[House Report 109-580]
[From the U.S. Government Publishing Office]
109th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 109-580
======================================================================
FHA MANUFACTURED HOUSING LOAN MODERNIZATION ACT OF 2006
_______
July 19, 2006.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Oxley, from the Committee on Financial Services, submitted the
following
R E P O R T
together with
[To accompany H.R. 4804]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 4804) to modernize the manufactured housing loan
insurance program under title I of the National Housing Act,
having considered the same, report favorably thereon with an
amendment and recommend that the bill as amended do pass.
CONTENTS
Page
Amendment........................................................ 2
Purpose and Summary.............................................. 4
Background and Need for Legislation.............................. 5
Hearings......................................................... 6
Committee Consideration.......................................... 6
Committee Votes.................................................. 6
Committee Oversight Findings..................................... 6
Performance Goals and Objectives................................. 6
New Budget Authority, Entitlement Authority, and Tax Expenditures 7
Committee Cost Estimate.......................................... 7
Congressional Budget Office Estimate............................. 7
Federal Mandates Statement....................................... 10
Advisory Committee Statement..................................... 10
Constitutional Authority Statement............................... 10
Applicability to Legislative Branch.............................. 10
Section-by-Section Analysis of the Legislation................... 11
Changes in Existing Law Made by the Bill, as Reported............ 12
Amendment
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This title may be cited as the ``FHA Manufactured Housing Loan
Modernization Act of 2006''.
SEC. 2. FINDINGS AND PURPOSES.
(a) Findings.--The Congress finds that--
(1) manufactured housing plays a vital role in providing
housing for low- and moderate-income families in the United
States;
(2) the FHA title I insurance program for manufactured home
loans traditionally has been a major provider of mortgage
insurance for home-only transactions;
(3) the manufactured housing market is in the midst of a
prolonged downturn which has resulted in a severe contraction
of traditional sources of private lending for manufactured home
purchases;
(4) during past downturns the FHA title I insurance program
for manufactured homes has filled the lending void by providing
stability until the private markets could recover;
(5) in 1992, during the manufactured housing industry's last
major recession, over 30,000 manufactured home loans were
insured under title I;
(6) in 2004, fewer than 2,000 manufactured housing loans were
insured under title I;
(7) the loan limits for title I manufactured housing loans
have not been adjusted for inflation since 1992; and
(8) these problems with the title I program have resulted in
an atrophied market for manufactured housing loans, leaving
American families who have the most difficulty achieving
homeownership without adequate financing options for home-only
manufactured home purchases.
(b) Purposes.--The purposes of this Act are--
(1) to provide adequate funding for FHA-insured manufactured
housing loans for low- and moderate-income homebuyers during
all economic cycles in the manufactured housing industry;
(2) to modernize the FHA title I insurance program for
manufactured housing loans to enhance participation by Ginnie
Mae and the private lending markets; and
(3) to adjust the low loan limits for title I manufactured
home loan insurance to reflect the increase in costs since such
limits were last increased in 1992 and to index the limits to
inflation.
SEC. 3. EXCEPTION TO LIMITATION ON FINANCIAL INSTITUTION PORTFOLIO.
The second sentence of section 2(a) of the National Housing Act (12
U.S.C. 1703(a)) is amended--
(1) by striking ``In no case'' and inserting ``Other than in
connection with a manufactured home or a lot on which to place
such a home (or both), in no case''; and
(2) by striking ``: Provided, That with'' and inserting ``.
With''.
SEC. 4. INSURANCE BENEFITS.
(a) In General.--Subsection (b) of section 2 of the National Housing
Act (12 U.S.C. 1703(b)), is amended by adding at the end the following
new paragraph:
``(8) Insurance benefits for manufactured housing loans.--Any
contract of insurance with respect to loans, advances of
credit, or purchases in connection with a manufactured home or
a lot on which to place a manufactured home (or both) for a
financial institution that is executed under this title after
the date of the enactment of the FHA Manufactured Housing Loan
Modernization Act of 2006 by the Secretary shall be conclusive
evidence of the eligibility of such financial institution for
insurance, and the validity of any contract of insurance so
executed shall be incontestable in the hands of the bearer from
the date of the execution of such contract, except for fraud or
misrepresentation on the part of such institution.''.
(b) Applicability.--The amendment made by subsection (a) shall only
apply to loans that are registered or endorsed for insurance after the
date of the enactment of this Act.
SEC. 5. MAXIMUM LOAN LIMITS.
(a) Dollar Amounts.--Paragraph (1) of section 2(b) of the National
Housing Act (12 U.S.C. 1703(b)(1)) is amended--
(1) in clause (ii) of subparagraph (A), by striking
``$17,500'' and inserting ``$24,500'';
(2) in subparagraph (C) by striking ``$48,600'' and inserting
``$68,040'';
(3) in subparagraph (D) by striking ``$64,800'' and inserting
``$90,720'';
(4) in subparagraph (E) by striking ``$16,200'' and inserting
``$22,680''; and
(5) by realigning subparagraphs (C), (D), and (E) 2 ems to
the left so that the left margins of such subparagraphs are
aligned with the margins of subparagraphs (A) and (B).
