Reforming the Regulation of Government-Sponsored Enterprises in the 110th Congress

Reforming the Regulation of Government-Sponsored Enterprises in the 110th Congress

Order Code RL33940
Reforming the Regulation of
Government-Sponsored Enterprises
in the 110th Congress
Updated August 4, 2008
Mark Jickling, Edward Vincent Murphy, and N. Eric Weiss
Government and Finance Division

Reforming the Regulation of Government-Sponsored
Enterprises in the 110th Congress
Summary
As government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac are
hybrids: created and chartered by Congress for specific public policy purposes, they
are nonetheless private, profit-seeking businesses whose shares are traded on the
New York Stock Exchange. Their “government-sponsored” nature confers certain
advantages over their purely private competitors. As a result, their operations have
expanded rapidly over the years and they long ago assumed — and continue to play
— critical roles in the residential mortgage market. In mid-2008, troubles in the
mortgage market threatened the viability of the two GSEs; Congress responded by
authorizing the Treasury to provide emergency funding to either firm.
In 1992, Congress established the Office of Federal Housing Enterprise
Oversight (OFHEO), an agency within the Department of Housing and Urban
Development (HUD), to oversee the financial safety and soundness of the two firms.
OFHEO is authorized to set capital requirements, conduct annual risk-based
examinations, and generally enforce compliance with safety and soundness standards.
With the rapid subsequent growth of the GSEs, and major accounting scandals
at both Fannie Mae and Freddie Mac, the effectiveness of current regulation has been
widely questioned. Several legislative proposals considered in the 108th and 109th
Congresses addressed GSE regulatory reform, but none was enacted. However, the
adequacy of GSE regulation remained a prominent legislative issue.
Although improving supervision of Fannie Mae and Freddie Mac is the major
focus, regulatory reform also involves the 12 Federal Home Loan Banks, which
comprise one collective GSE. The Federal Home Loan Banks lend to lenders —
their member banks — primarily for housing, but also for many other purposes.
They will now be brought under a single regulatory umbrella with Fannie and
Freddie.
The Housing and Economic Recovery Act of 2008 (H.R. 3221, P.L. 110-289),
enacted on July 30, 2008, replaces OFHEO with an independent agency to oversee
the GSEs, with enhanced safety and soundness, disclosure, and enforcement tools.
The new law raises the conforming loan limit (which sets a ceiling on the size of
mortgages that the GSEs can buy) in high cost areas to 150% of the national limit.
P.L. 110-289 also establishes a fund, to be financed by Fannie and Freddie, to support
low-income housing programs. Finally, the law authorizes the Treasury to buy GSE
securities — debt or equity — in any amount, if necessary to provide stability to
financial markets, prevent disruptions in the availability of mortgage credit, or protect
the taxpayer. This emergency rescue authority expires on December 31, 2009.
This report provides background on the GSE reform issue and summarizes the
provisions of House- and Senate-passed versions of H.R. 3221. It will no longer be
updated.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Need for Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Reform Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
An Independent Regulator with Enhanced Authority . . . . . . . . . . . . . . . . . . 6
Affordable Housing Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Portfolio Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Conforming Loan Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Duties and Authorities of the Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Federal Housing Enterprise Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Risk-Based Capital Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Minimum Capital Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Review of, and Authority Over, Enterprise Assets and Liabilities
(Portfolio Limits) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SEC Registration Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
New Product Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Increase in Conforming Loan Limit for High-Cost Areas . . . . . . . . . . . . . . 20
Housing Goals Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Duty to Serve Underserved Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Establishment of an Affordable Housing Fund . . . . . . . . . . . . . . . . . . . . . . 28
Definition of “Total Mortgage Portfolio” . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Capital Classifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Authority over Critically Undercapitalized Enterprises
(Liquidation Authority) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Removal and Prohibition Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Enterprise Boards of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Abolishment of OFHEO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
List of Tables
Table 1. Fannie Mae and Freddie Mac: Selected Combined Financial
Statistics, 1992 and 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Table 2. Provisions of House- and Senate-Approved Versions of
H.R. 3221 in the 110th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Reforming the Regulation of
Government-Sponsored Enterprises
in the 110th Congress
Introduction1
Fannie Mae and Freddie Mac are hybrids: created and chartered by Congress for
specific public policy purposes, they are nonetheless private, profit-seeking
businesses whose shares are traded on the New York Stock Exchange. Their
“government-sponsored” nature confers certain advantages over their purely private
competitors.2 As a result, their operations have expanded rapidly over the years and
they long ago assumed — and continue to play — critical roles in the residential
mortgage market.
In exchange for government sponsorship, their statutory charters restrict Fannie
and Freddie to buying, holding, guaranteeing, packaging, and selling mortgages that
other firms originate and require them to meet a set of housing goals, whose general
thrust is to promote and support home ownership among low- and moderate-income
families, even where such activities may not be profit-maximizing.
Congress has long been concerned that the safety and soundness of the
government-sponsored enterprises (GSEs) be maintained in order that they meet their
public policy mission and not pose risks to the housing finance system or to
taxpayers. Prior to 1992, oversight was the responsibility of the Department of
Housing and Urban Development (HUD) and the Federal Home Loan Bank Board.
In 1992, in recognition of the two GSEs’ growing importance to the mortgage
market, Congress established the Office of Federal Housing Enterprise Oversight
(OFHEO), an independent agency within HUD, whose exclusive mission is to
oversee the financial safety and soundness of the two firms. OFHEO is authorized
to set capital requirements, conduct annual risk-based examinations, and generally
enforce compliance with safety and soundness standards.
1 Barbara Miles, former Specialist in Financial Institutions, contributed to this report.
2 The most significant advantage comes from an “implicit guarantee.” Although Fannie and
Freddie bonds are not explicitly backed by the full faith and credit of the government,
market participants behave as if they were, believing that the Treasury will never permit
either firm to default. The implicit guarantee allows them to borrow at lower rates than
private financial institutions, and to take on greater financial risk without a corresponding
drop in their credit ratings or rise in their cost of capital. In addition, their charters include
certain tax and regulatory exemptions and a line of credit with the U.S. Treasury.

CRS-2
Since Congress created OFHEO in 1992, Fannie Mae and Freddie Mac’s
business has continued to expand. Table 1 illustrates the expansion by comparing
certain figures for 1992 and 2006. The principal business activity of the two firms
is mortgage securitization. They buy mortgage loans from the original lenders, pool
them, and repackage them as mortgage-backed bonds, which may be sold to investors
or held in the GSEs’ own investment portfolios. The two firms purchased $442.7
billion in mortgage loans in 1992, and more than double that amount in 2006. As a
percentage of all mortgages originated, however, the GSEs’ share fell, an indication
that other financial institutions are active in the mortgage market.3
Table 1. Fannie Mae and Freddie Mac: Selected Combined
Financial Statistics, 1992 and 2006
(all figures except percentages in billions of dollars)
% Growth,
1992
2006
1992-2006
Mortgages Purchased
442.7
909.3
105.4
Purchases as Percent of All Mortgages
49.5
30.5
Originated
Mortgage-Backed Securities Issued
373.2
841.7
125.5
Percent of all MBS Issues
35.8
41.0
Mortgage-Backed Securities Outstanding
832.0
2,900.3
248.6
Percent of all MBS Outstanding
63.4
50.6
Retained Mortgage Portfolio
189.9
1,426.4
651.1
Financial Derivatives
71.7
1,543.4
2,052.6
(Notional Amount Outstanding)
Sources: OFHEO Report to Congress, 2006, and Inside Mortgage Finance Publications, 2006
Mortgage Market Statistical Annual.
Note: “Retained Mortgage Portfolio” includes whole mortgage loans and mortgage-related securities.
Derivatives total is for 1993; earlier figures are not available for Freddie Mac.
In terms of issues of new mortgage-backed securities (MBS), the figures in
Table 1 tell a similar story. The value of MBS issued by Fannie and Freddie in 2006
was more than double the 1992 figure, but their share of all MBS issued increased
much more slowly. The value of all Fannie and Freddie MBS outstanding more than
tripled over the period, but the percentage of MBS outstanding accounted for by the
two firms remained relatively unchanged. Again, this suggests rapid growth in all
3 Fannie and Freddie’s market share growth is constrained by two factors: they are not
allowed to purchase mortgages over a certain value (so-called “jumbo” loans), and they have
not been the leaders in securitization of subprime mortgages. The declining percentage
shown in Table 1 may suggest that jumbo and subprime lending grew faster than the
conventional or conforming mortgage sector where they are dominant However, because
of the many factors in play, a single year’s figure does not necessarily indicate a long-term
trend.

CRS-3
segments of the mortgage securitization market, including those where the GSEs are
not the major players.
The figures in Table 1 relating to purchase and securitization of mortgages, and
the value of MBS outstanding indicate that the GSEs have grown rapidly, but also
suggest that most of that growth can be attributed to the general expansion of the
home mortgage market. The fact that large increases in the volume of business occur
without correspondingly large increases in market share is evidence that there are
other major players in the marketplace, although these institutions generally do not
compete head-to-head with Fannie and Freddie in the same market segments. The
last two lines in Table 1, however, show a change in the nature of the GSEs’
business, rather than a simple increase in scale.
The 651% increase in the GSEs’ mortgage portfolios suggests that the GSEs’
business model has changed significantly. They appear to be less focused on serving
as a conduit between mortgage lenders and bond investors, and instead are placing
more emphasis on earning interest income by holding mortgage loans and MBS in
their own investment portfolios. Fannie and Freddie’s low cost of capital, derived
from their GSE status, allows them to finance the purchase of mortgage assets by
selling debt at interest rates below the yield on the acquired mortgages. The
difference, or spread, between the rates is profit. As profit-seeking firms, the GSEs
have an incentive to maximize the size of their portfolios. Table 1 illustrates the
magnitude of their response to this incentive.
Holders of mortgage loans and mortgage-backed bonds face a range of financial
risks. Like any fixed-rate debt asset, a mortgage loses value if market interest rates
rise. In addition, mortgage investors are at risk when interest rates fall, because home
owners have the right to prepay or refinance their loans, and high interest mortgages
— most desirable from the investor’s point of view — are the first to be prepaid. To
manage these risks, Fannie and Freddie turn to the derivatives markets, where
contracts may be purchased that provide insurance against (or hedge the risks of)
unfavorable changes in interest rates. Table 1 shows that as their portfolios have
grown, the GSEs’ use of derivatives to manage risk has exploded. Financial
management at Fannie and Freddie has become a more complex job, and safety and
soundness regulation has become more challenging.
The Need for Reform
Growth in business volume and the risks posed by growing portfolios (and the
derivatives transactions needed to manage those risks) would likely have made GSE
regulatory reform a priority in the 110th Congress (as it was in the 109th)4 even if that
growth had been managed smoothly. But it was not: serious problems with financial
accounting came to light at Freddie Mac in 2003, then at Fannie Mae in 2004. Both
4 For a summary of 109th Congress GSE legislation, see CRS Report RL32795,
Government-Sponsored Enterprises: Reform Legislation in the 109th Congress, by Mark
Jickling.

