[Congressional Record Volume 150, Number 103 (Thursday, July 22, 2004)]
[Senate]
[Pages S8736-S8739]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SMITH:
  S. 2753. A bill to authorize the Secretary of Housing and Urban 
Development to insure zero-downpayment mortgages; to the Committee on 
Banking, Housing, and Urban Affairs.
  Mr. SMITH. Mr. President, 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. 2753

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SEC. 1. SHORT TITLE.

       This Act may be cited as the ``Zero Downpayment Act of 
     2004''.

     SEC. 2. INSURANCE FOR ZERO-DOWNPAYMENT MORTGAGES.

       (a) Mortgage Insurance Authority.--Section 203 of the 
     National Housing Act (12 U.S.C. 1709) is amended by inserting 
     after subsection (k) the following:
       ``(l) Zero-Downpayment Mortgages.--
       ``(1) Insurance authority.--The Secretary may insure, and 
     commit to insure, under this subsection any mortgage that 
     meets the requirements of--
       ``(A) this subsection; and
       ``(B) except as otherwise specifically provided in this 
     subsection, subsection (b).
       ``(2) Eligible single family property.--To be eligible for 
     insurance under this subsection, a mortgage shall involve a 
     property upon which there is located a dwelling that is 
     designed principally for a 1- to 4-family residence, and 
     that, notwithstanding subsection (g), is to be occupied by 
     the mortgagor as his or her principal residence, which shall 
     include--
       ``(A) a 1-family dwelling unit in a multifamily project and 
     an undivided interest in the common areas and facilities 
     which serve the project;
       ``(B) a 1-family dwelling unit of a cooperative housing 
     corporation, the permanent occupancy of the dwelling units of 
     which is restricted to members of such corporation and in 
     which the purchase of stock or membership entitles the 
     purchaser to the permanent occupancy of such dwelling unit; 
     and
       ``(C) a manufactured home, or a manufactured home together 
     with a suitably developed lot on which to place the 
     manufactured home.
       ``(3) Maximum principal obligation.--
       ``(A) Limitation.--To be eligible for insurance under this 
     subsection, a mortgage shall involve a principal obligation 
     in an amount not in excess of 100 percent of the appraised 
     value of the property, plus any initial service charges, 
     appraisal, inspection, and other fees in connection with the 
     mortgage as approved by the Secretary.
       ``(B) Inapplicability of other loan-to-value 
     requirements.--A mortgage insured under this subsection shall 
     not be subject to subsection (b)(2)(B), or to the 
     undesignated matter that follows such subsection.
       ``(4) Eligible mortgagors.--The mortgagor under a mortgage 
     insured under this subsection shall meet the following 
     requirements:
       ``(A) First-time homebuyer.--The mortgagor shall be a 
     first-time homebuyer. The program for mortgage insurance 
     under this subsection shall be considered a Federal program 
     to assist first-time homebuyers for purposes of section 956 
     of the Cranston-Gonzalez National Affordable Housing Act (42 
     U.S.C. 12713).
       ``(B) Counseling.--
       ``(i) Requirement.--The mortgagor shall have received 
     counseling, by a third party (other than the mortgagee or any 
     party related directly or indirectly to the mortgagee) who is 
     approved by the Secretary, with respect to the 
     responsibilities and financial management involved in 
     homeownership.
       ``(ii) Topics.--Counseling required under clause (i) shall 
     include providing to, and discussing with, the mortgagor--

       ``(I) information regarding homeownership options other 
     than a mortgage insured under this subsection, other zero- or 
     low-downpayment mortgage options that are or may become 
     available to the mortgagor, the financial implications of 
     entering into a mortgage (including a mortgage insured under 
     this subsection), and any other information that the 
     Secretary may require; and
       ``(II) a document that sets forth the amount and the 
     percentage by which the property subject to the mortgage must 
     appreciate for the mortgagor to recover the principal amount 
     of the mortgage, the costs financed under the mortgage, and 
     the estimated costs involved in selling the property, if the 
     mortgagor were to sell the property on each of the second, 
     fifth, and tenth anniversaries of the mortgage.

