[Congressional Record Volume 146, Number 98 (Tuesday, July 25, 2000)]
[Senate]
[Pages S7543-S7544]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. ALLARD (for himself and Mr. Gramm):
  S. 2914. A bill to amend the National Housing Act to require partial 
rebates of FHA mortgage insurance premiums to certain mortgagors upon 
payment of their FHA-insured mortgages; to the Committee on Banking, 
Housing, and Urban Affairs.


                     homeowners rebate act of 2000

  Mr. ALLARD. Mr. President, today I am introducing legislation to 
reduce the Federal Housing Administration (FHA) homeownership tax. I am 
joined in this effort by Senator Gramm of Texas, the chairman of the 
Banking Committee. This legislation was introduced earlier in the month 
by Congressman Rick Lazio of New York. Congressman Lazio chairs the 
House Subcommittee on Housing and Community Opportunity.
  This homeownership tax comes in the form of excess premiums paid by 
those who have FHA insured mortgages on their properties. The FHA 
Mutual Mortgage Insurance Fund (MMI fund) collects mortgage insurance 
premiums in order to cover any losses to the government that result 
from FHA-insured mortgage defaults and to fund the administrative costs 
of the FHA program.
  FHA is an important program for first-time, low and moderate income, 
and minority homeowners. These families should not be overcharged in 
FHA premiums. Premiums in excess of an amount necessary to maintain an 
actuarially sound reserve ratio in the FHA Mutual Mortgage Insurance 
Fund can only be characterized as a tax on homeownership. The Congress 
has determined that a capital reserve ratio of 2 percent of the MMI 
fund's amortized insurance-in-force is necessary to ensure the safety 
and soundness of the MMI fund. According to the Department of Housing 
and Urban Development the FY 1999 capital reserve ratio is 3.66 percent 
and is estimated to rise to over 3.8 percent in FY 2000, nearly twice 
the reserve ratio mandated by Congress.
  The FHA single family mortgage program was designed to operate as a 
mutual insurance program where homeowners were granted rebates of 
excess premiums. This rebate program was suspended at the direction of 
Congress in 1990 when the MMI fund was in the red--with the intent that 
the payment of distributive shares or rebates would resume when the 
Fund was again financially sound. Since 1990 a number of steps have 
been taken to strengthen the FHA program. The premiums were increased 
(Congress mandated the addition of a risk-based annual premium to the 
one-time, up front premium), downpayment requirements were improved, 
oversight by HUD and the Congress was strengthened, and Congress 
mandated the minimum 2 percent capital reserve ratio. With a capital 
reserve ratio nearly twice that mandated by the Congress it is time to 
resume rebates and return the MMI program to its prior status as a 
mutual insurance fund. This legislation restores the rebates for 
mortgages insured for 7 years or more and paid off subsequent to the 
1990 rebate suspension.
  The legislatively mandated improvements in the FHA program have 
certainly been partially responsible for the strength of the MMI fund. 
But another major reason for this strength is the fact that we have 
experienced a near perfect economy in recent years. I recognize that 
this will not always be the case. We should therefore proceed carefully 
when we propose to lower or rebate premiums. This legislation takes the 
cautious approach of providing for rebates only when the reserve ratio 
is in excess of 3 percent, or 150 percent of the reserve level mandated 
by Congress. If the capital reserve ratio drops below 3 percent, the 
rebates will be suspended. The legislation also requires that the 
General Accounting Office evaluate the adequacy of the 2 percent 
capital reserve ratio for ensuring the safety and soundness of the MMI 
fund and make a recommendation to Congress regarding the most 
appropriate reserve ratio at which to trigger future premium rebates.
  I invite my colleagues to review this important legislation and join 
with me in reducing this tax on homeownership. By enacting this 
homeownership rebate we will continue to help make homeownership 
affordable for more and more Americans.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record following this statement.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2914

       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 ``Homeowners Rebate Act of 
     2000''.

     SEC. 2. PAYMENT OF DISTRIBUTIVE SHARES FROM MUTUAL MORTGAGE 
                   INSURANCE FUND RESERVES.

