[House Report 109-589]
[From the U.S. Government Publishing Office]
109th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 109-589
======================================================================
EXPANDING AMERICAN HOMEOWNERSHIP ACT OF 2006
_______
July 20, 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
ADDITIONAL VIEWS
[To accompany H.R. 5121]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred the
bill (H.R. 5121) to modernize and update the National Housing
Act and enable the Federal Housing Administration to use risk-
based pricing to more effectively reach underserved borrowers,
and for other purposes, 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.............................................. 9
Background and Need for Legislation.............................. 9
Hearings......................................................... 12
Committee Consideration.......................................... 12
Committee Votes.................................................. 13
Performance Goals and Objectives................................. 13
New Budget Authority, Entitlement Authority, and Tax Expenditures 13
Committee Cost Estimate.......................................... 13
Congressional Budget Office Estimate............................. 13
Federal Mandates Statement....................................... 20
Advisory Committee Statement..................................... 20
Constitutional Authority Statement............................... 20
Applicability to Legislative Branch.............................. 20
Section-by-Section Analysis of the Legislation................... 20
Changes in Existing Law Made by the Bill, as Reported............ 24
Additional Views................................................. 49
Amendment
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Expanding American
Homeownership Act of 2006''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title and table of contents.
Sec. 2. Findings and purposes.
Sec. 3. Maximum principal loan obligation.
Sec. 4. Extension of mortgage term.
Sec. 5. Cash investment requirement.
Sec. 6. Mortgage insurance premiums.
Sec. 7. Rehabilitation loans.
Sec. 8. Discretionary action.
Sec. 9. Insurance of condominiums.
Sec. 10. Mutual Mortgage Insurance Fund.
Sec. 11. Hawaiian home lands and Indian reservations.
Sec. 12. Conforming and technical amendments.
Sec. 13. Home equity conversion mortgages.
Sec. 14. Conforming loan limit in disaster areas.
Sec. 15. Participation of mortgage brokers and correspondent lenders.
Sec. 16. Sense of Congress regarding technology for financial systems.
Sec. 17. Savings provision.
Sec. 18. Implementation.
SEC. 2. FINDINGS AND PURPOSES.
(a) Findings.--The Congress finds that--
(1) one of the primary missions of the Federal Housing
Administration (FHA) single family mortgage insurance program
is to reach borrowers who are underserved, or not served, by
the existing conventional mortgage marketplace;
(2) the FHA program has a long history of innovation, which
includes pioneering the 30-year self-amortizing mortgage and a
safe-to-seniors reverse mortgage product, both of which were
once thought too risky to private lenders;
(3) the FHA single family mortgage insurance program
traditionally has been a major provider of mortgage insurance
for home purchases;
(4) the FHA mortgage insurance premium structure, as well as
FHA's product offerings, should be revised to reflect FHA's
enhanced ability to determine risk at the loan level and to
allow FHA to better respond to changes in the mortgage market;
(5) during past recessions, including the oil-patch downturns
in the mid-1980s, FHA remained a viable credit enhancer and was
therefore instrumental in preventing a more catastrophic
collapse in housing markets and a greater loss of homeowner
equity; and
(6) as housing price appreciation slows and interest rates
rise, many homeowners and prospective homebuyers will need the
less-expensive, safer financing alternative that FHA mortgage
insurance provides.
(b) Purposes.--The purposes of this Act are--
(1) to provide flexibility to FHA to allow for the insurance
of housing loans for low- and moderate-income homebuyers during
all economic cycles in the mortgage market;
(2) to modernize the FHA single family mortgage insurance
program by making it more reflective of enhancements to loan-
level risk assessments and changes to the mortgage market; and
(3) to adjust the loan limits for the single family mortgage
insurance program to reflect rising house prices and the
increased costs associated with new construction.
SEC. 3. MAXIMUM PRINCIPAL LOAN OBLIGATION.
Paragraph (2) of section 203(b) of the National Housing Act (12
U.S.C. 1709(b)(2)) is amended--
(1) by striking subparagraphs (A) and (B) and inserting the
following new subparagraphs:
``(A) not to exceed the lesser of--
``(i) in the case of a 1-family residence,
the median 1-family house price in the area, as
determined by the Secretary; and in the case of
a 2-, 3-, or 4-family residence, the percentage
of such median price that bears the same ratio
to such median price as the dollar amount
limitation in effect under section 305(a)(2) of
the Federal Home Loan Mortgage Corporation Act
(12 U.S.C. 1454(a)(2)) for a 2-, 3-, or 4-
family residence, respectively, bears to the
dollar amount limitation in effect under such
section for a 1-family residence; or
``(ii) the dollar amount limitation
determined under such section 305(a)(2) for a
residence of the applicable size;
except that the dollar amount limitation in effect for
any area under this subparagraph may not be less than
the greater of (I) the dollar amount limitation in
effect under this section for the area on October 21,
1998, or (II) 65 percent of the dollar limitation
determined under such section 305(a)(2) for a residence
of the applicable size; and
``(B) not to exceed the appraised value of the
property, plus any initial service charges, appraisal,
inspection and other fees in connection with the
mortgage as approved by the Secretary.'';
(2) in the matter after and below subparagraph (B), by
striking the second sentence (relating to a definition of
``average closing cost'') and all that follows through ``title
38, United States Code''; and
(3) by striking the last undesignated paragraph (relating to
counseling with respect to the responsibilities and financial
management involved in homeownership).
SEC. 4. EXTENSION OF MORTGAGE TERM.
Paragraph (3) of section 203(b) of the National Housing Act (12
U.S.C. 1709(b)(3)) is amended--
(1) by striking ``thirty-five years'' and inserting ``forty
years''; and
(2) by striking ``(or thirty years if such mortgage is not
approved for insurance prior to construction)''.
SEC. 5. CASH INVESTMENT REQUIREMENT.
Paragraph (9) of section 203(b) of the National Housing Act (12
U.S.C. 1709(b)(9) is amended by striking the paragraph designation and
all that follows through ``Provided further, That for'' and inserting
the following:
``(9) Be executed by a mortgagor who shall have paid on
account of the property, in cash or its equivalent, an amount,
if any, as the Secretary may determine based on factors
determined by the Secretary and commensurate with the
likelihood of default. For''.
SEC. 6. MORTGAGE INSURANCE PREMIUMS.
Section 203(c) of the National Housing Act (12 U.S.C. 1709(c)) is
amended--
(1) in paragraph (2), in the matter preceding subparagraph
(A), by striking ``Notwithstanding'' and inserting ``Except as
provided in paragraph (3) and notwithstanding''; and
(2) by adding at the end the following new paragraph:
``(3) Flexible Risk-Based Premiums.--
``(A) In general.--For any mortgage insured by the Secretary
under this title that is secured by a 1- to 4-family dwelling
and for which the loan application is received by the mortgagee
on or after October 1, 2006, the Secretary may establish a
mortgage insurance premium structure involving a single premium
payment collected prior to the insurance of the mortgage or
periodic payments, or both, without regard to any maximum or
minimum premium amounts set forth in this subsection. The rate
of premium for such a mortgage may vary during the mortgage
term as long as the basis for determining the variable rate is
established before the execution of the mortgage. The Secretary
may change a premium structure established under this
subparagraph but only to the extent that such change is not
applied to any mortgage already executed.
``(B) Establishment and alteration of premium structure.--A
premium structure shall be established or changed under
subparagraph (A) only by providing notice to mortgagees and to
the Congress, at least 30 days before the premium structure is
established or changed.
``(C) Considerations for premium structure.--When
establishing a premium structure under subparagraph (A) or when
changing such a premium structure, the Secretary shall consider
the following:
``(i) The effect of the proposed premium structure on
the Secretary's ability to meet the operational goals
of the Mutual Mortgage Insurance Fund as provided in
section 202(a).
``(ii) Underwriting variables.
``(iii) The extent to which new pricing under the
proposed premium structure has potential for acceptance
in the private market.
``(iv) The administrative capability of the Secretary
to administer the proposed premium structure.
``(v) The effect of the proposed premium structure on
the Secretary's ability to maintain the availability of
mortgage credit and provide stability to mortgage
markets.''.
SEC. 7. REHABILITATION LOANS.
Subsection (k) of section 203 of the National Housing Act (12 U.S.C.
1709(k)) is amended--
(1) in paragraph (1), by striking ``on'' and all that follows
through ``1978''; and
(2) in paragraph (5)--
(A) by striking ``General Insurance Fund'' the first
place it appears and inserting ``Mutual Mortgage
Insurance Fund''; and
(B) in the second sentence, by striking the comma and
all that follows through ``General Insurance Fund''.
SEC. 8. DISCRETIONARY ACTION.
The National Housing Act is amended--
(1) in subsection (e) of section 202 (12 U.S.C. 1708(e))--
(A) in paragraph (3)(B), by striking ``section 202(e)
of the National Housing Act'' and inserting ``this
subsection''; and
(B) by redesignating such subsection as subsection
(f);
(2) by striking paragraph (4) of section 203(s) (12 U.S.C.
1709(s)(4)) and inserting the following new paragraph:
``(4) the Secretary of Agriculture;''; and
(3) by transferring subsection (s) of section 203 (as amended
by paragraph (2) of this section) to section 202, inserting
such subsection after subsection (d) of section 202, and
redesignating such subsection as subsection (e).
SEC. 9. INSURANCE OF CONDOMINIUMS.
(a) In General.--Section 234 of the National Housing Act (12 U.S.C.
1715y) is amended--
(1) in subsection (c)--
(A) in the first sentence--
(i) by striking ``and'' before ``(2)''; and
(ii) by inserting before the period at the
end the following: ``, and (3) the project has
a blanket mortgage insured by the Secretary
under subsection (d)''; and
(B) in clause (B) of the third sentence, by striking
``thirty-five years'' and inserting ``forty years'';
and
(2) in subsection (g), by striking ``, except that'' and all
that follows and inserting a period.
(b) Definition of Mortgage.--Section 201(a) of the National Housing
Act (12 U.S.C. 1707(a)) is amended--
(1) in clause (1), by striking ``or'' and inserting a comma;
and
(2) by inserting before the semicolon the following: ``, or
(c) a first mortgage given to secure the unpaid purchase price
of a fee interest in, or long-term leasehold interest in, a
one-family unit in a multifamily project, including a project
in which the dwelling units are attached, semi-detached, or
detached, and an undivided interest in the common areas and
facilities which serve the project''.
SEC. 10. MUTUAL MORTGAGE INSURANCE FUND.
(a) In General.--Subsection (a) of section 202 of the National
Housing Act (12 U.S.C. 1708(a)) is amended to read as follows:
``(a) Mutual Mortgage Insurance Fund.--
``(1) Establishment.--Subject to the provisions of the
Federal Credit Reform Act of 1990, there is hereby created a
Mutual Mortgage Insurance Fund (in this title referred to as
the `Fund'), which shall be used by the Secretary to carry out
the provisions of this title with respect to mortgages insured
under section 203. The Secretary may enter into commitments to
guarantee, and may guarantee, such insured mortgages.
``(2) Limit on loan guarantees.--The authority of the
Secretary to enter into commitments to guarantee such insured
mortgages shall be effective for any fiscal year only to the
extent that the aggregate original principal loan amount under
such mortgages, any part of which is guaranteed, does not
exceed the amount specified in appropriations Acts for such
fiscal year.
``(3) Fiduciary responsibility.--The Secretary has a
responsibility to ensure that the Mutual Mortgage Insurance
Fund remains financially sound.
``(4) Annual independent actuarial study.--The Secretary
shall provide for an independent actuarial study of the Fund to
be conducted annually, which shall analyze the financial
position of the Fund. The Secretary shall submit a report
annually to the Congress describing the results of such study
and assessing the financial status of the Fund. The report
shall recommend adjustments to underwriting standards, program
participation, or premiums, if necessary, to ensure that the
Fund remains financially sound.
``(5) Quarterly reports.--During each fiscal year, the
Secretary shall submit a report to the Congress for each
quarter, which shall specify for mortgages that are obligations
of the Fund--
``(A) the cumulative volume of loan guarantee
commitments that have been made during such fiscal year
through the end of the quarter for which the report is
submitted;
``(B) the types of loans insured, categorized by
risk;
``(C) any significant changes between actual and
projected claim and prepayment activity;
``(D) projected versus actual loss rates; and
``(E) updated projections of the annual subsidy rates
to ensure that increases in risk to the Fund are
identified and mitigated by adjustments to underwriting
standards, program participation, or premiums, and the
financial soundness of the Fund is maintained.
The first quarterly report under this paragraph shall be
submitted on the last day of the first quarter of fiscal year
2007, or upon the expiration of the 90-day period beginning on
the date of the enactment of the Expanding American
Homeownership Act of 2006, whichever is later.
``(6) Adjustment of premiums.--If, pursuant to the
independent actuarial study of the Fund required under
paragraph (5), the Secretary determines that the Fund is not
meeting the operational goals established under paragraph (8)
or there is a substantial probability that the Fund will not
maintain its established target subsidy rate, the Secretary may
either make programmatic adjustments under section 203 as
necessary to reduce the risk to the Fund, or make appropriate
premium adjustments.
``(7) Operational goals.--The operational goals for the Fund
are--
``(A) to charge borrowers under loans that are
obligations of the Fund an appropriate premium for the
risk that such loans pose to the Fund;
``(B) to minimize the default risk to the Fund and to
homeowners;
``(C) to curtail the impact of adverse selection on
the Fund; and
``(D) to meet the housing needs of the borrowers that
the single family mortgage insurance program under this
title is designed to serve.''.
(b) Obligations of Fund.--The National Housing Act is amended as
follows:
(1) Homeownership voucher program mortgages.--In section
203(v) (12 U.S.C. 1709(v))--
(A) by striking ``Notwithstanding section 202 of this
title, the'' and inserting ``The''; and
(B) by striking ``General Insurance Fund'' the first
place such term appears and all that follows and
inserting ``Mutual Mortgage Insurance Fund.''.
(2) Home equity conversion mortgages.--Section 255(i)(2)(A)
of the National Housing Act (12 U.S.C. 1715z-20(i)(2)(A)) is
amended by striking ``General Insurance Fund'' and inserting
``Mutual Mortgage Insurance Fund''.
(c) Conforming Amendments.--The National Housing Act is amended--
(1) in section 205 (12 U.S.C. 1711), by striking subsections
(g) and (h); and
(2) in section 519(e) (12 U.S.C. 1735c(e)), by striking
``203(b)'' and all that follows through ``203(i)'' and
inserting ``203, except as determined by the Secretary''.
SEC. 11. HAWAIIAN HOME LANDS AND INDIAN RESERVATIONS.
(a) Hawaiian Home Lands.--Section 247(c) of the National Housing Act
(12 U.S.C. 1715z-12) is amended--
(1) by striking ``General Insurance Fund established in
section 519'' and inserting ``Mutual Mortgage Insurance Fund'';
and
(2) in the second sentence, by striking ``(1) all
references'' and all that follows through ``and (2)''.
(b) Indian Reservations.--Section 248(f) of the National Housing Act
(12 U.S.C. 1715z-13) is amended--
(1) by striking ``General Insurance Fund'' the first place it
appears through ``519'' and inserting ``Mutual Mortgage
Insurance Fund''; and
(2) in the second sentence, by striking ``(1) all
references'' and all that follows through ``and (2)''.
SEC. 12. CONFORMING AND TECHNICAL AMENDMENTS.
(a) Repeals.--The following provisions of the National Housing Act
are repealed:
(1) Subsection (i) of section 203 (12 U.S.C. 1709(i)).
(2) Subsection (o) of section 203 (12 U.S.C. 1709(o)).
