[House Report 109-580]
[From the U.S. Government Publishing Office]





109th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     109-580

======================================================================



 
        FHA MANUFACTURED HOUSING LOAN MODERNIZATION ACT OF 2006

                                _______
                                

 July 19, 2006.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

  Mr. Oxley, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                             together with

                        [To accompany H.R. 4804]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 4804) to modernize the manufactured housing loan 
insurance program under title I of the National Housing Act, 
having considered the same, report favorably thereon with an 
amendment and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
Amendment........................................................     2
Purpose and Summary..............................................     4
Background and Need for Legislation..............................     5
Hearings.........................................................     6
Committee Consideration..........................................     6
Committee Votes..................................................     6
Committee Oversight Findings.....................................     6
Performance Goals and Objectives.................................     6
New Budget Authority, Entitlement Authority, and Tax Expenditures     7
Committee Cost Estimate..........................................     7
Congressional Budget Office Estimate.............................     7
Federal Mandates Statement.......................................    10
Advisory Committee Statement.....................................    10
Constitutional Authority Statement...............................    10
Applicability to Legislative Branch..............................    10
Section-by-Section Analysis of the Legislation...................    11
Changes in Existing Law Made by the Bill, as Reported............    12

                               Amendment

    The amendment is as follows:
    Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

    This title may be cited as the ``FHA Manufactured Housing Loan 
Modernization Act of 2006''.

SEC. 2. FINDINGS AND PURPOSES.

  (a) Findings.--The Congress finds that--
          (1) manufactured housing plays a vital role in providing 
        housing for low- and moderate-income families in the United 
        States;
          (2) the FHA title I insurance program for manufactured home 
        loans traditionally has been a major provider of mortgage 
        insurance for home-only transactions;
          (3) the manufactured housing market is in the midst of a 
        prolonged downturn which has resulted in a severe contraction 
        of traditional sources of private lending for manufactured home 
        purchases;
          (4) during past downturns the FHA title I insurance program 
        for manufactured homes has filled the lending void by providing 
        stability until the private markets could recover;
          (5) in 1992, during the manufactured housing industry's last 
        major recession, over 30,000 manufactured home loans were 
        insured under title I;
          (6) in 2004, fewer than 2,000 manufactured housing loans were 
        insured under title I;
          (7) the loan limits for title I manufactured housing loans 
        have not been adjusted for inflation since 1992; and
          (8) these problems with the title I program have resulted in 
        an atrophied market for manufactured housing loans, leaving 
        American families who have the most difficulty achieving 
        homeownership without adequate financing options for home-only 
        manufactured home purchases.
  (b) Purposes.--The purposes of this Act are--
          (1) to provide adequate funding for FHA-insured manufactured 
        housing loans for low- and moderate-income homebuyers during 
        all economic cycles in the manufactured housing industry;
          (2) to modernize the FHA title I insurance program for 
        manufactured housing loans to enhance participation by Ginnie 
        Mae and the private lending markets; and
          (3) to adjust the low loan limits for title I manufactured 
        home loan insurance to reflect the increase in costs since such 
        limits were last increased in 1992 and to index the limits to 
        inflation.

SEC. 3. EXCEPTION TO LIMITATION ON FINANCIAL INSTITUTION PORTFOLIO.

  The second sentence of section 2(a) of the National Housing Act (12 
U.S.C. 1703(a)) is amended--
          (1) by striking ``In no case'' and inserting ``Other than in 
        connection with a manufactured home or a lot on which to place 
        such a home (or both), in no case''; and
          (2) by striking ``: Provided, That with'' and inserting ``. 
        With''.

SEC. 4. INSURANCE BENEFITS.

  (a) In General.--Subsection (b) of section 2 of the National Housing 
Act (12 U.S.C. 1703(b)), is amended by adding at the end the following 
new paragraph:
          ``(8) Insurance benefits for manufactured housing loans.--Any 
        contract of insurance with respect to loans, advances of 
        credit, or purchases in connection with a manufactured home or 
        a lot on which to place a manufactured home (or both) for a 
        financial institution that is executed under this title after 
        the date of the enactment of the FHA Manufactured Housing Loan 
        Modernization Act of 2006 by the Secretary shall be conclusive 
        evidence of the eligibility of such financial institution for 
        insurance, and the validity of any contract of insurance so 
        executed shall be incontestable in the hands of the bearer from 
        the date of the execution of such contract, except for fraud or 
        misrepresentation on the part of such institution.''.
  (b) Applicability.--The amendment made by subsection (a) shall only 
apply to loans that are registered or endorsed for insurance after the 
date of the enactment of this Act.

SEC. 5. MAXIMUM LOAN LIMITS.

