S 693

112th CONGRESS
1st Session

S. 693

To establish a term certain for the conservatorships of Fannie Mae and Freddie Mac, to provide conditions for continued operation of such enterprises, and to provide for the wind down of such operations and the dissolution of such enterprises.

IN THE SENATE OF THE UNITED STATES

March 31, 2011

Mr. MCCAIN (for himself and Mr. HATCH) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs


A BILL

To establish a term certain for the conservatorships of Fannie Mae and Freddie Mac, to provide conditions for continued operation of such enterprises, and to provide for the wind down of such operations and the dissolution of such enterprises.

    Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the `GSE Bailout Elimination and Taxpayer Protection Act'.

SEC. 2. DEFINITIONS.

    For purposes of this Act, the following definitions shall apply:

      (1) CHARTER- The term `charter' means--

        (A) with respect to the Federal National Mortgage Association, the Federal National Mortgage Association Charter Act (12 U.S.C. 1716 et seq.); and

        (B) with respect to the Federal Home Loan Mortgage Corporation, the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1451 et seq.).

      (2) DIRECTOR- The term `Director' means the Director of the Federal Housing Finance Agency.

      (3) ENTERPRISE- The term `enterprise' means--

        (A) the Federal National Mortgage Association; and

        (B) the Federal Home Loan Mortgage Corporation.

      (4) GUARANTEE- The term `guarantee' means, with respect to an enterprise, the credit support of the enterprise that is provided by the Federal Government through its charter as a government-sponsored enterprise.

SEC. 3. TERMINATION OF CURRENT CONSERVATORSHIP.

    (a) In General- Upon the expiration of the period referred to in subsection (b), the Director of the Federal Housing Finance Agency shall determine, with respect to each enterprise, if the enterprise is financially viable at that time and--

      (1) if the Director determines that the enterprise is financially viable, immediately take all actions necessary to terminate the conservatorship for the enterprise that is in effect pursuant to section 1367 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4617); or

      (2) if the Director determines that the enterprise is not financially viable, immediately appoint the Federal Housing Finance Agency as receiver under section 1367 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 and carry out such receivership under the authority of such section.

    (b) Timing- The period referred to in this subsection is, with respect to an enterprise, the 24-month period beginning upon the date of the enactment of this Act.

    (c) Financial Viability- The Director may not determine that an enterprise is financially viable for purposes of subsection (a) if the Director determines that any of the conditions for receivership set forth in paragraph (3) or (4) of section 1367(a) of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4617(a)) exists at the time with respect to the enterprise.

SEC. 4. LIMITATIONS ON ENTERPRISE AUTHORITY.

    (a) Limitations Effective Upon Enactment- Upon the enactment of this Act, the following provisions shall take effect:

      (1) REPEAL OF MANDATORY HOUSING ACTIVITIES-

        (A) REPEAL OF HOUSING GOALS- The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 is amended by striking sections 1331 through 1336 (12 U.S.C. 4561-6).

        (B) CONFORMING AMENDMENTS- Federal Housing Enterprises Financial Safety and Soundness Act of 1992 is amended--

          (i) in section 1303(28) (12 U.S.C. 4502(28)), by striking `, and, for the purposes' and all that follows through `designated disaster areas';

          (ii) in section 1324(b)(1)(A) (12 U.S.C. 4544(b)(1)(A)), by striking clauses (i), (ii), and (iv);

          (iii) in section 1339(h) (12 U.S.C. 4569(h)), by striking paragraph (7);

          (iv) in section 1341 (12 U.S.C. 4581)--

            (I) in subsection (a)--

(aa) in paragraph (1), by inserting `or' after the semicolon at the end;

(bb) in paragraph (2), by striking the semicolon at the end and inserting a period; and

(cc) by striking paragraphs (3) and (4); and

            (II) in subsection (b)(2)--

(aa) in subparagraph (A), by inserting `or' after the semicolon at the end;

(bb) by striking subparagraphs (B) and (C); and

(cc) by redesignating subparagraph (D) as subparagraph (B);

          (v) in section 1345(a) (12 U.S.C. 4585(a))--

            (I) in paragraph (1), by inserting `or' after the semicolon at the end;

            (II) in paragraph (2), by striking the semicolon at the end and inserting a period; and

            (III) by striking paragraphs (3) and (4); and

          (vi) in section 1371(a)(2) (12 U.S.C. 4631(a)(2)), by striking `with any housing goal established under subpart B of part 2 of subtitle A of this title, with section 1336 or 1337 of this title,'.