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GSEs had to restate their earnings for several years,5 pay fines totaling hundreds of
millions of dollars, and replace their top managers.
The accounting scandals revealed serious weaknesses in accounting policies and
controls. In essence, both firms ignored generally-accepted accounting principles
(GAAP) and chose their accounting policies to produce the financial results that
management wanted. Particularly disturbing, beyond the basic willingness to
manipulate financial results, was that many of the lapses involved accounting for
financial derivatives contracts, upon which the GSEs depend to manage the financial
risks they face.
Recent Developments
In July 2008, the price of Fannie Mae’s and Freddie Mac’s shares plunged by
more than 60%, leading to new and more acute concerns about the future of the
companies. The immediate fear was that credit market participants would refuse to
lend money to Fannie or Freddie. Since the GSEs’ portfolios are financed by
hundreds of billions of dollars in short-term debt, which must be constantly
refinanced or rolled over, neither firm could survive long without access to the credit
markets. This is what happened to the investment bank Bear Stearns in March 2008:
essentially a “non-bank run.” James B. Lockhart, the director of OFHEO, issued
statements reaffirming that the two companies were adequately capitalized.
Although this was true in a regulatory sense, in economic terms, both firms were
extremely vulnerable to a loss of market confidence. Treasury Secretary Henry M.
Paulson Jr. asked Congress to pass legislation that would give the Treasury broad
authority to lend money to or invest in stock of Fannie Mae and Freddie Mac.6
Congress responded swiftly: Section 1117 of the Housing and Economic Recovery
Act of 2008 (H.R. 3221, P.L. 110-289), enacted on July 30, 2008, authorizes the
Treasury to purchase any amount of Fannie or Freddie securities — debt or equity —
if necessary to provide stability to financial markets, prevent disruptions in the
availability of mortgage credit, or protect the taxpayer. The implicit guarantee has
become nearly explicit.
5 When the restatements were completed, Freddie Mac was found to have understated its net
income by $5 billion, while Fannie Mae overstated earnings by $6.3 billion. See CRS
Report RS21949, Accounting Problems at Fannie Mae, and CRS Report RS21567,
Accounting and Management Problems at Freddie Mac, by Mark Jickling.
6 See CRS Report RS22916, Fannie Mae’s and Freddie Mac’s Financial Problems:
Frequently Asked Questions, by N. Eric Weiss for more information on these developments.

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The Reform Legislation
H.R. 3221, as amended and approved by the House, includes provisions from
H.R. 1427, which was introduced by Chairman Frank and passed by the House on
May 22, 2007. The bill took a comprehensive approach to the reform of GSE
regulation. The major changes between the House version of H.R. 3221 and H.R.
1427 are (1) that H.R. 3221 would make permanent the higher conforming loan
limits in high-cost housing areas enacted by the Economic Stimulus Act of 2008, and
H.R. 3221 explicitly states that the GSEs may not obtain bankruptcy protection.7 The
Senate version of H.R. 3221 is generally similar to the House version — each would
create a new agency with enhanced regulatory authority.
Key differences between the House and Senate versions are as follows.
! The House version would make the new regulator a member of the
Federal Financial Institutions Examination Council (FFIEC) along
with the Fed, Federal Deposit Insurance Corporation (FDIC),
National Credit Union Administration (NCUA), Office of the
Comptroller of the Currency (OCC), and Office of Thrift
Supervision (OTS). The Senate bill would not make the new
regulator a member of FFIEC.
! The House version increases the conforming loan limit in high cost
areas to 175% of the national median house price while the Senate
version would increase the limit in high cost areas to 150%.
! The House version would create the new regulator six months after
enactment; the Senate version would create the new regulator
immediately upon enactment.
Other key differences in non-GSE portions of H.R. 3221 include the following.
! The House version continues to permit seller-assisted
downpayments on loans guaranteed by the Federal Housing
Administration (FHA) and to allow FHA to implement risk-based
pricing; the Senate version would eliminate seller assistance and
would not authorize risk-based pricing.8
7 H.R. 3221, then called the New Direction for Energy Independence, National Security, and
Consumer Protection Act, was introduced in the House by Representative Nancy Pelosi on
July 30, 2007. It passed the House on August 4, 2007. The Senate amended and passed
H.R. 3221 on April 10, 2008. The House amended and passed H.R. 3221 on May 8, 2008.
The manager’s amendment to H.R. 3221 included other housing provisions in addition to
those originally in H.R. 1427. On July 11, 2008, the Senate approved a bipartisan manager’s
amendment in the nature of a substitute and sent the bill to the House. The Economic
Stimulus Act of 2008 became P.L. 110-185, 122 Stat. 163 et seq.
8 See CRS Report RS22662, H.R. 1852 and Revisiting the FHA Premium Pricing Structure:
Proposed Legislation in the 110th Congress, by Darryl E. Getter and CRS Report RL33879,
(continued...)

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! The Senate version would authorize $3.9 billion in Community
Development Block Grants (CDBG) to encourage local governments
to buy and rehabilitate foreclosed homes; the House bill does not
have this provision.9 The Administration has said it might veto a bill
with this provision.
! The House version included some $11 billion in housing-related tax
reductions; these tax reductions are fully offset in the bill. The
Senate version has $14.5 billion in tax reductions; $12.1 billion of
the reductions is offset in the bill.10
An Independent Regulator with Enhanced Authority
Both versions of H.R. 3221 propose a restructuring of GSE regulation. They
would replace OFHEO with an independent agency, called the Federal Housing
Finance Agency, which would have enhanced safety and soundness powers, similar
to those of federal banking regulators. Given the importance of the GSEs to the
financial system, and the potential risks they pose, there is little support for keeping
the GSE regulator inside HUD. Among the new powers would be the authority to
set capital standards by order or regulation, to establish standards for the GSE
portfolios, and to initiate receivership or liquidation proceedings for a failing GSE.
Also included under the new agency’s regulatory umbrella would be the Federal
Home Loan Banks (FHLBs), which comprise one collective GSE, but have not
experienced the kinds of problems and business shifts seen at Fannie and Freddie in
recent years. (The bills refer to all GSEs — the FHLBs and Fannie and Freddie —
as “regulated entities.” In provisions that apply only to Fannie and Freddie, the term
“enterprises” is used.)
Affordable Housing Fund
Section 340 of the House version of H.R. 3221 would require Fannie and
Freddie to contribute to an affordable housing fund to support home ownership
among very low- and extremely low-income families, to increase investment in
housing in low-income and economically distressed areas, and to increase and
preserve the supply of rental and owner-occupied housing for very low- and
extremely low-income families. Each enterprise would be required to contribute to
the fund to the fund 1.2 basis points (0.012%) annually of its average total mortgage
portfolio during the preceding year. Proponents of the affordable housing funds
recognize that Fannie and Freddie receive a valuable subsidy in the form of their
GSE status, which permits them to borrow at lower rates than other private financial
8 (...continued)
Housing Issues in the 110th Congress, by Libby Perl, et al. for more information.
9 For more details, see CRS Report RS22919, Community Development Block Grants:
Legislative Proposals to Assist Communities Affected by Home Foreclosures, by Eugene
Boyd and Oscar R. Gonzales.
10 See CRS Report RL33879, Housing Issues in the 110th Congress.

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firms. The affordable housing fund proposal can be viewed as a means of
redirecting some of the value of this subsidy from private shareholders and corporate
management to a policy objective consistent with the GSEs’ charters.
H.R. 1461 (109th Congress) included a similar provision, which proved to be
among the most controversial sections of the bill.11 Opponents argued that Fannie
and Freddie would use the funds to reward political allies or for indirect lobbying
purposes. During floor consideration of H.R. 1461, an amendment was adopted that
prohibited the use of money disbursed by the affordable housing funds for political,
lobbying, or advocacy purposes. Other amendments included a five-year sunset for
the fund (with the director of the new regulator to recommend to Congress whether
the fund should be extended) and established a priority for activities in areas affected
by Hurricanes Katrina and Rita, and in other areas designated by the President as
major disaster areas.
These amendments are incorporated into H.R. 3221 (with some modifications).
Other changes include the allocation formula (in H.R. 1461, the enterprises were to
contribute 5% of their profits to the fund) and the distribution mechanism — under
H.R. 3221, the money would be paid to the new agency, which would pass it on to
the states, who would select the ultimate recipients. Under H.R. 1461, Fannie and
Freddie would have controlled the funds themselves, and dealt with recipients
directly.
The Senate version also provides for such a fund, although the amount of funds
to be contributed and the allocation of funding are structured differently. The
contributions would be divided between affordable housing (65%) and a new
community development Capital Magnet Fund (35%). Initially, however,
contributions would be used to provide a contingency fund for the FHA mortgage
relief program created elsewhere in the bill. After this is phased out 25% would
continue to go to a fund to hep to pay off bonds sold to finance the mortgage relief
program.
The Senate version would require Fannie and Freddie to contribute 4.2 basis
points (0.042%) of the unpaid principal of mortgages purchased during a year. The
House version would require Fannie Mae and Freddie Mac to contribute 1.2 basis
points (0.012%) of the annual average total of mortgages retained in portfolio or sold
in the secondary market, whether or not the mortgages are pooled into an MBS, to
the new GSE affordable housing fund. Based on 2007, the House version would
have raised $592 million and the Senate version would have raised $501 million for
the affordable housing funds. These provisions are in marked contrast to the Senate
bill in the 109th Congress, which did not provide for the creation of a fund.
Portfolio Limits
As noted above, both Fannie and Freddie hold large portfolios of mortgages and
mortgage-backed securities, leading some observers to describe them as the world’s
11 See CRS Report RL34158, Creating GSE Affordable Housing Funds: Proposed
Legislation in the 110th Congress, by N. Eric Weiss.