  (a) Dollar Amounts.--Paragraph (1) of section 2(b) of the National 
Housing Act (12 U.S.C. 1703(b)(1)) is amended--
          (1) in clause (ii) of subparagraph (A), by striking 
        ``$17,500'' and inserting ``$24,500'';
          (2) in subparagraph (C) by striking ``$48,600'' and inserting 
        ``$68,040'';
          (3) in subparagraph (D) by striking ``$64,800'' and inserting 
        ``$90,720'';
          (4) in subparagraph (E) by striking ``$16,200'' and inserting 
        ``$22,680''; and
          (5) by realigning subparagraphs (C), (D), and (E) 2 ems to 
        the left so that the left margins of such subparagraphs are 
        aligned with the margins of subparagraphs (A) and (B).
  (b) Annual Indexing.--Subsection (b) of section 2 of the National 
Housing Act (12 U.S.C. 1703(b)), as amended by the preceding provisions 
of this Act, is further amended by adding at the end the following new 
paragraph:
          ``(9) Annual indexing of manufactured housing loans.--The 
        Secretary shall develop a method of indexing in order to 
        annually adjust the loan limits established in subparagraphs 
        (A)(ii), (C), (D), and (E) of this subsection. Such index shall 
        be based on the manufactured housing price data collected by 
        the United States Census Bureau. The Secretary shall establish 
        such index no later than one year after the date of the 
        enactment of the FHA Manufactured Housing Loan Modernization 
        Act of 2006.''
  (c) Technical and Conforming Changes.--Paragraph (1) of section 2(b) 
of the National Housing Act (12 U.S.C. 1703(b)(1)) is amended--
          (1) by striking ``No'' and inserting ``Except as provided in 
        the last sentence of this paragraph, no''; and
          (2) by adding after and below subparagraph (G) the following:
 ``The Secretary shall, by regulation, annually increase the dollar 
amount limitations in subparagraphs (A)(ii), (C), (D), and (E) (as such 
limitations may have been previously adjusted under this sentence) in 
accordance with the index established pursuant to paragraph (9).''.

SEC. 6. INSURANCE PREMIUMS.

  Subsection (f) of section 2 of the National Housing Act (12 U.S.C. 
1703(f)) is amended--
          (1) by inserting ``(1) Premium Charges.--'' after ``(f)''; 
        and
          (2) by adding at the end the following new paragraph:
  ``(2) Manufactured Home Loans.--Notwithstanding paragraph (1), in the 
case of a loan, advance of credit, or purchase in connection with a 
manufactured home or a lot on which to place such a home (or both), the 
premium charge for the insurance granted under this section shall be 
paid by the borrower under the loan or advance of credit, as follows:
          ``(A) At the time of the making of the loan, advance of 
        credit, or purchase, a single premium payment in an amount not 
        to exceed 2.25 percent of the amount of the original insured 
        principal obligation.
          ``(B) In addition to the premium under subparagraph (A), 
        annual premium payments during the term of the loan, advance, 
        or obligation purchased in an amount not exceeding 1.0 percent 
        of the remaining insured principal balance (excluding the 
        portion of the remaining balance attributable to the premium 
        collected under subparagraph (A) and without taking into 
        account delinquent payments or prepayments).
          ``(C) Premium charges under this paragraph shall be 
        established in amounts that are sufficient, but do not exceed 
        the minimum amounts necessary, to maintain a negative credit 
        subsidy for the program under this section for insurance of 
        loans, advances of credit, or purchases in connection with a 
        manufactured home or a lot on which to place such a home (or 
        both), as determined based upon risk to the Federal Government 
        under existing underwriting requirements.
          ``(D) The Secretary may increase the limitations on premium 
        payments to percentages above those set forth in subparagraphs 
        (A) and (B), but only if necessary, and not in excess of the 
        minimum increase necessary, to maintain a negative credit 
        subsidy as described in subparagraph (C).''.

SEC. 7. TECHNICAL CORRECTIONS.

  (a) Dates.--Subsection (a) of section 2 of the National Housing Act 
(12 U.S.C. 1703(a)) is amended--
          (1) by striking ``on and after July 1, 1939,'' each place 
        such term appears; and
          (2) by striking ``made after the effective date of the 
        Housing Act of 1954''.
  (b) Authority of Secretary.--Subsection (c) of section 2 of the 
National Housing Act (12 U.S.C. 1703(c)) is amended to read as follows:
  ``(c) Handling and Disposal of Property.--
          ``(1) Authority of secretary.--Notwithstanding any other 
        provision of law, the Secretary may--
                  ``(A) deal with, complete, rent, renovate, modernize, 
                insure, or assign or sell at public or private sale, or 
                otherwise dispose of, for cash or credit in the 
                Secretary's discretion, and upon such terms and 
                conditions and for such consideration as the Secretary 
                shall determine to be reasonable, any real or personal 
                property conveyed to or otherwise acquired by the 
                Secretary, in connection with the payment of insurance 
                heretofore or hereafter granted under this title, 
                including any evidence of debt, contract, claim, 
                personal property, or security assigned to or held by 
                him in connection with the payment of insurance 
                heretofore or hereafter granted under this section; and
                  ``(B) pursue to final collection, by way of 
                compromise or otherwise, all claims assigned to or held 
                by the Secretary and all legal or equitable rights 
                accruing to the Secretary in connection with the 
                payment of such insurance, including unpaid insurance 
                premiums owed in connection with insurance made 
                available by this title.
          ``(2) Advertisements for proposals.--Section 3709 of the 
        Revised Statutes shall not be construed to apply to any 
        contract of hazard insurance or to any purchase or contract for 
        services or supplies on account of such property if the amount 
        thereof does not exceed $25,000.
          ``(3) Delegation of authority.--The power to convey and to 
        execute in the name of the Secretary, deeds of conveyance, 
        deeds of release, assignments and satisfactions of mortgages, 
        and any other written instrument relating to real or personal 
        property or any interest therein heretofore or hereafter 
        acquired by the Secretary pursuant to the provisions of this 
        title may be exercised by an officer appointed by the Secretary 
        without the execution of any express delegation of power or 
        power of attorney. Nothing in this subsection shall be 
        construed to prevent the Secretary from delegating such power 
        by order or by power of attorney, in the Secretary's 
        discretion, to any officer or agent the Secretary may 
        appoint.''.

