(a) Definitions. In this section—
(1) the term “Federal banking agencies”
means the Office of the Comptroller of the Currency, the Board of
Governors of the Federal Reserve System, and the Federal Deposit Insurance
Corporation;
(2) the
term “insured depository institution” has the same meaning as in section
3(c) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c));
(3) the term “securitizer”
means—
(A) an issuer of an asset-backed security;
or
(B) a person
who organizes and initiates an asset-backed securities transaction
by selling or transferring assets, either directly or indirectly,
including through an affiliate, to the issuer; and
(4) the term “originator”
means a person who—
(A) through the extension of credit
or otherwise, creates a financial asset that collateralizes an asset-backed
security; and
(B)
sells an asset directly or indirectly to a securitizer.
(b) Regulations
required.
(1) In general. Not later than 270 days after the date of enactment of this section,
the Federal banking agencies and the Commission shall jointly prescribe
regulations to require any securitizer to retain an economic interest
in a portion of the credit risk for any asset that the securitizer,
through the issuance of an asset-backed security, transfers, sells,
or conveys to a third party.
(2) Residential
mortgages. Not later than 270 days after the date of the enactment
of this section, the Federal banking agencies, the Commission, the
Secretary of Housing and Urban Development, and the Federal Housing
Finance Agency, shall jointly prescribe regulations to require any
securitizer to retain an economic interest in a portion of the credit
risk for any residential mortgage asset that the securitizer, through
the issuance of an asset-backed security, transfers, sells, or conveys
to a third party.
(c) Standards for regulations.
(1) Standards. The regulations prescribed under subsection (b) shall—
(A) prohibit
a securitizer from directly or indirectly hedging or otherwise transferring
the credit risk that the securitizer is required to retain with respect
to an asset;
(B)
require a securitizer to retain—
(i) not less than 5 percent of
the credit risk for any asset—
(I) that is not a qualified residential mortgage that is transferred,
sold, or conveyed through the issuance of an asset-backed security
by the securitizer; or
(II) that is a qualified residential mortgage that is transferred,
sold, or conveyed through the issuance of an asset-backed security
by the securitizer, if 1 or more of the assets that collateralize
the asset-backed security are not qualified residential mortgages;
or
(ii)
less than 5 percent of the credit risk for an asset that is not a
qualified residential mortgage that is transferred, sold, or conveyed
through the issuance of an asset-backed security by the securitizer,
if the originator of the asset meets the underwriting standards prescribed
under paragraph (2)(B);
(C) specify—
(i) the permissible
forms of risk retention for purposes of this section;
(ii) the minimum duration of
the risk retention required under this section; and
(iii) that a securitizer is not required to
retain any part of the credit risk for an asset that is transferred,
sold or conveyed through the issuance of an asset-backed security
by the securitizer, if all of the assets that collateralize the asset-backed
security are qualified residential mortgages;
(D) apply, regardless of
whether the securitizer is an insured depository institution;
(E) with respect to a commercial
mortgage, specify the permissible types, forms, and amounts of risk
retention that would meet the requirements of subparagraph (B), which
in the determination of the Federal banking agencies and the Commission
may include—
(i) retention of a specified amount or percentage
of the total credit risk of the asset;
(ii) retention of the first-loss position
by a third-party purchaser that specifically negotiates for the purchase
of such first loss position, holds adequate financial resources to
back losses, provides due diligence on all individual assets in the
pool before the issuance of the asset-backed securities, and meets
the same standards for risk retention as the Federal banking agencies
and the Commission require of the securitizer;
(iii) a determination by the Federal banking
agencies and the Commission that the underwriting standards and controls
for the asset are adequate; and
(iv) provision of adequate representations
and warranties and related enforcement mechanisms; and
(F) establish appropriate
standards for retention of an economic interest with respect to collateralized
debt obligations, securities collateralized by collateralized debt
obligations, and similar instruments collateralized by other asset-backed
securities; and
(G) provide for—
(i) a total or partial exemption of any securitization,
as may be appropriate in the public interest and for the protection
of investors;
(ii) a total
or partial exemption for the securitization of an asset issued or
guaranteed by the United States, or an agency of the United States,
as the Federal banking agencies and the Commission jointly determine
appropriate in the public interest and for the protection of investors,
except that, for purposes of this clause, the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation are not
agencies of the United States;
(iii) a total or partial exemption for any asset-backed security
that is a security issued or guaranteed by any State of the United
States, or by any political subdivision of a State or territory, or
by any public instrumentality of a State or territory that is exempt
from the registration requirements of the Securities Act of 1933 by
reason of section 3(a)(2) of that Act (15 U.S.C. 77c(a)(2)), or a
security defined as a qualified scholarship funding bond in section
150(d)(2) of the Internal Revenue Code of 1986, as may be appropriate
in the public interest and for the protection of investors; and
(iv) the allocation of risk
retention obligations between a securitizer and an originator in the
case of a securitizer that purchases assets from an originator, as
the Federal banking agencies and the Commission jointly determine
appropriate.
(2) Asset classes.
(A) Asset
classes. The regulations prescribed under subsection (b) shall
establish asset classes with separate rules for securitizers of different
classes of assets, including residential mortgages, commercial mortgages,
commercial loans, auto loans, and any other class of assets that the
Federal banking agencies and the Commission deem appropriate.
(B) Contents. For each asset class established under subparagraph
(A), the regulations prescribed under subsection (b) shall include
underwriting standards established by the Federal banking agencies
that specify the terms, conditions, and characteristics of a loan
within the asset class that indicate a low credit risk with respect
to the loan.
