To authorize the Secretary of Housing and Urban Development to insure zero-downpayment mortgages for one-unit residences.

Summary: Zero Downpayment Act of 2004 - Amends the National Housing Act to authorize the Secretary of Housing and Urban Development to insure first-time homeowner zero-downpayment mortgages for one-family residences, including one- to three-unit dwellings, condominiums, cooperatives, and manufactured housing.

Limits the principal obligation on an insured mortgage to not more than 100 percent of the property's appraised value plus any initial service charges, appraisal, inspection, and other related fees.

Requires: (1) independent mortgagor counseling prior to applying for a loan, including specific counseling regarding real estate property management for mortgagors purchasing dwellings with two to three units; and (2) the mortgagee to provide the mortgagor with an option for notice of foreclosure prevention counseling, which shall become effective 60 days after delinquency.

Requires: (1) the Secretary to monitor and make adjustments (mortgage premiums and availability and underwriting standards) to such program; (2) mortgagor credit evaluation by the Federal Housing Administration's (FHA) TOTAL Mortgage Scorecard or other standardized credit scoring system; (3) additional underwriting standards for borrowers purchasing two- to three-unit dwellings; and (4) written mortgagee disclosure to the mortgagor of incremental costs.

Limits the program to not more than ten percent of the aggregate number of FHA mortgages and loans insured in the preceding fiscal year. Suspends the program if claim rates exceed a certain FHA single-family claim rate.

Requires a Government Accountability Office (GAO) program report within two years of enactment of this Act and annually thereafter.

Sunsets the program after September 30, 2009.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Zero Downpayment Act of 2004''.

SEC. 2. INSURANCE FOR ZERO-DOWNPAYMENT MORTGAGES.

