S. 1217 – Housing Finance Reform and Taxpayer Protection Act of 2013

The full text of S. 1217, the Housing Finance Reform and Taxpayer Protection Act of 2013, can be found here.

The Congressional Research Service summary of this legislation can be found below, and online here.


Housing Finance Reform and Taxpayer Protection Act of 2013 – Establishes the Federal Mortgage Insurance Corporation (FMIC) as an independent agency of the federal government to: (1) develop standard form credit risk-sharing mechanisms, products, structures, contracts, or other security agreements that require private market holders of a covered security insured under this Act to assume the first loss position with respect to losses incurred on such securities; (2) provide insurance on any covered security for which any private market holders have assumed the first loss position with respect to losses; (3) establish a Mortgage Insurance Fund; and (4) oversee and supervise the common securitization platform developed by a business entity announced by the Federal Housing Finance Agency (FHFA) and established by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) (government sponsored enterprises [GSEs]).

Authorizes the FMIC to provide insurance to any covered security regardless of whether it has satisfied credit-risk sharing requirements if unusual and exigent circumstances have created, or threatened to create, an anomalous lack of mortgage credit availability within the housing markets that could materially and severely disrupt the functioning of the housing finance system.

Amends the Securities Act of 1933 and the Securities Exchange Act of 1934 to exempt covered securities insured by FMIC from Securities and Exchange Commission (SEC) regulation in general and from credit risk retention requirements in particular.

Directs the FMIC to develop, adopt, and publish standards for its approval of: (1) private mortgage insurers to provide private mortgage insurance on eligible mortgages; (2) servicers to administer eligible mortgages; (3) issuers to issue covered securities, including the Federal Home Loan Bank System; and (4) bond guarantors to guarantee the timely payment of principal and interest on FMIC-insured securities collateralized by eligible mortgages.

Directs the FMIC to establish an FMIC Mutual Securitization Company to: (1) develop, securitize, sell, and otherwise meet the issuing needs of credit unions, community and mid-size banks, and non-depository mortgage originators with respect to covered securities; and (2) purchase from its member participants for cash, on a single loan basis, eligible mortgage loans to securitize in a covered security.

Directs the FMIC to: (1) require that approved issuers grant to private market investors seeking to take the first loss position in a covered security access to all documents relating to eligible mortgage loans collateralizing that covered security; and (2) establish the timing, frequency, and manner in which such access and disclosures are made.

Prescribes requirements for: (1) investor immunity, (2) uniform securitization agreements, (3) a uniform mortgage database, and (4) electronic registration of eligible mortgages.

Establishes within the FMIC an Office of Underwriting, an Office of Securitization, and an Office of Federal Home Loan Bank Supervision.

Transfers to the FMIC all the powers, personnel, and property and facilities of the FHFA, which is hereby abolished.

Directs the FMIC to charge an insurance fee according to a specified formula.

Amends the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 to revise requirements for allocations from the Housing Trust Fund for homeownership and rental programs.

Requires the Secretary of Housing and Urban Development (HUD) and the Secretary of the Treasury, respectively, to ensure that grant amounts allocated to covered grantees, allocated by them to eligible recipients, or allocated by recipients to individuals are used for the benefit of only lawful permanent residents and citizens of the United States in carrying out the activities of the Housing Trust Fund and the Capital Magnet Fund. Prohibits the use of such grant amounts for specified political activities.

Repeals GSE charters and prescribes requirements for the wind down of Fannie Mae and Freddie Mac.

Transfers, without cost, to the FMIC all functions, activities, infrastructure, property, platforms, or any other object or service of a GSE relating to the maintenance and operation of a GSE’s multifamily guarantee business.

Requires a General Accounting Office (GAO) report on full privatization of the secondary mortgage market.

H.R. 2767 – Protecting American Taxpayers and Homeowners Act of 2013

The full text of H.R. 2767, the Protecting American Taxpayers and Homeowners Act of 2013, can be found here.

The Congressional Research Service summary of this legislation can be found below, and online here.


