Sec. 202. Insurance
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Ginnie Mae shall insure 100 percent of each security issued by the Platform, as provided in this section. Ginnie Mae shall establish one or both of the programs described under paragraphs
(1)and (2). In selecting which program to establish, or whether both should be established, Ginnie Mae shall determine whether a program is an efficient way to operate the insurance requirements under this Act by incorporating private sector pricing, would optimize risk pricing, and would maximize capital positions based upon the state of the economy. A Reinsurance Bid Program, which shall include the following: Prior to any particular quarter (or such other time period determined by Ginnie Mae), Ginnie Mae shall enter into contracts with market participants to reinsure the first 5 percent of loss on all securities issued by the Platform in such quarter (or other time period). Prior to any particular quarter (or such other time period determined by Ginnie Mae), Ginnie Mae shall sign— contracts with market participants to reinsure the last 95 percent of loss on all securities issued by the Platform in such quarter (or other time period); and a retrocession contract with each such market participant under which Ginnie Mae will agree to offer retrocessional reinsurance to reinsure up to 90 percent of the 95 percent described under clause
(i)on a pari passu basis. A Guarantor Program, which shall include the following: The mortgage originator or aggregator that wishes to deliver a pool of eligible mortgage loans to the Platform for securitization shall, prior to delivering such pool, contract directly with a market participant to insure the first 5 percent of loss on all securities issued by the Platform that are securitized by such pool of eligible mortgage loans. For each security described under subparagraph
(A)Ginnie Mae shall sign— contracts with market participants to reinsure the last 95 percent of loss on the security; and a retrocession contract with each such market participant under which Ginnie Mae will agree to offer retrocessional reinsurance to reinsure up to 90 percent of the 95 percent described under clause
(i)on a pari passu basis. If Ginnie Mae determines that it would be an efficient way to operate the insurance requirements under this Act and would encourage the incorporation of private sector pricing, Ginnie Mae may allow mortgage originators and aggregators described under subparagraph
(A)to select the market participant described under subparagraph (B). If a market participant is selected by a mortgage originator or aggregator, as described under clause (i)— such market participants shall be required to meet the same standards as a market participant selected by Ginnie Mae; and for purposes of determining the insurance fee described under subsection (d), Ginnie Mae shall contract with a private sector insurer to estimate the risk that the market participant may default. Ginnie Mae shall use a competitive bidding process to determine which market participants should be granted contracts under subsection (b)(1) and, except as provided under subsection (b)(2)(C), under subsection (b)(2)(B). With respect to any market participant that Ginnie Mae selects under a risk sharing program, Ginnie Mae shall select an insurance broker, through a competitive bidding process, that will solicit bids, on behalf of Ginnie Mae, for the reinsurance contracts under such program. As part of a retrocession contract under subsection (b)(1)(B)(ii) or subsection (b)(2)(B)(ii), the market participants shall be paid a competitively determined ceding commission for the underwriting and administrative costs of providing such reinsurance. Ginnie Mae may, if it determines it appropriate— phase-in the 5 percent requirements under subsections (b)(1)(A) and (b)(2)(A), by originally requiring a lower percentage; and phase-in the 90 percent requirement under subsections (b)(1)(B)(ii) and (b)(2)(B)(ii), by originally requiring a higher percentage. Ginnie Mae shall set the insurance fee applicable to securities issued by the Platform in advance on a quarter-by-quarter basis, through forward contracts established with market participants based on the volume and type of securities Ginnie Mae anticipates the Platform issuing during such quarter. The insurance fee charged by Ginnie Mae for providing insurance shall reflect expected losses and the market risk premium necessary to obtain reinsurance and in the absence of such market shall reflect the default risk associated with the mortgage collateral underlying Ginnie Mae’s insurance. Ginnie Mae may adjust the fee computed under subparagraph
(A)after periodic review subject to its credit analysis, but such adjustment may not be based on volume. Such credit analysis shall be based on forecasting models assuming current economic data and shall be back-tested against historical adverse economic scenarios. The rate charged by a private market participant that contracts with Ginnie Mae pursuant to subsection (b)— may not change during the first 100-day period for which such reinsurance is effective; and shall be adjusted based on market conditions, on a period to be determined by the Director. Ginnie Mae shall retain personnel with expertise in pricing conventional mortgages prior to charging insurance fees under this section. Such expertise shall include credit risk analysis of mortgages, default management, and loss mitigation. Ginnie Mae shall issue such general standards for market participants described under subsection
