I

103D CONGRESS

2D SESSION H. R. 4484

To improve the single family housing mortgage insurance program of the

Department of Housing and Urban Development.

IN THE HOUSE OF REPRESENTATIVES

MAY 24, 1994

Mr. ORTON introduced the following bill; which was referred to the Committee

on Banking, Finance and Urban Affairs

A BILL

To improve the single family housing mortgage insurance

program of the Department of Housing and Urban Development.

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 ‘‘FHA Improvement Act

5 of 1994’’.

6 SEC. 2. CONGRESSIONAL FINDINGS.

7 The Congress finds that—

8 (1) the single family housing mortgage insur9 ance program of the Department of Housing and

10 Urban Development is a significant factor in pro-
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1 moting first-time and affordable homeownership in

2 the United States;

3 (2) use of mortgage financing under the pro4 gram has decreased in recent years, due in part to

5 increasing complexity of mortgage origination and

6 servicing under the program;

7 (3) simplifying and streamlining the loan cri8 teria and loan approval process under the program

9 would have a positive effect on use of the program

10 without increasing risk to the Mutual Mortgage In11 surance Fund; and

12 (4) flexible lending products can be developed

13 without increasing risk to the Mutual Mortgage In14 surance Fund.

15 SEC. 3. LOAN FLOOR.

16 Subparagraph (A) of the first sentence of section

17 203(b)(2) of the National Housing Act (12 U.S.C.

18 1709(b)(2)(A)) is amended by striking the matter follow19 ing clause (ii) and inserting the following:

20 ‘‘except that the applicable dollar amount limi21 tation in effect under this subparagraph (A) for

22 any area may not be less than the greater of—

23 ‘‘(I) the dollar amount limitation in

24 effect under this section for the area on
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1 the date of enactment of the FHA Im2 provement Act of 1994; or

3 ‘‘(II) the applicable average area pur4 chase price determined under section

5 143(e)(2) of the Internal Revenue Code of

6 1986, as adjusted by the Secretary to re7 flect a single amount using purchase prices

8 for residences that have been previously oc9 cupied, and for residences that have not

10 been so occupied, which amount shall be

11 adjusted by the Secretary annually on the

12 basis of the Constant Quality Housing

13 Price Index;’’.

14 SEC. 4. CALCULATION OF DOWNPAYMENT.

15 Section 203(b)(2) of the National Housing Act (12

16 U.S.C. 1709(b)(2)) is amended—

17 (1) by striking subparagraph (B) and inserting

18 the following new subparagraph:

19 ‘‘(B) except as otherwise provided in this

20 paragraph (2), not in excess of—

21 ‘‘(i) 98.75 percent of the appraised

22 value of the property, in the case of a

23 mortgage with an appraised value equal to

24 or less than $50,000, or
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1 ‘‘(ii) 97.5 percent of the appraised

2 value of the property, in the case of a

3 mortgage with an appraised value in excess

4 of $50,000,

5 plus the amount of the mortgage insurance pre6 mium paid at the time the mortgage is in7 sured.’’;

8 (2) by striking the 2d sentence of the matter

9 following subparagraph (B); and

10 (3) in penultimate undesignated paragraph—

11 (A) in the 2d sentence, by striking ‘‘the

12 preceding sentence’’ and inserting ‘‘this sub13 section’’; and

14 (B) by striking the first sentence.

15 SEC. 5. ISSUANCE OF INSURANCE BY MORTGAGEES.

16 Section 215 of the National Housing Act (12 U.S.C.

17 1715f) is amended—

18 (1) by inserting ‘‘(a) MORTGAGES WITHOUT IN19 SURED PERMANENT FINANCING.—’’ after ‘‘SEC.

20 215’’; and

21 (2) by adding at the end the following new sub22 section:

23 ‘‘(b) ISSUANCE OF INSURANCE CERTIFICATES BY

24 MORTGAGEE.—Not later than the expiration of the 180-

25 day period beginning on the date of the enactment of this
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1 Act, the Secretary shall implement a system for insuring

2 mortgages under this title involving properties upon which

3 are located 1- to 4-family dwelling units that provides that

4 any mortgagee that is authorized by the Secretary to proc5 ess mortgages as direct endorsement mortgages may en6 dorse a mortgage for insurance, execute a firm commit7 ment for insurance binding upon the Secretary, and issue

8 a certificate of mortgage insurance under this title, with9 out review and approval by the Secretary of the specific

10 mortgage.’’.

