```

[House Report 112-544]
[From the U.S. Government Publishing Office]

112th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     112-544

======================================================================

 
               FHA EMERGENCY FISCAL SOLVENCY ACT OF 2012

                                _______
                                

 June 20, 2012.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

  Mr. Bachus, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 4264]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 4264) to help ensure the fiscal solvency of the 
FHA mortgage insurance programs of the Secretary of Housing and 
Urban Development, and for other purposes, having considered 
the same, report favorably thereon without amendment and 
recommend that the bill do pass.

                          Purpose and Summary

    H.R. 4264, the FHA Emergency Fiscal Solvency Act of 2012, 
provides the Federal Housing Administration (FHA) with the 
tools it needs to protect the Mutual Mortgage Insurance Fund 
(MMIF) from becoming insolvent. The bill sets minimum annual 
premiums for mortgage insurance, requires lenders that 
committed fraud to reimburse the FHA for mortgage-insurance 
losses, bars unscrupulous lenders from participating in the 
FHA's mortgage insurance programs, and directs the FHA to 
implement internal fiscal oversight.

                  Background and Need for Legislation

    The FHA was established as an agency of the Department of 
Housing and Urban Development (HUD) by the National Housing Act 
of 1934 to provide federal mortgage insurance in order to 
broaden homeownership, protect lending institutions, and 
stimulate the building industry. Before the FHA was 
established, home mortgages did not exceed 50 percent of home 
values and were short term, lasting no longer than five years. 
At the end of the fifth year, homeowners had to pay their 
mortgages in full or roll them over into another loan. During 
the Great Depression, lenders were unable or unwilling to roll 
over loans that came due. As a result, many borrowers lost 
their homes to foreclosure and lenders lost money because 
property values declined significantly. The creation of the FHA 
provided stability and liquidity to the mortgage market and 
fostered the introduction of the 30-year mortgage and mortgage 
standardization.
    During the housing boom of the mid-2000s through 2006, the 
FHA's share of the mortgage market fell to under two percent of 
mortgage originations (measured by dollar volume). But as 
housing prices began to fall, lenders tightened their 
underwriting criteria and the FHA began to play a larger role 
in the mortgage market. The Congressional Research Service 
reported that during FY 2010, the FHA guaranteed nearly 40 
percent of the home-purchase mortgages that were originated or 
refinanced, which corresponds to approximately 1.1 million 
homebuyers. FY 2010 was the second time that the FHA has 
assisted more than 1 million homebuyers in a single year. As a 
result of these trends, the FHA is now the largest government 
insurer of mortgages in the world, with a mortgage portfolio of 
7.4 million loans and a combined unpaid principal balance of 
over $1 trillion.
    The FHA is intended to be self-funded: the premiums paid by 
homeowners for FHA mortgage insurance are supposed to defray 
the costs of running the program and to cover losses when loans 
default. But while the FHA's market share has been growing, the 
FHA--like most other participants in the mortgage market--has 
been faced with higher default rates. The FHA thus finds itself 
supporting the mortgage market by insuring new home loans as it 
seeks to reinforce the stability of its single-family MMIF. By 
statute, the FHA is required to maintain the MMIF's capital 
reserve ratio at 2 percent or greater. The capital reserve 
ratio was first required in the Omnibus Budget Reconciliation 
Act of 1990, when there was significant concern that the FHA 
would deplete its capital and require federal appropriations to 
continue. In the years since the capital reserve ratio was 
adopted, the FHA's ability to meet the capital reserve 
requirement has served as a measure of the health of the MMIF.
    On November 15, 2011, HUD released the FHA's FY 2011 
Actuarial Report, prepared for HUD by an independent auditor. 
The Actuarial Report showed deterioration of the MMIF's capital 
reserve ratio, which fell to 0.24 percent in FY 2011. The FY 
2011 Actuarial Report also noted that as of the end of FY 2011, 
the MMIF's economic value--which is the MMIF's existing capital 
resources plus the net present value of FHA's current book of 
business--was $1.19 billion, a decrease of 77 percent from the 
MMIF's $5.16 billion economic value as of the end of FY 2010. 
The fall in the MMIF's economic value was caused by declines in 
national home prices of more than five percent, more loans 
having elevated default potential, and uncertain economic 
conditions. The FY 2011 Actuarial Report concluded that under 
more pessimistic economic scenarios than the Actuarial Report's 
base-case assumptions, the MMIF's economic value may be 
negative beginning in FY 2012 through FY 2018.
    Today, the FHA faces its most serious fiscal challenge. In 
its FY 2011 annual report to Congress, the FHA acknowledged 
that ``[c]laim expenses were greater than the sum of premium 
revenue and property recoveries for the year.'' In other words, 
the FHA now spends more than it collects. In February 2012, the 
President's FY 2013 budget proposal confirmed the FHA's 
finances were in a precarious condition, projecting that the 
FHA could be required to draw $688 million in emergency funds 
from Treasury to build up the insurance fund.
