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§ 4611. —  Riskbased capital levels.



[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
  January 24, 2002 and December 19, 2002]
[CITE: 12USC4611]

 
                       TITLE 12--BANKS AND BANKING
 
              CHAPTER 46--GOVERNMENT SPONSORED ENTERPRISES
 
   SUBCHAPTER II--REQUIRED CAPITAL LEVELS FOR ENTERPRISES AND SPECIAL 
                           ENFORCEMENT POWERS
 
Sec. 4611. Risk-based capital levels


(a) Risk-based capital test

    The Director shall, by regulation, establish a risk-based capital 
test under this section for the enterprises. When applied to an 
enterprise, the risk-based capital test shall determine the amount of 
total capital for the enterprise that is sufficient for the enterprise 
to maintain positive capital during a 10-year period in which the 
following circumstances occur (in this section referred to as the 
``stress period''):

                           (1) Credit risk

        With respect to mortgages owned or guaranteed by the enterprise 
    and other obligations of the enterprise, losses occur throughout the 
    United States at a rate of default and severity (based on any 
    measurements of default reasonably related to prevailing practice 
    for that industry in determining capital adequacy) reasonably 
    related to the rate and severity that occurred in contiguous areas 
    of the United States containing an aggregate of not less than 5 
    percent of the total population of the United States that, for a 
    period of not less than 2 years, experienced the highest rates of 
    default and severity of mortgage losses, in comparison with such 
    rates of default and severity of mortgage losses in other such areas 
    for any period of such duration.

                       (2) Interest rate risk

        (A) In general

            Interest rates decrease as described in subparagraph (B) or 
        increase as described in subparagraph (C), whichever would 
        require more capital for the enterprise.

        (B) Decreases

            The 10-year constant maturity Treasury yield decreases 
        during the first year of the stress period and will remain at 
        the new level for the remainder of the stress period. The yield 
        decreases to the lesser of--
                (i) 600 basis points below the average yield during the 
            preceding 9 months, or
                (ii) 60 percent of the average yield during the 
            preceding 3 years,

        but in no case to a yield less than 50 percent of the average 
        yield during the preceding 9 months.

        (C) Increases

            The 10-year constant maturity Treasury yield increases 
        during the first year of the stress period and will remain at 
        the new level for the remainder of the stress period. The yield 
        increases to the greater of--
                (i) 600 basis points above the average yield during the 
            preceding 9 months, or
                (ii) 160 percent of the average yield during the 
            preceding 3 years,

        but in no case to a yield greater than 175 percent of the 
        average yield during the preceding 9 months.

        (D) Different terms to maturity

            Yields of Treasury instruments with other terms to maturity 
        will change relative to the 10-year constant maturity Treasury 
        yield in patterns and for durations that are reasonably related 
        to historical experience and are judged reasonable by the 
        Director.

        (E) Large increases in yields

            If the 10-year constant maturity Treasury yield is assumed 
        to increase by more than 50 percent over the average yield 
        during the preceding 9 months, the Director shall adjust the 
        losses in paragraphs (1) and (3) to reflect a correspondingly 
        higher rate of general price inflation.

                          (3) New business

        (A) In general

            Any contractual commitments of the enterprise to purchase 
        mortgages or issue securities will be fulfilled. The 
        characteristics of resulting mortgage purchases, securities 
        issued, and other financing will be consistent with the 
        contractual terms of such commitments, recent experience, and 
        the economic characteristics of the stress period. No other 
        purchases of mortgages shall be assumed, except as provided in 
        subparagraph (B).

        (B) Additional new business

            The Director may, after consideration of each of the studies 
        required by subparagraph (C), assume that the enterprise 
        conducts additional new business during the stress period 
        consistent with the following--
            (i) Amount and product types

                The amount and types of mortgages purchased and their 
            financing will be reasonably related to recent experience 
            and the economic characteristics of the stress period.
            (ii) Losses

                Default and loss severity characteristics of mortgages 
            purchased will be reasonably related to historical 
            experience.
            (iii) Pricing

                Prices charged by the enterprise in purchasing new 
            mortgages will be reasonably related to recent experience 
            and the economic characteristics of the stress period. The 
            Director may assume that a reasonable period of time would 
            lapse before the enterprise would recognize and react to the 
            characteristics of the stress period.
            (iv) Interest rate risk

                Interest rate risk on new mortgages purchased will occur 
            to an extent reasonably related to historical experience.
            (v) Reserves

                The enterprise must maintain reserves during and at the 
            end of the stress period on new business conducted during 
            the first 5 years of the stress period reasonably related to 
            the expected future losses on such business, consistent with 
            generally accepted accounting principles and industry 
            accounting practice.

        (C) Studies

            Within 1 year after regulations are first issued under 
        subsection (e) of this section, the Director of the 
        Congressional Budget Office, and the Comptroller General of the 
        United States shall each submit to the Committee on Banking, 
        Housing, and Urban Affairs of the Senate and the Committee on 
        Banking, Finance and Urban Affairs of the House of 
        Representatives a study of the advisability and appropriate form 
        of any new business assumptions under subparagraph (B).

        (D) Effective date

            The provisions of subparagraph (B) shall become effective 4 
        years after regulations are first issued under subsection (e) of 
        this section.

