I
104TH CONGRESS
2D SESSION
H. R. 3742
To increase the flexibility of and to streamline certain single family programs
administered by the Federal Housing Administration, to reform the single
family claims and property disposition procedures, and for other pur-
poses.
IN THE HOUSE OF REPRESENTATIVES
JUNE 27, 1996
Mr. LAZIO of New York (by request) introduced the following bill; which was
referred to the Committee on Banking and Financial Services
A BILL
To increase the flexibility of and to streamline certain single
family programs administered by the Federal Housing
Administration, to reform the single family claims and
property disposition procedures, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘FHA Single Family Housing Reform Act of 1996’’.
(b) TABLE OF CONTENTS.—
Sec.
1.
Short title and table of contents.
Sec.
2.
Implementation.
TITLE I—PRODUCT FLEXIBILITY AND INSURANCE
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Sec. 10. Alternative mortgage insurance premium structures.
Sec. 11. Insurance of pioneering single family products.
Sec. 12. Limitation on FHA insuring authority.
TITLE II—CLAIMS AND PROPERTY DISPOSITION REFORM
INITIATIVES
Sec. 20. Single family claims reform.
Sec. 21. Sale of acquired property.
TITLE III—STREAMLINING PROPOSALS
Sec. 30. Authority to establish loan to value ratios and related changes to war-
ranty requirement.
Sec. 31. Delegation of insuring authority to DE mortgagees.
Sec. 32. Authority to use amounts borrowed from family members for
downpayments.
Sec. 33. HECM program.
Sec. 34. 100% condominium mortgage insurance for disasters.
Sec. 35. Repeal of provision for fund payments to correct substantial defects.
SEC. 2. IMPLEMENTATION.
(a) ISSUANCE OF NECESSARY REGULATIONS.—Not-
withstanding 42 U.S.C. 3535(o) or 24 CFR part 10, the
Secretary shall issue such regulations as may be necessary
to implement any provision of this Act, and any amend-
ment made by this Act, in accordance with section 552
or 553 of title 5, United States Code, as determined by
the Secretary.
(b) USE OF EXISTING RULES.—In implementing any
provision of this Act, the Secretary may, in the Secretary’s
discretion, provide for the use of existing rules to the ex-
tent appropriate, without the need for further rulemaking.
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TITLE I—PRODUCT FLEXIBILITY AND
INSURANCE
SEC. 10. ALTERNATIVE MORTGAGE INSURANCE PREMIUM
STRUCTURES.
Section 203(c) of the National Housing Act is
amended by adding at the end the following:
‘‘(3)(A) For any class or group of mortgages identi-
fied by the Secretary that are insured under this title, se-
cured by 1- to 4-family dwellings and executed on or after
the effective date of the American Community Partner-
ships Act of 1996, the Secretary may establish a mortgage
insurance premium structure involving a single premium
collected prior to the insurance of the mortgage or periodic
premium payments, or both, without regard to any maxi-
mum or minimum premium amounts set forth in this sub-
section. The rate of premium for a mortgage may vary
during the mortgage term as long as the basis for deter-
mining the variable rate is determined prior to execution
of the mortgage. The Secretary may change a premium
structure established under this subparagraph if the
change is not applied to any mortgage already executed.
‘‘(B) A premium structure shall be established or
changed under subparagraph (A) by publishing notice in
the Federal Register and by providing notice to Congress
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at least 30 days before the premium structure is estab-
lished or changed.
‘‘(C) The Secretary shall consider the following when
establishing a premium structure under subparagraph (A)
or when changing such a premium structure—
‘‘(i) the effect on the Secretary’s ability to meet
the operational goals of the Mutual Mortgage Insur-
ance Fund as provided in section 205(h), or the ef-
fect on the Secretary’s ability to insure mortgages
for low- and moderate-income homeowners under the
General Insurance Fund on a sound actuarial basis;
‘‘(ii) the needs of first-time homebuyers and
homebuyers 
with 
limited 
ability 
to 
make
downpayments;
‘‘(iii) the extent to which new pricing has poten-
tial for acceptance on the private market; and
‘‘(iv) the administrative capability of the Sec-
retary to administer the proposed premium struc-
ture.
