January 26, 2005

Mr. HAGEL (for himself, Mr. SUNUNU, and Mrs. DOLE) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Afairs

To address the regulation of secondary mortgage market enterprises, and for other purposes.

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) SHORT TITLE- This Act may be cited as the `Federal Housing Enterprise Regulatory Reform Act of 2005'.

(b) TABLE OF CONTENTS- The table of contents for this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Definitions.

TITLE I--REFORM OF REGULATION OF ENTERPRISES

Subtitle A--Improvement of Safety and Soundness Supervision

Sec. 101. Establishment of the Federal Housing Enterprise Regulatory Agency.

Sec. 102. Duties and authorities of Director.

Sec. 103. Federal Housing Enterprise Board.

Sec. 104. Authority to require reports by regulated entities.

Sec. 105. Examiners and accountants; authority to contract for reviews of enterprises.

Sec. 106. Assessments.

Sec. 107. Regulations and orders.

Sec. 108. Prudential management and operations standards.

Sec. 109. Limitation on nonmission-related assets.

Sec. 110. Risk-based capital test for enterprises.

Sec. 111. Limit on golden parachutes.

Sec. 112. Reporting of fraudulent loans.

Subtitle B--Improvement of Mission Supervision

Sec. 121. Transfer of program approval and housing goal oversight.

Sec. 122. Review of enterprise programs, and activities.

Sec. 123. Authority to require reports by enterprises.

Sec. 124. Monitoring and enforcing compliance with housing goals.

Sec. 125. Assumption by director of other HUD responsibilities.

Sec. 126. Administrative and judicial enforcement proceedings.

Subtitle C--Prompt Corrective Action

Sec. 141. Capital classifications.

Sec. 142. Supervisory actions applicable to undercapitalized regulated entities.

Sec. 143. Supervisory actions applicable to significantly undercapitalized regulated entities.

Sec. 144. Authority over critically undercapitalized enterprises.

Subtitle D--Enforcement Actions

Sec. 151. Cease-and-desist proceedings.

Sec. 152. Temporary cease-and-desist proceedings.

Sec. 153. Removal and prohibition authority.

Sec. 154. Enforcement and jurisdiction.

Sec. 155. Civil money penalties.

Sec. 156. Criminal penalty.

Sec. 157. Notice after separation from service.

Subtitle E--Other Reporting Regarding Regulated Entities

Sec. 161. Reporting regarding regulated entities.

Subtitle F--General Provisions

Sec. 171. Conforming and technical amendments.

Sec. 172. Presidentially appointed directors of enterprises.

Sec. 173. Effective date.

TITLE II--FEDERAL HOME LOAN BANKS

Sec. 201. Directors.

Sec. 202. Definitions.

Sec. 203. Agency oversight of Federal Home Loan Banks.

Sec. 204. Debt issuing facility.

Sec. 205. Exclusion from certain securities reporting requirements.

Sec. 206. Limitation on golden parachutes.

TITLE III--TRANSFER OF FUNCTIONS, PERSONNEL, AND PROPERTY OF OFHEO AND THE FEDERAL HOUSING FINANCE BOARD

Subtitle A--OFHEO

Sec. 301. Abolishment of OFHEO.

Sec. 302. Continuation and coordination of certain regulations.

Sec. 303. Transfer and rights of employees of OFHEO.

Sec. 304. Transfer of property and facilities.

Subtitle B--Federal Housing Finance Board

Sec. 311. Abolishment of the Federal Housing Finance Board.

Sec. 312. Continuation and coordination of certain regulations.Board.

Sec. 314. Transfer of property and facilities.

TITLE IV--MISCELLANEOUS PROVISIONS

Sec. 401. Study and report on Basel II and enterprise debt.

Sec. 402. Affordable housing reporting.

SEC. 2. DEFINITIONS.

Section 1303 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4502) is amended--

(1) in paragraph (5), by striking `Office of Federal Housing Enterprise Oversight of the Department of Housing and Urban Development' and inserting `Federal Housing Enterprise Regulatory Agency';

(2) in each of paragraphs (8), (9), (10), and (19), by striking `Secretary' each place that term appears and inserting `Director';

(3) in paragraph (14), by striking `Office of Federal Housing Enterprise Oversight of the Department of Housing and Urban Development' and inserting `Federal Housing Enterprise Regulatory Agency';

(4) by redesignating paragraphs (16) through (19) as paragraphs (21) through (24), respectively;

(5) by striking paragraph (15) and inserting the following:

`(20) REGULATED ENTITY- The term `regulated entity' means--

`(A) the Federal National Mortgage Association and any affiliate thereof;

`(B) the Federal Home Loan Mortgage Corporation and any affiliate thereof; and

`(C) any Federal Home Loan Bank.';

(6) by striking paragraph (13) and by redesignating paragraphs (7), (8), (9), (10), (11), (12), and (14) as paragraphs (13) through (19), respectively;

(7) by redesignating paragraphs (2) through (4) as paragraphs (5) through (7), respectively;

(8) by inserting after paragraph (7), as redesignated, the following:

`(8) DEFAULT; DANGER OF DEFAULT-

`(A) DEFAULT- The term `default' means, with respect to an enterprise, any adjudication or other official determination by any court of competent jurisdiction, or the Agency, pursuant to which a conservator, receiver, limited-life enterprise, or legal custodian is appointed for an enterprise.

