U.S. Congress - Text of H.R.940 as Introduced in House United States Covered Bond Act of 2011
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Donate NowH.R.940 - United States Covered Bond Act of 2011
To establish standards for covered bond programs and a covered bond regulatory oversight program, and for other purposes.
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HR 940 IHCommentsClose CommentsPermalink
112th CONGRESSCommentsClose CommentsPermalink
1st SessionCommentsClose CommentsPermalink
H. R. 940CommentsClose CommentsPermalink
To establish standards for covered bond programs and a covered bond regulatory oversight program, and for other purposes.CommentsClose CommentsPermalink
IN THE HOUSE OF REPRESENTATIVESCommentsClose CommentsPermalink
March 8, 2011CommentsClose CommentsPermalink
March 8, 2011CommentsClose CommentsPermalink
Mr. GARRETT (for himself and Mrs. MALONEY) introduced the following bill; which was referred to the Committee on Financial Services, and in addition to the Committee on Ways and Means, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concernedCommentsClose CommentsPermalink
A BILLCommentsClose CommentsPermalink
To establish standards for covered bond programs and a covered bond regulatory oversight program, and for other purposes.CommentsClose CommentsPermalink
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,CommentsClose CommentsPermalink
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘United States Covered Bond Act of 2011’.CommentsClose CommentsPermalink
SEC. 2. DEFINITIONS.
For purposes of this Act, the following definitions shall apply:CommentsClose CommentsPermalink
(1) ANCILLARY ASSET- The term ‘ancillary asset’ means--CommentsClose CommentsPermalink
(A) any interest rate or currency swap associated with 1 or more eligible assets, substitute assets, or other assets in a cover pool;CommentsClose CommentsPermalink
(B) any credit enhancement or liquidity arrangement associated with 1 or more eligible assets, substitute assets, or other assets in a cover pool;CommentsClose CommentsPermalink
(C) any guarantee, letter-of-credit right, or other secondary obligation that supports any payment or performance of 1 or more eligible assets, substitute assets, or other assets in a cover pool; andCommentsClose CommentsPermalink
(D) any proceeds of, or other property incident to, 1 or more eligible assets, substitute assets, or other assets in a cover pool.CommentsClose CommentsPermalink
(2) CORPORATION- The term ‘Corporation’ means the Federal Deposit Insurance Corporation.CommentsClose CommentsPermalink
(3) COVER POOL- The term ‘cover pool’ means a dynamic pool of assets that is comprised of--CommentsClose CommentsPermalink
(A) in the case of any eligible issuer described in subparagraph (A), (B), or (C) of paragraph (9)--CommentsClose CommentsPermalink
(i) 1 or more eligible assets from a single eligible asset class; andCommentsClose CommentsPermalink
(ii) 1 or more substitute assets or ancillary assets; andCommentsClose CommentsPermalink
(B) in the case of any eligible issuer described in paragraph (9)(D)--CommentsClose CommentsPermalink
(i) the covered bonds issued by each sponsoring eligible issuer; andCommentsClose CommentsPermalink
(ii) 1 or more substitute assets or ancillary assets.CommentsClose CommentsPermalink
(4) COVERED BOND- The term ‘covered bond’ means any recourse debt obligation of an eligible issuer that--CommentsClose CommentsPermalink
(A) has an original term to maturity of not less than 1 year;CommentsClose CommentsPermalink
(B) is secured by a perfected security interest in or other lien on a cover pool that is owned directly or indirectly by the issuer of the obligation;CommentsClose CommentsPermalink
(C) is issued under a covered bond program that has been approved by the applicable covered bond regulator;CommentsClose CommentsPermalink
(D) is identified in a register of covered bonds that is maintained by the Secretary; andCommentsClose CommentsPermalink
(E) is not a deposit (as defined in section 3(l) of the Federal Deposit Insurance Act (
(5) COVERED BOND PROGRAM- The term ‘covered bond program’ means any program of an eligible issuer under which, on the security of a single cover pool, 1 or more series or tranches of covered bonds may be issued.CommentsClose CommentsPermalink
(6) COVERED BOND REGULATOR- The term ‘covered bond regulator’ means--CommentsClose CommentsPermalink
(A) the appropriate Federal banking agency (as defined in section 3(q) of the Federal Deposit Insurance Act (
(B) for any eligible issuer that is not subject to the jurisdiction of an appropriate Federal banking agency, the Secretary.CommentsClose CommentsPermalink
(7) ELIGIBLE ASSET- The term ‘eligible asset’ means--CommentsClose CommentsPermalink
(A) in the case of the residential mortgage asset class--CommentsClose CommentsPermalink
(i) any first-lien mortgage loan that is secured by 1-to-4 family residential property and that is in compliance with any rule or supervisory guidance of a Federal agency applicable to the loan at the time of loan origination;CommentsClose CommentsPermalink
(ii) any mortgage loan that is insured under the National Housing Act (
(iii) any loan that is guaranteed, insured, or made under chapter 37 of title 38, United States Code, and that is in compliance with any rule or supervisory guidance of a Federal agency applicable to the loan at the time of loan origination;CommentsClose CommentsPermalink
