[House Report 111-476]
[From the U.S. Government Publishing Office]
111th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 111-476
======================================================================
FHA REFORM ACT OF 2010
_______
May 6, 2010.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Frank of Massachusetts, from the Committee on Financial Services,
submitted the following
R E P O R T
together with
ADDITIONAL VIEWS
[To accompany H.R. 5072]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 5072) to improve the financial safety and
soundness of the FHA mortgage insurance program, 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.............................................. 7
Background and Need for Legislation.............................. 7
Hearings......................................................... 10
Committee Consideration.......................................... 11
Committee Votes.................................................. 11
Committee Oversight Findings..................................... 16
Performance Goals and Objectives................................. 16
New Budget Authority, Entitlement Authority, and Tax Expenditures 16
Committee Cost Estimate.......................................... 16
Congressional Budget Office Estimate............................. 16
Federal Mandates Statement....................................... 20
Advisory Committee Statement..................................... 20
Constitutional Authority Statement............................... 20
Applicability to Legislative Branch.............................. 20
Earmark Identification........................................... 20
Section-by-Section Analysis of the Legislation................... 20
Changes in Existing Law Made by the Bill, as Reported............ 24
Additional Views................................................. 31
Amendment
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``FHA Reform Act of 2010''.
SEC. 2. MORTGAGE INSURANCE PREMIUMS.
Subparagraph (B) of section 203(c)(2) of the National Housing Act (12
U.S.C. 1709(c)(2)(B)) is amended--
(1) in the matter preceding clause (i)--
(A) by striking ``shall'' and inserting ``may''; and
(B) by striking ``0.50 percent'' and inserting ``1.5
percent''; and
(2) in clause (ii), by striking ``shall be in an amount not
exceeding 0.55 percent'' and inserting ``may be in an amount
not exceeding 1.55 percent''.
SEC. 3. INDEMNIFICATION BY MORTGAGEES.
Section 202 of the National Housing Act (12 U.S.C. 1708) is amended
by adding at the end the following new subsection:
``(i) Indemnification by Mortgagees.--
``(1) In general.--If the Secretary determines that a
mortgage executed by a mortgagee approved by the Secretary
under the direct endorsement program or insured by a mortgagee
pursuant to the delegation of authority under section 256 was
not originated or underwritten in accordance with the
requirements established by the Secretary, and the Secretary
pays an insurance claim with respect to the mortgage within a
reasonable period specified by the Secretary, the Secretary may
require the mortgagee approved by the Secretary under the
direct endorsement program or the mortgagee delegated authority
under section 256 to indemnify the Secretary for the loss.
``(2) Fraud or misrepresentation.--If fraud or
misrepresentation was involved in connection with the
origination or underwriting, the Secretary may require the
mortgagee approved by the Secretary under the direct
endorsement program or the mortgagee delegated authority under
section 256 to indemnify the Secretary for the loss regardless
of when an insurance claim is paid.
``(3) Requirements and procedures.--The Secretary shall issue
regulations establishing appropriate requirements and
procedures governing the indemnification of the Secretary by
the mortgagee.''.
SEC. 4. DELEGATION OF INSURING AUTHORITY.
Section 256 of the National Housing Act (12 U.S.C. 1715z-21) is
amended--
(1) by striking subsection (c);
(2) in subsection (e), by striking ``, including'' and all
that follows through ``by the mortgagee''; and
(3) by redesignating subsections (d) and (e) as subsections
(c) and (d), respectively.
SEC. 5. AUTHORITY TO TERMINATE MORTGAGEE ORIGINATION AND UNDERWRITING
APPROVAL.
Section 533 of the National Housing Act (12 U.S.C. 1735f-11) is
amended--
(1) in the first sentence of subsection (b), by inserting
``or areas or on a nationwide basis'' after ``area'' each place
such term appears; and
(2) in subsection (c), by striking ``(c)'' and all that
follows through ``The Secretary'' in the first sentence of
paragraph (2) and inserting the following:
``(c) Termination of Mortgagee Origination and Underwriting
Approval.--
``(1) Termination authority.--If the Secretary determines,
under the comparison provided in subsection (b), that a
mortgagee has a rate of early defaults and claims that is
excessive, the Secretary may terminate the approval of the
mortgagee to originate or underwrite single family mortgages
for any area, or areas, or on a nationwide basis,
notwithstanding section 202(c) of this Act.
``(2) Procedure.--The Secretary''.
SEC. 6. DEPUTY ASSISTANT SECRETARY OF FHA FOR RISK MANAGEMENT AND
REGULATORY AFFAIRS.
(a) Establishment of Position.--Subsection (b) of section 4 of the
Department of Housing and Urban Development Act (42 U.S.C. 3533(b)) is
amended--
(1) by inserting ``(1)'' after ``(b)''; and
(2) by adding at the end the following new paragraph:
``(2) There shall be in the Department, within the Federal Housing
Administration, a Deputy Assistant Secretary for Risk Management and
Regulatory Affairs, who shall be appointed by the Secretary and shall
be responsible to the Federal Housing Commissioner for all matters
relating to managing and mitigating risk to the mortgage insurance
funds of the Department and ensuring the performance of mortgages
insured by the Department.''.
(b) Termination.--Upon the appointment and confirmation of the
initial Deputy Assistant Secretary for Risk Management and Regulatory
Affairs pursuant to section 4(b)(2) of the Department of Housing and
Urban Development Act, as amended by subsection (a) of this section,
the position of chief risk officer within the Federal Housing
Administration, filled by appointment by the Federal Housing
Commissioner, is abolished.
SEC. 7. USE OF OUTSIDE CREDIT RISK ANALYSIS SOURCES.
Section 202 of the National Housing Act (12 U.S.C. 1708), as amended
by the preceding provisions of this Act, is further amended by adding
at the end the following new subsection:
``(j) Use of Outside Credit Risk Analysis Sources.--The Secretary may
obtain the services of, and enter into contracts with, private and
other entities outside of the Department in--
``(1) analyzing credit risk models and practices employed by
the Department in connection with such mortgages;
``(2) evaluating underwriting standards applicable to such
mortgages insured by the Department; and
``(3) analyzing the performance of lenders in complying with,
and the Department in enforcing, such underwriting
standards.''.
SEC. 8. REVIEW OF MORTGAGEE PERFORMANCE.
Section 533 of the National Housing Act (12 U.S.C. 1735f-11) is
amended--
(1) in subsection (a), by inserting after the period at the
end the following: ``For purposes of this subsection, the term
`early default' means a default that occurs within 24 months
after a mortgage is originated or such alternative appropriate
period as the Secretary shall establish.'';
(2) in subsection (b), by inserting after the period at the
end of the first sentence the following: ``The Secretary shall
also identify which mortgagees have had a significant or rapid
increase, as determined by the Secretary, in the number or
percentage of early defaults and claims on such mortgages, with
respect to all mortgages originated by the mortgagee or
mortgages on housing located in any particular geographic area
or areas.''; and
(3) by adding at the end the following new subsections:
``(d) Sufficient Resources.--There is authorized to be appropriated
to the Secretary for each of fiscal years 2010 through 2014 the amount
necessary to provide additional full-time equivalent positions for the
Department, or for entering into such contracts as are necessary, to
conduct reviews in accordance with the requirements of this section and
to carry out other responsibilities relating to ensuring the safety and
soundness of the Mutual Mortgage Insurance Fund.
``(e) Reporting to Congress.--Not later than 90 days after the date
of enactment of the FHA Reform Act of 2010 and not less often than
annually thereafter, the Secretary shall make available to the
Committee on Financial Services of the House of Representatives and the
Committee on Banking, Housing, and Urban Affairs of the Senate any
information and conclusions pursuant to the reviews required under
subsection (a). Such report shall not include detailed information on
the performance of individual mortgages.''.
SEC. 9. USE OF NATIONWIDE MORTGAGE LICENSING SYSTEM AND REGISTRY.
(a) Use by Mortgagees, Officers, and Owners; Use for Insured
Mortgages.--
(1) Mortgagees, officers, and owners.--Section 202 of the
National Housing Act (12 U.S.C. 1708), as amended by the
preceding provisions of this Act, is further amended by adding
at the end the following new subsections:
``(k) Use of Nationwide Mortgage Licensing System and Registry for
Mortgagees, Officers, and Owners.--The Secretary may require, as a
condition for approval of a mortgagee by the Secretary to originate or
underwrite mortgages on single family that are insured by the
Secretary, that the mortgagee--
``(1) obtain and maintain a unique company identifier
assigned by the Nationwide Mortgage Licensing System and
Registry, as established by the Conference of State Bank
Supervisors and the American Association of Residential
Mortgage Regulators; and
``(2) obtain and maintain, as relates to any and all officers
or owners of the mortgagee who are subject to the requirements
of the S.A.F.E. Mortgage Licensing Act of 2008, or are
otherwise required to register with the Nationwide Mortgage
Licensing System and Registry, the unique identifier assigned
by the Nationwide Mortgage Licensing System and Registry, as
established by the Conference of State Bank Supervisors and the
American Association of Residential Mortgage Regulators.''.
(2) Insured mortgages.--Section 203 of the National Housing
Act (12 U.S.C. 1709) is amended by adding at the end the
following new subsection:
``(y) Use of Nationwide Mortgage Licensing System and Registry for
Insured Loans.--The Secretary may require each mortgage insured under
this section to include the unique identifier (as such term is defined
in section 1503 of the S.A.F.E. Mortgage Licensing act of 2008 (12
U.S.C. 5102)) and any unique company identifier assigned by the
Nationwide Mortgage Licensing System and Registry, as established by
the Conference of State Bank Supervisors and the American Association
of Residential Mortgage Regulators.''.
(b) Coordination With State Regulatory Agencies.--Section 202 of the
National Housing Act (12 U.S.C. 1708), as amended by the preceding
provisions of this Act, is further amended by adding at the end the
following new subsection:
``(l) Information Sharing With State Regulatory Agencies.--
``(1) Joint protocol on information sharing.--The Secretary
shall, through consultation with State regulatory agencies,
pursue protocols for information sharing, including the
appropriate treatment of confidential or otherwise restricted
information, regarding either actions described in subsection
(c)(3) of this section or disciplinary or enforcement actions
by a State regulatory agency or agencies against a mortgagee
(as such term is defined in subsection (c)(7)).
``(2) Coordination.--To the greatest extent possible, the
Secretary and appropriate State regulatory agencies shall
coordinate disciplinary and enforcement actions involving
mortgagees (as such term is defined in subsection (c)(7)).''.
SEC. 10. REPORTING OF MORTGAGEE ACTIONS TAKEN AGAINST OTHER MORTGAGEES.
Section 202 of the National Housing Act (12 U.S.C. 1708(e)), as
amended by the preceding provisions of this Act, is further amended by
adding at the end the following new subsection:
``(m) Notification of Mortgagee Actions.--The Secretary shall require
each mortgagee, as a condition for approval by the Secretary to
originate or underwrite mortgages on single family or multifamily
housing that are insured by the Secretary, if such mortgagee engages in
the purchase of mortgages insured by the Secretary and originated by
other mortgagees or in the purchase of the servicing rights to such
mortgages, and such mortgagee at any time takes action to terminate or
discontinue such purchases from another mortgagee based on any
determination, evidence, or report of fraud or material
misrepresentation in connection with the origination of such mortgages,
the mortgagee shall, not later than 15 days after taking such action,
shall notify the Secretary of the action taken and the reasons for such
action.''.
SEC. 11. ANNUAL ACTUARIAL STUDY AND QUARTERLY REPORTS ON MUTUAL
MORTGAGE INSURANCE FUND.
Subsection (a) of section 202 of the National Housing Act (12 U.S.C.
