The following is a summary prepared for Solari, Inc. of the provisions of legislation
adopted in the House of Representatives that is over 1,700 pages long and covers a
wide selection of subjects and laws related to financial legislation. This summary
does not constitute legal advice and does not purport to be complete. We have included
all titles and subtitles for reference purposes, but it includes section headings
and summaries only where we found matters of interest to Solari. There may be important
provisions we have missed. We do not claim to be experts on all matters covered and,
therefore, may not have noted important changes that could substantially affect other
businesses. The
full bill can be found at the web site of the House Committee on Financial Services.
TITLE I FINANCIAL STABILITY IMPROVEMENT ACT OF 2009
1000A - Restrictions on Federal Reserve Board Pending Audit Report
Comptroller General to conduct audit of actions of Board of Governors of FRB and Federal
Reserve Banks in connection with current economic crisis, to be completed within two
years of adoption of legislation, report to Congress, etc.
Subtitle A—The Financial Services Oversight Council
1001 - Financial Services Oversight Council established
Voting Members: Chmn of Fed, Secy of Treasury, Comptroller of Currency, Director of
OTS (until it is dissolved), Chmn of SEC, Chmn of FDIC, Chmn CFTC, Chmn NCUA, Director
of FHFA, head of Consumer Financial Protection Agency; there’s also a non-voting
advisory committee
Purpose: monitor the marketplace to identify potential threats to the stability
of the financial system; subject financial companies and activities that pose a threat
to financial stability to increased standards, including increased capital requirements,
limits on leverage and limits on concentration of risk
1002 - Resolution of Disputes among Federal Financial Regulatory Agencies
Decisions binding on agencies
1003 - Technical and professional advisory committees
Authority to establish
1004 - Financial Services Oversight Council meetings and council governance
Meetings at least quarterly; vote by majority
1005 - Council staff and funding
Funding by member agencies; Treasury shall detail staff and other agencies may
1006 - Reports to the Congress
Semiannual reports to Committees on Agriculture, Financial Services, Ways and Means
of House and Agriculture, Banking, Housing and Urban Affairs and Finance of Senate;
to describe significant financial and regulatory dvpmts and report effect of changes
in accounting and other regulatory standards on stability of system; describe size,
scope, concentration, etc. of 50 largest financial institutions; describe actions
taken to address threats to financial system; describe dispute resolutions and actions
taken under the title; evaluate CFPA and CFPA must take evaluation in to consideration
in issuing regs
1007 - Applicability of certain Federal laws
Federal Advisory Committee Act doesn’t apply to Council; Council not an “agency”
of Fed. govt
1008 - Oversight by GAO
Enhances authority of GAO to examine Board of Governors of Fed and Federal Reserve
Banks; GAO may audit Council and anyone acting for it; GAO has access to Council records,
info provided by members, identities of holding companies subject to stricter standards;
Comptroller to review and evaluate activities of Council;
Subtitle B—Prudential Regulation of Companies and Activities for Financial
Stability Purposes
1100 - Federal Reserve Board authority that of agent acting on behalf of Council
Federal Reserve serves as agent of the Council in regulating systemically risky companies
on a consolidated basis
1101 - Council and Board authority to obtain information
Council may require periodic reports from any financial company solely for purpose
of determining extent of threat to financial stability; may coordinate with foreign
financial regulators if company is a foreign financial parent; regular consultation
with foreign financial regulatory authorities; giving info to Council not a waiver
of privilege in data and agency/company may not be compelled to waive privilege; FOIA
exemption
1102 - Council prudential regulation recommendations to Federal financial
regulatory agencies; agency authority
Authority of Council to issue regulation recommendations; regulatory agency may impose
stricter in response to Council recommendation require reports, examination, stricter
prudential standards and safeguards to mitigate systemic risk of institution it regulates;
consideration of home country regulation in connection with foreign financial parents/branches;
agency has to report back to Council on recommendation as to action taken or reason
for no action;
1103 - Subjecting financial companies to stricter prudential standards for
financial stability purposes
1104 - Stricter prudential standards for certain financial holding companies
for financial stability purposes
Council in consultation of FRB or other primary regulator subject financial company
to stricter prudential standards if material financial distress of the company or
nature, scope, size, scale, concentration, interconnectedness or mix of company’s
activities would pose a threat to financial stability or the economy.
Council must consider leverage, off-balance-sheet exposure, relationships and transactions
with other financial companies, importance as a source of credit and liquidity; ownership
of assets under management; nature, scope and risk of company activities, amount and
nature of assets and liabilities and reliance on short-term lending, company regulation.
Financial institution subject to stricter prudential standards has right of appeal
and judicial review.
Any company subject to stricter standards must maintain debt to equity ratio no higher
than 15:1.
1105 - Mitigation of systemic risk
Stricter prudential standards to be imposed on financial holding companies by FRB
include:
- Risk-based capital requirements and leverage limits
- Liquidity requirements
- Concentration requirements
- Prompt corrective action requirements
- Resolution plan requirements
- Overall risk management requirements
Short-term debt limits and other appropriate limits may be imposed
1106 - Subjecting activities or practices to stricter prudential standards
for financial stability purposes
1107 - Stricter regulation of activities and practices for financial stability
purposes
1108 - Effect of rescission of identification
1109 - Emergency financial stabilization
If Council determines (on a 2/3rds vote), that a liquidity event exists that could
destabilize the financial system and with written consent of the Treasury Secretary
(after certification of emergency by the President), the Corporation [presumably,
FDIC] may create a widely-available program designed to avoid or mitigate adverse
effects on systemic economic conditions or financial stability by guaranteeing obligations
of solvent insured depository institutions or solvent depository institution holding
companies (and affiliates) if necessary to prevent systemic financial instability
during times of severe economic distress.
1110 - Additional related amendments
1111 - Corporation may receive warrants when paying or risking taxpayer funds
In exchange for extensions of credit or guarantees or other similar commitments by
FDIC, FDIC may take warrants for non-voting common or preferred shares of equity (or
voting shares if FDIC agrees not to exercise voting power) of depository institutions
providing that if the institution’s equity ceases to be listed on an exchange
it may be converted into senior debt. The exercise price of the warrants is to be
set by FDIC in the interest of taxpayers. FDIC may accept senior debt providing for
equivalent value if the company doesn’t have sufficient authorized shares of
nonvoting stock and cannot get stockholder approval for issuance of additional shares.
If the company is legally prohibited from issuing securities and debt instruments,
FDIC may establish exceptions and alternatives to these requirements.
The warrants/senior debt shall provide for reasonable participation by FDIC on behalf
of taxpayers in equity appreciation in the case of warrants (or reasonable interest
in the case of senior debt) and additional protection for taxpayers against losses.
1112 - Examinations and enforcement actions for insurance and resolutions
purposes
1113 - Study of the effects of size and complexity of financial institutions
on capital market efficiency and economic growth
Subtitle C – Improvements to Supervision and Regulation of Federal Depository
Institutions
1201 - OTS abolished
OTS becomes a division within the OCC (Division of Thrift Supervision), which is under
the Department of Treasury, and employees transferred over.
Subtitle D – Further Improvements to the Regulation of Bank Holding Companies
and Depository Institutions
1316 - Authorizes mutual national banks and federal mutual bank holding companies
Provides for registration and regulation of new mutual national banks subject
to examination and regulation by the OCC. Subjects these entities to regulations now
in effect by the OTS (which itself is being dissolved and folded into the OCC) with
regard to organization, corporate governance and conversion of mutual institutions.
