For other versions of this document, see http://wikileaks.org/wiki/CRS-RL32795
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Order Code RL32795
Government-Sponsored Enterprises (GSEs):
Reform Legislation in the 109th Congress
Updated January 16, 2007
Mark Jickling
Specialist in Public Finance
Government and Finance Division
Government-Sponsored Enterprises (GSEs):
Reform Legislation in the 109th Congress
Summary
Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs),
chartered by Congress to establish a secondary mortgage market to improve the
availability of capital for home mortgage financing. To help these privately-owned
institutions accomplish this mission, Congress granted them several statutory benefits
not available to other private companies. The advantages of GSE status have helped
the enterprises to grow very large and dominate the secondary mortgage market.
In 1992, Congress established the Office of Federal Housing Enterprise
Oversight (OFHEO), an agency within the Department of Housing and Urban
Development (HUD), to oversee the financial safety and soundness of the enterprises.
OFHEO is authorized to set capital requirements, conduct annual risk-based
examinations, and generally enforce compliance with safety and soundness standards.
With the rapid growth of the GSEs, and major accounting scandals at Fannie
Mae and Freddie Mac, the effectiveness of the current regulatory regime has been
widely questioned. Several legislative proposals considered in the 108th and earlier
Congresses addressed GSE regulatory reform, but none was enacted. However,
adequacy of GSE regulation remains a prominent legislative issue.
While improving supervision of Fannie Mae and Freddie Mac is the major
focus, regulatory reform also involves the 12 Federal Home Loan Banks, which
comprise one collective GSE. The Federal Home Loan Banks lend to lenders --
their member banks -- primarily for housing, but also for many other purposes.
Under the proposed GSE reform, they would be brought under a single regulatory
umbrella with Fannie and Freddie.
In the 109th Congress, H.R. 1461 and S. 190 proposed to restructure the GSE
supervisor and enhance its regulatory powers. H.R. 1461 was marked up and
reported by the Financial Services Committee on May 25, 2005, and passed the full
House, with amendments, on October 26, 2005. Chairman Shelby put forward an
amendment in the nature of a substitute for S. 190, which was marked up and
approved by the Banking Committee on July 28, 2005. Neither bill was finally
enacted.
Common provisions of S. 190 and H.R. 1461 would abolish OFHEO and
establish an independent agency to oversee the housing GSEs and the Federal Home
Loan Banks; enhance the safety and soundness, disclosure, and enforcement tools
available to the new regulator; and increase the budget autonomy of the new agency
by exempting its assessments from the annual appropriations process. S. 190 as
reported takes the further step of limiting the type of assets that Fannie and Freddie
could hold in their investment portfolios.
This report summarizes legislative proposals in the 109th Congress that aimed
to strengthen the regulation of the GSEs, and it will no longer be updated.
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Major Differences Between House and Senate Bills . . . . . . . . . . . . . . . . . . . . . . . 4
Affordable Housing Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Conforming Loan Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Portfolio Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Subtitle A: Improvement of Safety and Soundness Regulation . . . . . . . 7
Subtitle B: Improvement of Mission Supervision . . . . . . . . . . . . . . . 25
Subtitle C: Prompt Corrective Action . . . . . . . . . . . . . . . . . . . . . . . . . 34
Subtitle D: Enforcement Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Title II: Federal Home Loan Bank Provisions . . . . . . . . . . . . . . . . . . 44
Transition Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
List of Tables
Table 1. Provisions of GSE Reform Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The author gratefully acknowledges the work of Loretta Nott, whose CRS
Report RL32069, Improving the Effectiveness of GSE Oversight: Legislative
Proposals in the 108th Congress, provides the basis for the introductory
material in this report.
Government Sponsored Enterprises:
Reform Legislation in the 109th Congress
Introduction
Government-sponsored enterprises (GSEs) are privately owned, congressionally
chartered financial institutions created for specific public policy purposes. They
benefit from certain exemptions and privileges, including an implied federal
guarantee,1 intended to enhance their ability to borrow money. Two of the largest
GSEs are Fannie Mae and Freddie Mac (herein referred to as the enterprises or
GSEs).2 These institutions were created by Congress to establish and maintain a
secondary mortgage market, increasing liquidity and improving the distribution of
capital available for home mortgage financing.3 To help these institutions
accomplish this mission, Congress has provided them with several benefits not
available to other financial institutions.4 These statutory benefits provide the
enterprises with lower funding costs, the ability to operate with less capital, and
lower direct costs.5 The advantages of GSE status have enabled the enterprises to
grow rapidly and become dominant players in the secondary mortgage market.
1
Although GSE bonds are not explicitly backed by the full faith and credit of the
government, market participants behave as if they were, believing that the Treasury will
never permit a GSE to default. This implicit guarantee allows the GSEs to borrow at lower
rates than private financial institutions, and to take on greater financial risk without a
corresponding drop in their credit ratings.
2
The other GSEs are the Federal Home Loan Bank System, the Farm Credit System, and
Farmer Mac. Sallie Mae, a former GSE, has been fully privatized.
3
For a detailed description of the development of the U.S. secondary mortgage market, see
Office of Federal Housing Enterprise Oversight, Report to Congress, June 2003, at
[http://www.ofheo.gov/media/pdf/WEBsiteOFHEOREPtoCongress03.pdf].
4
These statutory benefits include (1) exemption from state and local taxes, (2) a line of
credit with the U.S. Treasury up to $2.25 billion, (3) eligibility of their debt to serve as
collateral for public deposits, (4) eligibility of their securities for Federal Reserve open
market purchases, (5) eligibility for their corporate securities to be purchased without limit
by federally regulated financial institutions, (6) assignment of mortgage-related securities
they have issued or guaranteed to the second-lowest credit risk category at depository
institutions, and (7) exemption from the registration requirements of the Securities and
Exchange Commission.
5
For more information on these advantages, see the following reports: U.S. Department of
the Treasury, Government Sponsorship of the Federal National Mortgage Association and
the Federal Home Loan Mortgage Corporation, July 11, 1996; U.S. Congressional Budget
Office, Assessing the Public Costs and Benefits of Fannie Mae and Freddie Mac, May 1996;
and U.S. Congressional Budget Office, Federal Subsidies and the Housing GSEs, May
2001.
CRS-2
Congress has always been concerned that the safety and soundness of the
enterprises be maintained so that they can meet their public policy mission and not
pose risks to taxpayers. Prior to 1992, oversight was the responsibility of the
Department of Housing and Urban Development (HUD) and the Federal Home Loan
Bank Board. In 1992, Congress established the Office of Federal Housing Enterprise
Oversight (OFHEO), an independent agency within HUD, to oversee the financial
safety and soundness of the enterprises. The office is authorized to set capital
requirements, conduct annual risk-based examinations, and generally enforce
compliance with safety and soundness standards.
After the creation of OFHEO, total assets at the GSEs grew by more than 820%
to $1.9 trillion at the end of 2003.6 The GSEs have become two of the largest private
debt issuers in the world. In 2003, outstanding debt securities of the enterprises
totaled $1.7 trillion -- an amount equal to nearly half of all publicly held U.S.
Treasury debt. In addition to enterprise debt, investors hold about $1.6 trillion in
mortgage-backed securities issued by Fannie Mae and Freddie Mac.7
As a result of the rapid growth of these institutions and their implied federal
backing, there has been an increasing concern that the enterprises may pose a
problem of systemic risk to the financial system.8 Many financial institutions around
the world hold large quantities of GSE debt and default by either GSE could have
widespread, unpredictable, and potentially serious repercussions. Accordingly,
questions have been raised about the effectiveness of the current regulatory
environment.
Events of the past two years have brought a new urgency to the GSE reform
issue. In 2003, Freddie Mac admitted that it had used improper accounting policies
to create the appearance of steady earnings growth and issued a restatement of
financial results, revising net income for 2000-2002 upwards by $5 billion.9 OFHEO
6
Based on 2003 annual reports, which -- because of the accounting scandals -- is the latest
year for which annual financial statements are available for both GSEs. At the end of 2006,
both enterprises had reached agreements with OFHEO to either freeze the size of their
investment portfolios (Fannie) or limit growth to 2% per year (Freddie).
7
For more information, see Office of Federal Housing Enterprise Oversight, FY2003-2008
Strategic Plan, Sept. 30, 2003, at [http://www.ofheo.gov/media/pdf/0308stratplan93003a.
pdf].
