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Union Calendar No. 465

108TH CONGRESS 

2D SESSION H. R. 3755

[Report No. 108–748] 

To authorize the Secretary of Housing and Urban Development to insure 

zero-downpayment mortgages for one-unit residences. 

IN THE HOUSE OF REPRESENTATIVES 

FEBRUARY 3, 2004

Mr. TIBERI (for himself, Mr. SCOTT of Georgia, Mr. OXLEY, Mr. NEY, Mr. 

TURNER of Ohio, Mr. GREEN of Wisconsin, Mr. KING of New York, Mr. 

RENZI, Mr. LUCAS of Kentucky, and Mr. CLAY) introduced the following 

bill; which was referred to the Committee on Financial Services 

OCTOBER 6, 2004

Additional sponsors: Ms. PRYCE of Ohio, Ms. HART, Mr. OTTER, Mr. 

HINOJOSA, Mr. SHAYS, Mr. FORD, Mr. GRIJALVA, Mr. WILSON of South 

Carolina, Mr. MILLER of Florida, Mr. MICHAUD, Mr. BACHUS, Mr. 

LEWIS of Georgia, Mr. BISHOP of Georgia, Ms. MAJETTE, Mr. OWENS, 

Ms. HARRIS, Mr. PALLONE, Mr. EMANUEL, Mr. MCCOTTER, Mr. 

DELAHUNT, Mrs. MILLER of Michigan, Mr. PASTOR, Mrs. MALONEY, Mr. 

FEENEY, Mr. WOLF, Mr. JEFFERSON, Mr. ROSS, Mrs. EMERSON, Ms. 

BERKLEY, Mr. BRADLEY of New Hampshire, Mr. ABERCROMBIE, Mr. 

ISRAEL, Mr. SULLIVAN, Mr. STENHOLM, Mr. NETHERCUTT, Mr. FILNER, 

Mr. NEUGEBAUER, Mr. GORDON, Mr. ALEXANDER, Mr. FOSSELLA, Mr. 

DAVIS of Alabama, Mr. GONZALEZ, Mr. MANZULLO, Mr. REHBERG, Mr. 

PLATTS, Ms. NORTON, Mr. CHANDLER, Mr. BACA, Mr. MARSHALL, Mr. 

MURPHY, Mrs. MCCARTHY of New York, Mr. SIMMONS, Mr. TERRY, Mr. 

HAYES, Mr. WYNN, Mr. WEINER, Mr. LANGEVIN, and Mrs. KELLY

OCTOBER 6, 2004 

Reported with an amendment, committed to the Committee of the Whole 

House on the State of the Union, and ordered to be printed 
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[Strike out all after the enacting clause and insert the part printed in italic] 

[For text of introduced bill, see copy of bill as introduced on February 3, 2004] 

A BILL 

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

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Zero Downpayment Act 

5 of 2004’’. 

6 SEC. 2. INSURANCE FOR ZERO-DOWNPAYMENT MORT7 GAGES. 

8 (a) MORTGAGE INSURANCE AUTHORITY.—Section 203 

9 of the National Housing Act (12 U.S.C. 1709) is amended 

10 by inserting after subsection (k) the following new sub11 section: 

12 ‘‘(l) ZERO-DOWNPAYMENT MORTGAGES.— 

13 ‘‘(1) INSURANCE AUTHORITY.—The Secretary 

14 may insure, and commit to insure, under this sub15 section any mortgage that meets the requirements of 

16 this subsection and, except as otherwise specifically 

17 provided in this subsection, of subsection (b). 
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1 ‘‘(2) ELIGIBLE SINGLE FAMILY PROPERTY.—To 

2 be eligible for insurance under this subsection, a 

3 mortgage shall involve a property upon which there 

4 is located a dwelling that is designed principally for 

5 a 1- to 3-family residence and that, notwithstanding 

6 subsection (g), is to be occupied by the mortgagor as 

7 his or her principal residence, which shall include— 

8 ‘‘(A) a 1-family dwelling unit in a multi9 family project and an undivided interest in the 

10 common areas and facilities which serve the 

11 project; 

12 ‘‘(B) a 1-family dwelling unit of a coopera13 tive housing corporation the permanent occu14 pancy of the dwelling units of which is restricted 

15 to members of such corporation and in which the 

16 purchase of such stock or membership entitles the 

17 purchaser to the permanent occupancy of such 

18 dwelling unit; and 

19 ‘‘(C) a manufactured home that meets such 

20 standards as the Secretary has established for 

21 purposes of subsection (b). 