       (a) In General.--Section 205(c) of the National Housing Act 
     (12 U.S.C. 1711(c)) is amended to read as follows:
       ``(c) Distribution of Reserves.--Upon termination of an 
     insurance obligation of the Mutual Mortgage Insurance Fund by 
     payment of the mortgage insured thereunder, if the Secretary 
     determines (in accordance with subsection (e)) that there is 
     a surplus for distribution under this section to mortgagors, 
     the Participating Reserve Account shall be subject to 
     distribution as follows:
       ``(1) Required distribution.--In the case of a mortgage 
     paid after November 5, 1990, and

[[Page S7544]]

     insured for 7 years or more before such termination, the 
     Secretary shall distribute to the mortgagor a share of such 
     Account in such manner and amount as the Secretary shall 
     determine to be equitable and in accordance with sound 
     actuarial and accounting practice, subject to paragraphs (3) 
     and (4).
       ``(2) Discretionary distribution.--In the case of a 
     mortgage not described in paragraph (1), the Secretary is 
     authorized to distribute to the mortgagor a share of such 
     Account in such manner and amount as the Secretary shall 
     determine to be equitable and in accordance with sound 
     actuarial and accounting practice, subject to paragraphs (3) 
     and (4).
       ``(3) Limitation on amount.--In no event shall the amount 
     any such distributable share exceed the aggregate scheduled 
     annual premiums of the mortgagor to the year of termination 
     of the insurance.
       ``(4) Application requirement.--The Secretary shall not 
     distribute any share to an eligible mortgagor under this 
     subsection beginning on the date which is 6 years after the 
     date that the Secretary first transmitted written 
     notification of eligibility to the last known address of the 
     mortgagor, unless the mortgagor has applied in accordance 
     with procedures prescribed by the Secretary for payment of 
     the share within the 6-year period. The Secretary shall 
     transfer from the Participating Reserve Account to the 
     General Surplus Account any amounts that, pursuant to the 
     preceding sentence, are no longer eligible for 
     distribution.''.
       (b) Determination of Surplus.--
       (1) In general.--Section 205(e) of the National Housing Act 
     (12 U.S.C. 1711(e)) is amended by adding at the end the 
     following: ``Notwithstanding any other provision of this 
     section, if, at the time of such a determination, the capital 
     ratio (as defined in subsection (f)) for the Fund is 3.0 
     percent or greater, the Secretary shall determine that there 
     is a surplus for distribution under this section to 
     mortgagors.''.
       (2) GAO report.--Not later than 1 year after the date of 
     enactment of this Act, the Comptroller General shall submit a 
     report to the Congress that evaluates the adequacy of the 
     capital ratio requirement under section 205(f)(2) of the 
     National Housing Act (12 U.S.C. 1711(f)(2)) for ensuring the 
     safety and soundness of the Mutual Mortgage Insurance Fund. 
     Such report shall also evaluate the adequacy of the capital 
     ratio level established under section 205(e)(1) of the 
     National Housing Act, as amended by paragraph (1) of this 
     section and shall include a recommendation of a capital ratio 
     level that, if made effective under such section upon the 
     expiration of the 2-year period beginning on the date of 
     enactment of this Act, would provide for distributions of 
     shares under section 205(c) of such Act in a manner adequate 
     to ensure the safety and soundness of such Fund.
       (c) Retroactive Payments.--
       (1) Timing.--Not later than 3 months after the date of 
     enactment of this Act, the Secretary of Housing and Urban 
     Development shall determine the amount of each distributable 
     share for each mortgage described in paragraph (2) to be paid 
     and shall make payment of such share.
       (2) Mortgages covered.--A mortgage described in this 
     paragraph is a mortgage for which--
       (A) the insurance obligation of the Mutual Mortgage 
     Insurance Fund was terminated by payment of the mortgage 
     before the date of enactment of this Act;
       (B) a distributable share is required to be paid to the 
     mortgagor under section 205(c)(1) of the National Housing Act 
     (12 U.S.C. 1711(c)(1)), as amended by subsection (a) of this 
     section; and
       (C) no distributable share was paid pursuant to section 
     205(c) of the National Housing Act upon termination of the 
     insurance obligation of such Fund.
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