Director of the OCC to determine by regulation manner in which requirements re: capital
stock and limitations imposed on national banks will apply to mutual national banks.
Any mutual depository may convert to a mutual national bank and a mutual national
bank may reorganize to become a Federal mutual bank holding company, subject to federal
regulatory approval. Any national mutual bank may convert to a state bank charter.
Prescribes rights of mutual national bank members, who are deemed to be primarily
depositors and secondarily mutual members, and proxy rules.
1317 - Nationwide deposit cap for interstate acquisitions
Amends Federal Deposit Insurance Act to places limits on interstate bank merger transactions
if resulting insured depository institution, including affiliates, would control >10%
of total deposits of insured depository institutions in the US.
1318 - De novo branching into states
Permits interstate branching of national bank where the law of the state where a branch
is to be located would permit the branch if the national bank were a state bank chartered
by the state.
Subtitle E – Improvements to the Federal Deposit Insurance Fund
1401 - Accounting for actual risk to the Deposit Insurance Fund
1402 - Creating a risk-focused assessment base
1403 - Elimination of procyclical assessments
1404 - Enhanced access to information for deposit insurance purposes
1405 - Transition reserve ratio requirements to reflect new assessment base
Subtitle F – Improvements to the Asset-Backed Securitization Process
1502 - Credit risk retention
Section 29 of the 1933 Act amended to require that with 180 days of enactment, the
appropriate agencies must prescribe regulations to require any creditor that makes
a loan to retain an economic interest in a material portion of the credit risk of
the loan that the creditor transfers to a third party, including for the purpose of
including the loan in a pool backing an asset-backed security. Credit securitizers
must also have risk retention requirements [generally 5%, but may be increased or
decreased]. Regulations and standards must prohibit a creditor or securitizer from
directly or indirectly hedging the credit risk it is required to retain.
1503 - Reporting under 1934 Act for ABS
Requires the SEC to adopt regulations re: disclosure re: ABSs, including info as to
assets securing each tranche and prescribing a form that facilitates comparison of
such data across securities in similar types of asset classes. Requires asset-level
or loan-level data necessary for an investor to perform its own independent due diligence,
including unique identifiers to ID brokers and originators, compensation of brokers/originators
and amount of risk retention by originator or securitizer.
1504 - Reps and warranties for ABS
Requires credit agency ratings reports to include info about reps and warranties and
enforcement mechanisms available to investors and to describe differences from those
of similar issuances.
Requires reporting across all trusts aggregated by a single originator as to asset
repurchase requests so as to allow investors to ID originators with clear deficiencies
in underwriting.
1505 - Exempted transactions under 1933 Act
The mortgage-backed securities exemption from registration requirements (Section 4(5))
is eliminated.
1506 - Study on the Macroeconomic Effects of Risk Retention Requirements
To be conducted by the Chmn of Financial Services Oversight Council, with emphasis
on potential beneficial effects re: stabilizing real estate markets.
Subtitle G – Enhanced Dissolution Authority
1601 - Dissolution Authority for Large, Interconnected Financial Companies
Act of 2009 [180 pages long]
Purpose to provide for orderly resolution of large, interconnected financial companies
whose failure could create or increase risk of significant liquidity, credit or other
financial problems spreading among financial institutions or markets and thereby threaten
stability of overall US financial system. Presumption that resolution under US bankruptcy
law will remain primary resolution method and authorities in this title will only
be used in most exigent circumstances.
1603 - Systemic risk determination
1604 - Dissolution; stabilization
1605 - Judicial review
1606 - Directors not liable for acquiescing in appointment of receiver
1607 - Termination and exclusion of other actions
1608 - Rulemaking
1609 - Powers and duties of Corporation [FDIC]
FDIC authorized to create Systemic Resolution Fund
1610 - Clarification of prohibition regarding concealment of assets from receiver
or liquidating agent
1611 - Office of Dissolution
Created within FDIC Inspector General’s Office
1613 - Amendment to Federal Deposit Insurance Act
Creates Systemic Dissolution Authority and Fund
1614 Application of executive compensation limitations
If the FDIC has borrowed from Treasury to resolve a covered financial company, it
shall apply the executive compensation limits imposed under the 2008 Emergency Economic
Stabilization Act.
1615 - Study on the effect of safe harbor provisions in insolvency cases
1616 - Treasury study
1617 - Priority of claims in Federal Deposit Insurance Act
Subtitle H – Additional Improvements for Financial Crisis Management
Subtitle I – Miscellaneous
Subtitle J – International Policy Coordination
Subtitle K – International Financial Provisions
Subtitle L – Securities Holding Companies
1951 - Access to US financial market by foreign institutions
Authorizes termination of foreign bank offices in the US in order to mitigate systemic
risk to the US if bank’s home country is not adopting or making progress toward
adopting appropriate system of financial regulation to mitigate the risk.
1952 - Reducing TARP funds to offset costs
1961 - Securities holding companies
Securities holding company is owner of one or more broker-dealers. A securities holding
company that isn’t a financial holding company or otherwise regulated as required
by a foreign law to be subject to comprehensive regulation may register with the Federal
Reserve Board and be supervised under this Subtitle.
TITLE II CORPORATE AND FINANCIAL INSTITUTION COMPENSATION FAIRNESS ACT
2000s - Shareholder voting on compensation
Amends 1934 Act to require public companies to put executive compensation to a vote
of shareholders and to disclose findings/reports of the compensation committee, but
the shareholder vote is mot binding on the issuer or its board of directors. Any proxy
solicitation for merger, acquisition, etc. must disclose terms of golden parachutes
and include a vote of shareholders on such arrangements, but the shareholder vote
is not binding on the issuer or its BOD and does not create in them a fiduciary duty.
Requires an independent compensation committee be formed by public corporations, but
SEC is authorized to exempt some companies from requirements (apparently intended
for small companies). Includes standards for compensation consultants that may be
appointed by committee. Compensation committee has authority to consult independent
counsel and other advisors.
SEC study and report to Congress.
Mandates regulations for enhanced disclosure of incentive payment structure to federal
financial regulators.
Requires financial regulators jointly to issue regulations prohibiting any incentive
payment arrangements that 1) could threaten the safety and soundness of covered financial
institutions; or could have serious adverse effects on economic conditions or financial
stability. This applies only to financial institutions with assets > $1B. Recovery
of past payments not permitted. GAO study mandated.
TITLE III -- DERIVATIVES= MARKETS TRANSPARENCY AND ACCOUNTABILITY ACT
3000s - Derivative Markets Transparency and Accountability Act
Requires CFTC to consult with SEC and Prudential Regulators before issuing swap regulations.
SEC likewise must consult with CFTC and Prudential regulators before issuing regs
re: securities-based swaps. If either doesn’t like the regs issued by the other,
it can petition the US Federal Appeals Ct for DC to issue an order setting them aside,
on an expedited basis.
Coordination with foreign regulators for consistent international standards; authorizes
information sharing.
No provision of this title shall be construed to authorize Federal assistance to support
clearing operations or liquidation of a derivatives clearing organization described
in the Commodity Exchange Act or a clearing agency described in the Securities Exchange
Act of 1934, except where explicitly authorized by an Act of Congress.
CFTC to conduct studies on effects of position limits imposed in this title on the
market; reports to Congress. Study of desirability and feasibility of establishing
single regulator for all transactions involving financial derivatives; report to Congress.
SEC, CFTC and Prudential Regulators to make recommendations as to amendments to insolvency
laws to enhance legal certainty as to rights of swap participants.
3007 - Abusive swaps
SEC and CFTC may make a report on abusive swap arrangements.
