[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 1620 Introduced in Senate (IS)]







107th CONGRESS
  1st Session
                                S. 1620

To authorize the Government National Mortgage Association to guarantee 
    conventional mortgage-backed securities, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            November 1, 2001

  Mr. Allard introduced the following bill; which was read twice and 
    referred to the Committee on Banking, Housing, and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
To authorize the Government National Mortgage Association to guarantee 
    conventional mortgage-backed securities, 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.

    This Act may be cited as the ``Home Ownership Expansion Act of 
2001''.

SEC. 2. GNMA GUARANTEE OF SECURITIES BACKED BY CONVENTIONAL MORTGAGES.

    (a) Findings.--Congress finds that--
            (1) expanding home ownership is a national goal, and that 
        increasing the principal secondary market outlets for 
        conventional home mortgages will serve that goal by improving 
        the liquidity of investments in those mortgages; and
            (2) risk-sharing between the public sector and the private 
        mortgage insurance industry will provide consumers with greater 
        access to mortgage credit opportunities.
    (b) Authority To Guarantee Conventional Mortgage-Backed 
Securities.--Section 306 of the National Housing Act (12 U.S.C. 1721) 
is amended by adding at the end the following:
    ``(h) GNMA Guarantee of Securities Backed by Conventional 
Mortgages.--
            ``(1) In general.--The Association may guarantee the timely 
        payment of principal and interest on conventional mortgage-
        backed securities that are backed by qualifying privately 
        insured mortgages that are insured with primary mortgage 
        insurance, extended mortgage insurance, and supplemental 
        mortgage insurance.
            ``(2) Premiums.--The issuer of securities guaranteed by the 
        Association under this subsection that are backed by qualifying 
        privately insured mortgages shall--
                    ``(A) for primary mortgage insurance, collect from 
                the mortgagor, and remit to the qualified mortgage 
                insurer, the premium or premiums as may be established 
                by the qualified mortgage insurer in accordance with 
                applicable Federal or State law; and
                    ``(B) for extended mortgage insurance and 
                supplemental mortgage insurance, pay and remit the 
                premium or premiums to the qualified mortgage insurer 
                from the sums attributable to the difference between 
                the interest rates applicable to the mortgages in the 
                particular pool and the interest rate set forth on the 
                trust certificate or security guaranteed by the 
                Association based on and backed by such mortgages, and 
                without additional premium charge therefore to the 
                mortgagor.
            ``(3) Disposition of property upon default.--Upon default 
        by a mortgagor of a mortgage guaranteed under this subsection, 
        the property covered by the mortgage shall be disposed of by 
        the issuer of the securities guaranteed under this subsection 
        or the qualified mortgage insurer in accordance with the 
        customary policies and procedures of that issuer and insurer.
            ``(4) Authority.--As part of the authority provided to the 
        Association to issue guarantees under this subsection for 
        fiscal year 2002, the Association may, during fiscal year 2002, 
        issue guarantees of the timely payment of principal and 
        interest on trust certificates or other securities based on and 
        backed by qualifying privately insured mortgages in an 
        aggregate amount equal to not more than $50,000,000,000.
            ``(5) Regulatory power of the secretary.--The Secretary 
        shall--
                    ``(A) have authority to review and approve premiums 
                and other terms and conditions established for the 
                primary mortgage insurance covering the mortgages 
                contained in the trusts or pools guaranteed by the 
                Association under this subsection, and shall have the 
                authority to approve participation in the program based 
                on safety and soundness;
                    ``(B) prescribe such rules and regulations as shall 
                be necessary and proper to ensure that the purposes of 
                the Home Ownership Expansion Act of 2001 are 
                accomplished.
    ``(i) Definitions.--As used in this section:
            ``(1) Conventional mortgage limit.--The term `conventional 
        mortgage limit' means the greater of the applicable maximum 
        original principal obligation of conventional mortgages 