    As a result of the MMIF's falling capital reserves, the FHA 
is vulnerable to further defaults. If the MMIF were exhausted 
and the FHA lacked funds to pay insurance claims, the Treasury 
would be forced to cover lenders' claims directly. Because the 
FHA's guarantees are backed by the federal government, a large 
number of defaults could result in significant losses to the 
FHA that would ultimately be borne by taxpayers. The 
deteriorating financial position of the FHA's capital reserve 
funds raises concerns that in the same way that Fannie Mae and 
Freddie Mac were bailed out by taxpayers, the FHA could also 
expose taxpayers to further risk.
    Apart from the FHA's parlous financial condition, there is 
also great concern that the FHA, as of the end of 2011, 
controlled well over half of the mortgage insurance market. 
Given the consensus among policymakers that government should 
facilitate the return of private capital to the housing finance 
market, the government's continued dominance of the mortgage 
insurance market remains troubling. H.R. 4264 would not only 
protect taxpayers from the government's exposure to losses 
resulting from its presence in the mortgage insurance market, 
it would also, through its premium structure, level the playing 
field so that the private sector could provide mortgage 
insurance on competitive terms. In addition, H.R. 4264 gives 
the FHA the tools it needs to implement reforms that bolster 
the FHA's reserves and reduce taxpayer risk.

                                Hearings

    The Subcommittee on Insurance, Housing, and Community 
Opportunity held a hearing on May 25, 2011, titled 
``Legislative Proposals to Determine the Future Role of FHA, 
RHS and GNMA in the Single- and Multi-Family Mortgage 
Markets.'' The following witnesses testified:
           Ms. Katherine M. Alitz, Senior Vice 
        President, Boston Capital, on behalf of the Council for 
        Affordable and Rural Housing
           Mr. Michael D. Berman, Chairman, Mortgage 
        Bankers Association
           Mr. Mark A. Calabria, Director of Financial 
        Regulation Studies, Cato Institute, Washington, DC
           Mr. Peter Carey, President and CEO, Self-
        Help Enterprises, on behalf of the Housing Assistance 
        Council and the National Rural Housing Coalition
           Mr. Brian Chappelle, Partner, Potomac 
        Partners
           Mr. Peter W. Evans, Partner, Moran & 
        Company, on behalf of the National Multi Housing 
        Council and the National Apartment Association
           Mr. Basil Petrou, Managing Partner, Federal 
        Financial Analytics, Inc.
           Mr. Ron Phipps, Broker, Phipps Realty, on 
        behalf of the National Association of Realtors
           Mr. Barry Rutenberg, First Vice Chairman, 
        National Association of Home Builders
    The Subcommittee on Insurance, Housing, and Community 
Opportunity held a hearing on September 8, 2011, titled 
``Legislative Proposals to Determine the Future Role of FHA, 
RHS and GNMA in the Single- and Multi-Family Mortgage Markets, 
Part II.'' The following witnesses testified:

                                PANEL I

           The Honorable Johnny Isakson (R-GA), United 
        States Senate

                                PANEL II

           Mrs. Carol Galante, Acting Federal Housing 
        Administration Commissioner and Assistant Secretary for 
        Housing, Department of Housing and Urban Development
           Ms. Tammye Trevino, Administrator, Housing 
        and Community Facilities Programs, Department of 
        Agriculture's Rural Development Agency
           The Honorable Theodore ``Ted'' Tozer, 
        President, Government National Mortgage Association
    The Committee on Financial Services held a hearing on 
December 1, 2011, titled ``Perspectives on the Health of the 
FHA Single-family Insurance Fund.'' The following witnesses 
testified:

                                PANEL I

           The Honorable Shaun Donovan, Secretary, U.S. 
        Department of Housing and Urban Development

                                PANEL II

           Mr. Mathew Scire, Director, Financial 
        Markets and Community Investment, U.S. Government 
        Accountability Office
           Dr. Andrew Caplin, Professor of Economics, 
        Department of Economics, New York University
           Mr. Patrick Sinks, President and Chief 
        Operating Officer, Mortgage Guaranty Insurance 
        Corporation, on behalf of the Mortgage Insurance 
        Companies of America
           Ms. Debra W. Still, Chairman-Elect, Mortgage 
        Bankers Association
           Mr. Moe Veissi, President, National 
        Association of Realtors
           Ms. Sarah Rosen Wartell, Executive Vice 
        President, Center for American Progress

                        Committee Consideration

    The Committee on Financial Services met in open session on 
March 27, 2012, and ordered H.R. 4264 favorably reported to the 
House by 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. A 
motion by Chairman Bachus to report the bill, as amended, to 
the House with a favorable recommendation was agreed to by 
voice vote.
    During consideration of H.R. 4264 by the Committee, the 
following amendments were considered:
    1. An amendment offered by Mr. Westmoreland, no. 2, to 
reduce FHA's insurance guarantee from 100% of loan value to 80% 
for mortgages insured after date of enactment, was not agreed 
to by a record vote of 18 yeas and 36 nays (Record vote no. FC-
65).

                                              RECORD VOTE NO. FC-65
----------------------------------------------------------------------------------------------------------------
         Representative             Aye       Nay     Present     Representative      Aye       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Bachus.....................        X   ........  .........  Mr. Frank (MA)...  ........        X   .........
Mr. Hensarling.................        X   ........  .........  Ms. Waters.......  ........  ........  .........
Mr. King (NY)..................  ........        X   .........  Mrs. Maloney.....  ........  ........  .........