(B) in the case of the home equity asset class, any home equity loan that is secured by 1-to-4 family residential property and that is in compliance with any rule or supervisory guidance of a Federal agency applicable to the loan at the time of loan origination;CommentsClose CommentsPermalink
(C) in the case of the commercial mortgage asset class, any commercial mortgage loan (including any multifamily mortgage loan) that is in compliance with any rule or supervisory guidance of a Federal agency applicable to the loan at the time of loan origination;CommentsClose CommentsPermalink
(D) in the case of the public sector asset class--CommentsClose CommentsPermalink
(i) any security issued by a State, municipality, or other governmental authority;CommentsClose CommentsPermalink
(ii) any loan made to a State, municipality, or other governmental authority; andCommentsClose CommentsPermalink
(iii) any loan, security, or other obligation that is insured or guaranteed, in full or substantially in full, by the full faith and credit of the United States Government (whether or not such loan, security, or other obligation is also part of another eligible asset class);CommentsClose CommentsPermalink
(E) in the case of the auto asset class, any auto loan or lease that is in compliance with any rule or supervisory guidance of a Federal agency applicable to the loan or lease at the time of loan or lease origination;CommentsClose CommentsPermalink
(F) in the case of the student loan asset class, any student loan (whether guaranteed or nonguaranteed) that is in compliance with any rule or supervisory guidance of a Federal agency applicable to the loan at the time of loan origination;CommentsClose CommentsPermalink
(G) in the case of the credit or charge card asset class, any extension of credit to a person under an open-end credit plan that is in compliance with any rule or supervisory guidance of a Federal agency applicable to the extension of credit at the time the extension is made;CommentsClose CommentsPermalink
(H) in the case of the small business asset class, any loan that is made or guaranteed under a program of the Small Business Administration and that is in compliance with any rule or supervisory guidance of a Federal agency applicable to the loan at the time of loan origination; andCommentsClose CommentsPermalink
(I) in the case of any other eligible asset class, any asset designated by the Secretary, by rule and in consultation with the covered bond regulators, as an eligible asset for purposes of such class.CommentsClose CommentsPermalink
(8) ELIGIBLE ASSET CLASS- The term ‘eligible asset class’ means--CommentsClose CommentsPermalink
(A) a residential mortgage asset class;CommentsClose CommentsPermalink
(B) a home equity asset class;CommentsClose CommentsPermalink
(C) a commercial mortgage asset class;CommentsClose CommentsPermalink
(D) a public sector asset class;CommentsClose CommentsPermalink
(E) an auto asset class;CommentsClose CommentsPermalink
(F) a student loan asset class;CommentsClose CommentsPermalink
(G) a credit or charge card asset class;CommentsClose CommentsPermalink
(H) a small business asset class; andCommentsClose CommentsPermalink
(I) any other eligible asset class designated by the Secretary, by rule and in consultation with the covered bond regulators.CommentsClose CommentsPermalink
(9) ELIGIBLE ISSUER- The term ‘eligible issuer’ means--CommentsClose CommentsPermalink
(A) any insured depository institution and any subsidiary of such institution;CommentsClose CommentsPermalink
(B) any bank holding company, any savings and loan holding company, and any subsidiary of either of such companies;CommentsClose CommentsPermalink
(C) any nonbank financial company (as defined in section 102(a)(4) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (
(D) any issuer that is sponsored by 1 or more eligible issuers for the sole purpose of issuing covered bonds on a pooled basis.CommentsClose CommentsPermalink
(10) OVERSIGHT PROGRAM- The term ‘oversight program’ means the covered bond regulatory oversight program established under section 3(a).CommentsClose CommentsPermalink
(11) SECRETARY- The term ‘Secretary’ means the Secretary of the Department of the Treasury.CommentsClose CommentsPermalink
(12) SUBSTITUTE ASSET- The term ‘substitute asset’ means--CommentsClose CommentsPermalink
(A) cash;CommentsClose CommentsPermalink
(B) any direct obligation of the United States Government, and any security or other obligation whose full principal and interest are insured or guaranteed by the full faith and credit of the United States Government;CommentsClose CommentsPermalink
(C) any direct obligation of a United States Government corporation or Government-sponsored enterprise of the highest credit quality, and any other security or other obligation of the highest credit quality whose full principal and interest are insured or guaranteed by such corporation or enterprise, except that the outstanding principal amount of these obligations in any cover pool may not exceed an amount equal to 20 percent of the outstanding principal amount of all assets in the cover pool without the approval of the applicable covered bond regulator;CommentsClose CommentsPermalink
(D) any overnight investment in Federal funds;CommentsClose CommentsPermalink
(E) any other substitute asset designated by the Secretary, by rule and in consultation with the covered bond regulators; andCommentsClose CommentsPermalink
(F) any deposit account or securities account into which only an asset described in subparagraph (A), (B), (C), (D), or (E) may be deposited or credited.CommentsClose CommentsPermalink
SEC. 3. REGULATORY OVERSIGHT OF COVERED BOND PROGRAMS ESTABLISHED.
