Image: Amur leopard, a critically endangered species. Source:
World Wildlife Fund
According to a recent Forbes article, America ranks as the best
country for female entrepreneurship. That’s “good.” On the other
hand, the “bad” is that companies founded by women entrepreneurs are
less likely to be funded by a venture capital firm than the Earth being struck
by an asteroid, as I discussed previously in this space.
That’s “not so bad,” though. Women entrepreneurs are
not missing out on much by not being funded by venture capital firms =>
since venture capital firms fund only approximately five of every 10,000
startups in America, according to Entrepreneur.com.
The “worst,” news, however, is that women
entrepreneurs will join their male counterparts in struggling to raise capital
to keep their businesses alive because of the lack of investment capital for
start-up businesses in America as a whole.
This lack of investment capital for US start-up businesses is an
endemic problem. Like an invisible chain, it extends across the length and
breadth of the US and restrains an entire ecosystem, beginning with startups in
a garage, and extending to OTC Markets traded companies, and further extending
to smaller-cap publicly listed companies.
Without sufficient capital, these businesses fail.
Predictably, many would-be entrepreneurs decide to keep their
day jobs rather than taking the entrepreneurial leap when they see the
businesses of their friends, neighbors, or relatives go “out of business” and
the often-consequent loss of life savings and the family home.
With this background in mind, you might be thinking that fewer
and fewer Americans want to become entrepreneurs today than in previous years.
You are correct.
The data demonstrates that entrepreneurship in America is dying.
In February of this year, Mr. David Weild IV, “Father of JOBS Act
1.0,” former Vice Chairman of NASDAQ and New York investment banker, gave
a presentation at The Yale Club of NYC. The JOBS Act, signed into law by
President Obama in 2012, was a great start for the movement to level the
playing field for emerging growth companies, but even Mr. Weild will tell you
that more needs to be done.
The presentation included a “heat” map, derived from
Census Bureau statistics of US business formations by state per capita. The
heat map shows business startups by state, per capita, in 2006 versus 2017. In
2006, the map shows much of the US as dark red, connoting high numbers of
startups per capita. Disturbingly, in 2017, the map shows much of the US as
pale pink, connoting a paucity of startups.
Business Formations within 4 Quarters by State – Per 1,000
People
And, while entrepreneurship in America is dying, so are the US public markets according to some. Others say the public markets are inhospitable to smaller cap companies or that the public markets are “broken.” Regardless of the choice of words, the US public capital markets are no longer the envy of the world, as they once were. To wit:
(1) 3,500 (40%) of the approximate 8,700 NASDAQ/NYSE trading
symbols (mainly smaller-cap issuers) have average daily trading volumes under
50,000 shares per day, and approximately 50% had volumes under 100,000 per day,
according to the SEC.
(2) There are approximately 50% fewer public companies today
than 20 years ago.
(3) The number of book runners for smaller IPOs (<$100
million in proceeds) has decreased from 162 in 1994 to 31 in 2014.
Americans are struggling. The US public markets are dying.
Entrepreneurship is dying. It’s time for Congress or the SEC, or both, to adopt
pro-capital formation policies before matters continue to get worse. If not
remediated, the US will forfeit its position as the financial capital of the
world. And, that would be really, really bad.
More on this topic to follow.
Article originally published on November 25, 2019 by equities. com here.
MONDAY, DECEMBER 10TH
On Monday, the House will meet at 12:00 p.m. for morning hour and 2:00 p.m. for legislative business. Votes will be postponed until 6:30 p.m.
One Minute Speeches
Legislation Considered Under Suspension of the Rules:
1) H.R. 5513 – Big Bear Land Exchange Act, as amended (Sponsored by Rep. Paul Cook / Natural Resources Committee)
2) H.R. 6108 – Preserving America’s Battlefields Act, as amended (Sponsored by Rep. Jody Hice / Natural Resources Committee)
3) H.R. 3008 – George W. Bush Childhood Home Study Act (Sponsored by Rep. Michael Conaway / Natural Resources Committee)
4) H.R. 6118 – To direct the Secretary of the Interior to annually designate at least one city in the United States as an American World War II Heritage City, and for other purposes, as amended (Sponsored by Rep. David Rouzer / Natural Resources Committee)
5) H.R. 6665 – Offshore Wind for Territories Act, as amended (Sponsored by Rep. Madeleine Bordallo / Natural Resources Committee)
6) H.Res. 792 – Urging the Secretary of the Interior to recognize the historical significance of Roberto Clemente’s place of death near Piñones in Loíza, Puerto Rico, by adding it to the National Register of Historic Places, as amended (Sponsored by Rep. José Serrano / Natural Resources Committee)
7) S. 245 – Indian Tribal Energy Development and Self-Determination Act Amendments of 2017 (Sponsored by Sen. John Hoeven / Natural Resources Committee)
8) S. 825 – Southeast Alaska Regional Health Consortium Land Transfer Act of 2017 (Sponsored by Sen. Lisa Murkowski / Natural Resources Committee)
9) S. 2511 – CENOTE Act of 2018, as amended (Sponsored by Sen. Roger Wicker / Natural Resources Committee)
10) H.R. 6893 – Secret Service Overtime Pay Extension Act, as amended (Sponsored by Rep. Steve Russell / Oversight and Government Reform Committee)
11) House Amendment to S. 2248 – Veterans Benefit and Transition Act of 2018 (Sponsored by Rep. Phil Roe / Veterans Affairs Committee)
WASHINGTON – Financial Services Committee Chairman Jeb Hensarling (R-TX) delivered the following speech on the House Floor today, urging the Senate to pass the “JOBS & Investor Confidence Act of 2018,” otherwise known as the JOBS Act 3.0:
“I come here today, Mr. Speaker, and I picked up a copy of this morning’s edition of the Wall Street Journal. Many Americans would consider it to be the most influential newspaper in America; but certainly at least on economic matters, I think, most would agree.