CRS-8
largest savings and loan institutions. The size of their portfolios represents a
concentration of mortgage market risk that led former Federal Reserve Board
Chairman Alan Greenspan and others to urge Congress to consider ways to shrink the
size of the GSEs’ asset portfolios.12 Supporters of portfolio limits argue that reducing
the size of the portfolios would prevent financial trouble at either Fannie or Freddie
from spilling over into the financial system at large.

In the 109th Congress, Section 109 of S. 190 (which was marked up by the
Banking Committee but never brought to the floor) included statutory provisions that
would have limited Fannie and Freddie’s ability to hold mortgage assets in portfolio.
The GSEs would have been allowed to acquire mortgages and mortgage-backed
securities only for purposes of securitization (with certain limited exceptions). Under
this proposal, Fannie and Freddie’s business models would have been considerably
altered: instead of very large investment funds, they would be transformed into
conduits, buying mortgages from the original lenders, pooling them, packaging them
into mortgage-backed securities, and selling them to bond investors. This change
would have greatly reduced their portfolio earnings, currently one of the chief sources
of their profits.
Proponents of portfolio limits have argued that such a step is needed to reduce
the cost of the GSE subsidy to taxpayers, which takes the form not of annual
appropriations, but of the assumption of risk, that is, the potential cost to the Treasury
of having to bail out either Fannie or Freddie. Opponents argue that reducing the
GSEs’ interest earnings would mean less support for low- and moderate-income
housing goals.
House legislation in the 109th Congress did not contain portfolio limits. This
was one of the key disagreements between House and Senate that prevented
enactment of GSE reform.
Section 325 of the House version of H.R. 3221 represents a compromise
position. The director of the new agency would be specifically directed to monitor
portfolios, and would have the authority to direct an enterprise to acquire or dispose
of any asset, without requiring a formal determination that such an action was
consistent with the safe and sound operation of the enterprise. During committee and
floor consideration of H.R. 1427, two amendments were adopted that appear to
constrain the regulator’s authority to impose portfolio limits based on systemic risk
concerns. In the amended version, the regulator is directed to establish portfolio
standards by taking into consideration risks to the safety and soundness of Fannie and
Freddie themselves, but not risks to the financial system that might arise from the
GSEs’ activities.
The Senate version of the bill takes a similar approach. The director of the new
agency is authorized to monitor the enterprises’ portfolios, and to ensure that the
holdings are backed by sufficient capital and consistent with the mission and the safe
12 See, e.g., testimony of Alan Greenspan, Chairman, Board of Governors of the Federal
Reserve System, before the House Committee on Financial Services, February 17, 2005.

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and sound operations of the enterprises. Thus, the sharp differences between House
and Senate approaches in the 109th Congress appear to have been bridged.
Conforming Loan Limits
Current law sets a limit on the size of mortgages that Fannie and Freddie can
buy. Mortgages above the limit, called jumbo loans, are less likely to be securitized
than the conforming mortgages that Fannie and Freddie are allowed to purchase.
Partly as a result, mortgage rates for nonconforming loans are slightly higher than
conforming loan rates. Critics of the conforming loan limit argue that the limit has
a disparate geographical effect: in some areas of the country the limit, which was
$417,000 for single-family homes in 2007, covers all but the high end of the market,
while in other areas, such as San Francisco or New York City, virtually all real estate
transactions take place over the limit.
H.R. 1427, the GSE reform bill passed by the House on May 22, 2007, would
have raised the limit permanently by up to 50% in high-cost housing areas, allowing
the GSEs to expand into markets now served by non-GSE institutions. In response
to turmoil in the mortgage market, however, the Economic Stimulus Act of 2008
(P.L. 110-185) enacted a temporary increase in the conforming loan limit. For
mortgages originated between July 1, 2007, and December 31, 2008, the limit is
capped at 175% of the statutory limit, or $729,750, in certain high-cost areas.
Section 333 of H.R. 3221 (House) would make the temporary measure in the
Stimulus Act permanent. It would raise the conforming loan limit in metropolitan
areas where the median home price exceeds the current limit. In those areas, the limit
would be set at the median home price, up to a ceiling of 175% of the national limit
($729,750). For more information on this proposal, see CRS Report RS22172, The
Conforming Loan Limit, by N. Eric Weiss and Mark Jickling.
The Senate-passed version also calls for a permanent increase in the conforming
loan limits, but only to 150% of the current ceiling of $417,000 ($625,500).
Table 2 below provides brief summaries of the provisions of the House and
Senate approved versions of H.R. 3221. Where there are significant differences
between H.R. 3221 and H.R. 1427, which passed the House in 2007, the provisions
are set out in italics. Titles IV and VI and Divisions B and C of the Senate bill,
which do not deal with GSE reform, are not covered.

CRS-10
Table 2. Provisions of House- and Senate-Approved Versions of H.R. 3221
in the 110th Congress
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Title
Title III — Reform of Regulation of Enterprises and Federal
Title I — Reform of Regulation of Enterprises
Home Loan Banks
Subtitle
Subtitle A — Reform of Regulation of Enterprises and Federal
Subtitle A — Improvement of Safety and Soundness
Home Loan Banks
Supervision
Chapter
Chapter 1 — improvement of Safety and Soundness
Short Title
Federal Housing Finance Reform Act of 2008
Federal Housing Finance Regulatory Reform Act of 2008
Federal Housing Finance Reform Act of 2007
Definitions
“Regulated Entity” refers to Fannie Mae and Freddie Mac and
Same definition of “regulated entity.”
affiliates, and each Federal Home Loan Bank.
Definition of “entity-affiliated party” is identical to H.R. 3221’s
“Regulated Entity-affiliated Party” means-(A) any director, officer,
definition of “regulated entity-affiliated party.”
employee, or agent for, a regulated entity, or controlling shareholder
Also includes definitions of danger of default, very low income,
of an enterprise; (B) any shareholder, affiliate, consultant, or joint
conforming mortgage, extremely low income, and low income
venture partner of a regulated entity, and any other person, as
area. (Sec. 1128)
determined by the Director (by regulation or on a case-by-case basis)
that participates in the conduct of the affairs of a regulated entity,
except that a shareholder of a regulated entity shall not be considered
to have participated in the affairs of that regulated entity solely by
reason of being a member or customer of the regulated entity; (C)
any independent contractor for a regulated entity (including any
attorney, appraiser, or accountant), if — (i) the independent
contractor knowingly or recklessly participates in — (I) any violation
of any law or regulation; (II) any breach of fiduciary duty; or (III)
any unsafe or unsound practice; and (ii) such violation, breach, or
practice caused, or is likely to cause, more than a minimal financial
loss to, or a significant adverse effect on, the regulated entity; and
(D) any not-for-profit corporation that receives its principal funding,
on an ongoing basis, from any regulated entity. (Sec. 302)

CRS-11
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
“Regulated Entity” refers to Fannie Mae and Freddie Mac and
affiliates, and each Federal Home Loan Bank.
“Regulated Entity-Affiliated Party” means (1) directors, officers,
employees, or agents of a regulated entity, or a controlling
shareholder; (2) shareholders, affiliates, consultants or joint venture
partners, or any other person as determined by the director, that
participates in the conduct of the affairs of the regulated entity
(except that shareholders are not participants solely because they are
members or customers of the regulated entity); (3) any independent
contractor that knowingly or recklessly participates in violation of
law, breach of fiduciary duty, or unsafe or unsound practice that may
cause more than minimal loss to the regulated entity; and (4) any
not-for profit that receives its principal funding from a regulated
entity. (Sec. 302)
New Regulatory Agency
Federal Housing Finance Agency (Sec. 311)
Federal Housing Finance Agency (Sec. 1101)
Agency Status
Independent federal agency. (Sec. 301)
Identical provisions. (Sec. 1101)
Jurisdiction
General supervisory and regulatory authority over Fannie Mae,
General supervisory and regulatory authority over Fannie Mae,
Freddie Mac, and the Federal Home Loan Banks. (Sec. 311)
Freddie Mac, the Federal Home Loan Banks, and the Finance
Facility. (Sec. 1101)
Agency Officials
A Director, appointed by the President, with advice and consent of
Similar, except that the third deputy director’s title will be
the Senate for a five-year term. Should the office be vacant, a new
“Deputy Director for Housing Mission and Goals.” (Sec. 1105)
Director shall be appointed to fill only the remainder of the term.
Three Deputy Directors, appointed by the Director for the Divisions
of Enterprise Regulation, Federal Home Loan Bank Regulation, and
Housing.
An Office of the Ombudsman to consider complaints and appeals
from any regulated entity and any person with a business relationship
with any regulated entity. (Sec. 311)

CRS-12
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Qualifications of Officials
The Director and Deputies must be U.S. citizens, who have a
Identical provisions. (Sec. 1101)
demonstrated understanding of financial management, with
specialized knowledge and experience required for deputy Directors
relevant to the offices they head. (Sec. 301)
Duties and Authorities of the
Principal duties are to oversee the operations of each regulated entity
Similar provisions, with the additional duties to ensure that the
Director
and to ensure that each entity: (1) operates in a safe and sound
activities of regulated entities are consistent with the public
manner, and maintains adequate capital and internal controls; (2)
interest, that the entities remain adequately capitalized.
fosters liquid, efficient, competitive, and resilient national housing
finance markets that minimize the cost of housing finance (including
Does not require consultation with the Attorney General in
for housing for low- and moderate-income families); (3) complies
conservator or receivership proceedings. (Sec. 1102)
with applicable rules, guidelines, orders and regulations pursuant to
applicable law; (4) carries out its statutory mission only through
activities consistent with applicable law.
The Director may review and reject acquisition or transfer of a
controlling interest in a regulated entity; may exercise any necessary
or appropriate incidental powers to fulfill agency’s duties of
supervision and regulation; may enforce actions it takes, or
administer conservatorship or receivership through litigation either
independently (in consultation with the Attorney General) or through
the Attorney General. (Sec. 312)
Prudential Management and
The Director shall establish standards for each regulated entity for (1)
Similar provisions, except does not include specific reference to
Operations Standards
internal controls and information systems, (2) internal audit systems,
subordinated debt. (Sec. 1107)
(3) credit and counterparty risk, (4) interest rate risk management, (5)
monitoring and management of market risk, (6) adequacy and
maintenance of liquidity and reserves, (7) asset and portfolio
management, (8) investments and acquisitions, (9) record keeping,
(10) issuance of subordinated debt, as the Director considers
necessary, (11) overall risk management, including reputational risk
and maintenance of remote facilities to protect against disruption, and
(12) other standards the Director finds appropriate. (Sec. 312)