(3) Subsection (p) of section 203 (12 U.S.C. 1709(p)).
(4) Subsection (q) of section 203 (12 U.S.C. 1709(q)).
(5) Section 222 (12 U.S.C. 1715m).
(6) Section 237 (12 U.S.C. 1715z-2).
(7) Section 245 (12 U.S.C. 1715z-10).
(b) Definition of Area.--Section 203(u)(2)(A) of the National Housing
Act (12 U.S.C. 1709(u)(2)(A)) is amended by striking ``shall'' and all
that follows and inserting ``means a metropolitan statistical area as
established by the Office of Management and Budget;''.
(c) Definition of State.--Section 201(d) of the National Housing Act
(12 U.S.C. 1707(d)) is amended by striking ``the Trust Territory of the
Pacific Islands'' and inserting ``the Commonwealth of the Northern
Mariana Islands''.
SEC. 13. HOME EQUITY CONVERSION MORTGAGES.
(a) In General.--Section 255 of the National Housing Act (12 U.S.C.
1715z-20) is amended--
(1) in subsection (g)--
(A) by striking the first sentence; and
(B) by striking ``established under section
203(b)(2)'' and all that follows through ``located''
and inserting ``limitation established under section
305(a)(2) of the Federal Home Loan Mortgage Corporation
Act for a 1-family residence'';
(2) in subsection (i)(1)(C), by striking ``limitations'' and
inserting ``limitation''; and
(3) by adding at the end the following new subsection:
``(n) Authority to Insure Home Purchase Mortgage.--
``(1) In general.--Notwithstanding any other provision in
this section, the Secretary may insure, upon application by a
mortgagee, a home equity conversion mortgage upon such terms
and conditions as the Secretary may prescribe, when the primary
purpose of the home equity conversion mortgage is to enable an
elderly mortgagor to purchase a 1-to 4 family dwelling in which
the mortgagor will occupy or occupies one of the units.
``(2) Limitation on principal obligation.--A home equity
conversion mortgage insured pursuant to paragraph (1) shall
involve a principal obligation that does not exceed the dollar
amount limitation determined under section 305(a)(2) of the
Federal Home Loan Mortgage Corporation Act for a residence of
the applicable size.''.
(b) Study Regarding Mortgage Insurance Premiums.--The Secretary of
Housing and Urban Development shall conduct a study regarding mortgage
insurance premiums charged under the program under section 255 of the
National Housing Act (12 U.S.C. 1715z-20) for insurance of home equity
conversion mortgages to analyze and determine--
(1) the effects of reducing the amounts of such premiums from
the amounts charged as of the date of the enactment of this Act
on--
(A) costs to mortgagors; and
(B) the financial soundness of the program; and
(2) the feasibility and effectiveness of exempting, from all
the requirements under the program regarding payment of
mortgage insurance premiums (including both up-front or annual
mortgage insurance premiums under section 203(c)(2) of such
Act), any mortgage insured under the program under which part
or all of the amount of future payments made to the homeowner
are used for costs of a long-term care insurance contract
covering the mortgagor or members of the household residing in
the mortgaged property.
Not later than the expiration of the 12-month period beginning on the
date of the enactment of this Act, the Secretary shall submit a report
to the Congress setting forth the results and conclusions of the study.
SEC. 14. CONFORMING LOAN LIMIT IN DISASTER AREAS.
Section 203(h) of the National Housing Act (12 U.S.C. 1709) is
amended--
(1) by inserting after ``property'' the following: ``plus any
initial service charges, appraisal, inspection and other fees
in connection with the mortgage as approved by the
Secretary,'';
(2) by striking the second sentence (as added by chapter 7 of
the Emergency Supplemental Appropriations Act of 1994 (Public
Law 103-211; 108 Stat. 12)); and
(3) by adding at the end the following new sentence: ``In any
case in which the single family residence to be insured under
this subsection is within a jurisdiction in which the President
has declared a major disaster to have occurred, the Secretary
is authorized, for a temporary period not to exceed 36 months
from the date of such Presidential declaration, to enter into
agreements to insure a mortgage which involves a principal
obligation of up to 100 percent of the dollar limitation
determined under section 305(a)(2) of the Federal Home Loan
Mortgage Corporation Act for a single family residence, and not
in excess of 100 percent of the appraised value of the property
plus any initial service charges, appraisal, inspection and
other fees in connection with the mortgage as approved by the
Secretary.''.
SEC. 15. PARTICIPATION OF MORTGAGE BROKERS AND CORRESPONDENT LENDERS.
(a) Definitions.--
(1) In general.--Section 201 of the National Housing Act (12
U.S.C. 1707) is amended--
(A) by striking ``As used in section 203 of this
title--'' and inserting ``As used in this title and for
purposes of participation in insurance programs under
this title, except as specifically provided otherwise,
the following definitions shall apply:'';
(B) by striking subsection (b) and inserting the
following:
``(2) The term `mortgagee' means any of the following
entities, and its successors and assigns, to the extent such
entity is approved by the Secretary:
``(A) A lender or correspondent lender, who--
``(i) makes, underwrites, and services
mortgages;
``(ii) submits to the Secretary such
financial audits performed in accordance with
the standards for financial audits of the
Government Auditing Standards issued by the
Comptroller of the United States;
``(iii) meet the minimum net worth
requirement that the Secretary shall establish;
and
``(iv) complies with such other requirements
as the Secretary may establish.
``(B) A correspondent lender who--
``(i) closes a mortgage in its name but does
not underwrite or service the mortgage;
``(ii) posts a surety bond, in lieu of any
requirement to provide audited financial
statements or meet a minimum net worth
requirement, in--
``(I) a form satisfactory to the
Secretary; and
``(II) an amount of $75,000, as such
amount is adjusted annually by the
Secretary (as determined under
regulations of the Secretary) by the
change for such year in the Consumer
Price Index for All Urban Consumers
published monthly by the Bureau of
Labor Statistics of the Department of
Labor; and
``(iii) complies with such other requirements
as the Secretary may establish.
``(C) A mortgage broker who--
``(i) closes the mortgage in the name of the
lender and does not make, underwrite, or
service the mortgage;
``(ii) is licensed, under the laws of the
State in which the property that is subject to
the mortgage is located, to act as a mortgage
broker in such State;
``(iii) posts a surety bond in accordance
with the requirements of subparagraph (B)(ii);
and
``(iv) complies with such other requirements
as the Secretary may establish.
``(3) The term `mortgagor' includes the original borrower
under a mortgage and the successors and assigns of the original
borrower.'';
(C) in subsection (a), by redesignating clauses (1)
and (2) as clauses (A) and (B) respectively; and
(D) by redesignating subsections (a), (c), (d), (e),
and (f) as paragraphs (1), (4), (5), (6), and (7),
respectively, and realigning such paragraphs two ems
from the left margin.
(2) Mortgagee review.--Section 202(c)(7) of the National
Housing Act (12 U.S.C. 1708(c)(7)) is amended--
(A) in subparagraph (A), by inserting ``, as defined
in section 201,'' after ``mortgagee'';
(B) by striking subparagraph (B); and
(C) by redesignating subparagraphs (C) and (D) as
subparagraphs (B) and (C), respectively.
(3) Multifamily rental housing insurance.--Section 207(a)(2)
of the National Housing Act (12 U.S.C. 1713(a)(2)) is amended
by striking ``means the original lender under a mortgage, and
its successors and assigns, and'' and inserting ``has the
meaning given such term in section 201, except that such term
also''.
(4) War housing insurance.--Section 601(b) of the National
Housing Act (12 U.S.C. 1736(b)) is amended by striking
``includes the original lender under a mortgage, and his
successors and assigns approved by the Secretary'' and
inserting ``has the meaning given such term in section 201''.
(5) Armed services housing mortgage insurance.--Section
801(b) of the National Housing Act (12 U.S.C. 1748(b)) is
amended by striking ``includes the original lender under a
mortgage, and his successors and assigns approved by the
Secretary'' and inserting ``has the meaning given such term in
section 201''.
(6) Group practice facilities mortgage insurance.--Section
1106(8) of the National Housing Act (12 U.S.C. 1749aaa-5(8)) is
amended by striking ``means the original lender under a
mortgage, and his or its successors and assigns, and'' and
inserting ``has the meaning given such term in section 201,
except that such term also''.
(b) Eligibility for Insurance.--
(1) Title i.--Paragraph (1) of section 8(b) of the National
Housing Act (12 U.S.C. 1706c(b)(1)) is amended--
(A) by striking ``, and be held by,''; and
(B) by striking ``as responsible and able to service
the mortgage properly''.
(2) Single family housing mortgage insurance.--Paragraph (1)
of section 203(b) of the National Housing Act (12 U.S.C.
1709(b)(1)) is amended
(A) by striking ``, and be held by,''; and
(B) by striking ``as responsible and able to service
the mortgage properly''.
(3) Section 221 mortgage insurance.-- Paragraph (1) of
section 221(d) of the National Housing Act (12 U.S.C.
1715l(d)(1)) is amended--
(A) by striking `` and be held by''; and
(B) by striking ``as responsible and able to service
the mortgage properly''.
(4) Home equity conversion mortgage insurance.--Paragraph (1)
of section 255(d) of the National Housing Act (12 U.S.C. 1715z-
20(d)(1)) is amended by striking ``as responsible and able to
service the mortgage properly''.
(5) War housing mortgage insurance.--Paragraph (1) of section
603(b) of the National Housing Act (12 U.S.C. 1738(b)(1)) is
amended--
(A) by striking ``, and be held by,''; and
(B) by striking ``as responsible and able to service
the mortgage properly''.
(6) War housing mortgage insurance for large-scale housing
projects.--Paragraph (1) of section 611(b) of the National
Housing Act (12 U.S.C. 1746(b)(1)) is amended--
(A) by striking `` and be held by''; and
(B) by striking ``as responsible and able to service
the mortgage properly''.
(7) Group practice facility mortgage insurance.--Section
1101(b)(2) of the National Housing Act (12 U.S.C.
1749aaa(b)(2)) is amended--
(A) by striking `` and held by''; and
(B) by striking ``as responsible and able to service
the mortgage properly''.
(8) National defense housing insurance.--Paragraph (1) of
section 903(b) of the National Housing Act (12 U.S.C.
1750b(b)(1)) is amended--
(A) by striking ``, and be held by,''; and
(B) by striking ``as responsible and able to service
the mortgage properly''.
SEC. 16. SENSE OF CONGRESS REGARDING TECHNOLOGY FOR FINANCIAL SYSTEMS.
(a) Congressional Findings.--The Congress finds the following:
(1) The Government Accountability Office has cited the FHA
single family housing mortgage insurance program as a ``high-
risk'' program, with a primary reason being non-integrated and
out-dated financial management systems.
(2) The ``Audit of the Federal Housing Administration's
Financial Statements for Fiscal Years 2004 and 2003'',
conducted by the Inspector General of the Department of Housing
and Urban Development reported as a material weakness that
``HUD/FHA's automated data processing [ADP] system environment
must be enhanced to more effectively support FHA's business and
budget processes''.
(3) Existing technology systems for the FHA program have not
been updated to meet the latest standards of the Mortgage
Industry Standards Maintenance Organization and have numerous
deficiencies that lenders have outlined.
(4) Improvements to technology used in the FHA program will--
(A) allow the FHA program to improve the management
of the FHA portfolio, garner greater efficiencies in
its operations, and lower costs across the program;
(B) result in efficiencies and lower costs for
lenders participating in the program, allowing them to
better use the FHA products in extending homeownership
opportunities to higher credit risk or lower-income
families, in a sound manner
(5) The Mutual Mortgage Insurance Fund operates without cost
to the taxpayers and generates revenues for the Federal
Government.
(b) Sense of Congress.--It is the sense of the Congress that--
(1) the Secretary of Housing and Urban Development should use
a portion of the funds received from premiums paid for FHA
single family housing mortgage insurance that are in excess of
the amounts paid out in claims to substantially increase the
funding for technology used in such FHA program;
(2) the goal of this investment should be to bring the
technology used in such FHA program to the level and
sophistication of the technology used in the conventional
mortgage lending market, or to exceed such level; and
(3) the Secretary of Housing and Urban Development should
report to the Congress not later than 180 days after the date
of the enactment of this Act regarding the progress the
Department is making toward such goal and if progress is not
sufficient, the resources needed to make greater progress.
SEC. 17. SAVINGS PROVISION.
Any mortgage insured under title II of the National Housing Act
before the date of enactment of this title shall continue to be
governed by the laws, regulations, orders, and terms and conditions to
which it was subject on the day before the date of the enactment of
this Act.
SEC. 18. IMPLEMENTATION.
The Secretary of Housing and Urban Development shall by notice
establish any additional requirements that may be necessary to
immediately carry out the provisions of this title. The notice shall
take effect upon issuance.
Purpose and Summary
H.R. 5121, the Expanding American Homeownership Act of
2006, proposes comprehensive reform for the Federal Housing
Administration's (FHA) single-family mortgage insurance
activities. The legislation introduces an array of products to
more fairly price FHA's guarantee to individual borrowers and
will allow FHA to base each borrower's mortgage insurance
premiums upon the risk that the borrower poses to the FHA
Mortgage Insurance Fund.
Background and Need for Legislation
Since its inception in 1934, FHA has played an innovative
role in financing homeownership and affordable housing
opportunities for all Americans. Over the past eight years
alone, FHA has financed nearly eight million homes and over
754,000 units of affordable rental housing. The U.S. mortgage
market has changed dramatically in recent years, creating what
is today the world's most sophisticated real estate finance
system. This system has led to the highest rate of
homeownership in U.S. history and to the efficient production
of thousands of units of affordable rental housing each year.
Despite record levels of homeownership, FHA continues to
face challenges in effectively managing its resources and
programs in this quickly changing mortgage market. These
challenges have already diminished FHA's ability to serve
families not adequately addressed by the conventional mortgage
market. For example, while the prime market remained relatively
constant, the non-prime market between 2003 and 2005 grew from
$118 billion to $650 billion in mortgages, while FHA went from
insuring 9.2 to 4.1 percent of the nation's mortgages.
Unanswered, these issues will leave the families served by
FHA programs with fewer alternatives for homeownership or
affordable rental housing opportunities. Without a viable FHA
alternative, many homebuyers turn to high-cost financing and
nontraditional loan products to afford their first homes. While
low initial monthly payments seem prudent in the short-run, the
reset rates on some interest-only loans are substantial and
many families could be unable to keep pace when their payments
increase.
FHA RELEVANCE IN 21ST CENTURY MARKETS
FHA is still relevant in today's mortgage markets. FHA is
designed to give a choice to homebuyers who can't qualify for
prime financing or are otherwise underserved by the private
sector. By operating through a private distribution network,
FHA efficiently reaches families in need of safe and affordable
home financing. Further, FHA insurance protects lenders against
loss, enabling these private sector partners to offer market-
rate mortgages to creditworthy homebuyers who would otherwise
remain underserved and be forced into higher-priced and often
predatory products. FHA provides a substantial benefit to
families, communities, and the entire national economy.
The Committee recognizes some concerns that Federal or
otherwise public agencies should not compete or provide
duplicative services already served by the private sector.
Since FHA's inception in 1934, the agency has been at the
forefront of standardizing the mortgage financial markets,
particularly for low- and moderate-income borrowers. While the
conventional markets make historical progress in meeting
affordable homeownership needs of population sectors
traditionally underserved, the Committee believes that the
public and private sectors could do more and do it better.
Just as FHA re-energized the conventional markets during
the 1930's depression or as recently as the oil-patch crisis in
the South-western states in the 1980s, the 21st century need
evolves around the explosion of mortgage loans characterized as
predatory lending. H.R. 5121 would begin the process of creating
standards and expanded capitol access to underserved populations paying
significantly higher interest rates, fees and settlement costs.