‘‘(D) After a mortgage is insured, the mortgagor and
mortgagee shall have no right to a refund of any premium
amount established under subparagraph (A). If a mort-
gage is prepaid in full, the Secretary may refund to the
mortgagor all or part of any unearned premium charges
collected prior to the insurance of the mortgage.
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‘‘(E) The Secretary may defer the collection date for
all or any part of a premium due under a premium struc-
ture established under this paragraph, with or without col-
lecting interest on the deferred payment, until payment
of the mortgage in full or such other event as the Sec-
retary may prescribe.’’.
SEC. 11. INSURANCE OF PIONEERING SINGLE FAMILY
PRODUCTS.
(a) IN GENERAL.—Title II of the National Housing
Act is amended by adding at the end the following new
section:
‘‘INSURANCE OF PIONEERING SINGLE FAMILY PRODUCTS
‘‘SEC. 256. (a) IN GENERAL.—The Secretary may
carry out demonstrations which have the potential to in-
crease homeownership opportunities through innovative
underwriting, premium structures, and insured mortgage
products. Demonstrations shall be consistent with the
goals of this Act.
‘‘(b) PURPOSES.—The purposes of this section are
to—
‘‘(1) expand opportunities for homeownership
through credit enhancement demonstrations;
‘‘(2) address the unmet housing needs of Amer-
ican families and communities by supplementing pri-
vate sector activity;
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‘‘(3) better serve underserved markets through
research, developing, and testing new insurance
products and methods of delivering mortgage serv-
ices;
‘‘(4) expand access to affordable housing on a
nondiscriminatory basis; and
‘‘(5) improve the capacity of localities, States,
and for profit and non-profit entities to deliver hous-
ing credit to American families and communities.
‘‘(c) DEMONSTRATION REQUIREMENTS.—In approv-
ing a demonstration under this section, the Secretary may
establish such requirements as the Secretary considers ap-
propriate to further the purposes of this section. The Sec-
retary shall determine the terms and conditions of insur-
ance, notwithstanding any provision of this Act.
‘‘(d) TERM OF DEMONSTRATION.—Each demonstra-
tion may be approved for a term of up to 5 years. The
term of an insured mortgage or an activity carried out
under a demonstration may extend for a longer term, as
determined by the Secretary. The Secretary may termi-
nate any demonstration before the end of the approved
term if the Secretary deems such action necessary.
‘‘(e) USE OF GENERAL INSURANCE FUND.—The in-
surance or reinsurance of a mortgage or pool of mortgages
by the Secretary under this section shall be an obligation
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of the General Insurance Fund created pursuant to sec-
tion 519 of this Act.
‘‘(f) PROGRAM LEVEL.—
‘‘(1) ALL
DEMONSTRATIONS.—The aggregate
number of mortgages insured under this section in
any fiscal year may not exceed 10 percent of the
number of single family mortgages insured by the
Secretary under this title in the current fiscal year.
‘‘(2) EACH DEMONSTRATION.—The total num-
ber of mortgages insured under this section pursu-
ant to any one demonstration in any fiscal year may
not exceed 5 percent of the number of single family
mortgages insured under this title in the current fis-
cal year.
‘‘(g) REPORTS.—
‘‘(1) ANNUAL
PROGRESS
REPORT.—For each
demonstration carried out under this section, the
Secretary shall prepare an annual progress report.
‘‘(2) REPORT
FOLLOWING
COMPLETION
OF
EACH DEMONSTRATION.—The Secretary shall sub-
mit a report to Congress within 1 year after the
completion of each demonstration, describing the re-
sults of the demonstration and making any rec-
ommendations for legislation.’’.
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(b) EVALUATIONS.—The Secretary shall conduct
such evaluations of the demonstrations under section 257
of the National Housing Act as the Secretary deems ap-
propriate.