8
For a comprehensive analysis of these risks, see Office of Federal Housing Enterprise
Oversight, Systemic Risk: Fannie Mae, Freddie Mac, and the Role of OFHEO, Feb. 2003,
at [http://www.ofheo.gov/media/archive/docs/reports/sysrisk.pdf]. Furthermore, the
International Monetary Fund (IMF) has stated that the GSE "regulators need to look closely
at whether agencies' capital adequacy is sufficient, especially bearing in mind the questions
about internal controls that have emerged in Freddie Mac.... [I]t is unclear whether [the
GSEs] have taken sufficient account of the risk that the market may not be deep enough to
allow them to continuously hedge their growing portfolios in times of stress." For more
information, see IMF, Global Financial Stability Report: Market Developments and Issues,
Sept. 2003, pp. 16-22, at [http://www.imf.org/external/pubs/ft/gfsr/2003/02/index.htm].
9
For more information, see CRS Report RS21567, Accounting and Management Problems
(continued...)
CRS-3
imposed a $125 million fine and is pursuing civil actions against several former
Freddie executives.
Following the special examination of Freddie Mac, OFHEO began to review the
accounting policies and practices at Fannie Mae, and published its preliminary
findings in September 2004.10 OFHEO charged that Fannie Mae did not follow
generally accepted accounting practices in two critical areas: (1) amortization of
discounts, premiums, and fees involved in the purchase of home mortgages and (2)
accounting for financial derivatives contracts. According to OFHEO, these
deviations from standard accounting rules allowed Fannie Mae to reduce volatility
in reported earnings, present investors with an artificial picture of steadily growing
profits, and, in at least one case, to meet financial performance targets that triggered
the payment of bonuses to company executives.11 On December 15, 2004, the
Securities and Exchange Commission (SEC) essentially endorsed OFHEO's report
and directed Fannie Mae to restate its accounting results since 2001 after finding
inadequacies in Fannie's accounting policies and methodologies. Fannie Mae's CEO
and CFO stepped down soon thereafter.
While problems at Fannie Mae and Freddie Mac have provided the main
impetus for reform, the regulation of the Federal Home Loan Banks (FHLBs) may
also be affected by the GSE. The 12 FHLBs comprise one collective government-
sponsored enterprise. Originally chartered by Congress to provide liquidity to the
nation's predominant lenders for home mortgage loans -- savings and loan
associations and savings banks -- the FHLBs have undergone a series of changes
over the years as financial institutions have changed. Still a lender to lenders
primarily for housing, the FHLBs can now lend for many other purposes as well, and
have special responsibilities for low- and moderate-income housing, for debts
incurred by the federal government in handling deposit insurance crises of the 1970s
and 1980s, and for some community development projects.
Several bills were considered in the 108th Congress that would have restructured
OFHEO. While the proposals took somewhat different approaches to regulatory
reform, all appeared to
! abolish OFHEO and reconstitute the GSE regulator within the
Department of the Treasury, or as an independent agency;12
9
(...continued)
at Freddie Mac, by Mark Jickling.
10
Office of Federal Housing Enterprise Oversight, Report of Findings to Date: Special
Examination of Fannie Mae, Sept. 17, 2004, available at [http://www.ofheo.gov/media/
pdf/FNMfindingstodate17sept04.pdf].
11
For a discussion of OFHEO's findings, and its subsequent settlement with Fannie Mae,
see CRS Report RS21949, Accounting Problems at Fannie Mae, by Mark Jickling.
12
In some versions, the new regulator was to have authority over the FHLBs, as well as
Fannie and Freddie.
CRS-4
! increase the budget autonomy of the new office by exempting its
assessments from the annual appropriations process; and
! enhance the safety and soundness and enforcement tools available
to the new regulator.
None of these bills, whose provisions are summarized in CRS Report RL32069,
Improving the Effectiveness of GSE Oversight: Legislative Proposals in the 108th
Congress, by Loretta Nott and Mark Jickling, were enacted.
Legislative proposals in the 109th Congress incorporated most of the features of
the 108th Congress bills, but also include significant new provisions, as discussed
below, and set out in Table 1.
The Bush Administration has generally supported GSE regulatory reform.
Treasury Secretary John Snow issued a statement following the mark up of S. 190,
praising the legislation, though noting that certain elements the Administration
wanted were not present in the bill:
The legislation ... creates significantly enhanced market discipline and capital
requirements for Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.
The legislation strikes a proper and prudent balance in ensuring that the activities
undertaken by these entities do not engender systemic risk while providing broad
access to housing finance.13
Major Differences Between House and Senate Bills
The House and Senate bills take a common approach to the restructuring of the
GSE regulator. There is a general consensus that OFHEO needs to be strengthened
-- given the importance of the GSEs to the financial system and the potential risks
they pose, there is very little support for keeping the GSE regulator inside HUD.
Both H.R. 1461 and S. 190 give the new agency tools and authorities that resemble
those of federal bank regulators. Where the bills differ most significantly is in their
approaches to the business operations of the GSEs, particularly Fannie and Freddie.
The House bill seeks to increase GSE support for low-income housing and would
permit Fannie and Freddie to buy larger mortgages than current law permits, while
the Senate bill seeks to shrink the companies' portfolios by restricting the kinds of
assets they can purchase.
Affordable Housing Fund
Section 128 of H.R. 1461 (as passed the House) requires Fannie and Freddie to
establish affordable housing funds to increase homeownership among very low and
extremely low income families, to increase investment in housing in low income and
13
Statement of Secretary John W. Snow on Senate Banking Bill to Reform Housing
Government-Sponsored Enterprises, July 28, 2005 (js-2657), available online at
[http://www.ustreas.gov/press/releases/js2657.htm].
CRS-5
economically distressed areas, and to increase and preserve the supply of rental and
owner-occupied housing for very low and extremely low income families. Each
enterprise shall allocate to this fund 3.5% of its after-tax income during the first year
after enactment, and 5% in subsequent years. (Had the 5% rate been in effect during
the five years ending with 2003, the two firms' combined contributions to these funds
would have averaged about $620 million per year.) The Senate bill contains no
comparable provision.
Proponents of the affordable housing funds recognize that Fannie and Freddie
receive a valuable subsidy in the form of their GSE status, which permits them to
borrow at lower rates than other private financial firms. The affordable housing fund
proposal can be viewed as a means of capturing some of the value of this subsidy and
applying it to a worthy policy objective.
Opponents argue that Fannie and Freddie would likely use the funds to reward
political allies. During floor consideration of H.R. 1461, an amendment was adopted
that prohibited the use of money disbursed by the affordable housing funds for
political, lobbying, or advocacy purposes. Other amendments included a five-year
sunset for the fund (with the Director of the new regulator to recommend to Congress
whether the fund should be extended) and established a priority for activities in areas
affected by Hurricanes Katrina and Rita, and in other areas designated by the
President as major disaster areas.
Conforming Loan Limits
Current law sets a limit on the size of mortgages that Fannie and Freddie can
buy. Mortgages above the limit, called jumbo loans, are less likely to be securitized
than the conforming mortgages that Fannie and Freddie are allowed to purchase.
Partly as a result, mortgage rates for nonconforming loans are slightly higher than
conforming loan rates.14 Critics of the conforming loan limit argue that the limit has
a disparate geographical effect: in some areas of the country the limit, which was
$417,000 for single-family homes (in 2006 and 2007), covers all but the high end of
the market, while in other areas, such as San Francisco or New York City, virtually
all real estate transactions take place over the limit.
H.R. 1461 would raise the conforming loan limit in metropolitan areas where
the median home price exceeds the current limit. In those areas, the limit would be
set at the median home price, up to a ceiling of 150% of the current limit. For more
information on this proposal, see CRS Report RS22172, Proposed Changes to the
Conforming Loan Limit, by Barbara Miles and Mark Jickling.
Like the affordable housing fund provision, the proposal to raise the loan limit
in high-cost areas recognizes that GSE status confers a subsidy on Fannie and
Freddie, and seeks to attain a more uniform distribution of the benefits of that
subsidy. In the process, raising the limit increases the size of the subsidy: allowing
Fannie and Freddie to expand operations into the jumbo mortgage market enhances
14
The difference is in the range of 25-40 basis points, or hundredths of a percent. Some of
the difference might persist even if the loan limits were abolished.