The Committee is clear to distinguish a difference between
subprime lending, which is necessary and critical for non-
traditional loans/borrowers and predatory lending, which is
designed to take advantage of vulnerable Americans pursuing the
American dream. Among other things, H.R. 5121 would allow FHA
to provide alternative access as well as standardization of a
market niche destined to follow the agency's example.
Moreover, the Committee notes that the Federal government
will always have a need for an agency providing the type of
services symbolized by FHA. While the agency only has a market
share of approximately three to four percent, elimination of
FHA would be disastrous when capitol and mortgage financial
crisis emerge, such as in the 1980s. It would be impossible to
recreate an agency to respond rapidly to housing and
homeownership crisis that could emerge in the future.
H.R. 5121 will allow FHA to fulfill its original mission
when similar circumstances existed. In 1934, interest-only and
balloon payments were prevalent; thus FHA was established to
give the private sector avenues to provide long-term, fixed-
rate financing.
Today, FHA continues to serve its original purpose by
giving low- to moderate-income homebuyers a safer, more
affordable financing option for homeownership.
ZERO DOWNPAYMENT MORTGAGE PRODUCTS
H.R. 5121, among other innovations, will provide FHA the
flexibility to insure mortgages where the borrower has no
downpayment. The Committee held hearings on affordable housing
and found that in some circumstances, there were creditworthy
borrowers who posed little to no risk in defaulting on their
monthly mortgage obligation, despite not having a downpayment
at the time of the real estate settlement. Examples include
police officers, teachers, and other working families with
stable employment but because of the high living costs, were
unable to save cash for a downpayment. However, homeownership,
in a majority of cases would be less costly than paying rent
and also serve a two-fold public policy purpose of stabilizing
communities and neighborhoods, and providing another tool to
allow working, creditworthy families an opportunity to pursue
the American dream. The Committee recognized that zero
downpayments should be part of the flexibility FHA would need
to be relevant in the 21st century.
REFORM ASPECTS OF H.R. 5121
Under H.R. 5121, the Expanding American Homeownership Act
of 2006, FHA would determine the borrower's mortgage insurance
premium based on their credit history, loan-to-value ratio,
debt-to-income ratio, as well as FHA's historical experience
with similar borrowers. This change will decrease premiums for
many of FHA's traditional borrowers, thereby increasing their
access to homeownership. It would also allow FHA to reach
potential homebuyers who--for various reasons--do not currently
qualify for an FHA loan product.
In addition, the bill would eliminate the complicated
downpayment calculation and the traditional upfront cash
requirement that have been the hallmark of FHA for years. The
downpayment remains the major barrier to homeownership in this
country. This bill would permit borrowers to choose how much
they want to invest in the purchase of their home, thereby
allowing consumer choice and flexibility on the type of
downpayment and the level of upfront and annual mortgage
insurance premiums.
H.R. 5121 would also increase FHA's loan limits. In many
areas of the country, the existing FHA loan limits are lower
than the cost of new construction. In other areas, FHA has
simply been priced out of the market. For example, in 1999, FHA
insured 127,000 loans in California; in 2005, only 5,000 loans
were FHA-insured.
H.R. 5121 would give FHA the needed flexibility to support
sound lending in the 21st Century. Modernizing FHA will improve
competition in the prime home loan mortgage industry and
effectively assist the industry in combating abusive and/or
discriminatory lending practices. Because of today's ``one size
fits all'' FHA premium, lower risk borrowers subsidize those at
higher risk. Under H.R. 5121, FHA will balance the borrower's
needs, financial profile, and mortgage terms with an
appropriate premium. For example, borrowers will be able
tochoose a down payment amount, mortgage period, or premium options to
fit their long-term goals. Each borrower will pay his/her own way with
a reasonably priced premium.
Charging premiums commensurate with risk allows sound
pricing and portfolio diversity to sustain the financial
strength of the FHA fund. With these changes, FHA can continue
to serve hardworking, creditworthy Americans.
The legislation would also allow 40-year mortgage insurance
products that could help address affordability problems,
particularly in high-cost areas. Just as FHA pioneered the 30-
year fixed-rate mortgage, the agency could jumpstart efforts by
the private sector to address affordability issues.
Finally, H.R. 5121 would lift the statutory maximum number
of FHA reverse mortgage. Under the 2005 Emergency Supplemental
legislation, Congress approved lifting these caps from 150,000
to 250,000. Similarly, the House of Representatives approved on
June 23, 2005, H.R. 2892, the ``Reverse Mortgages to Help
America's Seniors Act'' by unanimous voice vote. This provision
would prevent the possibility of future program disruptions
that could be detrimental to seniors pursuing loan products
that capitalize on the equity in their homes at a time when
they have few cash resources.
OUTSTANDING ISSUES
During the markup of H.R. 5121, the Committee's Ranking
Member brought up concerns regarding FHA's ability to raise its
upfront mortgage insurance premium and its annual premium.
Cong. Barney Frank expressed reservations that a great majority
of low-income persons would be unduly penalized with high
upfront and annual premiums under H.R. 5121. The Chair pledged
to work with Cong. Frank toward finding an accommodation prior
to floor consideration.
Cong. Scott Garrett offered an amendment that would place
performance triggers on the FHA program in the event of a
significant increase in default rates. Cong. Garrett expressed
concern that in the event of higher defaults, higher fees and
upfront premiums could be assessed thereby creating a scenario
that fewer people use the FHA program. The amendment was
withdrawn with a pledge from the Chair to work on this issue
prior to floor consideration.
Hearings
The Subcommittee on Housing and Community Opportunity held
a hearing entitled, ``Transforming the Federal Housing
Administration for the 21st Century'' on April 5, 2006.
Witnesses included the Honorable Brian Montgomery, HUD's FHA
Commissioner, Stella Adams of the National Community
Reinvestment Coalition, Gerald Howard of the National
Association of Home Builders, Regina Lowrie of the Mortgage
Bankers Association of America, and A.W. Pickel of the National
Association of Mortgage Brokers.
Committee Consideration
The Committee on Financial Services met in open session on
May 24, 2006, and ordered reported H.R. 5121, the ``Expanding
American Homeownership Act'' 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 to the House with a favorable recommendation
was agreed to by a voice vote. During the consideration of the
bill, the following amendments were considered:
An amendment by Mr. Ney, No. 1, making various technical
and substantive changes, was agreed to by a voice vote.
An amendment by Mr. Garrett, No. 2, rolling back program
expansion in event of increased defaults, was withdrawn.
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:
The objective of this legislation is to modernize FHA. The
goal of H.R. 5121 is to give FHA the ability to serve more
families and create more homeowners, thereby narrowing the
minority homeownership gap.
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 section 402 of 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, June 14, 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. 5121, the
Expanding American Homeownership 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. 5121--Expanding American Homeownership Act of 2006
Summary: H.R. 5121 would amend the National Housing Act to
provide the Federal Housing Administration (FHA) with new
authority to offer guarantees for various types of loans within
a new pricing structure. The bill is aimed at updating FHA's
business operations so that it could more effectively manage
its credit risks and expand homeownership opportunities.
CBO estimates that implementing H.R. 5121 would increase
offsetting collections (as a credit against discretionary
spending) by $247 million in 2007 and $2.3 billion over the
2007-2011 period, assuming enactment of appropriation laws
necessary to implement the FHA programs. Such savings would
stem from increasing the number of homeowners who could obtain
loan insurance under FHA's Home Equity Conversion Mortgage
(HECM) program and under FHA's single-family loan insurance
program. Offsetting collections are generated by those programs
because the fees paid by borrowers generally exceed the cost of
expected defaults. Enacting the bill would not affect direct
spending or revenues.
H.R. 5121 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: The estimated
budgetary impact of H.R. 5121 is shown in the following table.
The cost of this legislation falls within budget function 370
(mortgage and housing credit). For this estimate, we assume the
bill will be enacted near the end of fiscal year 2006.
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------------
2006 2007 2008 2009 2010 2011
----------------------------------------------------------------------------------------------------------------
SPENDING SUBJECT TO APPROPRIATION
FHA and GNMA spending under current law\1\:
Estimated authorization level....................... -1,296 -472 -327 -331 -344 -353
Estimated outlays................................... -1,296 -472 -327 -331 -344 -353
Proposed changes:
Change to HECM loan program:
Estimated authorization level................... 0 -230 -430 -470 -510 -550
Estimated outlays............................... 0 -230 -430 -470 -510 -550
Increasing loan limits for single-family guarantees:
Estimated authorization level................... 0 -11 -13 -14 -16 -16
Estimated outlays............................... 0 -11 -13 -14 -16 -16
GNMA offsetting collections:
Estimated authorization level................... 0 -6 -6 -7 -8 -8
Estimated outlays............................... 0 -6 -6 -7 -8 -8
Total changes:
Estimated authorization level............... 0 -247 -449 -491 -534 -574
Estimated outlays........................... 0 -247 -449 -491 -534 -574
Total FHA and GNMA spending under H.R. 5121:
Estimated authorization level................... -1,296 -719 -776 -822 -878 -927
Estimated outlays............................... -1,296 -719 -776 -822 -878 -927
----------------------------------------------------------------------------------------------------------------
\1\The figures for 2006 are CBO's current estimates of budget authority and outlays for the FHA's Single-Family
and HECM programs and for GNMA's MBS program under the enacted appropriation levels for this year. The 2007-
2011 levels are CBO's baseline estimates of the amount of offsetting collections generated by these programs.
NOTE: GNMA = Government National Mortgage Association; HECM = Home Equity Mortgage Insurance; MBS = Mortgage-
Backed Securities.
Basis of estimate
The budgetary impact of this legislation would stem from
additional offsetting collections generated by expanding the
HECM loan program, raising the loan limits for FHA's single-
family program, and increasing activity for the Government
National Mortgage Association (GNMA). CBO expects other
provisions of the bill would have no significant budgetary
impact over the next five years. The major provision of the
bill are discussed below.
Expanding the HECM Loan Insurance Program
HECM loans are considered to be ``reverse mortgages''
because they enable homeowners who are at least 62 years of age
to withdraw some of the equity in their home in the form of
monthly payments, in a lump sum, or through a line of credit.
Under current law, FHA is permitted to guarantee up to a
cumulative total of 250,000 such loans, and CBO expects that
FHA will reach that cap in 2007. Loan size is tied to loan
limits that vary by geographic region, and such loans cannot be
used to purchase another home. Enacting this legislation would
remove the statutory limitation on the number of loans that
could be guaranteed, set a single nationwide loan limit for the
HECM program tied to the conforming loan amount, and allow
borrowers to use HECM loans to purchase a new home. Conforming
loans have terms and conditions that follow the guidelines set
forth by the Government Sponsored Enterprises (GSEs).
Implementation of the HECM program, like all of FHA's insurance
programs, is contingent on the enactment of appropriation laws
that provide annual loan commitment authority. The estimated
budgetary impact of this proposal is tied to the demand for
HECM loans and their subsidy cost.
Demand for HECM Loans. According to the National Reverse
Mortgage Lenders Association (NRMLA) and other industry
experts, the HECM program has risen in popularity in recent
years. As more consumers are becoming aware of the product,
more households are becoming eligible for the program (e.g.,
currently there are over 17 million households with owners aged
65 or older, according to census data), and more seniors view
the product as an alternative approach to financing home-
improvement projects, medical costs, and other needs. In
addition, sources in the mortgage industry have observed an
increasing demand among seniors for new housing within senior
communities. The number of HECM loans insured by FHA more than
doubled from 2003 to 2005 (18,000 loans were insured in 2003,
compared with 43,000 loans in 2005, and as of April 2006 a
cumulative total of about 200,000 loans have been insured).
Moreover, there is relatively little private competition for
these loans, enabling FHA to dominant the marketplace. The
NRMLA estimates that FHA's current market share of reverse
mortgages is about 90 percent.
Based on information from FHA, NRMLA, and other industry
experts, CBO estimates that these legislative changes would
result in a HECM loan product that would be more attractive to
borrowers and more easily marketed by lenders, resulting in
increased demand for HECM loans. The market for HECM loans
appears to be very robust and with limited competition,the
potential for FHA to insure more than 100,000 loans annually appears
likely. Whether the number of guarantees could exceed this level would
depend on FHA's ability to administer and manage the program in an
efficient manner on a continued basis. CBO assumes that about 20,000
loans (with a face value of $5 billion) could be insured during the
first quarter of fiscal year 2007 under the current statutory cap on
the number of such loans that FHA can insure. We estimate that FHA
could guarantee an additional 80,000 loans (with a face value of about
$20 billion) in 2007 as a result of the changes proposed in this
legislation. In subsequent years, assuming demand for this product
continues to grow and FHA maintains its market share, CBO estimates
that 140,000 to 160,000 such loans (with a face value of $35 billion to
$45 billion) could be insured annually.
Subsidy Cost. Under current law, FHA guarantees of HECM
loans result in net offsetting collections to the federal
government because guarantee fees for those mortgages more than
offset the costs of expected defaults, resulting in net
collections from the loan guarantee program. For 2007, the
Administration's subsidy estimate is -2.8 percent. Under the
expanded program authorized by H.R. 5121, CBO estimates that
the subsidy rate for the HECM loans would be -1.2 percent. That
reduction from the estimated rate for 2007 is due to the
increased risk FHA would experience under the proposed
nationwide loan limitation. With larger loan sizes, the
``equity cushion'' (i.e., the difference between the home's
value and the potential cost of a claim payment) would
decrease, leading to potentially more costly claims for FHA.
This estimated subsidy rate of -1.2 percent assumes that
the HECM loan program would not be subject to the risk-based
pricing structure authorized by the bill and described below.
CBO assumes that FHA would continue to charge fixed, up-front
and annual fees for all HECM borrowers, regardless of any
specific evaluation of their individual risk of default. CBO
estimates that enacting this legislation would result in
additional offsetting collections of $230 million in 2007 and
$2.2 billion over the 2007-2010 period. Such offsetting
collections are contingent on enactment of appropriation bills,
which establish the authority to make such loan guarantees by
specifying annual loan commitment levels.
Raising Loan Limits for the Single-Family Program
Proposed Changes. Section 3 would raise FHA loan limits
(i.e., the dollar amount of mortgages that FHA can insure) for
its single-family program from 87 percent of the conforming
loan amount--up to 100 percent of the conforming loan limit in
certain geographic regions where the cost of housing is very
high. Effectively, this would be a change from loans of
$362,790 today to loans of $417,000. In less expensive markets,
the limit would be raised from 48 percent of the conforming
loan limit for a change from loans of $200,160 today to loans
of $271,050.
Estimated Savings. CBO estimates that increasing the loan
limits would increase offsetting collections (as a credit
against discretionary spending) by about $11 million in 2007
and $70 million over the 2007-2011 period, assuming enactment
of appropriations laws necessary to implement FHA's single-
family insurance program. We expect that the subsidy rate for
these loans obtaining insurance under the new limitations would
be close to the estimated rate of -0.37 percent for 2007, and
that demand for FHA's loan guarantees would increase by about
10 percent annually after the marketplace has fully adapted to
the changes in limits.
Increase in Demand. The last significant change in FHA's
loan limitation occurred in October 1998 when the limit for
high cost areas was raised from 75 percent to 87 percent of the
conforming loan amount; subsequently, the total volume of loans
guaranteed by FHA over the next year increased by about 25
percent. While a portion of this increase could be attributed
to a surge in refinancing of existing mortgages and increases
in house prices, FHA estimates that about 6 percent to 8
percent of the increase resulted from borrowers obtaining FHA-
insured loans that were higher in value. Based on information
from FHA and several industry associations, CBO expects that
the increase in the volume of loans guaranteed by FHA under the
proposed limits would be slightly higher.