        (C) REPEAL OF HOUSING TRUST FUND-

          (i) REPEAL- The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 is amended by striking sections 1337 and 1338 (12 U.S.C. 4567, 4568).

          (ii) CONFORMING AMENDMENTS- The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 is amended--

            (I) in section 1303(24)(B) (12 U.S.C. 4502(24)(B)), by striking `1338 and';

            (II) in section 1324(b)(1)(A) (12 U.S.C. 4544(b)(1)(A))--

(aa) by striking clause (iii);

(bb) by striking the dash after `which' and inserting the text of clause (v) and a period; and

(cc) by striking clause (v);

            (III) in section 1339(b)--

(aa) by striking paragraph (1);

(bb) by striking the dash after `consist of' and inserting the text of paragraph (2) and a period; and

(cc) by striking paragraph (2); and

            (IV) in section 1346 (12 U.S.C. 4585), by striking subsection (f).

      (2) PORTFOLIO LIMITATIONS- Subtitle B of title XIII of the Housing and Community Development Act of 1992 (12 U.S.C. 4611 et seq.) is amended by adding at the end the following new section:

`SEC. 1369E. RESTRICTION ON MORTGAGE ASSETS OF ENTERPRISES.

    `(a) Restriction- No enterprise shall own, as of any applicable date in this subsection or thereafter, mortgage assets in excess of--

      `(1) upon the expiration of the 1-year period that begins upon the enactment of the GSE Bailout Elimination and Taxpayer Protection Act or thereafter, $700,000,000,000;

      `(2) upon the expiration of the 2-year period that begins upon the enactment of such Act or thereafter, $600,000,000,000;

      `(3) upon the expiration of the 3-year period that begins upon the enactment of such Act or thereafter, $475,000,000,000;

      `(4) upon the expiration of the 4-year period that begins upon the enactment of such Act or thereafter, $350,000,000,000; and

      `(5) upon the expiration of the 5-year period that begins upon the enactment of such Act or thereafter, $250,000,000,000.

    `(b) Definition of Mortgage Assets- For purposes of this section, the term `mortgage assets' means, with respect to an enterprise, assets of such enterprise consisting of mortgages, mortgage loans, mortgage-related securities, participation certificates, mortgage-backed commercial paper, obligations of real estate mortgage investment conduits and similar assets, in each case to the extent such assets would appear on the balance sheet of such enterprise in accordance with generally accepted accounting principles in effect in the United States as of September 7, 2008 (as set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board from time to time; and without giving any effect to any change that may be made after September 7, 2008, in respect of Statement of Financial Accounting Standards No. 140 or any similar accounting standard).'.

      (3) REPEAL OF INCREASES TO CONFORMING LOAN LIMITS-

        (A) REPEAL OF TEMPORARY INCREASES-

          (i) CONTINUING APPROPRIATIONS ACT, 2011- Section 146 of the Continuing Appropriations Act, 2011 (Public Law 111-242; 124 Stat. 2615) is hereby repealed.

          (ii) CONTINUING APPROPRIATIONS RESOLUTION, 2010- Section 167 of the Continuing Appropriations Resolution, 2010 (division B of Public Law 111-68 (as added by section 104 of division B of Public Law 111-88; 123 Stat. 2973)) is hereby repealed.

          (iii) AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009- Section 1203 of division A of the American Recovery and Reinvestment Act of 2009 (Public Law 111-5; 123 Stat. 225) is hereby repealed.

          (iv) ECONOMIC STIMULUS ACT OF 2008- Section 201 of the Economic Stimulus Act of 2008 (Public Law 110-185; 122 Stat. 619) is hereby repealed.

        (B) REPEAL OF GENERAL LIMIT AND PERMANENT HIGH-COST AREA INCREASE- Paragraph (2) of section 302(b) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1717(b)(2)) and paragraph (2) of section 305(a) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)(2)) are each amended to read as such sections were in effect immediately before the enactment of the Housing and Economic Recovery Act of 2008 (Public Law 110-289).

        (C) REPEAL OF NEW HOUSING PRICE INDEX- Section 1322 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as added by section 1124(d) of the Housing and Economic Recovery Act of 2008 (Public Law 110-289), is hereby repealed.