Mr. Royce......................        X   ........  .........  Mr. Gutierrez....  ........        X
Mr. Lucas......................  ........        X   .........  Ms. Velazquez....  ........        X
Mr. Paul.......................  ........  ........  .........  Mr. Watt.........  ........        X
Mr. Manzullo...................  ........        X   .........  Mr. Ackerman.....  ........        X
Mr. Jones......................  ........  ........  .........  Mr. Sherman......  ........        X
Mrs. Biggert...................  ........        X   .........  Mr. Meeks........  ........  ........  .........
Mr. Gary G. Miller (CA)........  ........        X   .........  Mr. Capuano......  ........        X
Mrs. Capito....................  ........        X   .........  Mr. Hinojosa.....  ........        X
Mr. Garrett....................        X   ........  .........  Mr. Clay.........  ........        X
Mr. Neugebauer.................        X   ........  .........  Mrs. McCarthy      ........        X
                                                                 (NY).
Mr. McHenry....................        X   ........  .........  Mr. Baca.........  ........        X
Mr. Campbell...................  ........        X   .........  Mr. Lynch........  ........        X
Mrs. Bachmann..................        X   ........  .........  Mr. Miller (NC)..  ........        X
Mr. McCotter...................        X   ........  .........  Mr. David Scott    ........        X
                                                                 (GA).
Mr. McCarthy (CA)..............        X   ........  .........  Mr. Al Green (TX)  ........
Mr. Pearce.....................        X   ........  .........  Mr. Cleaver......  ........        X   .........
Mr. Posey......................  ........        X   .........  Ms. Moore........  ........        X   .........
Mr. Fitzpatrick................  ........        X   .........  Mr. Ellison......  ........        X   .........
Mr. Westmoreland...............        X   ........  .........  Mr. Perlmutter...  ........        X   .........
Mr. Luetkemeyer................  ........        X   .........  Mr. Donnelly.....  ........        X   .........
Mr. Huizenga...................        X   ........  .........  Mr. Carson.......  ........  ........  .........
Mr. Duffy......................        X   ........  .........  Mr. Himes........  ........        X   .........
Ms. Hayworth...................  ........        X   .........  Mr. Peters.......  ........        X   .........
Mr. Renacci....................  ........        X   .........  Mr. Carney.......  ........        X   .........
Mr. Hurt.......................        X   ........  .........
Mr. Dold.......................  ........        X   .........
Mr. Schweikert.................        X   ........  .........
Mr. Grimm......................  ........        X   .........
Mr. Canseco....................        X   ........  .........
Mr. Stivers....................        X   ........  .........
Mr. Fincher....................        X
----------------------------------------------------------------------------------------------------------------

    2. An amendment offered by Mr. Westmoreland, no. 3, to 
require FHA to charge the maximum annual premium allowed, 
establish more stringent underwriting standards, and charge an 
additional risk-based annual premium, until its Mutual Mortgage 
Insurance Fund (MMIF) regains its statutorily required 2% 
minimum capital ratio, was not agreed to by a record vote of 19 
yeas and 38 nays (Record vote no. FC-66).

                                              RECORD VOTE NO. FC-66
----------------------------------------------------------------------------------------------------------------
         Representative             Aye       Nay     Present     Representative      Aye       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Bachus.....................        X   ........  .........  Mr. Frank (MA)...  ........        X   .........
Mr. Hensarling.................        X   ........  .........  Ms. Waters.......  ........        X   .........
Mr. King (NY)..................  ........        X   .........  Mrs. Maloney.....  ........        X   .........
Mr. Royce......................        X   ........  .........  Mr. Gutierrez....  ........        X   .........
Mr. Lucas......................  ........        X   .........  Ms. Velazquez....  ........        X   .........
Mr. Paul.......................  ........  ........  .........  Mr. Watt.........  ........        X   .........
Mr. Manzullo...................  ........        X   .........  Mr. Ackerman.....  ........        X   .........
Mr. Jones......................  ........  ........  .........  Mr. Sherman......  ........        X   .........
Mrs. Biggert...................  ........        X   .........  Mr. Meeks........  ........  ........  .........
Mr. Gary G. Miller (CA)........  ........        X   .........  Mr. Capuano......  ........        X   .........
Mrs. Capito....................  ........        X   .........  Mr. Hinojosa.....  ........        X   .........
Mr. Garrett....................        X   ........  .........  Mr. Clay.........  ........        X   .........
Mr. Neugebauer.................        X   ........  .........  Mrs. McCarthy      ........        X   .........
                                                                 (NY).
Mr. McHenry....................        X   ........  .........  Mr. Baca.........  ........        X   .........
Mr. Campbell...................  ........        X   .........  Mr. Lynch........  ........        X   .........
Mrs. Bachmann..................        X   ........  .........  Mr. Miller (NC)..  ........        X   .........
Mr. McCotter...................        X   ........  .........  Mr. David Scott    ........        X   .........
                                                                 (GA).
Mr. McCarthy (CA)..............        X   ........  .........  Mr. Al Green (TX)  ........  ........  .........
Mr. Pearce.....................        X   ........  .........  Mr. Cleaver......  ........        X   .........