An estimated 7 percent to 9 percent increase would amount
to about $4 billion in loan guarantees and assumes that the
estimated change in volume would stem mostly from increasing
the limit in the less expensive housing markets. In lower-cost
areas, FHA has a stronger presence; increasing the limits in
those areas would build upon FHA's existing market penetration
in those areas. Moreover, according to the Mortgage Brokers
Association, FHA's loan limits are not sufficient to cover the
cost of new construction in many areas of the country, limiting
options for the type of loans homebuyers can obtain in those
areas. The National Association of Homebuilders reports that
the median house price for a new home in 2005 was about
$240,000, an amount that would fall within the proposed limits
of $271,050 for the lower-cost areas.
The proposed increase in loan limit for the higher-cost
areas would, in contrast, not have a significant impact in such
high-cost areas because the median-house price in many of those
areas already exceeds the proposed ceiling of $417,000. For
example, according to information published by the National
Association of Realtors, the median-house price in most parts
of California exceeds $530,000. In addition, FHA's market share
in high-cost areas is very low. According to the Realtors
group, in 2004, FHA's market share in California was 0.37
percent. Thus, CBO expects that in certain high-cost markets
where FHA's presence is minimal, there would probably be no
significant impact on FHA over the next five years.
GNMA Savings. Changes in FHA loan limits also would
generate savings for GNMA. 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. Because the value of the fees
collected are estimated to exceed the cost of loan defaults in
each year, the GNMA Mortgage-Backed Securities (MBS) program is
estimated to have a subsidy rate of -0.21 percent in 2007,
resulting in the net collection of receipts to the federal
government.
Because most FHA single-family loan guarantees are included
in GNMA's MBS program, CBO estimates that raising the loan
limit would result in additional collections to GNMA of about
$35 million over the 2007-2011 period. Like FHA, GNMA requires
appropriation action to establish its dollar limitation for the
securities program. (HECM loans are not included in GNMA's MBS
program.)
Other Amendments to FHA's Programs
H.R. 5121 would make other changes to FHA's business
operations; however, CBO does not expect these changes would
have a significant budgetary impact over the next five years.
These provisions are discussed below.
Risk-based Pricing and Flexible Downpayment Requirements.
Once considered an innovator and dominant player in housing
finance, especially for those borrowers who were not adequately
served by the private market, FHA is no longer a major
participant in the mortgage insurance industry. According to
FHA, its market share has fallen from about 8 percent in 1999
to about 2 percent in 2005. Since 2002, FHA has experienced a
sharp decline in the volume of single-family loans it
guarantees, with total guarantees falling 60 percent from $147
billion in 2003 to $58 billion in 2005.
Moreover, the amount of offsetting collections generated by
single-family loan guarantees has decreased significantly ($3.7
billion recorded in 2003 and $169 million estimated by the
Administration for 2007) because the subsidy rate for the
guarantees dropped from -2.53 in 2003 to an estimated -0.37 for
2007. The primary reasons for the waning popularity of FHA's
guarantees and its decreasing offsetting collections are the
perception among lenders and other industry participants of
FHA's services as inefficient and overly cumbersome, its flat
pricing structure, and the fact that FHA guarantees a limited
range of loan products compared to private insurers, who are
increasingly insuring low or no-downpayment loans and other
types of alternative loan products.
Currently, FHA has a flat premium structure where all
borrowers pay the same 1.5 percent up-front fee and 0.5 percent
annual fee, regardless of the borrower's individual risk of
default. This premium structure favors the riskiest borrowers
because they are usually charged premiums that are too low to
cover their expected defaults. In comparison, less risky
borrowers are usually charged fees that are too high;
consequently, many such borrowers seek competitively priced
products from the private market, which charges borrowers fees
that are commensurate with their credit profiles, otherwise
known as risk-based pricing. This tradeoff between high- and
low-risk borrowers results in an FHA portfolio that has a high
concentration of the highest risk borrowers, limiting the
amount of offsetting collection generated.
Proposed Changes. Under this legislation, FHA would have
the authority to match the fees it charges with the borrowers'
risk of default, and to offer guarantees for loans with little
or no downpayment. Based on information from FHA, CBO assumes
the FHA would initially charge up-front fees ranging from 0.5
percent (for the lowest-risk borrowers) to almost 3 percent
(for the highest-risk borrowers). Annual fees are expected to
range from .5 percent to .75 percent. FHA estimates that the
blended subsidy rate for all of the guarantees would be about
-0.9 percent beginning in 2007 (compared to -0.37 percent
estimated for 2007 under current law). In addition, FHA
estimates that by offering guarantees for low down-payment
loans and other types of alternative loan products, and by
charging lower fees for less risky borrowers, the overall
volume of loans guaranteed would increase from about $45
billion to $65 billion.
Budgetary Effect. While CBO recognizes that FHA could
increase the amount of offsetting collections it earns from its
guarantees by converting from a flat fee structure to risk-
based pricing, we do not expect that its overall collections
and business volume would change significantly in the next five
years. Risk-based pricing is complicated, requiring much
precision in the underwriting process.
A recent review of FHA's automated underwriting system by
the Government Accountability Office raises concerns over the
effectiveness of the system and recommends that additional
improvements be made. CBO expects that developing and
maintaining the appropriate systems for managing a risk-based
pricing structure would take FHA several years to implement. In
addition, CBO estimates that any changes in volume stemming
from the changes in pricing and the availability of FHA
guarantees for a wider range of loan types would, in the short
term, most likely result in no significant net change to the
total number of loans guaranteed. That is, while some borrowers
may turn to FHA because of better pricing and the ability to
obtain insurance for more attractive loan products, other
borrowers amy turn away from FHA because of higher pricing.
Moreover, CBO expects that it would take time for FHA to
overcome its negative perception in the marketplace and to
regain its place as a viable competitor in the mortgage
insurance industry. Thus, CBO estimates that enacting these
provisions would result in no significant effect on the budget
in the near term.
Participation of Mortgage Brokers and Correspondent
Lenders. Under current law, mortgage brokers and correspondent
lenders (i.e., entities who do not underwrite or service loans)
must meet certain financial audit and net-worth requirements to
originate FHA loans. According to the National Association of
Mortgage Brokers, these requirements are a barrier to mortgage-
broker participation in the FHA program because the
requirements can be very cost prohibitive and time consuming,
especially for certain small businesses. Section 15 of H.R.
5121 would permit these mortgage brokers and correspondent
lenders to participate in FHA loan programs if they post a bond
in the amount of $75,000.
Based on information from FHA, CBO estimates that while
this section would expand the number of distribution channels
for bringing FHA loans to the marketplace, we do not estimate
that the total number of loans guaranteed would change
significantly over the next five years, resulting in no
significant budgetary effect. Currently, there exists a vast
network of lenders who participate in or who have access to FHA
loan programs.
Consolidating Single-Family Programs. Enacting this
legislation would enable FHA to move several loan guarantee
programs, including loan guarantees for condominiums and HECM
loans, from the General Insurance/Special Risk Insurance Fund
to the Mutual Mortgage Insurance Fund. CBO estimates that this
administrative change would have no net budgetary effect.
Intergovnmental and private-sector impact: H.R. 5121
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: Paige Piper/Bach.
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 and table of contents
The section provides the table of contents and the short
title this title, which is the ``Expanding American
Homeownership Act of 2006.''
Section 2. Findings and purposes
This section provides the findings and purposes of this
title.
Section 3. Maximum principal loan obligation
Section 3 amends section 203(b)(2) of the National Housing
Act to change the factors for determining the maximum single
family mortgage amounts insurable by FHA. Generally, under
current law, the maximum insurable mortgage is the lesser of a
maximum allowable dollar amount and an amount based on a
maximum percentage of appraised value plus the mortgage
insurance premium.
Currently, FHA maximum mortgage dollar amounts are
established with reference to the median home price for the
area in which the property is located. For a 1-family
residence, the maximum dollar amount that can be insured is 95
percent of the median home price for the area. For 2-, 3- and
4-family residences the maximum dollar amounts that can be
insured are 107, 130 and 150 percent of such median price,
respectively. These amounts are capped and cannot exceed 87
percent of the Federal Home Loan Mortgage Corporation
Association conforming loan limit, now $362,790 for a 1-unit
property. There also is a statutory ``floor'' amount. The
maximum mortgage dollar amount cannot be set lower than the
``floor'' amount. The current ``floor'' is set at 48 percent of
the FHLMC conforming loan limit, now $200,160 for a 1-unit
property.
This Section allows FHA to insure up to the full median
house price in the area, as opposed to 95 percent of the median
house price. This section would remove the 87 percent cap, and
would allow FHA to insure up to 100 percent of the FHLMC loan
limit, and increases the ``floor'' to 65 percent of the FHLMC
conforming loan limit. In place of the existing 107, 130 and
150 percent loan limit escalators for 2-, 3-, and 4-family
units, the ratio of loan limits for 2-, 3-, and 4-family
residences to 1-family residences is conformed to the ratios
that the national FHLMC conforming loan limits for 2-, 3-, and
4-unit residences bears to the FHLMC 1-family conforming loan
limit.
In addition, Section 3 eliminates the existing loan to
value percentage limitations embedded in the statute and
substitutes a single limitation of 100 percent of the appraised
value of the property, plus any initial service charges,
appraisal, inspection and other fees in connection with the
mortgage that are approved by the Secretary.
Finally, the Section removes existing statutory language
relating to mandatory counseling requirements for FHA
mortgagors with loans with high (in excess of 97 percent) loan
to value ratios.
Section 4. Extension of mortgage term
Section 4 amends section 203(b)(3) of the National Housing
act to increase the permissible FHA loan term from 35 to 40
years.
Section 5. Cash investment requirement
Section 5 amends section 203(b)(9) of the National Housing
Act to provide more flexibility to cash downpayment
requirements. This Section eliminates the 3 percent requirement
and substitute language and allows the Secretary to determine
the appropriate cash requirement, if any, based upon the
likelihood of default.
Section 6. Mortgage insurance premiums
This section establishes the authority for flexible risk-
based premium pricing for FHA single family mortgages. Section
6 of the proposed legislation adds a new subsection to the
existing language. The new section 203(c)(3) establishes
premium pricing flexibility for single family mortgages to be
insured on or after October 1, 2006. Section 6 contemplates
that all active FHA single family programs would be
consolidated within the Mutual Mortgage Insurance Fund (MMIF)
and that premiums to be charged for prospective business would
be governed only by the new provisions of new section
203(c)(3).
Section 6 also eliminates the current statutory caps on
premiums that FHA may charge for single family loans.
Currently, such premiums are capped by statute at 2.25 percent
upfront and .55 percent annually.
Section 6 also provides that a change in the premium
structure shall be accomplished by providing notice to
mortgagees and to Congress at least 30 days before the premium
structure is changed.
This Section also provides statutory guidance for the
Secretary to consider when establishing or changing premiums.
The Secretary is to consider the following:
The effect on the Secretary's ability to
meet the operational goals for the MMIF, as contained
in section 205(h)(2) of the National Housing Act.
Underwriting variables affecting the loan;
The extent to which new pricing has
potential for acceptance on the private market;
The administrative capability of the
Secretary to administer the proposed premium structure;
and
The effect on the Secretary's ability to
maintain the availability of mortgage credit and
provide stability to mortgage markets.
Section 7. Rehabilitation loans
Section 7 deletes obsolete language in existing section
203(k)(1). Secondly, the section makes the section 203(k)
program an obligation of the MMIF, as opposed to the General
Insurance Fund.
Section 8. Discretionary action
Section 8 takes existing language contained in section
203(s) of the National Housing Act, dealing with notification
requirements about actions taken by the Secretary to suspend or
revoke the approval of a mortgagee to participate in FHA
programs, and moves it to section 202 of the National Housing
Act, which contains the basic authority of the Mortgagee Review
Board.
Section 9. Insurance of condominiums
Section 9 establishes a new limitation on the existing
section 234(c) condominium program. The insurance program will
be limited in the future to take out financing for multifamily
blanket mortgages on FHA insured section 234(d) condominium
projects. This Section also contains a conforming amendment
which amends section 234(c) of the National Housing Act to
permit 40 year mortgages.
In addition, Section 9 amends section 201(a) of the
National Housing Act to add a definition of condominium
mortgage to the definition section, consistent with the intent
to insure condominium mortgages under section 203 of the
National Housing Act.
Section 10. Mutual Mortgage Insurance Fund
Section 10 clarifies that the Mutual Mortgage Insurance
Fund (MMIF) is subject to the provisions of the Credit Reform
Act of 1990, and the use of ``guarantee'' and ``commitment to
guarantee'' reflects that purpose. Section 10 directs the
Secretary to ensure that the Mutual Mortgage Insurance Fund
remains financially sound.
This Section also requires the Secretary to provide an
independent actuarial report to Congress annually on the
financial status of the Fund. It also requires the Secretary to
submit a quarterly report on the financial status and soundness
of the Fund. In addition, this Section grants the Secretary the
authority to change premiums or underwriting standards if the
Fund is at risk in accordance with other sections of this bill.
Section 10 also established operational goals for the Fund,
which include charging appropriate premiums commensurate with
the borrower's risk, minimizing the default risk to the Fund
and to homeowners, curtailing the impact of adverse selection
on the Fund, and meeting the housing needs of the borrowers
that this bill is designed to serve.
This Section also makes insured mortgages that are used in
conjunction with the Homeownership Voucher program obligations
of the MMIF and makes reverse mortgages insured under section
255 of the National Housing Act obligations of the MMIF.
Section 11. Hawaiian Home Land and Indian Reservations
Section 11 makes single family mortgages insured on
Hawaiian Home Lands under section 247 of the National Housing
Act and single family mortgages insured on Indian Reservations
under section 248 of the National Housing Act obligations of
the MMIF.
Section 12. Conforming and technical amendments
Section 12 repeals certain obsolete or little used programs
and makes two other technical and conforming amendments. The
programs repealed include:
Section 203(i) mortgage insurance for
outlying areas.
Sections 203(o), (p) and (q) relating to
certain mortgage insurance on Indian lands.
Section 222 mortgage insurance for
servicemen. The program is not operational and the
benefits of mortgage insurance are otherwise available
under section 203.
Section 237 special mortgage insurance for
low income families.
Section 245 graduated payment mortgage
program.
Section 13. Home Equity Conversion Mortgages
Section 13 eliminates the current mortgage volume cap of
mortgages and amends the maximum insurable amount/maximum claim
amount available to the HECM program. This Section establishes
the maximum mortgage amount/maximum claim amount as the
conforming loan limit for the Federal Home Loan Mortgage
Corporation.
This Section would add a new subsection to section 255 of
the National Housing Act to make the HECM available to a
purchaser of a home.
Finally, this Section would require the Secretary to
conduct a study regarding mortgage insurance premiums charged
under the HECM program.
Section 14. Conforming loan limit in disaster areas
Section 14 gives the Secretary the authority to enter into
agreements to insure a mortgage in a Presidential declared
disaster area that involves a principal obligation of up to 100
percent of the conforming loan limit for a single family
residence. The Secretary may do this for a temporary period not
to exceed 36 months.
Section 15. Participation of mortgage brokers and correspondent lenders
Section 15 allows correspondent lenders who make,
underwrite and service mortgages to participate in the FHA
program. State licensed mortgage brokers will be eligible to
participate in FHA and the HUD Secretary will have the
authority to determine which licensed brokers may participate.
Correspondent lenders and mortgage brokers who do not
underwrite or service loans will be permitted to post a surety
bond in the amount of $75,000 in lieu of annual audit and net
worth requirements.