I just happened to read the lead editorial today, Mr. Speaker, and it says that the House, this body, “has done yeoman’s work shepherding bipartisan bills to expand access to capital.” Most influential paper in America. There’s a lot in between but let me go to the last sentence where it says, “The Senate shouldn’t scuttle what could be one of this congress’s better achievements.” That’s in today’s Wall Street Journal, Mr. Speaker, and the Journal’s talking about JOBS 3.0. It’s a bill that came out of this body 406-4, and its purpose, Mr. Speaker, is to promote small business, to promote entrepreneurial capitalism, to promote venture capital. Again, Mr. Speaker, it came out of this body 406-4. We couldn’t get 406-4 votes on a Mother’s Day resolution. And yet it languishes on that side of the Capitol.
So I’ve been in this body for 16 years, Mr. Speaker, and I’ve learned a few things. One of the things I’ve learned is never underestimate the Senate’s capacity to do nothing. And unfortunately, so far, the United States Senate has done nothing on a bill that passed 406-4.
Mr. Speaker, thanks to the leadership of President Donald Trump, thanks to the leadership of Speaker Paul Ryan, thanks to the leadership of Chairman Kevin Brady, we have what for most Americans – not all, but for most Americans – is the greatest economy they have had in their entire lifetime. Unemployment at a 50-year low. Cutting across all socioeconomic groups. Small business optimism, consumer optimism, off the charts. We are seeing more people come back into the labor force, and this is all great news.
But we cannot be blinded by the fact that as good as the economy is of today, we still have to concentrate on the economy of tomorrow. And we need to know, can we ensure that the seed capital is there? Can we make sure that our public policy nourishes the drivers of tomorrow’s economy, the next Amazons, the next Googles, the next Ubers; where are they going to come from?
So unfortunately, Mr. Speaker, what we have seen is that as recently as 2016, as recently as 2016, startups in America have been cut in half. And oh, incidentally the securities regulatory burden has increased by over 50% in the last 10 years, and by over 80%. It now costs, Mr. Speaker, twice as much to go public today as it did 10 years ago.
And what do we see? We see half the number of companies going public. They don’t seem to have that problem in China, Mr. Speaker, because China has over 1/3 of the world’s I.P.O.’s or initial public offerings.
Yet the United States, our I.P.O.’s have been cut in half. That’s why it’s so important that every Congress, every Congress we go back and we ensure that our securities laws are written in such a way that we make sure that entrepreneurial capitalism can’t just survive in America, but absolutely thrive. So I come to this floor again to ask that our colleagues on the other side of the Capitol, and I have many friends in that body, but I am often confused why, why they cannot act on something that has received incredible, incredible support in the House.
Mr. Speaker, November is National Entrepreneurship Month. There’s only two days left in the month. So I hope that my voice can be heard on the other side of the Capitol, and I would ask the United States Senate to immediately take up the JOBS 3.0 Act, and make sure that the economy of tomorrow for our children and grandchildren is as healthy and thriving as the economy of today.”
MONDAY, NOVEMBER 26TH
On Monday, no votes are expected in the House.
TUESDAY, NOVEMBER 27TH
On Tuesday, the House will meet at 12:00 p.m. for morning hour and 2:00 p.m. for legislative business. Votes will be postponed until 6:30 p.m.