CRS-13
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Failure to Meet Prudential
If the Director finds that a regulated entity has failed to meet any
Identical provisions. (Sec. 1108)
Standards
prudential standard, the entity must submit a plan within 30 days to
correct the deficiency, and the Director may prohibit any increase in
total assets of the entity, require an increase in regulatory capital, or
take other actions until the deficiency is corrected. The Director shall
take one or more of these actions if the entity fails to meet prescribed
standards, if the deficiency is not corrected, and if the entity
underwent extraordinary growth in the 18 months prior to the date
when it first failed to meet the standard. (Sec. 312)
Federal Housing Enterprise
Creates the Federal Housing Enterprise Board to advise the Director
Similar, except that the Board is called the Federal Housing
Board
on overall strategies and policies. The Board is to have three
Finance Oversight Board and it is to have four members (the
members: the Secretaries of the Treasury and Housing and Urban
chairman of the Securities and Exchange Commission (SEC) is
Development and the Director, who chairs the Board. The Board
added). (Sec. 1103)
meets at least once every three months and shall testify annually
before Congress on the safety and soundness of the regulated entities,
any material deficiencies in the conduct of the entities’ operations,
the overall operational status of the entities, an evaluation of how the
entities are carrying out their missions, the operations, resources and
performance of the Agency, and other matters the Board deems
appropriate. (Sec. 312)
Annual Report of the Director
The annual report of the Director is expanded to include an
Similar provisions. (Sec. 1103)
assessment of the Board or any of its members with respect to (1)
safety and soundness of the regulated entities; (2) material
deficiencies in conduct of the operations or the entities; (3) overall
operational status of the regulated entities; and (4) evaluation of the
performance of the entities in carrying out their missions; (5)
operations, resources, and performance of the Agency; and (6) other
matters relating to the Agency and its fulfillment of its mission. (Sec.
313)

CRS-14
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Authority to Require Reports by
Adds reports on “management, activities, or operations as the
Similar authority to require regular financial reports. Establishes
Regulated Entities
Director considers appropriate” to regular reports the Director may
penalties for regulated entities’ failure to report or the reporting of
require. (Sec. 314)
false or misleading information. (Sec. 1104)
Duty to Report Fraudulent
Requires a regulated entity to report in a timely manner the discovery
Similar provisions. (Sec. 1113)
Transactions
(or suspicion of) any fraudulent loan or financial instrument the
entity may have purchased or sold. The Director is to require the
entities to establish and maintain procedures to discover such
transactions. (Sec. 304)
Charitable Contributions
The Director shall require each enterprise to submit an annual report
No comparable provision.
on the total value of contributions to non-profit organizations;
including the name of the organization and value of contributions (for
contributions exceeding an amount determined by the Director); and
for contributions above the designated amount to any nonprofit of
which a director, officer, or controlling person of the enterprise, or a
spouse, was a director or trustee, the name of the nonprofit and value
of the contribution. Such information is to be publicly available.
(Sec. 305)
Assessments
The Director shall establish and collect annual assessments from the
Assessments collected from the enterprises shall not exceed the
regulated entities to provide for reasonable costs and expenses of the
amounts sufficient to provide for the costs and expenses described
Agency, including (1) costs of examinations, reviews, and credit
in subsection relating to the enterprises. Assessments collected
assessments, and (2) amounts in excess of actual expenses to
from the Federal Home Loan Banks shall not exceed the amounts
maintain necessary working capital. Assessments may be increased to
sufficient to provide for the costs and expenses of regulating the
cover costs of enforcement activities or if an entity is inadequately
Federal Home Loan Banks. (Sec. 1106)
capitalized. Salaries and other expenses shall be paid from
assessments, which shall not be construed to be government funds or
appropriated monies. The Agency shall provide OMB with financial
plans and forecasts, prepare annual financial statements (including an
assertion of the effectiveness of internal accounting controls), and be
audited annually by the Government Accountability Office (GAO) at
the Agency’s expense.
(Sec. 316)

CRS-15
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Examiners and Accountants —
The Director may hire examiners, accountants, specialists in
Similar provisions. (Sec. 1105)
Special Hiring Authority
technology or financial markets, and economists in accordance with
rules governing the excepted service, notwithstanding any rules
governing the competitive service. (Sec. 317)
Inspector General
No provision. Reference to Inspector General of Department of
There shall be within the Agency an Inspector General. (Sec,
Housing and Urban Development. (Sec. 317)
1105)
Executive
The prohibition (in current law) of executive compensation that is not
Identical provisions. (Sec. 1113)
Compensation
reasonable or comparable is amended by permitting the Director to
take into account wrongdoing on the part of the executive, and to
hold pay in escrow while a determination is made. (Sec. 318)
Ratings Agencies
Director may contract with other than nationally recognized statistical
No similar provision.
ratings agencies for to conduct reviews of regulated entities.
(Sec. 319)
Regulations and Orders
The Director is authorized to issue any regulations, guidelines, or
Similar provisions (Sec. 1107)
orders that are necessary to carry out the authorizing statutes.
(Sec. 321)
Inclusion of Women and
Each regulated entity shall create or designate an Office of Minority
No comparable provision.
Minorities; Diversity
and Women Inclusion, to ensure the inclusion and utilization of
minorities and women in all levels of business activities, to the
maximum extent possible. (Sec. 320)
Risk-Based Capital
The Director shall, by regulation, establish risk-based capital
Similar, but no specific mention of confidentiality. (Sec. 1110)
Requirements
requirements for the enterprises to ensure safe and sound operation
and maintenance of sufficient capital and reserves to support risk
exposure. The Director shall establish risk-based capital
requirements for the FHLBs. Confidentiality of information enabling
risk-based capital standards shall be maintained. (Sec. 323)

CRS-16
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Minimum Capital Requirements
The Director may by regulation establish minimum capital levels for
The Director may by regulation or order establish minimum capital
regulated entities that are higher than the statutory levels. The
levels for regulated entities that are higher than the statutory levels.
Director may, by order, increase minimum capital levels on a
(Sec. 1111)
temporary basis if the regulated entity has violated prudential
standards or if an unsafe or unsound condition exists. The Director
may, by order or regulation, establish additional capital or reserve
requirements with respect to any particular program or activity.
The Director shall, by regulation, set critical capital levels for the
Federal Home Loan Banks.
The Director shall periodically review the amount of core capital held
by the enterprises, and shall rescind any temporary minimum capital
level increase if the conditions that warranted the increase no longer
exist. (Sec. 324)
Review of, and Authority Over,
The Director shall, by regulation, establish standards by which the
The Director shall, by regulation, establish criteria governing the
Enterprise Assets and Liabilities
portfolio holdings, or rate of growth of the portfolio holdings, of the
portfolio holdings of the enterprises, to ensure that the holdings are
(Portfolio Limits)
enterprises will be consistent with the mission and safe and sound
backed by sufficient capital and consistent with the mission and
operations. In developing standards, the Director shall consider (1)
the safe and sound operations of the enterprises. In establishing
the size or growth of the mortgage market; (2) the need for the
such criteria, the Director shall consider the ability of the
portfolio in maintaining liquidity or stability of the secondary
enterprises to provide a liquid secondary market through
mortgage market; (3) the need for an inventory of mortgages in
securitization activities, the portfolio holdings in relation to the
connection with securitizations; (4) the need for the portfolio to
overall mortgage market.
directly support the affordable housing mission of the enterprises; (5)
the liquidity needs of the enterprises; (6) any potential risks posed to
The Director may temporarily adjust these regulations if necessary
the enterprises by the nature of the portfolio holdings; and (7) any
to mitigate market disruptions in the housing finance system.
additional factors that the Director determines to be necessary to
(Sec. 1109)
carry out the purpose under the first sentence of this subsection to
establish standards for assessing whether the portfolio holdings are
consistent with the mission and safe and sound operations of the
enterprises. The Director may, by order, make temporary adjustments
to the standards during market stress or disruption. Standards shall
be issued within 180 days of the effective date of this legislation.
(Sec. 325)

CRS-17
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Authority to Require
The Director shall monitor the portfolio of each enterprise. Pursuant
Similar provisions. (Sec. 1109)
Disposition or Acquisition of
to subsection (a) and notwithstanding the capital classifications of the
Assets
enterprises, the Director may, by order, require an enterprise, under
such terms and conditions as the Director determines to be
appropriate, to dispose of or acquire any asset. (Sec. 325)
Corporate Governance of
Requires a majority of the board to be independent directors, as
Similar provision.
Enterprises
defined by the NYSE. Requires boards to meet at least eight times a
year, and requires non-management directors to meet regularly in
executive session without management participation. Boards shall
include audit, compensation, and nominating committees, to be
composed and empowered according to SEC and NYSE rules.
(Sec. 326)
Compensation by Enterprises
Compensation of Directors, executives, and employees shall not
Similar provisions. (Sec. 1113)
exceed what is reasonable and appropriate, shall be commensurate
with duties and responsibilities, consistent with the long-term goals
of the enterprise, and shall not focus solely on earnings performance.
Enterprises are made subject to Section 304 of the Sarbanes-Oxley
Act, which requires CEOs and CFOs to reimburse the company under
certain circumstances after an accounting restatement involving
misconduct. (Sec. 318)
Golden Parachutes
No provision
Under certain circumstances, the Director is authorized to prohibit
indemnification or golden parachute payments to entity-affiliated
parties. (Sec. 1114)
Code of Conduct and Ethics
An enterprise shall establish and enforce a written code of conduct
No provision.
designed to ensure that Directors, officers, and employees act in an
impartial and objective manner, including standards under Section
406 of the Sarbanes-Oxley Act. The code shall be reviewed at least
once every three years.
(Sec. 326)

