[Congressional Record (Bound Edition), Volume 148 (2002), Part 15]
[Senate]
[Pages 21097-21100]
[From the U.S. 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

[[Page 21098]]

     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 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 multi-
family loan limits. This will help keep the multi-family 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 
     se-

[[Page 21099]]

     curities 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.

  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 multifamily 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--

[[Page 21100]]

       (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.)

                          ____________________