22 ‘‘(3) MAXIMUM PRINCIPAL OBLIGATION.— 

23 ‘‘(A) LIMITATION.—To be eligible for insur24 ance under this subsection, a mortgage shall in25 volve a principal obligation in an amount not in 
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1 excess of 100 percent of the appraised value of 

2 the property plus any initial service charges, ap3 praisal, inspection and other fees in connection 

4 with the mortgage as approved by the Secretary. 

5 ‘‘(B) INAPPLICABILITY OF OTHER LOAN-TO6 VALUE REQUIREMENTS.—A mortgage insured 

7 under this subsection shall not be subject to sub8 paragraph (B) of paragraph (2) of subsection (b) 

9 or to the matter in such paragraph that follows 

10 such subparagraph. 

11 ‘‘(4) ELIGIBLE MORTGAGORS.—The mortgagor 

12 under a mortgage insured under this subsection shall 

13 meet the following requirements: 

14 ‘‘(A) FIRST-TIME HOMEBUYER.—The mort15 gagor shall be a first-time homebuyer. The pro16 gram for mortgage insurance under this sub17 section shall be considered a Federal program to 

18 assist first-time homebuyers for purposes of sec19 tion 956 of the Cranston-Gonzalez National Af20 fordable Housing Act (42 U.S.C. 12713). 

21 ‘‘(B) COUNSELING.— 

22 ‘‘(i) REQUIREMENT.—The mortgagor 

23 shall have received counseling, prior to ap24 plication for the loan involved in the mort25 gage, by a third party (other than the mort-
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1 gagee) who is approved by the Secretary, 

2 with respect to the responsibilities and fi3 nancial management involved in home4 ownership. Such counseling shall be pro5 vided to the mortgagor on an individual 

6 basis by a representative of the approved 

7 third party counseling entity, and shall be 

8 provided in person to the maximum extent 

9 practicable. 

10 ‘‘(ii) TOPICS.—Such counseling shall 

11 include providing to, and discussing with, 

12 the mortgagor— 

13 ‘‘(I) information regarding home14 ownership options other than a mort15 gage insured under this subsection, 

16 other zero- or low-downpayment mort17 gage options that are or may become 

18 available to the mortgagor, the finan19 cial implications of entering into a 

20 mortgage (including a mortgage in21 sured under this subsection), and any 

22 other information that the Secretary 

23 may require; and 

24 ‘‘(II) a document that sets forth 

25 the amount and the percentage by 
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1 which a property subject to a mortgage 

2 insured under this subsection must ap3 preciate for the mortgagor to recover 

4 the principal amount of the mortgage, 

5 the costs financed under the mortgage, 

6 and the estimated costs involved in 

7 selling the property, if the mortgagor 

8 were to sell the property on each of the 

9 second, fifth, and tenth anniversaries of 

10 the mortgage. 

11 ‘‘(iii) 2- AND 3-FAMILY RESIDENCES.— 

12 In the case of a mortgage involving a 2- or 

13 3-family residence, such counseling shall in14 clude (in addition to the information re15 quired under clause (ii)) information re16 garding real estate property management. 

17 ‘‘(5) OPTION FOR NOTICE OF FORECLOSURE PRE18 VENTION COUNSELING AVAILABILITY.— 

19 ‘‘(A) OPTION.—To be eligible for insurance 

20 under this subsection, the mortgagee shall pro21 vide mortgagor, at the time of the execution of 

22 the mortgage, an optional written agreement 

23 which, if signed by the mortgagor, allows, but 

24 does not require, the mortgagee to provide notice 

25 described in subparagraph (B) to a housing 
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1 counseling entity that has agreed to provide the 

2 notice and counseling required under subpara3 graph (C) and is approved by the Secretary. 

4 ‘‘(B) NOTICE TO COUNSELING AGENCY.— 

5 The notice described in this subparagraph, with 

6 respect to a mortgage, is notice, provided at the 

7 earliest time practicable after the mortgagor be8 comes 60 days delinquent with respect to any 

9 payment due under the mortgage, that the mort10 gagor is so delinquent and of how to contact the 

11 mortgagor. Such notice may only be provided 

12 once with respect to each delinquency period for 

13 a mortgage. 

14 ‘‘(C) NOTICE TO MORTGAGOR.—Upon notice 

15 from a mortgagee that a mortgagor is 60 days 

16 delinquent with respect to payments due under 

17 the mortgage, the housing counseling entity shall 

18 at the earliest time practicable notify the mort19 gagor of such delinquency, that the entity makes 

20 available foreclosure prevention counseling that 

21 may assist the mortgagor in resolving the delin22 quency, and of how to contact the entity to ar23 range for such counseling. 