CRS-18
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Responsibilities of the Board of
The board of an enterprise shall oversee (1) corporate strategy, risk
No provision.
Directors
policy, and compliance programs, (2) hiring and retention of
qualified executives, (3) compensation programs, (4) the integrity of
accounting and financial reporting systems, (5) disclosures to
shareholders and investors, (6) extensions of credit to officers and
directors, and (7) responsiveness in reporting to federal regulators.
(Sec. 326)
Prohibition of Extensions of
An enterprise may not (directly, indirectly, or through a subsidiary)
No provision.
Credit
make any personal loan to a board member or executive officer.
(Sec. 326)
Certification of Disclosures
The CEO and CFO of an enterprise shall review annual and quarterly
No provision.
reports and shall make the certifications required by Section 302 of
the Sarbanes-Oxley Act. (Sec. 326)
Change of Audit Partner
Requires that the lead partner of the external auditor of an enterprise
No provision.
be changed every five years. (Sec. 326)
Compliance Program
Each enterprise shall establish a compliance program reasonably
No provision.
designed to ensure that the enterprise complies with applicable laws,
regulations, and internal controls. The program shall be headed by a
compliance officer, who reports directly to the CEO and regularly to
the board. (Sec. 326)
Risk Management Program
Each enterprise shall establish a risk management program
No provision.
reasonably designed to manage the risks of operation. The program
shall be headed by a risk management officer, who reports directly to
the CEO and regularly to the board. (Sec. 326)

CRS-19
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
SEC Registration Requirements
Requires each regulated entity to register at least one class of capital
Provides that equity securities issued by the enterprises are not
stock with the SEC, and requires enterprises (Fannie Mae and Freddie
exempt from SEC registration requirements, and requires
Mac) to comply with Sections 14 and 16 of the Securities Exchange
enterprises (Fannie Mae and Freddie Mac) to comply with Sections
Act of 1934 (which deal with proxy reporting and disclosure of
12, 13, 14 and 16 of the Securities Exchange Act of 1934 . (Sec.
insider transactions in company stock). (Sec. 327)
1112)
Enterprises whose stock is not registered or deregistered remain
subject to certain provisions of the Securities Exchange Act.
(Sec. 326)
Federal Financial Institutions
The FHFA shall be a member of the FFIEC. (Sec. 328)
No provision.
Examination Council (FFIEC)
Guarantee Fee Study
The GAO, in consultation with the heads of the federal banking
The Director shall conduct an on-going study of fees charged to
agencies and the OFHEO, shall, not later than one year after the date
guarantee mortgages and annually report to Congress on pricing,
of the enactment, submit to Congress a study of the pricing,
revenues, costs, average fee charged, and any change in fees.
transparency and reporting of the regulated entities with regard to
(Sec. 1501)
guarantee fees and analogous practices, transparency and reporting
requirements of other participants in the business of mortgage
purchases and securitization. The study shall examine various factors
such as credit risk, counterparty risk, and economic value
considerations. (Sec. 329)
Chapter 2 — Improvement of Mission Supervision
Subtitle B — Improvement of Mission Supervision
Transfer of Product Approval
This section transfers HUD’s authority for new product approval and
Identical provision. (Sec. 1121)
and Housing Goal Oversight
housing goals to the FHFA. (Sec. 331)
New Product Approval
The enterprises must obtain approval from the Director before
Similar provision. (Sec. 1123)
offering any new “products,” which are defined. This section
transfers HUD’s authority for new product approval and housing
goals to the FHFA. (Sec. 332)

CRS-20
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Standard for Approval
The Director shall determine that a new product is consistent with the
Identical, except that the there is no standard concerning
enterprise’s charter, is in the public interest, is consistent with the
“materially impair the efficiency...” as in H.R. 3221. (Sec. 1123)
safety and soundness of the enterprise or the mortgage finance
system, and does not materially impair the efficiency of the mortgage
finance system. (Sec. 332)
Procedure for Approval
The enterprises make a written request to the Director, who shall
Similar, but Director may give temporary approval without public
publish the request in the Federal Register with a 30-day public
comment under exigent circumstances. (Sec. 1123)
comment period. The Director will have 30 days after the close of
the comment period to approve or deny the request. (Sec. 332)
Definition of Product or New
The term “product” does not include the enterprises’ automated loan
No specific reference to “significant new exposure to risk for the
Business Activity
underwriting systems in existence on the date of enactment of this
enterprise or the holder of the mortgage.” (Sec. 1123)
legislation, or any modifications or upgrades to such systems that do
not (1) include services or financing other than residential mortgage
financing, or (2) create significant new exposure to risk for the
enterprise or the holder of the mortgage. (Sec. 332)
Conforming Loan Limit —
The conforming loan limit will increase or decrease to reflect the
Limit cannot decline. Decreases are “banked” and used against
Indexation
annual change in a housing price index maintained by the Director.
later increases. (Sec. 1124)
(Sec. 333)
Increase in Conforming Loan
In areas where 125% of the median house price exceeds the national
Limit is increased to lesser of 100% of area median or 132% of
Limit for High-Cost Areas
limit, the area limit is 125% of the area median, but not more than
national loan limit ($550,440). (Sec. 1124)
175% of the national limit. Areas shall be the same as used to
determine the FHA guarantee limits. (Sec. 333)
H.R. 1427: The conforming loan limit shall be increased in areas
where the median price exceeds the general limitation to the lesser of
(1) 150% of such general limitation or (2) the median price in the
area. The Director may limit such an increase to mortgages which
are securitized and sold by the enterprise. (Sec. 133)

CRS-21
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
House Price Index
The Director shall maintain an index of national average single
Similar provisions relating to index; no GAO audit. (Sec. 1124)
family house prices for use for adjusting the conforming loan
limitations of the enterprises. GAO shall audit this index within 180
days of the creation of the index and after any modification to the
index. (Sec. 333)
Conditions on Conforming Loan
H.R. 3221: No provision.
Loans above the national conforming loan limit may not be held in
Limit Increases for High-Cost
a GSE’s portfolio, but must be securitized. (Sec. 1124)
Areas
H.R. 1427: The Director shall conduct a study to determine (1) the
effects of restricting the higher conforming loan limits only to
mortgages securitized and sold by the enterprises on the availability
of mortgages for housing in high-cost areas and, (2) the extent to
which the enterprises will be able to sell securities based on
mortgages for housing located in such high-cost areas. If the
Director determines that costs to borrowers in such high-cost areas
will be increased by such restrictions, the Director may issue an
order terminating such restrictions. (Sec. 133)

CRS-22
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Contents of Annual Report to
The report shall (1) discuss the extent to which the regulated entity is
Director shall report annually to Congress on GSE achievements of
Congress
meeting (or could better meet) its statutory purposes, including
housing goals, aggregate data on housing goals, incomes, race,
housing goals, community investment, and affordable housing
gender, subprime mortgage purchases, and nontraditional loans.
programs; (2) analyze data on income, race, and gender, and discuss
violations of fair lending procedures by lenders; (3) examine credit
The Director shall conduct a monthly survey of characteristics of
conditions in the multifamily housing mortgage markets and the
conforming and non-conforming mortgages, house prices,
status of efforts to provide standard credit terms and underwriting
underwriting characteristics, etc. Such data shall be made public in
guidelines for multifamily housing and securitize such mortgage
a timely manner. (Sec. 1125)
products; (4) examine the use of alternative credit scoring and other
means to expand opportunities for first-time home buyers; (5)
analyze existing trends in pricing and other conditions in the housing
markets and mortgage markets; and (6) identify the extent to which
each enterprise is involved in the subprime mortgage market, and
compare the characteristics of subprime loans purchased and
securitized by the enterprises to other loans purchased and securitized
by the enterprises. (Sec. 334)
Standards for Subprime Loans
Within one year of the effective date of this legislation the Director
No comparable provision.
shall issue standards by which mortgages purchased shall be
considered subprime for the purpose of complying with the reporting
requirement in Housing and Community Development Act of 1992.
(Sec. 334)
Mortgagor Identification
Prohibits regulated entity involvement with mortgages where the
No comparable provision.
Requirements
borrower does not have a Social Security account number. (Sec. 336)
Housing Goals Authority
The authority to establish and monitor housing goals for the
Similar provisions (Sec. 1128)
enterprises is moved to the Director from HUD. (Sec. 337)
Housing Goals, General
There are three single-family housing goals and one multifamily
Similar, but no authority given to Director to remediate rate
housing goal. In addition, the enterprises are required to provide the
disparities. (Sec. 1129)
Director with sufficient information to determine if minorities are
charged a different interest rate than non-minorities. (Sec. 337)

CRS-23
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Single-Family Housing Goals
The Director shall establish annual goals for the purchase by each
Similar, except for treatment of single-family rental units. (Sec.
enterprise of conventional, conforming, single-family,
1129)
owner-occupied, purchase money mortgages financing housing for
(1) low-income families, (2) very low-income families, and (3)
families that reside in low-income areas. The Director shall establish
a separate low-income goal for mortgages used to refinance existing
mortgages. (Sec. 337)
Authority to Increase Targets
The Director may by regulation increase the single-family goals set
No comparable provision.
out previously to reflect expected changes in market performance
related to such information under the Home Mortgage Disclosure Act
of 1975. In establishing such targets, the Director shall consider (1)
national housing needs, (2) economic, housing, and demographic
conditions, (3) the performance and effort of the enterprises toward
achieving the housing goals in previous years, (4) the size of the
conventional mortgage market serving each of the types of families
relative to the size of the overall conventional mortgage market, and
(5) the need to maintain the sound financial condition of the
enterprises. (Sec. 337)
Multifamily Special Affordable
The Director shall establish, by regulation, an annual goal for the
The Director shall establish, by regulation, an annual goal for the
Housing Goal
purchase by each enterprise of each of the following types of
purchase by each enterprise of mortgages on multifamily housing
mortgages on multifamily housing: (1) mortgages that finance
that (1) finance dwelling units affordable to very low-income
dwelling units for low-income families, (2) mortgages that finance
families, and (2) that finance dwelling units assisted by the
dwelling units for very low-income families, and (3) mortgages that
low-income housing tax credit. (Sec. 1128)
finance dwelling units assisted by the low-income housing tax credit
under section 42 of the Internal Revenue Code of 1986. (Sec. 337)