(a) Establishment-CommentsClose CommentsPermalink
(1) IN GENERAL- Not later than 180 days after the date of the enactment of this Act, the Secretary shall, by rule and in consultation with the covered bond regulators, establish a covered bond regulatory oversight program that provides for--CommentsClose CommentsPermalink
(A) covered bond programs to be evaluated according to reasonable and objective standards in order to be approved under paragraph (2), including any additional eligibility standards for eligible assets and any other criteria determined appropriate by the Secretary to further the purposes of this Act;CommentsClose CommentsPermalink
(B) covered bond programs to be maintained in a manner that is consistent with this Act and safe and sound asset-liability management and other financial practices; andCommentsClose CommentsPermalink
(C) any estate created under section 4 to be administered in a manner that is consistent with maximizing the value and the proceeds of the related cover pool in a resolution under this Act.CommentsClose CommentsPermalink
(2) APPROVAL OF EACH COVERED BOND PROGRAM-CommentsClose CommentsPermalink
(A) IN GENERAL- A covered bond shall be subject to this Act only if the covered bond is issued by an eligible issuer under a covered bond program that is approved by the applicable covered bond regulator.CommentsClose CommentsPermalink
(B) APPROVAL PROCESS- Each covered bond regulator shall apply the standards established by the Secretary under the oversight program to evaluate a covered bond program that has been submitted by an eligible issuer for approval. Each covered bond regulator, promptly after approving a covered bond program, shall provide the Secretary with the name of the covered bond program, the name of the eligible issuer, and all other information reasonably requested by the Secretary in order to update the registry under paragraph (3)(A). Each eligible issuer, promptly after issuing a covered bond under an approved covered bond program, shall provide the Secretary with all information reasonably requested by the Secretary in order to update the registry under paragraph (3)(B).CommentsClose CommentsPermalink
(C) EXISTING COVERED BOND PROGRAMS- A covered bond regulator may approve a covered bond program that is in existence on the date of the enactment of this Act. Upon such approval, each covered bond under the covered bond program shall be subject to this Act, regardless of when the covered bond was issued.CommentsClose CommentsPermalink
(D) MULTIPLE COVERED BOND PROGRAMS PERMITTED- An eligible issuer may have more than 1 covered bond program.CommentsClose CommentsPermalink
(3) REGISTRY- Under the oversight program, the Secretary shall maintain a registry that is published on a Web site available to the public and that, for each covered bond program approved by a covered bond regulator, contains--CommentsClose CommentsPermalink
(A) the name of the covered bond program, the name of the eligible issuer, and all other information that the Secretary considers necessary to adequately identify the covered bond program and the eligible issuer; andCommentsClose CommentsPermalink
(B) all information that the Secretary considers necessary to adequately identify all outstanding covered bonds issued under the covered bond program (including the reports described in paragraphs (3) and (4) of subsection (b)).CommentsClose CommentsPermalink
(4) FEES- Each covered bond regulator may levy, on the issuers of covered bonds under the primary supervision of such covered bond regulator, reasonably apportioned fees that such covered bond regulator considers necessary, in the aggregate, to defray the costs of such covered bond regulator carrying out the provisions of this Act. Such funds shall not be construed to be Government funds or appropriated monies and shall not be subject to apportionment for purposes of chapter 15 of title 31, United States Code, or any other provision of law.CommentsClose CommentsPermalink
(b) Minimum Over-Collateralization Requirements-CommentsClose CommentsPermalink
(1) REQUIREMENTS ESTABLISHED-CommentsClose CommentsPermalink
(A) IN GENERAL- The Secretary, by rule and in consultation with the covered bond regulators, shall establish minimum over-collateralization requirements for covered bonds backed by each of the eligible asset classes. The minimum over-collateralization requirements shall be designed to ensure that sufficient eligible assets and substitute assets are maintained in the cover pool to satisfy all principal and interest payments on the covered bonds when due through maturity and shall be based on the credit, collection, and interest rate risks (excluding the liquidity risks) associated with the eligible asset class.CommentsClose CommentsPermalink
(B) RELIANCE ON OTHER OVER-COLLATERALIZATION STANDARDS- In establishing the minimum over-collateralization requirements, the Secretary may rely on over-collateralization levels that are required for the same or similar asset classes by--CommentsClose CommentsPermalink
(i) any Federal reserve bank when extending credit to depository institutions under the Federal Reserve Act (
(ii) any Federal home loan bank when extending credit to member institutions under the Federal Home Loan Bank Act (
(iii) any other comparable lender when extending credit in substantially similar transactions.CommentsClose CommentsPermalink
(2) ASSET COVERAGE TEST- The eligible assets and the substitute assets in any cover pool shall be required, in the aggregate, to meet at all times the applicable minimum over-collateralization requirements.CommentsClose CommentsPermalink
(3) MONTHLY REPORTING- On a monthly basis, each issuer of covered bonds shall submit a report on whether the cover pool that secures the covered bonds meets the applicable minimum over-collateralization requirements to--CommentsClose CommentsPermalink
(A) the Secretary;CommentsClose CommentsPermalink
(B) the applicable covered bond regulator;CommentsClose CommentsPermalink
(C) the applicable indenture trustee;CommentsClose CommentsPermalink
(D) the applicable covered bondholders; andCommentsClose CommentsPermalink
(E) the applicable independent asset monitor.CommentsClose CommentsPermalink
(4) INDEPENDENT ASSET MONITOR-CommentsClose CommentsPermalink
(A) APPOINTMENT- Each issuer of covered bonds shall appoint the indenture trustee for the covered bonds, or another unaffiliated entity, as an independent asset monitor for the applicable cover pool.CommentsClose CommentsPermalink
(B) DUTIES- An independent asset monitor appointed under subparagraph (A) shall, on an annual or other more frequent periodic basis determined by the Secretary under the oversight program--CommentsClose CommentsPermalink
(i) verify whether the cover pool meets the applicable minimum over-collateralization requirements; andCommentsClose CommentsPermalink
(ii) report to the Secretary, the applicable covered bond regulator, the applicable indenture trustee, and the applicable covered bondholders on whether the cover pool meets the applicable minimum over-collateralization requirements.CommentsClose CommentsPermalink
(5) NO LOSS OF STATUS- Covered bonds shall remain subject to this Act regardless of whether the applicable cover pool ceases to meet the applicable minimum over-collateralization requirements.CommentsClose CommentsPermalink
(6) FAILURE TO MEET REQUIREMENTS-CommentsClose CommentsPermalink
(A) IN GENERAL- If a cover pool fails to meet the applicable minimum over-collateralization requirements, and if the failure is not cured within the time specified in the related transaction documents, the failure shall be an uncured default for purposes of section 4(a).CommentsClose CommentsPermalink
(B) NOTICE REQUIRED- An issuer of covered bonds shall promptly give the Secretary and the applicable covered bond regulator written notice if the cover pool securing the covered bonds fails to meet the applicable minimum over-collateralization requirements, if the failure is cured within the time specified in the related transaction documents, or if the failure is not so cured.CommentsClose CommentsPermalink
(c) Requirements for Eligible Assets-CommentsClose CommentsPermalink
(1) LOANS- A loan shall not qualify as an eligible asset for so long as the loan is delinquent for more than 60 consecutive days.CommentsClose CommentsPermalink
(2) SECURITIES- A security shall not qualify as an eligible asset for so long as the security does not meet any credit-quality requirement under this Act.CommentsClose CommentsPermalink
(3) NO DOUBLE PLEDGE- An asset shall not qualify as an eligible asset for so long as the asset is subject to a prior perfected security interest or other lien that has been granted in an unrelated transaction. Nothing in this Act shall affect such a prior perfected security interest or other lien.CommentsClose CommentsPermalink
(4) SINGLE ELIGIBLE ASSET CLASS- No cover pool may include eligible assets from more than 1 eligible asset class.CommentsClose CommentsPermalink
(d) Other Requirements-CommentsClose CommentsPermalink
(1) BOOKS AND RECORDS OF ISSUER- Each issuer of covered bonds shall clearly mark its books and records to identify the assets that comprise the cover pool securing the covered bonds.CommentsClose CommentsPermalink
(2) SCHEDULE OF ELIGIBLE ASSETS AND SUBSTITUTE ASSETS- Each issuer of covered bonds shall deliver to the applicable indenture trustee and the applicable independent asset monitor, on at least a monthly basis, a schedule that identifies all eligible assets and substitute assets in the cover pool securing the covered bonds.CommentsClose CommentsPermalink
SEC. 4. RESOLUTION UPON DEFAULT OR INSOLVENCY.