SEC. 12. LIMITATION ON FHA INSURING AUTHORITY.
Section 531(b) of the National Housing Act is
amended to read as follows:
‘‘(b) Notwithstanding any other provision of law and
subject only to the absence of qualified requests for insur-
ance, to the authority provided in this Act, and to the limi-
tation in subsection (a), the Secretary shall enter into
commitments to insure mortgages under this Act with an
aggregate principal amount of $127,400,000,000 during
fiscal year 1997 and such sums as may be necessary dur-
ing fiscal years 1998, 1999, and 2000.’’.
TITLE II—CLAIMS AND PROPERTY
DISPOSITION REFORM INITIATIVES
SEC. 20. SINGLE FAMILY CLAIMS REFORM.
(a) REVISION
OF CLAIMS PROCEDURES.—Section
204(a) of the National Housing Act (12 U.S.C. 1710(a))
is amended to read as follows:
‘‘(a)(1) AUTHORIZED CLAIMS PROCEDURES.—The
Secretary is authorized, in accordance with this subsection
and terms and conditions prescribed by the Secretary, to
pay insurance benefits to the mortgagee as provided in
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this paragraph through any of the methods described in
subsections (a)(1)(A)–(D) in connection with any mort-
gage insured under section 203 of this Act.
‘‘(A) ASSIGNMENT
OF
MORTGAGE.—The Sec-
retary may pay insurance benefits whenever a mort-
gage has been in a monetary default for at least
three full monthly installments or whenever the
mortgagee is entitled to foreclose a mortgage for a
non-monetary default. Insurance benefits shall be
paid only upon the assignment, transfer and delivery
to the Secretary of—
‘‘(i) all rights and interests arising under
the mortgage;
‘‘(ii) all claims of the mortgagee against
the mortgagor or others arising out of the
mortgage transaction;
‘‘(iii) title evidence satisfactory to the Sec-
retary; and
‘‘(iv) such records relating to the mortgage
transaction as the Secretary may require.
‘‘(B) CONVEYANCE OF TITLE TO PROPERTY.—
The Secretary may pay insurance benefits if the
mortgagee has acquired title to the mortgaged prop-
erty through foreclosure or has otherwise acquired
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such property from the mortgagor after a default
upon—
‘‘(i) the prompt conveyance to the Sec-
retary of title to the property which meets the
standards of the Secretary in force at the time
the mortgage was insured, and which is evi-
denced in the manner provided by such stand-
ards; and
‘‘(ii) the assignment to the Secretary of all
claims of the mortgagee against the mortgagor
or others, arising out of the mortgage trans-
action or foreclosure proceedings, except such
claims as may have been released with the con-
sent of the Secretary.
The Secretary is authorized to permit the mortgagee
to tender to the Secretary a satisfactory conveyance
of title and transfer of possession direct from the
mortgagor or other appropriate grantor, and to pay
the insurance benefits to the mortgagee which it
would otherwise be entitled to if such conveyance
had been made to the mortgagee and from the mort-
gagee to the Secretary.
‘‘(C) 
CLAIM
WITHOUT
CONVEYANCE
OF
TITLE.—The Secretary may pay insurance benefits
upon sale of the mortgaged property at foreclosure
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all upon such terms and conditions as the mortgagee shall
determine in the mortgagee’s sole discretion within guide-
lines provided by the Secretary, but which may not include
assignment of a mortgage to the Secretary. For purposes
of the preceding sentence, no action authorized by the Sec-
retary and no action taken, nor any failure to act, by the
Secretary or the mortgagee shall be subject to judicial re-
view.
‘‘(3) DETERMINING CLAIMS PROCEDURE.—The Sec-
retary shall publish guidelines for determining which of
the procedures for payment of insurance specified in sub-
sections (a)(1)(A)–(D) are available to a mortgagee when
it claims insurance benefits. At least one of the procedures
for payment of insurance benefits specified in subsection
(a)(1)(A) or (a)(1)(B) shall be available to a mortgagee
with respect to a mortgage, but the same procedure is not
required to be available for all of the mortgages held by
a mortgagee.