(b) Annual Indexing.--Subsection (b) of section 2 of the National
Housing Act (12 U.S.C. 1703(b)), as amended by the preceding provisions
of this Act, is further amended by adding at the end the following new
paragraph:
``(9) Annual indexing of manufactured housing loans.--The
Secretary shall develop a method of indexing in order to
annually adjust the loan limits established in subparagraphs
(A)(ii), (C), (D), and (E) of this subsection. Such index shall
be based on the manufactured housing price data collected by
the United States Census Bureau. The Secretary shall establish
such index no later than one year after the date of the
enactment of the FHA Manufactured Housing Loan Modernization
Act of 2006.''
(c) Technical and Conforming Changes.--Paragraph (1) of section 2(b)
of the National Housing Act (12 U.S.C. 1703(b)(1)) is amended--
(1) by striking ``No'' and inserting ``Except as provided in
the last sentence of this paragraph, no''; and
(2) by adding after and below subparagraph (G) the following:
``The Secretary shall, by regulation, annually increase the dollar
amount limitations in subparagraphs (A)(ii), (C), (D), and (E) (as such
limitations may have been previously adjusted under this sentence) in
accordance with the index established pursuant to paragraph (9).''.
SEC. 6. INSURANCE PREMIUMS.
Subsection (f) of section 2 of the National Housing Act (12 U.S.C.
1703(f)) is amended--
(1) by inserting ``(1) Premium Charges.--'' after ``(f)'';
and
(2) by adding at the end the following new paragraph:
``(2) Manufactured Home Loans.--Notwithstanding paragraph (1), in the
case of a loan, advance of credit, or purchase in connection with a
manufactured home or a lot on which to place such a home (or both), the
premium charge for the insurance granted under this section shall be
paid by the borrower under the loan or advance of credit, as follows:
``(A) At the time of the making of the loan, advance of
credit, or purchase, a single premium payment in an amount not
to exceed 2.25 percent of the amount of the original insured
principal obligation.
``(B) In addition to the premium under subparagraph (A),
annual premium payments during the term of the loan, advance,
or obligation purchased in an amount not exceeding 1.0 percent
of the remaining insured principal balance (excluding the
portion of the remaining balance attributable to the premium
collected under subparagraph (A) and without taking into
account delinquent payments or prepayments).
``(C) Premium charges under this paragraph shall be
established in amounts that are sufficient, but do not exceed
the minimum amounts necessary, to maintain a negative credit
subsidy for the program under this section for insurance of
loans, advances of credit, or purchases in connection with a
manufactured home or a lot on which to place such a home (or
both), as determined based upon risk to the Federal Government
under existing underwriting requirements.
``(D) The Secretary may increase the limitations on premium
payments to percentages above those set forth in subparagraphs
(A) and (B), but only if necessary, and not in excess of the
minimum increase necessary, to maintain a negative credit
subsidy as described in subparagraph (C).''.
SEC. 7. TECHNICAL CORRECTIONS.
(a) Dates.--Subsection (a) of section 2 of the National Housing Act
(12 U.S.C. 1703(a)) is amended--
(1) by striking ``on and after July 1, 1939,'' each place
such term appears; and
(2) by striking ``made after the effective date of the
Housing Act of 1954''.
(b) Authority of Secretary.--Subsection (c) of section 2 of the
National Housing Act (12 U.S.C. 1703(c)) is amended to read as follows:
``(c) Handling and Disposal of Property.--
``(1) Authority of secretary.--Notwithstanding any other
provision of law, the Secretary may--
``(A) deal with, complete, rent, renovate, modernize,
insure, or assign or sell at public or private sale, or
otherwise dispose of, for cash or credit in the
Secretary's discretion, and upon such terms and
conditions and for such consideration as the Secretary
shall determine to be reasonable, any real or personal
property conveyed to or otherwise acquired by the
Secretary, in connection with the payment of insurance
heretofore or hereafter granted under this title,
including any evidence of debt, contract, claim,
personal property, or security assigned to or held by
him in connection with the payment of insurance
heretofore or hereafter granted under this section; and
``(B) pursue to final collection, by way of
compromise or otherwise, all claims assigned to or held
by the Secretary and all legal or equitable rights
accruing to the Secretary in connection with the
payment of such insurance, including unpaid insurance
premiums owed in connection with insurance made
available by this title.
``(2) Advertisements for proposals.--Section 3709 of the
Revised Statutes shall not be construed to apply to any
contract of hazard insurance or to any purchase or contract for
services or supplies on account of such property if the amount
thereof does not exceed $25,000.
``(3) Delegation of authority.--The power to convey and to
execute in the name of the Secretary, deeds of conveyance,
deeds of release, assignments and satisfactions of mortgages,
and any other written instrument relating to real or personal
property or any interest therein heretofore or hereafter
acquired by the Secretary pursuant to the provisions of this
title may be exercised by an officer appointed by the Secretary
without the execution of any express delegation of power or
power of attorney. Nothing in this subsection shall be
construed to prevent the Secretary from delegating such power
by order or by power of attorney, in the Secretary's
discretion, to any officer or agent the Secretary may
appoint.''.