SEC. 8. REVISION OF UNDERWRITING CRITERIA.

  (a) In General.--Subsection (b) of section 2 of the National Housing 
Act (12 U.S.C. 1703(b)), as amended by the preceding provisions of this 
Act, is further amended by adding at the end the following new 
paragraph:
          ``(10) Financial soundness of manufactured housing program.--
        The Secretary shall establish such underwriting criteria for 
        loans and advances of credit in connection with a manufactured 
        home or a lot on which to place a manufactured home (or both), 
        including such loans and advances represented by obligations 
        purchased by financial institutions, as may be necessary to 
        ensure that the program under this title for insurance for 
        financial institutions against losses from such loans, advances 
        of credit, and purchases is financially sound.''.
  (b) Timing.--Not later than the expiration of the 6-month period 
beginning on the date of the enactment of this Act, the Secretary of 
Housing and Urban Development shall revise the existing underwriting 
criteria for the program referred to in paragraph (10) of section 2(b) 
of the National Housing Act (as added by subsection (a) of this 
section) in accordance with the requirements of such paragraph.

                          Purpose and Summary

    H.R. 4804, the ``FHA Manufactured Housing Loan 
Modernization Act of 2006,'' would amend Title I of the Federal 
Housing Administration (FHA) manufactured housing personal 
property mortgage insurance program by encouraging more 
private-sector participation in the Title I program, increasing 
the availability of Title I loans for manufactured housing, and 
improving access for such loans to the secondary mortgage 
market. To accomplish these goals, the FHA Manufactured Housing 
Modernization Act of 2006 includes several important reforms to 
make the Title I manufactured housing program more relevant and 
meaningful.
    This legislation removes the current cap limiting FHA's 
ability to insure manufactured home loans at 10 percent of each 
participating lender's portfolio of loans. However, the FHA 
fund would continue to be protected, by maintaining the FHA 
liability limit on any single loan to 90 percent of the claim, 
while lenders continue to be responsible for 10 percent of any 
claim.
    This bill requires FHA to insure Title I manufactured 
housing loans on a loan-by-loan basis, similar to what is done 
in the single-family FHA program, instead of using the current 
insurance system, which insures ``bundles'' of loans. The bill 
also improves the insurance claim in the case of loss, to make 
it comparable to a claim under the Title II single family loan 
program. These two changes are designed to significantly 
improve the secondary market for Title I manufactured housing 
loans, especially by bringing the Government National Mortgage 
Association (GNMA) back into the business of securitizing such 
loans.
    Since 1992, manufactured home prices have increased over 50 
percent, while loan limits have not been adjusted for 
inflation, H.R. 4804 raises the maximum loan limits for 
manufactured homes and lots to adjust for intervening 
inflation, with annual indexing in the future, using U.S. 
Census data.
    To give FHA the flexibility to charge risk-based premiums 
for Title I manufactured housing loans, the FHA Manufactured 
Housing Modernization Act of 2006 allows an upfront premium of 
up to 2.25 percent to be charged, similar to the current FHA 
single-family program, as well as an annual premium of up to 1 
percent to properly account for the risks of a given loan. This 
legislation tightens underwriting standards for Title I loans, 
which will make the securitization of these loans more 
attractive to the secondary insurer.

                  Background and Need for Legislation

    Manufactured homes continue to play an important role in 
fulfilling the housing needs of many Americans. Since the early 
1990s, the number of Title I personal property loans for 
manufactured homes has dropped from 30,000 to 2,000, largely 
because of inefficiencies in the program related to vague 
underwriting standards; reduced private-sector participation; 
low loan limits; a portfolio cap on Title I loans; and an 
insurance process that insures loans as a ``bundle'' for each 
lender, instead of insuring each loan separately, as is the 
policy under Title II.
    Title I of the National Housing Act was originally created 
to provide government-sponsored insurance for home improvement 
loans. Title II, created in tandem with Title I, authorized FHA 
to insure traditional home mortgages. Decades later, personal 
property manufactured home loans were added to the Title I 
program, because a manufactured home on leased land was thought 
to more closely resemble a home improvement than a traditional 
home. This created a separate scheme for FHA mortgage insurance 
securing a manufactured home on leased land and insurance 
securing a manufactured home involving real property. Unlike 
Title II, which mandates that FHA underwrite every loan before 
issuing insurance, Title I allows lenders great discretion in 
underwriting loans. Thus, FHA insures loans it has no hand in 
underwriting.
    In 1954, as a reaction to poor underwriting, Congress 
amended Title I stipulating that FHA's exposure would be 
limited to 10 percent of the principal balance of all loans 
made by that particular lender. This, in turn, increased the 
financial liability of the secondary insurer. An increase in 
borrower defaults in the last several years has led to a 
moratorium on certifying new lenders and a reduction in Title I 
loans securitized by the secondary insurer. Secondary insurers 
have said that if Title I's ``structural problems''--including 
the consolidation of lender loans and vague underwriting 
standards--are addressed, it would end the moratorium and 
securitize more Title I loans. This would enable FHA to insure 
more manufactured home loans, improving the ability of 
individuals to obtain this type of housing.