Section 16. Sense of Congress regarding technology for financial
systems
Section 16 is a Sense of Congress and states that HUD
should use a portion of the funds FHA receives from premiums in
excess of what it pays out in claims to upgrade FHA's current
technology. FHA is also encouraged to submit a report to
Congress detailing the progress it is making towards this goal
and any resources it may need to make greater progress.
Section 17. Savings provision
Section 17 is a savings provision. Single family mortgages
insured prior to October 1, 2006, would continue to be governed
by the statutory, regulatory and other provisions applicable to
the programs prior to that date.
Section 18. Implementation
This section provides that this title is effective upon
enactment. The Secretary will by notice establish any
additional requirements that may be necessary to immediately
carry out the provisions of this title. The notice will take
effect upon issuance.
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):
NATIONAL HOUSING ACT
* * * * * * *
TITLE I--HOUSING RENOVATION AND MODERNIZATION
* * * * * * *
insurance of mortgages
Sec. 8. (a) * * *
(b) To be eligible for insurance under this section, a
mortgage shall--
(1) have been made to[, and be held by,] a mortgagee
approved by the Secretary [as responsible and able to
service the mortgage properly];
* * * * * * *
TITLE II--MORTGAGE INSURANCE
definitions
Sec. 201. [As used in section 203 of this title--] As used
in this title and for purposes of participation in insurance
programs under this title, except as specifically provided
otherwise, the following definitions shall apply:
[(a)] (1) The term ``mortgage'' means a first
mortgage on real estate, in fee simple, or on a
leasehold [(1)] (A) under a lease for not less than
ninety-nine years which is renewable [or], [(2)] (B)
under a lease having a period of not less than ten
years to run beyond the maturity date of the mortgage,
or (C) a first mortgage given to secure the unpaid
purchase price of a fee interest in, or long-term
leasehold interest in, a one-family unit in a
multifamily project, including a project in which the
dwelling units are attached, semi-detached, or
detached, and an undivided interest in the common areas
and facilities which serve the project; and the term
``first mortgage'' means such classes of first liens as
are commonly given to secure advances on, or the unpaid
purchase price of, real estate, under the laws of the
State in which the real estate is located, together
with the credit instrument, if any, secured thereby.
[(b) The term ``mortgagee'' includes the original
lender under a mortgage, and his successors and assigns
approved by the Secretary; and the term ``mortgagor''
includes the original borrower under a mortgage and his
successors and assigns.]
(2) The term ``mortgagee'' means any of the following
entities, and its successors and assigns, to the extent
such entity is approved by the Secretary:
(A) A lender or correspondent lender, who--
(i) makes, underwrites, and services
mortgages;
(ii) submits to the Secretary such
financial audits performed in
accordance with the standards for
financial audits of the Government
Auditing Standards issued by the
Comptroller of the United States;
(iii) meet the minimum net worth
requirement that the Secretary shall
establish; and
(iv) complies with such other
requirements as the Secretary may
establish.
(B) A correspondent lender who--
(i) closes a mortgage in its name but
does not underwrite or service the
mortgage;
(ii) posts a surety bond, in lieu of
any requirement to provide audited
financial statements or meet a minimum
net worth requirement, in--
(I) a form satisfactory to
the Secretary; and
(II) an amount of $75,000, as
such amount is adjusted
annually by the Secretary (as
determined under regulations of
the Secretary) by the change
for such year in the Consumer
Price Index for All Urban
Consumers published monthly by
the Bureau of Labor Statistics
of the Department of Labor; and
(iii) complies with such other
requirements as the Secretary may
establish.
(C) A mortgage broker who--
(i) closes the mortgage in the name
of the lender and does not make,
underwrite, or service the mortgage;
(ii) is licensed, under the laws of
the State in which the property that is
subject to the mortgage is located, to
act as a mortgage broker in such State;
(iii) posts a surety bond in
accordance with the requirements of
subparagraph (B)(ii); and
(iv) complies with such other
requirements as the Secretary may
establish.
(3) The term ``mortgagor'' includes the original
borrower under a mortgage and the successors and
assigns of the original borrower.
[(c)] (4) The term ``maturity date'' means the date
on which the mortgage indebtedness would be
extinguished if paid in accordance with periodic
payments provided for in the mortgage.
[(d)] (5) The term ``State'' includes the several
States and Puerto Rico, the District of Columbia, Guam,
[the Trust Territory of the Pacific Islands] the
Commonwealth of the Northern Mariana Islands, American
Samoa, and the Virgin Islands.
[(e)] (6) The term ``family member'' means, with
respect to a mortgagor under such section, a child,
parent, or grandparent of the mortgagor (or the
mortgagor's spouse). In determining whether any of the
relationships referred to in the preceding sentence
exist, a legally adopted son or daughter of an
individual (and a child who is a member of an
individual's household, if placed with such individual
by an authorized placement agency for legal adoption by
such individual), and a foster child of an individual,
shall be treated as a child of such individual by
blood.
[(f)] (7) The term ``child'' means, with respect to a
mortgagor under such section, a son, stepson, daughter,
or stepdaughter of such mortgagor.
FEDERAL HOUSING ADMINISTRATION OPERATIONS
Sec. 202. [(a) Mutual Mortgage Insurance Fund.--There is
hereby created a Mutual Mortgage Insurance Fund (hereinafter
referred to as the ``Fund''), which shall be used by the
Secretary as a revolving fund for carrying out the provisions
of this title with respect to mortgages insured under section
203 as hereinafter provided, and there shall be allocated
immediately to such Fund the sum of $10,000,000 out of funds
made available to the Secretary for the purposes of this
title.]
(a) Mutual Mortgage Insurance Fund.--
(1) Establishment.--Subject to the provisions of the
Federal Credit Reform Act of 1990, there is hereby
created a Mutual Mortgage Insurance Fund (in this title
referred to as the ``Fund''), which shall be used by
the Secretary to carry out the provisions of this title
with respect to mortgages insured under section 203.
The Secretary may enter into commitments to guarantee,
and may guarantee, such insured mortgages.
(2) Limit on loan guarantees.--The authority of the
Secretary to enter into commitments to guarantee such
insured mortgages shall be effective for any fiscal
year only to the extent that the aggregate original
principal loan amount under such mortgages, any part of
which is guaranteed, does not exceed the amount
specified in appropriations Acts for such fiscal year.
(3) Fiduciary responsibility.--The Secretary has a
responsibility to ensure that the Mutual Mortgage
Insurance Fund remains financially sound.
(4) Annual independent actuarial study.--The
Secretary shall provide for an independent actuarial
study of the Fund to be conducted annually, which shall
analyze the financial position of the Fund. The
Secretary shall submit a report annually to the
Congress describing the results of such study and
assessing the financial status of the Fund. The report
shall recommend adjustments to underwriting standards,
program participation, or premiums, if necessary, to
ensure that the Fund remains financially sound.
(5) Quarterly reports.--During each fiscal year, the
Secretary shall submit a report to the Congress for
each quarter, which shall specify for mortgages that
are obligations of the Fund--
(A) the cumulative volume of loan guarantee
commitments that have been made during such
fiscal year through the end of the quarter for
which the report is submitted;
(B) the types of loans insured, categorized
by risk;
(C) any significant changes between actual
and projected claim and prepayment activity;
(D) projected versus actual loss rates; and
(E) updated projections of the annual subsidy
rates to ensure that increases in risk to the
Fund are identified and mitigated by
adjustments to underwriting standards, program
participation, or premiums, and the financial
soundness of the Fund is maintained.
The first quarterly report under this paragraph shall
be submitted on the last day of the first quarter of
fiscal year 2007, or upon the expiration of the 90-day
period beginning on the date of the enactment of the
Expanding American Homeownership Act of 2006, whichever
is later.
(6) Adjustment of premiums.--If, pursuant to the
independent actuarial study of the Fund required under
paragraph (5), the Secretary determines that the Fund
is not meeting the operational goals established under
paragraph (8) or there is a substantial probability
that the Fund will not maintain its established target
subsidy rate, the Secretary may either make
programmatic adjustments under section 203 as necessary
to reduce the risk to the Fund, or make appropriate
premium adjustments.
(7) Operational goals.--The operational goals for the
Fund are--
(A) to charge borrowers under loans that are
obligations of the Fund an appropriate premium
for the risk that such loans pose to the Fund;
(B) to minimize the default risk to the Fund
and to homeowners;
(C) to curtail the impact of adverse
selection on the Fund; and
(D) to meet the housing needs of the
borrowers that the single family mortgage
insurance program under this title is designed
to serve.
* * * * * * *
(c) Mortgagee Review Board.--
(1) * * *
* * * * * * *
(7) Definition of ``mortgagee''.--For purposes of
this subsection, the term ``mortgagee'' means--
(A) a mortgagee, as defined in section 201,
approved under this Act;
[(B) a lender or a loan correspondent
approved under title I of this Act;]
[(C)] (B) a branch office or subsidiary of
the mortgagee, lender, or loan correspondent;
or
[(D)] (C) a director, officer, employee,
agent, or other person participating in the
conduct of the affairs of the mortgagee,
lender, or loan correspondent.
* * * * * * *
[(s)] (e) Whenever the Secretary has taken any
discretionary action to suspend or revoke the approval of any
mortgagee to participate in any mortgage insurance program
under this title, the Secretary shall provide prompt notice of
the action and a statement of the reasons for the action to--
(1) * * *
* * * * * * *
[(4) the Administrator of the Farmers Home
Administration;]
(4) the Secretary of Agriculture;
* * * * * * *
[(e)] (f) Appraisal Standards.--(1) * * *
* * * * * * *
(3) Direct Endorsement Program.--
(A) * * *
(B) Any appraisal conducted pursuant to subparagraph
(A) shall be conducted by an individual who complies
with the qualifications or standards for appraisers
established by the Secretary pursuant to [section
202(e) of the National Housing Act] this subsection.
* * * * * * *
insurance of mortgages
Sec. 203. (a) * * *
(b) To be eligible for insurance under this section a
mortgage shall comply with the following:
(1) Have been made to[, and be held by,] a mortgagee
approved by the Secretary [as responsible and able to
service the mortgage properly].
(2) Involve a principal obligation (including such
initial service charges, appraisal, inspection, and
other fees as the Secretary shall approve) in an
amount--
[(A) not to exceed the lesser of--
[(i) in the case of a 1-family
residence, 95 percent of the median 1-
family house price in the area, as
determined by the Secretary; in the
case of a 2-family residence, 107
percent of such median price; in the
case of a 3-family residence, 130
percent of such median price; or in the
case of a 4-family residence, 150
percent of such median price; or
[(ii) 87 percent of the dollar amount
limitation determined under section
305(a)(2) of the Federal Home Loan
Mortgage Corporation Act for a
residence of the applicable size;
except that the dollar amount
limitation in effect for any area under
this subparagraph may not be less than
the greater of the dollar amount
limitation in effect under this section
for the area on the date of the
enactment of the Departments of
Veterans Affairs and Housing and Urban
Development, and Independent Agencies
Appropriations Act for Fiscal Year 1999
or 48 percent of the dollar limitation
determined under section 305(a)(2) of
the Federal Home Loan Mortgage
Corporation Act for a residence of the
applicable size; and
[(B) not to exceed an amount equal to the sum
of--
[(i) the amount of the mortgage
insurance premium paid at the time the
mortgage is insured; and
[(ii) in the case of--
[(I) a mortgage for a
property with an appraised
value equal to or less than
$50,000, 98.75 percent of the
appraised value of the
property;
[(II) a mortgage for a
property with an appraised
value in excess of $50,000 but
not in excess of $125,000,
97.65 percent of the appraised
value of the property;
[(III) a mortgage for a
property with an appraised
value in excess of $125,000,
97.15 percent of the appraised
value of the property; or
[(IV) notwithstanding
subclauses (II) and (III), a
mortgage for a property with an
appraised value in excess of
$50,000 that is located in an
area of the State for which the
average closing cost exceeds
2.10 percent of the average,
for the State, of the sale
price of properties located in
the State for which mortgages
have been executed, 97.75
percent of the appraised value
of the property.]
(A) not to exceed the lesser of--
(i) in the case of a 1-family
residence, the median 1-family house
price in the area, as determined by the
Secretary; and in the case of a 2-, 3-,
or 4-family residence, the percentage
of such median price that bears the
same ratio to such median price as the
dollar amount limitation in effect
under section 305(a)(2) of the Federal
Home Loan Mortgage Corporation Act (12
U.S.C. 1454(a)(2)) for a 2-, 3-, or 4-
family residence, respectively, bears
to the dollar amount limitation in
effect under such section for a 1-
family residence; or
(ii) the dollar amount limitation
determined under such section 305(a)(2)
for a residence of the applicable size;
except that the dollar amount limitation in
effect for any area under this subparagraph may
not be less than the greater of (I) the dollar
amount limitation in effect under this section
for the area on October 21, 1998, or (II) 65
percent of the dollar limitation determined
under such section 305(a)(2) for a residence of
the applicable size; and
(B) not to exceed the appraised value of the
property, plus any initial service charges,
appraisal, inspection and other fees in
connection with the mortgage as approved by the
Secretary.
For purposes of the preceding sentence, the term
``area'' means a metropolitan statistical area as
established by the Office of Management and Budget; and
the median 1-family house price for an area shall be
equal to the median 1-family house price of the county
within the area that has the highest such median price.
[For purposes of this paragraph, the term ``average
closing cost'' means, with respect to a State, the
average, for mortgages executed for properties that are
located within the State, of the total amounts (as
determined by the Secretary) of initial service
charges, appraisal, inspection, and other fees (as the
Secretary shall approve) that are paid in connection
with such mortgages. Notwithstanding any other
provision of this section, in any case where the
dwelling is not approved for mortgage insurance prior
to the beginning of construction, such mortgage shall
not exceed 90 per centum of the entire appraised value
of the property as of the date the mortgage is accepted
for insurance, unless (i) the dwelling was completed
more than one year prior to the application for
mortgage insurance, or (ii) the dwelling was approved
for guaranty, insurance, or a direct loan under chapter
37 of title 38, United States Code, prior to the
beginning of construction, or (iii) the dwelling is
covered by a consumer protection or warranty plan
acceptable to the Secretary and satisfies all
requirements which would have been applicable if such
dwelling had been approved for mortgage insurance prior
to the beginning of construction. As used herein, the
term ``veteran'' means any person who served on active
duty in the armed forces of the United States for a
period of not less than 90 days (or as certified by the
Secretary of Defense as having performed extra-
hazardous service), and who was discharged or released
therefrom under conditions other than dishonorable,
except that persons enlisting in the armed forces after
September 7, 1980, or entering active duty after
October 16, 1981, shall have their eligibility
determined in accordance with section 3103A(d) of title
38, United States Code.
* * * * * * *
[Notwithstanding any other provision of this
paragraph, the Secretary may not insure, or enter into
a commitment to insure, a mortgage under this section
that is executed by a first-time homebuyer and that
involves a principal obligation (including such initial
service charges, appraisal, inspection, and other fees
as the Secretary shall approve) in excess of 97 percent
of the appraised value of the property unless the
mortgagor has completed a program of counseling with
respect to the responsibilities and financial
management involved in homeownership that is approved
by the Secretary; except that the Secretary may, in the
discretion of the Secretary, waive the applicability of
this requirement.]
(3) Have a maturity satisfactory to the Secretary,
but not to exceed, in any event, [thirty-five years (or
thirty years if such mortgage is not approved for
insurance prior to construction)] forty years from the
date of the beginning of amortization of the mortgage.