(d) Originators. In determining how to allocate
risk retention obligations between a securitizer and an originator
under subsection (c)(1)(E)(iv), the Federal banking agencies and the
Commission shall—
(1) reduce the percentage of risk retention
obligations required of the securitizer by the percentage of risk
retention obligations required of the originator; and
(2) consider—
(A) whether
the assets sold to the securitizer have terms, conditions, and characteristics
that reflect low credit risk;
(B) whether the form or volume of transactions
in securitization markets creates incentives for imprudent origination
of the type of loan or asset to be sold to the securitizer; and
(C) the potential impact
of the risk retention obligations on the access of consumers and businesses
to credit on reasonable terms, which may not include the transfer
of credit risk to a third party.
(e) Exemptions, exceptions,
and adjustments.
(1) In general. The Federal banking agencies and the Commission may jointly adopt
or issue exemptions, exceptions, or adjustments to the rules issued
under this section, including exemptions, exceptions, or adjustments
for classes of institutions or assets relating to the risk retention
requirement and the prohibition on hedging under subsection (c)(1).
(2) Applicable standards. Any exemption, exception,
or adjustment adopted or issued by the Federal banking agencies and
the Commission under this paragraph shall—
(A) help ensure high
quality underwriting standards for the securitizers and originators
of assets that are securitized or available for securitization; and
(B) encourage appropriate
risk management practices by the securitizers and originators of assets,
improve the access of consumers and businesses to credit on reasonable
terms, or otherwise be in the public interest and for the protection
of investors.
(3) Certain institutions
and programs exempt.
(A) Farm credit
system institutions. Notwithstanding any other provision of this
section, the requirements of this section shall not apply to any loan
or other financial asset made, insured, guaranteed, or purchased by
any institution that is subject to the supervision of the Farm Credit Administration,
including the Federal Agricultural Mortgage Corporation.
(B) Other federal programs. This section shall not apply to any
residential, multifamily, or health care facility mortgage loan asset,
or securitization based directly or indirectly on such an asset, which
is insured or guaranteed by the United States or an agency of the
United States. For purposes of this subsection, the Federal National
Mortgage Association, the Federal Home Loan Mortgage Corporation,
and the Federal home loan banks shall not be considered an agency
of the United States.
(4) Exemption
for qualified residential mortgages.
(A) In general. The Federal banking agencies,
the Commission, the Secretary of Housing and Urban Development, and
the Director of the Federal Housing Finance Agency shall jointly issue
regulations to exempt qualified residential mortgages from the risk
retention requirements of this subsection.
(B) Qualified
residential mortgage. The Federal banking agencies, the Commission,
the Secretary of Housing and Urban Development, and the Director of
the Federal Housing Finance Agency shall jointly define the term “qualified
residential mortgage” for purposes of this subsection, taking into
consideration underwriting and product features that historical loan
performance data indicate result in a lower risk of default, such
as—
(i) documentation and verification of the
financial resources relied upon to qualify the mortgagor;
(ii) standards with respect to—
(I) the residual income of the mortgagor
after all monthly obligations;
(II) the ratio of the housing payments of
the mortgagor to the monthly income of the mortgagor;
(III) the ratio of total monthly
installment payments of the mortgagor to the income of the mortgagor;
(iii) mitigating
the potential for payment shock on adjustable rate mortgages through
product features and underwriting standards;
(iv) mortgage guarantee insurance or other
types of insurance or credit enhancement obtained at the time of origination,
to the extent such insurance or credit enhancement reduces the risk
of default; and
(v) prohibiting
or restricting the use of balloon payments, negative amortization,
prepayment penalties, interest-only payments, and other features that
have been demonstrated to exhibit a higher risk of borrower default.
(C) Limitation on definition. The Federal banking
agencies, the Commission, the Secretary of Housing and Urban Development,
and the Director of the Federal Housing Finance Agency in defining
the term “qualified residential mortgage”, as required by subparagraph
(B), shall define that term to be no broader than the definition “qualified
mortgage” as the term is defined under section 129C(c)(2) of the Truth
in Lending Act, as amended by the Consumer Financial Protection Act
of 2010, and regulations adopted thereunder.
(5) Condition for qualified residential mortgage exemption. The
regulations issued under paragraph (4) shall provide that an asset-backed
security that is collateralized by tranches of other asset-backed
securities shall not be exempt from the risk retention requirements
of this subsection.
(6) Certification. The Commission
shall require an issuer to certify, for each issuance of an asset-backed
security collateralized exclusively by qualified residential mortgages,
that the issuer has evaluated the effectiveness of the internal supervisory
controls of the issuer with respect to the process for ensuring that
all assets that collateralize the asset-backed security are qualified
residential mortgages.
(f) Enforcement. The regulations issued under
this section shall be enforced by—
(1) the appropriate Federal banking agency,
with respect to any securitizer that is an insured depository institution;
and
(2) the Commission,
with respect to any securitizer that is not an insured depository
institution.
(g) Authority of commission. The authority of the Commission under
this section shall be in addition to the authority of the Commission
to otherwise enforce the securities laws.
(h) Authority to coordinate on rulemaking. The
Chairperson of the Financial Stability Oversight Council shall coordinate
all joint rulemaking required under this section.
(i) Effective date of regulations. The regulations issued under this section shall become effective—
(1) with respect to securitizers and originators
of asset-backed securities backed by residential mortgages, 1 year
after the date on which final rules under this section are published
in the Federal Register; and
(2) with respect to securitizers and originators
of all other classes of asset-backed securities, 2 years after the
date on which final rules under this section are published in the Federal Register.
[15 USC 78o-11. As
added by act of July 21, 2010 (124 Stat. 1891).]