SEC. 8. REVISION OF UNDERWRITING CRITERIA.
(a) In General.--Subsection (b) of section 2 of the National Housing
Act (12 U.S.C. 1703(b)), as amended by the preceding provisions of this
Act, is further amended by adding at the end the following new
paragraph:
``(10) Financial soundness of manufactured housing program.--
The Secretary shall establish such underwriting criteria for
loans and advances of credit in connection with a manufactured
home or a lot on which to place a manufactured home (or both),
including such loans and advances represented by obligations
purchased by financial institutions, as may be necessary to
ensure that the program under this title for insurance for
financial institutions against losses from such loans, advances
of credit, and purchases is financially sound.''.
(b) Timing.--Not later than the expiration of the 6-month period
beginning on the date of the enactment of this Act, the Secretary of
Housing and Urban Development shall revise the existing underwriting
criteria for the program referred to in paragraph (10) of section 2(b)
of the National Housing Act (as added by subsection (a) of this
section) in accordance with the requirements of such paragraph.
Purpose and Summary
H.R. 4804, the ``FHA Manufactured Housing Loan
Modernization Act of 2006,'' would amend Title I of the Federal
Housing Administration (FHA) manufactured housing personal
property mortgage insurance program by encouraging more
private-sector participation in the Title I program, increasing
the availability of Title I loans for manufactured housing, and
improving access for such loans to the secondary mortgage
market. To accomplish these goals, the FHA Manufactured Housing
Modernization Act of 2006 includes several important reforms to
make the Title I manufactured housing program more relevant and
meaningful.
This legislation removes the current cap limiting FHA's
ability to insure manufactured home loans at 10 percent of each
participating lender's portfolio of loans. However, the FHA
fund would continue to be protected, by maintaining the FHA
liability limit on any single loan to 90 percent of the claim,
while lenders continue to be responsible for 10 percent of any
claim.
This bill requires FHA to insure Title I manufactured
housing loans on a loan-by-loan basis, similar to what is done
in the single-family FHA program, instead of using the current
insurance system, which insures ``bundles'' of loans. The bill
also improves the insurance claim in the case of loss, to make
it comparable to a claim under the Title II single family loan
program. These two changes are designed to significantly
improve the secondary market for Title I manufactured housing
loans, especially by bringing the Government National Mortgage
Association (GNMA) back into the business of securitizing such
loans.
Since 1992, manufactured home prices have increased over 50
percent, while loan limits have not been adjusted for
inflation, H.R. 4804 raises the maximum loan limits for
manufactured homes and lots to adjust for intervening
inflation, with annual indexing in the future, using U.S.
Census data.
To give FHA the flexibility to charge risk-based premiums
for Title I manufactured housing loans, the FHA Manufactured
Housing Modernization Act of 2006 allows an upfront premium of
up to 2.25 percent to be charged, similar to the current FHA
single-family program, as well as an annual premium of up to 1
percent to properly account for the risks of a given loan. This
legislation tightens underwriting standards for Title I loans,
which will make the securitization of these loans more
attractive to the secondary insurer.
Background and Need for Legislation
Manufactured homes continue to play an important role in
fulfilling the housing needs of many Americans. Since the early
1990s, the number of Title I personal property loans for
manufactured homes has dropped from 30,000 to 2,000, largely
because of inefficiencies in the program related to vague
underwriting standards; reduced private-sector participation;
low loan limits; a portfolio cap on Title I loans; and an
insurance process that insures loans as a ``bundle'' for each
lender, instead of insuring each loan separately, as is the
policy under Title II.
Title I of the National Housing Act was originally created
to provide government-sponsored insurance for home improvement
loans. Title II, created in tandem with Title I, authorized FHA
to insure traditional home mortgages. Decades later, personal
property manufactured home loans were added to the Title I
program, because a manufactured home on leased land was thought
to more closely resemble a home improvement than a traditional
home. This created a separate scheme for FHA mortgage insurance
securing a manufactured home on leased land and insurance
securing a manufactured home involving real property. Unlike
Title II, which mandates that FHA underwrite every loan before
issuing insurance, Title I allows lenders great discretion in
underwriting loans. Thus, FHA insures loans it has no hand in
underwriting.
In 1954, as a reaction to poor underwriting, Congress
amended Title I stipulating that FHA's exposure would be
limited to 10 percent of the principal balance of all loans
made by that particular lender. This, in turn, increased the
financial liability of the secondary insurer. An increase in
borrower defaults in the last several years has led to a
moratorium on certifying new lenders and a reduction in Title I
loans securitized by the secondary insurer. Secondary insurers
have said that if Title I's ``structural problems''--including
the consolidation of lender loans and vague underwriting
standards--are addressed, it would end the moratorium and
securitize more Title I loans. This would enable FHA to insure
more manufactured home loans, improving the ability of
individuals to obtain this type of housing.
Hearings
No hearings were held on H.R. 4804 in the 109th Congress.