1708(a)) is amended--
(1) in the second sentence of paragraph (4), by inserting
before the period at the end the following: ``, any changes to
the current or projected safety and soundness of the Fund since
the most recent report under this paragraph or paragraph (5),
and any risks to the Fund''; and
(2) in paragraph (5)--
(A) in subparagraph (D), by striking ``and'' at the
end;
(B) in subparagraph (E), by striking the period at
the end and inserting ``; and'';
(C) by adding at the end the following:
``(F) any other factors that are likely to have an
impact on the financial status of the Fund or cause any
material changes to the current or projected safety and
soundness of the Fund since the most recent report
under paragraph (4).
The Secretary may include in the report under this paragraph
any recommendations not made in the most recent report under
paragraph (4) that may be needed to ensure that the Fund
remains financially sound.''.
SEC. 12. REVIEW OF DOWNPAYMENT REQUIREMENTS.
Section 205 of the National Housing Act (12 U.S.C. 1711) is amended
by adding at the end the following new subsection:
``(g) Review of Downpayment Requirements.--If, at any time when the
capital ratio (as such term is defined in subsection (f)) of the Mutual
Mortgage Insurance Fund does not comply with the requirement under
subsection (f)(1), the Secretary establishes a cash investment
requirement, for all mortgages or mortgagors or with respect to any
group of mortgages or mortgagors, that exceeds the minimum percentage
or amount required under section 203(b)(9), thereafter upon the capital
ratio first complying with the requirement under subsection (f)(1) the
Secretary shall review such cash investment requirement and, if the
Secretary determines that such percentage or amount may be reduced
while maintaining such compliance, the Secretary shall subsequently
reduce such requirement by such percentage or amount as the Secretary
considers appropriate.''.
SEC. 13. DEFAULT AND ORIGINATION INFORMATION BY LOAN SERVICER AND
ORIGINATING DIRECT ENDORSEMENT LENDER.
(a) Collection of Information.--Paragraph (2) of section 540(b) of
the National Housing Act (12 U.S.C. 1712 U.S.C. 1735f-18(b)(2)) is
amended by adding at the end the following new subparagraph:
``(C) For each entity that services insured
mortgages, data on the performance of mortgages
originated during each calendar quarter occurring
during the applicable collection period, disaggregated
by the direct endorsement mortgagee from whom such
entity acquired such servicing.''.
(b) Applicability.--Information described in subparagraph (C) of
section 540(b)(2) of the National Housing Act, as added by subsection
(a) of this section, shall first be made available under such section
540 for the applicable collection period (as such term is defined in
such section) relating to the first calendar quarter ending after the
expiration of the 12-month period that begins on the date of the
enactment of this Act.
SEC. 14. THIRD PARTY SERVICER OUTREACH.
(a) Authority.--The Secretary of Housing and Urban Development may,
to the extent any amounts for fiscal year 2010 or 2011 are made
available in advance in appropriation Acts for reimbursements under
this section, provide reimbursement to servicers of covered mortgages
(as such term is defined in subsection (e)) for costs of obtaining the
services of independent third parties meeting the requirements under
subsection (b) of this section to make in-person contact with
mortgagors under covered mortgages whose payments under such mortgages
are 60 or more days past due, solely for the purposes of providing
information to such mortgagors regarding--
(1) available counseling by housing counseling agencies
approved by the Secretary ; and
(2) available mortgage loan modification, refinance, and
assistance programs.
(b) Qualified Independent Third Parties.--An independent third party
meets the requirements of this subsection if the third party--
(1) is an entity, including a housing counseling agency
approved by the Secretary, that meets standards,
qualifications, and requirements (including regarding
foreclosure prevention training, quality monitoring,
safeguarding of non-public information) established by the
Secretary for purposes of this section for in-person contact
about available mortgage loan modification, refinance, and
assistance programs; and
(2) does not charge any fees or require other payments,
directly or indirectly, from any mortgagor for making in-person
contact and providing information and documents under this
section.
(c) Treatment of Personal, Non-Public, and Confidential
Information.--An independent third party whose services are obtained
using amounts made available for use under this section and the
mortgage servicer obtaining such services shall not use, disclose, or
distribute any personal, non-public, or confidential information about
a mortgagor obtained during an in-person contact with the mortgagor,
except for purposes of engaging in the process of modification or
refinance of the covered mortgage.
(d) Date of Contact and Disclosures.--Each independent third party
whose services are obtained by a mortgage servicer using amounts made
available for use under this section shall--
(1) initiate in-person contact with a mortgagor not later
than 10 days after the date upon which payments under the
covered mortgage of the mortgagor become 60 days past due; and
(2) upon making in-person contact with a mortgagor, provide
the mortgagor with a written document that discloses--
(A) the name of, and contact information for, the
independent third party and the mortgage servicer;
(B) that the independent third party has contracted
with the mortgage servicer to provide the in-person
contact at no charge to the mortgagor;
(C) that the independent third party is an agent of
the mortgage servicer;
(D) that the in-person contact with the mortgagor
consists of providing information about available
counseling by a housing counseling agency approved by
the Secretary and available mortgage loan modification,
refinance, and assistance programs;
(E) that the independent third party and the mortgage
servicer are prohibited from the use, disclosure, or
distribution of personal, non-public, and confidential
information about the mortgagor, obtained during the
in-person contact, except for purposes of engaging in
the process of modification or refinance of the covered
mortgage;
(F) any other information that the Secretary
determines should be disclosed.
(e) Definition of Covered Mortgage.--For purposes of this section,
the term ``covered mortgage'' means a mortgage on a 1- to 4-family
residence insured under the provisions of subsection (b) or (k) of
section 203, section 234(c), or 251 of the National Housing Act (12
U.S.C. 1709, 1715y, 1715z-16).
SEC. 15. GAO REPORTS ON FHA AND GINNIE MAE.
Not later than the expiration of the 12-month period beginning on the
date of the enactment of this Act, the Comptroller General of the
United States shall submit to the Congress the following reports:
(1) FHA report.--A report on the single family mortgage
insurance programs of the Secretary of Housing and Urban
Development and the Mutual Mortgage Insurance Fund established
under section 202(a) of the National Housing Act (12 U.S.C.
1708(a)) that--
(A) analyzes such Fund, the economic net worth,
capital ratio, and unamortized insurance-in-force (as
such terms are defined in section 205(f)(4) of such Act
(12 U.S.C. 1711(f)(4))) of such Fund, the risks to the
Fund, how the capital ratio of the Fund affects the
mortgage insurance programs under the Fund and the
broader housing market, the extent to which the housing
markets are more dependent on mortgage insurance
provided through the Fund since the financial crisis
began in 2008, and the exposure of the taxpayers for
obligations of the Fund;
(B) analyzes the methodology of the capital ratio for
the Fund under section 205(f) of such Act and examines
other alternative methodologies with respect to which
methodology is most appropriate to meet the operational
goals of the Fund under section 202(a)(7);
(C) analyzes the effects of the increases in the
limits on the maximum principal obligation of mortgages
made by the FHA Modernization Act of 2008 (title I of
division B of Public Law 110-289), section 202 of the
Economic Stimulus Act of 2008 (Public Law 110-185; 122
Stat. 620), section 1202 of division A of the American
Recovery and Reinvestment Act of 2009 (Public Law 111-
5; 123 Stat. 225), and section 166 of the Continuing
Appropriations Resolution, 2010 (as added by section
104 of division B of Public Law 111-88; 123 Stat.
29723) on--
(i) the risks to and safety and soundness of
the Fund;
(ii) the impact on the affordability and
availability of mortgage credit for borrowers
for loans authorized under such higher loan
limits;
(iii) the private market for residential
mortgage loans that are not insured by the
Secretary of Housing and Urban Development; and
(iv) the Federal National Mortgage
Association and the Federal Home Loan Mortgage
Corporation; and
(D) analyzes the impact on affordability to FHA
borrowers, and the impact to the Fund, of seller
concessions or contributions to a borrower purchasing a
residence using a mortgage that is insured by the
Secretary.
(2) Ginnie mae.--A report on the Government National Mortgage
Association that identifies--
(A) the volume and share of the residential mortgage
market that consists of mortgages that back securities
for which the payment for principal and interest is
guaranteed by such Association and how the Association
has been affected by the economic recession, credit
crisis, and downturn in the housing markets occurring
during 2008, 2009, and 2010;
(B) the capacity of the Association to manage the
volume of business it conducts and securities it
guarantees, particularly with regard to the recent
dramatic increase in such volume, including the ability
of the Association to conduct appropriate oversight of
contractors and issuers of securities for which the
payment of principal and interest is guaranteed by the
Association and to determine whether the
characteristics of various mortgage products constitute
appropriate collateral for the federally guaranteed
securities for which payment of principal and interest
is guaranteed by such Association;
(C) the impacts, if any, resulting from such
increased volume of business conducted by the
Association and securities it guarantees and the
challenges such increased volume poses to the internal
controls of the Association; and
(D) the existing capital net worth requirements for
aggregators of mortgages that issue securities that are
based on or backed by such mortgages and payment of
principal and interest on which is guaranteed by such
Association and recommends an appropriate required
level of net worth for such aggregators and issuers to
protect the financial interests of the Federal
Government and the taxpayers.
Purpose and Summary
The purpose of H.R. 5072, the ``FHA Reform Act of 2010'' is
consistent with the Operational Goals of the Mutual Mortgage
Insurance Fund (MMIF) established under section 205 of the
National Housing Act: (a) to minimize the default risk to the
MMIF and to homeowners; and (b) to meet the housing needs of
the borrowers that the Federal Housing Administration (FHA)
single family program is designed to serve.
Specifically, the Act empowers FHA to increase its capital
reserves by providing FHA with the authority to raise the
annual mortgage insurance premium for new borrowers from the
current cap of 0.55 percent to 1.55 percent for borrowers with
mortgages at or below 95 percent of value and from 0.50 to 1.50
percent for borrowers with mortgages below 95 percent of value.
At the same time, the Act protects the affordability of FHA
mortgage insurance by providing that if FHA institutes an
increased downpayment requirement for borrowers when the MMIF
is below the two percent mandated under section 202 of the
National Housing Act, FHA review that requirement when the MMIF
again complies with the two percent reserve mandate and
subsequently reduce the increased downpayment requirement for
borrowers if compliance with section 202 can be maintained.
The Act also provides FHA with enhanced authority to reduce
default risk to the MMIF by (a) strengthening FHA's ability to
terminate direct endorsement mortgagees' approval to originate
or underwrite loans backed by FHA insurance based on poor loan
performance; (b) strengthening FHA's ability to require
mortgagees to indemnify FHA for improperly underwritten loans;
and (c) improving FHA's risk management ability and requiring
FHA to provide additional data to the public and to Congress on
mortgagee and loan performance.
Background and Need for Legislation
State of the FHA MMIF
In the latter half of 2009, it became clear that the
financial position of FHA's MMIF had deteriorated as a result
of the economic crisis and a decline in home prices.
Specifically, on November 6, 2009, FHA released the fiscal year
(FY) 2009 actuarial report, as required under the 1990
Cranston-Gonzalez Act, which was prepared by Integrated
Financial Engineering, Inc. (IFE). The report estimated that at
the end of FY 2009, the total insurance in force (excluding
Home Equity Conversion Mortgages, or HECMs) was $656.012
billion, and that the economic value of the fund (excluding
HECMs) was $2.732 billion.
Separately, IBM Global Business Services completed an
actuarial analysis of FHA HECM loans, dated October 12, 2009.
That report estimated that at the end of FY 2009, the total of
all outstanding FHA HECM loans was $28.696 billion, and the
economic value of outstanding HECM loans was $909 million.