Mr. Posey......................  ........        X   .........  Ms. Moore........  ........        X   .........
Mr. Fitzpatrick................  ........        X   .........  Mr. Ellison......  ........        X   .........
Mr. Westmoreland...............        X   ........  .........  Mr. Perlmutter...  ........        X   .........
Mr. Luetkemeyer................        X   ........  .........  Mr. Donnelly.....  ........        X   .........
Mr. Huizenga...................        X   ........  .........  Mr. Carson.......  ........        X   .........
Mr. Duffy......................  ........        X   .........  Mr. Himes........  ........        X   .........
Ms. Hayworth...................  ........        X   .........  Mr. Peters.......  ........        X   .........
Mr. Renacci....................        X   ........  .........  Mr. Carney.......  ........        X   .........
Mr. Hurt.......................        X   ........  .........
Mr. Dold.......................  ........        X   .........
Mr. Schweikert.................        X   ........  .........
Mr. Grimm......................  ........        X   .........
Mr. Canseco....................        X   ........  .........
Mr. Stivers....................        X   ........  .........
Mr. Fincher....................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

    The following amendment was also considered by the 
Committee:
    1. An amendment offered by Mr. Fitzpatrick, no. 1, to 
permanently remove the statutory cap on the number of Home 
Equity Conversion Mortgages (HECMs), was offered and withdrawn.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee has 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 objective of H.R. 4264, the FHA Emergency Fiscal 
Solvency Act of 2012, is to provide the Federal Housing 
Administration (FHA) with the tools it needs to protect the 
Mutual Mortgage Insurance Fund (MMIF) from becoming insolvent. 
The bill sets minimum annual premiums for mortgage insurance, 
requires lenders that committed fraud to reimburse the FHA for 
mortgage-insurance losses, bars unscrupulous lenders from 
participating in the FHA's mortgage insurance programs, and 
directs the FHA to implement internal fiscal oversight.

   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:

H.R. 4264--FHA Emergency Fiscal Solvency Act of 2012

    Summary: H.R. 4264 would make several changes to current 
law aimed at improving the financial safety and soundness of 
the Federal Housing Administration's (FHA's) single-family 
program. That program offers federal guarantees on certain home 
mortgages; cash flows associated with the loan guarantees are 
recorded in the budget in the Mutual Mortgage Insurance Fund 
(MMIF). The bill would require an independent actuarial review 
of the MMIF during periods when the fund's capital ratio falls 
below 2 percent, establish positions related to risk management 
at FHA and the Government National Mortgage Association (GNMA), 
and require FHA to make other administrative changes to the 
processes they use to oversee the single-family program.
    CBO estimates that implementing H.R. 4264 would cost $11 
million over the 2013-2017 period, subject to the availability 
of appropriated funds. This legislation would not affect direct 
spending or revenues; therefore, pay-as-you-go procedures do 
not apply.
    H.R. 4264 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. 4264 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--
                                                         -------------------------------------------------------
                                                            2013     2014     2015     2016     2017   2013-2017
----------------------------------------------------------------------------------------------------------------
                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Actuarial Studies:
    Estimated Authorization Level.......................        3        3        1        1        1         9
    Estimated Outlays...................................        3        3        1        1        1         9
Other Costs:
    Estimated Authorization Level.......................        *        *        *        *        *         2
    Estimated Outlays...................................        *        *        *        *        *         2
    Total Changes:
        Estimated Authorization Level...................        3        3        1        2        2        11
        Estimated Outlays...............................        3        3        1        2        2        11
----------------------------------------------------------------------------------------------------------------
Note: * = less than $500,000.

    Basis of estimate: For this estimate, CBO assumes that the 
bill will be enacted in late 2012 and that the necessary 
amounts will be appropriated each year.

Actuarial studies

    Currently, an independent actuarial review of the MMIF is 
performed on an annual basis. H.R. 4264 would require the MMIF 
to be reviewed semiannually if the fund fails to maintain the 
statutorily mandated 2 percent capital ratio. (The capital 
ratio measures FHA's cash on hand relative to the number of all 
outstanding mortgages insured by the agency.) FHA estimates 
that the capital ratio has been below 2 percent since 2009; 
prior to that, the ratio fell below 2 percent once in 1994. 
Currently, FHA expects that the capital ratio will reach or 
exceed 2 percent by 2015. According to FHA, an actuarial review 
costs about $3 million. CBO expects that under the bill 
additional actuarial reviews would have to be performed in 2013 
and 2014, at a cost of $6 million over those two years.
    Although FHA anticipates that the capital ratio for MMIF 
will increase to 2 percent by 2015, there is some probability 
that this may not happen and that additional actuarial reviews 
would be necessary. CBO estimates that there is about a 20 
percent chance that the capital ratio could be below 2 percent 
in any year, given that it has fallen below this level four 
times in the last 19 years. Considering the probability that 
additional actuarial reviews would be needed, CBO estimates 
that enacting this provision would cost about $3 million over 
the 2015-2017 period.

Other costs

    Implementing H.R. 4264 would change the processes used by 
FHA to oversee the single-family loan program. For example, the 
bill would require a review of any mortgages that default 
within 24 months of being originated. In addition, H.R. 4264 
would establish two new positions: Deputy Assistant Secretary 
for Risk Management and Regulatory Affairs within FHA, and 
Chief Risk Officer within GNMA. H.R. 4264 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.
