[Congressional Record Volume 147, Number 40 (Friday, March 23, 2001)]
[Senate]
[Pages S2830-S2831]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. ALLARD (for himself and Mr. Gramm):
  S. 607. 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.
  Mr. ALLARD. Mr. President, I rise today to introduce legislation to 
direct the Secretary of Housing and Urban Development to reinstate 
distributive shares for excess amounts in the Federal Housing 
Administration, FHA, insurance fund.
  FHA provides an important program for first time, low- and moderate-
income, and minority homeowners. These families should not be 
overcharged on FHA premiums. Premiums in excess of an amount necessary 
to maintain an actuarially sound reserve ratio in the FHA Mutual 
Mortgage Insurance, MMI, Fund can only be characterized as a tax on 
homeownership.
  On the other hand, Congress, in conjunction with the Department of 
Housing and Urban Development, must ensure that FHA stays healthy, so 
that it can continue to function as an important source of 
homeownership. The Congress has previously 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. 
However, it has never been clear how the Congress arrived at that 
number.
  Last year, the accounting firm of Deloitte & Touche found that the 
capital adequacy ratio of the fund was 3.66 percent, far in excess of 
the Congressionally mandated goal of 2 percent. While it is important 
for Congress to know the capital adequacy ratio, it is just as 
important to understand the implications of the ratio and whether a 2 
percent reserve is sufficient.
  In order to get a better handle on this issue I requested that the 
General Accounting Office look into the matter, and earlier this week I 
held a hearing of the Subcommittee on Housing and Transportation to 
examine their findings. GAO's report finds that the current reserve is 
adequate to withstand all but the most serious economic scenarios. 
However, GAO also sounds a note of caution. Economic conditions can 
quickly change, thus changing the value of the fund and the level of 
reserve.
  I believe that the most prudent court of action is for the Congress 
to increase the reserve requirement to either 2.5 percent or 3 percent 
of the insurance in force, and then direct the Department to reinstate 
distributive shares whenever the reserve fund becomes excessive. 
Therefore, I am reintroducing legislation that would require partial 
rebates of FHA mortgage insurance premiums to certain mortgagors upon 
repayment of their FHA insured mortgages. My legislation takes the 
cautious approach of providing rebates only when the reserve ratio is 
in excess of 3 percent, or 150 percent of the reserve level currently 
mandated by Congress. If the reserve ratio drops below 3 percent, 
distributive shares would be suspended. Of course this rebate would be 
based on sound actuarial and accounting practice since a major reason 
for the strength in the fund is that fact that we have experienced a 
near perfect economy in recent years.
  The FHA single family mortgage program was designed to operate as a 
mutual insurance program where homeowners were granted rebates in 
excess of premiums required to maintain actuarial soundness. 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. With a sufficient capital reserve ratio, it is time 
to resume rebates and return the MMI program to its prior status as a 
mutual insurance fund.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 607

       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 
     2001''.

     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

[[Page S2831]]

     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 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 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.--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.''.
       (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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