I

103D CONGRESS

1ST SESSION H. R. 3296

To amend the National Housing Act to authorize the Secretary of Housing

and Urban Development to insure mortgages given to secure loans that

are made to refinance single family homes having appraised values that

are less than the outstanding principal obligations refinanced.

IN THE HOUSE OF REPRESENTATIVES

OCTOBER 15, 1993

Mr. KENNEDY introduced the following bill; which was referred to the

Committee on Banking, Finance and Urban Affairs

A BILL

To amend the National Housing Act to authorize the Secretary of Housing and Urban Development to insure

mortgages given to secure loans that are made to refinance single family homes having appraised values that

are less than the outstanding principal obligations

refinanced.

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 ‘‘Home Refinancing As5 sistance Act of 1993’’.
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1 SEC. 2. INSURANCE FOR MORTGAGES TO REFINANCE UN2 DERWATER MORTGAGES.

3 Title II of the National Housing Act (12 U.S.C. 1707

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

5 new section:

6 ‘‘INSURANCE OF ‘UNDERWATER’ SINGLE FAMILY

7 MORTGAGES

8 ‘‘SEC. 266. (a) INSURANCE AUTHORITY.—The Sec9 retary may, upon application by a mortgagee, insure any

10 refinancing mortgage eligible for insurance under this sec11 tion to the extent authorized by this section, upon such

12 terms and conditions as the Secretary may prescribe, and

13 may make commitments for the insurance of such refi14 nancing mortgages before the date of the execution of such

15 mortgages.

16 ‘‘(b) EXTENT OF INSURANCE.—The Secretary may

17 provide insurance under this section, and make commit18 ments to provide such insurance, only with respect to the

19 portion of the original principal obligation (including such

20 initial service charges, appraisal, inspection, and other fees

21 approved by the Secretary) of an eligible refinancing mort22 gage that exceeds 95 percent of the appraised value of the

23 property subject to the mortgage, as of the date the refi24 nancing mortgage is accepted for insurance under this sec25 tion, as determined by the Secretary.
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1 ‘‘(c) ELIGIBILITY REQUIREMENTS.—The Secretary

2 may insure a refinancing mortgage under this section only

3 if the mortgage complies with the following requirements:

4 ‘‘(1) MORTGAGEE.—The refinancing mortgage

5 has been made to, and held by, a mortgagee ap6 proved by the Secretary as responsible and able to

7 service the mortgage properly.

8 ‘‘(2) MORTGAGOR.—The mortgagor under the

9 refinancing mortgage—

10 ‘‘(A) is the mortgagor under the underly11 ing mortgage being refinanced;

12 ‘‘(B)(i) has made regular payments on a

13 timely basis on the underlying mortgage (and,

14 if applicable, any other previous mortgage on

15 the property), as required by the applicable

16 mortgage agreement, for a period of not less

17 than 36 months, or (ii) has been determined

18 under subsection (d) to be an acceptable credit

19 risk; and

20 ‘‘(C) has a gross income that meets such

21 standards as the Secretary shall establish under

22 this section to ensure that the mortgagor will be

23 able (i) to make the periodic payments required

24 by the mortgage insured under this section, and
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1 (ii) to meet other long-term obligations of the

2 mortgagor.

3 ‘‘(3) UNDERLYING MORTGAGE.—The proceeds

4 of the refinancing mortgage are used for satisfaction

5 of the outstanding balance owed under an underly6 ing mortgage that—

7 ‘‘(A) is a first mortgage on a dwelling that

8 is—

9 ‘‘(i) designed principally for a 1- to 4-

10 family residence;

11 ‘‘(ii) occupied by the mortgagor under

12 the refinancing mortgage who is also the

13 mortgagor under the underlying mortgage;

14 and

15 ‘‘(iii) located in a real estate market

16 area that the Secretary has determined is

17 no longer subject to substantially decreas18 ing property values that will result in an

19 unreasonable risk of losses to the Federal

20 Government under mortgage insurance

21 provided under this section;

22 ‘‘(B) is not delinquent;

23 ‘‘(C) involves an outstanding principal obli24 gation (including such initial service charges,

25 appraisal, inspection, and other fees approved
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1 by the Secretary) that exceeds 95 percent of the

