FHA Improvement Act of 1994

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``FHA Improvement Act of 1994''.

SEC. 2. CONGRESSIONAL FINDINGS.

    The Congress finds that--
            (1) the single family housing mortgage insurance program of 
        the Department of Housing and Urban Development is a 
        significant factor in promoting first-time and affordable 
        homeownership in the United States;
            (2) use of mortgage financing under the program has 
        decreased in recent years, due in part to increasing complexity 
        of mortgage origination and servicing under the program;
            (3) simplifying and streamlining the loan criteria and loan 
        approval process under the program would have a positive effect 
        on use of the program without increasing risk to the Mutual 
        Mortgage Insurance Fund; and
            (4) flexible lending products can be developed without 
        increasing risk to the Mutual Mortgage Insurance Fund.

SEC. 3. LOAN FLOOR.

    Subparagraph (A) of the first sentence of section 203(b)(2) of the 
National Housing Act (12 U.S.C. 1709(b)(2)(A)) is amended by striking 
the matter following clause (ii) and inserting the following:
                ``except that the applicable dollar amount limitation 
                in effect under this subparagraph (A) for any area may 
                not be less than the greater of--
                            ``(I) the dollar amount limitation in 
                        effect under this section for the area on the 
                        date of enactment of the FHA Improvement Act of 
                        1994; or
                            ``(II) the applicable average area purchase 
                        price determined under section 143(e)(2) of the 
                        Internal Revenue Code of 1986, as adjusted by 
                        the Secretary to reflect a single amount using 
                        purchase prices for residences that have been 
                        previously occupied, and for residences that 
                        have not been so occupied, which amount shall 
                        be adjusted by the Secretary annually on the 
                        basis of the Constant Quality Housing Price 
                        Index;''.

SEC. 4. CALCULATION OF DOWNPAYMENT.

    Section 203(b)(2) of the National Housing Act (12 U.S.C. 
1709(b)(2)) is amended--
            (1) by striking subparagraph (B) and inserting the 
        following new subparagraph:
                    ``(B) except as otherwise provided in this 
                paragraph (2), not in excess of--
                            ``(i) 98.75 percent of the appraised value 
                        of the property, in the case of a mortgage with 
                        an appraised value equal to or less than 
                        $50,000, or
                            ``(ii) 97.5 percent of the appraised value 
                        of the property, in the case of a mortgage with 
                        an appraised value in excess of $50,000,
                plus the amount of the mortgage insurance premium paid 
                at the time the mortgage is insured.'';
            (2) by striking the 2d sentence of the matter following 
        subparagraph (B); and
            (3) in penultimate undesignated paragraph--
                    (A) in the 2d sentence, by striking ``the preceding 
                sentence'' and inserting ``this subsection''; and
                    (B) by striking the first sentence.

SEC. 5. ISSUANCE OF INSURANCE BY MORTGAGEES.

    Section 215 of the National Housing Act (12 U.S.C. 1715f) is 
amended--
            (1) by inserting ``(a) Mortgages Without Insured Permanent 
        Financing.--'' after ``Sec. 215''; and
            (2) by adding at the end the following new subsection:
    ``(b) Issuance of Insurance Certificates by Mortgagee.--Not later 
than the expiration of the 180-day period beginning on the date of the 
enactment of this Act, the Secretary shall implement a system for 
insuring mortgages under this title involving properties upon which are 
located 1- to 4-family dwelling units that provides that any mortgagee 
that is authorized by the Secretary to process mortgages as direct 
endorsement mortgages may endorse a mortgage for insurance, execute a 
firm commitment for insurance binding upon the Secretary, and issue a 
certificate of mortgage insurance under this title, without review and 
approval by the Secretary of the specific mortgage.''.

SEC. 6. ELIMINATION OF RESTRICTIONS REGARDING NEW CONSTRUCTION.