CRS-6
the value of the GSEs' funding advantage, which is dependent on their GSE status.
The Senate bill has no comparable provision.
Portfolio Limits
While the two House bill provisions discussed above seek to redistribute the
fruits of the GSE subsidy, the Senate bill contains a provision that could dramatically
reduce the value of that subsidy. Both Fannie and Freddie hold large portfolios of
mortgages and mortgage-backed securities, which generate interest income. They
pay for those mortgage assets by issuing debt securities at rates below what the
mortgages and mortgage-backed bonds pay. The difference between the yield on
mortgage-related assets and the GSEs' cost of funds is profit. Thus, the GSEs have
a strong incentive to pursue portfolio growth: the two firms together have nearly $1.5
trillion in portfolio assets, leading some observers to describe them as the world's
largest savings and loan institutions. The size of their portfolios represents a
concentration of mortgage market risk that led former Federal Reserve Board
Chairman Alan Greenspan and others to urge Congress to consider ways to shrink the
size of the GSEs' asset portfolios.15
Section 109 of S. 190 as reported enumerates the types of "permissible assets"
that Fannie and Freddie would be permitted to purchase. They would only be
allowed to acquire mortgages and mortgage-backed securities for purposes of
securitization, and for certain other limited purposes. Under this proposal, Fannie
and Freddie's business models would be considerably altered: instead of very large
investment funds, they would be transformed into conduits, buying mortgages from
the original lenders, pooling them, packaging them into mortgage-backed securities,
and selling them to bond investors. This would greatly reduce their portfolio
earnings, currently one of the chief sources of their profits. Proponents of portfolio
limits argue that this step is necessary to reduce the cost of the GSE subsidy to
taxpayers, which takes the form not of annual appropriations, but of the assumption
of risk -- the potential cost to the Treasury of having to bail out either Fannie or
Freddie to avoid the possibility of a systemic catastrophe in the financial markets,
should either firm encounter serious difficulties. Opponents argue that reducing the
GSE's interest earnings would mean less support for low- and moderate-income
housing goals. The House bill contains no similar provision.
Under H.R. 1461, the new regulator would have authority to cap the size of the
GSE portfolios, as part of its general safety-and-soundness authority. However, the
House bill would not impose a statutory requirement that the portfolios be shrunk.
The table below provides a side-by-side summary of legislative proposals
introduced in the 109th Congress that aim to reform the regulation of the GSEs. The
version of H.R. 1461 that is set out is the one reported by the Financial Services
Committee and later passed by the House. For ease of reference, amendments to the
reported version that were adopted on the House floor are set out in a separate
column.
15
E.g., testimony of Alan Greenspan, Chairman, Board of Governors of the Federal Reserve
System, before the House Committee on Financial Services, Feb. 17, 2005.
CRS-7
Table 1. Provisions of GSE Reform Legislation
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Short Title Federal Housing Finance Reform Federal Housing Enterprise Federal Housing Enterprise
Act of 2005 Regulatory Act of 2005 Regulatory Act of 2005
Subtitle A: Improvement of Safety and Soundness Regulation.
Name of New Federal Housing Finance Agency Federal Housing Enterprise Federal Housing Enterprise
Regulatory Agency (Sec. 101) Regulatory Agency (Sec. 101) Regulatory Agency (Sec. 101)
Agency Status Independent federal agency (Sec. Independent federal agency Independent federal agency
101) (Sec. 101) (Sec. 101)
Jurisdiction General supervisory and regulatory General regulatory authority over General regulatory authority over
authority over Fannie Mae, Freddie Fannie Mae, Freddie Mac, the Fannie Mae, Freddie Mac, the
Mac, and the Federal Home Loan Federal Home Loan Banks, and the Federal Home Loan Banks, and
Banks. Federal Home Loan Bank Finance the Federal Home Loan Bank
(Sec. 101) Facility. (Sec. 101) Finance Corporation. (Sec. 101)
CRS-8
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Key Definitions Removes the category of Fannie Mae, Freddie Mac, their Fannie Mae, Freddie Mac, their Fannie Mae, Freddie Mac, their
"any other person, as affiliates, and the Federal Home affiliates, and the Federal Home Loan affiliates, and the Federal Home
determined by the Loan Banks are defined as Banks are defined as "regulated Loan Banks are defined as
Director" from the "regulated entities." The term entities." (Current law defines "regulated entities." (Under
defintion of "regulated "enterprise" -- used frequently in Fannie and Freddie as "enterprises" current law, Fannie Mae and
entity-affiliated party." H.R. 1461 -- is defined in current -- many provisions of S. 190 refer Freddie Mac are defined as
law to mean Fannie Mae and only to them.) "Entity-affiliated "enterprises" -- many provisions
Freddie Mac. "Regulated entity- party" refers to directors, officers, of S. 190 refer only to them.)
affiliated party" includes (1) employees, share holders, "Enterprise-affiliated party,"
directors, officers, employees, consultants, partners, and other however, refers to directors,
agents, and controlling shareholders persons (determined by the Director) officers, employees,
of regulated entities; (2) any affiliated with regulated entities. The shareholders, consultants,
shareholder, consultant, joint definition also encompasses non- partners, and other persons (as
venture partner, or other person (as profits that receive principal, ongoing determined by the Director)
determined by the Director) that funding from a regulated entity. affiliated with Fannie, Freddie, or
participates in the affairs of a Independent contractors (such as the Federal Home Loan Banks.
regulated entity; (3) independent attorneys or accountants) also meet Independent contractors (such as
contractors (including attorneys, the definition of "entity-affiliated attorneys or accountants) also
appraisers, or accountants) and (4) party" if they participate in violations meet the definition of
non-profits that receive principal of law or regulation, breaches of "enterprise-affiliated party" if
funding, on an ongoing basis, from fiduciary duty, or unsafe and unsound they participate in violations of
any regulated entity. (Sec. 101) practices that have a significant law or regulation, breaches of
adverse impact on a regulated entity. fiduciary duty, or unsafe and
Defines "violation" to include unsound practices that have a
CRS-9
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
"causing, bringing about, significant adverse impact on a
participating in, counseling, or aiding regulated entity. (Sec. 2)
and abetting." (Sec. 2)
Agency Officials Requires the Director to A Director, appointed by the A Director, appointed by the A Director, appointed by the
establish an Office of the President, with the advice and President, with the advice and President, with the advice and
Ombudsman, to hear consent of the Senate, to a five-year consent of the Senate, to a six-year consent of the Senate, to a six-
complaints from regulated term; and 3 deputy directors term, and 3 deputy directors, year term, and 3 deputy directors,
entities or persons with (appointed by the Director), for the appointed by the Director, for the appointed by the Director, for the
business relationships to Divisions of (1) Enterprise Divisions of Enterprise Regulation; Divisions of Enterprise
the entities. Regulation; (2) Home Loan Bank Home Loan Bank Regulation; and Regulation; Home Loan Bank
Regulation; and (3) Housing. Housing Mission and Goals. (Sec. Supervision; and Housing
(Sec. 101) 101) An Inspector General of the Mission and Goals. (Sec. 101)
Agency. (Sec. 105) An Inspector General of the
Agency.
(Sec. 105)
Qualifications of U.S. citizens, with a demonstrated U.S. citizens, with a demonstrated U.S. citizens, with a
Agency Officials understanding of financial understanding of financial demonstrated understanding of
management or oversight and management or oversight and financial management or
housing finance, with additional housing finance, with additional oversight and housing finance,
specialized experience and specialized experience requirements with additional specialized
knowledge requirements for the for the deputy director positions. experience requirements for the
deputy director positions. (Sec. 101) deputy director positions.