CRS-24
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Setting Multifamily Special
In establishing the special multifamily affordable housing goal for an
Similar, except that there is no reference to a specific data source,
Affordable Housing Goal
enterprise for a year, the Director shall consider: (1) national
and Agency must review goals annually for feasibility. (Sec. 1128)
multifamily mortgage credit needs; (2) the performance and effort of
the enterprise in making mortgage credit available for multifamily
housing in previous years; (3) the size of the multifamily mortgage
market; (4) the ability of the enterprise to lead the industry in making
mortgage credit available, especially for underserved markets, such
as for small multifamily projects of 5 to 50 units, multifamily
properties in need of rehabilitation, and multifamily properties
located in rural areas; and (5) the need to maintain the sound
financial condition of the enterprise. \ Director to use a rolling three-
year average of data collected under the Home Mortgage Disclosure
Act. (Sec. 337)
Additional Requirements for
The Director shall establish, within the multifamily special affordable
Similar provisions (Sec. 1128)
Smaller Projects
housing goal, additional requirements for the purchase by each
enterprise of mortgages for multifamily housing projects of a smaller
or limited size, which may be based on the number of dwelling units
in the project or the amount of the mortgage, or both, and shall
include multifamily housing projects of such smaller sizes as are
typical among such projects that serve rural areas. (Sec. 337)
Units Financed by Housing
The Director shall give credit toward the achievement of the
Similar provisions. (Sec. 1128)
Finance Agency Bonds
multifamily special affordable housing goal to dwelling units in
multifamily housing that is financed by tax-exempt or taxable bonds
issued by a State or local housing finance agency, but only if such
bonds are secured by a guarantee of the enterprise, or are not
investment grade and are purchased by the enterprise. (Sec. 337)

CRS-25
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Use of Tenant Income or Rent
The Director shall monitor the performance of each enterprise in
Similar provisions. (Sec. 1128)
meeting housing goals and shall evaluate such performance based on
the income of the prospective or actual tenants of the property, where
such data are available; or where the data are not available, rent
levels affordable to low-income and very low-income families. A
rent level shall be considered to be affordable if it does not exceed
30% of the maximum income level of the income category, with
appropriate adjustments for unit size as measured by the number of
bedrooms. (Sec. 337)
Discretionary Adjustment of
The Director may reduce the level for a goal pursuant to such a
Regulated entity may petition Director to reduce the level of any
Housing Goals
petition by one of the enterprises only if (1) market and economic
goal. (Sec. 1128)
conditions or the financial condition of the enterprise require such
action; or (2) efforts to meet the goal would result in the constraint of
liquidity, over-investment in certain market segments, or other
consequences contrary to the intent of the law. (Sec. 337)

CRS-26
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Definitions
Very low-income: in the case of owner-occupied units, income not in
Similar provisions. (Sec. 1128)
excess of 50% of area median income; and in the case of rental units,
income not in excess of 50% of area median income, adjusted for
family size.
Low-income area: census tract or block numbering area in which the
median income does not exceed 80% of the median income for the
area in which such census tract or block numbering area is located,
and shall include families having incomes not greater than 100% of
the area median income who reside in minority census tracts.
Extremely low-income: in the case of owner-occupied units, income
not in excess of 30% of the area median income; and (B) in the case
of rental units, income not in excess of 30% of the area median
income, with adjustments for family size.
Conforming mortgage: a conventional mortgage having an original
principal obligation that does not exceed the dollar limitation, in
effect at the time of such origination, specified in the enterprise’s
charter. (Sec. 337)
Definitions
“Rural” and “rural area” as currently defined are revised to include
No comparable provision.
micropolitan areas and tribal trust lands. (Sec. 337)
Duty to Serve Underserved
The enterprises shall (1) purchase mortgages on housing for very
Similar provisions. (Sec. 1129)
Markets
low-, low-, and moderate-income families involving a reasonable
economic return that may be less than the return earned on other
activities; and (2) have the duty to improve the liquidity of and the
distribution of capital available for mortgage financing for
underserved markets. (Sec. 338)

CRS-27
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Underserved Markets
Each enterprise shall lead the industry in developing loan products
Similar, except adds subprime, and Community Development
and flexible underwriting guidelines for: (1) manufactured housing
Financial Institutions loans. The enterprises shall assist lenders to
purchased by very low-, low-, and moderate-income families; (2)
meet their Community Reinvestment Act (CRA) obligations. (Sec.
affordable housing preservation; (3) housing for very low-, low-,
1129)
and moderate-income families in rural areas, and for any other
underserved market for very low-, low-, and moderate-income
families that the Director identifies as lacking adequate credit through
conventional lending sources. Such underserved markets may be
identified by borrower type, market segment, or geographic area.
(Sec. 338)
Evaluation and Reporting of
Not later than six months after the effective date, the Director shall
Similar provisions, but the Director may determine additional
Compliance
establish a manner for evaluating whether, and the extent to which,
factors. (Sec. 1129)
the enterprises have complied with the duty to serve underserved
markets and for rating the extent of such compliance. The Director
shall annually evaluate the compliance and rate the performance of
each enterprise. (Sec. 338)
Enforcement of Duty to Provide
The duty to serve underserved markets shall be enforceable to the
Similar provisions. (Sec. 1129)
Mortgage Credit to Underserved
same extent and under the same provisions that the housing goals are
Markets
enforceable. (Sec. 338)
Housing Goal Enforcement
If the Director preliminarily determines that an enterprise has failed,
Similar provisions. (Sec. 1130)
or is likely to fail to meet any housing goal, the Director shall provide
written notice including the reasons for such determination.
(Sec. 339)

CRS-28
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Cease and Desist Orders, Civil
If the Director finds that there is a substantial probability that an
Similar provisions, except greater civil money penalties. (Sec.
Money Penalties, and Remedies
enterprise will fail, or has actually failed, to meet any housing goal
1130)
Including Housing Plans
and that the achievement of the housing goal was or is feasible, the
Director may require that the enterprise submit a housing plan. If the
Director makes such a finding and the enterprise refuses to submit
such a plan, submits an unacceptable plan, fails to comply with the
plan or the Director finds that the enterprise has failed to meet any
housing goal, in addition to requiring an enterprise to submit a
housing plan, the Director may issue a cease and desist order, impose
civil money penalties, or order other remedies as set forth in this
subsection. (Sec. 339)
Review of Housing Plan
The Director shall review any submission by an enterprise, including
Similar provisions. (Sec. 1130)
a housing plan, and not later than 30 days after submission, approve
or disapprove the plan or other action. The Director may extend the
period for approval or disapproval for a single additional 30-day
period. (Sec. 339)
Additional Remedies for Failure
The Director also may seek other actions when an enterprise fails to
Similar provisions. (Sec. 1130)
to Meet Goals
meet a goal, and exercise appropriate enforcement authority available
to the Director under this act to prohibit the enterprise from initially
offering any product or engaging in any new activities, services,
undertakings, and offerings and to order the enterprise to suspend
products and activities, services, undertakings, and offerings pending
its achievement of the goal. (Sec. 339)
Establishment of an Affordable
The Director of the Federal Housing
Similar provisions. (Sec. 1131)
Housing Fund
Finance Agency (in consultation with
HUD Secretary) shall establish and
manage an affordable housing fund. (Sec. 340)
Purpose of the Fund
To increase homeownership and the supply of rental housing among
Similar provisions. (Sec. 1131)
very low-income families, to increase investment in public
infrastructure, to increase investment in low-income areas.
(Sec. 340)

CRS-29
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Allocation of Amounts by
For fiscal years 2007 through 2011, each enterprise shall allocate to
Each enterprise shall contribute 4.2 basis points (0.042%) of the
Enterprises
the fund 1.2 basis points (0.012%) of its average total mortgage
unpaid principal balances of its total new business purchases. (Sec.
portfolio during the preceding year. (Sec. 340)
1131)
Definition of “Total Mortgage
The term “total mortgage portfolio” means, with respect to a year, the
“Unpaid principal balances of its total new business purchases” not
Portfolio”
sum of the dollar amount of the unpaid outstanding principal
defined.
balances on all mortgages outstanding during that year in any form,
including whole loans, mortgage-backed securities, participation
certificates, or other structured securities backed by mortgages. This
includes all such mortgages or securitized obligations, whether
retained in portfolio or sold in any form. The Director is authorized to
promulgate rules further defining such terms as necessary to
implement this section and to address market developments.
(Sec. 340)
Limitation on Contributions
No comparable provision.
Cannot be used in conjunction with property taken by eminent
domain, unless that property is taken for public use. (Sec. 1131)
Suspension of Contributions
The Director shall temporarily suspend the allocation by an enterprise
Similar provision. (Sec. 1131)
to the affordable housing fund upon a finding by the Director that
such allocations would contribute to the financial instability of the
enterprise, would cause the enterprise to be classified as
undercapitalized, or would prevent the enterprise from successfully
completing a capital restoration plan under Section 1369C. (Sec. 340)
Five-Year Sunset and Report
The enterprises shall not be required to make allocations to the
No sunset provision. (Sec. 1131)
affordable housing fund in 2012 or in any year thereafter. Not later
than June 30, 2011, the Director shall submit to Congress a report
making recommendations on whether the fund should be extended or
modified. (Sec. 340)
Affordable Housing Needs
For 2008, 75% of allocations shall go to the Louisiana Housing
In the initial year (2009), the fund would support the HOPE for
Formulas: Allocations for 2008
Finance Agency; 25% to the Mississippi Development Authority.
Homeowners Program. (Sec. 1131)
(Sec. 340)

CRS-30
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Affordable Housing Needs
HUD Secretary shall establish a formula to allocate funds to states
In all years, 25% of the fund would go to support a reserve fund for
Formulas: Allocations for Later
and Indian tribes based on specified factors, including population,
HOPE for Homeowners bonds. During the first three years, a
Years
housing affordability, percentage of extremely low- and very
decreasing percentage (100%, 50%, 25%) of the other 75% would
low-income families, and the extent of substandard housing. If such
go for the HOPE program. Of the 75% (as adjusted), 65% would
a formula is not established by the time the Director is to make
go to a housing fund similar to the House’s affordable housing
allocations, the allocations will be distributed to states based on
fund; 35% would go to a Capital Magnet Fund to provide
HOME allocations to states and participant jurisdictions. (Sec. 340)
competitively awarded grants to support affordable housing for
primarily extremely low-, very low-, and low-income families.
(Sec. 1131)
Allocation of Formula Amounts
The Director shall determine the formula amount for each grantee
Similar provisions. (Sec. 1131)
(states and Indian tribes) and publish in the Federal Register the
available amounts. (Sec. 340)
Recipients of Allocations
Each grantee may designate a state housing finance agency, housing
Similar provisions. (Sec. 1131)
and community development entity, tribally designated housing
entity, or other qualified instrumentality of the grantee to receive
grants. (Sec. 340)
Grantee Allocation Plans
Each grantee shall establish and publish a plan for distribution of
Similar provisions. (Sec. 1131)
grant amounts each year. The plan shall set forth requirements for
applications to receive assistance. (Sec. 340)
Eligible Activities
Grant amounts shall be used only for (1) the production, preservation,
Similar provisions. (Sec. 1131)
and rehabilitation of rental housing, including housing under the
programs identified in Section 1335(a)(2)(B), except that such grant
amounts may be used for the benefit only of extremely and very
low-income families; (2) the production, preservation, and
rehabilitation of housing for homeownership (including such forms
as downpayment assistance, closing cost assistance, and assistance
for interest-rate buy-downs) for extremely and very low-income
first-time home buyers; and (3) public infrastructure development
activities in connection with housing activities funded under
paragraph (1) or (2). (Sec. 340)