Protecting American Taxpayers and Homeowners Act of 2013 – GSE Bailout Elimination and Taxpayer Protection Act – Directs the Director of the Federal Housing Finance Agency (FHFA), five years after enactment of this Act, to appoint FHFA as receiver of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) (government sponsored enterprises or (GSEs) under the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, to carry out mandatory receivership (thus terminating the current conservatorship for such GSEs).

Repeals the Fannie Mae and Freddie Mac charters effective five years after enactment of this Act.

Amends the Housing and Community Development Act of 1992, the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, the Federal National Mortgage Association Charter Act, and the Federal Home Loan Mortgage Corporation Act to prescribe specified requirements, limitations, and prohibitions on GSE activities until their charters are repealed and authorities terminated.

FHA Reform and Modernization Act of 2013 – Establishes the Federal Housing Administration (FHA) as a wholly owned government corporation to: (1) provide residential mortgage insurance and other credit enhancement and related activities; (2) supplement private sector activity by serving hard-to-serve markets, developing new mortgage products, and filling gaps in the provision and delivery of mortgage credit; and (3) deliver housing mortgage insurance and credit enhancement and provide other services in a non-discriminatory manner.

Prescribes FHA requirements concerning: (1) budget and business plans; (2) examinations, reports, and cost estimates; (3) the Mutual Mortgage Insurance Fund and capital ratios, reserves, and restoration plans; (4) borrower suspension, ineligibility, and foreclosure; (5) mortgage repurchase; (6) mortgagee indemnification; (7) eminent domain; and (8) residual income.

Transfers to FHA, at the end of a five-year transition period, the functions of, authority provided to, and the responsibilities of the Secretary of Housing and Urban Development (HUD) and HUD personnel.

Amends the National Housing Act to repeal the home equity conversion mortgage (reverse mortgage) program and mortgage insurance for hospitals.

National Mortgage Market Utility Act of 2013 – Requires the Director of FHFA to provide for the organization, incorporation, examination, operation, and regulation of a not-for-profit national mortgage market Utility to: (1) enhance efficiency, liquidity, and security in the secondary market for residual mortgages; (2) establish standards for originating and servicing eligible collateral and for issuers and trustees of qualified securities, which would be exempt from the Securities Act of 1933; and (3) operate a common securitization platform that could be available to issues of residential mortgage-backed securities.

Prohibits the Utility from: (1) originating, servicing, insuring, or guaranteeing any residential mortgage or other associated financial instrument; or (2) guaranteeing timely payment of principal or interest on any mortgage-related security.

Requires the Director to: (1) issue a charter for the Utility; and (2) oversee the transfer to the Utility of the securitization infrastructure announced by the FHFA on October 4, 2012, and as developed by an enterprise or the enterprises in conservatorship (the Platform).

Sets forth standards for qualified securities.

Directs the utility to organize and operate a national mortgage data repository.

United States Covered Bond Act of 2013 – Directs the Secretary of the Treasury to establish a covered bond regulatory oversight program for the evaluation and maintenance of programs of eligible issuers under which, on the security of a single cover pool, one or more series of covered bonds may be issued.

Defines covered bonds as any recourse debt obligation of an eligible issuer that: (1) has an original term to maturity of not less than one year, (2) is secured by a perfected security interest in or other perfected lien on a cover pool owned directly or indirectly by the obligation’s issuer, (3) is issued under a covered bond program approved by the applicable covered bond regulator, (4) is identified in a register of covered bonds maintained by the Secretary, and (5) is not a deposit subject to the Federal Deposit Insurance Act.

Amends the Secondary Mortgage Market Enhancement Act of 1984 to authorize any person, trust, corporation, partnership, association, business trust, or business entity created under federal or state law to purchase, hold, and invest in covered bonds.

Amends the Internal Revenue Code with respect to the tax treatment of estates created under covered bond programs and certain transfers under covered bond programs. Imposes a tax on certain estates created under covered bond programs.