24 ‘‘(D) ABILITY TO CURE.—Failure to provide 

25 the optional written agreement required under 
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1 subparagraph (A) may be corrected by sending 

2 such agreement to the mortgagor not later than 

3 the earliest time practicable after the mortgagor 

4 first becomes 60 days delinquent with respect to 

5 payments due under the mortgage. Insurance 

6 provided under this subsection may not be termi7 nated and penalties for such failure may not be 

8 prospectively or retroactively imposed if such 

9 failure is corrected in accordance with this sub10 paragraph. 

11 ‘‘(E) PENALTIES FOR FAILURE TO PROVIDE

12 AGREEMENT.—The Secretary may establish and 

13 impose appropriate penalties for failure of a 

14 mortgagee to provide the optional written agree15 ment required under subparagraph (A). 

16 ‘‘(F) LIMITATION ON LIABILITY OF MORT17 GAGEE.—A mortgagee shall not incur any liabil18 ity or penalties for any failure of a housing 

19 counseling entity to provide notice under sub20 paragraph (C). 

21 ‘‘(G) NO PRIVATE RIGHT OF ACTION.—This 

22 paragraph shall not create any private right of 

23 action on behalf of the mortgagor. 

24 ‘‘(H) DELINQUENCY PERIOD.—For purposes 

25 of this paragraph, the term ‘delinquency period’ 
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1 means, with respect to a mortgage, a period that 

2 begins upon the mortgagor becoming delinquent 

3 with respect to payments due under the mortgage 

4 and ends upon the first subsequent occurrence of 

5 such payments under the mortgage becoming 

6 current or the property subject to the mortgage 

7 being foreclosed or otherwise disposed of. 

8 ‘‘(6) INAPPLICABILITY OF DOWNPAYMENT RE9 QUIREMENT.—A mortgage insured under this sub10 section shall not be subject to paragraph (9) of sub11 section (b) or any other requirement to pay on ac12 count of the property, in cash or its equivalent, any 

13 amount of the cost of acquisition. 

14 ‘‘(7) MMIF MONITORING.—In conjunction with 

15 the credit subsidy estimation calculated each year 

16 pursuant to the Federal Credit Reform Act of 1990 (2 

17 U.S.C. 661 et seq.), the Secretary shall review the pro18 gram performance for mortgages insured under this 

19 subsection and make any necessary adjustments, 

20 which may include altering mortgage insurance pre21 miums subject to subsection (c)(2), adjusting under22 writing standards, and limiting the availability of 

23 mortgage insurance under this subsection, to ensure 

24 that the Mutual Mortgage Insurance Fund shall con25 tinue to generate a negative credit subsidy. 
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1 ‘‘(8) UNDERWRITING.—For a mortgage to be eli2 gible for insurance under this subsection: 

3 ‘‘(A) IN GENERAL.—The mortgagor’s credit 

4 and ability to pay the monthly mortgage pay5 ments shall have been evaluated using the Fed6 eral Housing Administration’s Technology Open 

7 To Approved Lenders (TOTAL) Mortgage Score8 card, or a similar standardized credit scoring 

9 system approved by the Secretary, and in ac10 cordance with procedures established by the Sec11 retary. 

12 ‘‘(B) MULTI-UNIT PROPERTIES.—In the case 

13 of a mortgage involving a property upon which 

14 there is located a dwelling that is designed prin15 cipally for a 2- or 3-family residence, the mort16 gagor meets such additional underwriting stand17 ards as the Secretary may establish. 

18 ‘‘(9) APPROVAL OF MORTGAGEES.—To be eligible 

19 for insurance under this subsection, a mortgage shall 

20 have been made to a mortgagee that meets such cri21 teria as the Secretary shall establish to ensure that 

22 mortgagees meet appropriate standards for participa23 tion in the program authorized under this subsection. 

24 ‘‘(10) DISCLOSURE OF INCREMENTAL COSTS.— 
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1 ‘‘(A) REQUIRED DISCLOSURE.—For a mort2 gage to be eligible for insurance under this sub3 section, the mortgagee shall provide to the mort4 gagor, at the time of the application for the loan 

5 involved in the mortgage, a written disclosure, as 

6 the Secretary shall require, that specifies the ef7 fective cost to a mortgagor of borrowing the 

8 amount by which the maximum amount that 

9 could be borrowed under a mortgage insured 

10 under this subsection exceeds the maximum 

11 amount that could be borrowed under a mortgage 

12 insured under subsection (b), based on average 

13 closing costs with respect to such amount, as de14 termined by the Secretary. Such cost shall be ex15 pressed as an annual interest rate over the first 

16 5 years of a mortgage. 

