II 

108TH CONGRESS 

2D SESSION S. 2753

To authorize the Secretary of Housing and Urban Development to insure 

zero-downpayment mortgages. 

IN THE SENATE OF THE UNITED STATES 

JULY 22, 2004

Mr. SMITH introduced the following bill; which was read twice and referred 

to the Committee on Banking, Housing, and Urban Affairs 

A BILL

To authorize the Secretary of Housing and Urban 

Development to insure zero-downpayment mortgages.

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

3 SEC. 1. SHORT TITLE. 

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

5 Act of 2004’’. 

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

8 (a) MORTGAGE INSURANCE AUTHORITY.—Section 

9 203 of the National Housing Act (12 U.S.C. 1709) is 

10 amended by inserting after subsection (k) the following: 
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1 ‘‘(l) ZERO-DOWNPAYMENT MORTGAGES.—

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

3 may insure, and commit to insure, under this sub4 section any mortgage that meets the requirements 

5 of—

6 ‘‘(A) this subsection; and 

7 ‘‘(B) except as otherwise specifically pro8 vided in this subsection, subsection (b). 

9 ‘‘(2) ELIGIBLE SINGLE FAMILY PROPERTY.—To 

10 be eligible for insurance under this subsection, a 

11 mortgage shall involve a property upon which there 

12 is located a dwelling that is designed principally for 

13 a 1- to 4-family residence, and that, notwithstanding 

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

15 as his or her principal residence, which shall in16 clude—

17 ‘‘(A) a 1-family dwelling unit in a multi18 family project and an undivided interest in the 

19 common areas and facilities which serve the 

20 project; 

21 ‘‘(B) a 1-family dwelling unit of a coopera22 tive housing corporation, the permanent occu23 pancy of the dwelling units of which is re24 stricted to members of such corporation and in 

25 which the purchase of stock or membership en-
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1 titles the purchaser to the permanent occupancy 

2 of such dwelling unit; and 

3 ‘‘(C) a manufactured home, or a manufac4 tured home together with a suitably developed 

5 lot on which to place the manufactured home. 

6 ‘‘(3) MAXIMUM PRINCIPAL OBLIGATION.—

7 ‘‘(A) LIMITATION.—To be eligible for in8 surance under this subsection, a mortgage shall 

9 involve a principal obligation in an amount not 

10 in excess of 100 percent of the appraised value 

11 of the property, plus any initial service charges, 

12 appraisal, inspection, and other fees in connec13 tion with the mortgage as approved by the Sec14 retary. 

15 ‘‘(B) INAPPLICABILITY OF OTHER LOAN16 TO-VALUE REQUIREMENTS.—A mortgage in17 sured under this subsection shall not be subject 

18 to subsection (b)(2)(B), or to the undesignated 

19 matter that follows such subsection. 

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

21 under a mortgage insured under this subsection 

22 shall meet the following requirements: 

23 ‘‘(A) FIRST-TIME HOMEBUYER.—The 

24 mortgagor shall be a first-time homebuyer. The 

25 program for mortgage insurance under this 
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1 subsection shall be considered a Federal pro2 gram to assist first-time homebuyers for pur3 poses of section 956 of the Cranston-Gonzalez 

4 National Affordable Housing Act (42 U.S.C. 

5 12713). 

6 ‘‘(B) COUNSELING.—

7 ‘‘(i) REQUIREMENT.—The mortgagor 

8 shall have received counseling, by a third 

9 party (other than the mortgagee or any 

10 party related directly or indirectly to the 

11 mortgagee) who is approved by the Sec12 retary, with respect to the responsibilities 

13 and financial management involved in 

14 homeownership. 

15 ‘‘(ii) TOPICS.—Counseling required 

16 under clause (i) shall include providing to, 

17 and discussing with, the mortgagor—

18 ‘‘(I) information regarding home19 ownership options other than a mort20 gage insured under this subsection, 

21 other zero- or low-downpayment mort22 gage options that are or may become 

23 available to the mortgagor, the finan24 cial implications of entering into a 

25 mortgage (including a mortgage in-
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1 sured under this subsection), and any 

2 other information that the Secretary 

3 may require; and 

4 ‘‘(II) a document that sets forth 

5 the amount and the percentage by 

6 which the property subject to the 

7 mortgage must appreciate for the 

8 mortgagor to recover the principal 

9 amount of the mortgage, the costs fi10 nanced under the mortgage, and the 

11 estimated costs involved in selling the 

12 property, if the mortgagor were to sell 

13 the property on each of the second, 

14 fifth, and tenth anniversaries of the 

15 mortgage. 