(a) Uncured Default Defined- For purposes of this section, the term ‘uncured default’ means a default on a covered bond that has not been cured within the time, if any, specified in the related transaction documents.CommentsClose CommentsPermalink
(b) Default on Covered Bonds Prior to Conservatorship, Receivership, Liquidation, or Bankruptcy-CommentsClose CommentsPermalink
(1) CREATION OF SEPARATE ESTATE- If an uncured default occurs on a covered bond before the issuer of the covered bond enters conservatorship, receivership, liquidation, or bankruptcy, an estate shall be immediately and automatically created by operation of law and shall exist and be administered separate and apart from the issuer or any subsequent conservatorship, receivership, liquidating agency, or estate in bankruptcy for the issuer or any other assets of the issuer. A separate estate shall be created for each affected covered bond program.CommentsClose CommentsPermalink
(2) ASSETS AND LIABILITIES OF ESTATE- Any estate created under paragraph (1) shall be comprised of the cover pool that secures the covered bond. The cover pool shall be immediately and automatically released to and held by the estate free and clear of any right, title, interest, or claim of the issuer or any conservator, receiver, liquidating agent, or trustee in bankruptcy for the issuer or any other assets of the issuer. The estate shall be fully liable on the covered bond and all other covered bonds and related obligations of the issuer (including obligations under related derivative transactions) that are secured by a perfected security interest in or other lien on the cover pool when the estate is created. The estate shall not be liable on any obligation of the issuer that is not secured by a perfected security interest in or other lien on the cover pool when the estate is created. No conservator, receiver, liquidating agent, or trustee in bankruptcy for the issuer may charge or assess the estate for any claim of the conservator, receiver, liquidating agent, or trustee in bankruptcy or the conservatorship, receivership, liquidating agency, or estate in bankruptcy and may not obtain or perfect a security interest in or other lien on the cover pool to secure such a claim.CommentsClose CommentsPermalink
(3) RETENTION OF CLAIMS- Any holder of a covered bond or related obligation for which an estate has become liable under paragraph (2) shall retain a claim against the issuer for any deficiency with respect to the covered bond or related obligation.CommentsClose CommentsPermalink
(4) RESIDUAL INTEREST-CommentsClose CommentsPermalink
(A) ISSUANCE OF RESIDUAL INTEREST- Upon the creation of an estate under paragraph (1), a residual interest in the estate shall be immediately and automatically issued by operation of law to the issuer.CommentsClose CommentsPermalink
(B) NATURE OF RESIDUAL INTEREST- The residual interest under subparagraph (A) shall--CommentsClose CommentsPermalink
(i) be an exempted security as described in section 5;CommentsClose CommentsPermalink
(ii) represent the right to any surplus from the cover pool after the covered bonds and all other liabilities of the estate have been fully and irrevocably paid; andCommentsClose CommentsPermalink
(iii) be evidenced by a certificate executed by the trustee of the estate.CommentsClose CommentsPermalink
(5) OBLIGATIONS OF ISSUER-CommentsClose CommentsPermalink
(A) IN GENERAL- After the creation of an estate under paragraph (1), the issuer shall--CommentsClose CommentsPermalink
(i) transfer to or at the direction of the trustee for the estate all property of the estate that is in the possession or under the control of the issuer, including all tangible or electronic books, records, files, and other documents or materials relating to the assets and liabilities of the estate; andCommentsClose CommentsPermalink
(ii) at the election of the trustee or a servicer or administrator for the estate, continue servicing the applicable cover pool for 120 days after the creation of the estate in return for a fair-market-value fee, as determined by the trustee in consultation with the applicable covered bond regulator, that shall be payable from the estate as an administrative expense.CommentsClose CommentsPermalink
(B) OBLIGATIONS ABSOLUTE- Neither the issuer, whether acting as debtor in possession or in any other capacity, nor any conservator, receiver, liquidating agent, or trustee in bankruptcy for the issuer or any other assets of the issuer may disaffirm, repudiate, or reject the obligation to turn over property or to continue servicing the cover pool as provided in subparagraph (A).CommentsClose CommentsPermalink
(c) Default on Covered Bonds Upon Conservatorship, Receivership, Liquidation, or Bankruptcy-CommentsClose CommentsPermalink
(1) CORPORATION CONSERVATORSHIP OR RECEIVERSHIP-CommentsClose CommentsPermalink
(A) IN GENERAL- If the Corporation is appointed as conservator or receiver for an issuer of covered bonds before an uncured default results in the creation of an estate under subsection (b), the Corporation as conservator or receiver shall have an exclusive right, during the 180-day period beginning on the date of the appointment, to transfer any cover pool owned by the issuer in its entirety, together with all covered bonds and related obligations that are secured by a perfected security interest in or other lien on the cover pool, to another eligible issuer that meets all conditions and requirements specified in the related transaction documents.CommentsClose CommentsPermalink
(B) OBLIGATIONS DURING 180-DAY PERIOD- During the 180-day period described in subparagraph (A), the Corporation as conservator or receiver shall fully and timely satisfy all monetary and nonmonetary obligations of the issuer under all covered bonds and the related transaction documents and shall fully and timely cure all defaults by the issuer (other than its conservatorship or receivership) under the applicable covered bond program, in each case, until the earlier of--CommentsClose CommentsPermalink
(i) the transfer of the applicable covered bond program to another eligible issuer as provided in subparagraph (A); orCommentsClose CommentsPermalink
(ii) the delivery to the Secretary, the applicable covered bond regulator, the applicable indenture trustee, and the applicable covered bondholders of a written notice from the Corporation as conservator or receiver electing to cease further performance under the applicable covered bond program.CommentsClose CommentsPermalink