                                Hearings

    No hearings were held on H.R. 4804 in the 109th Congress.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
June 14, 2006, and ordered reported H.R. 4804, FHA Manufactured 
Housing Loan Modernization Act of 2006, as amended, to the 
House by a voice vote.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. No 
record votes were taken with in conjunction with the 
consideration of this legislation. A motion by Mr. Oxley to 
report the bill, as amended, to the House with a favorable 
recommendation was agreed to by a voice vote. During the 
consideration of the bill, the following amendment was 
considered:
    An amendment in the nature of a substitute recommended by 
the Subcommittee on Housing and Community Opportunity, making 
various technical and substantive changes, was AGREED TO by a 
voice vote.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee has held hearings and 
made findings that are reflected in this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation:
    H.R. 4804, the ``FHA Manufactured Housing Loan 
Modernization Act of 2006,'' would amend Title I of the Federal 
Housing Administration (FHA) mortgage insurance program by 
encouraging more private-sector participation in the Title I 
program, increasing the availability of Title I loans for 
manufactured housing, and improving Title I access to the 
secondary mortgage market. To accomplish these goals, the FHA 
Manufactured Housing Modernization Act of 2006 includes several 
important reforms to make the Title I manufactured housing 
program more relevant and meaningful.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to the Congressional Budget Act.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  Congressional Budget Office Estimate

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 11, 2006.
Hon. Michael G. Oxley,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4804, the FHA 
Manufactured Housing Loan Modernization Act of 2006.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susanne S. 
Mehlman.
            Sincerely,
                                          Donald B. Marron,
                                                   Acting Director.
    Enclosure.

H.R. 4804--FHA Manufactured Housing Loan Modernization Act of 2006

    Summary: H.R. 4804 would amend the Federal Housing 
Administration's (FHA's) loan guarantee program for 
manufactured housing. Under title I of the National Housing 
Act, FHA insures loans for individuals for the purchase and 
improvement of manufactured housing--single-family homes 
constructed entirely in a controlled factory environment and 
built to a federal code administered by the Department of 
Housing and Urban Development (HUD). This bill would require 
FHA to insure such loans on an individual basis, raise the 
maximum loan limits, require FHA to charge premiums necessary 
to maintain a negative credit subsidy (as estimated under the 
Federal Credit Reform Act) for the loan guarantees, and make 
other administrative charges to the program. Implementing the 
manufactured housing loan program, like all of FHA's insurance 
programs, is contingent on the enactment of appropriation laws 
that provide annual commitment authority.
    CBO estimates that implementing H.R. 4804 would result in a 
negligible cost or savings of less than $500,000 a year over 
the 2008-2011 period, assuming enactment of appropriation laws 
necessary to implement the program. Until the reforms in the 
bill can be fully implemented, CBO expects that continuing the 
program in 2007 would cost $1 million. Increasing the number of 
homeowners who obtain loan insurance for manufactured housing 
could generate a minimal amount of offsetting collections 
(recorded as a reduction in discretionary spending) because the 
fees paid by borrowers under this program would be required to 
slightly exceed the cost of expected defaults. Enacting the 
bill would not affect direct spending or revenues.
    H.R. 4804 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: For this 
estimate, CBO assumes that the bill will be enacted near the 
beginning of fiscal year 2007. The estimated budgetary impact 
of H.R. 4804 is shown in the following table. The costs of this 
legislation fall within budget function 370 (commerce and 
housing credit).

----------------------------------------------------------------------------------------------------------------
                                                                  By fiscal year, in millions of dollars--
                                                           -----------------------------------------------------
                                                              2006     2007     2008     2009     2010     2011
----------------------------------------------------------------------------------------------------------------
                                       SPENDING SUBJECT TO APPROPRIATIONS

Spending for manufactured housing loan guarantees under
 current law\1\:
    Budget authority\1\...................................        1        0        0        0        0        0
    Estimated outlays.....................................        1        0        0        0        0        0
Proposed changes:
    Estimated authorization level.........................        0        1        *        *        *        *
    Estimated outlays.....................................        0        1        *        *        *        *
Total spending for manufactured housing loan guarantees
 under H.R. 4804:
    Estimated authorization level\1\......................        1        1        *        *        *        *
    Estimated outlays.....................................        1        1        *        *        *       *
----------------------------------------------------------------------------------------------------------------
\1\The figure for 2006 is the estimated portion of the total credit subsidy appropriated for that year that will
  be used by FHA for the manufactured housing loan program.
Note: * = costs or savings of less than $500,000.

