[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3742 Introduced in House (IH)]







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 purposes.


_______________________________________________________________________


                    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 Representatives 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

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 warranty 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.--Notwithstanding 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 
amendment 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 extent appropriate, without the need for 
further rulemaking.

               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 identified by the 
Secretary that are insured under this title, secured by 1- to 4-family 
dwellings and executed on or after the effective date of the American 
Community Partnerships 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 maximum or minimum premium 
amounts set forth in this subsection. The rate of premium for a 
mortgage may vary during the mortgage term as long as the basis for 
determining 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 at least 30 days before the premium 
structure is established 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 Insurance Fund as 
        provided in section 205(h), or the effect 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 potential for 
        acceptance on the private market; and
            ``(iv) the administrative capability of the Secretary to 
        administer the proposed premium structure.
    ``(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 mortgage 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.
    ``(E) The Secretary may defer the collection date for all or any 
part of a premium due under a premium structure established under this 
paragraph, with or without collecting interest on the deferred payment, 
until payment of the mortgage in full or such other event as the 
Secretary 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 increase 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 American families 
        and communities by supplementing private sector activity;
            ``(3) better serve underserved markets through research, 
        developing, and testing new insurance products and methods of 
        delivering mortgage services;
            ``(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 housing credit to 
        American families and communities.
    ``(c) Demonstration Requirements.--In approving a demonstration 
under this section, the Secretary may establish such requirements as 
the Secretary considers appropriate to further the purposes of this 
section. The Secretary shall determine the terms and conditions of 
insurance, notwithstanding any provision of this Act.
    ``(d) Term of Demonstration.--Each demonstration 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 terminate any 
demonstration before the end of the approved term if the Secretary 
deems such action necessary.
    ``(e) Use of General Insurance Fund.--The insurance or reinsurance 
of a mortgage or pool of mortgages by the Secretary under this section 
shall be an obligation of the General Insurance Fund created pursuant 
to section 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 number of mortgages 
        insured under this section pursuant 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 
        fiscal 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 submit a report to Congress within 1 year 
        after the completion of each demonstration, describing the 
        results of the demonstration and making any recommendations for 
        legislation.''.
    (b) Evaluations.--The Secretary shall conduct such evaluations of 
the demonstrations under section 257 of the National Housing Act as the 
Secretary deems appropriate.