The IFE report on the Fund noted that the economic value of
the Fund (excluding HECMs) of $2.732 billion declined from FY
2008's level of $12.908 billion. The report noted that ``the
decrease is driven mainly by a much more pessimistic national
housing market forecast,'' including a projected decline in the
nationwide price average of 9.37 percent over the next year and
a slower subsequent recovery rate.
The IFE report also revealed that the combined economic
value from all FHA loans outstanding at the end of FY 2009
(including HECMs) was $3.641 billion--which represents a
capital ratio of 0.53 percent (this ``capital ratio'' is
defined as the ``economic net worth'' of the Fund under the
annual audit, expressed as a percentage of total FHA insurance
in force. `Economic net worth'' is in turn defined as the
current cash available to the Fund, plus the net present value
of all future expected FHA cash inflows and outflows). This
capital ratio of 0.53 percent did not meet the requirements
provided at section 202 of the National Housing Act, which
states that the MMIF must maintain a capital ratio of at least
two percent.
Though currently the MMIF is below the required two percent
ratio, the actuarial report projected that the economic value
of the MMIF (excluding HECMs) would increase from $2.732
billion in FY 2009 to $7.882 billion at the end of FY 2010, and
to $41.068 billion by the end of FY 2016. The separate HECM
actuarial analysis projects that the economic value of HECMs
will increase from $909 million in FY 2009 to $19.83 billion at
the end of FY 2016. Under such projections, the combined
economic value of $60.898 billion in FY 2016 would represent a
capital ratio of 3.57 percent.
These calculations represent baseline projections made by
IFE. However, IFE also projected fund performance under five
alternative economic scenarios to assess the sensitivity of
results to key assumptions. Under two of these alternative
scenarios, the current economic value of the MMIF (excluding
HECMs) was significantly higher, in both cases exceeding $10
billion, but under the three other more pessimistic scenarios,
the economic value of the MMIF was negative. Under the most
adverse economic scenario, the current economic value of the
fund would be negative $17.09 billion. However, even under this
most pessimistic economic scenario, the value of the MMIF was
projected to become positive in FY 2012.
Section 205 of the National Housing Act provides that if
the annual actuarial study determines that the Fund is not
meeting its Operational Goals or if there is a substantial
probability that the Fund will not meet its established target
subsidy rate, the HUD Secretary may either make programmatic
adjustments as necessary to reduce Fund risk or make
appropriate premium adjustments.
Actions to restore the MMIF
Using existing authority, FHA has taken a number of
administrative and regulatory steps to reduce risks to the Fund
and meet the requirement for the MMIF to maintain a capital
ratio of at least two percent. First, for FHA loans for which a
case number was assigned on or after April 5, 2010, the upfront
mortgage insurance premium was increased 50 basis points from
1.75 percent to 2.25 of the loan balance.
Additional steps taken by FHA include the appointment of a
Chief Risk Officer; stricter streamlined refinance procedures,
including new requirements for seasoning, payment history,
income verification, and capping maximum loan-to-value ratios
at 125 percent; new appraisal controls, including provisions to
strengthen appraiser independence and shorten the appraisal
validity period; raising the net worth requirement of approved
mortgagees from $250,000 to $1 million (immediately for new
lender approvals and within one year for existing lenders), and
at least $1 million plus one percent of total loan volume in
excess of $25 million within 3 years (with a small business
lender exemption from this rule, with small lenders now
required to have a net worth of $500,000); and strengthening
lender approval requirements, by requiring FHA-approved
mortgagees to assume liability for all the loans they originate
or underwrite, including taking responsibility for broker-
originated loans. FHA has also announced its intention to
pursue a 10 percent downpayment requirement for borrowers with
FICO scores below 580 (instead of the standard 3.5 percent
downpayment requirement established under the Housing and
Economic Recovery Act of 2008, P.L. 110-289) and to reduce
seller concessions from 6 percent to 3 percent.
In addition to these administrative and regulatory actions,
FHA also requested the new legislative authority provided under
the FHA Reform Act of 2010, which would permit FHA to adjust
their premium structure in a manner that would increase the
capital reserve ratio while minimizing the impact on borrowers.
FHA indicates that they would use the authority provided under
the Act to raise the annual mortgage insurance premium for new
borrowers with mortgages at or below 95 percent of value from
the current cap of 0.55 percent to 1.55 percent and from 0.50
to 1.50 percent for borrowers with mortgages below 95 percent
of value. FHA would, at the same time, lower the upfront
mortgage insurance premium from the interim level of 2.25
percent of the loan balance to 1.0 percent.
The Act also seeks to reduce the risk of defaults and
claims to the MMIF by permitting FHA to provide reimbursements
to servicers for the costs of obtaining the services of
independent third parties to make in-person contact with
mortgagors that are 60 or more days past due under covered
mortgages, for the purposes of providing information to
mortgagors regarding the availability of housing counseling,
loan modifications and refinancing.
FHA also has recently increased mortgagee enforcement,
taking action on more than six times as many mortgagees in FY
2009 than over the FY 2000 to 2008 period combined. Along with
increased enforcement under FHA's current authority, FHA seeks
the additional authority provided under the FHA Reform Act of
2010 to enforce FHA originating and underwriting requirements.
Specifically, the Act provides FHA with the authority to
enforce origination and underwriting requirements for direct
endorsement lenders and would provide FHA with the authority to
terminate originating or underwriting approval of a mortgagee
nationwide on the basis of the performance of one of the
mortgagee's regional branches.
The FHA Reform Act of 2010 also requires FHA to improve its
internal reporting systems to better manage risk and to provide
transparent data to the public and to Congress. This includes
improving monitoring of early defaults and claims, tracking
mortgage information by loan servicer, providing FHA with the
ability to contract out for additional credit risk analysis,
requiring mortgagees to report to FHA when they stop buying
loans from other mortgagees and requiring a Government
Accountability Office study on FHA and Ginnie Mae. The bill
also creates a new Deputy Assistant Secretary at FHA for Risk
Management and Regulatory Affairs.
Taken together, the provisions in the FHA Reform Act of
2010 seek to strike the right balance between increasing FHA's
capital reserves and continuing to provide access to all
borrowers, including minority and first-time homebuyers and
individuals in underserved communities, along with supporting
the nation's housing and economic recovery.
Hearings
The Subcommittee on Housing and Community Opportunity held
a hearing on October 8, 2009, on ``The Future of the Federal
Housing Administration's Capital Reserves: Assumptions,
Predictions and Implications for Homebuyers''. The following
witnesses testified:
PANEL ONE
The Honorable David Stevens, Assistant Secretary
for Housing and Federal Housing Administration Commissioner,
U.S. Department of Housing and Urban Development
PANEL TWO
Mr. Patrick Newport, U.S. Economist, IHS Global
Insight
Mr. Edward Pinto, Real Estate Financial Services
Consultant
Mr. Boyd Campbell, Member, Executive Board of the
Maryland Association of Realtors, GSE Presidential Advisory
Group, National Association of Realtors
Mr. David Kittle, Chairman, Mortgage Bankers
Association
Mr. John L. Councilman, CMC, CRMS, Federal Housing
Committee Chair, National Association of Mortgage Brokers
Mr. Peter Bell, President, National Reverse
Mortgage Lenders Association
Ms. Teresa Bryce, President, Radian Guaranty Inc.
on behalf of the Mortgage Insurance Companies of America
The Committee on Financial Services held a hearing on
December 2, 2009, on ``FY09 FHA Actuarial Report''. The
following witnesses testified:
PANEL ONE
The Honorable Shaun Donovan, Secretary, U.S.
Department of Housing and Urban Development
PANEL TWO
Ms. Ann B. Schnare, Partner, Empiris, LLC
Ms. Janis Bowdler, Deputy Director, Wealth-
Building Policy Project, National Council of La Raza
Ms. Vicki Cox Golder, President, National
Association of Realtors
Mr. Robert E. Story, Jr., CMB, Chairman, Mortgage
Bankers Association
The Subcommittee on Housing and Community Opportunity held
a hearing on March 11, 2010, on ``The FHA Reform Act of 2010''.
The following witnesses testified:
PANEL ONE
The Honorable David Stevens, Assistant Secretary
for Housing and Federal Housing Administration Commissioner,
U.S. Department of Housing and Urban Development
PANEL TWO
Mr. Mike Anderson, President, Essential Mortgage
and Vice Chair of Government Affairs, National Association of
Mortgage Brokers
Ms. Graciela Aponte, Legislative Analyst, Wealth
Building Policy Project, National Council of La Raza
Mr. Andrew Caplin, Professor of Economics, Co-
Director of the Center for Experimental Social Science, New
York University
Mr. John A. Courson, President and Chief Executive
Officer, Mortgage Bankers Association
Mr. Charles McMillan, President, National
Association of Realtors
Mr. John Taylor, President and Chief Executive
Officer, National Community Reinvestment Coalition
Mr. Mark Alston, First Vice President,
Consolidated Board of Realtors on behalf of the National
Association of Real Estate Brokers
Committee Consideration
The Committee on Financial Services met in open session on
April 22, 2010, and on April 27, 2010, ordered H.R. 5072, the
FHA Reform Act of 2010, as amended, favorably reported 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.
During the consideration of the bill, the following amendments
were disposed of by record votes. The names of Members voting
for and against follow:
An amendment by Mr. Garrett (NJ), no. 4, regarding a
downpayment requirement of 5 percent and prohibition of
financing of closing costs, was not agreed to by a record vote
of 12 yeas and 52 nays (Record vote no. FC-106):
RECORD VOTE NO. FC-106
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank...................... ........ X ......... Mr. Bachus....... X ........ .........
Mr. Kanjorski.................. ........ X ......... Mr. Castle....... ........ X .........
Ms. Waters..................... ........ ........ ......... Mr. King (NY).... X
Mrs. Maloney................... ........ X ......... Mr. Royce........ X
Mr. Gutierrez.................. ........ ........ ......... Mr. Lucas........ X ........ .........
Ms. Velazquez.................. ........ ........ ......... Mr. Paul......... X ........ .........
Mr. Watt....................... ........ X ......... Mr. Manzullo..... ........ X .........
Mr. Ackerman................... ........ X ......... Mr. Jones........ ........ X .........
Mr. Sherman.................... ........ X ......... Mrs. Biggert..... ........ X .........
Mr. Meeks...................... ........ X ......... Mr. Miller (CA).. ........ X .........
Mr. Moore (KS)................. ........ X ......... Mrs. Capito...... ........ X .........
Mr. Capuano.................... ........ X ......... Mr. Hensarling... X ........ .........
Mr. Hinojosa................... ........ X ......... Mr. Garrett (NJ). X ........ .........
Mr. Clay....................... ........ X ......... Mr. Barrett (SC). ........ ........ .........
Mrs. McCarthy.................. ........ X ......... Mr. Gerlach...... ........ X .........
Mr. Baca....................... ........ X ......... Mr. Neugebauer... X ........ .........
Mr. Lynch...................... ........ X ......... Mr. Price (GA)... ........ ........ .........
Mr. Miller (NC)................ ........ X ......... Mr. McHenry...... X ........ .........
Mr. Scott...................... ........ X ......... Mr. Campbell..... X ........ .........
Mr. Green...................... ........ X ......... Mr. Putnam....... X ........ .........
Mr. Cleaver.................... ........ X ......... Mrs. Bachmann.... X ........ .........
Ms. Bean....................... ........ X ......... Mr. Marchant..... ........ X .........
Ms. Moore (WI)................. ........ ........ ......... Mr. McCotter..... ........ X .........
Mr. Hodes...................... ........ ........ ......... Mr. McCarthy..... ........ X .........
Mr. Ellison.................... ........ X ......... Mr. Posey........ ........ X .........
Mr. Klein...................... ........ X ......... Ms. Jenkins...... ........ X .........
Mr. Wilson..................... ........ X ......... Mr. Lee.......... ........ X .........
