A bill to authorize the Secretary of Housing and Urban Development to insure zero-downpayment mortgages.

Summary: Zero Downpayment Act of 2004 - Amends the National Housing Act to authorize the Secretary of Housing and Urban Development to insure zero-downpayment mortgages of an eligible single family residence for a first-time homebuyer who has received specified homeownership counseling.

Terminates program authority after September 30, 2011, except for mortgages executed prior to such date.

SEC. 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:
    ``(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--
                    ``(A) this subsection; and
                    ``(B) except as otherwise specifically provided in 
                this subsection, 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 4-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 stock or 
                membership entitles the purchaser to the permanent 
                occupancy of such dwelling unit; and
                    ``(C) a manufactured home, or a manufactured home 
                together with a suitably developed lot on which to 
                place the manufactured home.
            ``(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 subsection (b)(2)(B), or to the 
                undesignated matter that follows such subsection.
            ``(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, by a third party 
                        (other than the mortgagee or any party related 
                        directly or indirectly to the mortgagee) who is 
                        approved by the Secretary, with respect to the 
                        responsibilities and financial management 
                        involved in homeownership.
                            ``(ii) Topics.--Counseling required under 
                        clause (i) 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 
                                the property subject to the mortgage 
                                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- to 4-family residences.--In the 
                        case of a mortgage involving a 2- to 4-family 
                        residence, counseling required under clause (i) 
                        shall include (in addition to the information 
                        required under clause (ii)) information 
                        regarding the rights and obligations of 
                        landlords and tenants.
            ``(5) Option for notice of foreclosure prevention 
        counseling availability.--
                    ``(A) Option.--To be eligible for insurance under 
                this section, the mortgagee shall provide the 
                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 in accordance with 
                subparagraph (B) to a housing counseling entity, 
                approved by the Secertary, that has agreed to provide 
                the notice and counseling required under subparagraph 
                (C).
                    ``(B) Notice to counseling agency.--Notice provided 
                under subparagraph (A) shall--
                            ``(i) be provided at the earliest time 
                        practicable after the mortgagor becomes 60 days 
                        delinquent with respect to any payment due 
                        under the mortgage;
                            ``(ii) state that the mortgagor is 
                        delinquent and set forth how to contact the 
                        mortgagor; and
                            ``(iii) 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 immediately 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 at 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 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 section 
                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 
        subsection (b)(9) or any other requirement to pay on account of 
        the property, in cash or its equivalent, any amount of the cost 
        of acquisition.
            ``(7) Premiums.--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 to ensure that 
        the Mutual Mortgage Insurance Fund shall continue to generate a 
        negative credit subsidy which may include--
                    ``(A) altering mortgage insurance premiums subject 
                to subsection (c)(2);
                    ``(B) reviewing underwriting policies; and
                    ``(C) limiting the availability of mortgage 
                insurance under this subsection.
            ``(8) Underwriting.--For a mortgage to be eligible for 
        insurance under this subsection, 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.
            ``(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.--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.
            ``(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 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 section in any fiscal year may not exceed 30 
        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 under subparagraph (A), for any 
                particular time, shall be 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 
        section after September 30, 2011, except that the Secretary may 
        endorse or insure any mortgage that was duly executed before 
        such date.
            ``(16) GAO reports.--Not later than 2 years after the date 
        of enactment of the Zero Downpayment Act of 2004, and annually 
        thereafter, the Comptroller General of the United States shall 
        submit a report to Congress regarding the performance of 
        mortgages insured under this subsection.
            ``(17) Implementation.--The Secretary may implement this 
        subsection on an interim basis by issuing interim rules, except 
        that the Secretary shall solicit public comments upon 
        publication of such interim rules and shall issue final rules 
        implementing this subsection after consideration of the 
        comments submitted.''.
    (b) Mortgage Insurance Premiums.--The second sentence of 
subparagraph (A) of section 203(c)(2)(A) 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''.