Committee Consideration
The Committee on Financial Services met in open session on
June 14, 2006, and ordered reported H.R. 4804, FHA Manufactured
Housing Loan Modernization Act of 2006, as amended, to the
House by a voice vote.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. No
record votes were taken with in conjunction with the
consideration of this legislation. A motion by Mr. Oxley to
report the bill, as amended, to the House with a favorable
recommendation was agreed to by a voice vote. During the
consideration of the bill, the following amendment was
considered:
An amendment in the nature of a substitute recommended by
the Subcommittee on Housing and Community Opportunity, making
various technical and substantive changes, was AGREED TO by a
voice vote.
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the Committee has held hearings and
made findings that are reflected in this report.
Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee establishes the
following performance related goals and objectives for this
legislation:
H.R. 4804, the ``FHA Manufactured Housing Loan
Modernization Act of 2006,'' would amend Title I of the Federal
Housing Administration (FHA) mortgage insurance program by
encouraging more private-sector participation in the Title I
program, increasing the availability of Title I loans for
manufactured housing, and improving Title I access to the
secondary mortgage market. To accomplish these goals, the FHA
Manufactured Housing Modernization Act of 2006 includes several
important reforms to make the Title I manufactured housing
program more relevant and meaningful.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee adopts as its
own the estimate of new budget authority, entitlement
authority, or tax expenditures or revenues contained in the
cost estimate prepared by the Director of the Congressional
Budget Office pursuant to the Congressional Budget Act.
Committee Cost Estimate
The Committee adopts as its own the cost estimate prepared
by the Director of the Congressional Budget Office pursuant to
section 402 of the Congressional Budget Act of 1974.
Congressional Budget Office Estimate
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, July 11, 2006.
Hon. Michael G. Oxley,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 4804, the FHA
Manufactured Housing Loan Modernization Act of 2006.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Susanne S.
Mehlman.
Sincerely,
Donald B. Marron,
Acting Director.
Enclosure.
H.R. 4804--FHA Manufactured Housing Loan Modernization Act of 2006
Summary: H.R. 4804 would amend the Federal Housing
Administration's (FHA's) loan guarantee program for
manufactured housing. Under title I of the National Housing
Act, FHA insures loans for individuals for the purchase and
improvement of manufactured housing--single-family homes
constructed entirely in a controlled factory environment and
built to a federal code administered by the Department of
Housing and Urban Development (HUD). This bill would require
FHA to insure such loans on an individual basis, raise the
maximum loan limits, require FHA to charge premiums necessary
to maintain a negative credit subsidy (as estimated under the
Federal Credit Reform Act) for the loan guarantees, and make
other administrative charges to the program. Implementing the
manufactured housing loan program, like all of FHA's insurance
programs, is contingent on the enactment of appropriation laws
that provide annual commitment authority.
CBO estimates that implementing H.R. 4804 would result in a
negligible cost or savings of less than $500,000 a year over
the 2008-2011 period, assuming enactment of appropriation laws
necessary to implement the program. Until the reforms in the
bill can be fully implemented, CBO expects that continuing the
program in 2007 would cost $1 million. Increasing the number of
homeowners who obtain loan insurance for manufactured housing
could generate a minimal amount of offsetting collections
(recorded as a reduction in discretionary spending) because the
fees paid by borrowers under this program would be required to
slightly exceed the cost of expected defaults. Enacting the
bill would not affect direct spending or revenues.
H.R. 4804 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act (UMRA)
and would impose no costs on state, local, or tribal
governments.
Estimated cost to the Federal Government: For this
estimate, CBO assumes that the bill will be enacted near the
beginning of fiscal year 2007. The estimated budgetary impact
of H.R. 4804 is shown in the following table. The costs of this
legislation fall within budget function 370 (commerce and
housing credit).
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------------
2006 2007 2008 2009 2010 2011
----------------------------------------------------------------------------------------------------------------
SPENDING SUBJECT TO APPROPRIATIONS
Spending for manufactured housing loan guarantees under
current law\1\:
Budget authority\1\................................... 1 0 0 0 0 0
Estimated outlays..................................... 1 0 0 0 0 0
Proposed changes:
Estimated authorization level......................... 0 1 * * * *
Estimated outlays..................................... 0 1 * * * *
Total spending for manufactured housing loan guarantees
under H.R. 4804:
Estimated authorization level\1\...................... 1 1 * * * *
Estimated outlays..................................... 1 1 * * * *
----------------------------------------------------------------------------------------------------------------
\1\The figure for 2006 is the estimated portion of the total credit subsidy appropriated for that year that will
be used by FHA for the manufactured housing loan program.
Note: * = costs or savings of less than $500,000.
Basis of estimate
CBO estimates that over the 2008-2011 period, implementing
the manufactured housing loan program would result in costs or
savings of less than $500,000 a year. Until the reforms in the
bill can be fully implemented, continuing the loan guarantee
program would cost $1 million in 2007.
