6) NO LOSS TO TAXPAYERS.—Taxpayers shall 
bear no losses from the resolution of an estate under 
this Act. To the extent that the Secretary and the 
Corporation jointly determine that the Deposit In-
surance Fund incurred actual losses that are higher 
VerDate Mar 15 2010 
03:38 Mar 09, 2011
Jkt 099200
PO 00000
Frm 00042
Fmt 6652
Sfmt 6201
E:\BILLS\H940.IH
H940
rfrederick on DSKD9S0YB1PROD with BILLS
because the covered bond program of an insured de-
pository institution was subject to resolution under 
this Act rather than as part of the receivership of 
the institution under the Federal Deposit Insurance 
Act (12 U.S.C. 1811 et seq.), the Corporation may 
recover an amount equal to those losses through an 
increase in deposit insurance assessments on insured 
depository institutions with approved covered bond 
programs. 
SEC. 5. SECURITIES LAW PROVISIONS. 
(a) COVERED BONDS ISSUED OR GUARANTEED BY 
BANKS.—Any covered bond issued or guaranteed by a 
bank is and shall be treated as a security issued or guar-
anteed by a bank under section 3(a)(2) of the Securities 
Act of 1933, section 3(c)(3) of the Investment Company 
Act of 1940, and section 304(a)(4)(A) of the Trust Inden-
ture Act of 1939. No covered bond issued or guaranteed 
by a bank is or shall be treated as an asset-backed security 
(as defined in section 3 of the Securities and Exchange 
Act of 1934 (15 U.S.C. 78c)). 
(b) EXEMPTIONS FOR ESTATES.—Any estate that is 
or may be created under section 4(b)(1) or 4(c)(2) shall 
be exempt from all securities laws but— 
VerDate Mar 15 2010 
03:38 Mar 09, 2011
Jkt 099200
PO 00000
Frm 00043
Fmt 6652
Sfmt 6201
E:\BILLS\H940.IH
H940
rfrederick on DSKD9S0YB1PROD with BILLS
(1) shall be subject to the reporting require-
ments established by the applicable covered bond 
regulator under section 4(d)(1)(E)(iii); and 
(2) shall succeed to any requirement of the 
issuer to file such periodic information, documents, 
and reports in respect of the covered bonds as speci-
fied in section 13(a) of the Securities and Exchange 
Act of 1934 (15 U.S.C. 78m(a)) or rules established 
by an appropriate Federal banking agency. 
(c) EXEMPTIONS FOR RESIDUAL INTERESTS.—Any 
residual interest in an estate that is or may be created 
under section 4(b)(1) or 4(c)(2) shall be exempt from all 
securities laws. 
SEC. 6. MISCELLANEOUS PROVISIONS. 
(a) DOMESTIC SECURITIES.—Section 106(a)(1) of 
the Secondary Mortgage Market Enhancement Act of 
1984 (15 U.S.C. 77r–1(a)(1)) is amended— 
(1) in subparagraph (C), by striking ‘‘or’’ at 
the end; 
(2) in subparagraph (D), by adding ‘‘or’’ at the 
end; and 
(3) by inserting after subparagraph (D) the fol-
lowing: 
VerDate Mar 15 2010 
03:38 Mar 09, 2011
Jkt 099200
PO 00000
Frm 00044
Fmt 6652
Sfmt 6201
E:\BILLS\H940.IH
H940
rfrederick on DSKD9S0YB1PROD with BILLS
‘‘(E) covered bonds (as defined in section 
2 of the United States Covered Bond Act of 
2011),’’. 
(b) NO TAX IMPLICATIONS.—Any estate created 
under section 4(b)(1) or 4(c)(2) shall not be treated as 
an entity subject to taxation separate from the owner of 
the residual interest for purposes of the Internal Revenue 
Code of 1986 (26 U.S.C. 1 et seq.), including by reason 
of the taxable mortgage pool provisions of section 7701(i) 
of the Internal Revenue Code of 1986 (26 U.S.C. 7701(i)), 
but instead shall be treated as a disregarded entity that 
is owned by the owner of the residual interest for such 
purposes as described in applicable regulations of the Sec-
retary, as in effect on the date of the enactment of this 
Act. No transfer or assumption of any asset or liability 
to or by an estate or an eligible issuer under section 4(b) 
or 4(c) shall cause or constitute an event in which gain 
or loss shall be recognized under section 1001 of the Inter-
nal Revenue Code of 1986 (26 U.S.C. 1001). 
