Sec. 2. Credit risk-transfer transactions

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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 new section: Not later than 12 months after the date of enactment of this Act, the Director shall, after taking into consideration market conditions and the safety and soundness of the enterprises, establish guidelines requiring that each enterprise engage in significant, increasing, and varied credit risk-transfer transactions, with an emphasis on front-end transactions.

In establishing the guidelines under subsection (a), the Director shall— seek to promote a deep, broad market for a variety of structures that together insulate the taxpayer from losses, minimize ongoing risks to the enterprises, remain stable through the economic cycle, maintain adequate access to the secondary market for lenders of all sizes, and promote credit for borrowers in all communities; continue and seek to increase the amount of credit risk transferred to the private sector and the types of risk-transfer transactions that the enterprises engaged in each year with the goal that the risk transferred by an enterprise by all credit risk-transfer transactions shall be at least 400 basis points of risk in total, starting from the first dollar of credit loss among all the different credit risk-transfer structures; continue and seek to increase front-end risk transfer transactions, including those done at the time of origination; and continue and seek to increase transactions in which the first loss position is transferred or shared and through structures that are scalable and transparent.

The enterprises shall set and publish guarantee fees, including up-front delivery fees and loan level price adjustments, commensurate with the enterprises’ reduced credit risk resulting from any new risk-transfer transaction. The guidelines required under subsection

(a)shall be issued and made available to the public pursuant to section 553 of title 5, United States Code. The Director shall adjust individual and corporate scorecards used in determining compensation for relevant enterprise employees to align with the considerations of subsection (b). A swap (as such term is defined in section 1a of the Commodity Exchange Act ( 7 U.S.C. 1a )) entered into for the purpose of transferring or sharing credit risk in connection with a risk-transfer transaction shall not be deemed to be a commodity interest (as such term is defined in section 1.3(yy) of the regulations of the Commodity Futures Trading Commission (17 C.F.R. 1.3(yy))), and no swap counterparty or other person sponsoring or arranging a risk-transfer transaction shall be deemed to be a commodity pool operator (as such term is defined in section 1.3(cc) of such regulations), solely by virtue of entering into or sponsoring or arranging such a swap in connection with such transaction. The Director shall submit a report, not later than October 30 of each year, to the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate, on the activities of each enterprise in meeting the guidelines established under subsection

(a)and any obstacles the Director has determined have impeded the ability of the enterprises to meet such guidelines. For purposes of this section, the following definitions shall apply: The term credit risk means, with respect to a mortgage loan on a one- to four-family residential property that is held or guaranteed, or intended to be held or guaranteed, by an enterprise or any security backed by such residential mortgage loans held or guaranteed by the enterprise, the risk of loss to the enterprise that could result from a mortgagor’s failure to repay any such loan in accordance with its terms. The term first-loss means the risk of loss for an enterprise on a mortgage loan on a one- to four-family residential property or a security backed by such residential mortgage loans, beginning with the first dollar of loss. The term front-end risk transfer means, with respect to a mortgage loan on a one- to four-family residential property or any security backed by such residential mortgage loans, a risk transfer or risk share that occurs before or simultaneous with the acquisition of such loan or security by an enterprise. The term guarantee fee has the meaning given such term in section 1327(a) ( 12 U.S.C. 4547(a) ). The term risk-transfer transaction means any transaction that provides for— the sale, disposition, retention, or transfer within the private sector of credit risk on any residential mortgage loan on a one- to four-family residential property or a pool of such residential mortgage loans that back securities on which the enterprise guarantees the timely payment of principal and interest; or the retention by the private sector of any such credit risk in connection with the sale of any such loan or security to an enterprise. . Paragraph

(10)of section 1a of the Commodity Exchange Act ( 7 U.S.C. 1a(10) ) is amended by adding at the end the following new subparagraph: A swap (as such term is defined in section 1a) entered into for the purpose of transferring or sharing credit risk in connection with a risk-transfer transaction shall not be considered to be a commodity interest (as such term is defined in section 1.3(yy) of title 17, Code of Federal Regulations), and no swap counterparty or other person sponsoring or arranging a risk-transfer transaction shall be considered to be a commodity pool operator (as such term is defined in section 1.3(cc) of such title), solely by virtue of entering into or sponsoring or arranging such a swap in connection with such transaction. . Section 3(c)(5) of the Investment Company Act of 1940 ( 15 U.S.C. 80a–3(c)(5) ) is amended by inserting before the period the following: , including notes, bonds, other evidences of indebtedness, certificates, securities, and other interests, issued in connection with or otherwise related to a risk-transfer transaction (as such term is defined in section 1328(h) of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992) . The Internal Revenue Code of 1986 is amended— in each of paragraphs (2)(B) and (3)(B) of section 856(c) ( 26 U.S.C. 856(c) ), by inserting before the semicolon at the end the following , and gross income resulting from participation in any transaction, including notes, bonds, other evidences of indebtedness, certificates, securities, and other interests, that are risk-transfer transactions (as such term is defined in section 1328(h) of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992) ; and in subparagraph

(B)of section 856(c)(5) ( 26 U.S.C. 856(c)(5)(B) ), by inserting before the period at the end of the first sentence the following: , and participation in any transaction, including notes, bonds, other evidences of indebtedness, certificates, securities, and other interests, that are risk-transfer transactions (as such term is defined in section 1328(h) of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992) .

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