17 ‘‘(B) COORDINATION.—The disclosure re18 quired under this paragraph may be provided in 

19 conjunction with the notice required under sub20 section (f). 

21 ‘‘(11) LOSS MITIGATION.— 

22 ‘‘(A) IN GENERAL.—Upon the default of 

23 any mortgage insured under this subsection, the 

24 mortgagee shall engage in loss mitigation actions 

25 for the purpose of providing an alternative to 
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1 foreclosure to the same extent as is required of 

2 other mortgages insured under this title pursu3 ant to the regulations issued under section 

4 230(a). 

5 ‘‘(B) ANNUAL REPORTING.—Not later than 

6 90 days after the end of each fiscal year, the Sec7 retary shall submit a report to the Congress that 

8 compares the rates of default and foreclosure dur9 ing such fiscal year for mortgages insured under 

10 this subsection, for single-family mortgages in11 sured under this title (other than under this sub12 section), and for mortgages for housing pur13 chased with assistance provided under the down14 payment assistance initiative under section 271 

15 of the Cranston-Gonzalez National Affordable 

16 Housing Act (42 U.S.C. 12821). 

17 ‘‘(12) ADDITIONAL REQUIREMENTS.—The Sec18 retary may establish any additional requirements for 

19 mortgage insurance under this subsection as may be 

20 necessary or appropriate. 

21 ‘‘(13) LIMITATION.—The aggregate number of 

22 mortgages insured under this subsection in any fiscal 

23 year may not exceed 10 percent of the aggregate num24 ber of mortgages and loans insured by the Secretary 

25 under this title during the preceding fiscal year. 
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1 ‘‘(14) PROGRAM SUSPENSION.— 

2 ‘‘(A) IN GENERAL.—Subject to subpara3 graph (C), the authority under paragraph (1) to 

4 insure mortgages shall be suspended if at any 

5 time the claim rate described in subparagraph 

6 (B) exceeds 3.5 percent. A suspension under this 

7 subparagraph shall remain in effect until such 

8 time as such claim rate is 3.5 percent or less. 

9 ‘‘(B) FHA TOTAL SINGLE-FAMILY ANNUAL

10 CLAIM RATE.—The claim rate described in this 

11 subparagraph, for any particular time, is the 

12 ratio of the number of claims during the 12 

13 months preceding such time on mortgages on 1- 

14 to 4-family residences insured pursuant to this 

15 title to the number of mortgages on such resi16 dences having such insurance in force at that 

17 time. 

18 ‘‘(C) APPLICABILITY.—A suspension under 

19 subparagraph (A) shall not preclude the Sec20 retary from endorsing or insuring any mortgage 

21 that was duly executed before the date of such 

22 suspension. 

23 ‘‘(15) SUNSET.—No mortgage may be insured 

24 under this subsection after September 30, 2009, except 
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1 that the Secretary may endorse or insure any mort2 gage that was duly executed before such date. 

3 ‘‘(16) GAO REPORTS.—The Comptroller General 

4 of the United States shall submit a report to the Con5 gress not later than 2 years after the date of the en6 actment of this subsection, and annually thereafter, 

7 regarding the performance of mortgages insured under 

8 this subsection. 

9 ‘‘(17) IMPLEMENTATION.—The Secretary may 

10 implement this subsection on an interim basis by 

11 issuing an interim rule, except that the Secretary 

12 shall solicit public comments upon publication of such 

13 interim rule and shall issue a final rule imple14 menting this subsection after consideration of the 

15 comments submitted.’’. 

16 (b) MORTGAGE INSURANCE PREMIUMS.—The second 

17 sentence of subparagraph (A) of section 203(c)(2) of the Na18 tional Housing Act (12 U.S.C. 1709(c)(2)(A)) is amended 

19 by striking ‘‘In’’ and inserting ‘‘Except with respect to a 

20 mortgage insured under subsection (l), in’’. 

21 (c) GENERAL INSURANCE FUND.—Section 519(e) of 

22 the National Housing Act (12 U.S.C. 1735c(e)) is amended 

23 by striking ‘‘and 203(i)’’ and inserting ‘‘, 203(i), and 

24 203(l)’’. 

Union Calendar No. 465 

108TH CONGRESS 

2D SESSION H. R. 3755 

[Report No. 108–748] 

A BILL 

To authorize the Secretary of Housing and Urban 

gages for one-unit residences. Development to insure zero-downpayment mortOCTOBER 6, 2004 

Reported with an amendment, committed to the Comand ordered to be printed mittee of the Whole House on the State of the Union,