Legislation Considered Under Suspension of the Rules:
1) Concurring in the Senate Amendment to H.R. 4254 – Women in Aerospace Education Act (Sponsored by Rep. Steve Knight / Science, Space, and Technology Committee)
2) S. 1768 – National Earthquake Hazards Reduction Program Reauthorization Act of 2017 (Sponsored by Sen. Dianne Feinstein / Science, Space, and Technology Committee)
3) H.R. 5273 – Global Fragility and Violence Reduction Act of 2018 (Sponsored by Rep. Eliot Engel / Foreign Affairs Committee)
4) H.R. 1567 – United States-Mexico Economic Partnership Act, as amended (Sponsored by Rep. Henry Cuellar / Foreign Affairs Committee)
5) H.R. 6207 – Democratic Republic of the Congo Democracy and Accountability Act of 2018, as amended (Sponsored by Rep. Chris Smith / Foreign Affairs Committee)
6) H.R. 4591 – Preventing Destabilization of Iraq Act of 2018, as amended (Sponsored by Rep. Adam Kinzinger / Foreign Affairs Committee)
7) Concurring in the Senate Amendment to H.R. 390 – Iraq and Syria Genocide Emergency Relief and Accountability Act of 2018, as amended (Sponsored by Rep. Chris Smith / Foreign Affairs Committee)
8) Concurring in the Senate Amendment to the House Amendment to S. 140 – Frank LoBiondo Coast Guard Authorization Act of 2018 (Sponsored by Sen. Jeff Flake / Transportation and Infrastructure Committee)
WEDNESDAY, NOVEMBER 28TH AND THE BALANCE OF THE WEEK
On Wednesday, the House will meet at 12:00 p.m. for legislative business.
On Thursday, the House will meet at 10:00 a.m. for morning hour and 12:00 p.m. for legislative business.
On Friday, the House will meet at 9:00 a.m. for legislative business.
Legislation Considered Under Suspension of the Rules:
1) H.R. 6032 – State of Modern Application, Research, and Trends of IoT Act (Sponsored by Rep. Bob Latta / Energy and Commerce Committee)
2) H.R. 6753 – Strengthening the Health Care Fraud Prevention Task Force Act of 2018, as amended (Sponsored by Rep. Greg Walden / Energy and Commerce Committee)
3) Concurring in the Senate Amendment to H.R. 2422 – Action for Dental Health Act of 2018 (Sponsored by Rep. Robin Kelly / Energy and Commerce Committee)
4) H.R. 2846 – Federal Agency Customer Experience Act of 2018, as amended (Sponsored by Rep. Brian Fitzpatrick / Oversight and Government Reform Committee)
5) H.R. 3121 – All-American Flag Act, as amended (Sponsored by Rep. Cheri Bustos / Oversight and Government Reform Committee)
6) H.R. 3154 – Inspector General Access Act of 2017 (Sponsored by Rep. Cedric Richmond / Oversight and Government Reform Committee)
7) H.R. 5759 – 21st Century IDEA, as amended (Sponsored by Rep. Ro Khanna / Oversight and Government Reform Committee)
8) H.R. 6777 – Settlement Agreement Information Database Act of 2018 (Sponsored by Rep. Gary Palmer / Oversight and Government Reform Committee)
9) H.R. 6901 – Federal CIO Authorization Act of 2018, as amended (Sponsored by Rep. Will Hurd / Oversight and Government Reform Committee)
10) H.R. 4326 – To designate the facility of the United States Postal Service located at 1211 Towanda Avenue in Bloomington, Illinois, as the “Sgt. Josh Rodgers Post Office”., as amended (Sponsored by Rep. Darin LaHood / Oversight and Government Reform Committee)
11) H.R. 6655 – To designate the facility of the United States Postal Service located at 44160 State Highway 299 East Suite 1 in McArthur, California, as the “Janet Lucille Oilar Post Office”. (Sponsored by Rep. Doug LaMalfa / Oversight and Government Reform Committee)
12) H.R. 6831 – To designate the facility of the United States Postal Service located at 35 West Main Street in Frisco, Colorado, as the “Patrick E. Mahany, Jr., Post Office Building”. (Sponsored by Rep. Jared Polis / Oversight and Government Reform Committee)
13) H.R. 6838 – To designate the facility of the United States Postal Service located at 128 East Carlisle Street in Marion, Kentucky, as the “Ollie M. James Post Office Building”. (Sponsored by Rep. James Comer / Oversight and Government Reform Committee)
14) H.R. 1210 – To designate the facility of the United States Postal Service located at 122 W. Goodwin Street, Pleasanton, Texas, as the “Pleasanton Veterans Post Office”. (Sponsored by Rep. Henry Cuellar / Oversight and Government Reform Committee)
15) H.R. 1211 – To designate the facility of the United States Postal Service located at 400 N. Main Street, Encinal, Texas, as the “Encinal Veterans Post Office”. (Sponsored by Rep. Henry Cuellar / Oversight and Government Reform Committee)
16) H.R. 5412 – To designate the facility of the United States Postal Service located at 25 2nd Avenue in Brentwood, New York, as the “Army Specialist Jose L. Ruiz Post Office Building”. (Sponsored by Rep. Peter King / Oversight and Government Reform Committee)
17) H.R. 6216 – To designate the facility of the United States Postal Service located at 3025 Woodgate Road in Montrose, Colorado, as the “Sergeant David Kinterknecht Post Office”. (Sponsored by Rep. Scott Tipton / Oversight and Government Reform Committee)
18) H.R. 6217 – To designate the facility of the United States Postal Service located at 241 N 4th Street in Grand Junction, Colorado, as the “Deputy Sheriff Derek Geer Post Office Building”. (Sponsored by Rep. Scott Tipton / Oversight and Government Reform Committee)
19) H.R. 6428 – Frank Leone Post Office Act (Sponsored by Rep. Josh Gottheimer / Oversight and Government Reform Committee)
20) H.R. 6621 – To designate the facility of the United States Postal Service located at 530 East Main Street in Johnson City, Tennessee, as the “Major Homer L. Pease Post Office”. (Sponsored by Rep. Phil Roe / Oversight and Government Reform Committee)
21) H.R. 6628 – To designate the facility of the United States Postal Service located at 4301 Northeast 4th Street in Renton, Washington, as the “James Marshall ‘Jimi’ Hendrix Post Office Building”. (Sponsored by Rep. Adam Smith / Oversight and Government Reform Committee)
Additional Legislative Items are Possible
Committee activity for the week of November 26 can be found here.