Background
The volume of manufactured housing loans guaranteed by FHA
has fallen from 30,000 per year in the 1990s to less than 2,000
loans per year in recent years. Furthermore, in the late 1980s
the Government National Mortgage Association (GNMA) experienced
significant losses from its securitization of the manufactured
housing loans. (GNMA is responsible for guaranteeing securities
backed by pools of mortgages insured by the Federal Government.
In exchange for a fee charged to lenders or issuers of the
securities, GNMA guarantees the timely payments of scheduled
principal and interest due on the pooled mortgages that back
these securities.) As a result of these losses, GNMA imposed a
moratorium on new issuers of manufactured housing loan
guarantees into its Mortgage-Backed Securities (MBS) program.
Moreover, financing options for manufactured housing are
very limited. Currently, only two private lenders participate
in the FHA program, and because no private secondary market
exists, most private lenders and insurers have no incentive to
make loans or loan guarantees for manufactured housing. Despite
the fact that there are relatively few financing options
available for manufactured housing, there are about 11 million
manufactured homes in the United States (mostly in rural
areas), according to the Manufactured Housing Institute (MHI).
Most of these manufactured houses are financed through personal
loans. Enacting this legislation would make several
programmatic changes designed to increase demand for FHA's
manufactured housing loan program.
Proposed changes
Under current law, FHA limits its loss exposure on
manufactured housing loan guarantees by capping the lender's
insurance coverage at 10 percent of the value of the lender's
portfolio for the title I program. That is, FHA only pays
lender claims amounts that are less than or equal to 10 percent
of the value of the lender's loan portfolio for the title I
loans. As a result, the amount of insurance that FHA provides
for each loan varies. Enacting H.R. 4804 would eliminate this
insurance structure for loans associated with manufactured
homes and direct FHA to insure 90 percent of each individual
loan. This change would significantly expand government
liability under the program.
Enacting this legislation also would raise the loan limits
for insuring a manufactured home by about 40 percent and would
require that the limits be indexed for inflation on an annual
basis. According to FHA, the cost of a manufactured home is
about $60,000. Current loan limits restrict the purchase of a
manufactured home to $48,000; under H.R. 4804, this limit would
increase to $68,040 after the program changes are implemented
in 2008.
Currently, borrowers are charged a 1 percent up-front fee
for a manufactured home loan guarantee. Because the fees
collected are not expected to exceed the cost of defaults, the
administration estimates that the manufactured housing loan
guarantee program has a subsidy rate of about 1 percent.
Enacting this legislation would require FHA to assess higher
premiums that would offset the costs of expected defaults to
yield an estimated negative credit subsidy rate for the
program. Based on information from FHA, CBO expects that FHA
would set the up-front premiums for borrowers at about 2.25
percent and the annual premiums at 1 percent. CBO estimates
that those fees may be sufficient to make the program's
estimated subsidy near zero, assuming that the pattern of
future default rates in this program is similar to recent
history--about 9.5 percent. Because there is essentially no
private market for manufactured housing loan guarantees to
compare to the federal program, it is uncertain whether these
higher fees would result in a program with no net cost. On
balance, CBO estimates that implementing the bill would result
in net costs or savings of less than $500,000 a year beginning
in fiscal year 2008.
Cost of Program. Based on information from FHA and MHI, CBO
estimates that it would take about one year to implement the
changes proposed under the bill. Furthermore, CBO anticipates
that significant outreach by FHA would be needed to identify
and educate prospective borrowers and lenders about the
manufactured housing program reforms. Thus, CBO estimates that
the number of loans insured under the program would begin to
grow by about 5 percent annually beginning in 2008. Assuming
this gradual increase in demand and an estimated subsidy rate
for 2008 and subsequent years that is near zero, CBO estimates
that enacting this legislation would result in a net cost or
savings of less than $500,000 a year.
CBO estimates that in 2007, while the programmatic changes
are underway, FHA would require an appropriation of about $1
million to maintain the program at its current level.
GNMA Savings. According to GNMA, the agency would consider
securitizing additional manufactured housing loans following an
evaluation of the program after the proposed changes are
implemented and to the extent FHA has begun to guarantee a
significant number of loans, most likely with a face value
close to at least $1 billion. Because CBO estimates that it
will take FHA many years to increase its business volume to
that level, we do not estimate that any additional offsetting
collections associated with GNMA's MBS program would be
generated over the next five years.
Intergovernmental and private-sector impact: H.R. 4804
contains no intergovernmental or private-sector mandates as
defined in UMRA and would impose no costs on state, local, or
tribal governments.
Estimate prepared by: Federal costs: Susanne S. Mehlman;
impact on state, local, and tribal governments: Sarah Puro;
impact on the private sector: Tyler Kruzich.
Estimate approved by: Peter H. Fontaine, Deputy Assistant
Director for Budget Analysis.
Federal Mandates Statement
The Committee adopts as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates Reform
Act.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Constitutional Authority Statement
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds that the
Constitutional Authority of Congress to enact this legislation
is provided by Article 1, section 8, clause 1 (relating to the
general welfare of the United States) and clause 3 (relating to
the power to regulate interstate commerce).