2 appraised value of the property subject to the

3 mortgage, as of the date the refinancing mort4 gage is accepted for insurance under this sec5 tion, as determined by the Secretary;

6 ‘‘(D) in the case of an underlying mort7 gage on a condominium unit in a project that

8 was converted from rental housing—

9 ‘‘(i) was executed more than 1 year

10 after the conversion of the project;

11 ‘‘(ii) has as a mortgagor or

12 comortgagor a tenant of the rental hous13 ing; or

14 ‘‘(iii) covers a unit in a project for

15 which the conversion is sponsored by a

16 bona fide tenants organization representing

17 a majority of the households in the project;

18 and

19 ‘‘(E) meets any other requirements as the

20 Secretary may provide.

21 ‘‘(4) LIMITATION ON AMOUNT.—The refinanc22 ing mortgage involves a principal obligation in an

23 amount that does not to exceed—

24 ‘‘(A) 125 percent of the appraised value of

25 the property subject to the mortgage; and
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1 ‘‘(B) the outstanding balance owed under

2 the underlying mortgage, plus such initial serv3 ice charges, appraisal, inspection, and other

4 fees as the Secretary shall approve.

5 ‘‘(5) MONTHLY PAYMENT AMOUNT.—The

6 amount of each monthly payment due under the refi7 nancing mortgage is less than that due under the

8 underlying mortgage for the month in which the re9 financing mortgage is executed.

10 ‘‘(6) INTEREST.—The refinancing mortgage

11 bears interest at such rate as may be agreed upon

12 by the mortgagor and the mortgagee.

13 ‘‘(7) MATURITY.—The refinancing mortgage

14 has a maturity satisfactory to the Secretary that

15 does not, in any event, exceed 35 years from the

16 date of the beginning of the amortization of the

17 mortgage, and the Secretary may provide under this

18 paragraph for limitations on the maturity of refi19 nancing mortgages based on the unexpired terms of

20 the underlying mortgages being refinanced.

21 ‘‘(8) OTHER TERMS.—The refinancing mort22 gage has such terms regarding maturity, amortiza23 tion, periodic payments and application of such pay24 ments to principal, insurance, repairs, alterations,

25 payment of taxes, default reserves, delinquency
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1 charges, foreclosure proceedings, anticipation of ma2 turity, additional and subordinate liens, and other

3 matters as the Secretary may provide.

4 ‘‘(d) HARDSHIP PROVISIONS.—A mortgagor failing

5 to meet the requirements of subsection (c)(2)(B)(i) shall

6 be considered to be an acceptable credit risk for purposes

7 of subsection (c)(2)(B)(ii) if the Secretary determines

8 that—

9 ‘‘(1) the failure was caused by circumstances

10 beyond the control of the mortgagor that rendered

11 the mortgagor temporarily unable to make such reg12 ular payments on the underlying mortgage;

13 ‘‘(2) before such circumstances, the mortgagor

14 had made regular payments on a timely basis on the

15 underlying mortgage (and, if applicable, any other

16 previous mortgage on the property), as required by

17 the applicable mortgage agreement for such period

18 as the Secretary considers appropriate for purposes

19 of this subsection;

20 ‘‘(3) the circumstances causing such failure

21 have been alleviated, or the income of the mortgagor

22 has increased, to the extent necessary to allow the

23 mortgagor to make regular payments under the refi24 nancing mortgage; and
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1 ‘‘(4) the mortgagor meets such other require2 ments as the Secretary may reasonably require to

3 ensure that the mortgagor will meet the obligations

4 under the refinancing mortgage.

5 ‘‘(e) GENERAL INSURANCE FUND.—The insurance of

6 refinancing mortgages under this section shall be the obli7 gation of the General Insurance Fund established under

8 section 519.

9 ‘‘(f) PREMIUMS.—

10 ‘‘(1) ESTABLISHMENT.—The Secretary may fix

11 a premium charge for the insurance under this sec12 tion of refinancing mortgages, which shall be an

13 amount equivalent to a percentage per annum, de14 termined by the Secretary, of the amount of the por15 tion of outstanding principal obligation of the refi16 nancing mortgage that is insured under this section,

17 without taking into account delinquent payments or

18 prepayments. Any such premiums received shall be

19 credited to the General Insurance Fund.

