[Congressional Record Volume 147, Number 149 (Thursday, November 1, 2001)]
[Senate]
[Pages S11376-S11378]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. ALLARD:
  S. 1620. A bill to authorize the Government National Mortgage 
Association to guarantee conventional mortgage-backed securities, and 
for other purposes; to the Committee on Banking, Housing, and Urban 
Affairs.
  Mr. ALLARD. Mr. President, today I am pleased to introduce the Home 
Ownership Expansion Act of 2001. This legislation is designed to expand 
home ownership by increasing the supply of affordable mortgages 
available for home buyers. The legislation establishes a private-public 
partnership between mortgage providers and insurers and the Government 
National Mortgage Association, GNMA or Ginnie Mae.
  GNMA is a part of the Department of Housing and Urban Development, 
and its current business is limited to home loans that are insured only 
by government agencies. GNMA provides a guarantee to investors who 
purchase FHA and VA home loans that are bundled into securities. These 
securities are backed by the full faith and credit of the U.S. 
government.
  The Home Ownership Expansion Act of 2001 would authorize a new 
program that permits GNMA to guarantee securities that consist of 
mortgages insured by private mortgage insurance. Private insurance 
results in reduced risk to taxpayers which will in turn make more 
capital available for home mortgages.
  This new GNMA program would be targeted at first-time and middle 
income home buyers. The program would be limited to mortgages up to 
$275,000 and tailored to borrowers who have less than 20 percent down 
payments to put into homes. GNMA would benefit from the ability to 
compete for privately insured mortgage business. GNMA's income would 
increase through the program and GNMA would be strengthened by its 
ability to offer a greater variety of products to investors.
  By permitting GNMA to enter the secondary market for privately 
insured mortgages, the legislation would increase competition. Mortgage 
lenders would have a new entity to which they could sell their 
mortgages, and the number and variety of loan-approval systems at use 
in the low down payment mortgage market would increase. The 
beneficiaries of this increase in competition would be consumers who 
wish to purchase a home.
  Mr. President, the current rate of home ownership in the United 
States is 67 percent of households. This rate has risen steadily in 
recent decades and is great achievement for our nation. However, the 
rate of home ownership among minority families, entry level workers, 
and younger Americans remains much lower. This legislation is designed 
to further increase the home ownership rate by increasing the 
availability of affordable mortgages.
  The Home Ownership Expansion Act of 2001 would strengthen the 
Government National Mortgage Association. It would protect taxpayers by 
increasing private sector risk sharing on GNMA products. It would 
increase competition in the secondary mortgage market, helping to lower 
costs to consumers. And by increasing the use of varying underwriting 
systems it would help to qualify more first-time, middle income and 
minority home buyers. 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. 1620

       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 ``Home Ownership Expansion Act 
     of 2001''.

     SEC. 2. GNMA GUARANTEE OF SECURITIES BACKED BY CONVENTIONAL 
                   MORTGAGES.

       (a) Findings.--Congress finds that--
       (1) expanding home ownership is a national goal, and that 
     increasing the principal secondary market outlets for 
     conventional home mortgages will serve that goal by improving 
     the liquidity of investments in those mortgages; and
       (2) risk-sharing between the public sector and the private 
     mortgage insurance industry will provide consumers with 
     greater access to mortgage credit opportunities.
       (b) Authority to Guarantee Conventional Mortgage-Backed 
     Securities.--Section 306 of the National Housing Act (12 
     U.S.C. 1721) is amended by adding at the end the following:
       ``(h) GNMA Guarantee of Securities Backed by Conventional 
     Mortgages.--
       ``(1) In general.--The Association may guarantee the timely 
     payment of principal and interest on conventional mortgage-
     backed securities that are backed by qualifying privately 
     insured mortgages that are

