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SECTION 1. SHORT TITLE.

This Act may be cited as the ''FHA Modernization and Efficiency Act
of 1995''.

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. MAXIMUM MORTGAGE AMOUNT FLOOR FOR SINGLE FAMILY MORTGAGE
INSURANCE.

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 greater of'' and all that follows through ''applicable size'' and
inserting the following: ''50 percent of the dollar amount limitation
determined under section 305(a)(2) of the Federal Home Loan Mortgage
Corporation Act (as adjusted annually under such section) for a
residence of the applicable size''.

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) in the case of a mortgage for a
property with an appraised value equal to or
less than $50,000, 98.75 percent of the
appraised value of the property,
''(ii) in the case of a mortgage for a
property with an appraised value in excess of
$50,000 but not in excess of $125,000, 97.65
percent of the appraised value of the property,
''(iii) in the case of a mortgage for a
property with an appraised value in excess of
$125,000, 97.15 percent of the appraised value
of the property, or
''(iv) notwithstanding clauses (ii) and
(iii), in the case of a mortgage for a property
with an appraised value in excess of $50,000
and which is located in a State for which the
average closing cost exceeds 3.25 percent of
the average, for the State, of the sale price
of properties located in the State for which
mortgages have been executed, 97.75 percent of
the appraised value of the property,
plus the amount of the mortgage insurance premium paid
at the time the mortgage is insured.'';
(2) in the 1st sentence of the matter following
subparagraph (B), by inserting before the period at the end the
following: '', and the term 'average closing cost' means, with
respect to a State, the average, for mortgages executed for
properties that are located within the State, of the total
amounts (as determined by the Secretary) of initial service
charges, appraisal, inspection, and other fees (as the
Secretary shall approve) that are paid in connection with such
mortgages'';
(3) by striking the 2d sentence of the matter following
subparagraph (B); and
(4) in penultimate undesignated paragraph--
(A) in the 2d sentence, by striking ''the preceding
sentence'' and inserting ''this subsection''; and
(B) by striking the 1st sentence.

SEC. 5. 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)--
(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. 6. 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. 7. 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. 8. DELEGATION OF SINGLE FAMILY MORTGAGE INSURING AUTHORITY TO
DIRECT ENDORSEMENT MORTGAGEES.

Title II of the National Housing Act (12 U.S.C. 1707 et seq.) is
amended by adding at the end the following new section:

''delegation of insuring authority to direct endorsement mortgagees

''Sec. 256. (a) Authority.--The Secretary may delegate, to one or
more mortgagees approved by the Secretary under the direct 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 1 to 4 families.
''(b) Considerations.--In determining whether to delegate authority
to a mortgagee under this section, the Secretary shall consider the
experience and performance of the mortgagee under the direct
endorsement program, the default rate of insured mortgages originated
by the mortgagee 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.
''(c) Enforcement of Insurance Requirements.--
''(1) In general.--If the Secretary determines that a
mortgage insured by a mortgagee pursuant to delegation of
authority under this section was not originated in accordance
with the requirements established by 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.
''(2) Fraud or misrepresentation.--If fraud or
misrepresentation was involved in connection with the
origination, the Secretary may require the mortgagee approved
under this section to indemnify the Secretary for the loss
regardless of when an insurance claim is paid.
''(d) Termination of Mortgagee's Authority.--If a mortgagee to
which the Secretary has made a delegation under this section violates
the requirements and procedures established by the Secretary or the
Secretary determines that other good cause exists, the Secretary may
cancel a delegation of authority under this section to the mortgagee by
giving notice to the mortgagee. Such a cancellation shall be effective
upon receipt of the notice by the mortgagee 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.
''(e) Requirements and Procedures.--Before approving a delegation
under this section, the Secretary shall issue regulations establishing
appropriate requirements and procedures, including requirements and
procedures governing the indemnification of the Secretary by the
mortgagee.''.

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

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

''2-step single family mortgages

''Sec. 257. (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.''.
FHA Modernization and Efficiency Act of 1995 - Amends the National Housing Act to revise single family mortgage insurance program provisions regarding: (1) maximum mortgage amount floor; (2) downpayment calculations and family loans; (3) new construction; (4) condominiums; (5) direct endorsement mortgages; and (6) two-step adjustable mortgages.