    (a) Mortgage Insurance Authority.--Section 203 of the National 
Housing Act (12 U.S.C. 1709) is amended by inserting after subsection 
(k) the following new subsection:
    ``(l) Zero-Downpayment Mortgages.--
            ``(1) Insurance authority.--The Secretary may insure, and 
        commit to insure, under this subsection any mortgage that meets 
        the requirements of this subsection and, except as otherwise 
        specifically provided in this subsection, of subsection (b).
            ``(2) Eligible single family property.--To be eligible for 
        insurance under this subsection, a mortgage shall involve a 
        property upon which there is located a dwelling that is 
        designed principally for a 1- to 3-family residence and that, 
        notwithstanding subsection (g), is to be occupied by the 
        mortgagor as his or her principal residence, which shall 
        include--
                    ``(A) a 1-family dwelling unit in a multifamily 
                project and an undivided interest in the common areas 
                and facilities which serve the project;
                    ``(B) a 1-family dwelling unit of a cooperative 
                housing corporation the permanent occupancy of the 
                dwelling units of which is restricted to members of 
                such corporation and in which the purchase of such 
                stock or membership entitles the purchaser to the 
                permanent occupancy of such dwelling unit; and
                    ``(C) a manufactured home that meets such standards 
                as the Secretary has established for purposes of 
                subsection (b).
            ``(3) Maximum principal obligation.--
                    ``(A) Limitation.--To be eligible for insurance 
                under this subsection, a mortgage shall involve a 
                principal obligation in an amount not in excess of 100 
                percent of the appraised value of the property plus any 
                initial service charges, appraisal, inspection and 
                other fees in connection with the mortgage as approved 
                by the Secretary.
                    ``(B) Inapplicability of other loan-to-value 
                requirements.--A mortgage insured under this subsection 
                shall not be subject to subparagraph (B) of paragraph 
                (2) of subsection (b) or to the matter in such 
                paragraph that follows such subparagraph.
            ``(4) Eligible mortgagors.--The mortgagor under a mortgage 
        insured under this subsection shall meet the following 
        requirements:
                    ``(A) First-time homebuyer.--The mortgagor shall be 
                a first-time homebuyer. The program for mortgage 
                insurance under this subsection shall be considered a 
                Federal program to assist first-time homebuyers for 
                purposes of section 956 of the Cranston-Gonzalez 
                National Affordable Housing Act (42 U.S.C. 12713).
                    ``(B) Counseling.--
                            ``(i) Requirement.--The mortgagor shall 
                        have received counseling, prior to application 
                        for the loan involved in the mortgage, by a 
                        third party (other than the mortgagee) who is 
                        approved by the Secretary, with respect to the 
                        responsibilities and financial management 
                        involved in homeownership. Such counseling 
                        shall be provided to the mortgagor on an 
                        individual basis by a representative of the 
                        approved third party counseling entity, and 
                        shall be provided in person to the maximum 
                        extent practicable.
                            ``(ii) Topics.--Such counseling shall 
                        include providing to, and discussing with, the 
                        mortgagor--
                                    ``(I) information regarding 
                                homeownership options other than a 
                                mortgage insured under this subsection, 
                                other zero- or low-downpayment mortgage 
                                options that are or may become 
                                available to the mortgagor, the 
                                financial implications of entering into 
                                a mortgage (including a mortgage 
                                insured under this subsection), and any 
                                other information that the Secretary 
                                may require; and
                                    ``(II) a document that sets forth 
                                the amount and the percentage by which 
                                a property subject to a mortgage 
                                insured under this subsection must 
                                appreciate for the mortgagor to recover 
                                the principal amount of the mortgage, 
                                the costs financed under the mortgage, 
                                and the estimated costs involved in 
                                selling the property, if the mortgagor 
                                were to sell the property on each of 
                                the second, fifth, and tenth 
                                anniversaries of the mortgage.
                            ``(iii) 2- and 3-family residences.--In the 
                        case of a mortgage involving a 2- or 3-family 
                        residence, such counseling shall include (in 
                        addition to the information required under 
                        clause (ii)) information regarding real estate 
                        property management.
            ``(5) Option for notice of foreclosure prevention 
        counseling availability.--
                    ``(A) Option.--To be eligible for insurance under 
                this subsection, the mortgagee shall provide mortgagor, 
                at the time of the execution of the mortgage, an 
                optional written agreement which, if signed by the 
                mortgagor, allows, but does not require, the mortgagee 
                to provide notice described in subparagraph (B) to a 
                housing counseling entity that has agreed to provide 
                the notice and counseling required under subparagraph 
                (C) and is approved by the Secretary.
                    ``(B) Notice to counseling agency.-- The notice 
                described in this subparagraph, with respect to a 
                mortgage, is notice, provided at the earliest time 
                practicable after the mortgagor becomes 60 days 
                delinquent with respect to any payment due under the 
                mortgage, that the mortgagor is so delinquent and of 
                how to contact the mortgagor. Such notice may only be 
                provided once with respect to each delinquency period 
                for a mortgage.
                    ``(C) Notice to mortgagor.--Upon notice from a 
                mortgagee that a mortgagor is 60 days delinquent with 
                respect to payments due under the mortgage, the housing 
                counseling entity shall at the earliest time 
                practicable notify the mortgagor of such delinquency, 
                that the entity makes available foreclosure prevention 
                counseling that may assist the mortgagor in resolving 
                the delinquency, and of how to contact the entity to 
                arrange for such counseling.
                    ``(D) Ability to cure.--Failure to provide the 
                optional written agreement required under subparagraph 
                (A) may be corrected by sending such agreement to the 
                mortgagor not later than the earliest time practicable 
                after the mortgagor first becomes 60 days delinquent 
                with respect to payments due under the mortgage. 
                Insurance provided under this subsection may not be 
                terminated and penalties for such failure may not be 
                prospectively or retroactively imposed if such failure 
                is corrected in accordance with this subparagraph.
                    ``(E) Penalties for failure to provide agreement.--
                The Secretary may establish and impose appropriate 
                penalties for failure of a mortgagee to provide the 
                optional written agreement required under subparagraph 