‘‘(4) SERVICING ASSIGNED MORTGAGE.—If a mort-
gage is assigned to the Secretary under paragraph (1)(A),
the Secretary may permit the assigning mortgagee or its
servicer to continue to service the mortgage for reasonable
compensation and on terms and conditions determined by
the Secretary. Neither the Secretary nor any servicer of
the mortgage shall be required to forbear from collection
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of amounts due under the mortgage or otherwise pursue
loss mitigation measures.
‘‘(5) CALCULATING INSURANCE BENEFITS.—Insur-
ance benefits shall be paid as provided in section 520 of
this Act, and shall be equal to the original principal obliga-
tion of the mortgage which was unpaid on the date the
mortgage was assigned to the Secretary, or on the date
of the institution of foreclosure proceedings, or on the date
of the acquisition of the property after default other than
by foreclosure, or on the date of sale of the mortgaged
property by the mortgagor, with such additions and deduc-
tions as the Secretary deems appropriate.
‘‘(6) FORBEARANCE
AND RECASTING AFTER DE-
FAULT.—The mortgagee may, upon such terms and condi-
tions as the Secretary may prescribe—
‘‘(A) extend the time for the curing of the de-
fault, and of the time for commencing foreclosure
proceedings or for otherwise acquiring title to the
mortgaged property to such time as the mortgagee
determines is necessary and desirable to enable the
mortgagor to complete the mortgage payments, in-
cluding an extension of time beyond the stated ma-
turity of the mortgage, and in the event of a subse-
quent foreclosure or acquisition of the property by
other means the Secretary is authorized to include
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in the amount of insurance benefits an amount equal
to any unpaid mortgage interest; or
‘‘(B) provide for a modification of the terms of
the mortgage for the purpose of recasting, over the
remaining term of the mortgage or over such longer
period pursuant to guidelines as may be prescribed
by the Secretary, the total unpaid amount then due,
with the modification to become effective currently
or to become effective upon the termination of an
agreed-upon extension of the period for curing the
default; and the principal amount of the mortgage,
as modified, shall be considered the ‘original prin-
cipal amount of the mortgage’ as that term is used
in this section for the purpose of computing the total
amount of insurance benefits.
‘‘(7) TERMINATION OF PREMIUM OBLIGATION.—The
obligation of the mortgagee to pay the premium charges
for insurance shall cease upon fulfillment of the appro-
priate requirements under which the Secretary may pay
insurance benefits, as described in paragraph (1). The
Secretary may also terminate the mortgagee’s obligation
to pay mortgage insurance premiums upon receipt of an
application filed by the mortgagee for insurance benefits
under paragraph (1), or in the event the contract of insur-
ance is terminated pursuant to section 229 of this Act.
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‘‘(8) RELATIONSHIP TO SECTION 230.—Nothing in
this section shall limit the authority of the Secretary to
pay insurance benefits under section 230 of this Act.’’.
(b) EFFECTIVE DATE.—The Secretary shall publish
a notice in the Federal Register stating the effective date
of the terms and conditions prescribed by the Secretary
under section 204(a)(1) of the National Housing Act, as
amended by this section. Sections 204(a) and (k) of the
National Housing Act as they existed immediately prior
to the effective date of the terms and conditions imple-
menting the amendment to subsection (a) made by this
Act shall continue to apply to any mortgage insured under
section 203 of the National Housing Act insured prior to
such date, except that the Secretary is authorized, at the
request of the mortgagee, to pay insurance benefits as pro-
vided in sections 204(a)(1)(A) and (D) of such Act and
to calculate insurance benefits in accordance with section
204(a)(6) of such Act.
(c) REDUNDANT PROVISION REPEALED.—Section
204(k) of the National Housing Act (12 U.S.C. 1710(k))
is hereby repealed.
SEC. 21. SALE OF ACQUIRED PROPERTY.