       ``(iii) 2- to 4-family residences.--In the case of a 
     mortgage involving a 2- to 4-family residence, counseling 
     required under clause (i) shall include (in addition to the 
     information required under clause (ii)) information regarding 
     the rights and obligations of landlords and tenants.
       ``(5) Option for notice of foreclosure prevention 
     counseling availability.--
       ``(A) Option.--To be eligible for insurance under this 
     section, the mortgagee shall provide the mortgagor, at the 
     time of the execution of the mortgage, an optional written 
     agreement which, if signed by the mortgagor, allows, but does 
     not require, the mortgagee to provide notice in accordance 
     with subparagraph (B) to a housing counseling entity, 
     approved by the Secertary, that has agreed to provide the 
     notice and counseling required under subparagraph (C).
       ``(B) Notice to counseling agency.--Notice provided under 
     subparagraph (A) shall--
       ``(i) be provided at the earliest time practicable after 
     the mortgagor becomes 60 days delinquent with respect to any 
     payment due under the mortgage;
       ``(ii) state that the mortgagor is delinquent and set forth 
     how to contact the mortgagor; and
       ``(iii) be provided once with respect to each delinquency 
     period for a mortgage.
       ``(C) Notice to mortgagor.--Upon notice from a mortgagee 
     that a mortgagor is 60 days delinquent with respect to 
     payments due under the mortgage, the housing counseling 
     entity shall immediately notify the mortgagor of such 
     delinquency, that the entity makes available foreclosure 
     prevention counseling that may assist the mortgagor in 
     resolving the delinquency, and of how to contact the entity 
     to arrange for such counseling.
       ``(D) Ability to cure.--Failure to provide the optional 
     written agreement required under subparagraph (A) may be 
     corrected by sending such agreement to the mortgagor at

[[Page S8739]]