(Sec. 101) (Sec. 101)
CRS-10
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Duties and To oversee the prudential operations To oversee the prudential operations To oversee the prudential
Authorities of the of regulated entities and to ensure of regulated entities and to ensure operations of regulated entities
Director that each entity (1) operates in a safe that each entity (1) operates in a safe and to ensure that each entity (1)
and sound manner and maintains and sound manner and maintains operates in a safe and sound
adequate capital and internal adequate capital and internal controls, manner and maintains adequate
controls, (2) fosters well-functioning (2) fosters well-functioning housing capital and internal controls, (2)
housing finance markets (including finance markets (including low- and fosters well-functioning housing
low- and moderate-income housing), moderate-income housing), (3) finance markets (including low-
(3) complies with applicable laws complies with applicable laws and and moderate-income housing),
and regulations, and (4) engages regulations, (4) engages only in (3) complies with applicable laws
only in activities authorized by activities authorized by statute, (5) and regulations, (4) engages only
statute. The Director may review serves the public interest, (6) remains in activities authorized by statute,
and reject attempts to acquire a adequately capitalized, and (7) in the (5) serves the public interest, and
controlling interest in a regulated case of the FHLBs, that they provide (6) remains adequately
entity. The Director may exercise funds through their members for capitalized, after consideration of
necessary and appropriate incidental small businesses and farms. The the risk to such entity. The
powers to fulfill the agency's duties Director may review and reject Director may review and reject
and responsibilities. The Director attempts to acquire a controlling attempts to acquire a controlling
shall be a member of the Federal interest in a regulated entity. The interest in a regulated entity. The
Financial Institutions Examination Director may exercise necessary and Director may exercise necessary
Council. (Sec. 102) appropriate incidental powers to and appropriate incidental
fulfill the agency's duties and powers to fulfill the agency's
responsibilities. (Sec. 102) duties and responsibilities. (Sec.
102)
CRS-11
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Prudential The Director shall establish The Director may establish standards The Director may establish
Management and standards for each regulated entity for the enterprises regarding (1) standards for the enterprises
Operations Standards regarding (1) internal controls and internal controls and information regarding (1) internal controls
information systems, (2) internal systems, (2) internal audit systems, and information systems, (2)
audit systems, (3) credit and (3) interest rate risk management, (4) internal audit systems, (3)
counterparty risk, (4) interest rate monitoring and management of interest rate risk management, (4)
risk management, (5) monitoring market risk, (5) adequacy and monitoring and management of
and management of market risk, (6) maintenance of liquidity and market risk, (5) adequacy and
adequacy and maintenance of reserves, (7) asset and portfolio maintenance of liquidity and
liquidity and reserves, (7) asset and growth, (8) overall risk management, reserves, (7) asset and portfolio
portfolio management, (8) including backup facilities to protect growth, (8) overall risk
investments and acquisitions, (9) against disruptive events, and (9) management, including backup
record keeping, (10) issuance of other standards deemed to be facilities to protect against
subordinated debt, as the Director appropriate. (Sec. 108) disruptive events, and (9) other
considers necessary, (11) overall standards deemed to be
risk management, including backup appropriate. (Sec. 108)
facilities to protect against
disruptive events, and (12) other
standards the Director determines to
be appropriate. (Sec. 102)
CRS-12
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Failure to Meet If the Director finds that a regulated No comparable provision. No comparable provision.
Prudential Standards entity has failed to meet one of the
above standards, the entity shall
(within 30 days) submit a plan to
correct the deficiency. If the
deficiency is not corrected, the
Director may prohibit the entity
from increasing its total assets, may
require an increase in regulatory
capital, or take other measures.
(Sec. 102)
Authority to Require The Director is authorized to require The Director is authorized to require The Director is authorized to
Reporting by regulated entities to submit regular regulated entities to submit regular require regulated entities to
Regulated Entities reports on their operations and reports, including financial submit regular reports, including
financial condition. Regulated statements determined on a fair value financial statements determined
entities would be required to report basis. Establishes penalties for failure on a fair value basis. (Sec. 104)
in a timely manner the discovery of to make reports. Regulated entities would be
a purchase or sale of a fraudulent (Sec. 104) required to report in a timely
loan. (Sec. 104) Regulated entities would be required manner the discovery of a
to report in a timely manner the purchase or sale of a fraudulent
discovery of a purchase or sale of a loan. (Sec. 112)
fraudulent loan.
(Sec. 113)
CRS-13
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Advisory Board Creates the Housing Finance Creates the Federal Housing Creates the Federal Housing
Oversight Board (made up of the Enterprise Board (made up of the Enterprise Board (made up of the
Director, the Secretaries of the Director, the Secretaries of the Director, the Secretaries of the
Treasury and HUD, or their Treasury and HUD, and the Treasury and HUD, and the
designees, and two individuals with Chairman of the SEC) to advise the Chairman of the SEC) to advise
relevant experience appointed by the Director on overall strategies and the Director on overall strategies
President to three-year terms, with policies. The board is to meet at least and policies. The board is to
the advice and consent of the every three months, and testify to meet at least every three months,
Senate) to advise the Director on Congress annually on the safety and and testify to Congress annually
overall strategies and policies. The soundness of the regulated entities on the safety and soundness of
board is to meet at least every three and the performance of the agency. the regulated entities and the
months, and testify to Congress (Sec. 103) performance of the agency.
annually on the safety and (Sec. 103)
soundness, operational status, and
mission performance of the
regulated entities, and the operations
and performance of the agency and
board. (Sec. 103)
CRS-14
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Assessments and The Director shall establish and Removes the Agency from the Removes the Agency from the
Appropriations collect annual assessments from the appropriations process. The Director appropriations process. The
regulated entities to provide for would establish and collect annual Director shall establish and
reasonable costs and expenses of the assessments from the regulated collect annual assessments from
Agency, including (1) costs of entities, in amounts sufficient to the regulated entities, in amounts
examinations, reviews, and credit provide for reasonable costs and sufficient to provide for
assessments, and (2) amounts in expenses of the agency, including (1) reasonable costs and expenses of
excess of actual expenses to costs of examinations, reviews, and the agency, including (1) costs of
maintain necessary working capital. credit assessments, and (2) amounts examinations, reviews, and credit
Assessments may be increased to in excess of actual expenses to assessments, and (2) amounts in
cover costs of enforcement activities maintain necessary working capital. excess of actual expenses to
or if an entity is inadequately Salaries and other expenses of the maintain necessary working
capitalized. Salaries and other agency shall be paid from capital. Salaries and other
expenses shall be paid from assessments, which shall not be expenses of the agency shall be
assessments, which shall not be construed to be government funds or paid from assessments, which
construed to be government funds or appropriated monies. shall not be construed to be
appropriated monies. The agency (Sec. 106) government funds or
shall provide OMB with financial appropriated monies.
plans and forecasts, prepare annual (Sec. 106)
financial statements (including an
assertion of the effectiveness of
internal accounting controls), and be
audited annually by GAO (at the
agency's expense). (Sec. 105)
CRS-15
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Direct Hire Authority Director may hire examiners, Director may hire examiners, Director may hire examiners,
accountants, specialists in accountants, economists, and accountants, economists, and
technology or financial markets, and specialists in financial markets and specialists in financial markets
economists in accordance with rules technology in accordance with rules and technology in accordance
governing the excepted service, governing the excepted service, with rules governing the
notwithstanding any rules governing notwithstanding any rules governing excepted service,
the competitive service. (Sec. 106) the competitive service. (Sec. 105) notwithstanding any rules
governing the competitive
service. (Sec. 105)
Prohibition and The prohibition (in current law) of No comparable provision No comparable provision
Withholding of executive compensation that is not
Executive reasonable or comparable is
Compensation amended by permitting the Director
to take into account wrongdoing on
the part of the executive, and to hold
pay in escrow while a determination
is made. (Sec. 107)
Regulations and The Director is authorized to issue The Director is authorized to issue The Director is authorized to
Orders any regulations, guidelines, or any regulations, directives, issue any regulations, directives,
orders that are necessary to carry out guidelines, or orders that are guidelines, or orders that are
the authorizing statutes. (Sec. 109) necessary to carry out the authorizing necessary to carry out the
statutes. (Sec. 107) authorizing statutes. (Sec. 107)
CRS-16
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Control over The Director shall periodically Director shall, by regulation, Authorizes the Director to
Enterprise Assets, review the on-balance sheet assets establish criteria regarding the assets determine the type and amount of
Portfolios, and liabilities of the enterprises, and may that an enterprise may hold, nonmission-related assets that an
Obligations order the disposition or acquisition considering safety and soundness of enterprise may hold at any time.
of any asset or obligation, if the the enterprises and systemic risk. Any regulation issued for this
Director determines that such action "Permissible assets" are to include purpose shall include a definition
is consistent with safe and sound only the following: (1) mortgages and of "nonmission-related asset."
operation. mortgage-backed securities acquired (Sec. 109)
(Sec. 112) for purposes of securitization, (2)
mortgages related to affordable
housing goals that cannot be readily
securitized, (3) a limited inventory of
mortgages to support the guarantee
business, (4) cash, (5) real estate
acquired through foreclosure, (6)
U.S. Treasury securities, and (7) real
estate, equipment, and intellectual
property related to the enterprise's
operations. (Sec. 109)
CRS-17
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Risk-Based and The Director shall, by regulation, The Director shall, by regulation, The Director shall, by regulation,
Minimum Capital establish risk-based capital establish risk-based capital establish risk-based capital
Levels requirements for the enterprises to requirements for each regulated requirements for each regulated
ensure safe and sound operation and entity, to ensure safe and sound entity, to ensure safe and sound
maintenance of sufficient capital and operation and maintenance of operation and maintenance of
reserves to support risk exposure. sufficient capital and reserves to sufficient capital and reserves to
The Director shall establish risk- support risk exposure. support risk exposure.
based capital requirements for the (Sec. 110) (Sec. 110)
Federal Home Loan Banks.