    (a) In General.--Section 203(b)(2) of the National Housing Act (12 
U.S.C. 1709(b)(2)) is amended, in the matter following subparagraph (B) 
(as amended by section 3 of this Act)--
            (1) in the 1st undesignated paragraph, by striking 
        ``Notwithstanding any other provision of this section,'' and 
        all that follows through ``beginning of construction.''; and
            (2) by striking the 2d undesignated paragraph (relating to 
        mortgage insurance amounts for residences having solar energy 
        systems)
    (b) Repeal of Authority to Expend Amounts From Insurance Fund to 
Correct Substantial Defects.--Section 518 of the National Housing Act 
(12 U.S.C. 1735b) is hereby repealed.

SEC. 7. AUTHORITY TO USE AMOUNTS BORROWED FROM FAMILY MEMBERS FOR 
              DOWNPAYMENTS.

    (a) In General.--Section 203(b)(9) of the National Housing Act (12 
U.S.C. 1709(b)(9)) is amended by inserting before the period at the end 
the following: ``: Provided further, That for 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), subject only to the requirements that, in any case in 
which the repayment of such borrowed amounts is secured by a lien 
against the property, such lien shall be subordinate to the mortgage 
and the sum of the principal obligation of the mortgage and the 
obligation secured by such lien may not exceed 100 percent of the 
appraised value of the property plus any initial service charges, 
appraisal, inspection, and other fees in connection with the 
mortgage''.
    (b) Definition of Family Member.--Section 201 of the National 
Housing Act (12 U.S.C. 1707) 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 
adopted 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 individual, shall be treated as a child of such 
individual by blood.
    ``(f) The term `child' means, with respect to a mortgagor under 
such section, a son, stepson, daughter, or stepdaughter of such 
mortgagor.''.

SEC. 8. APPROVAL OF CONDOMINIUM PROJECTS.

    Section 234 of the National Housing Act (12 U.S.C. 1715y) is 
amended by striking subsection (k) and inserting the following new 
subsection:
    ``(k) Approval of Projects.--
            ``(1) In general.--A mortgage covering a multifamily 
        project or a condominium unit in a multifamily project shall be 
        eligible for mortgage insurance under this section 
        notwithstanding any other provision of this section relating to 
        requirements for multifamily projects if the project has been 
        approved by a government-sponsored housing enterprise and--
                    ``(A) in the case of a mortgage covering any 
                condominium unit in the project, the mortgage otherwise 
                complies with the requirements under this section 
                regarding eligibility of mortgages for mortgage 
                insurance provided under subsection (c); and
                    ``(B) in the case of a blanket mortgage covering 
                the multifamily project, the mortgage otherwise 
                complies with the requirements under this section 
                regarding eligibility of mortgages for mortgage 
                insurance provided under subsection (d).
            ``(2) Definitions.--For purposes of this subsection, the 
        following definitions shall apply:
                    ``(A) The term `approved by a government-sponsored 
                housing enterprise' means, with respect to a 
                multifamily housing project having a condominium 
                ownership structure, that a government-sponsored 
                housing enterprise has determined that any mortgage 
                covering the project or any condominium property in the 
                project may be purchased by the enterprise if such 
                mortgage is otherwise determined by the enterprise to 
                meet the standards and requirements of the enterprise 
                relating to mortgages.
                    ``(B) The term `condominium unit' means, with 
                respect to a multifamily property, a 1-family dwelling 
                unit in the project and an undivided interest in the 
                common areas and facilities that serve the project.
                    ``(C) The term `government-sponsored housing 
                enterprise' means--
                            ``(i) the Federal National Mortgage 
                        Association; and
                            ``(ii) the Federal Home Loan Mortgage 
                        Corporation.''.

SEC. 9. INSURANCE OF 2-STEP SINGLE FAMILY MORTGAGES.