`(B) IN DANGER OF DEFAULT- The term `in danger of default' means an enterprise with respect to which--

`(i) in the opinion of the Agency--

`(I) the enterprise is not likely to be able to pay the obligations of the enterprise in the normal course of business; or

`(II) the enterprise has incurred or is likely to incur losses that will deplete all or substantially all of its capital; and

`(ii) there is no reasonable prospect that the capital of the enterprise will be replenished.'.

(9) by redesignating paragraph (1) as paragraph (2);

(10) by inserting after paragraph (2), as redesignated the following:

`(3) AUTHORIZING STATUTES- The term `authorizing statutes' means--

`(A) the Federal National Mortgage Association Charter Act;

`(B) the Federal Home Loan Mortgage Corporation Act; and

`(C) the Federal Home Loan Bank Act.

`(4) BOARD- The term `Board' means the Federal Housing Enterprise Board established under section 1313A.';

(11) by redesignated paragraph (6) as paragraph (10), and by inserting after paragraph (10), as redesignated, the following:

`(11) ENTERPRISE-AFFILIATED PARTY- The term `enterprise-affiliated party' means--

`(A) any director, officer, employee, or controlling stockholder of, or agent for, a regulated entity;

`(B) any shareholder, affiliate, consultant, or joint venture partner of a regulated entity, and any other person, as determined by the Director (by regulation or on a case-by-case basis) that participates in the conduct of the affairs of a regulated entity; and

`(C) any independent contractor for a regulated entity (including any attorney, appraiser, or accountant), if--

`(i) the independent contractor knowingly or recklessly participates in--

`(I) any violation of any law or regulation;

`(II) any breach of fiduciary duty; or

`(III) any unsafe or unsound practice; and

`(ii) such violation, breach, or practice caused, or is likely to cause, more than a minimal financial loss to, or a significant adverse effect on, the regulated entity; and

`(D) any not-for-profit corporation that receives its principal funding, on an ongoing basis, from any regulated entity.';

(12) by inserting before paragraph (2), as redesignated, the following:

`(1) AGENCY; DIRECTOR- The term--

`(A) `Agency' means the Federal Housing Enterprise Regulatory Agency established under section 1311; and

`(B) `Director' means the Director of the Agency, appointed under section 1312.'; and

(13) by adding at the end the following:

`(25) VIOLATION- The term `violation' includes any action (alone or in combination with another or others) for or toward causing, bringing about, participating in, counseling, or aiding or abetting a violation.'.

TITLE I--REFORM OF REGULATION OF ENTERPRISES

Subtitle A--Improvement of Safety and Soundness Supervision

SEC. 101. ESTABLISHMENT OF THE FEDERAL HOUSING ENTERPRISE REGULATORY AGENCY.

The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501 et seq.) is amended by striking sections 1311 and 1312 and inserting the following:

`SEC. 1311. ESTABLISHMENT OF THE FEDERAL HOUSING ENTERPRISE REGULATORY AGENCY.

`(a) ESTABLISHMENT- There is established the Federal Housing Enterprise Regulatory Agency, which shall be an independent agency of the Federal Government.

`(b) GENERAL SUPERVISORY AND REGULATORY AUTHORITY-

`(1) IN GENERAL- Each regulated entity shall, to the extent provided in this title, be subject to the supervision and regulation of the Agency.

`(2) AUTHORITY OVER FANNIE MAE AND FREDDIE MAC, THE FEDERAL HOME LOAN BANKS, AND THE FEDERAL HOME LOAN BANK FINANCE CORPORATION- The Director shall have general regulatory authority over each regulated entity and the Federal Home Loan Bank Finance Corporation, and shall exercise such general regulatory authority, including such duties and authorities set forth under section 1313 of this Act, to ensure that the purposes of this Act, the authorizing statutes, and any other applicable law are carried out.

`(c) SAVINGS PROVISION- The authority of the Director to take actions under subtitles B and C shall not in any way limit the general supervisory and regulatory authority granted to the Director under subsection (b).

`SEC. 1312. DIRECTOR.

`(a) ESTABLISHMENT OF POSITION- There is established the position of the Director of the Agency, who shall be the head of the Agency.

`(b) APPOINTMENT; TERM-

`(1) APPOINTMENT- The Director shall be appointed by the President, by and with the advice and consent of the Senate, from among individuals who are citizens of the United States, have a demonstrated understanding of financial management or oversight, and have a demonstrated understanding of capital markets, including the mortgage securities markets and housing finance.

`(2) TERM- The Director shall be appointed for a term of 6 years, unless removed before the end of such term for cause by the President.

