Sec. 322. Standards for qualified securities
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The Utility shall prescribe classifications for residential mortgages having various degrees of credit risk, ranging from a classification of mortgages having little to no credit risk to a classification of mortgages having higher credit risk. In prescribing such classifications the Utility shall seek to allow for the pricing of credit risk, allow for the trading of securities collateralized by each classification of mortgages established pursuant to this subsection in the forward market, and maintain well-functioning liquid markets in securities collateralized by each of the classifications of mortgages established pursuant to this subsection.
For each classification of mortgages established under paragraph (1), the Utility shall establish standards for each of the following underwriting criteria: The ratio of the amount of the total monthly debt of the mortgagor to the amount of the monthly income of the mortgagor. The ratio of the principal obligation under the mortgage to the value of the residence subject to the mortgage, at the time of mortgage origination. Information on the credit history of the mortgagor, including credit scores of the mortgagor.
The extent of loan documentation and verification of the financial resources of the mortgagor used to qualify the mortgagor for the mortgage, including any appraisal. Whether the residence subject to the mortgage is occupied by the mortgagor. Whether any mortgage insurance or other type of insurance or credit enhancement was obtained at the time of origination. The terms of the mortgage that determine the magnitude and timing of payments due from the mortgagor, including the term to maturity of the mortgage, the frequency of payment, the type of amortization, any prepayment penalties, and whether the interest rate is fixed or may vary.
Terms established under clause
(i)shall include a 30-year fixed interest rate mortgage. Such other underwriting criteria as the Utility may establish, consistent with the goals of this subtitle. The Utility shall, for purposes of this subsection, prescribe definitions for each of the following terms: The term mortgage , which definition shall include only mortgages on residential properties. The term default , with respect to a mortgage. The term delinquency , with respect to a mortgage. The term loan documentation , with respect to a mortgage. Such other terms as the Utility may establish. The Utility shall develop, adopt, and publish standard form securitization agreements for eligible collateral. The standard form securitization agreements to be developed under paragraph
(1)shall include terms relating to— pooling and servicing; purchase and sale; representations and warranties, including representations and warranties as to compliance or conformity with standards established by the Utility, as appropriate; indemnification and remedies, including principles of a repurchase program that will ensure an appropriate amount of risk retention under the representations and warranties set forth under subparagraph (C); and the qualification, responsibilities, and duties of trustees. The Utility shall require that any mortgage-related document associated with eligible collateral for qualified securities be registered with the Repository. The Utility shall develop, adopt, and publish— servicing standards, including for the modification, restructuring, or work-out of any mortgage that serves as collateral for a qualified security; and a servicer succession plan, which may include provisions for— a specialty servicer that can replace the existing servicer if the performance of the mortgage pool deteriorates to specified levels; and a plan to achieve consistency in servicing systems related to systematic note-taking, consistent mailing addresses, and other points of contact for borrowers to use, among other items. The Utility shall develop, adopt, and publish standards for the reporting obligations of servicers of any mortgage that serves as collateral for a qualified security. The Utility may develop, adopt, and publish standards for aggregation of eligible collateral by entities, institutions, or companies other than an issuer. Notwithstanding any such standards developed by the Utility, any Federal Home Loan Bank may act as an aggregator and offer the service of aggregation to any member of such Bank, subject to regulations prescribed by the Director. The Utility shall develop, adopt, and publish standards for an issuer to qualify as a qualified issuer. Such standards shall only include— the experience, financial resources, and integrity of the issuer and its principals, including compliance history with Federal and State laws; the adequacy of insurance and fidelity coverage of the issuer with respect to errors and omissions; and a requirement that the issuer submit audited financial statements to the Utility, who shall make such statements publicly available through the Utility’s Web site. The Utility shall establish an application process for the qualification of issuers, in such form and manner and requiring such information as the Utility may prescribe, in accordance with standards adopted under paragraph (1). The Utility shall approve any application made pursuant to subparagraph
(A)unless the issuer does not meet the standards adopted under paragraph (1). The Agency shall publish a list of newly qualified issuers in the Federal Register and the Utility shall maintain an updated list of qualified issuers on the Utility’s Web site. The Utility may review the status of a qualified issuer if the Utility is notified that a claim has been made against the issuer by a trustee with respect to a violation of a contractual term in a securitization document of the issuer. Subject to subparagraph (C), if the Utility determines, subject to the approval of the Director, in a review pursuant to subparagraph (A), that an issuer no longer meets the standards for qualification, the Utility shall revoke the issuer’s qualified status. The revocation of an issuer’s qualified status under this subparagraph shall— have no effect on the qualified status of any security issued before such revocation; and not relieve the issuer of any obligation associated with any representation or warranty or any repurchase obligations related to any qualified security issued before such revocation. The Utility shall establish standards by which a qualified issuer who no longer meets the standards for qualification may remediate and return to meeting the standards, without losing the issuer’s qualified status. The Agency shall publish a list of issuers who are no longer qualified in the Federal Register and the Utility shall maintain an updated list of such issuers on the Utility’s Web site. There shall at all times be one or more trustee for each pool of mortgages that acts as collateral for a qualified security. The Director shall issue regulations regarding the qualifications of trustees under paragraph