(c) REAL ESTATE MORTGAGE INVESTMENT CON-
DUITS.—Section 860G(a)(3) of the Internal Revenue Code 
of 1986 (26 U.S.C. 860G(a)(3)) is amended— 
(1) in subparagraph (B), by striking ‘‘and’’ at 
the end; 
VerDate Mar 15 2010 
03:38 Mar 09, 2011
Jkt 099200
PO 00000
Frm 00045
Fmt 6652
Sfmt 6201
E:\BILLS\H940.IH
H940
rfrederick on DSKD9S0YB1PROD with BILLS
(2) in subparagraph (C), by striking the period 
and inserting ‘‘, and’’; and 
(3) by inserting after subparagraph (C) the fol-
lowing: 
‘‘(D) covered bonds that are secured by eli-
gible assets from the residential mortgage asset 
class, the home equity asset class, or the com-
mercial mortgage asset class, as such terms are 
defined in section 2 of the United States Cov-
ered Bond Act of 2011.’’. 
(d) REAL ESTATE INVESTMENT TRUSTS.—To the ex-
tent provided by regulations that may be promulgated by 
the Secretary, a covered bond described in section 
860G(a)(3)(D) of the Internal Revenue Code of 1986 (26 
U.S.C. 860G(a)(3)(D)), as amended by this section 6, 
shall be treated as a real estate asset in the same manner 
as a regular interest in a REMIC for purposes of section 
856(c)(5)(E) of such Code (26 U.S.C. 856(c)(5)(E)). 
(e) INVESTMENT
TREATMENT
FOR
TAX
PUR-
POSES.—The acquisition of any covered bond shall be 
treated as an acquisition of an investment security, and 
not as an acquisition of an interest in a loan or otherwise 
as a lending transaction, for purposes of determining the 
character of any related trade or business activity of the 
VerDate Mar 15 2010 
03:38 Mar 09, 2011
Jkt 099200
PO 00000
Frm 00046
Fmt 6652
Sfmt 6201
E:\BILLS\H940.IH
H940
rfrederick on DSKD9S0YB1PROD with BILLS
acquirer or any asset held by the acquirer under the Inter-
nal Revenue Code of 1986 (26 U.S.C. 1 et seq.). 
(f) STATE AND LOCAL TAXES.—The Secretary may 
promulgate regulations under this Act that are similar to 
the provisions of section 346 of title 11, United States 
Code, including regulations to provide that— 
(1) if an estate created under section 4(b)(1) or 
4(c)(2) is not treated as an entity subject to tax-
ation separate from the owner of the residual inter-
est for purposes of the Internal Revenue Code of 
1986 (26 U.S.C. 1 et seq.), no separate taxable enti-
ty shall be created with respect to the estate for pur-
poses of any State or local law imposing a tax on 
or measured by income; and 
(2) if a transfer or assumption of an asset or 
liability to or by an estate or an eligible issuer under 
section 4(b) or 4(c) does not cause or constitute an 
event in which gain or loss is recognized under sec-
tion 1001 of the Internal Revenue Code of 1986 (26 
U.S.C. 1001), the transfer or assumption shall not 
cause or constitute a disposition for purposes of any 
provision assigning tax consequences to a disposition 
in connection with any State or local law imposing 
a tax on or measured by income. 
VerDate Mar 15 2010 
03:38 Mar 09, 2011
Jkt 099200
PO 00000
Frm 00047
Fmt 6652
Sfmt 6201
E:\BILLS\H940.IH
H940
rfrederick on DSKD9S0YB1PROD with BILLS
(g) NO CONFLICT.—The provisions of this Act shall 
apply, notwithstanding any provision of the Federal De-
posit Insurance Act (12 U.S.C. 1811 et seq.), title 11, 
United States Code, title II of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act (12 U.S.C. 
5381 et seq.), or any other provision of Federal law with 
respect to conservatorship, receivership, liquidation, or 
bankruptcy. No provision of the Federal Deposit Insur-
ance Act (12 U.S.C. 1811 et seq.), title 11, United States 
Code, title II of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (12 U.S.C. 5381 et seq.), or any 
other provision of Federal law with respect to conservator-
ship, receivership, liquidation, or bankruptcy may be con-
strued or applied in a manner that defeats or interferes 
with the purpose or operation of this Act. 
Æ 
VerDate Mar 15 2010 
03:38 Mar 09, 2011
Jkt 099200
PO 00000
Frm 00048
Fmt 6652
Sfmt 6301
E:\BILLS\H940.IH
H940
rfrederick on DSKD9S0YB1PROD with BILLS