FHA Modernization and Efficiency Act of 1995

Summary: FHA Modernization and Efficiency Act of 1995 - Amends the National Housing Act to revise single family mortgage insurance program provisions regarding:  (1) maximum mortgage amount floor; (2) downpayment calculations and family loans; (3) new construction; (4) condominiums; (5) direct endorsement mortgages; and (6) two-step adjustable mortgages.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``FHA Modernization and Efficiency Act 
of 1995''.

SEC. 2. CONGRESSIONAL FINDINGS.

    The Congress finds that--
            (1) the single family housing mortgage insurance program of 
        the Department of Housing and Urban Development is a 
        significant factor in promoting first-time and affordable 
        homeownership in the United States;
            (2) use of mortgage financing under the program has 
        decreased in recent years, due in part to increasing complexity 
        of mortgage origination and servicing under the program;
            (3) simplifying and streamlining the loan criteria and loan 
        approval process under the program would have a positive effect 
        on use of the program without increasing risk to the Mutual 
        Mortgage Insurance Fund; and
            (4) flexible lending products can be developed without 
        increasing risk to the Mutual Mortgage Insurance Fund.

SEC. 3. MAXIMUM MORTGAGE AMOUNT FLOOR FOR SINGLE FAMILY MORTGAGE 
              INSURANCE.

    Subparagraph (A) of the first sentence of section 203(b)(2) of the 
National Housing Act (12 U.S.C. 1709(b)(2)(A)) is amended by striking 
``the greater of'' and all that follows through ``applicable size'' and 
inserting the following: ``50 percent of the dollar amount limitation 
determined under section 305(a)(2) of the Federal Home Loan Mortgage 
Corporation Act (as adjusted annually under such section) for a 
residence of the applicable size''.

SEC. 4. CALCULATION OF DOWNPAYMENT.

    Section 203(b)(2) of the National Housing Act (12 U.S.C. 
1709(b)(2)) is amended--
            (1) by striking subparagraph (B) and inserting the 
        following new subparagraph:
                    ``(B) except as otherwise provided in this 
                paragraph (2), not in excess of--
                            ``(i) in the case of a mortgage for a 
                        property with an appraised value equal to or 
                        less than $50,000, 98.75 percent of the 
                        appraised value of the property,
                            ``(ii) in the case of a mortgage for a 
                        property with an appraised value in excess of 
                        $50,000 but not in excess of $125,000, 97.65 
                        percent of the appraised value of the property,
                            ``(iii) in the case of a mortgage for a 
                        property with an appraised value in excess of 
                        $125,000, 97.15 percent of the appraised value 
                        of the property, or
                            ``(iv) notwithstanding clauses (ii) and 
                        (iii), in the case of a mortgage for a property 
                        with an appraised value in excess of $50,000 
                        and which is located in a State for which the 
                        average closing cost exceeds 3.25 percent of 
                        the average, for the State, of the sale price 
                        of properties located in the State for which 
                        mortgages have been executed, 97.75 percent of 
                        the appraised value of the property,
                plus the amount of the mortgage insurance premium paid 
                at the time the mortgage is insured.'';
            (2) in the 1st sentence of the matter following 
        subparagraph (B), by inserting before the period at the end the 
        following: ``, and the term `average closing cost' means, with 
        respect to a State, the average, for mortgages executed for 
        properties that are located within the State, of the total 
        amounts (as determined by the Secretary) of initial service 
        charges, appraisal, inspection, and other fees (as the 
        Secretary shall approve) that are paid in connection with such 
        mortgages'';
            (3) by striking the 2d sentence of the matter following 
        subparagraph (B); and
            (4) in penultimate undesignated paragraph--
                    (A) in the 2d sentence, by striking ``the preceding 
                sentence'' and inserting ``this subsection''; and
                    (B) by striking the 1st sentence.

SEC. 5. ELIMINATION OF RESTRICTIONS REGARDING NEW CONSTRUCTION.