(C) ASSUMPTION BY TRANSFEREE- If the Corporation as conservator or receiver transfers a covered bond program to another eligible issuer within the 180-day period as provided in subparagraph (A), the transferee shall take ownership of the applicable cover pool and shall become fully liable on all covered bonds and related obligations of the issuer that are secured by a perfected security interest in or other lien on the cover pool.CommentsClose CommentsPermalink
(2) OTHER CIRCUMSTANCES- An estate shall be immediately and automatically created by operation of law and shall exist and be administered separate and apart from an issuer of covered bonds and any conservatorship, receivership, liquidating agency, or estate in bankruptcy for the issuer or any other assets of the issuer, if--CommentsClose CommentsPermalink
(A) a conservator, receiver, liquidating agent, or trustee in bankruptcy, other than the Corporation, is appointed for the issuer before an uncured default results in the creation of an estate under subsection (b); orCommentsClose CommentsPermalink
(B) in the case of the appointment of the Corporation as conservator or receiver as described in paragraph (1)(A), the Corporation as conservator or receiver--CommentsClose CommentsPermalink
(i) does not complete the transfer of the applicable covered bond program to another eligible issuer within the 180-day period as provided in paragraph (1)(A);CommentsClose CommentsPermalink
(ii) delivers to the Secretary, the applicable covered bond regulator, the applicable indenture trustee, and the applicable covered bondholders a written notice electing to cease further performance under the applicable covered bond program; orCommentsClose CommentsPermalink
(iii) fails to fully and timely satisfy all monetary and nonmonetary obligations of the issuer under the covered bonds and the related transaction documents or to fully and timely cure all defaults by the issuer (other than its conservatorship or receivership) under the applicable covered bond program.CommentsClose CommentsPermalink
A separate estate shall be created for each affected covered bond program.CommentsClose CommentsPermalink
(3) ASSETS AND LIABILITIES OF ESTATE- Any estate created under paragraph (2) shall be comprised of the cover pool that secures the covered bonds. The cover pool shall be immediately and automatically released to and held by the estate free and clear of any right, title, interest, or claim of the issuer or any conservator, receiver, liquidating agent, or trustee in bankruptcy for the issuer or any other assets of the issuer. The estate shall be fully liable on the covered bonds and all other covered bonds and related obligations of the issuer (including obligations under related derivative transactions) that are secured by a perfected security interest in or other lien on the cover pool when the estate is created. The estate shall not be liable on any obligation of the issuer that is not secured by a perfected security interest in or other lien on the cover pool when the estate is created. No conservator, receiver, liquidating agent, or trustee in bankruptcy for the issuer may charge or assess the estate for any claim of the conservator, receiver, liquidating agent, or trustee in bankruptcy or the conservatorship, receivership, liquidating agency, or estate in bankruptcy and may not obtain or perfect a security interest in or other lien on the cover pool to secure such a claim.CommentsClose CommentsPermalink
(4) CONTINGENT CLAIM- Any contingent claim against an issuer for a deficiency with respect to a covered bond or related obligation for which an estate has become liable under paragraph (3) shall be allowed as a provable claim in the conservatorship, receivership, liquidating agency, or bankruptcy case for the issuer. The contingent claim shall be estimated by the conservator, receiver, liquidating agent, or bankruptcy court for purposes of allowing the claim as a provable claim if awaiting the fixing of the contingent claim would unduly delay the resolution of the conservatorship, receivership, liquidating agency, or bankruptcy case.CommentsClose CommentsPermalink
(5) RESIDUAL INTEREST-CommentsClose CommentsPermalink
(A) ISSUANCE OF RESIDUAL INTEREST- Upon the creation of an estate under paragraph (2), and regardless of whether any contingent claim described in paragraph (4) becomes fixed or is estimated, a residual interest in the estate shall be immediately and automatically issued by operation of law to the conservator, receiver, liquidating agent, or trustee in bankruptcy for the issuer.CommentsClose CommentsPermalink
(B) NATURE OF RESIDUAL INTEREST- The residual interest under subparagraph (A) shall--CommentsClose CommentsPermalink
(i) be an exempted security as described in section 5;CommentsClose CommentsPermalink
(ii) represent the right to any surplus from the cover pool after the covered bonds and all other liabilities of the estate have been fully and irrevocably paid; andCommentsClose CommentsPermalink
(iii) be evidenced by a certificate executed by the trustee of the estate.CommentsClose CommentsPermalink
(6) OBLIGATIONS OF ISSUER-CommentsClose CommentsPermalink
(A) IN GENERAL- After the creation of an estate under paragraph (2), the issuer and its conservator, receiver, liquidating agent, or trustee in bankruptcy shall--CommentsClose CommentsPermalink
(i) transfer to or at the direction of the trustee for the estate all property of the estate that is in the possession or under the control of the issuer or its conservator, receiver, liquidating agent, or trustee in bankruptcy, including all tangible or electronic books, records, files, and other documents or materials relating to the assets and liabilities of the estate; andCommentsClose CommentsPermalink
(ii) at the election of the trustee or a servicer or administrator for the estate, continue servicing the applicable cover pool for 120 days after the creation of the estate in return for a fair-market-value fee, as determined by the trustee in consultation with the applicable covered bond regulator, that shall be payable from the estate as an administrative expense.CommentsClose CommentsPermalink