Basis of estimate

    CBO estimates that over the 2008-2011 period, implementing 
the manufactured housing loan program would result in costs or 
savings of less than $500,000 a year. Until the reforms in the 
bill can be fully implemented, continuing the loan guarantee 
program would cost $1 million in 2007.
            Background
    The volume of manufactured housing loans guaranteed by FHA 
has fallen from 30,000 per year in the 1990s to less than 2,000 
loans per year in recent years. Furthermore, in the late 1980s 
the Government National Mortgage Association (GNMA) experienced 
significant losses from its securitization of the manufactured 
housing loans. (GNMA is responsible for guaranteeing securities 
backed by pools of mortgages insured by the Federal Government. 
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.) As a result of these losses, GNMA imposed a 
moratorium on new issuers of manufactured housing loan 
guarantees into its Mortgage-Backed Securities (MBS) program.
    Moreover, financing options for manufactured housing are 
very limited. Currently, only two private lenders participate 
in the FHA program, and because no private secondary market 
exists, most private lenders and insurers have no incentive to 
make loans or loan guarantees for manufactured housing. Despite 
the fact that there are relatively few financing options 
available for manufactured housing, there are about 11 million 
manufactured homes in the United States (mostly in rural 
areas), according to the Manufactured Housing Institute (MHI). 
Most of these manufactured houses are financed through personal 
loans. Enacting this legislation would make several 
programmatic changes designed to increase demand for FHA's 
manufactured housing loan program.
            Proposed changes
    Under current law, FHA limits its loss exposure on 
manufactured housing loan guarantees by capping the lender's 
insurance coverage at 10 percent of the value of the lender's 
portfolio for the title I program. That is, FHA only pays 
lender claims amounts that are less than or equal to 10 percent 
of the value of the lender's loan portfolio for the title I 
loans. As a result, the amount of insurance that FHA provides 
for each loan varies. Enacting H.R. 4804 would eliminate this 
insurance structure for loans associated with manufactured 
homes and direct FHA to insure 90 percent of each individual 
loan. This change would significantly expand government 
liability under the program.
    Enacting this legislation also would raise the loan limits 
for insuring a manufactured home by about 40 percent and would 
require that the limits be indexed for inflation on an annual 
basis. According to FHA, the cost of a manufactured home is 
about $60,000. Current loan limits restrict the purchase of a 
manufactured home to $48,000; under H.R. 4804, this limit would 
increase to $68,040 after the program changes are implemented 
in 2008.
    Currently, borrowers are charged a 1 percent up-front fee 
for a manufactured home loan guarantee. Because the fees 
collected are not expected to exceed the cost of defaults, the 
administration estimates that the manufactured housing loan 
guarantee program has a subsidy rate of about 1 percent. 
Enacting this legislation would require FHA to assess higher 
premiums that would offset the costs of expected defaults to 
yield an estimated negative credit subsidy rate for the 
program. Based on information from FHA, CBO expects that FHA 
would set the up-front premiums for borrowers at about 2.25 
percent and the annual premiums at 1 percent. CBO estimates 
that those fees may be sufficient to make the program's 
estimated subsidy near zero, assuming that the pattern of 
future default rates in this program is similar to recent 
history--about 9.5 percent. Because there is essentially no 
private market for manufactured housing loan guarantees to 
compare to the federal program, it is uncertain whether these 
higher fees would result in a program with no net cost. On 
balance, CBO estimates that implementing the bill would result 
in net costs or savings of less than $500,000 a year beginning 
in fiscal year 2008.
    Cost of Program. Based on information from FHA and MHI, CBO 
estimates that it would take about one year to implement the 
changes proposed under the bill. Furthermore, CBO anticipates 
that significant outreach by FHA would be needed to identify 
and educate prospective borrowers and lenders about the 
manufactured housing program reforms. Thus, CBO estimates that 
the number of loans insured under the program would begin to 
grow by about 5 percent annually beginning in 2008. Assuming 
this gradual increase in demand and an estimated subsidy rate 
for 2008 and subsequent years that is near zero, CBO estimates 
that enacting this legislation would result in a net cost or 
savings of less than $500,000 a year.
    CBO estimates that in 2007, while the programmatic changes 
are underway, FHA would require an appropriation of about $1 
million to maintain the program at its current level.
    GNMA Savings. According to GNMA, the agency would consider 
securitizing additional manufactured housing loans following an 
evaluation of the program after the proposed changes are 
implemented and to the extent FHA has begun to guarantee a 
significant number of loans, most likely with a face value 
close to at least $1 billion. Because CBO estimates that it 
will take FHA many years to increase its business volume to 
that level, we do not estimate that any additional offsetting 
collections associated with GNMA's MBS program would be 
generated over the next five years.
    Intergovernmental and private-sector impact: H.R. 4804 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would impose no costs on state, local, or 
tribal governments.
    Estimate prepared by: Federal costs: Susanne S. Mehlman; 
impact on state, local, and tribal governments: Sarah Puro; 
impact on the private sector: Tyler Kruzich.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional Authority of Congress to enact this legislation 
is provided by Article 1, section 8, clause 1 (relating to the 
general welfare of the United States) and clause 3 (relating to 
the power to regulate interstate commerce).

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This section provides the short title of this act, the 
``FHA Manufactured Housing Loan Modernization Act of 2006.''

Section 2. Findings and purposes

    This section outlines the findings and purposes of the 
legislation. The Title I program for manufactured housing has 
been underused since many of its provisions are antiquated. For 
example, the loan limits for the program have not been raised 
since 1992 and are woefully out of date. The legislation aims 
to correct these problems.

