BWM C.S.H.B. 3334 75(R)BILL ANALYSIS


FINANCIAL INSTITUTIONS
C.S.H.B. 3334
By: Marchant
4-15-97
Committee Report (Substituted)



BACKGROUND 

In recent years, the legislature took important, significant steps to
ensure the integrity of public funds by tightening the limitations on
appropriate investments for public units.  However, those limitations were
carried over into the Public Funds Collateral Act by reference between the
two laws. 

Many financial institutions carry collateralized mortgage obligations with
stated maturities of greater than the ten years in their portfolios.  The
Public Funds Investment Act only permits CMOs with a stated maturity of
ten years or less to be investments.  Thus these instruments are not
permitted as collateral either. 

PURPOSE

This bill amends the Public Funds Collateral Act to add collateralized
mortgage obligations which have an expected weighted average life of ten
years or less and which do not constitute a "high risk mortgage security."
When public funds investment law was amended last session to tighten
investments and create more oversight, the changes were also incorporated
into the Public Funds Collateral Act by reference.  Many financial
institutions hold collateralized mortgage obligations with a stated final
maturity of greater than ten years in their portfolios.  This bill would
allow them to use those investments as collateral. 

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly grant any
additional rulemaking authority to a state officer, department, agency or
institution. 

SECTION BY SECTION ANALYSIS

SECTION 1.   Amends Section 2257.002(5), Government Code, by adding a new
paragraph (D) and (E) to add fixed-rate and floating rate collaterized
mortgage obligations to the list of eligible securities. 
 
SECTION 2.   Amends Subchapter A, Chapter 2257, Government Code, by adding
Section 2257.0025. 

 Section 2257.0025(a).  Provides that a flat-rate collateralized mortgage
obligation is  considered a high-risk mortgage security if: 
  
  (1) the security has average life sensitivity with a weighted average
life that: 
   
   (A) extends by more than four years, or
   (B) shortens by more than six years; and

  (2) the security is price sensitive.

 Section 2257.0025(b).  Provides that a floating-rate collateralized
mortgage obligation is  considered a high-risk mortgage security if: 
 
  (1) the security bears an interest rate equal to the contractual cap on
the     instrument; or 

  (2) the security is price sensititve.


SECTION 3.   Effective date: September 1, 1997.

SECTION 4.   Emergency clause.  


COMPARISON OF ORIGINAL TO SUBSTITUTE

The Committee Substitute to HB 3334 is a Texas Legislative Council draft
of the original bill. While there are no substantive changes, the original
text has been formatted according to Legislative Council guidelines.