    In total, CBO estimates that these other requirements under 
H.R. 4264 would cost $2 million over the 2013-2017 period, 
subject to the availability of appropriated funds.
    Finally, under H.R. 4264 the annual mortgage insurance 
premium charged by FHA could not be less than 0.55 percent or 
more than 2.05 percent of the outstanding loan balance. Because 
CBO does not anticipate that FHA's annual premiums will be 
adjusted over the next five years as a result of enacting this 
legislation, this provision would have no budgetary impact.
    Pay-As-You-Go considerations: None.
    Intergovernmental and private-sector impact: H.R. 4264 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would impose no costs on state, local, or 
tribal governments.
    Estimate prepared by: Federal Costs: Susanne S. Mehlman; 
Impact on State, Local, and Tribal Governments: 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.

                  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 the section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    H.R. 4264 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 and table of contents

    This Act may be cited as the ``FHA Emergency Fiscal 
Solvency Act of 2012''.

Section 2. FHA annual mortgage insurance premiums

    Section 2 requires the Department of Housing and Urban 
Development (HUD) to establish a minimum annual mortgage 
insurance premium of not less than 0.55 percent of the 
remaining insured principal balance. The section also gives HUD 
the discretion to charge an annual premium of up to 2.0/2.05 
percent. This provision will take effect six months after the 
date of the bill's enactment.

Section 3. Indemnification by FHA mortgagees

    Section 3 permits HUD to require indemnification from a 
mortgagee if HUD determines that the mortgagee knew, or should 
have known, of a serious or material violation of HUD's 
mortgage underwriting standards for FHA loans. If fraud or 
misrepresentation was involved in the origination or 
underwriting of the FHA mortgage, HUD may require the mortgagee 
to indemnify HUD regardless of when an insurance claim is paid. 
This section also requires HUD to establish a process for 
lenders to appeal HUD's indemnification determinations, and to 
issue regulations to implement this section, to report on the 
number of fraudulent or improperly underwritten loans, and to 
report on the effect on FHA's insurance fund when 
indemnification is required.

Section 4. Early period delinquencies

    Section 4 requires HUD to analyze and report on ``early 
period delinquencies'' (defined as a mortgage that becomes 90 
or more days delinquent within the first 24 months of the loan) 
for FHA loans and to seek indemnification from lenders for 
early period delinquencies.

Section 5. Semiannual actuarial studies of MMIF during periods of 
        capital depletion

    Section 5 requires HUD to provide an independent actuarial 
report on the FHA semiannually, rather than annually, if the 
FHA fails to maintain its 2.0% capital ratio requirement. This 
section also requires that HUD analyze the cost and feasibility 
of providing an independent actuarial study on a quarterly 
basis.

Section 6. Delegation of FHA insuring authority

    To implement Section 3 of the legislation, Section 6 
strikes subsection (c) of Section 256 of the National Housing 
Act, which authorized HUD to indemnify mortgagees for losses 
resulting from FHA mortgages that were not originated in 
accordance with HUD's requirements, or when fraud or 
misrepresentation were involved in the mortgage's origination.

Section 7. Authority to terminate FHA mortgagee origination and 
        underwriting approval

    Section 7 authorizes HUD to review mortgagee performance in 
a specific geographic area or across the nation, and to 
terminate the approval of the mortgagee to originate or 
underwrite FHA mortgages in a specific area or nationwide if 
HUD finds that a mortgagee has an excessive rate of early 
defaults or claims.

Section 8. Authorization to participate in the origination of FHA-
        insured loans

    Section 8 states that an FHA mortgage must be originated by 
a mortgagee approved by HUD or by a person authorized by the 
HUD Secretary to originate FHA mortgages, and that the mortgage 
is to be held by a mortgagee approved by HUD that can service 
the mortgage properly. FHA reverse mortgages must also be 
originated by a mortgagee, person or entity approved by the HUD 
Secretary.

Section 9. Reporting of mortgagee actions taken against other 
        mortgagees

    Section 9 instructs the HUD Secretary to require lenders, 
as a condition of FHA approval, to report to the FHA any action 
to terminate other lenders based a determination of fraud or 
material misrepresentation in connection with the origination 
of FHA mortgages within 15 days of such action.

Section 10. Default and origination information by loan servicer and 
        originating direct endorsement lender

    Section 10 amends the FHA reporting requirements for early 
payment delinquencies to require the HUD Secretary to track 
mortgage performance by loan servicer.

Section 11. Deputy Assistant Secretary of FHA for Risk Management and 
        Regulatory Affairs

    Section 11 creates a position within the FHA for a Deputy 
Assistant Secretary for Risk Management and Regulatory Affairs. 
The position is to be filled by the HUD Secretary and reports 
to the FHA Commissioner on the management and mitigation of 
risk to FHA mortgage insurance funds.

Section 12. Establishment of Chief Risk Officer for GNMA

    Section 12 establishes a position of Chief Risk Officer for 
the Government National Mortgage Association (GNMA). The 
position is to be filled by the HUD Secretary with a career 
appointee who must have practical experience in risk evaluation 
practices in large governmental entities. The Chief Risk 
Officer need not obtain GNMA or HUD approval before submitting 
reports, recommendations, and testimony to Congress.