(a) AUTHORITY TO SELL.—Section 204(g) of the
National Housing Act is amended by adding at the end
the following: ‘‘Notwithstanding any other provision of
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law, the Secretary may sell such property as referenced
in the preceding sentence on such terms and conditions
as the Secretary may prescribe.’’.
(b) AUTHORITY TO INSURE MORTGAGE.—Section
223(c) of the National Housing Act is amended by insert-
ing after ‘‘sale by him’’ the following: ‘‘, including a sale
through another entity under authority of the fourth sen-
tence of section 204(g),’’.
TITLE III—STREAMLINING PROPOSALS
SEC. 30. AUTHORITY TO ESTABLISH LOAN TO VALUE RA-
TIOS AND RELATED CHANGES TO WARRANTY
REQUIREMENT.
(a) CHANGES TO ELIGIBILITY FOR MORTGAGE IN-
SURANCE.—Section 203(b) of the National Housing Act
(12 U.S.C. 1709(b)) is amended—
(1) in paragraph (2), by striking subparagraph
(B), including all of the matter following subpara-
graph (B), and inserting in lieu thereof the follow-
ing:
‘‘(B) not to exceed an amount prescribed
by the Secretary on the basis of the appraised
value of the property.
For purposes of this subsection, the term ‘appraised
value’ means the amount set forth in the written
statement required under section 226, or a similar
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amount determined by the Secretary if section 226
does not apply.’’; and
(2) by revising paragraph (8) to read as follows:
‘‘(8) Be limited to a residence for which the
purchaser or owner has received a construction war-
ranty from the seller or builder that is satisfactory
to the Secretary, whenever such a warranty is re-
quired by the Secretary, unless the residence was
completed more than one year prior to the applica-
tion for insurance.’’.
(b) REPEAL OF SECTION 801 WARRANTY REQUIRE-
MENT.—Section 801 of the Housing Act of 1954 (12
U.S.C. 1701j–1) is hereby repealed.
SEC. 31. DELEGATION OF INSURING AUTHORITY TO DIRECT
ENDORSEMENT MORTGAGEES.
The National Housing Act, as amended by section 11
of this Act, is further amended by adding the following
new section at the end of title II:
‘‘DELEGATION OF INSURING AUTHORITY TO DIRECT
ENDORSEMENT MORTGAGEES
‘‘SEC. 257. The Secretary may delegate, to one or
more mortgagees approved by the Secretary under the di-
rect endorsement program, the authority of the Secretary
under this Act to insure mortgages involving property
upon which there is located a dwelling designed principally
for occupancy by one to four families. In determining
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whether to delegate such authority to a mortgagee, the
Secretary shall take into account the experience and per-
formance of the mortgagee under the direct endorsement
program, the default rate of insured mortgages it has
originated compared to the default rate of all insured
mortgages in comparable markets, and such other factors
as the Secretary determines appropriate to minimize risk
of loss to the insurance funds under this Act.
‘‘(b) If the Secretary determines that a mortgage in-
sured by a mortgagee pursuant to a delegation of author-
ity under this section was not originated in accordance
with the requirements of 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. However,
if fraud or misrepresentation was involved in connection
with the origination, the Secretary may require the mort-
gagee approved under this section to indemnify the Sec-
retary for the loss regardless of when an insurance claim
is paid.
‘‘(c) For a violation of requirements and procedures
established by the Secretary or for other good cause, the
Secretary may cancel a delegation of authority under this
section by giving notice to the mortgagee. The cancellation
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shall be effective upon receipt of the notice by the mortga-
gee 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.
‘‘(d) Before approving a delegation under this sec-
tion, the Secretary shall establish appropriate require-
ments and procedures, including requirements and proce-
dures governing the indemnification of the Secretary by
the mortgagee.’’.
SEC. 32. AUTHORITY TO USE AMOUNTS BORROWED FROM
FAMILY MEMBERS FOR DOWNPAYMENTS.
(a) IN GENERAL.—Section 203(b)(9) of the National
Housing Act is amended by inserting before the period at
the end the following: ‘‘: Provided further, That for the
purposes of this paragraph, the Secretary shall consider
as cash or its equivalent any amounts borrowed from a
family member (as such term is defined in section 201)’’.