* * * * * * *
(c)(1) * * *
(2) [Notwithstanding] Except as provided in paragraph (3)
and notwithstanding any other provision of this section, each
mortgage secured by a 1- to 4-family dwelling that is an
obligation of the Mutual Mortgage Insurance Fund or of the
General Insurance Fund pursuant to subsection (v) and each
mortgage that is insured under subsection (k) or section
234(c), shall be subject to the following requirements:
(A) * * *
* * * * * * *
(3) Flexible Risk-Based Premiums.--
(A) In general.--For any mortgage insured by the
Secretary under this title that is secured by a 1- to
4-family dwelling and for which the loan application is
received by the mortgagee on or after October 1, 2006,
the Secretary may establish a mortgage insurance
premium structure involving a single premium payment
collected prior to the insurance of the mortgage or
periodic payments, or both, without regard to any
maximum or minimum premium amounts set forth in this
subsection. The rate of premium for such a mortgage may
vary during the mortgage term as long as the basis for
determining the variable rate is established before the
execution of the mortgage. The Secretary may change a
premium structure established under this subparagraph
but only to the extent that such change is not applied
to any mortgage already executed.
(B) Establishment and alteration of premium
structure.--A premium structure shall be established or
changed under subparagraph (A) only by providing notice
to mortgagees and to the Congress, at least 30 days
before the premium structure is established or changed.
(C) Considerations for premium structure.--When
establishing a premium structure under subparagraph (A)
or when changing such a premium structure, the
Secretary shall consider the following:
(i) The effect of the proposed premium
structure on the Secretary's ability to meet
the operational goals of the Mutual Mortgage
Insurance Fund as provided in section 202(a).
(ii) Underwriting variables.
(iii) The extent to which new pricing under
the proposed premium structure has potential
for acceptance in the private market.
(iv) The administrative capability of the
Secretary to administer the proposed premium
structure.
(v) The effect of the proposed premium
structure on the Secretary's ability to
maintain the availability of mortgage credit
and provide stability to mortgage markets.
* * * * * * *
(h) Notwithstanding any other provision of this section,
the Secretary is authorized to insure any mortgage which
involves a principal obligation not in excess of the applicable
maximum dollar limit under subsection (b) and not in excess of
100 per centum of the appraised value of a property plus any
initial service charges, appraisal, inspection and other fees
in connection with the mortgage as approved by the Secretary,
upon which there is located a dwelling designed principally for
a single-family residence, where the mortgagor establishes (to
the satisfaction of the Secretary) that his home which he
occupied as an owner or as a tenant was destroyed or damaged to
such an extent that reconstruction is required as a result of a
flood, fire, hurricane, earthquake, storm, or other
catastrophe, which the President, pursuant to Robert T.
Stafford Disaster Relief and Emergency Assistance Act, has
determined to be a major disaster. [In any case in which the
single family residence to be insured under this subsection is
within a jurisdiction in which the President has declared a
major disaster to have occurred, the Secretary is authorized,
for a temporary period not to exceed 18 months from the date of
such Presidential declaration, to enter into agreements to
insure a mortgage which involves a principal obligation of up
to 100 percent of the dollar limitation determined under
section 305(a)(2) of the Federal Home Loan Mortgage Corporation
Act for single family residence, and not in excess of 100
percent of the appraised value.] In any case in which the
single family residence to be insured under this subsection is
within a jurisdiction in which the President has declared a
major disaster to have occurred, the Secretary is authorized,
for a temporary period not to exceed 36 months from the date of
such Presidential declaration, to enter into agreements to
insure a mortgage which involves a principal obligation of up
to 100 percent of the dollar limitation determined under
section 305(a)(2) of the Federal Home Loan Mortgage Corporation
Act for a single family residence, and not in excess of 100
percent of the appraised value of the property plus any initial
service charges, appraisal, inspection and other fees in
connection with the mortgage as approved by the Secretary.
[(i) The Secretary is authorized to insure under this
section, any mortgage meeting the requirements of subsection
(b) of this section, except as modified by this subsection,
which involves a principal obligation not in excess of 75 per
centum of the limit on the principal obligation applicable to a
one-family residence under subsection (b) of this section and
not in excess of 97 per centum (or, in any case where the
dwelling is not approved for mortgage insurance prior to the
beginning of construction, unless the construction of the
dwelling was completed more than one year prior to the
application for mortgage insurance or the dwelling was approved
for guaranty, insurance, or direct loan under chapter 37 of
title 38, United States Code, prior to the beginning of
construction, 90 per centum) of the appraised value of a
property located in an area where the Secretary finds it is not
practicable to obtain conformity with many of the requirements
essential to the insurance of mortgages on housing in built-up
urban areas, upon which there is located a dwelling designed
principally for a single-family residence: Provided, That the
Secretary finds that the property with respect to which the
mortgage is executed is an acceptable risk, giving
consideration to the need for providing adequate housing for
families of low and moderate income particularly in suburban
and outlying areas or small communities: Provided further, That
under the foregoing provisions of this subsection the Secretary
is authorized to insure any mortgage issued with respect to a
farm home on a plot of land two and one-half or more acres in
size adjacent to an all-weather public road.]
* * * * * * *
(k)(1) The Secretary may, in order to assist in the
rehabilitation of one- to four-family structures used primarily
for residential purposes, insure and make commitments to insure
rehabilitation loans (including advances made during
rehabilitation) made by financial institutions [on and after
180 days following the date of enactment of the Housing and
Community Development Amendments of 1978]. Such commitments to
insure and such insurance shall be made upon such terms and
conditions which the Secretary may prescribe and which are
consistent with the provisions of subsections (b), (c), (e),
(i) and (j) of this section, except as modified by the
provisions of this subsection.
* * * * * * *
(5) All funds received and all disbursements made pursuant
to the authority established by this subsection shall be
credited or charged as appropriate, to the [General Insurance
Fund] Mutual Mortgage Insurance Fund, and insurance benefits
shall be paid in cash out of such Fund or in debentures
executed in the name of such Fund. Insurance benefits paid with
respect to loans secured by a first mortgage and insured under
this subsection shall be paid in accordance with section 204[,
except that all references in section 204 to the Mutual
Mortgage Insurance Fund shall be construed as referring to the
General Insurance Fund]. Insurance benefits paid with respect
to loans secured by a mortgage other than a first mortgage and
insured under this subsection shall be paid in accordance with
paragraphs (6) and (7) of section 220(h), except that reference
to ``this subsection'' in such paragraphs shall be construed as
referring to this subsection.
* * * * * * *
[(o)(1) Notwithstanding any other provision of this
section or any other section of this title, the Secretary is
authorized to insure, and to commit to insure, under subsection
(b) of this section as modified by this subsection a mortgage
which meets both the requirements of this subsection and such
criteria as the Secretary by regulation may prescribe to
further the purpose of this subsection, in any community where
the Secretary determines that--
[(A) temporary adverse economic conditions exist
throughout the community as a direct and primary result
of outstanding claims to ownership of land in the
community by an American Indian tribe, band, or Nation;
[(B) such ownership claims are reasonably likely to
be settled, by court action or otherwise;
[(C) as a direct result of the community's
temporarily impaired economic condition, owner
occupants of homes in the community have been
involuntarily unemployed or underemployed and have thus
incurred substantial reductions in income which
significantly impair their ability to continue timely
payment of their mortgages;
[(D) as a result, widespread mortgage foreclosures
and distress sales of homes are likely in the
community; and
[(E) fifty or more individual homeowners were joined
as parties defendant or were members of a defendant
class prior to December 31, 1976, in litigation
involving claims to ownership of land in the community
by an American Indian tribe, band, or Nation.
[(2) A mortgage shall be eligible for insurance under
subsection (b) of this section as modified by this subsection
without regard to limitations in this title relating to a
mortgagor's reasonable ability to pay, economic soundness,
marketability of title, or any other statutory restriction
which the Secretary determines is contrary to the purpose of
this subsection, but only if the mortgagor is an owner of a
home in a community specified in paragraph (1) who, as a direct
result of the community's temporarily impaired economic
condition, has been involuntarily unemployed or underemployed
and has thus incurred a substantial reduction in income which
significantly impairs the owner's ability to continue timely
payment of the mortgage. The Secretary is authorized to
encourage or afford directly to or on behalf of mortgagors
whose mortgages are insured under subsection (b) as modified by
this subsection forebearance, assignment of mortgages to the
Secretary, or such other relief as the Secretary deems
appropriate and consistent with the purpose of this subsection.
The Secretary, in connection with any mortgage insured under
subsection (b) as modified by this subsection, shall have all
statutory powers, authority, and responsibilities which the
Secretary has with respect to other mortgages insured under
subsection (b), except that the Secretary may modify such
powers, authority, or responsibilities where the Secretary
deems such action to be necessary because of the special nature
of the mortgage involved. Notwithstanding section 202 of this
title, the insurance of a mortgage under subsection (b) of this
section as modified by this subsection shall be the obligation
of the Special Risk Insurance Fund created pursuant to section
238 of this title.
[(p)(1) Notwithstanding any other provision of this
section or any other section of this title, the Secretary is
authorized to insure, and to commit to insure, under subsection
(b) of this section as modified by this subsection a mortgage
which meets both the requirements of this subsection and such
criteria as the Secretary by regulation shall prescribe to
further the purpose of this subsection, in any community where
the Secretary determines that--
[(A) temporary adverse economic conditions exist
throughout the community as a direct and primary result
of outstanding claims to ownership of land in the
community by an American Indian tribe, band, or nation;
[(B) such ownership claims are reasonably likely to
be settled, by court action or otherwise; and
[(C) fifty or more individual homeowners were joined
as parties defendant or were members of a defendant
class prior to April 1, 1980, in ligitation involving
claims to ownership of land in the community by an
American Indian tribe, band, group, or nation pursuant
to a dispute involving the Articles of Confederation,
Trade and Intercourse Act of 1790, or any similar State
or Federal law.
[(2) A mortgage shall be eligible for insurance under
subsection (b) of this section as modified by this subsection
without regard to limitations in this title relating to
marketability of title, or any other statutory restriction
which the Secretary determines is contrary to the purpose of
this subsection, but only if the mortgagor is an owner of a
home in a community specified in paragraph (1). The Secretary,
in connection with any mortgage insured under subsection (b) as
modified by this subsection, shall have all statutory powers,
authority, and responsibilities which the Secretary has with
respect to other mortgages insured under subsection (b), except
that the Secretary may modify such powers, authority, or
responsibilities where the Secretary deems such action to be
necessary because of the special nature of the mortgage
involved. Notwithstanding section 202 of this title, the
insurance of a mortgage under subsection (b) of this section as
modified by this subsection shall be the obligation of the
Special Risk Insurance Fund created pursuant to section 238 of
this title.
[(q)(1) Notwithstanding any other provision of this
section or any other section of this title, the Secretary shall
insure and commit to insure, under subsection (b) as modified
by this subsection, any mortgage secured by property located on
land that--
[(A) is within the Allegany Reservation of the Seneca
Nation of New York Indians; and
[(B) is subject to a lease entered into for a term of
99 years pursuant to the Act of February 19, 1875
(Chapter 90; 18 Stat. 330) and the Act of September 30,
1890 (Chapter 1132; 26 Stat. 558).
[(2) A mortgage shall be eligible for insurance under
subsection (b) as modified by this subsection without regard to
limitations in this title relating to marketability of title or
any other statutory restriction that the Secretary determines
is contrary to the purpose of this subsection.
[(3) The Secretary, in connection with any mortgage
insured under subsection (b) as modified by this subsection,
shall have all statutory powers, authority, and
responsibilities that the Secretary has with respect to other
mortgages insured under subsection (b), except that the
Secretary may modify such powers, authority, or
responsibilities if the Secretary determines such action to be
necessary because of the special nature of the mortgage
involved.
[(4) Notwithstanding section 202, the insurance of a
mortgage under subsection (b) as modified by this subsection
shall be the obligation of the Special Risk Insurance Fund
created in section 238.]
* * * * * * *
(u)(1) * * *
(2) For purposes of this subsection--
(A) the term ``area'' [shall have the meaning given
the term under subsection (b)(2);] means a metropolitan
statistical area as established by the Office of
Management and Budget;
* * * * * * *
(v) [Notwithstanding section 202 of this title, the] The
insurance of a mortgage under this section in connection with
the assistance provided under section 8(y) of the United States
Housing Act of 1937 shall be the obligation of the [General
Insurance Fund created pursuant to section 519 of this title.
The provisions of subsections (a) through (h), (j), and (k) of
section 204 shall apply to such mortgages, except that (1) all
references in section 204 to the Mutual Mortgage Insurance Fund
or the Fund shall be construed to refer to the General
Insurance Fund, and (2) any excess amounts described in section
204(f)(1) shall be retained by the Secretary and credited to
the General Insurance Fund. The report required under this
subsection shall include the report required under section
540(c) and the report required under section 205(g).] Mutual
Mortgage Insurance Fund.
* * * * * * *
classification of mortgages and insurance fund
Sec. 205. (a) * * *
* * * * * * *
[(g) The Secretary shall provide for an independent
actuarial study of the Mutual Mortage Insurance Fund to be
conducted annually and shall report annually to the Congress
regarding the financial status of the Fund.
[(h)(1) If, pursuant to the independent annual actuarial
study of the Mutual Mortgage Insurance Fund required under
subsection (g), the Secretary determines that the Mutual
Mortgage Insurance Fund is not meeting the operational goals
under paragraph (2), the Secretary may not issue distributions,
and may, by regulation, propose and implement any adjustments
to the insurance premiums under section 203(c) or section
2103(b) of the Omnibus Budget Reconciliation Act of 1990. Upon
determining that a premium change is appropriate under the
preceding sentence, the Secretary shall immediately notify
Congress of the proposed change and the reasons for the change.
Any such premium change shall not take effect before the
expiration of the 90-day period beginning upon such
notification.
[(2) The operational goals referred to in paragraph (1)
shall be--
[(A) maintaining an adequate capital ratio;
[(B) meeting the needs of homebuyers with low
downpayments and first-time homebuyers by providing
access to mortgage credit;
[(C) minimizing the risk to the Fund and to
homeowners from homeowner default; and
[(D) avoiding adverse selection.]
* * * * * * *
rental housing insurance
Sec. 207. (a) As used in this section--
(1) * * *
(2) The term ``mortgagee'' [means the original lender
under a mortgage, and its successors and assigns, and] has the
meaning given such term in section 201, except that such term
also includes the holders of credit instruments issued under a
trust mortgage or deed of trust pursuant to which such holders
act by and through a trustee therein named.
* * * * * * *
housing for moderate income and displaced families
Sec. 221. (a) * * *
* * * * * * *
(d) To be eligible for insurance under this section, a
mortgage shall--
(1) have been made to [and be held by] a mortgagee
approved by the Secretary [as responsible and able to
service the mortgage properly];
* * * * * * *
[mortgagor insurance for servicemen
[Sec. 222. (a) The purpose of this section is to aid in
the provision of housing accommodations for servicemen in the
Armed Forces of the United States, servicemen in the United
States Coast Guard and their families, and servicemen in the
United States National Oceanic and Atmospheric Administration
and their families by supplementing the insurance of mortgages
under section 203 of this title with a system of mortgage
insurance specially designed to assist the financing required
for the construction or purchase of dwellings by those persons.