The Subcommittee on Housing and Insurance has rescheduled the hearing entitled “Oversight of the Federal Housing Administration” from Wednesday, November 28, 2018, at 2:00 p.m.to Wednesday, December 5 at 2:00 p.m. in room 2128 of the Rayburn House Office Building.
Witness List
The Honorable Brian D. Montgomery, Assistant Secretary for Housing, Federal Housing Commissioner, U.S. Department of Housing and Urban Development
The Monetary Policy and Trade Subcommittee will hold a hearing entitled “Evaluating the Effectiveness of the International Financial Institutions” at 9:15 a.m. on Wednesday, November 28, 2018, in Room 2128 of the Rayburn House Office Building.
This will be a one-panel hearing with The Honorable David Malpass, Under Secretary for International Affairs, U.S. Department of the Treasury as the sole witness.
This hearing will examine the Administration’s efforts to reform the World Bank, International Monetary Fund (IMF), and other international financial institutions (IFIs). A particular focus will be the Treasury Department’s strategy to incentivize IFI staff to produce demonstrable results, its oversight of major lending programs, and its examination of resource levels at the World Bank and IMF.
Paradise, CA — House Majority Leader Kevin McCarthy (CA-23) joined President Trump on his visit to California yesterday to meet with the first responders and community leaders impacted by the Camp and Woosely fires. Following the trip — which included Representatives Ken Calvert and Doug LaMalfa and California Governor Jerry Brown and Governor-elect Gavin Newsom — McCarthy appeared on Fox News’ Justice with Judge Jeanine to describe how President Trump, the Congress, and state of California have come together to help these communities respond and recover from the worst fires in the California’s history. Sadly the full scale of devastation is undetermined and there are hundreds still missing. The message from the President to all Californians during the trip was clear when he said: “Anything we can do, you know we’re here.”
A transcript of McCarthy’s interview can be found below. Or you can watch the full video here.
Photo Credit: @PressSec Sarah Sanders
“This Camp Fire up in Paradise (CA), more than 12,000 homes destroyed — the entire city down to the ground. The firefighters fighting the fire — their houses burnt down during the time. You walked in, there was just a few buildings that were still standing. The firefighters told us they broke in. The people who couldn’t get out of the city — they put them into these buildings, put the firetrucks around it, and fought the fire as it burned over the top of them to save the lives of the individuals there. This is the biggest loss California has ever had. More than 70 people have died in this fire. More than a thousand still missing.
“We have Governor Brown and Governor-elect Newsom with us. It was the four of us in the car driving, talking, seeing ways that we can work together. And I listened to Governor-elect Newsom and Governor Brown thanking this president for how fast he signed to declare a disaster so the federal funds can be there, working to make sure we can rebuild it.
“You’ve got a divided nation. And here we had a tragic situation, I just watched this president unite people that have difference of opinion. Because the first thing we are, we are all Americans. And the one thing I look for in my leader, especially in a time of need, is to show the statesmanship that I watched this president do today. And not only did he deal with these fires, he went and dealt with the recent shooting, meeting some of the families, meeting the first responders. The way this president reacts and the way the first responders react to this president because of the respect he gives them, I tell you it is a moving situation if you’ve ever been in it to see it.”
THE BIPARTISAN HOUSING FINANCE REFORM ACT SUMMARY OF KEY PROVISIONS
OVERVIEW
Americans deserve a better single family housing finance model – one that’s sustainable and built to last. Sustainable for homeowners so they can keep their homes; sustainable for taxpayers so they are never again asked to rescue an imperiled housing system; and sustainable for our nation’s economy so we avoid the boom-bust housing cycles that have hurt so many in the past.
The goal of the Bipartisan Housing Finance Reform Act is to provide a safe, sustainable, transparent, and liquid mortgage credit market for all Americans wishing to own a home.