        established by--
                    ``(A) the Federal National Mortgage Association, 
                pursuant to section 302(b)(2); or
                    ``(B) the Federal Home Loan Mortgage Corporation, 
                pursuant to section 305(a)(2) of the Federal Home Loan 
                Mortgage Corporation Act (12 U.S.C. 1454(a)(2)).
            ``(2) Coverage percentage.--The term `coverage percentage' 
        means the percentage of the total of the outstanding principal 
        balance on a mortgage, and accrued interest, advances, and 
        reasonable expenses related to property preservation and 
        foreclosure, that is subject to payment in the event of a claim 
        under a policy of primary mortgage insurance on a qualifying 
        privately insured mortgage.
            ``(3) Extended mortgage insurance.--The term `extended 
        mortgage insurance' means insurance that--
                    ``(A) is issued by a qualified mortgage insurer;
                    ``(B) guarantees and insures against losses on the 
                mortgage;
                    ``(C) has the same coverage percentage and other 
                substantially similar terms and conditions as the 
                primary mortgage insurance for the mortgage;
                    ``(D) becomes effective upon mandatory cancellation 
                or termination of the primary mortgage insurance, and 
                remains in effect until the mortgage is paid in full; 
                and
                    ``(E) is not subject to mandatory cancellation or 
                termination.
            ``(4) Mandatory cancellation or termination.--The term 
        `mandatory cancellation or termination' means cancellation or 
        termination of mortgage insurance, as provided in section 3 of 
        the Homeowners Protection Act of 1998 (12 U.S.C. 4902) or by a 
        protected State law, as defined in section 9 of that Act.
            ``(5) Primary mortgage insurance.--The term `primary 
        mortgage insurance' means insurance that--
                    ``(A) is issued by a qualified mortgage insurer;
                    ``(B) guarantees and insures against losses on the 
                mortgage, under standard terms and conditions generally 
                offered in the private mortgage guaranty insurance 
                industry;
                    ``(C) has a coverage percentage equal to--
                            ``(i) not less than 12 percent, if the 
                        principal-to-value ratio is greater than 80 
                        percent and not greater than 85 percent;
                            ``(ii) not less than 25 percent, if the 
                        principal-to-value ratio is greater than 85 
                        percent and not greater than 90 percent;
                            ``(iii) not less than 30 percent, if the 
                        principal-to-value ratio is greater than 90 
                        percent and not greater than 95 percent; and
                            ``(iv) not less than 35 percent, if the 
                        principal-to-value ratio is greater than 95 
                        percent; and
                    ``(D) may be canceled or terminated by the 
                mortgagor, issuer, or qualified mortgage insurer only 
                pursuant to mandatory cancellation or termination.
            ``(6) Principal-to-value ratio.--The term `principal-to-
        value ratio' means the ratio of the original outstanding 
        principal balance of a first mortgage to the value of the 
        property securing the mortgage, as established at the time of 
        origination by appraisal or other reliable indicia of property, 
        conducted or performed not earlier than 6 months before the 
        date of origination, and not later than that date of 
        origination.
            ``(7) Qualified mortgage insurer.--The term `qualified 
        mortgage insurer' means a provider of private mortgage 
        insurance, as defined in section 2 of the Homeowners Protection 
        Act of 1998 (12 U.S.C. 4901), that--
                    ``(A) is authorized and licensed by a State or an 
                instrumentality of a State to transact private mortgage 
                insurance business in the State in which the provider 
                is transacting that business, excluding any entity that 
                is exempt from State licensing requirements;
                    ``(B) is rated in 1 of the 2 highest rating 
                categories by not less than 1 nationally recognized 
                statistical rating organization; and
                    ``(C) meets such additional qualifications as may 
                be determined by the Association.
            ``(8) Qualifying privately insured mortgage.--The term 
        `qualifying privately insured mortgage' means a first 
        mortgage--
                    ``(A) that is not--
                            ``(i) insured under title II of this Act, 