As used in this section, a ``servicemen'' means a person to
whom the Secretary of Defense (or any officer or employee
designated by him), the Secretary of Transportation (or any
officer or employee designated by him), or the Secretary of
Commerce (or any officer or employee designated by him), as the
case may be, has issued a certificate hereunder indicating that
such person requires housing, is serving on active duty in the
Armed Forces of the United States, in the United States Coast
Guard, or in the United States National Oceanic and Atmospheric
Administration and has served on active duty for more than two
years, but a certificate shall not be issued hereunder to any
person ordered to active duty for training purposes only. The
Secretary of Defense, the Secretary of Transportation, and the
Secretary of Commerce, respectively, are authorized to
prescribe rules and regulations governing the issuance of such
certificates and may withhold issuance of more than one such
certificate to a serviceman whenever in his discretion issuance
is not justified due to circumstances resulting from military
assignment, or, in the case of the United States Coast Guard or
the United States National Oceanic and Atmospheric
Administration, other assignment.
[(b) To be eligible for insurance under this section a
mortgage shall--
[(1) meet the requirements of section 203(b) or
203(i), or 221(d)(2), or 234(c), except as such
requirements are modified by this section;
[(2) involve a dwelling designed principally for a
one-family residence or a one-family unit in a
condominium project;
[(3) have a principal obligation not in excess of the
sum of (i) 97 per centum of $25,000 of the appraised
value of the property as of the date the mortgage is
accepted for insurance, and (ii) 95 per centum of such
value in excess of $25,000; and
[(4) be executed by a mortgagor who at the time of
application for insurance is certified as a
``serviceman'' and who at the time of insurance is the
owner of the property and either occupies the property
as a principal residence or certifies that his failure
to do so is the result of his military assignment, or
in the case of the United States Coast Guard or the
United States National Oceanic and Atmospheric
Administration, other assignment.
[(c) The Secretary may prescribe the manner in which a
mortgage may be accepted for insurance under this section.
Premiums fixed by the Secretary under section 203 with respect
to, or payable during, the period of ownership by a serviceman
of the property involved shall not be payable by the mortgagee
but shall be paid not less frequently than once each year, upon
request of the Secretary to the Secretary of Defense, the
Secretary of Transportation, or the Secretary of Commerce, as
the case may be, from the respective appropriations available
for pay and allowances of persons eligible for mortgage
insurance under this section. As used herein, ``the period of
ownership by a serviceman'' means the period, for which
premiums are fixed, prior to the date that the Secretary of
Defense (or any officer or employee or other persons designated
by him), the Secretary of Transportation (or any officer or
employee or other person designated by him), or the Secretary
of Commerce (or any officer or employee or other person
designated by him), as the case may be, furnishes the Secretary
with a certification that such ownership (as defined by the
Secretary), has terminated.
[(d) Any mortgagee under a mortgage insured under this
section is entitled to the benefits of the insurance as
provided in section 204(a) with respect to mortgages insured
under section 203.
[(e) The provisions of subsections (b), (c), (d), (e),
(f), (g), (h), (j), and (k) of section 204 shall apply to
mortgages insured under this section, except that as applied to
those mortgages (1) all references to the ``Fund,'' or ``Mutual
Mortgage Insurance Fund,'' shall refer to the General Insurance
Fund, and (2) all references to ``section 203'' shall refer to
this section.
[(f) The Secretary is authorized to transfer to this
section the insurance on any mortgage covering a single-family
dwelling or a one-family unit in a condominium project insured
under this Act, if the mortgage indebtedness thereof has been
assumed by a serviceman who at the time of assumption is the
owner of the property and either occupies the property as a
principal residence or certifies that his failure to do so is
the result of his military assignment, or, in the case of the
United States Coast Guard or the United States National Oceanic
and Atmospheric Administration, other assignment.
[(g) Where a serviceman dies while on active duty in the
Armed Forces of the United States or in the United States Coast
Guard or in the United States National Oceanic and Atmospheric
Administration, leaving a surviving widow as owner of the
property, the period of ownership by the serviceman (within the
meaning of subsection (c) of this section) shall extend for two
years beyond the date of the serviceman's death or until the
date the widow disposes of the property, whichever date occurs
first. The Secretary of Defense or the Secretary of
Transportation, or the Secretary of Commerce, as the case may
be, shall notify such widow promptly following the serviceman's
death of the additional costs to be borne by the mortgagor
following termination of the two year period.]
* * * * * * *
mortgage insurance for condominiums
Sec. 234. (a) * * *
* * * * * * *
(c) The Secretary is authorized, in his discretion and
under such terms and conditions as he may prescribe (including
the minimum number of family units in the project which shall
be offered for sale and provisions for the protection of the
consumer and the public interest), to insure any mortgage
covering a one-family unit in a multifamily project and an
undivided interest in the common areas and facilities which
serve the project if (1) the mortgage meets the requirements of
this subsection and of section 203(b), except as that section
is modified by this subsection, [and] (2) at least 80 percent
of the units in the project covered by mortgages insured under
this title are occupied by the mortgagors or comortgagors, and
(3) the project has a blanket mortgage insured by the Secretary
under subsection (d). Any project proposed to be constructed or
rehabilitated after the date of enactment of the Housing Act of
1961 with the assistance of mortgage insurance under this Act,
where the sale of family units is to be assisted with mortgage
insurance under this subsection, shall be subject to such
requirements as the Secretary may prescribe. To be eligible for
insurance pursuant to this subsection, a mortgage shall (A)
involve a principal obligation in an amount not to exceed the
maximum principal obligation of a mortgage which may be insured
in the area pursuant to section 203(b)(2) or pursuant to
section 203(h) under the conditions described in section 203(h)
or pursuant to section 203(h) under the conditions described in
section 203(h), and (B) have a maturity satisfactory to the
Secretary, but not to exceed, in any event, [thirty-five years]
forty years from the date of the beginning of amortization of
the mortgages. The mortgage shall contain such provisions as
the Secretary determines to be necessary for the maintenance of
common areas and facilities and the multifamily project. The
mortgagor shall have exclusive right to the use of the one-
family unit covered by the mortgage and, together with the
owners of other units in the multifamily project, shall have
the right to the use of the common areas and facilities serving
the project and the obligation of maintaining all such common
areas and facilities. The Secretary may require that the rights
and obligations of the mortgagor and the owners of other
dwelling units in the project shall be subject to such controls
as he determines to be necessary and feasible to promote and
protect individual owners, the multifamily project and its
occupants. For the purposes of this subsection, the Secretary
is authorized in his discretion and under such terms and
conditions as he may prescribe to permit one-family units and
interests in common areas and facilities in multifamily
projects covered by mortgages insured under any section of this
Act other than section 213(a) (1) and (2) to be released from
the liens of those mortgages.
* * * * * * *
(g) Any mortgagee under a mortgage insured under
subsection (c) of this section is entitled to receive the
benefits of the insurance as provided in section 204(a) of this
Act with respect to mortgages insured under section 203, and
the provisions of subsections (b), (c), (d), (e), (f), (g),
(h), (j), and (k) of section 204 shall be applicable to the
mortgages insured under subsection (c) of this section[, except
that (1) all references in section 204 of the Mutual Mortgage
Insurance Fund or the Fund shall be construed to refer to the
General Insurance Fund, (2) all references therein to section
203 shall be construed to refer to subsection (c) of this
section, and (3) the excess remaining, referred to in section
204(f)(1), shall be retained by the Secretary and credited to
the General Insurance Fund.].
* * * * * * *
[special mortgage insurance assistance
[Sec. 237. (a) The purpose of this section is to help
provide adequate housing for families of low and moderate
income, including those who, for reasons of credit history,
irregular income patterns caused by seasonal employment, or
other factors, are unable to meet the credit requirements of
the Secretary for the purchase of a single-family home financed
by a mortgage insured under section 203, 220, 221, 234, or
235(j)(4), but who, through the incentive of homeownership and
counseling assistance, appear to be able to achieve
homeownership.
[(b) The Secretary is authorized upon application by the
mortgagee to insure under this section not more than 26 percent
of the total principal obligation (including such initial
service charges, and such appraisal, inspection, and other fees
as the Secretary shall approve) of any mortgage meeting the
requirements of this section.
[(c) To be eligible for insurance under this section, a
mortgage shall--
[(1) meet the requirements of section 203 (except
subsection (m)), 220(d)(3)(A), 221(d)(2), 221(h)(5),
221(i), 234(c), or 235(j)(4), except as such
requirements are modified by this section;
[(2) involve a principal obligation (including such
initial service charges, and such appraisal,
inspection, and other fees, as the Secretary shall
approve) in an amount not to exceed $70,000;
[(3) be executed by a mortgagor who the Secretary has
determined, after a full and complete study of the
case, would not be an acceptable credit risk for
mortgage insurance purposes under sections 203, 220,
221, 234, or 235(j)(4), because of his credit standing,
debt obligations, total annual income, or income
characteristics but who the Secretary is satisfied
would be a reasonably satisfactory credit risk,
consistent with the objectives stated in subsection
(a), if he were to receive budget, debt management, and
related counseling, prior to and during the 12 months
immediately following the purchase of the property,
from a community development financial institution
under section 103(5) of the Community Development
Banking and Financial Institutions Act of 1994:
Provided, That, in determining whether the mortgagor is
a reasonably satisfactory credit risk, the Secretary
shall review the credit history of the applicant giving
special consideration to those delinquent accounts
which were ultimately paid by the applicant and to
extenuating factors which may have caused credit
accounts of the applicant to become delinquent; and the
Secretary shall also give special consideration to
income characteristics of applicants whose total income
over the two years prior to their applications has
remained at levels of eligibility (as required under
paragraph (4) of this subsection), but who, because of
the character of their seasonal employment or for other
reasons, have not maintained continuous employment
under one employer during that time;
[(4) require monthly payments which, in combination
with local real estate taxes on the property involved,
do not exceed 36 per centum of the applicant's income,
based on his average monthly income during the year
prior to his application or the average monthly income
during the three years prior to his application,
whichever is higher; and
[(5) require the mortgagor to be subject, if
necessary, to a default mitigation effort undertaken by
an intermediary community development financial
institution under section 103(5) of the Community
Development Banking and Financial Institutions Act of
1994, that is acting as a sponsor and pass-through of
insurance under section 203 and is approved by the
Secretary;
[(6) involve a total principal obligation (including
such initial service charges, and such appraisal,
inspection, and other fees as the Secretary shall
approve) that is not more than 90 percent of the value
of the property for which the mortgage is provided; and
[(7) involve a total principal obligation (including
such initial service charges, and such appraisal,
inspection, and other fees as the Secretary shall
approve) in which the mortgagor has equity (as defined
by the Secretary) of not less than 10 percent and such
equity shall be subordinate to the interest of the
Secretary in the mortgaged property.
[(d) The Secretary shall give preference in approving
mortgage insurance applications and in providing counseling
services under this section (1) to families which are eligible
for assistance payments under section 235, (2) to families
living in empowerment zones and enterprise communities (as
those terms are defined in section 1393(b) of the Internal
Revenue Code of 1986 (26 U.S.C. 1393(b)) who are eligible for
homeownership assistance, and (3) to families living in public
housing units, especially those families required to leave
public housing because their incomes have risen beyond the
maximum prescribed income limits, and families eligible for
residence in public housing who have been displaced from
federally assisted urban renewal areas.
[(e) The Secretary is authorized to provide, or contract
with community development financial institutions under section
103(5) of the Community Development Banking and Financial
Institutions Act of 1994 to provide, such budget, debt
management, and related counseling services to mortgagors whose
mortgages are insured under this section as he determines to be
necessary to meet the objectives of this section. The Secretary
may also provide such counseling to otherwise eligible families
who lack sufficient funds to supply a down payment to help them
to save an amount necessary for that purpose.
[(f) The aggregate principal balance of the portions of
mortgages insured under this section and outstanding at one
time shall not exceed $200,000,000.
[(g) Mortgages insured under this section shall be subject to
an insurance premium fee of not more than 1.25 percent of the
total mortgage principal obligation (including such initial
service charges, and such appraisal, inspection, and other fees
as the Secretary shall approve).
[(h) Before insuring a mortgage under this section, the
Secretary shall enter into such contracts or other agreements
as may be necessary to ensure that the mortgagee or other
holder of the mortgage shall assume not less than 10 percent
and not more than 50 percent of any loss on the insured
mortgage, subject to any reasonable limit on the liability of
the mortgagee or holder of the mortgage that may be specified
in the event of unusual or catastrophic losses that may be
incurred by any one mortgagee or mortgage holder.
[(i) No guarantees may be issued under section 306(g) for the
timely payment of interest or principal on securities backed,
in whole or in part, by mortgages insured under this section.
[(j) There are authorized to be appropriated such sums as
may be necessary to carry out the provisions of subsection (e)
of this section.]
* * * * * * *
[GRADUATED PAYMENT AND INDEXED MORTGAGES
[Sec. 245. (a) The Secretary may insure under any
provision of this title mortgages and loans with provisions of
varying rates of amortization corresponding to anticipated
variations in family income or with monthly payments and
outstanding balances adjusted by a percentage change in a
selected price index to the extent he determines such mortgages
or loans (1) have promise for expanding housing opportunities
or meet special needs, (2) can be developed to include any
safeguards for mortgagors or purchasers that may be necessary
to offset special risks of such mortgages, and (3) have a
potential for acceptance in the private market. Notwithstanding
any other provision of this title, except as provided in
subsections (b) and (c) of this section, the principal
obligation (including all interest to be deferred and added to
principal) of a mortgage insured pursuant to this section may
not exceed 97 per centum of the appraised value of the property
covered by the mortgage as of the date the mortgage is accepted
for insurance.
[(b) Notwithstanding the provisions of subsection (a), the
Secretary may insure under any provision of this title a
mortgage or loan which meets the requirements of the first
sentence of subsection (a) and which has provisions for varying
rates of amortization if the Secretary determines--
[(1) the mortgagor could not reasonably afford to
purchase the dwelling unit by means of a mortgage
insured under subsection (a) or any other mortgage
insurance program under this title;
[(2) the principal obligation of the mortgage or loan
initially does not exceed the percentage of the initial
appraised value of the property specified in section
203(b) of this title as of the date the mortgage or
loan is accepted for insurance;
[(3) the principal obligation of the mortgage or loan
thereafter (including all interest to be deferred and
added to principal) will not at any time be scheduled
to exceed 97 per centum of the projected value of the
property; and
[(4) the principal obligation of the mortgage
thereafter will not exceed 113 per centum of the
initial appraised value of the property.
Mortgage insurance under this subsection shall be limited to
mortgages executed by mortgagors who, as determined by the
Secretary, have not owned dwelling units within the preceding
three years. For the purpose of this subsection, the projected
value of the property shall be calculated by the Secretary by
increasing the initial appraised value of the property at a
rate not in excess of 2\1/2\ per centum per annum. The number
of mortgages which are insured in accordance with this
subsection in any fiscal year may not exceed (A) that number of
mortgages the aggregate initial principal obligation of which
equals 10 per centum of the aggregate amount of the initial
principal obligation of all mortgages secured by properties
improved by one- to four-family residences which are insured
under this title during the preceding fiscal year, or (B)
50,000 mortgages, whichever is greater. No loan or mortgage may
be insured under this subsection after the date of the
enactment of the Housing and Community Development Act of 1987,
except pursuant to a commitment to insure entered into on or
before such date.
[(c) Notwithstanding the provisions of subsection (a), the
Secretary may insure under any provision of this title a
mortgage or loan that meets the requirements of the first
sentence of subsection (a) and that has provisions permitting
adjustment of monthly payments and outstanding principal
according to changes or percentages of changes in a selected
price index if the Secretary determines--
[(1) the principal obligation of the mortgage or loan
initially does not exceed the percentage of the initial
appraised value of the property specified in section
203(b) as of the date the mortgage or loan is accepted
for insurance; and
[(2) the monthly payments and principal obligation of
the mortgage or loan thereafter will not at any time be
increased at a rate greater than the percentage change
in the price index stipulated in the initial mortgage
or loan contract.