Directs the Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), and the Comptroller of the Currency to study the impact of the Regulatory Capital Rules finalized by the Board on July 2, 2013 (pursuant to the Third Basel Accord on capital adequacy, stress testing, and market liquidity risk, or Basel III).

Prohibits the Board, the FDIC, and the Comptroller of the Currency, in implementing the Basel III Liquidity Coverage Ratio amendments, from requiring, as a condition for status as a high quality liquid asset, that residential mortgage-backed securities be collateralized only by (or be collateralized by a certain percentage of) full recourse mortgage loans.

Amends the Truth in Lending Act to modify the items, compensation, and charges included in points and fees with respect to a high-cost mortgage.

Amends the Bank Holding Company Act to exclude from hedge funds and private equity funds certain issuers of asset-backed securities.

Amends the Securities Act of 1933 with respect to exemptions from specified prohibitions relating to interstate commerce and the mails for transactions by any person other than an issuer, underwriter, or dealer or transactions by an issuer not involving any public offering. Prohibits the Securities and Exchange Commission (SEC) from conditioning the availability of such exemptions upon an issuer’s undertaking to provide to investors, in connection with initial offers or sales or on an ongoing basis after an initial offer or sale, the same or substantially similar information as would be required in a transaction to which such prohibitions apply. (Thus suspends Regulation AB II rulemaking.)

Amends the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and the Securities Exchange Act of 1934 to repeal the requirement that federal banking agencies and the SEC jointly prescribe credit risk regulations for securitizers to retain an economic interest in a portion of the credit risk for any asset the securitizer, through the issuance of an asset-backed security, transfers, sells, or conveys to a third party.

Amends the Truth in Lending Act, the Home Mortgage Disclosure Act of 1975, the Truth in Lending Act, and the Dodd-Frank Act to make exemptions from specified requirements, or repeal related requirements, for certain residential mortgages, particularly those serving as collateral for a qualified security.

Amends the Federal Financial Institutions Examination Council Act of 1978 with respect to: (1) timeliness of examination reports, (2) examination standards, (3) establishment of an Office of Examination Ombudsman, and (4) the right to appeal before an independent administrative law judge.

Common Sense Economic Recovery Act of 2013 – Cites circumstances under which, for purposes of determining capital requirements or measuring an insured depository institution’s capital, such an institution may treat a non-accrual loan as an accrual loan.

(Non-accrual [also known as non-performing or doubtful] loans are those on which interest is overdue and full collection of principal is uncertain, and so interest, if it has not been paid in over 90 days, cannot be credited to the bank’s revenue account until it has actually been received.)

The Fairholme Fund v. The United States of America: Cooper & Kirk, PLLC File Suit on Behalf of Mutual Fund

On July 9, 2013, the Fairholme Fund, a mutual fund with over 170,000 shareholders, announced it would be filing lawsuits in the United States Court of Federal Claims and the United States District Court for the District of Columbia. The Fairholme Fund asserts that its goal is to protect its shareholder rights as an owner of preferred stock in Fannie Mae and Freddie Mac.

According to Bruce R. Berkowitz, the Chief Investment Officer of Fairholme Capital Management, The Fairholme Fund “…is owed a contractually specified, non-cumulative dividend for its investment in these companies.”

Cooper & Kirk, PLLC, on behalf of Fairholme, is challenging the Treasury and the Federal Housing Finance Agency’s alteration of the original Preferred Stock Purchase Agreement in August 2012 with a ‘dividend sweep.’ This newly created ‘dividend sweep’ stipulates that Fannie Mae and Freddie Mac owe all future profits to the Treasury. Fairholme asserts that Treasury’s amendment of this agreement hinders the GSE’s ability to rebuild capital reserves, redeem Treasury’s government stock, or distribute dividends to preferred stockholders. The complaint asserts that Fairholme is entitled to just compensation under the Fifth Amendment of the U.S. Constitution.

The full complaint can be found here. Cooper & Kirk, PLLC’s website can be found here.