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act.
Section-by-Section Analysis of the Legislation
Section 1. Short title
This section provides the short title of this act, the
``FHA Manufactured Housing Loan Modernization Act of 2006.''
Section 2. Findings and purposes
This section outlines the findings and purposes of the
legislation. The Title I program for manufactured housing has
been underused since many of its provisions are antiquated. For
example, the loan limits for the program have not been raised
since 1992 and are woefully out of date. The legislation aims
to correct these problems.
Section 3. Exception to limitation on financial institution portfolio
This section removes a portfolio cap for manufactured
housing loans. Under current law, the Federal Housing
Administration's (FHA) insurance risk is limited to 10 percent
of the dollar value of the lender's insured portfolio. This is
computed as 10 percent of the original amount of each loan
registered for insurance, less amounts of claim payments. The
portfolio cap is one of the main impediments to Ginnie Mae's
participation in the Title I program. This section does not
affect FHA's insurance risk, which would still be limited to 90
percent of the claim for an individual loan, with the lender
responsible for 10 percent of the claim.
Section 4. Insurance benefits
This section would require FHA to use a loan-by-loan
insurance process, similar to what is used under Title II of
the National Housing Act.
Section 5. Maximum loan limits
This section raises the maximum loan limits for
manufactured homes and lots. It also requires the Secretary to
develop an index, using U.S. Census Bureau data, to annually
adjust the loan limits as necessary. Current indexes in the
National Housing Act are ill-suited for this purpose due to the
unique nature of manufactured homes.
Section 6. Insurance premiums
This section allows the Secretary to establish a flexible
premium structure, and permit risk-based pricing. This section
will allow FHA to charge an up-front premium of up to 2.25
percent, as well as an annual premium of up to 1 percent to
properly account for the risks of a given loan.
Section 7. Technical corrections
This section makes technical corrections to section 2 of
the National Housing Act.
Section 8. Revision of underwriting criteria
This section requires HUD to establish underwriting
criteria to ensure that the FHA Title I program is on sound
financial footing.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
SECTION 2 OF THE NATIONAL HOUSING ACT
Sec. 2. (a) The Secretary is authorized and empowered upon
such terms and conditions as he may prescribe, to insure banks,
trust companies, personal finance companies, mortgage
companies, building and loan associations, installment lending
companies, and other such financial institutions, which the
Secretary finds to be qualified by experience or facilities and
approves as eligible for credit insurance, against losses which
they may sustain as a result of loans and advances of credit,
and purchases of obligations representing loans and advances of
credit, made by them [on and after July 1, 1939,] for the
purpose of (i) financing alterations, repairs, and improvements
upon or in connection with existing structures or manufactured
homes, and the building of new structures, upon urban,
suburban, or rural real property (including the restoration,
rehabilitation, rebuilding, and replacement of such
improvements which have been damaged or destroyed by
earthquake, conflagration, tornado, hurricane, cyclone, flood,
or other catastrophe), by the owners thereof or by lessees of
such real property under a lease expiring not less than six
months after the maturity of the loan or advance of credit; and
for the purpose of (ii) financing the purchase of a
manufactured home to be used by the owner as his principal
residence or financing the purchase of a lot on which to place
such home and paying expenses reasonably necessary for the
appropriate preparation of such lot, including the installation
of utility connections, sanitary facilities, and paving, and
the construction of a suitable pad, or financing only the
acquisition of such a lot either with or without such
preparation by an owner of a manufactured home; and for the
purpose of financing the preservation of historic structures,
and, as used in this section, the term ``historic structures''
means residential structures which are registered in the
National Register of Historic Places or which are certified by
the Secretary of the Interior to conform to National Register
criteria; and the term ``preservation'' means restoration or
rehabilitation undertaken for such purposes as are approved by
the Secretary in regulations issued by him, after consulting
with the Secretary of the Interior. [In no case] Other than in
connection with a manufactured home or a lot on which to place
such a home (or both), in no case shall the insurance granted
by the Secretary under this section to any such financial
institution on loans, advances of credit, and purchases made by
such financial institution for such purposes [on and after July
1, 1939,] exceed 10 per centum of the total amount of such
loans, advances of credit, and purchases[: Provided, That
with]. With respect to any loan, advance of credit, or purchase
[made after the effective date of the Housing Act of 1954], the
amount of any claim for loss on any such individual loan,
advance of credit, or purchase paid by the Secretary under the
provisions of this section to a lending institution shall not
exceed 90 per centum of such loss.