Confidentiality of information
enabling risk-based capital standards
shall be maintained. (Sec. 110)
CRS-18
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Minimum and The Director may, by regulation, The Director is authorized to With regard to the enterprises
Critical Capital establish minimum capital levels for establish minimum capital levels for (Fannie and Freddie), the
Levels regulated entities that are higher regulated entities that are higher than Director may establish minimum
than the statutory levels. The those specified in statute. capital levels that are higher than
Director may, by order or regulation, (Sec. 110) those specified in the statute.
establish a capital or reserve (Sec. 110)
requirement with respect to a Authorizes the Director to establish
particular program or activity, to critical capital levels for the
ensure that the entity operates in a enterprises that are different from the
safe and sound manner. The levels specified in statute, and to
Director shall, by regulation, establish critical capital levels for the
establish a critical capital level for FHLBs. (Sec. 141)
the Home Loan Banks. (Sec. 111)
CRS-19
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
SEC Registration Requires each regulated entity to Requires each regulated entity to Requires each regulated entity to
Requirements register at least one class of capital register at least one class of capital register at least one class of
stock with the SEC, and requires stock with the SEC, and requires capital stock with the SEC, and
enterprises (Fannie and Freddie) to enterprises (Fannie and Freddie) to requires enterprises (Fannie and
comply with Sections 14 and 16 of comply with Sections 14 and 16 of Freddie) to comply with Sections
the Securities Exchange Act of 1934 the Securities Exchange Act of 1934, 14 and 16 of the Securities
(which deal with proxy reporting which deal with proxy reporting and Exchange Act of 1934, which
and disclosure of insider disclosure of insider transactions in deal with proxy reporting and
transactions in company stock). company stock. (Sec. 111) disclosure of insider transactions
Enterprises whose stock is not in company stock. (Sec. 110)
registered or is deregistered remain Sec. 205 (see below) exempts the
subject to certain provisions of the Federal Home Loan Banks from
Securities Exchange Act. several provisions of securities
(Sec. 114) law.
Corporate Requires a majority of the board to No comparable provision No comparable provision
Governance of be independent directors, as defined
Enterprises by the NYSE. Requires boards to
meet at least eight times a year, and
requires non-management directors
to meet regularly in executive
session without management
participation. (Sec. 113)
CRS-20
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Compensation by Compensation of directors, No comparable provision No comparable provision
Enterprises executives, and employees shall not
exceed what is reasonable and
appropriate, shall be commensurate
with duties and responsibilities,
consistent with the long-term goals
of the enterprise, shall not focus
solely on earnings performance.
Enterprises are made subject to
Section 304 of the Sarbanes-Oxley
Act, which requires CEOs and CFOs
to reimburse the company under
certain circumstances after an
accounting restatement. (Sec. 113)
Code of Conduct and An enterprise shall establish and No comparable provision No comparable provision
Ethics enforce a written code of conduct
designed to ensure that directors,
officers, and employees act in an
impartial and objective manner,
including standards under section
406 of the Sarbanes-Oxley Act.
(Sec. 113)
CRS-21
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Responsibilities of The board of an enterprise shall No comparable provision No comparable provision
the Board of oversee (1) corporate strategy, risk
Directors policy, and compliance programs,
(2) hiring and retention of qualified
executives, (3) compensation
programs, (4) the integrity of
accounting and financial reporting
systems, (5) disclosures to
shareholders and investors, (6)
extensions of credit to officers and
directors, and (7) responsiveness in
reporting to federal regulators. (Sec.
113)
Prohibition of An enterprise may not (directly, No comparable provision No comparable provision
Extensions of Credit indirectly, or through a subsidiary)
make any personal loan to a board
member or executive officer. (Sec.
113)
CRS-22
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Certification of The CEO and CFO of an enterprise No comparable provision No comparable provision
Disclosures shall review annual and quarterly
reports and shall make the
certifications required by section
302 of the Sarbanes-Oxley Act.
(Sec. 113)
Change of Audit Requires that the lead partner of the No comparable provision No comparable provision
Partner external auditor of an enterprise be
changed every five years. (Sec.
113)
Compliance Program Each enterprise shall establish a No comparable provision No comparable provision
compliance program reasonably
designed to ensure that the
enterprise complies with applicable
laws, regulations, and internal
controls. The program shall be
headed by a compliance officer, who
reports directly to the CEO and
regularly to the board. (Sec. 113)
CRS-23
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Risk Management Each enterprise shall establish a risk No comparable provision No comparable provision
Program management program reasonably
designed to manage the risks of
operation. The program shall be
headed by a risk management
officer, who reports directly to the
CEO and regularly to the board.
(Sec. 113)
Restrictions on No comparable provision, but such The Agency may prohibit or limit, by The Agency may prohibit or
Certain Golden payments could be subject to the regulation or order, any golden limit, by regulation or order, any
Parachute Payments "reasonable and appropriate" tests in parachute or indemnification golden parachute or
Section 113(c). payment. Sets out criteria that the indemnification payment that
Agency may consider in deciding would be received by any
whether to prohibit a payment. (Sec. enterprise-affiliated party after an
112) enterprise became insolvent, was
determined to be in a troubled
condition, or following the
appointment of a conservator or
receiver. (Sec. 111)
CRS-24
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Reporting of Regulated entities would be required The Director shall, by regulation, The Director shall, by regulation,
Fraudulent Loans to report in a timely manner the require enterprises to timely disclose require enterprises to timely
discovery of a purchase or sale of a the discovery of the purchase or sale disclose the discovery of the
fraudulent loan. (Sec. 104) of a fraudulent loan. Regulated purchase or sale of a fraudulent
entities must have procedures loan. (Sec. 112)
designed to discover fraudulent loans.
(Sec. 113)
CRS-25
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Subtitle B: Improvement of Mission Supervision.
Oversight of Program and housing goal oversight Oversight of affordable housing goals Oversight of affordable housing
Affordable Housing is transferred from HUD to the is transferred from Secretary of HUD goals is transferred from
Goals Agency. to the Director. HUD retains fair Secretary of HUD to the
(Sec. 121) housing responsibilities. (Secs. 121, Director. HUD retains fair
123 and 124) The Inspector General housing responsibilities. (Secs.
of the Agency shall conduct an 121 and 124-126) The Inspector
annual audit of affordable housing General of the Agency shall
programs. conduct an annual audit of
(Sec. 402) affordable housing programs.
Incorporates into statute (and (Sec. 402)
modifies) several regulatory
provisions dealing with definitions
and oversight of housing goals.
(Sec. 127)
CRS-26
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Prior Approval of Enterprises may not undertake new Prior approval authority is transferred Prior approval authority is
New Business programs or business activities from HUD to the Director. (Sec. transferred from HUD to the
Activities by without the Director's prior 121) The Director shall consider Director. (Sec. 121)
Enterprises approval. Approval is contingent whether proposed new products are Authorizes the Director to review
upon consistency with statutory (1) consistent with the GSEs' any enterprise activities, to
authority, safety and soundness, and authorizing statutes, (2) in the public determine their conformance
the public interest. The Director interest, (3) consistent with safety with the purposes of the statutes,
may prohibit any activity that is and soundness of the enterprise and and to protect the safety and
inconsistent with the law, otherwise the mortgage finance system, and (4) soundness of the enterprises.
inconsistent with safety and not harmful to the stability or The Director may prohibit or
soundness, or not in the public competitiveness of the mortgage limit any activities found to be
interest. Requires enterprises to finance system. Requests for impermissible or inappropriate.
submit a report to the director approval of new products would (Sec. 122)
describing each program and trigger a 30-day public comment
business activity within 180 days of period, after which the Agency would
enactment. (Sec. 122) have 30 days to act on the request.