[[Page S11377]]

     insured with primary mortgage insurance, extended mortgage 
     insurance, and supplemental mortgage insurance.
       ``(2) Premiums.--The issuer of securities guaranteed by the 
     Association under this subsection that are backed by 
     qualifying privately insured mortgages shall--
       ``(A) for primary mortgage insurance, collect from the 
     mortgagor, and remit to the qualified mortgage insurer, the 
     premium or premiums as may be established by the qualified 
     mortgage insurer in accordance with applicable Federal or 
     State law; and
       ``(B) for extended mortgage insurance and supplemental 
     mortgage insurance, pay and remit the premium or premiums to 
     the qualified mortgage insurer from the sums attributable to 
     the difference between the interest rates applicable to the 
     mortgages in the particular pool and the interest rate set 
     forth on the trust certificate or security guaranteed by the 
     Association based on and backed by such mortgages, and 
     without additional premium charge therefore to the mortgagor.
       ``(3) Disposition of property upon default.--Upon default 
     by a mortgagor of a mortgage guaranteed under this 
     subsection, the property covered by the mortgage shall be 
     disposed of by the issuer of the securities guaranteed under 
     this subsection or the qualified mortgage insurer in 
     accordance with the customary policies and procedures of that 
     issuer and insurer.
       ``(4) Authority.--As part of the authority provided to the 
     Association to issue guarantees under this subsection for 
     fiscal year 2002, the Association may, during fiscal year 
     2002, issue guarantees of the timely payment of principal and 
     interest on trust certificates or other securities based on 
     and backed by qualifying privately insured mortgages in an 
     aggregate amount equal to not more than $50,000,000,000.
       ``(5) Regulatory power of the secretary.--The Secretary 
     shall--
       ``(A) have authority to review and approve premiums and 
     other terms and conditions established for the primary 
     mortgage insurance covering the mortgages contained in the 
     trusts or pools guaranteed by the Association under this 
     subsection, and shall have the authority to approve 
     participation in the program based on safety and soundness;
       ``(B) prescribe such rules and regulations as shall be 
     necessary and proper to ensure that the purposes of the Home 
     Ownership Expansion Act of 2001 are accomplished.
       ``(i) Definitions.--As used in this section:
       ``(1) Conventional mortgage limit.--The term `conventional 
     mortgage limit' means the greater of the applicable maximum 
     original principal obligation of conventional mortgages 
     established by--
       ``(A) the Federal National Mortgage Association, pursuant 
     to section 302(b)(2); or
       ``(B) the Federal Home Loan Mortgage Corporation, pursuant 
     to section 305(a)(2) of the Federal Home Loan Mortgage 
     Corporation Act (12 U.S.C. 1454(a)(2)).
       ``(2) Coverage percentage.--The term `coverage percentage' 
     means the percentage of the total of the outstanding 
     principal balance on a mortgage, and accrued interest, 
     advances, and reasonable expenses related to property 
     preservation and foreclosure, that is subject to payment in 
     the event of a claim under a policy of primary mortgage 
     insurance on a qualifying privately insured mortgage.
       ``(3) Extended mortgage insurance.--The term `extended 
     mortgage insurance' means insurance that--
       ``(A) is issued by a qualified mortgage insurer;
       ``(B) guarantees and insures against losses on the 
     mortgage;
       ``(C) has the same coverage percentage and other 