Mr. Perlmutter................. ........ X ......... Mr. Paulsen...... ........ X .........
Mr. Donnelly................... ........ X ......... Mr. Lance........ ........ X .........
Mr. Foster..................... ........ X .........
Mr. Carson..................... ........ X .........
Ms. Speier..................... ........ X .........
Mr. Childers................... ........ X .........
Mr. Minnick.................... ........ X .........
Mr. Adler...................... ........ X .........
Ms. Kilroy..................... ........ X .........
Mr. Driehaus................... ........ X .........
Ms. Kosmas..................... ........ X .........
Mr. Grayson.................... ........ X .........
Mr. Himes...................... ........ X .........
Mr. Peters..................... ........ X .........
Mr. Maffei..................... ........ X .........
----------------------------------------------------------------------------------------------------------------
An amendment by Mr. Garrett (NJ), no. 5, regarding a
downpayment requirement for higher-risk borrowers, was not
agreed to by a record vote of 16 yeas and 49 nays (Record vote
no. FC-107):
RECORD VOTE NO. FC-107
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank...................... ........ X ......... Mr. Bachus....... X ........ .........
Mr. Kanjorski.................. ........ X ......... Mr. Castle....... ........ X .........
Ms. Waters..................... ........ X ......... Mr. King (NY).... X ........ .........
Mrs. Maloney................... ........ X ......... Mr. Royce........ X ........ .........
Mr. Gutierrez.................. ........ ........ ......... Mr. Lucas........ X ........ .........
Ms. Velazquez.................. ........ ........ ......... Mr. Paul......... X ........ .........
Mr. Watt....................... ........ X ......... Mr. Manzullo..... ........ X .........
Mr. Ackerman................... ........ X ......... Mr. Jones........ X ........ .........
Mr. Sherman.................... ........ X ......... Mrs. Biggert..... ........ X .........
Mr. Meeks...................... ........ X ......... Mr. Miller (CA).. ........ X .........
Mr. Moore (KS)................. ........ X ......... Mrs. Capito...... ........ X .........
Mr. Capuano.................... ........ X ......... Mr. Hensarling... X ........ .........
Mr. Hinojosa................... ........ X ......... Mr. Garrett (NJ). X ........ .........
Mr. Clay....................... ........ X ......... Mr. Barrett (SC). ........ ........ .........
Mrs. McCarthy.................. ........ X ......... Mr. Gerlach...... ........ X .........
Mr. Baca....................... ........ X ......... Mr. Neugebauer... X ........ .........
Mr. Lynch...................... ........ X ......... Mr. Price (GA)... ........ ........ .........
Mr. Miller (NC)................ ........ X ......... Mr. McHenry...... X ........ .........
Mr. Scott...................... ........ X ......... Mr. Campbell..... X ........ .........
Mr. Green...................... ........ X ......... Mr. Putnam....... X ........ .........
Mr. Cleaver.................... ........ X ......... Mrs. Bachmann.... X ........ .........
Ms. Bean....................... ........ X ......... Mr. Marchant..... ........ X .........
Ms. Moore (WI)................. ........ ........ ......... Mr. McCotter..... ........ X .........
Mr. Hodes...................... ........ ........ ......... Mr. McCarthy..... X ........ .........
Mr. Ellison.................... ........ X ......... Mr. Posey........ ........ X .........
Mr. Klein...................... ........ X ......... Ms. Jenkins...... X ........ .........
Mr. Wilson..................... ........ X ......... Mr. Lee.......... ........ X .........
Mr. Perlmutter................. ........ X ......... Mr. Paulsen...... ........ X .........
Mr. Donnelly................... ........ X ......... Mr. Lance........ X ........ .........
Mr. Foster..................... ........ X .........
Mr. Carson..................... ........ X .........
Ms. Speier..................... ........ X .........
Mr. Childers................... ........ X .........
Mr. Minnick.................... ........ X .........
Mr. Adler...................... ........ X .........
Ms. Kilroy..................... ........ X .........
Mr. Driehaus................... ........ X .........
Ms. Kosmas..................... ........ X .........
Mr. Grayson.................... ........ X .........
Mr. Himes...................... ........ X .........
Mr. Peters..................... ........ X .........
Mr. Maffei..................... ........ X .........
----------------------------------------------------------------------------------------------------------------
An amendment by Mr. Garrett (NJ), no. 7, regarding a
downpayment requirement during periods when MMIF does not
comply with capital ratio requirement, was not agreed to by a
record vote of 22 yeas and 43 nays (Record vote no. FC-108):
RECORD VOTE NO. FC-108
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank...................... ........ X ......... Mr. Bachus....... X ........ .........
Mr. Kanjorski.................. ........ X ......... Mr. Castle....... ........ X .........
Ms. Waters..................... ........ X ......... Mr. King (NY).... X ........ .........
Mrs. Maloney................... ........ X ......... Mr. Royce........ X ........ .........
Mr. Gutierrez.................. ........ ........ ......... Mr. Lucas........ X ........ .........
Ms. Velazquez.................. ........ ........ ......... Mr. Paul......... X ........ .........
Mr. Watt....................... ........ X ......... Mr. Manzullo..... X ........ .........
Mr. Ackerman................... ........ X ......... Mr. Jones........ X ........ .........
Mr. Sherman.................... ........ X ......... Mrs. Biggert..... ........ X .........
Mr. Meeks...................... ........ X ......... Mr. Miller (CA).. X ........ .........
Mr. Moore (KS)................. ........ X ......... Mrs. Capito...... ........ X .........
Mr. Capuano.................... ........ X ......... Mr. Hensarling... X ........ .........
Mr. Hinojosa................... ........ X ......... Mr. Garrett (NJ). X ........ .........
Mr. Clay....................... ........ X ......... Mr. Barrett (SC). ........ ........ .........
Mrs. McCarthy.................. ........ X ......... Mr. Gerlach...... X ........ .........
Mr. Baca....................... ........ X ......... Mr. Neugebauer... X ........ .........
Mr. Lynch...................... ........ X ......... Mr. Price (GA)... ........ ........ .........
Mr. Miller (NC)................ ........ X ......... Mr. McHenry...... X ........ .........
Mr. Scott...................... ........ X ......... Mr. Campbell..... X ........ .........
Mr. Green...................... ........ X ......... Mr. Putnam....... X ........ .........
Mr. Cleaver.................... ........ X ......... Mrs. Bachmann.... X ........ .........
Ms. Bean....................... ........ X ......... Mr. Marchant..... X ........ .........
Ms. Moore (WI)................. ........ ........ ......... Mr. McCotter..... X ........ .........
Mr. Hodes...................... ........ ........ ......... Mr. McCarthy..... X ........ .........
Mr. Ellison.................... ........ X ......... Mr. Posey........ ........ X .........
Mr. Klein...................... ........ X ......... Ms. Jenkins...... X ........ .........
Mr. Wilson..................... ........ X ......... Mr. Lee.......... ........ X .........
Mr. Perlmutter................. ........ X ......... Mr. Paulsen...... X ........ .........
Mr. Donnelly................... ........ X ......... Mr. Lance........ X ........ .........
Mr. Foster..................... ........ X .........
Mr. Carson..................... ........ X .........
Ms. Speier..................... ........ X .........
Mr. Childers................... ........ X .........
Mr. Minnick.................... ........ X .........
Mr. Adler...................... ........ X .........
Ms. Kilroy..................... ........ X .........
Mr. Driehaus................... ........ X .........
Ms. Kosmas..................... ........ X .........
Mr. Grayson.................... ........ X .........
Mr. Himes...................... ........ X .........
Mr. Peters..................... ........ X .........
Mr. Maffei..................... ........ X .........
----------------------------------------------------------------------------------------------------------------
An amendment by Mr. Garrett (NJ), no. 8, regarding a
prohibition on financing up-front premiums, was not agreed to
by a record vote of 26 yeas and 39 nays (Record vote no. FC-
109):
RECORD VOTE NO. FC-109
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank...................... ........ X ......... Mr. Bachus....... X ........ .........
Mr. Kanjorski.................. ........ X ......... Mr. Castle....... X ........ .........
Ms. Waters..................... ........ X ......... Mr. King (NY).... X ........ .........
Mrs. Maloney................... ........ X ......... Mr. Royce........ X ........ .........
Mr. Gutierrez.................. ........ ........ ......... Mr. Lucas........ X ........ .........
Ms. Velazquez.................. ........ ........ ......... Mr. Paul......... X ........ .........
Mr. Watt....................... ........ X ......... Mr. Manzullo..... X ........ .........
Mr. Ackerman................... ........ X ......... Mr. Jones........ X ........ .........
Mr. Sherman.................... ........ X ......... Mrs. Biggert..... ........ X .........
Mr. Meeks...................... ........ X ......... Mr. Miller (CA).. X ........ .........
Mr. Moore (KS)................. ........ X ......... Mrs. Capito...... X ........ .........
Mr. Capuano.................... ........ X ......... Mr. Hensarling... X ........ .........
Mr. Hinojosa................... ........ X ......... Mr. Garrett (NJ). X ........ .........
Mr. Clay....................... ........ X ......... Mr. Barrett (SC). ........ ........ .........
Mrs. McCarthy.................. ........ X ......... Mr. Gerlach...... X ........ .........
Mr. Baca....................... ........ X ......... Mr. Neugebauer... X ........ .........
Mr. Lynch...................... ........ X ......... Mr. Price (GA)... ........ ........ .........
Mr. Miller (NC)................ ........ X ......... Mr. McHenry...... X ........ .........
Mr. Scott...................... ........ X ......... Mr. Campbell..... X ........ .........
Mr. Green...................... ........ X ......... Mr. Putnam....... X ........ .........
Mr. Cleaver.................... ........ X ......... Mrs. Bachmann.... X ........ .........
Ms. Bean....................... ........ X ......... Mr. Marchant..... X ........ .........
Ms. Moore (WI)................. ........ ........ ......... Mr. McCotter..... X ........ .........
Mr. Hodes...................... ........ ........ ......... Mr. McCarthy..... X ........ .........
Mr. Ellison.................... ........ X ......... Mr. Posey........ X ........ .........
Mr. Klein...................... ........ X ......... Ms. Jenkins...... X ........ .........
Mr. Wilson..................... ........ X ......... Mr. Lee.......... X ........ .........
Mr. Perlmutter................. ........ X ......... Mr. Paulsen...... X ........ .........
Mr. Donnelly................... ........ X ......... Mr. Lance........ X ........ .........
Mr. Foster..................... ........ X .........
Mr. Carson..................... ........ X .........
Ms. Speier..................... ........ X .........
Mr. Childers................... ........ X .........
Mr. Minnick.................... ........ X .........
Mr. Adler...................... ........ X .........
Ms. Kilroy..................... ........ X .........
Mr. Driehaus................... ........ X .........
Ms. Kosmas..................... ........ X .........
Mr. Grayson.................... ........ X .........
Mr. Himes...................... ........ X .........
Mr. Peters..................... ........ X .........
Mr. Maffei..................... ........ X .........
----------------------------------------------------------------------------------------------------------------
An amendment by Mr. Garrett (NJ), no. 9, regarding a risk-
sharing requirement, was not agreed to by a record vote of 22
yeas and 43 nays (Record vote no. FC-110):
RECORD VOTE NO. FC-110
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank...................... ........ X ......... Mr. Bachus....... X ........ .........
Mr. Kanjorski.................. ........ X ......... Mr. Castle....... X ........ .........
Ms. Waters..................... ........ X ......... Mr. King (NY).... X ........ .........
Mrs. Maloney................... ........ X ......... Mr. Royce........ X ........ .........
Mr. Gutierrez.................. ........ ........ ......... Mr. Lucas........ X ........ .........
