Second chance at homeownership mortgage insurance program

Title II of the National Housing Act (12 U.S.C. 17) is amended by adding at the end the following new section:

259.

Second chance at homeownership program

(a)

Establishment

There is established in the Federal Housing Administration a Second Chance at Homeownership Program (in this section referred to as the Program). (b)

Purposes

The purposes of the Program are— (1)to create an FHA program, participation in which is voluntary on the part of homeowners and eligible lenders, to provide loans for qualified second-chance borrowers and support long-term, sustainable homeownership; (2)to target mortgage assistance under this section to enable families to become homeowners of their principal residence; and (3)to ensure the Program remains in effect only for as long as is necessary to provide stability to the housing market. (c)

Establishment and implementation of Program requirements

(1)

Duties of Secretary

To carry out the purposes of the Program, the Secretary shall— (A)establish requirements and standards for the program consistent with section 203(b) to the maximum extent possible; and (B)prescribe such regulations and provide such guidance as may be necessary or appropriate to implement such requirements and standards. (2)

Interim guidance and mortgagee letters

In carrying out any of the program requirements or standards established under paragraph (1), the Secretary may issue such interim guidance and mortgagee letters as the Secretary determines necessary or appropriate. (d)

Insurance of mortgages

The Secretary may, upon application of a mortgagee, make commitments to insure or may insure any mortgage that meets the requirements under subsection (e). (e)

Requirements of insured mortgages

To be eligible for insurance under this section, a mortgage shall comply with all of the following requirements: (1)

Mortgagor

The mortgagor under the mortgage may not have— (A)been the mortgagor under any other mortgage or had any present ownership interest in any residence after January 1, 2011, except that the Secretary may provide exceptions to such requirement for any mortgagor who has inherited a property; (B)been delinquent with respect to any of the most recent 12 monthly rental payments due for the rental of the mortgagor’s principal residence; (C)been convicted under Federal or State law for fraud during the 10-year period ending upon the insurance of the mortgage under this section; and (D)a net worth, as of the date the mortgagor first applies for a mortgage to be insured under the Program under this section, that exceeds $1,000,000. (2)

Acquisition of principal residence

The mortgagor shall be made for the purpose of acquiring a 1- to 4-family residence that— (A)is located in the same State as the principal residence of the mortgagor at the time the mortgage is executed; and (B)shall be occupied by the mortgagor as the principal residence of the mortgagor. (3)

Downpayment

The mortgagor shall have paid on account of the mortgage, in cash or its equivalent, on account of the property an amount equal to not less than 5 percent of the appraised value of the property. (4)

Maximum loan amount

The mortgage shall— (A)have principal obligation that does not exceed the dollar amount limitation for a property of the applicable size that is in effect, for the year in which the mortgage is executed, under the sixth sentence of section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)(2)); and (B)be payable on a monthly basis in an amount that— (i)is fixed over the entire term of the mortgage; and (ii)does not exceed the average amount paid by the mortgagor for the most recent 12 monthly rental payments paid by the mortgagor for the rental of the mortgagor’s previous principal residence. (5)

Term of mortgage

The mortgage to be insured shall— (A)bear interest at a single rate that is fixed for the entire term of the mortgage; and (B)have a maturity of not less than 30 years from the date of the beginning of amortization of such mortgage. (6)

Appraisals

Any appraisal conducted in connection with the mortgage shall— (A)be based on the current value of the property; (B)be conducted in accordance with title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 3331 et seq.); (C)be completed by an appraiser who meets the competency requirements of the Uniform Standards of Professional Appraisal Practice; (D)be wholly consistent with the appraisal standards, practices, and procedures under section 202(g) of this Act that apply to all loans insured under this Act; and (E)comply with the requirements of subsection (f) of this section (relating to appraisal independence). (7)

Prohibition on second liens

The mortgagor under the mortgage may not grant a new second lien on the mortgaged property during the first 5 years of the term of the mortgage insured under this section, except as the Secretary determines to be necessary to ensure the maintenance of property standards and provided that such new outstanding liens (A) do not reduce the value of the Government’s equity in the borrower’s home; and (B) when combined with the mortgagor’s existing mortgage indebtedness, do not exceed 95 percent of the home’s appraised value at the time of the new second lien. (8)

Certifications and documentation

(A)