11 SEC. 6. ELIMINATION OF RESTRICTIONS REGARDING NEW

12 CONSTRUCTION.

13 (a) IN GENERAL.—Section 203(b)(2) of the National

14 Housing Act (12 U.S.C. 1709(b)(2)) is amended, in the

15 matter following subparagraph (B) (as amended by sec16 tion 3 of this Act)—

17 (1) in the 1st undesignated paragraph, by strik18 ing ‘‘Notwithstanding any other provision of this

19 section,’’ and all that follows through ‘‘beginning of

20 construction.’’; and

21 (2) by striking the 2d undesignated paragraph

22 (relating to mortgage insurance amounts for resi23 dences having solar energy systems)

24 (b) REPEAL OF AUTHORITY TO EXPEND AMOUNTS

25 FROM INSURANCE FUND TO CORRECT SUBSTANTIAL DE-
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1 FECTS.—Section 518 of the National Housing Act (12

2 U.S.C. 1735b) is hereby repealed.

3 SEC. 7. AUTHORITY TO USE AMOUNTS BORROWED FROM

4 FAMILY MEMBERS FOR DOWNPAYMENTS.

5 (a) IN GENERAL.—Section 203(b)(9) of the National

6 Housing Act (12 U.S.C. 1709(b)(9)) is amended by insert7 ing before the period at the end the following: ‘‘: Provided

8 further, That for purposes of this paragraph, the Secretary

9 shall consider as cash or its equivalent any amounts bor10 rowed from a family member (as such term is defined in

11 section 201), subject only to the requirements that, in any

12 case in which the repayment of such borrowed amounts

13 is secured by a lien against the property, such lien shall

14 be subordinate to the mortgage and the sum of the prin15 cipal obligation of the mortgage and the obligation secured

16 by such lien may not exceed 100 percent of the appraised

17 value of the property plus any initial service charges, ap18 praisal, inspection, and other fees in connection with the

19 mortgage’’.

20 (b) DEFINITION OF FAMILY MEMBER.—Section 201

21 of the National Housing Act (12 U.S.C. 1707) is amended

22 by adding at the end the following new subsections:

23 ‘‘(e) The term ‘family member’ means, with respect

24 to a mortgagor under such section, a child, parent, or

25 grandparent of the mortgagor (or the mortgagor’s
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1 spouse). In determining whether any of the relationships

2 referred to in the preceding sentence exist, a legally adopt3 ed son or daughter of an individual (and a child who is

4 a member of an individual’s household, if placed with such

5 individual by an authorized placement agency for legal

6 adoption by such individual), and a foster child of an indi7 vidual, shall be treated as a child of such individual by

8 blood.

9 ‘‘(f) The term ‘child’ means, with respect to a mort10 gagor under such section, a son, stepson, daughter, or

11 stepdaughter of such mortgagor.’’.

12 SEC. 8. APPROVAL OF CONDOMINIUM PROJECTS.

13 Section 234 of the National Housing Act (12 U.S.C.

14 1715y) is amended by striking subsection (k) and insert15 ing the following new subsection:

16 ‘‘(k) APPROVAL OF PROJECTS.—

17 ‘‘(1) IN GENERAL.—A mortgage covering a

18 multifamily project or a condominium unit in a mul19 tifamily project shall be eligible for mortgage insur20 ance under this section notwithstanding any other

21 provision of this section relating to requirements for

22 multifamily projects if the project has been approved

23 by a government-sponsored housing enterprise and—

24 ‘‘(A) in the case of a mortgage covering

25 any condominium unit in the project, the mort-
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1 gage otherwise complies with the requirements

2 under this section regarding eligibility of mort3 gages for mortgage insurance provided under

4 subsection (c); and

5 ‘‘(B) in the case of a blanket mortgage

6 covering the multifamily project, the mortgage

7 otherwise complies with the requirements under

8 this section regarding eligibility of mortgages

9 for mortgage insurance provided under sub10 section (d).

11 ‘‘(2) DEFINITIONS.—For purposes of this sub12 section, the following definitions shall apply:

13 ‘‘(A) The term ‘approved by a government14 sponsored housing enterprise’ means, with re15 spect to a multifamily housing project having a

16 condominium ownership structure, that a gov17 ernment-sponsored housing enterprise has de18 termined that any mortgage covering the

19 project or any condominium property in the

20 project may be purchased by the enterprise if

21 such mortgage is otherwise determined by the

22 enterprise to meet the standards and require23 ments of the enterprise relating to mortgages.

24 ‘‘(B) The term ‘condominium unit’ means,

25 with respect to a multifamily property, a 1-fam-
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1 ily dwelling unit in the project and an undivided

2 interest in the common areas and facilities that

3 serve the project.

4 ‘‘(C) The term ‘government-sponsored

5 housing enterprise’ means—

6 ‘‘(i) the Federal National Mortgage

7 Association; and

8 ‘‘(ii) the Federal Home Loan Mort9 gage Corporation.’’.