20 ‘‘(2) MANNER AND TIMING.—The premium

21 charges shall be payable by the mortgagee either in

22 cash or in debentures (at par plus accrued interest)

23 issued by the Secretary as obligations of the General

24 Insurance Fund, in the manner prescribed by the

25 Secretary, except that the Secretary may not require
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1 the payment of any such premium charges at the

2 time the refinancing mortgage is insured. In fixing

3 the premium charges, the Secretary shall take into

4 consideration the risk involved in insuring the por5 tion of a mortgage that exceeds the appraised value

6 of the property subject to the mortgage.

7 ‘‘(3) ACCEPTANCE.—If the Secretary finds

8 upon presentation of a refinancing mortgage for in9 surance that the mortgage complies with the provi10 sions of this section, the mortgage may be accepted

11 for insurance by endorsement or otherwise as the

12 Secretary may prescribe.

13 ‘‘(4) REFUND OF UNEARNED PREMIUMS.—In

14 the event the portion of the principal obligation of

15 any refinancing mortgage insured under this section

16 is paid in full prior to the maturity date, the Sec17 retary may refund to the mortgagee for the account

18 of the mortgagor all of the current unearned pre19 mium charges theretofore paid or such portion of

20 the unearned premiums as the Secretary determines

21 to be equitable.

22 ‘‘(g) RIGHT TO INSURANCE BENEFITS.—The mort23 gagee shall be entitled to receive the benefits of the insur24 ance, in accordance with regulations prescribed by the

25 Secretary upon—
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1 ‘‘(1) the sale of the insured property—

2 ‘‘(A) at foreclosure, if such sale is for at

3 least the fair market value of the property (with

4 appropriate adjustments), as determined by the

5 Secretary; or

6 ‘‘(B) by the mortgagor after default, if—

7 ‘‘(i) the sale has been approved by the

8 Secretary;

9 ‘‘(ii) the mortgagee receives an

10 amount at least equal to the fair market

11 value of the property (with appropriate ad12 justments), as determined by the Sec13 retary; and

14 ‘‘(iii) the mortgagor has received ap15 propriate homeownership counseling, as de16 termined by the Secretary; and

17 ‘‘(2) assignment to the Secretary of all claims

18 of the mortgagee against the mortgagor or others to

19 any proceeds of such sale in excess of the amount

20 equal to the portion of the unpaid principal balance

21 of the loan not insured under this section that arise

22 out of the mortgage transaction or foreclosure pro23 ceedings, except any claims that have been released

24 with the consent of the Secretary.

25 ‘‘(h) PAYMENT OF INSURANCE.—
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1 ‘‘(1) IN GENERAL.—Upon the sale of insured

2 property and assignment of claims referred to in

3 subsection (g), the obligation of the mortgagee to

4 pay the premium charges for insurance shall cease

5 and the Secretary shall—

6 ‘‘(A) pay to the mortgagee cash in an

7 amount equal to the value of the portion of the

8 mortgage insured under this section, as deter9 mined by the Secretary; or

10 ‘‘(B) issue to the mortgagee debentures

11 having a par value equal to the cash amount

12 under subparagraph (A).

13 ‘‘(2) CASH PAYMENTS.—If the insurance pay14 ment is made in cash, there shall be included in the

15 payment an amount equivalent to the interest that

16 the debentures would have earned if such payment

17 were made in debentures, computed to a date estab18 lished pursuant to regulations issued by the Sec19 retary.

20 ‘‘(i) DEBENTURES.—

21 ‘‘(1) EXECUTION.—Debentures issued under

22 this section shall be executed in the name of the

23 General Insurance Fund as obligor, shall be nego24 tiable, and, if in book entry form, transferable, in

25 the manner provided by the Secretary in regulations,
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1 and shall be dated as of the date the insured prop2 erty is sold under subsection (g) and shall bear in3 terest from such date.