        (D) REPEAL- Section 1124 of the Housing and Economic Recovery Act of 2008 (Public Law 110-289) is hereby repealed.

        (E) ESTABLISHMENT OF CONFORMING LOAN LIMIT- For the first year beginning after the date of the enactment of this Act, the limitations governing the maximum original principal obligation of conventional mortgages that may be purchased by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, referred to in section 302(b)(2) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1717(b)(2)) and section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)(2)), respectively, shall be considered to be--

          (i) $417,000 for a mortgage secured by a single-family residence,

          (ii) $533,850 for a mortgage secured by a 2-family residence,

          (iii) $645,300 for a mortgage secured by a 3-family residence, and

          (iv) $801,950 for a mortgage secured by a 4-family residence,

        and such limits shall be adjusted effective each January 1 thereafter in accordance with such sections 302(b)(2) and 305(a)(2).

      (4) INCREASE IN GUARANTEE FEES- Subpart A of part 2 of subtitle A of Federal Housing Enterprises Financial Safety and Soundness Act of 1992 is amended by adding after section 1326 (12 U.S.C. 4546) the following new section:

`SEC. 1327. ENTERPRISE GUARANTEE FEES.

    `(a) Increase- Subject to subsection (b), the Director shall, by regulation or order, require that each enterprise charge a guarantee fee, in connection with any mortgage guaranteed after the expiration of the 3-year period beginning on the date of the enactment of the GSE Bailout Elimination and Taxpayer Protection Act, in an amount that the Director determines is equivalent to the amount that the enterprise would charge for such a fee if the enterprise were held to the same capital standards as private banks or financial institutions.

    `(b) Option To Phase-In Over 3 Years- The Director may, at the discretion of the Director, by regulation or order, provide for compliance with subsection (a) by requiring each enterprise to increase the guarantee fee charged by the enterprise incrementally during the 3-year period specified in subsection (a) in a manner sufficient to comply with subsection (a) upon the expiration of the period specified in subsection (a).

    `(c) Flexibility in Determination of Increase- To determine the amount of the increase under subsection (a), the Director shall establish a pricing mechanism as the Director considers appropriate, taking into consideration current market conditions and any data collected pursuant to section 1601 of the Housing and Economic Recovery Act of 2008 (12 U.S.C. 4514a).

    `(d) Definition of Guarantee Fee- For purposes of this section, the term `guarantee fee' means a fee charged by an enterprise in connection with any guarantee, issued by the enterprise, of the timely payment of principal and interest on securities, notes, and other obligations based on or backed by mortgages on residential real properties. Such term includes--

      `(1) the guaranty fee charged by the Federal National Mortgage Association with respect to mortgage-backed securities; and

      `(2) the management and guarantee fee charged by the Federal Home Loan Mortgage Corporation with respect to participation certificates.'.

      (5) PROHIBITION OF REDUCTION IN RATE OF DIVIDENDS-

        (A) FANNIE MAE- Section 304 of the Federal National Mortgage Association Charter Act (12 U.S.C. 1719) is amended by adding at the end the following new subsection:

    `(h) Prohibition of Reduction in Rate of Dividends on Senior Preferred Stock- Notwithstanding any other provision of law, any provision of the Senior Preferred Stock Purchase Agreement entered into between the Department of the Treasury and the corporation in September 2008 (as such Agreement may be amended and restated), or any provision of any certificate in connection with such Agreement creating or designating the terms, powers, preferences, privileges, limitations, or any other conditions of the Variable Liquidation Preference Senior Preferred Stock of the corporation issued pursuant to such Agreement, the rate of dividends paid on the Variable Liquidation Preference Senior Preferred Stock of the corporation issued pursuant to such Agreement shall not be reduced from the rate in effect pursuant to such Agreement as of March 1, 2011.'.

        (B) FREDDIE MAC- Section 306 of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1455) is amended by adding at the end the following new subsection:

    `(m) Prohibition of Reduction in Rate of Dividends on Senior Preferred Stock- Notwithstanding any other provision of law, any provision of the Senior Preferred Stock Purchase Agreement entered into between the Department of the Treasury and the Corporation in September 2008 (as such Agreement may be amended and restated), or any provision of any certificate in connection with such Agreement creating or designating the terms, powers, preferences, privileges, limitations, or any other conditions of the Variable Liquidation Preference Senior Preferred Stock of the Corporation issued pursuant to such Agreement, the rate of dividends paid on the Variable Liquidation Preference Senior Preferred Stock of the Corporation issued pursuant to such Agreement shall not be reduced from the rate in effect pursuant to such Agreement as of March 1, 2011.'.