Section 13. Report of mortgage servicers

    Section 13 instructs the HUD Secretary to report on 
mortgage servicer compliance with the FHA's guidelines on loan 
servicing, loss mitigation, and insurance claim submission. The 
report must include an estimate of annual costs to FHA, since 
2008, resulting from failures by mortgage servicers to comply 
with the FHA's guidelines. The HUD Secretary is to submit the 
report to Congress, including any legislative or administrative 
recommendations, within 120 days of the bill's enactment.

Section 14. FHA emergency capital plan

    Section 14 directs the HUD Secretary to submit to Congress, 
thirty days after the bill's enactment, an emergency capital 
plan for the restoration of the FHA's fiscal solvency. The plan 
would provide a detailed explanation of how the FHA's capital 
assets are monitored and tracked; how to ensure the FHA's 
financial safety without borrowing funds from the U.S. 
Department of Treasury; and describe how, if necessary, the FHA 
would draw down funds from the Treasury. If the FHA remains 
below the 2.0 percent capital reserve ratio, the FHA is to 
submit monthly reports to Congress that assess the financial 
status of the FHA, outline the FHA's capital reserve ratio, and 
describe actions the FHA undertakes to establish a capital 
reserve ratio above 2.0 percent. The requirement for the FHA to 
submit monthly reports would terminate once the FHA achieved a 
capital reserve ratio of 2.0 percent.

Section 15. FHA safety and soundness review

    Section 15 directs the Government Accountability Office to 
provide for an independent third party to conduct a safety and 
soundness review of the FHA's mortgage insurance programs and 
report on its findings. This one-time independent review is to 
be conducted in accordance with generally accepted accounting 
principles applicable to the private sector. The third party's 
report is to describe the methodology and standards used to 
conduct the independent review and include recommendations for 
restoring the FHA's reserve funds and capital.

Section 16. FHA disclosure standards

    Section 16 directs HUD, within 90 days of the bill's 
enactment, to review and revise the standards and requirements 
for its annual actuarial report and quarterly reports to ensure 
that these reports provide meaningful financial information, do 
not contain misrepresentations, and make available all relevant 
information, and to prohibit material omissions in these 
reports that would make them misleading.

Section 17. Report on streamlining FHA programs

    Section 17 directs HUD to study the FHA's mortgage 
insurance programs to assess the need for these programs, to 
identify insurance programs that are unused or underused, and 
to identify methods for streamlining, consolidating, 
simplifying, increasing the efficiency of, and reducing the 
number of these programs. HUD is required to submit this study 
to Congress within 12 months of the bill's enactment.

         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.--] (4) 
        Independent actuarial study.--
                  (A) Annual study.--The Secretary shall 
                provide for an independent actuarial study of 
                the Fund to be conducted annually, except as 
                provided in subparagraph (B), which shall 
                analyze the financial position of the Fund. The 
                Secretary shall submit a report annually, 
                except as provided in subparagraph (B), to the 
                Congress describing the results of such study 
                and assessing the financial status of the Fund. 
                The report shall recommend adjustments to 
                underwriting standards, program participation, 
                or premiums, if necessary, to ensure that the 
                Fund remains financially sound. 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.
                  (B) Semiannual studies during periods of 
                capital depletion.--During any period that the 
                Fund fails to maintain sufficient capital to 
                comply with the capital ratio requirement under 
                section 205(f)(2)--
                          (i) the independent study required by 
                        subparagraph (A) shall be conducted 
                        semiannually and shall analyze the 
                        financial position of the Fund as of 
                        September 30 and March 31 of each 
                        fiscal year during such period; and
                          (ii) the Secretary shall submit a 
                        report meeting the requirements of 
                        subparagraph (A) for each such 
                        semiannual study.

           *       *       *       *       *       *       *

          (8) Programmatic review of early period 
        delinquencies.--The Secretary shall establish and 
        maintain a program--
                  (A) to review the cause of each early period 
                delinquency on a mortgage that is an obligation 
                of the Mutual Mortgage Insurance Fund;
                  (B) to require indemnification of the 
                Secretary for a loss associated with any such 
                early period delinquency that is the result of 
                a material violation, as determined by the 
                Secretary, of any provision, regulation, or 
                other guideline established or promulgated 
                pursuant to this title; and
                  (C) to publicly report--
                          (i) a summary of the results of all 
                        early period delinquencies reviewed 
                        under subparagraph (A);
                          (ii) any indemnifications required 
                        under subparagraph (B); and
                          (iii) the financial impact on the 
                        Mutual Mortgage Insurance Fund of any 
                        such indemnifications.
          (9) Definition of early period delinquency.--For 
        purposes of this section, the term ``early period 
        delinquency'' means, with respect to a mortgage, that 
        the mortgage becomes 90 or more days delinquent within 
        24 months of the origination of such mortgage.

