[Congressional Record Volume 148, Number 137 (Thursday, October 17, 2002)]
[Senate]
[Pages S10743-S10745]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
FHA DOWNPAYMENT SIMPLIFICATION ACT OF 2002
Mr. REID. I ask unanimous consent the Senate proceed to the
consideration of calendar 703, S. 2239.
The PRESIDING OFFICER. The clerk will report the bill by title.
The legislative clerk read as follows:
A bill (S. 2239) to amend the National Housing Act to
simplify the downpayment required of FHA mortgage insurance
for single family homebuyers.
There being no objection, the Senate proceeded to consider the
bill, which had been reported from the Committee on Banking, Housing,
and Urban Affairs, with amendments, as follows:
(The parts of the bill intended to be stricken are shown in boldface
brackets and the parts of the bill intended to be inserted are shown in
italic.)
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]
[(II) by striking the seventh sentence (relating to
principal obligation) and all that follows through the end of
the ninth sentence (relating to charges and fees); and
(III) by striking the eleventh sentence (relating to
disclosure notice) and all that follows through the end of
the last undesignated paragraph (relating to disclosure
notice requirements); 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,''.
SEC. 4. REPEAL OF GNMA GUARANTEE FEE INCREASE.
Section 972 of the Higher Education Amendments of 1998
(Public Law 105-244; 112 Stat. 1837) is hereby repealed.
Mr. SARBANES. Mr. President, S. 2239, the FHA Downpayment
Simplification Act, has been cosponsored by 23 Senators, including 15
members of the Committee on Banking, Housing, and Urban Affairs. This
legislation takes a program that has been in place since October, 1997,
and makes it permanent. The program simplifies the downpayment process
for FHA borrowers which, in turn, makes it work better for lenders,
realtors, and sellers, as well. The bill was also amended by Senator
Reed and others to prevent an increase in the GNMA fee from taking
place in 2005. This fee increase is not
[[Page S10744]]
needed for the safety or soundness of the GNMA program, and it raises
the costs of the program for homeowners. Finally, included with this is
an amendment that has been worked out by Senators Corzine and Gramm to
index the FHA multifamily loan limits. This will help keep the
multifamily loan limits viable as costs go up in the future.
This legislation is supported by HUD, the Mortgage Bankers
Association, the National Association of Realtors, and the National
Association of Homebuilders. If the Congress does not act, the
authority to use the simplified downpayment calculation will expire at
the end of the year, resulting in a more complex process and higher
costs for thousands of American homebuyers.
I urge that the legislation, S. 2239, as reported out of the Banking
Committee be taken up with the amendment and passed. I ask unanimous
consent the letter from the Congressional Budget Office be printed in
the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
U.S. Congress,
Congressional Budget Office,
Washington, DC, September 18, 2002.
Hon. Paul S. Sarbanes,
Chairman, Committee on Banking, Housing, and Urban Affairs,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 2239, the FHA
Downpayment Simplification Act of 2002.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Susanne S.
Mehlman.
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------------------------
2002 2003 2004 2005 2006 2007
----------------------------------------------------------------------------------------------------------------
SPENDING SUBJECT TO APPROPRIATION
FHA and GNMA Spending Under Current Law:
Estimated Authorization Level \1\......... -2,854 -3,100 -3,107 -3,187 -3,267 -3,348
Estimated Outlays......................... -2,854 -3,100 -3,107 -3,187 -3,267 -3,348
Proposed Changes:
Down-Payment Simplification:
Estimated Authorization Level......... 0 6 8 8 9 9
Estimated Outlays..................... 0 6 8 8 9 9
GNMA Guarantee Fee:
Estimated Authorization Level......... 0 0 0 56 58 59
Estimated Outlays..................... 0 0 0 56 58 59
-----------------------------------------------------------------
Total Changes:
Estimated Authorization Level......... 0 6 8 64 67 68
Estimated Outlays..................... 0 6 8 64 67 68
Total Spending Under S. 2239
Estimated Authorization Level............. -2,854 -3,094 -3,099 -3,123 -3,200 -3,280
Estimated Outlays......................... -3,094 -3,099 -3,123 -3,200 -3,280
----------------------------------------------------------------------------------------------------------------
\1\ The 2002-2007 levels are CBO's baseline estimates of the amount of offsetting collections generated by FHA's
single-family program and GNMA's single-family Mortgage-Backed Securities program.