After the effective date of the Housing Act of 1954, (i)
the Secretary shall not enter into contracts for insurance
pursuant to this section except with lending institutions which
are subject to the inspection and supervision of a governmental
agency required by law to make periodic examinations of their
books and accounts, and which the Secretary finds to be
qualified by experience or facilities to make and service such
loans, advances or purchases, and with such other lending
institutions which the Secretary approves as eligible for
insurance pursuant to this section on the basis of their credit
and their experience or facilities to make and service such
loans, advances or purchases; (ii) only such items as
substantially protect or improve the basic livability or
utility of properties shall be eligible for financing under
this section, and therefore the Secretary shall from time to
time declare ineligible for financing under this section any
item, product, alteration, repair, improvement, or class
thereof which he determines would not substantially protect or
improve the basic livability or utility of such properties, and
he may also declare ineligible for financing under this section
any item which he determines is especially subject to selling
abuses; and (iii) the Secretary is hereby authorized and
directed, by such regulations or procedures as he shall deem
advisable, to prevent the use of any financial assistance under
this section (1) with respect to new residential structures
(other than manufactured homes) that have not been completed
and occupied for at least six months, or (2) which would,
through multiple loans, result in an outstanding aggregate loan
balance with respect to the same structure exceeding the dollar
amount limitation prescribed in this subsection for the type of
loan involved: Provided, That this clause (iii) may in the
discretion of the Secretary be waived with respect to the
period of occupancy or completion of any such new residential
structures. The Secretary is hereby authorized and directed,
with respect to manufactured homes to be financed under this
section, to (i) prescribe minimum property standards to assure
the livability and durability of the manufactured home and the
suitability of the site on which the manufactured home is to be
located; and (ii) obtain assurances from the borrower that the
manufactured home will be placed on a site which complies with
the standards prescribed by the Secretary and with local zoning
and other applicable local requirements.
The insurance authority provided under this section may be
made available with respect to any existing manufactured home
that has not been insured under this section if such home was
constructed in accordance with the standards issued under the
National Manufactured Housing Construction and Safety Standards
Act of 1974 and it meets standards similar to the minimum
property standards applicable to existing homes insured under
title II.
Alterations, repairs, and improvements upon or in
connection with existing structures may include the provision
of fire safety equipment, energy conserving improvements, or
the installation of solar energy systems. As used in this
section--
(1) * * *
* * * * * * *
(b)(1) [No] Except as provided in the last sentence of this
paragraph, no insurance shall be granted under this section to
any such financial institution with respect to any obligation
representing any such loan, advance of credit, or purchase by
it if the amount of such loan, advance of credit, or purchase
exceeds--
(A)(i) * * *
(ii) [$17,500] $24,500 if made for the purpose of
financing alterations, repairs and improvements upon or
in connection with existing manufactured homes;
(B) $60,000 or an average amount of $12,000 per
family unit if made for the purpose of financing the
alteration, repair, improvement, or conversion of an
existing structure used or to be used as an apartment
house or a dwelling for two or more families;
(C) [$48,600] $68,040 if made for the purpose of
financing the purchase of a manufactured home;
(D) [$64,800] $90,720 if made for the purpose of
financing the purchase of a manufactured home and a
suitably developed lot on which to place the home; and
(E) [$16,200] $22,680 if made for the purpose of
financing the purchase, by an owner of a manufactured
home which is the principal residence of that owner, of
a suitably developed lot on which to place that
manufactured home, and if the owner certifies that he
or she will place the manufactured home on the lot
acquired with such loan within 6 months after the date
of such loan.
* * * * * * *
The Secretary shall, by regulation, annually increase the
dollar amount limitations in subparagraphs (A)(ii), (C), (D),
and (E) (as such limiations may have been previously adjusted
under this sentence) in accordance with the index established
pursuant to paragraph (9).
* * * * * * *
(8) Insurance benefits for manufactured housing
loans.--Any contract of insurance with respect to
loans, advances of credit, or purchases in connection
with a manufactured home or a lot on which to place a
manufactured home (or both) for a financial institution
that is executed under this title after the date of the
enactment of the FHA Manufactured Housing Loan
Modernization Act of 2006 by the Secretary shall be
conclusive evidence of the eligibility of such
financial institution for insurance, and the validity
of any contract of insurance so executed shall be
incontestable in the hands of the bearer from the date
of the execution of such contract, except for fraud or
misrepresentation on the part of such institution.
(9) Annual indexing of manufactured housing loans.--
The Secretary shall develop a method of indexing in
order to annually adjust the loan limits established in
subparagraphs (A)(ii), (C), (D), and (E) of this
subsection. Such index shall be based on the
manufactured housing price data collected by the United
States Census Bureau. The Secretary shall establish
such index no later than one year after the date of the
enactment of the FHA Manufactured Housing Loan
Modernization Act of 2006.
(10) Financial soundness of manufactured housing
program.--The Secretary shall establish such
underwriting criteria for loans and advances of credit
in connection with a manufactured home or a lot on
which to place a manufactured home (or both), including
such loans and advances represented by obligations
purchased by financial institutions, as may be
necessary to ensure that the program under this title
for insurance for financial institutions against losses
from such loans, advances of credit, and purchases is
financially sound.
[(c)(1) Notwithstanding any other provision of law, the
Secretary shall have the power, under regulations to be
prescribed by him and approved by the Secretary of the
Treasury, to assign or sell at public or private sale, or
otherwise dispose of, any evidence of debt, contract, claim,
personal property, or security assigned to or held by him in
connection with the payment of insurance heretofore or
hereafter granted under this section, and to collect or
compromise all obligations assigned to or held by him and all
legal or equitable rights accruing to him in connection with
the payment of such insurance until such time as such
obligations may be referred to the Attorney General for suit or
collection.
