Secretary Paulson's enabling act (3)

Sen. Dodd's competing proposal is now available. We review the terms of his proposal in two posts.

Dodd retains the wide grant of authority

The Secretary is authorized to establish a program to purchase, and to make and fund commitments to purchase troubled assets from any financial institution, on such terms and conditions as are determined by the Secretary, and in accordance with policies and procedures developed by the Secretary

And even extends it

designating appropriate entities as financial agents of the Federal Government, authorized to perform in such capacity all such reasonable duties related to this Act as may be required;

But sets up an office to administer the program

The Secretary shall implement any program under paragraph (1) through an Office of Financial Stability... which office shall be headed by an Assistant Secretary of the Treasury.

Subject to the oversight of an Emergency Oversight Board to include the Fed, FDIC, and SEC chairmen

(A) reviewing the exercise of authority under a program developed in accordance with this Act, including—
(i) all actions taken by the Secretary and the office created under section 2, including the appointment of financial agents, the designation of asset classes to be purchased, and plans for the structure of vehicles used to purchase troubled assets; and
(ii) the effect of such actions in assisting American families in preserving home ownership, stabilizing financial markets, and protecting taxpayers; and
(B) making recommendations, as appropriate, to the Secretary regarding use of the authority under this Act.

Treasury will receive a contingent equity (or senior debt) stake when it makes a loss

In the event that the equity of the financial institution from which such troubled assets were purchased is not publicly traded on a national securities exchange, the Secretary shall acquire a senior contingent debt instrument in lieu of contingent shares, which shall automatically vest to the Secretary on behalf of the United States Treasury in an amount equal to 125 per cent of the dollar amount of the difference between the amount the Secretary paid for the troubled assets and the disposition price of such assets. The Secretary may demand payment of such contingent debt instrument under such terms and conditions as determined appropriate by the Secretary....
In the event that the equity of the financial institution from which such troubled assets were purchased is not publicly traded on a national securities exchange, the Secretary shall acquire a senior contingent debt instrument in lieu of contingent shares.

And will be immune to dilution

The instrument representing the contingent shares shall contain anti-dilution provisions of the type employed in capital market transactions, as determined by the Secretary, to protect the Secretary from transactions such as stock splits, stock distributions, dividends, and other distributions, mergers, and other reorganizations and recapitalizations.

The FDIC will manage mortgages and RMBS to limit foreclosures and will modify the underlying mortgages

the Corporation shall utilize a systematic approach for preventing foreclosures and ensuring long-term, sustainable homeownership through loan modifications and use of the HOPE for Homeowners Program established under section 257 of the National Housing Act and any other programs that may be available for such purposes.

And acquisitions of pooled MBS will be geared to acquire control over the underlying

The Secretary shall, to the
extent practicable, acquire—
(A) sufficient ownership or control of pooled residential mortgage loans, or a securitization vehicle for such loans so that the Corporation has authority to modify the underlying residential mortgage loans, either directly or through a designee; and
(B) whole residential mortgage loans, so that the Corporation may use its authority to modify the underlying residential mortgage loans, either directly or through a designee.

With foreclosed houses being made available to local government

Each Federal property manager shall make available to any State or local government that is receiving emergency assistance under section 2301 of the Foreclosure Prevention Act of 2008 (Public Law 110-289) for purchase at a discount, any properties that it owns through foreclosure in that State or locality, in order to facilitate the sale of such properties and to stabilize neighborhoods affected by foreclosures.

And 20% of the profits from asset sales going to fund the GSEs

(A) 65 percent shall be deposited into the Housing Trust Fund established under section 1338 of the Federal Housing Enterprises Regulatory Reform Act of 1992 (12 U.S.C. 4568); and
(B) 35 percent shall be deposited into the Capital Magnet Fund established under section 1339 of that Act (12 U.S.C. 4569).