    (b) Revised Authority- Upon the expiration of the period referred to in section 3(b), if the Director makes the determination under section 3(a)(1), the following provisions shall take effect:

      (1) INCREASE IN MINIMUM CAPITAL REQUIREMENT- Section 1362 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4612) is amended--

        (A) in subsection (a), by striking `For purposes of this subtitle, the minimum capital level for each enterprise shall be' and inserting `The minimum capital level established under subsection (g) for each enterprise may not be lower than';

        (B) in subsection (c)--

          (i) by striking `subsections (a) and' and inserting `subsection';

          (ii) by striking `regulated entities' the first place such term appears and inserting `Federal Home Loan Banks';

          (iii) by striking `for the enterprises,';

          (iv) by striking `, or for both the enterprises and the banks,';

          (v) by striking `the level specified in subsection (a) for the enterprises or'; and

          (vi) by striking `the regulated entities operate' and inserting `such banks operate';

        (C) in subsection (d)(1)--

          (i) by striking `subsections (a) and' and inserting `subsection'; and

          (ii) by striking `regulated entity' each place such term appears and inserting `Federal home loan bank';

        (D) in subsection (e), by striking `regulated entity' each place such term appears and inserting `Federal home loan bank';

        (E) in subsection (f)--

          (i) by striking `the amount of core capital maintained by the enterprises,'; and

          (ii) by striking `regulated entities' and inserting `banks'; and

        (F) by adding at the end the following new subsection:

    `(g) Establishment of Revised Minimum Capital Levels-

      `(1) IN GENERAL- The Director shall cause the enterprises to achieve and maintain adequate capital by establishing minimum levels of capital for such the enterprises and by using such other methods as the Director deems appropriate.

      `(2) AUTHORITY- The Director shall have the authority to establish such minimum level of capital for an enterprise in excess of the level specified under subsection (a) as the Director, in the Director's discretion, deems to be necessary or appropriate in light of the particular circumstances of the enterprise.

    `(h) Failure To Maintain Revised Minimum Capital Levels-

      `(1) UNSAFE AND UNSOUND PRACTICE OR CONDITION- Failure of a enterprise to maintain capital at or above its minimum level as established pursuant to subsection (g) of this section may be deemed by the Director, in his discretion, to constitute an unsafe and unsound practice or condition within the meaning of this title.

      `(2) DIRECTIVE TO ACHIEVE CAPITAL LEVEL-

        `(A) AUTHORITY- In addition to, or in lieu of, any other action authorized by law, including paragraph (1), the Director may issue a directive to an enterprise that fails to maintain capital at or above its required level as established pursuant to subsection (g) of this section.

        `(B) PLAN- Such directive may require the enterprise to submit and adhere to a plan acceptable to the Director describing the means and timing by which the enterprise shall achieve its required capital level.

        `(C) ENFORCEMENT- Any such directive issued pursuant to this paragraph, including plans submitted pursuant thereto, shall be enforceable under the provisions of subtitle C of this title to the same extent as an effective and outstanding order issued pursuant to subtitle C of this title which has become final.

      `(3) ADHERENCE TO PLAN-

        `(A) CONSIDERATION- The Director may consider such enterprise's progress in adhering to any plan required under this subsection whenever such enterprise seeks the requisite approval of the Director for any proposal which would divert earnings, diminish capital, or otherwise impede such enterprise's progress in achieving its minimum capital level.

        `(B) DENIAL- The Director may deny such approval where it determines that such proposal would adversely affect the ability of the enterprise to comply with such plan.'.

      (2) REQUIREMENT OF MINIMUM DOWNPAYMENT FOR MORTGAGES PURCHASED-

        (A) FANNIE MAE- Subsection (b) of section 302 of the Federal National Mortgage Association Charter Act (12 U.S.C. 1717(b)) is amended by adding at the end the following new paragraph:

    `(7) Notwithstanding any other provision of this Act, the corporation may not newly purchase any mortgage unless the mortgagor has paid, in cash or its equivalent on account of the property securing repayment such mortgage, in accordance with regulations issued by the Director of the Federal Housing Finance Agency, not less than--

      `(A) for any mortgage purchased during the 12-month period beginning upon the expiration of the period referred to in section 3(b) of the GSE Bailout Elimination and Taxpayer Protection Act, 5 percent of the appraised value of the property;

      `(B) for any mortgage purchased during the 12-month period beginning upon the expiration of the 12-month period referred to in subparagraph (A) of this paragraph, 7.5 percent of the appraised value of the property; and

      `(C) for any mortgage purchased during the 12-month period beginning upon the expiration of the 12-month period referred to in subparagraph (B) of this paragraph, 10 percent of the appraised value of the property.'.