(B) OBLIGATIONS ABSOLUTE- Neither the issuer, whether acting as debtor in possession or in any other capacity, nor any conservator, receiver, liquidating agent, or trustee in bankruptcy for the issuer or any other assets of the issuer may disaffirm, repudiate, or reject the obligation to turn over property or to continue servicing the cover pool as provided in subparagraph (A).CommentsClose CommentsPermalink
(d) Administration and Resolution of Estates-CommentsClose CommentsPermalink
(1) TRUSTEE, SERVICER, AND ADMINISTRATOR-CommentsClose CommentsPermalink
(A) IN GENERAL- Upon the creation of any estate under subsection (b)(1) or (c)(2), the applicable covered bond regulator shall--CommentsClose CommentsPermalink
(i) act as or appoint the trustee for the estate;CommentsClose CommentsPermalink
(ii) appoint 1 or more servicers or administrators for the cover pool held by the estate; andCommentsClose CommentsPermalink
(iii) give the Secretary, the applicable indenture trustee, the applicable covered bondholders, and the owner of the residual interest written notice of the creation of the estate.CommentsClose CommentsPermalink
(B) TERMS AND CONDITIONS OF APPOINTMENT- All terms and conditions of any appointment under paragraph (1), including the terms and conditions relating to compensation, shall conform to the requirements of this Act and the oversight program and otherwise shall be determined by the applicable covered bond regulator.CommentsClose CommentsPermalink
(C) QUALIFICATION- The applicable covered bond regulator may require the trustee or any servicer or administrator for an estate to post in favor of the United States, for the benefit of the estate, a bond that is conditioned on the faithful performance of the duties of the trustee or the servicer or administrator. The covered bond regulator shall determine the amount of any bond required under this subparagraph and the sufficiency of the surety on the bond. A proceeding on a bond required under this subparagraph may not be commenced after two years after the date on which the trustee or the servicer or administrator was discharged.CommentsClose CommentsPermalink
(D) POWERS AND DUTIES OF TRUSTEE- The trustee for an estate is the representative of the estate and, subject to the provisions of this Act, has capacity to sue and be sued. The trustee shall--CommentsClose CommentsPermalink
(i) administer the estate in compliance with this Act, the oversight program, and the related transaction documents;CommentsClose CommentsPermalink
(ii) be accountable for all property of the estate that is received by the trustee;CommentsClose CommentsPermalink
(iii) make a final report and file a final account of the administration of the estate with the applicable covered bond regulator; andCommentsClose CommentsPermalink
(iv) after the estate has been fully administered, close the estate.CommentsClose CommentsPermalink
(E) POWERS AND DUTIES OF SERVICER OR ADMINISTRATOR- Any servicer or administrator for an estate--CommentsClose CommentsPermalink
(i) shall--CommentsClose CommentsPermalink
(I) collect, realize on (by liquidation or other means), and otherwise manage the cover pool held by the estate in compliance with this Act, the oversight program, and the related transaction documents and in a manner consistent with maximizing the value and the proceeds of the cover pool;CommentsClose CommentsPermalink
(II) deposit or invest all proceeds and funds received in compliance with this Act, the oversight program, and the related transaction documents and in a manner consistent with maximizing the net return to the estate, taking into account the safety of the deposit or investment; andCommentsClose CommentsPermalink
(III) apply, or direct the trustee for the estate to apply, all proceeds and funds received and the net return on any deposit or investment to make distributions in compliance with paragraphs (3) and (4);CommentsClose CommentsPermalink
(ii) may borrow funds or otherwise obtain credit, for the benefit of the estate, in compliance with paragraph (2) on a secured or unsecured basis and on a priority, pari passu, or subordinated basis;CommentsClose CommentsPermalink
(iii) shall, at the times and in the manner required by the applicable covered bond regulator, submit to the covered bond regulator, the Secretary, the applicable indenture trustee, the applicable covered bondholders, the owner of the residual interest, and any other person designated by the covered bond regulator, reports that describe the activities of the servicer or administrator on behalf of the estate, the performance of the cover pool held by the estate, and distributions made by the estate; andCommentsClose CommentsPermalink
(iv) shall assist the trustee in preparing the final report and the final account of the administration of the estate.CommentsClose CommentsPermalink
(F) SUPERVISION OF TRUSTEE, SERVICER, AND ADMINISTRATOR- The applicable covered bond regulator shall supervise the trustee and any servicer or administrator for an estate. The covered bond regulator shall require that all reports submitted under subparagraph (E)(iii) do not contain any untrue statement of a material fact and do not omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading.CommentsClose CommentsPermalink
(G) REMOVAL AND REPLACEMENT OF TRUSTEE, SERVICER, AND ADMINISTRATOR- If the covered bond regulator determines that it is in the best interests of an estate, the covered bond regulator may remove or replace the trustee or any servicer or administrator for the estate. The removal of the trustee or any servicer or administrator does not abate any pending action or proceeding involving the estate, and any successor or other trustee, servicer, or administrator shall be substituted as a party in the action or proceeding.CommentsClose CommentsPermalink
(H) PROFESSIONALS- The trustee or any servicer or administrator for an estate may employ 1 or more attorneys, accountants, appraisers, auctioneers, or other professional persons to represent or assist the trustee or the servicer or administrator in carrying out its duties. The employment of any professional person and all terms and conditions of employment, including the terms and conditions relating to compensation, shall conform to the requirements of this Act and the oversight program and otherwise shall be subject to the approval of the applicable covered bond regulator.CommentsClose CommentsPermalink