                        except as specifically provided in this 
                        section;
                            ``(ii) insured under title V of the Housing 
                        Act of 1949 (42 U.S.C. 1471 et seq.);
                            ``(iii) insured or guaranteed under chapter 
                        37 of title 38, United States Code; or
                            ``(iv) made or guaranteed under part B of 
                        title V of the Public Health Service Act (42 
                        U.S.C. 290bb et seq.);
                    ``(B) that--
                            ``(i) is secured by property comprising 1-
                        to-4 family dwelling units;
                            ``(ii) has a term of not longer than 30 
                        years;
                            ``(iii) has a principal-to-value ratio of 
                        more than 80 percent; and
                            ``(iv) has an original principal obligation 
                        that does not exceed the conventional mortgage 
                        limit;
                    ``(C) not more than 1 payment of which has been 
                delinquent by more than 30 days, and no payment of 
                which has been delinquent by more than 60 days, during 
the 12-month period immediately preceding the time of guarantee; and
                    ``(D) that is covered by primary mortgage 
                insurance, extended mortgage insurance, and 
                supplemental mortgage insurance.
            ``(9) Supplemental mortgage insurance.--The term 
        `supplemental mortgage insurance' means insurance that--
                    ``(A) is issued by a qualified mortgage insurer;
                    ``(B) guarantees and insures against losses on the 
                mortgage under such terms and conditions as are 
                reasonably acceptable to the Association;
                    ``(C) becomes effective on the date on which the 
                guaranty becomes effective; and
                    ``(D) terminates as if subject to automatic 
                termination under section 3(b) of the Homeowners 
                Protection Act of 1998 (12 U.S.C. 4902(b)), subject to 
                the conditions stated in that section, or when the 
                mortgage is paid in full, whichever occurs first.
            ``(10) Trust or pool.--A trust or pool referred to in this 
        section means a trust or pool composed only of--
            ``(A) qualifying privately insured mortgages; or
            ``(B) mortgages insured under title II.''.
    (c) Guaranty Fee.--Section 306(g)(3)(A) of the National Housing Act 
(12 U.S.C. 1721(g)(3)(A)) is amended--
            (1) by inserting ``(i)'' after ``(A)''; and
            (2) by adding at the end the following:
    ``(ii) The Association shall assess and collect a fee in an amount 
equal to not more than 8 basis points, as determined by the Secretary, 
in order to generate revenues to the Federal Government in excess of 
the cost to the Federal Government, as defined in section 502 of the 
Federal Credit Reform Act of 1990 (2 U.S.C. 661a), of the guaranty of 
the timely payment of principal and interest on trust certificates or 
other securities based on or backed by qualifying privately insured 
mortgages under subsection (h).''.
    (d) Voluntary Program Participation; No Federal Contractor 
Status.--Section 306(g) of the National Housing Act (12 U.S.C. 1721(g)) 
is amended by adding at the end the following:
    ``(4) Nothing in this subsection shall be construed to require any 
issuer to issue any trust certificate or security that is based on and 
backed by a trust or pool composed of qualifying privately insured 
mortgages.
    ``(5) Notwithstanding any other provision of law, a qualified 
mortgage insurer that participates in the guarantee program under 
subsection (h) shall not be considered, by virtue of such 
participation, as entering into a contract with any Federal department 
or agency, or participating in any program or activity receiving 
Federal financial assistance, or participating in any program or 
activity conducted by any Federal department or agency. Nothing in this 
paragraph is intended to deny or otherwise affect the rights of the 
Association as the assignee, holder, or beneficiary of a mortgage 
insurance contract.''.
    (e) Reinsurer Ratings Requirements.--Section 306(g) of the National 
Housing Act (12 U.S.C. 1721(g)), as amended by this Act, is amended by 
adding at the end the following:
            ``(6) A qualified mortgage insurer may not reinsure any 
        portion of its obligations under subsection (h) with any 
        reinsurance that--
                    ``(A) is not rated in 1 of the 2 highest rating 
                categories by not less than 1 nationally recognized 
                statistical rating organization; or
                    ``(B) fails to meet such other requirements as the 
                Secretary may deem appropriate.''.