Section 3. Exception to limitation on financial institution portfolio

    This section removes a portfolio cap for manufactured 
housing loans. Under current law, the Federal Housing 
Administration's (FHA) insurance risk is limited to 10 percent 
of the dollar value of the lender's insured portfolio. This is 
computed as 10 percent of the original amount of each loan 
registered for insurance, less amounts of claim payments. The 
portfolio cap is one of the main impediments to Ginnie Mae's 
participation in the Title I program. This section does not 
affect FHA's insurance risk, which would still be limited to 90 
percent of the claim for an individual loan, with the lender 
responsible for 10 percent of the claim.

Section 4. Insurance benefits

    This section would require FHA to use a loan-by-loan 
insurance process, similar to what is used under Title II of 
the National Housing Act.

Section 5. Maximum loan limits

    This section raises the maximum loan limits for 
manufactured homes and lots. It also requires the Secretary to 
develop an index, using U.S. Census Bureau data, to annually 
adjust the loan limits as necessary. Current indexes in the 
National Housing Act are ill-suited for this purpose due to the 
unique nature of manufactured homes.

Section 6. Insurance premiums

    This section allows the Secretary to establish a flexible 
premium structure, and permit risk-based pricing. This section 
will allow FHA to charge an up-front premium of up to 2.25 
percent, as well as an annual premium of up to 1 percent to 
properly account for the risks of a given loan.

Section 7. Technical corrections

    This section makes technical corrections to section 2 of 
the National Housing Act.

Section 8. Revision of underwriting criteria

    This section requires HUD to establish underwriting 
criteria to ensure that the FHA Title I program is on sound 
financial footing.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                 SECTION 2 OF THE NATIONAL HOUSING ACT

    Sec. 2. (a) The Secretary is authorized and empowered upon 
such terms and conditions as he may prescribe, to insure banks, 
trust companies, personal finance companies, mortgage 
companies, building and loan associations, installment lending 
companies, and other such financial institutions, which the 
Secretary finds to be qualified by experience or facilities and 
approves as eligible for credit insurance, against losses which 
they may sustain as a result of loans and advances of credit, 
and purchases of obligations representing loans and advances of 
credit, made by them [on and after July 1, 1939,] for the 
purpose of (i) financing alterations, repairs, and improvements 
upon or in connection with existing structures or manufactured 
homes, and the building of new structures, upon urban, 
suburban, or rural real property (including the restoration, 
rehabilitation, rebuilding, and replacement of such 
improvements which have been damaged or destroyed by 
earthquake, conflagration, tornado, hurricane, cyclone, flood, 
or other catastrophe), by the owners thereof or by lessees of 
such real property under a lease expiring not less than six 
months after the maturity of the loan or advance of credit; and 
for the purpose of (ii) financing the purchase of a 
manufactured home to be used by the owner as his principal 
residence or financing the purchase of a lot on which to place 
such home and paying expenses reasonably necessary for the 
appropriate preparation of such lot, including the installation 
of utility connections, sanitary facilities, and paving, and 
the construction of a suitable pad, or financing only the 
acquisition of such a lot either with or without such 
preparation by an owner of a manufactured home; and for the 
purpose of financing the preservation of historic structures, 
and, as used in this section, the term ``historic structures'' 
means residential structures which are registered in the 
National Register of Historic Places or which are certified by 
the Secretary of the Interior to conform to National Register 
criteria; and the term ``preservation'' means restoration or 
rehabilitation undertaken for such purposes as are approved by 
the Secretary in regulations issued by him, after consulting 
with the Secretary of the Interior. [In no case] Other than in 
connection with a manufactured home or a lot on which to place 
such a home (or both), in no case shall the insurance granted 
by the Secretary under this section to any such financial 
institution on loans, advances of credit, and purchases made by 
such financial institution for such purposes [on and after July 
1, 1939,] exceed 10 per centum of the total amount of such 
loans, advances of credit, and purchases[: Provided, That 
with]. With respect to any loan, advance of credit, or purchase 
[made after the effective date of the Housing Act of 1954], the 
amount of any claim for loss on any such individual loan, 
advance of credit, or purchase paid by the Secretary under the 
provisions of this section to a lending institution shall not 
exceed 90 per centum of such loss.
    After the effective date of the Housing Act of 1954, (i) 
the Secretary shall not enter into contracts for insurance 
pursuant to this section except with lending institutions which 
are subject to the inspection and supervision of a governmental 
agency required by law to make periodic examinations of their 
books and accounts, and which the Secretary finds to be 
qualified by experience or facilities to make and service such 
loans, advances or purchases, and with such other lending 
institutions which the Secretary approves as eligible for 
insurance pursuant to this section on the basis of their credit 
and their experience or facilities to make and service such 
loans, advances or purchases; (ii) only such items as 
substantially protect or improve the basic livability or 
utility of properties shall be eligible for financing under 
this section, and therefore the Secretary shall from time to 
time declare ineligible for financing under this section any 
item, product, alteration, repair, improvement, or class 
thereof which he determines would not substantially protect or 
improve the basic livability or utility of such properties, and 
he may also declare ineligible for financing under this section 
any item which he determines is especially subject to selling 
abuses; and (iii) the Secretary is hereby authorized and 
directed, by such regulations or procedures as he shall deem 
advisable, to prevent the use of any financial assistance under 
this section (1) with respect to new residential structures 
(other than manufactured homes) that have not been completed 
and occupied for at least six months, or (2) which would, 
through multiple loans, result in an outstanding aggregate loan 
balance with respect to the same structure exceeding the dollar 
amount limitation prescribed in this subsection for the type of 
loan involved: Provided, That this clause (iii) may in the 
discretion of the Secretary be waived with respect to the 
period of occupancy or completion of any such new residential 
structures. The Secretary is hereby authorized and directed, 
with respect to manufactured homes to be financed under this 
section, to (i) prescribe minimum property standards to assure 
the livability and durability of the manufactured home and the 
suitability of the site on which the manufactured home is to be 
located; and (ii) obtain assurances from the borrower that the 
manufactured home will be placed on a site which complies with 
the standards prescribed by the Secretary and with local zoning 
and other applicable local requirements.
    The insurance authority provided under this section may be 
made available with respect to any existing manufactured home 
that has not been insured under this section if such home was 
constructed in accordance with the standards issued under the 
National Manufactured Housing Construction and Safety Standards 
Act of 1974 and it meets standards similar to the minimum 
property standards applicable to existing homes insured under 
title II.
    Alterations, repairs, and improvements upon or in 
connection with existing structures may include the provision 
of fire safety equipment, energy conserving improvements, or 
the installation of solar energy systems. As used in this 
section--
          (1) * * *