(I) APPROVED FEES AND EXPENSES- Unless otherwise provided in the applicable terms and conditions of appointment or employment, all approved fees and expenses of the trustee, any servicer or administrator, or any professional person employed by the trustee or any servicer or administrator shall be payable from the estate as administrative expenses.CommentsClose CommentsPermalink
(J) ACTIONS BY OR ON BEHALF OF ESTATE- The trustee or any servicer or administrator for an estate may commence or continue judicial, administrative, or other actions, in the name of the estate or in its own name on behalf of the estate, for the purpose of collecting, realizing on, or otherwise managing the cover pool held by the estate or exercising its other powers or duties on behalf of the estate.CommentsClose CommentsPermalink
(K) ACTIONS AGAINST ESTATE- No court may issue an attachment or execution on any property of an estate. Except at the request of the applicable covered bond regulator or as otherwise provided in this subparagraph or subparagraph (J), no court may take any action to restrain or affect the resolution of an estate under this Act. No person (including the applicable indenture trustee and any applicable covered bondholder) may commence or continue any judicial, administrative, or other action against the estate, the trustee, or any servicer or administrator or take any other act to affect the estate, the trustee, or any servicer or administrator that is not expressly permitted by this Act, the oversight program, and the related transaction documents, except for a judicial or administrative action to compel the release of funds that--CommentsClose CommentsPermalink
(i) are available to the estate;CommentsClose CommentsPermalink
(ii) are permitted to be distributed under this Act and the oversight program; andCommentsClose CommentsPermalink
(iii) are permitted and required to be distributed under the related transaction documents and any contracts executed by or on behalf of the estate.CommentsClose CommentsPermalink
(L) SOVEREIGN IMMUNITY- Except in connection with a guarantee provided under paragraph (4) or any other contract executed by the applicable covered bond regulator under this section 4, the Secretary and the covered bond regulator shall be entitled to sovereign immunity in carrying out the provisions of this Act.CommentsClose CommentsPermalink
(2) BORROWINGS AND CREDIT-CommentsClose CommentsPermalink
(A) IN GENERAL- Any servicer or administrator for an estate created under subsection (b)(1) or (c)(2) may borrow funds or otherwise obtain credit, on behalf of and for the benefit of the estate, from any person in compliance with this paragraph (2) solely for the purpose of providing liquidity in the case of timing mismatches among the assets and the liabilities of the estate. Except with respect to an underwriter, section 5 of the Securities Act of 1933, the Trust Indenture Act of 1939, and any State or local law requiring registration for an offer or sale of a security or registration or licensing of an issuer of, underwriter of, or broker or dealer in a security does not apply to the offer or sale under this paragraph (2) of a security that is not an equity security.CommentsClose CommentsPermalink
(B) CONDITIONS- A servicer or administrator may borrow funds or otherwise obtain credit under subparagraph (A)--CommentsClose CommentsPermalink
(i) on terms affording the lender only claims or liens that are fully subordinated to the claims and interests of the applicable indenture trustee and the applicable covered bondholders and all other claims against and interests in the estate, except for the residual interest, if the servicer or administrator certifies to the applicable covered bond regulator that, in the business judgment of the servicer or administrator, the borrowing or credit is in the best interests of the estate and is expected to maximize the value and the proceeds of the cover pool held by the estate; orCommentsClose CommentsPermalink
(ii) on terms affording the lender claims or liens that have priority over or are pari passu with the claims or interests of the applicable indenture trustee or the applicable covered bondholders or other claims against or interests in the estate, if--CommentsClose CommentsPermalink
(I) the servicer or administrator certifies to the applicable covered bond regulator that, in the business judgment of the servicer or administrator, the borrowing or credit is in the best interests of the estate and is expected to maximize the value and the proceeds of the cover pool held by the estate; andCommentsClose CommentsPermalink
(II) the applicable covered bond regulator authorizes the borrowing or credit.CommentsClose CommentsPermalink
(C) LIMITED LIABILITY- A servicer or administrator shall not be liable for any error in business judgment when borrowing funds or otherwise obtaining credit under this paragraph (2) unless the servicer or administrator acted in bad faith or in willful disregard of its duties.CommentsClose CommentsPermalink
(D) STUDY ON BORROWINGS AND CREDIT- The Comptroller General of the United States shall conduct a study on whether the Federal reserve banks should be authorized to lend funds or otherwise extend credit to an estate under this paragraph (2) and, if so, what conditions and limits should be established to mitigate any risk that the United States Government could absorb credit losses on the cover pool held by the estate. The Comptroller General shall submit a report to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives on the results of the study not later than 6 months after the date of enactment of this Act.CommentsClose CommentsPermalink
(3) DISTRIBUTIONS BY ESTATE- All payments or other distributions by an estate shall be made at the times, in the amounts, and in the manner set forth in the covered bonds, the related transaction documents, and any contracts executed by or on behalf of the estate in compliance with this Act and the oversight program. To the extent that the relative priority of the liabilities of the estate are not specified in or otherwise ascertainable from their terms, distributions shall be made on each distribution date under the covered bonds, the related transaction documents, or any contracts executed by or on behalf of the estate--CommentsClose CommentsPermalink