`(3) VACANCY- A vacancy in the position of Director that occurs before the expiration of the term for which a Director was appointed shall be filled in the manner established under paragraph (1), and the Director appointed to fill such vacancy shall be appointed only for the remainder of such term.

`(4) SERVICE AFTER END OF TERM- An individual may serve as the Director after the expiration of the term for which appointed until a successor has been appointed.

`(5) TRANSITIONAL PROVISION- Notwithstanding paragraphs (1) and (2), the person serving as the Director of the Office of Federal Housing Enterprise Oversight of the Department of Housing and Urban Development on the date of enactment of the Federal Housing Enterprise Regulatory Reform Act of 2005, shall serve as the Director until a successor has been appointed under paragraph (1).

`(c) DEPUTY DIRECTOR OF THE DIVISION OF ENTERPRISE REGULATION-

`(1) IN GENERAL- The Agency shall have a Deputy Director of the Division of Enterprise Regulation, who shall be designated by the Director from among individuals who are citizens of the United States, have a demonstrated understanding of financial management or oversight, and have a demonstrated understanding of mortgage securities markets and housing finance.

`(2) FUNCTIONS- The Deputy Director of the Division of Enterprise Regulation shall have such functions, powers, and duties with respect to the oversight of the enterprises as the Director shall prescribe.

`(d) DEPUTY DIRECTOR OF THE DIVISION OF FEDERAL HOME LOAN BANK REGULATION-

`(1) IN GENERAL- The Agency shall have a Deputy Director of the Division of Federal Home Loan Bank Regulation, who shall be designated by the Director from among individuals who are citizens of the United States, have a demonstrated understanding of financial management or oversight, and have a demonstrated understanding of the Federal Home Loan Bank System and housing finance.

`(2) FUNCTIONS- The Deputy Director of the Division of Federal Home Loan Bank Regulation shall have such functions, powers, and duties with respect to the oversight of the Federal Home Loan Banks as the Director shall prescribe.

`(e) DEPUTY DIRECTOR FOR HOUSING MISSION AND GOALS-

`(1) IN GENERAL- The Agency shall have a Deputy Director for Housing Mission and Goals, who shall be designated by the Director from among individuals who are citizens of the United States, and have a demonstrated understanding of the housing markets and housing finance.

`(2) FUNCTIONS- The Deputy Director for Housing Mission and Goals shall have such functions, powers, and duties with respect to the oversight of the housing mission and goals of the enterprises as the Director shall prescribe.

`(f) ACTING DIRECTOR- In the event of the death, resignation, sickness, or absence of the Director, the Board shall, by a majority vote, designate either the Deputy Director of the Division of Enterprise Regulation, the Deputy Director of the Division of Federal Home Loan Bank Regulation, or the Deputy Director for Housing Mission and Goals, to serve as acting Director until the return of the Director, or the appointment of a successor pursuant to subsection (b).

`(g) LIMITATIONS- The Director and each of the Deputy Directors may not--

`(1) have any direct or indirect financial interest in any regulated entity or enterprise-affiliated party;

`(2) hold any office, position, or employment in any regulated entity or enterprise-affiliated party; or

`(3) have served as an executive officer or director of any regulated entity, or enterprise-affiliated party, at any time during the 3-year period ending on the date of appointment of such individual as Director or Deputy Director.'.

SEC. 102. DUTIES AND AUTHORITIES OF DIRECTOR.

(a) IN GENERAL- Section 1313 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4513) is amended to read as follows:

`SEC. 1313. DUTIES AND AUTHORITIES OF DIRECTOR.

`(a) DUTIES-

`(1) PRINCIPAL DUTIES- The principal duties of the Director shall be--

`(A) to oversee the prudential operations of each regulated entity, on a consolidated basis; and

`(B) to ensure that--

`(i) each regulated entity operates in a safe and sound manner, including maintenance of adequate capital and internal controls;

`(ii) the operations and activities of each regulated entity foster liquid, efficient, competitive, and resilient national housing finance markets (including activities relating to mortgages on housing for low- and moderate- income families involving a reasonable economic return that may be less than the return earned on other activities);

`(iii) each regulated entity complies with this title and the rules, regulations, guidelines, and orders issued under this title and the authorizing statutes;

`(iv) each regulated entity carries out its statutory mission only through activities that are authorized under and consistent with this title and the authorizing statutes;

`(v) the activities of each regulated entity and the manner in which such regulated entity is operated are consistent with the public interest; and

`(vi) each regulated entity remains adequately capitalized, after due consideration of the risk to such regulated entity.

`(2) SCOPE OF AUTHORITY- The authority of the Director shall include the authority--

`(A) to review and, if warranted based on the principal duties described in paragraph (1), reject any acquisition or transfer of a controlling interest in an enterprise; and

`(B) to exercise such incidental powers as may be necessary or appropriate to fulfill the duties and responsibilities of the Director in the supervision and regulation of each regulated entity.

`(b) DELEGATION OF AUTHORITY- The Director may delegate to officers and employees of the Agency any of the functions, powers, or duties of the Director, as the Director considers appropriate.