           *       *       *       *       *       *       *

    (b)(1) [No] Except as provided in the last sentence of this 
paragraph, no insurance shall be granted under this section to 
any such financial institution with respect to any obligation 
representing any such loan, advance of credit, or purchase by 
it if the amount of such loan, advance of credit, or purchase 
exceeds--
          (A)(i) * * *
          (ii) [$17,500] $24,500 if made for the purpose of 
        financing alterations, repairs and improvements upon or 
        in connection with existing manufactured homes;
          (B) $60,000 or an average amount of $12,000 per 
        family unit if made for the purpose of financing the 
        alteration, repair, improvement, or conversion of an 
        existing structure used or to be used as an apartment 
        house or a dwelling for two or more families;
          (C) [$48,600] $68,040 if made for the purpose of 
        financing the purchase of a manufactured home;
          (D) [$64,800] $90,720 if made for the purpose of 
        financing the purchase of a manufactured home and a 
        suitably developed lot on which to place the home; and
          (E) [$16,200] $22,680 if made for the purpose of 
        financing the purchase, by an owner of a manufactured 
        home which is the principal residence of that owner, of 
        a suitably developed lot on which to place that 
        manufactured home, and if the owner certifies that he 
        or she will place the manufactured home on the lot 
        acquired with such loan within 6 months after the date 
        of such loan.

           *       *       *       *       *       *       *

The Secretary shall, by regulation, annually increase the 
dollar amount limitations in subparagraphs (A)(ii), (C), (D), 
and (E) (as such limiations may have been previously adjusted 
under this sentence) in accordance with the index established 
pursuant to paragraph (9).