Principal residence; no present ownership interest

The mortgagor shall provide documentation satisfactory in the determination of the Secretary to prove compliance with the requirements under paragraphs (1)(A) and (2)(B). (B)

No intentional default or false information

The mortgagor shall certify to the Secretary that the mortgagor— (i)has not, during the 10-year period ending upon the insurance of the mortgage under this section— (I)intentionally defaulted on any mortgage or any other debt; or (II)knowingly or willfully furnished material information known to be false for the purpose of obtaining any mortgage; and (ii)is in compliance with the requirement under paragraph (1)(C) (relating to convictions for fraud). (C)

Liability for repayment

The mortgagor shall agree in writing that the mortgagor shall be liable to repay to the Secretary any direct financial benefit achieved from a mortgage insured under this section that is derived from misrepresentations made by the mortgagor in the certifications and documentation required under this paragraph, subject to the discretion of the Secretary. (D)

Documentation and verification of income

In complying with the FHA underwriting requirements under the Program under this section, the mortgagee shall document and verify the income of the mortgagor or non-filing status in accordance with procedures and standards that the Secretary shall establish (provided that such procedures and standards are consistent with section 203(b) to the maximum extent possible) which may include requiring the mortgagee to procure a copy of the income tax returns from the Internal Revenue Service, for the two most recent years for which the filing deadline for such years has passed and by any other method, in accordance with procedures and standards that the Secretary shall establish. (E)

Mortgage fraud

The duty of the mortgagee to ensure that the mortgagor is in compliance with paragraph (1)(C) shall be satisfied if the mortgagee makes a good faith effort to determine that the mortgagor has not been convicted under Federal or State law for fraud during the period described in such paragraph. (f)

Appraisal independence

(1)

Prohibitions on interested parties in a real estate transaction

No mortgage lender, mortgage broker, mortgage banker, real estate broker, appraisal management company, employee of an appraisal management company, nor any other person with an interest in a real estate transaction involving an appraisal in connection with a mortgage insured under this section shall improperly influence, or attempt to improperly influence, through coercion, extortion, collusion, compensation, instruction, inducement, intimidation, nonpayment for services rendered, or bribery, the development, reporting, result, or review of a real estate appraisal sought in connection with the mortgage. (2)

Civil monetary penalties

The Secretary may impose a civil money penalty for any knowing and material violation of paragraph (1) under the same terms and conditions as are authorized in section 536(a) of this Act. (g)

Standards To protect against adverse selection

(1)

In general

The Secretary shall, by rule or order, establish standards and policies to require the underwriter of a mortgage insured under this section to provide such representations and warranties as the Secretary considers necessary or appropriate to enforce compliance with all underwriting and appraisal standards of the Program. (2)

Exclusion for violations

The Secretary shall not pay insurance benefits to a mortgagee who violates the representations and warranties, as established under paragraph (1), or in any case in which a mortgagor fails to make the first payment on a mortgage insured under this section. (3)

Other authority

The Secretary may establish such other standards or policies as necessary to protect against adverse selection, including requiring loans identified by the Secretary as higher risk loans to demonstrate payment performance for a reasonable period of time before being insured under the program under this section. (h)

Premiums

(1)

Establishment and collection

For each mortgage insured under this section, the Secretary shall establish and collect— (A)at the time of insurance, a single premium payment in an amount that is at least 100 basis points greater than the single premium payment that would otherwise be charged pursuant to section 203(c)(2)(A) with respect to the mortgage; and (B)in addition to the premium required under paragraph (1), an annual premium in an amount that is at least 100 basis points greater than the annual premium payment that would otherwise be charged pursuant to section 203(c)(2)(B) with respect to the mortgage. (2)

Considerations

In setting the premium under this subsection, the Secretary shall consider— (A)the financial integrity of the Program; and (B)the purposes of the Program set forth in subsection (b). (i)

Origination fees and interest rate

The Secretary shall establish— (1)a reasonable limitation on origination fees for mortgages insured under this section; and (2)procedures to ensure that interest rates on such mortgages shall be commensurate with market rate interest rates on such types of loans. (j)

Default

Any mortgagor who defaults in repayment of a mortgage insured under this section shall not be eligible for any mortgage insurance provided by the Secretary for the 10-year period beginning upon such default. (k)