(b) DEFINITION OF FAMILY MEMBER.—Section 201
of the National Housing Act is amended by adding at the
end the following new subsections:
‘‘(e) The term ‘family member’ means, with respect
to a mortgagor under such section, a child, parent, or
grandparent of the mortgagor (or the mortgagor’s
spouse). In determining whether any of the relationships
referred to in the preceding sentence exist, a legally adopt-
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ed son or daughter of an individual (and a child who is
a member of an individual’s household, if placed with such
individual by an authorized placement agency for legal
adoption by such individual), and a foster child of an indi-
vidual, shall be treated as a child of such individual by
blood.
‘‘(f) The term ‘child’ means, with respect to a mort-
gagor under such section, a son, stepson, daughter, or
stepdaughter of such mortgagor.’’.
SEC. 33. HECM PROGRAM.
(a) REMOVAL OF CERTAIN LIMITATIONS ON THE IN-
SURANCE OF HOME EQUITY CONVERSION MORTGAGES.—
Section 255(g) of the National Housing Act is amended
by striking the first and second sentences.
(b) 
PERMIT
MORTGAGEE
TO
ARRANGE
FOR
CONSUMER EDUCATION.—Section 255 of such Act, as
amended by this section, is further amended—
(1) by revising subsection (d)(2)(B) to read as
follows:
‘‘(B) has received adequate consumer edu-
cation by a third party as provided in sub-
section (f); and’’;
(2) by revising subsection (e)(1) to read as fol-
lows:
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‘‘(1) no later than the time of the loan applica-
tion, a disclosure form developed by the Secretary
and information regarding sources of the consumer
education required in subsection (d)(2)(B);’’.
(3) in subsection (f)—
(A) by revising the first sentence to read
as follows: ‘‘The Secretary shall provide or
cause to be provided the consumer education re-
quired in subsection (d)(2)(B) and shall set
standards for providers of consumer education
to the extent considered necessary by the Sec-
retary.’’; and
(B) by inserting after paragraph (5) the
following new sentence:
‘‘Nothing in this section shall prevent the mortgagee from
requiring the mortgagor to provide reasonable compensa-
tion to the party that provided the consumer education
required in subsection (d)(2)(B), including reimbursement
from proceeds of the mortgage, as long as no payment
or other thing of value is given in violation of section 8
of the Real Estate Settlement Procedures Act.’’
(c) OTHER
APPROACHES
TO
CONSUMER
EDU-
CATION.—The Secretary shall consult with consumer
groups, industry representatives, representatives of coun-
seling organizations, and other interested parties to iden-
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tify approaches to consumer education other than the re-
quirements of section 255 of the National Housing Act
that may be feasible and desirable for home equity conver-
sion mortgages insured under section 255 and other types
of reverse mortgages. The Secretary may adopt, in lieu
of the consumer education required by section 255(f) of
the National Housing Act as amended by this section, al-
ternative approaches to consumer education that may be
developed as a result of such consultations.
(d) TECHNICAL AMENDMENTS.—Section 255 of such
Act, as amended by this section, is further amended—
(1) by striking ‘‘DEMONSTRATION’’ from the
title;
(2) in subsection (a), by striking ‘‘demonstra-
tion’’; and
(3) in subsection (k)(4), by striking ‘‘dem-
onstration’’ and inserting in lieu thereof ‘‘program’’.
SEC. 34. 100 PERCENT CONDOMINIUM MORTGAGE INSUR-
ANCE FOR DISASTERS.
The third sentence of section 234(c) of the National
Housing Act is amended by inserting after ‘‘203(b)(2)’’
the following: ‘‘or pursuant to section 203(h) under the
conditions described in section 203(h)’’.
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SEC. 35. REPEAL OF PROVISION FOR FUND PAYMENTS TO
CORRECT SUBSTANTIAL DEFECTS.
Section 518 of the National Housing Act (12 U.S.C.
1735b) is hereby repealed.
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