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 insurance, to the authority 
provided in this Act, and to the limitation 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 during 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 this paragraph through any of the methods described in 
subsections (a)(1)(A)-(D) in connection with any mortgage insured under 
section 203 of this Act.
            ``(A) Assignment of mortgage.--The Secretary may pay 
        insurance benefits whenever a mortgage 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 
                Secretary; 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 property through foreclosure or has otherwise 
        acquired such property from the mortgagor after a default 
        upon--
                    ``(i) the prompt conveyance to the Secretary of 
                title to the property which meets the standards of the 
                Secretary in force at the time the mortgage was 
                insured, and which is evidenced in the manner provided 
                by such standards; and
                    ``(ii) the assignment to the Secretary of all 
                claims of the mortgagee against the mortgagor or 
                others, arising out of the mortgage transaction or 
                foreclosure proceedings, except such claims as may have 
                been released with the consent 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 
        mortgagee to the Secretary.
            ``(C) Claim without conveyance of title.--The Secretary may 
        pay insurance benefits upon sale of the mortgaged property at 
        foreclosure where such sale is for at least the fair market 
        value of the property (with appropriate adjustments), as 
        determined by the Secretary and upon assignment to the 
        Secretary of all claims referred to in clause (ii) of 
        subsection (a)(1)(B).
            ``(D) Pre-foreclosure sale.--The Secretary may pay 
        insurance benefits upon the sale of the mortgaged property by 
        the mortgagor after default and the assignment to the Secretary 
        of all claims referred to in clause (ii) of subsection 
        (a)(1)(B), if--
                    ``(i) the sale of the mortgaged property has been 
                approved by the Secretary;
                    ``(ii) the mortgagee receives an amount at least 
                equal to the fair market value of the property (with 
                appropriate adjustments), as determined by the 
                Secretary; and
                    ``(iii) the mortgagor has received an appropriate 
                disclosure, as determined by the Secretary.
    ``(2) Payment for Loss Mitigation.--The Secretary may pay insurance 
benefits to the mortgagee to recompense the mortgagee for its actions 
to provide an alternative to foreclosure of a mortgage that is in 
default, which actions may include such actions as special forbearance, 
loan modification, and deeds in lieu of foreclosure, all upon such 
terms and conditions as the mortgagee shall determine in the 
mortgagee's sole discretion within guidelines 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 Secretary and no action taken, nor any failure to act, by the 
Secretary or the mortgagee shall be subject to judicial review.
    ``(3) Determining Claims Procedure.--The Secretary shall publish 
guidelines for determining which of the procedures for payment of 
insurance specified in subsections (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 mortgage 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 of amounts due under the 
mortgage or otherwise pursue loss mitigation measures.
    ``(5) Calculating Insurance Benefits.--Insurance benefits shall be 
paid as provided in section 520 of this Act, and shall be equal to the 
original principal obligation 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 deductions as the Secretary deems appropriate.
    ``(6) Forbearance and Recasting After Default.--The mortgagee may, 
upon such terms and conditions as the Secretary may prescribe--
            ``(A) extend the time for the curing of the default, 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, 
        including an extension of time beyond the stated maturity of 
        the mortgage, and in the event of a subsequent foreclosure or 
        acquisition of the property by other means the Secretary is 
        authorized to include 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 principal 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 appropriate 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 insurance is terminated pursuant to section 229 of this 
Act.
    ``(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 implementing 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 provided 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 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 inserting after ``sale by him'' the 
following: ``, including a sale through another entity under authority 
of the fourth sentence of section 204(g),''.

                   TITLE III--STREAMLINING PROPOSALS

SEC. 30. AUTHORITY TO ESTABLISH LOAN TO VALUE RATIOS AND RELATED 
              CHANGES TO WARRANTY REQUIREMENT.

    (a) Changes to Eligibility for Mortgage Insurance.--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 subparagraph (B), and 
        inserting in lieu thereof the following:
                    ``(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 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 warranty from the seller or 
        builder that is satisfactory to the Secretary, whenever such a 
        warranty is required by the Secretary, unless the residence was 
        completed more than one year prior to the application for 
        insurance.''.
    (b) Repeal of Section 801 Warranty Requirement.--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 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 one to four families. In determining whether to 
delegate such authority to a mortgagee, the Secretary shall take into 
account the experience and performance 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 insured by a 
mortgagee pursuant to a delegation of authority 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 mortgagee approved under this section to indemnify the Secretary 
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 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.
    ``(d) Before approving a delegation under this section, the 
Secretary shall establish appropriate requirements and procedures, 
including requirements and procedures 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 
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. 33. HECM PROGRAM.

    (a) Removal of Certain Limitations on the Insurance 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 education by a 
                third party as provided in subsection (f); and'';
            (2) by revising subsection (e)(1) to read as follows:
            ``(1) no later than the time of the loan application, 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 required in subsection 
                (d)(2)(B) and shall set standards for providers of 
                consumer education to the extent considered necessary 
                by the Secretary.''; 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 compensation 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 Education.--The Secretary shall 
consult with consumer groups, industry representatives, representatives 
of counseling organizations, and other interested parties to identify 
approaches to consumer education other than the requirements of section 
255 of the National Housing Act that may be feasible and desirable for 
home equity conversion 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, alternative 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 ``demonstration''; and
            (3) in subsection (k)(4), by striking ``demonstration'' and 
        inserting in lieu thereof ``program''.

SEC. 34. 100 PERCENT CONDOMINIUM MORTGAGE INSURANCE 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)''.

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.
                                 <all>