     substantially similar terms and conditions as the primary 
     mortgage insurance for the mortgage;
       ``(D) becomes effective upon mandatory cancellation or 
     termination of the primary mortgage insurance, and remains in 
     effect until the mortgage is paid in full; and
       ``(E) is not subject to mandatory cancellation or 
     termination.
       ``(4) Mandatory cancellation or termination.--The term 
     `mandatory cancellation or termination' means cancellation or 
     termination of mortgage insurance, as provided in section 3 
     of the Homeowners Protection Act of 1998 (12 U.S.C. 4902) or 
     by a protected State law, as defined in section 9 of that 
     Act.
       ``(5) Primary mortgage insurance.--The term `primary 
     mortgage insurance' means insurance that--
       ``(A) is issued by a qualified mortgage insurer;
       ``(B) guarantees and insures against losses on the 
     mortgage, under standard terms and conditions generally 
     offered in the private mortgage guaranty insurance industry;
       ``(C) has a coverage percentage equal to--
       ``(i) not less than 12 percent, if the principal-to-value 
     ratio is greater than 80 percent and not greater than 85 
     percent;
       ``(ii) not less than 25 percent, if the principal-to-value 
     ratio is greater than 85 percent and not greater than 90 
     percent;
       ``(iii) not less than 30 percent, if the principal-to-value 
     ratio is greater than 90 percent and not greater than 95 
     percent; and
       ``(iv) not less than 35 percent, if the principal-to-value 
     ratio is greater than 95 percent; and
       ``(D) may be canceled or terminated by the mortgagor, 
     issuer, or qualified mortgage insurer only pursuant to 
     mandatory cancellation or termination.
       ``(6) Principal-to-value ratio.--The term `principal-to-
     value ratio' means the ratio of the original outstanding 
     principal balance of a first mortgage to the value of the 
     property securing the mortgage, as established at the time of 
     origination by appraisal or other reliable indicia of 
     property, conducted or performed not earlier than 6 months 
     before the date of origination, and not later than that date 
     of origination.
       ``(7) Qualified mortgage insurer.--The term `qualified 
     mortgage insurer' means a provider of private mortgage 
     insurance, as defined in section 2 of the Homeowners 
     Protection Act of 1998 (12 U.S.C. 4901), that--
       ``(A) is authorized and licensed by a State or an 
     instrumentality of a State to transact private mortgage 
     insurance business in the State in which the provider is 
     transacting that business, excluding any entity that is 
     exempt from State licensing requirements;
       ``(B) is rated in 1 of the 2 highest rating categories by 
     not less than 1 nationally recognized statistical rating 
     organization; and
       ``(C) meets such additional qualifications as may be 
     determined by the Association.
       ``(8) Qualifying privately insured mortgage.--The term 
     `qualifying privately insured mortgage' means a first 
     mortgage--
       ``(A) that is not--
       ``(i) insured under title II of this Act, except as 
     specifically provided in this section;
       ``(ii) insured under title V of the Housing Act of 1949 (42 
     U.S.C. 1471 et seq.);
       ``(iii) insured or guaranteed under chapter 37 of title 38, 
     United States Code; or
       ``(iv) made or guaranteed under part B of title V of the 
     Public Health Service Act (42 U.S.C. 290bb et seq.);
       ``(B) that--
       ``(i) is secured by property comprising 1-to-4 family 
     dwelling units;
       ``(ii) has a term of not longer than 30 years;
       ``(iii) has a principal-to-value ratio of more than 80 
     percent; and
       ``(iv) has an original principal obligation that does not 