    (a) In General.--Section 203(b)(2) of the National Housing Act (12 
U.S.C. 1709(b)(2)) is amended, in the matter following subparagraph 
(B)--
            (1) in the 1st undesignated paragraph, by striking 
        ``Notwithstanding any other provision of this section,'' and 
        all that follows through ``beginning of construction.''; and
            (2) by striking the 2d undesignated paragraph (relating to 
        mortgage insurance amounts for residences having solar energy 
        systems).
    (b) Repeal of Authority to Expend Amounts From Insurance Fund to 
Correct Substantial Defects.--Section 518 of the National Housing Act 
(12 U.S.C. 1735b) is hereby repealed.

SEC. 6. AUTHORITY TO USE AMOUNTS BORROWED FROM FAMILY MEMBERS FOR 
              DOWNPAYMENTS.

    (a) In General.--Section 203(b)(9) of the National Housing Act (12 
U.S.C. 1709(b)(9)) is amended by inserting before the period at the end 
the following: ``: Provided further, That for purposes of this 
paragraph, the Secretary shall consider as cash or its equivalent any 
amounts borrowed from a family member (as such term is defined in 
section 201), subject only to the requirements that, in any case in 
which the repayment of such borrowed amounts is secured by a lien 
against the property, such lien shall be subordinate to the mortgage 
and the sum of the principal obligation of the mortgage and the 
obligation secured by such lien may not exceed 100 percent of the 
appraised value of the property plus any initial service charges, 
appraisal, inspection, and other fees in connection with the 
mortgage''.
    (b) Definition of Family Member.--Section 201 of the National 
Housing Act (12 U.S.C. 1707) is amended by adding at the end the 
following new subsections:
    ``(e) The term `family member' means, with respect to a mortgagor 
under such section, a child, parent, or grandparent of the mortgagor 
(or the mortgagor's spouse). In determining whether any of the 
relationships referred to in the preceding sentence exist, a legally 
adopted son or daughter of an individual (and a child who is a member 
of an individual's household, if placed with such individual by an 
authorized placement agency for legal adoption by such individual), and 
a foster child of an individual, shall be treated as a child of such 
individual by blood.
    ``(f) The term `child' means, with respect to a mortgagor under 
such section, a son, stepson, daughter, or stepdaughter of such 
mortgagor.''.

SEC. 7. APPROVAL OF CONDOMINIUM PROJECTS.

    Section 234 of the National Housing Act (12 U.S.C. 1715y) is 
amended by striking subsection (k) and inserting the following new 
subsection:
    ``(k) Approval of Projects.--
            ``(1) In general.--A mortgage covering a multifamily 
        project or a condominium unit in a multifamily project shall be 
        eligible for mortgage insurance under this section 
        notwithstanding any other provision of this section relating to 
        requirements for multifamily projects if the project has been 
        approved by a government-sponsored housing enterprise and--
                    ``(A) in the case of a mortgage covering any 
                condominium unit in the project, the mortgage otherwise 
                complies with the requirements under this section 
                regarding eligibility of mortgages for mortgage 
                insurance provided under subsection (c); and
                    ``(B) in the case of a blanket mortgage covering 
                the multifamily project, the mortgage otherwise 
                complies with the requirements under this section 
                regarding eligibility of mortgages for mortgage 
                insurance provided under subsection (d).
            ``(2) Definitions.--For purposes of this subsection, the 
        following definitions shall apply:
                    ``(A) The term `approved by a government-sponsored 
                housing enterprise' means, with respect to a 
                multifamily housing project having a condominium 
                ownership structure, that a government-sponsored 
                housing enterprise has determined that any mortgage 
                covering the project or any condominium property in the 
                project may be purchased by the enterprise if such 
                mortgage is otherwise determined by the enterprise to 
                meet the standards and requirements of the enterprise 
                relating to mortgages.
                    ``(B) The term `condominium unit' means, with 
                respect to a multifamily property, a 1-family dwelling 
                unit in the project and an undivided interest in the 
                common areas and facilities that serve the project.
                    ``(C) The term `government-sponsored housing 
                enterprise' means--
                            ``(i) the Federal National Mortgage 
                        Association; and
                            ``(ii) the Federal Home Loan Mortgage 
                        Corporation.''.

SEC. 8. DELEGATION OF SINGLE FAMILY MORTGAGE INSURING AUTHORITY TO 
              DIRECT ENDORSEMENT MORTGAGEES.