(Sec. 122)
CRS-27
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Mission Clarification Within six months of the effective No comparable provision, but the The Director shall define by
date of this legislation, the Director Director could consider the regulation "loan origination,"
shall, by regulation, define distinction between primary and establishing thereby which
"mortgage loan origination" and secondary markets when deciding activities are impermissible for
"secondary mortgage market." (Sec. whether to approve new products. the enterprises. The Director
122) (Sec. 122) shall define the boundary
between the secondary mortgage
market (where the enterprises are
allowed to operate) and the
primary mortgage market (where
they are not). Grandfathering of
enterprise activities that do not
accord with these definitions is
not automatically presumed, but
may be permitted by the
Director. (Sec. 107)
CRS-28
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Conforming Loan Sets conforming loan limits and Provides for annual adjustments to No comparable provision
Limits requires the agency to make annual the conforming loan limit based on
adjustments to the limits based on changes in a housing price index to
increases or decreases in a housing be established and maintained by the
price index maintained by the Director.
agency. The accuracy of the (Sec. 126)
housing price index is to be audited
by GAO. For high-cost
metropolitan statistical areas, the
conforming loan limit is raised to
the lesser of 150% of the statutory
limit or the median home price in
that area. (Sec. 123)
CRS-29
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Annual Housing The Director shall report annually to No comparable provision No comparable provision
Report the House Financial Services and
Senate Banking Committees on the
achievement of housing goals,
actions to promote or expand goals,
to expand opportunities for first-
time home buyers, fair housing
issues, and conditions in housing
markets. To assist in the preparation
of this report, the Director shall
conduct a monthly survey of
housing markets. (Sec. 124)
CRS-30
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Establishment of The Director shall establish goals, No comparable provision No comparable provisions
Housing Goals and with annual targets, for the
Home Purchase Goal purchases of mortgage loans made
to low and very low income
families, or families in low income
areas. Annual goals shall also be
established for purchases of
mortgages on multifamily housing
units serving very low income
families, or units assisted by the
low-income housing tax credit.
(Sec. 125)
Creates a duty to serve underserved
markets, by undertaking activities
related to mortgages on housing for
low, very low, and moderate income
familes, including manufactured
housing.
(Sec. 126)
CRS-31
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Monitoring and Upon a written finding that an No comparable provision No comparable provision
Enforcing Housing enterprise has failed to meet a
Goal Compliance housing goal, the Director is
authorized to take any of several
steps to enforce compliance,
including cease-and-desist orders,
refusal to authorize new programs,
and civil money penalties not to
exceed $50,000 per day. Other
sanctions may include a prohibition
on new activities or programs. (Sec.
127)
CRS-32
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Affordable Housing Expands the mission of the Each enterprise shall establish an No comparable provision No comparable provision
Fund fund to include increasing affordable housing fund to increase
investment in public homeownership among very- and
infrastructure and extremely-low income families, to
leveraging investments increase investment in housing in
from other sources in low income and economically
connection with low- and distressed areas, and to increase and
extremely-low income preserve the supply of rental and
housing. Adds a five-year owner-occupied housing for very-
sunset to the affordable and extremely-low income families.
housing fund, and requires Each enterprise shall allocate to this
the Director to report to fund 3.5% of its after-tax income
Congress with during the first year after enactment,
recommendations as to and 5% in subsequent years. No
whether the fund should be allocation would be required when
extended or modified. an enterprise was less than
Prohibits use of fund adequately capitalized.
disbursements for political (Sec. 128)
purposes, and requires the
enterprises to track the use
of funds by recipients.
CRS-33
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Affordable Housing Requires the Board to The Director shall appoint an No comparable provision No comparable provision
Board establish a priority for affordable housing board, whose
funding activities in areas members shall include the
affected by Hurricanes Secretaries of HUD and Agriculture
Katrina and Rita, or any (or their designees), and 2 persons
area declared a major each from (1) businesses and (2)
disaster area. non-profits actively engaged in
promoting or providing housing for
very- or extremely-low income
households. The board shall
determine very- and extremely-low
income housing needs and advise
the director on priorities for the use
of the affordable housing funds.
(Sec. 128)
CRS-34
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Subtitle C: Prompt Corrective Action.
Capital The Director may reclassify a The Director may reclassify a The Director may reclassify a
Classifications regulated entity (1) whose conduct regulated entity whose conduct could regulated entity whose conduct
could rapidly deplete core or total rapidly deplete core capital, or whose could rapidly deplete core
capital, or (in the case of an mortgage assets have declined capital, or whose mortgage assets
enterprise) whose mortgage assets significantly in value, or which is have declined significantly in
have declined significantly in value, determined (after notice and value, or which is determined
or (2) which is determined (after opportunity for a hearing) to be in an (after notice and opportunity for
notice and opportunity for a hearing) unsafe or unsound condition. (Sec. a hearing) to be in an unsafe or
to be in an unsafe or unsound 142) unsound condition. (Sec. 141)
condition. (Sec. 141)
Restriction on A regulated entity shall make no A regulated entity shall make no A regulated entity shall make no
Capital Distributions capital distribution that would cause capital distribution that would cause capital distribution that would
it to become undercapitalized, it to become undercapitalized, except cause it to become
except as permitted by the Director as permitted by the Director under undercapitalized, except as
under certain circumstances. certain circumstances. permitted by the Director under
(Sec. 141) (Sec. 142) certain circumstances.
(Sec. 141)
CRS-35
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Supervisory Actions The Director must monitor the The Director must monitor the The Director must monitor the
Applicable to entity's condition, its compliance entity's condition, its compliance entity's condition, its compliance
Undercapitalized with its capital restoration plan, and with its capital restoration plan, and with its capital restoration plan,
Regulated Entities the efficacy of the plan. No growth the efficacy of the plan. No growth and the efficacy of the plan. No
in total assets is permitted for an in total assets is permitted for an growth in total assets is permitted
undercapitalized GSE, unless the undercapitalized GSE, unless the for an undercapitalized GSE,
director has accepted the GSE's director has accepted the GSE's unless the director has accepted
capital restoration plan, an increase capital restoration plan, an increase in the GSE's capital restoration
in assets is consistent with the plan, assets is consistent with the plan, and plan, an increase in assets is
and the ratio of tangible equity to the ratio of tangible equity to assets is consistent with the plan, and the
assets is increasing. No new increasing. No new activities or ratio of tangible equity to assets
activities or acquisitions permitted acquisitions permitted without the is increasing. No new activities
without the Director's prior approval Director's prior approval and or acquisitions permitted without
and determination that such determination that such activities the Director's prior approval and
activities would be consistent with would be consistent with the capital determination that such activities
the capital restoration plan. Actions restoration plan. Actions that may be would be consistent with the
that may be taken under current law taken under current law with regard capital restoration plan. Actions
with regard to significantly to significantly undercapitalized that may be taken under current
undercapitalized GSEs may be taken GSEs may be taken with regard to law with regard to significantly
with regard to undercapitalized undercapitalized GSEs. (Sec. 142) undercapitalized GSEs may be
GSEs. (Sec. 142) taken with regard to
undercapitalized GSEs.