SEC. 3. CONFORMING AMENDMENTS.

    (a) Guarantees.--Section 306(g)(1) of the National Housing Act (12 
U.S.C. 1721(g)(1)) is amended--
            (1) by inserting ``or subsection (h)'' after the term 
        ``this subsection'' each place it appears;
            (2) by inserting ``(A)'' after ``(1)'';
            (3) by striking ``The Association shall collect'' and 
        inserting the following:
    ``(B) The Association shall collect'';
            (4) by striking ``In the event'' and inserting the 
        following:
    ``(C) In the event'';
            (5) by striking ``In any case'' and inserting the 
        following:
    ``(D) In any case'';
            (6) in subparagraph (D), as so designated by paragraph (4) 
        of this subsection--
                    (A) by striking ``(I)'' and inserting ``(i)'';
                    (B) by striking ``(II)'' and inserting ``(ii)''; 
                and
                    (C) by striking ``(III)'' and inserting ``(iii)'';
            (7) by striking ``The Association is hereby empowered,'' 
        and all that follows through ``against which the guaranteed 
        securities are issued.'' and inserting the following:
    ``(E)(i) The Association may, in connection with any guaranty under 
this subsection or subsection (h), whether before or after any default 
by the issuer or any default by the qualified mortgage insurer (in the 
case of securities based on and backed by qualifying privately insured 
mortgages)--
            ``(I) provide by contract with the issuer for the 
        extinguishment, upon default by the issuer, of any redemption, 
        equitable, legal, or other right, title, or interest of the 
        issuer in any mortgage or mortgages constituting the trust or 
        pool against which the guaranteed securities are issued; or
            ``(II) provide by contract with the qualified mortgage 
        insurer for the extinguishment, upon default by the qualified 
        mortgage insurer, of any redemption, equitable, legal, or other 
        right, title, or interest of the qualified mortgage insurer in 
        such mortgage or mortgages, as well as any related primary 
        mortgage insurance, extended mortgage insurance, or 
        supplemental mortgage insurance coverage or any future premiums 
        and proceeds related thereto.
    ``(ii) With respect to any issue of guaranteed securities--
            ``(I) in the event of default by the issuer, and pursuant 
        otherwise to the terms of the contract, the mortgages that 
        constitute the trust or pool referred to in clause (i) shall 
        become the absolute property of the Association, subject only 
        to the unsatisfied rights of the holders of the securities 
        based on and backed by that trust or pool; and
            ``(II) in the event of default by the qualified mortgage 
        insurer, and pursuant otherwise to the terms of the contract, 
        any right of the qualified mortgage insurer with respect to the 
        mortgages that constitute such trust or pool and any related 
        primary mortgage insurance, extended mortgage insurance, or 
        supplemental mortgage insurance coverage and any future 
        premiums and proceeds related thereto shall become the absolute 
        property of the Association, subject only to the unsatisfied 
        rights of the holders of the securities based on and backed by 
        such trust or pool and to the unsatisfied rights of any insured 
        issuer with respect to any mortgage insurance coverage.
    ``(F) No State, local, or Federal law (other than a Federal statute 
enacted expressly in limitation of this subsection after the date of 
enactment of the Home Ownership Expansion Act of 2001), shall preclude 
or limit the exercise by the Association of--
            ``(i) its power to contract with the issuer, or the 
        qualified mortgage insurer on the terms stated in subparagraph 
        (E);
            ``(ii) its rights to enforce any such contract with the 
        issuer or the qualified mortgage insurer; or
            ``(iii) its ownership rights, as provided in subparagraph 
        (E), with respect to the mortgages constituting the trust or 
        pool against which the guaranteed securities are issued, and 
        with respect to any related primary mortgage insurance, 
        extended mortgage insurance, or supplemental mortgage insurance 
        coverage and any future premiums and proceeds related 
        thereto.'';
            (8) by striking ``The full faith'' and inserting the 
        following:
    ``(G) The full faith''; and
            (9) by striking ``There shall be'' and inserting the 
        following:
    ``(H) There shall be''.
    (b) Separate Accountability.--Section 307 of the National Housing 
Act (12 U.S.C. 1722) is amended--
            (1) by striking ``All'' and inserting ``(a) In General.--
        All''; and
            (2) by adding at the end the following:
    ``(b) Limitation.--Notwithstanding subsection (a), with respect to 
qualifying privately insured mortgages (as defined in section 306(i)), 
related earnings described in subsection (a) of this section or other 
amounts as become available after such allowances and as are 
attributable to the fees and charges assessed or collected in 
connection with the guaranty of trust certificates or securities based 
on or backed by such qualifying privately insured mortgages shall inure 
to the benefit of and may be retained by the Secretary in support of 
programs under titles II and III of this Act.''.

SEC. 4. IMPLEMENTATION AND REPORT.

    (a) In General.--The Government National Mortgage Association shall 
provide for the initial implementation of this Act and the amendments 
made by this Act by--
            (1) giving notice to its participating issuers; and
            (2) submitting a report to the Chairpersons and Ranking 
        Members of the Committee on Banking, Housing, and Urban Affairs 
        of the Senate, and the Committee on Financial Services of the 
        House of Representatives, that confirms that the authority of 
        the Secretary of Housing and Urban Development under section 
        306(h)(5) of the National Housing Act, as added by this Act, 
        does not adversely impact the safety and soundness of the 
        Government National Mortgage Association.
    (b) Publication.--The notice required by subsection (a) shall be 
published not later than 120 days after the date of enactment of this 
Act.
    (c) Report.--The report submitted in accordance with subsection (a) 
shall include an economic analysis of the adequacy of the guarantee fee 
provided for in section 306(g)(3)(A)(ii) of the National Housing Act, 
as added by this Act.
                                 <all>