The overarching philosophy of the Bipartisan Housing Finance Reform Act is to create an equal playing field across different ways to finance a single family mortgage, allowing risk to be allocated to those entities which are best able to manage it and avoid too-big-to-fail institutions dominating or restricting access to the mortgage market.
Instead of introducing new, unproven ideas or creating intricate new structures, the Bipartisan Housing Finance Reform Act builds on the working parts of today’s system and known successful pathways to finance mortgages.
That way it can harness the benefits of the existing framework of Ginnie Mae and the government guarantee it provides, while providing options for how to finance mortgage lending so that we maximize choice for borrowers, loan originators, and investors.
In many ways, the disaggregated Ginnie Mae issuer model that the Bipartisan Housing Finance Reform Act contemplates as a replacement for the pre-crisis GSE model is already happening, and happening with private capital not taxpayer dollars.
The Bipartisan Housing Finance Reform Act also seeks to build an affordable housing framework by providing sustainable, dedicated, and transparent funding through an affordability fee. The proposal envisions the fee would provide substantially more funding to address the supply of affordable housing options and directly target underserved individuals and markets that are heavily represented by low-income families and first-time homebuyers.
The Bipartisan Housing Finance Reform Act recognizes the importance of multifamily financing in providing housing options and affordable rental properties and seeks to preserve what works in the market today. The proposal envisions the current multifamily business of Fannie Mae and Freddie Mac will continue to function within the new multifamily housing market as entities with an explicit government guarantee of their multifamily securities provided by Ginnie Mae.
The Bipartisan Housing Finance Reform Act recognizes the importance of continuing to work on reforms that revitalize and update tax, investment, and banking laws to reflect the realities of financing mortgages in the modern age, while maintaining appropriate consumer protections and investor rights. The proposal envisions better engaging private sector capital to inform, compete with, and supplement any guarantees provided by the government to ensure a functioning mortgage market under all economic conditions.
PROVIDE BORROWERS MORE CHOICES TO OBTAIN A CONVENTIONAL MORTGAGE LOAN AND ACHIEVE HOMEOWNERSHIP
Directs Ginnie Mae to establish a new program called Ginnie Mae Plus, which preserves the 30-year fixed rate mortgage.
Offers borrowers access to conventional home loans by guaranteeing payment to investors of pooled loans backed by private credit enhancers through Ginnie Mae Plus.
Promotes a robust “to be announced” or “TBA” market for mortgage securities and preserves the liquidity of long-term traditional mortgage products through Ginnie Mae Plus.
Provides borrowers the benefit of increased options to obtain a safe and affordable loan funded with a Ginnie Mae guarantee.
Minimizes the impact on today’s mortgage rates by utilizing the working parts of today’s system and known successful pathways to finance mortgages.
Increases the liquidity for Ginnie Mae mortgage-backed securities (MBS) and lowers mortgage rates for all borrowers through an expanded pool of eligible loans that can access the Ginnie Mae guarantee.
Sets eligibility requirements for loans to qualify through Ginnie Mae Plus in a similar manner to those for loans guaranteed in the conventional loan market today, subject to: minimum down payments, maximum loan-to-value (LTV) ratios, conforming loan limits, and meeting the Qualified Mortgage (QM) criteria.
Allows borrower freedom to choose products that best match their own needs, with additional options available through standardized private capital transactions that can compete with Ginnie Mae on an equal footing.
Fosters a market that meets borrower demand without restrictions that favor certain products or financing options over others.
Phases in reforms over time, allowing continued and enhanced access to 30-year fixed rate mortgages and existing government guarantees.
UTILIZE EXISTING AVENUES FOR THE GOVERNMENT GUARANTEE AND PROTECT TAXPAYERS WITH PRIVATE CAPITAL
Removes Ginnie Mae from HUD and establishes it as an independent entity.
Continues using Ginnie Mae to guarantee the timely payment of principal and interest to investors of Ginnie Mae MBS.
Grants Ginnie Mae the authority to guarantee eligible MBS backed by private insurance provided the mortgages meet qualifications through Ginnie Mae Plus and the insurance is provided by qualified a Private Credit Enhancer (PCE).
Increases the use of private capital in the system by requiring Ginnie Mae Plus issuers to purchase credit insurance from eligible PCEs to qualify for a government guarantee in the secondary market.
Places the issuer as the last line of private capital before Ginnie Mae steps in to use government funds to pay MBS investors.
Requires any taxpayer exposure through a government guarantee to be transparent, explicit, and paid for under Ginnie Mae.
Limits the government guarantee to catastrophic losses and only attaches at the mortgage-backed security level, not at the entity-level.
Offsets the government’s catastrophic risk position through the use of private reinsurance, which would both inform the market price for catastrophic risk as well as syndicate pieces of that credit risk throughout the financial system.
Expands Ginnie Mae’s capabilities to police the financial health of all Ginnie Mae-approved issuers, monitor the application of the government guarantee, and administer affordability enhancement requirements on guaranteed loans.