        (B) FREDDIE MAC- Subsection (a) of section 305 of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)) is amended by adding at the end the following new paragraph:

    `(6) Notwithstanding any other provision of this Act, the Corporation may not newly purchase any mortgage unless the mortgagor has paid, in cash or its equivalent on account of the property securing repayment such mortgage, in accordance with regulations issued by the Director of the Federal Housing Finance Agency, not less than--

      `(A) for any mortgage purchased during the 12-month period beginning upon the expiration of the period referred to in section 3(b) of the GSE Bailout Elimination and Taxpayer Protection Act, 5 percent of the appraised value of the property;

      `(B) for any mortgage purchased during the 12-month period beginning upon the expiration of the 12-month period referred to in subparagraph (A) of this paragraph, 7.5 percent of the appraised value of the property; and

      `(C) for any mortgage purchased during the 12-month period beginning upon the expiration of the 12-month period referred to in subparagraph (B) of this paragraph, 10 percent of the appraised value of the property.'.

      (3) REQUIREMENT TO PAY STATE AND LOCAL TAXES-

        (A) FANNIE MAE- Paragraph (2) of section 309(c) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1723a(c)(2)) is amended--

          (i) by striking `shall be exempt from' and inserting `shall be subject to'; and

          (ii) by striking `except that any' and inserting `and any'.

        (B) FREDDIE MAC- Section 303(e) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1452(e)) is amended--

          (i) by striking `shall be exempt from' and inserting `shall be subject to'; and

          (ii) by striking `except that any' and inserting `and any'.

      (4) REPEALS RELATING TO REGISTRATION OF SECURITIES-

        (A) FANNIE MAE-

          (i) MORTGAGE-BACKED SECURITIES- Section 304(d) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1719(d)) is amended by striking the fourth sentence.

          (ii) SUBORDINATE OBLIGATIONS- Section 304(e) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1719(e)) is amended by striking the fourth sentence.

        (B) FREDDIE MAC- Section 306 of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1455) is amended by striking subsection (g).

SEC. 5. REQUIRED WIND DOWN OF OPERATIONS AND DISSOLUTION OF ENTERPRISE.

    (a) Applicability- This section shall apply to an enterprise upon the expiration of the 3-year period that begins upon the expiration of the period referred to in section 3(b).

    (b) Repeal of Charter- Upon the applicability of this section to an enterprise, the charter for the enterprise is repealed and the enterprise shall have no authority to conduct new business under such charter, except that the provisions of such charter in effect immediately before such repeal shall continue to apply with respect to the rights and obligations of any holders of outstanding debt obligations and mortgage-backed securities of the enterprise.

    (c) Wind Down- Upon the applicability of this section to an enterprise, the Director and the Secretary of the Treasury shall jointly take such action, and may prescribe such regulations and procedures, as may be necessary to wind down the operations of an enterprise as an entity chartered by the United States Government over the duration of the 10-year period beginning upon the applicability of this section to the enterprise (pursuant to subsection (a)) in an orderly manner consistent with this Act and the ongoing obligations of the enterprise.

    (d) Division of Assets and Liabilities; Authority to Establish Holding Corporation and Dissolution Trust Fund- The action and procedures required under subsection (c)--

      (1) shall include the establishment and execution of plans to provide for an equitable division and distribution of assets and liabilities of the enterprise, including any liability of the enterprise to the United States Government or a Federal reserve bank that may continue after the end of the period described in subsection (c); and

      (2) may provide for establishment of--

        (A) a holding corporation organized under the laws of any State of the United States or the District of Columbia for the purposes of the reorganization and restructuring of the enterprise; and

        (B) one or more trusts to which to transfer--

          (i) remaining debt obligations of the enterprise, for the benefit of holders of such remaining obligations; or

          (ii) remaining mortgages held for the purpose of backing mortgage-backed securities, for the benefit of holders of such remaining securities.

END