CRS-31
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Eligible Recipients
Funds may be provided only to organizations, agencies, or entities
Similar provisions. (Sec. 1131)
(including for-profit, non-profit, or faith-based entities) (1) with a
demonstrated capacity for carrying out eligible housing activities, and
(2) that make assurances to the grantee (as required by the Director)
that they will comply with the requirements of the program.
(Sec. 340)
Identification Requirements for
Any assistance provided with any affordable housing grant amounts
No comparable provision.
Occupancy or Assistance
may not be made available to any individual or household unless the
individual or, in the case of a household, all adult members of the
household provide, personal identification in specified forms.
(Sec. 340)
Required Minimum Allocations
Of aggregate amounts allocated each year, 25% shall be used by
No reference to Refcorp. The minimum state allocation would be
Refcorp, as provided in Section 21B(f)(2)(E) of the Federal Home
$3 million. (Sec. 1131)
Loan Bank Act (12 U.S.C. 1441b(f)(2)(E)); not less than 10% shall
be for homeownership activities; and, not more than 12.5% shall go
to public infrastructure projects. All funds must be used or
committed within two years of the grant date, or be subject to
recapture. (Sec. 340)
Prohibited Uses
The Director shall by regulation, set forth prohibited uses of grant
Similar provisions. (Sec. 1131)
amounts, which shall include use for (1) political activities; (2)
advocacy; (3) lobbying, whether directly or through other parties; (4)
counseling services; (5) travel expenses; and (6) preparing or
providing advice on tax returns. The Director shall provide by
regulation that grant amounts may not be used for administrative,
outreach, or other costs of the grantee or any recipient of such grant
amounts, except that grant amounts may be used for administrative
costs of the grantee of carrying out the program required under this
section. (Sec. 340)
Effect on Housing Goals
Amounts contributed by the enterprises to the affordable housing
Similar provisions. (Sec. 1131)
fund shall not count toward meeting housing goals or duty to serve.
(Sec. 340)

CRS-32
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Accountability of Recipients
The Director shall require each grantee to develop and maintain a
Similar provisions. (Sec. 1131)
and Grantees
system to ensure that all recipients of funds use those funds in
accordance with this section, and any applicable regulations,
requirements, or conditions. The Director shall establish minimum
requirements for grantees and recipients, which shall include
appropriate financial reporting, record retention, and audit
requirements. (Sec. 340)
Misuse of Funds by Recipients
If the Director or a grantee (subject to the Director’s review)
Similar provisions. (Sec. 1131)
determines that any recipient of assistance has used any amounts in a
manner that is materially in violation of this section, the regulations
issued under this section, or any requirements or conditions under
which such amounts were provided, the grantee shall require that,
within 12 months after the determination of such misuse, the
recipient shall reimburse the grantee for misused amounts and return
to the grantee any amounts that remain unused or uncommitted for
use. The remedies under this clause are in addition to any other
remedies that may be available under law. (Sec. 340)
Reports by Grantees
The Director shall require each grantee receiving affordable housing
Similar provisions. (Sec. 1131)
fund grant amounts for a year to submit an annual report to the
Director that describes the activities funded under this section and the
manner in which the grantee complied with the allocation plan
established for the grantee. The Director shall make these reports
publicly available.
(Sec. 340)

CRS-33
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Misuse of Funds by Grantees
If the Director determines, after reasonable notice and opportunity for
Similar provisions. (Sec. 1131)
hearing, that a grantee has failed to comply substantially with any
provision of this section and until the Director is satisfied that there is
no longer any such failure to comply, the Director shall reduce the
amount of assistance under this section to the grantee by an amount
equal to the amount of the affordable housing fund grant amounts
that were not used in accordance with this section; require the grantee
to repay an amount equal to the amount of the affordable housing
fund grant amounts which were not used in accordance with this
section; limit the availability of assistance under this section to the
grantee to activities or recipients not affected by such failure to
comply; or terminate any assistance under this section to the grantee.
(Sec. 340)
Capital Requirements
The utilization or commitment of amounts from the affordable
No comparable provision.
housing fund shall not be subject to the risk-based capital
requirements established pursuant to Section 1361(a).
(Sec. 340)
GAO Study of Affordable
Directs the GAO to report on the affordable housing fund’s impact on
Similar provisions. (Sec. 1131)
Housing Fund
the affordability and availability of credit for home buyers. (Sec.
340)

CRS-34
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Chapter 3 — Prompt Corrective Action
Subtitle C — Prompt Corrective Action
Capital Classifications
The Director shall establish capital classifications for the FHLBs,
Similar provisions regarding the Director’s authority to reclassify a
reflecting differences in operations between the banks and the
regulated entity. (Sec. 1142)
enterprises. (Sec. 151(a)) These regulations are to be issued within
180 days of the effective date of this legislation. (Sec. 151(b)). The
Director may reclassify a regulated entity (1) whose conduct could
rapidly deplete core or total capital, or (in the case of an enterprise)
whose mortgage assets have declined significantly in value, (2) which
is determined (after notice and opportunity for a hearing) to be in an
unsafe or unsound condition, or (3) which is engaging in an unsafe or
unsound practice. (Sec. 345(a))
Restriction on Capital
A regulated entity shall make no capital distribution that would cause
Similar provision. (Sec. 1142)
Distributions
it to become undercapitalized, except that certain capital restructuring
transactions may be permitted by the Director if they improve the
financial condition of the entity. (Sec. 345(a))
Supervisory Actions Applicable
The Director must monitor an undercapitalized entity’s condition, its
Provisions similar, except that an undercapitalized GSE may not
to Undercapitalized Regulated
compliance with its capital restoration plan, and the efficacy of the
grow unless the ratio of its “tangible assets” to equity is increasing.
Entities
plan. No growth in total assets is permitted for an undercapitalized
(House bill has “total capital” to assets.) (Sec. 1143)
GSE, unless (1) the Director has accepted the GSE’s capital
restoration plan, (2) an increase in assets is consistent with the plan,
Agency must reclassify GSE as significantly undercapitalized for
and (3) the ratio of total capital to assets is increasing. An
failure to comply with capital restoration plan. (Sec. 1143)
undercapitalized entity shall not, directly or indirectly, acquire any
interest in any entity or initially offer any new product (as such term
is defined in section 1321(f)) or engage in any new activity, service,
undertaking, or offering without the Director’s prior approval and
determination that such activities would be consistent with the capital
restoration plan. Actions that may be taken under current law with
regard to significantly undercapitalized GSEs may be taken with
regard to undercapitalized GSEs, if the Director finds it necessary.
(Sec. 346)

CRS-35
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Supervisory Actions Applicable
Of the supervisory actions that the regulator may take under current
Identical provisions. (Sec. 1144)
to Significantly
law, one or more of the following must be taken: new election of
Undercapitalized Regulated
Directors, dismissal of Directors and/or executives, and hiring of
Entities
qualified executive officers, or other actions.
Without prior written approval of the Director, executives of a
significantly undercapitalized regulated entity may not receive
bonuses or pay raises. (Sec. 347)
Authority over Critically
The Director may appoint (or the Agency may serve as) a receiver or
Similar provisions, but mandatory receivership occurs after 60
Undercapitalized Enterprises
conservator for several specified causes related to financial difficulty
days, instead of 30 days. The Director would have discretionary
(Liquidation Authority)
and/or violations of law or regulation. Sets out powers of
authority to force receivership during days 30 to 60. Also, once
conservators or receivers, and procedures for settlement of claims,
receivership is started, liquidation is mandatory. (Sec. 1145)
disposal of assets, and other aspects of liquidation, including judicial
review. Authorizes the Director to appoint a limited-life regulated
entity to deal with the affairs of an entity in default. Prohibits a
receiver from terminating, revoking, or annulling the charter of a
regulated entity.
Mandatory receivership: requires the Director to appoint the Agency
as a receiver if a regulated entity’s assets are (and have been for 30
days) less than its obligations to its creditors, or if the regulated entity
has (for 30 days) not been generally paying its debts as they come
due. (Sec. 348)

CRS-36
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Chapter 4 — Enforcement Actions
Subtitle D — Enforcement Actions
Cease-and-Desist Proceedings
The Director may issue cease-and-desist orders against a regulated
Similar provisions. (Sec. 1151)
entity, a regulated entity-affiliated party, or the Federal Home Loan
Bank Finance Corporation (created by Sec. 204) for unsafe or
unsound practices (actual or imminent), violations of laws and
regulations, or for a receiving a less-than-satisfactory rating for asset
quality, earnings, management, or liquidity, where the identified
deficiency is not corrected. This authority may not be used to
enforce compliance with housing goals. (Sec. 352)
Temporary Cease-and-Desist
If a violation (or threatened violation) or an unsafe or unsound
Similar provisions. (Sec. 1152)
Proceedings
practice is likely to cause insolvency or significant dissipation of
assets or earnings of a regulated entity, or is likely to weaken the
condition of the regulated entity prior to the completion of
cease-and-desist proceedings, the Director may issue a temporary
order requiring the regulated entity to cease and desist from any such
violation or practice and to take affirmative action to prevent or
remedy such insolvency, dissipation, condition, or prejudice pending
completion of such proceedings. The Director may apply to the U.S.
District Court for an injunction to enforce such temporary order.
(Sec. 352)
Prejudgment Attachment
Permits the courts to freeze assets, funds, or other property of persons
No comparable provision.
subject to civil or administrative actions for violations. (Sec. 353)
Enforcement and Jurisdiction
The Director may apply to the U.S. District Court for the District of
Similar provisions, but removes federal court jurisdiction over
Columbia, or the U.S. district court within the jurisdiction of which
actions brought prudential management and operation standards in
the headquarters of the regulated entity is located, for the
Section 1313B. (Sec. 1154)
enforcement of any effective and outstanding notice or order issued,
or request that the Attorney General bring such an action. The court
shall have jurisdiction and power to require compliance with such
notice or order. (Sec. 354)