     exceed the conventional mortgage limit;
       ``(C) not more than 1 payment of which has been delinquent 
     by more than 30 days, and no payment of which has been 
     delinquent by more than 60 days, during the 12-month period 
     immediately preceding the time of guarantee; and
       ``(D) that is covered by primary mortgage insurance, 
     extended mortgage insurance, and supplemental mortgage 
     insurance.
       ``(9) Supplemental mortgage insurance.--The term 
     `supplemental mortgage insurance' means insurance that--
       ``(A) is issued by a qualified mortgage insurer;
       ``(B) guarantees and insures against losses on the mortgage 
     under such terms and conditions as are reasonably acceptable 
     to the Association;
       ``(C) becomes effective on the date on which the guaranty 
     becomes effective; and
       ``(D) terminates as if subject to automatic termination 
     under section 3(b) of the Homeowners Protection Act of 1998 
     (12 U.S.C. 4902(b)), subject to the conditions stated in that 
     section, or when the mortgage is paid in full, whichever 
     occurs first.
       ``(10) Trust or pool.--A trust or pool referred to in this 
     section means a trust or pool composed only of--
       ``(A) qualifying privately insured mortgages; or
       ``(B) mortgages insured under title II.''.
       (c) Guaranty Fee.--Section 306(g)(3)(A) of the National 
     Housing Act (12 U.S.C. 1721(g)(3)(A)) is amended--
       (1) by inserting ``(i)'' after ``(A)''; and
       (2) by adding at the end the following:
       ``(ii) The Association shall assess and collect a fee in an 
     amount equal to not more than 8 basis points, as determined 
     by the Secretary, in order to generate revenues to the 
     Federal Government in excess of the cost to the Federal 
     Government, as defined in section 502 of the Federal Credit 
     Reform Act of 1990 (2 U.S.C. 661a), of the guaranty of the 
     timely payment of principal and interest on trust 
     certificates or other securities based on or backed by 
     qualifying privately insured mortgages under subsection 
     (h).''.
       (d) Voluntary Program Participation; No Federal Contractor 
     Status.--Section 306(g) of the National Housing Act (12 
     U.S.C. 1721(g)) is amended by adding at the end the 
     following:
       ``(4) Nothing in this subsection shall be construed to 
     require any issuer to issue any trust certificate or security 
     that is based on and backed by a trust or pool composed of 
     qualifying privately insured mortgages.
       ``(5) Notwithstanding any other provision of law, a 
     qualified mortgage insurer that participates in the guarantee 
     program under subsection (h) shall not be considered, by 
     virtue of such participation, as entering into a contract 
     with any Federal department or agency, or participating in 
     any program or activity receiving Federal financial 
     assistance, or participating in any program or activity 
     conducted by any Federal department or agency. Nothing in 
     this paragraph is intended to deny or otherwise affect the 
     rights of the Association as the assignee, holder, or 
     beneficiary of a mortgage insurance contract.''.
       (e) Reinsurer Ratings Requirements.--Section 306(g) of the 
     National Housing Act (12 U.S.C. 1721(g)), as amended by this 
     Act, is amended by adding at the end the following:
       ``(6) A qualified mortgage insurer may not reinsure any 
     portion of its obligations under subsection (h) with any 
     reinsurance that--
       ``(A) is not rated in 1 of the 2 highest rating categories 
     by not less than 1 nationally recognized statistical rating 
     organization; or
       ``(B) fails to meet such other requirements as the 
     Secretary may deem appropriate.''.