     the earliest time practicable after the mortgagor first 
     becomes 60 days delinquent with respect to payments due under 
     the mortgage. Insurance provided under this subsection may 
     not be terminated and penalties for such failure may not be 
     prospectively or retroactively imposed if such failure is 
     corrected in accordance with this subparagraph.
       ``(E) Penalties for failure to provide agreement.--The 
     Secretary may establish appropriate penalties for failure of 
     a mortgagee to provide the optional written agreement 
     required under subparagraph (A).
       ``(F) Limitation on liability of mortgagee.--A mortgagee 
     shall not incur any liability or penalties for any failure of 
     a housing counseling entity to provide notice under 
     subparagraph (C).
       ``(G) No private right of action.--This section shall not 
     create any private right of action on behalf of the 
     mortgagor.
       ``(H) Delinquency period.--For purposes of this paragraph, 
     the term `delinquency period' means, with respect to a 
     mortgage, a period that begins upon the mortgagor becoming 
     delinquent with respect to payments due under the mortgage, 
     and ends upon the first subsequent occurrence of such 
     payments under the mortgage becoming current or the property 
     subject to the mortgage being foreclosed or otherwise 
     disposed of.
       ``(6) Inapplicability of downpayment requirement.--A 
     mortgage insured under this subsection shall not be subject 
     to subsection (b)(9) or any other requirement to pay on 
     account of the property, in cash or its equivalent, any 
     amount of the cost of acquisition.
       ``(7) Premiums.--In conjunction with the credit subsidy 
     estimation calculated each year pursuant to the Federal 
     Credit Reform Act of 1990 (2 U.S.C. 661 et seq.), the 
     Secretary shall review the program performance for mortgages 
     insured under this subsection and make any necessary 
     adjustments to ensure that the Mutual Mortgage Insurance Fund 
     shall continue to generate a negative credit subsidy which 
     may include--
       ``(A) altering mortgage insurance premiums subject to 
     subsection (c)(2);
       ``(B) reviewing underwriting policies; and
       ``(C) limiting the availability of mortgage insurance under 
     this subsection.
       ``(8) Underwriting.--For a mortgage to be eligible for 
     insurance under this subsection, the mortgagor's credit and 
     ability to pay the monthly mortgage payments shall have been 
     evaluated using the Federal Housing Administration's 
     Technology Open To Approved Lenders (TOTAL) Mortgage 
     Scorecard, or a similar standardized credit scoring system 
     approved by the Secretary, and in accordance with procedures 
     established by the Secretary.
       ``(9) Approval of mortgagees.--To be eligible for insurance 
     under this subsection, a mortgage shall have been made to a 
     mortgagee that meets such criteria as the Secretary shall 
     establish to ensure that mortgagees meet appropriate 
     standards for participation in the program authorized under 
     this subsection.
       ``(10) Disclosure of incremental costs.--For a mortgage to 
     be eligible for insurance under this subsection, the 
     mortgagee shall provide to the mortgagor, at the time of the 
     application for the loan involved in the mortgage, a written 
     disclosure, as the Secretary shall require, that specifies 
     the effective cost to a mortgagor of borrowing the amount by 
     which the maximum amount that could be borrowed under a 
     mortgage insured under this subsection exceeds the maximum 
     amount that could be borrowed under a mortgage insured under 
     subsection (b), based on average closing costs with respect 
     to such amount, as determined by the Secretary. Such cost 
     shall be expressed as an annual interest rate over the first 
     5 years of a mortgage.
       ``(11) Loss mitigation.--
       ``(A) In general.--Upon the default of any mortgage insured 
     under this subsection, the mortgagee shall engage in loss 
     mitigation actions for the purpose of providing an 
     alternative to foreclosure to the same extent as is required 
     of other mortgages insured under this title pursuant to the 
     regulations issued under section 230(a).
       ``(B) Annual reporting.--Not later than 90 days after the 
     end of each fiscal year, the Secretary shall submit a report 
     to Congress that compares the rates of default and 
     foreclosure during such fiscal year for mortgages insured 
     under this subsection, for single-family mortgages insured 
     under this title (other than under this subsection), and for 
     mortgages for housing purchased with assistance provided 
     under the downpayment assistance initiative under section 271 
     of the Cranston-Gonzalez National Affordable Housing Act (42 
     U.S.C. 12821).
       ``(12) Additional requirements.--The Secretary may 
     establish any additional requirements for mortgage insurance 
     under this subsection as may be necessary or appropriate.
       ``(13) Limitation.--The aggregate number of mortgages 
     insured under this section in any fiscal year may not exceed 
     30 percent of the aggregate number of mortgages and loans 
     insured by the Secretary under this title during the 
     preceding fiscal year.
       ``(14) Program suspension.--
       ``(A) In general.--Subject to subparagraph (C), the 
     authority under paragraph (1) to insure mortgages shall be 
     suspended if at any time the claim rate described in 
     subparagraph (B) exceeds 3.5 percent. A suspension under this 
     subparagraph shall remain in effect until such time as such 
     claim rate is 3.5 percent or less.
       ``(B) FHA total single-family annual claim rate.--The claim 
     rate under subparagraph (A), for any particular time, shall 
     be the ratio of the number of claims during the 12 months 
     preceding such time on mortgages on 1- to 4-family residences 
     insured pursuant to this title, to the number of mortgages on 
     such residences having such insurance in-force at that time.
       ``(C) Applicability.--A suspension under subparagraph (A) 
     shall not preclude the Secretary from endorsing or insuring 
     any mortgage that was duly executed before the date of such 
     suspension.
       ``(15) Sunset.--No mortgage may be insured under this 
     section after September 30, 2011, except that the Secretary 
     may endorse or insure any mortgage that was duly executed 
     before such date.
       ``(16) GAO reports.--Not later than 2 years after the date 
     of enactment of the Zero Downpayment Act of 2004, and 
     annually thereafter, the Comptroller General of the United 
     States shall submit a report to Congress regarding the 
     performance of mortgages insured under this subsection.
       ``(17) Implementation.--The Secretary may implement this 
     subsection on an interim basis by issuing interim rules, 
     except that the Secretary shall solicit public comments upon 
     publication of such interim rules and shall issue final rules 
     implementing this subsection after consideration of the 
     comments submitted.''.
       (b) Mortgage Insurance Premiums.--The second sentence of 
     subparagraph (A) of section 203(c)(2)(A) of the National 
     Housing Act (12 U.S.C. 1709(c)(2)(A)) is amended by striking 
     ``In'' and inserting ``Except with respect to a mortgage 
     insured under subsection (l), in''.
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