Sec. 986. Mandatory risk sharing
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It is the sense of Congress that— at the direction of the Agency, the enterprises have executed a series of transactions in which the enterprises share credit risk with the private sector; in the risk-sharing transactions to date, the enterprises have shared credit risk on pools of residential mortgage loans that back securities on which an enterprise either already guarantees or does not yet guarantee the timely payment of principal and interest; the risk that the enterprises have shared has been either any loss suffered on the loans in the pool or any loss in excess of some minimal level on loans in the pool; to date, the vast majority of risk-sharing transactions have involved either back-end risk sharing or the transfer of the second loss position; and the Agency should direct the enterprises to— engage in more front-end risk sharing in which the first loss position is transferred; and retain data that can help inform policymakers and the public about the impact to consumers, the market, and the enterprises from such transactions.
Subpart A of part 2 of subtitle A of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 ( 12 U.S.C. 4541 et seq. ) is amended by adding at the end the following: In this section: The term first loss position means, with respect to a risk-sharing transaction, the position to which any credit loss on a security resulting from the nonperformance of underlying mortgage loans will accrue and be absorbed, to the full extent of the holder’s interest in such position.
The term front-end risk sharing means any risk-sharing transaction that provides for an enterprise to share credit risk on a pool of single-family residential mortgage loans that back securities on which the enterprise guarantees the timely payment of principal and interest with the private sector before the enterprise provides any such guarantee. The term risk-sharing transaction means any transaction that provides for an enterprise to share credit risk on a pool of single-family residential mortgage loans that back securities on which the enterprise guarantees the timely payment of principal and interest with the private sector.
The Director shall require each enterprise to develop and undertake risk-sharing transactions in which the first loss position is transferred, as provided in subsection (c). The Director shall require that each enterprise engage in significant and increasing risk-sharing transactions, including front-end risk sharing and risk-sharing transactions in which the first loss position is transferred, considering market conditions and the safety and soundness of the enterprise. Not later than 1 year after the date of enactment of this section, and every year thereafter, the Agency shall submit to Congress a report, which shall include— for the 12-month period preceding the date on which the report is submitted, an assessment of the market responses to the risk-sharing transactions of each of the enterprises, in aggregate, and by credit risk-sharing mechanism, including— impacts on borrower costs, yield spreads, and the economics of the operations of the enterprises; and the type and characteristics of the underlying collateral and borrowers whose loans are involved in risk-sharing transactions; and a 5-year plan, which shall include, for each of the 5 years following the year in which the report is issued— the projected percentage of the unpaid principal balance of each enterprise covered under the credit risk-sharing program; the projected percentage of new business for each enterprise subject to transactions in which the first loss position is transferred, including the types of deal structures; the projected depth of front-end risk sharing per type of transaction for each enterprise; and a description of the steps that the Agency intends to take to broaden the eligible investor base for credit risk-sharing programs. .
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Sec. 986
Mandatory risk sharing
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