3008 - Authority to prohibit participation in swap activities
SEC in consultation w/ Treasury may prohibit US swap activities with entities domiciled
in a foreign country if the foreign country has regs that undermine stability of US.
3009 - Memorandum
SEC and CFTC to enter into MOU re: jurisdiction and prevention of duplicative regulation
of swap activities; CFTC and FERC to enter into MOU re: sharing of information requested
by SEC in connection with investigation of fraudulent activities, manipulation of
market power, etc.
Subtitle A (3100s) Regulation of Swap Markets
Subtitle B (3200s) Regulation of Security-based Swap Markets
Subtitle C (3300s) Improved Financial and Commodity Markets Oversight and Accountability
[Note: the following summary is not broken down by subtitle or section]
Divides regulation of swaps between SEC (for CDS and other securities-based swaps)
and CFTC (currency and interest rate swaps and other non-securities-based swaps)
Requires that swaps that are sufficiently standardized and between dealers and major
swap participants be cleared through a swap clearing house – central counterparty
(CCP). Clearing orgs must be approved by SEC or CFTC; execution of trade where both
parties are swap dealers or major swap participants must be executed on a board of
trade, a national securities exchange or a “swap execution facility (but this
doesn’t apply if none of these facilities lists the swaps).
Swap dealers and major swap participants must register with SEC or CFTC, as the case
may be, and report swap trades to SEC or swap repository if not accepted for clearing
by a derivatives clearing org. There must be capital requirements for swaps, which
must be higher for non-cleared transactions than for cleared transactions. Regulators
must establish margin levels for non-cleared transactions – Prudential Regulators
for banks and CFTC/SEC for non-banks (the latter of which standards must be at least
as strict as those set by former). Where one party is an end-user, there must be non-cash
collateral permitted.
Derivatives are defined to include swaps and commodities contracts for future delivery.
SEC determines whether swaps must be cleared. Each clearinghouse must submit to SEC
what swaps it will clear. SEC may stay the clearing requirement on its own or on counterparty
petition pending completion of review of the arrangement.
TITLE IV CONSUMER FINANCIAL PROTECTION AGENCY ACT
Subtitle A – Establishment of Agency
4101 - Establishment of the Consumer Financial Protection Agency
Independent agency to regulate provision of consumer financial products or services,
initially led by Director/Acting director but later by a commission
4102 - Director
Director nominated by President, appointed by and with advice and consent of Senate.
Term until Conversion Date (conversion to commission), although Director may be removed
for cause.
4103 - Establishment and Composition of Commission
Composed of 5 members appointed by President by and with advice and consent of Senate.
Five year staggered terms with initial appointments of 1-5 years. President may remove
for cause. No member of Commission may engage in any other business, vocation or employment.
Not more than 3 members appointed by President may be members of any one political
party. Former Director serves as initial Chair for 3 years. Subsequent Chairs appointed
by President from among Commission members.
4104 - Consumer Financial Protection Oversight Board
Advise Director on consistency of proposed regulation with prudential, market or systemic
objectives administered by agencies on Board, overall strategies and policies, and
actions Director can take to enhance and ensure that consumers are subject to robust
financial protection. Board may not exercise executive authority or delegate to Board
any functions, powers, duties of the director.
- FRB Chairman,
- head of agency responsible for chartering and regulating banks,
- Chairman of FDIC,
- Chairman of NCUA,
- Chairman of FTC,
- Secretary of HUD,
- Chairman of liaison committee of representatives of State agencies to Financial Institutions Examination Council,
- 5 additional members appointed with advice and consent of Senate from among experts in fields of consumer protection, fair lending, civil rights, representatives of depository institutions that primarily serve underserved communities or reps of communities that have been significantly impacted by higher-priced mortgage loans
4105 - Executive and administrative powers
4106 - Administration
Director to appoint a secretary, general counsel, inspector general and ombudsman. Compensation to be comparable to that of FRB for similar functions.
Specific functional units: Research, Community Affairs, Consumer Complaints (and there will be centralized database to track consumer complaints), Consumer Financial Education (including Office of Financial Literacy, with many functions including one-on-one consumer education), Office of Financial Protection for Older Americans, Office of Fair Lending and Equal Opportunity (with reports to Congress on efforts to fulfill fair lending mandate).
Coordination with FTC and other federal agencies, regulatory agencies, enforcement authorities. Data sharing by and with Federal banking agencies, FTC, other Federal agencies and State regulators.required, subject to confidentiality requirements of law.
Consumer complaint web site to be established, interoperable with above database. Central 800 number for complaints, some of which may be referred to state agencies.
4107 - Consumer Advisory Board
Appointed by Director, to consult with and advice Director. NO more than one more than ½ may be of any one political party. Prohibition of membership by indicted businesses and other “bad boys” expressly including ACORN.
To meet at least 2X per year.
4108 - Coordination
Coordination with other federal agencies (SEC, CFTC, Treasury, FTC) and state regulators as well as members of Financial Literacy and Education Commission
4109 - Reports to Congress
At beginning of each session of Congress; appearance annually after submission of report before House Committee on Financial Services and House Committee on Energy and Commerce.
4110 - GAO small business studies
Comptroller General to carry out study every 3 years to examine effect of Agency regulations on small businesses and then prepare report to Congress.
4111 - Funding; fees and assessments; penalties and fines
Subtitle B (4200s) -- General Powers of the Director and Agency
Subtitle C (4300s) – Specific Authorities
4315 Regulation of person-to-person lending
Section 3(a) of the 1933 Act is amended to provide for person-to-person lending. Primary regulatory authority over person-to-person lending and person-to-person lending platforms (internet web sites that provide for matching of natural persons who wish to make and receive consumer loans but not including the making or sale of multiple loans in a single transaction) is vested in the Consumer Financial Protection Agency. Effective date is date of enactment. Regulations to be issued.
4316 - Treatment of reverse mortgages
Regulations to be issued to address unfair, deceptive or abusive practices.
Subtitle D (4400s) -- Preservation of State Law
4401 - Relation to state law
Preserves state laws to the extent they provide more protection to consumers and are not inconsistent with the provisions of this law.
4402 - Preservation of enforcement powers to states
Permits any state attorney general to enforce the provisions of this law.
Subtitle E (4500s) -- Enforcement Powers
Subtitle F (4600s) – Transfer of Functions and Personnel; Transitional Provisions
Subtitle G (4700s) – Regulatory Improvements
4701 - Collection of deposit account data
Requires for each branch or teller machine accepting deposits for a financial institution records be maintained of the number and dollar amounts of deposit accounts of customers. Customers’ addresses must be geo-coded so that the data is collected regarding the census tracts of the residence or business location of the customers. The institution also shall record whether the customer is a residential or commercial customer.
Subtitle H – Conforming Amendments
4812 - Amendment to Right to Financial Privacy Act
Clarification that nothing in Right to Financial Privacy Act prevents Consumer Financial Protection Agency from examining financial institution records; expansion of definition of “financial institution” to include credit card companies and consumer finance institutions.
4813 - Amendments to Secure and Fair Enforcement for Mortgage Licensing Act of 2008 [“S.A.F’E.”]
S.A.F.E., enacted in July, 2008, requires licensing of loan originators not employed by federally-regulated financial institutions.
Provides for registration of employees of depository institutions/subsidiaries regulated by Federal banking agencies or Farm Credit Administration as registered loan originators with a new Nationwide Mortgage Licensing System. Consumer Financial Protection Agency to establish and maintain the System by 7/30/10, which may levy fees for costs of maintaining and providing access to the system (not to charge consumers for access).