           *       *       *       *       *       *       *

          (8) Insurance benefits for manufactured housing 
        loans.--Any contract of insurance with respect to 
        loans, advances of credit, or purchases in connection 
        with a manufactured home or a lot on which to place a 
        manufactured home (or both) for a financial institution 
        that is executed under this title after the date of the 
        enactment of the FHA Manufactured Housing Loan 
        Modernization Act of 2006 by the Secretary shall be 
        conclusive evidence of the eligibility of such 
        financial institution for insurance, and the validity 
        of any contract of insurance so executed shall be 
        incontestable in the hands of the bearer from the date 
        of the execution of such contract, except for fraud or 
        misrepresentation on the part of such institution.
          (9) Annual indexing of manufactured housing loans.--
        The Secretary shall develop a method of indexing in 
        order to annually adjust the loan limits established in 
        subparagraphs (A)(ii), (C), (D), and (E) of this 
        subsection. Such index shall be based on the 
        manufactured housing price data collected by the United 
        States Census Bureau. The Secretary shall establish 
        such index no later than one year after the date of the 
        enactment of the FHA Manufactured Housing Loan 
        Modernization Act of 2006.
          (10) Financial soundness of manufactured housing 
        program.--The Secretary shall establish such 
        underwriting criteria for loans and advances of credit 
        in connection with a manufactured home or a lot on 
        which to place a manufactured home (or both), including 
        such loans and advances represented by obligations 
        purchased by financial institutions, as may be 
        necessary to ensure that the program under this title 
        for insurance for financial institutions against losses 
        from such loans, advances of credit, and purchases is 
        financially sound.
    [(c)(1) Notwithstanding any other provision of law, the 
Secretary shall have the power, under regulations to be 
prescribed by him and approved by the Secretary of the 
Treasury, to assign or sell at public or private sale, or 
otherwise dispose of, any evidence of debt, contract, claim, 
personal property, or security assigned to or held by him in 
connection with the payment of insurance heretofore or 
hereafter granted under this section, and to collect or 
compromise all obligations assigned to or held by him and all 
legal or equitable rights accruing to him in connection with 
the payment of such insurance until such time as such 
obligations may be referred to the Attorney General for suit or 
collection.
    [(2) The Secretary is authorized and empowered (a) to deal 
with, complete, rent, renovate, modernize, insure, or sell for 
cash or credit in his discretion, and upon such terms and 
conditions and for such consideration as the Secretary shall 
determine to be reasonable, any real or personal property 
conveyed to or otherwise acquired by him, in connection with 
the payment of insurance heretofore or hereafter granted under 
this title and (b) to pursue to final collection, by way of 
compromise or otherwise, all claims against mortgagors assigned 
by mortgagees to the Secretary in connection with such real or 
personal property by way of deficiency or otherwise: Provided, 
That section 3709 of the Revised Statutes shall not be 
construed to apply to any contract of hazard insurance or to 
any purchase or contract for services or supplies on account of 
such property if the amount thereof does not exceed $1,000. The 
power to convey and to execute in the name of the Secretary, 
deeds of conveyance, deeds of release, assignments and 
satisfactions of mortgages, and any other written instrument 
relating to real or personal property or any interest therein 
heretofore or hereafter acquired by the Secretary pursuant to 
the provisions of this title may be exercised by an officer 
appointed by him without the execution of any express 
delegation of power or power of attorney: Provided, That 
nothing in this paragraph shall be construed to prevent the 
Secretary from delegating such power by order or by power of 
attorney, in his discretion, to any officer or agent he may 
appoint.]
  (c) Handling and Disposal of Property.--
          (1) Authority of secretary.--Notwithstanding any 
        other provision of law, the Secretary may--
                  (A) deal with, complete, rent, renovate, 
                modernize, insure, or assign or sell at public 
                or private sale, or otherwise dispose of, for 
                cash or credit in the Secretary's discretion, 
                and upon such terms and conditions and for such 
                consideration as the Secretary shall determine 
                to be reasonable, any real or personal property 
                conveyed to or otherwise acquired by the 
                Secretary, in connection with the payment of 
                insurance heretofore or hereafter granted under 
                this title, including any evidence of debt, 
                contract, claim, personal property, or security 
                assigned to or held by him in connection with 
                the payment of insurance heretofore or 
                hereafter granted under this section; and
                  (B) pursue to final collection, by way of 
                compromise or otherwise, all claims assigned to 
                or held by the Secretary and all legal or 
                equitable rights accruing to the Secretary in 
                connection with the payment of such insurance, 
                including unpaid insurance premiums owed in 
                connection with insurance made available by 
                this title.
          (2) Advertisements for proposals.--Section 3709 of 
        the Revised Statutes shall not be construed to apply to 
        any contract of hazard insurance or to any purchase or 
        contract for services or supplies on account of such 
        property if the amount thereof does not exceed $25,000.
          (3) Delegation of authority.--The power to convey and 
        to execute in the name of the Secretary, deeds of 
        conveyance, deeds of release, assignments and 
        satisfactions of mortgages, and any other written 
        instrument relating to real or personal property or any 
        interest therein heretofore or hereafter acquired by 
        the Secretary pursuant to the provisions of this title 
        may be exercised by an officer appointed by the 
        Secretary without the execution of any express 
        delegation of power or power of attorney. Nothing in 
        this subsection shall be construed to prevent the 
        Secretary from delegating such power by order or by 
        power of attorney, in the Secretary's discretion, to 
        any officer or agent the Secretary may appoint.

           *       *       *       *       *       *       *

    (f)(1) Premium Charges.--The Secretary shall fix a premium 
charge for the insurance hereafter granted under this section, 
but in the case of any obligation representing any loan, 
advance of credit, or purchase, such premium charge shall not 
exceed an amount equivalent to 1 per centum per annum of the 
net proceeds of such loan, advance of credit, or purchase, for 
the term of such obligation, and such premium charge shall be 
payable in advance by the financial institution and shall be 
paid at such time and in such manner as may be prescribed by 
the Secretary.
  (2) Manufactured Home Loans.--Notwithstanding paragraph (1), 
in the case of a loan, advance of credit, or purchase in 
connection with a manufactured home or a lot on which to place 
such a home (or both), the premium charge for the insurance 
granted under this section shall be paid by the borrower under 
the loan or advance of credit, as follows:
          (A) At the time of the making of the loan, advance of 
        credit, or purchase, a single premium payment in an 
        amount not to exceed 2.25 percent of the amount of the 
        original insured principal obligation.
          (B) In addition to the premium under subparagraph 
        (A), annual premium payments during the term of the 
        loan, advance, or obligation purchased in an amount not 
        exceeding 1.0 percent of the remaining insured 
        principal balance (excluding the portion of the 
        remaining balance attributable to the premium collected 
        under subparagraph (A) and without taking into account 
        delinquent payments or prepayments).
          (C) Premium charges under this paragraph shall be 
        established in amounts that are sufficient, but do not 
        exceed the minimum amounts necessary, to maintain a 
        negative credit subsidy for the program under this 
        section for insurance of loans, advances of credit, or 
        purchases in connection with a manufactured home or a 
        lot on which to place such a home (or both), as 
        determined based upon risk to the Federal Government 
        under existing underwriting requirements.
          (D) The Secretary may increase the limitations on 
        premium payments to percentages above those set forth 
        in subparagraphs (A) and (B), but only if necessary, 
        and not in excess of the minimum increase necessary, to 
        maintain a negative credit subsidy as described in 
        subparagraph (C).

           *       *       *       *       *       *       *


                                  
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