Basis of estimate: CBO estimates that implementing the bill
would cost $213 million over the 2003-2007 period, assuming
appropriation action consistent with the bill's proposed
changes to FHA and GNMA programs. The estimated costs are for
the provisions concerning down-payment simplification for
FHA's mortgage guarantee program, and the fee charged by
GNMA. These provisions are explained below.
Down-payment simplification
Currently, the down payment for FHA's single-family program
is calculated using a formula established in 1996. Under this
formula, the maximum mortgage amount that FHA could insure is
determined by a fixed percentage of the home value. The
authority to use this formula is scheduled to expire on
December 31, 2002, but this legislation would make its use
permanent.
Based on information from FHA, CBO estimates that
continuing the use of the current downpayment formula would
slightly increase the cost of guaranteeing FHA loans because
it would lead to a small increase in the loan-to-value (LTV)
ratios for about 15 percent of the loans guaranteed each year
after 2002. The LTV ratio indicates how much equity a
borrower initially has in the home, and serves as a good
predictor of the likelihood of default. On average, borrowers
with less equity (that is, higher LTV ratios) have higher
default rates than borrowers with more equity. We estimate
that this provision would increase the cost of guaranteeing
some loans, resulting in a cost of $6 million in 2003 and $40
million over the 2003-2007 period. The estimated changes in
FHA's loan subsidy cost--which are treated as discretionary
spending--would be recorded in each year as new loans are
disbursed.
GNMA guarantee fee
GNMA is responsible for guaranteeing securities backed by
pools of mortgages insured by the federal government. (These
securities are known as mortgage-backed securities or MBS.)
In exchange for a fee charged to lenders or issuers of the
securities, GNMA guarantees the timely payments of scheduled
principal and interest due on the pooled mortgages that back
these securities. Under current law, GNMA charges lenders or
issuers an annual fee of 6 cents for every $100 (6 basis
points) of guaranteed mortgage-backed securities backed by
single-family loans. Furthermore, a fee increase to 9 basis
points is scheduled to take effect on October 1, 2004.
Section 901 would repeal that fee increase. CBO estimates
that eliminating the fee increase would increase the subsidy
rate associated with the single-family MBS program and
increase the demand for the program.
Based on information from GNMA, CBO estimates that lowering
guarantee fees would reduce the subsidy for the single-family
MBS program from negative 0.56 percent to negative 0.37
percent. (As with the FHA single-family program, GNMA
guarantee fees for the mortgage-backed securities more than
offset the costs of expected defaults, resulting in net
collections from the MBS program.) Under the bill, CBO
expects that extending the lower fee of 6 basis points would
allow GNMA to remain competitive with other MBS programs and
continue to guarantee more than $100 billion worth of
mortgage-backed securities, as it does under the current fee
structure. Thus, while repealing the fee increase would
result in a less profitable program, this loss would be
partially offset by additional receipts stemming from an
expected increase in demand for GNMA services of about 25
percent. On balance, CBO estimates that implementing this
provision would cost $56 million in 2005 and $173 million
over the 2005-2007 period.
S. 2239--FHA Downpayment Simplification Act of 2002
Summary: S. 2239 would permanently change the process the
Federal Housing Administration (FHA) uses to determine the
amount of a down payment that is necessary for mortgages on
the single-family homes that it insures. This legislation
also would repeal a 3 basis point increase in the Government
National Mortgage Association's (GNMA's) guarantee fee,
scheduled to be implemented in 2005 under current law.
CBO estimates that implementing this legislation would cost
$6 million in 2003 and $213 million over the 2003-2007
period, assuming appropriation action consistent with the
bill. Enacting this bill would not affect direct spending or
receipts. Therefore, pay-as-you-go procedures would not
apply.
S. 2239 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act
(UMRA) and would impose no costs on state, local, or tribal
governments.
Estimated cost to the Federal Government: The estimated
budgetary impact of S. 2239 is shown in the following table.
The costs of this legislation fall within budget function 370
(mortgage and housing credit).
Pay-as-you-go considerations: None.
Intergovernmental and private-sector impact: S. 2239
contains no intergovernmental or private-sector mandates as
defined in UMRA and would impose no costs on state, local, or
tribal governments.
Previous CBO estimates: On August 21, 2002, CBO transmitted
a cost estimate for H.R. 3995, the Housing Affordability Act
of 2002, as ordered reported by the House Committee on the
Judiciary on July 23, 2002, and on September 10, 2002, CBO
transmitted a cost estimate for H.R. 3995 as ordered reported
by the House Committee on Financial Services on July 9, 2002.