[(2) The Secretary is authorized and empowered (a) to deal
with, complete, rent, renovate, modernize, insure, or sell for
cash or credit in his discretion, and upon such terms and
conditions and for such consideration as the Secretary shall
determine to be reasonable, any real or personal property
conveyed to or otherwise acquired by him, in connection with
the payment of insurance heretofore or hereafter granted under
this title and (b) to pursue to final collection, by way of
compromise or otherwise, all claims against mortgagors assigned
by mortgagees to the Secretary in connection with such real or
personal property by way of deficiency or otherwise: Provided,
That section 3709 of the Revised Statutes shall not be
construed to apply to any contract of hazard insurance or to
any purchase or contract for services or supplies on account of
such property if the amount thereof does not exceed $1,000. The
power to convey and to execute in the name of the Secretary,
deeds of conveyance, deeds of release, assignments and
satisfactions of mortgages, and any other written instrument
relating to real or personal property or any interest therein
heretofore or hereafter acquired by the Secretary pursuant to
the provisions of this title may be exercised by an officer
appointed by him without the execution of any express
delegation of power or power of attorney: Provided, That
nothing in this paragraph shall be construed to prevent the
Secretary from delegating such power by order or by power of
attorney, in his discretion, to any officer or agent he may
appoint.]
(c) Handling and Disposal of Property.--
(1) Authority of secretary.--Notwithstanding any
other provision of law, the Secretary may--
(A) deal with, complete, rent, renovate,
modernize, insure, or assign or sell at public
or private sale, or otherwise dispose of, for
cash or credit in the Secretary's discretion,
and upon such terms and conditions and for such
consideration as the Secretary shall determine
to be reasonable, any real or personal property
conveyed to or otherwise acquired by the
Secretary, in connection with the payment of
insurance heretofore or hereafter granted under
this title, including any evidence of debt,
contract, claim, personal property, or security
assigned to or held by him in connection with
the payment of insurance heretofore or
hereafter granted under this section; and
(B) pursue to final collection, by way of
compromise or otherwise, all claims assigned to
or held by the Secretary and all legal or
equitable rights accruing to the Secretary in
connection with the payment of such insurance,
including unpaid insurance premiums owed in
connection with insurance made available by
this title.
(2) Advertisements for proposals.--Section 3709 of
the Revised Statutes shall not be construed to apply to
any contract of hazard insurance or to any purchase or
contract for services or supplies on account of such
property if the amount thereof does not exceed $25,000.
(3) Delegation of authority.--The power to convey and
to execute in the name of the Secretary, deeds of
conveyance, deeds of release, assignments and
satisfactions of mortgages, and any other written
instrument relating to real or personal property or any
interest therein heretofore or hereafter acquired by
the Secretary pursuant to the provisions of this title
may be exercised by an officer appointed by the
Secretary without the execution of any express
delegation of power or power of attorney. Nothing in
this subsection shall be construed to prevent the
Secretary from delegating such power by order or by
power of attorney, in the Secretary's discretion, to
any officer or agent the Secretary may appoint.
* * * * * * *
(f)(1) Premium Charges.--The Secretary shall fix a premium
charge for the insurance hereafter granted under this section,
but in the case of any obligation representing any loan,
advance of credit, or purchase, such premium charge shall not
exceed an amount equivalent to 1 per centum per annum of the
net proceeds of such loan, advance of credit, or purchase, for
the term of such obligation, and such premium charge shall be
payable in advance by the financial institution and shall be
paid at such time and in such manner as may be prescribed by
the Secretary.
(2) Manufactured Home Loans.--Notwithstanding paragraph (1),
in the case of a loan, advance of credit, or purchase in
connection with a manufactured home or a lot on which to place
such a home (or both), the premium charge for the insurance
granted under this section shall be paid by the borrower under
the loan or advance of credit, as follows:
(A) At the time of the making of the loan, advance of
credit, or purchase, a single premium payment in an
amount not to exceed 2.25 percent of the amount of the
original insured principal obligation.
(B) In addition to the premium under subparagraph
(A), annual premium payments during the term of the
loan, advance, or obligation purchased in an amount not
exceeding 1.0 percent of the remaining insured
principal balance (excluding the portion of the
remaining balance attributable to the premium collected
under subparagraph (A) and without taking into account
delinquent payments or prepayments).
(C) Premium charges under this paragraph shall be
established in amounts that are sufficient, but do not
exceed the minimum amounts necessary, to maintain a
negative credit subsidy for the program under this
section for insurance of loans, advances of credit, or
purchases in connection with a manufactured home or a
lot on which to place such a home (or both), as
determined based upon risk to the Federal Government
under existing underwriting requirements.
(D) The Secretary may increase the limitations on
premium payments to percentages above those set forth
in subparagraphs (A) and (B), but only if necessary,
and not in excess of the minimum increase necessary, to
maintain a negative credit subsidy as described in
subparagraph (C).
* * * * * * *