                        (4) Other activities

        Losses or gains on other activities, including interest rate and 
    foreign exchange hedging activities, shall be determined by the 
    Director, on the basis of available information, to be consistent 
    with the stress period.

(b) Considerations

                           (1) In general

        In establishing the risk-based capital test under subsection (a) 
    of this section, the Director shall take into account appropriate 
    distinctions among types of mortgage products, differences in 
    seasoning of mortgages, and any other factors the Director considers 
    appropriate.

                           (2) Consistency

        Characteristics of the stress period other than those 
    specifically set forth in subsection (a) of this section, such as 
    prepayment experience and dividend policies, will be those 
    determined by the Director, on the basis of available information, 
    to be most consistent with the stress period.

(c) Risk-based capital level

    For purposes of this subchapter, the risk-based capital level for an 
enterprise shall be equal to the sum of the following amounts:

                  (1) Credit and interest rate risk

        The amount of total capital determined by applying the risk-
    based capital test under subsection (a) of this section to the 
    enterprise.

                 (2) Management and operations risk

        To provide for management and operations risk, 30 percent of the 
    amount of total capital determined by applying the risk-based 
    capital test under subsection (a) of this section to the enterprise.

(d) Definitions

    For purposes of this section:

                            (1) Seasoning

        The term ``seasoning'' means the change over time in the ratio 
    of the unpaid principal balance of a mortgage to the value of the 
    property by which such mortgage loan is secured, determined on an 
    annual basis by region, in accordance with the Constant Quality Home 
    Price Index published by the Secretary of Commerce (or any index of 
    similar quality, authority, and public availability that is 
    regularly used by the Federal Government).

                    (2) Type of mortgage product

        The term ``type of mortgage product'' means a classification of 
    one or more mortgage products, as established by the Director, which 
    have similar characteristics from each set of characteristics under 
    the following subparagraphs:
            (A) The property securing the mortgage is--
                (i) a residential property consisting of 1 to 4 dwelling 
            units; or
                (ii) a residential property consisting of more than 4 
            dwelling units.

            (B) The interest rate on the mortgage is--
                (i) fixed; or
                (ii) adjustable.

            (C) The priority of the lien securing the mortgage is--
                (i) first; or
                (ii) second or other.

            (D) The term of the mortgage is--
                (i) 1 to 15 years;
                (ii) 16 to 30 years; or
                (iii) more than 30 years.

            (E) The owner of the property is--
                (i) an owner-occupant; or
                (ii) an investor.

            (F) The unpaid principal balance of the mortgage--
                (i) will amortize completely over the term of the 
            mortgage and will not increase significantly at any time 
            during the term of the mortgage;
                (ii) will not amortize completely over the term of the 
            mortgage and will not increase significantly at any time 
            during the term of the mortgage; or
                (iii) may increase significantly at some time during the 
            term of the mortgage.

            (G) Any other characteristics of the mortgage, as the 
        Director may determine.

(e) Regulations

                            (1) Issuance

        The Director shall issue final regulations establishing the 
    risk-based capital test under this section not later than the 
    expiration of the 18-month period beginning on the date of the 
    appointment of the Director. Such regulations shall be issued after 
    notice and opportunity for public comment pursuant to the provisions 
    of section 553 of title 5 and shall take effect upon issuance.

                            (2) Contents

        The regulations under this subsection shall contain specific 
    requirements, definitions, methods, variables, and parameters used 
    under the risk-based capital test and in implementing the test (such 
    as loan loss severity, float income, loan-to-value ratios, taxes, 
    yield curve slopes, default experience, and prepayment rates). The 
    regulations shall be sufficiently specific to permit an individual 
    other than the Director to apply the test in the same manner as the 
    Director.

                 (3) Confidentiality of information

        Any person that receives any book, record, or information from 
    the Director or an enterprise to enable the risk-based capital test 
    to be applied shall--
            (A) maintain the confidentiality of the book, record, or 
        information in a manner that is generally consistent with the 
        level of confidentiality established for the material by the 
        Director or the enterprise; and
            (B) be exempt from section 552 of title 5 with respect to 
        the book, record, or information.

(f) Availability of model

    The Director shall provide copies of the statistical model or models 
used to implement the risk-based capital test under this section to the 
Secretary, the Board of Governors of the Federal Reserve System, the 
Director of the Office of Management and Budget, the Comptroller General 
of the United States, and the Director of the Congressional Budget 
Office. The Director shall make copies of such model or models available 
for public acquisition and may charge a reasonable fee for such copies.

(Pub. L. 102-550, title XIII, Sec. 1361, Oct. 28, 1992, 106 Stat. 3972.)

                         Change of Name

    Committee on Banking, Finance and Urban Affairs of House of 
Representatives treated as referring to Committee on Banking and 
Financial Services of House of Representatives by section 1(a) of Pub. 
L. 104-14, set out as a note preceding section 21 of Title 2, The 
Congress. Committee on Banking and Financial Services of House of 
Representatives abolished and replaced by Committee on Financial 
Services of House of Representatives, and jurisdiction over matters 
relating to securities and exchanges and insurance generally transferred 
from Committee on Energy and Commerce of House of Representatives by 
House Resolution No. 5, One Hundred Seventh Congress, Jan. 3, 2001.

                  Section Referred to in Other Sections

    This section is referred to in sections 1426, 1452, 1718, 4542, 
4614, 4615 of this title.



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