INCREASE THE NUMBER OF ACCESS POINTS FOR LENDERS TO FINANCE MORTGAGES
Provides small- and medium-sized lenders more access points to finance mortgages than they have today.
Requires new mortgage funding access points to allow local institutions to maintain their relationship with the borrower.
Provides a pathway for a lender of any size to qualify as a Ginnie Mae-approved issuer and directly access the liquidity of the secondary mortgage market without the need for an intermediary.
Enhances the aggregation capabilities of the 400+ Ginnie Mae issuers today, many of which are small lenders, to allow for robust competition.
Creates certainty for community lending institutions and their mortgage finance operations by retaining cash window functions equivalent to today’s system through Small Lender Access Programs run by PCEs.
Ensures access for lenders of all sizes and prohibits price discrimination based on loan production volume.
Allows the Federal Home Loan Bank (FHLB) system to participate as a Ginnie Mae issuer and aggregate loans through a cash window for its members.
Offers the ability to finance loans secured with private capital by allowing lenders to sell or issue loans directly through a Common Securitization Platform.
MODERNIZE THE MORTGAGE CREDIT RISK SYSTEM THROUGH PRIVATE CREDIT ENHANCERS
Establishes approval and oversight criteria for Private Credit Enhancers (PCEs) as new secondary market entities that replace many of today’s functions that reside at the GSEs.
Allows PCEs to charge a guarantee fee in exchange for covering loan-level credit risk on a pool of mortgages backing a government-guaranteed MBS through Ginnie Mae.
Requires PCEs to hold a bank-like amount of capital through equity ownership, a significant amount of credit risk transfer coverage, and participation in a backstop reserve fund.
Requires PCEs to obtain external private capital in a “first loss” position to horizontally defray and syndicate credit risk to willing counterparties.
Tasks FHFA to establish regulatory capital standards that meet bank-like requirements.
Requires PCEs to hold capital that consists of equity capital and qualifying credit risk transfers sufficient to protect taxpayers in all but the most catastrophic scenario.
Establishes a Private Capital Reserves fund to backstop PCEs, capitalized by assessments on guaranteed loans through a fee set by FHFA using private sector reinsurance tools to determine current market risk conditions.
Mandates that the balance of Private Capital Reserves meet 2 percent of the total unpaid principal balance guaranteed by PCEs.
Requires private credit enhancers and other market participants to operate on a non-discriminatory basis and comply with all applicable federal rules and regulations, including the Fair Housing Act and the Equal Credit Opportunity Act.
REIGNITE THE PRIVATE LABEL MARKET THROUGH STANDARDIZATION AND A COMMON INFRASTRUCTURE PLATFORM
Establishes a new non-government, not-for-profit Mortgage Security Market Exchange (Exchange) to develop common “best practices” standards for the private securitizing, pooling, and servicing of mortgages, and operate a publicly accessible securitization outlet to match loan originators with investors.
Transforms the Common Securitization Platform (CSP) from a proprietary secondary market access point jointly owned by Fannie Mae and Freddie Mac and built only for their benefit, to an open market utility operated by the Exchange.
Offers lenders and investors for the first time a mortgage security market exchange and data repository to foster liquidity in the private label market and provide standardization of key securitization functions.
Requires the Exchange to operate the CSP in an open-access and non-discriminatory manner as a conduit for loan originators of all sizes to access the secondary market using common standards and terms in non-government transactions.
Removes barriers to private capital and provides clear, transparent, and enforceable rules for transactions that will restore market discipline, encourage innovation, and match individuals with global investors outside the government-guaranteed market.
Gives the FHFA clear ability and instructions on how to transfer ownership of the CSP from the GSEs to the Exchange.
Requires the transfer of both historical loan-level data and the underwriting technologies used by the GSEs to the Exchange and grants public access to this information.
Establishes a new mechanism with the Exchange to set and maintain the basic recordation, disclosure, and transparency “best practices” standards for the mortgage industry.
REPEAL THE GSES’ CHARTERS AND TRANSITION THEIR SUCCESSORS INTO A NEW SYSTEM WITHOUT SPECIAL PRIVILEGES OR ADVANTAGES
Places the successor de-chartered entities of Fannie Mae and Freddie Mac on a sustainable path going forward while ensuring no future market participant needs taxpayer support.
Repurposes the successor entities to the GSEs into the new system without special privileges and advantages.
Eases the transition by providing a 5-year window prior to the repeal of the GSE charters.
Places the GSEs through mandatory receivership to prevent the return of a hybrid private entity-public charter approach.
Leaves all legacy obligations in a “bad bank” structure along with a formalized guarantee to preserve liquidity in MBS market.
Repurposes the remaining infrastructure and human capital of the de-chartered GSEs into the new system through a “good bank” structure.