10 SEC. 9. INSURANCE OF 2-STEP SINGLE FAMILY MORT11 GAGES.

12 Title II of the National Housing Act (12 U.S.C. 1701

13 et seq.) is amended by adding at the end the following

14 new section:

15 ‘‘2-STEP SINGLE FAMILY MORTGAGES

16 ‘‘SEC. 256. (a) AUTHORITY.—After making the find17 ing required under subsection (d), the Secretary may in18 sure under any provision of this title a mortgage involving

19 property upon which there is located a dwelling designed

20 principally for occupancy by 1 to 4 families, where the

21 mortgage provides that the effective rate of interest

22 charged is—

23 ‘‘(1) fixed for the duration of a specified period

24 that consists of not less than the first 5 years of the

25 mortgage term;
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1 ‘‘(2) adjusted by the mortgagee upon the expi2 ration of the specified period referred to in para3 graph (1) for the mortgage; and

4 ‘‘(3) for the term of the mortgage remaining

5 after such adjustment—

6 ‘‘(A) fixed at the adjusted rate established

7 pursuant to paragraph (2); or

8 ‘‘(B) periodically adjusted by the mortga9 gee.

10 ‘‘(b) REDETERMINATION OF RATE.—For each mort11 gage insured pursuant to this section, the adjustment of

12 the effective rate of interest pursuant to subsection (a)(2)

13 may be accomplished through adjustments in the monthly

14 payment amount, the outstanding principal balance, or the

15 mortgage term, or a combination of such factors, except

16 that in no case may any extension of a mortgage term

17 result in a total term in excess of 40 years. The adjust18 ment in the effective rate of interest shall correspond to

19 a specified national interest rate index that is approved

20 in regulations issued by the Secretary and information on

21 which is readily accessible to the mortgagors from gen22 erally available published sources.

23 ‘‘(c) LIMITATIONS ON SECOND-STEP PERIODIC

24 RATES.—For each mortgage insured pursuant to this sec25 tion for which the effective rate of interest charged pursu-
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1 ant to subsection (a)(3) is periodically adjusted under sub2 paragraph (B) of such subsection, such adjustments in the

3 interest rate—

4 ‘‘(1) may be accomplished through adjustments

5 in the monthly payment amount, the outstanding

6 principal balance, or the mortgage term, or a com7 bination of such factors, except that in no case may

8 any extension of a mortgage term result in a total

9 term in excess of 40 years;

10 ‘‘(2) shall correspond to a specified national in11 terest rate index that is approved in regulations is12 sued the Secretary and information on which is

13 readily accessible to the mortgagors from generally

14 available published sources;

15 ‘‘(3) shall be made on an annual basis;

16 ‘‘(4) shall be limited, with respect to any single

17 interest rate increase, to no more than 1 percent on

18 the outstanding loan balance; and

19 ‘‘(5) be limited to a maximum increase of 5 per20 centage points above the initial contract interest rate

21 over the term of the mortgage.

22 ‘‘(d) CONDITIONS ON INSURING AUTHORITY.—The

23 Secretary may insure mortgages pursuant to this section

24 only after determining that the risk posed by such insur25 ance to the financial safety and soundness of the insurance
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1 fund of which the mortgage insurance is an obligation does

2 not exceed such risk posed by insurance of mortgages of

3 equivalent terms having fixed interest rates over such

4 terms.

5 ‘‘(e) DESCRIPTION OF FEATURES.—The Secretary

6 shall issue regulations requiring that the mortgagee make

7 available to the mortgagor, at the time of loan application,

8 a written explanation of the features of the 2-step mort9 gage insured pursuant to this section.

10 ‘‘(f) LIMITATION OF TOTAL NUMBER OF MORTGAGES

11 INSURED.—The aggregate number of mortgages and

12 loans insured pursuant to this section in any fiscal year

13 may not exceed 10 percent of the aggregate number of

14 mortgages and loans insured by the Secretary under this

15 title during the preceding fiscal year.’’.

16 SEC. 10. STUDY REGARDING MORTGAGE INSURANCE PRE17 MIUMS AND MORTGAGE AMOUNT LIMITA18 TIONS.

19 The Secretary of Housing and Urban Development

20 shall conduct a study to determine—

21 (1) various methods of decreasing the amounts

22 of the up-front and annual premiums charged for

23 mortgage insurance under the single family home

24 mortgage insurance program under title II of the

25 National Housing Act; and
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1 (2) the effects of such various methods on the

2 financial safety and soundness of the Mutual Mort3 gage Insurance Fund.

4 Not later than the expiration of the 18-month period be5 ginning on the date of the enactment of this Act, the Sec6 retary shall submit a report to the Congress containing

7 the findings of the study under this section and any rec8 ommendations of the Secretary resulting from such find9 ings.

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