    Title II of the National Housing Act (12 U.S.C. 1701 et seq.) is 
amended by adding at the end the following new section:

                    ``2-step single family mortgages

    ``Sec. 256. (a) Authority.--After making the finding required under 
subsection (d), the Secretary may insure under any provision of this 
title a mortgage involving property upon which there is located a 
dwelling designed principally for occupancy by 1 to 4 families, where 
the mortgage provides that the effective rate of interest charged is--
            ``(1) fixed for the duration of a specified period that 
        consists of not less than the first 5 years of the mortgage 
        term;
            ``(2) adjusted by the mortgagee upon the expiration of the 
        specified period referred to in paragraph (1) for the mortgage; 
        and
            ``(3) for the term of the mortgage remaining after such 
        adjustment--
                    ``(A) fixed at the adjusted rate established 
                pursuant to paragraph (2); or
                    ``(B) periodically adjusted by the mortgagee.
    ``(b) Redetermination of Rate.--For each mortgage insured pursuant 
to this section, the adjustment of the effective rate of interest 
pursuant to subsection (a)(2) may be accomplished through adjustments 
in the monthly payment amount, the outstanding principal balance, or 
the mortgage term, or a combination of such factors, except that in no 
case may any extension of a mortgage term result in a total term in 
excess of 40 years. The adjustment in the effective rate of interest 
shall correspond to a specified national interest rate index that is 
approved in regulations issued by the Secretary and information on 
which is readily accessible to the mortgagors from generally available 
published sources.
    ``(c) Limitations on Second-Step Periodic Rates.--For each mortgage 
insured pursuant to this section for which the effective rate of 
interest charged pursuant to subsection (a)(3) is periodically adjusted 
under subparagraph (B) of such subsection, such adjustments in the 
interest rate--
            ``(1) may be accomplished through adjustments in the 
        monthly payment amount, the outstanding principal balance, or 
        the mortgage term, or a combination of such factors, except 
        that in no case may any extension of a mortgage term result in 
        a total term in excess of 40 years;
            ``(2) shall correspond to a specified national interest 
        rate index that is approved in regulations issued the Secretary 
        and information on which is readily accessible to the 
        mortgagors from generally available published sources;
            ``(3) shall be made on an annual basis;
            ``(4) shall be limited, with respect to any single interest 
        rate increase, to no more than 1 percent on the outstanding 
        loan balance; and
            ``(5) be limited to a maximum increase of 5 percentage 
        points above the initial contract interest rate over the term 
        of the mortgage.
    ``(d) Conditions on Insuring Authority.--The Secretary may insure 
mortgages pursuant to this section only after determining that the risk 
posed by such insurance to the financial safety and soundness of the 
insurance fund of which the mortgage insurance is an obligation does 
not exceed such risk posed by insurance of mortgages of equivalent 
terms having fixed interest rates over such terms.
    ``(e) Description of Features.--The Secretary shall issue 
regulations requiring that the mortgagee make available to the 
mortgagor, at the time of loan application, a written explanation of 
the features of the 2-step mortgage insured pursuant to this section.
    ``(f) Limitation of Total Number of Mortgages Insured.--The 
aggregate number of mortgages and loans insured pursuant to this 
section in any fiscal year may not exceed 10 percent of the aggregate 
number of mortgages and loans insured by the Secretary under this title 
during the preceding fiscal year.''.

SEC. 10. STUDY REGARDING MORTGAGE INSURANCE PREMIUMS AND MORTGAGE 
              AMOUNT LIMITATIONS.

    The Secretary of Housing and Urban Development shall conduct a 
study to determine--
            (1) various methods of decreasing the amounts of the up-
        front and annual premiums charged for mortgage insurance under 
        the single family home mortgage insurance program under title 
        II of the National Housing Act; and
            (2) the effects of such various methods on the financial 
        safety and soundness of the Mutual Mortgage Insurance Fund.
Not later than the expiration of the 18-month period beginning on the 
date of the enactment of this Act, the Secretary shall submit a report 
to the Congress containing the findings of the study under this section 
and any recommendations of the Secretary resulting from such findings.

Summary: FHA Improvement Act of 1994 - Amends the National Housing Act to revise the single family mortgage insurance program. 
Directs the Secretary of Housing and Urban Development to study mortgage insurance premiums and mortgage amount limitations.