16 ‘‘(iii) 2- TO 4-FAMILY RESIDENCES.—

17 In the case of a mortgage involving a 2- to 

18 4-family residence, counseling required 

19 under clause (i) shall include (in addition 

20 to the information required under clause 

21 (ii)) information regarding the rights and 

22 obligations of landlords and tenants. 

23 ‘‘(5) OPTION FOR NOTICE OF FORECLOSURE

24 PREVENTION COUNSELING AVAILABILITY.—
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1 ‘‘(A) OPTION.—To be eligible for insurance 

2 under this section, the mortgagee shall provide 

3 the mortgagor, at the time of the execution of 

4 the mortgage, an optional written agreement 

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

6 does not require, the mortgagee to provide no7 tice in accordance with subparagraph (B) to a 

8 housing counseling entity, approved by the 

9 Secertary, that has agreed to provide the notice 

10 and counseling required under subparagraph 

11 (C). 

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

13 Notice provided under subparagraph (A) 

14 shall—

15 ‘‘(i) be provided at the earliest time 

16 practicable after the mortgagor becomes 

17 60 days delinquent with respect to any 

18 payment due under the mortgage; 

19 ‘‘(ii) state that the mortgagor is delin20 quent and set forth how to contact the 

21 mortgagor; and 

22 ‘‘(iii) be provided once with respect to 

23 each delinquency period for a mortgage. 

24 ‘‘(C) NOTICE TO MORTGAGOR.—Upon no25 tice from a mortgagee that a mortgagor is 60 
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1 days delinquent with respect to payments due 

2 under the mortgage, the housing counseling en3 tity shall immediately notify the mortgagor of 

4 such delinquency, that the entity makes avail5 able foreclosure prevention counseling that may 

6 assist the mortgagor in resolving the delin7 quency, and of how to contact the entity to ar8 range for such counseling. 

9 ‘‘(D) ABILITY TO CURE.—Failure to pro10 vide the optional written agreement required 

11 under subparagraph (A) may be corrected by 

12 sending such agreement to the mortgagor at the 

13 earliest time practicable after the mortgagor 

14 first becomes 60 days delinquent with respect to 

15 payments due under the mortgage. Insurance 

16 provided under this subsection may not be ter17 minated and penalties for such failure may not 

18 be prospectively or retroactively imposed if such 

19 failure is corrected in accordance with this sub20 paragraph. 

21 ‘‘(E) PENALTIES FOR FAILURE TO PRO22 VIDE AGREEMENT.—The Secretary may estab23 lish appropriate penalties for failure of a mort24 gagee to provide the optional written agreement 

25 required under subparagraph (A). 
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1 ‘‘(F) LIMITATION ON LIABILITY OF MORT2 GAGEE.—A mortgagee shall not incur any li3 ability or penalties for any failure of a housing 

4 counseling entity to provide notice under sub5 paragraph (C). 

6 ‘‘(G) NO PRIVATE RIGHT OF ACTION.—

7 This section shall not create any private right 

8 of action on behalf of the mortgagor. 

9 ‘‘(H) DELINQUENCY PERIOD.—For pur10 poses of this paragraph, the term ‘delinquency 

11 period’ means, with respect to a mortgage, a 

12 period that begins upon the mortgagor becom13 ing delinquent with respect to payments due 

14 under the mortgage, and ends upon the first 

15 subsequent occurrence of such payments under 

16 the mortgage becoming current or the property 

17 subject to the mortgage being foreclosed or oth18 erwise disposed of. 

19 ‘‘(6) INAPPLICABILITY OF DOWNPAYMENT RE20 QUIREMENT.—A mortgage insured under this sub21 section shall not be subject to subsection (b)(9) or 

22 any other requirement to pay on account of the 

23 property, in cash or its equivalent, any amount of 

24 the cost of acquisition.
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1 ‘‘(7) PREMIUMS.—In conjunction with the cred2 it subsidy estimation calculated each year pursuant 

3 to the Federal Credit Reform Act of 1990 (2 U.S.C. 

4 661 et seq.), the Secretary shall review the program 

5 performance for mortgages insured under this sub6 section and make any necessary adjustments to en7 sure that the Mutual Mortgage Insurance Fund 

8 shall continue to generate a negative credit subsidy 

9 which may include—

10 ‘‘(A) altering mortgage insurance pre11 miums subject to subsection (c)(2); 

12 ‘‘(B) reviewing underwriting policies; and 

13 ‘‘(C) limiting the availability of mortgage 

14 insurance under this subsection. 