(Sec. 142)
CRS-36
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Supervisory Actions Supervisory actions that the Supervisory actions that the regulator Supervisory actions that the
Applicable to regulator may take under current law may take under current law must be regulator may take under current
Significantly must be taken, including one or taken, including one or more of the law must be taken, including one
Undercapitalized more of the following: new election following: new election of directors, or more of the following: new
Regulated Entities of directors, dismissal of directors dismissal of directors and/or election of directors, dismissal of
and/or executives, and hiring of executives, and hiring of qualified directors and/or executives, and
qualified executive officers, or other executive officers, or other actions. hiring of qualified executive
actions. Without prior written Without prior written approval of the officers, or other actions.
approval of the Director, executives Director, executives of a significantly Without prior written approval of
of a significantly undercapitalized undercapitalized GSE may not the Director, executives of a
GSE may not receive bonuses or pay receive bonuses or pay raises. (Sec. significantly undercapitalized
raises. (Sec. 143) 143) GSE may not receive bonuses or
pay raises. (Sec. 143)
CRS-37
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Authority Over The Director may appoint (or the The Director may appoint (or the The Director may appoint (or the
Critically agency may serve as) a receiver or agency may serve as) a receiver or agency may serve as) a receiver
Undercapitalized conservator for several specified conservator for several specified or conservator for several
Enterprises causes related to financial difficulty causes related to financial difficulty specified causes related to
(Liquidation and/or violations of law or and/or violations of law or regulation. financial difficulty and/or
Authority) regulation. Sets out powers of Sets out powers of conservators or violations of law or regulation.
conservators or receivers, and receivers, and procedures for Sets out powers of conservators
procedures for settlement of claims settlement of claims and other aspects or receivers, and procedures for
and other aspects of liquidation. of liquidation. Authorizes the settlement of claims and other
Authorizes the Director to appoint a Director to appoint a limited-life aspects of liquidation.
limited-life enterprise to deal with enterprise to deal with the affairs of Authorizes the Director to
the affairs of an enterprise in an enterprise in default. Prohibits a appoint a limited-life enterprise
default. Prohibits a receiver from receiver from terminating or revoking to deal with the affairs of an
terminating or revoking the charter the charter of an enterprise. enterprise in default. Prohibits a
of an enterprise. (Sec. 144) (Sec. 144) receiver from terminating or
revoking the charter of an
enterprise. (Sec. 144)
CRS-38
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Subtitle D: Enforcement Actions.
Cease-and-Desist The Director may issue cease-and- The Director may issue cease-and- The Director may issue cease-
Orders desist orders against a regulated desist orders against a regulated and-desist orders against a
entity, a regulated entity-affiliated entity, an entity-affiliated party, or regulated entity, an entity-
party, or the Federal Home Loan the Federal Home Loan Bank Finance affiliated party, or the Federal
Bank Finance Corporation (created Corporation (created by Sec. 204) for Home Loan Bank Finance
by Sec. 204) for unsafe or unsound unsafe or unsound practices (actual or Corporation (created by Sec.
practices (actual or imminent), imminent), violations of laws and 204) for unsafe or unsound
violations of laws and regulations, regulations, or for a less-than- practices (actual or imminent),
or for a less-than-satisfactory rating satisfactory rating where the violations of laws and
where the identified deficiency is identified deficiency is not corrected. regulations, or for a less-than-
not corrected. (Sec. 161) (Sec. 151) satisfactory rating where the
identified deficiency is not
Temporary cease-and-desist orders Temporary cease-and-desist orders corrected. (Sec. 151)
may be issued if actions taken (or may be issued if actions taken (or not
not taken) by the regulated entity are taken) by the regulated entity are Temporary cease-and-desist
likely to cause insolvency or weaken likely to cause insolvency or weaken orders may be issued if actions
its financial condition prior to the its financial condition prior to the taken (or not taken) by the
conclusion of a cease-and-desist conclusion of a cease-and-desist regulated entity are likely to
proceeding. (Sec. 162) proceeding. (Sec. 152) cause insolvency or weaken its
financial condition prior to the
conclusion of a cease-and-desist
proceeding. (Sec. 152)
CRS-39
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Removal and After written notice and opportunity The Director may issue cease-and- The Director may issue cease-
Prohibition Authority for a hearing, the Director may desist orders against a regulated and-desist orders against a
suspend or remove regulated entity- entity, an entity-affiliated party, or regulated entity, an entity-
affiliated parties who have (1) the Federal Home Loan Bank Finance affiliated party, or the Federal
violated a law or a cease-and-desist Facility (created by Sec. 204) for Home Loan Bank Finance
or other written order, (2) engaged unsafe or unsound practices (actual or Corporation (created by Sec.
in an unsafe or unsound practice, or imminent), violations of laws and 204) for unsafe or unsound
(3) breached fiduciary duty, such regulations, or for a less-than- practices (actual or imminent),
that (1) the regulated entity is likely satisfactory rating where the violations of laws and
to suffer loss or the enterprise identified deficiency is not corrected. regulations, or for a less-than-
affiliated party gain, and (2) the (Sec. 151) satisfactory rating where the
unsafe or unsound practice involves identified deficiency is not
personal dishonesty or demonstrates Temporary cease-and-desist orders corrected. (Sec. 151)
willful and continuing disregard for may be issued if actions taken (or not
the safety and soundness of the taken) by the regulated entity are Temporary cease-and-desist
regulated entity. Also provides for likely to cause insolvency or weaken orders may be issued if actions
industry-wide suspensions under its financial condition prior to the taken (or not taken) by the
certain circumstances. Provides for conclusion of a cease-and-desist regulated entity are likely to
judicial review of such orders or proceeding. (Sec. 152) cause insolvency or weaken its
suspensions. (Sec. 166) financial condition prior to the
conclusion of a cease-and-desist
proceeding. (Sec. 152)
CRS-40
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Enforcement and Authorizes the Director to apply to Authorizes the Director to apply to Authorizes the Director to apply
Jurisdiction Federal District Court for Federal District Court for to Federal District Court for
enforcement of outstanding notice or enforcement of outstanding orders or enforcement of outstanding
order, and to request the Attorney subpoenas, and to request the orders or subpoenas, and to
General to bring actions for that Attorney General to bring actions for request the Attorney General to
purpose. (Sec. 164) that purpose. (Sec. 154) bring actions for that purpose.
(Sec. 154)
Civil Money Establishes three tiers of fines: (1) Establishes three tiers of fines: (1) Establishes three tiers of fines:
Penalties $10,000 per day for violations of $10,000 per day for violations of (1) $10,000 per day for violations
orders, etc., (2) $50,000 per day for orders, etc., (2) $50,000 per day for a of orders, etc., (2) $50,000 per
recklessly engaging in an unsafe or pattern of misconduct or material day for a pattern of misconduct
unsound practice, or a pattern of breach of fiduciary duty with or material breach of fiduciary
misconduct or material breach of financial gain to the entity or duty with financial gain to the
fiduciary duty with financial gain to individual, and (3) up to a maximum entity or individual, and (3) up to
the entity or individual, and (3) up to of $2 million for knowingly engaging a maximum of $2 million for
a maximum of $2 million per day in violations, breaches of fiduciary knowingly engaging in
for knowingly engaging in duties, or unsafe or unsound practices violations, breaches of fiduciary
violations, breaches of fiduciary that cause substantial losses to a duties, or unsafe or unsound
duties, or unsafe or unsound regulated entity. (Sec. 155) practices that cause substantial
practices that cause substantial losses to a regulated entity.
losses to a regulated entity. (Sec. 155)
(Sec. 165)
CRS-41
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Criminal Penalties Anyone who participates directly or Anyone who participates directly or Anyone who participates directly
indirectly in the affairs of a indirectly in the affairs of a regulated or indirectly in the affairs of a
regulated entity while under entity while under suspension or regulated entity while under
suspension or order of removal shall order of removal shall be liable for a suspension or order of removal
be liable for a fine of up to $1 fine of up to $1 million, or five years shall be liable for a fine of up to
million, or five years imprisonment. imprisonment. (Sec. 156) $1 million, or five years
(Sec. 167) imprisonment. (Sec. 156)
Studies and Reports In addition to the study in Section (1) The Federal Reserve shall study (1) The Director and federal bank
Required 182 (described to the right), the and report to Congress on the effects regulators shall report to
reported bill calls for (1) a study by of the Basel II Capital Accord on Congress on holdings of GSE
the Director of the effect that regulated entities. (Sec. 401) debt by insured depository
restrictions on conforming loan (2) The Director and federal bank institutions and whether such
limits have on mortgage markets; regulators shall report to Congress on holdings are a source of systemic
(2) a study on guarantee fees by the holdings of GSE debt by insured risk.