Ms. Velazquez.................. ........ ........ ......... Mr. Paul......... X ........ .........
Mr. Watt....................... ........ X ......... Mr. Manzullo..... ........ X .........
Mr. Ackerman................... ........ X ......... Mr. Jones........ X ........ .........
Mr. Sherman.................... ........ X ......... Mrs. Biggert..... ........ X .........
Mr. Meeks...................... ........ X ......... Mr. Miller (CA).. ........ X .........
Mr. Moore (KS)................. ........ X ......... Mrs. Capito...... ........ X .........
Mr. Capuano.................... ........ X ......... Mr. Hensarling... X ........ .........
Mr. Hinojosa................... ........ X ......... Mr. Garrett (NJ). X ........ .........
Mr. Clay....................... ........ X ......... Mr. Barrett (SC). ........ ........ .........
Mrs. McCarthy.................. ........ X ......... Mr. Gerlach...... X ........ .........
Mr. Baca....................... ........ X ......... Mr. Neugebauer... X ........ .........
Mr. Lynch...................... ........ X ......... Mr. Price (GA)... ........ ........ .........
Mr. Miller (NC)................ ........ X ......... Mr. McHenry...... X ........ .........
Mr. Scott...................... ........ X ......... Mr. Campbell..... X ........ .........
Mr. Green...................... ........ X ......... Mr. Putnam....... X ........ .........
Mr. Cleaver.................... ........ X ......... Mrs. Bachmann.... X ........ .........
Ms. Bean....................... ........ X ......... Mr. Marchant..... ........ X .........
Ms. Moore (WI)................. ........ ........ ......... Mr. McCotter..... X ........ .........
Mr. Hodes...................... ........ ........ ......... Mr. McCarthy..... X ........ .........
Mr. Ellison.................... ........ X ......... Mr. Posey........ X ........ .........
Mr. Klein...................... ........ X ......... Ms. Jenkins...... X ........ .........
Mr. Wilson..................... ........ X ......... Mr. Lee.......... X ........ .........
Mr. Perlmutter................. ........ X ......... Mr. Paulsen...... X ........ .........
Mr. Donnelly................... ........ X ......... Mr. Lance........ X ........ .........
Mr. Foster..................... ........ X .........
Mr. Carson..................... ........ X .........
Ms. Speier..................... ........ X .........
Mr. Childers................... ........ X .........
Mr. Minnick.................... ........ X .........
Mr. Adler...................... ........ X .........
Ms. Kilroy..................... ........ X .........
Mr. Driehaus................... ........ X .........
Ms. Kosmas..................... ........ X .........
Mr. Grayson.................... ........ X .........
Mr. Himes...................... ........ X .........
Mr. Peters..................... ........ X .........
Mr. Maffei..................... ........ X .........
----------------------------------------------------------------------------------------------------------------
The following other amendments were also considered by the
Committee:
An amendment by Mr. Kanjorski, no. 1, regarding increased
loan limits for designated counties, was offered and withdrawn.
An amendment by Mr. Miller (CA), no. 2, regarding a shared
equity pilot program, was offered and withdrawn.
An amendment by Mr. Klein (and Mr. Marchant), no. 3,
regarding third party servicer outreach, was agreed to by a
voice vote.
An amendment by Ms. Waters, no. 6, a technical amendment,
was agreed to by a voice vote.
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the Committee held hearings and made
findings that are reflected in this report.
Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee establishes the
following performance related goals and objectives for this
legislation:
The purpose of H.R. 5072 is to minimize the default risk to
the MMIF and to homeowners and to meet the housing needs of the
borrowers that the FHA single family program is designed to
serve by empowering the FHA to increase the annual mortgage
insurance premium for new borrowers and with enhanced authority
to reduce default risk to the MMIF.
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 of 1974.
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:
May 6, 2010.
Hon. Barney Frank,
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. 5072, the FHA
Reform Act of 2010.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Susanne S.
Mehlman.
Sincerely,
Douglas W. Elmendorf.
Enclosure.
H.R. 5072--FHA Reform Act of 2010
Summary: H.R. 5072 would raise the cap on the annual
premiums charged to borrowers under the Federal Housing
Administration's (FHA's) single-family mortgage-guarantee
program. This legislation also would authorize an appropriation
of the necessary amount for 2011 to reimburse mortgage-loan
servicers for the cost of providing financial counseling to
borrowers with delinquent loans. In addition, H.R. 5072 would
make other changes to current law aimed at improving the
financial safety and soundness of FHA's single-family program.
CBO estimates that implementing H.R. 5072 would result in a
net decrease in discretionary spending of about $2.5 billion
over the 2011-2015 period, assuming enactment of appropriation
laws over that period necessary to implement FHA's single-
family program and the Mortgage-Backed Securities (MBS) program
of the Government National Mortgage Association (GNMA).
Pay-as-you-go procedures do not apply to this legislation
because it would not affect direct spending or revenues.
H.R. 5072 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. 5072 is shown in the following table.
The costs of this legislation fall within budget function 370
(commerce and housing credit).
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
------------------------------------------------------------
2011 2012 2013 2014 2015 2011-2015
----------------------------------------------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Additional FHA Offsetting Collections:
Estimated Authorization Level.................. -902 -800 -510 -280 -100 -2,592
Estimated Outlays.............................. -902 -800 -510 -280 -100 -2,592
Loss of GNMA Offsetting Collections:
Estimated Authorization Level.................. 16 0 0 0 0 16
Estimated Outlays.............................. 16 0 0 0 0 16
Third-Party Servicer Outreach:
Estimated Authorization Level.................. 53 0 0 0 0 53
Estimated Outlays.............................. 40 13 0 0 0 53
Other Costs:
Estimated Authorization Level.................. * * * * * 2
Estimated Outlays.............................. * * * * * 2
Total Changes:
Estimated Authorization Level.............. -833 -800 -510 -280 -100 -2,521
Estimated Outlays.......................... -846 -787 -510 -280 -100 -2,521
----------------------------------------------------------------------------------------------------------------
Note: * = less than $500,000.
Basis of estimate: For this estimate, CBO assumes that the
bill will be enacted near the beginning of fiscal year 2011 and
that the authority to guarantee new loans for the FHA single-
family program and for GNMA to guarantee payment by pools of
those loans sold to investors as securities will be provided in
appropriation acts each year.
Under the Federal Credit Reform Act (FCRA), funds must be
appropriated in advance to cover the estimated subsidy cost of
providing loan guarantees on a present-value basis. (The
subsidy cost is the estimated long-term cost to the government
of a direct loan or loan guarantee calculated on a net-present-
value-basis, excluding administrative costs.) For credit
programs that are estimated to result in a net savings to the
government, no appropriation of credit subsidy is required;
however, for such programs, appropriation acts must specify the
aggregate amount of loans that may be guaranteed. That figure
is known as the annual commitment authority.
Increasing annual premiums
CBO estimates that amending the premium that FHA may charge
borrowers for participating in its mortgage-guarantee program
would affect offsetting collections generated by FHA and by
GNMA.
Additional FHA Offsetting Collections. Under this
legislation, the cap on annual premiums for the single-family
program would increase from 0.55 percent to 1.55 percent of the
loan balance. The average borrower currently pays a fee equal
to 0.52 percent of the remaining balance on their mortgage to
FHA. Based on information from FHA, CBO expects that under the
bill, FHA would charge borrowers, on average, 0.88 percent of
their loan balance amount annually. In addition, CBO expects
that FHA would lower the up-front premium from 2.25 percent to
1 percent of the mortgage amount, though this action would not
be required under this legislation. CBO estimates that those
changes to the premium structure would change the estimated
credit subsidy rate for the program from -0.4 percent to -0.8
percent. We estimate that under this revised premium structure,
the volume of loan guarantees handled by FHA in 2011 would
decrease slightly from $240 billion to $232 billion because the
increase in the annual premium would deter some borrowers from
participating in the single-family program. On balance, we
estimate that the revised premium structure would increase
offsetting collections (a credit against discretionary
spending) from the program by $900 million in 2011, assuming
the appropriation action to establish the 2011 commitment
authority for the FHA single-family program.
Over the 2011-2015 period, CBO estimates that about $2.6
billion in additional net offsetting collections would be
realized under this provision. This estimate assumes, based on
information from FHA, that after 2011, upfront and annual
premiums charged by FHA would start to revert to the lower
levels charged today.
Loss of GNMA Offsetting Collection. Through its MBS
program, GNMA is responsible for guaranteeing securities backed
by pools of mortgages that are insured by federal agencies such
as FHA. In exchange for a fee paid by lenders or issuers of the
securities, GNMA guarantees the timely payment of scheduled
principal and interest due on the pooled mortgages that back
those securities. Because the value of the fees collected by
GNMA is estimated to exceed the cost of loan defaults in each
year, the Administration estimates that under current law, the
GNMA MBS program will have a subsidy rate of -0.24 percent in
2011, resulting in net receipt collections to the federal
government.
CBO estimates that each year about 90 percent of the new
mortgage loan guarantees made by FHA would be included in
GNMA's MBS program. Because CBO estimates that changes in FHA's
premium structure under H.R. 5072 would reduce FHA's 2011 loan-
guarantee volume by $8 billion, we estimate that the GNMA MBS
program would realize a loss of about $16 million in offsetting
collections in 2011. After 2011, CBO expects that the new FHA
premium structure would have a negligible impact on the volume
of loan guarantees provided by FHA, and thus the legislation
would have no further impact on GNMA collections.
Third-Party servicer outreach
H.R. 5072 would authorize the appropriation of whatever
sums are necessary in 2011 for the Department of Housing and
Urban Development to reimburse servicers of single-family loans
insured by FHA for the cost of providing financial counseling
to borrowers whose mortgage payments are 60 days past due.
Based on information from FHA, CBO expects that in 2011 about
700,000 loans could become 60 or more days delinquent, and that
about 50 percent of the borrowers holding such loans would
require counseling to help them become current on their loans.
According to FHA, such credit counseling costs about $150 per
loan. Thus, CBO estimates that implementing this provision
would cost $53 million over the 2011-2012 period.
Other costs
Enacting this legislation would make various changes to the
processes used by FHA to oversee the single-family loan
program, such as requiring the review of mortgages that default
within 24 months of being originated and requiring lenders to
use certain identifiers when processing a loan to ensure that
lenders can be easily tracked nationally through the existing
Nationwide Mortgage Licensing System and Registry. In addition,
H.R. 5072 would establish the position of Deputy Assistant
Secretary for Risk Management and Regulatory Affairs within
FHA.
Based on information from FHA, CBO estimates that enacting
those provisions and other provisions associated with improving
and streamlining FHA's oversight of loans would not result in
significant additional costs. According to FHA, existing
resources would be used to meet the vast majority of the
requirements under this legislation.
H.R. 5072 also would require the Government Accountability
Office within one year of enactment to produce a report on the
safety and soundness of FHA's single-family program and a
report on the safety and soundness of GNMA's MBS program. CBO
estimates that such reports would each cost less than $500,000
over the 2011-2015 period.
In total, CBO estimates that performing those other
activities would cost about $2 million over the 2011-2015
period, subject to the availability of appropriated funds.
Pay-as-you-go considerations: None.
Intergovernmental and private-sector impact: H.R. 5072
contains no intergovernmental or private-sector mandates as
defined in UMRA. The bill would benefit housing finance
agencies by authorizing reimbursements for servicers that
provide counseling for delinquent borrowers. Any costs to those
agencies of participating in the program would be incurred
voluntarily.
Estimate prepared by: Federal costs: Susanne S. Mehlman;
Impact on state, local, and tribal governments: Elizabeth Cove
Delisle; Impact on the private sector: Paige Piper/Bach.
Estimate approved by: Theresa Gullo, 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.