Restricts activities during conservatorship, including setting limitations on retained portfolios and standardizing guarantee fee pricing.
PROMOTE AFFORDABLE HOUSING, MULTIFAMILY HOUSING, AND MODERNIZATION OF OUR HOUSING FINANCE SYSTEM
Establishes bipartisan principles to promote affordable housing, multifamily housing, and modernization of our housing finance system (See Title III of Discussion Draft).
FRIDAY, NOVEMBER 16TH
On Friday, the House will meet at 9:00 a.m. for legislative business. First and last votes expected: 10:30 a.m. – 11:30 a.m.One Minute Speeches
H.R. 6784 – Manage our Wolves Act (Closed Rule, One Hour of Debate) (Sponsored by Rep. Sean Duffy / Natural Resources Committee)
Postponed Suspension Vote:
1) H.R. 5787 – Strengthening Coastal Communities Act of 2018, as amended (Sponsored by Rep. Neal Dunn / Natural Resources Committee)
See below for a discussion of HR 4015, the “Corporate Governance and Reform and Transparency Act of 2017.” The bill. which originated in the US House Financial Services Committee, was approved by the US House of Representatives in December 2017 and sent to the US Senate. The US Senate Committee on Banking, Housing, and Urban Affairs held a hearing on the bill in June 2018.
The goal of H.R. 4015 is to improve transparency in the proxy system and enhance shareholder access to investment information by requiring proxy advisory firms to register with the SEC, disclose potential conflicts of interest and codes of ethics, and make publicly available their methodologies for formulating proxy recommendations and analyses.
Each year, public companies hold shareholder meetings at which the company’s shareholders vote for the company’s directors and on other significant corporate actions that require shareholder approval. As part of this annual process, the SEC requires public companies to provide their shareholders with a proxy statement before shareholder meetings. A proxy statement includes all important facts about the matters to be voted on at a shareholder meeting, including, for example, information on board of director candidates, director compensation, executive compensation, related party transactions, securities ownership by certain beneficial owners and management, and eligible shareholder proposals. The information contained in the statement must be filed with the SEC before soliciting a shareholder vote on the election of directors and the approval of other corporate actions.
Solicitations, whether by management or shareholders, must disclose all important facts about the issues on which shareholders are asked to vote. In general, state corporate law governs shareholder voting rights, including the types of corporate actions that require shareholder approval. However, Section 14 of the Securities Exchange Act of 1934 (Exchange Act) authorizes the SEC to promulgate rules governing the solicitation of proxies for most public companies. SEC Regulation 14A governs proxy solicitations and sets forth the categories of information that must be disclosed in proxy solicitations. Regulation 14A also provides for shareholder access to certain information in connection with proxy solicitations, sets forth when a company must include a shareholder’s proposal in its proxy statement, and prohibits the making of materially false and misleading statements or omissions in connection with a proxy solicitation.
Institutional investors, including investment advisers to mutual funds and pension funds, typically hold shares in a large number of public companies. Each year, the investment advisers to these funds vote billions of shares on behalf of their clients, on thousands of proxy ballot items. In 2003, the SEC adopted a rule under the Investment Advisers Act of 1940 requiring an investment adviser that exercises voting authority over its clients’ proxies to adopt policies and procedures designed to ensure that the investment adviser votes those proxies in the best interests of its clients. The SEC’s release adopting the rule clarified that “an adviser could demonstrate that the vote was not a product of a conflict of interest if it voted client securities, in accordance with a pre-determined policy, based upon the recommendations of an independent third party.” As a result, institutional investors increased their reliance on proxy advisory firms to help them decide how to vote their shares. In 2004, the SEC staff issued, without a Commission vote, two no-action letters, which SEC Commissioner Daniel M. Gallagher described in a 2013 speech as “effectively blessing the practice of investment advisers simply voting the recommendations provided by a proxy adviser.”
Largely as a result of the SEC’s regulations, proxy advisory firms now wield outsized influence in the U.S. proxy system. Studies have shown that the two largest proxy advisory firms–Institutional Shareholder Services (ISS) and Glass Lewis & Co.–collectively make up approximately 97% of the proxy advisory industry and can control a significant percentage of shareholder votes in corporate elections, sometimes as high as 40%. This outsized influence raises important public policy concerns.
In particular, regulators, market participants, and academic observers have highlighted potential conflicts of interest inherent in the business models and activities of proxy advisory firms. For example, as indicated above, proxy advisory firms may feel pressured by their largest clients– many of whom are activist investors–to issue vote recommendations that reflect those clients’ specific agendas.
In addition, proxy advisory firms often provide voting recommendations to investment advisers on matters for which they also provide consulting services to public companies. According to a Mercatus Center study, “these consulting services are designed precisely to facilitate managers’ obtaining favorable recommendations.” Some proxy advisory firms also rate or score public companies on its governance structure, policies, and practices, which provides another avenue for proxy advisory firms to influence corporate governance practices.