                (A).
                    ``(F) Limitation on liability of mortgagee.--A 
                mortgagee shall not incur any liability or penalties 
                for any failure of a housing counseling entity to 
                provide notice under subparagraph (C).
                    ``(G) No private right of action.--This paragraph 
                shall not create any private right of action on behalf 
                of the mortgagor.
                    ``(H) Delinquency period.--For purposes of this 
                paragraph, the term `delinquency period' means, with 
                respect to a mortgage, a period that begins upon the 
                mortgagor becoming delinquent with respect to payments 
                due under the mortgage and ends upon the first 
                subsequent occurrence of such payments under the 
                mortgage becoming current or the property subject to 
                the mortgage being foreclosed or otherwise disposed of.
            ``(6) Inapplicability of downpayment requirement.--A 
        mortgage insured under this subsection shall not be subject to 
        paragraph (9) of subsection (b) or any other requirement to pay 
        on account of the property, in cash or its equivalent, any 
        amount of the cost of acquisition.
            ``(7) MMIF monitoring.--In conjunction with the credit 
        subsidy estimation calculated each year pursuant to the Federal 
        Credit Reform Act of 1990 (2 U.S.C. 661 et seq.), the Secretary 
        shall review the program performance for mortgages insured 
        under this subsection and make any necessary adjustments, which 
        may include altering mortgage insurance premiums subject to 
        subsection (c)(2), adjusting underwriting standards, and 
        limiting the availability of mortgage insurance under this 
        subsection, to ensure that the Mutual Mortgage Insurance Fund 
        shall continue to generate a negative credit subsidy.
            ``(8) Underwriting.--For a mortgage to be eligible for 
        insurance under this subsection:
                    ``(A) In general.--The mortgagor's credit and 
                ability to pay the monthly mortgage payments shall have 
                been evaluated using the Federal Housing 
                Administration's Technology Open To Approved Lenders 
                (TOTAL) Mortgage Scorecard, or a similar standardized 
                credit scoring system approved by the Secretary, and in 
                accordance with procedures established by the 
                Secretary.
                    ``(B) Multi-unit properties.--In the case of a 
                mortgage involving a property upon which there is 
                located a dwelling that is designed principally for a 
                2- or 3-family residence, the mortgagor meets such 
                additional underwriting standards as the Secretary may 
                establish.
            ``(9) Approval of mortgagees.--To be eligible for insurance 
        under this subsection, a mortgage shall have been made to a 
        mortgagee that meets such criteria as the Secretary shall 
        establish to ensure that mortgagees meet appropriate standards 
        for participation in the program authorized under this 
        subsection.
            ``(10) Disclosure of incremental costs.--
                    ``(A) Required disclosure.--For a mortgage to be 
                eligible for insurance under this subsection, the 
                mortgagee shall provide to the mortgagor, at the time 
                of the application for the loan involved in the 
                mortgage, a written disclosure, as the Secretary shall 
                require, that specifies the effective cost to a 
                mortgagor of borrowing the amount by which the maximum 
                amount that could be borrowed under a mortgage insured 
                under this subsection exceeds the maximum amount that 
                could be borrowed under a mortgage insured under 
                subsection (b), based on average closing costs with 
                respect to such amount, as determined by the Secretary. 
                Such cost shall be expressed as an annual interest rate 
                over the first 5 years of a mortgage.
                    ``(B) Coordination.--The disclosure required under 
                this paragraph may be provided in conjunction with the 
                notice required under subsection (f).
            ``(11) Loss mitigation.--
                    ``(A) In general.--Upon the default of any mortgage 
                insured under this subsection, the mortgagee shall 
                engage in loss mitigation actions for the purpose of 
                providing an alternative to foreclosure to the same 
                extent as is required of other mortgages insured under 
                this title pursuant to the regulations issued under 
                section 230(a).
                    ``(B) Annual reporting.--Not later than 90 days 
                after the end of each fiscal year, the Secretary shall 
                submit a report to the Congress that compares the rates 
                of default and foreclosure during such fiscal year for 
                mortgages insured under this subsection, for single-
                family mortgages insured under this title (other than 
                under this subsection), and for mortgages for housing 
                purchased with assistance provided under the 
                downpayment assistance initiative under section 271 of 
                the Cranston-Gonzalez National Affordable Housing Act 
                (42 U.S.C. 12821).
            ``(12) Additional requirements.--The Secretary may 
        establish any additional requirements for mortgage insurance 
        under this subsection as may be necessary or appropriate.
            ``(13) Limitation.--The aggregate number of mortgages 
        insured under this subsection in any fiscal year may not exceed 
        10 percent of the aggregate number of mortgages and loans 
        insured by the Secretary under this title during the preceding 
        fiscal year.
            ``(14) Program suspension.--
                    ``(A) In general.--Subject to subparagraph (C), the 
                authority under paragraph (1) to insure mortgages shall 
                be suspended if at any time the claim rate described in 
                subparagraph (B) exceeds 3.5 percent. A suspension 
                under this subparagraph shall remain in effect until 
                such time as such claim rate is 3.5 percent or less.
                    ``(B) FHA total single-family annual claim rate.--
                The claim rate described in this subparagraph, for any 
                particular time, is the ratio of the number of claims 
                during the 12 months preceding such time on mortgages 
                on 1- to 4-family residences insured pursuant to this 
                title to the number of mortgages on such residences 
                having such insurance in force at that time.
                    ``(C) Applicability.--A suspension under 
                subparagraph (A) shall not preclude the Secretary from 
                endorsing or insuring any mortgage that was duly 
                executed before the date of such suspension.
            ``(15) Sunset.--No mortgage may be insured under this 
        subsection after September 30, 2009, except that the Secretary 
        may endorse or insure any mortgage that was duly executed 
        before such date.
            ``(16) GAO reports.--The Comptroller General of the United 
        States shall submit a report to the Congress not later than 2 
        years after the date of the enactment of this subsection, and 
        annually thereafter, regarding the performance of mortgages 
        insured under this subsection.
            ``(17) Implementation.--The Secretary may implement this 
        subsection on an interim basis by issuing an interim rule, 
        except that the Secretary shall solicit public comments upon 
        publication of such interim rule and shall issue a final rule 
        implementing this subsection after consideration of the 
        comments submitted.''.
    (b) Mortgage Insurance Premiums.--The second sentence of 
subparagraph (A) of section 203(c)(2) of the National Housing Act (12 
U.S.C. 1709(c)(2)(A)) is amended by striking ``In'' and inserting 
``Except with respect to a mortgage insured under subsection (l), in''.
    (c) General Insurance Fund.--Section 519(e) of the National Housing 
Act (12 U.S.C. 1735c(e)) is amended by striking ``and 203(i)'' and 
inserting ``, 203(i), and 203(l)''.