Risk transfer requirements

(a) Transfer of risk 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: 1329. Transfer of risk (a) In general Not later than 2 years after the date of the enactment of this section, the Director shall require each enterprise to transfer the vast majority of credit risk on single-family residential mortgages, as determined by the Director, starting at the first dollar after expected losses, using the most economically feasible mechanism to ensure that credit risk is transferred at all tranches of risk, as prompt as the market conditions will facilitate, to a diversified pool of investors and insurers, all on a safe and sound basis, to reduce the mortgage credit risk concentration at the enterprises at a cost that is considered reasonable and consistent with the level of guarantee fees being charged. (b) Credit risk transfer targets and publication (1) Targets The Director shall, on an annual basis, issue and publish guidance that describes targets for credit risk transfer transactions. (2) Report to Congress The Director shall, on an annual basis, submit to the Congress a report that describes the results of the previous year’s credit risk transfers. (c) Credit risk transfer structures The Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association may use existing Credit Risk Transfer structures, including Credit Insurance Risk Transfer (‘CIRT’), Agency Credit Insurance Structure (‘ACIS’), Connecticut Avenue Security (‘CAS’), or Structured Agency Credit Risk (‘STACR’), and Seller/Servicer Risk Share arrangements, for the risk transfer that is required under subsection (a). (d) Economically feasible defined In this section, the term ‘economically feasible’ means the ability to consummate a risk-transfer trade in a manner that results in the enterprise remaining profitable on its acquisition of the underlying collateral in which the risk is transferred.. (b) Risk based capital levels Section 1361(a)(1) of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4611(a)(1)) is amended to read as follows: (1) Enterprises The Director shall, by regulation, establish risk-based capital requirements for the enterprises to ensure that the enterprises operate in a safe and sound manner, maintaining sufficient capital and reserves to support the risks that arise in the operations and management of the enterprises, and promote consistency between the capital treatment of credit risk transfer and comparable risk-transfer mechanism used by federally regulated financial institutions. The capital requirements shall align with the actual credit risk characteristics of mortgages and mortgage-backed securities, including loan-to-value ratios, borrower credit scores, debt-to-income ratios, and product structure, and avoid capital treatment that discourages or penalizes the use of prudent credit risk transfer mechanisms..