Consumer Financial Protection Agency authorized to issue regulations setting minimum net worth or surety bond requirements for residential loan originators and minimum requirements for recovery of funds paid to loan originators. Regs to take into account need to provide originators with adequate incentives to originate affordable and sustainable mortgage loans and to ensure a competitive origination market that provides access by consumers to affordable and sustainable mortgage loans.
Generally changes regulator to Consumer Financial Protection Agency from HUD. Relieves administrator of system. Director of CFPA and state agencies and officials of liability for monetary damages for good faith actions and omissions within scope of employment in connection with collection, furnishing or dissemination of information re: registered loan originators or applicants for registration.
4814 - Amendments to Truth in Savings Act of 1991 [regulating disclosure of interest rates]
Replaces “Board” with “Agency” [i.e., Consumer Financial Protection Agency]
4815 - Amendments to the Telemarketing and Consumer Fraud Abuse and Protection Act
Establishes Consumer Financial Protection Agency as the enforcer under this Act for entities subject to its jurisdiction and makes violation of the act by any such entity a violation of the Consumer Financial Protection Act.
4818 - Amendments to Truth in Lending Act [regarding student loans]
Before a creditor may issue funds pursuant to an extension of credit [for an educational loan] it must receive a certification from an institution of higher education as to the enrollment status of the borrower, costs of borrower’s attendance, difference between borrower’s cost of attendance and borrower’s estimated financial assistance received under the Higher Education Act and that the borrower has been informed (i) about the availability of such financial assistance, (ii) of the borrower’s ability to select a private educational lender of choice and (iii) of the impact of a proposed private education loan on borrower’s eligibility for other financial assistance; (iv) of borrower’s right to accept or reject educational loan w/in 30-day period following approval of loan application and of borrower’s 3-day right to cancel. Lender must determine whether borrower has applied for and exhausted Federal financial assistance under Higher Education Act and informed borrower and has counseled borrower on borrower’s financial aid options.
Creditor must inform relevant educational institution in writing the amount of the extension of credit and the student on whose behalf the credit is extended on or before disbursing funds.
Regulations to be issued within one year of enactment, to be effective within 6 months of issuance.
Study and report on private education loans and private educational lenders within two years after enactment by Secretary of Education in consultation with Commissioners of FTC and AG, submitted to committees of House and Senate.
Subtitle I – Improvements to the Federal Trade Commission Act
4901 - Amendments to the Federal Trade Commission Act
Makes it illegal to provide substantial assistance to anyone in violations of the Act or any other act enforceable by the FTC relating to unfair and deceptive acts or practices described in Section 5(a)(1) of the Act (which prohibits unfair methods of competition and unfair or deceptive acts affecting or in commerce.
Subtitle J – Miscellaneous
4951 - Requirements for state-licensed loan originators
Permits state loan originator supervisory authority to provide for review of applicants and granting exceptions to minimum standards for licensing under this act but only to the extent that exceptions otherwise comply with purpose of this title.
TITLE V CAPITAL MARKETS
Subtitle A -- Private Fund Investment Advisers Regulation Act
New defined terms:
“Private fund” – an issuer that would be an investment company except for Section 3(c)(1) [<=100-investor exemption] or 3(c)(7) [qualified purchaser exemption] – what we generally call a “private equity fund.”
“Foreign private fund adviser” – one who has no place of business in the US, has <15 clients over the past 12 months; has US client assets under mgt of < $25MM; doesn’t hold self out to public as an investment adviser; and doesn’t act as investment adviser to any registered investment company or 1940 Act business development company
5003 - Elimination of private adviser exemption; limited exemption for foreign private fund advisers; limited intrastate exemption
Adds an exemption from registration requirements for private fund investment advisers
Adds an exemption for investment advisers that solely advise licensed small business investment companies and entities in the process of becoming SBICs
Eliminates the intrastate exemption for private fund advisers
Eliminates the exemption from registration for advisers to fewer than 15 clients (which is the exemption private equity fund/ hedge fund advisers often used)
5004 - Collection of systemic risk data
Authorizes the SEC to require records and reports for private funds where necessary or appropriate in the public interest and for protection of investors or for the assessment of systemic risk as the SEC determines in consultation with the FRB (Governors)
Required information as to private funds:
-- Assets under management
-- Use of leverage (incl. off-balance sheet leverage)
-- Counterparty credit risk exposure
-- Trading and investment positions
-- Trading practices
-- Other information SEC, FRB determines to be necessary or appropriate in public interest and for protection of investors or for assessment of systemic risk
-- Optional information -- SEC may as it deems necessary, taking into account public interest and potential to contribute to systemic risk information, set different reporting requirements for different classes of advisers based on types or sizes of funds advised
Private fund records must be made available for examination by SEC or its representatives and SEC may make records available to FRB and any other entity SEC identifies as having systemic risk responsibility; information collected to be confidential as provided in paragraph (which provides only an exceptions for reporting to Congress or other federal agency or SRO with jurisdiction or to comply with court order)
Registered private fund adviser shall provide reports and records to investors, prospective investors, counterparties and creditors of private funds advised by it as sec requires as in public interest, etc.
5005 - Elimination of disclosure provision
Eliminates Section 210(c) of the Investment Advisers Act, which says that the SEC is not authorized to force an investment adviser to disclose the identity, investments, or affairs of any client, except in connection with an enforcement proceeding or investigation.
5006 - Exemption of and reporting by venture capital fund advisers
The SEC is to define the term “venture capital fund.” Advisers to venture capital funds are exempt from registration under the Investment Advisers Act but the SEC must require annual or other reports it determines to be necessary or appropriate in the public interest or for the protection of investors.
5007 - Exemption of and reporting by certain private fund advisers
Provides a private fund adviser exemption if each fund the adviser advises has assets under management in the US of < $150MM, but the SEC must require exempted advisers to maintain records and provide annual or other reports to the SEC as it determines to be necessary or appropriate in the public interest or for the protection of investors.
In determining requirements for advisers of mid-sized private funds, SEC must take into account size, governance and investment strategy to determine whether they pose systemic risk and provide for registration and examination procedures so as to reflect the level of systemic risk posed.
Subtitle B -- Accountability and Transparency in Rating Agencies Act
6002 - Enhanced regulation of nationally recognized statistical rating organizations [“NRSRO”]
Registration with SEC. Doesn’t apply if credit rating agency does not provide credit ratings to issuers for a fee and issues credit ratings only in a bona fide newspaper, news magazine or business or financial publication of general and regular circulation. SEC may exempt others.
Existing requirements that refer to “furnishing” documents to the SEC are changed to reflect “filing” with the SEC.
The SEC is to examine credit ratings issued by and policies, procedures and methodologies employed by NRSROs to determine whether
- NRSRO has established and documented system of internal controls, due diligence and implementation of methodologies for determining ratings taking into considerations factors the SEC may prescribe by rule
- NRSRO adheres to the system
- Public disclosures of NRSRO required about its credit ratings, methodologies and procedures are consistent with the system
SEC rules and regs required by this section for structured securities must:
- Specify information required to be disclosed by sponsors, issuers and underwriters on the underlying collateral
- Establish and implement procedures to collect and disclose information about processes used by underwriters, sponsors and issuers to assess accuracy and integrity of their data and fraud detection
- Require NRSRO to establish and maintain a central database on a publicly accessible Internet cite to disclose historical default rates of all classes of financial products rated by the NRSRO
Requires consistency in applying quantitative and qualitative methodologies and inputs in accordance with their established procedures and that major changes to procedures and methodologies and quantitative inputs are applied consistently to all credit ratings to which they apply. Reasons for change must be publicly disclosed. NRSROs must notify persons with access to ratings, whether or not they are for a fee, of the procedure or methodology used for the particular rating, of any changes and of any errors. Requires transparency in assumptions and methodologies used and data relied on to accompany ratings.