Earmark Identification
H.R. 5072 does not contain any congressional earmarks,
limited tax benefits, or limited tariff benefits as defined in
clause 9 of rule XXI.
Section-by-Section Analysis of the Legislation
Section 1. Short title
The Act may be cited as the ``FHA Reform Act of 2010''.
Section 2. Annual mortgage insurance premium
Section 2 amends section 203(c)(2)(B) of the National
Housing Act (12 U.S.C. 1709(c)(2)(B)) to raise the maximum
allowable annual mortgage insurance premium (a) for mortgages
below 95 percent of value from the current 0.50 percent to 1.5
percent; and (b) for mortgages at or above 95 percent of value
from the current 0.55 percent to 1.55 percent.
Section 3. Indemnification by mortgagees
Section 3 amends section 202 of the National Housing Act
(12 U.S.C. 1708) by adding a new section to strengthen
provisions under which mortgage lenders are liable to indemnify
the Secretary for loss on certain loans they originate or
underwrite. The Secretary may require indemnification if a
mortgage approved by the Secretary under the direct endorsement
program or insured by a mortgagee pursuant to delegation of
authority under section 256 was not originated or underwritten
in accordance with requirements established by the Secretary,
and the Secretary pays an insurance claim within a reasonable
period specified by the Secretary. If fraud or
misrepresentation was involved in connection with the
origination or underwriting, the Secretary may require the
mortgagee to indemnify the Secretary for the loss regardless of
when an insurance claim is paid.
Section 4. Delegation of insuring authority
To implement Section 3 of this Act, Section 4 also strikes
subsection (c) of section 256 of the National Housing Act (12
U.S.C. 1715z-21), entitled ``Enforcement of Insurance
Requirements'' that formerly provided the authority for the
Secretary to address situations in which mortgages were not
originated in accordance with requirements established by the
Secretary, or where fraud or misrepresentation was involved.
Section 5. Authority to terminate mortgagee origination and
underwriting approval
Section 5 amends section 533 of the National Housing Act
(12 U.S.C. 1735f-11) to give the Secretary enhanced ability to
review mortgagee performance and, if a mortgagee is found to
have an excessive rate of early defaults or claims, to
terminate the approval of the mortgagee to originate or
underwrite single family mortgages in a specified area(s) or on
a nationwide basis.
Section 6. Deputy Assistant Secretary of FHA for Risk Management and
Regulatory Affairs
Section 6 creates a new position in FHA for a ``Deputy
Assistant Secretary for Risk Management and Regulatory
Affairs,'' who will be appointed by the Secretary and report to
the FHA Commissioner and will be responsible for matters
relating to managing and mitigating risk to the mortgage
insurance funds.
Section 7. Use of outside credit risk analysis sources
Section 7 authorizes the Secretary to obtain the services
of and enter into contracts with private and other entities
outside of the Department for the following: (1) analyzing
credit risk models and practices employed by the Department;
(2) evaluating underwriting standards for FHA-insured
mortgages; and (3) analyzing the performance of lenders in
complying with, and HUD in enforcing, such underwriting
standards.
Section 8. Review of mortgagee performance
Section 8 amends section 533 of the National Housing Act
(12 U.S.C. 1735f-11), which requires HUD to review the rate of
early defaults and claims for insured single-family mortgages,
to define ``early default'' as occurring within 24 months of
origination or such alternative period as the Secretary shall
establish. It also requires the Secretary to identify which
mortgagees have had a significant or rapid increase in the
number of early defaults and claims. Section 8 also authorizes
appropriations through FY 2014 in an amount necessary to
provide additional staff, or to enter into contracts, to
conduct such reviews and to carry out other activities to
ensure the safety and soundness of the MMIF. Ninety days after
enactment of the bill, and not less than annually thereafter,
the Secretary shall make any information or conclusions
pursuant to the reviews available to Congress.
Section 9. Use of Nationwide Mortgage Licensing System and registry
Section 9 of the Act amends section 202 of the National
Housing Act (12 U.S.C. 1708) to provide that the Secretary may
require FHA mortgagees (both companies and individuals and
officers) to obtain and maintain unique identifiers assigned by
the Nationwide Mortgage Licensing System (NMLS). The Secretary
may also require each mortgage insured under section 203 of the
National Housing Act (12 U.S.C. 1709) to include an NMLS unique
identifier, and any unique company identifier assigned by the
NMLS. The Section also provides that the Secretary shall pursue
protocols for information sharing and coordination with
appropriate State regulatory agencies.
Section 10. Reporting of mortgagee actions taken against other
mortgagees
Section 10 instructs the Secretary to require mortgagees,
as a condition of FHA mortgagee-approval, to report to FHA any
actions to terminate or discontinue purchases from other
mortgagees based on a determination of fraud or material
misrepresentation.
Section 11. Annual actuarial study and quarterly reports on Mutual
Mortgage Insurance Fund
In addition to the Annual Actuarial FHA study, the Housing
and Economic Recovery Act of 2008 established new HUD quarterly
reporting requirements on the FHA program. Section 11 amends
section 202 of the National Housing Act (12 U.S.C. 1708(a)) to
require that these quarterly reports also include an assessment
of any changes to the current or projected safety and soundness
of the Mutual Mortgage Insurance Fund since the most recent
quarterly report. The Secretary may include in this report any
recommendations to restore the safety and soundness of the Fund
not made in the preceding quarterly report.
Section 12. Review of downpayment requirements
Section 12 amends section 205 of the National Housing Act
(12 U.S.C. 1711) to provide that if FHA institutes any
increased downpayment requirement for borrowers when the MMIF
is below the 2 percent mandated under section 202 of the
National Housing Act, the Secretary must review that
requirement when the MMIF again complies with the 2 percent
reserve mandate and subsequently reduce the increased
downpayment requirement for borrowers, in such amount or
percentage that the Secretary considers appropriate, if
compliance with section 202 can be maintained.
Section 13. Default and origination information by loan servicer and
originating direct endorsement lender
Section 13 amends the FHA reporting requirements of section
540(b) of the National Housing Act (12 U.S.C. 1712 U.S.C.
1735f-18(b)(2)) to require the Secretary to track mortgage
performance by servicer.
Section 14. Third party servicer outreach
Section 14 states that the Secretary may use funds (to the
extent they are available in advance in appropriation Acts for
fiscal year 2010 or 2011 for this section) to provide
reimbursements to servicers for the costs of obtaining the
services of independent third parties to make in-person contact
with mortgagors that are 60 or more days past due under covered
mortgages, solely for the purposes of providing information to
mortgagors regarding the availability of housing counseling,
loan modifications and refinancing (covered mortgages are on
one to four family residences insured by FHA under subsections
(b) or (k) of section 203, section 234(c) or section 251 of the
National Housing Act (12 U.S.C. 1709, 1715y, 1715z-16). The
independent third parties must protect the confidentiality of
mortgagor information, and must provide adequate disclosures to
mortgagors, including the name of and contact information for
the mortgage servicer, the fact that the independent third
party's services will come at no cost to the mortgagor, the
fact that the independent third party is an agent of the
servicer, the fact that the in-person contact is for the
purposes of providing information to the mortgagor regarding
the availability of housing counseling, loan modifications and
refinancing, and the fact that the independent third party and
the servicer are prohibited from using, disclosing or
distributing confidential information about the mortgagor
except for the purposes of engaging in a loan modification or
refinance.
Section 15. GAO reports on FHA and Ginnie Mae
Section 15 requires two reports from the General
Accountability Office within 12 months of bill enactment:
1) An assessment of (a) the FHA Mutual Mortgage Insurance
Fund (including the economic net worth, capital ratio and
unamortized insurance-in-force of the Fund), risks to the Fund
and exposure of taxpayers for obligations of the Fund, how the
capital ratio affects mortgage insurance premiums, and the
extent to which housing markets are more dependent on mortgage
insurance provided through the Fund since the start of the
financial crisis; (b) the methodology for calculating the
capital ratio of the Fund, including other alternative
methodologies that could meet the operational goals of the
Fund; (c) the impact the increase in maximum loan limits has on
the safety and soundness of the Fund, the affordability and
availability of mortgage credit, the private market for
residential mortgage insurance, and Fannie Mae and Freddie Mac;
and (d) the impact of seller concessions on mortgage
affordability and the Fund.
2) An assessment of the Government National Mortgage
Association (Ginnie Mae) that (a) identifies the volume and
share of the mortgage-backed securities market for which Ginnie
Mae provides insurance and explains how Ginnie Mae has been
impacted by the financial crisis; (b) examines the capacity of
Ginnie Mae to manage their increased volume of business; (c)
describes the impact of this increased volume of business and
the challenges this increase poses to internal controls; and
(d) provides recommendations for appropriate net worth
requirements for the issuers of securities backed by Ginnie Mae
insurance.
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 II--MORTGAGE INSURANCE
* * * * * * *
FEDERAL HOUSING ADMINISTRATION OPERATIONS
Sec. 202. (a) Mutual Mortgage Insurance Fund.--
(1) * * *
* * * * * * *
(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, any changes
to the current or projected safety and soundness of the
Fund since the most recent report under this paragraph
or paragraph (5), and any risks to the Fund. The report
shall recommend adjustments to underwriting standards,
program participation, or premiums, if necessary, to
ensure that the Fund remains financially sound. The
report shall also include an evaluation of the quality
control procedures and accuracy of information utilized
in the process of underwriting loans guaranteed by the
Fund. Such evaluation shall include a review of the
risk characteristics of loans based not only on
borrower information and performance, but on risks
associated with loans originated or funded by various
entities or financial institutions.
(5) Quarterly reports.--During each fiscal year, the
Secretary shall submit a report to the Congress for
each calendar quarter, which shall specify for
mortgages that are obligations of the Fund--
(A) * * *
* * * * * * *
(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[.]; and
(F) any other factors that are likely to have
an impact on the financial status of the Fund
or cause any material changes to the current or
projected safety and soundness of the Fund
since the most recent report under paragraph
(4).
The Secretary may include in the report under this
paragraph any recommendations not made in the most
recent report under paragraph (4) that may be needed to
ensure that the Fund remains financially sound. The
first quarterly report under this paragraph shall be
submitted on the last day of the first quarter of
fiscal year 2008, or on the last day of the first full
calendar quarter following the enactment of the
Building American Homeownership Act of 2008, whichever
is later.
* * * * * * *
(i) Indemnification by Mortgagees.--
(1) In general.--If the Secretary determines that a
mortgage executed by a mortgagee approved by the
Secretary under the direct endorsement program or
insured by a mortgagee pursuant to the delegation of
authority under section 256 was not originated or
underwritten in accordance with the requirements
established by the Secretary, and the Secretary pays an
insurance claim with respect to the mortgage within a
reasonable period specified by the Secretary, the
Secretary may require the mortgagee approved by the
Secretary under the direct endorsement program or the
mortgagee delegated authority under section 256 to
indemnify the Secretary for the loss.
(2) Fraud or misrepresentation.--If fraud or
misrepresentation was involved in connection with the
origination or underwriting, the Secretary may require
the mortgagee approved by the Secretary under the
direct endorsement program or the mortgagee delegated
authority under section 256 to indemnify the Secretary
for the loss regardless of when an insurance claim is
paid.
(3) Requirements and procedures.--The Secretary shall
issue regulations establishing appropriate requirements
and procedures governing the indemnification of the
Secretary by the mortgagee.
(j) Use of outside credit risk analysis sources.--The
Secretary may obtain the services of, and enter into contracts
with, private and other entities outside of the Department in--
(1) analyzing credit risk models and practices
employed by the Department in connection with such
mortgages;
(2) evaluating underwriting standards applicable to
such mortgages insured by the Department; and
(3) analyzing the performance of lenders in complying
with, and the Department in enforcing, such
underwriting standards.