4 ‘‘(2) TERMS.—Debentures issued under this

5 section shall—

6 ‘‘(A) bear interest at a rate, established by

7 the Secretary pursuant to section 224, payable

8 semiannually on the 1st day of January and the

9 1st day of July of each year;

10 ‘‘(B) have such maturity as the Secretary

11 shall provide;

12 ‘‘(C) be exempt from taxation as provided

13 in section 207(i) with respect to debentures is14 sued under such section;

15 ‘‘(D) be in such form and amounts, subject

16 to such terms and conditions, and include such

17 provisions for redemption, if any, as may be

18 prescribed by the Secretary of Housing and

19 Urban Development, with the approval of the

20 Secretary of the Treasury, and may be in book

21 entry or certificated registered form, or such

22 other form as the Secretary of Housing and

23 Urban Development may prescribe in regula24 tions;
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1 ‘‘(E) be paid out of the General Insurance

2 Fund, which shall be primarily liable therefor;

3 and

4 ‘‘(F) be fully and unconditionally guaran5 teed as to principal and interest by the United

6 States, and, in the case of debentures issued in

7 certificated registered form, the guaranty shall

8 be expressed on the face of the debentures.

9 ‘‘(3) OBLIGATION OF TREASURY.—In the event

10 the General Insurance Fund fails to pay upon de11 mand, when due, the principal of or interest on any

12 debentures so guaranteed, the Secretary of the

13 Treasury shall pay the holders the amount of the de14 bentures, which is hereby authorized to be appro15 priated, and upon such payment the Secretary of the

16 Treasury shall succeed to all the rights of the hold17 ers of such debentures, to the extent of the amount

18 paid.

19 ‘‘(j) OTHER POWERS OF SECRETARY.—The provi20 sions of subsections (c), (d), and (h) of section 2 shall

21 apply to refinancing mortgages insured under this sub22 section and, for the purposes of this subsection, references

23 in subsections (c), (d), and (h) of section 2 to ‘this section’

24 or ‘this title’ shall be construed to refer to this section.
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1 ‘‘(k) PROTECTION OF SECRETARY’S INTEREST.—

2 Notwithstanding any other provisions of this Act, the Sec3 retary may—

4 ‘‘(1) make expenditures and advances out of

5 funds made available by this Act to preserve and

6 protect the interest of the Secretary in any security

7 for, or the lien or priority of the lien under, any

8 mortgage or other indebtedness insured by or owing

9 to the Secretary under this section; and

10 ‘‘(2) bid for and purchase at any foreclosure or

11 other sale or otherwise acquire property pledged,

12 mortgaged, conveyed, attached, or levied upon to se13 cure the payment of any indebtedness owing to the

14 Secretary under this section.

15 The authority conferred by this subsection may be exer16 cised as provided in the last sentence of section 204(g).

17 ‘‘(l) REFINANCING.—A refinancing mortgage insured

18 under this section may be refinanced and extended in ac19 cordance with such terms and conditions as the Secretary

20 may prescribe, but in no event for an additional amount

21 or term which exceeds the maximum provided for pursu22 ant to this subsection.

23 ‘‘(m) DEFINITIONS.—For purposes of this section:

24 ‘‘(1) The terms ‘mortgage’, ‘mortgagee’, ‘mort25 gagor’, and ‘first mortgage’ have the meanings given
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1 such terms in section 201, except that the term

2 ‘mortgage’ includes—

3 ‘‘(A) a first mortgage given to secure the

4 unpaid purchase price of a fee interest in, or

5 long-term leasehold interest in, a one-family

6 unit in a multifamily project, including a

7 project in which the dwelling units are attached,

8 semi-detached, or detached, and an undivided

9 interest in the common areas and facilities

10 which serve the project; and

11 ‘‘(B) a first lien given to secure a loan

12 made to finance the purchase of stock or mem13 bership in a cooperative ownership housing cor14 poration the permanent occupancy of the dwell15 ing units of which is restricted to members of

16 such corporation, where the purchase of such

17 stock or membership will entitle the purchaser

18 to the permanent occupancy of one of such

19 units.

20 ‘‘(2) The term ‘underlying mortgage’ means,

21 with respect to a refinancing mortgage, the first

22 mortgage on the same dwelling that is subject to the

23 refinancing mortgage.

24 ‘‘(3) The term ‘refinancing mortgage’ means a

25 subordinate lien on a dwelling securing a loan, the
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1 proceeds of which are used for the satisfaction of ad2 vances on, or the unpaid purchase price, of the

3 dwelling, which are secured by a first mortgage on

4 the same dwelling.’’.

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