(A) first, to pay accrued and unpaid superpriority claims under paragraph (2)(B)(ii);CommentsClose CommentsPermalink
(B) second, to pay accrued and unpaid administrative expense claims under paragraph (1)(I), paragraph (2)(B)(ii), section 4(b)(5)(A), or section 4(c)(6)(A);CommentsClose CommentsPermalink
(C) third, to pay--CommentsClose CommentsPermalink
(i) accrued and unpaid claims under the covered bonds and the related transaction documents according to their terms; andCommentsClose CommentsPermalink
(ii) accrued and unpaid pari passu claims under paragraph (2)(B)(ii); andCommentsClose CommentsPermalink
(D) fourth, to pay accrued and unpaid subordinated claims under paragraph (2)(B)(i).CommentsClose CommentsPermalink
(4) DISTRIBUTIONS ON RESIDUAL INTEREST- After all other claims against and interests in an estate have been fully and irrevocably paid or defeased, the trustee shall or shall cause a servicer or administrator to distribute the remainder of the estate to or at the direction of the owner of the residual interest. No interim distribution on the residual interest may be made before that time, unless the applicable covered bond regulator--CommentsClose CommentsPermalink
(A) approves the distribution after determining that all other claims against and interests in the estate will be fully, timely, and irrevocably paid according to their terms; andCommentsClose CommentsPermalink
(B) provides a guarantee, for the benefit of the estate, that all other claims against and interests in the estate will be fully, timely, and irrevocably paid according to their terms.CommentsClose CommentsPermalink
(5) CLOSING OF ESTATE- After an estate has been fully administered, the trustee shall close the estate and, except as otherwise directed by the applicable covered bond regulator, shall destroy all records of the estate.CommentsClose CommentsPermalink
(6) NO LOSS TO TAXPAYERS- Taxpayers shall bear no losses from the resolution of an estate under this Act. To the extent that the Secretary and the Corporation jointly determine that the Deposit Insurance Fund incurred actual losses that are higher because the covered bond program of an insured depository institution was subject to resolution under this Act rather than as part of the receivership of the institution under the Federal Deposit Insurance Act (
SEC. 5. SECURITIES LAW PROVISIONS.
(a) Covered Bonds Issued or Guaranteed by Banks- Any covered bond issued or guaranteed by a bank is and shall be treated as a security issued or guaranteed by a bank under section 3(a)(2) of the Securities Act of 1933, section 3(c)(3) of the Investment Company Act of 1940, and section 304(a)(4)(A) of the Trust Indenture Act of 1939. No covered bond issued or guaranteed by a bank is or shall be treated as an asset-backed security (as defined in section 3 of the Securities and Exchange Act of 1934 (
(b) Exemptions for Estates- Any estate that is or may be created under section 4(b)(1) or 4(c)(2) shall be exempt from all securities laws but--CommentsClose CommentsPermalink
(1) shall be subject to the reporting requirements established by the applicable covered bond regulator under section 4(d)(1)(E)(iii); andCommentsClose CommentsPermalink
(2) shall succeed to any requirement of the issuer to file such periodic information, documents, and reports in respect of the covered bonds as specified in section 13(a) of the Securities and Exchange Act of 1934 (
(c) Exemptions for Residual Interests- Any residual interest in an estate that is or may be created under section 4(b)(1) or 4(c)(2) shall be exempt from all securities laws.CommentsClose CommentsPermalink
SEC. 6. MISCELLANEOUS PROVISIONS.
(a) Domestic Securities- Section 106(a)(1) of the Secondary Mortgage Market Enhancement Act of 1984 (
(1) in subparagraph (C), by striking ‘or’ at the end;CommentsClose CommentsPermalink
(2) in subparagraph (D), by adding ‘or’ at the end; andCommentsClose CommentsPermalink
(3) by inserting after subparagraph (D) the following:CommentsClose CommentsPermalink
‘(E) covered bonds (as defined in section 2 of the United States Covered Bond Act of 2011),’.CommentsClose CommentsPermalink
(b) No Tax Implications- Any estate created under section 4(b)(1) or 4(c)(2) shall not be treated as an entity subject to taxation separate from the owner of the residual interest for purposes of the Internal Revenue Code of 1986 (
(c) Real Estate Mortgage Investment Conduits- Section 860G(a)(3) of the Internal Revenue Code of 1986 (
(1) in subparagraph (B), by striking ‘and’ at the end;CommentsClose CommentsPermalink
(2) in subparagraph (C), by striking the period and inserting ‘, and’; andCommentsClose CommentsPermalink
(3) by inserting after subparagraph (C) the following:CommentsClose CommentsPermalink
‘(D) covered bonds that are secured by eligible assets from the residential mortgage asset class, the home equity asset class, or the commercial mortgage asset class, as such terms are defined in section 2 of the United States Covered Bond Act of 2011.’.CommentsClose CommentsPermalink
(d) Real Estate Investment Trusts- To the extent provided by regulations that may be promulgated by the Secretary, a covered bond described in section 860G(a)(3)(D) of the Internal Revenue Code of 1986 (
(e) Investment Treatment for Tax Purposes- The acquisition of any covered bond shall be treated as an acquisition of an investment security, and not as an acquisition of an interest in a loan or otherwise as a lending transaction, for purposes of determining the character of any related trade or business activity of the acquirer or any asset held by the acquirer under the Internal Revenue Code of 1986 (
(f) State and Local Taxes- The Secretary may promulgate regulations under this Act that are similar to the provisions of
(1) if an estate created under section 4(b)(1) or 4(c)(2) is not treated as an entity subject to taxation separate from the owner of the residual interest for purposes of the Internal Revenue Code of 1986 (
(2) if a transfer or assumption of an asset or liability to or by an estate or an eligible issuer under section 4(b) or 4(c) does not cause or constitute an event in which gain or loss is recognized under section 1001 of the Internal Revenue Code of 1986 (
(g) No Conflict- The provisions of this Act shall apply, notwithstanding any provision of the Federal Deposit Insurance Act (
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