[Congressional Record Volume 148, Number 47 (Wednesday, April 24, 2002)]
[Senate]
[Pages S3308-S3310]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SARBANES (for himself, Mr. Ensign, Mr. Schumer, Mr. 
        Corzine, Mr. Allard, Mr. Carper, Mr. Bunning, Mrs. Clinton, Mr. 
        Torricelli, and Mr. Santorum):
  S. 2239. A bill to amend the National Housing Act to simplify the 
downpayment requirements for FHA mortgage insurance for single family 
homebuyers; to the Committee on Banking, Housing, and Urban Affairs.
  Mr. SARBANES. Madam President, today I am introducing the ``FHA 
Downpayment Simplification Act of 2002'' with a number of my 
colleagues. As the list of original cosponsors indicates, this piece of 
legislation has broad, bipartisan support. This is because the Federal 
Housing Administration, FHA, has long been a tool to increase 
homeownership in America.
  Since its inception in 1934, the FHA has helped millions of American 
families achieve the dream of homeownership. Currently, FHA accounts 
for about 20 percent of the mortgage market. However, FHA is even more 
important to first time homebuyers, buyers with lower incomes, and 
minority homebuyers, many of whom have not been well served by the 
traditional marketplace. For these borrowers, FHA is the ticket to the 
American dream.
  Indeed, the very strong economy helped raise overall homeownership 
rates through the 1990s to historically high levels, both for the 
population as a whole and among underserved buyers. By 1999, 
homeownership increased to 66.8 percent. But it was the FHA that helped 
ensure those benefits were widely available.
  For example, according to data provided by the Department of Housing 
and Urban Development, HUD, first time homebuyers accounted for 82 
percent of all FHA loans in the year 2000; almost half of FHA-insured 
loans went to low-income borrowers in metropolitan areas; and over one-
third of FHA loans went to African-American and Hispanic borrowers. In 
each case, FHA played a more significant role than the conventional 
market.
  The role played by FHA in spreading the benefits of homeownership to 
a broader range of Americans is the central reason my colleagues and I 
believe it is important to renew and make permanent the law authorizing 
the streamlined downpayment calculation for all FHA single family 
insured loans. The streamlined downpayment, which is current law, was 
initially tried as a pilot in Hawaii and Alaska in 1996 before being 
extended nationwide in 1998. It was subsequently reauthorized again 
until the end of this year. Without Congressional action, the law will 
expire, resulting in higher costs for millions of Americans seeking the 
benefits of homeownership.
  The streamlined downpayment process, as its name implies, is 
relatively simple and straightforward. The buyer puts down at least 3 
percent of the acquisition cost of the home. The acquisition cost 
includes both the sales price and the closing costs. The old system 
required different downpayment rates for each portion of a mortgage. 
This approach is complex, multi-step calculation that often confused 
consumers, realtors, and lenders alike, and resulted in higher overall 
closing costs for the consumer.
  For example, for a property with a sales price of $150,000 and $3,000 
in closing costs, the streamlined approach that would be continued by 
this legislation would save the borrower almost

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$2,200 in closing costs. For a more modest home costing $100,000 with 
$2,000 in closing costs, the savings would be about $350 over the old 
system.
  The streamlined FHA downpayment process has been working extremely 
well. That is why both the National Association of Realtors and the 
Mortgage Bankers Association of America support this legislation. 
Promoting homeownership is an important value that all of us have 
supported through the years. Passing this legislation is one way to 
help more and more Americans achieve this important goal.
  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. 2239

       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 ``FHA Downpayment 
     Simplification Act of 2002''.

     SEC. 2. DOWNPAYMENT SIMPLIFICATION.

       Section 203 of the National Housing Act (12 U.S.C. 1709) is 
     amended--
       (1) in subsection (b)--
       (A) by striking ``shall--'' and inserting ``shall comply 
     with the following:'';
       (B) in paragraph (2)--
       (i) in subparagraph (A), in the matter that precedes clause 
     (ii), by moving the margin 2 ems to the right;
       (ii) in the undesignated matter immediately following 
     subparagraph (B)(iii)--

       (I) by striking the second and third sentences of such 
     matter; and
       (II) by striking the sixth sentence (relating to the 
     increases for costs of solar energy systems) and all that 
     follows through the end of the last undesignated paragraph 
     (relating to disclosure notice); and

       (iii) by striking subparagraph (B) and inserting the 
     following:
       ``(B) not to exceed an amount equal to the sum of--
       ``(i) the amount of the mortgage insurance premium paid at 
     the time the mortgage is insured; and
       ``(ii) in the case of--

       ``(I) a mortgage for a property with an appraised value 
     equal to or less than $50,000, 98.75 percent of the appraised 
     value of the property;
       ``(II) a mortgage for a property with an appraised value in 
     excess of $50,000 but not in excess of $125,000, 97.65 
     percent of the appraised value of the property;
       ``(III) a mortgage for a property with an appraised value 
     in excess of $125,000, 97.15 percent of the appraised value 
     of the property; or
       ``(IV) notwithstanding subclauses (II) and (III), a 
     mortgage for a property with an appraised value in excess of 
     $50,000 that is located in an area of the State for which the 
     average closing cost exceeds 2.10 percent of the average, for 
     the State, of the sale price of properties located in the 
     State for which mortgages have been executed, 97.75 percent 
     of the appraised value of the property.'';