Given the major role proxy advisory firms play in the U.S. proxy system through their ability to influence corporate governance standards–by supplying voting recommendations and other services despite the risk conflicts of interest, such as those described above–proxy advisory firms have become the subject of greater scrutiny. The Committee is aware of numerous instances whereby the two largest proxy advisory firms have issued vote recommendations to public company shareholders that include errors, misstatements of fact, and incomplete analysis.
Some proxy advisory firms’ recommendations have been made without any contact to the public company, and these same proxy advisory firms encourage companies to join their service in order to have the privilege to “influence” an advisory firm’s recommendations.
Regulators, market participants, and academics have argued that rather than using shareholder votes to maximize shareholder value, proxy advisory firms have instead aligned themselves with single-issue, narrow-issue shareholders, activist shareholders or unions to push social and political initiatives unrelated–and in many cases antithetical–to increasing shareholder returns. In turn, corporate governance decisions occur that are not in the best interest of shareholders and the company. Critics of proxy advisory firms attribute this hijacking of the proxy system to proxy advisory firms generally having no financial interest in a public company’s performance and owing no duty to shareholders.
In response to these concerns, on June 30, 2014, the SEC’s Division of Corporate Finance and the Division of Investment Management jointly issued a staff legal bulletin entitled “Proxy Voting: Proxy Voting Responsibilities of Investment Advisers and Availability of Exemptions from the Proxy Rules for Proxy Advisory Firms.” (“Bulletin”) The Bulletin clarifies that an investment adviser and its clients “have flexibility in determining the scope of the investment adviser’s obligation to exercise proxy voting authority” and that SEC rules do not require investment advisers to vote every proxy. The Bulletin also states that, in considering whether to obtain the assistance of a proxy advisory firm, an investment adviser should ascertain the proxy advisory firm’s “capacity and competency to adequately analyze proxy issues” and “identify and address any conflicts of interest.” The Bulletin adds that, in order to comply with SEC rules, investment advisers should adopt policies and procedures “reasonably designed to provide sufficient ongoing oversight of . . . third party [proxy advisers]” in order to ensure that proxies are voted in the best interest of the investment adviser’s clients. Finally, the Bulletin describes the exemptions available to proxy advisory firms from the filing and disclosure requirements of the SEC’s proxy rules, and clarifies that, in order to rely on these exemptions, proxy advisers must make certain disclosures regarding significant relationships and material interests, including material conflicts that may arise from consulting services or client relationships.
The Corporate Governance Reform and Transparency Act of 2017 addresses these issues in a manner that provides greater accountability and transparency in regards to the proxy advisory industry, thereby helping to ensure that the voting recommendations that proxy advisory firms provide are in fact in the interests of long-term shareholders. By requiring proxy advisory firms to disclose any potential conflicts of interest that may impact their voting recommendations, the amount of impartial information provided to investors actually will be increased, as investors for the first time can be certain that they understand the biases that may be affecting the partiality of the information they are reviewing.
Section-by-Section Analysis of the Legislation
Section 1. Short title
This Section cites H.R. 4015 as the “Corporate Governance Reform and Transparency Act of 2017.”
Section 2. Definitions
This section amends Section 3(a) of the Exchange Act by defining the term “proxy advisory firm” to mean any person registered under section 15H who is engaged in the business of providing proxy voting research, analysis, or recommendations to clients, which constitutes a solicitation; by defining “person associated with” to mean any partner, officer, employee, director or controller or under control of a proxy advisory firm.
Section 3: Registration of proxy advisory firms
This section amends the Exchange Act by inserting Section 15H. This new section states that a proxy advisory firm must file an application for registration with the Commission and disclose any potential conflicts of interest and code of ethics. Specifically, when applying for registration the proxy advisory firm must include the following information: a certification that the firm has the financial and managerial resources to provide proxy advice; the procedures and methodologies that the firm uses in developing proxy voting recommendations; the organizational structure of the firm; whether or not the firm has a code of ethics; any potential or actual conflict of interest; policies and procedures to manage conflicts of interest; and any other information that the Commission deems necessary. The Commission is directed to issue final rules regarding the form in which such information must be filed with the Commission. The Commission also is directed to issue final rules to prohibit or require the management and disclosure of any conflicts of interests related to the offering of proxy advisory services by a registered proxy advisory firm. This section further sets forth that the Commission shall issue final rules to prohibit any act that they believe is unfair, coercive, or abusive relating to the offering of proxy advisory services, as well as make publicly available all information that was provided to them by the proxy advisory firms.
Section 4: Commission annual report
This section requires that the Commission publicly release an annual report that describes the methodologies that they used for formulating proxy recommendations and analyses.
The Monetary Policy and Trade Subcommittee will hold a hearing entitled “Evaluating the Effectiveness of the International Financial Institutions” at 9:15 a.m. on Wednesday, November 28, 2018, in Room 2128 of the Rayburn House Office Building.