    Title II of the National Housing Act (12 U.S.C. 1707 et seq.) is 
amended by adding at the end the following new section:

  ``delegation of insuring authority to direct endorsement mortgagees

    ``Sec. 256. (a) Authority.--The Secretary may delegate, to one or 
more mortgagees approved by the Secretary under the direct endorsement 
program, the authority of the Secretary under this Act to insure 
mortgages involving property upon which there is located a dwelling 
designed principally for occupancy by 1 to 4 families.
    ``(b) Considerations.--In determining whether to delegate authority 
to a mortgagee under this section, the Secretary shall consider the 
experience and performance of the mortgagee under the direct 
endorsement program, the default rate of insured mortgages originated 
by the mortgagee compared to the default rate of all insured mortgages 
in comparable markets, and such other factors as the Secretary 
determines appropriate to minimize risk of loss to the insurance funds 
under this Act.
    ``(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) 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) 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.''.

SEC. 9. INSURANCE OF 2-STEP SINGLE FAMILY MORTGAGES.

    Title II of the National Housing Act (12 U.S.C. 1701 et seq.), as 
amended by the preceding provisions of this Act, is further amended by 
adding at the end the following new section:

                    ``2-step single family mortgages

    ``Sec. 257. (a) Authority.--After making the finding required under 
subsection (d), the Secretary may insure under any provision of this 
title a mortgage involving property upon which there is located a 
dwelling designed principally for occupancy by 1 to 4 families, where 
the mortgage provides that the effective rate of interest charged is--
            ``(1) fixed for the duration of a specified period that 
        consists of not less than the first 5 years of the mortgage 
        term;
            ``(2) adjusted by the mortgagee upon the expiration of the 
        specified period referred to in paragraph (1) for the mortgage; 
        and
            ``(3) for the term of the mortgage remaining after such 
        adjustment--
                    ``(A) fixed at the adjusted rate established 
                pursuant to paragraph (2); or
                    ``(B) periodically adjusted by the mortgagee.
    ``(b) Redetermination of Rate.--For each mortgage insured pursuant 
to this section, the adjustment of the effective rate of interest 
pursuant to subsection (a)(2) may be accomplished through adjustments 
in the monthly payment amount, the outstanding principal balance, or 
the mortgage term, or a combination of such factors, except that in no 
case may any extension of a mortgage term result in a total term in 
excess of 40 years. The adjustment in the effective rate of interest 
shall correspond to a specified national interest rate index that is 
approved in regulations issued by the Secretary and information on 
which is readily accessible to the mortgagors from generally available 
published sources.
    ``(c) Limitations on Second-Step Periodic Rates.--For each mortgage 
insured pursuant to this section for which the effective rate of 
interest charged pursuant to subsection (a)(3) is periodically adjusted 
under subparagraph (B) of such subsection, such adjustments in the 
interest rate--
            ``(1) may be accomplished through adjustments in the 
        monthly payment amount, the outstanding principal balance, or 
        the mortgage term, or a combination of such factors, except 
        that in no case may any extension of a mortgage term result in 
        a total term in excess of 40 years;
            ``(2) shall correspond to a specified national interest 
        rate index that is approved in regulations issued the Secretary 
        and information on which is readily accessible to the 
        mortgagors from generally available published sources;
            ``(3) shall be made on an annual basis;
            ``(4) shall be limited, with respect to any single interest 
        rate increase, to no more than 1 percent on the outstanding 
        loan balance; and
            ``(5) be limited to a maximum increase of 5 percentage 
        points above the initial contract interest rate over the term 
        of the mortgage.
    ``(d) Conditions on Insuring Authority.--The Secretary may insure 
mortgages pursuant to this section only after determining that the risk 
posed by such insurance to the financial safety and soundness of the 
insurance fund of which the mortgage insurance is an obligation does 
not exceed such risk posed by insurance of mortgages of equivalent 
terms having fixed interest rates over such terms.
    ``(e) Description of Features.--The Secretary shall issue 
regulations requiring that the mortgagee make available to the 
mortgagor, at the time of loan application, a written explanation of 
the features of the 2-step mortgage insured pursuant to this section.
    ``(f) Limitation of Total Number of Mortgages Insured.--The 
aggregate number of mortgages and loans insured pursuant to this 
section 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.''.