Both versions of H.R. 3995 include the provision included in
S. 2239, and our cost estimates are the same.
Estimate prepared by: Federal Costs: Susanne S. Mehlman.
Impact on State, Local, and Tribal Governments: Greg Waring.
Impact on the Private Sector: Cecil McPherson.
Estimate approved by: Peter H. Fontaine, Deputy Assistant
Director for Budget Analysis.
[[Page S10745]]
Mr. REID. Mr. President, I ask unanimous consent the committee
amendments be agreed to, that a Sarbanes amendment at the desk be
agreed to, the bill, as amended, be read the third time and passed, the
motion to reconsider be laid upon the table, with no intervening action
or debate, and any statements be printed.
The PRESIDING OFFICER. Without objection, it is so ordered.
The committee amendments were agreed to.
The amendment (No. 4897) was agreed to, as follows:
(Purpose: To provide for the indexing of multi-family mortgage limits
for purposes of the Federal Housing Administration's mortgage insurance
programs)
At the end, add the following:
SEC. 4. INDEXING OF FHA MULTIFAMILY HOUSING LOAN LIMITS.
(a) The National Housing Act (12 U.S.C. 1701 et seq.) is
amended by inserting after section 206 the following new
section 206A (12 U.S.C. 1712A):
``SEC. 206A. INDEXING OF FHA MULTIFAMILY HOUSING LOANS
LIMITS.
``Method of Indexing.--(a) The dollar amounts set forth
in--
(A) section 207(c)(3)(A) (12 U.S.C. 1713(c)(3)(A));
(B) section 213(b)(2)(A) (12 U.S.C. 1715e(b)(2)(A));
(C) section 220(d)(3)(B)(iii)(I) (12 U.S.C.
1715k(d)(3)(B)(iii)(I));
(D) section 221(d)(3)(ii)(A) (12 U.S.C.
1715l(d)(3)(ii)(A));
(E) section 221(d)(4)(ii)(A) (12 U.S.C.
1715l(d)(4)(ii)(A));
(F) section 231(c)(2)(A) (12 U.S.C. 1715l(c)(2)(A)); and
(G) section 234(e)(3)(A) (12 U.S.C. 1715y(e)(3)(A))
(collectively hereinafter referred to as the ``Dollar
Amounts'') shall be adjusted annually (commencing in 2004) on
the effective date of the Federal Reserve Board's adjustment
of the $400 figure in the Home Ownership and Equity
Protection Act of 1994 (HOEPA). The adjustment of the Dollar
Amounts shall be calculated using the percentage change in
the Consumer Price Index for All Urban Consumers (CPI-U) as
applied by the Federal Reserve Board for purposes of the
above-described HOEPA adjustment.
(b) The Federal Reserve Board on a timely basis shall
notify the Secretary, or his designee, in writing of the
adjustment described in paragraph (a) and of the effective
date of such adjustment in order to permit the Secretary to
undertake publication in the Federal Register of
corresponding adjustments to the Dollar Amounts. The dollar
amount of any adjustment shall be rounded to the next lower
dollar.''.
(b) Technical and Conforming Changes.--
(1) Section 207(c)(3) of the National Housing Act (12
U.S.C. 1713(c)(3)) is amended)--
(A) by inserting ``(A)'' after ``(3)'';
(B) by striking ``and except that the Secretary'' through
and including ``in this paragraph'' and inserting in lieu
thereof: ``(B) the Secretary may, by regulation, increase any
of the dollar amount limitations in paragraph (A) (as such
limitations may have been adjusted in accordance with Section
206A of this Act)''.
(2) Section 213(b)(2) of the National Housing Act (12
U.S.C. 1715e(b)(2)) is amended--
(A) by inserting ``(A)'' following ``(2)'';
(B) by striking ``: Provided further, That'' the first time
that it occurs, through and
including ``contained in this paragraph'' and inserting in
lieu thereof: ``; (B)(I) the Secretary may, by regulation,
increase any of the dollar amount limitations in paragraph
(A) (as such limitations may have been adjusted in accordance
with Section 206A of this Act)'';
(C) by striking ``: Provided further, That'' the second
time it occurs and inserting in lieu thereof: ``; and (II)'';
(D) by striking ``: And provided further, That'' and
inserting in lieu thereof: ``; and (III)'';
(E) by striking ``with this subsection without regard to
the preceding proviso'' at the end of that subsection and
inserting in lieu thereof: ``with this paragraph (B)(I).''.