In carrying out this subsection, the Secretary shall give a
priority to mortgages executed by mortgagors who, as determined
by the Secretary, have not owned dwelling units within the
preceding 3 years. The Secretary shall, not later than March
31, 1984, prescribe regulations establishing guidelines
governing mortgages and loans described in this subsection and
shall, to the extent practicable, conduct a demonstration
program to insure mortgages and loans in accordance with this
subsection during fiscal years 1984 and 1985. The aggregate
number of mortgages and loans insured under this subsection and
section 252 in any fiscal year may not exceed 10 percent of the
aggregate number of mortgages and loans insured by the
Secretary under this title during the preceding fiscal year.
[(d)(1) The Secretary may insure, under any provision of
this title relating to multifamily housing projects, mortgages
and loans with provisions of varying rates of amortization
corresponding to anticipated variations in project income, to
the extent the Secretary determines such mortgages or loans (A)
have promise for expanding housing opportunities or meet
special needs; (B) can be developed to include any safeguards
for mortgagors, tenants, or purchasers that may be necessary to
offset special risks of such mortgages; and (C) have a
potential for acceptances in the private market.
[(2) Notwithstanding any other provision of this title,
the principal obligation of a mortgage or loan insured pursuant
to this subsection--
[(A) may not exceed initially the percentage of the
initial appraised value or replacement cost of the
property involved that is required by the provision of
this title under which such property is insured; and
[(B) thereafter (including all interest to be
deferred and added to principal) may not at any time be
scheduled to exceed 100 percent of the projected value
of such property.
[(3) For purposes of this subsection, the projected value
of a property shall be calculated by the Secretary by
increasing the initial appraised value of such property at a
rate not in excess of 2.5 percent per annum.
[(e) Any mortgage or loan insured pursuant to this section
which contains or sets forth any graduated mortgage provisions
(including but not limited to provisions for adding deferred
interest to principal) which are authorized under this section
and applicable regulations, or which have been insured on the
basis of their being so authorized, shall not be subject to any
State constitution, statute, court decree, common law, or rule
of public policy (1) limiting the amount of interest which may
be charged, taken, received, or reserved, or the manner of
calculating such interest (including but not limited to
prohibitions against the charging of interest on interest), if
such constitution, statute, court decree, common law, or rule
would not apply to the mortgage or loan in the absence of such
graduated payment mortgage provisions, or (2) requiring a
minimum amortization of principal under the mortgage or loan.]
* * * * * * *
single-family mortgage insurance on hawaiian home lands
Sec. 247. (a) * * *
* * * * * * *
(c) Notwithstanding any other provision of this Act, the
insurance of a mortgage using the authority contained in this
section shall be the obligation of the [General Insurance Fund
established in section 519] Mutual Mortgage Insurance Fund. The
mortgagee shall be eligible to receive the benefits of
insurance as provided in section 204 with respect to mortgages
insured pursuant to this section, except that [(1) all
references in section 204 to the Mutual Mortgage Insurance Fund
or the Fund shall be construed to refer to the General
Insurance Fund; and (2)] all references in section 204 to
section 203 shall be construed to refer to the section under
which the mortgage is insured.
* * * * * * *
single family mortgage insurance on indian reservations
Sec. 248. (a) * * *
* * * * * * *
(f) Notwithstanding any other provision of this Act, the
insurance of a mortgage using the authority contained in this
section shall be the obligation of the [General Insurance Fund
established in section 519] Mutual Mortgage Insurance Fund. The
mortgagee shall be eligible to receive the benefits of
insurance as provided in section 204 with respect to mortgages
insured pursuant to this section, except that [(1) all
references in section 204 to the Mutual Mortgage Insurance Fund
or the Fund shall be construed to refer to the General
Insurance Fund; and (2)] all references in section 204 to
section 203 shall be construed to refer to the section under
which the mortgage is insured.
* * * * * * *
INSURANCE OF HOME EQUITY CONVERSION MORTGAGES FOR ELDERLY HOMEOWNERS
Sec. 255. (a) * * *
* * * * * * *
(d) Eligibility Requirements.--To be eligible for insurance
under this section, a mortgage shall--
(1) have been made to a mortgagee approved by the
Secretary [as responsible and able to service the
mortgage properly];
* * * * * * *
(g) Limitation on Insurance Authority.--[The aggregate number
of mortgages insured under this section may not exceed
250,000.] In no case may the benefits of insurance under this
section exceed the maximum dollar amount [established under
section 203(b)(2) for 1-family residences in the area in which
the dwelling subject to the mortgage under this section is
located] limitation established under section 305(a)(2) of the
Federal Home Loan Mortgage Corporation Act for a 1-family
residence.
* * * * * * *
(i) Protection of Homeowner and Lender.--
(1) Notwithstanding any other provision of law, and
in order to further the purposes of the program
authorized in this section, the Secretary shall take
any action necessary--
(A) * * *
* * * * * * *
(C) to provide any mortgagee under this
section with funds not to exceed the
[limitations] limitation in subsection (g) to
which the mortgagee is entitled under the terms
of the insured mortgage or ancillary contracts
authorized in this section.
(2) Actions under paragraph (1) may include--
(A) disbursing funds to the mortgagor or
mortgagee from the [General Insurance Fund]
Mutual Mortgage Insurance Fund;
* * * * * * *
(n) Authority to Insure Home Purchase Mortgage.--
(1) In general.--Notwithstanding any other provision
in this section, the Secretary may insure, upon
application by a mortgagee, a home equity conversion
mortgage upon such terms and conditions as the
Secretary may prescribe, when the primary purpose of
the home equity conversion mortgage is to enable an
elderly mortgagor to purchase a 1- to 4-family dwelling
in which the mortgagor will occupy or occupies one of
the units.
(2) Limitation on principal obligation.--A home
equity conversion mortgage insured pursuant to
paragraph (1) shall involve a principal obligation that
does not exceed the dollar amount limitation determined
under section 305(a)(2) of the Federal Home Loan
Mortgage Corporation Act for a residence of the
applicable size.
* * * * * * *
TITLE V--MISCELLANEOUS
* * * * * * *
establishment of general insurance fund
Sec. 519. (a) * * *
* * * * * * *
(e) The General Insurance Fund shall not be used for
carrying out the provisions of sections [203(b) (except as
provided in section 203(v)), 203(h) and 203(i)] 203, except as
determined by the Secretary, or the provisions of section 213
to the extent that they involve mortgages the insurance for
which is the obligation of the Cooperative Management Housing
Insurance Fund created by section 213(k), or the provisions of
sections 223(e), 233(a)(2), 235, 236 and 237; and nothing in
this section shall apply to or affect mortgages, loans,
commitments, or insurance under such provisions.
* * * * * * *
TITLE VI--WAR HOUSING INSURANCE
Sec. 601. As used in this subchapter--
(a) * * *
(b) The term ``mortgagee'' [includes the original lender
under a mortgage, and his successors and assigns approved by
the Secretary] has the meaning given such term in section 201;
and the term ``mortgagor'' includes the original borrower under
a mortgage and his successors and assigns.
* * * * * * *
Sec. 603. (a) * * *
(b) To be eligible for insurance under this section a
mortgage shall--
(1) have been made to[, and be held by,] a mortgagee
approved by the Secretary [as responsible and able to service
the mortgage properly];
* * * * * * *
Sec. 611. (a) * * *
(b) To be eligible for insurance under this section, a
mortgage shall--
(1) have been made to [and be held by] a mortgagee
approved by the Secretary [as responsible and able to service
the mortgage properly];
* * * * * * *
TITLE VIII--ARMED SERVICES HOUSING MORTGAGE INSURANCE
Sec. 801. As used in this title--
(a) * * *
(b) The term ``mortgagee'' [includes the original lender
under a mortgage, and his successors and assigns approved by
the Secretary] has the meaning given such term in section 201;
and the term ``mortgagor'' includes the original borrower under
a mortgage, his successors and assigns.
* * * * * * *
TITLE IX--NATIONAL DEFENSE HOUSING INSURANCE
* * * * * * *
Sec. 903. (a) * * *
(b) To be eligible for insurance under this section a
mortgage shall--
(1) have been made to[, and be held by,] a mortgagee
approved by the Secretary [as responsible and able to service
the mortgage properly];
* * * * * * *
TITLE XI--MORTGAGE INSURANCE FOR GROUP PRACTICE FACILITIES
insurance of mortgages
Sec. 1101. (a) * * *
(b) To be eligible for insurance under this title, the
mortgage shall (1) be executed by a mortgagor that is a group
practice unit or organization or other mortgagor, approved by
the Secretary, (2) be made to [and held by] a mortgagee
approved by the Secretary [as responsible and able to service
the mortgage properly], and (3) cover a property or project
which is approved for mortgage insurance prior to the beginning
of construction or rehabilitation and is designed for use as a
group practice facility or medical practice facility which the
Secretary finds will be constructed in an economical manner,
will not be of elaborate or extravagant design or materials,
and will be adequate and suitable for carrying out the purposes
of this title. No mortgage shall be insured under this title
unless it is shown to the satisfaction of the Secretary that
the applicant would be unable to obtain the mortgage loan
without such insurance on terms comparable to those specified
in subsection (c).
* * * * * * *
definitions
Sec. 1106. For the purposes of this title--
(1) * * *
* * * * * * *
(8) The term ``mortgagee'' [means the original lender
under a mortgage, and his or its successors and assigns, and]
has the meaning given such term in section 201, except that
such term also includes the holders of credit instruments
issued under a trust mortgage or deed of trust pursuant to
which such holders act by and through a trustee named therein.
* * * * * * *
Additional Views
----------
ADDITIONAL VIEWS OF REPRESENTATIVE FRANK
H.R. 5121 includes a number of important reforms designed
to reform and rejuvenate the FHA single family loan program, in
order to restore FHA's role in promoting homeownership. These
reforms include authorizing zero down payment mortgage loans,
raising FHA loan limits in high cost areas, and providing more
flexibility for FHA to offer mortgage loans for subprime
borrowers. As the committee report notes, these reforms hold
the promise of offering more attractive loan opportunities for
many borrowers who are unfortunately now turning to predatory
loans, for lack of any real alternative.
There is also a recognition that if FHA is to take greater
credit risk by offering zero down loans or underwriting loans
for borrowers with higher credit risk, FHA may have to raise
FHA premiums in a manner commensurate with such additional
risk. It is also argued that FHA should be given the authority
to engage in ``risk-based pricing''--in order to accurately
price such riskier loans while continuing to offer loans to
FHA's existing profile of borrowers at competitive fees. As a
result, H.R. 5121 authorizes higher loan premiums and risk-
based pricing.
While I recognize that such provisions may be necessary to
achieve the goals of the bill, I have raised concerns
throughout the hearing and markup process that FHA premiums
should not be increased beyond what is needed to address the
additional risk involved. In particular, with the utilization
of risk-based pricing, I believe it is important that lower
income borrowers not be disproportionately impacted by higher
fees.
I also believe there should be a mechanism so that
borrowers whose repayment performance demonstrates they were
not a higher risk should not pay higher fees indefinitely. In
particular, in keeping with the Administration's Payment
Incentives budget proposal, borrowers paying higher premiums
that make five years of timely mortgage payments should at the
least have their annual premiums dropped down to the premiums
charged to more credit-worthy borrowers after such a five-year
on-time payment period.
I appreciate the cooperation of the Chair in working to
address these concerns as this legislation moves forward, and I
look forward to the legislation being implemented in a manner
that fully addresses the concerns I have raised.
Barney Frank.
ADDITIONAL VIEWS OF HONORABLE MAXINE WATERS
The Expanding American Homeownership Act of 2006, H.R.
5121, represents a major achievement by the Committee on
Financial Services and the Subcommittee on Housing and
Community Opportunity. Mr. Oxley, Chairman of the Committee on
Financial Services and Mr. Ney, Chairman, of the Subcommittee
and its Members both deserve considerable credit for the
passage of the bill. In addition, the more than 100 cosponsors
who signed onto H.R. 5121 have played a crucial role in
advancing this bipartisan legislation. Further, the broad-based
coalition of support among interest groups makes this a unique
legislative measure, since there are divergent points of view
on most substantive legislative initiatives in Congress.
H.R. 5121 is appropriately named because it will expand
homeownership opportunities for Americans. There is unequivocal
evidence that without FHA, many first time home buyers and low
and moderate income persons would not be able to afford a home.
Americans had grown accustomed to FHA for mortgage insurance,
guaranteeing their entry into the coveted arena of homeowners.
FHA had come to rely on first-time home buyers and low and
moderate income persons to justify its existence. In the last
few years, however, FHA watched as its share of the mortgage
insurance market dwindled and the groups it traditionally
served disappeared.
FHA was forced to become the mortgage insurer of last
resort, rather than the preferred insurer. Without viable FHA
alternatives, many homebuyers--first-time buyers, minority
buyers and home buyers with less-than-perfect credit fled FHA
for the subprime market, leaving many with few safe and
affordable options. Some have been forced to turn to high-cost
financing and non-traditional loan products. While these
options are acceptable for certain borrowers, they can have
devastating consequences for others. In fact, when we began
consideration of this bill, the foreclosure rate for non-prime
loans was approximately twice that of prime loans.
By providing consumers with choice, H.R. 5121 will provide
FHA the flexibility to set mortgage insurance premiums
consistent with the risk of the loan. FHA will now use the
borrower's total credit score or profile when setting the
insurance premium. Borrowers who are a low credit risk would
pay a lower insurance premium, while borrowers who pose a
higher credit risk would be charged a slightly higher premium.
As such, FHA will be able to reach deeper into the pool of
prospective borrowers, while guaranteeing the soundness of the
FHA fund. In the 35th Congressional District in California that
I serve, 2,064 loans were insured by FHA in 2001, but only 74
loans were made in 2005. Similarly, FHA programs have been
seriously curtailed in just about every region of the country,
resulting in fewer and fewer home purchases supported by FHA
programs.
H.R. 5121 will increase FHA loan limits. In many areas of
the country, the existing FHA loan limits are lower than the
cost of new construction or the median home price. In other
areas, FHA had been priced out of the market. As indicated in
this Committee report, in 1999, FHA insured 127,000 loans in
California while a mere 5,000 loans were insured by FHA in
2005, representing less than 5 percent of the 1999 level.
Because FHA business diminished dramatically during this
period, in my view American homeownership did not expand as
much as possible; the FHA loan limit of $362,790 in Los
Angeles, California meant that FHA was essentially no longer
relevant in that housing market.
Under H.R. 5121, we will expand homeownership opportunities
for Americans because of several new provisions. Through the
use of risk-based premiums, FHA will have a considerable amount
of new flexibility, making it more competitive in today's
market. Flexibility ondownpayments is also key to allowing many
persons to consider owning a home. Because cash is hard to raise for
many Americans for the downpayment, many borrowers never achieve
homeowner status. That is simply wrong. I believe that when borrowers
meet all of the other criteria related to homeownership, the individual
or family should be rewarded with an FHA insured mortgage. Longer
mortgage terms--40 years-- is one of the reform measures in this bill
that will provide borrowers with flexibility that they might not
otherwise have with other products. In addition, the Expanding American
Homeownership Act of 2006 will increase the number of FHA reverse
mortgages and condominiums that can be insured. I concur with the views
contained in the Committee report that characterize FHA's relevance to
markets in the 21st Century because of the aforementioned reforms.
As Ranking Member ofthe Subcommittee on Housing and
Community Opportunity, I strongly believe that H.R. 5121, the
Expanding American Homeownership Act of 2006 is monumental
legislation of historic proportion that will lead to the
modernization of FHA and to expanded homeownership
opportunities for a new wave of American homeowners. Thank you.
Maxine Waters