(1)that shall, to the extent practicable, be consistent with the qualification provisions applicable to trustees under section 310(a) of the Trust Indenture Act of 1934 ( 15 U.S.C. 77jjj(a) ). The Director shall issue conflict of interest regulations that apply to a qualified trustee. Such regulations shall, to the extent practicable, be consistent with those conflict of interest provisions applicable to an indenture trustee under section 310(b) of the Trust Indenture Act of 1934 ( 15 U.S.C. 77jjj(b) ). Any time a trustee brings a claim against a qualified issuer on behalf of investors with respect to a standard form securitization agreement, the trustee shall notify the Director of such claim. For the purpose of protecting investor rights, each trustee shall— maintain a list of all investors (beneficial owners) in a qualified security; update such list from time to time; not make such list available to investors (beneficial owners); and act as a means to communicate information about the qualified security to investors (beneficial owners) and act as a means for investors (beneficial owners) to communicate with each other. A trustee shall not be liable for the content of any information provided to the trustee by an investor (beneficial owner) that the trustee communicates to another investor (beneficial owner). A person who becomes an investor (beneficial owner) in a qualified security shall promptly notify the trustee of such security of the change in ownership. If the majority of investors (beneficial owners) in a pool of qualified securities chooses to hire an independent third party to act on behalf of the best interests of the investors (beneficial owners), such party shall— be granted access to the loan documents for the mortgage loans backing such security and all servicing reports the servicer provides to investors (beneficial owners) or the trustee; be granted access to the list of investors (beneficial owners) maintained by the trustee, on the condition that the independent third party will not make the list available to the investors (beneficial owners); and have the right, on behalf of the investors (beneficial owners), to inform the trustee of such securities of any breach of the securitization agreement identified by the third party. All disputes between an owner of a qualified security and the qualified issuer of such security relating to representations and warranties shall be subject to mandatory arbitration procedures established by the Utility, in accordance with current market practices. Investors (beneficial owners) and issuers subject to a dispute described under paragraph
(1)shall have the right to agree on an independent arbitrator. If the parties cannot agree on an independent arbitrator, the Utility shall select an independent arbitrator for the parties. The arbitrator shall provide the Utility with notice upon commencement of any arbitration under this subsection. Upon conclusion of any arbitration under this subsection, the arbitrator shall provide the Utility with— the decision reached by the arbitrator; and the basis for the arbitrator’s decision, including any evidence or testimony received during the arbitration process. The Utility shall develop, adopt, and publish standard data definitions for all aspects of loan origination, appraisals, and servicing. In developing such definitions, the Utility shall consider the data standard-setting work undertaken by the Mortgage Industry Standards Maintenance Organization through the enterprises’ Uniform Mortgage Data Program announced by the Agency on May 24, 2010. The Utility shall develop, adopt, and publish standards for disclosure of loan origination, appraisal, and servicing data, including data required in subsection (a)(2) (relating to underwriting criteria) for residential mortgage loans that comprise qualified securities, and that allow for trading of qualified securities under this subtitle in a forward market. In developing the data and disclosure standards required by this subsection, the Utility shall ensure that such standards are coordinated. In prescribing the definitions and standards required under this subsection, the Utility shall take into consideration issues of consumer privacy and all statutes, rules, and regulations related to privacy of consumer credit information and personally identifiable information. Such standards shall expressly prohibit the identification of specific borrowers. When reviewing any disclosure standards established under this subsection, the Director shall consult with the Securities and Exchange Commission. The Director shall issue any regulations required by this section not later than the end of the 12-month period beginning on the date of the enactment of this Act. The Utility shall issue any definitions, standards, rules, processes, or procedures required by this section not later than the end of the 12-month period beginning on the date of issuance of the charter by the Director. Any definition, standard, rule, process or procedure established by the Utility shall be submitted to the Director for review and approval prior to its implementation if, in the Director’s discretion, the Director requires such submission. Any definition, standard, rule, process or procedure that the Director requires be submitted to the Agency for review and approval shall be reviewed within three months of submission. The Utility may review, revise, and, if revised, re-publish any standard form securitization agreement or other definition, standard, rule, process, or procedure required to be developed by this subtitle if the Utility determines review or revision to be necessary or appropriate to satisfy the goals of this subtitle. Any revisions made pursuant to subparagraph
(A)shall apply only to securitizations made after the date of such revision. In the event a definition, standard, rule, process, or procedure established by the Utility is in conflict with any definition, standard, rule, process, or procedure established by another Federal department or agency, the Director shall consult with the other Federal department or agency, and provide prompt written notification to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives, of the conflict. In developing definitions, standards, rules, processes, and procedures required by this subtitle, the Utility shall work with market participants, including servicers, originators, and mortgage investors, and develop methods for gathering information and comment from such groups.
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Sec. 322
Standards for qualified securities
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