I
106TH CONGRESS
2D SESSION
H. R. 3617
To prevent fraud under the FHA rehabilitation loan program under section
203(k) of the National Housing Act.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 10, 2000
Mr. LAZIO (for himself, Mr. LEACH, Mr. WALSH, and Mr. ENGLISH) intro-
duced the following bill; which was referred to the Committee on Banking
and Financial Services
A BILL
To prevent fraud under the FHA rehabilitation loan program
under section 203(k) of the National Housing Act.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Consumers’ Home Im-
provement Protection Act’’.
SEC. 2. PREVENTING FRAUD IN REHABILITATION LOAN
PROGRAM.
Section 203(k) of the National Housing Act (12
U.S.C. 1709(k)) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(7) PREVENTION
OF
FRAUD.—To prevent fraud
under the program for loan insurance authorized under
this subsection, the Secretary shall, by regulation, take the
following actions:
‘‘(A) PROHIBITION
OF
IDENTITY
OF
INTER-
EST.—The Secretary shall prohibit any identity-of-
interest, as such term is defined by the Secretary,
between any of the following parties involved in a
loan insured under this subsection: the borrower (in-
cluding, in the case of a borrower that is a nonprofit
organization, any member of the board of directors
or the staff of the organization), the lender, any con-
sultant, any real estate agent, any property inspec-
tor, and any appraiser.
‘‘(B) NONPROFIT
PARTICIPATION.—The Sec-
retary shall establish minimum standards for a non-
profit organization to participate in the program,
which shall include—
‘‘(i) requiring such an organization to dis-
close to the Secretary its taxpayer identification
number and evidence sufficient to indicate that
the organization is an organization described in
section 501(c) of the Internal Revenue Code of
1986 that is exempt from taxation under sub-
title A of such Code;
‘‘(ii) requiring that the board of directors
of such an organization be comprised only of in-
dividuals who do not receive any compensation
or other thing of value by reason of their serv-
ice on the board and who have no personal fi-
nancial interest in the rehabilitation project of
the organization that is financed with the loan
insured under this subsection;
‘‘(iii) requiring such an organization to
submit to the Secretary financial statements of
the organization for the most recent 2 years,
which have been prepared by a party that is un-
affiliated with the organization;
‘‘(iv) limiting to 10 the number of loans
that are insured under this subsection, made to
any single such organization, and, at any one
time, have an outstanding balance of principal
or interest, except that the Secretary may in-
crease such numerical limitation on a case-by-
case basis for good cause shown;
‘‘(v) requiring such an organization to post
a completion insurance bond in such amount as
the Secretary determines appropriate as a con-
dition of obtaining insurance under this sub-
section; and
‘‘(vi) requiring such an organization to
have been certified by the Secretary as meeting
the requirements under this subsection and oth-
erwise eligible to participate in the program not
more than 2 years before obtaining a loan in-
sured under this section.
‘‘(C) COMPLETION OF WORK.—The Secretary
shall prohibit any lender making a loan insured
under this subsection from disbursing the final pay-
ment of loan proceeds unless the lender has received
affirmation, from the borrower under the loan, both
in writing and pursuant to an interview in person or
over the telephone, that the rehabilitation activities
financed by the loan have been satisfactorily com-
pleted.
‘‘(D) CONSULTANT CERTIFICATION.—The Sec-
retary shall require that any consultant, as such
term is defined by the Secretary, that is involved in
a home inspection, site visit, or preparation of bids
with respect to any loan insured under this section
shall have been certified by the Secretary as ade-
quately trained and competent to provide such serv-
ice not more than 2 years before conducting any
such activity. The Secretary shall establish a train-
ing and certification process to carry out this sub-
paragraph.
‘‘(E) CONTRACTOR QUALIFICATION.—The Sec-
retary shall require, in the case of any loan that is
insured under this subsection and involves rehabili-
tation with a value of $25,000 or more, that the
contractor or other person performing or supervising
the rehabilitation activities financed by the loan
shall—
‘‘(i) be certified by a nationally recognized
organization as meeting industry standards for
financial soundness, quality of workmanship,
training, and continuing education;
‘‘(ii) be licensed to conduct such activities
by the State or unit of general local government
in which the rehabilitation activities are being
completed; or
‘‘(iii) be bonded in such amount as the
Secretary shall require.’’.
SEC. 3. REPORT ON ACTIVITY OF NONPROFIT ORGANIZA-
TIONS UNDER REHABILITATION LOAN PRO-
GRAM.
Not later than 60 days after the date of the enact-
ment of this Act, the Secretary of Housing and Urban
Development shall submit a report to the Congress regard-
ing the participation of nonprofit organizations under the
rehabilitation loan program under section 203(k) of the
National Housing Act (12 U.S.C. 1709(k)). The report
shall—
(1) determine and describe the extent of partici-
pation in the program by such organizations;
(2) analyze the impact, on such organizations
and the program, of prohibiting such organizations
from participating in the program; and
(3) identify other opportunities for such organi-
zations to acquire financing or credit enhancement
for rehabilitation activities.
SEC. 4. REGULATIONS.
The Secretary of Housing and Urban Development
shall issue final regulations and any other administrative
orders or notices necessary to carry out the provisions of
this Act and the amendments made by this Act not later
than 120 days after the date of the enactment of this Act.
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