SEC to prescribe user-friendly format for registration. NRSRO must certify information on form to be accurate.
SEC may require rating agencies to use symbols that distinguish ratings for structured products from others.
SEC must require rating agencies:
- in ratings of money market instruments to assess risk that investors may not receive payment in accordance with their terms
- to define clearly any symbol used
- to apply symbol in a consistent manner for all types of securities and money market instruments
Each NRSRO must have a board and at least 2 or 1/3 of members must be independent. Compensation of independent directors may not be linked to business performance of the NRSRO. Independent members may not serve more than 5 years. Responsibilities of the board are mandated.
NRSRO must have written conflict of interest policies and SEC rules must prohibit or require disclosure of conflicts of interest relating to issuance of ratings. Issues to be addressed include how NRSRO is compensated by issuer, business relationships and ownership interests and affiliations of board members and obligors, any other financial or personal interests between NRSRO or associated person and obligor or any of its affiliates and affiliations with underwriters. NRSRO must put on web site consolidated report at the end of each fiscal year showing % of income from activities other than rating services and relative standing of each person who paid for credit rating in terms of how much paid to the NRSRO. NRSRO must have system for payment for credit ratings that requires that payments be structured so as to insure that NRSRO conducts accurate and reliable surveillance of credit ratings over time.
With each rating issued, NRSRO must disclose type and number of ratings it has provided to person being rated and its affiliates, fees billed and net revenue earned during the preceding 2 FYs attributed to the person and its affiliates. If NRSRO employs someone who worked for an entity being rated within one year of rating, it must conduct a review of conflict of interest and take action to change rating if appropriate.
SEC to review code of ethics and conflict of interest policy of each NRSRO at least annually and whenever policies are materially amended. NRSRO is required to report to SEC if it knows that someone previous employed by it becomes employed within 5 years by obligor, issuer, sponsor or underwriter of obligation it had rated during the previous 12 months if the employee served in certain designated capacities.
Each NRSRO must designate a compliance officer.
Subtitle C – Investor Protection Act
Part 1 -- Disclosure
7102 - Clarification of Commission Authority to engage in consumer testing
7103 - Establishment of fiduciary duty for brokers, dealers, investment advisers, and harmonization of regulation
1934 Act amended to provide that SEC to promulgate rules to provide that broker dealer when providing personalized investment advice about securities to a retail customer, standard of conduct shall be the same as applicable to an investment adviser under the IAA of 1940. This does not require a broker or dealer or registered rep to have a continuing duty of care or loyalty after providing the personalized investment advice. Where broker or dealer sells only proprietary or a limited range of products, SEC must by rule require it to provide notice to each retail customer and obtain consent or acknowledgment.
7107 - Study on enhancing investment adviser exams
7108 - GAO study of financial planning
Part 2 -- Enforcement
7208 - Penalties for aiding and abetting violations of Investment Advisers Act of 1940
Makes it a violation of the IAA to knowingly or recklessly aid, abet, counsel, command, induce or procure any violation of any provision of IAA to the same extent as if the investment adviser committed the violation.
7213 - Sharing privileged information with other authorities
7214 - Expanded access to grand jury information
Purports to expand SEC jurisdiction over offshore trades that would involve anti-fraud violations if conduct within US constitutes significant steps in furtherance of the violation or for conduct outside US that has a foreseeable substantial effect within the US. Also includes suits in equity and actions at law.
7215 - Fidelity bonding
Authorizes the SEC to require an investment company to maintain fidelity bond against loss as to any officer or employee who has access to securities or funds, directly or indirectly
7218 - Enhanced SEC authority to conduct surveillance and risk assessment
Exchange Act, Advisers Act and Investment Company Act sections on authority of SEC to examine records are amended to provide SEC with authority to conduct reasonable periodic, special or other information and document requests as SEC deems necessary or appropriate to conduct surveillance or risk assessments of the securities markets, persons registered with the SEC or otherwise in furtherance of the purposes of the title. [Note: it doesn’t appear that the examinations have to be in connection with any suspected illegal activity of the entity being examined]
7218 - Investment company examinations
Subjects investment companies and underwriters, brokers, dealers or investment advisers that are majority-owned subsidiaries, to reasonable periodic, special or other examinations by SEC as it deems necessary or appropriate in the public interest or for protection of investors.
7220 - Control person liability under 1934 Act
Subjects control persons to investigation by the SEC in an action brought under 21(d)(1) or (3) (which allows the SEC to assess monetary penalties or bring an injunction against anyone it believes is violating SEC rules, clearing agency rules, exchange rules, PCAOB rules or MSRB rules and to turn over evidence it gathers to the SEC for criminal action).
7221 - Enhanced anti-fraud coverage
Expands anti-fraud coverage for price manipulation (section 9), violation of stop-loss and short sale rules (section 10(a)(1)) and broker-dealer execution of trade in a deceptive or manipulative manner (section 15(c)(1)(A)) to include all securities that are not government securities instead of just securities registered on a national securities exchange and deletes requirement that the violation must involve use of a national securities exchange. It also subjects all broker dealers to liability under 15(c)(1)(A) liability, not just those that are members of a national securities exchange.
7222 SEC authority to issue rules on proxy access
SEC has rulemaking authority to prescribe rules regarding nominees by shareholders
Part 3 – Commission Funding and Organization
7301 - Authorization of appropriations
Increases SEC appropriations annually from 2010 to 2015, up to $1.15B for 2010 and $2.25B in 2015.
7302 - Investment adviser regulation funding
Authorizes SEC to make annual assessment of fees by SEC-registered investment advisers to help recover cost of examinations and inspections.
7304 - Commission organizational study and reform
7305 - Capital Markets Safety Board
Established within the SEC to conduct investigations of failed institutions registered with the SEC.
7306 - Report on implementation of “post-Madoff reforms”
Report to Congress, to be published on the internet, within 6 months of enactment.
Part 4 – Additional Commission Reforms
7401 - Regulation of securities lending
7405 - Clarification that Section 205 of Investment Advisers Act does not apply to state-regulated advisers
Clarifies that the section of the IAA that prohibits investment adviser compensation on the basis of a share of capital gains does not apply to state-registered investment advisers.
7407 - Promoting transparency in financial reporting
PCAOB and SEC shall report to Congress annually on progress to reduce complexity of financial reporting requirements to provide more accurate and clear financial information to investors.
7409 - Protecting confidentiality of materials submitted to the Commission
Section 17(i) of the 1934 Act is amended to provide that the SEC shall not be compelled to disclose any information, documents, records, or reports that relate to an examination, surveillance, or risk assessment of a person subject to or described in this section, or the financial or operational condition of such persons, or any information supplied to the Commission by any domestic or foreign regulatory agency or self-regulatory organization that relates to the financial or operational condition of such persons, of any associated person of such persons, or any affiliate of an investment bank holding company.
This provision doesn’t authorize the SEC to withhold information from Congress, a self-regulatory association or the PCAOB or to refuse to provide information under court order.
Similar changes are made to the Investment Company Act and Investment Advisers Act.
7411 - Municipal Securities Rulemaking Board
Requires investor/independent representation on the MSRB. Institutes fair procedures for nominations and elections of members of the Board to effect fair representation. Number of public representatives always to exceed number of BD and bank representatives. Qualifications for public representatives.