CRS-37
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Civil Money Penalties
Establishes three tiers of fines: (1) $10,000 per day for violations of
Same tiers of penalties and adds “any conduct that the Director
orders, (2) $50,000 per day for recklessly engaging in an unsafe or
determines to be an unsafe or unsound practice” to tier 1. (Sec.
unsound practice, or a pattern of misconduct or material breach of
1155)
fiduciary duty with financial gain to the entity or individual, and (3)
up to a maximum of $2 million per day for knowingly engaging in
violations, breaches of fiduciary duties, or unsafe or unsound
practices that cause substantial losses to a regulated entity. (Sec. 355)
Indemnification
Extends current prohibition on indemnification for tier 3 penalties to
No similar provision.
all tiers. (Sec. 355)
Removal and Prohibition
After written notice and opportunity for a hearing, the Director may
Similar provisions. (Sec. 1153)
Authority
suspend or remove regulated entity-affiliated parties who have (1)
violated a law, a cease-and-desist, or other written order, (2) engaged
in an unsafe or unsound practice, or (3) breached fiduciary duty, such
that (1) the regulated entity is likely to suffer loss (or the
enterprise-affiliated party receive financial gain), and (2) the unsafe
or unsound practice involves personal dishonesty or demonstrates
willful and continuing disregard for the safety and soundness of the
regulated entity. Also provides for industry-wide suspensions under
certain circumstances. Provides for judicial review of such orders or
suspensions. (Sec. 356)
Criminal Penalty
Anyone who participates, directly or indirectly, in the affairs of a
Identical provisions. (Sec. 1156)
regulated entity while under suspension or order of removal shall be
liable for a fine of up to $1 million, or five years’ imprisonment.
(Sec. 357)
Subpoena Authority
Authorizes the Director to issue subpoenas. (Sec. 358)
Similar provisions, but expands grounds for issuing a subpoena and
adds criminal penalties for failure to answer a subpoena. (Sec.
1158)

CRS-38
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Chapter 5 — General Provisions
Subtitle E — General Provisions
Enterprise Boards of Directors
Eliminates the requirement that five Directors on the boards of
Similar provisions. (Sec. 1162)
Fannie Mae and Freddie Mac be appointed by the President. Reduces
the size of enterprise boards from 18 to 13, unless the Director
determines that another number is appropriate. (Sec. 361)
Study on Public Use Database
No provision
Requires data reported by GSEs to the public to be at the census
and Data Disclosure
tract level. (Sec. 1126)
GSEs must disclose certain single family data under HMDA.
(Sec. 1127)
Study on Mortgage Default Risk
No provision.
Requires the Director to perform a study on default risk evaluation.
Evaluation
(Sec. 1502)
Report on Enterprise Portfolios
The Director shall report to Congress, within 12 months of
No provision.
enactment, on the portfolio holdings of the enterprises, the risk
implications for the enterprises of such holdings and the consequent
risk management undertaken by the enterprises (including the use of
derivatives for hedging purposes), whether portfolio holdings serve
safety and soundness purposes, whether portfolio holdings fulfill the
mission of the enterprises, and the potential systemic risk
implications for the enterprises, the housing and capital markets, and
the financial system of portfolio holdings, and whether such holdings
should be limited or reduced over time.
(Sec. 362)

CRS-39
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Study of Alternative Secondary
The Director, in consultation with the Federal Reserve, the Treasury,
No provision.
Market Systems
and HUD, shall conduct a study of the effects on financial and
housing finance markets of alternatives to the current secondary
market system for housing finance, taking into consideration changes
in the structure of financial and housing finance markets and
institutions since the creation of the enterprises. This study is to be
completed within 12 months of the effective date of this legislation.
(Sec. 364)
Study of Guarantee Fees
No provision
Director shall conduct an ongoing study of guarantee fees and
annually report to Congress regarding amount and criteria used to
determine fees. (Sec. 1501)
Subtitle B — Federal Home Loan Banks
TITLE II — Federal Home Loan Banks
No provision.
Orders the Director to take into account differences between the
enterprises and the Home Loan Banks in taking supervisory or
enforcement actions. (Sec. 1201)
Directors, Number
Each FHLB will be managed by a board of 13 directors, or other
Similar provisions. (Sec. 1202)
number as the Director of FHFA determines. (Sec. 372)
Directors, Citizenship
Board directors must be U.S. citizens. (Sec. 372)
Same provision (Sec. 1202)
Directors, Members
Majority of directors of each FHLB must be officers of member
Identical provision.
banks of that FHLB. Member directors shall be elected by the
members. Election does not include independent directors.
Member directors and independent directors to be elected by the
(Sec. 372)
members. (Sec. 1202)

CRS-40
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Directors, Independent
At least 2/5 of each Bank’s directors must be independent.
Not less than two-fifths of board members must be independent
Independent directors shall be appointed by the Director of the
directors. (Sec. 1202)
FHFA. Independent directors will residents of the District of the
Bank. (Sec. 272)
The Director shall take into consideration the demographic makeup
of the community most served by the Affordable Housing Program of
No similar provision.
the Bank in appointing independent directors. (Sec. 272)
Directors, Independent, Public
At least two of the independent directors for each Bank shall be
Similar provisions, except that the two directors must have more
Interest
chosen from consumer/community organizations with more than a
than four years experience representing community or consumer
two year history. (Sec. 372)
interests. (Sec. 1202)
Directors, Independent, Other
Independent directors who are not public interest directors shall have
No provision.
financial expertise. (Sec. 372)
Directors, Independent,
An independent director may not serve as an officer of a FHLB or
No provision.
Conflicts of Interest
member bank during directorship. (Sec. 372)
Directors, Terms
Terms increased from three to four years. Terms will be staggered so
Identical provision. (Sec. 1202)
that 1/4 are completing each year rather than 1/3. The change in
term length does not apply to current directors. (Sec. 372)
Voting Power of Member Banks
Member banks shall have votes in proportion to the amount of FHLB
No provision.
stock they hold. The provision that each state have at least the
number of directors it had in 1960 is repealed. (Sec. 372)
Oversight By New Agency
The FHFA replaces the Finance Board.
Similar provisions. (Sec. 1204)
(Sec. 373)
Information Sharing
A FHLB may have access to information needed to determine extent
Director shall facilitate sharing of certain information among
of its joint and several liability. Information sharing pursuant to
FHLBs, subject to limitations regarding proprietary data. (Sec.
liability does not waive any privilege. (Sec. 375)
1207)

CRS-41
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
FHLB Reorganization and
FHLBs may merge with other FHLBs with the approval of the FHFA
FHLBs may merge with other FHLBs with the approval of the
Voluntary Merger
Director. (Sec. 376)
Director, who shall issue regulations governing such transactions.
(Sec. 1209)
The number of FHLB districts may be reduced to fewer than 8 as a
result of voluntary mergers or liquidation of a bank. (Sec. 1210)
SEC Disclosures
FHLBs are exempt from some SEC reporting regulations, including
Similar provisions. (Sec. 1208)
ownership of capital stock in the FHLB, tender offers related to
FHLB capital stock, and reporting related party transactions in the
FHLB system.
Shares of FHLB capital stock are defined as “exempted securities”
for the purposes of defining a government securities broker or a
government securities dealer. (Sec. 377)
Community Financial Institution
Raises the Total Asset Requirement from $500 million to $1 billion.
Similar provision. (Sec. 1211)
Members
(Sec. 378)
Refinancing Authority
No provision.
FHLBs are given authority to refinance mortgages on primary
residences of families at or below 80% of area median income.
(Sec. 1218)
Studies
The Comptroller of the Currency will conduct a study of the FHLB
Director shall conduct a study of securitization of member bank
affordable housing programs and submit the report within one year.
home mortgage loans. (Sec. 1215)
(Sec. 380)
Director shall conduct a study of FHLB advances related to
nontraditional mortgages. (Sec. 1217)
Effective Date
Six months from enactment. (Sec. 381)
The date of enactment, unless otherwise provided. (Sec. 1163)

CRS-42
Provision
H.R. 3221(House Approved May 8, 2008)/H.R. 1427
H.R. 3221 (Senate Approved July 11, 2008)
Subtitle C — Transfer of Functions, Personnel, and Property of
Title III — Transfer of Functions, Personnel, and Property
Office of Federal Housing Enterprise Oversight, Federal Housing
Of OFHEO and the Federal Housing Finance
Finance Board, and Department of Housing and Urban
Board
Development
Chapter 1 — Office of Federal Housing Enterprise Oversight
Subtitle A — OFHEO
Abolishment of OFHEO
Sets the abolishment of OFHEO six months after enactment.
OFHEO is abolished one year after enactment. Provides for
Provides for continuity of employee status, use of property, and
continuity of employee status, use of property, and agency
agency services. Suits and other actions in progress against OFHEO
services. (Sec. 1301)
will be transferred to the new agency. (Sec. 385)
Continuation of Regulations and
All regulations, orders, resolutions, and determinations made by
Similar provisions. (Sec. 1302)
Orders
OFHEO or a court will remain in force, and become enforceable by
the new agency. (Sec. 386)
Transfer of Employees from
Governs the transfer of OFHEO employees to FHFA employment
Governs the transfer of OFHEO employees to FHFA employment
OFHEO
and provides for continuity in benefit programs. (Sec. 387)
and provides for continuity in benefit programs. (Sec. 1303)
Abolishment of the Federal
Provides for the transition from FHFB to FHFA with provisions
Similar provisions. (Secs. 1311-1314)
Housing Finance Board
similar to Sections 301-303. (Sec. 388-394)
Termination of Enterprise-
Directs the Secretary of HUD to determine, within three months of
Provides for transfer of certain HUD employees to FHFA.
Related Functions at HUD
enactment, which employees to transfer to the FHFA to maintain
(Sec. 1133)
oversight of the enterprises. Six months from enactment, all such
oversight functions are to be transferred to the new agency.
(Sec. 394)
Provides for continuity of employee status, regulations, use of
property, and agency services. Provides for transfer from HUD of
related appropriations, property, and facilities. (Sec. 396-398)