II 112th CONGRESS 1st Session S. 1997 IN THE SENATE OF THE UNITED STATES December 15, 2011 Mr. Vitter (for himself, Mr. Crapo, Mr. Johanns, Mr. Toomey, Mr. DeMint, Mr. Paul, Mr. Risch, Mr. Cornyn, and Mr. Lee) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL To prohibit the Secretary of the Treasury from providing extra support to the Federal Housing Administration.

1.

Short title

This Act may be cited as the FHA Bailout Protection Act of 2011.

2.

Taxpayer protection at the FHA

(a)

Mutual Mortgage Insurance Fund

Section 205 of the National Housing Act (12 U.S.C. 1711) is amended by adding at the end the following: (g)

Taxpayer protection

(1)

In general

In order to protect the taxpayers of the United States from financial responsibility for any obligations of the Mutual Mortgage Insurance Fund (referred to in this subsection as the Fund), the Secretary shall take all available actions and use all available methods authorized under law to ensure that, not later than 2 years after the date of enactment of this subsection, the Fund attains the capital ratio required under subsection (f)(2) and to ensure that the Fund maintains a capital ratio that is not less than the capital ratio required under subsection (f)(2) thereafter, including— (A)the authority to increase insurance premiums charged under this title for mortgages that are obligations of the Fund; (B)the authority to establish more stringent underwriting standards for mortgages described in subparagraph (A); and (C)the authority to increase the amount of cash or its equivalent required to be paid on account of the property subject to a mortgage described in subparagraph (A). (2)

Use of authority to prevent bailout of fund

The Secretary shall take the actions required under paragraph (3), if— (A)the Fund fails to— (i)attain a capital ratio of 2 percent on the date described in paragraph (1); or (ii)maintain such capital ratio after the date described in paragraph (1); or (B)the expected claims rate of the Fund as set forth in the quarterly independent actuarial study required under section 202(a)(4) is 10.0 or higher. (3)

Required actions

The actions required under this paragraph are— (A)increasing the annual insurance premiums for mortgages that are obligations of the Fund to the maximum extent otherwise permitted under law, until the date on which the Fund achieves a capital ratio of 2 percent; and (B)until the date on which the Fund achieves a capital ratio of 2 percent, charging an additional risk-based annual insurance premium for mortgages that are obligations of the Fund having a loan-to-value ratio that is 95 percent or greater, in an amount that is— (i)proportionate to the risk the mortgages pose to the Fund; and (ii)consistent with the amount of insurance premiums charged by the private sector with respect to similar mortgages. . (b)

Indemnification by mortgagees

Section 202 of the National Housing Act (12 U.S.C. 1708) is amended by adding at the end the following: (i)

Indemnification by mortgagees

(1)

In general

If the Secretary determines that a mortgage executed by a mortgagee approved by the Secretary under the direct endorsement program or insured by a mortgagee pursuant to the delegation of authority under section 256 was not originated or underwritten 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 shall require the mortgagee approved by the Secretary under the direct endorsement program or the mortgagee delegated authority under section 256 to indemnify the Secretary for the loss. (2)

Fraud or misrepresentation

If fraud or misrepresentation was involved in connection with the origination or underwriting, the Secretary shall require the mortgagee approved by the Secretary under the direct endorsement program or the mortgagee delegated authority under section 256 to indemnify the Secretary for the loss regardless of when an insurance claim is paid. (3)

Requirements and procedures

The Secretary shall issue regulations establishing appropriate requirements and procedures governing the indemnification of the Secretary by the mortgagee, including public reporting on— (A)the number of loans that— (i)were not originated or underwritten in accordance with the requirements established by the Secretary; and (ii)involved fraud or misrepresentation in connection with the origination or underwriting; and (B)the financial impact on the Mutual Mortgage Insurance Fund when indemnification is required. . (c)

Early term delinquencies

Section 202(a) of the National Housing Act (12 U.S.C. 1708(a)) is amended by adding at the end the following: (8)

Indemnification

The Secretary shall take any actions required to seek indemnification for any early term delinquency on a mortgage which— (A)is an obligation of the Mutual Mortgage Insurance Fund; and (B)at the time of origination of the mortgage was not in compliance with any provision, regulation, or other guideline established or promulgated pursuant to this title. (9)

Programmatic review of delinquencies

The Secretary shall establish and maintain a program— (A)to review the cause of each early term delinquency on a mortgage described under paragraph (8); (B)to require indemnification of any such early term delinquency that did not meet the guidelines and requirements set forth pursuant to this section prior to origination; and (C)to publicly report— (i)the results of all early term delinquencies reviewed under subparagraph (A); and (ii)if indemnification is required under subparagraph (B), the financial impact on the Mutual Mortgage Insurance Fund of the indemnification. (10)

Definition of early term delinquency

For purposes of this section, the term early term delinquency means any loan that becomes delinquent or that is in default within 24 months of the origination of such loan. .

3.

Annual actuarial study and quarterly reports on Mutual Mortgage Insurance Fund

Section 202(a)(4) of the National Housing Act (12 U.S.C. 1708(a)(4)) is amended— (1)in the heading, by striking annual and inserting quarterly; (2)in the first sentence, by striking annually and inserting quarterly; (3)in the second sentence, by striking such studies and inserting each study conducted under the preceding sentence during the preceding year; and (4)by adding at the end the following: Each report shall include a calculation of the claims rate for the Fund for each of the 3 preceding quarters and the expected claims rate for the Fund for each of the 3 subsequent quarters..

4.

Prohibition on taxpayer bailout of FHA

Section 505(c) of the Federal Credit Reform Act of 1990 (2 U.S.C. 661d(c)) is amended— (1)by striking The Secretary of the Treasury shall borrow and inserting the following: (1)

In general

Except as provided in paragraph (2), the Secretary of the Treasury shall borrow ; and (2)by adding at the end the following: (2)

Exception

The Secretary of the Treasury may not enter into a transaction under this subsection with the Mutual Mortgage Insurance Fund established under section 202 of the National Housing Act (12 U.S.C. 1708). .