7412 - Interested Persons
ICA is amended to expand the definition of “interested persons” to include “any natural person who is a member of a class of persons who the Commission, by rule or regulation, determines are unlikely to exercise an appropriate degree of independence as a result of— ‘‘(I) a material business or professional relationship with such company or any affiliated person of such company; or ‘‘(II) a close familial relationship with any natural person who is an affiliated person of such company.”
7413 - Rulemaking authority to protect redeeming investors
Investment Company Act amended to allow the SEC to limit the extent to which a mutual fund may own illiquid securities or other illiquid property
7418 - Investment advisers subject to state authorities
Provides for state registration of investment advisers with assets between some amount and $100MM. These are mid-sized investment advisers now required to register with the SEC. If they are domiciled in a state that doesn’t have state registration of investment advisers, they have to register with the SEC.
7419 - Custody requirements
Prohibits SEC-registered investment advisers from having custody of more than $10MM of a client’s funds and securities unless the funds/securities are held with a qualified custodian in separate accounts in the clients’ names or in the names of the adviser as trustee for the clients. The qualified custodian cannot directly or indirectly provide investment advice with respect to the funds/securities. The SEC may grant exemptions from this rule but if it does the client must receive at least once a year a verification from an independent entity with a fiduciary duty to the client that the funds/securities are there.
7420 - SEC Ombudsman
Within 180 days of enactment, SEC shall appoint an ombudsman that reports directly to the SEC Commissioner. Ombudsman to act as liaison between SEC and anyone having problem with SEC relative to its regulation and to made recommendations re: policies and procedures to encourage people to present questions to the SEC re: federal securities regulation and take action to maintain confidentiality of those who do report. Annual report of ombudsman to SEC evaluating effectiveness of ombudsman during previous year.
7422 - Short sale reforms
Every institutional investment manager that effects short sale in an equity security must file a daily report with the SEC, including information about the identity of the institution, manager and security and details of the trade. Information in the report is subject to the same non-disclosure and confidentiality protection provided under section 204(b)(8) of the Investment Advisers Act of 1940. The Commission shall prescribe rules providing for the public disclosure of the name of the issuer and the title, class, CUSIP number, aggregate amount of the number of short sales of each security, and any additional information determined by the Commission following the end of the reporting period. At a minimum, such public disclosure shall occur every month.
Section 9 of the 1934 Act amended to include new short sale prohibition: “It shall be unlawful for any person, directly or indirectly, by the use of the mails or any means or instrumentality of interstate commerce, or of any facility of any national securities exchange, or for any member of a national securities exchange to effect, alone or with one or more other persons, a manipulative short sale of any security.”
Section 15 of the 1934 Act amended to provide that broker-dealers must notify customers they may elect not to allow their fully paid securities to be used in short sales. If broker dealer uses customer securities in short sale, it must notify customer that it may receive compensation for lending customers’ securities.
Part 5 – Securities Investor Protection Act [“SIPC”] Amendments
Part 6 – Sarbanes Oxley Act (“SOX”) Amendments
7601 - Public Company Accounting Oversight Board (“PCAOB”) oversight of auditors and brokers and dealers
PCAOB may inspect registered public accounting firms that audit brokers and dealers. Any PCAOB rules re: inspection are subject to prior approval of SEC. A public accounting firm not required to be registered if exempt from inspection requirements.
References to “issuers” are changed to “issuers, brokers and dealers.”
Brokers and dealers are assessed an “accounting support fee” to pay for expenses of the PCAOB.
7602 - Foreign regulatory information sharing
Information gathered by the PCAOB in its inspection of auditing firms may be made available to foreign oversight authorities that have jurisdiction over the firm, provided the foreign oversight authorities provide assurances of confidentiality.
7603 - Expansion of audit information to be produced and shared with foreign counterparts
If a registered public accounting firm audit materially relies on work of a foreign public accounting firm for an interim report or audit, the foreign accounting firm must make its work papers and other documents related to the audit or interim report available for inspection by the SEC. Such foreign public accounting firms are under the jurisdiction of US courts for enforcement of this requirement. As a condition of being permitted to rely on the foreign firm’s work, the registered public accounting firm must secure an agreement with the foreign firm to produce its work papers to the SEC upon request. The registered firm must also produce the work papers and other documents upon which it relies to the SEC upon request. The registered firm must also obtain from the foreign firm an irrevocable consent to service of process appointing the registered firm the agent for service upon the foreign firm.
7606 - Exemption for non-accelerated filers
Section 404 of SOX is amended to exempt audit reports prepared for an issuer that is a non-accelerated filer [under $75MM] from 404(b) (which requires an auditor’s report of the accounting controls of the company). SEC to conduct a study to determine how SOX compliance can be less burdensome on issuers with assets of $75MM - $250MM.
7607 - Whistleblower protection against retaliation by a subsidiary of an issuer
7609 - Creation of ombudsman for the PCAOB
PCAOB appointment, reporting directly to the Chairman. Ombudsman to act as liaison between registered public accounting firms (and issuers in connection with audit issues) and the PCAOB.
7610 - Auditing Oversight Board
PCAOB changed to Auditing Oversight Board
Part 7 -- Senior Investment Protection
7703 - Grants to states for enhanced protection of seniors from being misled by false designations
SEC to establish grant program (to be funded through states) to investigate and prosecute misleading and fraudulent marketing practices or develop educational and training materials to teach same. Size limit of each grant is $1MM.
Recipient states must:
- adopt securities designation rules that meet or exceed minimum requirements of NASAA Model Rules for Senior-Specific Certifications and Professional Designations
- adopt standard rules on suitability requirements that to the extent practicable will conform to minimum requirements for suitability imposed by self-regulatory org rules under the securities laws
- adopt rules that govern the suitability requirements in the sale of annuities that meet or exceed the minimum requirements established by the National Assn of Insurance Commissioners Suitability in Annuity Transactions Model Regulation then in effect
Authorizes appropriation of $16MM / year for FY 2011 – 2015
Part 8 – Registration of Municipal Financial Advisors
7800 - Regulation of municipal financial advisors
Creates new Section 15G under the 1934 Act to require registration of municipal financial advisers that use interstate commerce. SEC may create exemptions for any class of municipal advisers.
SEC to establish standards for training, experience and competence.
Every registered municipal financial adviser shall establish written policies and procedures designed to prevent misuse of material nonpublic information.
Municipal financial adviser is deemed to have a fiduciary duty to any municipal securities issuer it advises and shall not engage in any act, practice or course of business inconsistent with its fiduciary duty.
Municipal securities adviser is one who provides advice to a municipal issuer about:
- issuance or re-marketing of securities
- investment of proceeds of sale of municipal securities
- hedging of risks, including use of swaps
- preparation of disclosure documents, including official statements
- selecting or negotiation of GICs or other investment products
- private offering of municipal securities
Effective date 30 days after enactment; initial implementing regulations to be issued within 120 days of enactment.
TITLE VI – FEDERAL INSURANCE OFFICE [Federal Insurance Office Act]
8002 - Federal Insurance Office established
Established as an office within Treasury, headed by a Director appointed by the Secretary of Treasury (career reserved position in SES).