(3) Section 220(d)(3)(B)(iii) of the National Housing Act
(12 U.S.C. 1715k(d)(3)(B)(iii)) is amended--
(A) by inserting ``(I)'' following ``(iii)'';
(B) by striking ``design; and except that'' and inserting
in lieu thereof: ``design; and (II)'';
(C) by striking ``any of the foregoing dollar amount
limitations contained in this clause'' and inserting in lieu
thereof: ``any of the dollar amount limitations in subclause
(B)(iii)(I) (as such limitations may have been adjusted in
accordance with Section 206A of this Act)'';
(D) by striking ``: Provided, That'' through and including
``proviso'' and inserting in lieu thereof: ``with respect to
dollar amount limitations applicable to rehabilitation
projects described in subclause (II), the Secretary may, by
regulation, increase the dollar amount limitations contained
in subclause (B)(iii)(I) (as such limitations may have been
adjusted in accordance with Section 206A of this Act)'';
(E) by striking ``: Provided further,'' and inserting in
lieu thereof: ``; (III)'';
(F) by striking ``subparagraph'' in the second proviso and
inserting in lieu thereof ``subclause (B)(iii)(I)'';
(G) in the last proviso, by striking ``: And provided
further, That'' and all that follows through and including
``this clause'' and inserting in lieu thereof: ``; (IV) with
respect to rehabilitation projects involving not more than
five family units, the Secretary may further increase any of
the dollar limitations which would otherwise apply to such
projects''.
(4) Section 221(d)(3)(ii) of the National Housing Act (12
U.S.C. 1715l(d)(3)(ii)) is amended--
(A) by inserting ``(A)'' following ``(ii)'';
(B) by striking ``; and except that'' and all that follows
through and including ``in this clause'' and inserting in
lieu thereof: ``; (B) the Secretary may, by regulation,
increase any of the dollar amount limitations in paragraph
(A) (as such limitations may have been adjusted in accordance
with Section 206A of this Act)''.
(5) Section 221(d)(4)(ii) of the National Housing Act (12
U.S.C. 1715l(d)(4)(ii)) is amended--
(A) by inserting ``(A)'' following ``(ii)'';
(B) by striking ``; and except that'' and all that follows
through and including ``in this clause'' and inserting in
lieu thereof: ``; (B) the Secretary may, by regulation,
increase any of the dollar limitations in paragraph (A) (as
such limitations may have been adjusted in accordance with
Section 206A of this Act)''.
(6) Section 231(c)(2) of the National Housing Act (12
U.S.C. 1715v(c)(2)) is amended--
(A) by inserting ``(A) following ``(2)'';
(B) by striking ``; and except that'' and all that follows
through and including ``in this paragraph'' and inserting in
lieu thereof: ``; (B) the Secretary may, by regulation,
increase any of the dollar limitations in paragraph (A) (as
such limitations may have been adjusted in accordance with
Section 296A of this Act)'';
(C) by striking ``: Provided, That'' and all that follows
through and including ``of this section'' and inserting in
lieu thereof: ``; (C) the Secretary may, by regulation,
increase any of the dollar limitations in paragraph (A) (as
such limitations may have been adjusted in accordance with
section 206A of this Act)''.
(7) Section 234(e)(3) of the National Housing Act (12
U.S.C. 1715y(e)(3)) is amended--
(A) by inserting ``(A) following ``(3)'';
(B) by replacing ``$38,025'' with ``$42,048''; ``$42,120''
with ``$48,481''; ``$50,310'' with ``$58,469''; ``$62,010''
with ``$74,840''; ``$70,200'' with ``$83,375''; ``$43,875''
with ``$44,250''; ``$49,140'' with ``$50,724''; ``$60,255''
with ``$61,680''; ``$75,465'' with ``$79,793''; and
``$85,328'' with ``$87,588'';
(C) by striking ``; except that each'' and all that follows
through and including ``contained in this paragraph'' and
inserting in lieu thereof: ``; (B) the Secretary may, by
regulation, increase any of the dollar limitations in
paragraph (A) (as such limitations may have been adjusted in
accordance with Section 206A of this Act)''.
The bill (S. 2239), as amended, was read the third time and passed.
(The bill will be printed in a future edition of the Record.)
____________________