(k) Use of Nationwide Mortgage Licensing System and Registry
for Mortgagees, Officers, and Owners.--The Secretary may
require, as a condition for approval of a mortgagee by the
Secretary to originate or underwrite mortgages on single family
that are insured by the Secretary, that the mortgagee--
(1) obtain and maintain a unique company identifier
assigned by the Nationwide Mortgage Licensing System
and Registry, as established by the Conference of State
Bank Supervisors and the American Association of
Residential Mortgage Regulators; and
(2) obtain and maintain, as relates to any and all
officers or owners of the mortgagee who are subject to
the requirements of the S.A.F.E. Mortgage Licensing Act
of 2008, or are otherwise required to register with the
Nationwide Mortgage Licensing System and Registry, the
unique identifier assigned by the Nationwide Mortgage
Licensing System and Registry, as established by the
Conference of State Bank Supervisors and the American
Association of Residential Mortgage Regulators.
(l) Information Sharing With State Regulatory Agencies.--
(1) Joint protocol on information sharing.--The
Secretary shall, through consultation with State
regulatory agencies, pursue protocols for information
sharing, including the appropriate treatment of
confidential or otherwise restricted information,
regarding either actions described in subsection (c)(3)
of this section or disciplinary or enforcement actions
by a State regulatory agency or agencies against a
mortgagee (as such term is defined in subsection
(c)(7)).
(2) Coordination.--To the greatest extent possible,
the Secretary and appropriate State regulatory agencies
shall coordinate disciplinary and enforcement actions
involving mortgagees (as such term is defined in
subsection (c)(7)).
(m) Notification of mortgagee actions.--The Secretary shall
require each mortgagee, as a condition for approval by the
Secretary to originate or underwrite mortgages on single family
or multifamily housing that are insured by the Secretary, if
such mortgagee engages in the purchase of mortgages insured by
the Secretary and originated by other mortgagees or in the
purchase of the servicing rights to such mortgages, and such
mortgagee at any time takes action to terminate or discontinue
such purchases from another mortgagee based on any
determination, evidence, or report of fraud or material
misrepresentation in connection with the origination of such
mortgages, the mortgagee shall, not later than 15 days after
taking such action, shall notify the Secretary of the action
taken and the reasons for such action.
INSURANCE OF MORTGAGES
Sec. 203. (a) * * *
* * * * * * *
(c)(1) * * *
(2) 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 shall be
subject to the following requirements:
(A) * * *
(B) In addition to the premium under subparagraph
(A), the Secretary [shall] may establish and collect
annual premium payments in an amount not exceeding
[0.50 percent] 1.5 percent of the remaining insured
principal balance (excluding the portion of the
remaining balance attributable to the premium collected
under subparagraph (A) and without taking into account
delinquent payments or prepayments) for the following
periods:
(i) * * *
(ii) For any mortage involving an original
principal obligation (excluding any premium
collected under subparagraph (A)) that is
greater than or equal to 90 percent of such
value, for the first 30 years of the mortgage
term; except that notwithstanding the matter
preceding clause (i), for any mortgage
involving an original principal obligation
(excluding any premium collected under
subparagraph (A)) that is greater than 95
percent of such value, the annual premium
collected during the 30-year period under this
clause [shall be in an amount not exceeding
0.55 percent] may be in an amount not exceeding
1.55 percent of the remaining insured principal
balance (excluding the portion of the remaining
balance attributable to the premium collected
under subparagraph (A) and without taking into
account delinquent payments or prepayments).
* * * * * * *
(y) Use of Nationwide Mortgage Licensing System and Registry
for Insured Loans.--The Secretary may require each mortgage
insured under this section to include the unique identifier (as
such term is defined in section 1503 of the S.A.F.E. Mortgage
Licensing act of 2008 (12 U.S.C. 5102)) and any unique company
identifier assigned by the Nationwide Mortgage Licensing System
and Registry, as established by the Conference of State Bank
Supervisors and the American Association of Residential
Mortgage Regulators.
* * * * * * *
CLASSIFICATION OF MORTGAGES AND INSURANCE FUND
Sec. 205. (a) * * *
* * * * * * *
(g) Review of Downpayment Requirements.--If, at any time when
the capital ratio (as such term is defined in subsection (f))
of the Mutual Mortgage Insurance Fund does not comply with the
requirement under subsection (f)(1), the Secretary establishes
a cash investment requirement, for all mortgages or mortgagors
or with respect to any group of mortgages or mortgagors, that
exceeds the minimum percentage or amount required under section
203(b)(9), thereafter upon the capital ratio first complying
with the requirement under subsection (f)(1) the Secretary
shall review such cash investment requirement and, if the
Secretary determines that such percentage or amount may be
reduced while maintaining such compliance, the Secretary shall
subsequently reduce such requirement by such percentage or
amount as the Secretary considers appropriate.
* * * * * * *
DELEGATION OF INSURING AUTHORITY TO DIRECT ENDORSEMENT MORTGAGEES
Sec. 256. (a) * * *
* * * * * * *
[(c) Enforcement of Insurance Requirements.--
[(1) In general.--If the Secretary determines that a
mortgage insured by a mortgagee pursuant to delegation
of authority under this section was not originated in
accordance with the requirements established by the
Secretary, and the Secretary pays an insurance claim
with respect to the mortgage within a reasonable period
specified by the Secretary, the Secretary may require
the mortgagee approved under this section to indemnify
the Secretary for the loss.
[(2) Fraud or misrepresentation.--If fraud or
misrepresentation was involved in connection with the
origination, the Secretary may require the mortgagee
approved under this section to indemnify the Secretary
for the loss regardless of when an insurance claim is
paid.]
[(d)] (c) Termination of Mortgagee's Authority.--If a
mortgagee to which the Secretary has made a delegation under
this section violates the requirements and procedures
established by the Secretary or the Secretary determines that
other good cause exists, the Secretary may cancel a delegation
of authority under this section to the mortgagee by giving
notice to the mortgagee. Such a cancellation shall be effective
upon receipt of the notice by the mortgagee or at a later date
specified by the Secretary. A decision by the Secretary to
cancel a delegation shall be final and conclusive and shall not
be subject to judicial review.
[(e)] (d) Requirements and Procedures.--Before approving a
delegation under this section, the Secretary shall issue
regulations establishing appropriate requirements and
procedures[, including requirements and procedures governing
the indemnification of the Secretary by the mortgagee].
* * * * * * *
TITLE V--MISCELLANEOUS
* * * * * * *
Sec. 533. Review of Mortgagee Performance and Authority To
Terminate.--
(a) Periodic Review of Mortgagee Performance.--To reduce
losses in connection with single family mortgage insurance
programs under this Act, at least once a year the Secretary
shall review the rate of early defaults and claims for insured
single family mortgages originated or underwritten by each
mortgagee. For purposes of this subsection, the term ``early
default'' means a default that occurs within 24 months after a
mortgage is originated or such alternative appropriate period
as the Secretary shall establish.
(b) Comparison With Other Mortgagees.--For each mortgagee,
the Secretary shall compare the rate of early defaults and
claims for insured single family mortgage loans originated or
underwritten by the mortgagee in an area or areas or on a
nationwide basis with the rate of early defaults and claims for
other mortgagees originating or underwriting insured single
family mortgage loans in the area or areas or on a nationwide
basis. The Secretary shall also identify which mortgagees have
had a significant or rapid increase, as determined by the
Secretary, in the number or percentage of early defaults and
claims on such mortgages, with respect to all mortgages
originated by the mortgagee or mortgages on housing located in
any particular geographic area or areas. For purposes of this
section, the term ``area'' means each geographic area in which
the mortgagee is authorized by the Secretary to originate
insured single family mortgages.
[(c) Termination of Mortgagee Origination Approval.--(1)
Notwithstanding section 202(c) of this Act, the Secretary may
terminate the approval of a mortgagee to originate or
underwrite single family mortgages if the Secretary determines
that the mortgage loans originated or underwritten by the
mortgagee present an unacceptable risk to the insurance funds.
The determination shall be based on the comparison required
under subsection (b) and shall be made in accordance with
regulations of the Secretary. The Secretary may rely on
existing regulations published before this section takes
effect.
[(2) The Secretary]
(c) Termination of Mortgagee Origination and Underwriting
Approval.--
(1) Termination authority.--If the Secretary
determines, under the comparison provided in subsection
(b), that a mortgagee has a rate of early defaults and
claims that is excessive, the Secretary may terminate
the approval of the mortgagee to originate or
underwrite single family mortgages for any area, or
areas, or on a nationwide basis, notwithstanding
section 202(c) of this Act.
(2) Procedure.--The Secretary shall give a mortgagee
at least 60 days prior written notice of any
termination under this subsection. The termination
shall take effect at the end of the notice period,
unless the Secretary withdraws the termination notice
or extends the notice period. If requested in writing
by the mortgagee within 30 days of the date of the
notice, the mortgagee shall be entitled to an informal
conference with the official authorized to issue
termination notices on behalf of the Secretary (or a
designee of that official). At the informal conference,
the mortgagee may present for consideration specific
factors that it believes were beyond its control and
that caused the excessive default and claim rate.
(d) Sufficient Resources.--There is authorized to be
appropriated to the Secretary for each of fiscal years 2010
through 2014 the amount necessary to provide additional full-
time equivalent positions for the Department, or for entering
into such contracts as are necessary, to conduct reviews in
accordance with the requirements of this section and to carry
out other responsibilities relating to ensuring the safety and
soundness of the Mutual Mortgage Insurance Fund.
(e) Reporting to Congress.--Not later than 90 days after the
date of enactment of the FHA Reform Act of 2010 and not less
often than annually thereafter, the Secretary shall make
available to the Committee on Financial Services of the House
of Representatives and the Committee on Banking, Housing, and
Urban Affairs of the Senate any information and conclusions
pursuant to the reviews required under subsection (a). Such
report shall not include detailed information on the
performance of individual mortgages.
* * * * * * *
INFORMATION REGARDING EARLY DEFAULTS AND FORECLOSURES ON INSURED
MORTGAGES
Sec. 540. (a) * * *
(b) Contents.--
(1) * * *
(2) Other information.--Information collected under
this section shall also include the following:
(A) * * *
* * * * * * *
(C) For each entity that services insured
mortgages, data on the performance of mortgages
originated during each calendar quarter
occurring during the applicable collection
period, disaggregated by the direct endorsement
mortgagee from whom such entity acquired such
servicing.
* * * * * * *
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT ACT
* * * * * * *
UNDER SECRETARY AND OTHER OFFICERS AND OFFICES
Sec. 4. (a) * * *
(b)(1) There shall be in the Department a Federal Housing
Commissioner, who shall be one of the Assistant Secretaries,
who shall head a Federal Housing Administration within the
Department, who shall have such duties and powers as may be
prescribed by the Secretary, and who shall administer, under
the supervision and direction of the Secretary, departmental
programs relating to the private mortgage market. The Secretary
shall ensure, to the extent practicable, that managers of
Federal Housing Administration programs, at each level of the
Department, shall be accountable for program operation, risk
management, management of cash and other Federal assets, and
program financing related to activities over which such
managers have responsibility.
(2) There shall be in the Department, within the Federal
Housing Administration, a Deputy Assistant Secretary for Risk
Management and Regulatory Affairs, who shall be appointed by
the Secretary and shall be responsible to the Federal Housing
Commissioner for all matters relating to managing and
mitigating risk to the mortgage insurance funds of the
Department and ensuring the performance of mortgages insured by
the Department.
* * * * * * *
ADDITIONAL VIEWS
H.R. 5072, the FHA Reform Act of 2010, is both necessary
and important legislation. It makes changes to the Federal
Housing Administration (FHA) single-family mortgage insurance
program administered by the Department of Housing and Urban
Development (HUD) that will improve the insurance fund's
financial condition and enhance certain enforcement tools to
protect against fraudulent or poorly-underwritten and insured
loans.