Comptroller General in consultation depository institutions and whether (2) The Director, in consultation
with the federal banking agencies such holdings are a source of with GAO, shall report to
and the new director of the FHFA; systemic risk. (Sec 403) (3) The Congress on GSE portfolio
(3) a review by the GSEs of Director shall submit a quarterly operations, risk management, and
disparities in interest rates charged report to Congress on the risk-based mission. (3) The Director shall
on mortgages for minority capital levels for the enterprises. report to Congress on the
borrowers; (4) an affordable housing (Sec. 404) (4) The GAO shall appropriate level of debt issuance
study related to long-term-care submit an annual report to Congress, by GSEs. (4) The Director shall
facilities; and with recommendations, on the submit a quarterly report to
(5) a study of alternative secondary allocation of resources within the Congress on the risk-based
CRS-42
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
mortgage markets systems, such as Agency and the level of assessments capital levels for the enterprises.
privatization or competition from collected from the regulated entities. (5) The GAO shall submit an
new GSEs. (Sec. 405) (5) The Director shall annual report to Congress, with
conduct an ongoing study of recommendations, on the
guarantee fees, and collect data allocation of resources within the
regarding such fees. The Director Agency and the level of
shall submit an annual report to assessments collected from the
Congress regarding the amount of regulated entities. (Sec. 161)
such fees and the way they are set. (6) The Federal Reserve shall
(Sec. 406) (6) The Agency, the SEC, study and report to Congress on
and the Treasury shall study and the effects of the Basel II Capital
report to Congress on registration of Accord. (Sec. 401)
debt securities of regulated entities
under the Securities Act of 1933.
(Sec. 407)
All reports required by this title shall
include recommendations regarding
legislation, regulations, or other
actions to deal effectively and
appropriately with the issues raised.
(Sec. 408)
CRS-43
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
End of Presidential Eliminates the requirement that five Abolishes the requirement that five Abolishes the requirement that
Appointment of directors on the boards of Fannie directors on the boards of Fannie Mae five directors on the boards of
Enterprise Directors Mae and Freddie Mac be appointed and Freddie Mac be appointed by the Fannie Mae and Freddie Mac be
by the President. Reduces the size President. appointed by the President.
of enterprise boards from 18 to (Sec. 172) (Sec. 172)
between 7 and 15. (Sec. 181)
CRS-44
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Title II: Federal Home Loan Bank Provisions.
Boards of Directors Provides that boards of FHLBs shall Provides that all directors of Federal Provides that all directors of
contain 13 members, or such Home Loan Banks shall be elected by Federal Home Loan Banks shall
number as the Director determines, the membership. The 13-member be elected by the membership.
all elected by the membership (none boards shall include (1) member The 13-member boards shall
appointed). A majority of each directors -- officers or directors of include (1) member directors --
board shall consist of member member banks located in the bank officers or directors of member
directors -- officers or directors of district -- and (2) at least five non- banks located in the bank district
member banks located in the FHLB member directors (at least 1/3 of the -- and (2) at least five
district. At least 1/3 of the members board), who shall be residents of the nonmember directors, who shall
shall be independent directors: bona bank district, and who shall include at be residents of the bank district,
fide residents of the bank district, at least two representatives of consumer and who shall include at least
least two of whom represent or community interests. Directors' two representatives of consumer
consumer or community interests. terms are extended from three to four or community interests.
Other independent directors shall years. Directors' terms are extended
have financial or management (Sec. 201) from three to four years.
expertise. Independent directors (Sec. 201)
may not serve as officers of a FHLB
or member bank. Terms of service
are set at four (rather than three)
years. The cap on director pay is
lifted, but compensation must be
reasonable and appropriate.
(Sec. 202)
CRS-45
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Debt Issuing Facility No directly comparable provision, Establishes a Federal Home Loan Establishes a Federal Home Loan
but permits two or more FHLBs to Bank Finance facility to issue and Bank Finance Corporation (as a
establish a joint office to provide service debt obligations, to act as jointly owned subsidiary of the
services to banks on a common or fiscal agent, and to perform other Federal Home Loan Banks) to
collective basis. The FHLBs may functions now performed by the issue and service debt
require the Office of Finance to Office of Finance. Provides for a obligations, to act as fiscal agent,
provide such services as the banks governing Board of Directors, and to perform other functions
are authorized to perform or provide comprising the presidents of the now performed by the Office of
individually. (Sec. 204) Federal Home Loan Banks, and sets Finance. Provides for a
out the Board's duties and powers. governing Board of Directors,
(Sec. 204) comprising the presidents of the
Federal Home Loan Banks, and
sets out the Board's duties and
powers. (Sec. 204)
FHLB Mergers and Permits voluntary mergers between No comparable provision No comparable provision
Reorganization FHLBs, subject to the approval and
regulation of the Director. (Sec. 206)
Community Insured depository institutions with No comparable provision No comparable provision
Financial Institution less than $1 billion in assets may use
Members Federal Home Loan Bank advances
for lending to community
development activities, and use such
secured loans as collateral for
advances generally. (Sec. 208)
CRS-46
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Exemption from Exempts the Federal Home Loan Exempts the Federal Home Loan Exempts the Federal Home Loan
Certain SEC Banks from certain disclosure Banks from certain disclosure Banks from certain disclosure
Reporting requirements with regard to requirements with regard to requirements with regard to
Requirements transactions involving capital stock transactions involving capital stock transactions involving capital
of the banks. Shares of Federal of the banks. Shares of Federal stock of the banks. Shares of
Home Loan Bank capital stock are Home Loan Bank capital stock are Federal Home Loan Bank capital
defined as "exempted securities." defined as "exempted securities." stock are defined as "exempted
Debentures, bonds, and other FHLB Debentures, bonds, and other debt securities." Debentures, bonds,
debt obligations are defined as obligations are defined as "exempted and other debt obligations are
"exempted securities" and securities" and "government defined as "exempted securities"
"government securities." A person securities." A person that effects and "government securities." A
that effects transactions in Federal transactions in Federal Home Loan person that effects transactions in
Home Loan Bank capital stock or Bank capital stock or other Federal Home Loan Bank capital
other obligations is excluded from obligations is excluded from the stock or other obligations is
the definition of "government definition of "government securities excluded from the definition of
securities dealer." The Federal dealer." The Federal Home Loan "government securities dealer."
Home Loan Banks shall be exempt Banks shall be exempt from reporting The Federal Home Loan Banks
from reporting requirements requirements regarding related party shall be exempt from reporting
regarding related party transactions transactions and sale of unregistered requirements regarding related
and sale of unregistered securities. securities. Tender offer rules shall party transactions and sale of
Tender offer rules shall not apply to not apply to transactions in Federal unregistered securities. Tender
transactions in Federal Home Loan Home Loan Bank capital stock. offer rules shall not apply to
Bank capital stock. (Sec. 205) transactions in Federal Home
(Sec. 207) Loan Bank capital stock.
(Sec. 205)
CRS-47
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Limitations on No comparable provision The Agency may prohibit or limit, by The agency may prohibit or limit,
Golden Parachutes regulation or order, any golden by regulation or order, any
parachute or indemnification golden parachute or
payment. Sets out criteria that the indemnification payment that
Agency may consider in deciding would be received by any
whether to prohibit a payment. affiliated party when there is a
(These provisions apply to all reasonable basis to believe that
regulated entities.) (Sec. 112) the party may have committed
fraud or breach of fiduciary duty
that had a material impact on the
bank's financial condition, or
where there is a reasonable basis
to believe that the party was
substantially responsible for the
bank's insolvency, troubled
condition, or for the appointment
of a conservator or receiver, and
other factors. (As in Sec. 111,
"golden parachute" is defined as
a post-employment payment that
would be received by any
enterprise-affiliated party after an
enterprise had become insolvent,
had been determined to be in a
troubled condition, or following
the appointment of a conservator
or receiver.) (Sec. 206)
CRS-48
H.R. 1461 (amendments
Provision adopted during House H.R. 1461 (as reported) S. 190 (as reported) S. 190 (as introduced)
passage)
Transition Provisions.
Abolishment of Various provisions dealing with Various provisions dealing with Various provisions dealing with
OFHEO and the abolition of OFHEO and the FHFB, abolition of OFHEO and the FHFB, abolition of OFHEO and the
Federal Housing transfer of certain HUD employees continuation of certain regulations, FHFB, continuation of certain
Finance Board to the agency, continuation of transfer of property and facilities, regulations, transfer of property
certain regulations, transfer of employee rights and benefits, etc. and facilities, employee rights
property and facilities, employee (Title III) and benefits, etc. (Title III)
rights and benefits, etc. (Title III)
Effective Date Six months after the date of One year after the date of enactment, The date of enactment, except as The date of enactment, except as
enactment, unless unless otherwise specified. specifically provided otherwise. specifically provided otherwise.
otherwise specified. (Secs. 184 and 210) (Sec. 163) (Sec. 173)
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