Pilot program for insurance for zero-downpayment mortgages

(a)

Mortgage insurance authority

Section 203 of the National Housing Act (12 U.S.C. 1709) is amended by inserting after subsection (k) the following new subsection:

(l)

Zero-Downpayment mortgages pilot program

(1)

Insurance authority

The Secretary may insure, and commit to insure, under this subsection any mortgage that meets the requirements of this subsection and, except as otherwise specifically provided in this subsection, of subsection (b). (2)

Eligible single family property

To be eligible for insurance under this subsection, a mortgage shall involve a property upon which there is located a dwelling that is designed principally for a 1- to 3-family residence and that, notwithstanding subsection (g), is to be occupied by the mortgagor as his or her principal residence, which shall include— (A)a 1-family dwelling unit in a multifamily project and an undivided interest in the common areas and facilities which serve the project; (B)a 1-family dwelling unit of a cooperative housing corporation the permanent occupancy of the dwelling units of which is restricted to members of such corporation and in which the purchase of such stock or membership entitles the purchaser to the permanent occupancy of such dwelling unit; and (C)a manufactured home that meets such standards as the Secretary has established for purposes of subsection (b). (3)

Maximum principal obligation

(A)

Limitation

To be eligible for insurance under this subsection, a mortgage shall involve a principal obligation in an amount not in excess of 100 percent of the appraised value of the property plus any initial service charges, appraisal, inspection and other fees in connection with the mortgage as approved by the Secretary. (B)

Inapplicability of other loan-to-value requirements

A mortgage insured under this subsection shall not be subject to subparagraph (B) of paragraph (2) of subsection (b) or to the matter in such paragraph that follows such subparagraph. (4)

Eligible mortgagors

The mortgagor under a mortgage insured under this subsection shall meet the following requirements: (A)

First-time homebuyer

The mortgagor shall be a first-time homebuyer. The program for mortgage insurance under this subsection shall be considered a Federal program to assist first-time homebuyers for purposes of section 956 of the Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. 12713). (B)

Counseling

(i)

Requirement

The mortgagor shall have received counseling, prior to application for the loan involved in the mortgage, by a third party (other than the mortgagee) who is approved by the Secretary, with respect to the responsibilities and financial management involved in homeownership. Such counseling shall be provided to the mortgagor on an individual basis by a representative of the approved third party counseling entity, and shall be provided in person to the maximum extent practicable. (ii)

Topics

Such counseling shall include providing to, and discussing with, the mortgagor— (I)information regarding homeownership options other than a mortgage insured under this subsection, other zero- or low-downpayment mortgage options that are or may become available to the mortgagor, the financial implications of entering into a mortgage (including a mortgage insured under this subsection), and any other information that the Secretary may require; and (II)a document that sets forth the amount and the percentage by which a property subject to a mortgage insured under this subsection must appreciate for the mortgagor to recover the principal amount of the mortgage, the costs financed under the mortgage, and the estimated costs involved in selling the property, if the mortgagor were to sell the property on each of the second, fifth, and tenth anniversaries of the mortgage. (iii)

2- and 3-family residences

In the case of a mortgage involving a 2- or 3-family residence, such counseling shall include (in addition to the information required under clause (ii)) information regarding real estate property management. (5)

Option for notice of foreclosure prevention counseling availability

(A)

Option

To be eligible for insurance under this subsection, the mortgagee shall provide mortgagor, at the time of the execution of the mortgage, an optional written agreement which, if signed by the mortgagor, allows, but does not require, the mortgagee to provide notice described in subparagraph (B) to a housing counseling entity that has agreed to provide the notice and counseling required under subparagraph (C) and is approved by the Secretary. (B)

Notice to counseling agency

The notice described in this subparagraph, with respect to a mortgage, is notice, provided at the earliest time practicable after the mortgagor becomes 60 days delinquent with respect to any payment due under the mortgage, that the mortgagor is so delinquent and of how to contact the mortgagor. Such notice may only be provided once with respect to each delinquency period for a mortgage. (C)

Notice to mortgagor

Upon notice from a mortgagee that a mortgagor is 60 days delinquent with respect to payments due under the mortgage, the housing counseling entity shall at the earliest time practicable notify the mortgagor of such delinquency, that the entity makes available foreclosure prevention counseling that may assist the mortgagor in resolving the delinquency, and of how to contact the entity to arrange for such counseling. (D)

Ability to cure

Failure to provide the optional written agreement required under subparagraph (A) may be corrected by sending such agreement to the mortgagor not later than the earliest time practicable after the mortgagor first becomes 60 days delinquent with respect to payments due under the mortgage. Insurance provided under this subsection may not be terminated and penalties for such failure may not be prospectively or retroactively imposed if such failure is corrected in accordance with this subparagraph. (E)

Penalties for failure to provide agreement

The Secretary may establish and impose appropriate penalties for failure of a mortgagee to provide the optional written agreement required under subparagraph (A). (F)

Limitation on liability of mortgagee

A mortgagee shall not incur any liability or penalties for any failure of a housing counseling entity to provide notice under subparagraph (C). (G)

No private right of action

This paragraph shall not create any private right of action on behalf of the mortgagor. (H)

Delinquency period

For purposes of this paragraph, the term delinquency period means, with respect to a mortgage, a period that begins upon the mortgagor becoming delinquent with respect to payments due under the mortgage and ends upon the first subsequent occurrence of such payments under the mortgage becoming current or the property subject to the mortgage being foreclosed or otherwise disposed of. (6)