15 ‘‘(8) UNDERWRITING.—For a mortgage to be 

16 eligible for insurance under this subsection, the 

17 mortgagor’s credit and ability to pay the monthly 

18 mortgage payments shall have been evaluated using 

19 the Federal Housing Administration’s Technology 

20 Open To Approved Lenders (TOTAL) Mortgage 

21 Scorecard, or a similar standardized credit scoring 

22 system approved by the Secretary, and in accordance 

23 with procedures established by the Secretary. 

24 ‘‘(9) APPROVAL OF MORTGAGEES.—To be eligi25 ble for insurance under this subsection, a mortgage 
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1 shall have been made to a mortgagee that meets 

2 such criteria as the Secretary shall establish to en3 sure that mortgagees meet appropriate standards for 

4 participation in the program authorized under this 

5 subsection. 

6 ‘‘(10) DISCLOSURE OF INCREMENTAL COSTS.—

7 For a mortgage to be eligible for insurance under 

8 this subsection, the mortgagee shall provide to the 

9 mortgagor, at the time of the application for the 

10 loan involved in the mortgage, a written disclosure, 

11 as the Secretary shall require, that specifies the ef12 fective cost to a mortgagor of borrowing the amount 

13 by which the maximum amount that could be bor14 rowed under a mortgage insured under this sub15 section exceeds the maximum amount that could be 

16 borrowed under a mortgage insured under sub17 section (b), based on average closing costs with re18 spect to such amount, as determined by the Sec19 retary. Such cost shall be expressed as an annual in20 terest rate over the first 5 years of a mortgage. 

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 ac25 tions for the purpose of providing an alternative 
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1 to foreclosure to the same extent as is required 

2 of other mortgages insured under this title pur3 suant to the regulations issued under section 

4 230(a). 

5 ‘‘(B) ANNUAL REPORTING.—Not later 

6 than 90 days after the end of each fiscal year, 

7 the Secretary shall submit a report to Congress 

8 that compares the rates of default and fore9 closure during such fiscal year for mortgages 

10 insured under this subsection, for single-family 

11 mortgages insured under this title (other than 

12 under this subsection), and for mortgages for 

13 housing purchased with assistance provided 

14 under the downpayment assistance initiative 

15 under section 271 of the Cranston-Gonzalez 

16 National Affordable Housing Act (42 U.S.C. 

17 12821). 

18 ‘‘(12) ADDITIONAL REQUIREMENTS.—The Sec19 retary may establish any additional requirements for 

20 mortgage insurance under this subsection as may be 

21 necessary or appropriate. 

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

23 mortgages insured under this section in any fiscal 

24 year may not exceed 30 percent of the aggregate 

25 number of mortgages and loans insured by the Sec-
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1 retary under this title during the preceding fiscal 

2 year. 

3 ‘‘(14) PROGRAM SUSPENSION.—

4 ‘‘(A) IN GENERAL.—Subject to subpara5 graph (C), the authority under paragraph (1) to 

6 insure mortgages shall be suspended if at any 

7 time the claim rate described in subparagraph 

8 (B) exceeds 3.5 percent. A suspension under 

9 this subparagraph shall remain in effect until 

10 such time as such claim rate is 3.5 percent or 

11 less. 

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

13 CLAIM RATE.—The claim rate under subpara14 graph (A), for any particular time, shall be the 

15 ratio of the number of claims during the 12 

16 months preceding such time on mortgages on 1- 

17 to 4-family residences insured pursuant to this 

18 title, to the number of mortgages on such resi19 dences having such insurance in-force at that 

20 time. 

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

22 subparagraph (A) shall not preclude the Sec23 retary from endorsing or insuring any mortgage 

24 that was duly executed before the date of such 

25 suspension. 
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1 ‘‘(15) SUNSET.—No mortgage may be insured 

2 under this section after September 30, 2011, except 

3 that the Secretary may endorse or insure any mort4 gage that was duly executed before such date. 

5 ‘‘(16) GAO REPORTS.—Not later than 2 years 

6 after the date of enactment of the Zero Downpay7 ment Act of 2004, and annually thereafter, the 

8 Comptroller General of the United States shall sub9 mit a report to Congress regarding the performance 

10 of mortgages insured under this subsection. 

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

12 implement this subsection on an interim basis by 

13 issuing interim rules, except that the Secretary shall 

14 solicit public comments upon publication of such in15 terim rules and shall issue final rules implementing 

16 this subsection after consideration of the comments 

17 submitted.’’. 

18 (b) MORTGAGE INSURANCE PREMIUMS.—The second 

19 sentence of subparagraph (A) of section 203(c)(2)(A) of 

20 the National Housing Act (12 U.S.C. 1709(c)(2)(A)) is 

21 amended by striking ‘‘In’’ and inserting ‘‘Except with re22 spect to a mortgage insured under subsection (l), in’’.

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