5-Year phase-In for equity as a result of sale or refinancing

For each mortgage insured under this section, the Secretary and the mortgagor of such mortgage shall, upon any sale or disposition of the property to which the mortgage relates, or upon the subsequent refinancing of such mortgage, be entitled to the following with respect to any equity created as a direct result of the mortgage being insured under this section: (1)If such sale or refinancing occurs during the period that begins on the date that such mortgage is insured and ends 1 year after such date of insurance, the Secretary shall be entitled to 100 percent of such equity. (2)If such sale or refinancing occurs during the period that begins 1 year after such date of insurance and ends 2 years after such date of insurance, the Secretary shall be entitled to 90 percent of such equity and the mortgagor shall be entitled to 10 percent of such equity. (3)If such sale or refinancing occurs during the period that begins 2 years after such date of insurance and ends 3 years after such date of insurance, the Secretary shall be entitled to 80 percent of such equity and the mortgagor shall be entitled to 20 percent of such equity. (4)If such sale or refinancing occurs during the period that begins 3 years after such date of insurance and ends 4 years after such date of insurance, the Secretary shall be entitled to 70 percent of such equity and the mortgagor shall be entitled to 30 percent of such equity. (5)If such sale or refinancing occurs during the period that begins 4 years after such date of insurance and ends 5 years after such date of insurance, the Secretary shall be entitled to 60 percent of such equity and the mortgagor shall be entitled to 40 percent of such equity. (6)If such sale or refinancing occurs during any period that begins 5 years after such date of insurance, the Secretary shall be entitled to 50 percent of such equity and the mortgagor shall be entitled to 50 percent of such equity. (l)

Limitation on aggregate insurance authority

The aggregate original principal obligation of all mortgages insured under this section may not exceed $200,000,000,000. (m)

Reports by Secretary

The Secretary shall submit monthly reports to the Congress identifying the progress of the Program, which shall contain the following information for each month: (1)The number of new mortgages insured under this section, including the location of the properties subject to such mortgages by census tract. (2)The aggregate principal obligation of new mortgages insured under this section. (3)The amount of premiums collected for insurance of mortgages under this section. (4)The claim and loss rates for mortgages insured under this section. (5)Any other information that the Secretary considers appropriate.

Upon submitting each monthly report required under this subsection, the Secretary shall make such report publicly available on the World Wide Web site of the Department of Housing and Urban Development.

(n)

Required outreach efforts

The Secretary shall carry out outreach efforts to ensure that homeowners, lenders, and the general public are aware of the opportunities for assistance available under this section. (o)

Enhancement of FHA capacity

The Secretary shall take such actions as may be necessary to— (1)contract for the establishment of underwriting criteria, automated underwriting systems, pricing standards, and other factors relating to eligibility for mortgages insured under this section; (2)contract for independent quality reviews of underwriting, including appraisal reviews and fraud detection, of mortgages insured under this section or pools of such mortgages; and (3)increase personnel of the Department as necessary to process or monitor the processing of mortgages insured under this section. (p)

GNMA commitment authority

(1)

Guarantees

The Secretary shall take such actions as may be necessary to ensure that securities based on and backed by a trust or pool composed of mortgages insured under this section are available to be guaranteed by the Government National Mortgage Association as to the timely payment of principal and interest. (2)

Guarantee authority

To carry out the purposes of section 306 of the National Housing Act (12 U.S.C. 1721), the Government National Mortgage Association may enter into new commitments to issue guarantees of securities based on or backed by mortgages insured under this section, not exceeding $200,000,000,000. The amount of authority provided under the preceding sentence to enter into new commitments to issue guarantees is in addition to any amount of authority to make new commitments to issue guarantees that is provided to the Association under any other provision of law. (q)

Sunset

The Secretary may not enter into any new commitment to insure any mortgage pursuant to this section before October 1, 2012 or after September 30, 2015. (r)

Rule of construction relating to voluntary nature of Program

This section shall not be construed to require that any financial institution or mortgagee approved by the Secretary under section 203 as responsible and able to service mortgages responsibly participate in any activity authorized under this section. (s)

Rule of Construction Relating to Insurance of Mortgages

Except as otherwise provided for in this section or by action of the Secretary, the provisions and requirements of section 203(b) shall apply with respect to the insurance of any mortgage under this section. The Secretary shall conform documents, forms, and procedures for mortgages insured under this section to those in place for mortgages insured under section 203(b) to the maximum extent possible consistent with the requirements of this section.