[[Page S11378]]

     SEC. 3. CONFORMING AMENDMENTS.

       (a) Guarantees.--Section 306(g)(1) of the National Housing 
     Act (12 U.S.C. 1721(g)(1)) is amended--
       (1) by inserting ``or subsection (h)'' after the term 
     ``this subsection'' each place it appears;
       (2) by inserting ``(A)'' after ``(1)'';
       (3) by striking ``The Association shall collect'' and 
     inserting the following:
       ``(B) The Association shall collect'';
       (4) by striking ``In the event'' and inserting the 
     following:
       ``(C) In the event'';
       (5) by striking ``In any case'' and inserting the 
     following:
       ``(D) In any case'';
       (6) in subparagraph (D), as so designated by paragraph (4) 
     of this subsection--
       (A) by striking ``(I)'' and inserting ``(i)'';
       (B) by striking ``(II)'' and inserting ``(ii)''; and
       (C) by striking ``(III)'' and inserting ``(iii)'';
       (7) by striking ``The Association is hereby empowered,'' 
     and all that follows through ``against which the guaranteed 
     securities are issued.'' and inserting the following:
       ``(E)(i) The Association may, in connection with any 
     guaranty under this subsection or subsection (h), whether 
     before or after any default by the issuer or any default by 
     the qualified mortgage insurer (in the case of securities 
     based on and backed by qualifying privately insured 
     mortgages)--
       ``(I) provide by contract with the issuer for the 
     extinguishment, upon default by the issuer, of any 
     redemption, equitable, legal, or other right, title, or 
     interest of the issuer in any mortgage or mortgages 
     constituting the trust or pool against which the guaranteed 
     securities are issued; or
       ``(II) provide by contract with the qualified mortgage 
     insurer for the extinguishment, upon default by the qualified 
     mortgage insurer, of any redemption, equitable, legal, or 
     other right, title, or interest of the qualified mortgage 
     insurer in such mortgage or mortgages, as well as any related 
     primary mortgage insurance, extended mortgage insurance, or 
     supplemental mortgage insurance coverage or any future 
     premiums and proceeds related thereto.
       ``(ii) With respect to any issue of guaranteed securities--
       ``(I) in the event of default by the issuer, and pursuant 
     otherwise to the terms of the contract, the mortgages that 
     constitute the trust or pool referred to in clause (i) shall 
     become the absolute property of the Association, subject only 
     to the unsatisfied rights of the holders of the securities 
     based on and backed by that trust or pool; and
       ``(II) in the event of default by the qualified mortgage 
     insurer, and pursuant otherwise to the terms of the contract, 
     any right of the qualified mortgage insurer with respect to 
     the mortgages that constitute such trust or pool and any 
     related primary mortgage insurance, extended mortgage 
     insurance, or supplemental mortgage insurance coverage and 
     any future premiums and proceeds related thereto shall become 
     the absolute property of the Association, subject only to the 
     unsatisfied rights of the holders of the securities based on 
     and backed by such trust or pool and to the unsatisfied 
     rights of any insured issuer with respect to any mortgage 
     insurance coverage.
       ``(F) No State, local, or Federal law (other than a Federal 
     statute enacted expressly in limitation of this subsection 
     after the date of enactment of the Home Ownership Expansion 
     Act of 2001), shall preclude or limit the exercise by the 
     Association of--
       ``(i) its power to contract with the issuer, or the 
     qualified mortgage insurer on the terms stated in 
     subparagraph (E);
       ``(ii) its rights to enforce any such contract with the 
     issuer or the qualified mortgage insurer; or
       ``(iii) its ownership rights, as provided in subparagraph 
     (E), with respect to the mortgages constituting the trust or 
     pool against which the guaranteed securities are issued, and 
     with respect to any related primary mortgage insurance, 
     extended mortgage insurance, or supplemental mortgage 
     insurance coverage and any future premiums and proceeds 
     related thereto.'';
       (8) by striking ``The full faith'' and inserting the 
     following:
       ``(G) The full faith''; and
       (9) by striking ``There shall be'' and inserting the 
     following:
       ``(H) There shall be''.
       (b) Separate Accountability.--Section 307 of the National 
     Housing Act (12 U.S.C. 1722) is amended--
       (1) by striking ``All'' and inserting ``(a) In General.--
     All''; and
       (2) by adding at the end the following:
       ``(b) Limitation.--Notwithstanding subsection (a), with 
     respect to qualifying privately insured mortgages (as defined 
     in section 306(i)), related earnings described in subsection 
     (a) of this section or other amounts as become available 
     after such allowances and as are attributable to the fees and 
     charges assessed or collected in connection with the guaranty 
     of trust certificates or securities based on or backed by 
     such qualifying privately insured mortgages shall inure to 
     the benefit of and may be retained by the Secretary in 
     support of programs under titles II and III of this Act.''.

     SEC. 4. IMPLEMENTATION AND REPORT.

       (a) In General.--The Government National Mortgage 
     Association shall provide for the initial implementation of 
     this Act and the amendments made by this Act by--
       (1) giving notice to its participating issuers; and
       (2) submitting a report to the Chairpersons and Ranking 
     Members of the Committee on Banking, Housing, and Urban 
     Affairs of the Senate, and the Committee on Financial 
     Services of the House of Representatives, that confirms that 
     the authority of the Secretary of Housing and Urban 
     Development under section 306(h)(5) of the National Housing 
     Act, as added by this Act, does not adversely impact the 
     safety and soundness of the Government National Mortgage 
     Association.
       (b) Publication.--The notice required by subsection (a) 
     shall be published not later than 120 days after the date of 
     enactment of this Act.
       (c) Report.--The report submitted in accordance with 
     subsection (a) shall include an economic analysis of the 
     adequacy of the guarantee fee provided for in section 
     306(g)(3)(A)(ii) of the National Housing Act, as added by 
     this Act.
                                 ______