(b)as Ginnie Mae determines appropriate. For market participants described under subsection (b), Ginnie Mae shall establish, by regulation, capital standards and related solvency standards necessary to implement the provisions of this Act. The regulations required under this paragraph shall define all such terms as are necessary to carry out the purposes of this paragraph. In defining instruments and contracts that qualify as capital pursuant to subparagraph (A), Ginnie Mae— shall include such instruments and contracts that will absorb losses before the Fund; and may assign significance to those instruments and contracts based on the nature and risks of such instruments and contracts. Solely for the purposes of calculating a capital ratio appropriate to the business model of a market participant pursuant to subparagraph (A), Ginnie Mae shall consider for the denominator— total assets; total liabilities; risk in force; or unpaid principal balance. The capital and related solvency standards established under this paragraph shall be designed to— ensure the safety and soundness of a market participant; minimize the risk of loss to the Fund; in consultation and coordination with the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, reduce the potential for regulatory arbitrage between capital standards for market participants and capital standards promulgated by Federal regulatory agencies for insured depository institutions and their affiliates; and be specifically tailored to accommodate a diverse range of business models that may be employed by market participants. In order to prevent or mitigate risks to the secondary mortgage market of the United States that could arise from the material financial distress or failure, or ongoing activities, of large market participants that insure securities under this Act, Ginnie Mae, by regulation— shall establish supplemental capital requirements for such large market participants; and may establish such other standards that Ginnie Mae determines necessary or appropriate. For purposes of this subparagraph, Ginnie Mae shall define the term large market participant . Ginnie Mae shall allow market participants to prudently reduce the required capital requirements through the use of capital markets transactions that pre-fund the risk (such as credit-linked notes). Any funds derived from such transactions may only be used for the purpose of loss protection. A market participant may not originate eligible mortgages and may not be affiliated with a person that actively engages in the business of originating eligible mortgages. A market participant may reinsure any transaction entered into under subsection (b), but may not contract for reinsurance with another market participant. Ginnie Mae shall issue regulations to prevent conflicts of interest by market participants contracting with Ginnie Mae under this section. There is established an insurance fund (the Fund ), which Ginnie Mae shall— maintain and administer; and use to cover losses incurred under this section with respect to mortgage-backed securities and for such other housing-related purposes as Ginnie Mae determines appropriate. Ginnie Mae shall endeavor to ensure that the Fund attains a reserve balance— of 1.25 percent of the sum of the outstanding principal balance of the securities for which insurance is being provided under this Act within 5 years of the date on which the Director determines that the Platform is fully functioning, and to strive to maintain such ratio thereafter, subject to clause (ii); and of 2.50 percent of the sum of the outstanding principal balance of the securities for which insurance is being provided under this Act within 10 years of the date on which the Director determines that the Platform is fully functioning, and to strive to maintain such ratio at all times thereafter. Notwithstanding subsection (d), Ginnie Mae may raise or lower the fee charged for insurance under this section in order to maintain the reserve balance described under subparagraph (A). The Fund shall be credited with any fees received by Ginnie Mae in exchange for insurance made available under this section. Amounts in the Fund may not be invested in any— standardized mortgage-backed security insured under this Act; or mortgage-backed security issued by the enterprises. The full faith and credit of the United States is pledged to the payment of all amounts which may be required to be paid under any insurance provided under this section. Notwithstanding any other provision of law, amounts in the Fund shall not be subject to apportionment for the purposes of chapter 15 of title 31, United States Code, or under any other authority. Amounts in the Fund shall not be construed to be Government or public funds or appropriated money.