The bill incorporates a majority of the provisions in
Ranking Member Capito's legislation, H.R. 4811, the FHA Safety
and Soundness and Taxpayer Protection Act, and goes further
than the proposals recommended by the Administration. The
provisions from the Capito legislation that were incorporated
in H.R. 5072 provide additional enforcement, fiscal and risk-
assessment tools necessary to adequately administer the
program, detect fraud and abuse, strengthen underwriting
standards, and protect the taxpayer. In addition, H.R. 5072
authorizes FHA to increase annual insurance premiums, requires
indemnification by lenders for loss on loans they originate,
and gives authority to the Secretary to require FHA compliance
with the SAFE Act. The Secretary is authorized to require FHA
mortgagees (both companies and individuals and officers) to
obtain and maintain unique identifiers assigned by the
Nationwide Mortgage Licensing System (NMLS). The Secretary may
also require each mortgage insured under section 203 of the
National Housing Act (12 U.S.C. 1709) to include an NMLS unique
identifier, and any unique company identifier assigned by the
NMLS.
As private sector lenders have scaled back their activities
in the wake of the serious housing downturn that began two
years ago, the FHA has significantly increased its share of the
single-family mortgage market from less than 5 percent to more
than 30 percent. With higher market share has come increased
taxpayer exposure. Elevated levels of delinquencies and
foreclosures across the nation have had a detrimental effect on
the financial health of the FHA program. An independent
actuarial report released on November 12, 2009, showed that the
capital reserve ratio for the Mutual Mortgage Insurance Fund
(MMIF) dropped below the Congressionally-mandated threshold of
two percent to a less-than-expected 0.53 percent. The actuarial
review also indicated that the economic value of the FHA
declined over 75 percent from last year, to $2.73 billion. In
light of these facts, it is essential that Congress enact
reforms to ensure that a taxpayer bailout of the FHA will not
be necessary.
The provisions in this bill represent an important step in
providing HUD with the tools it needs to supervise and monitor
the FHA program and assess risk. While we support this
legislation, we believe that Congress and the Administration
must be ever-vigilant in their oversight of this program to
make certain that the program is adequately capitalized and is
run in a safe and sound manner that protects the taxpayer from
the need for another bailout. Finally, as the housing market
begins to stabilize, we must look for ways to decrease reliance
on Federal government guarantees and encourage the re-entry of
private capital and investment in the mortgage market.
Spencer Bachus.
Randy Neugebauer.
Lynn Jenkins.
Gary G. Miller.
Jeb Hensarling.
Christopher Lee.
Shelley Moore Capito.
Scott Garrett.
Jim Gerlach.
Judy Biggert.
Kenny Marchant.
Thaddeus McCotter.
ADDITIONAL VIEWS
As the private housing market has collapsed, the FHA has
drastically increased its volume of total insured mortgages and
has fallen below its congressionally mandated 2 percent capital
reserve ratio to an all time low of 0.5 percent. Many
economists believe low down payments, coupled with falling home
prices, have proved to be one of the biggest predictors of
defaults. As a result, the Housing and Economic Recovery Act of
2008 (P.L. 110-289) included language that increased the
required FHA down payment from 3 percent to 3.5 percent.
H.R. 5072, the FHA Reform Act, with the changes my
Republican colleagues made to the bill prior to its
introduction, goes a long way to improving the financial
condition of the Federal Housing Administration (FHA) single-
family mortgage insurance program. However, given FHA's rising
default rates and weakened reserve ratio, Congress needs to do
more to protect the taxpayer from yet another bailout. For this
reason, I offered several amendments during Committee
consideration of H.R. 5072 aimed at increasing the downpayment
requirement for FHA and promoting greater accountability on the
part of the FHA borrowers and lenders.
Higher down payment requirements will protect the FHA's
Mutual Mortgage Insurance Fund (MMIF) because mortgages with
lower loan-to-value ratios are more likely to perform over
time. Better performing loans mean fewer claims for the FHA
fund to pay. The five Garret amendments are explained below:
1. Raise the FHA down payment requirement from 3.5
percent to 5 percent and prohibit closing costs from
being rolled in to the loan;
2. Require borrowers with credit score below 580 to
have a 10 percent down payment (HUD has already
announced it will require 10 percent down for all
borrowers with credit scores below 580). In addition,
borrowers with credit score between 580 and 620 would
be required to have a 5% down payment;
3. Raise the FHA down payment requirement from 3.5%
to 5% whenever FHA's Capital Reserve Ratio drops below
the statutorily required 2%--(There is a 6-month delay
after enactment of the legislation to provide more time
for the housing market to improve);
4. Prohibit the Up-Front Premium from being financed
into the loan amount. This would ensure that the
borrower's Loan to Value (LTV) ratio will be a true
96.5% as intended by Congress when it changed the down
payment requirement from 3 percent to 3.5 percent as
part of HERA;
5. Reduce the 100 percent government guarantee of
FHA loans to 95 percent and require FHA-approved
lenders to retain 5 percent of the risk of each FHA
loans they underwrite.
Homeownership is a noble goal and we must continue to look
for ways to stabilize our housing market after a recent
financial collapse. However, the benefits with promoting
homeownership using government subsidies must be balanced
against the potential risk of insuring less creditworthy
borrowers and exposing the American taxpayer to that risk. The
recent housing bust has taught us the importance of proper
underwriting and ensuring potential homebuyers have the
appropriate amount of personal funds invested in the
transaction.
As we wait for the private housing market to improve, it is
essential that Congress takes steps to ensure that the FHA
program remains viable and available to potential homeowners.
The provisions in H.R. 5072 represent an important step toward
addressing the shortfall in the FHA's insurance fund. However,
we should do more to protect the taxpayer from having to suffer
the consequences of bailing out another government housing
program similar to Fannie Mae and Freddie Mac. The Garrett
amendments simply ask lenders and borrowers to have more ``skin
in the game.'' More skin in the game requires greater
accountability. It's the very least we can do to protect the
taxpayer.
Scott Garrett.
Ed Royce.
Randy Neugebauer.
Spencer Bachus.
Jeb Hensarling.
ADDITIONAL VIEWS
The FHA program is in dire need of real reform. I applaud
Administrator Stevens for submitting changes to Congress;
however, H.R. 5072, the FHA Reform Act of 2010 does not do
enough to ensure the stability of the FHA program so it never
reaches the tipping point of a future taxpayer bailout. To
further illustrate my views on FHA reform, I have included the
text of an article I wrote for Investor's Business Daily which
was published on February 18, 2010. H.R. 5072, the FHA Reform
Act of 2010, stops short of the necessary reforms I would like
to see made to the FHA program.
[From Investor's Business Daily, Feb. 18, 2010]
Risky Mortgage Practices Live On At Federal Housing Administration
(By Representative Tom Price)
Current economic and fiscal challenges demand a critical
review of all federal programs with an eye toward positive,
responsible reform. The Federal Housing Administration is one
such program crying out for oversight and assessment. By every
accounting measure, those used by private industry as well as
government auditors, the FHA is bankrupt.
If the FHA were treated like a bank, it would be labeled as
``critically undercapitalized'' and folded up. By law, the
agency is required to hold a 2% capital reserve. Yet according
to its most recent actuarial review, it currently holds just a
quarter of that, 0.53%.
The FHA, however, is not a bank, and we all know the White
House would never allow it to fail. This is because the FHA is
a key cog in today's government-monopolized housing industry,
serving as one of the primary tools wielded by the
administration in its mortgage modification efforts.
It's clear that the White House has not learned much from
the mortgage meltdown, because rather than working to tamp down
risky borrowing and mortgage practices, it is using the FHA to
place them under the growing umbrella of federal backstops.
A look back at the rise and bust of the housing market
reveals that the danger of the over-leveraging which we had
hoped would be tempered is now increasingly taking place at the
FHA, on the taxpayers' dime and watch.
The FHA serves as a federally backed mortgage insurance
program. It does not originate loans, but instead guarantees
100% of loan principal for borrowers and lenders. It insures
loans up to a whopping $729,750, and requires a mortgage
insurance premium, but only asks for a 3.5% down payment. If a
borrower fails to pay his mortgage, the FHA steps in and pays
the lender for the loss on the property.
During the housing boom, the FHA saw a decrease in its
market share, as borrowers could get more-attractive loan
terms, for less money, from a private lender. And during this
time, as more-qualified borrowers moved away from the FHA,
less-qualified borrowers replaced them.
From 2004 through 2007, those with FICO scores below 620,
generally considered subprime borrowers, made up 35% to 45% of
the FHA's entire loan portfolio. Conversely, borrowers with a
strong FICO score of 700 or higher represented just 10% to 15%
of its portfolio.
In recent years, as the deterioration of the housing market
became evident, private lenders began requiring higher down
payments from borrowers and implemented more stringent
underwriting standards. This could have been a helpful
cleansing of bad practices. Instead, borrowers flocked to the
FHA with its 3.5% down payment and 100% federal guarantee.
In a response, which one could only deem a ``day late and a
dollar short,'' last month FHA Director David Stevens announced
measures to strengthen the FHA's capital reserves. Borrowers
with FICO scores under 580--below subprime--will now be
required to have a 10% down payment, an embarrassingly timid
response.
It raises the question, after all that's happened, should
the government really be in the business of guaranteeing
mortgages at subprime and below?
At the end of the 2009 fiscal year, the FHA guaranteed $685
billion and now insures an enormous 30% of all new home loan
originations and 20% of refinanced loans. Plus, given the
current conditions in the housing market, an unbelievable 80%
of new borrowers with FHA guaranteed loans are first-time
homebuyers.
And with FHA dabbling in the riskiest of loans and heavily
leveraged, we sadly expect the FHA's troubles to get worse
before they get better. Astoundingly, as heard recently in
testimony before the House Financial Services Committee, the
agency has not accurately calculated borrowers who are already
behind on mortgage payments into FHA's loss projections.
But the really devastating inevitability is that taxpayers
are in store for another open-ended bailout. As currently
structured, excess premiums taken in by FHA are returned to the
U.S. Treasury. But if the FHA's loan guarantee losses exceed
its premiums, then the Treasury covers the difference.
FHA's recent actuarial report notes that there is likely to
be a continued decline in its portfolio through 2011. According
to testimony before the House Financial Services Committee, the
bailout of the FHA could reach $54 billion or more. So
taxpayers who are already enraged by the era of stimulus and
bailouts need look no further than this agency for the next
episode of federal intervention.
Put simply, it is time for a change in how the FHA
operates. The agency must not compromise its underwriting
standards in good times because private industry can offer a
better product at a more competitive price. The FHA was not
designed to replace the private loan market.
Additionally, Congress must do its part to ensure that the
FHA does not put the taxpayer at unnecessary and avoidable
risk. This includes appropriately increasing the FHA down
payment requirement to be more aligned with the risk its
borrowers pose to the taxpayer.
Most importantly, lenders should no longer be given a free,
government-guaranteed ride with a 100% loss guarantee. As the
FHA has rightly recognized, a 100% government guarantee with no
lender ``skin in the game'' has eroded the solvency of FHA's
balance sheet. While the agency has made some efforts to get
tougher on lenders, the damage has already been done.
Moving forward, in addition to an increase in down payment
by borrowers, lenders must be subject to more stringent and
regular oversight, and losses must first be taken by the lender
before the government guarantee begins.
Americans are calling for an end to the era of stimulus and
bailouts. It's time for Washington to get tough with the FHA
and straighten out its balance sheet. Failure to do so will
only prolong the economic difficulties facing the housing
sector and our great nation.
Tom Price.