       (C) by transferring and inserting the text of paragraph 
     (10)(B) after the period at the end of the first sentence of 
     the undesignated paragraph that immediately follows paragraph 
     (2)(B) (relating to the definition of ``area''); and
       (D) by striking paragraph (10); and
       (2) by inserting after subsection (e), the following:
       ``(f) Disclosure of Other Mortgage Products.--
       ``(1) In general.--In conjunction with any loan insured 
     under this section, an original lender shall provide to each 
     prospective borrower a disclosure notice that provides a 1-
     page analysis of mortgage products offered by that lender and 
     for which the borrower would qualify.
       ``(2) Notice.--The notice required under paragraph (1) 
     shall include--
       ``(A) a generic analysis comparing the note rate (and 
     associated interest payments), insurance premiums, and other 
     costs and fees that would be due over the life of the loan 
     for a loan insured by the Secretary under subsection (b) with 
     the note rates, insurance premiums (if applicable), and other 
     costs and fees that would be expected to be due if the 
     mortgagor obtained instead other mortgage products offered by 
     the lender and for which the borrower would qualify with a 
     similar loan-to-value ratio in connection with a conventional 
     mortgage (as that term is used in section 305(a)(2) of the 
     Federal Home Loan Mortgage Corporation Act (12 U.S.C. 
     1454(a)(2)) or section 302(b)(2) of the Federal National 
     Mortgage Association Charter Act (12 U.S.C. 1717(b)(2)), as 
     applicable), assuming prevailing interest rates; and
       ``(B) a statement regarding when the requirement of the 
     mortgagor to pay the mortgage insurance premiums for a 
     mortgage insured under this section would terminate, or a 
     statement that the requirement shall terminate only if the 
     mortgage is refinanced, paid off, or otherwise terminated.''.

     SEC. 3. CONFORMING AMENDMENTS.

       Section 245 of the National Housing Act (12 U.S.C. 1715z-
     10) is amended--
       (1) in subsection (a), by striking ``, or if the 
     mortgagor'' and all that follows through ``case of 
     veterans''; and
       (2) in subsection (b)(3), by striking ``, or, if the'' and 
     all that follows through ``for veterans,''.

  Mr. ENSIGN. Madam President, I rise today, along with the senior 
Senator from Maryland, Mr. Sarbanes, to introduce a bill that will help 
thousands of Americans achieve the dream of homeownership.
  Homeownership is the primary source of a household's net worth and 
the fundamental first step toward accumulating personal wealth. It is 
also one of the greatest driving forces to a healthy economy for our 
Nation. Congress must work hard to produce public policies that promote 
homeownership to further America's growth and prosperity. This 
legislation does just that.
  The legislation we are introducing today will make permanent an 
existing down payment simplification program that created a simplified 
formula to determine the proper down payment for FHA loans. This 
program has become an invaluable tool for helping thousands of families 
achieve the American dream of buying their first home. This bill will 
permanently eliminate the burdensome and unnecessary formulas 
previously used to determine the proper down payment for FHA loans, and 
will also lower the size of necessary down payments.
  The simplified calculation was begun as a pilot program in 1996 in 
Hawaii and Alaska. It proved so easy and successful that it was 
temporarily extended nationwide in 1998. In 2000, the calculation was 
re-extended 27 months, to December 31, 2002. Unless Congress extends 
the program, home buyers will be required to use the old, complicated 
and confusing method of calculating the appropriate down payment 
amounts for all loans after December 31.
  To help my colleagues understand the importance of making this 
program permanent, I should explain the basic difference between the 
two formulas.
  Under the down payment simplification program, FHA borrowers must 
make cash contributions of at least 3 percent of the acquisition cost, 
including closing costs of the loan. It is that simple.
  Under the old formula, different down payment rates were required for 
each portion of a mortgage. For example, if the acquisition cost of the 
home is $150,000, the borrower would have to pay 3 percent on the first 
$25,000, 5 percent on the next $100,000 and 10 percent on the final 
$25,000. And that's not all. There is also another set of calculations 
done based on the appraised value of the home to determine the maximum 
allowable mortgage in any transaction.
  Clearly, the streamlined formula is a far more simple process. In the 
end, the down payment simplification process results in lowering the 
amount of the down payment necessary to purchase a FHA single-family 
home and simplifies the formula for the homebuyer in the process.
  It is estimated that one-third of all FHA borrowers will have to make 
higher down payments if the simplification process is not made 
permanent. This could mean that without passage of this legislation, 
thousands of families that otherwise could afford to buy their homes 
will be denied the chance to do so because an unnecessarily complicated 
formula will create large, unaffordable down payments.
  The effects would be particularly acute in states where over 40 
percent of the buyers would be affected, such as California, Colorado, 
Maryland, New Jersey, New York, Virginia, Washington, Utah, 
Massachusetts, Minnesota, Nevada, Oregon, Connecticut, Alaska, Hawaii 
and New Hampshire.
  In 2001, in my home State of Nevada alone, over 16,600 families 
purchased a home with a FHA insured loan. Of those, all benefitted by 
having a more simple process to follow, while 6,761 homebuyers 
benefitted from the streamlined formula process with a lower down 
payment. That is an amazing amount of homes that may not have been 
purchased had this program not been in place.
  I ask my colleagues for their support of this important legislation. 
If passed, this legislation will help thousands of Americans throughout 
our country realize their dream of homeownership.
  In closing, I would like to thank the Senator from Maryland, Mr. 
Sarbanes, for all his hard work on this very important legislation. I 
appreciate his determination to make home ownership a reality for so 
many Americans.

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