Web Page Tools

TG's Legislative Report

For more information, contact:

TG Congressional and Legislative Relations
(512) 219-4503
P.O. Box 83100
Round Rock, TX 78683-3100

October 6, 2008

Congressional Update

On Friday, October 3rd, the 110th Congress passed and the President signed HR 1424 — The Emergency Economic Stabilization Act — which authorizes the Secretary of the Treasury to purchase or insure "troubled assets" held by banks as a means to inject financial liquidity into the country's banking system.

While the primary intent of the new law is to authorize the purchase/guarantee of mortgages and mortgage securitizations, the legislation also permits the Treasury Secretary to include other financial instruments deemed by the Secretary and Chairman of the Federal Reserve Bank, in consultation with the appropriate congressional committees, to be "troubled assets".

This includes federal and non-federal student loans.

Assets associated with these loans fall under the definition in Sec. 3(9) (B) of the legislation.

Sec. 103 lists the considerations the Secretary is required take into account in making a determination under Section 3(9)(B).

"Sec.3 (9) TROUBLED ASSETS.
The term "troubled assets" means (A) residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008, the purchase of which the Secretary determines promotes financial market stability; and (B) any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, to the appropriate committees of Congress."

SEC. 103. CONSIDERATIONS.
In exercising the authorities granted in this Act, the Secretary shall take into consideration

  1. protecting the interests of taxpayers by maximizing overall returns and minimizing the impact on the national debt;
  2. providing stability and preventing disruption to financial markets in order to limit the impact on the economy and protect American jobs, savings, and retirement security;
  3. the need to help families keep their homes and to stabilize communities;
  4. in determining whether to engage in a direct purchase from an individual financial institution, the long-term viability of the financial institution in determining whether the purchase represents the most efficient use of funds under this Act;
  5. ensuring that all financial institutions are eligible to participate in the program, without discrimination based on size, geography, form of organization, or the size, type, and number of assets eligible for purchase under this Act;
  6. providing financial assistance to financial institutions, including those serving low- and moderate-income populations and other underserved communities, and that have assets less than $1,000,000,000, that were well or adequately capitalized as of June 30, 2008, and that as a result of the devaluation of the preferred government-sponsored enterprises stock will drop one or more capital levels, in a manner sufficient to restore the financial institutions to at least an adequately capitalized level;
  7. the need to ensure stability for United States public instrumentalities, such as counties and cities, which may have suffered significant, increased costs or losses in the current market turmoil;
  8. protecting the retirement security of Americans by purchasing troubled assets held by or on behalf of an eligible retirement plan described in clause (iii), (iv), (v), or (vi) of section 402(c) (8) (B) of the Internal Revenue Code of 1986, except that such authority shall not extend to any compensation arrangements subject to section 409A of such Code; and
  9. the utility of purchasing other real estate owned and instruments backed by mortgages on multifamily properties.

It is important to keep in mind that, other than mortgages and mortgage-backed securities, all other types of loans and securitizations are only permitted ,at the Secretary's discretion, after applying the nine considerations, to be deemed "troubled assets" and, therefore, eligible for purchase/insurance.

The bill and supporting documents are available at http://banking.senate.gov/public/ or http://thomas.loc.gov.

A second bill filed recently by Congressman Howard "Buck" McKeon (R-CA), HR 7072, is a technical corrections bill to PL 110-227 (Ensuring Continued Access to Student Loans Act of 2008).

This legislation proposes to:

  • include rehabilitated student loans under Section 428F of the Higher Education Act (HEA) to those loans eligible to be purchased by the Department of Education from lenders under the Department's temporary authority to act as a student loan secondary market under Section 459 of the HEA;
  • allow the Department of Education to advance federal funds to eligible lenders to originate new FFELP loans; and,
  • allow the maintenance of servicing arrangements on FFELP loans purchased by the Department under its temporary Section 459 authority.

This bill is not expected to be acted upon by the 110th Congress, which is nearing its final adjournment date. However, HR 7072 will probably be refiled during the 111th Congress.

HR 7072 and supporting documents are available at http://thomas.loc.gov.

Back to Top