Purpose of office is to:
- monitor insurance industry
- identify gaps in regulation that could contribute to systemic crisis in insurance industry or US financial system
- monitor access by traditionally underserved communities and consumers, minorities and low- and moderate income persons have access to affordable insurance products (other than health insurance)
- recommend to Financial Services Oversight Counsel that it designate an insurer as subject to stricter standards
- assist Secretary in administering Terrorism Risk Insurance Program established under the Terrorism Risk Insurance Act of 2002
- coordinate federal efforts and develop federal policy on prudential aspects of international insurance matters
- determine whether State insurance measures are preempted by covered agreements
- consult with States regarding insurance matters of national importance and prudential insurance matters of international importance
State laws are preempted if Director determines state law (i) directly results in less favorable treatment of a non-US insurer domiciled in a foreign jurisdiction that is subject to a covered agreement [i.e., an agreement between US and foreign govt/regulatory authority that provides a level of protection of insurance consumers that is substantially equivalent to that provided by the state) than a US insurer domiciled in that state or (ii) is inconsistent with covered agreement entered into after the date of enactment.
Authorizes US Trade Representative to enter into covered agreements, subject to requirements to consult with House and Senate committees
8003 - Report on global reinsurance market
8004 - Study on modernization and improvement of insurance regulation in the US
8004 - Sense of Congress regarding simplified mortgage contract summaries
Mortgage lenders should provide mortgage loan applicants with simplified summary of their loan contracts
TITLE VII -- MORTGAGE REFORM AND ANTI-PREDATORY LENDING ACT
Subtitle A – Residential Mortgage Loan Origination Standards
Nationwide Mortgage Licensing System and Registry is as provided in Secure and Fair Enforcement for Mortgage Licensing Act of 2008
9002 - Residential Mortgage Loan Origination
TILA amended to establish duty of care standard for mortgage loan originators –
- to be qualified, registered and licensed under applicable state and federal law
- for each consumer seeking residential mortgage loan, diligently work to present consumer with range of loan products that consumer likely would qualify for
- make full, complete and timely disclosure in writing of comparative costs and benefits of each product offered, discussed or referred to, nature of originator’s relationship with consumer and cost of services provided by originator and statement the originator is not acting as agent for consumer, relevant conflicts of interest
- certify to creditor that mortgage originator has fulfilled all requirements under this section
- include in loan documents any unique identifier of mortgage originator provided by Nationwide Mortgage Licensing System and Registry
9004 - Liability
Maximum liability of mortgage originator for violation of this section not to exceed 3X total amount of direct or indirect compensation or gain to the originator from the mortgage loan involved In the transaction, plus consumer’s cost of the action (including attorney’s fee).
9005 - Regulations
TILA amended to provide that the federal banking agencies, by jointly-issued regulations, may prohibit or condition terms, acts or practices relating to residential mortgage loans that agencies find to be unfair abusive, deceptive, predatory, inconsistent with reasonable underwriting standards as necessary or proper to assure that responsible affordable mortgage credit remains available to consumers.
Regulations to be issued in final form within 12 months of enactment and to take effect 18 months after enactment.
9006 - Study of shared appreciation mortgages
Conducted by HUD Secretary in consultation with Secretary of Treasury and other relevant agencies
Subtitle B – Minimum Standards for Mortgages
9105 - Defense of foreclosure
Truth in Lending Act (“TILA”) right of rescission available against the originator of a loan or its assignee is available against the holder of a mortgage loan in judicial or non-judicial foreclosure. If the foreclosure is begun after the time period for rescission has elapsed and the consumer would otherwise have a right to bring an action for rescission under TILA, the consumer may sue for actual damages for violation of TILA and may collect court costs and attorney’s fees.
9106 - Additional standards and requirements
TILA is amended to ban the certain prepayment penalties on qualified mortgages (not including adjustable rate mortgages).
9108 - Effect on state laws
Certain provisions of TILA supersede any less comprehensive state law
9110 - Amendments to civil liability provisions
Increases amount of civil money penalties for certain violations and extends statute of limitations.
9111 - Lender rights in the context of borrower deception
Exempts lenders from liability and rescission under TILA in case of borrower fraud or deception. Subject to materiality standard.
9112 - Reset of hybrid ARMs
6 months before reset, creditor or servicer must provide separate written advice to borrower re:
- index or formula for making interest rate adjustments
- explanation of how new interest rate and payment is determined
- good faith estimate of new payment amount
- list of alternatives borrower may pursue, including refinancing, renegotiating, payment forbearances and pre-foreclosure sales
- names, addresses, internet addresses of available HUD-certified counseling agencies or programs and state housing finance authority for borrower’s state
HUD Secretary to establish grant program for legal assistance for individual residents in foreclosure or in danger of foreclosure. $35MM to be spent in each of next two years. Recipients are local legal agencies but no funding for organizations or individuals associated with organizations convicted of violation of federal law relating to election for public office. Recipients must start to spend funds within 90 days of receipt. No funds can be used for class action lawsuits.
9118 - State Attorney General enforcement authority
State AG has expanded rights to enforce Truth in Lending Act (Section 129A, B and C).
Subtitle C – High-Cost Mortgages
9201 - Definitions relating to high-cost mortgages
High cost mortgage: consumer credit transaction secured by consumer’s principal dwelling other than a reverse mortgage transaction if --
(i) the interest rate exceeds 6.5% over prime (8.5% for manufactured homes with mortgages < $50K) for a first mortgage and 8.5% for a second mortgage;
(ii) total points and fees exceed 5% in case of a transaction > $20K or the lesser of 8% or $1,000 for transaction < $20K
(iii) documents allow creditor to charge prepayment penalty more than 36 months after closing or the prepayment penalties exceed in the aggregate 2% of the amount prepaid.
9202 - Amendments to existing requirements for certain mortgages
Section 129(c)(2) of TILA is repealed
9203 - Additional requirements for certain [high cost] mortgages
Creditors prohibited from recommending default on existing loan or other debt before or in connection with closing of high-cost mortgage that refinances an existing debt
No late fee on high-cost mortgage > 4% of past due payment, unless documents authorize fee, before 15-day grace period or more than once for a single past due payment.
No late fee on late fee if borrower pays the full payment without adding on late fee.
No high cost mortgage may allow a creditor to accelerate payment except in the case of a default in payment or due-on-sale provision or pursuant to material violation of loan documents unrelated to payment schedule
No high-cost mortgage creditor may finance (i) prepayment fee or penalty in a refinancing transaction (if creditor is noteholder) or (ii) points or fees.
High-cost mortgage creditor may not structure a loan as an open-end credit plan or other form of loan or divide loan into multiple transactions in order to avoid provisions of this title.
High-cost mortgage creditor may not charge a consumer any fee to modify, renew, extend or amend a high-cost mortgage or defer any payment due unless it results in a lower APR on the mortgage and then only if the fee is comparable to fees charged on similar transactions that are not high-cost mortgages.
Third party may not charge a consumer a fee to negotiate with a creditor of a high-cost mortgage, amend a high-cost mortgage, negotiate deferral of payment on a high-cost mortgage unless it results in significantly lower APR or significant reduction in the o/s principal and then only if the fee is comparable to similar fee for non-high-cost mortgage.
Creditor may not charge a fee for a payoff statement for a high-cost mortgage (other than reasonable transmission fee).
Creditor may not extend credit to a consumer under a high-cost mortgage unless it first receives certification from a HUD-approved counselor (or, if HUD Secretary approves, one approved by a state HFA) that the consumer received counseling on the advisability of the mortgage.
No creditor may knowingly or intentionally engage in unfair act/practice in connection with high-cost mortgage flipping
9204 - Regulations
FRB to publish regulations implementing this subtitle and amendments made by this subtitle.