           *       *       *       *       *       *       *

  (i) Indemnification by Mortgagees.--
          (1) In general.--If the Secretary determines that the 
        mortgagee knew, or should have known, of a serious or 
        material violation of the requirements established by 
        the Secretary with respect to 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 such 
        that the mortgage loan should not have been approved 
        and endorsed by the mortgagee, 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, irrespective of 
        whether the violation caused the mortgage default.
          (2) Fraud or misrepresentation.--If fraud or 
        misrepresentation was involved in connection with the 
        origination or underwriting and the Secretary 
        determines that the mortgagee knew or should have known 
        of the fraud or misrepresentation, the Secretary shall 
        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) Appeals process.--The Secretary shall, by 
        regulation, establish an appeals process for mortgagees 
        to appeal indemnification determinations made pursuant 
        to paragraph (1) or (2).
          (4) Requirements and procedures.--The Secretary shall 
        issue regulations establishing appropriate requirements 
        and procedures governing the indemnification of the 
        Secretary by the mortgagee, including public reporting 
        on--
                  (A) the number of loans that--
                          (i) were not originated or 
                        underwritten in accordance with the 
                        requirements established by the 
                        Secretary; and
                          (ii) involved fraud or 
                        misrepresentation in connection with 
                        the origination or underwriting; and
                  (B) the financial impact on the Mutual 
                Mortgage Insurance Fund when indemnification is 
                required.
  (j) 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 or evidence of fraud or material 
misrepresentation in connection with the origination of such 
mortgages, to notify the Secretary of the action taken and the 
reasons for such action not later than 15 days after taking 
such action.

                         INSURANCE OF MORTGAGES

  Sec. 203. (a) * * *
  (b) To be eligible for insurance under this section a 
mortgage shall comply with the following:
          [(1) Have been made to, and be held by, a mortgagee 
        approved by the Secretary as responsible and able to 
        service the mortgage properly.]
          (1) Have been made to a mortgagee approved by the 
        Secretary or to a person or entity authorized by the 
        Secretary under section 202(d)(1) to participate in the 
        origination of the mortgage, and be held by a mortgagee 
        approved by the Secretary as responsible and able to 
        service the mortgage properly.

           *       *       *       *       *       *       *

  (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 [may] shall establish and collect 
        annual premium payments in an amount [not exceeding 1.5 
        percent] not less than 0.55 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) and not exceeding 
        2.0 percent of such remaining insured principal balance 
        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 may be in an amount not exceeding [1.55 
                percent] 2.05 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).

           *       *       *       *       *       *       *

  INSURANCE OF HOME EQUITY CONVERSION MORTGAGES FOR ELDERLY HOMEOWNERS

  Sec. 255. (a) * * *

           *       *       *       *       *       *       *

  (d) Eligibility Requirements.--To be eligible for insurance 
under this section, a mortgage shall--
          [(1) have been originated by a mortgagee approved by 
        the Secretary;]
          (1) have been originated by a mortgagee approved by, 
        or by a person or entity authorized under section 
        202(d)(1) to participate in the origination by, the 
        Secretary;

           *       *       *       *       *       *       *

   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) * * *
  (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. 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.

           *       *       *       *       *       *       *

   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 number of claims paid to 
                each servicing mortgagee during each calendar 
                quarter occurring during the applicable 
                collection period.

           *       *       *       *       *       *       *

                              ----------                              

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.

           *       *       *       *       *       *       *

  (h) There shall be in the Department a Chief Risk Officer for 
the Government National Mortgage Association, who shall--
          (1) be designated by the Secretary;
          (2) be responsible to the President of the 
        Association for all matters related to evaluating, 
        managing, and mitigating risk to the programs of the 
        Association;
          (3) be in the competitive service or the senior 
        executive service;
          (4) be a career appointee;
          (5) be designated from among individuals who possess 
        demonstrated ability in general management of, and 
        knowledge of and extensive practical experience in risk 
        evaluation practices in large governmental or business 
        entities;
          (6) shall not be required to obtain the prior 
        approval, comment, or review of any officer or agency 
        of the United States before submitting to the Congress, 
        or any committee or subcommittee thereof, any reports, 
        recommendations, testimony, or comments if such 
        submission include a statement indicating that the 
        views expressed therein are those of the Chief Risk 
        Officer of the Association and do not necessarily 
        represent the views of the Secretary.

           *       *       *       *       *       *       *

                            DISSENTING VIEWS

    FHA helps to ensure credit availability to underserved 
borrowers and the broader market when private sector lending 
recedes, as occurred particularly during the height of the 
housing crisis. While FHA contributes to the stabilization of 
the market, it must balance this role with the need to protect 
and preserve the Mutual Mortgage Insurance Fund (MMI Fund), 
which has experienced significant stress as a result of the 
recession, unemployment, and a failure on the part of many 
lenders to appropriately follow FHA servicing and origination 
guidelines.