Inapplicability of downpayment requirement

A mortgage insured under this subsection shall not be subject to paragraph (9) of subsection (b) or any other requirement to pay on account of the property, in cash or its equivalent, any amount of the cost of acquisition. (7)

MMIF monitoring

In conjunction with the credit subsidy estimation calculated each year pursuant to the Federal Credit Reform Act of 1990 (2 U.S.C. 661 et seq.), the Secretary shall review the program performance for mortgages insured under this subsection and make any necessary adjustments, which may include altering mortgage insurance premiums subject to subsection (c)(2), adjusting underwriting standards, and limiting the availability of mortgage insurance under this subsection, to ensure that the Mutual Mortgage Insurance Fund shall continue to generate a negative credit subsidy. (8)

Underwriting

For a mortgage to be eligible for insurance under this subsection: (A)

In general

The mortgagor’s credit and ability to pay the monthly mortgage payments shall have been evaluated using the Federal Housing Administration’s Technology Open To Approved Lenders (TOTAL) Mortgage Scorecard, or a similar standardized credit scoring system approved by the Secretary, and in accordance with procedures established by the Secretary. (B)

Multi-unit properties

In the case of a mortgage involving a property upon which there is located a dwelling that is designed principally for a 2- or 3-family residence, the mortgagor meets such additional underwriting standards as the Secretary may establish. (9)

Approval of mortgagees

To be eligible for insurance under this subsection, a mortgage shall have been made to a mortgagee that meets such criteria as the Secretary shall establish to ensure that mortgagees meet appropriate standards for participation in the program authorized under this subsection. (10)

Disclosure of incremental costs

(A)

Required disclosure

For a mortgage to be eligible for insurance under this subsection, the mortgagee shall provide to the mortgagor, at the time of the application for the loan involved in the mortgage, a written disclosure, as the Secretary shall require, that specifies the effective cost to a mortgagor of borrowing the amount by which the maximum amount that could be borrowed under a mortgage insured under this subsection exceeds the maximum amount that could be borrowed under a mortgage insured under subsection (b), based on average closing costs with respect to such amount, as determined by the Secretary. Such cost shall be expressed as an annual interest rate over the first 5 years of a mortgage. (B)

Coordination

The disclosure required under this paragraph may be provided in conjunction with the notice required under subsection (f). (11)

Loss mitigation

(A)

In general

Upon the default of any mortgage insured under this subsection, the mortgagee shall engage in loss mitigation actions for the purpose of providing an alternative to foreclosure to the same extent as is required of other mortgages insured under this title pursuant to the regulations issued under section 230(a). (B)

Annual reporting

Not later than 90 days after the end of each fiscal year, the Secretary shall submit a report to the Congress that compares the rates of default and foreclosure during such fiscal year for mortgages insured under this subsection, for single-family mortgages insured under this title (other than under this subsection), and for mortgages for housing purchased with assistance provided under the downpayment assistance initiative under section 271 of the Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. 12821). (12)

Additional requirements

The Secretary may establish any additional requirements for mortgage insurance under this subsection as may be necessary or appropriate. (13)

Pilot program limitations

(A)

Annual

In any fiscal year, the aggregate number of mortgages insured under this subsection 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. (B)

Term of program

The aggregate number or mortgages insured under this subsection may not exceed 50,000. (14)

Program suspension

(A)

In general

Subject to subparagraph (C), the authority under paragraph (1) to insure mortgages shall be suspended if at any time the claim rate described in subparagraph (B) exceeds 3.5 percent. A suspension under this subparagraph shall remain in effect until such time as such claim rate is 3.5 percent or less. (B)

FHA TOTAL single-family annual claim rate

The claim rate described in this subparagraph, for any particular time, is the ratio of the number of claims during the 12 months preceding such time on mortgages on 1- to 4-family residences insured pursuant to this title to the number of mortgages on such residences having such insurance in force at that time. (C)

Applicability

A suspension under subparagraph (A) shall not preclude the Secretary from endorsing or insuring any mortgage that was duly executed before the date of such suspension. (15)

Sunset

No mortgage may be insured under this subsection after September 30, 2010, except that the Secretary may endorse or insure any mortgage that was duly executed before such date. (16)

GAO reports

The Comptroller General of the United States shall submit a report to the Congress not later than 2 years after the date of the enactment of this subsection, and annually thereafter, regarding the performance of mortgages insured under this subsection. (17)

Implementation

The Secretary may implement this subsection on an interim basis by issuing an interim rule, except that the Secretary shall solicit public comments upon publication of such interim rule and shall issue a final rule implementing this subsection after consideration of the comments submitted.

(b)

Mortgage insurance premiums

The second sentence of subparagraph (A) of section 203(c)(2) of the National Housing Act (12 U.S.C. 1709(c)(2)(A)) is amended by striking In and inserting Except with respect to a mortgage insured under subsection (l), in. (c)

General insurance fund

Section 519(e) of the National Housing Act (12 U.S.C. 1735c(e)) is amended by striking and 203(i) and inserting , 203(i), and 203(l). (d)

GAO study of expanded or extended program

If at any time authority to insure mortgages under section 203(l) of the National Housing Act (as added by subsection (a) of this section) is— (1)expanded to more than 50,000 mortgages, or (2)extended to a date after September 30, 2010, including any permanent extension of such authority,

the Comptroller General of the United States shall conduct a study of the financial soundness, at such time, of the Mutual Mortgage Insurance Fund and the effects of such expansion or extension on such financial soundness, and shall submit a report to the Congress regarding the conclusions of such study not later than 60 days after the date of the enactment of the law providing for such expansion or extension.