Subtitle D -- Office of Housing Counseling
Within HUD, director appointed by Secretary, career-reserved position in SES
Homeownership and rental counseling procedures mandated in connection with any HUD program
9304 - Grants for housing counseling assistance
9305 - Requirements to use HUD-certified counselors under HUD programs
Applies to any organization receiving assistance for counseling activities
9306 - Study of defaults and foreclosures
HUD Secretary to conduct extensive study of root causes and submit to Congress w/in 24 months of enactment
9307 - Default and foreclosure database
On a census tract basis, to be established and maintained on a web site by HUD.
9309 - Accountability and transparency for grant recipients
9311 - Home Inspection Counseling
9313 - Warnings to homeowners of foreclosure rescue scams
Subtitle E – Mortgage Servicing
9401 - Escrow and impound accounts relating to certain consumer credit transactions [first mortgages on principal dwellings]
Covers requirements for escrow and impound accounts for taxes and insurance on first mortgages (other than reverse mortgages and HELs) – prohibits except when required by law, loan is made/guaranteed by government or insuring agency or transaction is secured by first mortgage and has an original principal amount higher than as set forth in FHLB rules [20%?]
Duration – minimum 5 years until enough equity in dwelling so as to no longer be required to maintain private mortgage insurance
Escrow/impound accounts must be held at federally-insured depository institution and consumer must receive interest as required by state or federal law.
9403 - RESPA amendments
Deals with force-placed hazard insurance, failure to respond to borrower request to correct mis-allocation of payments, failure to respond to borrower request to provide info about owner-assignee of loan, failure to comply with any other obligation HUD Secretary finds appropriate.
Increases penalties for violations
Requires prompt repayment of escrows upon prepayment
9404 - Truth in Lending Act amendments
Requires prompt crediting of home loan payments (day of receipt) and prompt information in response to request for payoff amounts (7 business days after written request)
Subtitle F -- Appraisal Activities
9501 - Property appraisal requirements
- Creditor must get appraisal for sub-prime mortgage
- Physical property visit
- Second appraisal with analysis under certain circumstances (to finance purchase within 180 days of purchase at a lower price), with no additional cost to loan applicant
- Qualified appraiser requirements: certified or licensed by state and performs appraisals in conformity with Uniform Standards of Professional Appraisal Practice and title XI of FIRREA
- Free copy of appraisal to applicant 3 days prior to closing date for sub-prime mortgages
9502 Unfair and deceptive practice and acts relating to certain consumer credit transactions [first mortgages on principal dwellings]
Amends TILA to add new section re:
- deceptive appraisal practices
- appraisal independence
- prohibitions on appraiser conflicts of interest
- mandatory reporting by mortgage lender, mortgage broker, mortgage banker, real estate broker, appraisal management company or employee thereof or any other person involved in a first residential real estate mortgage transaction of suspected appraiser failure to comply with Uniform Standards, etc. to state certifying agency
- prohibition on extending credit for home purchase if creditor has knowledge of violation of appraisal independence standards unless creditor has acted w/ reasonable diligence to determine appraisal does not materially misstate or misrepresent value of dwelling
9503 - Amendments relating to appraisal subcommittee of FIEC, appraiser independence monitoring, approved appraiser education, appraisal management companies, appraiser complaint hotline, automated valuation models and broker price opinions
Many amendments, many pages
Subtitle G – Sense of congress regarding the Importance of GSE Reform
9601 - Sense of Congress re: the importance of Government-sponsored enterprises reform to enhance the protection, limitation and regulation of the terms of residential mortgage credit
Subtitle H – Reports and Data Collection
9702 - Report of mortgage data by state
Subtitle I – Multifamily mortgage resolution program
9801 - Multifamily mortgage resolution program
Subtitle J – Study of Effect of Drywall Presence on Foreclosures
Subtitle K – Home Affordable Modification Program [HAMP]
9911 - HAMP guidelines
Treasury Secretary to revise guidelines for HAMP to require each mortgage servicer to provide homeowner it denies under HAMP with all borrower-related and mortgage-related input data used in any NPV analyses.
Web-based site for NPV calculation and application to be established by Secretary for mortgagors to use to use to enter info about their mortgages. Site must disclose that servicers may use different method for calculating NPV. Secretary to provide to public on the web site the Secretary’s methodology and computer model, including all formulae used in calculating NPV and all variables used in the NPV analysis.
Subtitle L – Making Home Affordable Program
9921 - Public availability of information
Treasury Secretary to revise guidelines for this program to provide that data collected by the Secretary from each mortgage servicer and lender is made public on the Secretary’s web site and to Congress within 14 days of the deadline for submission. The following will be in the report for each servicer/lender:
- # requests for mortgage modification received
- # requests processed
- # requests approved
- # requests denied
TITLE VIII -- FORECLOSURE AVOIDANCE AND AFFORDABLE HOUSING
10001 - Emergency mortgage relief
Secretary to transfer $3B to the Secretary of HUD for credit to Emergency Homeowners’ Relief Fund, which the Secretary is to establish for emergency mortgage assistance. Funds to be used for grants or insured loans to homeowners at interest rates consistent with market rates.
Secretary to allow funds to be administered by state that has an existing program determined to provide substantially similar assistance. Each state receiving funds must establish preferences for development of affordable housing for properties assisted with these funds.
Prohibition of distribution to organization convicted of violating federal law relating to election for Federal office.
10002 - Additional assistance for neighborhood stabilization program
Secretary to transfer $1B to the Secretary of HUD for use for assistance to states and local governments for redevelopment of abandoned and foreclosed homes.
TITLE IX -- NONADMITTED AND REINSURANCE REFORM ACT
Subtitle A – Nonadmitted Insurance [insurance for unusual risks, usually used in the commercial context, provided by a company that is not “admitted” in the insured’s home state and not covered by state insurance funds]
10101 - Reporting, payment and allocation of premium taxes
Only an insured’s state can levy premium taxes for nonadmitted insurance. States may enter into a compact whereby premium taxes paid to insured’s home state are allocated among the states. Congress intends that each state adopt nationwide uniform requirements, forms and procedures (like an interstate compact) that provides for reporting, payment, collection and allocation of premium taxes for nonadmitted insurance consistent with this section. To facilitate the payment of premium taxes among states, insured’s home state may require surplus lines brokers and insureds who have independently procured insurance to annually file tax allocation reports with the insured’s home state detailing the portion of premiums attributable to properties, risks and exposures located in each state.
10102 - Regulation of non-admitted insurance by insured’s home state
No state other than insured’s home state may require licensure of surplus lines broker in order to sell insurance to insured.
Preemption of state law that purport to regulate nonadmitted insurance for insured whose home state is another state.
10103 - Participation in National Producer Database
Two years after enactment, state may not collect licensing fees for surplus lines broker unless it has laws or regulations in effect that provide for participation by the state in national insurance producer database of the NAIC.
10104 - Uniform standards for surplus lines eligibility
State may not regulate standards for nonadmitted insurance except in conformance with the Non-Admitted Insurance Model Act unless the state has adopted national uniform requirements, forms and procedures in accordance with this act.
10105 - Streamlined application for commercial purchases
10106 - GAO study of nonadmitted insurance market
Subtitle B – Reinsurance
10201 - Regulation of credit for reinsurance and reinsurance agreements
10202 - Regulation of reinsurer solvency
If the state of domicile of a ceding insurer is an NAIC-accredited state or has solvency requirements substantially similar to those required for NAIC accreditation, that state is solely responsible for regulating the solvency of the insurer. No other state may require the insurer to provide additional financial information.
TITLE X – INTEREST-BEARING TRANSACTION ACCOUNTS AUTHORIZED
11001 - Interest-bearing transaction accounts authorized
Amends Federal Reserve Act to repeal the section that bans payment of interest on demand deposits.