    Since 2009, FHA has taken a number of critical steps, 
including tightening underwriting requirements, increasing 
premiums, and strengthening lender accountability, to alter the 
trajectory of the MMI Fund and better position FHA for the 
future. The books of business insured in the few years before 
2009 have largely driven the high number of claims to the MMI 
Fund. Recent systematic tightening of risk controls, increased 
premiums to stabilize near-term finances, and expanded usage of 
loss mitigation workout assistance to avoid unnecessary claims, 
have led to the highest quality of loans FHA has seen in its 
history. Many of these changes are due in large part to 
Congressional leadership and support for providing greater 
flexibility to FHA in setting premiums and protecting FHA from 
the impacts of unscrupulous or non-compliant lenders. With 
respect to FHA premium increases to strengthen the Fund, FHA 
recently announced a series of additional premium changes, 
including a 75 bps increase in upfront premiums, which will 
increase receipts to FHA by $1 billion in fiscal years 2012 and 
2013. In addition, the Administration's FY 2013 Budget 
submission includes the implementation of a 10 bps increase to 
annual mortgage insurance premiums for all FHA-insured forward 
mortgages, as mandated by Congress in the Temporary Payroll Tax 
Cut Continuation Act of 2011 (P.L. 112-78) enacted in December, 
as well as an additional 25 bps annual premium increase on 
``jumbo'' loans, making the total increase for these larger 
loans 35 bps.
    Moreover, it is important that FHA's currently expanded 
role in the nation's housing finance system be temporary, and 
that it should return to its traditional role in the market in 
accordance with the recovery of private lending. However, 
although the government footprint in the nation's mortgage 
markets must shrink, it is important not to impose dramatic 
changes in the availability of credit that would negatively 
impact FHA's ability to maintain its critical and long 
established mission could pose significant harm to the progress 
that is being made in recovery of the housing market and 
broader economy.
    H.R. 4264 contains several key provisions, sought for 
several years by HUD and contained in legislation passed by a 
previous Congress, which will enhance FHA's ability to protect 
and stabilize the MMI Fund. These provisions include: Section 
3, which, under certain circumstances, permits HUD to seek 
indemnification from a mortgagee that participates in FHA's 
Direct Endorsement program; Section 7, which expands HUD's 
authority to terminate the approval of a mortgagee to originate 
or underwrite loans for FHA insurance in a particular area, or 
on a nationwide basis; and Section 8, which allows mortgage 
originators not explicitly approved by FHA, but which are 
sponsored by FHA-approved mortgagees, to close loans in their 
own names. These provisions represent an important set of tools 
which will allow FHA to protect the MMI Fund while ensuring 
broad availability of mortgage credit for qualified borrowers. 
They were also key components of H.R. 5072, FHA legislation 
which passed the House with an overwhelming bipartisan majority 
in 2010.
    However, there are also some primarily technical provisions 
in the bill and detailed below that must be addressed before 
the bill can move forward. As discussed during the committee 
markup, resolution of the following issues will continue in the 
coming weeks with the goal of developing a bill that can 
receive strong bipartisan support. These issues involve 
maintaining critically important oversight and accountability 
measures and at the same time ensuring that FHA is not 
subjected to excessive reporting requirements or to an 
independent review using accounting standards that are not 
applicable to any other federal credit agency.

   REQUIREMENT FOR MONTHLY REPORT THAT INCLUDES CAPITAL RESERVE RATIO

    Because of the complexity of the calculation and the 
availability of data, the ratio cannot realistically be 
produced on a monthly basis. Even if it could be calculated, it 
would not be meaningful in terms of understanding longer term 
economic developments. There is also the concern that given the 
language in the bill that currently calls for semiannual 
actuarial studies, along with the existing quarterly reports 
and other information already provided by FHA to Congress, 
requiring a more frequent calculation of the ratio is 
unnecessary and costly. We believe that a better approach to 
obtaining additional real time information is to require HUD to 
expand upon information that is already available on a more 
frequent basis, and to require that the agency provide such 
information to Congress.

 REQUIREMENT FOR USE OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES THAT 
                      APPLY TO THE PRIVATE SECTOR

    We support an accurate accounting of FHA's financial 
situation. However, we note that there are significant 
differences between fair value accounting used by the private 
sector and the approach to accounting used for federal 
programs, like FHA, which are not subject to private sector 
costs of capital. As such, we are uncertain that a wholesale 
adoption of private sector accounting principles is appropriate 
in view of FHA's governmental structure.

                  EARLY PERIOD DELINQUENCY DEFINITION

    The bill calls for the review of early period delinquencies 
on FHA-insured loans, and requires FHA to pursue 
indemnification if violations of FHA guidelines are found. 
Early period delinquency is defined in the bill as a loan that 
becomes 90 days delinquent within 24 months of origination. The 
industry standard for early period delinquencies is 6 months, 
which is also FHA's standard. The 6 month timeframe is most 
useful for identifying loans for which the delinquency is 
likely attributable to failures to adhere to FHA underwriting 
standards. HUD reports that it becomes more difficult to 
isolate instances of non-compliance using the 24 month 
definition, as the possible causes of delinquency increase 
significantly over such a period to include life events, such 
as unemployment, divorce, or unforeseen medical expenses.

                                   Barney Frank.
                                   Wm. Lacy Clay.
                                   Melvin L. Watt.
                                   Luis V. Gutierrez.
                                   Andre Carson.
                                   Gwen Moore.
                                   Maxine Waters.
                                   Michael E. Capuano.
                                   Ruben Hinojosa.
                                   Carolyn B. Maloney.
                                   Gregory W. Meeks.
                                   Gary L. Ackerman.
                                   Brad Miller.

                                  
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